Jpm merger arbitrage fund alternative ucits event

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  • Update the following excel file on the Bloomberg Terminal Product lang\\syst\\merger arb\\data files: Merger Arb Backest_FINAL – ‘BB perf’ worksheet. Line chart – Mthly performance columns N & O. Data in table from Mthly performance tab. Maximum drawdown from drawdown tab Longest recovery period does not correspond to the max drawdown period (the longest recovery period refers to an earlier period – see line chart – and is peak to peak)
  • Update annually
  • Update quarterly
  • Update quarterly Unlike US, Euro consumers outside the UK have shown great restraint. French consumption may have been strong early in the year but it’s the exception across the Continent Real retail sales appear to have suffered especially from an unwillingness to commit to large purchases - a theme detected in surveys. The euro conversion seems to have had an impact here Over a year, consumption is tied to confidence and confidence in turn to changes in the unemployment rate. This will offer no support near term based on employment trends in Europe. However, a gradual recovery in job market later in 2002 should over support as well as the lagged impact of lower interest rates.
  • Update quarterly
  • Update the following excel file on the Bloomberg Terminal Product lang\\syst\\merger arb\\data files: Merger Arb Backest_FINAL – ‘BB perf’ worksheet. Line chart – see slide 18 worksheet See ‘Mthly perf tab’ for Fund/MSCI World data
  • Update from month end spreadsheet in BALANCED\\Yaz\\PRODUCTION\\Merger_Arb_Tools\\backup\\Month end Portfolios – use non negative current premiums column in UCITS Analytics tab
  • Get last bullet point return from slide 18
  • Update quarterly – get Victor to update underlying spreadsheet
  • On bloomberg: Type MA Click on 23) Activity Trend Tick deal count Change to 2) Region View and select North America, Asia Pacific (developed) and Western Europe Change period from 5YR to 12YR Change period to monthly Copy data to a spreadsheet – ignore last data point
  • For line chart – get from month end file (BALANCED\\Yaz\\PRODUCTION\\Merger_Arb_Tools\\backup\\Month end Portfolios): # of Holdings Long column (H) For final bullet get % of stock deals from month end file - stock deals by weight (column DY)
  • Update quarterly
  • Reference SysAlpha/Data files/SysAlpha_presentation update Update sheet 2 on BB terminal See Systematic Perf worksheet/Systematic Drawdown
  • Use the Longshort tab of SysAlpha_presentation update file saved in Product Language\\Systematic Alpha\\Data files. Get data for columns B&C from BALANCED\\Yaz\\PRODUCTION\\Backtest History & Essential Data\\Copy of Copy of Backtests For CPMs v3.xlsx (Sys Alpha Backtest tab)
  • See Backtests for CPMS – Live 2009- worksheet, columns O and P.
  • Use the Macro tab of SysAlpha_presentation update file saved in Product Language\\Systematic Alpha\\Data files
  • See Backtests for CPMS – Live 2009- worksheet, columns W and X.
  • Jpm merger arbitrage fund alternative ucits event

    1. 1. JPMorgan Funds - Global Merger Arbitrage Fund Alternative UCITS Retreat - December 2011 FOR PROFESSIONAL INVESTORS ONLY, NOT FOR USE BY OR DISTRIBUTION TO RETAIL INVESTORS
    2. 2. JPMorgan Funds – Global Merger Arbitrage Fund <ul><li>Investment Objective </li></ul><ul><ul><li>To provide a return in excess of its cash benchmark by taking advantage of the &quot;deal risk premium&quot; factored into the price of companies which are, or may become, involved in merger activity, takeovers, tender offers and other corporate activities anywhere in the world, using financial derivative instruments where appropriate </li></ul></ul><ul><ul><li>Investment Policy </li></ul></ul><ul><ul><li>The Fund will primarily invest in, either directly or through the use of financial derivative instruments, a portfolio of equity and equity linked securities of companies that are, or are likely to become, subject to merger activity, takeovers, tender offers or other corporate activities. Issuers of these securities may be located in any country, including emerging markets </li></ul></ul><ul><ul><li>The Fund may hold short positions (through the use of financial derivative instruments) in the acquiring companies where the merger is a stock deal, or use equity futures to hedge its market exposure </li></ul></ul><ul><ul><li>Equity exposure may be achieved through investment in shares, depository receipts, warrants and other participation rights. Subject to the foregoing, equity exposure may also be achieved, to a limited extent, through investment in index and participation notes and equity linked notes </li></ul></ul><ul><ul><li>The Fund will typically hold, directly or through the use of financial derivative instruments, gross long positions of 100% of its net assets and gross short positions (achieved through the use of financial derivative instruments) of 50% of its net assets. The Fund will not exceed gross long positions of 150% and gross short positions of 150%. The Fund will hold sufficient liquid assets (including, if applicable, sufficiently liquid long positions) to cover at all times the Fund's obligations arising from its financial derivative positions (including short positions). The net market exposure of long and short positions will vary depending on market conditions but will normally not exceed 130% of the Fund’s assets </li></ul></ul>
    3. 3. JPMorgan Funds – Global Merger Arbitrage Fund <ul><ul><li>Investment Policy (continued) </li></ul></ul><ul><ul><li>Financial derivative instruments utilised by the Fund may include, but are not limited to, futures, options, contracts for difference, forward contracts on financial instruments and options on such contracts and swap contracts. Such financial derivative instruments may also be used for hedging purposes </li></ul></ul><ul><ul><li>Fixed and floating rate debt securities may be held on an ancillary basis </li></ul></ul><ul><ul><li>The Fund may also invest in UCITS and other UCIs </li></ul></ul><ul><ul><li>The Fund is opportunistic and it may invest 100% of its assets in cash and cash equivalents until suitable investment opportunities can be identified </li></ul></ul><ul><ul><li>Techniques and instruments relating to transferable securities and money market instruments (including, but not limited to, securities lending or repurchase agreements) may be used for the purpose of efficient portfolio management </li></ul></ul><ul><ul><li>USD is the reference currency of the Sub-Fund but assets may be denominated in other currencies, including emerging market currencies, and currency exposure may be hedged </li></ul></ul><ul><ul><li>The global exposure of the Sub-Fund will be monitored using VaR methodology </li></ul></ul><ul><ul><li>All of the above mentioned investments will be made in accordance with the limits set out in &quot;Appendix II – Investment Restrictions and Powers&quot; </li></ul></ul>Please refer to the Fund’s prospectus for more information relating to the Fund.
