Annual Review | February 1, 2010
As 2010 begins, we have been reflecting on Perry Capital’s 21 year history. Our goal has
always been to deliver strong returns with low correlation to the equity markets. Our
results have been achieved through a nimble approach to both asset allocation and security
selection. We opportunistically shift our capital to the areas offering the best risk/reward
ratio at any given time. Perry Capital has a strong history of finding mispriced securities
and exploiting market inefficiencies without broadly exposing our capital to the downside
of bear markets, with the notable exception of Q4 2008.
The stress and dislocation of nearly all financial assets continued in the beginning of 2009.
Then, suddenly in early March, all equity markets reversed and headed upward. We
certainly did not anticipate that the markets would recover as vibrantly as they have over
the past nine months. Despite holding a cash position as high as 40% and hedging nearly
dollar-for-dollar all year, the Fund rebounded nicely in 2009 generating a net composite
return of 25.2%. This performance is largely attributable to a successful allocation into the
credit markets. If the markets had been more muted in 2009, in all likelihood our returns
would not have been as strong. Yet, in Q1 2009 when the equity markets were still tumbling
(the S&P was down 24% through March 6), our portfolio held up extremely well (-0.9%).
Had we chosen to invest more heavily in equities than credit, we would have experienced
much higher volatility and a large Q1 drawdown, without any commensurate higher return.
In addition to our asset allocation decision, security selection aided performance in 2009.
Our largest positions were in low priced senior corporate credit in challenged industries
such as auto finance and residential real estate. We invested based on a conviction that the
downside risk relative to upside potential was very favorable, rather than trying to predict a
potential recovery. We believed the most attractive credits were those that traded closest
to liquidation value or a severe downside recession case. This approach limited our
downside risk and, given the dislocation in the markets, provided substantial upside.
The same thought process helped us select some strong equity performers in managed care
and reinsurance. We have been following and investing in managed care companies for
nearly ten years. These equities have discounted a very pessimistic legislative result for
healthcare reform. Any slightly better outcome from Congress will potentially re-rate these
low multiple stocks. Additionally, we made a number of non-U.S. investments including
HeidelbergCement (Europe) and Asciano (Australia), two companies that delevered with
new equity. These capital raises gave us an excellent entry point into formerly highly
leveraged entities at a discounted valuation.
Q4 Review
Credit
Our investments in the auto and auto parts sectors, including Delphi, General Motors,
Chrysler Financial and Federal Mogul, were solidly profitable during the quarter. Chrysler
Financial continues to wind down its loan portfolio and losses remain subdued. We have
long been one of the largest holders of both first and second lien bank debt and expect par
recoveries on both.
We purchased claims in Delphi very late in the bankruptcy process when the contemplated
buyout by Platinum Equity was halted giving the DIP lenders the opportunity to own the
company. The credit bid by DIP lenders presented an excellent opportunity to purchase
what would be the best capitalized auto parts company in the world at extremely depressed
levels. Delphi emerged from bankruptcy on October 6th and is now a privately held
company. Delphi may have an Initial Public Offering (IPO) later this year or during 2011.
Over the past few quarters we built a position in two classes of General Motors unsecured
bonds; GM corporate bonds issued by the parent entity and GM Nova Scotia bonds. All of
the bonds will receive a combination of equity and warrants in New General Motors
(“Newco”). Newco will be a vastly improved company from the GM that filed for Chapter 11
bankruptcy in June 2009 with a dramatically reduced fixed cost structure in North America.
GM shed significant liabilities including over $30 billion in debt, and has refocused its
brand strategy. GM will have significant liquidity and a manageable debt balance. The US
government has indicated they would like to take Newco public via an IPO by Q3 2010. The
auto space continues to improve and the market is starting to anticipate a higher
Seasonally Adjusted Annual Rate (SAAR) of auto sales during 2010-2011. Despite the recent
price appreciation, GM continues to trade at a discount to its peers.
