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Dear Partners and Friends,
The partnership eked out a gain of +0.1%1 in the first quarter and has declined slightly since. As this letter goes to print, the partnership has returned approximately -2% year-to-date.2 Over the past five years, the partnership compounded at a rate of greater than 18% annually, net. Our net alpha relative to the Russell 2000 since inception has been 8.4 percentage points per year.
I’m pleased with how the partnership fared in recent months. By contrast, the Russell 2000 is down over -16% year-to-date. But the goal of investing is not simply to minimize drawdowns. If it were, we could sit in cash and call it a day. Instead, we are focused on generating superior risk-adjusted returns over the long term and accept volatility as part of that journey.
Volatility is not just something that we tolerate. We also invite it, as it can create opportunity. Of course, one must be in a position to take advantage of said opportunity, and that means having the ideas, temperament, capital, and, in the case of a professional investor, alignment with one’s partners to do so.
It’s easy for investors to become paralyzed when markets are collapsing. This is especially true if they are fully invested, levered, or invested in levered companies, expensive stocks, or companies they don’t fully understand.
“Invest in preparedness, not prediction.” — Nassim Taleb
“Predicting rain doesn’t count, building arks does.” — Warren Buffett
I discussed the concept of position, don’t predict a year ago in my 1Q 2024 letter, in which I highlighted our differentiated positioning across the pillars of growth, leverage (or lack thereof), valuation, and catalysts. I broached the topic again in the second quarter, writing:
Volatility has increased in the market, and it seems to be catching some people off guard. This is not to say that I predicted this bout of volatility, but just that I always attempt to be both positioned and mentally prepared for periods of increased volatility—they are inherent to the nature of markets.
The markets have certainly experienced another episode of volatility in the past few weeks. I didn’t predict the magnitude of the tariffs that were announced on April 2, but our typically conservative positioning has thus far served us well in their wake. We came into April with a large net cash position in the fund, and many of our portfolio companies have large net cash positions on their balance sheets.
While caution and sensible positioning are always warranted, crises and market panics can be opportunities to generate meaningful wealth. There are certainly babies being thrown out with the bathwater as we speak. We won’t be forced or panic sellers; I hope we’ll be on the other side of those trades, taking advantage.
Tariffs have been announced, paused, escalated (with China), and deescalated (in the case of phones and electronics) in just two weeks. Given that, it is too early to have much conviction about where they may shake out. The consensus on tariffs is that they are stagflationary—that is, they can be expected to create “higher inflation and slower growth” (as Jerome Powell, Chair of the Federal Reserve, said in his remarks on April 4.)3 They will likely pressure the profits of many companies. Powell also used the word “uncertain” six times in his short speech, which is apt. It’s hard to predict the forward policy path or the first- and higher-order effects of changes being made.
As always, I intend to remain humble, intellectually honest, and focused on fundamental guiding principles: margin of safety, conservative underwriting, deep research, alignment of interests, a long time horizon, and the concept of investment as ownership of a piece of a business. I believe that this approach, along with our differentiated hunting ground and some of our structural advantages (small size, single decision-maker, and aligned, long-term oriented partners), will continue to serve us well.
Portfolio Update
Our top five positions as of the end of the quarter were APi Group (APG), Clarus Corp (CLAR), Correios de Portugal, S.A. (Euronext Lisbon: CTT), Horizon Kinetics Holding Corporation (OTCPK:HKHC), and Turning Point Brands (TPB).4
Our current portfolio includes significant cash as well as investments in numerous unlevered or net-cash companies—some with truly fortress-like balance sheets (HKHC, CLAR, CTT if you count their bank and real estate holdings). We own inflation beneficiaries in asset management (OTCPK:HKHC), hard assets, and gold royalties. We own a number of relatively recession-resistant businesses including those selling nicotine products (TPB) and elevator and fire-safety inspection services (APG). We own many companies with solid insider alignment (the majority of our portfolio) that are buying back stock, taking advantage of lower share prices (APG, CLAR, CTT, TPB, Vistry Group, and others). And we have a few special situations that I believe are highly asymmetric risk/rewards, with catalysts in place, that should be uncorrelated to the broader market. Across our portfolio, I know what we own and why we own it.
I have written in detail about most of our disclosed holdings in recent letters, including CTT last quarter (The Frog in Boiling Water) and TPB in 2Q 2024 (Returning to Turning Point Brands); you can refer to those letters if you want a refresher on the theses.
Horizon Kinetics reported record annual results in 2024, earning over $5 per share. This includes contributions from both performance fees and appreciation of the company’s balance sheet assets, so it isn’t a recurring earnings number. That said, it is an example of the types of earnings that were possible in a year in which things went Horizon’s way. You can listen to a recording of the earnings call if you are interested in learning more about Horizon’s philosophy and approach.
