Presentation on theme: "FIXED-INCOME INVESTING IN A RISING RATE ENVIRONMENT LAWRENCE PARK STRATEGIC INCOME FUND David Fry, Founding Partner and Chief Executive Officer Andrew."— Presentation transcript:
FIXED-INCOME INVESTING IN A RISING RATE ENVIRONMENT LAWRENCE PARK STRATEGIC INCOME FUND David Fry, Founding Partner and Chief Executive Officer Andrew Torres, Founding Partner and Chief Investment Officer
EXECUTIVE SUMMARY Lawrence Park Strategic Income Fund (LPSIF) Exposure to global corporate bond markets with Protection from rising interest rates Corporate bond fund with floating-rate exposure, designed to outperform DEX corporate bond funds during periods of rising interest rates Run by Lawrence Park Capital Partners (30% ownership by CI Financial Corp.) Monthly income, with possible capital appreciation Target annual return over long term of 4-6%
LAWRENCE PARK CAPITAL PARTNERS LTD. Who should invest in the Fund? Investors seeking enhanced returns over traditional fixed income Investors concerned about rising interest rates in the next 2-5 years Investors who seek low volatility and capital preservation in their investment strategies Why invest in GICs?
LAWRENCE PARK CAPITAL PARTNERS LTD. Minority-owned by CI Financial Corp. CI was lead investor in the Lawrence Park Credit Strategies Fund (accredited investors), which was launched on March 1, 2012 and posted a 10.79% net return for its first year Lawrence Park manages 15% of the United Canadian Fixed Income Pool, alongside Signature Global Asset Management CI (Portfolio Series) recently invested $70 million in LPSIF Lawrence Parks total AUM is $325 million Four seasoned PMs with significant fixed-income and credit expertise from global and Canadian banks, as well as hedge funds
OUR EXECUTIVE TEAM David A. Fry, MBA, CFA Founding Partner, Chief Executive Officer Prior to co-founding Lawrence Park Capital Partners in 2011, David was Head of Global Markets for Deutsche Bank Canada. His 21-year career includes senior positions in fixed-income at ABN Amro in London, and TD Securities in London, New York and Toronto. David holds an MBA from McGill University, and has been a CFA charterholder since Andrew C. Torres, BMath Founding Partner, Chief Investment Officer Andrew is a former Vice-Chair at TD Securities Inc., with a 20-year career managing credit portfolios in major financial centres including London, New York and Toronto. Prior to co- founding Lawrence Park Capital Partners in 2011, Andrew was a partner and portfolio manager at Aladdin Capital Partners in London, U.K. John B. Young, CA, CFA Partner, Finance & Operations Johns career in finance spans 19 years, having traded large credit portfolios at both a major bank and a global hedge fund. In London, John was the European Portfolio Manager for Fore Research, a New York-based global hedge fund. John was previously a senior member of the convertible arbitrage desk at TD Securities in New York. John has been a CFA charterholder since 1996 and earned a CA designation in Jason Crowley, MBA, CFA Partner, Portfolio Manager Prior to joining Lawrence Park Capital Partners, Jason spent his entire career in credit at the Bank of Nova Scotia in Toronto. With roles spanning across risk, credit portfolio management, and proprietary trading, Jasons 17 years at BNS saw him take on increasing responsibility, ultimately rising to Managing Director and Head of Credit Derivatives Trading. Jason has an MBA from McMaster University and earned his CFA charter in 2001.
WHERE WEVE COME FROM Source: Global Financial Database, Goldman Sachs Global ECS Research. 2.90%
WHERE WE ARE NOW: THE PAIN BEGINS! XCB= iShares DEX Corporate Index ETF XBB= iShares DEX Universe Index ETF HYG= iShares iBOXX HY Index ETF LQD= iShares iBOXX IG Index ETF Source: BlackRock, Inc. Return
THE LAWRENCE PARK ADVANTAGE: FIXED INCOME, ONLY SMARTER Corporate bond exposure, while minimizing interest-rate risk Participate in the upside of a global economic recovery, without the downside of higher rates Diversify beyond the narrow sectoral bias of Canadian fixed income Specialize in investment-grade corporate debt (BBB), filling in the gap between domestic index-based funds and high yield Hedge against interest rate, currency and selected credit risk to reduce portfolio volatility
LP PORTION OF UNITED CANADIAN FIXED INCOME POOL – PERFORMANCE United FI = United Fixed Income Pool (gross returns) DEX = iShares DEX Corporate Bond Index (XCB:CN Equity) CAN 10 YR Yield = Current On the run Canadian 10-year government bond bid yield Source: RBC IS/Bloomberg 3.25% outperformance YTD
FIXED INCOME COMPARISON AttributeDEX Index Lawrence Park Strategic Income High Yield Interest Rate RiskHighLowModerate Credit RiskLowModerateHigh Call RiskLow High Geographic FocusCanadaGlobalCanada/U.S.
