Page 1 Wellington Financial lP 2013 Year in review on June 30

2013 Year in Review
Wellington Financial LP is a specialty
finance company based in Toronto,
with offices in San Francisco and
Santa Monica, California. Wellington
operates a $200 million recirculating
equity program that provides secured
senior or secured subordinate loans
to growth companies in Canada and
the United States. Founded in 2000,
Wellington is the largest independent
venture debt fund in Canada.
Fund IV Overview
»
»
» Distribution date: Targeted quarterly
2013 – An Active and Successful Year for Wellington
Net simple GAAP return for 2013 of 10.1%;
10.9% IRR
»
Closed 8 new transactions in both Canada and
the USA
»
Named to Preqin’s list of “Consistent Performing
Managers”
»
On June 30, 2012, Fund IV acquired
Fund III’s 19 company portfolio. Since
that date, Fund IV has committed
almost $130 million on new loans
across 18 different companies.
» First close: June 30, 2012
($177.5 million)
» Final close: March 31, 2013
($200 million)
» Minimum investment: $3 million
(Fund IV closed to new investors)
» Management fee/allocation:
2% p.a., paid monthly
» Lock-up: Life of fund – 2020, subject to
“no fault divorce” clause
» Preferred return: 6% with clawback on
all GP payouts
Opened third office – San Francisco, California
Wellington Financial LP 2013 Year in Review
2013: An Active and Successful Year for Wellington
In 2013, the Wellington team reviewed more than 600 opportunities, conducting
detailed due diligence on more than 290 firms from across Canada and the USA:
»Closed 8 new transactions
» Opened our third office in San Francisco, California
» Wellington’s portfolio had 27 different commitments on December 31, 2013
» 76% of Fund IV is committed/drawn
» Committed $130 million on new loans across 18 different companies since the first close
• Received 9 full loan repayments (5 by way of M&A transactions)
• 3 positive credit reversals
• 1 new specific credit provision
» Several portfolio companies advised they would be initiating an M&A sales process in
2014 – expecting warrant gains over coming quarters
» At the end of Q4 2013 and since the inception of Fund II in 2004, Wellington has closed
82 transactions for 71 different companies:
• Loans to 24 different companies were outstanding at quarter end
• Of the 47 company loans no longer outstanding, 47% generated an IRR >20%, 43% between 10-20%, 4% between 0-10% and 6% had a negative IRR
• Realized loan losses to date represent <3% of the total loan dollars advanced
since inception
Fund III’s Steady Distribution History
Fund III paid out 22 consecutive profit distributions between April 2007 and
September 2012; Fund IV began distributions in Q4 2012:
Fund III Quarterly Cash Distribution on Average Drawn Capital
Q1
Q2
Q3
Q4
2007
—
1.68%
4.76%
1.39%
2008
1.76%
2.02%
2.39%
1.03%
2009
1.35%
1.72%
1.93%
1.11%
2010
2.18%
1.21%
2.62%
2.35%
2011
1.02%
1.80%
1.80%
4.42%
2012
1.13%
3.05%
2.03%
—
Fund III Cumulative Cash Distribution on Average Drawn Capital
Q1
Q2
Q3
Q4
2007
—
1.68%
6.27%
5.98%
2008
6.81%
8.47%
9.75%
10.56%
2009
13.85%
15.85%
17.78%
18.89%
2010
21.08%
22.29%
24.91%
27.26%
2011
28.28%
28.94%
29.38%
33.80%
2012
34.93%
37.99%
40.02%
—
Wellington Financial LP 2013 Year in Review
Fund II,
III and IV
IRR
> 20%
10 – 20%
0 – 10%
< 0%
As at the end of Q4 2013
Consistent Investment Strategy
Since inception, Wellington has provided first secured senior or secured
subordinate loans in keeping with the following investment strategy:
» Cash-pay yield via secured corporate loans
» Capital preservation is the key goal:
Across the portfolio, current assets (cash, A/R and inventory) often represent an average
of 1.5-1.75x all debt equal or senior to Wellington’s loans (including our facilities)
» Short, if any, J-curve
» No active fund has ever had a negative income year
» Consistent returns generate regular distributions
» Disciplined targeting:
• High growth companies that want to delay the dilution of equity and have
meaningful revenue (generally between $10M-$100M)
• Attractive firms that can’t access sufficient bank debt due to the fact that their
key asset is IP
» Diversification of portfolio:
• Geography: 27% Canada / 73% USA as of January 2014 • Industry: Since the 2008-2009 crisis, Wellington has focused primarily on industries
within the Innovation Economy but has experience in most major industries and
many niche sectors of the economy
73%
27%
Experienced Team of Investment Professionals
Wellington has an experienced core team of investment professionals that has been
consistent and stable across its externally managed funds.
