An Educational Program of Queen’s School of Business 2014-2015 · An Educational Program of...

Queen’s University Alternative Assets Fund

An Educational Program of Queen’s School of Business

www.quaaf.ca

2014-2015Annual Report

Mission The Queen’s University Alternative Asset Fund (QUAAF) seeks capital appreciation through allocation to multiple internal and external alternative asset allocation programs.

VisionQUAAF is Canada’s first student-directed portfolio of alternative strategies managing funds endowed by private investors, Queen’s alumni, and corporate sponsors. QUAAF is a pooled investment mandate primarily holding portfolios managed by third-party external managers, but also holding small exposures in ETFs and direct securities. QUAFF is an educational initiative of the Queen’s School of Business Master of Business Administration and Master of Finance programs. QUAAF strives to create a professional environment of continuous learning for aspiring capital markets professionals through exposure to alternative strategies, while providing the practical experience of running a funded portfolio. We aspire to engage alumni, current members and industry in a mutually beneficial platform, and to continue to build on the educational experience at Queen’s University.

www.quaaf.ca

@queen’suniversityalternativeassetsfund

Copyright Queen’s University 2015

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Foreword

Contents

About Us

Fund Strategy

Portfolio Performance

Letter from the CEO

It is with great privilege and much gratitude that I write this message to acknowledge a year of change, progress, and transition that the student managed institution QUAAF has overseen throughout the 2014-2015 period. QUAAF remains a unique player within the alternative asset space at an academic institution. The Queen’s School of Business has been very generous in providing support in every step of the way, for which I would like to express sincere gratitude. Specifically, Peter Copestake’s mentorship, council, and his consistent presence at QUAAF meetings has been an invaluable oversight tool for QUAAF and a primary factor that allows the fund to maintain a high level of continuity year over year. We would like to both thank all of the team members of QUAAF for their hard work throughout the year as well as thank our financial sponsors, one of whom provided a donation of $120,000, which brought assets under management to just under $450,000 as of February 28th, 2015.

The fourth year of operation of the fund continued QUAAF’s progress on-route to becoming a mature and sustainable organization. Our dedicated vertical-based teams have built the foundation for a transparent and accountable portfolio of hedge funds. I would like to thank the whole QUAAF team for their dedication and devotion. In particular, I would like to thank Rees Barnett, our CIO and Angela Chan, our CRO, for their work on the portfolio management, economic research and risk management frameworks that they have developed, even while facing the difficult hurdles of the lack of reporting data, and lack of transparency in the hedge fund investment world. Further, I would like to highlight Raj Kotecha’s efforts in leading the task of building this annual report as well as his other marketing and strategic initiatives that benefitted QUAAF throughout the year.

In addition to shifting away from a mean-variance optimization driven asset allocation process towards a robust portfolio management process driven by economic research analysis, QUAAF has continued to evolve while also making strides in synthesizing the fund’s investment beliefs, segmenting its asset & portfolio mix into four buckets: growth, neutral, conservative tactical, and special situations, and building an optimal/targeted fund model that allows for the continued expansion of the fund with a goal of reaching a targeted AUM of between $1.25MM to $3.5M and potential future entry into the US Hedge Fund space.

Looking forward, I see a bright future for QUAAF. QUAAF has built a strong continuity plan. Each year, the MBA program will commence in January, while the Masters of Finance program will continue to start in June. Since QUAAF team members are equally split between the two programs, this new schedule will allow incumbents to mentor incoming team members and ensure that at any given time there is an experienced team of executives, and portfolio managers.

Regards, Faizan Maqsood CEO - QUAAF

Foreword

2 | Queen’s University Alternative Assets Fund

Letter from the CIO

2015 was a huge year for the QUAAF program and one for which we put extreme emphasis on the long term feasibility of the current investment process. We really wanted to emphasize our ability to look at the economic environment in combination with our traditional quantitative approach. Not only does QUAAF want the ability to appreciate asset growth in any environment but when possible we also want the ability to capture some of the upward movement when we see opportunities available in the traditional markets. The ability to generate superior risk adjusted return still remains our top priority but we have relaxed the assumption of zero market correlation when we feel that correlation can provide alpha. We feel that through our new combination of fundamental and quantitative analysis we can capitalize on opportunistic market movements and mean revisions to supplement returns. Building on this new concept as well as the tremendous work that our predecessors have already put forth we formally transitioned our management process into four distinct portfolios. These portfolios allow us to separate our holdings into categories that provide our management team the ability to specialize and isolate opportunities for analysis and investment.

