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2 Absolute returns it s not brain surgery La Trobe Financial Services Pty Limited ACN: Presenter Chris Andrews Chief Investment Officer Chris is the Chief Investment Officer overseeing the $1 Billion retail La Trobe Australian Credit Fund. He is a member of the Group s peak Markets, Funding & Rates Committee and Remuneration & Finance Committees. Chris holds degrees in Law (Honours) and Commerce.

3 Agenda 1. Who is La Trobe Financial? 2. Absolute returns a brief history 3. Absolute returns in a portfolio 4. Absolute returns in Australia 5. La Trobe Financial s offerings 3 Who is La Trobe Financial?

4 Executive Summary 5 Absolute returns a brief history

5 is it brain surgery? 7 Absolute Return Funds definition aims to deliver positive returns in all market conditions, with low volatility Financial Times Lexicon seeks to make a positive absolute return for investors regardless of underlying market conditions Morningstar 8

6 ASIC s definition of hedge funds Having two or more of the following characteristics: More complex investment strategy Able to short-sell Can use leverage Can use derivatives options, futures & others May charge a performance fee 9 Absolute Return Funds key objectives Capital preservation Positive returns (in all market conditions) Low volatility Low correlation to key markets Unaware of traditional benchmarks 10

7 The rocket science behind absolute returns Long -short equity strategies Relative value strategies Event strategies (merger arbitrage, distressed debt) Global macro strategies Managed futures Multi strategy Fund of hedge funds 11 Absolute returns in a portfolio

8 Absolute return in portfolios 13 Risks of absolute return Alignment of interest Opacity Counterparty risk Leverage New strategies jury still out! Hidden correlation Black swans 14

9 Complexity 15 Absolute returns in Australia

10 Sector statistics ASIC REPORT 439 FUM: $95.9 billion # funds: 473 % retail direct investors: 17% % retail IDPS investors: 49% Net equities exposure: $26.3 billion Most common strategy: equity long/short (53.8%) Negative annual ret: 2008 & 2011 Av. return to 30 Sep 2014: 4.2% Av. Leverage ratio: 2x NAV (1.7x NAV in 2012) At 30 September Performance statistics Source: Australian Fund Monitors 18

11 Absolute return strategy 1 Benchmark: Reserve Bank OCR + 8% gross Fees: 1.4% p.a + 20% Buy/sell spread: 0.50%/0.50% Distributions: Annual Inception: 2013 Returns since inception: 4.91% (net) 19 Absolute return strategy 2 Benchmark: RBA Cash Rate Fees: 1.25% p.a + 15% Exit fee: 1% in first year Distributions: half yearly Inception: 2006 Asset allocation: Aust/NZ equities long/short, futures/puts & cash Source: Morningstar 20

12 Absolute return strategy 3 Benchmark: RBA Cash Rate Fees: 1.25% p.a + 15% Exit fee: 1% in first year Distributions: half yearly Inception: 2006 Asset allocation: Listed & unlisted securities and derivatives Source: Morningstar 21 Absolute return strategy 4 Benchmark: RBA Cash Rate Fees: 1.00% p.a + 15% with a 0.30/0.305 buy/sell spread Distributions: half yearly Inception: 2013 Asset allocation: Listed & unlisted equities and derivatives (incl leverage) 22

13 La Trobe Financial s offerings La Trobe Australian Credit Fund La Trobe Australian Credit Fund Four investment options Pooled options Peer to peer (P2P) options Cash & Mortgages^ Pooled Mortgages^ Select Mortgages^ High Yield Credit^ Access to funds within 2 business days 12 month term investment Investing for term of loan Investing for term of loan Currently: 3.20% per annum (variable) Currently: 5.20% per annum (variable) From: 5.75% per annum From: 11.00% per annum Segregated pool of assets Segregated pool of assets Investment in specified asset(s) Investment in specified asset(s) 24

14 Portfolio Construction & outcomes (PMO at 31 March 2016) FUM: $559.2 million Liquidity: 1.7% # loans: 1,421 Av investment: $414,495 Largest investment: $5,000,000 Top 10 loans: $29,347,657 (4.9%) Av LVR: 64.0% 1 st mortgages: 100% Non performing: 3.9% Related party loans: 0 Total Fund investors: 23,886 Capitalised interest: $55,691,438 (9.29%) 25 Portfolio Parameters Sector Allocations Geographic Allocations Sector Max Allocation Max LVR State Max Allocation Residential 80% 75% Commercial 40% 70% Light Industrial 30% 70% Rural 15% 55% Vacant Land 10% 50% Construction Development 15% 70% Max permitted investment 2.5% of FUM Current largest investment $5m (0.85%) NSW 45% VIC 45% QLD 40% WA 20% SA 10% TAS 10% ACT/NT 10% 26

15 PMO monthly performance NOTE: Returns are based on annual end of Financial Year 12 month performance figures for each relevant index up to June 2011 with half yearly and quarterly figures used thereafter. As the Pooled Mortgages Option commenced in November 2002, the 2003 Financial Year figures for 2003 are annualised, based on the 8 month return. 27 PMO - accumulation returns 28

16 Your call Absolute return objectives PMO - outcomes Capital preservation Positive returns (in all market conditions) Low volatility Low correlation to key markets Unaware of traditional benchmarks 29 Our institutional investors 30

17 Awards & Ratings 31 Wealth & Funds Management Team Martin Barry Vice President Chief Wealth Management Officer Chris Andrews Vice President Chief Investment Officer Ryan Harkness Vice President Deputy CIO & Head DCM Daryl Hill Vice President Head of Major Clients Jason Gidman Head of Fund Portfolio Management Cheree Cain Head of Investor Operations Tania Chandler Investor Operations Manager Michael Watson Bonnie Hill Michael Fardoulis Megan Pfab Shaun Purcell

18 SMCP Team Michelle Bannister Aarti Surendar Andrew Cliffe Ben Flood Suzanne Hemsworth Janelle Barnes Paul Biddle Gavin Robinson Christopher Thornton Michael Watson Bonnie Hill Michael Fardoulis Megan Pfab Shaun Purcell The rates of return from the Fund are not guaranteed and are determined by the future revenue of the Fund and may be lower than expected. Investors risk losing some or all of their principal investment. The investment is not a bank deposit. Withdrawal rights are subject to liquidity and may be delayed or suspended. Past performance is no guarantee of future performance. Any rating is only one factor to be taken into account in deciding to invest.