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Altis presentation 11 07 11_l korman

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  • 1. A LT I S FINANCIALAlternative Investment SolutionsInvestor PresentationNovember 2011
  • 2. 2 Disclaimer and Confidentiality StatementTHIS PRESENTATION WAS PREPARED BY ALTIS FINANCIAL (THE “COMPANY”) AND PRESENTS ONLY A PRELIMINARY SUMMARY OF CERTAINASPECTS OF THE PROPOSED OPPORTUNITY (THE “OPPORTUNITY”). IT DOES NOT CONSTITUTE AN OFFERING OF SECURITIES. THISPRESENTATION IS PRELIMINARY AND SUMMARY IN NATURE. THIS PRESENTATION IS INTENDED FOR, AND DELIVERED TO, ONLY VERYSOPHISTICATED ACCREDITED INVESTORS WHO HAVE SUCH FINANCIAL RESOURCES AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERSAS TO BE ABLE TO CONDUCT THEIR OWN EXAMINATION AND DETERMINATION OF THE MERITS AND RISKS OF THIS OPPORTUNITY.THIS PRESENTATION HAS BEEN PREPARED TO ASSIST INTERESTED PARTIES IN MAKING THEIR OWN EVALUATION PERTAINING TO THEOPPORTUNITY, AND DOES NOT PURPORT TO BE ALL-INCLUSIVE OR CONTAIN ALL OF THE INFORMATION THAT WOULD BE CONSIDEREDMATERIAL OR DESIRABLE IN MAKING AN EVALUATION. TO THE EXTENT THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS,SUCH STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO SOME RISKS, UNCERTAINTIES, AND OTHERFACTORS, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY, ARE DIFFICULT TO PREDICT, AND COULD CAUSE ACTUAL RESULTSTO DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN THE FORWARD-LOOKING STATEMENTS.THE COMPANY MAKES NO REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) AS TO THE ACCURACY OR COMPLETENESS OF THEINFORMATION CONTAINED IN THIS PRESENTATION, OR MADE AVAILABLE IN CONNECTION WITH ANY FURTHER INVESTIGATION OF THEOPPORTUNITY, INCLUDING ANY ESTIMATES OR PROJECTIONS. THE COMPANY SHALL HAVE NO LIABILITY FOR ANY STATEMENTS CONTAINEDIN, OR FOR ANY OMISSIONS FROM, THIS PRESENTATION OR ANY OTHER WRITTEN OR ORAL COMMUNICATIONS TRANSMITTED TO THERECIPIENT HEREOF IN THE COURSE OF ITS EVALUATION OF THE OPPORTUNITY.THE RECIPIENT ACKNOWLEDGES AND AGREES THAT (1) THIS PRESENTATION IS NOT A COMPLETE SUMMARY OF ALL MATERIALINFORMATION RELATING TO THE OPPORTUNITY AND DOES NOT CONTAIN ALL OF THE INFORMATION WHICH WOULD BE CONSIDEREDMATERIAL; (2) THE COMPANY NOR ITS ADVISORS BE SUBJECT TO ANY LIABILITY BASED ON THE INFORMATION CONTAINED IN THISPRESENTATION, ERRORS HEREIN OR OMISSIONS HEREFROM, WHETHER OR NOT THEY KNEW OR SHOULD HAVE KNOWN OF ANY SUCHERRORS OR OMISSIONS, OR WERE RESPONSIBLE FOR OR PARTICIPATED IN THEIR INCLUSION IN OR OMISSION FROM THIS PRESENTATION.THIS PRESENTATION IS CONFIDENTIAL AND MAY NOT BE PUBLISHED, DISTRIBUTED OR REPRODUCED, EVEN IN PART. THE INFORMATIONCONTAINED IN THIS PRESENTATION IS PROPRIETARY TO THE COMPANY AND IS BEING SUBMITTED SOLELY FOR CONFIDENTIAL USE WITH THEEXPRESS UNDERSTANDING THAT, WITHOUT THE PRIOR WRITTEN PERMISSION OF THE COMPANY, SUCH PERSONS WILL NOT RELEASE THISPRESENTATION OR DISCUSS THE INFORMATION CONTAINED HEREIN, OR MAKE REPRODUCTIONS OF OR USE THIS PRESENTATION FOR ANYPURPOSE OTHER THAN THE EVALUATION OF THE OPPORTUNITY.
