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2005 – 2008
- May 2005 -
Investment Analytics is a quantitative investment research firm providing consulting services and investment research products to the international investment management industry.
Investment Analytics(Bermuda) Ltd. Canon's Court 22 Victoria Street Hamilton HM12, Bermuda
Telephone: Fax: Email: Web Site: 1-888-736-6650 1-212-208-2492 Info@investment-analytics.com www.investment-analytics.com
© 2005 Investment Analytics - Business Plan
Copyright & Disclaimer
This business plan is presented here to benefit and promote the services of Investment Analytics (Bermuda) Ltd. The information and ideas herein are the confidential, proprietary, sole, and exclusive property of Investment Analytics(Bermuda) Ltd.
© 2005 Investment Analytics - Business Plan
You are being furnished with confidential information that has been prepared by Investment Analytics (Bermuda) Ltd. (The "Company"), and you may be furnished with additional information by the Company or by its representatives or agents in connection with evaluating a possible transaction with the Company. By your acceptance and as a condition hereof, you agree to treat all information concerning the Company which is furnished to you by or on behalf of the Company, whether furnished before or after the date of this letter and regardless of the manner in which it is furnished, together with analyses, studies or other documents or records prepared by you or any of your employees or agents (collectively, "Representatives") to the extent that such analyses, studies or documents contain or otherwise reflect or are generated from such information (hereinafter collectively referred to as the "Evaluation Material"), in accordance with the provisions of this agreement. You hereby agree that the Evaluation Material will be used solely for purposes in connection with a possible transaction with the Company, and that such information will be kept permanently confidential by you and your Representatives and you will not distribute this Evaluation Material or any part hereof to others at any time without the prior written consent of the Company. You agree to restrain your Representatives from prohibited or unauthorized disclosure or use of the Evaluation Material and shall be responsible for any such breach hereof. This Evaluation Material is being delivered for informational purposes and upon the express understanding that it will be used only for the purposes set forth above. In the event that the possible transaction which is the subject of this agreement is not completed or at the Company's request, you shall promptly return to the Company all written material containing or reflecting any information contained in the Evaluation Material and will not retain any copies, extracts or other reproductions in whole or in part of such written material. It is understood and agreed that money damages would not be a sufficient remedy for any breach of this agreement and that Company shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach. In the event of litigation relating to this agreement, the prevailing party shall be entitled to receive reasonable legal fees and costs incurred in connection with such litigation. New York State law will govern the terms and conditions of this agreement. Your retention of the Evaluation Material shall constitute acceptance of the terms and conditions hereof. If you do not agree to the terms hereof, please do not read the Evaluation Material and immediately return such to the Company. We would nonetheless appreciate your kindly signing and returning one copy of this agreement, which will constitute our agreement with respect to the subject matter hereof. Dated : (Signature) _____________ _________________________________
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© 2005 Investment Analytics - Business Plan 4
TABLE OF CONTENTS
DISCLAIMER CONFIDENTIALITY AGREEMENT EXECUTIVE SUMMARY BUSINESS CONCEPT Business Overview Company’s Mission Opportunity/Value Proposition Services Provided Income Streams The Economics of the Business Business Objectives MARKET RESEARCH & ANALYSIS Industry Analysis Independent Investment Research Regulations Market Overview Market Size & Characteristics Market Trends and Growth Market Needs Target Market SWOT Analysis Competitive Environment MARKETING Marketing Strategy & Tactics OPERATIONS MANAGEMENT TEAM OVERALL SCHEDULE RISKS FUNDING AND USE OF PROCEEDS FINANCIAL SUMMARY EXIT STRATEGY APPENDICES
3 4 6 7 7 8 8 9 12 13 15 17 17 18 19 19 20 24 27 28 29 30 31 31 33 34 36 37 38 39 40 41
© 2005 Investment Analytics - Business Plan
Market: Alternative Investment Management Industry Overview: In a field as competitive as investment research, genuinely innovative ideas are hard to come by. In many cases, investment research remains locked into traditional methods of analysis that have evolved very little over the last 50 years, irrespective of the enormous advances that have taken place in investment theory. Consequently, as competing firms strive for research excellence using much of the same methodology, it is difficult to provide a distinctive client service that offers any significant competitive advantage. Investment Analytics provides independent research focusing on applications of sophisticated mathematical and financial modeling techniques to problems of strategy development and repair, performance analysis and risk management for clients in the investment management industry in Europe and North America. Investment Analytics has developed a highly successful proprietary investment program based on sophisticated econometric models that are used to forecast asset volatility and identify option arbitrage opportunities. CURRENT STATE Market Status: As the majority of hedge funds performed poorly in 2004, most of the players in the alternative investment industry are looking for ways to recalibrate their strategies. Need For New Ideas: Funds are facing enormous pressure to find new and improved strategies – an issue that continues to be more critical, especially as funds seek to distinguish themselves. Competition: The alternative investment industry is rapidly becoming mainstream. However, requisite experience and distinguished track records provide significant barriers to entry. Market Trend: Perhaps the most notable trend in the investment community recently has been the explosion of capital within the alternative fund space. With this increased profile, especially given the participation of pension funds, the need for in-depth risk analysis and support becomes increasingly relevant. THE SOLUTION Investment Analytics recognizes the crucial need for innovative and improved research techniques in the international investment management industry and has developed a business model to profit from their unique, proprietary offering. Our key success factors are: Competitive Advantage in Research Innovative Methodology Proprietary Research Products Consulting Expertise OUR MISSION Our mission is to enable clients to significantly improve investment returns and reduce investment risks by providing specific strategic recommendations rather than macro-level frameworks. Our consulting work is centered on enabling clients to correctly evaluate performance, diagnose strategy malfunction and to develop, test and implement new strategies capable of meeting investment performance criteria. Our success is based on delivering superior service to the investment management community at a competitive rate. SERVICE FEATURES Our products and services are based on advanced quantitative financial models developed over many years of research effort. These include: The Volatility Arbitrage Investment Program: Identifies buying and selling opportunities in equity options markets using advanced mathematical models researched and developed by its team of quantitative analysts. Strategy Development: We assist clients in developing new in-house strategies, or evaluating third party strategies, and assess their suitability to meet the clients' investment objectives. Strategy Repair: We assist clients in diagnosing performance-related problems with existing strategies and in developing repair solutions to restore or enhance strategy performance. Performance Evaluation: We assist clients in evaluating the performance characteristics of their own or third party strategies and examine a wide range of performance criteria to determinate the degree to which investment performance is the result of manager skill. BENEFITS TO THE CUSTOMERS
INNOVATION SCALABILITY LOW CORRELATION
WITH EXISTING HEDGING STRATEGIES
$ 140.00 $ 120.00 $ 100.00 $ 80.00 $ 60.00 $ 40.00 $ 20.00 $2005 2006 2007 2008 2009
Consulting & Other Vol. Arb. Prog. -Perf. Vol. Arb. Prog. -Mgt.
FINANCIAL SUMMARY Funding requirement: $ 2,000,000 USD
2005 Total Income EBITDA $
2006 22.26 10.85
2007 29.87 14.17
2008 63.04 38.41
2009 120.16 82.24
Values in M illion US$
Management Team Mr. Jonathan Kinlay - Founder and Chief Executive Officer Mr. Chris Rosevear - Founder and Managing Partner INFORMATION Corporate Office: Investment Analytics(Bermuda) Ltd. Canon's Court, 22 Victoria Street Hamilton HM12, Bermuda Inquiries: Telephone: 1-888-736-6650 Fax: 1-212-208-2492 Email: Info@investment-analytics.com Web Site: www.investment-analytics.com
CONFIDENTIAL This material has been produced in conjunction with The WorldGate Group and contains information which is protected by copyright and other intellectual property law and is subject to the terms and conditions in the governing client contract.
In many cases.Business Plan 7 . © 2005 Investment Analytics . Consequently. Our approach to consulting is typically highly quantitative and involves the application of sophisticated mathematical and statistical models to simulate key features of market behavior and strategy performance. thereby offering fresh investment insights for identifying and evaluating new investment opportunities. as competing firms strive for research excellence using much of the same methodology. Investment Analytics was introduced in 1998 as a provider of independent research and consulting services focusing on applications of sophisticated mathematical and financial modeling techniques to problems of investment strategy for both buy. genuinely innovative ideas are hard to come by. We develop custom research products for our clients based on our quantitative research and developed specifically to complementing their existing strategies and core holdings. Our consultants are PhD mathematicians and investment managers with extensive experience consulting to all genres of money management organizations.and sell-side firms. Investment Analytics recognizes the crucial need for innovative and improved research techniques in the international investment management industry and has developed a business model to profit from their unique.BUSINESS CONCEPT BUSINESS OVERVIEW In a field as competitive as investment research. investment research remains locked into traditional methods of analysis that have evolved very little over the last 50 years. in Europe and North America. irrespective of the enormous advances that have taken place in investment theory. Investment Analytics applies innovative research techniques in developing distinctive research products. it is difficult to provide a distinctive client service that offers any significant competitive advantage. proprietary offering.
innovative and more informative than any other available today.Business Plan 8 . diagnose strategy malfunction and to develop.Our key success factors are: Competitive Advantage in Research Innovative Methodology Proprietary Research Products Consulting Expertise OUR MISSION Our mission is to enable clients to significantly improve investment returns or reduce investment risks by providing specific strategic recommendations rather than macrolevel frameworks. test and implement new strategies capable of meeting investment performance criteria. Not only is our research methodology unique. Our consulting work is centered on enabling clients to correctly evaluate performance. © 2005 Investment Analytics . so too is our approach. OPPORTUNITY / VALUE PROPOSITION Our methodology represents a radical departure from traditional methods of research. We work with our clients’ research teams to create a research product that is distinctive. Investment Analytics has applied these effective and incisive techniques to the field of equity analysis. It is based instead on advanced techniques of quantitative finance that have proved highly successful in tackling complex problems encountered in financial engineering and investment analysis. Our success is based on delivering the best service to the investment management community at a competitive rate. bringing fresh insights and an entirely new approach to investment research.
Business Plan 9 .We use progressive financial engineering techniques to diagnose existing strategies and advanced mathematical models to build. with minimal draw down. Our team also evaluates and develops new strategies consistent with our clients’ investment objectives. Using these models we are able to correctly anticipate the future direction of volatility an average of 75% of the time in the universe of stocks and equity indices we analyze. these techniques enable us to select investment opportunities that offer the greatest risk-reward trade-off. and identify regimes of unsustainably high or low levels of volatility with a high degree of accuracy. © 2005 Investment Analytics . Our proprietary volatility index and stochastic volatility models measure underlying volatility and model its behavior more accurately and efficiently than traditional methods. Our stochastic option pricing models apply these factors to detect options that are trading rich or cheap relative to fair value. Volatility Arbitrage Investment Program The Investment Analytics Volatility Arbitrage Investment Program identifies buying and selling opportunities in equity options markets using advanced mathematical models researched and developed by its team of quantitative analysts. PRODUCTS & SERVICES PROVIDED Our products and services are based on advanced quantitative financial models developed over many years of research effort. Our core value is in providing preeminent investment strategy services in an efficient manner to investment management clients across Europe and North America. high returns. Our proprietary asset allocation methodology combines the volatility analytics with elements of portfolio optimization and risk management theory to create optimal portfolios capable of generating consistent. generating specific buy or sell recommendations in selected stock and index options that are consistently profitable. test and implement strategic enhancements that will restore or enhance investment performance. Together.
with capacity in the $Billions. and assess their suitability to meet the clients' investment objectives. Independent. Rapid scalability. dual delivery platforms guarantee failsafe automatic delivery and backup.Business Plan 10 . markets and asset classes. low-risk alpha generator.even at times of high market stress and regardless of the direction of the overall market. Stable. uncorrelated to cash and derivative markets. © 2005 Investment Analytics . Adaptable to a broad range of strategies. In addition to our Volatility Arbitrage Investment Program. Strategies based on the program produced returns of between 15% and 1600% in 2003. Strategy Repair: We assist clients in diagnosing performance-related problems with existing strategies and in developing repair solutions to restore or enhance strategy performance. Advantages of the Program Unique approach to statistical arbitrage with proven track record of success within a $170M hedge fund. or evaluating third party strategies. Performance Evaluation: We assist clients in evaluating the performance characteristics of their own or third party strategies and examine a wide range of performance criteria to determinate the degree to which investment performance is the result of manager skill. Investment Analytics offers the following Consulting Services to investment management firms: Strategy Development: We assist clients in developing new in-house strategies. systematic approach that is independent of trader capability and other idiosyncratic factors. Non-discretionary.
Business Plan 11 .Risk Management: Our reviews of clients´ risk management system will typically focus on critical elements of the risk management process and can result in catastrophic exposures under extreme market conditions and includes an assessment of model. © 2005 Investment Analytics . liquidity and volatility risk. Subjects covered in recent courses include financial engineering. derivative strategies. risk management. forecasting. fixed income analytics and portfolio management. as well as extreme market analysis. Training: The principals of Investment Analytics have extensive experience of teaching advanced level finance program as leading academic and financial institutions on the USA and Europe.
An additional source of income derives from our consulting services. The growth in Assets Under Management (AUM) is computed from a baseline scenario as shown in the table below. and revenues are built from a Management Fee and a Performance Fee. Our main product is the Volatility Arbitrage Program. The table also shows the management and performance fees for each strategy. In order to make a projection we assumed a 10% from the Volatility Arbitrage Program to this stream. The Volatility Arbitrage Program represents our main source of income.Business Plan 12 . © 2005 Investment Analytics . There are five strategies in the Volatility Arbitrage Program.INCOME STREAMS Investment Analytics will build income and profits from its products and services. Financial projections are created using a Monte-Carlo simulation model in which strategy returns follow random processes with expected average levels and standard deviations of return as set out in the table below.
Consulting & Other Total Income $ $ $ $ 1. Prog.27 0.72 29. Arb. Vol.87 2008 13. See Appendix 1.00 $ 120. Table 3.00 $ 60.00 $ 10. (See Appendix 1 and Table 4 below).26 2007 7.80 43. Prog. Sales $ 70.) for the Volatility Arbitrage Program.00) 2006 2007 2008 2009 © 2005 Investment Analytics . -Mgt.00 $ 100.92 120. -Perf.13 2. Vol.16 $ 140.00 $ 20. Income will grow with the increase of AUM (Assets Under Management. for a detailed description of our income projection in projected Income Statement. Values in Million US$ Income Statement Net Earnings .60 2006 3. -Perf.11 17. Arb. (See Table 3 below).08 10. By the second year of operations we anticipate achieving positive net earnings. Prog.Business Plan 13 . approximately 17% (Marketing.00 $ 60. Income Forecast Projection 2005 Vol.04 2009 23.00 $ 30. Arb.00 $2005 $ (10.00 $2005 2006 2007 2008 2009 Consulting & Other Vol.00 2.16 86.00 $ 40.76 19.00 $ 40.33 3.00 $ 20.00 $ 80.39 2.24 Millions in 2009.51 5.73 63.THE ECONOMICS OF THE BUSINESS Income Forecast Management expects that as a result of the implementation of this plan there will be a steady buildup of revenues from the different income streams.00 $ 50. Arb. -Mgt.02 22.Annual We expect to make EBITDA of US$ 82. Prog. Our cost of sales will be minimal on any services we provide to our clients.
43 10.46 13.05 7.08 19.43 10. The Operational Break-even point was break estimated even is based on total and income.65 4.51) 2006 22.00 $2005 2006 2007 2008 2009 Break-even Income Total Income Table 5.00 $ 60. Profits in Years One to Five Year Total Income Less Variable Costs Less Fixed Costs EBITDA $ $ $ $ 2005 3.85 16.45 2006 22. Table 4.08 82. With this minimal cost of income.65 Values in Million US$ © 2005 Investment Analytics .00 $ 100.17 16.26 4.55 2008 63.87 5. we anticipate a consistent gross profit margin of 83% or better.85 16.00 $ 120.00 $ 80.Business Plan 14 .05 7.41 2009 120.16 21.17 38.46 13.17 2008 63. Break Even Analysis 2005 Total Income Variable Costs Fixed Costs Break-even Income $ $ $ $ 3.26 4.85 2007 29.27 12.04 11.46 5.46 (1.00 $ 40.37 9.37 10.10 2009 120.incentives and Miscellaneous).16 21.00 2007 29.60 0.65 4. Break-even Analysis $ 140.27 14.87 5. The analysis shows that achieved sustained in the second year of operations.60 0.04 11.24 Values in Million US$ Break-even Analysis The following chart and the table below (See Table 5) summarize the break-even analysis.00 $ 20.
