8
RoseCap Investment Advisors, LLC
The Next Generation of Investment Advisors…
PRESENTATION TO:
Palisade Risk Conference
Monte Carlo Resort & Casino
Las Vegas, NV
November 10, 2011
About the Firm
Registered investment advisor in the states of Colorado & Georgia.
Accredited with both CPA and CFA designation.
Independent investment advisory (not affiliated with a larger bank or financial
institution).
Fee only compensation structure.
Qualified third party custodian (TD Ameritrade Inc. Member FINRA/SIPC/FNA).
The Next Generation of Advisors…
Focus on Asset
Allocation
Risk
Management
Forward Looking
Data
Reduce Total
Management
Fees
• We believe
investment policy
explains over 90%
of the variation in
returns over time.
• Utilize ETFs and
mutual funds that
target specific
asset classes and
sectors.
• Strong focus on
correlations
between asset
classes.
• Quantitative and
qualitative risk
management
procedures.
• Monte Carlo
simulation and
financial modeling
are primary risk
management
tools.
• Traditionally
returns have been
projected linearly
based on average
historical returns
for an asset class.
• RoseCap utilizes
an expected
return calculated
based on current
macro and microeconomic data.
• Invest using
primarily low cost
securities, such as
ETFs and no-load
mutual funds.
• Only charge from
third party
custodian is
trading costs.
• Minimize portfolio
turnover.
“Real” Fiduciary
Responsibility
• RoseCap is not
affiliated with
larger bank or
financial
institution.
• No incentives to
place client assets
in bank products
or push additional
services.
The Next Generation of Investment Advisors…
PORTFOLIO MANAGEMENT
Note: Graphics used in this presentation are for illustrative purposes only and are not representative of actual or expected portfolio returns. Information included is entirely fictitious and
does not constitute investment advice or recommendations, and should not be relied upon in any way. The methods presented herein are simplified versions of the methods actually used
by RoseCap Investment Advisors, LLC and are not meant to serve as a guide for performing investment management, portfolio management, of financial planning services.
In no way does this presentation constitute investment advice. All numbers presented are for presentation purposes only. Making investments involves risk and past results are not a
guarantee of future performance.
Modern Portfolio Theory
“Risk” in portfolio management is defined as uncertainty in
future cash flows (more uncertain = higher risk).
Goal: Maximize expected return for a given level of risk.
Goal: Minimize risk for a given level of expected return.
Establish investment parameters for each security in a portfolio:
- Expected return
- Dispersion of returns
- Correlation with other securities in the portfolio
Note: Modern portfolio theory has been criticized heavily for being at fault in the financial crisis. I will address
such criticism at different points throughout this presentation.
Define Investment Objective
- Risk Assessment
- Expected Return
- Dispersion of Returns
- Monte Carlo Simulation
- 000’s of Iterations
- 95% Confidence Interval
Assumptions
Initial Investment
Expected Return
Std Deviation of Returns
Model Iterations
Fees & Expenses
Value at Risk %s
Top Threshold
Bottom Threshold
$500,000
5.708%
8.000%
10,000
1.500%
5.0%
95.0%
Note: Graphics used in this presentation are for illustrative purposes only
and are not representative of actual or expected portfolio returns.
Information included is entirely fictitious and does not constitute
investment advice or recommendations, and should not be relied upon in
any way.
Portfolio Construction
Capital Market Expectations:
RoseCap Asset Classes:
6)
7)
Cash & Equivalents
U.S. Equities
International Equities
U.S. Fixed Income
International Fixed
Income
Alternative Assets
Direct Investments
8
1)
2)
3)
4)
5)
- Expected Return
- Dispersion of Returns
- Correlation with Other Assets
RoseCap Investment Advisors, LLC
Capital Markets Expectations
RoseCap Global Investment Parameters
RoseCap Asset Classes
Cash Equivalents
Bank Account
Money Market
Repos
U.S. Equities
U.S. Large Cap
U.S. Mid Cap
U.S. Small Cap
Aerospace & Defense
Construction
Communications
Energy
Financials
Food & Beverage
Healthcare
Industrials
Materials
Media
Pharma
Real Estate
