Polar Asset Management, Original Gangster of Canadian hedge funds

Polar has been around for a long time and is a rare institutional-grade hedge fund in Canada.

Polar Asset Management is probably the oldest and largest hedge fund operation in Canada, having started in 1991 and currently managing about $6 billion. They are a multi-strategy firm exploiting a variety of arbitrage and directional niches.

Their flagship multi-strategy fund has a continuous track record going back to December 1991, compounding at 12.8% vs 9.8% for the S&P 500. The fund was staked with the money of three partners and the backing of a prominent Canadian family whose name I don’t know! I recall at some point they also had a private equity business focused on software. For many years, Polar had a brokerage affiliate, probably captive, but it gave that up in 2017. The top banana and CIO is Paul Sabourin. Paul started as a small-cap research analyst at Burns Fry (predecessor to Nesbitt Burns), then moved to trading, eventually becoming a director of the firm. He runs the flagship multi-strategy fund with a focus on convertible arbitrage, merger arbitrage and other special situations.

Let's pause briefly for an episode of That time I met...

In 2006, I was trading on my own and was interested in managing a book. I heard that Polar was a firm that was open-minded and that allowed people to run their own book. So I emailed Paul Sabourin, who readily agreed to meet me. Paul met me wearing a green sweater (that's my best recollection, maybe it was blue or burgundy). The first question he asked me was to describe a trade I had on. So I started talking about Bioscrypt, which was a concept stock involved in biometric security. (At the time, I was into small, speculative stocks, not that I believed in them, but I thought I could trade in and out of them). Paul stopped me and said "Yeah, we're not like that". And that was pretty much the end of the substantive part of the meeting. I wouldn't say the meeting was abrupt and if anything, over time, I have gained respect for such clarity of thought.

Another co-founder was Phil Schmitt.

Let's pause briefly for the inaugural episode of That time I phoned...

Phil was apparently a major force in growing Polar. In 2005, Phil left Polar and then started Summerwood Group, which is in the business of launching new innovative alternative investment products. In 2009, I was interested in launching a Canadian fund and someone told me that Summerwood could provide regulatory cover for me. So I had a chat with Phil. My notes say "He is well-spoken, seems to know regulatory issues well". But I didn't go with Phil, I was able to find a solution closer to me. I think Summerwood is still active dealing with big funds.

In 2006, around the time I was meeting Paul, he was succeeded as CEO by Tom Sabourin. I see, what does Tom Sabourin have that I don't? Did you know that Bioscrypt was acquired by NYSE listed L-1 in 2008, which itself was acquired by multinational defence company BAE Systems in 2010? It wasn't some flaky company!

I also see that Paul Sabourin is a backer of Diagram Ventures, Paul Desmarais III's venture capital experiment. I see, so my speculative ideas are no good, but Paul Bambino's dabbling in a field in which he has little meaningful record is OK? I see how that works. VC investing is not serious investing. Who's serious now?

Late-breaking news: I see that the private equity affiliate of Polar, Polar Equity Partners is still around. They specialize in generational transitions, companies facing changing markets, competitive headwinds...Do we know any industry like that?

On a separate and unrelated note, some people have written to me gleefully noting that Polar's performance has deteriorated somewhat in recent years (I am paraphrasing more tactfully). I find such behaviour to be distasteful. Our industry is struggling and now dealing with a bear market. I, for one, will continue to focus on positivity. Anyways, I have no interest in niches like convertible arbitrage, I wouldn't know how to benchmark them, so I wash my hands from any responsibility to evaluate their numbers. Also, is beating some arbitrary benchmark, the be-all and end-all of a relationship with a money manager? How about the value of developing a decades-long relationship with an affable, sweater-wearing gentleman like Paul Sabourin, who even when he rejects you in under 5 minutes, still leaves a positive impression? The multi-strategy fund only lost 8% in 2008, so that's noteworthy. Many arbitrage funds did far worse in 2008.

I am very impressed by the institutional-grade business Polar has built....I thought they were smaller than the $5.5 billion. The growth was relatively slow: they first crossed the $100m mark in 1998, then again in 2002, because of the intervening bear market. They crossed the US 1 billion mark in 2008 and so have grown significantly since then, despite the hedge fund industry's difficulties. The majority of their AUM comes from outside Canada (from funds-of-funds, Swiss institutions, etc.) They still manage to charge full hedge fund type fees of between 1.5% and 2% fixed plus 20% performance. They only have 73 staff, so it must be a pretty profitable operation, even with generous employee participation. Run the numbers on nearly 30 years of managing large portfolios, and having a brokerage operation plus private equity and Paul must be really loaded. I have no intention of antagonizing him, as you can probably tell. If anything, I should get back in touch with him. Do you think asking to catch up after 14 years of no contact following that brief meeting would be awkward?

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