Mamdani oversees one of the largest hedge funds in Canada—RBC Global Asset Management's $1-billion PH&N Absolute Return Fund, which has a 10-year annualized net return of 15.6%. That's almost 1,500 basis points better than the HFRX Global Hedge Fund Index.
Is it hard to manage money from Vancouver?
Being in Vancouver often gives you the perspective to make better long-term decisions. In 2002, for instance, Telus was downgraded to below investment grade; everyone was freaked out about how institutions with investment-grade accounts couldn't hold the bond any more, and were selling. On the corner of King and Bay, everyone kept talking about this. Sitting here, looking out at the Pacific, you just stop and think, "Does it make sense for a bond that will repay you par in four years to be trading at 60 cents on the dollar?" We purchased about $500-million worth of Telus paper. We did extremely well.
Why are many hedge funds underperforming while yours has done well?
Many hedge funds seek instant gratification. If something doesn't work quickly, they move on. In this attempt to generate consistent performance, you end up with flattish—or, in some cases, disastrous—returns. We know the types of trades, strategies and markets we're good at, and we stay within our circle of competence.
What is your sweet spot?
North American high-yield and investment-grade credit, and opportunistically investing in special situations involving Canada and U.S. equities. It could be a merger arbitrage trade, like the Bell-Astral deal. We didn't play it the first time around, but the second time, we did. So many people got burned on the first go-round, I don't think they appreciated that Bell would not come back without ensuring they had dotted their i's and crossed their t's. We captured a wide risk arbitrage premium. It was a big winner for us.
What is your worst investment trait?
I sell too early and take profits often too quickly. But we've never been down in a calendar year since inception.
What investment decisions do you regret?
Being heavily invested in U.S. financial company debt in 2007 ended up being not a great investment in 2008. During the depths of the crisis, I had the strong conviction that high-yield leveraged loans were probably the best risk-reward trade anybody had seen. We exploited other markets, and our hedge fund was up 50% in 2009, so no regrets. But I wish we had participated more in U.S. leveraged loans.
What keeps you up at night?
You want to be positioned correctly for the eventual turn in the credit cycle. That's something I lose a lot of sleep over. When we see a normalization of interest rates, a wide swath of capital markets could be re-priced.
What is the most underappreciated asset class now?
We're putting a lot of focus into what I call the baby-with-the-bathwater trade in energy. There's been a wholesale liquidation of energy investments due to this sudden decline in the price of oil. Senior debt issued by some high-quality Canadian energy companies yields 9% to 11%. These are solid companies with very reasonable balance sheets. Many generate free cash flow even at current crude prices. They're run by extremely competent managers who have been through many cycles and have their own wealth invested. There are some real bargains.
What advice would you give investors?
Make good long-term choices based on quality, valuation and diversification. Be opportunistic. Don't let today's headlines make you do things you'll regret tomorrow.
What's your investing motto?