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SEAN MELNICK NEDCOR SECURITIES – MIDCAP CONFERENCE

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SEAN MELNICK NEDCOR SECURITIES – MIDCAP CONFERENCE

  1. 2. SEAN MELNICK NEDCOR SECURITIES – MIDCAP CONFERENCE
  2. 3. GROUP SNAPSHOT <ul><li>The Peregrine group is a leading provider of wealth and asset management solutions. </li></ul><ul><li>Assets under management currently exceed R 22 billion. </li></ul><ul><li>Citadel R 10 billion </li></ul><ul><ul><ul><li>Quant R 9 billion </li></ul></ul></ul><ul><ul><ul><li>Hedge funds R 3 billion </li></ul></ul></ul><ul><li>10 th biggest broker by value, 7 th by shares traded and 5 th by deals settled. </li></ul><ul><li>Market capitalisation (net of treasury shares) @ R7.50 of R1.5 billion. </li></ul><ul><li>Capitalised at 6.7% of assets under management. </li></ul><ul><li>PE ratio per trading update (@ R7,50) between 8.2 times and 9.3 times to end March 06. </li></ul>
  3. 4. GROUP PROFILE C ontribution to Sep 05 <ul><li>WEALTH MANAGEMENT 23% </li></ul><ul><ul><ul><li>Citadel </li></ul></ul></ul><ul><li>ASSET MANAGEMENT 35% </li></ul><ul><ul><ul><li>Hedge Funds </li></ul></ul></ul><ul><ul><ul><li>Peregrine Capital </li></ul></ul></ul><ul><ul><ul><li>Peregrine Investment Managers (PIM) </li></ul></ul></ul><ul><ul><ul><li>Caveo FOHF (JV with IS) </li></ul></ul></ul><ul><ul><ul><li>Peregrine Quant </li></ul></ul></ul><ul><li>TRANSACTIONAL 26% </li></ul><ul><ul><ul><li>Broking & Structuring </li></ul></ul></ul><ul><li>PROPRIETARY CAPITAL 16% </li></ul><ul><ul><ul><li>Investment returns (net of group costs) </li></ul></ul></ul>
  4. 5. PERSONAL FINANCIAL FRAMEWORK WEALTH MANAGEMENT - CITADEL 1.WEALTH CREATION (“What you do for a living”) 2.YOUR LIFESTYLE ASSETS (‘How you live”) 3.WEALTH PRESERVATION (“Securing your future”) 4.EXCESS ASSETS (“More than enough”)
  5. 6. CITADEL <ul><li>Focussed on individual high-net-worth wealth management </li></ul><ul><ul><li>Clients with R 2 million plus to invest </li></ul></ul><ul><ul><li>Average current top-up client size R 5,0 million </li></ul></ul><ul><ul><li>Average new client size R 8,0 million </li></ul></ul><ul><li>Total assets under management approximately R 10 billion </li></ul><ul><ul><li>New inflows of R 100 million per month </li></ul></ul><ul><ul><li>Client retention of 96% </li></ul></ul><ul><ul><li>Annuity outflows of almost R600 million </li></ul></ul>WEALTH MANAGEMENT
  6. 7. CITADEL - PROFITABILITY <ul><li>Annuity profit R 4 million per month = approx R50 m per annum </li></ul><ul><ul><li>PLUS 20% performance fee above lifetime benchmark per client </li></ul></ul><ul><ul><li>Benchmark is inflation after accounting for all costs and taxes </li></ul></ul><ul><ul><li>High watermark catch up from late 2001 / early 2002 </li></ul></ul><ul><ul><li>Performances fees currently averaging R 3 million per month plus </li></ul></ul><ul><ul><li>Approximately half the client base now at, or above, high watermark </li></ul></ul><ul><ul><li>Strong gearing to weaker currency over time </li></ul></ul>WEALTH MANAGEMENT
  7. 8. CITADEL – PERFORMANCE FEE “RUN RATE” <ul><li>At current level of AUM of R 10 billion : </li></ul><ul><ul><li>if all clients at benchmark: run-rate of R 20 million per 1% real </li></ul></ul><ul><ul><li>if half the clients at benchmark: run-rate of R10 million per 1% real </li></ul></ul><ul><ul><li>Half the clients at benchmark: 5% real = R 50 million fees per annum </li></ul></ul><ul><ul><li>Half the clients at benchmark: 10% real = R 100 million fees per annum </li></ul></ul>WEALTH MANAGEMENT
  8. 9. Peregrine Quant <ul><li>Over R9 billion in AUM </li></ul><ul><li>Cashflow positive </li></ul><ul><li>Good progress in both the institutional and retail markets </li></ul><ul><li>All the infrastructure costs have been spent </li></ul><ul><li>Belief that quantitative asset management will continue to gain ground on the more traditional styles </li></ul>ASSET MANAGEMENT
  9. 10. HEDGE FUNDS <ul><li>Peregrine is the biggest player in the local hedge fund industry. </li></ul><ul><li>The group’s exposure to the hedge fund industry is extensive with investments across a broad range of strategies exceeding R5 billion on a worldwide basis. </li></ul><ul><li>In excess of R 2,5 billion is managed in single strategy hedge funds. </li></ul><ul><li>Within the group’s wealth management arm, Citadel, over R1 billion is invested with leading hedge fund managers on a multi - strategy approach. </li></ul><ul><li>In addition, R1,7 billion is currently managed globally on a fund of hedge fund basis with an international joint venture partner. </li></ul><ul><li>Caveo, a newly formed FOHF joint venture with Investment Solutions currently has R 330 million under management. </li></ul><ul><li>The group also houses one of the country’s leading derivative, equity and prime broking operations. </li></ul>
