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Seats of wealth

Manager spotlight Brendan CaldwellBrendan Caldwell's avocation is planting trees. In fact, he's building an arboretum--"a tree collection"--on his wife's family farm in Central Ontario. The precocious 36-year-old president and CEO of Caldwell Investment Management Ltd. takes the same approach to managing money: He tries to see the forest for the trees.

Back in 2004, he and his father, veteran Bay Street player Thomas Caldwell, began to invest in a business that the pros often overlook: the exchanges where they make their livings. Working through Urbana Corp., a onetime mineral explorer turned investment firm, and several limited partnerships, the Caldwells started buying seats on the New York Stock Exchange. At the time, seats cost about $1.5 million (U.S.) apiece. But in April, 2005, the NYSE agreed to merge with online exchange operator Archipelago Holdings, and to convert itself to a public company. The price of seats jumped to $2.5 million (U.S.), and kept climbing.

The Caldwells decided to start a fund, rather than launching more partnerships.

In October, 2005, they established the Caldwell Growth Opportunities Trust. Since then, "the engines through which money flows," as one fund brochure describes exchanges, have paid off handsomely. At the end of 2005, the Caldwells controlled 49 NYSE seats. Three months later, NYSE Group shares debuted, and seatholders received 84,699 shares worth $67 (U.S.) apiece for each of their seats. The shares have soared to more than $100 (U.S.), helping to make the Growth Opportunities Trust the top performer in Globefund's specialty category in 2006, with a total return of 82.9%.

In some ways, stock exchanges look like the proverbial sure thing. Their revenues depend mainly on trading volume, which tends to grow over time whether markets go up or down. "When you're moving hundreds of billions of dollars worth of stock every year, and in the NYSE's case, trillions, you don't have to charge very much to make an awful lot of money," says Caldwell. Bull markets do help, however. "As market cap goes up, so do listing fees."

For the Caldwells, the NYSE seats were also somewhat of a "do-over"--a chance to get things right. In the late 1990s, they opposed the Toronto Stock Exchange's drive to go public, which it did in 2002. TSE seats that were worth about $50,000 each in the late '90s were converted into TSX Group shares that are now worth about $25 million.

The Growth Opportunities Trust isn't for everyone, however. There's a $50,000 minimum first investment, and it's restricted to so-called accredited investors--a legal classification for financial sophisticates who typically have more than $1 million in investments. "We want this to be for big kids," says Caldwell.

The fund isn't exactly a diversification play, either. About $55 million of the $90-million fund is in NYSE Group shares. There are also time restrictions on the sale of those shares--stipulated when the exchange went public, to prevent immediate, massive sell-offs. But the fund has used newer money to buy stakes in the Montreal and Philadelphia exchanges, the Chicago Board Options Exchange and Kansas City Board of Trade, in part because Caldwell thinks they could be merger or takeover candidates in the future. It also has $5 million in shares of Hong Kong Exchanges and Clearing Ltd.

An articulate and polished product of privilege and a private-school education, Caldwell earned his undergraduate degree in science. He then completed a master's on John Milton's Paradise Lost before entering the securities business. Yet he still finds it surprising that many investment advisers haven't considered that buying exchanges could be paradise regained. "The mindset hasn't really changed. Most people still think of exchanges as the thing they use, not something to invest in."


Caldwell Growth Opportunities Trust

6 month % 1 year %
Total Return (to Dec. 31, 2006) 41.9 82.9
Index (S&P TSX Total Return) 12.5 17.3

© 2007 The Globe and Mail. All rights reserved.

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