Happy Friday!
In this week’s letters,
– Lux Capital on Market Concentration;
– Hinde Group on Financial Markets, AI and the Economy;
– ACATIS Investment on the Geopolitical Risks;
– Elevator pitches for SHC; HII; NFG
Quarter in progress: 794 fund letters of Q4 are live on our database!
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Q4 2025 INVESTOR LETTER SUMMARIES
- Markets are concentrated in fewer companies. Capital is concentrated in fewer managers. Power and wealth are concentrated in fewer people. Rage, fear, jealousy, and envy—the primal forces of human psychology—are themselves concentrated on the have-compute, the have-revenues, the have-portfolios, the have-networks, and the have-influence.
- Concentration is capitalism’s secret success. It goads asset allocators to place the heaviest bets on the brightest prospects. It prods founders to seek the strongest partners in the most fertile niches, ready for returns. It cajoles employees to headhunt toward emerging winners.
- Consider the concentration of risk and the structural fragility beneath that surface. In 2008, nearly 40% of foreign portfolio investment into the U.S. came from central banks and sovereign wealth managers. Today, it is 13%. Meanwhile, the share of U.S. equities held by foreigners has nearly tripled to a record high—from just over 20% to just under 60%.
- Financial markets delivered a relatively uneventful fourth quarter. Even the longest-ever U.S. federal government shutdown failed to shake market confidence. The S&P 500 stayed within a few percentage points of where it began the quarter. It ended with a small gain. Interest rates and credit spreads were similarly dormant. Both continue to imply a relatively optimistic outlook for the economy and corporate profits over the medium term.
- Although the U.S. labor market clearly weakened over the course of 2025, and lower-income households are increasingly struggling to make ends meet, the Atlanta Fed currently estimates U.S. economic growth for the fourth quarter will come in at a heady 3.7%. The Atlanta Fed expects healthy contributions from both household consumption and private non-residential fixed investment.
- The AI investment boom continues to be an important source of strength for the U.S. economy. Over the past few weeks, Big Tech companies have announced plans to spend more than $660 billion on capital expenditures in 2026, mostly for AI chips and data centers. That is up almost 80% over the already gargantuan amount those companies invested in 2025. The AI investment boom stimulates economic growth through both the direct impact of AI-related investments and the wealth effect of soaring values for public and private AI-related equities.
- The year 2025 ended with Warren Buffett retiring as CEO of Berkshire Hathaway. A fixed star in the investor universe is exiting the stage. There are very few people who leave behind such useful insights about life and about building wealth. We have full confidence in his successor, Greg Abel, even if he is not quite as entertaining.
- The global parameters are shifting. We are very upset when Russia or China do what the U.S. just did in relation to Ukraine and Taiwan. But somehow, the Americans get away with it. South America is in the U.S. sphere of influence, and when a country is not willing to go along, force is applied. We have seen this movie before. Remember Chile, Panama, or Grenada.
- In the meantime, the U.S. has ordered many planes to Europe, from where they can intervene in Iran. The Iranian regime is stirring up trouble everywhere and is also working on nuclear weapons, but it is weak. There is even talk of the Iranian government fleeing to Moscow. This means that the regime might be about to fall in Iran, another sign of Russia’s impotence in the Middle East.
Q4 2025 TICKER TREEMAP
This quarter’s treemap of mentioned tickers (by Count)
ELEVATOR PITCHES BY FUNDS
Sotera Health Company (by McIntyre Partnerships)
- SHC’s stock was volatile in 2025 but ultimately finished strong. Despite the share price volatility, SHC remains a predictable, growing, and recession-proof business.
- For comparison, STE trades ~25x 2026 EPS and 21x 2027 EPS, versus SHC at 17x and 14x my estimates, respectively.
- Given the inflecting growth and discount to peers, we retain a large position. I believe our investment is positioned to benefit from SHC’s ~10% EBITDA growth per year, continuing capital returns, and potential multiple expansion. I value SHC at 25x my 2027 EPS estimate of $1.20, implying a $30 valuation versus its current $17 price.
Huntington Ingalls Industries (by Tactile Fund)
- Huntington Ingalls is entering a multi-year period of margin expansion in 2026 as its heavy investments in labor productivity and supply chain resiliency finally begin to bear fruit.
- As one of only two major naval shipbuilders in the United States, the company is a primary beneficiary of the sustained global demand for nuclear aircraft carriers and submarines.
- With a record backlog and a pivot toward new contracts that better reflect current inflationary conditions, HII is well-positioned to deliver significant free operating cash flow and improved credit measures.
National Fuel Gas (by The Gabelli Equity Income)
- The pipeline & storage (P&S) business operates 3,000 miles of pipe and 34 storage facilities primarily in the state of New York. The E&P business, Seneca Resources, operates in Appalachia primarily in the Marcellus and Utica shales and ended FY 2025 with nearly 5.0 Tcfe of proved gas reserves, making it one of the most resource-rich utilities in the U.S.
- These reserves are strategically important as natural gas demand in the Northeast accelerates, driven in part by rising electricity consumption from data centers and AI-related load growth.
- NFG’s pending $2.6 billion acquisition of CenterPoint Energy’s Ohio gas utility will roughly double NFG’s regulated utility rate base.
HIGHLIGHT OF THIS WEEK
MEDIA APPEARANCES BY BSDs
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- As cracks spread through private credit markets in recent weeks, the head of Saba Capital Management began offering investors quick cash for their stakes in such vehicles run by Blue Owl Capital Inc.
- Now he’s making the same proposal to backers of a Starwood Capital Group real estate fund that has severely curtailed withdrawals for nearly two years.
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- Billionaire investor Bill Ackman relishes playing the role of contrarian. Plans he unveiled this week to take public both a new investment fund and his hedge-fund firm will have him swimming against the Wall Street tide in multiple ways.
- The type of investment fund Ackman is looking to raise, a closed-end fund, has been out of favor with investors for years.
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- We still think the U.S. consumer is in better shape than the headlines would suggest, but it is clearly a K‑shaped recovery with big winners and a lot of people left behind.
- In a K‑shaped economy, those at the top see their wealth and stock portfolios soar, while workers on the lower rungs struggle with higher costs and much less of a safety net.
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