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Second Quarter 2021 Letter: Doubling Down

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Click here for a PDF version of the quarterly letter.

Dear GreenWood Investor:

“Some men see things as they are and ask, ‘Why?’ I dream things that never were and ask, ‘Why not?’” RFK

We are pleased to report another quarter of progress for us and our partner companies. However, we are so far from being satisfied that we’re doubling down on many of our efforts that we believe will lead to even more material progress in the quarters to come. Net of fees and expenses for all funds mentioned, our core Global Micro Fund was +14.8% in the quarter (+41.5% YTD). The euro-denominated Luxembourg fund returned +13.5% (+44.1% YTD). Meanwhile our Global Micro separate accounts returned +5.6% (+25.0% YTD) while our long-only Traditional accounts returned +8.1% (+25.0% YTD). This compares to benchmark MSCI ACWI returns of +7.2% (+12.7% YTD). Our Coinvestment fund delivered returns of +42.4% for the quarter (+94.5% YTD).

Performance during the quarter was primarily driven by CTT which contributed 10.0% to the fund, followed by Superdry and Vertiv which each contributed 3.5% and 1.9%, respectively. The remaining long and short positions were essentially a wash with only Liberty TripAdvisor (-1.7%), S4 Capital (+1.3%) and Peloton (+1.1%) adding or subtracting more than 100bps to fund performance. Rather than examine each position here, we’ve refreshed our portfolio 2-pager which explains what is happening at each company on our Portfolio page (investors-only). Although our short portfolio hurt performance in the quarter, it has added alpha this year.

We have maintained a fairly conservative posture through the entire year, with net exposure in the 55–70% range, and with very few of the cyclical factors that have driven most of the overall market performance this year. We have continued to work hard to evolve our short book, ensuring we effectively eliminate any chunky portfolio factor exposures. We aim to ensure each individual company’s evolution generates our returns. Using the framework articulated in prior letters, all of the returns year-to-date have been generated by companies graduating into more favorable behavioral narrative frameworks, or shorts deteriorating into more difficult narratives and conditions. We believe that our investments’ developments will drive continued evolutions and alpha.

Joining the board and working with the management team to transform CTT, a 500-year-old Portuguese company, into a growth company has been the honor of my career thus far. I’ve seen how much an entrepreneurial board partnered with a high-energy & ambitious management team can challenge industry assumptions and customs to create interesting and creative outcomes that many considered impossible just a year or two ago. Almost serendipitously, it also taught me where the over 6% of annual alpha that family and owner-managed businesses comes from: the dichotomy of asking “why?” and “why not?” at the same time.

I discussed a similar juxtaposition in a recent article I wrote called “The Psychology of Value Creation.” The Kennedy quote above also perfectly expresses a crucial value creation element that most board rooms without a founder miss. These “best practice” independent boards are very good at asking “why?” They work at reducing liability, minimizing risks and ensure that their company is following all the proper rules. And that’s an essential function. But what a founder, family, or entrepreneur adds to that dynamic is constantly ask, “why not?” That has been the hallmark of CTT’s strategic discussions. As most buy-side firms spend all waking hours trying to solve for puzzles and problems, that level of focus has been applied at the board level. I have seen the profound difference it has made over the past two years with world-class colleagues. Early transformation efforts from 2019 and 2020 are starting to bear fruit, but we believe the coming years will prove even more transformative.

I am confident the experience has also improved our investment process. As Warren Buffett has long explained, being a businessman makes him a better investor and being an investor makes him a better businessman. While we are clearly not stepping into an executive role, we take a very active role in exploring alternatives and possibilities at CTT. As I’ve come to find out, this is somewhat unusual for most other board rooms.

Over the quarter, I’ve been able to spend a few days with friends who are both investors of large portfolios and also managers of material businesses. They each expressed that most peers also find the combination odd, and that skeptics would prefer they focus on one or the other. I am certain the combination is a winning one, and have already seen the effects in our returns.

And so we are doubling down on these efforts. If you’re an investor reading this, you already know we have launched a second coinvestment initiative. But we are not taking resources away from CTT – in fact, we’re adding. In order to help us accelerate one of our most crucial playbook levers, we’ve partnered with a long-time friend & confidant of ours as a consultant. I sincerely hope that our collaboration will lead to a deeper and longer-term relationship.

While I have been busy working on additional constructivist efforts, I have been incredibly impressed by how much Chris and Kveta have continued to deliver. In record timing Kveta set up multiple legal entities for us, which allowed us to move as quickly as we believe the new coinvestment requires. Chris has been working seemingly non-stop in the months leading up his first child’s birth, and I’m happy to have vested more equity in GreenWood to him this summer. His skin in the game matches his soul in the game. We are also active in efforts to add more entrepreneurial team members, and if you have an interest, please let us know via the new Careers webpage that Chris put together.

The building of our investment firm and the provocation of transformations of soon-to-be-multiple businesses would not be possible without our founding investors. I’ve been searching for an opportunity to both thank you for helping us build GreenWood while also acknowledging the fact that you’ve been the ones handing us the hammers and the nails. After considering a few options, we’ve decided to proactively reduce our management fees for all existing investors as of July 1. As one investor said best, we want to remain hunters, not (asset) gatherers. The scale we’ve been able to achieve through organic performance has allowed us to continue expanding our firm and our efforts while also rewarding our founding investors. We’ll be in touch separately about what this means for each fund or account in the coming months, and we will continue look for opportunities to reward investors down the road as we reach new milestones.

We look forward to doubling down on our adventure capitalism together.

Committed to deliver,

Steven Wood, CFA


This article has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets. It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article. Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article. The author’s opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC.

Past performance is no guarantee of future results.

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