Chris Callahan spent Thanksgiving 2023 at his family’s cottage on Georgian Bay in Ontario. The cottage was a special place: the scene of boat trips, marathon Scrabble tournaments, swims, nights gazing up at the shooting stars and epic gatherings of Chris and his friends, with the drinks served cold and the laughter echoing across the bay.

A photo from back then shows him smiling with a glass of red wine and his girlfriend, Sophia Ngo, by his side. His mom, Julie, had prepared a special holiday dinner — beef bourguignon with spaetzle noodles — a dish his dad, Stephen, had introduced to her before they had their two sons.

Captured in that moment, surrounded by people he loved, Callahan seemed like he was in a good place. Before turning 30, he had launched a hedge fund, Traynor Ridge Capital Inc., and grown its portfolio to about $100 million under management. It was a small shop, consisting of himself, an analyst and a salesperson, but it still won awards based on its performance and its founder carved out a reputation on Bay Street as a rising star.

“Everybody loved Chris,” Ngo said. “He was a powerhouse.”

But by Thanksgiving weekend, the fund that had won awards was in big trouble. Callahan had loaded up on

cannabis stocks

, betting that the drug’s federal classification in the United States would change to effectively decriminalize it, triggering a bull run on associated stocks and a bonanza of mergers. But nothing changed and the bottom dropped out of the cannabis market as September turned into October.

There were other issues, too. Some investors had been threatening to pull out of the fund as the earlier robust returns began to dry up. His parents could see he was stressed. His father, a confidant and someone he spoke with almost daily at market close, suggested they have a heart-to-heart at the cottage, but his son didn’t want to.

“Chris had closed off at that point,” he said.

Callahan headed back to the city early on the holiday Monday to beat the traffic and work was beckoning. But no matter what was troubling him, he managed a smile in parting and told his mom not to worry. A little more than two weeks later, he killed himself, leaving behind a heartbroken family, a bankrupt hedge fund and hundreds of investors left wondering where and how things could possibly go so wrong.

“People relied on Chris; people thought, ‘Oh, Chris knows how to do that,’ or ‘Chris can figure that out,’” his mom said. “But he was in a situation where he couldn’t figure it out. He was the one who needed help, and that was something he couldn’t deal with because if he needed help, people would think he was not perfect.”

Callahan’s lawyer informed the

Ontario Securities Commission (OSC)

of his death on Oct. 28, and the OSC on Oct. 30 ordered that Traynor Ridge Capital Inc. cease all trading activity. Four days later, the Ontario Superior Court of Justice appointed Ernst & Young Inc. as the fund’s receiver, tasked with managing its wind-down and determining what, if any, money was left.

The implosion of Traynor Ridge was chalked up as just another hedge fund trader who got burned for making some bad market bets. But Callahan’s life and the circumstances surrounding his death show the potential downside of ambition and, ultimately, isolation in a high-stakes poker game where a player’s sense of self-worth can be reduced to their ability to generate monthly returns, and failure is perceived not as a part of life, but as a reason to end it.

A complete list of Traynor Ridge’s portfolio holdings has not been made public, but according to the receiver, a “substantial portion” of the fund, which had assets valued at more than $94 million as of Sept. 29, 2023, was invested in several cannabis companies, whose share prices precipitously tumbled in the weeks before Callahan’s death.

Callahan initiated a series of trades between Oct. 11 and 20, according to an Ontario Superior Court of Justice claim filed by Virtu Canada Corp., an investment dealer that had executed transactions on his instruction since Traynor Ridge’s inception.

Funds had two days to settle up with the dealer following a trade, but Traynor Ridge did not settle its trades. What ensued was a rolling cascade of failed trades that, according to the Virtu claim, allegedly led to more than $5 million in losses after the dealer took steps to liquidate the securities Traynor Ridge had instructed it to buy.

Some of Callahan’s trading activity toward the end may have involved “trading without any change in beneficial or economic ownership,” according to an OSC document. A trader simultaneously buying and selling the same security, known as wash trading, boosts trading volumes, suggesting to the wider market that the security in question could be of interest.