Our growth strategy will US Market European Market Asian Market initially be focused on selling two licenses during the first year of operations within the US Equity Volatility market (Stage 1). and between six to nine months in the case of research and development of new products. there is a timeframe close to nine months for adapting and modifying the business model to integrate effectively with the new markets and product categories. This process will involve two to three months of research and development on the new markets.BUSINESS OBJECTIVES & GROWTH STRATEGY Our business objectives and goals are based. Investment Analytics will begin incorporating other asset areas into its horizon of products and services. Our goal for our first year is to sell two licenses for the Volatility Arbitrage Program. © 2005 Investment Analytics . In both cases. Equities STAGE 1 2 Licenses STAGE 2 2 Licenses STAGE 2 2 Licenses Currencies STAGE 3 2 Licenses STAGE 3 2 Licenses STAGE 3 2 Licenses From there. The target penetration for each market segment would again be two licenses.Business Plan 15 . Once the expansion to the stated foreign markets has been achieved. and fixed income products (Future Growth Stages). in this first stage of expansion on targeting the list of Financial Services companies detailed in Appendix 5. the to company same plans to transfer and apply its technology Commodities STAGE 4 2 Licenses STAGE 4 2 Licenses STAGE 4 2 Licenses the European and Asian markets (Stage 2). These additional asset categories will include currencies (Stage 3). commodities (Stage 4).
we reasonably estimate having 18 licenses.US Equity Volatility Market STAGE 1 US Equity Volatility Market Research & Development Research & Development Technology Transfer Technology Transfer Equities --US Market Equities US Market 2 Licenses 2 Licenses Implementation Implementation Equities --US Market Equities US Market STAGE 2 --Expansion to European and Asian Markets STAGE 2 Expansion to European and Asian Markets Research & Development Research & Development Equities --Europoean Market Equities Europoean Market Equities --Asian Market Equities Asian Market Technology Transfer Technology Transfer Equities --Europoean Market Equities Europoean Market Equities --Asian Market Equities Asian Market 4 Licenses 4 Licenses Implementation Implementation Equities --Europoean Market Equities Europoean Market Equities --Asian Market Equities Asian Market STAGE 3 --Expansion to New Products (( Currencies )) in 3 Markets STAGE 3 Expansion to New Products Currencies in 3 Markets Research & Development Research & Development Currencies --US Market Currencies US Market Currencies --European/ Asian Markets Currencies European/ Asian Markets Technology Transfer Technology Transfer Currencies --US Market Currencies US Market Currencies --European/ Asian Markets Currencies European/ Asian Markets 6 Licenses 6 Licenses Implementation Implementation Currencies --US Market Currencies US Market Currencies --European/ Asian Markets Currencies European/ Asian Markets STAGE 4 --Expansion to New Products (( Commodities )) in 3 Markets STAGE 4 Expansion to New Products Commodities in 3 Markets Research & Development Research & Development Commodities --US Market Commodities US Market Commodities --European/ Asian Markets Commodities European/ Asian Markets Technology Transfer Technology Transfer Commodities --US Market Commodities US Market Commodities --European/ Asian Markets Commodities European/ Asian Markets 6 Licenses 6 Licenses Implementation Implementation Commodities --US Market Commodities US Market Commodities --European/ Asian Markets Commodities European/ Asian Markets © 2005 Investment Analytics .Research & Development Technology Transfer Implementation New Market 2 to 3 months 3 to 4 months 4 to 5 months New Product 6 to 9 months 3 to 4 months 4 to 5 months After three to four years of operations.Business Plan 16 . Year Year Quarter Quarter 2005 2005 2006 2006 2007 2007 2008 2008 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Equities --US Market Equities US Market STAGE 1 -.
have also witnessed a dramatic increase in investment and often provide access to investment not easily available from traditional stock and bond investment or from traditional alternative investment vehicles such as private equity or private debt. become and will continue to be of increased importance to investment performance. Fundamental company analysis has. private debt. the very fact that hedge funds and managed futures have only recently come into prominence has meant that they have only recently been considered as substitutes for.Business Plan 17 . alternative investments are viewed primarily as private. an increasing portion has been invested in various forms of alternative investment vehicles. such as hedge funds and managed futures. Over the past few weeks and mostly for geopolitical reasons. Aside from declining business investment. For many institutional investors. other traditional alternative investment forms. However. leveraged buyout.S. other alternative investment vehicles. illiquid. private equity. or as additions to. therefore. Unfortunately. The (already lowered) corporate earnings expectations in both the U. Investor confidence has recently been shaken further by more cases of balance sheet manipulation and the first signs of underfunding of corporate pension funds. and timber or farmland. distressed securities. oil and gas programs. © 2005 Investment Analytics . Fundamental economic indicators provide an ambiguous picture.MARKET RESEARCH AND ANALYSIS INDUSTRY OVERVIEW The past decade has witnessed a dramatic increase in institutional investment in both domestic and international investable assets. This is further supported by the continuing weakness of the global economy. and Europe have mostly been met. but the quality of earnings varies markedly. stock markets have continued to decline and in the broad financial markets (especially in stocks and commodities) volatility has remained extremely high. alternative investments including venture capital. While most of this investment remains dedicated to traditional stock and bond assets.
the central banks have pumped huge amounts of liquidity into the financial system.consumer spending in the U. All this points to the diminished economic outlook to continue. there is a growing fear that the next “bond correction” is just a matter of time. Persistently high commodity prices are also pushing up the rate of inflation. the demand for proprietary research ideas being delivered in a timely manner will only increase. and the bond rally has not yet come to an end. Another cause for concern is the strong and rapid depreciation of the US dollar.S. For both competitive and regulatory reasons. INDEPENDENT INVESTMENT RESEARCH Market analysts believe that a convergence of market forces. Wall Street’s admission of conflicts of interest in traditional research has already established the need and demand for credible independent research. As long as uncertainty persists in the financial markets. They see an opportunity in a large market to write and market research reports on © 2005 Investment Analytics . Credit spreads are persisting at very high levels. regulatory changes. Furthermore.S. and Europe has also started to show early signs of weakness. Pending regulatory changes that will effect how institutional investors buy and pay for research will also create major operating changes in the independent research market. and an economic resurgence is creating a tremendous opportunity for independent research services. It appears that the Europeans and Asians have become less willing to continue financing the U. The dollar therefore looks to be headed for continued weakness. An explosion of new firms has jumped on the independent research bandwagon.5 billion dollars on research services every year. The opportunity inherent in the independent research market is substantial. Mutual funds and hedge funds spend over $4. the percentage of that amount being spent on independent research services is increasing rapidly. deficit. interest rates have continued to fall. At the same time. Provided the slow recovering stock market. another indicator of the high degree of global market uncertainty. precious metals will be seen as an attractive investment alternative. Moreover. One reason these bearish investors are citing is that governments on both sides of the Atlantic need to finance a rising budget deficit which will lead to a surplus of government bonds. adding to the increased in likelihood of inflation.Business Plan 18 .
o Alternative Investments encompass a diverse set of asset classes and investment strategies with varying risk/return characteristics. unlike traditional vehicles. or as investment companies under US federal securities laws. therefore hedge funds seek to avoid registration o o In addition to investment flexibility. Enhancing tools such as leverage and derivatives o o Hedge Funds managers seek flexibility A manager’s ability to generate alpha is based on its investment strategy.Business Plan 19 . because they generally only accept financially sophisticated investors like professional fund mangers. etc. MARKET OVERVIEW Alternative Investments Alternative Investments span the spectrum of financial instruments not covered by equities. Use of derivatives. These strategies will often utilize: Leverage. approximately 5. Investment in illiquid securities o Regulations limit the extent to which investment companies can engage in those activities. Of about 9. o Hedge Funds target an absolute return.500 do not have Wall Street analyst research coverage. deposits and the traditional range of collective investment vehicles such as mutual funds. REGULATIONS Hedge funds are currently not required to register with the SEC. which manage to a relative benchmark. o Hedge Funds primarily invest in publicly-traded securities: Stocks/Bonds/Commodities/Currencies.companies that have no research coverage. Short-selling. bonds.200 public companies. exemption provides reduced reporting burden and reduced costs © 2005 Investment Analytics .
which take bets on the relative prices of closely related securities (treasury bills and bonds. and the real exchange rate. o relative value funds. FOHFs have gained market share during bullish periods but their share has fallen disproportionately during two downturns. and client service. To prevent such losses in the future. at least for the next few years. 20 © 2005 Investment Analytics . More advanced FOHFs must also excel at risk management. FOHF growth is likely to remain strong. Through the 1990s. the inflation rate.Business Plan . the number of hedge funds grew 23% from 5. 2004 Annual Hennessee Hedge Fund Manager Survey results indicate that the hedge fund industry grew 34% from $592 billion to $795 billion. FOHFs must deliver value in addition to simply being a conduit for hedge fund investing. but employ bottom-up analysis. o o MARKET SIZE & CHARACTERISTICS o In a strong year for the broad markets. The market has grown at an annualized rate of more than 40 percent over the last fourteen years and more than 30 percent since 1999. portfolio construction. which also take positions worldwide. picking stocks on the basis of individual companies' prospects.700 to 7. o global funds. There are three main classes of hedge funds that can be identified: o macro funds. which take large directional (unhedged) positions in national markets based on top-down analysis of macroeconomic and financial conditions. Despite a larger base and lower expected market appreciation. FOHFs allocate about one-fifth of assets managed by hedge funds. o Sustained growth requires an advanced business model. including the current account. o o o The global fund of hedge funds (FOHFs) market is over $100 billion. o In addition. strong growth is still likely.000 funds. for example).Hedge Funds The hedge fund market is becoming more institutionalized. o Growth was due to manager performance (20%) and new capital inflows (14%).
0 0. Hedge funds are reporting that have the capacity to grow assets by 197% on average from current levels.8% 8.o According to the survey. Fund of funds continue to be the fastest growing source of capital for hedge funds. In 2004. 58% of Hedge Funds are registered with a regulatory agency (NASD. the average hedge fund’s gross exposure (longs plus shorts) was 141%. 48% of hedge funds are registered as RIAs (Registered Investment Advisers). increasing 810% since January 1997 (from $21 billion to $191 billion). On average. expressing concerns over the market’s explosive liquiditydriven performance in 2004.0 1. CFTC).4% 10.6% Return / Risk 2.2004 Annual Return 13. further dispelling the notion that hedge funds are a highly levered asset class. Individuals and family offices continue to represent the largest source of capital for hedge funds. Deviation) Risk 6.9% 8.8 o o o o o o o o o o Hedge Funds Bond Market Stock Market Current Hedge Fund Investing Model Investment Model Direct Only Fund of Funds Only Dual Number of Institutional Investors 40% 35% 25% Percent of Total Institutional Capital in Hedge Funds 40% 30% 30% © 2005 Investment Analytics . comprising 44% of total industry assets.Business Plan 21 . SEC. 1992 . however.6% 14. On average. pensions investing directly in hedge funds have grown 453% since January 1997 (from $13 billion to $72 billion). hedge funds represent less than 2% of the world financial markets.7% (Annual Std. 85% of hedge funds have never exceeded Reg T leverage. hedge funds have the highest short exposure (-50%) since 1999. Furthermore. hedge funds turned their portfolio over 3 times per year. 39% are RIAs only and 9% are RIAs and registered with at least one other regulatory agency. While fund of funds remain the fastest growing source of capital. when it was -55%.
See Appendix for a description of the HFR database. See Appendix for a description of the HFR database. The number of funds has also increased significantly Growth in Number of Hedge Funds (excludes FoHFs) 5000 4000 Number of Funds 3000 2000 1000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Sep02 Source: Hedge Fund Research (HFR).Business Plan 22 . “Industry Report Q3 2002”. “Industry Report Q3 2002”.Primary Impediments to Hedge Fund Investing Impediment Headline risk Returns will come down (and correlation up) as more money enters the market (capacity) Lack of investment process transparency Can’t get comfortable with the fees Too large to put enough capital to work to get the benefits of diversification Hedge Fund AUM have grown substantially % Respondents 34% 31% 14% 12% 9% $600 Growth in Hedge Fund AUM Assets (in $billions) $500 $400 $300 $200 $100 $0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Sep-02 Source: Hedge Fund Research (HFR). © 2005 Investment Analytics .
Business Plan 23 . flexible investment approach Long and short May use leverage Generally not tax efficient for taxable US investors ideal for IRAs and other taxexempt investment vehicles Traditional Investments Relative performance objective Performance driven primarily by asset class allocations and market returns Highly correlated with market indices Registered investment vehicles Investment decisions may be constrained by benchmark Long only Generally no leverage Opportunity for Tax Efficiency Hedge Funds offer diverse risk/ reward benefits P ed ent -ori n atio sific iver D Arbitrage Equity Market Neutral RETURN ted rien e-o nc rma Global Macro erfo Managed Futures Long/Short Equity Multi-Strategy RISK © 2005 Investment Analytics .Differences between Hedge Funds and traditional investments Hedge Funds Absolute performance objective Performance driven primarily by advisor skill Low correlations with market indices Private investment vehicles Opportunistic.
This will increase the availability of hedge fund strategies to the public as investment thresholds fall. total funds would have risen to exceed two trillion dollars – a compound annual growth rate of some 17. o Further work will be done by regulatory authorities regarding the type and level of information made available by hedge funds to funds of hedge funds.Business Plan 24 .MARKET TRENDS & GROWTH Last year in the US a SEC roundtable identified some of the likely trends in the hedge fund industry: o The number of hedge funds. of course.5%. Projections of the current growth of investment in the hedge fund industry have suggested some $2 trillion under management by 2010. Putnam Lovell. the size of their assets and the range of customers will all increase. ‘Rapid growth’ is. a relative concept but among those who have put their heads above the parapet to quantify this development is. Hedge funds have provided above average risk-adjusted returns compared to other asset classes and investment styles Investment Style Risk / Return (January 1999 – June 2004) © 2005 Investment Analytics . and the entrepreneurial management style will continue. o Retailization through registered funds of hedge funds will increase. They forecasted last year that cash under management by hedge fund managers would grow by some 200% from mid-2003 to 2010 and that by 2010.
Business Plan 25 . TASS hedge fund database.Growth in Alternative Investments 1995 – 2005 ($B) 4.143 32% 16% 504 Real Estate 1998 2001 2005(E) 35% 11% 1995 Sources: Venture Economics. Rosen Consulting Group.2001 CAGR 28% 24% 19% 2001 .2005 CAGR (E) 17% 14% 25% Total Credit Structures Hedge Funds* 2. Boston Consulting Group.126 Credit Structures Hedge Funds* Private Equity Real Estate Equity 1995 .232 Private Equity 1. such as: Increased transparency Increased liquidity Lower investment minimums Customized portfolios Risk management and due diligence in funds of funds © 2005 Investment Analytics . CAI analysis CAGR (E) is Compound Annual Growth Rate (Estimated) * Includes Managed Futures Growth in Alternative Investing is being driven by multiple factors: o Alternative investment assets are expected to almost double over the next four years o Increasing Allocations: certain high net-worth clients. Lend Lease Real Estate Investments. institutions and endowments are increasing their allocations to Alternative Investments to as much as 20–40% of assets under management o Portfolio Diversification / Risk-Adjusted Returns: seeks to achieve strong absolute and risk-adjusted performance returns typically with low correlation to traditional asset classes or to each other o Access to Talented Investment Management: many top managers of traditional investments migrating to AI funds of funds provide access to previously unavailable top AI managers o Access to Products: greater access facilitated by development in product structures.
S. Institutional Hedge Fund Capital Institutional Share of Total Hedge Fund Capital Flows Global Net Capital Flows to Hedge Funds © 2005 Investment Analytics .Growth of U.Business Plan 26 .
expectations have come down with rates. o Many individual and institutional investors were let down by managers that were unable to deliver on expectations. Investment Quality is defined as a manager’s ability to consistently meet stated objectives. o o Nearly three quarters have expectations between 6. rather than as a static absolute number. o Many institutions are anticipating a decline in returns as more capital pours into hedge fund strategies. o Many institutions are setting target returns on a risk-free-rate-plus basis. o Investors of all types are now reevaluating their investment managers with a particular focus on quality and dependability. and they are committing significant resources.5 and 9. and energy to identifying Investment Quality. © 2005 Investment Analytics . time. therefore.Business Plan 27 . Many of the newer entrants to hedge fund investing (especially defined benefit plans) prefer to do so through a lower volatility aggregate hedge fund portfolio than was typical among earlier adopters. financial planners and investment consultants are reexamining what makes a good manager.5 percent. o With investors demanding greater levels of investment dependability. o Most institutions are placing a higher premium on hedge fund strategies’ ability to diversify their portfolio—outsized returns are no longer the primary justification for making a hedge fund allocation. o The biggest disappointments were with managers that lost sight of risk in pursuit of outsized returns.MARKET NEEDS The following are the results of a recent survey in which investment consultants and institutional investment managers participated: o Institutions have an average net-of-fee return expectation from hedge funds of about 8 percent. o Market conditions over the past three years have exposed a widening gap between investors’ expectations and investment managers’ ability to meet objectives.
c Investment Banking Large-Market Investment Banking Middle-Market Investment Banking Small-Market Investment Banking 3 3.b Investment Firms Shareholder Services Venture Capital 4 5 Investment Funds Outsourced Financial Products & Services Marketing © 2005 Investment Analytics . 1 1.b 2.a 1.Business Plan 28 .a 2.a 3.TARGET MARKET We segmented different financial institutions according to the following table.c Asset Management Hedge Fund Management Institutional Asset Management Mutual Fund Management Yes Yes Unlikely Yes Yes No No No Possibly No 2 2.b 1. in order to define our target market. A list of these target institutions can be found in Appendix 5.
The need for new and improved strategies continues to be more critical. The entrance of other risk management service providers into this expanding market could increase competition. Rapidly evolving technology requires substantial investment capital in order to remain cutting edge.SWOT ANALYSIS The following SWOT analysis captures the key strengths and weaknesses within the company. The appearance of governmental status and regulations adverse to our business. The challenge to continuously improve techniques and put forth new ideas while maintaining the level of quality that is central to the company’s reputation. Solid reputation and credibility amongst industry peers through partners’ involvement with other successful industry ventures. offering any significant competitive advantage. W – Weaknesses Difficulty in achieving notoriety and in establishing a reputation through consistent performance.Threats A slump in the economy will constrict the flow of money to enhancement services like Investment Analytics’. Combination of skills: Management Team with experience in risk management business and alternative investment industry. O – Opportunities As the majority of hedge funds performed poorly in 2004. and describes the opportunities and threats facing Investment Analytics.Business Plan 29 .Strengths Technologically advanced offering that utilizes proprietary knowledge and techniques to deliver superior capabilities. Unique research insights provide distinctive client services. especially as funds seek to distinguish themselves. The alternative investment industry is rapidly becoming mainstream. most of the players in the alternative investment industry are looking for ways to recalibrate their strategies. T . Robust and effective equity analysis techniques that have demonstrated success and scalability. the need for in-depth risk analysis and support becomes more relevant. © 2005 Investment Analytics . S . Requisite experience and distinguished track records provide significant barriers to entry. With the participation of pension funds.
We anticipate the emergence of substitute products within 2 years after our service is established. Although we face a moderate pressure from existing competitors.COMPETITIVE ENVIRONMENT In order to systematically diagnose the chief competitive pressures in our business landscape. In the case of new entrants. we applied Michael Porter’s Five Forces Model. In fact. we anticipate the emergence of new competitors within two years after our service is established. Porter’s Five Forces Model Threat of New Entrants HIGH We anticipate the emergence of new competitors within 2 years after our service is established Bargaining Power of Suppliers NONE We do not have Suppliers Rivalry Among Existing Competitors MODERATE Bargaining Power of Buyers MODERATE Financial Institutions Threat of Substitute Services HIGH We anticipate the emergence of substitute products within 2 years after our service is established © 2005 Investment Analytics . In the case of substitute products.Business Plan 30 . While the entry barriers to conducting world-class research and services remain low. we feel a high threat because the market might be attracted by substitutes that have comparable or better features and buyers switching costs might be low. we feel there is a high threat of potential new entrants as well as of substitute services. there is nonetheless a sizeable pool of newcomers that can be expect to compete for the attractive profits. we feel that with the increase of investment capital to the industry there will be a correlating increase of businesses trying to serve the community.
it is imperative that they utilize the leading tools.Business Plan 31 . We will conduct selected interviews with investment managers from our target market (See Appendix 5). and from there. Low Correlation with existing hedging strategies As funds look to develop and recalibrate their strategies. technology and expertise available.MARKETING MARKETING STRATEGY Key Message The key message to describe our business is: Investment Analytics is a quantitative investment research firm providing consulting services and investment research products to the international investment management industry. Marketing Pillars The three pillars that support our marketing approach are: 1. expand to new markets and products. © 2005 Investment Analytics . Innovation 2. conduct performance analysis and assess and navigate risk exposure. industry networking and word of mouth. Investment Analytics is in the business of providing precisely these solutions. Marketing Tactics Our marketing and sales tactics are based on referrals. After several demonstrations we expect to sell two licenses to our prospects in our first year of operations. Scalability 3.
there exists a low correlation of existing strategies to that of the mainstream community. followed by an additional location in London that will coincide with expansion to the European market. Investment Analytics will focus on bringing playing a leading role in supplying superior tactics to the marketplace. it is essential for funds to identify themselves by applying strategies that (1) have the capacity to generate substantial returns. As the need for new and improved strategies becomes more critical. the company will seek to harness industry presence and awareness in penetrating the top tier fund management community. Provided the abundance of hedge funds that are largely trying to do the same thing. © 2005 Investment Analytics . As issues of scalability can often thwart potentially successful ideas. The company’s capabilities will be centered on three main activities: · Research & Development – The majority of hedge funds performed poorly in 2004.OPERATIONS Operations for the company will be based initially in the US. · Marketing – To reach these investment managers who are this elite community. Investment Analytics will center its marketing efforts on targeting funds of significant profile. · Management Support – Within the alternative investment industry.Business Plan 32 . Leveraging the well-recognized and applauded experience of the partners. most of the players in the alternative investment industry are looking to recalibrate their strategies. Investment Analytics will look to support investment managers through lending the confidence and keen perception to take the winners forward. and (2) can establish consistently strong performances.
