Q2 2025 Investor Audibles: Bonsai Partners, Cedar Creek Capital, Hayden Capital

Episode Summary

Executive Summary: This episode surveys Q2 2025 investor letters from Bonsai Partners, Cedar Creek Partners, and Hayden Capital. Across them, the common thread is a focus on durable business models, aligned incentives, and surviving volatility to compound over long horizons. Key portfolio updates include Bonsai’s bullish case for Fever-Tree, Cedar Creek’s microcap/control positions and expert-market deep dives, and Hayden’s critique of short-termism while emphasizing portfolio resilience and international opportunities.

Main Topics: Bonsai Partners: Enduring Economics and customer advantage (Priority: 5/5): Andrew Rosenblum argues that great businesses require both competitive advantage and customer advantage. He introduces 'enduring economics' as the combination and emphasizes radical customer alignment as a durable source of compounding. Bonsai Partners: Fever-Tree investment thesis (Priority: 5/5): The letter details why Fever-Tree became attractive after a valuation reset: premium brand, improved distribution via Molson Coors, margin recovery potential, and contractual royalty visibility. The partnership is framed as transformative. Cedar Creek Partners: Microcaps, control positions, and expert-market strategy (Priority: 4/5): Tim Erickson reviews fund performance, cash levels, valuation metrics, and multiple special situations. He highlights expert-market exposure, control positions like Solitron and PharmChem, and a royalty-style investment in CBE LLC. Cedar Creek Partners: Propel Media black-box analysis (Priority: 4/5): The letter explains how the fund infers revenue growth and liquidity from borrowings and dividend behavior at Propel Media, a non-reporting company with a prior blocked acquisition and ongoing opaque operations. Hayden Capital: Survival, minimax, and firm structure (Priority: 5/5): Hayden argues that investment success depends on maximizing survival odds, not just returns. The letter critiques short-term trading culture, stresses LP alignment and cost discipline, and frames volatility as an opportunity for durable investors. Hayden Capital: Portfolio positioning and SmartRent exit (Priority: 4/5): Hayden reports strong quarterly performance and a globally diversified portfolio, while explaining why it exited SmartRent due to operational disappointments, leadership turnover, and concerns about urgency and culture.

Key Arguments: Bonsai argues that customers, not competitors, determine the durability of a business thesis; 'customers are the thesis.' Bonsai’s 'enduring economics' framework is built on the idea that competitive advantage alone is insufficient without customer advantage. Fever-Tree’s Molson Coors deal materially improves distribution, margin recovery, and earnings visibility through minimum royalty guarantees. In beverages, national distribution is a major choke point, so partnering with a top-tier distributor can be a structural advantage. Cedar Creek’s performance is driven largely by control positions and illiquid special situations where the fund can influence outcomes. Propel Media’s borrowings and dividend behavior can be used to estimate revenue growth even without public financial statements. Hayden argues that survival threshold is the most important edge for an investment firm, because time in the game matters more than short-term return spikes. Short-duration hedge-fund strategies can amplify volatility through forced selling and cascading liquidations. LP alignment is a competitive advantage: firms should choose investors who can tolerate the strategy’s volatility rather than maximizing AUM at all costs. SmartRent was exited because the founder/board conflict, execution slippage, and lack of urgency outweighed the original growth thesis.

