Letters

Somar Turns 5!

May 2021

Somar Turns 5!

It has been five years since Somar launched. We are just getting started and we believe that we can do better in the next five years than we did in the previous five. This is not wishful thinking. This conviction rests on five major improvements we experienced in the past few years. We are not standing still. We expect to report further improvements five years from today when we celebrate our first decade.

Let us expand on each of the improvements:

  1. Our opportunity set is larger than anticipated and growing
    On the long side, Somar partners with entrepreneurs that leverage tech and business innovations to offer customers a step-change improvement in value through lower prices, wider choice, superior product, and / or superior service.Over the last 5, years our opportunity set has more than doubled due to both an acceleration of the pace of innovation and a significant increase in the number of innovative companies choosing to go public. We expect both trends to continue in the next few years, which bodes well for our strategy.

    On the short side, we tend to short companies that cede share to the innovative companies we buy. We trade when their valuation does not reflect these threats. The accelerating pace of innovation and the favorable fund-raising environment for disruptors has driven a more competitive environment for incumbents and expanded the pool from which to find compelling short opportunities.

  2. Risk management has performed well even in the face of unique events. During our first 5 years, we traded through some rare and hard-to-model events such as Brexit, the Covid-19 pandemic and the meme stock phenomenon. Our long-short model and cash position allowed us to withstand the volatility. We were never a forced seller or buyer. We kept ourselves in a good position to take advantage of the opportunities offered during those volatile times. Our most difficult time occurred at the end of 2018 when a sharp market rotation led to our largest drawdown. The market rotation was mostly related to internal market dynamics rather than external changes to economic or company fundamentals.While we were able to bounce back strongly from the drawdown, we studied it in detail and adjusted our portfolio management accordingly to better take advantage of market volatility. Since then, we have been encouraged with our performance during both the Covid-19 and meme-stock induced market volatilities.
  3. Portfolio Management has improved dramatically and continues to improve
    This was probably our most unproven area when we launched. Although I had managed a subset of a portfolio before, I had not yet been the overall firm Portfolio Manager. This new role
    comes with added responsibilities that can only be learned by doing:• Risk Management, including determining appropriate net and gross leverage at every time, and protecting against foreseeable and unforeseeable shocks

    • Determine relative attractiveness of each investment theme, sector and individual ideas at any given time, and size the positions accordingly
    • Drive the research agenda of new ideas to focus on the more compelling ideas at any time
    • Develop and train the research skills of all the research team
    • Keep emotional stability during times with market volatility and imperfect information
  4. Team and operational model operating at top professional standards One of the concerns some people had with Somar when we started was the quality of our operations and research given the small team. Having worked with small teams both at McKinsey and in Finance prior to Somar, I knew how the right culture can lead to outstanding results that are harder to replicate in larger teams.
    Five years later I am happy to report the team has not missed a beat. We have been tested: phishing attack with hackers posing to be team members, remote working in the pandemic, change of auditors, volatile episodes. All in all, I am very grateful to our team for keeping the operations sharp, resilient, responsive, and smooth. We punch way above our weight on our operations and look forward to building on this solid foundation to continue executing and improving in the next five years.
  5. Our culture is our North Star and is embodied by all team members
    Our culture stands on three character traits: Honest, Humble and Hungry. This is the North Star the team returns to when difficult choices are ahead. It has served us well and has kept our ship away from stormy waters.

I am grateful to all the team members for embodying these values every day and passing them along to new team members and interns. Our culture is alive. It lives beyond a written document. It is no longer dependent on me. I’m grateful for that.

We have made great progress in the first five years. But we have the ambition to do better in the next five. Through it all we will continue to learn and improve every day. This consistency will compound our knowledge and skills over time just like it will compound your capital. We thank you for your trust and look forward to earning more of it in the next five years.

* * *

The past month has afforded us the possibility to meet some of you in person. What an encouraging step towards normalization! We also had Zoom calls with some of you. It was great to see everyone doing well and in good spirits. Somar is emerging stronger from the pandemic. I trust that you and your families will also emerge stronger.

I look forward to hearing from you at either pedro.ramosatsomarcap.com or +1.646.581.6842.

All the best,
Pedro Ramos

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Disclaimer: This website is for general information purposes only and is not intended to be, nor should it be construed as investment advice, nor a solicitation or offer to buy or sell any securities, related financial instruments, or  interests in the Somar Master Fund, LP (the “Fund”) or its feeder funds. The information contained herein is not complete, and does not contain certain material information such as disclosures and risk factors about the Fund or its feeder funds. Opinions expressed are current opinions as of the date of this material only and are subject to change without notice. Hedge funds: (1) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss; (2) can be highly illiquid; (3) are not required to provide periodic pricing or valuation information to investors; (4) may involve complex tax structures and delays in distributing important tax information; (5) are not subject to the same regulatory requirements as mutual funds; and (6) often charge high fees. 

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