Lawrence Park
Capital Partners
Lawrence Park Credit Strategies Fund
Executive summary
• Fixed income has traditionally provided investors with a
safe haven from stock market volatility. After 30 years of
falling interest rates, investors have become accustomed
to high-quality returns.
• Now, questions abound as to whether the bond bull
market is coming to an end. Some analysts are
recommending a significant reduction in fixed-income
exposure.
• Wait! There is an alternative: Alternative fixed-income
strategies such as the Lawrence Park Credit Strategies
Fund, target fixed income-like returns with downside
protection against rising rates.
Current markets:
volatility and uncertainty
The world has become an uncertain
place. In the last four years, market
volatility has nearly doubled from the
previous four.
Equity volatility and demographics
have pushed Canadian investors
towards fixed income. Mutual fund
fixed income assets have nearly
doubled from $100 billion to over
$200 billion since 2008.
VIX Average
Jan 2004-Jan-2008 14.7%
Jan 2008-Jan 2012 27.5%
80
70
VIX Volatility Index
60
50
40
30
20
10
0
2004
Assets Under Management (C$mm)
250,000
90
200,000
Fixed Income Mutual Funds
150,000
100,000
50,000
0
2005
2006
2008
2009
2010
2012
Source: Chicago Board Options Exchange, Insight Industry Review: Jan 2012
2006
2007
2008
2009
2010
2011
Current markets:
volatility and uncertainty
Meanwhile, bond yields have been driven to new lows and offer little or no
protection to inflation risks from here. Real rates of return are now negative!
6
10y Canadian Government Yield
Canadian CPI YoY (12mo moving avg)
5
4
3
Negative
real returns!
2
1
0
2004
2005
Source: Bloomberg
2006
2007
2008
2009
2010
2011
2012
2013
The big picture:
A 50-year cycle in bonds
Bonds today pay less income than stocks for the first time in
over 50 years!
TSX Dividend Yield (
)
Canada Long Bond Yield (
18
Median: 3.16
Average: 3.08
)
18
16
16
25-year bond
bear market
14
30-year bond
bull market
14
12
12
10
10
8
8
6
6
4
4
2.85
2.42
2
0
2
0
1955
1960
M1623
Source: TD Newcrest, Dec 2011
1965
1970
1975
1980
1985
1990
1995
2000
2005
Average yield of Govt of Canada bonds with at least 10 years to maturity
2010
DEC 2011
Traditional fixed income:
right for 2012?
• Despite the shift to fixed income, there are currently few alternatives
to traditional long-only bond funds.
• Traditional fixed-income funds are taking a mix of interest rate and credit
risk. So far in 2012, that has led to higher volatility and lower returns.
102.5
102
101.8
101.5
101
100.5
100
100
99.5
99
98.5
Corporate Index excess return
DEX Canadian Corporate Bond Index
98
97.5
31-Dec
98.2
DEX Government Bond Index
10-Jan
20-Jan
Source: Scotia Capital / Internal Analysis
30-Jan
09-Feb
19-Feb
29-Feb
10-Mar
20-Mar
30-Mar
Fixed income with a difference
The Lawrence Park Credit Strategies Fund is an
actively managed fixed-income strategy with three
central differences to traditional bond funds.
• We hedge the portfolio against rising interest rates
• We diversify beyond Canada’s narrow sectoral bias
• We take both long and short positions to reduce
volatility and generate consistent returns.
Credit arbitrage: stable returns
through volatile markets
•
•
Credit arbitrage is a strategy that takes advantage of pricing inefficiencies of credit
instruments in global markets. The Lawrence Park approach is typically described
within the hedge fund industry as a credit arbitrage strategy.
HFR, a leading hedge fund industry analyst, began tracking an index of credit
arbitrage funds at the end of 2004. Since then, these funds have significantly
outperformed traditional asset classes.
Comparative Performance
(Dec 31/2004 – Feb 29/2012 inclusive)
Total Return (All dividends re-invested)
90.00
80.00
71.66
65.40
70.00
60.00
50.00
45.53
40.00
30.00
20.00
HFR Credit Arbitrage Index (USD)
10.00
DEX Canadian Bond Universe (CAD)
(10.00)
31-Jan-05
SPTSX Composite Index (CAD)
31-Jan-06
31-Jan-07
31-Jan-08
30-Jan-09
30-Jan-10
30-Jan-11
This graph shows comparative results of the three investment strategies over the past 6 years (as represented by the enumerated indices) and is
not representative of the Fund’s past performance or future performance. The Fund was launched on March 1, 2012.
