Fed up with stocks, Canadian hedge fund turns to PE, Profits 88 Percent

The director of Canada’s top-performing hedge fund claims ETFs have made it tough to make money in stocks that are small-scale, so he is shifting his focus on private equity instead.

Toronto-based Goodwood Inc., with roughly $100-million under control, was a double winner in Canada’s most important hedge fund awards this month. Its SPValue Fund won Choice IQ’s award for the best one-year return in the equity class, with an 88-per-cent profit, and its Milford Fund won for best last-minute yield in the credit group, with an yearly 9.8-per-cent gain.

Such wins would usually be useful for any fund manager, but Chief Investment Officer Peter Puccetti stated the equity win was “a small joke.” His SPValue Fund holds only 1 stock, Polaris Infrastructure Inc., which operates a geothermal plant in Nicaragua. Goodwood helped recapitalize Polaris’s debt in 2015 and now holds just over 10 percent of the firm’s shares, a stake worth more than $25-million at current rates, and three of five seats on its board.

“That type of thing we can do all day long but deals like this do not come along very often,” Mr. Puccetti said in an interview at Goodwood’s Toronto offices. It’s the sort of value that’s tough to find in small-caps, his past attention, as more money flows into exchange-traded funds and the large companies they monitor, he said.

“The mutual funds, the active capital, the stuff that we’ve done historically — that’s a tough, tough business and I really don’t see it getting better anytime soon,” according to Mr. Puccetti.

This is the reason he’s turning his focus to deals like the Polaris investment but with private businesses. He said he’s one possible deal in the works and recently lost out on another one to a U.S. private-equity firm.

“You are able to dictate the game if you are private equity, you can control the tempo, you can choose your spots,” he said. “You execute, be certain you’ve got good direction, repay the debt, start looking for great acquisition opportunities to make it larger and stronger, and you await the correct moment.”

Courtesy: The Globe And Mail

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