1

GyrostatCorporateExpertise

Riskmanagedsolutionsforaccumulationtoretirementphase

Ourapproachistohaveprotectionalwaysinplacetomaximisereturnsfora‘hard’definedriskparameter.

Tominimisecosts:

Ourproprietarysoftwaresystemsidentifyoptionsserieswiththegreatestprofitpotentialforadefinedcost,exploitingdifferinglevelsofimpliedvolatilityintheoptionsmarket.

“Activemanagement”bybuyingorsellingoptionswithmarketmovements.

Executivesummary:‐

Solutionsarerequiredforcapitalriskmanagementandequityincome.

Riskmanagementagainstlargeequityfallscanbeachievedbyaddingasmalldownsideprotectionallocationtotheportfolio.Protectionisalwaysinplace(notrelyingonforecasts),withlargecashdistributionsavailableforre‐investmentonmajormarketfalls.

Aportfoliowitha20%allocationtoAustralianequitiescouldbeprotectedagainstlargelossesbyaddinga1%allocationtotheGyrostatDownsideProtectionAustralianEquitiesFund.

Equityincomecanbedeliveredthroughallphasesoftheinvestmentcycle(includinglargemarketfalls)byincludingintheconservativeassetallocationsanabsolutereturnincomeequityfund.Thesefundsholda‘hard’definedrisktolerance(saynomorethan2%capitalatrisk).Thefundholdsadiversifiedportfolioofhigheryieldingstocks,deliveringregularincomebypassingthroughdividends.Protectionisalwaysinplaceatthestockspecificlevel.Returnsaredesignedtoincreaseasvolatilitylevelsincrease,asthisprovidesmoreopportunitiestolowerprotectioncosts.

TheGyrostatAbsoluteReturnIncomeEquityFundhasan8yeartrackrecordofdeliveringreturns,incomeandprotectionforinvestorswantingminimalcapitalatriskatalltimes.

Underinvestmentmandateweidentifythelowestcostsofprotectionavailableinthemarketforadefinedperiodoftime.Theprotectiondeliveredisfullcompensationforlossesbeyondapre‐defined‘excess’level.

IntheUSAtheapproachhasbeensuccessfullyappliedfornearly20yearsandisalsoappliedbylargeinvestmentbanks.

OurapproachcanbeappliedtoanylistedstockorETFwhichhasaliquidtradedoptionsmarket.Thereareawidenumberofpossibleapplications.Itisproposedtolaunchadditionaldownsideprotectionfundsonotherworldindices,suchastheHangSeng.

TheseniormanagementteamofGyrostatCapitalhasextensiveexperiencedomesticallyandglobally,asinvestors,asnon‐executivedirectors,andasseniormanagementinfundsmanagement,privateequity,industry,investmentbanking,corporatelawandequityresearch.

2

CorporateProfile

  Ourpurposeistoassistyoutoprotectandgrowyourinvestmentsandbenefitfromtimesofuncertainty.

Protectionisalwaysinplacewithupside Ridingoutthestorm Makingmoneywhenothersdon't

Ifyouactnow,youwon’tbeatriskoflargelossesonsharemarketfalls.

 

Weofferriskmanagedinvestingproductsthatcanbeaddedtoaportfoliotobenefitfromvolatilemarkets‐includinglargemarketfalls‐wheretraditionalassetallocationapproachesdon'twork.

ByaddingGyrostat,yourportfolioistransformedtoincludeprotection.Thisisparticularlyimportanttothoseinvestorswhocannotaffordtheconsequencesoflargecapitallosses,suchasretirees.Youprotectyourhome,car,life‐whynotshares?

Ourproductsarespecificallydesignedtobenefitinvolatilemarkets.Itisourviewthatstockmarketshavenowenteredamorevolatilephase.Thisisconsistentwithhistoricalcyclesofapproximately5yearsofstable,then5yearsofmorevolatilemarketconditions.

Majormarketfallsarearegularandhazardousfeatureoftheinvestmentcycle.TheGyrostatproductscomplementexistingapproachesandenableaninvestmentsolutionacrossthecompleteinvestmentcycle‐addressingtheunscripteddramaoflargelosseswhenmarketsfall.

