Investable Themes Seminar - May 5, 2015

INVESTABLE THEMESSEMINAR

_______________________________________________________________________________________________

The Union League of PhiladelphiaTuesday, May 5, 2015

610-993-9100www.stanleylaman.com

1235 Westlakes DriveSuite 295, Berwyn, PA

William G. Stanley, MSFSPresident

Phone: 610-993-9100E-mail: [email protected]: @StanleyLaman

Education• Bill earned the Chartered Financial Consultant (CHFC) and Chartered Life Underwriter (CLU) designations from the American

College in Bryn Mawr, PA; he also holds a Master's Degree in Financial Sciences from the American College.

Experience• 1976 - 1979 Regional Field Auditor - General Electric Credit Corporation

• 1979 - 1991 Capital Analysts, Inc. a National Wealth Advisory Firm representing high net worth individuals. Served on the Advisory and Leadership Board for 8 years

• 1991 - Current: Founded The Stanley-Laman Group, Ltd., an early adopter of the fee-only Registered Investment Advisor Model

• 2003 - Current: Founded Stanley-Laman Securities, a Broker-Dealer Registered with FINRA

Boards• American Realty Capital Trust, Inc. (ARCT; NASDQ) - Independent Director 2007 – 2012

• New York REIT (NYRT; NYSE) - Director & Lead Independent Director 2009 - 2014

• Business Development Company of America - Independent Director 2009 - 2014

• American Realty Capital Properties Retail Centers of America – Independent Director 2011 - 2014

• American Realty Capital Properties, IV - Lead Independent Director 2013 - 2014

• American Realty Capital Properties, Inc. (ARCP; NYSE) • Independent Director 2014 - Current• Lead Independent Director 2014 - Current• Interim Chairman and CEO 2014 - 2015

• Matrix Biology Institute - Trustee 2008 - Current

• CeeLite, Inc., - Director 2008 - Current

Robert A. KindlerVice Chairman - Global Head of Mergers & Acquisitions

E-mail: [email protected] Phone: 212-761-7895

Education / Affiliations• Rob received a B.A. from Colgate University in 1976 and a J.D. from New York University School of Law in 1980• He is Vice Chair on the Board of Trustees of Colgate University, the Board of Trustees of New York University School of Law,

the Board of Directors of March of Dimes (NY Div), and the Board of Trustees of The Levin Institute

Banking Experience• Rob joined Morgan Stanley in 2006 . He is Vice Chairman, Global Head of Mergers and Acquisitions and a member of the

Management Committee. Prior to joining Morgan Stanley, he was global head of mergers and acquisitions at JPMorgan for six years and a senior partner at the law firm of Cravath, Swaine & Moore, where he specialized in mergers and acquisitions for over 20 years

Selected M&A Transactions

• Time Warner Cable: $70B acquisition by Comcast following unsolicited bid by Charter

• Verizon: $130B acquisition of Vodafone’s interest in Verizon Wireless

• Sanofi: $23.5B unsolicited acquisition of Genzyme

• CF Industries: $5B unsolicited acquisition of Terra Industries

• Comcast: $72B unsolicited acquisition of AT&T Broadband

• Modelo: $20B acquisition by InBev• Continental Airlines: $12.9B merger with United

Airlines• Qwest: $23B merger with CenturyLink• Direct TV: $15B merger with Liberty Media• Dresser Rand: $7.7B proposed acquisition by

Siemens• The Pepsi Bottling Group: $15B acquisition by

PepsiCo• HMA: $7.7B sale to Community Health Systems• Time Warner Cable: $42.1B spin-off from Time

Warner• Burger King: $4B sale to 3G

Selected Activism / Defense Transactions

• GM: Shareholder activism advice regarding group led by Harry Wilson• Family Dollar: Shareholder activism advice regarding investment by Icahn• Sony: Advised on shareholder relations with Third Point• Agrium: Advised on shareholder relations and successful proxy fight with

JANA• Transocean: Advised on shareholder relations and successful proxy fight

with Icahn• CF Industries: Successful defense against an unsolicited offer from

Agrium • Family Dollar: Shareholder activism advice regarding investment and bid

by Trian• Prestige Brands: Successful defense against unsolicited offer by

Genomma• Digital Global: Successful defense against unsolicited offer by GeoEye• NYSE Euronext: Successful defense against hostile bid by NASDAQ /

ICE • Office Depot: Shareholder activism advice regarding investment by

Starbaoard• Sandridge Energy: Shareholder activism advice regarding investment by

TPG-Axion• BMC Software: Shareholder activism advice regarding investment by

Elliott Associates• Atmel: Successful defense against an unsolicited offer by Microchip• CenturyTel: Successful defense against an unsolicited offer by Alltel• Barnes & Noble: Successful defense against proxy fight by Ron Burkle

Selected Special Committee Assignments• Special Committee of Pepsico Bottling Group

in go-private with Pepsico • Special Committee of DirectTV on its merger

with Liberty Entertainment• Special Committee of Titanium Metals in sale

to Precision Cast Parts• Special Committee of Crown Media in

restructuring with Hallmark, its controlling stockholder

• Special Committee of Hearst Argyle in go-private transaction with Hearst

• Special Committee of Burger King in go-private transaction

• Special Committee of Laureate Education in go-private transaction

• Special Committee of Kerzner International in go-private transaction

• Special Committee of Wiltel in go-private with Leucadia

Morgan Stanley ISG PowerPoint 2010 template – last updated 7/10/2013

M&A Market Update

May 5, 2015

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prototype template (5428278)\screen library_new_final.ppt 4/28/2015

State of the Global M&A Market

$902

$2,422

$2,285 $2,288 $2,218 $2,185

$3,095 $3,324

0

250

500

750

1,000

1,250

0

1,000

2,000

3,000

4,000

2010 2011 2012 2013 2014 2015

Dollar Volume (1) ($Bn)

Source:

Thomson Reuters as of April 9, 2015

(1) Includes announced transactions, each with an aggregate value of $100MM or more. Includes transactions with estimated values. Excludes terminated transactions. Future terminations of pending transactions will reduce totals shown.

