lawrence park capital partners credit strategies fund
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Lawrence Park Capital Partners Credit Strategies Fund. June 2014. Disclaimer. - PowerPoint PPT PresentationTRANSCRIPT
June 2014
Lawrence Park Capital PartnersCredit Strategies Fund
CONFIDENTIAL 2
DisclaimerTHIS SUMMARY HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY, SOLELY AS A PRELIMINARY DOCUMENT TO DETERMINE INVESTOR INTEREST REGARDING LAWRENCE PARK CREDIT STRATEGIES FUND (THE “FUND”), WHICH IS DESCRIBED HEREIN. EXCEPT AS OTHERWISE DESCRIBED IN THE FUND’S CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THE “PPM”), DATED March 3, 2014, THIS DOCUMENT MAY NOT BE REPRODUCED FOR ANY PURPOSE OR PROVIDED TO OTHERS IN WHOLE OR IN PART WITHOUT THE PRIOR WRITTEN PERMISSION OF THE FUND MANAGER OF THE FUND (THE “FUND MANAGER”). AN OFFER OR SOLICITATION WILL BE MADE ONLY THROUGH THE PPM, AND WILL BE SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THE PPM. THIS SUMMARY DOES NOT CONSTITUTE AN OFFER TO SELL OR BUY ANY SECURITIES. THE INFORMATION SET FORTH HEREIN DOES NOT PURPORT TO BE COMPLETE AND IS INTENDED TO BE READ IN CONJUNCTION WITH THE PPM. ALL INFORMATION AND OPINIONS AS WELL AS ANY FIGURES INDICATED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. THE INVESTMENT RATES OF RETURN SET FORTH HEREIN DO NOT REFLECT MANAGEMENT FEES, EXPENSES OR CARRIED INTEREST TO BE CHARGED BY THE FUND MANAGER.
THIS PRODUCT WILL BE AVAILABLE TO ACCREDITED INVESTORS AS THAT TERM IS DEFINED UNDER CANADIAN SECURITIES LEGISLATION. IN ONTARIO, IN ORDER FOR INVESTORS TO BE CONSIDERED ACCREDITED INVESTORS, INVESTORS MUST MEET CERTAIN ELIGIBILITY REQUIREMENTS WITH REGARDS TO FINANCIAL ASSETS AND/OR INCOME HISTORY. AN INVESTMENT IN THE FUND WILL INVOLVE SIGNIFICANT RISKS DUE, AMONG OTHER THINGS, TO THE NATURE OF THE FUND’S INVESTMENTS. THE RISK FACTORS WILL BE CONTAINED IN THE PPM. INVESTORS SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT RISKS WHICH ARE CHARACTERISTIC OF THE INVESTMENTS DESCRIBED HEREIN. THIS PRESENTATION DOES NOT CONSIDER THE SPECIFIC INVESTMENT OBJECTIVES, FINANCIAL SITUATION OR PARTICULAR NEEDS OF ANY RECIPIENT. NO ASSURANCE CAN BE GIVEN THAT THE FUND’S INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT THE INVESTORS WILL RECEIVE A RETURN OF THEIR CAPITAL. ACCORDINGLY, THE PPM SHOULD BE READ IN ITS ENTIRETY AND REVIEWED BY POTENTIAL INVESTORS’ LEGAL AND FINANCIAL ADVISORS.
CONFIDENTIAL 3
Specialists in Global Fixed
Income.
Lawrence Park Capital Partners
Strong, Experienced
Team.
Disciplined, repeatable process.
CONFIDENTIAL 4
Lawrence Park Credit Strategies FundOver 27 months of performance in the Lawrence Park Credit Strategies Fund*:
• Net return of 18.10% in 27 months/7.68% annualized return
• Sharpe ratio of 4.07; Sortino ratio of 6.29
• 25 months of positive returns
• Annualized volatility of 1.55%
• Very low correlation to traditional fixed income and equity markets
Capital Preservation.Low Volatility.
