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Russell 2000 (DRI)
FYE 2009 FYE 2010 FYE 2011 FYE 2012 January - 2013 February - 2013 March - 2013 April - 2013 May - 2013 June - 2013 July - 2013 August - 2013 Year to Date Inception to Date* 1/1/12 to Date**
4.37% 73.04% -46.38% 28.21% 6.08% 1.45% 2.42% 2.85% -6.58% -0.28% 3.19% -5.13% 3.41% 28.39% 25.94%
5.49% 15.07% 2.11% 16.00% 5.18% 1.36% 3.75% 1.93% 2.34% -1.34% 5.09% -2.90% 16.16% 67.90% 34.75%
6.91% 16.91% -1.80% 15.19% 4.06% 0.57% 3.40% 1.88% 3.82% -1.52% 6.56% -1.01% 18.90% 69.16% 37.82%
7.37% 11.02% 5.53% 7.25% 5.77% 1.40% 3.73% 1.79% 1.86% -1.36% 3.96% -4.45% 13.02% 52.48% 21.22%
3.49% 26.85% -4.18% 16.34% 5.96% 1.33% 4.62% -0.37% 4.00% -0.51% 7.00% -3.18% 20.03% 76.31% 39.63%
*! Fund's inception was October 1, 2009. Performance shown is net of all fees & expenses including management & performance fees. Past performance is not necessarily indicative of future performance. This material does not constitute an offer to sell (nor the solicitation of an offer to buy) interests in BDC Fund II, LP (the "Fund"). Offering is made by Private Placement Memorandum from a Principal only. The indices included above are presented only to provide a general indication of U.S. Stock market performance for the periods indicated and not as a standard of comparison because they are unmanaged, broadly based indices. ** Represents investor with initial contribution of 1/1/2012. (After revised investment strategy.)
Prime Broker
MS Howells and Co. Pershing, LLC / The Bank of New York PartnersAdmin, LLC Monthly statements Rothstein Kass & Partners P.C. - Annual Audit Ragghianti / Freitas LLP www.southlandcapitalmanagement.com www.bdcreporter.com $21 million $60 million
Custodian Administrator Auditor Legal Counsel Web Site BDC Blog AUM, USD Gross Assets
Investment Opportunity
Every year, thousands of companies in America raise hundreds of billions of dollars of debt to nance buyouts, recapitalizations or to renance existing obligations, typically by issuing bonds or by taking on loans. At a time when interest rates are very low, borrowers pay a premium to attract debt capital. Depending on size, credit risk and market conditions borrowers pay between 5%-15% per annum. Outside of recessionary periods, these loans have very low default rates, pay interest regularly and rank in priority above the Private Equity groups, which typically provide the equity capital for the underlying transactions. Until recently investors could invest in private company debt, which is also known as leveraged nance, only through private partnerships and only to a small number of borrowers. Moreover, capital
Southland Capital Management, LLC 100 Wilshire Blvd., Ste. 950, Santa Monica, CA 800.579.1651 southlandcapitalmanagement.com
Fund Summary
Opportunity
Considerations
Expenses
Investment Universe
There are over 30 BDCs in existence; with total investment assets of over $30 billion in over 2,000 private companies.
However, in recent years, a number of publicly traded vehicles have been launched which provide broad and diversied access to all types of borrowers from the very largest corporations to the lower middle market. SCM believes there is an exceptional opportunity for investors to achieve above-average returns from investing in a carefully selected portfolio of leveraged nance debt, with the added benets of liquidity and transparency from investing in publicly traded and regulated instruments. Given the relative stability of the income streams, SCM is comfortable using a modest amount of leverage to enhance investor returns. The Fund is generally leveraged 2:1. The Fund selects investments from a universe of over 90 publicly traded vehicles that specialize in leveraged nance bond and loan instruments to over 5,000 different borrowers. The Funds investments are in 3 categories of debt instruments: below investment grade bonds (also known as high yield bonds), oating rate senior bank loans and Business Development Company (BDC) loans. We invest in the high yield sector through over thirty different Exchange Traded Funds (ETFs) and Closed End Funds (CEFs) that specialize in these instruments, with assets in excess of $40 billion. Typically high yield investments are to larger sized borrowers, in xed rate debt, across a range of maturities and industries. The ETF and CEF vehicles we invest in pay out net income earned on a monthly or quarterly basis. We also invest in more than fteen ETF and CEF vehicles that specialize in oating rate bank loans, with total assets of $10 billion. Typically, these loans are made to larger sized companies, and usually are secured by collateral. The interest rate on the debt oats in that the rate borrowers pay changes quarterly, usually based on changes in the London Interbank Offer Rate (commonly known as LIBOR). Again, the ETF and CEF vehicles typically pay out all net interest earned (after expenses) monthly. We also make investments in Business Development Companies. A BDC is a unique kind of investment vehicle, set up by the Congress in 1980, with the express purpose of encouraging investments in American private companies. Companies that choose to become BDCs are not required to pay corporate tax on their income, but must distribute at least ninety percent of their taxable ordinary income to investors, and are required to use only modest amounts of indebtedness. There are over 30 BDCs in existence; with total investment assets of over $30bn in over 2,000 private companies. All BDCs are publicly registered investment companies with debt or shares that trade on an U.S. stock exchange.
