Pitch Deck - Wealth Management

Rational, independent thinking™

INSTITUTIONAL PITCH DECK

September 2014

TABLE OF CONTENTS

1. Executive Summary 3

2. Who We Are 5

3. Our Team 6

4. What We Do 7

5. Investment Philosophy 9

6. Investment Process 15

7. Portfolio Philosophy 24

8. Silver Heights’ Performance 30

9. Why Silver Heights? 36

Appendices: Case Studies, Biographies

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EXECUTIVE SUMMARY

• Rational, independent thinking™

• Intelligent Concentration™

• Superior risk-adjusted absolute returns

• “Investment First” ethos

3

Silver Heights is a high-conviction, absolute return manager.

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EXECUTIVE SUMMARY

• Alpha created through high-conviction, absolute return investment

management

• Clear and direct alignment with clients’ interests

– Co-founders and senior employees have over 95% of their liquid net worth invested

in the same securities that clients hold

• No financial leverage

• Tight-knit team with zero turnover in staff since inception in 2006

• History of generating consistent, strong, risk-adjusted absolute returns

• Very disciplined in adhering to investment philosophy and approach

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WHO WE ARE

• Founded in 2006 by Ming Lam and Kevin Kuebler

– Friends for over 30+ years; colleagues for over 12 years in investment management

– Very stable business partnership – 50/50 ownership of Silver Heights

– 40 years of combined experience in finance and investment management

• We are building our team carefully and rationally

– Our aim is not to be the biggest, but to be among the most well-respected in what

we do. We are very selective about who we add to our team.

– Our size is part of our strength: nimble enough to take advantage of investment

opportunities that help us create alpha.

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OUR TEAM

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We will carefully and selectively add skills and talent as we grow our assets,

but always with a view to keeping our firm lean.

Ming Lam

Co-Founder & Owner

Investment Decisions

Securities Trading

Kevin Kuebler

Co-Founder & Owner

Investment Decisions

Compliance & Operations

Yahphen Yvonne Chang

VP, Business Development

Client Relationships

Melissa Brown

Compliance and

Operations

Richard Walkowiak

Manager, Compliance and

Operations

WHAT WE DO

• We seek high-quality businesses that we can purchase at a significant discount

to their intrinsic value.

• We build concentrated portfolios of 12-20 stocks.

• We manage fully segregated portfolios.

– Every client receives fully customized, disciplined and patient deployment of their

capital.

• We focus on the long term.

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High-quality businesses which are patiently acquired at favourable prices

lessen the risk of capital impairment and increase potential returns.

WHAT WE DO

• We pride ourselves on delivering a very high level of client service.

– Portfolio managers always accessible

– Team members always accessible

– Face-to-face meetings as requested by client

– Written quarterly updates

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INVESTMENT PHILOSOPHY RATIONAL, INDEPENDENT THINKING™

“Silver Heights’ goal is to create alpha while minimizing the risk of permanent capital

impairment. We aim to achieve superior, long-term, risk-adjusted absolute returns by

investing in high-quality businesses. We only acquire shares when prices are below the

intrinsic value of the business, thereby putting less capital at risk and enhancing potential

returns. When we find the opportunities in which we have a strong conviction, we will

take meaningful positions. We do not use leverage. It is our belief that the optimal

approach to grow capital to ensure that future liabilities can be comfortably funded is by

having the greatest exposure to our best ideas.”

• How do we achieve our goal?

– Own excellent businesses.

– Acquire these businesses at a discount to their true economic worth.

• Why are we able to do this? What creates these opportunities?

– Our lens is wide open – we do not let commonly-used filters such as relative

weightings, sector targets, geographic limits, beta, or GIC

codes limit our opportunity set.

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There are excellent investment opportunities that fall

between the cracks of these conventional approaches.

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Generally, investing for the long-term in good companies will yield good

returns simply by virtue of being patient. Exceptional returns are more likely to

be earned by being both patient and picking high-quality companies

that are mispriced or misunderstood.

Inefficient markets

Emotions → irrational behaviour

Other’s short time horizons

MISPRICED

STOCKS

EXCELLENT

INVESTMENT

OPPORTUNITIES=

• What is an “excellent” business? If you could own any business, what would you

look for?

– Predictable prospects / sustainable competitive advantage

– Strong balance sheet

– Strong free cash flow

– High returns on invested capital

– Reasonable growth

– Excellent, high-integrity management who are good capital allocators

– Appropriate compensation structures

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• Patience and temperament

– An excellent business, by itself, is insufficient for investment success.

– Overpaying for any business, even an excellent one, exposes one to more risk and

very likely, subpar returns.

– Although simple in principle, being patient in practice is not the norm in an industry

where frequent trading is more typical.

