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This document is confidential and intended solely for the use of the person to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person.
Citywire
-
Frankfurt GAM Star Global Convertible Bond
Tuesday, 7 June 2011
Ben Helm –
Investment Manager
Alex McKnight –
Investment Manager
2
GAM Star Global Convertible Bond –
USDPerformance from 17 Dec 2010 (inception) to 29 Apr 2011
Source: GAM, BloombergPast performance is not indicative of future performance. Performance is provided net of fees. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
3
●
Asymmetry–
Bond protection–
Equity upside–
Optionality
Why convertibles?Superior risk return profile to credit or equities
Source: GAM
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD)
Parity CB Price Bond floor 'Soft' bond floor
Example: A typical convertible bond payoff
4
Why UCITS III?
●
Don’t follow the index!
●
Don’t take risks you don’t like–
Rate, credit, equity…
●
Do selectively hedge broad market risks
●
Do structure positions to profit during market falls
UCITS III: Why actively manage and hedge?
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD)
Parity CB Price Bond floor 'Soft' bond floor
Example: A typical convertible bond payoff
Bond Equity
Cheap/mispriced
Expensive
The fair value line
Source: GAM
5
How do we manage convertibles?
●
The index doesn’t work
●
CB Arbitrage as a hedge fund doesn’t fit within a UCITS framework
●
Portfolio of bonds targeting credit and equity themes while hedging specific and broader risks does
work–
Since 2005 in JB Absolute Return funds
Background
6
Investment philosophy and process
We believe that…
●
Convertible bond markets are ultimately driven by economic fundamentals–
Understanding the macro backdrop is key to making money from convertibles
●
Structural mis-pricing occurs due to imperfect information available in equity and bond markets–
Non-economic decision-making–
Variation of macroeconomic influences over time –
Influence of market backdrop, sentiment and geography on behaviour
●
Dominance of traditional, constrained investors perpetuate these
inefficiencies–
Greed, fear and forced selling provide ongoing opportunities
So we seek to use the full set of tools available to profit from
these inefficienciesInvestment process
Structural mispricings are frequent and can be exploited
Issuer filtration and analysis
Sectoral analysis Portfolio construction
Macro: Global outlook
for local selection
1. 2. 3. 4.
Three types of trading strategy create a diversified portfolio
First and foremost a macro house
Opportunities emerge through sectoral and regional filters
Financial, structural, strategic analysis; not just number crunching
7
Portfolio construction: Trading strategies across the curveEach strategy works in a different part of the curve
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
Recovery
Wei
ght o
f por
tfolio
ass
ets
Focus on trade type
Recovery (Turning point)
BondMispriced Balanced Equity
Growth (Upswing)
Recessionary (Towards the
trough)
Mispriced
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
Directional Trades
(Long)Directional Trades
(short) ●
Different trade types work across different parts of the curve
●
The weight of the portfolio to any trade type at a given point in time is aligned with overall market conditions
●
Broad market conditions most supportive of each type of trade are shown in the lower graph
Economic cycle –
Growth Economic cycle –Recessionary
Source: GAM
8
Portfolio construction: Trading strategies across the curveIn a recovering environment most opportunities arise through security mispricing
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
RecoveryWei
ght o
f por
tfolio
ass
ets
Focus on trade type
Recovery (Turning point)
BondMispriced Balanced Equity
Mispriced
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
●
Seek to position the portfolio to capitalise on
–
Mispricings that arise in difficult markets ie ‘distressed pricing’
–
Mean-reversion trades–
Basis trades
●
The team’s key questions:–
“What is seriously mispriced?”
–
“What will bounce fastest?”
●
Sell down what they do not want to be holding 3 months hence
Source: GAM
9
Portfolio construction: Trading strategies across the curveTend to focus on long and short directional trades during growth
markets
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
GrowthWei
ght o
f por
tfolio
ass
ets
Focus on trade type
BondMispriced Balanced Equity
Growth (Upswing)
Mispriced
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
Directional Trades
(Long and short) ●
Seek to position the portfolio to capitalise on
–
Bond issuers whose stock is undervalued
–
Lift from short term stock movements
●
The team’s key questions:–
“Where are the areas of growth?”
–
“How do we structure the trade to get exposure to only the risks we like?”