30-Jan-12
Multiple alpha sourcing strategies
Credit
arbitrage
Relative value
credit
Absolute value
trading
Single name
Long/short
Pairs Trading
Low volatility
Carry &
convergence
Capital structure
arbitrage
Single name vs.
Index trading
Short &
Medium term total
return
Credit curve
arbitrage
Core portfolio
liquidity hedges
Trade examples – relative value
Buy Cdn Oil Sands 4.5% Apr 2022 USD
vs.
Sell Encana 3.9% Nov 2021 USD
Rationale: Capture COS new issue premium; long oil producer,
240
short natural gas producer
220
Entry spread (March 26):
– Buy COS 4.5% at T+235 (new issue) 200
– Short sell ECA 3.9% at T+205
– Sell COS 4.5% at T+219
– Buy ECA 3.9% at T+216
Price chg:
COS +1.30%, ECA -0.86%
90
80
70
COS 4.5% Apr22 (LHS)
180
Exit spread (April 20):
100
ECA 3.9% Nov21 (LHS)
50
40
Difference (RHS)
160
60
30
20
140
10
120
0
26-Mar
Total: 2.16% @ 2:1 leverage =4.32%
Annualized Return on Capital = 63%*
Source: Bloomberg* Carry and borrowing costs estimated at 0.09% /annum
01-Apr
07-Apr
13-Apr
19-Apr
Trade examples – credit arbitrage
BAC Series L Preferred Shares
vs.
BAC FRN Perpetual Tier 1 Bonds
Rationale:
– Capture price differential between similar securities trading in two different markets
– Actively trade in and out of position during volatile markets
Trade period: Nov 2011-Jan
2012 (60 days)
Target entry: 5 point price differential
Target exit: 0 point price differential
Return: 3 turns at 5% per turn
Unlevered return 15%
80
Difference (RHS)
BAC Perpetual Tier 1 (LHS)
BAC Series L Pfd (LHS)
Entry Point
Exit Point
75
70
30
25
20
65
15
60
10
55
5
50
0
Annualized return on capital: 90%* 45
40
18-Oct
Source: Bloomberg, *Carry and borrowing costs estimated at 0.75% /annum
-5
-10
29-Oct
09-Nov
20-Nov
01-Dec
12-Dec
23-Dec
03-Jan
Lawrence Park:
A High quality team…
David Fry, CFA
Andrew Torres
Chief Executive Officer
Former Head of Global Markets for
Deutsche Bank Canada, with 18
years fixed-income experience in
Toronto, London and NY
Chief Investment Officer
65 years
combined
Fixed
Income
experience
Peter Metcalfe, CFA
Portfolio Manager
Former Head of US Credit Trading
for TD Securities with 13 years
experience in NY and London
Former Vice Chair and Global Head
of Credit Trading for TD Securities,
with 17 years trading experience in
London, Toronto and NY
Over 50
years
combined
International
experience
John Young, CA, CFA
Finance and Operations
Former Head of Europe for Fore
Research and Management, with
17 years experience in London, NY
and Toronto
… with the backing of one of Canada’s
largest independent asset managers
• On February 14, 2012, CI Financial agreed to purchase a minority
stake in Lawrence Park Capital Partners Ltd. and to be a founding
investor in the Lawrence Park Credit Strategies Fund.
• With this transaction, Lawrence Park gained the following:
– Significant investment capital to create the launch scale necessary to run a diversified
credit strategy.
– Branding and validation from one of the best names in the Canadian investment
community
– Access to one of the largest fund distribution channels in the country.
– Use of CI’s best-in-class client interface and back office functions
– Strategic focus from CI to help grow the LP Credit Strategies Fund
“In Lawrence Park, we have identified an exceptional opportunity for growth and a firm that can benefit from CI’s support.
The portfolio managers have used their talent and extensive experience in the income markets to develop a credit-focused
fund that is unique in the Canadian marketplace.”
– Stephen MacPhail
CEO, CI Financial
February 14, 2012
Summary
• Interest rate volatility should be a real concern to fixed
income investors.
• An actively managed credit portfolio offers a viable
diversification from traditional bond funds.
