Alternative Funds Solutions Credit Suisse (Lux) Multi-Advisor Equity Alpha Fund

Transcription

1 Asset Management Alternative Investments Alternative Funds Solutions Credit Suisse (Lux) Multi-Advisor Equity Alpha Fund Dirk Wieringa January 2017

2 Best Ideas Long/Short Equity January

3 Review of 2016 Environment where politics trump economic fundamentals Important to distinguish between cyclical factors that affect strategy performance, and secular factors that alter the investment paradigm Continued growth in passive/quantitative products including smart beta can provide a challenge for active managers and stock pickers in particular However, dispersion in valuations across regions and sectors has reached a healthy level and managers should now benefit from a return to fundamentals for both, their long, and short books Q was marked by significant post-election equity upside, dollar strengthening, and rising yields Market participants stepped in early and heavily discounted the positive economic impact, but neglected negatives Markets may have already seen the best of the 140 characters stimulus program January

4 2016: A Year of Rotations, Surprises and Sentiment Shifts Significant Events Disrupted Fundamental Stock Picking Rotation Brexit Trump Source: Bloomberg, Credit Suisse; Index: MSCI World Total Return January

5 Equity Factor Performance Value Strikes Back in Q4 Factor 2016 Momentum -16% Quality -5% Size 0% Value +10% Volatility -1% Source: Bloomberg, Morgan Stanley January

6 First Year of Negative Alpha in Perspective Equity L/S Alpha Worst of Past 7 Years, Driven by Europe Source: Morgan Stanley, Bloomberg January

7 U.S. Equities Dispersion in Valuations by Sector Can Provide a Fertile Ground for Stock-picking Many sectors still look undervalued relative to historical averages (HC, Tech, Consumer, Telecom) Source: JP Morgan January

8 Outlook into 2017 We anticipate additional volatility related to the European elections and US rates normalization The triple punch of US yield increases, steepening of the yield curve, and dollar appreciation gives a strong back drop for Discretionary Macro Traders The ability to navigate through a choppy political agenda is crucial Focus on managers with the ability to react to changing environments, either through broad discretionary mandates, or quantitative approaches that allows for inbuilt bottom-picking Key themes and positioning include: In equities, we maintain a preference for lower-net and opportunistic managers We turn positive on event driven due to continued high M&A volumes and cash rich company balance sheets We are optimistic towards fixed income arbitrage We continue to favor flexible Discretionary Macro managers We favor Multi-Strategy CTAs that should benefit from uncorrelated sources of alpha January

9 Innovative Concept to Systematically Combine Best Ideas into a Single Portfolio of High Conviction Long/Short Equities January

10 Investment Rationale Why Equity Long/Short? Why Best Ideas? Investors returns derive from either alpha (α) or beta (β) α Excess return Derived from stock picks No correlation to market β Long-only equity mutual funds α Equity long/ short funds α Collect high conviction trades from top equity long/short managers Best Ideas α Market return Derived from exposure to asset class Perfect correlation to market β β Variable β Variable Little alpha Small excess return High market dependence Alpha, but mostly from high conviction trades Generation of excess returns Some market dependence Larger liquid alpha generation Opportunity for larger excess returns Low market dependence January

11 Investment Approach Selecting Highest Conviction Trades from Top Managers Liquid, highconviction ideas Other ideas Long/short equity manager universe (>4,000) IDEAS Credit Suisse AFS approved long/short equity managers (~30) Portfolio construction process Selected specialist long/short equity advisors (~5 7) Best Ideas portfolio IDEAS IDEAS IDEAS Managers are subject to a rigorous due diligence process covering: Investment Operational Risk Legal Skill level assessment of each manager s stock selection ability Advisors provide daily position level data of top ten long and short holdings Advisors top trades are combined in a single portfolio January

