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There's a funny story about how Laurence Grafstein started his career in investment banking.

Exactly 15 years ago this week, the Harvard University graduate was roused from a sound sleep by a phone call at five in the morning. Gerry Schwartz, chief executive officer at Onex, was on the line, asking Mr. Grafstein if he would mind starting his summer job with the leveraged buyout specialist two weeks early, by getting to the airport in the next 45 minutes to catch a plane.

Mr. Grafstein mumbled his agreement, made the flight, and spent the next four days working on an Onex deal dressed in the one suit he'd brought along.

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He may have looked a little rumpled, but Mr. Grafstein did something to impress the boss. Because yesterday, Mr. Schwartz used Onex's annual meeting as a chance to introduce his former summer intern as the guiding force behind the latest horse in Onex's stable of thoroughbred investments.

Mr. Grafstein, a New York resident, was presented as one of the bright young types that this country has lost to its southern neighbour. The son of Senator Jerry and Carole Grafstein, a power couple in Toronto circles, he distinguished himself at Harvard, went on to Oxford University on a Rhodes scholarship, then headed for Manhattan.

Until last summer, Mr. Grafstein was a major player in phone company wheeling and dealing, heading the global telecommunications investment banking team at Credit Suisse First Boston.

But in July, with a promising career as a Wall Street banker still largely in front of him, Mr. Grafstein quit to start a fund. It's called Gramercy Communications Partners, and the idea is to take equity stakes in promising privately owned telco, Internet and new media plays.

In the world of finance, technology-focused merchant banking is getting to be a crowded space -- local players such as Bank of Montreal and Toronto-Dominion Bank are among the many financial houses to have recently launched funds with similar mandates. Mr. Grafstein and his partners arrived at this party long on investment banking experience, but short on a track record as merchant bankers.

But Onex was an early believer in Gramercy's potential, putting in $150-million (U.S.) of its own money. Spanish telecommunications giant Telefonica also stepped up with a $225-million commitment, and Gramercy's partners are now confident they can close the fund in the next few months with $1-billion in the kitty.

Chatting with Mr. Grafstein after the Onex meeting, it was easy to figure out what outside investors are buying into. In merchant banking, it's crucial to be among the first to hear about potential deals.

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Mr. Grafstein is keeping in the flow of deals by maintaining a low-key advisory role with many of his former First Boston clients, including Hong Kong-based Pacific Century, the rapidly growing telecommunications empire controlled by Richard Li. These relationships, along with connections to Onex and Telefonica, should guarantee that Gramercy is among the first to hear about promising opportunities.

Since Gramercy has already put $100-million into telecommunications startups, and plans to invest 10 times this amount, you might expect its leaders to be a little upset about the recent market carnage in the sector. That's not the case.

Yesterday, Mr. Grafstein gleefully predicted that the tough times have just begun for the more speculative plays one finds on Nasdaq. He said small technology and telecommunications companies have an enormous appetite for capital, and will quickly burn through any money they might have raised during the initial public offering boom of the past year.

Going forward, it's going to be much more difficult for unproven businesses to raise equity, and high-yield debt markets are all but closed. Mr. Grafstein said a steadily increasing number of companies are now approaching cash-rich funds such as Gramercy, and deals can now be done at valuations far more favourable to the merchant banker.

Walking away from the Onex meeting, a few reporters reflected on Mr. Schwartz's lament about the brain drain that sees bright folks such as Mr. Grafstein head for the bright lights of New York.

When you consider what this financier is now up to, it's hard to imagine what could have kept him in Canada -- lower tax rates likely wouldn't have tipped the scale.

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A certain number of the best and brightest this country produces are always going to want to test their mettle on a world stage. In finance today, that means making it big on Wall Street, in film, it would mean Hollywood. What's reassuring about the career of someone like Mr. Grafstein is that he can come back to his roots, and draw so much support from the folks who used to get him out of bed before dawn.

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