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Lawrence Asset Management - Partner's Fund - small-cap Canadian equities

2008-11-12

Count of distinct funds: 1
Capital base: CAD 217 (March, 2008)
Loss: 65% through October 2008

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stories: theglobeandmail.com

The flagship fund of Lawrence Asset Management, run by Ravi Sood, has decided to suspend redemptions for 60 days:

... the stock market crash has dealt a blow to Lawrence Partners Fund, which suspended redemptions this week after plunging 65 per cent for the first 10 months of this year.

...

Lawrence Partners Fund's options could include winding down. They could also include cutting the management fee for investors willing to stay, sources say, or allowing some investors to pull out if they agree to a further loss on their investment in return.

...

[Sood's] hedge fund, which invests in smaller-capitalization Canadian stocks and has private equity holdings, saw its stellar track record unravel in September when it took a 48-per-cent haircut. The fund, which had about $217-million in assets in late March, lost more money last month.

Regarding what really pushed the fund over the edge:

Sources close to Lawrence Partners say the fund's prime brokers at BMO Nesbitt Burns and CIBC World Markets cut back on their loans, and that forced the fund to sell holdings in takeover targets Fording Canadian Coal Trust and BCE Inc. at a loss.

The fund was also "negatively impacted" by the delay in closing and lowered pricing in the acquisition of PBS Coals - a major holding - by OAO Severstal, Mr. Sood wrote.

Days before the fund was expected to receive proceeds from the deal, PBS Coals went into a renegotiation process that led to the hedge fund receiving less than 70 per cent of the expected proceeds, and several weeks later than expected, Mr. Sood said.

A significant portion of the assets are also in illiquid investments - now valued at cost - and any forced liquidation would "severely undermine the potential value that can be realized under less stringent time constraints," Mr. Sood added.

Looks like the Sood fund has really been hammered by the pullback (arguably overdone, we'd say) in resources stocks. Not sure if much (if any) leverage was involved. You don't need leverage to have those kinds of losses these days!

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Important: This fund is on our list of hedge funds that are apparently ailing or which we think are worth watching for any other reason. Ailing funds haven't shut down, but they've suffered significant value declines and/or temporarily halted redemptions. Funds on watch may not even have unusual declines, but may be posted if it is felt there may be risk of developing a more serious condition eventually.