It is one of those mysterious ways in which the universe works. We've all likely had some form of this
experience: An old friend's name pops into your head, and the next thing you know your phone rings and it's him or her; you find an old photo in a drawer of someone and later that day find yourself standing in line at Starbucks next to that person; you are in a foreign country and someone from your hometown is eating at the same restaurant as you.
Fate or freak occurrence? Believe what you will. In any case, this is what happened: I had e-mailed Doug Hewson, the managing partner of billionaire Michael Lee-Chin's Portland Private Equity firm, to inquire about the possibility of interviewing the Jamaican-Canadian business magnate investor and capitalist. Hewson, who is based in Ontario, and I, based in California, swapped a few e-mails. It worked out, a time and place set.
It so happened that I was later in New Jersey at the Private Wealth offices and was traveling by train to New York City when I fired off my last e-mail to Hewson. After the train left the Newark Liberty International Airport station, I for some reason glanced at the seat in front of me. On it I could see a knapsack with the name and logo of Portland Private Equity. I leaned over the seat. "Thomas!" Hewson exclaimed. He had recognized me from some online photo.
I regaled Lee-Chin with this story when I interviewed him some weeks later in his office high atop the National Commerce Bank of Jamaica, which he owns and is listing on the New York Stock Exchange. The story doesn't seem all that weird to Lee-Chin. He confided that sometimes chance circumstances just come about. The magic is being aware of these events right down to the moment when you were born.
"I am a statistical improbability," Lee-Chin said. And while one could easily say that about any person born in the world, Lee-Chin certainly vaulted more obstacles in his life than most.
Seated on a leather chair across from a table on top of which was placed a pitcher of coconut water (a local dietary staple, I am told), the handsome, 6-foot, 4-inch 61-year-old was wearing an open-collar white linen shirt and matching pants. On his feet were bright yellow track shoes. Normally, I would be distracted by the shoes, but Lee-Chin was leaning in close, completely present and engaged. He is a captivating figure with a captivating tale of how he made it onto the Forbes list from being born to a poor, orphaned teenage mother in rural Jamaica. His natural father wasn't in the picture when he was a child, although his mother did marry another man many years later.
"Well, if I think about it, if, when I was born, January 3, 1951, in Port Antonio, a rural community of Jamaica which most people would not have heard of, and someone brought down a statistician from Harvard and said, 'Statistician from Harvard, what is the probability of this baby born today going to high school?' Not very probable. Because when I was in pre-high school, there were 120 students to one teacher, Mr. Thomas. So, what's the likelihood of this particular baby going to high school? Not very high. Secondly, 'Mr. Statistician, what is the likelihood that this particular baby here will get to college at a Canadian university and go into engineering?' Not too high! Because the cost, his mother is an orphan, right-not too high. Third, 'Mr. Statistician, what is the likelihood of this baby born today, to an orphan woman, fatherless, not only going to Canada, doing engineering, passing, and getting into business in Canada? And what's the likelihood of getting into the financial services business, which is the most competitive business because of the Goliaths in the industry? And competing successfully against Royal Bank of Canada, CIBC, Fidelity, etc. What's the likelihood, Mr. Statistician?' You combine all of those events together, infinitesimal, Mr. Thomas, right? So therefore, I consider myself as a statistical improbability."
This is quintessential Lee-Chin, ponderingly drawing you in with his Jamaican accent and colloquial manner of speech; he disarms you.
Lee-Chin is widely regarded as a visionary entrepreneur whose philosophy of "doing well and doing good" has resulted in phenomenal success and inspiring philanthropic initiatives. He went from nothing to number 365 on the Forbes list with a fortune estimated at more than $2 billion. He invests with impact and believes in businesses that are economically substantial and provide exceptional products and services in the marketplace. Equally important, he said, is that these businesses must also seek to improve the social well-being of the communities in which they operate.
Yet for all his wealth and success, he is open and relatable, and puts you on the same level as himself. Even when he is talking about being poor. Even when he is talking about being rich. He creates a sense of empathy, if not sympathy. You, him, us-we are all the same. The luck, chance, lottery that brings us into the world: the odds are all the same. What makes us different, sets us apart and makes us individuals is how we manage acumen.
Lee-Chin began his career hawking mutual funds. He had gone into financial services after college and built up a small portfolio. He owned some mutual funds. But he wanted to be more of an owner than a broker. "So [in 1983] I went in to my banker, and I said, 'I'd like to increase my loan to $500,000, half a million,' which was more than my net worth then. 'And I would like to substitute the collateral that you now have, which is a package of mutual funds, with one stock. Mackenzie,'" he recalled. "Why Mackenzie? It's a business I understood. I was selling their products, right? [Mackenzie Financial is a mutual fund company.] I understood the industry. I understood the regulatory framework, right? I understood the clients, their needs, etc., etc. It was in a strong, long-term growth industry, it's a function of other people's money, and I did intend to hold it for the long run, right? I was buying it to hold for the long run. So I said, 'Could you please increase the loan and replace the collateral that you now have with one stock?' In my mind, I thought there's no way this prudent banker is going to do that. Two weeks later, they called and said, 'Loan approved.' I went out and bought Mackenzie Financial, half a million dollars, at the equivalent of one dollar per share, in November of 1983. Four years later, three years and 11 months later, before the October crash, the stock price had gotten up to seven dollars. So, $500,000 became $3.5 million. So what that did was reinforce my financial base, but more importantly, my philosophical base."
