The Table Is Set, Our Apologies for Being Late with the Meal

Transcription

1 APRIL 2016 DRIEHAUS CREDIT COMMENTARY // MARCH 31, 2016 DRIEHAUS ACTIVE INCOME FUND PERFORMANCE SUMMARY The Table Is Set, Our Apologies for Being Late with the Meal The first quarter wasn t a whole lot of fun. The hedge fund universe well illustrates the difficult environment, which generally saw returns down several percentage points except for the few who fell into the down a lot category. Exhibit 1 is a quick snippet highlighting the hedge fund universe s performance, as provided by Credit Suisse. It s not a particularly inspiring picture. So what went wrong? There were a few factors at play. First, many managers de-risked sometime during January and February, only to miss the violent snapback. Why de-risk, isn t that when you should be buying? one may ask. In hindsight, it appears that would have been the better move. However, at the time, the specter of financial contagion made this selloff look different than most of its predecessors. As shown in Exhibit 2, the drop in the Euro Stoxx Bank Index looked suspiciously like 2011 in terms of severity. The damage wasn t only limited to the equity markets. The BofA Financial Risk Index, which measures risk across credit, volatility and liquidity measures, rose sharply as well (Exhibit 3). The possibility for financial contagion definitely ratcheted up in February, and consequently, many managers responded by de-risking their portfolios. EXHIBIT 1: Hedge fund returns by strategy March 1Q 2016 Master Index 0.3% -2.2% Equity L/S 0.7% -3.9% Market Neutral 1.6% -0.4% Multi-Strategy 0.7% -0.6% Event 0.3% -4.5% Fixed Income Arbitrage 0.6% -1.2% CTA / Futures -2.8% 4.4% Global Macro -0.1% -2.2% Emerging Markets 3.2% -1.2% Source: Credit Suisse Asset Management / CS Prime Services Portfolio & Risk Advisory The information provided is not meant to be a comparison of our funds performance to the hedge fund universe. The performance table is being provided solely for illustrative purposes of the current market environment and is not meant to be construed as a comparison or recommendation of any kind. Please refer to page 5 for our funds standard performance tables. EXHIBIT 2: Euro Stoxx Bank Index, past 5 years EXHIBIT 3: BofA Financial Risk Index, past 5 years Source: Bloomberg Source: Bloomberg Page 1 of 15

2 Once the market started to turn up, I imagine a lot of managers, including me, didn t anticipate the degree to which markets would recover in such a short period of time. There s a good reason why that was unexpected it doesn t happen often. According to Bespoke Investment Group, the last time the S&P 500 Index dropped 10% or more in the first quarter, only to finish the quarter with a gain, was And it wasn t just the S&P 500 that snapped back. As shown in Exhibits 4 through 7, all of the damage caused by the selloff in the credit markets has been quickly erased. EXHIBIT 4: S&P 500 Index, past 1 year EXHIBIT 5: Investment Grade Corporate Credit spreads, past 1 year Source: Bloomberg Source: Bloomberg EXHIBIT 6: High Yield Corporate Credit spreads, past 1 year EXHIBIT 7: JPM Leveraged Loan Index spreads, past 1 year Source: Bloomberg Source: Bloomberg Page 2 of 15

3 The question now is, where to from here? We expect continued volatility throughout the year due to currency and commodity volatility, unpredictable central bank policy, rising corporate defaults, and heightened investor anxiety. Given that we weren t too pleased with how our funds performed during the peak of the selloff in the first quarter, we ve spent much of the past 45 days upgrading the credit quality and liquidity profile of both LCMAX and DRSLX. More specifically, at the end of February, our net corporate credit exposure trading at 600 basis points over US Treasurys or wider totaled +21.1% of AUM in LCMAX and +62.7% in DRSLX. By the end of March, we had decreased our net corporate credit exposure in this same bucket to +11.4% of AUM in LCMAX and +53.5% in DRSLX. Had we been better positioned going into January and February, we could have better taken advantage of the volatility we witnessed. Importantly, we don t believe we ve missed our chance with respect to buying on weakness for The S&P 500 sits only 2% from an all-time high and trades at over 17x forward earnings. The high yield index trades at roughly 670 basis points over Treasurys and yields less than 8%. While that s not too tight, it s not exceptionally wide either given that defaults are quickly rising and likely to end the year close to 5%. Despite the slow start to the year, we remain convinced that this is an outstanding market environment for our strategies. Risk premiums remain elevated and are exhibiting a fair amount of volatility on a daily basis. That s a good foundation for many hedged strategies, including our own. As we ve stated before, this isn t a 2009 or 2012 market environment, so patience will be required in harvesting these returns. With time though, we believe that hedged investors will generate above-average results in this type of market, just as they ve done in the past. EXHIBIT 8: Trailing 12-month default rate for high yield bonds and loans Par-weighted default rate (%) 16% 14% 12% 10% 8% 6% 4% 2% 0% Dec-98 Dec-99 High-yield bonds Dec-00 Dec-01 Dec-02 Leveraged Loans Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Mar-16 HY Bonds: 3.22% Loans: 2.38% Dec-13 Dec-14 Dec-15 Source: Hedge Fund Research K.C. & Cass K.C. Nelson Portfolio Manager Elizabeth Cassidy Co-Portfolio Manager Disclosures This material is not intended to be relied upon as a forecast or research. The opinions expressed are those of Driehaus Capital Management LLC ( Driehaus ) as of April 18, 2016 and are subject to change at any time due to changes in market or economic conditions. The commentary has not been updated since April 18, 2016 and may not reflect recent market activity. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Please consider the investment objectives, risks, fees and expenses of the Fund carefully prior to investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a copy of the prospectus and/or summary prospectus, please call us at (877) Please read the prospectus and summary prospectus carefully before investing. Driehaus Securities LLC, Distributor Page 3 of 15

