Seeking out the Return - Growth Assets in Focus

SEEKING OUT THE RETURN

GROWTH ASSETS IN FOCUS…

Date: Thursday 14th October 2010

Time: 09.00 – 13.00

Place: Royal Society, London

Session 1

Beyond Matching Assets Robert Gardner | Redington

Redington 13-15 Mallow Street London EC1Y 8RD T. 020 7250 3331 www.redington.co.uk

Robert Gardner, Co-CEO of Redington Beyond Matching Assets – An Overview

14 October 2010

• Bob McKim

• Stanford University

• A Creativity researcher in 60s and 70s

• Ran Stanford Design Programme

• One of his Creativity Exercises

• Draw your neighbour very quickly...

• 30 Seconds...

• ...Lets GO

Let’s start by getting creative

Creativity exercise

Here’s one I made earlier

Previous Education Sessions

8

Growth and Matching Assets

Equities Commodities & Hedge

Funds

9

Session Topic Speaker

2 Investment Performance and Economic Outlook for 2010/2011 Gavyn, the former Government Advisor and Chief International Economist for Goldman Sachs, examines markets performance and shifts in pension fund asset allocations Fulcrum Asset Management

Gavyn Davies

3 Developed Market Equities The validity of active developed equity management appears to be in question following the travails of the last 3 years' market turbulence and poor active returns. David debates whether a passive approach to equity investment is the way forward, what is an appropriate benchmark, and what is the future for active equity management? Intech International

David Schofield

Agenda

10


4 Emerging Market Equities – Stepping out of the shadows Over the past ten years, emerging markets delivered 10% returns versus roughly zero for developed markets. Jeff explores this impressive performance and give his views on the future of this asset class F&C Investments

Jeff Chowdhry

5 Hedge Funds – Whipping up the perfect exposure Ensuring that your hedge fund exposure complements rather than duplicates your existing investment portfolio can be a tough assignment. Join David to learn more Redington

David Thompson

11


6 Commodities – Accessing Growth through Commodities Oli and Kristen will discuss the strategic case for inclusion of Commodities in a pension portfolio, the current outlook for prices and certain implementation considerations Blackstone Alternative Asset Management

Olivier Meyohas & Kristen Eshak

7 Growth assets in practice – Panel Discussion Speakers & delegates

8 2011 - Themes to consider Guest Speaker, Canonbury Group

Dr Pippa Malmgren

Contacts

Disclaimer

Disclaimer For professional investors only. Not suitable for private customers.

The information herein was obtained from various sources. We do not guarantee every aspect of its accuracy. The information is for your private information and is for discussion purposes only. A variety of market factors and assumptions may affect this analysis, and this analysis does not reflect all possible loss scenarios. There is no certainty that the parameters and assumptions used in this analysis can be duplicated with actual trades. Any historical exchange rates, interest rates or other reference rates or prices which appear above are not necessarily indicative of future exchange rates, interest rates, or other reference rates or prices. Neither the information, recommendations or opinions expressed herein constitutes an offer to buy or sell any securities, futures, options, or investment products on your behalf. Unless otherwise stated, any pricing information in this message is indicative only, is subject to change and is not an offer to transact. Where relevant, the price quoted is exclusive of tax and delivery costs. Any reference to the terms of executed transactions should be treated as preliminary and subject to further due diligence .

Please note, the accurate calculation of the liability profile used as the basis for implementing any capital markets transactions is the sole responsibility of the Trustees' actuarial advisors. Redington Ltd will estimate the liabilities if required but will not be held responsible for any loss or damage howsoever sustained as a result of inaccuracies in that estimation. Additionally, the client recognizes that Redington Ltd does not owe any party a duty of care in this respect.

Redington Ltd are investment consultants regulated by the Financial Services Authority. We do not advise on all implications of the transactions described herein. This information is for discussion purposes and prior to undertaking any trade, you should also discuss with your professional tax, accounting and / or other relevant advisers how such particular trade(s) affect you. All analysis (whether in respect of tax, accounting, law or of any other nature), should be treated as illustrative only and not relied upon as accurate.

©Redington Limited 2010. All rights reserved. No reproduction, copy, transmission or translation in whole or in part of this presentation may be made without permission. Application for permission should be made to Redington Limited at the address below.

Redington Limited (reg no 6660006) is registered in England and Wales. Registered office: 13-15 Mallow Street London EC1Y 8RD

Direct Line: +44 (0) 20 7250 3416

Telephone: +44 (0) 20 7250 3331 Redington

13-15 Mallow Street

London EC1Y 8RD

Robert Gardner Founder & Co-CEO

[email protected]

www.redington.co.uk

THE DESTINATION FOR ASSET & LIABILITY MANAGEMENT

Contacts

Session 2

Investment Performance and

Economic Outlook for 2010/2011 Gavyn Davies, Chairman | Fulcrum Asset Management

The Global Economy and Asset Markets

Gavyn Davies

Chairman, Fulcrum Asset Management

14th October 2010

Redington Education

Jan Feb Mar Apr May Jun Jul Aug Sep Oct80

85

90

95

100

105

110

Major Asset Classes - Total Returns in 2010

Global Equities (local currencies) Global Bond Returns ($ hedged) GSCI Global Commodities Index HFRX Global Hedge Funds

1

Q4 Q1

2007

Q2 Q3 Q4 Q1

2008

Q2 Q3 Q4 Q1

2009

Q2 Q3 Q4 Q1

2010

Q2 Q3 Q420

25

30

35

40

45

50

55

-5

0

5

10

15

Global Manufacturing Sector - Monthly Surveys

Global Manufacturing PMI, left scale Monthly Change, right scale Underlying Trend in Monthly Change

2

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

-10

0

10

20

30

Leading Economic Indicators for the Global Economy

(OECD series, 6 mth annualised % change)

Developed and Emerging Economies Developed Economies China

3

'06 '07 '08 '09 '10-25

-20

-15

-10

-5

0

5

10

15

20

25

BRICs and G7 Industrial Production Growth (12 months % change)

BRIC Economies less G7 Economies BRIC Economies Major G7 Economies

4

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10-20

-15

-10

-5

0

5

10

15

20

25

30

Leading Indicators for the BRIC and G7 Economies

(6 month annualised percent changes)

BRIC Economies less G7 Economies BRIC Economies G7 Economies

5

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep0

5

10

15

20

25

30

China Returns to Strong Growth

Industrial Production (% 1 mth annualised) Retail Sales (% 3mths annualised)

