Tina Söderlund-Boley                 Daniel Durrer                           Head of Institutions   Head of Fund Distribut...
Convertible bondsAbundant opportunities for absolute returns                                              2
Introduction to GAM Fixed Income                                   3
GAM Holding AGAn independent, diversified asset management business   GAM Holding AG is an independent group,    entirely...
GAM overview    GAM is an independent, active investment     manager    USD 60.2 billion in AuM across ~ 60 different   ...
GAM Fixed Income Investment team  Expertise and experience spanning all fixed income and currency sectors globallyCo-Manag...
Fixed Income strategies              USD 26.6bn in assets for institutional and wholesale clients globallyLong only strate...
Convertible bond team   Global, absolute return approach to investing in convertibles      — Flexibility in trading style...
Ben Helm                    Investment ManagerConvertible Bonds                                         9
The case for investing in convertible bondsAttractive features embedded in convertibles are being recognised by a growing ...
Why convertibles?Superior risk return profile to credit or equities                                                       ...
Why UCITS III?UCITS III: Why actively manage and hedge?                                                                   ...
How do we manage convertibles?Background The index doesn’t work CB Arbitrage as a hedge fund doesn’t fit within a UCITS ...
Historical performance of convertibles vs other asset classesConvertible bonds have outperformed both equities and high yi...
Investment philosophy and processStructural mispricings are frequent and can be exploited   Convertible bond markets are ...
Portfolio construction – Investment strategies across the curve             Each strategy works in a different part of the...
How does our hedging work?Fund Value                                     Equity Market                               Long ...
Appendix           18
GAM Star Global Convertible Bond – USDPerformance from 17 Dec 2010 (inception) to 31 Oct 2011Source: GAM, BloombergPast pe...
GAM Convertible Bond Hedge - USDPerformance from 1 Jul 2009 (inception) to 31 Oct 2011Source: JP Morgan Hedge Fund Service...
Convertible Bond Portfolio of JB ARBF in EURPerformance from 29 Dec 2006 (inception) to 31 Dec 2010                       ...
KFW convertible versus straight bonds  Mean reversion plus free optionalityBPS  Source: Bloomberg                         ...
Bulgari – Pays for itself, and then some more ...         Bulgari 5 3/8% 2014             300             260Bond Price   ...
Autonomy – Takeover ratchet pays off againBond Price         Source: Bloomberg                                            ...
Cap Gemini – A loss making position, but the bond behaved as it shouldBond Price         Source: Bloomberg                ...
Cap Gemini – A loss making position, but the bond behaved as it should                                                    ...
Shire Pharmaceuticals – Cheap bond eventually noticed...      Shire 2 3/4% 2014       130       125       120BPS       115...
Contacts at GAM                  28
Contacts at GAMDaniel Durrer - Head of Fund Distribution Intermediary Clients Continental EuropeDaniel Durrer is Head of F...
DisclaimerSource: GAM unless otherwise stated (Unless otherwise noted, where shown, performance is shown net of fees, on a...