    4. 4. JPMorgan Funds – Global Merger Arbitrage Fund <ul><li>Merger arbitrage as a risk premium </li></ul><ul><li>Increasing M&A activity </li></ul><ul><li>How to access merger arbitrage </li></ul><ul><li>The JPMorgan Global Merger Arbitrage Fund </li></ul>
    5. 5. Merger arbitrage has proved robust through a variety of market conditions <ul><li>2008 was the only calendar year with a negative return for Merger Arbitrage (in line with the HFRI Merger Arb Index) </li></ul>Source: MergerStat, Bloomberg, J.P. Morgan Asset Management For illustrative purposes only * Performance includes backtested data from 31/01/99 to 31/07/09, performance of the merger arbitrage strategy within the JPMorgan Funds - Systematic Alpha fund to 31/03/11 and actual performance of the JPMorgan Investment Funds – Global Merger Arbitrage Fund thereafter. Performance is shown net of C share class fees. The Merger Arbitrage strategy looks to capture the deal risk premium and therefore gains exposure to all announced deals subject to liquidity constraints. For the purposes of the back-test, the model positions were generated historically using the data available at the time and run forward. The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time . The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Past performance is not indicative of future results. Periods to 31 st October 2011 Merger Arbitrage MSCI World Total Return (annualised) 6.9% 0.4% Risk 4.9% 16.7% IR 0.8 n/a Maximum Drawdown 14.1% 55.4% Longest Recovery Period 1.9 yrs 6.6 yrs Beta 0.13 - Historical Performance Analysis Live performance* ->->
    6. 6. Premium exists due to negative skew <ul><li>Diversification is central to merger arbitrage – more names reduces idiosyncratic risk </li></ul><ul><li>High levels of merger activity are positive for the strategy </li></ul>Average return to a merger arbitrage deal Return per merger deal Percent of deals Source: MergerStat, Bloomberg, JPMAM. Jan 1999 to Jul 2011. For illustrative purposes only. Opinions and analysis are JPMAM’s judgment and can be subject to change without notice. 0% 10% 20% 30% 40% 50% 60% -100% -80.0% -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% 180.0% 200.0%
    7. 7. An example - Burger King <ul><li>3G Capital looked to acquire Burger King and made an offer on 2/9/2010 </li></ul><ul><li>Given that this was a friendly deal with a high likelihood of success, the premium available was limited. We bought the stock at USD 23.59, selling it to 3G Capital for USD 24 </li></ul><ul><li>The deal completed on October 20 th and thus earned 1.7% </li></ul><ul><li>While this may initially sound low, this was over a 2 month period roughly equating to an annualised figure of over 10% </li></ul>Source: Bloomberg October 2010 For illustrative purposes only. The inclusion of the securities mentioned above is not to be interpreted as recommendations to buy or sell. Price bought sold
    8. 8. Merger activity is returning to the long term average <ul><li>Current levels of activity are in line with the long term average following lower levels of activity in 2008 </li></ul><ul><li>Number of all deals pending per month </li></ul>Sources: Bloomberg as at 30 th September 2011. For illustrative purposes only. Deal Count
    9. 9. The outlook for increased merger activity is strong Sources: Bloomberg as at 30 th June 2011 <ul><li>Mergers and acquisitions (“M&A”) activity expected to recover towards the end of 2011. US corporate cash flow has risen to record levels as recession turned towards recovery. This is likely to lead to a recovery in capex or M&A transactions </li></ul>
    10. 10. Allocation should vary depending on attractiveness of premium Source: MergerStat, Bloomberg, J.P. Morgan Asset Management For illustrative purposes only. Opinions and analysis constitute JPMAM’s judgment and is subject to change without notice. Real Premium (premium minus interest rate) <ul><li>Broader event based strategies will exhibit style drift (e.g. credit 06/07) when the strategy is less appealing - it may be more appropriate to move to cash </li></ul>
    11. 11. Contrasting an active and systematic approach <ul><li>Potential alpha from security selection </li></ul><ul><li>High cost </li></ul><ul><li>Pre deal investing </li></ul><ul><li>Lack of transparency – potential style drift </li></ul><ul><li>Concentration can lead to higher negative skew </li></ul><ul><li>Non-UCITS structure </li></ul><ul><li>No alpha – captures the full opportunity set </li></ul><ul><li>Low cost </li></ul><ul><li>Low beta, pure allocation to merger arbitrage </li></ul><ul><li>Transparent </li></ul><ul><li>Diversification of deals </li></ul><ul><li>UCITS III, liquid structure </li></ul>ACTIVE SYSTEMATIC A systematic approach offers low cost liquid access to a pure Merger Arbitrage strategy Opinions and analysis constitute JPMAM’s judgment and is subject to change without notice.