12 Portfolio Construction Combining Top High-conviction Liquid Ideas in a Single Portfolio Submit ideas Aggregate Top ten long and top ten short positions Generally daily frequency 1 α 2 Weighting positions Subadvisor weights determined by AFS Investment Committee Gross up to manager gross and net Weighted average of position and subadvisor weights Exposure ranges from 0% to 50% Execute 4 3 Review Trade implementation Post-trade checks Rebalance daily; trading bands avoid unnecessary transaction costs Reporting Final portfolio Composition long positions short positions Apply liquidity filter FX hedge determined Perform exposure and risk analysis January

13 Portfolio Exposures (as of December 31, 2016) Portfolio positioning Long exposure 80.9% Short exposure -63.5% Number of long positions 77 Number of short positions 67 Geographic exposure (% of NAV) Region Long Short Gross Net Asia ex Japan Europe Japan North America South America Other Total Market cap Market Long Short Gross Net Mega-cap Large-cap Mid-cap Small-cap Index Total Sector exposure (% of NAV) Industry Long Short Gross Net Consumer discretionary Consumer staples Energy Financials Health care Industrials Communications Materials Technology Utilities Market Total Top five long holdings Sanofi 2.7 Eli Lilly & Company 2.3 GlaxoSmithKline PLC 2.2 Allergan plc 2.2 Alphabet Inc 2.2 Total 11.6 Sources: Credit Suisse, Bloomberg As of January

14 Return Potential of the Best Ideas (Hypothetical Performance) Cumulative Returns of the Best Ideas compared to full portfolio returns of the basket of sub-advisors (net of fees) Dez 10 Jun 11 Dez 11 Jun 12 Dez 12 Jun 13 Dez 13 Jun 14 Dez 14 Jun 15 Dez 15 Best Ideas of the Sub-advisors Full Portfolio of the Sub-advisors Hypothetical net performance backtest of subadvisors top high conviction, liquid stock ideas from January 2011 to December For January 2016 the figure represents paper trading of the approach. Net performance assumes a management fee of 1.00%, a 5% incentive fee and subadvisor fees of 1.0%. Based on monthly position data from subadvisors and constant weights to subadvisors. Simulated past performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: Credit Suisse, Bloomberg As of January

15 Hypothetical Backtested Performance of Portfolio Hypothetical cumulative net performance Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 MSCI TR Net World USD HFRI Equity Hedge Index CS (Lux) Multi-Advisor Equity Alpha IB USD HFRX Equity Hedge Index The net performance is calculated with historical live positions of the funds advisors. Positions are assumed to be rebalanced monthly. Return Ann. Since Inception Volatility Ann. Since Inception Maximum Drawdown CS (Lux) Multi-Advisor Equity Alpha HFRI Equity Hedge Index HFRX Equity Hedge Index MSCI TR Net World USD 8.07% 1.56% -2.23% 6.17% 6.62% 7.33% 6.30% 13.02% -5.35% % % % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD % 0.60% -0.76% 1.95% -0.36% -1.06% 1.37% -1.38% -4.00% 6.98% -1.33% -1.41% -0.01% % 2.23% -0.19% -0.02% 0.76% 0.74% -2.85% 0.27% 1.79% -0.03% 0.62% 1.59% 6.76% % 1.73% 0.62% -1.33% 4.06% -0.86% 2.59% -1.23% 0.10% 2.94% 1.69% 2.35% 16.68% % 2.51% -1.59% -0.19% 0.18% -0.40% 0.29% 0.00% 0.32% -0.72% 0.41% 1.31% 2.05% % 0.18% 1.98% 1.28% 2.88% -0.01% 2.95% 2.12% -0.87% 6.22% 0.11% 1.95% 17.57% % -0.75% Hypothetical net performance backtest of subadvisors top high conviction, liquid stock ideas from January 2011 to December For January 2016 the figure represents paper trading of the approach. Net performance assumes a management fee of 1.00%, a 5% incentive fee and subadvisor fees of 1.0%. Based on monthly position data from subadvisors and constant weights to subadvisors. Simulated past performance indications and financial market scenarios are not reliable indicators of current or future performance. Sources: Credit Suisse, Bloomberg As of January

