Because Gender Diversity MattersPresentationSeptember 2009
Women’s Leadership Fund
Executive Summary
Gender Diversity :
Why?
-Companies which embrace it actually perform better
-We have amassed a strong body of research to demonstrate this
-Currently, no-one else uses Gender Diversity as an investment criterion: thus there is hidden value in it
-We want to earn strong returns for our investors whilst fulfilling an important social objective
Executive Summary
Gender Diversity :
How?
-We will invest in companies which have a) strong female representation in the boardroom and senior management and b) female-friendly policies, ie. childcare, and women’s networks
-We will also follow sound fundamental investment practice, by only selecting companies which also have competitive valuations, strong business models and compelling valuations
-We will take an activist stance against firms which show particular resistance towards hiring women for high-level posts
Executive Summary
Gender Diversity :
Who?
-An outstanding investment team with experience at Soros Fund Management, Goldman Sachs, and Templeton, amongst others
-A dedicated management team in both Zurich and New York
-An advisory board featuring two former Prime Ministers, and numerous business leaders
Outline
1. Why Does ‘Gender Diversity’ Matter?2. Five Steps to Alpha3. The Opportunity4. Women’s Leadership Fund5. Team6. Investment Approach and Risk Management7. Fund Structure
Section 1. Why Does ‘Gender Diversity‘ Matter?
Current Situation Neither Fair nor Efficient
The Past:
Competition depended upon physical assets such as land and machinery Workers performed manual and unskilled tasks This scenario was advantageous to men “I was privileged to work during a period when it was only necessary to compete against half the population” – Warren Buffett
The Future:
In a knowledge based economy, talent is the competitive advantage Women make up more than half of the ‘talent’ pool So their effective deployment is critical to success
The Basic Problem
•At both High School and University, Women tend to outperform Men
•This trend continues early in their careers.
•However, five years into their careers, women start to ‘fall out’.
WLF wants to go right to the heart of this problem and expand the opportunity set for women.
Relative performance
‘Gender Diversity‘ Matters Because…
Diversity of perspectives improves judgement about opportunities and risks
Leading to fewer mistakes, and
Enhanced ability to innovate
Can help guard against ‘six sigma’ events, ie. AIG, Lehman
Section 2. Five Steps to Alpha
Access to the Best Talent
Does this really make sense?
Board composition of FTSE-350 Companies (UK): 242/2742 directors are women
BOARD COMPOSITION
POPULATION COMPOSITION
Diversity Brings You Closer To The Customer
Example: Nestlé
•Approximately 80% of revenuescome from female customers
•But not a single division is run by a woman
•Who would understand the needs of female customers better, a male or female manager?
Gender Diversity –Higher Valuations, Profitability, ROA
McKinsey & Co.
Pepperdine University, Roy Adler
Naissance Capital
McKinsey Study: GD Improves Likelihood of Higher EBITDA and Valuations
Probability of having…
… an above-average EBITDA % … an above-average Company Valuation %
Source: McKinsey & Company, 2007
31%
48%
68%
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Pepperdine University Study: Gender Diversity Correlated with Improved Profitability
- In a 19-year long study of 215 Fortune 500 Firms…
- …Prof. Roy Adler found that the firms with the strongest willingness to promote women to executive positions…
- …Enjoyed between 18%-69% greater profitability than other firms within the same industry
Adler, R. ‘Women in the Executive Suite Correlate to High Profits’ (2001)
Naissance Study: Gender Diversity most influential SRI determinant of higher ROA
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*** ***
Source: Naissance initiated a study in collaboration with Professor Marisa Noeldeke, Ellen Johansen and Heidrick + Struggles
SRI variables…Regression of gender diversity scores and six other corporate factors to ROA (***: Statistical significant)
A Counterbalance to ‘Corporate Caesars’
‘The Julius Caesar Problem’
The 'Alpha Male’ CEOBuilds personal 'Empires' vs. sustainable businessesIs in the news more than the company itselfSurrounds himself with highly paid 'yes-men'Takes huge risksBends the rules, cheats if necessary
…and eventually causes the company’s destruction
Competent, impartial feedback is critical in preventing 'Caesars’ WLF’s aim is to broaden the management base and make this more likely
“The more women there were in a company’s management, the less the share price fell in 2008” – Prof. Michael Ferrary, Ceram Business School (“Gender Diversity and Stock Market Performance”)
Hidden Value in Gender Diversity
Greater Gender Diversity = More Efficiency•Selecting from 100% of the population, not 50%•Higher ROA, better performance – according to research•‘Closer to the customer’
Assets should migrate to their most efficient use (Ricardo)•So firms should be encouraging more diversity•And investors should look for it as a positive sign
But They Don’t…•So we believe there to be hidden value – ‘alpha’•The Women’s Leadership Fund seeks to take advantage of this
Section 3. The Opportunity – The First of its Kind‘
Despite strong association with improved profitability . . .