Retail
Technology
Transportation
Utilities
International Equities
Intl' Developed
Emerging Markets
Europe
Asia-Pacific
Africa
Latin America
Australia
Brazil
Canada
China
India
Japan
Russia
RoseCap Asset Classes
Expectations
(1)
Sharpe
σ
Security
Er
N/A
0.05%
0.00%
N/A
0.15%
0.00%
n/a
N/A
0.20%
0.50%
0.100
σ
(2)
n/a
Security
Er
SPY
7.19%
32.99%
0.213
Sharpe
IJH
6.89%
40.19%
0.168
IWM
7.64%
43.94%
0.170
ITA
6.63%
39.73%
0.163
PKB
13.81%
42.24%
0.323
IYZ
8.80%
33.43%
0.259
XLE
7.36%
41.89%
0.172
VFH
7.68%
44.96%
0.167
PBJ
6.53%
28.94%
0.220
XLV
7.59%
28.61%
0.260
XLI
7.87%
38.53%
0.200
XLB
8.31%
40.40%
0.202
PBS
6.26%
41.27%
0.148
PPH
10.07%
25.07%
0.396
VNQ
9.58%
41.26%
0.229
XLP
8.38%
21.46%
0.383
XLK
7.04%
31.09%
0.222
IYT
7.25%
38.57%
0.184
VPU
9.31%
24.81%
0.369
σ
(2)
(1)
Security
Er
ADRD
7.77%
38.25%
0.199
VWO
9.82%
40.90%
0.236
FEZ
8.39%
52.37%
0.157
MAPIX
Sharpe
7.40%
23.38%
0.310
AFK
7.35%
28.98%
0.248
PRLAX
7.25%
40.92%
0.174
AUSE
11.85%
43.35%
0.270
EWZ
11.91%
40.76%
0.289
EWC
6.95%
32.96%
0.206
FXI
8.85%
41.05%
0.212
INDY
7.40%
38.45%
0.189
EWJ
4.54%
29.36%
0.150
RSX
3.27%
51.90%
0.060
(1)
U.S. Fixed Income
Bond Market (General)
Corporates
High Yield
Preferred Stock
Security
Er
AGG
3.42%
MBS
Muni Bonds
Treasuries - Short Term
Treasuries - Int. Term
Treasuries - Long Term
US TIPS
Expectations
(1)
Sharpe
σ
5.17%
0.633
CORP
3.32%
7.35%
0.431
JNK
10.46%
16.63%
0.620
PFF
7.46%
27.27%
0.268
VMBS
3.85%
4.01%
0.923
MUNI
2.28%
4.29%
0.496
SHY
0.89%
0.87%
0.851
FIVZ
1.70%
4.87%
0.318
TENZ
2.55%
9.80%
0.245
TIP
4.23%
10.34%
0.395
Sharpe(1)
International Fixed Income
Developed Market Sovereign
Emerging Market Sovereign
Euro Govt. Debt
Canadian Govt. Debt
International Inflation Protected
Security
Er
σ
IGOV
2.90%
10.91%
0.252
PCY
5.71%
9.13%
0.609
IBGX.MI
2.35%
9.72%
0.226
XGB.TO
3.21%
3.32%
0.921
WIP
4.34%
11.44%
0.366
Alternative Assets
Commodities General
Agriculture-Crops
Base Metals
Precious Metals
Security
Er
σ
Sharpe
DBC
0.00%
21.34%
(0.007)
DBA
Currencies
Energy
Volitility
Managed Futures
Hedge Funds
Private Equity
Venture Capital
(1)
0.00%
19.05%
(0.008)
JJM
0.00%
31.57%
(0.005)
GLTR
0.00%
36.57%
(0.004)
DBV
0.00%
17.08%
(0.009)
IRR
12.33%
37.42%
0.326
VXX
0.00%
90.80%
(0.002)
WDTI
0.00%
6.86%
(0.022)
Manual
10.00%
8.00%
1.231
Manual
15.00%
10.00%
1.485
Manual
20.00%
25.00%
0.794
(1) Ros eCap uses the interest rate that can be earned on a liquid money market account as
the risk free rate of return. This assumed risk free rate of return is then used to calculate the
Sharpe Ratio. The Sharpe Ratio is equal to the quantity of the Expected Return minus the Risk
Free Rate of Return, divided by the Standard Deviation of returns for a given asset clas s.
(2) Standard deviation of returns for each sub-asset class is calculated based on 3-month
daily trading data.
The contents of this report, along with all RoseCap Investment Advisors, LLC models and investment methods described herein, are proprietary information and such models and investment methods may not be reproduced or
disseminated in whole or in part without the prior written consent of RoseCa p Investment Advisors, LLC. Report format copyrighted by RoseCap Investment Advisors, LLC, 2010.
Use of Exchange Traded Funds
Benefits of ETFs in Asset Allocation Approach
1)
2)
3)
4)
Lower Expense Ratios
Tax Efficient
Intra-Day Liquidity
Specific Asset Class Exposure
Investment Parameters - Equities
- Expected Return
- Established by RoseCap through
use of current and forward
looking macro and microeconomic data.
- Dispersion of Returns
- Based on uncertainty and
volatility in factors that affect
equities markets.
- Utilize @RISK “Define
Distribution” function to input
the above variables.
Investment Parameters – Fixed-Income
- Long-Term Investment Horizon
- Expected Return established by
yield to maturity.
- Dispersion of returns uses
discrete probability with two
outcomes (repayment or
default)
- Utilize @RISK “Define
Distribution” function to input
the above variables.
-
Investment parameters for fixed income with short-term investment
horizon are similar to that of equities.
Correlation of Portfolio Securities
- Correlation of each asset class with all other asset classes is
calculated and displayed in table.
- Utilize @RISK “Define Correlation” function to input the above
variables.