PORTFOLIO HEDGING Interest rate duration managed using swaps and futures to minimize susceptibility to rising rates: duration target 1 year FX forward contracts used to minimize currency exposure Credit indices may be used opportunistically to hedge adverse credit conditions
SELECTED PORTFOLIO METRICS: (LP PORTION OF UNITED CANADIAN FIXED INCOME POOL) MeasureHeadline YTD Returns (gross)1.78% UP months/ Down Months7/2 Best Months/Worst Month+0.63%/-0.74% Annualized Volatility0.87% Interest Rate Duration0.78 Yrs. Sharpe Ratio1.55 Average Credit RatingA- HY Exposure3.38% Number of Issuers66 Number of credit Positions90 Primary Industry FocusFinancials, REITS, Consumer – Non Cyclical, Media & Telecom As of August 30, 2013
SELECTED PORTFOLIO METRICS LP PORTION OF UNITED CANADIAN FIXED INCOME POOL As of August 30, 2013
LP PORTION OF UNITED CANADIAN FIXED INCOME POOL – TOP HOLDINGS* DescriptionRatingCurrency % NAV Ford 4.875% 3/14 Senior NotesBaa3CAD2.69% Toronto-Dominion 2.433% 08/17 Senior NotesAa1CAD2.59% Enercare Solutions 4.6% 02/20 Senior NotesBaa2CAD2.28% Goldman Sachs 5.25% 06/16 Senior NotesA3CAD2.26% Lloyds TSB Bank 5.28% 4/16 Senior NotesA2CAD2.25% BMO 2.39% 07/17 Senior NotesAa3CAD2.11% JP Morgan 2.92% 09/17 Senior NotesA2CAD2.11% Shoppers Drug Mart 2.01% 05/16 Snr. NotesBBB+CAD2.11% Reliance LP /17 Senior NotesBBBCAD1.80% *Excluding hedges and money-market positions as of August 30, 2013 (LP portion of the United Canadian Fixed Income Pool)
VIEW FROM THE DESK: CURRENT CONSIDERATIONS Macro The Fed has delayed the commencement of tapering QE, however we expect that the tapering will begin in 2013, and be completed in late 2014 Rate markets remain susceptible to significant volatility given divergent expectations of the taper While Short-term rates in both Canada and the US will not likely move much before 2015, longer-term bond yields are subject to further rises as the economic picture improves Europe is coming out of recession and presents a few select value opportunities We welcome a return to fundamental based rate moves, where good economic numbers imply expansion/inflations/higher bond yields, tighter credit Credit Credit fundamentals remain positive. US economic recovery is on track. 2nd quarter earnings have been generally robust European is emerging from recession, led by UK and Germany. Systemic risk has abated since Corporate default rates remain low. Banking sector continues to be a stronger credit than equity story as they adapt to regulatory mandated smaller balance sheets and lower leverage
SUMMARY Capital Preservation Low volatility Consistent Returns
FUND FACTS AND CODES Note: the fund is also available in $US
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AN ALTERNATIVE APPROACH TO CANADIAN EQUITY INVESTING Timothy Lazaris, CIO & CEO Brian Huen, Managing Partner Red Sky Capital Management Ltd.
RED SKY CAPITAL MANAGEMENT LTD.: AN ALTERNATIVE INVESTMENTS PORTFOLIO TEAM Why should advisors/investors consider alternative investments? The potential to generate positive returns in a variety of market conditions Enhance diversification Improve portfolio returns Reduce portfolio risk
TeamBackgroundCoverage Timothy Lazaris, CA, CFA, CEO and CIO 3 years Portfolio Manager, CIO at RSCM Founder and 2.5 years Portfolio Manager at GMP Investment Management (GMPIM) 10 years Research Analyst at GMP Securities 5 years Research Analyst at RBC Capital Markets (Ranked #1 in Canada by Brendan Woods) Portfolio Construction Capital Allocation Risk Management Focused on Core Investment Ideas Financial Services/Media Telcos Keith Lam, CA, CFA Managing Partner and CFO 3 years Portfolio Manager at RSCM 2.5 years Associate Portfolio Manager at GMPIM 3 years Research Analyst at GMP Securities Financial Services Technology Real Estate Dariusz Nieciecki, CFA Managing Partner 3 years Portfolio Manager at RSCM 2.5 years Associate Portfolio Manager at GMPIM 3 years Global M&A at Lehman Brothers/Scotia Capital 2 years Equity Research at CIBC World Markets and TD Securities Energy Industrials Healthcare Transportation Brian Huen, CFA Managing Partner Niall Henry Associate 2.5 years Portfolio Manager at RSCM 6 years Institutional Equity Sales at CIBC and UBS 2 years Private Equity at TD Capital 3 years Investment Banking / M&A at CSFB 5 years as Institutional Equity Trader at CIBC 2 years as Trader at BC Investment Management Materials Consumers Event Driven / Merger Arbitrage RED SKY CAPITAL MANAGEMENT LTD. Red Sky portfolio team
RED SKY CAPITAL MANAGEMENT LTD. Source: Red Sky Capital Management
Sept-10July-13 RED SKY CAPITAL MANAGEMENT LTD.
