Liberty Park Capital Q3 2025 Letter To Partners

Dear Partner:

Liberty Park Fund, LP’s value increased by 1.13%, net of fees, in the third quarter of 2025 vs. a 12.40% increase in the Russell 2000. The 14.42% increase in our long positions contributed 12.38% on a weight-adjusted basis, while the 18.60% increase in our shorts detracted 10.85% on a weight-adjusted basis. Gross exposure averaged 142.48%. Net exposure averaged 33.61%. Gross Pure Alpha[1] — our proprietary measure of returns generated from stock selection — was -3.11% for the quarter.

Liberty Park Select Opportunities, LP’s value increased by 14.27% net of fees in the third quarter. Gross exposure averaged 99%.

3Q25 Performance Analysis

With inflation under control and unemployment on the rise, the Federal Reserve resumed interest rate cuts. The cuts will help the economy in coming months, but they also served to inflate a bubble in speculative stocks. Similar to the dot-com bubble, many unprofitable or pre-revenue companies are now claiming they are AI, quantum computing or other sexy, growth stories to pump their stocks. Our long-only strategy benefitted from the rising tide, but our long/short fund was pressured by the irrationality.

Long Performance

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• XMTR reported another better-than-expected quarter and continued >40% growth in its enterprise business. We remain positive on the company’s long-term onshoring and network potential, but we have taken some profits as the shares have soared.
• BKTI reported quarterly results that exceeded expectations by an extraordinary margin. Additionally, forward guidance appears to be overly conservative as demand for the company’s BKR9000 radio seems to be strong.
• NSSC rallied after reporting a better-than-expected quarter and remedying an accounting weakness. The company also told investors that hardware sales should grow at a double-digit rate this year based on pricing alone (estimates are still way below this guidance).

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• LMB shares fell after reporting a backlog decline in the important ODR business. Management attributed the decline to timing, but some investors expect the commercial services market to roll over.
• DMC Global fell after disappointing guidance caused by continued softness in the fracking and architectural building products markets. We closed the position at a modest loss after concluding an activist shareholder’s campaign is unlikely to succeed.
• WHR shares fell after guidance fell short of expectations. Demand for the company’s products remains at a cyclical trough.

Short Performance

Our short portfolio faced significant pressure in the quarter, with seven companies accounting for more than half of the negative contribution. These seven companies surged an average of 170% and did so on virtually zero change in fundamentals or news. Together, these seven stocks now have $100 billion of market cap or roughly 21x already-unrealistic 2026 revenue estimates. Insane valuations aren’t even our primary critique of most of our shorts; many of them don’t even have revenue (forget profits) and never will!

While we maintain disciplined position sizing protocols, the velocity of the 3Q moves outpaced our risk management adjustments. We’re reminded of the tension between Keynes’s warning that markets can remain irrational longer than one can remain solvent, and Stein’s observation that what cannot go on forever will eventually stop – a balance we continue to navigate with appropriate humility.

Portfolio Outlook

Looking ahead, we see a complex environment. On one hand, interest rate cuts will improve consumption/spending, and artificial intelligence will improve productivity. On the other hand, speculation and recklessness have risen dramatically, and there is a clear bubble in certain themes.

Our portfolios are positioned accordingly: Select remains fully invested but in real economy, non-bubble names. Liberty Park Fund is long GDP/cyclical recovery names and short (in individually small positions) profitless hype.

Adaptation

Long term, we consider single-name equity shorts a core competency and key alpha contributor. Short term, there are very few attractive real/traditional economy shorts right now; most names are at or near multi-year lows. The obvious shorts right now are profitless (and often revenue-less) technology hype stories. When that bubble will pop is hard to predict though, so being short single names in size can be extremely painful.

In order to limit how bad we can be squeezed but to still capture the bubble’s eventual end, we have made two modest options purchases in Liberty Park Fund, representing a small percentage (<5%) of the portfolio: 1) Long Call Position: We have purchased out-of-the-money calls as a hedge against our short book. This position provides protection if certain overvalued securities continue to appreciate further. 2) Long Put Position: Given our view that the current market cycle is in its late stages, we have acquired out-of-the-money puts as downside protection against a broader market correction.

This marks our first use of options in Liberty Park Fund. We want to emphasize that these positions are sized conservatively and deployed purely for risk management purposes. As always, capital preservation remains our priority.

A Change in Our Quarterly Communications

Beginning this quarter, we will no longer be disclosing our top positions or highlighting individual investment names in these letters.

This decision reflects three considerations:

First, we’ve observed our research circulating online without proper attribution. While imitation may be flattering, it undermines the value we provide to our partners.

Second, despite generating exceptional returns on our highlighted names— averaging over 40% IRR since 2022— we’ve seen diminishing returns on the time invested in these detailed write-ups.

Third, and most importantly, this shift enables us to focus our energy on a new initiative at Liberty Park.

Introducing Liberty Park Co-Investment Opportunities

We are launching a series of special purpose vehicles (SPVs) for single-company investments when we identify truly exceptional risk/reward opportunities.

Our thesis has always been that small-cap markets offer significant inefficiencies for discerning investors. However, we recognize that many sophisticated investors prefer targeted exposure without the capital lockup required by traditional fund structures.

Additionally, our fund’s necessary sizing constraints sometimes limit our ability to take positions as large as the opportunity warrants. This can be particularly frustrating when our team has invested significant resources into uncovering what we believe are potential home runs. These compelling opportunities typically emerge 2-3 times per year.

Through our SPV structure, we’ll offer you the chance to co-invest alongside us in these select situations. Please note that capacity will be extremely limited. Allocation priority will be given in the following order: (1) existing fund investors, (2) Liberty Park employees, and (3) external investors.

Charles P. Murphy, CFA, Managing Partner, Portfolio Manager

Kurt A. Probe, CFA, Partner, Co-Portfolio Manager, Director of Research

Andrew Wang, Partner, Co-Portfolio Manager, Analyst

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.