Investor Letters – What They Contain & How to Write One

Investor letters are an important form of client communication for trading shops, hedge funds, and all investors that require giving performance and outlook updates to limited partners (LPs) and other stakeholders.

We’ll cover what all is involved in one and an example at the end.

Key Takeaways – Investor Letters

• Investor letters are important for client communications on performance and market outlook.
• They are not marketing pieces, and exist to explain results, decisions, and positioning clearly and honestly.
• Accountability is important. Investors want ownership of outcomes, not excuses.
• Strong letters emphasize the fund’s process, risk management, and decision frameworks.
  • Less important are the predictions or bold forecasts that are common in financial media.
• Clear discussion of what worked, what didn’t, and why builds long-term credibility.
• Risk is treated explicitly, including where the portfolio may underperform and why.
  • This is a key investor question and it’s broadly known that not all portfolios do equally well in all environments.
• Macro context is used to explain positioning. Investors don’t want to see reactions to every headline.
• Forward outlook focuses on preparedness , not conviction, point forecasts, or promises.
• Consistency in tone, philosophy, and mandate over time matters more than any single quarter.
• Effective letters reinforce long-term alignment between GPs/investment teams and LPs/investors.

Investor Letter Components

An effective investor letter has a specific set of characteristics that differentiate it from marketing material, commentary, or other research notes.

At its core, it’s a trust document.

1. Clear purpose and accountability

An investor letter exists to explain what happened, why it happened, and the basics of how the manager is positioned going forward.

And without giving too much away that could lead to media distortions or specific positioning (markets are competitive).

Accountability is important.

It accepts responsibility for outcomes rather than shifting blame to markets or external events.

As stewards of other people’s money, the last thing investors want are excuses.

2. Consistent voice and tone

The tone is calm, professional, objective, and measured.

It avoids hyperbole, emotional language, and salesmanship. It’s not marketing.

Confidence is expressed through clarity of thinking and process.

Avoid promises or forecasts of markets or returns.

3. Transparent discussion of performance drivers

Good letters explain performance in terms of decisions and exposures, not just results.

They discuss what worked, what didn’t, and why.

Avoid using too much jargon, vague/overly sophisticated-sounding phrasing, or selective attribution.

4. Process over prediction

Investor letters focus on how decisions are made rather than trying to predict precise or a narrow set of outcomes.

They emphasize frameworks, risk controls, and decision rules.

Avoid specific point forecasts or market calls.

5. Balanced treatment of risk and return

Risk is discussed explicitly and honestly.

The letter explains how downside is managed and what assumptions matter most.

They might discuss where the portfolio might be most vulnerable.

For example, a well-hedged investor focusing on downside containment might explain that the fund is most likely to underperform in extreme bull markets.

This builds credibility, especially during drawdowns.

6. Contextual macro or market insight

A strong letter places performance within a broader economic and market context.

It demonstrates independent thinking and shows how the manager interprets the environment differently from consensus when appropriate.

7. Forward-looking without being promotional

Outlook sections outline themes, opportunities, and uncertainties/unknowns without guaranteeing anything.

The focus is on preparedness and not conviction.

LPs generally don’t want to see a trader/investor/top decision-maker dug in on something.

8. Consistency over time

Over multiple quarters, the structure, philosophy, and language should remain broadly consistent.

Investors should recognize the manager’s mindset and approach regardless of short-term/quarterly results.

LPs don’t want strategy drift where they expect (and get) one thing, then start getting another.

For example, if a fund is about tail risk protection and markets have been doing really well, they aren’t going to hold it against the fund for underperforming.

If a fund is about managing specific liabilities or adhering to specific mandates (returning CPI + 300bps, with explicit risk limits), then they don’t care about performance relative to the S&P 500.

Investors generally don’t put massive slices of their net worth in a single fund. They build portfolios of funds just like investors build portfolios out of certain securities.

9. Respect for the investor

The letter assumes an intelligent reader who understands finance and investing.

It avoids oversimplification while remaining accessible. (It’s nonetheless not expected to be interesting or even fully understood by a broad audience.)

It doesn’t talk down to investors or attempt to distract from difficult periods.

10. Long-term alignment

Effective investor letters reinforce alignment of incentives and time horizons.

They remind investors that the strategy is designed for compounding over full cycles, not optimizing for quarter-to-quarter.

Even in high-performing funds, down quarters generally happen 20-30% of the time.

11. Intellectual honesty and uncertainty acknowledgment

Strong letters are explicit about what the manager does not know.

They distinguish between conviction, probability, and uncertainty.

This signals discipline and reduces the risk of narrative overfitting after the fact.