Consistent Returns.*A Series; Sharpe and Sortino ratios based on daily returns
CONFIDENTIAL 5
Lawrence Park Capital Partners
• Established in 2011
• Toronto-based alternative Fixed Income specialist
• C$350m million Assets Under Management
– Portfolio Manager Lawrence Park Credit Strategies Fund
– Sub-advisor United FI Pool
– Portfolio Manager CI Lawrence Park Strategic Income Fund
• Veteran Fixed Income Team with significant international expertise
• Partnered with CI Financial
CONFIDENTIAL 6
Distinctly Canadian, Uniquely Global
Andrew Torres: Founder & Chief Investment Officer19+ years Global Fixed Income and Portfolio ManagementFormer Vice Chair & Global Head of Credit Trading for TD SecuritiesFormer Partner and Portfolio Manager for Aladdin Capital Management UK
Jason Crowley, CFA: Partner, Portfolio Manager17+ years Global credit portfolio manager, proprietary trader, global risk managerFormer Managing Director & Senior Bond Trader, Bank of Nova Scotia
John B. Young, CFA: Chief Risk & Financial Officer18+ years Global fixed income manager, convertible arbitrage specialistFormer Chief European Portfolio Manager for Fore Research & ManagementFormer Managing Director and Convertible Arbitrage Specialist, TD Securities
CONFIDENTIAL 7
A Solid, Seasoned, and Professional Team
• Partners and staff combine for over 70 years experience trading, structuring, and building fixed income credit businesses globally
• Established investment strategy honed over two decades managing multi-billion dollar portfolios
• Proprietary investment strategies employed using bank capital
• Senior partners bring extensive experience from major global financial centres: London, New York, and Toronto
• First hand knowledge and understanding of the nuances of each market/region• Experience evaluating and hedging credit opportunities across multiple currencies and
markets• Extensive long-standing relationships with sell side community• Daily insight into the inventories and axes of 42 global bond dealer and broker desks
CONFIDENTIAL 8
The Lawrence Park Approach• Process
• Identify bonds which have become dislocated from normal pricing relationships, taking advantage of market inefficiencies and changes in investor sentiment
• Focus on investment grade corporate bonds, which offer greater liquidity and are more resilient in times of market stress
• Hedge out interest rate risk and currency risks, significantly reducing Fund volatility
• Foundation• Nimble, mean reversion approach to trading• Technical based screening analysis with in-depth fundamental overlay• Active trading strategy with timely profit taking and redeployment of capital• Low exposure to interest rate moves• Disciplined trading governed by strong risk metrics/controls
• Results• Target net annual returns of 6-10%• Low volatility: low correlation to traditional asset classes: superior risk-adjusted returns.
CONFIDENTIAL 9
The Bond Market is a massive, decentralized network of market participants
Finding Relative Value
The Lawrence Park Credit Strategies Fund invests and profits from the inefficiencies across Global Bond Markets
Maturity
Spread
Example: Royal Bank of Scotland Subordinated Debt
Plot of Royal Bank of Scotland subordinated debt in various currencies, as at April 7, 2014. For illustrative purposes only .
CONFIDENTIAL 10
Consistent ReturnsJan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total
2012 0.53% 0.36% -0.43% 1.33% 1.61% 0.89% 1.59% 1.06% 0.54% 1.03% 8.83%
2013 1.12% 0.42% 0.43% 0.52% 0.54% -2.52% 0.53% 0.21% 0.00% 1.18% 0.92% 0.94% 4.33%
2014 0.44% 1.32% 0.87% 0.85% 0.48% 4.02%
950
1,000
1,050
1,100
1,150
1,200$1,181
$1,090
$1,091
GROWTH OF $1,000 SINCE INCEPTIONMar 1,2012 – May 31, 2014 Inclusive
LPCSF XCB BGCI
1,124.82