Source: GAM
10
Portfolio construction: Trading strategies across the curveRecessionary environments present most opportunities through equity-focused trades
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
RecessionaryWei
ght o
f por
tfolio
ass
ets
Focus on trade type
BondMispriced Balanced Equity
Recessionary (Towards the
trough)
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
Directional Trades
(Long)Directional Trades
(short) ●
Seek to position the portfolio to capitalise on
–
Short opportunities in companies with falling stock prices
–
Continuing growth of good companies
●
The team’s key questions:–
“Which companies are the winners and which the losers?”
–
“Is the cost of the short trade structure justified?”
Source: GAM
11
How does our hedging work?
Long Only Convertible PortfolioThe Gap Risk Protection
Fund Value
Equity Market
Source: GAM
12
Some examplesShire Pharmaceuticals
Fair Bond PriceActual Price
Shire 2 3/4% 2014 - Cheap Bond eventually noticed...
100
105
110
115
120
125
130
14
14.5 15
15.5 16
16.5 17
17.5 18
18.5 19
19.5 20
20.5 21
21.5 22
22.5 23
23.5 24
Stock Price
Source: Bloomberg
13
Some examplesBulgari
Bulgari 5 3/8% 2014 - Pays for itself, and then some more...
100
120
140
160
180
200
220
240
260
280
300
4
4.3
4.6
4.9
5.2
5.5
5.8
6.1
6.4
6.7 7
7.3
7.6
7.9
8.2
8.5
8.8
9.1
9.4
9.7 10
10.3
10.6
10.9
11.2
11.5
11.8
12.1
Stock Price
Fair Bond PriceActual Price Equity Parity Value
Source: Bloomberg
14
Summary
●
Global, absolute return approach to trading convertibles –
Flexibility in trading styles enables performance in most macro environments
●
Two highly experienced convertibles managers –
Combined 35 years experience analysing, selecting and structuring convertibles trades–
Backed by the full resources of an established fixed income team
●
Demonstrated skill both in managing the risks and extracting value from convertible bonds
●
More than five year track record of delivering consistent returns via their offshore fund
●
Asymmetric asset class with low correlation with other fixed income strategies, equity indices and traditional bond benchmarks
Source: GAMAs at 31 Mar 2011.
This document is confidential and intended solely for the use of the person to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person.
Appendix
16
●
Asymmetric return profile gives convertibles significant benefits over other structures:
–
Are effectively corporate bonds with an embedded call option on the stock, providing upside potential
–
Incorporate the security of a floor on the corporate bond, protecting the downside
●
Different trading strategies work in each part of the curve
allowing investors to profit from all of them
●
Structural support for convertibles segment:–
Larger and more diversified investor base following the stresses of 2008
–
Significant institutional investors are injecting cash into the convertibles market
●
2011 expected to be supportive to convertibles–
Higher levels of issuance expected–
Rate rising environment will support equities, hence convertibles
The case for investing in convertible bonds
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD)
Parity CB Price Bond floor 'Soft' bond floor
Example: A typical convertible bond payoff
Attractive features embedded in convertibles are being recognised by growing set of market participants
Source: GAM
17
Historical performance of convertibles vs other asset classesConvertible bonds have outperformed both equities and high yield
bonds over time
Source: Bloomberg, Thomson Reuters
Performance from 31 Dec 1997 to 30 Apr 2011
18
●
Diversified absolute return convertible bond fund launched in December 2010–
Successful track record managing absolute return, hedge fund and
long only convertibles for more than 5 years–
Responsible for assets of approximately USD 1.7 bn
●
Managed by two experienced convertible bond managers–
Combined experience of 35 years in the convertibles markets–
Fundamental investors seeking value opportunities at the macro, country, sector and company level–
Backed by resources of wider GAM fixed income team
●
Flexible, value-driven strategy designed to perform in most market environments –
Utilises three distinct trade types
–
No strategy slippage: all themes involve convertibles
●
Portfolio is inherently diversified across–
Global convertibles markets–
Approximately 40 –
60 trades–
Liquid end of the convertibles universe
GAM Star Global Convertible Bond
Directional trades (Long and Short)
Mispriced convertible bonds
Event driven trades
Mispriced convertible bonds
Event driven trades
Source: GAM as at 31 Dec 2010Allocations and holdings are subject to change.
Strategy overview
19
GAM Star Global Convertible Bond
Objective To achieve positive medium-term returns with low correlation to either equity or bond markets
Managers Ben Helm and Alex McKnight
Instruments Invests globally in convertible bonds and their related derivative instruments
Index for comparison UBS Convertible Global Focus Investment Grade Index Hedged to USD
Return objective 1 Net returns of cash + 8% pa
Volatility objective 8 –
12% pa over the medium term
Key characteristics
Source: GAM1
There is no guarantee that targets will be realised.
