Fund Managers’ Letter
1st Quarter 2025— Jacques Berghmans and Félix Berghmans
"When reflexes are tested by reality."
Q1 MARKET PERFORMANCE
The first quarter of 2026 had two distinct chapters. In January and February, the momentum from 2025 continued: European stocks reached all-time highs, the Nikkei 225 crossed 50,000 for the first time, and the Dow Jones breached 50,000. The rotation out of expensive US tech and into international markets that we advocated last year was well underway.
Then came the Iran conflict and markets repriced quickly and as of
the end of the first quarter 2026 (31st March):
SOURCES: BLOOMBERG, TREETOP. DATA AS OF 31st MARCH 2026.
THE 1970s RHYME
TWO OIL SCHOCKS, FIFTY YEARS APART
The most frequent comparison in today’s commentary is to the 1973 Yom Kippur War and Arab oil embargo. The parallel is obvious: a Middle Eastern conflict triggers an energy supply shock that sends oil prices soaring, stock markets tumbling, and central bankers scrambling. In 1973, oil prices quadrupled from $3 to $12 per barrel. Inflation quickly increased to double-digit rates and the S&P 500 fell 48% over 21 months. What followed was a decade of stagflation that reshaped the investment landscape. For those interested in digging deeper into the parallels between the current situation and the 1973 crisis, the Qatari media organisation Al Jazeera has written a very extensive article on the subject exploring the economic impacts then and today in considerable detail1.
The second oil shock in 1979, triggered by the Iranian Revolution, in a striking historical echo of today, more than doubled oil prices from $15 to $39 per barrel. Combined with the subsequent Iran-Iraq War, it produced a deep global recession and forced the Federal Reserve under Paul Volcker to raise rates to 20% to break the inflationary spiral. The impact on the US stock market was much more limited though with the S&P 500 losing 17% over 18 months.
The current crisis shares obvious parallels: a conflict involving Iran, closure of strategic energy chokepoints, and a sudden supply shock. But the differences are equally important, and investors who rely too heavily on the 1970s playbook may reach the wrong conclusions.
“SOURCES: TreeTop, Federal Reserve, World Bank, IEA, IMF. Figures are approximate.”
WHAT IS DIFFERENT TODAY
Oil intensity in the energy mix has fallen dramatically. In 1973, oil accounted for 46% of the world primary energy consumption. Today that figure is approximately 34% and falling. Globally, renewables now represent roughly 13 to 14% of the energy mix and are highly cost competitive unlike in the seventies when only hydropower made economic sense. The world is still heavily dependent on hydrocarbons especially if you include natural gas, but considerably less so than fifty years ago.
Another key difference is the massive increase in hydrocarbons reserves in the United States and the possibility of Arab states to build pipeline infrastructure to avoid the strait of Hormuz. In the short term, the oil shock should have a lower impact on the global economy than in the seventies given the reduced oil intensity and longer term, there are large alternative sources of energy supply which should cap long term hydrocarbon prices.
Sovereign balance sheets are far weaker. This is the critical difference that receives too little attention. In 1973, US government debt stood at roughly 33% of GDP [US Treasury]. Today it exceeds 124% [IMF]. The pattern is similar across the developed world: Japan at over 250%, Italy at 140%, France at 112%, and the UK at nearly 100% [IMF]. In the 1970s, governments had the fiscal capacity to absorb economic shocks, subsidise consumers, and fund emergency measures. Today, that capacity is severely constrained.
Central banks face a different dilemma. In 1973, interest rates were already high (the US 10-year yield was around 6.5%) and the Fed had room, albeit at great economic cost, to tighten further. Today, rates are lower (US 10-year at approximately 4.3% [Yahoo Finance]), but government debt burdens make aggressive tightening far more expensive. Every 100 basis points of rate increase now costs the US Treasury roughly $300 billion more in annual interest payments. The ECB faces a similar bind: markets are pricing in three rate hikes this year, but each hike increases the fiscal strain on highly indebted Eurozone members.
Labour markets are fundamentally different. The 1970s stagflation was amplified by strong unions and widespread wage indexation, which created a wage-price spiral. Today, unions are far weaker, wage indexation is rare, and labour markets are more flexible. The development of artificial intelligence is potentially limiting the bargaining power of labour. This is an important structural buffer against the kind of entrenched inflation that defined the 1970s.
