TwentyFour Income Fund (TFIF) - · PDF filehas 10 years experience managing European ABS in...

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TwentyFour Income Fund (TFIF)

November 2016


Overview

2

Introduction to TwentyFour Asset Management Asset Backed Securities TwentyFour Income Fund Appendix


TwentyFour Asset Management

London based fixed income specialist, founded in 2008

Owned by 13 Partners including Corporate Partner, Zurich based Vontobel Group

All our key personnel are highly skilled fixed income professionals

- Partners have an average experience of 25 years

- Talented portfolio managers and traders

- High quantitative literacy

Total assets under management, £7.62bn as at 31st October 2016

Investment team split into 3 separate but highly integrated units

- Unconstrained Fixed Income, Asset Backed Securities and Outcome Driven

9 pooled funds (6 open ended and 3 closed) and 15 segregated mandates

3

Source: TwentyFour 31st October 2016


0.91 0.82 1.05 1.56

2.81 3.02

4.33

0.37

0.67

1.21

2.30

2.76 0.17

0.53

12/2008 12/2009 12/2010 12/2011 12/2012 12/2013 12/2014 12/2015 10/2016

ABS Unconstrained Outcome Driven

AUM growth, £ bn

4


5.49

4.02

2.23

1.42 0.99 1.07

0.28 0.09

Total AUM: £7.62 billion

Asset Backed Securities

Unconstrained

Outcome Driven


Leadership in the asset class

5

1 Association for Financial Markets in Europe 2 HM Treasury

Experienced senior team

- Rob Ford helped Barclays issue its first mortgage securitisation back in 1989 before going on to head up the trading unit at Europe’s leading securitisation house

- Ben Hayward managed Europe’s largest ABS funds prior to joining TwentyFour

- Aza Teeuwen has 10 years experience managing European ABS in IG and non-IG from IMC

- John Lawler previously served as Head of European ABS distribution at Nomura as well as experience working at some of the major banks within the ABS market such as Royal Bank of Scotland and Barclays

- Doug Charleston gained extensive experience structuring, managing and rating mortgage-backed securitisations with Lloyds, Nationwide and S&P

- Silvia Piva spent 9 years originating and structuring ABS at RBS

- Additional support from 3 analysts, and a specific CLO manager research PM

Leadership in the sector - Rob Ford is currently:

- Vice-chair of the AFME Securitisation Board and Executive Committee1

- Advisor to the Tri-Partite Securitisation Technical Group (FCA, BofE, HMT2)

- Member of the Bank of England Residential Property Forum


TwentyFour’s ABS product range

6

OEIC

Investment Co.

Direct Lending (Inv.Co.)

Bank

Pension Fund

Insurance Co

Mandated Fund

Fiduciary Manager

Segregated Mandates ABS Funds European

TwentyFour Income Fund

UK Mortgages Limited

Monument Bond Fund

Senior Secured Bond Fund (Senior Tier ABS)

Senior

Liquid Investment

Grade

Less Liquid/High

Yield

UK Covered Bonds

Senior UK RMBS

High Yield ABS

IG ABS

Senior UK RMBS

IG ABS

High Yield ABS

Senior UK RMBS

Local Authority


Overview

7



The European ABS market

8

1 RMBS Losses 2000 – 2014, Fitch Global 7th February 2015

First securitisations completed in late 1980s

Main purpose of issuance has been as a funding tool for banks and other financial institutions

Publicly placed market c. €400bn, not including significant amounts retained by banks on balance sheets for central bank

funding collateral

Performance has been exceptionally strong, Fitch estimates lifetime cumulative loss rate of 0.3% for European RMBS1,

with a High yield average annual default rate of 4.7% (2001-2015)

Investors include central banks, bank treasuries, insurers, pension funds and wholesale clients


Why European asset backed securities?