20
GAM Star Global Convertible Bond
Source: GAM1
Excludes administration and custodian fee –
please see Prospectus for further details on fees.2
Performance fee of 10% is levied on the price appreciation on a
high watermark basis.
Fund Type Irish UCITS III
Base currency USD
Inception date 17 December 2010
Dealing day Daily
Minimum subscription USD 10,000 (or in currency equivalent of share class)
Investment Manager and Sponsor Fees1 Institutional: 0.85% pa
Ordinary: 1.15% pa
Redemption terms Daily with 5 business days’
notice
Performance Fee2 10% on a high watermark basis
Identifiers ISIN IE00B5BRTG34
WKN: A1H4AY
Fund features
21
GAM Star Global Convertible Bond InvTop 10 holdings (of 71) as at 29 Apr 2011
Source: GAMAllocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
2222
GAM Star Global Convertible BondExperienced co-managers working collaboratively
22Source GAM. Team experience as at 30 Apr 2011
Ben HelmInvestment Manager–
22 years’
investment experience–
Joined team in 2005–
Trading and managing convertible bonds since 1993
–
Holds a BSc from the University of Edinburgh
Alex McKnightInvestment Manager–
14 years’
investment experience–
Joined team in 2007–
Working with convertible bonds, credit and FX since 1996
–
Holds a B Comm from University College Dublin–
CFA charterholder
Team of 14 other fixed income sector specialists for macro
theme insights
Independent GAM Market Risk Team for risk monitoring and
oversight
Supported by:
23
GAM Fixed Income Investment teamsSpecialist teams with average experience of 13 years and average
tenure of 8 years
Source: GAM as at 30 Apr 2011*Investment Directors
Convertibles
Ben Helm (22)Alex McKnight (14)
Chris Jarman
(13)
Emerging Markets
Paul McNamara* (14)Caroline Gorman (5)
Denise Prime (6)
Long Only and Absolute Return Fixed Income
Tim Haywood* (22)Daniel Sheard (20)Tom O’Shea (17)Philip Mann (20)
Credit
Darren Reece (20)Haroon Shaikh (3)
Johannes Wagner (15)Amy Kam (-)
Dealer
Global Macro and Foreign Exchange
Adrian Owens* (23)Rahul Mathur (5)
Foreign Exchange
Mark Dragten (6)
24
GAM’s convertible bond capabilityFundamental approach combined with technical knowledge allows for a full spectrum of strategies
Com
plex
ity le
vel
Source: GAM as at 31 Dec 2010
Investment approach AuM
Long only ●
Fundamental approach to credit and equities
●
Takes full account of technical profiles and asymmetry
●
May have an FX overlay
Approx USD 100mn via segregated account
Unconstrained absolute return
All of long only +
●
Dampens volatility of returns and increases potential risk-
adjusted returns through hedging with
–
Equity derivatives–
Credit derivatives–
Interest rate derivatives
●
Able to benefit from bear as well as bull markets
Total approx USD 1.5 bn
●
GAM Star Global Convertible Bond USD100mn
●
GAM’s absolute return bond funds USD 1.4 bn
Hedge fund strategies
All of unconstrained AR +
●
Short single stock hedging
●
Gearing employed
●
Much greater ability to extract value from volatility strategies and parity plays
Approx USD 130mn via the GAM Convertible Bond Hedge fund
25
Investment philosophy and process
We believe that…
●
Convertible bond markets are ultimately driven by economic fundamentals–
Understanding the macro backdrop is key to making money from convertibles
●
Structural mis-pricing occurs due to imperfect information available in equity and bond markets–
Non-economic decision-making–
Variation of macroeconomic influences over time –
Influence of market backdrop, sentiment and geography on behaviour
●
Dominance of traditional, constrained investors perpetuate these
inefficiencies–
Greed, fear and forced selling provide ongoing opportunities
So we seek to use the full set of tools available to profit from
these inefficienciesInvestment process
Structural mispricings are frequent and can be exploited
Issuer filtration and analysis
Sectoral analysis Portfolio construction
Macro: Global outlook
for local selection
1. 2. 3. 4.
Three types of trading strategy create a diversified portfolio
First and foremost a macro house
Opportunities emerge through sectoral and regional filters
Financial, structural, strategic analysis; not just number crunching
26
1. Macro: Global outlook for local selection
●
Convertibles investment managers work with wider investment team
to develop global market outlook–
14 other fixed income sector specialists averaging 12 years’
investment experience–
Specialisations span full range of bond and currency markets–
Formal and informal discussions generate and test ideas
●
Provides meaningful market context for the co-managers’
analysis of convertibles markets
●
Convertibles team specifically seeks to understand what is fuelling growth globally–
Macro influences?–
Micro influences? –
Geography-, sector-
and industry-
specific factors?
