Foundational Letter

To Our Current and Future Partners

The truth is that we had not seen the inside of a hedge fund when we decided to start one. We met at an alumni event and bonded over a shared belief that investors were underestimating blockchain as a transformative technology.

We landed on a way of thinking about the world before we put it into a wrapper that people recognized. We were simply two people trying to figure out where the world was going while using our own savings as the tuition fee. We wanted to build an organization that was constantly learning and evolving in a way that made sense to us. It was through many years of triumphs, mistakes, and lessons that it became obvious that our approach was unique.

Plutus21 started as a team that could rapidly make sense of change and disruption to improve our business and identify other organizations doing the same.

What felt like our biggest disadvantage ended up being our greatest, unfair advantage. Because we did not come from a traditional hedge fund background, we were not burdened by how things had always been done. We were free to engineer a way to invest that made sense for the future rather than the past.

Almost 10 years and a lot of hard-earned lessons later, we now share a belief that investors are overestimating the “sellers of AI” and simultaneously underestimating the potential of companies applying AI to drive operating leverage and growth.

Not Spread Equally

The sellers of AI are the chip makers, the model builders, and the infrastructure giants. They are preparing for one of the most expensive fights in history. Every day, they raise billions to out-train, out-compute, and out-scale each other. Margins are collapsing even before profits arrive.

Most investors are rushing into this storm. They are trying to pick the few winners of the arms race. We view this as a trap where the risk-reward gets worse by the day. For every one AI seller that wins, hundreds will fail and burn an incredible amount of capital in the process.

We are taking the other side of the bet.

We believe there is real opportunity in AI, but it is not in selling AI. It is in using it to make your business better.

As the sellers fight, prices fall. Computing improves. Intelligence becomes a commodity. This is a massive tailwind for the buyers of AI. These companies do not need to win the arms race. They just need to ride the declining cost curve of intelligence to gain leverage and growth.

But simply buying AI is not enough. To build a lasting competitive advantage, a company needs two specific ingredients that AI cannot generate on its own, which are data and distribution.

Betting Against The Crowd

We are likely at the cusp of the largest growth in productivity, creativity, and economic prosperity in history, but the winnings will not be spread equally. Every person reading this has interacted with AI tools and has most likely seen the impact they can have.

But who is going to get a disproportionate share of the winnings? And is there a way to get exposure that has not already been crowded by investors? How will businesses change as the very foundation of human and intellectual capital shifts?

Most market indices and investor portfolios are structurally blind to this shift. They are not only underweight applied AI, but they are also typically short applied AI. By default, investors are heavily overweight the "sellers of AI" which are all heavily correlated to the same story of unlimited spending, growth, and potential or the “slowest horse” in applying AI to their business.

We believe the real opportunities lie in identifying the divergence between the laggards in applying AI and the secular compounders that use it to fundamentally alter their economics and growth.

The Durable Competitive Advantages

1. Data

To understand why data matters, consider a thought experiment. If we hired the entire Tesla engineering team and gave them unlimited resources, could they recreate the Tesla Full Self Driving software for a new company?

Most people assume the answer is yes. We are convinced the answer is no.

The neural networks and hardware might be copied, but the data used to train those models cannot. Tesla has billions of miles of real-world data that no amount of money can buy overnight. And they are on a multi-billion-mile run rate of adding more proprietary data. The data is the moat.

We look for the overlooked data giants. These are companies in healthcare, logistics, finance, and every industry that have gathered decades of proprietary data. These companies possess the raw materials for the intelligent age. The future belongs not to those creating new algorithms, but to those who own the proprietary data that makes those algorithms smart.

2. Distribution

The sellers of AI, both large and small, are facing a hard reality. The cost to acquire customers is rising fast.

Meanwhile, incumbents like Axon, a supplier of hardware and software tools to law enforcement, can roll out an AI police report-writing feature to existing hardware customers with incredible margins. They have instant scale and trust. And while a competitor could potentially catch up on hardware and software with enough funding, they would lack decades of law enforcement relationships and trust, as well as the network effects and data that Axon collects daily to power its AI products.

We believe distribution is the key factor in monetizing AI offerings at scale. We hunt for the "fastest horse" in every industry. We look for the incumbent that is plugging AI into an existing, profitable network to widen their lead.

The thesis is simple: there is a higher likelihood that a company with data and distribution figures out its AI strategy, than there is that a company with an AI strategy figures out data and distribution.

