Phil Goldstein's Special Opportunities Fund released its 2013 annual report. The fund did very well in 2013 and kept up with the S&P 500 but with (what I also believe) substantially less risk as the fund was invested in a significant amount of assets that undoubtedly returned much less than the market. For example, 12% of the portfolio was devoted to special purpose acquisition vehicles (SPACs) and 10% to cash/money market funds had to drag overall returns of the fund down.

Goldstein details several of the fund's more notable investments that have either paid off or in which the fund is gearing up for an activist approach. One of the more interesting positions for me is Imperial Holdings. a position in which they successfully took an activist approach to increase and protect shareholder value. Here is what Goldstein has to say about Imperial:

Imperial’s board and management team are focused on mitigating the risks of non-collectability on Imperial’s portfolio of life insurance policies that have an aggregate face value of approximately $3 billion and on capitalizing on opportunities to enhance shareholder value as a result of its improved financial position. Toward this end, on February 21, 2014, we participated in a $70 million private offering of 8.5% convertible notes. While there are still land mines to maneuver, we think this capital raise is a major milestone for Imperial as it enables the company to opportunistically invest in its core business and also takes any near term liquidity concerns off the table. We hope to see the stock significantly higher over time.

Imperial still trades at about a 40% discount to book value and it sounds like to me Goldstein still views it as a low risk/high reward type of investment.

Another very interesting bit of news is that the fund is planning on spinning off to shareholders shares of a new closed-end fund that will invest exclusively in foreign closed-end funds. I've looked at a few of these particular names and there does seem to be a nice opportunity here for an activist like Goldstein. I know of no other Goldstein-like equivalent outside the U.S., but someone please correct me if I'm wrong.

I've been a big follower and fan of Goldstein for many years and have occasionally invested alongside him in specific situations, but have not yet invested in him as an investment manager now that he has vehicle for me to do so. With the market having come so far, so quickly over the past five years, putting some money in Goldstein's fund—a fund that will likely continue to show good returns over the long run by investing in low risk/high reward situations that are frequently uncorrelated with the stock market—seems like a really good idea.


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