6

Q4 Q12008

Q2 Q3 Q4 Q12009

Q2 Q3 Q4 Q12010

Q2 Q3 Q4-8

-6

-4

-2

0

2

4

6

A US Cycle Largely Dominated by Inventory Swings

GDP Contn. from Inventories (pct) Real GDP Growth (saar)

7

Q4 Q1

2009

Q2 Q3 Q4 Q1

2010

Q2 Q3 Q4-1,000

-800

-600

-400

-200

0

200

400

600

US Employment Figures : Monthly Changes (000)

Private Sector Jobs Total Non Farm Payroll Jobs

8

Q3 Q4 Q12009

Q2 Q3 Q4 Q12010

Q2 Q3 Q4 Q12011

Q298

100

102

104

106

108

110

US Private Sector Employment Compared to Previous Cycles

Latest Recovery Recovery After 2001 After 1991 After 1982 After 1975

9

'06 '07 '08 '09 '10-10

-8

-6

-4

-2

0

2

4

6

8

US GDP -- Real Time Estimates

US GDP forecast growth rate - 13 weeks ahead Best estimate of current US GDP growth rate

10

'61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

-10

-5

0

5

10

US Sectoral Financial Balances

Percent of GDP

Foreign Sector Balance Government Balance Private Sector Balance

11

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11-2

0

2

4

6

8

10

Structural and Cyclical Unemployment - US

Unemployment Rate Structural Unempl. (Pessimistic) Cyclical Unemployment (Low)Structural Unempl. (Optimistic) Cyclical Unemployment (High)

12

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10-2

-1

0

1

2

3

4

5

Consumer Price Inflation in the G7 Economies

G7 Core CPI All items ex food and energy, % 12 mths G7 Headline CPI All items

13

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10-1

0

1

2

3

4

5

Cleveland Fed Underlying Inflation Estimate1 month % annualised Underlying Trend

14

Q4 Q1

2008

Q2 Q3 Q4 Q1

2009

Q2 Q3 Q4 Q1

2010

Q2 Q3 Q450

100

150

200

250

300

350

Liquidity Injections by the Major Central Banks

(Jan 2008=100)

Bank of England US Federal Reserve European Central Bank Bank of Japan

15

'06 '07 '08 '09 '100

20

40

60

80

100

120

No Pass-Through from Monetary Base to M2 in the US

(% change over 12 months)

Monetary base Money supply M2

16

Q1

2009

Q2 Q3 Q4 Q1

2010

Q2 Q3 Q4-0.5

0

0.5

1

1.5

2

Amount of Monetary Tightening Expected in the US

Rate Changes Implied by the Fed Funds Futures Contracts

Next 18 months Next 12 months Next 6 months

17

'07 '08 '09 '10 '11 '12-4

-3

-2

-1

0

1

2

3

Fiscal Policy Thrust (% of GDP)

(Negative numbers = larger deficits and greater fiscal stimulus)

US UK EurozoneJapan OECD

18

'03 '04 '05 '06 '07 '08 '09 '100.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

US 10 Year Government Bond Yields

Nominal and Inflation Adjusted (TIPS)

Treasury Yield TIPs Real Yield Average Average

19

'61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

-3

-2

-1

0

1

2

3

4

5

6

US Corporate Credit Valuation vs Government Bonds

(Downward movements = cheaper credit vs government bonds)

Credit/government bonds valuation Trendline: Linear

20

'81 '85 '89 '93 '97 '01 '05 '09 '13 '17 '21 '25 '29 '33 '37 '41 '45 '49 '53 '57 '61 '65 '69 '73 '77 '81 '85 '89 '93 '97 '01 '05 '090

5

10

15

20

25

30

35

40

45

50

US Equities - Very Long Term "Shiller" P/E Ratio

Long term P/E Ratio (Shiller) 20 Year Moving Average Long Term Average

21

'62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10-5

0

5

10

15

US Equity Valuation Relative to Bonds

10 Year Treasury Yield S+P Earnings Yield (Shiller Method) Equity/bond Valuation (negative=cheap equities)

22

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10-10

-5

0

5

10

15

20

Equity Valuation - Developed vs Emerging Markets - 12 Month Forward P/E

(Factset Aggregates)

Developed (MSCI World) Emerging (MSCI EM) P/E Premium for Emerging Markets Trendline: LinearTrendline: Linear with 1st standard deviation, trend based

23

'06 '07 '08 '09 '102

4

6

8

10

12

14

16

18

20

Equity Valuation - Emerging Regions - 12 Month Forward P/E

Factset Aggregates

Eastern Europe Asia x Japan Latin America Middle East & Africa

24

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10-3

-2

-1

0

1

2

3

Real Effective Exchange Rates for the Major Economies (BIS Indices)

Deviations from Long Term Averages, Expressed in Standard Deviations

Euro US Dollar Sterling Japan

25

Jan Feb Mar Apr May Jun Jul Aug Sep94

96

98

100

102

104

106

108

110

112

114

HFRX Global

Hedge Funds

Balanced

Portfolio (No

fees)

FAB Plus

performance

Fulcrum Alpha

Global Financial Assets : Total Returns (%)

(Theoretical portfolio: 50% eqs, 40% bonds, 10% comms)

26

'04 '05 '06 '07 '08 '09 '1035

40

45

50

55

60

-12

-10

-8

-6

-4

-2

0

2

4

6

8

UK - GDP and Business Surveys

Real GDP Growth (% saar) (Right) Composite Whole Economy Business Survey

27

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10-2

-1

0

1

2

3

4

5

6

UK Inflation Measures (% 12 months)

CPI (BoE Target Variable) Core CPI (ex energy and seasonal food) Headline RPI

28

29

7 Year Average Annual Nominal Expected Total Returns

Major Equities

5.6%

4.0%

6.6%

7.6%

2.2%

5.9%

7.7%

4.1%

2.8%2.2%

6.2%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

No

min

al T

ota

l R

etu

rn

Expected Asset Return Expected Alpha Annual Return Over Last 10 Years

Global US Europe

ex UK

United

Kingdom

Japan Asia ex

Japan

Emerging

Markets

US

Large

US

Small

US

Growth

US

Value

30

7 Year Average Annual Nominal Expected Total Returns

Major Fixed Income

4.9%4.0%

6.8%

3.7%

6.3%

0%

2%

4%

6%

8%

10%

12%

No

min

al T

ota

l R

etu

rn

Expected Asset Return Expected Alpha Annual Return Over Last 10 Years

Investment

Grade Fixed

Income

US 10 Year

Treasuries

High Yield US 10 Year

Index Linked

Emerging Market

Debt

© 2010 Fulcrum Asset Management LLP. All rights reserved.