3

WehavetwospecificFundswhichaddressparticularneeds:

EquityIncomeinRetirementPreandpostretireesrequirea‘conservative’assetcombiningprotection,returnsandregularincomethroughallstagesoftheinvestmentcycle.Traditional‘incomefunds’haveexperiencedsubstantialcapitallossesinmarketcorrections.Advancesinriskmanagementenablecosteffectiveprotectiontoalwaysbeinplace.GyrostatAbsolutereturnIncomeEquityFundGyrostatbuysandholdsASX‘Bluechip’shareswithlowestcostprotectionalwaysinplacewithupside.InvestmentObjectives:

Returns:6%‐8%paintrendingmarkets,greaterthan8%painvolatilemarkets,shorttermbondreturnsinstablemarkets

Income:Minimumcashrate+3%paidsemi‐annually(currently5.0%p.a.)fromdividendsandfrankingcredits

Protection:NoquarterlyNAVdraw‐downsexceeding2%

ThroughoutthecompleteinvestmentcycleincomeispaidataminimumofBBSW+3%bypass‐throughofbluechipdividends.Protectionisalwaysinplacewithminimalcapitalatrisk(8yeartrackrecordofnoquarterlylossesnotexceeding2%).Returnsvarythroughthecompleteinvestmentcyclewithgreaterprofitsinmorevolatilemarkets(includinglargemarketfalls.)

Avideooutliningourinvestmentapproachandtrackrecordisavailableat:http://www.gyrostat.com.au/news/gyrostat‐absolute‐return‐income‐fund‐in‐depth‐guide/

Gyrostatcompoundedreturnsarenetoffeesandincludefrankingcredits,cash(BBSW90)includesre‐investmentofinterest.

4

EquityriskmanagementRiskmanagementagainstlargeequityfallscanbeachievedbyaddingasmalldownsideprotectionallocationtotheportfolio.IntheUSAtheapproachhasbeensuccessfullyappliedfornearly20yearsandisalsoappliedbylargeinvestmentbanks.Abriefexplanationoftheapproachandhowasmallassetallocationtodownsideprotectioncandeliverhigherreturnswithlowerriskisavailableat:https://www.youtube.com/watch?v=LyGtiiGBEc8Amoredetailedexplanationdesignedforassetconsultants/investmentcommitteesisaspresentedbyMarkSpitznagel‐tailriskhedgepioneerisavailableat:https://www.youtube.com/watch?v=gGpt8VNpCxw

GyrostatDownsideProtectionAustralianEquitiesFundThisfundusesourestablishedinvestmentapproachandisdesignedtoincreaseinvaluewithASX200marketfalls,particularlylargemarketfalls,whilstnotcappingupsideshouldthemarketscontinuetorise.Profitsaredistributedpromptlyonlargemarketfalls.Aportfoliowitha20%allocationtoAustralianequitiescouldbeprotectedagainstlargelosseswitha1%allocationtothisFund.(ie:a$1Mportfoliowouldadd$50,000toGyrostat.)Thisisdesignedtoprovidefullprotectionintheeventof‘oneoff’10%marketfall.Thelevelofprotectionissetatthecurrentmarketlevelandismovedasthemarketmoves.Onmarketfallsprofitsaremade‐sellingsomeprotectionre‐setstheprotectionleveltothenewlowermarketlevel.Theseprofitsarepromptlydistributedtoinvestorsincash.Abriefvideoexplanationalongwithabriefsummaryofourfundisavailableatourwebsite.http://www.gyrostat.com.au/news/you‐protect‐your‐home‐cars‐and‐life‐why‐not‐protect‐shares/

5

Thekeyinvestmentfeaturesare:

Designedtoincreaseinvalueonmarketfallswithoutcappingupsideonmarketrises

Protectionisalwaysinplace

Afinanciallystrongcounter‐party‐theASX‐forhedgingactivities

TransparentmarktomarketvaluationsfromASXvaluations

Lowerprotectioncoststhanexistingapproachesthroughoptionseriesselectionandactivelymanagingtheoptionswithmarketmoves(enabledbytechnologicaladvancesandderegulation)

Cashispromptlyreturnedtoinvestorsforre‐investmentonmarketfalls

InvestmentManagementServices–customisedrisk‐returnprofilesWealsoofferinvestmentmandatesidentifyingthelowestcostsofprotectionavailableinthemarketforadefinedperiodoftime,adjusting‘excess’inincrementsof[2.5%]from[0%]to[10%].