  • 3. 3About ALTISWe Deliver Alternative Investment Solutions to Help Investors Achievetheir Financial GoalsWe define alternative investments as investment strategies that provide risk mitigation anddiversification across market environments, and are generally uncorrelated with traditionalasset class benchmarksOur Investment Products: Provide institutional and retail investors with the benefits of liquidity and transparency Are designed to reduce portfolio volatility without sacrificing potential return Are used to complement traditional asset class allocations and improve portfolio risk- adjusted returns Capitalize on inefficiencies in the marketplace to deliver absolute returns, as well as provide enhanced/risk-mitigated market exposure (Beta) Are innovative, straightforward, and easy to implement
  • 4. 4About ALTISOur Core Focus is on Scalable Product Development and DistributionWe Develop Investment strategies in Collaboration with First-RateInvestment Managers/Advisors and Financial Institutions Scalability and repeatability are key attributes when considering specific strategies The strategies can be managed economically and efficiently We partner with investment managers/advisors and large financial institutions who deploy unique strategies and have successful track recordsPervasive Distribution is Paramount to our Success Our cornerstone is marketing and distribution Our target markets are registered investment advisors( RIAs), family offices, broker- dealers/home offices, and investment consultants (for pensions/endowments) Our team has strong relationships within these target markets
  • 5. 5Pillars of Success Distribution Equity Partners ALTIS Strategic Partners Identified Strategies
  • 6. 6The OpportunityWe Converge Alternative Strategies with Liquidity and Transparency Liquidity became paramount for investors during the crisis, and has remained a key factor in investment decisions among advisors and institutions Transparency has become critical- if an advisor cannot explain what the strategy is and how it is implemented, they are far less likely to include it in a clients portfolio Registered investment vehicles encompassing alternative strategies reflect demand and facilitate further adoption¹ Alternative mutual funds can provide similar exposures to what hedge funds provide but in a lower cost, more liquid, and more transparent fashionWe assist advisors in addressing the liquidity and transparency shortfallsof certain alternative investment strategies by developing alternativesolutions through traditional investment vehicles such as mutual funds¹ Morningstar & Barron’s Alternative Investment Survey of US Institutions and Financial Advisors- January , 2011
  • 7. 7 The Opportunity We Believe Alternative Mutual Funds are in their Early Growth Phase Many portfolios still lack exposure to alternative investment strategies, and there is increased investor demand for access to such strategies Commodities and Real Estate, the original “alternative investments” for many investors, have seen increased correlation with equity markets the past few years Investment advisors are becoming more familiar with the various investment techniques employed by alternative managers Diversification, absolute and risk-adjusted returns are the top alternative investment drivers for institutions and advisors¹Market Size US registered mutual funds managed $11.8 Trillion at the end of 2010² In 2010, an estimated 90 million individual investors owned mutual funds and held 87 percent of total mutual fund assets at year-end. Altogether, 51.6 million households, or 44 percent of all U.S. households, owned mutual funds² Total assets in open-end funds that use alternative strategies stood at only $87.9 billion as of the end of May, 2011³; this represents only 0.75% of current mutual fund asset allocation to alternatives¹ Morningstar & Barron’s Alternative Investment Survey of US Institutions and Financial Advisors- January , 2011² Investment Company Institute- 2011 Investment Company Fact Book- 51st Edition³ Investment News- “Alternative Strategy Funds Thrive…” July 24, 2011- By Dan Jamieson
