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HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS

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HOW TO INVEST IN ALTERNATIVE
EMERGING MANAGERS
Philippe Paquet
Deputy CEO
JUNE 2012
DISCLAIMER
Only the legal documentation of the foreign collective investment scheme(s) described in this document can be regarded as authoritative and legally
binding. The information contained in this document is for the sole purpose of professional investor within the meaning of article D.533-11 of the
French Monetary and Financial Code. The information contained in this document does not constitute investment advice within the meaning of article
D.321-1 5В° of the French Monetary and Financial Code.
The foreign collective investment scheme(s) described in this document is(are) subject to marketing restrictions. Shares of the foreign collective
investment scheme(s) cannot be offered to the public in France, in compliance with article 411-60 of the General Regulation of the AMF (French
Regulator). For the avoidance of doubt, the foreign collective investment scheme(s) described in this document has(have) not been authorized for
public distribution in France.
No delivery of information regarding the foreign collective investment scheme(s) described in this document will be provided to a natural or legal
person if the law and regulations of its country of residence or other relevant country does not permit such delivery. Any investment in the shares of
this(these) foreign collective investment scheme(s) assumes sufficient technical knowledge and expertise concerning hedge funds.
The information provided in the attached document is deemed to have been issued by sources worthy of faith and cannot involve the responsibility of
NewAlpha Asset Management.
It must be noted that the information included in this document has been provided in accordance with a request of the addressee of the latter. For the
avoidance of doubt, no canvassing, and more generally no active solicitation, of the addressee of this document has been made by employees
and/or agents of NEWALPHA ASSET MANAGEMENT or entities of OFI Group.
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
2
NEWALPHA
ASSET MANAGEMENT
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
3
NEWALPHA AM: OVERVIEW
PROFILE
в—Џ Investment management company regulated by
France’s Autorité des Marchés Financiers (AMF)
AN INSTITUTIONAL BACKUP
в—Џ Owned by OFI AM (65%) and employees (35%)
● The only �pure player’ in emerging manager seeding for
external clients
● 10 professionals averaging 16 years’ experience
66%
34%
KEY DATA
в—Џ More than 1,500 seeding projects analyzed
в—Џ 460 contacts with emerging managers in the past 12
months
в—Џ 18 seeding partnerships with early stage managers,
8 in progress
MNDTES
UCITS
65%
INSTITUTIONAL INVESTORS
в—Џ $720 million in cumulative seeding investments
в—Џ $3 billion managed by currently partnering managers
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
4
NEWALPHA AM: OVERVIEW
PRODUCTS
в—Џ Initially, advisory services for institutional investors
A WIDE RECOGNITION BY THE INDUSTRY
● Launch of 4 funds of �emerging manager’ funds of
funds
в—Џ Structured and launched the French seeding platform
�Emergence’ in January 2012
в—Џ Launch in Q4 2012 of the first Asian-focused seeding
platform in Singapore
Nominations
CLIENTS
в—Џ Some of the largest institutional and private investors in
France and Europe :
в€’ Sovereign wealth fund
в€’ Insurance and cooperative insurance companies
в€’ Family-owned industrial groups
в—Џ Since inception, most investors have repeatedly
allocated to the various funds launched by NewAlpha
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
Dalton Strategic Partnership for its
European strategy, seeded by NewAlpha en
May 2009
JUNE 2012
5
AUM EVOLUTION AND LOCATION OF SEEDED
MANAGERS
LOCATION OF SEEDED MANAGERS
Source: NewAlpha Asset Management – May 2012
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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AUM EVOLUTION OF OUR PARTNERING MANAGERS
SINCE SEEDING DATE
+ $50 mn
+ $30 mn
+ $40 mn
+ $25 mn
+ $25 mn
+ $35 mn
+ $40 mn
+ $40 mn
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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JULY 2012: NEWALPHA IS EXPANDING IN ASIA
NEWALPHA AM AND WOORI LAUNCH A JOINT VENTURE TO
SEED ASIAN MANAGERS
в—Џ Woori Financial Group : 2nd largest financial
institution in Korea
в—Џ Partnership with Woori Absolute Partners,
seeding arm of Korea’s Woori Investment &
Securities
в—Џ Objective: to establish a leading Asia-focused
seeding platform
в—Џ First closing in July 2012
в—Џ Primary targets: Korean and other Asian
institutional investors, leading European
institutional investors
в—Џ Very attractive pipe-line of talented hedge fund
managers already in place
в—Џ NewAlpha AM and WAP to bring together
complementing skills and experience
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
8
HOW TO INVEST IN
EMERGING MANAGERS?
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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ALTERNATIVE FUNDS: TOO MUCH CAPITAL IN A
FEW HANDS?