  10. 11. OUR INTEGRATED HEDGE FUND STRATEGY <ul><li>FUND OF HEDGE FUNDS / MULTISTRAT </li></ul><ul><ul><ul><li>Caveo </li></ul></ul></ul><ul><ul><ul><li>Citadel Multistrat </li></ul></ul></ul><ul><li>SINGLE STRATEGY FUNDS </li></ul><ul><ul><ul><li>Peregrine Capital </li></ul></ul></ul><ul><ul><ul><li>Peregrine Investment Managers (PIM) </li></ul></ul></ul><ul><li>PRIME BROKER </li></ul><ul><ul><ul><li>Peregrine Prime </li></ul></ul></ul>
  11. 12. CAVEO – Top of the funnel <ul><li>Combining Peregrine’s hedge fund experience and reputation </li></ul><ul><li>with Investment Solutions distribution (and manager access) </li></ul><ul><li>Currently R330 million under management </li></ul><ul><li>Potential to manage several billion </li></ul><ul><li>Conflict of interest resolved by “non-Peregrine” products </li></ul>ASSET MANAGEMENT
  12. 13. OUR INTEGRATED HEDGE FUND STRATEGY <ul><li>FUND OF HEDGE FUNDS / MULTISTRAT </li></ul><ul><ul><ul><li>Caveo </li></ul></ul></ul><ul><ul><ul><li>Citadel Multistrat </li></ul></ul></ul><ul><li>SINGLE STRATEGY FUNDS </li></ul><ul><ul><ul><li>Peregrine Capital </li></ul></ul></ul><ul><ul><ul><li>Peregrine Investment Managers (PIM) </li></ul></ul></ul>
  13. 14. PEREGRINE CAPITAL <ul><li>Fundamental equity hedge fund management company </li></ul><ul><ul><li>Over R2.1 Billion in AUM </li></ul></ul><ul><ul><li>Comfortable at current AUM , but closed to new flows </li></ul></ul><ul><ul><li>Hedge fund : 44% p.a. gross compounding since July 98 </li></ul></ul><ul><ul><li>Performance fund : 65% p.a. gross compounding since July 98 </li></ul></ul><ul><ul><li>50/50 economic deal with management – stability in team </li></ul></ul><ul><li>Profit from annual fees of only R 10 million BUT </li></ul>ASSET MANAGEMENT
  14. 15. PEREGRINE CAPITAL – PERFORMANCE FEES AT AUM of R 2,1 BN ASSET MANAGEMENT 168 m 40% pa 147 m 35% pa 126 m 30% pa 105 m 25% pa 84 m 20% pa 63 m 15% pa 42 m 10% pa Performance Fees Return
  15. 16. OUR INTEGRATED HEDGE FUND APPROACH <ul><li>FUND OF HEDGE FUNDS / MULTISTRAT </li></ul><ul><ul><ul><li>Caveo </li></ul></ul></ul><ul><ul><ul><li>Citadel Multistrat </li></ul></ul></ul><ul><li>SINGLE STRATEGY FUNDS </li></ul><ul><ul><ul><li>Peregrine Capital </li></ul></ul></ul><ul><ul><ul><li>Peregrine Investment Managers (PIM) </li></ul></ul></ul><ul><li>PRIME BROKER </li></ul><ul><ul><ul><li>Peregrine Prime </li></ul></ul></ul>
  16. 17. BROKING AND STRUCTURING <ul><li>Peregrine Securities </li></ul><ul><ul><li>Equity Broking </li></ul></ul><ul><ul><ul><li>Peregrine Prime </li></ul></ul></ul><ul><ul><ul><li>Peregrine Equities </li></ul></ul></ul><ul><ul><li>Derivative Broking </li></ul></ul><ul><ul><li>Derivative & Quantitative Research </li></ul></ul><ul><ul><li>Structuring </li></ul></ul>TRANSACTIONAL
  17. 18. Base Case (?) Earnings for Peregrine (note assumptions) R 180 m @ 6.7% 12 Interest PAT = R116m, HEPS ± 60 cps @11%, each additional 5% pa = R17.5m Large transactions/structures excl. Each additional R1bn AUM = R2.5 m @15%, each additional 5%pa = R12.5m 1% pa real performance = R10m Sensitivities (15) Holdings costs 162 Total 40 Return on proprietary capital 125 Subtotal 30 Securities 5 PeregrineQuant 40 Hedge funds 50 Citadel PBT (Rm) Company
  18. 19. Balance sheet <ul><li>No external gearing at year end </li></ul><ul><li>R 360 million in cash / near cash investments </li></ul><ul><li>Approximately R 150 million cash in working capital </li></ul><ul><li>Generating cash at a rate of R 20 million per month (pre tax) </li></ul><ul><li>BUT </li></ul><ul><ul><li>Earnings do rely on good investment performance </li></ul></ul><ul><ul><li>Business is highly people dependent </li></ul></ul>
  19. 20. FINALLY, AN INTERESTING COMPARISON AND SOME HOMEWORK <ul><li>Man Group Plc ( www.mangroupplc.com ) </li></ul><ul><li>Largest listed hedge fund manager. Listed on the LSE. </li></ul><ul><li>Man Group Plc is a : </li></ul><ul><ul><ul><ul><li>“ leading global provider of alternative investment products and solutions. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>One of the world’s largest future’s brokers.” </li></ul></ul></ul></ul><ul><li>Assets under management @ 12 Jan 06 - $ 45.8 billion </li></ul><ul><li>Market Capitalisation - $ 11.9 billion </li></ul><ul><li>Market cap : AUM = 26% !!!! </li></ul><ul><li>Fiscal PE (trailing) – 19.3 times </li></ul>

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