Aventus Capital Inc. · TSXV:AVTS
Aventus Capital — The Westaim — Investor Day (May 2023)
56 slides from Aventus Capital's investor day presentation, May 18, 2023
Slide 1: 2023 Investor Day
2023 Investor Day May 18, 2023
Slide 2: Disclaimer
Disclaimer Safe Harbour Statement This document and its contents are proprietary information and may not be reproduced or otherwise disseminated in whole or in part either directly or indirectly without the prior written consent of each of The Westaim Corporation (“Westaim” or the “Corporation” or t
Slide 3: Disclaimer
Disclaimer Safe Harbour Statement Supplementary financial measures concerning the Arena FINCOs and Arena Investors (the “Arena Supplementary Financial Measures”) contained in this presentation are unaudited and have been derived from the audited consolidated financial statements of the Arena FINCOs
Slide 4: Important Disclosures
Important Disclosures Non-GAAP Measures Westaim Westaim reports its consolidated financial statements using Generally Accepted Accounting Principles (“GAAP”) and accounting policies consistent with IFRS. Westaim uses both IFRS and non-generally accepted accounting principles (“non-GAAP”) measures to
Slide 5: Important Disclosures
Important Disclosures Arena Investors The following is being provided solely in relation to Arena Investors, LP, its funds, subsidiaries and affiliates: Returns shown are unaudited. Past performance is not indicative or a reliable indicator of future performance. Actual results may vary. The informa
Slide 6: Agenda
Agenda Description Page The Westaim Corporation - Introduction 7 Arena Investors 14 - About Arena Investors 15 - Investing: Performance & Deployment 18 - Environment / Outlook 27 - Capital Formation 32 - Infrastructure 37 - Financials 40 The Westaim Corporation – Strategic Path Forward 44 Questions
Slide 7: The Westaim Corporation – Introduction
The Westaim Corporation – Introduction
Slide 8: The Westaim Corporation
The Westaim Corporation The Westaim Corporation Westaim is a publicly listed (TSXV:WED) Canadian investment holding company specializing in providing long-term capital to businesses operating primarily within the global financial services industry. Our focus has been, and continues to be, to seek hi
Slide 9: Westaim Q1 2023 Quarterly Operating Highlights
Westaim Q1 2023 Quarterly Operating Highlights Public market support for Skyward Specialty lifts Q1 2023 earnings for Westaim Skyward Specialty listed on NASDAQ and Arena Investors continued to achieve solid investment returns • Skyward Specialty’s Net Income (100%) was $15.6 million in Q1 2023 comp
Slide 10: Westaim Summary Quarterly Operating Results
Westaim Summary Quarterly Operating Results • GAAP profit and comprehensive income in Q1 2023 was $94.5 million ($0.66 Three months diluted earnings per share) compared to a GAAP profit and comprehensive ended March 31 income of $3.5 million ($0.02 diluted earnings per share) in Q1 2022 (Amounts in
Slide 11: Westaim Summary Statement of Financial Position
Westaim Summary Statement of Financial Position As at March 31, 2023 December 31, 2022 • Book value per fully diluted share increased $0.65 (25.4%) to $3.21 at (Amounts in millions of US$ except per share data) March 31, 2023 from $2.56 at December 31, 2022; Book value per fully diluted share increa
Slide 12: Westaim Diluted Earnings per Share (US$): Three months ended March 31, 2023
Westaim Diluted Earnings per Share (US$): Three months ended March 31, 2023 $0.69 ($0.02) $0.01 ($0.02) $0.66 Income from Skyward Specialty Loss from Arena FINCOs and Income from Arena Investors Westaim holding company net Fully diluted EPS ASOF expenses (excluding RSU March 31, 2023 expense) 12
Slide 13: Westaim Book Value per Share (US$): Three months ended March 31, 2023
Westaim Book Value per Share (US$): Three months ended March 31, 2023 13
Slide 14: Arena Investors Group Holdings global footprint
All data is as December 31, 2022 unless otherwise specified Arena Investors Group Holdings, including its joint ventures and affiliates, is a global financial institution with over 150 people across 7 global offices and operating in over 20 countries
Slide 15: About Arena Investors
About Arena Investors 15 • Compelling risk-adjusted returns with emphasis on downside protection and consistent ABOUT ARENA performance. INVESTORS ( 1 ) • Opportunistic mandate – capabilities across Corporate, Real Estate, Structured Finance, and Corporate Securities allow the firm to find the most
Slide 16: Arena Investors Key Highlights
About Arena Investors – Key Highlights 16 • ~$4.7 billion deployed into 350+ privately negotiated transactions. Average position size of approximately 70 basis points. • 190 exited privately negotiated transactions with 174 exited multi-strategy investments having a realized IRR of 17.1% gross(1). •
Slide 17: Capital Formation and Financials Key Highlights
About Arena Investors – Key Highlights 17 • Arena’s product offerings are designed to capitalize on the range of opportunities ahead. • Multi-Strategy funds: Closed-End, Open-End and Permanent Capital provide the capability to source optimal return per unit of risk globally and across sectors. Capit
Slide 18: Arena’s approach did not leave investors exposed to the “everything bubble”
