*Presentation for wholesale investors only
Disclaimer
This presentation has been prepared by Watermark Funds Management Pty Limited (Watermark) and Watermark Neutral Fund Limited (WMN). The information contained in this presentation is for information purposes only and
has been prepared for use in conjunction with a verbal presentation and should be read in that context.
This presentation is provided to you on the basis that you are a either a Sophisticated Investors or Professional Investor, as those terms are used in sections 708(8) or 708(11), respectively, of the Corporations Act 2001 (Cwlth).
The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis for making an investment decision. Please note that, in providing this presentation,
Watermark and WMN (Watermark Entities) have not considered the objectives, financial position or needs of any particular recipients. The Watermark Entities strongly suggest that investors consult a financial advisor prior to
making an investment decision.
The Watermark Entities have prepared this document based on information available to it at the time of preparation, from sources believed to be reliable and subject to the qualifications in this document. To the maximum extent
permitted by law, Watermark, WMN, Morgan Stanley Australia Securities Limited ABN 55 078 652 276 (Morgan Stanley), Macquarie Capital (Australia) Limited ABN 79 123 199 548 (together with Morgan Stanley, the Joint
Lead Managers), and Taylor Collison Limited (Taylor) and RBS Morgans Limited (together with Taylor, the Co-Managers, and the Co-Managers and the Joint Lead Managers, the Managers) and each of their respective
affiliates, related bodies corporate (as that term is defined in the Corporations Act) and their respective directors, employees, officers, representatives, agents, partners, consultants and advisers (each a Limited Party and
together, the Limited Parties) accept no responsibility or liability for the contents of this document and make no recommendation or warranties concerning any offer. No representation or warranty, express or implied, is made as
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Neither of the Managers, nor any of their respective affiliates, related bodies corporate and their respective directors, employees, officers, representatives, agents, partners, consultants and advisers have authorised, permitted or
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The recipient acknowledges and agrees that neither it, Watermark, WMN, or the Managers intend that the Managers or any member of the Managers group or any of their affiliates act or be responsible as a fiduciary to the
recipient of this document, its officers, employees, consultants, agents, security holders, creditors or any other person. Each recipient of this document and the Managers (on behalf of each other member of the Managers group
and their affiliates), expressly disclaim any fiduciary relationship.
The Limited Parties (other than Watermark and WMN) may have interests in the securities referred to in this document, including being directors of, or providing investment banking or corporate advisory services to, WMN.
Further, they may act as a market maker or buy or sell those securities or associated derivatives as a principal or agent. The Managers accept no responsibility for the contents of this document or any information contained in it.
This presentation is not, and does not constitute, an offer to sell or the solicitation, invitation or recommendation to purchase any securities and neither this presentation nor anything contained in it forms the basis of any contract
or commitment. A prospectus (Prospectus) is available in connection with the initial public offering, and quotation on the financial market operated by ASX Limited, of ordinary shares and options to acquire ordinary shares in
WMN (Offer). Copies of the Prospectus can be obtained by contacting Justin Braitling, Tom Richardson, Joshua Ross or Nerida Dawson on 02 9252 0225 during the period from and including the date on which the Offer opens
until and including the date on which the Offer, or an electronic version of the Prospectus Prospectus) can be downloaded from the following website: www.wfunds.com.au. Offers of shares and options under the Offer will be
made in, or accompanied by a copy of, the Prospectus. Prospective investors should consider the Prospectus in deciding whether to acquire shares and options under the Offer. Prospective investors who want to acquire shares
under the offer will need to complete an application form that is in or accompanies the Prospectus. Statements in this document are made only as of the date of this document unless otherwise stated and the information in this
document remains subject to change without notice. WMN may, in its absolute discretion, but without being under any obligation to do so, update or supplement this document. Any further information will be provided subject to
these terms and conditions.
This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States. The securities of WMN have not been, and will not be, registered under the U.S. Securities Act of 1933,
as amended (Securities Act) or the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold in the United States except in compliance with the registration requirements of the Securities
Act and any other applicable securities laws or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any other applicable securities laws.
NOT FOR DISTRIBUTION IN THE UNITED STATES
About Watermark

We are active, high conviction investors in Australian listed companies. As an Absolute Return
manager, Watermark is offering investors an alternative to traditional institutional ‘long only’ funds
that are more dependent on a rising share market.

Our aim is to profit from the mispricing of Australian shares while seeking to protect our investors
from loss through the use of hedging strategies based on short selling which aim to enhance
returns and reduce market risk.

Watermark’s flagship fund is a listed investment company – the Australian Leaders Fund Limited
- which has delivered a compound annual return of 15.4% p.a. net of all fees to April 2013, since
listing on the Australian Securities Exchange in 2004.
Investment Team:
Chief Investment Officer
Senior Analyst
Analyst
Operations Manager
Justin Braitling
Tom Richardson
Joshua Ross
Nerida Dawson
Managed Funds:
Australian Leaders Fund - A listed Long/Short Fund
Watermark Market Neutral Fund
What sets Watermark apart from other managers?

