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the lunch

Michael Smedley by Anthony Jenkins/The Globe and MailAnthony Jenkins/The Globe and Mail

Lavish entertaining is a thing of the past at Canada's most storied corporate temple.

Five years after Morgan Meighen & Associates acquired control of the three-storey, neo-classical building at 10 Toronto Street, the staid fund management firm offered me a rare tour and lunch. My host is Michael Smedley, the firm's eccentric chief portfolio manager who parlayed an exotic career as a foreign journalist and public relations manager in Africa and Asia into senior management at one of Canada's most patrician fund managers.

After a brief tour of the building, Mr. Smedley folds his rangy figure into an office chair for a meal that begins and ends with a small plate of sliced meat sandwiches and chocolate chip cookies purchased from a nearby deli.

[View a photo gallery: A look inside 10 Toronto St.]/relation>

Restraint is the new order at the 158-year-old building, where titans such as Argus Corp.'s Bud McDougald and deposed Hollinger Inc. chief Conrad Black extravagantly entertained prime ministers, presidents and captains of industry for decades.

Such excesses "won't do" for a fund manager that has discretely delivered dividend and asset growth to generations of wealthy Canadians since it launched its first fund in 1926, Mr. Smedley explains in a hoarse British accent.

Penny-pinching runs so deep at the firm that its controlling shareholders, Vanessa and Johnathan Morgan, tapped personal savings to acquire the building when it was put up for sale while Lord Black unsuccessfully fought fraud charges in the United States and Hollinger tumbled into bankruptcy proceedings. The brother and sister also financed a multimillion-dollar renovation to repair the building's neglected stone structure and modernized a rabbit warren of rooms into a gallery of offices facing a sunlit atrium. The backyard parking lot, where Lord Black famously hauled away boxes in defiance of a court order, is set to be converted into a park.

One of the only vestiges of Lord Black's regime are bulletproof windows, which were installed in the 1980s as a security precaution for occasional visits from his friend, former British prime minister Margaret Thatcher.

The multimillion-dollar building purchase is more than an investment for the Morgans. The acquisition reverses a stinging defeat suffered by late fund owner Maxwell Meighen in 1978 when he and other establishment directors were outfoxed by Conrad Black and his brother for control of Argus and its head office at 10 Toronto. Flashing the irreverent wit that has made him a staple on business television, Mr. Smedley says with a snort that the empire was lost to Mr. Meighen and other directors because "they were asleep at the switch" when Lord Black pounced.

But Morgan Meighen has little time to savour its reclamation of the building. By 2008 the firm was weathering the lashes of global financial storms, a time Mr. Smedley describes as "suicidal" because "one had the sense of being close to becoming destroyed." The firm's core fund, Canadian General Investments Ltd., saw its net asset value plunge by 56 per cent to $290-million in 2008, its lowest level in nine years.

The carnage ended Mr. Smedley's record of delivering higher annual returns and dividend increases almost every year since he joined the fund in 1987. It also tested his "bottom up" strategy of investing in undervalued, debt-light, well-managed companies that prosper over time despite "top down" economic or market forces.

"You can never master the market, but over the long term, investments come back," he said. Morgan Meighen's first fund survived the stock market crash of 1929 and it will continue to prosper as long as it avoids panic, he said.

By standing fast, Canadian General had recovered nearly three-quarters of its losses by the end of June, reporting a net asset value of $478-million. That is, until this week's market panic over government debt woes. Mr. Smedley said his fund is getting "slammed" again, but he is in no mood to sell.

He described the week's turmoil as "a horrific market over-reaction" to the U.S. government's rating downgrade. "There is something almost unreal about the current destruction we're seeing," he said. Quarterly corporate results for a lot of companies are "startlingly" good, he says, and he sees no reason to "tremble" in the face of what he believes is a market correction.

"It is a case of resisting selling everything and waiting and thinking and researching for the next opportunities."

Mr. Smedley has never been one to follow the pack. Although he manages a fund whose history and clientele are steeped in the Canadian establishment, he has deliberately remained an outsider.

His investment strategies are fed by an intensive daily regime of personal research that begins with five newspapers every morning and ends with corporate and financial report readings every night before bed. He hunts like a reporter for early leads about emerging stock winners and still takes copious notes in Pitman's shorthand, which he learned as a 16-year-old reporter trainee in Britain.

Mr. Smedley's convoluted journey to Bay Street makes him one of the more uniquely experienced portfolio managers in the industry. Raised in Britain's East Midlands, Mr. Smedley was from an early age a voracious reader who devoured a book a day. Rather than follow his father's footsteps to a job at a local iron foundry, he opted for a career as a journalist to see more of the world.

After six years of toiling as a low-paid reporter for local Midland newspapers – "I was enslaved" – he left Britain for more exotic postings with African newspapers. The highlight of his five-year stint in that continent was public relations job in Tanganyika, now Tanzania, during its final, messy days as a British protectorate.

Sounding very much like a character from a Graham Greene novel, he recalls: "In the dying days of the empire, one drank copious amounts."

Canada came next with a career shift into investments that Mr. Smedley says was prompted by a brief stint as a business editor with The Globe and Mail in the early 1970s. "I became fascinated by building knowledge about the Canadian stock market," he said.

Seized by the romance of investing in Canada's resource-rich economy, Mr. Smedley tapped his communications skills and international experience to sell Canadian stocks to British investors. After more than a decade of work in London for Toronto's Pitfield Mackay Ross and New York-based Bache Securities, Mr. Smedley returned to Canada..

A former marriage to a Morgan family relative attracted the attention in 1987 of Morgan Meighen, where he remains as the firm's chief portfolio manager. At 73, he has no interest in slowing down.

"I have developed an unhealthy pleasure pursuing knowledge in the business sector."

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