Ucits alternative unwrapped citywire 1-dec11 presentation slides

Leading Intelligence & Independent Insight

UCITS-ALTERNATIVE UNWRAPPEDAs Convergence between Long-only Managers and Hedge Funds Grows and Institutional Allocation to Alternatives Hits Historical Highs A

Question Arises: Are UCITS-Alternative the Alternative "Alternative"? Alternative UCITS Retreat 2011 - Citywire

1 December, 2011AURELIANO GENTILINI

Managing Partner - Mαthεmα

2 Leading Intelligence & Independent Insight

Key Topics Absolute Return Funds – Definition and Key

Investment Themes

Overview of Absolute Return Fund Industry Trends

Asset Management Trends

Alternative UCITS-compliant Funds

Institutional Asset Allocation Models

Absolute Return & Hedge Fund Asset Growth Drivers

in 2011 and Beyond

Performance Analysis and Benchmarking


Absolute Return Fund – A Definition

Absolute Return funds are collective investment vehicles that aim for

positive returns in any market conditions.

The funds are not benchmarked against a traditional long only market index.

Rather they aim at outperforming a cash or risk-free benchmark

Asset base can be any or flexible

Often, but not always, have a cash/interest rate/inflation benchmark (+ target

basis points)

May be short, medium or long term strategy

Various strategies exist under the same banner (index unconstrained/ asset

allocation, leveraged long/short, quantitative risk management, hedge-like)

Risk budgeting

Index-unconstrained funds (categorised within Total Return funds) are

similar to absolute return fund in that portfolio construction is made

without reference to a benchmark

Carry market risk (beta) because the portfolio can only be structurally 'long' a

particular market, rather than being able to sell short or move to cash to

protect against market falls


Key Issues in Absolute Return Fund Investing

Investors Are Not Consistent

Market Downtrend: Absolute Return Funds Are Demanded

Market Uptrend: Beating the Market Benchmark Is Critical

What is the Real Balance?

Does Product Offering Drive Investors’ Demand or Vice Versa?

Absolute Return Funds Tapping into the Institutional Segment

UCITS III-AlternativeVehicles

Leverage

A 10% return becomes a 100% return when enhanced by ten-to-one leverage.

Leverage works quickly in reverse, though

Underlying Strategy

Risk/Return Analysis

Performance Measurement


Absolute Fund Return Properties Absolute fund returns may become more correlated to

general market trends during downturns

exposures [to market factors] can be strongly different in the down-market

regimes compared to normal times, suggesting that risk exposures in the

down-market regimes are quite different than those faced during normal

regimes

when strong shocks to the market occur, [absolute funds’] diversification

benefits seem to deteriorate due to non-linear dependence

Funds’ returns may exhibit the “higher moment” return

properties of negative skewness and excess kurtosis due to

their exposure to alternative strategies

when returns are negative, absolute return losses may be larger than plain

vanilla funds if hedging strategies are not effective. Larger loss risk may

increase as more hedge-like funds are added to a portfolio


2010 Lipper Hedge Funds Survey – UCITS Absolute Return Funds

Question 5

What are in your opinion the challenges and opportunities for hedge fund managers taking

advantage of UCITS regulation to convert alternative strategies into mainstream mutual funds?


2010 Lipper Hedge Funds Survey – UCITS Absolute Return Funds

Question 6

Do you foresee any threats to the alternative fund business arising from

absolute return hedge-like funds such as UCITS III-compliant funds?


Asset Management Today: Investors Want Cheap or Spicy


Asset Management Industry Changes

Barbell polarization of asset flows is speeding up – money flows to either

passive managers/ETFs (cheap) or else hedge funds/other alternative

managers (spicy)

Do ETFs pose the next systemic risk?

At the end of June 2011, the global ETF industry had 2,825 ETFs with 6,229 listings and

assets of US$1,442.7 billion, from 146 providers on 49 exchanges around the world (source

BlackRock)

At the end of June 2010, the global ETF industry had 2,252 ETFs with 4,570 listings and

assets of US$1,025.9 billion from 130 providers on 42 exchanges (source BlackRock)

Global AUM in ETFs and ETPs are expected to increase by 20–30% annually over the next

few years, taking the global ETF/ETP industry to approximately US$2 trillion in AUM by

early 2012.

