Disclaimer. Investment Suitability is important.

Transcription

1 Investment Management for Accredited Investors December, 2013 Disclaimer Investment Suitability is important. This presentation was prepared p for an audience of investment professionals and is for educational purposes only. It is not an offer to sell or a solicitation to buy Fund interests. All returns are purely historical, do not indicate future performance and are subject to adjustment. Changes in equities markets, interest rates, exchange rates, economic conditions, political conditions and other factors may influence the Fund s future performance. The Fund may also periodically change its investment strategies and objectives and asset allocations. This document is informational in nature and for use only by sophisticated investors who meet certain financial and other requirements. Investment decisions should be based solely upon information contained in the Fund's offering documents. The offering documents describe the Fund s investment objectives and strategies and significant risks involved in purchasing Fund interests such as the potential for loss of some or all of the investment. This information is not intended to constitute legal, tax, accounting or investment advice. Prospective investors should consult their own advisors about such matters. No representation is made that this information is accurate or complete and it should not be relied upon as such. The Fund's interests may not be eligible for sale in some states or countries, nor suitable for all types of investors. Additional information will be provided upon request. 2

2 Hedge Funds in Texas Miss Ellie s stat arb strategy was the talk of the ranch Photo taken from July edition of The Economist 3 Hedge Fund News Coverage is Highly Skewed 4

3 Hedge Fund Genesis The modern hedge fund started in Combined longs and shorts to create a more conservative portfolio. Limited partnership structure with incentive fees Alfred Winslow Jones Outperformance in down years. 5 Hedge Fund Objectives A hedge fund is an investment vehicle that can employ a wide range of investment and trading activities to maximize performance returns while minimizing investment risk. Portfolio Diversification They seek to provide Risk Management Reliable Returns 6

4 Who can invest in hedge funds? Because hedge funds are highly regulated, they may only accept capital from accredited investors or qualified purchasers. Accredited Investors Individuals with a net worth of at least $1 million; or income of at least $200,000 in last two years ($300,000 joint income if married) Qualified Purchasers Individuals who own at least $5 million in investments or institutional investors with at least $25 million in investments 7 Hedge Fund Clients YE 2004 YE 2008 YE 2012 Fund of Funds 71% Institutional Capital 11% Private Capital 18% Fund of Funds 61% Institutional Capital 17% Private Capital 22% Fund of Funds 35% Private Capital 18% Institutional Capital 47% Direct institutional allocators (endowments, foundations, pension plans, insurance companies, sovereign wealth funds, etc.) now represent half of industry assets, up 700 bps in just the last 12 months. Fund of Funds assets are split equally between institutional and private capital. Source: 2013 Goldman Sachs Global Hedge Fund Investor Survey 8

5 Hedge Fund Investor Preferences Global Macro 13% Multi Strategy 21% Long Short Equity 50% How US-based investors spread their dollars among hedge-fund strategies Event Driven 11% Other 5% Source: Preqin 9 Expected Change in Hedge Fund Allocations Over the Next Twelve Months Equity Long/Short Event Driven Global Macro Commodities Long Only Equity Fixed Income Arb Market Neutral CTA/Managed Futures Convertible Arb Multi-Strategy Credit/Distressed -1.00% -0.80% -0.60% -0.40% -0.20% 0.00% 0.20% 0.40% 0.60% 0.80% Table compiled using information obtained in the 2013 Goldman Sachs Global Hedge Fund Investor Survey 10

6 While hedge funds have grown in popularity, their size is relatively small compared to the markets where they invest. Total Number of Funds 1 Assets Under Management (in trillions) 8,661 9,462 10,096 9,284 9,045 9,237 9,575 9,810 10, ,383 3, Q Hedge Funds 2 U.S. Banking U.S. Mutual 3 Industry 4 Fund Industry Sources: (1) Hedge Fund Research, Inc, Q3 2013; (2) Hedge Fund Research, Inc, Q3 2013; (3) FDIC, 3/13; (4) ICI, 12/12 11 Hedge Fund Myths: 1. Hedge funds are unregulated and unsupervised 2. Hedge funds are over-leveraged 3. Hedge funds pose a systemic risk to the market 4. Only the wealthy benefit from hedge funds 12

7 Who Invests in Hedge Funds? Some of the largest investors utilize hedge funds at a growing rate. 13 Why Long-Short Equity Investing Makes Sense Superior past performance to long-only equity Lower historical risk levels Diversification benefits compared to other equity-based alternatives Investing flexibility afforded private funds Established investing category 14

