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CITY OF LONDONInvestment Management Company Limited
An Experienced Young Management Team Presented by: Ashleigh Simms, Head of Compliance
An Experienced Young Management Team
Ø Who Is The Management Team?
• Executive Directors of the Board
• Heads of Departments
• Other Senior Managers
2
An Experienced Young Management Team
3
Ø Ashleigh Simms Head of Compliance * Ø Michael Hart Group Economist Ø Todd Fawaz Head of US Marketing Ø Jeff Gill Head of Frontier Strategy * Ø James Millward Lead Portfolio Manager – Global Tactical Asset Allocation Ø Mark Dwyer CLIG Director, Chief Investment Officer – Emerging Markets Group* ^ Ø Ted Sevick US Portfolio Manager – Emerging Markets * Ø Tom Griffith CLIG Director, Chief Operating Officer * ^ Ø Anthony Inverso Operations Manager * Ø Tracy Rodrigues CLIG Director, Chief Financial Officer* ^ Ø Michael Edmonds Head of Developed / Global Tactical Asset Allocation Strategy * Ø Alan Hoyt Head of Information Technology * Ø Courtney Short Head of US Client Servicing *
^ Executive Board Director * Senior Management Group
An Experienced Young Management Team
4
Ø It’s a team effort
Ø Lead by example – hard work, transparency, dedication to clients
Ø Daily investment management meetings / calls between all the offices with both senior and junior members – handing information and insights systematically across the 24-hour trading clock
Ø Recruitment of the right people important – both at senior and junior levels – we take the development of our staff seriously
Ø We have ‘skin in the game’ - Employee Incentive Plan – circa 60% of staff have taken this up which shows commitment to the firm
An Experienced Young Management Team
5
First Name Surname Firm Experience Industry Experience
Ashleigh Simms 1 20Michael Hart 5 19Todd Fawaz 9 19Jeff Gill 14 21James Millward 8 20Mark Dwyer 13 23Ted Sevick 11 15Tom Griffith 18 25Anthony Inverso 9 10Tracy Rodrigues 18 32Michael Edmonds 9 26Alan Hoyt 8 29Courtney Short 21 21
CITY OF LONDONInvestment Management Company Limited
Emerging Markets Macro in a High Valuation World
Presented by: Michael Hart
A Look Across Valuations
7
Source: Bloomberg, City of London Investment Management
Comparison of Asset Class Prices, index Sep 2007 = 100
A Look at Performance
8
Source: Bloomberg, City of London Investment Management
Total Return, USD, %
EM Equities Still on Even Keel
9
Source: Bloomberg, City of London Investment Management
EM vs DM P/E, index Sep 2007 = 100
Opportunities Abound Within EM
10
Source: Bloomberg, City of London Investment Management
P/E discount to MSCI EM, std. dev. from 5yr avg (as of Oct 17)
Few Red Flags
11
Source: Bloomberg, City of London Investment Management
Relative Strength vs. Valuation (as of Oct 17)
Diversification Strategies for the New Phase: US Sales and Marketing
Presented By: Todd Fawaz – Head of US Marketing
Target Audiences in the US for CoL
Ø Institutional Investment Consultants Globally including:
• Cambridge Associates
• Callan Associates
• NEPC
• Summit Strategies
• Prime Buchholz
• Mercer Investment Consulting
Ø Direct Plan Sponsors in the US
• Endowment and Foundations
• Public Pension Funds
• Corporates
• Hospital/Healthcare
Ø Family Offices • Multi Family Offices
• Single Family Offices
• RIA Channel
• Non US Family Offices
13
Target Audiences in the US for CoL (continued)
Ø CIO Outsourcing Plans
• Investure
• Hirtle Callaghan
• Morgan Creek
• CornerStone Partners
• SEI
Ø Intermediary Channel
• Sub-Advisory
• Platforms
• Insurance
14
CoL CEF Product Landscape
Ø Global Emerging Markets CEF strategy
Ø Global Developed International CEF strategy
Ø Frontier EM CEF strategy
Ø Global Tactical Asset Allocation (GTAA) CEF strategy
Ø Tactical Income CEF strategy – US Taxable Investors
Ø CEF Custom Solutions mandates
• Fixed Income CEF Capabilities - i.e. High Yield CEF, Diversified Credit CEF
• Energy/Commodity CEF strategy
• Other
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All focused on exploiting CEF
discount volatility
Focus Products
Marketing focus is on Emerging Markets CEF, Global Developed CEF, Frontier CEF, Global TAA CEF, and Custom Solutions CEF strategies characterised by:
