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T h is m a terial is for in f or m ational purposes and not in t ended as inves t ment advice. Ca s h Mana g eme n t in T od a y ’ s Mar k e t p la c e T amp a Bay A s s o ci a t i on f or Fina n cial P r ofes s ionals M a r ch 1 5 , 2 0 13. T OP I CS F OR D I SCU S SION.
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Thismaterialis forinformationalpurposesandnotintendedasinvestmentadvice. CashManagementinToday’sMarketplace TampaBayAssociationforFinancialProfessionalsMarch15, 2013
TOPICSFORDISCUSSION AboutStoneCastle TheCurrentStateoftheCashManagementMarket WhatTreasurersAreSeekingToday CashManagementBeyondtheBigThree
ABOUTSTONECASTLEPARTNERS,LLC-ASUMMARY Foundedin2003 Pioneerofinnovativestrategiesincommunitybanking 30+professionalsdedicatedto investinginsectorCoremanagementteamtogethersince1995 LongHistoryofSuccess Experienced Team Closetiesto StateandFederalbankingregulators Long-termrelationshipswithABA,CSBS,otherindustrygroups Deep IndustryRelationships CharlesbankandCIBCownminorityinterestsinStoneCastleSubstantialownershipheldbyseniormanagement InstitutionalSponsorship Specializedin-houseaccounting,legalandregulatoryexpertiseProprietary systemsdesignedforcommunitybankinvestments HighlySpecializedInvestmentPlatform RAMPARTwasdevelopedin-housetocombinedeal origination, credit underwriting, CRM, risk management, investment monitoring and accounting into a single seamless technologyplatform, helping StoneCastle overcome thefragmentednatureofthebankingindustry.
MINORITYSHAREHOLDERS • StoneCastlePartners’MinorityShareholders • CharlesbankCapitalPartners • SpinoutoftheformerHarvardendowmentprivateequityteam • FounderandCEO,MichaelEisenson,formerPresidentofHarvardPrivateCapital • Manages$2+billionofprivateequityinvestments • CanadianImperialBankofCommerce(“CIBC”) • Oneoflargestandbest-capitalizedbanksintheworld • $391billionofassets1/$30billionmarketcapitalization2 • Weatheredandprofitedfromfinancialcrisis(21%ROE1) • PartneredwithStoneCastletoidentifyandpursuebankingopportunities intheU.S. 1Source:CIBC investorpresentation(June2012) 2Asof8/13/12
NATIONALINDUSTRYREACH • StoneCastleCashManagement,onbehalfitsclients,hasdepositedover$2BillioninnewlyestablishedFICAbankaccountsinover400banksacrosstheU.S.,givingStoneCastleeven greaterreachintothecommunitybankingsector.
CurrentStateoftheCashManagementMarket Whereweareandwherewemaybeheading
MOSTCOMMONLYUTILIZED CASHMANAGEMENTVEHICLES • Observations: • Bankdepositsincreased almostequally%that moneyfunds decreased– • areturntomoneyfunds? • Secondbiggestdecreasefrom2010-2012weretreasurybills—returntotreasurybills? • Instrumentswhichshowconsistentincreasearecommercialdeposits,separatemanagedaccounts&municipalsecurities Source:AFPLiquiditySurvey
RECENTHEADLINES–EXPIRATIONOF FDICUNLIMITEDDEPOSITINSURANCE Then: BanksLobbyingtoExtendFinancialCrisisDepositGuaranteeProgram FoxBusiness,February15,2012 CommunityBankersPushforTAGExtension AmericanBanker,February17,2012 Now: BilltoExtendTAGProgramFailsin USSenate Reuters,December13,2012
RECENTHEADLINES– LOWTREASURYYIELDS,GETUSEDTOIT Then: BernankePledgestoKeep RatesLowThru 2014:A“VeryPessimistic” Outlook,FormerFedVPSays YahooFinance,January 25,2012 Now: Fed’sLackerSaysReaching6.5%UnemploymentMayTake3Years Bloomberg,12/17/12 Fed’sYellenbacksholdingratesnearzeroto2016 Reuters- November13,2012 FederalReserveExpectstoKeep InterestRatesLowThroughMid-2015 ABCNews–September13,2012 10
