PRIVACY CHALLENGES
A Competitive Response
SENTINEL INTERNATIONAL
ASSET MANAGEMENT
Goodman’s Bay Corporate Centre, West Bay Street, Nassau, Bahamas
Tel: 242-502-7000 Fax: 242-356-7466 E-mail: tony@sentinelbahamas.com
S
I
A
M
Contents
•
Summary
•
The Immediate Challenge to the Bahamas
•
An Immediate Solution
•
Product Concept
•
The Colina FlexFund Deferred Variable Annuity
•
The Strategic Alliance
•
Appendix I: Colina Insurance Company Limited
•
Appendix II: Sentinel International Asset Management (SIAM)
•
Appendix III: SIAM Funds and PlusFunds.com
2
S
I
A
M
Summary
•
Fundamental trends promoting strong challenge to banking secrecy in
the world’s no/low tax privacy havens
•
Immediate problem for Bahamas-based institutions are the U.S.
Qualified Jurisdiction/Qualified Intermediary rules
•
One solution protecting relationship with private clients is insurance
contracts legally providing privacy and unlimited tax deferral
•
We propose an alliance that provides an insurance wrap for your
private client relationships that:
– Protects the privacy of your clients
– Protects your relationship with your clients
– Offers new services that will benefit you and your clients
3
S
I
A
M
The Immediate Challenge to the Bahamas
•
Crises to be resolved
– U.S. has delayed grant of Qualified Jurisdiction status to Bahamas
– Prevents Bahamian bank eligibility for Qualified Intermediary status
– All clients owning U.S. assets face immediate exposure
• After January 1, 2000, beneficial owners of U.S. assets in custody must be reported, or
• 30/31% withholding on dividends, interest and gross proceeds of U.S. asset sales
– Competitive disadvantage with Cayman Islands (granted QJ status)
•
New legislation may severely reduce banking secrecy
– Judiciary may lose power to protect banks from unreasonable intrusion
– Proposed Financial Intelligence Unit will have extraordinary enforcement powers
•
Legal controversy on protection for trusts, IBC’s and mutual funds
– May provide temporary safe harbor
– Certain to come under early and intense attack
4
S
I
A
M
An Immediate Solution
•
We have an insurance product in place that
– Can immediately house new and existing assets held in the Bahamas
– Eliminates all individual and intermediary reporting requirements
– Legally defers taxes on U.S. investment income for an indefinite period
•
Structured as an insurance wrap on private client relationship
– Protects the client
– Preserves flexible investment powers for advisor
– Strong lock-in effect on client assets
5
S
I
A
M
Product Concept
•
Structured as a Flexible Premium Deferred Variable Annuity
– Traditionally, legal way of deferring taxes on investment income in U.S.
– Meets U.S. tax deferral rules
– One time 1% excise tax paid by U.S. person for policy from non-U.S. insurer
•
Flexible investment powers
– Each policy has segregated reserve (asset) account owned by Colina
– Policy owner or agent directs selection of funds and activity
•
No reporting requirements on investments or income prior to term of policy
– By Company to Bahamas
– By insured to home Government
•
Delivered by an alliance between
– Private bank
– Client’s legal counsel
– Colina Insurance Company Limited (See Appendix I)
– Sentinel International Asset Management Ltd (See Appendix II)
6
S
I
A
M
The Colina Deferred Variable Annuity
Colina Insurance
Legal Entity
• Approves and issues Policy
• Transfers funds to Colina
FlexFund
• Policy service
• Applies for Policy
• Sends funds to escrow account
• Selects funds
Colina FlexFund
Sentinel Bank & Trust
• FlexFund Administration
• FlexFund Accounting
• Establishes segregated series
• Acts on policy owner
instructions
• Accounts for investment
performance
Other Funds
• Requested by policy owner
• Approved by Colina FlexFund
SIAM
• Directs FlexFund investments
• Evaluates new options
SIAM Managed Funds*
Any Corporation
SSTIF (Money Market Fund)
SIAM U.S. Large Cap Markets
SIAM Diversified Investments
SIAM U.S. Growth Markets
SIAM Europe
SIAM Principal Protected Bond
Fund
• SIAM Forfaiting
• ABS SOS+ (high yield bond
fund)
• Liquid Opportunities Plus
• No/low tax jurisdiction
• Owned by Colina FlexFund
• Beneficial owner Colina
Insurance Company Limited
• Directed by trusted private
bank approved by Colina
• Any legal business
• May hold any property acquired
via purchase or exchanges for
private annuity
•
•
•
•
•
•
*See Appendix III
7
S
I
A
M
The Strategic Alliance
Private Bahamian Bank
• Banking license
• Trust and corporate services
• Trading and investment management
• Relations with major U.S. and non-U.S.
