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How Michael Lee-Chin turned a $400,000 stake into a $9.5 billion company.

Michael Lee-Chin was looking at a $2,500 second-year tuition bill at Hamilton, Ontario’s McMaster University. All he had left of the money from jobs on cruise ships and in an aluminum plant was $600. He couldn’t call home to Jamaica for cash. His parents, grocery store clerks, had his seven younger brothers and a sister to raise. So Lee-Chin staked $400 on a plane ticket to Kingston, Jamaica and called on then-Prime Minister Hugh Lawson Shearer, intent on landing a scholarship from the government. He showed Shearer his impressive transcripts and made an impassioned pitch: If Jamaica expected him to bring his skills back home, it ought to ensure he learned some. He left with a $15,000 check. “From an early age my mother told me there were so many of us that if I was to get anything in life I would have to get it myself,” says Lee-Chin. “So I did.”

That was in 1969. Today Lee-Chin, 51, runs a mutual fund and financial services empire. With $9.5 billion under management, his AIC Ltd. is the 11th-largest fund company in Canada, and his Berkshire Investment Group advises Canadians on another $3 billion in assets. AIC Advantage, the largest of his 23 funds, has returned an annualized 17% since 1992–the best in Canada. Lee-Chin hasn’t done badly, either. His net worth: $1.1 billion.

All the more remarkable after an inauspicious start. With a degree in civil engineering, Lee-Chin returned to Jamaica to work on highway projects. From there it was back to Toronto for a job as a bar bouncer, at $2.50 an hour. One night a friend showed up and boasted of making $200 in commissions that day selling mutual funds. Lee-Chin signed on with the firm, Investors Group.

Knowing next to nothing about the business, Lee-Chin relied on bluster and drive. “You must look like a ‘money person’ for clients to trust you,” he says. So he updated his wardrobe and junked his rust bucket for a leased Rolls-Royce sedan. He read everything he could about investing, so that by the time he had his first clients–inherited from a rep who died–he could talk the talk. Approaching the business like a problem-solving engineer, he recalls, “If I was going to be successful, I had to imitate those who succeeded before.” His idols were Benjamin Graham and Warren Buffett.

But when he went cold-calling, he relied as much on personality as investment theory. One of his first grabs was Sherally Jamani, a family medical practitioner near Hamilton whose office was right next to that of Lee-Chin’s dentist. After a dental appointment one day in 1977, Lee-Chin dropped in. They chatted for 45 minutes, barely touching on the subject of money. “He gave the impression that he wasn’t out to diddle me,” says Dr. Jamani. He is still a client.

As he gained confidence (and a customer base), Lee-Chin took more risks. When interest rates were high and stocks were bumping the bottom back in 1982, he encouraged all his clients, including David and Wilma Wilson, to buy on margin. “By then, I had enough faith in Mike to do it,” says Wilson, now 68. “But I was in a bit of a panic.” Wilson, who then managed a farming co-op, pleaded with Lee-Chin to let them ease up. To his chagrin, weeks after he cut back the market turned around and posted a 17% gain in 1983. “After that I pretty much had complete faith in him,” Wilson says. Lee-Chin still personally manages the Wilsons’ portfolio, along with those of 200 other old clients. He also gives them rides in his private helicopter. “They got me to where I am today. I want to make sure they’re well taken care of,” he says.

By the early 1980s Lee-Chin had built a solid book at Investors Group and, later, at Regal Capital Planners. He began straddling the line between financial adviser and portfolio manager. He put clients into solid, growing companies with market-leading positions and strong cash flow. Today he likes MDS, Canada’s top health care provider, as well as firms run by fellow billionaires Kenneth Thomson (Thomson Corp.) and Galen Weston (Canadian grocery giant Loblaws).

But the more Lee-Chin learned, the more he wanted his own show. “He was the first salesman who asked questions about the business side,” says former mentor James O’Donnell, cofounder of Mackenzie Financial. In 1983 Lee-Chin borrowed $400,000 to buy a stake in Mackenzie, betting it would soar in value. In 1987 he took his gains and bought tiny adviser AIC for $150,000. It had one fund and $600,000 under management.

Lee-Chin’s portfolios reflected what he understood best–money management. AIC clients wound up with shares of Canadian money managers C.I. Fund Management, AGF Funds and Mackenzie. A disastrous side trip into real estate partnerships in 1989 resulted in a loss a year later as the market collapsed. The financial-sector bets piled up, however, and now AIC is the eighth-largest holder of Merrill Lynch and the largest owner of TD Bank (formerly Toronto Dominion) and of Amvescap, which controls Invesco’s funds. He’s also got $1 billion in Berkshire Hathaway.

Assets under management exploded, from $8 million in 1990 to $8 billion in 1998. Along with hefty sales loads, the funds average a 2.5% annual expense ratio, 50% more than a typical fund’s cost in the U.S. Then Lee-Chin hit a wall. While other funds soared on the tech boom, his investments sagged–losing 8% over the two years 1998-1999, as the S&P climbed 56%. The Globe & Mail, Canada’s leading daily, ran a September 1999 story advising anyone holding shares in Lee-Chin’s core funds to bail out and claiming that once Lee-Chin ran out of cash to pay redemptions he would have to start selling out his stakes in “illiquid” core holdings, which in turn, it said, would drive down prices even more.

The next day the paper published Lee-Chin’s retort. Defending the health of his holdings and his value approach, he said he would spend $60 million in AIC corporate funds to buy shares in his favorite undervalued stock and first big winner, Mackenzie Financial. He also sent out letters to all 350,000 AIC shareholders and embarked on a 22-city tour across Canada to reassure financial planners and shareholders.

Lee-Chin met the redemptions, partly by selling the funds’ stake in Coca-Cola, and made a comeback. When the market plunged in 2000, he demolished the competition with a 26% return on AIC Advantage. In horrible 2001 that fund lost just 4%.

Lee-Chin is flexing his muscles. His attempted takeover of Mackenzie in January 2001 would have created Canada’s largest family of funds. Mackenzie instead took a higher $2.6 billion offer from industry leader Investors Group. Still, Lee-Chin’s investors–that is, the shareholders of AIC and of two of AIC’s funds–got an estimated $620 million, some 50% more than they paid, for their 24% share of Mackenzie.

Dreams of dominance in Canada temporarily crushed, Lee-Chin turned his eyes south. In January he bought 75% of Jamaica’s troubled number two bank, National Commercial Bank, for $128 million. He is also picking up a stake in San Francisco-based Elijah Asset Management, which manages $500 million in tech portfolios for AIC and others. His plan is to someday distribute AIC’s funds in the U.S. and the Caribbean. A possible snatch: buying a financial adviser network with offices across North America.

Some things haven’t changed. In the lobby of AIC’s Burlington headquarters, west of Toronto, a pair of eclectus parrots from the Solomon Islands greet visitors with squawks of “Buy!” and “Hold!” That’s two-thirds of Lee-Chin’s mantra. “They always leave off the most important part,” he says.”Prosper.”

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