Ø Proven Process
Ø Solid performance during a full economic and market cycle
Ø Operational excellence
Marketing of global leadership in CEF investing and ability to structure a tailor made solution towards an institutional investor’s needs
16
New Business Objectives
Ø Continue to bring in new AUM for our diversification CEF strategies across the US Institutional marketplace
• Continue to expand marketplace coverage across Consultant and Direct Plan Sponsors with our CEF product offerings
Ø Expand our marketing reach to non-traditional channels of City of London including Family Offices and RIAs both in the US and outside the US
Ø Continue with Client Retention and Marketing for the flagship EM CEF strategy
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Diversification Strategies for the New Phase: The Frontier Emerging Markets Strategy
Presented By: Jeff Gill – Head of Frontier Strategy
Ø Three Funds
• Comingled - US$79m
• Segregated - US$130m
• Single Country - US$18m
AUM figures as of September 29, 2017
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Overview
US$227m Total AUM
vs.
US$300m Capacity
Strategy Characteristics
Ø Capacity Limit of $300m
• Purist approach - Higher Capacity = More EM & Developed exposure - Higher Tracking Error = Increased Risk
Ø Consistent low-beta, well-correlated (with Frontier Indices) performance
• Lower Standard Deviation than Benchmark over every period
• Low Tracking Error (average 5% over annualised periods)
• High Correlation (better than 0.9 over every period)
20
Strategy Characteristics
Ø Long Track Record (+12 years)
Ø Consistent Outperformance
Ø Competitive Fee Schedule
• 1.25% for Comingled - Universe Average of 1.53% (Including ETFs)*
• No Performance Fee - Universe Average of 15% (varying terms – high watermarks, hurdles, etc.)
on approximately 1/3 of universe*
21
* Based on available Bloomberg Data
Active management works in Frontier Markets Performance – Inception (1st July, 2005) to 30 September, 2017 Rebased from 100, in US$, Net of Fees
22
Source: City of London Investment Management, Bank of New York Mellon, Standard & Poors
0
50
100
150
200
250
Ince
ption (7
/1/05
)
10/31
/05
2/28/0
6
6/30/0
6
10/31
/06
2/28/0
7
6/30/0
7
10/31
/07
2/29/0
8
6/30/0
8
10/31
/08
2/28/0
9
6/30/0
9
10/31
/09
2/28/1
0
6/30/1
0
10/31
/10
2/28/1
1
6/30/1
1
10/31
/11
2/29/1
2
6/29/1
2
10/31
/12
2/28/1
3
6/28/1
3
10/31
/13
2/28/1
4
6/30/1
4
10/31
/14
2/28/1
5
6/30/1
5
10/31
/15
2/29/1
6
6/30/1
6
10/31
/16
2/28/1
7
6/30/1
7
City of London Frontier Emerging Markets Fund NAV, US$, Net of Fees S&P Extended Frontier 150 Net TR Index
eVestment Alliance Performance as of June 30, 2017
23
Source: eVestment Alliance
3 Years1 Year 5 Years
Periods
Rate
of R
etur
n (%
)
35
30
25
20
15
10
5
0
-5
-10
City of London – The Frontier Emerging Markets FundS&P Extended Frontier 150 Index (Net)MSCI FM Index (Net Total Return)
Global Reach, Team Approach
Ø London, Dubai, US (with ability to leverage Singapore)
• London – Trading & Research
• Dubai – Trading & Research
• US – Management, Trading, Research & Marketing/Client Retention
Ø Daily Interaction
• Daily VC meeting
• Continuous phone & email contact
Ø Two formal, agenda-driven weekly meetings
• Monday – Team
• Wednesday – Firm
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As a business…
Ø Limitations
• Small universe, limited Capacity
• Constrained to institutional, tax-exempt clients
Ø Advantages
• Long-term, stable and sophisticated clients
• Close relationships, frequent education and updates
Ø Small, yet profitable
• Peer universe and performance mitigate fee pressure
• Leverages preexisting infrastructure
• Very little resource needed, even at capacity
25
Diversification Strategies for the New Phase: Developed Equity and GTAA
Presented by: James Millward - Lead Portfolio Manager GTAA Strategies
Extending the core competency of the firm…
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Ø Developed and Tactical Allocation Group
Ø Self-contained team of three portfolio managers, two analysts
Ø >60 years investment experience in PM team
