2Q26 Partners Fund Commentary

Southeastern Asset Management argued that markets have entered a dangerous speculative phase, with the CAPE ratio showing both earnings and multiples disconnected from long-run averages for the first time in history. The firm pointed to "Hyperscaler" free cash flow running below 2019 levels on a next-twelve-months basis, while the market continues to price in a "perpetual motion machine" of recycled capital inflating revenue and adjusted EBITDA. Longleaf drew parallels to Citigroup's 2007 posture and flagged Jane Street's outreach to the Wall Street Journal as a sign that even highly profitable market participants are running out of room to grow. Within the portfolio, Fortune Brands contributed after recruiting Jesse Singh as CEO — whose prior tenure at AZEK ended in a sale at 20x EBITDA — while FedEx contributed as its core Federal Express segment grew revenue 14% and adjusted operating income 13% in its fiscal fourth quarter. Albertsons and Regeneron were the main detractors; Regeneron's pipeline has now succeeded on one of three key readouts that Longleaf had expected two of three to clear, and the firm trimmed the position earlier in the year when sentiment was more favorable. The fund returned 3.87% in the second quarter versus 15.20% for the S&P 500, with roughly 90% of the relative gap attributed to an underweight in Information Technology. Longleaf added one new healthcare position and exited Bio-Rad after concluding capital was better deployed elsewhere.