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Investing is simple

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Investing is simle... if you dont follow the old dogmas, keep your eyes widely open and have an edge.

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Investing is simple

  1. 1. Investing is simple 9th Annual Modern Wealth Management Forum 22 May 2014, Jurmala Marius Čiuželis, MC Wealth Management T +370 698 40 095 E marius.ciuzelis@mcwealth.lt
  2. 2. 2 | Copyright © 2014 All rights reserved Content > Who we are > Investing is simple; but not easy > Clients’ preferences > Alternative investments > Uncovering unusual investments
  3. 3. 3 | Copyright © 2014 All rights reserved MC Wealth Management Multi family office > We serve local HNWIs – full scale private wealth management. > We trade EU Government bonds for our local corporate and institutional clients. Fund distribution > We are keen to alternatives ranging from multibillion HF houses to the niche market players. > B2B market segment. > Global focus with existing clientele in Moscow, Singapore, Hong Kong, Riga, prospective clients in Estonia, India, Monaco, Sweden, Switzerland, UAE, UK etc Private investments > Local private equity. > Aircraft leasing.
  4. 4. 4 | Copyright © 2014 All rights reserved „Investing is simple; but not easy“
  5. 5. 5 | Copyright © 2014 All rights reserved What is your edge? > B. Graham / W. Buffett style value investing > MPT / diversification based investing > High frequency / active trading > Trend following investing > Contrarian investing > Sale of stuctured products > You name it…
  6. 6. 6 | Copyright © 2014 All rights reserved MPT based investing > 8-12% long term annual return expectations > Buy and Hold > Diversification is the most important
  7. 7. 7 | Copyright © 2014 All rights reserved S&P 500 performance (as of the end of 1999) 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Yahoo Finance, MC Wealth Management
  8. 8. 8 | Copyright © 2014 All rights reserved S&P 500 performance (as of the end of 2013) 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Yahoo Finance, MC Wealth Management -45,8% (2000/03 – 2002/09) +88,3% (2002/09 – 2007/10) -56,1% (2007/10 – 2009/03) +175,3% and growing (2009/03 – ?) +23,1% (2000/03 – 2014/03)
  9. 9. 9 | Copyright © 2014 All rights reserved 10 years annualized performance Source: Yahoo Finance, MCSI, MC Wealth Management -5% 0% 5% 10% 15% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 MSCI World USD S&P 500 MSCI World EUR
  10. 10. 10 | Copyright © 2014 All rights reserved Diversification is the most important. Really? 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 USA AUS HK GER ESP JAP FRA GER UK HK HK HK JAP SUI ESP SUI ITL JAP SUI 22.1% 56.1% 47.0% 136.5% 123.2% 43.2% 38.7% 47.1% 10.3% 49.5% 32.3% 116.7% 21.6% 45.0% 41.3% 44.8% 53.2% 61.8% 6.4% NDL NDL ESP ITL ITL ESP AUS NDL HK AUS SUI SUI NDL USA HK ITL ESP HK CAN 16.6% 38.4% 41.7% 133.8% 109.4% 37.9% 38.1% 37.3% 9.2% 35.6% 18.1% 46.7% 12.7% 38.2% 33.1% 36.4% 50.6% 59.5% 5.6% GER CAN JAP SUI JAP UK JAP FRA NDL USA USA NDL ITL ESP CAN USA FRA CAN ITL 10.2% 33.5% 17.1% 107.5% 99.7% 35.1% 35.5% 36.8% -2.0% 31.3% 7.4% 36.6% 12.1% 31.2% 29.3% 34.1% 42.1% 54.4% -0.8% UK FRA NDL FRA FRA CAN HK USA USA NDL NDL AUS AUS NDL NDL ESP USA FRA NDL 9.4% 33.2% 11.6% 83.2% 79.1% 28.1% 31.4% -2.1% -5.4% 19.1% 3.4% 36.6% 6.5% 28.9% 28.5% 26.2% 30.7% 29.7% -3.6% SUI JAP ITL NDL HK AUS GER SUI SUI FRA FRA GER GER HK UK GER GER USA FRA 3.5% 24.9% 9.3% 61.5% 56.1% 14.7% 21.4% 27.2% -8.9% 18.5% 3.4% 36.3% 5.1% 22.6% 27.4% 25.1% 29.9% 22.4% -4.1% CAN GER USA ESP AUS NDL CAN CAN GER ESP UK ESP SUI UK USA NDL SUI GER AUS 2.5% 24.1% 6.0% 57.0% 43.9% 10.4% 18.0% 25.3% -12.2% 17.0% -3.7% 31.2% 4.2% 21.3% 24.1% 24.5% 24.1% 20.5% -9.1% JAP