The HONA spin-off is fast approaching (expected June 29th) with investor days lined up on June 3rd (Aero) and June 11th (Automation).

We are curious to observe how HONA and HON will trade relative to each other. While we initiated a position in the consolidated entity ahead of the events, we are keeping powder dry to take advantage of any dislocation.

The classic Greenblatt take would be to assume increased sell-pressure on SpinCo. We think there is a chance it goes the other way:

1. Institutional mandate constraints have changed

2. Aero is widely viewed as the crown jewel

As a result it wouldn’t be surprising to see existing holders swap out their RemainCo exposure in addition to sidelined investors bidding up HONA.

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Automation

We think the Automation segment is currently under appreciated relative to the multi-year capex budgets underway in a number of its end-markets and the opportunity for a step-up in installed base / high margin recurring revenue streams.

The most obvious one is in datacenters which is an incrementally growing driver for its Building Automation segment. While this was called out by management as a recent performance driver, information remains limited.

HON should be well positioned to gain incremental market share in the space as power management systems become more complex (hybrid off/on grid solutions, BESS systems, thermal cooling solutions). While not a direct comp (as they also participate in the hardware/cooling stack), Johnson Controls offers an interesting read across with organic orders (+30%) / backlog (+26%) seemingly reaching a major inflection point in its last two quarters.

In addition there are a number of other capex trends which should benefit HON, including its PA&T segment which was temporarily weakened in Q1 due to supply chain / conflict issues (we would note that orders were still up +6%). To cite a few:

1. $46B of energy infrastructure spend to fix conflict related damages alone, most of which is downstream / LNG related (Rystad)

2. Energy security: Morgan Stanley estimates Asia will need to spend $5.5T in capex through 2030

3. Grid / power: close to $6T of grid-related capex required through 2035 (UBS)

Quantinuum

Quantum was in the news this week following the funding grants announcements. We don’t have too much to say here other than an Italian spaghetti sounding company (Rigetti) is +48% of the week and trading at a market cap of $8.8B.

If that’s the case, where should the technological leader in the space be trading?

We will be paying close to attention to the Automation investor day in particular and would be interested buyers of RemainCo on any weakness.

We also uploaded our SOTP this week for paid subs wishing to play around with the assumptions.

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Sharing the accompanying excel underpinning our Honeywell write-up

Enjoy!

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was up +20% on Thursday following its first Q1 beat as a public company before coming off a few points with the broader market on Friday. At $5.7B market cap vs. $15B at IPO, is the rally just getting started?

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Be water

We were a vocal critic of at the time of its IPO back in September 2025. The market was frothy (with better sector breadth than today) and it seemed clear that their bankers were looking to maximise valuation by inviting “fast money” accounts in order to drive oversubscription.

Employees also had the unusual right to sell stock from Day 1. Add to this the large VC overhang with unlocks around the corner and you had a recipe for challenged near term technicals.

In parallel, broader macro concerns and an increased scrutiny around Private Credit did not help the equity story. Surely, if there are systemic credit issues, consumer lending must be cooked?

Directionally, yes, we were absolutely correct. Admittedly though, we had spent less than 10 minutes understanding the business.

For us it was a clear case of bad technicals + bad narrative. Irrespective of fundamentals, as an equity investor, you just never want to get in front of that.

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Turning the corner

Its important to always keep an open mind – after all, we are here to make money. Oversold stocks are generally worth a look and we were now past the lock-up expiry sitting at a <$5B market cap and net cash, which big picture started to sound cheap given they had spent decades building this two-sided network and were clearly tapping into evolving consumer habits.

Given our initial bias, we knew many other investors probably thought the same as us initially: Klarna is an asset heavy, cyclically exposed consumer finance business with capped upside.

Question was: is this a mere dead cat bounce opportunity or something more? Our interest was piqued when we started seeing forward flow agreements on consumer receivables, the growth of Klarna card and delinquency figures that were contained and at levels well below anything subprime.

Situations where market participants are heavily anchored to preconceived notions NOT backed by research are interesting because they offer the opportunity for an early non-consensus view to those who do the work

Variant perception

As we dug in, it was clear that on top a botched IPO and poor technicals, Klarna had been plagued with growing pains as a recently listed Company in a nascent sector – including disclosures that have lacked granularity and management shooting themselves in the foot with guidance – muddying the true trajectory of the business.

We will walk through why we think the market misunderstands both the balance sheet risk profile as well as the growth/profitability runway of the business.

A ~2x from here does not require heroic assumptions beyond a maturation of the existing business.

We also think that there is the opportunity for a much larger re-rate as the market realises that Klarna is:

• A difficult to replicate two-sided network, with 119m active customers and 1m merchants, compounding at >25%

• A capital efficient credit origination platform

• A profitable BNPL business that also acts as a trojan horse towards higher margin, recurring revenue streams

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This article is for informational purposes only and does not constitute financial advice. Origo Research may hold positions in securities discussed.

Part 1: Klarna as a BNPL business

The cynical take on Klarna is that they have been growing through aggressive underwriting and over exposing its balance sheet.

The implication being: (i) a saturated market in which Klarna is pursuing the marginal customer with limited edge and (ii) a Damocles sword of credit losses over its head.

Let’s examine that.

Klarna has grown into a two-sided network comprising 119M customers and >1M merchants, facilitating $136B of GMV globally (21% US / 79% non-US).

The network exists for two main reasons:

• up to 20% increase in check-out conversion for merchants

• Trusted brand for consumers: flexible payments with no hidden fees

Over the years Klarna has partnered with all the major PSPs (Worldpay, Stripe etc.). It is integrated with Google & Apple Pay and is increasingly a default option at check-out. In Europe, Klarna has dominant market share and brand recognition (particularly in the Nordics and DACH region) while in the US consumer habits are transitioning fast. These are compounding network effects that are difficult to replicate.

Importantly, Klarna’s penetration (and BNPL in general) remains low. Even in its most mature mature market, Sweden, where 85% of adults used Klarna in 2025, the share of wallet was only <7%. There is a very long runway in both consumer adoption (particularly in the US) as well as increased wallet share.

Through March LTM, Klarna GMV grew 29.5% yoy while its revenue grew 33.1% as take-rate increased to 2.8%. Without even getting into additional revenue levers (more on that later), we believe BNPL is a structural growth story and that accelerated US adoption is only a matter of time.

Looking at the balance sheet

While investors generally associate Klarna with an over-extended consumer, the actual risk profile tends to be misunderstood.

Let’s break down the product offering and what it means for Klarna.

Klarna offers 3 types of products:

• Pay later (80% of GMV): this is your charge card equivalent. The customer pays in full within weeks if approved. Klarna pays the merchant at the time of sale with an embedded fee that crystallises on customer repayment (e.g Klarna pays the merchant $97.5 for a $100 ticket)

• Fair financing (9% of GMV): customer pays over an extended period (109 days WAL) with a fixed payment date (no rollover or compounding balance). Klarna books both interest income on top of the merchant fee. Klarna only ramps this segment-up based on Pay Later track record.

