HomeMy WebLinkAbout2007 01 31 Document Given To Board Members On 01/25/07 For Regular 302 - DG CapitalDate: January 31, 2007
THE FOLLOWING DOCUMENT WAS
GIVEN TO THE BOARD OF TRUSTEE
MEMBERS ON JANUARY 25, 2007
REGARDING REGULAR AGENDA
ITEM 3 02 .
`.
IWSU
• - ' .
To: Board of Truste
From: Kevin Smith, G
Re: BOT January 3
I. Investment Manger RFP
DEPARTMENT OF GENERAL SERVICES
MEMORANDUM
January 25, 2007
es
eneral Services Director
1, 2007 Meeting
Enclosed please find presentation materials for each firm scheduled for interview for
Investment Manager Services to the City's Defined Benefit Pension Plan. Also
enclosed is a sample contract for Investment Manager Services as prepared by
Bogdahn Consulting.
Interview schedule is as follows:
Date: Wednesday, January 31, 2007
Time: 5:00 PM
Location: East Training Room, City Hall
Time Manacler
5:15 p.m. DG Capital
5:45 p.m. Lateef Asset Mgmt. •
6:15 p.m. Renaissance Investment Mgmt.
6:45 p.m. Fifth Third Asset Mgmt.
7:15 p.m. Oppenheimer Capital
7:45 p.m. Snow Capital Mgmt
8:15 p.m. Galliard Capital Mgmt.
8:45 p.m. MBIA Asset Mgmt.
Mandate
Broad Growth
Broad Growth
Broad Growth
Broad Value
Broad Value
Broad Value
Domestic Fixed Income
Domestic Fixed Income
• Presentation materials were due to City Hall by 5:00 PM on January 24,
2007. Lateef Asset Mgmt. did not submit materials by this deadline, nor
have they been received as of the date of this memo. Staff and Bogdahn
Consulting are contacting representatives from Lateef to discuss this issue.
We will transmit materials from Lateef as soon as they are received.
Each firm has been allotted 20 minutes for their presentation and 10 minutes for
questions.
II. SunTrust 4th Quarter 2006 Report
Additionally, enclosed please find SunTrust's Fourth Quarter 2006 Report for your
review. Due to the full schedule for this meeting, SunTrust was asked not to present
their report.
cc: City Manager
Finance Director
U:\docs\word\Memos KLS\BOT Investment Manager IV.doc
Opportunistic Growth Strategy
presented to
Winter Springs Employees' Pension System
Gary Williams
Chief Marketing Officer
DG Capital Management, Inc.
DG Capital Management, Inc.
^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ i ^ ^ ^ ^ ^ ^ ^
^ Our opportunistic style reacts quickly to market change
^ Our eclectic portfolios offer broad diversification
^ We believe long-term outperformance requires intense focus on capital preservation
"We try to bring an absolute return mentality
to mainstream money management."
Manu Daftary
Founder
DG Capital
DG Capital Management, Inc. 1
^ Firm Overview:
^ DG Capital Management was founded in 1996 by Manu Daftary. Mr. Daftary (26 years experience) and
Mr. Chris Perras (18 years experience), who joined the firm in 2002, co-manage all Opportunistic Growth
portfolios.
^ DG Capital has been managing the Opportunistic Growth strategy since 1996.
^ DG Capital is independently owned and focused exclusively on investment management for its clients.
^ We manage separate account portfolios for Corporate, Foundation, Endowment, Public and sub-advisory
clients.
