Canadian Pension Fund Embroiled In Hedge Fund Controversy

by Robert Lee, for LawAndTax-News.com, London

09 July 2003

According to reports in the Canadian media this week, former University of Montreal pension fund manager, Germain Bourgeois has defended his decision to invest in a BVI-domiciled Lancer Offshore hedge fund, designed to emulate a similar domestic fund which filed for Chapter 11 protection earlier this year.

Speaking with regard to the hedge fund manager's owner, Michael Lauer, Mr Bourgeois was quoted by the Financial Post as explaining that:

'[Mr Lauer] was buying companies that were not on the radar screen, undervalued, and companies where you could have something happen like a takeover or merger or event-driven. That was very legitimate. He's a very bright guy, who was showing very good returns.'

He also defended the choice to invest pension fund money in hedge funds, suggesting that he did so in order to provide protection during market downturns:

'That is the purpose of hedge funds: to protect you in bad markets and give you not the best but a relatively good performance in an up market.' he observed.

However, following two letters sent to the hedge fund manager by Mr Bourgeois' successor to the position of pension fund manager, Andree Mayrand, seeking - unsuccessfully - to redeem some US$69 million worth of shares, the University of Montreal has filed a lawsuit against Lancer and Mr Lauer, the Financial Post revealed.

According to plaintiffs in the suit filed against Lancer before the Supreme Court of the State of New York, Lancer offered investors seeking to retrieve their assets an amount equivalent to their claim in the form of a 'pro-rata interest in a special purpose company incorporated in the British Virgin Islands organized to receive a contribution of the fund's assets equal to the redeeming investors' pro-rata share of all assets of the fund.'

The plaintiffs - whose claims against Lancer have not yet been proven in court - refused, arguing that this proposal was without basis in the original agreements that they had signed with the firm.

However, observers in the media and investment community have expressed doubts as to whether the University of Montreal, or any of the other plaintiffs, will recover the bulk of their assets, especially given that the BVI Financial Services Commission has applied to wind up the fund.

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