• Pay in full (11% of GMV): customer pays in full at time of sale, Klarna books a merchant fee

Klarna’s model is built on high-frequency, short-duration lending. The average balance per customer is $124. The average duration is 39 days and the book turns over 10x per year. This is very different from a revolving credit card balance (typically ~$7k) or the multi-year tenors associated with bank loans.

From an underwriting perspective:

• Klarna has a very fast feedback loop of <60 days to modify standards

• The churn amounts to 3.4m transactions / day and $0.5T of cumulative underwritten volume on which to draw from

Klarna leans on 30/60 day DPD (as a % of originated volume) as a leading indicator. Pay later 60+ DPDs have remained <1% in Pay Later and <2.7% for fair financing. Note that the numbers below are on a global, blended basis and so there are some mix effects at play.

Because of the longer duration, fair financing is the key segment to watch here.

Net charge-off rates have been stable but what is important to note is that the US carries a different economic profile vs. Global ex-US. Net charge-off rates tend to be <4% whereas Global ex-US is much lower at ~1.5%. This works because the US comes with much higher take-rates. As we will see later, given the growing mix towards both US and fair financing, the blended effects have been source of (unwarranted) confusion and concern for the market, particularly given the lack of geographical disclosure data which only improved as of Thursday this week (Q1 results).

Capital efficiency

Klarna has an EU banking license and a deposit funded balance sheet:

• $12.3B deposits

• 2.48% cost of funds

• Fixed-term deposits: 270 average duration (vs. ~39 day loan duration)

This compares with gross receivables as at Mar-26 stand at $9.6B or $9.2B net of allowance (43% being fair financing).

Additionally, Klarna engages both in forward flow transactions on its US fair financing business as well as SRT or other back-book receivable sales transactions in order to manage its balance sheet.

It recently completed a $1.7B SRT (in Europe) with Varde and has facilities in place with Nelnet and Elliot to scale forward flow sales on its US fair financing business.

The US forward flow business is very new having completed a first transaction in Q4’25 ($1.6B) and a second in Q1’26 ($1.2B).

Klarna’s main US competitor Affirm (who predominantly underwrites longer duration loans) has also successfully tapped in to the ABS market at very tight spreads and this could be an option for Klarna as well down the line.

Klarna is a relative newcomer to public markets and we believe its runway and balance sheet management to be under appreciated if not misunderstood.

This has been exacerbated by accelerated growth in new products / market with the resulting mix masking the profitability profile and longer-term trajectory of the business.

In the rest of this article we go through Klarna’s masked profitability profile, valuation considerations and why we think there is significant re-rate potential.

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The FCC has finally given the green light for SpaceX’s purchase of EchoStar’s spectrum (all 65 MHz). This is welcome news as we did not necessarily anticipate that this would happen ahead of the IPO.

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In addition, the FCC imposed a $2.4B escrow on EchoStar for potential Tower lease termination claims. $2.4B was in line with our base case and now becomes the max. More importantly this removes yet another overhang.

All these catalysts are now linking up on the same time frame, as the SpaceX news flow also ramps up (we already saw the Claude announcement – expect more).

Maximum attention, all at once – which is what we want.

And this is happening with the short interest looking like this:

Strategy and target levels

We have updated the excel for the revised lease termination costs and included a small module where you can play around with target levels.

On the assumptions below, we think >$175/share is a reasonable target and a level at which it makes sense to start taking money off the table. This would imply a $2T SpaceX valuation BUT note that we are assuming both (i) CGT on SpaceX shares and (ii) an incremental HoldCo discount. The NAV pre-tax is closer to $212 so at $176 we are assuming a 17% discount to that number.

For illustrative purposes, the current share price of ~$134 implies a $1.5T valuation, full CGT and an incremental HoldCo discount of 15%.

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Given the news developments, we are leaning towards being more aggressive with sales ahead of the IPO.

While we are cautiously optimistic we will get the target outcome, we will likely look to trim some exposure within that timeframe no matter what. Two main reasons:

• If we do not re-rate now, why would we do so post-IPO – with no real incremental catalyst?

• We are concerned about the level of ownership in SpaceX stock pre-IPO and the potential selling pressure post-IPO

Ultimately we remain fluid depending on how things develop, but we encourage you to have a plan. Should be an exciting few weeks ahead.

Update on SK Square

As expected, we saw some continued hype going into the second week of post-IBKR access in the Korean market. Western retail was certainly chomping at the bit during the extended weekend and on the 4th of May we certainly opened up with a bang and SK Square printing +18% on the day and the NAV discount printing an intraday tight at ~38% (closing the day at 39.3%).

Overall since the 26th of April, SK Square is up +51% and we saw 830 bps of NAV discount compression peak-to-trough.

We are now ~2x up on our SK Square buys and were lucky enough to catch the local lows on the NAV discount when we started trimming:

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We sold some further shares later in the week with a view to potentially compound on pullbacks as well as rotate capital elsewhere. We’ve taken in excess of our cost basis out now and happy to let the rest ride for a while, noting that SK Square is less of a “slam dunk” vs. when we originally underwrote the name earlier this year.

We now require more “aggressive” assumptions in terms of SK Hynix growth/multiple re-rate alongside continued NAV discount compression

SK Inc.

We also took a brief look at SK Inc. earlier this week

While the discount is even steeper (60% post cancellation of treasury shares), we are cautious about taking exposure when the memory (SK Square) share of GAV is only 53%. Having said that, we were curious to take a deeper look notably at their stake in SK Telecom, an early investor in Anthropic.

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“You guys have to listen to me because I am president of this company. In five years, profits have to be 10 billion yen, then in ten years 50 billion. Eventually I want to count profit in trillions of yen!”

– Masayoshi Son in 1981 to his only two (part-time) employees

As a barometer of financial markets, SoftBank’s $370B capital structure spanning equity, CDS, $/€/¥ bonds and hybrids is well worth knowing.

In Part 1 of this series, we peel the onion on SBG’s NAV composition to understand its key drivers. Part 2 will take a closer look at how we think about the various instruments in the capital structure, including potential trade set-ups to express either idiosyncratic views on SBG’s NAV components such as Arm/OpenAI or as a vehicle for broader macro takes through the cycle.

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Rolling the dice

Masa has always had a penchant for “running it up.” He makes big, bold bets fuelled by a 50-year personal plan he drafted as a student. Perhaps as a tribute to his Korean ethnicity, Masa only cares about making investments that have the potential to truly move the needle.

Leverage + technological change

Masa realised early on that his best chance for exponential gains was to ride the technological waves of disruption. He also quickly developed an appetite for leveraging OPM (Other People’s Money), getting a first taste for financial engineering when he was an undergraduate student at UC Berkeley importing used arcade machines from Japan funded with supplier financing.