8
RoseCap Investment Advisors, LLC
Capital Markets Expectations
Correlations - For Asset Allocation Model
6 Month to 30 Day Differential
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.000
(0.036)
(0.014)
(0.018)
(0.048)
0.054
(0.075)
(0.169)
0.165
0.256
0.002
0.053
(0.104)
(0.340)
(0.377)
0.031
(0.248)
0.096
0.071
0.000
0.000
0.000
0.000
0.000
(0.059)
(0.027)
0.002
(0.107)
(0.100)
(0.069)
0.034
0.182
(0.021)
0.112
0.043
(0.086)
(0.457)
0.050
(0.075)
0.202
0.121
0.000
0.000
0.000
0.000
1 Year to 30 Day Differential
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.000
(0.091)
(0.062)
(0.018)
(0.084)
0.142
(0.075)
(0.241)
0.165
0.256
(0.027)
0.053
(0.283)
(0.259)
(0.359)
0.031
(0.309)
(0.209)
0.093
0.000
0.000
0.000
0.000
0.000
(0.088)
(0.027)
(0.060)
0.038
(0.100)
(0.212)
0.034
0.182
(0.009)
0.068
(0.169)
(0.024)
(0.516)
0.050
(0.138)
(0.148)
0.174
0.000
0.000
0.000
0.000
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.000
0.017
(0.033)
(0.016)
(0.119)
(0.039)
0.142
0.183
(0.099)
0.074
(0.026)
(0.231)
(0.334)
0.103
0.009
0.131
0.045
0.000
0.000
0.000
0.000
n/a
0.000
(0.037)
0.239
(0.102)
0.063
0.152
0.287
0.082
0.142
(0.074)
(0.420)
(0.214)
(0.057)
(0.167)
0.154
0.035
0.000
0.000
0.000
0.000
0.000
(0.073)
(0.187)
(0.115)
0.029
0.201
(0.132)
0.072
0.141
(0.050)
(0.183)
0.001
(0.190)
0.257
0.087
0.000
0.000
0.000
0.000
0.000
0.377
0.227
0.146
(0.153)
(0.191)
(0.403)
(0.230)
(0.217)
0.038
(0.219)
(0.105)
(0.176)
(0.094)
0.000
0.000
0.000
0.000
0.000
(0.133)
(0.091)
0.300
0.391
(0.321)
(0.424)
(0.467)
(0.267)
(0.184)
(0.380)
(0.387)
0.030
0.000
0.000
0.000
0.000
0.000
0.209
0.235
0.333
(0.252)
(0.058)
(0.185)
(0.239)
0.038
(0.211)
(0.012)
0.068
0.000
0.000
0.000
0.000
0.000
(0.034)
(0.087)
(0.021)
0.010
(0.047)
0.314
0.041
0.057
(0.034)
(0.197)
0.000
0.000
0.000
0.000
0.000
(0.051)
0.073
(0.048)
(0.053)
0.107
(0.084)
0.087
(0.093)
(0.221)
0.000
0.000
0.000
0.000
0.000
(0.449)
(0.240)
(0.099)
(0.128)
(0.247)
(0.236)
(0.211)
(0.036)
0.000
0.000
0.000
0.000
0.000
0.039
(0.065)
(0.068)
0.033
(0.014)
0.144
0.046
0.000
0.000
0.000
0.000
0.000
(0.140)
(0.186)
(0.090)
0.100
0.039
0.136
0.000
0.000
0.000
0.000
0.000
(0.474)
(0.072)
(0.018)
(0.068)
0.268
0.000
0.000
0.000
0.000
0.000
(0.052)
(0.109)
(0.057)
0.289
0.000
0.000
0.000
0.000
0.000
(0.078)
(0.075)
(0.122)
0.000
0.000
0.000
0.000
0.000
0.151
0.275
0.000
0.000
0.000
0.000
0.000
(0.007)
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.000
0.017
(0.092)
0.156
(0.119)
(0.142)
0.142
0.183
(0.100)
0.050
(0.232)
(0.179)
(0.360)
0.103
(0.048)
(0.211)
0.088
0.000
0.000
0.000
0.000
0.000
(0.037)
0.239
(0.102)
0.063
0.152
0.287
0.082
0.142
(0.074)
(0.420)
(0.214)
(0.057)
(0.167)
0.154
0.035
0.000
0.000
0.000
0.000
0.000
0.009
(0.187)
(0.256)
0.029
0.201
(0.107)
0.081
0.002
0.010
(0.205)
0.001
(0.200)
0.032
0.151
0.000
0.000
0.000
0.000
0.000
0.377
0.174
0.146
(0.153)
(0.062)
(0.388)
(0.120)
(0.178)
0.012
(0.219)
(0.034)
(0.008)
(0.196)
0.000
0.000
0.000
0.000
0.000
(0.133)
(0.091)
0.300
0.391
(0.321)
(0.424)
(0.467)
(0.267)
(0.184)
(0.380)
(0.387)
0.030
0.000
0.000
0.000
0.000
0.000
0.209
0.235
0.288
(0.421)
(0.197)
(0.081)
(0.205)
0.038
(0.298)
(0.226)
0.156
0.000
0.000
0.000
0.000
0.000
(0.034)
(0.087)
(0.021)
0.010
(0.047)
0.314
0.041
0.057
