Transcript Presentation to Advisors

Intelligent Investing
“The Uneven Hedge”
Presentation CIFPS Conference, June 20, 2005
Miklos Nagy, CFA, CFP

CEO and co-founder of Quadrexx

a leading hedge fund expert in Canada

Founder and Chairman of Canadian Hedge Watch Inc. - Canadian
leader in hedge fund information / education
(www.canadianhedgewatch.com)


Co-author of Canada’s first hedge fund book “Hedge Funds for
Canadians”. This book was the number 5 best selling investment
book in Canada. Updated second edition is published in June, 2005
by Wiley.
Co-author of CHAIP course (Chartered Alternative Investment
Planner) for IFIC (www.ific.ca) and CIFPs (www.cifps.ca)
May 5, 2005
2
The Global Hedge Fund Market



Hedge Funds globally: between US$1 and
US$1.5 trillion
Fund of hedge funds represent over 35% of
hedge funds in terms of AUM
Growth in FOHF is fastest within the hedge
fund industry (40% per year since 2000)
May 5, 2005
3
The US Hedge Fund Market



Still account to roughly 50% of global hedge
fund market
SEC vs FED view of hedge funds
Increased regulation on hedge funds in the
coming years
May 5, 2005
4
Why Hedge Funds
Hedge Funds versus Equities/Bonds – Long-Term
Global Hedge Fund Net Returns*
January 1, 1988 - December 31, 2004
Annual
Return
Standard
Deviation
Sharpe
Ratio
16.0%
8.8%
1.5
6.6%
16.1%
0.3
S&P 500
12.4%
15.2%
0.7
Morningstar Average Equity Mutual Fund
10.0%
15.7%
0.6
Lehman Brothers Aggregate Bond Index
8.1%
4.4%
1.3
Style/Strategy
Van Global HFI
MSCI World Equity
* Source: VanHedge
May 5, 2005
5
Why Hedge Funds
Hedge Funds versus Equities/Bonds – Snap Shots
January, 1995 to March, 2000
BULL MARKET
Annualized
Return:
VAN Global
Hedge Fund
Index
MSCI World
Index
20.21%
19.86%
April, 2000 to March, 2005
DIFFICULT MARKET
VAN Global
Hedge Fund
Index
MSCI World
Index
Annualized
Return:
6.29%
-5.91%
5.87%
13.68%
0.39
-0.72
Annualized
Standard
Deviation:
8.51%
13.34%
Annualized
Standard
Deviation:
Sharpe
Ratio (4%):
1.90
1.19
Sharpe
Ratio (4%):
May 5, 2005
6
Low correlation to Major Markets:
 During distressed market conditions, some Hedge Funds
lose their diversifying properties; i.e. Concentration Risk
May 5, 2005
7
Correlation switching
This is an example of how individual managers change correlations
during distress.
May 5, 2005
8
The Canadian Hedge Fund Market



Hedge Funds in Canada: AUM estimated to
be between $26 billion ($16 billion retail)
Fund of hedge funds represent between 35%
and 40% of hedge funds in terms of AUM
Fastest growing hedge fund type used to be
(until Portus) in the Canadian hedge fund
industry: Guaranteed Notes backed by major
banks
May 5, 2005
9
The Canadian Hedge Fund Market
Fagmented market depending on:
Type of Product
Province of Residence
Investor Class:

1.
2.
3.




May 5, 2005
Accredited Investor
Eligible Investor
Investor signing “Risk Acknowledgement Form”
Anybody else
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The Canadian Hedge Fund Market
The Effect of PORTUS



May 5, 2005
Canada needs more level playing field for hedge
funds
The growth in Principal Protected Notes will slow
considerably
More regulation is likely
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The effect of Principal Protection
(based on back-tested data bw. Jan, 1998 to Dec, 2004)
Type of
Investm
ent
FOHF
Percentage of
Principal in FOHF
Percentage of
Principal in
Bonds
Annualized
Return
Annualized
Standard Deviation
100%
0%
8.82%
8.03%
PPN
25% (unleveraged)
75%
1.17%
1.74%
PPN
50% (100% leveraged)
75%
2.71%
3.84%
PPN
75% (200% leveraged)
75%
4.13%
5.80%
PPN
100% (300% leveraged)
75%
5.44%
7.64%
May 5, 2005
12
Who is Quadrexx Asset Management Inc.:

Toronto based asset management firm:
Managing unique and high quality alternative
investment products.

The company was established in March, 2003
by the leaders of Canadian Hedge Funds to
build a platform for a fund of hedge funds
building on their relationship with Professor
Luis Seco (Sigma)
May 5, 2005
13
Quadrexx Market Neutral Performance Fund’s
Back-Tested Return Statistics
(as of February 28, 2005)
May 5, 2005
Performance
QMNPF
S&P 500
S&P/TSX
SC
Universe
Van Global
HF Index
1 year:
3.75%
-1.09%
10.94%
5.26%
6.20%
3 year:
12.95%
-4.17%
8.84%
7.53%
8.87%
5 year:
16.89%
-4.17%
1.52%
7.90%
6.86%
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