Conclusion
I recently described my approach and portfolio to a potential investor, and she responded that Maran is generating gunslinger returns from a belt-and-suspenders portfolio. I love the turn of phrase, but I had to remind her that while gunslingers can appear attractive for a time, most of them eventually wind up dead. Over the long term, in investing, safety takes precedence over excitement.
I think it is an attractive time to invest in our partnership. The portfolio has undergone somewhat of a reset in recent months as I increased our cash position and have made further changes in response to the tariff announcements. I believe it is inexpensive and well-positioned. It is reasonable to consider joining us as I redeploy cash into some new, attractive ideas. Panic and fear create opportunities for those with patient capital and sound judgement. I will continue to maintain a steady hand on the tiller and attempt to stay rational in the face of volatility.
Let me conclude by saying thank you. It is a testament to the quality of our limited partners that not even one of you reached out (in a panic, or otherwise) at any point over the last few weeks to ask about our short-term performance. I truly appreciate your trust and your long-term orientation. My ability to navigate choppy waters is dramatically enhanced knowing that I have a fully aligned group behind me. Of course, feel free to get in touch at any time—I am available.
Sincerely, Dan Roller
| Footnotes 1 Net returns based on the fund’s highest fee share class. Individual partner returns may vary based on share class and timing of investment, among other factors. Please refer to individual account statements for more detail. Please see page 4 for important disclaimers, and our investor presentation for complete monthly results since inception. 2 Estimated net return as of April 11th. 3 Source. 4 Listed alphabetically. Disclaimer This document is not an offer to sell or a solicitation to buy any interests in any partnership (“Fund”) managed by Maran Capital Management, LLC (“MCM”). Any such offering will be made only in accordance with the Fund’s Confidential Offering Memorandum (the “Offering Memorandum”). The Fund may not be eligible for sale in some states or countries, nor suitable for all types of investors. Prior to investing, investors are strongly urged to review carefully the Offering Memorandum and related documents, including the risks described therein associated with investing in the Fund, to ask additional questions and discuss any prospective investment with their own advisers. Additional information, including a detailed Fund performance report, will be provided upon request. The statements of the investment objectives are statements of objectives only. They are not projections of expected performance nor guarantees of anticipated investment results. Actual performance and results may vary substantially from the stated objectives. Performance returns are estimated pending the year-end audit. An investment in the Fund involves a high degree of risk and is suitable only for sophisticated and accredited investors. Investors should be prepared to suffer losses of their entire investments. The Offering Memorandum contains brief descriptions of certain of the risks associated with investing in the Fund. Certain information contained in this document constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Partnership described herein may differ materially from those reflected or contemplated in such forward-looking statements. This document and information contained herein reflects various assumptions, opinions, and projections of MCM which is subject to change at any time. MCM does not represent that any opinion or projection will be realized. The analyses, conclusions, and opinions presented in this document are the views of MCM and not those of any third party. The analyses and conclusions of MCM contained in this document are based on publicly available information. MCM recognizes there may be public or non-public information available that could lead others, including the companies discussed herein, to disagree with MCM’s analyses, conclusions, and opinions. Funds managed by MCM may have an investment in the companies discussed in this document. It is possible that MCM may change its opinion regarding the companies at any time for any or no reason. MCM may buy, sell, sell short, cover, change the form of its investment, or completely exit from its investment in the companies at any time for any or no reason. MCM hereby disclaims any duty to provide updates or changes to the analyses contained herein, including, without limitation, the manner or type of any MCM investment. Prices for securities discussed are closing prices as of April 11, 2025 unless otherwise noted and are not representative of the prices paid by the fund for those securities. Positions reflected in this letter do not represent all of the positions held, purchased, and/or sold, and may represent a small percentage of holdings and/or activity. In 1Q 2025, the return of the S&P 500 was -4.3%, and the return of the Russell 2000 was -9.5%. The S&P 500 and Russell 2000 are indices of US equities. They are included for information purposes only and are not representative of the types of investments made by the fund. The fund’s investments differ materially from these indices. The fund is concentrated in a small number of positions while the indices are diversified. The fund return data provided is unaudited and subject to revision. None of the information contained herein has been filed with the U.S. Securities and Exchange Commission, any securities administrator under any state securities laws, or any other U.S. or non-U.S. governmental or self-regulatory authority. No governmental authority has passed on the merits of this offering or the adequacy of the information contained herein. Any representation to the contrary is unlawful. Copyright Maran Capital Management, LLC 2015-2025. This information is strictly confidential and may not be reproduced or redistributed in whole or in part. |
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