Southland Capital Management, LLC 100 Wilshire Blvd., Ste. 950, Santa Monica, CA 800.579.1651 southlandcapitalmanagement.com
Fund Summary
Opportunity
Considerations
Expenses
Investment Strategy:
The Funds principal objective is to generate a stable stream of investment income by assembling a highly diversied portfolio of leveraged debt; while simultaneously seeking to preserve capital by avoiding investments that might drop permanently in value. SCM undertakes a bottom up analysis on all the investments in the Funds universe, reading all public lings, published articles and, where possible, talking to management, analysts and experts. The Funds extensive research is contained in a proprietary database, which is critical to SCMs selection of appropriate investments. Moreover, by using leverage of up to 2x the Funds equity, the goal is to generate superior levels of income for investors. Although the Funds universe of investments pay out relatively stable distributions, their stock price movements are subject to wide uctuations, i.e. market volatility. The Fund seeks to reduce market volatility by a variety of methods. SCM will periodically shift the Funds investment mix between the different types of leveraged debt instruments mentioned above and/or will reduce leverage by selling assets. Moreover, SCM will sell short over-valued securities where appropriate to take advantage of drops in market value.
Investment Considerations
SCMs principals have substantial experience in leveraged debt investing, and in hedge fund management.
The Funds principals together have over 50 years of experience in leveraged nance, Mr. Marshi, who serves as the Chief Investment Ofcer, was previously a commercial lender and investment banker with Citibank and Kleinwort Benson, as well as the founder and Managing Director of two private equity rms: Kensington Capital Corporation and Southland Capital Partners. Moreover, Mr. Marshi has been investing personal and family funds in leveraged debt investments for over 10 years. Mr Marshi edits the highly regarded specialist nancial website BDC Reporter (www.bdcreporter.com), and is a regular contributor on Seeking Alpha. Messrs. Marshi and Hansen have been managing the Fund for 3.5 years, and a second fund since February 2011. SCM is a Registered Investment Advisor based in California.
Leveraged debt investments expected to generate stable income for the foreseeable future.
SCM believes that the Federal Reserves commitment to maintain interest rates at historically low levels through 2015 or beyond, coupled with improved corporate earnings and balance sheets, will ensure debt investments will provide a steady source of income to investors in the years ahead under most potential economic conditions.
Southland Capital Management, LLC 100 Wilshire Blvd., Ste. 950, Santa Monica, CA 800.579.1651 southlandcapitalmanagement.com
Fund Summary
Opportunity
Considerations
Expenses
The Fund has generated volatile but superior returns since inception.
Given the use of leverage, the Funds monthly results have been subject to above average volatility since the launch of the Fund in October 2009. In 2010, the Fund was one of the best performing funds in America with a 73.04% return. However, the Fund was negatively impacted by the nancial crisis of 2011, which resulted in being down -46.38%. However, after taking measures to reduce volatility, the Fund performed very well in 2012. For the year ending 2012, the Fund was up 28%, substantially ahead of all the major stock market indices, and more than 5x greater than the average hedge fund. In the 3.5 years from inception to June 31, 2013, the Fund has posted a return of 31%, after all fees and expenses. In the future, SCM is seeking to achieve net annual gains in the mid to high teens, and with less volatility than in prior years.
Modest use of margin borrowing results in very high levels of investment income compared to other investment opportunities.
The Fund generally borrows up to two times its capital to take advantage of the arbitrage between the high yields on leveraged debt investments and the low cost of borrowing (currently under 1.0% per annum). Currently the Fund is generating a gross yield of 2.0% monthly, or 24.0% per annum. By comparison, 10 Year U.S. Treasuries yield 2.6%, Real Estate Investment Trusts 3.2%, investment grade bonds 3.3%, and energy Master Limited Partnerships 6.0%.
Southland Capital Management, LLC 100 Wilshire Blvd., Ste. 950, Santa Monica, CA 800.579.1651 southlandcapitalmanagement.com
Fund Summary
Opportunity
Considerations
Expenses
Southland Capital Management, LLC 100 Wilshire Blvd., Ste. 950, Santa Monica, CA 800.579.1651 southlandcapitalmanagement.com
Fund Summary
Opportunity
Considerations
Expenses
Organizational expenses include, legal, accounting and government ling fees. Operating expenses include, (A) the Funds ongoing accounting, auditing,bookkeeping, tax preparation, administration, legal, consulting and other professional fees and expenses; (B) all costs of communications with Limited Partners; (C) investment and research-related expenses including all commissions, bid-ask spreads, markups, interest on margin borrowing, costs relating to short sales, transfer taxes, custodian fees, etc.
Operating Expenses
Overhead
The General Partner will pay, and shall not be reimbursed by the Partnership, for its own overhead expenses. These include: rent, employee salaries and benets insurance.
This Presentation is not an offer to sell or a solicitation of an offer to buy an interest in BDC Fund II, LP (the Fund). This presentation is intended merely to determine expressions of interest in the Fund. Any offer or solicitation may only be made after delivery of the Funds Condential Offering Memorandum. This presentation does not include certain information that should be considered relevant to any future investment in the Fund, including, but not limited to, signicant risk factors and complex tax considerations.
Southland Capital Management, LLC 100 Wilshire Blvd., Ste. 950, Santa Monica, CA 800.579.1651 southlandcapitalmanagement.com