Theprotectiondeliveredisfullcompensationforlossesbeyondapre‐defined‘excess’level.Byactivelymanagingoptionswelowerthecostofprotectionwhilstmaintainingitalwaysinplace.

6

GyrostatInvestmentManagementServices–InvestmentMandate

AustralianASX200index–protectioncostsformarketfalls

TheGyrostatinvestmentriskmanagementsystemsobtainlivepricingtoidentifylowestcostalternativestoprotectagainstmarketfalls.Theprotectionwilldeliveradefinedlevelofcompensationatexpiry.

Ourapproachexploitsthedifferinglevelsofimpliedvolatilityintheoptionsmarket.

Protectioncostsareshownforadefinedperiodoftime,adjusting‘excess’inincrementsof[2.5%]from[0%]to[10%].

Theprotectiondeliveredisfullcompensationforlossesbeyondapre‐defined‘excess’level.

Forexample: A$100Mprotected

Indexatinception: [6,187]Excessselected: [5.0%or5,878level]Expiry: [87days–Dec20]

Atexpiry,usinga[5.0%]excessat[5,878]indexlevel,thereisanintrinsicprotection,dollarfordollarbelowthisindex‘excess’level.MaximumCost:[0.84%]for87days.(Investmentof$841,000protectsanunderlyingportfolioof$100M.)Thismaybereducedthroughactivemanagement.Theportfoliohasprotectioninplaceagainstlarge‘oneoff’orrapidfalls.Ata[15%]fallto[5,259]theintrinsicvalueofprotectionwouldbe$10.0m,a[25%]fallto[4,640]wouldbe$20.0m.Itislikelythatwithlarge‘oneoff’fallsimpliedvolatilitywouldspikesignificantly,andthatmarketvaluationsmaybehigherthanintrinsicvaluationsshown(duetotheadditionaltimevaluegiventheperiodtoexpiry.)

7

GyrostatInvestmentManagementServices–InvestmentMandate

Investmenttemplate

Investment Horizon Defined protection period which can be extended as required Investment Strategy To buy lowest cost options to protection against market falls on Australian

Securities Exchange (ASX). Value of protection increases on market falls. Investment Objectives The investment objectives are:

Exploit Australian option market conditions to provide downside

protection for the underlying investment. Utilise financially strong counter party (ASX Clear) with transparent

market valuations. Transactions can be entered either directly through the ASX or over the counter.

Initial investment: Enter option positions of differing maturities or within the same maturity

across a different range of strike prices to best meet investment objectives. Option selection will utilise Gyrostat investment risk management software and process related intellectual property to exploit current market ‘implied volatility’.

Ongoing management: With market movements, the options will be actively managed to

minimize protection costs and maximize returns. Protection: At inception to provide no more than an agreed level, say [5%] capital at

risk for the underlying investment protected. Taxable income. There may be taxable income from options trading at

the end of the financial year.

8

9

Majormarketfallsarearegularandhazardousfeatureoftheinvestmentcycle

Ratesarerising,volatilityisincreasing,liquidityisbeingwithdrawn,andgeopoliticalrisksareincreasing.

RiskmanagedinvestingisparticularlyimportantduringhighPEperiods/laterstagebullmarkets.WearenowinthelongestbullmarketsinceWW2.Mostlargecorrectionoccurwithin8years,wearenowatyear11,thelongestonrecordis13years.

Thegraphshowstheextentoffallsfrompeaktotrough,thedurationofthefall,andtimetakentorecovertoprefallhighs.

Historyshowsusthatequitiesworth$1Mtodayarelikelytosee$300,000‐$500,000wipedoffitsmarketvalueinaperiodoflessthan12months,andtake12‐17yearstogetbacktopreviouslevels.

