Kuroto Fund, L.P. - Q4 2014 Letter

Dear Partners and Friends,

PERFORMANCE & PORTFOLIO

Kuroto Fund decreased by -7.3% in the fourth quarter of 2014 and by -7.1% for the full year. By comparison, the MSCI Asia Pacific Index was down -1.4% in the fourth quarter and was up +0.5% for the year. The MSCI Emerging Markets Index fell -4.4% in the fourth quarter and was down -2.0% for the year.[1]

Overall, the losses in the portfolio accelerated meaningfully in the last two months of the year as oil prices collapsed and the U.S. dollar strengthened. Falling oil prices renewed the risk-off sentiment that negatively impacts emerging markets’ stock prices in the short term. It’s worth noting, though, that the overwhelming majority of Kuroto’s investments reside in countries that are net importers of oil. As such, should oil prices remain below previous levels, these countries will experience improved current accounts and lower inflation rates, which should benefit our companies over the longer term. We discussed the strength of the U.S. dollar in the previous letter and it continued to impact the portfolio in Q4. Early this year, we elected to hedge certain currencies where we didn’t have a strong view and the cost wasn’t prohibitive. 


As we discussed in the previous letter, two investments in particular were material detractors from the fund’s performance. One of the holdings, a marketing services company, derives just over half of its revenue from Russia, a country we’ve generally avoided investing in given our preference for benign macro and political environments. However, we believed the strength of the business, its management, and its growth opportunity combined with an already discounted valuation made the investment attractive despite its exposure to Russia. Unfortunately, the situation in Russia deteriorated more dramatically than we had initially expected it to, something which was further compounded by the decline in the oil price. We continue to think the positives of the investment outweigh the negatives of Russia. It’s worth noting that the company’s non-Russian business continues to perform well, and the company is selling for a not-unreasonable multiple of those non-Russian earnings. That being said, we continue to see plenty of value in the Russia business. The position is currently just over 3% of partners’ capital.


The other investment, a provider of temporary power, was hit by a combination of negative events including management turnover, the loss of its largest contract and the failure to win material new business. We had estimated our downside for the investment to be the company’s asset value considering the nature of its business. It now sells for a material discount to that figure. While we think the market has overreacted given the extent of the decline, we certainly overestimated the company’s ability to consistently win new business, and thus, earn an adequate return on its assets. We now consider it to be a good investment given its large discount to very real, saleable assets. Unfortunately, it had to decline dramatically in price to reach this attractiveness. In this case, we clearly failed to do what we do best: accurately estimate a company’s intrinsic value and assess its ability to generate high returns on capital on a consistent basis. The position is presently 5% of partners’ capital due to additional purchases followed by a recent increase in the stock price.


The largest single contributor to our decline on the year was from the fund’s ownership of Japanese government bond interest rate swaps. The position cost the fund 4.4% of partners’ capital on the year. The fund’s long-standing investment in these swaps was based on Japan’s over-indebtedness, fiscal deficits, and more recently, its inflation-targeting monetary policies, all of which, in the long run, are in tension with its very low interest rates. So far, Bank of Japan Governor Haruhiko Kuroda has been willing to let the yen depreciate significantly while keeping interest rates low in an attempt to reach the BoJ’s 2% inflation target. With its second round of stimulus announced last Halloween, the BoJ is now buying more than 100% of some tenors of the incremental issuances of government bonds.[2] The increased asset purchases are also targeting more longer-dated government bonds than the initial program. This has led to a decline in yield for the 30-year bond from 1.6% at the end of October to roughly 1.4% presently (with intervening rates below 1.1%, a rate not seen since the lows of 2003). Kuroto exited this position in November. While we remain skeptical about the sustainability of these policies and still believe the country’s ultra-low interest rates fail to reflect its underlying fundamentals, we will search for shorts that are more aligned with the fund’s expanded mandate.


The fund had positive performance in its Asian investments. India contributed 9.0% to partners’ capital for the year, and the fund’s other investments in Asia contributed 1.0%.


In the fourth quarter, we bought one new position in a Filipino consumer company which we have followed for some time. In addition, we added to several positions during the market sell-off in the quarter, particularly a holding in Vietnam, as well as Aramex, which is detailed in our top-five discussion below.

Top-Five Holdings

As a means of better illustrating our investment process to our partners, we disclose the fund’s top-five companies as of yearend. Since initiating this process in the Q2 2014 letter, three of the fund’s top-five positions have changed. This is due to the new opportunities available to the fund as Kuroto transitions from an Asia-only mandate to a global emerging markets mandate as well as a few company-specific issues. As noted at the time, we exited the fund’s holding in Goodpack as it was in the process of being taken private by KKR—a deal which has since been completed. In addition, we exited the fund’s holdings in Orica. While Orica successfully implemented its planned cost efficiencies and is trying to sell more value-added services, the weakness in the markets for coal and iron ore have forced it to pass on those benefits to their customers, thereby making it a less attractive investment. We also trimmed LG Household & Health preferred shares. The increase in valuation combined with the negative impact on earnings growth from the company’s non-cosmetics businesses have resulted in this being a less compelling investment.