Corporate Bond Index4
6
Corporate Spread Index
CONFIDENTIAL 11
…With Low Volatility
VOLATILITY COMPARISON(90 Day Moving Average, Logarithmic Scale)
LPCP 90D Vol DEX 90D Vol TSX 90D VolLPCP 90d Avg DEX 90d Avg TSX 90d Avg
10.19%
3.78%
1.50%
CONFIDENTIAL 12
0% 2% 4% 6% 8% 10% 12%0%
2%
4%
6%
8%
BGCI
TSX
DEX
LP CSF
Risk vs Return
Risk
Retu
rn
Superior Risk-Adjusted Returns Sharpe Ratio*
LP CSF 4.07DEX 0.77TSX 0.56
BGCI 2.45
*As of May 31, 2014
*Sharpe Ratio: [Annualized return - Risk Free Rate (1%)] / [Annualized Vol]
• LPCSF: LP Credit Strategies Fund Series A, net of all fees• DEX: XCB-T, an ETF based on the DEX Corporate Index, net of all fees• BGCI: Barclays Global Credit Index, excess returns in Canadian Dollars
CONFIDENTIAL 13
Low Correlation To Traditional Asset Classes
CorrelationDEX -0.061TSX 0.285
-1.00%-0.80%-0.60%-0.40%-0.20% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
Correlation (LPCP and DEX)
DEX ReturnLP
CP R
etur
n
-4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
Correlation (LPCP and TSX)
DEX Return
LPCP
Ret
urn
CONFIDENTIAL 14
Portfolio Diversification
26%
15%12%
11%
10%
9%
7%4%7%
Sector ExposureBanks
Diversified Finan Serv
Real Estate/REIT
Consumer, Non-cyclical
Media & Telecom
Utilities
Oil&Gas
Pipelines
Others
As of May 31, 2014
Canada53%
Europe21%
United States25%
Other1%
Issuer Region Exposure
AA5%
A23%
BB13%B
1%
AAA4%
BBB54%
Rating Exposure
CONFIDENTIAL 15
Portfolio Construction
Core Credit• Best selections from global
markets• Long positions with interest rate
hedges in place
Momentum TradingOpportunities arising from:• Short-term price dislocations• New issue calendar• Supply/demand considerations • Event driven movement
Carry and Roll Down• Short dated securities that
provide income: coupon and convergence to maturity
• Securities generally have less than three years to maturity
Credit ArbitrageTaking both long and short positions in securities of the same company.Capturing anomalies• Cross currency• Capital structure• Curve trading
Relative Value• Taking a long position in one
company’s securities vs. taking a short position in another company’s securities, or a short position in an index
CONFIDENTIAL 16
Strategy Allocation2
Momentum Core Carry Credit Arb./Rel. Value0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
12-month average May-14
CONFIDENTIAL 17
Return Attribution-Strategy2
May +0.48% YTD +4.02%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Carry CoreMomentum Credit Arb./Rel. Value
CONFIDENTIAL 18
Risk Metric: Change in CS01The sensitivity of the value of the portfolio to a 1 basis point change in credit spreads.
May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
3% 7%17% 16%
24% 27%39% 38% 37% 38% 34% 39% 36%
7%
-25% -25% -22%
2%
17%
23%11% 14% 9% 18%
17%16%
-10%
30%
33% 40% 27%
18%
4%15% 16% 21%
18% 9%10%
44%
30%
42%43%
28% 16%17%
13% 10%13% 12%
13% 16%
56%
59%
34% 23%
19% 23%17%
23% 23% 18% 18% 22% 22%
8.15
0 - 3 Years 3 - 5 Years 5 - 7 Years 7 - 10 Years 10 Years + Duration
Duration 7.73 4.34 4.40 4.50 6.43 7.39 7.63 8.09 8.75 8.10 8.33
CONFIDENTIAL 19
Risk Metric: Change in CS1%
May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May-20%
0%
20%
40%
60%
80%
100%
120%
0.00
5.00
10.00
15.00
20.00
25.00
1% 3%8% 9% 12% 10%
16% 20% 18% 19% 19% 22% 22%
2%
-12% -13% -10%
1%14%
18% 11%6% 6% 4%
13% 13%
10%19%
23%28% 20%
19%
14% 23%
18%24% 24%
15% 15%
18%
24%
27%
34%
26%
18%
23%18%
14%
15% 16%17% 17%
69%
66%
54%39%
42% 39%29% 29%
44%36% 37% 32% 32%
12.33 12.22
0 - 3 Years 3 - 5 Years 5 - 7 Years 7 - 10 Years 10 Years + Duration
Duration 21.87 16.47 11.65 10.99 12.90 15.15 13.50 11.90 15.50 13.16 11.44
The sensitivity of the value of the portfolio to a 1% change in the credit spread of each bond in the portfolio.
