Gam

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Gam

  1. 1. Citywire BerlinAlpha generation with European Equity long/short investing7-9 November 2012 Tina Söderlund-Boley Geoff Zeven Daniel Durrer Head of Institutions Client Manager – Head of Institutional & Intermediaries Northern European & Fund Distribution Northern Europe Institutions & Intermediaries (Continental Europe)This document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  2. 2. GAM historyGAM’s culture and investment approach remains unchanged ● 1983: GAM founded by Gilbert de Botton Dublin London – GAM begins managing absolute return strategies Zurich Tokyo ● 1989: GAM begins managing fund of hedge fund strategies New York Lugano ● 1999: UBS buys GAM Hong Kong ● 2003: GAM becomes part of SBC Wealth Management, Los Angeles Bermuda a UBS subsidiary comprising Ehinger & Armand von Ernst, Ferrier Lullin and Banco di Lugano ● 2005: Julius Baer buys SBC Wealth Management – Hans de Gier, Chairman of GAM, becomes Chief Executive of combined group ● 2008: Independent operating unit under JB Holdings with offices in eight countries ● 2009: Julius Baer separates its private banking (Julius Baer Group) and asset management arms (GAM Holding) – Each independently listed on the SIX Swiss Exchange ● 2012: GAM acquires boutique equity hedge asset management firm, Arkos Capital SA1Source: GAM. 21. For your information 74.95% of the capital of, and voting rights in, GAM Investment Management Lugano SA (formerly Arkos Capital SA) are owned by GAM Group AG, Zurich, which is a directly held100% subsidiary of GAM Holding AG. The remaining 25.05% are currently still owned by the senior investment management of GAM IM Lugano . However, agreements have been closed with themanagement of GAM IM Lugano for the future purchase of this remaining 25.05% by GAM Group AG.
  3. 3. GAM Holding AGAn independent, listed asset management group ● GAM Holding AG is an independent group ● Entirely dedicated to asset management GAM Holding AG1 ● Over 1,083 staff in nine locations globally USD 117.4bn ● USD 2.0 billion market cap company ● Listed on the SIX Swiss Exchange ● Consisting of two leading investment managers ● Each has well-established capabilities and brands ● Complementary investment offerings AuM USD 48.0bn2 ● Operate autonomously, but co-operate and collaborate AuM USD 87.3bn where it is in the best interest of clientsSource: GAM as at 30 Jun 2012. 31. Group assets under management exclude double-count of funds managed by GAM and distributed by Swiss & Global Asset Management (USD 17.8 billion as at 30 June 2012) which are reported inboth businesses. 2. The reported total AuM of GAM of USD 48.0 billion includes cross-holding assets of approximately USD 4.6 billion in accordance with Group accounting policy, which follows theprinciples of the Swiss Financial Market Supervisory Authority (FINMA). GAM’s assets under management without cross-holdings as at 30 June 2012 are approximately USD 43.4 billion.
  4. 4. About GAMGAM is an independent, active investment management firm ● GAM is an independent, active investment manager GAM AuM by Client Type – Delivering investment solutions to institutions, intermediaries, private clients and charities globally 10% – Long history of open architecture investing attracts talented managers Wholesale fund distribution 10% ● All our managers are active investors Institutional clients – Chosen for their specialist skills by our investment research teams 52% Private clients – Free to invest without having to conform to a single ‘house style’ 28% – Equipped with extensive risk management and modelling tools Discretionary & advisory portfolios ● USD 48.0 billion1 in AuM across ~ 60 different investment strategies – Approximately 15 in-house and 11 external investment teams of dedicated funds GAM AuM by Product Type – Discretionary portfolios and FoHFs invest with ~120 external managers 10% ● A distinctive, performance-driven investment culture Abs. return single manager – Upheld by the highest calibre of investment and client service 13% 32% Fixed income professionals – Focus on producing returns and managing risk for long-term success Equity 19% Multi-manager 26% Discretionary & advisory portfoliosSource: GAM as at 30 Jun 2012. 41. GAM reports its assets under management breakdowns on a half yearly basis in line with Swiss accounting rules which apply to our parent company, GAM Holding AG. Holdings and allocations aresubject to change. The reported total AuM of GAM of USD 48.0 billion includes cross-holding assets of approximately USD 4.6 billion in accordance with Group accounting policy, which follows theprinciples of the Swiss Financial Market Supervisory Authority (FINMA). GAM’s assets under management without cross-holdings as at 30 June 2012 are approximately USD 43.4 billion.
  5. 5. Alpha generation with European Equity long/short investing Paolo Longinotti Fund Manager GAM non-directional equityThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  6. 6. Non-Directional EquityApplying a solid and consistent investment approach since 2002 ● Non-directional equity team with EUR 664.1m under management, based in Switzerland ● Formerly Arkos Capital SA, which became part of GAM Group AG in July 2012* ● A consistent approach, based on fundamental analysis and a bottom-up approach to stock selection ● Core team of seven long-standing and highly experienced investment professionals ● Managing a range of low volatility, liquid and transparent absolute return funds, both offshore and UCITS ● Significant portion of teams’ liquid assets invested in the fundsSource: GAM as at 30 Sep 2012. 6* For your information 74.95% of the capital of, and voting rights in, GAM Investment Management Lugano SA (formerly Arkos Capital SA) are owned by GAM Group AG, Zurich, which is a directly held100% subsidiary of GAM Holding AG. The remaining 25.05% are currently still owned by the senior investment management of GAM IM Lugano . However, agreements have been closed with themanagement of GAM IM Lugano for the future purchase of this remaining 25.05% by GAM Group AG.
