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Credit Suisse 2013 Investor Survey Report

Credit Suisse 2013 Investor Survey Report

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    Credit suisse 2013 investor survey report final Credit suisse 2013 investor survey report final Document Transcript

    • Reaching New HeightsThe 2013 Credit Suisse Global Survey ofHedge Fund Investor Appetite and ActivityCopyright © 2013 Credit Suisse Group. All rights reserved.
    • Credit SuisseCredit Suisse AG is one of the worlds leading financial services providers and is part of the Credit Suisse group ofcompanies (referred to here as Credit Suisse). As an integrated bank, Credit Suisse offers clients its combinedexpertise in the areas of private banking, investment banking and asset management. Credit Suisse provides advisoryservices, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth privateclients globally, as well as to retail clients in Switzerland. Credit Suisse is headquartered in Zurich and operates in over50 countries worldwide. The group employs approximately 49,700 people.Credit Suisse Prime ServicesCredit Suisse Prime Services delivers outstanding core financing and operating services that hedge fund and institutionalclients require, including start-up services, product access, high-touch client service, financing, access to sources ofcapital, risk management, and managed lending. Prime Services delivers the strengths of Credit Suisses investmentbanking, private banking and asset management business to a focused number of clients. As a partner, Prime Servicesis committed to bridging the gap between idea and execution and ultimately functioning as the provider of choice for boththe alternative and traditional investment communities.Credit Suisse Capital ServicesCredit Suisse Capital Services is 30 person team with professionals located in New York, Philadelphia, San Francisco,Boston, London, Zurich, Geneva, Dubai, Hong Kong and Tokyo, responsible for maximising sustainable flow of capitalbetween hedge fund managers and a broad range of institutional investors (including Funds of Hedge Funds, FamilyOffices, Private Banks, Endowments and Foundations, and Public and Corporate Pensions) who are seeking to allocatecapital to Hedge Funds. It is critical to our success that we treat both managers and investors as “clients”, and we striveto be of equal utility to both communities, providing them with regular insight and research, as well as frequentopportunities to interact with each other. Credit Suisse was the first firm to combine into a single team the 3 servicesthat managers and investors use to connect with each other – Capital Introductions for Prime Services clients seeking todiversify and upgrade their capital base, a Placement Agent for established managers seeking to accelerate their growthstrategy and Capital Solutions in cooperation with our market-leading Fund-Linked Products Group.For more information on this survey or on our Prime Services business generally, please contact: Prime Services Capital ServicesAmericas + 1 212 325 3116 + 1 212 325 3156Europe + 44 (0)20 7888 8165 + 44 (0)20 7888 1212Asia + 852 2101 7287 + 852 2101 7471 Confidential Page 2 of 90
    • Table of ContentsPART 1 – COMMENTARY AND KEY FINDINGS 4Investors at a Glance: Selected Highlights 5Introduction 7I. Where Investors’ Assets Are Likely to Flow in 2013 8Current Investor Sentiment towards the Hedge Fund IndustryWhere Investors’ Assets Are Likely to Flow in 2013 – By StrategyWhere Investors’ Assets Are Likely to Flow in 2013 – By RegionWhere Investors’ Assets Are Likely to Flow in 2013 – By SizeII. Return Expectations for 2013 14III. Update on Key Industry Trends and Developments 16Sources of Risk to the Hedge Fund Industry in 2013Appetite for Start-upsInterest in other formats for investing into Hedge FundsFee structuresMost Interesting Developments in 2013IV. Focus on Pensions and Institutions 23Pensions and Institutions are Leading Flows to Hedge FundsInvestment ExpectationsSelection Process and Due DiligenceHedge Funds in the PortfolioOutside of Traditional Hedge FundsPART 2 – DATA APPENDICES 33Appendix I – The ParticipantsAppendix II – Key Industry Trends and ForecastsAppendix III – Focus on Pension and Insurance ActivityAppendix IV – Alternative Routes to Absolute ReturnAppendix V – Strategy Appetite Confidential Page 3 of 90
    • PART 1 – COMMENTARY AND KEY FINDINGS Confidential Page 4 of 90
    • Investors at a Glance: Selected HighlightsThe Participants Size: Close to 550 institutional investors participated, representing $1.03 trillion in collective Single-Manager Hedge Funds (SMHF) allocations. Type: The investor base was well diversified and included 25% institutional fund of Hedge Funds (FoHFs), 20% Family Offices, 12% Advisor/consultants, 12% Pension Funds/Insurance companies and 6% Endowments. Regions: Participation was globally representative, with 42% of total respondents headquartered in the Americas, 39% in Europe, Middle East and Africa (EMEA) and 19% in Asia.Key Industry Trends and Forecasts Asset Flow Forecasts: On average, investors expect the industry to grow 10% in 2013, to reach $2.42 trillion in total assets, with the upper quartile prediction at $2.50 trillion. Market Return Predictions: Markets are predicted to return between 2.9% and 10.4% on average this year, with investors most optimistic about Equity markets across regions, predicting returns of between 7.3% and 10.4%. Strategy Return Predictions: Long/Short Equity is predicted to be the top performing strategy this year by 34% of investors, with Emerging Markets Equities and Structured Credit behind as numbers two and three respectively. Risks: Investors consider crowded trades/herd behaviour and regulatory changes to be the top two sources of risk to the industry. Start-up Appetite: There remains a healthy appetite for start-ups, with 69% theoretically able to invest on day one, however, with an increasing demand for fee discounts or equity share. Hurdle Rates: 77% of investors prefer managers to have a hurdle rate, with the majority indifferent to the type of hurdle rate (40%).Focus on Pension and Insurance Activity Objectives: In addition to high-risk adjusted returns, diversified/uncorrelated returns versus equity markets were the notable key objectives that pension funds particularly looked for in their hedge fund investments. Selection and Due Diligence: 73% of institutions require hedge fund assets to be greater than $250 million before they can invest and 80% take at least 4 months to 1 year to complete due diligence on funds. Terms: Almost half of pension funds and insurance companies always negotiate performance and management fees. Asset class buckets: 79% of pensions allocate to Hedge Funds through a dedicated hedge fund/alternatives bucket, with 50% integrating both Equities and Fixed Income Hedge Funds into the traditional asset class bucket. Turnover: Hedge Fund turnover for pensions, at 8%, is lower than the average of other investors, at 10%.Alternative Routes to Absolute Return UCITS/Regulated Funds: 21% of investors plan to increase their allocations this year, up from 20% last year, with the majority of these coming from Retail Intermediaries in EMEA. Managed Accounts: Appetite decreased slightly to 35% from 40% last year, distributed evenly across investor types and regions. Alternative Routes: For other alternative formats, such as closed-ended Hedge Funds, replication products and US 40 Act funds, over 70% of investors have no allocations or plans to allocate, however 27% are looking to allocate to Long-only funds offered by Hedge Fund managers.Strategy Appetite Overall: Long/Short Equity (General) is the most sought-after strategy, with Emerging Markets Equities ranking second and Event-Driven close behind. Confidential Page 5 of 90