Our investment in CIT was also profitable for the quarter. We started building a position in
the senior unsecured bonds in the summer of 2009 when CIT’s application for government
assistance was denied. The unsecured bonds collapsed to distressed levels, hitting prices
that were below our expected recovery values. The company attempted an out-of-court
exchange but ultimately filed a prepackaged bankruptcy that lasted less than 40 days. Our
bonds converted into a strip of new secured bonds and equity. The bonds and equity have
both traded quite well post emergence – the bonds currently trade at 9% yields to maturity.
US Equities
In equities, our managed care stocks were a strong contributor to Q4 performance. As
concerns around a government-instituted public plan faded away, these stocks continued
to rally. Even today, many of the managed care names are trading below 10x earnings. We
have scaled back our positions slightly to lock in some gains, but managed care continues
to be approximately 5% of our total portfolio.
2
Conversely, we were hurt by a steep decline in Palm’s stock as well as a continued rally in
the broader market, which caused many of our shorts to detract from performance. Palm
was affected by the launch of the Motorola Droid at Verizon, which market observers viewed
as a competitive threat. We used the selloff as an opportunity to add to our position in
advance of carrier launches with Verizon and AT&T. We view Palm as a differentiated
operating system that is a cut above the updated Android, as evidenced by its recently
announced ability to run 3D games and multitask. Additionally, the number and quality of
Palm applications is improving dramatically. The handset industry is in an arms race as the
market transitions from feature phones to smartphones. Our view is that Palm has an
excellent operating system and will continue to gain traction with the carriers. That being
said, our fears around competitive pricing in the smartphone area led us to increase some
of our hedges in this area.
Asia
We continued to run a well hedged portfolio in Asia. The majority of the Q4 gains came
from our newly initiated equity positions in Japan and a few China related equity and
convertible positions. Through the first eleven months of 2009, Japan was one of the worst
performing markets in the world. The well-founded and publicized concerns regarding
Japan’s fiscal deficit led a meaningful market selloff which started in early September and
then accelerated through November. We used this period to buy equities in three areas:
diversified trading companies, industrial names and companies issuing equity to
recapitalize stretched balance sheets. Some of the large Japanese trading companies have
generated most of their earnings from investments in global energy and mining operations
and have limited exposure to the domestic economy. As investors aggressively sold large
cap stocks in Japan, these trading companies reached significant discounts to their global
peers and presented an excellent risk versus reward. We perceived a similar opportunity
with certain industrial names including steel companies that were trading at historically
wide discounts to their regional peers. Finally, the overall pessimism surrounding Japan
created a difficult environment for companies trying to raise new equity to pay down debt.
As a result, we were able to establish positions in newly recapitalized companies at
attractive levels. We are hopeful that Japan will continue to present interesting
opportunities in the near term.
Europe
In Europe we built positions in hybrid securities of European financial companies, primarily
Lloyds and RBS. We believe that given the significant government support and ownership
in the financial companies, the billions of equity capital raised, the strengthening of the
credit markets and the low dollar price of these securities, they offer attractive
risk/rewards. In December Lloyds completed a £9 billion rights offering and a £13.5 billion
exchange offer for its Tier 1 securities. RBS completed a £25.5 billion equity subscription by
Her Majesty’s Treasury. We believe that there is the potential for additional exchanges,
tenders and price appreciation in hybrid securities.
3
We trimmed our position in Nestle after the announcement of a $28 billion sale of its Alcon
stake to Novartis. As the commodity hedges that Nestle put into place in late 2007/early
2008 roll off, the weak gross margins should start to improve dramatically. In addition, the
primary use of the Alcon proceeds will be for a very accretive share buyback. Nestle is a
quality business trading at a cheap valuation.
