Page 44 - 2024 July report

INVESTMENT COMMITTEE MEETING MINUTES (4)
The Committee approved the proposal to increase the target asset allocation to Private Capital from 25% to 30% while at the same time reducing the target allocation for public equities from 50% to 47.5% and hedge funds from 12.5% to 10%. Included in the new 30% Private Capital target allocation will be a dedicated 5% Private Real Asset allocation. The new target allocations are outlined in Table 3. This fine-tuning action Prime believes will increase the probable future annual rate of total portfolio return by 0.2% from 6.1% to 6.3% (in real terms). Prime noted it could take up to 5 years to reach this higher Private Capital target allocation.
Asset Class
Table 3
Asset Allocation Revisions
New
Target
Old
50.0% 29.0% 15.0% 6.0%
25.0% 12.5%
Allowable Range
Global Public Equity 47.5% US 28.5% International Developed 14.0% Emerging Markets 5.0%
Global Private Equity 25.0% Private Real Assets 5.0% Flexible Capital 10.0% Fixed Income/Cash 12.5% Total Assets 100
New
32.5/62.5% 19.5/37.5% 9.0/19.0% 2.5/7.5% 15.0/35.0% 0.0/10.0% 7.5/12.5% 10.0/15.0%
Old
35.0/65.0% 20.0/38.0% 10.0/20.0% 4.0/8.0%
15.0/35.0%
10.0/15.0% 10.0/15.0%
In order to gradually increase the Private Capital weighting from 25% to 30% over the next
Prime expects to increase the pace of annual new Private Capital commitments from $6 to $12 mill to $12 to $16 mill averaging $2 mill each. For 2024 to date three new $2 mill Private Capital commitments – General Catalyst XII Endurance (Venture), Encap Energy Fund XII (real assets) and Kingswood Capital Opportunities Fund III (mid-market US growth) have been made. Prime expects at least two more commitments in the buyout/growth space in 2024.
Prime continues to believe Private Capital will, in the long term, produce an annual rate of return of at least 3% above that generated by Public Market equities (i.e. MSCI All Country World Index) and well above the return generated by hedge funds more than compensating for Private Capital’s lack of liquidity, transparency and high fees. Hugh noted the return on JSF’s Private Capital portfolio has lagged this target by 1.9% over the last 10 years. In addition, JSF’s largest and most successful Private Capital investment, MAP, which dates back 25 years, will be winding down over the next 8 years. Prime believes by decreasing the Venture Capital weighting in the portfolio, reducing fund to fund investments, accessing the best managers, and adding Prime Private Real Assets to the mix will create substantial value although over the next year Private Capital returns will likely remain depressed.
5. Some More Background on Adage – Given the unusually large investment JSF has in Adage at 23.7% of the portfolio the Committee asked for an update from Prime. The Committee met with Adage management on June 5, 2023 (see minutes for this meeting dated June 14, 2023). At that meeting the Committee concluded that the unusually high portfolio exposure to Adage was not a major risk assuming their quasi-index investing model and risk mitigation tools remain in place. This remains the
five years
4
Page 42 July Report