Opportunity Partners Case

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Case Study - Opportunity Partners Investment Philosophy Philip Goldstein is the principal and cofounder of Opportunity Partners (OP), a $47 million hedge fund founded in 1993. Initially Goldstein’s approach was to invest in closed-end funds trading at a discount and then “hope that the discount narrows” (pg.2). A passive strategy such as this will only be effective in a market that is prone to arbitrage; that is a market that will continuously recognize and correct misevaluations. This passive strategy proved successful for OPs first few two years with their returns outpacing the S&P 500s annual returns. Goldstein’s success in his initial performance led him to take a different approach in 1996. Instead of being a passive investor and simply waiting for discounts to close naturally he decided to take a more active role and become the catalyst to close the discounts. As an active investor Goldstein’s objective was to convince enough shareholders of the fund that closing the discount was in their best interests and that electing him to represent the fund was the best way to achieve this goal. Gaining enough influence over the shareholders to gain control of the strategy used was very difficult as managers of the fund would oppose most initiatives put forth by Goldstein as it was typically against their interests. However, if everything came together appropriately, Goldstein could forcibly close the discount and earn an exceptional return when he has free reign over the fund’s strategy. Getting into this position is very difficult for an activist investor such as Goldstein because it required pleasing many parties with conflicting interests. Management of the funds would be reluctant to reduce the fund size in any way as it would cut into their annual fees. Shareholders were most interested in an effective return on their investments. And, investors in
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