Investment management firm Baron Funds released its third-quarter 2025 investor letter for the Baron Small Cap Fund, revealing a modest increase of 0.54% for the fund compared to a 12.19% rise in the Russell 2000 Growth Index. Year-to-date performance shows the fund up 0.91% against the index’s 11.65% gain. Among the highlighted stocks was Legence Corp. (NASDAQ:LGN), a company specializing in engineering and maintenance services for critical building systems.
As of November 6, 2025, shares of Legence Corp. closed at $36.54, bringing its market capitalization to approximately $3.844 billion. The company’s stock has shown a significant one-month return of 16.93%. The Baron Small Cap Fund noted its investment in Legence when the company went public in September 2025, indicating strong growth potential in a competitive market.
Legence Corp.’s Market Position and Client Base
Baron Funds expressed confidence in Legence Corp.’s future, emphasizing its role as a leading provider of engineering, installation, and maintenance services tailored for mission-critical systems in buildings. The company has established a diverse client base, including over 60% of the firms listed in the Nasdaq-100 Index. These clients predominantly operate in high-growth sectors such as data centers, pharmaceuticals, and educational institutions, which require advanced technical systems.
The services provided by Legence focus on complex mechanical, electrical, and plumbing (MEP) systems, including HVAC and process piping. The company boasts a specialized workforce of approximately 1,200 MEP engineers and energy consultants, along with around 3,400 technicians and skilled workers. This extensive expertise enables Legence to deliver both design and build services on a national scale, unlike many competitors who typically offer services regionally.
Baron Funds highlighted the longevity of Legence’s client relationships, with the top ten clients averaging over 26 years of collaboration. This duration underscores the value Legence provides to its clients and bolsters confidence in its continued growth.
Investment Outlook and Comparisons
Despite the positive outlook for Legence Corp., it has not secured a position among the 30 most popular stocks among hedge funds. Baron Funds acknowledged the inherent risks associated with investing in Legence, suggesting that other stocks in the artificial intelligence sector might hold greater potential for higher returns within a shorter timeframe.
For investors seeking opportunities in the rapidly evolving AI market, Baron Funds recommended exploring alternative stocks that could yield significant returns, potentially up to 10,000%. They encourage interested parties to consult their report on promising AI investments.
In summary, while Legence Corp. demonstrates promising growth prospects, the investment landscape is competitive, and investors are urged to evaluate a range of options for portfolio diversification.
For additional insights, investors can access the latest letters from hedge funds and other prominent investors on the Baron Funds website.
