Understanding Embedded Risk

Over the past few years the Canadian investment industry has hollowed out, with far too many independent investment firms being acquired. These firms have either concentrated too heavily on a declining global asset class (Canada), or failed to build a successful succession/exit strategy for the original builders of the business. Or perhaps its simply the desire for more scale by the buyers.

Regardless, this accelerating consolidation of our industry is not only disappointing, but concerning. It illustrates a divide between the desire for ownership profit and the outcome experienced by clients. There are strong egos in our business – led by the contention that investment expertise trumps all – which gets in the way of the need to focus on continuous improvement. Old style leadership chooses to avoid fixing that which isn’t seen as broken (paraphrasing Bert Lance).

This is one of the embedded risks in Canada … and perhaps elsewhere.

This is our fourth and final installment of the Decline of the Canadian Empire.  In our comment we discuss the embedded risks in Canada  – the correlation to emerging markets, the difficulty of analysing Canadian portfolios using traditional statistical measures, and current manager consolidation.

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