February 20, 2008 / 7:34 PM / in 10 years

UPDATE 2-CI Financial quarterly profit up on asset growth

(Adds CEO comments from conference call, details, share price)

By Lynne Olver

TORONTO, Feb 20 (Reuters) - CI Financial Income Fund CIX_u.TO reported a 25 percent increase in fourth-quarter profit on Wednesday, driven by growth in fee-earning assets, and its chief executive said the firm is getting a lift from strong demand for segregated funds.

While acknowledging that the overall market environment for mutual fund sales is difficult, CEO Bill Holland said that CI is getting a “meaningful” contribution from sales of segregated funds, which are similar to mutual funds but come with insurance coverage and are technically insurance contracts.

These inflows make up roughly two-thirds of CI’s net sales each month, he said on a conference call.

“We get an awful lot of seg fund business ... and that business can actually improve when market conditions scare people,” Holland said.

Canadian insurers Manulife Financial (MFC.TO) and Sun Life Financial (SLF.TO), which owns 36.5 percent of CI Financial, have introduced new segregated-fund products with guaranteed minimum withdrawal benefits, designed to protect older investors from the risks of market losses or inflation.

“The seg fund assets probably have a life expectancy two or three times that of regular funds,” Holland said on the call.

CI, Canada’s third-largest publicly traded mutual fund company, posted earnings of C$187.7 million ($185 million), or 66 Canadian cents a unit, for the three months ended Dec. 31. That compares with C$149.9 million, or 53 Canadian cents a unit, in the same period a year earlier.

Fee-earning assets at CI, which sells mutual funds and other investments though brokers in its Assante Wealth Management unit and at insurer Sun Life, rose 13 percent year-over-year to C$103.6 billion.

The company cited growth in the market value of its funds, positive net sales, and the addition of assets through its acquisition of Rockwater Capital Corp last April for the rise in fee-earning assets at the end of December.

The Rockwater acquisition brought three companies -- Lakeview Asset Management, KBSH Capital Management and Blackmont Capital -- into the CI fold.

In the final quarter of 2007, CI’s net sales of investment funds totaled C$422 million, more than three times the net sales recorded a year earlier. For the full year, net sales slipped 3 percent to C$2.1 billion.

“If you forced me to guess what our net sales will be for ‘08, I think they’ll look something like ‘07, ‘06 and ‘05, a little over C$2 billion,” Holland said.

“And, really, that’s nothing more than a guess,” he added, noting that sales will depend on how equity markets perform.

CI experienced net redemptions in January, citing a couple of transactions in institutional accounts.

Units of CI closed on Wednesday at C$22.80, up 15 Canadian cents. But its stock is down 19 percent this year, as asset-management companies in general have been battered by weak equity markets. In addition, CI said on Jan. 23 that it would cut monthly distributions this year.

“(We’ve said) we’ll take a look at any given time at what we’re distributing, and what we think our distributable cash is, and if there’s much of a difference, we’ll adjust it,” Holland said.

CI plans monthly distributions of 16 Canadian cents per unit starting in March, down from 19 Canadian cents in January and February.

$1=$1.01 Canadian Reporting by Lynne Olver; Editing by Rob Wilson

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