Dear Partners,
In the first quarter of 2025, our partnership achieved a return of +3.4%, contrasting with the S&P 500 Total Return's decline of (4.3%). While we acknowledge this short-term performance, our primary focus remains on enhancing long-term value.
Market climate
The first quarter was marked by a significant escalation in trade tensions. Equity markets responded swiftly, factoring in the potential for slowed growth and heightened inflation, leading to increased volatility as investors contemplated the ramifications of a potential full-scale trade war.
Despite these developments, our portfolio remains structurally resilient to such risks. The majority of our holdings are either service-oriented businesses, such as ASA International, goeasy, and Inter & Co, or local consumer-facing companies like Dino Polska, Puuilo, and Kri-Kri Milk. These companies operate predominantly within their domestic or regional markets, far from the front lines of global trade flows.
Even in the case of LGI Homes, where U.S. exposure exists, we own a business with pricing power, supply chain flexibility, and an entrenched competitive position that help them absorb cost pressures and maintain margins. Overall, we believe our portfolio is well-positioned to navigate tariff-induced volatility without significant impact on fundamentals.
New investments
This quarter, we introduced two companies to our portfolio: Ashtead Technology Holdings and Auto Partner SA. Both exemplify undervalued businesses poised to thrive amid current market conditions.
1. Ashtead Technology Holdings (LSE: AT.)
Ashtead Technology is a provider of specialized subsea equipment rentals. With a fleet exceeding 30,000 assets, the company supports clients across the offshore oil and gas and renewable wind energy industries.
Picture this: A floating platform sits hundreds of miles offshore, gently rocking on the ocean's surface. Below it, steel cables and flexible risers plunge through layers of shifting currents. At 2,000 meters beneath the surface, where sunlight never reaches, robotic vehicles, guided from above, glide silently over the seabed. Here, Ashtead Technology's sensors and cameras inspect pipelines that snake across the ocean floor like arteries. A hydraulic tool clamps around a valve to perform a precision operation, while high-definition sonar maps the seabed in real time, helping Ashtead engineers spot a tiny hairline crack in a subsea structure before it becomes a billion-dollar failure.
It's a silent, high-stakes business, far from land, far below the surface, where technology must be accurate and built to survive in complete darkness and crushing pressure. That's subsea offshore energy.
Ashtead's specialized equipment, combined with its ability to deploy rapidly and operate flawlessly in extreme conditions, gives it pricing power well above those of more commoditized service providers. This allows the company to reinvest in innovation, expand its fleet of subsea tools, and build deeper relationships with clients, all of which further widen the moat between Ashtead and its competition.
In early March, we visited Allan Pirie, CEO, and Ingrid Stewart, CFO, at Ashtead's headquarters in Aberdeen, Scotland, an experience that cemented our trust in their exceptional leadership. With operations spanning key international energy hubs, Ashtead is well-equipped to capitalize on the growing demand for offshore energy solutions.
2. Auto Partner SA (WSE: APR)
Auto Partner SA is a name that has been on our watchlist since 2021, and in May 2023, we visited their visionary founder, Aleksander Górecki, in their headquarters in Bieruń, Poland. Auto Partner SA is one of Poland's leading distributors of automotive spare parts, serving a broad clientele of repair shops, service centers, and retailers across Europe. The company's extensive product range, bolstered by its proprietary brand MaXgear, addresses the diverse needs of an aging vehicle fleet.
Consider a scenario where a local mechanic in Europe requires a specific part to service a customer's vehicle promptly. Auto Partner's robust logistics network ensures rapid delivery, often multiple times daily, enabling the mechanic to complete repairs efficiently and maintain customer satisfaction. This reliability fosters strong client relationships and underscores Auto Partner's integral role in the automotive aftermarket ecosystem.
Through continuous investment in infrastructure and technology, Auto Partner is poised to sustain its growth trajectory and solidify its market leadership.
These new additions to the portfolio reflect more than just attractive valuations. They exemplify the kind of businesses we aim to own: durable, competitively advantaged, and managed by capable operators. In today's volatile market environment, valuations are realigning toward more rational levels. Companies that we once overlooked due to lofty prices are now approaching our target entry point, akin to paying 50 cents for a dollar of intrinsic value.
A philosophy of ownership
As of this writing, the gap in our outperformance has widened and our partnership has achieved a year-to-date return of +5.5%, compared to the S&P 500's decline of (8.2%). But our goal isn't just to beat benchmarks; it's to make money. We run an absolute return strategy focused on small-cap businesses across international and emerging markets, and we believe we're building something differentiated.
Our philosophy of ownership is not just a philosophy, but it's also our strategy. In a public market dominated by short-term renters, we take a long-term, hands-on approach: holding through turbulence, engaging with management, investing rather than extracting, and staying committed to the company for years. And in a sea of renters, acting like an owner tends to give us outsized influence. Even when our stake is modest, we may speak for the interests of a larger base of aligned shareholders who want long-term change but lack the means to push for it.
We've recently become more active across the portfolio: more engaged, more proactive, and ultimately more effective. That shift is already paying off, and our portfolio positioning is precisely where the opportunity lies. As the air comes out of inflated U.S. large caps, capital will seek real value again, and we are ready for that cycle. This may be the beginning of a very different investing climate, and this new cycle plays to our strengths.
Thank you for the trust you place in us. We value it deeply, and remain steadfast in our pursuit of long-term, durable results on your behalf.
Cordially,
John G. Khabbaz