In September, billionaire Michael Lee-Chin sold his Canadian wealth management and mutual fund business AIC to Manulife for an undisclosed amount. Curious timing for the native Jamaican, considering his "buy, hold and prosper" philosophy, and the fact that investors have been cashing out of his funds throughout the economic crisis.
Lee-Chin, worth $1 billion US in March when Forbes published the list of the World's Billionaires, still manages $2.3 billion for Manulife. His holdings also include a bank in Jamaica and a company that sells broadband in South and Central America.
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The self-made mogul recently opened up to Forbes on why he chose to sell AIC during a recession, how he was wrong about betting on the U.S. dollar and his formula for becoming a billionaire.
Forbes: When we spoke in February, assets under management were down by 40 per cent and clients were cashing out. Since then, you decided to sell AIC to Manulife. Why sell now?
Lee-Chin: What this global economic crisis has highlighted for me is the absolute value of liquidity. My wealth came from growing businesses. I had wealth, but not liquidity. Basically I transferred illiquid shares of AIC for liquid shares of Manulife. Now I'm the biggest individual shareholder of Manulife.
Were your customers surprised by the sale?
Yes, because I've always said that AIC is my legacy. But liquidity supersedes everything. We didn't have a spike in redemptions because of the sale. The transaction went well, especially since we were asked to continue managing the Advantage Fund.
Your philosophy is to buy, hold and prosper, yet you sold AIC. How do you reconcile that to your customers? What's most important for your customers and other investors to keep in mind right now?
My mantra has not changed because I'm still holding Manu shares. The philosophy to "buy and hold" is a philosophy that I use to manage funds. It's a philosophy that every single person in your billionaires list holds to.
There are five common factors for billionaires to attain wealth. First, own a few high-quality businesses; you should own less than the number of fingers in your hands. Second, really understand those businesses. Third, make sure those businesses are in strong, long-term growth industries. Fourth, use other people's money. Lastly, hold those businesses for the long run.
If you want to create wealth, you have to be on the side of those five points. Think about a mutual fund you own. Most have over 100 diversified companies in the portfolio.
Are you making a case against mutual funds?
I'm making a case against how money managers are handling customers' money. The objective of the customer is not being met if the fund managers are diversifying their assets into hundreds of businesses. If they do this, they are typically performing close to the indexes. But that's not the way wealth is created. Most billionaires don't benchmark themselves against an index. We have a situation where we have an entire industry supported by hundreds of millions of customers whose objectives are either to create wealth or preserve wealth, but their objectives are not being met relative to the methodologies being used by fund managers.
What would you do differently if you were starting AIC today?
Nothing. There are three things that as a businessperson you have to do to get it right. First, you have to differentiate yourself in the market place. Second, build the best reputation possible. Third, really and surely address customers' needs. That's what you need if you want sustainable success.
You're a big fan of Warren Buffett and his investment strategy. He lost $10 billion of his net worth over the last year. Does it matter?
No, because his methodology is right. His framework is correct. He lost $10 billion because of mark to market of his securities. Yes, it does make it harder to sell his strategy. But that's part of the business of investing.
Is the worst of the crisis over with?
I don't know, I'm not an economist. I didn't generate my success by being a prognosticator. I developed my reputation building our businesses by building great businesses and making them more efficient.
In February we asked you what currency you'd most like to hold your portfolio in 2009, and you said the U.S. dollar. Is that still the case?
There I score zero. That's why I'm not a prognosticator. Our focus is on Canada. We are hedged against the U.S. dollar. Our assumption is that the U.S. dollar will go down.
What are your thoughts on how the Canadian government has been handling the downturn?
The government and the regulatory authorities have done a wonderful job by keeping the financial institutions focused and making sure we didn't get too far from our core businesses. Our regulatory regime has worked wonderfully.
What's a good investment right now?
Money management companies. Franklin Resources, Investco, Manulife are all great investments. These are businesses we understand and we own. We also strongly believe in India.
How about gold?
Gold is a commodity; over the long run, as we look back, it has not been a good investment. You can't look at the intrinsic value of gold as you can a business. Gold doesn't give you cash flow, and, at the end of the day, cash flow is what is important. Gold doesn't give you dividends.
You're entirely self-made. What's your advise for an entrepreneur starting out today?
To be successful, you have to persevere. The question is what will make you persevere your worst nightmare. You have to really believe what you're doing. It's your belief that will get you over the humps and get you through the dark days.
What keeps you awake at night?
Being successful will make me complacent and eventually make me a failure. I don't want to get complacent.