“If you search for tenderness It isn’t hard to find. But if you look for truthfulness, you might as well be blind. Honesty is such a lonely word.” - Socrates
A few weeks ago, the OSC twisted EdgePoint’s arm to clarify on its website that ESG considerations are not determinative to their investment decision making process. I assume EdgePoint got on the ESG horsecrap greenwashing bandwagon and had to backpedal so as not to mislead naive investors. Slippery Som’s Purpose Investments also had to make similar updates to their disclosures. It should never be a comfortable feeling to be in the same boat as Slippery Som. A truly sincere person would say that ESG considerations are relevant to the extent they help ROI and that minority investors have very little power to change the course of a company. And you can’t change the world by being a non-shareholder.
EdgePoint says in a recent letter: “To our great advantage, EdgePoint is a private company owned by its employees.” This is a half-truth. Publicly-listed Cymbria owns about 20% of EdgePoint. Cymbria also has assets managed by EdgePoint (ie its “Global Portfolio”). Cymbria has delivered about zero return on the stock market in the past 5 years. Cymbria’s underlying Net Asset Value is actually up 30% over that time. The gap is explained by the reversal of a premium over NAV that it used to command. In the previous 10 years, Cymbria went up 6x thanks to the stupendous growth of EdgePoint AUM. I don’t think that Cymbria shareholders are agitating, but in the long term, they must be appeased. In the end, EdgePoint is caught in the same trap as Trimark: having to serve three masters: advisors, public shareholders and investing clients. Worse, EdgePoint has widespread employee ownership, which it encourages by facilitating loans. If you think some young professional with a wife, a mortgage, kids in private school living in some upper middle class enclave with a levered investment in EdgePoint will put your interests above theirs, you are crazy. To me that’s the most frightening profile. When that guy sees his neighbour, who he thinks is dumber, pull in with a fancier car, your best interests will be a distant memory!
EdgePoint MERs are still around 2% - better than others, but nothing revolutionary. If they are so scrupulously honest, why don’t they have a prominent banner on their website that says: “You’ll be better off just cloning our top 10 holdings - which we disclose on this website - in your own account and skipping our fees.” Hmm? EdgePoint should cut the crap and adopt a realistic slogan like: “Of all the money-hungry hoes, we are among the least disreputable. Nowhere near as bad as Slippery Som, that’s for sure.”
Finally, plot twist: for a guy who likes to cast stones, I feel I myself have not been as forthright as possible on this story. In my defence, while honesty is an important personal value, I like obliqueness even more. But just so that there are no misunderstandings, I should mention I sincerely believe EdgePoint at this moment might be one of the best deals in active management in Canada. Because if you have read carefully what I have written, you can get their equity funds for a fee as low as 80 bps. Plus, people say that performance-chasing is the number one mistake in picking money managers and there’s no risk of that here, obviously.