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Lawrence Park Capital Partners
Lawrence Park Credit Strategies Fund
Executive summary
• Fixed income has traditionally provided investors with a safe haven from stock market volatility. After 30 years of falling interest rates, investors have become accustomed to high-quality returns.
• Now, questions abound as to whether the bond bull market is coming to an end. Some analysts are recommending a significant reduction in fixed-income exposure.
• Wait! There is an alternative: Alternative fixed-income strategies such as the Lawrence Park Credit Strategies Fund, target fixed income-like returns with downside protection against rising rates.
Current markets: volatility and uncertainty
The world has become an uncertain place. In the last four years, market volatility has nearly doubled from the previous four.
Equity volatility and demographics have pushed Canadian investors towards fixed income. Mutual fund fixed income assets have nearly doubled from $100 billion to over $200 billion since 2008.
Source: Chicago Board Options Exchange, Insight Industry Review: Jan 2012
VIX Average Jan 2004-Jan-2008 14.7%Jan 2008-Jan 2012 27.5%
Current markets: volatility and uncertainty
Meanwhile, bond yields have been driven to new lows and offer little or no protection to inflation risks from here. Real rates of return are now negative!
Source: Bloomberg
Negative real returns!
The big picture: A 50-year cycle in bonds
Bonds today pay less income than stocks for the first time in over 50 years!
TSX Dividend Yield ( )Canada Long Bond Yield ( )
Average yield of Govt of Canada bonds with at least 10 years to maturityM1623 DEC 2011
18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
0 01955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Median: 3.16Average: 3.08
2.852.42
30-year bond bull market
25-year bond bear market
Source: TD Newcrest, Dec 2011
Traditional fixed income: right for 2012?
• Despite the shift to fixed income, there are currently few alternatives to traditional long-only bond funds.
• Traditional fixed-income funds are taking a mix of interest rate and credit risk. So far in 2012, that has led to higher volatility and lower returns.
Source: Scotia Capital / Internal Analysis
Fixed income with a difference
The Lawrence Park Credit Strategies Fund is an actively managed fixed-income strategy with three central differences to traditional bond funds.
• We hedge the portfolio against rising interest rates
• We diversify beyond Canada’s narrow sectoral bias• We take both long and short positions to reduce volatility and generate consistent returns.
Credit arbitrage: stable returns through volatile markets
• Credit arbitrage is a strategy that takes advantage of pricing inefficiencies of credit instruments in global markets. The Lawrence Park approach is typically described within the hedge fund industry as a credit arbitrage strategy.
• HFR, a leading hedge fund industry analyst, began tracking an index of credit arbitrage funds at the end of 2004. Since then, these funds have significantly outperformed traditional asset classes.
This graph shows comparative results of the three investment strategies over the past 6 years (as represented by the enumerated indices) and is not representative of the Fund’s past performance or future performance. The Fund was launched on March 1, 2012.
Multiple alpha sourcing strategies
Credit arbitrage
Relative value credit
Absolute value trading
Single name Long/short
Capital structure arbitrage
Credit curve arbitrage
Pairs Trading
Single name vs. Index trading
Low volatility Carry &
convergence
Short & Medium term total
return
Core portfolio liquidity hedges
Trade examples – relative value
Buy Cdn Oil Sands 4.5% Apr 2022 USDvs.
Sell Encana 3.9% Nov 2021 USDRationale: Capture COS new issue premium; long oil producer, short natural gas producer
Entry spread (March 26): – Buy COS 4.5% at T+235 (new issue)– Short sell ECA 3.9% at T+205
Exit spread (April 20):– Sell COS 4.5% at T+219 – Buy ECA 3.9% at T+216
Price chg: COS +1.30%, ECA -0.86%
Total: 2.16% @ 2:1 leverage =4.32%
Annualized Return on Capital = 63%*
Source: Bloomberg* Carry and borrowing costs estimated at 0.09% /annum
Trade examples – credit arbitrage
BAC Series L Preferred Shares vs.
BAC FRN Perpetual Tier 1 BondsRationale:
– Capture price differential between similar securities trading in two different markets– Actively trade in and out of position during volatile markets
Trade period: Nov 2011-Jan 2012 (60 days)
Target entry: 5 point price differential
Target exit: 0 point price differential
Return: 3 turns at 5% per turn
Unlevered return 15%
Annualized return on capital: 90%*
Source: Bloomberg, *Carry and borrowing costs estimated at 0.75% /annum
Peter Metcalfe, CFAPortfolio Manager
Former Head of US Credit Trading for TD Securities with 13 years experience in NY and London
David Fry, CFAChief Executive Officer
Former Head of Global Markets for Deutsche Bank Canada, with 18 years fixed-income experience in
Toronto, London and NY
Lawrence Park: A High quality team…
Andrew TorresChief Investment Officer
Former Vice Chair and Global Head of Credit Trading for TD Securities, with 17 years trading experience in
London, Toronto and NY
65 years combined
Fixed Income
experience
John Young, CA, CFAFinance and Operations
Former Head of Europe for Fore Research and Management, with 17 years experience in London,
NY and Toronto
Over 50 years
combined International experience
… with the backing of one of Canada’s largest independent asset managers
• On February 14, 2012, CI Financial agreed to purchase a minority stake in Lawrence Park Capital Partners Ltd. and to be a founding investor in the Lawrence Park Credit Strategies Fund.