    12. 12. Fund features – JPMorgan Funds - Global Merger Arbitrage Fund <ul><li>Luxembourg registered UCITS III, open-ended fund with a cash benchmark </li></ul><ul><li>Denominated in USD with hedged share classes in EUR and GBP </li></ul><ul><li>Typically 80 - 100 positions </li></ul><ul><li>Use of short equity positions and cash in addition to long equity exposure </li></ul><ul><li>Volatility typically 5-7% </li></ul><ul><li>Diversified, global portfolio of liquid securities giving exposure to the full merger opportunity set </li></ul><ul><li>A share class 1.50% AMC with 10% performance fee above cash </li></ul><ul><li>C share class 0.75% AMC with 10% performance fee above cash </li></ul>The Fund is an actively managed po rtfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Performance fee: High water mark. Benchmark: British Bankers’ Association (BBA) LIBOR one-month US Dollar deposits.
    13. 13. The merger arbitrage risk premium in our strategy <ul><li>The target company is purchased subject to a number of filters: </li></ul><ul><ul><li>Domicile: Global </li></ul></ul><ul><ul><li>Deal size: Minimum USD 500m, smaller deals subject to no more than 1% of the free float </li></ul></ul><ul><ul><li>Liquidity: Minimum 3mth average daily volume above USD 2m </li></ul></ul><ul><ul><li>Premium: Must be at least 5% prior to the announcement </li></ul></ul><ul><li>We hedge the offer and therefore short the offer stock where appropriate, can occasionally use futures </li></ul>The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus.
    14. 14. Investment process – a systematic approach <ul><li>Cash invested will vary </li></ul><ul><ul><li>As opportunities decline portfolio allocates to cash </li></ul></ul><ul><li>Proprietary screening </li></ul><ul><ul><li>Software developed in house automates screening subject to filters </li></ul></ul><ul><ul><li>Continuously scanning MergerStat and Bloomberg M&A databases for timely dealing </li></ul></ul><ul><ul><li>News filter developed to constantly scan for deals announced during market hours to capture additional uplift </li></ul></ul>The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus.
    15. 15. Example of early entry: Potash Corporation of Saskatchewan <ul><li>Company acquisition announced during market hours </li></ul><ul><li>News filter allowed us to buy Potash Corp of Saskatchewan at 48.44 which then opened the next day at above 50 once the information entered all the major databases </li></ul><ul><li>This was an additional 3% gain </li></ul>Source: Bloomberg Price The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Past performance is no indicator for future performance. For illustrative purposes only. The inclusion of the securities mentioned above is not to be interpreted as recommendation to buy or sell.
    16. 16. Strategy methodology and portfolio construction <ul><li>Position sizing </li></ul><ul><ul><li>Equal notional amounts invested across opportunity set to ensure maximum diversification </li></ul></ul><ul><ul><li>Maximum position per deal is typically 2.5% </li></ul></ul><ul><ul><li>If deal volumes low, portfolio will hold cash </li></ul></ul><ul><li>Rebalancing </li></ul><ul><ul><li>Exit policy: Deals exit the portfolio either on deal completion or termination. When a new deal enters the portfolio while the portfolio is fully invested, the portfolio weights are rebalanced accordingly to minimise transaction costs </li></ul></ul><ul><ul><li>Maximum inclusion time: Maximum of 1 year, sold if merger does not close within 1 year </li></ul></ul><ul><li>Separate and independent compliance/legal/risk monitoring </li></ul><ul><ul><li>Daily V@R reports calculated independently and circulated to management </li></ul></ul><ul><ul><li>Pre- and post-trade - orders screened prior to reaching dealers, independent compliance check. </li></ul></ul><ul><ul><li>Investment Director tasked with oversight of funds – formal quarterly reviews </li></ul></ul><ul><ul><li>Compliance and audit reviews </li></ul></ul><ul><ul><li>Investment desk managed quantitative controls </li></ul></ul>The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice. V@R: Value at risk.
