The entry to the Home Capital Group's headquarters are seen in an office tower in the financial district of Toronto.CHRIS HELGREN/Reuters
As controversy swirls around Home Capital Group Inc., some of Canada's sharpest investors are finding interesting ways to explain how bright, insightful people such as themselves could dance into a big, stinking mess.
In fact, the trouble at Home Capital appears to have given rise to an entirely new art form: the non-apology apology. This consists of a fund manager explaining why his decision to pour money into the mortgage lender wasn't really an error.
Fund managers, of course, have always had to justify decisions that didn't pan out, but what makes the setback at Home Capital particularly tough to wave away is that the lender has long been regarded as a dicey bet on Canada's increasingly frothy housing market.
Related: Home Capital delays results amid bid to restore confidence
This confronts active money managers, already under competitive pressure from index funds and ETFs, with a conundrum: How do you frame a bet on a risky company as an astute investing decision?
An unusually frank (and secure) manager might simply say: I got it wrong. Or even explain that to beat the market you have to selectively edge into chancier areas on the theory that your good bets will outweigh the bad.
But that's tough to do for a profession that likes to project an image of omniscience. So, instead, managers have been pointing the finger at those crazy regulators and those unpredictable depositors.
The folks at Dixon Mitchell Investment Counsel in Vancouver provided one example of this approach in a note this week. They explained how they carefully researched Home Capital's asset book before investing in the mortgage lender.
What the normally very astute people at Dixon Mitchell didn't foresee was that depositors would panic and flee after the Ontario Securities Commission announced it would be conducting an investigation into a possible corporate governance infraction at Home Capital back in 2014.
"Though HomeCap's operations remained sound, the confidence (real or imagined) in its ability to meet its obligations on an ongoing basis caused the business's viability to spiral downward far quicker and to a greater degree than perhaps anyone could have imagined," Dixon Mitchell wrote, adding it has decided to exit its position in the firm.
So there you have it: As the company tells it, a wise investing decision was undone by an unpredictable twist of market psychology.
A similar tale is told by Mawer Investment Management Ltd. of Calgary, which attributed a sudden lack of confidence among Home Capital depositors for its abrupt decision to dump millions of the lender's shares last week.
"Confidence was lost in this company and the business model breaks apart," Jim Hall, Mawer's chief investment officer, told Bloomberg. "That's the problem with banks."
Mind you, the only problem with blaming confidence and other fickle psychological trends is that professional investors are presumably being paid to choose investments that are unlikely to face such tempests and can weather them if need be.
Rather than being rocks of stability at times like this, money managers seem just as prone to changing their minds as anyone else.
Consider Baskin Wealth Management of Toronto. Two weeks ago, it said the slide in Home Capital shares was "panicked emotional nonsense selling." A few days later, it dumped its own stake in the lender.
To some degree, it's a good thing that these investors are able to pivot away from past decisions. The last thing any client wants is a money manager so tied to its viewpoint that it refuses to recognize reality.
But such abrupt shifts also underline the pressure that active money managers are under to beat the index by rushing into riskier assets.
For retail investors, the best protection is making sure that any fund they hold is so broadly diversified that no single bad investment can hurt too much. Fortunately, Dixon Mitchell, Mawer and Baskin fit the bill: Home Capital made up only a tiny fraction of their portfolios.
But it would be nice if broad diversification was also matched by candour. A fund manager who simply said, "I goofed," would be a rare but welcome spectacle on the investing landscape.