an alternative approach to canadian equity investing timothy lazaris, cio & ceo brian huen,...

AN ALTERNATIVE APPROACH TO CANADIAN EQUITY INVESTING

Timothy Lazaris, CIO & CEOBrian Huen, Managing Partner

Red Sky Capital Management Ltd.

RED SKY CAPITAL MANAGEMENT LTD.:AN ALTERNATIVE INVESTMENTS PORTFOLIO TEAM

Why should advisors/investors consider alternative investments?

• The potential to generate positive returns in a variety of market conditions

• Enhance diversification

• Improve portfolio returns

• Reduce portfolio risk

Team Background Coverage

Timothy Lazaris, CA, CFA,CEO and CIO

• 3 years Portfolio Manager, CIO at RSCM• Founder and 2.5 years Portfolio Manager at GMP Investment Management (GMPIM)

• 10 years Research Analyst at GMP Securities• 5 years Research Analyst at RBC Capital Markets (Ranked #1 in Canada by Brendan Woods)

• Portfolio Construction• Capital Allocation• Risk Management• Focused on Core Investment Ideas

• Financial Services/Media Telcos

Keith Lam, CA, CFAManaging Partner and CFO

• 3 years Portfolio Manager at RSCM • 2.5 years Associate Portfolio Manager at GMPIM• 3 years Research Analyst at GMP Securities

• Financial Services• Technology• Real Estate

Dariusz Nieciecki, CFAManaging Partner

• 3 years Portfolio Manager at RSCM• 2.5 years Associate Portfolio Manager at GMPIM• 3 years Global M&A at Lehman Brothers/Scotia Capital

• 2 years Equity Research at CIBC World Markets and TD Securities

• Energy• Industrials• Healthcare• Transportation

Brian Huen, CFAManaging Partner

Niall HenryAssociate

• 2.5 years Portfolio Manager at RSCM• 6 years Institutional Equity Sales at CIBC and UBS• 2 years Private Equity at TD Capital• 3 years Investment Banking / M&A at CSFB

• 5 years as Institutional Equity Trader at CIBC• 2 years as Trader at BC Investment Management

• Materials• Consumers• Event Driven / Merger Arbitrage

RED SKY CAPITAL MANAGEMENT LTD.

Red Sky portfolio team


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12 YR Performance of S&P/500 vs. Credit Suisse Long/Short Index

110%

85%

Average Return Best Month Worst Month Win/Loss % Standard Deviation CSFB L/S 0.54% 5.23% -7.81% 65.9% 2.20%S&P/500 0.51% 10.93% -16.79% 63.8% 4.41%

Source: Red Sky Capital Management


Sept-10 July-13



How alternative funds differ from mutual funds

Absolute versus relative return mandate

Risk manager• Loss of dollars versus benchmark

Available investment tools• Short selling• Hedging via derivatives• Elevated cash – up to 100%• Leverage

Compensation is mostly from performance fees

• Identify emerging macro economic themes

• Identify where we are in the market cycle

• Consider social / political landscape and the potential impact on overall investment thesis

• Determine optimal overall long / short bias given existing and expected market conditions

• Anticipate any changes in key macroeconomic factors that may impact the funds overall investment thesis

• Identify those sectors which we believe provide investment opportunities based on our macro analysis

• Seek out sectors on a global basis that is consistent with our favoured macroeconomic themes

• The fund will not invest in sectors or industries that we cannot understand or are unable to develop an expertise

• Rigorous fundamental analysis to identify companies best or worst positioned in the context of the macro environment

• Bifurcate between short-term trading opportunities and long-term investments

• Seek out companies with near-term catalysts that may create significant volatility in the price of the firms’ securities

• Consider different parts of the capital structure to capture most attractive risk-adjusted returns

• Leverage our strong relationships with key market participants to identify best investment opportunities

• Sentiment towards an asset, sector or theme is a critical consideration

• Utilize technical analysis to realize optimal trading strategies for our favourite names

• Identify exit/entry points based on technical factors

• Select optimal investment in the capital structure

• Adhere to strict risk management process

• Limit concentration in any one industry, company or strategy

• Exploit asymmetric risk/return profiles to maximize effectiveness of hedging or investment positions

• Portfolio management system used to continuously monitor overall exposure and liquidity


Investment process

Capital

Core TradingMarket neutral

• Fundamental stock selection• Detailed due diligence• Continuous review

• Sentiment or momentum driven• Technical analysis• Systematic stop losses

• Event-driven/ M&A• Capturing a defined return• Complex review process

Long bias Long or short Uncorrelated

Capital allocation• Macroeconomic factors• Market sentiment• Fundamental valuation


Multi-strategy portfolio approach

RED SKY CAPITAL MANAGEMENT INC.