2010 Outlook—This has been a nice party. We hope the hangover is mild.
We anticipate that in 2010 the financial markets will continue to be greatly impacted by
fiscal policy. We are living in an era of unprecedented debt created by budget deficits,
bubble-era bullish views on asset values and benign monetary policy. Fortunately, the US
government’s effort to stem the 2008 meltdown has removed the threat of a systemic
failure. This intervention will likely embolden more government involvement in future
crises or perceived crises and may ultimately prove to be a costly legacy of 2008. The
alternative, allowing market clearing mechanisms to attempt to take hold, can also result in
dislocations and pain. Yet, for most of the past 25 years, the economy has grown and
recovered despite such disruptions in many industries. The pain threshold in our country is
extremely low, stemming from a prolonged period of relatively benign economic conditions
in place since the 1980’s. The free flow of capital seeking high returns has facilitated a
rolling recovery whenever there has been any economic instability. This Darwinian
metamorphosis — overleveraged entities are either restructured into leaner, better
enterprises or sometimes liquidated; companies that no longer offer long-term economic
return on capital are doomed, while others that have potentially high returns are given
more funds — has been our economy’s way of cleansing itself. As an opportunistic
investor, Perry Capital has been part of this process, dynamically moving capital into
stressed assets and industries while also facilitating the liquidation of some companies in
an orderly fashion. This role that we (and other hedge funds) play is to provide needed
capital to companies and industries rather than wanted capital.
There is still uncertainty whether the stimulus has really taken hold and created lasting
demand for goods and services. To date, the Federal Reserve and the Government are
hesitant to implement an “exit strategy,” implying that the economy is still too weak to truly
stand on its own. With the unemployment rate still hovering around 10%, banks are
hesitant to lend, and with idle capacity widely available, the Fed has ample clearance to
hold off raising short-term interest rates. The markets have benefitted from a combination
of stimulative fiscal policy, easy monetary policy, and strong momentum.
So, what are the potential headwinds for continued strong markets? That little, menacing
four letter word must now be invoked — debt. The obligation to pay off debt stands
squarely in the path of a strong recovery. In some instances, debt may not be paid off, but
instead, will be extended, exchanged for new debt or converted into ownership of the
underlying entity. In any of these outcomes, looming maturity requires capital, and in this
4
cycle, large amounts of capital. There is excessive debt in almost all sectors of the
economy. For illustration, we will examine:
1. Corporate debt
2. Commercial real estate debt
3. Sovereign debt
This is by no means the complete list of sectors with excessive debt. Other categories
include State and Local government debt, residential mortgage debt and consumer debt.
1. Corporate Debt. In the corporate market, the US witnessed a record $430 billion of
leveraged buyouts (LBOs) in 2007. Beyond noting the staggering volume trajectory, the
valuations of these transactions, averaged 9.7x earnings before interest, taxes,
depreciation and amortization (EBITDA) compared to valuations of 6.0x – 7.0x prior to the
bubble period (see chart below). During the bubble, these companies were generating
“peak” earnings or EBITDA. Leverage multiples of 6.0x (peak) EBITDA were common and in
many deals, even higher amounts of debt were used.
10.0x
Acquisition EBITDA Multiples
9.0x
8.0x
7.0x
x Tra iling E BI TDA
6.0x
5.0x
4.0x
3.0x
2.0x
1.0x
-
01
99
05
07
08
00
06
04
09
02
03
20
19
20
20
20
20
20
20
20
20
20
1st Lien Sub Debt Equity/Pref.
Source: Standard & Poor’s, LCD and Perry Capital estimates.
Since that time, very few, if any, of these LBOs have achieved the projected earnings.
Owners now find themselves trying to reduce crushing debt loads while hoping to salvage
some equity value.
As equity markets recovered in late 2009, a number of private equity-owned or otherwise
heavily-indebted companies attempted to raise equity in public markets. We anticipate this
trend will continue well into 2010 and beyond. These instances will provide competition for
equity dollars that will likely become more pronounced if markets stay robust. The maturity
profile of leveraged loans originated in the bubble years (see chart below) is a good
guideline for the quantity of debt that will seek to be recapitalized. As a wall of maturities
looms in 2013 and 2014, many companies will simply run out of time.
