The Smartest Man Visits Canada - and Likes What He Sees

27 October 2008

Here is a Globe & Mail article that is too good to pass by.

The "smartest man" visited Canada last week, and commented favourably on the Canadian investment scene. (I will add that this is in spite of the incompetent Conservative Party of Canada's running the show!).

The smartest man is Krishnamurthy Narayanan, and he is the manager of the contrarian US Dollar CI Global Opportunities Fund. His sister, Indra Nooyi, is the current CEO of Pepsico.) For the full article, visit the Globe & Mail site here:

"Krishnamurthy Narayanan, and he goes by Nandu – showed up in town this week and was bullish.

“'I think we're ending the financial crisis now,' he said. 'There will be countries, like the U.S., that will go into recession. But this need not be a global recession. And there are some encouraging signs on that front.'

"In a different era, The Smartest Man might have been a rocket scientist, or an engineer, or a medical researcher, or maybe a university professor. The academic résumé says: MBA, PhD in finance and economics from the Massachusetts Institute of Technology, studied under Paul Krugman, who just won the Nobel prize for economics. But this is – or at least was – the age of finance, and The Smartest Man became a hedge-fund manager, placing money on his views rather than just writing them.

"Lately, that has worked out rather well. His CI Global Opportunities Fund has returned 57 per cent in the past year, 19 per cent (compounded) over the past five. Nice numbers, but once you've made your money calling the credit crisis and short selling Washington Mutual, what do you do then?

"You buy Canada, says Mr. Narayanan, who can't believe the way the Loonie has been savaged. 'The currency is ridiculously undervalued. I can't think of any country in the world that has no fiscal deficit, no trade deficit and no inflation – except Canada. I think the Canadian dollar should go through parity.

"'I like the whole Canadian market. I don't particularly dig the banks because I just don't know what's in there [on the balance sheet]. But I'd say virtually everything else is fine.'”

He adds...

"You buy uranium stocks: 'Ridiculously cheap.' Gold miners: 'Ridiculously cheap.' Pipelines, too: 'How bad a business is that? It's a fantastic business. You're just shipping gas. Why are people selling those?' Energy: 'Unless there's an absolute collapse in oil demand, you really can't see oil plunge all that much [more].'"

Here is a profile of Mr. Narayanan from the Globe Investor site:

Nandu Narayanan

Trident Investment Management, LLC

Start Date: January, 2005

Fund Return: 29.24%

Nandu Narayanan, founder and Chief Investment Officer of Trident Investment Management, LLC, has 12 years of investment industry experience. Prior to founding Trident, he worked as an independent consultant on emerging markets to Credit Suisse Asset Management, as well as managing CI’s Asian and emerging markets funds. He also worked as Chief Equity and Emerging Market Strategist at hedge fund manager Caxton Corporation, and as an investment analyst at Tiger Management, another hedge fund firm. He holds a Ph.D. in finance and international economics and a master’s degree in management, both from the Massachusetts Institute of Technology, as well as a bachelor’s degree with a double major in economics and computer science from Yale University (summa cum laude).

Also manages: CI Global Managers Corporate Class, CI Trident Global Opportunities

For more information about Mr. Narayanan, visit this site: Morningstar.ca. An excerpt from the Morningstar article follows:

"Identifying himself neither as a bear nor a bull, but as an opportunist, Narayanan has long believed that credit markets were ripe for a fall, and hence offered lots of opportunities. But he was also prepared to take some small losses, positioning the funds to take advantage of the turmoil that eventually occurred last summer.

"'Our thinking is that credit markets are in serious trouble,' Narayanan says. 'The commercial paper market is locked up. We're in the third inning of what could be a very long baseball game.'"

By the way, here is what Mr. Naryanan stated in his Globe & Mail interview over a year ago (September 11, 2007):

NANDU NARAYANAN,

CI TRIDENT

YTD return: 40.4%

1 year: 37.1%

Three year: 14.3%

Anticipating the popping of the credit bubble in the United States helped the $62-million CI Trident Global Opportunities Fund to generate a 12.5 per cent positive return for August, according to a company spokesman (CI noted the fund is not valued daily.)

How did CI Trident do it? By shorting selected areas of the credit markets, said portfolio manager Nandu Narayanan, chief investment officer of the subadviser, Trident Investment Management LLC in New York.

"First, we were short asset backed commercial paper and subprime loans," he said. "Those shorts produced positive impacts on our net asset value. Second, we were short on credit default swaps [debt insurance that loses value when there are defaults]. Third, we shorted U.S. mortgage insurers such as Radian Group Inc. and MGIC Investment Corp., whose stocks collapsed in the month. Over all, our bets that companies holding debt would see their shares fall generated about 65 per cent of our return in August. Year to date, these strategies have produced a 30-per-cent gain."

Mr. Narayanan is still holding his shorts, he said. He sees two crises ahead. The first is a continuation of the housing disaster that developed from speculative house flippers who did not even have money for down payments. The second is an unwinding of complex credit derivatives built on other derivatives.

"It is speculative excess on mathematical steroids," he said. "Asset-backed commercial paper created mismatches on length of loan and length of borrowing. It was a classic case for a collapse."

I can't seem to find much to disagree with in what Mr. Narayanan is saying.
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