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Gam citywire nov11

  1. 1. Tina Söderlund-Boley Daniel Durrer Head of Institutions Head of Fund Distribution & Intermediaries Intermediary Clients Northern Europe Continental EuropeCitywire Berlin16 -18 November 2011 1
  2. 2. Convertible bondsAbundant opportunities for absolute returns 2
  3. 3. Introduction to GAM Fixed Income 3
  4. 4. GAM Holding AGAn independent, diversified asset management business GAM Holding AG is an independent group, entirely dedicated to asset management — Over 1,000 staff in 13 countries GAM Holding AG1 worldwide USD 134.8bn Consists of two leading investment managers: GAM and Swiss & Global Asset Management — Each have well-established capabilities and brands — Complementary investment offerings — Operate autonomously, but co-operate and collaborate where it is in the best AuM USD 60.2bn AuM USD 94.5bn interest of clientsSource: GAM as at 30 Jun 20111 Group AuM excludes USD19.9 billion of funds advised by GAM and distributed by Swiss & Global Asset Management. 4
  5. 5. GAM overview GAM is an independent, active investment manager USD 60.2 billion in AuM across ~ 60 different strategiesGAM AuM by Client Type GAM AuM by Strategy 11% 11% 11% 23% 54% 14% 24% Private clients Equity Institutional clients Fixed income Abs. return single manager 54% Wholesale fund distribution 23% Multi-manager Managed portfolios 29% Managed portfolios & composites & compositesSource: GAMAssets under management breakdowns are as at 30 Jun 2011. GAM reports its assets under management breakdowns on a half yearly basis in line with Swiss accounting rules whichapply to our parent company, GAM Holding AG. Holdings and allocations are subject to change. 5
  6. 6. GAM Fixed Income Investment team Expertise and experience spanning all fixed income and currency sectors globallyCo-Managers Tim Haywood and Daniel Sheard Investment Developed Emerging Mkts Specialist Grade and Convertible High Foreign Markets and & Foreign Investment Asset-Backed Bonds Yield Exchange Teams Interest Rates Exchange Securities Philip Mann Darren Reece Paul McNamara Ben Helm Johannes Mark Dragten Tom O’Shea Haroon Shaikh Caroline Gorman Alex McKnight Wagner Amy Kam Denise Prime Jack Flaherty Casey Derbyshire Dealers Chris Jarman Robert Champion Paul Ferrier Source: GAM As at 31 Oct 2011 6
  7. 7. Fixed Income strategies USD 26.6bn in assets for institutional and wholesale clients globallyLong only strategies Absolute return strategies● Global ● AR Bond● International USD ● AR Bond – Plus● US Core Plus USD ● AR Bond – Defender 10.6bn 16.0bn● Local Emerging Bonds ● Global Rates● Convertible Bonds ● Discretionary FX ● Emerging Market Rates ● Convertible BondsSource: GAM as at 30 Jun 2011Holding and allocations are subject to change. Latest data available. Assets under management are released on a six-monthly basis in line with GAM Holding AG policy. 7
  8. 8. Convertible bond team Global, absolute return approach to investing in convertibles — Flexibility in trading styles enables performance in most macro environments Two highly experienced convertibles managers — Combined 35 years experience analysing, selecting and structuring convertibles trades — Backed by the full resources of an established fixed income team Demonstrated skill both in managing the risks and extracting value from convertible bonds Six year track record of delivering consistent returns via their offshore fund Asymmetric asset class with low correlation with other fixed income strategies, equity indices and traditional bond benchmarksSource: GAM 8
  9. 9. Ben Helm Investment ManagerConvertible Bonds 9
  10. 10. The case for investing in convertible bondsAttractive features embedded in convertibles are being recognised by a growing set of market participants Asymmetric return profile gives convertibles Example: A typical convertible bond payoff significant benefits over other structures: 160 — Are effectively corporate bonds with an 140 embedded call option on the stock, CB value (USD) 120 providing upside potential 100 — Incorporate the security of a floor on the corporate bond, protecting the downside 80 60 Different trading strategies work in each part 40 of the curve allowing investors to profit from all 20 of them 0 Structural support for convertibles segment: 0 20 40 60 80 100 120 140 — Larger and more diversified investor Stock price (USD) base following the stresses of 2008 Parity CB Price Bond floor Soft bond floorSource: GAM 10