“Masa saw things differently. If you are born in a slum with nothing, losing everything is relative. You just go back to square one. Then, like the Korean slum dwellers in Tosu, you build back up.”

Gambling Man: The Wild Ride of Japan’s Masayoshi Son (Lionel Barber)

In the multiverse of timelines where his bets might have flamed out, we are living in the one where he knocked it out of the part – not once, but multiple times. His early internet plays with Yahoo/Yahoo Japan compounded by his legendary $20m investment in Alibaba (which rescued SoftBank after the Dotcom crash wiped out 99% of its value) laid the foundation for his empire.

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Masa’s appetite for size and willingness to embrace volatility has often led the public to label him as halfway between genius and crazy. When he raised the first Vision Fund in 2017 at $100B (again, leveraging OPM through Saudi Arabia’s PIF), some Silicon Valley elites would even refer to him as “dumb money” behind closed doors, blaming (or thanking) him for inflating valuations of late-stage companies.

It looked like everything would come crashing down for him during the COVID-crisis – the poster child for market excess, amplified by misplaced bets in WeWork and others. Not one to lack confidence though as SoftBank’s NAV suffered a 50% drawdown, he published this legendary slide about unicorns jumping over the “Valley of Coronavirus”.

While many counted him out or even mocked him, just like the Dotcom bubble, he did in fact make it out on the other side having successfully recycled his capital base. Despite selling NVIDIA too early (his stake would be worth close to the current market cap of SBG), his NAV today sits close to ATH with levered bets on chipmaker Arm as well as OpenAI.

With his new bets in play, are we in store for the next growth spurt in Masa’s Empire? Or will we see yet another 50% drawdown on his path to glory?

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Infinite outcomes

What makes SoftBank so fascinating is its wide range of potential outcomes.

SoftBank Group’s share price was up 16% this week and is +40% YTD, in reach of its ATH. In seemingly contradictory fashion, SoftBank’s 5Y CDS has widened to 342 bps implying a non-trivial probability of default.

This may not be so counterintuitive since a barbell approach may make sense when both right and left tail events are in play (more on this in Part 2).

For now, let’s take a look at what sits inside SoftBank and what makes it so swingy as we look to establish a lower and upper bound range on its NAV.

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Inside SBG: unpacking the black box

SoftBank Group (“SBG”) is a pure HoldCo (since spinning off its telecom subsidiary, SoftBank, in 2015). Today, there is approximately $345B of GAV (gross asset value) that flows to the HoldCo (net of OpCo debt or other margin loans). Additionally there is $74B of HoldCo level debt and $27B of cash which ultimately feed into the NAV calculation.

SBG value flow chart

There are two primary components to SBG’s $345B GAV: direct stakes it holds in listed companies ($202B) and its interest in the Vision Funds ($114B). In addition, there is $29B of value which flows through through from its NAV share in SB Northstar (its investment vehicle / asset management subsidiary) including various other miscellaneous listed/unlisted stakes.

Side note for any budding investment analyst reading this: no matter how complex a conglomerate / company appears, you should be able to breakdown and visualise the value flow on a single page like this. Consolidated figures in the case of SoftBank are misleading and do not properly tell the story.

Let’s now go through the underlying drivers in detail.

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Honey, well I bought the dip

After patiently waiting around, we are excited to finally initiate a position in Honeywell (HON), taking advantage of the recent pull-back (-15% off the highs) on temporary Aero supply-chain related volume concerns, which we view as immaterial to the longer term thesis.

While we are keeping some powder dry for lower, we were keen to acquire a toehold ahead of a now compressed timeline with imminent catalysts ahead.

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Wait, you’re excited to buy refrigerators?

Not quite. Honeywell has a storied history, from early thermostat innovations in the late 1800s to a critical role in the Space race, supplying controllers for America’s first satellite Explorer 1 and over 16,000 parts for Apollo 11. Like many large industrial companies of its era, HON’s footprint morphed through organic initiatives and M&A into a sprawling conglomerate.

The Company embarked on an initial transformation in 2017, spinning-off its residential & consumer operations and shifting its focus towards “software-industrial” B2B.

This accelerated under the new CEO Vimal Kapur who in 2023 sought to further realign Honeywell across three megatrends: automation, the future of aviation, and energy transition.

Following a portfolio review in 2024 the Board agreed to embark on a series of spin-offs and we are now in the final phases of this transformation.

The GE blueprint

The set-up is reminiscent of General Electric when they decided to split the business in three in late 2022 – after stagnating sideways for years the strategy unlocked the following share price performance:

• Spin-off: GE Vernova: +909%

• Spin-off: GEHC: flat

• StubCo: GE (Aerospace): +535%

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GE Aerospace is an incredible business and also Chris Hohn’s (TCI) top holding, helping him drive the biggest annual gain ever recorded by a hedge fund last year (+$28B). The crown jewel of GE is CFM, its JV with Safran which dominates the engine market for narrowbody commercial aircrafts: large installed base with highly visible (>30 year) cashflow profile through new equipment and after market services.

Prior to the spin-off, Chris Hohn was already very familiar with the business through his investment in Safran (the other side of the CFM JV) which he had held for >13 years. Safran shares have compounded at 20% IRR for him over that time frame (!) In other words, the type of business you are more than happy holding for the long-term even at a fair price.

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So what about Honeywell?

HON has recently reorganised its reporting lines across (i) Aero Technologies and (ii) Automation which together generate close to $40B in sales across diverse industrial end-markets. This is post spinning-off its Advanced Materials division (SOLS) at the end of last year (SOLS is +60% already).

The Aero Technologies business, on the aircraft side, specialises in avionics and auxiliary power units (APUs) amongst others. While not 100% comparable to engines, HON’s market position in APUs is very similar, with an effective monopoly on legacy and current generation commercial narrowbody platforms.

In addition, HON is entrenched in Defence where it equips 70% of military aircraft worldwide and in the Satellite market where its hardware flies on ~80% of satellites currently in orbit.

Automation comprises (i) Building (safety & sustainability solutions for fire prevention, energy management etc.) (ii) Industrial (sensors, logistics automation etc.) and (iii) Process (emissions reduction, cybersecurity etc.).

Overall, Honeywell benefits from large installed bases and a growing aftermarket sales component (currently ~30%) with high incremental margins.

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Catalysts, timeline, and the cherry on top

HON is in the final stages of its transformation and looking to execute on two important milestones in very the near-term:

1. Spin-off of Aerospace division June 29th

2. Divesting non-core (lower margin) assets PPS and WWS (H2 closing)

This is not all, however.

Honeywell is the majority owner (54%) of Quantinuum, widely perceived to the THE leader in quantum computing. Back in 2021, HON combined Honeywell Quantum Computing (trapped-ion hardware pioneer) with Cambridge Quantum Computing (quantum software). In September 2025 it raised capital at a $10B pre-money valuation from the likes of NVIDIA and JP Morgan (who lead prior rounds). Quantinuum was the first hardware provider to integrate NVIDIA’s CUDA-Q platform and in November 2025 they launched Helios, the first commercial quantum computer, leaps ahead of its competition (yes even IONQ despite recent progress).

