Greenhaven Highway Capital Essential Fund This autumn 2025 Shareholder Letter

Pricey Fellow Traders,

2025 examined our endurance, however not our conviction. The fund ^¹ returned -2% within the quarter, bringing the full-year returns to -10% ^² . Whereas this 12-month result’s irritating, it follows positive factors of 51% in 2023 and 27% in 2024. Extra importantly, though the fund was down, the underlying companies weren’t.

In any given 12 months, a enterprise can compound intrinsic worth whereas its share value strikes in the other way. That divergence is uncomfortable, although commonplace, and it’s hardly ever everlasting. When enterprise progress continues and valuation compresses, latent stress builds and units the stage for a snap again. Finally, the a number of stops compressing and also you receives a commission for being proper on the enterprise. I consider our returns have been delayed, not foregone. Traditionally, our returns have are available in chunks or bursts; very similar to a coiled spring or a drawn crossbow, the situations are in place for an additional burst.

The quarterly letter is often organized round our high holdings and vital new positions. On this letter, I need to use a unique construction. I consider there are two distinct “setups” that a number of of our holdings fall into, and I need to body them accordingly.

The primary setup, which I’ve dubbed “Bamboo Bushes,” consists of corporations that made vital progress towards a radical transformation in 2025 with little or no share value appreciation to indicate for it. The second setup consists of corporations whose share costs declined considerably in 2025 attributable to fears of modifications which will by no means come to go. These corporations continued to develop and execute, however the market priced in unfavorable outcomes that I consider are unlikely to materialize. For these companies, I consider the opposite shoe is just not dropping and I consider the chance/reward is favorable, as concern dissipates.

Bamboo Bushes

The Chinese language bamboo tree takes 5 years to develop. It must be watered and fertilized each day, but it doesn’t break by means of the bottom for 5 years. Then, in 5 weeks, it shoots up ninety toes. The query is: did it develop ninety toes in 5 weeks, or 5 years? — Les Brown

Lifecore (LFCR): As mentioned in prior letters, Lifecore is a contract drug producer working at roughly 20% of capability. As a result of Meals and Drug Administration certification course of, it sometimes takes two years to onboard a brand new buyer even when a drug is already accepted and out there, creating a big lag between buyer wins and income recognition. Consequently, substantial enterprise progress may be made that doesn’t seem within the monetary statements for years.

The important thing query for Lifecore is whether or not it could promote its extra capability at engaging costs. If utilization will increase from 20% to 100%, income and margins ought to broaden meaningfully attributable to working leverage. This mixture might result in 4X+ share value appreciation over time if capability is bought at engaging costs and price self-discipline is maintained.

Based mostly on public disclosures and our discussions, I consider that Lifecore will promote its capability. During the last three months, two multinational prospects signed technology-transfer agreements below which Lifecore will manufacture present medicine. Every of those prospects might characterize an incremental 5–10% of capability. That is along with a GLP-1 buyer win introduced in November, in addition to contractual minimal quantity step-ups with Alcon (ALC) starting in 2027, which ought to characterize one other 5–10% of capability. Taken collectively, there’s a clear line of sight to volumes doubling by the tip of subsequent 12 months.

These wins usually are not merely a matter of luck. The corporate’s CEO, Paul Josephs, beforehand ran enterprise growth at Mylan and has invested meaningfully in constructing out Lifecore’s gross sales group. The corporate serves the biologics fill-finish market, which is rising at roughly 10% per 12 months, and Lifecore is a direct beneficiary of President Trump’s push to onshore pharmaceutical manufacturing in america.

A further tailwind for Lifecore is the state of affairs at Catalent (CTLT), a competitor that was acquired by Novo Holdings (NVO) in 2024 for $16.5B. Public information point out a latest FDA inspection at Catalent’s Bloomington, Indiana facility recognized extreme deficiencies, together with pest infestation and cat hair in a sterile surroundings. The inspection resulted in an Official Motion Indicated (OAI) classification, the FDA’s most critical designation, which prevents amenities from receiving approval for brand spanking new medicine till points are resolved.

