Hedge funds

Maple Rock: a bigly, pedigreed hedge fund

Not your grandpa’s Canadian hedge fund!
OPM 3 min read

Move over Brad Dunkley, there’s a new King of Canadian hedge funds. Maple Rock Capital Partners is probably the biggest, most “pedigreed” emerging hedge fund in Canada. Launched in 2014 with US $400m, it now has ~US$2.3B in assets in a single fund. The fund can accommodate US and offshore investors with a minimum $10m to invest, but is not readily available for Canadians.

It's a global long/short fund with a value strategy. The firm was co-founded by Len Kipp and Xavier Majic in Toronto. It also has a satellite office in the San Francisco Bay Area. Len Kipp left in 2017, whereabouts unknown. Xavier Majic, CIO, owns the firm outright. He was a professional hockey player for 10 years, he was co-Captain of Team Canada in 1999-2000 and a Canucks draft pick. He graduated with an MBA from Harvard Business School in 2006. So he’s not your grandpa’s Canadian hedge fund manager.

Xavier Majic was previously with two San Francisco based firms: 3 years at Lonestar Capital Management and before that, 5 years at Passport Capital. He was initially a specialist in the agriculture, mining and basic-materials sectors, but then became a generalist. At Passport, he managed the Basic Materials Fund. (Passport is famous for having taken part in the Big Short of subprime mortgage securities.)

Maple Rock holds a concentrated portfolio of best ideas, primarily in small and mid-caps with an emphasis on mispriced opportunities that are in "structurally inefficient sectors and countries". In 2020, Maple Rock made a massive bet on energy (after the pandemic crash), boosting their weight to 38% by November. One of their holdings was SM Energy, which has gone up 15x since 2020.

Maple Rock also had a notable scrape around the same time against ESW, a firm controlled by a mysterious Texas-based software billionaire. ESW brings a ruthless cost-cutting approach to software. (Namely, by outsourcing coding work to places like Bangladesh. ESW has been called a “global software sweatshop.”) Together with EdgePoint (aka SmugPoint), Maple Rock owned 40% of Optiva (formerly Redknee Solutions). ESW owned a 27% stake plus warrants to acquire more. ESW wanted to take over Optiva, but the value sticklers didn’t want to sell at that price. Some clever legal maneuvering ensued, but the value people prevailed. Optiva has been a clunker though. At one point, Constellation Software also coveted Optiva. But the company is perhaps most famous as the place where Gary Ng cut his teeth. I miss him.

With its energy bets and short exposure to SPACs, Maple Rock went up 21% in 2020, 54% in 2021 and up 16% in 2022. A short position in Carvana was a big winner in 2022. In 2023, I am told it was up mid-single digits. These are numbers given to me by a source, Maple Rock would not talk directly with me.

Maple Rock’s literature reveals a mix of hedge fund like “outsmarting others” thinking and some more classic business investing thinking.

Some excerpts:

It holds stocks long-term with deep understanding and being close to management.” It relies on “pattern recognition, company-specific knowledge and situational analysis”.

It believes mispricings are typically driven by either fundamental (e.g. earnings) or technical causes (e.g. psychology) and both offer ample investment opportunities."

"When a mispricing is caused by an event where the outcome is “unknowable”, Maple Rock believes it is critical to understand what probability the market is pricing into these types of situations and that the market tends to discard “unknowable” investment opportunities creating potential mispricings."

The fund is coming up to its 10th year anniversary next year. Outsmarting others is difficult to sustain over the long-term. I will withhold my judgement until the fund is 20 years old.

The only other person besides Xavier with a PM license at the firm is Calvin Ngai. He’s an Ivey graduate who previously worked at various US firms. So it’s a highly centralized firm (ie the “sun-god model”) and must be über-profitable. One thing that’s unique about Maple Rock is that In 2022, it underwent certification as a B Corporation. B Corporations are less sharply capitalistic or something.

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