Quantinuum confidentially filed its S-1 in February and is slated for an IPO later this year.

We love free options that can go “ballistic” and Quantinuum represents an exciting “swing factor” to an already attractive set-up.

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The rest of the post is for paid subscribers. Now that we’ve provided the background, let’s dig into valuation, target levels and our overall thought process on the trade.

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While SK Square has outperformed SK Hynix over the past year, SK Inc. has considerably underperformed (a paltry 4x).

One of the main reasons for this is that SK Square is a quasi-pure play on SK Hynix, since the shares it holds represent 98% of its NAV.

SK Inc is much more diversified: it holds a number of listed stakes, as well as other private subsidiaries and operating companies.

As a result, SK Square only represents 53% of SK Inc’s NAV. Note that this has been steadily increasing, in part due to the rise in share price but also thanks to divestments / streamlining the Board has been engaging in as part of its “value-up” initiatives.

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Since the discount to NAV for SK Inc is now much wider than that of SK Square and currently sits at 49.6% (vs. 39.0% for SK Square at the time of writing) it is reasonable to ask whether a catch-up trade is in order.

Here is the full NAV breakdown and portfolio composition of SK Inc:

Note that this calculation is on the basis of the current shares outstanding. SK Inc has already announced that they will be cancelling all the treasury shares (~20%), which once effected further increases the discount to 60%.

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While the NAV discount is clearly attractive, the analysis is a bit more complex since it also requires a view on the remaining 47% of NAV composition.

One point of note is that SK Inc. indirectly owns a stake in Anthropic via its 30.6% holding in SK Telecom who invested $100m back in 2023 in the $5B valuation round.

Additionally, its second largest holding SK Innovation is currently benefiting form an uptick in crack spreads and refining margins as a result of the Iran Crisis – although the medium to longer term outlook on the overall business here is more uncertain.

We will be writing a follow-up post with more detailed thoughts on the rest of the portfolio and how we might be thinking about this name going forward.

Following the massive $55B buyout of Electronics Arts last year (and the initial 30 point gap-up of the EA 2.95% 2051s), we had speculated on which other long-duration IG notes could potentially be subject to change-of-control (CoC) put provisions in a note to our readers here and on X back in September:

EBAY 3.265% 2021 notes: trade set-up and considerations

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In early March we wrote extensively about how fears of a Private Credit-induced systemic shock had sparked an indiscriminate sell-off in financials across the board. Our view was that private markets are not going anywhere and we had reached a point where the market was conflating Alt GPs, BDCs, Banks and everything in between. Alt GPs hit local lows 50-70% off ATHs later that month.

While a breather was warranted after an incredible 3-5 year run, with valid concerns over market saturation and retail penetration, implied multiples in some instances looked too cheap even on a run-off basis.

We also reached peak divergence between what insiders were saying and what was being propagated in the media – the cynical view being most entertaining.

Finally, there is a prevailing assumption that a potential late-stage credit cycle is unconditionally negative for AUM growth. While it may certainly affect some channels at the margin, sophisticated LPs will over allocate to vintages with a spread-widening backdrop. In a recession, credit always gets bid first prior to equities recovering. We also saw in our Apollo & Athene deep-dive how in the case of Athene AUM growth can be completely detached from the credit cycle.

The impending Private Credit doom has been an incredible driver of clicks – but narrative eventually needs facts to follow-through – and early Q1 signs are pointing towards uncomfortable truths for the bears, with a decent chance that the bottom is in.

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Q1 read-through: Ares and Blue Owl

Blue Owl and Ares released Q1 earnings this week. Whilst not everything was perfect, the main focus point – AUM growth – has largely surprised to the upside.

In fact whist I expected moderate growth (particularly in closed-end fundraising) I was positively surprised to see Ares record large net credit inflows (+$11B) in their Perpetual Capital segment (primarily BDCs / open-ended funds).

In the case of Blue Owl, which at ~$8 / share was being priced as if their credit business would suffer net quarterly outflows at (or even in excess of) the redemption cap, numbers were significantly ahead of consensus – albeit while they emphasised YoY numbers in their presentation, sequential QoQ figures were moderate to flat-ish.

Blue Owl has been the poster child for all that is wrong with Private Credit – and the whiff of a Q1 earnings driven narrative violation was enough to spark a short squeeze, propelling its shares up +10%. We will also note that the shares held by its founders – Doug Ostrover and Marc Lipschultz – are no longer pledged, removing an important overhang on the stock and likely marking the bottom.

Early innings of a trend reversal

Since Blue Owl (right or wrong) is widely perceived to be in the bottom quartile of GPs, its results have created positive anticipation for the rest of the sector due to report over the coming weeks.

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Apollo Global shares hit -46% peak to trough a few weeks ago and despite the recent bounce remain 34% off ATHs. Depending on who you speak with this is either the beginning of the end or an opportunity to jump in alongside some of the savvier private capital operators of our generation.

What we can say for sure is that BDC redemption headlines on ADS alone are a red herring when it comes to evaluating Apollo:

I have spent over 100 hours digging into Athene – forming my own view from the bottom up, parsing data from its >9,000 page statutory filings all the way down to CUSIP level credit analysis, reverse engineering its largest exposures and forming my own assessment away from NAIC designations.

Recent debates on Private Credit have predominantly centred around a relatively small segment of the overall market: non-IG, semi-liquid vehicles.

The life insurance industry is clearly far more consequential with >$5T of capital in fixed income and policyholders who depend critically on annuity streams for retirement – perhaps bearing risk they did not elect to assume – unlike HNW retail choosing to participate directly illiquid in Private Credit vehicles (caveat emptor, anyone?).

Doomers will point to BDCs as the canary in the coal mine – source of negative reflexivity threatening broader systemic contagion fuelled by all of the above.

Others temper that rhetoric – not all credit is created equal. Forced sale triggers are lacking beyond the world of levered BDCs.

Executives at Apollo themselves seem to oscillate between defence of the broader Private Credit industry and what comes across as gleeful contempt at competitors’ missteps. Perhaps a tell-tale sign that they are positioned to win either way?

As an opportunistic investor that thrives on complexity, this is exactly the type of divisive situation that gets my juices flowing.

Why has the captive insurance model been so successful for Apollo? Is it really at risk of unravelling? Are they more likely to be a victim or a beneficiary of dislocation and widening spreads? Let’s dive in.

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The Athene Era

Financial firms rarely pioneer new business models once, let alone twice. Apollo wrote the playbook on distressed capital structures in the early 90s and in the past decade redefined the scope of private capital through Athene.

At $392B in AUM, what started out as Marc Rowan’s side-project now accounts for ten times Apollo’s Private Equity AUM at IPO.