Red Sky Partners – portfolio allocations as at July 31, 2013

*Market Neutral includes cash

Financials 37%

Energy 14%Information Technology

8%

Consumer Disc 10%

Materials 6%

Consumer Staple 6%

Industrial 4%

Health Care 2%Utilities 1%

Cash 12%

Core 60%Trading 23%

Market Neutral* 14%

Hedges 3%

Source: Red Sky Capital Management Ltd.


Red Sky Partners Fund Series A/B – performance (CAD)

Since inception: RSPF Series A/B: +13.35% TSX Index Total Return: +13.98%



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30.00%

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Avg. Monthly Standard Deviation - RSPF vs. TSX (since Jan 1, 2011)

TSX Index RSPF

Avg. Monthly Standard Deviation

RSPF = 9.09%TSX Index = 13.03%



Focused on Absolute Performance – not relative• Includes the best ideas from Partners Fund• Diversification but not indexation• Primary Risk management tool - Cash • Ability to short and use other hedge techniques Equity Fund – multi strategy• Core Investments• Opportunistic / trading of volatility• Market Neutral – cash up to 40%• Foreign exposure (USA) up to 40%• Any market capitalization• Industry Agnostic

Red Sky Canadian Equity Corporate Class: A mutual fund managed by our alternative investment team

*Market Neutral includes cash.


Red Sky Cdn. Equity Corp. Class - portfolio allocations as at July 31, 2013

Financials 27%

Energy 8%

Information

Technology 14%

Consumer Disc 19%

Materials 7%

Consumer Staple 8%

Industrial 4%

Utilities 2%

Cash 9%

Core, 97%

Trading, 1%

Market Neutral*,

2%

Financials 27%

Energy 8%

Information

Technology 14%

Consumer Disc 19%

Materials 7%

Consumer Staple 8%

Industrial 4%

Utilities 2%

Cash 9%

Core 97%

Trading 1%Market Neutral* 2%

Source: Red Sky Capital Management Ltd.

Monthly returns

YTDS&P/TSX Series B Jan Feb Mar Apr May June July August Sept Oct Nov Dec

2013 3.70% 2.03% 1.04% -2.06% 2.86% -0.09% 4.28% 12.21% 2.28%

All returns in Canadian Dollars. – YTD data as of end of July 2013 - S&P/TSX is the total return index


Red Sky Canadian Equity Corporate Class – performance

• Each member of the PM team has invested in this fund.

• There is a lot of capacity to grow this fund which will help improve performance not negatively impact it.

Year-to-date (as at July 31st), the Red Sky Canadian Equity Corporate Class has outperformed the S&P/TSX Index by ~10%


RED SKY CAPITAL MANAGEMENT LTD. - MARKET OUTLOOK

Macro economic factors:

• U.S. recovery – later stage

• European recovery – early stage

• Emerging market/China uncertainty

• Allocation of assets from bonds to equity as rates rise – Fed Policy Impact

• Middle East Tensions (August 28)

RED SKY CAPITAL MANAGEMENT LTD. – MARKET OUTLOOK

North American portfolio sectors

ConstructiveFinancials

TechnologyConsumer

EnergyLarge caps with dividends

Less constructiveBase metals

Precious metalsTelecom

Real estateSmall/micro caps


Top 5 long investment ideas – 12/18 months

Name Sector Thesis Current price *

Target price

Expected return

Element Financial (EFN-TSX) Financials Growth company with superior management. Partnered with Life Insurance Industry. Filling a large gap in asset based finance after financial crisis. Growth is a both organic and acquisitive. Rising ROE and exit strategy to sell to large FI.

