Fund performance and what we expect next ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ LETTER FROM BEN Chief Investment Officer How our alternative investment funds did last quarter Hi there, This is our second quarterly update on Wealthsimple’s alternative investments. If you read the last one, you’ll see some familiar sections below: for each fund we include a recap of our strategy, followed by a performance update, some charts, and our outlook for the future. While this is a bit repetitive (and long — sorry), it’s important information to keep in mind. Before we get into more detail, here’s a high-level summary of how our funds performed in the first quarter: Since launching in January, Wealthsimple Private Equity has returned 17.1%, mostly due to the revaluation of portfolios purchased at discounts. Wealthsimple Private Credit continued to receive its expected interest payments and has returned 11.1%1 since its inception in June. Private Credit Strategy: Wealthsimple Private Credit invests in senior-secured floating-rate loans to medium-sized companies. It is managed by the Sagard Private Credit team, a group of professionals with 125-plus years of collective experience investing in credit across different market cycles. The fund shares in the same private deals as Sagard’s institutional clients, meaning you are investing alongside major institutional investors like public and corporate pension plans, asset managers, and banks. Sagard looks for borrowers with market leadership in their niche, pricing power, recession resilience, and management/owner alignment. Their focus is on the middle market — companies worth between $10 million and $1 billion — which is less competitive, enabling them to lend at attractive rates to borrowers who are not too heavily leveraged, and to get those borrowers to agree to covenants to protect the investment. Performance: Total returns since inception (the overall increase in the value of the fund) are at 11.1%, which is on the higher end of our expectations. The fund is currently issuing regular distributions at a 9% annualized yield.2 Returns in the second quarter were 3.8%, which mainly reflects borrowers making regular interest payments. Portfolio: Outlook: Private credit continues to be one of the fastest-growing private asset classes, forecasted to reach $2.3 trillion in assets globally by 2027, according to the financial data company Preqin. The market remains resilient despite the current high interest rate environment — since borrowers have floating-rate loans, the higher the current interest rates, the more expensive it becomes to make payments — and our fund’s credit metrics continue to be healthy. The fund’s weighted loan-to-value3 average (LTV, or the amount of money borrowed in comparison to the value of the collateral) is a conservative 44%, and all borrowers are making their agreed-upon payments. The weighted average interest coverage (a borrower’s earnings relative to its required interest payments) is >2x, with no significant concentration in any specific industry. Plus, the fund is 100% invested in first-lien loans, meaning it has first claim on the assets of its borrowers. Wealthsimple Private Credit has had the advantage of deploying capital after the sharp rise in interest rates. As a result, Sagard’s cash flow forecasts have factored in high interest rates, and they have modeled stress scenarios to ensure borrowers can meet their debt service obligations, even with rate hikes. Because of these factors, we believe that the fund’s underlying investments have substantial downside protection with attractive risk-adjusted returns. Private Equity Strategy: Wealthsimple Private Equity offers a globally diversified portfolio of private equity investments. It is managed by LGT Capital Partners, an institutional asset manager with 25 years of experience and a record of superior returns. We are investing alongside LGTs shareholders, an alignment of incentives that we believe will prove advantageous, since it means LGT is highly incentivized to manage for returns rather than simply gathering assets to collect more in fees. The fund consists primarily of co-investments alongside other private equity funds, and investments in secondaries — funds that have already deployed their investments. Co-investing reduces overall fees, and investing in secondaries allows the portfolio to be highly diversified, since those investments provide immediate access to a broader spectrum of companies. Performance: Total returns in the first three months of operations were 17.1%. This is primarily due to the revaluation of assets initially acquired at discounts, as well as the successful sale of one of the fund’s holdings, Systems Control, to a strategic buyer. We have also benefited from valuation increases on our investments with minimum preferred equity returns (payments and dividends are paid first to preferred equity holders, then to everyone else if the minimum preferred return has been reached). We do not expect 17% every quarter from this fund. The return reflects some extremely attractive market conditions for secondary investing in private equity — namely that sellers are motivated to reduce private equity exposure because, after outperforming other assets, it is now overweight in many institutional portfolios. Portfolio: Outlook: As I mentioned above, a lot of institutional buyers are over-allocated to private equity and are selling at discounted prices. This also means they’re not competing with us as buyers. Plus, the higher-for-longer interest rate environment has resulted in fund managers using less debt and more equity capital in new transactions. This increases the opportunities for funds like ours, with direct investment capital available to deploy as managers look to outside sources to complete transactions. Because LGT is a significant investor in private equity and has new secondary and co-investment capital available, the team is seeing attractive deal flow. They continue to build a well-diversified portfolio across regions, sectors, and types of underlying companies. Their investment pipeline remains strong, and they expect to continue to close new co-investments and secondary transactions in the coming months. Thanks so much for investing with us. If you have any questions, please get in touch. All the best, Ben Reeves Chief Investment Officer Thoughts on today’s email? Yes, useful Could be better Not for me Wealthsimple, 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Refer a Friend Privacy Policy Unsubscribe Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. 1 Between the beginning of the fund and the end of September, the management and performance fees were waived to facilitate certain portfolio investments. In the absence of these temporary waivers, performance figures would be lower. 2 Annualized distribution yield based on $0.077/share, divided by a starting NAV of $10.22, and multiplied by 12. To calculate this rate, we take a partial year distribution and convert it to a full-year amount as if it were paid in each period. We then divide this annualized amount by the fund’s value at the start of the period. Distributions are not guaranteed. Past performance does not guarantee future results. 3 Based on par value as of March 28, 2024. The content of this message is confidential. If you have received it by mistake, please inform us by an email reply and then delete the message. Do not copy, forward, or in any way reveal the contents of this message to anyone. Managed accounts are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada. © 2024 Wealthsimple Technologies Inc.