Hugh Cleland was a 26-year-old political science student at Harvard University looking for a summer job when he decided to send his resumé to Bay Street.

“Frankly, I didn’t even know what a bond was,” recalls Toronto-born Cleland, who is now 37.

It was the spring of 1996. Cle-land’s credentials at the venerable U.S. college impressed someone at Sceptre Investment Counsel Ltd. in Toronto and, sure enough, he was hired to replace an administrative assistant on maternity leave. Soon, he was invited to sit in on a management meeting with Jim Balsillie, who was looking for investors interested in a private placement in his company, Waterloo, Ont.-based Research in Motion Inc.

After the meeting, Sceptre’s then-managing director, Lyle Stein, asked Cleland to write a research report, including industry analysis and valuations.

“What’s a valuation?” Cleland asked.

“You’ll figure it out in the library on the weekend,” Stein replied.

It was “the beginning of the beginning,” says Cleland, now manager of Northern Rivers Capital Management Inc. ’s $90-million Northern Rivers Innovation Fund LP, winner in the Opportunistic Strategy Hedge Fund Category at the 2006 Canadian Investment Awards last fall.

“I couldn’t believe people got paid to do something so interesting,” he says.

Later that year, Cleland, who put a “buy” on RIM, by the way, finished the Canadian securities course and rejigged his final year at Harvard to take some business- and finance-related courses at the Massachusetts Institute of Technology in Boston. Later, he took a job as a junior telecommunications analyst at Midland Walwyn Capital Inc., which was later bought by Merrill Lynch & Co. Inc. and subsequently sold to CIBC Wood Gundy.

Cleland completed his chartered financial analyst designation in 2001 and was headhunted by Toronto-based Northern Rivers later that year.

NR Innovation Fund has returned 37.6% in the five years to Jan. 31, while the S&P/TSX total return index gained 13.4%.

Limited partnerships aren’t generally eligible for registered accounts but advisors will find a more recent version of the fund, with just $3 million invested to date, available for RRSP investing on FundServ Inc. (www.fundserv.com). Unlike the LP, advisors can sell this version inside a commission structure for a minimum initial investment of $25,000 for accredited investors. Clients must have a net worth of $1 million or more, excluding their primary residence, and their household income has be more than $200,000 for each of the past two years, or combined family income must exceed $300,000 in the same period.

If they are interested and eligible, clients will gain access to an interesting and somewhat storied investment style.

Cleland respects quantitative financial and technical analysis, and says both play basic roles in his investment style, yet this is not what distinguishes him. “Sometimes that’s where you add the least value as an analyst,” he says.

Every fund manager holds many meetings over the course of a year with investee company executives and other managers in order to hammer out a portfolio. But Cleland candidly recalls mistakes he made in relying on this approach with a core holding.

“I was a very optimistic guy, and I rode the stock from 80¢ to 4¢,” he says. “I had been to conferences, but it was a good lesson on relying too much on face-to-face meetings and management updates.”

Cleland says he finds that major industry conferences, put on for investors such as himself, are “almost completely useless. All the [company] attendees are so briefed and coached. When they suspect someone is at all linked to Bay Street or Wall Street, they shut up,” he says.

Instead, Cleland may follow clues and leads, and visit obscure trade shows at which he may un-cover valuable information. Occasionally, he will lunch with executives from his core holdings’ competition. He says he gains a stronger understanding of industry dynamics from them, and even peppers suppliers and salespeople with questions about the products and companies he’s tracking. “It’s part of my ‘rolling due diligence’ process on all my core holdings,” he says.

An anecdote he shares involves a recent trip to Sao Paolo, Brazil, for an auto show at which Volkswagen Brazil and a Brazilian service bureau had launched what Cleland believed was a pilot service based on technology developed by one of his core holdings, WebTech Wireless Inc., a promising product that offers a global positioning system in a theft, security and communications device.

@page_break@Cleland needed more first-hand evidence about the venture and what it might mean to the Burnaby, B.C.-based WebTech.

So, Cleland took the nine-hour flight to Sao Paolo, a sprawling city of 20 million, and started asking people at the trade show what was going on. Few spoke English and Cleland doesn’t speak Portuguese, but he slowly started to form an impression. Then a sales rep confirmed that the technology would be offered as a free service in every Volkswagen sold in Brazil starting this year.

“I almost fell over,” he says. “For whatever reason, the sales and marketing people on the floor at the show had been briefed about the details.”

At some point during the show, WebTech put out a press release acknowledging advanced negotiations with Volkswagen. The stock was moving, and Cleland’s efforts put him ahead of the rest of the Street.

When Cleland had left for Sao Paolo, he thought his due diligence would help him decide whether to sell the company’s stock at $5 a share, but he now sees himself holding some of it throughout 2007.

The deal has only recently been finalized. “If I hadn’t gone to that show and met the people from Volkswagen Brazil and their business partner, I wouldn’t have had the courage of my convictions to hold the stock,” he says.

Cleland performs the same kind of due diligence on all seven of his core holdings — each of which he has held for at least a year, and most more than two years. His stable also includes Systems Xcellence Inc., QuStream Corp., Neptune Technologies & Bioresource Inc., Wi-Lan Inc., Western Goldfields Inc. and Kodiak Oil & Gas Corp. — which together comprise 60%-70% of the fund’s portfolio.

Cleland dismisses most investment ideas within a few minutes. The other 30%-40% of the portfolio consists of a “farm team” of 20 to 40 names that might have a 200%- 300% turnover within a year.

“In the past few weeks, I’ve sold out two positions I’ve been in for about four months,” says Cleland. “They were private placements. It came down to the fact that I wasn’t very impressed with what I had learned in the interim, so I sold. In both cases, the companies had both quantitative and competitive advantage problems.”

Like most hedge funds in Can-ada, even though NR Innovation Fund has the flexibility in its mandate to take short positions and use options for risk management, the fund has been “directionally biased” toward the long term for some time, says Cleland.

As long as markets are flat or trending upward, he says, he’s happy to maintain an overall 85%-100% long-term stance, with just 5%-15% held for the short term.

“If I change my mind and think we’re heading toward a recession,” he notes, “I’ll get my cash level up to 20%-30% and bring shorts up to the 50%-plus range.”

Cleland isn’t worried that the small-cap market has lost its wide valuation advantage over large-cap firms in the past five years. Gains might be muted in the current environment, but, he says, “I think you still have the ability to outperform any other asset class with good [small-cap] stock-picking.”

In the next four months, Cleland will be heading to at least four trade shows, including the always-exciting National Association of Chain Drug Stores’ regional conference, which is part of his due diligence on SXC Health Solutions Inc., a holding in the health-care industry.

He’ll be spending some time away from his wife and his two sons, ages six and three, as he hits the convention floor in Naples, Fla., dodges the public relations and marketing flacks, and noses around for some useful information. IE