European equities long x short dynamic danske capital


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European equities long x short dynamic danske capital

  1. 1. Return on Knowledge Danske Capital – European Equities Long X Short Dynamic - Frankfurt , 2013
  2. 2. 2 Agenda • Introduction to Danske Capital and Equity Investment Team Page 3 European Equities Long x Short Dynamic : • Team, philosophy, process, performance and risk management Page 12
  3. 3. 3 Total assets: € 445 bn Shareholders’ equity: € 19.0 bn Solvency ratio: 21.8 % RoE (YTD): 6.2 % Rating: S&P A-/Moody’s Baa1 (long term) No. of employees: 19.981 As ofJune 2013 AuM total € 95.2 bn Institutional: € 49.2 bn Retail: € 46 bn No. of inst. & pooled acc. Clients: 2,469 No. of employees (AM): 368 As ofJuly2013 Danske Bank Group Danske Capital  competencies • European Equities • European Hedge Funds • European Credits • European Fixed Income • Global Equities • Global Inflation Linked Bonds • Local Equities and fixed income • Solutions Danske Capital -The asset management division of Danske Bank -
  4. 4. 4 Investment philosophy • Focus – “we manage only products where we can deliver world class performance” • Non -areas outsourced • Focused and independent investment teams – Boutiques • No committees nor binding “house view” • Tailor-made and disciplined investment processes based on team skills and DNA • Bottom-up understanding and high conviction key characteristics • Structured knowledge-sharing between Boutiques
  5. 5. 5 Clients and assets AlphaProducts - More than € 90 billion under management More than 2400 institutional clients, corporate clients and pooled accounts 0% 10% 20% 30% 40% 50% 60% Assetsundermanagementby ClientType Individuals; 0,88% Funds; 9,84% Mutual funds; 51,97% Life & pension insurance; 22,53% Pension funds; 4,06% Companies; 6,2% Other institutionalclients; 2,73% Public institutions & housingsocieties; 1,78% Asset Class AUM m Euro European Equities 7.996 Global Equities 1.309 Emerging European Equities 474 Nordic Equities 4.161 European Fixed Income 7.728 Global Fixed Income 1.917 European Hedge 1.370 Nordic Fixed Income 32.893 July-13
  6. 6. 6 Significant Resources In All Alpha Areas Personnel Investment Professionals: Alpha Personnel Investment Management Equities European Equities 10 - Solutions 45 Eastern European Equities & Local Analysts 9 - Alpha 81 Global Equities 5 Institutional Sales 53 Danish Equities 3 Global Business Support 139 Finnish Equities 8 Management, Business Management & Legal 50 Swedish Equities 4 Total # of employeesin Danske Capital 368 Norwegian Equities 3 Equity Hedge 4 Trading 8 Personnel 54 Asset Class Asset Allocation 3 Fixed Income European Corporate Bonds 6 Equity & Fixed Income Solutions 5 Global Fixed Income & FX 5 External Solutions & Risk Management 12 Danish Fixed Income 6 Subtotal 20 Finnish Fixed Income 2 Country Solution Denmark 10 Swedish Fixed Income 2 Solution Finland 14 Norwegian Fixed Income 3 Solution Norway 1 Fixed Income Hedge 3 Subtotal 25 Subtotal 27 45 Total # of Investment Professionals: Alpha 81 As of august 2013 Danske Capital - Headcount Subtotal Total # of Investment Professionals: Solutions Investment Professionals: Solutions
  7. 7. 7 The portfolio teams interact on the basis of a shared knowledge base Europe Alpha Europe Stockpicking Europe LS Dynamic Global Equities High Dividend
  8. 8. 8 European and Global Equities: Structure and workflow Sector Specialist Sector Specialist Competence Person Sector Specialist Competence Person Sector Specialist Sector Specialist Sector Specialist PORTFOLIO TEAM PORTFOLIO TEAM PORTFOLIO TEAM PORTFOLIO TEAM
  9. 9. 9 Quality Delta The common elements in the investment process Internal deltas e.g.; • New products • New markets • Rationalisation External deltas e.g.; • Market imbalances • Structural growth • Industry dynamics • Barriers to entry • Management quality • Cash flow • Balance Sheet • ROE stability Valuation • Fundamental analysis • Peer Group Analysis • DCF Model • Price Target • But keep it simple