Aramex

Aramex is a domestic and international express delivery company similar to FedEx or DHL. The company was co-founded in 1982 by Fadi Ghandour as a Middle Eastern wholesaler, focused on last-mile delivery for global companies like FedEx that didn’t operate in the region. The company’s reputable brand combined with the “network effect” inherent in its industry form a particularly durable barrier to entry. Aramex further differentiates itself through its ability to operate efficiently in the Middle East, its entrepreneurial culture, and its variable cost structure.


Aramex’s strong market share in its geographies constitutes a meaningful competitive advantage as the same basic cost structure is required to deliver one package or a thousand packages. This dynamic is best characterized as a classic “network effect.”  The company’s well-known brand is also an essential component of its continued success as shipments are often time-sensitive, high-priority items.


The Middle East’s various geopolitical and cultural issues create an additional barrier to entry for outsiders. Aramex is also a local company with local personnel. So it is better equipped to navigate the region’s issues. In addition, the Middle East is a geographically advantaged region. Positioned between Asia and Europe as well as Asia and Africa, a lot of trade destined for other places flows through the region and, thus, through Aramex. 


We also believe the company has a further growth opportunity in e-commerce. Internet access and, consequently, e-commerce are just now taking off in this region of the world. As this happens, Aramex will be delivering more and more online purchases to people’s homes. 


Aramex’s entrepreneurial culture and its flexible business model are further advantages. Local Aramex managers have a great deal of autonomy and a strong incentive to best serve their customers. As opposed to most of its global competitors, Aramex has a variable cost structure. For instance, it doesn’t own planes but instead contracts “belly” space from the airlines. The variable cost structure allows the company’s margins to expand when capacity usage is weak. It also allows Aramex to be loyal to its customers, not to its assets or infrastructure.


Finally, the company has a talented management team that is focused not only on preserving Aramex’s entrepreneurial culture and taking advantage of its growth opportunities but also on thoughtfully allocating capital. Management carefully weighs the tradeoffs between reinvesting in the business, making acquisitions, and returning capital to shareholders. With its high return on equity and discounted valuation of 12.1x estimated 2015 earnings, Aramex is emblematic of the high-quality, undervalued operating businesses that we seek to own in Kuroto.[4] 


Concepcion Industrial Corporation

Concepcion Industrial Corporation (CIC) manufactures and sells air conditioning, refrigeration and elevator products in the Philippines. More specifically, the company has joint ventures with United Technologies for the Carrier air conditioning and the Otis elevator businesses in the Philippines. Air conditioning is the company’s primary business; it was established in 1962 when the Concepcion family became a Carrier licensee. The company’s first-mover advantage in its air conditioning business allowed it to develop a strong brand and service network. We believe those attributes represent barriers to entry, which will allow CIC to capitalize on the growth potential in the country.


Carrier’s dominant market share in the Philippines is in part a result of its strong brand. The company was the first air conditioning brand in the Philippines and has been operating there for over 50 years. Throughout the country’s tumultuous history, many other brands have entered and exited the market but Carrier has been a consistent player over time. This has built up brand loyalty amongst Filipino consumers and allowed Carrier to charge a premium price for its products. Brand also matters in the country because air conditioning is a large investment relative to disposable income and it’s used intensely throughout the year given the hot climate. As such, brands with a reputation for reliability and quality matter. Carrier is CIC’s premium air conditioning brand and the majority of its air conditioning business. It also has the Kelvinator, Toshiba and Condura brands to compete at lower price points.


In addition to its brand advantage, CIC’s differentiation is furthered by its extensive installation and service network. It has over 2,000 technicians, partnerships with 170 installer companies, 130 service centers and 8 dedicated parts stores[5]. Although service is outsourced, the personnel are exclusive to CIC and branded with the Carrier logo. Air conditioning is something that’s difficult to go without once you have it, especially in a country with temperatures as warm as the Philippines. As such, the ability to get a unit repaired and serviced is critical to customers.


CIC has strong growth potential given the low penetration of air conditioning in a country where it could arguably be called a basic necessity. In addition, CIC has further growth opportunities in refrigeration and elevators, which are also underpenetrated in the Philippines. Management aims to double the company’s earnings from 2014 to 2016 and it currently trades at 16x its 2015 estimated earnings[6]. We are also excited about the company’s relationship with United Technologies. Finally, management is quite strong in not only managing the current business but also positioning it for the future. 


Ferreycorp

Ferreycorp, Caterpillar’s exclusive dealer in Peru since 1942, dominates the Peruvian market for mining and construction equipment. The company’s early entry into Peru and its adherence to the Caterpillar business model have led the company to develop a strong service network. We believe this network represents a sustainable competitive advantage which will allow Ferreycorp to profit from Peru’s high, long-term growth. 


Parts and service availability is critical in the mining and construction industries. Maximizing “uptime” is important to profitability since a single broken part can potentially shutter an entire operation. To this end, Ferreycorp has developed an unparalleled service network in Peru.


Ferrycorp’s service dominance is in large part due to its over 70 years of continuous operation in Peru. Its competitors, by comparison, have only been present in the country for a decade or two. As such, Ferreycorp’s service locations and personnel dwarf its closest competitor, Komatsu, and create a particularly strong advantage for the company in the more mountainous parts of Peru. Additionally, the company’s service network makes customers more likely to buy new equipment from Ferreycorp.