It’s a form of market manipulation, and a trader found guilty of it faces a range of penalties from a simple reprimand to fines of up to $5 million. No formal allegations have been made against Traynor Ridge to date, and a source, who is not authorized to speak on the matter, indicated the alleged trading activity did not reflect a wider pattern of behaviour and was instead perhaps among the final acts of a desperate young man.

Making a precarious situation worse was that Traynor Ridge was highly leveraged and buying securities on brokerage credit by borrowing at multiples against the underlying value of the portfolio’s holdings, according to a source. Should such a bet pay off, a fund reaps the returns and all is well, but if it doesn’t, the losses are multiplied and a fund can find itself in jeopardy.

With Traynor Ridge, the fall came swiftly. Callahan was pulling the trigger on leveraged trades the fund did not have the money to cover, in addition to being saddled with illiquid holdings he could not get rid of.

He had made the wrong bets.

“One general rule of hedge funds is that they are a riskier area for investors to play in and the higher the risk, the higher the expected return,” James Darroch, professor emeritus of strategic management at York University’s Schulich School of Business in Toronto, said. “The risk is always there with hedge funds, but the returns are not.”

The beginning of the end

Julie Callahan starts each day with a list of 10 things she plans to accomplish and an understanding that the world is full of broken-hearted parents, so there’s no point in sitting around “since there is always somebody else who is going through something worse, and there is always something nice to think about, but you have to find it.”

Stephen Callahan keeps busy in his own way. A bad back prevents him from being as active as he once was, so he reads all the newspapers he can get his hands on and thinks about Chris.

Jeff Callahan, Chris’s younger brother, is quiet by nature, and the pain is etched upon his face when he speaks of his sibling’s absence.

“We did everything together,” he said.

The brothers were opposites. Jeff could fix a boat’s motor and pretty much anything else; Chris could size up a complex financial spreadsheet and make sense of the numbers, talk politics and win debates, and he loved an audience, uncorking stories that made everybody laugh.

He could also make a mean martini and pan-sear a prime steak — with butter, salt and pepper, garlic and rosemary — to perfection and he always, somehow, found time for family, friends and his partner, who shared in the knowledge that the best solution when one had a problem was to “go ask Chris.”

Even from a young age, Callahan seemed to have all the answers. His mom is not the only one in the family who abides by the 10-things-a-day rule. Her sons were expected to get up and get at it, and both were expected to have part-time jobs by the age of 16, a deadline Callahan handily beat when a manager at the golf store he and his mom happened to be shopping at offered the 15-year-old a job on the spot after he gave an encyclopedic account of the club he was looking at as well as its selling points.

That job led to another job at a big-box sporting goods store and a request from management to overhaul the store’s computer system. Outside work, Callahan was his high school class president, a downhill skier, a backcountry canoeist and someone who was fascinated with business and armed with wisdom beyond his years, his dad said.

An entrepreneurial thread runs through the family. Callahan’s dad is an architect who became a developer and his grandfather started his own accounting firm. Other family members started businesses, and his younger brother would eventually start one, too.

“I can remember Chris writing a business plan for a sailboat he had sketched out as a teenager,” his dad said.

Despite having parents with good connections, rather than enlist them to make a few calls on his behalf, Callahan hustled to land an internship at what became Echelon Wealth Partners Inc. while studying applied economics at Queen’s University in Kingston, Ont. Rob Furse was the company’s co-founder and president; Callahan was the intern who won the office over.

“Chris had a great combination of analytical hard skills, and they are a bit commodified, but what really set him apart was his people skills,” he said. “He was just a very personable, very energetic guy, and it may sound simple, but it is harder than you might think to find someone who can combine the smarts with the personable.”

It did not take long for the internship to blossom into a full-time opportunity on Echelon’s sales desk, a role that put Callahan in contact with a number of hedge funds, including HGC Investment Management Inc., which recognized what Furse already knew — the guy had talent — and recruited the 23-year-old as an analyst.

“There were no hard feelings; we were happy for Chris,” Furse said. “It was definitely the next logical career step for him.”

