Our research suggests that we are invested in the most profound structural growth themes and the most dominant franchises that will capture the majority of cash flow in the global economy. Importantly, given the scalability of wealth, our prudent portfolio management approach allows us to remain fully invested to maximize our long-term profit potential. Since inception, my personal family balance sheet has been fully invested in our Partnership, and as a testament to my conviction in our future, I invested 100% of my 2020 fees into the Fund.
The COVID-19 pandemic and resulting economic contraction surfaced the remarkable strengths of our Long investments, such as:
- The essential role they play in society
- eCommerce & Digital Payments provided access to essential goods and services as well as the ability to access and transfer money quickly. A less tangible yet critical benefit is the ease of communication and rapid dissemination of important information reaching people at the local and global scale anytime, anywhere
- Software & Enterprise Computing enabled continuity for businesses, consumers, and governments that needed to adapt to remote working environments in an expedited and cost-effective manner
- The “Antifragile” (Nassim Taleb, 2012) nature of the new economy and the power of structural growth
- For context, 2020 Global GDP is estimated to be down -3.8% and our investments not only grew their core businesses, but innovated to expand into adjacent opportunities and accelerate their market share gains. The results are excellent:
- eCommerce & Digital Payments investments grew their businesses by +24%. Adjusting for cash generation and growth over the next 5 years, I estimate these companies collectively trade at a 9.5% free cash flow yield
- Software & Enterprise Computing investments grew their businesses by +19%. Adjusting for cash generation and growth over the next 5 years, I estimate these companies collectively trade at an 8.0% free cash flow yield
- For context, 2020 Global GDP is estimated to be down -3.8% and our investments not only grew their core businesses, but innovated to expand into adjacent opportunities and accelerate their market share gains. The results are excellent:
While our Long investments have been able to grow and strengthen their businesses during an economic crisis and global pandemic, the businesses in our Short portfolio experienced significant fundamental impairment and an acceleration in their structural decline. Collectively, the Short portfolio saw business fall -20%, negative earnings, and these companies still have substantial debts outstanding. The Shorts are weaker businesses today than a year ago and it is my expectation that they will continue to weaken over time.
As always, we remain focused on the long-term business fundamentals that determine the trajectory of cash flows and investment returns. This year provided further confirmation about our existing views and strengthened my conviction in the long-term profit potential of our Partnership. Our investment approach remains unchanged – that is, investing in high-quality, dominant franchises that will become structurally larger business while maintaining a short portfolio of low-quality, structurally broken businesses that will shrink over time. I fear that many market participants are not fully aware of the factors impacting their portfolios. I will not speculate on the timing of volatility, however, it is my view that the recent outperformance of low-quality, unprofitable and volatile stocks is unsustainable (and currently over-extended by any reasonable measure). Once again, I believe the future profit potential of the Fund is tremendous which is why I invested 100% of my 2020 fees into our Partnership. Thank you for your trust and please feel free to reach out anytime.
Your partner and fiduciary,
Faris Jafar, Chief Executive Officer
Phone: (734) 678-8562