Kinlay has postgraduate qualifications in economics. Mr. FOUNDER AND CHIEF EXECUTIVE OFFICER Mr. Mr. where he traded US and European equities. state-of-the-art bioengineering technologies developed by the research partnership with Daytrends Inc. He continues to teach advanced courses in trading and investment strategy and financial engineering in the US and Europe. are made available by Investment Analytics under license. which provide the basis for the highly successful investment strategies used by Caissa Capital. The models. Kinlay was the founding partner of the hedge fund Caissa Capital and pioneered the use of advanced econometric models in volatility arbitrage strategies. Kinlay has lectured to postgraduate audiences at a number of leading universities including. Cambridge and Reading Universities in the UK. investment strategy. statistics and business administration from the universities of Bristol. © 2005 Investment Analytics . quantitative analysis and risk management. Kinlay has consulted with leading investment funds and financial institutions in Europe and North America for over 20 years in the areas of financial engineering. which offers sophisticated quantitative strategies using proprietary. Mr. Carnegie Mellon University in New York.MANAGEMENT TEAM JONATHAN KINLAY. He is the General Partner of the Proteom Fund. initially with NatWest and Chase Manhattan banks and subsequently as the head of quantitative analytics and proprietary trading in a European hedge fund. and Investment Analytics. Sheffield and London Business School. fixed income and OTC & exchange traded derivatives. and Oxford.Business Plan 33 .
MANAGEMENT COMPENSATION AND OWNERSHIP The founders intend to hold 51% of the company. The remaining 49% will be available to potential investors in exchange for investments.CHRIS ROSEVEAR. Finance Technique 2000 Ltd. He worked in treasury management at Citibank from 1983-1986 before going on to establish his own consulting firm. Rosevear has a Doctorate in Economics from the University of Vienna. Jonathan Kinlay and Chris Rosevear initially worked together from 1983 to 1985 at NatWest and subsequently on various consulting projects over the last 20 years. FOUNDER AND MANAGING PARTNER Chris Rosevear began his professional career as a corporate finance analyst at AG Becker in New York before moving to Natwest in London. © 2005 Investment Analytics .Business Plan 34 . Mr.
the main milestones before launching are shown in the following table. Milestone Fund Raising Starts Money Available First Licensee US First Licensee Europe First Licensee Asia Exit via sale Date June 15th. in order to project tasks. MAIN MILESTONES From our detailed schedule. 2007 March 31st. we will use MS Office Product. 2005 September 23rd.Business Plan 35 . 2007 October 1st. 2005 August 31st. estimate budgets. 2006 October 1st. 2015 © 2005 Investment Analytics . and keep track of the project.OVERALL SCHEDULE PROJECT MANAGEMENT SYSTEM For controlling the overall schedule of the project.
we will be able to uphold our position in the industry. RISKS ASSOCIATED WITH LAUNCHING INVESTMENT ANALYTICS Limited operating history Limited resources Market uncertainties Competitive threats RISKS ASSOCIATED WITH GROWTH Losing touch with customers Loss of clientele to other providers Quality of services diminished New competitors By maintaining our focus on superior product knowledge and outstanding customer service. © 2005 Investment Analytics .Business Plan 36 .RISKS We recognize and understand some risks associated with launching this new company with regards to growth and operations. thereby retaining current clients and attracting new clients.
500.000 2. as well as cash back-up funds to support operations until the company begins to cover its cost structure.001 $ 2.000.500.Business Plan 37 .000 Total Sources of Funds Total Sources of Funds $ $ 2.000 500.000 2.386.001 1. Sources of Funds Sources of Funds Founder's invested capital Founder's invested capital Start-up Funding Equity Start-up Funding Equity Loans Loans 500.500.999 1.113.999 0 0 0 0 1.386. FUNDING REQUIREMENTS The table below summarizes the funding requirements as well as the estimated use of these funds.FUNDING AND USE OF PROCEEDS START-UP COSTS Start-up costs are primarily required to purchase the equipment needed to start developing the operations.000 2.000 0 0 Uses of Funds Uses of Funds Operations & Service providers Operations & Service providers Equipment ((Hard & Software & Data) Equipment Hard & Software & Data) Salaries Salaries Marketing promotion Marketing promotion Emergency back-up funds/cash Emergency back-up funds/cash Total Uses of Funds Total Uses of Funds 0 0 1.000 © 2005 Investment Analytics .000 $ 2.500.000.113.
FINANCIAL SUMMARY PROJECTED CASH FLOW ANALYSIS The Projected Income Statement shows Investment Analytics’ expected performance for the first five years. Free Cash Flow Summary Cashflow from Operations Investing Financing Initial Cash Year End Cash Flow $ $ $ $ $ 2005 (1.52 45. This is evident in the cash flow statement. with a breakeven in the early months of our second year.11) 2. We use Monte Carlo simulations applied to the different strategies available in our Arbitrage Program.34 (0.75 Values in Million US$ We have performed several financial simulations to support this model.06) 18.07) 45. which indicates an annually increasing positive cash position.99 (0.79 2009 58.00 $2005 2006 2007 Years Free Cash-Flow $120.Business Plan 38 .03 (0. Appendices 1 to 4 show pro forma financial Table 6.06) 0.00 $40. $20.00 $100.00 $60.33 (0.52 2008 27.50 0. © 2005 Investment Analytics .00 $80.07) (1.06) 8.25 2007 10.00 2008 2009 projected Cash Flow Statement. Table 6 below shows a summary of the statements.79 103.32 2006 7.32 8.25 18.
Should the exit strategy take the form of a strategic sale/ IPO in primary markets. Many firms who stand to benefit from the efficiencies gained through Investment Analytics’ services would be equally interested in intercepting this valuable offering from going into the hands of competitors. by combining Investment Analytics’ extensive market expertise. It is more likely that existing risk management companies would pursue Investment Analytics for its capabilities. © 2005 Investment Analytics .Business Plan 39 . state-of-the-art technology and risk management capabilities. We anticipate that Investment Analytics will be positioned for a liquidity event in the year 2011. Moreover.EXIT STRATEGY The company anticipates either going public or being acquired by an industry player. the time frame for market exit is approximately 6 years given the current market conditions. firms could circumvent proprietary investments in developing these capabilities.
Business Plan 40 .Target Market Survey – Target Market – Selected Profiles Target Market – List of Funds & Financial Institutions Volatility Arbitrage Program – Financial Projections Volatility Arbitrage Program – Modeling System and Investment Strategy © 2005 Investment Analytics .APPENDICES Appendix 1: Appendix 2: Appendix 3: Appendix 4: Appendix 5: Appendix 6: Appendix 7: Appendix 8: Pro forma Income Statement Pro Forma Cash Flow Statement Pro Forma Balance Sheet 2003.
91 0.00 17.33 7.15 0.80 10.51 5.91 36.58 21.46 $ 11.85 21.35 5.20 0.10 4.32 10.92 120.12 7.22) $ (1.26) $ 38.72 29.05 18.00 2.63 0.32 23.57 $ $ 2.29) $ $ $ 0.31 0.47 0.35 F1000 $ G000 $ 0.02 22.44 11.08 82.65 2.15 10.39 2.27) 82.56 5.60 27.41 $ 14.50 0.08 10.95 $ 3.29) $ (1.16 Consulting and other Services Total C & S $ 0.75 57.73 0.85 98.38 13.05 $ 4.11 4.25) $ 14.08 3.18 0.82 25.32 0.76 0.00 15.Business Plan 41 .87 0.61 1.00 9.51 24.67 $ 38.41 4.27 14.63 5.87 2.37 86.51 82.77 2.07 8.27 2006 2007 2008 2009 0.65 H500 $ Total Mgt Fees $ 1.08 $ 11.18 13.17 (0.11 0.50 0.60 4.APPENDIX 1 – PRO FORMA INCOME STATEMENT 2005 REVENUE Volatility Arbitrage Program Managment Fees( $ M ) E1000 $ F500 $ 0.16 18.33 Total Revenue $ VARIABLE COSTS Marketing Total Variable Costs Gross Margin FIXED COSTS Staff Marketing Service Providers Operations Total Fixed Costs EBITDA Depreciations EBIT Interest EBT 30% Taxes NET EARNINGS $ $ $ $ $ $ $ $ $ $ $ $ 2.46 51.00 8.22 13.76 © 2005 Investment Analytics .09 7.17 38.74 0.27 0.13 2.73 2.76 7.68 0.43 24.38 1.53 16.35 4.43 $ 5.24 (0.23 3.53 1.00 5.70 $ $ 1.41 (0.46 (1.29) (1.54 0.31 4.07 19.21 16.75 4.06 3.92 0.65 0.11 1.85 (0.21 5.81 1.48 1.50 1.26 0.13 7.11 43.37 10.00 Performance Fees E1000 F500 F1000 G000 H500 Total Perf Fees ($M) $ $ 0.25 0.24) $ 11.16 0.04 4.25 3.76 5.51) (0.38 2.73 63.67 11.
00 0.76 0.00 0.27 58.00 0.76 0.06) 0.25 0.00 57.52 0.93 0.00 0.27 18.29) 0.00 0.33 57.00 0.11) (1.06) (0.25 18.00 0.00 0.07) $ $ $ $ (1.00 0.00 (0.06) (0.07 0.00 0.00 0.00 0.27 8.00 0.00 7.07) 0.Business Plan 42 .97 45.00 0.32 8.79 103.03 2006 2007 2008 2009 © 2005 Investment Analytics .22 (1.00 0.06) 0.00 0.00 0.79 0.09 0.50 0.00 0.00 0.11) (0.32 0.APPENDIX 2 – PRO FORMA CASH FLOWS STATEMENT 2005 OPERATIONS Net Income Prepayments Depreciation and others Cashflow from Operations INVESTING Non-Current Assets Property & Equipment Start Up Costs Cashflow from Investing FINANCING New Financing Increase in Short-term Bank Borrowing Increase in Long-term Borrowing Founder's invested capital Sale of Common Stock: Reduction in Financing Repayment of ST Borrowing Repayment of LT Debt Dividends Other Financing Transactions Cash Flow from Financing Net Change in Cash Cash.00 0.06) (0.00 0.00 0.25 10.00 0.00 0. End of Year $ $ $ $ $ $ $ $ $ $ $ $ 0.75 $ $ $ (1.52 45.50 2.00 0.00 (0. Beginning of Year Cash.00 0.00 0.00 0.00 0.00 (0.34 27.24 7.00 0.00 (0.07) 7.00 27.00 2.26 27.99 10.00 10.00 0.00 0.32 0.06) 0.
31 (0.97 8.06 19.88 103.37 (1.89 1.00 0.00 6.54 19.00 18.21 1.13 $ 0.13 1.00 0.07 16.00 0.46) 0.00 57.52 45.71) 0.24 (0.79 103.06 1.11 (0.75 0.88 $ $ $ $ 0.29) 0.63 46.75 2006 2007 2008 2009 © 2005 Investment Analytics .00 7.22) 0.00 103.79 0.18 (0.63 0.76 43.00 45.97 $ 0.24) 0.13 103.00 0.00 10.00 0.00 101.25 0.29) 1.00 0.50 2.56 0.97 1.32 0.00 0.Business Plan 43 .00 0.50 2. Start Ups Less depreciations Total Long Term Assets Total Assets LIABILIES & SHAREHOLDER'S EQUITY LIABILITIES Current Liabilities Accounts Payable Bank Loans Payable Long Term Debt Long Term Debt Total Liabilities SHAREHOLDER'S EQUITY Founder's invested capital Additional paid-in capital Net Earnings Current Retained Earnings (Prev) Less Dividends paid Retained Earnings (Curr) Total Shareholder's Equity Total Liabilities and Shareholder's Equity $ $ $ $ $ $ $ $ 0.97) 0.00 0.00 (1.00 0.00 8.72 8.47 8.00 0.00 43.00 $ $ $ $ 1.50 2.29) (1.00 16.21 1.32 8.09 6.00 0.56 19.00 0.06 $ 0.38 103.25 18.50 2.76 (1.34 46.52 0.47 0.13 46.88 $ $ $ 0.00 0.50 2.00 27.APPENDIX 3 – PRO FORMA BALANCE SHEET 2005 ASSETS Current Assets Cash Pre-payments Total Current Assets Long-Term Assets Long Term Credit Equipment + Amort.00 0.21 $ 0.
APPENDIX 4 – 2003. and investment managers: Participant Organization Type Institutional and Individual Consultant Respondent Assets Under Advisement © 2005 Investment Analytics . INVESTMENT MANAGERS Return Expectations The following are the results of a 2003 survey in which participated 250 plan sponsors. individual financial advisors. INVESTMENT CONSULTANTS.SURVEY – PLAN SPONSORS. INDIVIDUAL FINANCIAL ADVISORS.Business Plan Appendix 4 . investment consultants.
Investment Manager Respondent Assets Under Advisement © 2005 Investment Analytics .Business Plan Appendix 4 .
Business Plan Appendix 4 .© 2005 Investment Analytics .
© 2005 Investment Analytics .Business Plan Appendix 4 .
© 2005 Investment Analytics .Business Plan Appendix 4 .
© 2005 Investment Analytics .Business Plan Appendix 4 .
has taken steps to tie its managers and operations officials tighter to the firm.6661 www.L. L. NY 10022 Katherine Bailon Tel: 212-224-5848 www. with roughly $9. They are currently invested with approximately 60 hedge fund and other managers and manage approximately US $5.APPENDIX 5 – TARGET MARKET – SELECTED PROFILES Financial Services 1.com Free: +1.800. Asset Management Hedge Fund Management AIG Global Investment Group 70 Pine Street New York.com o AIGGIG’s multi-manager strategy strives to generate consistently positive returns with lower volatility and low correlation to traditional equity and bond markets while preserving capital through rigorous risk management. New York firstname.lastname@example.org o Andor Capital Management has been recognized as 2003 Hedge Fund Leader of the Year not only for its stellar performance but also for being out in front of a growing trend to institutionalize its business structure. of which 55% are AIG Companies’ assets. a. The long/short equity specialist. 153 East 53rd St.aiggig.706. Their Hedge Fund Strategies Group provides advice and asset allocation related to hedge fund managers and separate account investments. Last year it launched sector and non-tech hedge funds that served the dual purpose of diversifying its lineup beyond its technology focus and offering some of its analysts the chance to become portfolio managers.andorcap.8 billion assets. o o © 2005 Investment Analytics .Business Plan Appendix 5 .6 billion under management.C. o o Andor Capital Management. 58th Floor New York.
8785 email@example.com. Bear Stearns Asset Management Inc. Asset Alliance and its affiliate managers have approximately $4.bm o o o Bank of Bermuda has net assets of $10.com www. Bank of Bermuda has a family of mutual funds and over $4 billion under management covering the equity. © 2005 Investment Analytics . specializing in alternative investment management . NY 10022 United States Tel: 212. BSAM also administers The Bear Stearns Funds. provides equity and fixed-income investment management services.com o o o Bear Stearns Asset Management (BSAM). Bermuda Tel: 441-295-4000 Fax: 441-295-7093 www. Hamilton HM 11.Asset Alliance Corporation 800 Third Avenue New York. All Points Multi-Manager plc ("APMM"). 383 Madison Ave.Business Plan Appendix 5 .specifically hedge funds and hedge fund products. Bank of Bermuda’s top performing flagship investment vehicle.4 billion and $80 billion in assets under administration.207. a family of about a dozen mutual funds.0 billion of assets under management and sub-advise approximately $12 billion of assets. The firm has more than $30 billion of assets under management.com o Asset Alliance is a multi-faceted investment management firm. o The Bank of Bermuda Limited 6 Front St. Its private equity funds focus on biotechnology and digital media companies. New York. as well as hedge funds. most of it on behalf of corporate clients.207. alternative and cash asset classes. NY 10179 Tel: (212) 272-2000 www.bearstearns.8786 Fax: 212. has surpassed the $1 billion funds under management milestone. bond. a subsidiary of Bear Stearns.
5560 Fax: 212 935 1370 www. and private equity funds of funds BlackRock. life insurance companies. BlackRock's assets under management total $342 billion across various investment strategies. Their risk management and consulting/advisory services combine BlackRock's capital markets expertise with their proprietarily-developed systems and technology.com o o BlackRock® is a premier provider of global investment management.810. 2004.trilon.com o o The Bessemer Group manages more than $40 billion in assets for wealthy individuals and families. New York 10111-0333 Steven Brandfield Brandfield@bessemer. liquidity/cash management. o Brascan Financial Corporation One Liberty Plaza New York. o © 2005 Investment Analytics . Main subsidiary Bessemer Trust administers portfolios with holdings in domestic and international equities and bonds. Inc. Incorporated 630 Fifth Avenue New York. including fixed income. NY 10006 USA Tel: 212. and advisory services.bessemer. New York 10022-5911 Tel: 212.The Bessemer Group. financial institutions. their clients include pension funds.blackrock. They invest in industry sectors in which they are able to realize superior risk-adjusted returns by leveraging the industry and operational expertise of Brascan and capitalizing on the synergies across their various funds.417-7195 Fax: 212-417-7000 www. as well as such alternative assets as hedge funds. 40 East 52nd Street New York. real estate.ca o Brascan Asset Management is a leading North American asset manager focused primarily on alternative investments. With $7 billion of assets under management. risk management.Business Plan Appendix 5 .com Tel: (212) 708-9118 www. As of December 31. equity. corporations and high net-worth individuals. and alternatives.
o Clinton Group. Chicago. IL 60603 Tel: 312-395-2100 Fax: 312-977-0270 www.825.3 billion of assets under management in its hedge funds and $4. labour-sponsored funds of $175 million and structured products and closed-end funds of $1. is the world's No. 131 S. and Assante Wealth Management of $45. 26th Floor New York. which has some $10 billion in assets under management.0079 firstname.lastname@example.org o Citadel.7 billion in assets at Assante and IQON Financial Management Inc.clinton.1 billion Total fee-earning assets consisted of managed assets of $47.cifunds. It recently announced plans to make markets in equity options on the Pacific Exchange (PCX). NY 10019 Tel: 212. ("CI") reported that at January 31 2005.5 billion at BPI Global Asset Management LLP and $15. 14 hedge fund group.com o o CI Fund Management Inc.CI Fund Management Inc. Dearborn St.825. had fee-earning assets of $68. 212..9 billion. has expanded its derivatives operations.com www. 151 Yonge Street. ON M5C 2W7 Tel: 416-364-1145 Free: 1-800-268-9374 Fax: 416-364-6299 www. 9 West 57 St.Business Plan Appendix 5 .1 billion.citadelgroup.C.2 billion and administered/other assets of $20. Managed assets included investment fund assets at CI Mutual Funds Inc. 11th Floor Toronto.9 billion. © 2005 Investment Analytics . which has $5. Inc.com o Clinton Group. Administered/other assets included institutional assets of $4. net of assets under management at Assante.L. L.0400 Fax. the Boston Options Exchange and the Chicago Board Options Exchange. o Citadel Investment Group.1 billion in collateralized bond obligations. Citadel also makes markets on the International Securities Exchange. according to rankings by Institutional Investor magazine.
