CQS New City Equity November 2019 November 2019 p C QS New City Equity It is now broadly documented that a few listed equities deliver the bulk of the stock market’s performance. The objective of the CQS New City Global Equity strategy is to identify these exceptional companies and construct a highly concentrated portfolio for the long term. The team implements a forensic research process with a particular focus on strategy, innovation and ESG matters that feed directly into the long term valuation framework. The ambition is to achieve double-digit return over the cycle and embrace the new language for equity investment. Investment Philosophy “We look to invest in a small • We invest in companies that have delivered exceptional products and services that empower their number of corporate stars which customers and generate significant pricing power and economic moat. deliver exceptional products and • Such companies have consistently produced a flow of recurring innovation – and sustainable profits services to their clients. These derived from the intrinsic value the company brings to the customer – not from an opaque value chain or a regulatory window. One dollar of profit is not equal to another. companies have developed a • These innovation compounders, with sufficient growth potential, can only be found in specific industries constant flow of innovation that supported by highly diversified secular tailwinds. Typically, they hold a market leading position. empowers their customers and • To consistently commercialise their innovation, companies must have a clear business mission, generates significant pricing appropriate corporate governance and incentives that specifically encourage innovation from the ground. power. We are not interested in • The targeted return, aligned with these companies’ long term earnings growth, is 12-15% across the cycle. brands or trends but in long term Investment Process leaders in specific industries. • Step 1 – Quantitative screening based on track record, growth, cash flow metrics and leverage These companies are the • Step 2 – Qualitative assessment and production of a comprehensive Strategic Report for each new innovation compounders.” company • Raphael Pitoun Step 3 – Valuation centred around the projection of long term cash flows with a focus on economic rather than accounting profit • The forensic analysis of ESG criteria is embedded in the deep dive research process on each company Investment Team 5 • Raphael Pitoun – 20 years equities experience • Previously co-Head of Research at BNP Exane and then CIO and Portfolio Manager at Seilern Investment • Portfolio manager of Stryx World Growth and Stryx America (AuM of c. USD0.9bn1) • Expertise in identification and investment in exceptional companies in developed markets • Team completed by young and disciplined equity analysts Over the past century, 50 Track Record listed stocks generated 40% • Raphael Pitoun – AAA-rated Citywire2 of the wealth creation in the • Under his management, both Stryx funds outperformed their benchmarks by an average 6-7% per annum3 US stock market. • Multiple awards incl. Sauren Global Awards 2019; Citywire US Equity fund 2018; Lipper US fund 2018 Based on Do stocks outperform • Stryx World fund ranked #3 out of 1,304 global equity funds and Stryx America fund #2 out of 3,361 US Treasury bills? Univ. of Arizona, 2018 equity funds during Raphael’s management4 • Limited exposure to FANGs and large diversification in terms of source and concentration of returns •Products , How to know more and Contact • The strategy can be developed through UCITS-compliant funds and segregated accounts • CQS is a multi-strategy asset manager founded by Sir Michael • The team currently manages two strategies: the global strategy focusses primarily on the USA, Europe Hintze in 1999 with USD18.6bn and Japan and the North American strategy focusses exclusively on the USA and Canada in AuM6 • The Research and Valuation Methodology and ESG Policy documents are available on request • CQS New City Equity, 100% • A sample of a Strategic Report on one of our holdings – Live Nation – can also be provided owned by CQS, aims at developing differentiated and • For further information, please contact the team at [email protected] highly active equity products Confidential and not for distribution without express written consent from CQS • CQS and CQS New City Equity 1 2 Notes: AuM number sourced on Bloomberg as at 31 May 2018, the date of Raphael Pitoun’s departure. Citywire, May 2018; share a common culture of the rating refers to Raphael’s work at Seilern Investment 3Bloomberg, July 2014-May 2018; 4eVestment, peer group ‘All Global 1 fundamental research to create Equity’ and ‘All US Equity’ respectively, July 2014-May 2018; 