There are three funds in the Pabrai Funds family:
Please refer to the respective offering documents of each of the above funds for a comprehensive listing of the rules and legal requirements for the respective funds. Given below are the basic “ground rules” common to all the funds. They are not a substitute for the legal offering documents, but can serve as a starting point to understanding the investment and management philosophy of Pabrai Investment Funds.
1. Dalal Street, LLC. is the General Partner. Mohnish Pabrai is the CEO and sole shareholder of Dalal Street and the sole fund manager of Pabrai Investment Funds. Limited Partners have no right to make investment decisions.
2. Pabrai Funds only makes investments in publicly traded equities (on any exchange worldwide) and bonds. Cash on hand is usually invested in money market funds and other short-term instruments.
3. The specific portfolio holdings of The Pabrai Funds are highly confidential and and only released to the extent required by law or GAAP audits. Over the last few years some past holdings (both successful and unsuccessful investments) have been made known to partners to aid in better understanding the investment style and approach. Mr. Buffett perhaps expresses best why specific investment ideas should be kept confidential in the Berkshire Hathaway Owner’s Manual:
“Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are.”
4. The Pabrai Funds does not employ any leverage or any sort of margin borrowing. The funds do not engage in shorting stocks or delve into any sort of futures or derivatives (put/call options etc.). The investment style can be described as unleveraged long-only focused value investing.
5. The funds are highly concentrated in a few securities that Mr. Pabrai believes are undervalued. Typically 80% of assets are invested in under a dozen securities and none of the funds have ever had over 20 distinct securities in their respective portfolios (even when fully invested).
6. Investors can redeem part or all of their interest in the respective funds once a year on Dec. 31 with at least 60 days advance notice. Subscriptions are allowed on the 1st of every month for PIF3 and every quarter (1/1, 4/1, 7/1, 10/1) for PIF2 and PIF4.
7. There are no management or performance fees payable unless the funds achieve an annualized return greater than 6% (net to investors). ¼ of the returns above 6% is Dalal Street’s management/performance fee and ¾ is due to investors. This fee is subject to high water marks.
The only expenses paid by investors are direct third-party expenses such as audit, tax preparation, third-party administration and trading/brokerage expenses. In addition, Dalal Street has reinvested all fees earned back into the respective funds (except the PIF3 offshore fund where it is not permitted to be an investor). There is a complete alignment of interests between the investor and the investment manager.