A Bay Street veteran who worked at RBC Dominion Securities and most recently GMP Securities, Neil Selfe’s new Infor Financial Group will focus on advisory work and capital raising.Darren Calabrese/The Globe and Mail
One of Bay Street's best-known investment bankers is branching out on his own, leaving behind the comfort of an established brand name to set up his own boutique shop.
Neil Selfe, who left GMP Securities two weeks ago and whose work history dates back to RBC Dominion Securities in the 1990s, is putting together a new independent investment bank called Infor Financial Group, following in the footsteps of American bankers who have left, and continue to leave, veteran dealers to work for themselves.
On Wall Street, boutique investment banks such as Moelis & Company, PJT Partners and Qatalyst Partners have popped up since the financial crisis started.
Though they are young, they continue to steal lucrative deal flow from established players such as Goldman Sachs and Citigroup.
In March, Kraft Foods Group Inc. hired little-known Centerview Partners LLC as its exclusive adviser for its $36.6-billion (U.S.) merger with H.J. Heinz.
Canada already has independent shops of its own, such as GMP, Canaccord Genuity and Cormark Securities Inc., but these dealers largely have roots in the resource sectors. They were also set up when Bay Street was driven by sales and trading.
Mr. Selfe believes the traditional elements of an independent boutique are "no longer as important as they once were." The days of being the lead trader for a specific company and "charging the buy side five cents a share to trade that stock are over," he said.
Historically, investment banks made inroads with prospective clients by touting themselves as the lead traders – or liquidity providers – for companies. The dealers would also hire research analysts to cover these same names, providing insights to money managers about the stocks.
Chief executives would then include these dealers in their underwriting syndicates when raising funds, delivering hefty financing fees, and portfolio managers would often pay for the research by trading through the investment bank that provided it, delivering trading commissions.
This model started to decay about a decade ago in the United States. Chiefly, electronic trading took hold, which meant computerized, high-frequency traders could provide liquidity for many companies. The proliferation of the Internet has also made it much easier for investors to find information about the shares they own, meaning research analysts are no longer the sole source of advice.
"By and large, agency trading at all of the banks, not just the independents, has become more of a cost centre than a profit generator," Mr. Selfe said.
Although this change took hold years ago in the United States, Canada was slow to follow. Not only was the trading revolution slower to unfold here for a number of reasons, the post-crisis resource boom also stunted the market's evolution because independent dealers benefited from covering small cap companies. Post-commodity collapse, many are searching for new business models.
In this new world, advisory work and capital raising will be Infor's bread and butter, and the firm will also have an asset management arm. It will not have trading or research units, and it won't specialize in resources. Although Mr. Selfe used to work at GMP, he made a name for himself in technology and telecom, serving, for instance, as lead adviser on Celestica's $530-million initial public offering in 1998. Lately he has been a lead adviser to Element Financial Corp. and CI Financial Corp. – both of which completed billion-dollar deals in 2014, generating tens of millions of dollars in fees.
Infor's investment banking business will help companies raise private capital and offer advice on mergers and acquisitions, corporate restructurings and derivative hedging strategies. The latter is something that does not get much media attention, but is a highly lucrative field.
Details for the asset management arm are still being finalized, but Infor intends to own stakes in a handful of money managers – a sector Mr. Selfe knows well, having co-founded Diversified Global Asset Management in 2004, which was ultimately sold to the Carlyle Group. The funds will have different specialties – infrastructure, debt – and the stable fees from this business are designed to offset the bumpy nature of investment banking, which can be volatile from quarter to quarter.
Infor will have between 10 and 15 staff in its first year – some of whom used to work with Mr. Selfe at GMP, and others who are joining from other dealers and money managers.
Mr. Selfe doesn't deny that the traditional investment banking model will continue to generate fees, particularly for the bank-owned dealers. But for boutique dealers with much smaller balance sheets, he strongly believes Canada has entered a new era.
"The business has fundamentally changed," he said.