    •  Equity Strategies: Net demand for Long/Short Equity (General) has increased by 24% from last year, while appetite for trading oriented Long/Short fell by 11% from last year. Fixed Income/Derivative Strategies: Fixed Income strategies in general decreased in net demand, with Fixed Income Arbitrage/Relative Value decreasing by 16% and Credit (RV and Leverage Loans/High-Yield) by 11%. Other Strategies: Net demand for CTA/Managed Futures along with Global Macro fell by 30%. By Geographic Focus: Net demand across geographies increased on average, with Developed Europe increasing by 26% from -2% net demand last year to +24% this year. Emerging Markets and Asia-Pacific remain in the top two geographies for preference, while North America saw net demand fall to 14%. Confidential Page 6 of 90
    • IntroductionAs we emerge from a year in which the hedge fund industry experienced relatively low levels of net inflows, investors areapproaching 2013 with a good deal of optimism and purpose. Expectations for growth are strong, with a consensus ofour survey respondents forecasting the hedge fund industry to grow by over 10% this year. This would equate to anadditional $220B for the industry during 2013, with overall assets reaching a projected all time high of $2.42T by yearend, with the upper range of our forecast reaching as high as $2.5T.Investors were also optimistic about the potential for higher hedge fund returns in 2013, with a forecast of 6.9% averageannual return for the industry versus a forecast of 5.4% at this same time last year. Perhaps there is greater confidencein central bankers and their ability to avoid deflationary scenarios while keeping rates, equity volatility and correlations atmoderate levels. Given this backdrop and positive performance in 2012, it is not surprising to see increased expectationsfor 2013.We observed some dramatic changes in this years survey results with respect to investor appetite, both by strategy andregion. Perhaps the most dramatic being the rebound in investor appetite for equity long/short strategies, which wasranked as the top strategy of interest by investors. Long/Short Equity had the biggest year-on-year “swing” of any onestrategy. Emerging Markets Equity and Event-Driven strategies were also ranked very highly by investors this year.From a regional standpoint, there was a similarly pronounced increase in interest for strategies covering DevelopedEurope. Investors appear to have had some of their confidence restored for now by political action taken, though theycontinue to closely monitor the situation. Emerging Markets and Asia-Pacific now hold the top two spots in the surveyas risk appetite clearly seems to be on the mend.Interest in new and emerging managers continues to remain strong, though more investors this year indicated that theyexpect to receive some level of fee discount for being an early-stage investor. This corresponds with the rise offounders’ share classes, which typically offer investors a discounted fee arrangement. The bar remains high for investors,as they apply a highly selective approach towards new funds. In addition, investors indicated that those mid-sized HedgeFunds with assets under management between $500M and $2B continue to be of interest for potential allocations thisyear.This year, for the first time, we have broken out the results of our survey to specifically show responses from pensionfunds. We believe that this fast growing investor segment is of critical importance to the future growth of the hedge fundindustry, therefore we felt compelled to share as much insight as possible. Our aim in doing so, is to shed additionallight on some of the key trends and developments within this influential investor segment.Looking forward, many investors anticipated that crowded trades and herd mentality may pose continued risks to theindustry in addition to risk on underperformance and political uncertainty. Additionally, many predicted that there wouldbe further fee compression this year, as well as growth in additional formats for investing, such as long-only funds,longer dated vehicles and US 40 Act funds.As our title indicates, investors are forecasting that 2013 is a year in which the hedge fund industry reaches a new all-time high with respect to assets under management. As we are now several years removed from the last financial crisis,the climb back has been a difficult one and not without peril. We hope this survey can provide some insights into whatthat path may look like going forward.Sincerely yours,Robert LeonardGlobal Head, Credit Suisse Capital Services Confidential Page 7 of 90
    • I. Where Investors’ Assets Are Likely to Flow in 20131. Current Investor Sentiment towards the Hedge Fund IndustryBefore diving into the breakdown of investor appetite and their implications for where assets are likely to flow, we wantedto open the survey assessing the general sentiment towards the hedge fund industry and whether the prediction by manycommentators of a more bullish market outlook in 2013 is echoed within the universe of hedge fund investors.We asked investors to forecast industry assets at the end of 2013, assuming the industry had assets of $2.2 trillion atthe end of 2012. The chart below shows the distribution of results. It indicates that even the lower quartile of predictions,estimate a growth of 4.5%, with the average sitting at a predicted growth of over 10%. Three quarters of investorspredicted growth rates of between 4.5% and 13.6%. Investors expect this to be fairly evenly balanced betweenperformance and net asset flows. It is worth noting that investors’ prediction last year of 12% growth was in line with theactual growth rate at the end of 2012 according to HFR data ($2.008 trillion at the beginning of 2012 to $2.252 trillionat the end of 2012). Hedge fund industry AuM forecast 2.6 2.50 Upper Quartile 2.42 Lower Quartile 10.1% (US$ trn) 2.3 ` 2.30 Average 2.2 2 31-Dec-2012 31-Dec-2013With the many systemic risks we saw emerging in 2012, such as the many political risks in Europe and the US alongwith sovereign default risks emerging across peripheral Europe, several investors looked to maintain higher than normallevels of cash/near-cash assets. However, with real interest rates at historical lows and the continued demand forabsolute returns, we looked to investigate whether investors continued to hold high cash levels in the coming year and inthe long-term, or whether would be looking to redeploy some of this cash.As we can see from the chart below, FoHFs ramped up their cash buffer post-crisis to an average of 12% in 2009,which subsequently saw a steady reduction to 5% as sentiment improved in the period up to the start of 2011. Thistrend reversed slightly leading up to 2012 when the average went up to 6%, however, this reversal was short-lived withFoHFs reverting to 2011 levels of cash, which is further predicted to reduce as market conditions improve, to an averageof 3% of holdings in cash. Allocation to cash as a percentage of FoHFs’ overall portfolios Confidential Page 8 of 90
