Transcript REVISED March 24.09 Presentation

Question: Where will I find my investment return right now?
Answer: Alternative Investments.
Jeffrey Pike, Senior Vice President
Kensington Capital Partners Limited
Agenda
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Who is this guy?
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The Powerful “Alternative” Effect on Asset Mix
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Ask Mitt – Why Private Equity Makes Sense
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What’s New in the Alternative Aisle?
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Questions
1
Kensington: Smart Alternatives
• Growing independent
Canadian Alternative
Investment manager.
• Based in Toronto.
• Founded in 1996.
• Privately held.
Private Equity
Hedge
$ 360 Million
Providing institutional and
HNW investors with
innovative solutions that
capture the opportunity in
Private Equity including
direct private company
investments plus exposure
to Private Equity funds
throughout North America
and Europe.
Infrastructure
$6 Million
Providing institutional and
HNW investors with select
investment strategies
through exposure to
Canadian Hedge Fund
Managers. Comprehensive
portfolios are developed
to enhance portfolio
return and minimize risk.
Power Income Fund
September 2012
Providing long-term
infrastructure investment
opportunities with a
specialty on power
generation facilities
throughout North
America.
Advisory
Providing strategic advice and project leadership to corporate, government and financial
stakeholders. Sound guidance is provided for acquisitions, divestitures, growth strategies,
turnarounds, refinancings and the development of optimal financial structures.
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The Case for Alternative Assets
Stocks
Bonds
Cash
Traditional Asset Classes
Financial meltdown as the lesson. Portfolio construction brutally tested.
Investors have a risk that the next 3-5 years of deleveraging and recovery will
neither be successful nor easy.
Will retirement funding be adequate?
Will traditional asset mix be satisfactory going forward ?
Alternative Asset Classes
1. True Diversification away from conventional equity = Anti TSX.
2. Develop enhanced portfolios - waterproof/bulletproof/shockproof.
Private Equity
Hedge
Infrastructure
Real Estate
3. Institutional thinking: long-term return potential. Patience brings returns.
4. Differentiation in product offering / non-commoditized.
5. HNW affluent market plays in this space. Ideal for certain investors.
3
The Powerful Alternative Impact on Asset Mix
1995
2012
2005
Public
Stocks
Stocks
Stocks
Private
Hedge
Bonds
Bonds
Public
Bonds
Private
Hedge
Cash
Cash
Cash
Other
Source: Data extracted from “Building a Better Portfolio Around the Traditional Asset Mix” presented at AIMA Canada Luncheon by William W.
Moriarty, President & CEO, University of Toronto Asset Management Corp.
4
Institutional Private Equity Allocations
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Why are institutional investors moving to Private Equity?
Moving away from inconsistent public markets.
Pro-actively diversifying by looking for consistent return.
Institutional Allocations to Private Equity
(as a % of total portfolio)
$15 Billion
$159 Billion
Source: Annual Reports.
5
$7.6 Billion
$91 Billion
$34 Billion
$235 Billion
Ask Mitt: Private Equity Basics
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Significant return opportunity – non-correlated
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Manage J-Curve
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Buy correctly
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Do not overpay
6-9 months of due diligence
Developed investment thesis
Exit strategy
Steady stream of growth
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Why Private Companies ?
Investors own private companies for the same investment benefit
of owning public companies. To enjoy an appreciation in the value
of a company as it continues to grow.
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Katz Group / Edmonton – 100%
Rexall – Pharma Plus
1800 Drugstores
$7.0 Billion Revenues
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McCain Family / New Brunswick – 100%
McCain Foods
51 Global Food Plants
$6.5 Billion Revenues
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Thomson Family / Toronto – 85%
The Globe and Mail
7
Private Equity Transformation
Ambitious Corporation
Established Operating Business
Give & Go Prepared Foods Corp.
Revenue: $97 M
Enterprise Value $193 M
How to cross the border.
Significant growth in SKUs.
Solved capacity issues.
$25 million of revenue into Wal-Mart.
Develop “Frozen Shipped” baking technique.
Revenue: $167 M
Enterprise Value $325 M
Sold to OMERS
4 Year Hold
3.4x Invested Capital
31% IRR
8
60% of Private Equity
Sales are from Founders
Why Multi-Manager in Private Equity?
42.0%
30.0%
30.0%
Diversification
Reduces Risk
1.0%
Direct investment
in single private
equity company
0.0%
Investment in single
private equity fund
Manager
Risk of total Loss
1.0%
Investment in
private equity fund
of funds
Risk of some loss
Source: Weidig and Mathonet report, “The Risk Profiles of Private Equity”, January 2004, Nathalie Gresch & Rico von Wyss, Spring 2011.
9
Kensington Portfolio Strategy
Private Equity Fund Managers
Direct Investments
Primary funds from multiple
managers create a low risk
foundation for the portfolio
+ deal flow
Direct private equity ownership and
secondary fund investments drive
excess returns for Kensington
investors
Diversification
Alpha
Kensington Global
Private Equity Fund
2011 Deal Flow
171 investments reviewed
50 Investments full due diligence
5 investments made
10
Private Equity Can Provide Significant Diversification
S&P/TSX COMPOSITE INDEX
Information
Technology 1.2%
Telecom
Services 5.2%
KENSINGTON GLOBAL PRIVATE EQUITY FUND
Utilities 2.1%
Telecom
Services 8.5%
Energy 25.3%
Other
0.3%
Energy 0.5%
Materials 9.0%
Information
Technology
14.7%
Industrials
18.4%
Financials 31.4%
Financials
4.7%
Health Care
1.7%
Health Care
1.6%
Consumer
Staples 3.0%
Materials 19.6%
Consumer
Discretionary
4.6%
Consumer
Staples 6.8%
Industrial 6.0%
Consumer
Discretionary
35.5%
76.3%
BIG 3 TSX
14.2%
11.8%
BIG 3 KGPEF
68.6%
11
What’s new in the Alternative Aisle ?
Private Equity
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Multi-manager
Liquidity
Valuation
Transparency
Hedge
• Think Nimble
• Where is the return?
• Aggregation combinations
Infrastructure
• Not a capital gains play
• Infrastructure for 20+ years inflation protected income stream
12
Alternatives: 4 Constituent Audiences
No longer strange or obscure
• Yet not widely held or understood
• Current chapter – adaptation and familiarity
Provider
• Demystify: clarify/explain product/strategy details.
• Easy to do business with: correct vehicle, fundSERV, RRSP eligible.
• Build Distribution
Intermediaries/Distributors
• Strengthen your menu board
• Think about Private label
Advisor
• Add to the product tool-box
• Economic sharing
• Add value to your practice
Investor
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Portfolio Benefit
Absolute return
Diversification
Meeting funding requirements
13
Questions…
Thank you !