Dear Investors,
The Fund completed the first quarter of 2025 on a strong note, continuing to diversify the portfolio across multiple private lending strategies while seeing the asset base grow steadily with assets under management (AUM) reaching approximately $90 million at quarter’s end. The portfolio management team has been able to deliver steady results to its investors through the execution of our multi-strategy private lending approach. The aforementioned success would not have been possible without the trust and confidence of our investors.
At Liquid Strategies, we prioritize accessibility and transparency, values that we hope you’ve seen reflected in our communications and team’s dedication. We would like to express our gratitude for your trust and support. We are constantly mindful of the responsibility that trust entails, and it shapes how we approach every decision we make with respect to managing the Niagara Income Opportunities Fund.
Sincerely,
Mark Garfinkel, Connor Allen and the Liquid Strategies Team
FUND SUMMARY
The Niagara Income Opportunities Fund is a continuously offered, closed-end interval fund with a primary focus on current income generation through investment in a multi-strategy portfolio of private and public credit investments with high current cash yields.
PORTFOLIO STRATEGY
The private credit space spans a broad spectrum of alternative lending opportunities. The Niagara portfolio combines different styles of private alternative lending strategies into a single portfolio solution. A top priority for the Niagara portfolio team is risk management across three key pillars: 1) diversification; 2) credit management; and 3) liquidity management. This focus enables the portfolio team to construct a portfolio with the proper balance of income and risk.
Diversification: The Niagara strategy mitigates the risk of capital loss through diversification by segment, strategy, and number of loans across the portfolio. In addition, we establish concentration limitations and monitor and evaluate risk exposures across key portfolio metrics
Credit Management: The portfolio team focuses on lending strategy partners who have a proven ability to minimize downside risk and preserve capital. The team is committed to seeking out the highest quality lending partners that align with our disciplined criteria, including stringent underwriting guidelines, risk mitigation with excess collateralization and strict loan terms and covenants, and a focus on niche, under-banked lending markets.
Liquidity Management: The portfolio team manages the liquidity of the portfolio utilizing a combination of cash equivalents, readily marketable publicly-traded securities, and short-duration private investments in order to maintain adequate portfolio liquidity. In addition, the team strives to maintain a short average maturity of the portfolio investments to provide maximum flexibility with respect to liquidity, while achieving the strategy goals of delivering high income.
PORTFOLIO DEVELOPMENTS
During the first quarter, the portfolio management team added a handful of new positions to the portfolio, increasing the total number of private credit investments to 27 across 18 different strategy partners, highlighting the increasing diversification of our underlying portfolio. This diversification across multiple investments, private credit asset classes, and strategy partners is a key to managing portfolio volatility and a basic tenet of the Fund’s approach.
One of our new strategy partners is RevTek Capital. They represent the "sweet spot" of what the portfolio management team looks for in a lending strategy: 1) limited competition from other lenders; 2) focus on predictable recurring revenue businesses; 3) exceptionally lender-friendly pricing and terms; and 4) low loan-to-value metrics. RevTek Capital is a credit-oriented investment firm focused on providing senior secured loans to medium-growing businesses with predictable recurring revenues. Targeting the lower middle market, with loan sizes typically ranging from $2 million to $10 million, RevTek strategically focuses on a niche market characterized by high lender fragmentation and limited competition from sophisticated institutional players. This allows them to command premium pricing and implement lender-friendly loan structures and covenants. Their focus on technology companies, particularly SaaS (software as a service), recurring revenue businesses, aligns with the sector's strong growth potential and attractive return profile.
MARKET OVERVIEW
US equity markets struggled, posting the second consecutive negative month, with the S&P 500 finishing the quarter down 4.28%. With an economy that was already showing signs of slowing momentum, US trade policy came into full focus and has dominated the headlines, with the imposition of tariffs on foreign goods, leading to increasing risks of a recession and increased volatility across US markets in particular. Non-US markets had been the star performer for much of the first quarter, significantly outperforming US markets as the MSCI ACWI non-US benchmark was up 6.3% through the end of the quarter. However, the new tariff war quickly brought increased volatility to global markets at the start of the quarter over fears of a global economic slowdown.
The interest rate picture is just as murky as the equity markets. Rates moved lower over the course of the first quarter enabling bonds to advance with the Bloomberg US Aggregate Bond index up 2.78% during the quarter. The movement in rates was spurred by decelerating inflation and a US economy that was already cooling off. However, the outlook for inflation is less clear given recently implemented tariffs, as these unknown pressures are weighing on the ability of the Fed to loosen monetary policy and lower short-term interest rates. The Conference Board’s consumer confidence survey showed a substantial decline in March with inflation cited as the key deterrent to consumer spending. We anticipate continued volatility in both interest rates and equity prices as the markets digest the impacts of trade policies on inflation, consumption, and the overall impact on both the US and Global economies.