    • 2.1. Where Investors’ Assets Are Likely to Flow in 2013 – by StrategyWe note in 2013 a shift in investor strategy appetite compared to 2012. The chart below ranks investors’ net demand(percentage increasing or considering increasing minus percentage decreasing or considering decreasing) by strategy.Rather unsurprisingly, the positive equity market sentiment which we saw in the final quarters of 2012 has yieldedconsiderable demand for equity related strategies for the year ahead. Long/Short Equity-General has topped this year’slist with 35% of net demand compared with 12% in 2012 – this represents an 18 place rise year-on-year. Closelyfollowing is Emerging Market Equity with a rise from 6th to 2nd place highlighting that investors are looking to broadentheir choice of geographies in search for greater returns. Also ranked highly this year is Event Driven Strategies.In the fixed income space, Fixed Income Arbitrage/Relative Value has fallen to 10th place, from 3rd in 2012, whilstCredit – ABS/Structured Credit continues to remain a strategy of interest, currently ranked 8th place.Macroeconomic uncertainty, which has previously dictated market trends and performance, continues to remain a factorin investor allocations but to a lesser extent. Ranked 1st in 2012, Global Macro has been divided this year intodiscretionary and systematic strategies in the 2013 survey, and our results highlight significant dispersion in appetite forthe two sub-strategies. Global Macro – Discretionary is currently in 5th place with a net demand of 22% whilst GlobalMacro – Systematic is at 19th place with net demand of 7%. If we are to aggregate these two strategies for year-on-year analysis Global Macro net demand in 2013 is 15% compared with 45% in 2012. All principal strategies, ranked by current net demandPer the chart below we rank the largest absolute swings in net demand year-on-year. Global Macro and CTA/ManagedFutures have experienced the largest negative swings with investor appetite swaying towards Equities. Poor performancein CTA/Managed Futures strategies on the back of lack of noticeable trends has resulted in a 30% fall in net demand Confidential Page 9 of 90
    • year-on-year, equal to the decline in appetite for Global Macro. The results imply that, after significant decreases in netdemand between 2011 and 2012, fundamental and valuation driven strategies are the most sought after for investors inthe year ahead. Long/Short Equity - General and Long/Short Equity - Fundamental both increased net demand year-on-year 24% and 22% respectively. Another notable swing can be seen with Event Driven – General. After a significantdrop in net demand of 38% between 2011 and 2012, we have now seen investor confidence returning to the sectorhighlighted by an 11% increase this year. Commodity Strategies continue their decline from 2012 into 2013 with afurther 15% decline in net demand. Top ten biggest year-on-year “swings”, ranked by absolute year-on-year change in net demandThe chart below shows how strategy appetite has evolved over the last three years. One can say that whilst GlobalMacro and CTA/Managed Futures has seen the most sustained net demand over previous years, 2013 brings muchmore sporadic developments in strategy demand evolution. Fluctuations in net demand can be seen in all of the mainstrategies with Credit – Relative Value appearing to be the most stable. Yearly evolution of net demand across main strategies Confidential Page 10 of 90
    • 2.2. Where Investors’ Assets Are Likely to Flow in 2013 – by RegionIn this section, we examine investor appetite by region for the year ahead. A continuation on last year’s theme seesEmerging Markets and Asia-Pacific dominating investor net demand by region. On the back of relatively strongperformance in 2012, the return opportunities apparent in Emerging Markets continue to be vast and lucrative. Growingdividend payouts, high saving levels and strong economic growth are all stark contrasts to the indebtedness which wesee in the developed world. In conjunction with these regions, we also see increased investor appetite for DevelopedEurope with 24% net demand. All principal geographies, ranked by current net demand 45% 42% 40% 35% 35% 30% 24% 24% 25% 22% 20% 16% 14% 14% 15% 12% 10% 10% 6% 5% 3% 0% 0%The chart below represents the largest swings in investor net demand year-on-year with Developed Europe experiencingthe largest swing of +26%. 2012 saw managers and investors escaping the region for fear of inevitable sovereigndefault and the terminal decline of the single currency. Nevertheless, political action in the latter half of 2012 appears tohave restored some confidence in the region for the time being, and austerity and structural reforms will continue formany years to come. Consequently, investors appear to be rebalancing their portfolios with greater conviction towardsDeveloped Europe in 2013. Whilst the sovereign debt concerns appear muted for now, we await to see if there is anawakening of fiscal issues later in the year. Confidential Page 11 of 90
    • Top ten biggest “swings”, ranked by absolute year-on-year change in net demandA common pattern emerging over numerous years has been the solid demand for exposure in Asia-Pacific and EmergingMarkets. Emerging Market net demand has also remained relatively consistent. Asia-Pacific only experienced a +1%increase in net demand year-on-year. We also see considerable decrease in year-on-year net demand for North America.As risk appetite picks up, investors are willing to redirect some of their allocations to other parts of the world to meettheir risk-return desires. Lastly, the strategies implemented by the newly elected government in Japan, including a 2%inflation target and unlimited asset purchasing, appear to have led to a more positive outlook on Japan amongstinvestors, which has resulted in a 9% increase in net demand (from 7% last year to 16% this year).The most volatile of net demands in the chart above can be seen in Developed Europe. As we have already discussed,after a significant withdrawal from the region in 2012, we are now seeing increased intentions to allocate in 2013 whichexceed 2011 net demand levels. Even though there remains some uncertainty regarding the longer term outcome ofEurope, investors appear to see significant upside in the region, and fear of missing out on such returns poses risks totheir projected annual returns. Yearly evolution of net demand across all regions 60% 2011 2012 2013 49% 50% 47% 42% 40% 40% 35% 34% 31% 30% 30% 30% 28% 30% 23% 24% 23% 24% 22% 21% 21% 20% 18% 18% 18% 20% 16% 16% 16% 14% 14% 12% 10% 10% 10% 10% 6% 7% 4% 3% 1% 2%0% 0% Confidential Page 12 of 90
    • 2.3. Where Investors’ Assets Are Likely to Flow in 2013 – by SizeThe topic of the consolidation of assets with the biggest funds i.e. “the big getting bigger” has been raging on for a whilenow. According to Hedge Fund Research, hedge fund firms with greater than $5 billion in assets have 57.7% of industryassets at the beginning of 2009. Today, such funds make up 65% of industry assets.We wanted to investigate whether this bias in flows towards funds with size was reflected in investors’ preference andability to invest in funds at various sizes. The results reveal a more nuanced preference for size than reports suggest.Investors’ interest and ability rises steadily from $1-49 million to $500 million-2 billion, with $100 million representing aturning point where the investor universe expands significantly. However, when assets expand beyond $2 billion there issomewhat of a drop in the percentage of investors that report that AUM is irrelevant. It hints at the fact that while forsome investors, the stability that comes with scale is an advantage hence a driver of their flows, for others, size is afactor to take into consideration depending on the funds’ strategy. Effect of the following asset sizes on investors’ decision to invest in a fund AuM irrelevant >$5 billion 25% 32% 5% 6% Potential interest US$2-5 billion 30% 44% 23% 3% Interest only in exceptional US$500 million-1.99 cases 39% 54% 1% billion No ability to allocate 6% US$250-499 million 37% 56% 6%1% US$100-249 million 30% 53% 14% 4% US$50-99 million 19% 33% 31% 18% US$1-49 million 17% 18% 34% 32% 0% 20% 40% 60% 80% 100% Confidential Page 13 of 90