How alternative funds differ from mutual funds Absolute versus relative return mandate Risk manager Loss of dollars versus benchmark Available investment tools Short selling Hedging via derivatives Elevated cash – up to 100% Leverage Compensation is mostly from performance fees
Identify emerging macro economic themes Identify where we are in the market cycle Consider social / political landscape and the potential impact on overall investment thesis Determine optimal overall long / short bias given existing and expected market conditions Anticipate any changes in key macroeconomic factors that may impact the funds overall investment thesis Identify those sectors which we believe provide investment opportunities based on our macro analysis Seek out sectors on a global basis that is consistent with our favoured macroeconomic themes The fund will not invest in sectors or industries that we cannot understand or are unable to develop an expertise Rigorous fundamental analysis to identify companies best or worst positioned in the context of the macro environment Bifurcate between short- term trading opportunities and long-term investments Seek out companies with near-term catalysts that may create significant volatility in the price of the firms securities Consider different parts of the capital structure to capture most attractive risk- adjusted returns Leverage our strong relationships with key market participants to identify best investment opportunities Sentiment towards an asset, sector or theme is a critical consideration Utilize technical analysis to realize optimal trading strategies for our favourite names Identify exit/entry points based on technical factors Select optimal investment in the capital structure Adhere to strict risk management process Limit concentration in any one industry, company or strategy Exploit asymmetric risk/return profiles to maximize effectiveness of hedging or investment positions Portfolio management system used to continuously monitor overall exposure and liquidity RED SKY CAPITAL MANAGEMENT LTD. Investment process
Capital Core Trading Market neutral Fundamental stock selection Detailed due diligence Continuous review Sentiment or momentum driven Technical analysis Systematic stop losses Event-driven/ M&A Capturing a defined return Complex review process Long bias Long or short Uncorrelated Capital allocation Macroeconomic factors Market sentiment Fundamental valuation Capital allocation Macroeconomic factors Market sentiment Fundamental valuation RED SKY CAPITAL MANAGEMENT LTD. Multi-strategy portfolio approach
RED SKY CAPITAL MANAGEMENT INC. Red Sky Partners – portfolio allocations as at July 31, 2013 *Market Neutral includes cash Source: Red Sky Capital Management Ltd.
RED SKY CAPITAL MANAGEMENT INC. Red Sky Partners Fund Series A/B – performance (CAD) Since inception: RSPF Series A/B: % TSX Index Total Return: % Source: Red Sky Capital Management
RED SKY CAPITAL MANAGEMENT INC. Source: Red Sky Capital Management
RED SKY CAPITAL MANAGEMENT LTD. Focused on Absolute Performance – not relative Includes the best ideas from Partners Fund Diversification but not indexation Primary Risk management tool - Cash Ability to short and use other hedge techniques Equity Fund – multi strategy Core Investments Opportunistic / trading of volatility Market Neutral – cash up to 40% Foreign exposure (USA) up to 40% Any market capitalization Industry Agnostic Red Sky Canadian Equity Corporate Class: A mutual fund managed by our alternative investment team
*Market Neutral includes cash. RED SKY CAPITAL MANAGEMENT LTD. Red Sky Cdn. Equity Corp. Class - portfolio allocations as at July 31, 2013 Source: Red Sky Capital Management Ltd.