Data Points: Bonsai fund return (6 months ended June 30, 2025): 7.3% net - Bonsai Partners LP appreciation for the first half of 2025 Bonsai since inception annualized return: 22.8% net - Long-term net annualized return cited in the letter S&P 500 total return (same period): 6.2% - Benchmark comparison for Bonsai’s first-half performance Fevertree historical average P/E: ~65x - Used to show valuation reset versus the purchase multiple Fevertree purchase valuation: ~13x normalized trailing earnings - Bonsai’s entry point after margin and growth slowdown Fevertree ROIC (IPO through 2021): 25% to 45% - Evidence of strong historical economics Fevertree sales growth (IPO through 2021): 27% CAGR - Historic expansion cited by Bonsai Fevertree U.S. growth in 2024: 9% - Shows continued U.S. momentum despite category headwinds Fevertree gross margin decline: 50% in 2020 to 32% in 2023 - Operational pressure from freight, energy, and input costs Fevertree adjusted EBITDA margin decline: 20% to 5.7% - Margin compression during the supply-chain disruption period Fevertree revenue change vs earnings: Revenue +45%, earnings -45% - Illustrates profit deterioration despite top-line growth Molson Coors U.S. sales accounts: 500,000+ - Scale advantage versus Fever-Tree’s prior distributor access Prior Fevertree distributor access: ~70,000 accounts - Southern Glazer’s reach before the Molson partnership Fevertree guaranteed minimum royalty coverage: ~90% of projected royalties through 2028 - Contractual earnings visibility under the Molson Coors deal Fevertree EBITDA growth estimate: ~20% CAGR from 2024 to 2028 - Scenario assuming modest non-U.S. growth and margin improvement Cedar Creek Q2 return: 5.8% - Second-quarter fund performance net of fees and expenses Cedar Creek YTD return: 15.1% - Performance through June 2025 Cedar Creek long-term annualized return: 14.45% over 19.5 years - Net of fees and expenses Cedar Creek holdings valuation: 8.4x forward earnings - Fund-level portfolio valuation at quarter-end Cedar Creek holdings valuation net of cash: 6.8x expected earnings - Same portfolio valuation adjusted for cash at businesses Cedar Creek weighted price/book: 1.6x - Quarter-end portfolio metric Cedar Creek dividend yield: 2.5% - Portfolio-level yield Cedar Creek weighted expected ROE: 18.9% - Quarter-end portfolio quality metric Cedar Creek expert market exposure: 35% of fund - Share of assets in non-reporting or restricted securities FIRST IC deal status: Approved; expected to close early Q4 2025 - Merger with Metro City Bank Propel Media shares outstanding: 252 million - Used in black-box valuation exercise Propel Media purchase price: $0.24 per share - Cedar Creek’s entry price in June 2023 Propel Media dividends received: $0.086 per share total - About 35% of purchase price returned over two years Solitron ownership: 11.6% fund stake; 2.5% personal stake - Control position and alignment details Solitron bid price: $14.28 to $15.75 per share - Bid price increased over the quarter PharmChem sale price: $375 per share - Announced acquisition after strategic review PharmChem prior price: $297 per share - Price before sale announcement ND / Crossing Bridge AUM: $2.6B to $3.4B in 2024; over $4B by June 2025 - Growth in assets under management ND cash earnings: $0.39 per share in Q1; ~$1.56 annualized - Used to justify valuation ND net cash/investments: ~$3 per share - Supports net-of-cash valuation argument ND valuation: ~8x earnings net of cash - Stock price relative to cash earnings CBE deal size: $25.9 million for 25% - Investment by CBE LLC into Crossing Bridge Advisors CBE implied yield: ~11% - Royalty structure based on revenue share Hayden Capital quarterly return: 17.6% - Second-quarter portfolio performance Hayden Capital since inception annualized return: 15.1% - After fees S&P 500 since inception annualized return: 13% - Benchmark comparison Portfolio regional split: 57% Asia, 31% North America, 10% Latin America, remainder cash - Hayden’s geographic allocation SmartRent backlog: >850,000 committed units - Illustrates prior growth opportunity SmartRent deployed units: 550,000 units in 2022 - Operational scale at peak thesis period SmartRent installation cost: $1,300 per apartment unit - Explains sensitivity to customer capex constraints

Pivotal Quotes: "Customers are the thesis." — Andrew Rosenblum: Bonsai’s framework for evaluating enduring economics and investment quality "Enduring economics equals competitive advantage plus customer advantage." — Andrew Rosenblum: Defines Bonsai’s benchmark for identifying great businesses "If you can't stomach a fifty percent decline in your investment, you shouldn't be in the stock market." — Charlie Munger (quoted by Hayden Capital): Used to underscore Hayden’s emphasis on survival threshold and long-term compounding

Implications: The letters favor durable business models, aligned incentives, and patient capital over short-term trading. For investors, the edge lies in surviving volatility, understanding customer value, and finding structures where distribution, contracts, and governance create lasting compounding.