RECENTHEADLINES–MONEYMARKETFUNDS NOSEC-NOWWHAT Then: MoneyMarketFundsMayFaceMoreChallenges New YorkTimes–January8,2012 WilltheGovernmentPutMoneyMarketFundsOutofBusiness? TheAtlantic,February7,2012 MoneyFundsReformsWon’tStopNextCrisis MarketWatch,February15,2012 Now: SEC’sGallagher:MoneyFundReform‘Primary’Issue MarketWatch–1/17/13 MoneyfundsStillPsoeRisks,Fed’sStein MarketWatch–12/23/12 KeySECHoldoutinMMFOverhaulReversesStance WSJ–12/7/12 ProposedMoney-FundRulesCouldSendTreasurersFleeing CFO.comMagazine–11/16/12 GeithnerStepsupPressuretoMakeMoneyMarketFundsSafer BloombergNews – 11/13/12 MoneyFundReformHasTopSupport New YorkTimes–11/13/12 SEC’sGallagherCallsforFloating Price for MoneyFund Bloomberg–9/27/12 Study:78moneymarketfundswereatriskofbreakingbuck USAToday–8/13/12
WHATTREASURERSARESEEKINGTODAY MostImportantShortTermInvestmentObjectives: Companiescontinuetoinvestconservatively… *Source:2012AssociationforFinancialProfessionalsLiquiditySurvey
DRIVINGSENTIMENT • Eventsofpast3years • Conservative nature Source:2012Associationfor FinancialProfessionalsLiquiditySurvey
THEREISHOPE(ANDOPPORTUNITIES) "RegularopportunitiesexisttopurchasefullfaithandcreditinstrumentsoftheU.S.governmentatspreadsof 40to50basispointsaboveotherwisecomparablebutmoreliquidtreasuryissues.“ -DavidSwensen,CIO,YaleUniversity
THENEWREALITY:BEYONDTHEBIGTHREE • SeparatelyManagedAccounts • USGovernmentAgencyShortDurationMBSPortfolio • ExtendedFDICInsuredPrograms • Liquid • Term • Others?
THENEWREALITY:BEYONDTHEBIGTHREE WhyAreManyCorporateTreasurersNowUsingorConsideringSeparateAccountsasPartofTheirCashManagementStrategy? • Separateaccountsaresimpleandeasytosetupandadminister. • Determineandcontrolliquidityneeds. • Develop aset ofinvestmentguidelinesfor quality,interest rateriskexposureandliquiditytoensurethatportfoliosynchronizeswithyourinvestmentpolicies. • Delegateinvestmentauthorityinternally and/ortooutsidemanagers. • Outsidemanagersgenerallyworkwithyourexistingcustodyrelationships.
THENEWREALITY:BEYONDTHEBIGTHREE • When SelectingOutsideManagers–Lookfor: • Consistentlowriskinvestment approachtoemphasizingultra-highqualityveryliquidsecuritiesanddefineddurationparameters. • GIPScompliantlong-termperformance. • Clear,value-addedinvestmentprocess. • Personalexperience instrategyANDmanagingcorporatecash. • Strongcommunicationskillsandaccesstosenior management. • Timelyreportinginaneasytouseformat. 20
USGovernmentAgencyShortDurationMBSStrategy • 100%U.S.GovernmentAgencyMBSsecurities(Ginnie Mae,FannieMae,FreddieMac) • High QualityGov/AgencyCreditRating • HighlyLiquidMarket • DailyLiquidityandTransparency • StableandLowVolatility • AttractiveYieldOverComparableTreasuries,Muni’s,Corporates,MoneyMarketsetc. • EmphasisonRiskManagement: Identifying,MeasuringandControllingRisk
EXTENDEDFDICINSUREDACCOUNTS WhatisanExtendedFDICInsuredAccount? • Primarilyaseriesofelectronically-linkedbankdepositaccountsatone ormorebanksavailablewithinasingleaccount • FDICopinion allowsforpassthroughof FederalDepositInsuranceCorporation(FDIC) • LookforLetterfrom FDICConfirmingOfferingMeetsFDICRequirements • ProgramscanofferextendedFDICinsuranceasaresultofhavingmultiplebanksorsavingsinstitutions,eachprovidingupto $250,000ofinsurance. • Twotype ofprograms-Term(utilizesCDs)andLiquid(utilizesMMDA) • Programscanofferfrom $500,000to$50millionplusofFDICinsuranceviaasingleaccount,pertaxid.