  7. 7. History of the team 2002 Launch of Talentum Activedge – 2008 Launch of World Invest Absolute Strategy – European non-directional Hedge Fund Convertible Bonds Fund (UCITS) 2003 Launch of World Invest Absolute Return - European Equity L/S fund (UCITS) 2009 Launch of World Invest Absolute Emerging – Emerging Markets Equity L/S fund (UCITS) 2004 Launch of Talentum Enhanced – 2 times levered version of European non-directional Hedge Fund 2010 Launch of World Invest Absolute Financials – Global Financials Equity L/S fund (UCITS) 2007 Spin-off of fund management activities and incorporation of Arkos Capital SA. Launch of offshore Emerging Markets Equity L/S Hedge Fund 2012 Arkos Capital SA acquired by GAM Group AG* and in October became GAM Investment Management Lugano SA, with investment team and approach remaining unchangedFor your information, GAM Group AG, a wholly owned subsidiary of GAM Holding AG, completed the acquisition of 74.95% of GAM Investment Management Lugano SA on 31 July 2012 and closed 7agreements with the management of GAM IM Lugano for the future purchase of the remaining 25.05%.NOTE: Funds may not be registered for sale in all jurisdictions. This is not an invitation to invest in the named funds.
  8. 8. Overview of investment performanceAs at 30 Sep 2012 Performance Developed Europe 2011 % YTD % SI % SI % pa Inception Date Volatility (SI) Fund Size EUR m GAM Talentum Europe Long/Short 1.7 7.5 80.3 6.0 23 Jul 2002 4.2 39.7 GAM Talentum Enhanced Europe Long/Short 2.9 16.3 118.8 10.5 30 Nov 2004 9.3 146.8 World Invest Absolute Return – C EUR1 2.0 9.3 73.7 6.0 7 Apr 2003 5.4 167.3 Emerging Markets2 GAM Talentum Emerging Long/Short 0.7 9.9 59.0 8.5 1 Feb 2007 6.8 52.7 World Invest Absolute Emerging – C EUR 0.2 5.5 20.2 5.9 10 Jul 2009 5.3 52.6 Financials World Invest Absolute Financials – C EUR -6.6 5.4 4.0 1.6 7 May 2010 5.8 11.8 Convertibles World Invest Absolute Strategy – C EUR -9.0 10.2 8.6 1.7 2 Jan 2008 9.3 109.9 Other 83.33 Total AuM 664.1Past performance is not indicative of future performance. Performance is provided net of fees.Source: GAM. Fund sizes may not sum exactly due to rounding. 1. Prior to 2009 World Invest Absolute Return was not a sophisticated UCITS fund, performance before that time may not be an accurate 8guide as the fund was shorting futures rather than individual stocks, whilst also retaining a net long exposure by mandate. For a more accurate guide to performance prior to 2009 a comparison with GAMTalentum Europe Long/Short is advised. 2. Up to Dec 2011 GAM Talentum Emerging Long/Short and World Invest Absolute Emerging were run pari-passu. As of Dec GAM Talentum Emerging Long/Shorthas 1.5x the gross exposure of World Invest Absolute Emerging. 3. Includes Long Only Fund (EUR4.3m) and Managed Accounts (EUR79.1m).
  9. 9. Overview European equity long/short team ● Range of developed long/short equity funds – Onshore and offshore vehicles Gianmarco Mondani – Range of risk and return targets CIO and Founding Partner of GAM Investment Lugano SA – 16 years’ investment experience ● Highly experienced managers with proven track records – Formerly at Banca Arner and Martin Currie IM – Extensive local networks for real insights – MA Inv Analysis from Sterling University and BA (cum laude) in Econ & Bus studies from Genoa University – Long-term knowledge of markets and companies – Work collaboratively with wider non directional investment team Roberto Cantaluppi Senior Fund Manager ● Disciplined investment approach combining – 16 years’ investment experience – Solid quantitative idea generation framework – Formerly at Allianz AM, San Paolo IMI and Mediosim – Alpha generation through anticipating earnings surprises – MA and BA (cum laude) in Econ from Bocconi – Clear focus on fundamental stock analysis University ● Strong focus on risk management Paolo Longinotti – Embedded throughout the investment process Fund Manager – 14 years’ investment experience – Dedicated Risk Manager conducts daily monitoring – Formerly at Eurizon, Fidentiis and SOPAF Capital – Qualitative conditioning overlay manages volatility – BA in Econ & Bus Admin from Università Cattolica del Sacro CuoreSource: GAM as at 30 Sep 2012. 9