Average Transaction Size ($MM)

Avg. Volume 10-14: $2.4Tn

728

895 864

0

250

500

750

1,000

2013 YTD 2014 YTD 2015 YTD

# of Deals – $100MM+

92

126

144

0

40

80

120

160

2013 YTD 2014 YTD 2015 YTD

# of Deals – $1Bn+

6

20

31

0

10

20

30

40

2013 YTD 2014 YTD 2015 YTD


+7%

+55%

+14% -3%

Actual Annualized Avg. Transaction Size

1

+23%

+37%

+233%

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line

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prototype template (5428278)\screen library_new_final.ppt 4/28/2015

State of the M&A Market by Region(1) (2)

Source:

Thomson Reuters as of April 10, 2015

(1) Includes announced transactions, each with an aggregate value of $100MM or more. Includes transactions with estimated values. Excludes terminated transactions. Future terminations of pending transactions will reduce totals shown.

(2) M&A activity based on participation.

(3) As of April 9

$415

$1,575

$1,318

$1,449

$1,266 $1,363

$1,989

$521

0

700

1,400

2,100

2010 2011 2012 2013 2014 2015YTD

1,601 1,644 1,720 1,694 2,009 401

Americas M&A Dollar Volume

($Bn)

$258

$914

$987 $898

$1,103

$893

$1,172

$337

2010 2011 2012 2013 2014 2015YTD

1,263 1,306 1,284 1,197 1,433 288

EMEA M&A Dollar Volume

$217

$558

$625 $621 $577 $559

$774

$278

2010 2011 2012 2013 2014 2015YTD

1,077 1,077 1,080 1,170 1,567 410

Asia M&A Dollar Volume

+31%

Number

of Deals

+26%

+28%

Avg. Volume 10-14: $1,477Bn Avg. Volume 10-14: $1,011Bn Avg. Volume 10-14: $631Bn

2

2014 YTD(3)

(3) (3) (3)

/ 467(3) / 310(3) / 331(3)

3

$216

$711

$847 $794 $837

$667

$1,135

$927

37%

35%

38%

31%

37%

31%

20%

30%

40%

50%

60%

0

300

600

900

1,200

1,500

2010 2011 2012 2013 2014 2015

Cross-Border Activity Remains Above Historical Levels(1)

Source: Thomson Reuters as of March 26, 2015

(1) Includes announced transactions, each with an aggregate value of $100MM or more.

Dollar Volume

($Bn)

Avg. Volume 10-14: $856Bn

% of Total Volume

(%)

Actual Annualized % Volume Avg. Volume 2010-2014

4

Financial Sponsor M&A Activity

$138

$447 $361

$416 $410 $400

$579 $585

0

200

400

600

800

2010 2011 2012 2013 2014 2015

Dollar Volume – Financial Sponsor Involvement(1) (2)

($Bn)

Source: Thomson Reuters as of March 27, 2015

(1) Includes worldwide announced transactions, each with an aggregate value of $100MM or more. Includes transactions with estimated values. Excludes terminated transactions. Future terminations of pending transactions will reduce totals shown.

(2) Financial Sponsor activity includes transactions where a sponsor was involved as the acquiror and / or the seller.

Actual Annualized

% of M&A Market

147

477

629

847

624

0

250

500

750

1,000

2013 2014 2015

# of Deals – $100MM+

23

75

78

144

98

0

50

100

150

200

2013 2014 2015


4

13

53

35

17

0

20

40

60

2013 2014 2015

# of Deals – P2Ps

+1%

+35%

+85%

-51%

-26%

-32%

-34%

15.8% 18.2% 18.5% 18.3% 18.6% 19.7%

5

Source:

Capital IQ

(1) S&P 500 EPS per Morgan Stanley Equity Research. 2015 forecast as of March 2015.

The Boardroom Conundrum

12%

0%

13%

30%

11%

0%

20%

40%

2010 2011 2012 2013 2014 2015

S&P 500 Annual Return (%)

Yet Market Returns Have Been Robust…

14.2 12.5 13.5

16.7 16.9 16.9

0.0

10.0

20.0

2010 2011 2012 2013 2014 2015 YTD

Year End NTM P/E (x)

…As P/E Multiples Expand

9% 10%

4% 3% 4% 3%

0%

10%

20%

2010 2011 2012 2013 2014 2015E

S&P 500 Revenue Growth (%)

Revenue Growth is Slowing…

19% 19% 19% 19% 19% 20%

0%

20%

40%

2010 2011 2012 2013 2014 2015E

S&P 500 EBITDA Margin (%)

…EBITDA Margins are Plateauing...

38%

15% 6% 7% 7% 4%

0%

25%

50%

2010 2011 2012 2013 2014 2015E

S&P 500 EPS Growth (%) (1)

…Earnings Growth Stalling

Is Shareholder Return at Risk?

?

6

Market Valuations: Is There a Value Gap?