• With this transaction, Lawrence Park gained the following:– Significant investment capital to create the launch scale necessary to run a diversified
credit strategy.– Branding and validation from one of the best names in the Canadian investment
community– Access to one of the largest fund distribution channels in the country.– Use of CI’s best-in-class client interface and back office functions – Strategic focus from CI to help grow the LP Credit Strategies Fund
“In Lawrence Park, we have identified an exceptional opportunity for growth and a firm that can benefit from CI’s support. The portfolio managers have used their talent and extensive experience in the income markets to develop a credit-focused fund that is unique in the Canadian marketplace.”
– Stephen MacPhail CEO, CI Financial
February 14, 2012
Summary
• Interest rate volatility should be a real concern to fixed income investors.
• An actively managed credit portfolio offers a viable diversification from traditional bond funds.
• The Lawrence Park Credit Strategies Fund targets consistent returns with an emphasis on capital preservation.
• The Lawrence Park team have built their careers around the global fixed income and credit markets.
Fund overview
Fund Lawrence Park Credit Strategies Fund
Manager Lawrence Park Capital Partners Ltd.
Fund Codes CIG 6451; CIG 6453
RRSP Eligible Yes
Objective 8-10% total annualized returns* over the cycle, net of fees with low volatility, low correlation and below market credit beta*There is no guarantee that the Fund’s objective can be met, or that the Fund will earn a profit at all
Strategy Relative value credit; credit arbitrage; absolute value credit
Subscription Monthly; C$150,000 minimum
Redemption Monthly, with 45 days notice; 5% early redemption fee if redeemed within 12 months
Management Fee 2.0% (1.25% for fee-based accounts)
Performance Fee 20%
Trailer 0.75% (no trailer for fee-based accounts)
High water mark Permanent
Contact us
The Lawrence Park Credit Strategies Fund is offered to Accredited Investors in Canada*. Please contact us for full offering documents.
Lawrence Park Capital Partners Ltd.
2 Berkeley Street, Suite 304
Toronto, Ontario
M5A 4J5
(416) 646-2180
www.lpcapitalpartners.com
David A. Fry, MBA, [email protected]
Andrew C. [email protected]
John B. Young, CFA, CA [email protected]
Peter E. Metcalfe, [email protected]
*Lawrence Park Capital Partners Ltd. is registered as an Exempt Market Dealer, Portfolio Manager and Investment Fund Manager in Ontario, Quebec, Manitoba, Saskatchewan, Alberta and British Columbia
Appendices
Manager biographies
Our executive team
David Fry, CFAChief Executive Officer
David has been building or managing fixed-income businesses for the past 18 years, most recently with Deutsche Bank, where he was Head of Global Markets for Canada. Before this, David ran fixed-income groups at ABN Amro in London, and TD Securities in London, New York and Toronto. David has an MBA from McGill University and has been a CFA charterholder since 1996.
Andrew Torres Chief Investment Officer
Andrew has been trading credit for most of his 17 year career, primarily with TD Securities in London, New York and Toronto. By the time he left TD, Andrew was Vice Chair and Global Head of Credit Products, a $30 billion trading business. More recently, Andrew was a partner and portfolio manager at the London office of Aladdin Capital Management, an $18 billion credit asset manager.
Peter Metcalfe, CFAPortfolio Manager
Peter brings 13 years of credit trading experience to Lawrence Park, as a senior member of the Credit Products group at TD Securities. While at TD, Andrew and Peter traded together for over seven years, including setting up a proprietary trading desk in New York. Peter went on to successfully run the NY desk himself for a number of years, focusing on credit, convertible, and capital structure arbitrage. Peter received his CFA charter in 2011.
John Young, CFAChief Financial/Chief Operating Officer
John’s career in finance spans 17 years, having traded large credit portfolios at both a major bank and a global hedge fund. In London, John was the European Portfolio Manager for Fore Research, a New York based global hedge fund. John was previously a senior member of the convertible arbitrage desk at TD Securities in New York. John has been a CFA charterholder since 1996 and earned a CA designation in 1991.