Ø $425m under management, good growth trajectory
….. diversifying the product offering and potential client base
A Persistently Inefficient Universe
28
29
1GTAA 14 (Short)
Source: City of London Investment Management, MSCI, BNY Mellon
The City of London Global Developed CEF International Equity Composite contains $2.3 million in assets, representing 1 commingled account and represents approximately 0.05% of the total assets under City of London’s management as at September 30, 2017. Returns are time weighted and are shown net of fees on a trade date valuation basis. Returns are quoted in US dollar terms. Historical net returns were based on an investment management and custody fee of 0.8% per annum until November 2010 when there was only one commingled Fund in the composite. Since November 1, 2010, historical net returns were based on an investment management and custody fee of 1% per annum and as of November 1, 2016, net returns are based on an investment management and custody fee of 0.7% per annum. The total expense ratio for the Fund is 0.8% per annum.
*Composite inception date was October 1, 2009. Performance figures as of September 30, 2017.
Annualized
Returns 2009* 2010 2011 2012 2013 2014 2015 2016 2017* Since Inception*CoL Global Developed CEF Composite (Net of Fees) +3.82% +16.25% -10.97% +21.73% +18.66% +3.42% +1.86% +2.51% +29.49% +10.17%MSCI ACWI ex USA Index +3.74% +11.15% -13.71% +16.83% +15.29% -3.87% -5.66% +4.50% +21.13% +5.53%
80
100
120
140
160
180
200
220
240
CoL Global Developed CEF Composite (Net of Fees)*MSCI ACWI ex USA Index
10.1
.09
3.31
.10
9.30
.10
3.31
.11
9.30
.11
3.31
.12
9.30
.12
3.28
.13
9.30
.13
3.31
.14
9.30
.14
3.31
.15
9.30
.15
3.31
.16
9.30
.16
3.31
.17
9.30
.17
Valu
e of
$10
0 In
vest
ed
City of London Global Developed CEF International Equity Composite Performance Compared with the MSCI All Country World ex USA Net Total Return IndexInception* - September 30, 2017
Past performance is no guarantee of future results.
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32
33
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Our growth agenda – playing to the firm’s strengths…
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Ø Active management works for CEF strategies
Ø Performance necessary but not sufficient for asset-gathering…
Ø … but good performance helps resist fee pressure, maintain margin
Ø Focused, self-contained team motivated to grow assets
……. Capacity not a constraint; continued outperformance is key
CITY OF LONDONInvestment Management Company Limited
Why We Believe in Active Management (and why you could too)
Presented By: Mark Dwyer - CLIG Director, EM CEF CIO
Ted Sevick - US Portfolio Manager
Backgrounds & Biases
Ø CLIG is an active investment management firm
Ø we have staked our careers on a belief that active management works
Ø we invest in actively managed securities
37
Respect for Passive Investing
Ø Vanguard was a pioneer in passive investing
Ø Utmost respect for firm and their focus on costs
Ø but, Vanguard also has a long and deep history in active management
• 1929 - founding of the Wellington Fund
• as of 31-Dec-16, $533b in active managed assets with 28 advisors
Ø “…active and passive are complementary approaches that can be used in the same portfolio.” Bill McNabb- Vanguard Chairman
38
Source: Vanguard.com, FNLondon.com
Shift Towards Passive
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Source: Bank of America Merrill Lynch Global Investment Strategy, EPFR Global
Preferences in Passive Investing
40
Ø H1 2017, flows out of active and into passive funds reached nearly $500b
Concerns About Shift Towards Passive
Ø We are not in the business of making sweeping predictions
Ø Google search - “Passive Investing Bubble” - 10+ pages of articles
Ø but, passive investments are:
• an active bet once you make the decision to invest
• valuation insensitive
• potential mis-allocation of capital
• untested liquidity issues (ETF) - high yield, small cap miners, EMD
• starting to get scary - 4x leverage
• passive investment/ETF boom is post 2008 crash - low rate / low return environment? - response to active performance / high fees?
