how alternatives provide long-term diversification
TRANSCRIPT
HOW ALTERNATIVES PROVIDE LONG‐TERM DIVERSIFICATION
MAINTM Webinar Series
September 20, 2016
Webinar Overview
Millennium Trust Company and iCapital are not affiliated.
Millennium Trust does not endorse any platform or investment, including platforms and investments accessible through MAIN. Millennium Trust performs the duties of a custodian and, as such, does not provide any investment, tax or legal advice, or perform any due diligence on behalf of account holders or any third party.
Moderator: Presenter:
Meg ZwickSVP, Director of Alternative
Custody Services
Dan CroninSVP, Distribution
FOR INVESTMENT PROFESSIONAL USE ONLY
CONFIDENTIAL
iCapital NetworkOverviewSeptember 2016
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Growing HNW Interest in Alternatives
Source: Goldman Sachs Global Investment Research; Alts Shops Chase High-Net-Worth Market Growth, www.fundfire.com
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Allocations to Alts are expected to increase more than 300% over the next 5 years
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Our Research with RIAs Supports this Expected Demand
Source: Registered Investment Advisors and Private Equity, 2016; N=443
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HNW Clients Interestedin Private Equity
Yes67.5 %
Offering PE Today
Yes19.4%
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High Net Worth Individuals and Family Offices have Allocated to Alternative Investments
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HNW represents 11%-16% of investors in hedge funds and private equity and allocate ~20%-30% to both asset classes
31% 24% 24%
25%26% 20%
16%11%
12%
15%
9%8%
11%
18%17%
2%12% 19%
Hedge Funds Private Equity Venture Capital
Number of Investors by Asset Class1
Endowment & Foundation
Pension Funds
HNW Individuals2
Fund of Funds
Financial InstitutionsOther
28%
12%6% 3%
19% 18%
9%2%
Family Offices Endowments &Foundations
Pension Funds FinancialInstitutions
Average Allocation by Investor Type3
Source: World Economic Forum, Alternative Investments 2020, An Introduction to Alternative Investments1 Figure 23: Breakdown of investors in core alternative investment asset classes by number of investors. Percentage of the number of investors Includes institutional investors that have invested in hedge funds or that have a preference for or previously invested in private equity or venture capital funds 2 Includes high-net worth investors, wealth management and family offices3 Figure 25: Average allocation to private equity buyout and hedge funds by select investor types. Average allocation as a percentage of total portfolio allocation
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1. Updated as of 7/31/16.2. Funds managed and/or administered as of 7/31/16 (does not include number of offshore funds).3. Updated as of 7/31/16
Company Introduction
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CONNECT HIGH NET WORTH INVESTORS TO LEADING ALTERNATIVE INVESTMENT MANAGERS
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~$2.1B
1,100+PROFESSIONALS NETWORK USERS1
IN 28 PRIVATE EQUITY& HEDGE FUNDS2
$1.6TIN TOTAL HNW
INVESTABLE ASSETS3
Mission
Employees Registered Network Users
Platform Assets Registered Network Capacity
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Launch of iCapitalTechnology Platform
History of Innovative Solutions
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iCapital Founded
HedgeFocus Reaches $1 billion
HedgeFocus Reaches $2 billion
HedgeFocus and iCapital Combine,Creating World Class Platform Spanning
Private Equity and Hedge Funds
Credit Suisse Team Joins iCapital
Launch of First PrivateEquity Access FundFormation of
iCapital Consortium
Launch of FirstiCapital Vintage Fund
Launch of FirstThematic Private
Equity Fund
DIRECT EQUITY
QMS LIQUIDITY SYSTEM
HEDGE FUNDS
20122011 2013 2014 2015 2016
HedgeFocus Founded by Credit Suisse Team
2017+
PRIVATE EQUITY
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ProductOfferings1
CustomSolutions
Access funds for private equity
Access funds for hedge funds
Multi-manager funds
iCapital Provides Alternative Products and Solutionsto HNW Investors
1. Single manager and multi-manager funds available to Qualified Purchasers for minimum commitments of $100,000.
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Custom funds
White Label Platform Solutions
iCapital Provides a Platform of Leading Alternative Investment Managers toHigh Net Worth Investors for Minimums of $100,000
iCapital Provides Custom Fund Solutions for Advisors and Fund Managers Leveraging Technology and Online Workflows
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Strategic Distribution Platforms
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iCapital Has Been Chosen by Highly Selective, Risk Averse Wealth Managers and Custodians Focused on Long Term Partnerships
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iCapital Access Fund Details – How it Works
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FundStructure
iCapital Access Funds are limited partnership structures, 3(c)(7) funds
Qualified Purchasers can invest for minimums of $100,000
InvestmentProcess
Subscription documents completed in streamlined, online process
For private equity funds, capital call notices via email and view reports online
Obtain position values via custodian statements
Integration
ReportingiCapital was accepted into DTCC-AIP in April 2015.Allows position information to be reported at any major custodian. Fidelity has partnered with iCapital as a preferred custodian.
