Canada's 'new economy island'
Montreal is an island in the St Lawrence river. Europeans, seeking China, bumped into it more than 450 years ago. Gradually, as the hub of North America's fur trade, Montreal's reach stretched throughout a continent. Voyageurs paddling canoes heavy with pelts (mostly beaver, which made the fine felt hats then fashionable) found all sorts of civilized niceties awaiting their profitable return from the primeval wilderness.
Fashions come and go and Montreal has consistently traded hats to adapt to new trends. Bankers, rail barons, lumberjacks and miners, bootleggers and hockey players all found global notoriety in Montreal. For a time, the city boasted the British empire's tallest skyscraper. Major firms have deep roots in Montreal including Alcan, Seagram, Bombardier, Nortel, Teleglobe, Videotron and SNC/Lavalin.
However, once Canada's financial capital, Montreal's star has waned, eclipsed by upriver rival Toronto. The Bank of Montreal, for example, has moved most functions to Toronto where its office tower now stands as that city's largest. Montreal's global aspirations seemed to have peaked with the hugely successful 1967 world's fair. Since then, its industrial machine has lost steam.
Yet the city remains Canada's second most important economic engine. Moreover, in recent years, Montreal has witnessed explosive growth in areas of the new economy like telecommunications, multimedia, aerospace and biotechnology. Intent on leveraging these global niches, local businesspeople say Montreal can regain and indeed outshine its former glory.
Indeed, Montreal has always sought to separate itself from the crowd - a crowd often defined as Toronto. While the Ontario town remains dominant in stocks, Montreal has taken up derivatives turf. If Toronto's investment style is angled toward growth and momentum, Montrealers seek value. If Toronto is large cap, Montreal is small cap. What Toronto is to domestic finance, Montreal wants to be to international investments.
Investment culture
Montrealers are likely to make effective use of these niches. Quebecers in general are business-oriented with a clear vision of the global economy. 'The free trade debate never took place here,' notes David McAusland, managing partner at Montreal law firm Byers Casgrain and president of the Board of Trade of Metropolitan Montreal. 'Unlike the rest of Canada, it was a foregone conclusion, supported by virtually every sector, that we should be involved in trade liberalization.'
Indeed, that entrepreneurial penchant is reflected in Montreal's cultivated approach to start-up companies. Figures from various parties conflict, but at best, Montreal is home to half of Canada's venture capital pools. Biotech is a very prominent sector. Financial consultants Ernst & Young say the province of Quebec is Canada's most important biotech center and the tenth largest in the field in North America.
BioCapital, founded in 1990, was the first firm in the city devoted to biotechnology investments. Other funds include the Caisse de depot's Societe financiere d'innovation (Sofinov), Innovatech, GeneChem and the Quebec Federation of Labor's Solidarity Fund.
But Montreal's fund managers are looking farther afield than home-grown start-ups. 'Montreal is a very cosmopolitan city and so investors tend to have a more global perspective,' says Norman Raschkowan, senior vice president of Standard Life Portfolio Management (SLPM). 'A US company that can demonstrate it is internationally competitive will be well-received by Montreal-based investors.'
The city's investment style differs from Toronto's, too. 'Momentum investing is far more popular in Toronto while Montreal investors tend to use a value style,' says Raschkowan. 'Here, research concentrates on understanding the nuts and bolts of a business. Montrealers don't go in for fads. Few Montreal managers, for example, owned Bre-X.'
A significant constraint on foreign firms looking to interest Canadian investors is the 20 percent foreign content limit imposed on non-taxable investments. 'Foreign companies realize it's going to be a tougher sell,' says Raschkowan. 'To interest a Montreal fund manager, you generally must convince them to sell something they already own. Only a small portion of new cash flows can be dedicated to foreign investment.' Still, demands on performance mean the 20 percent rule will almost certainly be lifted.
Le roadshow
As a roadshow stop, Montreal is sometimes overlooked. Indeed, US companies often bypass Canada altogether. However, Thomson Investor Relations calculates some US$92 bn in equity was managed out of Montreal at the end of 1997. Only about an hour's flight from Boston, New York or Toronto, Montreal is North America's 16th largest center of institutional equity management.