The largest of our new portfolios will continue to emphasize market correlation neutrality and the ability to generate returns in any market condition but with the addition of three supplementary portfolios we now feel we have a more holistic approach. Our supplementary portfolios are responsible for obtaining returns by emphasizing the capture of upward market movements, downward movements, mean revisions, and cash management to provide complementary alpha to our primary portfolio. After thoroughly venting this strategy and back testing its implementation we invested ~$300,000 (CAD) this quarter bringing in several new managers while exiting several others. This investment process also brought an end to the severe overweight in cash allocation of previous years and brings our cash allocation into a healthy range for our portfolio strategy. Needless to say our portfolio management teams were quite busy this rotation, and if it was not for their hard work and dedication we would not have been able to accomplish what we did.

In addition to the introduction of new portfolios we also introduced an economic research team who provided analysis and support to our investment process. This new team provided key support to our managers and special thanks should also go out to them for all their hard work and dedication.

So far 2015 has been a great year for the QUAAF program and the investment team has really come together to evolve the QUAAF strategy while continuing to focus on the core fundamentals of the program. The QUAAF team is extremely excited about the changes put forward and so far net returns have been positive. I would like to personally thank everyone for their hard work and determination, and I am extremely excited to see how QUAAF continues to grow in the future.

Rees Barnett Chief Investment Officer

2013-2014 Annual Report | 3

About UsOrganizational Overview 6

QUAAF History 7

Core Objectives 7

QUAAF Governance 8

Governance Documentation 8

Organizational Structure 9

Executive Team 10

Conact Information 11

Organizational Overview

Mission The Queen’s University Alternative Asset Fund (QUAAF) seeks capital appreciation through allocation to multiple internal and external alternative asset allocation programs.

Strategy The fund utilizes both internal and externally managed portfolios of alternative strategies. External strategy portfolios compose a majority of the total investment allocation and consist of exposures in 3rd party managers operating in the hedge fund universe. Through allocation to external managers that QUAAF identifies have the potential for above average risk adjusted returns QUAAF generates its primary source of capital appreciation. Subsequent to the external investment program QUAAF also runs a substantially smaller internal program that attempts to identify opportunistic investments to enhance total return. QUAAF also structures aggregate holdings to yield limited to low correlation to equity markets except for instances where the exposure can safely yield above average returns. QUAAF believes through the combination of superior managers, opportunistic investments, and limited market correlation they can provide a fund that yields superior risk adjusted returns in any market environment.

Vision The Queen’s University Alternative Assets Fund (QUAAF) is Canada’s first student directed portfolio of alternative strategies managing funds endowed by private investors, Queen’s Alumni, and corporate sponsors. QUAAF is a pooled investment mandate primarily holding portfolios managed by 3rd party external managers but also holding small exposures in ETFs and direct securities. QUAFF is an educational initiative of the Queen’s School of Business Master of Business Administration and Master of Finance programs. QUAAF strives to create a professional environment of continuous learning for aspiring capital markets professionals through exposure to alternative strategies while providing the practical experience of running a funded portfolio. We aspire to engage alumni, current members and industry in mutually beneficial platform and continue to build on the educational experience at Queen’s University.

About Us


QUAAF History

The Queen’s University Alternative Assets Fund (QUAAF) is Canada’s first student directed portfolio of hedge funds managing $450,000 in funds endowed to Queens. During the fall of 2011, eight full-time MBA students pooled $6000 of their own capital in hopes of persuading the Queen’s School of Business (QSB) to create Canada’s first student-run hedge fund. After the group of students demonstrated their financial acumen through solid returns on their investment, QSB leant its support and QUAAF was created in January of 2012.

The group quickly recruited several other MBA students, built teams of research analysts and formed alliances with influential leaders in the financial industry. The team dove into its study of Canadian Hedge Funds and made its initial investments before handing the reigns over to the next year’s class. The 2011-2012 team consisted of both Master of Business Administration (MBA) and Master of Finance (MFin) students. QUAAF has made significant strides in developing the methodology by which it constructs its portfolio, and provides superior risk-adjusted returns that exhibit low correlation with the market indices.