Furtherexplanation–briefvideo:

http://www.gyrostat.com.au/news/you‐protect‐your‐home‐cars‐and‐life‐why‐not‐protect‐shares/

 

S&P500Index‐90YearHistoricalChart:

‐

50

100

150

200

250

300

350

400

months

months  to recover

months  to fa l l

‐90%

‐75%

‐60%

‐45%

‐30%

‐15%

‐

Sep

1929

Jun

1933

Mar

1937

Oct

1938

Apr

1946

Mar

1956

Dec

1961

Nov

1968

Dec

1972

Dec

1976

Aug

1987

Aug

2000

Oct

2007fall %

Source:http://www.macrotrends.net/2324/sp‐500‐historical‐chart‐data

10

Limitationsoftraditionalinvestmentriskmanagement

 

Thelargeportfoliolossessufferedbymostinvestorsin2007,demonstratedthelimitationofthetraditionalapproachofmanagingriskthroughdiversification,TheGyrostatapproach,withprotectionalwaysinplacewithupside,enablesinvestorstorideoutthestormandmakemoneywhenotherstrategiesdon’t.

Theinvestmentperformanceofthetwoapproachesvariesacrosstheinvestmentcycle.

 

 

“Theretirementphaseofsuperannuationisunderdevelopedanddoesnotmeettheriskmanagementneedsofmanyretirees.”

FinancialSystemInquiryAustralia  

11

ApplyingestablishedoptionstrategiesusedinglobalmarketstoaddresslargemarketlossesinAustralia

Theproposalistoapplystrategieswithuncappedprofitpotentialonlargemarketfallsandadefinedcost(lowestcostalternative)throughbuyingoptions,andtakingadvantageofthehistoricallylowvolatilitylevelsandoptionpricing.

Therearelargegainswhentheunderlyingstock/indexmakessignificantmoves.

Thesestrategiesareknownaslongstranglesorstraddles(buyingoutthemoneyputandcalloptions).Byadjustingtheratioofboughtputandboughtcalloptionsthepay‐offprofilecanbemorebearish‐thestripvariant(adjuststheratioformoreboughtputstogiveabearishbias)withoutlosingmoneyifthestock/indexrallies.

Abriefoverviewoftheseestablishedstrategiesisavailableat:‐

http://www.theoptionsguide.com/long‐strangle.aspx

IntheUSAtheapproachhasbeensuccessfullyappliedfornearly20yearsandisalsoappliedbylargeinvestmentbanks.Abriefexplanationoftheapproachandhowasmallassetallocationtodownsideprotectioncandeliverhigherreturnswithlowerriskisavailableat:

https://www.youtube.com/watch?v=LyGtiiGBEc8

Amoredetailedexplanationdesignedforassetconsultants/investmentcommitteesisaspresentedbyMarkSpitznagel‐tailriskhedgepioneerisavailableat:

https://www.youtube.com/watch?v=gGpt8VNpCxw

Atleast3leadinginvestmentbankshaveadoptedsimilarstrategiesfortheirclientsinglobalmarkets:

“Dynamicdownsideprotectionoroptionreplicationstrategiesprovideaccesstoapay‐offprofilethathasthepotentialtoprovidesufficientdownsideprotectionwithoutremovingtoomuchupsidepotential.“

https://russellinvestments.com/‐media/files/au/campaigns/cps/r_rpt_res_protection_v1ff_1402.pdf?la=en‐au

“Putoptionsareoftenthefirstdefensethatcomestomindforinvestors.Theseareanexplicitinsurancecontract,guaranteeingprotectionifmarketpricesfallbelowthestrikeprice.”

https://www.ssga.com/na/us/institutional‐investor/en/our‐insights/publications/as‐the‐cycle‐lengthens‐investors‐look‐to‐hedge‐tail‐risk‐but‐at‐what‐price.html

“Inabearmarketorapainfulcorrection,astuteinvestorsinthesemutualfundswillfindarefugefromthestormandagreaterchanceofsubstantialprofits.”

https://www.investopedia.com/articles/investing/020616/3‐best‐downside‐protection‐equity‐mutual‐funds.asp#ixzz55oXufVWr

12

GyrostatInvestmentRiskManagementExpertise

TheGyrostatinvestmentriskmanagementapproachutilisesauniquesetofinvestmentsoftwareandprocessrelatedintellectualproperty.Ourstrategyexploitsthedifferinglevelsof‘impliedvolatility’intheoptionmarketfromdifferingmaturities,orwithinthesamematurityacrossadifferentrangeofstrikeprices.Thishasbeenobservedbyacademicsandmarketparticipantsformanydecades.

