Mutoro Group Partners, LP
“They’re such beautiful shirts,” she sobbed, her voice muffled in the thick folds.
“It makes me sad because I’ve never seen such—such beautiful shirts before.” —F. Scott Fitzgerald, The Great Gatsby (1925)“When information is scarce, which is a common occurrence, System 1 operates as a machine for jumping to conclusions. Consider the following: ‘Will Mindik be a good leader? She is intelligent and strong…’ An answer quickly came to your mind, and it was yes. You picked the best answer based on the very limited information available, but you jumped the gun. What if the next two adjectives were corrupt and cruel?” —Daniel Kahneman, Thinking, Fast and Slow (2011)
“Stereotypes of a Black male misunderstood, and it's still all good.” —The Notorious B.I.G., “Juicy” (1994)
“Reality has a way of asserting itself.” —President Barack Obama (2016)
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Annual % Change |
Compound % Change |
||||
|
MGP, LP (Gross) |
MGP, LP (Net) |
HFRI Fund Index |
MGP, LP (Gross) |
MGP, LP (Net) |
|
|
2015 |
(3.5%) |
(5.0%) |
(1.1%) |
(3.5%) |
(5.0%) |
|
2016 |
24.5% |
18.9% |
5.4% |
9.6% |
6.3% |
|
2017 |
(3.3%) |
(4.7%) |
8.6% |
5.1% |
2.5% |
|
2018 |
(0.9%) |
(2.4%) |
(4.7%) |
3.6% |
1.2% |
|
2019 |
30.0% |
23.9% |
10.4% |
8.4% |
5.4% |
|
2020 |
34.2% |
25.7% |
11.8% |
12.3% |
8.6% |
|
2021 |
8.5% |
5.5% |
10.2% |
11.8% |
8.1% |
|
2022 |
(44.8%) |
(45.7%) |
(4.3%) |
2.3% |
(0.8%) |
|
2023 |
21.6% |
19.9% |
8.1% |
4.3% |
1.3% |
|
2024 |
23.8% |
22.0% |
10.4% |
6.1% |
3.2% |
|
Aggregate |
81.0% |
37.0% |
67.7% |
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|
Annualized |
6.1% |
3.2% |
5.3% |
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Dear Partner,
For the full year of 2024, our fund returned 23.8 per cent on a gross basis. Net of fees and expenses, it returned 22.0 per cent. We exited the year with a concentrated portfolio of 13 holdings.
One of the many benefits of working from home that I love is the consistent, daily companionship of my dog, a 15-year-old Border Collie mix I named Caspi.
Early one weekday morning late last summer, I was walking her around my neighborhood in Brooklyn before starting the day. We tend to follow whatever trail of pee-mail her nose finds interesting along the sidewalk. As we walked, we happened upon two elderly men sitting on the stoop of a brownstone building. They were having a lively conversation, apparently about dogs. I didn’t know the two men personally but recognized them as being a part of the homeless community in the area.
“I’m telling you, every dog in this hood is a rescue,” the first man said to the other.
“No, no. They’re fancy dogs from kennels,” the second man replied.
“Let’s ask this guy with the fancy dog what he thinks,” the first said, nodding toward me.
“Why ask him?” the second questioned.
“He’s a dogwalker,” the first said definitively. "I see him around here all the time. He’ll know for sure. Hey, is that dog a rescue?”
While I wasn’t expecting to be a part of their conversation, I obliged and answered, “Yes, she is, actually.”
“Thank you,” the first man said. He turned away from me to his mate: "See, I told you.”
Caspi and I walked away as they continued their conversation, and I chuckled to myself.
Let’s be clear on a few things before we go on. As you know, I am an entrepreneur. I started my business career in investment banking at Morgan Stanley helping companies merge, sell assets, and raise billions of dollars in capital. I then became a professional investor and moved to the world of asset management and founded private investment vehicles. Today, I run two businesses, this investment company (i.e., The Mutoro Group) and a corporate advisory (i.e., Pioneer Strategy Group). By probably any meaningful economic metric, through all its joys and challenges, my professional life has been a success so far. Last year was in keeping with this trend. On a more personal note, I absolutely love Caspi. She is so sweet, and not just a great friend but a dear member of my family. Unless you are a squirrel or one of her chew toys, she has an impressively regal demeanor. Though I am not sure how much credit I can take for this. I adopted her in 2016 from the capital of Azerbaijan, where for the first seven years of her life she had been a homeless street dog. I didn’t realize that some of my neighbors thought I spent time with her as my professional occupation. (It might be the Berkshire Hathaway-branded collar I bought her in Omaha a few years ago.)
