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Issue 11
March 14, 2014
To subscribe to our Newsletters
www.palosmanagement.com/register
Portfolio Management & Advisors
Charles Marleau, CIM
President & Senior Portfolio Manager
Hubert Marleau
Economist & Co-Founder
Yarith Chhiv, B.ENG, CFA, CAIA, FRM, FCSI
Senior Portfolio Manager & Risk Manager
Palos Weekly Commentary
Robert Boisjoli, FCPA, FCA
Chair of the Board
 Palos Income Fund
George Kaneb, MBA
Vice-President, Palos Merchant Fund
Bechara Haddad
Analyst
Contacts
Lionel Alcoloumbre
Vice-President, Business Development
Alexandra Kaneb
Director, Client Services
Palos Management Inc.
1 Place Ville Marie, Suite 1812
Montreal (QC) H3B 4A9, Canada
T. +1 (514) 397-0188 F. +1 (514) 397-0199
www.palosmanagement.com
By Charles Marleau
WSP Global Inc. Does it Again
WSP Global Inc. (TSX:WSP), formerly known
as Genivar, announced another transformational
acquisition on March 12, 2014. WSP is
acquiring Focus Group Holding Inc. (Focus) an
engineering and geomatics firm of 1,700
employees based in Alberta that principally
serves the oil and gas industry in Western
Canada. CIBC led the deal, with Raymond
James (NYSE: RJF) as co-lead, issuing new
stock in WSP at a discount to market price.
Palos participated in the deal for the following
reasons:
1) Focus’ engineering specialty has very little
overlap with WSP’s existing business.
2) Our macro view on energy infrastructure is
bullish. Palos is predicting a healthy
pipeline of business in the coming years
from this sector.
3) The acquisition is immediately 10%
accretive to earnings per share. The 10%
does not include synergies. WSP has
history
of
successfully
integrating
acquisitions.
4) WSP bought Focus at 8.0x EBITDA, when
WSP is trading at 11.0x.
From the press release, one can clearly see that
the acquisition was friendly and made with a
common vision of both companies, of becoming
a leader in oil & gas engineering work. Why
else would the former CEO of Focus become
the new CEO of WSP Canada?
This is not the end of transformational and
accretive acquisitions for WSP. Palos is
expecting another acquisition by early next
year. The expected acquisition will most likely
take place in the United States (US). Using
Raymond James as the co-lead to CIBC was a
very strategic move on the part of WSP for it
will enhance WSP’s ability to source deals in
the US.
Chart 1: Palos Domestic Funds versus Benchmarks (Total Returns)*
Palos Income Fund L.P.
Palos Equity Income Fund - RRSP
Palos Merchant Fund L.P. (Dec 31, 2013)
Majestic Global Diversified Fund (Mar 13, 2014)
S&P TSX Composite
S&P 500
S&P TSX Venture
FundServ
PAL 100
PAL 101
PAL 500
MAJ 100
NAVPS
$10.34
$7.28
$7.40
$3.88
YTD Returns
2.74%
2.68%
0.00%
2.13%
5.08%
0.07%
10.96%
Chart 2: Market Data*
US Government 10-Year
Canadian Government 10-Year
Crude Oil Spot
Gold Spot
US Gov't10-Year/Moody BAA Corp. Spread
USD/CAD Exchange Rate Spot
* Period ending Mar 14, 2014
PALOS MANAGEMENT INC | WEEKLY COMMENTARY
Value
2.65%
2.40%
US $98.99
US $1,381.00
171 bps
US $0.9012
Issue 11
 Palos Merchant Fund
By George Kaneb,
March 14, 2014
To subscribe to our Newsletters
www.palosmanagement.com/register
Portfolio Management & Advisors
Charles Marleau, CIM
President & Senior Portfolio Manager
Hubert Marleau
Economist & Co-Founder
Yarith Chhiv, B.ENG, CFA, CAIA, FRM, FCSI
Senior Portfolio Manager & Risk Manager
Robert Boisjoli, FCPA, FCA
Chair of the Board
George Kaneb, MBA
Vice-President, Palos Merchant Fund
Bechara Haddad
Analyst
Contacts
Lionel Alcoloumbre
Vice-President, Business Development
Alexandra Kaneb
Director, Client Services
Palos Management Inc.