8 20 % Real Returns on US Stocks by Decade 1872 Through (5) Source: Fama, E.F. and Kenneth R. French, The Equity Premium, The Center for Research in Security Prices, Working Paper No. 522, Federal Reserve Board, Empirical Research Partners Analysis. 15 A Traditional Balanced Approach Has Not Worked the Last Two Decades 6 Annualized 20 year real total returns (UK, ) % to - 4% To % to - 2% To 1979 To 2009 To 1759 To 1779 To 1799 To 1959 To 1739 To 1819 To 1839 To 1859 To 1879 To 1719 To 1899 To 1939 To % to 0% 0% to 2% 2% to 4% 4% to 6% 6% to 8% 8% to 10% Annualized 20-year real total return of UK 70:30 portfolio 10% to 12% 12% to 14% Source: A&Q Industry Research, Global Financial Data, Thompson Financial Based on annualized 20-year total returns for balanced portfolio comprised of 70% equities and 30% bonds, annually rebalanced. To 2008: annualized real total return from January 2000-December

9 Money Management Has Been A Challenging Business +106% -49% +101% -59% +164% Source: Bloomberg Analytics 17 Long Short Equity has Historically Outperformed Traditional, Long Only Equity Performance Through October, 2013 DJ CS Equity Long/Short S&P 500 Index Dow Jones World Index 1 Month 2.54% 4.60% 3.84% 3 Months 4.08% 4.75% 6.73% 1 Year 16.19% 27.18% 21.43% 3 Year Avg Annualized 5.77% 16.56% 8.12% 5 Year Avg Annualized 8.18% 15.17% 11.45% Since Inception (cumulative)* % % % Since Inception (annualized)* 9.43% 9.00% 5.24% * Inception date January, 1994 Source: Credit Suisse (CS) Hedge Index LLC 18

10 Long-Short Equity Has Exhibited Less Market Risk (January, 1994 October, 2013) DJ CS Equity Long/Short S&P 500 Index Dow Jones World Index Best Month 13.01% 10.93% 11.77% Worst Month 11.43% 16.79% 19.96% 96% Annualized Standard Deviation 9.68% 15.27% 15.77% Top 5 Drawdowns Peak Valley Length (months) Recovery (months) CASAM/CISDM Equity Long/Short S&P 500 Index MSCI World Index 10/07 2/ % 50.95% 54.57% 6/90 10/ % 44.73% 46.26% 4/98 8/ % 29.58% 23.86% 4/02 9/ % 15.37% 14.09% 12/89 1/ % 14.69% 7.89% Source: Bloomberg, Dow Jones Credit Suisse (DJ CS) Hedge Fund Database, CASAM/CISDM Hedge Fund Database. 19 The Worst Stress Test Since the 1930 s 2008 Comparative Index Performance Return Average Lipper US Domestic Equity Mutual Fund % Average Lipper International Equity Mutual Fund % S&P 500 Index % NASDAQ % MSCI World Equity Index % CASAM/CISDM Equity/Long Short Index 14.43% Source: Bloomberg, Lipper, Morningstar, CASAM/CISDM Hedge Fund Database. 20

11 The Importance of Downside Protection 21 A Note on Shorting Stocks... Source: Associated Press 22

12 How to Look Under A Hedge Fund s Hood 1. What is the fund s strategy and can it change? 2. What are the returns and track record like? 3. Who is behind the fund? 4. What are the fund s fees? 5. Who else is in the fund? 6. What access will you have to your money? 7. What are the tax implications of this investment? Source: Wall Street Journal article 10/7/13 23 We Are Bullish On Houston U.S. Energy Production Petroleum and Nat Gas (Dry & Liquid) Million Barrels per Day** 12 Mo. Avg * Estimated data used for reference purposes only and sourced from 2013 Jefferies LLC market research and strategy. ** Data sourced from the U.S. Energy Information Administration. Chart figures reflected in barrels of oil equivalent. 24

13 Unique Features of Hedge Funds Alignment of interests between investors and managers Most have absolute return objectives Premium on principal preservation Flexibility: No style boxes Many funds are very nimble 25 Management Biographies Mark McMeans, CFA Chief Executive Officer Mark McMeans is CEO and a founding partner of Brasada Capital Management. Prior to founding Brasada, Mark worked for sixteen years at AIM Investments, most recently as Managing Director, AIM Capital Management and President and Chief Operating Officer, AIM Private Asset Management, Inc. He also served as a Global Partner of AIM s parent company, Invesco. Prior to working at AIM, Mark held positions at JP Morgan Chase and KPMG, LLC. Mark received a Bachelor of Business Administration degree in accounting from the University of Texas at Austin, where he currently serves on the Advisory Board for the MBA Investment Fund, LLC. He also earned a Master of Business Administration degree, with a concentration in finance, from Rice University in Houston, TX, where he serves on the Oversight Board of the M.A. Wright student-managed fund, Jones Graduate School of Business. Mark is a CFA charter holder, and a current officer of the CFA Society of Houston, where he co-chairs the Society s Scholarship Committee. 26