The long-term lesson. For all the damage the 1970s oil shocks caused, they were not permanent. They were painful, sometimes lasting years, but the global economy adapted, innovated, and grew. The energy crises accelerated a structural shift away from oil dependence, led to massive invest- ment in energy efficiency, and ultimately produced one of the greatest bull markets in history: the 1982-2000 period, when the S&P 500 returned over 15% per year. Crises do not end capital- ism. They reshape it.
CAPITAL ALLOCATION : WHERE THE REAL RISKS ARE
While markets are fixated on oil prices and geopolitics, we believe the more important risk for long-term investors lies in two areas of capital allocation that received far less attention: the private credit boom and sovereign credit deterioration.
PRIVATE CREDIT: THE $3 TRILLION QUESTION
The private credit market has grown fivefold since the 2008 financial crisis, reaching approximately $3 trillion globally2. For years, this growth seemed like a straightforward bargain: companies that couldn't access traditional bank lending found capital, and investors earned attractive yields in a low-rate environment.
In early 2026, cracks have become visible. Several high-profile events warrant attention:
- A series of fund managers, including Blackstone, Ares, Apollo, and Blue Owl, have either gated redemptions or restricted investor withdrawals3, the first real liquidity test for the asset class at scale.
- Morgan Stanley has warned that default rates in direct lending could surge to 8%4, well above the 2-2.5% historical average, with particular stress in software lending where fears of AI disruption are mounting.
- The collapse of London-based lender Market Financial Solutions revealed alleged fraudulent practices including double-pledging of collateral.
We do not believe private credit is about to cause a systemic financial crisis. Private credit funds are generally less leveraged than the investment banks of 2008, and most capital is held by institutional investors with long time horizons.
But the combination of loosened underwriting standards, opaque valuations, and a liquidity mismatch between what investors were promised (quarterly redemptions) and what they own (illiquid loans) creates real risks, particularly in an environment where an energy shock may push weaker borrowers into distress.
Yield is not return. A fund offering 8-10% annual income is not comparable to a diversified equity portfolio with similar returns, because the risks are fundamentally different. In equities, prices adjust daily and liquidity is continuous. In private credit, problems accumulate invisibly until a redemption wave forces mark-to-market reality. As Jamie Dimon put it in October 20256: “When you see one cockroach, there’s probably more.”
SOVEREIGN CREDIT: THE RISK NOBODY IS PRICING
Private credit worries are visible. Sovereign credit is the deeper problem, precisely because so few investors treat it as one. According to the IMF, the total sovereign debt outstanding approached USD 100 trillion in October 2025. The current crisis arrives at a moment when government balance sheets across the developed world are already strained to historic levels.
Consider the numbers 7: US federal debt has reached approximately 124% of GDP, up from 33% in 1973 and 60% as recently as 2007. Japan exceeds 250%. France has crossed 112%, contributing to the political paralysis that has dominated French headlines. Italy sits at 140%. Even Germany, long the fiscal anchor of Europe, saw its debt-to-GDP ratio rise to 64% after the creation of a €500 billion infrastructure fund.
Every government response to the current crisis must be financed with borrowing. Strategic petroleum reserve releases, energy subsidies, military spending, consumer support programmes: none of it is free. And the cost of that borrowing is no longer trivial. US interest payments on federal debt are approaching $1 trillion annually, exceeding the defence budget. In the 1970s, governments could deficit-spend their way.
Through an oil shock with limited consequences. Today, each new crisis adds to a debt burden that will eventually require higher taxes, inflation, or financial repression. All of which erode equity returns. This is a structural headwind, not a cyclical one. It will not resolve in a quarter or even a year. But it reinforces a principle we have long advocated: owning productive assets, companies that generate real cash flows and can adjust prices in an inflationary environment, is preferable to lending to governments at fixed rates. In a world of rising sovereign risk, equities are not just a growth allocation. They are a form of protection.
THE CASE FOR EQUITIES, REINFORCED
Sovereign risk is rising. That reality reinforces what we have believed since TreeTop's founding: owning the global stock market is the most reliable way to grow and protect wealth. Three reasons, none of them new, all of them relevant right now:
Companies adjust to shocks.