This material is for your information only and is not intended to be used by anyone other than you. This is not an offer or solicitation with respect to the

purchase or sale of any security. This presentation is intended only to facilitate your discussions with Fulcrum Asset Management as to the opportunities

available to our clients. The given material is subject to change and, although based upon information which we consider reliable, it is not guaranteed as to

accuracy or completeness and it should not be relied upon as such. The material is not intended to be used as a general guide to investing, or as a source of

any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should

or would be handled, as appropriate investment strategies depend upon client’s investment objectives.

This material does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person

to whom it would be unlawful to make such offer or solicitation. It is the responsibility of any person or persons in possession of this material to inform

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appropriate advice as to any applicable legal requirements and any applicable taxation and exchange control regulations in the countries of their citizenship,

residence or domicile which might be relevant to the subscription, purchase, holding, exchange, redemption or disposal of any investments. Fulcrum Asset

Management does not provide tax advice to its clients and all investors are strongly advised to consult with their tax advisors regarding any potential

investment. This material has been approved for issue in the United Kingdom solely for the purposes of Section 21 of the Financial Services and Markets Act

2000 by Fulcrum Asset Management (“Fulcrum”), 6 Chesterfield Gardens, London W1J 5BQ.

Opinions expressed are our current opinions as of the date appearing on this material only. Any historical price(s) or value(s) are also only as of the date

indicated. While we endeavour to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other

reasons that prevent us from doing so.

Certain transactions, including those involving futures, options and high yield securities and investments in emerging markets may give rise to substantial

risk and may not be suitable for all investors. Foreign currency denominated investments are subject to fluctuations in exchange rates that could have an

adverse effect on the value or price of, or income derived from, the investment; such investments are also subject to the possible imposition of exchange

control regulations or other laws or restrictions applicable to such investments. Investments referred to in this material are not necessarily available in all

jurisdictions, may be illiquid and may not be suitable for all investors. Investors should consider whether an investment is suitable for their particular

circumstances and seek advice from their Fulcrum Asset Management adviser. The price and value of the investments referred to in this material and the

income from them may go down as well as up and investors may realise losses on any investments. Past performance is not a guide to future performance.

Future returns are not guaranteed and a loss of principal may occur.

References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time ("benchmarks") are

provided by Fulcrum Asset Management for your information purposes only. Fulcrum Asset Management does not give any commitment or undertaking that

the performance of your account(s) will equal, exceed or track any benchmark.

Fulcrum Asset Management LLP is authorised and regulated by the Financial Services Authority (No: 230683)

Session 3

Developed Market Equities David Schofield, President | Intech International

Active vs. Passive Investing

Is the Debate Finally Over?

David Schofield

President, International Division

INTECH

Introduced by Janus Capital International Ltd

The Move to Passive Gains Traction

Investors disappointed with the performance of some of their active managers in 2008 and

2009 appears to be driving the growth in passive management.

Source: eVestment Alliance

• Recent performance

• Cost

• Career risk

• Consistency

• Transparency

Results Presented are Gross of Fees 2008 2005-2009

5th Percentile -32.99% 8.44%25th Percentile -39.16% 5.47%

Median -41.20% 3.84%75th Percentile -43.41% 3.02%95th Percentile -49.94% 0.95%

# of Members in Universe 70 60

MSCI World Index -40.33% 2.57%

(0=Highest,100=Lowest)

Sources: FactSet and eVestment Alliance

Periods greater than one year are annualized. Data presented reflects past performance,

which is no guarantee of future results.

40

82

0%

25%

50%

75%

100%

Perc

en

tile

Retu

rns

Ran

kin

g

MSCI World Index

What is driving the move to passive?

And even good managers underperform

Q: How likely is it that your manager with an IR of

0.75 underperforms for 5 years in a 20 year

period?

A: 69%

Q: So why bother?

A: Because it is 99% likely is it that this same

manager outperforms the market over 20 years

Why Active?

Consistent alpha is valuable

The chart illustrates the growth of a hypothetical $100 million for 30 years at 8%, 9%, and 10%.

Rates of return are hypothetical and do not represent the returns of any particular investment.

$100,000,000

$700,000,000

$1,300,000,000

$1,900,000,000

0 5 10 15 20 25 30

Years

8.00% 9.00% 10.00%

$1.7 Billion

$1.3 Billion

$1.0 Billion

The 1% Difference

Compounding Could Make a Significant Difference Over the Long Term

The Great Debate: Passive vs. Active Management

Passive Active Passive Active

• Low cost

• Implementation Efficiency (low

turnover, trade costs, liquidity

• Transparency

• Consistency of returns (you get

the market)

• Difficult to beat net of fees (it is

the average)

• No tracking error

• Little career risk

• Potential for above-market returns

• Alpha

• Potentially more efficient portfolio

than passive

• Opportunity to avoid market fads,

whims, etc.

• Can be critical in low nominal

return environment

• Contribution to finding “intrinsic

value” in stocks

• Compounding positive relative

returns can be a powerful

advantage over the long term

• Cap-weighted benchmarks may be

inefficient

• Subject to market fads, whims, etc.

• Definition of passive may vary

among manager and plan sponsors

• Aggregate of the market

• No alpha

• Higher cost

• Difficulty in identifying managers

who can produce alpha

• Career risk

• Tracking error risk

• Potential for short-term periods of

underperformance even with a

‘good’ manager

• Additional due diligence to ensure

consistent application of

investment process over time

• Requires long-term perspective

even if the investment process

is working normally

Strengths Weaknesses

Is Alpha Available in Large-Cap Equities?

Active managers seek alpha using many different investment strategies.

Fundamental strategies that seek to identify mis-valued stocks or pricing

inefficiencies.

Quant strategies that seek to predict stock or factor returns.

Mathematical strategies that seek to exploit the inefficiency of passive

benchmarks.

Examples of simple investment strategies that beat cap-weighted

benchmarks over time.

Equal-weighted portfolios.

Diversity-weighted portfolios.

Fama & French Size Factor.

Fundamental indexes.

