1/31/2010

REQUIEM FOR A BAY STREET TITAN - A CASE STUDY IN DUE DILIGENCE

Before his untimely death at the controls of his private float plane, Jack Lawrence was a legend.



Ravi Sood does not want to be quoted.


Ravi Sood does not want to be photographed.


Ravi Sood, you see, is not seeking publicity.


Yet here he is with his dark eyes and small smiles talking at length about the wealth management company he runs, Lawrence Asset Management Inc. About the shellacking the company’s hedge fund took in the fall of 2008. (Down 80 per cent in ’08, I can tell you that. That’s a fact.) About the aftershocks, including the bleating of wounded investors, which reverberated through the higher echelons of Toronto society — Toronto Lawn, the Beaumaris Yacht Club, etc. — and continue to this day. And energetically of the plans and prospects for the skinnier company going forward. (India!)


Seated in the company’s sparsely adorned boardroom, Sood reflects, too, on his relationship with Bay Street lion Jack Lawrence, whose very name was enough to bring high-net-worth Torontonians flocking to the company’s doors. And the moment last August when at which he heard the news that Lawrence had suddenly and awfully died in a plane crash.


But I can’t tell you what he said about that.


That August day.


Brian Lawrence is standing on the dock of his father’s cottage at Sandy Point on Lake Muskoka.



Shards of conversation. He remembers asking: Can I help with the floats?


The reply from his father, Jack, that he himself had already pumped the floats on the Cessna 206.


A colour memory: The short-sleeved yellow shirt Jack Lawrence was wearing that day. And a light brown sweater vest.


The son helps with the luggage, turns to his father, who has been flying for decades, and says, “Dad, fly safely.”


To which Jack Lawrence replies, “Brian, that’s the plan.”


The floatplane taxis along the lake past the cottage. There’s the take-off, then followed by Brian Lawrence’s near immediate thought: What the hell is he doing? He’s not lifting. He’s not lifting.


Ravi Sood drives a yellow Corvette. That’s a fact.


He signed on with Jack Lawrence 12 years ago, a freshly sprung undergrad, eschewing advanced academics for a career, elbow to elbow, with a Bay Street legend. Sood the wunderkind. Lawrence the mentor.


Obsessively fit, aggressively competitive, Lawrence had scrabbled on the bond side to the top of the Bay Street heap and ended up running brokerage Burns Fry.


This is back in the day, mind, when brokerages were brokerages — traders, punters, bond guys. You know, masters of the universe. Places with personality. None of the staid culture of deposit-taking, mortgage-issuing banks.


Lawrence was there for the transformation from Fry & Co. to Burns Fry to, ultimately, the brokerage’s takeover by the Bank of Montreal. It sounds very go-go, which it was. But investment banking didn’t initially carry the financial rewards that we know today: in an affidavit filed as part of a long-ago divorce proceeding, a Burns Fry executive attested to Lawrence’s 1977 salary of $41,500 a year as president of the brokerage, and 52,500 shares valued at $455,000.


Over time, Lawrence’s reputation grew and grew like some sort of super hero, a seer of interest rates. The bond guy of Canada.


In The Traders, published in 1984, writer Sandy Ross decreed that Lawrence was “the single most influential member of the Bond Establishment.” Burns Fry then commanded close to 20 per cent of the country’s total bond business.

And then there was public policy, as in deficit slaying. Tom D’Aquino, the past chief executive officer of the Canadian Council of Chief Executives, recalls a road trip in which he and Lawrence took Bay Street’s deficit-slaying mantra to Main Street.


“We literally crisscrossed the country giving Power Point presentations,” D’Aquino remembers.


“I say Power Point because it was just invented.”


For Lawrence personally, his business acumen brought material rewards: one home, and then another, in Rosedale; one home, and then another, at Lost Tree, the exclusive waterfront Palm Beach enclave with a golf club that demands a $180,000 (U.S.) membership fee. Cars. In latter years, Lawrence drove a black Maserati.


