AMETHYST ARBITRAGE FUND (& TOPAZ MULTI-STRATEGY FUND)

Transcription

1 AMETHYST ARBITRAGE FUND (& TOPAZ MULTI-STRATEGY FUND) An alternative source of portfolio stability & added-value OVERVIEW Sept. 2013

2 This presentation refers to the Amethyst Arbitrage Fund, the vehicle through which Topaz gains exposure to arbitrage strategies (currently comprising 100% of the Fund) IMPORTANT NOTICE The information, tools and materials presented in this document are provided to you for information purposes only and do not constitute an offer to sell or a solicitation of an offer to buy any security in any jurisdiction in Canada. The offering of units of the Funds is made pursuant to the Offering Memorandum only to those investors in specific jurisdictions of Canada who meet certain eligibility of minimum purchase requirements. While every effort has been made to provide accurate data, no warranty is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Indicated rates of return include historical annual compounded total returns for the period indicated, including changes in security value and the reinvestment of all distributions and do not take into account income taxes payable that could reduce returns. The funds are not guaranteed; their values may change frequently and past performance may not be indicative of future results. Amethyst Arbitrage Fund s strategies involve convertible securities arbitrage (a), merger arbitrage (b) and to a much lesser extent, other event-driven arbitrage opportunities (c). Although an average representation of the relative strategy weights through time would be 50/45/5% respectively, there is no single hedge fund index depicting this strategy mix. The returns of the following benchmarks are presented: the HFRI (Hedge Fund Research Index) Convertible Arbitrage, Merger Arbitrage and Event Driven sub-indices, all of which are comparable to some aspect of Amethyst s strategies. Correlation are presented based on traditional market indices / asset classes for additional analysis in a portfolio construction context. 2

3 HIGHLIGHTS NICHE MARKET PRODUCT : Diversified arbitrage fund focused on CANADA, using - Convertible Securities - Event Driven (mainly M&As) - Fixed-Income (mainly carry/rollover), added 2012 COMPELLING ANNUALIZED RETURN of 8.6 %, including the historical fall 2008 credit crisis Return (%) Annualized Return (%) As of Jul. 31, 2013 Last month 3 mth 6 mth YTD 1 yr 3 yr 5 yr Inception Amethyst ONshore CLIENT BASE - 85% Pension Plans, Foundations & FoHF - 15% HNW and Sub-Advisors REPUTABLE & INDEPENDENT 3 rd PARTY SERVICE PROVIDERS Auditor, Prime-broker, Fund Administrator, and Trustee 3

4 FUND ADVISOR Privately-held Montreal-based Investment Advisor with 10 employees, established in 1998 Regulated by the Financial Markets Authority (Quebec) and the Ontario Securities Commission (OSC) Dedicated to Hedge Fund Management in geographical and/or investment technology niches Investment management team with more than 60 cumulative years of experience in Canadian capital markets Directors & shareholders: o Marc AMIRAULT, President, Principal Manager (Amethyst) o Jean-Pierre LANGEVIN, Vice President, Portfolio Manager o Bradley P. SEMMELHAACK, Co-Portfolio Manager (Amethyst) o Claude PERRON, Chairman 4

5 RISK UNHEDGED Little or no market risk hedging Only long and/or short; little or no asset match Directional exposure PARTIALLY HEDGED Part of market risk is hedged Long and/or short bias; low asset matching Directional residual exposure Market Neutral Emerging markets Momentum investing Managed Futures High Yield Global macro Distressed securities Long/Short Stock Short bias OVERVIEW HEDGE FUNDS CLASSIFICATION ACCORDING TO THE NATURE OF THE STRATEGIES MARKET NEUTRAL Market risk hedged, residual specific risk No long/short bias, high asset matching Non-directional Amethyst Arbitrage Fund s strategies Mergers & acquisitions arbitrage Fixed income arbitrage Regulation D Convertible arbitrage ARBITRAGE («Market & Delta Neutral») Market risk hedged and controlled specific risk No long/short bias, very high asset matching Non-directional ARBITRAGE is the «purest» form of hedge funds: It is not based on any market trend anticipation 5

6 AMETHYST INVESTMENT OBJECTIVES & STRATEGIES RETURN VOLATILITY SECONDARY OBJ. 5 to 10 % above 91day CAN TBills 5 to 7 % annualized Capital preservation Very low correlation w/ traditional asset classes Triple strategy, primary focus on Canadian opportunities Typical range 1. CONVERTIBLE SECURITIES ARBITRAGE (40-60%) Convertible Debentures & Synthetic Convertibles Warrants 2. EVENT DRIVEN ARBITRAGE (20-40%) Mergers & Acquisitions Other pure arbitrage opportunities (receipts, etc ) 3. FIXED INCOME ARBITRAGE (15-25%) Carry & Roll down Curve / Directional 6

7 AMETHYST ARBITRAGE RETURNS WITHOUT FORECASTS Amethyst is part of the Low Risk category of Hedge Funds The Manager uses only Arbitrage Strategies to Exploit a Niche Market of Structural Inefficiencies Non-directional, with no Manager market forecasts Under normally functioning capital markets, each set of arbitrage positions therefore offers - Market risk almost completely taken away - Substantial decrease of issuer-specific risk From July 1998 to September 2008, Amethyst s return volatility level was remarkably stable, at mid-point between that of JP Morgan World Bonds & CANADA Long Bonds. 7