custodian banks
Colina Insurance Company
• Bahamian domestic insurance company
• Asset Allocation
• Delivery of investment products via
fixed and variable annuities issued in
Bahamas
• Investment
Products
• Optimal Delivery
Vehicles for Privacy
and Efficiency
Bahamian Legal Counsel
PlusFunds.com
• Client legal, estate and tax advice
• Legal design of investment products
• Internet fund marketplace
• See Appendix I for more information
Sentinel International
Management
Asset
• Investment product analysis and
design
• Portfolio management for funds,
private and institutional accounts
• Trading services for private and
institutional clients
Atlantic Portfolio Analytics and
Management, Inc
• Investment research and analysis
• Securities database infrastructure
• Product structuring
8
S
I
A
M
Appendix I
Colina Insurance Company Limited
•
Founded in 1965
•
Provider of health and life insurance for over thirty years
•
Purchased from CIGNA in 1997 by INSCO
•
A completely Bahamian company that provides comprehensive
financial services
– No OECD business base
– No OECD ownership
•
Reputation for integrity, trust and service
– One of largest administrators of public company and Government pension
assets in the Bahamas
– Over 54,000 life and health policies in force
•
Demonstrated record of innovation and performance
– Founding member of Bahamas Stock Exchange
– Raised 80% of all capital in new public offerings in Bahamas in last year
9
S
I
A
M
Appendix II
SENTINEL INTERNATIONAL
ASSET MANAGEMENT
S
I
A
M
Concept
•
Deliver world class investment services in the international environment
•
Providing clients a full range of investment alternatives with
– Efficient and responsive client service
– The highest standards of investment performance
– Flexible delivery options that protect investor privacy
•
Through an alliance of dedicated experts operating in the Bahamas
Sentinel International Asset Management is housed in the most modern facility in the Bahamas, with direct
satellite and high bandwidth fiber optics cable access to the Internet.
11
S
I
A
M
Client Service
•
Offer the investment products that investors want
– A full set of investment options
– Deep expertise in specialty market investments
– Strong trading skills and relationships
•
House assets in the most effective vehicle available
– Privacy
– Asset protection
– Tax efficiency
– Favorable conveyance properties
•
Most modern electronic communications systems
•
Solid operational support in all phases of asset management process
•
Total commitment to the private conduct of private affairs
12
S
I
A
M
Investment Services
•
Comprehensive asset allocation analysis
•
Internally managed funds where we offer a clear competitive advantage
– Unique technologically driven investment strategies
– Benign transparency and protection for the investor
•
Branded or third party funds to access the best available investment
products
•
Efficient trade execution for client accounts
•
Delivery vehicles that optimize privacy and conveyance properties
13
S
I
A
M
Investment Performance
•
The prerequisites of good investment performance are
– Integrity of valuation and risk management analytics
– Trading discipline
– Operational efficiency
•
Exploiting risks that are
– Measurable
– Manageable
– Necessary (to achieve the return objectives of the client.)