In distinction, Lifecore has a 40-year observe file of protected operations, which is an asset that doesn’t seem on its stability sheet however is extremely valued as massive corporations navigate onshoring the manufacturing of their crown jewels.

Lifecore’s price construction has additionally improved materially. Layoffs, higher procurement, decreased use of consultants, and tighter expense controls have lowered the fixed-cost base. The corporate entered 2025 with roughly 15% EBITDA margins and has guided to roughly 23% for the upcoming quarter. With working leverage inherent to the enterprise construction, EBITDA margins at scale might exceed 30%.

Assuming Lifecore fills capability long term, the enterprise needs to be able to producing greater than $100 million of EBITDA per 12 months, making as we speak’s roughly $500 million enterprise worth seem modest in hindsight. Within the nearer time period, administration is more likely to increase each income and margin steering.

Vistry (VTYPF): Vistry is a British real-estate developer transitioning out of conventional homebuilding to focus solely on partnerships with native governments for mixed-income developments. This partnership mannequin requires much less capital, carries much less market danger, and is mostly thought-about a superior enterprise. As Vistry exits conventional homebuilding, vital capital needs to be freed up for share repurchases.

Vistry’s share value tumbled in 2024 as the corporate issued three revenue warnings associated to its legacy homebuilding enterprise. Whereas not perfect to have revenue warnings, the truth that they’re associated to the portion of the enterprise they’re exiting is reassuring. Whereas the share value appreciated modestly in 2025, it is going to nonetheless should greater than double to get well to pre-profit warning ranges.

Happily, the trail to Vistry’s materials share value enhance is kind of believable. Firm steering implies margin enchancment in 2026, and the British authorities is within the strategy of approving the biggest housing stimulus program within the nation’s historical past. Residence volumes, margins, and revenues needs to be up, all whereas the corporate is actively shopping for again shares.

Vistray’s shares at present commerce beneath guide worth whereas comparable asset-light partnership companies have traded for 5X+ guide worth. Likewise, Vistray shares are buying and selling at sub-3X estimated medium-term EBIT whereas partnership companies have beforehand traded at 12X+ EBIT. If execution continues, there’s a credible path to shares re-rating on valuation metrics as the corporate turns into a pure-play partnership enterprise. The progress in direction of the partnership mannequin is tangible and the buyback occurs each day. The share value chart for 2025 does NOT seize every part happening beneath the floor, change is occurring.

The Different Shoe Is Not Dropping

Markets are likely to overprice draw back danger when uncertainty is excessive and narratives are simple to simplify. Potential negatives may be handled as inevitable outcomes, whereas regular execution and base charges obtain far much less consideration. Consequently, valuation multiples compress not as a result of fundamentals deteriorate, however as a result of traders value in low-probability hostile eventualities as in the event that they had been central instances. When these feared outcomes fail to materialize, the next repricing may be swift and significant.

I consider this dynamic applies to a number of holdings, together with PAR (PAR), Cellebrite (CLBT), KKR (KKR), and Burford. In every case, I consider unfavorable sentiment drove a number of compression regardless of continued enterprise execution. I consider that unhealthy occasions that won’t in the end come to go are being priced in. Because it turns into clearer the fears is not going to be realized, the shares can rerate.

Within the sections that observe, I’ll define what the market is nervous about for every firm, in addition to why I consider these fears are misplaced and why the opposite shoe could not drop.

Burford (BUR): We personal shares of Burford primarily for the standard of their ongoing litigation finance enterprise and excessive returns on capital deployed. As a bonus, Burford has a judgment in opposition to Argentina that might be very vital relative to market capitalization. As a refresher, this asset is Burford’s share of a judgment in opposition to Argentina for taking the shares of the oil firm YPF (YPF) from shareholders with zero compensation.

