POLICY SOLUTIONS

Policy Solutions for Fostering Canadian Entrepreneurship in Asset Management 

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Canada is globally recognized for its exceptional financial talent. From the highest number of CFA charterholders per capita to banks deftly steering through the 2008 great financial crisis to the globally-recognized Maple Model pension system, there is every reason that our country’s expertise would also extend to being a global destination for next-generation champion asset management firms.

 

While some bold and capable entrepreneurs have built successful asset management businesses locally, there has been a decline in Canadian launches at scale. This is not unique to asset management, as other sectors are noting similar declines in entrepreneurship. In a 2023 report, the Business Development Bank of Canada (BDC) examined numbers from Statistics Canada noting that the country has 100,000 fewer entrepreneurs than it did 20 years ago, despite growing the population by more than 10 million over the same period.

 

While there are some great local success stories in asset management, the bigger picture is that many assets continue to flow to larger US and globally-domiciled asset managers. In fact, PwC estimates that by 2027, half of asset management AUM will be managed by just ten firms globally. None of these ten firms are based in Canada. While concerning for our domestic economy, this sheer concentration of asset ownership also presents concerns of portfolio company control in the hands of a powerful few.

 

Emerging asset managers are typically defined as having less than $1B in assets under management and/or fewer than 3 or 5 years of performance track record. While there may be an aura of cachet surrounding the asset management industry, these firms are small businesses. Canadian asset management entrepreneurs often launch with only a few employees and less than $10M, an amount much smaller than their average US or global peers. As they scale, managers may grow to 30 or significantly more employees, contributing to the job market and Canadian economy.

 

Asset management entrepreneurship is increasingly challenging, with increasing costs of talent, operations, compliance and trading, especially as cyber-security, AI and other technological tools become table-stakes in the global race to deliver differentiated, risk-adjusted returns. Canada’s multi-provincial regulatory system, two official languages and heightened registration and compliance measures versus global peers create additional burdens unique to our jurisdiction. Access to distribution is also challenging, with a tightly-controlled wealth channel and our state-of-the-art pension systems hiring strong investment talent internally to manage funds directly. Additionally, Canadian emerging managers have relative constraints in tax, registration and more which could be improved to better facilitate launches in Canada instead of through offshore jurisdictions abroad.

 

There are many policy benefits of further Canadian asset management entrepreneurship: economic development and capital formation, job creation (extending also to ancillary service provider firms), increased competition, innovation and leading industry infrastructure.

 

Beyond policy benefits, there is an investment benefit too. Multiple academic and industry studies note the out-performance of emerging asset managers versus their larger, more established peers. This has been one of the key drivers of dozens of emerging manager investment programs in the US. Compared to the US, though, Canada features only a single prominent emerging asset manager investment program with Quebec fostering a mandate to invest in managers close to home. In Quebec, this has created 96 direct jobs (+13% growth in full-time employees) and 127% AUM growth for managers in the program, which has $584M invested across 15 managers currently (plus two who have already graduated from the program, having reached “established” size, due in part to QEMP’s investment), with more investment pending.

 

To spur more Canadian entrepreneurship in asset management, there are a number of policy solutions from a sector-focused economic development strategy to targeted tax incentives to investment capital to regulation that could be enacted by a variety of stakeholders - Federal, provincial and municipal governments, regulators, pensions and more. Especially in the face of tariffs, it is critical that our local asset management industry is united and aligned for success and growth in an increasingly competitive global market where talent and dollars continue to leave our borders.

 

The policies outlined below would create positive incentives to put more dollars and leading talent to work within our borders while fostering economic development and job growth here in Canada. Through the Canadian Asset Management Entrepreneurship Alliance (CAMEA), we hope that these suggested policy solutions will spark conversation and action across stakeholders and investors to ensure the growth and continued vibrant vitality of the Canadian asset management industry for years to come.​

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Policy Solutions to Foster Canadian Entrepreneurship in Asset Management​​​​​​​​​

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