You are on page 1of 6

Fund Summary

Opportunity

Considerations

Expenses

Month

BDC Fund II*

HFRI EHI

S&P 500 TR

Dow Jones

April - 2015

0.75%

2.04%

0.96%

0.36%

March - 2015

-0.46%

0.31%

-1.58%

-1.97%

February - 2015

5.79%

2.76%

5.49%

5.64%

January - 2015

-3.53%

-0.62%

-3.00%

-3.69%

FYE 2014

-12.52%

2.26%

13.69%

7.52%

FYE 2013

13.20%

14.28%

32.41%

26.51%

FYE 2012

28.21%

7.41%

16.00%

7.25%

FYE 2011

-46.38%

-8.38%

2.11%

5.53%

FYE 2010

73.04%

10.45%

15.07%

11.02%

FYE 2009

4.37%

2.92%

5.49%

7.37%

YTD - 2015

2.35%

4.12%

1.92%%

0.10%%

Inception to Date*

25.90%

35.52%

121.70%

83.69%

1/1/12 to Date**

24.60%

30.11%

77.95%

46.03%

* Fund's inception was October 1, 2009. Performance shown is net of all fees & expenses including management & performance fees. Past performance is not necessarily
indicative of future performance. This material does not constitute an offer to sell (nor the solicitation of an offer to buy) interests in BDC Fund II, LP (the "Fund"). Offering
is made by Private Placement Memorandum from a Principal only. The indices included above are presented only to provide a general indication of U.S. Stock market
performance for the periods indicated and not as a standard of comparison because they are unmanaged, broadly based indices.
** Represents investor with initial contribution of 1/1/2012. (After revised investment strategy.)

MS Howells and Co.

Prime Broker

The General Partner of BDC Fund II, LP

Custodian

Pershing, LLC / The Bank of New York

The general partner of BDC Fund II, LP (the


Fund) is Southland Capital Management, LLC
(SCM), a limited liability company. SCM is
registered as an investment adviser in the State of
California and has discretionary trading authority.
Nicholas Marshi is the Chief Investment Officer;

Administrator

PartnersAdmin, LLC Monthly statements

Auditor

Weaver & Tidwell LLP - Annual Audit

Legal Counsel

Ragghianti / Freitas LLP

Web Site

www.southlandcapitalmanagement.com

William Hansen is the Chief Marketing Officer.

BDC Blog

www.bdcreporter.com

AUM, USD

$21 million

Gross Assets

$55 million

Investment Opportunity
Every year, thousands of companies in America raise
hundreds of billions of dollars of debt to finance buyouts, recapitalizations or to refinance existing
obligations, typically by issuing bonds or by taking on
loans. At a time when interest rates are very low,
borrowers pay a premium to attract debt capital.
Depending on size, credit risk and market conditions
borrowers pay between 5%-15% per annum. Outside
of recessionary periods, these loans have very low
default rates, pay interest regularly and rank in
Southland Capital Management, LLC
1600 Rosecrans Ave., 4th Fl.
Manhattan Beach CA 90266 (800) 579-1651
www.southlandcapitalmanagement.com

priority above the Private Equity groups, which


typically provide the equity capital for the underlying
transactions. Until recently investors could invest in
private company debt, which is also known as
leveraged finance, only through private partnerships
and only to a small number of borrowers. Moreover,
capital invested was typically tied up for several
years, and little information was provided about the
composition, performance, and value of the
underlying loans in these partnerships.

Executive Summary | May 2015 | Page 1

Fund Summary

Opportunity

Considerations

Expenses

Investment Universe

There are over 50


Business Development
Companies in
existence; with a
market capitalization in
excess of $30 billion

However, in recent years a new publicly-traded asset class has emerged


that provides investors broad and diversified access to all types of
borrowers from the very largest corporations to the lower middle market:
Business Development Companies (BDC). A BDC is a unique kind of
lender, set up by the Congress in 1980, with the express purpose of
encouraging loan and equity investments in American private companies.
BDCs are not required to pay corporate tax on their income, but must
distribute at least ninety percent of their taxable ordinary income to
investors, and are required to use only modest amounts of indebtedness.
As a result, BDCs generate relatively high and steady yields (typically
8%-12%) for investors, and are less leveraged than many other types of
vehicles that are involved in business lending such as banks, finance
companies and Collateralized Loan Obligations. No BDC has ever filed
for bankruptcy. Most of the BDCs in the market are managed by affiliates of
blue-chip Private Equity and Asset Management firms such as Goldman
Sachs, Apollo Group, Ares Management, TH Lee, Fifth Street Management,
etc.
BDC UNIVERSE
According to the Closed-End Fund Advisors (CEFA), there are over 50
publicly-traded BDCs, with a market capitalization in excess of $35 billion,
responsible for over $70 billion in loans to thousands of borrowers
throughout the United States. All BDCs are publicly registered investment
companies that trade on an U.S. stock exchange. Furthermore, there are
dozens of publicly traded fixed rate Notes issued by BDCs in which to
invest, with interest rates which range between 4%-8%, and which trade like
stocks.
We believe there is an exceptional and long term opportunity for investors
to achieve above-average returns from investing in a carefully selected
portfolio of BDC common stock and debt investments, with the added
benefits of liquidity and transparency from investing in publicly traded and
regulated instruments. Given the relative stability of the income streams,
SCM is comfortable using a modest amount of leverage to enhance investor
returns. The Fund is generally leveraged 2:1.
OUTLOOK
We project the number of publicly traded BDCs-as well as total market
capitalization and assets under management-will continue to increase in the
years ahead, increasing market share in leveraged lending at the expense
of national and regional banks and private funds.