Trend to further concentration of the hedge fund industry – the top 100

hedge fund management companies currently control 60% of industry AUM

10


Passive Investments Gain Momentum

IBM Institute for Business Value: 2009 survey of 2,750 industry

executives, including those at endowments, foundations and

sovereign wealth funds

passive investments will eventually overtake actively managed funds

65% of respondents planned to move to passive strategies within the

next three years

Data extrapolation suggests that in 20 years, 85% to 90% of assets will

be in passive strategies, with the remaining 10% to 15% in hedge funds,

private equity funds and other high-risk, high-return alternatives

Two main factors drive the trend:

defined contribution sponsors are under “political” pressure to move into

passive products to reduce costs for investors

Asset managers want to lower the risk associated with manager selection

11


Institutional Allocation To Hedge Fund Strategies

Moody’s Investors Service – HF 2010 Review and 2011 Outlook

Hedge Funds will have to lower fees, change their business strategies, and lower

their risk tolerance as pension funds increase the allocation to the asset class

Preqin survey – May 2011

About 93% of institutional hedge fund investors are considering increasing their

allocation to the asset class over the next three years

Almost 32% of those currently investing in FoHFs will start investing directly and an

additional 8% are considering doing so

20% of institutional investors had expanded their hedge fund teams over the past

year, while a further 20% of those that do not currently have a hedge fund team

intend to develop one within the next three years

January 2011 – 55% of U.S.-based private sector pension funds have some money

invested in hedge funds (85 U.S.-based private sector pension funds that actively

invested in hedge funds and 17 U.S. private pension funds that were considering

making their initial investment in the asset class within the next 18 months)

The average U.S. private pension fund allocates 9.8% of its assets under

management to hedge funds

12


Pension Fund & Absolute Return Fund Industries

The further increase of the pension funding gap will progressively see the

closure of defined benefit schemes in the short run New factor-based asset allocation models aiming at reducing exposure to volatility clustering and correlation

patterns among various assets will become a standard among Institutional Investors in the next two years

New enhanced risk factor-driven portfolio allocation models of institutional investors will direct investment

flows into alternative investments with a better risk/return profile

The number of pension schemes looking to invest money in hedge funds doubled during 2009 (Hewitt

Associates)

Allocation to Hedge Funds will continue focusing on niche/uncorrelated strategies - High-performing investment

strategies to help recoup the heavy losses suffered in 2008 and early 2009

The introduction of IAS 19 on January 1, 2013 globally is expected to help

prepare the ground for the Liability-driven Investment (LDI) to finally take

root

Immediate recognition of all gains and losses arising in defined benefit plans (abolition of

corridor accounting options)

Replace the expected return credit with an objective credit based on the AA corporate

bond yield used to discount the liabilities

The rule might trigger a de-risking of investment strategies of pension plans

Billions of company profits will be wiped off [Accountancy firms estimate that such a

change could reduce UK company profits by as much as £10bn ($16bn)]

13


Absolute Return Fund Investors & Strategies

The HF investor mix is changing

Among high-growth investors can be listed corporates, public pension plans, insurance

companies, banks, small- to mid-sized endowments, Asian private banks, Australian

institutional investors & Superannuation funds, Scandinavian institutions, and family

offices

Japanese pension plans expect to rebalance their portfolio holdings ramping up

allocations to hedge funds

Hedge Funds Seek a Slice of Japan’s $740 Billion Pension Funds After Quake

(http://www.bloomberg.com/news/2011-06-27/hedge-funds-eye-japan-pensions-post-

quake.html )

Hedge funds eye $740 billion Japan pensions pool

(http://www.pionline.com/article/20110629/REG/110629890 )

Japan pensions bet on hedge funds to boost returns

(http://uk.reuters.com/article/2011/06/22/us-japan-summit-pensionfunds-

idUKTRE75L15V20110622 )