5
US Leverage Loan (1st lien) Maturity Profile
2006 - 2008 Vintages
$250
$200
$150
$ billions
$100
$50
$0
2010 2011 2012 2013 2014 2015
Source: Standard & Poor’s, LCD and Perry Capital estimates.
2. Commercial Real Estate (CRE) Debt. The same credit bubble inflated the commercial real
estate sector, with an unprecedented rise in the availability of debt from 2005 through
2007. During those three years, commercial and multifamily residential mortgages
outstanding in the United States increased from $2.3 trillion to over $3.3 trillion,
representing a 13% annual growth rate (see chart below). The securitization market led the
way by growing 25% per annum, doubling in size from $400 billion to just under $800
billion during those peak years.
Level of Commercial and Multifamily Mortgages Outstanding in the U.S.
(F ederal Reserve Flow of F unds)
$4,000
$3,500
$3,000
$2,500
US $ Bn
$2,000
$1,500
$1,000
$500
$0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Total Commercial and Multifamily Mortgages Total from Asset Backed Securities
After a mild correction early in the decade, the CRE market grew accustomed to ever-rising
valuations. In early 2001, capitalization rates on the four major property types (apartments,
office, industrial and retail) averaged approximately 9.3%.1 At the peak in June 2007, the
average cap rate had fallen to a mere 6.4%. This decrease came in spite of the fact that
interest rates in the US Treasury Market were essentially flat. The lower cap rates resulted
1
The “cap rate” is the inverse of the cashflow multiple on the property, i.e. the higher the cap rate,
the lower the price paid.
6
in a 90% increase in the average value of CRE transactions, according to the Moodys/REAL
Commercial Property Index (CPPI).
Many participants had come to believe that lower-than-historical spreads had become a
secular change, resulting from all of the institutional capital available to invest in real
property. Others had justified the compressed yields on the belief that cash flows would
see strong growth into the next decade due to supply constraints. Both of these theories
proved incorrect, and the assumptions used to underwrite commercial mortgages, similar
to the story in LBOs, turned out to be totally unrealistic.
According to the CPPI Index through November 2009, property values have already declined
43% on average and cap rates have risen back to approximately 8%. In addition, under the
rare circumstance that a new mortgage is available, loan-to-value levels are in the 50-70%
range versus 80%+ at the peak. With these changes, a new mortgage today would likely
provide only half of the proceeds necessary to repay a bubble period loan.
Given these conditions, a large percentage of commercial mortgage debt is likely to have
trouble paying off in the normal course at maturity. In fact, during 2009, only 40% of
maturing CMBS loans originated after 2002 paid off on their scheduled maturity dates.
Deutsche Bank estimates that $900 billion of commercial mortgages will mature over the
next three years, with the vast majority of this coming from commercial banks and savings
institutions (see chart below).
Deutsche Bank - Estimate of Commercial Mortgage Maturities (2009-2018)
As this debt matures, banks and CMBS trusts will have to decide whether to foreclose,
restructure, or perhaps roll the maturity and hope for a rebound. The first two outcomes
require more capital, either through a new injection or by converting debt into equity
(explicitly or implicitly). The third option, rolling debt, does not solve an over-leveraged
situation, but instead will delay the likely need for fresh capital.
3. Sovereign Debt. Sovereign debt outstanding has more than doubled as a percent of GDP
over the last 30 years in the US, UK, Eurozone and Japan. In addition, the financial crisis
7
exacerbated the need to issue sovereign debt to fund either bailouts or fiscal stimulus.
Together, the US, UK, Japan and Eurozone countries now have an aggregate of $25.9 trillion
of sovereign debt outstanding, including T-Bills.2
Government Debt as a Percentage of GDP
1980 2007 2010E
200.0%
180.0%
160.0%
140.0%
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Austria Belgium Finland France Germany Greece Ireland Italy Netherlands Portugal Spain Eurozone United United States Japan
Kingdom
Source: European Commission Autumn Economic Forecast 2009, OMB and OECD.
