October 2016


  • +0.3748% (Class A)
  • +0.4412% (Class F)


  • -1.9654% (Class A)
  • -1.7130% (Class F)

Although the calendar year is not yet over, I wanted to address that 2016 has been a challenging year for us as far as returns are concerned.  Our Investment Fund is up 0.6% and our Opportunities Fund is down 1.9% year to date with two months remaining. Average annual returns (compounding) since inception has been 8.31% for the Investment Fund and 6.38% for the Opportunities Fund and neither fund has ever experienced a negative year, a fact we are quite proud of given the 8+ year history of the Investment Fund and the nearly 5 year history of the Opportunities Fund. 
In times like this it is always tempting to lose focus, veer off course, and take additional risk to try and bolster returns in the short term.  We see this as a massive mistake.  One of the things investors trust professional money managers with is the discipline to NOT chase returns and keep focused on the pledge that was made when the partner first made the investment.  The pledge has little to do with returns but everything to do with risk.
In previous notes, Julian (our CIO) has explained that unexpected legislation surrounding anti trust issues has caused the Opportunities Fund to take a more conservative position surrounding our merger arbitrage strategy.  I’m bringing this up as an example of how discipline overrules a wide spread on a merger opportunity because of increased risk.
We stick by the comment that losing money hurts more than making money feels good, and guides our conservative investment philosophy.
Please see Julian’s comments on October performance below.


Jai Hawker

Capital Investment Fund

The Structured Product portfolio increased slightly after a number of structured product retractions were completed.  The Merger Arbitrage portfolio registered modest gains while the Multifactor portfolio was flat for the month.

Opportunities Fund

The Liquidation portfolio had a setback after the conclusion of LWP Capital's claim process which subsequently lowered realized distributable cash.  While liquidations typically provide attractive low-risk double-digit returns, this was the first time in which expected cash distributions turned out to be materially lower than initial forecasts.  The Special Situations portfolio declined 114 bps on weakness in certain market sectors on election-related consternations, much of which was recouped post-election in early November.  The High Yield Credit portfolio gained 20 bps in general tightening of credit spreads while the merger Arbitrage portfolio was flat.  The Telesta Therapeutics deal closed, a gain of which was offset by widening of arbitrage spreads in longer duration merger securities.

Julian Klymochko, CFA 

Paige Knight