Monthly returns YTD S&P/ TSX Series B JanFebMarAprMayJuneJulyAugustSeptOctNovDec %2.03% 1.04%-2.06%2.86%-0.09%4.28%12.21%2.28% All returns in Canadian Dollars. – YTD data as of end of July S&P/TSX is the total return index RED SKY CAPITAL MANAGEMENT LTD. Red Sky Canadian Equity Corporate Class – performance Each member of the PM team has invested in this fund. There is a lot of capacity to grow this fund which will help improve performance not negatively impact it. Year-to-date (as at July 31 st ), the Red Sky Canadian Equity Corporate Class has outperformed the S&P/TSX Index by ~10% Source: Red Sky Capital Management
RED SKY CAPITAL MANAGEMENT LTD. - MARKET OUTLOOK Macro economic factors: U.S. recovery – later stage European recovery – early stage Emerging market/China uncertainty Allocation of assets from bonds to equity as rates rise – Fed Policy Impact Middle East Tensions (August 28)
RED SKY CAPITAL MANAGEMENT LTD. – MARKET OUTLOOK North American portfolio sectors Constructive Financials Technology Consumer Energy Large caps with dividends Less constructive Base metals Precious metals Telecom Real estate Small/micro caps
RED SKY CAPITAL MANAGEMENT LTD. Top 5 long investment ideas – 12/18 months NameSectorThesis Current price * Target price Expected return Element Financial (EFN-TSX)Financials Growth company with superior management. Partnered with Life Insurance Industry. Filling a large gap in asset based finance after financial crisis. Growth is a both organic and acquisitive. Rising ROE and exit strategy to sell to large FI. $11.84$ % JP Morgan (JPM-NYSE) Financials Money center bank with excellent management. Will see earnings growth faster than US economy both in retail and wholesale banking. Ability to raise dividends. Valuation still below normal levels. Housing and consumer recovery theme. $50.58$ % Empire Co. Ltd (EMP.A-TSX) Consumer Staples Empires proposed acquisition of Safeway is a landmark deal as it solidifies its position as the #2 grocery in Canada. We think the company is being overly conservative on synergies of $200M over a 3- year timeframe and think that based on previous transactions and synergy realizations at (Metro / A&P Canada), Empire can realize synergies of over $300M which would yield a share price around $100. $80.32$ % Redknee Solutions (RKN- TSX) Technology A provider of communication software solutions to telcos. Just completed a transformational acquisition from Nokia Siemens (BSS) platform, at a very attractive price of 0.26x P/S. BSS added 130 customers to RKN, 90% are new. Highly accretive with much higher EBITDA margins. Valuation at a material discount to its peers. Re-rate as they execute takes price higher. (18 mnth target) $4.35$6.0038% Bellatrix Exploration (BXE-TSX) EnergyLarge drilling inventory in 2 great plays Cardium & Notikewin (60/40) Gas/Oil. Top tier cash flow and production growth (60%). Attractive valuation (in-line/discount to group). Strong B/S with access to capital and potential for further joint ventures. Extremely attractive IRRs – operational progress outweighs most commodity risk. $6.73$ %
RED SKY CAPITAL MANAGEMENT LTD. Alternative investments make good sense in every portfolio and the Red Sky Partners Fund has a proven track record of capital preservation and risk-adjusted returns. Our partnership with CI Financial is very unique and now we can offer our team and investment process to mutual fund investors through Red Sky Canadian Equity Corporate Class In both cases, the Portfolio team has significant committed capital Summary
RED SKY CAPITAL MANAGEMENT LTD. Brookfield Place, 181 Bay Street, Suite 900 Toronto, Ontario, M5J 2T3 Tel: Fax: Timothy Lazaris Brian Huen
Capital preservation Diversification Risk management Historically have generated consistent annual investment returns and long-term capital appreciation of the units. Employ active hedging strategies and short positions to maintain a balanced portfolio. Interests of portfolio management team strongly aligned with Unitholders. Industry, position, and strategy limits ensure a well diversified portfolio at all times. Core and Trading positions limited to a max of 5% and 3% of AUM respectively. Ability to invest in multiple markets and asset classes provides a unique opportunity. Utilize technology and a rigorous risk management process to minimize portfolio volatility. Strict liquidity metrics are continuously monitored by the portfolio management team. Strict limits on investments in small-caps and private placements. APPENDIX – RISK FOCUS
Core portfolioTrading portfolioMarket neutral Investment styleFundamental bottom-upSentiment, technical factorsEvent-driven, merger arbitrage Trade durationMid and long-termShort-termShort and mid-term Trade sizeLarger (max 5% of fund)Smaller (max 3% of fund)Trade dependent – may deploy leverage Profit & loss realizationTarget driven (or change in fundamental thesis) SystematicCompletion of transaction Risk management reviewPosition size, liquidity, industry concentration Liquidity and adherence to established stop losses Detailed due diligence APPENDIX – PORTFOLIO CONSTRUCTION
APPENDIX - BIOGRAPHIES Timothy Lazaris CA, CFA - President & CEO Prior to founding Red Sky Capital Management Inc. (RSCM), Timothy Lazaris was one of the founders and a managing partner of GMP Investment Management L.P.. Before that, he was a Director and one of the early partners of GMP Securities L.P. having joined in March 1998 to establish the Financial Services practice. Prior to GMP, he was a Vice President at RBC Capital Markets and a Research Analyst. Over his 14 year career as a research analyst, specializing in Financial Services, he achieved high rankings in independent surveys including a number one ranking in Canada as determined by Brendan Woods. Mr. Lazaris is a graduate of the University of Toronto (St. Michaels College) where he earned his Bachelor of Commerce degree and continued his professional education by obtaining his Chartered Accountants (CA) designation while working at Deloittes and his Chartered Financial Analyst (CFA) designation. Mr. Lazaris was a member of the Bishop Strachan School Board of Trustees where he is the head of the Audit Committee and a member of the Investment Committee and is currently a member of the Bishop Strachan School Board of Governors and a member of the Finance Committee.