(0.034)
(0.197)
0.000
0.000
0.000
0.000
0.000
(0.051)
0.073
(0.048)
(0.053)
0.107
(0.084)
0.087
(0.093)
(0.221)
0.000
0.000
0.000
0.000
0.000
(0.394)
(0.190)
(0.047)
(0.151)
(0.247)
(0.241)
(0.151)
0.002
0.000
0.000
0.000
0.000
0.000
0.110
0.026
(0.007)
0.033
0.022
0.154
0.067
0.000
0.000
0.000
0.000
0.000
(0.048)
(0.269)
(0.090)
0.040
0.035
0.371
0.000
0.000
0.000
0.000
0.000
(0.464)
(0.072)
0.041
0.061
0.242
0.000
0.000
0.000
0.000
0.000
(0.052)
(0.185)
(0.180)
0.338
0.000
0.000
0.000
0.000
0.000
(0.078)
(0.075)
(0.122)
0.000
0.000
0.000
0.000
0.000
0.040
0.301
0.000
0.000
0.000
0.000
0.000
0.351
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
Efficient Frontier of Risk Assets
- Perform Monte Carlo simulation on portfolio.
- Provides expected return and standard deviation of the portfolio.
- Utilize different combinations of asset classes to and in varying
amounts in order to achieve investment goal.
The Next Generation of Investment Advisors…
DIRECT INVESTMENT
What is Direct Investment
- Direct Investment is the purchase of a controlling interest in an
investment, such as a business or real estate.
- Requires specific analysis/due diligence on key variables:
- Business – Sales growth, margins, etc.
- Real Estate – Vacancy rate, market rents, NOI, lease-up assumptions,
etc.
- Use of Monte Carlo to assess expected cash flows from direct
investment.
Real Estate Investment – Cash Flows
8
RoseCap Investment Advisors, LLC
Template
Apartment Cash Flow Projections
Property Assumptions
Purchase Price
Number of Units
Price per Unit
Total Square Feet
Price per Square Foot
Market Rent per Unit (per mo.)
$6,000,000
0
#DIV/0!
0
#DIV/0!
$0
2-Year Historical
2008
2010
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
Physical Occupancy
Economic Occupancy
Rent Growth
Concessions
Model/Employee Unit
Bad Debt
Other Income Growth
Expense Growth
2009
2012
2013
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
2014
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
2015
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
2016
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
2017
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
2018
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
2019
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
For the period starting January 1, 2008 and ending June 29,
Broker Package
Proforma
Per Unit
2011
90.0%
#DIV/0!
2.0%
8.0%
0.0%
3.0%
3.0%
3.0%
2010
Per Unit
2011
2012
0
0
0
0
0
0
0
0
0
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
0
0
$0
0
0
$0
#DIV/0!
#DIV/0!
#DIV/0!
0
0
$0
#DIV/0!
#DIV/0!
#DIV/0!
0
0
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Effective Gross Income
$1
$1
#DIV/0!
$1
#DIV/0!
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Expenses
Taxes
Insurance
Utilities
Repairs & Maintenance
Contract Services
Payroll
General & Administrative
Marketing/Advertising
Management Fee
Replacement Reserves
Total Expenses
0
0
0
0
0
0
0
0
0
0
$0
0
0
0
0
0
0
0
0
0
0
$0
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
0
0
0
0
0
0
0
0
0
0
$0
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
0
0
0
0
0
0
0
0
0
0
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Deferred Maintenance
Net Operating Income
0
$1
0
$1
#DIV/0!
0
$1
#DIV/0!
