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Welcome to the March 2026 Quarterly Investor Update for the 248 Emerging Companies Fund I (Fund I) and the 248 Emerging Companies Fund II (Fund II).
We have often noted that the March quarter tends to be the most volatile for our markets, and 2026 has unfortunately lived up to that reputation. If Q3 2025 was defined by the scrambling of supply chains due to U.S. tariffs, this year has presented an even more complex set of challenges. March saw what many are now calling "Saaspocalypse", and the associated fear of what this means for software companies, particularly with the heavy private credit exposure to some in the sector (on both sides of the loan). All this occurring simultaneously with a massive energy price shock triggered by the escalating conflict in Iran.
"Saaspocalypse" represents a fundamental repricing of the software sector. The combination of AI-driven efficiency—which has drastically reduced the cost of software development—and a corporate-wide move away from seat-based licensing has hit valuations meaningfully. Rule of 40 calculations are being squeezed as investors question the high growth rates, low discount rates and strong profit margins of a sector once known for its high quality investable characteristics. Compounding this tech reckoning is the geopolitical situation in the Middle East, reigniting inflation fears just as we thought we were entering a period of rate stability. We are yet to see direct impacts in portfolio company financials up to 31 March. But portfolio companies are again being forced to look closely at their logistics and cost exposure.
What does this mean for our portfolio companies?
In our view there are few if any companies that don’t have both an opportunity and a threat associated with Ai. It’s different for each company and industry. Each is working hard to figure out how ai should be integrated into workflows across every part of the organisation.
It’s worth noting that across both funds we have very limited exposure to traditional pure Saas (and very little company debt). But each company is taking the opportunity and the threat very seriously, as are we.
The market for emerging companies
In other news, against the odds we finally saw some movement in the microcap IPO market, with Barrenjoey getting home-delivery mattress company Koala to IPO. It was positive to see the company and brokers hold their nerve in another tricky first quarter backdrop. At the moment it’s still just another strong pipeline. But the successful Koala IPO and subsequent trading strength is a positive signal for liquidity in private markets.
Fund Performance
The NTA for Fund I was down 4.79% for the quarter, due to a decline in the Cleanspace Limited (CSX:ASX) share price over the quarter.
The NTA for Fund II was up 2.86% during the quarter due to an increase in the holding value of Future Group following their strong first half results.
Fund News
During the quarter, unitholders and their advisers receive communications regarding the Fund Term for both Funds I and II.
Fund I will reach the official end of its Fund Term on 1 May 2026 while Fund II will see the Fund Term extended by one year from 1 May 2026. We encourage unitholders to contact us with any queries or concerns - we would be more than pleased to assist you.
Click here to watch Portfolio Managers, Jonathan Pearce and Christian Jensen, discuss the quarter that was.