Donald Wright Founder of The Winnington Capital Group, Don is former Chairman and Chief Executive Office of TD Securities Inc., and Deputy Chairman of TD Bank Financial Group. He sits on the board of directors for numerous Canadian entities, including, Cinaport Capital, GMP Capital, MaRS Innovation and Tuscany International Drilling. Don is currently a member of the Board of Trustees of The Hospital for Sick Children and a Member of the Royal Ontario Museum Governors’ Finance Committee.
Richard Kostoff Rick is an active consultant to the Financial Services sector in Canada, and is founder and Chair of Temple Rock Holdings Inc. Rick is a former Deputy Chair of TD Securities Inc., and played an active role establishing TDSI as a top tier franchise in debt capital markets. Mr. Kostoff currently serves as a director for the Ontario Finance Authority, The OCADU Foundation Board and is Chair of Theatrefront, a non-profit theatre group.
Peter Anderson Peter W. Anderson is Executive Vice-President and Chief Investment Officer of CI Financial Corp. In this role, he is a key member of CI’s executive team and, as CIO, focuses on CI’s development of its portfolio management teams and relationships with sub-advisors. Mr. Anderson joined CI in 1997 as Executive Vice-President and was named President of CI Investments Inc. in 1999. He also became Chief Executive Officer of CI Investments in 2003. He held the CEO position until March 2010. Prior to joining CI, he was Managing Director with ScotiaMcLeod Inc. He holds a business degree from the University of News Brunswick.
Our advisory board
Our advisory board provides guidance and counsel on an ongoing basis. We are grateful to have the support of such prominent members of the Canadian business community.
• THIS SUMMARY HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY, SOLELY AS A PRELIMINARY DOCUMENT TO DETERMINE INVESTOR INTEREST REGARDING LAWRENCE PARK CREDIT STRATEGIES FUND (THE “FUND”), WHICH IS DESCRIBED HEREIN. EXCEPT AS OTHERWISE DESCRIBED IN THE FUND’S CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THE “PPM”), DATED FEBRUARY 24, 2012, THIS DOCUMENT MAY NOT BE REPRODUCED FOR ANY PURPOSE OR PROVIDED TO OTHERS IN WHOLE OR IN PART WITHOUT THE PRIOR WRITTEN PERMISSION OF THE FUND MANAGER OF THE FUND (THE “FUND MANAGER”). AN OFFER OR SOLICITATION WILL BE MADE ONLY THROUGH THE PPM, AND WILL BE SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THE PPM. THIS SUMMARY DOES NOT CONSTITUTE AN OFFER TO SELL OR BUY ANY SECURITIES. THE INFORMATION SET FORTH HEREIN DOES NOT PURPORT TO BE COMPLETE AND IS INTENDED TO BE READ IN CONJUNCTION WITH THE PPM. ALL INFORMATION AND OPINIONS AS WELL AS ANY FIGURES INDICATED HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. THE INVESTMENT RATES OF RETURN SET FORTH HEREIN DO NOT REFLECT MANAGEMENT FEES, EXPENSES OR CARRIED INTEREST TO BE CHARGED BY THE FUND MANAGER.
• THIS PRODUCT WILL BE AVAILABLE TO ACCREDITED INVESTORS AS THAT TERM IS DEFINED UNDER CANADIAN SECURITIES LEGISLATION. IN ONTARIO, IN ORDER FOR INVESTORS TO BE CONSIDERED ACCREDITED INVESTORS, INVESTORS MUST MEET CERTAIN ELIGIBILITY REQUIREMENTS WITH REGARDS TO FINANCIAL ASSETS AND/OR INCOME HISTORY. AN INVESTMENT IN THE FUND WILL INVOLVE SIGNIFICANT RISKS DUE, AMONG OTHER THINGS, TO THE NATURE OF THE FUND’S INVESTMENTS. THE RISK FACTORS WILL BE CONTAINED IN THE PPM. INVESTORS SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT RISKS WHICH ARE CHARACTERISTIC OF THE INVESTMENTS DESCRIBED HEREIN. THIS PRESENTATION DOES NOT CONSIDER THE SPECIFIC INVESTMENT OBJECTIVES, FINANCIAL SITUATION OR PARTICULAR NEEDS OF ANY RECIPIENT. NO ASSURANCE CAN BE GIVEN THAT THE FUND’S INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT THE INVESTORS WILL RECEIVE A RETURN OF THEIR CAPITAL. ACCORDINGLY, THE PPM SHOULD BE READ IN ITS ENTIRETY AND REVIEWED BY POTENTIAL INVESTORS’ LEGAL AND FINANCIAL ADVISORS.
Thank you
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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