Investor letter, July 2026

Compass Diversified (CODI) is framed as a special situation that is "a dollar purchased for thirty cents or a value trap." With seven businesses, prior fraud at one subsidiary, a renegotiated management fee, and ongoing asset sales to meet debt covenants, the author sees a credible path—bolstered by activist pressure and low insider ownership (<10%)—to internalize management, sell assets, and repurchase shares below fair value, potentially producing a near-term multi-bagger.

“Compass Diversified (CODI) — This special situation will prove to be either a dollar purchased for thirty cents or a value trap that enriches their managers. Compass Diversified is a holding company with seven businesses. It previously had eight, but fraud at one subsidiary damaged the balance sheet and required a financial restatement. An activist investor has advocated selling all the businesses. On paper, the logic is compelling: the holdings are likely worth multiples of the $10 share price. Applying reasonable multiples to the underlying businesses yields $30+ in asset values. The primary barriers to selling the underlying businesses and returning the cash to shareholders are the board and, more importantly, the “external manager,” which is paid a fee for running the business. The external manager also receives a share of the profits above a hurdle rate. The external manager’s incentives have been to make Compass Diversified as large as possible, maximizing management fees and the potential incentive fee. Following activist pressure, the board has secured a renegotiated management fee, and the company is selling one or more assets to meet its debt covenants. Both are steps in the right direction. Given the ownership dynamics—insiders own less than 10%—the large discount to fair value (70%), and the fraud that occurred under the management company’s watch, there is a credible path to replacing board members if necessary, internalizing management, selling assets, and buying back shares. If executed in the right sequence, this is a share cannibal in waiting. With shares repurchased well below fair value, this could produce a near-term multi-bagger.”

Liquidia (LQDA) is a special-situation patent-dispute investment that was purchased below the author's estimate of post-adverse-verdict value. The shares appreciated more than 30% before the verdict, so the fund realized a short-term gain and plans to revisit the investment after the decision; no explicit forward stance is stated.

“Liquidia (LQDA) — This is another special situation. The company has launched a successful drug but remains in a patent dispute that will determine how large their market can be. We purchased shares below where I believed they would settle even after an adverse trial outcome. The shares appreciated more than 30% before a verdict, so we realized a short-term gain and will revisit the investment after the decision.”