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:
1 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
2 Lawrence Park Strategic Income Fund (“LPSIF”) EXECUTIVE SUMMARYLawrence Park Strategic Income Fund (“LPSIF”)Exposure to global corporate bond marketswithProtection from rising interest ratesCorporate bond fund with floating-rate exposure, designed to outperform DEX corporate bond funds during periods of rising interest ratesRun by Lawrence Park Capital Partners (30% ownership by CI Financial Corp.)Monthly income, with possible capital appreciationTarget annual return over long term of 4-6%
3 LAWRENCE PARK CAPITAL PARTNERS LTD. Who should invest in the Fund?Investors seeking enhanced returns over traditional fixed incomeInvestors concerned about rising interest rates in the next 2-5 yearsInvestors who seek low volatility and capital preservation in their investment strategiesWhy invest in GICs?
4 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 yearLawrence Park manages 15% of the United Canadian Fixed Income Pool, alongside Signature Global Asset ManagementCI (Portfolio Series) recently invested $70 million in LPSIFLawrence Park’s total AUM is $325 millionFour seasoned PMs with significant fixed-income and credit expertise from global and Canadian banks, as well as hedge funds
5 OUR EXECUTIVE TEAM 5 Andrew C. Torres, BMath David A. Fry, MBA, CFAFounding Partner, Chief Executive OfficerPrior 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 1996.Andrew C. Torres, BMathFounding Partner, Chief Investment OfficerAndrew 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, CFAPartner, Finance & OperationsJohn’s 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 1991.Jason Crowley, MBA, CFAPartner, Portfolio ManagerPrior 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, Jason’s 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 2001.5
6 WHERE WE’VE COME FROM2.90%Source: Global Financial Database, Goldman Sachs Global ECS Research.6
7 WHERE WE ARE NOW: THE PAIN BEGINS! ReturnXCB= iShares DEX Corporate Index ETFXBB= iShares DEX Universe Index ETFHYG= iShares iBOXX HY Index ETFLQD= iShares iBOXX IG Index ETFSource: BlackRock, Inc.
8 THE LAWRENCE PARK ADVANTAGE: FIXED INCOME, ONLY SMARTER Corporate bond exposure, while minimizing interest-rate riskParticipate in the upside of a global economic recovery, without the downside of higher ratesDiversify beyond the narrow sectoral bias of Canadian fixed incomeSpecialize in investment-grade corporate debt (BBB), filling in the gap between domestic index-based funds and high yieldHedge against interest rate, currency and selected credit risk to reduce portfolio volatility
9 LP PORTION OF UNITED CANADIAN FIXED INCOME POOL – PERFORMANCE 3.25% outperformance YTDUnited 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 yieldSource: RBC IS/Bloomberg
11 PORTFOLIO HEDGINGInterest rate duration managed using swaps and futures to minimize susceptibility to rising rates: duration target ≤ 1 yearFX forward contracts used to minimize currency exposureCredit indices may be used opportunistically to hedge adverse credit conditions
12 SELECTED PORTFOLIO METRICS: (LP PORTION OF UNITED CANADIAN FIXED INCOME POOL) MeasureHeadlineYTD Returns (gross)1.78%UP months/ Down Months7/2Best Months/Worst Month+0.63%/-0.74%Annualized Volatility0.87%Interest Rate Duration0.78 Yrs.Sharpe Ratio1.55Average Credit RatingA-HY Exposure3.38%Number of Issuers66Number of credit Positions90Primary Industry FocusFinancials, REITS, Consumer – Non Cyclical, Media & TelecomAs of August 30, 201312