Temperament and patience are perhaps the most underappreciated tools that

investors have at their disposal.

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‘Following the herd’ has been a primary contributor

to virtually every stock market and financial crisis in history.

• Silver Heights applies a merchant banking approach to publicly-traded

securities.

– Think like owners and operators rather than traders

– Longer time horizon

– Search for management teams with the same characteristics as those we would desire

in partners in a private business venture

– Concentrated portfolios

– Absolute return focused

– Capital preservation top of mind

– Principals invested alongside our clients

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INVESTMENT PROCESS

GLOBAL EQUITY UNIVERSE

IDEA GENERATION

VALUATION & ASSESSMENT

PORTFOLIO CONSTRUCTION

MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

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Our investment process is disciplined, rigorous & repeatableINVESTMENT PROCESS

• We use S&P’s Capital IQ. Its global database contains over

60,000 public companies (99% of global market cap).

• Screen investable universe of companies across geographies,

sectors and industries.

• We use customized search criteria, specifically coded for Silver

Heights.

• Having very high standards helps us efficiently narrow down the

opportunity set:


IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

• Ideas come from multiple sources

− Business and industry publications and reports− Extensive business network and contacts− Management meetings− Research analysts

• Search for high-quality businesses. The ‘perfect’ business would have these characteristics:

− Sustainable competitive advantage− Strong balance sheet− High free cash flow− High returns on invested capital (>25%)− Good growth prospects− High insider ownership − High-integrity management who are good capital allocators − Appropriate compensation structures

• Develop a preliminary investable universe of companies –develop a “Wish List”

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IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

• In-depth fundamental analysis – review historical financial

statements (typically 10-20 years, when applicable)

• Determine “intrinsic value” of companies by valuing business on

a private-enterprise basis, independent of the stock market’s

attributed value

− Discounted cash flow

− Very conservative assumptions

o 10% discount rate

o No growth after initial 5 years

o Low terminal multiple

• Focus on best risk-adjusted, absolute return, investment

opportunities

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IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

• Identify excellent businesses. Wait for price to hit SHCM’s target

price range – must be at significant discount to the company’s

intrinsic value.

• When price declines:

− Re-assess our valuation

− Re-assess the business’ prospects

− Ensure that reward-to-risk ratio is favourable

• Build concentrated portfolios of 12-20 stocks

• Stocks are not equally weighted – higher weightings given to

better quality or more attractively priced companies:

− Typical initial position weightings are 4%-7%

− Extremely high-quality and well-priced companies can be up to

mid-teen percentage weightings at cost

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IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

• Very cognizant of intra-portfolio correlations and liquidity

considerations

• Take advantage of statistical diversification but avoid

“diworsification”

− Portfolio holdings typically from 6-7 GICS sectors

• Low turnover – average hold is 5-6 years but prepared to sell

quickly when warranted

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IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

• Daily monitoring of investments. All positions monitored to

ensure that:

− The underlying businesses are performing as expected

− The price-to-value equation remains sufficiently attractive

• Pay attention to price changes and company announcements

• Participate in quarterly conference call, management meetings

• Stay in touch with company and industry experts

– View ourselves as business owners rather than traders of pieces of

paper

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IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

• Wish List companies monitored daily

• Existing investments are continually compared with

opportunities that are presented to us on a daily basis by the

changing prices in the stock market.

• Choose best and most attractive investments with optimal

reward-to-risk characteristics.

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IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

• When there is a fundamental adverse change in the business

• Overvaluation

• A superior alternative investment opportunity is available (i.e., a

better reward-to-risk profile)

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IDEA GENERATION



MONITOR INVESTMENTS

MONITOR WISH LIST

SELL DISCIPLINE

PORTFOLIO PHILOSOPHY SUPERIOR RISK-ADJUSTED RETURNS

• Characteristics of Silver Heights’ approach

– Intelligent Concentration™ → high-conviction investing

– Patient and prudent deployment of capital

– Ownership of quality businesses

– Only invest in companies we thoroughly understand

• What is Intelligent Concentration™?

– Hold enough securities for diversification, but not so many as to dilute the impact of

your best ideas.

– Hold a concentrated portfolio of 12-20 companies:

• Stocks are not equally weighted → higher weightings are given to higher quality and/or more

attractively priced companies

– Many people unknowingly own the broader index by owning too many stocks and/or

funds.

– Difficult to beat the index if your portfolio mimics the index and you pay management

fees.

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HIGH-CONVICTION INVESTING

PORTFOLIO PHILOSOPHY INTELLIGENT CONCENTRATION™

• Our definition of risk

– We define risk as the risk of losing money, or “permanent capital impairment”.

– We do not view risk as “benchmark risk” - how our returns compare to those of an

index - particularly in the short term. We are focused on the long term.