92% of hedge fund assets are concentrated
in a handful of mega managers
CONCENTRATION OF AUM
Since 2008, investor inflows have gone
primarily to larger managers
BILLION DOLLAR CLUB: TOP 10 – ALL STRATEGIES
Source : HFR Data as of 30 November 2011
Bridgewater Associates
76.0
J.P. Morgan Asset Management
45.0
MAN GLG
36.5
Brevan Howard
34.2
Och-Ziff Capital Management Group
28.4
Winton
27.8
BlueCrest
27.7
BlackRock
25.5
Baupost Group
25.0
Paulson & Co.
22.6
Source : HedgeFund Intelligence - Data as of 30 November 2011
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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A NEW PARADIGM: INVESTORS AND MANAGERS
SHARE THE SAME OBJECTIVES
Seed money
Selection
Support to development
Control
Risk control
Transparency
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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SEEDING ALIGNS INVESTORS AND MANAGERS’
INTERESTS
TWO SOURCES OF RETURN FOR INVESTORS
The NewAlpha approach is to take a
revenue share in return for seed
assets
в—Џ Two sources of performance
в—Џ Stable income generation
в—Џ Simple exit, unlike with equity stakes
в—Џ Less reputational risks
Revenues
Income from partnership
Seed money return
1
2
3
4
5
6
7
8
Seeding
Development
Investors receive the
performance of the seed
money and a share of the
manager’s income
Investors have the option to
withdraw seed money but in all
cases take part to the growth of
the seeded manager
9
10
Years
This is an excellent way to monetize
the risk premium attached to
emerging managers…
…and probably the best approach to
rebalance in favor of investors the
business relationship between
investors and managers
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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DIFFERENT ROUTES FOR SEEDING…
Expected Total
Return
2
1
Seed + Fee Sharing
• Seed money �soft’ locked up for
2-3 years
• Full transparency
• Gross income sharing scheme
over 8 years depending on
asset growth
3
Seed + Equity stake
• Seed money �hard’ locked up
for 3+ years
• Full transparency
• Potential capital gains
depending on profitability and
liquidity
Founding shares investor
• Seed money locked up for 1-2
years
• Relative transparency
• Founding Shares (lower fees)
investment:
Standard Investor
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
Horizon (years)
JUNE 2012
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FEE SHARING VS. FOUNDING SHARES:
CASH FLOWS DESCRIPTION
Explanations
•Standard investor allocation: $10 mn
•Strategic investors allocation: $50 mn
Income Sharing proceeds persist
after Seed Money redemption
•Net return Years 1-8: 8%
•Mgt fees: 2% - Perf. Fees: 20%
•Founding Shares Fees: 1% and 10%
•Seeder Income Sharing: 20% of all fees
•All investments on Day One
•Redemption after Year 3
•AUM growth:
в€’End of Year 1: $104 mn
в€’End of Year 2: $212 mn
в€’End of Year 3: $466 mn
в€’End of Year 4: $1,004 mn
•Fund closed to new investments after Year 4
•AUM at the end of Year 8: $1,365 mn
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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FEE SHARING VS. FOUNDING SHARES:
TOTAL RETURN RESULTS
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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CONCLUSION
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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WHY INVEST AND SEED EMERGING MANAGERS
Direct access to innovation
California funds working to hire more emerging
managers
в—Џ Different investment approach, access to under-researched
asset classes or sectors
Franklin Street to Start Emerging Managers Fund
Manager diversification
в—Џ Accessing a vast but under-researched universe of smaller
managers
Higher levels of transparency and control
в—Џ Better protection of capital thanks to the alignment of
interests and the real monitoring of investment and
operational activity
CalPERS Commits $400 Million to Emerging
Managers
Kodak de-risks with liquid
SMART Alpha seeding
Higher returns
в—Џ More flexible and more nimble portfolios, greater focus on
the best investment ideas
A participation to the success
в—Џ Seeding allows investors to benefit from the success and
the development of talented managers
THE INVESTMENT CASE
Texas Teachers emulates FoHF mindset for direct success. The 4.3
billion portfolio expands to include seeding and an equity stake in a
high profile hedge fund.
JUNE 2012
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NEWALPHA’S EXPERTISE IN EMERGING MANAGERS
NewAlpha has accumulated 8 years of experience to allocate institutional capital
to emerging managers around the world through seeding partnerships
Its origination and structuring teams deliver advisory and product design services
to world-class, sophisticated investors
NewAlpha combines its experience and its market knowledge to deliver innovative
investment solutions
A very strong commitment to control the strict alignment of interests between
investors and seeded managers
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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CONTACTS
HOW TO INVEST IN ALTERNATIVE EMERGING MANAGERS
JUNE 2012
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