Absolute Returns for Absolute Objectives:New Ways of Using Credit to Achieve a University's Goals

Presenters: Liam O’Sullivan, RPIAMarc Gauthier, Concordia University

June 2019

with

Absolute Returns for Absolute Objectives: New Ways of Using Credit to Achieve a University's Goals

3

Presentation Overview

• Transformation of our Investment Policy.

• Design of the Investment Policy.

• Review of the success of this initiative.

• Moving on from the 60/40 portfolio to think about factors .

• Credit as a unique asset class.

• Ways that credit investments can be used in the context of an

institutional portfolio.

Marc GauthierUniversity TreasurerConcordia University

Liam O’SullivanPrincipal, Head of Client Portfolio ManagementRPIA

4

Transformation of our Investment Policy

• Explaining the “why” of the change

• From headline risks to sustainability risks

• ERM assessment to trigger awareness and understanding

• Initiative led to treatment plans:

• Revamping of system’s infrastructures

• Development of a funding policy

• Construction of an integrated investment policy

• Governance restructuring

5

The “New” Investment Policy

• The investment policy was redesigned to incorporate three categories – Capital Preservation, Growth and

Diversification.

Asset Allocation Aligned With Funding Policy Target RangeCapital PreservationCash and Cash equivalents 1.5%Tactical asset allocation 12.0%Absolute return - Credit 11.5%Absolute return - Multi-strategy 25.0%

50.0% 30% - 70%GrowthDeep value 11.0%Private equity 6.0%Public real assets 3.0%

20.0% 10% - 30%DiversificationPrivate real estate 7.5%Private debt 8.5%Farmland and Timberland 4.0%Insurance linked strategies 5.0%General partnership ownership 5.0%

30.0% 20% - 40%

6

Portfolio Construction

7

The 60 / 40 Portfolio

• Still the starting point for many investment portfolios.

• A problem with this approach is that it’s not diversified at all – more than 90% of portfolio risk is contributed by

the equity allocation.

• In other words, the return is primarily driven by the performance of the equity market.

• There have been some challenges to this paradigm in recent years – the Endowment Model and the Risk Parity

Portfolio.

Equity60%

Fixed Income

40%

Equity92%

Fixed Income

8%

The Risk Profile of a 60/40 Portfolio is Dominated by Equity Risk

Source: MSCI, Bloomberg. “Equity” represented by the MSCI World Index, “Fixed Income” represented by the Bloomberg Barclays Global Aggregate Bond Index. Time series used is from Jan. 1st, 2010 to Mar. 31st, 2019

Asset Mix Based on Market Value Asset Class Contribution to Risk

8

A Popular Alternative - The Endowment Model

• Seeks to reduce equity risk by adding alternative strategies like private equity, venture capital, hedge funds

etc. to the asset mix.

• Alternative strategies can be a significant part of the portfolio – close to 60% - with holdings reduced in both

bonds and traditional equities.

• However, for the last 10 years the correlation with a 60/40 portfolio has been 98%.

• This highlights that alternative strategies in the endowment model tend to be “equities in drag”.

Equities Bonds 60/40 Endowment

Equities 1.00

Bonds -0.64 1.00

60/40 0.99 -0.53 1.00

Endowment 0.98 -0.53 0.98 1.00

Source: PanAgora. “Equities” represented by the MSCI World Index, “Bonds” represented by the Bloomberg Barclays Global Aggregate Bond Index and “Commodities” represented by the Bloomberg Commodities index. “Endowment” data is available through NACUBO Report(2018). For U.S. endowments over 1bn in assets, alternatives strategies made up 57% of the portfolio, with 32% in equities, 7% bonds and 4% cash.

9

Another Alternative – Risk Parity

• Risk parity uses a unique portfolio construction process with a focus on diversification. Asset allocation is

driven primarily by riskiness of individual assts and an intent to equalize risk exposures.

• This generally involves investing in the diverse risk premiums associated with equities, interest rates and

commodities using leverage to balance risk.

• Risk Parity has a lower correlation to the MSCI World (73%) and the 60/40 portfolio (79%).