Capturing Alpha Relative to a Benchmark is Easy

Chart represents top 500 stocks in the Center for Research in Security Prices (CRSP) U.S. Stock Database based on weighted capitalization for the period July 1, 1962 to December 31, 2009.

Data reflects past performance, which is no guarantee of future results.

An equal-weight portfolio

captures alpha relative to a

capitalization-weighted

benchmark.

-No forecasts are required.

Historically, equal-weight

portfolios have tended to

outperform their

capitalization-weighted

benchmarks over time.

Equal Weighted Relative Return

Many Simple Investment Strategies Beat

Capitalization-Weighted Benchmarks Over Time

No forecasts required. No concern about inaccurate forecasts.

No need for sophisticated statistics.

No optimization required. No need for sophisticated mathematics.

Theoretically plausible. Consistent with Stochastic Portfolio Theory.

In reasonable markets:

Constant-weight portfolios beat capitalization -weighted portfolios over time.

Diversity-weighted portfolios beat capitalization-weighted portfolios over time.

Portfolios that smoothly go from underweighting a benchmark’s larger stocks to

overweighting a benchmark’s smaller stocks beat capitalization-weighted benchmarks

over time.

Small-stock portfolios beat large-stock portfolios over time.

Historically true.

Alpha Capture and Size Effect (Diversity)

Equal-Weighted Relative Return

Diversity is a measure of the concentration or dispersion of capital in a market.

Chart represents top 500 stocks in the Center for Research in Security Prices (CRSP) U.S. Stock Database based on weighted capitalization for the period July 1, 1962 to December 31, 2009.

Data reflects past performance, which is no guarantee of future results.

Alpha Capture Maximum Diversity is

equal weighted

Minimum Diversity is

100% of capital in a

single stock

Has been mean

reverting for 80+ years

Equal-Weighted Alpha Capture

and Rebalancing Frequency

Chart represents top 500 stocks in the Center for Research in Security Prices (CRSP) U.S. Stock Database based on weighted capitalization for the period July 1, 1962 to December 31, 2009. Data reflects past performance, which is no guarantee of future results.

Changes in Market Diversity

*Broad Market Database includes stocks from the CRSP database prior to 2006 and from the Russell 3000 Index after 2006. The CRSP universe includes common stocks listed on the NYSE, AMEX and the NASDAQ

National Market excluding the following: preferred stocks, unit investment trusts, closed-end funds, real estate investment trusts, americus trusts, foreign stocks and American depository receipts.

Charts are cumulative through time period shown above.

Past performance does not guarantee future results.

-40

-20

0

20

40

1927 1936 1945 1954 1963 1972 1981 1990 1999 2008

As of June 30, 2010

Variation in Diversity - Broad Market Database*

Ch

an

ge i

n D

ivers

ity (

%)

The Great Depression The “Nifty-Fifty” Era The Tech Bubble

The Global Financial Crisis

The relationship between the market-cap size of stocks (small vs. large) affects the relative

performance of all managers. Low points in market-cap Diversity tend to coincide with market

crises.

Active Manager relative performance tends to do better when small-cap stocks are in favor and

tends to lag when large-cap stocks are in favor.

Trends in Diversity currently point to a future environment that is more likely to provide a

positive tailwind to active management.

1E-09

1E-07

1E-05

1E-03

1E-01

1 10 100 1,000 10,000

1969

1979

1989

1999

2009 10 bps

0.1 bp

0.001 bp

0.0001 bp

Stability in a Changing World

Capital distribution is remarkably

stable, especially between the 10th

and 1,000th stock.

Trends that impact the

concentration of capital in the

short term average out over time

(e.g., size, economic turmoil,

systematic factors).

Capital Distribution of U.S. Stock Market*

Stocks Ranked by Capitalization

Mark

et

Weig

ht

1000 bps

*The curves were generated using the capitalization data from the daily stock database of the Center for Research in Securities Prices (CRSP) U.S. Stock Database. The market at each snapshot consists of the constituents of the

CRSP universe with available capitalization data on the last business day of the years shown. The market weight of a stock is defined to be the ratio of its market capitalization to the total market capitalization of all stocks in the

market. Stocks are ranked by capitalization from the largest stock (rank 1) to the smallest stock (rank <10,000).

0.00001 bp

An application of Stochastic Portfolio Theory

Fewer periods of negative relative returns.

Shorter periods of negative relative returns.

Less severe negative relative returns.

Lower tracking error.

A Higher Information Ratio.

Is it possible to generate alpha from Volatility

Capture, but with:

?

INTECH Simulated Alpha Capture Performance,

1968 – 2009

(Note: equal-weighted portfolios assume no trading costs; INTECH portfolios include trading costs)

Chart represents top 500 and 1000 stocks in the Center for Research in Security Prices (CRSP) U.S. Stock Database based on weighted capitalization for the period shown.

See Disclaimer for additional information regarding simulated performance. Data reflects past performance, which is no guarantee of future results.

Top 500 equal-weighted

Top 1000 equal-weighted

Volatility-Optimised Enhanced

Volatility-Optimised Moderate

Volatility-Optimised Aggressive

(Note: equal weighted portfolios assume no trading costs; simulated optimised portfolios include trading costs)

Summary: Active vs. Passive

Active beats passive if there is an Alpha.

Does Alpha exist? Where can you find it?

Stochastic Portfolio Theory.

Alpha exists.

Alpha is easy to find.

Relative Volatility Capture provides an Alpha.

With market Diversity near historical lows and potentially poised

to trend upward, timing may favor active over passive.

Active beats passive over time.

Active vs. Passive Investing

Is the Debate Finally Over?

David Schofield

President, International Division

INTECH

Disclaimer Issued by Janus Capital International Limited, authorised and regulated by the Financial Services Authority.

This document does not constitute investment advice or an offer to sell, buy or a recommendation for securities, other than pursuant to an agreement

in compliance with applicable laws, rules and regulations. Janus Capital Group and its subsidiaries are not responsible for any unlawful distribution of

this document to any third parties, in whole or in part, or for information reconstructed from this presentation and do not guarantee that the

information supplied is accurate, complete, or timely, or make any warranties with regards to the results obtained from its use. As with all investments,

there are inherent risks that each individual should address.