$11.84 $19.00 60%

JP Morgan(JPM-NYSE)

Financials Money center bank with excellent management. Will see earnings growth faster than US economy both in retail and wholesale banking. Ability to raise dividends. Valuation still below normal levels. Housing and consumer recovery theme.

$50.58 $65.00 32%

Empire Co. Ltd(EMP.A-TSX)

Consumer Staples

Empire’s proposed acquisition of Safeway is a landmark deal as it solidifies its position as the #2 grocery in Canada. We think the company is being overly conservative on synergies of $200M over a 3-year timeframe and think that based on previous transactions and synergy realizations at (Metro / A&P Canada), Empire can realize synergies of over $300M which would yield a share price around $100.

$80.32 $100.00 26%

Redknee Solutions (RKN-TSX)

Technology A provider of communication software solutions to telcos. Just completed a transformational acquisition from Nokia Siemens (BSS) platform, at a very attractive price of 0.26x P/S. BSS added 130 customers to RKN, 90% are new. Highly accretive with much higher EBITDA margins. Valuation at a material discount to its peers. Re-rate as they execute takes price higher. (18 mnth target)

$4.35 $6.00 38%

Bellatrix Exploration (BXE-TSX)

Energy Large drilling inventory in 2 great plays Cardium & Notikewin (60/40) Gas/Oil. Top tier cash flow and production growth (60%). Attractive valuation (in-line/discount to group). Strong B/S with access to capital and potential for further joint ventures. Extremely attractive IRRs – operational progress outweighs most commodity risk.

$6.73 $10.00 49%


• Alternative investments make good sense in every portfolio and the Red Sky Partners Fund has a proven track record of capital preservation and risk-adjusted returns.

• Our partnership with CI Financial is very unique and now we can offer our team and investment process to mutual fund investors through Red Sky Canadian Equity Corporate Class

• In both cases, the Portfolio team has significant committed capital

Summary


Brookfield Place, 181 Bay Street, Suite 900

Toronto, Ontario, M5J 2T3

Tel: 416.642.2209

Fax: 416.642.0929

[email protected]

www.redskycm.com

Timothy Lazaris

Brian Huen

[email protected]

[email protected]

mailto:[email protected]

http://www.redskycm.com/



Capital preservation

Diversification

Risk management

•Historically have generated consistent annual investment returns and long-term capital appreciation of the units.

•Employ active hedging strategies and short positions to maintain a balanced portfolio.• Interests of portfolio management team strongly aligned with Unitholders.

• Industry , position, and strategy limits ensure a well diversified portfolio at all times.•Core and Trading positions limited to a max of 5% and 3% of AUM respectively.•Ability to invest in multiple markets and asset classes provides a unique opportunity.

•Utilize technology and a rigorous risk management process to minimize portfolio volatility.

•Strict liquidity metrics are continuously monitored by the portfolio management team.•Strict limits on investments in small-caps and private placements.

APPENDIX – RISK FOCUS

Core portfolio Trading portfolio Market neutral

Investment style Fundamental bottom-up Sentiment, technical factors

Event-driven, merger arbitrage

Trade duration Mid and long-term Short-term Short and mid-term

Trade size Larger (max 5% of fund) Smaller (max 3% of fund) Trade dependent – may deploy leverage

Profit & loss realization

Target driven (or change in fundamental thesis)

Systematic Completion of transaction

Risk management review

Position size, liquidity, industry concentration

Liquidity and adherence to established stop losses

Detailed due diligence

APPENDIX – PORTFOLIO CONSTRUCTION

APPENDIX - BIOGRAPHIES

Timothy Lazaris CA, CFA - President & CEO

• Prior to founding Red Sky Capital Management Inc. (RSCM), Timothy Lazaris was one of the founders and a managing partner of GMP Investment Management L.P.. Before that, he was a Director and one of the early partners of GMP Securities L.P. having joined in March 1998 to establish the Financial Services practice. Prior to GMP, he was a Vice President at RBC Capital Markets and a Research Analyst. Over his 14 year career as a research analyst, specializing in Financial Services, he achieved high rankings in independent surveys including a number one ranking in Canada as determined by Brendan Woods. Mr. Lazaris is a graduate of the University of Toronto (St. Michaels College) where he earned his Bachelor of Commerce degree and continued his professional education by obtaining his Chartered Accountants (CA) designation while working at Deloittes and his Chartered Financial Analyst (CFA) designation. Mr. Lazaris was a member of the Bishop Strachan School Board of Trustees where he is the head of the Audit Committee and a member of the Investment Committee and is currently a member of the Bishop Strachan School Board of Governors and a member of the Finance Committee.


