Polar Capital Holdings Plc · LSE:POLR
Polar Capital — H1 2009 Earnings Presentation
24 slides from Polar Capital's earnings presentation, December 2008
Slide 1: Polar Capital Holdings plc 2008 Interim Results
POLAR CAPITAL HOLDINGS PLC 2008 Interim Results Mark Kary (CEO) John Mansell (COO) December 2008 POLAR CAPITAL HOLDINGS plc
Slide 2: Table of Contents
Table of Contents Section I • Current state of the asset management industry. • Overview of Polar Capital. • Polar’s competitive positioning. • Strategy for growth. • Other topics for discussion. Section II • Financial Overview POLAR 1 CAPITAL HOLDINGS plc
Slide 3: Asset Management Barbell
Asset Management Barbell Polarisation between ‘cheap’ and ‘alternatives/spicy’ Move to alternatives driven initially by modern portfolio theory – the efficient frontier, low correlation and superior risk adjusted returns. Source: Morgan Stanley Research – September 2 2008 POLAR 2 CAPITAL HOLDINGS pl
Slide 4: Rapid Growth of Hedge Fund Industry
Rapid Growth of Hedge Fund Industry Leads to bubble Growing Asset Class Data as at March 31st, 2008 $2,000 $1,868 $1,875 $1,800 $1,600 $1,465 300 hedge funds in $1,400 the early 1990s; nearly 10,000 by Assets (in $ Billions) $1,200 2008. $1,105 $1,000 $972 In 2009: $1,000mm? $817 $800 $622 $600 $536
Slide 5: Changing nature of hedge fund allocation
Changing nature of hedge fund allocation Lots of new strategies Hedge Funds by Style and Strategy in 1990 Hedge Funds by Style and Strategy in 2007 Event Driven, 6.9% Global Macro - 15.5% Relative Value, 15.5% Relative Value - 27.4% Other - 0.6% Equity Hedge, 6.2% Global Macro, 71.4% Event Driven -
Slide 6: What has gone wrong?
What has gone wrong? • No barriers to entry: Industry took off post 2001 bear market; too many entrants driven by greed rather than desire to be “guardians of capital”. • Investors as well as hedge fund managers bear responsibility: Competition for returns versus meeting client expectations; confusi
Slide 7: Absolute return is still a very valid diversification
Absolute return is still a very valid diversification • Economic outlook supportive of a cautious approach: a multi year deleveraging cycle and the need for banks to rebuild capital suggests 2-5 years of negative and/or below trend growth. Risks of 1930s style depression still a possibility and vola
Slide 8: Risk/Return Characteristics Across Asset Classes
Risk/Return Characteristics Across Asset Classes 1990 – 2008 Risk and Return Data from Jan 2000 to Jun 2008 Annualised Compound Annualised Standard Rate of Return Deviation Return/Volatility MSCI World Equity Index 4.88% 13.47% 0.36 JPM Global Government Bond Index 6.76% 3.20% 2.11 HFRI Fund of Fund
Slide 9: Hedge funds still underweighted in portfolio allocations
Hedge funds still underweighted in portfolio allocations of many investors “Endowment Envy” has in part driven a massive shift to ‘alternatives’, particularly in private equity and increasingly in HFoF, and global equity and fixed income in US institutional …within alternatives hedge FoF share incre
Slide 10: Overview of Polar Capital
Overview of Polar Capital Assets under management At 28 December 2007, assets under management totalled $3.6bn split as follows: AuM split by strategy (28 December 2007) AuM split by business Healthcare unit (28 December 2007) Macro Utilities 0% 2% 1% Emerging Markets 12% Technology 27% Long Onl y 4
Slide 11: Overview of Polar Capital: AUM flows
Overview of Polar Capital Unaudited AUM flows* $bn AUM @ 31 March 2008 $3.14bn Gross inflows to 30 Nov 2008 0.73 Gross outflows to 30 Nov 2008 (excluding fund closures) (0.49) Net flows from ongoing business to 30 Nov 2008 0.24 Fund Closures (0.34) Performance Long Performance -0.18 Hedge Performanc
Slide 12: Overview of Polar Capital: Performance
Overview of Polar Capital Performance Fund Fund Size Launch Performance Performance Volatility Index Nov 30th 2008 Date Calendar 2007 YTD* YTD* $m Hedge Funds UK ** 105 Nov 2001 3.27% 4.26% 6.10 MSCI Europe -43.26% European Forager 292 Aug 2003 11.85% -13.97% 8.80 FTSE 100 -33.60% European Convictio