The distribution of this document or the information contained in it may be restricted by law and may not be used in any jurisdiction or any

circumstances in which its use would be unlawful. Should the intermediary wish to pass on this document or the information contained in it to any

third party, it is the responsibility of the intermediary to investigate the extent to which this is permissible under relevant law, and to comply with all

such law. Janus is not responsible for any unlawful distribution of this document to any third parties.

Past performance is not a guarantee of future results. There is no assurance that the investment process will consistently lead to successful investing.

INTECH will act as sub-adviser to Janus Capital International Limited. This information does not constitute or form part of an offer to provide

discretionary or non-discretionary investment management of advisory services, other than pursuant to an agreement in compliance with applicable

laws, rules and regulations.

For Institutional use only

RC-1010(12)0111 Europe Inst

Session 4

Emerging Market Equities

Stepping out of the shadows Jeff Chowdhry, Head of Emerging Markets Equities | F&C Investments

Emerging Market Equities – Stepping Out of the Shadows

14th October 2010

Jeff Chowdhry – Head of Emerging Market Equities

Expect excellence Expect excellence 67

Demographics

Reform Globalisation

GROWTH

Three Key Themes


-4

-2

0

2

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6

8

101

99

0

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

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20

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20

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20

05

20

06

20

07

20

08

20

09

E

20

10

E

20

11

E

Industrialized Economies

Emerging Market

Source: Morgan Stanley

Real GDP Growth


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009E

2010E

2011E

EM (EM Includes Middle East)

US


Share of Global Nominal US$ GDP


China & India vs US & Japan: GDP Growth

Source: Consensus Economics, 31/05/2010


Working Age Population Continues to Grow

15 to 64 age group

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010e

2015e

2020e

2025e

2030e

2035e

2040e

2045e

2050e

Developed

Emerging

Source: F&C, Morgan Stanley



0

50

100

150

200

250

300

350

400

19

91

19

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19

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19

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19

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e

20

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e

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11

e

20

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e

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e

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14

e

20

15

e

20

16

e

20

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e

20

18

e

20

19

e

20

20

e

BRICs

US

Euro Area

No

. o

f H

ou

se

ho

lds in

Millio

ns

Household Disposable Income Over US$10,000



Euro Area

GermanyFrance

Italy

Spain

Greece

UK

Sweden

Poland

Hungary

Czech

Russia

Turkey

S. AfricaChina

Taiwan

Korea

India

IndonesiaThailand

Malaysia

Chile

Brazil

Mexico

Australia

Japan

Hong Kong

US

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

-14% -12% -10% -8% -6% -4% -2% 0%

2009 Budget Deficit as % of GDP

2009 G

ovt D

ebt as %

of G

DP

Portugal

National Financial Strength/Weakness


Emerging Markets: Inflation

Source: Factset as at 30/06/10


Emerging Markets: Short Term Interest Rates

Source: Factset as at 31/08/10


Emerging vs Developed Markets: Foreign Reserves

Source: EIU, IMF, as at April 2010


Emerging vs Developed Markets: Foreign Reserves

Source: EIU, IMF, *Dec 2009


A Growing Asset Class

Emerging markets as a % of MSCI All World Index

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2002

2003

2004

2005

2006

2007

2008

2009

2010

Emerging Markets can no longer be ignored

?

Average exposure for Pension Fund

investors in emerging market equity

is between 3% and 8%

Source: F&C, Datastream, Pensions and Investment Jan 2010


10-Year Performance: Emerging Markets vs World vs US

Source: FactSet, USD, as at 30/08/10











Se

p -

10

MSCI Emerging Markets Index – Forward PE


11.6x

15.9x

9.5x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0xD

ec

-93

De

c-9

4

De

c-9

5

De

c-9

6

De

c-9

7

De

c-9

8

De

c-9

9

De

c-0

0

De

c-0

1

De

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2

De

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3

De

c-0

4

De

c-0

5

De

c-0

6

De

c-0

7

De

c-0

8

De

c-0

9

Average

+1 S.D.

-1 S.D.


14.4x16.0x

5x

10x

15x

20x

25x

30x

35x

40x

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

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Jan

-08

Jan

-09

Jan

-10

MSCI EM MSCI World

Se

p -

10

Historical P/E – Emerging Markets vs Developed Markets


MSCI Emerging Markets Index – Price:Book Ratio


2.1x

1.7x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5xJ

an

-92

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n-9

3

Ja

n-9

4

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

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Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

MSCI EM MSCI World

Source: MS Asia/GEMs Equity Strategy

Se

p -

10


8.00

-2

0

2

4

6

8

10

12

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Major EM Equity Market

Peaks

Major EM Equity

Market Troughs

ER

P, %

Emerging Markets – Equity Risk Premium



China: % Rural Households – Washing Machines

Source: Wall Street Journal; China National Statistic Bureau; as at March

2008


China: % Rural Households – Computers


2008


China: % Rural Households – Bicycles


2008


China vs US: Domestic Automobile Sales* (Monthly)

*smoothed by 6 months average

Source: China Association of Automobile Manufacturers, FactSet as at

30/07/10


GE – “This is the era of the developing world and

emerging markets”

Vodafone – “Emerging Markets still offer us vast potential”

Rio Tinto – “ongoing development in Emerging Markets

will drive metals demand”

Pernod Ricard – “Emerging markets represent 30% of the

Group’s business and generate two-thirds of its growth”

Procter & Gamble – “our centre of gravity will shift to the

developing markets”

Quotes from Global CEOs

http://online.vodafone.co.uk/dispatch/Portal/appmanager/vodafone/wrp?_nfpb=true&_pageLabel=templateBlank&pageID=VIRTUAL_HOME

http://images.google.co.uk/imgres?imgurl=http://www.enjoyfrance.com/images/stories/france/news/Pernod-Ricard-logo.jpg&imgrefurl=http://www.enjoyfrance.com/images/stories/france/news/&usg=__bZ6cpDupBa972YbuojxA41x4HUU=&h=296&w=604&sz=74&hl=en&start=1&um=1&tbnid=iXPdPuMhFyGhTM:&tbnh=66&tbnw=135&prev=/images?q=pernod+ricard&hl=en&rlz=1T4ADBS_enGB296GB297&sa=N&um=1

http://www.pg.com/en_US/index.shtml

Expect excellence

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Expect excellence

CN: 16926

Session 5

Hedge Funds

Whipping up the perfect exposure David Thompson | Redington

Redington 13-15 Mallow Street London EC1Y 8RD T. 020 7250 3331 www.redington.co.uk

David Thompson, Head of Manager Research Allocating to Hedge Funds

14 October 2010

Why Allocate to Hedge Funds? What are you looking for?

