BSFB/STEP. Domestic Asset Management. March 20 th, Kenwood N. Kerr BA, TEP & Anthony R. Ferguson CFA, CMT

Transcription

1 BSFB/STEP Domestic Asset Management March 20 th, 2007 Kenwood N. Kerr BA, TEP & Anthony R. Ferguson CFA, CMT

2 Current Status Commodization of Services Value Added - Challenge Increasing numbers of service providers- BAB, CLICO, FAMGUARD, ScotiaBank. Growing list of qualified practitioners-(series 7, CIM, CFA, Bahamas Society of Financial Analysts) Real Estate Private Placements Dominated landscape (after IPO fallout) BISX market capitalization - $3 billion.

3 Investment Standards and Practices Established International Portfolio Management Process Technology State-of-the-Art Prudent Expert Principles Research Procedures- Due diligence & reasonable basis.

4 Available Services Cash Management Asset Management (Individual/Institutional) Brokerage & Custody Service Mutual Funds (Growth, Money Market and REIT) Corporate Advisory Services (IPO, Private Placement, M&A) Pension Administration & Management (Pending Legislation) International Asset Management

5 Investment Management Process Agree Investment Objectives Agree investment objectives assessing clients financial needs and objectives, risk tolerance, income requirements, investment time horizon Determine Appropriate Strategic Asset Allocation Construct The Appropriate Portfolio Frequent Tactical Reviews Determine appropriate strategic asset allocation identifying the optimal asset allocation Construct the appropriate portfolio- building a diversified portfolio Frequent tactical reviews continuous assessment of the portfolio and changes in market conditions.

6 Market Analysis REAL ECONOMY FINANCIAL ECONOMY GROWTH (GDP) SAVINGS FISCAL POLICY DEMOGRAPHICS REAL RATES CAPITAL FLOWS INFLATION MONETARY POLICY INVESTMENT OUTLOOK NEGATIVE NEUTRAL POSITIVE

7 Market Transaction Summary Period Companies Amount Five (5) <$15 mil Eight (8) $120 mil Two (2) $18.75 mil Seven (7) $80 mil (none) 0 *Note: Period dominated by private placement, lost investor sentiment in equity investments.

8 Domestic Capital Market Structure SECURITY VALUE Total Domestic Assets Cash Deposits Government & Quasi Government Debt $7.76 Billion 4.87 Billion 2.88 Billion Publicly Traded Companies 19 Market Capitalization (Dec 2006) Billion Mutual Funds 8 Mortgages - Residential & Commercial 2,504 Million

9 Market Capitalization December 29, 2006 Public Companies Authorized Shares Outstanding Shares % Shares Outstanding Market Capitalization % Abaco Markets 19,975,000 15,892, % $ 10,329, % Bahamas Property Fund 10,000,000 2,407, % $ 27,199, % Bank of the Bahamas 25,000,000 12,000, % $ 96,360, % Benchmark 10,000,000 4,959, % $ 3,768, % Bahamas Waste 10,000,000 4,200, % $ 7,350, % Fidelity Bank 35,000,000 16,666, % $ 20,833, % Cable Bahamas 20,000,000 20,000, % $ 200,000, % FirstCaribbean 150,000, ,216, % $ 1,701,059, % Commonwealth Bank 75,000,000 31,283, % $ 391,356, % Consolidated Water 2,023,850 2,023, % $ 9,937, % Doctors Hospital 12,500,000 9,971, % $ 24,929, % FamGuard 15,000,000 8,625, % $ 49,938, % FINCO 27,500,000 26,666, % $ 320,533, % Colina Holdings 35,000,000 24,729, % $ 46,986, % ICDU 10,000,000 10,000, % $ 71,500, % J S Johnson 8,000,000 8,000, % $ 68,800, % FOCOL 10,000,000 8,454, % $ 106,110, % Freeport Concrete 20,000,000 4,708, % $ 2,589, % Premier 2,355,000 2,355, % $ 23,550, % 497,353, ,159,553 $ 3,183,131, %

10 BISX CAPITAL MKT BREAKDOWN Abaco Markets Bahamas Property Fund Bank of the Bahamas Benchmark Bahamas Waste Fidelity Bank Cable Bahamas FirstCaribbean Commonwealth Bank Consolidated Water Doctors Hospital FamGuard FINCO Colina Holdings ICDU J S Johnson FOCOL Freeport Concrete Premier

