Portfolio Overview & Performance

Berman Capital produced a return of 2.68% net of fees in the first quarter of 2025.

The first quarter was dominated by the Trump administration’s geopolitical and economic policies, and since the first quarter ended, the policy-driven volatility has only increased. It has been particularly difficult to form any strongly held macro views since the beginning of April, given the fast pace with which policy has been changing on an almost weekly, and sometimes daily, basis.

Our highest-performing investment in the first quarter was our long position in gold futures, which is by far our largest holding; gold has been one of the best-performing commodities so far this year, up almost 20% as of the end of the first quarter. The highest performing position in our equity book was our long investment in gold miner Idaho Strategic Resources (IDR),followed by our short position on independent power producer Constellation Energy (CEG), as well as our short of liquified natural gas (LNG) producer Venture Global (VG).

Our worst-performing positions were our long investment in Tidewater (TDW), our short position in Texas Pacific Land (TPL), and our long position in tin miner Alphamin Resources (AFM). Alphamin has been a particularly frustrating position for us. The company operates the Bisie tin mine in the North Kivu region of the Democratic Republic of the Congo (DRC),producing about 6% of the global tin supply. In March, the mine temporarily ceased operations due to advances by the Rwandan-backed rebel group M23 near the mine site. As of this writing, they have already restarted operations, but the political situation in eastern DRC remains, at best, unstable. We think the market is mispricing the risk that the Bisie mine gets permanently shut down or taken away from Alphamin. M23 doesn’t have the ability to take over and operate an industrial scale mechanized mine like Bisie. The rebel group currently operates small-scale artisanal mines in the region, which is a far cry from the complexity of operating a mine like Bisie. A non-operating Bisie would be an asset of minimal strategic value to M23; the mine is not located near major roads or towns that would be of strategic value to the rebel group.  

Sable Offshore

In the current period of erratic trade policy-driven volatility, we look for opportunities in which the outcome will be dependent on idiosyncratic factors and have minimal commodity price risk or beta to economic sentiment; being a fund that invests in the commodities sector, this can be a challenging task as our investment universe can be uniquely exposed to geopolitical and economic trends. Sable Offshore is a perfect example of an investment in which the outcome will be decided on idiosyncratic factors largely unconnected to commodity prices, and it has become one of our largest holdings. Sable is attempting to restart production on the Santa Ynez Unit (SYU), an oil and gas asset off the coast of Santa Barbara, California. We believe that Sable is extremely underpriced due to the regulatory complexity surrounding the restart of the SYU, but once it clears its regulatory hurdles and production is restarted, the share price will see a substantial uplift. We published our initial investment thesis on Sable in December 2024 (see our report here), and since then, Sable has made significant progress towards restarting production.

On February 18^th, Sable filed a lawsuit with a takings claim of $250 million challenging the California Coastal Commission’s (CCC)issuance of a Cease-and-Desist Order over Sable’s repair work on its pipeline. According to Sable, the repair work is covered by an existing permit issued by the County of Santa Barbara under the county’s delegated authority under the Coastal Act and its certified Local Coastal Program (LCP) and, therefore, the Coastal Commission does not have jurisdiction to issue a Cease-and-Desist order. Local Coastal Programs are approved by the CCC and allow for policies of the California Coastal Act to be delegated to the local government; this includes, among other things, issuing Coastal Development Permits such as the one Sable Offshore is operating under while repairing its pipeline. Sable also asserts that the CCC improperly issued the Cease-and-Desist order by demanding the cessation of work within 24 hours and not providing an opportunity for a hearing or formal findings, which is required under California Public Resource Code Section 30803.

On April 10^th, the CCC imposed an $18 million penalty on Sable, the largest fine ever levied by the CCC, for the allegedly unpermitted work Sable did on its pipeline. The CCC argues that the County of Santa Barbara failed to take action even though The County of Santa Barbara confirmed that the pipeline anomaly repair work is authorized under existing permits in a letter sent to the CCC on February 12^th.

While we believe that the courts will likely void this penalty, the fine does invalidate the Coastal Commission’s arguments for the dismissal of Sable’s lawsuit, which was that Sable lacked standing and the case lacked ripeness. By Issuing a Cease-and-Desist order and penalty, the CCC made a final administrative action, and Sable can now seek a review of the CCC's final order. Before the penalty, Sable’s lawsuit ran the risk of being dismissed for failing to exhaust all administrative remedies since the Coastal Commission had yet to take a final action. The penalty also provides Sable with a definitive monetary injury and establishes a clear basis for standing.  

As we expected, on April 17^th, the Court denied the CCC’s request for a temporary restraining order on Sable. This means that Sable can continue work on its pipeline while this case is adjudicated, removing one of the last legal roadblocks that could have further delayed the restart of the SYU. While this case is being adjudicated, Sable can continue its repairs on the pipeline, which should be completed within the next week or so. Sable has also already begun hydro-testing on completed parts of the pipeline, a necessary step to getting final approval from the Office of the State Fire Marshal (OSFM). Despite the substantial progress the company has made since the publication of my initial report, its share price has declined in sympathy with crude oil prices, giving us the opportunity to purchase more shares at a lower price despite the substantial de-risking of the situation.

