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Pabrai Funds 2010 AGM Notes


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Guest longinvestor

Thanks for the notes. Instructive to read about Pabrai's goal of "positive returns and 3% over indexes". How has he actually done so far?



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Although you indicate that you were not paying close attention to the covered call discussion.  Can you elaborate on his strategy.  You seem to say that he wrote them 1 month out and then bought 30 before expiration! So that can't be it.


thanks for the notes!



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Stanely, Pabrai's performance is OK imo. It's not fantastic but I do believe he is a good stock picker.


His main fund has returned 15.5% annualized since inception (2001)


His offshore fund has returned 10.6% annualized since inception (2002)


The issue I have with his performance is how terrible it has been ever since he has managed a decent amount of money...


For example, the offshore fund is still underwater (has not breached its high water mark) since 2006... ouch


And the same goes for the main fund, capital invested in 2006 would still be underwater...


And in 2006 is when he really started to manage a serious amount of money... So actually if we really get a little tough on Pabrai, most of his carried interest was derived (in terms of net dollars) during years in which he had not so good performance but managed a lot of money. Since then he has lost a few hundred million dollars of investor money but since he had already distributed his carry he is still ok personally. Sure his stake is down but it's dis-proportionate to the investors.


Mathematically it works like this:


Year 1 AUM $100M generates a 23% gross return = $5.75M in Carried Interest

Year 2 AUM $200M generates a 15% gross return = $7.5M in Carried Interest

Year 3 AUM $400M generates a 34% gross return = $34M in Carried Interest


These are the good years, remember he charges a very steep 25% over 6. Now lets look at the following years:


Year 4 AUM $500M generates a negative return of (32%) loses $150M in partner capital but his Carry is still worth $30M

Year 5 AUM $350M generates a negative return of (25%) loses another $87.5M in partner capital but his Carry is still worth $22.5M

Year 6 AUM $250M generates a positive 43% gross return = $107M , partner capital is still significantly lower but his carry is now worth about $30M


So if we look at it from an absolute money in money out perspective he has made $173M in the good years, but took home about $50M of that so (120M net) , then lost about $130M net in the following years. So essentially in 6 years the partners have lost together $10M in capital but he has gotten rich through the good year carry.


Now this isn't anything personal about Pabrai because this is the hedge fund model. Its just surprising he still has a 9 figure AUM with this performance and I attribute that to the cultist Biglari style following he has carved out due to all the Buffet copycatting.


I am much more impressed with an Einhorn than a Pabrai.


Just my thoughts.

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