JUST THE FACTS
Firm Assets $1,717 million
Investment Staff 7
Client Service/Operations 9
Headquarters Boston
Satellite Research Houston
(as of 12/31/06)
DG Capital Management, Inc. 2
^ Cllellt OVerV1CW (as of 12/31/06):
^ Sub-advised mutual fund totaling $897 million (inception
November 1996)
^ First institutional client funded in March 2003
^ 20 Institutional Separate Accounts totaling $667 million
^ Commingled fund totaling $80 million (inception November
2005)
Institutional Assets
(and Accounts)
^ Corporate (6)
^ Public (1)
^ Endow/Found (5)
^ Other (8)
DG Capital Management, Inc. 3
^ Investment Objectives:
^ Outperform the broad U.S. equity market (S&P 500) over full market cycles
^ Provide clients with an attractive risk/return profile
^ Create a flexible strategy that allows us to opportunistically react to changing market conditions
"...Much of the institutional money management rulebook that's been compiled over last 30-50 years ought to go out the
window. ...In this looser, more opportunistic environment...Ifnresee the abandonment of the...process of putting managers
into cubbyholes...along with this...obsession with tracking error instead of absolute results and risks incurred."
--Peter Bernstein, noted investor and economist, January 2003
DG Capital Management, Inc. 4
^ Positioning within an Asset Allocation Plan:
^ While the Opportunistic Growth mandate is all-cap, our investment style is dominated by mid to large
cap stocks with a core to growth style bias. Current clients are benchmarked against the S&P500.
^ Provides exposure to broad U.S. equity market while staying independent of rigid style constraints.
Value Core Growth
Large
Mid
Small
DG Capital Management, Inc. 5
^ Investment Philosophy
In a typical universe of growth stocks, for any 10 stocks, 6 will
underperform, 3 will outperform and one will be a home-run.
s
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O
- - --
Underperform
.~ - -
.~
Outperform
. ~ Most growth managers spend their time
looking for the home-runs. We spend our time
trying to avoid the losers.
Source: Geewas, Terker and Co.
DG Capital Management, Inc. 6
^ DG Capital's Equity Research:
We believe earnings growth is essential for stock price
appreciation. Therefore we:
^ Go where the earnings are (i.e. we are opportunistic)
^ Look for sustainable earning surprises
^ Seek stocks that have P/E expansion potential
^ Focus on reasonably valued growth stocks
DG Capital Management, Inc. ~
Marshall Hurd
^ Risk Management
^ Quantitative Analysis
Manu Daftary
^ Chief Investment Officer
^ Research/Stock Selection
Ri~1~'~'[ana«ei~ent
Chris Perras
^ Co-Portfolio Manager
^ Research/Stock Selection
^ Head of Houston Office
Weekly Investment Meetings Patrick Lewis
Daily Monitoring of Positions
Keep Portfolios Fresh Research/Stock Selection ~
^ Tech & Telecom Focus
Chris Galipeau
^ Research
^ Portfolio Analysis
Garrett Nannene
^ Trading
^ Options Specialist
All portfolios are managed in a collegial team oriented manner with
Mr. Daftary and Mr. Perras having final say on all buys and sells
DG Capital Management, Inc. g
Large Cap Names
GARP
Averages 20-50%
of Portfolio
Mid Cap Names
Averages 20-40%
of Portfolio
Small Cap Names
Averages 10-30
of Portfolio
Short
Averages 0-15%
of Portfolio
Cash
Averages 5 to 30%
of Portfolio
Buy Factors/Characteristics Sell Criteria
^ Out of favor names
^ Limited downside
^ Attractive valuation
^ Earnings catalyst
^ Low institutional
ownership
^ Looking for earnings
momentum/surprises
^ Alpha generators
^ Less focus on valuation
^ Liquidity weighted
^ Low and/or rising
institutional sponsorship
^ Short on fundamentals not
valuation
• Generally mid-cap due to
earnings volatility
^ Reduces risk
^ Residual of market
conviction
^ Short term allocation
^ Changing fundamentals
^ Price targets met
^ Stop-loss targets
^ Take your profit
^ The market is always
right
DG Capital Management, Inc. 9
^ Investment Process -Risk Controls:
^ Broadly diverse portfolio (50-801ong
positions)
^ Security concentrations dictated by a
liquidity overlay and a maximum weighting
of 3.5% at cost
^ 25% industry weight limit
^ Limited use of options and shorting for
hedging purposes (with client approval)
^ Continuous monitoring of portfolio positions
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Historical Up-Down Analysis
Performance versus the SS~P 500 in Up and Down
Months (December 96 -December 06)
^ Average Retum in
75 Up Months
^ Average Retum in
46 Down Months
-3.00
-4.00
Opportunistic Growth S&P 500
Composite (net)
Note: This performance is from our fully discretionary Opportunistic
Growth composite which includes the use of shorting and options.
