You are on page 1of 9

Orion Investment Management Ltd.

SafeHarbor 2 Year Treasury Enhancement

Product and Performance Review

November, 2010

Orion Investment Management Ltd. 11/17/2010 1

Investment Summary Accounts looking for a better alternative to fixed deposits. US Dollar denominated debt securities with Universe a primary focus on the Treasury Market To generate a high level of current income. 11/17/2010 2 . no derivatives. savings and Suitability money market funds irrespective of market conditions Actively managed short term income program focused on absolute return utilizing systematic asset deployment in conjunction with Strategy strategic macro research. The combined approach focuses heavily on risk control Cash only. consistent with the Objective preservation of invested capital while maintaining liquidity Benchmark US 2 Year Treasury benchmark Orion Investment Management Ltd.

Investment Strategy  Quantitative models and active management add value irrespective of business cycle.  Operational transparency increases confidence in the Manager and the process Orion’s ability to outperform without relying on credit and derivative instruments for excess return is a distinguishing feature of the fund Orion Investment Management Ltd.  Incorporating a strategic macro economic outlook helps avoid emerging risks and dampen volatility by identifying structural changes in the investment landscape. 11/17/2010 3 .

Sector Fair Value Analysis: On selection of the appropriate maturity sector. a systematic analysis is performed on the entire universe of assets in that sector.  Step 3 .Model Process The SafeHarbor Treasury Enhancement Model employs a 3-step process for selecting the appropriate target sector of the Yield Curve  Step 1 .Investment Strategy .Maturity Sector Choice: Our Maximal Expected Information Ratio Model examines each portion of the yield curve and finds the best place to be through exchanging a small amount of risk for enhanced yield. 11/17/2010 4 .Portfolio Construction: an optimal weighting is calculated between the extension sector and the client’s chosen short term money market instrument so as to bound Portfolio volatility within defined constraints. Orion Investment Management Ltd.  Step 2 . The best asset is selected on the basis of highest yield-to- liquidity.

Strategic Macro Economic Outlook Incorporating a Macro Economic outlook as a risk overlay to the SafeHarbor Investment model decreases volatility. Conclusion: Take profit on US government Bonds move into Cash Repo in order to reduce volatility of returns. 11/17/2010 5 . The cost of issuing debt is greater than the return on Market investment (Short term) • Private sector net free cash flows strongest since 1970 • Decreased policy visibility means High near term volatility of bond returns • Rising tide of Protectionism dangerous for free trade Economic • US Small Business and Housing showing signs of basing (Medium term) • China rising rates • European Austerity and Ongoing Crisis Structural • Rising Tide of Protectionism • Big changes in solvency requirements of Financial Institutions and Money (Long term) Markets • AVOID U. means huge near term volatility with no clear trend. any exposure to European Debt problems Our secular economic view remains constructive on fixed income markets. the QE2 run up and Mid term election policy changes. with Fed Fund Futures pricing in lower than 25 bps yields through to 2012.S. However. Orion Investment Management Ltd.Investment Strategy . resulting in a higher risk adjusted return for the investor. Municipals. • QE2 not the solution.

11/17/2010 6 .Performance versus Benchmark Highlights 2010 148 Basis Points of Excess Return 2010 YTD 3.12% 8 7 The underperformance during 6 the first half of 2009 was due to 5 excessive volatility and market disruptions.60% return vs SafeHarbor 2YTR Benchmark return of 2. Capital preservation 4 more important than yield 3 2 From Mid 2009 to date we 1 were able to minimize the 0 volatility of returns and out Nov-07 -1 Jun-08 Dec-08 Jul-09 Jan-10 Aug-10 Feb-11 perform -2 Orion Investment Management Ltd.

11/17/2010 7 .Performance Since Inception Return Statistics Since Inception Historical Frequency Distribution of Returns March 2008 SafeHarbor vs.5 -0.86% 2.78 Deviation 15% Information 10% 2.75 1 1. Orion Investment Management Ltd.34 1.5 0.25 0.13 1. 2 Year Total Return Benchmark 2 Year Total 40% SafeHarbor SafeHarbor 2Y TR Return Index* 35% Annualized 30% 2.75 -0.25 0 0.28 Coefficient 5% 0% * source: Bloomberg data -1 -0.25 Key Notes:  The Graph shows that SafeHarbor performance is positively skewed with less downside than the 2 year benchmark.28% Return 25% Annualized Std 20% 1. Information Coefficient shows that the risk adjusted return is significantly better than investing in the benchmark.

Repo rate is US Treasury Reverse Repo AAA the effective daily fed funds rate 24% 0.48 Guaranteed Bonds Filtered using countries that have low debt to GDP ratios . but low nominal yield Supranational AAA Backed by IMF. decent yields. etc. higher yield. Net free cash flow lowest in 40 years Investment Grade Bonds BBB+ Some default risk. 28% 3.79 Orion Investment Management Ltd. limited supply 48% 1. attractive yields Portfolio Average AAA 100% 1. AAA Ultra safe but low yield Bonds. Strips US Agency Bonds AAA Higher yield. FDIC (TARP) Bonds AAA Ultra safe.Portfolio Investment Universe – Snapshot as of 14Nov10 Public Sector S&P Comments Weighting Duration (Years) US Treasury collateral held at Custodian. Australia US TIPS AAA Hedges inflation risk.01 US Government T Bills AAA Considered the risk free rate US Government Notes.Canada. attractive yields versus Public sector debt. ultra safe. Sweden. not explicitly backed by US Govt. Decent yields Private Sector High Grade Corporate Bonds AA + Low default risk.69 FDIC insured CDs AAA Higher yield than T-Bills but small liquidity risk USD Foreign Government AAA USD denominated. Norway. 11/17/2010 8 . World Bank.

Dr. Durenard holds a DEA in Mathematics from Ecole Normale Superieure in Paris and a PhD.Sc. Durenard CRO is responsible for risk oversight and contributes to product and trading strategy development. • Dr. 11/17/2010 9 . Mr. Eugene A.Orion Management Team • Mr. Traub holds a B. Dr.Sc. from the University of Delaware and MSc.A. Marsh CIO. Marsh holds a B. in Economics from George Mason University. • Dr. in Statistics & Operations Research from New York University's Stern School of Business. Pension and Endowment markets Orion Investment Management Ltd. Mr. is responsible for business development. Hirschberg CEO. from the California Institute of Technology and a PhD. is responsible for trading. Hirschberg holds a B. Traub CTO. operations and contributes to product and trading strategy development. Andrew M. Virginia. in Mathematics from Harvard University. marketing and contributes to product and trading strategy development. in Computer Science. Reinsurance. is responsible for quantitative research and oversees product and trading strategy development. from Edinburgh University. Eric S. The principals have over 60 years of combined investment and risk management experience and a strong network of connections in the Insurance. • Mr. Niklas G.