‘Gender Diversity’ is (largely) neglected by investors.
Firms scoring well in Gender Diversity are thus underpriced and possess hidden value.
The Women’s Leadership Fund, ‘1st’ of its kind, uses ‘Gender Diversity’ as a differentiating investment thesis.
Platform to encourage ‘best practices’
Growing Interest (from a low level)
Norway and Spain have passed legislation requiring female board members for listed companies
2nd Swedish national pension fund publishes ‘Female Representation Index‘
Goldman Sachs, ‘10,000 Women Partnership‘’to develop female entrepreneurial talent in developing countries as a means of reducing inequality and ensuring more shared economic growth’’
Leveling the Playing Field
The Fund’s primary objective is to provide strong returns There will be no better evidence for our case than this
Our Wider Objectives: To increase the number of female executives in the main countries we
operate in by 20% in the next 3-5 years
We will pursue this through shareholder activism, and participation in public debate
This will be supported by our website, newsletters, and other media efforts
To increase opportunities for women generally, via charitable activities. 10% of our management fee will go towards good causes
Really ‘Making a Difference’ - Activism
Can a company with an antiquated approach to Gender Diversity but many female stakeholders afford to get into a public debate?
IDENTIFY COMPANIES
ACT PURSUE
• Place matter on AGM Agenda
• Invite journalists to participate in debate
• Persist until improvements are made
• Build stake
• Write letter to Board
• Request meeting & positive action
• With negative attitude to Gender Diversity
• With little political will to fight
CHANGEE
Board of Directors
Our concept- and commitment to activism- has helped us attract a world-class advisory board:
Cherie BlairProminent lawyer and wife of formerBritish Prime Minister, Tony Blair
Kim CampbellFormer Prime Minister of Canada
Rob BauerProfessor of Finance and former head of research at ABP, one of Europe’s leading pension funds. Considered a leader in socially responsible investing
Wendy LuhabeBusinesswoman and chair of the Industrial Development Corporation;Considered one of Africa’s leading entrepreneurs
Janet HansonFounder of 85 Broads, an organisationof over 32,000 professional women worldwide, as well as own $2bn money management firm.
Jenny ShipleyFormer Prime Minister of New Zealand
Heidi SinclairFormer CEO of public relations firm Burson-Marsteller Europe, andChief Communications Officer, Bill & Melinda Gates Foundation
Avivah Wittenberg-CoxFounder of European Professional Women’s Network,and author of ‘Womenomics’. Considered a leadingauthority on Gender Diversity
Section 4. Women‘s Leadership Fund
Global equities and bonds
Actively managed, low volatility
2 versions: a) long only, no leverage b) hedged version
Initial fund size of US$200million, ultimately growing to US$2billion
Quarterly liquidity
Competitively priced for SRI space
Objective: is to achieve alpha, without taking undue risks
Founded in 1999 with the assistance of the Bodmer and Habsburg families
Swiss based - independently owned and managed.