• One issue with risk parity is that a significant part of the portfolio would be allocated to levered bonds.

Although this has worked well in the past, it might not be the right thing to do now.

• As such, risk parity might not be the right approach to take either.

Equities Bonds 60/40 Risk Parity Index

Equities 1.00

Bonds -0.64 1.00

60/40 0.99 -0.53 1.00

Risk Parity Index 0.73 -0.09 0.79 1.00

Source: PanAgora. “Equities” represented by the MSCI World Index, “Bonds” represented by the Bloomberg Barclays Global Aggregate Bond Index and “Commodities” represented by the Bloomberg Commodities index. “Risk Parity Index” represents Hedge Fund Research (HFR) Risk Parity Vol 10 Institutional Index.

10

A Better Starting Point for Asset Allocation

• Start with the plan objectives and liquidity requirements.

• Move from there onto the risk factors you want in the portfolio.

• Then comes the asset class decision.

• We define an asset class as a group of similar securities that produce a persistent return above a risk-free rate (i.e. a risk premium) because their associated risks can’t be diversified away.

• The key to the asset class decision is understanding what risk factors are associated with each asset class or investment strategy.

• Simplifying somewhat, there are six distinct buckets and the associated risk premium to be earned.

Liquidity Needs

Building Blocks / Risk Factors

Risk Factor Decision

Plan Objectives

Portfolio Construction- Assets and Strategies

11

The Six Risk Factor Building Blocks

• This table illustrates the six building blocks that can be used to construct a portfolio.

• Note that by this definition, private equity and hedge funds would not meet the criteria to be considered

distinct risk exposures in themselves.

• Also requires thinking about how to bucket existing assets and strategies, given the multiple underlying risk

factors and drivers of return.

• For example, private equity would not be an asset class in its own right, but would be bucketed as equity risk

with some illiquidity risk.

Equity Interest Rates Credit Foreign Exchange Inflation Illiquidity

Description

Compensation for uncertain earnings

growth and multiples

Compensation for uncertainty around future interest rate

levels

Compensation for default risk

Compensation for different inflation

rates

Compensation for core inflation

Time value of Money

ExamplesReal Estate

Private Equity, Long / Short Equity

Government BondsLiability matching

strategies

Corporate bonds, private debt

Unhedged Foreign Currency Assets

Cash and Cash Equivalents,

Commodities, Real Estate

Private Equity, Private Real Estate,

Private Debt

12

Thinking about Fixed Income in the Portfolio

• A bond investment really entails two of the building blocks / risk exposures.

• In other words the return will be a function of uncertain future interest rate levels and compensation for the

probability of default.

• Unbundling these risks can lead to a more efficient fixed income portfolio.

RISK FACTOR CORRELATION WITH EQUITIES ROLE IN PORTFOLIO

POTENTIAL FOR ADDITIONAL

RETURN?

Fixed Income Allocation

Credit Risk Probability of Default Positive but Low Return generation and diversification

Yes - Inefficient Market

Go Active

Interest Rate Risk

Compensation for uncertainty around future interest rate

levels

Negative

Passively hedge duration to liabilities

Diversification

Liquidity

No - Efficient Market

Go Passive

13

Summarizing So Far

• The first step for a CIO is determining what risk and return objectives plus liquidity needs the plan has.

• This can then be used as a starting point for determining the portfolio construction.

• The steps Concordia took were an example of one way a University can tackle this challenge.

• Underlying this was undoubtedly a more granular assessment of the risk factors of each asset and

investment strategy and their inter -relationships.

Asset Category Examples of Asset Classes Utilized

1. Capital preservation Unconstrained, dynamic strategies where capital preservation is emphasized, but with the ability to capture an additional return.