• The Lawrence Park Credit
Strategies Fund targets consistent
returns with an emphasis on
capital preservation.
• The Lawrence Park team have built
their careers around the global fixed
income and credit markets.
Fund overview
Fund
Lawrence Park Credit Strategies Fund
Manager
Lawrence Park Capital Partners Ltd.
Fund Codes
CIG 6451; CIG 6453
RRSP Eligible
Yes
Objective
8-10% total annualized returns* over the cycle, net of fees with low
volatility, low correlation and below market credit beta
*There is no guarantee that the Fund’s objective can be met, or that the Fund will earn a profit at all
Strategy
Relative value credit; credit arbitrage; absolute value credit
Subscription
Monthly; C$150,000 minimum
Redemption
Monthly, with 45 days notice; 5% early redemption fee if redeemed
within 12 months
Management Fee
2.0% (1.25% for fee-based accounts)
Performance Fee
20%
Trailer
0.75% (no trailer for fee-based accounts)
High water mark
Permanent
Contact us
The Lawrence Park Credit Strategies Fund is offered to Accredited
Investors in Canada*. Please contact us for full offering documents.
Lawrence Park Capital Partners Ltd.
2 Berkeley Street, Suite 304
Toronto, Ontario
M5A 4J5
(416) 646-2180
www.lpcapitalpartners.com
David A. Fry, MBA, CFA
david.fry@lpcapitalpartners.com
Andrew C. Torres
andrew.torres@lpcapitalpartners.com
John B. Young, CFA, CA
john.young@lpcapitalpartners.com
Peter E. Metcalfe, CFA
peter.metcalfe@lpcapitalpartners.com
*Lawrence Park Capital Partners Ltd. is registered as an Exempt Market Dealer, Portfolio Manager and Investment
Fund Manager in Ontario, Quebec, Manitoba, Saskatchewan, Alberta and British Columbia
Appendices
Manager biographies
Our executive team
David Fry, CFA
Chief Executive Officer
Andrew Torres
Chief Investment Officer
Peter Metcalfe, CFA
Portfolio Manager
John Young, CFA
Chief Financial/Chief
Operating Officer
David has been building or managing fixed-income businesses for the past 18 years,
most recently with Deutsche Bank, where he was Head of Global Markets for Canada.
Before this, David ran fixed-income groups at ABN Amro in London, and TD Securities in
London, New York and Toronto. David has an MBA from McGill University and has been
a CFA charterholder since 1996.
Andrew has been trading credit for most of his 17 year career, primarily with TD
Securities in London, New York and Toronto. By the time he left TD, Andrew was Vice
Chair and Global Head of Credit Products, a $30 billion trading business. More recently,
Andrew was a partner and portfolio manager at the London office of Aladdin Capital
Management, an $18 billion credit asset manager.
Peter brings 13 years of credit trading experience to Lawrence Park, as a senior
member of the Credit Products group at TD Securities. While at TD, Andrew and Peter
traded together for over seven years, including setting up a proprietary trading desk in
New York. Peter went on to successfully run the NY desk himself for a number of years,
focusing on credit, convertible, and capital structure arbitrage. Peter received his CFA
charter in 2011.
John’s career in finance spans 17 years, having traded large credit portfolios at both a
major bank and a global hedge fund. In London, John was the European Portfolio
Manager for Fore Research, a New York based global hedge fund. John was previously
a senior member of the convertible arbitrage desk at TD Securities in New York. John
has been a CFA charterholder since 1996 and earned a CA designation in 1991.
Our advisory board
Our advisory board provides guidance and counsel on an ongoing basis.
We are grateful to have the support of such prominent members of the
Canadian business community.
Donald Wright
Founder of The Winnington Capital Group, Don is former Chairman and Chief Executive Office of
TD Securities Inc., and Deputy Chairman of TD Bank Financial Group. He sits on the board of
directors for numerous Canadian entities, including, Cinaport Capital, GMP Capital, MaRS
Innovation and Tuscany International Drilling. Don is currently a member of the Board of
Trustees of The Hospital for Sick Children and a Member of the Royal Ontario Museum
Governors’ Finance Committee.