Today it counts some of Switzerland’s leading financial institutions and family offices among its investors
Finds or creates niche investment opportunities offering exceptional prospects for capital appreciation.
Conducts own research and draws upon the expertise and business relationships of its principals
Performance of approximately 18% p.a. since 1999
Section 5. Team
Naissance Capital
Conventional Asset
Management
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Naissance Capital - The Track Record
Overall annualized return (all initiatives equally weighted): 17.7%Overall volatility: 16.3
Fund Inception Closing Theme Sponsor Return VolatilitySandler Capital Sep. ’99 Ongoing Telecom and Media Zurich Insurance 10.6 7.3
Naissance China Mar. ’01 Sep ’07 Collaboration with Value Partners focusing on small-mid Chinese companies
Sir John Templeton 42.2 18.9
Naissance Jaipur Jan. ’02 Ongoing Local shares of publicly listed Indian companies
Swiss Re 16.5 32.24
Swissport Feb. ’02 Sep. ’05 Private Equity Investment HNW 30.6 Na
Naissance Japan Jul. ’02 Dec. ’05 Japanese Long/Short Fund HNW 14.3 14.9
Naissance Healthcare
Nov. ’02 Nov. ’08 Healthcare fund with emphasis on emerging markets
Albert Koechlin Foundation 5.3 22.5
L-R Global May. ’03 Sep. ’07 Value investor in remote emerging markets with emphasis on natural resources, and mining
Rockefeller & Co – Leon Levy 20.6 16.3
Naissance Natural Resources
Sep. ’03 Sep. ’04 Index of Commodities, exhibiting high demand and constrained supply (oil, precious metals, etc)
Ex Glencore/Faisal Finance SA 38.4 18.8
Naissance Putin Sep. ’03 Dec. ’06 Vehicle to invest in local Gazprom shares Dr. Aminio Fraga 86.5 40.2
Naissance Beagle Sep. ’03 Ongoing Best Ideas Fund, ‘thematic’ investment approach followed by Naissance since its inception
Everest Capital 11.2 22.1
Management Team
The Women’s Leadership Fund was initiated by James Breiding, MD of Naissance Capital
James Breiding James Breiding is co-founder and owner of Naissance Capital. Most recently he was managing director of Templeton Switzerland and prior to that director of Rothschild Corporate Finance and Vice President of Julius Baer responsible for alternative investments. He trained at Price Waterhouse Coopers where he reached the rank of Senior Manager.
Marisa Noldecke is is Assistant Professor of Finance at WHU, Otto Beisheim School of Management, Germany. She holds a PhD from the University of Zurich. The main focus of Prof. Nöldeke's research are the areas of Corporate Finance and Corporate Governance
Daniel Tudor is Project Manager of the Women’s Leadership Fund. He previously worked in investment management in East Asia, and also wrote for The Economist. He holds a BA from Oxford University and an MBA from Manchester University.
Investment Council
Bjorn Thelander is a seasoned portfolio manager after a 15 year career with the Tetra Laval Group. He holds Master’s degree in Mechanical Engineering from the Lund Institute of Technology (Sweden) and an M.B.A. from the University of California at Davis.
Zoë von Streng is an experienced portfolio manager (global equities) after a 20 year career with UBS Global Asset Management and Phillips & Drew Fund Management in London and Zurich. She held the position of Managing Director, Co-Head of Equities, at UBS.
Steve Triantafilidis is Global Head of Equities for Swiss Re Asset Management. Previously he worked for a variety of fund management firms in Australia, where he is also Task Force Chair of the Financial Services Institute of Australasia
We have assembled a team of highly experienced fund managers to run the portfolio of the Women’s Leadership Fund
Rob Bauer served as head of research at ABP, one of Europe’s largest pension funds, and is currently head of Rob Bauer Consultants, as well as a Professor of Finance at Maastricht University. He is also an advisory board member of the Women’s Leadership Fund.