Slide 13: Polar Funds vs Indices
Return (base 100) 30 /0 4/ 20 40 50 60 70 80 90 100 110 120 130 140 07 30 /0 5/ 20 07 30 /0 6/ 20 07 30 /0 7/ 20 Performance 07 30 /0 8/ 20 07 30 /0 9/ 20 07 30 /1 0/ 20 07 30 /1 1/ 20 07 30 /1 2/ 20 07 30 /0 1/ 20 08 29 /0 2/ 20 Tim e 08 30 /0 3/ 20 08 30 /0 Polar Funds vs Indices 4/ 20 08 Overview
Slide 14: Polar's Competitive Positioning
Polar’s Competitive Positioning As strong as it ever has been • Highly differentiated performance of funds. • Significant shrinkage in number of competing funds. • Incentivisation in place with funds at/near high water marks. • Distress at a time of significant opportunity. • Relative stability of t
Slide 15: Competitive Differentiation
Competitive Differentiation Best performing hedge funds Barron’s First Ranking of the World’s Best Performance Hedge Funds Three year net performance (through June 30, 2007) Fund Assets (m) 3 yr cum. av. H1 07 2008 YTD 1 RAB Special Situations 2267 47,69 17,93 -67% 2 The Children’s Investment Fund 5
Slide 16: Strategy for Growth
Strategy for Growth Plan for 2009 • Focus on growth of existing funds. Capacity and Growth Prospects Paragon $1500mm Conviction $750mm Forager $500mm Discovery $1000mm UK UCITS3 $500mm Latam $250mm HEDGE TOTAL $4500mm Japan $600mm Technology $600mm Healthcare $300mm LONG ONLY TOTAL $1500mm TOTAL $60
Slide 17: Any Other Business
Any Other Business Questions Raised • How diverse is the investor base? • What are the current redemption pressures? • Will there be pressure on fees? • What will happen to fund liquidity terms? • How has Polar managed to deliver this performance? • Is the business too dependent on the Paragon Fund?
Slide 18: Summary
Summary • We expect the global economic backdrop to continue to present a very challenging environment. • Considerable damage has been done to the ‘reputation’ of the hedge fund industry. • Polar’s competitive positioning is strong. • Challenges will be to attract assets and boost core profitability
Slide 19: Financial Review
Financial Review Highlights for 6 months to 30 September 2008 • AUM − AUM at 30 September 2008 down 9% to $2.87bn compared to $3.14bn at March 2008 (2007: $3.4bn). − Analysis of movements on AUM page. • Profitability − Pre-tax profitability down 67% to £1.5m (Sept 2007: £4.5m). − Performance fee rec
Slide 20: Financial Review: Profits
Financial Review Profits 2008 2009 1st Six 2nd Six 2008 1st Six Months Months Year Months Core operating profit 3.4 2.6 6.0 0.9 Performance fee profit 0.3 7.7 8.0 -- Interest and similar income 0.8 0.9 1.7 0.6 PBT pre IFRS S.B.P. 4.5 11.2 15.7 1.5 Share based payments (“S.B.P.”) (0.6) (0.6) (1.2) (0
Slide 21: Financial Review: Costs
Financial Review Costs 2008 2009 1st Six 2nd Six Year 1st Six Months Months Months Comments Salaries and bonuses 4.9 4.1 9.0 5.1 * Other Operating costs Core distributions 0.9 1.3 2.2 1.5 contain cost of £500,000 5.8 5.4 11.2 6.6 from the loss made from the Company’s investment Performance fee inter
Slide 22: Financial Review: Dividend
Financial Review Dividend Dividend Policy • First dividend of 1.0p (2007: 1.5p). • Dividend reflects: (a) reduced profits (b) historically the first dividend has been the smaller dividend POLAR 21 CAPITAL HOLDINGS plc
Slide 23: Financial Review: Projection for months to March 2009
Financial Review Projection for 12 months to 31 March 2009 • AUM – short term redemption pressure – strength of dollar has ameliorated reduction in AUM. • Core AMC Profitability – Reduced AUM squeezing core profitability – Approx $2bn threshold level of AUM • Performance Fee Profitability – Performa
Slide 24: Polar Capital Disclaimer
Polar Capital Disclaimer This document does not constitute an offer to sell or an invitation to buy shares in Polar Capital Holdings plc or any other invitation or inducement to engage in investment activities. Certain statements, beliefs and opinions in this document are forward-looking, which refl
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