The YPF case has been ongoing for greater than a decade, throughout which Argentina has paid tens of millions of {dollars} to delay compensating shareholders for expropriating the YPF shares. At a listening to in October 2025, Argentina’s counsel argued that the judgment needs to be vacated and the case retried in Argentina. Throughout a line of questioning by Decide Denny Chin, investor concern grew that the award might be overturned and Burford’s shares declined.

In my opinion, this response overstates the chance. Within the U.S. Second Circuit, instances are overturned roughly 6% of the time, and the presiding decide within the YPF case has an overturn fee nearer to five%. Decide Chin himself has beforehand dominated in opposition to Argentina in materially comparable circumstances, as mirrored in his 2018 opinion rejecting Argentina’s arguments across the YPF bylaws.

Based mostly on these base charges and judicial precedent, I consider it’s extremely seemingly that the YPF ruling might be upheld in 2026. The market seems to be pricing in a much more hostile final result than historical past would counsel.

Burford shares had been down 30% in 2025, ending the 12 months at roughly 10X money circulate (excluding YPF) for a rising and scalable enterprise that won’t require any extra fairness capital to develop. This was a damaged inventory in 2025, however not a damaged enterprise.

PAR: PAR and its vertical market software program friends stay deeply out of favor. PAR’s 2025 share value trajectory can solely be described as brutal, erasing all positive factors from 2024 regardless of natural ARR income development of 21% in 2024 and 15% (E) in 2025, with a projected modest reacceleration in 2026 with out profitable a mega Tier 1.

Within the final letter, I included an extended appendix protecting PAR ( hyperlink ). As a reminder, PAR was engaged in 4 RFPs with Tier-1 restaurant chains believed to be McDonald’s (MCD), Tim Hortons (QSR), Chipotle (CMG), and Papa Johns (PZZA).

Up to now, PAR misplaced Chipotle (which selected to stay with its present vendor) and gained the smallest of the alternatives, Papa Johns. The Papa Johns win covers roughly 3,200 areas and represents roughly $14 million in ARR.

The Papa Johns win marks PAR’s entry into the pizza vertical, which requires some incremental software program growth. Consequently, it isn’t anticipated to be a significant development driver in 2026, as implementations are more likely to start in This autumn 2026, however it ought to contribute meaningfully in 2027.

Papa Johns’ CTO, Kevin Vasconi, is extremely regarded inside the restaurant {industry}, having overseen the buildout of Domino’s (DPZ) expertise and e-commerce platform, which was extensively seen as industry-leading. His resolution to not rebuild Papa Johns’ expertise in-house, however to as an alternative associate with PAR, is a validation of PAR’s expertise and an information level suggesting that “vibe coding” (AI generated software program) could not displace PAR’s worth proposition.

Mixed with PAR’s profitable implementation at Burger King, Papa Johns’ choice materially de-risks PAR’s positioning as an “upstart” which ought to bode effectively for future enterprise wins.

With respect to McDonald’s, PAR has been a {hardware} associate for over 40 years and is at present a software program associate in Asia for loyalty. Inertia is a robust drive at McDonald’s scale, and PAR might want to proceed de-risking the choice by demonstrating its capability to ship a McDonald’s-specific answer able to working throughout greater than 40,000 areas in over 100 nations. It seems McDonald’s is now a two-horse race between PAR and the McDonald’s internally developed answer, which has huge technical debt. A call is probably going in 2026. A PAR win might present a Tier 1 buyer with vital incremental performance and price financial savings.

Tim Hortons at present makes use of a mix of legacy software program and options from a PAR competitor. Tim Hortons is owned by Restaurant Manufacturers, which additionally owns Burger King. All indications are that PAR’s implementation at Burger King has been profitable, with Burger King adopting extra software program modules for the reason that preliminary rollout. A call is probably going in Q2 2026.

