Plus: a look at what makes up each fund ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ LETTER FROM BEN Chief Investment Officer Here’s how our alternative funds have been doing Hi there, I’m writing today to share a quarterly update on Wealthsimple’s alternative funds. You’re getting this data now because it takes time to assemble a comprehensive update. It’s more like public companies releasing quarterly earnings a couple months after a quarter ends than pricing information that you know at the closing bell. I’ll go into more detail on all the funds below, but in case you don’t have time to read a (very) long email, here is a high-level summary of how our funds have been performing: our Private Credit fund is invested in diversified floating-rate loans and has returned 7.9%1 since its inception in June our Private Equity fund launched in January and has taken on a globally diversified portfolio of more than 300 positions Our managers are investing at a time of significant change. The recent end of a 15-year period of near-zero interest rates is affecting financial markets in ways that I think are only beginning to play out. We believe that our choice to invest with managers who are experienced across multiple market cycles will show benefits in this new economic environment. Private Credit Strategy: the Wealthsimple Private Credit Fund invests in senior-secured floating-rate loans to medium-sized companies. It is managed by Sagard, a company led by professionals with decades of experience investing across different market cycles. Performance: in our first half year of operations, we have gone through two different interest-rate environments: a sharp increase in bond yields and a decline in other asset prices through the third quarter and into October, followed by a reversal of bond yields and asset prices to end the year. The fund offered consistent performance through both. Total returns since inception (the overall increase in the value of the fund) are at 7.9%,1 which is on the higher end of our expectations. The fund is currently issuing regular distributions at a 9% annualized yield2 and included an additional interest payment in December. The remainder of the return comes from increases in the value of the loans in which the fund has invested. Portfolio: Outlook: the fund’s credit metrics continue to be healthy. The weighted loan-to-value3 average (LTV, or the amount of money borrowed in comparison to the value of the collateral) of loans held by the fund is a conservative 43%, and all borrowers are making their agreed-upon payments. The consensus forecast is for the U.S. economy to grow in 2024 with continued moderating inflation. Although the Fed expects to lower rates in 2024, the magnitude and speed of those rate cuts remain uncertain. Given strong demand for private credit and moderate expected rate cuts, the yield on private credit funds is expected to remain high. Although market pricing reflects an almost-perfect future — lower rates, subdued inflation, and strong corporate performance — Sagard remains focused on risks to the economic outlook and defensive portfolio construction. Since the fund is invested in floating-rate debt, we believe it should be highly adaptable to evolving market conditions. If the Fed cuts interest rates, the fund will likely benefit from reduced pressure on borrowers (making it easier to pay their debts) and the resulting increase in the value of the underlying loans. If interest rates were to increase, the low leverage and low LTV, combined with Sagard’s underwriting process (which focuses on borrowers' free cash flow generation across interest rate environments) should protect your capital while the yield on debt rises alongside the Fed’s benchmark. Private Equity Strategy: the Wealthsimple Private Equity fund 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 and institutional clients, 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. Performance: the fund launched in January, so quarterly performance is not available yet. It is well diversified, with an even split of secondary and direct investments, and consists of more than 300 positions representing more than 30 underlying managers. It is globally diversified as well, with a focus on resilient industries. Portfolio: Outlook: amid high interest rates and a depressed IPO market, the frequency of private equity transactions (both new deals and exits of existing portfolios) declined in 2023. We believe we can take advantage of this in two ways: by purchasing interests in funds at significant discounts from investors who need liquidity, and by seeking out new deals that offer attractive entry points. Thanks so much for investing with us. If you have any questions, please get in touch. All the best, Ben Reeves Chief Investment Officer 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 $10.19, 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 December 31, 2023 Managed accounts are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada. © 2024 Wealthsimple Technologies Inc.