castlebay.ppt

© CastleBay Capital 2008

Asian Commodity & Macro Fund

September 2008


Disclaimer

Disclaimer This presentation is issued by CastleBay Capital ManagementThe following slides are a statement of facts regarding CastleBay Capital and

are not intended as an offer, or are not intended as an offer, or the solicitation of any offer to enter into any form of commitment or contractual arrangement for investment advice or management with CastleBay Capital.

The information herein has been obtained from, and opinions are based upon, sources believed to be reliable, but CastleBay Capital does not represent that it is accurate or complete and it should not be relied upon as such. All opinions, forecasts and estimates reflect the judgment of CastleBay Capital on the date of this presentation and are subject to change without notice.

Past performance is no guarantee of future results. There can be no guarantee that markets will be no guarantee that markets will behave as they have historically.


CastleBay Capital

Objective: to achieve consistent long term returns

Asian (including Australia) focused macro & commodity fund Strong emphasis on hedging ‘tail‐risks ‘through macro overlay strategies. The fund aims to provide uncorrelated annualized returns in excess of 25%

with a volatility of ~15% through exposure to global commodity markets CEO has strong track record of building large Asian asset management firms

(Pagoda, Tudor Investment, Blue Gold) Strong fundamental research and very strong Asian/Australia network

of industry and commodity experts. Best in class Portfolio Management


CastleBay Capital

Investment Strategy

Asian based strategy – capturing opportunities driven by the Asian emerging economies.

This is achieved through…

Methodical Trade Identification Focused Portfolio Management Disciplined Risk Management Enhanced Alpha through Macro Overlay (mainly Asian FX, Rates)


CastleBay Capital

Current Views

Global long term secular trend in commodity prices – ‘super cycle’ Emerging Asia to be the ‘price setter’ going forward Continued China acquisition of resource/energy assets Competitive currency revaluation Inflation transition into deflation Short leveraged assets vs long unlevered assets China continued currency appreciation and implications

Commodity strategies coupled with an active macro overlay will add alpha and reduce inherent ‘tail risk.’


Portfolio Construction

Expected Risk Allocation (VaR)

Commodity Derivatives (50%)

Macro Overlay (40%)

Equity Situations (10%)


Model Portfolio – Commodities

Position Strategy Size Unit

Cost Unit Investment Thesis

Oil

Directional WTI

1 Dec-10 Futures Options

150 Lots 105 $/bl Very bullish Oil long term because of Chinese demand growth at these prices. Poor supply growth. Higher marginal production costs, and geopolitical risks

2 $120 Call 300 Lots 10.64 $/bl Dec 10 the low on the curve

3 July-08 Futures -100 Lots 124 $/bl Interbank dealers are caught short the back end of the curve and therefore we may see some flattening in front to back (selling spreads). Partially hedges (1+2)

US NatGas

Directional

4 Dec-12 Futures Options

50 Lots 9.75 $/mmbtu By 2012 I believe Nat Gas to be much more global market. US production to go down fast

5 $11.50 Call, Dec-10 300 Lots 1.2 $/mmbtu Natgas deferred Vol is trading very cheap vs crude vol and (27%) and offers good leverage

Base Metals

Directional

6 Aluminums 50 Lots 2950 Usd.MT Due to higher energy costs the cost of production is around 2700 USD/MT Power shortages in China/S Africa will exacerbate the supply side

Precious Metals

Directional

7 Platinum 75 Lots 2000 Usd.MT 85% of the worlds supply comes from S.Africa and increase power outages will cause acute supply disruptions

Sugar Directional

8 Oct-09 200 Lots 14.15 $/Pound We except sugar to be the next ag commodity to move. Strong link to oil, close to the cost of production, change in diet in china, and weather

CastleBay Commodities Derivatives Portfolio P&L 21-May-08 6.42% Margin to Equity 9%*AUM Assumption USD 100,000,000 Notional Leverage 0.60


