In its short life, this newsletter has already amassed an audience bigger than Obama's inauguration. I feel the pressure to be relevant, so today I am going to write about a guy who peaked in the 80s and is no longer alive. You are going to enjoy it and fax it to all your friends.
“NEVER FALL IN LOVE WITH AN ASSET, THERE’S A TIME TO BUY AND A TIME TO SELL.” — SAM BELZBERG
In 2006, I launched a small embryonic hedge fund to carry out what was a more primitive, trading-oriented version of my investment strategy. It was initially started with my own money and I was pitching wealthy investors in Canada to become seed investors in the business.
In summer of 2007, I became aware of an intriguing financier named Sam Belzberg out of Vancouver, who was once famed and feared but had now largely fallen out of the public eye.
I decided to target Belzberg when I learned that he had been the first investor in Millennium Management - founded in 1989, and now, a legendary hedge fund managing $38 billion. Millennium ranks no. 12 on the list of all-time hedge fund greats, compounding at 14% annualized with a cumulative gain of $22 billion. Millennium had been started with $5m of founder Israel Englander's money and $2m from the Belzberg family (though accounts vary as to the exact amounts).
Let me take a moment to tell you a bit about Sam Belzberg. The story starts with Sam's father, Abraham, who immigrated to Canada from Poland, where he was a fishmonger. (Israel Englander's family was also from Poland). Abraham eventually started a furniture business in Edmonton. By the time he died in 1976, Abraham left his five children a fortune in real estate holdings. Fred Trump-style! After university, Sam was active in oil and gas investing as well as real estate development. In 1968, at age 40, he moved to Vancouver and from there, evolved to control a number of trust and financial companies in both Canada and the US. Sam's brothers Hyman and William also played a part, but Sam was the central character.
The 80s phenomenon of corporate raiders is what made Belzberg, Belzberg. That was a golden age for very aggressive acquirers financed by junk bond issues. They would buy stakes in companies and threaten takeovers in a tactic known as greenmailing. Management teams fearing a hostile raid would often just buy back the greenmailer's stake at a premium. Although corporate raiders would sometimes follow through on their hostile bids, their primary currency was fear.
Belzberg's main vehicle was called First City Financial Corp. One of First City's first big scores in the US was Bache Securities, a large but troubled stockbroker at the time. The idea was brought to Belzberg by his analyst John Clark, (later, of Connor Clark and JC Clark fame). Bache had been hurt by its participation in the Hunt brothers' cornering of the silver market and Clark felt it was undervalued. Belzberg built a 22% stake and started fighting management. In the summer of 1981, rather than falling prey to Belzberg, Bache agreed to be acquired by Prudential Insurance for $385m. This set off a wave of consolidation in the brokerage sector, with Amex buying Shearson and Sears buying Dean Witter. The coup cemented Belzberg's reputation as an astute and aggressive investor.
The Belzbergs, total outsiders even in Canada, were now playing in the heart of Wall St, often working with junk-bond king Michael Milken and backing people like T. Boone Pickens. Other major targets included Ashland, then the largest US refiner, Scovill, a major manufacturer they bought for $523m and an attempted takeover of Gulf Oil, which resulted in estimated gains of $157m. At the family's peak, they were controlling more than $5 billion in assets.
Little ol’ me, working out of my mom's basement with my 6-figure fund, I decided to contact Sam Belzberg. I sent him an email and a few days later he called me, chatted a bit and asked for references. He called again and said he had to be in Israel shortly (the country) and so I had a week to plan a trip to Vancouver. On 9th of July 2007, I flew on WestJet flight WS629, landing at 8:06 PM in Vancouver. I kept the stub!
I will be back for Part 2.