Lawrence Park Credit Strategies Fund
Advisor Presentation
November , 2012 Accredited or Exempt Investors Only
• 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.
Disclaimer
2
• Fixed Income investing for the past 30 years has been a
simple matter of buy and hold, and wait for strong positive
returns
• Now with yields at historic lows, steady returns in fixed
income will be difficult to achieve going forward. Short
term shocks may drive bond prices higher, but medium term returns are likely to be mediocre or poor.
• There is an alternative to traditional bond funds: Active
Fixed Income strategies such as the Lawrence Park Credit Strategies Fund that target steady returns and low
volatility, with downside protection against rising rates.
Executive Summary
3
0
50,000
100,000
150,000
200,000
250,000
2006 2007 2008 2009 2010 2011 Aug 2012
Ass
ets
Un
de
r M
anag
em
en
t (C
$m
m)
Fixed Income Mutual Funds
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 100Bn to over
200Bn since 2008.
Current Markets: Volatility and Uncertainty
4
Source: Chicago Board Options Exchange Source: Insight Industry Review
0
10
20
30
40
50
60
70
80
90
2004 2005 2006 2007 2008 2009 2010 2011 2012
VIX Volatility Index
VIX Average Jan 2004-Jan-2008 14.7% Jan 2008-Jan 2012 27.5%
0
1
2
3
4
5
6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
10y Canadian Government Yield
Canadian CPI YoY (12mo moving avg)
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!
Current Markets: Volatility and Uncertainty
Source: Bloomberg
5
Negative real returns!
The Big Picture: A 50 Year Cycle in Bonds
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: 3.16
Average: 3.08
2.852.42
Bonds today pay less income than stocks for the first
time in over 50 years!
30-year bond bull market
25-year bond bear market
Source: TD Newcrest, Dec 2011
6
Low High
Yiel
d
Fixed Income: Many options
7
Today, investors are faced with many options in the fixed income space, all differing in potential risk, return and liquidity:
Interest Rate Risk (Duration)
Cre
dit
Ris
k
Liquidity
T-Bills
GICs
DEX Corporate
Credit HFs
T-Bills
GICs
DEX Universe
DEX Corporate
Credit HFs
High Yield
DEX Universe
High Yield
Low High
Jason Crowley, CFA Trading
Former MD, Credit Derivatives Trading for BNS with 17 years of credit
experience
David Fry, CFA Chief 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
8
Andrew Torres Chief 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, CFA Finance 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
• 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.
… with the backing of one of Canada’s
largest independent asset managers
9
“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
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.
The Lawrence Park Credit Strategies Fund:
Fixed Income with a Difference
10
Focus on the global fixed income markets, which
are 15x the size of the global equity markets.
Actively manage a portfolio of corporate bonds, taking both long and short positions to reduce
volatility and generate consistent returns.
Hedge the portfolio against rising interest rates, fx risk
and unwanted credit risk.
Diversify beyond Canada’s narrow sectoral bias.
Alpha Sourcing: 3 Main Strategies
Market
Arbitrage
Relative Value
Trading
Absolute Value
Trading
Cash vs Default
Swap Basis
Capital Structure
Arbitrage
Credit Arbitrage
Cash and Derivative
Pairs Trading
Single Name vs
Index Trading
Low Volatility
Carry &
Convergence
Short &
Medium Term Total
Return
Core Portfolio
Liquidity Hedges
11
Fund Performance
12
• LP CSF = Lawrence Park Credit Strategies Fund, F Class, Net of all fees • JULI = JPMorgan US Liquid Index High Grade Corporate (Excess Return) • DEX = iShares DEX Corporate Bond Index (XCB:CN Equity) • 3m T-Bill = Daily return calculated using 90 day rolling average of Canadian 3mo T-Bill Yield
Source: Manager analysis / Bloomberg
1073.17
1035.51
1034.50
1006.42
960
980
1000
1020
1040
1060
1080
01-Mar 01-Apr 01-May 01-Jun 01-Jul 01-Aug 01-Sep 01-Oct 01-Nov
GROWTH OF $1000 SINCE INCEPTION Mar 1 - Oct 31, 2012 inclusive
LP CSF JULI DEX Cdn 3M T-bill
Risk / Return Analysis
13
Sharpe Ratio* LP CSF 6.0 JULI 1.4 DEX 1.0
* Sharpe Ratio = (Annualized Return – Risk Free Rate) / Annualized Volatility Risk Free Rate = 1.00%. Calculated using LP CSF unaudited daily returns vs. published benchmark returns, for the period March 1 – October 31, 2012, inclusive.
