… and what we expect next. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ LETTER FROM BEN Chief Investment Officer Here’s how our alternative investment funds did last quarter Hi there, If you’ve been following the monthly alternative investment updates in our app, we hope you’re pleased with your recent performance. The results continue to be at the higher end of our expectations. We structured the funds in a way that we believe will perform across entire market cycles. I’ll get into detail on that strategy and our current outlook for each fund in a minute. But in case you don’t want to read all of that, here is a high-level summary of how our funds performed in the second quarter: Wealthsimple Private Equity returned 9.0% in the second quarter. Since launching in January, the fund has returned 27.2%, mostly due to the revaluation of portfolios purchased at discounts. Wealthsimple Private Credit continued to receive its expected interest payments and has returned 2.5% in the second quarter, bringing total returns since inception in June 2023 to 12.5%. 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 LGT’s shareholders, which 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 with 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 six months of operations were 27.6%. As with the previous quarter, this is primarily due to the revaluation of assets initially acquired at discounts, primarily from institutional holders of private equity portfolios. We have also benefited from valuation increases on our investments with minimum preferred equity returns, which receive a guaranteed yield before other equity investors are paid. While we’re pleased with these returns, we do not expect this extreme level of performance to continue. The initial return reflects some extremely attractive market conditions for secondary investing in private equity. Namely, many institutional portfolios amassed quite a bit of private equity exposure while the asset class outperformed, and now they have too much, so they’ve been selling it at a discount. Portfolio: Outlook: LGT continues to execute its strategy of investing in private equity managers who can significantly improve their portfolio companies’ performance. The company does not overly rely on leverage or hoping for valuation increases. They value the portfolio conservatively, which is reflected in significant increases in portfolio company valuation on sale compared with holding cost. Across LGT’s private equity portfolio, companies have a median annual earnings growth of 10.9%. The team is finding attractive co-investment opportunities because private equity sponsors have increased demand for additional equity investors. This is due to higher interest rates, which reduce the attractiveness of debt compared with equity financing. On the secondary side, discounts to fair value remain attractive, though they are compressing slightly as more secondary buyers emerge to take advantage. The team has been priced out of some deals by highly motivated buyers but has remained disciplined. The portfolio has slightly more assets in co-investments than secondary markets, reflecting the greater value currently available by investing in new buyouts. LGT will continue to deploy capital where the risk-adjusted returns are most attractive. Private Credit Strategy: Wealthsimple Private Credit invests in senior secured floating-rate loans (this just means that we are first in line to get paid back) to medium-size companies. It is managed by Sagard’s Private Credit team, which has more than 125 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 non-sponsored middle market — companies worth between $10 million and $1 billion who are not backed by private equity. That space is less competitive, enabling Sagard to lend at attractive rates to borrowers who are not too heavily leveraged, and to get those borrowers to agree to certain convenants to protect the investment. Performance: Total returns since inception (the overall increase in the value of the fund) are at 12.5%,1 which is on the higher end of our expectations. The fund is currently issuing regular distributions at a 9% annualized yield.2 Year-to-date returns are 5.1%, which mainly reflects borrowers making regular interest payments. Portfolio: Outlook: Default rates continue to be at or below historical averages, reflecting overall strong corporate performance and leading to strong total returns in the market. Credit spreads (the premium paid to lenders for loaning money), however, are relatively low, which is generally a risk because spreads are a good indication of potential future return. The good news for our fund is that those lower credit spreads are mostly limited to the part of the market that supports private equity buyout deals, which is not our primary focus. That segment is also seeing signs of potential strain as more borrowers pay interest not in cash but by increasing their debt burden. The non-sponsored market our fund tends to invest in has seen more resilient credit spreads, and we receive interest payments in cash. The Sagard team is focused on deploying capital outside of the markets that are experiencing spread compression and continues to find deals that they believe provide attractive compensation for the risk taken. The fund’s weighted loan-to-value3 average (the amount of money borrowed in comparison to the value of the collateral offered by the borrower) is 41%. The weighted average senior net leverage is 4.0, which means the size of the loans issued is no more than four times the borrowing company’s corporate earnings. And the fund has no significant concentration in any specific industry. It’s 100% invested in first-lien loans, meaning the fund is first in line to get paid back if a borrower defaults. Finally, a number of you have written to us asking about the timing of performance updates, distribution dates, and subscription/redemption timelines. You can find the list of dates here. Thanks so much for investing with us. If you have any questions, please get in touch. All the best, Ben Reeves Chief Investment Officer What did you think? Choosing one of the following ratings will shape the content you see from us in the future. You'll also get the chance to share more detailed feedback after clicking. Interested Not interested Wealthsimple, 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Refer a Friend Privacy Policy 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 $10.24, 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 June 28, 2024. The content of this message is confidential. If you have received it by mistake, please inform us by 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.