Staying selective through economic transitions Favored hedge fund strategies and The litany of headwinds facing the current global economy includes elevated sub-strategies inflation pressures, a retrenching consumer, restrictive monetary policy, and rising • Relative Value: Arbitrage debt levels. Given this backdrop, we continue to prefer Global Macro and Relative Value strategies, which have historically tended to exhibit lower correlations to • Relative Value: Long/Short Credit traditional stock and bond markets. • Macro: Systematic Hedge Fund strategies, such as Global Macro and Relative Value, offer • Macro: Discretionary diversification benefits through lower correlations to traditional stocks and • Event Driven: Distressed Credit bonds. Global Macro strategies often perform well when there are persistent trends, such rising (or falling) prices in commodities, currencies, equity indexes, or interest rates. Relative Value strategies can perform well regardless of market Favored Private Capital strategies direction, as the ability to hedge out market risks can prove valuable during and sub-strategies recessionary environments. Within Relative Value, we believe the environment • Private Equity: Small- and should set up well for Long/Short Credit strategies, as the ability to isolate price Mid-Cap Buyout discrepancies or generate alpha (excess return over the benchmark) from both the long and short portfolios becomes more prevalent as intra-security • Private Equity: Growth Equity correlations decline. and Venture Capital Anticipating recession, we hold a favorable view of Distressed Credit. While the distressed credits are scarce today, the opportunity set should expand significantly, as over-levered businesses are impacted by increasing debt service levels and slowing demand from a stressed consumer. Lastly, for investors with longer-term investment horizons, we maintain our neutral view of private capital strategies, including Private Equity, Private Debt, and Private Real Estate. For Private Equity, we continue to see opportunities within Small- and Mid-Cap Buyout funds, given the more significant valuation dislocations. While we have seen acute weakness in technology companies recently, which has hurt exit valuations for Growth and Venture Capital funds, we view this as a good entry point for these strategies, knowing they have multiple years to deploy capital at more attractive prices. In Private Debt and Private Real Estate, the impact of higher interest rates may take several months to be fully reflected in the form of credit market stress and lower real estate valuations. We are currently waiting for more attractive entry points as the opportunity set becomes more attractive. Given the long-term nature of private investments, we prefer qualified investors methodically allocate across core Private Capital strategies annually to ensure diversification. 2023 Outlook | 19