16 Performance since Inception Historical cumulative net performance (since inception February 2, 2016) Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 CS (Lux) Multi-Advisor Equity Alpha Fund IB USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD % 1.4% -0.8% -0.1% 0.2% 2.6% -0.1% 1.1% -0.1% -3,3% -1,1-3,2% Historical performance indications and financial market scenarios are no reliable indicators of future performance. The performance data do not take into account the commissions and costs incurred on the issue and redemption of fund units. February 2016 performance is calculated from February 2, 2016 through February 29, Paper trading results for February 1, 2016 were +0.68%. Sources: Credit Suisse, Bloomberg As of January

17 Performance Return Independence Best Ideas vs. MSCI World (since inception February 2, 2016) 2.50% Best Ideas vs. MSCI World (since inception February 2, 2016) 2.50% 1.50% 1.50% 0.50% 0.50% -2.50% -1.50% -0.50% 0.50% 1.50% 2.50% -0.50% -1.50% -2.50% -1.50% -0.50% 0.50% 1.50% 2.50% -0.50% -1.50% y = x + 1E-05 R² = % CS (Lux) Multi-Advisor Equity Alpha vs. MSCI World Beta 0.11 R 2 7.1% -2.50% HFRX Equity Hedge Index vs. MSCI World Beta 0.43 R % The Beta of daily returns vs. MSCI World is at around 0.11 for Best Ideas and far lower than that of the HFRX Equity Hedge Index to the MSCI World. Sources: Credit Suisse, Bloomberg As of January

18 Value Proposition An innovative best ideas approach to long/short equity: the fund allocates directly to the highest conviction, liquid long and short positions of a carefully selected group of long/short equity hedge fund managers Capturing the best long and short equity ideas in a single fund structure Benchmark independent and alpha focused returns Available in a regulated structure with daily liquidity January

19 Fund Details The Credit Suisse (Lux) Multi-Advisor Equity Alpha Fund is an onshore UCITS IV European registered and regulated vehicle Portfolio objectives Target return: LIBOR +6 8% Target volatility: 6 8% Number of advisors: approx. 5 7 Key terms Fund name Inception date February 2, 2016 Fund domicile Registration Legal form Minimum investment Credit Suisse (Lux) Multi-Advisor Equity Alpha Fund Luxembourg Austria, Switzerland, Germany, Italy, Spain, France, United Kingdom, Liechtenstein, Luxembourg, Netherlands, Singapore SICAV, UCITS registered Share classes B/BH/UB/UBH/EB/EBH: none, i.e. 1 unit Share classes IB/IBH: 500,000 Fee Share classes B/BH: management fee 1.5% + performance fee 10% Share classes UB/UBH: management fee 1.25% + performance fee 10% Share classes EB/EBH: management fee 1.0% + performance fee 5% Share classes IB/IBH: management fee 1.0% + performance fee 5% Subadvisor costs Subscription/ redemptions (dealing day) Up to 1% (capped as per prospectus) Daily, cut-off by 15:00 CET Valor no./isin Share class ISIN Share class ISIN B/BH (retail) EBH (redistribution discretionary/ institutional) B USD BH EUR EB USD EBH EUR EBH CHF LU LU LU LU LU UB/UBH (redistribution advisory) IBH (above 500 k) UB USD UBH EUR UBH CHF UBH GBP IB USD IBH EUR LU LU LU LU LU LU Target Returns: They are no projection, prediction or guarantee for future performance and there is no certainty that the target return will be reached. Source: Credit Suisse January

20 Appendix

21 Equity Long/Short Manager Alpha Generation AFS-approved Managers do Create Alpha Alpha of AFS-approved managers vs. MSCI World 4% 3% 2% 1% 0% -1% -2% -3% -4% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Alpha for the AFS 1 lineup of Equity Long/Short managers has averaged 3.33% per year since January Credit Suisse Alternative Funds Solutions. Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Source: Credit Suisse As of January