2. Growth High conviction and concentrated strategies where return optimization is emphasized.

3. Diversification Investments that are uncorrelated to financial markets

14

Credit as a Distinct Asset Class

15

Credit as a Distinct Asset Class

Interest Rates Equity IG

CorpsBank Loans HY Bonds

ExcessReturn 3.49% 3.81% 1.16% 3.16% 2.97%

Excess Vol. 7.32% 15.07% 5.11% 6.35% 11.14%

Excess Return / Excess risk 0.48 0.25 0.23 0.50 0.22

Interest Rates Equity IG

CorpsBank Loans HY Bonds

Interest Rates 1.00

Equity -0.33 1.00

IG Corps -0.42 0.61 1.00

Bank Loans -0.35 0.50 0.76 1.00

HY Bonds -0.49 0.70 0.86 0.80 1.00

Source: Cliffwater and Asvanunt, Richardson - “The Credit Risk Premium”All returns expressed in USD. Based on Dec. 1992 to Sep. 2017 period (longest period available for representative indices).Interest Rates = U.S. 10 yr Treasury; Equity = Russell 3000 Index; Investment Grade (IG) Corporates = Bloomberg Barclays Investment Grade Corporate Bond Index; Bank Loans = S&P/LSTA Leveraged Loan Index; High Yield (HY) = Bloomberg Barclays High Yield Bond Index.

• Theoretical and empirical analyses support the view that credit is a distinct asset class with an excess return.

• These results support the view that the credit risk premium is sufficiently different from the equity and

government bonds (term) risk premiums to be a valid diversifying source of returns.

16

Credit Opportunities - Private

• The financial crisis had a lasting and profound impact on the financial sector and has expanded opportunities for credit investors.

• For example, increased bank regulation has created a range of new or expanded opportunities for non -bank lenders e.g. US direct middle market lending.

• Research shows a 3% plus return premium for private credit compared to liquid credit, which is comparable to the historical premium for private versus public equity.

• This additional return is partly compensation for the secondary risk i.e. illiquidity and partly from skill in underwriting the “right” credits.

Calendar Year Direct Lending High Yield Bond

IndexLeveraged Loan

Index2005 10.10% 2.74% 5.06%2006 13.70% 11.87% 6.74%2007 10.23% 1.88% 2.08%2008 -6.50% -26.15% -29.10%2009 13.18% 58.21% 51.62%2010 15.79% 15.11% 10.13%2011 9.75% 4.98% 1.51%2012 14.03% 15.81% 9.67%2013 12.68% 7.46% 5.29%2014 9.57% 2.46% 1.59%2015 5.54% -4.46% -0.70%2016 11.24% 17.14% 10.11%2017 8.62% 7.50% 4.14%2018 8.07% -2.07% 0.45%

Annualized 9.58% 6.71% 4.48%

Yield-to-Maturity Comparison Historical Return Comparison

Source: Cliffwater , 2018 Q4 Report on U.S. Direct Lending

17

Credit Opportunities - Public

• While private credit has “stolen the headlines” capital charges for banks also reduced their presence in the

public markets.

• This has coincided with strong growth in ETFs that require daily liquidity.

• The majority of bond managers are still “traditional” in nature and highly constrained.

• This has provided an opportunity for active managers to fill the void and the capitalize on this opportunity.

0

100

200

300

400

500

600

700

Fixe

d In

com

e ET

F As

sets

, $ B

illio

n

There has been explosive growth in fixed income ETF assets…

Source: Bloomberg, Morningstar . 2018 figure as of Aug2018

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 Jan-19

Dea

ler

Inve

ntor

ies

USD

, Mill

ions

Source: SEC, Federal Reserve Bank of New York, Goldman Sachs Credit Strategy

…While traditional market makers are less equipped to provide liquidity.

18

Credit is an Inefficient Asset Class

• Credit is a somewhat unique asset class because in addition to a persistent risk premium, it is possible to earn

an additional active return.

Many investors

highly constrained

Asset selection is important

No centralized exchange

Constant re-

financing activity

Opportunities exist for providing liquidity

This means frequent

opportunities to invest / lend

Asset / Security selection is

more relevant than in other asset classes

Gives rise to opportunities for unconstrained

managers

Features of the Credit Markets that Make Excess Returns Possible

19

Active Management “works” in Credit

• The proof of this can be found in the fact that active bond managers are able to outperform their passive peers

in a way that does not appear to be the case for equity managers.