Southland Capital Management, LLC


1600 Rosecrans Ave., 4th Fl.
Manhattan Beach CA 90266 (800) 579-1651
www.southlandcapitalmanagement.com

Executive Summary | May 2015 | Page 2

Fund Summary

Opportunity

Considerations

Expenses

Investment Strategy:
The Funds principal objective is to generate a stable stream
of investment income by assembling a highly diversified
portfolio of debt and common stock investments in Business
Development Companies. SCM undertakes a bottom up
analysis on all the investments in the Funds universe, reading
all public filings, published articles and, where possible, talking
to management, analysts and experts. The Funds extensive
research is contained in a proprietary database, which is
critical to SCMs selection of appropriate investments.
Moreover, by using leverage of up to 2x the Funds equity, the
goal is to generate superior levels of income for investors.

Although the Funds universe of investments pay out


relatively stable distributions, their stock price
movements are subject to wide fluctuations, i.e. market
volatility. The Fund seeks to reduce market volatility by a
variety of methods. SCM will periodically shift the Funds
investment mix between debt and equity investments,
and/or will reduce leverage by selling assets. Moreover,
SCM will sell short over-valued securities where
appropriate to take advantage of potential drops in
market value.

Investment Considerations
SCMs principals have substantial experience
in leveraged debt investing, and in hedge fund
management.
The Funds principals have over 50 years of experience in
leveraged finance. Mr. Marshi, who serves as the Chief
Investment Officer, was previously a commercial lender and
investment banker with Citibank and Kleinwort Benson, as
well as the founder and Managing Director of two private
equity firms: Kensington Capital Corporation and Southland
Capital Partners. Moreover, Mr. Marshi has been investing
personal and family funds in leveraged debt investments for
over 10 years. Mr Marshi edits the highly regarded specialist
financial website BDC Reporter (www.bdcreporter.com),
and is a regular contributor on Seeking Alpha and other
publications. Messrs. Marshi and Hansen have been
managing the Fund for over 5 years. SCM is a Registered
Investment Advisor based in California.

Southland Capital Management, LLC


1600 Rosecrans Ave., 4th Fl.
Manhattan Beach CA 90266 (800) 579-1651
www.southlandcapitalmanagement.com

The Funds portfolio is highly diversified.


By investing in a mix of BDC common stock and Notes, the
Fund's risk exposure is highly fragmented, especially as the
average BDC itself is diversified across dozens or hundreds
of different loans. SCM estimates that the Fund has
potential exposure to companies in every sector of the U.S.
economy, in every region of the country, and of every size
from starts-ups to businesses with billions in revenues.
SCM estimates the Fund has exposure to thousands of
leveraged debt borrowers, a degree of diversification far in
excess of any single mutual fund, closed end fund, private
fund or hedge fund vehicle involved in leveraged lending.

Executive Summary | May 2015 | Page 3

Fund Summary

Opportunity

Considerations

Expenses

Investment Considerations (contd)


Modest use of margin borrowing results in very
high levels of investment income compared to
other investment opportunities.
The Fund generally borrows up to two times its capital to take
advantage of the arbitrage between the high yields on
leveraged debt investments and the low cost of borrowing
(currently under 1.0% per annum). Currently the Fund is
generating a gross yield of nearly 2.0% monthly, or 22.0% per
annum.

Investors have option to receive distributions


monthly.
The Fund provides every investor with the option of being
paid their share of gross dividend income on a monthly basis,
or reinvesting the proceeds.

The Fund has generated volatile but superior


returns since inception.
Given the use of leverage, the Funds monthly results have
been subject to above average volatility since the launch of
the Fund in October 2009. In 2010, the Fund was one of the
best performing funds in America with a 73% return.
However, the Fund was negatively impacted by the financial
crisis of 2011, which resulted in being down -46%. However,
after taking measures to reduce volatility, the Fund performed
very well in 2012 & 2013. For the year ending 2014, the Fund
was down 12% in a difficult year for debt investments.
Inception to date, the fund is up 25.90%. Year to date in
2015, the Fund is up 2.4%. Since SCMs change of
investment strategy in January 2012, the Fund is up 27%. All
performance results are after all fees and expenses.

The Funds portfolio is highly liquid.