0
$0
0
$0
0
$0
0
$0
0
$0
0
$0
0
$0
0
$0
0
$0
0
$0
$0
n/a
0
$0
0
0
0
2019
Parking Income
Other Income
Total Other Income
$0
n/a
n/a
$0
0
0
0
2018
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
$6,000,000
6.00%
30 years
$0
0
0
0
2017
$1
0
0
0
0
$1
$60,000
$0
0
0
0
2016
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
FINANCING ASSUMPTIONS
Equity:
Current Equity Position (1%)
Senior Debt:
Current Loan Balance (99%)
Interest Rate
Amortization
Mezzanine Debt:
Current Mezz Balance (0%)
Interest Rate
Amortization
Preferred/Joint Venture Equity:
Current Preferred Balance (0%)
Interest Rate
$0
0
0
0
2015
$1
0
0
0
0
$1
0
$0
0
0
0
2014
$1
0
0
0
0
$1
0
$0
0
0
0
2013
Gross Potential Rent
Concessions
Model/Employee Unit
Bad Debt
Vacancy
Net Rental Collections
$0
0
0
0
$0
0
0
0
$0
0
0
0
Less: Senior Debt Service
(431,676)
(431,676)
(431,676)
(431,676)
(431,676)
(431,676)
(431,676)
(431,676)
(431,676)
(431,676)
Debt Service Coverage Ratio
0.00x
0.00x
0.00x
0.00x
0.00x
0.00x
0.00x
0.00x
0.00x
0.00x
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0
0
0
0
0
($431,676)
0.00%
-12.77%
0.00%
-11.64%
0.00%
-10.68%
0.00%
-9.86%
0.00%
-9.13%
0.00%
-8.24%
0.00%
-7.27%
0.00%
-6.82%
0.00%
-6.42%
0.00%
-6.06%
Less: Mezzanine Debt Service
Less: Preferred Equity Dividends
Less: Capital Expenditures
Less: Reserve #1
Add: Cash Received/(Required) from Refi
BEFORE TAX CASH FLOW
Unlevered Cash on Cash Return
Levered Cash on Cash Return
INVESTMENT SALE
Projected NOI / Year-End
Projected Market Cap Rate
GROSS SALES PRICE
Price per SF
Less: Cost of Sale (2.5%)
Less: Misc. Expenses (0.5%)
NET SALES PRICE
Less: Senior Debt Balance
Less: Mezz Debt Balance
Less: Preferred Equity
Less: Common Equity
BEFORE TAX PROCEEDS
Equity IRR (Before Tax)
$0
8.50%
0
#DIV/0!
$0
8.60%
0
#DIV/0!
0
0
$0
(5,926,319)
0
0
(3,381,017)
($9,307,336)
n/a
$0
8.70%
0
#DIV/0!
0
0
$0
(5,848,094)
0
0
(3,707,788)
($9,555,882)
n/a
$0
8.80%
0
#DIV/0!
0
0
$0
$0
8.90%
0
#DIV/0!
0
0
$0
$0
9.00%
0
#DIV/0!
0
0
$0
$0
9.10%
0
#DIV/0!
0
0
$0
$0
9.20%
0
#DIV/0!
0
0
$0
$0
9.30%
0
#DIV/0!
0
0
$0
0
0
$0
(5,765,044)
(5,676,872)
(5,583,261)
(5,483,877)
(5,378,363)
(5,266,341)
(5,147,410)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(4,040,628)
(4,379,874)
(4,725,879)
(5,240,055)
(5,935,167)
(6,328,567)
(6,725,366)
($9,805,672) ($10,056,746) ($10,309,140) ($10,723,932) ($11,313,530) ($11,594,908) ($11,872,776)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Operating Company – Cash Flows
- Similar analysis performed on operating company(s).
Projected Income Statement
Projected Balance Sheet
Capital Structure
Merger & Acquisition
Interest Rate Changes
8
-
R oseCap Investment Advisors, LLC
RoseCap Investment Advisors - Cash Flow Model
Inputs & Assumptions
TRANSACTION ASSUMPTIONS
Historical Stub Period
3 months
Transaction Closing Date
3/31/2010
Acquiror:
[Insert Aquiror Name]
Target:
[Insert Target Name]
INTEREST RATE ASSUMPTIONS
Current Floating Rate (LIBOR)
1.00%
Quarterly Step Up
0.15%
SOURCES AND USES OF FUNDS
Uses:
Cash to Seller
Debt Retirement
Capital Improvements
Cash on Balance Sheet
Fees and Expenses
Total Uses
$0
30,000,000
3,000,000
7,000,000
250,000
$40,250,000
Sources:
Acquiror Cash
Revolver
Existing Debt
Term Loan A
Term Loan B
Other Senior Debt
Subordinated Note
Mezzanine Debt
Total Debt
Current Capitalization
%
$
0.0%
$0
50,000,000
100.0%
0
0.0%
0
0.0%
0.0%
0
0.0%
0
0.0%
0
100.0%
$50,000,000
Proforma Capitalization
%
$
0.0%
$0
20,000,000
33.2%
0
0.0%
0
0.0%
0.0%
0
33.2%
20,000,000
0
0.0%
66.4%
$40,000,000
Convertible Debt
Preferred Equity
Sponsor Preferred Equity
Seller Preferred Equity
Common Equity
Total Capitalization
0
0
0
0
0
$50,000,000
100.0%
0
0
0
8,000,000
12,250,000
$60,250,000
100.0%
Year 0.25
Year 1.25
Year 3.25
Year 4.25
0.0%
0.0%
0.0%
0.0%
0.0%
