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Proposal To Launch An An Asset Management Business: George Parkanyi Sset Anagement Mpany ( (Placeholder Name)
Proposal To Launch An An Asset Management Business: George Parkanyi Sset Anagement Mpany ( (Placeholder Name)
Proposal To Launch An An Asset Management Business: George Parkanyi Sset Anagement Mpany ( (Placeholder Name)
management business
George Parkanyi
Asset Management Company (AMCo)
(placeholder name)
Imagine
A compound annual rate of return of
25%
over 15-20 years,
consistently,
without leverage.
from?
25%
Consider that …
Equities (STOCK MARKET) over the past
century have grown in the order of 8-10%
per year total-return from economic growth,
inflation, and re-invested dividends
The majority of asset managers over the long
term UNDERPERFORM the market – because
of fees, trading, mandate restrictions, and
short-term performance pressure
The implication …
In the asset management business
25%
is a huge
COMPETITIVE ADVANTAGE
Over 20 years …
REAPTM
REAPTM?
Relational - portfolio structure
Equity - securities holdings
Allocation - decision process
Program - the overall system
TM - our proprietary edge
Skeptical? …
$ =
REAPTM Buy
- portfolio setup (researched)
- buy/sell decisions (systematic)
- trade size decisions (systematic)
- timing (systematic)
Actual trading – 2 years
Kids’ education savings plan account
Since 1 Nov 2004
Cash account - no leverage
Up 56% vs 23% (S&P500) as of 1 Nov 2006 –
total increase, not compounded
After
currency loss of 15% (securities are all U.S.)
Extra currency conversion losses on trades because
registered account has to be in CAD
About 4% dividend income included
In USD terms, performance more like 72%
The business edge
1 – The REAPTM algorithm
Superior compounding beats the indices and most
competition
2 – The portfolio structure
Accommodates very large portfolios ($100M’s through
$ billions)
a key for large institutional clients
directly addresses the liquidity problems large portfolios
normally face
size does not impair performance!
For asset-allocation and balanced portfolios
can combine equities, debt instruments, convertibles,
currencies, precious metals, and commodities
More defensive than indices in bear markets
important risk management feature
multiple diversification features
The catch - time
By definition, all business models based
on compounding take time
Warren Buffett is not a multi-billionaire
because of “quits hits”, short-term
thinking, or a desire for short-term
results
The Business
Asset Management Company (AMCo)
How it makes money
Earns fees on assets under management
Growth of client assets (that 25%) grows the fees
Capital gains and fees from the proprietary house
account
End objective – AMCo IPO in 7 years
The means
Earn trust
track record
performance-based fee structure
Solid governance
Spread the word
Referrals
High Net-worth Individuals (HNI’s)
Institutional contacts
Sales program - institutions
Low-risk entry
Offer try-and-buy vehicles
The key to success
Obtaining clients to increase assets
under management
Growing the assets with the model
Track record
3 Vehicles
AMCo House account = actual/model portfolio
AMCo shareholders Investment Club (CLUB)
Institutional TAB account (client try and buy)
Each vehicle
Track monthly Net Asset Value (NAV)
CLUB and TAB participants can withdraw at any
time at the prevailing NAV price
(AMCo house funds are vested in the corporation
and part of the corporate assets)
Performance criteria for fees
Clients only pay AFTER
they are ahead in absolute terms 10% annually
compounded, AND
the S&P500 annually compounded
Benchmark is the greater of these two values
Fee structure
Fees are charged from the total absolute %
increase of REAPTM less the total absolute %
increase of the benchmark + prior fees
Where the benchmark total % increase is x …
Performance Fee
X+1% .5%
X+2% 1.0%
X+3% 1.5%
X+4% 2.0%
>X+4% Paid up for year
Example
Year S&P500 10%/yr REAPTM Fee
1 8.0% 10.0% 11.0% .5%
2 16.0% 21.0% 15% .0%
3 0% 33.1% 16% .0%
4 15% 46.4% 52% 2.0%
5 72% 61.0% 85% 4.0%*
* Recovered retro-actively – max 2% per year
Try and Buy
Two separate accounts for prospective
institutional clients (US & Canada)
Institutions place a small trial
investment in the respective TAB
account
Very low risk
Experience what their clients would
Target market …
Other asset management firms
Banks, brokerages, mutual funds, ETFs
Pension funds
Foundations, trusts, endowment funds
Insurance reserves
Government funds
Social safety-nets; entitlement programs
Individuals
High-net-worth per current rules (e.g. $250K and higher)
NOT the general public
for regulatory reasons
Avoids expensive retail cost structure
First Client
Me
AMCo will manage my family RSP and
RESP accounts, as a client
Why?
I use the model now anyway
Company has at least one client on the
books to start
Walk the talk
AMCo Capital Structure
One class of voting common shares
5 Managing Shareholders
5 x 1100 shares @ USD $10 = USD $55,000
Up to 45 Founding shareholders
4500 shares @ USD $10 = USD $45,000
Minimum 100 shares; maximum 1000 shares each
Total capitalization
10,000 shares @ USD $10 = USD $100,000
Use of funds
USD $30,000 – expenses (otherwise interest-bearing)
UDS $70,000 – house account invested with the model
Cost structure
Low cost-structure culture for maximum
return to shareholders
No salaries, fees, bonuses, options etc.
Shareholders provide “sweat equity” – no one has
to give up “day-job” until a major client is landed
$30,000 expense account for
Professional fees
Sales costs
Other directly related cost as may be applicable
Additional future expenses to be funded from fee
income within an approved budget
How AMCo shareholders make money
Capital growth of AMCo + any dividends or distributions
Opus Investment Club capital growth, income, and
distributions
only open to AMCo shareholders
encouraged but optional participation
25%