LP CSF
JULI DEX
T-Bill 0%
1%
2%
3%
4%
5%
6%
7%
8%
0% 1% 2% 3% 4% 5%
Ret
urn
Risk
Risk vs Return
Correlation DEX -0.196 TSX 0.25 JULI 0.61
• 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.
Credit Arbitrage: Stable Returns through
Volatile Markets
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.
14
80.09
49.71
64.24
(10.00)
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
31-Jan-05 31-Jan-06 31-Jan-07 31-Jan-08 30-Jan-09 30-Jan-10 30-Jan-11 30-Jan-12
Tota
l Ret
urn
(A
ll d
ivid
end
s re
-in
vest
ed
)
Comparative Performance (Dec 31/2004 - Jun 30/2012 inclusive)
HFR Credit Arbitrage Index (USD)
DEX Canadian Bond Universe (CAD)
SPTSX Composite Index (CAD)
• Interest rates are at historic lows, and coupon protection
against rising interest rates is also at a low.
• An actively managed credit portfolio that hedges interest
rates offers a viable diversification from traditional bond
funds.
Summary
15
• 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.
FAQ
Fund Overview
Manager Biographies
Trade Examples
Appendices
• What do you invest in? Corporate and Financial Issuer bonds, some government bonds, in Canada, US
and Europe. We do this both from the long and short side.
• How do you hedge? We use a combination of tools to hedge away unwanted market or specific
credit risks, including: gov’t bonds, interest rate swaps, credit default swaps,
futures and options
• What types of market environments are good for this fund, and
which are difficult? Good: Stable markets with wide spreads trending tighter; Volatile markets
without direction where dispersion between securities increases significantly
Difficult: “fear” type markets where interest rates drop precipitously and credit
spreads widen; tight, benign credit markets with no volatility
• How would this fund have performed in Q4, 2008? Given the current risk and exposure profile of the Fund, we estimate that the
Fund would have experienced a drawdown of mid to high single digits during
Q4 of 2008*
FAQ – Lawrence Park Credit Strategies Fund
18
*The risk and exposure of the Fund can change quickly based on the Manager’s views of the markets. Scenario based risk metrics use historical data and are not perfect measures of potential future performance under different scenarios.
Fund Lawrence Park Credit Strategies Fund
Manager Lawrence Park Capital Partners Ltd.
Fund Codes CIG 6451; CIG 6453
RRSP Eligible Yes (also RESP and TFSA)
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% (1.50% for fee-based accounts)
Performance Fee 20%
Trailer 0.75% (no trailer for fee-based accounts)
High Water Mark Permanent
Fund Overview
Our Executive Team
20
David Fry, CFA Chief 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 30Bn trading business. More recently, Andrew was a partner and portfolio manager at the London office of Aladdin Capital Management, an 18Bn credit asset manager.
John Young, CFA Chief 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.
Jason Crowley, CFA Trading
Prior to joining LP, Jason spent his entire career in credit at the Bank of Nova Scotia in Toronto. With roles spanning across risk, credit portfolio management, and proprietary trading for the Bank, Jason’s 17 years at BNS saw him take on increasing responsibility, and ultimately rising to Managing Director, Credit Derivatives Trading. Jason has an MBA from McMaster University and earned his CFA charter in 2001.
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 provides guidance and counsel on an ongoing basis. We are grateful to have the support of such
prominent members of the Canadian business community.
