Beacon Hill Asset Management

1
Beacon Hill Asset Management

• Jack Barry
• 2nd Annual GFA Conference
• January, 2002
• jbarry_at_beaconfunds.com

2
Our Investment Goal
At Beacon Hill Asset Management our objective is
to achieve consistent, noncorrelated returns. We
have developed an actively managed mortgage
strategy that minimizes volatility, even in
difficult markets, while delivering risk-adjusted
returns that are superior to other asset classes.
This is accomplished through an extensive asset
selection process and diligent hedging and
without market speculation.
3
Beacon Hill Asset Management

• Beacon Hill is an investment management firm
  founded in January 1997 by a group of seasoned
  mortgage and asset-backed securities
  professionals.
• The Firm specializes in managing mortgages and
  asset-backed securities portfolios for a diverse
  group of institutional investors.
• The Firm has grown to 13 professionals with past
  experience in pension funds, investment banks,
  rating agencies, mutual funds and insurance
  companies and has 1 billion in capital under
  management.
• Beacon Hill formed a strategic alliance with
  Asset Alliance in 1998 which enhanced the Firms
  credit and financing capabilities

4
Strategic Goals

• Preservation of Capital
• Return Target 13-15 net
• Low Correlation to Equity and Bond Market Indices
• Hedge to Dampen Volatility

5
Risks Inherent in Mortgages

• Credit Risk - Our portfolios are invested
  primarily in AAA rated assets in an effort to
  avoid credit risk.
• Interest Rate Risk - As a new security is
  purchased, a short (sell) position is created in
  either a Treasury, agency debenture, or swap that
  offsets any adverse interest rate moves.
• Yield Curve Risk - Due to the payment of monthly
  principal and interest, mortgages generate
  cashflows throughout their 30 year term. These
  cashflows must be hedged over that term. We
  execute hedges along the yield curve depending on
  the securitys sensitivity to movements in the
  curve. Treasuries, agency debentures and
  interest rate swaps are the most effective
  instruments to hedge this risk.
• Prepayment Risk - We search for securities that
  exhibit low correlation to changes in
  prepayments. Securities with low coupons and low
  dollar prices provide the highest degree of
  protection from prepays. Options strategies are
  then employed to limit the Funds exposure to
  prepayments. ALL OF THE RISKS LISTED ABOVE ARE
  REVIEWED DAILY.

6
Hedge Correlation

Yield
FNMA Debenture 7 ¼ 01/10
Current Coupon Mortgage
7
Beacon Hill Strategies

• Since inception, annualized 13.05
• Average monthly gain 1.34
• 1 billion assets under management
• 2001 annualized 13.82
• Standard deviation 1.28
• Number of positive months 95

Rolling 12 months