WHAT HAS HAPPENED SINCE JANUARY

Three forces have converged to produce the market environment we face today. We address each factually.

The Iran conflict. On 28 February, the US and Israel launched coordinated strikes against Iran, killing Supreme Leader Khamenei and triggering the most significant energy supply disruption in modern history. The Strait of Hormuz — through which approximately 20% of global crude and one-fifth of global LNG transits daily — has been functionally impaired since 2 March. Brent crude has risen from $71 at year-end to $112.57 at Friday's close, a move of approximately 50%. Iran has rejected the US 15-point ceasefire proposal and issued its own counterproposal that includes sovereignty over the Strait. A US deadline of 6 April for energy plant strikes remains live. The market impact is direct: oil at $112 feeds into inflation, compresses consumer purchasing power, and forces central banks into impossible positions. The physical crude market tells an even starker story Dubai crude has surged 76% since the war began, against a 36% gain in paper futures, a divergence that cannot persist indefinitely.

The rate narrative reversal. Our January letter identified 'cheap debt' as a structural support for markets. That pillar has moved. The Federal Reserve held rates at 3.50–3.75% at its March 18th meeting, revised PCE inflation upward to 2.7%, and signalled just one cut for 2026 down from two priced by markets entering the year. More significantly, by Friday 27 March, CME FedWatch showed a 52% probability of a rate increase by year-end the first time this threshold has been crossed. University of Michigan consumer sentiment fell to 53.3, with short-term inflation expectations jumping to 3.8%. The word being used on trading floors is one we have not heard seriously since 2022: stagflation.

Equity market deterioration. The S&P 500 is down 7.4% for March, closing Friday at 6,368 its lowest level since August and 8.74% below its January all-time high. The Nasdaq has entered correction territory, down more than 12.5% from its October peak. The Dow entered correction on Friday. The VIX closed at 31.05, with the CNN Fear & Greed Index in 'Extreme Fear'. Moody's AI-driven recession model now places the probability of a US recession at 49% and that reading was for February, before the full energy shock was absorbed. The S&P 500 has now posted five consecutive weeks of losses, its worst streak in almost four years.

OUR HONEST ASSESSMENT

We will not pretend this environment was fully anticipated. The severity of the Iran conflict, the speed of the Hormuz disruption, and the pace at which rate-hike expectations have repriced — these have exceeded the base case we outlined in January. We said we expected turbulence. The turbulence has been more acute than projected.

What has not changed is the underlying logic of how we manage capital through environments like this.

On the stagflation risk: we take it seriously. The 1970s analogy is being invoked widely and not without reason — an energy supply shock combined with sticky inflation and a central bank that cannot cut. However, the structural differences are material. US energy production is far more diversified than in 1973. The EIA currently forecasts Brent falling below $80 by year-end, contingent on Hormuz normalisation. Goldman Sachs has estimated a $14–18 per barrel geopolitical risk premium in current pricing — premium that unwinds when the conflict resolves. The market is pricing a prolonged crisis; history suggests these premiums overshoot.

On recession probability: 49% is not 100%. And the economy that is being stress-tested here is not a fragile one. GDP growth for 2026 remains forecast at 2.4%. Q1 corporate earnings growth is still projected at 12.5%. The Information Technology sector is expanding profit margins — 29.0% projected versus 25.5% a year ago. These are not the fundamentals of an economy in contraction.

On the market correction: the 2025 playbook is instructive. March 2025 marked the start of the tariffs discussion — one of the worst months in nearly 100 years. Liberation Day on 9 April brought one of the deepest single-day drops in market history. And then: a full-scale recovery in May and June that made those months some of the best in recent history. Those who sold into fear crystallised losses. Those who stayed did not.

The greatest risk remains what it has always been: being out of the market when it decides to move.

PORTFOLIO POSITIONING: CONVICTION MAINTAINED

We have made no reactive changes to the portfolio. This is a deliberate choice, not an oversight.

Our Barbell architecture — 70% liquid, 30% illiquid — was designed precisely for this type of environment. The meaningful tilt toward hedge fund strategies within the liquid sleeve — representing 40% of our liquid allocation — has done exactly what it was built to do. Our hedge fund sleeve gained 3.12% in Q1, at a time when the S&P 500 lost 7.4% and the Nasdaq entered correction. This is not a coincidence. It is the result of a deliberate allocation decision taken before the storm arrived. In turbulent times, the most disciplined investors do not simply survive — they find a way to compound. Q1 2026 has been a meaningful validation of that approach.

On the illiquid side, our conviction positions remain intact. our private market positions in Anduril, Neuralink, xAI, Crusoe — alongside other illiquid holdings are not derivatives of oil prices or Fed policy. They are positions in the infrastructure of the next decade — built on cash flows, secular demand, and structural necessity that a four-week geopolitical event does not alter. Anduril, in the current environment, has seen its strategic thesis reinforced rather than weakened. We are not sellers.

We are, however, watching three things closely as we move into Q2. First: whether the April 6th Iran deadline produces a material escalation or a further extension — the resolution path will determine how quickly the energy risk premium unwinds. Second: whether the April 28-29 FOMC meeting provides any clarity on the rate path under an energy shock. Third: whether Q1 earnings season, beginning in mid-April, confirms or challenges the 12.5% earnings growth estimate currently priced by the market.

These are the data points that will inform any tactical adjustments. Until they arrive, discipline holds.

A FINAL THOUGHT

Gold at $4,524. The 10-year Treasury at its highest yield since July. The VIX at 31. These are not numbers that suggest complacency — and we are not complacent.

But they are also numbers that have historically marked periods of peak fear, not structural collapse. Every significant drawdown we have navigated — 2020, 2022, 2025 — has felt, in the moment, like the one that would not recover. They all did. The mechanism of recovery is always the same: uncertainty resolves, risk premiums compress, and capital that was patient enough to remain invested captures the return.

We said in January: we would rather be approximately right than precisely mistaken. We stand by that. The thesis has not broken. The environment has worsened. Those are two different things.

It remains a privilege to steward your capital through moments like this. We do not take that trust lightly — and we never will.

Matteo Manfredi