  10. 10. 10 As of 20 Nov 2012 Morten has 8 years of experience in the financial markets. Morten holds a M.Sc. in Economics. Claus Henrik Johansen Senior Portfolio Manager Born 1970 Claus has 13 years of experience in the financial markets. Claus holds a M.Sc. in International Finance & Macroeconomics. Jacob has 10 years of experience in the financial markets. Jacob holds a M.Sc. in Economics. Alexander has 6 years of experience in the financial markets. Alexander holds a M.Sc. in Finance & Accounting. Jacob Aarup-Andersen Chief Portfolio Manager Born 1977 Alexander Kokfelt Senior Portfolio Manager Born 1978 Anders Hornbak Senior Portfolio Manager Born 1972 Anders has 14 years of experience in the financial markets. Anders holds a M.Sc. in Economics. Morten Falch Senior Portfolio Manager Born 1973 Tobias has 5 years of experience in the financial markets. Tobias holds a M.Sc. in Economics. Christian Rasmussen Portfolio Manager Born 1983 Jens Boye Senior Portfolio Manager Born 1965 Tobias Carøe Siemenge Portfolio Manager Born 1985 Peter has 17 years of experience in the financial markets. Peter holds a M.Sc. in Finance & Accounting. Ivan has 19 years of experience in the financial markets. Ivan holds a M.Sc. in Economics & Business Administration. Christian has 1 years of experience in the financial markets. Christian holds a M.Sc. in Economics. Jens has 22 years of experience in the financial markets. Jens holds a Graduate Diploma in Finance. Ivan Larsen Chief Portfolio Manager Born 1962 Henrik has 28 years of experience in the financial markets. Henrik holds a M.Sc. in Economics. Henrik has 17 years of experience in the financial markets. Henrik holds a Graduate Diploma in Finance. Henrik Fænøe Head of European and Global Equities Born 1957 Henrik Husted Knudsen Chief Portfolio Manager Born 1970 Max has 19 years of experience in the financial markets. Max holds a CFA® in Finance. Hans-Henrik Garder Chief Portfolio Manager Born 1966 Allan Nielsen Senior Portfolio Manager Born 1970 Hans-Henrik has 27 years of experience in the financial markets. Hans-Henrik holds a Graduate Diploma in Finance. Max Jul Pedersen Senior Portfolio Manager Born 1970 Allan has 16 years of experience in the financial markets. Allan holds a M.Sc. in Finance & Accounting. Asger has 24 years of experience in the financial markets. Asger holds a M.Sc. in Economics. John William Olsen Chief Portfolio Manager Born 1971 John has 16 years of experience in the financial markets. John holds a M.Sc. in Economics & Business Administration. Asger Lund Nielsen Senior Portfolio Manager Born 1963 Peter Nielsen Chief Portfolio Manager Born 1973 European and Global Equities Network
  11. 11. 11 The European and Global Equity network – summary • Fundamental bottom-up stockpicking and long term thinking guides the investments • Half the managers have been working together for more than 10 years • Many members have responsibilities both as sector specialists and portfolio managers • All sectors are covered by a responsible sector specialist, but the portfolio mangers are an important part of the idea generation process • All products benefit from the same pool of in-depth knowledge about the european and global equity markets • Every portfolio has a responsible portfolio manager who has full discretion of the portfolio • The team-based network structure ensures exchange of knowledge
  12. 12. Return on Knowledge European Equities Long X Short Dynamic Frankfurt , 2013
  13. 13. 13  Chief Portfolio Manager at Danske Capital since 2012  10 years+ in London working for leading financial institutions  Goldman Sachs (Associate)  Highbridge Capital (Head of European TMT)  Montrica Investment Mgmt (Partner)  TPG-Axon Capital (Principal)  Part of starting Montrica Inv Mgmt in 2006, 2nd largest European hedge fund launch that year.  Sold Montrica to TPG-Axon in 2010  Recognized as strong active owner  NKT, Danisco, Drillisch and G4S examples  Won the 2012 Brendan Wood TopGun price as one of Europe’s top TMT investors. Jacob Aarup-Andersen Alexander Kokfelt  8 years intensive investment experience  Private equity analyst at SR Private Brands (small cap PE fund) for 2 years  Senior Portfolio Manager at Danske Capital for 6 years  Part of top ranking European stockpicking team  Focus on European small/midcap  Investment style is fundamental concentrated stock picking  Sector responsibility for Energy and Cap Goods for all European equities teams  Reserve officer in the Danish army prior to becoming an investor  External lecturer in corporate finance at Copenhagen Business School Portfolio Managers Very Complimentary Competencies