●
Growth areas are typically accompanied by volatility –
a rich source of opportunities for convertibles
Backdrop of diverse macro views helps to identify potential
Source: GAM as at 31 Mar 2011
27
2. Sectoral analysis on a local basis
●
Focus on market segments expected to experience growth
●
Typically assess ideas by industry sector–
Apply macro filter based on ~10 key economic characteristics–
Evaluate sector dynamics in each major global region (US, Europe, Asia ex Japan and Japan)
–
Score each regional sector:1 = positive0 = neutral
-1 = negative
●
Overall score summarises: –
The 'localised macro view' for the sector in the current market–
The competitive position of the industry, highlighting winners and losers
●
Then aggregate regional score to solidify the team’s view on opportunities in the sector globally
●
Day-to-day reassessment of views based on market dynamics–
Framework provides a sanity check on ideas–
Helps to codify shifts and opportunities
Illustration: Regional sector macro analysis
+1 0 -1
Degree of concentration
Power of buyers/suppliers
Barriers to entry
Role of regulation
Competitive geography
Importance to economy
Macro economic trends
Growth rates
Technological changes
Effects of new entrants
Changing regulation
Overall score: +4
Methodically focuses on most promising opportunities
Source: GAM
28
●
Combines elements of both an equity analyst and a credit analyst
to conduct in-depth analysis of companies –
Gives holistic picture of the convertible bond opportunities from each company–
In essence, views are fundamentals driven, not price-driven –
we have to like the equity to hold the bond
●
Combine complementary sources of information and analysis to form views:
●
Views culminate in 'buy', 'sell' or 'hold' rating for each company, feeding into portfolio construction
3. Issuer filtration and analysis Multi-dimensional, company specific analysis used to identify specific
opportunities
Source: GAM Holdings and allocations are subject to change.
External information sources
Focus on contrary views: 'Have we missed something?'
•
External analysts
•
Broker contacts in local markets
•
Company filings
•
Company presentations/ conference calls
One-to-one meetings/ calls
Focus on management attitude: 'Do we trust them?'
•
Travel extensively to Asia and Europe
•
Approximately 40+ companies per year; often small-mid cap
•
Focus where deals are outstanding •
Often 'cross the wall' pre-deal
Company filters
Focus on fundamentals: 'What’s driving company growth?'
•
Analyse key strategic, structural, financial and bond/ stock issue characteristics
•
Run each metric on standalone basis
•
And relative to peer group, ratings and spread levels
29
Financial metrics
+1 0 -1
Fixed charge coverage
Gross debt levels
Cash levels
Tangible assets (& backstop buyer)
Basic free cash flow
EBITDA margins
Overall score: 0
Structural issues
+1 0 -1
Debt maturity profile
Financial flexibility
Structural seniority
Contractual seniority
Overall score: +1
Strategic
+1 0 -1
Market share
Cost position
Technological advantages
Management
Capital plans
Acquisition strategy
Basis of competition
Attitude towards leverage
Overall score: +5Bond/ stock issues
+1 0 -1
Stock and bond liquidity
Borrow and stability
Credit default / asset swap availability
Implied volatility relative to realizable options
Takeover, dividend language
Breakeven analysis
Worst case scenario
Overall score: +3
3. Issuer filtration and analysis –
Illustration: Company filtersMetrics applied on standalone and relative basis for each company
Source: GAM
30
4. Portfolio construction
●
Using the buy-rated securities, the managers build portfolios to capture growth and opportunities
●
Assemble long-term positions that seek to deliver absolute returns through diversified exposures:–
Across all geographies–
Spanning all credit ratings, but focused on liquid issues –
Participating in three distinct trading strategies
●
Managers maintain absolute flexibility in strategy type and regional exposure
●
Each trading strategy has advantages in different market environments, providing tools for:–
Potential outperformance regardless of market conditions–
Achieving low correlation to equity and bond markets
●
Selectively hedge out interest rate, credit and equity risk to align the portfolio with views on current market environment–
Strictly within UCITS III parameters
●
Results in 40 –
60 positions–
Typically executes 2 to 5 trades per day, depending on opportunities present
Targeting most promising opportunities through a well-diversified approach
Source: GAMAllocations and holdings are subject to change.
