How Did We Fare?

For the 1st Quarter of 2020, the Fund posted a return of (-8.1%) bringing the Since Inception
(annualized) return to 8.2%, outperforming its benchmark (the Hedge Fund Research HFRI
Fund Weighted Composite Index) across both short- and long-term periods.

The sole contributor to the losses in Q1 2020 was the portfolio’s exposure to GNMA bonds
held within the income-generating portion of the portfolio. The securities were discounted by
an average of 33% as a result of market illiquidity and Treasury Yield contraction following
the unprecedented volatility introduced to the market during the CoVID-19 pandemic.

GNMA’s are mortgage-backed securities (MBS) issued by U.S. Government Sponsored
Enterprise (GSE). GNMAs are the only MBS for which the government guarantees full and
timely payment of principal and interest. This guarantee gives GNMAs the same credit quality
as U.S. Treasuries.

Despite this guarantee of principal and interest, the underlying securities still experience
interest rate risk meaning that current valuations can fluctuate over time as market interest
rates change. Recent liquidity constraints resulting from the economic shutdown have led to a
significant reduction in valuations in the secondary market compared to where valuations
would be if not for the pandemic.

Bond Funds Suffer Record Outflows

It is important to understand that the creditworthiness of these GNMA securities remains AAA or AAA implied, and the underlying bonds themselves are backed by the full faith and credit of the US government. The reduction is not due to realized losses from liquidations or any issues with the underlying loans. The reduction is being implemented solely as a pre-emptive measure to reflect the current discounted price being offered for these bonds on the secondary market as a result of temporary liquidity constraints.

Since the end of March, we have seen credit spreads begin to tighten, and the 10-Year Treasury yields rise. As liquidity continues to re-emerge, so too will the current valuation of these securities. The below chart illustrates how the securities’ price reacted to the fall in 10- Year Treasury Yields and highlights the recent rise in the yields as liquidity re-emerges.

The remainder of the Holdun Opportunity Fund continued to perform as expected with the revaluation of Bespoke A LP, providing some positive returns for the Private Equity portion of the Portfolio.

A new investment was made into the Private Equity portion of the Portfolio over the quarter. Brannd Wellness is a performance-based global marketing agency helping companies within the health and wellness industry grow their brands through direct sales. BRANND utilizes a tech-driven Sales platform allowing them to adapt and take advantage of the latest eCommerce trends.

Performance Breakdown: Q1 2020

Historically, private equity has outperformed broad-based public equity indices

* Information as at 30/09/2019

Opportunities for Private Equity Firms to invest at attractive prices

The decade-long bull market and the availability of credit at low cost forced private equity firms to hoard cash as attractive investment opportunities were hard to come by. Now, as small businesses find it difficult to secure funding from traditional sources, private equity firms will have an opportunity to tap into high-growth companies at attractive prices.

The most recent volatility presents a significant opportunity for Investors

Despite record low-interest rates, borrowing is becoming an obstacle for many companies. An investor might assume that borrowing just got easier and cheaper for all types of businesses in the U.S. as a result of the record-low policy rates, but this is far from the truth. Banks and fintech companies are tightening the credit approval criteria in fear the imminent recession might lead to a significant rise in delinquencies.