  14. 14. 14  European small- and midcap focused long/short fund with a focus on investing in "value with a catalyst/delta“  Market neutral over time / un-correlated returns  Large team (18) of investment professionals analyzing European equities for the hedge fund and the award winning long only funds  Dynamically sized, and diversified portfolio of 25-35 strategies, with an average holding period of 9-12 months  Rigorous investment process centred on deep fundamental bottom-up company research with dynamic allocation of capital between best opportunities to ensure the best risk-adjusted portfolio  Active owner approach with ongoing management dialogue  Risk management is key. Very rigorous tailormade hedging strategy and internal processes to actively address problematic positions early on  Capital preservation and absolute returns  UCITS fund with daily liquidity Fund Overview Market cap orientation: <EUR 5bn  Market Neutral  Delta / Catalyst  Tailormade Hedging  Stockpicking Limits of 8% for longs and 5% for shorts Gross Exposure of 150- 250% Average of 25-35 strategies Return Target of 5-9% above Repo Rate Turnover Ratio: Approx100%
  15. 15. 15  We look for companies, industries and securities undergoing transformationalchange.  Anything that involves a significantchange in the equity story or leads to a transition from one set of holders of the security to another set of holders.  Utilise a more diversified set of tools at our disposal to take advantage of mis-pricings  The analysis often centres around understandingthe pro-forma company post the catalyst and positioning the fund appropriately ahead of the event, and often before other participants are able/allowed to position themselves.  We believe that some of the best opportunities are often created by investors’ structuralor behaviouralconstraints.  Assessing risk / reward across different asset classes / strategies is therefore important when determining where to deploy capital.  Any risk disliked by traditional long-only managers provides the potential for attractive returns.  Informationalor analyticaledge is key:  In order for an opportunity to be attractive to us, there needs to be an analysis or informational edge we have developed through our work, allowing us to more intelligently assume a risk that others can not. Delta is Key
  16. 16. 16 Share Classes Merger Arbitrage Holding Companies Re-Financings Distressed Asset Restructurings Changed Industry Dynamics Dutch Auctions Financial Restructurings & B/S optimizations Dual Listed Structures M&A / IPO Events Placings / Rights Issues Mergers & Acquisitions & Divestitures / Spins We believe that we are in an attractive environment for delta focused investing, irrespective of the direction of the economy and markets Conglomerates Company Events / Catalysts Relative Value with Catalyst Announced Deals Credit Events Management Change / Strategic Change For example, many ways to play a rights issue: 1. Short position pre-event 2. Rights arbitrage (long rights, short stock) 3. Crash protection trade (rights are zero-delta for underwriters until it’s close to rights price) 4. Over-allotment trade 5. Technical long post rights period Delta Investing Defined
  17. 17. 17  High quality businesses  Long-term sustainable business models and strong management teams  Ability to gain an edge angle and ability to influence decisions as an active owner  Balance sheet potential, either to deploy into earnings enhancing M&A or to return to shareholders  We will avoid over-levered balance sheets as they pose significant risks to equity holders in times of operational issues  Earnings momentum  Investors are willing to pay a premium for earnings momentum  Strong valuation upside  Margin of safety is a key risk management tool  Good underlying FCF generation  Attractive reinvestment opportunities – look for change in return profile  Technical aspects:  Ability to hedge away unwanted risk  Liquidity / Scalability What do we look for in an Investment – beyond Delta?