Allocating to Hedge Funds Why allocate to Hedge Funds

• Absolute returns during all market conditions?

• Equity like returns but with bond like volatility?

• Accessing asset classes which are not currently in the scheme, for example commodities?

• Low Correlation to other asset classes?

• Accessing currently held asset classes but using a different style of investment?

Allocating for Smaller Schemes

Allocating to Hedge Funds Allocating for Smaller Schemes

For smaller schemes, it may be impractical to invest in individual hedge funds:

• A lot of upfront governance and advice needed;

• Complexity;

• Small allocations might be impossible and little scope to reduce fees;

• Manager concentration; and

• Ongoing monitoring.

In this situation a Fund of Hedge Funds will probably be more suitable:

• Asset allocation – active asset allocation into different styles;

• Diversification – across both styles and managers;

• Stream of different returns with the manager operating as many levers as possible; and

• Enables a small scheme to get a different perspective on the investment world.

Allocating for Larger Schemes

Allocating to Hedge Funds Allocating for Larger Schemes

Larger schemes have a lot more flexibility and resources when it comes to investing in hedge funds.

However, the largest schemes must be aware of how the hedge fund strategies will fit into their existing portfolio:

• The scheme will probably have a significant allocation to equities and credit and will already benefit from rising equities, tightening credit and lower interest rates.

• They can either try to access their current asset classes in a different way by using hedge funds, or look for completely new return streams, for example commodities, FX, macro and convertible arbitrage.

• Well selected managers and styles can be used to complement the existing strategy and add diversification.

• Fund of Hedge Funds may be less appealing to larger schemes, because they lose an element of control over the investment. There is a case for thematic Fund of Hedge Funds where the strategy is pre-determined to be relevant to the client’s existing portfolio.

10% Correlation

90% Correlation Not Here

Not Here

Allocating to Hedge Funds Where is the Diversification?

Roll Up!

Roll Up!

Find the ball and win diversification!

Try Your luck for only 2 and 20!

Not Here Either!!!

Where is the Diversification?

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3 Year Rolling Correlation

HFRI Equity Hedge v.s SP 500 TR

HFRI Equity Hedge v.s MSCI World TR(Gross)

What you actually get is increased

correlation

What you actually see....

Allocating to Hedge Funds Correlations between Equity Long Short Strategies and Equities

Correlations Between Equity Hedge Strategies and Equities

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HFRI Equity Hedge v.s SP 500 TR

HFRI Equity Hedge v.s MSCI World TR(Gross)

Ideally, we want low or falling correlations

during a crisis

Historically, the strategy has high

correlations

What you want to see....

Since December 1992, the rolling correlation between equity long/short strategies and equity markets has trended higher. Since 2000 the rolling correlations between the HFRI Equity Index (HFRI EI) and the S&P 500 and MSCI World have both been above 0.6. Since May 06 the correlation of the HFRI EI and S&P 500 has been over 0.9. Using a long/short equity manager might not add the diversification that you are seeking.

Source: Redington, HFRI, Bloomberg

Allocating to Hedge Funds Correlations between Relative Value Strategies and Equities

Correlations Between Relative Value Strategies and Equities

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HFRI Relative Value v.s SP 500 TR

HFRI Relative Value v.s MSCI World TR(Gross)

What you actually get is increased

correlation



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HFRI Relative Value v.s SP 500 TR

HFRI Relative Value v.s MSCI World TR(Gross)


during a crisis

In the past, the strategy has had high correlations

The strategy has produced low and

negative correlations

Since December 1992, the rolling correlation between relative value strategies and equity markets has trended higher. Previous to October 1998, the rolling correlations between the HFRI Relative Value Index (HFRI RVI) and the S&P 500 and MSCI World showed some diversification benefit, however, this diversification has been eroded in recent times. The correlations have risen to around 0.75. Using a relative value manager might not add the diversification that you are seeking.


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HFRI Macro v.s SP 500 TR

HFRI Macro v.s MSCI World TR(Gross)

Allocating to Hedge Funds Correlations between Macro Strategies and Equities

Correlations Between Macro Strategies and Equities



during a crisis

In the past, the strategy has had

very low and negative

correlations


The strategy has produced low (ish)

correlations

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HFRI Macro v.s SP 500 TR

HFRI Macro v.s MSCI World TR(Gross)

You do seem to get some diversification

during a crisis

The strategy can still produce very high

correlations

Here we see that macro strategies might offer some diversification benefit during a crisis. The rolling correlation between macro strategies and equity markets has been low with some peaks, although never breaching 0.8. During the recent financial crisis, the rolling correlations between the HFRI Macro Index (HFRI MI) and the S&P 500 and MSCI World dropped steadily and troughed at zero in April 2009. Using a macro manager might give you the diversification that you are seeking during a severe downturn.


Allocating to Hedge Funds Correlations between Different Strategies

Correlations between Different Strategies – Pre and Post Lehman Collapse

As shown on the previous slides, correlations do change over time. We can see that post Lehman, the Macro

strategy correlations to other strategies (mostly) fell


Accessing existing asset classes with a different style of investments Active Equity or Passive and Hedge Fund

Comparing an Active Manager with a Combination of a

Passive Manager and a Hedge Fund.

• An active manager with FTSE 100 as his benchmark with an outperformance target of 100bp may be expected to take 200bp of tracking error volatility. This may mean that he effectively has circa 80% of his portfolio that replicates the index and 20% that is active. Alternatively, you could have 80% of your portfolio invested passively and 20% managed extremely actively (perhaps by a hedge fund).

• Fees: How do the fee structures compare? The fees for the traditional active manager may be 60bp. The fees for the passive equities may be circa 10bp and the hedge fund 1.5% and 10% outperformance. Assuming a performance of 10% this equates to a total combined fee of 58bp which is comparable to a traditional long only equity manager.

• Style: Does this get the style diversification you are looking for? Do you want the manager to be able to go to a zero allocation in equities if he sees fit? Are you happy for your manager to have no benchmark?

• Risk: Is this likely to give you an improved risk return profile?

Active Equity

Passive Equity

Uber Active

Allocating to Hedge Funds Summary

Summary

• It will be more practical for small schemes to access hedge funds through fund of funds.

• Larger schemes with more resources will be able to able to invest in individual hedge funds, however...