An absolute return focus.
At Watermark we consider each investment opportunity in the context of an
absolute gain or loss of capital whereas many managed funds target relative
outperformance where risk is seen in the context of underperforming the share
market.

Superior returns.
As a long/short manager, Watermark has the option of either being ‘long’ or ‘short’
individual shares. Consequently it has a much broader and deeper pool of
mispriced shares to consider. In constructing both long and short portfolios, we are
able to target higher returns than other funds.

An ability to hedge.
As ‘shorts’ can be a natural hedge for the fund’s assets we can separately manage
market risk (β) through the investment cycle while still taking advantage of
mispricing in the share market.
Investment Process
To deliver superior returns with reduced market risk.
To return a consistent stream of fully franked dividends to shareholders.
The best investment opportunities are found in strong, well managed companies that
can be purchased on attractive terms. The best shorting opportunities are found in
weaker companies that are poorly managed and overvalued.
A fundamentally driven process based on sound investment ideas;
monitoring economic and industry trends; extensive company and industry contact.
Qualitative Scorecard: Business Quality + Management + Valuation + Risk.
We construct both a long and a short portfolio. The portfolios are constructed around
the best investment ideas (qualitative scorecard) with the highest conviction.
The relative size of the long and short portfolios will determine the net market exposure
Qualitative Scorecard
Score
Business Quality
(1-10)
Management
(1-5)
Valuation
(1-5)
Financial Risk
(1-5)
Long Portfolio
Short Portfolio
Superior economic returns
High barriers to entry
Sustainable growth
Leadership position
Weak returns
Low barriers to entry
Mature
Highly competitive
Clear consistent strategy
Best in class performance
Accretive capital management
Convoluted strategy
Poor operational performance
Destructive capital management
Undervalued based on range of
measures
DCF, P/E, EBITDA/EV, Buyout analysis
Overvalued based on range of measures
DCF, P/E, EBITDA/EV, Buyout analysis
Low Gearing
Earnings certainty
Leveraged
Earnings risk
We construct two portfolios
Investment Universe
Target Alpha
Ranked by Qualitative/Quant Factors
Most preferred securities:
1. ABC
2. BCD
3. CDF
4. ...
Least Preferred
1. ZYX
2. YXW
3. XWV
4. ...
LONG
PORTFOLIO
+5%
&
SHORT
PORTFOLIO
-5%
Sample ALF/Watermark Portfolio Dashboard
Business Quality
Management
7.0
3.5
6.0
3.0
5.0
2.5
4.0
2.0
LONG
3.0
SHORT
2.0
1.0
1.0
0.5
0.0
LONG
1.5
SHORT
0.0
May-11
Nov-11
May-12
Nov-12
May-11
Nov-11
May-12
Nov-12
Risk Level
Valuation
3.0
5.0
4.5
2.5
4.0
3.5
2.0
3.0
2.5
1.5
2.0
LONG
1.5
SHORT
LONG
SHORT
1.0
1.0
0.5
0.5
0.0
May-11
Nov-11
May-12
Nov-12
0.0
May-11
Nov-11
May-12
Nov-12
*Each entity in Watermark’s database has a qualitative score. The dashboard presents the weighted average score for entities in each of ALF’s portfolios as assigned by Watermark.
Investment Strategies
Assets
Investment
Universe
Most preferred
1. ABC
2. BCD
3. CDF
Capital
Variable Long/Short
Long
Short
Market Neutral
Long portfolio
Funding
Cash
Capital
Long
Short
Short portfolio
Least Preferred
1. ZYX
2. YXW
3. XWY
Short Fund
Capital
Cash
Short
Performance drives returns
25.0
5 Year Share Performance %
5 Year NTA Vs Share Price Performance
30 April 2013
ALF
20.0
CDM
15.0
WAX
CAM
WAA
MIR
10.0
WAM
CIN
AMH
BKI
MLT
5.0
AFI
WHF
DJW
FSI
DUI
AUI
ARG
CYA
0.0
0.0
2.0
Source: Bell Potter Research
4.0
6.0
8.0
10.0
5 Year NTA Performance %
12.0
14.0
16.0
18.0
Watermark Market Neutral Fund Limited
Offer:
Up to 120 million fully paid ordinary shares of $1.00 per share +
1 free option exercisable at $1.00 on or before 31 December 2014.
Includes a priority offer of 20 million shares for ASX:ALF members
Investment Manager/Trustee:
Watermark Funds Management Limited
Investment Strategy
Market Neutral. ASX listed securities (up to 10% international shares)
Benchmark:
RBA cash rate
Fees:
Management fee: 1% p.a. of the NAV + Performance fee 20%
outperformance over benchmark
Investment Targets
Pre-tax return 12% p.a
Dividend yield 5% p.a. Fully franked subject to available franking credits
Board
Matthew Kidman - Chairman
Justin Braitling
Stephen Van Eyk
Rob Ferguson
John Abernethy
Portfolio Structure
Placed on deposit
INVEST $100
Target Return: Interest on cash
Long
Portfolio
$100
+5%
Short
Portfolio
$100
-5%
Value added
by Manager
Longs>Shorts
(Profit or Loss)
+
+
10%
*This sample portfolio structure reflects a gross exposure of 200% (sum of long and short portfolios) as a % of the
company’s capital. Gross exposure is capped at 400%
Returns: Market neutral Vs Institutional fund
In removing market risk, investors also forfeit the market return be it + or -.
Instead returns comprise interest on your capital held at bank plus the alpha
