Page 40 - July JSF report

INVESTMENT COMMITTEE MEETING MINUTES (DRAFT) (3)
Table 2
Investment Returns (net of fees)
May 25, 2023 Weightings
Total JSF Fund Private Capital
Fixed Income & Cash Hedge Funds
Public Equities
2019
17.7% 10.8% 3.9% 9.5% 25.8%
2020
14.7% 24.9% 0.3% 17.7% 13.6%
2021
21.3% 54.0% -2.7% 4.7% 18.1%
2022
-13.2% -11.2% -13.7% -3.9% -15.8%
1st Q 2023
3.7% 0.1% 3.6% 2.0%
Actual
100.0% 26.0% 10.2% 12.1%
Target
100.0% 25.0% 12.5% 12.5% 50.0%
62% 51.8%
In many respects the 2023 first quarter performance could be characterized as a classic case of reversion to the mean. Stronger performing sectors in 2022 like energy, financials, commodities and Private Capital have weakened in 2023 while the weakest group in 2022, tech-related equities and bonds, have rallied in 2023. In fact, in the first 5 months of 2023 just seven tech-related equities (especially with an AI flavour) account for a little over 100% of the S&P 500 performance (up 9.6%) while the other 493 companies are basically flat. This narrow equity market leadership may make the equity market vulnerable looking forward.
3. Manager Comments and Asset Allocation – Prime is happy with JSF’s current lineup of managers outside the Private Capital space. Global equity manager GQG partners had a poor first quarter due to an overweight in energy and underweight in tech. However, Prime continues to have confidence in this active manager and performance has improved in April and May 2023. An attribution analysis indicates JSF managers, outside the Private Capital space, continue to outperform on a one and three year basis.
As indicated in Table 2 JSF’s asset’s allocations are close to target (and within allowable ranges). Prime and the Committee believe the current asset allocations are appropriate for the expected investment environment. Prime suggested in the medium term a further modest increase in the target weighting for Private Capital to 30% (from 25%) may be considered.
4. Investment Outlook – In the first 2 months of the 2023 second quarter JSF’s investment return has been close to zero. The inverted yield curve suggests a recession is imminent. Prime and the Committee continue to believe inflation and interest rates will stay ‘higher for longer’ than generally expected. The economy continues to surprise on the upside and seems to be able to function within the current or moderately higher interest rate levels.
5. Private Capital Comments – Lower Venture Allocation – Since late 2019 Prime has had discretion over the management of JSF’s Private Capital portfolio which as of May 25, 2023 totaled $63.8 mill or 26.0% of the total JSF portfolio. Despite the poor absolute and relative performance from Private Capital over the
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Page 38 July Report