•
Delivered in investment vehicles that
– Are structurally appropriate for the liquidity and risks of the underlying strategy
– Provide transparency and liquidity
– Maximize net returns to the investors
14
S
I
A
M
Investment Technology
SIAM integrates the state-of-the-art computational
finance into its investment process
–
Market and risk factor simulators
•
•
•
–
30%
25%
Large scale horizon return simulation
Generalized duration analysis
VAR and bounding case analysis
20%
–
Portfolio optimization systems
–
Investment management process integrated with
investment technology
15%
10%
5%
0%
-5%
Data support infrastructure
–
35%
Portfolio risk and return measurement
•
•
•
•
Portfolio Return Profile
Treasury and swap based term structure models
Mortgage prepayment models
Credit default models
One-Year Total Return
•
160 Gigabyte database of 1.2 million securities
including
•
Agency mortgage passthrough and derivative securities
•
Treasuries and Agency securities
•
Models and data on most structured ABS and MBS
products
•
Price histories for securities and options
-10%
-15%
4.8
5.3
5.8
6.3
$ 100 M M C apital
–
Ability to manage data on security or portfolio level
–
Distributed processing across a network of highend workstations
15
6.8
7.3
7.8
8.3
8.8
9.3
9.8
10.3
5-Year S wap Rate at H orizon
$ 75 M M C apital
$ 50 M M C apital
Example: SIAM analytic system defines horizon
return profile for complex mortgage derivative
portfolio at different degrees of leverage.
S
I
A
M
Delivery Vehicles
•
Custom designs to meet all client needs
– Transparency
– Liquidity and accessibility
– Privacy
•
Optimally exploit combinations of all available legal structures
– Private banking relationship with independent Bahamian bank
– Trusts
– Exempt corporations
– Funds
– Deferred variable annuity products
– Internet marketplaces
•
Strategic alliances to provide all elements for products that meet the
most exacting client specifications
16
S
I
A
M
Management Expertise
•
Jon M. Knight, Ph.D.
As President of SIAM, Dr. Knight supervises the investment management process, research, product and business
development. He has been providing economic and investment advice for over twenty-five years, serving as Chief
Investment Officer for a US investment manager with over US$3 billion under management, as Vice President of U.S.
financial technology company, Director of a Bermuda reinsurance company, and Director of Sentinel Bank & Trust, Ltd. Dr.
Knight has also been an Associate Professor of Economics at the Florida Institute of Technology and served as Chief of
Economic Forecasting for the Florida Legislature. He earned a Bachelors of Industrial Engineering from the Georgia
Institute of Technology and a Master of Engineering and a Ph.D. in Economics from Texas A&M University. Series 3, 7, and
24 licenses in U.S.
•
J. Anthony Huggins, Ph.D.
As Managing Director of SIAM, Dr. Huggins is involved in product and business development and serves on several
investment committees for funds operated by SIAM. He has been providing economic and investment advice for over thirty
years, serving as President of a US$3 billion US investment manager, President of a U.S. financial technology company,
Chairman of Board of a Bermuda life reinsurance company. Dr. Huggins also served as Chief Economist and Investment
Strategist for Florida’s State Board of Administration (which manages the $100 billion State employee pension fund), and
Chief Economic Advisor to Florida Governors Askew and Graham. Dr. Huggins earned his Ph.D. in Economics from Florida
State University. Series 3, 7 and 24 in U.S.
•
Raymond Pousaz, MBA
As Managing Director of SIAM, Mr. Pousaz is involved in product and business development and serves on several
investment committees for funds operated by SIAM. He has been providing financial and investment advice for over thirty
years. acting as Managing Director of Swiss owned investment management firm in Nassau. General Manager of Uto Bank,
a Zurich private bank, and Managing Director of Bankers Trust AG Zurich and Vice President of Bankers Trust Company. Mr.
