At the end of 2011, Empire Life launched its own mutual fund company – Empire Life Investments. Finishing the year 2014 with a modest level of assets – around $100 million – Mark Sylvia, president and CEO of Empire Life, calls starting up a new mutual fund company “a fairly tough haul”.“It’s not been a profitable venture for us. Just the expenses of being in the business; you need at least a billion in assets to start hitting the point where you can make a reasonable profit.”
Costs of running a mutual fund company include administration systems, marketing expenses in a highly competitive market and very thorough compliance, he adds. “The cost of compliance alone is significant.”
He observes that many of the smaller mutual fund companies that have been sold recently (with one to two billion in assets) “weren’t making any money.”
Sylvia adds that entering the mutual fund business is a challenging new area of competition for Empire Life. The company is not just up against the big insurers that dominate the life industry and are also active in the mutual fund market, but it also faces the large fund companies and the banks that are very dominant in the mutual fund business.
“We’re starting from scratch, so we don’t have a history of investment results in a mutual fund product, and we’re competing with even more giants…”
I know the story of David and Goliath, but I’ll use an actuarial phrase – if we ran it a thousand times and did a scenario test, he may not win that often…so that’s the challenge of being small in the insurance and any part of the financial services sector.
Working through options
Is Empire Life determined to stay in the mutual fund market? Sylvia – who took on the leadership of Empire Life in June 2014 – says, “We’re working through all our options in that part of the market to ensure that we’re doing the right thing for our companies and shareholders. We’ve had good performance on our mutual funds, so that’s good news.”
He added that at this point he cannot discuss whether selling the mutual fund business is part of this reflection. “I can’t really go into that at this time…We look at all aspects of the business regularly and noted the fact that the mutual fund business – for someone new in the business – is a tough business.”
About one third of Empire Life’s business is in the wealth market but most of this is in segregated funds and annuities, says Sylvia. “If you look at our asset base, roughly $7 billion is segregated fund assets and a billion is annuities.”