Avail abil ity
Un use d Fee
Rate (Spread)
PIK Rate
$5,000,000
0.50%
2.50%
n/a
Floating Floor
5.00%
5.00%
0
n/a
0
0
0
20,000,000
0
0
0
0
0
10,250,000
$40,250,000
n/a
0.00%
5.00%
n/a
0.00%
n/a
5.00%
0.00%
n/a
n/a
0.00%
5.00%
n/a
0.00%
0.00%
n/a
0.00%
0.00%
n/a
0.00%
0.00%
n/a
0.00%
0.00%
n/a
0.00%
8.00%
P&L SUMMARY
Revenue
Gross Profit
EBITDA
Net Income
$0
0
0
n/a
Sales Growth
Gross Profit Margin
EBITDA Margin
$0
0
0
(2,753,364)
n/a
n/a
n/a
n/a
n/a
n/a
Year 2.25
$0
0
0
(2,859,633)
n/a
n/a
n/a
$0
0
0
(2,973,028)
n/a
n/a
n/a
RETURN TO COMMON EQUITY
Required Return (for NPV)
SOURCES OF ACQUIROR CASH
%
Mezzanine Debt
Convertible Debt
Preferred Equity
Am ount
0.0%
0.0%
0.0%
%
$0 Sponsor Preferred Equity
0 Seller Preferred Equity
0 Common Equity
Am ount
0.0%
80.0%
20.0%
$0
8,000,000
2,000,000
ASSUMPTIONS
(1)
Exit
3/30/2011
3/30/2012
3/30/2013
3/30/2014
3/30/2015
3/30/2016
3/30/2017
Net Profit
($12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
0.0%
0.0%
20.3%
Year 5.25
Year 6.25
$0
0
0
(3,185,747)
n/a
n/a
n/a
$0
0
0
(3,361,195)
n/a
n/a
n/a
n/a
n/a
n/a
Required Return (for NPV)
IRR
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Exit
3/30/2011
3/30/2012
3/30/2013
3/30/2014
3/30/2015
3/30/2016
3/30/2017
Net Profit
$0
0
0
0
0
0
0
5.0%
NPV
$0
0
0
0
0
0
0
IRR
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4.50x
Equity Dividend Participation:
Other Senior Debt
Subordinated Note
Mezzanine Debt
Convertible Debt
Preferred Equity
Sponsor Preferred Equity
Seller Preferred Equity
Management
Common Equity
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
50.0%
10.0%
40.0%
Required Return (for NPV)
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
50.0%
10.0%
40.0%
Exit
3/30/2011
3/30/2012
3/30/2013
3/30/2014
3/30/2015
3/30/2016
3/30/2017
Net Profit
$659,457
1,373,275
2,145,934
2,982,286
3,887,579
4,867,498
5,928,194
5.0%
ENTERPRISE VALUATION
Year 2.25
Year 3.25
Required Return (for NPV)
Year 4.25
Year 5.25
Year 6.25
$0
$0
$0
$0
$0
$0
4.5x
4.5x
4.5x
4.5x
4.5x
4.5x
$0
$0
$0
$0
$0
$0
$5,975,000
$4,950,000
$3,925,000
$2,900,000
$1,875,000
$850,000
Exit
3/30/2011
3/30/2012
3/30/2013
3/30/2014
3/30/2015
3/30/2016
3/30/2017
Net Profit
$0
0
0
0
0
0
0
RETURN TO SPONSOR PREFERRED EQUITY
Required Return (for NPV)
NPV
$248,205
501,837
764,440
1,035,154
1,314,229
1,600,642
1,897,184
IRR
8.27%
8.24%
8.24%
8.24%
8.24%
8.24%
8.24%
Exit
3/30/2011
3/30/2012
3/30/2013
3/30/2014
3/30/2015
3/30/2016
3/30/2017
IRR
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Exit
3/30/2011
3/30/2012
3/30/2013
3/30/2014
3/30/2015
3/30/2016
3/30/2017
RETURN TO PREFERRED EQUITY
Year 1.25
EBITDA
Sale Multiple
Enterprise Value
$0
0
0
(3,094,052)
RETURN TO MANAGEMENT
15.0%
NPV
($12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
(12,250,000)
RETURN TO SELLER PREFERRED EQUITY
Equity Sale Participation:
Other Senior Debt
Subordinated Note
Mezzanine Debt
Convertible Debt
Preferred Equity
Sponsor Preferred Equity
Seller Preferred Equity
Management
Common Equity
Available Cash
n/a
n/a
n/a
n/a
n/a
n/a
0.0%
13.3%
$10,000,000
Revolver
Existing Debt
Term Loan A
Term Loan B
Other Senior Debt
Subordinated Note
Mezzanine Debt
Convertible Debt
Preferred Equity
Sponsor Preferred Equity
Seller Preferred Equity
Common Equity
Total Sources
Terminal Multiple
Cumulative
EBITDA Mult.
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Net Profit
$0
0
0
0
0
0
0
Required Return (for NPV)
$0
0
0
0
0
0
0
NPV
$0
0
0
0
0
0
0
IRR
n/a
n/a
n/a
n/a
n/a
n/a
n/a
RETURN TO CONVERTIBLE DEBT
5.0%
NPV
5.0%
Net Profit
$0
0
0
0
0
0
0
5.0%
NPV
$0
0
0
0
0
0
0
IRR
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Distribution Fitting
- After the simulation is run a histogram of the outcome is then
drawn. A distribution curve is then fit to the histogram to use
to project future cash flows.
