Walking Through Time: The History of Nexus

In fact, I remember first meeting Bob and his business partner, Peter Gordon, not long thereafter in Vantage’s offices in the old Canada Permanent building at Bay and Adelaide.

The whirring of my memory “tapes” (floppy-disk drives? hard disk drives? not-so-solid-state drives?) got me to thinking. While we occasionally regale newer colleagues with anecdotes and lessons learned over Nexus’s more than 33 years in business, the story of the firm exists more as an oral history than anything written that a new employee or client can read.

So, in an effort to “get it down on paper”, here goes. Given the topic, this will be a longer read than our usual fare. Accordingly, it is broken into sections, in the hopes that readers can easily find the parts that most interest them.

In The Beginning…

Nexus’s corporate roots date to August of 1988, when Bill Berghuis “hung out his shingle”, as John Stevenson is fond of expressing it, as Berghuis Investment Counsel Ltd. Though Bill was at that time younger than the five Nexus directors are today, he had already accumulated a long career in the investment management business in Montreal and Toronto. Peter Turner joined him the following year, after many years as an investment banker at what was once called McLeod Young Weir Inc. Together, they gradually attracted family, friends, neighbours and business associates as clients, building the firm from zero, so that by the mid-90’s, they were managing about $65 million for families and a handful of charitable organizations.

Meanwhile, in 1993, Peter Gordon and Bob Topp joined forces to form Vantage. Peter had recently retired from Foyston, Gordon & Payne Inc., an institutionally-oriented investment firm he had co-founded. Bob had recently retired as a finance executive with mining company Sherritt Gordon. A third founding partner left early on to go in a different direction. With great foresight, Vantage offered clients both investment management and financial planning services (sound familiar?). Peter and Bob gradually developed a following, so that by the mid-90’s they were managing $35 million or so.

1995 marked an inflection point for the two firms. Bill Berghuis and Peter Gordon, in addition to being “fellow fisherman” in the private client investment management business, were also neighbours in Rosedale.⁽¹⁾ Bill, with an eye to the future, had just succeeded in attracting his son-in-law, John Stevenson, into the business from life as a mergers and acquisitions investment banker at Rothschild Canada. But Berghuis and Vantage were both still small, so, for each of them, the path to $100 million, let alone to $1 billion, looked long and slow. So a conversation between neighbours begat an agreement to pool their business resources under a new banner.

As the corporate lore goes, John had heard that corporate names containing an “X” resonated with people. After a quick trip to the Toronto Public Library – to confirm that the word “nexus” did, indeed, mean what he thought it meant – the new partners agreed on their new moniker: Nexus Investment Management Inc. When Berghuis and Vantage merged at the beginning of 1996, the combined entity managed just over $100 million for about 135 families. Interestingly, 74 of those clients (or their descendants) remain clients to this day, nearly 26 years later.

Building The Team

In the spring of 1996, John persuaded Geoff Gouinlock to join the firm as the second of the “next generation”, after his prior life on the “sell side” of the bond business at Dominion Securities and then JPMorgan. No doubt Geoff knew then, bond maven that he is, that 25 years of declining interest rates lay ahead, and that a tailwind that strong would prove more rewarding to a bond owner on the “buy side” than to a seller of the things. In Geoff’s telling of it, at that point in its history the business consisted of John, him and “four guys in their 60s”. So, in addition to finding new clients, attracting “next generation” talent to the team quickly became a priority.

Peter Turner retired in September, 1997, and was, in a sense, succeeded by Toby Condliffe, who arrived just over a year later. Fergus Gould joined Nexus in March, 2000 after a career as an investment banker at ScotiaMcLeod and a management consultant at McKinsey & Co. – just in time to take Peter Gordon’s place on the investment team when Peter retired that June. With an eye to Bob Topp’s pending retirement, Dianne White was lured away from KPMG’s personal financial planning practice in May, 2001, to provide similar financial, retirement, tax and estate planning services to Nexus’s growing client roster.

With Bob Topp’s retirement in June, 2002, Nexus had largely completed its first leadership transition – Peter Turner, Bob Topp and Peter Gordon transferred their responsibilities to the “nextgen” team of John Stevenson, Geoff Gouinlock, Fergus Gould and Dianne White. Over those first 6½ years the business had grown – from portfolios totalling just over $100 million for 100+ clients to approximately $367 million for about 250 clients. At the same time, a clear pattern had been established in the firm’s professional ranks: everyone at Nexus has chosen to step away from a large, corporate environment to join a small, independently-run operation.

