3Q25 Partners Fund Commentary

Southeastern Asset Management argued in its Q3 2025 letter that the Magnificent 7's market cap has risen roughly 3x since end-2022 while weighted average free cash flow per share grew less than 30% over the same period — a disconnect it compared to late-cycle excess seen around 2000. The firm flagged circular supplier financing reminiscent of Lucent Technologies and cited a revenueless IPO valued above $10 billion as evidence of speculative excess, warning the S&P 500's price-to-sales ratio could be cut in half from current levels. Against that backdrop, Southeastern said its own portfolio trades at approximately 10x FCF and sees a path to a mid-teens FCF multiple on growing FCF per share. Key catalysts named include Kraft Heinz's planned split into two units (combined value seen above $40 per share), FedEx's Freight separation (combined value seen above $350 per share), and a merger of equals between timberland holdings Rayonier and PotlatchDeltic announced after quarter end. IAC and MGM were flagged as having price-to-value ratios well under 50%, with IAC's remaining assets described as effectively free after deducting the market value of its MGM stake. The Partners Fund returned -0.33% in Q3 2025 versus +8.12% for the S&P 500, and -0.41% year-to-date versus +14.83%. The fund's price-to-value ratio stood in the low-60s% at quarter end. Southeastern acknowledged trailing relative returns but framed the gap as a byproduct of avoiding overvalued assets rather than a failure of process.