    • II. Return Expectations for 2013Entering 2013, we asked investors about their return expectations for a range of global markets and hedge fundstrategies. Versus a year ago, our survey shows that investors have clearly gained confidence in risk assets and are lessworried about tail risk events or macro uncertainty. For the time being, there appears to be greater confidence in centralbankers and their ability to avoid deflationary scenarios while keeping rates, equity volatility and correlations at moderatelevels. Given this backdrop and positive performance in 2012, it is perhaps not surprising to see high expectations forEquity-based strategies in 2013. Indeed, our survey showed that return expectations for global equity markets, Europeand Emerging Markets were all higher than the year prior. Investors’ predictions on best performing hedge fund strategies in 2013When asked what strategy would perform best in 2013, allocators had a clear preference for Long/Short Equity,choosing the strategy 34% of the time - by far the most popular choice. Emerging Market Equities and Credit–Structured strategies selected by a 16% and 11% of respondents respectively, after each produced double-digit returnsin 2012 and outperforming Long/Short Equity strategies (as measured by the Dow Jones Credit Suisse Hedge FundIndex below) by more than 200bps. After recording 27% of the vote in last year’s survey, Global Macro strategiesgenerally under-performed Event Driven and Fixed Income Arbitrage strategies in 2012, but still recorded 9% of the votefor best performing strategy in 2013 and remain an important part of investors’ portfolios.As can be seen in the table below, Hedge Fund performance was largely positive in 2012, (as measured by the DowJones Credit Suisse Broad Hedge Fund Index) with 12 out of 14 strategies producing positive returns and 6 producingreturns greater than 10%. Event Driven Distressed was the top performer, followed closely by Multi-Strategy and FixedIncome Arbitrage strategies. Managed Futures produced negative returns for the second straight year but stilloutperformed the Dedicated Short Biased funds considerably. Hedge fund performance in 2012 Broad Index 7.67% Convertible Arbitrage 7.82% Dedicated Short Bias -20.39% Emerging Markets 10.28% Equity Market Neutral 0.85% Event Driven 10.63% Confidential Page 14 of 90
    • Distressed 11.77% Event Driven Multi-Strategy 10.14% Risk Arbitrage 2.82% Fixed Income Arbitrage 11.04% Global Macro 4.58% Long/Short Equity 8.21% Managed Futures -2.93% Multi-Strategy 11.19%When asked to choose between a range of return scenarios for individual asset classes/regions, investors predicted thatEmerging Market as well as European and US equity markets would outperform all others with average expectedperformance of 10.4%, 7.5% and 7.3%, respectively. The greatest expected potential for 10%-plus returns was alsoseen in Emerging Markets, followed by Commodities and US Equity markets. Investors’ predictions on market returns for 2013With higher expectations for Equities, we have concurrently seen moderating expectations for US Credit markets.Although 80%+ of respondents predicted that the US credit market will return between 0% and 10% (similar to lastyear) 13% of respondents predicted negative performance and only 4% believed US Credit markets would return morethan 10%. Expectations for European Credit are a more varied but have certainly rebounded quickly versus the year priorwith 84% of investors predicting positive performance (versus just 52% last year) and 18% expecting double digitreturns.Finally, return expectations appear to be more optimistic about the potential for higher hedge fund returns in 2013, witha forecast of 6.9% average return for the industry versus a forecast of 5.4% at this same time last year." Additionally,investors continue to believe in the ability of hedge fund allocations to protect capital with none of our respondentsexpecting negative returns for the Hedge Fund asset class in 2013. Confidential Page 15 of 90
    • III. Update on Key Industry Trends and Developments1. Sources of Risk to the Hedge Fund Industry in 2013As we asked investors to look down the road in 2013 and try to assess what the biggest risks to the hedge fund industrymight be, they continue to express concern over the inability of some managers to generate uncorrelated alpha in thecurrent environment. As per our last two surveys, investors are convinced that crowded trades and herd mentality posethe single biggest threat to the industry, by making it more difficult for Hedge Funds to achieve truly differentiatedperformance. That said, as market correlations have declined somewhat over the past few months, 2013 may perhapspresent a better environment for managers to produce differentiated returns, especially in stock picking strategies ingeneral. Investors’ views on sources of risk for the hedge fund industry over the coming year 2013 2012 Significant risk Somewhat of a risk Negligible risk Significant risk Somewhat of a risk Negligible risk Crowded trades/herd behaviour 48% 46% 6% Crowded trades/herd behaviour 51% 44% 5% Regulatory changes 41% 47% 12% Sovereign default risk 41% 49% 10% Attrition in assets due to 38% 51% 11% underperformance Counterparty/credit risk 39% 57% 5% Political uncertainty 37% 49% 14% Attrition in assets due to Hedge funds taking on excessive 33% 57% 10% 22% 55% 23% underperformance betasAcceleration in Hedge Fund Closures 18% 50% 31% Regulatory changes 32% 54% 14% Asset/liability mismatches in hedge 16% 56% 27% Hedge funds taking on excessive funds 28% 55% 17% betas Counterparty/credit risk 13% 64% 23% Asset/liability mismatches in hedge 23% 65% 12% funds Sovereign default risk 13% 56% 30% Asset/liability mismatches in FoHFs 20% 60% 20% Asset/liability mismatches in FoHFs 13% 54% 33% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%Investors now regard additional regulatory changes as the second biggest threat to the hedge fund industry in 2013,which is up from the fifth spot last year. This is not surprising, given the ever increasing number of new and proposedregulations the financial industry faces across many jurisdictions (e.g. Financial Transactions Tax, AIFMD, Basel III, Shortselling restrictions, etc.).The risk of sovereign default, which has been considered as the second greatest risk for the last two years in a row, hasfallen off dramatically, dropping to ninth place with only 13% of respondents identifying it as a significantrisk. Counterparty/credit risk, also once a primary concern for investors, experienced a sharp decline as well, nowranking just ahead of the risk of sovereign default. This is somewhat intuitive in the context of the global economycontinuing its slow recovery from the last financial crisis.Instead, these risks have been now replaced by the risk of underperformance and political uncertainty. While investorswere focused on potential left tail risk events last year, it appears that they now view the risk of underperformance to beof greater concern in 2013. Similarly, the risks associated with political uncertainty have grown significantly according tothis years survey, illustrating investor concern over the unsettled political landscape in many parts of the world. Confidential Page 16 of 90