The original Apollo model took advantage of capital cycles to generate eye-watering performance fees in a private partnership model – in 2010, over 78% of Apollo’s total income was carry-related. Today this number is less than 5%.

Public markets reward predictability. While Athene has been instrumental in driving 5x earnings growth, the enhanced mix and resulting multiple expansion have propelled Apollo’s 10x increase in market cap since IPO.

The Apollo & Athene Flywheel

Athene and Apollo operate as two well-oiled machines complementing each other. One, Athene, is a (somewhat) capital intensive business with a model that is reliant on generating excess returns on its spread-based liabilities. The other, Apollo Asset Management, is purely asset light and generates recurring fees based on its ability to originate product at excess returns.

The basic mechanics are as follows:

1. Athene originates long-duration liabilities, primarily by selling annuities via its US facing entity Athene Annuity & Life (AAIA).

2. AAIA in turn cedes reserves via ModCo/FWH to AARe in Bermuda for improved overall capital treatment. Along the way Athene will also leverage third-party capital through Bermuda sidecars (ACRA) which magnifies volume and ROE (additional fees).

3. Athene is then party to an investment management arrangement with ISG (Insurance Solutions Group) which sits under Apollo Asset Management. Under this agreement Athene pays Apollo a base fee + a premium depending on the type of asset originated. Under the latest restated agreement this has amounted to ~37bps blended.

4. ISG sub-delegates as necessary to other Apollo strategies whose mission is to originate excess spread on Athene’s spread-based liabilities + capital and turbocharge Athene’s investment returns (SRE).

Spread Related Earnings (SRE): small bps, large numbers

Much like a bank, Athene is in the business of earning a spread on customer assets. Unlike a bank who borrows short to lend long, Athene seeks to borrow long to lend long – its liabilities have a ~7Y WA life at a cost of funds-in force of 379bps. In both cases, the name of the game is volume.

Throughout FY25 Athene earned a net investment spread of 161 bps on $273B of average net invested assets (ex-minorities). This spread is the delta between its net investment earnings of 525 bps and its cost of funds (policyholder returns) of 369bps. In addition Athene earns fees through the ADIP Funds on sidecar vehicles that participate in volume origination (5bps).

In total, Athene generated $3.4B in SRE (54% of total segment income):

Not just a spread game: Fee Related Earnings (FRE) on captive AUM

SRE alone vastly understates Athene’s importance to Apollo’s overall valuation. As we have seen, Apollo’s Asset Management arm ALSO earns a fee on the AUM managed on its behalf (a fee which is already netted off the 525bps of net investment earnings).

Athene paid $1.4B in FY25 or 42% of the management fee flowing into FRE.

The captive AUM component is critical to Apollo’s valuation since FRE is perceived to be the highest quality cashflow stream of the business.

FRE is asset-light, scalable and sticky. As a result this segment earns the highest multiple in the public markets (historically 25-30x).

Apollo’s SRE in turn is valued on the strength of its ROE and earns a premium multiple vs. peers assuming it can originate at attractive spreads in a capital efficient manner.

Unit economics: compounding machine

Putting this all together, it’s easy to see how attractive the captive insurance model can be from a unit economic perspective if all cylinders are firing in harmony.

I estimate every $ deployed through Athene to return >3x in market value on relatively undemanding assumptions. While this table should make clear the key variables at play, it also highlights how Apollo executives can drive value without having to shoot the light outs on investment outperformance.

The captive insurance model for asset managers has been so attractive with each dollar of capital deployed having positive cascading effects and nowhere has this been more evident than with Athene / Apollo.

Related party shenanigans? a word on Opex

A natural question to ask would be whether Apollo has an incentive to overcharge Athene for its services in order inflate FRE (given the potential arb in terms of valuation multiple).

Athene’s outsource model allows it to run very lean operations with G&A representing ~17bps of Net Invested Assets (NIA). Traditional insurers which run internal investment teams typically operate closer to ~74bps.

On a “fully loaded” basis the 35-40bps Athene pays to ISG appears to be (i) arms length and (ii) source of competitive cost advantage.

This is also before taking into consideration the incremental alpha its cost structure is supposed to generate vs. peers.

Importantly when comparing to traditional insurers, Apollo’s asset management unit is already self-sufficient and highly profitable on a standalone basis through its management of third party capital. In a game of small bps on large numbers, these opex considerations are crucial.

It is worth highlighting that Apollo’s disclosures on the topic are the most transparent out of all the captive insurers. KKR’s arrangement with Global Atlantic is more opaque and it gets even murkier with other players further down the totem pole.

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The RSA and associated Term Sheet can be found here:

https://ir.echostar.com/static-files/7d22aa28-8f85-4694-b303-4547598dd8e1

As a reminder before we get into the details, the key drivers of our EchoStar valuation can be ranked in the following order:

1. SpaceX valuation

2. AT&T spectrum sale

3. Value of remaining spectrum

4. Ability to mitigate tax liabilities and lease termination costs

5. Legacy OpCo business (PayTV, Hughes, Retail Wireless)

This RSA (almost) exclusively concerns the legacy PayTV business.

TLDR: impact is neutral and has little bearing on our overall valuation.

It is mainly relevant in so far as it involves Parent support to a non-recourse segment and so for EchoStar to pursue this management must have visibility on a sale to DirectTV.

While it makes little difference on a numbers basis, the clean-up could facilitate a transition towards a “Space Investment HoldCo” as the Company repositions itself with a new shareholder base.

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The fear of a Private Credit induced systemic risk has sparked indiscriminate sell-off in financials across the board: Banks, BDCs and Alternative Asset Managers.

We’ve already touched upon in previous posts why we believe Alts do not belong in the same boat as Banks / BDCs. These are asset-light, high margin, fee-based businesses. Moreover the largest franchises today have effectively insulated themselves from any single point of failure through product and funding source diversification. Speak to large institutional LPs and they remain for the most part very positive on allocations to privates. These are multi-year decisions that do not get rebalanced overnight as a function of media sentiment.

It is not our job to argue with the market though and we will happily take what it offers. Some highlights:

• Blackstone: down 31% YTD and 47% off ATH

• Apollo: down 28% YTD and 45% off ATH

• KKR: down 33% YTD and 50% off ATH

While Alts are coming off arguably elevated levels, we are entering interesting territory relative to where these businesses have historically traded in terms of FRE multiples.

The debate when evaluating an appropriate multiple and differentiating between managers boils down to (and these are all correlated):

1. Growth prospects

2. Fee-stream stickiness and soft factors (reputation, process, goodwill)

Growth

Over the past 5 years the top franchises have experienced tremendous growth as the industry consolidated and the largest players disproportionally benefited from increasingly concentrated allocations from LPs.

Over that period AUM has grown >2x and which has turbo-charged FRE 2-5x. Worth noting that the mix of FRE has also “improved” in the sense that it has become predominantly weighted towards base management fees.

This is in contrast to their Private Equity origins (when performance fees were the main profit driver) but a necessary transformation as they became public entities (with higher multiples being assigned to predictable, long-term revenue streams).