PERFORMANCE UPDATE
For the 1st quarter of 2025, the Niagara Income Opportunities Fund achieved a total return of 2.35%, bringing the trailing 12-month total return to 10.41%, compared to the Morningstar Leveraged Loan Index performance of 0.48% and 6.98% for the 4th quarter and trailing 1 year, respectively. The recent interest rate volatility has had very little, if any, impact on the performance of the Niagara portfolio, highlighting the potential benefit of the Niagara strategy to the fixed-income portion of an investor’s portfolio. See the table of returns for the Fund below.
Niagara vs Bloomberg US Aggregate Bond Index – Trailing 12 months through March 31, 2025
PORTFOLIO MANAGEMENT TEAM COMMENTARY AND OUTLOOK
On most investor’s minds is not what transpired last quarter, but what is going to be the impact of tariffs over the course of the next year. The portfolio management team has been reviewing each and every investment and has been in the process of consulting with each of our lending strategy partners regarding the potential direct impact of tariffs on their borrower’s businesses and the indirect effect of any potential economic malaise that could come as a result. Thus far, our findings have been very promising with very little, if any, direct impact on the underlying borrowers of our strategy partners. However, we recognize that it is early, and the environment is rapidly changing, such that the true effects of these tariffs may not yet be recognized by many of the underlying borrowers for several months. Furthermore, it is still difficult to assess the true impact that the current trade war will have on the overall economy.
That being said, keep in mind that a heavy component of the Niagara underlying portfolio is focused in asset-based loans with low loan-to-value ratios. This means that the loans are not necessarily tied to the cash flow of a business, but rather they are collateralized by a specific pool of cash flow, revenue, trade receivables, or other assets. So, the principal and interest payments for these borrowers are tied directly to the performance of these assets. Currently, each of our portfolio investments are performing in line with our forecasted expectations. While the Fed reduced short-term interest rates by a full 1.00% since last September, the portfolio yield has been minimally impacted due to its combination of fixed and floating-rate loan investments in the underlying portfolio. In addition to the diversification noted above, the portfolio team has constructed the portfolio with an average maturity of 1.2 years, only enhancing the overall risk and liquidity profile of the portfolio.
ASSET CATEGORY BREAKDOWN
PORTFOLIO CHARACTERISTICS
DISCLOSURES
The statements contained herein are based upon the opinions of Liquid Strategies and the data available at the time of publication and are subject to change at any time without notice. This communication does not constitute investment advice and is for informational purposes only, is not intended to meet the objectives or suitability requirements of any specific individual or account, and does not provide a guarantee that the investment objective of any model will be met. An investor should assess his/her own investment needs based on his/her own financial circumstances and investment objectives. Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation by Liquid Strategies or its affiliates to buy or sell any securities or investments or hire any specific manager.
Any offering may only be made pursuant to the securities laws, an offering document and related subscription materials all of which must be read and completed in their entirety. Liquid Strategies prepared this update utilizing information from a variety of sources that it believes to be reliable. It is important to remember that there are risks inherent in any investment and that there is no assurance that any investment, asset class, style or index will provide positive performance over time. Diversification and strategic asset allocation do not guarantee a profit or protect against a loss in a declining markets.
Past performance is not a guarantee of future results. All investments are subject to risk, including the loss of principal.
RISK FACTORS
An investment in the Fund’s shares is subject to risks. The value of the Fund’s investments will increase or decrease based on changes in the prices of the investments it holds. This will cause the value of the Fund’s shares to increase or decrease. You could lose money by investing in the Fund. By itself, the Fund does not constitute a complete investment program. Before investing in the Fund, you should consider carefully the following risks the Fund faces, together with the other information contained in the prospectus.
Since the Fund is non-diversified, it is subject to higher reduction of capital and volatility than a fund more proportionately allocated among a large number of securities. An investment in the Fund involves risk. The Fund is new with no significant operating history by which to evaluate its potential performance. There can be no assurance that the Fund’s strategy will be successful. The Fund may leverage its investments by “borrowing.” The use of leverage increases both risk of loss and profit potential.
Liquid Strategies LLC (“Liquid”) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Liquid, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2A and our Form CRS.
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other important information about the Fund, please visit the Documents section of www.LSfunds.com/NAGRX or call 1-800-632-4027. Read the prospectus carefully before investing.
Shareholder Services: 1-800-632-4027
Investment Professionals: 770-350-8700 or info@LSfunds.com
Distributed by Foreside Fund Services, LLC, which is not affiliated with the Adviser.