This risk measure describes the behaviour of the value of the portfolio to a non-parallel change in credit spreads
CONFIDENTIAL 20
Portfolio TrendsTop Ten Holdings
Issue Issuer Rating SectorWU 5.93 10/16 US WESTERN UNION CO/THE BBB+ DIVERSIFIED FINAN SERV F 2.634 11/16 CAD FORD MOTOR CREDIT CO LLC BBB- DIVERSIFIED FINAN SERV RCICN 5.8 5/16 CAD ROGERS COMMUNICATIONS IN BBB+ MEDIA & TELECOM JNPR 3.1 3/16 USD JUNIPER NETWORKS INC BBB MEDIA & TELECOM WFC 1.15 06/17 US WELLS FARGO & COMPANY AA- BANKS VSNCN 3.95 3/17 CAD VERESEN INC BBB+ PIPELINES EMPACN 3.52 8/18 CAD SOBEYS INC BBB- CONSUMER, NON-CYCLICAL BPLN 2.744 02/17 CAD BP CAPITAL MARKETS PLC A OIL&GAS HEQCN 2.203 3/17 CAD CHIP MORTGAGE TRUST AAA BANKS K 2.05 5/17 CAD KELLOGG CANADA INC BBB+ CONSUMER, NON-CYCLICAL
Macroeconomic Themes Global interest rates to remain volatile as central banks grapple with uneven growth US wage inflation to become a more pressing issue heading into 2015 Credit fundamentals remain broadly stable with low default rates
Portfolio & Trading Themes Corporate credit spreads remain reasonably valued compared to historic tights, and adequately
compensate for default risk New issue supply to remain robust, fuelled by increased M&A activity Bank & Insurance sectors continue to restructure capital profile to meet regulatory hurdles Select opportunities in European and Emerging Market credit over North America
CONFIDENTIAL 21
Risk Management
Market Risk Management Policy• Stop-loss limits for trade groups as well as the overall portfolio
• Extensive daily risk reports
• Detailed risk management policy manual
Regular portfolio review by Risk Committee• Non-trading risk committee chair
• Minimum mandated weekly meetings
• Full audit trail with committee member sign-off
Committee Chair: John Young, CA, CFA
CONFIDENTIAL 22
Risk Management: Policy
Portfolio Governing Limits
Concentration Limits• Maximum 30% Total Exposure in non-investment grade credits• Single name exposure limited to 15% of Total Exposure
Diversification Objectives• Capital allocation based on expected return, volatility, and correlation vs. overall portfolio
Liquidity Objectives• Alternative Debt Instruments limited to 20% of Total Exposure• Maintain “unencumbered cash” balance to act as a guard against forced liquidation in times of
market stress.• Hard limits on Total Exposure-based leverage
CONFIDENTIAL 23
Global Portfolio CharacteristicsMeasure Headline
Total Return since inception 18.10%
Annualized Return since inception 7.68% annualized
YTD Returns 4.02%
Sharpe Ratio 4.07
Up months/ Down Months 25/2
Leverage 2.89x
Annualized Volatility 1.55%
Investment Grade Exposure 87%
High Yield Exposure 13%
Number of Issuers 95
Number of Credit Positions 125
As of May 30, 2014
CONFIDENTIAL 24
Fund Facts
Lawrence Park Credit Strategies
Fund
Fund Lawrence Park Credit Strategies FundManager Lawrence Park Capital Partners Ltd.
Structure Mutual Fund Trust
Objective 6-10% total annualized returns* over the cycle, net of fees with low volatility, low correlation and below market credit beta*There is no guarantee that the Fund’s objective can be met, or that the Fund will earn a profit at all
Strategy Relative Value Credit; Credit Arbitrage; Absolute Value Credit
Issue Multiple Series Units (CAD)
Subscription Monthly; C$25K (B,H);C$150k min. (G); C$500k min. (I)
Redemption Monthly, with 45 days notice
Management Fee 2.0% (B), 1.5% (G); 1.25% (H,I)
Performance Fee 20% (B),15% (G); 10% (I)
High Water Mark Permanent
Prime Brokers DB, TD Securities
Auditor KPMG
Administrator CI Investments Ltd; RBC Investor Services
Legal BLG
CONFIDENTIAL 25
Lawrence Park Team Contact Information
Portfolio Management and Trading:CEO/CIO - Andrew C. Torres, BMath [email protected] - Jason Crowley, CFA [email protected] - Rory Stack, BASc [email protected]
Corporate:CFO/CRO/COO - John B. Young, CFA, CA [email protected]
Business Development:Director - Kathleen Biggs [email protected]
Operations:Snr. Analyst - Sharon Liu, BMath, MA, CAIA [email protected]
Lawrence Park Capital Partners Ltd.2 Berkeley Street, Suite 304Toronto, Ontario M5A 4J5(416) 646-2180www.lpcapitalpartners.com
The Lawrence Park Credit Strategies Fund is offered to Qualified Investors. Please contact us for full offering documents.