The company’s emphasis on service and parts availability follows Caterpillar’s “Seed, Grow, Harvest” business model: plant seeds by selling new equipment; grow the business by developing strong customer relationships; and harvest the profits by replacing parts and performing repairs. The resulting focus on service not only creates customer loyalty but also drives much of the company’s profitability. Parts and service invariably have much higher profitability than a new machine sale. These higher margins also provide insulation from the cyclicality typically associated with selling capital equipment and help generate the high-teens returns on capital necessary to fund the company’s long-term growth.


Ferreycorp clearly benefits from Caterpillar’s “partnership” approach to its distributors as well. Caterpillar recognizes that it benefits from having successful dealers. This enables Ferreycorp to earn high enough returns on capital to further invest in its business which generates more sales for both companies.


We also believe the company has a strong growth opportunity. Peru has 13% of the world’s copper reserves and is one of the lowest cost producers, which should insulate it from the recent weakness in the copper price.[7]  After two years of subpar mining investment, Peru is expected to nearly double its copper production over the next four years, which should result in meaningful new order growth for Ferreycorp.[8]  Despite the aforementioned advantages and growth opportunity, Ferreycorp sells for just 7x 2015 estimated earnings.[9]


HDFC[10] 

HDFC was founded in 1977 with the explicit purpose of enabling homeownership among Indian households, and singlehandedly brought the mortgage to India. Now, almost 40 years later, while the mortgage is no longer a novel concept in India, the market is still very underpenetrated with mortgages only constituting 9% of GDP. This has allowed HDFC to grow its loan book at 20% annually, a rate which should continue into the foreseeable future.


HDFC is uniquely positioned to not only grow its loan book quickly but do so very profitably – with returns on equity in excess of 20%. As a non-bank finance company with an AAA credit rating, HDFC’s term funding has a similar cost to banks, yet it has much lower operating costs than a bank because its branches are specifically targeted towards mortgage lending. HDFC’s assets per employee have quadrupled over the past 15 years, which evidences the efficiency of its branch network. This efficiency has caused the company’s cost-to-income ratio to almost halve, to an extremely low rate of 7.9%. At the same time, HDFC maintains a tight control on risk. Cumulative losses-to-disbursements are only 4 basis points. In addition to its mortgage lending business, HDFC also provides corporate and developer lending, a business which has proven difficult for its competitors. All of these factors combine to allow HDFC to generate high returns on capital while offering a reasonable and competitive offering to its customers. 


HDFC has also diversified its business by sponsoring a bank in 1994, which is now one of the most profitable and well-regarded franchises in India. Separately, its stake in HDFC Standard Life, into which it has contributed 14.4 billion rupees since its founding in 2000, is now worth roughly 10 times the company’s initial investment.[11] Other ventures, including general insurance and asset management, have been similarly successful.


HDFC is currently trading at 14.5x our estimate of the parent company’s March 2016 earnings. We are comfortable maintaining this as a large position at these valuation levels given the combination of the company’s quality and long-term growth prospects.


Larsen & Toubro

Larsen & Toubro (L&T) is an engineering, procurement and construction (EPC) firm based in India. The company can design and build everything from power plants to toll roads to ports and even nuclear submarines. L&T is differentiated through its culture, reputation and vertical integration. These attributes allow the company to have superior project execution and, therefore, should enable it to capitalize on the sizable infrastructure development opportunity within India.


Two Danish engineers founded L&T in the 1930s. As such, it has always been professionally managed, something which is unique among Indian corporations, which are typically family owned and operated. Professional management has allowed L&T to attract high-quality talent in what is very much a people business. Unlike most companies in India, a young engineer can join the company after graduating from college and potentially one day become its CEO. L&T’s professionalization has also enabled it to develop a strong corporate culture that emphasizes quality and honesty. All of this matters in an industry where completing a project on-time and at-cost is a customer’s key objective. India is a difficult place to do business and customers are often willing to pay a premium for L&T services. 


The company is further able to differentiate itself through its vertical integration. Unlike most EPC businesses, L&T manufactures, constructs, and installs a lot of what it designs. India does not have a well-developed supplier base and labor is difficult to manage in the country. The company does a lot of manufacturing and fabrication, making things such as boilers, turbines and power equipment. As an example, L&T has nearly 55,000 employees while Samsung Engineering—a similar-sized company—has just 8,500.[12] The company has said that most EPC companies outsource a majority of a project while L&T insources most of it. Being vertically integrated again allows L&T to finish projects on-time and at-cost, thus enabling it to have superior execution versus its competitors.


The company’s exceptional management team has also allowed it to identify new areas of growth and participate in a variety of business verticals. Management describes L&T as “builders to the nation.” While infrastructure projects comprise the vast majority of L&T’s business, the company is pursuing opportunities in defense, realty, and nuclear power plants among other things.


Excluding the values of its subsidiaries, we estimate that L&T’s core EPC business sells for 15.9x its 2015 estimated earnings. We believe the company’s EPC earnings have the potential to grow meaningfully over the next few years as long as India’s new government restarts the country’s investment cycle. For reference, excluding L&T, EPC orders in India have declined by 44% since 2010.[13] Furthermore, the country’s annualized gross fixed capital formation (GFCF) to nominal GDP ratio has fallen from a peak of 33.3% in Q3 2008 to a nine-year low of 28.3% in Q1 2014 and Q2 2014.[14]



Sincerely,


Andrew Ewert

Sean Fieler                   

Daniel Gittes

William W. Strong 

ENDNOTES

[1] Performance contribution as stated uses the fund’s dollar-weighted gross internal rate of return calculations derived from average capital and sector P&L. Sector performance figures are derived using monthly performance contribution calculations in US dollars, gross of all fees and fund expenses. Interest rate swaps are included in Fixed Income. Yen puts are netted against long contribution in Asia (ex-India) sector. P&L on bullion, cash, and currency forwards are excluded from the table.