Lee-Chin's philosophy follows that of Warren Buffett's: Create a sound intellectual framework for making decisions; secondly, have the ability to keep your emotions from corroding that framework.
He says to create wealth, there are five things a person must do:
1) Own a few high-quality businesses.
2) Understand those few businesses.
3) Ensure those few businesses are domiciled in strong, long-term growth industries.
4) Use other people's money.
5) Hold those few businesses for the long run.
All that is well and good. And obviously that system works. But I had studied Lee-Chin's background before I interviewed him. And throughout my research, which consisted of articles, news briefs, a Wikipedia entry and batches of material Hewson sent along to prep me, the one thing I kept coming back to was Mackenzie. I knew this company had a special meaning for Lee-Chin. It gave him his start and his first real wealth. But I also felt that Mackenzie meant something even more to Lee-Chin. Somewhere in the depths of associations I had mentally attached Mackenzie to Orson Welles' famous sled, "Rosebud," in the film Citizen Kane-an enigmatic crucible of fixation for both accomplishment and fallibility.
Directly, I put the Mackenzie question to Lee-Chin. He leaned back in his chair and stretched one of his long legs over the other. He poured a glass of coconut water and, for the first time, answered demurely. "It was pivotal," he said.
Above and beyond the system and the framework, Mackenzie was pivotal in launching him into the position of becoming wealthy, and pivotal in saving him from seeing it all fall apart. The latter, you see, is what I was really interested in.
He had purchased Mackenzie as an investment and ridden its share price rise to millionaire status. It allowed him to buy the investment firm AIC Limited in the late 1980s. AIC's fund had assets under management of $800,000. Lee-Chin grew that to more than $15 billion before selling it three years ago to Manulife Financial. (He continues to manage the Advantage Series of funds for Manulife through his Portland Holdings group.) But times weren't always sunshine and roses. I wanted to hear about when he got pricked. It was then that I knew Mackenzie had been there for him once again. That was the magic I wanted to hear about.
"On September 2, 1999, I came into the office," he recalled, rolling out the words slowly. "On this particular morning, I came into work and I read this article from the national newspaper, The Globe and Mail, and it was written by this journalist, and it was entitled 'AIC's Disadvantage: No Friends On Bay Street.'" Bay Street is Canada's equivalent of Wall Street. "Because we were not on Bay Street, we didn't behave like Bay Street people, etc. We were in Burlington, which is 40 minutes from Bay Street. ... And by way of context, Thomas, in 1999 you had the technology, telecom, Internet boom. Valuations were crazy. GDS, Uniphase, Nortel-everything was crazy in terms of valuation."
But Lee-Chin went on to explain how he wouldn't buy into the hype. "We were the largest shareholder of TD Bank, right? [We were] the largest shareholder of the biggest retailer in Canada, Loblaw, which is owned by the Weston supermarket, the largest shareholder of many of the main, big, large mutual fund companies in Canada. And these are all cash-flow, high-cash-flow-generating businesses, all of them. But during that period, nobody wanted cash-flow-generating businesses. They wanted to buy GDS Industries at 200 times earnings, right? Which means that if their earnings did not grow, it would take you 200 years to get your money back. I thought-this is nuts. Why do I want GDS if I can buy TD Bank at 12 times earnings, take me 12 years-12 is better than 200, right? So, I refused to sell and convert-change my style drift."
The article essentially said that because Lee-Chin refused to style drift, unit holders were fleeing. That meant he'd eventually have to sell the component parts of the fund, companies in the fund, to meet redeeming unit holders' demand for cash. When that happens, unit values dip. So, the newspaper's point was "sell now, before he sells."
"So I thought-oh my gosh," he continues. "This is like cheerleaders are running the bank. So what do I do? For the first hour, Kostigen, I was depressed, crying in my soup. I thought, 'Oh shit.' Then it came to me." He lets this linger for a moment, this pivotal point. "I thought-the Chinese definition of the word 'crisis' has two component parts, danger plus opportunity, right? So when there's a crisis, most of us will default and focus on the danger component and we forget that there's a second component. So that's what I was doing for the first hour. Then I pulled my bootstraps up, and I thought-focus on the opportunity. Where are the opportunities?"
What he did next was ballsy by any assessment. "Everybody is assuming that I'm going to be selling. Nobody's buying, right? People are still selling, nobody's buying, because they are waiting for me to sell, push the price down, and then they will buy. So the prices are already down. So Mackenzie is trading at four times cash flow. These stocks trade at 10, 11, 12 times cash flow. So it was like 60%, 65% off, 70% off. So I thought-there's the opportunity: buy more Mackenzie. But I couldn't use the unit holders' funds to buy more because I needed cash to meet [redemptions]. So I had two sources: One was to use other people's money, one of the rules of wealth creation. So I called the bank, the National Bank of Canada, and I said I would like to borrow some money. They said, 'How much,' and I said $50 million."
