April 2025

The first quarter was quite profitable for our portfolio. Your investments proved remarkably resilient amid heightened volatility and uncertainty. You can find your 1st quarter capital statement in your Mad River Client Portal.

Markets despise uncertainty above all. Investors, including us, are wary of trade tariffs, budget concerns, and ongoing wars in the Middle East and Ukraine. These issues are complicated by a new administration’s unpredictable messaging. The S&P 500 ended the quarter in negative territory, with many traditional leaders driving the decline.

Despite these crosscurrents - we see extraordinary opportunities — and believe we are well-positioned to capitalize on them. We have assembled a unique portfolio of high quality, capital light businesses that generally have simple and straight forward business models. These businesses are profitable, high-margin businesses, generating significant free-cash flow that can often be returned to shareholders in the form of dividends and share buybacks.

In recent years, the Permian Basin has been the engine of U.S. energy production. We believe it is now evolving into the premier location for Big Tech’s data centers to fuel their AI driven growth initiatives. These facilities require tremendous amounts of land, water, and electricity.

As one of the largest landowners in Texas, controlling about 900,000 acres in the Permian Basin, Texas Pacific Land (TPL) has historically earned revenues from working ranches with the optimal use being cattle grazing. As a result of technological developments, more recently the company earned revenue through leases for infrastructure related to oil and gas production and transportation. Initiatives are quickly evolving where new projects could include power generation, power transmission, water handling, carbon capture and aforementioned data centers.

When it is apparent to all that data centers will be operating on this land, we expect a material repricing of the land. Ultimately in the fullness of time, we suspect that the common metric to value the land will not be price per acre, but price per square foot, a more conventional metric used in pricing real estate. We believe we are in the early innings of a long-duration investment theme.

For context on the scope of the opportunity, Boston Consulting Group estimates that leading data center investors will spend $1.8 trillion between 2024 and 2030. The salient question we ask, is it better to invest in the consumers of the resources required to build and operate data centers or the providers of those critical and scarce resources? In a modern-day gold rush, we are focused on the picks and shovels by securing exposure to the critical resources, namely land, power, and water.

It may not be apparent when reviewing the portfolio holdings, but one of the most valuable assets embedded in the portfolio is water. We have exposure to water rights via investments in Texas Pacific Land, LandBridge and recently acquired Aris Water Solutions.

What is remarkable (to us anyway) is that the S&P 500 provides little exposure to the resources that are vital to the growth of said Index. Currently the energy sector represents just 4% of the S&P 500. In other words, functionally no consideration is given to the possibility of a natural gas driven deficit impacting the earnings of the largest and highest valued positions in the S&P 500.

We believe the potential rate of return for our businesses remains incredibly high.

Magnificent to Maleficent

The S&P 500, NASDAQ 100 and large cap technology companies specifically appear to be at a crossroads. Historically the group often referred to as the “Magnificent 7”, Apple, Facebook, Google, Amazon, Microsoft, Nvidia and Tesla have all stayed in their own lanes, rarely competing with each other. As their businesses evolve, that is no longer the case. These businesses came to dominate the market because they were extremely profitable with extraordinarily high net-profit margins. As they embark on this new growth phase, they are morphing from cash cows to capital-intensive businesses as they compete in a functional “arms race” for AI dominance.

This fact is apparently not lost on the market, as evidence of their 1st quarter performance.

If you are invested in the S&P 500 or big cap technology, you are into AI in a big way. If you are in AI – you should be really interested in natural gas and water.

Introducing a New Team Member

We are thrilled to welcome Michael Gagne to the Mad River team as of April 1st. With 25 years of experience in strategy, client development, and sales, spanning large corporations and his own consulting firm, Mike brings fresh perspective and infectious energy to our tight-knit group.

Mike initially began investing with Mad River as a client in 2024. Mike was frustrated with his experience at large “institutional” wealth managers, realizing he was overly diversified into hundreds of investments and often being sold “products” that likely aligned more with the goals of the advisor than his personal investment goals.

Mike was struck by our unique approach, driven by fundamental research into high conviction investments and our long-term track record. Further, he embraced our principal mindset and the fact that we “eat our own cooking,” investing significant personal and family capital alongside our clients. In business, like investing, we saw a special situation opportunity. We believe he will be a great addition to our team as we continually work to enhance and develop our business.

Over the coming weeks, we will be reaching out to introduce Mike. If you have any questions, want to discuss the markets, or simply want to connect, we encourage you to reply to this email or schedule a time to chat.

Housekeeping

The annual distribution of our ADV Part 2 business practices disclosure and ADV Part 3 customer relationship summary disclosure has been posted to your investor portal.

If you have any questions about your account, please do not hesitate to contact us. Thank you for your continued trust and confidence.

Best regards,

Rick Silver & Josh Stewart

Mad River Investors

Important Disclosure on Model Performance: For the purpose of presenting historical performance information, we reference and present the performance of our Model. While limitations exist with models, we believe our Model offers a reasonable assessment of the typical performance of our historical investment selections for clients. Our Model is based on a taxable portfolio investing since the inception of the investment strategy in March 1999. The Model is presented net of all fees (adjusted to the highest annual fee charged to clients), brokerage expenses, and includes the reinvestment of dividends and interest. The Model generally reflects the performance of portfolios under management since the strategy’s inception in 1999. Client performance will deviate from the Model due to, among other reasons, the starting point of a client relationship; client guidelines, circumstances, and directives; the size of a portfolio and its relative costs; additions and withdrawals of funds; the timing and historical position sizing and concentration of investments; and the account type and its ability to participate in certain investments. During this period there were no strategies employed to obtain the results portrayed other than those implemented for clients pursuant to the Model and disclosed in our Form ADV. Please carefully review our Form ADV for further information. We encourage and strongly recommend that you discuss with us the application, correlation, and significance of the Model’s performance to our client’s historical returns.

Important Disclosure on Benchmark Comparison: The S&P Composite is regarded as a gauge of the US equity market. This index includes a representative sample of 500 leading companies in leading industries of the US economy. Although the S&P 500 focuses on the large-cap segment of the market, we believe it serves as a reasonable proxy for the US market. Nonetheless, the use of the S&P Composite as a comparison may not be appropriate for a variety of reasons including, but not limited to, Model and client account(s) being more concentrated; volatile; holding cash, fixed income investments, and/or option contracts; being short securities; or the average capitalization of companies comprising the Index not correlating with the capitalization of the companies comprising the Model.

Important General Investing Disclosure: Inherent in any investment is the potential for loss of capital, past performance is not indicative of future results, and the value of investments and the income derived from investments may increase or decrease. It is not our intention to state, indicate or imply that future investment results will be profitable or equal past results. The information presented is meant to form the basis of a discussion with us and is subject to further clarification and explanation during discussions with us. This information may not be duplicated, redistributed, or communicated to others without our consent. This is not an offer or solicitation to any person in any jurisdiction in which such an action is not authorized or to any person to whom it would be unlawful to make such an offer or solicitation. We do not provide tax or legal advice to our clients, and you are strongly urged to consult a tax or legal advisor regarding any potential investment strategy.

This communication may include opinions and forward-looking statements. All statements other than statements of historical fact are opinions and/or forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the beliefs and expectations discussed are reasonable, we can give no assurance that such beliefs and expectations will prove to be correct. All expressions of opinion are subject to change. You are cautioned not to place undue reliance on these forward-looking statements. Any dated information is published as of its date only. Dated and forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any dated or forward-looking statements. Investment process, strategies, philosophies, portfolio composition and allocations, security selection criteria and other parameters are current as of the date indicated and are subject to change without prior notice. 8/28/23