An hour and a half into my raucous and illuminating meeting with Michael Lee-Chin, the billionaire investor starts to worry he's crossed a line. "Am I harassing you?" he asks.
Our sit-down isn't so much an interview as a mental sparring match. Mr. Lee-Chin has a new asset-management company, called Mandeville Holdings Inc., and his aggressive marketing line is that Canadians won't create wealth unless they invest in private holdings such as venture capital, real estate and private equity funds.
We go in circles. I push back, unconvinced; he suggests I'm uninformed; I refuse to back down. "Ohhh! Tim! You're going to lose this one," he threatens. "I don't think I am," I reply.
Eventually he goes for some low blows, calling me "Timmy" three times in 15 seconds – something I haven't heard since I played T-ball. The implied message: You don't know what you're talking about, kid.
Dressed in a light brown leather blazer, a black dress shirt and running shoes that look like they belong to someone from the pop band One Direction – black with white soles, and a gold pattern painted on – he starts our conversation in the boardroom of his gated office compound in Burlington, Ont., with a 13-minute monologue.
"There is an absolute 'dysfunctionality' that is perverse and universal and systemic in the securities industry," he argues. "Name one person in the world who has created his or her wealth by having a portfolio of 100 per cent publicly traded securities," he says. Later, he adds: "The securities advisers, they are the pawns that keep this system going. Nothing in there has to do with keeping clients wealthy."
I respond that many Canadians do just fine investing in public securities. And I point out that private companies, or assets, are usually bypassed by the average investor for a number of good reasons: They are inherently riskier, they are illiquid and they have fewer financial disclosures. Mr. Lee-Chin is practically enraged at the suggestion.
"If you were in the market to make water, the first conversation we have to have, Tim, is we have to figure out a way to combine two atoms of hydrogen with one atom of oxygen," he explains. "Likewise, if your question is, 'how do I create wealth?' the first conversation we have to have is, how is wealth created?"
It's hard not to point out the irony. After all, this is a man who made his fortune running AIC Ltd., convincing people to buy mutual funds invested in public companies. Now he's saying that won't work. "The whole fund industry is dysfunctional. And it's regulated. It should be illegal," he argues. (Mandeville has six mutual funds – and those running for more than a year have all underperformed their benchmarks after accounting for management fees.)
Mr. Lee-Chin disassociates himself from most of the investment industry and sticks to a rigid investment strategy; holding only 10 to 20 public stocks.
This may be a convenient way to ignore the past. AIC's fortunes began to fade in the early 2000s. From 2002 to 2005, the firm faced 35 straight months of net redemptions, meaning investors were pulling more money out than they were putting in. As the financial crisis mounted, the company piled up losses in 2007 and 2008, mainly because it was heavily skewed toward financial institutions. By the time Mr. Lee-Chin sold AIC to Manulife Financial Corp. in 2009, the firm's assets under management had fallen to $3.8-billion from $15-billion.
Instead of acknowledging his investment philosophy failed, Mr. Lee-Chin argues investors were simply too scared to stick it out – which is why he's now such a big believer in private assets. When investing in a public company, "you're apt to make a stupid decision at the wrong time."
So a lack of liquidity helps control our own flawed psychology? "Yes. Yes. Yes. Yes," he replies with gusto. "It was my private assets that got me through [the financial crisis]," he says, adding that many of those holdings, such as National Commercial Bank in Jamaica, are now worth more.
Eventually, we find some common ground when he argues investors must be wary of executive compensation at public companies. Many of these executives are handsomely rewarded even in bad times, but as a private business owner, "if you make a bad decision, you go bankrupt."
But this argument also contradicts his main thesis. Mr. Lee-Chin acknowledges that the downside for private companies is harsh – they go belly up – yet somehow these firms aren't supposed to be riskier?
He isn't against all public companies. Indeed, his firm's mutual funds own some financial stocks and energy names. "You want to own public companies that are run by people who are more dictators than [democratic leaders]," he says.
So convinced is he that private assets are safe for the average investor that he suggests regulators shouldn't bother with the accredited investor rule, which tends to limit these investments to wealthy individuals. Instead, he wants to "democratize" private equity investing.
Too often he omits private equity's pitfalls when pitching Mandeville. For example, he plays down any notion that private equity is an industry rife with high fees and where asset managers earn enormous profits in bull markets, but make investors liable for losses when things turn ugly.
Mr. Lee-Chin compares Mandeville, which launched in 2012, to Canadian pension funds, suggesting that private assets aren't so scary because the likes of the Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan invest in them. What he doesn't say is that these pension funds have sophisticated teams and even then, they lose money on some private investments.
His defence can be boiled down to this: Canadians can trust Michael Lee-Chin. I'm skeptical, to say the least. I hope potential investors are, too.