Model Portfolio – Macro

Position Strategy Size Unit Cost Unit Investment Thesis

FX

Directional

1 CNY 1YR NDF PHP -40,000,000

USD 6.58 RMB We expect the CNY to reveal 30-50% over the next 4 years, as China is expected to increase the pace of appreciation to 10% per annum (not 5%)

2 6m NDFl 20,000,000

USD 43.8 PHP We expect the PHP to suffer as Asian economies first policy response to weaken t currency. Very sensitive to change in commodity prices. Net importer

3 JPY Long 97 strike USD PUTS/J 7month exp 97 strike

50,000,000

USD 1.40%

JPY We believe we are 20-30% the way through the global deleveraging process. We like going long “unleveraged assets”, JPY, GOLD, OIL

FX Relative Value

SGD/INR

4 Long SGD/INR 25,000,000

SGD 29.72 INR India is a net oil importer and the rupee will suffer as more USDs are bought by importers. The SGD is seen as a safe have currency and will benefit from any turmin the asset market

EQUITY MACRO

Directional

5 AUSTRALIAN BANKS Basket swap Options

(20,000,000)

AUD 100 USD We expect institutions that provide leverage will suffer going forward as the deleveraging continues. Australians are very leveraged and we could see the negative wealth affect to destroy loan growth.

6 Hang Seng Futures HIU8

-50 Lots 25200

HKD The Hang Seng has seen a very strong bear market rally since the recent rout. We are bearish on global equities and will reduce correlation to rest of portfolio

CastleBay Macro Portfolio P&L 21-May-08 1.10% Margin to Equity 10%*AUM Assumption USD 100,000,000 Notional Leverage 0.53


Investment Approach

Market Covered All Commodity Markets – Global Energies, Base &

Precious Metals, and Softs. Asian FX and Interest Rates, with a particular focus on Asian markets. We will look at Asian commodity related equities, particularly when the view cannot be reflected in the underlying futures, or when certain event opportunities exist.

Macro Overlay & Tail Risk hedging Protect against Tail Risk Events (Carry unwinds) Better understanding of concentration risks and ‘crowded trades.’ Macro & Micro Themed Investments

Fundamentally Focused Proprietary fundamental models for all commodity markets Focused as far forward as reasonable Stressed with various political, economic and tail risk scenarios


Investment Approach

Average Holding Time of 3 Months but can be as long as 3 Years

Define probability of all possible outcomes

High Reward/Risk Trade Design – usually 3:1 or greater Market Liquidity Considered – Fit trade size to market liquidity Long Option Oriented – Particularly for low liquidity markets

(Important for Asian markets).

There will be a timely shift of capital between the strategies basedon where we see opportunities


Portfolio Management

Portfolio Management Diversified Trade Population – Key focus on all commodity areas leading

to a balanced portfolio Macro overlay to reduce inherent tail risks. Philosophy of ‘always looking for a hedge’. Prevent over investing in a small group of markets

Correlation Management Individual Trades Screened for Impact on Portfolio – incremental VaR Prevent portfolio from being too correlated to one scenario Portfolio is often reduced during times of macro economic uncertainty


Portfolio Management

Portfolio Maintenance Ensure that fundamental assumptions continue to hold true Strategies may be exited early if investment scenario changes over time Liquidity monitored for each investment and market


Risk Control

Risk Control 1 day Portfolio VaR (95th percentile) expected 1.0-1.2% of AUM. Target a maximum daily VaR of 2.5% of AUM Individual Trade Risk Controls – Set stops at inception of each trade Long holding period typically means day-to-day movements are of little

concern

CastleBay will generally favour simple, more liquid instruments over exotic, illiquid and complex instruments

Chief Operating Officer and the Chief Risk Officer – Mr. Ng Tan Tiat. Ex Tudor Country Risk Officer.

