Colosseum Final report

COLOSSEUM INVESTMENT FUND │ London │ January 2017

Final Fund Report London January Legal name: Colosseum Investment Fund Registered domicile:45 Hindrey Road London, E140AD Legal structure: Investment Advisor Inc., Brad Johnson President and CEO, Colosseum Investment Advisor Inc. (General Partner) and Limited Partners Asset class: Long-Short hybrid Investment Strategy Inception date: February 1st, 1990 Maturity date: None Fund manager: Mr Gabriel Calabro Manager Sponsor: Colosseo Sponsor Custodian: Metro Bank, Banco di Sicilia (UNICREDIT) Share classes: 16 equities classes are offered Target annual return: 7-9% Open to new investors: Yes

1

COLOSSEUM INVESTMENT FUND │ London │ January 2017

Table of Contents Performance analysis......................................................................................................................................... 1 What has been different................................................................................................................................. 2 Where has been good ..................................................................................................................................... 3 Long and short ............................................................................................................................................... 3 Where geography .......................................................................................................................................... 3 Event of critical impact .................................................................................................................................. 3 Benchmark impact ......................................................................................................................................... 3

Calculation of achieved returns:....................................................................................................................... 4 Gross and net return of the actual LP investors ............................................................................................. 5 Fees ................................................................................................................................................................. 6 Conclusions ....................................................................................................................................................... 4 Initial strategy ................................................................................................................................................. 5 Changes in our strategy ................................................................................................................................. 5 Key learning points during this project .......................................................................................................... 5

2

COLOSSEUM INVESTMENT FUND │ London │ January 2017

1 PERFORMANCE ANALYSIS OVERVIEW As the pitch book and the last report witness, the target annual return (7-9%) has been achieved.

In fact, our fund generated a profit of $8,837,086.59 (more than 8% of the initial capital).

However, our LP investors gained $5,844,433.66 since there were $2,992,642.93 fees. (Final report, 2016)

1.1 WHAT HAS BEEN DIFFERENT Although we achieved an acceptable profit, not all of our investment worked as they were supposed to. Indeed, some firms such as: Astaldi, Ford, Amazon and Google did not perform well.

1.1.1 ASTALDI Astaldi is an Italian building company. We bought their shares right after the earthquake in Amatrice. At that time the company was at the top position in the whitelist1. Consequently, they were supposed to have an excellent possibility to access at the European incentives to rebuild the towns destroyed by the earthquake. Unfortunately, the Italian referendum held on Sunday 4 December 2016 changed our forecast and the company did not get those incentives anymore. However, Astaldi did not underperform the Italian construction sector since it decreased by 2.2% compared with the previous year. (ISTAT, 2016)

1.1.2 FORD As regard with Ford we decided to short their shares as a reaction to the US elections of president Trump. Indeed, Trump policy was to forbid the movement of Ford small-car production to Mexico. (D. Trump, October 2016) Unfortunately, two factors influenced our decision: first Trump government is easing fuel economy standards which means more infrastructure spending. Consequently, more pickup truck sales and Ford has some of the most profitable truck sales of any carmaker.

(Financial Times, 2016) The second factor is that Fords Ceo Mark Fields decided to carry on with their projects to transfer their small-care production from the US to Mexico due to cheaper costs production which will meets their customers’ needs by selling their cars at a cheaper price.

This will mean that Ford will have an extra Plant which means more assets. (Financial Times, 2016)

1

Whitelist: is a list or register of entities that are being provided a particular privilege, service, mobility, access or recognition. Entities on the list will be accepted, approved and/or recognized.

3

COLOSSEUM INVESTMENT FUND │ London │ January 2017

1.1.3 AMAZON Moving to Amazon, on the 21 November we took a short position on it. This was due to president Trump policy which was “curb tech sector power”. Indeed, the company was blamed to be involved in a huge antitrust problem. Moreover, their shares went down by 2% on the day of Trump election. (Financial Times, 2016) Unfortunately, the new project “Amazon go”2 screwed up our plans. In fact, thanks to this program the company shares rocketed. However, we changed our position on time and we minimized the losses.