NY.1 billion in assets under management o o Credit Suisse Asset Management 466 Lexington Ave. CA 90404 Tel: (310) 576-3500 Fax: (310) 576-3512 info@coastasset. Coast Asset Management has over $3.elliottmgmt.Coast Asset Management.com o Coast Asset Management. and credit-spread strategies in administering its funds. providing investment products and portfolio advice in three regions (Americas. 10017. mutual fund and private client investors. Credit Suisse Asset Management has global assets under management of USD 341 billion and employs 1.P. a leading global investment bank serving institutional. New York. o o o Elliott Management Corporation 712 Fifth Ave.com www. Credit Suisse Asset Management is part of Credit Suisse First Boston (CSFB). employing fixed-income arbitrage. balanced products and alternative investments. government and individual clients.885 people worldwide. The company focuses on fixed-income investments. including equities. such as sovereign debt of G-7 nations and collateralized debt obligations. multimanager portfolio management. L. uses market-neutral investment strategies to try to make money for institutional clients and wealthy individuals (and itself) in any economic climate.csam. New York. Suite 100 East Tower Santa Monica.com o Credit Suisse Asset Management (CSAM) is a leading global asset manager focusing on institutional. Asia Pacific and Europe) around the world.coastasset. one of the top hedge fund administrators in the US. CSAM has investment capabilities in all major asset classes. with nearly $4 billion in assets under management © 2005 Investment Analytics .com o Elliott Management Corporation is a leading multi-strategy hedge fund based in New York City.Business Plan Appendix 5 . corporate. NY 10019 Tel: 212-974-6000 Fax: 212-586-9431 www. USA Tel: +1 212 875 3500 Free: 877 272 6872 Fax: +1 646 658 0728 www. fixed income. 2450 Colorado Avenue.
Highland Capital Management. for direct property as well as property securities funds.Business Plan Appendix 5 . o o © 2005 Investment Analytics . NM 87109 Tel: 505-828-2824 Fax: 505-828-2825 www. 5600 Wyoming Blvd. Ste.hanseaticgroup. and oversees investment portfolios for institutional clients and high-net worth individuals. Inc. NY 10167 Phone: 212 792 4382 Fax: 212 792 4322 email@example.com o o Founded in 1993.com o Henderson has been managing property assets for more than four decades and has over £6. 220 Albuquerque. specializing in credit and alternative investment investing.P. L.com o Hanseatic Group employs an investment philosophy based on nonlinear systems. Highland is a market leading Registered Investment Advisor. o o Henderson Global Investors Limited Olympia Centre 737 North Michigan Avenue Suite 1950 Chicago IL60611 USA Tel: +1 312 397 1122 Fax: + 1 312 397 1494 www. 245 Park Avenue 39th Floor New York. Hanseatic Group also invests in domestic and international equities. It has some $250 million of assets under management. o Over $9 billion in leveraged loans o Over $1 billion in high yield bonds Highland is one of the largest managers of leveraged loans and collateralized loan obligations in the world. NE.Hanseatic Group. Over $11 billion in assets under management. using algorithms similar to those applied to ecology and quantum mechanics to detect patterns in market activity. trades managed futures. Over $200MM of firm capital invested in its funds.7 billion)* of property assets under management globally in the form of segregated mandates.5 billion (€9. both balanced and sector specialist.hcmlp. pooled funds.com www.
PA 15258-0001 (Map) Phone: 412-234-5000 Fax: 412-234-9495 Mike Dunn . Man Group plc MCAP Inc.ca o o Integrated Asset Management Corp. with some $115 billion in assets under management.maninvestments.Business Plan Appendix 5 .com o J.mellon.Manager. custody and benefits consulting services © 2005 Investment Analytics . is a leading Canadian management company headquartered in Toronto The firm has assets under management of over $2. Stephen Johnson Chief Financial Officer Tel: (416) 933-8278 sjohnson@iamgroup. Baer.iamgroup. operates in many of the world's financial centers.Integrated Asset Management Corp. Switzerland Tel: 41-1-58-888-1111 Fax: +41-1-58-888-5517 www. 123 North Wacker Drive Suite 2800 Chicago IL 60606 USA Tel: +1 312 881 6800 Fax: +1 312 881 6700 www.com o o Mellon Financial Corporation (NYSE: MEL) has $500 billion in assets under management Mellon is one of the world's leading providers of asset management. Bahnhofstrasse 36 CH-8010 Zurich. alternative asset Julius Baer Holding Ltd. Media Relations 212 922-7859 www. trust.6 billion.com o o Man Group plc is a leading global provider of alternative investment products and solutions as well as one of the world’s largest futures brokers Man Group has funds under management of $41 billion Mellon Financial Corporation 1 Mellon Center Pittsburgh.juliusbaer.ca www.
Inc.mlim.4400 www. Inc. 35th Floor New York. and $267 million in revenue.mesirowfinancial. 153 East 53rd St. NJ 08543-9011 Tel: 1-800-MERRILL mlim_feedback@ml. IL 60610 Phone: 312-595-6000 Tel: 312-595-4246 Toll Free: 1-800-453-0600 www. Box 9011 Princeton. 333 West Wacker Drive Chicago. The firm is well-capitalized with over $136 million in capital.pequotcap.O. 312-917-6801 www.ml.com o o Nuveen Investments has more than $109 billion in assets under management It has $3 billion in alternative investments Pequot Capital Management. is a private investment firm with approximately $7 billion of assets under management © 2005 Investment Analytics . $20 billion in advisory or managed assets. Nuveen Investments. Inc. Mesirow Financial Holdings. 350 North Clark Street Chicago.com o o Mesirow Financial is a diversified financial services firm headquartered in Chicago.702.Merrill Lynch Investment Managers P. making them one of the world's largest active money managers. IL 60606 Peggy Wilson. NY 10022 Tel: 212. Inc.Business Plan Appendix 5 ..com o Pequot Capital Management.com www.nuveen.com o o Merrill Lynch Investment Managers is a leader in the financial services field It has $496 billion in assets under management.
000 direct investments to multimillion dollar managed accounts Schroders plc 31 Gresham Street London EC2V 7QA Tel: +44 (0) 207 658 6000 www.com o Schroders is one of the world’s leading independent investment managers with assets under management of approximately £100 billion including an active investment trust business in the UK Soros Fund Management LLC 888 Seventh Ave. NY 10106 Tel: 212 262 6300 Fax 212 245 5154 Soros Fund Management management LLC has approximately $15 billion in assets under o Tremont Capital Management. whose business lines include research and investment Appendix 5 © 2005 Investment Analytics . Inc.499.75 billion in assets under management Schonfeld Securities.tremontadvisers.2973 ldonenberg@BAM-US. 312.RAB Capital PLC Michael Alen-Buckley 207 389 7001 www. 33rd Fl.schonfeldsecurities.schroders. is one of the leading global alternative investment management firms. 555 Theodore Fremd Avenue Suite C-300 Rye. New York.com o o Schonfeld Capital Group holds a diversified portfolio of investments in a variety of hedge funds employing a wide range of trading strategies. Inc. LLC Lance Donenberg.com o RAB Capital plc has approximately $1. NY 10580 Telephone (914) 925-1140 (914) 921-3499 Inquiries@tremont..com o Tremont Capital Management.com www.Business Plan .rabcap. Investments range from $500.com www.
o management services.com William Comfort.countrywide. 399 Park Ave. and database sales and information services. Fund Services. including more than $1billion in its proprietary funds.Business Plan Appendix 5 .com o o Countrywide Financial Corporation is a member of the S&P 500 and Fortune 500 Countrywide Financial Group has $120. New York. Institutional Asset Management American Express Financial Corporation 50606 AXP Financial Center. CA 91302-1613 Tel: 818-225-3000 Fax 818-225-4051 www. MN 55474 Phone: 612-671-2711 Toll Free: 800-386-2042 www. Tremont advises on approximately $9 billion in alternative investment assets. Citigroup Venture Capital o o Citigroup Inc has $7.americanexpress.2 billion in assets under management and serves some 13 million customers © 2005 Investment Analytics . b. one of the world’s key hubs for offshore hedge funds. hold nearly half of the $232 billon in assets under management at the company Citigroup Inc. Countrywide Financial Corporation 4500 Park Granada Calabasas. was recognized as best in class for Mutual Fund Administration and Hedge Fund Administration in Bermuda.9 trillion in assets under custody and trust. sale and distribution of its proprietary investment products. Citigroup’s new product line.citigroup. H27/52 Minneapolis.com o American Express' mutual funds. NY 10043 Tel: 212-559-1000 Fax 212-793-3946 Toll Free: 800-285-3000 www.
merrilllynch. MA 02109 Phone: 617-563-7000 Fax: 617-476-6150 www. Merrill Lynch & Co.metlife.com o o J.P. with offices in 36 countries and total client assets of approximately $1. J. have grown into one of the largest and most successful fund management organizations in the world.fidelity. hedge funds.com o o MetLife is one of the US’s largest insurers. New York. NY 10017 Phone: 212-270-6000 Fax: 212-270-2613 800-576-6209 www..FMR Corp. Inc.Business Plan Appendix 5 . Morgan Private Bank's offerings include asset management. Morgan Chase & Co. Inc. 270 Park Ave. Morgan Chase (the #2 bank in the US) is one of the largest private banks in the world. Boston.com o Together Fidelity Management and Research Company and Fidelity International Limited. as well as advice on tax and estate planning and philanthropy.6 trillion MetLife. and more) through its Asset Management segment. managing US$1. with more than $270 billion in client assets under management. 82 Devonshire St. private equity investment. © 2005 Investment Analytics . mutual funds. NY 10080 Tel: 212-449-1000 Fax 212-449-7357 Toll Free: 800-637-7455 www. and custody and transaction services. 200 Park Ave. 4 World Financial Center New York. J.P. lines of credit. NY 10166 Tel: 212-578-2211 Fax 212-578-3320 Toll Free: 800-638-5433 www.P.2 trillion in assets. New York.jpmorganchase.com o Merrill Lynch is one of the world’s leading financial management and advisory companies. Besides its insurance products the company also provides institutional investment management products (retirement plans.
OH 45202 Phone: 800.com o o Western & Southern Financial Group is a FORTUNE 500 company ranked eighth among mutual life and health insurance companies in the country.wellsfargo. the Morgan Stanley Alternative Investments team manages portfolios which offer institutional investors access to the alternatives marketplace through two primary approaches: fund of hedge funds portfolios and fund of private equity funds portfolios Manages $424 billion in assets for our clients globally Offers over 50 globally-diversified investment products o o Wells Fargo & Company 420 Montgomery St.com o Wells Fargo has $428 billion in assets Western & Southern Financial Group 400 East Fourth Street Cincinnati.com o With over 17 years of experience in managing alternative investments.936. NY 10036 Tel: 212-761-4000 Fax 212-762-0575 www. San Francisco.morganstanley.629. CA 94163 Phone: 800-869-3557 Fax: 415-677-9075 Toll Free: 800-333-0343 www.Morgan Stanley Investment Management 1585 Broadway New York. It has in excess of $32 billion in assets owned and under management © 2005 Investment Analytics .1220 www.Business Plan Appendix 5 .westernsouthern.1212 Fax: 513.
com o AmSouth Asset Management.amsouthfunds. $8. Investment Banking Large-Market Investment Banking AmSouth Bancorporation PO Box 628327 Orlando. corporate and institutional clients around the world new and better ways to manage their financial lives. Inc. serves as investment advisor to the AmSouth Funds and is paid a fee for their services.bankofamerica. FL 32862-8327 1-800-581-7998 www.2. and approximately $6 billion in leveraged investments and CDOs. Credit Suisse First Boston LLC Eleven Madison Avenue Tel: 1 212 325 2000 www.com www. a.Business Plan Appendix 5 .847. provides individuals. ("AAMI").com o Bank of America Capital Management. small businesses and commercial. Financial Institutions Finance 1. the Group manages over $34 billion in assets © 2005 Investment Analytics .212.hershberger@bankofamerica. AmSouth Bancorporation has $20 billion in assets under management o Bank of America Securities LLC 100 North Tryon Street Mail Code NC1-007-18-01 Charlotte. NC 28255 Jeff Hershberger.com o With more than $19 billion of private equity assets. a wholly owned subsidiary of AmSouth Bank.5 billion in fund of hedge funds.6160 jeff. with more than $275 billion in assets under management. as well as other alternative investments.csfb.
nomura.com o Deutsche Bank Alex.Business Plan Appendix 5 . Lowry. the investment banking and securities arm of Deutsche Bank AG in the United States. Private Client Services division of Deutsche Bank Securities Inc. trading and research. 21202 Phone: (410) 727-1700 Fax: 410-895-5151 www. It has more than $150 billion in assets under management o Nomura Holdings.com o o Goldman Sachs is a leading global investment banking.db.alexbrown.com o Founded in 1850. securities and investment management firm. (NHA). It has more than €849 billion in assets under management. NY 10004 USA Melina Higgins 1-212-902-1254 www. Nomura Securities International has more than $7. 85 Broad Street New York. is represented in The Americas by Nomura Holding America Inc. Brown is the U. NY 10019 212-526-7000 www.7 billion in assets under management © 2005 Investment Analytics . Inc. Building B New York. Managing Director (212) 667-9557 mlowry@us. o The Goldman Sachs Group.Deutsche Bank Alex. Lehman Brothers maintains leadership positions in equity and fixed income sales. Md. asset management and private equity. 745 Seventh Ave. New York. Brown Incorporated 1 South Street Baltimore.lehman. investment banking.S. It has more than $400 billion in assets under management Lehman Brothers Inc..gs.nomura.com www. 2 World Financial Center. private investment management. Inc. NY 10281-1198 Phone: (212) 667-9300 Fax: (212) 667-1001 Michael H.com o o The Nomura Group. one of the largest global investment banking and securities firms.
investment banking.com www. and merchant banking to clients in key financial markets in North America and around the world.com o o Société Générale is one of the largest financial services groups in the euro-zone It has more than $300 billion in assets under management U.adamsharkness. Bancorp Center. is the 6th largest financial services holding company in the United States.cibcwm.com o CIBC World Markets is the wholesale banking arm of CIBC.Business Plan Appendix 5 . United Kingdom Tel: +44 20 7597 3000 Fax: +44 20 7597 3056 london@sghambros. The firm has $63 billion in assets under management. Bancorp U. with assets under management of $195 billion. Boston.com o U. New York USA 10017 Tel: 212-856-4000 www.S. MN 55402 Phone: 612-303-3381 Toll Free: 800-754-7221 am. o © 2005 Investment Analytics . a division of Adams Harkness Asset Management. Middle-Market Investment Banking Adams Harkness. 300 Madison Avenue New York. providing a range of integrated credit and capital markets products. Bancorp.Société Générale SG House.com o Winslow.S. It has $210 million in assets under management o CIBC World Markets Inc. b. is a growth-oriented asset manager seeking above-average performance and capital appreciation for its investors through environmentally responsible investing. MA 02110 Phone: 617-371-3900 Fax: 617-371-3793 800-225-6201 www.sghambros.S. 99 High St. 800 Nicollet Mall Minneapolis.usbancorp. Inc. 41 Tower Hill London EC3N 4SG.
The firm has $32 billion in assets under management o o Jefferies Group.harrisbank. governments and individuals . Inc. IL 60603 Phone: 312-461-2000 Fax: 312-461-7869 www.. investing and financial management solutions Harrisdirect provides direct investors with an award-winning trading platform.lazard.Business Plan Appendix 5 . New York.5 million personal. is now one of the largest financial services firms in the United States. The company has $3 billion in assets under management Lazard LLC 121 Boulevard Haussmann 75382 Paris Cedex 08. high-powered planning tools and access to eight leading sources of research.rjf. NY 10022 Phone: 212-284-2300 Fax: 203-708-5922 www. Inc.com o o Founded in 1962. The firm has $82 billion in assets under management. business. The firm has $22 billion in assets under management © 2005 Investment Analytics . o Raymond James Financial. Inc. France Tel: +33-1-4413-01-11 Fax +33-1-4413-01-00 www. 12th Fl. partnerships. lending.com o Lazard is a pre-eminent global investment bank committed to helping its clients corporations. FL 33716 Phone: 727-567-1000 Toll Free: 800-248-8863 www. Raymond James Financial. Petersburg. with 2. 520 Madison Ave. Monroe St. has served middlemarket and growth companies and their investors for over 40 years. a broad range of investment options.com o o Jefferies.achieve their strategic and financial goals. 880 Carillon Pkwy. institutions.Harris Bankcorp.200 locations worldwide. St. Inc.jefco. a global investment bank and institutional securities firm.com o Harris is an integrated financial service organization providing more than 1. corporate and institutional clients with banking. Chicago. 111 W.
is one of Canada’s largest full-service securities firms It has $117 billion in assets under management UBS Financial Services Inc.com o o Webster Financial Corporation is the holding company for Webster Bank and Webster Insurance The firm has 12 billion in assets under management © 2005 Investment Analytics .com o o UBS AG is a leading global financial services firm serving a diverse client base that includes affluent individuals.websterbank.. communications and information industries. NY 10019 Phone: 212-713-2000 Fax: 212-713-9818 financialservicesinc.ubs.com www. 6th St.RBC Dain Rauscher Inc. NY 10022 212-935-4990 telephone 212-381-8168 fax James P. NYSE). It has approximately $434 billion in assets under management worldwide Veronis Suhler Stevenson Partners LLC 350 Park Avenue New York. institutions and governments. MN 55402-4422 Phone: 612-371-2711 Fax: 612-371-7619 Toll Free: 800-678-3246 www. has managed four equity funds exclusively dedicated to investments in the media. Dain Rauscher Plaza. corporations. VSS Fund Management LLC. CT 06702 Phone: 203-578-2476 Fax: 203-573-8688 Toll Free: 800-325-2424 www. It has more than $4 billion in assets under management o Webster Financial Corporation Webster Plaza Waterbury. 1285 Avenue of the Americas New York.vss.rbcdain.Business Plan Appendix 5 . Rutherfurd RutherfurdJ@vss. 60 S.com o Since 1987. a wholly owned subsidiary of Royal Bank of Canada (RY: TSX. Minneapolis.com o o RBC Dain Rauscher Inc. Veronis Suhler Stevenson's private equity affiliate.
