… and what we expect next ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ Alternative Investments February 20, 2025 Here’s how our alternative investment funds did last quarter Hi there, One thing to point out: although these are quarterly updates, they come a little later than general market recaps. It’s more like the quarterly earnings reports public companies release a couple months after a quarter ends, rather than the minute the closing bell rings. One other thing to point out: these letters can get really long. There’s a lot to get across, and we just wanted to warn you before you jump in. With that out of the way, here’s a look at the alts we offer at Wealthsimple — and how they might help your portfolio. Wealthsimple Private Equity returned 6.7% in the fourth quarter, bringing year-to-date returns to 36.5%. These returns are the result of securing deals with attractive pricing, selecting portfolio companies that significantly increased in value, and exiting positions at attractive prices. Wealthsimple Private Credit continued to receive its expected interest payments and returned 2.8% in the fourth quarter. That brings the fund’s total returns between its inception in June 2023 and the end of 2024 to 18.3%,2 for an annualized return of 11.2%. Private Credit Strategy: Wealthsimple Private Credit invests primarily in senior-secured floating-rate loans (this means that we are first in line to get paid back) to medium-size companies. It shares in the same private deals as institutional investors and the fund’s managers, meaning you are investing alongside public and corporate pension plans, asset managers, and banks. The fund looks for borrowers with market leadership in their niche, pricing power, recession resilience, and management/owner alignment. Our focus is on the non-sponsored middle market — companies worth between $50 million and $1 billion that are not controlled by traditional private equity owners. That space is less competitive, enabling us to lend at attractive rates to borrowers who are not too heavily leveraged, and to get those borrowers to agree to certain covenants to protect the investment. Performance: Total returns since inception (the overall increase in the value of the fund) are at 18.3%, or 11.2% annualized,2 which is on the higher end of our expectations. The fund is currently issuing regular distributions at a 9% annualized yield.3 2024 returns were 10.6%, which mainly reflects borrowers making regular interest payments, as well as the increase in the value of some loans purchased at discounts. To date, the fund has been playing exactly the role we would want to have in a portfolio. It’s provided: consistent, attractive returns that are highly competitive with long-term equity market returns meaningful diversification to fluctuations in the equity and bond markets aggressive risk management resulting in some downside protection Portfolio: For a chart showing Wealthsimple Private Credit’s largest positions, click here. In addition to the statistics above, the fund has taken a small position (about 1.5% of total assets) in the equity tranche of a Collateralized Loan Obligation (CLO). CLOs are securities backed by pools of debt instead of a single loan. We are happy to bring this to our investors to provide additional diversification because we believe the risk/return tradeoff is attractive. Outlook: The fund is originating new loans at approximately 6% above the cash interest rate. With cash rates projected to offer positive real returns (returns above inflation rates), that means that the fund has expected real returns that are competitive with world stocks, which have historically yielded 4% to 5% over cash. We believe that the portfolio is well-positioned to manage any economic volatility caused by tariffs (and economic volatility in general). All borrowers are paying interest, as was expected. Apply for private credit Private Equity Strategy: Wealthsimple Private Equity consists primarily of direct investments in companies 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. Our clients are invested in the same deals as institutional investors, the fund’s managers, and the shareholders of the fund’s managers, which means they are incentivized to manage for returns rather than simply gathering assets to collect more in fees. Performance: Total returns to date were 36.5%.1 For context, world stocks were at 29.3% over the same period.4 These returns are the result of securing deals with attractive pricing, selecting portfolio companies that significantly increased in value, and exiting positions at attractive prices. Outlook: Across the industry, private equity managers are optimistic about an increase in dealmaking due to less stringent anti-trust regulation in the United States following the election of President Donald Trump, and about the potential for continued strong economic growth. The deal dynamics in private equity vary significantly by sector. There has been a lot of attention paid to financial services recently. Software-embedded finance and commercial banking replacement are major themes, and bank divestitures of specialty finance and equipment leasing are also creating opportunities. In the payments sector, tightening regulation has caused more consolidation as providers need to scale to compete. On the other hand, many software companies are facing headwinds. In particular, investors are becoming more discerning about the software-as-a-service category. Some companies are sustaining high valuations due to excellent business performance while others are struggling. The team remains focused on finding attractive opportunities while staying disciplined on deal pricing. Apply for private equity 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, The Investment Team 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 Unsubscribe Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. 1Returns shown include all applicable fund management fees and performance fees, but exclude Wealthsimple’s standard management fees for its advisory services. 2Between the fund’s inception in June 2023 and the end of September 2023, the management and performance fees were waived to facilitate certain portfolio investments. In the absence of these temporary waivers, performance figures would be lower. 3Annualized distribution yield based on $0.077/share, divided by a starting NAV of $10.27, 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. 4Based on MSCI All Country World Index from January 1, 2024 to December 31, 2024. The past performance of private equity or any other security or investment strategy is not an indicator of future performance, and past performance may not be repeated. This is for informational purposes and does not constitute investment advice. All investments involve risk. Information shown is current as of December 31, 2024. Number of holdings and information provided are subject to change over time. 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