Directional trades (Long and Short)
Mispriced convertible bonds
Event driven trades
31
Portfolio construction: Trading strategies across the curveEach strategy works in a different part of the curve
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
Recovery
Wei
ght o
f por
tfolio
ass
ets
Focus on trade type
Recovery (Turning point)
BondMispriced Balanced Equity
Growth (Upswing)
Recessionary (Towards the
trough)
Mispriced
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
Directional Trades
(Long)Directional Trades
(short) ●
Different trade types work across different parts of the curve
●
The weight of the portfolio to any trade type at a given point in time is aligned with overall market conditions
●
Broad market conditions most supportive of each type of trade are shown in the lower graph
Economic cycle –
Growth Economic cycle –Recessionary
32
Portfolio construction: Trading strategies across the curveIn a recovering environment most opportunities arise through security mispricing
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
RecoveryWei
ght o
f por
tfolio
ass
ets
Focus on trade type
Recovery (Turning point)
BondMispriced Balanced Equity
Mispriced
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
●
Seek to position the portfolio to capitalise on
–
Mispricings that arise in difficult markets ie ‘distressed pricing’
–
Mean-reversion trades–
Basis trades
●
The team’s key questions:–
“What is seriously mispriced?”
–
“What will bounce fastest?”
●
Sell down what they do not want to be holding 3 months hence
33
4. Portfolio construction: Trading strategies across the curveTend to focus on long and short directional trades during growth
markets
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
GrowthWei
ght o
f por
tfolio
ass
ets
Focus on trade type
BondMispriced Balanced Equity
Growth (Upswing)
Mispriced
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
Directional Trades
(Long and short) ●
Seek to position the portfolio to capitalise on
–
Bond issuers whose stock is undervalued
–
Lift from short term stock movements
●
The team’s key questions:–
“Where are the areas of growth?”
–
“How do we structure the trade to get exposure to only the risks we like?”
34
4. Portfolio construction: Trading strategies across the curveRecessionary environments present most opportunities through equity-focused trades
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle –
RecessionaryWei
ght o
f por
tfolio
ass
ets
Focus on trade type
BondMispriced Balanced Equity
Recessionary (Towards the
trough)
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140Stock price (USD)
CB
val
ue (U
SD
)
Directional Trades
(Long)Directional Trades
(short) ●
Seek to position the portfolio to capitalise on
–
Short opportunities in companies with falling stock prices
–
Continuing growth of good companies
●
The team’s key questions:–
“Which companies are the winners and which the losers?”
–
“Is the cost of the short trade structure justified?”
35
4. Portfolio construction: Liquidity and exposure management
●
Typically ~100% of NAV is invested in liquid instruments including–
Convertible and fixed income bonds –
typically the entirety of the portfolio–
Equities –
opportunistic and infrequent, principally to express very short
term views–
Related derivatives on any of these assets within UCITS III powers
●
Illiquid instruments are defined as those that meet two criteria:–
They are not priced regularly on Bloomberg, and–
They have an issue size of <USD 300 million
●
Max 10% of NAV in a single issue
●
Max 20% of NAV in a single issuer
●
No financial gearing –
Long convertible cash bond exposure limited to 100% of the NAV–
Shorting for exposure only via credit derivatives, futures, options and stock total return swaps
Source: GAM.Holdings and allocations are subject to change.
Structured approach to ensure liquidity and diversification of risk
To limit credit risk
36
Risk management and monitoring
Risk management
●
The investment managers seek to add value through their skill in
managing risk –
Able to hedge out constituent (credit, equity, rates) risk on both an individual name and overlay basis–
Do not take oversize equity risks; operate within defined limits–
Maintain strict liquidity standards–
Stop loss and take profit limits are applied to positions wherever possible
Risk monitoring
●
GAM Market Risk Team provides the managers with daily, weekly and monthly risk analysis and monitoring –
Comprehensive risk management platform covering the fund’s full range markets
and instruments
–
Daily VaR of individual positions, strategies and total portfolio–
Weekly historic and speculative stress tests to reveal any potential correlations
●
GAM Market Risk Team seeks to identify any 'risk hotspots' and to challenge managers with additional oversight
RiskMetrics Reports
Active risk management on the desk and independently
37
Transparency
●
Fully transparent month-end portfolio holdings available to investors on request with ten working day lag¹
●
Month end risk report available to investors on request with ten
working day delay¹
●
Monthly performance reporting, risk analysis and manager commentary
●
Monthly, recorded conference call at mid-month, where investment manager discusses market themes across all strategies the team runs
37Source: GAM. 1
Subject to the signing of a confidentiality agreement.