USA UK UK NDL USA USA UK CAN SUI GER ITL USA CAN FRA UK NDL AUS UK -0.5% 22.0% 5.7% 53.0% 42.4% 3.9% 15.9% 21.9% -12.8% 16.8% -9.7% 39.5% 2.0% 19.1% 21.8% 22.6% 23.9% 18.7% -11.5% FRA SUI FRA HK GER HK NDL ITL ESP UK AUS JAP UK GER AUS CAN UK UK USA -4.1% 19.3% 5.1% 51.7% 35.9% -4.1% 15.6% 20.4% -13.4% 16.0% -9.8% 25.7% -1.6% 17.0% 17.8% 13.3% 17.8% 12.5% -12.5% ITL UK GER JAP SUI SUI ESP AUS FRA CAN CAN UK CAN FRA GER FRA AUS NDL HK -18.8% 17.4% -5.1% 43.4% 34.3% -8.8% 14.3% 10.9% -13.4% 12.0% -11.5% 24.4% -2.4% 14.8% 14.1% 12.4% 7.1% 7.4% -14.7% AUS ITL CAN USA UK FRA ITL ESP AUS JAP ESP FRA ESP AUS ITL AUS JAP ESP GER -22.5% 3.9% -7.6% 32.8% 27.0% -13.4% 12.5% 10.6% -15.0% 9.1% -20.8% 21.6% -3.9% 12.5% 13.4% -9.5% 5.3% 5.3% -15.3% ESP HK SUI AUS USA ITL SUI HK ITL GER JAP CAN FRA ITL SUI HK HK ITL ESP -29.0% -2.9% -11.1% 21.0% 17.5% -20.7% 7.1% 8.4% -18.4% 8.8% -21.3% 18.4% -4.7% 1.7% 2.8% -23.3% -2.9% 0.2% -15.5% HK ESP AUS CAN CAN GER UK JAP JAP ITL ITL USA HK JAP JAP JAP CAN SUI JAP -44.4% -4.7% -12.6% 16.0% 10.8% -24.3% 6.0% 1.8% -36.0% -0.7% -21.3% 10.1% -28.9% 0.9% -15.4% -23.6% -5.7% -6.6% -28.1% 2001 2002 2003 2004 2005 AUS AUS GER ITL CAN 2.7% -0.3% 64.8% 34.0% 28.8% ESP ITL ESP AUS JAP -11.0% -6.3% 59.2% 32.0% 25.6% USA SUI CAN ESP AUS -12.0% -10.0% 55.4% 29.6% 17.5% UK JAP AUS HK SUI -14.1% -10.1% 51.4% 25.0% 17.1% HK CAN FRA CAN FRA -18.6% -12.8% 41.0% 22.8% 10.6% CAN ESP ITL UK GER -20.1% -14.9% 39.0% 19.6% 10.5% SUI UK HK FRA HK -21.1% -15.2% 38.1% 19.2% 8.4% NDL HK JAP GER UK -21.6% -17.8% 36.2% 16.7% 7.4% GER NDL SUI JAP USA -22.0% -20.3% 35.0% 16.0% 5.7% FRA FRA UK SUI ESP -22.1% -20.8% 32.1% 15.6% 4.9% ITL USA NDL NDL NDL -26.1% -22.7% 29.3% 13.3% 3.2% JAP GER USA USA ITL -29.3% -32.9% 29.1% 10.7% 3.1% All countries but France had the highest and the lowest ranking in the annual performance contest Source: MCSI, MC Wealth Management
  11. 11. 11 | Copyright © 2014 All rights reserved „Wide diversification is only required when investors do not understand what they are doing“
  12. 12. 12 | Copyright © 2014 All rights reserved Clients preferences before and after the crisis BC > Mandate: discretionary („take my money and don‘t bother me with details“) > Performance expectation: 30%+ per annum without a risk > Sales process: commission driven > Products: the more fancy, the better AC > Mandate: advisory – clients became control freaks („if I want loosing money I'd rather do it myself“) > Performance expectation: 10%- per annum still without a risk > Sales process: performance driven dkn > Products: back-to-basics or as simple as possible
  13. 13. 13 | Copyright © 2014 All rights reserved Investment habits in Lithuania Nominal GDP – LTL120b (as of the end of 2013) > Deposits and cash take LTL28b (23% vs GDP) > Investment funds take LTL1,2b (1% vs GDP, 4% vs deposits) > Structured notes estimate LTL5b (4,2% vs GDP, 17,9% vs deposits) > Real estate − ?
  14. 14. 14 | Copyright © 2014 All rights reserved Our solution – Alternatives investments > There is a great need to embrace alternative investments as the new glide path in portfolio construction. > For example, as clients move closer to retirement, instead of increasing the fixed-income allocation, a greater allocation to alternatives strategies as a component of risk management might be suggested. > We do not seek the returns only, but the character of those returns. We look both at global multi billion hedge fund houses with a proven track record as well as the niche market players who utilize a unique edge that has the potential to remain consistent over time. > Our due-diligence process takes a careful look at return-to-risk as we aim to understand the real sources of both parameters. We don‘t just follow pure statistics but aim to understand the business model.
