The Tower Healthcare Platform

I. Returns

• "Innovation in healthcare is a megatrend that will yield new investment opportunities for investors."
  

  Morgan Stanley Wealth Management
  March 10, 2023

• "Healthcare is increasingly important with tremendous investment opportunities. It is time for investors to take a closer look at it."
  

  Ben Bei, BlackRock
  September 2023

• "Healthcare, a $5 trillion market in the U.S. (18% of GDP), is undergoing a Cambrian explosion."
  

  Paris Heymann, Index Ventures
  March 2024

• "The global healthcare sector is undergoing a period of unprecedented transformation."
  

  Briana Contreras, Accenture
  January 21, 2023

• "Healthcare is well positioned to be the megatrend of the 2020s."
  

  Mark Denham, FI News First
  April 16, 2024

II. TAXES

Because many investors are concerned about an increase in taxes, the Tower Healthcare Platform offers investors the ability to invest with the L/S healthcare managers through an Insurance Dedicated Fund (“IDF”).

The IDF allows investors to defer or eliminate all taxes on all the gains generated by the managers.

• "IDFs offer UHNW investors a way to participate in hedge funds and other alternative investments without incurring a current tax liability each year."
  

  Morgan Stanley Wealth Management
  2023

• "An IDF remains a mostly under-recognized tool in wealth management, yet it represents the hidden jewel in wealth management."
  

  Signature FD
  Atlantic Business Chronicle, 2023

And, because of the tax structure, the IDF does not generate an annual K-1.

If the L/S healthcare managers generate a positive performance, the tax-free compounding will have a significant impact on the investor's net return.

III. FEES

Most investors are concerned about high hedge fund fees.

Rather than being paid the typical Annual Performance Fee, the L/S healthcare managers are deferring their entire Performance Fees until one of 3 triggers:

• the investor redeems from the fund;
• the PM is replaced as the PM of the fund;
• the 10-year anniversary of the investor's investment in the fund.

The advantages of the Deferred Performance Fee are powerful:

• The Deferred Performance Fee ensures that the investor will pay a Performance Fee only if the manager has generated a positive performance at the time the investor redeems from the fund.
• The Deferred Performance Fee provides investors with the opportunity to have their investment compound without paying an Annual Performance Fee. If the manager generates a positive performance, the compounding of the Performance Fee-Free returns will have a meaningful impact on the investor's total return.
• The Deferred Performance Fee also protects investors from the "Performance Fee Trap" that exists with virtually every hedge fund manager. With an Annual Performance Fee, investors pay a Performance Fee every year the manager generates a positive performance. But if the manager generates a net loss at the time the investor redeems, the investor is caught in the "Performance Fee Trap" of not being able to recoup a previously paid Performance Fee.

IV. PHILANTHROPY

While generating attractive returns is the 1st priority of the Tower Healthcare Platform, philanthropy is the 2nd priority. Many investors who invest with the L/S healthcare managers on the Tower Healthcare Platform are committed to philanthropy. For those investors, the IDF tax structure provides the most powerful and flexible charitable giving structure available.

While most investors use DAFs, CLATs, CRATs, GRATs, trusts, and private foundations, each of these structures requires the investor to relinquish control over their assets.

The IDF allows investors to retain complete control over their assets until the investor decides to make a charitable contribution.

In addition, because the IDF provides investors with a deferral of all taxes and a deferral of all Performance Fees, if the L/S healthcare managers generate positive returns, the size of the charitable gift will be significantly larger compared to a charitable gift from an investment with annual taxes and annual Performance Fees.

The IDF also has the potential to provide investors a significantly higher tax deduction.

Philanthropy personifies Tower Capital's "North Star". Given the firm's commitment to philanthropy and healthcare, Tower Capital is contributing 5% of the firm's revenues to the Sloan Kettering Institute, which is the research arm of Memorial Sloan Kettering.

V. LIQUIDITY

Most alternative funds have onerous liquidity terms, which is a concern for most investors.

While lock-ups and illiquidity are advantageous for managers, they are disadvantageous for investors.

Given that the L/S healthcare managers are investing exclusively in publicly-traded securities, Tower Capital believes investors should not be subject to onerous liquidity terms.

To address this issue, the L/S healthcare managers provide investors quarterly liquidity with no lock-up.

VI. CONFLICT OF INTERESTS

Most banks and investment firms emphasize that their clients' interests "come first". But very few firms deliver this.

As the L/S healthcare managers are deferring their performance fees until the investor redeems, this ensures that the interests of the investors do indeed "come first".

This Deferred Performance Fee is a true alignment of interests between the investors and the managers – something quite rare on Wall St.

And, as the L/S healthcare managers are offering quarterly liquidity with no lock-ups, this further ensures that the interests of the investors "come first".

VII. PAST VS. FUTURE PERFORMANCE

Most investors make investment decisions based on a manager's past performance rather than on what has driven this performance. A critical component of Tower Capital's manager due diligence is to understand the manager's edge and determine whether this edge has the potential to be sustainable going forward.

In addition, Tower Capital believes it is critical to understand the future macro environment for a manager's strategy as this will provide either a tailwind or a headwind for the manager.

There are four dynamics taking place in the healthcare sector which Tower Capital believes will provide L/S healthcare managers a significant tailwind:

• The aging global population guarantees that the healthcare sector will be a growth sector.
• AI, Quantum Mechanics, and biotech are completely transforming the healthcare sector. This transformation will provide L/S healthcare managers enormous opportunities to capitalize on what inevitably will be enormous dislocations in company valuations.
• Healthcare companies do not trade based upon EBITA but rather as M&A opportunities. Therefore, healthcare stocks typically have a lower beta compared to the overall equity markets which can provide diversification for high beta portfolios.
• Healthcare is viewed as a defensive sector which can also provide an important diversification for an investor's portfolio.

Although there can be no guarantee that a L/S healthcare manager will generate similar returns to their historic returns, these four dynamics will provide L/S healthcare managers a significant tailwind.

VIII. IMPACT INVESTING

Many investors would like to make allocations to Impact Investments, but the low returns of most Impact Investments are a significant impediment.

By investing in the healthcare sector, investors will have the ultimate impact on society: helping people live longer and healthier lives.

• "If you zoom out into the future and you look back and ask the question, 'What was Apple's greatest contribution to mankind?' it will be about health."
  

  Tim Cook, Apple CEO
  May 3, 2022

And, if an investor eventually decides to earmark their investment with a L/S healthcare manager to a charitable institution, this will provide a double impact.