I have no issue with my presumed work of dog walking. Some dogwalkers in my community are the kindest, most generous neighbors you could ask for. I suppose if I were more anxious about my place in New York's socioeconomic strata, I might have taken offense at their assumption. Arguably, if every job has a uniform of sorts, by my appearance most mornings, I probably look more like a guy who walks someone else’s fancy-looking dog for a living than the stereotype of someone who runs an investment fund or corporate advisory practice. I also spend a lot of time indoors at my computer. When I’m not studying newspapers, books, and research reports or creating analyses, I'm having calls with clients and contacts. I’m incredibly productive, but none of that is visible to someone outside, someone on the street. When I do leave my home, I’m not dressed in a suit and tie or typically even jeans; I’m often in sweatpants and a t-shirt. I’m not sure those men even knew that someone could do what I do for a living from home. As a sociologist might say, it’s possible I wasn’t clearly presenting “class markers,” “status cues,” or the visible aspects of “cultural capital” aligned with my identity. Even if I were, it’s possible the two men might not have picked up on it.
To be fair, I also made my own assumptions about them from limited information. I assumed that they lived on the street because, well, I have only ever seen them sitting or sleeping on the street, not because I know for a verifiable fact who they are. While there are justifiable reasons one can take offense to being misidentified, I decided not to. I chose not to attribute to malice or prejudice what was probably just everyday ignorance. As a social psychologist might say, I exercised an “internal locus of control.”
Nevertheless, it got me thinking about the nature of appearances and the ways in which the human mind draws conclusions from limited information. It got me thinking about how the quality of the questions we ask often determines the quality and quantity of the information we receive and the judgments we make. And it got me thinking about business and investing. I think this will help explain how our fund performed last year and some probable paths this year. As you know, I don’t typically name the companies we invest in via these letters given their public dissemination. But for the purpose of clear communication, I am holding my nose and making an exception here.
The Nature of Appearances
One of the reasons that summer morning in Brooklyn stayed with me is that it underscored how surface-level information often shapes conclusions, unless you pause to probe deeper. This dynamic has been evident in the luxury goods e-commerce market this decade. Venture-capital-backed companies like Farfetch enjoyed a low-interest rate funding environment and seemingly high-profile success, until time and flawed strategy brought about their downfall.
Founded in 2008 in London, Farfetch positioned itself as a technology platform connecting independent luxury boutiques worldwide in a bid to become the “Uber of Luxury” or “Amazon of Luxury.” In the eyes of outside observers, it was a global aggregator with immense scale potential. By 2021, it had reached a market capitalization of $24.9 billion, fueled by new, non-core acquisitions. Behind the PR gloss, however, Farfetch took on significant debt, burned cash at high rates, and prioritized speed to market over sustainable profitability. It also focused heavily on aspirational luxury shoppers, those making infrequent, smaller purchases, often lured by discounts. By late 2023, Farfetch’s heavy reliance on external funding left it on the brink of insolvency. Its market capitalization plummeted to about $220 million, and it abruptly canceled its Q3 2023 earnings call the day before it was scheduled. Within weeks, it was forced into a discounted fire-sale deal to a Korean buyer. It was an inglorious end for a onetime market darling.
Why Mytheresa Endured
By contrast, Mytheresa (“Company T” in our portfolio) never made as many headlines, barely reaching a peak market capitalization of $3 billion. But it built a stable, profitable enterprise by asking the right questions early on and taking a different go-to-market approach.
Whereas Farfetch launched as a tech-driven aggregator, Mytheresa was rooted in a bricks-and-mortar luxury boutique founded in Munich in 1987. This heritage instilled a curatorial mindset, targeting true high-net-worth clients who buy at full price multiple times a year. Mytheresa focused on exclusive collections, private events, and a more intimate experience for top-spending customers. In 2006, it ventured online, launching Mytheresa.com, and gradually evolved into a global luxury e-commerce brand.
Neiman Marcus acquired Mytheresa in 2014, hoping to broaden its online footprint, but Mytheresa retained its own ethos: curate, serve top-tier customers, and reinvest profits for steady, organic growth. Mytheresa ultimately went public in 2021.
Rather than blitzscaling or acquiring unrelated businesses, Mytheresa rolled out expansions methodically, focusing on market segments and regions where it could profitably differentiate itself. Its discipline, prioritizing quality of sales over quantity of sales, proved invaluable when investor sentiment turned against unprofitable e-commerce plays. Although Mytheresa never boasted the biggest valuation or brand buzz, it remained standing as others in the industry faltered.
Enter the YNAP Acquisition
A new chapter in Mytheresa’s story began in October 2024, when it announced plans to acquire all of its last-standing competitor Yoox-Net-a-Porter (YNAP) from luxury house Richemont. It had been rumored in the business and fashion press since last spring. The transaction, scheduled for final regulatory approval this year, will combine under one group Mytheresa with (a) complementary luxury e-commerce sites Net-a-Porter and Mr Porter and (b) the off-price sites Yoox and The Outnet. Strategically they complement each other. Financially, the deal’s structure includes a significant capital infusion for the enlarged business, with YNAP’s parent company providing a €100 million 6-year revolving credit facility and €555 million of cash, in exchange for 33.3 per cent of the combined entity. The new, multi-platform group will have revenues increase from a standalone €900 million of Mytheresa sales today to €3 billion post-close. Management seems eager to still let each brand maintain its distinct identity, particularly important given Mytheresa’s focus on high-spending clients versus YNAP’s broader range of price points. To this end, the parent company for Mytheresa and the YNAP stable of companies will change its name to "LuxExperience” and its stock ticker to “LUXE.”