  • 8. 8Why Now?2011—A Lost Year After a Lost Decade… After a turbulent decade for investors, advisors are faced with extremely low yields, a tremendous amount of macro-driven uncertainty, and continued volatility in equity markets Advisors are concerned about the ability of traditional investments to provide their investors with stable returns and financial peace of mind Portfolio diversification in 2008 was severely tested, as correlation across traditional asset classes/strategies migrated towards one (perfect correlation) 70%+ of institutions expect alternatives to account for more than 10% of their portfolios over the next five years; 37% expect their portfolio allocation to alternatives to exceed 25% ¹ 50%+ of advisors surveyed expect to see their clients’ allocations to alternatives grow by more than 10% per-year over the next five-years¹ 70%+ of institutions surveyed and 66% of advisors believe that alternatives will be as important or more important than traditional investments over the next five-years¹ Our strategies are specifically chosen to address different asset class needs of an investor’s portfolio; an early 2012 launch enables us to be in a great position to capitalize on this migration to alternative investment strategies¹ Morningstar & Barron’s Alternative Investment Survey of US Institutions and Financial Advisors- January , 2011
  • 9. ALTIS Mutual FundsTwo Distinct Investment Strategies to be Launched in 2012
  • 10. 10Risk Mitigation is the Foundation of our InvestmentSolutions… Levels of risk tolerance have diminished since the economic crisis—investors would be willing to forego some upside participation in exchange for downside protection Investment strategies can take advantage of structural inefficiencies across a number of different asset classes to deliver lower volatility and absolute return solutions Volatility can significantly impact compounding, so it is key to identify strategies which can mitigate large draw-downs without foregoing the potential for strong upside appreciation Volatility is an asset class in and of itself and can be harnessed in a number of different ways to dampen overall portfolio volatility and increase risk- adjusted returns
  • 11. 11Strategic Partners Trustworthy and credible partnerships are critical to our success Ability to leverage existing track record, firm reputation and infrastructure is key to establishing rapid penetration in the marketplace Initial partnerships include: Options manager with 30-years of institutional portfolio overlays Large financial institution with proven strategies wrapped in index form Focus will be on initial strategies outlined; however, we will be opportunistic in identifying key partnerships we think can bring value to the marketplace Management/advisory fees are in the process of being negotiated, but cost should be far less than building-out capabilities in-house to start
  • 12. 12Distribution Institutions Wirehouses/Independent Broker-Dealers Registered Investment Advisors / Family Offices
  • 13. 13Mutual Fund OperationsALTIS Financial Outsources All Mutual Fund OperationsSuch outsourcing enables ALTIS to achieve efficiency and scalability, and to focus specificallyon distribution and product development…Outsourced Operations Include: Fund Administration Fund Accounting Transfer Agency Custody Administration Compliance Account Openings, Incoming Transfers, Customer Service 24- Hour Automated Voice Response Edgar Filing and Printing Services
  • 14. 14ALTIS Financial- General Timeline Series A Funding Marketing Materials Series A Funding Road Show First Closing- Developed Final Closing- Commences to Present $1.5 million Registration Statement Total Round- $3 Million Strategies to RIAs and Commence Drafting of Filing Preparation (See Filing of Registration Family Offices for Registration Statement Next Slide) Indications of Interest Statement December 1, 2011 November 1, 2011- January 2, 2012 January 2, 2012- January 2, 2012 April 16, 2012 Effective Date for Estimated Estimated Estimated Mutual Funds $50 million AUM $100 million AUM $250 million AUM April 16, 2012 July , 2012 December, 2012 October, 2013
  • 15. 15ALTIS Financial- Registration Statement Filing Timeline