QUAAF remains the sole student run portfolio of hedge funds in Canada and is proudly recognized as a joint educational initiative of the Queen’s School of Business MBA and MFIN programs. Each generation of QUAAF members is responsible for ensuring sustainable operations and financial stewardship of the fund. QUAAF remains true to its core values and objectives which include education, fund performance, professionalism, and integrity.

Core Objectives

Vision Statement

We strive to provide the practical experience of running a portfolio of hedge funds

Core Objectives

Each generation of QUAAF members is responsible for ensuring

sustainable operation and financial stewardship of the fund

Mission

As an organization, we strive to deliver

on our core objectives

NETWORKING

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EDUCATION

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QUAAF

FUND PERFORMANCE

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1. Develop appropriate risk and return metrics and measures to drive the financial strength of the fund

3. Engage alumni and industry in mutually beneficial networking, employment and funding support programs with QUAAF

2. Provide a unique platform to attract top students to QSB programs


About Us

QUAAF Governance

Governance Structure Once the Queen’s School of Business provided approval for the recognition of QUAAF as a formal educational initiative, a governance structure was formed to guarantee organizational continuity and success. The QUAAF Investment Policy Statement (IPS) outlines the Fund’s foundation and asserts principles, governance, organizational structure, portfolio management policies, investment beliefs, performance assessment, and fund constraints.

Standard operating procedures (SOP) govern the continuity of the fund as they define the processes and procedures for each of the funds operating verticals: portfolio management, economic research, performance and risk, and operations. At the commencement of each member’s term with QUAAF, the individual is responsible for signing a Service Level Agreement (SLA) that describes the approximate weekly time commitment of the position, the roles and responsibilities assigned to the position, and a conflict of interest disclosure document. The SLA and conflict of interest governance forms ensure goal alignment, transparency and full disclosure is achieved at the organizational level.

The governance structure starts with the Chairman leading the Board of Directors. This group ensures organizational continuity and approves the hiring of the QUAAF Executive. They also acquire adequate resources for QUAAF’s operations and oversee the deposit and withdrawal of funds. Moreover, the Board of Directors approves all amendments, operating policies, and investment constraints and limits as well as delegates investment decision-making authority from Queen’s School of Business to QUAAF members. This group is complemented by the Corporate Advisory Council, which is composed of prominent industry professionals and provides QUAAF with a deeper market perspective and a greater understanding of the Canadian Hedge Fund Industry.

Under the Board of Directors is the QUAAF Executive, Portfolio Managers, and Analysts. The Executive provides student leadership to Fund members and is responsible for implementing the strategic directives of the Board of Directors. The portfolio managers and analysts, work alongside the QUAAF Executive, to ensure successful implementation of the funds directives while performing operational tasks as requested by QUAAF leaders.

Governance Documentation

Board of Directors

Foundations

Responsability

Continuity

Oversight

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IPS

SOP

SLA


Organizational Structure

QUAAF’s goal is to ensure capital preservation while providing value added through generating excess risk-adjusted returns and exceeding its benchmarks as described in the ‘2014-2015 Strategy’ section of this report. To accomplish this goal, the QUAAF portfolio is separated into internal and external mandates which are composed of underlying portfolios. The external mandates are divided into three strategies; growth, neutral, and defensive which describes their relationship to general market movements. Each strategy is assigned a portfolio manager who is tasked with managing current underlying securities as well as screening for new potential investment.

Every portfolio management team has one portfolio manager and three hedge fund analysts. The team is overseen by the Director of Portfolio Management whom reports directly to the Chief Investment Officer (CIO) of QUAAF. Complementing the portfolio management team is the economic research team managed by the Director of Economic Research whom provides direction on the economic outlook of the fund, provides weekly economic updates, and monthly monitoring of key economic indicators. The Director of Economic Research manages a team of 5-6 economic research analysts. The Director of Economic Research also reports to the CIO of QUAAF.