With the exception of the UK, the countries listed above have overly relied on short and
medium-term funding. When taking the debt burden in the aggregate, almost 62%, or just
under $16 trillion of principal, comes due through the end of 2014 (see chart below).
Governments will be competing for investor dollars during the same period that LBO and
CRE debt will need to be refinanced.
Cumulative Maturity Distribution of Sovereign Debt
Eurozone United States United Kingdom Japan
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
0
0
0
0
5
7
8
0
6
4
9
2
1
5
5
3
01
01
01
04
04
02
02
01
01
01
01
01
01
01
03
03
2
<2
<2
<2
<2
<2
Source: Bloomberg as of January 11, 2010.
Unlike the LBO and CRE debt, sovereign nations need to pay their debt off at the scheduled
maturity or face more dire consequences. Governments need to grow GDP aggressively, cut
outlays, or use monetary policy measures to inflate out of the problem. The preferred
choice would always be to try to create enough GDP growth; however, this would require
years of patience. Goldman Sachs recently estimated that Eurozone countries could reduce
debt/GDP levels back to 2008 levels (that is only a year ago!) in 15 years and to the
Maastricht Treaty requirement of 60% of GDP by 2032 under a normalized growth and
2
Source: Bloomberg as of January 11, 2010. Includes directly issued central government debt.
8
interest rate environment. This would require governments to bring their primary fiscal
balance from a 2010 expected deficit of 3.7% of GDP to the long-run average of a 1.3%
surplus.3 Achieving this level of deficit reduction through increased taxes and lower
spending seems almost impossible without hampering GDP growth. In addition, such
policy cuts may not be politically feasible.
Alternatively, governments could inflate out of the debt problem through easy monetary
policy or by devaluing currency. However, the weaker sovereign economies in the Eurozone
do not have the luxury of using monetary policy as a tool to stimulate economic activity.
Although higher inflation may ultimately cause higher interest rates on government bonds,
increased inflation can still reduce the burden of maturing debt. As an example, Barclays
Capital estimates that Eurozone debt/GDP will hit 105% in 2015 under a normalized growth
environment, excluding any adjustment to current fiscal deficits. If inflation rose to 4%
(versus ECB policy rate of 2%), then Eurozone debt/GDP will be 82% in 2015 – a 23%
improvement. However, inflation alone would not allow the Eurozone countries to reach the
required level of 60% debt/GDP, which implies fiscal austerity will also be needed.4
Trouble Ahead, Trouble Behind
Emerging from the darkest days of 2008, the economy must now recover with massive debt
in virtually all sectors. Deleveraging is a counter-cyclical activity i.e., paying down debt
often comes at the expense of using capital for a higher GDP accretive activity. The bubble
era debt will be a problem for at least the next four years and possibly much longer. If the
equity markets continue to advance, more of this debt will be brought forward to be
refinanced or recapitalized.
If we are in the early stages of higher inflation, then everything might “feel” good before the
costs of such a policy would become apparent. By “feeling good”, companies suddenly find
they might have some pricing power, economic activity would increase, and interest rates
might be artificially low - especially short rates. Additionally, borrowing might ultimately
open up and debt would once again be available. But longer term, inflation would drive
interest rates higher and shift value away from fiscally responsible savers to consumers.
Currently, while monetary policy has been accommodative, banks are not yet lending due to
persistently high levels of non-performing debt. Additionally, capacity utilization is low
across the economy. Until banks are in a position to lend, the threat of inflation is likely to
remain just a threat. We are watching these variables closely. While we don’t invest based
3
Source: European Weekly Analyst. “Thoughts on fiscal exit strategies: It’s all about generating
growth.” Goldman Sachs Global Economics, Commodities and Strategies Research. Issue no. 09/25.
July 2, 2009. Normalized nominal GDP growth rate of 4% is assumed, as well as 4.2% nominal
interest rates. 2010 estimated primary balance estimate per European Commission Autumn Economic
Forecast 2009.