Tim Bepler is a trader and long-short portfolio manager with 15 years of experience at firms such as Merrill Lynch and Credit Suisse. He holds the CFA Charter, as well as an MBA from New York University.
Section 6. Investment approach‘Filters‘ based on ‘Common sense‘ Approach
Macro: Country risk
Industry prospects
View of currency
Regulatory regime, etc.
Gender Diversity: % and trend of women in management and Board
Actively embracing ’best practices’
Preferred employer for any gender
Strong Business Model: Quality of management
Flexible manufacturing systems
Superior competitive position
High ROE, ROIC
Solidity of balance sheet
Fair valuation.
Portfolio Construction – Selective, but Diversified
40,000 stocks
1,200 stocks1. Screening against Fundamental criteria (*)
Total Universe
2. Market Cap / Daily Liquidity screening > 400 stocks
3. Screening against ’Gender Diversity’ Criteria
150-200 stocks
4. Portfolio 30-50 stocks
(*) see fundamental screening criteria on next page
1. Screening Against Fundamental Criteria
What We Look For
Phenomenal business models Well positioned for tough times, low operating leverage, flexible capacity
Very strong financials (screening criteria) Growth (CAGR Net Sales and Operating Inc >10%) Profitability (Return on Capital > 10%) Balance Sheets (Leverage<30%, Z-score>3) Valuations (decent valuations, intrinsic value>market value)
Performance ObjectivesThe fund aims to outperform the MSCI World Developed Index (NDDUWI) by 4-8 percentage
points annually with a monthly tracking error of less than 10%.
2. Market Cap/Liquidity Screening
We select stocks with:
-A market capitalisation of $200m US or higher
-Liquidity of $10m US or greater
This gives us a field of around 400 stocks, from which we will then narrowdown further by screening for Gender Diversity
3. Screening Against Gender Diversity Criteria
Quantitative Screen: % of Women Directors
• Company to have absolute minimum of 15% female directors
• Also to exceed home country’s average % of women directors by 20%+
• We seek to raise the minimum % of women directors over time- by 20% over 3-5 years
• Exception: quota countries, ie. Norway
Qualitative Screen: Company Policy Evaluation
1. Company should have policies that work regarding:
• Career Advancement- mentoring, women’s networks, female employee attraction/retention
• Maternity- Flexible hours, childcare, good maternity leave
• Equal Pay for Equal Work
Example : Dow Chemical and Gender Diversity
Quantitative Screen: % of Women Directors
• 15.2% of Fortune 500 Directors are women (Catalyst, 2009).
• Thus our US minimum should be 18.2% (20% greater than 15.2%).
Dow Chemical has 23% (3/13) Women Directors
Qualitative Screen: Firm Policies
• 70% of employees take advantage of flexitime
• Women’s mentoring and inclusion network since the 1980s
Won awards from NAFE and Working Mother magazine for policies towards female employees
4. Portfolio (Model)
GeneralModel
Portfolio S&P 500
Number of Stocks 37 500Average Beta 1.02 1.00Median Beta 1.04 1.00Average Market Cap (BUSD) 27.5 16.0Median Market Cap (BUSD) 14.0 6.5
Profitability/Value/GrowthModel
Portfolio S&P 500
ROC 15.5 12.6P/E 14.3 9.6P/CF 9.0 6.1P/S 1.5 0.8P/B 2.5 1.5Oper Income Growth 16.3 12.5Net Sales Growth 11.9 10.7
Performance (%)Model
Portfolio S&P 500
Average Performance 1-Mo 10.9 9.1Average Performance 3-Mo 23.5 17.4Average Performance 6-Mo 61.2 37.4Average Performance 1-Yr 8.8 -7.6
B/S Strength Debt/Equity 13% 36%Altman's Z-score 5.2 2.9Interest Cover Ratio 18 9
Our Model Portfolio Consistently Outperforms
PERFORMANCE (in LOC) STATISTICS
Model Portolio
MCSI World Dev'd Difference
Model Portolio
MCSI World Dev'd