• Minimizing risk

– High-quality companies

– Attractive purchase prices

– Seek the best risk-adjusted, absolute returns with the lowest possible risk of capital

loss

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The less you pay for an asset relative to its value, the less capital you risk,

and the more you are likely to make. You do not have to take on more

risk to earn greater returns.

How does Silver Heights view risk? How does Silver Heights minimize risk?

At Silver Heights, we define risk as the possibility of losing money. The investment decisions we make are aimed at minimizing this risk.

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Areas for risk

mitigation Risk management tool What is achieved

Stock SelectionQuality

• The higher the quality of the business, the more likely it will deliver better corporate performance, and the less likely it will produce negative surprises

and put your capital at risk.

Price• Choosing the right price (the right entry point) at which to buy a company is imperative. The less you pay for an investment, the less capital you risk.

• Risk comes from paying a price that exceeds the asset’s value.

PortfolioDiversification

• Choose enough stocks for statistical diversification but not so many as to dilute the impact of your best ideas. The vast majority of the benefits of

diversification are achieved with 8-10 stocks.

• We are extremely cognizant of intra-portfolio correlations.

Weighting• Higher weightings given to higher-quality stocks and/or lower-priced stocks.

• Concentrated portfolios of 12-20 stocks mean greater exposure to your best risk-adjusted investment ideas.

ClientSegregated Portfolio

• Segregated portfolio structure allows for selective deployment of capital over time (enhancing potential returns) and facilitates liquidity and portfolio

portability.

• Clients own stocks (not units in a pooled fund).

Liquidity • Clients can liquidate at any time. 90% of stocks will be liquidated within 48-72 hours.

TacticalFresh Money ™

• Portfolios are carefully custom built: client capital is selectively deployed over time in only the best opportunities, at prices that are at a significant

discount to their intrinsic value.

In-depth research• We undertake rigorous fundamental analysis – only buying companies that we thoroughly understand and for which we have a view on their true

value.

Philosophical

Patience and willingness

to say “No”

• We are willing to wait for the best opportunities at the right price.

• Willing to say “no” to companies we don’t understand. You can’t value a business you don’t understand.

• Avoiding a bad decision is often the smartest decision.

Time horizon• A long-term time horizon addresses many perceived risk issues, mitigating against short-term price swings and market ups and downs.

• A longer perspective allows you to use short-term volatility in pricing as a tool for reducing risk and enhancing returns.

• Our view on volatility

– Volatility in pricing is what creates opportunities.

– A longer-term focus allows us to take advantage of short-term volatility.

• Short term stock price volatility may result in quotational losses in the portfolio.

These are not the same as permanent capital impairment, and this volatility can

provide us with purchasing opportunities.

– Volatility presents risk only if you have a very short time horizon.

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By understanding what a business is truly worth and having a long-term

perspective, volatility ceases to be a risk, and instead, presents opportunities.

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Not making a sub-optimal investment is a good decision.

• Our view on cash

– Holding cash when prices aren’t in your favour helps prevent capital loss, while

providing tremendous option value for future opportunities.

– It is never an active decision to hold cash: Any cash held is an outcome of what

cannot be deployed at attractive prices.

– Even with funds earmarked for equities, we will only deploy the capital when the

reward-to-risk equation is sufficiently favourable. Rule #1 is always “Don’t lose money”.

The Benefits of Selectively Deploying CapitalAnnualized returns since inception, for investment periods 2 years or longer, through Q2 2014

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Compound

Average Annual

Return

All periods

ending Q2 2014

Starting Date of Investment

Regardless of the

timing of when a

client joined Silver

Heights, our

process has

delivered strong

results in the

medium- and

long-term.

SILVER HEIGHTS’ PERFORMANCE

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Q4 2

006

Q1

2007

Q2 2

007

Q3 2

007

Q4 2

007

Q1

2008

Q2 2

008

Q3 2

008

Q4 2

008

Q1

2009

Q2 2

009

Q3 2

009

Q4 2

009

Q1

2010

Q2 2

010

Q3 2

010

Q4 2

010

Q1

2011

Q2 2

011

Q3 2

011

Q4 2

011

Q1

2012

Q2 2

012

Silver Heights

S&P/TSX Index

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WHY SILVER HEIGHTS? RATIONAL, INDEPENDENT THINKING™

Silver Heights’ is well-suited to help you manage the

challenges and risks presented by today’s environment.

• Silver Heights’ competitive advantages

– Willingness to be independent-minded and have a different opinion

– Rigorous investment due diligence and analysis

– Temperament, patience, longer-term focus

– Discipline in our investment approach: no possibility of style drift, “investment-first”

ethos is a founding principle of our firm, and one which has been battle tested in

challenging environments

• Ranked in the 1st percentile in 2008 among industry peers

Markets are at all-time highs. Increased volatility seems to be the ‘new norm’.