13 SELECTED PORTFOLIO METRICS LP PORTION OF UNITED CANADIAN FIXED INCOME POOL As of August 30, 2013
14 LP PORTION OF UNITED CANADIAN FIXED INCOME POOL – TOP HOLDINGS* DescriptionRatingCurrency% NAVFord 4.875% 3/14 Senior NotesBaa3CAD2.69%Toronto-Dominion 2.433% 08/17 Senior NotesAa12.59%Enercare Solutions 4.6% 02/20 Senior NotesBaa22.28%Goldman Sachs 5.25% 06/16 Senior NotesA32.26%Lloyds TSB Bank 5.28% 4/16 Senior NotesA22.25%BMO 2.39% 07/17 Senior NotesAa32.11%JP Morgan 2.92% 09/17 Senior NotesShoppers Drug Mart 2.01% 05/16 Snr. NotesBBB+Reliance LP /17 Senior NotesBBB1.80%*Excluding hedges and money-market positions as of August 30, 2013 (LP portion of the United Canadian Fixed Income Pool)
15 VIEW FROM THE DESK: CURRENT CONSIDERATIONS MacroThe Fed has delayed the commencement of tapering QE, however we expect that the tapering will begin in 2013, and be completed in late 2014Rate markets remain susceptible to significant volatility given divergent expectations of the taperWhile 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 improvesEurope is coming out of recession and presents a few select value opportunitiesWe welcome a return to fundamental based rate moves, where good economic numbers imply expansion/inflations/higher bond yields, tighter creditCreditCredit fundamentals remain positive. US economic recovery is on track. 2nd quarter earnings have been generally robustEuropean is emerging from recession, led by UK and Germany. Systemic risk has abated since 2011.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
17 FUND FACTS AND CODESNote: the fund is also available in $US
18 Thank You FOR ADVISOR USE ONLY ®CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. TM Portfolio Series and Signature Global Asset Management are trademarks of CI Investments Inc. This communication is published by CI. Any commentaries and information contained in this communication are provided as a general source of information and should not be considered personal investment advice. Every effort has been made to ensure that the material contained herein is accurate at the time of publication. However, CI cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein.Facts and data provided by CI and other sources are believed to be reliable when posted. CI cannot guarantee that they are accurate or complete or that they will be current at all times. Information in this presentation is not intended to provide legal, accounting, investment or tax advice, and should not be relied upon in that regard. CI and its affiliates will not be responsible in any manner for direct, indirect, special or consequential damages howsoever caused, arising out of the use of this presentation. You may not modify, copy, reproduce, publish, upload, post, transmit, distribute, or commercially exploit in any way any content included in this presentation. You may download this presentation for your activities as a financial advisor provided you keep intact all copyright and other proprietary notices. Unauthorized downloading, re-transmission, storage in any medium, copying, redistribution, or republication for any purpose is strictly prohibited without the written permission of CI.
19 AN ALTERNATIVE APPROACH TO CANADIAN EQUITY INVESTING Timothy Lazaris, CIO & CEOBrian Huen, Managing PartnerRed Sky Capital Management Ltd.
