On November 7, 2022, CFA Society Toronto celebrated its 65th Annual Investment Dinner at the Fairmont Royal York with a sold-out crowd of 780 members and guests. The last in-person dinner for the Society’s marquee event was held in 2019, as the Society has been operating under heightened pandemic-related safety protocols for much of the past few years.

Sue Lemon, CFA, outgoing CEO of CFA Society Toronto, welcomed the crowd and shared her excitement at returning to an in-person dinner. She thanked generous sponsors for their support and highlighted the Society’s accomplishments. Since Lemon joined CFA Society Toronto in 2014, it has grown into the largest CFA Society globally, among more than 160 financial markets, representing the interests of more than 11,000 investment professionals.

And the award goes to…

Chris Guthrie, CFA, President, CEO, and founding partner of Hillsdale Investment Management Inc. presented the 2022 Hillsdale Investment Management – CFA Society Toronto Research Award. Hillsdale and CFA Society Toronto have been supporting research on Canadian financial markets for twelve years since the award’s inception in 2010. Guthrie acknowledged the challenges of producing proper peer-reviewed and published research and expressed his desire to continue supporting research into Canadian capital markets.

This year’s award-winning paper, entitled Outsourced Funds and Risk Taking: A Tale of Two Contracts, is authored by Saurin Patel, from the Ivey Business School at the University of Western Ontario; Jung Hoon Lee, from the Owen Graduate School of Management at Vanderbilt University; and Shyam Venkatesan, from the Ivey Business School at the University of Western Ontario.

The paper highlights the importance of a properly structured contractual arrangement that helps break down inter-firm boundaries and circumvent agency problems. The article’s premise is that traditional contractual arrangements for outsourced funds, representing about 30 percent of the Canadian and US fund market, lead to a net welfare loss for investors. The researchers found evidence that outsourced managers generated lower returns than in-house managers, primarily due to the severely negative payoff associated with contract termination.

Introducing new CEO Fred Pinto

Fred Pinto, CFA, the newly appointed CEO of CFA Society Toronto, acknowledged his predecessor’s significant progress. “I want to thank Sue Lemon for her vision and foresight in taking CFA Society Toronto to where it is today. Sue’s tireless efforts in promoting the CFA designation and serving all of our members should definitely be acknowledged.”

Pinto looks forward to playing an active external-facing role as restrictions loosen up and business life returns to normal. He outlined his key objectives for the next few years. “We have three primary objectives. Our first objective is to increase growth and connectivity for all stakeholders. As the largest [Society globally], our second objective is to build designation value, particularly with the next generation of investment professionals. And finally, our third objective is to advance sustainability and resilience for the Society.”

Bill Browder, from investor to political activist

The dinner’s main event was a fireside chat with Mari Jensen, CFA, Vice Chair of CFA Society Toronto, and special guest Bill Browder, Co-Founder and CEO of Hermitage Capital Management. Browder’s firm was the largest foreign investor in Russia until 2005, when he was denied entry to the country and declared a national security threat for exposing corruption in Russian state-owned companies.

Browder became a political activist and vocal critic of the Russian government after his lawyer, Sergei Magnitsky, was arrested and imprisoned after uncovering a massive fraud committed by Russian government officials. After suffering torture and being detained for a year, Magnitsky died in prison in November 2009, leaving behind his wife and two children.

Many of Browder’s early experiences in Russia are discussed in his best-selling book, Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice, published in 2015. His new book, published earlier this year, is Freezing Order: A True Story of Money Laundering, Murder, and Surviving Vladimir Putin’s Wrath. It chronicles his continued efforts to expose highly corrupt officials and human rights abusers and his campaign for governments worldwide to impose targeted visa bans and asset freezes on those individuals and organizations.

Magnitsky legislation

Browder has been active in promoting Magnitsky legislation, laws providing for government sanctions against foreign individuals who have committed human rights abuses or been involved in significant corruption. The US was the first to impose these targeted sanctions with the passage of the Russia and Moldova Jackson–Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012 (the Magnitsky Act), followed by the Global Magnitsky Human Rights Accountability Act in 2016. Since then, 35 countries, including Canada, the United Kingdom, the Baltic states, the European Union, and Australia, have passed similar legislation. Browder wants to enlist other rule-of-law countries that protect property rights to adopt Magnitsky legislation. He sees Japan, New Zealand, South Korea, and Switzerland as prime candidates. As these additional countries join the growing list, Browder says the focus should shift to getting all these countries to use their legislation to sanction more people.

Browder says, “Right now, the biggest implementer of the Magnitsky Act is the United States. They’ve sanctioned about 500 people or entities. But that’s not nearly enough! I would be happy if 20,000 individuals were on the Magnitsky list, here and in the United States. Aside from Russia, Browder mentioned that there are Chinese and Iranian officials he believes should be added to the list.

As Browder pursues his crusade, appearing on major news networks and providing testimony supporting allegations of corruption in the Russian government, he’s gained a reputation as Vladimir Putin’s No. 1 enemy. When moderator Mari Jensen inquired about this infamous title, Browder quipped, “I used to be Putin’s No. 1 enemy, but I think Volodymyr Zelensky is his No. 1 enemy now.”

Thoughts on the war in Ukraine

Browder believes the war in Ukraine has more to do with Putin’s attempt to stay in power than with NATO enlargement, as some may argue. “Because if you’re at war, in his mind, that’s the way to stay in power,” explains Browder, “The end game for him is just continuing to be at war, to continue to expand, to continue to show his people that he’s the tough guy, and to continue to have a foreign enemy.” According to Browder, there are only two ways this war can end: Russia wins the war or Ukraine wins the war. He believes there will be no negotiated settlement. He explains, “Putin can’t negotiate. If he were to negotiate, it would be a sign of intense weakness.” Browder believes the US and its allies have given the Ukrainians enough weapons not to lose the war, but not enough to win the war. 

If military support has been restrained, it’s because the US doesn’t want Ukraine to yield excessive power, which may escalate the war. As a result, the war is prolonged by allowing Russia to escalate.

Browder also dashed any hopes for regime change within Russia. “The oligarchs are so scared of Putin. They’re scared to even look at him the wrong way, let alone plan an uprising.” As well, Putin is very good at keeping himself protected. Browder highlighted that Putin’s presidential guard comprises an astonishing 500,000 people! “There can’t be a military coup, because he has his own military.”

Thoughts about the markets and investing

Jensen used the final moments of the chat to steer the conversation toward the markets. Browder acknowledged that while he initially made all his money investing in public equity in emerging market Russia, his focus has shifted since those days. Browder continues to invest through his family office. Currently, he invests all his money in private equity in developed markets. He enjoys private equity because everyone’s interests are perfectly aligned. “And the best thing about private equity is that you don’t have to check the price every hour.”

He’s learned from his own experiences that he doesn’t ever want to be invested in a place where there is no rule of law. “If there is no rule of law, it doesn’t matter what the economics are, because someone could steal it from you, and they will.”

He likes investing in the United States because it’s a big developed market with functioning capital markets and a working legal system. He also occasionally invests in Europe. As a self-professed value investor, Browder acknowledged he doesn’t own any cryptocurrencies. He prefers assets generating EBITDA¹  and cash flow and trading at low multiples of EBITDA. Not surprisingly, when Browder asked for a show of hands if anyone in the audience owned Bitcoin, there wasn’t a raised hand in the room!