Our process, temperament and corporate structure enables us to invest effectively

in these conditions.

Ming is a co-founder of Silver Heights. In addition to shared responsibility for the investment

decisions made for our clients, he oversees the securities trading operations of the firm.

Ming’s entire professional career has been in investment management, as he was fortunate to

have discovered his passion for investing while attending university and managing his own

portfolio. His formal investing career began at O’Donnell Investment Management, where he

was an analyst. Following the sale of that company, he joined Burgundy Asset Management,

where he co-managed approximately half of the firm’s assets. Prior to founding Silver Heights,

Ming was the lead manager at Manitou Investment Management.

Ming is a CFA charterholder. He obtained his Bachelor of Commerce (Honours) from the

University of Manitoba and his MBA from Queen’s University.

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BIOGRAPHIES

MING LAM, Co-Founder

Kevin is a co-founder of Silver Heights. In addition to shared responsibility for the investment

decisions made for our clients, he oversees the operational and compliance functions for the firm.

Prior to the founding of Silver Heights, Kevin’s entire professional career involved evaluating

businesses from a number of different perspectives. He has held positions as a lender at the

Business Development Bank of Canada, dealing with small, private businesses, and as an

investment banker at BMO Nesbitt Burns, where he dealt with large, public companies. Prior to

founding Silver Heights, Kevin chaired the Investment Committee at Manitou Investment

Management.

Kevin is a CFA charterholder and obtained his Bachelor of Commerce (Honours), with Distinction,

from the University of Manitoba.

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BIOGRAPHIES

KEVIN KUEBLER, Co-Founder

Yahphen is responsible for business development and client management at Silver Heights.

Yahphen’s professional career comprises finance and investment banking experience as well as

business management and operations. At Canada’s Export Development Corporation,

Yahphen negotiated export financing credit agreements with banks in China, Hong Kong and

Vietnam. Her 10 years of investment banking experience started with Credit Suisse First Boston

in New York and continued at BMO Nesbitt Burns in Toronto where she worked on debt and

equity financings and mergers and acquisition advisory. Prior to joining Silver Heights, Yahphen

was managing business operations at Actex International Corporation, her family’s 40-year old

New York-based international apparel business where her responsibilities included overseeing

20 employees and handling finance and marketing matters.

Yahphen holds a BA from Columbia University, a General Course diploma from the London

School of Economics and Political Science, and an M.Phil. from Oxford University.

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BIOGRAPHIES

YAHPHEN YVONNE CHANG, VP, Business Development & Client Management

Richard is responsible for operational, finance and compliance matters at Silver Heights.

Richard has 30 years of valuable experience in the securities and investment management industry with a strong focus on operations and compliance. For the last 15 years, he was at National Bank Correspondent Network (NBCN) overseeing a team responsible for delivering the full range of NBCN’s services to a number of Portfolio Management firms, including Silver Heights. Prior to joining NBCN, Richard was a Sales Compliance Auditor with the Investment Dealers Association of Canada, and had previously worked at several Bay Street firms. Richard provides Silver Heights with in-depth knowledge of custodial matters, knowledge of investment management systems and software, and experience in working with a broad base of investment managers.

Richard holds a BA in Economics from the University of Western Ontario, as well as the CSC/Registered Rep and Options/Derivatives designations from the Canadian Securities Institute.

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BIOGRAPHIES

RICHARD WALKOWIAK, Manager, Operations and Compliance

Melissa is an integral part of the operational and compliance team at Silver Heights.

Melissa’s career has focused on managing successful corporate projects and events. She also

has significant experience managing Human Resources and online communications.

Melissa started her career with the TD Bank in Corporate Human Resources. Her diverse

background includes experience in the banking, fashion, telecom and technology

industries. Before joining Silver Heights, she was an independent project manager for 8 years

working with non-profits on large-scale events.

Melissa holds a BA from York University, a Human Resources Management Certificate from

Seneca College of Applied Arts & Technology and has completed various courses at University

of Toronto’s iSchool Institute, Faculty of Information.

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BIOGRAPHIES

MELISSA BROWN, Operations and Compliance

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DISCLAIMER

The investment returns referenced in this presentation are

indicative of our clients' results as a whole. Results for individual

client accounts may vary. Returns are expressed gross of

investment management fees. Past performance is not indicative

of future performance.

The information contained herein is derived from sources which

are believed to be reliable. Any opinion expressed herein is based

solely on the presenter’s current analysis and interpretation and is

subject to change. This material does not constitute an offer to sell

or a solicitation to buy any security.

Investor Relations

Pitch Deck - Wealth Management