[2] Based on October 31, 2014 Bank of Japan memorandum, “Outline of Outright Purchases of Japanese Government Bonds.”


[3] Valuations as of 1.13.2015. Top holdings as of 12.31.14. Estimates derived from internal models. L&T and HDFC: parent company PE and ROE adjusted for subsidiaries.  Compound annual return based on monthly gross IRR.


[4] Metrics derived from internal proprietary company model and based on 2015 estimated earnings.


[5] 2014 Company presentation.


[6] Company presentations.


[7] Wood Mackenzie.


[8] Peruvian Ministry of Energy and Mining.


[9] Valuations derived from internal models.


[10] All data presented from company presentation.


[11] Based on December, 2014 third party investment in HDFC insurance business. 


[12] From respective company presentations.


[13] Source: Axis Capital.


[14] Source: CEIC Data, Ministry of Statistics and Program Implementation.

Precious Metals Fund - Q3 2025 Letter

By Kieran Brennan • October 31, 2025
Dear Partners and Friends, PERFORMANCE Equinox Partners Precious Metals Fund, L.P. rose +36.2% in the third quarter of 2025 and is up +90.2% for the year-to-date 2025. By comparison, the Junior Gold Mining Index GDXJ rose +46.6% in the quarter and is up +132.7% for the year-to-date. Exploration stage companies were the best performing segment of the portfolio, appreciating +55.0% in the quarter. The spot gold price rose +18% in the quarter and is up +47% for the year-to-date. The letter that follows provides our thoughts on the outlook for the gold price and implications for the portfolio holdings. gold The gold bull market, initially driven by central bank buying, has evolved into an investor-driven dollar debasement trade. This second phase of the gold bull market is more explosive than the first because it draws on the approximately $470 trillion of the world’s wealth as opposed to the roughly $35 trillion of central bank balance sheets. If President Trump fans the dollar debasement fire by forcing a politicized Fed to cut rates, gold could rapidly displace the dollar as the world’s reserve currency. However, if President Trump takes a more nuanced approach to the Fed, gold should still displace the dollar as the world’s reserve currency over time with the competition between gold and the dollar taking longer to play out. Gold investors warning about fiat currency debasement is nothing new. That, after all, is why gold investors own gold in the first place. There’s also nothing new about most American investors ignoring these warnings. The dollar’s relative stability has long made concerns about dollar debasement appear quixotic. Since the early 1980’s, American inflation has been largely tolerable, the dollar has outperformed almost all other fiat currencies, and U.S. government bonds have been the safest asset to own in an economic downturn. The dollar has sloughed off so much criticism for so long that Janet Yellen likely did not imagine the chain of events that freezing Russia’s foreign exchange reserves would set into motion. With confidence in the dollar’s inertia and a bit of hubris, in our opinion, Secretary Yellen engineered the freezing of $300 billion of Russia’s foreign exchange reserves and put the world’s central banks on notice that their use of dollar reserves depends upon the tacit approval of the U.S. Treasury. Foreign governments, shocked by this policy change, sought to reduce their dependence on the U.S. Treasury and doubled their gold purchases to roughly $60-80 billion per year (potentially $100 billion in 2025). This increase in central bank gold demand drove the gold price up over +50% from March 2022 to March 2025. This bull market, in turn, gave gold the additional scale necessary to function as a more viable alternative to the dollar and damaged the dollar’s air of invulnerability. This two-fold outcome is problematic because inertia and a lack of alternatives were fundamental to the dollar’s stability. On the back of gold’s appreciation, long-ignored arguments of gold investors began sounding more plausible. Financial professionals accustomed to deriding gold investors and referring to them as insects began to worry that gold’s price action is telling them something important. Jamie Dimon aptly summed up the change of heart: “This is one of those times where it is semi-rational to own gold.” His comment captures both his continued distaste for gold and his willingness to own it. Despite the broadening acceptance of gold as an investment, markets remain skeptical of the underlying dollar-devaluation narrative. Inflation, a broad measure of the dollar’s strength, is just 2.8%. The 10-year U.S. Treasury yields 4.0%, indicating the bond market’s indifference to the dollar debasement narrative. Furthermore, the