4 LCMAX Performance Review Features: Provides differentiated exposure within fixed income and alternative asset allocations Absolute return focused, long/short credit strategy Volatility managed, low correlation return objectives Hedging of interest rate exposure Liquid, transparent hedged mutual fund vehicle Inception Date: November 8, 2005* Fund Assets Under Management: $2.7 billion Firm Assets Under Management: $8.4 billion Portfolio Concentration: Flexible, best ideas approach, generally trades Duration Target: +/- 1 year Volatility Target: Less than the Barclays US Aggregate Index (about 5%, annually) Distributions: Quarterly dividends; annual capital gains Portfolio Managers: K.C. Nelson, Portfolio Manager 17 years experience Elizabeth Cassidy, Co-Portfolio Manager 16 years experience *The Driehaus Active Income Fund commenced operations on June 1, 2009 following the receipt of the assets and liabilities of the Lotsoff Capital Management Active Income Fund (the Predecessor Fund ) through a reorganization into the Driehaus Active Income Fund. 1 Performance Disclosure The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. Performance data represents the rate that an investor would have earned (or lost), during the given month, on an investment in the Fund (assuming reinvestment of all dividends and distributions). Average annual total return reflects annualized change. Since Fund performance is subject to change after the month-end, please call (877) or visit for more current performance information. The Driehaus Active Income Fund gained 276 basis points in March as markets continued to rebound strongly from February lows. 1 Given the sharp drop in credit spreads, the fund s directional long basket was the leading contributor to returns, adding 208 basis points to performance. The event driven strategy added 117 basis points to the fund as risk arbitrage spreads tightened and our catalyst-driven trades performed well. On the losing side, the directional short basket detracted 42 basis points from returns while the volatility strategy lost 23 basis points for the fund. No other single strategy contributed or detracted more than 20 basis points to returns. On an individual trade basis, the biggest contributors to performance were: An event-driven trade between two regional gaming companies added 72 basis points to the fund. The companies received key state approvals for the merger and raised transaction financing during the month, both of which substantially increased the probability that the deal will close in the near future. A long position in an upscale retailer added 37 basis points as the company reported better-than-expected earnings and benefitted from an improved market environment for levered credits. An event-driven trade in a southeastern utility company that was the target in a proposed M&A transaction contributed to returns. Upon the regulatory approval of the deal, the target jumped 13% and contributed 23 basis points to performance. The most significant detractors were: A long-volatility trade structured using S&P 500 Index options detracted 21 basis points from returns as the index surged roughly 7% in March. A pairs trade between a long position in a European telecommunications provider and a short in the Crossover Index, which hedges European corporate high yield risk, lost 19 basis points as the index ripped tighter with the broad market rally during the month. A short in the bonds of a highly levered, BB-rated oil services company detracted 17 basis points during March as prices across the company s capital structure improved dramatically with the rally in the sector. Five-year, senior unsecured bonds increased in value by roughly 15 points during the month. Page 4 of 15

