Michael Lee-Chin has been through more than a few turbulent markets over the course of his storied career. As a result, he now extols the importance of having a good mix of liquid and illiquid assets in your portfolio
Quite the opposite, in fact, and the man who popularized the investment philosophy of ‘buy, hold and prosper’ is keen to convey his beliefs about where the industry is now and where it should be headed. But it’s not just talk – he’s leading the charge with his own firm.
“When we started Mandeville, we had a clean sheet of paper,” Lee-Chin says. “What is the best design? The best design has to have three component parts that are general to all businesses and all professionals – reputation, differentiation and relevance to customers’ needs.”
Mandeville Holdings – a Portland subsidiary that was formed in 2012 – incorporates Mandeville Private Client, Mandeville Wealth Services and Portland Investment Counsel; from the start, Lee-Chin wanted to make it an institution that could effect change.
“Our ethos is to democratize investment opportunities which before were the purview of only the super-wealthy,” he says. “That includes doing what we can to change regulations.
Our clients in Ontario can now take advantage of the Offering Memorandum Exemption and invest up to specified levels – we were instrumental, through our industry associations, in changing that.”
The desire to allow ordinary people the chance to build wealth is something that is clearly deeply ingrained in Lee-Chin, a one-time cruise ship worker and immigrant to Canada. Those feelings were likely magnified during the financial crisis, which was a tumultuous period for him. As he explains, the timeframe when his approach to investing was mocked by some as ‘buy, hold and suffer’ has defined his approach to the industry ever since.
“Mandeville grew out of the financial crisis in 2008,” Lee-Chin says. “I wanted to give my clients the options the ultra-wealthy have in our society. The crisis was the genesis of Mandeville.” Having emigrated from Jamaica in 1970, Lee-Chin studied to become an engineer at McMaster University, but instead moved into the mutual fund business soon after graduation. Most people who have followed the investment industry in Canada over the last 30 years will likely be familiar with his story from there – a rapid ascent after borrowing $500,000 to buy stock in Mackenzie Financial in 1983. A bold move, perhaps, but ultimately a wise one – by 1987 the stock had appreciated in value seven-fold.
“I sold the mutual funds I had and put everything into Mackenzie,” Lee-Chin explains. “I didn’t consider it much of a risk because I understood the business. Warren Buffett says diversification is protection against ignorance, but if you don’t feel ignorant, you don’t need to diversify.”
His success with Mackenzie meant he was able to make the first of many acquisitions, purchasing the investment firm AIC Limited in 1987, which had $800,000 AUM.
Those assets would swell to more than $15 billion at AIC’s peak in 2002, but the new millennium was not as kind to the firm. By the time the financial crisis took hold, its AUM had plunged to $3.8 billion before the company was eventually bought by Manulife in 2009. The insurance giant had also purchased Lee-Chin’s other company – Berkshire-TWC – in 2007, and the experience had a significant impact on how he approached investing after that.
“I had just sold Berkshire in 2007, so I got shares and cash in return,” he says. “The [Manulife] share price then was $39.59, and I thought by 2017, those shares should double in value. In 2008-2009, the share price instead fell from $39 to $9; today it is $17, and now that is my proxy for publicly traded securities.”
It was a harsh lesson on the vagaries of the markets, and one Lee-Chin vowed to heed, both with his own finances and his clients’. “I got through the crisis because of my private businesses, not my public businesses,” he says. “But I’m also an advisor, and my clients all had liquid bonds, stocks and mutual funds. So my situation was different from theirs. I didn’t feel good about that because I pride myself on leading by example.”
Rules to live by
Ranked by Canadian Business as 26th richest person in the country, and as someone with means to be able to donate $30 million to the Royal Ontario Museum, Lee-Chin has some strong opinions on what it takes to make money. Early in his career as an advisor, he devised his “five rules for wealth creation” – and those guidelines remain the same today: “You have to own a few high-quality businesses; you have to really understand those businesses; those businesses must be in strong, long-term growth industries; you must use other people’s money prudently; and lastly, you hold the businesses inter-generationally.”
Why, though, did Lee-Chin feel the need to devise his own set of commandments? “I had to ask myself what I believed in,” he says. “Every single successful person is a disciple of something. When I discovered the five laws, I decided that was what I would live by.”
Those principles have obviously served him well, not just in the investment world, but also in the banking, consumer goods, waste management, tourism and media industries.
Then there are the many personal accolades, most notably receiving one of his homeland’s highest national honours – the Order of Jamaica – in 2008. More recently, he was appointed chair of the newly established Economic Growth Council by the Jamaican government.
Despite his many outside interests, wealth management still remains a major passion for Lee-Chin. The biggest development in the industry in recent times has been the introduction of CRM2 and the apparent slide toward a fee-based system. In Lee-Chin’s opinion, those who shout loudest about fees are not focusing on the real issue. “We are totally off-track as an industry from what clients’ needs are,” he says. “Clients’ needs are to protect capital, grow it and gain income. If you are relevant to what clients’ needs are, then you can justify your fee. If not, then I can buy your service less expensively on the internet with a robo-advisor.”