Percentage of Active Mutual Funds and ETFs that Outperformed Their Median Passive Peers After Fees

Source: PIMCO, Morningstar. Directed as of 31 December 2016.

20

The Simplified Credit Spectrum

• Within credit there is a spectrum of investment opportunities, depending on one’s objectives, risk appetite and

liquidity needs.

• This menu has expanded in recent years.

• The diverse range of investment types mean credit can play a number of different roles in a portfolio.

Notes Return Expectations Portfolio Role

Private Specialty

Often require special expertise and generally smaller market

opportunities. Potentially higher returns.

Equity-like returns

Growth / Diversification

Private Core PlusPotentially higher return investments through greater leverage, sector or

subordination risks

Private Core Corporate direct lending e.g. middle market lending

Public Non-traditionalUnconstrained, active. May use

leverage and have the ability to be long-short.

Public Traditional Passive but with a focus on corporate bonds Bond-like returns Capital

PreservationLiquid

IlliquidIdeal for Growth/

Diversification

Ideal for Capital

Preservation

21

Thinking about the Credit Allocation

What can Optimization studies tell us about how much credit there “should” be in a portfolio?

22

Cliffwater - Credit and Asset Allocation• Cliffwater used mean-variance optimization analysis to show that optimal allocations to credit range from 10 -

20% for most institutional investors.

• Analysis indicates that fixed income allocation should probably be split equally between credit and rates.

• Relative to a 60/40 starting point, most of the money used to fund the credit bucket comes from reducing

exposure to interest rates.

• Interestingly enough, as risk tolerance goes down, the allocation to credit goes up at the expense of equities.

1“Credit as a Separate Asset Class” – Cliffwater LLC - November 2017. Risk and Correlation inputs come from historical US data from 1999-2017. Return inputs rely on model-driven expectations of future returns. The credit component was defined as an equally weighted basket of IG bonds, bank loans and HY bonds. They found that the optimal allocation for lower risk institutions would be 14% credit, 15% government bonds and 71% equities.

Govt. Bonds15%

Equity71%

Credit14%

Optimal Asset Allocation (11% risk level)

70.7%

15.2%

14.1%0%10%20%30%40%50%60%70%80%90%

100%

8.4% 11.1% 13.6%

Perc

enta

ge o

f Tot

al p

ortfo

lio

Total Portfolio Risk (annualized)

U.S. Stock10-Yr TreasCredit Portfolio

Optimal Asset Allocation 1

23

A&R - Credit and Asset Allocation

• Using a much longer data set, Asvanunt & Richardson have also found evidence of a persistent excess return from credit.

• They found that the credit risk premium varies over time, and is larger during periods of economic growth and lower inflation.

• They look for the portfolio that generates the highest Sharpe ratio over time and find a 48% allocation to credit.

• The biggest shift from the perspective of the 60/40 portfolio is moving a large chunk of the equity allocation into credit.

1“The Credit Risk Premium” Asvanunt & Richardson – June, 2016. Data set spanned Jan 1936 – Dec 2014.They analyzed a US dataset spanning over 80 years and found that the excess returns from credit are higher during periods of economic growth and inflation.

Govt. Bonds35%

Equity17%

Credit48%

Add Dedicated Credit AllocationFund from Equity Allocation

A&R Optimization1

24

Credit as “Equity-Lite”

• This analysis is interesting as it highlights that credit and equity can be thought of as potential substitutes –credit is “equity - lite”.

• Credit strategies can provide an attractive return, but without the drawdown potential found with equities. Losses are generally recouped more quickly.