18 Arena’s approach did not leave investors exposed to the “everything bubble”.
Slide 19: What Arena aims to never do
Arena Investors – Investing: Performance & Deployment 19 What Arena aims to never do: • Take macro risk by exposing our investments to interest rate risk, commodity price risk or currency risk. • Make investments where our thesis is to be "smarter" or a "better expert". This includes not making high
Slide 20: What Arena did not do during this bubble
Arena Investors – Investing: Performance & Deployment 20 What Arena did not do during this bubble: • Buy commercial real estate equity, prefs, or mezzanine at historically low cap rates. • Buy corporate private equity, mezzanine or subordinated unsecured debt at historically high multiples. • Lend a
Slide 21: What Arena did do during this bubble
Arena Investors – Investing: Performance & Deployment 21 What Arena did do during this bubble: • High interest, short duration (1-3 years), floating, secured, modest Loan-to-Value (“LTV”) lending at roughly 10-20% gross IRRs in corporate, structured finance (loans against loans) and real estate. The
Slide 22: What Arena did do during this bubble (continued)
Arena Investors – Investing: Performance & Deployment 22 What Arena did do during this bubble (continued): • Purchase structured securities that have coupons and limited/low LTV downside but that more importantly come with relatively large amounts per dollar invested worth of cheap call options. Whe
Slide 23: Arena's disciplined investment funnel
Arena Investors – Investing: Performance & Deployment 23 • This strategy requires a lot of effort and discipline, made possible by Arena’s staffing and infrastructure. Arena has pursued only ~1% of available opportunities, and each investment required several hundred hours of diligence, documentatio
Slide 24: Multi-strategy active and exited holdings since inception
Arena Investors – Investing: Performance & Deployment 24 • On average, Arena’s investments have been first-lien or first-position, 60%–65% loan-to-value, 18–24 months in duration, with an unlevered 17%–18% gross underwritten return (i.e., a significant premium to the “market” return with significant
Slide 25: Share of fair market value with Level 2 and 3 defaults
Arena Investors – Investing: Performance & Deployment 25 • A reduction in percentage of Fair Market Value of deals with Level 2 and 3 defaults from 30% in December 2019 to 8% ending 2023 Q1 with a brief upswing at the onset of the COVID-19 pandemic. % of Fair Market Value With Level 2 and 3 Defaults
Slide 26: Arena’s strategies have consistently performed well
Arena Investors – Investing: Performance & Deployment 26 • Arena’s strategies have consistently performed well on an outright and relative basis. • The returns below cover a period which included the COVID-19 pandemic, a surge in global inflation, steep increases in interest rates, and a period of n
