institutional presentation galloway capital
TRANSCRIPT
Identify the best investment opportunities in the Emerging and Frontier Markets, providing
clients non-leveraged equity-like returns with fixed income seniority within a
company’s capital structure.
“The most powerful force in the universe is compound interest”
OPPORTUNITY
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Macro Current Scenario
● Tendency for the developed economies to maintain its low nominal interest rates
● Constantly growing overseas interest in Emerging Markets assets
● Well-managed Emerging Market companies solidified their balance sheets and are gaining access to capital
EM HY Current Scenario
● EM has significantly fewer HY issuers than the US; though this clearly presents opportunities for growth in EM issuance, and also few players (EM HY Funds) competing
● Lower duration on EM HY is a mathematical consequence of the higher yield; represents an opportunity to benefit from spread compression is spreads return to their pre-Lehman levels
MARKET PROFILE
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OPPORTUNITY IN EMERGING
MARKETS HY BONDSEmerging Markets HY carries in general less leverage, similar default rates and pays more yield compared to the US High Yield. The difference in yield between EM B-rated bonds and US B-rated bonds is significantly higher.
The charts below show similar default rates for B to Baa rated bonds of developed vs. EM markets and US vs. non-US domiciled issuers. The average rating of Galloway Global EM HY Bond Fund’s portfolio is B+/BB-.
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Source: Moody's Investors Service, June 10, 2014
OPPORTUNITY IN EMERGING
MARKETS HY BONDSHigh Yield Emerging Markets Corporate Debt has outperformed most equity markets (US HY and US Equities), with significantly less volatility since 2000.
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OPPORTUNITYEMERGING MARKETS CORPORATE HIGH YIELD FUNDAMENTALS
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Source: Bank of America Merrill Lynch
● Emerging Markets countries in general have higher expected growth rates with often lower leverage when compared to Developed Markets
● Selective Emerging Markets countries still show gaps between its current ratings and their macroeconomic reality providing opportunities to obtain higher returns when upgrades pre-rating occur
INVESTING IN EMERGING MARKETS SOVEREIGN
OPPORTUNITY
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INVESTING IN EMERGING MARKET BONDS
OPPORTUNITY
● The Emerging Markets Debt market is dominated by Large Institutional Funds and Private Banks
● Large institutional funds also tend to focus on Emerging Markets High Grade credits due to issue size and liquidity
● Private Banks will mostly offer clients obvious Emerging Markets High Grade names which the bank supports and that the client feels comfortable with
● Lack of reach from the larger players often forces the Emerging Markets High Yield asset class to provide investors higher yields, even beyond its implicit risks
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THE FUND CHARACTERISTICS
● Fund Strategy: long-only fund investing in global EM corporate and sovereign HY bonds. No leverage;
● Strong diversification: on average 20 countries and 80 bonds;
● Typical yield: from 8 to 10% at the average purchasing price of 95%;
● Low Duration of bonds: from 3.0 to 4.5 years;
● Target NET returns: +6 to 8 % net p.a.;
● Very small participation per issue (on average 0.3%), high liquidity;
● Luxembourg UCITS IV, daily liquidity with 10 business days notice;
● Reputable fund service providers: Deutsche Bank as custodian/administrator
Ernst & Young as auditor
Lemanik as Management Company
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INVESTMENT PROCESS GENERATION OF INVESTMENT IDEAS
● Experienced investment team focused on Emerging Markets: over 50 years of EM experience combined
● Proprietary Research: In depth analysis of opportunities through company visits, calls and meetings with companies’ top management
● Sell Side & Buy Side Research: Wide network of relationships with counterparties around the world (Investment Funds, Family Offices, Brokers, Banks, etc.) providing a deeper level of information and access to local expertise
INVESTMENT PROCESS
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● Committee’s based investment decisions:
• Weekly: Investment Committee and Credit Committee (Head of Research presents investments cases for analysis)
• Daily Meetings to discuss investment opportunities
● Dynamic process of monitoring the portfolio and opportunities through the constant reassessment of the positions
● Replacing good ideas with better ideas. We change a position when we find a bond with:
• The same risk and a higher yield
• The same yield and a lower risk
PORTFOLIO CONSTRUCTION
To understand why a bond pays what it pays.
It is paramount for companies and/or sovereign issues to be in countries or regions that have a positive growth
outlook or are in a turning point
Companies have to be aligned with local governments
Thoughtful analysis to understand the sector’s importance to the country
(subsidies, government support, etc); and its relative value to global peers
1. COUNTRY MACRO
ECONOMIC OUTLOOK
2. GEOPOLITICS 3. SECTOR
INVESTMENT PROCESS MULTI-APPROACH DUE DILIGENCE
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In-depth analysis of the Company/Country’s and Bond
structure. (leverage, debt profile, cash flow, ownership structure, etc.;
Bond seniority, guarantees, covenants, etc.)
