Dear Partner,
In the first quarter of 2025, Woodbridge Capital Partners I, LP (the “Partnership”) returned 4.70% while the S&P 500 returned -4.27% (with dividends reinvested). Since its inception in April 2020, the Partnership has returned 201.16% compared to the S&P 500’s 127.90%.
The headlines so far this year have been dominated by the Trump Administration’s “move fast and break things” approach to policy. Though the Administration’s initiatives are numerous, the general trend seems to be a shift away from globalization toward protectionism. One of the primary mechanisms driving this shift — and the one dominating headlines — is tariffs.
In standard economic theory, tariffs are generally considered to be welfare-reducing since they hamper mutually-beneficial free trade. In the absence of tariffs, each country produces the goods and services that it produces most efficiently and trades for the rest, a concept called comparative advantage. Gains from trade are maximized as consumers enjoy low prices and producers sell more of what they produce best.
Tariffs introduce friction into this well-oiled machine. By artificially inflating the price of imports, less efficient domestic producers are shielded from global competition at the expense of consumers who can face higher prices for the same, or even inferior, goods. That is, tariffs can hinder economic productivity and drive inflation, potentially complicating interest rate policy, which was kept at the 4.25-4.5% target range as of the latest Fed meeting.
Now that doesn’t necessarily mean that tariffs are bad policy. In the broader context of global politics, tariffs can provide valuable leverage in negotiations and facilitate the onshoring of industries essential to national security. For example, Taiwan, a nation facing looming threats from China, currently produces approximately 68% of the world’s semiconductors. The gains in US national security from bolstering the domestic semiconductor industry and thereby reducing our reliance on Taiwan, whether that be via tariffs or other means, would likely outweigh the economic costs. The negotiations could also result in agreements with other countries with more favorable terms for the US than before.
To what end the tariffs were put in place and what the global trade environment will look like a year from now remains unclear. The markets have reacted positively to the significant reductions in tariffs since “Liberation Day,” but the prevailing uncertainty will likely continue to impede many businesses’ abilities to make long-term investments.
As it pertains to the businesses we own, the tariffs are not of great concern. While a stifled global trade environment and general uncertainty present headwinds, our businesses do not appear particularly vulnerable to tariff policy. In fact, our semiconductor company is poised to benefit from the shift towards onshoring as they are by far the largest domestic semiconductor manufacturing company. Our banking business, with its extensive global network, is also well-positioned as their services should be in high demand at a time when the global economic order is in flux.
In the previous letter, we mentioned rumours of the potential acquisition of our life insurance business. The rumours appear to be materializing with bids reportedly coming in from multiple large private investment firms including one bid for $9 billion, implying an approximate 50% premium to the current stock price. While we believe that even a sale for $9 billion undervalues the company, the deal, were it to go through, would allow us to realize a respectable return and represent a welcome validation of our original thesis by the private market that the public market had for so long ignored.
A similar notable development is occurring with our telecom business. For one of its major subsidiaries, its joint venture partner is looking to purchase the remaining 50% control of the venture. Since the implied equity value assigned to the joint venture within the holding company is essentially zero, the potential deal would offer the realization of value that has been once again ignored by the public markets.
Both of these companies’ decisions to turn to private markets after being neglectfully mispriced in the public market seem to be an increasingly common path. The public market’s infatuation with a handful of Wall Street darlings comes at the expense of many smaller companies that don’t happen to capture the public imagination. Therefore, it’s not surprising that the management and shareholders of the less fortunate would find the private market’s more rational valuations to offer an attractive alternative.
While investing in these overlooked businesses requires patience, the eventual returns from our investments are magnified when our businesses’ management take advantage of their undervaluation, whether that be by repurchasing shares or, more recently, capitalizing on the more rational valuations offered by the private markets. And, of course, given that the Partnership’s raison d’être is to identify and find ways to profit from market inefficiencies, we welcome the discrepancy in public and private market valuations with open arms.
With such attractive investment opportunities, Jesse and I remain confident that the Partnership will outperform the S&P 500 over the long term. We are grateful for your continued trust and remain committed to your investment success.
Thank you,
Kyosuke Mitsuishi & Jesse Flowers