Slide 27: The going forward opportunity is the largest and most compelling
27 The going forward opportunity is the largest and most compelling we have seen to-date.
Slide 28: Global inflation and interest rate environment
Arena Investors – Environment / Outlook 28 Global inflation rates are rising driving the increasing Fed has reserved the shrinking of its balance sheet in the interest rate environment. wake of US regional banking crisis. Annual % change in consumer price index A balance sheet setback for the Fed “A
Slide 29: Real Estate outlook
Arena Investors – Environment / Outlook 29 Real Estate • Almost $1.5 trillion of US commercial real estate debt comes due for repayment before the end of 2025, €150 billion of debt in European Commercial real estate companies also to mature by 2025. • US, private-label CMBS issuance during the first
Slide 30: Corporate and Structured Finance outlook
Arena Investors – Environment / Outlook 30 Corporate Structured Finance • The first quarter of 2023 saw the highest number of corporate bankruptcy filings in the U.S. since • YoY metrics are showing weakness, even with 2010, many structured with restricting support agreements allowing the lenders to
Slide 31: The emerging opportunity is a large barbell
Arena Investors – Environment / Outlook 31 The emerging opportunity is a large “barbell” which includes the rationalization of the “everything bubble” (e.g., distressed loans) as well as more conventional investments (e.g., new-issue loans) that historically did not meet our thresholds, but are now
Slide 32: Arena’s product offerings are designed to capitalize on opportunities ahead
32 Arena’s product offerings are designed to capitalize on the range of opportunities ahead.
Slide 33: Capital Formation: Committed AUM
Arena Investors – Capital Formation: Committed AUM 33 AIGH’s AUM (including undrawn commitments) were $3.5B at December 31, 2022. From December 31, 2015, to December 31, 2022, AUM has grown at a CAGR of ~48%. In 2023, Arena is contemplating new offerings across additional multi-strategy drawdown fun
Slide 34: Arena Investors $3.5B AUM investment vehicles
Arena Investors - Investment vehicles (1) 34 $ 3 . 5 B AU M (2) Permanent Capital (Arena F INCOs) EXCESS CAPACIT Y OPPO RT UN IT IES D I V E R S I F I E D S T R AT E G Y $ 2 . 2 B • Arena Finance $1.0B A R E N A I N V E S T O R S F U L LY • Arena Origination Company Open-ended Evergreen Funds New Ze
Slide 35: Capital Formation: 2023–2024 Campaigns
Arena Investors – Capital Formation: 2023 – 2024 Campaigns 35 Fundraising is oriented around campaigns and new offerings. 6 fundraising campaigns planned for 2023-24 that potentially could Historical add $1.5-2B AUM.* 10/1/2019 – Completed ECF: NZ REC I +$100m April 1, 2023 ECF: NZ REC III +$300m 1/
Slide 36: Capital Formation: AUM Growth Drivers
Arena Investors – Capital Formation: AUM Growth Drivers 36 Growth in AUM coincides with the timing of fundraising campaigns and new offerings. Arena Special Arena Special Opportunities Partners II Multi-Strategy Opportunities Partners I +$930m fund launches +$669m Stable Income SI-ABS fund launches
Slide 37: We have the environment and the infrastructure
37 We have the environment, and we have the infrastructure, with significant margin expansion opportunity as we scale.
Slide 38: Global platform and cost-efficient staffing
Arena Investors – Investing: Performance & Deployment - Infrastructure 38 Arena Investors is a global platform, and drives operating leverage through scale resources in Jacksonville and Bengaluru supporting Front Office resources globally. London US remote New York JV partners expanding our Jacksonv
Slide 39: Arena infrastructure and capabilities
Arena Investors – Infrastructure 39 • Arena’s infrastructure and capabilities are differentiated, lacking amongst many third-party managers, and will be in high demand as we move forward. • Going forward, these capabilities will become additional sources of revenue and EBITDA. Arena Investors Group
Slide 40: Scaling AUM and leveraging infrastructure to drive revenue and margin expansion
