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Verdad Leveraged Company Fund’s Q2 2019 Investor Letter

Verdad Leveraged Company Fund, L.P., a Dallas-based hedge fund, recently released its Q2 2019 Investor Letter – a copy of which can be downloaded below. Harvard alumnus Dan Rasmussen founded the firm and also holds the Portfolio Manager position. Prior to starting Verdad, Rasmussen worked for investment management companies such as Bain Capital and Bridgewater Associates. He graduated summa cum laude from Harvard University and holds an MBA from the Stanford Graduate School of Business.

Verdad is known for its strategy of investing in leveraged small value stocks. In its recent investor letter, it reported a 7% loss during the second quarter.

“It was a lousy quarter for leveraged stocks, small stocks, and value stocks. The Verdad Leveraged Company Fund lost 7% in Q2, bringing our year-to-date performance to about 3%, significantly trailing our benchmarks. Our performance over the past year has been nothing to brag about. But our three-year annualized return of 14% is better than 96% of US small-cap value funds and 100% of foreign small/mid-cap value funds tracked by Morningstar. Over the three years to 12/31/18 (the most recent data available), the Cambridge Associates US Private Equity Index returned 14.1% per annum while Verdad returned 16.5%.

We’ve been through worse stretches in the past and come out ahead in the end. In 2015, we were down 22%, lagging our benchmark by more than 15 percentage points. Then over the next two years, we returned a cumulative 88%, more than 2x the Russell 2000’s 39% return. This experience shaped our view that wide divergences from the index and heightened volatility are a key reason we earn premiums for doing what we do. We get paid for holding onto a fundamentally sound but uncomfortably volatile strategy that most managers won’t. There were no bankruptcies in our portfolio this past year, just changed valuations.

Our core thesis is that, over time, stocks that are significantly more leveraged, significantly cheaper, and significantly smaller than the market—stocks that share the same quantitative profile as 1980s and 1990s leveraged buyouts—will significantly outperform the broader market. Our thesis is supported not only by long-term empirical studies we have completed on the US, Japanese, and European stock markets but also by the performance of the private equity asset class.”

You can download a copy of Verdad Leveraged Company Fund, L.P.’s Q2 2019 Investor Letter here:

Verdad Leveraged Company Fund, L.P.’s Q2 2019 Investor Letter

You can also see the list of our 2019 Q2 investor letters and download them on this page.

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