AIP QUARTERLY REPORT: QUARTER 2 2025

Q2 2025 Investor Commentary

The second quarter of 2025 underscored the importance of disciplined capital allocation amid heightened macro uncertainty and significant geopolitical events. Central to the quarter's volatility was the April 2 announcement, dubbed "Liberation Day," when the U.S. administration-imposed tariffs of 10% baseline on most imports, with reciprocal tariffs on key partners escalating as high as 145% on selected Chinese goods. Markets initially reacted sharply, with the S&P 500 falling 4.5% within a week, the MSCI Emerging Markets Index declining over 6%, and Brent crude oil prices dropping nearly 7%, reflecting investor concerns about disrupted trade flows and potential growth impacts.

Prior to Liberation Day, markets had already been cautious, driven by persistent U.S.–China trade tensions. Post-announcement volatility intensified, evidenced by the VIX index surging from 18 to over 30. Central banks adopted a measured response: the Federal Reserve maintained rates, the ECB reduced rates by 25 basis points, and in South Africa, subdued inflation (2.8% y/y in May) supported bond markets, with the ALBI Index gaining 2.31% in June. The Rand also demonstrated resilience, appreciating 3.23% against the USD for the quarter, closing June at 17.75.

In May, markets were dominated by evolving expectations around interest rates and commodity price fluctuations. Concerns around China's economic recovery placed downward pressure on resources; copper prices experienced an intra-month decline of approximately 8% before a modest recovery. Export indices from major global manufacturing hubs weakened as trade uncertainties persisted.

June introduced another layer of complexity with renewed geopolitical conflict in the Middle East, driving Brent crude prices sharply higher, from around USD 64 per barrel to above USD 80 within days. However, a rapid U.S.-brokered ceasefire calmed markets swiftly, leading oil prices back towards USD 70 by month's end. This resolution triggered a robust relief rally, with the NASDAQ gaining 6.3% and the Nikkei 225 rising 6.6% in June alone. Locally, South African assets benefited notably, with the JSE SWIX Index posting a strong quarterly return of 9.7%, underscoring resilience amid initial tariff-induced volatility. Additionally, the local listed property sector delivered a robust 9.12% return for the quarter, supported by stabilizing domestic fundamentals and global liquidity flows.

Key Investment Themes and Portfolio Insights

Two critical themes have notably shaped our strategic positioning and performance: advancements in defence technology and the resurgence of gold as a central reserve asset.

Historically, defence innovation has been dominated by traditional "primes" such as Lockheed Martin, Northrop Grumman, and Raytheon. However, recent conflicts, notably Russia's invasion of Ukraine in 2022, have highlighted the critical role of commercial technologies—drones, artificial intelligence, cybersecurity, and big data—in modern warfare. This shift was catalysed significantly by the U.S. Pentagon’s re-engagement with Silicon Valley through initiatives such as the Defence Innovation Unit Experimental (DIUx).

Capitalizing on these insights, we strategically entered defence technology positions in May 2024, benefiting from the increased adoption of advanced military and cybersecurity technologies. This proactive positioning delivered meaningful outperformance compared to broader market indices over the past year.

The Russia-Ukraine conflict also profoundly influenced central bank reserve policies. Western sanctions rendered Russian-held Western assets virtually inaccessible, prompting central banks worldwide to enhance their gold reserves, reaffirming gold's historical role as a reserve asset. We strategically captured this thematic shift through direct gold commodity exposure in our Multi-Strategy Fund and leveraged equity positions, such as Harmony Gold (leveraged exposure) and African Rainbow Minerals (discount exposure), in our Equity Long Short and Market Neutral strategies.

 Portfolio Performance Summary

Our strategic positioning across portfolios enabled strong performance relative to benchmarks:

• AIP Concentrated Arbitrage QIHF returned 2.13% for Q2 and 6.07% YTD, outperforming its cash benchmark (1.20% Q2, 3.66% YTD). Over three years, the fund delivered an annualized return of 11.41% compared to the benchmark’s 7.52%, reflecting consistent alpha generation through disciplined arbitrage and catalyst-driven strategies. The fund had no negative monthly return over the past 12 months.

• AIP RCIS Multi-Strategy Retail Hedge Fund achieved a robust quarterly return of 2.81% and a YTD return of 7.05%, comfortably exceeding the cash benchmark returns of 1.20% for Q2 and 3.66% YTD. Over the past 3 years, the strategy has delivered an annualized return of 10.49%, highlighting its ability to effectively leverage global dispersion and volatility through diversified asset exposures.

• AIP LS QIHF delivered exceptional performance, returning 10.03% for the quarter and 14.12% YTD, significantly outperforming its benchmark (Cash + 2%) of 2.36% Q2 and 4.81% YTD. The fund’s compelling annualized return since inception of 24.31% underscores the efficacy of its opportunistic, catalyst-focused long-short strategy.

In Equity Long Short, the quarter was defined by opportunistic positioning and a focus on corporate catalysts. The standout contributor was our holding in Reinet Investments (RNI), which benefitted from a buyout bid for Pension Insurance Corporation by Apollo, validating our thesis that RNI was mispriced for the level of embedded optionality and corporate action potential. Other notable contributors included Valterra Platinum, which gained from renewed investor appetite for PGMs, and African Rainbow Investments (ARI), reflecting the quarter’s risk-off bid for gold. Conversely, our position in Sappi detracted from our performance.

The Multi-Strategy Fund capitalized effectively on global dispersion and volatility. Offshore positions, notably Uranium Energy Corp (UEC), significantly contributed, driven by the global pivot toward energy security. Defence-related equities also outperformed, reflecting robust fiscal trends.

Our Market Neutral strategy consistently delivered low-correlation returns, successfully exploiting cross-market arbitrage opportunities, including positions in Sygnia, Reinet, and Ninety-One.

LOOKING AHEAD

Looking ahead, we anticipate sustained market volatility due to ongoing geopolitical tensions, trade disruptions, and evolving central bank policies. Our approach remains steadfastly focused on risk management and proactive portfolio adjustments to consistently deliver differentiated, resilient returns in a complex global environment. We have proactively reduced risk exposure to secure recent gains while maintaining a bullish outlook on Chinese technology equities, reflecting our conviction in the sector's long-term growth potential.

 DISCLAIMER

AIP Capital Investments (Pty) Ltd is an authorised Category 2 financial services provider in terms of the Financial Advisory and Intermediary Services Act No. 37 of 2002 (“FAIS Act”) with FSP number 48828.

The information contained herein, should not be construed as advice as defined in the FAIS Act, neither does it constitute a solicitation, invitation or investment recommendation. Investors should take cognisance of the fact that there are risks involved when buying, selling or investing in any financial product.

The value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. Past returns may not be indicative of future returns and an investor should seek independent professional financial, legal and tax advice relevant to their individual circumstances before making any investment decision.

The validity and accuracy of any illustrations, forecasts or hypothetical data are not guaranteed and are only provided for illustrative purposes.