40 Scaling AUM and leveraging Arena’s infrastructure is expected to translate into growing revenue and margin expansion.
Slide 41: Financials: Q4 2022 Quarterly Result Highlights
Arena Investors – Financials: Q4 2022 Quarterly Result Highlights 41 (dollars in millions) Q4 2022 Q4 2021 FY 2022 FY 2021 Q4 2022 Results: • Net income for Q4 2022 was $0.3 million (Q4 2021: Recurring Income $11.3 million); net income for FY 2022 was $1.5 million Management Fees $ 8.2 $ 7.2 $ 31.9
Slide 42: Deal Structure Aligns Arena Investors Management and Westaim
Arena Investors – Deal Structure Aligns Arena Investors Management and Westaim • Arena Investors was founded by Dan Zwirn and Westaim in August 2015 under an arrangement designed to align Arena Investors’ senior management interests very tightly with those of Westaim and its shareholders. The princi
Slide 43: The Westaim Corporation – Strategic Path Forward
The Westaim Corporation – Strategic Path Forward
Slide 44: Westaim History and Strategic Path Forward
Westaim History and Strategic Path Forward • Over the past several years, Westaim management has been focused on working very closely with the management teams of Skyward Specialty and Arena Investors to build and grow their respective businesses, and position each business with the proper foundatio
Slide 45: Westaim History and Strategic Path Forward (cont’d)
Westaim History and Strategic Path Forward (cont’d) Arena Investors • Grew Committed AUM from $1.3 billion at December 31, 2019 to a current level of $3.4 billion • April 2020 – FINCOs transferred ~$44 million to Westaim for Skyward Specialty Rights Offering • Global platform with seven offices and
Slide 46: Share Price and Fully Diluted Book Value Per Share
Westaim History and Strategic Path Forward (cont’d) • Despite what we firmly believe is considerable progress in creating and growing value for Westaim shareholders, our WED share price has not reflected this value creation Share Price and Fully Diluted Book Value Per Share (“FDBVPS”) June 30, 2014
Slide 47: Skyward Specialty Trading Price and Volume
Westaim History and Strategic Path Forward (cont’d) • We believe that as both businesses have matured and grown, it is providing Westaim with options to begin to unlock the value that has been created at the Company • The first step in this process was the completion of a highly successful IPO of Sk
Slide 48: Westaim Goals and Objectives
Westaim Goals and Objectives Seek actions that will grow Westaim’s intrinsic value per fully diluted common share at an accelerating rate; and Given Westaim’s current position and enhanced flexibility as a result of Skyward Specialty's IPO, management’s overriding objectives are to: Seek actions tha
Slide 49: Westaim Strategy: Build, Evolve and Unlock the Value of the Platform
Westaim Strategy: Build, Evolve and Unlock the Value of the Platform Opportunistic Investing Invest in businesses with attractive fundamentals and business economics targeting a 15% IRR on invested capital Partnership Approach Partner with aligned and capable management teams Business Building Provi
Slide 50: Westaim Strategy: Operationally Focused Asset Manager
Westaim Strategy: Operationally Focused Asset Manager Special Opportunistic Share Buybacks Dividends Invest Opportunistically and Strategically Start / Acquire / Build / Grow Unlock Value Created for Excellent Financial Services Businesses Shareholders ◼ Grow fee-based earnings Characteristics: Role
Slide 51: Westaim Strategy: Build, Evolve and Unlock the Value of the Platform
Westaim Strategy: Build, Evolve and Unlock the Value of the Platform ACQUIRE BUILD REALIZING AND UNLOCKING VALUE – 2023-2024 AND FUND • Sourcing platform • Skyward Specialty • Opportunistically and strategically monetize Westaim’s interest in Skyward acquisitions of Skyward Specialty common shares S
Slide 52: The Westaim Corporation
The Westaim Corporation 70 York Street, Suite 1700 Toronto, Ontario Canada M5J 1S9 www.westaim.com info@westaim.com
Slide 53: Appendix – Skyward Specialty Insurance
SKYWARD SPECIALTY INSURANCE APPENDIX
Slide 54: Appendix – Skyward Specialty Supplementary Financial Measures
APPENDIX – SKYWARD SPECIALTY SUPPLEMENTARY FINANCIAL MEASURES (1) • Adjusted operating income (loss) – Skyward Specialty defines adjusted operating income (loss) as net income (loss) excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or
Slide 55: Appendix – Skyward Specialty Supplementary Financial Measures
APPENDIX – SKYWARD SPECIALTY SUPPLEMENTARY FINANCIAL MEASURES (1) • Adjusted Loss Ratio / Adjusted Combined Ratio – Skyward Specialty defines adjusted loss ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP), excluding losses and LAE related to the LPT a
Slide 56: Appendix – Skyward Specialty Supplementary Financial Measures
APPENDIX – SKYWARD SPECIALTY SUPPLEMENTARY FINANCIAL MEASURES (1) • Adjusted Return on Equity - The following table provides a reconciliation of adjusted return on equity to return on equity for the periods ended March 31, 2023 and 2022: Three months ended March 31 (Currency amounts in millions of U