    • Other potential risks identified by investors included Hedge Funds taking on excessive beta, accelerated hedge fundclosures (impacting capacity), as well as asset/liability mismatches between Hedge Funds and their clients (impactingliquidity).2. Appetite for Start-upsStart-ups continue to generate considerable interest among our survey respondents. Overall demand for start-upsremains healthy, with appetite declining only marginally year over year. While appetite for start-ups remains healthy,investors have become more discerning with regards to the organizational quality of the start-ups. Additionally, fees andterms concessions have increasingly become a prerequisite for investment. As the chart below shows, investors areincreasingly looking for initial fee discounts (which we would attribute to growing demand for founders’ share class).Although the reasons for investors to participate in seeding/emerging manager activities are varied (e.g. performance,nimbleness, favourable terms and talent), investors continue to place a high premium on track record, continuity andpedigree. As the graph below shows, 69% of respondents are theoretically able to invest in a manager with a 3+ yeartrack record carve-out from an established hedge fund, versus 25% who require some sort of relevant experience butnot necessarily a track record. Investor appetite for start-ups and yearly evolution in ability to invest day one New carve-out of 3+ year sub-strategy within 2013 39% 30% an established multi- 2012 56% 20% strategy hedge fund 2011 67% 13% firm 2010 65% 6% Start-up manager with 2013 38% 28% 3+ year track record from another hedge 2012 51% 24% fund 2011 61% 14% 2010 61% 6% 2013 26% 23% Spin-out of bank prop- trading desk with 3+ 2012 38% 22% year track record 2011 52% 14% 2010 47% 6% Start-up manager with directly relevant 2013 17% 13% investing experience but 2012 20% 13% no explicit track record 2011 30% 9% 2010 28% 5% Start-up manager with 2013 15% 10% somewhat relevant 2012 14% 11% investment experience 2011 26% 6% (e.g. in long-only) 2010 25% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% We can theoretically invest on day 1 We can theoretically invest on day 1 only for a fee discount/equity shareWithin Day 1 investing, 22% of the respondents in the survey are already active in seeding, and an additional 30% areinterested/considering seeding. Overall, a quarter of institutional intermediaries and end investors that responded to thesurvey are active in seeding. Confidential Page 17 of 90
    • Active or interested in SeedingIn addition to seeding, some investors are also running “Emerging Managers” programs, which invest in managers undera certain AUM (depending on the region and investor). In exchange for investing in early stage or small funds, investorsreceive preferential terms and lower fees, such as founders’ share class terms. Fewer than 10% of our respondentshave an Emerging Manager platform; 8% intend to launch one and 83% have no intention of launching one. Dedicated Emerging Manager ProgrammesThe new launch landscape continues to evolve, as start-ups navigate through the dynamic regulatory landscape, risingmanagement costs and heightened investor requirements. Investors continue to show strong interest in Day 1investments, as fee and term concessions are increasingly becoming the expected norm. Confidential Page 18 of 90
    • 3. Interest in other formats for investing into Hedge FundsThe landscape of alternatives continues to evolve with new product offerings and innovative structures as managers lookto access new pools of capital and allocators are looking for innovative solutions to help them achieve their risk/returnobjectives. The largest increase in this demand appears to be for long only fund structures offered by hedge fundmanagers. A full 27% of respondents indicated plans to either begin allocating to the product or increase their currentallocation. Interest for longer dated vehicles was also significant, with 19% of investors planning to increase theirallocations or begin allocations and more than 30% of respondents already invested in the structure.4. Terms and FeesAmongst the options available to managers for improving asset/liability matching, fund level gates are viewed mostfavorably by investors, with 71% reporting that they are generally able to invest in such funds or that the structure willhave no impact on their investment decision if justified. On the flip side, obligatory side pockets pose the greatest barrierto investment for investors, with 45% reporting that they will have no interest/ability to allocate should a fund imposeside pockets. Confidential Page 19 of 90
    • Investors’ views on the following approaches to im proving asset/ liability m atching We are generally able to invest No impact on our decision if clearly justified by asset liquidity Materially increases the hurdle to invest No interest/ability to allocate Fund Level Gates 35% 36% 21% 8% Investor Level Gates 28% 31% 30% 11% Hybrid Gates 25% 35% 30% 11% Staggered Redemption 21% 25% 38% 15% Obligatory Side Pockets 8% 11% 36% 45% 0% 20% 40% 60% 80% 100%Investors anticipate hedge fund fees to continue its downward trend across the board. This has often been accompaniedby concessions in exchange for lower fees, such as large tickets and longer liquidity terms. Of note, investors want feesto be justified by investment performance. Investor predictions on the hedge fund ‘market standard’ (2/20) fees Likely to decrease across the board 62% Likely to decrease only in specific situations (large ticket, longer lock-up 32% etc) Generally unlikely to decrease 6% 0% 20% 40% 60% 80%Fees continue to be a primary consideration for both investors and managers. Close to half of the respondentsoccasionally negotiate fees and almost a quarter always negotiate, often for concessions mentioned above. Percentage of investors to negotiate fees when m aking hedge fund investm ents Always 21% Sometimes 42% Rarely 27% Never 9% 0% 20% 40% 60%Over 75% of the respondents would prefer a hurdle rate, with the remainder being indifferent although most areindifferent to the type of hurdle rate, with a slight preference for a benchmark based over fixed percentage hurdle. Confidential Page 20 of 90
    • Investor preferences towards m anagers having hurdle rates Prefer managers to have a hurdle rate; indifferent to 40% type Prefer managers to have a hurdle rate based on a 22% benchmark (e.g. libor) Prefer managers to have a hurdle rate based on a fixed 15% percentage Indifferent 23% 0% 20% 40% 60%5. Most Significant Developments in 2013When we asked investors to predict what might be the most significant developments for 2013, the below are commonthemes that emerged, ordered by frequency of mentions. What is interesting to note is that themes are similar to whatwas predicted by investors for our 2012 survey, encouragingly with a more positive prediction for performance.Hedge fund closures and consolidation: Like in 2012, the most commonly predicted development by investors forthe hedge fund industry in 2013 was further consolidation and closures. This may be tilted towards high profile managerclosures and managers that decide that they are fed up with running a hedge fund, and prefer to convert theirinvestments into a family office. Several respondents specifically identified beta driven or underperforming Hedge Fundsas prime candidates for fund closures. With costs increasing for funds and fees under pressure, talented risk takers maybe dissuaded from setting up their funds or smaller hedge fund managers will be forced to consolidate.Fees and terms: Another overwhelming prediction by our respondents is that there will be continued hedge fund feecompression. In addition, some respondents have raised the possibility that the standard 2/20 fee structure may bemodified, such as further introduction of hurdles and carry forward loss provisions. Of