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If you follow us on X you will know that we have advocated being long tankers since around October last year. Our thesis was anchored in improving fundamentals with the added asymmetric overlay that the sector stood to be a major beneficiary of continued geopolitical tension (and in particular ongoing developments in Venezuela / Iran).

Shipping is notoriously volatile and prone to boom and bust capital cycles due to (i) a primarily spot-based charter market and (ii) fragmented supply (shipyards) with a delayed 2-3 year newbuild cycle.

The two key drivers to look out for in the space are:

1. Ton-miles (distance covered)

2. Fleet supply (newbuild orderbook vs. scrapping)

The past decade has seen an increase in ton-miles for both crude carriers and product tankers as a result of rising long-haul flows and refinery closures. More recently concerns over a near-term oil glut has also helped shift the oil curve into contango thus incentivising demand from floating storage.

On the supply-side we are coming off a historically weak orderbook which has been offset by the development of the shadow fleet. These are non-compliant tankers being operated past their useful life of ~20 years and transporting sanctioned crude and refined products. The shadow fleet represents a very significant ~20% of the total fleet and the recent crackdown over the past few months has helped accelerate scrapping of these older vessels.

Prior to the Iran news, these developments have been playing out nicely. VLCC rates have skyrocketed past $100k / day and in 2026 we are so far operating at levels 2-4x the historical average over the past decade (!)

The names we have been tracking (Frontline, Scorpio Tankers, Hafnia, Torm) are all up 30-70% since October as at Friday close.

We impatiently wait for the Monday open to see the market reaction to the news. Whilst we believe a closure of the Strait of Hormuz (>30% of oil throughput) remains unlikely, the Iran news is unequivocally positive for the sector.

In the immediate term we will see re-routing, insurance premiums rise (or straight out cancelled) and perhaps an increase long-term charters as operators seek to secure supply. The Houthis have already resumed attacks on the Red Sea corridor which will drive product tanker rates higher as well.

In the medium term any regime-change will accelerate mass-scrapping of the shadow fleet and we will see further structural shifts in long-haul routes and refinery flows.

If the Strait of Hormuz were to be compromised even temporarily the spike in rates would be absolutely unprecedented

What do we do from here? We think an Iranian regime change does warrant a fundamental re-rate of the sector. We are also aware that current charter rates are planting the seeds for increased overbooks and will become increasingly cautious as things pick-up.

If you have been involved in this trade over the past 2-3 months, congrats.

We think trimming up to 50% into next weeks price action depending on the strength of the move is justified.

EchoStar ramping up

Bloomberg reported on Friday that SpaceX is looking to file for an IPO in the coming weeks, which keeps them on track for a June listing. Very much looking forward to getting our hands on the S-1! On a red day in the market SATS delivered a +10% intraday reversal on the news. Hopefully some of you managed to accumulate under $110 / share beforehand.

Bloomberg also reported a valuation target of $1.75T and we’ve updated the tables below to show what that that would look like.

We thing a $175-230/share range should be in play over the coming months.

As a point of reference SpaceX is now trading at a $1.64T valuation on Hyperliquid HIP-3 markets with annualised funding hovering around ~32% (in other words an implied forward valuation of ~$1.8T on a June IPO.

EchoStar will also be reporting earnings this coming week and we will be posting on our updated NAV ex-SpaceX views if there is anything material.

Nordic Semiconductor: the long game

Some anecdotal evidence over the past 1-2 weeks confirming to us that Nordic’s nRF9151 chip is well positioned to be the leading player in long-range low power IoT.

Firstly, Deutsche Telekom just launched the world's first multi-orbit IOT roaming (seamless coverage across cellular, LEO and GEO) using Nordic Semiconductor’s nRF9151 chip. As a reminder this is the first 3GPP-compliant cellular IoT module to support terrestrial NB-IoT/LTE-M as well as NB-NTN over GEO and LEO.

Additionally there was panel with META sparking speculation that Nordic’s long-range cellular solutions will have a role in future AI glasses architecture.

Nordic Semiconductor is a long-term hold for us. Its long-range segment only represents <10% of Nordic Semiconductor’s business today and we expect the stock to re-rate as their TAM within the space-enabled economy becomes clearer to everybody.

In the meantime, we continue to take downside protection comfort from the recent M&A of their closest competitor at levels implying a 3x from Nordic’s current share price.

Also because indiscriminate selling typically generates opportunities for anyone willing to do the work and look past the headlines.

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I’ve been critical of many aspects of the private credit bubble as GPs battle for AUM growth amid a “race to the bottom” in terms of underwriting standards.

The objective of this post is to briefly separate fact from fiction before taking a closer look at whether the current debacle is a source of opportunity.

For background I have >12 years experience at various Megafund GPs and am well-versed in the credit space. I regularly speak with major GPs and LPs.

Fact or Fiction: Private Credit is a larger share of the economy and underwriting standards have been deteriorating

Yes this is absolutely true. Bank regulation has allowed an entire non-bank lending ecosystem to develop and fill the vacuum. The AUM of Credit related strategies has effectively 10x’d since the GFC:

Private Credit truly accelerated when we went into a rate-hiking cycle. Equities and related strategies were getting hammered post Covid bubble. Meanwhile, there were opportunities to lend on a senior secured basis at SOFR + 700-900 implying all-in rates at >12% in cash flowing businesses. This type of product is incredibly attractive to large institutional LPs that need to deploy at scale and are downside protection oriented.

GPs were scrambling for exposure, those that were behind such as Caryle were offering zero incentive fees to LPs.

A ton of capital went into the space that subsequently needed to be deployed. Meanwhile competition from banks and recovering capital markets shifted the supply demand balance. Past 24-36 months we have seen a significant amount of spread compression, weaker documentation (cov-lite loans) and an increase in the use of PIK interest (non-cash, back-ended interest).

Fact or Fiction: Private Credit is a systemic risk

The media and X are always quick to jump to extremes though when the reality is much more nuanced.

To answer this question, lets remind ourselves of the fundamental difference between GPs, BDCs and Banks and where the end-risk lies:

Banks: make money by earning an excess spread on its customer deposits.

Banks operate on a fractional reserve model and are often leveraged up to 10-1. Any default in its loan book directly affects its P&L. Customer deposits are FDIC insured but only up to a certain amount. Post GFC regulatory capital requirements are much more restrictive. Banks need to carefully manage duration given the short-term nature of deposits.

Alternative Investment GPs: asset-light fee based model, manage capital on behalf of third-party clients

Large GPs will be diversified across several verticals (Private Equity, Real Estate, Credit, Infrastructure, Secondaries etc.). Other than a small GP commitment, they do not put their balance sheet at risk.

Instead they raise capital, predominantly from institutional LPs ranging from SWFs to Pension Funds to Family Offices. Unlike with bank customer deposits, these LPs are specifically seeking investment returns in a given strategy.

