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-- Posted Wednesday, 25 August 2010 | | Source: GoldSeek.com
Taylor MacDonald, vice president of investments with Pathfinder Ventures Corporation in Vancouver, has a knack for discovering the undiscovered. In an exclusive interview with The Gold Report, Taylor drills down in the niche of innovative technology companies serving the resource sector.
The Gold Report: You are currently with the family office, Pathfinder Ventures Corp., but you started off with major securities firms, like Haywood Securities, Raymond James Financial and Renaissance Capital. What investment "freedoms" do you have in a family office that you don't have at a larger security firm?
Taylor MacDonald: In a midsized family office like ours, we have the advantage of being nimbler than a larger bank-run fund. We are able to turn around investments quickly; but, more pointedly, we are able to invest in small-cap, micro-cap and even private companies.
This will probably change slightly as we start Pathfinder Asset Management Limited in the coming quarter. We are in the final stages of getting registered and creating and managing a mutual fund. We will also be registered for portfolio management services. We still hope to keep things relatively small so that we can take advantage of opportunities that larger funds can't.
TGR: What is the market capitalization makeup in the current portfolio?
TM: About two-thirds of the portfolio is invested in small caps. My definitions for mid and large cap are probably a little different from other investors. I consider $250 million–$1 billion to be midcap and anything above that to be large cap.
TGR: What sectors do you focus your investments on?
TM: In the resources space; we mainly invest in mining. We do have some investments in oil and gas. We tend to focus on new producers, developers and explorers.
We also like technology and special situations companies, especially those that fill a particular niche for the oil and gas and mining industries. If there is a problem that a lot of resource companies are encountering, we find a company that's able to fill a void or market space that hasn't been addressed. We gravitate towards that type of tech-special situation. We also have some investments in biotech.
TGR: Are you focused on mining because it's a promising sector in the current economic environment or because you've built an expertise in that industry?
TM: My background is pretty varied. I worked in research on industrial special situations and mining, then I moved to investment banking covering resources and, most recently, to institutional sales in emerging markets. This breadth of experience has prepared me for my current role where I look more for opportunity than focus on one specific sector.
That being said, there are a lot of small-cap resource companies in the Vancouver area where we are based. Naturally, we end up filtering through those and using our contacts here to learn about those companies. We like to find underexposed companies that haven't yet been touted by an investment house. We find a lot of value in doing our own research and due diligence and getting involved early.
TGR: As you move the new fund forward, will you remain focused on the resource sector?
TM: We will always be involved in the resource sector given where we are located. However, I also keep an active eye on tech and special situation deals and work with brokers who aren't involved with any mining companies. I often reach out to people on the buy side and sell side in other cities to share ideas and get exposure to companies that we wouldn't normally see in Vancouver.
TGR: It sounds like you have your fingers in a bunch of sectors and continue networking so you have more in your trap-line than just resource stocks?
TM: Absolutely.
TGR: The fund is heavily invested in the resource area right now. Is that because economic indicators are telling you that's where you should be, as opposed to consumer goods, for example?
TM: We really like the resource space because of the long-term fundamentals, especially for precious and base metals. The U.S. is printing more and more money, and like Voltaire said, "All paper money eventually returns to its intrinsic value—zero." Gold and its little brother silver have always been good stores of value and great hedges against currency debasement, economic uncertainty and upheaval. We like some large-cap names, but we tend to get good exposure in the junior sector.
TGR: You said you particularly like new producers, developers and explorers in mining. What opportunities do you see in those markets compared to large caps and producers?
TM: When you have a supportive market, you can get a lot of value out of the small caps compared to the larger caps—meaning you can get leverage you can't get elsewhere in terms of both development growth and exploration upside. The caveat is that the capital structure and the company's cash position must be well managed. This is inevitably tied to one of our key investing tenets: "Invest in good management and people who will steward the company in the best interests of the shareholders, not their own."
TGR: In 2008, poorly managed cash positions, in essence, made or broke many of these small caps.
TM: Absolutely. That's always a risk, but I'm a little more optimistic and constructive on the current market. There will be stumbles and slips, but there's only been one double-dip recession in the last century: 1908–1982. The chance of things going back to the way they were in early March of '09 is an outside probability.
TGR: Overall, how many of these companies do you believe have a well-managed cash position?
TM: They are few and far between. There may be 1 in 10 or 1 in 12 with a decent cash position, but even those will sometimes have a capital structure that has been blown up and mismanaged such that we will take a pass on the investment. There may be just 1 in 20 that has a solid capital structure.
For us, it always starts with people. We look for accessible management, which is why we end up sticking with a lot of Canadian companies. We also like to see strong insider ownership and participation. I monitor canadianinsider.com religiously. Finding quality assets and businesses is obvious, but that doesn't matter if you don't have management to operate them appropriately.
TGR: Those are features that every investor is looking for. How do you find investments with those attributes that aren't overbought at this point?
TM: That comes back to trying to get in early and seeing these as they're developing and following management and good stories. We've had a couple cases where we invested in a company because we knew that the assets were significantly undervalued because the company hadn't had exposure and that management changes were pending. When new management eventually came on board, you really saw their effect on the company.
TGR: Tell us about your resource holdings outside of the mining space.
Taylor MacDonald: We have a number of oil and gas positions that I’d describe as a little off the beaten path.
Taylor MacDonald is vice president of investments at Pathfinder Ventures Corporation, a Vancouver-based family office. He graduated from the Wharton School, University of Pennsylvania, with a Bachelor of Economics in 2004. Prior to moving to Pathfinder, he worked in equity research at Raymond James Ltd. in Vancouver, investment banking with Haywood Securities (UK) Ltd. in London, England, and institutional equity sales at RenCap Securities in New York. He has been a CFA Charterholder since 2009 and is a Level II CAIA candidate.
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-- Posted Wednesday, 25 August 2010 | Digg This Article | Source: GoldSeek.com
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