The analyst eventually moved into an associate portfolio manager’s position at HGC, but he resolved in 2019 to take a leap of faith in himself by starting his own hedge fund.

Hedging your bets

The Canadian hedge fund industry consists of 246 funds with 130 managers and $200 billion in assets under management, according to a Bank of Montreal primer. That may sound like a lot of money, but it’s pocket change compared to the Canadian fund industry as a whole, which has more than $4 trillion under management and close to 7,000 funds.

Hedge funds have different investment strategies, but the secret sauce is often a portfolio manager’s ability to sniff out opportunities, do the research, analyze the numbers, attract high-net-worth individuals as well as corporate and institutional investors, and make the correct bets.

Bill Ackman

, the silver-haired founder of Pershing Square Capital Management LP, has billions of dollars at his disposal and has made several headline-grabbing forays into Canada.

But the industry is also home to much smaller fish, such as Traynor Ridge. Big or small, merger arbitrage — taking a position on whether a merger deal between two companies will close — is a common hedge fund strategy and one Callahan excelled at.

A March 2023 Traynor Ridge fund overview broke down some of Callahan’s successes on this front, including a home run he hit involving the 2021 merger between Supreme Cannabis Co. and

Canopy Growth Corp.

, as well as another one that involved a competing bidder scenario for an Australian energy company.

Callahan often zeroed in on securities that were trading for less than 50 cents, which was fundamental to Traynor Ridge’s strategy of focusing on small-to-mid-cap companies in areas of the markets that the Ackmans of the world are generally not interested in, but that can produce investment opportunities with “outsized risk/reward characteristics,” according to the fund’s March 2023 overview.

Traynor Ridge was named after a ski run in Aspen, Colo., that Callahan and his brother barrelled down years before. On that trip, he met some folks who worked in finance, seeding the idea that someday he would do the same.

Callahan met Furse for lunch before launching his fund in February 2020, laying out his vision and asking whether he would be willing to invest. It was a soft sales pitch, but Furse did not need to be sold since he felt the technical knowledge and investment strategies Callahan had gained while at HGC would allow the fund to scale well.

“I cut him a small cheque because I believed in Chris,” he said.

He was not the only one. At the time of Callahan’s death, Traynor Ridge had 310 investors, including some friends and family members, but the bulk of the money came from established Bay Street players, such as Westcourt Capital Corp., a Toronto-based investment advisory firm with a well-heeled clientele. Westcourt declined an interview request, as did Callahan’s former colleagues at Traynor Ridge, one of whom previously worked at Westcourt.

Traynor Ridge started as a one-man show. In registering the fund with the OSC, Callahan structured it in such a way that he was its founder, chief compliance officer, investment officer, sole director, shareholder and ultimate designated person. In other words, even though he later wound up with two employees, the buck — the fund’s investment decisions, strategy, trades, regulatory compliance, risk management and ultimate success or failure — stopped at him.

There wasn’t a board of governors, strategic advisers or wise industry sages on hand to offer advice, nor was there anything in the mountain of OSC paperwork requiring that to be in place.

What seems a possible red flag in hindsight did not handicap the fund as it got off the ground. Investors piled aboard, buoyed by the promise of high returns. One investor recalls buying in based on the recommendation of their financial adviser.

He said they were not aware that Callahan had so many overlapping roles with Traynor Ridge and that due diligence on the fund had been left to a trusted adviser with a track record for delivering results.

“I was shocked to learn that you can set up a hedge fund and not have more oversight from regulators,” the investor, who requested anonymity, said.

He never met Callahan in person, but received monthly updates on the fund’s performance from their adviser. Prior to October 2023, it was “business as usual,” they said. Two years later, he has still not received any correspondence from the receiver or the OSC and he has no expectations that he will ever see a nickel from what was a substantial investment.

“What happened should not have happened,” he said.

Another investor similarly laid the blame squarely at the feet of the OSC for allowing hedge fund founders/principals to also be the chief compliance officer. It’s a structure, he said, that lends itself to “risky” trades.