S&P 500 P/E Multiples Expand (1)

S&P FY+1 P/E Multiple

Source: Capital IQ

7.0

10.0

13.0

16.0

19.0

22.0

Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Mar-15

(x)

S&P 500 Index

2005 – 2015 YTD Average: 15.5x

17.5x

(1) As of March 26, 2015

(2) As of March 26, 2015

…Driving Acquirors To Use Their Currency (2)

Dollar Volume (%)

66 71 73 73

55 52

15

17 19 16

33 32

19 12

9 11 11 16

0

20

40

60

80

100

2010 2011 2012 2013 2014 2015YTD

All Cash Hybrid Cash / Securities All Securities

Source: Thomson Reuters

…With the Top Quartiles Increasingly Expensive (1)

S&P FY+1 P/E Multiple

12.9x

17.0x 20.5x

29.9x

0.0

10.0

20.0

30.0

40.0

Middle of4th

Quartile

Middle of3rd

Quartile

Middle of2nd

Quartile

Middle of1st

Quartile

Median: 18.7x

(x)

Source: Capital IQ

7

(4)

(2)

0

2

4

6

8

10

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

25th Percentile Median 75th Percentile

Market Receptivity to M&A at An All Time High

Strategic M&A Should be a High Corporate Priority Today

Distribution of Acquiror Stock Price Performance (1)(2)

Source: Thomson Reuters, Morgan Stanley

(1) As of 3/25/2015; based on +$1Bn takeover transactions by public U.S. corporate acquirors with market data available

(2) Stock Price Performance defined as price movement between 1 day prior to announcement through 1 day post date of latest terms

Drivers of Share Performance

Investors suffering from acute scarcity of growth

Need to maintain stock price momentum (+11% S&P500 in 2014)

Investors embracing use of dry powder from balance sheets

Desire to lock-in highly attractive borrowing costs

Bullish signal about core business

%

Acquiror Stock Price Up in

63% of Deals Between

1/1/2015 and 3/25/2015

Average Reaction: +4.5%

8

The Time is Now for Dream Deals

Competitive Actions Spur Deals Within Active Sectors

Acquiror Share Prices Rising Following Strategic Acquisitions

Activism Continuing to Drive Strategic Deals

Hostile / Unsolicited Approaches

Cross-Border Activity Remains Robust

Regulatory Environment is Challenging

2015 Outlook for Americas M&A Activity

7

Bradford W. Stanley, CFASenior Portfolio Manager

Phone: 610-993-9100E-mail: [email protected]: @BradStanley3

Education / Affiliations• Brad attended Carnegie Mellon University in Pittsburgh, Pennsylvania. He graduated in 2003 with a Bachelor of Science in

Computer Science and a minor in Psychology, with focus in Cognitive Psychology. Brad was awarded the Carnegie Mellon Senior Leadership Award for his contributions to the university community.

• Brad is a CFA Charterholder, which he received in 2009. He passed all three CFA examinations on the first attempt and actively participates in the CFA Institute Continuing Education Program. Brad is a member of the American Finance Association and the CFA Society of Philadelphia.

Investment Experience• Brad joined SLG in 2003. He is a portfolio manager with direct oversight over several strategies, which he developed, including

High Growth, High Dividend & Value, Micro Cap, Europe Equity, Japan Equity, Global Blend, U.S. Blend, and U.S. Mega-Cap. • Brad is the creator & architect behind SLG's trademarked Ad-Star® System, a complex financial model used to evaluate publically-

traded companies through comprehensive analysis of over ten thousand historical financial metrics & proprietary formulas.• Brad’s portfolios have received numerous performance awards, including PSN Top Guns for High growth and PSN Bull and Bear

Master for High Dividend & Value.

M&A Activity in Brad’s PortfoliosTarget Action Suitor ValuePace Plc Acquired ARRIS Group Inc $2.1 BillionInformatica Corp Acquired Permira $5.3 BillionCyberonics Inc Merged Sorin Spa $2.7 BillionAruba Networks Inc Acquired Hewlett-Packard Co $3.0 BillionHittite Microwave Corp Acquired Analog Devices Inc $2.5 BillionXING AG Offer Burda Digital $311 MillionSCB Life Assurance Acquired Siam Comm Bank $2.5 BillionHi-Tech Pharmacal Acquired Akorn, Inc. $640 MillionRiverbed Technology Acquired Thoma Bravo, LLC $3.6 BillionWimm-Bill-Dann Acquired PepsiCo Inc $5.4 BillionTrue Religion Apparel Acquired TowerBrook Capital $835 MillionEbix Inc Offer Goldman Sachs $820 MillionICU Medical Inc Offer Multiple Parties $1.1 BillionShire Plc Offer AbbVie Inc $55 BillionCovidien Plc Acquired Medtronic PLC $50 BillionMeda AB Offer Sun Pharma $6.0 Billion

M&A Activity (cont.) Target Action Suitor ValueCapella Microsystems Acquired Vishay Intertechnology $205 MillionTranscend Services Acquired Nuance Comm $313 MillionOmniture Software Acquired Adobe Systems Inc $1.8 BillionEnterprise Systems Inc Acquired Open Text Corp $310 MillionKentz Corp Ltd Acquired SNC-Lavalin $2.0 BillionIllumina Inc. Offer Roche Holding AG $6.2 BillionAstraZeneca Plc Offer Pfizer Inc $118 BillionDragon Oil PLC Offer Emirates National Oil Co $4.7 BillionNetLogic Microsystems Acquired Broadcom Corp $3.7 BillionCubist Pharmaceuticals Acquired Merck & Co Inc $9.5 BillionConcur Technologies Acquired SAP SE $8.3 Billionrue21 Inc Acquired Apax Partners LLP $1.1 BillionAcme Packet Inc Acquired Oracle Corp $2.1 BillionHarbin Electric, Inc Acquired Tech Full Electric Co $800 MillionGSI Commerce, Inc Acquired eBay Inc $2.4 Billion

Return on Invested Capital:

What do High ROICs tell us about Companies and why do they make such Attractive Targets?