9

Bankruptcy remote: Assets sit within a segregated legal entity, thereby fully protecting them from outside events e.g.

bank bail-ins

Direct recourse: Backed by specific asset pools, where the coupons and principal are generated by the underlying assets

Built-in loss protection: Structured into layers of risk, with the junior tranches and sponsoring bank acting as loss

absorbers to the more senior ones

Highly granular: Geographically diverse pools containing thousands of real economy assets such as residential mortgages,

auto loans, credit cards or SME loans

Highly transparent: Detailed, frequent reporting thereby enabling investors to conduct quantitative and qualitative

research and giving conviction in performance

Alignment of interest: Issuers/Originators are required by regulatory authorities to retain “skin in the game”

Excellent performance of the underlying assets


European vs. US asset backed securities

10

Europe and US are different

Majority of ABS originated by banks

Generally higher lending criteria

Historical use of affordability tests

Typically recourse lending

Personal stigma of insolvency

Limited “originate to distribute” model

Banks generally service securitised assets

Banks typically retain first loss

Projected total loss rate* 0.0% 4.0%

*Fitch Global Structured Finance Losses, original rating AAAsf 2000-2014, February 2015


RMBS: A sample structure

11

Mortgages

£720m mortgage pool

Further losses

Interest & Principal

£1bn property pool

Total Notes Issued: £720m

AAA Notes

AA Notes

A Notes

BBB Notes

BB Notes

Reserve fund

Excess interest House owner’s equity: absorbs

first loss


2016 market drivers

12

ABS suffered contagion from the broader credit markets in Q1 and there was dislocation in the CLO market when Credit

Suisse liquidated its entire book as part of a more general Fixed Income reorganisation

Q2 saw strong return of risk appetite, with positive price action across all markets, led by CLOs and a rally in Portuguese

RMBS as deals became eligible for ECB’s ABS Purchase Programme

By June, the market braced itself for a potential Brexit, causing both dealer and investor appetite for sterling credit to dry

up

Post Brexit, the trading environment was orderly and muted after a nervous start, but there was a degree of spread

widening. However, prices have recovered steadily, and new issuance has seen strong demand despite quieter summer

secondary markets

Since late summer the market has seen continued spread tightening and consistent performance, with none of the

volatility seen in the fixed rate space

Source: TwentyFour, 22nd November 2016


ABS/Corporate spreads

13

Source: TwentyFour, Barclays 4th November 2016

AAA AA A BBB BB BPrime RMBS 60 140 270 330 440Buy To Let RMBS 100 230 305 430Near Prime RMBS 90 180 230 330CMBS 135 215 270 340CLOs 115 175 260 365 690 985Euro Corps 20 31 78 128 288 519£ Corps 32 67 128 188 347 625$ Corps 75 68 107 174 334 511

0

200

400

600

800

1000

1200

Cred

it Sp

read

AAA AA A BBB BB B

Prime RMBS 60 140 270 330 440

Buy To Let RMBS 100 230 305 430

Near Prime RMBS 90 180 230 330

CMBS 135 215 270 340

CLOs 115 175 260 365 690 985

Euro Corps 20 31 78 128 288 519

£ Corps 32 67 128 188 347 625

$ Corps 75 68 107 174 334 511


Monument Bond Fund

Senior Secured Bond Fund


Investment grade credit index

European high yield index

US high yield index

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

AAA AA A BBB BB B

Yiel

d (in

clud

ing

risk

free

rate

)

Credit Rating

Yields & Ratings of TwentyFour ABS Funds

14

Past performance is no indication of current or future performance Source: TwentyFour, Bloomberg 31st October 2016


Unemployment rate (%)

15

Source: Bloomberg 22nd November 2016

0

5

10

15

20

25

30

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Jan-

11

Apr-

11

Jul-1

1

Oct

-11

Jan-

12

Apr-

12

Jul-1

2

Oct

-12

Jan-

13

Apr-

13

Jul-1

3

Oct

-13

Jan-

14

Apr-

14

Jul-1

4

Oct

-14

Jan-

15

Apr-

15

Jul-1

5

Oct

-15

Jan-

16

Apr-

16

Jul-1

6

Oct

-16

Unemployment %

UK

Netherlands

Portugal

Italy

Spain


House price growth (HPI YoY*)

16

*HPI YoY refers to House Price Index year-on-year Source: Bloomberg 22nd November 2016