decline in the trade weighted dollar has partially reversed since early July. At this moment, the dollar debasement trade appears to be waiting for additional macroeconomic and geopolitical events to play out. Of these, none looms larger than President Trump’s effort to bend the Federal Reserve to his will. In January, the Supreme Court will likely allow President Trump to remove Federal Reserve Board Governor Lisa Cook, making the selection of the next Fed Chair even more important. If Trump nominates a loyalist like Kevin Hassett who appears more committed to pleasing the President than price stability, we could see broadening concern about the dollar’s store of value and a growing asset allocation into gold. In this hyper-politicized Fed scenario, gold could quickly become a $100 trillion dollar asset and displace the dollar as the world’s reserve currency. However, if Trump nominates an institutionalist like Chris Waller, the dollar debasement trade will likely remain in limbo for a while as markets suss out how much control Trump really has over the Fed. Either way, the U.S. bond market will not be allowed to freely adjudicate the outcome at the Fed. We expect both Treasury and Fed to proactively manage the yield curve during the particularly politically sensitive period when the Fed is cutting rates while inflation is above their stated 2% target. Treasury will keep longer-dated bond issuance to a minimum while coercing banks to keep the Treasury market well bid. JP Morgan increased its holdings of Treasuries by $80 billion in the first half of this year, and we expect other banks to follow suit. The Fed, for its part, has announced an end to quantitative tightening and its intention to shift its balance sheet from mortgage-backed securities to Treasuries. Given the likely extent of the coordinated intervention of the Treasury and Fed, the bond market will not be a good indicator of the market’s confidence in Trump’s economic policies. Gold will be. To the extent that investors sense that the bond market is not providing a reliable price signal, they will begin paying more attention to gold. And, should the gold price becomes the accepted indicator of U.S. financial health, the Trump administration will take action to influence it. At the very least, this will entail the Trump administration encouraging other central banks to stop buying gold or even sell gold. But the anti-gold policy options are limitless. Needless to say, the U.S. government pushback on gold will not solve the dollar’s long-term structural problems. Nor will it mark the end of gold’s challenge to the dollar. It will simply mark the next phase of financial repression. Our Gold Mines The second phase of the bull market in gold has been broadly positive for our portfolio, as a portion of the investor money flowing into gold has bid up gold mining equities as well. Where central banks buy the physical gold bullion, private wealth investors allocating to gold will also buy gold mining stocks. The GDXJ Junior Mining Index is up +132.7% for the year-to-date through September 30. Even with this year’s rapid rise in the gold mining portfolio, valuations remain cheap at spot gold prices. Our in-production portfolio trades at a 24.0% IRR as compared to a 23.4% IRR on March 31. The most dramatic mis-valuation among our gold miners continues to be in the pre-production companies. While these equities have appreciated more rapidly than our producing companies for the year-to-date 2025, they began from such a low valuation that even at twice or three times their January price, they are still undervalued. Troilus Gold, a junior gold mining company with an 11.2 million ounces gold-equivalent resource in Quebec, Canada, is a case in point. Troilus Gold shares have more than tripled in 2025, rising from C$0.31 to C$1.35 per share. The company still trades at an IRR of 30%, 0.2x price-to-NAV (using a 10% discount rate), and a price per ounce of recoverable gold of $63. When Troilus goes into commercial production in 2029, we expect it will generate annual net income roughly equal to its current market cap. Troilus historically traded at an extremely low valuation because the market did not believe that the company could finance the project's upfront capital expenditure of $1.3 billion. Throughout 2025, Troilus began addressing these financing concerns by signing an offtake agreement with a European smelter and a related letter of intent for $700 million of debt financing on attractive terms. If Troilus Gold raises the necessary equity and signs a streaming arrangement to fully fund the mine’s construction, we believe the stock will trade much closer to its NAV (using a 10% discount rate and the spot gold price) of $2.5 billion.