In the mid-`90s, Lawrence left the brokerage behind and established Lawrence & Co. with a mandate to pump venture capital into high tech and health care. Positioned within the umbra of the big bank towers, Lawrence wanted it known that even in his sixties, he had no intention of retiring any time soon. He intended to live, he would say, to 120.


(On this point, reports vary. Clive Caldwell, president of the Cambridge Group of Clubs and a long-time friend, says Lawrence believed he was headed to 150.)


In 1998, former Ontario deputy health minister Michael Decter partnered up, with the newly created Lawrence Decter Investment Counsel designed as a boutique wealth management firm. That relationship eventually came unstuck, with Decter buying out Lawrence & Co.’s position. In the meantime, in 2001, Lawrence and Ravi Sood launched Lawrence Asset Management, offering niche investments to the monied crowd. It was under that umbrella that Sood, in 2005, launched a hedge fund that carried the Lawrence imprimatur, Lawrence Partners Fund Inc.



For Jack Lawrence personally, 2005 was a tempestuous year. There was the March separation from his second wife, Janice, the former Miss Argonaut he had married in September 1977. In May 2005, Lawrence redrew his will, with five of his six children from two marriages as beneficiaries.


According to court documents, the subsequent wrangling with Janice Lawrence over a financial settlement was still ongoing two months before his death. The dissolution of the marriage was finalized last July.


Divorce records are such curious artifacts. The thick court file is testament to a seemingly exhausting and acrimonious battle, the more tawdry details of which are the stuff of low-grade society commentary. Keeping to the high road, we can state that Lawrence expressly insisted that Janice Lawrence was never to be allowed to enjoy the use of the Muskoka Lake property. That Janice Lawrence bought a Wheaton terrier in January 2009. And, more to the point, that the pitched battle assessed Jack Lawrence’s net worth as of August 2008 at close to $32 million.


It was a year before that, perhaps two, when Mr. X gave Jack Lawrence a call. Mr. X is a multimillionaire, and does not want to see his name in print. What he wanted was a recommendation from Jack Lawrence as to which fund Mr. X should consider making an investment in. The Lawrence Partners Fund was Jack Lawrence’s recommendation.

“The notion that was put forward was that this was their way of growing their own capital,” says Mr. X, meaning that Sood and Lawrence both had skin in the game and, he believed, substantially so. “That’s where I put my money and some of my kids’ money,” is how he recalls a telephone conversation he had with Jack Lawrence.

The fund performed spectacularly in 2006 (75 per cent) and respectably in 2007 (21 per cent). Here is where the story becomes a cautionary tale. Mr. X did not read the fund’s offering memorandum. He made no effort to scrutinize the fund’s assets, nor the level of investment risk. He would have signed a subscription agreement, which, among other things, would have confirmed his qualifications as an “accredited investor.” This is not, in today’s terms, a particularly high financial hurdle: An individual with a net income of more than $200,000 in each of the past two years qualifies. Or a net worth of more than $1 million. The point is significant in that selling exclusively to accredited investors relieves the fund-raising company from the obligation of filing a prospectus with the Ontario Securities Commission. (“You can use the accredited investor exemption to raise any amount, at any time, from any person or company who qualifies as an accredited investor,” the OSC guidelines state cheerily.)



Is that good enough? “Accredited investor status purely has to do with numbers, what someone earns and what their net worth is. It doesn’t have anything to do with their sophistication or knowledge of investing,” says Preet Banerjee, a former financial adviser who runs the popular WhereDoesAllMyMoneyGo blog.


As for the term “hedge fund,” that, too, is a misnomer, says Banerjee. “A lot of people think ‘hedge’ refers to the fact that you’re hedging either risk or currency,” he continues. A better way of looking at the investments is to think of them as we-can-do-anything funds. “You can employ any strategy you want, as long as you disclaimer the heck out of it,” says Banerjee. (Mutual funds, to provide a on contrasting example, can’t own more than 10 per cent of any one company.)


