(not a recommendation to purchase equities)

Overview of long equity holdings

Fifth Street Financial - FSC.

FSC is a company that went public less than a year ago. It is a business development company fortune enough to have $300 million dollars to lend out over the past year – while all other lenders were shutting down. This allowed the company to “cherry pick” which clients to take on at favorable rates. The company is currently trading as if more than 50% of their business loans are currently in default. In actuality only $5mm has defaulted thus far. The company pays out a very large dividend due to their BDC structure and favorable tax incentives. Unlike the other BDCs, FSC has no debt and owns a portfolio of healthy income. Leonard Tannenbaum leads a trustworthy management team that has taken advantage of this financial crisis for the shareholders benefit. Current marked down NAV is roughly $12.00 per share. David Einhorn, Greenlight Capital, sits on Fifth Streets board and is world renown for his strict analysis of adequately marking down the value of loans. He was made famous by this scrutiny with his war against Allied Capital. This gives us additional assurance that the current NAV correctly values the portfolio using strict mark downs of underperforming loans. The current draconian valuation on FSC’s share price presents our partnership with a wonderful opportunity to build a large position at prices that offer a generous margin of safety.


Brookfield Infrastructure Partners – BIP.

BIP is a Bermuda based company “spun-off” from its parent company Brookfield Asset Management (BAM), which is managed by famed investor Bruce Flatt. Like most spin-off situations the new company is often faced with increased selling pressures from holders of the parent stock. Add the natural selling forces of the recent decline in equity markets and we have a stock that has been brought down to levels that no longer are in sync with the underlying assets of the company. Currently the shares are trading well below 50% of the asset value. The company owns wonderful businesses in Chili and Brazil ranging from transmission lines to timber operations. The company is in position to further take advantage of depressed global prices to broaden their investment exposure. The company pays a hefty dividend exceeding 8% at current levels. We feel that this dividend is sustainable moving forward. The management team is very solid and we expect strong cash flow generation into the foreseeable future. BIP’s current valuation allows our partnership to build a substantial position at prices that offer a large margin of safety.



Capital Southwest Corp – CSWC.

CSWC is a Dallas, Texas-based investment and venture capital firm. The company has no debt and simply purchases stocks and holds them for the long haul. They currently hold shares from investments made in the 1960s. CSWC is known for its aggressively low NAV calculations – incorporating values 20% below market prices and including 40% tax from capital gains into their numbers (even though they never sell). The current NAV is more than double the recent share price. Add back in the severe discounts given by the company for NAV and you have a stock trading substantially below the liquidation value. This is a very solid management teams that has an impressive historical track record dating back 40 years. We believe purchasing shares at a fraction of the intrinsic value offers an incredible opportunity. We are comfortable allowing this proven management team to allocate capital for above average returns. The margin of safety is again clear with this investment.