Company and/or country have to be checked through our local
network of contacts (sell and buy side)
Careful analysis of entry and exit points, new issuance outlook and
relative value
4. CREDIT METRICS 5. LOCAL NETWORK 6.TECHNICAL ANALYSIS
INVESTMENT PROCESS MULTI-APPROACH DUE DILIGENCE
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RISK MANAGEMENT
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Galloway Emerging Markets High Yield Bond Fund
Country Risk● Limit of 20% for single countries
● Limit of 40% for Brazil, Russia, India or China
Corporate Risk● Limit of 5% per individual corporate credit at cost
● Limit of 20% per individual Sovereign Bond at cost
Credit Risk
● High Yield
● Average Credit Rating: B+/BB-
● Stop Loss: Risk Manager sells 50% if the bond drops more than 20% without asking the PMs
Currency Risk● Limit of 30% for any other currency than USD
● Non USD Bonds must settle via Euroclear / Cedel
Liquidity Risk● Limit of 20% in less liquid bonds
(Issues size below USD 200 MM)
* All Bonds must be Euroclearable/ DTC/ Clearstream
OUR EDGES
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A boutique and nimble firm with a niche focus on Emerging Markets HY bonds, in-house research and
a global network of local players;
Due to our fund size and the percentage of the issues that we invest in (0.3% in average) we have the
agility to buy and sell small amounts and take advantage of the markets’ inefficiencies;
Active trading. Our investment decision process takes a few minutes, and for this reason we can
quickly access the market;
Due to our portfolio diversification we can reduce the impact of a single name default or drawdown;
Straight access to Portfolio Managers, we are very transparent and usually open and discuss our
portfolio to our clients;
• Identify the best investment opportunities in the Emerging and Frontier Markets, providing clients
non-leveraged equity-like returns with fixed income seniority within a company’s capital structure.
THE TEAM
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INVESTMENT COMMITTEE
Nathan ShorUlisses de Oliveira
Fernanda Pereira
RESEARCH & PM
Nathan Shor
Ulisses de Oliveira
Fernando A. Hadba
Marilia De Paris
TRADING
Fernanda Pereira
RISK MANAGEMENT & OPERATIONS
João Ferrari, CFA
COMPLIANCE
Sergio Ravache
RELATIONSHIP MANAGERS
Lorraine Hac
Arie Milner
DIRECTORS’ BIOS Nathan Shor: Co-founder, Director, Portfolio Manager
Nathan Shor holds a BSBA from Boston University (Boston, USA) and a Masters degree in Finance from IESA (Instituto Estudios Superiores de Administracion, Caracas, Venezuela). He began his professional carrier at The Nash Fund in 1998, being responsible for its Emerging Markets Fixed Income area. In 2003, he joined forces with Convenção, a Brazilian Broker Dealer to develop their Emerging Markets Fixed Income desk. Envisioning the future of the Emerging Markets Fixed Income market, Nathan decided to create Galloway Emerging Markets, providing Fixed Income investment solutions to institutional investors and high net worth individuals. The creation of Galloway Capital Management in 2005 came with the idea of an asset management company focused on their Emerging Markets Fixed Income expertise. Galloway Capital manages today a broad range of Emerging Markets Fixed Income funds.
Ulisses de Oliveira: Director, Portfolio Manager
Ulisses holds a Bachelor degree in Science of Finance and International Business from New York University and was certified Series 7 and 66 registered, FSA Rules an Regulations, Securities and Derivatives registered. He began his career in 1996 at then commodity house E D & F Man. Later he joined Safra Bank of NY as Assistant Treasurer until 2000 when he joined Citigroup NY as a Senior Vice-President responsible for research, originating and marketing investment ideas directly to clients focused on Emerging Markets Fixed Income, Equity, Options and Structured Products. At the beginning of 2009 Ulisses joined Galloway Capital as a partner and senior portfolio manager responsible for its Emerging Markets Fixed Income funds.
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This presentation has been prepared by Galloway Capital. This presentation is provided for informational purposes only and does not constitute or should not be construed as an offer to buy or sell or solicitation of an offer to buy or sell any financial instrument or to participate in any particular trading strategy in any jurisdiction. The information herein is believed to be reliable as of the date in which this material was issued and has been obtained from public sources believed to be reliable. Galloway Capital does not make any representation or warranty, express or implied, as to the completeness, reliability or accuracy of such information, nor is this presentation intended to be a complete statement or summary of the securities, markets or developments referred to herein. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this presentation as of the date in which it was issued and are therefore subject to change without notice. Prices and availability of financial instruments are indicative only and subject to change without notice. The financial instruments discussed in this presentation may not be suitable for all investors, and it does not take into account the investment objectives, financial situation or particular needs of any particular investor. Investors should obtain independent financial advice based on their own particular circumstances before making an investment decision on the basis of the information contained herein and it is strongly recommended that investors read carefully the disclosure document of the funds presented herein before making an investment decision. Foreign investments may involve greater risk than domestic investments. If a financial instrument is denominated in a currency other than an investor’s currency, a change in exchange rates may adversely affect the price or value of, or the income derived from, the financial instrument, and the reader of this presentation assumes any currency risk. Income from financial instruments may vary and its price or value, either directly or indirectly, may rise or fall. Past performance is not necessarily indicative of future results, and no representation or warranty, express or implied, is made herein regarding future performances. Galloway Capital does not accept any liability whatsoever for any direct or consequential loss arising from any use of this presentation or its content. This presentation may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the prior written consent of Galloway Capital. Additional information relative to the financial products discussed in this presentation.
CONTACT & LEGAL INFORMATION
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+55 11 4082-2250
www.gallowaycapital.com