Please refer to our disclaimers, which can be found in the footnote of this page and here.
Contents
Performance
1Q 2026 performance was -13.2% gross / -13.8% net (vs. the MSCI ACWI at -3.2%). Since inception (1 Jan 2019), the portfolio has compounded at +14.9% gross / +12.3% net (vs. the MSCI ACWI at +13.0%), representing +2.0% gross (-0.7% net) annualised outperformance. The top contributors year-to-date are Alibaba and Guidewire. The top detractors were Salesforce and Microsoft.
We began the quarter with 8% cash and ended at 3%. During the period, we capitalised on the AI-driven software sell-off by adding to Salesforce, CCC Intelligent Solutions, and Microsoft, alongside an addition to Visa. We also exited our Alibaba position and initiated a new one in Guidewire.
We wrote about Alibaba in our 1Q 2024 Investor Letter. During the quarter, we sold Alibaba purely for valuation reasons at just over $170. Alibaba's limited disclosure makes it complex to underwrite; at lower prices, we could assume the worst and still meet our return requirements, but the recent price increase eliminated that margin of safety. While the stock rallied largely on progress in its public cloud and AI segments, its core value remains in eCommerce. eCommerce has progressed in line with our thesis, but not enough to justify the elevated valuation.
We will detail Guidewire in a future letter, but in short, the investment is driven by:
- Mission-Critical Infrastructure: As the core operating system and system of record (covering policy administration, claims management, and billing) for property and casualty insurers, it generates very long-duration cash flows.
- Market Leadership: It is the clear leader in an effective duopoly for larger insurers, boasting a formidable win rate, especially on a dollar basis.
- Greenfield Opportunity: Significant growth potential remains, as many insurers still rely on inferior in-house solutions.
We first underwrote Guidewire in 2022 but were initially too conservative. The stock subsequently moved beyond our target range, becoming significantly overvalued in 2025. We have tracked the company since, awaiting a second entry point, which materialised during the recent software sell-off.
Portfolio Discussion
AI and Software
The software selloff during this quarter was driven by a mix of concerns around AI and weaker earnings results from several companies. This has led to drawdowns in several of our stocks, in particular, Salesforce -30%, CCC Intelligent Solutions -25%, and Microsoft -23%,
As noted in our recent AI Update, we generally believe in AI and view it as an opportunity rather than a threat for well-positioned software businesses. We see no evidence of customers abandoning existing vendors in favour of in-house AI development for mission-critical applications. In fact, the opposite is true: enterprise customers are increasingly signalling their intent to spend more with current strategic vendors, despite potential seat reductions. Just as managing software internally has proven far less efficient than relying on an external vendor to manage it across multiple customers, we believe the same applies to AI.
The characteristics we seek in companies that can withstand—and benefit from—AI include:
- High switching costs: These must extend beyond technical integrations into human and business processes, as AI makes rebuilding technical integrations with new vendors increasingly easy, diminishing them as a moat.
- Data control: Ownership or control of mission-critical customer data, which is a vital input for AI.
- Proven AI execution: A strong track record in AI development combined with a credible roadmap.
Broadly, we group software companies into three categories: (1) At Risk, (2) Well-Positioned but Overvalued, and (3) Well-Positioned and Undervalued. While all three have experienced recent sell-offs, the declines are justified for the first two categories. For example, Category 2 companies like MongoDB (which we previously owned) have dropped meaningfully but are still coming off highly elevated valuations. Conversely, Category 3 companies were already reasonably valued or undervalued and are now significantly cheaper. We believe our portfolio aligns with Category 3, which is where we deployed capital during the sell-off, aided by a cash surplus from our recent exit from Alibaba.
Iran
We do not hold specific investment views on the US/Israel/Iran conflict, as we are not macro or geopolitical investors. Instead, we navigate such events by focusing on our 10-year return objectives. While regional conflicts historically have a limited impact on long-term equity returns, we are more cautious regarding the current situation due to the level of disruption in global oil markets. This is felt acutely in Australia because of a heavy reliance on foreign oil—much of it routed through the Strait of Hormuz—compounded by government policy failures that have resulted in low domestic reserves. The inflationary impact here has been almost immediate, and we expect both Australian and global inflation to rise, with the full extent depending on events in the coming weeks. Regardless of the outcome, we believe the best strategy is to invest in high-quality companies capable of maintaining real earnings power in these environments, even if it means enduring some short-term pain.
Business Update
We are grateful for the continued support of our clients with multiple clients adding further capital during the weakness.
Matthew Brown
Founder & Chief Investment Officer
Footnotes
[1] Refer to our disclaimers, we make no guarantees of future performance, and our projections should not be relied upon