  10. 10. Key characteristics – Developed Europe Name World Invest Absolute Return GAM Talentum Europe Long/Short GAM Talentum Enhanced Europe Long/Short Developed Europe long / short Developed Europe long/short equity Developed Europe long/short equity fund with a Strategy equity fund with a low beta fund with a non directional objective non directional objective objective Same long and short positions (through swaps and single stock 2x leveraged version of Description futures) as Flagship European Low vol, beta neutral, all market cap GAM Talentum Europe Long/Short Equity L/S Non Directional Hedge Fund, Beta up to 0.5, all market cap Fund type UCITS Offshore Offshore Gianmarco Mondani, Roberto Gianmarco Mondani, Roberto Gianmarco Mondani, Roberto Cantaluppi and Fund manager Cantaluppi and Paolo Longinotti Cantaluppi and Paolo Longinotti Paolo Longinotti Inception date 7 Apr 2003 23 Jul 2002 30 Nov 2004 Typical number of 90-140 90-140 90-140 positions Target gross exposure 140-210% 120-180% 240-360% Monthly on 30 days notice Monthly on 30 days notice Dealing Daily No lock-up No lock-up 1.75% management fee 1.0% management fee 1.5% management fee Fees 15% performance fee on a high 20% performance fee on a high 20% performance fee on a high watermark basis watermark basis watermark basis Minimum investment EUR 5,000 EUR/USD 100,000 EUR/USD 100,000 ISIN (EUR/USD) LU0028583804 KYG8668M1006/ KYG8668M1188 KYG8668P1037/ KYG8668P1110 10
  11. 11. Investment philosophyOur edge lies in our ability to identify stocks that will surprise by exceeding or falling short of analysts’ expectations ● We believe that current stock prices reflect all available market information and this is also reflected in analysts’ consensus on earnings expectations ● Therefore, in order to make money we need to anticipate changes: We buy a stock if we believe that it will beat analysts’ expectations We sell a stock if we believe that it will miss analysts’ expectations 11
  12. 12. Changes in earnings expectations Earnings expectations – Developed Europe ● The blue line shows the relative performance of a portfolio of350 Stocks with earnings upgrades outperforming stocks acquired on a monthly the underlying MSCI Europe index basis that in the previous 3 months have experienced the300 best positive revisions ● The orange line shows the250 relative performance of a portfolio of stocks acquired on a monthly basis that in the200 previous 3 months have experienced the worst negative Stocks with earnings downgrades underperforming revisions150 the underlying MSCI Europe index100 Long50 Short 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: BoAML, MSCI. Data for period 31 Dec 1992 to 28 Sep 2012. 12
  13. 13. Investment approachA stock selection approach based on bottom-up, fundamental analysis ● Historical evidence shows that earnings’ revisions work best if supported by valuation and price momentum ● If the valuation is supportive we can have a bigger weighting – Cheaper (more expensive) companies tend to appreciate (depreciate) more on earnings revision than those that are more expensive (cheaper) ● If price momentum is supportive we have a higher degree of confidence – We buy on strength, we sell on weakness ● Our fundamental, alpha-generating investment approach has driven every investment decision since 2002 ● Quantitative tools are used exclusively to identify investment ideas and for risk management purposes 13
  14. 14. Investment processOverview Risk management On going assessment of macro environment 1 2 3 Idea generation Stock selection Portfolio construction and management  Quant screen  Fundamental analysis  Pre-trade risk analysis (StarMine)  Company contacts  Sizing of positions  Targeted consensus screen  Portfolio robustness continuous assessment  Company meetings Investment guidelines and internal rules 14
  15. 15. Idea generationQuantitative screening – StarMineDetermineswhich stocks… …are candidates for long or short …appear to be relatively cheap or … and have momentum positions based on revisions expensive… for next year. Component Price Earnings + Valuation + momentum Features Provides percentile ranking of Provides reasonable stock Provides percentile ranking of stocks based on changes in valuation based on blend of P/E, stocks based on recent 6-12 EPS, EBITDA and revenue P/B, P/CF, dividend yield months price performance estimates EV/Sales and EV/EBITDA Benefits Earnings revisions Identifies potential to make Allows us to buy on strength are serially correlated further gains when valuation is and sell on weakness supportive 15
  16. 16. Idea generationTargeted consensus screen and company meetings Targeted EPS, for Broker Screen1 Domicile consensus-2012 % Diff Company P/E % vs. Name Curr. Ctry. Cons. Prev Current change Cons. Cons. Broker: ABC Estimates updated following forecasts reviews of Mediaset EUR Italy 18x 0.08 0.07 -12.5% 0.11 -30.0% Mediaset Espana. Also cut Q2 advertising forecasts from -11% to -12.5% (EUR 16m) Estimates updated driven by improved FX Danone EUR France 16x 3.20 3.40 6.00% 3.40 = transaction (weak Euro) Increases estimates by 5% for coming years Teleperf. EUR France 9x 2.20 2.30 5.00% 2.20 5.00% mainly due to better cost control ● Constant focus on the consequence of “changes” ● Regular meetings with companies and regular contact with their management ● Communication with brokers concentrating only on earnings expectations, not on buy/sell ● Analysis and cross-referencing of information with recommendations or price targets sector/ industry peers ● Attendance at relevant sector/country conferences 161. For illustrative purposes only.
