Absolute Alpha Commentary: As at March 31, 2024*

The Picton Mahoney Absolute Alpha Fund Class F (“the Absolute Alpha Fund”) produced a return of 4.07% in the first quarter of 2024.

The Picton Mahoney Fortified Alpha Alternative Fund Class F (“the Fortified Alpha Fund”) produced a return of 4.06% in the first quarter of 2024.

The funds continue to provide returns independent of market direction; our analysis of daily portfolio returns over the most recent time frame indicates a very small beta footprint in terms of exposure to traditional asset classes such as stocks and bonds as measured with respect to our PMAM asset classes in Q1 2024. Therefore, the funds continue to meet a key investment objective of providing returns independent of traditional asset classes.

The funds benefited from positive return contributions from all of the core active strategies as well as the Quantitative Equity Factor risk. As a result, the strategy has started the year with one of the best quarterly performances since inception.

The largest contributor to positive performance in Q1 was the Equity Market Neutral strategy, a rebound from relative underperformance in Q4 of 2023. We expect the relative performance ranking of the core strategies to change over time. This shifting relative performance demonstrates the benefits of diversification and maintaining a balanced exposure across the underlying components of the funds. Over the short term the relative performance of the underlying components is difficult to predict, while over the long run the diversified nature of these return streams enhances the overall quality of the return. Combining portfolio components with a positive return potential and a low correlation can result in better portfolio outcomes over moderate to long term time horizons. These portfolio construction benefits are accruing to investors in the two funds.

Highlight of the component strategies:

Equity Market Neutral strategy:

Positive return contribution was driven by stock selection in Financials and Information Technology sector, and overweight to Health Carre and Industrials sector. Performance was slightly detracted by underweight to Energy sector and stock selection in Utilities sector.

Special Situations strategy:

This strategy was the second largest contributor to the overall strategy. With all-in yields still at cycle highs and bond prices still at significant discounts to par, there is good outright return potential for credit (with attractive capital gains potential). In addition, the Income team continues to focus on finding uncorrelated special situation investments that can provide attractive yield and capital gain potential.

Arbitrage strategy:

The strategy also contributed positively in the quarter. The biggest driver of the strategy’s returns this quarter was the position in Splunk Inc. (SPLK), which has been the largest position for a while. This was a US$25bn acquisition by Cisco that closed in March. Further, the team also held positions in two series of SPLK convertible bonds, which provided attractive returns with less downside risk than the common shares.

Quantitative Equity Factor Risk:

The Quality factor underperformed in Q1 while the Momentum factor outperformed.

(*) Annualized performance