5 LCMAX Performance Review Month-end Performance as of 3/31/16 Average Annual Total Return Fund/Index MTH YTD 1 Year 3 Year 5 Year 10 Year Since Inception 1 Driehaus Active Income Fund % 0.18% -2.26% 0.08% 0.45% 3.47% 3.52% Citigroup 3-Month T-Bill Index % 0.05% 0.08% 0.05% 0.05% 1.07% 1.19% Barclays U.S. Aggregate Bond Index % 3.03% 1.96% 2.50% 3.78% 4.79% 4.98% Calendar Quarter-end Performance as of 3/31/16 Average Annual Total Return Fund/Index QTR YTD 1 Year 3 Year 5 Year 10 Year Since Inception 1 Driehaus Active Income Fund % 0.18% -2.26% 0.08% 0.45% 3.47% 3.52% Citigroup 3-Month T-Bill Index % 0.05% 0.08% 0.05% 0.05% 1.07% 1.19% Barclays U.S. Aggregate Bond Index % 3.03% 1.96% 2.50% 3.78% 4.79% 4.98% Annual Fund Operating Expenses 5 Management Fee 0.55% Other Expenses Excluding Dividends and Interest on Short Sales 0.22% Dividends and Interest on Short Sales 0.28% Total Annual Fund Operating Expenses 1.05% The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. Performance data represents the rate that an investor would have earned (or lost), during the given month, on an investment in the Fund (assuming reinvestment of all dividends and distributions). Average annual total return reflects annualized change. Since Fund performance is subject to change after the month-end, please call (877) or visit www. driehaus.com for more current performance information. 1 Inception Date: 11/8/ The Driehaus Active Income Fund commenced operations on June 1, 2009 following the receipt of the assets and liabilities of the Lotsoff Capital Management Active Income Fund (the Predecessor Fund ) through a reorganization into the Driehaus Active Income Fund (the Fund ). Lotsoff Capital Management was the investment adviser from inception through April 2, Driehaus Capital Management LLC (the Adviser ) became the interim investment adviser to the Predecessor Fund on April 3, The Citigroup 3-Month T-Bill Index is designed to mirror the performance of the 3-Month U.S. Treasury Bill. The Citigroup 3-Month T-Bill Index is unmanaged and its returns include reinvested dividends. 4 The Barclays U.S. Aggregate Bond Index, an unmanaged index, represents securities that are SEC-registered, taxable and dollar denominated. This index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. 5 Represents the Annual Fund Operating Expenses as disclosed in the current prospectus dated April 30, It is important to understand that a decline in the Fund s average net assets due to unprecedented market volatility or other factors could cause the Fund s expense ratio for the current fiscal year to be higher than the expense information presented. The Driehaus Active Income Fund (the Fund ), in addition to investing in unrated and investment grade bonds, may also invest in junk bonds, which involve greater credit risk, including the risk of default. The prices of high yield bonds are more sensitive to changing economic conditions and can fall dramatically in response to negative news about the issuer or its industry, or the economy in general. The use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in the underlying assets. Derivatives can be highly volatile, illiquid and difficult to value, and there is a risk that changes in the value of a derivative held by the Fund will not correlate with the Fund s other investments. Further, the Fund may invest in derivatives for speculative purposes. Gains or losses from speculative positions in a derivative may be much greater than the derivative s original cost and potential losses may be substantial. The Fund may make short sales. Short sales expose the Fund to the risk of loss. It is anticipated that the Fund will experience high rates of portfolio turnover, which may result in payment by the Fund of above-average transaction costs. This is a nondiversified fund; compared to other funds, the Fund may invest a greater percentage of assets in a particular issuer or a small number of issuers. As a consequence, the Fund may be subject to greater risks and larger losses than diversified funds. No investment strategy, including an absolute return strategy, can ensure a profit or protect against loss. Additionally, investing in an absolute return strategy may lead to underperforming results during an upward moving market. When interest rates increase, bond prices decrease and bond funds become more volatile. Please consider the investment objectives, risks, fees and expenses of the Fund carefully prior to investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a copy of the prospectus and/or summary prospectus, please call us at (877) Please read the prospectus and summary prospectus carefully before investing. Driehaus Securities LLC, Distributor Page 5 of 15

6 LCMAX Portfolio Characteristics* Executive Summary excluding cash Assets Under Management (AUM) 2,690,562,700 Long 2,861,233,629 2,563,070,415 Short (1,309,016,361) (1,309,016,361) Net 1,552,217,268 1,254,054,054 Net /AUM 57.69% 46.61% Gross 4,170,249,990 3,872,086,776 Gross /AUM 1.55x 1.44x Risk Summary Effective Duration 0.33 years Spread Duration 2.12 years 30-day SEC Yield 2.34% Portfolio Yield-To-Worst % Average % of Par Longs 95.84% Average % of Par Shorts % Beta vs. S&P Day Volatility 4.02% Trading Strategy Type Gross % Contrib. to Total Return Change vs. Previous Month End Capital Structure Arbitrage 2 567,294, % 0.08% -0.8% Convertible Arbitrage 2 124,554, % 0.16% 0.4% Event Driven 2 1,236,232, % 1.17% 3.3% Pairs Trading 2 88,169, % -0.05% 0.0% Directional Long 2 1,211,011, % 2.08% -4.1% Directional Short 2 224,411, % -0.42% 1.3% Interest Rate Hedge 2 247,355, % -0.01% 0.1% Volatility Trading 2 174,337, % -0.23% 0.2% USD Cash 296,881, % 0.00% -0.4% Total 4,170,249, % 2.76% Market Capitalization BILLION Long % of Long Short % of Short $0-500mm 55,228, % - 0.0% $500mm - 2bn 143,068, % (2,606,722) 0.2% $2bn -10bn 591,978, % (125,652,410) 9.6% $10bn - 20bn 196,907, % (153,752,152) 11.8% >$20bn 513,856, % (293,798,212) 22.4% ABS/MBS/CMBS 3 4,890, % - 0.0% Private Companies 3 1,057,140, % (549,289,380) 42.0% Treasuries 3-0.0% (183,917,485) 14.1% Cash 3,4 298,163, % - 0.0% Total 2,861,233, % (1,309,016,361) 100.0% Source: Bloomberg 1 Refers to credit only 2 A definition of this term can be found on page Market capitalization information is unavailable for these securities. Credit Ratings and market capitalization information for Credit Default Swaps (CDS) and Interest Rate Swaps are from underlying securities. 4 This figure represents the fund s operating cash plus receivables for investments sold and minus payables for investments purchased. Page 6 of 15 *: please note exposure may be different than market value. For equities, bonds, foreign exchange forwards and interest rate swap products, exposure is the same as market value. For options, exposure represents delta-adjusted underlying exposure. For credit default swap and credit default swap indices, exposure represents bond-equivalent exposure. Note: A definition of key terms can be found on page 15

