Sequoia AlphaSeries 3

A summary of the key features of Sequoia Alpha Series 3 is as follows:

The Solactive Alpha Mutual Fund VT Index

The Index is an excess return index designed to track the extent to which performance of the Basket of Underlying Funds exceeds the USD Secured Overnight Financing Rate (“USD SOFR”) subject to a 4.5% target volatility mechanism, 150% maximum participation rate and 1% p.a. decrement fee. In other words, the index aims to capture the “alpha” generated by the Basket of Underlying Funds above the USD SOFR.

Please refer attached link for further information including access to the underlying rules of the Index.

https://www.solactive.com/Indices/?index=DE000SL0LF04

The key features of the Index include:

• Alternative source of return: The Index captures the investment return of 4 alternative underlying funds which are managed by experienced global fund managers;
• Diversified mix of investment style: The underlying funds include a diversified range of different investment styles – see below table;
• Long/Short: Each of the underlying funds have the flexibility to take either long and short positions within their respective portfolios. As such, they have the ability to generate positive returns irrespective of the direction of the relevant underling market;
• Low Correlation to Global Equities: At the time of the Index being launched in February 2024 it has historically exhibited a low correlation of approximately 0% to the S&P500; and
• Pricing efficiency: The index has been designed to allow efficient pricing of structured products such as Sequoia Alpha Series 3.

On a daily basis, in order to limit negative performance in extreme market conditions, a risk control mechanism is used inside the Index. It ensures that the volatility of the Index will remain close to the 4.5% target by reducing the Index’s exposure to the Basket of Underlying Funds in situations where the annualised realized volatility of the Basket of Underlying Funds exceeds 4.5%. The maximum level of exposure is 150% and the minimum level of exposure is 0%.

In addition to the volatility target mechanism, the Index also includes a 1% p.a. decrement fee which is accrued on a daily basis and deducted from the performance of the Basket of Underlying Funds when calculating the level of the index.  This decrement fee is included by the Index Administrator since it allows for efficient pricing of structured products such as Sequoia Alpha Series 3. This is part of the reason why the interest rate on the limited recourse loan is only 3.125% p.a. It would be higher if it was not for the inclusion of the decrement fee in the Index.

It might be helpful for investors to be aware that it is not only due to the decrement fee that the relatively low interest rate of 3.125% p.a. is available in relation to the 100% limited recourse loan. It is also because of the risk management included inside the Index targeting 4.5% realised volatility that the Issuer is able to offer a relatively low interest rate of 3.125% p.a. in connection with a 100% limited recourse loan. This is because the cost of the hedge obtained from the Hedge Counterparty is much lower than it would otherwise be if the Index did not include both the decrement fee and above risk management feature targeting a realised volatility of 4.5%.

The volatility control mechanism may provide some protection against decreases in the prices of the Basket of Underlying Funds however it may also limit the Index’s (and the Unit’s) exposure to increases in the unit prices of the Basket of Underlying Funds being tracked by the Index. This means there is a risk that the volatility control mechanism could result in a lower Performance Coupon being payable relative to if the Index did not include a volatility control mechanism.

For further details on how this is calculated, please contact the Issuer at Email: specialistinvestments@sequoia.com.au

Basket of Underlying Funds

The Basket of Underlying Funds refers to the following:

Downloads

To find out more, and to download a copy of the Term Sheet PDS and Master PDS, please click on the links below

Key risks include:

• Risk of 100% loss in relation to the Total Investment Cost and Upfront Adviser Fee. The Total Investment Cost equals the Prepaid Interest in relation to the Loan and the Application Fee. Investors may also incur an Upfront Adviser Fee in addition. A 100% loss will occur if there are no Performance Coupons paid during the Investment Term. This will be the case if the Index Performance is less than or equal to zero on each of the Coupon Determination Dates;
• Risk of partial loss (i.e. less than 100% loss) in relation to the Total Investment Cost and Upfront Adviser Fee. The Total Investment Cost equals the Prepaid Interest in relation to the Loan and the Application Fee. Investors may also incur an Upfront Adviser Fee in addition. Investors may incur a partial loss if the Total Performance Coupons received during the Investment Term is less than the Break-Even Point (per Unit);
• Timing risks. The timing risk is significant. This is because the Investment Term is fixed and the Total Performance Coupons received during the Investment Term needs to exceed the Total Investment Cost by the time the Maturity Date arrives in order for the investor to generate a profit from their investment (ignoring any Upfront Adviser Fee and any external costs). If this does not occur by the Maturity Date then Investors will generate a loss;
• Volatility and exposure risk – the volatility control mechanism used by the Index means that if there is high volatility in the relevant underlying portfolio during the Investment Term there is a risk the Index will have little to no exposure to this portfolio during some or all of the Investment Term, which may provide some protection against decreases in the prices of the portfolio comprising the Index however it may also limit the Index’s (and the Units’) exposure to increases in the prices of the relevant portfolio comprising the Index. To the extent the Index has an exposure primarily to cash as a result of the volatility control mechanism, the Index will be unlikely to generate the Index Performance required for investors to generate a profit;
• There is no guarantee that the Units will generate returns in excess of the Prepaid Interest and Fees, during the Investment Term;
• Additionally, in the event of an Investor requested Issuer Buy-Back or Early Maturity Event, you will not receive a refund of your Prepaid Interest or Fees. The amount received will depend on the market value of the Units which will be determined by many factors before the Maturity Date including prevailing interest rates in Australia and internationally, foreign exchange rates, the remaining time to Maturity, and general market risks and movements including the volatility of the Index. Investors should be aware the Units are designed to be held to Maturity and are not designed to be held as a trading instrument;
• Gains (and losses) may be magnified by the use of a 100% Loan. However, note that the Loan is a limited recourse loan, so you can never lose more than your Prepaid Interest Amount and Fees paid at Commencement.
• Investors are subject to counterparty credit risk with respect to the Issuer and the Hedge Counterparty; and
• the Units may mature early following an Early Maturity Event, including an Adjustment Event, Market Disruption Event or if the Issuer accepts your request for an Issuer Buy-Back.

Please refer to Section 2 “Risks” of the Master PDS for more information.

Units in Sequoia Alpha Series 3 are issued by Sequoia Specialist Investments Pty Ltd (ACN 145 459 936) (the “Issuer”) and arranged by Sequoia Asset Management Pty Ltd (ACN 135 907 550, AFSL 341506) (the “Arranger”). Investments in the Sequoia Alpha Series 3 can only be made by completing an Application Form attached to the Term Sheet PDS, after reading the Term Sheet PDS dated 13 March 2024, the Master PDS dated 17 August 2017 and Target Market Determination (for retail investors) and submitting it to Sequoia. A copy of the Termsheet PDS, Master PDS and Target Market Determination can be obtained by contacting Sequoia Asset Management or contacting your financial adviser. You should consider the Term Sheet & Master PDS’s as well as the Target Market Determination before deciding whether to invest in Units in Sequoia Alpha Series 3. Capitalised terms on the webpage have the meaning given to them in Section 10 “Definitions” of the Master PDS.