    17. 17. The investment team for hedge fund beta suite of strategies Source: J.P. Morgan Asset Management. Investment professionals based in London unless otherwise stated. There can be no assurance that the professionals currently employed by JPMAM will continue to be employed by JPMAM or that the past performance or success of any such professional serves as an indicator of such professional’s future performance or success. Independent JPMAM Investment Committee Investment Director Review Risk Compliance Settlements Performance Reporting Model & Risk Monitoring CIO & Head of the Global Multi-Asset Group Neill Nuttall Portfolio Management & Research Client Portfolio Management Yazann Romahi Senior Portfolio Manager Katherine Santiago Portfolio Manager Victor Li Quant Analyst Michael Feser (NY) Head of GMAG Quantitative Research Quant Council Portfolio Implementation Talib Sheikh, Gareth Witcomb & Shrenick Shah Portfolio Managers Despoina Tripylioti & Peter Malone Assistant Portfolio Managers Centralised Dealing Kristian West +13 dealers + Global Order Routing Olivia Mayell Head of International CPM team Hannah Sparrow Marc Shaw Michael Lesley Mikko Iso-Kulmala Nicholas Hurley Global Strategy Team Neill Nuttall James Elliot Jonathan Lowe (HK) David Shairp Talib Sheikh Antony Vallee Pat Jakobson (US) Jeff Geller (US)
    18. 18. Sector & regional allocation – current portfolio Source: J.P. Morgan Asset Management as at 31 st October 2011. Restated to 100%. The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice. Region Sector
    19. 19. Have we captured the merger arbitrage hedge fund style? <ul><li>Merger Arbitrage strategy since inception (*): +14.4% (net of C share class fees) </li></ul><ul><li>HFRI ED: Merger Arb Index: +10.7% (net of fees of typically 2/20) </li></ul><ul><li>Beta to MSCI World is 0.13 </li></ul><ul><li>Volatility is 4.9% compared to 16.7% for the MSCI World index </li></ul>Source: HFR, JPMAM. As at 31 st October 2011. * Inception Date – July 2009, performance is cumulative . Fees and charges for the C share class as follows: No initial charge, 0.75% annual management and advisory fee, 0.20% operating and administrative expenses and no redemption charge. The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus .
    20. 20. What is the potential return from pure merger arbitrage currently? <ul><li>Around 20% of deals fail </li></ul><ul><li>Around 5% see counterbids </li></ul><ul><li>Typically deals complete in 3-4 months </li></ul>Current Non-Negative Premium (Duration Adjusted) Source: J.P. Morgan Asset Management, Bloomberg as at October 2011 For illustrative purposes only. The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice.
    21. 21. JPMorgan Funds – Global Merger Arbitrage Fund <ul><li>Merger arbitrage is a diversifying absolute return strategy </li></ul><ul><li>Now is an attractive time for merger activity </li></ul><ul><li>Low fee, liquid access to a strategy typically only offered by hedge funds </li></ul><ul><li>Strategy has returned 14% since inception* after fees with less than 5% volatility </li></ul>* Cumulative return as at 31 st October 2011 since inception of strategy from 31 st July 2009. The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice.
    22. 22. Selected Risks For more information on the risks of investment please refer to the Fund’s Prospectus Risk Profile <ul><li>JPMorgan Funds – Global Merger Arbitrage Fund (‘the Fund’) involves substantial risks, including but not limited to those described below: </li></ul><ul><ul><li>This Fund invests primarily in a global portfolio of equities of companies which are, or may become subject to merger activity, using financial derivative instruments where appropriate. </li></ul></ul><ul><ul><li>The Fund will invest in equities and financial derivative instruments on equities and investors may see the value of their investment fall as well as rise on a daily basis, and they may get back less than they originally invested. </li></ul></ul><ul><ul><li>Investors should be aware that the Fund may invest in emerging markets, which may be subject to additional political and economic risks, while stocks can be negatively impacted by high volatility, low liquidity, poor transparency and greater financial risks. </li></ul></ul><ul><ul><li>The Fund invests in a single strategy which may, at times, result in a concentrated exposure to a small number of companies, countries or sectors. While providing a focused investment this limits the room for risk diversification within the Fund. </li></ul></ul><ul><ul><li>The Fund may invest in smaller companies which can be less liquid and more volatile than larger companies, and tend to carry greater financial risk. </li></ul></ul><ul><ul><li>This Fund will have significant exposure to financial derivative instruments. The risks associated with the financial derivative instruments listed in the investment policy are further detailed in &quot;Appendix IV – Risk Factors&quot;. </li></ul></ul><ul><ul><li>The possible loss from taking a short position on a security differs from the loss that could be incurred from a cash investment in the security; the former may be unlimited as there is no restriction on the price to which a security may rise, whereas the latter cannot exceed the total amount of the cash investment. The short selling of investments may be subject to changes in regulations, which could adversely impact returns to investors. </li></ul></ul><ul><ul><li>The strategy may be impacted by changes in regulations or accounting rules pertaining to merger activity. </li></ul></ul><ul><ul><li>There is no guarantee that individual mergers or corporate actions will complete or that stock prices will move as expected. </li></ul></ul><ul><ul><li>USD is the reference currency of the Fund but assets may be denominated in other currencies, including emerging market currencies, and currency exposure may be hedged. </li></ul></ul><ul><ul><li>The Fund will be managed without reference to its benchmark. </li></ul></ul>
