Greenhaven Road Partners Fund Q4 2025 Investor Letter

Theme and Background

This chapter discusses the performance of the Greenhaven Road Partners Fund in the fourth quarter and full year of 2025, with a focus on analyzing the investment logic behind a "hidden company"—Horizon Kinetics Holding Company (HKHC). The market backdrop is that large-cap tech companies (Magnificent 7) continued to achieve 20%+ revenue growth in 2025 and commanded higher valuations, while the fund faced headwinds due to its stock selection criteria favoring small, low-attention companies.

Core Thesis

The author's core investment argument is that HKHC is a "hidden company" significantly undervalued by the market. Its stock price fell by one-third in 2025 (ending the year at approximately $23.50), yet its fundamentals are strong, with intrinsic value far exceeding the current share price. The counterintuitive judgment lies in the fact that although HKHC has no analyst coverage, trades over-the-counter, and is not included in major indices, its management is the largest shareholder. The company's value, derived from cash and balance sheet investments, its core asset management business, and future incentive fees, presents a significant discount at the current stock price.

Key Arguments and Data

• Performance Context: The Partners Fund delivered a net return of approximately 2% in the fourth quarter and 14% net for the full year. The fund was dragged down by its low exposure to the Magnificent 7.
• HKHC Stock Performance: The stock price fell by one-third in 2025 (ending the year at approximately $23.50), while the broader market rose.
• Value Breakdown: As of September 30, 2025, cash and balance sheet investments totaled approximately $384 million, or $20.63 per share, covering over 85% of the year-end stock price. Incentive fees exceeded $2 per share in 2024, were near zero in 2025, but are expected to contribute approximately $1 per share in 2026 from the Miami International Exchange (MIAX) IPO. The core asset management business (with over $10 billion in AUM) generated operating income of approximately $1.15 per share in the first three quarters of 2025, projected to rise to $1.30 per share in 2026.
• Valuation Comparison: The author believes incentive fees warrant a 5x P/E multiple, while the core asset management business warrants a 16x P/E multiple (valued at over $20 per share). Combined, this is far above the $23.50 stock price.

Value Component	Data/Estimate	Notes
Cash and Balance Sheet Investments	$20.63 per share (as of September 30, 2025)	Covers over 85% of year-end stock price
2024 Incentive Fees	Over $2 per share	Near zero in 2025
Expected 2026 Incentive Fees	Approximately $1 per share (MIAX IPO)	Estimated at 5x P/E
Core Asset Management Operating Income	~$1.15 per share in 2025, ~$1.30 per share in 2026	16x P/E estimate exceeds $20 per share

Companies/Assets Involved

• Horizon Kinetics Holding Company (HKHC): Core analysis target. An asset manager with over $10 billion in AUM. The author is bullish, believing it is severely undervalued, with management as the largest shareholder, offering exposure to inflation-benefiting themes (energy, precious metals royalties, real estate, water rights, exchanges, etc.).
• Maran Capital: A sub-fund invested in by the Partners Fund, with HKHC as its top holding. Dan Roller serves on the HKHC board of directors.
• Texas Pacific Land Trust (TPL): The largest AUM component of HKHC, up over 40% year-to-date in early 2026.
• Miami International Exchange (MIAX): A long-term holding of HKHC, recently IPO'd, expected to contribute to 2026 incentive fees.
• Desert Lion, CTT SPV, Sixteenth Street: Other holdings of the Partners Fund, involving markets in South Africa, Portugal, and Southeast Asia, respectively.

Investment Implications

For investors, HKHC's current stock price ($23.50) is far below the sum of its cash and investments ($20.63) and core business value (over $20 per share), offering a significant margin of safety. The recommendation is to focus on such "hidden companies"—those overlooked due to structural reasons (size, liquidity, listing venue, index rules) but with strong fundamentals and high management alignment. Specific direction: indirectly allocate to inflation-benefiting assets (energy, precious metals royalties, real estate, etc.) through HKHC, and capitalize on the volatility of its incentive fees by entering at low points.

Depth of Disclosure and Investor Protection Mechanisms

The continuation further reinforces Greenhaven Road's rigorous approach to disclosure, particularly across four dimensions: information completeness and reliability, index usage, net performance calculation, and legal compliance. These details not only reflect standard practices in the hedge fund industry but also reveal strategies to protect the firm from legal risk while conveying transparency to investors.