1.1.4 GOOGLE As concern google, we were aware of his new smartphone project. However, we decided to short the company because apple was working on the new IOS and on the new i-phone 7. Moreover, google has been fined from the European commission because the company abused its power in trying to brake competition in shopping search and advertising products. Consequently, its profit project was supposed to not cover the cost for it and have a boomerang effect3. Unfortunately, there has been a miscalculation of time and we start shorting its share to early when they were still going up.

1.2 WHAT HAS BEEN GOOD Although, the firms above did not perform as they were supposed to, a significant number of our investments outperform their sector and allowed our fund to achieve the 8.8% return.

1.2.1 US HEALTHCARE PROVIDER On the 21November we took a long position in US healthcare provider because right after Trump victory equities soared, specially, in sectors that were likely to benefits from his policies, such as pharmaceuticals and healthcare. We followed the trend and we invested in healthcare, which as a sector counted inflows of roughly $900m during the week of the election. (EPFR, 2016) In fact, with $3,151,646.67 this investment has been one of the best although did not outperform his sector since a significant number of competitors had similar results.

1.2.2 CHINA MOBILE We decided to hold these shares because we would like to differentiate our fund by having investments in different parts of the world. After a deep analysis through the biggest 2

Amazon Go: is a new kind of store with no checkout required. We created the world’s most advanced shopping technology so you never have to wait in line. With our Just Walk Out Shopping experience, simply use the Amazon Go app to enter the store, take the products you want, and go! No lines, no checkout.

3

Boomerang effect: condition when your profits of one project do not cover your costs needed to implement it.

4

COLOSSEUM INVESTMENT FUND │ London │ January 2017

Chinese fund’s holding such as: MCHI, EWH and GXT; we discovered that all of them had shares on China Mobile. Although, the Renminbi decreased by -0.07% compared to the USD our investment had a profit of $3,40,531.24. Moreover, we bought $1,500,000 Chinese option.

1.2.3 APPLE Although Apple has been fined in November, in pay back taxes to Dublin, we decided to take a long position on it. This was due to the new company projects which include the new i-phone 7 and the new IOS 10. As we forecasted apple shares went up and this investment created a profit of $476,058.32. Moreover, this company has been picked up to have an inverse correlation with google. In fact, since both were involved in a new smartphone project during the same period, they were direct competitors. Consequently, the increase on sales of one of them had reflections in the other one. (Pair trade concept4)

1.2.4 SENSONIC HOLDING This is a medical technology company and we decided to hold its shares since Biotech is a continually expanding and highly innovative industry that utilizes living organisms in search of cures for a myriad of illnesses, from Hepatitis C to cancer. Moreover, with an increase in life expectancy across the world and a greater number of people in emerging markets able to afford better medical care, an increased demand in this sector was expected. However, this company did not outperform his sector since the Growth has been rapid and the number of available Biotech investment opportunities have also increased alongside the industry growth. Still it generates a profit of $226,412.64.

1.3 LONG AND SHORT POSITION From this point of view there has been a net difference among short and long position in our fund. In fact, the short position generated losses for $711,724.22 while the long position perform very well with a profit of $9,548,810.30. Although, this is a negative feature, it was forecastable since we are facing with a growing market. Consequently, is harder to pick up shares to short rather than to long. However, we were aware of this and that is why we decided to hold more long position than short. (6:4 at the begin and 8:2 at the end)

4

The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in.

5

COLOSSEUM INVESTMENT FUND │ London │ January 2017

1.4 INVESTMENT AEREA As regard with the geography area of investments, we choose to cover three different zones. Although, this involve different currency it allowed us to differentiate our portfolio reducing our exposure to a single market even if we were mostly located in US. As result among the three market we choose: US, EUROPEAN and CHINESE; their performance has been as follow.

