Excerpts from:
International Herald Tribune, Feb 20/07
Funds: Finding a gold mine in resources
LONDON: Warren Irwin is sticking with mining companies, even though his hedge fund, the best performer among its peers in 2006, is down 3.7 percent this year.
Gold mine investments brought Rosseau Limited Partnership a 122 percent return last year, the most among hedge funds that bet on mergers, liquedations and spinoffs, according to the most recent rankings from Hedge Fund Research. Irwin topped 240 other managers in the group, which had average returns of 15 percent in 2006.
Irwin, who is based in Toronto, buys stakes in mines before they have proven their reserves, in the hope that they will be sold. Last year, for example, he quadrupled his money when he sold his holdings in Virginia Gold Mines, a Quebec city exploration company, to GoldCorp, the second-largest Canadian producer after Barrick Gold, the world's largest.
"It's hard to turn our backs on the resources sector," said Irwin, who said he almost died in a helicopter crash while scouting for gold in Ecuador last year.
Hedge funds like Rosseau — private pools of capital catering to investors with at least $1 million — aim to make money whether markets rise or fall. The average fund returned 13 percent last year, according to Hedge Fund Research in Chicago.
Irwin said his fund's performance last year, its best ever, did not mean that he was married to precious-metals mining companies, which comprise about a third of his holdings. Another third is in resources like natural gas, oil and base metals, he said.
Rosseau bought Guyana Goldfields, a metals exploration company based in Toronto, and predicted that the company would be bought out in 2006. It was not, though the shares are up almost 180 percent from a year ago.
Rosseau also bought Pele Mountain Resources, also of Toronto, on predictions that it would yield diamonds. Instead, the company discovered uranium deposits, and the shares were up almost 300 percent from a year ago.
"I don't care whether we are operating in distressed securities, shorting common stocks, junk bonds or turnaround situations," Irwin wrote in his 2006 update. "I just like to be in areas where the risk-reward ratio is the most attractive."
Irwin has bet on declining share prices, known as short-selling, which involves selling borrowed stock and trying to buy it back at a lower price. Shorting helped Rosseau return 33 percent in 2000, when technology stocks plunged.
For example, after profiting from a rally in 1999 in Wi-Lan, based in Ottawa, he made money the following year by shorting the stock.
Rosseau has not always made money. In 2002, it lost 18 percent after financial fraud came to light at one investment. Irwin declined to name the company, saying the case was not public.
Like most hedge funds, Rosseau charges investors a 2 percent management fee to look after their money and keeps 20 percent of any money it makes as a so-called incentive fee.
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