The Chief Operating Officer (COO) oversees the Sales, Marketing and Technology functions of QUAAF and manages 1-2 business analysts and business development managers. The COO reports directly to the CEO. The Chief Risk Officer (CRO) manages the performance and risk management functions for QUAAF and reports to the CEO while supporting the CIO closely on his/her investment policies and objectives. The CRO manages a team of 2-3 performance and risk analysts. The Chief Executive Officer (CEO) oversees the overall fund and manages the CIO, CRO, and COO. This organizational structure as outlined below ensures continuity of the fund and allows smoother transitions when the incoming Executive team officially takes control of the portfolio in January and June of each year.

Chief Executive Officer

Board ofDirectors

Chief Investment Officer

Director of Portfolio Management

Growth Portfolio Manager

Neutral PortfolioManager

Conservative Tactical /SS Manager

Chief Operating Officer

Chief Risk Officer

Hedge Fund Analyst

Hedge Fund Analyst

Hedge Fund Analyst

Business Development Analyst

Risk Analyst

Business Development Manager


Faizan Maqsood – Chief Executive OfficerFaizan is currently enrolled in the Master of Finance program at Queen’s School of Business, and is due to graduate in May 2015. Faizan possesses a keen interest in alternative investments, as shown by his having attained his CAIA designation. Faizan has spent the past three years working with high net worth clients as part of the Wealth Management division at TD Bank. Prior to his current role, he spent over two years completing a finance rotational program at Export Development Canada (EDC). Currently, he is a CFA Level III candidate and has completed the Certified Management Accountant (CMA, CPA) program. After graduation, Faizan looks forward to joining the Bank of Canada as an Analyst in its funds management and banking department. His personal interests include weight training, hiking, experiencing different cultures through travel, and following the latest trends in business, science and technology.

Rees Barnett – Chief Investment OfficerRees is currently completing Queen’s Master of Finance degree. During his term as CIO, he implemented many changes and was key in instituting a new allocation and organizational structure in the Alternative Asset Fund. He strives to create a professional work place environment while fostering creative new ideas. Rees started his career in the asset management space with Franklin Templeton Investments in Calgary, working with its Portfolio Analysis and Investment Risk Group. He continued to work in a similar space after moving to Ontario to work for OMERS in Toronto. Currently, he manages a team of approximately fifteen at QUAAF in both the equity research and portfolio management spaces. Rees thoroughly enjoys his role and feels extremely lucky to have been able to work with such a talented group of individuals.

Angela Chan – Chief Risk OfficerAngela is a Fellow of the Society of Actuaries (FSA), and a CFA and FRM Charterholder. She is currently enrolled in the Master of Finance program at Queens’s School of Business, and expects to graduate in May 2015. Driven by her passion for investment management, Angela completed her actuarial exams under the investment track. Over the last 8+ years working as an actuary, she developed her expertise in liability and capital management in the insurance industry. Having been involved in projects such as asset liability management, capital adequacy testing, and economic capital, Angela brings to the team her actuarial insights in ensuring the allocation of risk and capital resources to ensure a higher return. After attaining the CFA and FRM designations, Angela decided to broaden her perspective and improve her practical skills in the areas of investment and asset management. In her spare time, Angela volunteers at the Society of Actuaries Exam Committee as an exam question-writer and grader.

Raj Kotecha – Head of ResearchRaj is currently enrolled in the Master of Finance program at the Queen’s School of Business, graduating in May 2015. He is a management consultant at Deloitte Canada, working on advisory and implementation engagements in the financial services, technology, and public sector industries. Prior to joining Deloitte, Raj worked as an equity research analyst at the Bank of Montreal, where he collaborated with the firm’s investment banking division, BMO Capital Markets Research, and its U.S. affiliate, J.P. Morgan Chase (Morgan Markets Research), to provide quantitative analysis on the long-term valuation of client-held securities. Previously at Queen’s, Raj completed a BA, majoring in Applied Economics, with a concentration in financial econometrics, in 2013, and also attained a Master’s degree in Management Analytics in 2014. During his junior year of undergraduate studies, Raj studied at Queen’s Herstmonceaux Castle in England, and visited more than 13 countries while in Europe. Raj is passionate about sports (basketball especially), entrepreneurship, and capital markets trading.