CONFIDENTIAL 26
Performance And Benchmark Disclaimer1. All return figures for the Lawrence Park Credit Strategies Fund (the “Fund”) are based on the A Series units and are net of management fees, performance fees, trailing
commissions (if any) and Fund expenses. Other series may have higher fees and differing redemption terms. Monthly returns are based on monthly NAV calculations by RBC Investor Services.
2. Strategiesa) Momentum Trading –involves taking a long or short position in a security to take advantage of short-term price dislocations b) Outright Credit – involves taking a long or short position in a security based on longer-term value technicals or fundamentalsc) Carry and Roll Down – involves levered positions in short dated securities primarily to earn incomed) Relative Value – involves taking a long position in one company’s securities vs. taking a short position in another company’s securities, or a short position in an indexe) Credit Arbitrage – involves taking both long and short positions in securities of the same company
3. Asset Classesa) CAD IG – Canadian $ Investment Grade Bonds (rated at least BBB- or equivalent by one major rating agency)b) CAD HY – Canadian $ High Yield Bonds (rated no higher than BB+ or equivalent by any major rating agency)c) USD IG - US$ Investment Grade Bonds (rated at least BBB- or equivalent by one major rating agency)d) USD HY - US$ High Yield Bonds (rated no higher than BB+ or equivalent by any major rating agency)e) EUR IG - Euro denominated Grade Bonds (rated at least BBB- or equivalent by one major rating agency)f) EUR HY – Euro denominated High Yield Bonds (rated no higher than BB+ or equivalent by any major rating agency)g) Hybrid and Pref - Capital instruments issued by banks and corporations, typically lower in the capital structure with some equity-like attribute
4. The DEX XCB is an index-based ETF that replicates the DEX Corporate Index, a benchmark index of Canadian Dollar corporate bonds published daily by PC Bond Analytics. The Fund has a high % of its assets in C$ corporate bonds, and thus the DEX Corporate is a relevant index for comparing risk and return in the Fund. The DEX Corporate Index has a high component of interest rate risk, whereas the Fund has a low component of interest rate risk.
5. The TSX is a widely-known equity index of Canadian large-cap companies. It is included for purposes of comparing fund returns and volatility against different asset classes. The Fund invests primarily in debt instruments, and the inclusion of the TSX is not intended to imply that equity indices are an appropriate benchmark for the Fund.
6. BGCI refers to the Barclays Global Corporate Index. Returns for this benchmark are calculated as excess daily returns, or the difference between total returns of the security and an implied Treasury portfolio matching the term-structure profile of that security. Returns are calculated in Canadian dollars, assuming currency exposures on non-Canadian holdings are fully hedged. In the opinion of the portfolio managers, this index represents a valid benchmark for the Credit Strategies Fund on the basis it is a) based on a global portfolio of publically traded corporate bonds, b) expressed in Canadian Dollars, and c) assumes currency and interest rate risk have been hedged from the portfolio.
7. Annualized volatility and Sharpe calculations are based on daily returns since inception, calculated by the Manager. The risk-free rate used for the Sharpe ratio calculation is 1.00%, approximately equal to the average Canadian 3 month T-bill rate over the past 12 months. All comparisons to the benchmark are since inception of the Fund, March 1, 2012, unless noted otherwise.
8. Ratings and Regional Breakdowns reflect the end of the month portfolio composition on a Total Exposure basis. Total Exposure is equal to the total directional long positions, plus total directional short positions, excluding hedges & cash. Investors should note that because the portfolio is turned over frequently, current composition may differ materially from the numbers stated herein.
9. The Fund’s returns are not guaranteed, its value changes frequently, and past performance may not be repeated. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax consequences from an investment in the Fund. Potential qualified investors should read the Fund’s offering memorandum carefully prior to investing.
10. Investors should note that the Fund utilizes long and short positions in both domestic and international fixed-income products, and may incorporate leverage and derivative overlays. Fund performance may deviate significantly from benchmark indices shown.
CONFIDENTIAL 27
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