  17. 17. Current positioning and outlookThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  18. 18. Current environmentOur view has been the same for a while Background ● Distinct lack of earnings growth due to slow real growth in global GDP ● Any growth in earnings would be primarily driven by inflation, anyway marginal ● Analysts forecasted 2012 earnings growth to be 12%, have now revised expectations for 2012 earnings growth to be -2.5% ● Analysts currently forecast 2013 earnings growth to be 12%, we believe this to be unrealistic ● Opportunity for absolute re-rating of stock markets limited, as rates no longer falling and PE is 12x on 2013 optimistic assumptions Implications for our strategy ● We don’t believe markets have much mileage, however lack of economic growth means huge distinction between companies that can deliver growth and positive earnings surprises versus those with who deliver the opposite ● This has been the situation in Spain and Italy for the last two years and Japan in the 1990’s ● We continue to see ample opportunity for differentiation, this has been the driving factor in performance over the last 3 years Portfolio ● Long book: Companies whose prospects are dependant on their own actions and can surprise positively – PE’13 is 11.3x (PE ’12 is 13x): consensus expects 15% growth and can be beaten ● Short book: Companies with structural problems – PE’13 is 12.5x (PE ‘12 is 15.4x): consensus expects 23% earnings growth which is unlikelySource: GAM as at 31 Oct 2012. 18
  19. 19. Current positioning – Long book Long visible growth Overall long companies with visible growth due to structural opportunities or restructuring.  Growth stocks (BIC, Diageo, Reed, Babcock, Ryanair, Easyjet, Viscofan, Capita, Dufry)  Oil capex (Seadrill, PGS)  Structural growth in tech (ASMI, Austriamicrosystems, Unit4, Atos, Micro Focus)  Price power in insurance (Prudential, RSA, Tryg, Gjensidije) and client offering in Italian asset management (Azimut, Mediolanum)  Self help restructuring in cyclcials (Prysmian, Bilfinger, TUI, Oerlikon, Smurfit) Long book PE ’13 is 11.3x (PE ’12 is 13x) consensus expects 15% growth, this can be beatenSource: GAM as at 31 Oct 2012. 19
  20. 20. Current positioning – Short book Short structural problems Short companies with structural problems within industry or facing new challenges  Entrenched structural problems of overcapacity (Legrand, Mittal, France Telecom, TPSA, Geox, CRH, Kingfisher)  European utilities (Verbund, Fortum, Veolia, GDF)  Media disintermediation (TF1, Mediaset, Sanoma)  Spanish and Central European banks  Next shoes to drop (Straumann, Jeronimo Martins, ABB, Sandvik) Short book PE’13 is 12.5x (PE’12 is 15.4x) consensus expects 23% growth, reversal only if you hope for strong economic growthSource: GAM as at 31 Oct 2012. 20
  21. 21. Developed EuropeThemes World Invest GAM GAM Talentum Sector – % breakdown Absolute Return Talentum Europe Enhanced Europe Banks 2.7 2.6 4.6 Basic Materials -1.0 -0.9 -1.8 Consumer Cyclicals 1.1 1.0 2.1 Consumer Non-Cyclicals 1.8 1.6 3.2 Diversified Financials & REIT 2.7 2.3 4.5 Energy 3.6 3.1 6.0 Futures 0.0 0.0 0.0 Health Care -3.4 -3.1 -6.1 Industrials -2.6 -2.4 -4.6 Insurance 4.2 3.6 6.8 Media -2.2 -1.9 -3.5 Option 0.0 0.0 0.0 Services Cyclicals -0.9 -0.8 -1.6 Services Non-Cyclicals 5.8 5.1 9.7 Technology 3.1 2.8 5.4 Telecommunication Services -0.8 -0.7 -1.2 Utilities -3.0 -2.6 -4.9 Long 65.2 57.0 111.0 Short -54.1 -47.4 -92.3 Net 11.1 9.6 18.7 Gross 119.4 104.5 203.2Source: GAM as at 30 Sep 2012. NOTE: Index positions broken down into individual sectors. 21Allocations and holdings are subject to change.
  22. 22. Example of one long investment – BIC From end of Aug 2007 to end of Aug 201280 3507060 30050 25040 20030 2007 2008 2009 2010 2011 2012 Price (LHS) Best Standard EBIT + C A (RHS) Source: Bloomberg (as of end of August). 22 References to any security or company are not a recommendation to buy or sell any security and are for information purposes only.
  23. 23. Stock examplesLong example – BIC Company background ● Leading consumer staple company with leading positions in lighters, shavers and stationary ● Growing presence in emerging markets ● 20% margin helped by 37% margin in lighters ● Strong net cash position (400m) Position history ● Analysts were expecting no growth in 2012 ebit vs 350m in 2011 ● But BIC has growth opportunities in all divisions. Simply assuming some 10m help from currency and 10m growth (5%) in lighters where they are rapidly internationalising, one could see positive revisions We added to the stock in December 2011 ● After very strong q1 and q2 organic growth (10% and 6%) in consumer, consensus upgraded estimates. But still, factoring in that the APP division losses have been erased, consensus implies almost no growth in 2H and in 2013 where the special 11m bonus to employees won’t recur. We expect more than 400m EBIT ● Valuation was only 12 times PE despite more than 10% of market cap in cash. After a big rise (30% YTD) it still trades on 12 times PE adjusted for cash We are still long the stockReferences to any security or company are not a recommendation to buy or sell any security and are for information purposes only. 23
  24. 24. Example of one short investment – Vallourec From 31 Aug 2007 to 24 Aug 2012 180090 16008070 140060 12005040 100030 800 2007 2008 2009 2010 2011 2012 Price (LHS) Best Standard EBITDA + C A (RHS) Source: Bloomberg (as of end of August). 24 References to any security or company are not a recommendation to buy or sell any security and are for information purposes only.