Dedicated to sharing information with investors
This document is confidential and intended solely for the use of the person to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person.
Illustrative performance, risk and portfolio informationNOTE: As GAM Star Global Convertible Bond launched on 17 December 2010, the charts in the following section show the performance another portfolio managed by Ben Helm and Alex McKnight that is shown for illustrative purposes only. The offshore GAM Convertible Bond Hedge fund is run significantly differently. Please see comparison slide for details.
39
A comparison of the GAM Convertible Bond vehicles
Fund GAM Star Global Convertible Bond
GAM Convertible Bond Hedge
Investment style Absolute return Hedge fund
Regulation Irish UCITS III Cayman domiciled fund
Instruments
● Long positions in individual convertibles (traditional, mandatories, preferences), credits and equities
●Seeks to dampen volatility of returns and increase potential risk-adjusted returns through hedging with
–
Equity derivatives–
Credit derivatives–
Interest rate derivatives–
Single name equity total return swaps
● Long and short positions in individual convertibles (traditional, mandatories, preferences), credits and equities, as well as their indices and all related derivatives
●Seeks to add alpha and to dampens volatility of returns through hedging with
–
Equity derivatives–
Credit derivatives–
Interest rate derivatives–
Single name equity stock shorts
Index for comparison UBS Global Convertible Inv Grade Index hedged to USD Dow Jones Credit Suisse Convertible Arbitrage Index in USD
Investment objectives To achieve positive medium-term returns with low correlation to either equity or bond markets
To achieve positive returns in both rising and falling equity markets with low correlation to either equity or bond markets
Target net returns1 Cash + 8% pa 15%+ pa with no down quarters
Target annualised volatility1 8 –
12% pa 6 –
9% pa
Max monthly VaR 20% (99% confidence) 9% (97.5% confidence)
Typical gearing (Long cash bonds to NAV) Up to 1x ~3x
Typical no. of positions 40 –
60 30 –
40
Position sizing Typical ~5%, max 10% in single name Typical 12%, max 20% in single name
Liquidity (Inst’l class) Daily with 5 days’
notice Monthly with 90 days’
notice
Fees (Inst’l class) 0.85% + 10% perf fee on HWM basis 1.50% + 20% perf fee on HWM basis
As at April 2011
Source: GAM.1 There is no guarantee that targets will be realised.Holdings and allocations are subject to change.
40
GAM Convertible Bond Hedge -
USD 1Performance from 30 Jun 2005 (inception) to 30 Apr 2011
Source: JP Morgan Hedge Fund Services (Ireland) Ltd, BloombergPast performance is not indicative of future performance. Performance is provided net of fees. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
FOR ILLUSTRATIVE PURPOSES ONLY
41
Ben Helm
Investment Manager
Ben Helm is an Investment Manager, co-managing a convertible bond hedge fund and is a convertible bond sector specialist. Ben joined GAM following its
acquisition of the fixed income and foreign exchange specialist, Augustus, in May 2009. Ben joined Augustus (then Julius Baer Investments Limited) in 2005. Prior to joining Augustus, he
worked in a number of roles primarily in convertible bonds sales and trading at ING Barings from 1991 and HSBC from 2001. He started his career at Morgan Stanley International in 1986. Ben holds a BSc from the University of Edinburgh. He is based in London.
.
42
Alex McKnight
Investment Manager
Alex McKnight is an Investment Manager, co-managing a convertible bond hedge fund and is a convertible bond sector specialist. Alex joined GAM following its acquisition of the fixed income and foreign exchange specialist, Augustus, in May 2009. Alex joined Augustus in 2007 from Allied Irish Bank (AIB), where he was a senior trader for European convertible bonds within the fixed income group. Prior to this he was a credit analyst at AIB
and began his career in markets there as a foreign exchange trader in 1996. Alex holds a BCom
from the University College Dublin and is a CFA charterholder. He is based in London.
43
GIPS Supplemental Information
All GAM's discretionary assets have been allocated to appropriate GIPS composites. GAM's funds often are structured as investment pools with underlying currency classes and it is at the investment pool level that GIPS composite allocations have been made. Supplemental information shown in GAM's materials, including performance, geographic/industrial asset allocations, attribution details and other statistical analyses are based on a sample account of the relevant composite that represents the management style. Other accounts in the composite may have slightly different portfolio characteristics. In some cases sample accounts have history that pre-dates GAM's compliance with GIPS of 30 June 1996. Indices other than the benchmark are sometimes used in presentations for illustrative purposes. Please refer to the relevant GIPS compliant report.
