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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Hosking Partners 2023 Q4 Investor Letter | Buyside Digest

Back to Fund Profile (Hosking Partners)

Primary Source Intelligence • Q4 2023 Letter Analysis

Hosking Partners Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Hosking Partners. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

Positioning StanceConstructive

GeographyGlobal

Digest Analysis

Quick Take

"Hosking Partners avoided the 75% collapse in offshore wind companies by applying their capital cycle approach, focusing on supply rather than demand narratives."

Executive Summary

Hosking Partners' Q4 2023 ESG report examines the dramatic value destruction in offshore wind, where companies like Ørsted and Siemens Energy fell 75% from 2021 highs. The firm's capital cycle approach helped avoid this sector by focusing on supply dynamics rather than demand narratives. The offshore wind boom was driven by mispriced capital, unrealistic cost deflation assumptions, and near-zero interest rates that inflated present values of future cash flows. The bust resulted from cost inflation, rising rates, and technological limitations that made project economics unviable. Despite these challenges, the renewable energy transition continues with wind predicted to reach 30% of global generation by 2050. The firm recently invested in Altius Renewables Royalties to gain renewable exposure through a royalty structure that avoids operational risks. The report also covers voting and engagement activities, including support for shareholder proposals at Texas Pacific Land and Microsoft regarding governance and human rights issues respectively. The firm continues engaging with Japanese refiner Cosmo Energy, anticipating improved margins from industry capacity reductions.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

68%

CautiousHigh

Moderate (68%)

The manager demonstrates high conviction in their capital cycle framework and specific investment decisions like Altius Renewables Royalties, with detailed analysis supporting their thesis. However, the ESG report format limits discussion of position sizing and portfolio concentration details.

Growth Outlook

38%

BearishBullish

Neutral (38%)

The manager expresses cautious optimism about renewable energy's long-term direction but significant concern about offshore wind's near-term prospects due to structural challenges. The outlook acknowledges both the continuing energy transition and the severe value destruction in wind equities.

Risk Appetite

25%

DefensiveAggressive

Defensive (25%)

The portfolio shows selective risk-taking through the new Altius Renewables Royalties position while maintaining engagement with existing holdings like Cosmo Energy. The approach demonstrates measured deployment into renewable energy themes through lower-risk structures.

Capital Deployment

15%

De-riskingDeploying

De-risking (15%)

Limited deployment activity with one new position mentioned (Altius Renewables Royalties) and continued engagement with existing holdings. No cash level changes or significant portfolio additions/reductions discussed, suggesting modest net deployment.

Forward Guidance

10%

CautiousExpansionary

Cautious (10%)

The manager indicates continued monitoring for opportunities emerging from renewable energy sector consolidation and plans to maintain engagement activities, but expresses no urgency to deploy significant new capital into wind-related investments.

Language Signal

45%

BearishBullish

Balanced (45%)

Language is balanced between opportunity identification and risk awareness. Terms like 'value destruction,' 'bust,' and 'challenges' are offset by 'opportunities emerging,' 'clear direction,' and 'attractive' when describing selective investments.

Perceived Risk

72%

Low RiskElevated

Elevated Risk (72%)

The manager identifies significant structural risks in offshore wind including rising interest rates, cost inflation, and technological limitations. Detailed discussion of how 'minor changes to modelled assumptions torpedoed project IRRs' demonstrates high awareness of sector-specific risks.

Opportunity Density

45%

ScarceAbundant

Selective (45%)

The manager sees selective opportunities emerging from renewable energy sector consolidation and in specific structures like royalties, but characterizes the overall environment as requiring careful selectivity rather than broad opportunity abundance.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

The investment approach demonstrates a long-term perspective with multi-year engagement activities, focus on structural industry changes, and investments in royalty structures designed to benefit from long-term renewable energy adoption over decades.