Our oldest evergreen fund, the Emerging Markets Absolute Return Fund (renamed from Emerging Markets Fund to emphasize its non-beta orientation), provided a vivid example of how difficult it was for long/short funds to meet absolute return goals in the highly correlated environment of 2010. EMAR gained just 3.7% before fees (1.6% after). This was far behind the Dow Jones Credit Suisse Emerging Markets Hedge Fund Index (up 11.3%). We note, however, that (a) as a long/short fund it can’t properlybe benchmarked against an index which isn’t similarly hedged and (b) this is the fund’s fourteenth consecutive year of positive returns.
The Value Opportunities Fund is our open-end vehicle for investment in corporate opportunities (with an emphasis on distressed debt). In 2010, VOF gained 16.5% before fees and 11.3% after. In this environment, this represents very solid performance.
The three levered evergreen funds that went into liquidation in connection with crisis-era restructurings all produced respectable gains, adding to the recovery from their mid-crisis lows.
The European Credit Opportunities Fund for European senior loans rose by 12.2% before fees, producing net returns ranging from 8.9% to 10.5% to investors in its various capital classes.
The High Yield Plus Fund for U.S. debt opportunities returned 23.6% before fees to its original investors (23.5% after), and 26.0% before fees on its rescue capital (14.4% after – since the fund has gotten into positive territory, fees previously deferred have become due).
The Japan Opportunities Fund for small-cap equities returned 16.0% before fees (15.5% after) to investors who opted for a speedy liquidation and 30.0% before fees (29.7% after) to those who chose a more deliberate pace of selling. All three of the liquidating funds made significant cash distributions in 2010, in keeping with their investors’ wishes.