Equinox Partners, L.P. - Q3 2025 Letter

By Kieran Brennan • October 30, 2025
Dear Partners and Friends, PERFORMANCE Equinox Partners, L.P. rose +24.5% net of fees in the third quarter and is up +54.4% for the year-to-date 2025. By comparison, the S&P 500 index rose +8.1% in the third quarter and is now up +14.8% for the year-to-date 2025. Our quarterly performance has been almost exclusively driven by our gold and silver miners. In the third quarter, the spot gold price rose +18%, and the fund’s mining portfolio returned +40%. As of this writing, 78% of Equinox Partners’ capital is invested in the gold and silver sector. The letter that follows provides our thoughts on the gold price and our gold mining holdings. Gold The gold bull market, which was initiated by central bank buying, has evolved into an investor-driven dollar debasement trade. This second phase of the gold bull market is more explosive than the first because it draws on the approximately $470 trillion of the world’s wealth as opposed to the roughly $35 trillion of central bank balance sheets. If President Trump fans the dollar debasement fire by forcing a politicized Fed to cut rates, gold could rapidly displace the dollar as the world’s reserve currency. However, if President Trump takes a more nuanced approach to the Fed, gold should still displace the dollar as the world’s reserve currency over time with the competition between gold and the dollar taking longer to play out. Gold investors warning about fiat currency debasement is nothing new. That, after all, is why gold investors own gold in the first place. There’s also nothing new about most American investors ignoring these warnings. The dollar’s relative stability has long made concerns about dollar debasement appear quixotic. Since the early 1980’s, American inflation has been largely tolerable, the dollar has outperformed almost all other fiat currencies, and U.S. government bonds have been the safest asset to own in an economic downturn. The dollar has sloughed off so much criticism for so long that Janet Yellen likely did not imagine the chain of events that freezing Russia’s foreign exchange reserves would set into motion. With confidence in the dollar’s inertia and a bit of hubris in our opinion, Secretary Yellen engineered the freezing of $300 billion of Russia’s foreign exchange reserves and put the world’s central banks on notice that their use of dollar reserves depends upon the tacit approval of the U.S. Treasury. Foreign governments shocked by this policy change sought to reduce their dependence on the U.S. Treasury and doubled their gold purchases to roughly $60-80 billion per year (potentially $100 billion in 2025). This increase in central bank gold demand drove the gold price up over +50% from March 2022 to March 2025. This bull market in turn gave gold the additional scale necessary to function as a more viable alternative to the dollar and damaged the dollar’s air of invulnerability. This two-fold outcome is problematic because inertia and a lack of alternatives were fundamental to the dollar’s stability. On the back of gold’s appreciation, long-ignored arguments of gold investors began sounding more plausible. Financial professionals accustomed to deriding gold investors and referring to them as insects began to worry that gold’s price action is telling them something important. Jamie Dimon aptly summed up the change of heart: “This is one of those times where it is semi-rational to own gold.” His comment captures both his continued distaste for gold and his willingness to own it. Despite the broadening acceptance of gold as an investment, markets remain skeptical of the underlying dollar-devaluation narrative. Inflation, a broad measure of the dollar’s strength, is just 2.8%. The 10-year U.S. Treasury yields 4.0%, indicating the bond market’s indifference to the dollar debasement narrative. Furthermore, the decline in the trade weighted dollar has partially reversed since early July. At this moment, the dollar debasement trade appears to be waiting for additional macroeconomic and geopolitical events to play out. Of these, none looms larger than President Trump’s effort to bend the Federal Reserve to his will. In January, the Supreme Court will likely allow President Trump to remove Federal Reserve Board Governor Lisa Cook, making the selection of the next Fed Chair even more important. If Trump nominates a loyalist like Kevin Hassett who appears more committed to pleasing the President than price stability, we could see broadening concern about the dollar’s store of value and a growing asset allocation into gold. In this hyper-politicized Fed scenario, gold could quickly become a $100 trillion dollar asset and displace the dollar as the world’s reserve currency. However, if Trump nominates an institutionalist like Chris Waller, the dollar debasement trade will likely remain in limbo for a while as markets suss out how much control Trump really has over the Fed. Either way, the U.S. bond market will not be allowed to freely adjudicate the outcome at the Fed. We expect both Treasury and Fed to proactively manage the yield curve during the particularly politically sensitive period when the Fed is cutting rates while inflation is above their stated 2% target. Treasury will keep longer-dated bond issuance to a minimum while coercing banks to keep the Treasury market well bid. JP Morgan increased its holdings of Treasuries by $80 billion in the first half of this year, and we expect other banks to follow suit. The Fed, for its part, has announced an end to quantitative tightening and its intention to shift its balance sheet from mortgage-backed securities to Treasuries. Given the likely extent of the coordinated intervention of the Treasury and Fed, the bond market will not be a good indicator of the market’s confidence in Trump’s economic policies. Gold will be. To the extent that investors sense that the bond market is not providing a reliable price signal, they will begin paying more attention to gold. And, should the gold price becomes the accepted indicator of U.S. financial health, the Trump administration will take action to influence it. At the very least, this will entail the Trump administration encouraging other central banks to stop buying gold or even sell gold. But the anti-gold policy options are limitless. Needless to say, the U.S. government pushback on gold will not solve the dollar’s long-term structural problems. Nor will it mark the end of gold’s challenge to the dollar. It will simply mark the next phase of financial repression. Our Gold Mines The second phase of the bull market in gold has been broadly positive for our portfolio, as a portion of the investor money flowing into gold has bid up gold mining equities as well. Where central banks buy the physical gold bullion, private wealth investors allocating to gold will also buy gold mining stocks. The GDXJ Junior Mining Index is up +131% for the year-to-date through September 30. Even with this year’s rapid rise in the gold mining portfolio, valuations remain cheap at spot gold prices. Our in-production portfolio trades at a 24% IRR as compared to a 25% IRR on March 31. The most dramatic mis-valuation among our gold miners continues to be in the pre-production companies. While these equities have appreciated more rapidly than our producing companies for the year-to-date 2025, they began from such a low valuation that even at twice or three times their January price, they are still undervalued. Troilus Gold, a junior gold mining company with an 11.2 million ounces gold-equivalent resource in Quebec, Canada, is a case in point. Troilus Gold shares have more than tripled in 2025, rising from C$0.31 to C$1.35 per share. The company still trades at an IRR of 30%, 0.2X its NAV (using a 10% discount rate), and a price per ounce of recoverable gold of $63. When Troilus goes into commercial production in 2029, we expect it will generate annual net income roughly equal to its current market cap. Troilus historically traded at an extremely low valuation because the market did not believe that the company could finance the project's upfront capital expenditure of $1.3 billion. Throughout 2025, Troilus began addressing these financing concerns by signing an offtake agreement with a European smelter and a related letter of intent for $700 million of debt financing on attractive terms. If Troilus Gold raises the necessary equity and signs a streaming arrangement to fully fund the mine’s construction, we believe the stock will trade much closer to its NAV (using a 10% discount rate and the spot gold price) of $2.5 billion. New Board Seat at Gran Tierra Energy On September 30, portfolio company Gran Tierra Energy announced that Brad Virbitsky has joined the board on behalf of Equinox Partners. While it is a relatively modest-sized position in the fund, we believe there is significant value to unlock, and we can help realize that value through our participation in the boardroom.

