Hedge funds

Ewing Morris: Even Harry Rosen couldn't save this hedge fund

Hedge fund with big-name backers has performance issues.
OPM 2 min read

The Ewing Morris Opportunities fund is in need of an emergency makeover. The fund lost 34.8% in March and has barely recovered, still being down 33.7% to the end of June. It’s compounding at 3.4% annualized since inception in September 2011. The fund was up 5.7% in 2019. After March, I saw their largest position was 25% of the portfolio, while their top 10 accounted for 85%. They don’t lack in confidence! No points for guessing they charge performance fees. The fund had close to $150m at the start of the year, but that’s now down to $90 million.

All this, despite benefiting from this powerhouse brain trust, which they feature on their factsheet:

Advisory Board
Martin Connell
Ira Gluskin
Linda Haynes
Rosamond Ivey
John MacIntyre
Hon. David Peterson
Bill Stedman
David Wilson
Harry Rosen

It's a blue chip board any TSX 60 company would be thrilled to have. That David Wilson is probably the former OSC Chair, though it could just as well be the former figure skater. After all, what’s Harry Rosen advising them on? When to wear polka dots?

David Peterson is a former Ontario Premier, he is über-connected.

Just take a look at his post-nominals alone:

P.C., Q.C., O.ONT., C. ST. J., L. D’H.,D.U., L.L.D., Wu-Tang Clan

I bet he’s friends with Bonnie Bloomberg. David P is the prospective Vice-Chair of the Toronto Star in the event the Jordan Bitove bid prevails. I hope he brings more insight to the dying press game than he does to the dying hedge fund game. There's also John MacIntyre, the founder of private equity firm Birch Hill.

Another notable is Ira Gluskin, who is no slouch in the style department himself. I find it interesting that he officially advises this manager as well as Frank Mayer’s Vision Capital. The two most prominent spinoffs of Gluskin Sheff are Brad Dunkley’s Waratah and Bill Webb’s Waypoint. But they don’t have showy boards of advisors.

Both Darcy Morris and John Ewing come from Burgundy Asset Management as do most of their senior staffers. Of course, Ewing Morris was started with the best of intentions. The goal was to offer double-digit returns - 10-15%. In their own words, “The goal has always been to create a firm that they would want to be clients of”. Clearly, they’re not very picky.

Before the crisis, they wrote: “The Opportunities Fund is positioned defensively”…What does this even mean? They had about 60% of their fund in what they call “cheap assets”. Anyways, I have to be a little circumspect because any day now, the outperformance of growth, large caps, quality stocks could reverse. I also believe it’s likely there are self-reinforcing, bubbly aspects to passive investing. Nevertheless, I don’t think Ewing Morris is the firm I would bet on in such a scenario. The only way I see Ewing Morris being viable is if they went public and then shorted their own stock. It’s a paradox, I know. They have way too many senior people adding no discernible value. It’s a “broken business”, to use their own lingo.

I think the fund had one client alone with $20m invested, which shows how little link there is between big money and smart money. Which is more likely: that most people in active investing are dumb or that most of them are smart, but the competition is too intense? I lean towards the latter, but with firms like Ewing Morris, it’s a close call! I think schmoozing is their real strength. In any event, figuring how the game is changing is also part of the game! The solemn pride that must be their clients’ to have laid so costly a sacrifice upon the altar of their education!

I wrote about Ewing Morris again here.

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