• They need to choose the strategy wisely and think hard what they need from their allocation. This will help to ensure that it is appropriate for their existing strategy and portfolio.

• As we have seen, hedge fund strategies might not offer attractive correlations and these correlations are prone to change depending on the market environment.


Allocating to Hedge Funds End

Any Questions and

Thank You

Contacts

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THE DESTINATION FOR ASSET & LIABILITY MANAGEMENT

Contacts

David Thompson

Director |Investment Consulting

Session 6

Accessing Growth through

Commodities Olivier Meyohas & Kristen Eshak

Blackstone Alternative Asset Management

Redington Conference

14 October, 2010

Blackstone® Alternative Asset Management L.P.

Confidential – Not for public disclosure: This information is presented at your request and is for your

exclusive use only. This information is confidential and may not be reproduced, distributed, copied

or used for any other purpose.

Blackstone® Alternative Asset Management L.P.109

_________________________________

Note: Opinions expressed reflect the current opinions of BAAM as of the date appearing in this material only.

Strategic Motivations For Inclusion of Commodities in Pension Portfolios

Confidential – Not for public disclosure.

Commodities may exhibit inflation-hedging characteristics

Commodities have historically provided diversification from, and low correlation to, traditional

asset classes

Commodities have generally exhibited low correlation to each other, providing further

potential diversification benefits

Commodities generally exhibit positive skewness and may offer a hedge against event risk

Commodities can provide exposure to future economic growth


_________________________________

(1) Facts & Fantasies about Commodity Futures by Gary Gorton (The Wharton School & National Bureau of Economic Research) & K. Gert Rouwenhorst (School of Management, Yale University)


Commodities Exhibit Inflation-Hedging Characteristics

Correlation of Assets with Inflation (July 1959 – December 2004)

Stocks and bonds are negatively correlated with inflation, while the correlation of commodity futures with inflation is

positive at all horizons, and statistically significant at the longer horizons(1)

Stocks Bonds Commodity Futures

Monthly -0.15 -0.12 0.01

Quarterly -0.19 -0.22 0.14

1 year -0.19 -0.32 0.29

5 year -0.25 -0.22 0.45


-0.9%-3.4%

16.5%

-3.3%

15.1%

73.2%

86.4%

10.3%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Jan - Dec 1970 May 73 - Jul 76 Feb 77 - Aug 82 Aug 90 - Jan 91

S&P 500 S&P GSCI Total Return Index

Commodities Exhibit Inflation-Hedging Characteristics (Cont’d.)

_________________________________

Source: Bloomberg. Indices are as follows: S&P GSCI TR Index, S&P 500. CPI: Consumer Price Index USA (International Monetary Fund). There is no guarantee of trading performance and past performance is no indication of current or future performance/results.

Commodities are real assets which generally tend to rise in price as inflation increases


CPI

5.4% 8.0% 8.7%

5.5%


Sample correlations between physical commodities, as well as physical commodities to equities and bonds, validate the

diversification benefits of commodities in a portfolio, as well as the opportunity set within the space.

The average correlation between all commodities in the major indices is 0.25 over the past 5 years (7/1/05 – 6/30/10).

Over the same period the average correlation of these commodities to equities is 0.18 and -0.14 to bonds (US 10Y).

_________________________________

Source: Bloomberg as of 7/1/10.


Commodities Exhibit Low Correlation To Other Asset Classes and One

Another

WTI NGHeating

OilRBOB Gold Aluminum Copper Nickel Zinc Wheat Corn Soybeans Sugar Cotton

Live

Cattle

Lean

HogsS&P 500 US 10Y

WTI 1.0000

NG 0.2805 1.0000

Heating Oil 0.7934 0.3502 1.0000

RBOB 0.7191 0.2827 0.7950 1.0000

Gold 0.2113 0.0553 0.2011 0.1363 1.0000

Aluminum 0.3729 0.1529 0.3651 0.3125 0.2591 1.0000

Copper 0.4241 0.1369 0.3978 0.3695 0.2629 0.7133 1.0000

Nickel 0.3237 0.0856 0.2984 0.2990 0.1868 0.5344 0.6200 1.0000

Zinc 0.3272 0.0936 0.3312 0.2789 0.2653 0.6848 0.7547 0.5958 1.0000

Wheat 0.3065 0.0913 0.2785 0.2253 0.1556 0.1952 0.2545 0.1787 0.1940 1.0000

Corn 0.3389 0.1380 0.3086 0.2685 0.1593 0.2447 0.2735 0.1978 0.2147 0.6304 1.0000

Soybeans 0.3966 0.1724 0.3842 0.3459 0.1141 0.2809 0.3081 0.2564 0.2650 0.4137 0.5768 1.0000

Sugar 0.2704 0.1546 0.2531 0.2181 0.1020 0.2170 0.2610 0.1904 0.2085 0.2202 0.2465 0.2530 1.0000

Cotton 0.2835 0.1139 0.2758 0.2603 0.1203 0.2654 0.2853 0.2389 0.2468 0.3006 0.3159 0.3539 0.2517 1.0000

Live Cattle 0.1613 0.0208 0.1402 0.1318 0.0200 0.1379 0.1873 0.1356 0.1220 0.1122 0.1324 0.0998 0.0993 0.1222 1.0000

Lean Hogs 0.0600 0.0240 0.0459 0.0582 0.0363 0.0373 0.0388 0.0580 0.0541 0.1060 0.0763 0.0439 0.0112 0.0507 0.1816 1.0000

S&P 500 0.2867 0.0953 0.2771 0.2573 (0.0267) 0.2310 0.2812 0.2116 0.2032 0.1653 0.1601 0.1895 0.1258 0.2177 0.1675 0.0494 1.0000

US 10Y (0.2781) (0.0399) (0.1725) (0.1562) 0.0348 (0.1642) (0.1977) (0.1397) (0.1358) (0.1419) (0.1006) (0.1857) (0.0840) (0.1465) (0.0930) (0.0286) (0.3391) 1.0000


60%

80%

100%

120%

140%

160%

Jun-90 Aug-90 Oct-90 Dec-90 Feb-91

GSCI S&P 500

85%

90%

95%

100%

105%

110%

115%

120%

125%

Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03

GSCI S&P 500

Commodities May Offer A Hedge Against Event Risk

_________________________________

Source: Bloomberg. Indices shown are S&P GSCI TR Index and S&P 500 Index.


