Highwood Value Partners H2 2025 Letter To Investors

Performance Summary - The portfolio achieved a return of 5.7% in the second half of 2025, resulting in a total return of +10.2% for the calendar year and +76% since inception in Canadian dollars net of fees [2][3] - Realized gains since inception are reported at +71.4%, with unrealized gains at 4.6% as of December 31, 2025 [3][35] - The portfolio's exposure by strategy bucket shows a significant concentration in Special Situations Equity at 35.9% for FY 2025, while Core Value Equity stands at 47% [4] Geopolitical Landscape - The investment landscape is undergoing dramatic shifts due to geopolitical changes, impacting competitive intensity and market size [7][8] - The corporate strategy of relying on low-cost supply chains is being challenged, leading to downward pressure on returns on capital [8] - Despite these changes, the opportunity set for fundamental value investors is not shrinking, but rather evolving [9][11] Portfolio Changes - In the second half of 2025, the company sold positions in Protector, Ryanair, and Alimak, marking the exit from all initial positions since inception [13] - The average return across the initial investments was 2.0x money with a 16% IRR, with no losses recorded on any investment [14] - The portfolio is now more concentrated, with the three largest positions comprising 37% of capital and the five largest making up 57% [19] Investment Cases for Major Holdings - Burford Capital: The company has seen an increase in book value per share and cash proceeds from litigation, with a fair value estimate of approximately 3x the current price [24][26] - Borr Drilling: The fundamentals have improved, with run-rate EBITDA increasing from $100 million to $500 million, and a fair value estimate of about 3x the current price [25][30] - GetBusy PLC: The management's ability to extract value from its US asset is crucial, with a fair value estimate of 2-4x the current price [27][30] - Fever-Tree Drinks PLC: The joint venture with Molson Coors is expected to accelerate commercialization, with a focus on recovering margins [28][30] - Bolloré and Compagnie de L'Odet: The simplification of the holding structure is ongoing, with potential for significant value creation over time [29][31] Business Update - The company has onboarded new investors aligned with its values and is utilizing AI to enhance business operations and insights [32]