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Salida Capital's BTR Strategic Growth Fund is focused on natural resources including energy based metals, base metals, precious metals and agriculture.

Salida Capital is a mainly Canada-based natural resources investment company founded in 2001. It now has approximately $900 million in assets under management.

The fund aims to invest in small and mid-cap companies in politically safe and favourable risk/reward jurisdictions with proven management teams. The goal is to do this at an early stage when the market is discounting what Salida estimates to be their true asset value as these will develop into prime takeout candidates.

Courtenay Wolfe, president and CEO of Salida Capital, explains the fund is able to spot these undervalued companies because Salida is well connected in the resource industry on a global basis.

Experience also helps, she says. The team has been investing together for over a decade. Individuals at the company on average have 20 years of experience focusing on resources. "This means that today the team is introduced to a lot of opportunities by companies or individuals with proven management records," Wolfe comments.

The ultimate objective of the fund is to reach an exit strategy by way of a takeout or an initial public offering (IPO). According to Wolfe, merger and acquisition (M&A) activity is strong in the resource sector for two reasons: the sustainable growth of the Bric (Brazil, Russia, India, China) countries and the fact major resource companies need to acquire assets yearly to replace depleting reserves.

The fund has a global focus and backs management teams it knows and trusts. As a lot of the resource companies around the world are actually driven by Canadian management teams and boards, Canada is the largest jurisdiction on which the fund focuses. It also invests in assets around the world from Africa to Europe to South America.

"We have had a lot of success over the last decade in picking the right companies. You can do very well if you also get the commodity call right," explains Wolfe.

"We don't invest in companies with a need for the commodity price to go up. You get most of the value from the execution of the management and the growth of the asset. You can do incredibly well if you also get a move in the commodity price at the same time," she adds.

Although Wolfe is expecting a wealth of opportunity in natural resources, she is aware of the volatility that comes with this sector but expects to see "higher lows and higher highs".

In the strategic growth portfolio most of the return has come from the long side of the book, predominantly by investing in companies where the team has high conviction while looking for a catalyst event. The short side of the book is primarily for risk mitigation.

Onsite due diligence can be very involved. Management, geology and even the rocks on the ground are assessed.

There is an argument that the more you learn about a company the more your judgement of it can become clouded, admits Wolfe. She believes this is not a problem for Salida as clear judgement comes from the "seasoned experience" the team has accumulated.

According to Wolfe there are four crucial factors to be considered when picking a stock. First, the strategic growth fund team focuses on geology as "we're not looking for low-grade or small deposits but high-grade, potentially world-class deposits".

Second, the fund seeks out "confident, proven management teams who have done it before in the same geology and the same geography. World-class assets with bad management teams do badly time and time again," Wolfe states.

Next, the team identifies favourable risk/reward jurisdictions. Lastly, the team attempts to get the stock at a favourable valuation. "If you can get into an asset early, it might not be attractive to a lot of people who, for example, think there is only 1 million ounces of gold in the ground. Based on our due diligence we might anticipate that there are significantly more ounces in the ground to be drilled. All of a sudden when you reach 8 million ounces, it becomes a prime takeout target," Wolfe cautions.

Recently Salida opened an office in London. As 50% of the company's assets are located outside of Canada, it already had a large European client base. The expansion represents a natural growth of its business.

Wolfe also points to the abundance of resource opportunities in Africa and Eastern Europe, explaining that having a presence in Europe helps both from an investor and an investment side.

Frustratingly, according to fund portfolio manager Danny Guy, there is "no special formula" to achieving spectacular levels of returns. The fund's net cumulative performance since inception is 425.5%. "You just work hard and make the right macro call on the markets," he comments.

The Strategic Growth Fund was set up in the aftermath of the financial crisis. Salida Capital was caught in the Lehman Brothers' bankruptcy. That debacle ensnared Salida's flagship fund and prequel to the Strategic Groth Fund, the Global Opportunity Fund. It had been up 660.8% over six years and Wolfe remains proud of its performance despite it being frozen in the Lehman bankruptcy.

"We communicated very actively with the Global Opportunity Fund's investors all along the way. We invited the investors caught up in Lehman to invest into the new Strategic Growth Fund and waived the minimum investment to whatever they would like to invest," Wolfe explains.

Typically, the minimum investment on that fund was $1 million.

Performance fees were also waived in the fund's first year and about 50% of the Global Opportunity Fund's investors took Salida up on the offer, reaping the benefits of its 220% gain in its first year.

Fund facts
Full name of fund: BTR Strategic Growth Fund
Name of portfolio manager: Danny Guy
Name of investment/management company: Salida Capital
Contact information: sales@btrfunds.com; +1 (877) 674 2189
Launch date: March 1, 2009
Assets under management: $275 million (at April 30, 2011)
Net cumulative performance since inception: 425.45%
Annualised return: 115.06%
Annualised volatility: 35.43%
Sharpe ratio (5%): 2.24
Strategy: equity long/short
Share classes: class A
Administrator: Citi Hedge Fund Services (Ireland)
Auditor: KPMG
Custodian: Goldman Sachs
Prime broker: Goldman Sachs
Legal counsel: McMillan (Toronto, Ontario, Canada) Ogier (Cayman Islands)
Domicile: Cayman Islands
Management fee: 2%
Performance fee: 20%
Minimum investment: $1 million
Lock-in: none
Redemption/liquidity terms: 5% early redemption fee if within one year