GFL’s Strategic Shift Raises Questions on Dividend and Risk Profile

Strong Performance Amid Market Complexity

Global Masters Fund Limited (GFL) closed the 2024/2025 financial year with a total return of 19.8%, comfortably outperforming the MSCI World Index (AUD) return of 16.4%. This achievement was broad-based, with key holdings such as Berkshire Hathaway and the ECP Global Growth Fund delivering solid gains of 19.0% and 22.0% respectively. Currency tailwinds, particularly from the US dollar, further bolstered returns.

The year’s market environment was marked by stark contrasts, while a handful of mega-cap technology stocks dominated headline returns, underlying structural themes like reshoring, AI-driven computing demand, and energy transition challenges created fresh investment opportunities. GFL’s active management approach, particularly through its manager EC Pohl & Co, capitalized on these dynamics by maintaining disciplined exposure to quality growth companies without succumbing to the risks of concentrated mega-cap positions.

Strategic Evolution, Diversification and Private Growth

In a notable strategic pivot, GFL announced plans to reduce its Berkshire Hathaway weighting to approximately 50% of the portfolio. While the iconic investment has historically been a cornerstone, the fund acknowledges the constraints imposed by Berkshire’s size on future returns, echoing Warren Buffett’s own recent commentary.

To capture the next generation of growth, GFL is expanding its investment scope by committing capital to the ECP Private Growth Fund, targeting pre-IPO companies with proven revenue traction and strong governance. This move leverages GFL’s permanent capital structure, allowing it to hold private investments through their full value creation cycle without redemption pressures typical of open-ended funds.

Additionally, GFL is seeding three new regional Resilient Quality Funds focused on Europe, the Americas, and Asia-Pacific. These funds aim to identify mid-cap, high-quality companies in their growth phases, complementing GFL’s existing UK portfolio and broadening geographic diversification. Importantly, GFL has secured zero management fees on the Americas and Asia-Pacific funds for three years, enhancing value for shareholders.

Capital Structure and Dividend Policy

During the year, GFL’s convertible notes reached a step-up hurdle, increasing interest payments to 6.5% per annum. Encouragingly, strong share price performance has prompted significant note conversions into ordinary shares, strengthening the capital base and reducing future cash obligations. This trend is expected to accelerate as the notes approach maturity in November 2026.

The Board has resolved to maintain a no-dividend policy in the short term, prioritizing long-term compounding over immediate income. While recognizing that future capital gains will generate franking credits, the company plans to monitor these carefully and may consider special distributions when appropriate. This approach aligns with the Berkshire Hathaway model admired by GFL’s leadership.

Looking Ahead, Active Management and Brand Refresh

GFL is embarking on a gradual transition toward a more actively managed portfolio, with ambitions to eventually manage a concentrated portfolio of 20-40 global quality companies directly within the fund. This evolution is supported by a refreshed brand identity and enhanced transparency initiatives, signaling GFL’s commitment to becoming a fully active investment company.

Leadership changes also underscore this new chapter, with Jason Pohl’s recent promotion to Managing Director bringing fresh energy and strategic focus. The Board remains confident that these initiatives will enhance GFL’s ability to compound wealth over the long term, narrow the discount to net tangible assets, and deliver superior returns to patient shareholders.