Henderson Global Investors Limited Highland Capital Management. Credit Suisse Asset Management Elliott Management Corporation Greenlight Capital. International Assets Holding Corporation J. Coast Asset Management. Pequot Capital Management. Ardsley Partners Asset Alliance Corporation Avenue Financial Corporation The Bank of Bermuda Limited Bear Stearns Asset Management Inc. Inc.P. Inc. JWM Partners. Altin AG Andor Capital Management.P.C.L. Incorporated CI Fund Management Inc. Incorporated BlackRock. Asset Management Hedge Fund Management AIG Global Investment Group Alexander Securities Group L.P. L. Bowman Capital Management. Nuveen Investments. Inc. L. Hanseatic Group. Citadel Investment Group. Inc.P. L. L.L. Mellon Financial Corporation Merrill Lynch Investment Managers Mesirow Financial Holdings. Inc. LLC Knightsbridge Advisers Incorporated Liberty Group Limited Man Group plc MCAP Inc. Integrated Asset Management Corp.L. The Bessemer Group. Allianz Global Investors of America L. Morgan Private Bank Julius Baer Holding Ltd. a.Business Plan Appendix 6 .APPENDIX 6 – TARGET MARKET – FUNDS & FINANCIAL INSTITUTIONS Financial Services 1. LLC Brascan Financial Corporation Cargill. Inc.C. Clinton Group.C. © 2005 Investment Analytics . Inc.
Inc.P. Inc. Inc. Inc. UBS Investment Bank Verus Investment Management. LLC AXA Rosenberg Group LLC The Bank of New York Company. Incorporated BKF Capital Group. Columbia Management Group. CI Fund Management Inc. L. Institutional Asset Management A&W Revenue Royalties Income Fund AEGON USA Investment Management LLC Affiliated Managers Group. Caywood-Scholl Capital Management LLC Chandler Asset Management. Clinton Group. Barclays Global Investors.P. Inc. Comerica Incorporated © 2005 Investment Analytics . Citigroup Inc. Bear Stearns Asset Management Inc. Bleichroeder Advisers. Allianz Global Investors of America L. The Bessemer Group.A.Business Plan Appendix 6 . Asset Alliance Corporation Atalanta Sosnoff Capital.RAB Capital PLC Schonfeld Securities. BOK Financial Corporation Brascan Financial Corporation Brewin Dolphin Holdings PLC Calamos Asset Management. AmeriServ Financial. Inc. Close Brothers Group plc CoBiz Inc. AIG Global Investment Group A I M Management Group Inc. LLC Schroders plc Soros Fund Management LLC Tremont Capital Management. Inc. Cohen & Steers. American Century Companies. Inc. N. Inc. Inc. Inc. Blaylock & Partners. AmSouth Bancorporation AMVESCAP PLC Arnhold and S. Inc. LLC b. Alliance Capital Management L.P. American Express Financial Corporation Amerindo Investment Advisors Inc.
Dimensional Fund Advisors. Inc. Jones Lang LaSalle Incorporated J. Legg Mason. LLP Massachusetts Financial Services Company MCF Corporation © 2005 Investment Analytics . Duncan-Hurst Capital Management Inc.Business Plan Appendix 6 . ING Americas Integrated Asset Management plc International Assets Holding Corporation Intrepid Capital Corporation John Hancock Financial Services. Bruyette & Woods.P. Harris Bankcorp.P. Morgan Fleming Asset Management Kayne Anderson Rudnick Investment Management. Dundee Bancorp Inc. Inc. LLC Man Group plc Martin Capital Advisors. Dundee Wealth Management Inc. E. Hokanson Capital Management. Inc. J. Öhman J:or Fondkommission AB Eaton Vance Corp. Inc. Inc. Liontrust Asset Management PLC LM Capital Group.Conning Corporation Countrywide Financial Corporation Credit Suisse Asset Management Credit Suisse First Boston LLC Credit Suisse Group Davis Selected Advisors. Froley. Inc. Keefe. EnTrust Capital Inc. First Quadrant L. L.P. Inc. Mitchell & Co.. Inc. Inc. LLC KBC Peel Hunt Ltd. Detwiler.P. FMR Corp. Inc. Kirlin Holding Corp. LLC The Evolution Group Plc Federated Investors. Revy Investment Company. Morgan Chase & Co. Inc. Evergreen Investment Management Company. Diamond Hill Investment Group. Gerrard Limited Gleacher Partners LLC Hanseatic Group. Callaghan & Co. Frank Russell Company Fred Alger Management. Inc. Henderson Global Investors Limited Hirtle.
. Inc. Inc. LLC RS Investment Management. Newton Investment Management Ltd. MetLife. Inc. Montanaro Investment Managers Limited Morgan Stanley Morgan Stanley Investment Management New York Community Bancorp. NFJ Investment Group Nicholas-Applegate Capital Management Northern Trust Corporation Nuveen Investments. Inc. Co. Rice Hall James & Associates LLC Roxbury Capital Management. Ltd. Limited The TCW Group. Metropolitan West Asset Management. NWQ Investment Management Company. Old Mutual plc Old Mutual (US) Holdings. PSEG Resources Inc. Ltd. Inc. Inc. LLC Minnesota Mutual Companies. St. LLC PSEG Energy Holdings L. Progress Investment Management Company Provident Investment Counsel. Inc. Ltd.L.College Retirement Equities Fund Trainer Wortham & Company. Teachers Insurance and Annuity Association . Inc. LLC Silicon Valley Bancshares Singer & Friedlander Group PLC Sinopia Asset Management Southwest Bancorporation of Texas. ltd. Standard Chartered PLC State Street Corporation The Sumitomo Trust and Banking Company.C.George Bank Limited The Sanlam Group Schroders plc Seneca Capital Management. Inc. © 2005 Investment Analytics . Inc. Pacific Mutual Holding Company Phoenix Investment Partners. Inc. LLC Oak Associates. Pioneer Investment Management USA Inc.Business Plan Appendix 6 . Messner & Smith Investment Management. Sage Advisory Services. Merrill Lynch Investment Managers Mesirow Financial Holdings. Inc.Mellon Capital Management Corporation Mellon Financial Corporation Merrill Lynch & Co. Prudential Investment Management.
S. Merrill Lynch Europe PLC Morgan Stanley Nomura Holdings. Merrill Lynch & Co. Deutsche Bank Alex. W. 2.K.P. Stewart & Co. Morgan Chase & Co. Inc. J. Bancorp U. Lehman Brothers U. LLP Wells Capital Management Wells Fargo & Company Western & Southern Financial Group Westwood Holdings Group. Trust Corporation Waddell & Reed Financial. Nomura International PLC Société Générale UBS Investment Bank U. Inc.Business Plan Appendix 6 . Inc. UBS Investment Bank UnionBanCal Corporation U. Webster Financial Corporation Wellington Management Company. UBS AG UBS Financial Services Inc. U. Ltd.S.P. J. Bancorp © 2005 Investment Analytics .K. Morgan Securities Inc. Goldman Sachs Group Holdings (U. Holdings Ltd. Inc. Inc. a. Credit Suisse First Boston LLC Credit Suisse First Boston (USA). Citigroup Global Markets Europe Limited Citigroup Global Markets Holdings Inc. Inc.S. Lehman Brothers Inc..P. Inc.) The Goldman Sachs Group.S. Brown Incorporated Deutsche Bank Securities Inc. Inc. Citigroup Inc. Investment Banking Large-Market Investment Banking AmSouth Bancorporation Banc of America Securities LLC The Bear Stearns Companies Inc.Tremont Capital Management. Bancorp Asset Management. Lehman Brothers Holdings Inc.
Ramsey Group. De La Rosa & Co. Fox-Pitt. Galen Capital Group. L. Advanced Equities Financial Corp. Inc. Inc.. Citigroup Geneva Capital Strategies Inc. Inc. Barclays Capital Inc. Cohen & Steers. Gibbons. Daiwa Securities Group Inc. AdMedia Partners. © 2005 Investment Analytics . LLC Gleacher Partners LLC Granite Financial Group. Inc. Bayview Capital Group Benefit Capital Companies Berkery. Inc. Arbuthnot Securities Limited Arnhold and S. Burrill & Company Calyon Securities (USA) Inc. E. Allen & Company. Billings. Towbin Charles Stanley Group plc CIBC World Markets Inc. Inc. Crown Financial Group. Inc. L. LLC Cazenove Group plc C. The Advest Group. The CapStreet Group. Bleichroeder Advisers. Unterberg. DeSilva & Phillips. The Evolution Group Plc Evolution Securities Ltd. Inc. British Linen Advisers Limited Broadview International Brown.P. LLC Detwiler. Mitchell & Co. Cantor Fitzgerald. Kelton Inc. Lang & Company. Friedman. First Albany Companies Inc.P. Banc of America Investment Services. BankAtlantic Bancorp. Noyes & Co. Inc. Inc. DN Partners Dresdner Kleinwort Wasserstein Durlacher Corporation PLC EarlyBirdCapital Inc. Middle-Market Investment Banking Adams Harkness. Baker Watts Incorporated Firebrand Financial Group. Ferris. Inc.b. J. Inc. Inc.Business Plan Appendix 6 .E.
LLC Kirlin Holding Corp. Robert W. Harris Bankcorp. Inc. Inc. Numis Corporation Plc Odyssey Investment Partners. Lazard LLC Leerink Swann & Company. Inc. Baird & Co. Ltd. Levey & Co.A. Lightyear Capital Inc. Moss Adams LLP MTS Health Partners. Raymond James Financial. Kinsman Capital. RBC Dain Rauscher Inc. Inc. MCF Corporation MEDIOBANCA . Parker/Hunter Incorporated Paulson Capital Corp. N M Rothschild & Sons Limited Nomura Securities International. L. Harris Williams & Co.p. Ltd. Roth Capital Partners. Inc. Hill Street Capital LLC Houlihan Lokey Howard & Zukin Janney Montgomery Scott LLC Jefferies Group. Edmiston Group.P. L. LP Monitor Company Group.. © 2005 Investment Analytics . Lincoln Partners McDonald Investments. Sandler O'Neill & Partners.Banca di Credito Finanziario S. L. Inc. The Jordan.Business Plan Appendix 6 .P.L. RBC Dominion Securities Inc. Bruyette & Woods. Gruppo. Inc. Ladenburg Thalmann Financial Services Inc.P. Inc.Green Manning & Bunch. The Jones Financial Companies. LLC Oppenheimer Holdings Inc.. MFC Bancorp Ltd. Gulf Capital Partners. Greenhill & Co. Katalyst LLC Keefe. Inc. Sands Brothers & Co. Inc. LP Morgan Joseph & Co. LLC Ryan Beck & Co. MHT Partners. Inc.L. Incorporated Rodman & Renshaw Inc. Piper Jaffray Companies Pointe Financial Corporation Putnam Lovell NBF Group Inc. Inc.
Inc.. Crips.L.Sanford C. Inc. TD Securities Inc. WR Hambrecht + Co. Teather & Greenwood Holdings PLC THCG. The Ziegler Companies. Inc. LLC SVB Alliant SWS Group. © 2005 Investment Analytics . Sterling Financial Investment Group. Inc. Veronis Suhler Stevenson Partners LLC Vontobel Holding AG Walker. L..C. LLC Scott & Stringfellow. Inc.Business Plan Appendix 6 . Webster Financial Corporation Wedbush Morgan Securities Westchester Associates. Inc. Bernstein & Co. Stephens Inc. LLC William Blair & Company. Weddle. Beck plc Waterous & Co. Stonebridge Associates. LLC UBS Financial Services Inc. Secured Capital LLC SG Cowen & Co. LLC Shore Capital Group plc Société Générale Sonnenblick-Goldman Company Stephens Group. Thomas Weisel Partners LLC Trenwith Group.
Shorenstein Company LLC © 2005 Investment Analytics . L. Bonavista Energy Trust Brascan Financial Corporation CLX Investment Company. Inc. Littlejohn & Co. LLC M&G Securities Ltd.3.M. Augen Capital Corp. Inc. Home Equity Income Trust ING Canada Inc. Allied Solutions. DIAMONDS Trust. LLC Argosy Investment Partners LP Asset Value Investors Ltd. Bank Hapoalim B. Ecclesiastical Insurance Group Fidelity Capital Investors Finance Wales plc First Reserve Corporation HHG PLC Highland Capital Management. Coastal Income Corp. Innergex Power Income Fund Kohlberg Kravis Roberts & Co. Collective Assets Trust plc Credit Suisse First Boston LLC Diamond Hill Investment Group. Pacific Retail Group Limited Petroleum & Resources Corporation Phoenix Equity Partners Holdings LLP Sarasin Investment Management Ltd. Series 1 Newcastle Building Society Limited Noble Fund Managers Limited Noble Group Limited Odyssey Investment Partners. LLC Overlord Financial Inc. LLC AIC Diversified Canada Split Corp.P. Morgan Stanley UK Group Nasdaq-100 Trust.Business Plan Appendix 6 . Investment Funds 5Banc Split Inc. Series 1 EarlyBirdCapital Inc. A&W Revenue Royalties Income Fund Aberforth Partners The Adams Express Company Agility Capital. Liontrust Investment Funds Ltd.
Inc. Series 1 Sterling Capital Corporation SVG Capital plc TD Waterhouse Group.Business Plan Appendix 6 . Thomas Weisel Partners LLC Versacold Income Fund © 2005 Investment Analytics .Skylon Capital Yield Trust SPDR Trust.
INVESTMENT ANALYTICS (BERMUDA) LTD VO L AT I L I T Y A R B I T R AG E P RO G R A M F I N A N C I A L P RO J E C T I O N S FEBRUARY 2005 .
........................................................4 Returns Processes ...................9 Results for Scenario 6 .......................................... 5 Management Fees and Performance Allocations ..................................................................................................................... 5 Expenses.......................................................................8 Equity Investment Terms ............7 Results ..........................8 Conclusion.......................................................................................... 5 Present Value Computations ................................................................. 4 Asset Growth ................................... 10 2 ...........................................................................CONTENTS Management Summary............. 5 Strategy Returns ......3 Assumptions . 4 Discount Rates and Terminal Multiples ......................................................................................... 6 Simulation Scenarios.................................................................
of which Mr.investment-analytics. The Proteom Fund is expected to open in 2005 with Assets Under Management of $100M. Projections under this scenario show Assets Under Management rising to over $1. A variety of scenarios are considered in which different combinations of products are launched in the first two years.and triple-digit uncorrelated alphas. North America and Asia. performance analysis and risk management for clients in the investment management industry in Europe. due diligence information and offering documents. Investment Analytics provides independent research focusing on applications of sophisticated mathematical and financial modeling techniques to problems of strategy development and repair.7 Bn by year 5 and indicate a fair valuation of Investment Analytics to be $61M.proteomcapital. Full details of the Fund including strategy presentations. strategy analyses.com. performance statistics. Since expiration of the Caissa license in 2004. Full details about the firm. 3 . can be found on the web site: www. The arbitrage strategies proved highly successful. and enabling the fund to raise over $300M in assets from institutional investors in the US.6M. for the five years from inception of the Proteom Fund. In 1999-2001 Investment Analytics developed a new framework for modeling and forecasting asset volatility using advanced econometric models based on extensive theoretical and empirical research. Kinlay is also a principal. producing double.FINANCIAL PROJECTIONS M A NA G E M E N T S U M M A RY Investment Analytics is an investment research and consulting firm established by its Chief Executive Jonathan Kinlay in 1998.com This document sets out financial projections for Investment Analytics. Investment Analytics has issued a new license for use of its volatility arbitrage program to the Proteom Fund. its personnel and products and services is given on the web site:www. These models provided the basis for a volatility arbitrage program which was made available under license to the hedge fund Caissa Capital in 2002. The analysis suggests that the optimal strategy would be to launch three already-developed products in year 1. Investment Analytics proposes to sell 49% of the equity for the sum of $58. in order to provide the basis for a range of volatility arbitrage products. Europe and Asia.
K .00% 50. j = 1.5.00% 25. The growth rate in any year is then adjusted for each strategy’s performance during that year according to the formula: g ij = b j × Where rij ei i = 1K .92% 13.ASSUMPTIONS RETURNS PROCESSES Financial projections are created using a Monte-Carlo simulation model in which strategy returns follow random processes with expected average levels and standard deviations of return as set out in the Table 1 below.00% 25.00% 2.5 gij is the growth rate for strategy i in year j bj is the baseline growth rate in year j rij is the return from strategy i in year j (by simulation) ei is the expected return for strategy i The baseline growth rate beyond year five is 4% per annum.00% 2.00% 40.00% 2. Fee 35.00% 25.00% 0.00% 6. F100 and G000. Strategies such as the F500.97% Mgt. Strategy E1000 F500 F1000 G000 H500 Mean 24.68% SD 15.00% 4 75. Other strategies with greater capacity are assumed to have long term growth rates of 6% to 8%. Fee 2.00% Table 1: Strategy Performance Characteristics and Fees.90% 6.00% 40. The table also shows the management and performance fees for each strategy.00% 65. ASSET GROWTH The growth in Assets Under Management (AUM) is computed from a baseline scenario as shown in Table 2.00% 3 100. Asset Growth Baseline 2 150.00% 12.00% 5 60.00% 35.00% 5+ 4.00% Table 2: Baseline Growth rates in Assets Under Management 4 .00% Perf. are likely to be close to capacity at this stage are assumed to grow at this rate.
