Leaven Partners, LP has observed a significant appreciation in its assets during the third quarter of 2025. This growth reflects strategic investment decisions and an adaptable approach to evolving global market dynamics. The fund's performance, while robust, is contextualized against broader market trends, including a notable shift in leadership from US to international developed markets and the emerging phenomenon of corporate Bitcoin treasury holdings.
The investment philosophy at Leaven Partners emphasizes diversification and identifying undervalued assets. This approach was particularly evident in the fund's engagement with Japanese equities and, paradoxically, a Bitcoin treasury company. The firm's ability to capitalize on unique market opportunities, even those that initially seem counter-intuitive, underscores a pragmatic and opportunistic investment strategy that prioritizes downside protection while remaining open to significant upside potential.
Strategic Investment in Japanese Equities and Global Market Shifts
During the third quarter of 2025, the fund experienced an 11.0% increase in its assets. Over a three-year span, the fund's total return reached 66.7%, which contrasts with the S&P 500's 92.0% return over the same period. A significant driver of the fund's recent success was its exposure to Japanese securities. These investments performed exceptionally well, supported by a 21.6% year-to-date surge in the broader Japanese market. This robust performance is attributed to ongoing corporate reforms, substantial stock buybacks, and favorable capital market policies in Japan. This marks a notable shift, as Japan's market had not significantly outperformed the US market since 2013, when \"Abenomics\" led to a temporary surge. The fund plans to maintain substantial holdings in Japanese equities, anticipating continued tailwinds from these structural changes.
The outperformance of Japanese holdings aligns with a broader trend of international developed markets surpassing US markets, a phenomenon not seen consistently for an extended period. The MSCI EAFE Index has shown stronger performance than US indices in 2025, signaling a potential shift in global equity leadership. Historically, such cycles of outperformance have averaged around eight years, but the recent US dominance extended for 14.3 years, primarily driven by superior earnings growth and multiple expansion in US equities. However, experts suggest that extrapolating this trend indefinitely is unwise. A recent analysis indicates that much of the US outperformance was due to valuation changes rather than fundamental earnings growth. Therefore, the fund emphasizes diversification as a crucial strategy, particularly in less certain future market conditions. Small-cap Japanese equities, in particular, are highlighted as an attractive area for such diversification, offering a blend of value and growth potential.
Navigating the Bitcoin Phenomenon and Value Investing Principles
Beyond traditional equities, the investment landscape is being reshaped by the increasing adoption of Bitcoin as a treasury asset by public companies. This trend, termed the \"Bitcoin treasury revolution,\" has seen public and institutional entities accumulate nearly 1 million BTC by October 2025, representing a significant portion of Bitcoin's total supply. Companies like Strategy Inc. are leading this charge, holding vast amounts of Bitcoin, which some critics argue leads to inflated market valuations detached from their core business operations. This situation mirrors historical precedents where corporations allocated reserves to non-sovereign alternative assets like gold, driven by a desire to counter fiat currency devaluation. The market dynamics surrounding these Bitcoin-holding companies, such as Strategy Inc.'s stock trading at a premium to its Bitcoin holdings, raise questions about valuation and market efficiency, drawing parallels to a \"perpetual motion machine\" of investment described by financial commentators.
Despite a personal agnostic stance on Bitcoin's intrinsic value, the fund successfully navigated this emerging trend through a value investing lens. This strategy was exemplified by the purchase of Toho Lamac Co. Ltd., a Japanese shoe wholesaler and retailer. The company, initially valued below its liquidation value with substantial cash reserves and improving operations, became an unexpected Bitcoin treasury company. After acquiring shares at an average of ¥452, Toho Lamac announced plans to invest ¥1 billion in Bitcoin and Ethereum. This news was met with market enthusiasm, leading to a rapid appreciation of its stock. The fund promptly sold its shares at an average of ¥846, securing an 87% gain in under three months and contributing 1.5% to the quarter's returns. This opportunistic exit highlights the core principle of value investing: protecting against downside risks while leveraging unforeseen market developments for significant upside. It demonstrates that even in unconventional markets, a disciplined value-oriented approach can yield substantial benefits, transforming what might seem like a cynical observation into a profitable venture.