Kuroto Fund Wins 2025 HFM US Global Equity Award

By Kieran Brennan • October 30, 2025
Kuroto Fund Wins HFM 2025 US Performance Award

Kuroto Fund, L.P. - Q3 2025 Letter

By Kieran Brennan • October 30, 2025
Dear Partners and Friends, PERFORMANCE Kuroto Fund, L.P. appreciated +16.6% in the third quarter and is up +51.6% year-to-date 2025. By comparison, the broad MSCI Emerging Markets Index rose +11.0% in the third quarter and is up +28.2% for the year-to-date. Performance in the quarter was driven primarily by our investments in Nigeria, with additional strong contribution from our largest position, MTN Ghana. A breakdown of Kuroto Fund exposures can be found here . Portfolio Changes During the third quarter, we initiated a position in Solidcore Resources, a company described in our February webinar . Solidcore is similar to the oil companies we profiled in our Q2 2025 letter in that it is a competitively advantaged commodity producer. The company’s main asset is a long-lived and low-cost mine, the management team is among the best in the region, and the infrastructure they are building will make them a natural consolidator of regional assets. Given the subsequent increase in commodity prices, we ended up purchasing the bulk of our position at a 40%+ free cash flow yield. Solidcore is now a top 5 position in the fund. We funded our purchase of Solidcore by reducing our Georgia Capital position weighting from 17% to 11% and by selling our stake in a Greek consumer-focused business. In the case of Georgia Capital, while the discount to the sum of the parts value decreased from 50% to a more reasonable 30%, we still see it as a compelling investment opportunity. Georgia Capital’s portfolio of oligopolistic businesses is growing earnings double digits, buying back stock, and trading at a single digit, look-through price-to-earnings multiple. The sale of our Greek investment was driven by stock appreciation combined with a management change that led us to re-underwrite our investment. GHANAIAN AND NIGERIAN MACRO Over the past decade, Nigeria and Ghana have endured a seemingly unending series of self-inflicted macro problems. Inflation increased to over 30% in both countries, and the currencies depreciated 64% and 79%, respectively. Ghana defaulted on its domestic and foreign debt in 2023, and Nigeria imposed onerous capital controls for multiple years. However, 2025 has been a turning point for both countries. For the first time in over a decade, investors in these markets are experiencing macroeconomic tailwinds. In Ghana, since the beginning of the year, the currency has appreciated 43% vs. the U.S. dollar, GDP growth averaged over 6%, the budget has been in primary surplus, inflation declined from 24% to 9%, and debt to GDP declined from 62% to 43%. Ghana’s macro environment has improved due to three factors: One, Ghana’s debt restructuring is mostly finished, and the country now has a much smaller interest expense burden, which should decline further as the central bank lowers rates to be more in line with the decline in inflation. Two, the new government which assumed power in January has cut spending 14% in real terms. Three, the country has been helped by the large increase in the gold price, which is both the country’s largest export and a significant component of Ghanaian central bank reserves. Ghana now has 4.8 months of import cover, half of which is held in gold bullion. Whether Ghana can maintain this strong start to the year is an open question, but the fundamentals are certainly in a better place than they have been in the past decade. In Nigeria, President Tinubu’s bold reforms upon taking office are finally starting to have some effect. In 2023, Tinubu eliminated the local fuel subsidy which consumed about 40% of the government’s annual revenues, floated the currency which resulted in a 68% depreciation, forced a recapitalization of the banking sector, and removed the board of the notoriously corrupt national oil company and replaced them with technocrats who formerly worked at companies like Exxon and Shell. While not perfect, the scale of the reforms is impressive by any standard. A year later, inflation has fallen from over 30% to the high teens and is expected to fall to single digits next year. Economic growth has increased from less than 3% to over 4%. Oil production is up more than 10% and oil theft is down 90%. Importantly, the exchange rate has been stable for a year and anecdotally, we are hearing that conditions on the ground are night and day different, businesses are looking to invest, and banks are willing to lend. We initially invested in Ghana and Nigeria in 2018 with the expectation that both countries would eventually adopt a sane set of macroeconomic policies. While it took longer than we expected, sane policy is gaining traction in both countries, and our superior companies are getting re-rated to more sensible, albeit still very cheap, valuations. In Ghana, our main investment has been in MTN Ghana, which has compounded at approximately 25% in U.S. dollar terms since 2018 despite all the on-the-ground challenges. The stock’s historical return understates our investment performance because we increased our weighting at opportune times. The total contribution to our P&L has been +$17.7 million over that time frame, resulting in a +24.9% cumulative contribution to fund returns. Our Nigerian investment results have also been strong. While our initial entry was poorly timed, we added counter-cyclically, and as a result have generated +$9 million of P&L, contributing a cumulative +15.0% to the fund’s return. Our experience in both markets underscores the importance of our investment strategy of looking at out-of-favor markets to find competitively advantaged, well-run businesses at unusually cheap valuations. NEW BOARD SEAT AT GRAN TIERRA ENERGY On September 30th, portfolio company Gran Tierra Energy announced that Brad Virbitsky has joined its board on our behalf. While it’s a relatively modest position size in the fund, we believe there is significant value to unlock and we can contribute to that process through our participation in the boardroom. Sincerely, Sean Fieler & Brad Virbitsky