- New distribution curve used to project future cash flows.
- Correlation with other assets/portfolios.
The Next Generation of Investment Advisors…
FINANCIAL PLANNING
Financial Planning - Inputs
- Goal is to assess impact of multiple variables and investment
strategies on client’s future net worth.
- Includes correlation of key profit/expense centers.
Salary + Bonus
Commission
Expenses
8
Ro
RoseCap
seCapInvestment
InvestmentAdvisors,
Advisors, LLC
LLC
Financial Planning Model
Projected Expenses
Age Projections
MHR AHR RHR N/A N/A N/A
Base salary
Estimated bonus range
Commission income based on number
of deals closed, successful sales, etc.
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
2060
2061
Living
Expenses
($75,000)
(76,500)
(78,030)
(79,591)
(81,182)
(82,806)
(84,462)
(86,151)
(87,874)
(89,632)
(91,425)
(93,253)
(95,118)
(97,020)
(98,961)
(100,940)
(102,959)
(105,018)
(107,118)
(109,261)
(111,446)
(113,675)
(115,948)
(118,267)
(120,633)
(123,045)
(125,506)
(128,016)
(130,577)
(133,188)
(135,852)
(138,569)
(141,341)
(144,167)
(147,051)
(149,992)
(152,992)
(156,051)
(159,172)
(162,356)
(165,603)
(168,915)
(172,293)
(175,739)
(179,254)
(182,839)
(186,496)
(190,226)
(194,030)
(197,911)
(201,869)
Living Exp.
Cushion
($5,000)
(5,100)
(5,202)
(5,306)
(5,412)
(5,520)
(5,631)
(5,743)
(5,858)
(5,975)
(6,095)
(6,217)
(6,341)
(6,468)
(6,597)
(6,729)
(6,864)
(7,001)
(7,141)
(7,284)
(7,430)
(7,578)
(7,730)
(7,884)
(8,042)
(8,203)
(8,367)
(8,534)
(8,705)
(8,879)
(9,057)
(9,238)
(9,423)
(9,611)
(9,803)
(9,999)
(10,199)
(10,403)
(10,611)
(10,824)
(11,040)
(11,261)
(11,486)
(11,716)
(11,950)
(12,189)
(12,433)
(12,682)
(12,935)
(13,194)
(13,458)
Taxes
($56,668)
(58,318)
(60,001)
(61,717)
(63,468)
(65,254)
(67,076)
(68,934)
(70,829)
(72,763)
(74,735)
(76,746)
(78,797)
(80,890)
(83,024)
(85,202)
(87,422)
(89,687)
(91,998)
(94,354)
(96,758)
(99,210)
(101,749)
(104,454)
(107,214)
(110,029)
(112,900)
(115,828)
(67,921)
(69,796)
(71,709)
(73,660)
(75,650)
(77,679)
(79,750)
(81,861)
(84,015)
(86,212)
(105,187)
(107,611)
(110,084)
(112,606)
(115,179)
(117,803)
(120,480)
(123,210)
(125,994)
(128,835)
(131,732)
(134,687)
(137,701)
Mortgage(s)
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Qualified Plan
Contribution
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Healthcare
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Other
Expense
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Other
Expense
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Other
Expense
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Required Living Expenses
Discretionary Living Expenses
Contributions to Qualified Plans
Residence & Investment Prop. Expenses
TOTAL
EXPENSES
($136,668)
(139,918)
(143,233)
(146,614)
(150,063)
(153,581)
(157,169)
(160,829)
(164,562)
(168,370)
(172,254)
(176,216)
(180,257)
(184,379)
(188,583)
(192,871)
(197,245)
(201,707)
(206,258)
(210,899)
(215,634)
(220,463)
(225,427)
(230,606)
(235,889)
(241,277)
(246,773)
(252,379)
(207,203)
(211,864)
(216,618)
(221,467)
(226,413)
(231,458)
(236,604)
(241,852)
(247,206)
(252,667)
(274,971)
(280,791)
(286,727)
(292,782)
(298,959)
(305,258)
(311,684)
(318,238)
(324,923)
(331,742)
(338,698)
(345,792)
(353,028)
Financial Planning - Inputs
Primary Residence
Investment Property
Financial Planning - Inputs
Business Income/Loss
Inflation & Interest Rates
Financial Planning - Simulation
- Simulation distribution matched to most closely describe the
nature of the cash inflow/outflow.
Financial Planning - Outputs
- Individual portfolio performance tracking based on specified risk
threshold and tax assumptions.
Financial Planning - Outputs
- Calculation of shortfall probability in any given year.