It’s tough to handicap the pipeline from the surface, as PAR doesn’t publicly affirm the identities of its Tier 1 prospects or the particulars of any RFP course of. That uncertainty has contributed to investor skepticism. My greatest estimate, based mostly on scuttlebutt, constructing a mosaic from scraps of data, and {industry} data, is as follows:

Profitable both of the remaining mega-deals can be impactful for each development and earnings. Development is just not useless at PAR. Massive restaurant chains akin to Papa Johns, McDonald’s, and Tim Hortons—corporations that traditionally constructed and maintained their very own software program—are actively looking for to exit the software program enterprise and refocus on restaurant operations. This conduct runs counter to prevailing “vibe coding” fears and helps PAR’s long-term positioning.

Whereas the fears of AI are palpable and have pushed PAR to its lowest valuation in years, additionally it is value noting the enterprise is the healthiest it has been in years. PAR’s win fee in 2025 was the best in firm historical past. PAR’s pipeline continues to broaden. Along with the Tier 1 alternatives listed above, PAR obtained 2 extra Tier 1 RFPs this month. PAR elevated its attachment fee of extra merchandise in 2025 to the best degree in firm historical past.

On a latest name with traders, the PAR CEO stated, “AI has been upside for us, not draw back,” as a result of PAR’s prospects are keen to purchase AI capabilities constructed into PAR, as there are fewer complexities, higher integrations, and fewer safety points. PAR at present has two AI merchandise in market.

At present, the market has positioned nearly all software program corporations within the AI loser bucket and pushed costs and multiples down with little to no differentiation between these at nice danger and people not. One of the crucial tech-savvy CTOs in restaurant expertise simply scrapped his firm’s proprietary system for PAR; McDonald’s, with all of the assets on this planet, is contemplating doing the identical. Two extra Tier 1 RFPs simply got here on this month. If the opposite shoe doesn’t drop and PAR continues so as to add Tier 1 prospects and cross-sell, there’s a path to the shares buying and selling considerably larger.

Cellebrite: Shares had been down greater than 16% in 2025 whereas annual recurring income (ARR) was up 19% (by means of Q3) and free money circulate grew 30%. The “shoe” that almost all traders are fearing is the potential for AI and “vibe coding” to decrease the limitations to software program creation. This concern led to valuation multiples compressing throughout all software program in 2025 and into 2026.

I consider that Cellebrite is much likelier to be a beneficiary of AI than a sufferer. Anthropic is main the vibe coding cost with Claude Code, which has modified how software program is written. Sarcastically, once I prompted Anthropic’s AI instrument Claude concerning the feasibility of replicating Cellebrite, it responded with “iOS safety isn’t one thing you casually bypass. Cellebrite spends huge assets buying zero-day exploits, reverse-engineering the Safe Enclave, and staying forward of Apple (AAPL)’s patches. This isn’t a weekend challenge—it’s nation-state-level safety analysis.”

Constructing hacking instruments can also be in opposition to the phrases of use for many vibe coding choices, however extra importantly, the client base for Cellebrite consists primarily of presidency businesses for whom safety is much extra essential than price.

For safety causes alone, a police division, the FBI, or the CIA is unlikely to switch Cellebrite with an unproven different. Many of those businesses had been sluggish to undertake cloud computing and stay extremely risk-averse with regards to mission-critical expertise.

As well as, Cellebrite operates in multi-vendor environments the place businesses usually depend on two or three instruments concurrently. At any given second, one vendor could also be unable to extract information from the most recent working system or bypass a brand new safety patch. This isn’t a winner-take-all surroundings and even when new vibe coded options spring up, the scaled {industry} chief with dominant market share seemingly retains their seat on the desk.

Cellebrite has all of the instruments in place, from information assortment to the administration of the information. Extra importantly, it has the biggest buyer base to construct instruments for inside the investigative vertical, profiting from AI-driven productiveness will increase whereas defending delicate information, complying with search warrants, and documenting proof chain of custody. Some instruments have been launched this month and we’ll study extra concerning the performance and enterprise case because the 12 months progresses.