But no deal is without challenges. There could be integration hurdles, ranging from migrating YNAP to Mytheresa’s in-house tech platform, to sorting out off-price inventory for Yoox, which has been a considerable loss-maker, to ensuring brand partners stay enthusiastic about a broader portfolio. Historically, these transitions can run over budget or lead to customer confusion if not managed with care. And there will probably be volatility in the prices of Mytheresa’s shares. That said, Mytheresa’s measured operating track record, its newly limited competitive field, and its much-improved balance sheet suggests a favorable runway. If Mytheresa can preserve its high-end service during the consolidation, it stands poised to become the definitive luxury e-commerce leader in the world.
Possible Lessons
For an investor who pays attention to reality, these divergent paths between Farfetch and Mytheresa were vivid lessons in the difference between surface glamour and underlying substance. Beginning in late 2021, we began investing in Mytheresa, confident its fundamentals made it undervalued in absolute terms and next to more hyped players. We continued adding shares the following years, buying as low as $2.31 per share, even when many market participants lumped all luxury e-commerce businesses together. By maintaining our own analysis of intrinsic value, we saw that Mytheresa wasn’t burning cash or spinning fairytales; it was quietly earning returns in a niche that was only growing more valuable as others stumbled.
Today, that conviction has been partially validated. Meaningful competitors have all but exited the field, removing the destructive discounting that hurt the industry in 2023. As of its most recent earnings release, Mytheresa’s stock is trading a remarkable 5x from its lows. At year-end, the company was 12.0 per cent of our portfolio. And I think it is still significantly undervalued. [1]
As I have described in other letters on business strategy, to invest successfully does not mean identifying “the best” player, as many players can exist side-by-side via differentiated, profitable means of operating. As strategist and author Joan Magretta writes,
In business, multiple winners can thrive and coexist. Competition focuses more on meeting customer needs than on demolishing rivals. Just look around. Because there are so many needs to serve, there are many ways to win. [2]
I love this quote. But let’s be careful with it. It does not mean that every way to play is a way to win. Mytheresa’s venture-backed competitors fixated on top-line growth over profitability and did so in a luxury market with strong suppliers focused on maintaining the allure of their brands. I found it irrational to use price discounts on luxury goods to try to build a business similar to Uber, which sells a commodity service with fragmented suppliers. While I did not predict Mytheresa would be the only survivor in the industry, I also did not see how any other competitor, based on the decisions they were making, could win with the strategies they chose. Investing in Mytheresa was in preparation for an industry shakeout that would accrue to our benefit.
Ultimately, whether it’s men on a Brooklyn stoop, my fancy, formerly homeless dog, or investors showering billions on unprofitable e-commerce startups, appearances can mislead. When you strip away the glamor and gloss as an investor (or the lack thereof), a few key questions matter: What keeps customers coming back? What relationship does the company have with its suppliers? What does the company distinctly do that its competitors or new entrants either won’t do or can’t do? And, ultimately, what is the business worth?
As I reflect on this, I hope it underscores that positive outcomes in investing don’t come from chasing the biggest noise, the flashiest pitch, or the most charming speaker. They come from active inquiry, from a willingness to embrace reality, and from focusing on what matters in the long run. With Mytheresa, I think we have been doing that. We saw a company embracing customer tradeoffs, prioritizing quality over quantity, and weathering storms that took out its peers. And that’s why we kept buying and then retained our shares, even when it wasn’t the popular choice.
The table below shows the composition of our portfolio at the end of the year.
Portfolio Holdings
Thank you for your continued trust and support. I welcome your thoughts and questions. If you would like to add to your investment or know someone who might like to join us, please feel free to reach out.
Sincerely,
Godfrey M. Bakuli
Founder & Managing Partner
[1] Mytheresa was one of the three companies in Tranche B, which I introduced in our Q2 2023 Letter and was principally responsible for the decline in the price of our portfolio in 2022. As I wrote in the Full Year 2023 Letter, “To analyze our portfolio’s current structure and performance, in 2023 I split the portfolio into two tranches, A and B. Tranche A comprises 10 of our 13 holdings, or 77% of our businesses. On December 31, 2022, this represented 48.7% of our assets under management. By December 31, 2023, this was 70.1% of our assets, its price having increased 74.7% on the year. The second tranche, Tranche B, consisted of the remaining three holdings, or 23% of our businesses. It represented 40.1% of our assets under management at the end of 2022. On December 31, 2023, Tranche B was 24.8% of our assets, having experienced a price decline of 25.2% on the year.”
[2] Magretta, Joan. (2011). Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Review Press.