course, the expectation is thatthere will be continued trade-offs for lower fees; namely, larger tickets, longer lock up, early stage investment.UCITS and other fund structures: We continue to see interest and growth in UCITS vehicles, particularly from ourclients in Europe. Additionally, respondents mentioned increased likelihood of higher demand for managed accountsparticularly in Asia. Also raised is the possibility of increased convergence between Hedge Funds and retail vehicles andthe demand for 40 Act funds. Lastly, given market performance, liquidity and fee considerations, long only vehicles havealso become more of an interest for our respondents.Performance: Our respondents generally expect funds to perform well in 2013. That said there is some divergence onthe predictions of the strategy that will be the best performer this year – such as L/S Equity, Emerging Market Equitiesor Event Driven.Appetite for new and emerging managers: This has led to respondents generally expecting higher appetite foremerging managers, given the potential for higher returns, more nimble portfolio management and flexible terms.Additionally smaller managers can often capitalize on niche strategies which may give them an advantage over theirlarger counterparts. In terms of strategies, there were also several mentions for hedge fund managers launching longonly products and predictions for Equity Long /Short remain disputed.Regulations: The regulatory environment remains dynamic and respondents overwhelmingly expect the regulatorylandscape to continue evolving, irrespective of the regions. Whether it is the continuing transparency or reporting Confidential Page 21 of 90
    • standards, shorting rules, taxation or country specific regulations such as QFII, the effects of course will be highertrading, compliance and technology costs.Other notable predictions made for 2013 include:Increased transparency throughout the industry, more appetite for illiquid assets, revival of fundamental security selectionand continued focus on potential insider trading violations.In any case, the hedge fund landscape continues to evolve and 2013 is already shaping up to be an exciting year. Welook forward to continuing our dialogue with you on some of these trends. Confidential Page 22 of 90
    • IV. Focus on Pensions and InstitutionsPublic and corporate pensions have increasingly been driving flows for the past several years and we expect to seecontinued growth in allocations ahead. This year we focus on pension plans and insurance companies to take a closerlook at the behaviour of this influential group of institutional investors.1. Institutions are leading flows to Hedge FundsPublic pension plans reported the highest on average allocation to Hedge Funds of our investors surveyed. Per the chartbelow, public pension plans ranked ahead of all other investor groups with the average dollar amount of capital allocatedto hedge funds. Allocations to SMHFs in US$ millions 6,000 Upper Quartile Lower Quartile Average 5,000 5,275 4,000 3,720 4,064 3,000 3,075 SMHF investments today - 2,037 370 1,000 484 3,427 2,475 2,000 1,450 2,175 1,800 1,539 1,318 1,225 1,760 138 376 755 463 1,300 US$ millions 1,000 874 250 100 100 80 200 75 200 83 104 300 173 120 - 1,220Looking closer, public pension funds reported a wide range of allocations, with the highest cited top end of the range ofall investors surveyed. The median percentage allocation to Hedge Funds is typically 5-8% of an investment portfolio. Confidential Page 23 of 90
    • Allocation to SMHFs in US$ millions – Pensions and Insurance 6,000 5,275 5,000 SMHF investments today - 4,000 4,064 3,000 2,000 2,175 1,318 1,225 1,300 1,000 1,220 - 250 200 Pension Fund - Pension Fund - Insurance Private / Public Company Corporate Upper Quartile Lower Quartile AveragePublic pension funds are planning to increase the number of hedge fund allocations made in 2013 at a higher rate thanmost other investors as seen on the chart below, an increase of 19% above existing allocations. Number of new hedge fund allocations in 2012/2013In line with the above trend, public pension plans are expecting to increase their allocations to Hedge Funds more sothan corporate pensions and insurance companies. Number of new hedge fund allocations in 2012/2013 – Pensions and Insurance 8.0 -2% +12% +19% 5.4 5.6 5.5 6.0 5.0 4.4 4.4 4.0 2.0 0.0 Pension Fund - Private / Pension Fund - Public Insurance Company Corporate 2012 2013 Confidential Page 24 of 90
    • Furthermore, pensions have larger average allocations to Hedge Funds than other investors. As visible in the chartsbelow, both public and corporate pensions allocate significantly larger amounts of capital to Hedge Funds per investmentthan do other investors. Typical allocation size in US$ millions – Initial and long-term target All 80 60 50 50 40 25 20 25 ` 3 8 - Typical initial Typical long-term investment size holdings Upper Quartile Lower Quartile Average Pension Fund – Private/Corporate Pension Fund – Public 100 82 300 294 80 75 60 60 200 200 193 50 141 40 100 20 ` 79 ` 79 20 20 - - Typical initial Typical long-term Typical initial Typical long-term investment size holdings investment size holdings Upper Quartile Lower Quartile Average Upper Quartile Lower Quartile AveragePension funds typically hold smaller numbers of hedge fund investments in their portfolios than other invesors. Comparedwith the rest of the investor universe, they have fewer total allocations. Total number of distinct SMHF investments within hedge fund portfolios Upper Quartile Lower Quartile Average 85 80 70 66 60 45 53 45 41 41 40 41 SMHF investments today - 37 34 25 30 34 20 29 19 25 25 16 20 21 17 24 15 15 18 15 16 10 10 11 9 13 5 number 5 4 - Confidential Page 25 of 90
    • As per the graph below, both corporate and public pensions typically have fewer hedge fund investments than doinsurance companies, or other investors as shown above, although a wide range of dispersion does exist. Total number of distinct SMHF investments within hedge fund portfolios – Pensions and Insurance2. Institutions’ Objectives for their Hedge Fund PortfoliosInvestors look to Hedge Funds for high risk-adjusted returns primarily as well as diversified returns versus equity markets,as shown in the chart below.In the context of underfunding that is frequent amongst pensions as well as the challenge of meeting targeted rates ofreturn using traditional asset classes, Hedge Funds have become part of the solution in the search for consistent returns.As many plans pay out 60-80% of all benefits out of their investment returns, it is essential to lock in consistent risk-adjusted returns that can be achieved with Hedge Funds.Further, since 2008 there has been a meaningful shift away from Equities as plans have de-risked following thedrawdowns post credit crisis. Much of that capital has been redeployed to Alternatives, within which Hedge Funds havebeen amongst the largest recipients of capital inflows. Importance of the following objectives for Institutions’ Hedge Fund Portfolio Very important Somewhat important Not important High risk-adjusted returns 73% 25% 2% Diversified/uncorrelated returns, vs equity 72% 25% 4% markets High absolute returns 46% 43% 11% Diversified/uncorrelated returns, vs other 35% 51% 14% hedge fund holdings Low volatility of returns 23% 68% 9% 0% 20% 40% 60% 80% 100% Confidential Page 26 of 90