    23. 23. Fees & Expenses <ul><li>The Fund will charge an AMC of 1.50% p.a., with operating and administrative expenses of 0.40% p.a. for A share classes </li></ul>*Shares of X Share Classes may only be acquired by Institutional Investors who are clients of the Management Company or JPMorgan Chase & Co. and (i) which meet the minimum account maintenance or qualification requirements established from time to time for JPMorgan Chase & Co. client accounts and/or (ii) whose Share Class X Shares will be held in a JPMorgan Chase & Co. client account subject to separate advisory fees payable to the Investment Manager or any of its affiliated companies. Unless stated otherwise in the Fund specific details, Shares of X Share Classes are designed to accommodate an alternative charging structure whereby a fee for the management of the Fund is administratively levied and collected by the Management Company or through the relevant JPMorgan Chase & Co. entity directly from the Shareholder. The Annual Management and Advisory Fee is therefore listed as &quot;Nil&quot; in the Fees and Expenses tables in this appendix, due to it not being levied on the Fund. Fees and Expenses: Performance Fee: Share Class Initial Charge Annual Management & Advisory Fee Operating & Administrative Expenses Redemption Charge Minimum Initial Subscription (USD or equivalent) JPM Global Merger Arbitrage A 5.00% 1.50% 0.40% 0.50% 35,000 JPM Global Merger Arbitrage B Nil 0.90% 0.25% Nil 1,000,000 JPM Global Merger Arbitrage C Nil 0.75% 0.20% Nil 10,000,000 JPM Global Merger Arbitrage D 5.00% 2.25% 0.40% 0.50% 5,000 JPM Global Merger Arbitrage I Nil 0.75% 0.16% Max Nil 10,000,000 JPM Global Merger Arbitrage X* Nil Nil 0.15% Max Nil On application Share Classes Performance Fee Mechanism Performance Fee Benchmark All, except EUR/GBP hedged 10% High Water Mark BBA LIBOR 1-month USD EUR hedged 10% High Water Mark BBA LIBOR 1-month USD hedged into EUR GBP hedged 10% High Water Mark BBA LIBOR 1-month USD hedged into GBP
    24. 24. Biographies Olivia Mayell Olivia Mayell, managing director , heads the client portfolio management team in the Global Multi-Asset Group in London, responsible for the range of products. She has particular focus on income, convertibles, alternatives and total return accounts. An employee since 2000, previously Olivia was a client portfolio manager for the global equity product range at J.P. Morgan Asset Management, working on the dynamic and convertible portfolios. Olivia obtained a BSc (Hons) in Natural Science from Durham University. Yazann Romahi Yazann Romahi, executive director , is a senior portfolio manager in the Global Multi-Asset Group, based in London. He is Head of Quantitative Portfolio Strategies - a team responsible for a number of quantitatively driven funds including the multi-strategy JPM Systematic Alpha fund, the JPM Global Merger Arbitrage Fund as well as maintaining responsibility for the development of the Global Tactical Asset Allocation models and providing quantitative support to other GMAG groups including the Convertible Bonds team. An employee since 2003, Yazann joined the firm from the Centre for Financial Research at the University of Cambridge where he worked as a research analyst and did consulting work for a number of leading financial institutions including Pioneer Asset Management, PricewaterhouseCoopers and HSBC. Yazann also previously taught undergraduate courses in statistics and operations research at the University of Cambridge. Yazann holds a PhD in Applied Mathematics from the University of Cambridge and is a CFA charterholder. There can be no assurance that the professionals currently employed by JPMAM will continue to be employed by JPMAM or that the past performance or success of any such professional serves as an indicator of such professional’s future performance or success.
    25. 25. Appendix
    26. 26. Types of merger activity <ul><li>Deals completed with acquirer stock signals strong valuations </li></ul><ul><li>When cash is cheap companies will prefer cash funded acquisitions over stock funded acquisitions </li></ul>Source: Bloomberg, JPMAM as at 30 September 2011. For illustrative purposes only. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice.. Credit bubble – more cash deals
    27. 27. A global opportunity set <ul><li>While North American deals are most active in mergers and acquisitions, European and to a lesser extent Asia Pacific deals do provide a significant amount of diversification </li></ul><ul><li>In the current portfolio, North American deals dominate the portfolio </li></ul>Source: Bloomberg. As at 31 st October 2011. No. of deals The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice.
    28. 28. Implementation – dedicated portfolio construction tools For illustrative purposes only. The inclusion of the securities mentioned above is not to be interpreted as recommendations to buy or sell.
    29. 29. Diversification of deals <ul><li>Last year, the number of stocks reached near historic lows though activity has picked up recently </li></ul><ul><li>Current number of deals is in line with the historical average of around 80 </li></ul><ul><li>Typically it takes two years before merger activity reaches pre-recessionary levels </li></ul><ul><li>Currently, 13% of deals in the portfolio are stock deals </li></ul>Number of Deals in Portfolio Over time Source: JPMAM. August 2009 - October 2011. The Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice.
    30. 30. A diversified portfolio limits downside risk <ul><li>The evidence supporting the hypothesis that the merger arbitrage strategy is akin to a short put is weak. </li></ul>Cash Mergers - Monthly Return of the strategy S&P Monthly Return Stock for Stock Manager - Monthly Return of the strategy Source: MergerStat, Bloomberg, JPMAM. Jan 1999 to Jul 2011. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice. Return to merger arbitrage S&P Monthly Return Return to merger arbitrage
    31. 31. Attribution – Top 5 / bottom 5 deals For illustrative purposes only. The inclusion of the securities mentioned above is not to be interpreted as recommendations to buy or sell.