Pousaz is a graduate of Lausanne University and earned a Master Degree in Business Administration from the Harvard
Business School. He was chairman of the Harvard of Club of Switzerland (Geneva) and is a director of numerous
corporations.
17
S
I
A
M
Investment Expertise
•
Joseph E. Muehl, MBA
Mr. Muehl is Managing Director of Trading at SIAM and serves as manager of two portfolios. He directs relative
value analysis and trades all investments related to MBS collateral. He develops and executes hedging strategies
using liquid Government Agency MBS passthrough securities for SIAM’s investment funds. Mr. Muehl has
fourteen years of experience in actively trading MBS passthroughs for Wall Street firms such as Union Bank of
Switzerland (UBS), Prudential Securities and Dean Witter Reynolds. Mr. Muehl earned a B.S. from Rutgers
University in 1982 and an MBA from Fordham University in 1985.
•
Jonathan P. Knight, Ph.D.
Dr. Knight is Managing Director for Technology at SIAM and serves as portfolio manager of two portfolios. He is
expert in the analysis and trading of mortgage related asset backed securities and mortgage derivatives. He
manages risk modeling and due diligence efforts prerequisite to investing in these sectors. Dr. Knight was
previously responsible for managing Levered Mortgage Arbitrage portfolios, overseeing the capital committed to
levering and hedging mortgage derivatives and correlated instruments. Prior to SIAM, Dr. Knight was Director
of Research for a US$3 billion U.S. investment manager. Before entering the financial arena, Dr. Knight’s
technical background was in large-scale optimization of chemical process design. He earned his Ph.D. in
Chemical Engineering with a minor in Applied Mathematics from MIT.
•
Anthony R. Ferguson, CFA
As Managing Director of SIAM, Mr. Ferguson brings fourteen years of experience to his role as portfolio manager
and trader for two of SIAM’s funds and directs the execution of equity trading for all client accounts. He is also
Director of two insurance companies and Sentinel Bank & Trust, Ltd., past member of Securities Market Task
Force and Director of the National Insurance Board. He has a degree in Finance from Acadia University and is
past President of the Bahamas Society of Financial Analysts. He is currently a member of the Council of
Examiners for the Association of Investment Management & Research (AIMR).
18
S
I
A
M
Operational Expertise
•
Richard T. Grelecki
Based upon twenty-five years of financial experience, Mr. Grelecki provides advice on business valuation and on the
credit-worthiness of underlying collateral for asset backed security deals. He is Chief Operating Officer of a U.S.
financial technology firm. Previously COO of US$3 billion U.S. registered investment advisor and past Chairman and
CEO of Palm Beach Savings, a south Florida banking institution.
•
Deborah Krise
Ms. Krise has over eighteen years experience in all aspects of portfolio operations, fund administration, and securities
portfolio accounting for total return funds, hedge funds, insurance companies and banks. She has managed settlements,
collections and payments, fund administration, and fund accounting functions. Ms. Krise has special expertise in
accounting for all types of mortgage, asset backed and derivative securities and levered portfolio performance.
•
Amy Sorrell
Ms. Sorrell has over ten years experience in all aspects of trading and managing the operations of both total return and
levered capital portfolios. She has handled both trading of short-term instruments and active financing and collateral
management of portfolio positions among multiple dealers. Moreover she has managed all aspects of portfolio
operations, including establishing and maintaining credit lines with dealers and management of data management
system integrity.
•
Desiree Parker
Ms. Parker has five years of experience trading Treasuries, Commercial Paper, and repurchase agreement transactions,
and she executes equity trades on the behalf of client accounts. She is a member of the Association for Investment
Management and Research, and was awarded the CFA charter in September 1999. Prior to joining the Investment
Manager, Ms. Parker was a Senior Trust Officer for Ansbacher (Bahamas) Ltd. She holds a Bachelors Degree in Finance
from Acadia University.
