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Expensive Associate:
Arquitos returned 29.6% web of charges within the second quarter of 2025, bringing the year-to-date return to 66.8%. Particular person returns will differ based mostly on timing of funding. Please examine your assertion for particular outcomes. See web page 5 for extra detailed efficiency info.
I’ve all the time tried to take a position on an absolute foundation quite than a relative one. Over the long run, my purpose is to generate sturdy, optimistic efficiency no matter what the broader markets are doing. If markets decline, my goal isn’t merely to lose much less, it’s to make cash.
That stated, you will need to take into consideration alternative price in your allocations the identical means I take into consideration alternative price when choosing particular person investments. Whereas I’ve traditionally prevented benchmarking the Arquitos portfolio, conversations with a number of of you’ve helped me higher recognize an investor’s need to match our outcomes to a related index.
The query, in fact, is which market benchmark is smart? Previously, I’ve stated that if you’d like a easy comparability, you’ll be able to all the time look to the S&P 500 (SP500), (SPX). However given the varieties of holdings in our portfolio, that’s not an applicable level of reference.
It’s value noting that we’ve got been in an unusually lengthy stretch of outstanding efficiency by largecap corporations. Since our launch in April 2012, the S&P 500 has returned 14.4% yearly. That is effectively above its long-term historic common, and never one thing that’s more likely to proceed for one more 13½ years. Over that very same interval, small caps have lagged behind with the Russell 2000 Index returning 10.0% yearly.
We might additionally think about the HFRI Hedge Fund Index, which naturally produces decrease returns however with a lot much less volatility. Or maybe a microcap or particular conditions index could be related. In the end, the comparability that issues most is the one which helps you body Arquitos inside your broader allocation.
Going ahead, I’ll use the Russell 2000 Small Cap Index as our main level of comparability. It isn’t an ideal benchmark, but it surely finest displays the universe the place I spend most of my analysis time and the place our investments are inclined to reside. It additionally presents a wholesome problem, as small caps are more likely to outperform massive caps over the approaching decade, reversing the development of the previous one. So, if you might want to categorize the fund inside your portfolio, think about Arquitos a part of your small-cap allocation.
As a reminder, Arquitos Capital is an unconventional hedge fund invested in a small variety of distinctive corporations. I focus my analysis on company-specific conditions, usually in smaller corporations. Not like most funding funds centered on particular conditions, we’re keen to carry corporations for a few years, typically even many years, as their companies evolve and the market finally acknowledges their worth.
Under is an replace on our main holdings:
Liquidia Company (LQDA)
Liquidia’s share value rose to $22.74 on the finish of the third quarter, up from $11.76 initially of the yr. Our publicity is primarily via long-dated name choices, reflecting my conviction within the firm’s long-term potential.
In Could, Liquidia obtained FDA approval for its flagship product, Yutrepia, an inhaled formulation of generic treprostinil used to deal with Pulmonary Arterial Hypertension (PAH) and Pulmonary Hypertension related to Interstitial Lung Illness (PH-ILD). Yutrepia makes use of Liquidia’s patented PRINT® manufacturing expertise, which creates exact, uniform drug particles. Scientific research and now realworld expertise present that PRINT improves remedy efficacy by delivering treprostinil extra successfully to the deep lung with much less affected person effort and fewer unwanted side effects.
Yutrepia’s industrial launch has been distinctive. FDA approval got here in late Could 2025, and Liquidia’s Q2 2025 company replace reported greater than 900 distinctive affected person prescriptions and greater than 550 affected person begins throughout the first 11 weeks. CEO Roger Jeffs, who has beforehand acknowledged that he believes Liquidia might seize 80% to 90% of the market, stated that “preliminary demand has exceeded even [his] personal excessive expectations.”
My very own channel checks, corroborated by different funding managers, counsel that Yutrepia’s launch has considerably outpaced sell-side analyst forecasts. At this stage, there may be little for us to do however look ahead to the official information to validate what we’re already seeing within the discipline.
Regardless of this progress, Liquidia shares stay mispriced. The disconnect stems from two components:
- Overly conservative affected person adoption estimates from sell-side analysts
- Uncertainty surrounding ongoing litigation with United Therapeutics (UTHR) over the ‘327 patent
The following month must be significantly attention-grabbing for Liquidia’s share value as the corporate has a number of company updates scheduled, together with their Q3 report. I additionally count on a ruling within the ‘327 case shortly.
Relating to the ‘327 patent dispute, the result will have an effect on solely Yutrepia’s PH-ILD indication, not its PAH gross sales. The most certainly state of affairs is an entire win for Liquidia. Different potential outcomes embrace a modification to Yutrepia’s label or a royalty association. Whereas a positive verdict is anticipated, and the choose already denied United Therapeutics’ makes an attempt to dam the PH-ILD launch on the preliminary injunction stage, authorized outcomes are inherently unpredictable.
Again in early 2024, I estimated a bull case of $100 per share and a base case of $75 per share by 2027. I proceed to face by these targets. As soon as the litigation is resolved and affected person information are publicly confirmed, the door opens additional for potential M&A exercise.
ENDI’s share value rose to $17.50 on the finish of the third quarter, up from $11.43 initially of the yr.
The corporate is actually composed of two main elements: Its CrossingBridge asset administration subsidiary, and a portfolio of money and investments.