D is the discount rate. overhead is assumed to grow at 50% of the rate of growth in assets. Under scenarios in which fewer than nine strategies are launched. are discounted at 55%. The WADR is used to compute a weighted average terminal multiple (WATM). MANAGEMENT FEES AND PERFORMANCE ALLOCATIONS Fees are computed using the standard terms as set out in Table 1. which is used to value cash flows beyond year 5. Instead a marketing allowance of 20% is made in the expense calculations (see below). which is entirely new. Although it is likely that discounts will be offered to large and early-stage investors. Strategies in this group are the F500. The breakdown by expense category for the first two years is summarized in Table 3. but based on a methodology similar to other existing strategies with established track records. Cash flows from the H500 strategy which is new. Strategy returns for each year are generated by sampling repeatedly (1. overhead is scaled down pro-rata by the number of strategies launched: Ok = Om x Nk / 5 Where Om is the overhead applicable when all nine strategies are launched. A higher discount rate of 60% is used for the E1000 strategy. and G is the long term growth rate. License fees received by Investment Analytics are computed at a standard rate of 50% of total management and performance fees. A weighted average discount rate (WADR) is computed from individual strategy discount rates by weighting each rate by the proportion of total Assets Under Management invested in each strategy. Beyond year 2. EXPENSES As previously mentioned. Terminal multiples are calculated in the standard way: M = 1 / (D – G) Where M is the terminal multiple.DISCOUNT RATES AND TERMINAL MULTIPLES For strategies with established track records in prior funds we apply a discount rate to cash flows of 50%.000 times) from each of these distributions. F1000 and G000 volatility strategy series. and Nk is the number of strategies launched in the current scenario k. 5 . a marketing allocation of 20% of total fees (management fees and performance allocation) is expensed against revenues. STRATEGY RETURNS These are assumed to follow a Normal distribution with means and standard deviations as shown in Table 1. these are not factored into the computations for fees. Details of overhead computations are given in the workbook.
Hardware Software Data Staff Marketing Service Providers Operations
Year 1 $365,499 $446,000 $302,500 $2,725,000 $156,400 $484,000 $1,096,000 $5,575,399
Year 2 $365,499 $446,000 $367,500 $4,200,000 $270,000 $771,000 $2,124,400 $8,544,399
Table 3: Overhead Expenses
PRESENT VALUE COMPUTATIONS
Net cash flows in year i, CFi, are discounted using the weighted average discount rate using the formula:
CFi (1 + WADR ) i
S I M U L A T I O N S C E NA R I O S
We consider a number of different launch scenarios for simulation purposes. In Scenarios 1 and 2 two products are launched in year 1 only. In Scenarios 3-5 we consider the launch of two strategies in year 1, with a third strategy in year 2. In Scenarios 6-8 we assume that three products are launched in year 1, and one new product in year 2. In the final scenario, we evaluate the outcome of launching all five products (three in year 1 and two in year 2). All scenarios consider a mix of medium and high performance strategies. The performance characteristics of each product portfolio varies according to the simulated performance characteristics of the products it includes. Product portfolios range in their performance characteristics from “conservative” to “aggressive”. An example of the former is the portfolio in Scenario 1, which include two strategies with existing track records of intermediate performance (F500 and G000). An example of the latter is the portfolio in Scenario 8, which includes two high risk/return volatility strategies. The range of scenarios considered is presented in Table 4.
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7 SCENARIO 8 SCENARIO 9
NONE NONE E1000 H500 E1000
F1000 G000 F1000 G000 F1000 G000 F500 F500 F500 F500 F500 G000
F1000 G000 NONE F1000 G000 H500 F1000 G000 E1000 F1000 G000 H500 E1000
Table 4: Product Launch Scenarios
R E S U LT S
Table 5 summarizes the simulation results for each of the scenarios. The results break down into two groups, the first comprising Scenarios 1-4, the second comprising Scenarios 5-9. In the first group we assume that at most two products are launched in year 1, with at most one new product being introduced in year 2. Assets Under Management are expected to rise to around $1.3Bn - $1.5Bn by year 5, and the cash flow NPV’s range from $30M to $40M. The second group features scenarios in which three products are launched in year 1, with up to two products introduced in year 2 (Scenario 5 is an exception, with only two product launches in year 1). For this group Assets Under Management are forecast to be considerably higher than for the first group: in the range $1.7Bn to $2.3Bn. Cash flow NPV’s in this group range from $55M $61M. One means of making a “like for like” comparison of the results for the different scenarios is to consider the ratio of cash flow NPV to projected Assets Under Management. This ratio suggest that the scenario with the best risk/reward characteristics is Scenario 6, in which the F500, F1000 and G00 products are all launched in year 1.
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7 SCENARIO 8 SCENARIO 9
NONE NONE E1000 H500 E1000
29.54 1,426.36 39.40 1,260.17 39.90 1,459.29 36.33 1,544.89 54.62 2,297.89 60.71 1,722.16 54.62 2,105.67 59.38 1,976.41 E1000 56.10 2,318.09
2.07% 3.13% 2.73% 2.35% 2.38% 3.53% 2.59% 3.00% 2.42%
F1000 G000 F1000 G000 F1000 G000 F500 F500 F500 F500 F500 G000
F1000 G000 NONE F1000 G000 H500 F1000 G000 E1000 F1000 G000 H500
Table 5: Scenario Results
Based on the financial projections in this analysis Investment Analytics should aim to license its technology to facilitate the launch of three products during the first year of operations: the F500 Volatility Opportunity Fund (5x), the F1000 Volatility Opportunity Fund (10x) and the G000 Strategic Volatility Fund. This product portfolio should be capable of supporting Assets Under
6M / ($61M + $58.6M) = $58. generating licensing fees with an NPV estimated to be $61M.6M / $119.6M ($58. The proposed terms are as follows: 9 .7Bn by year 5.Management of around $1.6M = 49%). The value of this equity share is $58. EQUITY INVESTMENT TERMS We propose to offer investors a total of up to 49% of the economics in Investment Analytics (Bermuda) Ltd (either in the form of equity or equivalent).
722.51 12.86 4 76.00 2 313.65 5.96 7.04 4 1.0% ($M) 1.51 2.29 5 123.000 0 1 2 Year 6.39 51.0% 3.88 7.000 2.17 5 1.18 60.87 11.0% 2.25 85.0% 7.12 17.82 25.13 3 623.000 4.0% 3 4 5 5.35 2 21.12 3.44 3.0% Annual NPV's ($M) 120 100 80 60 40 20 0 1 -20 2 3 Year 4 5 6 Min Max Mean 4.000 Min 24.000 Max Mean NPV of Cash Flows 9.0% 14 0 17 0 11 0 12 0 90 10 0 Total NPV ($M) 13 0 15 0 16 0 18 0 19 0 20 0 40 60 70 10 20 30 50 80 0 .36 5+ TOTAL Assets under Management ($M) Assets under Management ($M) 6.0% 8.13 3 44.09 12.084.63 5.000 6.05 16.43 10.12 37.000 ($M) 3.86 9.16 Expected Cash Flows ($M) Revenues Expenses Net Cash Flow NPV Overhead 1 8.0% 0.36 5.0% 1.17 27.71 5.R E S U LT S F O R S C E NA R I O 6 Expected AUM ($M) 1 125.
distribution.VO L AT I L I T Y A R B I T R AG E P RO G R A M DESCRIPTION OF MODELING SYSTEM AND INVESTMENT PROGRAM AND DUE DILIGENCE QUESTIONNAIRE PRIVATE AND CONFIDENTIAL Prepared for: Copy # NOTICE: This document is intended only for the use of the individual or entity to which it is addressed. copying or other use of this document is strictly prohibited. dissemination. and contains private and confidential information. retransmission. AUGUST 2004 . I N V E S T M E N T A N A L Y T I C S ( B E R M U DA ) LT D. If the reader of this document is not the intended recipient you are hereby notified that any review. All material contained herein is copyright © 2004 Investment Analytics (Bermuda) Ltd.
the models enable the correct timing of the volatility market approximately 75% of the time. direction prediction accuracy. Using complex portfolio construction algorithms. This extraordinary level of forecasting performance accounts for the exceptional trading results achieved by the Caissa Capital Fund. The models are based on advanced econometric research into the properties of asset volatility conducted by Mr Kinlay and other leading academic researchers. One measure of the ability of the models.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . most of which has yet to be released into the public domain. The data management system is highly robust and operates on two independent servers to ensure redundancy. to ensure failsafe delivery and backup.2 - Arbitrage Program OV E RV I E W The Investment Analytics proprietary arbitrage program comprises econometric models that produce forecasts of future volatility of exceptional accuracy. DA TA M A NA G E M E N T S Y S T E M The data management system is an automated system that handles the process of downloading and validating stock and option data for the stocks in the investment universe. The data are subjected to a number of integrity checks prior to being added to the databases. Specific trading recommendations are issued in the form of a daily trading sheet.000 data items for an investment universe comprising 150 stocks in the S&P500 are downloaded at the end of each trading day. which licensed the investment program from Investment Analytics in 2002. updates volatility forecasts. These are then manipulated by the Model Management System to update the individual forecasting models. The system uses a variety of sophisticated analytical tools to identify option arbitrage opportunities and construct long/short volatility portfolios that have the desired risk/return characteristics. and identifies new arbitrage opportunities. including market closing prices for each stock and options with varying strikes and maturities. Currently around 100. . on average. The system is run concurrently on two independent servers. which licensed the investment program from Investment Analytics in 2002. One measure of the ability of the models. shows that. on average. which is emailed automatically to traders and risk mangers before the start of the trading session. the theoretical edge of the trade and the hedging requirement. This extraordinary level of forecasting performance accounts for the exceptional trading results achieved by the Caissa Capital Fund. one based in New York. THE MODELING SYSTEM The Investment Analytics proprietary arbitrage program comprises econometric models that produce forecasts of future volatility of exceptional accuracy. the other In the UK. direction prediction accuracy. Hedge fund arbitrage strategies using the Investment Analytics program produced returns of between 15% and 1600% in 2003 and have remained very profitable during 2004. shows that. dating from around 1996. the models enable the correct timing of the volatility market approximately 75% of the time. the system produces a trading sheet which contains specific recommendations specifying the quantities of each option be bought or sold. The trading sheet is emailed automatically to traders and risk managers before the start of each trading session. The modelling system analyses stock and option data at the end of each trading day.
another important characteristic of volatility. M O D E L M A NA G E M E N T S Y S T E M The models are maintained by a Model Management System (“MMS”) that analyses the data processed by the data management system. Short term models that capture transient mean-reverting behaviour. Markov models that identify different volatility regimes and associated state transition probabilities. which can be set by the model user. iii. which give rise to skewness and kurtosis in the returns process. while filtering out models which are currently performing with lower levels of accuracy. Models that follow the interaction and feedback between the asset returns and volatility processes. iv. Multifactor models that model the interaction of long memory and transient volatility processes. ii. The types of model include: i. v. Long memory models that model the important long term serial autocorrelation effects which are pervasive in asset volatility processes. Asymmetry models that take account of the tendency of volatility to spike more during market sell-off than during periods when the market is strong. The MMS then selects the best models whose aggregate results lie in the upper quartile of performance.. These models typically give rise to contrarian trading recommendations. Each model emphasises different aspects of volatility behavior and will perform best under different market conditions. The system then “cherry picks” the best opportunities where the differential between market and theoretical value exceeds a minimum threshold level. produces current forecasts and evaluates the performance of each of the models. such as applied in the period from 1995–1999 and from 2003–mid 2004 in US equity volatility markets. These models perform best when the behaviour of the process is dominated by reinforcing trends. with the performance of other models of the same process and with the performance of models for other asset processes. The system selects the stocks for which the forecasting models are performing at the highest levels and evaluates the options using the volatility forecasts and proprietary option pricing models.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . . O P T I O N A NA LY S I S The next stage of the process is for the system to identify risk arbitrage opportunities amongst the universe of equity options under consideration. The MMS rates each model on approximately 30 different criteria and compares the current performance of each model with its historical performance. In this way the system automatically biases volatility forecasts to favour models best suited to current market conditions.3 - FORECASTING MODELS The system operates on a ground-up approach with several different individual models for every asset in the investment universe. vi. updates each of the models.
09 QCIMH -1.5 43% QTHAZ 32.080 0. MODEL OUTPUT The final stage of the process entails the creation and distribution a trading sheet containing the detailed trading recommendations.5 27% 0.63 2.438 0.7 HONAZ 32.96 37% ** 1.15 -16% 0. but is significantly more sophisticated.70 27% 2. which is emailed by an automated email server to a specified list of email recipients. Option Values 2 3 4 FCST Stock Price Vol 5 6 Spreads Code B/S Strike Bid 7 8 9 Jan-04 OTM PUT Ask Theory 10 11 Code B/S Strike Bid 03-Dec-03 Expiry: 13 14 15 16 Code B/S Strike 17 18 Jan-04 ATM PUT Ask Theory 12 16-Jan 19 20 21 % Cutoff 22 Code B/S Strike 30% 23 $ Cutoff 24 25 Jan-04 OTM CALL Bid Ask Theory 0.20 0.55 2.95 -0.15 04% 2.52 2.16 1.20 -0.45 2.50 -12% 4. or portfolios.60 1.10 0.20 0.00 0.70 0.3 IIQMG 35 56% IIQAK B QCIAJ S 55.308 0.07 669 3.89 -1.20 -0.5 38% IBM 90.00 42% 50 66% IMCL 41.816 0.80 50% * 1.25 83% 0. A genetic algorithm is employed to select the most appropriate baskets for trading.18 HHYMX 9.35 0.70 -03% 0.40 15% 1.20 -33% 1.50 -0.10 0.30 15% *** 1.513 2.52 1.01 HHYAX 2.10 0.13 -505 3.80 0.166 0.91 IBMMO 75 28% IBMAA 105 22% ICOS 44.155 1.41 32% *** 1.40 0.25 -0.00 19% 0.4 - C O I N T E G R A T I O N A NA LY S I S A N D P O RT F O L I O C O N S T RU C T I O N During the portfolio construction stage the modelling system decides the amounts of capital to allocate to the available arbitrage opportunities.589 2.65 HDIMV S HONMY 42.20 -0.00 IBMMR -5.53 4.30 07% 2.10 24% 0. In addition.5 24% 30 41% 90 18% 45. especially during market crashes.40 222% 0. but highlights only those option trades which meet the pricing differential criterion. comprising long and short volatility positions that typically have more stable risk-returns characteristics than the individual underlying processes.70 0.03 0.20 -0.64 23% ** 1.05 36167% 0.5 27% 30 26% 22. usually members of the trading and risk management teams. as the latter are notoriously unreliable. the output shows the quantity of options to be bought or sold.20 0.80 0.174 2.00 41% 40 64% HPQAE 25 25% IACI 30.20 -0. Trading sheets are contained in an Excel workbook.00 47% 40 69% 2.00 -6.16 0.75 -07% 2.74 QTHMY 27.35 -0.53 1.00 0.08 0.96 QCIMF S 30 74% Fig.718 0. The procedure is comparable to the mean-variance optimization procedure due to Markovitz.38 1. The resulting baskets.5 23% 30 20% 1.10 2.06 0.01 -1.986 0. The sheet gives the current volatility forecast for every stock in the investment universe.01 0.14 1.17 -7. tend to have more stable and robust performance characteristics than portfolios constructed in the traditional way using correlations.387 0.40 -0.90 30% 0.5 30% 27.1 26 Jan-04 ATM CALL Bid Ask Theory Model Total HDI 46.18 0.05 1586% 0.10 20% 0.47 3.77 HDIAW -896 1.30 27% 0.70 0.98 1.650 0.55 -0.15 34% 2.12 HDIMW -906 0.069 1.45 27% 0.37 2.11 HONAF 47.21 HONMF 39.82 11.81 HHYMD 20 33% 0. 1 Model Output in Excel File Format .15 0.40 0.85 -11% 1.30 0.5 29% 30 41% 90 21% 45.656 0.05 16% 1. the % price differential and the option delta.47 0. and the sheet gives the market bid and offer prices and the theoretical price based on the latest volatility forecasts.20 -03% 0.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE .83 -527 HDIAK 55 25% -100% 0.60 IBMAR -532 3.11 QTHAF -6. so that trades can readily be executed on a market-neutral basis.01 27.62 0.186 S IIQMI 47.35 269% 0.16 0.416 1.24 -3.50 19% ** 1.14 0.90 -0.960 0. The system examines the multivariate behaviour of the volatility processes and identifies cointegrated baskets.179 0. The cointegrated baskets identified by the system are tested by a simulation processes to ensure that their performance characteristics meet the minimum criteria and behave robustly under varying market conditions.49 52% *** 1.48 1.23 3.75 -18% 2.14 -1.10 -36% 1.5 22% HPQ 22.36 QTHMF -2.14 0.39 0.18 1.24 QCIAH -457 IIQAI 22. Options that have been selected for purchase (sale) are highlighted in blue (red).50 -0.68 -533 HON 29.
Haftan Eckholdt CEO. In 2002 Mr Kinlay formed a hedge fund. investment strategy. Cambridge and Reading Universities in the UK. Inc. The strategies proved very profitable and assets under .investmentanalytics. founded in 2004. and Oxford. performance analysis and risk management for clients in the investment management industry in Europe and North America. Jonathan Kinlay Jonathan Kinlay is the chief executive of the investment consultancy Investment Analytics. VA 22314 800-416-2053 toll-free 703-683-8575 main 703-683-9083 fax Email: dietrich@etoncourt. which he founded in 1998. The models were licensed to Caissa Capital to provide the basis for the firm’s volatility arbitrage strategies. Mr.com Describe the advisory firm’s history: Investment Analytics (Bermuda) Ltd is an investment strategy consulting firm formed by Mr Jonathan Kinlay in 2003. Kinlay founded Caissa Capital LP. His first degree is in Mathematics and Statistics from University of Bristol. fixed income and OTC & exchange traded derivatives. Please provide referees for the principals of the Firm. Investment Analytics provides independent research focusing on applications of sophisticated mathematical and financial modeling techniques to problems of strategy development and repair. quantitative analysis and risk management. a quantitative derivatives hedge fund that uses the Investment Analytics volatility arbitrage program as the basis for its investment strategies. which succeeded a partnership of the same name that existed since 1998. He also graduated with an MSc in Statistics from University of Sheffield and an MBA from the London Business School and Stern School of Business. Further details of the firm and its services is to be found on the web site: www. Daytrends Inc 10 Jay Street Brooklyn. where he traded US and European equities. initially with NatWest and Chase Manhattan banks and subsequently as the head of quantitative analytics and proprietary trading in a European hedge fund. and invited two associates to join him in that venture as partners.5 - Due Diligence Questionnaire F I R M B A C KG RO U N D Please attach bio for the principals of the Firm. Paul Dietrich CEO. New York University. In 2002 Mr. Kinlay has lectured at postgraduate level at a number of leading universities including.com Mr. Mr. Carnegie Mellon University in New York. and a general partner of the Proteom Fund. New York 11201 Tel: (718) 522-3170 Email: Haftan@daytrends.com.com Prof.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . Mr.lawlor@morganstanley. Caissa Capital LP. Nye Parnell & Emerson Capital Management. Suite 200 Alexandria. Niall Lawlor Head of Municipal Bond Sales/Trading Morgan Stanley 1585 Broadway New York NY 10036 Tel: (212) 762-8139 Email: niall. Beginning in 1998 Mr Kinlay researched and developed a number of sophisticated econometric models used for measuring and forecasting the volatility of financial processes such as asset returns. Kinlay has consulted with leading investment funds and financial institutions in Europe and North America for over 20 years in the areas of financial engineering. 1630 Duke Street.
who? No. Dr Christopher Rosevear is also employed in operations. or its principals? Have any been taken? What were the outcomes? There are no pending legal or disciplinary actions being taken against the firm or any of its affiliates or principals. It conducts research activities there and in other locations in the USA and Europe. Describe the advisory firm and its structure: Investment Analytics (Bermuda) Ltd. Mr. Who is primarily responsible for managing research analysts? How many analysts are there? At present. Jonathan Kinlay is responsible for the ongoing research effort. Consultants are employed to assist in the development of new technologies.. The firm was established in 2003. its affiliates. Kinlay is responsible for operations. is a Bermudan based limited company. How are employees and principals compensated? What percentage of principals’ compensation is salary vs. . bonus? Investment Analytics earns consulting and licensing fees. Are any legal or disciplinary actions being taken against the Firm. Are there any new principals or owners since founding? If Yes. Jonathan Kinlay is the owner of the firm and he is active in the firm’s management. Do the principals engage in any business activities outside of the firm? Jonathan Kinlay is the General Partner of the Proteom Fund. accounting and administrative work has been outsourced. Who is primarily responsible for managing operations? How many operations people are there? Mr. There is a direct correlation between compensation and authority.6 - management quickly grew to over $160M. based in New York and Bermuda. Who were the founders? Mr. Does the Firm have any branch offices/locations/operations? What activities are conducted at them? The firm is located in Bermuda. Who owns the firm? Are any owners not active in the firm’s management? Mr. There have been no legal or disciplinary actions taken against the firm in the past. What is the total number of firm employees? How many are dedicated full time to the Strategy? At present Mr.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . The firm’s Directors are Jonathan Kinlay and James Keyes. Jonathan Kinlay is the only employees. a quantitative equity hedge fund. All bookkeeping. the Proteom Fund. Mr Kinlay has decided to focus on his work in Investment Analytics and to start a new hedge fund. Having established the underlying concept within Caissa Capital. although a partnership of the same name existed from 1998. Jonathan Kinlay.
