Michael Lee-Chin started his money management career as a financial advisor with Investors Group in Hamilton Ontario in 1979. In 1987, he bought Kitchener-based Advantage Investment Council which he renamed AIC and developed it into a mutual fund company that focused on buying the shares of other investment management companies and banks. The timing was perfect. Assets under management billowed with the rapidly rising stock market into 1999.

I owned some AIC funds in the late 1990s. Everyone loved the gains in AIC. That is until tech stocks doubled in 1999 and AIC funds looked like underperformers. When the 2000-03 bear market hit, tech shares mean-reverted with an 80% average price decline and financial service companies and bank shares ‘outperformed’ with a 48% loss. AIC, like others, lost millions in assets under management as prices plunged and customers liquidated their holdings. The company managed to hold on and rebuild through the 2003-07 market recovery.

Lee-Chin set up the Berkshire group of companies, which included an investment planning arm, a securities dealership and an insurance operation. By 2007 (another cycle top), Berkshire had amassed more than C$12 billion under management when Manulife bought Berkshire from Portland Holdings in exchange for shares, making Portland one of the largest shareholders of Manulife.

In 2009, Lee-Chin became a billionaire by selling the fee-generating customer assets in AIC Limited to Manulife.  The following year, Manulife rebranded the heritage AIC funds and eliminated the AIC name from the mutual fund line-up.

Mutual funds, like most retail investment portfolios, are generally designed to be fully allocated at all times regardless of risk-reward prospects for their unitholders or owners.  Being more tactical and careful in terms of timing exposure requires both independent managers willing to take the career risk of ‘missing out’ and underperforming during speculative eras, as well as clients/unitholders who are also self-disciplined enough to resist emotional impulses (greed near tops and then fear of buying once valuations are low again) through full market cycles.

With all of this background, it was interesting to hear Lee-Chin, now 70, discussing markets on BNN yesterday (clip below).  One thing for sure, Lee-Chin was not sitting with 50% cash in their funds under management in 2000 or 2007.

Billionaire investor and philanthropist Michael Lee-Chin is sitting on a veritable mountain of dry powder on expectations sky-high equity market valuations will take a tumble and present significant buying opportunities.

In a television interview Thursday, Lee-Chin, the founder and chairman of privately-held investment firm Portland Holdings, said he’s allocated a massive portion of his fund to cash in anticipation that markets will fall precipitously.

“In the fund I manage today, we have over 50 percent cash, and we’ve been holding that 50 percent cash notwithstanding the fear of missing out,” he said. “We have no fear of missing out. We are confident that this too will eventually regress to the mean.”  Here is a direct video link.