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Prem Watsa - Using His Investment Abilities to Help Sick Kids

December 02, 2010 | About:

At this point in time I think pretty much everyone in the value investing world is aware of the "Warren Buffett of Canada" Mr. Prem Watsa of Fairfax Financial.

I've followed Watsa for years watching him start warning of the credit crisis and stock market collapse as early as 2003/2004 and watch him make billions for Fairfax shareholders from it.

Apparently it wasn't just the shareholders of Fairfax who owe him a big thank you his great call on the "great debt bubble" but also Toronto's Hospital for Sick Children. Watsa who was in charge of the foundation positioned its portfolio not only to be protected from the credit crisis but to take advantage of it.

Here is the story from the Globe and Mail, and just adds to the list of reasons I admire Mr. Watsa:


When Ted Garrard took over as chief executive officer of Toronto’s Hospital for Sick Children Foundation last year, donations were down, investments had sagged and there was a public outcry over the $2.7-million paid to the former CEO.

Some wondered whether the foundation, one of the largest charities in Canada, would recover.

It looks now like those fears were misplaced.

According to recently released annual filings, donations have held steady at $88-million, costs are down 20 per cent and executive pay has been curtailed.

Even more stunning, the foundation’s investment portfolio generated a 41-per-cent return for the year ended March 31, 2010. That helped boost overall assets, which includes other holdings, to a record $670.2-million at year end.

“I think we’ve made very significant progress,” said Mr. Garrard, a former economist and long-time university fundraiser. “We still have room to get better on a number of different fronts but I would say that we’re feeling very optimistic.”

Mr. Garrard credits much of the success to Prem Watsa, chairman and CEO of Fairfax (FFH-T400.98-4.27-1.05%) Mr. Watsa is famed for contrarian market calls and he has been using that same approach as a volunteer at the foundation, where he has overseen investments for 15 years. “This comes naturally for me,” Mr. Watsa said in an interview.

Mr. Watsa said his investment strategy at the foundation has been fairly simple: Keep the asset mix relatively steady and look for value.

When he started at the foundation in 1995, 80 per cent of its then-$148.2-million portfolio was invested in equities. Mr. Watsa brought that percentage down slightly over the years and, in 2007, slashed it to 35 per cent, convinced the markets had peaked. Most of the remainder went into government bonds.

Mr. Garrard said there were those who thought the move “was crazy” but he stuck with the plan. As a result, the foundation’s portfolio survived largely intact when markets tanked in 2008. By 2009, Mr. Watsa had piled back into equities, taking the percentage up to 75 per cent and putting much of the remainder into corporate bonds. With markets recovering, he has pulled back to a 50-50 weighting.

The strategy has made SickKids Foundation among the best-performing foundations in North America in terms of financial returns. Most were lucky to earn 20 per cent last year and many had to reduce their grants because of the recession. SickKids Foundation kept up its granting. Further, its investment portfolio hit $659-million as of March 31 and has topped $680-million today. “We are on our way to $1-billion,” Mr. Watsa said.

The strong returns have an impact beyond just bolstering the size of the portfolio. The organization supports research and medical programs at Toronto’s Hospital for Sick Children and, by law, foundations must pay out at least 4.5 per cent of their assets annually. Mr. Garrard said last year’s strong investment performance will increase grants to the hospital by about $3-million this year, to $30-million.

Mr. Garrard added that the foundation is so eager to keep Mr. Watsa, it has exempted him from the normal term limits for board members. “Prem is really unique,” he said.

Mr. Watsa said he’s pleased to stick around and credits others on the investment committee, including Irwin Rotenberg, president of Lissom Investment Management. “I’ll stay as long as they want me,” he added.

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