80

85

90

95

100

105

110

115

May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19

S&P 500 Total Return IndexBloomberg Barclays U.S. Investment Grade Total Return IndexBloomberg Barclays U.S. High Yield Total Return Index

Performance of Equity and Credit Indices During Q4 2018

Performance of Equity and Credit Indices During the Global Financial Crisis

30

50

70

90

110

Aug-07 Feb-08 Aug-08 Feb-09 Aug-09

S&P 500 Total Return IndexBloomberg Barclays U.S. Investment Grade Total Return IndexBloomberg Barclays U.S. High Yield Total Return Index

Source: Bloomberg, eVestment

Index Max Drawdown (since 2000) Recovery Period

S&P 500 Total Return Index 51.44% 43 months

Barclays U.S. Investment Grade Corporate Index 15.4% 9 months

Barclays U.S. High Yield Corporate Index 33.3% 8 months

25

Credit as “Equity-Lite”

• Replacing some equity risk with credit has historically improved risk -adjusted returns.

• This analysis looks at the benefits of replacing some equity with High Yield.

Source: Bloomberg. Bloomberg Barclays U.S. High Yield Corporate Bond Index and S&P 500 Index are used to represent “High Yield” and ‘Equities” respectively.

100% High Yield

75% High Yield25% Equities

50% High Yield50% Equities

25% High Yield75% Equities

100% Equities

6%

7%

8%

9%

10%

8% 9% 10% 11% 12% 13% 14% 15%

Annu

aliz

ed R

etur

n

Risk/Standard Deviation

Hypothetical Annualized Risk and Return(From January 1st, 1994 – December 31st, 2018)

Risk decreases by 5% while returns only decrease by less than 1% by adding high yield to the equation

26

Why Does Credit Function as “Equity-Lite”?

Source: Bloomberg

Higher Priority Than

Equity

Shorter Duration

Consistent Income Stream

Known Terminal

Value

Hence there is less asset price

sensitivity during volatile markets

Credit allocations generally provide investors with a

consistent income stream

Credit investments also generally have a known terminal value

that investors can count on – assuming

no default

Credit assets have less sensitivity given the definite maturity

27

The Cycle that Keeps on Going…

• This expansion has been 118 months long – the second longest period of expansion in the post-war period. At

this mature stage of the cycle it may be a good time to substitute some equity risk with credit risk.

• Returns from equity investments have been attractive – however, the majority of recent returns has been

driven by valuation gains.

• As a result Many commentators are now quite pessimistic about what is realistic for asset returns in the

coming years.

Asset Class Expected Return (Nominal)

Expected Return (Real) Volatility

US Large 2.7% 0.5% 13.9%

US Small 3.6% 1.4% 18.3%

All country 5.1% 2.9% 15.4%

EAFE 7.4% 5.3% 17.0%

Emerging Markets 9.2% 7.0% 21.5%

Source: Research Affiliates, LLC (“Research Affiliates”) © Research Affiliates 2019.As of March 2019. Index used: US Large = S&P 500; US Small = Russell 2000; All Country = MSCI ACWI; EAFE = MSCI EAFE; Emerging Markets: MSCI EM.

-4.0%

-1.8%

0.9% 1.1%

3.6%

7.1%

-6%

-4%

-2%

0%

2%

4%

6%

8%

U.S. Large U.S. Small Intl Large Intl Small Emerging EmergingValue

Source: GMO. Forecas ted returns shown are local, real return forecas ts

Forecasted returns for equity allocations do not look very attractive

28

Summary

• From a portfolio construction perspective, start with factors and go from there to asset classes.

• Credit is a unique asset class where investors can earn an active return in addition to a return from assuming

default probability.

• Traditional portfolios may not have enough credit risk relative to other factors – particularly at this late point in

the cycle.

• There may be several attractive areas of the credit menu to consider – with strategies potentially suitable for

different buckets.

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Case StudyConcordia & RPIA

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Partnership with Concordia

• We provided a solution to fit in the “Capital Preservation” bucket of the new portfolio.

• It’s an opportunistic strategy that aims to generate a return stream by tactically taking advantage of

opportunities within global, investment grade corporate bonds.

• Interest rate risk and currency risk are fully hedged.

• An active approach to risk management has meant capital preservation has been delivered.

