Brookdale Defensive Long/Short

Transcription

1 Brookdale Defensive Long/Short

2 Strategy Overview: Fundamentally driven, quantitative strategy focused on defensive sectors, specifically consumer staples and healthcare. The strategy uses a proprietary valuation methodology using key financial metrics with a particular focus on cash flow. Long positions are initiated in companies that are relatively under valued to its peers while short positions are taken in companies considered over valued. By limiting fluctuation of portfolio exposures, the strategy can generate sustainable excess performance without subjective market timing.

3 Strategy Philosophy: The Investment Manager believes that company fundamentals are not nearly as volatile as stock prices, and this may provide a compelling opportunity. In this regard, stocks generally become cheap/un-popular because investors project bad news indefinitely, and stocks get expensive/popular because investors hope for continued good news. This tends to create an asymmetric risk/reward opportunity: incremental good news helps value stocks significantly more, because it is typically not expected; but bad news typically has a much more damaging effect to expensive stocks while it is expected and usually priced into value stocks. To capitalize on this opportunity, the Investment Manager strives to combine value-driven investment strategies with a pre-defined, repeatable process for security selection and portfolio construction. The Investment Manager believes that quantitatively sourcing investment opportunities using a fundamentally-driven proprietary valuation methodology and consistently applying it through a disciplined portfolio construction framework will help avoid the emotional and behavioral mistakes often made by institutional and retail investors.

4 Portfolio Construction: The most attractive investment opportunities using the aforementioned security selection process are then assembled into a portfolio using a structured framework. The Investment Manager groups potential long investments and short investments by sector. The overall portfolio will generally be 100% long and 50% short, resulting in 50% net market exposure. Long positions will typically be between 4% and 6% of NAV while short positions will be between 2% and 3% of NAV.

5 Risk Management: Risk management is integrated at the portfolio level and begins with position concentration. Long positions are are generally 4-6% of NAV while short positions are 2-3% of NAV. The portfolio is not levered and management aims to keep exposures fairly static at 100% long, 50% short, resulting in 50% net market exposure. In addition, the portfolio will have a bias to defensive sectors. This is expected to help insulate volatility during difficult market environments.

6 Winning Trade Example: Using Brookdale s proprietary valuation model, the fund purchased Green Mountain Coffee on November 1, The company aggressively traded lower on the back of Green Mountain Coffee s patent expiration and increased fear of new competition that will mimic the firm s K-cup technology. The company s fundamental s remained above analyst s expectations which caused a re-rating of the security. Brookdale exited the position on February 6, 2014 for a return of approximately 63%.

7 Losing Trade Example: Annie s Inc. was identified as an over-valued company using Brookdale s valuation methodology. The fund initiated a short position on May 14, The company recently became an M&A target when General Mills announced its intention to purchase the company for approximately $800mn USD. To-date, the position is down 41%.

8 Company Overview: Based in Dallas, Texas, Brookdale Capital, LLC and its affiliate is a performance based investment manager established in 2011 to exclusively manage proprietary capital on behalf of its founding partners. The firm has a particular focus on liquid alternative investment strategies across all asset classes including equities, credit, commodities, currencies, and derivatives. Senior investment professionals employ relative value, arbitrage, and directional trading strategies in the public liquid markets to generate industry leading risk-adjusted returns. In 2014, the investment manager began to accept external capital into its flagship investment strategy Brookdale Equity Long/Short.

9 Management Bios: Prior to managing external capital at Brookdale Capital, LLC, Mr. Rehmatullah was a Director at Crestline Investors, Inc. ( Crestline ), a multi-billion dollar alternative investment manager based in Fort Worth, Texas. While at Crestline, Mr. Rehmatullah was Head of Strategy for Event Driven, Merger Arbitrage, Reinsurance and Multi-Strategy investing. Prior to joining Crestline in 2007, Mr. Rehmatullah was a Senior Consultant for Ryan, Inc., performing audit defense and reverse audit reviews for Fortune 500 companies. Mr. Rehmatullah received an MBA from The University of Texas at Austin, a BBA in Finance and a BS in Economics from Southern Methodist University.