7 Credit Rating* Long % of Long Short % of Short Gross Change vs. Previous Month End AAA 1 357,197, % (307,683,564) 23.5% 664,881, % -2.8% AA 119, % - 0.0% 119, % 0.0% A 2 92,601, % (115,619,300) 8.8% 208,220, % -0.3% BBB 817,873, % (404,243,909) 30.9% 1,222,117, % 1.9% BB 392,853, % (191,693,219) 14.6% 584,546, % 0.0% B 880,411, % (55,583,112) 4.2% 935,994, % 0.5% CCC 158,252, % (16,914,020) 1.3% 175,166, % 0.2% CC 22,653, % - 0.0% 22,653, % 0.1% C - 0.0% - 0.0% - 0.0% 0.0% D - 0.0% - 0.0% - 0.0% 0.0% Not Rated 139,270, % (217,279,237) 16.6% 356,550, % 0.5% Total 2,861,233, % (1,309,016,361) 100.0% 4,170,249, % Product Type Long % of Long Short % of Short Gross Change vs. Previous Month End ABS 398, % - 0.0% 398, % 0.0% Agency Mortgage ARM 481, % - 0.0% 481, % 0.0% Agency Mortgage CMO 2,311, % - 0.0% 2,311, % 0.0% Bank Loan 518,669, % - 0.0% 518,669, % 0.5% CDS Index - 0.0% (106,138,519) 8.1% 106,138, % 0.4% CMBS 1,698, % - 0.0% 1,698, % 0.0% Convertible 47,033, % - 0.0% 47,033, % 0.1% Corp CDS 90,320, % (323,642,830) 24.7% 413,963, % 0.2% Corp Credit 792,606, % (135,737,582) 10.4% 928,343, % -2.3% Equity 945,464, % (300,921,610) 23.0% 1,246,386, % 3.3% Equity Index Option - 0.0% (106,772,718) 8.2% 106,772, % 0.2% Equity Option - 0.0% (1,415,003) 0.1% 1,415, % -0.2% FX Cash 1,281, % - 0.0% 1,281, % 0.0% FX Forward 38,088, % (80,682,259) 6.2% 118,770, % -2.5% Govt Bond 20,354, % (25,461,889) 1.9% 45,816, % 0.0% IR Swaption - 0.0% (165,783) 0.0% 165, % 0.0% MBS - 0.0% - 0.0% - 0.0% 0.0% Mortgage CMO - 0.0% - 0.0% - 0.0% 0.0% Pfd 105,642, % - 0.0% 105,642, % 0.1% Sovereign Credit - 0.0% (44,160,683) 3.4% 44,160, % 0.6% Treasury Future - 0.0% (183,917,485) 14.1% 183,917, % 0.1% USD Cash 296,881, % - 0.0% 296,881, % -0.4% Total 2,861,233, % (1,309,016,361) 100.0% 4,170,249, % Source: Bloomberg, Moody s, Standard & Poor s 1 All government bonds are rated AAA. 2 All agency Mortgage Backed Securities (MBS) are rated A. Credit Ratings: AAA and AA: A and BBB: BB, B, CCC, CC, C: Not Rated: High credit-quality investment grade Medium credit-quality investment grade Low credit-quality (non-investment grade), or junk bonds Bonds currently not rated Page 7 of 15 *Credit ratings listed are subject to change. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). NR is used to classify securities for which a rating is not available. The Adviser receives credit quality ratings on underlying securities of the portfolio from the three major ratings agencies - Moody s Investors Service (Moody s), Fitch Ratings (Fitch), and Standard & Poor s (S&P). When calculating the credit quality breakdown, the Adviser utilizes Moody s and if Moody s is not available the manager selects the lower rating of S&P and Fitch. Note: A definition of key terms can be found on page 15