Bradford Stanley, CFASenior Portfolio Manager

Two Basic Investing Approaches

1) TRADERS Short-term focus

2) INVESTORS Long-term focus

“In the short run, the market is a voting machine but in thelong run, it is a weighing machine” (Benjamin Graham)

For us, it is easier and more predictable to understand the science behind “weighing” than it is to understand the (often irrational) psychology behind “voting”

From day one, we have always approached Equity Markets as Investors and viewed corporations as businesses to own rather than stocks to buy

2

Charlie Munger (Vice Chairman, Berkshire Hathaway)

“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies.

If the business earns 6% on capital and you hold it for that 40 years, you’re not going to make much different than a 6% return, even if you originally buy it at a huge discount.

Conversely, if a business earns 18% on capital, even if you overpay, you’ll end up with a fine result.”

“If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of it’s intrinsic value. That’s hard.

But, if you can buy a few great companies, then you can sit on your ass.”

3

E.g. (1) Buy stock 50% overvalued with ROC of 15% vs. (2) at 50% discount with ROC of 4% Return after 20 years +850% vs. +321%

2008 Financial Crisis

Fear Creates Opportunity

During times of crisis, investors typically deleverage, which causes:

1) Increased Correlations between securities2) Lack of Liquidity3) Enormous Risk Premiums (Systematic & Idiosyncratic)

Many Companies were being priced as if they were going out of business We knew that many would but there would be others that not only survived but

actually grew stronger (Creative Destruction, e.g. Red Hat - Enterprise Virtualization)

How do we find these companies?

Old Methods Failed during crisis (Quant Models & Stock Screening)

4

Ad-Star® (Financial Analytics & Evaluation)

Analyze Company’s historical operatingPerformance (e.g. ROC vs. WACC)

Focus on Cash (economic) profitabilityrather than Accounting (accrual) earnings

Financial Health, Leverage, Debt Coverage, Dividend Sustainability, etc.

Expectations for Future Growth, Recent Trends, Risk-adjusted Performance

Valuation, Current Fair Market Price, Margin of Safety

5

Target Action Suitor ValuePace Plc Acquired ARRIS Group Inc $2.1 BillionInformatica Corp Acquired Permira $5.3 BillionCyberonics Inc Merged Sorin Spa $2.7 BillionAruba Networks Inc Acquired Hewlett-Packard Co $3.0 BillionHittite Microwave Corp Acquired Analog Devices Inc $2.5 BillionXING AG Offer Burda Digital $311 MillionSCB Life Assurance Acquired Siam Comm Bank $2.5 BillionHi-Tech Pharmacal Acquired Akorn, Inc. $640 MillionRiverbed Technology Acquired Thoma Bravo, LLC $3.6 BillionWimm-Bill-Dann Acquired PepsiCo Inc $5.4 BillionTrue Religion Apparel Acquired TowerBrook Capital $835 MillionEbix Inc Offer Goldman Sachs $820 MillionICU Medical Inc Offer Multiple Parties $1.1 BillionShire Plc Offer AbbVie Inc $55 BillionCovidien Plc Acquired Medtronic PLC $50 BillionMeda AB Offer Sun Pharma $6.0 Billion

Target Action Suitor ValueCapella Microsystems Acquired Vishay Intertechnology $205 MillionTranscend Services Acquired Nuance Comm $313 MillionOmniture Software Acquired Adobe Systems Inc $1.8 BillionEnterprise Systems Inc Acquired Open Text Corp $310 MillionKentz Corp Ltd Acquired SNC-Lavalin $2.0 BillionIllumina Inc. Offer Roche Holding AG $6.2 BillionAstraZeneca Plc Offer Pfizer Inc $118 BillionDragon Oil PLC Offer Emirates National Oil Co $4.7 BillionNetLogic Microsystems Acquired Broadcom Corp $3.7 BillionCubist Pharmaceuticals Acquired Merck & Co Inc $9.5 BillionConcur Technologies Acquired SAP SE $8.3 Billionrue21 Inc Acquired Apax Partners LLP $1.1 BillionAcme Packet Inc Acquired Oracle Corp $2.1 BillionHarbin Electric, Inc Acquired Tech Full Electric Co $800 MillionGSI Commerce, Inc Acquired eBay Inc $2.4 Billion

6

M&A Activity in SLG Portfolios

10 deals in the last six months All Mid-Cap $2-10 Billion 7 were positions in High Growth Strategy Average deal premium +32% ROICs reveal critical Big-Picture things about Firm & Industry Like What? Attractiveness (e.g. Porter’s 5 Forces) There is good reason for Takeover Defense Mechanisms!!

Why do Ad-Star® CompaniesMake Attractive Targets?

Omniture - Web Analytics & Behavioral Targeting SLG High Growth Holding (purchased March 2009) 20%+ ROC and growing (Marginal ROC > ROC) Acquired by Adobe in Oct. 2009 for $1.8 Billion

+67% Gain in six months (24% premium to prior close)

Good Result? ...... Yes and No

Current SLG High Growth holdings purchased in March 2009

F5 Networks (FFIV) Unrealized gain +566%

Ctrip.com Intl (CTRP) Unrealized gain +519%

Akamai Tech (AKAM) Unrealized gain +362%

7

Education• David received a B.A. from the University of California, Berkeley, a J.D. from the University of California, Davis where

he earned Order of the Coif honors and an M.B.A. from Stanford University's Graduate School of Business.