While the funds expect to be long commodity biased, there is a continuous emphasis on capital preservation


CastleBay Capital

Structure/Organisation Chart

CastleBay Global Fund

CastleBay Flagship

CEO/CIO Julian Reis

MacroBelgacem

ZerguineEnergy

Assistant Trader

David DaggMetals &

MiningStrategic

Advisor

Ng Tan TiatCOO/Risk Officer

(ex Tudor)

Analyst


CastleBay Capital

Julian Reis – CEO, Portfolio Manager 12 years of trading experience and proven track record to build and manage

large successful Asian funds. Founder of BlueGold Global Commodity Fund. Assets > 300mm USD CEO and macro Portfolio Manager of Tudor Capital Singapore Chief Investment Officer/Founder of Pagoda Capital, Asian Macro Fund.

Returned 19.6% annualized and sharpe ratio of 2.26. Managed and advised on up to 300mm USD in assets. Traded in all commodities, FX, interest rates and equities. Julian will invest 3-5mm USD into the fund on day 1.


CastleBay Capital

Belgacem Zerguine – Assistant Trader Société Générale, (2004 till present) Commodities Derivatives Trader,

Singapore – Responsible of the crude oil market, Pricing and trading Forward, Asian swaps, Options on Crude Oil (WTI, Brent, Dated, Dubai, Tapis, JCC, Fuel, Jet Fuel, Naphtha)

Analyzing arbitrage between Singapore and Tocom market, arbitrage on the curve elasticity.

Postgraduate degree in banking and capital finance (DEA Finance de marché) Capital Finance, Financial Mathematics, Stochastic Mathematics La Sorbonne University Paris

1998 - 2002 Master’s in MathematicsStochastic Mathematics, Integration, Differential Calculation, Capital and Corporate Finanace, Risk and Postfolio Analysis, Financial Macroeconomics and Microeconomics La Sorbonne University, Paris.


CastleBay Capital

David Dagg – Strategic Advisor David has equity interests in the CastleBay flagship fund,

and will invest a significant percentage of his liquid net worth in the fund. David Dagg’s relevant experience includes:

23 years experience investing in, and consulting to, the resources sector and related resources investment banking

Investment Consultant to Sempra Metals for the past three years. Responsibilities include being responsible for identifying portfolio investments and metal off-take arrangements, as well as sourcing commodity hedging opportunities

20 years at JP Morgan including 5 years as Global Head of Metals Sales and Asia Pacific Head of the Commodity Trading Group.

Gross trading results (including the marked-to-market position of present investments) for Transition Metals from July 2004 to March 2007 include: “Sharpe Ratio” 1.54 Annualised trading returns 57.67% Largest Monthly Trading gain of 21.45% Largest Monthly Drawdown of 18.21%


CastleBay Capital

Mr Ng Tan Tiat – COO, Chief Risk Officer 11 years of risk management experience Risk Manager – Tudor Investment Corp, & ABN Amro. Responsible Risk Management functions covering all the portfolio managers

of the firm in Asia and Australia. Monitor trade strategies and changes in positions against preset limits,

taking carious relevant actions upon required. Initiate frequent discussions with portfolio managers on market conditions and views, and its impact on existing strategies and potentially new strategies. Conduct review of risk and rewards of each portfolio periodically and discuss with portfolio managers the finding and observations.

Familiar with all asset classes, and producing detailed stress test reports. Global Treasury set up at OCBC.


CastleBay Capital

Fund Terms CastleBay Flagship Fund

Management Fee: 2% annually Performance Fee: 20% in excess of high water mark Subscription Frequency: Monthly Redemption Frequency: Monthly, with 90 days notice Redemption Penalty: 5% penalty paid to

fund with the first 12 months Minimum Subscription: USD 500,000.00 Prime Broker: Goldman Sachs International Administrator: Custom House Administration Auditors: Ernst & Young


CastleBay Capital

Contact Details

Julian ReisChief Executive [email protected] Office: +65 6536 8875Singapore Mobile: +65 9818 0215Address: One George Street #15-03 Singapore 049145

mailto:[email protected]

Documents

castlebay.ppt