8
RoseCap Investment Advisors, LLC
Financial Planning Model
Sources & Uses of Excess Cash Flow
Portfolio Contributions
Age Projections
MHR AHR RHR N/A N/A N/A
Year
Cash Excess /
(Shortage)
Additional
Spending
Mortgage
Repayment
Portfolio #1
Portfolio #2
Portfolio Distributions
Portfolio #3
Portfolio #1
Portfolio #2
Portfolio #3
Balancing Shortfall
Line Probability
32
32
0
N/A N/A N/A
2011
$14,838
($1,484)
($1,484)
($4,451)
($4,451)
($2,968)
$0
$0
$0
($0)
0.0%
33
33
1
N/A N/A N/A
2012
14,622
(1,462)
(1,462)
(4,387)
(4,387)
(2,924)
0
0
0
0
0.0%
34
34
2
N/A N/A N/A
2013
14,362
(1,436)
(1,436)
(4,308)
(4,308)
(2,872)
0
0
0
0
0.0%
35
35
3
N/A N/A N/A
2014
4,020
(402)
(402)
(1,206)
(1,206)
(804)
0
0
0
0
0.0%
36
36
4
N/A N/A N/A
2015
12,650
(1,265)
(1,265)
(3,795)
(3,795)
(2,530)
0
0
0
0
0.0%
37
37
5
N/A N/A N/A
2016
23,031
(2,303)
(2,303)
(6,909)
(6,909)
(4,606)
0
0
0
0
0.0%
38
38
6
N/A N/A N/A
2017
33,423
(3,342)
(3,342)
(10,027)
(10,027)
(6,685)
0
0
0
0
0.0%
39
39
7
N/A N/A N/A
2018
13,638
(1,364)
(1,364)
(4,091)
(4,091)
(2,728)
0
0
0
0
0.0%
40
40
8
N/A N/A N/A
2019
10,837
(1,084)
(1,084)
(3,251)
(3,251)
(2,167)
0
0
0
0
0.0%
41
41
9
N/A N/A N/A
2020
(10,384)
0
0
0
0
0
10,384
0
0
0
0.0%
42
42
10
N/A N/A N/A
2021
7,574
(757)
(757)
(2,272)
(2,272)
(1,515)
0
0
0
0
0.0%
43
43
11
N/A N/A N/A
2022
7,177
(718)
(718)
(2,153)
(2,153)
(1,435)
0
0
0
0
0.0%
44
44
12
N/A N/A N/A
2023
5,774
(577)
(577)
(1,732)
(1,732)
(1,155)
0
0
0
0
0.0%
45
45
13
N/A N/A N/A
2024
4,066
(407)
(407)
(1,220)
(1,220)
(813)
0
0
0
0
0.0%
46
46
14
N/A N/A N/A
2025
1,751
(175)
(175)
(525)
(525)
(350)
0
0
0
0
0.0%
47
47
15
N/A N/A N/A
2026
(836)
0
0
0
0
0
836
0
0
0
0.0%
48
48
16
N/A N/A N/A
2027
(3,575)
0
0
0
0
0
3,575
0
0
0
0.0%
49
49
17
N/A N/A N/A
2028
(6,344)
0
0
0
0
0
6,344
0
0
0
0.1%
50
50
18
N/A N/A N/A
2029
(9,353)
0
0
0
0
0
9,353
0
0
0
0.1%
51
51
19
N/A N/A N/A
2030
(12,620)
0
0
0
0
0
12,620
0
0
0
0.4%
52
52
20
N/A N/A N/A
2031
(16,163)
0
0
0
0
0
16,163
0
0
0
0.8%
53
53
21
N/A N/A N/A
2032
(20,002)
0
0
0
0
0
20,002
0
0
0
1.7%
54
54
22
N/A N/A N/A
2033
(24,156)
0
0
0
0
0
24,156
0
0
0
2.9%
55
55
23
N/A N/A N/A
2034
(28,649)
0
0
0
0
0
28,649
0
0
0
4.5%
56
56
24
N/A N/A N/A
2035
(33,503)
0
0
0
0
0
33,503
0
0
0
6.8%
57
57
25
N/A N/A N/A
2036
(38,744)
0
0
0
0
0
38,744
0
0
0
9.4%
58
58
26
N/A N/A N/A
2037
(44,398)
0
0
0
0
0
11,240
33,158
0
0
13.0%
59
59
27
N/A N/A N/A
2038
(43,385)
0
0
0
0
0
0
43,385
0
0
15.9%
60
60
28
N/A N/A N/A
2039
(41,326)
0
0
0
0
0
0
41,326
0
0
18.1%
61
61
29
N/A N/A N/A
2040
(47,041)
0
0
0
0
0
0
47,041
0
0
21.2%
Financial Planning - Outputs
- Output for client includes:
- Portfolio performance projections
- Liquidity needs
- Tax information / tax efficiency
- Financial
RISK ASSESSMENT!
QUESTIONS?
8
RoseCap Investment Advisors, LLC
The Next Generation of Investment Advisors…
115 N. 4th Street, Suite 202
Grand Junction, CO 81501
www.rosecap.com
o: (970) 773-5300
c: (404) 295-6467