Whereas the corporate has not but given formal steering for 2026, administration indicated with confidence that development would reaccelerate in 2026 because the Federal Authorities shutdown passes, that means ARR ought to develop one other 20%+ in 2026 with an extended runway forward in 2027 and 2028.

Though the share value could stay unstable, I consider the chance that AI meaningfully disrupts Cellebrite’s enterprise within the medium time period seems fairly low. If vibe coding fears are realized, the multiples can all the time contract – however Cellebrite shares commerce for a bit over 20X this 12 months’s free money circulate for a enterprise with recurring income and earnings that ought to develop roughly 20%. I consider that we should always receives a commission going ahead.

KKR: Much like Cellebrite, KKR noticed a share value decline of roughly 15% regardless of rising AUM 16%, fee-related earnings 16%, and adjusted internet revenue 17%. ^³ The 2 “sneakers” that traders are fearing with KKR and the opposite different asset managers look like LP/investor fatigue that may result in fundraising points and potential points inside the personal credit score funds.

With regard to personal credit score points, KKR’s Co-CEO Scott Nuttall addressed these considerations on their most up-to-date convention name, saying, “From every part we’re seeing, there may be nothing alarming happening. Just the start of a return to a extra regular default surroundings…our view is that ahead credit score fundamentals, each liquid and personal, will stay engaging. Our shoppers really feel the identical approach, which is why we’re having a file credit score fundraising 12 months.”

On the general fundraising entrance, Mr. Nuttall mentioned the subject on the Goldman Sachs (GS) convention in December, stating, “We maintain studying all these headlines about the way it’s actually arduous to boost cash, and we’re having a file fundraising 12 months…What we’re studying about is just not per our precise outcomes and our precise expertise.” ^⁴If the fundraising shoe is about to drop, administration is doing an incredible job of denying it.

KKR ought to increase near $20B from the wealth channel ((the corporate’s Ok-series product)) in 2026 and their Flagship North American Personal Fairness fund ought to increase one other $20B+ in 2026. These developments make it seem unlikely that AUM development will grind to a halt at KKR any time quickly.

Hagerty (HGTY) Firing on All Cylinders

4 of our high 5 holdings (PAR, Cellebrite, KKR, and Lifecore) have been coated within the “Bamboo Bushes” or “Different Shoe not Dropping” sections. Hagerty can also be a high 5 holding, and I need to present an replace on the enterprise, as I would like you to grasp what we personal and why we personal it.

Hagerty is one among our holdings that really appreciated in 2025 (+36%) and ended the 12 months as our second largest holding. Hagerty is a enterprise that’s firing on all cylinders.

State Farm: After years of delays, Hagerty is lastly onboarding State Farm insurance policies, turning the State Farm alternative from one which required investments in folks and methods of tens of tens of millions of {dollars} for the interval from 2021-2025 to at least one producing income. Over the following couple of years Hagerty ought to onboard over 1 million State Farm insurance policies, which is kind of materials relative to their present 1.6M insurance policies in drive.

Working Leverage: During the last 4 years, Hagerty has pushed EBIT margins from -8% in 2022 to +12% (E) in 2025. Going ahead, with the addition of State Farm insurance policies, financial savings coming from consolidating software program platforms, and financial self-discipline, Hagerty ought to see vital working leverage. As revenues develop sooner than bills, EBIT margins ought to march steadily larger to twenty%+ in a few years.

Market Development: Hagerty’s main enterprise is automotive insurance coverage, bought both on to homeowners or by means of partnerships with main businesses or insurers akin to State Farm and Progressive (PGR). The corporate has buyer retention charges of roughly 90% and a internet promoter rating of 82, in contrast with an {industry} common beneath 40.

Clients are sometimes misplaced solely when a automotive is bought. The time of sale is due to this fact the vital second to retain a buyer or maintain a car insured below Hagerty’s platform. Controlling {the marketplace} and being current on the time of sale materially will increase the chance that Hagerty will retain the insurance coverage relationship.