  25. 25. Stock examplesShort example – Vallourec Company background ● Leading stainless steel tube manufacturer ● We saw big capacity additions in the industry in the period to 2014 bringing prices down ● Vallourec had already profit warned due to problems in ramping up their new Brazilian and US facility Position history ● Consensus was assuming growth in ebitda from 1.1bn pre Brazilian losses despite no evidence of any improvement in Brazilian operations, lack of additional room to increase volumes and pricing offset by raw materials. We expected a decline ● Valuation was expensive as the apparently cheap PE (10 times) on consensus earnings was offset by a premium to book value We shorted Vallourec in August 2011 (price 57 euro) ● Through several profit warnings in the 1H of 2012 Vallourec admitted to its problems, to which the falling iron ore prices were added ● Estimates reached our level of some 830m ebitda in 2012 in mid May after an additional profit warning We closed the short at a price of 32 euroReferences to any security or company are not a recommendation to buy or sell any security and are for information purposes only. 25
  26. 26. Outlook for Europe L/S ● In a market led by earnings growth (see 2004-mid 2008) a conservative approach based on earnings revisions can deliver consistent absolute returns ● In 2004 – mid 2008 our funds kept pace with rising stock markets’ despite not taking any market risk ● If anything market growth should be lower this time due to slowing macro indicators (earnings) ● We believe our funds can achieve better returns than the markets with no directional risk ● Over the last two years, in a period of low economic growth, the funds returned positive performance thanks to their focus on single stock differentiation - this is set to continueSource: GAM as at 31 Oct 2012. 26The views are those of the manager at the time of publication and are subject to change.
  27. 27. Why Developed Europe?Proven ability to capture alpha through strong stock selection ● Award winning equity long/short team with over 120 years’ combined investment experience – Team awarded AAA Alternative UCITS Manager Rating by Citywire* – Fewer than 5% managers manage to achieve this accolade ● Methodical, disciplined approach to generating investment ideas ● Bottom-up approach with qualitative conditioning overlay built for navigating market complexities – Intensive company research can find opportunities across environments – Overlay designed to dampen portfolio volatility, steadying returns ● Anticipation of earnings surprise and valuation re-ratings are a sustainable source of alpha ● Multi-faceted risk management by both investment team and dedicated risk manager using proprietary systems ● Strong risk-adjusted returns without significant beta exposure to underlying markets – Alpha from both long and short books – Significant outperformanceSource: Citywire 27* Citywire rating awarded July 2012 based on managers historic performance across the funds they manage, and therefore are marketed as manager ratings rather than fund ratings.
  28. 28. Performance and analysisWorld Invest Absolute Return – C EURThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  29. 29. World Invest Absolute Return - C EUR Performance from 7 Apr 2003 (inception) to 29 Oct 2012 Ann.Std.Dev. Simple Perf.% Perf.% Ann.100 % World Invest Absolute Return - C EUR 76.2 6.1 5.480 % FTSE Eurotop 100 Index in EUR 73.4 5.9 14.2 Average EUR 1 Month Deposit Rate 21.7 2.1 0.460 % HFRX Equity Hedge (GAM hedged) in EUR -2.5 -0.3 8.240 %20 % Beta for Period0% World Invest Absolute Return – 0.16 C EUR - 18 months rolling beta v. FTSE Eurotop 100 Index in EUR1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1. From inception of the strategy in Apr 2003 to Nov 2008, the mandate was to have a low volatility product with a Past performance is not indicative of future performance. Performance is provided net of fees. modest beta (target beta of 0.3). Funds do not have the security of capital which is characteristic of a bank deposit. Source: GAM, Thomson Reuters, Bloomberg 29 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  30. 30. World Invest Absolute Return - C EUR Returns from 7 Apr 2003 (inception) to 29 Oct 2012 Annual Performance Annualised Performance 13.0 for Period %15 % 29.7 13.5 25.620 % 17.2 16.110 % 13.8 12.8 11.4 11.5 11.3 11.3 10.8 10.3 7.9 9.0 9.28.08.1 6.7 5.8 6.8 3.6 3.0 3.6 3.3 6.1 5.9 1.8 2.00% 0.35% 1.5 -5.9 1.0-20 %0% -10.8 -0.3 -19.0 -2.4 -3.7-5 % -25.9-40 % -6.3 -40.8 2003Part 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD 1 Year (Simple) 3 years 5 years Since Inception World Invest Absolute Return - C EUR FTSE Eurotop 100 Index in EUR HFRX Equity Hedge (GAM hedged) in EUR Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, Thomson Reuters 30 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  31. 31. World Invest Absolute Return - C EUR Risk characteristics from 7 Apr 2003 (inception) to 29 Oct 20120.8015 %0% 0.75 14.20.60-10 % -15.60.40-20 %10 % 0.270.20 8.2-30 % -30.30.00-40 % 5.45%-0.20-50 % -0.28 -51.20% World Invest Absolute Return - C EUR The higher the number, the greater the variability of performance /ratio of reward to risk. In general, the higher the number the better largest loss, peak to trough based on monthly data A risk The FTSE Eurotop 100 Index in EUR HFRX Equity Hedge (GAM hedged) in EURnnualised Standard Deviation Sharpe Ratio Maximum Drawdown Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, Thomson Reuters 31 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  32. 