20 RED SKY CAPITAL MANAGEMENT LTD RED SKY CAPITAL MANAGEMENT LTD.: AN ALTERNATIVE INVESTMENTS PORTFOLIO TEAMWhy should advisors/investors consider alternative investments?The potential to generate positive returns in a variety of market conditionsEnhance diversificationImprove portfolio returnsReduce portfolio risk
21 RED SKY CAPITAL MANAGEMENT LTD. Red Sky portfolio teamTeamBackgroundCoverageTimothy Lazaris, CA, CFA, CEO and CIO3 years Portfolio Manager, CIO at RSCMFounder and 2.5 years Portfolio Manager at GMP Investment Management (GMPIM)10 years Research Analyst at GMP Securities5 years Research Analyst at RBC Capital Markets (Ranked #1 in Canada by Brendan Woods)Portfolio ConstructionCapital AllocationRisk ManagementFocused on Core Investment IdeasFinancial Services/Media TelcosKeith Lam, CA, CFA Managing Partner and CFO3 years Portfolio Manager at RSCM2.5 years Associate Portfolio Manager at GMPIM3 years Research Analyst at GMP SecuritiesFinancial ServicesTechnologyReal EstateDariusz Nieciecki, CFA Managing Partner3 years Global M&A at Lehman Brothers/Scotia Capital2 years Equity Research at CIBC World Markets and TD SecuritiesEnergyIndustrialsHealthcareTransportationBrian Huen, CFA Managing PartnerNiall HenryAssociate2.5 years Portfolio Manager at RSCM6 years Institutional Equity Sales at CIBC and UBS2 years Private Equity at TD Capital3 years Investment Banking / M&A at CSFB5 years as Institutional Equity Trader at CIBC2 years as Trader at BC Investment ManagementMaterialsConsumersEvent Driven / Merger Arbitrage
22 RED SKY CAPITAL MANAGEMENT LTD. Source: Red Sky Capital Management
23 RED SKY CAPITAL MANAGEMENT LTD. Sept-10July-13Source: Red Sky Capital Management
24 RED SKY CAPITAL MANAGEMENT LTD. How alternative funds differ from mutual fundsAbsolute versus relative return mandateRisk managerLoss of dollars versus benchmarkAvailable investment toolsShort sellingHedging via derivativesElevated cash – up to 100%LeverageCompensation is mostly from performance fees
25 RED SKY CAPITAL MANAGEMENT LTD. Investment processIdentify emerging macro economic themesIdentify where we are in the market cycleConsider social / political landscape and the potential impact on overall investment thesisDetermine optimal overall long / short bias given existing and expected market conditionsAnticipate any changes in key macroeconomic factors that may impact the funds overall investment thesisIdentify those sectors which we believe provide investment opportunities based on our macro analysisSeek out sectors on a global basis that is consistent with our favoured macroeconomic themesThe fund will not invest in sectors or industries that we cannot understand or are unable to develop an expertiseRigorous fundamental analysis to identify companies best or worst positioned in the context of the macro environmentBifurcate between short-term trading opportunities and long-term investmentsSeek out companies with near-term catalysts that may create significant volatility in the price of the firms’ securitiesConsider different parts of the capital structure to capture most attractive risk-adjusted returnsLeverage our strong relationships with key market participants to identify best investment opportunitiesSentiment towards an asset, sector or theme is a critical considerationUtilize technical analysis to realize optimal trading strategies for our favourite namesIdentify exit/entry points based on technical factorsSelect optimal investment in the capital structureAdhere to strict risk management processLimit concentration in any one industry, company or strategyExploit asymmetric risk/return profiles to maximize effectiveness of hedging or investment positionsPortfolio management system used to continuously monitor overall exposure and liquidity
26 RED SKY CAPITAL MANAGEMENT LTD. Multi-strategy portfolio approachCapitalCoreTradingMarket neutralFundamental stock selectionDetailed due diligenceContinuous reviewSentiment or momentum drivenTechnical analysisSystematic stop lossesEvent-driven/ M&ACapturing a defined returnComplex review processLong biasLong or shortUncorrelatedCapital allocationMacroeconomic factorsMarket sentimentFundamental valuation
27 RED SKY CAPITAL MANAGEMENT INC. Red Sky Partners – portfolio allocations as at July 31, 2013*Market Neutral includes cashSource: Red Sky Capital Management Ltd.
28 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
29 RED SKY CAPITAL MANAGEMENT INC. Source: Red Sky Capital Management
30 RED SKY CAPITAL MANAGEMENT LTD. Red Sky Canadian Equity Corporate Class: A mutual fund managed by ouralternative investment teamFocused on Absolute Performance – not relativeIncludes the best ideas from Partners FundDiversification but not indexationPrimary Risk management tool - CashAbility to short and use other hedge techniquesEquity Fund – multi strategyCore InvestmentsOpportunistic / trading of volatilityMarket Neutral – cash up to 40%Foreign exposure (USA) up to 40%Any market capitalizationIndustry Agnostic
31 RED SKY CAPITAL MANAGEMENT LTD. Red Sky Cdn. Equity Corp. Class - portfolio allocations as at July 31, 2013*Market Neutral includes cash.Source: Red Sky Capital Management Ltd.
