2023 Review – 2024 Outlook

OFFICE NEWS

• Experienced several high-profile client acquisitions and continued AUM growth
• We were named One of America’s Top RIAs (Registered Investment Advisors) in 2023, by Financial Advisor Magazine. (Based on the period from 12/31/21 to 12/31/22 and was released on July 14, 2023. Neither Rose Capital Advisors nor any of its advisors pay a fee in exchange for this award. Please see here for more information.)
• Formally established strategic partnerships with multiple leading CPA firms to ensure a more engaged full spectrum of support, and coordination, allowing us to find the right fit for unique needs. From personalized individual tax services covering federal and state income tax to comprehensive business tax solutions, we will help our clients navigate the complexities to secure your financial well-being.

A Review of Our
2023 INVESTMENT OUTLOOK

We conducted an informal straw poll of Investment Committee and Investments Team members, and asked them fortheir highest conviction “calls” for 2023.
2023 TOP 10 THEMES VS WHAT HAPPENED:

1. Long-term global central bank quantitative tightening regime change with higher rates and balance sheet wind-downs. The US Federal Reserve reduced its balance sheet from $8.5 trillion to $7.7 trillion by the end of the fiscal year. Fed Funds upper limit increased 100 bps from 4.5% to 5.5%. Central banks in aggregate reduced balance sheets and maintained stricter financial conditions.

2. Although inflation should continue its decline as 2022 tightening dynamics work through the economy; stubborn pockets will remain. CPI measured +4.1% for 2023, down from +8% in 2022 and +4.7% in 2021. However, shelter, transportation, and business services remained hot.

3. Fed may be forced with the decision to live with higher inflation or send the economy into a deep recession. The Fed’s aggressive tightening measures are still working through the economy and financial markets. Inflation has shown signs of meaningful declines in 2023, however, stresses are beginning to show – regional banks, commercial real estate, capital/credit markets, household financial health, etc. Finally, there is typically periods of “reinflation” after initial disinflation. A “soft landing” seems likely at this stage.

4. General fixed income finally becoming attractive, favor credit risk over duration risk. The Bloomberg Global High Yield Index, Bloomberg Global Aggregate Index, Bloomberg US Aggregate Index, and Long Duration Treasuries (represented by TLT) finished +14.04%, +5.72%, +5.53%, and +2.77% for 2023. Although duration rallied significantly in Q4, credit broadly outperformed.

5. Private credit offers a highly attractive risk/reward profile, but manager selection and portfolio construction are paramount. Private credit, as represented by the CDLI, CDLI-S, and CDLI-V, are +8.92%, +9.04%, and +9.14% through Q3 of 2023. Volatility has remained low at .94% for the trailing one year, with all the indices posting positive quarterly marks for 2023 through Q3. Manager selection and portfolio composition are important, as those with liquid credit components, high leverage, and junior positions experiencing upticks in volatility and loss reserves.

6. The transition to new leadership in equities has begun; growth and value are part of the same equation. While too early to determine a long-term new equity regime change, the 2022 drawdowns in technology presented tremendous value investing opportunities into 2023. Growth in value territory after the 2022 rout, the Nasdaq-100 delivered a return of +43.42% with over 400 bps added to forward multiples on strong earnings growth.

7. Regulatory scrutiny, lower multiples, and slower growth will put continued pressure on mega-cap technology resulting in extended outperformance of the S&P 500 Equal-Weighted Index vs. the Cap-Weighted Index. The S&P 500 was +26.29% for 2023 vs. +13.87% for the Equal-Weighted Index. The S&P 500 Information Technology Index was +57.84%.

8. Jobs-workers gap to narrow, wage growth to moderate, and unemployment to tick up. Job openings compared to unemployed labor force participants is the lowest since August 2021. Wage growth while still strong, had a mean change of +7% vs +8.3% in 2022. Average unemployment rate remained the same as the year prior.

9. Corporate earnings begin to drip down, but the overall economy proves to be resilient. S&P 500 year over year pro forma EPS growth based on actual and analyst consensus data for Q4 show flat to slightly positive gains. Overall corporate profits were flat to slightly down through the same period. The economy remained very resilient through high rates and tighter financial conditions.

10. Secondary transactions in private equity set to swell as the IPO market stays challenged alongside weaker strategic buyer demand. Transaction volume in secondaries reached $114 billion in 2023, up from $103 billion the year before – the second biggest year on record for transaction volume. IPO market remained challenged, with number of new issues and proceeds, while up from 2022, still down significantly compared to 2019 and 2020.

ALTERNATIVE INVESTMENTS

Over $2.3 Billion ofequity and debt across 1,215 transactions since 2009.

17 bridge loans were paid off in 2023, representing a total value of $85 million.

Funded 26 bridge loans in 2023, representing $130 million witha 37.35% weighted average loan to value (LTV).

Affordable Housing Fund
Robust pipeline of 19 properties, representing 1,942 units and approximately $1.21 Billion in total project costs. Successfully syndicated 6 properties in 2023 where construction commenced for those. Secured federal tax credits and bonds for 7 properties.

Private Credit

Rose Capital Advisors has been investing in the private credit asset class for over a decade. Coming out of the great financial crisis lows, risk assets (particularly growth equity) seemed to produce never ending streams of high double-digit returns with muted volatility. Private credit during this same timeframe, as represented by the Cliffwater Direct Lending Index (CDLI), produced strong non-correlated returns in the high single/low double-digit range, but more times than not, served as a performance drag for investors when compared to risk-on assets. Markets can be extremely sobering, and it is during environments like 2022 investors are reminded it is important to implement a top-down portfolio construction framework that has components able to perform in various cycles and market characteristics. This all-weather framework is what Rose Capital Advisors seeks to implement on behalf of clients and private credit was an allocation in 2022 that outperformed nearly every asset class both absolutely and relatively.

