Fund Philosophy & Process
How PCA SOF thinks and decides. Read after Fund Overview and PCA SOF Investment Thesis.
Investment Philosophy (the beliefs)#
- Own the shovel and the gold. In a gold rush with uncertain miners, own the picks (NVIDIA, TSMC, Micron, Disco), the land (Constellation, Vistra), and a few promising miners (the software & consumer layer). → The AI Value Chain
- Chokepoints compound. Durable excess returns come from controlling a scarce, hard-to-replicate input, leading-edge fab capacity, CUDA, HBM, advanced-packaging tools, nuclear baseload.
- Concentration with conviction. 27 names, not 100. Diversification past the point of understanding is di-worse-ification. The fund would rather deeply understand 27 businesses.
- Secular over cyclical, but respect the cycle. Memory, foundry, and power are cyclical inside a secular uptrend. Size them for amplitude; add into capitulation, trim into euphoria.
- Moats are the only durable alpha. Every position must survive the question: what stops the customer's in-house team, a hyperscaler, or a low-cost rival from replicating this?
- Power is the new oil. Compute is gated by electricity; the fund took direct energy exposure before consensus.
- Geography is edge. Non-US winners (TSMC, Tencent, BYD, MercadoLibre, Adyen, BioNTech, Disco, Li Ning) are systematically under-owned by US benchmarks.
- Read the chain, not the name. Earnings are analysed for cross-holding read-throughs (a hyperscaler capex beat is a Micron/Marvell/TSMC signal).
Investment Process (idea → position → review)#
1. Sourcing, thematic top-down#
Start from a theme (Artificial Intelligence → AI Power Demand). Ask: where in this theme is value scarce and defensible? Map the value chain; identify the chokepoint at each layer.
2. Underwriting, bottom-up moat & financials#
For each candidate: moat type & durability, unit economics, capital allocation, balance-sheet resilience, management quality, and a 3-statement view of the next 3-5 years. The fund underwrites a base / bull / bear and demands asymmetry (bull-bear skew favourable).
3. Role assignment, portfolio fit#
Before sizing, define the holding's role: Return Driver, Compounder, Hedge/Diversifier, or Optionality (§8 of claude.md). A name with no distinct role is rejected even if cheap.
4. Sizing, conviction × asymmetry ÷ correlation#
Position size rises with conviction, liquidity, and bull/bear asymmetry; it falls with correlation to the existing book. Highly correlated AI names share a risk budget so the portfolio isn't secretly one trade. → Position Sizing Framework
5. Monitoring, the living thesis#
Each holding has explicit thesis-validation signals and sell triggers. Quarterly earnings update 09 Earnings Analysis and feed Cross-Holding Read-Throughs.
6. Sell discipline#
Exit on: moat impairment, theme maturity fully priced, value-destructive capital allocation, or a superior expression of the same theme. The fund does not sell on multiple compression alone if the thesis is intact, but it trims into euphoria.
Risk Management Philosophy#
- Internal hedges over derivatives. The non-AI ring (payments, healthcare, EM consumer) is the structural hedge against AI-capex beta. → Return Drivers vs Hedges
- Concentration is managed, not avoided. The fund accepts single-name risk where moats are deepest; it manages it via theme/correlation budgeting, not by over-diversifying.
- Pre-mortem every position. Every company note carries a Major Risks pre-mortem. The portfolio-level pre-mortem is Risk Master Note.
- Respect tail risk it cannot diversify. Taiwan Strait Risk is the one exposure the fund cannot hedge internally, it is sized and monitored explicitly.
How The Manager Thinks (mental models)#
- "Follow the constraint." Whatever is most supply-constrained in the AI build-out has the most pricing power, that's where to be.
- "Two ways to win." Prefer positions that pay off on the base case and have free optionality (Meta: ads base case + AI/Reality Labs optionality; Alphabet: search base + cloud/Waymo optionality).
- "The second-order trade." Everyone owns NVIDIA; fewer connect NVIDIA's GPUs to a power shortage and own Constellation Energy. The fund hunts second-order beneficiaries.
- "Cyclical inside secular." Don't confuse a memory down-cycle with a broken thesis.
Linked Notes#
- Related: Fund Overview · PCA SOF Investment Thesis · Portfolio Construction Overview · Position Sizing Framework · The AI Value Chain
- Risk: Risk Master Note · Return Drivers vs Hedges
- Process outputs: Cross-Holding Read-Throughs · Historical Portfolio Evolution