About Us

Executive Team


About Us

Contact Information

If you have any questions or comments, or would simply like more information about QUAAF, please visit our website at www.quaaf.ca. You can also contact our general inbox at:

[email protected]

If you are interested in providing sponsorship funding or becoming involved with QUAAF, please contact members of Business Development Team directly:

Sunandan SridharanChief Operating [email protected]: (613) 893 – 0689

Alexander RobertsonDirector of Business [email protected]: (613) 985 – 7166


Fund Strategy

2014-2015 Strategy

Fund Strategy

QUAAF is a unique fund offering designed to provide capital appreciation through investment in alternative strategies. The portfolio is composed of both internal and external investment platforms which, combined, represent the total fund. Each area of investment is designed to work holistically with the other platforms to create an investment process that provides superior risk-adjusted returns with little correlation to the general equity market.

External Platform The external platform is QUAAF’s primary investment vehicle and represents two unique portfolios that invest in externally managed alternative strategies. These strategies utilize the expertise of third-party managers to provide returns at low volatility. By utilizing managers who specialize in multiple styles of alternative strategies QUAAF is able to create a platform that provides diversification and the ability to generate returns in multiple market environments. QUAAF also recognizes the importance of capturing portions of market movements, where possible, and incorporates an economic research team to provide portfolio managers with relevant economic data to manage their positions. The external platform consists of a growth and neutral portfolio, which are allocated funds based on economic conditions to generate the maximum possible risk-adjusted return.

Allocation limits are placed on each of the investment portfolios in the external platform. A majority of the allocation is always kept in the neutral platform with 60-90% of total fund assets kept within this portfolio at all times. The remaining growth external portfolio holds approximately 0-30% of total fund assets at any time and is designed to capture portions of market movements when markets are expanding.

Strategy Type Information

Neutral Seeks consistent returns by investing in more conservative funds. This strategy exhibits consistent returns regardless of market conditions, and has a lower standard deviation than most portfolios. Generally invests in Equity Market Neutral, Fixed Income Arbitrage and Convertible Arbitrage funds.

Growth Generally engages in opportunistic strategies and exhibits more volatility then other strategies. This category generally outperforms in upward markets and under-performs in downward markets. Generally invests in Emerging Markets, Sector Specific, and Equity Hedge.


Internal Platform The internal platform is run directly by QUAAF’s investment team and does not utilize external managers. There are two internal-run investment mandates and each is designed with unique functions to complement and complete the QUAAF investment program.

These portfolios represent much smaller portions of the assets under management and allocation ranges have been set. The conservative tactical portfolio has an approximate target range of 0-30%, and the special situation portfolio represents approximately 0-10% of assets.

Benchmarks The QUAAF program is managed to provide superior risk-adjusted returns in any market conditions and does not prioritize relative comparisons to most constituent-based benchmarks. Although it is not a primary function, QUAAF does use proxies to measure the effectiveness of the program. With absolute return being a primary function of investment, QUAAF does set its primary benchmark as an absolute return benchmark utilizing the perceived risk free-rate plus a premium to represent inflation. Two other benchmarks - representing the alternative strategy space and the current domestic market - are also monitored.

Benchmark Type Index Used

Absolute Return Benchmark 91 Day T-Bill + 3%

Alternative Strategies Benchmark HFRI FoF Composite Index

General Market Index S&P/TSX Composite Index

Strategy Type Information

Conservative Tactical

Special Situations

Seeks to provide modestly positive returns when “risky markets” exhibit negative returns. The portfolio will be a source of liquidity for the overall QUAAF portfolio by investing in exchange-traded securities. Generally invests in investment grade bonds with below benchmark duration. This portfolio will be designed as a primary system of cash management for either large cash flows entering the portfolio, to hold cash while the investment team identifies areas for investment, or during allocation shifts

Seeks to invest in traditional or alternative assets that the Portfolio Management team believes will generate alpha. The portfolio may hold common shares, preferred shares, fixed income, externally managed derivatives, and ETFs. This portfolio invests in unique investment opportunities derived by the Portfolio Management Team on a forward looking basis to maximize alpha. Risk is managed through position size limits, stop losses, and correlation analysis.


