Navigating Market Dynamics: Strategic Growth and Undervalued Opportunities
Fund Performance Overview: Outperforming Key Indices in Q4 2025
In the final quarter of 2025, 1 Main Capital Partners achieved a commendable return of 3.4%. This performance notably surpassed the S&P 500, which posted 2.7%, and the Russell 2000, with returns of 2.2%. The fund's consistent outperformance since its inception underscores a successful long-term strategy centered on meticulous investment selection and disciplined risk management.
Key Contributors and Strategic Exits: DNTL's Acquisition and Core Holdings
The stellar performance was primarily fueled by 1MC's three largest holdings: IWG, BFit, and DNTL, collectively contributing a gross 30% (25% net) to the fund's returns. A significant highlight was the acquisition of DNTL by GTCR, a testament to the value creation within 1MC's portfolio. Meanwhile, IWG and BFit continue to represent substantial positions, accounting for nearly half of the fund's capital. Conversely, detractions from SUP, WATR, and PRKR led to a combined 6% gross (5% net) loss. The prompt divestment of SUP following customer losses and WATR due to management concerns exemplified proactive risk mitigation, while increased conviction in PRKR and LMB demonstrated adaptive portfolio management.
Investment Philosophy: Aggressive Conviction and Opportunistic Bets
1MC's investment strategy is characterized by an aggressive allocation to high-conviction core investments, typically ranging from 5% to 25% of capital. More opportunistic bets are treated as 'options,' usually limited to 1-3% of capital. This dual approach prioritizes not only potential upside but also rigorous downside protection, a methodology that has consistently yielded favorable outcomes.
Team Expansion and Future Prospects: Welcoming a New Analyst
Looking ahead to 2026, 1MC is poised for further growth with the addition of a new analyst. This strategic hire, boasting an MBA from Columbia Business School and a decade of public equity buyside experience, is expected to significantly enhance the velocity of new investment ideas, thereby bolstering the fund's competitive edge and facilitating continued portfolio diversification.
Current Portfolio Allocation: Top Positions Driving Value
At the close of the quarter, the fund's top five holdings, Basic-Fit (BFit NA), International Workplace Group (IWG), Limbach Holdings (LMB), Radiant Logistics (RLGT), and a diversified ski/wake basket (MCFT and MBUU), collectively constituted approximately 65% of the capital. These concentrated positions reflect 1MC's confidence in their long-term growth trajectories and intrinsic value.
Limbach Holdings (LMB): A Resurgent Core Investment
Limbach Holdings (LMB) has been a standout performer for 1MC, acting as the top contributor in both 2020 and 2023, and proving to be the most profitable investment since the fund's inception. Following a 55% share price drop from its 2025 peak, largely due to temporary demand concerns exacerbated by government shutdown uncertainties, 1MC significantly bolstered its position, reinstating LMB as a core holding. LMB, a leader in building systems solutions, specializes in mechanical, electrical, and plumbing services for critical infrastructure across healthcare, industrial, data centers, life sciences, higher education, and entertainment sectors.
The Transformative Power of Owner-Direct Relationships (ODR)
Since 2016, LMB has strategically shifted its business model from predominantly general contractor (GCR) bidding to fostering owner-direct relationships (ODR). By 2025, ODR projects are projected to account for approximately 75% of LMB's revenues, contributing an even greater share of gross profits. This pivot is critical: ODR engagements are typically smaller, boast higher margins, require less capital, and are less susceptible to economic cycles. A substantial portion of ODR revenue is derived from high-velocity maintenance or fixed-price repairs under $10,000, with the remainder from project-based work averaging $250,000, a stark contrast to the multi-million dollar GCR projects. This approach positions LMB as an indispensable strategic partner to its ODR clients, unlike its role as a replaceable subcontractor in GCR settings.
Financial Impact and Growth Trajectory: Margin Expansion and Acquisition Strategy
The transition to ODR has been instrumental in elevating LMB's EBITDA margins from 3% in 2019 to 12% today. Despite a period of muted consolidated revenue growth as the company deliberately reduced its exposure to lower-quality GCR work, 1MC anticipates an inflection point for accelerated organic revenue growth and sustained margin expansion. Furthermore, LMB's minimal debt, robust cash generation, and active acquisition pipeline enable a "buy and transform" strategy, acquiring GCR-heavy businesses at low multiples and converting them to the more profitable ODR model. This strategy is expected to drive a Free Cash Flow (FCF) per share Compound Annual Growth Rate (CAGR) of approximately 20% over the medium term, with increasing geographic diversification and market understanding poised to enhance both earnings power and valuation multiples.
Market Outlook and Investment Philosophy for 2026: Identifying Value in Dislocation
Entering 2026, 1MC observes a market characterized by optimism for interest rates and growth, particularly reflected in the elevated valuations of mega-caps and new-economy leaders. However, 1MC remains focused on identifying undervalued, "old-economy" businesses that have been overlooked. The persistent underperformance of smaller companies relative to larger counterparts since the fund's inception presents compelling opportunities to acquire high-quality businesses at attractive multiples. Despite the influence of passive flows and short-term trading, 1MC is confident that long-term share prices are intrinsically linked to free cash flow per share. Many of the fund's top holdings exhibit double-digit FCF yields and high rates of reinvestment into long growth runways. These companies are led by astute management teams who capitalize on market dislocations to pursue accretive acquisitions, strengthen their competitive moats, and execute share buybacks.
Strategic Advantage in a Shifting Market: The Gift of Dislocation
For fundamental investors like 1MC, who conduct thorough due diligence and build strong conviction, the market's increasing trend towards passive investing and short-termism is a significant advantage. This environment allows the fund to discover high-quality assets at low valuations, enabling concentrated capital allocation to maximize returns. As 1MC progresses into 2026, its commitment to these core principles remains unwavering. The portfolio is believed to be significantly more attractive than broader indices, with the flexibility to rebalance capital swiftly in response to macroeconomic shifts. The fund expresses deep gratitude for its partners' sustained support and the invaluable luxury of a long-term capital base, which empowers it to look beyond quarterly fluctuations and pursue multi-year compounding objectives.
Ongoing Engagement and Future Connections: Expanding the Partnership Network
1 Main Capital Partners continues to welcome capital from both existing and new partners who share its investment philosophy. With $10 million in capacity remaining in the Founder's Class, the fund actively seeks referrals and values opportunities for in-person engagement. Upcoming attendance at cap intro events, including BTIG (Omaha, NE), Cannell Capital 3PM (Alta, WY), Jefferies (NYC), Raymond James (Virtual), and Santangel's Roundtable (NYC), provides avenues for connecting with prospective partners. Interested parties are encouraged to reach out for further discussion and networking opportunities.