-15

-10

-5

0

5

10

15

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Jan-

11

Apr-

11

Jul-1

1

Oct

-11

Jan-

12

Apr-

12

Jul-1

2

Oct

-12

Jan-

13

Apr-

13

Jul-1

3

Oct

-13

Jan-

14

Apr-

14

Jul-1

4

Oct

-14

Jan-

15

Apr-

15

Jul-1

5

Oct

-15

Jan-

16

Apr-

16

Jul-1

6

Oct

-16

House prices

Italy

Portugal

Spain

UK

Netherlands


Overview

17



TwentyFour Income Fund: introduction

18

TwentyFour income fund is a closed ended fund that invests in less liquid UK and European asset backed securities

TwentyFour has access to bonds that it believes are attractive but not liquid enough for its existing daily priced funds

TwentyFour Income Fund will target:

- Annual dividend of at least 6pps

- Total return of 6-9% per annum after fees

- Returns expected to increase as rates rise and to give some inflation protection – Libor tracking, reducing interest

rate risk

Redemption opportunity every 3 years



19

Portfolio Highlights

Portfolio size (£) 432.0m

Gross yield (%) 7.64

Interest rate duration (years) 0.14

Weighted average life (years) 4.31

NAV per share (p) 109.21

Share price (p) 111.25

Source: TwentyFour. Past performance is not an indication of future performance. The gross yield is the yield on an investment before the deduction of taxes and expenses. It is calculated as the annual return on an investment prior to taxes and expenses divided by the current price of the investment. 31st October 2016


TFIF portfolio positioning

20


Asset breakdown Geographical breakdown 31

.77%

6.73

%

3.61

%

6.55

%

5.28

%

6.41

%

14.3

1%

4.54%

4.31%

1.69% 0.88%

0.15%

7.09%

6.68%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

UK

Net

herla

nds

Spai

n

Italy

Port

ugal

Ger

man

y

Fran

ce

Mix

ed -

Oth

er

Single Jurisdiction Exposure Mixed Jurisdiction Exposure (look-through basis)4.

47%

4.90

%

15.3

4%

20.9

0%

19.4

7%

22.3

0%

1.03

%

11.6

0%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

AAA/

Cash

& E

quiv AA A

BBB BB B CC NR


TFIF sector breakdown

21


-4.65%

1.03%

4.47%

8.01%

0.81%

0.85%

21.00%

19.14%

6.82%

37.88%

-10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%

CDS

Leases

Adjusted Cash

Consumer ABS

Student Loans

CMBS

Prime RMBS

NC RMBS

BTL RMBS

CLO


TFIF NAV performance

22

Past performance is not an indication of future performance. *Inclusive of dividend Source: TwentyFour 31st October 2016

The performance figures shown are of the GBP performance. Performance figures based on data as at 31.10.2016. Past performance is not an indication of future performance. Performance is shown in GBP on a mid-to-mid basis, inclusive of net reinvested income and inclusive of all expenses except the annual management charge. The figures do not reflect the entry charge paid by individual investors. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.

90.00

95.00

100.00

105.00

110.00

115.00

120.00

125.00

130.00

135.00

03/2

013

05/2

013

07/2

013

09/2

013

11/2

013

01/2

014

03/2

014

05/2

014

07/2

014

09/2

014

11/2

014

01/2

015

03/2

015

05/2

015

07/2

015

09/2

015

11/2

015

01/2

016

03/2

016

05/2

016

07/2

016

09/2

016

NAV per Share *


Trade Example I:

23

Securitisation of short term bridge loans to UK landlords

Transaction is unrated due to small size and not being widely distributed

Loss cushion of 5% from a junior bond, also supported by 9% of excess cash per annum that can be used to cover losses

Maximum loan-to-value of 75% and average of 65%

Potential losses are recognised before they have occurred and covered by excess cash – significantly conservative policy

1.6yr bond with a current yield of 9.93% at 99.20 and is NR

AMF 15-1 C

Source: TwentyFour 22nd November 2016


Overview

24



Investment committee

25

*Fixed Income experience

Determines the key risk metrics and sector allocations for each portfolio

Chairman

Graeme Anderson

30 years*

Mark Holman 27 years*

Gary Kirk 29 years*

Ben Hayward 18 years*

Rob Ford 29 years*

Eoin Walsh 19 years*

Aza Teeuwen 9 years*

John Lawler 30 years*

Robert Arnold 14 years*

Chris Bowie 21 years*

Felipe Villarroel 7 years*

Silvia Piva 9 years*

Pierre Beniguel 7 years*

Gordon Shannon 9 years*

Doug Charleston 9 years*


Investment process

26

1 The investment committee comprises of the chairman, senior portfolio managers, head of risk and senior sales representative

