Greenstone Value Opportunity Fund Annual Letter

About a year ago, we did one of our first emerging manager interviews with the team at Greenstone Value Opportunity Fund. Notably, one of their largest positions at the time was Tronox, which was a moonshot (both the debt and equity) in the last few months of the year:

Last week, I received Greenstone's annual letter for 2010, which I've pasted in full below.

December 2010 (1)

From my read, it looks like a pretty strong year for the team, maintaining a massive out performance versus the averages since inception. Here are some of my favorite quotes from the letter:

• "The valuation criteria we are primarily concerned with have not changed: low multiples of free cash flow and/or EBITDA across the business cycle. When we say low multiples, we are looking for companies trading at less than 3-5x these multiples. In elevated markets we find that we have to search harder to find the multiples we are comfortable with, or we have to be more patient in letting the market come to us"
• "Within the fund, we have been consistently trimming back our winners on the long side, while adding to our short exposure in an effort to lower the overall net long exposure as the markets have trudged higher. We are also sitting on a fairly healthy cash position. However, we’re very conscious of the fact that we can’t sit still praying for any particular bearish or bullish move to play out just because our portfolio is positioned to such a thesis. It is our job to continue to search for value no matter where the indices are trading, and to decide how much we wish to expose ourselves to an elevated market. We will continue to selectively add to our long book as we uncover mispriced opportunities, but it’s not our game to be climbing into bed just because everyone else is piling in." - (Editor's Note: My emphasis added. And stealing that one for when MBA students around the globe come to visit to hear my wit and wisdom)
• "We currently have no credits, distressed or otherwise in the portfolio. As of mid January we are looking at one post emerging equity. While the valuation fits our criteria, finding a seller is proving difficult. We are always looking at the opportunity to invest higher in the cap structure when the upside/downside opportunity is compelling, and when we can emulate the same deep value focus on low multiples of free cash flow and tangible assets that we use in selecting long equities." - (Editor's Note: I've begged them to tell me the name, but their lips are sealed until they establish a full position. Here's hoping we can report on it when we get next quarter's letter. Nonetheless, like a lot of smart people, the team does not see much value in credit)

As always, if you come across an interesting letter to investors, please send it my way. All submissions are 100% confidential and I will never post a letter without getting the original author's permission.