Please note the performance disclaimers on the performance page for
additional footnotes.
DG Capital Management, Inc. 10
................................
^ Current Sector Positioning
As of 12/31/06
Lon Short Net S8~P500
Info Tech
Telecom
Energy
Finance
Cons Discr
Cons Staples
Healthcare
Industrials
Materials
Utilities
Exch Traded
Total
9.0% -0.3% 8.6% 15.1
4.1% - 4.1% 3.5%
15.0% - 15.0% 10.0%
10.0% - 10.0% 22.3%
5.7% - 5.7% 10.6%
6.9% - 6.9% 9.3%
10.8% -0.4% 10.4% 12.0%
13.6% - 13.6% 10.8%
6.5% - 6.5% 3.0%
5.3% - 5.3% 3.4%
0.2% - 0.2%
87.1 % -0.7% 86.4%
25%
zo%
15%
10°h
5%
-5°h
-10%
Month-end Weighting
~ ^ Long ^ Short -Net • Benchmark
•
- - • ! _ ~ -
~ ~ •
U ~ ` U CJ ~ 4) y1 ~ N N
H ~ C ~ ~ ~ Y y N = ~
p y W LL C (n ~ 7 m ~ F-
c ~ U ~ _ ~ ~ X
o W
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Note: This exposure information is from our largest fully discretionary Opportunistic Growth separate account which includes the ability to use shorting and options.
DG Capital Management, Inc. 11
^ Current Characteristics (12/31/06)
Top 5 Holdings
3.3% United Healthgroup Inc
3.0% General Dynamics
2.9% Altria Corp
2.8% Freeport-Mcmoran Corp
2.8% Bunge Limited
Characteristics Capitalization
Portfolio S&P500
P/E 16.0 17.8 Large Cap 70.0% Greater than $10 billion
Next 5 Yr EPS Growth 14% 12% Mid Cap 13.1 % Between $10 and $2 billion
Past 5 Yr EPS Growth 25% 20% Small Cap 4.0% Less than $2 billion
Div Yield 1.3% 0.0%
Short Exp -0.7%
wt avg 61.2 bill 102.7 bill
median 20.0 bill 58.4 bill Cash 12.9%
Note: This information is from our largest fully discretionary Opportunistic Growth separate account which includes the ability to use shorting and options.
DG Capital Management, Inc. 12
^ Performance
^ Fee Schedule
^ Biographies
DG Capital Management, Inc. 13
~ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ s ^ ^ ^ ^
^ Performance through 12i31io6~
Calendar-Year Total Returns
L1~"
Composite (Gross*) 7.1 16.9 19.3 33.5 -15.2 -6.2 ~\ 17.2 99.5 31.9 21.9
Composite (Net*) 6.2 15.9 18.3 32.4 -15.9 -7.0 , 16.2 97.9 30.8 20.9
S&P 500 15.8 4.9 10.9 28.7 -22.1 -11.9 -9.1 21.0 28.6 33.4
Russ 1000 Growth 9.1 5.3 6.3 29.8 -27.9 -20.4 -22.4 33.2 38.7 30.5
Periodic Returns (through 12/31/06)
Composite (Gross*) 7.1 14.3 11.1 19.8
Composite (Net*) 6.2 13.4 10.2 18.8
S&P 500 15.8 10.4 6.2 8.1
R1000 Growth 9.1 6.9 2.7 5.2
^
*Disclaimer: Performance returns, which have not been audited by an independent accountant, are estimated figures based on asset-weighted composite returns. The
composite (as of 12/31/0 consists of one sub-advised mutual fund and five separately managed accounts. Gross of fees returns are calculated gross of management fees but
net of transaction and custodial costs. Net of fees returns are calculated net of management fees and transaction costs (by subtracting the standard fee schedule at the
maximum fee level for the minimum account size on a monthly basis). Performance reflects the reinvestment of dividends. Past performance does not guarantee future results.