Sophisticated clients know that feigning certainty is what novices do and there is no need for professional investors to overstate what they know.

12. Separation of signal from noise

Effective letters are selective.

They avoid reacting to every headline or market move and instead focus on the few overarching variables or themes – or things on the horizon – that genuinely mattered/matter for positioning and outcomes.

This shows quality prioritization and judgment.

13. Capital allocation clarity

Even without disclosing sensitive details, good letters explain where capital was meaningfully put to work versus areas that were exploratory or optional.

LPs care less about ideas and hypotheticals and more about how risk capital was actually allocated.

At the same time, they respect discretion and not giving out info that could compromise a strategy.

14. Discussion of changes in thinking

When views evolve, strong letters explain why and what triggered the update.

This reassures investors that their process is adaptive rather than dogmatic.

At the same time, it can’t suggest instability or confusion.

15. Liquidity and operational awareness

Sophisticated LPs appreciate brief commentary on matters like liquidity, leverage constraints, and operational posture, especially in stressed environments. This reinforces that the fund is managing survivability, not just returns.

16. Avoidance of hindsight bias

Good letters resist rewriting history.

They clearly separate ex-ante expectations from ex-post outcomes and avoid implying that outcomes were obvious or inevitable.

Sophisticated investors see through hindsight bias in the same way they see through certitude about future outcomes.

They just want to see evidence that the fund is positioned appropriately and following its expected mandate.

17. Respect for silence

Sometimes the most credible letters say less.

If nothing materially changed, they state that plainly rather than manufacturing insight.

Over-communication can erode trust just as much as under-communication.

Some investor letters are only a few hundred words if nothing particularly eventful happened.

Going over 2,000 words is generally rare.

800-1,500 words is most common for most quarters.

18. Cultural consistency

Over time, letters should reflect the firm’s internal culture.

Disciplined firms sound disciplined. Risk-aware firms sound risk-aware.

This continuity often matters more to LPs than any single quarter’s results – especially LPs that investors love to have, who view things over longer timeframes.

Net effect

Effective investor letters aren’t about impressing but communicating important information and maintaining trust.

When done correctly, they lower behavioral risk on both sides of the capital relationship.

As such, they make it easier for investors to stay committed through the inevitable periods of underperformance.

Example Investor Letter

In this hypothetical investor letter, we go through many of the elements we just explained:

Dear Investors,

We finished the fourth quarter of 2025 down 2%, bringing full-year performance to +8%, a result that lagged US and global equity markets but reflected deliberate risk-aware positioning through a shifting market regime. The macro environment continues its shift away from the post-2008 GFC equilibrium of low inflation, abundant liquidity, and predictable central bank reaction functions. 

In its place, we see a more fragmented world with structurally higher inflation volatility, geopolitical supply constraints, more aggressive fiscal policy, and increasingly asymmetric policy responses. This remains a positive backdrop for disciplined global macro investing.

Quarter Review

During Q4, markets were driven by a convergence of three forces: the delayed effects of prior fiscal spending, renewed fiscal divergence across developed economies, and persistent geopolitical risk premia. Equity markets experienced episodic volatility, particularly around inflation data and central bank communications, while rates markets continued to reprice the terminal policy path and the duration of restrictive conditions.

Our performance during the quarter was driven primarily by relative value positions across rates and currencies, supplemented by selective directional exposure in commodities. We maintained a cautious stance toward equity beta, preferring convex expressions where volatility was mispriced relative to macro risk. We expect such positions to lose a small amount in quarters where risk-off positioning isn’t ultimately needed, but pay off well when equity markets fall.

In rates, we’ve positioned for dislocations between front-end policy expectations and longer-dated growth assumptions. Several economies continue to price continued falls in rates despite fiscal trajectories and labor market dynamics that would otherwise argue for higher-for-longer real rates. We expressed these views through curve positioning rather than outright duration. We believe this allows us to capture carry and roll while limiting drawdowns during data-driven reversals. This did not directly benefit our P&L over the quarter, but expect this to be a multi-quarter theme. We also recognize this can also run through currency and commodity (notably gold) channels if we are wrong on our rates positions and have positioned accordingly.

In currencies, dispersion remained elevated. Countries with credible disinflation paths, external surpluses, and policy flexibility outperformed peers facing twin deficits and political constraints. We focused on cross-currency structures rather than USD-centric trades. This reflects our view that the dollar’s role is changing from more of a safe-haven macro hedge to a more tactical funding currency. The dollar’s long-term value given the US’s fiscal trajectory is also a question. Nonetheless, we also recognize that fellow reserve currencies like the euro, yen, and pound have analogous problems but with their own unique nuances.