4
Global Economics Weekly. Barclays Capital. September 11, 2009. Normalized environment
assumes GDP growth per IMF projections, 2% inflation and 2% real interest rates.
9
on a macro view, the inflation/deflation dilemma is so fundamental that it requires constant
debate and monitoring and will have implications on our asset allocation, security
selection, and hedging strategies.
Our philosophy is that there are two key components to money management: financial
analysis, which many people do well, and good judgment, which is harder to come by. We
believe that our 21 year track record illustrates a unique combination of both skills, and we
are optimistic that we will continue generating strong long-term results for our investors.
Team Update
We are delighted to announce that, as of January 1, 2010, we have appointed four new
Managing Partners and two new Managing Directors. We remain enthusiastic about the
high caliber of our team and our ability to continue generating positive risk adjusted
returns for our investors.
Legal Update
We joined a small group of investment funds in filing a lawsuit against Porsche Automobil
Holding SE (“Porsche SE”) and two of Porsche’s former executives, Wendelin Wiedeking and
Holger Haerter, seeking to recover losses suffered as Porsche SE attempted a takeover of
Volkswagen AG in 2008. Bartlit Beck, a law firm with extraordinary success in complex
litigation, is representing the plaintiffs.
Operational Update
In order to assess your eligibility to participate in profits and losses from “new issues”
(generally defined as initial public offerings in the US), please let us know if your eligibility
has changed since your last certification to us. If we do not hear from you, we will assume
that your status has not changed. As always, your thoughts and comments are welcome.
Please feel free to contact Jamie Parrot at (212) 583-4088/ or Harlan Saroken at (212) 583-
4059/ hsaroken@perrycap.com to further discuss any of these developments.
Past performance is not a guarantee of future results. There can be no assurance that these or comparable returns will be achieved by
Perry Partners’ investments, either individually or in the aggregate. All returns shown above reflect the reinvestment of dividends and
interest and the deduction of all fees and expenses. Although we believe that the performance goals set out in this letter are realistic, it is
possible that they will not be achieved and that you could even lose a substantial portion of your investment. The information contained
in this letter represents neither an offer to sell nor a solicitation of an offer to buy any securities. Securities in this fund will only be
offered through a current offering memorandum and appropriate subscription documents. Copies of the offering memorandum may be
obtained from Jamie Parrot (jparrot@perrycap.com) or Harlan Saroken (hsaroken@perrycap.com) in our New York office and will be made
available upon request. Offers will not be made in any jurisdiction in which the making of an offer or the acceptance thereof would not be
in compliance with the laws of such jurisdiction. Investors should read the Confidential Private Offering Memorandum carefully,
especially the “Risk Factors” section, before making a decision to invest in Perry Partners. Additional information is available through our
password protected website (www.perrycap.com)
10
December 31, 2009
Final Exposure Report
Non-Side Pocket Total Fund S&P 500 Barclays HY
Composite Composite (Total Return) Credit Index
MTD Performance 3.08% 2.81% 1.93% 3.28%
QTD Performance 6.60% 6.07% 6.04% 6.20%
YTD Performance 27.30% 25.20% 26.46% 58.21%