As 2007 began, 11 years after Nexus’s formation, the firm had grown to manage portfolios totalling $622 million for over 300 clients. Bill Berghuis announced his intention to transition responsibility for managing his client relationships to the other four partners, while continuing to participate in the firm’s investment committee. Later that spring, Denys Calvin joined the firm in the new role of senior operating officer, assuming responsibility for those aspects of the business other than managing portfolios and serving clients.

By mid-2011, when the firm was managing over $750 million for nearly 400 clients, the five partners had blended roles, with each looking after a group of clients, while also carrying significant other responsibilities – investment research for John, Geoff and Fergus; financial planning for Dianne; and operations for Denys. To continue Nexus’s success and growth, additional talent, especially professionals with “purer” roles, were required.

So, beginning in 2011 the pace of hiring picked up, with, on average, one new professional joining the firm each year. Jim Houston and Mahmood Hassan arrived that year in client service capacities. Devin Crago joined the investment research team in November, 2013, just after the firm’s assets under management had crossed the $1 billion mark. Alexandra Jemetz came aboard in 2014, in a client service/business development role. Nicole Weiss assumed the newly-created position of marketing manager in September, 2016. Terence Tse took on a new finance and operations role when he joined in January, 2017. Alana Buckley became the fifth member of the investment team when she arrived in March, 2018. Brad Weber succeeded Mo Hassan as a wealth planner in the summer of 2019, mere months after the business had reached $2 billion under management. Tom Wilson assumed a client service role when he joined in November, 2020. Most recently, Ian Ligertwood, arrived this past August in another newly-created position, this one focussed on operations and technology.

Businesses like Nexus’s rely on a capable operations team to make things run like the proverbial Swiss watch. Such things can be as simple as processing trades or arranging for RBC to send a client funds from their Nexus portfolio, or as involved as getting the paperwork and documentation in order when a new client comes on board and transfers in a raft of accounts from another financial institution. What might once have been done by a single assistant back in 1988, now requires a skilled team of 6 to organize, execute and manage. Today’s administrative team consists of three veterans – Heather Knight (who started working with Bill even before the formation of Berghuis Investment Counsel), Jackie Richards (joined in mid-2002, just as Bob Topp was retiring), and Bessie Christopoulos (arrived just weeks before Denys in April, 2007) – and three relative newcomers – Karrie Cheng (May, 2019), Preethi Khatri Chetri (September, 2020) and Lily Lucacescu (February, 2021).

To this point, we have told the Nexus story as one about people and growth. There are other ways to review the firm’s evolution: the form of portfolio management, client events, client communications, and ownership.

Form of Portfolio Management

Like Berghuis and Vantage before it, Nexus began managing client portfolios entirely in segregated accounts – accounts which hold individual stocks, bonds, money market instruments, and cash. Segregated portfolio management is more costly to operate than if clients hold units in a collective vehicle like a pooled fund. So, in an effort to keep costs low for clients, as well as to accommodate smaller accounts, Nexus launched its North American Balanced and Equity Funds in September, 1997.

In those early years, investment results were perfectly satisfactory. But the size of the pooled funds remained modest. In fact, five years later – coincident with the launch of the Nexus North American Income Fund – the Balanced and Equity Funds accounted for only $31 million, or less than 10% of the $360 million the firm had under management. The Income Fund grew comparatively quickly as the bond holdings in most segregated accounts were replaced with units of the Income Fund. In 2007, after 10 years the 3 pooled funds had grown to a combined $207 million, or nearly a third of Nexus’s $649 million of assets under management.

Things began to accelerate in 2009. In addition to marking the low point in the global financial crisis, that year marked something of an inflection point for Nexus’s pooled funds. Until then, the pools had served largely as a means of managing small accounts and an efficient mechanism for investing client portfolios in bonds. By 2009, it was apparent that many clients had no preconceived notion about whether a segregated or pooled portfolio was preferable, and pooled management was lower cost. So, for many clients whose portfolio didn’t need to be segregated (for example to hold low cost base pre-existing securities or to exclude a security that we held in our pooled funds), a portfolio comprised entirely of a mix of our pools became the preferred choice – lower cost, simpler reporting, and easier to manage. Given this,  along with strong investment results, Nexus’s pooled funds grew more quickly. The four pooled funds (we added an International Fund in 2015) now represent almost 55% of our total assets under management, up from less than a third in 2007. The Equity Fund has been the biggest beneficiary of this trend, growing from $18 million in early 2009 to over $650 million.

Client Events

When the firm began, there were no group client events. A Nexus partner would meet with one client at a time. However, with the creation of the pooled funds in 1997, periodic presentations to unitholders as a group became feasible. These took the form of an annual presentation (starting in October, 1998) and update presentations shortly after the end of each of the other three calendar quarters.

