The Canadian Source Of Employee Pension Fund Investment And Benefits Plan Management

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May 2007

A Conversation With… Stephen A. Jarislowsky

By: Fred Weinberger

To mark its 15th year of publishing, Benefits and Pensions Monitor is featuring a series of conversations with people who have made a significant contribution to the industry.

Stephen A. Jarislowsky was one of the very first money managers of pension fund assets in Canada and has a track record that spans more than 50 years.

The following is an edited version of the conversation between Jarislowsky and Benefits and Pensions Monitor Executive Editor Joe Hornyak.

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BPM: What prompted you to start Jarislowsky Fraser Limited back in 1955?

Stephen Jarislowsky: At that time, I had taken a leave of absence from Alcan where I had worked since finishing school. The leave of absence was to settle the estate of my in-laws who had lived in New York.

We had just had a child and we were living in New York in hotels. It wasnʼt exactly to my liking. We had also just bought a house in the town of Mount Royal in Montreal so, for about a year, I went back and forth between Montreal and New York to settle things.

In the meantime, to keep myself busy, I started, together with my friends, a number of entrepreneurial companies. One was with a fellow who also had been at Alcan, J. J. (Jack) Brown. It was just supposed to be in your field, publishing. We were doing a service that featured a system of analyzing stocks.

Jack was supposed to head this operation and I was supposed to be a shareholder. However, after six months, I realized we did not share the same philosophy. He was not conservative enough so I bought him out at 10 times what he had invested in it. Thatʼs a pretty good return after only six months. However, we only invested $100 in total, so he received $370 from me. Since I bought him out, I had to run it and Iʼm still sitting here.

At that time, we were the only outfit doing field research on Canadian companies. As a result, big fund managers in the United States and England got in touch with us because they felt we knew the Canadian companies pretty well and they liked our style. With time, we were co-managing Canadian pension funds with Royal Trust and Sun Life. We were on retainer and Sun Life or Royal Trust would get the full fee.

Then slowly, we earned some private accounts and, eventually, because of our research and because of the co-managing of these accounts, we got into the pension fund business.

BPM: When would that have been?

SJ: That must have been in the early 1960s. We were founded in 1955. The first few years were basically the investment values tables service and then came the field research and private accounts.

BPM: When you started to manage money, was it just pensions or was it private wealth as well?

SJ: No, it was pretty well simultaneous. We worked for pension funds, but we also worked for financial companies in London, New York, and Chicago. That was strictly on a research basis. In other words, we would visit companies, which wasnʼt done at that time in Canada, and write up our findings.

BPM: Where did the idea for doing field research come from?

SJ: It wasnʼt the normal practice at all in those days. Hardly any field research was being done and, if it was, it was mainly done by outfits in the United States. There was a fellow named Fred Roe, a partner at Stein Roe & Farnham in Chicago, IL, who had heard of us. He came to see me in Montreal because they wanted to get some people to do research in Canada who knew Canada. From there, it spread to New York and London. So it was really humble beginnings.

BPM: What was it like managing pension funds back then?

SJ: I think it was relatively easy because our competitors were mainly the trust companies and insurance companies. They were terribly conservative. They still had the insurance industry type of benchmarks, which dated back to the Depression, so they were totally risk adverse.

Most of their stocks were the normal stocks that you would have expected – the banks and other insurance companies, Bell Telephone, and, maybe, Imperial Oil.

We knew the other Canadian companies far better than they did because of our visits so we had a real advantage over them in terms of choosing securities and, consequently, this was reflected in our performance.

BPM: How then, against this background where it was primarily being provided by trust companies, does an independent asset manager like yourself encourage these pension funds to let you manage their money?

SJ: After we did the first pension fund ourselves, our reputation spread. We were known for having very good results at relatively low risk and we became besieged by pension plans wanting us to be their manager. The demand was so great that our infrastructure really couldnʼt keep up with it.

It peaked at the beginning of the 1990s and our performance suffered a bit. That seemed to indicate to the consultants, because the consultant business had sprung up by then, that they could make some money by recommending that their pension fund clients change managers.

We lost a bit of business because the consultants have ever been very good at picking managers who were at the top of the wave and getting rid of the ones they should have been hiring. It is easy for the consultants to convince pension committees to hire somebody who has done very well. But different investment styles do not do well in all fashions of markets.

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