22 Globally Diversified Portfolio of Best Ideas Subadvisor A Subadvisor B Subadvisor C Europe generalist >10-year track record USD 1 bn+ in strategy AUM Global healthcare >10-year track record USD 500 mn+ in strategy AUM US generalist >5-year track record USD 400 mn+ in strategy AUM Best Ideas Credit Suisse (Lux) Multi-Advisor Equity Alpha Fund Highest conviction, liquid ideas Target net exposure range of 0% to 50% Global investment universe Subadvisor D Subadvisor E Subadvisor F Asia generalist >10-year track record USD 400 mn+ in strategy AUM Global tech/media/telco >5-year track record USD 100 mn+ in strategy AUM Global generalist >4-year track record USD 100 mn+ in strategy AUM There is no indication or guarantee that any actual client portfolio will make the same or similar investments as the sample portfolios described above. January

23 Investable Universe Global and Unconstrained of Any Benchmark The strategy is global and unconstrained of any benchmark to allow for maximum alpha potential Geographies Americas EMEA APAC (incl. Chinese A-shares) Emerging markets Market cap Mega cap Large cap Mid cap Small cap Sectors Consumer discretionary Consumer staples Energy Financials Health care Industrials IT Materials Telecommunication Services Utilities January

24 Historical Exposure Levels Historical market exposures 250% 200% 150% Gross Exposure Start of live performance 100% 50% 0% -50% -100% Long Exposure Short Exposure Net Exposure Long Exposure Short Exposure Net Exposure Long Exposure Gross exposures ranged from 140% to 190%; net exposures from 15% to 30% Gross exposure is largely a function of market volatility: when volatility increases, subadvisors will generally reduce their balance sheets as exhibited in the latter half of 2012 and the fall of 2015 Net exposure will fluctuate based on the expected risk/return from longs and shorts. For example, net has declined over the past few months as subadvisors are seeing more opportunities to generate alpha on the short side. Figures represent backtested data until December 13, 2015, paper trading from December 15, 2015 to February 1, 2016 and live figures from February 2, Source: Credit Suisse As of January

25 Portfolio Aggregation Systematic Construction of Best Ideas Portfolio Portfolio aggregation steps Sub-Advisor weights are determined by the AFS Investment Committee Positions are grossed up to advisor gross and net Positions are multiplied by subadvisor weights to produce a complete portfolio Grossing up positions to advisor gross and net Long exposure 100% 75% 50% 25% 0% 25% Sub-Advisor exposures Top ten longs Top ten shorts Sub-Advisor exposures in Best Ideas Top ten longs Top ten shorts 90% long exposure 70% short exposure Positions grossed up The top ten longs and shorts are grossed up to represent the sub-advisor s overall portfolio exposure Exposures for both portfolios 90% long 70% short 160% gross exposure 20% net long exposure 50% 75% Short exposure Schematic illustration. Source: Credit Suisse January

26 Trade Examples Long Position: Visa, Inc. Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable electronic payments The subadvisor started buying the position in April 2015 as it believed the company had several positive headwinds such as recent customer wins, currency volatility, and an ongoing pricing benefit from continued assessment opportunities Part of the subadvisor s thesis was a potential for the company to acquire Visa Europe, which was owned by more than 3,000 card issuers and acquirers The subadvisor traded around the position and sized it back up in August as they thought it was getting closer to the Visa Europe acquisition In November 2015, the company announced its plan to acquire Visa Europe The manager exited the position following the announcement given that their thesis had played out Historical performance indications and financial market scenarios are no reliable indicators of future performance. Visa (price per share) Subadvisor sizes up position Subadvisor initiates a position Subadvisor exits back position 60 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Source: Credit Suisse As of January

27 Trade Examples Short Position: North American Copper Miner The North American Copper Miner is engaged in the production of copper and other commodities and has operating mines located in six countries worldwide The subadvisor believes that the company is underestimating its production costs Furthermore, the subadvisor does not believe in the company s management team The subadvisor began shorting the position in Q and sized up the position in Q The subadvisor covered some of its position right before the company conducted a secondary equity offering, but is currently sizing up the position again North American Copper Miner (price per share) Subadvisor initiates position Subadvisor sizes up position Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Historical performance indications and financial market scenarios are no reliable indicators of future performance. Source: Credit Suisse As of January