44
GAM Convertible Bond Composite (G333)
Composite Performance 2007 2008 2009 2010 YTD
Composite Returns % 13.34 -28.22 56.08 11.35 5.33
Benchmark Returns* % 5.17 -31.59 47.35 10.95 4.54
Composite Standard Dev 3Yr % N/A N/A 17.68 17.92 17.75
Benchmark Standard Dev 3Yr % N/A N/A 13.49 13.57 13.10
Number of Portfolios in Composite < 6 < 6 < 6 < 6 < 6
High Return % N/A N/A N/A N/A N/A
Low Return % N/A N/A N/A N/A N/A
Composite Asset value (USDm) 197 57 73 134 147
Total Firm Assets (USDm) 75,783 39,207 49,372 54,289 57,340
1:
Established in 1983, GAM delivers active investment management to private clients, institutions and intermediaries. All GAM's
assets are included in the GIPS definition of the firm, except for clients who set up separately-
managed accounts which are administered by an independent third party for their fixed income hedge strategy and/or currency hedge strategy. 2:
GAM claims compliance with the GIPS®
and has prepared and presented this report in compliance with the GIPS standards. GAM has been independently verified for the periods 30 Jun 1996 to 31 Dec 2009. GAM acquired Augustus Asset Managers Limited (Augustus) in May 2009. GAM's
independent verification for the year ended Dec 2009 included the Augustus assets. The pre-acquisition track record of Augustus composites has been linked to the post-acquisition performance as the relevant requirements per the GIPS standard have been complied with. Augustus has complied with GIPS standards from Jan 2000 and was independently verified for the periods Jan 2000 to Dec 2005. The verification reports are available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-
wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.
3:
The composite was created by GAM in Mar 2010 and applied retrospectively. 4:
Prior to GAM's
acquisition of Augustus in May 2009 this composite was called Convertible Bond Hedge Fund Strategy. The composite strategy has not changed. 5:
Accounts in the composite invest primarily in convertibles using
a fundamental, top-down, global multi-strategy approach. The team trades convertible bonds of all credit ratings and invests globally with the main focus outside the US. They typically seek to achieve strong, positive absolute
returns over cash regardless of market conditions. 6:
Derivatives are an integral part of the investment strategy for the portfolios within the composite. Instruments used include interest rate forwards and swaps, and currency forwards, futures and options. For reporting purposes the fixed income securities included have been delta-adjusted on a 10 year US Treasury equivalent basis so that they can be compared like for like. Further detail is available on request.
7:
Composite results are presented gross of investment management fees and net of trading expenses and net of withholding taxes on dividends, capital gains and interest. Benchmarks are gross of withholding taxes on dividends.
8:
The maximum investment management fee for accounts is 1.5% per annum plus performance fees. Management fees may vary by product and jurisdiction. 9:
High and low returns (for those constituents present in the composite throughout each period) are presented above to demonstrate
dispersion within the composite. Dispersion information is only
required by GIPS where there are 6 or more portfolios in the composite.
10:
As of Mar 2011, the composite benchmark was changed from 3 Month
Libor Index to Dow Jones Credit Suisse Convertible Arbitrage Index. This benchmark represents the broad convertibles hedge fund
market, which is more meaningful than benchmarking it against cash, which is risk
free. This new index has been applied retrospectively. 11:
In 2005 GAM changed its methodology for calculating its Total Firm Assets (TFA) to follow the principles and guidelines of FINMA, resulting in TFA as of Nov 2005 increasing by 38%. In May 2009, GAM acquired Augustus resulting in an increase of 22% in TFA and a change in the Firm definition to incorporate an exclusion of certain assets as detailed above. GAM's
TFA before these exclusions were $58,231 m. GAM discloses its TFA on a quarterly basis. Current data is as at 31 Mar 2011.
12:
Total firm assets prior to the acquisition of Augustus relate to
GAM, thus the percent of firm assets and total firm assets are not meaningful in respect of Augustus. 13:
GAM aims to produce composite reports relatively quickly following month end. For this reason the most recent month end performance figures may be based on estimated month end figures. 14:
Policies for valuing portfolios, calculating performance and preparing compliant presentations is available on request.
GAM has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). A complete list and description of composites is available on request.
Source: GAM as at 30 Apr 2011
* The benchmark shown is for comparative purposes only. The composite is not managed to a specific benchmark.
