*Presentation for wholesale investors only
Disclaimer This presentation has been prepared by Watermark Funds Management Pty Limited ( Watermark ) and Watermark Neutral Fund Limited ( WMN ). The information contained in this presentation is for information purposes only and has been prepared for use in conjunction with a verbal presentation and should be read in that context. This presentation is provided to you on the basis that you are a either a Sophisticated Investors or Professional Investor, as those terms are used in sections 708(8) or 708(11), respectively, of the Corporations Act 2001 (Cwlth). The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis for making an investment decision. Please note that, in providing this presentation, Watermark and WMN ( Watermark Entities ) have not considered the objectives, financial position or needs of any particular recipients. The Watermark Entities strongly suggest that investors consult a financial advisor prior to making an investment decision. The Watermark Entities have prepared this document based on information available to it at the time of preparation, from sources believed to be reliable and subject to the qualifications in this document. To the maximum extent permitted by law, Watermark, WMN, Morgan Stanley Australia Securities Limited ABN 55 078 652 276 ( Morgan Stanley ), Macquarie Capital (Australia) Limited ABN 79 123 199 548 (together with Morgan Stanley, the Joint Lead Managers ), and Taylor Collison Limited ( Taylor ) and RBS Morgans Limited (together with Taylor, the Co-Managers, and the Co-Managers and the Joint Lead Managers, the Managers ) and each of their respective affiliates, related bodies corporate (as that term is defined in the Corporations Act) and their respective directors, employees, officers, representatives, agents, partners, consultants and advisers (each a Limited Party and together, the Limited Parties ) accept no responsibility or liability for the contents of this document and make no recommendation or warranties concerning any offer. No representation or warranty, express or implied, is made as to the fairness, accuracy, adequacy, validity, correctness or completeness of the information, opinions and conclusions contained in this document. To the maximum extent permitted by law, none of the Limited Parties accept any responsibility or liability including, without limitation, any liability arising from fault or negligence on the part of any person, for any loss whatsoever arising from the use of this document or its contents or otherwise arising in connection with it. Neither of the Managers, nor any of their respective affiliates, related bodies corporate and their respective directors, employees, officers, representatives, agents, partners, consultants and advisers have authorised, permitted or caused the issue, lodgement, submission, dispatch or provision of this document, and none of them make or purport to make any statement in this document and there is no statement in this document which is based on any statement by them. The recipient acknowledges and agrees that neither it, Watermark, WMN, or the Managers intend that the Managers or any member of the Managers group or any of their affiliates act or be responsible as a fiduciary to the recipient of this document, its officers, employees, consultants, agents, security holders, creditors or any other person. Each recipient of this document and the Managers (on behalf of each other member of the Managers group and their affiliates), expressly disclaim any fiduciary relationship. The Limited Parties (other than Watermark and WMN) may have interests in the securities referred to in this document, including being directors of, or providing investment banking or corporate advisory services to, WMN. Further, they may act as a market maker or buy or sell those securities or associated derivatives as a principal or agent. The Managers accept no responsibility for the contents of this document or any information contained in it. This presentation is not, and does not constitute, an offer to sell or the solicitation, invitation or recommendation to purchase any securities and neither this presentation nor anything contained in it forms the basis of any contract or commitment. A prospectus ( Prospectus ) is available in connection with the initial public offering, and quotation on the financial market operated by ASX Limited, of ordinary shares and options to acquire ordinary shares in WMN ( Offer ). Copies of the Prospectus can be obtained by contacting Justin Braitling, Tom Richardson, Joshua Ross or Nerida Dawson on 02 9252 0225 during the period from and including the date on which the Offer opens until and including the date on which the Offer, or an electronic version of the Prospectus Prospectus) can be downloaded from the following website: www.wfunds.com.au. Offers of shares and options under the Offer will be made in, or accompanied by a copy of, the Prospectus. Prospective investors should consider the Prospectus in deciding whether to acquire shares and options under the Offer. Prospective investors who want to acquire shares under the offer will need to complete an application form that is in or accompanies the Prospectus. Statements in this document are made only as of the date of this document unless otherwise stated and the information in this document remains subject to change without notice. WMN may, in its absolute discretion, but without being under any obligation to do so, update or supplement this document. Any further information will be provided subject to these terms and conditions. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States. The securities of WMN have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (Securities Act) or the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and any other applicable securities laws or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any other applicable securities laws. NOT FOR DISTRIBUTION IN THE UNITED STATES
About Watermark We are active, high conviction investors in Australian listed companies. As an Absolute Return manager, Watermark is offering investors an alternative to traditional institutional ‘long only’ funds that are more dependent on a rising share market. Our aim is to profit from the mispricing of Australian shares while seeking to protect our investors from loss through the use of hedging strategies based on short selling which aim to enhance returns and reduce market risk. Watermark’s flagship fund is a listed investment company – the Australian Leaders Fund Limited - which has delivered a compound annual return of 15.4% p.a. net of all fees to April 2013, since listing on the Australian Securities Exchange in 2004. Investment Team: Chief Investment Officer Justin Braitling Senior Analyst Tom Richardson Analyst Joshua Ross Operations Manager Nerida Dawson Managed Funds: Australian Leaders Fund - A listed Long/Short Fund Watermark Market Neutral Fund
What sets Watermark apart from other managers ? An absolute return focus . At Watermark we consider each investment opportunity in the context of an absolute gain or loss of capital whereas many managed funds target relative outperformance where risk is seen in the context of underperforming the share market. Superior returns. As a long/short manager, Watermark has the option of either being ‘long’ or ‘short’ individual shares. Consequently it has a much broader and deeper pool of mispriced shares to consider. In constructing both long and short portfolios, we are able to target higher returns than other funds. An ability to hedge . As ‘shorts’ can be a natural hedge for the fund’s assets we can separately manage market risk ( β ) through the investment cycle while still taking advantage of mispricing in the share market.
Investment Process To deliver superior returns with reduced market risk . To return a consistent stream of fully franked dividends to shareholders. The best investment opportunities are found in strong, well managed companies that can be purchased on attractive terms. The best shorting opportunities are found in weaker companies that are poorly managed and overvalued. A fundamentally driven process based on sound investment ideas; monitoring economic and industry trends; extensive company and industry contact. Qualitative Scorecard : Business Quality + Management + Valuation + Risk. We construct both a long and a short portfolio. The portfolios are constructed around the best investment ideas (qualitative scorecard) with the highest conviction. The relative size of the long and short portfolios will determine the net market exposure
Qualitative Scorecard Score Long Portfolio Short Portfolio Business Quality Superior economic returns Weak returns (1-10) High barriers to entry Low barriers to entry Sustainable growth Mature Leadership position Highly competitive Management Clear consistent strategy Convoluted strategy (1-5) Best in class performance Poor operational performance Accretive capital management Destructive capital management Valuation Undervalued based on range of Overvalued based on range of measures (1-5) measures DCF, P/E, EBITDA/EV, Buyout analysis DCF, P/E, EBITDA/EV, Buyout analysis Financial Risk Low Gearing Leveraged (1-5) Earnings certainty Earnings risk
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