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Crude Oil

Recently, there has been a prevailing bearish sentiment in the crude oil market, and for good reason. The Trump administration’s recently announced trade policies will likely cause a recession, which would almost certainly have a negative effect on global crude oil demand growth. On top of that, OPEC+ is in the process of belatedly unwinding its production cuts, surprising the market in early April by hiking production by 410 thousand barrels per day (kbpd) instead of the 135 kbpd that was expected. OPEC has purposely created ambiguity around the schedule of production hikes going forward, adding more opacity to the supply and demand outlook.

While the reasons for being bearish on crude oil this year are compelling, we become uncomfortable when there is such broad consensus in the markets. With sentiment so bearish, it will only require global supply and demand assumptions to improve marginally to see an outsized market reaction.

Despite the macroeconomic turmoil, the physical market is still showing signs of the supply and demand balance being relatively tight. The Brent crude oil futures curve has remained in backwardation into2026, at which point it flips into contango; this is a very unusual term structure. Commercial crude oil inventories are lower year-over-year as well as compared to the5-year average. Refined product inventory is also similarly low, suggesting that the physical market is still relatively tight and refining margins are also relatively healthy. It is entirely possible, perhaps even likely, that the physical market has yet to see the impacts of the Trump administration’s trade policy, and the physical market will converge with the financial market, but at present, the crude oil market is showing an odd mix of conflicting evidence.

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Trade Policy

The Trump administration's recently announced trade policies, especially his announcement of tariffs on April 2^nd, so-called “Liberation Day," have caused extreme volatility across markets. These policies and the speed with which they change will be a headwind for nearly all asset classes for the foreseeable future. Our opinion on these policies should be no surprise. It is clear to us that if these policies are implemented, they will undoubtedly cause a recession and reaccelerate inflation. These policies will also be ineffective in reshoring manufacturing since policy stability is required for planning long-term investments. We do not think that the majority of companies will be comfortable underwriting such significant investments with the current erratic trade policy that appears to change day to day.

The Trump administration's belief that we can deglobalize our economy is simply incorrect. We have restructured the global economy over the last 30years based on the offshoring of manufacturing, which has benefited developed and developing economies alike. It is simply too late to backtrack on the system of globalized trade we have created without causing economic hardship that will be unacceptable to the American people.

Our current base case, which is a very loosely held view subject to change dramatically based on further developments in this quickly evolving landscape, is that we are almost certainly headed for a recession if we are not already in one. The tariffs on nations other than China, which at the time of writing have already been paused for 90 days, are unlikely to ever return. Trump will likely claim victory in making a deal with these countries, but ultimately, these deals will not look much different from the status quo that existed prior to the imposition of these tariffs, with the only major addition that now all our allies hate us.

As for China, we believe the Trump administration has significantly underestimated the relative strength of the US economy compared to China's. While the Chinese economy has been struggling since the bursting of its property bubble, it has a lot more room to fiscally stimulate than the United States does. During the COVID-19 pandemic, the US implemented significant fiscal stimulus measures, while China was reluctant to do the same. The US now faces limitations on its ability to introduce more fiscal stimulus without blowing out bond yields, while China has ample capacity to do so. The Chinese have also spent their time since the trade war during the first Trump administration reducing their dependence on the United States, from semiconductors to agricultural products, which the United States, despite talking about it a lot, has not done at all. Currently, we think the Trump administration is on course to backpedal on its Chinese tariffs. The Trump administration needs China to give it some kind of off-ramp; the Trump administration will need some sort of public relations win. It cannot simply roll back tariffs without a trade deal with China. So, the question now is how long China wants to maintain its current stance of seeming reluctant to negotiate a trade deal. The longer China waits to engage with the US, the more the Trump administration appears to be negotiating against itself. The best case is that we have a relatively quick and painful recession that bounces back quickly if the inflation and shortages put enough pressure on the Trump administration to roll back the tariffs and China agrees to some kind of trade negotiation. In the worst case, we have a prolonged period of stagflation before the tariffs are rolled back. We think it is a relatively low probability that the current tariffs will remain in place for the long term, but substantial economic damage will still be done in the meantime. This will simultaneously increase unemployment and stoke inflation. Manufacturing in the United States will also ultimately decline, as small and medium sized companies that purchase intermediate goods from China will be unable to operate with vastly higher material costs.

The commodities sector has been one of the most impacted by globalization since the collapse of the Soviet Union; it has created commodities markets that are less opaque than ever before, leading to more efficient pricing worldwide. With the era of free trade that we have known for the last 30 years seemingly at an end, commodities markets are going to become less efficient, as a pound of copper, which by and large has been fungible with any other pound of copper, will see widening differentials based on country of origin brought about by trade barriers. Decreasing efficiency in commodities markets will create opportunities for outsized risk-adjusted returns for this fund.

However, the current lack of macroeconomic clarity makes it difficult to have any strong conviction over the next few quarters, given that the Trump administration could change its policy dramatically tomorrow. We think the market, in general, is mispricing risk across the board, as there is little historical precedent for what we are experiencing currently.