    • Per the chart below, a majority of pension investors expect 5-10% target returns from their hedge fund investments.Somewhat below expectations for the Equities market, these target returns highlight investor focus on risk-adjustedreturns that are diversified from equity markets rather than high absolute returns. Target Hedge Fund Returns3. Selection Process and Due DiligencePer the chart below, the majority of pension plans require AUM to be greater than $250 million before they can investand nearly 50% require funds to be $500 million in size. Due to the typically large position sizes highlighted above,pension plans look to invest in larger managers in order to avoid owning an outsized portion of any particular fund.However, a subset of pensions that can invest in smaller, more nimble managers does exist. Minimum AUM that institutional investors require to consider investing 40% 38% 31% 30% 20% 20% 10% 4% 4% 4% 0% $1-49 $50-99 $100-249 $250-499 $500 $2-5 billion million million million million million-1.99 billionAs shown below, the vast majority of pensions take 4-12 months to perform due diligence on a hedge fund manager.However, oftentimes the investment process can take longer, especially if pensions work with consultants or advisors. Institutions’ typical lead time for making a hedge fund allocation from first contact Confidential Page 27 of 90
    • Once a pension fund has made the decision to move forward with an allocation, it is common to negotiate terms. As thechart below illustrates, management and performance fees are frequently challenged whereas performance hurdles and“clawbacks” are less frequently contested.Furthermore, it has become commonplace for pensions to establish strategic partnerships with managers whereby theyreceive lowered fees and other preferential treatment in exchange for a high minimum level of invested assets. How frequently institutions negotiate the following termsThe way that pension plans are allocating to Hedge Funds is changing as more are choosing to invest directly withmanagers rather than utilize fund of funds. Much of this can be attributed to the knowledge that institutional investorshave gained from investing through funds of funds over time and a desire to limit fees going forward.The shift towards direct investments has caused fee compression for fund of funds, and changed the tradition model tomore of an advisory relationship where the fund of funds offering resembles a consultant relationship. Institutions’ percentage allocation to Hedge Funds via SMHFs (versus FoHFs) 80% 61% 60% 55% 40% 20% 0% Jan-13 Expected Dec 2013The majority of pension plans utilize consultants for their investment needs and place significant emphasis on the advicethat hedge fund consultants provide. Over the past several years, several consultants have become increasingly popularand influential. The preferred lists of Hedge Funds that they generate influence the choices of many investors in theindustry. Therefore, consultants are oftentimes seen as the gatekeepers of capital.Per the chart below, the majority of investors rely on hedge fund specialist consultants for advice on their hedge fundallocations rather than traditional consultants that may have other areas of expertise. Confidential Page 28 of 90
    • Preference for various types of Advisors/Consultants for purposes of hedge fund investmentsMost investors rely on consultants for both investment and operational due diligence, which highlights the importance ofpositive ratings in both areas. However, there is a subset of investors that prefers to use consultants only for operationaldue diligence, these groups typically have in-house teams to perform investment due diligence. While conclusions maybe reached internally, consultant views may still be influenctial factors on final investment decisions. Use of Advisors/Consultants for purposes of Investment and Operational due diligence4. Hedge Funds in the PortfolioOnce a pension decides to allocate capital to a hedge fund, the position is most likely held in a dedicated hedgefund/alternatives category of the portfolio as per the findings below. However, some pension plans may decide to bucketsome or all of their hedge fund positions into the traditional asset class. Confidential Page 29 of 90
    • Allocations to Hedge Funds through dedicated Hedge Funds vs. traditional asset class bucketsDepending on the composition of the traditional portfolio, it is fairly common to include certain hedge fund allocations inthe traditional asset class bucket, especially in Equities. Funds that have a long bias with exposure to market beta, forinstance, would be considered prime candidates for inclusion into a traditional asset class category.As pension funds reduced their Equities positions in the wake of the credit crisis following large drawdowns, somesubstituted their Equities holdings with Equities Hedge Funds in their traditional Equities bucket, in order to inject somedownside protection. Asset classes that investors allocate into traditional asset class bucketsHedge fund turnover of 8% in pension portfolios is relatively low compared with other investor segments, where theaverage percentage of annual turnover is closer to 10%. This can be explained by the nature of the investment process,which is often dictated by an annual investment meeting during which key portfolio re-balancing decisions are made. Thetendancy for pension plans to turn the portfolio over with less frequency aligns with the prime investment goals shared bythe group to invest for the long-term. Annual turnover of each investor’s hedge fund portfolio Average Turnover = 8% Average Turnover = 8% Average Turnover = 10% Confidential Page 30 of 90
    • 5. Outside of Traditional Hedge FundsIn addition to investing in Hedge Funds, investors cited existing activity in longer-dated vehicles and co-investmentopportunities. These investment vehicles are popular with the pension community given the focus on long-terminvestments. Further, twice as much involvement and activity was cited in dedicated emerging manager programmes asby other investors. Not surprisingly, least interest was reported in equity stakes in funds. In addition to Hedge Funds, investors are interested in the following Already Active Not active but interested Not interested Longer dated vehicles (3-5yr) 29% 25% 46% Co-investment opportunities 11% 34% 55% Dedicated Emerging manager/seeding 16% 20% 64% programmes Yield-oriented products 14% 21% 64% Equity stakes in funds 7% 23% 70% Seeding vehicles 9% 16% 75% 0% 20% 40% 60% 80% 100%Of the various means available for investing via a managed account, the use of single manager funds or “funds of one”as they are otherwise known attracts the largest proportion of active or very interested investors. These arrangementsgrant investors special privileges in exchange for locking up capital, putting a significant amount of assets into the fund,or entering into an early investment arrangement.As seen below, more interest was cited for funds of one than traditional managed accounts, illustrated by “segregatedaccounts in a 3rd-party platform” and “commingled accounts in a 3rd-party platform”. Least interest was reported inowning a proprietary platform, since this group of investors prefers active management by an outside party. Institutions’ preferred routes for investing via managed accounts Already active Very interested Somewhat interested Not interested Single investor funds 18% 8% 30% 44% Ad hoc/opportunistic managed accounts 14%4% 29% 53% Own proprietary platform 6%0% 24% 69% Segregated accounts in a 3rd-party 12% 10% 24% 53% platform Commingled accounts in a 3rd-party 4% 4% 29% 63% platform 0% 20% 40% 60% 80% 100%The majority of pension plans are either already active or interested in Multi-Strategy Hedge Funds as well as dedicatedadvisors and consultants. Funds of funds providing advisory-only services are relatively out of favour amongst the group. Confidential Page 31 of 90
