Following the rapid inflation and subsequent rise in interest rates during the prior year, 2023 began with modest expectations for growth across the broader economy. However as the year transpired, economic growth remained positive despite relatively sticky inflation due in large part to i) stimulative government policies (for example, the US Inflation Reduction Act) and ii) high excess savings levels among households following the pandemic that helped buoy consumer spending. Within this environment both Rally Funds posted positive returns, although public equity holdings trailed market returns due largely to the exclusion of “The Magnificent Seven” (NVDA, MSFT, META, GOOG, AAPL, AMZN, TSLA) in Rally Funds, given their low impact nature. In fact, half of the total global public equity market returns for the year (and hence their outperformance) were driven by The Magnificent Seven.

Despite a challenging fundraising environment for private investments in 2023, we saw positive indications of improving fundraising activity for RTIF’s holdings such as the final close of the Cross-Border Impact Ventures’ $135M Women’s and Children’s Health Technology Fund. In Q2, we invested in Aristata Capital’s Impact Litigation Fund. This fund provides commercial litigation funding to achieve social and environmental impact, with the goal of creating a safer and more equitable world, particularly for marginalized communities. From a financial perspective Aristata was our first investment in a non-traditional private asset class that offered outsized impact opportunities and lower volatility and correlation compared to the rest of RTIF’s holdings. While RTIF’s private investments are still in the early stages of their deployment, and hence as expected they have yet to contribute meaningfully to RTIF’s financial performance, we were pleased to see an uplift in valuation from RTIF’s investment in Area One Farms Fund IV, whose annual valuation showed a 10.4% increase in Q3 relative to the prior year, demonstrating the value of investing and partnering in Canadian farmland.

As 2023 progressed there were more signs that the global consumer was beginning to feel stress and as such towards the back half of the year, we gradually repositioned the portfolios away from consumer-oriented equities and towards less cyclical holdings. For RTIF we reduced its overall risk exposure by reducing the allocation to public equities from 57% in Q1 to 51% at the end of Q4 while increasing exposure to low-risk, short-term, high-interest-bearing cash instruments. We also reduced the number of public equity holdings within RGEIF and RTIF from 29 in Q1 to 25 by the end of the year as we increased exposure to our highest conviction ideas and removed securities with declining fundamentals. At the same time we continued to build our pipeline of potential investments, with a key focus on those companies expected to benefit from stable contracts and government spending (e.g. Waste Connections). We also maintained our investment philosophy of focusing on fundamentals and looking past short-term noise.

With respect to impact reporting, we made the decision at the beginning of the year to significantly evolve and refine our impact methodology and reporting. This decision was largely centered on key learnings and insights that we gained during the first few years of the Rally Funds, as well as evolutions in impact measurement and methodology (IMM) coming from the maturing wider impact investing sector. Also, at the beginning of 2023 we became increasingly aware of challenges with the quality and consistency of the information being provided by our third-party sources as these firms began to alter their methodologies and rating systems in a material way towards ESG and away from impact. The change resulted in data that we had been relying on becoming no longer comparable or complete. As such during the course of the year we greatly enhanced our impact methodology to better resonate with our investors and incorporate comparable data and information into the future.

Tables and charts in this report represent a snapshot of fund investments as of December 31, 2023; investments may change over time. This document is for informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of securities. The information contained herein is in summary form for convenience of presentation. Read more important information about this report here.