As I sit back and try to relax this Easter Weekend, I contemplate. The markets are decent, the world did not end, and corporate profits are strong. All in all, it should be a relaxing time.

Yet, somehow, there are always things that bother investors. So this weekend, here are a few unrelated themes that make us, as investors, go, “hmmmm”.

The Canadian Biotechnology sector: Once again, this sector has seen some wicked implosions this year. We wrote in a column in the Post years ago how this sector has been an unmitigated disaster for Canadian investors, yet the disaster seems to be ongoing. In the past two weeks alone, Canada has seen two high-profile biotech blow-ups. First was Cardiome Pharma Corp., a Vancouver-based company focusing on cardiovascular drugs (COM on TSX). Cardiome plunged 54% on March 19 as its partner, Merck, dropped support of the oral version of its heart drug. Cardiome is now down 74% in 2012, and is actually now trading slightly below its cash on hand. A big disappointment for a company that once boasted a $500 million market cap (its $42 million now). Then, this week, AEterna Zentaris (AEZ on TSX) dropped 67% as its colon cancer drug reported weak Phase III drug trial results. It was the second steep plunge for AEterna in three years. In August 2009, the stock dropped 65% on another trial that didn’t perform as expected. Its stock is down 54% in 2012. 

As we said a few years ago, it’s a miracle that anyone actually invests in this sector.

Also making us wonder this week is Sino Forest. The company (TRE on TSX, halted) filed a lawsuit against Carson Block this week, claiming $4 billion in damages. Meanwhile, Sino filed for bankruptcy protection. Carson Block of course started the ball rolling for Sino Forest’s troubles, and within months after his negative report on the company the shares were halted, perhaps never to trade again. Sino spent $50 million (!) investigating the allegations, and still couldn’t quite disprove them. Of course, in the Sino debacle everyone seems to be suing everyone (John Paulson’s hedge fund is being sued by investors). Carson Block, though, rather than getting sued, should get a medal from regulators. He proved far more efficient in shutting down Sino Forest than regulators did in this or any other “questionable” company.

More thoughts also this week on closed-end funds. Basically, we always wonder, ‘who buys these things?” Looking at a recent prospectus for a new issue, we see a 3% selling fee, a 2.75% agents’ fee, 1.5% in selling expenses, 1.5% in management fees and 0.5% in trailer fees. Those fees don’t even include fund expenses, such as custodian and independent reviews. Doing the math, we determined that the fund would need to go up 9.2% in its first year just to break even. That assumes the fund trades at net asset value in the after-market, which almost never happens. At a 10% discount to NAV, then, an IPO buyer would need the fund to go up almost 20% in the first year just to stay even. Like we said, WHO buys these things? Yet every week more come to market. We know who SELLS them, of course, but the identity of the buyers eludes us.

Finally, we wonder about rich investors. Specifically, hedge-fund investors. In almost every business, if you are a giant client, then you pay less in fees. Buying 20 airplanes? Well, you’ll save $20 million on your order. In the investment world, though, if you are a big client you actually pay more in fees. Under the 2% and 20% fee structure, a large hedge client with $15 million invested would pay management and performance fees of $720,000 on a hedge fund that rose 14% (net) last year. In every other business, large clients get rewarded, but not in the hedge-fund world. Why is this? Why hasn’t competition driven down fees? Are these clients not smart? 

We will be contemplating these and other issues while we sit down for Easter dinner.