28 Robust Due Diligence Process Coordinated Discussions between Independent Specific Expert Teams Steps involved Investment Research Operational Due Diligence Legal Due Diligence Market Risk Control Criteria 1. Investment Research Experience and leadership Cohesiveness Market opportunity and process Industry knowledge Value added Competitive advantage Internal resources Economics 2. Operational Due Diligence Manager overview Legal and compliance Governance and Conflicts of Interests Investment and trade process Pricing, Valuation and NAV Cash and counterparties Service providers 3. Legal Due Diligence Fund/investment structure Corporate and fund governance Liquidity terms Fees and expenses Regulatory events and activity Conflicts of interest 4. Risk Control Processes and infrastructure Transparency Exposures and limits Decision-making Performance Risk/drawdown analysis Realized/unrealized returns Portfolio composition Adherence to strategy Due Diligence Reports Fund Review Com m ittee The substantial professional resources of over 50 people are collectively committed to the business of AFS, situated globally in five offices in New York, San Francisco, Tokyo, Singapore and Zurich. Schematic illustration. Source: Credit Suisse January

29 Risks There is no guarantee that losses can be avoided or that investment objectives will be achieved The fund may have exposure to emerging markets which, by their nature, are riskier than developed markets Operational risks from deficient processes, technical failures or catastrophic events may cause losses Political and legal risks: Investments are exposed to changes of rules and standards applied by specific countries January

30 Disclaimer This document was produced by Credit Suisse AG and/or its affiliates (hereafter CS ) with the greatest of care and to the best of its knowledge and belief. However, CS provides no guarantee with regard to its content and completeness and does not accept any liability for losses which might arise from making use of this information. The opinions expressed in this document are those of CS at the time of writing and are subject to change at any time without notice. If nothing is indicated to the contrary, all figures are not audited. This document is provided for information purposes only and is for the exclusive use of the recipient. It does not constitute an offer or a recommendation to buy or sell financial instruments or banking services and does not release the recipient from exercising his/her own judgment. The recipient is in particular recommended to check that the information provided is in line with his/her own circumstances with regard to any legal, regulatory, tax or other consequences, if necessary with the help of a professional advisor. This document may not be reproduced either in part or in full without the written permission of CS. It is expressly not intended for persons who, due to their nationality or place of residence, are not permitted access to such information under local law. Neither this document nor any copy thereof may be sent, taken into or distributed in the United States or to any U.S. person (within the meaning of Regulation S under the US Securities Act of 1933, as amended). Every investment involves risk, especially with regard to fluctuations in value and return. Investments in foreign currencies involve the additional risk that the foreign currency might lose value against the investor's reference currency. Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. Performance indications do not consider commissions levied at subscription and/or redemption. Furthermore, no guarantee can be given that the performance of the benchmark will be reached or outperformed. Emerging market investments usually result in higher risks such as political, economic, credit, exchange rate, market liquidity, legal, settlement, market, shareholder and creditor risks. Emerging markets are located in countries that possess one or more of the following characteristics: a certain degree of political instability, relatively unpredictable financial markets and economic growth patterns, a financial market that is still at the development stage or a weak economy. Equities are subject to market forces and hence fluctuations in value, which are not entirely predictable. The investment funds mentioned in this publication have been established under Luxembourg law as undertakings for collective investment in transferable securities (UCITS) subject to EU Directive 2009/65/EC, as amended. Subscriptions are only valid on the basis of the current sales prospectus, key investor information document (KIID) and the most recent annual report (or half-yearly report, if this is more recent). These and the funds management regulations and/or articles may be obtained free of charge, in English, from Credit Suisse Fund Management S.A., 5, rue Jean Monnet, L-2180 Luxembourg. Copyright 2017 Credit Suisse Group AG and/or its affiliates. All rights reserved. January