EdgePoint very selectively launches new funds on an opportunistic basis. Its “Go West” portfolio, an oil and gas strategy launched in November 2019, was a great success. The fund was up about 300% (before fees) by the time it wound down in June 2024. The Go West fund was only open to accredited investors.
EdgePoint also has an "engagement" fund. Engagement is EdgePoint's version of activist investing. Andrew Pastor is the lead portfolio manager. They don't mention the fund on their website, as it was mostly marketed to family offices. It requires a $2m minimum investment and comes with a 7-year lockup. The fund raised $120m and is hyper-concentrated with only 5 holdings. It has proven a mixed bag, which explains why it was recently down about 7.5%, since inception.
The fund was launched about 3 years ago, a time during which the markets have generally been exuberant. One big detractor has been Dye & Durham. D&D had, at one point, 3 CEOs over a span of 7 months. It was the subject of a cease trade for a few months over financial disclosure deficiencies. This saga has been well covered elsewhere. Another holding, Computer Modelling Group has also proven problematic. In that case, Pastor has had considerable influence, including involving some biggies at Constellation Software. He is the current chair. The fund also has had some winners, including energy services company Badger Infrastructure.
Key aspects of EdgePoint style "engagement" include that they won't publicly disparage incumbent people and they won't launch a proxy contest. Boring! They won't even act jointly with other shareholders (as that term is understood under Canadian securities law - it's a high bar and subtle). Their main move is to be kingmaker - to get directors appointed. They also recruit key executives. EdgePoint sees this as matching people with business situations. The fund uses a structure somewhat closer to a private equity fund. Investors pledge capital, which is only called when a transaction is identified. The fund charges no management fees, but there's a performance fee when the fund is wound down (subject to a hurdle rate). The fund is now fully deployed and has 4 years left.
EdgePoint claims its overall engagement results (over the firm's history) outperform their other holdings. They have had more than 20 instances where they were able to name a director and those holdings have delivered 35% IRR on average. Example of successful engagements they would cite include Osisko Gold and Element Financial, both multi-baggers. Uni-Select is another positive case study of their interventions.
I first started paying closer attention to EdgePoint around 2019 when a smart investor mentioned them. He told me back then that he respected EdgePoint, but that they take risks he wouldn't. This has proven spot on, so I asked him recently to expand on his thoughts and he wrote this:
EdgePoint’s niche is in finding growth which is not priced into the market. To achieve this, many of the companies they invest in are tarnished in some way such as over leveraged or have a money losing division that can be sold. I think it is a good strategy, but it leads to the fund being invested in a subset of securities which are further out on the risk spectrum. Personally, for my direct investing I tend to skew to lower risk securities which are high quality and I am willing to accept a lower than market rate of return. With EdgePoint, you are investing in lower quality securities so one should expect a better return. This is much like comparing the returns on a portfolio of junk bonds v. investment grade.
EdgePoint would counter by saying they do extensive research and have an intimate understanding of their companies, which I think is true enough. Nevertheless, it does make it challenging to compare returns without thinking about incremental risk.
Some very tactful words! EdgePoint is his largest allocation to a public equity manager and he later wrote: "not sure if any of them offer a better value proposition than a high-quality passive index fund." OK, now, that's incendiary, don't shoot the messenger.
On the one hand, you can ask what qualifies pure investors (without operating experience) to mastermind companies spanning legal services, reservoir simulation software, and car dealerships. On the other hand, Stephen Smith would point out that Jane Austen wrote some of the most celebrated novels centered on romantic marriage, despite dying a spinster at age 41. Sorry, that was random.
I used a very polite title, because it's not possible to conclude anything about a 3-year track record based on 5 holdings. The energy-themed Go West fund also faced major headwinds early on (ie oil going negative at the start of the pandemic). It's reasonable to say there has been material impairment in Dye and Durham since EdgePoint got involved. The other names, I don't know.
Separately, while EdgePoint is well-known in the advisor channel, it also has about $10B in AUM for institutions. It has some mandates only for that segment, such as a midcap fund. The Abu Dhabi sovereign wealth fund is apparently a fan. So is the Alberta Investment Management Corporation (aka AIMCo, chaired by Stephen Harper). EdgePoint has some fans in high places.