Private Equity | Venture Capital Multi-Manager Vintage Series Sleeve

Since our inaugural commitments in 2012, Rose Capital Advisors has allocated over $250MM across various alternative investment strategies, emphasizing non-correlated returns, portfolio diversification, and tax efficiency.

Recognizing the inefficiency of private markets, we are excited to announce the evolution of our private equity program. Our approach involves strategically combining multiple fund commitments into vintage year series structures, providing diversification across managers, strategies, and vintage years in a single vehicle. This innovative structure aims to offer lower minimums, reduced administrative complexities, and enhanced flexibility.

Our core program, which will include exposure to Private Equity and Venture Capital in general as well as sub-asset class strategies such as GP stakes, Co-Investments, Secondaries, European Growth Equity, and Special Situations will allocate to 4-7 managers in each vintage sleeve. Leveraging our due diligence capabilities, we curate a selection of both established and emerging managers. Each sleeve serves as a building block for a fully diversified program, ensuring deliberate, steady commitments over multiple years.

Launching our first private equity sleeve this year, we plan to deploy subsequent vintage year sleeves every 2-3 years. These sleeves, tailored for diversification at the vintage year, strategy, geography, sector, and life-cycle levels, will consist of 4-7 fund commitments.

Our commitment to compliance is unwavering. In adherence to the new SEC marketing rules, we ensure that this communication is not construed as a general solicitation but rather as an informative update to our valued clients. Fund is only eligible for Qualified Purchasers.

As the private equity landscape continues to evolve, we look forward to seeing our sleeves mature, becoming more structured, formalized, and diversified. We believe that this approach will produce superior risk-adjusted performance for our clients in the years ahead.

STANDARD OF CARE MODEL

In our ongoing commitment to providing you with unparalleled financial guidance, we are excited to share how our innovative approach, inspired by industries renowned for their safety and precision, continues to evolve. Through collaboration and the expertise of Ken Haman with Alliance Bernstein’s AB Advisor Institute, we have embraced a higher Standard of Care model which enables us to externalize a professional point of view based on extensive research and experience.

Just as pilots rely on preflight checklists and surgeons rely on pre-op checklists to ensure success, we employ age and wealth specific checklists tailored to your unique life stage. Checklists Include:

• New Parents
• Midlife
• Pre-Divorce
• Eldercare
• New Widow(er)
• Inheritance / Sale of Business
• Overall Financial Plan (100+ point checklist)

Your personal checklist becomes a shared vocabulary, facilitating communication and understanding between us. Whether you’re on a standard comprehensive plan, or deviations prompt discussions on new strategies, the checklist becomes a dynamic tool for continuous improvement and alignment with your financial goals.

How You Can Benefit

We encourage you, as well as your friends and family, to reach out to us whenever you encounter any of these significant life or wealth events. Our team is here to serve as your trusted resource and sounding board, providing expert advice and personalized solutions tailored to your specific circumstances. By leveraging our checklists and engaging with us during these pivotal moments, you gain:

Peace of Mind: To navigate life transitions with confidence, knowing you have a comprehensive financial plan in place.

Expert Guidance: Benefitting from our experience and industry insights as we guide you through the complexities of each life event.

Customized Solutions: Receiving personalized strategies that align with your unique goals and aspirations.

Your financial journey is our top priority, and we are dedicated to ensuring that you have the support and resources needed to thrive at every turn. Reach out to us at any time to explore how our checklists can be tailored to your specific needs or the needs of those close to you. As we embark on another year together, we look forward to continuing our partnership and helping you achieve financial success.

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2024 INVESTMENT OUTLOOK

We conducted an informal straw poll of Investment Committee and Investments Team members, and asked them fortheir highest conviction “calls” for 2024.

• The US Federal Reserve and central banks begin to slow the degree and forcefulness of their quantitative tightening; however, actions will be data dependent.
• Inflation to continue to moderate and stabilize, although remain elevated above the Fed’s 2% target.
• Despite a hawkish Fed, major geopolitical events, and a regional banking crisis, 2023 volatility remained low. Volatility is set to make a comeback in 2024.
• Go forward expected equity returns to fall on slower growth, extended multiples, and higher costs of capital.
• Potential upside risk in yields with the bond market in late 2023 pricing in aggressive rate cuts and a potential recession in 2024; the 10-year yield at 4% presents room for upside considering inflation expectations and real rates.
• Private credit in aggregate to continue to provide strong risk adjusted returns. However, lenders with poor credit selection will begin to show, especially those with high leverage and tight equity cushions.
• Stresses in broader commercial real estate market to remain. Delinquencies and defaults in CMBS to pick up.
• IPO, SPAC, and private equity deal volume rise as capital markets begin to open from the muted activity of 2022 and 2023.

The overall outlook continuesto suggest that investors and advisorsfocus on diversification, patience, and an appropriate management ofexpectations.
We believe our client portfolios are appropriately allocated to take advantage of these themes,while remaining prudently diversified in the event that market conditionstake an unexpected path.

Additional Investment Outlooks:
❖ Rose Capital Advisors: 2023 Review 2024 Outlook
❖ The Bespoke Report 2024 Outlook
❖ J.P.Morgan: Guide to the Markets 1Q24
❖ WisdomTree: 2024 Economic & Market Outlook
❖ Alliance Bernstein 1Q24 Capital Markets Outlook