Portfolio Portfolio Holdings 18

Asset Allocation 19

Performance Summary 20

Monthly Performance 21

Portfolio Holdings

The fund ended its year with $452,907 in Assets Under Management. Portfolio allocations can be found below

Portfolio Portfolio positions (as of May 31, 2015)

May 31, 2015 Fund Value $ 452,907

May 31, 2015 Fund Value Dollar Value Dollar ValuePosition

WeightingProgram

Weighting

Cash & Cash Equivalents $85,920 18.97% 18.97%

Growth Portfolio: 51.88%

Acorn Diversified Trust $48,467 10.70%

CC&L Market Neutral $36,355 8.03%

Lawerence Park Credit Strategies $27,021 5.97%

Picton Mahoney Market Neutral $22,399 4.95%

Ross Smith Capital Investment Fund $50,046 11.05%

RP Debt Opportunities Fund $50,684 11.19%

Neutral Portfolio: 29.15%

EHP ADV Fund $49,115 10.84%

FG Global Opportunities Fund $30,546 6.74%

JM Catalyst Fund $49,385 10.90%

Sprott Hedge Fund LP II $2,969 0.66%

Conservative Tactical/Special Situations Portfolio 0%

Total $452,907 100% 100%


Portfolio Holdings

The fund ended its year with $452,907 in Assets Under Management. Portfolio allocations can be found below

Asset Allocation

The fund’s strategy and asset allocation have changed over the past 12 months. Roughly 80% of the fund’s capital is allocated to the Growth and Neutral portfolios. These portfolios largely invest in equity and credit long/short and arbitrage strategies. The fund’s nearly 19% allocation to cash & equivalents will be invested into the Conservative Tactical and Special Situations portfolios early in the new fiscal year.

Neutral Portfolio

29.15%

Cash & CashEquivalents

18.97%

GrowthPortfolio

51.88%


Portfolio

Performance Summary

The fund’s generated a return of 0.73% during the trailing 12 months. A significant cash position and restructuring of the fund’s strategy created a drag on returns. Going forward the fund looks to generate significant risk adjusted returns with its new silo based strategy and asset allocation. The QUAAF executive team is highly confident that future returns will diverge from the fund’s historic return profile as the new portfolio holdings and strategy are implemented.

-16 -16 -17 -17 -17 18 -18 -19 -19Mar-1

6Jun-16

Sep DecMar

Jun Sep Dec-17Mar-1

8Jun-18

Sep-Dec

MarJun

May-13Jun-18

109

105

103

101

99

97

95

QUAAF

1 Month 3 Months YTD Since Inc.

0.27% 0.82% 0.73% 5.62%


J F M A M J J A S O N D Y

2012 - - 0.26% -0.17% 0.07% -1.22% -0.02% 0.20% 0.37% -0.37% -0.27% -0.60% 1.75%

2013 0.00% -0.33% -0.04% -0.47% -0.85% 0.39% -0.76% 0.17% 3.27% -0.50% 1.71% 0.92% 3.00%

2014 0.26% 0.48% 0.33% 0.14% -0.09% 0.38% 0.94% 0.00% -0.69% -0.50% 0.29% 1.44% 3.00%

2015 -0.47% -0.08% 1.07% -0.05% 0.27% 0.73%

Monthly Performance

Monthly returns for the fiscal year are as follows:

The fund recorded six months with positive returns, five months with a negative return, and one month with zero return. Monthly returns since inception are as follows:

J F M A M J J A S O N D Y

2014 0.38% 0.94% 0.00% -0.69% -0.50% 0.29% 1.44% 1.02%

2015 -0.47% -0.08% 1.07% -0.05% 0.27% 0.73%

Positive Return Negative Return No Change

Since inception, the fund has recorded 19 months with positive returns, 18 months with a negative return, and four months with no zero return.

Positive Return Negative Return No Change


2014-2015 Annual Report

www.quaaf.ca

@queen’suniversityalternativeassetsfund

The information in this document is for educational and non-commercial use only and is not intended to constitute legal, accounting, financial or tax advice for any individual. In no event will QUAAF, its members or directors, or Queen’s University be liable to you or anyone else for any loss or damages whatsoever (including direct, indirect, special, incidental, consequential, exemplary or punitive damages) resulting from the use of this document, or reliance on the information or content found within this document. The information may not be reproduced or republished in any part without the written consent of QUAAF and Queen’s University.

Copyright Queen’s University 2015

An Educational Program of Queen’s School of Business 2014-2015 · An Educational Program of...

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