This article by MOI Global instructor Scott Miller is excerpted from a letter of Greenhaven Road Capital, based in Greenwich, Connecticut.

Our top five positions, discussed below, represent over 50% of the fund, and our top ten positions represent over 75%.

KKR & Co. (KKR)

Our investment thesis in KKR remains the same. KKR will continue to be a beneficiary of the growth in private equity investments. Those who manage pensions and endowments need a credible path to 8% annual returns, which are not going to come from low-yielding bonds. 2020 should be a record fundraising year for KKR since three of their largest flagship funds – Asia PE, Americas PE, and Global Infrastructure – will be raising follow-on funds this year. The company also has 20 additional funds that will be out in the market raising capital in the next 3 years. KKR has a very high probability of continuing to grow assets and management fees over the same periods.

A common pushback on KKR and the other alternative asset managers is that the returns for private equity funds will go down as more money is invested into the PE space. This is very likely true; the 1980s and 1990s were a better time to be a limited partner in a private equity fund. However, our largest position is not an investment in a single KKR buyout fund. Rather, we own shares of the entity that benefits from management fees and incentive fees for all of the KKR funds in the market. While the absolute returns of the underlying funds may suffer as assets grow, management fees are guaranteed, and KKR manages 30+ strategies. Some portion of the various strategies will almost definitely generate incentive fees as well. We can argue about how many of the funds and how much per fund, but even if lower returns do happen, owning the corporate entity/general partner still makes sense. Our investment thesis is not that this is a great time to invest in private equity funds; the thesis is that KKR will make mountains of money off of the underlying funds as they grow AUM and incentive fees.

KKR has a very credible path to a doubling of management fees over the next five years. This past quarter, KKR raised another billion dollars in permanent capital, bringing the total to over fifty billion dollars as they also strategically extend the duration of the capital under management. In addition, KKR has so many nascent strategies that 80% of the firm’s incentive fees are coming from 30% of the total assets under management. As those funds mature, it is likely that many will begin contributing incentive fees to the overall pie as well. Trading in the low $30 range today, KKR has almost of $18 per share in cash and investments, implying a relatively modest sub-8X earnings multiple for the fund management business, which is growing fee-paying assets under management at midteens rates and has a very large incentive fee opportunity in front of it.

PAR Technology (PAR)

Many of you met PAR CEO Savneet Singh at our annual meeting, where he engaged in a fireside chat. This remains a “jockey bet” for Greenhaven. There will undoubtedly be bumps along the way as he implements his strategy, but so far Savneet has improved the balance sheet, strengthened the team, and made two strategic acquisitions. It is highly likely that within the next year, the company will divest a legacy defense contracting business, which will not only provide additional growth resources, but also make PAR a much simpler company for investors to understand and invest in.

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Disclaimer: This document, which is being provided on a confidential basis, shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a confidential private placement memorandum (“PPM”), which contains important information (including investment objective, policies, risk factors, fees, tax implications and relevant qualifications), and only in those jurisdictions where permitted by law. In the case of any inconsistency between the descriptions or terms in this document and the PPM, the PPM shall control. These securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. This document is not intended for public use or distribution. While all the information prepared in this document is believed to be accurate, MVM Funds LLC and Greenhaven Road Capital Partners Fund GP LLC make no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors, appearing in the document. An investment in the fund/partnership is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests are restricted, so investors may not have access to capital when it is needed. There is no secondary market for the interests and none is expected to develop. The portfolio is under the sole investment authority of the general partner/investment manager. A portion of the underlying trades executed may take place on non-U.S. exchanges. Leverage may be employed in the portfolio, which can make investment performance volatile. An investor should not make an investment, unless it is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits. There is no guarantee that the investment objective will be achieved. Moreover, the past performance of the investment team should not be construed as an indicator of future performance. Any projections, market outlooks or estimates in this document are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance of the fund/partnership. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of MVM Funds LLC and Greenhaven Road Capital Partners Fund GP LLC. The information in this material is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of MVM Funds LLC and Greenhaven Road Capital Partners Fund GP LLC, which are subject to change and which MVM Funds LLC and Greenhaven Road Capital Partners Fund GP LLC do not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment. The fund/partnership is not registered under the Investment Company Act of 1940, as amended, in reliance on an exemption thereunder. Interests in the fund/partnership have not been registered under the securities act of 1933, as amended, or the securities laws of any state and are being offered and sold in reliance on exemptions from the registration requirements of said act and laws.