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Maximizing returns subject to assuring a minimum floor.
John O’Brien
Miguel Palacios
Matthew Lockard
Ajit Patankar
Tapan Samaddar
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10/29/2013
The Challenge
Confidential
Slide 2
How to capture gains whenequity markets rise…
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The Challenge
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Slide 3
...while getting protectionwhen they fall ?
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The current approach
The current approach involves allocating an
investor’s assets between “safe” assets
(typically bonds) and “risky” assets (typicallyequities).
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Shortcomings of the current approach
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Slide 5
There is no predefined limit to potential losses.
Bond/Stock allocations are typically based on past
performance, from which future performancecould diverge wildly.
If equities fall over a long period of time,
rebalancing to maintain a fixed bond/stock
allocation will compound losses.
Markets may crash and remain irrational longer
than you can stay solvent.
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Introducing A&P
A&P Capital (Accumulate and Preserve) Strategy solves these
existing problems.
A&P suits individuals saving for retirement, college, home purchases
and other life events, who not only require capital appreciation but
also require that loss of capital must be limited.
A&P is not a market beating strategy. Instead, A&P is an engineered,
protective asset allocation strategy, focusing on maximizing long-term
returns subject to maintaining a minimum floor.
10/29/2013Confidential
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A&P – Essential Features
◊ Uses available derivatives-based hedging to put a fixed floor under
potential losses over a given period of time.
For example, a put position is purchased to protect the risky assets against declines of
more than 10% over the next 18 months.
◊ Periodically rebalances to lock in gains.For example, if the portfolio gains 10% relative to its value when protection was
purchased, the existing put position is liquidated and a new one, with a higher strike
price, is purchased, thereby ratcheting up the net value of the protected assets
◊ Doesn’t need access to the actual account holding your assets.
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How A&P works: Customer’s View
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Slide 8
Step 1: Client chooses the minimum protection level and the
protection duration for his/her assets: this determines the
protection cost, from the 3x3 matrix below.
Step 2: Client opens a new managed IRA / Roth IRA / Brokerage
account with Charles Schwab and fund that account with only the
following amount: Protection cost % from the table above X Amount
of assets they want protected.
Step 3: A&P will make the necessary transactions in the Client's
account and separately monitor the account.
Protection Cost
Above data was correct at market close on 1/10/2014. The data
changes dynamically with the Market conditions.
Minimum Asset
Protection Level
Protection Duration
1year 18months 2year
90% 3.1% 4.6% 6.5%
85% 2.6% 3.9% 5.7%
80% 1.7% 2.8% 3.7%
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A&P Capital Strategy
Simulation and Actual results.
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A&P: Back-testing results, 1990-2013
(cost of protection included)
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Slide 10
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A&P: Back-testing results, 2000-2012 (cost of protection included)
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A real-life application: 1987-1999, Merrill Lynch
Growth and Guarantee Fund ($250M AUM)
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Slide12
Growth and Guarantee Fund features:
Automatically rolled over every 18 months or
upon a 10% appreciation relative to NAV atprior rollover point.
Used options to limit losses to a maximum of
10% between rollover points.
The guaranteed minimum NAV was further
backed by an Aetna-sponsored insurance
policy (which never needed to be exercised).
Merrill Lynch Growth and Guarantee Fund was advised bycurrent a A&P managing partner
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10/29/2013Confidential
Slide
13
A real-life application: 1987-1999, ML Growth and
Guarantee Fund ($250M AUM)
Growth & Guarantee Fund audited performance results,
1987-1997
Merrill Lynch Growth and Guarantee Fund was advised bycurrent a A&P managing partner
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A&P Capital Strategy
About Us
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Slide 14
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10/29/2013Confidential
Slide 15
Contact Us
Contact us to learn how A&P Strategies can bring LEIS and
other innovative asset allocation strategies to your clients.
John O’Brien, Managing Partner
917-690-0117
Miguel Palacios, Senior Principal
510-717-6453
Tapan Samaddar, Senior Principal
408-480-3704
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A&P Strategies Team Member Profiles
John O’Brien, co-founder of A&P Strategies LLC, is the Executive Director ofthe Master’s in Financial Engineering (MFE) program at UC Berkeley, HaasSchool of Business. He assisted in developing the MFE program, and became itsfirst Executive Director in July 2000. Mr. O’Brien is also an adjunct professorof finance at Haas, and created and teaches the MFE course in financialinnovation.
John was formerly a Managing Director of Credit Suisse Asset Management(CASM) where he created and managed the risk management function, theclient service function and the e-commerce effort. Prior to CSAM, for fifteenyears, Mr. O’Brien was Chairman and CEO of Leland O’Brien Rubinstein(LOR) Associates, and Chairman of the Capital Market Fund, and the S&P 500SuperTrust – the first exchange traded fund (ETF). LOR is credited with a seriesof financial market innovations and product offerings.
Earlier, John co-founded Wilshire Associates (originally named O'BrienAssociates), and co-developed the Wilshire 5000 common stock index
(originally known as the O'Brien 5000). Mr. O'Brien was named among FortuneMagazine's "Businessmen of the Year" in 1987.
John holds a S.B. in economics from MIT, and an M.S. in operations researchfrom UCLA.
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In addition, we have an exceptional team focused on Strategy, Research and Product Development.
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Slide17
A&P Strategies Team Member Profiles
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10/29/2013Confidential
Slide 18
Thank You
www.AandPCapital.com