APPENDIX - BIOGRAPHIES Keith Lam CA, CFA – Managing Partner & CFO Prior to joining the Red Sky Capital Management Inc., Keith Lam was a Vice-President and Associate Portfolio Manager of GMP Investment Management evaluating investment opportunities across a wide range of industries utilizing equity, credit and derivative securities. Previously, Mr. Lam was both a Research Associate and Research Analyst at GMP Securities L.P. covering the Financial Services sector. Prior to GMP, Mr. Lam was a Senior Accountant at Deloitte & Touche LLP where he worked on assurance and advisory engagements for two of Canada's largest financial institutions. Mr. Lam is a graduate of the University of Waterloo where he earned his Bachelor of Mathematics and Master of Accounting degrees in Mr. Lam continued his professional education by obtaining his Chartered Accountant (CA) designation in 2005 while articling at Deloitte & Touche, and also obtained his Chartered Financial Analyst (CFA) designation in 2008.
APPENDIX - BIOGRAPHIES Dariusz Nieciecki, CFA – Managing Partner Prior to joining Red Sky Capital Management Inc. (RSCM), Dariusz Nieciecki was a Vice-President and Associate Portfolio Manager of GMP Investment Management L.P. (GMPIM) responsible for the development and execution of investment strategies across a wide range of industry sectors utilizing equity, credit and derivative securities. Prior to joining GMPIM, Mr. Nieciecki, was an Associate in the Global Mergers & Acquisitions group at Lehman Brothers and Scotia Capital for approximately 3 years. Mr. Nieciecki advised corporate clients and financial sponsors on various financial advisory mandates including mergers, acquisitions, divestitures, leveraged buyouts and recapitalizations. Prior to that, Mr. Nieciecki worked in the Equity Research Department at TD Securities and CIBC World Markets with a top-ranked analyst. Mr. Nieciecki received his Bachelor of Commerce from Queen's University in 2000 and his MBA from the Schulich School of Business at York University in Mr. Nieciecki also obtained his Chartered Financial Analyst (CFA) designation in 2005.
APPENDIX - BIOGRAPHIES Brian Huen, CFA – Managing Partner Prior to joining Red Sky Capital Management Inc. (RSCM), Brian Huen was a Executive Director at CIBC Wholesale Bank in its Institutional Equity Division and spearheaded the Bank's hedge fund efforts. Prior to CIBC, Brian was a Director at UBS Canada in its Institutional Equities Sales Division advising global hedge fund clients on event-driven, risk arbitrage and equity long / short trading strategies. Brian has also held various positions at TD Capital, Credit Suisse and Scotia Capital. Brian holds both a Masters Degree in Business (MBA) and an Honours Business Administration (HBA) degree from the Ivey Business School at the University of Western Ontario. He is also a Certified Management Accountant (CMA) and a Chartered Financial Analyst (CFA) charterholder. Niall Henry – Associate Prior to joining Red Sky Capital Management Inc. (RSCM), Niall Henry was a Director of Institutional Equity Trading at CIBC where he was in charge of liability trading of the REIT and Forestry sectors. Prior to CIBC, Niall held the position of Equity Trader at bcIMC (B.C. Investment Management Corporation), focused on the Canadian equity market but also international equity markets in Europe and Asia. Niall holds a Bachelor of Commerce (BCom) from the University of Victoria in Victoria, B.C.
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