Download - Question: Where will I find my investment return right now? Answer: Alternative Investments
Question: Where will I find my investment return right now?
Answer: Alternative Investments.
Jeffrey Pike, Senior Vice PresidentKensington Capital Partners Limited
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• Who is this guy?
• The Powerful “Alternative” Effect on Asset Mix
• Ask Mitt – Why Private Equity Makes Sense
• What’s New in the Alternative Aisle?
• Questions
Agenda
Private Equity
Providing institutional and HNW investors with innovative solutions that capture the opportunity in Private Equity including direct private company investments plus exposure to Private Equity funds throughout North America and Europe.
Kensington: Smart Alternatives
Hedge
Providing institutional and HNW investors with select investment strategies through exposure to Canadian Hedge Fund Managers. Comprehensive portfolios are developed to enhance portfolio return and minimize risk.
Infrastructure
Providing long-term infrastructure investment opportunities with a specialty on power generation facilities throughout North America.
$ 360 Million
$6 Million
AdvisoryProviding strategic advice and project leadership to corporate, government and financial stakeholders. Sound guidance is provided for acquisitions, divestitures, growth strategies, turnarounds, refinancings and the development of optimal financial structures.
• Growing independent Canadian Alternative Investment manager.
• Based in Toronto.• Founded in 1996.• Privately held.
Power Income Fund September
2012
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The Case for Alternative AssetsTraditional Asset ClassesFinancial meltdown as the lesson. Portfolio construction brutally tested.Investors have a risk that the next 3-5 years of deleveraging and recovery will neither be successful nor easy.Will retirement funding be adequate?Will traditional asset mix be satisfactory going forward ?
StocksBondsCash
Alternative Asset Classes1. True Diversification away from conventional equity = Anti TSX.2. Develop enhanced portfolios - waterproof/bulletproof/shockproof.3. Institutional thinking: long-term return potential. Patience brings
returns.4. Differentiation in product offering / non-commoditized.5. HNW affluent market plays in this space. Ideal for certain investors.
Private EquityHedge
InfrastructureReal Estate
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The Powerful Alternative Impact on Asset Mix1995 2005 2012
Stocks
Bonds
Cash
Stocks
Bonds
Cash
Other
Stocks
Bonds
Cash
PublicPrivateHedge
PublicPrivateHedge
Source: Data extracted from “Building a Better Portfolio Around the Traditional Asset Mix” presented at AIMA Canada Luncheon by William W. Moriarty, President & CEO, University of Toronto Asset Management Corp.
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Institutional Private Equity Allocations
• Why are institutional investors moving to Private Equity?
• Moving away from inconsistent public markets.• Pro-actively diversifying by looking for
consistent return.
$15 Billion$159 Billion
$34 Billion$235 Billion$7.6 Billion
$91 Billion
Institutional Allocations to Private Equity(as a % of total portfolio)
Source: Annual Reports.
Ask Mitt: Private Equity Basics
• Significant return opportunity – non-correlated
• Manage J-Curve
• Buy correctly• Do not overpay• 6-9 months of due diligence• Developed investment thesis• Exit strategy
• Steady stream of growth
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Why Private Companies ?
• Katz Group / Edmonton – 100%• Rexall – Pharma Plus• 1800 Drugstores • $7.0 Billion Revenues
Investors own private companies for the same investment benefit of owning public companies. To enjoy an
appreciation in the value of a company as it continues to grow.
• McCain Family / New Brunswick – 100%
• McCain Foods • 51 Global Food Plants• $6.5 Billion Revenues• Thomson Family / Toronto – 85%• The Globe and Mail
Private Equity Transformation
Established Operating Business
Give & Go Prepared Foods Corp.Revenue: $97 MEnterprise Value $193 M
Revenue: $167 MEnterprise Value $325 MSold to OMERS
How to cross the border.Significant growth in SKUs.Solved capacity issues.$25 million of revenue into Wal-Mart.Develop “Frozen Shipped” baking technique.
4 Year Hold3.4x Invested Capital31% IRR
60% of Private Equity Sales are from Founders
Ambitious Corporation
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Why Multi-Manager in Private Equity?
Risk of some loss
30.0%
1.0%0.0%
1.0%
Direct investment in single private
equity company
Investment in single private equity fund
Manager
Investment in private equity fund of funds
Risk of total Loss
42.0%
30.0%
Diversification Reduces
Risk
Source: Weidig and Mathonet report, “The Risk Profiles of Private Equity”, January 2004, Nathalie Gresch & Rico von Wyss, Spring 2011.
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Kensington Portfolio Strategy
AlphaDiversification
Primary funds from multiple managers create a low risk foundation for the portfolio
+ deal flow
Direct private equity ownership and secondary fund investments drive
excess returns for Kensington investors
Kensington GlobalPrivate Equity Fund
2011 Deal Flow
171 investments reviewed 50 Investments full due diligence
5 investments made
Private Equity Fund Managers Direct Investments
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Private Equity Can Provide Significant Diversification
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76.3% BIG 3 TSX14.2%
11.8% BIG 3 KGPEF68.6%
Energy 25.3%
Materials 19.6%
Industrial 6.0%Consumer Discretionary 4.6%
Consumer Staples 3.0%
Health Care 1.6%
Financials 31.4%
Information Technology 1.2%
Telecom Services 5.2%Utilities 2.1%
S&P/TSX COMPOSITE INDEXEnergy 0.5%
Materials 9.0%
Industrials 18.4%
Consumer Discretionary 35.5%
Consumer Staples 6.8%
Health Care 1.7%
Financials 4.7%
Information Technology
14.7%
Telecom Services 8.5%Other 0.3%
KENSINGTON GLOBAL PRIVATE EQUITY FUND
What’s new in the Alternative Aisle ?
Private Equity• Multi-manager• Liquidity• Valuation• Transparency
Hedge• Think Nimble• Where is the return?• Aggregation combinations
Infrastructure• Not a capital gains play• Infrastructure for 20+ years inflation protected income stream
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Alternatives: 4 Constituent AudiencesNo longer strange or obscure
• Yet not widely held or understood• Current chapter – adaptation and familiarity
Provider• Demystify: clarify/explain product/strategy details.• Easy to do business with: correct vehicle, fundSERV, RRSP eligible.• Build Distribution
Intermediaries/Distributors• Strengthen your menu board• Think about Private label
Advisor• Add to the product tool-box• Economic sharing• Add value to your practice
Investor• Portfolio Benefit• Absolute return• Diversification• Meeting funding requirements 14
Thank you !
Questions…