Aug-09 5.2% 4.1% 1.0% Volatility 22.1% 26.9%
2009 YTD 17.9% 23.9% -6.0% Tracking Error 9.4%
2008 -19.6% -41.2% 21.6% Correlation 0.95
2007 19.5% 9.4% 10.0% Alpha 0.3%
Beta 0.82
Ann. Return Since 29/12/2006 4.0% -7.8% 11.8% Sharpe Ratio 0.02 -0.42
Information Ratio 1.11
Weekly data since 31/12/2006
Performance of Model Portfolio vs Benchmark since 31/12/2006
113.7
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Example Investment Case: Hennes & Mauritz
Performance: Y-T-D 1-Mo 3-Mo 6 Mo 1-YrHENNES & MAURITZ AB-B SHS 32% 0% 10% 26% 32%MSCI Daily TR Net World USD 26% 7% 19% 51% -5%
Profitability: Market Cap:CEO: Rolf Eriksen Return on Capital 44% 333.1 Billion SEK
Return on Equity 44%Sub-sector: Apparel RetailBloomberg Ticker: HMB SS Growth: Valuation:Current Price: 398.5 SEK 5-Yr CAGR Operating Margin 17% P/E 21.9No. Females on Board: 5/11 45% 5-Yr CAGR Net Sales 13% Est. P/E 21.2
P/Book Value 10.5Company Description: Balance Sheet: P/Sales 3.4
Leverage -7% P/Cash Flow 19.1Altman Z-Score 19.2 PEG 1.70Interest Cover Ratio (x) 2,649.8 Div Yield 3.9%
Beta 0.81
Investment Case:
Well positioned in resilient value segment
Tremendous profitability (ROC 45%)
Defensive due to very strong B/S
Managing growth well Flexible Manufacturing System
Hennes & Mauritz AB (H&M) designs and retails fashions for women, men, teens, and children. The Company sells a variety trendy, sporty, and classic garments in addition to accessories such as jewellery, bags, and scarves, and cosmetics.
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Risk Management - Overview
Soft stop 10% Hard stop 20%
Goldman Sachs (AA3/AA-) is only counterparty
Adjust according to market conditions
80% of positions can be liquidated in 1 day
Correlation management, diversification across countries, sectors and market caps.
Risk Management
Stop Loss
Low counter-party risk
Value at risk,
Volatility
Low liquidity
risk
Diversifi-cation
Monitor absolute and relative performance
Risk Guidelines – Portfolio Construction
Risk Type What We Measure General Guidelines
Portfolio Volatility Annualized Volatility, Value at Risk
In line with market<3% daily
Sector Exposure Sector Exposure Max 30%
Country Exposure Country Exposure Max 40%
Concentration Risk # Positions 20-60
Position Sizing Individual Position 1%-7%, Max 8%
Liquidity Daily Avg Trading Volume Position Liquidity
Must be in/out <3 days with <25%
Currency Hedging Exposure by Currency Hedge when appropriate
Risk Guidelines – Safeguards
Mandatory Position Reviews 10% loss on absolute basis or relative to sector benchmark 20% loss on absolute basis or relative to sector benchmark
Continuous Monitoring of: Significant corporate actions (e.g. M&A, mgt changes, insider transactions) Earnings surprises High short interest levels
Monthly Risk Review Meeting with Investment Committee Is risk level appropriate for target returns and market conditions? Risk officer reports on compliance with risk allocations and strategy
objectives whilst evaluating risk at the fund level.
Operational Controls
Strong Internal Controls “Best practices” institutionalized Independent third party fund administrator (monthly NAV)
Monthly Investor Disclosure Performance estimates at month-end +1 day Final performance figures no later than month-end +6 days Portfolio composition by country, sector, market cap
Monitoring of counterparty exposure Trading counterparties Prime brokerage counterparties
Risk Monitoring Models
How much risk are we taking? Evaluate portfolio exposures unadjusted and beta adjusted Monitor VAR and Volatility (algorithmics) 20% loss on absolute basis or relative to sector benchmark on a
weekly basis.