Affiliations: • David has served as a director of Helios Capital LLC's Helios Strategic Fund since its inception in 2005. The Helios fund

invests primarily in Indian listed securities. Mr. Gong is also a director of American Realty Capital –Retail Centers of America, Inc., a non-traded REIT. He has also previously served as a director of Alliance Capital Management, LLC's Turkish Growth Fund and India Liberalization Fund.

Experience:• David joined The Stanley-Laman Group as a senior portfolio manager in May, 2011 and focuses on management of an

international portfolio focusing on stocks of emerging companies many of which are not traded on U.S. Exchanges.

• Mr. Gong has over 25 years of experience in global asset management including nine years spent in Hong Kong and Singapore.

• In 1981 Mr. Gong joined T. Rowe Price Associates as an equity portfolio manager. He later served as an executive vice president of Rowe Price-Fleming International, the international investment joint venture formed by T. Rowe Price and Robert Fleming Holdings, a London-based merchant bank. Mr. Gong helped establish the firm's Hong Kong office, and from 1985-1989 managed Asian equity portfolios from the Hong Kong offices. In 1989 he initiated portfolio management responsibilities for Latin American equities. In 1991 Mr. Gong accepted a partnership position with Ardsley Partners, a Stamford, Connecticut based investment advisory firm. At Ardsley, he served as senior international portfolio manager, and managed hedge funds dedicated to investments in Asian, Latin American and Eastern European securities.

• In 2003 Mr. Gong became a managing director of Ankar Capital Management, a New York based investment advisory firm, and managed the firm's private equity group in Singapore.

• Prior to his investment career, Mr. Gong practiced law, initially as a staff attorney with the Securities and Exchange Commission in Washington, D.C., and later as an associate attorney with O'Melveny and Myers, a private law firm in their Los Angeles offices.

David Gong, JD, MBASenior Portfolio Manager

Phone: 610-993-9100E-mail: [email protected]

Mark R. Painter, CFASenior Portfolio Manager

Phone: 610-993-9100E-mail: [email protected]

Education

• Mark attended Carnegie Mellon University in Pittsburgh, Pennsylvania. He graduated in 2004 with a Bachelor of Science in Business Administration and a focus in finance. Mark was awarded the Carnegie Mellon Senior Leadership Award for his contributions to the university community.

• Mark is a CFA Charterholder, which he received in 2009. He actively participates in the CFA Philadelphia chapter along with the CFA Institute Continuing Education Program.

• Mark also participates in the Carnegie Mellon CMAC admission council since 2014.

• Beginning in 2015 Mark participates in the Carnegie Mellon student-athlete mentoring program.

Experience:

• Mark joined SLG in 2004. He is a portfolio manager on several different portfolios, including High Growth, Dividend and Value, Core equity, Fixed Income, Unconstrained Income, and Risk Managed Equities.

• Mark has receive numerous performance awards including PSN Top Guns for High growth and PSN Bull and Bear Master for High Dividend and Value.

• Mark has primary responsibilities for trading and foreign exchange with the International Opportunities portfolio and has completed over 250 million dollars worth of transactions in over 22 countries.

• Along with being a Senior Manager at SLG he is lead manager for two Public Mutual Funds focusing on Dividend and Value equities and Real Estate which affiliate SEL Capital advises.

• The real estate mutual fund has been ranked #1 in its peer group since inception.

• Mark has presented investment ideas at several conferences for FA Magazine and AIR American Investment Roundtable.

EMERGING MARKETS: Avoiding the Herd andInvesting Off the Beaten Path_______________________________________________________________________________________________

SLG International Opportunities, L.P.

David Gong, JD, MBASenior Portfolio Manager

Background

David Gong, JD, MBA Among earliest and most successful emerging markets managers

30 years experience in global asset management

Former Asian Markets Manager for Hong Kong office of Rowe-Price Fleming

Former Head of Emerging Markets and Asian Equities for Ardsley Partners

Former Compliance Attorney for the U.S. Securities and Exchange Commission

M.B.A. from Stanford University’s Graduate School of Business

J.D. from the University of California, Davis

B.A. from the University of California, Berkeley

Director of Helios Capital LLC, Helios Strategic Fund

Extensive Global contact base of investors, analysts, accountants, and families in target markets

1

Emerging Market Realities

86% of the World’s Population ~ 6.07 Billion People

Younger EM’s Median Age is 28.4 years vs. 41 years in Developed Economies

China Overtook the U.S. as the World’s Largest Economy in real terms in 2014 ($17.6 Trillion vs. $17.4 Trillion) China is now a larger market for Automobiles, Smartphones & Online

Shopping

Thousands of fast growing and highly profitable companies

Offer much higher expected 5- and 10- year returns than U.S. Equities

2

Emerging Market Realities

3

Emerging Markets: Multi-Nationals vs. Local Companies

Local Small Businesses, not large Multinational Corporations, will continue to be the biggest beneficiaries of this growth. Why?

Multinationals mistakenly believe that EMs are years behind developed nations and that they will eventually look and behave very similarly.

They assume it’s merely a matter of time before their existing business models and value propositions start delivering results. But this won’t work (Yahoo, L’Oréal, Best Buy and others recently left China altogether).

Entrepreneurship has exploded in most developing countries because of internal reforms. New start-ups are soaring as Governments have slashed red tape and capital is cheaper and more accessible than ever.