32. Performance and analysisGAM Talentum Europe Long/Short - A EURThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  33. 33. GAM Talentum Europe Long/Short - A EUR Performance from 23 Jul 2002 (inception) to 19 Oct 2012 Ann.Std.Dev. Simple Perf.% Perf.% Ann.100 % GAM Talentum Europe Long/Short - A EUR 81.6 6.0 4.280 % FTSE Eurotop 100 Index in EUR 72.5 5.5 16.160 % Average EUR 1 Month Deposit Rate 24.3 2.1 0.4 HFRI/HFRX Equity Hedge Index (GAM Hedged) in EUR40 % -5.1 -0.5 8.020 % Beta0% for Period GAM Talentum Europe Long/Short - A EUR – 0.01 18 months rolling beta v. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 FTSE Eurotop 100 Index in EUR Past performance is not indicative of future performance. Performance is provided net of fees. Funds do not have the security of capital which is characteristic of a bank deposit. Source: GAM, Thomson Reuters, Bloomberg 33 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  34. 34. GAM Talentum Europe Long/Short - A EUR Returns from 23 Jul 2002 (inception) to 19 Oct 2012 Annual Performance Annualised Performance25 % 29.7 24.1 for Period % 25.620 %20 % 16.1 14.9 12.8 13.2 12.1 11.1 10.6 11.2 9.7 8.6 8.3 8.08.1 8.315 % 6.7 5.8 4.6 3.7 2.8 3.0 1.8 1.70% 0.70.3 10.810 % -0.4 -2.9 -2.2 6.6 6.7 6.0 5.5 -5.95% 3.5-20 % 2.70% -19.0 -0.5 -26.0 -2.7 -2.8-5 %-40 % -5.6 -40.8 2002Part 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD 1 Year (Simple) 3 years 5 years Since Inception GAM Talentum Europe Long/Short - A EUR FTSE Eurotop 100 Index in EUR HFRI/HFRX Equity Hedge Index (GAM Hedged) in EUR Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, Thomson Reuters 34 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  35. 35. GAM Talentum Europe Long/Short - A EUR Risk characteristics from 23 Jul 2002 (inception) to 19 Oct 2012 16.10% 0.9115 %0.80-10 % -11.80.60-20 %0.4010 % 0.210.20-30 % 8.0 -30.40.00-40 %-0.205% 4.2-50 %-0.40 -0.33 -51.20% GAM Talentum Europe Long/Short - A EUR The higher the number, the greater the variability of performance /ratio of reward to risk. In general, the higher the number the better largest loss, peak to trough based on monthly data A risk The FTSE Eurotop 100 Index in EUR HFRI/HFRX Equity Hedge Index (GAM Hedged) in EUnnualised Standard Deviation Sharpe Ratio Maximum Drawdown Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, Thomson Reuters 35 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  36. 36. Performance and analysisGAM Talentum Enhanced Europe Long/Short - A EURThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  37. 37. GAM Talentum Enhanced Europe Long/Short - A EUR Performance from 30 Nov 2004 (inception) to 19 Oct 2012 Ann.Std.Dev. Simple Perf.% Perf.% Ann.120 %100 % GAM Talentum Enhanced Europe Long/Short - A EUR 122.2 10.7 9.380 % FTSE Eurotop 100 Index in EUR 38.9 4.3 15.160 % Average EUR 1 Month Deposit Rate 17.5 2.1 0.4 HFRX Equity Hedge (GAM hedged) in EUR40 % -14.2 -1.9 8.620 %0% Beta for Period GAM Talentum Enhanced Europe Long/Short 0.08-20 % - A EUR – 18 months rolling beta v. 2005 2006 2007 2008 2009 2010 2011 2012 FTSE Eurotop 100 Index in EUR Past performance is not indicative of future performance. Performance is provided net of fees. Funds do not have the security of capital which is characteristic of a bank deposit. Source: GAM, Thomson Reuters, Bloomberg 37 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  38. 38. GAM Talentum Enhanced Europe Long/Short - A EUR Returns from 30 Nov 2004 (inception) to 19 Oct 2012 Annual Performance Annualised 24.1 Performance25 % 29.7 23.6 for Period % 25.620 % 21.020 % 19.7 18.4 18.1 16.1 15.3 12.8 13.215 % 8.0 8.1 14.1 6.7 5.8 3.0 2.9 3.70% 1.8 1.9 1.1 1.8 10.710 % -0.8 6.7 6.35% -5.9 4.3 -8.5-20 % 2.70% -19.0 -1.9 -2.7 -2.8 -25.9-5 %-40 % -5.6 -40.8 2004Part 2005 2006 2007 2008 2009 2010 2011 2012YTD 1 Year (Simple) 3 years 5 years Since Inception GAM Talentum Enhanced Europe Long/Short - A EUR FTSE Eurotop 100 Index in EUR HFRX Equity Hedge (GAM hedged) in EUR Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, Thomson Reuters 38 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  39. 39. GAM Talentum Enhanced Europe Long/Short - A EUR Risk characteristics from 30 Nov 2004 (inception) to 19 Oct 2012 15.10%15 % 0.920.80-10 %0.60-20 %0.4010 % 9.3 8.6 -25.00.20 0.15-30 % -30.30.00-40 %-0.205%-0.40-50 % -0.46 -51.20% GAM Talentum Enhanced Europe Long/Short - A EUR The higher the number, the greater the variability of performance /ratio of reward to risk. In general, the higher the number the better largest loss, peak to trough based on monthly data A risk The FTSE Eurotop 100 Index in EUR HFRX Equity Hedge (GAM hedged) in EURnnualised Standard Deviation Sharpe Ratio Maximum Drawdown Past performance is not indicative of future performance. Performance is provided net of fees. Source: GAM, Thomson Reuters 39 Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details of their calculation are available on request.