8 Spread Distribution* ($M) >1000 Total L. Exp. 119, , , ,556 ABS S. Exp Net Exp. 119, , , ,556 Agency Mortgage ARM Agency Mortgage CMO Bank Loan CDS Index L. Exp. 481, ,796 S. Exp. - - Net Exp. 481, ,796 L. Exp. 2,311,449 2,311,449 S. Exp. - - Net Exp. 2,311,449 2,311,449 L. Exp. 185,116,697 83,448, ,220,224 21,980,245 36,609,557 15,870,660 24,423, ,669,859 S. Exp Net Exp. 185,116,697 83,448, ,220,224 21,980,245 36,609,557 15,870,660 24,423, ,669,859 L. Exp S. Exp. (56,664,221) (29,762,729) (19,711,568) (106,138,519) Net Exp. (56,664,221) (29,762,729) (19,711,568) (106,138,519) L. Exp. 1,698,605 1,698,605 CMBS S. Exp. - - Net Exp. 1,698,605 1,698,605 Convertible Corp CDS Corp Credit L. Exp. 21,852,088 13,604,806 11,563,070 13,936 47,033,900 S. Exp Net Exp. 21,852,088 13,604,806 11,563,070 13,936 47,033,900 L. Exp ,320, ,320,317 S. Exp. (82,662,038) (73,111,595) (34,138,029) (100,295,185) (19,978,740) (13,457,242) (323,642,830) Net Exp. (82,662,038) (73,111,595) (34,138,029) (9,974,868) (19,978,740) (13,457,242) (233,322,513) L. Exp. 5,088, ,777, ,333, ,357, ,138,206 8,631,432 60,501,847 9,261, ,517, ,606,134 S. Exp. (7,160,708) (4,913,778) (48,892,558) (19,351,653) (11,494,635) - (6,071,906) (28,366,955) (9,485,388) (135,737,582) Net Exp. (2,072,433) 167,863, ,440,848 98,005, ,643,571 8,631,432 54,429,941 (19,105,292) 94,031, ,868,552 L. Exp. 108,956, ,800, ,262, ,445, ,464,936 Equity Equity Index Option S. Exp. (74,092,352) (102,651,950) (114,102,309) (10,075,000) (300,921,610) Net Exp. 34,863, ,148, ,160, ,370, ,543,326 L. Exp. - - S. Exp. (106,772,718) (106,772,718) Net Exp. (106,772,718) (106,772,718) Equity Option L. Exp. - - S. Exp. (1,415,003) (1,415,003) Net Exp. (1,415,003) (1,415,003) Source: Bloomberg *Spread differential between the underlying securities and Treasury bonds in basis points. The chart above measures the excess yield (in basis points) that these securities provide over the yield offered by U.S. treasuries of comparable maturities according to market prices at the end of the month. We then define the security type, as well as the Page 8 of 15 continues on page 9 Fund s long and short exposure, and plot these exposures based on current market values to show a more accurate view of where the Fund s capital is allocated than can be depicted by simply defining exposures by credit rating or security type. Note: A definition of key terms can be found on page 15

9 Spread Distribution* ($M) continued from page >1000 Total IR Swaption Govt Bond FX Forward FX Cash L. Exp. 1,281,293 1,281,293 S. Exp. - - Net Exp. 1,281,293 1,281,293 L. Exp. 12,613,704 25,474,305 38,088,008 S. Exp. (80,682,259) - (80,682,259) Net Exp. (68,068,555) 25,474,305 (42,594,250) L. Exp. 20,354,553 20,354,553 S. Exp. (25,461,889) (25,461,889) Net Exp. (5,107,336) (5,107,336) L. Exp. - - S. Exp. (165,783) (165,783) Net Exp. (165,783) (165,783) L. Exp. 43,712,312 35,320,489 26,609, ,642,300 Pfd S. Exp Net Exp. 43,712,312 35,320,489 26,609, ,642,300 Sovereign Credit Treasury Future L. Exp S. Exp. (20,408,529) (23,752,155) (44,160,683) Net Exp. (20,408,529) (23,752,155) (44,160,683) L. Exp. - - S. Exp. (183,917,485) (183,917,485) Net Exp. (183,917,485) (183,917,485) USD Cash Combined L. Exp. 296,881, ,881,921 S. Exp. - - Net Exp. 296,881, ,881,921 L. Exp. 354,133,049 32,325, ,550, ,549, ,304, ,504, ,057,126 60,501,847 45,871,221 15,870, ,564,615 2,861,233,629 S. Exp. (372,723,670) (137,102,307) (89,223,065) (223,280,096) (145,755,758) (166,702,255) (10,075,000) (19,529,148) (28,366,955) - (116,258,107) (1,309,016,361) Net Exp. (18,590,621) (104,776,639) 97,327, ,269, ,548, ,802, ,982,126 40,972,699 17,504,265 15,870,660 38,306,509 1,552,217,268 % -1.2% -6.8% 6.3% 24.4% 33.1% 25.2% 11.7% 2.6% 1.1% 1.0% 2.5% Source: Bloomberg *Spread differential between the underlying securities and Treasury bonds in basis points. The chart above measures the excess yield (in basis points) that these securities provide over the yield offered by U.S. treasuries of comparable maturities according to market prices at the end of the month. We then define the security type, as well as the Fund s long and short exposure, and plot these exposures based on current market values to show a more accurate view of where the Fund s capital is allocated than can be depicted by simply defining exposures by credit rating or security type. Note: A definition of key terms can be found on page 15 Page 9 of 15