This performance report should not be construed as a recommendation to purchase or sell any particular securities held in composite accounts. Market conditions can vary
widely over time and can result in a loss of portfolio value. All results are reported in USD.
DG Capital Management, Inc. 14
^ Fee Schedule gas of12/31/06)
^ The fee schedule for the D.G. Capital Opportunistic Growth Fund, LLC is:
1.25% for capital Accounts up to $2 million
1.00% for the entire balance for Capital Accounts over $2 million
0.90% for the entire balance for Capital Accounts over $5 million
0.80% for the entire balance for Capital Accounts over $10 million
DG Capital Management, Inc. 15
~ ~
Manu Daftary: President and Chief Investment Officer. He began his investment management career at the University of Southern California in 1985
where he was Assistant Treasurer -Investments. In 1988, he joined Geewax, Terker & Company as a Portfolio Manager and was co-manager of the firm's
institutional accounts. In addition, he also was Manager of equity short selling for the firm's hedge-fund assets and also designed the option overlay
program that was utilized in the firm's institutional accounts. In 1993, he joined Hellman, Jordan Investment Management Company as a Senior Vice-
President/Portfolio Manager with lead responsibility for $500 million in institutional assets and was also involved in the management of $150 million in
hedge-fund assets. In 1996, he established DG Capital Management, Inc. Mr. Daftary has a MBA from California State University at Long Beach and is a
Chartered Financial Analyst.
Chris Perras: Portfolio Manager. Mr. Perras began his investment career in 1988 with Prudential Investment Corporation as an analyst performing due
diligence on LBO's and private placements. From 1993 to 1995, he served as an assistant portfolio manager with Hellman, Jordan Management where he
worked with Mr. Daftary. He served as an associate portfolio manager at Van Kampen American Capital from 1995 to 1997 and as an equity analyst at
Van Wagoner Capital Management from 1997 to 1999 focusing on mid-cap and small-cap stocks. Prior to joining DG Capital, Mr. Perras was part of a
management team at AIM Capital Management that was responsible for the AIM Opportunities Long/Short funds and AIM's hedge fund products. Mr.
Perras received a BS in electrical engineering from the Georgia Institute of Technology and an MBA from Harvard Graduate School of Business
Administration. He is a Chartered Financial Analyst and has his Series 3.
Gary Williams: Chief Marketing Officer. Mr. Williams began his career at Travelers Insurance Co. in 1976 working in various client service positions.
In 1979, he joined Unum as a Senior Client Service Consultant. From 1981 to 1996, he worked for MetLife in various sales and client service roles. In
1996, he joined Dewey Square Investors where he was in charge of sales and marketing. He joined Fidelity Investments in 1997 overseeing client service
for their large institutional clients. At DG Capital, Mr. Williams is responsible for assisting Mr. Daftary in managing the firm as well as overseeing client
service and new business development. Mr. Williams holds a BA in Economics from Gettysburg College.
Kimberly Voss: Chief Operating Officer. Ms. Voss graduated from Boston University in May 2000 with a BA in International Relations. She has also
worked in the Human Resource Department of Grupo Sigla in Madrid.
DG Capital Management, Inc. 16
Garrett Nannene: Head Trader. Mr. Nannene began his career at the Boston Stock Exchange in 1997 after spending a year playing professional hockey
in Europe. He then worked at Leerink, Swann & Co. and BankBoston in various trading capacities before joining Navigator Asset Management in 1998
where he actively traded listed and OTC equities, options, and indices and also provided technical analysis used in portfolio strategy. Mr. Nannene is a
graduate of Williams College where he received his BA in Psychology with a concentration in Environmental Studies.
Patrick Walsh: Assistant Trader. Mr. Walsh graduated from Tufts University in May, 2006, with a BA in American Studies and a minor in Media
Communications. He was afour-year starter on the Tufts men's varsity hockey team and was co-captain in his senior year.
Patrick Lewis: Senior Investment Analyst. Mr. Lewis began his career as amulti-industry financial analyst with First National Bank of Commerce. Mr.