1 Place Ville Marie, Suite 1812
Montreal (QC) H3B 4A9, Canada
T. +1 (514) 397-0188 F. +1 (514) 397-0199
www.palosmanagement.com
IOU Financial Announces the Addition of
Mr. David Cynn to its Board of Directors
IOU Financial Inc., a core holding of the Palos
Merchant Fund LP, has announced the addition
of Mr. David Cynn to its board. It is our opinion
that Mr. Cynn’s background in specialty finance
companies will be an excellent resource for
IOU. For further biographical information on
Mr. Cynn, please see the press release below.
customers include medical and dental practices,
grocery and retail stores, restaurant and hotel
franchisees and e-commerce companies. In a
unique approach to lending, IOU Central’s
advanced, automated application and approval
system accurately assesses applicants’ financial
realities, with an emphasis on day-to-day cash
flow trends. It makes loans of up to $100,000 to
qualified applicants within a few business days,
with affordable charges favorable to cash-flow
management. IOU Central’s speed and
transparency make it a trusted alternative to
banks. To learn more visit: www.ioucentral.com
IOU Financial announces New Addition to its
Board of Directors
MONTREAL, March 7, 2014 – IOU Financial
Inc. (“IOU Financial”) (CSE: IOU) is pleased to
announce that Mr. David Cynn has joined its
Board of Directors.
*Principals of Palos are also be principals of
IOU Financial Inc.
Mr. Cynn is a Partner at Killearn Capital, a New
York private equity firm focused on specialty
finance companies. Prior to joining Killearn
Capital, Mr. Cynn was a Partner at Lightyear
Capital, a New York private equity firm
focusedon financial services investments. Mr.
Cynn, who spent over ten years at Lightyear,
led that firm's specialty finance efforts. Prior to
Lightyear Capital, Mr. Cynn worked in Morgan
Stanley's Mergers and Acquisition Department
for four years as well as two years in HSBC's
Mergers and Acquisition Department. He began
his career in Chase Manhattan's Management
Development Program.
From Super Oil Producer to Super Oil
Power, Pipelines Are Needed
Mr. Cynn received an MBA from the University
of Chicago's Graduate School of Business
where he graduated with high honors and
received a BS from Cornell University. “Mr.
Cynn brings a wealth of industry experience
and we are excited to have him join our Board”,
said Mr. Evan Price, Chairman of the Board.
“His experience and expertise on the US
financial market will constitute an important
asset for the Corporation.”
“I am looking forward to joining IOU
Financial’s Board as the Corporation’s strong
management
and
significant
growth
opportunities are unique in the financial service
sector”, said Mr. Cynn.
About IOU Financial Inc.
IOU Financial, via its U.S. subsidiary, IOU
Central, provides small businesses throughout
the U.S. access to the capital they need to seize
growth
opportunities
quickly.
Typical
PALOS MANAGEMENT INC | WEEKLY COMMENTARY
 What is New on the Macro Level?
By Hubert Marleau
Since 2000, Canadian crude oil production
increased from 2.0 million barrels-a-day to 3.5
million. By 2025, Canada is expected to
produce at least 5.5 million barrels per day of
which the development of the oil sands could
account for as much as 3.5 million barrels-aday. These estimates could prove to be
conservative since proven oil reserves measured
by the National Energy Board are estimated at
175 billion barrels, a number that is surpassed
only by Saudi Arabia. Moreover, the estimates
do not recognize huge oil reserves from shale
rocks. In this connection, Canada surely figures
as a super oil producer, for it is self sufficient in
oil and capable of earmarking all incremental
oil production for export and import
replacement, supplanting foreign oil with
western crude. As a matter of fact, the weight of
crude oil and refined petroleum products on the
Canadian economy is very significant. Firstly,
crude oil and oil related products account for
30% of Canada’s overall export of tradable
goods and the hydrocarbon energy sector is the
largest private investor in Canada, accounting
for one third of all business investments.
Accordingly, there is a direct connection
between how we do in the energy sector and in
the overall economy. TD Economics has
suggested that if major pipeline construction
and expansion projects are not built, as much as
$1.3 trillion of real GDP in 2010 constant dollar
would be foregone.
Issue 11
March 14, 2014
To subscribe to our Newsletters
www.palosmanagement.com/register
Portfolio Management & Advisors
Charles Marleau, CIM
President & Senior Portfolio Manager
Hubert Marleau
Economist & Co-Founder
Yarith Chhiv, B.ENG, CFA, CAIA, FRM, FCSI
Senior Portfolio Manager & Risk Manager
Robert Boisjoli, FCPA, FCA
Chair of the Board
George Kaneb, MBA
Vice-President, Palos Merchant Fund
Bechara Haddad
Analyst
Contacts
Lionel Alcoloumbre
Vice-President, Business Development
Alexandra Kaneb
Director, Client Services
Palos Management Inc.