10 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Mar-16 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Mar-16 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Mar-16 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Mar-16 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Mar-16 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Mar-16 MARCH 31, 2016 // DRIEHAUS ACTIVE INCOME FUND LCMAX Effective Duration LCMAX Spread Duration (years) (years) LCMAX Average Yield-to-Worst LCMAX Net / AUM (Excluding Cash) 8% 7% 6% 5% 4% 3% 2% 1% 0% 80% 70% 60% 50% 40% 30% 20% 10% 0% LCMAX Gross / AUM (Excluding Cash) 1.5% 1.2% 0.9% 0.6% 0.3% LCMAX Monthly Return* 5% 3% 1% -1% -3% 0.0% -5% Sources: Driehaus Capital Management LLC, Bloomberg Note: A definition of key terms can be found on page 15 *The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. Page 10 of 15

11 Industry Group GICS 1 Long % of Long Short % of Short Gross Automobiles & Components 52,890, % (10,075,000) 0.8% 62,965, % Banks 133,973, % (84,900,781) 6.5% 218,874, % Capital Goods 139,001, % (7,418,353) 0.6% 146,419, % Commercial & Professional Services 51,908, % (10,056,497) 0.8% 61,964, % Consumer Durables & Apparel 56,328, % (28,442,595) 2.2% 84,771, % Consumer Services 207,162, % (2,187,533) 0.2% 209,349, % Diversified Financials 128,776, % (56,032,340) 4.3% 184,808, % Energy 119,011, % (216,614,632) 16.5% 335,626, % Food & Staples Retailing 114,208, % - 0.0% 114,208, % Health Care Equipment & Services 187,466, % (40,243,509) 3.1% 227,710, % Household & Personal Products 38,234, % - 0.0% 38,234, % Insurance 118,077, % - 0.0% 118,077, % Materials 55,096, % (16,566,647) 1.3% 71,663, % Media 370,798, % (88,909,483) 6.8% 459,708, % Pharmaceuticals, Biotechnology 77,304, % (79,336,472) 6.1% 156,640, % Real Estate 55,403, % (10,067,213) 0.8% 65,470, % Retailing 165,601, % (59,354,011) 4.5% 224,955, % Semiconductors & Semiconductor 59,813, % (28,460,900) 2.2% 88,273, % Software & Services 157,741, % (3,243,268) 0.2% 160,984, % Technology Hardware & Equipment 1,942, % - 0.0% 1,942, % Telecommunication Services 70,510, % - 0.0% 70,510, % Utilities 138,486, % - 0.0% 138,486, % Other 2 Asset Backed Securities 398, % - 0.0% 398, % CDS Index - 0.0% (106,138,519) 8.1% 106,138, % Equity Index - 0.0% (106,772,718) 8.2% 106,772, % Foreign Sovereign - 0.0% (46,512,327) 3.6% 46,512, % FX Currency 39,369, % (80,682,259) 6.2% 120,051, % Mortgage Securities 4,491, % - 0.0% 4,491, % US Government 20,354, % (227,001,306) 17.3% 247,355, % USD Currency 296,881, % - 0.0% 296,881, % Total 2,861,233, % (1,309,016,361) 100.0% 4,170,249, % Sources: Bloomberg, Global Industry Classification Standard, Driehaus Capital Management Industry sector information for CDS and Interest Rate Swaps is from underlying securities. 1 The Global Industry Classification Standard (GICS), a collaboration between Standard & Poor s and Morgan Stanley Capital International, is system of classification that identifies a company according to its business activity. 2 The Other Industry Group data is not categorized within the GICS classification system. Note: A definition of key terms can be found on page 15 Page 11 of 15