The output is passed to two independent servers. Each model emphasises different aspects of volatility behavior and will perform best under different market conditions. Short term models that capture transient mean-reverting behaviour. another important characteristic of volatility. published in Wilmott magazine in 2003. including C. Models that follow the interaction and feedback between the asset returns and volatility processes. which mail the trading sheet as an Excel workbook to a specified recipient list. including the modeling system. which owns all of the copyright. viii. Long memory models that model the important long term serial autocorrelation effects which are pervasive in asset volatility processes. The data are subjected to a number of integrity checks prior to being added to the databases. • Multifactor models of long memory and short term transient volatility processes and their interaction.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . xii. These include: • New volatility metric. • New theoretical framework for modeling skewness and kurtosis in the returns distribution. including market closing prices for each stock and options with varying strikes and maturities. • Applications of multivariate factional cointegration to portfolio construction. These models perform best when the behaviour of the process is dominated by reinforcing trends. In addition. The data management system is an automated system that handles the process of downloading and validating stock and option data for the stocks in the investment universe. Multifactor models that model the interaction of long memory and transient volatility processes. ix. The data management system is highly robust and operates on two independent servers to ensure redundancy. which give rise to skewness and kurtosis in the returns process. such as applied in the period from 1995–1999 and from 2003–mid 2004 in US equity volatility markets. Describe the underlying theory behind the modeling system. • Proprietary methodology for regime shift detection. Who owns the intellectual property? The entire program. Currently around 100. is the property of Investment Analytics (Bermuda) Ltd. The program includes a number of proprietary theoretical concepts developed by Jonathan Kinlay. which is up to three times more efficient than standard estimators. some of which is described in the paper “Long Memory and Regime Shifts in Asset Volatility”. Visual Basic and Ox. Markov models that identify different volatility regimes and associated state transition probabilities. The program is in the process of being patented. Which asset classes have the models been tested on? . xi. volatility and correlation series. one in the USA and the other in Europe. Describe the types of forecasting models used in the system. What data does the system use? Does the system use fundamental data? Fundamental data is used only to help in defining and selecting the investment universe. What programming languages are used in the development of the models? The models were developed in a variety of programming languages. How many models are there in the system? There are between 4 -6 models for each stock. The types of model include: vii. x. With 150 stocks in the investment universe. The models themselves use historical prices to construct asset returns. Asymmetry models that take account of the tendency of volatility to spike more during market sell-off than during periods when the market is strong. These models typically give rise to contrarian trading recommendations.7 - MODELING SYSTEM Who developed the models? When were they developed? Jonathan Kinlay developed the theory and all of the models in the system in the period from 1998 to 2004. • New methodology for model performance assessment. Describe the data management system. C++.000 data items for an investment universe comprising 150 stocks in the S&P500 are downloaded at the end of each trading day. there are in excess of 600 models in total. The system operates on a ground-up approach with several different individual models for every asset in the investment universe. the system applies a wide variety of known econometric theory. These are then manipulated by the Model Management System to update the individual forecasting models. What computer systems are used to run the models? The modeling system runs on two independent machines each with very fast math processors and large amounts of RAM.
If fact the series are integrated order 1. the returns process) is a stationary white noise process. the Basis. than the underlying non-stationery price processes. The single most important model criterion is direction prediction accuracy. Both sets of criteria are important. What is the role of the Model Management System? The models are maintained by a Model Management System (“MMS”) that analyses the data processed by the data management system. and hence easier to trade.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . Now consider a series consisting of the differential between the spot and futures prices. as this closely correlates with strategy performance. in the example). The MMS then selects the best models. An overall performance “score” is produced which is used to compare the performance of each model against its historical performance and against its peers. understandably. The direction prediction criterion measures the ability of the model to forecast the direction of the underlying process one period ahead. with the performance of other models of the same process and with the performance of models for other asset processes. but unlike the price series it is stationary – it fluctuates inside a range. The Investment Analytics models achieve a DP accuracy level of close to 75%. The forecasting performance measures include the following: • Mean Square Error • Mean Absolute Deviation • Mean Absolute Percentage Error • Theil’s U • Direction prediction Statistical measures include: • Likelihood • Adjusted Coefficient of Determination • Akaike Information Criterion • Bayes Information Criterion • Error skewness • Error Kurtosis • Jarque-Bera Normality test • Box-Pierce portmanteau test • ARCH-LM test • Sign Bias test • Durbin-Watson statistic What is cointegration? The concept of cointegration was due to Nobel prize winning economist Clive Granger in the 1990’s. The criteria break down into two broad categories: measures of forecasting performance and measures of statistical goodness of fit. Consider the prices series of a spot and futures contract on a commodity such as gold. Both series are non-stationary – the prices of gold can vary anywhere between $200 and $800 an ounce (or higher). The second point is that cointegration relationships tend to be more reliable than correlation relationships because they relate to some underlying economic factor (cash and carry arbitrage.e. whose aggregate results lie in the upper quartile of performance. on average. the models correctly predict the future direction of volatility three periods out of four. The reason for this behavior is of course that cash and carry arbitrage obliges the basis to remain within bounds. In this way the system automatically biases volatility forecasts to favour models best suited to current market conditions. The Model Management System uses an adaptive weighting system to evaluate these criteria and judge their relative importance. Limited tests have been performed in currency and commodities markets. A random predictor would expect to achieve a DP score of 50%. Non-stationery series are. while filtering out models which are currently performing with lower accuracy. i. very difficult to trade profitably. updates each of the models. This too is a stochastic process. but further research and development is required. There are approximately 30 different criteria used to asses the performance of each model.e.8 - The models have been tested on US and European equities. Which asset classes could the program be applied to? The capabilities of the system have been clearly demonstrated in equity markets. There are two important points to note. It is likely that the system would perform equally well in currency and commodity markets. are inherently more stable. This means that. In this example. Describe some of the performance criteria used to assess model performance. The MMS rates each model on the basis of approximately 30 different criteria and compares the current performance of each model with its historical performance. Pacific Rim equity markets. produces current forecasts and evaluations the performance of each of the models. meaning that the first difference of each series (i. we would say that the spot and future price series are cointegrated order 1. across all assets and time periods. but greater weight is assigned to forecasting performance in assessing the overall model performance. The first is that cointegrated “baskets” such as the Basis in the above example. It is best illustrated by means of an example. The models performed well in all tests. and approximately eleven emerging markets. .
64 23% ** 1. A genetic algorithm is employed to select the most appropriate baskets for trading.47 3.166 0.30 07% 2.9 - Hence portfolios constructed using the principles of cointegration will tend to have more reliable risk/return characteristics than portfolios constructed using classical portfolio theory.14 -1. Describe the option pricing models are used to evaluate arbitrage opportunities.20 -0.5 24% 30 41% 90 18% 45.40 -0.10 0.20 0. The cointegrated baskets identified by the system as tested by a simulation processes to ensure that their performance characteristics meet the minimum criteria and behave robustly under varying market conditions. The system selects the stocks for which the forecasting models are performing at the highest levels and evaluates the options using the volatility forecasts and proprietary option pricing models.85 -11% 1.30 27% 0.18 HHYMX 9.650 0.5 23% 30 20% 1.53 0.23 3.20 -0.18 1.5 38% IBM 90.1 26 Jan-04 ATM CALL Bid 1.438 0.07 669 3.90 30% Bid 2.416 1.09 QCIMH -1.91 IBMAA 105 22% ICOS 44. The procedure is comparable to the mean-variance optimization procedure due to Markovitz.80 0.20 -0. which is emailed by an automated email server to a specified list of email recipients.01 27.20 -33% 1.70 27% 2. The system examines the multivariate behaviour of the volatility processes and identifies cointegrated baskets. The option models are two factor models (one factor for the returns process.63 2.48 1.00 41% 40 64% 17 18 Jan-04 ATM PUT Ask 2.62 Theory 0.11 HONAF 55 25% 0.12 HDIMW -906 0.95 -0.00 -6. and the sheet gives the market bid and offer prices and the theoretical price based on the systems volatility forecasts.14 1.10 -100% 0.20 0.14 0.38 Theory 12 16-Jan 19 20 21 % Cutoff 22 Code B/S HDIAK Strike 30% 23 $ Cutoff 24 25 Jan-04 OTM CALL Bid Ask 0.16 0. but is significantly more sophisticated.30 0.00 IBMMR -5.40 222% 0. the % price differential and the option delta.75 -18% 2.986 0.55 2.35 -0.10 03-Dec-03 Expiry: 13 14 15 16 Code B/S Strike 47.90 -0.14 0.5 27% 30 26% 22.05 36167% 0.5 27% HHYMD 20 33% QTHMY 27.25 -0.513 2.16 1.10 -36% 1.55 -0. Option Values 2 3 4 FCST Stock HDI Price 46.50 -12% 4.15 0.155 1.74 QTHAZ 32. but highlights only those option trades which meet the pricing differential criterion.39 0. . The sheet gives the current volatility forecast for every stock in the investment universe..53 4.06 0.01 -1.25 83% 0. The final stage of the modelling process entails the creation and distribution a trading sheet containing the detailed trading recommendations.41 32% *** 1.5 43% IBMMO 75 28% IIQMG 35 56% QCIMF S 30 74% Bid 0.387 0.00 47% 40 69% 0. Options that have been selected for purchase (sale) are highlighted in blue (red).816 0.5 22% HPQ 22.15 -16% 0.3 IIQAK B QCIAJ S 55.13 -505 3.21 HONMF 39.05 16% 1. so that trades can readily be executed on a market-neutral basis.080 0.069 1. In addition.83 -527 Model Total 19% ** 1.70 -03% 0.08 0.50 -0.5 30% 27.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE .589 2.45 2.20 -0.18 Theory 0.70 0. which can be set by the model user.20 0.49 52% *** 1.81 HPQAE 25 25% IACI 30.96 37% ** 1.00 0. as the latter are notoriously unstable.7 HONAZ 32. the output shows the quantity of options to be bought or sold.11 QTHAF -6.50 Vol 5 6 Spreads Code B/S HDIMV S HONMY Strike 42.03 Theory 10 11 Code B/S Strike 47.30 15% *** 1.308 0.05 1586% 0.52 1. which is based on (unstable) correlations.24 -3.40 0.47 0.10 20% 0.5 29% 30 41% 90 21% 45.35 269% 7 8 9 Jan-04 OTM PUT Ask 0.20 -03% 0.01 0. comprising long and short volatility positions that typically have more stable risk-returns characteristics than the individual underlying processes.174 2.718 0.179 0.186 S IIQMI 1. The system then “cherry picks” the best opportunities where the differential between market and theoretical value exceeds a minimum threshold level.80 0.10 24% 0.40 15% Ask 1.656 0. kurtosis in the underlying returns distributions as well as important asymmetry effects in the volatility process itself.15 04% 2. especially during market crashes.50 -0.37 2.00 42% 50 66% IMCL 41.24 QCIAH -457 IIQAI 22. Trading sheets are contained in an Excel workbook.68 -533 HON 29.75 -07% 2. How is cointegration used in the modeling system? During the portfolio construction stage the modelling system decides on the amounts of capital to the available arbitrage opportunities.60 1.16 0.960 0.00 0. the second for the volatility process) that take account of volatility skews. The resulting baskets or portfolios tend to have more stable and robust performance characteristics that portfolios constructed in the traditional way using correlations.00 19% 0.35 0. Describe the model output.65 0.36 QTHMF -2.20 -0.01 HHYAX 2.52 2.70 0.17 -7.45 27% 0.77 HDIAW -896 1.80 50% * 1.70 0.15 34% 2.89 -1.98 1.96 .82 11. Describe how volatility forecasts are used to produce trading recommendations.60 IBMAR -532 3. usually members of the trading and risk management team.40 0.10 0. The modelling system uses proprietary Monte-Carlo option pricing models which price options based on the forecast asset volatility over the life of the option.
Style: Market Neutral The Strategic Volatility Strategy exploits short-term arbitrage opportunities in equity options to deliver very high rates of return. too.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . even at times of high market stress and regardless of the direction of the overall market. There is clear evidence of strong autocorrelations and long memory effects in asset volatility. high returns.20%% with a volatility of 6%-9%. Some of these trades are designed to exploit a mismatch between the forecast level of volatility and that priced into the options (the implied volatility). Part of what we are seeking to do in our investment strategies is to capture these mis -pricing opportunities. In particular we now know that: • • • Asset returns are not normally distributed. JNJ. when they become increasingly correlated. The products of that research. Investment Analytics has developed a proprietary volatility index that measures underlying volatility more accurately and efficiently than traditional methods. movements in the market. especially at times of market stress. and may fluctuate in a wide range depending on general market conditions and firm-specific events. An important element in the investment strategy is the prediction of future volatility. The strategy also employs sophisticated risk controls to ensure that at all times the account is operating within acceptable Value-at-Risk limits and that its exposure to extreme market or volatility moves is managed within pre -defined limits. In other cases the chief intention is to trade the volatility skew. but varies over time. MRK. but stochastic. including verticals. have played a central role in the progress achieved in investment theory during that time. which include CAPM and the Black-Scholes model. DOW. and typically will be initiated with 5 – 50 days to expiration. that volatility is not constant. Among the model’s main shortcomings are the assumptions of Gaussian distributed returns and constant volatility in the underlying. Empirical studies have demonstrated consistently that returns follow a distribution that is skewed and leptokurtic: markets are more likely to remain where they are or make a large move than a Normal distribution would suggest. Although option prices are typically adjusted to account for the effects of stochastic volatility and non-Gaussian returns. Asset correlations are highly unstable. The investment universe comprises options on around 150 leading equities that are members of the S&P 500 Index. IBM. Gaussian theory will tend to underestimate the probability of very small. Using proprietary econometric models we are able to correctly anticipate the future direction of volatility an average of 72%-75% of the time in the universe of stocks and equity indices we analyze. this is not always the case. The difference is that it is long and short volatility instead of equities. These additional techniques enable us to select investment opportunities that offer the greatest risk-reward trade-off. proprietary volatility models for each of these stocks that enable us to identify short-term opportunities to buy or sell options that are trading at uneconomic prices. Our proprietary asset allocation methodology combines elements of portfolio optimization and risk management theory that enable us to create portfolios capable of generating consistent. at certain times both put and call options are under. Investment Analytics has constructed sophisticated. BMY. primarily the DOW 30 and the 150 largest cap SP500 index stocks. stochastic volatility and long memory effects to be incorporated into the model. as envisaged in the Black-Scholes world. in addition to being stochastic. According to our analysis. The Strategy seeks to achieve its target returns by trading volatility portfolios comprising long and short positions in options on major listed equities and indices. and identify regimes of unsustainably high or low levels of volatility with a high degree of accuracy. It is evident. or very large. There are several extensions to Black -Scholes which enable non-Normal returns. calendars or butterflies. Asset Class: Equity Options 2. GM. Consequently risk management tools such as Value-at-Risk tend to break down during extreme market conditions. In the majority of cases the trades will be initiated close to delta-neutral and the strategy seeks to maintain a non-directional. In summary our investment approach is: 1. PG and WMT. We know from empirical research that. Methodology: Econometric Modeling 4. however.or over-priced by as much as 30%. MMM. Strategy: Volatility Arbitrage 3. Investment Analytics has developed research tools to enable us to identify opportunities to trade asset volatility at times of favorable market conditions. Empirical research over the last fifteen years. with minimal drawdown. GE. A trade may be executed using any one of a number of possible option combinations. has brought more clearly to focus some of the major deficiencies of classical theory. These includes many household names such as BAC. Briefly describe the strategy conceptually: The Strategic Volatility Strategy is a volatility statistical arbitrage strategy designed to produce annual returns of 15% . We use these additional characteristics of volatility to improve investment performance and enhance the risk-reward profile of the basic strategy. C. The strategy resembles a traditional . volatility is typically both very volatile and highly persistent. delta-neutral position by selling or buying SPDRs at the close of each trading day.10 - INVESTMENT STRATEGY Characterize strategy’s investment style: Classical economic theory has experienced considerable success over the last fifty years in advancing our understanding of the general behavior of financial markets. The pricing of most exchange-traded options is based on variants of the vanilla Black-Scholes model and its extensions. Volatility is not constant. The strategy employs a statistical arbitrage style of trading and is a classical long and short hedge fund portfolio.