5The LuxFlag label applies to the CQS New City Global Equity an edge and generate alpha Strategy ; 6Source: CQS, Estimated 1 November 2019 1. Fund Presentation 2. Research and Valuation Methodology 3. ESG Considerations 4. Example of a Strategic Report 5. Press Review and Viewpoints 6. Disclaimer CQS New City Equity CQS New City Global Equity Strategy CQS New City North American Equity Strategy November 2019 All Investors should ensure that they have received and read the latest Offering Documentation and Prior-Investment Disclosure document which is available from CQS at [email protected]. Please see the important information at the end of this presentation. Raphael Pitoun “We look to invest in a small number of corporate stars Portfolio Manager, which deliver a constant flow of innovation, empowering CQS New City Equity their customers and generating significant pricing power. We are not interested in brands or trends, but in long term leaders in specific industries. The companies that we select are the innovation compounders.” 2 Defining the Innovation Compounders Track record Healthy Thematic Culture of Innovation Profits Growth Drivers of Innovation We invest in companies that Typically such companies Innovation compounders with To make innovation have delivered exceptional produce a flow of recurring sufficient growth potential can predictable, companies must products and services that innovation ensuring their only be found in specific have a clear business empower their customers and profits are derived from the industries supported by highly mission, appropriate generates significant pricing intrinsic value the company diversified secular tailwinds. corporate governance and power and economic moat. brings to the customer – not They normally hold a market incentives that specifically from an opaque value chain leading position. encourage innovation from or a regulatory window. One the ground. dollar of profit is not equal to another. CQS, for illustrative purposes. 3 Types of Innovation Compounders Innovation Innovation Innovation Value Chain Hub Monopoly Enabler Disruptor Companies which manage ‘Small giants’ – these Companies which help their Companies which approach to incubate innovation at companies account for the clients to innovate – for their market differently – scale by leveraging on their vast majority of research and example, simulation software the innovation is in the client knowledge, distribution development spending and or IT specialised consulting. business model. skills and logistics to sell innovation flow in their recurring innovation products respective niche markets. and services. CQS, for illustrative purposes. 4 Research Process and Portfolio Research Valuation Concentrated ESG Friendly Driven Conscious 6-12 months research Evaluating the long term Integration of ESG along the process before initiation. growth and margin potential. Over the past century, 50 listed investment process – “ expertise sitting within the Writing of a detailed Accounting profits can be stocks represented 40% of the team. Strategic Report for each misleading when the wealth creation in the US market.1 new company. company is in investment In-depth ESG analysis for mode. 50 exceptional companies each company – no reliance Approach similar to private covered in Top50 List. equity. Long term cashflow based on external ratings. valuation. 20 to maximum 25 holdings in the portfolio. 2 Source: CQS analysis as at October 2019. 1Do stocks outperform Treasury bills? Study by the University of Arizona, 2018. 2The LuxFlag label applies to the CQS New City Global Equity Strategy. 5 5 Returns and Fund Behaviour Continued Resilience Differentiated Portfolio Target Returns1 We insist upon companies with We tend to ignore companies We anticipate target returns of a long track record so that we whose economic moat is 12-15% over a full cycle. can analyse their ability to derived from brands and manage downturns or industry marketing spend. These returns are aligned with disruptions. the expected cash flow growth We exclude most of the typical of the portfolio companies. With low levels of debt, our quality growth companies, such target companies can invest as the FANGs or consumer against staples. the cycle and emerge stronger than before. Source: CQS as at 31 October 2019. 1Target returns are estimated and gross of anticipated fees, expenses and income reinvested. A client's return will be reduced by these fees and other expenses incurred 6 by the management of the fund. They are based on long-term performance projections of the investment strategy and market conditions at the time of modelling and are therefore subject to change. There is no guarantee that any target return can be achieved. Investors should not