CHINESE: $3,402,531.23 USA: $2,933,290.51 EUROPEAN: $2,284,380.54

1.5 EVENT OF CRITICAL IMPACT Since our investments were based on US, EU and China four events have had great impact on them.

Firstly, the US elections and Mr. Trump victory, indeed the majority of our investment have been picked up according to the new president economic policy to decrease taxes and to establish immigration controls to boost wages and ensure that open jobs are offered to American workers first. Examples of this are the short position on Ford or the long position in pharmaceuticals and healthcare sector.

Secondly, the Italian earthquake which made us analyze long positions in Italian building companies.

Thirdly, the Italian referendum which influenced the European investment and made Astaldi perform not as well as it was supposed to do.

Finally, an event of minor impact for us, has been the Brexit which influenced changes in our currency.

However, although a period of great instability, we had an acceptable performance achieving our target.

6

COLOSSEUM INVESTMENT FUND │ London │ January 2017

2 CALCULATION OF ACHIEVED RETURNS This is how we calculated our achieved return which is the sum of short and long position

▪ The 21 November is when we opened the positions while the 17 December is when we closed them. (share prices) ▪ The 5 December is when we opened Amazon position (same color)

▪ The 10 December is when we opened HCA S.P. position (same color) ▪ -$711,724.22 is the tot loss of the short position (same color)

▪ $9,548,810.81 is the total profit of the long position (same color)

7

COLOSSEUM INVESTMENT FUND │ London │ January 2017

2.1 GROSS AND NET RETURN OF LP INVESTORS

▪ $8,837,086.59 is the gross profit = $-711,724.22 (short) + $9,548,810.81(long) ▪ $5,844,443.66 is the net profit after the fees have been taken off (same color)

8

COLOSSEUM INVESTMENT FUND │ London │ January 2017

2.2 FEES As the pitch book witness our fees were 0.5% basic fee (per quarter) on the capital which is $100milions: $100,000,000.00 times 2% = $2,000,000.00 Moving on the fees on the profit, they were 10% of the profit which is $8,837,086.59 (gross profit): 10% of $8,837,086.59= $992,642.93 (fees on the profit) $992,642.93 (fees on profit)+$2,000,000.00 (fees on capital) = $ 2,992,642.93 (total fees) $8,837,086.59 (gross profit)- $ 2,992,642.93 (total fees)= $5,844,443.66 (net profit)

3 CONCLUSIONS 3.1 INITIAL STRATEGY Our initial strategy was long-short equity strategy. We invested only in equities with a mix of 10 positions open. Initially, our mix long/short positions were (6 long/4 short) while at the end was (8 long/2 short). Moreover, we tried to apply a pair trading concept 5 whether possible.

Although we realized a loss in the short positions our strategy worked well in overall. This is a solution to the old way to manage fund which throughout the 1990s, could rely on long-only strategies because the bull market was generating such handsome returns. As stock prices sank, they looked for alternative ways to improve their returns. The answer was to invest in hedge funds and other alternative investments with a range of mix strategies.

5

Pairs traders concept: seek instruments whose prices tend to move together; in other words, whose prices are correlated.

9

COLOSSEUM INVESTMENT FUND │ London │ January 2017

3.2 CHNAGES IN OUR STRATEGY As I said above our strategy has had changes just regarding the short positions but in overall, we kept our basic strategy with a mix of short and long. However, we reduced our exposure to shorting since we are dealing with a growing market.