“While such a structure might make sense for the early stages of a startup, it surely doesn’t when the amount of managed assets reaches $50-plus million,” he said.

Callahan, however, was not operating in a complete vacuum. He did speak with his dad, but hedge funds were a foreign language to him.

“I almost hate to put it this way, but Chris made it look easy and he was successful,” his dad said.

Of course, it was not easy. Callahan expressed doubts to Ngo at the outset about whether investors would take a 20-something-year-old seriously. She disagreed.

“I had full confidence in Chris,” she said.

He was loyal, reliable, a meticulous planner, intentional, hyper-organized and funny, qualities that made him the key cog at the centre of a disparate group of friends featuring some big personalities who ensured everybody got along, Jesse Foden, one of those friends, said.

“Chris and I talked every day,” he said. “He was the friend you could call at 2 a.m. when your car broke down by the side of the road and he would say, ‘Sit tight, I will be there in 10 minutes to pick you up.’”

Callahan was also the friend who could take a complex subject, say, a hedge fund, and break it down into digestible bits, leaving a listener with the belief that he would produce results. It is what had made him a good salesperson, but selling was only part of his appeal.

Ngo met Callahan in 2017 at a party in Ontario cottage country. Saturday morning was their cherished time, an opportunity to enjoy a perfectly slow day, grab a bite of breakfast at Callahan’s go-to in St. Lawrence Market and then walk for hours along Toronto’s waterfront while discussing their hopes, dreams and future.

She credits Callahan for teaching her to be more assertive at work, to ask for what she deserved in terms of salary and to understand that giving a presentation to a room full of senior executives as a junior person does not mean you do not belong in the room; it is an opportunity to own it.

“Chris taught me how to dream bigger,” Ngo, a program manager at Google LLC, said.

She taught him that if he wanted to start a hedge fund, he should go for it and that the rest of the pieces and investor money would fall into place. Callahan got going, and he regularly clocked 100-hour workweeks as the nascent fund gained momentum and began generating buzz among the monied crowd.

He was on his way, and he would pack extra computer monitors in his checked airline baggage when he and Ngo managed to get away for the odd weekend so that he could replicate his trading setup in their hotel room.

As the founder of a startup, he wore several hats, and he was aware of Traynor Ridge’s structural shortcomings. A few years after the fund’s inception, he approached Furse to ask whether he would lead an effort to professionalize the company’s structure, put together a board of governors and serve as its chair. Callahan wanted to take the fund to the “next level,” his former boss said.

Furse was happy to take on the project. They were in the early stages of working through that process in the summer of 2023 when something changed. He knew from their conversations that Callahan was having difficulty with some investors and he had confided that he was afraid they were going to pull out of the fund. But he expressed an even deeper fear to his family members, claiming some investors were telling him that if he did not turn things around, his career on Bay Street would be over.

“These are nasty people,” his brother said.

Furse offered some friendly advice and did what he could in terms of mentorship, but he did not know what to make of it when Callahan stopped returning his calls and emails.

“The complexion of our relationship, or the tenor of the conversations, the context, the whole thing just definitely shifted and I could feel that shift — and it was quite unusual — and maybe this is part of the takeaway, at least from my perspective, I just wish that we would have been able to stay in communication,” he said.

The fund that claimed top prize in the market neutral category at the 2023 Canadian Hedge Fund Awards for having the best three-year risk-adjusted return and second place for the best three-year return was struggling by the end of June to sustain its momentum and was down almost five per cent for the year, according to Fundata Canada Inc., an investment analytics provider.

Experiencing growing pains is not exclusive to the young or the small in hedge fund circles, and neither is failure. Long-Term Capital Management LP, a US$3.6-billion fund that employed a couple of Nobel Prize winners amongst other seasoned Wall Street hands, once lost US$553 million in a single day in 1998 and required bailing out by a consortium of American and European banks to prevent a widespread global market panic.

