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April 15, 2010

Dear Investor:

The value of your investment in Downtown Associates II appreciated by +2.17% in the first quarter of
2010, trailing the broader market averages. The S&P 500 Total Return index was up +5.39% and the
Russell 2000 Total Return index was up +8.85%. Since January 1, 2008, the approximate beginning of
the bear market, DTA II is up +9.07% as compared to the S&P 500 Total Return Index which was down
-16.03% and the Russell 2000 Total Return Index which was down -8.35%.

Quarterly Performance Review

We continued to pare back our long positions during the quarter given their substantial appreciation and
increased our hedges to protect our portfolio. For the quarter our average gross long exposure was 57%
and our gross short exposure was 42% (substantially all in highly liquid ETF hedges) resulting in net long
exposure of just 15%. Our gross long positions were up approximately +12%, and when adjusted for
market exposure they contributed +7.4%. Our gross hedges were down approximately -10.5%, and when
adjusted for market exposure contributed -4.3%. The top portfolio performers for the quarter were BGC
Partners Inc. (up 32% during the quarter) and Super Micro Computer (up 55% during the quarter).

Portfolio Strategy and Market Outlook

We are pleased that our stock selection has continued to deliver strong performance during the quarter
and we are comfortable with our conservative portfolio posture given our view of current valuations and
economic conditions. It remains our objective to deploy significant amounts of capital into new ideas as
attractive opportunities present themselves and to protect our assets in a market decline.

We believe that patience is still a virtue. Downtown Associates manages money with a long term
perspective, focused first on protecting your and our investment assets. We will not “chase” performance
– when stocks are expensive the ensuing returns are likely to be subpar. Instead we prefer to hold cash,
remain liquid and wait for attractive opportunities. Why should today’s opportunity set be the only one
we consider when tomorrow’s is likely to be more fertile? By remaining disciplined in our purchase
decisions, we seek to maximize future returns while limiting our downside risk (the possibility of a
permanent loss of investment capital).

We prefer the risk of lost opportunity to the risk of lost capital.

It can be painful to hold cash during a rising market. As a result, many in our profession would rather
hold expensive securities in an effort to hug the entire market indices and thereby avoid any near-term
underperformance - inevitably this leads to mediocre long term returns.

We believe strongly in our disciplined investment strategy and our ability to generate strong long-term
investment returns, while protecting capital in weak market environments. Because we hold a
concentrated portfolio, we only need a few select stocks to fall to appetizing prices, not the broader
market. We do not know when great stock opportunities will present themselves and as a result, it is
important that we have cash available to position us to take maximum advantage of sudden distressed and
emotional sellers.
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We expect the management teams of our companies to make very well reasoned capital allocation
decisions. If they invest in projects which have low expected returns just because they have idle capital,
we would be extremely disappointed. By logical extension, we would expect that our investor partners
would think similarly of our own investing decisions. On that score, you can rest assured that we remain
intently focused on making great investments at attractive prices such that our downside is well protected
while preserving our ability to generate outsized long-term returns.

As noted above, our hedges have cost us money during the quarter. It is easy to view hedging in the same
way we view the premiums on flood insurance. After months of sun, we sometimes question why we
have this insurance, nevertheless we are usually happy when the clouds start to appear.

Stock Update – Super Micro Computer

In addition to selling shares in many of our holdings as the market continued to rally, we took the
opportunity to exit (almost entirely) our position in Super Micro Computer (SMCI).

SMCI has been an outstanding investment for Downtown Associates. Our investment in SMCI
represented approximately 5% of our portfolio on a cost basis (a significant portfolio position given its
relatively small market capitalization) and generated a total investment return of 133% for an average
annual return of approximately 72% over our approximate 18 month holding period.

SMCI designs and manufactures application-optimized servers for over 500 global customers, including
major IT resellers and prominent data center operators such as Google and Yahoo. We were impressed
by the company’s 25%+ annual growth rate from 2005 to 2007, strong balance sheet, very positive
customer testimonials, and attractive stock valuation (just 9X earnings).

We prefer businesses where the management team owns significant amounts of stock, aligning their
interests with ours. The CEO of SMCI, Charles Liang, owned 28% of the company. He founded the
company in 1982 without any outside capital and grew the business to $500M of sales, impressively
without a single unprofitable year. Despite these characteristics, SMCI’s stock had fallen sharply as
technology spending softened and the company’s growth temporarily slowed. We made our first
purchases in June 2008 at around $7.00 per share. In the darkest hours of the recent economic collapse
we were able to purchase a large block of shares at just $3.75, an absolutely attractive price that
represented just 90% of the company’s net tangible book value (approximately 50% of which was cold
hard cash). As is often the case, our second and third purchases of an investment tend to be at even better
prices than the first!

Throughout the period of our ownership, SMCI remained profitable, grew R&D spending and increased
their product differentiation and market share. The company’s long-term thinking (and our patience) was
rewarded when SMCI reported record December quarterly revenues, 33% higher than when we made our
initial investment before the tech downturn. The stock rallied strongly closing the quarter at over $17 per

For some, the volatility of SMCI’s stock would have been impossible to endure. However, it is
opportunities like these that Downtown Associates is structured to exploit. Thanks to our investors, we
can remain patient opportunists, aligning ourselves with like-minded CEOs like Charles Liang to deliver
great long-term returns.
April 15, 2010
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Client Conference Call

We are again planning to hold our Annual Client Conference Call and have set a date of June 10, 2010.
Please mark your calendars. We will be sending more detailed information in the coming days.

Developments at Downtown Associates

We are pleased and excited to report that Emily Hannum joined the Downtown Associates team as our
new Director of Marketing and Client Relations earlier this month. Emily has over
12 years of highly successful investment marketing experience having worked in both
Europe and the U.S. for a highly respected investment management firm. Please join us in extending her
a very warm welcome. We hope that you will all have the opportunity to meet Emily in the coming

Thank you for your continued confidence in Downtown Associates.

If you have any questions, we would be happy to discuss them with you at your convenience.


General Partner