Both companies in the merger that will solidify Investors Group Inc.'s leadership in the Canadian mutual funds market say the promise of more distribution strength was the key to a deal that underscores growing interest in a hot marketplace.

Investors Group's $2.7 billion purchase of fellow Canadian money manager Mackenzie Financial Corp. - which fielded offers in two months of intense bidding - would create Canada's largest fund distribution network. Toronto-based Mackenzie manages $21.1 billion of assets for a million investors in its family of 150 mutual funds, third in Canada behind AIM Funds Management's $23.3 billion and Investors Group's $28.9 billion.

Robert Gratton, president and chief executive officer of Power Financial Corp., the Montreal parent of Winnipeg-based Investors Group, said buying Mackenzie will let Investors Group widen the network of financial planners that use its funds. Jim Hunter, president and CEO of Mackenzie Financial, said his company also wanted broader distribution for its own product lines, particularly its annuities.

As part of Power Financial, Mr. Hunter said, Mackenzie will have easier distribution access - both for its mutual funds and its annuities - to Power Financial's Great-West Life Assurance and London Life subsidiaries.

The Canadian fund market grew 12% in 2000, according to the Investment Institute of Canada, compared with the 2.2% rise in U.S. mutual funds estimated by the Investment Company Institute.

Kim Flood, director of external communications for Fidelity Investments' Canadian unit, said, "The Canadian market is very hot right now, and it is important to get as much market share as possible."

Investors Group beat out Baltimore-based Legg Mason Inc. in the Mackenzie auction, as well as a joint bid from the mutual fund company AIC Ltd. and Caisse de Depot et Placement du Quebec, a public pension agency.

Mr. Hunter said consolidation in the Canadian market is a belated reflection of global trends.

"There is a need in Canada, just like there is a need worldwide, to have a full lineup of products," he said. "The interrelationship between these products is increasing. You need other products to attract people to the products you are offering."

The Investors Group and Mackenzie mutual fund families are to stay separate at least initially, Mr. Gratton said.

The Mackenzie purchase, which was announced Monday and is slated to close by the end of April, would be the second major one in the past three years by Power Financial. Great-West Life's November 1997 purchase of London Life made Great-West Canada's largest insurance franchise.

Power Financial will commit up to $138 million in common shares of Investors Group to support the Mackenzie acquisition, and Great-West announced Monday that it will chip in by buying 9.2 million treasury common shares of Investors Group.

Mackenzie's American fund unit, Ivy Mackenzie, has $4.7 billion of assets under management in 16 mutual funds under the Ivy brand in the United States.

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