In Private Credit the GP will earn a fee stream on the fund split between management (~1-1.5% of AUM) and incentive (8-10% subject to outperforming a hurdle of ~6% over the fund-life). This model is effectively borrowed from classic Private Equity fund structures, except with lower fees.

In particular the incentive fee is much less meaningful given a fund’s target MOIC will typically be closer to 1.3x than 2.0x and as a result Private Credit has predominantly been an AUM game.

Most funds are “closed-end”. This means that there are no redemption mechanics and LPs only get their capital back once the fund is past its investment period and starts liquidating assets.

In addition to closed-end fund structures, GPs in general have been looking for ways to accumulate more AUM by accessing new pools of capital and generate product offerings with different duration profiles. Interval Funds, BDCs are all a product of this.

BDCs are just a subset of vehicles managed by Private Credit GPs.

BDCs are wrapper enabling a broader base of investors to participate in a given strategy. BDCs can be publicly traded (with liquidity available through the secondary market) or not (in which case there are typically redemption rights at NAV subject to % of NAV limitations). These vehicles make sense for GPs as they offer evergreen (semi-permanent) capital pools off which they earn a management fee in addition to accessing a more diverse investor base.

So is this systemic?

In the case of the GFC, bank balance sheets were significantly levered and customer deposits were at risk given the excessive push into subprime mortgage origination and trading. A 1% negative move could effectively wipe out the entire market cap of the bank.

A typical Private Credit fund is much more akin to Private Equity or VC in that the end-risk sits with LPs and while there may be some moderate use of leverage, we are talking maybe 30-40% on a Private Credit strategy where the underlying itself is typically <50% LTV, so call it <25% see-through LTV.

Fundamentally loan losses will tend to track the broader credit cycle:

Let’s say a Private Credit fund experiences defaults of 15% in its fund (which would match GFC levels), then you could still expect it to return ~1x to LPs on an unlevered basis (interest, par repayments, sub-par recoveries).

This is no different from any given investment strategy offering sub-par returns to investors. A 4% move in the S&P is $2.5T which is larger than all the credit-related AUM. If GIC, QIA, Norges suffered a 2% loss on their assets would that be systemic to the US economy?

The reason the topic blew up this week was to do with one of Blue Owl’s non-traded BDCs in the face of potentially accelerated redemptions. This is a typical duration mismatch issue and the reason why I tend to disagree with evergreen type vehicles for illiquid products. This does not mean that the underlying loans are all zeros (again, look at default rates through the credit cycle…).

To put into perspective here are the performance metrics through 2025 in their credit segment:

What happened with OBDC II is quite similar to what happened with Blackstone on BREIT (I would argue that was worse).

When retail investors (even if HNW) are affected the topic always gets more political but is it fundamentally different folks losing millions on SPACs or Crypto? Is there a trigger for this to be too big to fail (large derivative exposure, housing crisis, customer deposits at risk)?

To me if there is a canary in the coal mine in the broader credit space it is potentially with life insurance where an excessive amount of product is being placed with sometimes creative ratings practices, but so far when I look at the metrics there is nothing that raises alarm bells to me.

$OBDC, Blue Owl’s largest listed BDC

Take Blue Owl Capital Corp which is Blue Owl’s largest publicly traded BDC.

If you actually comb through the underlying metrics you will see that:

• 79% of its underlying assets are senior secured loans

• It only has 11% exposure to SAAS

• Interest coverage on its portfolio is 2x

• Book is mostly cash pay, almost no PIK

Right now OBDC is trading at an implied 13% debt yield which is quite attractive. I am keeping tabs on this name as well as other BDCs. The key is to properly filter through the ones that have the higher quality loan books. The information is all readily available for those willing to do the work.

What about the asset managers and at what point is OWL a buy?

Big picture GPs have fantastic business models. They generate high margin, toll-like income on a very scalable business. Shares have gone up 3-5x over the past 5 years and so I believe a lot of the sell-off is related to multiple compression as expectations around AUM growth temper. Again, they do not experience P&L the way a bank does if their funds do poorly. The management fee is there no matter what. The main question is whether they can keep on raising funds and growing AUM. So far, the trend has been for large GPs to get larger as LPs have been concentrating their allocations. I expect this to continue to be the case.

Having said this, I don’t think they are particularly cheap despite the recent sell-off. Blue Owl on the other hand looks potentially very interesting particularly if it keeps selling off and gets to the $8-9/share range. Two points to note:

1) While 60% of its FRE is credit, it operates two other segments including a GP stakes business (formerly Dyal) which is a unique segment in a market where GPs have been actively consolidating north of >15x FRE

2) At 11x FRE $OWL is trading at a hefty discount to peers. I think there is a valid debate in terms of the multiple that you would ascribe on its direct-lending operations in a worst case scenario with accelerated redemption on its non-traded BDCs (which is a subset of a subset)

I think the non-credit business is worth at least $8B (15x GP stakes, 12x Real Assets) and there would be considerable appetite from the likes of $BAM $BN

You are then creating the residual credit business at 4.5-6.2x FRE which even in a run-off scenario is very attractive.

“What the wise man does in the beginning, the fool does in the end.”

Stay in the investing world long enough and you will develop a fierce ability for pattern recognition. New narratives, same capital cycles and investor behaviour.

CVC is staring at a massive write-down on its €1.5B investment in the French Football Ligue’s commercial rights after less than 3 years.

Ares has marked its residual loan in Eagle Holdings, owner of French club Olympique Lyonnais, down to 32c.

In each instance both firms were latching on to a headline thematic while wearing blinders to its evolving nuances.

This is what happens when an asset class gains in popularity, invites excess capital and spawns an ecosystem incentivised to do deals.

In Part 1, I leverage French public disclosures to re-underwrite the CVC deal.

This short exposé is also intended to illustrate 3 investing takeaways:

1. Thematic exposure to an upcycle is only half the battle

2. Deep in a trend, nuance matters

3. Value (almost) always accrues to the top

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The Golden Era of Media Sports Rights

For the past few decades major sports assets significantly outperformed the S&P. This phenomenon accelerated in 2012 as live sports became a core differentiator for cable networks battling content unbundling through the emergence of OTT services.

NBA and NFL franchises experienced a meteoric rise with valuations returning 6-8x on the back of blockbuster broadcasting deals.

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Investor letters can be a great source of investment ideas but you always have to do your own work (no matter the investment hero).

Let’s breakdown the thesis before running some numbers on potential outcomes.

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Layers of discount

As I alluded to in my X post I am usually wary of one dimensional NAV discount stories. There are countless listed HoldCos, REITS, closed-end funds and more that languish in sideways price action with no real catalyst or momentum.

What made SK Square immediately interesting to me is that there are 3 embedded layers of discount here and each one has a plausible potential to re-rate:

1. SK Hynix: memory cycle re-rate

2. SK Hynix: Korea discount

3. SK Square: HoldCo (+ Korea) discount

Memory cycle re-rate

SK Hynix is one of three key players in DRAM memory alongside Samsung and Micron in what has historically been a very cyclical and commoditised industry characterised by brutal price swings.

