Yesterday, despite murmurs of a potential workable deal being discussed regarding the Ukraine war, markets displayed a step down in confidence. Stocks traded as though people were throwing their hands up and liquidating, particularly in high multiple SaaS land. Gitlab, a company I follow, was down over 15% and is now trading at $35. It IPO’d not that long ago for $77, traded up to $137 at its high.
Broad indices were down 3-4%. And for the record, the S&P is only ~13% off its high, hardly a bear market. Versus Covid, I feel different during a drawdown this time around. Our portfolio is consolidated around companies that tend to do their best work during difficult times. We have a material debt allocation this time around. We have battle tested real estate. And to boot, we have a material cash position for the massive downside scenario, to either allow us to continue sleeping well at night or to deploy into deeply discounted businesses.
As an example of a business we own, Patria Investments describes their business model as it relates to difficult times:
Listen to our commentary over the course of the year, you have heard us to talk a lot about the inherent resiliency of the business model, and how it allows us to thrive in times of volatility, especially investing in a region like Latin America.
These results and metrics for 2021 are a perfect representation of that. The ability to grow our revenue earnings at a high rate over the last year underscores an important point, which is true for our entire sector. Asset managers with long-term capital can do some of their best work in times of market dislocation. We believe these are good times to deploy capital, and for Patria, deployment translates directly to management fee growth.
If the environment is slipped to the other end of the spectrum, and it is a better time to sell than to buy, you may see deployment pace slow but portfolio realizations should then also likely rise, generating more realizations for our LPs and higher realized performance fees for our shareholders. That structural balance in our revenue streams allow us to create value for our shareholders through the peaks and troughs of economic cycles and everywhere in between.
PAX Q4-2021 Earnings Transcript
Disclosure: We own shares of PAX. Do your own due diligence, this is not investment advice.