    32. 32. Example of a counterbid situation: 3PAR <ul><li>Dell made an initial offer on 16 th of August. As the market expected that their initial offer of $17 was too low, the stock promptly jumped to $18 which is where we purchased it </li></ul><ul><li>HP then offered $25, followed by a counteroffer from Dell for $32 and finally an offer of $33 from HP </li></ul><ul><li>On this stock therefore, we made 83% </li></ul>Source: Bloomberg Price bought For illustrative purposes only. The inclusion of the securities mentioned above is not to be interpreted as recommendations to buy or sell. Past performance is not indicative for future performance. The Fund is an actively managed portfolio subject to change.
    33. 33. Example of failed bid: MacArthur Coal <ul><ul><ul><li>Peabody Energy make an unsolicited offer for MacArthur Coal on March 30, 2010 at $13 per share </li></ul></ul></ul><ul><ul><ul><li>New Hope Corp counter on April 9, 2010 and 4 days later increase their bid by 7.44% to $14.50 per share </li></ul></ul></ul><ul><ul><ul><li>Peabody Energy counter on May 10 with an offer of $16 </li></ul></ul></ul><ul><ul><ul><li>After Australia introduces a 40% tax on mining profits, Peabody reduces its bid to $15 per share </li></ul></ul></ul><ul><ul><ul><li>The board rejects the offer and MacArthur Coal drops to $10.10 </li></ul></ul></ul><ul><ul><ul><li>As the market had been expecting counterbids, our entry price was at $14.80 </li></ul></ul></ul>Source: Bloomberg Price bought For illustrative purposes only. The inclusion of the securities mentioned above is not to be interpreted as recommendations to buy or sell. Past performance is not indicative for future performance. The Fund is an actively managed portfolio subject to change.
    34. 34. Percent of deals open on any given date that eventually complete <ul><li>The completion rates is highly correlated with outperformance and underperformance of the strategy </li></ul><ul><li>The current deal completion rate is high </li></ul>Source: Bloomberg, JPMAM as at 30 th September 2011. Based on a six month moving average. Deal completion rate
    35. 35. What is Hedge Fund Beta? <ul><li>A significant amount of “alpha” from hedge funds can be attributed to ‘hedge fund beta’ </li></ul><ul><li>Often the advantage of investing in hedge funds is accessing these uncorrelated sources of risk premia </li></ul><ul><li>We seek to provide a liquid, transparent alternative to access these uncorrelated sources of return, currently only accessible through less liquid, often opaque hedge fund investments </li></ul>Traditional Beta Alpha Hedge Fund Beta Equity Premium Credit Premium Commodity (GSCI) Equity Small Cap Small Cap Premium Value Premium Equity Value Commodities Roll Yield Merger Arbitrage Forward Rate Bias Earnings Momentum Equity Momentum Commodities Momentum Term Premium Vol Insurance Premium Convertible Arbitrage FX Momentum Alternative Beta Manager Driven Non-systematic High Frequency increasing order of complexity increasing order of complexity For illustrative purposes only. The targets and aims provided above are the Investment Manager’s targets and aims only and are not part of the Funds investment objective and policy as stated in the Fund’s prospectus. There is no guarantee that these targets and aims will be achieved. The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice.
    36. 36. JPMorgan Funds - Systematic Alpha Fund <ul><li>Aims to capture the systematic components of hedge fund returns (referred to as hedge fund beta). </li></ul><ul><li>Not hedge fund index replication. A fund of uncorrelated liquid alternative strategies </li></ul><ul><li>Three diversifying strategies: </li></ul><ul><ul><li>Merger arbitrage </li></ul></ul><ul><ul><li>Long/Short equity </li></ul></ul><ul><ul><li>Global Macro </li></ul></ul>For further information on the Fund, please see the Fund’s prospectus. The targets and aims provided above are the Investment Manager’s targets and aims only and are not part of the Funds investment objective and policy as stated in the Fund’s prospectus. There is no guarantee that these targets and aims will be achieved. For illustrative purposes only. The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time.
    37. 37. JPMorgan Funds - Systematic Alpha Fund : back-tested performance <ul><li>Portfolio weights roughly equally risk weighted by hedge fund style </li></ul><ul><li>Transaction costs have been modelled in all factors </li></ul>Source: J.P. Morgan Asset Management. Period: January 1996 – 31 st October 2011 (total return net of fees). *Fund inception is 1 July 2009. **HFRI Fund of Funds Composite Index. Total Return For illustrative purposes only. The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time. Past performance is not indicative of future results. The back-tested period consists of the performance of three underlying strategies with each strategy being equally risk weighted. The three strategies are Merger Arbitrage, Equity Long/Short (beta neutral) and Global Macro. The Merger Arbitrage portion looks to capture the deal risk premium and therefore gains exposure to all announced deals subject to liquidity constraints. The Equity Long/Short (beta neutral) model captures the alternative risk premia embedded in the style by going long value stocks with positive momentum subject to quality constraints. Finally, the Global Macro style takes advantage of the forward rate bias in FX, and the long/short term premium in government bonds as well as commodities. For the purposes of the back-test, the model positions were generated historically using data available at the time and run forward. JPM Systematic Alpha Fund* HFRI FOF Index (Non investable)** Return (annualised) 9.4% 5.7% Risk 4.9% 6.3% Sharpe/IR 1.2 0.3 Drawdown 12.4% 22.2% Live performance* ->->
    38. 38. Equity Long/Short <ul><li>Value Premium </li></ul><ul><ul><li>Risk Premium </li></ul></ul><ul><ul><li>Strategy: Long low P/E Value stocks, Short high P/E stocks </li></ul></ul><ul><ul><li>These factors form the backbone of many quantitative equity products </li></ul></ul><ul><li>Momentum </li></ul><ul><ul><li>Return chasing </li></ul></ul><ul><ul><li>Strategy : Buy stocks whose momentum is in the top decile while shorting those in the bottom decile. Holding period 1 month. </li></ul></ul><ul><li>Earnings Momentum </li></ul><ul><ul><li>Market Bias </li></ul></ul><ul><ul><li>Strategy: Long positive earnings revision stocks, short negative revision stocks </li></ul></ul><ul><li>Quality </li></ul><ul><ul><li>Behavioural bias </li></ul></ul><ul><ul><li>Strategy: Long positions with decreasing accruals, short stocks with growing accruals </li></ul></ul><ul><ul><li>Remain market neutral - run a zero beta and ensure sector and country neutrality </li></ul></ul>For illustrative and discussion purposes only. The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided above are the Investment Manager’s targets and aims only and are not part of the Funds investment objective and policy as stated in the Fund’s Prospectus. There is no guarantee that these targets and aims will be achieved.