or value added by the manager.
Valued added
by Manager
Capital invested
(asset class)
Institutional Fund
Market Neutral Fund
RINDEX+ = RMARKET +
R
MNF
= Interest
+
Alpha
(2-4)*Alpha
13
Targeting higher returns
We look to profit from the mispricing of shares on an absolute basis across
the value spectrum while also benefiting from the hedge in the structure...
Target Alpha
Step 2: Invest Short Proceeds
Step 1: Short Sell
Expensive -5%
Fair value
Cheap +5%
Why a Market Neutral Fund?
 This fund aims to allow investors to profit from the mispricing of Australian
securities without increasing their net exposure to the share market.
 Given a softer outlook for growth in advanced economies, shares are likely to
deliver lower returns in the medium term. Financial risks will also remain elevated in
the aftermath of the financial crisis ensuring heightened levels of share market
volatility.
 Given this balance of risk and return, there is a strong case for investing in a
market neutral fund where investors can profit from the mispricing of individual
shares without taking on further market risk.
 We appear to be in a classic reflation cycle. As asset values move beyond
fundamental value and market risks build, investors should consider hedging
strategies that reduce market risk
With low growth and elevated risks- manage market risk
Growth expected to remain weak.....
Risks to remain elevated.....
OECD - GDP Growth
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
Source: OECD
Growth in Fundamental value also weak
fat tail risks
Managing Market Risk through the cycle
Investors should consider ways of reducing market
risk as reflation cycle continues
*This graph represents Watermark’s view of increasing asset prices above fundamental value
If the ‘longs’ outperform the ‘shorts’ we make money
If a company’s sales are greater than its expenses it makes a profit. In this company if
the ‘long’ portfolio outperforms the ‘short’ portfolio, the company will report a positive
return before expenses. What happens to the share market is less relevant...
Financial Year Gross Returns for ALF portfolios
40%
30%
20%
10%
0%
2008
2009
2010
2011
-10%
2012
2013YTD
Positive
spread every
year since
2008
-20%
-30%
-40%
ALF Long Portfolio
ALF Short Portfolio
*Past performance information given on this page relates to the portfolios of ALF and is given for illustration purposes only. It should not be relied upon as (and is not) an indication of future performance of WMN's portfolios.
The actual results of WMN's portfolio could differ materially from those referred to on this page, including because of the different strategy to be adopted by Watermark in connection with the WMN portfolios.
If the ‘longs’ outperform the ‘shorts’ we make money
In every year since ALF commenced reporting its long and short portfolio performance this spread
has been positive, indicating a gross profit before net funding costs and expenses. Furthermore the
returns are uncorrelated with both the market and other funds which tend to track the share market.
Financial Year Returns
40%
30%
20%
10%
0%
2008
2009
2010
2011
2012
2013YTD
Positive spread
every year since
2008 and
uncorrelated
-10%
-20%
-30%
All Ords Accum Index
ALF Long-Short Spread
*Past performance information given on this page relates to the portfolios of ALF and is given for illustration purposes only. It should not be relied upon as (and is not) an indication of future performance of WMN's portfolios.
The actual results of WMN's portfolio could differ materially from those referred to on this page, including because of the different strategy to be adopted by Watermark in connection with the WMN portfolios.
Australian Leaders Fund Returns
Reported Performance to 30 April 2013
ALF
1 YEAR
3 YEARS (P.A.)
5 YEARS (P.A.)
SI (P.A.)
Long
21.2%
12.2%
13.8%
-
Short
-2.4%
-0.4%
-1.4%
-
Net
28.2%
12.4%
16.0%
15.4%
All Ords Accum Index
21.0%
6.8%
2.6%
9.5%
Net Outperformance
7.2%
5.7%
13.4%
5.9%
*As per ASX release on 14th May 2013
*Past performance information given on this page relates to the portfolios of ALF and is given for illustration purposes only. It should not be relied upon as (and is not) an indication of future performance of WMN's portfolios.
The actual results of WMN's portfolio could differ materially from those referred to on this page, including because of the different strategy to be adopted by Watermark in connection with the WMN portfolios.
PROSPECTUS TIMETABLE
Lodgement of Prospectus with ASIC
7th June 2013
Expected expiry of exposure period
14th June 2013
Offer opens
14th June 2013
Broker firm offer closes
Offer closes
5.00pm 25th June 2013
5.00pm 5th July 2013
Expected final allotment of Shares and Options
15th July 2013
Expected final despatch of holding statements
16th July 2013
*The above dates are subject to change at the discretion of the company
QUESTIONS