First Quadrant
US Small/Mid Cap
Value Equity Manager
Hosted By:
Rick Roberts,
Partner,
Director of Marketing
For Advisor Use Only
1
US Small/Mid Cap Value Equity
Unless otherwise noted, performance figures do not reflect the deduction of investment advisory fees. These fees are described in Part II of our
Form ADV, which is available upon request. The returns shown will be reduced by the advisory fees and any other expenses the advisor may
incur in the management of an investment advisory account. Simulated performance is no guarantee of future results in a live portfolio
using the strategy. Potential for profit is accompanied by possibility of loss.
For One-On-One Use Only
Firm Overview
As of December 31, 2005
> First Quadrant, L.P.
> Headquarters: Pasadena, CA
> Employees:
> 80 total
> 30 investment professionals
> Assets under management (including overlays): $26.4
billion*
> Investment Strategies
> Equities
> Global Macro
*Includes all discretionary portfolios of First Quadrant, L.P. and all discretionary and non-discretionary portfolios managed by joint venture partners using First
Quadrant, L.P. investment signals as well as assets not managed by FQ, but which are subject to First Quadrant, L.P. overlay strategies.
3 US Small/Mid Cap Value Equity
Types of Clients
December 31, 2005
As a % of Actively Managed Assets Only
Domicile
Client Segment
Public 28%
Sub-Advisory
10%
US Clients 60.3%
Commingled
Fund 5%
Non-US Clients
40.7%
Corporate 41%
Joint Venture
6%
Other 6%
Endowment/
Foundation 5%
Includes all discretionary portfolios of First Quadrant, L.P. and all discretionary and non-discretionary portfolios managed by joint venture partners using First
Quadrant, L.P. investment signals as well as assets not managed by FQ, but which are subject to First Quadrant, L.P. overlay strategies. Passively managed
portfolios are excluded.
4 US Small/Mid Cap Value Equity
Investment Style
Application of Investment Views
Systematic
Technical
Fundamental
Discretionary
Basis for Investment Views
Systematic Implementation of Fundamental Investment Views
5 US Small/Mid Cap Value Equity
Investment Philosophy
> Significant and recurring market inefficiencies.
> Objective analysis of economic, market and fundamental
conditions strips emotion from investment process.
> History tells us which inefficiencies are profitable, and how
much weight each should receive in our decisions.
> Inefficiencies may be arbitraged away, so innovation is
essential to staying ahead of the competition.
6 US Small/Mid Cap Value Equity
Challenge and Response
> Challenge: All market inefficiencies go through phases of expansion and
contraction
> Response: We believe the ability to deliver value-added
therefore requires the following features in our investment process:
Breadth
Only with a wide array of
uncorrelated sources of profit can
investors expect to deliver alpha
consistently.
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Opportunistic
Use of Breadth
Search for New
Market Inefficiencies
Tactically shifting the risk towards
those market inefficiencies where
the opportunities are large and
away from those where they are
small enhances the return
captured per unit of risk taken.
Competition for alpha will exhaust
the alpha imbedded in those
market inefficiencies that are
broadly exploited by managers.
New sources must continuously
be sought out if past investment
success is to be maintained into
the future.
Equity Investment Team
Name
Max Darnell
Christopher Luck, CFA
Andrew Berkin, Ph.D.
Nhan Bui
David Chrisman, Ph.D., CFA
Paul Li, CFA
Jia Ye, Ph.D
Binbin Guo, Ph.D.
Moe Tint
Junyao Zhang, CFA
Paul Brennan
Lisa Erganian
Tony Lee
John Meacham
Sean Smith, CFA
Ben Solecki
John Turley
8 US Small/Mid Cap Value Equity
Title
Partner
Partner
Director
Director
Director
Director
Director
Associate Director
Associate Director
Associate Director
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Primary Responsibility
Chief Investment Officer
Director of Global Equities
Equity Research and Portfolio Strategist
Equity Trading
Equity Operations
Equity Research and Portfolio Strategist
Equity Research and Portfolio Strategist
Equity Research and Portfolio Strategist
Equity Portfolio Engineering
Equity Research
Equity Research
Equity Trading
Equity Research
Equity Portfolio Engineering
Equity Portfolio Engineering
Equity Portfolio Engineering
Equity Research
Years Experience
Industry
FQ
15
18
9
14
6
14
11
15
12
7
6
21
3
3
6
1
3
15
11
9
12
6
2
10
3
10
7
2
12
<1
3
6
1
3
Investment Process
Portfolio
Construction
Drivers of Returns
• Style
Stock
Universe
• Industry/Sector
• Valuation
• Quality
• Sentiment
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Rank all
stocks
Attractive
to
Unattractive
• Maximize
Expected
Returns
• Manage Risk
• Consider
Transaction
Costs
• Adhere to
Policy
Guidelines
Client
Client
Portfolio
Portfolio
Multiple Independent Alpha Sources
Style
Sentiment
Earnings
Characteristics
Insider Trading
Volume Changes
Value
Earnings Yield
Growth
Corporate Actions
Size
Return Reversal
Volatility
Momentum
Reinvestment
Relative Valuation
Solvency
Quality
Earnings Quality
Valuation
Corporate Growth
Absolute Valuation
Profitability
Accounting
Fundamentals
Industries
Sectors
Industry/Sector
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Adding Real Value
Real Value-Added =
Value-Added minus Trading Costs
Alpha Sources
Relative Valuation
Sentiment
Real Value
Added
Earnings Quality
Corporate Actions
Volatility
Industry and Sector models
Market Impact
Commissions
Top-down factors
Trading Costs
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Value-Added
Portfolio Construction
> Optimization: Construct portfolios with the highest expected return
at a prescribed level of risk
> Top-Down Themes: “What themes are prevalent in the market?”
> Industry: “Which industries will benefit, or not, in this environment?”
> Stocks: “Which stocks in these industries are likely to outperform
or under-perform?”
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Distinguishing Features
> A disciplined, systematic focus on stock selection and
risk control
> A tactical approach to allocating active risk where
opportunities to profit are greatest
> Continuous research and focus on innovation
> Over a decade of experience in managing domestic and
global equities
13 US Small/Mid Cap Value Equity
Rick Roberts
Partner
First Quadrant, L.P.
Rick Roberts is the First Quadrant partner assigned to determine the firm's international
marketing strategy. In this function, Rick manages a team of professionals who develop
business with large institutional investors in the US and, through First Quadrant joint ventures,
around the world. Rick brings to his current position years of experience as an analyst, trader,
and currency risk manager. Prior to joining First Quadrant in 1997, he was affiliated with
Provident Capital Management, Akamai International, and money-center banks in similar roles.
He earned an MBA in finance from the University of Notre Dame in 1986 and a Bachelor of
Science degree in agriculture from the University of Arizona in 1982.