Page 29 - January 2023 Report

Resilience
Investment Committee meeting minutes (draft)
November 17, 2022
Committee Members: Dick Krause, Hugh Brown, Bobby Krause, Mike Miller, Malcolm Macleod Prime Buchholz (Prime) Consultants: Rick Morrison, Ian MacPherson, Stephen Roche
Dick chaired the Meeting.
1. Approval of Investment Committee Meeting Minutes – The minutes from the August 18, 2022 meeting were approved. The Committee acknowledged Prime’s work with Templeton in establishing the correct percent of JSF assets that are subject to foreign currency risk. In 2021 the correct percentage was 28% instead of 48% as estimated by Templeton.
2. Investment Performance in the 2022 Third Quarter – JSF experienced its third straight difficult quarter with a -4.0% return in the third quarter bringing the year-to-date (as of September 30) return to-16.7%(seeTables1&2). AllassetallocationshaveexperiencednegativereturnsonaYTDbasis and in the third quarter. Perhaps the biggest surprise is fixed income, which was down 5.5% in the quarterand-15.9%YTD(theworsebearmarketforbondsinover40years). Chinawasalsoamajor disappointment with a YTD decline of 42.9% as of October 31, 2022. Hedge funds, although down 5.4% YTD, have far outperformed fixed income more than justifying their relative lack of liquidity and transparency. Over the last 10 years JSF hedge funds have achieved an annual return of 5.3% versus 0.9% for bonds.
Other than the energy and commodity space there have been no havens to weather the storm (see Table 2). Even Private Capital, which achieved a spectacular 54% return in 2021, has given back 7.5% so far in 2022. Prime expects Private Capital returns will be negative over the next six months as valuations, especially for venture capital funds, catch up with public equity market price erosion. Prime continues to believe that future annual Private Capital returns over the long term will exceed public equity market returns by at least 3%, which more than justifies the significant overweight in this asset class.
JSF continues to outperform its peer group with second quartile performance over the last year. Overall manager performance has been positive with winners – GQG, OrbiMed, Overlook, Silchester, most hedge funds and MAP – outnumbering losers – Semper Vic (liquidated), Cat Rock (being liquidated) and Private Capital manager Valar.
With the negative investment performance experienced in 2022 (to Sept 30) JSF now lags its key investment return target of inflation +5.0% over all historical periods measured (see Table 1 – for example -0.9% annually over the last 10 years) even though JSF is a solid second quartile performer versus its peer group. Prime remains optimistic that JSF can at least achieve its target rate of return in the future noting today’s starting point Is discounting a lot of bad news and valuations are reasonable or depressed in some spaces.
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