GOVERNMENTBONDS /

SOVEREIGNS

AGENCY / QUASI-

SOVEREIGNS

INVESTMENTGRADE

CROSSOVERCREDIT

HIGH YIELD

PREFERRED SHARES / HYBRIDS

EQUITY

Focus on generating absolute returns within investment grade

credit market

31

Capital Preservation

• The main objective is to generate a reasonable return from fixed income instruments while preserving capital

in volatile markets.

Source: Bloomberg, RPIA Portfolio Management System.

-20%

-15%

-10%

-5%

0%

5%

10%

Eurozone Crisis (May to Sept. 2011)

Commodity Collapse(June to Sept. 2015)

Christmas Massacre (Oct. to Dec. 2018)

Return During Crisis

1 Year Return Post-Crisis

Return During Crisis

1 Year Return Post-Crisis

Return During Crisis

YTD Return Post-Crisis

S&P 500 Comp. Index -16.3% +30.2% -8.3% +15.43% -13.5% +13.65%

RPIA Strategy -0.8% +12.4% -0.7% +11.0% -2.3% +3.5%

FTSE Canada All Corp. +5.12% +7.1% -0.7% +6.3% +0.9% +4.0%

Bloomberg Global Agg. – Corp. +1.4% +11.6% -1.2% +8.4% -0.1% +4.4%

Bloomberg US Corp +3.8% +11.4% -0.9% +8.3% -0.4% +4.9%

Bloomberg US High Yield -6.5% +19.7% -6.3% +12.1% -4.9% +6.9%

32

Example 1: Rating Flexibility

RPIA – Tactical Approach

• Crossover issuers are in the “grey area” between investment grade (“IG”) and high yield.

• As such they are not included in IG indices.

• By investing in crossover issuers who are making the transition to IG it is possible to capture spread compression / capital appreciation as securities are included in the IG index. 100

150

200

250

300

350

Feb-16 Aug-16 Feb-17 Aug-17

OAS

(Bps

)

AER 5.0% 1 OCT 2010

Bloomberg Barclay's U.S. CorporateBBB Index

S&P Upgrade

Fitch Upgrade

Moody’s Upgrade

The Crossover market is an interes ting area where attractive returns are poss ible

Source: Bloomberg

Source: Bloomberg

“Providing Liquidity” can be a profitable exerciseExample 2: ETF / CIT Example

• During Q4, High Yield bond ETFs experienced s ignificant outflows , meaning the ETF managers needed to sell securities .

• ETF managers generally sold what they could –generally higher quality and short-dated HY bonds –leading to a flattening of the credit curve.

• When liquidity and the market normalized in the new year, the curve normalized / re-s teepened as short-dated securities compressed in spread.

100

150

200

250

300

350

03/09/202812/07/202411/16/202308/01/202308/15/2022

Spre

ad (B

ps)

Marturity

Dec.24, 2018

Sep. 7, 2018

Apr. 10, 2019

33

RPIA – Tactical Approach

• A subset of Canadian companies issue debt in non-CAD currencies – examples would be the Canadian banks, Enbridge Inc., TransCanada Pipelines, Fairfax Financial, Bell Canada.

• Often the non-CAD denominated securities trade at a significant discount on an “apples for apples” basis (after the necessary hedging has been executed).

• In the example shown here subordinated debt issued by Canadian banks is, on average, 60 bps cheaper in USD versus CAD (similar issuing entity, term and structure).

140

150

160

170

180

190

200

210

220

230

240

Apr-18 May-18 Jun-18 Jul-18

G-Sp

read

(Bps

)

Avg. yieldpick-up of 62 bps

Canadian credits often trade at an attractive discount in non-CAD currencies

• Manager can express views via cash or synthetics depending on where the best value can be found.

• Examples include a long position in Enbridge – fund was originally long 10 year ENB bonds in USD with positive fundamental view on the company.

• As US participants reacted to oil price weakness/ENB restructuring, demand for ENB CDS increased – we were able to sell 2 year CDS at the same spread level as 10 year ENB cash bonds while greatly reducing term risk.

