Investment Policy Statement for Private Equity Investments

Approved by the Board of Directors

Adopted: August 16, 2018

  1. Introduction

The following investment policies govern the objectives, strategies, implementation, and performance measurement of the Private Equity Program.

We offer Banks, Financial Advisors, Institutions and Accredited Investors fund of funds portfolio investing

•Participate in unique deals

•Diversify portfolio

•Invest directly in private companies

•Above average returns

•Uncorrelated to the stock market


Investors Disclosure Overview & Risk Factors

  1. Investment Objective

The investment objective of the Private Equity Program is to provide performance enhancement and diversification benefits to the overall investment portfolio. The performance objective of the Private Equity Program is to equal or exceed the Stock Market Indices plus 207 basis points annualized and net of fees over ten-year rolling periods. Performance inside of ten years will be compared to time horizon, risk-tolerance, the Cambridge Associates U.S. Private Equity Benchmarks and MarketWatch

  1. Investment Guidelines

The investment policies and guidelines for the Private Equity Program follow below.

  1. Private Equity Investments: Investment is authorized in vehicles that invest in a broad array of various non-publicly traded securities, including but not limited to:
    • Buyout investments include investments in acquisitions, recovery investments, subordinated debt, and special situations (a category which represents a diversified strategy across many sub-categories). Investments are made across the market capitalization spectrum and typically involve the purchase of a control position (primarily majority positions, with some minority positions) in an established company and may include the use of leverage. Investments are typically made in years one through six and returns typically occur in years three through ten. Investments may be made in companies that are either U.S. or non-U.S. domiciled.
    • Venture Capital/Growth Equity investments include investments in companies in a range of stages of development from startup/seed-stage, early stage, and later/expansion stage and growth equity. Investments are typically made in years one through six and returns typically occur in years four through ten. Investments may be made in companies that are either U.S. or non-U.S. domiciled.
    • Opportunistic investments include investments in distressed debt (the debt instruments of companies which may be publicly traded or privately held that are financially distressed and are either in bankruptcy or likely candidates for bankruptcy), mezzanine, secondaries, and other private investment strategies that are opportunistic in nature and do not follow a buyout or venture capital/growth equity strategy. Typical holdings are senior and subordinated debt instruments and bank loans. Equity exposure is acceptable as debt positions are often converted to equity during the bankruptcy reorganization process. Investments are typically made in years one through five and returns typically occur in years three through ten. Investments may be made in companies that are either U.S. or non-U.S. domiciled.
    • Real Estate Investing Buy /sell real estate according to your investment strategy

Residential or commercial
Rent and profit from sales can grow your IRA
Use debt leverage or partnership tools

Purchase Tax Lien Certificates: Tax lien states are Alabama, Arizona, Colorado, Florida, Illinois, Indiana, Iowa, Kentucky, Maryland, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Vermont, West Virginia, and Wyoming. The District of Columbia is also a tax lien jurisdiction.

    • Insurance contracts, Fixed Index Annuities, Index Universal Life, Whole Life, Life Settlements etc.
    • Notes: Asset Backed Securities “ABS” Mortgage Backed Securities “MBS”
    • Business Equity, Corporate Bond Investing, Investors considering fixed-income securities might want to research corporate bonds, which some have described as the last safe investment. As the yields of many fixed-income securities declined after the financial crisis, the interest rates paid by corporate bonds made them more appealing. Corporate bonds have their own unique advantages and disadvantages.
  1. US Private Equity Index equaled $40.1 billion

A few highlights from the US Private Equity Index in Q2 2017: •US PE investors received fifth highest quarterly distribution amount ever in Q2 2017. During Q2 2017, distributions to investors in the US Private Equity Index equaled $40.1 billion, a 23.2% increase from Q1 and the fifth highest quarterly distribution ever.

Fund managers in the Index called $24.5 billion, up 5.4% from Q1. •Only sector in US PE Index with negative returns in Q2 2017 was energy. Of the seven sectors each worth 5% of the US Private Equity Index in Q2 2017, materials companies posted the strongest return: 7.3%.

Energy investments were the only sector that went down in value, with a -1.1% return. •Not much variance in Q2 2017 between returns from funds of different vintage in US PE Index.Returns among the “meaningfully sized” vintages in the US Private Equity Index – that is, funds that each represented at least 5% of the index’s value – were within a fairly tight band, ranging from 2.6% for funds raised in 2012 to 4.0% for funds raised in 2014. Selected takeaways from the US

Venture Capital Index in Q1 2017: •Distributions to US VC investors were higher than contributions in Q2 2017. Distributions to investors in the US Venture Capital Index totaled $4.5 billion in Q2 2017, a decrease of 12.9% from the previous quarter. Capital called by fund managers in the Index rose 13.8% from Q1, to $4.2 billion.