There is no guarantee that targets will be achieved.
45
Source: GAM unless otherwise stated. (Unless otherwise noted, where shown, performance is shown net of fees, on a NAV to NAV basis).
This material is confidential and is intended solely for the use
of the person or persons to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person. It is aimed at sophisticated, professional, eligible, institutional and/or qualified investors who have the knowledge and financial sophistication to understand and bear the risks associated with the investments described herein. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. It is not an invitation to subscribe and is by way of information only.
Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the fund. Shares are not available for sale in any state or jurisdiction in which such sale would be prohibited.
The Shares of the fund have not been registered under the US Securities Act of 1933, as amended (the 'Securities Act'), and the fund is not registered under the US Investment Company Act of 1940, as amended (the 'Company Act'). Accordingly, unless an exemption is available, such shares may not be offered, sold or distributed in the United States or to US persons. However, pursuant to an exemption from registration under the Securities Act and the Company Act, the shares may be sold or resold in the United States or to certain qualified US investors in transactions that do not constitute a public offering.
The fund is not regulated under the Financial Services and Markets Act 2000 (the ‘Act’), consequently no protection is provided by the UK regulatory system. Moreover benefits available under the UK Financial Services Compensation Scheme do not apply. The fund is not authorised or registered for public sale in Asia Pacific. Therefore, no public marketing must be carried out for it in Asia Pacific. In Hong Kong, this material is restricted to
professional investors (as defined in the Securities and Futures Ordinance (Cap 571)) only. In other countries in Asia Pacific, this material should only be distributed in accordance with the applicable laws in the relevant jurisdiction. The fund does not include the security of capital which is characteristic of a deposit with a bank or
building society.
In the Dubai International Financial Centre, this material has been distributed by GAM (Dubai) Limited. Related financial products or services are only available to professional clients who qualify as clients under the Dubai Financial Services Authority (the 'DFSA') rules. GAM (Dubai) Limited
is duly licensed and regulated by the DFSA. The views expressed herein are those of the manager at the
time and are subject to changes. The price of Shares may go down as well as up and the price will depend on fluctuations in financial markets outside GAM's control, as a result an investor may not get back the amount invested. Past performance is not indicative of future performance and reference to a security is not a recommendation to buy or sell that security. Holdings and allocations are subject to change. Prices quoted refer to accumulation Shares unless otherwise stated. Historic data may be subject to restatement from time to time.
Disclaimer
46
Disclaimer
In Japan, the fund mentioned herein shall not be disclosed publicly pursuant to the Financial Instruments and Exchange Law (‘the FIEL’) nor registered for public sale or private placement pursuant to the Law in Investment Trusts and Investment Companies. Therefore, none of the shares of the fund may be solicited in Japan. This document is intended for circulation to
professional, institutional and/or qualified investors only. Any person who receives this document is not allowed to distribute it to residents in Japan or to communicate any information about the funds mentioned in this document to residents in Japan.
GAM Star Global Convertible Bonds is a sub-fund of GAM Star Fund plc. GAM Star Fund plc is an umbrella fund
with segregated liability between sub-funds. GAM Star Fund plc is authorised as a UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 (S.I. No.211 of 2003) and is a recognised scheme under the Financial Services and Markets Act 2000. The fund is managed by GAM Fund Management Limited which is regulated by the Central Bank of Ireland. Copies of the fund’s prospectus, simplified prospectus and financial statements can
be obtained free of charge from the representative in Switzerland GAM Anlagefonds AG, Klausstrasse 10, CH -
8034 Zurich, from the information agent in Germany Bank Julius Baer Europe AG, An der Welle 1, D-60322 Frankfurt am Main, or from the information agent in Austria, UniCredit Bank Austria, Schottengasse 6 -
8, A-1010 Vienna.
Important information about hedge funds: Hedge fund strategies are speculative and are not suitable for all investors. GAM hedge fund products are only available to investors who are comfortable with the substantial risks associated with investing in hedge funds. An investment in
hedge fund strategies includes the risks inherent in an investment in securities, as well as specific risks associated with limited liquidity, the use of leverage, short sales, options, futures, derivative instruments, investment in overseas securities, 'junk' bonds and illiquid investments. Hedge fund strategies may be leveraged and the volatility of the price of their interests may be great..
In the United Kingdom, this material has been issued and approved by GAM London Ltd, 12 St James's Place, London SW1A 1NX, authorised and regulated by the Financial Services Authority. In Switzerland, issued