  18. 18. 18 Portfolio Composition OutrightPositions  Outright Longs  Outright Shorts Valuewith a catalyst  Relative Value positions  Full hedging of all unwanted risks  Majority of positions beta neutral 15-30% 50-75% 0-25% SpecialSituations  Merger arbitrage  Rights issues  Capital structure trades + / - X% Overlay  Futures/Puts
  19. 19. 19 Performance and AUM Performance AUM (EURm) Investor SplitTop Winners and Losers (YTD) Strategy BPS Strategy BPS UNITED INTERNET 178 SEISMIC -36 DRILLISCH 114 LANXESS -40 FUGRO 95 SAIPEM -43 JAZZTEL 89 ARCHER -49 NORMA 72 AKER -167
  20. 20. 20 Risk Performance in Market Stress1 (since inception) Risk Metrics  VAR (1 month, 99%): 3,2%  Volatility: 4,4% RBC Stress-Testing Portf Return Tech Falls 1,02% LTCM -0,94% Asian Crisis -1,57% G8 Equity Shift 1m worst 97-05 -1,56% Sept 01 crash -0,72% Oct 2008 crash -4,08% Oct 1987 crash -2,60% 1 Days when SX5E fell more than 1%
  21. 21. 21 Current Portfolio Composition  Current portfolio consists of 34 strategies  Largest Strategies # of strategies Long Short Long Short Relative Value 24 73% -64% 77% -63% Outright 8 15% -18% 14% -20% Special Sits 2 2% 0% 1% 0% Net Exposure Cash 9% Nominal Exposure Beta-Adj Exposure 8% 9% Nom Beta Nom Beta Nom Beta Nom Beta Aker Solutions 4,7% 7,2% Fugro 4,8% 5,2% Tele2 4,1% 1,8% ZON 3,6% 2,8% Stoxx600 Oil&Gas -2,5% -2,5% Technip -1,2% -1,3% Teliasonera -1,6% -1,1% Belgacom -0,9% -0,9% Total -1,1% -0,9% Seadrill -1,3% -1,1% TDC -0,4% -0,1% Teliasonera -0,6% -0,4% Fred Olsen -1,0% -1,2% Tecnicas -1,3% -1,0% Telefonica -0,6% -0,6% Telefonica -1,4% -1,4% Neste Oil -0,6% -0,7% SX5E -1,8% -1,8% 1,5% 0,0% 0,6% 0,1% -0,5% 1,9% -0,9% 0,0% ZONAker Solutions Fugro Tele2
  22. 22. 22  Portuguese cable player challenging Portugal Telecom in fixed line, bb and TV  Great management team and resilient business model and earnings profile  Continued EBITDA growth through the economic crisis in Portugal  Strong value support:  Significantly cheaper cable operator versus rest of Europe  40% valuation discount to European cable names  Significant delta:  Merging with Optimus (3rd largest mobile player) to create only fully integrated competitor to Portugal Telecom  Strong cost and revenue synergy potential => Clear driver of earnings growth  Merger driving a change of shareholder base (banks replaced by more proactive investors)  Cash return story:  ZON is underlevered with expected ND/EBITDA of <2x and falling further due to strong cash flow  Cable names are usually levered 3-4x EBITDA  Takeover target:  Significant M&A activity in the European cable sector.  Liberty Global clear about wanting to “buy in Southern Europe”  Hedging: Portugal Telecom, Telefonica and other telco names Investment Case: ZON Multimedia
  23. 23. 23 Fugro services – seabed analysis, mapping, ROV activities, satellite positioning of rigs and vessels • What’s the opportunity? We see strong, visible demand for subsea services through 2020 • High degree of competence and technology is required (nice markets, few competitors, stable prices, growing demand) • Fugro is showing capital discipline by divesting non core divisions (seismic) and refocusing on core areas where Fugro has leading markets positions and high returns. • Offshore constructions orders, is a leading indicator of Fugro future activity. Profitability catch up vs. offshore contractors. • Strong FCF and balance sheet allows re-investment into high return areas. Fugro has a strong track record of high return investments and capital discipline. Consistent Growth in Wells, Especially Deepwater Large investments needed to produce deepwateroil Investment Case: Fugro
  24. 24. 24 Summary  European small- and midcap focused long/short fund  Fundamental stockpicking focus (18 dedicated analysts and PMs)  Value with a catalyst / delta  Market neutral over time / un-correlated returns  Risk management and capital preservation is no 1 priority
  25. 25. 25 Disclaimer & Contact information This publication has been prepared by Danske Capital for information purposes only. The presentation must be read in conjunction with the oral presentation provided by Danske Capital. Danske Capital Parallelvej 17 DK-2800 Kgs. Lyngby Tel. +45 45 13 96 00 Fax +45 45 14 98 03