All the Funds investments are in public equity or debt
BDC securities traded on a major U.S. exchange, which
are independently valued on a daily basis, and which can
be liquidated on short notice. The liquidity of the Fund's
investments allows SCM to quickly redeploy assets to
take advantage of investment opportunities and to meet
any investor redemption requests on very short notice.

No Lock-Up Period on Capital.


Any Limited Partner may withdraw all or some of their
capital or income at the end of any month, subject only to
a minimum investment amount and on at least ten
days advance notice.

The Funds financial management is fully


transparent.
PartnersAdmin LLC, a respected third party fund
administrator, calculates the Funds returns and provides
monthly financial statements to every Limited Partner.
Weaver & Tidwell, LLP, a leading hedge fund accounting
firm, undertakes a full audit of the Fund, which is
circulated to the Limited Partners annually. Pershing LLC
serves as independent custodian for all investments.
Pershing is a subsidiary of the Bank of New York Mellon
and is the custodian for over 1,500 institutional clients,
and holds custody assets in excess of $1 trillion. M.S.
Howells & Co, a leading Scottsdale based broker-dealer,
serves as the Funds prime broker.

SCMs principals interests are aligned with


the Limited Partners.
SCMs principals, as well as members of their extended
family, have invested substantial portions of their own
capital in the Fund.

Southland Capital Management, LLC


1600 Rosecrans Ave., 4th Fl.
Manhattan Beach CA 90266 (800) 579-1651
www.southlandcapitalmanagement.com

Executive Summary | May 2015 | Page 4

Fund Summary

Opportunity

Considerations

Expenses

Management Fee & Expenses


Management Fee. The Fund pays a Management Fee
to SCM of approximately 2.0% per annum of each
Limited Partners pro rate share of the value of the
Funds total assets, including leveraged amounts.

Performance Allocation. At the end of each fiscal year


(or a shorter period in certain circumstances), net
profits and net losses for the year are allocated among
the Partners, and SCM receives a Performance
Allocation as to each Limited Partner equal to twenty
percent (20%) of the net profits allocated to that Limited
Partner, but only to the extent those net profits exceed
net losses previously allocated to the Limited Partner
that have not been recovered.

The Offering / Minimum Investment


The Fund is offering its limited partnership interests
(Interests) to a limited number of qualified subscribers
generally individuals with a net worth of at least $1.5
million and entities with assets of at least $5 million. The
minimum initial investment is $250,000. SCM may, in its
discretion, waive or change the investment minimum.
There is no minimum or maximum amount of Interests to
be sold. Limited Partners are admitted on the first day of
each month in SCMs discretion. Full payment for
Interests must be made at the time of subscription.

Solely for purposes of computing the Performance


Allocation, net profits and net losses include unrealized
gains and losses. This limitation prevents SCM from
receiving a Performance Allocation as to profits that
simply restore previous losses. SCM is entitled to
receive a Performance Allocation as to a Limited
Partner only to the extent the Limited Partners
cumulative share of profits through the current period
exceeds the highest level of profits allocated to it for all
prior periods. If a Limited Partner withdraws or is
distributed capital from the Fund, that Limited Partners
Unrecouped Losses are reduced proportionately based
on the amount withdrawn or distributed.

Expenses. The Fund will pay or reimburse SCM for


certain costs and expenses incurred by or on behalf of
the Fund, or for the Funds benefit, including without
limitation:

Southland Capital Management, LLC


1600 Rosecrans Ave., 4th Fl.
Manhattan Beach CA 90266 (800) 579-1651
www.southlandcapitalmanagement.com

Executive Summary | May 2015 | Page 5

Fund Summary

Organizational and
Offering Expenses

Operating Expenses

Overhead

Opportunity

Considerations

Expenses

Organizational expenses include, legal, accounting and government filing fees.


Operating expenses include, (A) the Funds ongoing accounting, auditing,bookkeeping,
tax preparation, administration, legal, consulting and other professional fees and
expenses; (B) all costs of communications with Limited Partners; (C) investment and
research-related expenses including all commissions, bid-ask spreads, markups,
interest on margin borrowing, costs relating to short sales, transfer taxes, custodian
fees, etc.

The General Partner will pay, and shall not be reimbursed by the Partnership, for its
own overhead expenses. These include: rent, employee salaries and benefits
insurance.

This Presentation is not an offer to sell or a solicitation of an offer to buy an interest in BDC Fund II, LP (the Fund). This presentation
is intended merely to determine expressions of interest in the Fund. Any offer or solicitation may only be made after delivery of the
Funds Confidential Offering Memorandum. This presentation does not include certain information that should be considered relevant
to any future investment in the Fund, including, but not limited to, significant risk factors and complex tax considerations.

For More Informa8on Please Contact:


Bill Hansen
Tel: 800.579.1651
eMail: bhansen@southlandcapitalmanagement.com

Southland Capital Management, LLC

www.southlandcapitalmanagement.com

Executive Summary | May 2015 | Page 6

You might also like