Portfolio ManagementiCapital continues to integrate with major Portfolio Management Systems.
iCapital Fees
Private Equity FundsSubscription Amount
AccessFee
<$1M 75 bps$1M+ or $5M per RIA
50 bps
Hedge Funds50 bps Minus Any Retrocession Fees (if paid by manager)*Underlying fund manager fees are in addition to access fund feeBrokerage share class includes additional 0.50%, payable to the LP’s broker
* Retrocessions vary and can be zero
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Why Consider: Private Equity provides an opportunity to pursue higher returns and greater diversity than may be available through the public markets alone.
Why Include in a Portfolio: Three key reasons why private equity can makes sense as part of a thoughtful, long-term investment strategy
The Case for Private Equity
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Long‐Term Outperformance
Expanded Opportunity Set
Complement to Traditional Investments
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Long-Term Net Outperformance
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Source: Cambridge Associates US Private Equity Index as of 12/31/15Past performance is not indicative of future results. This example is for illustrative purposes only.
13.0%
11.2% 10.9%
12.8%
9.2%
6.8% 7.3%8.0%
12.6%
7.3%
5.0%
8.2%
3.4%4.5% 5.0% 5.3%
0%
5%
10%
15%
20%
5 Year 10 Year 15 Year 20 Year
CA US Private Equity Russell 2000 S&P 500 Barclays Gov't/Credit Bond
Private Equity Returns vs. Public Markets
Private Equity Has Consistently Outperformed Public Market Indices Over Multiple Time Periods
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Complement to Traditional Investments
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PUBLIC INVESTMENTS PRIVATE INVESTMENTS
FREQUENCY & VOLUME OF PORTFOLIO TRANSACTIONS High Low
ACCESS TO INFORMATION Public, widely available & easily shared Can be asymmetric
MANAGER’S CONTROL OF INVESTMENTS Passive Active
TIME HORIZON &TRADABILITY Shorter-term & liquid Longer-term & illiquid
Private Investments Have Distinct Characteristics That Can Complement A Portfolio Heavily Weighted Toward Public Equities and Fixed Income
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Expanded Opportunity Set
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134,000 private companies
5,100 publicly listed companies
US Companies with Revenues Between $25M - $1B1
Vs.
Source: Hoovers, March 6, 2015 excludes Forestry; Mining; Depository Institutional Security and Commodity Brokers, Dealers, Exchanges, and Services; Holding and other Investment Offices, Museums, Art Galleries, and Botanical and Zoological Gardens, Private Households, Public Administration. There were 5,008 listed companies in the US at the end of 2013 according to the World Federation of ExchangesPast performance is not indicative of future results. This example is for illustrative purposes only.
While Traditional Managers are Limited to Investing in the Public Markets, Private Equity Managers Can Invest in a Much Broader Universe of Companies
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What Do Hedge Funds Add?
• Able to express views that an asset may fall or rise in value
• Access to a broad set of instrument types (eg. structured credit) typically not accessible through or suitable for traditional long-only vehicles
• Low correlation to other asset classes
• Adds diversification to an existing portfolio
Flexibility
Diversification
Risk Reduction • Similar returns to the equity market with half of the volatility
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*Source: iCapital Network (Please refer to Slides 11 - 13)Past performance is not indicative of future results. Additional information is available upon request.
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Hedge Funds Have Greater Flexibility
The above are general characteristics that may not apply to all funds.
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Hedge Funds Have the Potential to Generate Returns in Different Parts of the Economic Cycle
HEDGE FUNDS TRADITIONAL MANAGERS
STRATEGY Opportunistic Highly Restricted
ASSET CLASS Unconstrained Constrained
PERFORMANCE DRIVERS Manager Talent, Strategy Market Direction
HEDGING Yes No
RESPONSE TIME TO CHANGING MARKETS Fast Slow
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Hedge Funds May Reduce Volatility
Source: CS Hedge Fund Index and S&P 500 Index as of 12/31/15Past performance is not indicative of future results. Additional information is available upon request. Based on monthly total gross returns in US dollars from January 1994 to December 2015.
8.1% 9.0%6.6%
Annualized Return
7.1%
14.9% 15.0%
Annualized Standard Deviation
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Hedge Funds Have Produced Equity-like Returns with Half of the Volatility
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Different Market Environments
Hedge Funds Add Diversification
Source: iCapital NetworkPeriod: January 1994 to December 2015The following indices were used in this analysis: US Equities – S&P 500 Index, International Equities – MSCI World Index, US Investment Grade – Barclays US Aggregate Bond Index, US Municipal Bonds – Barclays Municipal Bond Index, US High Yield – Barclays US Corporate High Yield Bond Index and Hedge Funds – Credit Suisse Hedge Fund Index.