41
CEF Managers - Better Positioned to Outperform
Ø Closed capital structure
Ø No daily in/out flows = better cash management
Ø Lower turnover and costs
Ø CEF structure permits modest leverage & less liquid investments
Ø Can (and do) move down the cap scale
Ø Less focused on index names - more POTENTIAL to add alpha
Ø Longer-term investment horizon
42
*Source Canaccord [Morningstar, Thomson Financial DataStream], Investment Companies vs. Open-ended funds: Annualised out/underperformance (NAV total returns, 5 years to 30 September 2016, unless stated). Past performance is no guarantee of future results.
CEF vs Similar OEF NAV Performance
EM Equity Index Funds Lag Benchmarks
44
Cumulative NAV Underperformance
1-year 3-year 5-year 10-year BenchmarkEEM 0.7% 1.9% 3.7% 5.3% MSCI Emerging Markets IndexFXI 0.9% 2.5% 4.9% 7.3% FTSE China 50 IndexEWZ 0.9% 1.5% 3.0% 5.8% MSCI Brazil 25/50 IndexEWY 0.7% 1.4% 4.3% 6.5% MSCI Korea 25/50 IndexEWT 1.0% 2.8% 5.5% 9.3% MSCI Taiwan 25/50 IndexERUS 0.3% 2.0% 2.9% N/A MSCI Russia 25/50 IndexINDA 1.2% 2.6% 5.3% N/A MSCI India Total Return Index
Past performance is no guarantee of future results. Source: BlackRock iShares Website, Bloomberg
Conclusions
Ø Active management can work
Ø require right ingredients:
• structure
• objective
• process
Ø costs ARE important - more so in a low-return world
Ø passive investment has a role - like all investments - a time & place
Ø beware “back-tested” performance and Marketing Machines
45
Conclusions- EWF Performance 10y to 30-Sep-17
46
Past performance is no guarantee of future results. Source: Bloomberg
Efficiencies and Economies of Scale at CLIG: A Focus on Margins
Presented By: Tom Griffith - Director, COO
Anthony Inverso - Operations Manager
Ø Competitive
Ø Volatile
Ø Regulated
Ø Complex
48
Running an Investment Management Company
The Business of Investment Management – Increasing Complexity
49
Ø How challenging is each of the following for the Investment Management Risk Function in Your Organisation?
Data as of 2015
Managing via the Global Clock
50
Deciding to Spend Your Resources
Ø Revenue – How do we spend?
Ø Time – When do we spend?
Ø Decision-making - Where do we spend?
Ø Talent – Who do we spend on?
