Reza Satchu-ration

Possibly my last post on Reza Satchu. No promises, though.
OPM 4 min read

Make sure to start with Part 1 of the Reza Satchu here: Reza Satchu: Kevin O'Leary with hair and Part 2 That time I called Reza Satchu's mom and Part 3 That time Reza Satchu had a home in Nevada.

By the way, I always had a killer instinct for journalism. In high school, my English teacher made the class put together a newspaper. She taught us the 5 Ws and gave us the basic facts of a story. Then she asked the class: How would you open this story? I eagerly put my hand up and said: "With a pun".

When Reza graduated from McGill in 1991, he called a Canadian working for Merrill Lynch in New York to get a job. She wanted to meet and asked him where he was. Reza "fibbed" and said he was in New York because he "didn't want to introduce the notion of not having a work visa". Then he drove overnight to meet her the next day. He got the job and worked for a few years for Stan O'Neal in the High Yield Group. Stan would eventually become CEO of Merrill, presiding over its subprime debacle. I don't want to make a big deal of the fib, which he freely talks about, but by his own admission, Reza has a capacity for deception, in case you have any doubt. You can read my previous articles on him for more background.

Reza spent a few years at Merrill in the high yield group, did an MBA at Harvard, then spent four years at private equity firm Fenway Partners. Why then, did the Globe write in 2012 (after duly noting his “billion-dollar exit”):

Since then, the Harvard Business School grad, who spent 12 years at the private equity firm Fenway Partners in New York…

Twelve years! The math makes no sense. Could the confusion arise from Reza's own bio being at times misleading? I have one old bio of his with this line:

Mr. Satchu has spent the last 13 years in New York City where he was Managing Director of Fenway Partners, a private equity firm, and co-founder of Suppliermarket, a procurement software company.

A careless reading of that line would cause you to believe he was MD of Fenway for 13 years. The reality was 4 years, and he started as an analyst, and was only MD for a year or two. (The Globe probably subtracted 1 year to account for his time with SupplierMarket). Fortunately, Reza insisted that the Globe correct its mistake. Just kidding, the Globe repeated that same line in a 2013 article. And of course, it's not hard to find instances of Reza telling the story of his heroic involvement with Fenway when they were "nothing".

A more recent boast of Reza is his founding of a debt trading firm called KGS-Alpha, which was sold to BMO for "close to half a billion dollars" in 2018. But that exit value should be relativized with the initial investment. KGS started operations in August 2010 and in short order raised some $175m in capital. Then in 2013 it took on $65m in debt. Of course, the firm boasted about fundraises, when that was convenient. If you do the numbers over 8 years, I don't think the returns are what private equity dreams are made of, unless there was other return of capital prior to the exit at half a billion dollars. For whatever reason, the key initial backer of KGS, Arsenal Capital Partners doesn't even mention KGS as a realized investment on its website. (It was definitely sold to BMO though, terms undisclosed, so we have to go by Reza’s exit figure.)

Reza was already back in Toronto when KGS was founded. While the original press release announcing the launch of KGS doesn't reference Reza, a subsequent one does say he was instrumental in landing a $75m financing round led by the private equity arm of Healthcare of Ontario Pension Plan ("HOOPP"). That financing closed in February 2011. The man on that file for HOOPP was Managing Partner Andy Moysiuk. The next year, Andy joined Reza’s Alignvest as Founding Partner and Director. He’s still there. I don’t know anything about pension fund governance, but HOOPP has a 3-star rating on Yelp. Even my local Quizno’s does better.

Alignvest has other pension fund refugees: David Long, former senior guy at HOOPP. But their biggest get was Donald Raymond, the former Chief Investment Strategist at the CPP Investment Board, who joined in 2014, but left last year. Alignvest Investment Management (“AIM”) is now down to $200m in AUM and the group has had other recent departures. Reza has said about the 08 financial crisis:

There were many people in the asset-management business that were doing things that weren’t necessarily in the best interests of their investors.

I don’t know if he meant this as criticism or as a source of inspiration. AIM employs two longstanding collaborators of Reza, who were with his previous venture, Stellation Asset Management: Kerry Stirton and Randolph Cohen. Any reference to Stellation has long ago been expunged. Randolph Cohen is also the co-founder of Vision Capital, which was especially active doing PIPE financings with Chinese companies. Vision was up 105% in 2005, then 188% in 2006, which led to assets approaching $1 billion. But then the fund crashed and couldn’t meet redemptions. PIPE deals come with warrant sweeteners. That can potentially lead to abuse if the warrants are not properly valued. Also, keep in mind that performance fees generally tend to be non-refundable.

In 2008, Stan O’Neal, Reza’s mentor, after having been forced out of Merrill Lynch was reported to be considering joining Vision Capital. In September 2010, Reuters reported that the New York office of the SEC opened a "wide-ranging investigation of Vision Capital”. If I had to bet, I would bet Stellation invested with Vision Capital. Anyways, nothing conclusive can be said about a mere investigation and I don’t want to make baseless smears.

Unlike President Obama, Reza was actually born in Kenya. There’s absolutely nothing wrong with that, I was just testing to see if you were racist. Reza claims to be the one who referred Kevin O’Leary to the producers of Dragon’s Den. Now, that’s discreditable.

Some other Reza quotes:

-Always seek positions of discomfort. - Professor Reza Satchu

I have no idea what that means, unless he's in the early stages of forming a cult that abuses its members, but this other quote of his, I really respect:

-Any idiot can make a decision with perfect information!

We will never truly know Reza, but the imperfect evidence I have presented so far is plenty to keep you away.

Epilogue: Reza is as of July 2020, a Senior Lecturer at Harvard Business School! His LinkedIn profile no longer references his SupplierMarket experience, his supposed billion-dollar success story. AIM is working on a new product with a hypothetical backtest showing a Sharpe Ratio of 1.8!!! Don’t send him all your savings at once.

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