11 Domestic Market Investment Portfolios Balanced Portfolio Aggressive Portfolio Conservative Portfolio Guarantee Investment Contract

12 Disciplined Investment Approach 1 Analyze Client Objectives & Constraints Monitor & Rebalance 6 Portfolio Formalize Investment 2 Policy Implement 5 Strategy 3 Develop Asset Allocation Design Optimal 4 Portfolio

13 Investment Selection Process Investment Research Rigorous top-down/bottom-up approach Fundamental research In-Depth Company Analysis Quantitative Review Qualitative Assessment Risk Management Continuous analysis Implement Strategy Based on client risk and research recommendations

14 Asset Allocation is key!

15 Asset Allocation Methods Asset Allocation Methods Asset allocation can be an active process in varying degrees or strictly passive in nature. There are a number of different methods of establishing asset allocations: Strategic Asset Allocation Constant-Weighting Asset Allocation Tactical Asset Allocation Dynamic Asset Allocation Insured Asset Allocation Integrated Asset Allocation

16 Asset Allocation Balance Strategy Asset Class Strategy Estimated Return Equities 35% - 45% 7% - 12% Fixed Income (Including preference shares 35% - 45% 5.625% % Real Estate 10% - 20% 8% - 10% Cash & Marketable Securities 3% - 10% 3% - 5%

17 Asset Allocation Aggressive Strategy Asset Class Strategy Estimated Return Equities 60% - 80% 7% - 12% Fixed Income (Including preference shares 25% - 35% 5.625% % Real Estate 10% - 20% 8% - 10% Cash & Marketable Securities 3% - 5% 3% - 5%

18 Asset Allocation Conservative Strategy Asset Class Strategy Estimated Return Equities 0% -5% 7% - 12% Fixed Income (Including preference shares 60% - 80% 5.625% % Real Estate 5% - 15% 8% - 10% Cash & Marketable Securities 5% - 20% 3% - 5%

19 Historical Rates of Return Cash Deposits 2 Yr 5 yr 10 yr 4.77 % 4.84% 4.66% Fixed Income 2 Yr 5 yr 10 yr 7.00% 6.85% 6.50% Equities % 29.50% 19.70%

20 Challenges- Illiquidity in the Domestic Market Company No. of shares Liquidation Period J. S. Johnson 60, weeks ICD Utilities 52, weeks FOCOL 59, days First Caribbean 57, weeks Famguard 121, months FINCO 47, weeks Cable Bahamas 58, weeks Colina Holdings 227, weeks Abaco Markets 561, months Bank of the Bahamas 78, weeks Assumption - Client owns a portfolio that holds 10 publicly traded companies with a market value of $5 million with initial purchase of $500,000 in each stock

21 Challenges- Zero Currency Diversification Q Current 3 Mths 6 Mths 12 Mths Average Forecast U.S. Dollar Terms Euro $ $ $ $ $ Yen Sterling $ $ $ $ $ Swiss $ $ Canadian $ $ $ Australian $ $ $ $ $ $ Euro Terms Yen Sterling Swiss

22 Challenges- Lack of Legislation Injecting some element of foreign investment in your portfolio of Bahamian investments, reduces the downside risk in that portfolio. Having portfolios dominated by bank deposits, government debt, selective local equities, a bit of real estate and not much else can be quite limiting Current exchange control provisions prevent participation of domestic investment capital in the international market. As a result there is considerable mismatching of assets and liabilities with specific reference to institutional investors (e.g. insurance companies)

23 Market Challenges Liquidity Price Discovery (Valuation) Diversification Investor Education Regulation & Supervision Absence of Yield Curve (Debt Pricing) Delivering Performance Volatility Investor Relations

24 The Future Improved legislation Privatization Corporate financing Disintermediation Expanding Government Debt Listing BISX Cross-boarder trading/unrestricted trading Listing non-b$ securities. Introduction of Alternative Investments

25 Tips For Selecting A Money Manager While not all organizational needs are the same, there are some basic guidelines that may help in you search for the right money manager. Look for a track record in handling a similar type fund. Establish yearly parameters on how the fund should be managed to achieve its objectives. Require performance reports at regular intervals Good communications is essential to conduct business successfully. Keep it strictly business. Avoid making your decisions based on politics or other relationships. Decide how your portfolio will be managed up front. Trust is everything. Seek out someone whom you are comfortable with.

26 Thank You