  • 16. 162012 Mutual Fund Rollout ALTIS Enhanced Equity Fund—designed to provide enhanced equity exposure through a more risk-controlled framework than traditional equity mutual funds, capturing 80-100% of equity market appreciation and less than 50% of any equity market decline ALTIS Long/Short Commodity Fund—provides long/short commodity exposure by going long the 10 most backwardated commodities (monthly rebalance) while going short the DJUBS Index, capitalizing on backwardated commodities generally signaling strong fundamental demand
  • 17. ALTIS Enhanced Equity FundOverview Designed to provide equity exposure in a more risk-controlled framework than traditional equity mutual funds, capturing 80-100% of equity market appreciation and less than 50% of any equity market decline Consists of actively managing an options portfolio as an overlay to the underlying equity exposure—strategies include call writing and various downside hedging strategies Methodology can be employed in different funds across a number of underlying equity indices (e.g. S&P 500, Russell 2000) to address specific allocation needs Sub-advised by investment manager with ~30 years of experience in managing and trading option portfolios for institutional clients Very few equity mutual funds implement either covered call or hedging solutions, let alone combining both into one fund. Gateway (GATEX) does both, has >$5B in AUM, and we feel isn’t as efficient in its downside hedging strategies leading to material drags in performance during stable market environments
  • 18. ALTIS Enhanced Equity FundFund Characteristics An Equity Collar consists of selling a call option to finance the purchase of a put option, and is generally done at zero upfront cost for a defined maturity (generally 6 months – 1 year). Investor establishes maximum upside and downside exposure over a certain period of time, thereby lowering overall equity volatility Implementation is inefficient, especially in low-rate, higher volatility/volatility skew environments Enhanced Equity fund seeks to improve upon this concept through active management of various option strategies, specifically by: Going long the underlying index Selling call options (utilizing index options which will be 1256 contracts: providing 60% long term capital gains/40% short term capital gains treatment) Purchasing downside protection Specific option strategies to be employed will vary with the market/volatility environment
  • 19. ALTIS Enhanced Equity Fund Benchmark Option Indices—comparative analysis The CBOE has created a variety of indices, each providing equity exposure with an option overlay The ALTIS Enhanced Equity Fund combines elements of each Index while seeking to further exploit inefficiencies to improve upon these benchmark strategies BXM BXY Tail Hedge CollarMethodology Buy SPX, sell 1 month, Buy SPX, Sell 1 month, 2% Buy SPX, buy 1 month OTM Buy SPX, sell 1 month, 10% ATM call on SPX OTM call on SPX VIX call with 0-1% of total OTM call, purchase 3 month, assets 5% OTM putKey Strengths 1. Generates significant 1. Enables investor to 1. Greatly mitigates steep SPX 1. Provides the investor with a monthly premium participate in SPX moves up declines when volatility performance zone, which 2. Produces favorable to 2% per month levels had been lower greatly reduces overall portfolio risk-adjusted returns 2. Investors do receive some 2. Adjusts exposure based on volatility compared to SPX level of call premium volatility levels in attempt to 2. Sells shorter-dated options and minimize carry cost purchases longer-dated onesKey Weaknesses 1. Minimal protection in 1. Minimal protection in tail 1. Purchases VIX option 1. 10% OTM calls generate tail scenarios scenarios exposure (albeit less) at minimal premium in most 2. Strikes don’t adjust 2. Strikes don’t adjust based on higher VIX levels (30-50), market environments and if based on market market conditions despite high cost (skew) and timing is wrong may sell call at conditions generally lower VIX bottom sensitivity to SPX declines 2. Put options costs can be a (e.g. Jan/Feb 2009; Sept, heavy drag on returns in certain 2011) environments 2. 1 month maturity increases potential premium outlay
  • 20. ALTIS Enhanced Equity FundComparison to other CBOE Benchmark Indices 180.00 160.00 140.00 Index Value (3/22/06 = 100) 120.00 BXM S&P 500 Total Return 100.00 VXTH 80.00 BXY Altis Proxy (BXM/BXY + VXTH) 60.00 40.00 20.00 - 12/1/2006 12/1/2007 12/1/2008 12/1/2009 12/1/2010 3/1/2006 6/1/2006 9/1/2006 3/1/2007 6/1/2007 9/1/2007 3/1/2008 6/1/2008 9/1/2008 3/1/2009 6/1/2009 9/1/2009 3/1/2010 6/1/2010 9/1/2010 3/1/2011 6/1/2011 9/1/2011Monthly correlation of ALTIS Proxy with S&P 500 Total Return during this period was 0.48
