Lawrence Asset Management Inc. is asking shareholders in its beleaguered flagship hedge fund to approve a restructuring that would give some of its assets a new lease on life.
The Lawrence Partners Fund, run by president Ravi Sood, plunged 67 per cent during the first 11 months of 2008. Assets fell to $67-million from $202.5-million at Dec. 31, 2007.
In early November, the firm suspended redemptions in the fund in order to present alternatives to investors because it is now largely in illiquid, private companies.
The firm and the board of the hedge fund – which is structured as a corporation – are recommending that the shareholders vote in favour of creating two new classes of shares – reinvest and wind-up shares.
Under this scenario, the proceeds from sales of investments would be redeployed in the fund for those who have chosen the reinvest shares.
The money will eventually wind up in a segregated account where investments will be restricted to Canadian stocks with a market capitalization over $100-million and no leverage will be used, according to a management information circular. Those who elect the wind-up shares will eventually be paid in cash.
For this option to get the green light, it must be approved by two-thirds of shareholders. The reinvest shares must also represent at least 25 per cent of the assets. A special meeting to vote on the proposal will be held Feb. 2 in Toronto.
If this option is rejected, shareholders will be asked to vote for an orderly wind-up of the fund over time, with payments coming as investments are sold. Redemptions will remain suspended, but the annual management fee will be reduced to 1 per cent of assets. This resolution must also get the nod of two-thirds of shareholders.
Lawrence Asset Management is a unit of Toronto-based Lawrence & Co., founded by legendary bond trader Jack Lawrence, who is chief executive officer of the company running the hedge fund.
According to the circular, the private companies represented 90 per cent of the assets at the end of November, and were valued at cost. The holdings include names like Athabasca Oil Sands, Canadian Bioenergy, Russo-Forest Corp., MagMinerals, Virginia Uranium and Irkutsk Oil Russia.
“These private holdings are substantially illiquid at this time,” the circular says. “Any attempt by the corporation to realize on such holdings in the current environment will likely result in realization proceeds that would be significantly lower than if such holdings were realized in a more orderly manner.”
From June 30 to Dec. 19, the S&P/TSX composite index plunged 40.9 per cent, including a swift 29-per-cent decline in the eight weeks from Sept. 1 to Nov. 1.
The fund “suffered significant losses during this time due to these markets and a requirement to reduce leverage in short order,” the circular noted.
