Last Friday I sat down for an interview with Tracey McVicar, Managing Director of CAI Capital Management, a Canadian private equity firm with a North American investment mandate and offices in Vancouver, Toronto, Montreal and New York. I have known Tracey for over seven years, first as a mentor and later as a friend and confidante. Tracey is as successful as any woman in finance hopes to be: self-assured, smart, good looking, and compassionate. She currently works out of the Vancouver office and is responsible for overseeing CAI’s operations in Western Canada.
The timing of our interview coincided with her firm’s announcement of the closing of its fourth fund, CAI IV, which raised C$180 million despite challenging market conditions.
In a forty-five minute conversation that was relaxed and engaging, we broadly covered topics ranging from how she began her career in private equity investing, her views on the business environment, investment outlook in the Canadian natural resources space, to work-life balance issues for women in the finance industry.
The Making of a Principal Investor
Tracey worked in New York as an investment banker for eleven years before joining the private equity investing business. When asked why she made the switch, Tracey indicated that the principal side of investing appealed to her more than the agency role of the financial advisor. Eleven years of banking taught her how to evaluate and execute investment ideas, so she was ready to take on greater risks and capitalize on low valuations by the time the markets imploded at the end of 2000. The story of how she found her current job was fascinating in that it represented a classic example of how network mattered in private equity. She had been cold calling her current boss, who was a friend of one of her mentors, to encourage his firm to open an office in Vancouver on the grounds that one of the firm’s primary investors was there. He turned it down not one or two, but three times, before finally calling her up a year later in 2002 and asking whether she would like to move out to the West Coast and make it happen. She has been with CAI in Vancouver as managing director since then.
On Private Equity Firms Going
Public
When asked what she thought about the increasingly popular decision of large private equity shops to go public in the U.S. in recent years, she responded that although she is strongly in favor of increased transparency and disclosure for the private equity industry, the IPO route may not be the best solution for that purpose, at least not for her firm. First, there is no need to raise capital from the public for investing purposes in the first place. After all, Blackstone primarily used the funds it raised through its IPO to buy out their general partners rather than putting the money into equity-related investments. Secondly, financial reporting would be difficult for the industry and the minute-to-minute valuation of the business by the markets would present a distorted view of the valuation given the long-term horizon of the business. Finally, private equity investments usually have a holding period of five to seven years. The short-term nature of the public markets could create an undesirable liquidity mismatch problem for the private equity investor.
On CAI’s Performance from 2009 to 2010
Although Tracey admitted that valuations had come down under the backdrop of a U.S.-led economic slowdown and returns had taken a hit, she claimed that CAI Capital has delivered some decent returns during this period for its LPs and that the partners were doing everything they could to maximize the returns. “The market currently values businesses lower than where you are willing to sell at, so you hold on to the investments longer than you would like to. At CAI, the holding periods of our investments have been extended for two additional years on average.” She ended the note by emphasizing that the terms of financing are just as important as the spreads during negotiations with lenders.
On Opportunities in the Canadian Resources Sector
The Western Canada offices of private equity firms spend proportionally more time looking at investments in the Canadian resources sector due to their strategic locations. “I love resources opportunities because there are lots of services companies around them, be it oil, utilities, or mining services companies,” said Tracey. This investment mantra is similar to Peter Lynch’s belief that one can invest in booming trends without having to buy into hopes and at extravagant prices. Instead, one may choose to invest in service companies that benefit indirectly from the increased activity in the sector.
When asked about what she thought of the heightened and unprecedented foreign interest in Canadian natural resources companies, Tracey said that sovereign wealth funds and strong strategic players from emerging market economies, such as China and Mexico, have made numerous acquisitions in the sector in recent years. Her firm would love to sell services (including but not limited to those specializing in site prep, care and maintenance) to sovereign wealth funds that hold on to resources investments for a very long time. In contrast to private equity firms who make investments with the goal of generating financial returns through high value exits after a few years, SWFs buy the resources companies for their reserves and hence need servicers to extract them out of the ground. Like all private equity investments, there is a lot of work to be done in order to generate operational efficiencies at resources firms. Instead, the principals need to work hard to spot means of value creation, rather than just give a mandate and then walk away. “It’s difficult. One needs to be very clear about milestones, staying on budget, and having the right team in place,” she said.
On Work Life Balance
I couldn’t resist asking Tracey about work life style balance since she is the only woman with significant responsibilities in an office of 15 investment professionals and already a managing director despite being relatively young. Tracey admitted that having family obligations makes it very hard for women to make it to the top. After all, “businesses are not structured around making allowances for lifestyle.” Regardless, she thought that it is already much better than what it used to be. “It’s hard especially in the investment profession because you need to be constantly fighting to be heard. It’s exhausting. It’s also just much easier to pass.” When asked how not to overdo it, Tracey offered the advice to women aspiring to or are already in leadership positions to try all ways of communicating. She also observed that women on average tend to speak louder, faster, and with more words when they are nervous or frustrated. She suggested that one be careful not to raise one’s voice, at times not be afraid to have a bit of silence, and consciously try to speak at a normal pace, softer, and fewer words. Bringing the other person into the conversation, fleshing out the other perspectives, and ask questions are various ways of forging consensus effectively.
What makes Tracey special is not limited to her professional achievements but also what she has done for the community out of compassion. She currently serves as mentor and advisor to students in the Portfolio Management Foundation program at her alma mater and sits on the board of several non-profit organizations. One of her transformational and deeply personal experiences was from the time she spent working and living with underprivileged kids in Bronx, New York City during the summer of 2001. The choice was inspired by two things at the time: the rise of individual philanthropy in the business world on the heels of the long bull market and subsequent crash; and the crisis among children in the inner cities. “I think sometimes in our business you become very defined by the position you occupy. In five months in the South Bronx, not one person asked me where I worked or what I did for a living – they just wanted to know if I was going to come back the next day.”
AUTHOR’S BIOGRAPHY
Nina Yang writes for the HARBUS on financial matters. She has worked in Toronto, Hong Kong and New York in financial advisory. Her hobbies include playing tennis, reading biographies and travelling.
