Hedge funds

I tried to contact Greg Boland. I was unsuccessful. I am drawing adverse inferences.

OPM 3 min read

I want to turn my attention to Greg Boland and West Face Capital. He's probably the most prominent hedge fund manager on Bay St, manages billions and is a mover and shaker in Canadian corporate boards. Just in case you need a background: his rise on Bay St started as a waiter in the late 80s. One evening, the University of British Columbia held a fundraiser for its student-run investment fund program at his restaurant. Boland decided to attend this program and completed his BCom at UBC.

After graduation, he worked for Roland Keiper, the head of a group that traded RBC Dominion Securities' own capital, known as the High Yield / Arbitrage Group. Keiper has been called “The Smartest Guy on Bay St.” and had a deal whereby he would keep 30% of the profits while using RBC's capital. By the mid-90s, this group was managing $100 million. Between 1993 and 1999, the group posted an average annual return of 78.5% and generated more than $200 million in profits for RBC DS. The competitive edge of this group is primarily more, better research. Like spending 200 hours researching a name.

Boland left RBC in March 1998 and then spent several years managing an account for a Connecticut hedge fund group called Paloma Partners. Boland eventually started his own firm, West Face Capital. Boland's signature trade is taking large positions in companies in trouble. In 2006, Globe and Mail reporter Derek DeCloet described a trade in Stelco where Boland outsmarted his former boss Keiper and anointed him the new "Smartest Guy on Bay St". This was a good call, as the Ravi Soods and Eric Sprotts of Bay St faded away, while Boland prospered in the ensuing years.

In recent years, there has been extensive coverage of Greg Boland, particularly of his legal battles with another investment mogul, Newton Glassman. But I have not seen in many years an indication of his performance. For a fund manager, that is the vital thing - whether he's adding any value over a benchmark. Bay St insiders may well know, but the public at large is left without this crucial information. This is no criticism of the mainstream press. I know they have a lot on their plate. In fact, just the other day, I read an exposé by the Globe on Tea Nicola, the silver medalist in the Great Canadian Robo-Advisor wars, and her breakfast preferences. (Spoiler alert: She has her lattes with lactose-free milk. There was also something about a can of mackerel and a side of heirloom tomatoes at room temperature.)

I have to confess that I too failed in getting Greg Boland's performance information. But this is just the start of my campaign to make that information available.

Reader, be in no doubt: ordinarily, I am prepared to dive through dumpsters to bring you information. But in this instance, out of respect for (and fear of) Greg Boland, I tried to get the data straight from the horse's mouth. Unfortunately, the horse was not chatty. This is a metaphor, I would not dream of calling Greg Boland a horse, I do not gratuitously insult the people I cover.

After a first failed attempt to communicate, I got back in the saddle. But after three unsuccessful attempts, I stopped because I didn't want to be seen as a stalking horse. I don't want to get on my high horse, but I find Greg Boland's unwillingness to collaborate with Canada's premier business publication to be inexplicable. If I was some obscure blogger horsing around, that would be one thing, but we are the venerable OPM Wire for crying out loud!

In any event, as a starting point, I think I can ballpark his performance. First, he is likely doing reasonably well, probably beating benchmarks. If he has had some Ackman-style meltdown, surely that information would have leaked considering the many motivated rivals he has. In his 2006 article, Derek DeCloet said:

The hedge fund says it has 25-per-cent returns, compounded annually, since it began in 1998 (the figure is unaudited), while running, on average, about $400-million during that span.

I see, so Derek DeCloet gets performance numbers, but not OPM Wire? Maybe this 25% figure provides us an upper bound for Boland’s performance. And that’s because I believe it’s almost a law of physics that average returns go down over time. More assets mean less nimbleness and a smaller opportunity set. In fact, my own notes say that at one early point, Boland was compounding at 45% over 5 years. That’s unsustainable. Also, competition is relentlessly on the rise in the markets. In that article, Derek DeCloet describes a trade where Boland figured CP Ships was a buy because he hired a consultant who estimated the ships were worth more than the company’s market cap. Such research methods propagate. Today, there’s a global war for opportunities with many players with a real proclivity for research and large budgets. (Though there are also many managers in Canada who operate under the delusion that cursory reading and “thinking deep thoughts” is a source of edge.)

Active management is being questioned like never before. Should a waiter today learn finance and try to become a fund manager? The only way to know is by getting data on what edge the very best are able to deliver. OPM Wire will not rest until Derek DeCloet or Jacquie McNish tell us how Greg Boland is doing. And how he likes his eggs in the morning.

I will have a lot more to say about all this.

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