4


5


Local Businesses are not constrained by existing products & legacy costs, corporate bureaucracy, or by pre-conceived notions about customer needs.

They understand their customers intimately and know how to appeal to them.

They customize their products and services by identifying new trends, unmet needs, and local habits that foreign companies do not recognize.

They keep operating costs low by leveraging globalization, deploying the latest technologies, and utilizing online marketing and social media platforms.

They react rapidly and operate with remarkable agility due to wide scale digitization and the dominance of online sales.

6

Emerging Markets: Differentiation

Emerging Economies and their local markets are incredibly diverse and often drastically different than those of Developed Countries.

China has 56 different ethnic groups, who speak 292 distinct languages.

India embraces about 20 official languages, hundreds of dialects, and four major religions.

The residents of Africa’s 53 countries speak an estimated 2,000 different languages and dialects.

7


8


9

Emerging Markets: The Consumer Class

By 2025, Annual Consumption in Emerging Markets will more than double to $30 trillion, up from $12 trillion, and account for nearly 50% of the world’s total, up from 32%.

In 15 years’ time, almost 60% of the roughly one billion households with earnings greater than $20,000 a year will live in the developing world.

More than half of all current global Internet users are in emerging markets.

A recent survey of urban Africans in ten different countries found that 60% owned Internet-capable phones or smartphones.

The population of EM cities grows by 65 million people a year - the equivalent of seven cities the size of Chicago.

10


11


12


Over the next five years, nearly 700 million more Asians will start using the Internet.

By 2020, per-household disposable income of urban consumers in China will double, from about $4,000 to about $8,000.

An aging China means the total population will have 5% more people age 65+ years, an extra 126.5 million citizens.

The Elderly Chinese Consumer of 2020 will behave much differently than today’s senior citizens and will have spending patterns much more similar to modern day 34- to 45-year olds.

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Emerging Markets: Returns

Emerging Markets Indices & ETFs have done terribly the last two years 2013: -3.72% 2014: -3.96%

Why? Because they are dominated by poorly run, inefficient State-Owned Enterprises (SOEs) and have large concentrations in volatile Commodity and Energy Sectors.

But the poor performance has not been uniform. There have been pockets of enormous returns driven by a plethora of exceptional small-cap companies and investable themes (Example: Indian Air Coolers, African Technology Infrastructure, Chinese Baby Formula).

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Emerging Markets: Index Flaws

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Emerging Markets: Opportunities

The Most Attractive Investment Opportunities in Emerging Markets are Small-Cap Companies.

The problem for Investors is that in most cases, these stocks are too small or too thinly-traded for Large Institutional Managers such as Mutual Funds and Hedge Funds.

For funds that are able to hold these companies, the amount allocated usually represents a very small percentage of total assets so the effect on performance is insignificant.

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Investment Philosophy and Process

We search for and invest in high growth companies in Emerging Markets. We target companies that (1) are too small for mutual funds & institutional investors and (2) have high levels of insider & local ownership.

We Identify and Invest in Companies that (1) Create Shareholder Value and (2) are Undervalued: Does the firm create value for investors in excess of its cost of

financing? Does the firm’s stock trade at a discount to intrinsic value?

We aim to produce active return (alpha) through stock selection with materially lower risk (beta 0.68) than the benchmark.

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AD-STAR® SYSTEM

Quantitative Analysis; Development 10+ Years in Bloomberg Framework

Screens and Evaluates every publicly traded corporation - All global stock exchanges

600+ Financial and Operating Metrics Growth (Modified Free Cash Flow) Data Standardization (risk-adjust past performance, determine required growth rate

unique to each company) True Profitability (Economic/Cash profitability not Accrual Accounting profitability) Value Generation (Modified Free Cash Flow, ROC Greater than Cost of Funding) Trend Analysis Valuation (Eliminate companies trading at less than a 20% discount to Fair Market

Value) Dividend Sustainability Corporate Governance

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SLG Portfolio Manager Team

Portfolio Managers

David Gong, JD, MBA

Brad Stanley, CFA CFA Charterholder; 10 years’ Investment Experience B.S. in Computer Science, Carnegie Mellon University

Mark Painter, CFA CFA Charterholder; 10 years’ Investment Experience B.S. in Business Administration, Carnegie Mellon University

Anthony Bruno, CFA CFA Charterholder; B.S. in Economics, Carnegie Mellon University

Joenuel Ortiz CFA Level III Candidate B.S. in Finance, Carnegie Mellon University

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SLG Int’l Opportunities Portfolio Performance

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

2012 2013 2014 2015

SLG IOP

MSCIEEM ETF

2012 2013 2014 2015SLG International Opportunities, L.P. 8.00% 3.10% 11.28% 12.78%

Emerging Market Index ETF (EEM) 4.95% -3.72% -3.96% 9.14%

• Data as of 04/13/2015. Estimates are used for March and April 2015. 2012 Period measured 2/1/2012 through 12/31/2012.• Portfolio returns measured net of fees. Benchmark returns measured with reinvested distributions.• SLG International Opportunities, L.P. is a private offering available by prospectus only to accredited investors.• A complete list of composite definitions and GIPS® compliant presentations are available upon request.

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• Company Nice Information & Telecommunication Inc• Industry Data Processing• Country SOUTH KOREA• Market Cap $270 Million (47% Closely Held Shares)• 5-yr Sales Growth 20.8%• 5-yr Profit Growth 34.6%• Dividend Yield 0.91%• P/E (Est.) 6.19• Description Provides credit card authorization processing services and Internet electronic

payment software. It also manufactures point of sale credit card terminals and offers check verification services.