51
Our Approach – Be Efficient & Reflect Our Values
Ø Control Costs (How We Spend)
Ø Spend Opportunistically (When We Spend)
Ø Build and Buy Scalable Software (Where We Spend)
Ø Develop Staff (Who We Spend On)
52
Control Costs
Ø Fixed Costs Low
• Employee Salary
• IT Overhead
Ø Variable Costs Dependent on Revenue
• Employee Bonuses
• New Technology Expenditures
Ø Balance Maintains Profitability
53
Opportunistic Spending
Ø Spending is strategic and will often:
• Decrease risk
• Increase efficiency
Ø Reducing risk and increasing efficiency leads to long term productivity
Ø We balance in-house expertise and external resources
54
Build and Buy Scalable Software
Ø Software Initiatives
• Researched in downturn, implemented in upturn
Ø Build AND Buy; be flexible depending on circumstance
Ø Scalability is key; plan for future growth
55
Develop Staff
Ø Team Approach
Ø Employees are Stakeholders
Ø Hiring to Fill Knowledge Gaps
Ø Hiring to Train Young Talent
Ø Low Headcount; Quality vs. Quantity
56
Efficiencies & Economies of Scale at Work
57
2000 2017 % Change
6 accounts 40 accounts 567%
1 custodian 6 custodians 500%
2 databases 12 databases 500%
$657M AUM $5B AUM 661%
42 employees 71 employees 69%
Does it work?
Ø Look at the CLIG Financials in the next presentation…
58
Why Invest in CLIG? Presented by:
Tracy Rodrigues – CLIG Director, Chief Financial Officer
Why Invest in CLIG?
Ø EM Exposure
60
Source: Bloomberg
Total shareholder return from date of listing on AIM to 30 June 2017
Why Invest in CLIG?
Ø High Yield
61
Source: City of London Investment Management
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%
CLIG LN
MXEF
FTSE Small Cap
FTSE 100
Prepared 17 October 2017
12 Month Dividend Yield
Why Invest in CLIG?
Ø Opportunity for growth
62
Source: City of London Investment Management
EM
Developed CEF
Tactical CEF
Frontier
Natural Resources
EM
Developed CEF
Tactical CEF
Frontier
FuM FY end 2012 FuM FY end 2017
2%
98%
10%
90%
Why Invest in CLIG?
Ø Focus on margins
63
Rolling 60 Months Funds Under Management and Profitability
Prepared 30 September 2017 Excludes extraordinary items of income and expense 11IP42
CLIG
Relationship Between our Benchmark and FUMRolling 60 Months Funds Under Management and Profitability (Excludes extraordinary items of income and expense)
Funds ($M)Funds (£M)
Income (£K)Expenses (£K)
MSCI EM Net Total Return
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
Nov
-12
Jan-
13M
ar-1
3M
ay-1
3Ju
l-13
Sep-
13N
ov-1
3Ja
n-14
Mar
-14
May
-14
Jul-1
4Se
p-14
Nov
-14
Jan-
15M
ar-1
5M
ay-1
5Ju
l-15
Sep-
15N
ov-1
5Ja
n-16
Mar
-16
May
-16
Jul-1
6Se
p-16
Nov
-16
Jan-
17M
ar-1
7M
ay-1
7Ju
l-17
Sep-
17
Why Invest in CLIG?
64
Ø Strong balance sheet
Source: City of London Investment Group PLC
30-Jun 30-Jun £'000 2016 2017 Investments 2,200 1,086 Principally seed investments in own funds Fixed / Intangible assets 633 921 Cash 10,151 13,937 Significant cash balances and no borrowing Debtors & prepayments 5,044 5,858 Creditors & accruals (3,122) (3,403) Includes profit-share Current & deferred taxes (785) (318) Net assets 14,121 18,081
Share capital/premium 2,525 2,525 Retained earnings 15,594 19,070 Other reserves 669 842 18,788 22,437
EBT investment (5,299) (4,356) Investment in own shares via loan to Employee Benefit Trust, which is repaid to the company as options are exercised and EIPs vest
Total shareholders' funds 13,489 18,081 Non-controlling interest 632 0 Total equity 14,121 18,081
Why Invest in CLIG?
Ø Transparency
65
www.citlon.co.uk
Why Invest in CLIG?
66
Ø In Summary
ü EM exposure
ü High yield stock
ü Opportunity for growth
ü Focus on margins
ü Strong balance sheet
ü Transparency
Why Invest in CLIG?
