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October 10, 2018  

Paul Isaac's Investors Enduring Difficult Year

The flagship fund of Paul Isaac’s Arbiter Partners is on track for its worst annual performance since 2011.

The $565 million vehicle, Arbiter Partners QP, was down 14.3% at the end of September, having posted losses in six of the first nine months of the year — including a 10.3% drop in June. The firm’s opportunistic-value strategy tends to be highly volatile, with four years of double-digit profits and four years of losses in the past decade.

The fund’s five-year annualized return is a meager 1.3%, compared to 13.9% for the S&P 500 Index. But since inception in 2001, Arbiter Partners QP still is showing a 15.3% annualized return — double that of the S&P index during the same period. From 2003 to 2007, the fund delivered annual gains of 31.9-122.9%.

This year’s losses have taken a bite out of the New York firm’s assets, which peaked at $1.3 billion in 2014 and now stand at $1 billion. Arbiter also runs separate accounts and two special-purpose vehicles that hold narrowly focused positions — one in French conglomerate Bollore Group, the other in the shares of Credit Agricole’s regional banks.

Isaac launched his flagship fund as a side business while serving as chief investment officer at Cadogan Management, a once-robust fund-of-funds manager that suffered sharp losses and heavy redemptions during the global financial crisis. Cantor Fitzgerald purchased what remained of Cadogan in 2011, at which point Isaac turned his full attention to Arbiter Partners (then called Fort Hoosac Management).

Arbiter Special Opportunities Fund 1, which invests in Bollore, was down 17.2% year-to-date as of Sept. 30, following a gain of 48.5% last year. Its performance has swung wildly from double-digit gains to double-digit losses since its inception in 2012. The fund has $32 million under management.

Arbiter Special Opportunities Fund 2, which invests in Credit Agricole affiliates, was up 5.1% at the end of September, following gains of 30.8% in 2017 and 8.3% in 2016. Its assets have more than doubled in the past two years to $116 million.