    39. 39. Historical analysis for Long/Short Equity : back-tested performance <ul><li>In line with the hedge fund style, 2009 was poor </li></ul><ul><li>While 2010 was positive, the market neutral equity strategy is still below its peak </li></ul><ul><li>Has come back strongly in 2011 </li></ul>Source: Factset, Bloomberg, J.P. Morgan Asset Management, 31 st October 2011 For illustrative purposes only. *Fund inception 1 July 2009. Historical Performance Analysis The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. The Equity Long/Short (beta neutral) model captures the alternative risk premia embedded in the style by going long value stocks with positive momentum subject to quality constraints. For the purposes of the back-test, the model positions were generated historically using data available at the time and run forward. Past performance is not indicative of future results . Periods to 31 st October 2011 Equity Long/Short MSCI World Excess Return (annualised) 5.6% 3.2% Risk 6.1% 16.4% IR 0.90 -0.01 Maximum Drawdown 10.9% 55.4% Beta -0.11 Live performance* ->->
    40. 40. Live performance vs the HFR market neutral indices <ul><li>It is important to note here that unlike the merger arbitrage style, there is significantly more dispersion amongst the managers that make up the HFR Market Neutral Index. We thus do not expect to match the index in the same way </li></ul>Source: HFR (Hedge Fund Research), J.P. Morgan Asset Management. * As at 31 st October 2011. Restated to be fully invested. For illustrative purposes only. Past performance is not indicative of future results. Fund inception 1 July 2009. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. <ul><li>Hedge Fund Beta Long/Short Equity since inception (*): +13.69% </li></ul><ul><li>HFR Market Neutral Index : -1.70% </li></ul>
    41. 41. Global Macro / Managed Futures <ul><li>The Global Macro hedge fund style has significant dispersion amongst underlying managers. However, certain exotic beta strategies are commonplace: </li></ul><ul><ul><li>Bond Markets: Although the term premium is considered a traditional beta, converting this into a long/short duration neutral relative term premium transforms this into an exotic beta </li></ul></ul><ul><ul><li>FX : One of the most commonly known behavioural biases in FX is the Forward Rate Bias. We implement this amongst both G10 & EM countries and build a relative momentum model to augment this </li></ul></ul><ul><ul><li>Commodity Markets : The term structure in commodities generally reflects both expected changes in spot prices as well as an insurance premium </li></ul></ul><ul><ul><ul><li>If hedgers are net short, the term structure is likely to be backwardated and thus a long position will earn a risk premium </li></ul></ul></ul><ul><ul><ul><li>Likewise, if hedgers are net long, then contango is likely and thus short positions earn a risk premium </li></ul></ul></ul>The aims and objectives provided above are the investments manager’s aims and objectives and do not necessarily reflect the investment objective and policy of the Fund as stated in the Prospectus. There is no guarantee that these aims and objectives will be achieved. Opinions and analysis offered constitute JPMAM’s judgment and are subject to change without notice.
    42. 42. Historical analysis for Global Macro : back-tested performance <ul><li>2010 was a very volatile year which has been difficult for trend models to capture </li></ul><ul><li>Nevertheless, the macro models were flat over 2010 and have performed well in 2011 </li></ul>Source: Factset, Bloomberg, J.P. Morgan Asset Management, 31 st October 2011 *Fund inception 1 July 2009. Historical Performance Analysis For illustrative purposes only. The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage as applicable, are subject to change and the Fund is managed to internal guidelines which are not absolute and can change over time. The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. Global Macro style takes advantage of the forward rate bias in FX, and the long/short term premium in government bonds as well as commodities. For the purposes of the back-test, the model positions were generated historically using data available at the time and run forward. MSCI: Morgan Stanley Capital International. Past performance is not indicative of future results . Periods to 31 st October 2011 Global Macro Hedge Fund Beta MSCI World Excess Return (annualised) 8.2% -0.2% Risk 5.0% 16.3% IR 1.63 -0.01 Maximum Drawdown 10.6% 55.4% Beta 0.00 Live performance* ->->
    43. 43. Live performance vs the HFRI Systematic Macro <ul><li>Hedge Fund Beta Macro since inception (*): -0.82% </li></ul><ul><li>HFRX Macro Index: -9.60% </li></ul><ul><li>The biggest dispersion in style is in the Macro index </li></ul><ul><li>It is difficult to say therefore that we are able to capture this style </li></ul><ul><li>However, there are certain biases and alternative risk premia that we outlined previously that we seek to capture. These risk premia do form a component of the returns associated with the style </li></ul>Source: HFR (Hedge Fund Research), J.P. Morgan Asset Management. *As at 31 st October 2011. Restated to be fully invested For illustrative purposes only. Past performance is not indicative of future results . The targets and aims provided are the Investment Manager’s targets and aims only and are not part of the Fund’s investment objective and policy as stated in the Fund’s Prospectus. HFRX Macro: A macro composite index in USD, provided by Hedge Fund Research, Inc.