  • 21. ALTIS Long/Short Alpha Commodity FundOverview Backwardation refers to the shape of a commodity curve where the front month futures contracts are more expensive than the outer months Backwardation may exist for several different reasons, but is most commonly associated with strong fundamentals due to strong current demand and/or limited supply/low inventory of the commodity In certain commodities, supply can take awhile to come into production and can therefore exhibit more persistent backwardation (e.g. Copper), whereas others are more seasonal in nature (e.g. Heating Oil) 2 potential benefits to obtaining long exposure to commodities in backwardation: Futures contract prices at expiration converge to equal the then-current spot price, so that a backwardated futures contract could increase over time As commodity positions are rolled prior to expiration, a backwardated curve may enable investors to sell a more expensive contract (expiring contract) and purchase a less expensive contract (longer maturity contract). This may result in a positive roll yield and serve as a buffer to any decline in the commodity’s price (i.e. downward shift of the entire curve)
  • 22. ALTIS Long/Short Alpha Commodity FundOverview This strategy seeks to capitalize on commodities in backwardation by identifying and going long the 10 most backwardated commodities, rebalancing on a monthly basis The front-month futures contract price is compared with the 12 month forward price to determine which are the most backwardated commodities, thereby mitigating any seasonality impact Each commodity is rolled according to a pre-defined schedule, tailored specifically for each commodity The long positions in the 10 backwardated commodites are paired with an equally- weighted short exposure to the Dow Jones-UBS Commodity Index, a broad-based index across all commodities (both in backwardation and contango) There are very few commodity ETF’s or mutual funds exclusively focused on the power of backwardation and its ability to outperform the traditional benchmark indices Cash collateral will be managed with exposure to short-duration, high quality fixed income securities/funds
  • 23. ALTIS Long/Short Alpha Commodity FundImplementation Partnership with a major financial institution who launched an Index around the backwardation methodology in November, 2010 Fund will obtain exposure to this Index via swap (i.e. on an unfunded basis) Fund investor’s principal is placed in short-duration fixed income securities and cash, and is therefore not subject to counterparty risk Fund will receive (pay) the positive (negative) Index performance on a periodic basis, thereby further mitigating counterparty risk (i.e. investor may only be at risk of not receiving the last performance payment (targeting weekly performance true-up with financial institution) Cash collateral, over time, should offset the Fund’s management fee and potentially the entire expense ratio; however, this will be a function of the then current interest rates
  • 24. ALTIS Long/Short Alpha Commodity FundComparison to Dow Jones UBS Index 250 200 150 Altis Backwardation Alpha Commo Fund 100 DJUBS Index 50 0 9/1/2006 3/1/2007 6/1/2007 9/1/2007 3/1/2008 6/1/2008 9/1/2008 3/1/2009 6/1/2009 9/1/2009 3/1/2010 6/1/2010 9/1/2010 3/1/2011 6/1/2011 9/1/2011 12/1/2006 12/1/2007 12/1/2008 12/1/2009 12/1/2010 Source: Bloomberg Annualized Return Standard Deviation Altis Backwardation Alpha Commodity Fund* 18.31% 7.77% DJUBS Index -2.60% 22.09%*Gross of expenses and management of cash collateral; Long/Short Commodity Index went live on November 23, 2010
  • 25. ALTIS Long/Short Alpha Commodity FundCorrelation with Major Indices Monthly CorrelationCorrelation with: 10 years Since Index LaunchDJ-UBS Commodity Index -0.109 -0.06S&P 500 Total Return Index 0.108 0.295iShares MSCI Emerging Market Fund (EEM) 0.119 -0.033iShares Barclays Aggregate Bond Fund (AGG) 0.099 -0.362Dow Jones US Real Estate Index 0.118 0.266HFR Global Hedge Fund Index 0.127 0.379 Source: Bloomberg
  • 26. A LT I S FINANCIALAlternative Investment SolutionsInvestor PresentationNovember 2011