  11. 11. Why convertibles?Superior risk return profile to credit or equities Example: A typical convertible bond payoff Asymmetry 160 — Bond protection 140 — Equity upside CB value (USD) 120 — Optionality 100 80 60 40 20 0 0 20 40 60 80 100 120 140 Stock price (USD) Parity CB Price Bond floor Soft bond floorSource: GAM 11
  12. 12. Why UCITS III?UCITS III: Why actively manage and hedge? Example: A typical convertible bond payoff Don’t follow the index! 160 Bond Equity Don’t take risks you don’t like 140 The fair value line CB value (USD) Expensive — Rate, credit, equity… 120 100 Do selectively hedge broad 80 market risks 60 Do structure positions to profit 40 Cheap/mispriced during market falls 20 0 0 20 40 60 80 100 120 140 Stock price (USD) Parity CB Price Bond floor Soft bond floorSource: GAM 12
  13. 13. How do we manage convertibles?Background The index doesn’t work CB Arbitrage as a hedge fund doesn’t fit within a UCITS framework Portfolio of bonds targeting credit and equity themes while hedging specific and broader risks does work — Since 2005 in JB Absolute Return funds and since 2010 in UCITS form via GAM Star Global Convertible Bond 13
  14. 14. Historical performance of convertibles vs other asset classesConvertible bonds have outperformed both equities and high yield bonds over time Performance from 31 Dec 1997 to 30 Sep 2011Source: Bloomberg, Thomson Reuters 14
  15. 15. Investment philosophy and processStructural mispricings are frequent and can be exploited Convertible bond markets are ultimately driven by economic fundamentals — Understanding the macro backdrop is key to making money from convertibles Structural mis-pricing occurs due to imperfect information available in equity and bond markets — Non-economic decision-making — Variation of macroeconomic influences over time So we seekto use the — Influence of market backdrop, sentiment and geography on behaviour full set of tools Dominance of traditional, constrained investors perpetuate these inefficiencies available to profit from — Greed, fear and forced selling provide ongoing opportunities these inefficiencies Investment process 1. Macro: 2. Sectoral 3. Issuer 4. Portfolio Global outlook filtration analysis construction for local selection and analysis First and foremost Opportunities emerge Financial, structural, Three types of trading a macro house through sectoral and strategic analysis; not strategy create a regional filters just number crunching diversified portfolio 15
  16. 16. Portfolio construction – Investment strategies across the curve Each strategy works in a different part of the curve Directional Trades 160 Directional Trades (short)  Different trade types work (Long) across different parts of the 140 curveCB value (USD) 120 Mispriced  The weight of the portfolio to 100 any trade type at a given point 80 in time is aligned with overall 60 market conditions 40  Broad market conditions most 20 supportive of each type of trade are shown in the lower graph 0 0 20 40 60 80 100 120 140 Stock price (USD) portfolio assets Parity Recovery Weight of Recessionary Convertible Bond Price (Turning point) Growth (Towards the Bond floor (Upswing) trough) Soft bond floor Economic cycle – Recovery Mispriced Bond Balanced Equity Economic cycle – Growth Economic cycle –Recessionary Focus on trade type Source: GAM 16
  17. 17. How does our hedging work?Fund Value Equity Market Long Only Convertible Portfolio The Gap Risk Protection Source: GAM 17
  18. 18. Appendix 18
  19. 19. GAM Star Global Convertible Bond – USDPerformance from 17 Dec 2010 (inception) to 31 Oct 2011Source: GAM, BloombergPast performance is not indicative of future performance. Performance is provided net of fees. 19
  20. 20. GAM Convertible Bond Hedge - USDPerformance from 1 Jul 2009 (inception) to 31 Oct 2011Source: JP Morgan Hedge Fund Services (Ireland) Ltd, BloombergPast performance is not indicative of future performance. Performance is provided net of fees. 20
  21. 21. Convertible Bond Portfolio of JB ARBF in EURPerformance from 29 Dec 2006 (inception) to 31 Dec 2010 FOR ILLUSTRATIVE PURPOSES ONLYSource: GAMPast performance is not indicative of future performance. Performance is provided net of fees. NOTE: this track record represents a carve-out of the actual convertible bonds portfolio ofthe Julius Baer Multibond - Absolute Return Bond fund and is not available for direct investment. 21
