Dear Fellow Investors,
The Partners Fund declined just under 4%1 net in the first quarter of 2025 . Our performance diverged from the Russell 2000 primarily because four fund investments share one common characteristic: concentration.
As I’ve written before, our fund has six key criteria, one of which is explicitly concentration:
- One-person investment committee
- Concentrated holdings
- Reasonable amounts of capital (‘AUM’)
- Significant personal investments (“skin in the game”)
- Original thinking
- Mindset: Getting rich is not the point
We live in an age where diversification reigns supreme. An ever-increasing portion of investment capital flows into passive vehicles like S&P 500 index (SP500, SPX) funds. Nobel Prize-winning economist Harry Markowitz famously called diversification “the only free lunch in investing.” Yet at The Partners Fund, we’ve deliberately chosen to decline this supposedly free lunch in the funds we are invested in.
Why? Because I have no interest in recreating the Russell 2000 (RTY). If we invested in 40 funds each holding 50 stocks, we’d effectively own 2,000 companies. As a result, we are not invested in 40 funds, and none of the funds that we are invested in own 50 companies. Instead we’ve created a “diversified” portfolio of concentrated bets.
When a position grows too large, the risk of catastrophic outcomes increases. If a manager is wrong on a 5% position, life goes on. But being wrong on a 60% position where the manager has their life savings invested can be devastating for everyone involved. However, I will invest in hyper-concentrated funds; we just tend to size them smaller.
Let me discuss our “hyper-concentrated” investments in more detail which include 2 SPVs (Special Purpose Vehicles) and two “hyper-concentrated” funds:
First, the two SPVs. One is managed by Steven Wood and invested in CTT Correios de Portugal SA (OTCPK:CTTPY), which I discussed extensively in my last letter. The company is undergoing a transformation with valuable real estate to monetize, a banking business that can be divested, and a growing parcel delivery operation. This investment has continued to appreciate this year. Our second SPV is quite small (less than 1% of our assets) and hasn’t performed nearly as well.
The two “hyper-concentrated” funds in our portfolio are CAS, managed by Cliff Sosin, and Arquitos, managed by Steven Kiel.
Cliff would say that his portfolio has been “swallowed” by Carvana (CVNA), which has been a roller coaster. Carvana experienced a near-death experience, declining 99% in value. Cliff owned it through this decline and added significantly at lower prices. What was already his largest position before the decline has now become super-sized.
Cliff outlined his investment philosophies as well as the Carvana story on the Invest Like the Best podcast. As he is one of the most articulate investors I have ever met, it is well worth a listen. Carvana is well north of a 50% position for CAS right now, but on a look-through basis, it is less than a 5% position for The Partners Fund. Carvana’s significant appreciation this year has positively contributed to CAS returns, which in turn benefits the Partners Fund’s returns.
The second hyper-concentrated fund, Arquitos, has traditionally had a concentrated portfolio, but one position has become “super-sized” through appreciation. The position in question is CrossingBridge Advisors (OTCQB:ENDI), a microcap company with a market capitalization below $100 million.
CrossingBridge Advisors has a lengthy history, but over the past two years – through a merger and several divestments – it has transformed into a growing asset manager with a strong balance sheet. In his recent quarterly letter, Steven highlighted the company’s operational progress, growing assets under management by 87% in 2024 and another 11% in Q1 2025.
The company reported outstanding 2024 results at the end of March. AUM increased by 87% to $3.4 billion at the end of 2024 compared to the end of 2023. Subsequently, AUM has increased by an additional $400 million through March 31, 2025. Revenue increased by 68% to $14.6 million year over year. Adjusted EBITDA increased to $6.5 million from $2.1 million compared to the year before.
At quarter’s end, CrossingBridge Advisors traded at $12.70 per share with a market capitalization of approximately $80 million. Steven makes a compelling case that the valuation should be substantially higher.
More importantly, the company entered into a value-unlocking transaction with its CrossingBridge subsidiary in early April. They effectively sold 25% of CrossingBridge for approximately $26 million. This values the overall subsidiary at $104 million. If you add the parent company net assets to this, it values ENDI itself near $22 per share. Obviously future growth, even at a fraction of last year’s growth, will cause that per share value to continue to increase. At the current price, we have plenty of room to go before shares are in the ballpark of fair value.
I recently spoke with Steven, who, without any hint of grandiosity, explained that it was not his intent to be so concentrated, but CrossingBridge Advisors is his “Buffett American Express Salad Oil investment.” He was referring to the early days in Warren Buffett’s career where he put more than 40% of his partnership assets into American Express in 1963. Steven’s extreme concentration was opportunistic and not a permanent change in portfolio construction.
CrossingBridge Advisors possesses a fortress-like balance sheet, with approximately 60% of its market capitalization in cash and investments (following an early April transaction). It trades at approximately 5 times Steven’s estimated EBITDA with a clear path to continued earnings growth through expanded distribution. Historical GAAP financials, which do not include the April transaction or AUM growth, are not indicative of the future earnings. The company has no sell-side analyst coverage and insiders own over 60% of the company.
CrossingBridge Advisors is an extremely illiquid stock – many days pass without a single share changing hands. Given its small size and limited liquidity, most funds simply cannot own it. In my judgment, CrossingBridge Advisors could rise very significantly from its quarter-end price if the AUM growth persists.
The Partners Fund is a diversified vehicle given the number of holdings and the characteristics of the funds, but there are pockets of hyper concentration. Our concentrated holdings appreciated in the first quarter. This won’t always be the case but, generally speaking, concentration at the manager level is a feature, not a bug. I look forward to seeing what the teams at CTT, Carvana, and CrossingBridge Advisors accomplish in the coming years.
As noted earlier, I end each letter saying our fund of funds is going to be different. It will be smaller, the underlying holdings will be more esoteric, and I hope the managers will continue to collaborate more over time. I believe that it will be “good different,” but only time will tell. Thank you for joining me on this journey. I will work hard to grow your family’s capital alongside mine.
Sincerely,
Scott
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