EFTA00506380.pdf

TAUSSIG CAPITAL Outperformance & Permanent Capital O r..,,,,121'2012 EFTA00506380  TAUSSIG CAPITAL The General Idea With all 4 elements in place, IRRs should exceed the ROEs of a e)insurance fund or managed (Re)insur account with the same or Ban Banking a agement asset strategy as well Con as the ROEs of a traditional (re)insurer or bank that is in the same line of business Via a 144A offering, the asset manager should secure $200 o sor Capital — million to $5 billion Ass Strateg D'/0 of Offering in permanent capital > $20 million (some or all of which would be new AuM) with a high degree of certainty 1 EFTA00506381  TAUSSIG CAPITAL Why the Idea Works Buffett — from hedge fund manager to (re)insurer/banker Capital in fund structure works only once ❑ In at NAV; Returns compound; Out at NAV ❑ High levels of taxation for investors in the UK, Canada, and the U.S. al Same Capital in insurer, reinsurer, or bank works twice ❑ Once — equity capital is invested in the given asset strategy ❑ Twice — allows premiums or deposits to generate operating profits ❑ If operations break even, (re)insurer or bank earns the same as fund ❑ 4 million people in the U.S. generate 10% ROEs in operating profits ❑ Traditionals — buy and hold high grade fixed income to maturity ❑ Fixed income (5%) + operating profits = pre-tax 15% (a-tax 8%-10%) ❑ Fund strategy+operating profits = higher ROEs than fund/traditionals ❑ In addition to higher ROEs, shares should trade at premium to book ❑ No K-1s and capital gains treatment in the UK, Canada, and the U.S. Proof of concept — Greenlight Capital Re (symbol - GLRE) 2 EFTA00506382  TAUSSIG CAPITAL 144A Offerings ■ Hybrid private placement and public offering ■ Simpler/quicker/cheaper than private placements or IPOs ■ Primarily used for structured products and foreign equities ■ 91 U.S.- centric equity offerings in last 10 years - $25 billion ■ FBR has done 51 of the 91 offerings totaling $16 billion ❑ FBR treats 144A like a business — all other !Bs treat it as a hobby ❑ Qualified institutional/accredited/offshore investor universe of 1,200 ❑ Dedicated sales force specializing in 144A offerings ❑ Commits own capital to market making via NASDAQ's Portal System ■ Profile of FBR transactions ❑ Minimum of $200 million — (One $1 billion + deal in each of last 3 years) ❑ 70% are financial services - 50% are startups ❑ 3 Bermuda reinsurance startups totaling $1.25 billion in equity capital 3 EFTA00506383  TAUSSIG CAPITAL (Re)Insurers Needing Sponsors ■ Insurance and reinsurance without letters of credit ❑ Private placement variable universal life insurance (operational) ❑ Cat reinsurer/ILS hybrid (1 startup, 2 acquisitions) ❑ GigaLife — PPVULs of $1 billion or more (1 startup) * ❑ Residual value insurance (1 startup, 1 acquisition) ❑ Trade finance insurance (MGA conversion) ❑ Letter of credit liberation (early stage operational — Berkshire connection) ❑ Risk Retention Groups paired with matching reinsuers (multiple startups) * ❑ Sharia compliant reinsurer (1 startup) ■ Insurance and reinsurance requiring letters of credit ❑ GLRE clones (virtually unlimited number but a crowded trade) * ❑ Life and annuity reinsurance (1 acquisition, 2 books of business) ❑ Assuming Pension liabilites and running them off (1 startup) * ❑ Synthetic acquisitions (virtually unlimimted number) * ❑ Reinsuring captives (1 strategic relationship, several acquisitions) ❑ Point of sale reinsurance (car rentals, trip, warranties, credit life) * ❑ MGA profit sharing (startup) * Will need to recruit a management team 4 EFTA00506384  TAUSSIG CAPITAL Banks Needing Sponsors ■ Commercial Banking ❑ Converting asset based lending funds into banks (virtually unlimited number) ❑ Specialty Lenders — all would be startups ■ Litigation (2); Trade finance (3); Libraries (2); Hospital receivabes (1) ❑ Point of Sale Lending ■ Time share receivables (1); Manufacturers (1) ❑ Commercial mortgages (1 startup); Residential mortgages (1 startup) ❑ Corporate loans (1 startup); Leveraged loans (2 startups); DIP loans (1 startup) ■ Private Banking ❑ Traditional Swiss private bank (1 startup, 2 acquisitions) ❑ Providing portfolio financing for clients of other private banks * ❑ Serving Swiss Independent Asset Managers * ❑ Rolling up Swiss Independent Asset Managers * ❑ Swiss private bank that only serves Americans * ❑ Private bank serving clients of major deferred compensation provider * Will need to recruit a management team 5 EFTA00506385