Lansdowne Partners Limited

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Lansdowne Partners Limited
Presentation to Guanghua School of
Management Financial Market Workshop 2007
Peter Davies
May 2007
Authorised and regulated in the UK by the
Financial Services Authority. Registered as an
investment adviser with the US Securities and
Exchange Commission Lansdowne Partners Limited is
the General Partner of Lansdowne Partners Limited
Partnership
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Agenda

• Introduction to Lansdowne
• Evolution of Asset Management Industry
• Investment Process
• Personal aspects of managing a hedge fund
• Current thoughts on China and other investment
  thoughts

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Introduction to Lansdowne
Global Financials
Europe
UK
Macro
Emerging Markets
AUM 5.8bn Launched 1998
AUM 6bn Launched 2001
AUM 2.8bn Launched 2004
AUM 663m Launched 2005
AUM 679m Launched 2006
Total Assets 16bn Number of Employees
91 External Limited Partner Morgan Stanley (19)
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Lansdowne UK Equity Fund
AUM 6.0bn Inception August
2001 Performance (annualised) 21.42 Volatility
(Annualised) 8.54 Beta since Inception 0.13
Eurohedge UK Fund of the Year 2004, 2005, 2006
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Evolution of Asset Management Industry
Debt Market
Now
20 years ago
Borrower
Borrower
Investment Bank
Bank
Hedge Funds
Insurance Companies
Pension Funds
Banks
Shareholders
Policy Holders
Clients (Incl Banks, Ins Cos, P/Funds)
Shareholders
Shareholders
Dependents
Risk globalised and fragmented
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Evolution of Asset Management Equities
Index (4 tn)
Index Benchmark (30 tn)
Absolute Return (2.5 - 3 tn)
Shrinking Business
Growth Business
Growth Business
Some Capacity Constraint
No Capacity Constraint
Capacity Constraint by Strategy
Very Low Fee
Expensive
High Fee
No Human Investment Involvement
Significant Human Investment Involvement
High Intellectual Property Content
Highly Automated
Struggle to retain Investment Talent
Attracts best Investment Talent
Culture
Culture
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Institutionalisation of Hedge Funds
Source Absolute Return, Alpha, Morgan Stanley
estimates
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Investment Approach
POSITIONS
INPUTS
ANALYSIS
Aim to use scale and expertise to gain
competitive edge throughout process
Company Meetings Published
Data Sell-side Independent Research Observat
ion
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Independent Research Example Buy to Let
At what level of interest rate would you expect
house prices to fall 10?
Impact of interest rate rises
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44
Mean score 7.8
43
No impact
A slight impact
A very strong impact
Base All buy-to-let investors
(140) Source Circle Research
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Position Structure Alignment of Research and
Capital Risk
Probability
Change in share price over holding period
Unhedgeable risk
Hedgeable risk
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Hedge Fund Management
Skills Needed
Experience

• Transparent Performance
• Inevitable Down Periods
• Variety

• Balance
• Original and right
• Background
• Motivation

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Effect of China
Future
Current

• Global price of labour
• Risk-free rates
• Basic Resources

• Movement into Services vs Manufacturing
• Consumption up hierarchy of needs
• Investment in risky vs risk-free assets
• Geopolitics

Basic Template

• Industrial Revolution

?
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Key other issues

• Environment / Healthy-Eating / Global food
  consumption
• Capital Markets Development (Investment Risks /
  Shareholder value)
• Commodities vs Financials
• Government Spending / Elections

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Macro view Debt vs Equity vs Property
US Corporate Bond Yield SP Earnings Yield
Housing Rental Yield Relative to Equity Dividend
Yield
Source BCA Research
Source Ned Davis Research
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Disclaimer
This presentation and the accompanying documents
(the Presentation) do not provide or offer
financial or other advice. You should not rely on
it as financial advice. The contents of
Presentation may not be reproduced or
redistributed without the written consent of
Lansdowne Partners Limited.   You should
appreciate that the value of any investment, and
any income from any investment, may go down as
well as up and that an investor may not receive
back, on redemption of his investment, the amount
which he invested. Past performance is not
necessarily indicative of future results. Changes
in rates of currency exchange may cause the value
of an investment to go up or down.   The
investments covered in the Presentation may not
be dealt on a recognised or designated investment
exchange for the purposes of the Financial
Services and Markets Act 2000 and it may
therefore be difficult for an investor to dispose
of such investments otherwise than by way of
redemption or to obtain reliable information
about the extent of the risks to which his
investment is exposed.   The Presentation is for
information purposes only and does not constitute
or form part of any offer to issue or sell, or
any solicitation to buy or invest in any
investment or investment vehicle nor shall it or
the fact of its distribution form the basis of,
or be relied on in connection with, any contract
thereof.   Whilst the Presentation may be based
on research carried out by Lansdowne Partners
Limited, and our understanding of the relevant
companies, the industrial sectors, the economy
and the markets in which they operate, we do not
accept liability to any person who relies on the
content of the Presentation.   All information
contained in the Presentation is obtained from
sources we believe to be reliable, but which have
not independently been verified. We therefore
make no guarantee, representation or warranty and
accept no responsibility or liability as to the
completeness of the information contained in this
material.   All the opinions, forecasts,
estimations and comparable information given in
the Presentation are the non-binding opinions of
our research personnel and neither Lansdowne
Partners Limited nor any of Lansdowne Partners
Limiteds officers, directors, or employees makes
any guarantee, representation or warranty, nor
does any person accept any responsibility or
liability for any loss of profit, indirect or
other consequential losses or other economic
losses suffered by any person arising from
reliance upon any information, statement or
opinion contained in the Presentation (whether
such losses are caused by the negligence of such
person or otherwise).   The information contained
in the Presentation shall not be considered as
legal, tax or other advice.   Lansdowne Partners
Limited and/or its directors, officers or
employees may have, or have had interests in, and
may at any time make purchases and/or sales as
principal or agent or may provide or have
provided corporate finance and or other advice or
financial services to the relevant
companies.   All information in the Presentation
is expressed as at its date and is subject to
changes at any time without prior notice or other
publication of such changes.   This Presentation
is being issued inside and outside the United
Kingdom by Lansdowne Partners Limited, which is
authorised and regulated by the Financial
Services Authority, to and/or is directed at (a)
persons who are intermediate customers or market
counterparties for the purposes of the FSA
Conduct of Business Sourcebook (COBS) and (b)
to the extent that the investments or investment
services referred to herein constitute
unrecognised collective investment schemes, to
persons who are also of a kind to whom such
schemes may lawfully be promoted by a person
authorised under the Financial Services and
Markets Act 2000 (the Act) by virtue of Section
238(5) of the Act and Annex 5 to Chapter 3 of
COBS. This Presentation is exempt from the scheme
promotion restriction (in Section 238 of the Act)
on the communication of invitations or
inducements to participate in unrecognised
collective investment schemes on the grounds that
it is being issued to and/or directed at only the
types of person referred to above.   Lansdowne
Partners Limited and Lansdowne Partners Limited
Partnership are registered as investment advisers
with the US Securities and Exchange
Commission. Lansdowne Partners Limited
Telephone [phone] Davies
Street London W1K 3AG Fax [phone]