Hedge Fund Awards 2014

“The fact is we live in a world with a crude-based econo- my,” says Mr. Baker, “and that isn’t something that’s going to change soon. As a result, exposure to oil is an excellent hedge for bond holdings, as its returns are negatively cor- related with bond index returns at all maturities. “It follows that it is sensible for investors to consider bonds secured by proven oil assets as the value of the collateral protects not only against default, but a so against the inter- est rate sensitivity in plain vanilla bonds. “The fact is that oil (and other commodities) can be used to produce high income, low/zero volatility investments that are truly backed by the underlying asset. This can be done without leverage and without the sleight-of-hand so often seen in derivative markets.” Black Gold has a bond-like structure secured by fully proven oil resources, predominantly in Canada and has achieved its target yield of 9.5% per annum (paid quar- terly) without any NAV volatility. Black Gold funds are separated into two return drivers: 90% of the principal being in loan notes and 10% of the principal in a geared oil enhancement strategy. The loan notes represent a diversified portfolio of revenue generat- ing interests in oil producing properties and are secured by proven oil resources (which are NI 51-101 compliant) from producing properties. Black Gold offers investors yield protection as long as the oil price is above $66 per barrel. In addition, shares retain their initial purchase price so their volatility is zero. 2014 International Hedge Fund Awards Insch Capital Management SA. Protection rights over the licenses and properties are fully enforceable under Canadian law. Estimated asset cover- age is between eight to 12 times with the investor having ‘straight through’ security over the oil producing properties. Shares are ‘callable’ after 24 months at a 10% premium and, if called, give a two-year total return of 29%. By com- parison, the current annual yield on AAA US corporate bonds with a five-year maturity is 1.76%. Oil analysts have come to accept that predicting short-term market movements is almost impossible. However, long- term analysis presents a different picture: since 1946 the WTI Index has risen at a continuous rate of 0.02%, which translates into an annual growth rate of 6.8%. And despite major supply disruptions, demand shocks and price controls over the past 27 years the growth rate has remained approximately the same, at 6.9% a year. Unsur- prisingly, over the past ten years oil has maintained and increased its nominal value despite the global economic crisis. Despite gains in the efficiency of oil consumption, the global demand for oil is rising due to economic activity – particularly in emerging markets – population growth and consumption patterns. For instance, income growth in de- veloping countries is allowing sustainable consumption at ever-increasing prices. As a result, Geoffrey predicts that oil’s volatility around a long-term up-trend will continue, making it of substantial interest to investors. Insch Capital Management SA. is a privately owned alternative investment manager headquartered in Lugano, Switzerland. Managing director Geoffrey Baker explains more about the firm, particularly Insch Insight Ltd’s Black Gold Fund. Investor Choice Award: Swiss Fund Manager of the Year Fact File Company: Insch Capital Management SA. Web: www.inschinvest.com E-mail: [email protected] Address: Corso Elvezia 14 6900 LUGANO, Switzerland Telephone: +41 (0) 91 921 0168 Fax: +41 (0) 91 921 4078 “The fact is we live in a world with a crude- based economy,” says Geoffrey, “and that isn’t something that’s going to change soon. As a result, exposure to oil is an excellent hedge for bond holdings, as its returns are negatively correlated with bond index returns at all maturities.” 29 www.acquisition-intl.com