Technologyenablesourproprietarysoftwaresystemstoconstructavolatilitytermstructureandidentifythe‘leastcost’callandputoptionalternativesavailableinthemarketatthattime.Therearemanyseriestochoosefrom.Thisisreflectedindifferinglevelsof‘impliedvolatility’acrosstimeperiodsandwithinarangeofstrikepriceswithinthesametimeperiod.Gyrostatusesavarietyofboughtoptionandotherstrategiestypicallyrangingfromdurationof3–15months,dependingupontheprevailingoptionmarketconditions.

Withmarketmovements,the“options”componentneedstobere‐setoractivelymanagedtoensurethattherisk‐returnparametersmeettheinvestmentcharter.Thisinvolvesthebuyingorsellingofoptions.

Thekeyinvestmentriskmanagementfeaturesare:

Protectionisalwaysinplacetoaspecifiedabsoluteriskparameter(eg.nomorethan2%atrisk)

Lowerprotectioncoststhanexistingapproachesthroughoptionseriesselectionandactivelymanagingtheoptionswithmarketmoves(enabledbytechnologicaladvancesandderegulation)

Foragivenriskparameter,returnsaremaximisedandre‐setwithmarketmovements

Afinanciallystrongcounter‐party‐theASX‐forhedgingactivities

TransparentmarktomarketvaluationsfromASXvaluations

Thishasbeentestedandrefinedoverthepast8yearsthroughaspecificwholesalefund–theGyrostatAbsoluteReturnIncomeEquityFundatarisktoleranceofnomorethan2%atriskperquarter.

OurapproachcanbeappliedtoanylistedstockorETFwhichhasaliquidtradedoptionsmarket.Thereareawidenumberofpossibleapplications.Itisproposedtolaunchadditionaldownsideprotectionfundsonotherworldindices,suchastheHangSeng,S&P500andFTSE100.

Avideooutliningourinvestmentapproachandtrackrecordisavailableat:http://www.gyrostat.com.au/news/gyrostat‐absolute‐return‐income‐fund‐in‐depth‐guide/

13

KeyPersonnel

TheseniormanagementteamofGyrostatCapitalhasextensiveexperiencedomesticallyandglobally,asinvestors,asnon‐executivedirectors,andasseniormanagementinfundsmanagement,privateequity,industry,investmentbanking,corporatelawandequityresearch.CraigRacine‐ManagingDirector,ChiefInvestmentOfficerBCom,LLB,MAppFin,PGDip(IntFin)CraigRacinehasover25yearsexperience,atseniorexecutiveanddirectorsroles,withinfinanceandbusinessdevelopment.Hehasbeenaninvestorforthepast12years,andisthefounderofGyrostatCapitalManagement.PreviouslyhisseniormanagementexperienceincludesExecutiveDirectoratTheAsianInfrastructureTrust(HongKong)withleadinvestorsInternationalFinanceCorporation,AsianDevelopmentBank,SorosFundsManagement,FrankRussellInvestments,andAMPCapital.HewasaManagingDirectoratINGBarings(Asia).Hehasextensivedomesticandinternationalexperience,havingheldseniorexecutivepositionsinprivateequity,investmentbanking,equityresearchandindustry.Hebeganhiscareerinthecharteredaccountingindustry.HehasheldBoardpositionsinmulti‐nationalcompaniesinChina,India,Indonesia,ThePhilippines,Pakistan,andglobally.

