FINDING THE RIGHT PARTNERS
Thanks to our strong team and solid track record, local pension funds were quick to support us. We are extremely grateful to these first clients who put their trust in us. We constantly make a point of remembering that we owe our initial assets in large part to the support and courage of a handful of local pension plan representatives.
Our external expansion phase required tremendous business development efforts, and we were fortunate to find the ideal external partners to make it happen. Hamersley Partners, a Boston third-party marketing firm, played a key role in enabling us to obtain our first mandates on U.S. soil.
But the strong growth we experienced from 2009 onward soon created a dilemma: to keep growing in optimal fashion, we had to contemplate opening offices outside the country, which did not correspond to our vision of keeping our team together and focused on the markets and portfolio management. At the perfect time, we were approached by Eaton Vance, a major Boston investment firm. We had a product that was missing from their range of solutions and they had the global infrastructure we were looking for. In 2012, Eaton Vance acquired 49% of Hexavest, allowing us to maintain control over our firm and becoming a vital partner for our growth outside Canada.
FORESEE CRISES – AND ADAPT
The 2008 financial crisis was undoubtedly the most notable event of Hexavest’s early years. We anticipated the subprime loan crisis, so we had an exceptional relative performance in 2008. We also managed to catch the rebound in 2009, which sorely tested the courage of our convictions as we weathered the worst crisis since 1929. Since then, the financial markets have changed a great deal. Massive and frequent interventions by central banks seem to have distorted the price-discovery process.
In response to the new rules of the game, we have adapted our perspective. After years of too-low interest rates and too-easy credit, the excesses we identified at the start of 2008 are back, but in the corporate sector this time. The high level of corporate debt has returned to the forefront of macroeconomic risks. Our main source of concern is the BBB corporate-bond segment. According to Morgan Stanley, it represents 50% of the outstanding investment-grade debt in the United States. We think downgrades of this debt to junk-bond status could have significant repercussions on corporate finance and the global economy.
THEMES OF THE FUTURE
Our line of work allows us to see to degree to which the world is undergoing constant and profound change. Over the past 15 years, we have seen the acceleration of globalization, the rise of the Chinese economy, the changing structure of retail, the streaming phenomenon, the issues of data storage and the initial impacts of artificial intelligence. The aspirations of the Millennial generation, the largest on the job market today, are very different from those of previous generations, especially when it comes to the quality of the environment. The world is changing and we need to identify future trends:
- In our view, emerging Asia has become the true engine of the global economy. Four billion people aspire to raise their standard of living. Industries related to consumer goods, infrastructure, health, agriculture and education should benefit from growth that will be much higher than in the mature G7 economies. We think developed countries that can maintain harmonious trade relations with Asia will benefit from this positive trend.
- We also think the major industrial revolution involving a shift away from fossil fuels to greener, renewable energies could become one of the most important trends of this era. As we have seen in recent years with ebusiness, people who persist in denying the transition and are slow to adapt may be left on the sidelines. The adoption speed for new technologies has never been faster than it is today!
- The trend to sustainable finance seems to be well under way and we don’t see any signs of flagging interest on the part of our clients – quite the contrary, in fact. In our view, management of ESG factors creates long-term value for investors, and responsible investment practices promote sound economic and social development that benefits all the stakeholders in our ecosystem.
PREPARING FOR THE NEXT GROWTH PHASE
The asset management industry is undergoing a profound transformation. We need only think about the changing role of compliance and information technology. A firm’s longevity depends, of course, on its returns but also on its ability to adapt to an ever-changing environment. Portfolio managers offering traditional active-management strategies must deal with the popularity of exchange-traded funds (ETFs) and other index products, smart beta solutions and the new outsourced management platforms (OCIO). The competition is fierce. Clients are increasingly looking to generate alpha and find investment solutions that are tailored perfectly to their needs.
Even though our top priority is always the returns on the portfolios we manage for our clients, we want to position Hexavest in niches of the future with higher added value, such as customized solutions, responsible investment, private investment and credit. It goes without saying that we will have to expand our investment team, but also prepare for the unavoidable reality that our information technology department will play an increasingly crucial role within the firm.
Today, Hexavest has $17 billion of assets under management for a clientele that is Canadian (40%), American (30%) and international (30%).1 Not bad for a Quebec boutique firm specializing in global equities! Anniversaries often prompt us to look back, but I think they should also make us grateful for the successes we’ve achieved and the lessons we’ve learned. This fifteenth anniversary is an opportunity to highlight the loyalty and dedication of my 46 colleagues as well as everyone who has contributed to the firm’s success over the years. I am privileged to work with an inspiring team and to share extraordinary human values with them. I am also extremely grateful to our clients for the trust and loyalty they have given us over the years. Please be assured that we constantly strive to achieve the goals you set for us.
As the present keeps us busy, the future inspires us to aim even higher.
Co-Chief Investment Officer and Chairman of the Board
1Assets under management as of May 31, 2019, in Canadian dollars.
This material is presented for informational and illustrative purposes only. It is meant to provide an example of Hexavest’s investment management capabilities and should not be construed as investment advice or as a recommendation to purchase or sell securities or to adopt any particular investment strategy. Any investment views and market opinions expressed are subject to change at any time without notice. This document should not be construed or used as a solicitation or offering of units of any fund or other security in any jurisdiction.
The opinions expressed in this document represent the current, good-faith views of Hexavest at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented herein has been developed internally and/or obtained from sources believed to be reliable; however, Hexavest does not guarantee the accuracy, adequacy, or completeness of such information. Predictions, opinions, and other information contained herein are subject to change continually and without notice and may no longer be true after the date indicated. Hexavest disclaims responsibility for updating such views, analyses or other information. Different views may be expressed based on different investment styles, objectives, opinions or philosophies. It should not be assumed that any investments in securities, companies, countries, sectors or markets described were or will be profitable. It should not be assumed that any investor will have an investment experience similar to any portfolio characteristics or returns shown. This material may contain statements that are not historical facts (i.e., forward-looking statements). Any forward-looking statements speak only as of the date they are made, and Hexavest assumes no duty to and does not undertake to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Future results may differ significantly from those stated in forward-looking statements, depending on factors such as changes in securities or financial markets or general economic conditions. Not all of Hexavest’s recommendations have been or will be profitable.
This material is for the benefit of persons whom Hexavest reasonably believes it is permitted to communicate to and should not be reproduced, distributed or forwarded to any other person without the written consent of Hexavest. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It expresses no views as to the suitability of the investments described herein to the individual circumstances of any recipient or otherwise.