19
S
I
A
M
Appendix III
Available SIAM Funds
PlusFunds.com
S
I
A
M
SIAM Funds
Fund
Investor
Profile
ABS SOS Plus
Partners
Target Return:
10-30%
Risk Tolerance:
Moderately
Aggressive
Liquid Opportunity
Plus Funds
Target Return:
8-12%
Risk Tolerance:
Moderate to Low
SIAM Principal
Protected Bond
Fund
SIAM Diversified
Investments
Sentinel Short Term
Investment Fund
5-year horizon
Target Return:
9-14%
Very little
principal risk
maturity
Target Return:
10-50%
Risk Tolerance:
Aggressive
Target Return:
short term bank
deposit rates
Risk Tolerance:
Very Low
Strategy
Features
Unlevered market neutral
 3-year redemption
investments in subordinate
lock
classes of mortgage related  Quarterly coupon
asset backed securities
 Returns uncorrelated
with major market
indices
Active trading of U.S.
 Unlimited monthly
Government agency MBS,
liquidity – no fee
Treasury and derivatives
 Minimal interest rate
markets
risk
 Return uncorrelated
with market indices
Combination:
 5-year expected
(1) Active trading/ liquid
maturity
products
 Principal protection at
(2) Opportunistic buy-in
term by Bear Stearns
distressed assets
 May redeem monthly
(3) 3rd party guarantor
at NAV with 2% fee
SIAM selects managers for  Quarterly
established track record,
subscriptions
clarity of risk factors
 Annual redemption
exploited, sound risk
management, compatible
liquidity provisions
Conservative short-term
 Bank client access
high grade investments
 Subscriptions daily
optimized against
 Two-day notice for
expected liquidity
redemptions
requirements
 Reserve fund
protection
21
PlusFund
Platform
Yes – See page
23
Yes – See Page
23
No
No
No
S
I
A
M
SIAM Funds
Fund
SIAM U.S. Large Cap
Markets
SIAM U.S. Growth
Markets
SIAM Europe
SIAM Forfaiting
Investor
Profile
Target Return:
S&P Index
Risk Tolerance:
Moderate
Target Return:
NASDAQ Index
Risk Tolerance:
Aggressive
Growth
Target Return:
EMU Market
Index
Risk Tolerance:
Moderate
Target Return:
15-60%
Risk Tolerance:
Very Aggressive
Strategy
Features
PlusFund
Platform
Assemble broadly
diversified portfolio of large
cap U.S. based companies
with beta between 0.9 and
1.1 versus S&P index
Assemble broadly diversified
portfolio of U.S. based growth
companies with beta between
0.9 and 1.1 versus NASDAQ
index
 Monthly liquidity
 $10,000 minimum
initial investment
 No sales charge
No
 Monthly liquidity
 $10,000 minimum
initial investment
 No sales charge
No
Assemble broadly diversified
portfolio of large cap EMU
based companies with beta
between 0.9 and 1.1 versus
Morgan Stanley index of EMU
based companies
Purchases and services
whole loans and
receivables originated by
Caribbean region banking
institutions for separate
investor accounts
 Monthly liquidity
 $10,000 minimum
investment
 No sales charges
No
 Separate portfolio for
each investor
 Cash flows paid out as
received
 No sales charges
No
22
S
I
A
M
PlusFunds.com
•
Two SIAM offered hedge funds currently listed and included in
PlusFunds.com hedge fund index
– ABS SOS Plus Partners, Ltd
– Liquid Opportunities Plus Fund, Ltd
•
PlusFunds.com has been developed to provide:
– Internet hedge fund marketplace
– Standardized fund structure
– Subscriptions and shares maintained through Euroclear or Clearstream
– Fund information published real time on www.plusfunds.com
• Daily risk analysis by S&P
• Daily or real-time valuation by Ernst & Young
• Bids and offers posted by primary dealer market makers
– Shares traded 22/6 on Bermuda Stock Exchange
23
S
I
A
M