The supply shortage and strategic nature of memory chips in AI inference and compute has been well documented by now and is at the heart of what many argue to be a structural shift away from past cycles.

SK Hynix in particular is the leader in high bandwidth memory (HBM) with a >50% market share. Most notably, HBM is driving a disproportionate amount of AI compute demand growth and is characterised by added complexity compared to traditional DDRx DRAM, resulting in significant pricing premium (in the range of 3-5x).

Whilst we can debate the stickiness and differentiation of the HBM market within the new paradigm of AI compute, an interesting side note is that the memory boom of the early 90s (which was characterised by significantly more intense competition) resulted in at least 5 years of upcycle.

The Korea discount

The South Korean stock market has perennially traded at a discount to global peers for reasons as diverse as Chaebol market structure, corporate governance concerns, capital allocation efficiency and market access. Similar to what we have been seeing in Japan in recent years, there has been a strong desire from the government to shed legacy concerns and appeal to both domestic and foreign investors. In 2024 South Korea introduced the Corporate Value-Up Program with a view to incentive corporate transparency and shareholder alignment on core KPIs. While the jury is still out on the full effectiveness of these measures, South Korea has been one of the top-performing stock markets since the end of 2024. Even with this rally however the discount still persists.

SK Hynix is no exception to the rule. Despite its technological leadership in HBM which should arguably place it at an advantage versus peers, SK Hynix currently trades at only 6.1x 2026E consensus earnings compared to a forward P/E closer to 12x for Micron.

Independent of whether the South Korean market continues on its upward trajectory, SK Hynix is considering issuing an ADR which could also be a significant catalyst in helping close the valuation gap.

HoldCo discount

In late 2024 Sk Square released its 2025 Value-Up plan in which it identifies the reduction of the HoldCo NAV discount as the single most important KPI.

In addition to specifying a medium-term target of 30%, management have made share buybacks an important component of their overall strategy. Considering SK Hynix constitutes >96% of SK Square’s NAV and is the second largest and most liquid component of the KOSPI, it stands to reason that SK Square’s discount should be at the lower-end of peers (note: we think ~30% is reasonable as it also implicitly allows for CGT and other leakage).

One suggestion Third Point puts forward as a strategy to take advantage of the HoldCo discount in the short-term is to raise capital collateralised by SK Hynix to repurchase shares in SK Squared. Doing so at these levels would be very attractive and by compounding the discount at both levels this could also be its own catalyst towards driving the medium term NAV discount lower.

Putting it all together

I have re-created the SK Square NAV analysis updated as at 10-Feb-26. Note that outside of SK Hynix, the remaining holdings are predominantly private investments which are marked at historical deal values. We assume these are static and given these represent less than 4% of NAV have minimal impact on the analysis.

In our “base case” we are assuming a SK Hynix margin loan at 20% LTV resulting in KRW 26T which SK Square utilises to repurchase its shares at a level ~7.5% north of current prices. This would equate to a 32.7% reduction in shares outstanding. We then take the 2026E Bloomberg consensus earnings and apply a 9.0x multiple which is the mid-point between SK Hynix and Micron today. If the Company can hit its 30% NAV discount target, this would result in a price per share of KRW 1,342,264 which would represent a 141% uplift.

I do not think these assumptions are particularly heroic and could in fact surprise to the upside if SK Hynix continues to beat expectations.

We love situations like this where we are buying value but there is a real opportunity for momentum and positive reflexivity.

We are making the underlying excel available to paid subscribers, please feel free to download and play around with your own assumptions on this one.

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Despite obvious contagion risk, the prevailing view at the time was that the universe was bifurcated towards the "strong" and "weak"

Whilst Evergrande dragged the weaker developers down with it, there was a flight to safety to what the market considered to be "blue-chip" developers

This created a very interesting 3-4 months window where a handful of China RE bonds were trading at or even above par

In January 2022, the bonds of Logan for example were trading well above par at ~104

What was the probability at that time that China would see a prolonged real estate downturn?

The trade set-up was straightforward: short Logan bonds (and comparable names) at 104 with a very low cost of carry (~1-2% per annum) and a high degree of probability that the contagion would worsen within a short time frame

Sure enough, Logan bonds traded all the way down to 27c in the space of 9 months

Example 2: $SATS Convertible Bonds (EchoStar)

Only 8 months ago, you could buy $SATS 2030 convertible bonds in the low 90s at an implied YTM (yield to maturity) of ~6%

This was in the midst of the FCC debacle where the forced shift in business model created some capital structure dislocation

The advantage with credit is that, so long as you do the fundamental work right you are rewarded with defined return profiles and hard catalysts (maturity dates)

A sharp analyst will have done the work around the strategic value of the spectrum licenses and taken a view around the probability and extent to which the converts could get back ITM (in addition to being fully comfortable that the 2030s were par paper in any liquidation)

So you essentially had an uncapped return profile to the upside where at worst you were clipping your 6% YTM

Of course we know what a blockbuster trade this ended up being with converts up 3.7x from trough in less than a year

Asymmetry is the holy grail which underpins low drawdown / high sharpe track records. Having many instruments in your toolkit and knowing how to best express a view is what defines a great money manager

A 10x in the making: on the cusp of a multi-year re-rate

Nordic Semiconductor (NOD.OL $2.5B mkt. cap) is a fabless semiconductor company based in Norway with a market leading position in the IoT connectivity market (specifically low-power wireless).

On an LTM (Sep’25) basis Nordic generated $60m EBITDA on $648m of sales.

Its closest comp, Silicon Labs ($742m LTM Sales but negative EBITDA) is in the process of getting acquired by Texas Instrument for $7.5b ($4.9B market cap pre-offer). This represents roughly 3x the size of NOD despite NOD being of similar size and profitable.

We think a 3x outcome would be a low case for NOD.

The market is fundamentally under appreciating the Company’s mid to long-term potential and is evaluating its prospects based on a legacy model:

• Workhorse nRF52 chip (90% of sales) that has low wallet share (1$ ASP)

• Hardware only business tied to cyclical volumes

• High fixed cost base resulting at times in negative operating leverage

• Multiples “look rich” at face value on a look back basis

Our variant perception:

• Technology leader in the midst of product roll-out after years of R&D

• Recent M&A positions it as a full stack player (hardware, software, cloud)

• New TAM in EdgeAI and Satellite IoT is heavily discounted

As a result we expect double-stacked growth from (i) significantly increased wallet capture and (ii) to 8-10% volume growth from fast-evolving end-markets.

We anticipate “New NOD” to compound its revenue base to >$4B by 2030 with significantly improved operating leverage to boot, resulting in a ~$30B Company.

We also like the fact that the stock is listed on the Oslo Stock Exchange leaving further re-rate potential as the stock gains broader global recognition.

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