Ackman once reportedly lost US$4 billion on Valeant Pharmaceuticals Inc., a Laval, Que.-based drugmaker that went from a national success to a cautionary tale amidst a host of criminal investigations. But one advantage an Ackman has compared to hedge fund newcomers is a long track record. No matter how popular algorithm-driven trading has become, it is still a relationship-based industry, and investors may be more inclined to stick with a proven winner even when they are going through a bad patch.

“Hedge funds are a lot of relationship understanding, and relationships are the thing that’s going to help you manage through market turbulence,” Susan Christoffersen, a dean at the University of Toronto Rotman School of Management, said. “People have those long-term relationships with investors to sort of say, ‘Hey, I need you to stick in here for a period of time,’ and as a young kid, that would be hard, I imagine.”

Engulfed by a crisis, Callahan ran out of time as some of his investors ran out of patience, but he may have been right in the long run about cannabis. United States President

Donald Trump

recently touted the medicinal benefits of cannabidiol for seniors on his Truth Social platform and in August said his administration was looking at reclassifying marijuana as a less dangerous drug. That led a Canaccord Genuity Group Inc. analyst in October to rate several cannabis stocks as buys.

But in 2023, few people were buying in. Callahan’s investor relationships were barely out of the honeymoon phase, and as a bad month became two, three and more and his investors started getting antsy, his solution was to dig in and work even harder. Some nights he barely slept. The self-confident powerhouse Ngo knew started second-guessing himself.

“Chris had always been able to roll with the punches,” she said.

At some point, the bruises piled up.

Alone and searching

Ngo enjoyed watching the television show Billions, which is about a New York hedge fund manager. Callahan was less enthusiastic. One of the central characters is a performance coach who tends to trader psyches, gets to know their fears and digs them out of mental ruts by getting at the root of what might be holding them back.

The show is fictional, but performance coaches are not. Denise Shull, a former trader on the Chicago Mercantile Exchange, is arguably the godmother of the profession, having been at it for 25 years. She claims some of the biggest names in the hedge fund universe — names she can’t mention — as clients since even the highest flyers in finance are all too human.

“I just got off the phone with a successful portfolio manager,” she said. “He is an eldest child, and eldest children tend to feel the weight of responsibility on their shoulders.”

Originally from Ohio, Shull moved to Utah from Manhattan during the pandemic, but she occasionally still dips her toe back in New York.

“I know people will object to me saying this, but making a living making market decisions is the hardest mental game there is,” she said. “It may not be working as a hospice nurse, which is very emotionally difficult and taxing, but the phenomenon of having to make a market decision where the game never ends, where you can be wrong but right, and you can make a case for either way given the ambiguity of it, is harder than chess or even poker.”

The kicker? Judgment gets handed down at daily market close; either you have won the game or you are a loser, but the game begins anew soon enough. Shull has clients in their 50s who have lived through booms, busts and daily setbacks, and they are not overly troubled by whatever the next storm ahead may be. But she said most of her clients are afraid of “failure most of the time and for some, the fear is mild, but for others, it is existential.”

Alden Cass, a New York-based psychologist and performance coach, authored a pioneering late 1990s academic study on mental health among stockbrokers when markets were soaring and they were getting rich. Despite being on a bull run, 23 per cent of respondents exhibited clinically diagnosable levels of major depression, emotional exhaustion and burnout.

What he has learned through his experience working with hedge fund traders is that they tend to be perfectionists and when things get stressful, they “avoid focusing on their internal self, and they focus only on getting out of the hole, and that becomes an obsession, to get out of that hole, to not fail. And they won’t and they don’t go for the necessary help with their stress, because they don’t feel that they have the time.”

Cass said it is common for New York-based hedge funds to employ a dedicated risk manager whose job is to analyze risks holistically, from the trades being made to issues around compliance, scanning the environment for any potential landmines that could lead to a fund’s undoing.

Neither Shull nor Cass can speak directly to Callahan’s situation, but what Ngo took away from watching Billions is that her partner needed a coach. She could not find any options in Toronto, though there were plenty of names to choose from in New York, but it didn’t seem to register when she floated the idea of connecting him with someone external to work with.