By October, 2004 the annual presentation had morphed into a bigger event at the National Club involving all Nexus clients, not just pooled fund unitholders. Preparing a thought-provoking presentation and organizing several enjoyable events for clients each November became a key feature of Nexus and was an “all hands on deck” undertaking at the firm.

Just as the audience for the annual presentation expanded to include all clients, so too did the quarterly “pooled fund luncheon” presentations evolve into all-client updates. In recent years, we started to take one of these events “on the road”, delivering presentations to client gatherings in Oakville or Collingwood. And these regular events were occasionally supplemented by various topical presentations covering estate or retirement planning.

For many years we recorded audio versions of our presentations so anyone unable to attend in person could flip through the written materials while listening to the presenters’ voiceover. Though there had long been discussion about spicing up the audio with some video, the pandemic necessitated a switch from live to virtual. While these virtual events lack the interaction and ambience of our in-person presentations, they have made it easier to host guest speakers, including well-known authors, such as Morgan Housel (The Psychology of Money) and Matt Ridley (The Rational Optimist and How Innovation Works). Between the live performances and the video recordings, we can now reach a much broader audience than before.

Client Communications

Though group presentations provide the best forum for communicating with groups of clients, it is Nexus’s written materials that have the broadest reach. Like the firm, these materials have also evolved. What began as a simple cover letter and Outlook to accompany the quarterly reporting package, has since expanded to include reports for each of the pooled funds (since 1997), and evolved further in 2013 into the 8-page Nexus Report.

For most of Nexus’s history, all reporting went by mail. About 5 years ago we launched our portal to provide an electronic form of delivery (as well as a document library) for any clients who wanted it, either instead of or in addition to hardcopy.

Nexus’s written materials have also played an important role in presenting the firm to prospective clients.  The earliest such effort was our newsletter, Nexus Notes, which has been published three or four times a year since March, 1996 – right after the merger of Berghuis and Vantage, effectively continuing Vantage’s newsletter, The View from Vantage.

In late 1999 we launched our website. Back then it was pretty basic. It has undergone several overhauls since then, most recently in 2020 in conjunction with our rebranding that also included the launch of a new logo and our “Invest Thoughtfully” tagline. Our blog entered the scene in 2015. Now most content for Nexus Notes is published first as a blog, before reappearing several weeks later as a newsletter article.

Ownership

No history of Nexus would be complete without a review of the firm’s ownership. From the beginning, the business was employee-owned. A year or two after each new professional settled in, he or she would be invited to buy shares. Early on, the shares would be acquired from an existing shareholder who was headed into retirement. But as the pace of retirements abated, the company itself issued new shares in exchange for cash. Nexus’s predecessor firms were owned by one or two principals. By the summer of 2019, all 12 Nexus professionals – everyone with a meaningful influence over the running of the place – had “skin in the game”.

In all cases, the price per share was determined using a simple formula that valued the business based on current financial metrics. The methodology remained the same from Nexus’s formation. The philosophy behind the formula was to strike a price that was “fair” to both buyer and seller, but with a deliberate skew in favour of the buyer, so that  the buyer would feel enthusiastic, not obligated.

As Nexus grew, so did the firm’s value. However, that growth also created a conundrum. When the business was small and worth, say, $1 million, 10% of the company cost much less than a modest single-family Toronto home. A mid-career professional could (and did!) scrape together the cash to acquire a double-digit percentage interest. But as Nexus’s assets under management approached $2 billion, 10% of the business cost more than a detached Toronto home. For a mid-career professional with a family and  a mortgage, owning more than a small percentage of Nexus had become out of reach.

This conundrum – the more successful the business, the less affordable it becomes for the next generation of employees to buy it – precipitated the decision to seek an outside buyer. Three simple criteria guided our assessment of the buyer: the proposal had to be good for our clients, good for employees, and fair to shareholders. By August, 2019, it was clear that a partnership with Focus Financial Partners was ideal by all three measures. This was announced that December, and completed on February 1, 2020. Essentially, the arrangement involved Focus buying the business and then contracting the leadership team to manage all aspects of the business and share in its future growth. The leadership team and its successors continue to run an independent business and retain “skin in the game”, but at a more manageable valuation.

The Future

So here we are in late 2021. Nexus now manages over $2.6 billion for nearly 600 clients. The business employs 20 people, with more hires in the works. We manage the business independently and grow it the way we always have – one new investment idea and one new client at a time. Plus ça change…