1 Place Ville Marie, Suite 1812
Montreal (QC) H3B 4A9, Canada
T. +1 (514) 397-0188 F. +1 (514) 397-0199
www.palosmanagement.com
While the latter is very important, the Canadian
Government wants the country to become an
energy superpower; and this can happen if only
Canadian energy producers become price setters
as opposed to price takers. In order to achieve
this objective, reserves need to to connected to
sites and/or facilities that can supply existing
markets and open new markets. Pipelines are
key, for only they can permanently allow oil to
flow in a manner to chase optimal prices.
Gaining access to alternative markets would
lessen dependence on the US and alleviate the
negative effect of seasonal, cyclical and secular
occurrences of supply gluts on export terms of
trade. This is a principal reason that Canada is
exercising diplomatic pressure on the United
States, British Columbia and Eastern Canada to
accept the expansion and/or construction of
pipelines. A week ago, Canadian energy
producers received a positive boost from the
National Energy Board. It allowed Enbridge to
carry oil sand bitumen and light crude oil to
refineries in Quebec through a reversed pipeline
known as Line 9. The reversal of the pipeline
will carry 300,000 barrels a day of crude oil for
a yearly tally of $10.9 billion. While the
aforementioned numbers are impressive, they
are minute compared to the potential economic
impact of the several proposals pending for new
pipelines that would connect Albertan oil fields
with the US Coast in Texas, coastal cities in
B.C. and refineries in Eastern Canada. These
proposals include:
1) TransCanada Corporation’s Keystone XL
project could transport 830,000 barrels a
day of crude oil to Houston, Texas.
2) Enbridge could double the existing capacity
of the Alberta Clipper oil pipeline that
carries crude to Chicago, Illinois to 880,000
barrels a day.
3) An expansion of Kinder Morgan’s 60 year
old Trans Mountain pipeline would deliver
an additional 290,000 barrels a day of crude
oil to Vancouver, B.C.
4) An approval of Enbridge’s Northern
Gateway pipeline would bring 550,000
barrels a day of crude oil to Kitimat, B.C.
for export to Asia.
5) The construction of the Energy East
pipeline would deliver 850,000 barrels a
day to Quebec.
These transporters will need to demonstrate that
their proposals have economic benefits, little
environmental effect, enhanced geopolitical
influence, improved trade negotiations and
augmented national security. Our reading on the
subject suggests that the odds of approval are
much better than 50%. According to the polling
firm Nanos Research strong support, at 62%,
exists for the very controversial and heavily
disputed Keystone XL. Moreover, several fiery
derailments involving crude oil in the past year
has led to the belief that pipelines are much
safer. The Association of American Railroads
reported on Thursday last that crude oil
shipments by railroads increased 83% in 2013.
The point is that if the proposed pipeline
construction and expansion was to take place, as
much as 3.5 million barrels a day of crude oil
would flow in various directions to several
markets producing a huge monetary flow of
$130.0 billion in constant 2013 dollars to the
Canadian energy sectors.
If you have any questions about the weekly
commentary, the securities that we follow, or
investment ideas, please contact us at
[email protected]
Chart 3: Palos International Fund (Total Returns)*
Palos International Equity Income Fund PLC - CAD
Palos International Equity Income Fund PLC - EUR
Palos International Equity Income Fund PLC - USD
S&P TSX Composite - CAD
S&P TSX Composite - USD
* Period ending Mar 11, 2014
Last
CA $5.66
EUR 6.46
US $6.52
YTD Returns
3.56%
-1.24%
-0.61%
5.26%
0.76%
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Management Inc. The information and opinions contained herein have been compiled or arrived at from sources believed reliable
but no representation or warranty, express or implied, is made as to their accuracy or completeness. The information contained
herein is not necessarily complete and its accuracy is not guaranteed by Palos Management Inc. The information provided in this
material does not constitute investment advice and it should not be rely on as such. If you have received this communication in
error, please notify us immediately by electronic mail or telephone. The overall views expressed in this report are prepared by Palos
Management Inc. This document may contain certain forward-looking statements that are not guarantees of future performance and
future results that could be materially different from those mentioned. Past performance is not a guarantee of future performance.
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PALOS MANAGEMENT INC | WEEKLY COMMENTARY

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