3.3 KEY LEARNING POINTS DURING THIS PROJECTS Down is possible to observe a SWOT analysis for this course.

STRENGTH • AWARENESS OF NEW FUND STRATEGY • PRACTICAL TRADING • DEEPER UNDERSTANDING OF THE MARKET • LEARNING THE BASIC FINANCE KNOWHOW • UNDERSTANDING OF GROUP WORK BENEFITS AND DRAWBACKS

WEAKNESSES • LACK OF GROUP’S LEADERS • LACK OF TRADING SIMULATOR PLATFORM • LACK OF TIME TO TAKE REAL LONG POSITION

OPPORTUNITIES • POSSIBILITY TO DEVELOP TRADING SKILLS • CHANCE TO FIND WORK POSITIONS

THREAT • RISK OF MISMARK • THREAT OF BAD INFUENCE • GREAT RESPONSABILITIES

As the SWOT analysis above shows, I struggled in find weaknesses or threats as important as the strength points of this course. Indeed, comparing this innovated method of teaching with the Italian one is possible to find a significant number of differences.

For example, the focus on the practical actions of what we will do in a work place.

During this project, I had the opportunity to learn the time importance in trading, the last innovations in investment strategies, the basic rules of the finance world, what are the advantages and disadvantages of working in a group and the importance of time managing.

10

COLOSSEUM INVESTMENT FUND │ London │ January 2017

REFERENCES: Cascio, M.L. and Aliano, M., 2016. Long Term Patterns of European Accumulation and Growth: Europe at a Turning Point. In Stagnation Versus Growth in Europe (pp. 41-58). Springer International Publishing.

Chevalier, J.A. and Mayzlin, D., 2006. The effect of word of mouth on sales: Online book reviews. Journal of marketing research, 43(3), pp.345-354.

Deb, S.S. and Chakravarty, S., 2016. Capacity Constraints and New Hedge Fund Openings. Melbourne Business School.

Field, E.H., Jordan, T.H., Jones, L.M., Michael, A.J. and Blanpied, M.L., 2016. The Potential Uses of Operational Earthquake Forecasting. Seismological Research Letters, 87(2A), pp.313-322.

Hitaj, A. and Zambruno, G., 2016. Are Smart Beta strategies suitable for hedge fund portfolios?. Review of Financial Economics, 29, pp.37-51.

Jones, E., 2016. After the Italian Referendum. Foreign Affairs.

Lucchese, M., Nascia, L. and Pianta, M., 2016. Industrial policy and technology in Italy. ISIG WP, pp.1-2016.

Jorgenson, D., Gollop, F.M. and Fraumeni, B., 2016. Productivity and US economic growth (Vol. 169). Elsevier.

Kenney, M. and Pon, B., 2011. Structuring the smartphone industry: is the mobile internet OS platform the key?. Journal of Industry, Competition and Trade, 11(3), pp.239-261.

Kim, K., Gopal, A. and Hoberg, G., 2016. Does Product Market Competition Drive CVC Investment?

Evidence from the US IT Industry. Information Systems Research.

Kotha, S., 1998. Competing on the Internet:: The case of Amazon. com. European Management Journal, 16(2), pp.212-222.

McGee, R.W., 2016. Trump and the Trade Policy of a Free Society.

Nwosu, U.G., Roy, A., dela Cruz, A.L.N., Dellinger, B. and Cook, R., 2016. Formation of environmentally persistent free radical (EPFR) in iron (iii) cation-exchanged smectite clay. Environmental Science: Processes & Impacts, 18(1), pp.42-50.

Weber, B., 2016. Infrastructure as an Asset Class: Investment Strategy, Sustainability, Project Finance and PPP. John wiley & sons.

Wouters, O.J., Cylus, J., Yang, W., Thomson, S. and McKee, M., 2016. Medical savings accounts: assessing their impact on efficiency, equity and financial protection in health care. Health Economics, Policy and Law, 11(03), pp.321-335.

Yin, C., 2016. The optimal size of hedge funds: conflict between investors and fund managers. The Journal of Finance.

Zhang, X. and Prybutok, V.R., 2005. How the mobile communication markets differ in China, the US, and Europe. Communications of the ACM, 48(3), pp.111-114.

11

COLOSSEUM INVESTMENT FUND │ London │ January 2017

12