Multi-Strategies HFs will continue to be the losers in the forthcoming

round of AUM growth

Decorrelation drivers in portfolio allocation will weigh

FoHF segment shrinking

14


Trend in FoHFs and SWFs Management

The FoHFs segment will continue shrinking in 2011—from 33%

of total AUM at 2009 year-end to 25% in 2010, and 22% at the

end of 2011

Flaws in the business model (limited diversification and easier direct access to

underlying managers) will weigh

Impact on marketing policies of FoHFs, with further pressures on fees

Funds-of-hedge-funds managers are beginning to target smaller investors as

larger institutions increasingly invest directly

In the medium term (a three- to five-year time horizon) the

largest and top performing multi-strategy funds in the world

might well be those run by SWFs, and not by the traditional

and best know players in the HF space such as D. E. Shaw &

Co., Inc., Citadel Investment Group LLC , Highbridge Capital

Management LLC, and Soros Fund Management LLC

15


Absolute Return Fund Industry Trends

Alternative UCITS-compliant funds gained traction since the

financial crisis

Absolute Return products other than Hedge Funds are becoming increasingly

popular among institutional investors

HF managers have aggressively launched Alternative UCITS-compliant funds to

penetrate retail and institutional segments

Flight-to-quality drivers (Assets in Europe's top 50 hedge fund managers rose

by 11% to U.S.$300 billion between January 2009 and June 2010 – Brevan

Howard assets surged almost 24% to U.S.$31.5 billion, while U.S.$1 billion were

drained from Man Group – Source: InvestHedge)

Uncertainties on EU Regulation weighed – co-domiciliation

Performance slippage risks

Liquid vs. illiquid hedge fund strategies

HF managers progressively consider Ireland’s QIF and

Luxembourg’s SIF structures (RWC Partners' Macro fund, launched

in January 2011, managed by Peter Allbright and Stuart Frost)

“Level 2” guidance for the AIFMD

16


UCITS Funds Ucits funds had €5.92trn in assets under management as of June 30, 2011

(source: Association of Luxembourg Funds Industry)

Luxembourg accounted for the highest majority, making up 31.4% or €1.86trn.

Ireland's share totaled €770bn, 13.0% of the total.

The prominence of co-domiciliation could be short lived however due to

uncertainty over the AIFM Directive

Most hedge fund managers considering domiciling their funds in the EU said they

would do so before the implementation of the AIFM Directive in 2013

69% of those considering EU domiciliation said they were considering doing so by

transferring the domicile of their existing funds to the EU

The UCITS framework, which some respondents said was an effective

marketing tool to stem outflows during the financial crisis, has lost some of

its appeal amongst hedge fund managers

Whereas those polled were just as likely to set up UCITS funds as other regulated

structures, such as Irish QIFs and Luxembourg SIFs, in the past

77% of those considering creating an onshore structure in the future now say they

would prefer QIFs and SIFs instead

17


Regulatory Trends – Hedge Funds and Alternative UCITS Funds

The costs involved in complying with more stringent regulatory

requirements can make HFs comparatively more expensive to manage

Changes in the mapping of geographies of HF management companies will occur in the

short to medium term due to significant changes in regulation

We will observe significant steps towards the creation of an International Registry of Hedge

Funds

US rule changes signed into law under the Dodd-Frank Act have broad extraterritorial

effects and require many historically exempt fund managers with assets over US$150

million—even those only US contacts are US investors in their funds—to seek SEC

registrations

The SEC will require larger funds to keep extensive records regarding trading activities and those

without a compliance officer will be forced to hire one

The position of Third Country alternative investment fund managers has been resolved by

creating a dual system of allowing the existing private placement rules to continue until at

least 2018, while also phasing in an option for Third Country alternative investment fund

managers to qualify under an EU passporting regime.

