Math whiz Ravi Sood has ridden the highs and lows of the wild world of hedge funds.
The president of Lawrence Asset Management Inc. made a name for himself running the firm's flagship hedge fund with stellar returns such as his 75-per-cent gain in 2007.
But 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.
The investment firm “believes it is in the best interests of all shareholders to suspend redemptions for 60 days,” the 32-year-old manager told investors in letter on Monday.
“We are reviewing the situation and expect in the upcoming weeks to present to LPF shareholders a number of alternatives.”
Mr. Sood is the latest victim among Canadian hedge funds caught in the market turmoil.
Falling stock markets are forcing many hedge funds to wind down or undergo a makeover.
“Certainly we are going to see more hedge funds suspend redemptions to meet an orderly request of unitholders who want their money,” said fund analyst Peter Loach. “A lot of hedge funds focus on small-cap stocks, and they have been hit the hardest.”
Last month, Toronto-based Epic Capital Management Inc. said it was closing its flagship Epic Limited Partnership hedge fund after assets sank to $200-million from $300-million.
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.
The past two months have been challenging for Mr. Sood, a precocious student who completed high school at age 16. He joined Toronto-based Lawrence & Co. after graduating with a math degree from the University of Waterloo.
This is the firm founded by legendary Bay Street bond trader Jack Lawrence who built the former Burns Fry into a powerful investment dealer. It boasts blue-chip names such as John Crow, former governor of the Bank of Canada, and Paul Volcker, former chairman of the U.S. Federal Reserve Board, on its advisory board.
With his partners at Lawrence & Co., Mr. Sood founded Lawrence Asset Management as a subsidiary in 2001.
His 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.
Mr. Sood could not be reached for comment, but he told investors in his letter that the fund's poor performance was also affected by the credit crisis. He “was forced to adjust on little notice to more restrictive credit terms in an already problematic market.”
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.
“There is value embedded in the illiquid public securities and in the private equity holdings, but it will take time, management and an improvement in the market conditions for this value to be realized,” he said.
Mr. Sood also gained notoriety earlier this year as part of a group of short sellers who were highly critical of the lofty valuation of silicon producer Timminco Ltd. The firm's stock had skyrocketed on claims it had developed a process to produce solar-grade silicon at a low cost. The stock has since plummeted.
