Q1 2025 Investor Audibles: 1Main Capital, Alluvial Capital, NZS Capital

Episode Summary

Executive Summary: The transcript stitches together three investor letters: One Main Capital, Alluvial Capital, and NZS Capital. Across all three, managers argue that tariff-driven volatility and market repricing have created selective opportunities, while their portfolios are positioned defensively or toward mispriced special situations. The letters highlight concentrated portfolios, cash-rich biotech bets, distressed real estate, and resilient compounders as the best way to navigate uncertainty.

Main Topics: Tariff Shock and Macro Uncertainty (Priority: 5/5): All three managers emphasize that erratic trade policy and tariff escalation are depressing confidence, disrupting business planning, and increasing market volatility. They generally view the policy environment as harmful in the near term, though some see medium-term opportunity if prices overreact. Asset Repricing vs. Flows (Priority: 5/5): One Main Capital argues that prices move primarily because owners’ intentions are repriced, not because of trading flow alone. The letter stresses that fast repricings require investors to know what they own, what it is worth, and why they own it. Concentrated and Defensive Portfolio Construction (Priority: 4/5): One Main and Alluvial both describe highly concentrated portfolios built around businesses they believe can thrive across environments. One Main leans toward service-oriented, macro-light businesses; Alluvial stresses low tariff exposure and real assets with strong downside protection. Biotech Special Situations (Priority: 4/5): One Main deploys capital into biotech names trading far below cash and collaboration value, relying more on asset value and shareholder incentives than deep scientific underwriting. The goal is to exploit a sector that looks deeply out of favor. International Value and Real Assets (Priority: 4/5): Alluvial reports strong performance from UK-listed holdings and sees opportunity in cement, real estate, and other neglected assets. The firm argues that many assets can be bought cheaply when sentiment is poor, especially if cash flow and asset backing are substantial. NZS Capital's Resilience/Optionity Framework (Priority: 5/5): NZS explains its process as seeking non-zero-sum businesses that either provide resilience or optionality. It increased exposure to both categories amid volatility and continues to favor businesses with durable economics and long runways. Aerospace Aftermarket as a Non-Zero-Sum Business (Priority: 5/5): NZS spotlights Heico as a textbook resilient holding: a decentralized, customer-centric business selling certified aftermarket aircraft parts at lower prices than OEMs, with strong margins and long-term growth potential.

Key Arguments: Market volatility is largely a repricing mechanism: investors’ changed expectations, not just trading flow, drive asset prices. Tariff policy uncertainty hurts capital allocation because companies delay discretionary spending and investment until rules stabilize. One Main’s portfolio is intentionally tilted toward businesses with limited direct macro exposure, improving resilience in a trade-war or slowdown scenario. Biotech dislocations can be mined for value when balance-sheet strength and shareholder incentives matter more than clinical uncertainty. Alluvial’s edge is buying unpopular but fundamentally sound assets—especially real estate and industrials—at large discounts to intrinsic value. International markets and niche UK holdings can outperform when U.S. policy uncertainty weighs on domestic small caps. NZS believes uncertainty creates better entry points for both resilient compounders and high-upside optionality names. Heico exemplifies a high-quality, non-zero-sum business with durable demand, strong regulatory moats, and attractive acquisition dynamics.

Data Points: One Main Q1 2025 return: -3.6% net - Q1 2025 performance of One Main Capital Partners LP One Main benchmark return (S&P 500): -4.3% - Quarterly comparison for One Main One Main benchmark return (Russell 2000): -9.5% - Quarterly comparison for One Main One Main annualized net return since inception: 19.5% - Since February 2018 inception S&P 500 annualized return since inception: 11.9% - Since February 2018 inception comparison Russell 2000 annualized return since inception: 4.8% - Since February 2018 inception comparison $1 million at inception worth today: $3.6 million net - One Main fund growth since inception Top five positions concentration: 70% of capital - One Main quarter-end portfolio concentration Biotech allocation: low double-digit percentage of assets - One Main new biotech investments at quarter end Arvinas cash balance: over $1 billion - One Main biotech example Arvinas Pfizer collaboration potential: up to $1.4 billion - Potential payments upon ARV-471 approval Arvinas Novartis collaboration potential: up to $1 billion - Potential payments upon ARB-766 approval Arvinas market cap: $500 million - March 2025 valuation after disappointing readout Third Harmonic Bio net cash: greater than $5 per share - One Main used this as basis to buy at $3.45/share Third Harmonic Bio purchase price: $3.45 - One Main entry price before liquidation announcement Third Harmonic Bio exit price: $5 - One Main exit after dissolution announcement Enzo Biochem valuation: 40% of book value; 50% discount to cash - One Main remaining position at quarter end Alluvial Q1 2025 return: 6.5% - Alluvial Fund performance Russell 2000 Q1 2025 return: -9.5% - Alluvial comparison benchmark Russell Microcap Q1 2025 return: -14.4% - Alluvial comparison benchmark Alluvial drawdown in month: down less than 1% - Alluvial says it held up well despite market selloff Alluvial top 10 holdings concentration: 55% - Top 10 holdings represent portfolio concentration McBride valuation: 6x operating income and less than 6x normalized earnings - UK consumer staples holding NetLease Office Properties discount: 38% discount to estimated NAV - Office real estate holding valuation Peakstone/CBL cash flow yields: north of 20% - Real estate holdings with high cash flow yield Alluvial AUM milestone: $100 million - Major firm milestone reported by Dave Waters NZS gross Q1 return: -3.45% - NZS Growth Equity Strategy NZS net Q1 return: -3.61% - NZS Growth Equity Strategy Morningstar Global Target Market Exposure Index: -1.35% - Benchmark for NZS NZS IT weight: about 43% - Quarter-end sector weight NZS IT weight entering year: about 42% - Comparison to show slight increase NZS additions to holdings: Train, Cadence, Amphenol, NVIDIA, Atlassian, Procore - Incremental additions in the quarter NZS new optionality positions: Marvel, Reddit, Lemonade - New positions added in the quarter Heico PMA parts delivered: nearly 90 million - NZS description of operating scale and quality record Heico aftermarket discount vs OEM: 30% to 50% - Pricing advantage to customers Boeing 737 MAX list price: greater than $100 million - Illustrates scale of aerospace economics Heico acquisitions: directly negotiated, non-competitive - Described as part of its preferred acquirer status

Pivotal Quotes: "Asset prices move based on weighted average intentions of asset owners, not flows." — One Main Capital: The letter’s core framework for understanding rapid market repricing "What business can make strategic decisions when the rules of the game change by the week or even by the day?" — Alluvial Capital: Commentary on tariff chaos and its impact on investment and spending decisions "The North Star of our business and investment process is non-zero-sumness." — NZS Capital: Defines the firm’s selection framework for resilient and disruptive businesses

Implications: Listeners should expect continued volatility and policy-driven dispersion. The letters favor concentrated ownership of cash-rich, asset-backed, or structurally advantaged businesses, suggesting future outperformance may come from disciplined selection rather than broad market beta.