PeterCliftonBE,MBA,MIEAust,MAICD‐Chairman,BoardofDirectorsPeterCliftonhasover30yearsexperience,bothwithinAustraliaandinternationally,atseniorexecutiveanddirectorroles,primarilyintheinformationtechnologyandtelecommunicationsfield.HehasadvisedawiderangeofcompaniesincludingLeightons,KPMG,theAsianInfrastructureTrust(HongKong),INGBarings(HongKong)andtheVictorianGovernment.Hehashelpedestablishanumberofstart‐upcompaniesandwasontheBoardoftheASX300listedcompanyAmcomTelecommunications1999‐2015.PreviouslyhehasheldBoardpositionsincompaniesinIndia,SriLanka,thePhilippines,SaudiArabiaandPoland.

AndrewSmith•B.Ec.DirectorandChairmanComplianceCommitteeAndrew’sbusinesscareerhasfocussedonfinanceandthefinancialmarketsintheAsiaPacificandtheUnitedKingdom.Utilisingtheexperiencegainedinhisworkingcareer,henowholdsanumberofnon‐executiveandconsultingpositions.AndrewisalsoanonexecutiveDirectorofEagleHealthHoldingsLtd;ResponsibleManagerandChairmanoftheProjectControlGroupofGoalPropertyGroupPtyLtd;andResponsibleManagerofDennisAFSLPtyLtd.HewasformerlytheManagingDirectorandChiefExecutiveoftheStockbrokingandCorporateFinancegroupIntersuisseLtd(nowPhillipCapital)between2000to2010.Priortothat,AndrewwasChairmanoftheSedgwickGroupintheAsiaPacificbetween1995to2000andamemberoftheGroupExecutiveCommitteeinLondon.AndrewwasalsoChairmanofXPDSoccerGearGroupLtd(ASX:XPD)andontheBoardsofElkOrthoBiologicsLtd,ZhengHeGlobalCapitalLtdandontheBoardofAdviceofAonRiskServices.

DavidBarwise•LLB,LLMDirectorDavidBarwisehasover20yearslegal,regulatoryandcomplianceexperiencewithinthelegalindustryinAustralia,EuropeandAsia(withafocusonmanagedfunds,structuredfinance,capitalmarkets,banking,assetmanagementandtrustandagencyservices).Hewasapartnerinaleadinggloballawfirmfor15years,amemberofitsEuropeanmanagementboard,heldavarietyofproduct,clientandregionalmanagementpositionsandactedastherelationshippartnerforanumberofglobalinvestmentandregionalbanks.HehasworkedinAustralia,LondonandSingapore.Healsoholdsavarietyofpostgraduatequalificationsinlaw,business,accounting,financeandcorporategovernance.LeoTang,BEng,MScSeniorInvestmentOfficerLeoTanghasextensiveexperiencewithininvestmentbanking,privateequityandindustry.Previously,heworkedasregionalanalystinequityresearchwithINGBaringsSecuritiesAsia,andintheinvestmentdealteamwithAsianInfrastructureFundAdvisers,aswellasstrategicplanningspecialistwithMotorolaAsiaPacific.Heisskilledinbusinessanalysis,financialmodelling,andoperationalmanagement.

14

 

FurtherFundinformation:

http://www.gyrostat.com.au/

Contact

CraigRacine,MDandCIOofGyrostatCapitalManagementPtyLtd. Phone: 0407633307 Email: craig.racine@gyrostat.com.au

Disclaimer

ThisinformationislimitedtoinformationaboutGyrostatanditsFunds,isgeneraladviceonlyanddoesnottakeintoaccountyourparticularcircumstances,yourpersonalinvestmentorfinancialplanningobjectives,yourinvestmentknowledge,needsandrequirements,includingtaxationimplicationsthatmayresultfrominvesting.

Therearereferencestopastperformanceinthisdocument.Pastperformanceisnoguaranteeoffutureperformance.Gyrostatoranyofitsofficers,advisers,agents,employeesorassociatesdonotinanywayguaranteetheperformanceoftheFund.

Thisinformationisonlymadeavailabletopersonswhoarewholesaleclientswithinthemeaningofsection761GoftheCorporationsAct2001.