Third Eye Capital
Tel: (416) 601-2270
Fax: (416) 981-3393
Email Third Eye Capital

Brookfield Place
Bay Wellington Tower
181 Bay Street, Suite 2830
Toronto, Ontario, M5J 2T3

CEO Insights

CEO Insights

Risk Returns (Q1-15)

Risk Returns (Q1-15)

Mar 30th, 2015

The following was excerpted from Third Eye Capital Management Inc.’s Q1 2015 Investor Letter.

Investors will need to become more discerning as the bull market rally in stocks and bonds matures. Broad allocations to indices was a winning strategy for the past seven years but investors have reason to be cautious since the policies that drove asset prices higher are close to an end. Confidence in the economy and stability of credit markets are now priced into financial assets, as demonstrated by zero risk-free rates and extremely low credit risk premiums. Predictably, investors in equities are willing to pay richly for projected future income streams in advance of any evidence of tangible results. However, as such expected growth gets priced into stocks, the future returns for equity investors get eroded. The appetite for yield and growth is intense among investors and this hunger continues to promote equities over fixed income (as well as concentration over diversification). We expect stock market volatility to increase as investor reluctance to abandon equities conflicts with the Fed’s signals about pending interest rate normalization. It has become increasingly more challenging to take passive exposures in the public fixed-income and equity markets. We have always considered security selection as being critical, and are convinced that active management will be more helpful to investors in the current environment than indexing.

Private debt does not have an investable tracking index but investors can express a view on corporate credit markets through high yield and leveraged loan indices. The lending markets are highly fragmented and informational asymmetries that determine risk premiums can vary widely. In the small and middle market segments, supply of credit is low and in decline due to the antipathy of banks and greater regulation, and demand is high due to traditional reliance on loans and general lack of other financing options such as equity.

In Canada, the overwhelming majority of companies in this segment are non-sponsored, tend to be closely-held, and do not publish financial information; this makes the sourcing and analysis of such opportunities more challenging and the population of credit providers small. Corporate credit indices cannot capture the benefits of structural imbalances in small and middle-market credit where participants are less active and risk premiums are more persistent.

Traded fixed income is no longer a volatility dampener nor a source of reliable yield. If credit investors want to flourish going forward then they will need to consider complementing their traditional asset allocation with high-potential alternative strategies within private debt. In any skill dependent activity, performance dispersions among participants can be high and private debt managers are no different. Investors should focus on managers that possess multi-year experience applying a disciplined credit underwriting approach in a variety of situations and undesired circumstances, especially defaults, with a track record of consistently repaid and recovered loans.



Domestic (Canadian) Advisor registration form:

If you are an advisor that distributes or is interested in distributing a fund advised by Third Eye Capital Management Inc. you can register to request a call or meeting. You will be asked to provide information to confirm your qualifications to invest in or distribute the funds. This brief registration process allows us to conform to applicable securities laws and to obtain some basic information about you. Once we have qualified and approved your registration, we will get in contact with you to schedule a meeting.

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Domestic (Canadian) Investor registration form:

If you are an existing or prospective accredited investor that distributes or is interested in distributing a fund advised by Third Eye Capital Management Inc. you can register to request a call or meeting. You will be asked to provide information to confirm your qualifications to invest in or distribute the funds. This brief registration process allows us to conform to applicable securities laws and to obtain some basic information about you. Once we have qualified and approved your registration, we will get in contact with you to schedule a meeting.

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International Investor registration form:

For US persons
If you are an existing or prospective accredited investor or an advisor that distributes or is interested in distributing a fund advised by Third Eye Capital Management Inc. you can register to request a call or meeting. You will be asked to provide information to confirm your qualifications to invest in or distribute the funds. This brief registration process allows us to conform to applicable securities laws and to obtain some basic information about you. Once we have qualified and approved your registration, we will get in contact with you to schedule a meeting.

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Instructions for the following sections: Individuals please answer Part A of Sections I and II; Institutions please have an authorized person answer Part B of Sections I and II.

Section I - Accredited Investor Threshold Questions:

Part A - For Individuals:

1. I certify that I have an individual net worth, or my spouse and I have a combined net worth in excess of $1,000,000.

2. I certify that I am highly a sophisticated investor who routinely invests sums of $250,000 or more.

Part B - For Institutions:

1. The submitter certifies that it is a bank, insurance company, registered investment company, business development company, or small business investment company.

2. The submitter certifies that it is a charitable organization, corporation or partnership with assets exceeding $5 million, and that was not formed to invest the Fund.

3. The submitter certifies that it is a corporation, partnership or trust with assets of at least $5 million, that was not formed to invest in the Fund, and whose purchases are directed by a sophisticated person.

4. The undersigned certifies that all of its equity owners are “accredited investors” as defined in United States Securities and Exchange Commission Rule 501(a) and who can satisfy the higher criteria for the same set forth in Section I, Part A above.

Section II - Qualified Purchaser Questions:

Part A - For Individuals:

1. I certify that I own not less than $1,000,000 in securities investments.

Part B - For Institutions:

1. The undersigned certifies that it is a bank, insurance company, registered investment company, business development company, or small business investment company

2. The undersigned certifies that it is a "family owned company" (as defined below) that owns not less than $5,000,000 in securities investments. A "family owned company" is defined as a company that is owned directly or indirectly by or for two or more natural persons who are related as siblings or spouse (including former spouses), or direct lineal descendents by birth or adoption, spouses of such persons, the estate of such persons, or foundations, charitable organizations, or trust established by or for the benefit of such persons

3. The undersigned certifies that it is a trust that was not formed to invest in the Fund, the trustee or decision-making authority of which, and every person contributing assets to the same, is a “Qualified Purchaser” under one of the other definitions of this Section

4. The undersigned certifies that it is a person acting for its own account or for the accounts of other Qualified Purchasers who in the aggregate own and invest on a discretionary basis at least $5,000,000 in securities investments.

Questionnaire Submission:

Thank you for your patience in completing this questionnaire.

If you have any questions, please contact Chris Vokes, VP of Investor Relations at Third Eye Capital:

T 416-601-2270 ext 242
E chris@thirdeyecapital.com