Looking for Small Companies That Could Return Tenfold or Greater Multiples to Investors

The Life Sciences Report: Are your investors exclusively Canadians?

Hugh Cleland: Yes. Our funds currently are registered for Canadian investors only. That will likely change with our next fund, however.

TLSR: Are the holdings exclusively Canadian?

HC: No, they are not, and they don't have to be. But I do restrict myself to companies domiciled in North America.

TLSR: In a video interview you did with Biotechnology Focus in June, you said that you learned some important lessons while running a traditional long-short hedge fund in the past. What were those lessons? What is the weakness of this traditional money management model?

HC: I think 2008–2009 taught all money managers important lessons. Obviously, many fund managers were put out of business through redemptions. That is particularly true of managers focusing on small-cap and micro-cap stocks, since liquidity went almost to zero during that time. Many managers responded by abandoning the micro-cap and small-cap asset class.

But I enjoy that asset class. And the long-term returns to that asset class are so high (as demonstrated by the 2010 Ibbotson study on the returns to illiquidity) that we decided to come up with a structure that would allow me to manage micro- and small-cap stocks while avoiding the risk of being redeemed into oblivion in bad markets. We decided that a private equity/venture capital structure and approach was the best way to go. Using that structure, we launched the BluMont Innovation PE Strategy Fund LP (BIPES) on Jan. 31, 2011. (more)