Performance Attribution by Strategy MTD QTD YTD
Equities North America 0.37% 0.59% 2.50%
Latin America / Other 0.00% 0.00% -0.10%
Europe 0.25% 0.43% 1.11%
Asia 0.07% 0.16% 0.54%
0.69% 1.18% 4.05%
Arbitrage North America 0.05% 0.12% 0.38%
Latin America / Other 0.00% 0.00% 0.00%
Europe -0.01% 0.00% 0.07%
Asia 0.00% 0.00% 0.00%
0.04% 0.12% 0.45%
Corporate Credit North America 1.37% 2.70% 16.53%
Latin America / Other 0.00% 0.01% 0.07%
Europe 0.06% 0.11% 0.41%
Asia 0.23% 0.32% 1.78%
1.66% 3.14% 18.79%
Structured Credit North America 0.15% 0.72% 3.72%
Latin America / Other 0.00% 0.00% 0.00%
Europe 0.00% 0.00% 0.00%
Asia 0.00% 0.00% 0.00%
0.15% 0.72% 3.72%
Credit Derivatives North America 0.02% 0.03% 0.19%
Latin America / Other -0.02% -0.03% -0.20%
Europe 0.21% 0.99% -2.65%
Asia -0.04% -0.02% -0.50%
0.17% 0.97% -3.16%
Private/Real Estate North America -0.08% -0.02% 1.06%
Latin America / Other 0.06% 0.06% -0.02%
Europe -0.25% -0.23% -0.01%
Asia 0.01% 0.07% 0.51%
-0.26% -0.12% 1.54%
Legacy Sidepocket 0.00% 0.01% 0.21%
Global Macro / Overlay Hedges 0.36% 0.05% -0.40%
Total Performance Attribution 2.81% 6.07% 25.20%
Performance attribution relates to the total fund composite return
December 31, 2009
Final Exposure Report
Number of
Portfolio Exposure by Strategy (as a % of Capital) Long Short
Strategies*
Equities North America 21.70% -10.74% 18
Latin America / Other 0.00% 0.00% 0
Europe 4.74% -3.52% 3
Asia 8.97% -3.50% 12
35.41% -17.76% 33
Arbitrage North America 1.37% -0.47% 5
Latin America / Other 0.00% 0.00% 0
Europe 1.49% 0.00% 1
Asia 0.00% 0.00% 0
2.86% -0.47% 6
Corporate Credit North America 29.93% -0.45% 14
Latin America / Other 0.11% 0.00% 0
Europe 7.04% -0.01% 4
Asia 2.97% 0.00% 4
40.05% -0.46% 22
Structured Credit North America 11.38% -7.35% 5
Latin America / Other 0.00% 0.00% 0
Europe 0.00% 0.00% 0
Asia 0.00% 0.00% 0
11.38% -7.35% 5
Credit Derivatives North America 0.00% -0.34% 2
Latin America / Other 0.00% -0.33% 0
Europe 0.00% -48.79% 2
Asia 1.38% -6.83% 3
1.38% ** -56.29% ** 7
Private/Real Estate North America 4.94% 0.00% 12
Latin America / Other 0.59% 0.00% 1
Europe 3.02% 0.00% 5
Asia 0.50% 0.00% 2
9.05% 0.00% 20
Legacy Sidepocket 3.79% -0.18%
Global Macro / Overlay Hedges*** 0.96% -25.30% 4
Total Portfolio Exposure 104.88% -107.81% 97
Fund Capital (in millions) $4,459
Firmwide Capital (in millions) $6,513
Top 5 Long Positions (as a % of Capital) 24.69%
Top 5 Short Positions (as a % of Capital) -50.36%
Perry Partners International, Inc. Unaudited Non-Sidepocket FAS 157 Hierarchy (Quarterly as of 12/31/09)
Level 1 Level 2 Level 3
Total Assets 40.90% 40.39% 18.71%
Total Liabilities 73.61% 25.63% 0.76%
For purposes of this report, long equity options are valued off of premium, short equity options at delta adjusted notional value and option combinations, where the exposure is
limited to the difference in strike prices, are adjusted to reflect the net delta exposure.
* The strategy count includes only those strategies that are at least 15 basis points of the portfolio.
** Please note this is a non risk-adjusted notionalized number which costs the fund approximately $30 million annually to maintain. In addition, this report does not reflect the market value of
those positions in which the firm is both the buyer and seller of protection on the same reference obligation even if such positions are held at different counterparties.
*** This strategy includes a notionalized 20% short Japanese government bond position. It also includes net option premiums at risk on currency hedges for the following currencies: Swiss
Franc, Japanese Yen, and Korean Won. The net delta adjusted short currency position represents a notional 4% of capital.