Our Advisory Board
21
Lloyds 6.375% due Jan 2021
Rationale: Lloyds Bank (A2/A) and Royal Bank of Scotland (A3/A) 10 year senior bonds in USD trading
within 10bp of each other throughout 2012. Both banks have been actively tendering for debt
throughout the year.
On Sep 6, RBS announces a tender for 10y bonds at a spread of 180bp, 70bp inside the previous
day’s closing spread.
Trade: Buy Lloyds 6.375 21 at T+232 in anticipation of (a) investors replacing 10y UK bank debt in their
portfolio, or (b) Lloyds initiating a similar tender to RBS.
Entry Spread (Sep 6): T+232
Catalyst Event (Sep 18): Lloyds announces bond
tender at T+150
Exit Spread (Sep 20): T+152 (sold to dealer)
Return Analysis:
Return on Capital: 6.25%
Holding period: 14 days
Trade Examples – Special Situations
22
-50
0
50
100
150
200
250
300
LLOYDS 6 ⅜ 01/21/21
RBS 6 ⅛ 01/11/21
Spread Difference
Entry Exit
• Basis Trading allows us to position securities we believe to be “rich” or “cheap” while
neutralizing exposure to the company
• Involves buying (or selling) a corporate bond, and buying (or selling) credit default
swap protection on the same entity.
Trade Example: Cash CDS/Basis
Ford 7.5% 2015 bonds vs Ford 5y CDS
Rationale:
• Ford Credit 7.5% due 2015 in Canadian dollars, trades cheap compared to USD debt.
• Ford has been upgraded by Moody’s and Fitch this year. An upgrade by Canadian agency DBRS would make
CAD paper index eligible, which should drive demand for CAD bonds relative to USD bonds.
Entry Point (Sep 13):
• Buy CAD 3mm bonds at 111.125
• Buy USD 2mm 5y CDS at 207 bp
Catalyst Event (Sep 14):
• Ford upgraded by DBRS to BBB-low
Exit Spread (Sep 26):
• Sell bonds at 112.30
• Sell protection at 215bp
Price Change:
• Bonds +1.175%
• CDS +8bp on spread, or +0.35% upfront
Return Analysis
• Capital Required: CAD 1,000,000
• Return on Capital: 4.2%
• Holding Period: 13 days
23
160
170
180
190
200
210
220
230109.50
110.00
110.50
111.00
111.50
112.00
112.50
113.00
F 7.50% Aug 2015 (LHS)
Ford Credit 5y CDS (RHS)
Entry Exit
• Curve Trading involves taking offsetting positions in the debt of a single company at
two different maturities
• Low or neutral net credit exposure, profit driven by relative change in credit spread
Trade Example: Curve Flattener
NWSA 6.15% Feb 2041 vs NWSA 4.5% Feb 2021
Rationale:
• Newscorp (Baa1/BBB+) curve among the steepest in the media space with 30y bonds typically trading 70-80bp
wider to Treasuries than 10y bonds.
• During August 2012, the curve steepened substantially to 100bp.
Entry Point (Sep 7):
• Buy USD 1.5mm NWSA 6.15% 2041 at T+190
• Sell USD 3.3mm NWSA 4.50% 2021 at T+97
Catalyst Event (Sep 11):
• NWSA announces new 1Bn 10y deal at T+140
Exit Spread (Sep 20):
• Sell 2041 bonds at T+179
• Buy 2021 bonds at T+110
Price Change:
• 2041 Bonds +2.00%
• 2021 Bonds –1.05%
Return Analysis
• Capital Required: CAD 1,650,000
• Return on Capital: 3.9%
• Holding Period: 13 days
24
0
50
100
150
200
250
15-Aug 22-Aug 29-Aug 05-Sep 12-Sep 19-Sep 26-Sep
Cre
dit
Sp
read
NWSA 6.15% 2041NWSA 4.5% 2021Spread Difference
Entry Exit