Meet the new smartest guys on the Street

Tuesday, May 02, 2006


Most investors think risk is a four-letter word. For Greg Boland, it's a beautiful thing.

Bankruptcy plays don't faze him. Accounting scandal? The messier, the better. Hated companies, orphaned stocks that everyone else has given up on -- he's all for them. He is the investing world's equivalent of a guy who enjoys car wrecks.

"There are people out there who are really, really smart, but can't stand risk and volatility in their lives," he says. "If I gave you an investment that did this" -- he waves his finger up and down in a zigzag pattern -- "it would technically have a lot of risk because it's got lots of volatility. But at the end of the day . . . risk aversion is usually not a wealth maximizing strategy."

He ought to know the value of a strong stomach. Mr. Boland, operating under an investment vehicle called Sunrise Partners, was one of the mystery men behind Stelco's restructuring, a high-wire act full of politics and tactics that several times looked like it might fail. The partnership bought 18 per cent of the Hamilton steel company in bankruptcy court for $27.3-million.

One month later, that stake is worth almost $100-million, and he thinks it will be worth a lot more once the new Stelco proves it's much better than the old. Investors will get a taste next week when the company reports its first set of post-bankruptcy financial results.

So far, it looks like the trade of the decade, but outside of Bay Street, almost nothing is known about the man behind it. Mr. Boland, 41, whose official title is chief executive officer of West Face Capital, has stayed almost completely out of the public eye, until now.

The Stelco play, it turns out, is a pretty good illustration of an investing style that's worked. The hedge fund says it has 25-per-cent returns, compounded annually, since it began in 1998 (the figure is unaudited), while running, on average, about $400-million during that span.

It's a long way from his days at Palmerston, an upscale Toronto restaurant where Mr. Boland waited tables in the mid-1980s. One evening, the place was full of big Canadian financiers raising money for the University of British Columbia's portfolio management foundation, which lets finance students learn by managing millions of dollars. For a computer geek who had dabbled in the stock market, the idea clicked, and he went off to Vancouver in search of a degree in computer science and finance.

But if investing were as simple as building spreadsheets, the Forbes billionaires' list would be full of mathematicians. It's as much art as science, and the Stelco case turned out to be a fine, though unusual, example of the art. Dozens of investors, including Mr. Boland's friend and former trading partner Roland Keiper, anointed "The Smartest Guy on Bay Street" in 2004 by Report on Business Magazine, calculated that Stelco's existing equity still had value, even in bankruptcy protection.

The arithmetic said they were right; tactically, they had it wrong. "What was clear to everybody was there was a massive increase in enterprise value," Mr. Boland says. But he and his partners -- Tom Dea, a former Onex deal man, and Peter Fraser, who had been a senior guy at BMO Nesbitt Burns -- figured the shareholders were playing a game where the rules were stacked against them.

"We said, we have two choices. We can get involved in the [old] stock -- and then we've got a butter knife and everybody else has got an Uzi," Mr. Boland says. "Or we can just go in through the official process" and bid to buy Stelco's new equity in the restructuring.

Few of West Face's investments are as high profile as Stelco, but many of them are just as hairy. The firm bought convertible debt and ultimately became a large shareholder in Saskatchewan Wheat Pool after it ran into financial trouble in the early part of the decade, reasoning that control of the company would have to be wrested from farmers (it was). "It was completely off the radar screen. I honestly think we were the only guys paying attention to it who wasn't a bondholder," Mr. Boland says.

The firm also made a killing by buying CP Ships stock when it plunged in an accounting scandal. They hired a shipping consultant to go through CP's fleet -- "they don't quote ships on the Internet" -- and learned the entire company was worth less than its boats, even though there was an international shortage of cargo ships. Sure enough, CP was taken over last year.

A lot of people expect something similar will happen to Stelco as the global steel industry consolidates. If you go up against the smartest guy on Bay Street and beat him, do you get to claim the title?