Unlike bonds or fixed-rate deposits, equity investments represent ownership of businesses that can raise prices, cut costs, and redirect capital in response to changing conditions. The energy companies in our portfolios are benefiting from higher oil prices. The defence companies are seeing surging order books. Even consumer staples firms can pass through input cost increases.
Equities are real assets.
In an inflationary environment driven by energy costs and sovereign debt monetisation, nominal assets (cash, bonds, fixed-rate deposits) lose purchasing power. Equities, as claims on real productive capacity, offer a natural hedge.
Time is the great equaliser.
The 1973 oil shock led to a devastating bear market. But an investor who stayed the course from 1973 to 1983 earned a positive real return. An investor who stayed from 1973 to 1993 earned approximately 10% per year. The long-term trend is always upward. The only investors who permanently lost money were those who sold at the bottom.
OUR APPROACH
Listed equities remain the asset class with the best asymmetric return potential. A stock can lose everything, like any financial asset. Unlike a bond, it can also multiply many times over. That asymmetry rewards discipline. Here is how we apply it:
Invest globally across every sector
Investors should look at the world as there are fantastic oppor-
tunities everywhere but also to minimise risks as some regions thrive when others falter. Similarly
at TreeTop, we try to invest in every sector of the economy even if it can be controversial. Before the
Ukraine-Russian war, some asset managers avoided companies selling weapons, which we think
is a mistake. Sometimes, global indices artificially underweight regions and sectors, like emerging
markets due to their low free floats or energy stocks as the sector significantly underperformed
technology over the last ten years. At TreeTop, we try to offer more balanced strategies which we
hope will deliver better returns in the next few years.
Avoid concentration risk
Most global equity investors use passive trackers or benchmark against them. Either way, they end up overweight the most expensive companies. After fifteen years of rising valuations and the emergence of multi-trillion-dollar firms, that concentration is a vulnerability, not a feature.
Buy quality assets with good risk/reward potential
Paying an extortionate amount of money even for a great business is problematic but buying declining businesses even at bargain prices usually ends badly. At TreeTop, we don’t simply buy cheap stocks, we try to own good and/or great businesses at a fair price.
Avoid illiquid and opaque assets:
Our portfolios have no exposure to private credit or illiquid alternatives; they are invested almost exclusively in listed securities and funds, providing full daily liquidity and transparent pricing which is a significant advantage in the current environment.
CONCLUSION: A NOTE OF PATIENCE
We closed our Q4 letter with a reminder from 2025: those who panicked during the April 2025 tariff scare turned a temporary correction into a permanent loss. The same principle applies today. We do not know how the current conflict in Iran will resolve or when oil prices will normalise. What we do know is that every major crisis in the last fifty years, the oil shocks of the 1970s, the crash of 1987, the dot-com bust, 9/11, the financial crisis of 2008, COVID, the 2022 inflation shock, the 2025 tariff panic was followed by a recovery that rewarded patient investors (1) .
The current sell-off has created opportunities. Many quality companies are now available at valuations that were unthinkable three months ago. For long-term investors, the right response to a crisis is not to flee, but to ensure your portfolio is built to endure it and to benefit from the recovery that follows.
Thank you for your trust. We remain available for any questions.
Jacques Berghmans & Félix Berghmans
As always, good reflexes will matter more than good predictions.
(1) No guarantee of performance
Sources
Al Jazeera, « How does the current global oil crisis compare with the 1973 oil embargo? »
Federal reserve ; Morgan Stanley
CNN, FT, Bloomberg, February - March 2026
CNBC, March 2026
Reuters, February 2026
NPR
FMI, World Economic Outlook, October 2025
Legal Disclaimer
The information contained in this document is for general purposes and does not take into account the investment objectives, financial situation or specific needs of an investor. This document should not be given to a US investor (as defined in US regulations). This document is based on sources that TreeTop Asset Management SA (the “Company”) believes to be reliable and reflects the views of the managers of the Company. This document is for information purposes only and does not constitute investment advice or a product offering. The Company accepts no liability, directly or indirectly, for the use of the document information. Data showing past performance and trends are not necessarily a guide to future performance or developments. Data & Information as of 25th March 2026. Published by TreeTop Asset Management SA, a UCITS Management Company licensed pursuant to the provisions of Chapter 15 of the Luxembourg Law of 17th December 2010