Michael Decter has thoughts. Not on the dissolution of his business relationship with Jack Lawrence, but on hedge funds.


“I don’t know why it is we regulate the hell out of the more cautious stuff and we don’t regulate this,” he says. “It’s cowboy territory out there in hedge funds.” And the high net worth test? “A million dollars in assets? That’s not really much more than a house.”


At the end of the day, investor X took the kind of short-cut that could make regular folk feel better about their financial acumen. “The Lawrence thing was just a phone call and there was a subsequent meeting and that’s about it,” he says. “That was my due diligence.” He lost more than $1 million. He won’t say how much more.

Mr. X is still in and, with time, well one never knows.

In September 2008, the credit crisis hit. Lawrence Partners, leveraged and illiquid, went into meltdown. Bank of Montreal, the fund’s prime lender, called its loan. In November, redemptions were halted pending a restructuring of the fund. No happy news anywhere.




Reflecting on those times, Ravi Sood eloquently expresses how he felt then and how he felt nine months later upon hearing the news that his mentor, at the age of 75, had taken off from his beloved cottage, clipped the tree tops and crashed. But I can’t tell you what he said about that.


If you had lost a vast sum of money, would you be willing to go on the public record and say so? Well, would you? Or how about merely a substantial sum of money? Hmmm?


Peter C. Newman and I are seated at a window-side table at Biff’s, the Peter Oliver/Michael Bonacini bistro on Front Street. There’s a great deal of noise and clatter and Newman, ever the author, insists that my tape recorder will have a tough time picking up our conversation. He is wearing his ever-present fisherman’s cap and a merry red turtleneck.


Oliver himself drops by for a chat before Newman muses about his current book project, a biography of Liberal Leader Michael Ignatieff. At 80, the writer is nowhere close to stepping away from his keyboard.


As it turns out, this is a very good thing.


Newman knew Jack Lawrence, slightly, having observed him from his metaphorical perch over Bay Street as he chronicled the shaping and shifting of the Canadian establishment. “We weren’t exactly friends. He was somebody who was trusted. Certainly I trusted him,” he says.

And then? “It’s a tragedy,” he says, recounting the tale of what happened next. The meeting with Lawrence. The signing on the dotted line. The investment in Lawrence Partners. How he was wooed by the halo effect of that famous name.


If Newman were writing this story he would note that as he speaks Frank Sinatra is crooning through the sound system: They can’t take that away from me.


Well. Newman had money looking for a home. He won’t quantify the sum. “I had very good sales on the Mulroney book and my autobiography,” he says. “Together, they sold about 100,000 copies, so I had some money to invest.”


He was surprised, after the fact, to learn that the assets of the fund included such investments as a potash prospect in the Congo. Due diligence? No.

Phone conversation with Newman.


“I got out my calculator,” I say.


“I knew you would,” Newman responds.


“So I’m thinking. A base of 8 per cent on trade paper and a max of 15 on hard cover and I don’t know what your advances were and you said 100,000 books in total. So I max out that the most you could have lost was $376,250.”


“No, it was more than that.”


“It was more than that?”


“I didn’t do the math.”


The story isn’t over.


At the time of Jack Lawrence’s death, the estimated value of his estate was $22.2 million. The bulk of the estate, $16.7 million, is defined on file as simply “shareholdings.”


There’s speculation that Lawrence had a considerable sum tied up in Lawrence Partners. Friends say they will be willing to talk on the record when the estate is finally settled, which, says a long-time associate, is expected to happen soon. Brian Lawrence is insistent: “I just want you to put down .. .. . that I loved him and that he was loved.”


At Lawrence Asset Management, Ravi Sood says his goodbyes, moves across the deathly quiet grey slate floor and disappears. He’s wearing a sapphire tie and a dark suit with a silver bracelet on one wrist. That much I can tell you.


Jennifer Wells
Toronto Star
Published Jan 30, 2010

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