'About 20 percent of total money management in Canada is done out of Montreal,' estimates André Marcan, chairman and CEO of Montrusco Associates. 'Sixty percent in Toronto, 10 percent in Vancouver and the rest spread throughout the country.'
This year, companies including Swedish pharmaceutical firm Astra, Portugal Telecom, Rhône Poulenc, Adidas and Dutch financial group ING all touched down in Montreal on their roadshow tours.
Marcel Knecht, chairman of Montreal IR agency Marcel Knecht and Co, sees Montreal and Toronto as a test bed for a North American roadshow. 'There is no way a European company would want to go to New York without testing its North American savvy,' says Knecht. 'You can do that so well in Canada and it makes for a far sharper presentation in New York.'
SLPM's Raschkowan believes Montreal investors especially welcome post-IPO companies. 'If it is a solid story, brokers will bring it to Montreal,' says Raschkowan. 'If it is a fad story, say a hot internet stock, an interested audience is harder to find.'
'Canadian investors in general tend to be more patient than US counterparts,' comments Natalie Bourque, head of IR at National Public Relations. 'That offers stability to your stock.' She notes that eye-to-eye contact can prove crucial: 'The more investors you meet face-to-face, the better your chance of being persuasive when your stock is doing poorly.'
When speaking with Montreal investors, language is rarely a problem. 'Most people speak at least English and French,' says Elaine Phenix, executive VP of capital development at the Montreal Exchange. 'However, it doesn't hurt to include both languages on visual presentation material.'
Typically, Canadian company roadshows involve broker-sponsored luncheons (in Montreal, at the broker's premises or at private clubs) followed by one-on-ones with investors. Rarely do Canadians organize their own presentations. Meanwhile, US brokers tend to send their analysts north to talk about US companies, with their investment banking arms shying away from exposing company managements to the charms of Canadian institutions. That state of affairs means Montreal's buy-side analysts and portfolio managers routinely travel south to meet US company management.
Fund management priority
While Toronto dominates the national financial landscape, Montreal is developing the critical mass to grow as an international financial presence. Designated an IFC (international financial center), some 60 financial companies with foreign operations have taken advantage of tax breaks to open offices in Montreal, including National Bank of Paris and LA-based Capital Guardian. Merrill Lynch, Morgan Stanley, Citibank and State Street are active in Montreal, while high-tech corporate finance mandates have lured a flock of other firms to set up shop in town. These include Research Capital Corp, Yorkton Securities and Dundee Securities.
Montreal boasts a significant public and private pension management business (including the Caisse, Alcan, CN and Bell Canada Enterprises), but it lags in mutual fund development. Quebecers make up about one quarter of Canada's population, but mutual fund assets total only 13 percent of the C$325 bn invested countrywide. Last year, the Caisse created a subsidiary called Service Financier CDPQ to encourage mutual fund management in Montreal. One of its first investments helped create Cartier Mutual Funds which aims to take positions in well-established Canadian mutual fund companies and to launch its own group of funds for local investors.
Meanwhile, as Montreal builds its expertise in international markets, the Caisse continues to award external mandates to locally-based fund managers. Most recently it gave SLPM a mandate to actively manage C$100 mn in US equities. That announcement came shortly after Standard Life Group moved management of its US$4 bn North American equity portfolio from Edinburgh to Montreal.
The Caisse has in fact been working with other Montreal managers for some time, including Bolton Tremblay and Montrusco Associates, as partners in the management of international equity portfolios. 'We are ready to give mandates to firms developing expertise in managing money internationally,' says Michel Nadeau, senior vice president (core portfolios) and assistant general manager at the Caisse. 'These partnerships allow us to further diversify our asset management and let managers focus more closely on objectives. The agreements also contribute to strengthening the available pool of international financial expertise in Montreal.'
An international perspective is a natural advantage for Montreal. And, during its all-too-brief summertime, Montreal is a never-ending party with more festivals, concerts and street fairs than you can shake a baguette at. In winter, well, there's always the skiing just outside the city - and the chance to sport a very chic fur hat.