“Chris didn’t have the time or didn’t want to prioritize getting that kind of support,” she said.

Asking for help is not easy, said John Oliffe, a professor, founder and lead investigator of the University of British Columbia’s men’s health research program. What he has learned over the years is that men possess an uncanny ability to conceal their internal struggles and often do not have the language to articulate, in real terms, the level of the strain they may be under. It typically tends to be late in the game when men do ask for help.

“Guys look internally; they try to solve the problem and they keep it quiet,” he said.

Compounding the risk for Callahan may have been his occupation.

“When you are winning, it is a lot easier to get to the end of the day and enjoy and celebrate it, but if you’re still going through that stressful environment and coming out, having lost in the way they count it in the finance industry, then it is going to start to chip away at you,” Oliffe said.

Callahan started winning out of the gate. Traynor Ridge posted returns of about 40 per cent and 24 per cent in its first two years, respectively, and eked out a small gain in 2022 despite global markets falling close to 20 per cent that year.

The wins, however, are never guaranteed, as Darroch pointed out. The retired professor has worked with a lot of finance executives and met his share of traders, and what they taught him is that unless someone has managed through a tough market, they are not prepared for it and they “may end up taking too many risks.” People also tend to repeat their successes “until the failures become too big to ignore, and by then, sometimes it is too late,” he said.

Ngo grew increasingly worried about her partner as October wore on. Callahan begged off seeing her for a time after Thanksgiving, claiming he was too busy. Eventually, she showed up at his office in his townhouse, and, sure enough, he was working alongside an employee in the spotlessly tidy space with a desk, three computer screens and a picture of Tiger Woods, his idol, on the wall.

Virtu emailed Callahan at 6:34 p.m. on Oct. 23 to advise him that the “Failed Trades would be sold out” as early as the next day, according to court filings.

The dominos rapidly fell thereafter as other brokerages that dealt with Traynor Ridge sold off securities purchased on the fund’s behalf subject to similarly failed trades, according to Ernst & Young, and that includes the place where Callahan got his start. Failed trades saddled Echelon Wealth Partners with approximately $19.8 million in losses, a Canadian Investment Regulatory Organization report said.

There was no escaping the situation; Traynor Ridge was going under. Callahan spoke with Ngo by phone on the night of Oct. 26. He told her he loved her — twice. They planned to get together at his place after work the following day, a Friday. He also spoke with his dad, indicating that things were going to be OK with Traynor Ridge.

He met with his colleagues Friday morning, but when Ngo arrived at his condo at 5 p.m., he was not there and his gun locker had been left open. Inside was a letter to her and one to each of his family members. He was found dead later that night in an area north of Toronto.

“Everybody survived this, but Chris,” his dad said. “The banks that dealt with Chris, they are OK; the investors, it is just money. It might be a lot of money, but it is just money. Everybody else survived.”

It took time, but Ngo is happy again and thriving in the job she remembers being excited to tell Callahan about when she got it. Her memories from that October and the weeks after are blurred, but she remains close with his family and is grateful she had the time she did with him.

“I had never met anyone like Chris before and I have never met anyone like him since,” she said.

Her favourite photo of them together is from a trip to Mexico. The thing she loves most about it is how “happy and carefree” they look.

Hang around Bay Street long enough, Furse said, and you will find that stories of failure are not uncommon, nor are stories of people bouncing back from their defeats. He has no doubt that Callahan would have been one of those stories.

Callahan’s parents spend a lot of time thinking about what he would be doing now were he still alive. It is a haunting, never-ending exercise, and it is their wish that other families never have to endure it.

They believe that additional regulatory guidelines, such as requiring smaller hedge funds to have a board and encouraging industry experts to serve as mentors and advisers, and creating a better overall system of checks and balances, especially when a young person is involved in running a company, would produce a healthier environment.

“Chris thought his life was gone, even though he had a loving family, father, mother, brother, a beautiful, warm, smart girlfriend and great friends — all of it,” his mom said. “He had a remarkable life and he would have continued to do remarkable things, but he broke; his brain broke.”

• Email: joconnor@postmedia.com