  22. 22. KFW convertible versus straight bonds Mean reversion plus free optionalityBPS Source: Bloomberg 22
  23. 23. Bulgari – Pays for itself, and then some more ... Bulgari 5 3/8% 2014 300 260Bond Price 220 180 140 100 4.0 4.6 5.2 5.8 6.4 7.0 7.6 8.2 8.8 9.4 10.0 10.6 11.2 11.8 Stock Price Fair Bond Price Actual Price Equity Parity Value Source: Bloomberg 23
  24. 24. Autonomy – Takeover ratchet pays off againBond Price Source: Bloomberg 24
  25. 25. Cap Gemini – A loss making position, but the bond behaved as it shouldBond Price Source: Bloomberg 25
  26. 26. Cap Gemini – A loss making position, but the bond behaved as it should 26
  27. 27. Shire Pharmaceuticals – Cheap bond eventually noticed... Shire 2 3/4% 2014 130 125 120BPS 115 110 105 100 14 15 16 17 18 19 20 21 22 23 24 Stock Price Fair Bond Price Actual Price Source: Bloomberg 27
  28. 28. Contacts at GAM 28
  29. 29. Contacts at GAMDaniel Durrer - Head of Fund Distribution Intermediary Clients Continental EuropeDaniel Durrer is Head of Fund Distribution Intermediary Clients Continental Europe. He has over 20 yearsexperience in the investment fund industry and has held different positions in the marketing, product managementand fund distribution units of the Swiss Bank Corporation and UBS. Prior to joining GAM, Daniel was responsiblefor the business development of the investment fund unit of UBS in the Cayman Islands. He was educated inSwitzerland and holds a degree in Marketing Planning. He is based in Switzerland.Email: daniel.durrer@gam.comTine Söderlund-Boley - Head of Institutions & Intermediaries Northern EuropeTina Söderlund-Boley is Head of Institutions & Intermediaries Northern Europe. Prior to joining GAM in May 2000,she worked for Independent Investment Group, SEB & Öhman Fondkommission in Sweden. Tina Söderlund-Boleyholds a Master of Law from Uppsala University, Sweden. She is based in London.Email: tina.soderlundboley@gam.com 29
  30. 30. DisclaimerSource: GAM unless otherwise stated (Unless otherwise noted, where shown, performance is shown net of fees, on a NAV to NAV basis).The material herein is confidential and is intended solely for the use of the person or persons to whom it is given or sent and may not be reproduced, copied or given, inwhole or in part, to any, other person. It is aimed at sophisticated, professional, eligible, institutional and/or qualified investors who have the knowledge and financialsophistication to understand and bear the risks associated with the investments described herein. GAM has not independently verified information from other sourcesand no assurance can be given as to whether such information is accurate, true or complete and GAM makes no warranty, expressed or implied, regarding suchinformation. The views expressed herein are those of the speakers at the time of the conference (3 October 2011) and may not reflect their views at any time thereafter.The views of external speakers may differ from those of GAM.Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. It is not an invitationto subscribe and is by way of information only. Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for therelevant fund. Copies of funds’ prospectuses and financial statements can be obtained free of charge from GAM Fund Management Ltd, Georges Court, 54-62Townsend Street, Dublin 2. Shares in the funds are not available for sale in any state or jurisdiction in which such sale would be prohibited.Some of the funds mentioned herein are not subject to approval or regulation by the Central Bank of Ireland and are not subject to the benefit of any compensationarrangements. Moreover, these funds are not regulated under the Financial Services and Markets Act 2000 and consequently no protection is provided by the UKregulatory system and benefits available under the UK Financial Services Compensation Scheme do not apply.GAM Star Fund plc is authorised as a UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations,2003 (S.I. No.211 of 2003) and is a recognised scheme under the Financial Services and Markets Act 2000. The fund is managed by GAM Fund Management Limitedwhich is regulated by the Central Bank of Ireland.In the United Kingdom, this material has been issued and approved by GAM London Ltd, 12 St. James Place, London SW1A 1NX, authorised and regulated by theFinancial Services Authority. 30
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