Pender's Paradox: A Quarterly Loss Masks A Strategic Value Play

VANCOUVER, BC – November 26, 2025 – At first glance, the third-quarter results from Pender Growth Fund Inc. (TSXV: PTF) present a confounding picture. The investment firm posted a net loss of $248,441, a stark reversal from the $5.8 million in net income it celebrated in the same quarter last year. Yet, beneath this headline figure lies a narrative of quiet confidence, strategic maneuvering, and a long-term vision that seems to dismiss short-term accounting losses.

Despite the quarterly loss, the company’s total shareholders’ equity actually increased, and its crucial shareholders’ equity per share—a key metric of intrinsic value—climbed to $17.57 from $17.25 at the end of 2024. This unusual divergence between a net loss and rising shareholder value signals that the story at Pender is not one of poor performance, but of strategic choices and the complex interplay between investment gains and operational costs. For investors and analysts attempting to look beyond the quarterly noise, understanding this paradox is key to deciphering the fund's future direction.

Deconstructing the Bottom Line

The disconnect between Pender's net loss and its positive underlying performance stems from how investment gains are accounted for versus how operational costs and share repurchases impact the books. The company’s nine-month results reveal that positive investment performance drove a net income of $1.7 million. This gain, however, was largely offset on the balance sheet by $1.68 million spent repurchasing its own shares.

This aggressive use of its Normal Course Issuer Bid (NCIB) is perhaps the most telling strategic move of the quarter. The company retired 127,500 shares during the first nine months of 2025 and renewed its buyback program in February, signaling a clear belief from management that its shares are trading at a significant discount to their intrinsic worth. With a shareholders' equity per share of $17.57 and recent market prices hovering around the $14.85 mark, the company is effectively buying back its assets for roughly 85 cents on the dollar. This is an accretive action designed to enhance value for remaining shareholders over the long term.

However, this value creation comes at a cost, which is reflected in the quarterly net loss. The loss appears to be driven not by soured investments, but by rising operating expenses. The fund’s Management Expense Ratio (MER) ticked up to 2.55% for the quarter, compared to 2.39% a year prior. According to its own filings, this was due to operating expenses growing faster than the average value of its net assets. In an environment where every basis point matters, this creep in costs is a critical factor that contributed to pushing the quarterly income statement into the red, even as the investment portfolio itself was performing well.

Riding the Tech Wave in a Diversified Portfolio

The positive investment performance that buoyed Pender’s shareholder equity was no accident. It was the direct result of a portfolio strategy heavily tilted towards technology, which benefited from a buoyant third quarter in public markets. Both Canadian and U.S. small-cap indices, where Pender hunts for opportunities, saw remarkable gains, with the TSX Small Cap Index surging 20.9% and the Russell 2000 Index climbing 14.9% in Canadian dollar terms.

Pender’s portfolio is a hybrid, with approximately 61% in public companies and 39% in private ones. This structure allows it to capture upside from liquid public markets while cultivating long-term value in the less volatile private sphere. During the year, the fund initiated a position in Coveo Solutions Inc., a Canadian artificial intelligence firm, demonstrating its commitment to capitalizing on the powerful AI and cloud innovation trends that are currently sweeping the tech sector. This move aligns with broader market dynamics, where technology, media, and telecom (TMT) led a global M&A surge in the third quarter.

The private equity portion of the portfolio is also positioned to benefit from a stabilizing venture capital landscape. While the Canadian VC market has seen fewer deals in 2025, the transactions have been larger, with the Information and Communication Technology (ICT) sector capturing the lion's share of investment at 55%. Pender’s long-term, hands-on approach with its private holdings allows it to navigate this more selective environment, cultivating growth in companies that may be shielded from public market volatility.

This dual-pronged strategy—leveraging public market momentum while patiently nurturing private assets—is the engine behind the fund’s impressive long-term track record. Its five-year annualized return of 28.4% based on shareholders' equity underscores the success of this approach, placing the recent quarterly net loss in a much broader, and more favorable, context.

The Price of Active, Hybrid Investing

While the strategy is delivering long-term growth, the rising MER raises important questions about the cost of that performance. At 2.55%, Pender’s expense ratio is notably higher than the 1.95% average for a typical Canadian equity fund. This premium is often the price of admission for funds that delve into complex, illiquid private assets, which require more intensive research, due diligence, and ongoing management.

Investors in a fund like Pender are implicitly buying into a high-touch, active management philosophy. The firm’s stated objective is to invest in “unique situations, primarily small cap, special situations, and illiquid public and private companies.” This is not a passive index-tracking strategy; it is a specialized approach that inherently carries higher operational costs. The slight increase in the MER this quarter highlights a challenge for the fund: ensuring that its asset growth and investment returns consistently outpace its operational overhead.

For shareholders, the calculus involves weighing this higher expense against the value being created through strategic buybacks and superior long-term returns. The decision to repurchase shares at a deep discount to NAV is a direct transfer of value to them, which may offset concerns about the MER. However, as the fund navigates an environment of stretched market valuations and potential macroeconomic headwinds, maintaining cost discipline will be just as crucial as identifying the next winning investment.