Commodities contributed positively, particularly in infrastructure-linked exposures. Structural underinvestment, geopolitical friction, and demand in parts of emerging markets continue to create upside. We avoided crowded consensus trades and instead targeted regional pricing differentials and volatility mispricings. Precious metals also contributed positively, given the demand for alternative monetary assets with global real rates falling in most currencies.

Equity exposure was modest and primarily thematic. We reduced exposure to rate-sensitive growth equities and avoided areas where valuation implied more limited upside and a greater risk of two-way markets. Instead, we focused on geographies, markets, and sectors where earnings sensitivity to inflation and nominal growth was underappreciated. International exposure continues to look more attractive relative to pricier markets like the US.

The economy has been increasingly dependent on AI as a growth driver, which is now responsible for roughly one-third of the US’s economic growth this year. Investment is growing exponentially, and this dependence will increasingly matter for US and global growth. It can very much create a concentrated risk point and potential future economic fragility. There is evidence that AI built on an LLM paradigm is struggling to make progress, which in turn can limit the productivity gains that are assumed with the rising wave of capex.

AI itself may increase productivity significantly in certain areas, like coding, but have very limited impact in others. The extreme spending for potentially limited productivity improvements can make this area very easy to turn into a bubble.

Risk management remained a defining feature of the quarter. Position sizing was conservative, directional exposure was low, and gross exposure is capped at reasonable risk thresholds. The portfolio maintained strong liquidity throughout, and no single theme dominated risk.

Macro Environment

From a macro perspective, the defining feature of 2025 has been the persistence of ongoing themes. Inflation has moderated from peak levels, but it hasn’t reverted to the benign target levels markets once assumed. Labor markets remain weaker than headline data suggests, fiscal policy continues to lean expansionary in many jurisdictions, and geopolitical fragmentation has caused enduring supply-side constraints, which is in turn pushing up global inflation.

Central banks are navigating a narrow path. Cutting too early risks reigniting inflation, undermining credibility, and risks creating media and investor narratives of bowing to political pressure. Holding policy higher risks market volatility, less recognition for labor market needs, and political backlash. 

We also note the growing divergence between nominal and real economic narratives. Headline nominal growth and spending may appear strong. But real income dynamics and productivity trends vary significantly by region, even within countries. This divergence creates opportunity in relative value trades while cautioning against broad directional bets. We are also monitoring how this may play into future political outcomes that in turn feed into money and credit flows that impact markets.

Portfolio Construction and Risk Discipline

Our approach remains grounded in three principles: capital preservation, volatility and downside control, and asymmetry. We look for trades where the downside is defined ahead of time and the upside is driven by macro forces that are slow to be fully priced.

We continue to prioritize portfolio durability and adherence to long-term structural themes over maximizing short-term returns with overly tactical trade opportunities. Drawdown control is a prerequisite. We actively limit concentration, avoid leverage-driven convexity without defined downside, and continually stress test the portfolio against historical and hypothetical shocks.

Volatility is also a tradable asset class on its own. When volatility is cheap relative to what should realistically be priced in, we are willing to pay for convexity. When volatility is expensive, we focus on carry opportunities and relative mispricings.

Outlook for 2026 and Beyond

Looking ahead, we believe the opportunity set for global macro remains strong. Several themes are likely to persist:

First, policy divergence will widen. Fiscal constraints, demographic pressures, and political realities will push countries onto increasingly distinct paths. This favors cross-market and cross-currency strategies over continuing to take on global beta despite its success over the past three-year period.

Second, inflation volatility will remain elevated. Even if average inflation trends lower, shocks will be more frequent and less predictable. Markets continue to underestimate the probability and impact of upside inflation surprises. This is especially true with easier monetary policy, lower real rates, and easier fiscal policy.

Third, financial conditions will tighten unevenly. Asset markets in many markets are expensive and pockets of leverage and duration exposure remain susceptible. We expect episodic stress to be more likely than a uniform slowdown.

Fourth, geopolitical risk is no longer exogenous. Trade policy, energy security, and capital controls are now integral to macro outcomes. 

Against this backdrop, we are positioned cautiously optimistic. We are not dependent on a single macro outcome. Instead, we are structured to benefit from dispersion, returns streams uncorrelated with traditional asset classes (including volatility), and policy error while protecting capital if markets revert to range-bound behavior.

Closing Thoughts

Periods of transition reward patience, discipline, and adaptability, and punish complacency and overconfidence. Our focus remains on executing our process with consistency, managing risk proactively, and communicating transparently.

We are grateful for your continued trust and partnership. As always, we welcome dialogue and are happy to discuss portfolio positioning and risk considerations in greater detail.