32 RED SKY CAPITAL MANAGEMENT LTD. Red Sky Canadian Equity Corporate Class – performance Monthly returnsYTDS&P/TSX Series BJanFebMarAprMayJuneJulyAugustSeptOctNovDec20133.70%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 indexEach 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 31st), the Red Sky Canadian Equity Corporate Class has outperformed the S&P/TSX Index by ~10%Source: Red Sky Capital Management
33 RED SKY CAPITAL MANAGEMENT LTD. - MARKET OUTLOOK Macro economic factors:U.S. recovery – later stageEuropean recovery – early stageEmerging market/China uncertaintyAllocation of assets from bonds to equity as rates rise – Fed Policy ImpactMiddle East Tensions (August 28)
34 RED SKY CAPITAL MANAGEMENT LTD. – MARKET OUTLOOK North American portfolio sectorsConstructiveFinancialsTechnologyConsumerEnergyLarge caps with dividendsLess constructiveBase metalsPrecious metalsTelecomReal estateSmall/micro caps
35 RED SKY CAPITAL MANAGEMENT LTD. Top 5 long investment ideas – 12/18 monthsNameSectorThesisCurrent price *Target priceExpected returnElement Financial (EFN-TSX)FinancialsGrowth 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$19.0060%JP Morgan(JPM-NYSE)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$65.0032%Empire Co. Ltd(EMP.A-TSX)Consumer StaplesEmpire’s 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$100.0026%Redknee Solutions (RKN-TSX)TechnologyA 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$10.0049%
36 RED SKY CAPITAL MANAGEMENT LTD. SummaryAlternative 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 ClassIn both cases, the Portfolio team has significant committed capital
37 RED SKY CAPITAL MANAGEMENT LTD. Brookfield Place, 181 Bay Street, Suite 900Toronto, Ontario, M5J 2T3Tel:Fax:Timothy LazarisBrian Huen
38 APPENDIX – RISK FOCUSHistorically 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.Capital preservationDiversificationIndustry , 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.Risk management
39 APPENDIX – PORTFOLIO CONSTRUCTION Core portfolioTrading portfolioMarket neutralInvestment styleFundamental bottom-upSentiment, technical factorsEvent-driven, merger arbitrageTrade durationMid and long-termShort-termShort and mid-termTrade sizeLarger (max 5% of fund)Smaller (max 3% of fund)Trade dependent – may deploy leverageProfit & loss realizationTarget driven (or change in fundamental thesis)SystematicCompletion of transactionRisk management reviewPosition size, liquidity, industry concentrationLiquidity and adherence to established stop lossesDetailed due diligence
40 APPENDIX - BIOGRAPHIES Timothy Lazaris CA, CFA - President & CEOPrior 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.
41 APPENDIX - BIOGRAPHIES Keith Lam CA, CFA – Managing Partner & CFOPrior 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.
42 APPENDIX - BIOGRAPHIES Dariusz Nieciecki, CFA – Managing PartnerPrior 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.
43 APPENDIX - BIOGRAPHIES Brian Huen, CFA – Managing PartnerPrior 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 – AssociatePrior 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.
44 Thank you For advisor use only Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.®CI Investments, the CI Investments design, Cambridge, Perspective, Synergy Mutual Funds, Harbour Advisors, Harbour Funds, Global Managers, American Managers, Insight and Insight Program, Legacy Funds, and CI Guaranteed Investment Funds are registered trademarks of CI Investments Inc. ™Portfolio Select Series, Portfolio Series, Signature Global Asset Management, Signature Funds, G5|20 Series, the G5|20 Series design and CI Guaranteed Retirement Cash Flow Series are trademarks of CI Investments Inc.