8 AMETHYST s EDGE FOCUS on SMALLER SIZE ARBITRAGE OPPORTUNITIES A LITTLE EXTRA US primebrokers have a more limited access to small and mid-cap stock borrowing in Canada then local PB s FAVORABLE CONDITIONS in CANADA o M&A (Focus on Canadian deals < $ 1G) Friendly environment = Less risks Less competition = Higher yields, typically 6 10% before leverage o Convertibles (Hard assets bias, long term intrinsic value) Typical mid-cap issues, unrated High coupon & cheap, typical credit spreads of bps over Tbills (still around 950 bps in portfolio) o Fixed Income Limited market breadth = More anomalies More levels of government-type issuers EXPERTISE o > 70 years of combined experience in arbitrage in Canada A market subset too expensive to tackle for mid-size/large foreign hedge funds 8

9 PERFORMANCE vs. TRADITIONAL ASSET CLASSES Major market reversals from July 1998 to Asian credit crisis 2000 Tech bubble & crash 2001 Recession & recovery FROM Jul to Jul AMETHYST (onshore), NET OF ALL FEES 2005 Resource sector upsurge 2008 Financial crisis Recovery? 91d CAN T-BILLS CAN Long Term Bonds S&P/TSX HFRI Composite Index Annualized Return 8.61 % 2.85 % 7.01 % 5.91 % 7.10 % Annualized Standard Deviation 8.62 % 0.50 % 6.58 % % 7.34 % Sharpe Ratio(*) Correlation with Amethyst * Sharpe Ratio based on CAN 91 Day T-Bills Despite the major 2008 crisis, annualized return since inception (1998) higher than that of Canadian long term bonds Very low correlation = Substantial diversification benefits HFR: Hedge Fund Research 9

10 PERFORMANCE MONTHLY RETURN HISTORY MONTHLY RETURN SERIES (Amethyst onshore), NET OF ALL FEES Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year

11 PERFORMANCE ACCUMULATED VALUE 11

12 TOPAZ MULTI-STRATEGY FUND OFFERING Multi-Strategy Hedge Fund which will gradually offer a mixture of a limited number of low covariance alternative strategies Currently 100% invested in arbitrage, via the Amethyst Arbitrage Fund (offshore) Step-by-step addition of complementary strategies starting next year 12

13 TOPAZ SUMMARY The 2013 federal budget forces acceptance of subscriptions <= redemptions in any given month INVESTMENT OBJECTIVES Return 10-12% > 91 days T-Bills Volatility 6-8 % annualized Correlation < 0.4 with traditional CDN asset classes TAX EFFICIENT STRUCTURE No distributions Capital Gains taxable only on disposition, planned for Jan A QUALITY ALTERNATIVE ASSET, based on solid 14 year track-record of the Amethyst Arbitrage Fund Substantial diversification effect (bond & equity portfolios) o Attractive 8.6% ann. return o Low 8.6% volatility, low correlation (< 0.5) Low entry point, at $25,000 for accredited investors No front/end load fees, no lock-up Tax efficient structure 13

14 LEGAL STRUCTURE SERVICE PROVIDERS TOPAZ ADMINISTRATIVE STRUCTURE TOPAZ MULTI-STRATEGY FUND Canadian Pooled Fund Trust RPP, RRSP, RRIF & DPSP Trustee ComputerShare Co. of Canada Administrator RBC Dexia Investor Services Auditors PricewaterhouseCoopers LLC LIQUIDITY Minimum Invest. $ 25,000 ($150,000 non-accredited) Currency $CDN Valuation/Dealing Monthly Redemption notice 30 days Lockup Period None FEES Structure Class I 1.5% (>= $1,000,000) Management Class H 1.7% Class R 2.5%, incl. 1% trailer Performance + 20% of excess return High Water Mark Yes (perpetual) AUM (07/13) Current $CDN 50 million 14

15 EXHIBIT I AMETHYST ARBITRAGE FUND Added value in Canadian Bond & Composite Hedge Fund portfolios 15

16 TYPICAL BOND PORTFOLIO IMPACT OF INCLUDING AMETHYST 16

17 EXHIBIT II ARBITRAGE STRATEGY - AN EXAMPLE 17

18 HUDSON BAY Acquisition of SAKS A Win-Win-Win ARBITRAGE CASE Hudson Bay makes an all CASH offer for Saks on July 29, 2013: - Price: 16$/share of SKS - Expected close: Dec. 31, After announcement SKS opened at $15.80 Typical Merger Arb Long SKS at $15.90 and wait for 5 months until the deal closes to make 1.45 % annualized, before leverage... Not very exciting. With Convertible Debt using Saks CONVERTIBLE DEBT for the same deal Much more interesting. Annual Coupon 7.50 % Maturity Dec. 1, 2013 Conversion ratio Issued $US 120 M Trading Price $ Parity $

19 HUDSON BAY Acquisition of SAKS A Win-Win-Win ARBITRAGE CASE BETTER POSITION Long SKS convertible debt, and Short SKS stock based on conversion ratio (100% Hedged with locked-in return). POSITIVE CARY: CAPTAURE VOLATILITY: RISKS: Collect the 7.5% Coupon until Dec 1 = very attractive return on Capital due to 100% short position. Trading short position as SKS stock price hovers around the takeover price. If deal cancelled, downside is hedged via short position (while still earning coupon). Upside: Low probability of premium expansion on the convertible. No benefit if there is a higher takeover bid. 19