Investment committee¹

Top-down asset allocation

Bottom-up stock selection

Economic & market debate Market Performance Fund Attribution Global Relative Value

Analysis

Discuss Hedging Strategies

Fund Asset Allocation

Weekly validation meeting The Month Ahead

Idea generation Analysis Credit approval and monitoring

Monthly meetings Macro level view Set key risk metrics


Principles

27

We do not have a CIO but a Chairman of our ‘process’

The Chairman’s role ensures:

- That there is discipline around our process

- Maximise inclusion while optimising focus

- Ensure the process continually evolves

- Ensure the cycle is flexible during times of extreme market volatility

No ‘star’ asset allocator, the team makes the difference


What’s special about our process?

28

Collegiate approach

No reliance on internal analysts - we prefer a combination of our own analysis plus the ability to tap into a broad range of

external research

Portfolio managers execute their own trades - direct interaction with sell-side counterparts builds invaluable knowledge

of the market’s technical picture as well as maximising efficient execution

Optimisation team ensures portfolios adhere very accurately to top down asset allocation as well as single stock targets

Our people make our process work


Idea generation

29

Begins with a highly experienced team of PMs focusing on markets they know well

Constantly streaming markets for new ideas

Technology plays a part, everyone has “Bloomberg Anywhere”

Pinpointing security selection through proprietary “Observatory” database

Access to deep bench of analysts and strategists on the “sell-side” for each sector

Subscribe to various third parties for additional research

No reliance on internal junior analysts therefore also not trapped within a house view


TwentyFour portfolio management team

30

Unconstrained Outcome Driven Asset Backed Securities

Elena Rinaldi

Silvia Piva

Shilpa Pathak

Aza Teeuwen

Doug Charleston John Lawler

Rob Ford

Luca Beldi

Ben Hayward Chris Bowie

Gordon Shannon

Jack Daley

Mark Holman

Scott Crichton

Robert Arnold Felipe Villarroel

Eoin Walsh Gary Kirk

Pierre Beniguel

George Curtis


ABS portfolio management team

31

Ben Hayward, Founding Partner 18 years RMBS experience across

portfolio management, modelling and analytics

Rob Ford, Founding Partner 29 years RMBS experience across trading, securitisation, portfolio

management

Aza Teeuwen, Partner & Portfolio Manager

9 years RMBS experience across portfolio management and analytics for

mezzanine structured finance

Dawn Kendall, Partner & Portfolio Manager

29 years experience in the investment industry across a variety of senior roles

in asset management and banking

John Lawler, Portfolio Manager 30 years’ ABS experience, and was

previously a Managing Director at three Global Investment Banks.

Doug Charleston, Portfolio Manager 9 years experience structuring,

managing and rating mortgage-backed securitisations

Silvia Piva, Portfolio Manager 9 years experience structuring and

managing asset-backed securitisations

Shilpa Pathak Develops system architecture, models

mortgage securities

Luca Beldi Models mortgage securities, builds

stress tests

Elena Rinaldi Models mortgage securities, builds

stress tests


Ben Hayward – Partner, Portfolio Manager

Ben is one of the founding partners of TwentyFour and a Portfolio Manager.

He is a member of the firm’s Executive Committee which has the overall

responsibility for the day to day running of the business.

Ben’s main responsibility is managing the ABS business, having launched the

Monument Bond Fund, the TwentyFour Income Fund and more recently UK

Mortgages Ltd, as well as managing a number of institutional mandates. He

is a member of the Investment, Risk and Product Committees.

Ben has 18 years fixed income portfolio management experience, having

spent 9 years at Citigroup Alternative Investments where he was responsible

for managing four vehicles that invested $100bn across asset-backed

securities and credit.

32


ABS glossary

33

[1] Securities Industry and Financial Market Association as of end 2015, TwentyFour Asset Management. Note definition of each market segment is not precise and differs between market data providers. Source: TwentyFour 31st August 2016

Type Description Volume[1]

Residential mortgage backed securities (RMBS)

RMBS are pools of mortgage loans created by banks and other financial institutions. They represent the largest component of the European ABS market and are the most liquid.