All major sectors in US VC Index posted positive returns in Q2 2017. Among the three industry sectors each worth at least 5% of the US Venture Capital Index in Q2 2017, the highest return for the quarter was from health care investments, which posted a 1.9% return. Information technology investments and consumer discretionary investments rose in value by 1.5% and 1.4%, respectively.

Sources: Cambridge Associates LLC, Frank Russell Company, Standard & Poor’s and Thomson Reuters Datastream.

Strong Returns

One major draw of corporate bonds is their strong returns. Yields on some government bonds have repeatedly plunged to new record lows. The U.S. government sold $12 billion worth of 30-year Treasury bonds for a 2.172% yield on July 13, 2016, breaking the previous record of 2.43% set in January 2015. The yields on German 10-year bonds also ventured into record-low territory, selling with a yield of negative 0.05%.

Source Cited: Investopedia

In contrast to these record lows, corporate bonds representing high-quality companies and maturing in seven to 10 years paid 3.14% yields on July 14, 2016. One year earlier, these securities were paying a yield of 3.92%.

A corporate bond is a contract between a corporation and the investor, whereby the investor lends the corporation money, in return for a legal promise that the corporation will pay the principal back to the investor on a specified date, with interest. The terms of the legal agreement between the investor and the corporation are spelled out in the bond’s indenture (also called the “deed of trust”) on the bond certificate. It will specify how and when the principal will be repaid, the rate of interest (also called the coupon), a description of property secured as collateral against default, and steps that shall be taken in the event of default.

Like any other debt, corporate debt can be either secured or unsecured:

  • Secured Debt: Secured bonds are backed by assets owned by the issuing corporation. If the issuer of the secured debt, (the corporation) goes bankrupt, the trustee will take possession of the assets and liquidate them on the bondholders’ behalf. If the company defaults the bondholders will be repaid from the proceeds from the sale of the company’s assets, which secure the payments.
  • There are several types of secured corporate bonds:
    • Mortgage bonds are secured by a first or second mortgage on real property.
    • Equipment trust certificates are secured by a specific piece of equipment. For example an Airplane, or Railroad cars
    • Collateral trust bonds are secured by the securities of another corporation, which is usually affiliated with the issuer in some way.

Unsecured Debt: Unsecured bonds, also known as debentures, are secured only by the corporation’s good faith and credit, and not by a specific asset. If the company defaults, the bondholders will have the same claim on the company’s assets as any other general creditor. Though secured bondholders will be paid before debenture holders, owners of stock will be paid after unsecured bondholders.

  • Self Directed IRA LLC Checkbook Control. Purchasing secured notes and mortgages offers IRA, HSA owners several benefits, including:Diversification: Many investors create retirement portfolios composed only of stocks, bonds and mutual funds/exchange-traded funds. While these assets certainly are fundamental to any retirement plan, they do not provide the full benefits of diversification afforded by alternative asset types, such as private real estate debt. By diversifying into alternative assets, you increase the likelihood that one asset class will zig when the other one zags, thereby reducing the portfolio’s overall volatility. The returns from private mortgage/secured loan debt is likely to have a limited correlation with other asset classes, such as stock, municipal bonds and corporate debt.

Tax benefits: IRAs are tax-sheltered accounts. Traditional IRAs allow you to deduct your annual contributions from your taxable income and defer taxes on any gains or income. Instead, you add any withdrawals from your traditional IRA to your ordinary income for the year. Withdrawals from Roth IRAs are tax-free if you follow the rules. With a traditional IRA, you can stretch your withdrawals over your lifetime, starting no later than age 70 ½. This allows you to shelter the remainder of your IRA balance for as long as possible. If you predecease your spouse, the IRA moves to the spouse without tax consequences. Non-spousal beneficiaries can also stretch out their withdrawals, usually for a period of not less than five years. Roth IRAs do not require withdrawals in the original owner’s lifetime, and beneficiary withdrawals are tax-free.
Freedom from UBIT: Normally, IRAs that own debt-financed real estate are subject to Unrelated

Business Income Tax (UBIT). Fortunately, UBIT does not apply to interest income from secured notes and mortgages, because you own only the debt, not the underlying real estate. In other words, you are a creditor, not a debtor, and you are not using leverage to buy real estate.

Creditor protections: In most states, the first $1 million in a traditional IRA is protected from creditors seeking to attach your wealth in a bankruptcy proceeding. Laws concerning Roth IRAs are less protective in some states
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