As someone who has viewed Gluskin Sheff as a competitor, my impression of the firm has always been the following: some very smart and capable people, investment focused, at one time very good marketers, very high fees for high-net-worth clients, a little smug, a culture shifting further and further from its earlier success, not focused on financial planning, and large, but slowly in decline over many years
That said, I was shocked at the news that Onex Corp. was essentially shutting down a business that they paid $445 million for in 2019.
The firm started in 1984, with Ira Gluskin and Gerry Sheff running a business that also had 24 other investor/clients commit to invest $1 million. Both the founders and the clients primarily came from a real estate background. Gluskin was an analyst and Sheff was an executive with Cadillac Fairview Corp. Ltd. Gluskin focused on the investment management and Sheff focused on running the business end of things. It was, by all accounts, a huge success.
The company went public in 2006. By the time Gluskin and Sheff started to step back from the business in 2010, there was definitely a cultural change underway. The company still had a good run of growth ahead of it, led by chief executive Jeremy Freedman, but one could argue the business was reaching its peak around 2014, with earnings per share hitting an all-time high. It had far more than $8 billion in assets under management and a market cap nearing $1 billion in 2014.
What happened?
The culture changed and the wealth-management business changed. I know this is overly simplistic, but imagine you are a client of Gluskin Sheff. You opened an account in the mid-1990s. You heard about the firm through an older family member or colleague. You are likely Jewish and from Toronto, as this was the core of the client base at the time.
Gluskin Sheff was different from the big banks. They were run at the top by a couple of guys who were independent spirits and independent thinkers. Their investment performance was really good. Yes, you were vaguely aware there was some form of performance fee in the investments, but felt they earned those extra fees by delivering good performance.
You had probably also heard of the firm from their big sponsorship of the highly advertised run of the Barnes Exhibition in 1994 — a collection of French Impressionist painters at the Art Gallery of Ontario.
This focus on independence, performance fees, investment returns and good marketing was a winning combination. You were likely a happy client of Gluskin Sheff for a number of years. The company went public, but that didn’t seem to slow things down.
What did slow the firm down was the financial crisis of 2008 and 2009. For a firm that was used to good returns and large performance fees, the danger is that you lean more aggressive in your investing to benefit even more from performance fees.
Investment performance in 2008 and early 2009 was bad for most investment firms, but it was worse for Gluskin Sheff. Their assets dropped significantly from underperformance and their fee revenues plummeted as most funds paid no performance fees for a couple of years.
That was probably the first time some clients realized there were years when they paid fees of three or four per cent or more on what were sometimes $5-million portfolios.
This was a hard lesson for Gluskin Sheff, but like the markets, things significantly improved from the depths of early 2009, and the firm did a little better job of managing its risk to prevent the massive shift in fee revenue that they experienced.
As Gluskin and Sheff started to step back from the day-to-day business more and more, the entrepreneurial influence of the founders was replaced by a broader corporate expertise. This is normal and can bring a lot of positives, but you also lose some of the magic, relationships and culture from the founders and their unique personalities.
A significant change happened in 2014, when Gluskin Sheff made their first large acquisition, growing their credit offerings by buying Blair Franklin’s money management business. This meaningfully expanded the investment options for the firm, but was also a big cultural shift for the company. This was officially no longer Gluskin and Sheff’s company. This was a whole new Gluskin Sheff.
As a client, you were starting to feel a little disconnected from the company that you had been with for many years. Your performance had not been particularly good. The founders were no longer there, and they were engaged in a long legal battle with the firm over retirement payments. You had been learning more about management fees and the fees charged overall, and you thought they were too high.
Another challenge was that as you hit your retirement years, there were a lot of questions that you had about tax and estate planning, gifting to kids and overall planning for your financial future that was never really a core part of Gluskin Sheff. You didn’t notice it so much in your 40s, but now in your 60s, you were feeling like you needed something more than just OK investment management with high fees.
Over the next few years, CEO turnover was fairly regular. The feeling you had of being part of a special group of smart people who invested with a firm where most people had only two or three degrees of separation from each other was definitely gone.
The huge private-equity firm Onex bought the firm in 2019. You guessed that Onex is pretty smart, so there must be some good benefits of being with them, but it never seemed to gel. The private-equity firm and wealth-management firm had extremely different cultures.
Now, you are somehow going to be a client of RBC Wealth Management. This is the complete opposite of the firm you joined. This is nothing against RBC (my former home). For RBC, this is a huge win, but as a long-time client of Gluskin Sheff, culturally, this is not why you became a client. You wanted small, special, smart and unique. Now you are part of the largest wealth manager in Canada.
This may end up being a good fit for you, or it may simply not be what you signed up for. The good news is that there are still some small, special, smart and unique firms out there that do high-net-worth financial planning and investment management. The question for a Gluskin Sheff client today is: how in the world did you end up here, and is this what you want? It has been quite a ride.
Reproduced from Financial Post, March 24, 2023 .
