Bayfield Management

Bayfield Management

April 3, 2025

Dear Partners,

This letter marks the inception of Bayfield Management. Established on January 1, 2025, it is the launch of a partnership that operates a long-short investment strategy based out of Hong Kong, built on principles of long-term value investing and identifying capital compounders in global markets.

Q1 2025 Performance

Despite global market volatility in Q1, Bayfield Management delivered a +16.95% return in Q1 2025, ahead of major indices such as the S&P 500 (-4.27%). The outperformance has been driven by opportunistic short positions while being relatively underweight and skeptical of the US exceptionalism narrative. Over multi-year periods, the partnership should deliver consistent outperformance, as anything less would warrant a re-evaluation of capital allocation. However, the results in Q1 2025 has certainly overreached.

Investment Philosophy

My aim is to maintain highly concentrated positions, typically holding 5-10 stocks at any given time, based on the belief that asymmetric returns are generated through deep conviction in select compounders. Opportunistic short positions may be taken under specific market conditions; however, these positions will constitute only a small percentage of the portfolio, as this principle does not align with long-term value creation.

To those whom graciously and repeatedly share their guiding principles:

Six Foundational Principles of Value Investing (as per Li Lu's December 2024 Letter)

1. A stock represents ownership, not just a tradable asset.
2. Mr. Market serves value investors; he does not guide them.
3. Invest with sufficient margin of safety.
4. Stay within a clear circle of competence.
5. Fish where the fish are—focus on high-value opportunities.
6. Wealth is purchasing power in the economy—invest in dynamic companies within vibrant economies.

These principles act as a way of understanding companies, markets and oneself as an investor. The idea of this vehicle would be to then apply value investing principles to identify capital compounders within the global marketplace.

Compounding Framework – Investing for the Long Run

As mentioned, capital compounders are based on the power of long-term compounding—the silent force driving long-term wealth accumulation. The table beautifully illustrates how compounding transforms capital over extended horizons, while vastly understood, I hope this can be a reminder:

The table demonstrates clearly that long-time frames can exponentiate wealth and higher return rates will create disproportionate gains. Another key element would be to avoid disasters, as if compounding interrupts, recovery may not be possible. Furthermore, this cements the idea of focusing on long-term returns and not quarterly fluctuations – investing is about preserving and growing one's own purchasing power within an economy by identifying such capital compounding businesses – this is the challenge.

The Why

The reason for these letters is to serve as my public track record, develop accountability and to build a reputation. I intend for this, at the time being, to be a private investment vehicle, thus not open for outside investors. I am originally from Toronto but now am operating from Hong Kong, thus aiming to bridge Eastern and Western markets and seek undervalued compounders in each economy.

Having been exposed to investing at an early age and managed different portfolios, lessons have been learnt, brutal drawdowns have been dealt, and my track record is as follows:

My initial foray into capital allocation, began in 2018, just as the market environment began to experience interest rate hikes combined with a risk-off sentiment. This portfolio, especially in 2020-2022, had taught me how irrational exuberance can exist within this market, and how quickly tides can change by end of 2021. This was an important lesson as it also taught once capital is lost (-50%) it can be extremely difficult to recover.

The next portfolio taught me about identifying capital compounders and letting winners win. Different select winners were chosen and with patience, capital compounded.

This letter is for aspiring investors, peers, and myself—a reminder to stay patient, stay convicted, and let compounding work its magic. Over the next decade, my goal is to build a track record that proves a focused, principled approach can deliver consistent outperformance, regardless of market cycles.

In the last few months, I have set aside a set of funds for the creation of Bayfield Management, and the current AUM is > 500k USD.

This vehicle primarily serves to document my investment journey, share market insights, and provide public accountability through visibility. The partnership is currently only serving my own capital and is not open to outside investors. Furthermore, the content of the letter is not meant to be solicited as investment advice.

Bayfield Management is built on my long-term vision. Investing is not about chasing short-term gains or reacting to market noise; it is about allocating capital wisely, exercising patience, and allowing compounding to work its magic.

Thank you for reading.

Kind Regards,
Daniel Yim