Lewis then worked on a private equity deal team at Enron for two years investing in growth, development and buyout situations. From 1997 to 2001, he
managed a Telecommunications and Technology portfolio at ECT Investments (ECTn, a proprietary long/short hedge fund at Enron Corporation in
Houston. Mr. Lewis joined Carlson Capital, amulti-strategy hedge fund in Dallas where he served as a senior analyst on a Telecommunications and
Technology portfolio from 2002 to 2004. Prior to joining DG Capital, he was a senior analyst on both a small and mid-cap growth portfolio at AIM
Investments. Mr. Lewis graduated with a BS in Finance from Louisiana State University and is a Level III candidate in the Chartered Financial Analyst
program.
Chris Galipeau: Senior Investment Analyst. Mr. Galipeau began his investment career in 1992 at Fidelity Investments working as part of the Insurance
Asset Management team responsible for marketing Fidelity's asset management capabilities to major insurance companies. In 1994, he founded Alpha
Equity Research, a leading institutional research firm tasked with providing sector and stock research to portfolio managers across the United States. From
1994-2004 he served as Senior Vice President of the firm before being elevated to President in 2004. He was the main point of contact for the firm's
institutional portfolio management clients providing actionable equity research and portfolio analysis, using a combination of fundamental and technical
analysis. Mr. Galipeau graduated from Salem State College in 1991 with a BS in Business Administration with a concentration in Finance and a minor in
Economics.
DG Capital Management, Inc. 17
Marshall Hurd: Senior Portfolio Analyst. Mr. Hurd began his career operating a computer consulting business specializing in both hardware and
software consulting to small businesses. In 1996, he joined Fidelity Investments in Boston where he was Senior Analyst in their Strategic Services Group;
an analytical team of research associates working with large institutional clients. He also spent time working in Fidelity's performance measurement,
attribution and research area providing portfolio analysis to both internal portfolio managers and external clients. Mr. Hurd is a graduate of Dartmouth
College with a BA in Engineering, a BE in Electrical Engineering and a minor in Environmental Studies. He is also a Chartered Financial Analyst.
John Sweeney: Director of Operations. Mr. Sweeney began his career at Hellman, Jordan Management Company in 1994 where he was responsible for
maintaining management information systems and for reconciling over $500 million in institutional and hedge-fund assets. At DG Capital, he is in charge
of operations and systems. Mr. Sweeney has a BS in Accounting from Boston College.
Elizabeth Rainey: Marketing Associate. Ms. Rainey began her career at State Street Corporation as a Portfolio Accountant. She graduated from
Providence College in May 2002 with a BS in Finance.
Kevin Walsh: Operations Associate. Mr. Walsh began his career at State Street Corporation as a Portfolio Accountant. He graduated from Stonehill
College in May 2003 with a BS in Finance.
Sara Shedden: Controller. Ms. Shedden began her investment career when she joined Liberty Mutual as an Investment Accountant in 2001. In 2002, she
joined Hartford Investment Management as a Senior Investment Accountant and in 2004 she was promoted to a Specialist in the Finance and Budget
Department of Hartford Investment Management. Ms. Shedden graduated from Pace University in May 2000 with a BBA in Accounting and is currently
pursuing her MBA in Finance from the University of Connecticut.
Katrina Kelly: Administrative Assistant: Ms. Kelly began her career at Deutsche Bank Berkshire Mortgage in their Servicing Department. She
graduated from the University of New Hampshire in May 2004 with a BA in Psychology.
Michael Coppens: Operations Associate. Mr. Coppens began his career at State Street Corporation as a Financial Analyst. He graduated from Boston
College in May 2003 with a BS in Finance.
Rebecca Bray: Compliance Associate. Ms. Bray began her career at Hartford Investment Management in their accounting department. In 2005, she
joined SS&C Technologies, Inc. as an Investment Accountant. Ms. Bray graduated from the University of Colorado at Boulder in May 2002 with a BS in
Finance.
DG Capital Management, Inc. 18