Buy, hold, and prosper - Cover Story - investment strategies

Black Enterprise, August, 2002 by Matthew S. Scott

IT WAS SEPTEMBER 2, 1999, AND MICHAEL LEE-CHIN WAS UNDER ATTACK. THE year had already proven to be a tough one for the chairman and CEO of Canada-based AIC Limited. Hundreds of Lee-Chin's clients had redeemed shares of his flagship AIC Advantage Mutual Fund to move into red-hot tech stocks--an outflow of $224 million (all figures are calculated in U.S. dollars). To make matters worse, AIC's family of funds had suffered from the slumping financial services sector.

The next blow came when Lee-Chin had to contend with an editorial in Canada's The Globe and Mail newspaper forecasting his firm's demise. Observers on Toronto's Bay Street--Canada's version of Wall Street--speculated that a mass exodus would force AIC to sell its core stock holding, driving share prices even lower. The article claimed AIC wouldn't have access to enough money to make redemptions and urged shareholders to bolt.

Lee-Chin knew such a dismal picture painted by the media could ignite a run on his company. To avert the crisis, he was determined to demonstrate his firm's financial might as well as an unwavering faith in his investment philosophy. He poured more than $65 million into Mackenzie Financial, a Toronto-based investment firm that was one of Advantage's core holdings. Lee-Chin knew the company well. He purchased $327,000 worth of undervalued Mackenzie shares in 1983, a stake that enabled him to purchase AIC in 1986 and eventually make his first million.

The plan worked. The stock purchase calmed investors. Then 18 months later, Lee-Chin, who bought shares for an average price of $10, sold the stock for $20 a share when Investors Group, a leading Canadian investment firm, acquired Mackenzie for $2.6 billion. (Over that same period, AIC also made a bid for Mackenzie.) The transaction netted a cool $260 million for AIC investors and $65 million for the company.

True to form, Lee-Chin never wavered from his overall investment strategy. He held on to his holdings, ignoring herds of investors who embraced the tech boom. The move proved to be prescient: the market plummeted in 2000, taking tech stocks with it. Advantage, on the other hand, led the mutual fund pack with a whopping 26% return.

It would be hard to believe that Lee-Chin was ever overwhelmed by such a challenge. At 6 foot 4 inches and 220 pounds, he's a high-powered ball of confidence with a megawatt smile. He is serious about business though, and these days the audacious entrepreneur has a laser beam focus on expansion. Leveraging the resources of AIC and its subsidiary, Berkshire Investment Group, which have $9.5 billion and $3 billion in assets under management, respectively, Lee-Chin engineered three acquisitions in the first quarter of this year: Mississauga, Ontario-based Georgian Capital Partners, which manages AIC's $3.1 billion Diversified Canada Fund; San Francisco-based Elijah Capital Management, which manages $329 million in assets; and the National Commercial Bank of Jamaica (NCB), which has assets of about $2.5 billion. These bold moves place Lee-Chin on the threshold of creating a distribution network for his mutual fund products in Canada, the United States, and the Caribbean.

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Welcome to the world of a billionaire. From his headquarters in Burlington, Ontario, Lee-Chin, 51, has crafted a vast empire by applying a basic investment principle that he's adopted as his company creed: Buy. Hold. And prosper.

The investment guru's approach has worked almost to perfection. With 90% ownership of AIC Limited, the 11th largest mutual fund and financial services company in Canada, Lee-Chin has a reported net worth of $1.1 billion. His wealth makes him one of the world's richest men and one of three confirmed black billionaires in North America (the other two are Robert Johnson of BET and talk show doyenne Oprah Winfrey). And while amassing his fortune, Lee-Chin has established himself as one of the most astute money managers in the Western hemisphere.

But don't think just because Lee-Chin resides on an expansive, 33-acre compound, flies in a private helicopter, and strikes multimillion-dollar deals that his wealth-building strategies are inaccessible to you. When advising clients or giving investment tips, he enthusiastically responds. "Invest in only a few businesses that you understand and hold them for the long run."

Most wealthy people, Lee-Chin asserts, have adopted these investment basics and applied liberal doses of financial education, hard-nosed discipline, and boundless initiative to amass their riches (see sidebar, "Wealth Building Secrets of a Black Billionaire"). In fact, he patterns his investment style after fellow billionaire, Warren Buffett, CEO of Berkshire Hathaway, a holding company with significant stakes in American Express, Coca-Cola, and Gillette. "I observed a disconnect between how wealthy people become wealthy and how professional money managers are managing money," says Lee-Chin, pointing out that most portfolio managers turn over their holdings every 18 months, something he views as a hit-and-miss strategy. "I'm going to, therefore, bring to the mutual fund industry a methodology that is reflective of how I see wealth being created by wealthy people."