€ 910 bn

Consumer receivables Consumer receivables include a large variety of unsecured consumer debt types that have been securitised including auto loans, credit card receivables and unsecured personal loans. € 230 bn

Commercial mortgage backed securities (CMBS)

CMBS are mortgage-backed securities backed by commercial mortgages rather than residential mortgages. CMBS use structures similar to other forms of ABS. € 95 bn

Collateralised loan obligations (CLOs)

CLOs are pools of corporate loans, refinanced in a securitised structure. These can either be static pools from a bank balance sheet or a managed product run by a specialist loan manager. € 60 bn

Total € 1.4 tn


TwentyFour industry recognition

34


Contact Details

TwentyFour Asset Management LLP 8th Floor The Monument Building 11 Monument Street London EC3R 8AF T: +44 (0)20 7015 8900 twentyfouram.com [email protected]

[email protected] [email protected] [email protected] [email protected]

35


TwentyFour Asset Management LLP 8th Floor The Monument Building 11 Monument Street London EC3R 8AF T: +44 (0)20 7015 8900 twentyfouram.com

36


Disclaimer This document has been prepared by TwentyFour Asset Management LLP ("TwentyFour"), portfolio manager of the Funds, for information purposes only. This document is an indicative summary of the terms and conditions of the

securities described herein and may be amended, superseded or replaced by subsequent summaries. The final terms and conditions of the securities will be set out in full in the applicable offering document(s).

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities described herein. TwentyFour is not acting as advisor or fiduciary. Accordingly you must independently determine, with your

own advisors, the appropriateness for you of the securities before investing. TwentyFour accepts no liability whatsoever for any consequential losses arising from the use of this document or reliance on the information contained

herein.

No offers, sales, resales or delivery of the securities described herein or distribution of any offering material relating to such securities may be made in or from any jurisdiction except in circumstances which will result in compliance

with any applicable laws and regulations and which will not impose any obligation on TwentyFour or any of its affiliates.

TwentyFour does not guarantee the accuracy or completeness of information which is contained in this document and which is stated to have been obtained from or is based upon trade and statistical services or other third party

sources. Any data on past performance, modelling or back-testing contained herein is no indication as to future performance and there can be no assurance that targeted or projected returns will be achieved, that TwentyFour will

achieve comparable results or it will be able to implement its investment strategy or achieve its investment objectives. No representation is made as to the reasonableness of the assumptions made within or the accuracy or

completeness of any modelling or back-testing. All opinions and estimates are given as of the date hereof and are subject to change. The value of any investment may fluctuate as a result of market changes. The information in this

document is not intended to predict actual results and no assurances are given with respect thereto.

TwentyFour, its affiliates and the individuals associated therewith may (in various capacities) have positions or deal in securities (or related derivatives) identical or similar to those described herein.

This document is being made available in the UK to persons who are investment professionals as defined in Article 19 of the FSMA 2000 (Financial Promotion Order) 2005. Outside of the UK, it is directed at persons who have

professional experience in matters relating to investments. Any investments to which this document relates will be entered into only with such persons. This document is not for distribution to retail customers.

No action has been made or will be taken that would permit a public offering of the securities described herein in any jurisdiction in which action for that purpose is required.

This document does not disclose all the risks and other significant issues related to an investment in the securities. Prior to transacting, potential investors should ensure that they fully understand the terms of the securities and

any applicable risks. This document is not a prospectus for any securities described herein. Investors should only subscribe for any securities described herein on the basis of information in the relevant prospectus (which has been

or will be published and may be obtained from TwentyFour by visiting it’s website www.Twentyfouram.Com), and not on the basis of any information provided herein.

TwentyFour Asset Management LLP is registered in England No. OC335015, and is authorised and regulated in the UK by the Financial Conduct Authority, FRN No. 481888. Registered Office: 8th Floor, The Monument Building, 11 Monument Street, London, EC3R 8AF

. Copyright TwentyFour Asset Management LLP, 2016 (all rights reserved). This document is confidential, and no part of it may be reproduced, distributed or transmitted without the prior written permission of TwentyFour.

37

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