67
Source: Bloomberg
CLIG LN (GBP)ADN LN (GBP)ASHM LN (GBP)EMG LN (GBP)MGR LN (GBP)POLR LN (GBP)M1EF IndexSDR LN
4/14
/06
7/14
/06
10/1
3/06
1/12
/07
4/13
/07
7/13
/07
10/1
2/07
1/11
/08
4/11
/08
7/11
/08
10/1
0/08
1/9/
094/
10/0
97/
10/0
910
/9/0
91/
8/10
4/9/
107/
9/10
10/8
/10
1/7/
114/
8/11
7/8/
1110
/7/1
11/
6/12
4/6/
127/
6/12
10/5
/12
1/4/
134/
5/13
7/5/
1310
/4/1
31/
3/14
4/4/
147/
4/14
10/3
/14
1/2/
154/
3/15
7/3/
1510
/2/1
51/
1/16
4/1/
166/
30/1
67/
1/16
9/30
/16
12/3
0/16
3/31
/17
6/30
/17
9/29
/17
0
50
100
150
200
250
300
350
400
450
500
Listed London peer group with significant Emerging Markets exposure
All values GBP
Summary – Barry Olliff
Ø Characteristics – Low Cost, High Margin, Partnership
Ø We are risk averse – Team Approach, Conservative, Low Profile, Open.
Ø We employ – Decent, Aware, Collegiate Individuals.
Ø This seems to encourage – Staff, Clients and Shareholders to be long term in their commitment.
Ø Our Investment Process doesn’t change. We stick with what we know and we embrace technology as a solution.
Ø The above has led to consistently above Benchmark Returns.
Ø While you have not met the entire firm, what you have seen this afternoon is a young, experienced and engaged Management Team.
68
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�Important Notice This presentation is for information only and does not constitute an offer to sell or the solicitation of an offer to buy any securities. Nothing herein should be construed as investment advice to buy or sell any securities. City of London Investment Management Company Limited is authorised and regulated in the UK by the Financial Conduct Authority, registered as an Investment Advisor with the United States Securities and Exchange Commission and regulated by the Dubai Financial Services Authority. City of London Investment Management Company Limited, registered in England No. 2851236, is a wholly owned subsidiary of City of London Investment Group plc, 77 Gracechurch Street, London, EC3V 0AS, United Kingdom (registered in England and Wales No. 2685257). While City of London Investment Management Company Limited (“City of London”) has used reasonable care to obtain information from reliable sources, no representations or warranties are made as to the accuracy, reliability or completeness of third party information presented herein. No responsibility can be accepted under any circumstances for errors of fact or omission. Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions as of the date of this document which could change without notice and actual events or results may differ. Past performance is not a guide to future results. The value of an investment and any income from it can go down as well as up and investors may not get back the original amount invested. Changes in currency exchange rates will affect the value of the investment. Discounts are calculated using estimated NAVs by City of London’s Research Department. Any fund mentioned has not been, and will not be, registered under the Investment Company Act of 1940, as amended, and interests of the fund have not been, and will not be, registered under the Securities Act of 1933, as amended, and may only be offered via private placement transactions in accordance with applicable local legislation. The Emerging World Fund is a sub-fund of The World Markets Umbrella Fund plc, an open-ended investment company with variable capital (ICVC), with segregated lia-bility between sub-funds. Incorporated with limited liability under the laws of Ireland and authorised by the Central Bank of Ireland as a UCITS fund. Registered address: 6th Floor, 2 Grand Canal Square, Dublin 2, Ireland. The Emerging World Fund is registered in Ireland, Italy and the UK. Shares in the Fund may not be offered to the public in any other country and this document must not be issued, circulated or distributed other than in circumstances which do not constitute an offer to the public and are in accordance with applicable local legislation. In particular, the Fund has not been registered under the United States Securities Act of 1933. Accordingly, shares may not be offered or sold in the US or to US persons (as defined in the Prospectus) except pursuant to an exemption from, or in a transaction not subject to the regulatory requirements of, the 1933 Act and any applicable state securities laws. Issued and approved by City of London Investment Management Company Limited, 77 Gracechurch Street, London, EC3V 0AS, England. Registered in England No. 2851236. Authorised and regulated by the Financial Conduct Authority.