Current Holdings

24

• Company Jintian Pharmaceutical Group• Industry Health Care Distributors• Country CHINA• Market Cap $1.16 Billion (51% Closely Held Shares)• 5-yr Sales Growth 35.8%• 5-yr Profit Growth 42.9%• Dividend Yield 1.63%• P/E (Est.) 9.13• Description Engaged in the retail as well as wholesale of pharmaceuticals, including over-the

counter drugs, prescription drugs, & a variety of private labeled healthcare products. The Company operates its businesses mainly in Northeast China, including second- and third-tier cities of Jilin, Heilongjiang and Liaoning provinces.

Current Holdings

25

• Company Howden Africa Holdings Ltd• Industry Industrial Machinery• Country SOUTH AFRICA• Market Cap $228 Million (71% Closely Held Shares)• 5-yr Sales Growth 16.8%• 5-yr Profit Growth 47.9%• Dividend Yield 1.67%• P/E (Est.) 7.67• Description Designs and manufactures specialized air, gas and liquid handling equipment for a

wide range of industries. The Co is divided into three segments: fans & heat exchangers, air & gas cleaning products, and pumps & refrigeration systems.

Current Holdings

26

• Company Hindustan Media Ventures Ltd• Industry Publishing• Country INDIA• Market Cap $289 Million (75% Closely Held Shares)• 5-yr Sales Growth 202.9%• 5-yr Profit Growth 68.6%• Dividend Yield 0.58%• P/E (Est.) 10.53• Description Publishes newspapers and periodicals, covering across the entire spectrum of

international, national and local news. The flagship newspaper ranks as the second largest-read daily in the country.

Current Holdings

27

• Company Hua Yang Bhd• Industry Real Estate Development• Country MALAYSIA• Market Cap $151 Million (53% Closely Held Shares)• 5-yr Sales Growth 50.4%• 5-yr Profit Growth 69.9%• Dividend Yield 7.40%• P/E (Est.) 4.35• Description Constructs and develops residential and commercial properties, including office

complexes, hotels, and condominiums. It has the largest exposure to affordable housing among all Malaysian developers.

Current Holdings

28

• Company NagaCorp Ltd• Industry Casinos & Gaming• Country CAMBODIA• Market Cap $1.81 Billion (42% Closely Held Shares)• 5-yr Sales Growth 15.3%• 5-yr Profit Growth 46.2%• Dividend Yield 5.77%• P/E (Est.) 9.82• Description A Leisure and tourism company with casino operations in Phnom Penh, the capital

city of Cambodia. The Company also offers hotel accommodation, food & beverage outlets, recreational facilities, and entertainment & retail operations.

Current Holdings

29

• Company Gubre Fabrikalari TAS• Industry Fertilizers & Agricultural Chemicals• Country TURKEY• Market Cap $788 Million (75% Closely Held Shares)• 5-yr Sales Growth 14.1%• 5-yr Profit Growth 76.0%• Dividend Yield 3.72%• P/E (Est.) 7.48• Description Manufactures chemical fertilizers, including solid, liquid, powder-based, and

organic fertilizers. It also provides soil analysis services to farmers.

Current Holdings

30

• Company SCB Life Assurance PCL• Industry Life & Health Insurance• Country THAILAND• Market Cap $2.34 Billion (97% Closely Held Shares)• 5-yr Sales Growth 25.8%• 5-yr Profit Growth 31.9%• Dividend Yield 3.98%• P/E (Est.) 8.89• Description Offers life insurance, including whole life, term, and endowment. It also

offers group life insurance, which is primarily provided for both public and private companies as employee benefit plans.

Current Holdings

31

32

• Company BreadTalk Group Ltd• Industry Food Retail• Country SINGAPORE• Market Cap $334 Million (64% Closely Held Shares)• 5-yr Sales Growth 20.4%• 5-yr Profit Growth 18.6%• Dividend Yield 1.27%• P/E (Est.) 10.63• Description Manufactures and retails a variety of food, bakery, and confectionery products.

The Company operates food and drinks sale outlets, eating houses, and restaurants.

Current Holdings

• Company Pakuwon Jati Tbk PT• Industry Real Estate Development• Country INDONESIA• Market Cap $1.79 Billion (58% Closely Held Shares)• 5-yr Sales Growth 44.4%• 5-yr Profit Growth 66.4%• Dividend Yield 1.68%• P/E (Est.) 5.19• Description The largest retail mall owner in Indonesia. The Company manages and develops

office & shopping centers, industrial parks, hotels, residential houses, townhouses, and condominiums.

Current Holdings

33

• Company CETIP SA - Mercados Organizados• Industry Asset Management & Custody• Country BRAZIL• Market Cap $3.27 Billion (47% Closely Held Shares)• 5-yr Sales Growth 50.9%• 5-yr Profit Growth 103.7%• Dividend Yield 4.75%• P/E (Est.) 11.10• Description Latin America's largest central depository for over-the-counter (OTC) and private

securities & derivatives. Organizes the OTC markets in Brazil and offers an electronic platform for online trading for government & corporate bonds.

Current Holdings

34

• Company Shandong Luoxin Pharmaceutical• Industry Pharmaceuticals• Country CHINA• Market Cap $1.07 Billion (73% Closely Held Shares)• 5-yr Sales Growth 31.1%• 5-yr Profit Growth 52.7%• Dividend Yield 2.73%• P/E (Est.) 11.75• Description Engaged in the research, development, production and sale of pharmaceutical

products, including antibiotics, anti-viral medicines, and system specific medicines. The Company has over 250 products approved in the People's Republic of China.