    44. 44. <ul><li>Hypothetical Performance: </li></ul><ul><li>Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading programme. </li></ul><ul><li>One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading programme in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading programme which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. </li></ul><ul><li>This material contains results that are simulated. Simulations are based on a number of working assumptions that may not be capable of duplication in actual trading. Simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated returns do not represent actual trading. Also, since the trades have not actually been executed, the results may have over or under-compensated for the impact, if any, of certain market factors such as liquidity constraints, fee schedules and transaction costs. Simulated trading programmes in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that future performance will or is likely to achieve profits or losses similar to those shown. </li></ul><ul><li>This material is intended to report solely on the investment strategies and opportunities identified by JPMorgan Asset Management. Additional information is available upon request. Information herein is believed to be reliable but JPMorgan Asset Management does not warrant its completeness or accuracy. Opinions and estimates constitute our judgement and are subject to change without notice. Past </li></ul>Footnotes performance is not indicative of future results. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. JPMorgan Asset Management and/or its affiliates and employees may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as underwriter, placement agent, advisor or lender to such issuer. The investments and strategies discussed herein may not be suitable for all investors; if you have any doubts you should consult your JPMorgan Asset Management Client Advisor, Broker or Portfolio Manager. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. You should consult your tax or legal advisor about the issues discussed herein. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Performance results are gross of investment management fees. The deduction of an advisory fee reduces an investor’s return. Actual account performance will vary depending on the size of a portfolio and applicable fee schedule. The following is an example of the effect of compounded advisory fees over a period of time on the value of a client’s portfolio: A portfolio with a beginning value of $100, gaining an annual return of 10% per annum would grow to $259 after 10 years, assuming no fees have been paid out. Conversely, a portfolio with a beginning value of $100, gaining an annual return of 10% per annum, but paying a fee of 1% per annum, would only grow to $235 after 10 years. The annualised returns over the 10 year time period are 10.00% (gross of fees) and 8.91% (net of fees). If the fee in the above example was 0.25% per annum, the portfolio would grow to $253 after 10 years and return 9.73% net of fees. The fees were calculated on a monthly basis, which shows the maximum effect of compounding. Approved for issue in the UK by J.P. Morgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Services Authority. Copyright 2007 J.P. Morgan Chase & Co. Clients should contact and effect transactions through a JPMorgan Asset Management entity in their home jurisdiction unless governing law permits otherwise. JPMorgan Asset Management is the marketing name for the asset management activities of J.P. Morgan Chase & Co. and its subsidiaries.
    45. 45. Contact <ul><li>Olivia Mayell – Managing Director, Client Portfolio Manager, Global Multi-Asset Group </li></ul><ul><li>Tel +44 (0)20 7742 5467 </li></ul><ul><li>e-mail: [email_address] </li></ul><ul><li>Hannah Sparrow – Vice President, Client Portfolio Manager, Global Multi-Asset Group </li></ul><ul><li>Tel +44 (0)20 7742 3413 </li></ul><ul><li>e-mail: [email_address] </li></ul><ul><li>Marc Shaw – Vice President, Client Portfolio Manager, Global Multi-Asset Group </li></ul><ul><li>Tel +44 (0)20 7777 5073 </li></ul><ul><li>e-mail: [email_address] </li></ul>
    46. 46. J.P. Morgan Asset Management For professional financial advisers only – not for use by or distribution to retail investors. The information in this document is based on our understanding of law and regulation at the time of print and is subject to change. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future. Investments in smaller companies may involve a higher degree of risk as small cap markets tend to be much more volatile than their larger capitalisation counterparts. Investments may be concentrated in any one country, sector or issuer. The fund may have a significant exposure to high yield bonds, emerging market bonds or non investment grade or unrated bonds at any time. Non-investment grade bonds may increase the risk to capital. Derivatives may be used to achieve fund objectives and allocations may vary significantly over time. The yield or the capital value of the fund (or both) can fluctuate and investors may not get back their original investment. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in emerging markets may be more volatile than other markets and the risk to capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made. This presentation does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making any investment. A copy of the Fund prospectus and simplified prospectus are available free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated by the Financial Services Authority. Investment is subject to documentation (Prospectus, Simplified Prospectus and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Registered in England No. 288553, 125 London Wall, London EC2Y 5AJ.

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