In many cases repackaging under UCITS-compliant hedge fund-like mutual funds has been the

response of non-EU hedge fund managers to penetrate retail and institutional segments in

Europe

Impact of flight-to-haven of UK fund managers on UK’s tax revenue

18


European UCITS Absolute Return Segment’sGrowth Resuming At The Beginning of 2010

Total Net Assets and Total Net Flows - European UCITS Absolute & Total Return FundsJanuary 2007-September 2011 (data in EUR millions - Source: Lipper FMI)

0.00

25,000.00

50,000.00

75,000.00

100,000.00

125,000.00

150,000.00

175,000.00

200,000.00

225,000.00

Jan-0

7

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov-0

7

Jan-0

8

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov-0

8

Jan-0

9

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-0

9

Jan-1

0

Mar

-10

May

-10

Jul-1

0

Sep-1

0

Nov-1

0

Jan-1

1

Mar

-11

May

-11

Jul-1

1

Sep-1

1

-15000.00

-12500.00

-10000.00

-7500.00

-5000.00

-2500.00

0.00

2500.00

5000.00

7500.00

10000.00

Total NetAssets(leftscale)

Total NetFlows(rightscale)

19


Hedge Fund Industry Asset Growth Expectedto Hit the US$2 Trillion Mark by 2013

38,910 58,37095,720

167,790

167,360

185,750

256,720

367,560

374,770456,430

487,580536,060

622,304

817,492

973,000

1,029,500

1,086,751

1,389,998

1,209,575

1,215,737

1,501,085

1,651,171

1,851,289

2,019,392

2,200,943

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Net Assets (1990- 2014)(mln USD - source: Lipper TASS)

20


Hedge Fund Strategies Overall Net Flows 1994-2010

Source: Lipper-TASS

0

100,000

200,000

300,000

400,000

500,000

600,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Cu

mu

lativ

e A

sse

t Flo

ws

(150,000)

(130,000)

(110,000)

(90,000)

(70,000)

(50,000)

(30,000)

(10,000)

10,000

30,000

50,000

Ass

et F

low

s

Cumulative Asset Flow s (in $ Millions) Asset Flow s, Up Quarters ($ in Millions)

Notes: Asset flows refers to money flowing into/out of the strategy. Asset growth/contraction as a result of performance is not included.

21


Hedge Fund Flows As A Percentage OfBeginning-Period Assets Vs. Performance 1994-2010

Note: The 9-month rolling return refers to the annualised compound returns of that particular strategy on a rolling 9-month basis.

-15%

-10%

-5%

0%

5%

10%

15%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Qua

rter

ly F

low

s

-30%

-20%

-10%

0%

10%

20%

30%

40%

9-M

onth

Rol

ling

Ret

urn

Quarterly Flows % Average Flows % 9-Month Rolling Return %

Source: Lipper-TASS

22


Rolling Returns Vs. Rolling Asset Flows 1994-2010

-30%

-20%

-10%

0%

10%

20%

30%

40%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-$400,000

-$300,000

-$200,000

-$100,000

$0

$100,000

$200,000

12-Month Rolling Asset Flows (US$Mil - right scale) 12-Month Rolling Returns ( left scale) 36-Month Rolling Returns ( left scale)

Source: Lipper-TASS

23


Absolute Fund Return Properties Absolute fund returns may become more correlated to

general market trends during downturns

exposures [to market factors] can be strongly different in the down-market

regimes compared to normal times, suggesting that risk exposures in the

down-market regimes are quite different than those faced during normal

regimes

when strong shocks to the market occur, [absolute funds’] diversification

benefits seem to deteriorate due to non-linear dependence

Funds’ returns may exhibit the “higher moment” return

properties of negative skewness and excess kurtosis due to

their exposure to alternative strategies

when returns are negative, absolute return losses may be larger than plain

vanilla funds if hedging strategies are not effective. Larger loss risk may

increase as more hedge-like funds are added to a portfolio

24


Difficult Markets - Stock Market PerformancePatterns Repeat

Dow Jones Industrial Average Price Index - 115 years (logarithmic scale)

Source: Reuters EcoWin

00 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10

3

4

5

6

7

8

9

10

25


Tail Risk – Market CrashesDow Jones Industrial Average Price Index - 115 years(10-day rolling coefficient of variation)


00 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

26


Difficult Markets - Commodities Market Performance Patterns Repeat

CRB Spot Index, End of Period - 64 years (logarithmic scale)