Current Holdings

35

• Company Avanti Feeds Ltd• Industry Packaged Foods & Meats• Country INDIA• Market Cap $237 Million (52% Closely Held Shares)• 5-yr Sales Growth 83.6%• 5-yr Profit Growth 171.5%• Dividend Yield 1.53%• P/E (Est.) 4.89• Description India's leading manufacturer of Prawn & Fish Feeds and Shrimp Processor. It

has a joint venture with Thai Union Frozen Products PCL, the world's largest seafood processor.

Current Holdings

36

• Company TAV Havalimanlari Holding AS• Industry Airport Services• Country TURKEY• Market Cap $3 Billion (60% Closely Held Shares)• 5-yr Sales Growth 11.5%• 5-yr Profit Growth 42.6%• Dividend Yield 4.15%• P/E (Est.) 2.28• Description Operates in airports in Turkey, Georgia, Tunisia, Macedonia, Saudi Arabia and

Latvia. TAV Havalimanlari provides service in all areas of airport operations such as duty-free, food and beverage, ground handling, IT, security and operations.

Current Holdings

37

• Company Grape King Bio Ltd• Industry Personal Products• Country TAIWAN• Market Cap $548 Million (52% Closely Held Shares)• 5-yr Sales Growth 21.9%• 5-yr Profit Growth 44.0%• Dividend Yield 3.94%• P/E (Est.) 9.32• Description Manufactures health & nutrition products including food, beverages & supplements.

Its products focus on Probiotics and Antimicrobial Compounds. It also produces Animal Feed Supplements, Biological Pesticides, and Microbial Fertilizers.

Current Holdings

38

• Company Woolworths Holdings Ltd• Industry Department Stores• Country SOUTH AFRICA• Market Cap $6.09 Billion (41% Closely Held Shares)• 5-yr Sales Growth 14.7%• 5-yr Profit Growth 22.0%• Dividend Yield 4.56%• P/E (Est.) 11.75• Description Operates a chain of retail stores in in selected African countries and the Middle

East, offering a selected range of clothing, food, cleaning supplies, home essentials, and beauty & lifestyle products.

Current Holdings

39

• Company Sarana Menara Nusantara Tbk PT• Industry Wireless Telecommunication Services• Country INDONESIA• Market Cap $3.24 Billion (39% Closely Held Shares)• 5-yr Sales Growth 83.2%• 5-yr Profit Growth 163.0%• Dividend Yield 1.18%• P/E (Est.) 6.03• Description The Largest independent owner and operator of wireless telecommunication towers

in Indonesia. Leases space under long-term agreements to all the major wireless operators in the country.

Current Holdings

40

• Company Ruentex Engineering & Construction Co• Industry Construction & Engineering• Country TAIWAN• Market Cap $269 Million (78% Closely Held Shares)• 5-yr Sales Growth 25.8%• 5-yr Profit Growth 83.5%• Dividend Yield 10.85%• P/E (Est.) 8.17• Description Engaged in construction operations, civil engineering contracting, equipment

installation, and project planning & consulting. It also manufactures and distributes precast concrete products and other construction materials.

Current Holdings

41

• Company Sawit Sumbermas Sarana Tbk P• Industry Agricultural Products• Country INDONESIA• Market Cap $1.28 Billion (84% Closely Held Shares)• 5-yr Sales Growth 30.4%• 5-yr Profit Growth 40.5%• Dividend Yield 1.76%• P/E (Est.) 16.84• Description Manages palm plantations and operates palm oil mills & palm kernel processing

plants. Its products include crude palm oil, palm kernels and palm kernel oil.

Current Holdings

42

• Company Gujarat Fluorochemicals Ltd• Industry Specialty Chemicals• Country INDIA• Market Cap $1.35 Billion (57% Closely Held Shares)• 5-yr Sales Growth 26.9%• 5-yr Profit Growth 63.9%• Dividend Yield 2.30%• P/E (Est.) 9.05• Description India’s largest and most competitive producer of refrigerant gases. GFL also

produces Synthetic Polymers and Fluoro-speciality Chemicals.

Current Holdings

43

• Company Medy-Tox• Industry Biotechnology• Country South Korea• Market Cap $1.91 Billion (30% Closely Held Shares)• 5-yr Sales Growth 45.0%• 5-yr Profit Growth 72.6%• P/E (Est.) 36.0• Description Medy-Tox mainly produces Neuronox, which is botulinum toxin type A injection

used as a remedy for blepharospasms, hemifacial spasms, eye wrinkles, hyperhidrosis diseases and infantile cerebral palsy.

• Realized Gain +321% (sold)

Exited Positions

44

• Company Symphony• Industry Household Appliances• Country India• Market Cap $1.27 Billion (61% Closely Held Shares)• 5-yr Sales Growth 35.0%• 5-yr Profit Growth 52.9%• P/E (Est.) 44.2• Description Manufactures a wide range of air coolers. The Company's products include

evaporative air coolers, air conditioners, and water heaters. Symphony has a 50 per cent market share in the branded air cooler market in India.


Exited Positions

45

• Company Tower Bersama• Industry Telecomm Infrastructure• Country Indonesia• Market Cap $3.63 Billion (59% Insider Ownership)• 5-yr Sales Growth 56.1%• 5-yr Profit Growth 38.3%• P/E (Est.) 24.5• Description Leases space for wireless signal transmission equipment at tower sites. The

Company also provides access to its distributed antenna system (DAS) networks in shopping malls and office buildings in major urban areas.


Exited Positions

46

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