12 Industry Sector GICS 1 Long % of Long Short % of Short Gross Consumer Discretionary 852,781, % (188,968,622) 14.4% 1,041,750, % Consumer Staples 152,442, % - 0.0% 152,442, % Energy 119,011, % (216,614,632) 16.5% 335,626, % Financials 436,230, % (151,000,334) 11.5% 587,231, % Health Care 264,770, % (119,579,981) 9.1% 384,350, % Industrials 190,909, % (17,474,850) 1.3% 208,384, % Information Technology 219,496, % (31,704,168) 2.4% 251,200, % Materials 55,096, % (16,566,647) 1.3% 71,663, % Telecommunication Services 70,510, % - 0.0% 70,510, % Utilities 138,486, % - 0.0% 138,486, % Other 2 Asset Backed Securities 398, % - 0.0% 398, % CDS Index - 0.0% (106,138,519) 8.1% 106,138, % Equity Index - 0.0% (106,772,718) 8.2% 106,772, % Foreign Sovereign - 0.0% (46,512,327) 3.6% 46,512, % FX Currency 39,369, % (80,682,259) 6.2% 120,051, % Mortgage Securities 4,491, % - 0.0% 4,491, % US Government 20,354, % (227,001,306) 17.3% 247,355, % USD Currency 296,881, % - 0.0% 296,881, % Total 2,861,233, % (1,309,016,361) 100.0% 4,170,249, % Country Allocation Long % of Long Short % of Short Gross Brazil 14,442, % (38,724,806) 3.0% 53,167, % Canada 9,261, % - 0.0% 9,261, % Cayman Islands 43,712, % - 0.0% 43,712, % Chile 30,708, % - 0.0% 30,708, % China 38,363, % - 0.0% 38,363, % Europe 8,581, % (120,924,145) 9.2% 129,505, % Ireland 6,585, % (5,095,116) 0.4% 11,680, % Israel 27,679, % (15,448,230) 1.2% 43,127, % Italy 55,182, % (41,841,457) 3.2% 97,024, % Luxembourg 69,993, % (7,418,353) 0.6% 77,411, % Mexico 39,041, % (5,783,003) 0.4% 44,824, % Spain 45,430, % (43,059,324) 3.3% 88,489, % Switzerland 14,283, % - 0.0% 14,283, % Turkey - 0.0% (20,408,529) 1.6% 20,408, % United Kingdom 72,373, % (62,895,640) 4.8% 135,269, % United States 2,385,592, % (947,417,758) 72.4% 3,333,010, % Total 2,861,233, % (1,309,016,361) 100.0% 4,170,249, % Sources: Bloomberg, Global Industry Classification Standard 1 The Global Industry Classification Standard (GICS), a collaboration between Standard & Poor s and Morgan Stanley Capital International, is a system of classification that identifies a company according to its business activity. 2 The Other Industry Group data is not categorized within the GICS classification system. Industry group information for Credit Default Swaps and Interest Rate Swaps is from underlying securities. Note: A definition of key terms can be found on page 15 Page 12 of 15

13 100-Day Volatility Barclays U.S. Aggregate Bond Index 2 Driehaus Active Income Fund Correlation 1 Comparison 12-Month Rolling Correlations vs. Driehaus Active Income Fund S&P 500 Index 3 Barclays U.S. Aggregate Bond Index 2 Sources: Standards & Poor s ( S&P ) 500 Index total return data from Bloomberg. Barclays U.S. Aggregate Bond Index data from Barclays The benchmarks for the Driehaus Active Income Fund are the Citigroup 3-Month T-Bill and the Barclays U.S. Aggregate Bond Index. The S&P 500 Index is shown for illustrative purposes only. 2 The Barclays U.S. Aggregate Bond Index is a broad base index, maintained by Barclays, used to represent investment grade bonds being traded in the United States. 3 The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group. It is a market-weighted index (stock price times number of shares outstanding), with each stock s weight in the index proportionate to its market value. 1 Correlation is a statistical measure of how return sets move in relation to each other. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. The S&P 500 Index and the Barclays U.S. Aggregate Bond Index are recognized proxies for the U.S. fixed income market. Page 13 of 15

