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Jim Davidson is seated in the same small room at the Calgary Petroleum Club where he and three other young financiers gathered each month in 1992 to plot the formation an investment bank that would target the hot sector of the era – junior oil and gas.

That year, Mr. Davidson, Murray Edwards, Brett Wilson and Rick Grafton arrived at the Bluesky Room at different times, using different entrances, so as not to draw attention as they mapped out what would become FirstEnergy Capital Corp. Within a few years, the firm would become one of the best-known independent dealers serving an oil patch hungry for capital and an investment community only too happy to provide it.

The firm raised billions of dollars for the industry, hosted investment conferences at the Waldorf Astoria Hotel in New York and put on legendary “FirstRowdy” parties at the Calgary Stampede, where clients kicked up their heels and wrote generous cheques for selected charities.

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Jim Davidson, seen in Calgary on Oct. 24, 2018, says Canada’s boutique investment dealers get no respect as the major banks dominate the financial industry.Alex Ramadan/The Globe and Mail

Today, the Calgary investment scene could not be more different. The Canadian energy sector is struggling to recapture the interest of global investors following four tough years of downturn. And Mr. Davidson, at 61, is retiring as vice-chairman of GMP FirstEnergy, as the firm became known after GMP Capital bought it for $99-million in 2016. The other founding FirstEnergy partners are no longer involved in the operation and have started several new businesses.

He’s adamant that Canada’s boutique investment dealers get no respect as the major banks dominate the financial industry, leading to what he calls a lack of “financial biodiversity.” Yet as he leaves the sector to promote industry causes, he asserts the independents keep proving their mettle – as shown by their early and deep involvement in two of today’s biggest investment trends, cannabis and blockchain.

What was the genesis of FirstEnergy?

The crumbling of the four pillars [when banks were freed to buy brokerages, trust companies and insurance providers]. There was a mad dash by the Canadian chartered banks to buy up all the boutique [investment dealers]. So it created a vacuum and, as such, there hadn’t been a new investment boutique that had been started in many years. In Calgary, there was, of course, Peters & Co., which had been there for a while.

We were all at different stages of our careers and could take on incremental risk. We’d established enough of a reputation in our careers where we had a little bit of financial flexibility. I was working at First Marathon. An odd side note is that a number of the individuals that I dealt with on a day-to-day basis, even though I was in the Calgary office, were the ones that ultimately formed GMP, because they worked at First Marathon: Mike Wekerle and Kevin Sullivan – one being the most famous trader in our day and age, and the other being the ultimate CEO of GMP Capital.

So, the individuals that I worked with ended up purchasing FirstEnergy two years ago. And this is the very room in which we planned out the firm. So, that’s full circle.

The banks were not interested in funding energy startups at the time?

At First Marathon, I was a financier for startup capital for Canadian Natural Resources, which is now a $45-billion company. Financing was done with First Marathon and Peters & Co. to raise money for none other than Allan Markin and Murray Edwards. The banks wouldn’t have come near it.

Boutiques play an important role. It is becoming more and more difficult to run an investment boutique in an environment where the banks, because of their monopoly, are given all the advantages. The politicians and the regulators who set the rules don’t realize what’s going on at the grassroots level. And even though the cannabis and blockchain industries are dominated by the boutiques, the fact of the matter is they still don’t get it.

So, we had done 45, 50 financings of anywhere from $5-million to $50-million before the banks came in, and they will now ultimately dominate that business.

What happened when FirstEnergy arrived on the scene?

We opened the shop after the September long weekend in 1993, the top of the energy market at that moment, and it was 15 months before the market got back to that level again. The oil and gas index actually dropped in value by 25 per cent in that first year. That tests your business model pretty severely, and tests the personality and the culture of the business. There’s an incredible amount of tension. You’re in your infancy, you charge out of the gate and you’re going to change the world, full of enthusiasm – and the market falls apart. You’re immediately going from your front foot to having to play defence.

How did you initially sell it to prospective clients?

We all had a reputation. I was known to clients and potential clients. Rick was, maybe, the second top salesman at Peters & Co., the dominant player in the resource sector, so he had a following. Murray, at that point in time, was working at Peters & Co. Capital Corp., which was the merchant banking division. Then Brett came along and helped to start a property acquisition and divestiture practice. It was all run by consensus – all managing directors.

After the 1993 correction, a lot of the companies that we covered were financially starved, so there was a need and a desire for capital. Portfolio managers were underweight the sector, and so wanted to increase their exposure again. And at that time, the junior oil and gas market was the envy of capital markets around the world. If London wanted exposure to the [small- and mid-cap] energy sector other than wild-ass deep offshore West Africa drilling, they needed to come to Canada. We also had some very large U.S. investors who were looking for exposure to energy and they looked at Canada.

Listen to what I’m saying now in 2018: Right at the moment, they have no interest in investing in Canada. … So the only things that separate us right at the moment are politics and infrastructure. That’s it. And for that we’re getting US$50 a barrel less than our largest client and largest competitor south of the border.

What was the financial crisis like for a boutique energy brokerage?

It was frightening. What happened was oil prices crashed. We had people talking about $200-a-barrel oil prices, and it got as high as $147. And then they fell to somewhere around $35 very quickly. But overall energy demand continued to grow by a million barrels a year. As a result of that, we rebounded – we being FirstEnergy and Calgary and Alberta – very quickly. Because of the rising oil prices again, amid growth in demand, the businesses we followed were starved for capital [which they needed to restart projects] yet again.

This downturn has dragged on far longer, though.

So, 2009 and 2010 were record years for us, and 2011 was good. In 2012, we started to see some cracks, and in 2013, we had a bit of a down year. It really started to fall apart in 2014 and we’ve been in this quagmire for four years. And not just us. We’re a reflection of what’s going on in the energy sector. We’ve done enough transactions and been nimble enough to generate enough revenue to be profitable. But it’s been incredibly difficult. We downsized twice.

How did the takeover by GMP come about?

It was a coming together of two senior individuals within the organizations. … Each of them came to their partners and said, “Look, I don’t know if this is going to work. … But I will tell you that I can see that a merger between these two organizations would put us on solid footing in an environment where the financial services industry is changing like shifting sands.”

It’s unusual that it was the FirstEnergy corporate culture emerged as the dominant one in the GMP energy franchise.

That’s right. One of the things that we thought we’d have difficulty with was that we’d been independent our entire lives. And we’re known for making decisions in a group, but making those decisions quickly. And [GMP chief executive Harris Fricker] said, “Listen, the reason we paid as much as we did for you is that we trust your expertise. We, in fact, believe we couldn’t replicate it. So why would I want to get in the middle of the all that and start telling you from Toronto how to run your franchise?” I thought it was a brilliant move on their part.

This interview has been edited and condensed

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