Next Generation Alternative Strategies May 2014 Private and Confidential Investing in novel,...

Next Generation

Alternative Strategies

May 2014

Private and Confidential

Investing in novel, innovative and unconventional strategies

Private & Confidential

2Orthogonal Partners LLP 2

Diversification is the closest thing to a “free lunch”

DIVERSIFICATION + Returns = “VALUE”

Why do we diversify? – to manage risk

The world is risky - we don’t put all your eggs in one basket

Or do we?

Why seek Next Generation Alternative Strategies?

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Over time our allocations are becoming MORE correlated – they are riskier!

Err………

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Unexpected Financial Shocks

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1987 Stock Market Crash

1990 Nikkei Crash

1990 High Yield

Tumbles

1992 European Currency

Crisis

1994 US Interest

Rate Hike

1994-96 Mexican

Peso Crisis

1996 Latin American

Crisis

1997 Asian Crisis

1998 Russian

Crisis

1998 LTCM

1999 Brazil Crisis

2000 Tech Meltdown

2001 Tech Meltdown

9/11 Terrorist Attacks

2002 Bubble Bursts

2003 Fannie MaeFannie Mac

Blackout of 2003

2008 Global Financial

Crisis

2014 Ukraine?

1987 1990 1992 1994 1996 1997 1998 1999 2000 2001 2002 2003 2008 2014

Next Bubble?



Declining attractiveness of traditional PE/HF strategies

No surprise -$3 Trillion in HF /$3 Trillion in PE

Issues around access, alignment of interest, fees, succession in established brands

You better hope things work out well

But as we know “hope is not a good strategy”

What should we do?

Houston we have a problem

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Invest in misunderstood, under-researched, niche strategies

Inefficiencies due to scarcity of institutional capital

Return drivers independent of traditional financial markets

The “brand names” of today were the “next generation” of yesterday

Go where others can’t or won’t go (Yet)

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Novel, innovative and unconventional

Misunderstood, under-researched, niche strategies

Inefficiencies due to scarcity of capital

Returns which behave differently in times of stress to anything else in your portfolio

Return drivers independent of traditional financial markets

Entrepreneurial solutions to market problems

Next generation alternatives – example characteristics

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New sources of return are undercapitalised and inefficient

New ways of creating assets and adding value

Low correlation with existing investments

Often targeting generating absolute return

Opportunity for enhanced economics - significant influence on terms, structure, transparency

Attractions of investing in next generation alternatives

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Examples of next generation alternatives

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Weather

Electricity

Intellectual property rights / music / film / video games / photography

Aircraft part-out

Litigation strategies

Niche direct lending and trade finance obligations



Where to find the ideas? Not in databases, unknown to consultants, may not have track records

Next generation strategies may have: Sophisticated strategies Complexity Start up and operational risk Need active support with structuring and governance Never have managed third party money

Due diligence requires dedicated resources, experience and expertise

Very limited pool of experience

May need to outsource this activity

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Barriers to entry - Investing in next generation alternatives


DIVERSIFICATION + Returns = “VALUE”

Investors need new sources of return

Adding “next generation” strategies can reduce risk and increase returns

Difficult to successfully execute strategy without help

May be cost effective to outsource such an activity

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Summary – Benefit from Orthogonal returns

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Orthogonal Partners LLP 12Confidential

Any Questions?


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Orthogonal Partners LLP9 Queen Anne StreetLondon W1G 9HW Tel: +44 (0)20 7436 9462Fax:+44 (0)20 7436 9428

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