Talk to Kevin O’Leary about what he’s learned in his career, and he’ll talk about cat food.
Cat food, because as a young MBA student, he took a summer job at Nabisco marketing the stuff. He says he learned that all the flavours were built out of two ingredients: beef paste and tuna paste.
Some years later, at the software company he co-founded, SoftKey Software Products (later renamed Learning Co.), he says he had a “eureka moment” and applied the lesson from cat food: “All you need is two engines, and the flavours come from that.” To Mr. O’Leary, the engines for educational software were reading and math.
Today, having made millions from the sale of that company, Mr. O’Leary is a television star, with his reality shows Shark Tank and Dragons’ Den, and his nightly spot on the CBC’s The Lang & O’Leary Exchange.
He is also the founder and chief promoter of the O’Leary Funds, a group of investment vehicles that have raised $1-billion in less than two years, a remarkably fast start for a Canadian investment company.
As Mr. O’Leary promotes his funds, he relentlessly hammers home two ideas – yield and capital preservation – which he says he learned from his mother: “She told me ‘never spend the principal, just the interest.’ When you say that, it forces you to buy yield.”
Do investors think Mr. O’Leary is picking the stocks because of the name of the funds and his promotion of them? 'I’m sure that’s not the case – I say it over and over again,' he says.
Two engines, if you will. Making Canada’s hottest family of investment products remarkably similar to – well, cat food.
At least, that’s how many on Bay Street view Mr. O’Leary’s growing empire. Canada’s investment community has never seen a celebrity-driven, heavily marketed fund company like his. Mention Mr. O’Leary’s name to many Toronto money managers and you trigger chuckles or rants.
The reactions come in private, because there seems to be little appetite for taking on Mr. O’Leary in public. His television persona has made him a person to be feared, and envied.
Other money managers understandably don’t like seeing their territory so successfully invaded by an interloper. And many of them take aim at Mr. O’Leary’s investing experience, or lack thereof.
By the time Mr. O’Leary was hatching his plans for a fund company, he was a frequent sight on Business News Network, a sister company to The Globe and Mail, and on his reality shows. His entrepreneurial spirit and TV persona set the stage for a wholly different approach to launching and promoting funds in Canada.
The first product, the O’Leary Global Equity Income Fund, was launched in July, 2008. Once the regulator-mandated quiet period ended for the fund, Mr. O’Leary got the chance to talk it up on Squeeze Play, a show he co-hosted with Amanda Lang on BNN. A caller asked Mr. O’Leary if the Global Equity fund “would be rated as a very conservative fund.”
Mr. O’Leary responded by saying Canadian bank stocks were “too risky” for the fund because it “is for grandmothers,” is “totally conservative,” and was something he could put his then-88-year-old mother in “and feel I’m not going to blow her portfolio up.”
What happened next may have been unprecedented in the history of Canadian closed-end funds (so named because they trade on an exchange and are not “open” to investor redemptions except at select times). The fund soared 14.5 per cent the day after Mr. O’Leary’s comments and traded at a significant premium to its assets for several months in the second half of 2008 – most closed-end funds trade at a discount to assets.
As the markets proceeded to fall over the next few months, the Global Equity Income fund plunged. By mid-2009, it was down more than 40 per cent from its highs. At current prices around $9.30 a unit, investors who bought at the top have seen their investment drop roughly 18.5 per cent, including distributions.
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Investor Education: Mutual funds
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