Ace River Capital's Q4 2025 letter reflects on a challenging year for the fund, with returns significantly lagging behind major indices. Despite this, the firm remains committed to its long-term, value-oriented investment philosophy, focusing on concentrated positions in small and micro-cap businesses with inherent advantages. The report provides a transparent overview of individual holdings, including the standout performance of Vox Royalty and the navigation of legal complexities surrounding RCI Hospitality. Additionally, it details strategic adjustments to other positions like MarineMax and a highly speculative holding in GLFE, all while reiterating a belief in the market's current dislocations as opportunities for future growth.
Ace River Capital's Q4 2025 Performance and Investment Philosophy
Ace River Capital Partners concluded the fourth quarter of 2025 with a return of -4.55%, underperforming the S&P 500, which gained 2.7%, and the Russell 2000, which saw a 2.2% increase. The full year results were a decline of -21.95%, in contrast to the S&P 500's +18.0% and the Russell 2000's +12.8%. This underperformance is attributed primarily to valuation compression and unique corporate events rather than any fundamental erosion of business value. The firm maintains a steadfast commitment to its long-term investment philosophy, prioritizing intrinsic value over transient market fluctuations. Starting in 2026, investor communications will transition to semi-annual updates, reflecting the fund's long-term, low-turnover strategy and its focus on enduring value.
The investment strategy centers on a highly concentrated portfolio composed of small and micro-cap enterprises that possess robust economic foundations, tangible assets, and significant opportunities for reinvestment. The fund deliberately avoids sectors like software, finance, and insurance, instead favoring asset-backed companies with inherent scarcity value. Examples include specialized licensed real estate, waterfront properties, and royalty interests in mineral deposits. This methodical approach necessitates considerable patience, comprehensive research, and a tolerance for market volatility. The portfolio typically consists of fewer than five positions, each meticulously monitored, with additions made only when the risk-reward balance is exceptionally favorable. The strategy anticipates extended periods of market inactivity, minimal trading, and occasional sharp downturns, viewing these as integral aspects rather than shortcomings of the investment methodology.
Portfolio Highlights and Strategic Adjustments
Vox Royalty Corp. (VOXR) has become the fund's largest holding, achieving an approximate 160% return since its initial investment in Q4 2023. This success is underpinned by the consistent rise in gold prices, fueled by inflation, geopolitical uncertainties, and unpredictable fiscal policies. Vox's royalty-based model offers a leveraged exposure to these market dynamics while sidestepping the substantial capital requirements and operational risks commonly associated with traditional mining. The company continues to expand its royalty portfolio, grow its cash flow, and maintain a robust balance sheet, solidifying its role as both a long-term compounder and a natural hedge against macroeconomic instability, with no anticipated changes to this thesis.
RCI Hospitality Holdings (RICK) experienced a roughly 25% share price decline in Q4, following bribery and tax-related charges against its executives. Despite these legal and governance challenges, the core business operations remain sound, with ongoing cash flow and continued share repurchases. The stock's current valuation, trading below the estimated value of its real estate assets, suggests that much of the risk is already priced in. The resignations of the CEO and CFO have mitigated governance concerns. While potential fines or balance sheet impacts are possible, the long-term thesis for RICK remains intact, viewing the current prices as a strategic buying opportunity. In contrast, MarineMax (HZO) saw a reduction in its position, with roughly half of the shares called away due to the sale of in-the-money covered calls. Although MarineMax possesses an attractive portfolio of marinas and waterfront real estate, the absence of immediate catalysts and the cyclical nature of the retail boating sector prompted a more cautious approach. The fund is monitoring management's strategic pivot towards higher-margin services but remains selective in deploying additional capital. A highly speculative and illiquid position in Green Light Financial Enterprises (GLFE), formerly Drive Shack Inc. (DSHK), reflects a corporate restructuring aimed at asset monetization and capital structure repositioning; the fund does not intend to increase this exposure and will seek opportunistic reductions as liquidity improves.
