The Manager's Commentary - March 2011

First Quarter Review – March 31, 2011

Fellow Unitholders,

A Good Start!

Last year, six of our portfolio companies were successfully acquired; we are off to a good start for 2011 with the sale of Cytiva Software - and approximately a 40% gain on our investment. Cytiva is a software company that provides talent management solutions (recruiting, on-boarding, and performance evaluation) to companies around the world. Our due diligence on both the company, and the niche industry sector showed a maturing market with several large competitors holding significant cash balances. Some of these companies had raised capital in the last couple years with the intent to use proceeds for “growing through acquisition”. With opportunities for organic growth in this market slowing down, and competitors well funded for acquisitions, we believed Cytiva was a strong takeout candidate. We believe these same factors are in play in several other niche markets in the software world and are positioning the portfolio to capitalize on these opportunities.

Identifying Catalyst Situations

A lot of investors ask what we look for in a “catalyst”. This quarter we added a position in 20-20 Technologies
(T-TWT), a software company that provides computer-aided design, sales and manufacturing software for the interior design industry. The company piqued our attention last fall when a group of investors holding greater than 30% of the issued and outstanding shares pushed to replace three of the companies 10 directors. One of these shareholders is Crescendo Partners, a New York based Fund that has a history of “activist investing” in Canadian technology companies - including Matrikon, one of last year’s successful exits in our Fund. Another of the shareholders is Constellation Software, a Canadian based software company that is growing very aggressively through M&A. Although we cannot predict precisely if or a sale of 20-20 Technologies may occur, given the events of the past few months, the pressure is on!

Portfolio Updates

The Fund was up 4.73% in the quarter ending March 31, and is up 19.80% annualized since inception. In this quarter, we initiated or added to seven technology holdings bringing our weighting in the technology sector to 60.7% and have completely eliminated our commodity exposure. It is not that we will never own commodities, just not now. In the event of a major correction, we would be pleased to re-enter that market. The Fund currently has a cash position of approximately 30% as we continue to wait for a fat pitch.

Dave Barr
March 31st, 2011