Richard
Kostoff
Rick is an active consultant to the Financial Services sector in Canada, and is founder and Chair
of Temple Rock Holdings Inc. Rick is a former Deputy Chair of TD Securities Inc., and played an
active role establishing TDSI as a top tier franchise in debt capital markets. Mr. Kostoff currently
serves as a director for the Ontario Finance Authority, The OCADU Foundation Board and is
Chair of Theatrefront, a non-profit theatre group.
Peter Anderson
Peter W. Anderson is Executive Vice-President and Chief Investment Officer of CI Financial
Corp. In this role, he is a key member of CI’s executive team and, as CIO, focuses on
CI’s development of its portfolio management teams and relationships with sub-advisors.
Mr. Anderson joined CI in 1997 as Executive Vice-President and was named President of
CI Investments Inc. in 1999. He also became Chief Executive Officer of CI Investments in
2003. He held the CEO position until March 2010. Prior to joining CI, he was Managing Director
with ScotiaMcLeod Inc. He holds a business degree from the University of News Brunswick.
•
THIS SUMMARY HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY, SOLELY AS A PRELIMINARY
DOCUMENT TO DETERMINE INVESTOR INTEREST REGARDING LAWRENCE PARK CREDIT STRATEGIES FUND (THE
“FUND”), WHICH IS DESCRIBED HEREIN. EXCEPT AS OTHERWISE DESCRIBED IN THE FUND’S CONFIDENTIAL PRIVATE
PLACEMENT MEMORANDUM (THE “PPM”), DATED FEBRUARY 24, 2012, THIS DOCUMENT MAY NOT BE REPRODUCED
FOR ANY PURPOSE OR PROVIDED TO OTHERS IN WHOLE OR IN PART WITHOUT THE PRIOR WRITTEN PERMISSION OF
THE FUND MANAGER OF THE FUND (THE “FUND MANAGER”). AN OFFER OR SOLICITATION WILL BE MADE ONLY
THROUGH THE PPM, AND WILL BE SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THE PPM. THIS
SUMMARY DOES NOT CONSTITUTE AN OFFER TO SELL OR BUY ANY SECURITIES. THE INFORMATION SET FORTH
HEREIN DOES NOT PURPORT TO BE COMPLETE AND IS INTENDED TO BE READ IN CONJUNCTION WITH THE PPM. ALL
INFORMATION AND OPINIONS AS WELL AS ANY FIGURES INDICATED HEREIN ARE SUBJECT TO CHANGE WITHOUT
NOTICE. THE INVESTMENT RATES OF RETURN SET FORTH HEREIN DO NOT REFLECT MANAGEMENT FEES, EXPENSES
OR CARRIED INTEREST TO BE CHARGED BY THE FUND MANAGER.
•
THIS PRODUCT WILL BE AVAILABLE TO ACCREDITED INVESTORS AS THAT TERM IS DEFINED UNDER CANADIAN
SECURITIES LEGISLATION. IN ONTARIO, IN ORDER FOR INVESTORS TO BE CONSIDERED ACCREDITED INVESTORS,
INVESTORS MUST MEET CERTAIN ELIGIBILITY REQUIREMENTS WITH REGARDS TO FINANCIAL ASSETS AND/OR
INCOME HISTORY. AN INVESTMENT IN THE FUND WILL INVOLVE SIGNIFICANT RISKS DUE, AMONG OTHER THINGS, TO
THE NATURE OF THE FUND’S INVESTMENTS. THE RISK FACTORS WILL BE CONTAINED IN THE PPM. INVESTORS
SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT RISKS WHICH ARE CHARACTERISTIC OF THE
INVESTMENTS DESCRIBED HEREIN. THIS PRESENTATION DOES NOT CONSIDER THE SPECIFIC INVESTMENT
OBJECTIVES, FINANCIAL SITUATION OR PARTICULAR NEEDS OF ANY RECIPIENT. NO ASSURANCE CAN BE GIVEN THAT
THE FUND’S INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT THE INVESTORS WILL RECEIVE A RETURN OF
THEIR CAPITAL. ACCORDINGLY, THE PPM SHOULD BE READ IN ITS ENTIRETY AND REVIEWED BY POTENTIAL
INVESTORS’ LEGAL AND FINANCIAL ADVISORS.
Thank you
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund
investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods
less than one year, the indicated rates of return are the historical annual compounded total returns including changes in
security value. All performance data assume reinvestment of all distributions or dividends and do not take into account
sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have
reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be
repeated.
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