Lessons in Loss Mgmt.

Daniel Bain’s Value-Shift investment philosophy is driven by the idea of protecting client assets, and it has led to the growth of Thornmark Asset Management

Daniel Bain loves to take short trips, collects art, and wants to get back into hockey, but he also spends a lot of time talking about the markets. “I don’t see a distinction between work and play,” he says. “I love what I do, so it’s not work.”
Daniel Bain loves to take short trips, collects art, and wants to get back into hockey, but he also spends a lot of time talking about the markets. “I don’t see a distinction between work and play,” he says. “I love what I do, so it’s not work.” (Photo: Samantha Simmons)

When Daniel Bain founded Thornmark Asset Management Inc. in 1998, he wanted to provide investment-management services using his own Value-Shift philosophy. Today, it remains a foundation of his investment process, and his company has reached $60 million in assets under management. Dive into the numbers to find out how.

When Bain began his studies at Queens University in 1987, he had no idea what he wanted to study, so he asked a professor what discipline was most highly regarded there. The answer was economics, and Bain chose that—wisely, as it turns out. “My choice was pure luck, but I loved economics, and it’s been the foundation of everything I’ve been doing since I graduated in 1991,” he says.

After graduating, Bain began working for Thornmark Holdings, a private real estate development company with a family-office investment-management business. Early on, he saw a problem with the family-office business: “They had relatively concentrated portfolios but were already in a very illiquid real estate business,” he says. Bain became the proverbial bee in the firm’s bonnet, campaigning for a better allocation of its portfolios, and in 1993 he received $350,000 to manage himself. “I looked at it as an investment-management challenge and decided to live and die by my own sword,” says Bain, whose portfolio ended up performing well.

In those early years, Bain developed what he would eventually trademark as the Value-Shift philosophy, a value-style investment philosophy that has what Bain calls a “maniacal aversion to catastrophic financial loss.” The basis of Bain’s philosophy wasn’t financial theory but simple arithmetic. “Mathematically, a 15 percent loss only requires an 18 percent return to recoup the losses,” he says. “The challenge arises with larger losses. It takes a 43 percent return to recoup a 30 percent loss and a 100 percent return to recoup a 50 percent loss.”

So Bain began focusing on what it would take to avoid such losses. It’s commonly accepted, he says, that 75–80 percent of portfolio performance is driven by asset allocation. Bain, however, believes that asset allocation is most critical around economic inflection points such as the transition from a bull market to a bear market or vice versa. “My philosophy uses asset allocation during economic inflection points but focuses on stock picking during economic expansions,” he says.

After being appointed chief investment officer of Thornmark Holdings’ family-office business in 1995, Bain navigated several key economic events, including the collapse of the materials commodity market, the Russian ruble, and Long-Term Capital Management. Based on that success, in 1998 he made a proposal: “Over the years, shareholders of Thornmark Holdings had tried to shift assets from the company’s real estate and other business units to its family-office portfolios, so I suggested that I set up a new company that would offer that service in a more cost-effective manner,” Bain says.

20 clients
When Bain launched Thornmark Asset Management, he had 20 clients and $16 million in assets under management. It was a strange time, however. “A year after I set up a company to tactically invest primarily in equities, the tech bubble was expanding and preparing to burst,” he says. Fortunately, his company sold tech stocks almost as quickly as it acquired them, and when the market crashed in 2001, it had minimal tech exposure. As a result, its consolidated portfolios were only down 4.3 percent gross of fees from 2001 to 2002—far less than the 23.5 percent loss the TSX took as a whole.

$500 million
The years 2006 and 2007 brought significant growth for Thornmark Asset Management. In 2006, Bain launched Thornmark Alpha Fund, a concentrated equity fund with $2 million in assets, and today it’s worth $15 million. Then, in 2007, Thornmark Asset Management found itself appointed as manager of an institutional mandate that also had $2 million in assets; over the next five years, the company helped grow it to $500 million.

The era of liquidity came to a halt in 2008, when the credit crisis ensued, but Bain approached it like he had the tech crisis. “We identified six critical risk factors in advance of the credit crisis and began to reduce equity exposure in 2007, leading up to our most significant tactical call in June of 2008,” he says. During the worst part of the crisis, the funds had between 70 and 100 percent of their assets in cash. As a result, in 2008, the consolidated funds declined just 8.5 percent (before management fees) while the TSX fell by 33 percent.

On March 6, 2009, Thornmark Asset Management made its first fundamental increase in equity exposure since the credit crisis, doubling exposure. “One business day later, March 9, was the market’s intraday low of the credit crisis,” Bain says.


Job title
Chief investment officer & CEO

Financial services

Years in the business

Where did you start your career?
As an economic intern at Thornmark Holdings.

Describe yourself in three words
Focused, disciplined, agile.

Advice to those just starting in finance
Do what you love so that it’s not work. And to figure that out, listen to what other people are asking you for help with.