EXTENDEDFDICINSUREDACCOUNTS:HISTORY • Similarpathofmoneyfunds • Retail • Individualswouldopenaccountsatdifferent bankstoaccessFDICinsurancebeyondindividualbanklimits. • ThenBrokerage • In1999,MerrillLynch began‘bankerage’trendwithinbrokeragecommunity • AndToday,Institutional • Recognizedin2012AFPLiquiditySurvey • CDARS:deposits placedinCDs • FICA:DepositsplacedinMMDA
WHYATTRACTIVE • Safety • DepositsFDICInsured • “Noinsureddepositorhaseverlost apennyofFDICinsureddeposits—andnoneeverwill.”–FDICStatement • FDICinsuranceisfundedbyfeesassessedtobanks • Liquidity • MMDAprogramshavenotermcommitments • Yield • Canofferapremiumoveralltypesofmoneyfunds,treasuriesandshorttermCDs • Transparency • Abilityto viewwherealldepositsplaced • AlldepositsplacedinUS,FDICinsured banks/savingsinstitutions • Control • Unlikeamoneyfundorpool,havedirect ownershipofunderlyingdeposit (vs. owna%of afund/pool),notimpactedbyactionsofothers • Abilityto optoutofspecificbanks • Diversification • •Nooneinstitutionhas morethen$250,000perTaxID
TODAY’SYIELDADVANTAGE HISTORICALYIELDS(Cumulative) Forinformationalpurposesonly.Pastperformanceis notaguaranteeoffutureresults.Ratesaresubjecttochangewithoutnotice.Sources:Bloomberg.com,iMoneyNet.&Bankrate.comMMAOvernightAverage Performanceis basedonthetopperformingInstitutionalPrimeMoneyMarketFundaccordingtoiMoneyNet.Asprovidedbysourcesthoughttobereliable.Ratescananddodifferacrossindividualclients.Ratereflectedis forinformationalpurposesonly
ASCOMPAREDTOMONEYFUNDS ExtendedFDICInsuredAccount SingleApplication TermsandConditionsViawire FDIC-insuredbankdepositaccounts; only“well capitalized”banks(asdefinedby theFDIC)permitted MoneyMarketFunds SingleApplication ProspectusViawire Asset-backedSecurities BankDepositAccounts,CDsandTDsCollateralizedLoanAgreementsCommercialPaper CorporateBondsFloating-rateProducts GovernmentAgency Notes U.S.Treasuries Monthly Seekstomaintain$1NAV(notguaranteed) AccountOpeningGoverningDocument Deposits/RedemptionsUnderlyingPortfolio PortfolioTransparencySafety Daily PrincipalandinterestbackedbyfullfaithandcreditoftheU.S. government EveryMonday Interest 1099–INT .27% (balancesupto$15mm) Same-daysettlementDividend 1099–DIV .05% LiquidityIncome YearEndTaxFormYield(as of03.01.13) For informationalpurposesonly.Pastperformanceisnotaguaranteeoffutureresults.Ratesaresubjecttochange withoutnotice.
ASCOMPAREDTOMOSTCOMMON CASHMANAGEMENTVEHICLES For informationalpurposesonly.Pastperformanceisnotaguaranteeoffutureresults.Ratesaresubjecttochangewithoutnotice.
HOWEXTENDEDFDICINSUREDPROGRAMSWORKS Clientsdepositfunds viawiredirectlyintoasinglecustodialaccount. Theappointed administratorprovidestheCustodianwithinstructionsthatdirecttheallocationofthefundsacrosstheProgramBanks.TheinstructionsareverifiedbytheCustodianpriortoexecution. Uponverificationofthe allocationinstructions,theCustodianallocatesthefundsasdepositsacrosstheProgramBanks. Clientreceivesasingleconfirmation,withabilitytoviewdepositsbybank.
Disclosures 30
DISCLOSURES U.S.Bank,N.A. isnotaffiliatedwithStoneCastlePartners,LLC.andisnotresponsiblefor,anddoesnotguaranteetheproducts,servicesorperformanceofitsaffiliatesandthirdparty providers. Foradditionalinformation: EricLansky (212)354-6500ext388 elansky@stonecastlepartners.com Thisdocument isforinformationalpurposesonlyanddoesnotconstituteanoffertosellora solicitationofanoffertobuy.Itcontainsapreliminary summaryofthepurposeandprincipalbusinesspurposeofFICA®;thissummarydoesnotpurporttobecompleteand is qualifiedinitsentiretybyreferencetothemore detaileddiscussionscontainedintheFICA®Account CustodyAgreement,TermsandConditions,andInvestorRepresentationsandContact(“Agreements”). BeforemakingadecisionwithrespecttoStoneCastleCashManagement’sFICA®,potentialclientsareadvised tocarefullyreadtherespectiveAgreementsandtoconsultwiththeirtax,legalandfinancialadvisers. Thisdocument isbeingprovidedtoyouonaconfidentialbasis solelytoassistyouindecidingwhetherornottheFICA®Programis appropriateforyou.Accordingly,thisdocumentmaynot bereproducedinwholeorpart,andmaynotbedeliveredtoanypersonwithouttheconsentofStoneCastleCashManagement,LLC. StoneCastleCashManagement,LLC,isanaffiliateofStoneCastlePartners,LLC,aleadingassetmanagementandfinancialservicesfirm.StoneCastleCashManagementisaninvestmentadviserregisteredwiththeU.S.SecuritiesandExchangeCommission(SEC).RegistrationwiththeSECdoesnotimplyaparticularlevelofskillortraining.Formoreinformationregardingthefirm,pleaseseeourFormADVPartsIand2onfilewiththeSEC. 31