47 50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10

4.50

4.75

5.00

5.25

5.50

5.75

6.00

6.25

6.50

27


Money Markets – Ted Spread as a Measure of Stress in the Eurozone

US dollar three-month TED spread

Euro three-month TED spread

British pound three-month TED spread

Dec

06 07

Apr Aug Dec

08

Apr Aug Dec

09

Apr Aug Dec

10

Apr Aug Dec

11

Apr Aug

Basi

s po

ints

0

50

100

150

200

250

300

350

400

450

500

28


Hedge Fund Strategy Performance

• Short bias outperformed in September (+8.45%) and YTD (+13.19%) as the strategy benefited from global stock markets declines and dislocation factors on the macro front

• Emerging markets (-7.47% month on month, -6.88% YTD), bettered by Long/Short Equity (-5.22% month on month, -9.12% YTD) and Event Driven (-5.06% month on month, -9.69% YTD), ranked at the bottom of the performance league table for September. Hedge fund strategies above were not successful in weathering global markets turmoil as heightened stock market correlations and volatility clustering weighed

Comparative Hedge Fund Index Performance: Dow Jones Credit Suisse Indices

50

90

130

170

210

250

290

330

370

410

ConvertibleArbitrage

DedicatedShort Bias

ED DistressedSecurities

ED Multi-Strategies

ED Risk-Arbitrage

EmergingMarkets

Equity MarketNeutral

Event Driven

Fixed IncomeArbitrage

Global Macro

Long/ShortEquity

Multi-Strategies

ManagedFutures

Russian Financial Crisis & LTCM

Collapse - Jul-Sep '98

Asian Crisis - Aug-Oct '97

Tech Stocks Bubble Collapse -

Feb'00-Mar'03

Bull Market Rally - April '03-

August '07

Credit Crisis - August '07-Feb

'09

Post Credit Crisis - March '09

Greece's Fiscal Position Crisis - December '09

Political Unrest in MENA & Earthquake in Japan -

Jan-March '11Eurozone Debt Crisis - May-

June '11

Comparative Hedge Fund Index Performance:Dow Jones Credit Suisse Indices

50

55

60

65

70

75

80

85

90

95

100

105

110

115

120

125

130

135

140

145

150

155

160

165

170

175

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11


Dedicated ShortBias

Event DrivenDistressedSecuritiesEvent Driven Multi-Strategy

Event Driven RiskArbitrage

Emerging Markets


Event Driven


Global Macro

Long/Short Equity

Multi-Strategies

Managed Futures

29


Hedge Fund Strategies Indexed PerformanceComparative Alternative Fund Strategies Performance: Lipper Global Indices

87

91

95

99

103

107

111

Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11


Dedicated ShortBias

Emerging Markets


Event Driven


Long Bias

Long/Short Equity

ManagedFutures/CTAs

Multi Strategies

OptionsArbitrage/Strat

Alternative EquityMarket Neutral

Credit Focus

AlternativeLong/Short Equity

30


Alternative UCITS & Market Indices PerformanceDecoupled Performance in Given Periods in Commodity Indices

Lipper Mutual Fund, Alternative & Market Indices: Comparative Performance

44

54

64

74

84

94

104

114

124

134

144

154

164

174

184

194

204

214

224

234

244

254

264

274

284

294

Dec-0

6

Feb-0

7

Apr-07

Jun-0

7

Aug-07

Oct

-07

Dec-0

7

Feb-0

8

Apr-08

Jun-0

8

Aug-08

Oct

-08

Dec-0

8

Feb-0

9

Apr-09

Jun-0

9

Aug-09

Oct

-09

Dec-0

9

Feb-1

0

Apr-10

Jun-1

0

Aug-10

Oct

-10

Dec-1

0

Feb-1

1

Apr-11

Jun-1

1

Aug-11

Oct

-11

WTI Crude Oil

Reuters/J efferies CRBCR

STOXX Europe TMI TR

Gold Index

J P Morgan EMBI+

Barclays Capital GlobalAggregate Bond

LGC Bond EMktsGlobal

LGC Bond Global

LGC Equity Global

LGC Money MarketGlobal

LGC Real Estate Global

MSCI EMkts TR

MSCI World TR USD

S&P 500 TR

LGC Equity EMktsGlobal

Lipper HF Composite

Lipper GlobalAlternative EMN

Lipper GlobalAlternative L/S Equity

31


Hedge Fund Strategy Performance Dispersion

• After more than doubling in August from July’s reading, monthly performance dispersion among the Dow Jones Credit Suisse hedge fund strategy indices rose further in September, returning readings above monthly levels observed since September 2010. It widened 56 bps in September (19 bps below 2010’s highest level in September) and ended at 1,592 bps, signaling the “market” of hedge fund strategies was less crowded

