TEMP - Massif Capital Q4 2023 Letter To Investors

2024-02-14 23:15:00 ET

Summary

• Massif Capital employs a long/short equity strategy focused on global opportunities in listed real assets, principally mining, energy, and infrastructure.
• Massif Capital finished the year up in the long book (gross of fees) but not by a meaningful amount, and down in the short book.
• As we start 2024, it seems prudent to remind investors of the changes we made so that 2024 short returns can be appropriately evaluated going forward.
• Renewables and EVs are now beaten down and out of favor - many long-time detractors are now taking unwarranted victorylaps as if a changein the narrative is some kind of triumph worth celebrating.

Dear Investors,

2023 was a challenging year; as one can see in the table below, there was a lot of volatility in both long and short books. In the end, we finished the year up in the long book (gross of fees) but not by a meaningful amount, and down in the short book. We have written about short book challenges extensively in the past twelve months, and despite the short book being down in the 4th quarter, we believe we have made significant progress in improving our process and the quality of the short book's investments. As we start 2024, it seems prudent to remind investors of the changes we made so that 2024 short returns can be appropriately evaluated going forward.

The 2023 year for the short book started in the 4th quarter of 2022 when we added several ill-timed shorts. At that time, we had maintained a roughly 1% per annum gain from the short book, which is not particularly impressive but was consistent and helped smooth the return stream. The growth in the short book in the 4th quarter of 2023 was driven by additions of shorts to reduce our net exposure despite an opportunity set that was not sufficiently robust to justify the number of shorts we added. The effort was partly driven by career/business concerns, with various institutional investors pushing us to reduce our net despite our inability to find shorts that justified the level of short exposure.

We have unwound those shorts and rededicated ourselves to managing the portfolio free of business concerns and adding positions solely based on their standalone potential. We also found ourselves out of step with the market when we added the shorts to the book. Short positions, unlike long, are rarely positions that benefit from time. Going long always has a significant time arbitrage element; the short-term price movement creates an opportunity even if one suffers from short- term volatility. Due to the nature of shorting and the tendency of markets to rise over time, time is not on your side (typically) when it comes to shorting. Last year's 3rd quarter short book demonstrates this well; most of the returns were generated from positions entered in the 2nd/3rd quarter and exited in the 3rd quarter. We shorted with the wind at our backs and got out....

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