Q2 2025 Performance
The Gulfshore portfolio’s second quarter 2025 returns were 15.75% compared to 10.94% for the S&P 500 Total Return index. Accounting for a performance fee of fifteen percent typically charged by a fund manager, the net return to investors is 13.38%. This second quarter performance shows how the portfolio did just during Q2, measuring from the end of March to the end of June, while the year-to-date (YTD) performance shows the total results for both quarters combined through the midpoint of the year. The results are summarized below.
The portfolio increased this past quarter with a significant portion of the appreciation coming from multiple expansion and optimistic growth expectations. Even though the results are positive, it’s unlikely this momentum will continue, and performance may be flat in the next quarter or for the rest of the year.
Much of the portfolio’s gains came from Lumine Group and Topicus.com (both former spin-offs of Constellation). Lumine announced three acquisitions this quarter, which pushed its stock price up to around 12-15x sales or 60-70x free cash flow (very high). It appears that investors expect these new acquisitions to significantly boost Lumine’s revenue and profits once they’re fully integrated and show up in future earnings, hence an exceptionally stretched valuation today. However, even after these businesses are absorbed into the company over the coming quarters, it seems like it will be hard for Lumine to maintain this pace of deals in the second half of the year. This makes it more likely that the stock price could remain flat for a while as the market waits for the next wave of growth opportunities to appear. Who knows exactly when that will be? That said, we’ll happily take Lumine’s 20% increase from the last quarter while also maintaining a realistic view looking ahead.
On the Topicus front, the company continues to march towards its goal of $1.5 billion in annual revenues. Just this past June, it closed on fully acquiring Cipal Schaubroeck, a Belgian public sector software provider (~$200 million deal). Cipal Schaubroeck develops software for public administration needs like finance & tax collection, permitting, and general document management. What makes government and public sector software attractive is that once these software systems are in place, municipalities and public agencies rarely switch providers due to the complexity and integration difficulties. This gives their products natural ‘stickiness’, which translates into reliable long-term licensing streams.
Quick sidebar: A smaller yet telling example of Topicus’s sharp capital allocation skills came earlier in the year when it acquired a 9.99% stake in the Polish IT group Asseco at around $85 per share (with options to increase up to 14.8%). Those shares now trade at $225, which highlights management’s ability to deploy capital effectively especially in less crowded markets like Poland. With their new $200 million credit facility just announced in June, continued acquisitions seem likely.
All in all, Topicus, Lumine Group, and Constellation Software, representing about 50%+ of the portfolio, have made about 60 acquisitions so far this year. This is important because their structure is built to keep reinvesting the free cash flow from their subsidiaries into buying more businesses. It creates a self-fueling cycle of growth that continues to compound over time.
On the accounting roll-up front, Kelly Partners Group raised nearly $4 million to help fund future acquisitions. They did this by issuing new shares that were exclusively bought by people already inside the company. This shows that the people running the company believe in its growth and are willing to invest more of their own money to help it expand. It’s a good sign for investors knowing they’re on the same page as those running the business. Well aligned.
Lastly, I traveled down to Greensboro, NC to attend the Old Dominion Freight Line shareholder meeting in May. And while the meeting is mostly a formality, it was great to spend time talking with Marty Freeman (CEO) and David Congdon (Chairman), and who is the grandson of original founders Lillian and Earl Congdon from the 1930s. Daivd and his father, Earl Jr., still own about 10% of the company today. Even as the business navigates a tough freight market, it continues to maintain a competitive operating ratio of around 75%, which remains top-tier among its LTL peers.
As I noted in the previous quarter, the portfolio is designed to invest in businesses that are high quality in nature, have a durable competitive advantage, with substantial room to grow and absorb future free cash flows. By purchasing common stock, we can buy fractional pieces of ownership in these businesses.
For those following along, I wanted to share that the fund is now officially open and available to accredited investors. If you or others have any interest in learning more or discussing potential participation, please feel free to reach out at benjamin.finelli@gmail.com
current holdings: kpg.ax otcm lmgif cnswf odfl toitf
potential additions: vhibf pnpff trrvf sgn.wa