Letter to Investors — January 2026

2025 marked the definitive end of the ‘gradual’ era. We have entered a new period where change is both exponential and disruptive, forcing a fundamental rethink of the traditional investment playbook. The historical certainties – favourable global demographics, US-led globalization, and linear technological evolution – have been replaced by a more volatile reality. The era of seamless global trade is transitioning into localized, high-friction blocs. Technology is no longer evolving; it is displacing legacy moats. For the modern investor, this means the ‘brand premiums’ of the past are no longer guaranteed.

In 2025 Pegasus prioritized capital preservation. We took decisive action to insulate your capital from broader market volatility by maintaining a significant cash position for the majority of the year, strategically protecting the downside. We reduced micro-cap exposure to less than 5%, recognizing that in a flight to safety environment, these assets face the steepest de-ratings. While remaining defensive, we executed successful tactical entries into Gold and Silver, capturing gains before exiting as the trade became crowded. We also tightened our risk management limits for liquidity and market capitalization for the portfolio to help us remain nimble.

The rise of passive investing reached a fever pitch in 2025, with US ETF holdings crossing $13 trillion and Indian passive assets growing 35% to 13 lakh crores. In a liquidity driven market which is overvalued and moving sideways, derating can happen very fast, especially when you are chasing growth outside the index. Even as the Nifty reclaimed its September 2024 high, this headline strength masked a correction in the broader market where non-index companies saw median returns of -15%.

We anticipate that the slow-burn of overstretched valuations will persist through 2026. In this environment, Pegasus will continue with a Top-Down Sector approach while using our proprietary CEGARP Framework investing in ‘Boring Businesses’ with high-predictability of cash flows and valuations that price in near zero-growth. Over the final weeks of 2025, we began deploying our cash reserves into businesses where value had finally emerged.