• Generally speaking, compared to August, the dispersion of manager returns YTD increased significantly in September (red lines on the bar in the chart indicate median values). An increased dispersion of returns generally determines a lower intracorrelation, i.e., a lower correlation among managers and strategies. Generally, lower intracorrelation among managers and hedge fund strategies leads to higher levels of diversification for investors—a desirable feature—as well as higher expected risk-adjusted returns. Notably, in the Dedicated Short Bias sector—the top-performing strategy year to date at the end of September—more than 66% of the funds tracked in the analysis posted positive returns for the period, with 22% of the funds recording performance equal to or above the 10% threshold. More than 29% of the funds classified in the runner-up strategy in the performance league table year to date—Global Macro—delivered a period performance in positive territory, with 8% recording monthly returns equal to or above the 10% threshold.

Dispersion of Hedge Fund Strategy Returns (Dow Jones Credit Suisse HF Indices January 1994-September 2011)

0

2

4

6

8

10

12

9%

76%

56%

44%

53%

25%

35%

70%

170%

175%117%-98%

-18%

-17%

-7%

-55%

-19%

-35%

-37%

-51%

-99%

-45%

-120% -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180%

Convertible Arbitrage

Credit Focus

Dedicated Short Bias

Emerging Markets

Equity Market Neutral

Event Driven

Fixed Income Arbitrage

Global Macro

Long/Short Equity

Managed Futures

Multi-Strategy-3.495

-1.005%

-6.97%

-2.73%

-0.16%

-2.47%

-0.02%

-12.29%

5.6%

1.79%

-2.12%

32


Performance Analysis and Benchmarking Sharpe ratio – Summary of the first two moments of the

portfolio excess

return distribution

Measurement issues:

Annualized risk-free rate

Choice is key because it impacts on excess return and can

change ranking

It might be problematic in a portfolio with full international diversification

Portfolio aggregation

No straight-forward adding-up because of covariance effects between

volatilities

Negative values are ambiguous (Israelsen ratio correction)

fp

fpr

fp

fpr

33


Hedge Fund Strategy Correlations

• As sovereign risk persisted, a risk-on/risk-off paradigm created an investment environment where correlation across asset classes zeroed out the benefit of diversification. Among other factors, the 12-month rolling correlation between the S&P GSCI and the S&P 500 at the end of September rose to 0.82—up from 0.77 at the end of August (a mere 5 bps off the highest reading since October 1980 recorded at the end of December 2010)

• September 2011 confirmed the steady and significant correlation pattern of most of the hedge fund strategies with the MSCI World TR Index evidenced throughout 2010. Dedicated Short-Bias, although easing from August’s reading, continued to show a negative correlation against the index (-0.91 for both the six- and twelve-month periods, respectively). The Credit Suisse Dow Jones Hedge Fund Composite Index recorded a firm level of positive correlation with the global stock market index at 0.95. Compared to the previous month, the positive six-month correlation at the end of September decreased 17 bps to 0.74 for the Fixed Income Arbitrage sub-strategy, and to 0.10 for the Global Macro and 0.83 for the Multi-Strategies (down from 0.27 and 0.92 respectively at the end of August). Equity hedge strategies, namely Long/Short Equity, along with Event-Driven and Equity Market-Neutral, continued to be somewhat long-biased; in other words, the strategies maintained a significantly high positive correlation to equities (a correlation between 0.85 and 0.95 for the six-month period) despite choppy global stock markets conditions

Correlation of Credit Suisse Dow Jones HF Strategy Indices Vs. MSCI World TR IndexSeptember 30, 2011