CrossingBridge continues to carry out exceptionally effectively. Belongings underneath administration grew to $4.2 billion on the finish of the third quarter, up from $3.4 billion at first of the yr. Over the previous twelve months, EBITDA totaled $9.2 million, with $3 million generated in the newest quarter alone.
On the stability sheet, ENDI holds roughly $53 million in money and investments and $10 million in debt.
On the present share value, ENDI’s market capitalization is about $95 million. Adjusting for web money and investments and making use of a ahead annualized EBITDA run charge, the implied EBITDA a number of is roughly 4x.
As you already know, ENDI stays a extremely concentrated place for us, although it now represents a smaller allocation than earlier within the yr. I’m snug with this publicity for a number of causes:
- My direct involvement as a board member,
- The corporate’s clear undervaluation, and
- Its built-in diversification on the company stage.
On that final level, a look-through evaluation exhibits that, on the finish of ENDI’s most up-to-date publicly reported quarter, it was as if Arquitos held roughly 38% of its portfolio in money and extremely liquid shortterm investments, a significant buffer that reduces general portfolio threat.
Finch Therapeutics (OTCPK:FNCH)
Finch’s share value rose to $12.28 on the finish of the third quarter, up from $11.30 initially of the yr.
As a reminder, Finch received a jury trial in August 2024 in opposition to Ferring Prescribed drugs, with the jury discovering that Ferring infringed three of Finch’s patents. The decision awarded Finch roughly $30 million in a one-time licensing charge and pre-trial curiosity, plus ongoing royalties to be decided by the choose and post-trial curiosity. Importantly, the jury additionally discovered willful infringement, opening the door for enhanced damages as much as thrice the jury award.
Once I first mentioned Finch in January, I had anticipated a post-trial determination by the top of the primary quarter. That clearly hasn’t occurred but, however the potential final result makes the wait worthwhile. Even underneath the worst-case state of affairs, with none enhanced damages, Finch shares are value at the least double their present value.
I received’t speculate additional on timing. What I can say is that this can be a state of affairs value ready for, and we’re content material to take action.
As you’ll be able to see from the positions mentioned above, persistence is a crucial ingredient in our technique. As an example, our funding in Liquidia detracted roughly 10% from portfolio efficiency final yr, but it has been a serious contributor this yr. That non permanent decline truly labored to our benefit. It gave me the chance to materially improve our place at enticing costs, which finally enhanced our long-term returns. The important thing was sustaining conviction, re-underwriting the thesis, and including when different traders hesitated.
I don’t give attention to year-to-year fluctuations in any single holding. What issues is the overall return over the complete holding interval evaluated in opposition to the present alternative set. I encourage you to view your funding in Arquitos via the identical lens.
Whereas I’m happy with the fund’s efficiency thus far this yr, I consider every of our core holdings stays considerably undervalued. I’m significantly excited concerning the monetary outcomes that these corporations will present in November.
Thanks, as all the time, to your persistence, belief, and dedication to Arquitos.
Greatest regards,
Steven Kiel
Arquitos Efficiency Since Inception
Arquitos (Gross) Arquitos (NET) Russell 2000
| 2025 YTD | 71.5% | 66.8% | 10.4% |
| 2024 | 30.9% | 29.6% | 11.5% |
| 2023 | 23.3% | 22.1% | 16.9% |
| 2022 | -52.5% | -52.9% | -20.5% |
| 2021 | 56.5% | 54.9% | 14.8% |
| 2020 | -1.3% | -2.3% | 19.9% |
| 2019 | -13.8% | -14.7% | 25.5% |
| 2018 | -30.6% | -31.3% | -11.0% |
| 2017 | 80.8% | 64.0% | 14.6% |
| 2016 | 65.4% | 54.9% | 21.3% |
| 2015 | -14.0% | -14.8% | -4.4% |
| 2014 | 72.8% | 57.8% | 4.9% |
| 2013 | 58.7% | 46.6% | 38.8% |
| 2012* | 9.0% | 7.2% | 6.9% |
| Annualized | 18.0% | 14.1% | 10.0% |
*Based April 10, 2012 |
Disclaimer This letter is for informational functions solely and doesn’t mirror the entire positions purchased, bought, or held by Arquitos Capital Offshore Grasp, Ltd. or its feeder funds, Arquitos Capital Companions, LP, and Arquitos Capital Offshore, Ltd. Any efficiency information is historic in nature and isn’t a sign of future outcomes. All investments contain threat, together with the lack of principal. We disclaim any obligation to supply updates or modifications to the data contained on this letter. Efficiency returns introduced above are for Arquitos Capital Companions, LP and mirror the fund’s complete return, web of charges and bills, since its April 10, 2012, inception. They’re web of the excessive water mark and the 20% efficiency charge, utilized after a 4% hurdle, as detailed within the confidential personal providing memorandum. Arquitos Capital Offshore, Ltd. was launched on March 1, 2018. Returns from Arquitos Capital Offshore, Ltd. could differ barely and usually are not introduced right here. Efficiency returns for 2025 are estimated by our third-party administrator, pending the year-end audit. Precise returns could differ from the returns introduced. Positions mirrored on this letter don’t symbolize all of the positions held, bought, or bought. This letter under no circumstances constitutes a proposal or solicitation to purchase an curiosity in Arquitos Capital Companions, LP, Arquitos Capital Offshore, Ltd., or any of Arquitos Capital Administration’s different funds or associates. Such a proposal could solely be made pursuant to the supply of an authorized confidential personal providing memorandum to an investor. |
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