Stacking Multiple Ways To Win

Investing in the sellers of AI often sets up binary outcomes. Either they meet the high expectations investors have set for them, or they do not. Investing in the buyers of AI offers non-binary outcomes. There is a strong underlying business regardless of whether the application of AI adds the expected efficiency and growth or not.

This leads us to one of the most overlooked opportunities in the public equity markets, which is the middle market. These are companies large enough that they have data and distribution, but small enough that AI can truly move the needle and separate them from the competition. They are often still founder-led and nimble enough to adapt to new technologies and processes faster.

Many investors assume that you have to be early to win. But waiting for a platform to reach 100 thousand+ daily active users significantly improves your probability of success. It allows us to take more concentrated bets instead of the spray-and-pray approach of venture capital. Amazon already had 1 million users when it went public, but the snowball effect of adoption was so strong that investing at that inflection point still captured a 300x increase in its user base and a 5,000x increase in valuation. We are patient investors. We want to be the first investors at this inflection point on the adoption curve.

The middle market has businesses that are already winning with superior products and alignment. It is an added advantage that no one thinks of them as AI companies and does not value them as such.

We view this as stacking multiple ways to win. When we buy these companies at the inflection point, we benefit from earnings growth and the momentum of adoption.

We believe that applying AI will likely be a primary driver of value creation in business over the next decade. By focusing on these applied AI winners, we avoid the crowded pockets and own the companies positioned to reap the benefits of this shift.

There are around 5,000 companies in our investment universe, but only 100 or so meet our quantitative and qualitative criteria of being the “fastest horse” in applying AI to their industry. Even within these top 100 names, we make them fight for a spot in the portfolio. We narrow it down to the top 30 to 50 most promising names that offer the best value relative to our conviction, expectations, and growth.

So it is not just a strategy focused on the upside. We run strong risk and portfolio management discipline to ensure we are truly stacking multiple ways to win.

Economic Intuition Applied At AI Scale

To generate outsized returns, you must be right, and you must be different. If you use the same data and criteria as everyone else, you will get the same results as everyone else.

The large quantitative firms have perfected the analysis of structured data. But that is only the tip of the iceberg. We estimate that over 75% of the information on a company is buried in unstructured data, and this has always been where fundamental firms have shone.

But what if you could make sense of unstructured data, the type of context and insight that makes fundamental investors great, but systematically apply it like a quantitative investor?

We do not buy off-the-shelf datasets that are available to every investor. We are proud to not have any secondary data subscriptions because we get all of our data from primary sources and then transform and create data sets unique to our process.

We built the P21 Edge Platform to bridge the gap between human intuition and machine scale. By engineering our own data pipelines and technology stack from the ground up, we are able to ask questions that other firms cannot answer. We turn mountains of messy, unstructured noise into clean, investable context that reflects the economic reality of a business rather than just its accounting. Many of our most unique insights and datasets are economically intuitive but have nothing to do with financial analysis.

This allows us to operationalize our economic intuition at a scale that few human teams could match. We are not just seeing the world differently because of a contrarian opinion; we are seeing the world differently because we are looking through a proprietary lens that we engineered ourselves.

By owning the data, the technology, and the process, we ensure that our view of the world is structurally different.

Investing In Our Team, Axioms, and Way of Thinking

Even though we are likely one of the best performing public markets investment teams in the world, we want you to back us if you believe in our future, not our past. You have to buy into the team, the process, and the way of thinking about the world and building a business.

Our own capital goes in first into anything we build, and our investments are by far our largest personal allocation. We started this organization as broke recent graduates. We built our entire capital base by investing in our way of thinking about the world and then reinvesting the capital and fees as we grew.

We see this as a partnership at its core. We are pooling our capital because it affords a level of research, infrastructure, and technology that we could not justify on our own. We run this as an investment partnership to give our own capital access to those economies of scale, inviting our partners to benefit alongside us.

As people get to know us, we hope they describe us this way: Insatiable curiosity. Relentless innovation. Absolute alignment. Unshakeable integrity.

Our job is to give you distinct exposure to the winners of tomorrow. We invite you to connect with us, explore these innovations, and reach out if you’d like to learn more about the technologies that power the future.

Thank you.

Sincerely,

Hamiz Awan & Richard Raizes
Partners and Co-Founders, Plutus21 Capital