  40. 40. Stock selection and risk managementThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  41. 41. Stock selectionFundamental analysis Goal Determine which companies are likely to beat/miss analysts’ expectations on a 12-month view Approach 1. Analyse stocks that quantitative and qualitative screening suggests are most likely to experience positive (negative) revisions 2. Select those most likely to produce further positive (negative) surprises and trigger further changes in estimates 3. Compare sell-side research, check assumptions directly with management and challenge consensus view Factors In-depth analysis of influential factors based on P&L, balance sheet and cash flow analysis Results Stocks for potential inclusion in portfolio 41
  42. 42. Stock selectionFundamental in-depth analysis enables team to form medium-term view P&L Cash Flow Balance Sheet Revenues: EBITDA – interest – tax – capex: Debt levels: Quantity by price by currency plus Can the company support its What is appropriate? acquisitions minus disposals growth? Provisions: Gross margin: Working capital: What are the future cash costs? Measure of value added, mostly Must grow no more than sales, can variable costs make a company bankrupt or reduce Goodwill: its competitiveness Impairment test - can it cause equity Goodwill depreciation ratios to stretch? If negative: Operating margin: Can the balance sheet take it? Who Influenced by fixed costs, prices is paying for this? Interest costs: Leverage can be good but it is a fixed cost Associates (a separate company) and minorities (one way to fool you) Dividends: Are they sustainable? 42
  43. 43. Qualitative conditioning overlayActive management of portfolio level volatility and make portfolio more robust during market turmoil ● Earnings revisions have the upper hand unless there is market turmoil – Eg economic turning points or periods of unusual market behaviour (eg extreme short-term volatility) ● Qualitative conditioning overlay seeks to protect our approach from pressure it can experience at such times through Macroeconomic Impact at sector/ Impact at assessment industry level stock level Provides portfolio robustness during brief periods when earnings Impact of decisions at portfolio level revisions are not a good indicators of future price movements ● This ongoing process is based on the analysis of macroeconomic indicators – Such as ECRI, US ISM, EU PMI, Baltic Dry Index etc ● Reduces gross portfolio exposure and exposure to the most sensitive sectors during periods of turmoil 43
  44. 44. Portfolio construction and managementBottom-up approach featuring strict discipline and ongoing monitoring Goal Build and maintain portfolios that: 1. Hold only companies satisfying our fundamental analysis criteria 2. Are in line with the qualitative conditioning process 3. Are consistently robust and liquid in accordance with investment guidelines Approach ● Invest team constructs portfolio from bottom up using pre-trade risk analysis for each position ● Size trades according to our level of conviction, volatility and liquidity ● Maintain diversification through – Abiding by clear maximum exposure rules for each stock – Single stock exposures never greater than 3 days’ trading volume – Daily controls of exposure to market as per mandate – Actively managing correlations between positions Limits ● No specific country exposure (ex Emerging Markets strategies) or sector limits and ● No automatic lock-in of profits rules ● Dynamic stop-loss policy; not automatic one Results Low beta, well-diversified portfolio with strict risk controls 44 Result:
  45. 45. Risk managementMaintain risk proactively at each stage of the investment process Goal Maintain risk proactively at each stage of the investment process (idea generation, portfolio construction and portfolio management) ● Robust risk management framework built around and integrated with investment approach Structure ● Set of risk management tools utilised by investment team as part of ex-ante analysis Pre-trade ● Correlation management to avoid unwanted bets (adjusted Beta and t-Stat) risk controls ● Stress test analysis ● Liquidity/volume ● Volatility ● Long, short, gross and net exposure ● Proprietary (style) indicator of short-term overbought or oversold stocks 45
  46. 46. Risk management function ● Risk manager has independent supervisory function and operates at arms’ length ● Monitors adherence to: – Investment guidelines – Internal investment rules – Restrictions and risk limits ● Initiates appropriate corrective actions in case of any transgression ● In addition to the pre-trade risk analysis, the risk manager performs regular checks on: – Capacity limits – Sector and geographical exposure – Consistency between what quantitative data suggest and existing portfolio (comparison of portfolio longs and shorts versus what quantitative indicators tell us about each position) – Dynamic stop/loss analysis – Performance attribution 46