Professional
Joined
Title
Mark McQueen
2000
President & CEO
Mark Usher
2006
Partner
Kul Mani
2000
Partner
Vik Gupta
2013
Partner, Western USA
Eric Speer
2009
Vice-President, Santa Monica
Jason Nardari
2001
Vice-President
Amit Rajput
2010
Vice-President, Finance
Caroline Mulroney Lapham
2011
Vice President,
Corporate Development
Daniel Bernholtz
2010
Associate
Amy Olah
2000
Business Development
Paul McKinlay
2013
Business Development
Mark McQueen
Co-founder and CEO, Mark
has spent the last 14 years
building Wellington Financial
into one of North America’s
most active venture debt
funds. Previously, Mark
was Managing Director
and Head of Technology
Investment Banking of Orion
Securities (now Macquarie
Capital Markets). Previously,
he worked as an advisor in
the Prime Minister’s Office.
Ken Rotman
Wellington’s management
company is owned by our
management team and by
Clairvest Group. Clairvest
Co-CEO Ken Rotman is a
co-founder of Wellington
and currently serves as
Wellington’s Chairman and
a member of its credit and
investment committees
WELLINGTON FINANCIAL LP 2013 YEAR IN REVIEW
Established Track Record and History of Successful Outcomes
Wellington’s net returns exceed all fixed income benchmarks as of December 31, 2013:
Relative Returns
» Fund I: 2000 vintage, $7 million of
re-circulating capital – Top decile IRRs
Investment Horizon Performance through December 31, 2013
Fund Type
1 Year
3 Year
5 Year
10 Year
1.0
1.2
1.6
2.3
FTSE TMX Bond Universe C$
-1.2
3.9
4.8
5.2
» Fund III: 2006 vintage, $150 million of
re-circulating capital – Five year net
cash IRR of 8.8% (2007-2011)
Wellington Financial Fund II
» Fund IV: 2012 vintage, $200 million of
re-circulating capital – 2013: net simple
GAAP return of 10.1%; 10.9% IRR
Wellington Funds I–III
» Fund II: 2004 vintage, $83 million of
re-circulating capital – Five year net
cash IRR of 8.7% (2004-2008)
Canadian Gov’t Bond Yield
(1)
nmf
9.1
8.7
Wellington Funn III (GAAP)
(3)
8.9
10.4
9.0
Wellington Fund IV (GAAP)
(4)
10.9
(2)
9.4
(5)
All WF returns are net IRR to investors after mgmt. fees, carried interest and credit
reserves. (1) As at 6/17/14; (2) 3 yr. figure simple return as at 12/08; 5 yr. figure IRR as
at 12/08; (3) Terminated in 2012; (4) Launched July 2012; (5) As at December 2012
Funds I – III data reflects net IRR since inception August 2000 – December 2013
In the context of the FTSE TMX (formerly DEX) bond universe, Wellington has delivered:
» 3930 bps of cumulative net “value add” over the past 10 years (Cost accounting basis)
» 3367 bps of cumulative net “value add” over the past 7 years (GAAP accounting basis)
Net Returns
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
FTSE TMX Bond Universe C$
Wellington Financial (Cost)
WF value-add
(Cost Returns vs DEX C$)
7.1%
6.5%
4.1%
3.7%
6.4%
5.4%
6.7%
9.7%
3.6%
-1.2%
14.2%
12.4%
6.6%
11.8%
6.9%
6.9%
7.2%
9.4%
8.9%
7.0%
710
590
250
810
50
150
50
-30
530
820
11.0%
10.0%
7.8%
10.1%
8.9%
10.0%
10.1%
730
359
244
340
-76
640
1130
WF Funds III & IV (GAAP)
WF value-add
(GAAP Returns vs DEX C$)
Note: Simple return calculations. Fund II for 2004-06. Fund III for 2007-2011. Fund III/IV for 2012-.
Net Returns
15 %
Wellington Financial (Cost)
12
WF Funds III & IV (GAAP)
9
6
3
FTSE TMX Bond Universe C$
0
-3
2004
2005
2006
2007
2008
2009
2010
For more information, please contact:
Caroline Mulroney Lapham
Vice-President, Corporate Development
[email protected]
(416) 682-6014
Wellington Financial LP 2013 Year in Review
2011
2012
2013
Wellington Financial LP
Bay Adelaide Centre
333 Bay Street, Suite 1620
Toronto, ON, M5H 2R2
www.wellingtonfund.com