Star fund manager leaves Dynamic

October 11, 2011

Star manager David Taylor has left the Dynamic fund family, the first to leave after Bank of Nova Scotia bought parent company DundeeWealth Inc. this year.

Mr. Taylor, who ran $8-billion in assets, plans to start his own firm – Taylor Asset Management – when his non-compete employment clause runs out next March.

"I want to become part of a smaller company with my name on it," Mr. Taylor said Tuesday in an interview. "I want to grow something really exciting...It hasn't anything to do with what the bank did, but maybe indirectly because it is difficult to feel like a big fish in a small pond when you work for a $56-billion company."

He, along with other star managers like Rohit Sehgal and Noah Blackstein, helped build Dynamic funds into one of the largest Canadian independent fund companies over the past decade. Cecilia Mo, who left Fidelity Investments Canada LLC last week, is taking over many of Mr. Taylor's mandates.

Mr. Taylor, 48, joined DundeeWealth's Goodman & Co. Investment Counsel Ltd. in 2003 after stints at Altamira Investment Services Inc. and Ontario Teacher's Pension Plan Board. He is a value manager known for a contrarian investment approach.

The manager said he did not have a retention clause in his contract with Scotiabank. The terms of his employment at Goodman Investment Counsel were simply rolled over when the bank took over DundeeWeath. After the acquisition, Mr. Taylor embarked on the idea of starting his own firm to run some Dynamic Funds as an external adviser, but could not reach a deal with the bank.

In the end, Mr. Taylor decided that a small-firm corporate culture was best for him.

"I loved working for Goodman & Co. and I loved the small-company aspect of it," he said. "I loved the growth trajectory at that company. It is not a knock against Scotia, but it is hard to see how you are going to get a four or five bagger out of Scotia as opposed to Taylor Asset Management."

Dan Hallett, a fund analyst with HighView Financial Group, is not too surprised by Mr. Taylor's departure from Goodman & Co. "Any time an entrepreneurial independent firm is acquired by a bank, you just know that something is going to change eventually...

"The expectation by many of us in the industry is that bank ownership does not bode well longer term for the quality of the money manager," Mr. Hallett said. "It is not always the case, but I think that is always the fear and the expectation whenever a large company like a bank comes in and acquires a firm like DundeeWealth."

Industry sources, however, say that Mr. Sehgal and Mr. Blackstein have agreed to some sort of "retention arrangement" with Scotiabank.

Mr. Hallett had been recommending Mr. Taylor's flagship Dynamic Value Fund of Canada since he took over in 2003, but that rating is now under review.

While Mr. Taylor has had a strong track record during his time with Dynamic funds, he was having a rough time this year. The Dynamic Value Fund of Canada lost 23 per cent up to last Friday, Mr. Hallett said. "He was probably having the worst year in the nine that he has been at Dynamic."

The problem is also likely the sheer size of the assets that he ran, Mr. Hallett suggested. "If you are going to invest like a contrarian and do that in the Canadian market with billions of dollars, it gets tougher and tougher...The size closed him out of opportunities."

While Ms. Mo will take over Dynamic Value Fund of Canada, among other mandates, and is "certainly a rising star at Fidelity," her style is certainly very different from Mr. Taylor, said Mr. Hallett.

"What is good is that she is used to running a lot of money in Canada, and she is a good manager...I don't know that I would have characterized her as a value manager on the same end of the spectrum as David Taylor would be."

DundeeWealth chief executive officer David Goodman said in a statement that Mr. Taylor "played a key role in the expansion of the Dynamic fund family and we wish him the best in the future."

Mr. Goodman, who once briefly oversaw Dynamic Value Fund of Canada, said he would be working closely with Ms. Mo and her team "to sharpen the definition of value investing within our new market reality. We are in a dynamic market environment, and we have to continue to evolve our portfolio management team."

Dynamic manager David Fingold is taking over as lead manager on Mr. Taylor's dividend funds, including Dynamic Canadian Dividend, while manager Adam Donsky will assume responsibilities for Mr. Taylor's hedge fund, Dynamic Contrarian. The latter fund lost 38 per cent for the first nine months of this year.

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