  47. 47. Risk managementCorrelation management Factors correlation beta t-stat Factors correlation beta t-stat EUR-USD X-RATE 0.133 -0.007 -0.265 S&P EU 350 CONS DISCT IX 0.529 0.021 2.075 EUR-CHF X-RATE 0.020 -0.049 -0.295 S&P EU 350 UTILITIES IDX 0.113 -0.034 -2.762 GBP-EUR X-RATE -0.063 -0.035 -1.019 S&P EU 350 MATERIALS IDX 0.436 0.007 0.724 GOLD SPOT $/OZ -0.007 -0.009 -0.669 S&P EU 350 FINANCIALS IX 0.259 -0.012 -1.540 DJ UBS INDUST METALS 0.256 0.001 0.070 S&P EU 350 HEALTHCARE IX 0.426 0.025 1.394 FTSE EUROTOP 100 INDEX 0.413 0.000 0.000 S&P EU 350 INFO TECH IDX 0.477 0.019 1.878 CAC 40 INDEX 0.358 -0.004 -0.388 S&P EU 350 INDUST INDEX 0.418 0.004 0.448 MILAN MIB40 INDEX 0.153 -0.018 -2.579 CYC-NCYC 0.371 0.013 0.962 DAX INDEX 0.430 0.006 0.537 LARGE-SMALL 0.031 0.016 0.528 FTSE 100 INDEX 0.504 0.021 1.490 VALUE-GROWTH -0.438 -0.150 -6.574 IBEX 35 INDEX 0.037 -0.025 -3.562 EURO-BUND -0.201 0.012 0.373 SWISS MARKET INDEX 0.455 0.021 1.194 VIX -0.335 -0.003 -1.288 NASDAQ 100 STOCK INDX 0.295 0.006 0.436 S&P 500 INDEX 0.342 0.008 0.494 VSTOXX -0.332 0.000 -0.162 BLP European Consumer Cyclical 0.506 0.016 1.733 US BREAK EVEN INFL RATE 10YR 0.045 0.088 0.564 BLP European Consumer Non-Cyclical 0.516 0.041 2.197 EUR-JPY X-RATE 0.240 0.009 0.458 DJ EURO STOXX LARGE P = 0.345 -0.007 -0.647 JAPANESE JPY SPOT 0.207 0.025 0.921 DJ EURO STOXX SMALL P = 0.319 -0.008 -0.782 RUSSELL 2000 0.325 0.008 0.699 DJ STOXX TMI VALUE P = 0.313 -0.014 -1.191 WTI Crude Oil 0.291 0.008 0.965 DJ = STXX TMI GRWTH P = 0.500 0.017 1.449 DEFENSIVE vs AGGRESSIVE -0.257 -0.014 -0.647 US 10Y BOND -0.153 0.021 0.450 EUR-SEK X-RATE -0.121 -0.007 -0.199 S&P EUROPE 350 ENERGY IX 0.381 0.002 0.173 SWEDISH MARKET INDEX 0.413 0.008 0.820 S&P EU 350 CON STAPLE IX 0.510 0.043 2.437 MSCI Emerging Free 0.350 0.011 0.802 S&P EU 350 TELECM SV IDX 0.185 -0.024 -1.709 Dax-Ibex spread 0.363 0.052 5.773  We want to ensure that the  We use a proprietary risk management tool that portfolio performance only reflects measures the current portfolio’s correlation to a calculated bets. wide variety of factors.Source: GAM as at 31 July 2012. 47
  48. 48. AppendixThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  49. 49. Opportunities in Europe 1. Visibility and growth versus structural problems – Longs in leading growth companies with excellent cash flows and visibility of earnings will produce absolute returns – Due to weak markets last year, we are able to buy such companies on cheap multiples (BIC, Diageo, Reed, Babcock, Ryanair, Easyjet, Viscofan, Capita, Dufry) – Many European companies have structural problems that are independent of economic growth and trade on high multiples (Legrand, Mittal, Geox, CRH, Kingfisher) 2. Resilient energy versus structural problems in utilities – Many energy capex-dependent companies will experience a boom in demand and trade on 12 times earnings (Seadrill, PGS) – Many European utilities will be plagued by government intervention and falling demand, and yet trade at a premium to the market (Verbund, Fortum, GDF, Veolia)Source: GAM as at 31 Oct 2012. 49The views are those of the manager at the time of publication and are subject to change.
  50. 50. Opportunities in Europe (cont) 3. Long structural growth in technology versus structural losers in media – Long structural growth in tech (ASMI, Austriamicrosystems, Unit4, Atos, Micro Focus) leads to upgrades on cheap multiples. – Pure media peers suffer from structural decline in viewership and trade at a premium (Sanoma, Mediaset, TF1, Schibsted) 4. Long stable growth in insurance and asset management versus struggling local banks with weak capital and high loan losses or weak underlying markets – Cash generation is improving beyond expectations in some insurance companies (Prudential, RSA, Tryg, Gjensidije) – Strong opportunity in asset management in Italy (Mediolanum, Azimut) – Some Spanish banks (Caixa) will have to resort to dilutive capital increases and have not fully impaired their books for loan losses – Some Central European banks suffer from structural problems and trade on similar multiples 5. Long resilient cyclicals with self help vs first problems emerging in some growth stocks – Some cyclicals can offset the slow environment with self help (Prysmian, Bilfinger, TUI, Oerlikon, Smurfit) – Some growth stocks are starting to feel more of a slowdown than their valuation suggests (Straumann, Alfal Laval, Jeronimo Martins, ABB, Sandvik)Source: GAM as at 31 Oct 2012. 50The views are those of the manager at the time of publication and are subject to change.

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