Opportunities to sell CDS over cash bonds for better risk reward profile

0

50

100

150

200

250

300

350

400

450

May-14 Nov-14 May-15 Nov-15 May-16 Nov-16

Spre

ad (B

ps) -

Cas

h Bo

nds

vs. C

DS

2 Year Enbridge CDS Spread

10 Year USD Enbridge Cash Bond

BMO 3.803% 15 DEC 2032 (Cad-Hedged Spread)

TD 4.859% 4 MAR 2031

Example 3: Cross-Currency Flexibility

Example 4: Instrument Flexibility

Source: Bloomberg

Source: Bloomberg

34

Delivering on Metrics Important to Concordia

RPIA StrategyFTSE Canada All

Corporate Bond Index

Bloomberg Barclays Global Agg.–

Corporate Bond Index

Bloomberg Barclays U.S. Corporate

Bond Index

Bloomberg Barclays U.S. High Yield

Bond Index

Total Return (Net of Fees) 6.42% 4.11% 4.22% 3.99% 5.17%

Downside Deviation 2.46% 2.98% 3.08% 3.84% 5.57%

Max. Drawdown -2.25% -2.32% -3.10% -4.63% -9.90%

Upside Capture 73% 74% 61% 64%

Downside Capture -74% -57% -51% 7%

Correlation 22% 37% 34% 78%

• Credit exposure for Concordia operates as desired with focus on capital preservation

• Downside/risk metrics in -line with what the university requires to meet short and long term objectives

Source: BloombergMetrics based on Concordia's investment inception of August 2013 to March 2019

35 | Introduction to RPIA

Important Information

The information presented herein is for intended for institutional investor use only and not for public distribution. It is presented for informational purposes only and does not provide financial, legal, accounting, tax, investment or other advice, and should not be acted or relied upon in that regard without seeking the appropriate professional advice. The information is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does RP Investment Advisors LP (“RPIA”) assume any responsibility or liability whatsoever. The information provided may be subject to change and RPIA does not undertake any obligation to communicate revisions or updates to the information presented.. This document does not form the basis of any offer or solicitation for the purchase or sale of securities. Products and services of RPIA are only available in jurisdictions where they may be lawfully offered and to investors who qualify under applicable regulation. The investment strategies presented herein are off ered in Canada as RP Debt Opportunities Fund Trust to qualified investors only, pursuant to prospectus exemptions in NI 45-106. “Forward-Looking” statemen ts are based on assumptions made by RPIA regarding its opinion and investment strategies in certain market conditions and are subject to a number of mitigating factors. Economic and market conditions may change, which may materially impact actual future events and as a result RPIA’s views, thesuccess of RPIA’s intended strategies as well as its actual course of conduct.

Performance is not guaranteed and past performance may not be repeated. Unless indicated otherwise, all returns are presented as of the last calendar day of the stated month. Certain investment strategies offered by RPIA in Canada may gain indirect strategy exposure by investing inunits of applicable strategy feeder funds.. Trade examples are presented for illustrative purposes and does not necessarily reflect a trade or current hol ding in any particular RPIA strategy or fund. Strategy returns are presented in Canadian dollars and is net of all fees and expenses. RP Debt Opportunities strategy returns are based on composite returns of RP Debt Opportunities Fund LP Class A and RP Debt Opportunities Fund Ltd. Class A, from October 2009 to July 2011 and RP Debt Opportunities Fund Ltd. Class A. from August 2011 onwards. Actual returns may vary from one investor to the next in accordance with the terms of the governing documents of relevant entities. Unless specified otherwise, returns presented for periods greater than one year are annualized. The index performance comparisons presented are intended to illustrate the historical performance of the indicated strategies compared with that of a specified market index or blend of indices since the strategy inception. The comparison is for illustrative purposes only and does not imply future performance. There are various differences between an index and an investment strategy or fund that could affect the performance and risk characteristics of each. Market indices a re not directly investable and index performance does not account for fees, expense and taxes that might be applicable to an investment strategy or fund.

THANKYOU!

Liam O’Sullivan

liam.osullivan@rpia.ca

Marc Gauthiermarc.gauthier@concordia.ca

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