{The marketplace} enterprise can be engaging solely for buyer retention functions, however getting a purchaser and vendor price to easily facilitate the transaction can also be a superb enterprise.

Hagerty entered {the marketplace} enterprise in 2022 with the concept of holding stay auctions along side their main automotive reveals and constructing a web-based different to BringATrailer.com. These companies gained appreciable traction in 2025, with stay public sale hammer worth rising 56.6% to $228.7M, personal gross sales transactions rising 323.8% to $267M, and on-line market hammer worth rising 83.1% to $39.4M.

Within the quick time period, Hagerty ought to profit from 2025 being the primary 12 months in a decade the place no main hurricanes made landfall within the US. Hagerty follows GAAP guidelines and {industry} requirements to accrue for estimated losses all year long. If precise losses are available in larger or decrease than initially projected at the start of the 12 months, a “true-up” happens within the This autumn earnings. Given the absence of main disaster occasions this 12 months, Hagerty will seemingly “true-up” the accrued costs in This autumn, decreasing the general loss expense and producing full 12 months earnings in extra of 40 cents versus analyst estimates within the mid 30s.

In 2026 and 2027, Hagerty ought to profit from continued State Farm onboarding and natural development such that complete income development, mixed with working leverage driving margin enhancements, leads to earnings development of 25%+ per 12 months.

Quick Facet

We ended the quarter quick two corporations going through vital litigation with the potential for treble damages ((i.e., 3X the precise quantity)) for his or her actions and potential liabilities far in extra of their market capitalizations. We’re additionally quick two main indices, a client merchandise firm that has a considerably above-market a number of whereas development has stalled, and a mature and costly food-related enterprise.

We additionally had a place by way of places and calls on the 20-year bond that, in a situation the place Treasury charges rose considerably (e.g., authorities shutdown, tariff repeal), would have offset among the a number of compression we might have seen throughout our portfolio. This “insurance coverage” was not wanted and the choices have expired.

Outlook

The world feels off-kilter. As mentioned above within the letter, we personal a number of corporations that grew attractively and have vivid prospects but had their share costs decline. On the similar time, a variety of AI, energy, or Quantum computing corporations which are pre-revenue in “pretend it till you make it” mode have seen their share costs go vertical on the backs of press releases and unfunded initiatives.

I believe 2026 is a 12 months the place we’ll see actual productiveness positive factors from AI implementation and we’ll see it in our portfolio corporations on the expense aspect. The fairness markets also needs to profit from a declining fee surroundings.

These tailwinds are being confronted by an unstable geopolitical panorama, as American international coverage shifts and the world offers with the “Donroe Doctrine” and the unknown results which will in the end manifest because of this.

I really feel much less sure concerning the world at massive than the particulars of our portfolio. I consider AUM will go up at KKR, Lifecore will promote extra capability, Burford’s YPF ruling is not going to be overturned, PAR will shut on one other Tier-1, Hagerty will onboard State Farm insurance policies, and Cellebrite is not going to get replaced by vibe coders.

Ready for the bamboo shoots to indicate or ready for the opposite shoe NOT to drop is painful and it definitely lacks the dopamine hit of consuming TikTok – however in the end, I consider that we needs to be rewarded.

Sincerely,

Scott

References

1. Greenhaven Highway Capital Fund 1, LP, Greenhaven Highway Capital Fund 1 Offshore, Ltd., and Greenhaven Highway Capital Fund 2, LP are referred to collectively herein because the “Fund” or the “Partnership.”
2. See finish notes for an outline of this internet efficiency.
3. Figures are trailing 12 months by means of Q3
4. https://www.bloomberg.com/information/articles/2026-01-20/kkr-on-track-to-beat-20-billion-target-for-americas-buyout-fund?embedded-checkout=true

Authentic Put up

Editor’s Notice: The abstract bullets for this text had been chosen by In search of Alpha editors.