Keith Lam CA, CFA – Managing Partner & CFO

• Prior to joining the Red Sky Capital Management Inc., Keith Lam was a Vice-President and Associate Portfolio Manager of GMP Investment Management evaluating investment opportunities across a wide range of industries utilizing equity, credit and derivative securities. Previously, Mr. Lam was both a Research Associate and Research Analyst at GMP Securities L.P. covering the Financial Services sector. Prior to GMP, Mr. Lam was a Senior Accountant at Deloitte & Touche LLP where he worked on assurance and advisory engagements for two of Canada's largest financial institutions. Mr. Lam is a graduate of the University of Waterloo where he earned his Bachelor of Mathematics and Master of Accounting degrees in 2004. Mr. Lam continued his professional education by obtaining his Chartered Accountant (CA) designation in 2005 while articling at Deloitte & Touche, and also obtained his Chartered Financial Analyst (CFA) designation in 2008.


Dariusz Nieciecki, CFA – Managing Partner

• Prior to joining Red Sky Capital Management Inc. (RSCM), Dariusz Nieciecki was a Vice-President and Associate Portfolio Manager of GMP Investment Management L.P. (GMPIM) responsible for the development and execution of investment strategies across a wide range of industry sectors utilizing equity, credit and derivative securities. Prior to joining GMPIM, Mr. Nieciecki, was an Associate in the Global Mergers & Acquisitions group at Lehman Brothers and Scotia Capital for approximately 3 years. Mr. Nieciecki advised corporate clients and financial sponsors on various financial advisory mandates including mergers, acquisitions, divestitures, leveraged buyouts and recapitalizations. Prior to that, Mr. Nieciecki worked in the Equity Research Department at TD Securities and CIBC World Markets with a top-ranked analyst. Mr. Nieciecki received his Bachelor of Commerce from Queen's University in 2000 and his MBA from the Schulich School of Business at York University in 2003. Mr. Nieciecki also obtained his Chartered Financial Analyst (CFA) designation in 2005.


Brian Huen, CFA – Managing Partner• Prior to joining Red Sky Capital Management Inc. (RSCM), Brian Huen was a Executive Director at

CIBC Wholesale Bank in its Institutional Equity Division and spearheaded the Bank's hedge fund efforts. Prior to CIBC, Brian was a Director at UBS Canada in its Institutional Equities Sales Division advising global hedge fund clients on event-driven, risk arbitrage and equity long / short trading strategies. Brian has also held various positions at TD Capital, Credit Suisse and Scotia Capital. Brian holds both a Masters Degree in Business (MBA) and an Honours Business Administration (HBA) degree from the Ivey Business School at the University of Western Ontario. He is also a Certified Management Accountant (CMA) and a Chartered Financial Analyst (CFA) charterholder.

Niall Henry – Associate

Prior to joining Red Sky Capital Management Inc. (RSCM), Niall Henry was a Director of Institutional Equity Trading at CIBC where he was in charge of liability trading of the REIT and Forestry sectors. Prior to CIBC, Niall held the position of Equity Trader at bcIMC (B.C. Investment Management Corporation), focused on the Canadian equity market but also international equity markets in Europe and Asia. Niall holds a Bachelor of Commerce (BCom) from the University of Victoria in Victoria, B.C.

Thank you

For advisor use only

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ®CI Investments, the CI Investments design, Cambridge, Perspective, Synergy Mutual Funds, Harbour Advisors, Harbour Funds, Global Managers, American Managers, Insight and Insight Program, Legacy Funds, and CI Guaranteed Investment Funds are registered trademarks of CI Investments Inc. ™Portfolio Select Series, Portfolio Series, Signature Global Asset Management, Signature Funds, G5|20 Series, the G5|20 Series design and CI Guaranteed Retirement Cash Flow Series are trademarks of CI Investments Inc.

an alternative approach to canadian equity investing timothy lazaris, cio & ceo brian huen,...

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