This is where the true Lee-Chin comes out. The tenacity, the resilience, the "fight" in him and what you see in most successful people.
I was at the edge of my seat. It was as if the pitcher of coconut water had even been listening: A bead of sweat dripped from its spout onto the table.
"What happened?" I asked. "What did the banker say?"
"Let me put you on hold for a second," Lee-Chin said. I didn't know if he was speaking to me, or explaining what had happened to him when he called the bank. He did this purposefully and began laughing. The tactic gave me a sense of the anticipation he had felt.
When the banker came back on the line, he agreed. "OK, you put $50 million in, and we'll lend you 50," the deal was, according to Lee-Chin.
"For the next six weeks, Thomas, I bought another $100 million worth of Mackenzie Financial Corporation, one stock. Because all I saw-what I saw was, if you're being swarmed by bullies, what do you do? You single out the main one and you kick, punch, bite, kill him, right? Just one. And then hopefully all the rest will see what's happening to the ringleader and run, hopefully."
That is what happened. Other institutions sniffed a deal. And soon enough, Mackenzie was in play, its share price rising from 15 to 30.
"We made $100 million. The unit holders from that day, September 2, made $400 million, right? So we made, from that day, based on that decision, between unit holders and us, half a billion," Lee-Chin said.
Extreme wealth was created, enough so that he was faced with the complex that haunts both the very rich and the very poor: purpose. The rest of us are too busy working and managing things to worry all that much about purpose.
Purpose for Lee-Chin meant going back to his roots. It meant going back to Jamaica.
In 2002, just a year after he brokered the Mackenzie Financial deal, Lee-Chin bought the National Commercial Bank of Jamaica. The homecoming was prescient; NCB rose five times in value in as many years.
"I think the theme is, it is easy to make decisions, right, when you believe, right? When you are a believer. So the question is, what do you believe? What are you a believer of? What are you a champion of, what are you a disciple of? What is your cause? Because without a cause, life is bland."
And his cause? Prosperitas cum caritate-which in Latin speaks to his goal that businesses must "not only do well, but also do good"-is the measure of success, he said.
The NCB creates jobs for Jamaicans. It lends to small business owners. It trains and recruits locally, to stem the intellectual diaspora that haunts the impoverished country. Another holding on the island, Advantage General Insurance Company, offers affordable policies, has a job training program, supports local high schools and works with nonprofit groups such as Mustard Seed to give back. And yet another, Flow Communications, provides free cable and Internet services to schools and community centers. It, too, sponsors socially responsible programs under a corporate social responsibility initiative it has launched.
For all of his success, for all of his wealth, Lee-Chin is chipping away at something else, something that is inexplicable and difficult to beat. He is chipping away at the statistical improbability that those less fortunate will become fortunate in their own right.
And he is succeeding.
Making A Difference
Portland Private Equity is the impact investment arm of the Michael Lee-Chin empire. It began as his family office vehicle, but quickly morphed into a private equity fund operator in its own right.
PPE is focused on the Caribbean basin and strong indigenous businesses that can drive social impact. It looks for clear evidence of a business in an attractive market sector that is supported by growing demand, strong cash flows and significant revenues.
"The institutional fund is really an extension of the family office investment activity," says Doug Hewson, PPE's managing partner. "It all started with Michael's desire to come back to the Caribbean and make a difference."
The way to make a difference and fix things, as Lee-Chin sees it, is to create wealth-for business owners, employees, investors, a country even.
"Wealth creation is a very simple compounding formula," says Rob Almeida, a well-respected financial services veteran who helped launch AIC Caribbean Fund and is also a managing partner of Portland Private Equity. "And if you take that compounding formula-the only free lunch being compounding-then you've got to do that for financial capital and human capital."
Investing in financial as well as human capital is the basic tenet of impact investing, of course. So PPE grew organically. Or, as Almeida puts it: "We built a model and didn't even know it."
Now they do.
PPE has a strong track record of success, and has even seen some of its holdings flourish as listed equities. Since its inception, the fund has "significantly" outperformed the S&P 500 index, according to Hewson.
PPE is a founding member of the Caribbean Impact Working Group (a multi-stakeholder group working to establish the Caribbean region as an area of interest for the international impact investor community), a signatory to the United Nations Principles for Responsible Investment, and requires adherence to the World Bank/International Finance Corporation's environment, social and corporate governance (ESG) criteria in its portfolio companies.
The AIC Caribbean Fund raised $225 million, and a series of other funds are being launched. The Overseas Private Investment Corporation, the European Investment Bank (EIB), the Verizon pension fund, and Export Development Canada (EDC) count among its co-investors.
PPE will be branching out to other nations besides Jamaica and Haiti, where it has concentrated. That's a good thing for a region that can use as much good as it can get.