That time I called Reza Satchu's mom

That's a weird title, please allow me to explain. I first read about Reza Satchu in the Globe around 2005. Sometime after that, I was calling up a lot of moguls to launch a hedge fund. Reza had a fund of funds called Stellation Asset Management. But I had a hard time tracking him down - he could have been in New York, Connecticut or Toronto. In one article, he talked about his parents by name. And they were much easier to get a hold of. I still have a note saying that his mom was "kind and encouraging" to me. And that's why you will never hear me say a cross word about Zarina Satchu.

Reza, on the other hand, never answered. So he's fair game! Reza, by his own admission, is not afraid to try things and fail. At various times, starting in 2005, his primary affiliation has been described in the media as NorthCoast Capital, Guildwood Capital and Stellation Asset Management.

None of these names appear in his current official bio. Whether there were name changes, mergers or failures, etc., I don't really care to investigate too much. Sometimes I just like to throw things on the wall! Whatever his overall business record is, when it comes to the specialized craft that is money management, especially in public securities, I see very little legitimacy. He's an interloper, sort of like an MBA Hospital CEO advising on cancer therapies.

Stellation, one of his more notable asset management ventures, closed shop in 2009. This is how the AUM levels looked, based on regulatory filings. Keep in mind, this chart reveals reported AUM levels, not performance. Nevertheless, I think you are smart enough to imagine a few scenarios why an ambitious thirtysomething might close a fund of hedge funds after 2008.

Before the fund closed, the Globe, of course, was there to gush:

"He launched his latest project, Stellation, in 2005. The highly successful hedge fund company was ranked by UBS as one of the top global equity long/short hedge fund of funds for 2007 and includes investors from the world's largest private equity funds, including Citibank."

Two key principals of Stellation are back with Reza's more recent money management venture, Alignvest Investment Management: Kerry Stirton and Randolph Cohen. One was a Rhodes scholar, while the other was a professor at MIT and Harvard. Reza never shops at the bargain bin at Ryerson U, that's for sure. But as you know, the markets don't care about pedigree (see LTCM). Back in 2006, these two co-authored a paper called "Are hedge fund fees a bargain?" I think we all know the answer to that now, though many people continue to show willful blindness. The very name Alignvest is silly: performance fees are the very opposite of an alignment of interest. I do get the impression they put a lot of their own money behind their deals - that part is respectable.

I could go on about the trials and tribulations of Alignvest, but let's cut to the chase. I have already covered many stories of wealthy people doing dumb things. Alignvest is a fine example of that: macro predictions, market timing, double layer of fees, moving in and out of funds. It's as hopeless a product as I have come across. Despite having failed at Stellation with long/short equity funds, Alignvest now strides the world as a "Multi-asset manager" investing in everything from stocks to Australian water rights to credit, to Cat bonds, etc. directly or through external managers. Is there any limit to their talents? The idea here was to revolutionize the old 60/40 model, which apparently is broken. How's that working out?

Let's look at some of the marketing language:

World-class investment management

ASPF adopts a best-of-breed, long-term pension and endowment-style approach across multiple global asset classes. State-of-the-art portfolio design, implementation, risk management and the blending of active and passive management is carefully designed in the most efficient way for Canadian investors.

Now, let's look at the results:

So a losing record since Q4 of 2016. Some of their fund classes have $10m minimum purchase, but you would be better off at Tangerine. The University of British Columbia has given them $75m to manage and a $1.5 billion advisory mandate. Alignvest is also advising Sagicor, a publicly-traded insurer that its SPAC affiliate acquired. I think Sagicor should shop around a little, have they heard of GICs?

Separately, Reza is the prime mover behind two publicly traded blind pools of capital (SPACs) under the Alignvest brand that have raised hundreds of millions. In regulatory filings with the SEC and OSC, he references his SupplierMarket experience as follows:

Mr. Satchu has co-founded, built and / or managed several operating businesses from inception including: SupplierMarket, a supply chain software company with over 125 employees and investors that included KKR executives and Sequoia Capital, which was sold to Ariba for stock consideration implying an enterprise value of U.S.$924 million...

If you read my last post, would you say that Reza co-founded, built or managed SupplierMarket? Did he do it "from inception"? The very structure of the sentence is fork-tongued. It's sort of like me saying: I have won or watched races in high school and at the Olympics. Which is which? I recall in Ontario, the standard for disclosures of this nature is that they be "full, true and plain". The stock price of the first Alignvest Acquisition SPAC is down about 90%. The second SPAC is holding up better, it's only down 40%. In a SPAC, you are placing blind faith in the track record of the sponsors. I think shareholders would have appreciated knowing some of the nuances I brought to light. If you need to draw a matrix to understand someone's bio, maybe take a pass.

Here's a chart of the beautiful butterfly that emerged out of the first SPAC:

Burdened by the noblesse oblige of all this success and the gratitude he feels towards his adoptive country, Reza has said: "I always felt like I wanted to do something for Canada." How about not launching crappy SPACs? That would be a good place to start. He boasts of raising money from the likes of KKR and Onex, why does he need Joe Tim Horton's money?

Reza has talked about his family's immigrant experience of starting over in a one-bedroom apartment in Scarborough. He has also talked of the inspiration of his father becoming a successful real estate agent. Well, they really moved up. By the time I called his mom, the parents were ensconced in a prestigious Yorkville building with Jim Doak as a neighbour. I should have kept in touch, I could use a Yorkville crash pad.

Finally, bear in mind that my focus is always on new perspectives. I can only assume Reza has had legitimate successes, it would be redundant to existing media coverage to name them here. A recent apparent win might be KGS-Alpha, a fixed income trading shop started after the 2008 crisis, which was sold in 2018 to BMO for "close to half a billion dollars". The "S" in KGS stands for Satchu. If you want the details of his wins, just call his mom. Or better yet, the Globe and Mail.

PS: Late-breaking news: Maybe KGS-Alpha wasn’t all that either.

You can read other Reza Satchu posts here and here.


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