Which market environment does this strategy perform well/poorly? For the Strategy to perform it we requires either (a) a wide divergence of views as to the level of future volatility in universe of stocks we trade or (b) a consistent. As a consequence. We supplement this with hedging mechanisms that are specifically designed to protect the portfolio in the event of a market crash. The hedge is constructed using CrashMetrics®.e. Investment Analytics has constructed sophisticated. These include many household names such as BAC. or both. Consequently. JNJ. The investment universe comprises options on around 150 leading equities that are members of the S&P 500 Index. market timing strategists. and in particular to maintaining market neutrality. this makes volatility more easily forecastable. proprietary volatility models for each of these stocks that enable us to identify short-term opportunities to buy or sell options that are trading at uneconomic prices.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . as well as its average tenor. Specifically. IBM. together with the S&P500 and QQQ indices. This serves to mitigate the stockspecific volatility risk in the portfolio of each of the Funds. In principle. but also with regard to option expiration.11 - long/short equity hedge fund strategy. which vary both in terms of forecast frequency and in the emphasis given to individual aspects of volatility behavior such as long-term memory or short-term memory. on the basis of proprietary option pricing models. A model management system continuously evaluates each model on approximately 20-30 performance criteria and weights the forecasts according to current performance. including equity portfolio managers. and those pursuing yield enhancement strategies such as covered call writing. volatility correlation. with the attendant benefits of risk reduction through diversification. The risk management system also seeks to identify an excess or deficit in the overall portfolio deltas. calendars or butterflies. and typically will be initiated with 5 – 50 days to expiration. Theta and Vega risk of the portfolio. including verticals. a proprietary risk management technology. not only with regard to the number of stock in which positions are held. are mis-priced by minimum of 30% (average 55%). it is important that the majority of the positions in the portfolio are held until option expiration. based on our valuation models. Data comprising closing market prices and risk parameters are downloaded overnight and analyzed by the modeling systems. The Strategic Volatility Strategy is based on certain statistical properties of volatility processes that render them more amenable to econometric modeling than asset returns processes. In the majority of cases the trades will be initiated close to delta -neutral and the strategy seeks to maintain a non-directional. GM. These arbitrage opportunities are used to construct the volatility portfolios incrementally each day. strike and entry point. the inventory of current positions is loaded automatically into the risk management system for analysis. but incorrect. The risk system also evaluates the Gamma. A daily risk analysis is produced several hours before the start of each trading day which seeks to identify the Value-at-Risk (VaR) in the existing volatility portfolio of each Series Fund and each of its constituent elements. delta-neutral position by selling or buying SPYDRs at the close of each trading day. A number of forecasting models are applied to each stock or index in the investment universe. which are then hedged at the start of the trading session using a combination of underlying stocks and SPYDRS (as a market proxy). DOW. In other cases the chief intention is to trade the volatility skew. A trade may be executed using any one of a number of possible option combinations. C. Using these volatility forecasts. Since the profitability of the strategies is dependent upon the differential between the strategies’ view of volatility and that held by the market (as expressed by option implied volatility). Some of these trades are designed to exploit a mismatch between the forecast level of volatility and that priced into the options (the implied volatility). the modeling systems then seek to identify risk arbitrage opportunities comprising options which are substantially under-priced or over-priced. are marked for individual hedging using underlying stocks. PG and WMT. The result is a portfolio producing high risk-adjusted rate of return with very stable performance characteristics. and performs stress tests to assess the exposure to crashes either in the overall market or in market volatility. These arbitrage opportunities are identified in an electronic trading sheet which is routed to the trading system for review by the trading team prior to execution. Our quantitative methodology identifies volatility processes that are co -integrated (i. the number of positions in a given portfolio. that tend to vary together in a stable pattern) and applies sophisticated econometric models to produce volatility forecasts that are then fed into our option pricing models. BMY. we are attentive to the issue of hedging the portfolio risk over the expiration cycle. or which have low or negative expected return. GE. MMM. Discuss the investment process/strategy. Sophisticated genetic algorithms are then used to construct volatility portfolios that have appropriate risk-return characteristics. Volatility portfolios are consequently widely diversified. Typically 50-60 arbitrage opportunities are identified in each daily trading sheet. The trading universe consists of options in the nearest two months in approximately 150 stocks of the S&P500 index. will vary over the course of time as existing positions expire and new positions are added. The strategy also employs sophisticated risk controls to ensure that at all times the account is operating within acceptable Value-at-Risk limits and that its exposure to extreme market or volatility moves is managed within pre -defined limits. The first of these situations is the normal state of volatility markets. The second arises from time to time and can be highly profitable for our strategy (for example in Feb 02). What opportunities are being exploited? The Strategy takes arbitrage positions in options on our universes of 150 SP500 stocks which. or may be liquidated prior to expiration. volatility processes exhibit 'long memory' behavior in which events affecting the series today continue to affect it for many months into the future. The final step in portfolio construction is to overlay an optimal hedge that protects the portfolio against extreme market moves. MRK. view of future volatility. . Positions which may be contributing significantly to the total VaR. At the end of each day. volatility asymmetry and the volatility of volatility (kurtosis). These opportunities typically arise from the hedging and speculation activities of market participants for whom derivatives are of secondary concern.
leading to expanding marketplace [there are already signs of increased public participation (retail) returning to the options market. it will be incumbent upon the research team to incorporate worthwhile discoveries into existing models and strategies. Co-integration analysis is used to identify how these potential trades should be combined to create volatility baskets with stable risk-return characteristics which meet our investment objectives. The main drivers of risk are: • Gamma • Liquidity • Event risk Describe why the strategy should be expected to generate excess returns over time: In recent years many important discoveries have been made in the study of volatility. • Note that neither the level of the market nor the level of market volatility is a driver of performance. We supplement this with hedging mechanisms that are specifically designed to protect the portfolio in the event of a market crash. In order to maintain the Investment Analytics advantage. a rising market tends to lead people away from statistical based strategies and back to the realm of directional and momentum strategies. Such a situation has arisen in the past in currency markets during Euro convergence. 72%75% of the time. Therefore it is quite possible the Investment Analytics volatility arbitrage program will be very viable over the medium to long term. have to expand to accommodate the new entrants b. correct view about future volatility in a large proportion of stocks in our investment universe. Describe the idea generation process: The process of identifying arbitrage opportunities is entirely automated and model-driven. As with any financial strategy. The Strategic Volatility Strategy is based on certain statistical properties of volatility processes that render them more amenable to econometric modeling than asset returns processes. stringent risk management and low cost execution. Our quantitative methodology identifies volatility processes that are co -integrated (i. or not fully appreciated. The research team at Investment Analytics believes this creates the opportunity for generating alpha for a number of years to come.000 options. The strategy seeks to achieve its target returns by trading volatility portfolios comprising long and short positions in options on major listed equities and indices. In principle.or over-priced by 30% or more.20%% with a volatility of 6%-9%%. Specifically. squeeze out less talented entrants Investment Analytics management foresees this process as taking a minimum of three to five years. with the attendant benefits of risk reduction through diversification. this makes volatility more easily forecastable. The result is a portfolio producing high risk-adjusted rate of return with very stable performance characteristics. the existing marketplace will either: a. The strategy resembles a traditional long/short equity hedge fund strategy. success will encourage others to devote talent and resources. correlation. defined as assets on which there is sufficient liquidity to trade at least 1. In addition.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . Describe the investment objectives of the strategy (return. Only in the past year has “Volatility” become a media buzzword. The most likely scenario by that time is a recovering stock market. Practical considerations are keeping pace with constantly improving execution platforms and technologies as well as the structural changes in the US options markets. Discuss the main drivers of performance and risk of the strategy: The main drivers of performance are: • Divergences of views on future volatility • The volatility of volatility (kurtosis) • Price insensitivity of market participants who use options for hedging and speculation. it will be important to keep a vigilant eye on theoretical discoveries in the area of volatility. risk. it has been slow to attract the attention and resources of the powerhouse firms on Wall Street. primarily the DOW 30 and the 150 largest cap SP500 index stocks. Investment Analytics also enjoys the advantage of being able to correctly predict the direction of volatility in the underlying assets.e. What are the strengths and weaknesses of your investment strategy? Much of the theory that Investment Analytics employs has only been developed since 1996.12 - The strategy would perform poorly in a situation where the market held a consistent. The models identify 50-60 potential investment opportunities each day in options which are under. What is the universe of securities considered for trading? The portfolio comprises exchange-traded options on major indices and on large-cap stocks with liquid options markets. However. Many earlier important works were either ignored. Sophisticated genetic algorithms are then used to construct volatility portfolios that have appropriate risk-return characteristics. Over time. to develop a unique approach in a niche market. This is combined with portfolio optimization. Investment Analytics has developed proprietary models that embrace and combine these technologies with their own ideas. This represents both uncharted territory and opportunity for those with the tools to exploit them. As a niche area of the marketplace. that tend to vary together in a stable pattern) and applies sophisticated econometric models to produce volatility forecasts that are then fed into our option pricing models. have narrowing spreads (edge) c. volatility processes exhibit 'long memory' behavior in which events affecting the series today continue to affect it for many months into the future. Our overall portfolio is constructed using these volatility baskets. The majority of stocks whose options traded are DOW and . but is highly unlikely to arise in equity markets. other): The Strategic Volatility Strategy is a volatility statistical arbitrage strategy designed to produce annual returns of 15% .
The partners have developed proprietary models that embrace and combine state-of-the-art technologies with their own ideas. What is the range of market capitalization of positions and the liquidity of investment positions? The underlying equities are household names (i. from capital goods to pharmaceuticals. 2. stringent risk management and low cost execution.e. What is the maximum allowed single position size by percent of NAV? Typically no more than 4% of available capital is allocated to a single entity. What is your edge versus other advisors using similar strategies? Investment Analytics enjoys the advantage of being able to correctly predict the direction of volatility in the underlying assets. These conditions. What is your target long/short/cash position as a percentage of NAV? Investment Analytics does not have a long volatility or short volatility mandate. The models generate volatility forecasts and produce optimized portfolios. or not fully appreciated. 72%75% of the time. give rise to a continuous flow of opportunities where implied volatilities are mispriced relative to the actual volatility in the marketplace. MRK etc) that are either in the S&P top 200. Many earlier important works were either ignored. which typically apply. The strategy has high turnover. What benchmark do you feel is most appropriate against which to measure performance? Why? There is no benchmark that is appropriate for this strategy. What are your criteria for entering new trades? All new trades are generated by proprietary mathematical quantitative models on a daily basis. developed by leading reseeachers in the field and successful money management and trading professionals with proven track records. In which type of markets or situations does your strategy perform best/worst? The best market environment for Investment Analytics is market in which participants expressed a wide divergence of views on future volatility. The Strategy does not have a long volatility or short volatility mandate. Our investment universe includes the leading companies from virtually every industrial sector. The expected value of the position has been fully extracted. Some assets we trade only from the short or long side. These portfolios are then executed efficiently and at the lowest possible cost in the US listed options market. . Historically the portfolio has shown an approximate 60% short volatility bias. This is combined with portfolio optimization. 2 . IBM. but the majority we take either long or short positions depending on market conditions and our model projections. to develop a unique approach in a niche market. or 3 in their industry sector. high leverage and is aggressive. Capital is allocated by using a portfolio optimization model that studies correlations between the different volatilities.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . In any given period of time.GE. the portfolio can lean as high as 70% to 30% in either direction. News event in the horizon related to the position provides an undue reason to believe there will be a problem. Monte Carlo simulations with risk parameters and capital allocation guidelines are run to determine which portfolio offers the highest risk adjusted rate of return.13 - S&P500 index constituents. The universe of securities that is traded is very liquid. which may vary from month to month. What is your average holding period for longs and shorts? Does it differ for winning or losing positions? The average holding period for both longs and shorts is 32 days. and risk management systems. The most challenging market in an absolute sense would be a completely static market where the world was in total agreement across the board on how much range the underlying stocks should have (actual volatility) and accurately priced the options (implied volatility) accordingly. Such a market would be efficient and therefore lack the pricing discrepancies that create our opportunities and consequently our returns. or are number 1.GM. What are your criteria for exiting trades? The criteria are: 1. typically with 30 – 60 days to expiration. The positions have become a negative contributor to Value-at-Risk. These proprietary models combined with over 20 years of money management experience afford Investment Analytics the advantage over its peers. Each portfolio is reviewed by the investment committee prior to implementation. Historically the portfolio has shown an approximate 60% short volatility bias. How many investments are used on the portfolio’s long side and short side? A typical portfolio at present contains 400-600 positions. No more than 4% of any portfolio is allowed to one individual position. How does the fund differentiate itself from others in its strategy? Much of the theory that Investment Analytics employs has only been developed since 1996. Investment Analytics also enjoys the combination of superior proprietary mathematical option pricing models.money straddles or butterflies. 3. the portfolio can lean as high as 70% to 30% in either direction. In any given period of time. All investments are executed as long or short positions in at-the. In general the fund will have short positions in around 400-600 stock or index options and an equal number of longs.
This represents both uncharted territory and opportunity for those with the tools to exploit them. the existing marketplace will either a) have to expand to accommodate the new entrants.39% ITD Annualized Daily Std Deviation: 70.52% Total Months Since Inception: 21 % Positive Months Since Inception: 66% Annualized alpha vs. 2004) Year-to-Date Return (gross): 8. The management team at Investment Analytics believes this creates the opportunity for generating alpha for a number of years to come. Practical considerations are keeping pace with constantly improving execution platforms and technologies as well as the structural changes in the US options markets. How many days per month on average do you generate a positive return? On average the portfolio generates positive return about 65% of the month. What steps do you take to reduce volatility? N/A What is the correlation of your strategy with managers implementing a similar strategy? We believe this to be a unique strategy. In order to maintain the Investment Analytics advantage. What drives the volatility of your strategy? The volatility of the strategy is a direct derivative of the difference between the model generated volatility and the actual volatility. However.04 Firm-Wide AUM: $159. S&P: 166.43% AUM (this strategy): $126.5MM Volatility Opportunity Strategy.04 Firm-Wide AUM: $159.32 Correlation to S&P: -0. it will be incumbent upon the management team to incorporate worthwhile discoveries into existing models and strategies. As with any financial strategy.98% ITD Sharpe Ratio: 1.2MM Since Inception Return (gross): 19.3M Since Inception Return (gross): 1. S&P: 10. it will be important to keep a vigilant eye on theoretical discoveries in the area of volatility. b) Spreads (edge) in the marketplace will narrow. success will encourage others to devote talent and resources. Therefore it is quite possible the Investment Analytics volatility arbitrage strategy will be quite viable for the foreseeable future.99% Total Months Since Inception: 21 % Positive Months Since Inception: 81% Annualized alpha vs. How long did it take you to recover from the largest peaks to valley drawdowns? Draw down ______ Start ___________ Bottom _________ Full Recovery______________ Reason . or c) The less talented entrants will be squeezed out and move on to other areas.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE . The most likely scenario by that time is a recovering stock market. Over time.94% ITD Sharpe Ratio: 6. Investment Analytics management foresees this process as taking a minimum of three to five years.Summary Performance As of most recent calendar month end: (Figures reported below are as of 1st July.27 Correlation to S&P: 0.853.47% ITD Annualized Daily Std Deviation: 6. a rising market tends to lead people away from statistical based strategies and back to the realm of directional and momentum strategies. 2004) Year-to-Date Return (gross): 12. Only in the past year has “Volatility” become a media buzzword. What is the highest number of days in a month you would expect to show negative returns? We expect the highest number of negative return days in a month to be 6 out of 20.5M Do you expect the strategy’s performance going forward to differ from prior performance? Why? “ In recent years many important discoveries have been made in the study of volatility. leading to expanding marketplace [there are already signs of increased public participation (retail) returning to the options market]. it has been slow to attract the attention and resources of the powerhouse firms on Wall Street.Summary Performance As of most recent calendar month end: (Figures reported below are as of 1st July. As a niche area of the marketplace. In addition.14 - STRATEGY PERFORMANCE Strategic Volatility Strategy .429% AUM (this strategy): $13.
spread over 100-150 symbols.40% 12.82% -0.14% -1. while other issues may perform without distinction for a period and then produce favorable results.29% 18.71% -1.81% -1.15 - -5.37% 2.22% 1.75% 16.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE .62% 1.37% 0.47% . the portfolio can lean as high as 70% to 30% in either direction. We expect returns to remain consistent under most market conditions Provide monthly returns for the strategies which use the Investment Analytics Investment Program.19% -0. The losses and gains in the Investment Analytics portfolio are spread over a broad range of issues.60% 0.09% Dec-03 Feb-04 3 months See details below How volatile is the strategy relative to its peers? The volatility of the fund will be commensurate with its return.54% 14.08% 12.37% Cumulative Since Oct-02 -1.18% 1. Historically the portfolio has shown an approximate 60% short volatility bias.90% 0. Do you expect to turn a profit in all positions? While the investment advisor expects to turn a profit in all positions.44% -0. In any given period of time.21% 1.44% 16.14% 3.68% 16. What is the average number of investments in the portfolio? What is the breakdown in terms of long and short? The average number of positions in a portfolio is 400-600.21% 14. The Strategy definitely does not turn a profit on every issue.87% 19.50% 14. it has been less than perfect.96% 14.03% -1.52% 15. Several issues in any given portfolio may act as nothing more than a hedge for other higher profit potential aspects of the given portfolio.80% 1. Is the fund's investment process easily repeatable or did an isolated incident cause the fund to report good performance? We have no difficulty producing consistently high returns in every month since Feb 2003.72% 14.08% 2.97% 18.41% 17.49% -0.39% 2.14% Gross Monthly Returns -1.14% -0. Caissa Capital Strategic Volatility Fund Inception: October 2002 Month Gross Year Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 2.55% 10.64% 15. How often do a few positions account for most of the returns of the strategy on any given day? Some issues seem to have ongoing success. Investment Analytics does not have a long volatility or short volatility mandate.37% 2.75% 12.33% 18.53% 0.
NO REPRESENTATION IS MADE THAT ANY INVESTOR IN THE PARTNERSHIP WILL OR IS LIKELY TO ACHIEVE RESULTS COMPRABLE TO THOSE SHOWN OR WILL MAKE ANY PROFIT AT ALL OR WILL BE ABLE TO AVOID INCURING SUBSTANTIAL LOSSES.INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE .17% 282.64% 8.56% 556.26% 226.06% Cumulative Since Oct-02 -0. While every effort has been made to provide data from sources considered to be reliable. Past performance is not necessarily an indicator of future results.29% 9.30% 0.74% 28.26% 16.16 - Caissa Capital Volatility Opportunity Fund Inception: October 2002 Month Gross Year Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 8.28% 1692. Investment Analytics (Bermuda) Ltd does not solicit investments on behalf of any fund.99% 1551. Such activities may be made only pursuant to a private placement memorandum. The fund may employ leverage.33% 1838.23% 26.93% -0.00% Strategies undertaken by the fund are not intended to track any index. As a matter of practice.93% 1834. Nothing here should be construed as a solicitation of clients.23% 47.52% 1.22% -6.43% 3.94% 1839. .31% 17.52% Gross Monthly Returns -0.55% -9.89% 52.61% 1768.52% 1838.35% 1623.61% 0.48% 344.84% 8.48% 1097.35% -3. no guarantee of accuracy is given.51% 0.82% 687.71% 1582.93% 151.04% 11.75% 19.00% 154.07% 1877.28% 1231.28% 17. or as an offer to sell or a solicitation of an offer to invest in the fund.58% 8.93% 0.
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