Keith Collister, Contributor
Raymond Chang
AS CHAIRMAN of CI Financial, the third largest investment fund company in Canada, Raymond Chang is one of Jamaica's most successful sons in the diaspora.
CI Financial has total assets under management of approximately $70 billion (Canadian), of which approximately $50 billion is spread between approximately 150 CI mutual funds, with an additional $20 billion 'administered' by its financial planners through a related financial planning company.
Mr. Chang joined C.I. Funds in 1984 as vice-president when it had only $5 million in assets under management, and became president and chief operating officer in 1994 around the same time as they went public on the Toronto Stock Exchange. Mr. Chang subsequently became president and chief executive officer in 1996, and in his current role as non-executive chairman is still a substantial shareholder in CI Financial, now the second largest publicly traded fund company in Canada.
Mr. Chang believes in partnership, and says he is happy to have a relatively small interest in a large quoted operation, as opposed to majority control of a smaller operation. When asked to make the obvious comparison of his group with another very prominent Canadian mutual fund company, AIC, he said that his personal style was probably more in operations and less marketing orientated than his good friend and competitor Michael Lee Chin, reflecting Mr. Chang's background as an accountant.
LEADING CONGLOMERATE
Closer to home, Mr. Chang is chairman of the board of leading Jamaican conglomerate GraceKennedy's fund management company GraceKennedy Capital Services Ltd (now renamed GK Funds Limited), and subsequently became a director of GraceKennedy in March, 2004. GK Funds Limited's first offering was the Grace Caribbean Fixed Income Fund (also renamed the GK Caribbean Fixed Income Fund), which was launched three years ago in Cayman in October 2002 with seed capital from GraceKennedy of a mere US$500,000., and now has assets of US$30 million, with a current yield of 7.5 per cent.
Mr. Chang, who despite his achievements has a very modest and unassuming manner, agreed to become chairman of GK Funds partly because he believed there was a need to develop the mutual fund market in Jamaica. Mutual funds provide a vehicle to pool the savings of a large number of investors, allowing smaller investors to more safely achieve their long term savings goals. In his opinion, mutual funds are the best way for ordinary investors to access the best investment expertise and achieve diversification through investing in a world-wide investment universe. To meet this need, he has registered 40 out of the 43 funds of his CI Corporate Class (one of CI's fund groups) for sale locally with the Jamaican Financial Securities Commission, with GK Funds as the local distributor.
He believes that Grace's first fund, the GK Caribbean Fixed Income Fund, was well suited to the needs of the Caribbean investor as the Caribbean represents an investment universe with which they are comfortable and familiar, and also allows regional investors to diversify their risk.
GK Funds has also recently launched four additional mutual funds in Trinidad, whose registration in Jamaica is pending approval. In addition to a pure Caribbean Equity Fund, Grace has created three kinds of funds: an international industry fund, a global fund investing world-wide through CI Funds and a fund investing predominantly in U.S. Equities. The term fund of funds refers to the fact that although they are Grace Funds, they invest predominantly in the mutual funds of CI Funds.
The latter fund, called the GK Caribbean/U.S. Equity Fund, is particularly interesting, as the investment style of the fund appears to be closest to Mr. Chang's personal investing philosophy. This Grace fund may not invest less than 70 per cent of its total assets in the CI Value Trust sector fund to achieve the appropriate level of diversification beyond the limited investment universe of Caribbean equities.
Managed by legendary value manager Bill Miller, whose investment performance has beaten the Standard and Poors index for fourteen consecutive years, Mr. Miller actually works for the huge U.S.-based Legg Mason Funds Management. CI Funds has access to the investment expertise of this very successful fund manager to manage their CI Value Trust Fund because of their very large investment portfolio (they have over $1 billion managed by him).
ASSESSMENT OF VALUE
As a value investor, Mr. Miller seeks to buy securities at large discounts to his assessment of their value. In calculating the value of a potential investment, Mr. Miller would consider such factors as the discounted free cash flow, the costs of replicating the business, prices of similar businesses, the business's ability to earn a return on capital above its cost of capital, as well as the more qualitative factors such as the companies competitive position and the economics of the industry in which it operates.
I asked Mr. Chang hypothetically, if he was talking to a typical Jamaican investor, what would he tell them to consider in making an investment. Mr. Chang said he would tell them the same thing he tells CI's two million Canadian investors, which he explained as follows.
Firstly, he always emphasises the importance of diversification to his Canadian investors. In world terms, Canada is small, and therefore Canadian investors need to look outside their borders. This point would apply particularly strongly for Jamaican investors, as our investment universe is much smaller and less liquid than Canada's.
Secondly, in his opinion it is critical to get good advice. For example, one shouldn't put all one's money in equity mutual funds, whether local or foreign. In the case of a typical Jamaican investor, he or she should have an investment in cash and short term fixed income Jamaican securities as a key part of their portfolio.
Thirdly, investors normally need to think longer term. He personally tries to have an investment horizon of at least two years, which allows him to avoid short term spikes and take advantage of trends e.g. in energy.
Fourthly, he believes investors need to keep control of their emotions when investing. They should avoid trying to chase performance (if a market is down it may be time to buy). He advises that "when all the lemmings are running over the cliff" because emotions have taken over, a good strategy is often to take the opposite view e.g. to be a contrarian. In the late 1990's, CI had some of the largest technology funds in Canada. Because they thought the price of technology stocks was excessive, they stopped promoting those funds, which was one of their best decisions from a long term perspective as their shareholders thanked them for it. Mr. Chang himself believes that if in doubt, one should always put the interests of one's investors first.
Fifthly, Mr. Chang thinks it is critical that investors 'educate themselves', so as to be able to "share" the investment decision with their broker. One doesn't have to be a rocket scientist to invest, but must simply adopt a common-sense approach. For example, if Christmas is coming, and you walk into a shopping Mall and nobody is buying, it is probably not the time to buy retail stocks.
Finally, Mr. Chang added, it is always important to remember that you may be wrong as no one has a crystal ball. Mr. Chang has a relatively conservative investment philosophy because he is always conscious that an investment firm such as CI has been entrusted with people's savings. Most people can't save more than 10 per cent of their income per annum, so they can't afford to lose a big chunk of it because of how long it would take them to restore their capital. He believes that one should typically have at least two thirds of ones investments in what he calls core investments (a risk averse investor might have as much as 100 per cent), consisting mainly of blue chips and high grade fixed income, with the rest in riskier investments such as emerging markets or industry specific funds.
He defines emerging markets (which he clearly believes includes Jamaica) in an interesting way. In his opinion, the definition of 'emerging' is not principally based on the size of the economy or the market capitalisation of the quoted stocks, but on the makeup of the investment universe. In his definition, in a typical emerging market, the average company is family controlled with a small float of tradable shares, and there are insufficiently strong regulations to ensure an efficient market. The sizeable 'free float' of shares actually available for sale in a strongly regulated environment is what in his opinion differentiates a developed market from an emerging market.