S&P 500 vs. GSCI after First Gulf War S&P 500 vs. GSCI after SARS Epidemic

WHO Global Outbreak & Alert

Response Network reports “flu

outbreak” in China

Iraq invades

Kuwait


The Recovery In Commodity Prices Has Been Modest Compared To

Previous Recessions

_________________________________

Source: Barclays Capital Research

Note: Legend dates represent dates of recession. As of August 31, 2010. (1) Indexed to 100 at start of each recession.


GS

CI To

tal

Retu

rn In

de

x(1

)


_________________________________

Source: JPM Commodity Research, September 2010


Commodities Returns in Rate and CPI Environments


US Rate Environment: Annualized Total Returns US CPI Environment: Annualized Total Returns


_________________________________



Emerging Market Demand Remains Buoyant


Non-OECD Demand for Crude Oil


_________________________________





Chinese Net Imports of Crude


_________________________________

Source: JPM Commodity Research, September 2010, Eurostat, DOE




Auto Sales are Relatively Low


_________________________________

Source: JPM Commodity Research, September 2010, Bloomberg, Metal Bulletin


Declines in Capex Will Result in Tight Balance Sheets


Supply Cuts Have Supported Prices


_________________________________

Source: Barclays Capital Commodity Research, 29 September 2010; USDA


Global Grain Production Looks Tight


Large Cuts Were Made to 2010-11 Global Grain Production Forecasts


2009 Excess 2009 Total

Spot Roll Yield Return Return

Energy 62.4% -51.3% 11.0% 7.3%

Agriculture 14.7% -11.1% 3.6% 3.6%

Livestock 2.8% -17.0% -14.2% -16.3%

Precious Metals 26.2% -1.3% 24.9% 25.5%

Base Metals 91.2% -9.1% 82.1% 73.8%

Aggregate 50.3% -37.0% 13.3% 13.5%



Energy -49.5% -3.6% -53.1% -52.4%

Agriculture -19.7% -10.3% -29.9% -28.9%

Livestock -6.4% -22.1% -28.5% -27.4%

Precious Metals 2.0% -3.1% -1.0% -0.5%

Base Metals 48.5% -1.8% -49.8% -49.0%

Aggregate -42.8% -4.5% -47.3% -46.5%



Energy 52.3% -16.7% 35.6% 41.9%

Agriculture 41.1% -18.5% 22.6% 28.3%

Livestock 1.5% -14.2% -12.7% -8.6%

Precious Metals 29.4% -7.1% 22.3% 27.9%

Base Metals -10.7% 0.9% -9.8% -5.6%

Aggregate 40.7% -13.9% 26.8% 32.7%



Energy -8.7% -21.5% -30.2% -26.8%

Agriculture 29.6% -21.6% 8.0% 13.3%

Livestock -5.9% -5.2% -11.1% -6.7%

Precious Metals 25.4% -7.2% 18.3% 24.1%

Base Metals 51.5% 1.9% 53.4% 60.9%

Aggregate 0.4% -19.5% -19.1% -15.1%

2009 Excess Return Components




Cost Of Negative Roll Yield

S&P GSCI Commodities Performance – 2006 to 2009

_________________________________

Note: Results for 2006, 2007, 2008 and 2009. Source: JPMorgan Global Currency & Commodity Research (Commodity Index Monitor, December 2009).


A total return index has three components: spot return, roll return, and return on collateral

Both traditional commodity indices and ETFs are structurally flawed

To avoid physical delivery, each month they buy the second forward month, selling the current month to avoid physical delivery

The monthly roll is very transparent in the market

Negative roll yield has been a significant drag on returns

Sell low and buy high in a contango environment

The front month will often disconnect with the rest of the forward curve

Does not reflect hedging activity

One dollar invested in the S&P Natural Gas sub-index in January 2002 would be worth 6.9 cents at the end of June 2010


Significant Drawdown Risk

A passive investment into the S&P GSCI TR index

beginning on January 1, 1990 would have generated a

cumulative return of +126.05%, equivalent to +4.25% on an

annualized basis.

Cost of Drawdowns(1)

0.00

100.00

200.00

300.00

400.00

500.00

600.00

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Ind

ex

va

lue

(J

an

1, 1

99

0 =

10

0)

-48.26%

-35.42%

-26.41%

-67.65%

0.00

100.00

200.00

300.00

400.00

500.00

600.00

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Ind

ex

va

lue

(J

an

1, 1

99

0 =

10

0)

-48.26%

-35.42%

-26.41%

-67.65%

Performance of the S&P GSCI TR Index

0.00

100.00

200.00

300.00

400.00

500.00

600.00

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Ind

ex

va

lue

(J

an

1, 1

99

0 =

10

0)

-48.26%

-35.42%

-26.41%

-67.65%

0.00

100.00

200.00

300.00

400.00

500.00

600.00

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Ind

ex

va

lue

(J

an

1, 1

99

0 =

10

0)

-48.26%

-35.42%

-26.41%

-67.65%

Performance of the S&P GSCI TR IndexPerformance of the S&P GSCI TR Index

_________________________________ (1) Please note that the 50% and 75% drawdown scenarios are based on a hypothetical track record that is equal to the actual monthly returns for all periods outside of the drawdowns and a 50% or 75% reduction in exposure to

the monthly returns during the drawdown periods ( GSCI: Dec 1997 – Feb 1999, Dec 2000 – January 2002, October 2005 – January 2007 and July 2008 – February 2009 and the S&P 500 Jul 1998 – Aug 1998, Sep 2000 – Sep 2002 and Nov 2007 – Feb 2009. ). The 100% scenario represents the actual track record of the index. This analysis is for informational purposes only and is meant to broadly illustrate the benefits of active management. Please note that active management would also likely limit the upside return participation.


Source: Bloomberg

Exposure to GSCI

DrawdownsCumulative Return Annualized Return

50.00% 739.58% 11.48%

75.00% 341.17% 7.87%

100.00% 126.05% 4.25%

Drawdowns in Commodities are

more severe than in Equities

Exposure to S&P 500

DrawdownsCumulative Return Annualized Return

50.00% 517.21% 9.74%

75.00% 317.95% 7.58%

100.00% 179.42% 5.39%



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And finally...................

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SEEKING OUT THE RETURN

GROWTH ASSETS IN FOCUS…

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Place: Royal Society, London

Seeking out the Return - Growth Assets in Focus

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