Precious Metals Fund - Q2 2025 Letter

By Kieran Brennan • August 1, 2025
Dear Partners and Friends, PERFORMANCE Equinox Partners Precious Metals Fund, L.P. rose +13.2% in the second quarter of 2025 and is up +39.7% for the first half of 2025. By comparison, the Junior Gold Mining Index GDXJ rose +18.7% in the quarter and is up +58.7% for the first half of the year. Our meaningful year-to-date underperformance relative to the GDXJ reflects the continued discount at which our companies trade compared to peers. Specifically, our portfolio of producing companies trades at an average internal rate of return (IRR) of 24%, roughly double the 11.5% IRR of the broad universe of gold miners that BMO covers. the gold mining bull market is young The skepticism that characterizes the gold mining sector stands in sharp contrast to the enthusiasm in the broader stock market. The animal spirits that have propelled popular stocks like Wingstop and Robinhood to an average of nearly 80 times 2025 earnings remain totally absent among gold mining investors. One indication of the sober mood that dominates the gold mining sector is the use of gold price assumptions below spot in net asset value (NAV) calculations. Looking at four important sell-side houses for the sector, their models include an average long-term price assumption of $2,400 per ounce, representing a 28% discount to the quarter-end spot price. 

Equinox Partners, L.P. - Q2 2025 Letter

By Kieran Brennan • July 24, 2025
Dear Partners and Friends, PERFORMANCE Equinox Partners, L.P. rose Equinox Partners, L.P. rose +11.6% net of fees in the second quarter and is up +24.1% for the year-to-date 2025. By comparison, the S&P 500 index rebounded +10.9% in the second quarter and is now up +6.2% for the year-to-date 2025. Our portfolio has performed well across the board this year, with our gold miners, oil and gas producers, and emerging market businesses all appreciating. We were particularly gratified by the long-overdue outperformance of several of our earlier stage gold companies in the first half of this year. With markets and complacency on the rise, we think it prudent to address the non-negligible risk of an economic downturn. Beware the Next Recession 

Kuroto Fund, L.P. - Q2 2025 Letter

By Kieran Brennan • July 23, 2025
Dear Partners and Friends, PERFORMANCE Kuroto Fund, L.P. appreciated +21.3% in the second quarter and is up +30.1% for the first half of 2025. By comparison, the broad MSCI Emerging Markets Index rose +12% in the second quarter and is up +15.3% for the first half of 2025. Key performance drivers for the fund have been our large position in MTN Ghana, as well as the strong returns from our holdings in Nigeria and the Republic of Georgia. A breakdown of Kuroto Fund exposures can be found here . Despite Kuroto Fund’s outperformance in the first half of the year, our portfolio remains very attractively valued. Given the diversity of business models we own, it is difficult to find metrics that provide an accurate picture of the value and quality of our portfolio in the aggregate. In the absence of an alternative, our portfolio’s weighted average price-to-earnings multiple of 7.3x 2025 earnings, dividend yield of 5.2% and ROE of 24.7% will have to do.

Precious Metals Fund - Q1 2025 Letter

By Dan Donohue • May 1, 2025
Dear Partners and Friends, PERFORMANCE Equinox Partners Precious Metals Fund, L.P. rose +23.4% in the first quarter of 2025. Over the same period the price of gold rose +18.9%. The fund’s performance was driven by strong returns from both the producing and exploration stage companies as gold crossed $3,000 per ounce. Trump's New Economic Policy Trump’s New Economic Policy has roiled markets and bolstered investor gold buying globally. While the violent market gyrations remain a focus for our team, we have also been thinking through the long-term effects of Trump’s policies. In this latter endeavor, Nixon’s 1971 New Economic Policy has proven an invaluable guide. The policy similarities between Nixon’s first term and Trump’s second are striking. Both presidents declared emergencies, raised tariffs, cut spending, reduced foreign aid, blamed foreigners, devalued the dollar , proposed tax cuts, attacked the Federal Reserve chair, and directly managed consumer prices. There are, of course, also meaningful differences. Most notably, Trump has raised tariffs more, devalued the dollar less, and has not imposed formal wage and price controls. Nevertheless, the policy resonance is striking.

Kuroto Fund, L.P. - Q1 2025 Letter

By Kieran Brennan • April 30, 2025
Dear Partners and Friends, PERFORMANCE Kuroto Fund, L.P. appreciated +7.3% in the first quarter of 2025, while the broad MSCI Emerging Markets index rose +3.0%. Kuroto performance for the quarter was driven primarily by the strong performance of our operating companies in Georgia and Ghana. A breakdown of Kuroto Fund exposures can be found here . Returning to Brazil Though the Kuroto Fund didn’t invest outside of Asia until 2014, as a firm we began investing in Brazil in the late 1990s and made our first sizable investment there in 2004. We have followed the market ever since. Given our love for the country of Brazil and admiration for many of the companies there, it has been challenging for us to remain mostly absent from Brazilian capital markets for the past decade. We stayed away for a variety of reasons, but primarily because we didn’t like the valuations on offer. So it is with more than a bit of enthusiasm that we were able to make two substantial investments in Brazil this January, taking our portfolio weighting in the country from 0% to 10%. Brazil remains a macroeconomic and political adventure, but today’s valuations are incredibly attractive. The Brazilian stock market is down over 40% in US dollars over the past 14 years. 
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