From Cerberus With Love

Cerberus Capital Management made some non-Chrysler/GMAC news last week, when CNBC reported that the firm would limit investor withdrawals from one of its hedge funds. The announcement was made in a confidential Dec. 19 letter to limited partners of Cerberus Partners LP, and peHUB has scored a copy for your downloading pleasure.

Most of the five-page letter is an ode to how lousy the market is and, by extension, how screwed investors are. It also reports that the fund’s YTD performance as of Nov. 30 was -15.81%, including a loss of 12.18% in October and November alone.

Among the letter’s more quotable nuggets:

* “When we wrote to you at the end of September, we thought the trading levels for debt were ridiculously low and there was a great buying opportunity, especially in the RMBS market. We were wrong.”

* “Considering the experience we gained in managing through other crisis markets in 1987, 1990-1991, 1999 and 2001, we have always hoped that we would do better in a year like this. Although we did have some significant hedges in the portfolio, which helped us a lot, in hindsight, we believe we should have had more.”

* “Operational improvements generated by our team typically are a cushion against unexpected macro changes or market declines. However, in the face of the rapid and significant losses in the equity and debt markets, our earlier going-in valuations could have been more conservative. As a result, we used up some of our ‘cushion’ and protection by incorporating a piece of our projected operating upside in some of our going-in valuations. This, in our view, was not the case in GMAC and Chrysler, which we still believe we bought well. In those cases, we got caught in what we see as a ‘perfect storm’ in the auto and housing sectors.

* “The decision to partially suspend withdrawals was very difficult, but we believed that it was necessary to weigh the interests of withdrawing and ongoing investors.”

* “The Fund did not have any relations with Bernard Madoff or his firm, and none of the Fund’s assets were directly or indirectly invested with Mr. Madoff.”