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

Correlation 6 Months Correlation 1 Year Correlation 3 Years

Correlation of Credit Suisse Dow Jones HF Strategy Indices Vs. Reuters/Jefferies CRB IndexSeptember 30, 2011

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

Correlation 6 Months Correlation 1 Year Correlation 3 Years

34


Hedge/Relative Value Strategies Vs. Market Indices – The Omega Function

Dow Jones Credit Suisse Hedge Fund Relative Value Strategy Indices vs. Market IndicesFebruary 1999-October 2011

-14.00

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00

Monthly returns

Om

ega

(lo

gar

ith

mic

sca

le)

Hedge FundConvertible Arbitrage

Hedge Fund EquityMkt Neutral

Hedge Fund FixedIncome Arbitrage

Barclays GlobalAggregate Bond TR

MSCI World TR Index

S&P500 TR Index

UBS GlobalConvertible Index

Sharpe ratio 0.54

Sharpe ratio 0.14

Sharpe ratio 0.49

Sharpe ratio 0.36

Sharpe ratio 0.15

Sharpe ratio 0.11

Sharpe ratio 0.15

35


Hedge/Directional Strategies & Multi-Strategies Vs. Market Indices – The Omega Function

Dow Jones Credit Suisse Hedge Fund Directional Strategies & Multi-Strategy Indices vs. Market IndicesFebruary 1999-October 2011

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

-30.00 -25.00 -20.00 -15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00

Monthly returns

Om

eg

a (

log

ari

thm

ic s

cale

)

Hedge Fund DedicatedShort Bias

Hedge Fund EmergingMkts

Hedge Fund GlobalMacro

Hedge Fund Long/ShortEquity

Hedge Fund Multi-Strategies

Hedge Fund ManagedFutures

MSCI Emerging MarketsTR Index

MSCI World TR Index

S&P500 TR Index

Sharpe ratio 0.34

Sharpe ratio 0.15

Sharpe ratio 0.39

Sharpe ratio 0.27

Sharpe ratio 0.87

Sharpe ratio -0.35

Sharpe ratio 0.86

Sharpe ratio 0.14

Sharpe ratio 0.65

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Hedge/Event-Driven Strategies Vs. Market Indices – The Omega Function

Dow Jones Credit Suisse Hedge Fund Event-Driven Strategy Indices vs. Market IndicesFebruary 1999-October 2011

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

-20.00 -15.00 -10.00 -5.00 0.00 5.00 10.00 15.00

Monthly returns

Om

eg

a (

log

ari

thm

ic s

ca

le)

Hedge Fund Event-Driven DistressedSecurities

Hedge Fund Event-Driven Multi-Strategies

Hedge Fund Event-Driven Risk Arbitrage

Hedge Fund Event-Driven

MSCI World TR Index

S&P500 TR Index

Sharpe ratio 0.14

Sharpe ratio 0.15

Sharpe ratio 0.78

Sharpe ratio 0.95

Sharpe ratio 0.94

Sharpe ratio 0.86

37


Conclusions Institutional Investors’ education and understanding of the

underlying investment process remain key to pick Alternative

strategies in the current investment environment

HFs and Alternative UCITS AUM are expected to continue a

pattern of growth due to Institutional investors’ allocation

In the current investment environment HF typical fee

structure might distort HF managers’ incentives

HFs and Alternative-UCITS will continue delivering a better

risk/return profile than most market benchmarks

Alternative-UCITS might exhibit performance slippage

Performance Analysis Matters

Impact of regulatory changes

38


Questions & Answers

[email protected]

39


Disclaimer

© Mαthεmα 2011. All Rights Reserved.

Information contained in this presentation are for informational purposes only, and do not constitute investment advice or an offer to sell or the solicitation of an offer to buy any security of any entity in any jurisdiction.

Although the information herein is believed to be reliable and has been obtained from sources believed to be reliable, we make no representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of such information. No guarantee is made that the information in this report is accurate or complete and no warranties are made with regard to the results to be obtained from its use. Mαthεmα will not be liable for any loss or damage resulting from information obtained from this Report. Furthermore, past performance is not necessarily indicative of future results.

Ucits alternative unwrapped citywire 1-dec11 presentation slides

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