Measures how closely related two asset classes are:
1.00 = perfectly0.00 = not at all
Historical Correlations Among Asset Classes
Hedge Funds
US Equities
Int’l Equities
US InvGrade US Muni’s US High
Yield
Hedge Funds 1.00
US Equities 0.57 1.00
Int’l Equities 0.67 0.95 1.00
US Inv Grade 0.16 0.04 0.02 1.00
US Muni’s 0.20 0.07 0.06 0.72 1.00
US High Yield 0.52 0.62 0.66 0.22 0.30 1.00
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Diversification Can Provide Downside Protection When Certain Asset Classes Are Under-Performing
Correlation
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iCapital Platform Offers Alternative Investments
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Browse A Curated Menu of Private Equity & Hedge Funds
Evaluate Investments Via Fund Profile Pages and Research Materials
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Register for iCapital Network
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Create a User Login Verify Your Email11 22
REGISTER AT: https://s.icapitalnetwork.com/register/
Information Required to Register as RIA:
Firm Name:CRD:Year Registered:
Complete Questionnaire33
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Questions?
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Melissa [email protected]
646-214-7464
Please feel free to reach out with questions or to schedule a demo with our iCapital Network representatives:
Travis [email protected]
646-214-7281
212-994-7333 | www.icapitalnetwork.com | [email protected]
ABOUT MILLENNIUM TRUST COMPANY
• Privately-owned independent custodian located in Oak Brook, IL
• Over 458,000 client accounts
• $18.9 billion of assets under custody
• $2.5 million in expanded FDIC coverage provided by multiple banks in a Cash Sweep Program for idle cash in retirement accounts
• Regulated by the Illinois Department of Financial & Professional Regulation
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WHY CHOOSE MILLENNIUM TRUST
Client Focused
Expanded Custody Solutions
Technology Enabled
Streamlined Processes
Account Management
Tools
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Platformsand
Portals
Marketplace Lending
Crowdfunding
Hedge Funds
Private Equity
Precious Metals
Other
SOURCE: Millennium Trust Company, Schematic Illustration
Millennium Trust does not endorse any platform or investment, including platforms and investments accessible through MAIN. Millennium Trust performs the duties of a custodian and, as such, does not provide any investment, tax or legal advice, or perform any due diligence on behalf of account holders or any third party.
MILLENNIUM ALTERNATIVE INVESTMENT NETWORK TM (MAIN)
Question & Answer Session
Platformsand
Portals
Marketplace Lending
Hedge Funds
Private Equity
Precious Metals
Other
MAIN WEBINAR SERIES
Tuesday, October 183:00 p.m. CT
Presented by: Equity Zen
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www.mtrustcompany.com866-388-9419
www.icapitalnetwork.com212-994-7333
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Disclosures
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These materials are for informational purposes only and are not intended as, and may not be relied on in any manner as legal,tax or investment advice, a recommendation, or as an offer to sell, a solicitation of an offer to purchase or a recommendation of any interest in any fund or security described herein. Any such offer or solicitation shall be made only pursuant to the final confidential offering documents which will contain information about each fund’s investment objectives and terms and conditions of an investment and may also describe certain risks and tax information related to an investment therein.
Past performance is not indicative of future results. All of the products described, including any products made available toclients of iCapital, are private placements that are sold only to qualified clients of iCapital through transactions that are exempt from registration under the Securities Act of 1933 pursuant to Rule 506(b) of Regulation D promulgated thereunder (“Private Placements”). An investment in any product issued pursuant to a Private Placement, such as the funds described, entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved orthat investors will receive a return of their capital. Further, such investments are not subject to the same levels of regulatory scrutiny as publicly listed investments, and as a result, investors may have access to significantly less information than they can access with respect to publicly listed investments. Prospective investors should also note that investments in the products described involve long lock‐ups and do not provide investors with liquidity.
The information contained herein is subject to change and is also incomplete. This industry information and its importance is anopinion only and should not be relied upon as the only important information available. Information contained herein has beenobtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, orreferred to in any other publication, without express written permission. This material is confidential, and may not be shared with any party other than the intended recipient. This material is intended for institutional investors only.
Securities offered through iCapital Securities, LLC, a registered broker dealer, member of FINRA and SIPC and subsidiary of Institutional Capital Network, Inc. These registrations and memberships in no way imply that the SEC, FINRA or SIPC have endorsed the entities, products or services discussed herein.
Additional information is available upon request.