  15. 15. 15 | Copyright © 2014 All rights reserved Over 60 years of evolution Source: Man
  16. 16. 16 | Copyright © 2014 All rights reserved What is a hedge fund? > A hedge fund is an actively managed, pooled investment vehicle. Returns of hedge funds are derived mostly from the skill of the hedge fund manager in executing their chosen strategy. > Long-term investment solution, eliminating the need to correctly time entry and exit from markets. > Hedge fund managers trade across a spectrum of markets and exchanges, investing in a diverse array of financial instruments including equities, bonds, currencies and derivatives. > Flexibility: May switch investment strategy very quickly and may trade on the long and short side of various financial instruments. > Alignment of interest: Funds’ managers often invest their own money.
  17. 17. 17 | Copyright © 2014 All rights reserved Sharp AUM growth of hedge fund industry Source: (1) HFR Global Hedge Fund Industry Report, 12/31/13, (2) Credit Suisse 2013 Global Survey of Hedge Fund Investors Appetite and Activity
  18. 18. 18 | Copyright © 2014 All rights reserved Hedge fund industry AUM by investor type Source: Hennessee Group LLC, FSA, The City UK estimates, May 2013
  19. 19. 19 | Copyright © 2014 All rights reserved Investors are hungry for yields Data range: 1 January 1994 to 28 February 2013 Source: Bloomberg, MSCI, Man
  20. 20. 20 | Copyright © 2014 All rights reserved Downside protection during market stress Hedge funds: HFRI Fund Weighted Composite Index. World Stocks: MSCI World Net Total Return hedged to USD Source: Bloomberg, MSCI, Man
  21. 21. 21 | Copyright © 2014 All rights reserved Hedge funds and diminishing returns Source: Hedge Fund Research, Inc, Julex Capital Management, LLC
  22. 22. 22 | Copyright © 2014 All rights reserved Correlation crisis
  23. 23. 23 | Copyright © 2014 All rights reserved Uncovering unusual investments > The uncertain economic outlook for at least the next five years — along with „a correlation crisis“ — should lead to increased use of unusual investments. > Financial advisers should be looking beyond traditional asset allocation models and strategies. And sometimes even beyond „mainstream“ hedge fund strategies. > Managed-futures strategies are a good example as they were one of the few bright spots from the 2008 financial crisis. > However, such non-correlated strategies are becoming increasingly difficult to uncover (Art? Classic cars? Commodity trade finance? Credits? Fine watches? Forestry? Life settlements? Litigation financing? P2P lending? Wine?)
  24. 24. 24 | Copyright © 2014 All rights reserved Further enhancing traditional risks’ portfolio We can make an initial approach to different asset classes by dividing them in: > Equity related > Interest related > Real Estate related > Commodity related > Cash Space for improvement Longevity related Life Settlements, or as is called longevity risk, has been an asset class for many years managed exclusively by Pension Funds, Insurance companies as well as some real estate investors.
  25. 25. 25 | Copyright © 2014 All rights reserved Historically attractive returns
  26. 26. 26 | Copyright © 2014 All rights reserved Performances by strategy 26,0% 12,7% 17,5% 5,1% 3,6% 5,5% 11,0% 4,7% -4,3% -10,0% -5,0% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% Life Settlements Distressed debt Credit Event Driven Multi-Strategy US Long/Short S&P 500 Macro CTAs 2014 1st Quarter median performance Annualised performance of the past 3 years Source: Hedge Fund Intelligence (HFI), April 2014
  27. 27. 27 | Copyright © 2014 All rights reserved Alternative Investment Funds Q1 2014 2013 2012 2011 Ann. since inception Ann. st. deviation Credit Fund 1 (TGC) 3,00 13,80 16,01 18,09 17,50 2,04 Fund 2 (GFBF) 2,37 7,31 nd nd 8,16 2,80 Distressed Debt Fund 3 (GEDD) 3,16 12,33 17,92 -1,62 19,97 10,66 Fund 4 (PCO) 3,01 12,95 20,38 -9,25 12,76 7,80 Life Settlements Fund 5 (LTGF) 5,94 28,77 31,02 22,07 27,21 4,11 Market Neutral Fund 6 (GMN) 2,30 10,30 18,40 0,80 14,90 14,70
  28. 28. 28 | Copyright © 2014 All rights reserved Investing is simple; but not easy > In a perfect world, investors would like to have completely uncorrelated assets, but unfortunately all assets are somewhat correlated. > Once we buy a corporate bond we are exposed at the same time to equity risk, interest rate risk, credit risk, so an analysis has to consider all the other risks as well. > One of the value added features of yet broadly uncovered strategies like Life Settlements is that they can be analyzed almost independently from the longevity risk space: credit, equity or market risks almost do not affect the asset. > From a pure perspective of portfolio optimization, it is clear longevity asset class has a big role to play in the portfolios of investors.
  29. 29. 29 | Copyright © 2014 All rights reserved Summary > Be like an entrepreneur > Be innovative – find your edge > Don’t rely on the old dogmas > Investment opportunities are like buses, there’s always another one coming
  30. 30. 30 | Copyright © 2014 All rights reserved Thank you. Questions? Marius Čiuželis MC Wealth Management Managing Partner T: +370 698 40 095 E: Marius.Ciuzelis@mcwealth.lt Contacts for further communication

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