14 Quarterly and Year-to-Date Trading Strategy Type 1 % Contrib. to Total Return Jan Feb Mar 1st QTR Capital Structure Arbitrage % 0.16% 0.08% 0.10% Convertible Arbitrage % 0.00% 0.16% 0.09% Event Driven % 0.21% 1.17% 0.94% Pairs Trading % -0.14% -0.05% -0.59% Directional Long % -0.24% 2.08% 0.73% Directional Short % 0.02% -0.42% -0.39% Interest Rate Hedge % -0.10% -0.01% -0.55% Volatility Trading % -0.13% -0.23% -0.11% USD Cash 0.00% 0.00% 0.00% 0.00% FX Cash 0.00% 0.00% 0.00% 0.00% FX Hedge 0.00% 0.00% 0.00% 0.00% Total -2.31% -0.21% 2.76% 0.18% 1 Due to rounding and fee calculations the total row may not match the exact performance data. 2 A definition of these terms can be found on page 15. The Driehaus Active Income Fund (the Fund ), in addition to investing in unrated and investment grade bonds, may also invest in junk bonds, which involve greater credit risk, including the risk of default. The prices of high yield bonds are more sensitive to changing economic conditions and can fall dramatically in response to negative news about the issuer or its industry, or the economy in general. The use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in the underlying assets. Derivatives can be highly volatile, illiquid and difficult to value, and there is a risk that changes in the value of a derivative held by the Fund will not correlate with the Fund s other investments. Further, the Fund may invest in derivatives for speculative purposes. Gains or losses from speculative positions in a derivative may be much greater than the derivative s original cost and potential losses may be substantial. The Fund may make short sales. Short sales expose the Fund to the risk of loss. It is anticipated that the Fund will experience high rates of portfolio turnover, which may result in payment by the Fund of above-average transaction costs. This is a nondiversified fund; compared to other funds, the Fund may invest a greater percentage of assets in a particular issuer or a small number of issuers. As a consequence, the Fund may be subject to greater risks and larger losses than diversified funds. No investment strategy, including an absolute return strategy, can ensure a profit or protect against loss. Additionally, investing in an absolute return strategy may lead to underperforming results during an upward moving market. When interest rates increase, bond prices decrease and bond funds become more volatile. This material is not intended to be relied upon as a forecast or research. The opinions expressed are those of Driehaus Capital Management LLC ( Driehaus ) as of April 18, 2016 and are subject to change at any time due to changes in market or economic conditions. The commentary has not been updated since April 18, 2016 and may not reflect recent market activity. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Please consider the investment objectives, risks, fees and expenses of the Fund carefully prior to investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a copy of the prospectus and/or summary prospectus, please call us at (877) Please read the prospectus and summary prospectus carefully before investing. Driehaus Securities LLC, Distributor Page 14 of 15

15 FUND INFORMATION The Fund invests primarily in U.S. fixed income and floating rate securities, of both investment and non-investment grade credit quality, as well as equities and derivative instruments. The Fund intends to pursue its fundamental opportunistic bottom-up trading approach using the following investment strategies: Capital Structure Arbitrage attempt to exploit pricing inefficiencies between two securities of the same company. Example: buying a debt instrument that is believed to be undervalued while simultaneously shorting a subordinated debt instrument of the same issuer that is believed to be overvalued. Convertible Arbitrage attempt to profit from changes in a company s equity volatility or credit quality by purchasing a convertible bond and simultaneously shorting the same issuer s common stock. Directional Trading taking long or short positions in equity or corporate debt instruments in anticipation of profiting from movements in the prices of these assets. Event Driven attempt to profit from the consummation of a given event, e.g. a takeover, merger, reorganization or conclusion of material litigation, or based upon the perceptions of a potential pending corporate event. Pairs Trading attempt to exploit pricing inefficiencies between the securities of two similar companies by buying the security of one company and shorting the security of the other. Interest Rate Hedging attempt to reduce the performance impact of rising or falling interest rates. Volatility Hedging attempt to profit from extreme market volatility. DEFINITIONS OF KEY TERMS Agency Mortgage-Backed Security - A mortgage-backed security issued and guaranteed by a government agency such as the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. Asset-Backed Security (ABS) - A security whose value and income payments are derived from and collateralized (or backed ) by a specified pool of underlying assets. Average % of Par-Longs - The average dollar price of a bond the Fund is long as a percentage of par. Credit Default Swap (CDS) - A contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) goes into default. In its simplest form, a credit default swap is a bilateral contract between the buyer and seller of protection. Equity Beta - A measure describing the relation of a portfolio s returns with that of the financial market as a whole. A portfolio with a beta of 0 means that its price is not at all correlated with the market. A positive beta means that the portfolio generally follows the market. A negative beta shows that the portfolio inversely follows the market; the portfolio generally decreases in value if the market goes up and vice versa. Effective Duration - A duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Effective Spread Duration - The sensitivity of the price of a bond to a 100 basis point change to its option-adjusted spread. As the rate of the Treasury security in the option-adjusted spread increases, the rate of the option-adjusted spread also increases. Mortgage-Backed Security (MBS) - An asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. Portfolio Coupon - The annualized interest earned for the portfolio. Portfolio Current Yield - The annual income (interest or dividends) divided by the current price of the security, aggregated to the portfolio level. Portfolio Yield-to-Worst - The lowest potential yield that can be received on a bond without the issuer actually defaulting, aggregated to the portfolio level. The yield to worst is calculated by making worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call or sinking fund, are used by the issuer. Stock Vega - The change in the price of an option that results from a 1% change in volatility. Vega changes when there are large price movements in the underlying asset and Vega falls as the option gets closer to maturity. Vega can change even if there is no change in the price of the underlying asset (e.g., if there is a change in expected volatility). Swap - A derivative in which two counterparties exchange certain benefits of one party s financial instrument for those of the other party s financial instrument. Average % of Par-Shorts - The average dollar price of a bond the Fund is short as a percentage of par. Page 15 of 15