Quiñenco S.A. (XSGO:QUINENCO, Financial) (“Quiñenco”) – The Fund initiated a position in Chilean holding company Quiñenco S.A. during the quarter. October in Chile was marked by violent protests in response to a government attempt to increase subway fares, which were seen to be unduly burdensome on lower income Chileans. Protests quickly evolved into a broader call to arms to create a more egalitarian Chile. Protests have since subsided and the specifics of future government action have not yet been identified. Meanwhile, early data on the impact of protests on the Chilean economy appears to be quite benign. That said, Chilean equities and the Chilean peso had a substantial reaction to the protests. Quiñenco, has controlling stakes in Banco de Chile, S.A., Chile’s 4th largest bank, and Compania Cervecerias Unidas S.A. (“CCU”), Chile’s largest brewery and soft-drink company, but also large stakes in businesses in cable manufacturing, container shipping, ports and fuel distribution, some of which have very little activity in Chile. From the middle of September to the middle of November, the share price of Quiñenco fell roughly 18% in Chilean pesos and more than 25% as measured in US dollars. We have been familiar with Quiñenco, its management and its controlling family for well more than a decade and various Third Avenue funds have been shareholders of multiple associated companies, though have never before owned shares of Quiñenco. We view the underlying companies as well-managed and conservatively financed, often with dominant market positions. Indeed, various Quiñenco controlled companies are respected business partners for global companies, such as Heineken, Citigroup and Shell, seeking to operate in Chile. It is our view that we were able to purchase shares at a time when both the underlying businesses were atypically inexpensive and the size of discount offered through shares of Quiñenco was unusually large.
From Third Avenue Value Fund (Trades, Portfolio)'s fourth-quarter 2019 shareholder letter.