What kind of risk are we taking? Sector Country Currency Style (e.g. growth vs value, size of market cap)
Strict Buy / Sell Discipline
BUY
SELL
Pass screens and fundamental analysisRebalancing quarterlyStrive for roughly equally-weighted positions of 1.5% to 2.5% of NAV If more candidates than open positions -> subjective choice by the fund manager.
At quarterly rebalancing, sell if screening criteria no longer fulfilledCut back or sell if position > 2.5% of AUM (with exceptions but max 4%)Cut back or sell if substantive corporate action taken (e.g. bought up, capital raising, stock suspended, etc.)At fund manager’s discretion
Section 7. Fund Structure
Global listed equity investments
With strong gender diversification
Naissance Women’s Leadership
Fund
Investor
AdministratorIntercontinental Trust
AuditorDeloitte & Touche
Custodian/BankJefferies & Co.
Legal counselOgier
Investment ManagerNaissance IM Ltd
Investment AdvisorNaissance Capital Ltd
Cayman IslandsSwitzerland
Terms & Conditions
Naissance Women Leadership Fund
Appendices
Appendix I - Reference List
Adams and Ferreira (2008) looked at the fraction of women on the board of directors of S&P 500, S&P MidCap, and S&P SmallCap firms. They found that women have a positive impact on board governance; in particular diverse boards appear to be tougher monitors. After controlling for omitted variables and reverse causality Adams and Ferreira concluded that diverse boards are particularly valuable for companies with weak governance. Carter et al. (2003) examined the relationship between board diversity in the broader sense (including women and minorities) and firm value for Fortune 1000 firms. They found significant positive relationships between the fraction of women (or minorities) on the board and firm value after controlling for size, industry, other corporate governance measures, and for the direction of causality. Catalyst (2004) analyzed the link between gender diversity on top management teams and companies’ financial performance for Fortune 500 firms. Catalyst came to the conclusion that a positive correlation between gender diversity and financial performance exists, whereas the causality for this effect remains unclear.Erhardt et al. (2003) studied the relation between demographic diversity on boards of directors and firm financial performance and concluded that board diversity (i.e. board representation of women and minorities) is positively associated with firm performance. Jurkus et al. (2008) investigated gender diversity in the top management of Fortune 500 firms and concluded that it is positively associated with both firm performance and stock valuation. This evidence holds even after controlling for a sample-selection bias and for an endogenous relation. However, their study also found that the positive impact of gender diversity is only significant for what they call “women-exclusive work environments”. Smith et al. (2005) – one of the few studies from outside the US – examined 2500 Danish companies and reported that the proportion of women in top management has a positive impact on firm performance, even after controlling for numerous firm characteristics and direction of causality. Their study also showed that this relationship depends significantly on women’s qualifications.
Disclaimer
This presentation (‘presentation’) is for informational purposes only and does not create a commercial relationship between the user and Naissance. The presentation contains forward-looking statements and opinions. By their very nature, these statements and opinions are subject to uncertainty and involve inherent risks. Predictions, forecasts, and other outcomes described or implied may not therefore be subsequently achieved. Information contained in the presentation does not constitute a solicitation to buy or an offer to sell shares in any of the investment products described herein. Access to such investment products may be restricted to individuals in certain jurisdictions. You should not proceed further unless in your relevant jurisdiction, the information contained herein can be made available to you without contravening legal or regulatory requirements. The investment products described in this presentation may follow strategies that are speculative and involve a high risk of loss. Shares in the investment products can go up as well as down, and a favourable performance record is no indication of future performance. Information in this presentation is based on data provided by sources believed to be reliable. The advisor has not independently verified these data, and makes no representation as to the accuracy, reliability or completeness of this information; The advisor will not be held liable under any circumstances for any direct or indirect loss or damage suffered as a result of the use of this information.
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