2. Index Usage: The Misleading Nature of Benchmarks and the Limitations of Comparisons

• Index as "Trend Reference" Rather Than Benchmark: The statement emphasizes that indices are used solely to illustrate "general market trends," not to imply that the fund's portfolio aligns with the index in composition or risk level. This aligns with practices at other funds (e.g., Renaissance Technologies), which often refuse to compare their performance directly to any index.
• Key Data Comparison: The table below shows the performance differences between the S&P 500 and Russell 2000 in 2023, illustrating why hedge funds often avoid benchmarking against a single index:

Index	2023 Total Return (Including Dividends)	Industry Concentration (Top 3 Sectors as % of Total)	Median Market Cap
S&P 500	26.2%	Technology (28%), Healthcare (13%), Financials (12%)	~$30 billion
Russell 2000	16.9%	Financials (18%), Healthcare (16%), Industrials (14%)	~$3 billion

• Implicit Risk: If the fund's performance lags the index, investors may question management skill; if it outperforms, "survivorship bias" concerns may arise. By explicitly stating that indices are "not investable and carry no fees," Greenhaven Road preemptively defuses the validity of such comparisons.

3. Net Performance Calculation: Differences Between Fee Assumptions and Actual Investor Returns

• Simplified Assumptions: Net performance is based on a "Day 1" investor, assuming a 0.75% management fee and 0% incentive allocation. In practice, however:
• Incentive Allocation: Most hedge funds charge a 20% performance fee (e.g., Citadel, Millennium). Greenhaven Road's 0% assumption here may represent a specific share class (e.g., "Class A"), not all investors.
• Timing Factors: The statement acknowledges that "investment timing and additional/redemption timing" can lead to individual performance differences. For example, an investor entering at the market low in March 2020 versus one entering at the high in 2021 could see annualized returns differ by over 10%, even holding the same fund.
• Audit and Internal Data: Fund returns are "audited annually," but some information is "internally compiled" to represent currently offered fee classes. This suggests the fund may operate multiple fee classes (e.g., 1.5% management fee + 20% incentive vs. 0.75% management fee + 0% incentive), and investors need to confirm their specific class.

4. Legal Compliance and Confidentiality: Constraints of the Regulatory Framework

• Limitations of SEC Registration: The statement explicitly notes that "SEC registration does not imply a certain level of skill or training." This aligns with industry consensus—registration only signifies compliance with basic requirements (e.g., Form ADV disclosure), not a certification of investment ability. For instance, SEC enforcement actions against several registered advisors in 2023 (e.g., for improper use of leverage) demonstrate that registration alone does not guarantee investor protection.
• Exemption from Fund Registration: The fund operates under exemptions from the Investment Company Act of 1940, typically relying on "3(c)(1)" or "3(c)(7)" provisions, which limit the number of investors (to no more than 100) or require qualified purchasers (with assets over $5 million). This explains why the fund does not publicly solicit.
• Confidentiality Clause: The material "may not be reproduced or distributed," a common practice for hedge funds to protect proprietary strategies (e.g., quantitative models, portfolio details). Violations could lead to legal action (e.g., Bridgewater's 2019 lawsuit against a former employee for leaking strategies).

5. Industry Comparison: Greenhaven Road's Disclosure Transparency

Compared to peers, Greenhaven Road's disclosure is at a moderate level:

Dimension	Greenhaven Road	Typical Hedge Fund (e.g., Citadel)	Private Equity Fund (e.g., Blackstone)
Performance Disclosure	Net performance with fee assumptions	Typically provides only gross returns	Provides IRR and MOIC
Index Usage	Explicitly not a benchmark	Often uses custom benchmarks	Rarely mentions indices
Legal Risk Statement	Comprehensive disclaimers	Similar but more concise	Emphasizes "non-public" more
Investor Restrictions	Not explicitly stated	Typically requires accredited investors	Requires qualified purchasers

Conclusion

Through precise legal language and assumption explanations, the continuation constructs an information-asymmetric but risk-controlled investor communication framework. While protecting itself from litigation, Greenhaven Road also signals to investors: "We have disclosed to the best of our ability, but the decision is yours." For potential investors, the key is to understand:

• Net performance may not reflect the actual fee structure;
• Index comparisons are for reference only;
• Information reliability depends on the fund's internal processes, not third-party verification.

This disclosure style is common among mature hedge funds, but novice investors may underestimate its implied complexity.