    • Institutions’ interest in allocating to Hedge Funds via the following vehicles Already Active Not active but interested Not interested Multi-strategy SMHFs 50% 26% 24% Dedicated Advisor/Consultant 25% 16% 58% Bespoke/customised FoHFs 16% 15% 69% Niche FoHFs (e.g. credit funds only) 13% 16% 71% Broad/diversified FoHFs 18% 4% 78% FoHF providing Advisory-only service 5%13% 82% 0% 20% 40% 60% 80% 100% Confidential Page 32 of 90
    • PART 2 – DATA APPENDICES Confidential Page 33 of 90
    • Appendices Table of ContentsAppendix I – The Participants 351. Breakdown of Participants 352. Portfolio Characteristics 38Appendix II – Key Industry Trends and Forecasts 421. Forecasts and Risks 422. Market Returns 433. Appetite for Start-Ups 464. Fees and Economics 48Appendix III – Focus on Pensions and Institutions 501. Pension Funds are Leading Flows to Hedge Funds 502. Institutions’ Objectives for their Hedge Fund Portfolios 533. Selection Process and Due Diligence 544. Hedge Funds in the Portfolio 565. Outside of Traditional Hedge Funds 576. Strategy Preferences 58Appendix IV – Alternative Routes to Absolute Return 591. UCITS/Regulated Funds 592. Managed Accounts 603. Alternative Investment Formats and Structures 62Appendix V – Strategy Appetite 631. Equity Strategies 652. Fixed Income/Derivative Strategies 723. Other Strategies 77Important Information and Disclaimers 90 Confidential Page 34 of 90
    • Appendix I – The Participants1. Breakdown of Participants The respondents manage an aggregate $1.034 trillion in Single-Manager Hedge Funds (“SMHFs”). We had close to 550 responses globally. In order to minimise double-counting of assets, we trimmed our data to 522 unique pools of capital. Our survey respondents were well diversified by type, by region, and by size. Breakdown of participants by location of their headquarters Regional distribution (by number) Regional distribution (by assets) Americas represented the largest region by number of respondents and by assets. While Asia-based investors account for 19% of respondents by number, they account for 5% by AuM. Breakdown of participants by investor type Distribution of categories (by number) Distribution of categories (by assets) Institutional FoHFs are the largest sector, making up 25% of respondents by number and 43% by assets. Family Offices as a group constituted 20% of all respondents, but their chunk of total assets was much smaller, at 5%. Pension Funds/Insurance Companies are also well represented, making up 12% of respondents by number and also by assetsAs in our previous survey reports, to avoid displaying 12 line items per data point, we have aggregated the12 investortypes into 3 broad categories based on similarities in their behaviour: “End Investors” – Endowment/Foundation, Family Office, Bank Treasury/Proprietary Capital and Pension Funds and Insurance Companies; “Institutional Intermediaries” – Advisor/Consultant, FoHF with primarily institutional investors and Seeder/Incubator; Confidential Page 35 of 90
    •  “Retail Intermediaries” – Private Bank and FoHF with primarily retail investors. Distribution of categories (by number) Distribution of categories (by assets) End Investors make up the largest category by number (42%); Institutional Intermediaries make up the largest category by assets (66%). Regional distribution of categories (by number) Regional distribution of categories (by assets) 100% 100% 18% End Investors End Investors 23% 33% 80% 80% 44% Institutional 44% Institutional Intermediaries Intermediaries 56% Retail Retail 60% Intermediaries 60% Intermediaries 47% 40% 74% 40% 40% 39% 54% 36% 20% 20% 30% 28% 17% 9% 2% 8% 0% 0% Americas EMEA Asia Americas EMEA Asia Across Americas, EMEA and Asia, Institutional Intermediaries represent 39%, 40% and 36% respectively by number. By assets, this proportion increases to 74%, 47% and 54% respectively. Confidential Page 36 of 90
    • Distribution of SMHF AuM of respondents By investor category Average AuM  All: $2,037 million  End Investors: $996 million  Institutional Intermediaries: $3,461million  Retail Intermediaries: $1,471 million The average amount of assets allocated to Single-Manager Hedge Funds amongst our respondents is $2.04 billion. 42% of respondents have in excess of $500 million invested into SMHFs, and only 16% have less than $50 million. Institutional Intermediaries have the highest average asset size, with nearly half having more than $1 billion in assets. End Investors’ SMHF assets are much smaller on average, with an average hedge fund portfolio size of $996 million, and 18% managing under $50 million. By investor region Average AuM  Americas: $3,232 million  EMEA: $1,469 million  Asia: $498 million Asia has the highest percentage of smaller investors, 37% having less than $50 million allocated to hedge fund managers, and 12% having more than $1 billion allocated, whereas 41% of investors in the US have more than $1 billion invested in Hedge Funds. Confidential Page 37 of 90
    • 2. Portfolio Characteristics Allocation to SMHFs in US$ millions 6,000 Upper Quartile Lower Quartile Average 5,000 5,275 4,000 3,720 4,064 3,000 3,075 SMHF investments today - 2,037 370 1,000 484 3,427 2,475 2,000 1,450 2,175 1,800 1,539 1,318 1,225 1,760 138 376 755 463 1,300 US$ millions 1,000 874 250 100 100 80 200 75 200 83 104 300 173 120 - 1,220 The average size of single-manager hedge fund portfolios is $2.04 billion. Family Offices and Bank Treasury or Proprietary Capital have the smallest portfolios on average, and Public Pensions, Advisors/Consultants and Institutional FoHFs have the largest. In this question, we also asked respondents their target allocation to Hedge Funds by year-end (in dollar terms). The average asset-weighted target increase in SMHF assets is 10.36%. Total number of distinct single-manager fund investments within hedge fund portfolios Upper Quartile Lower Quartile Average 85 80 70 66 60 45 53 45 41 41 40 41 SMHF investments today - 37 34 25 30 34 20 29 19 25 25 16 20 21 17 24 15 15 18 15 16 10 10 11 9 13 5 number 5 4 - Confidential Page 38 of 90
    •  The average portfolio concentration is 37 investments, which is slightly more concentrated than the average of 39 a year ago. On average, Seeders/Incubators and Pensions have the most concentrated portfolios, whereas FoHFs have the most diversified portfolios. Typical allocation size in US$ millions, both initially and as a longer-term target All End Investors Institutional Intermediaries Retail Intermediaries The average initial investment size of all respondents is $25 million; however, this typically increases over time by 100% to $50 million. End Investors have the highest initial investment size at $33 million; however, Institutional Intermediaries have the highest average long-term holding at $59 million. Americas EMEA Confidential Page 39 of 90
    • Asia Investors in America have the highest average initial investment size at $33 million and also have the highest average long-term holding at $63million. Typical annual turnover of different investors’ portfolios (Ranked in order of average turnover) The average turnover of a typical hedge fund portfolio is 11% per annum. FoHFs appear to have the highest turnover, redeeming on average approximately 13% of holdings per year. Pensions redeem on average 8% of holdings in a typical year. Confidential Page 40 of 90
    • Typical annual turnover by region (Ranked in order of average turnover) <5% 5%-10% 10%-15% 15%-20% >20% All 17% 30% 32% 16% 5% Average Turnover = 10% Americas 17% 37% 30% 14% 3% Average Turnover = 11% EMEA 14% 25% 35% 18% 7% Average Turnover = 10% Asia 25% 22% 33% 14% 6% Average Turnover = 10% 0% 20% 40% 60% 80% 100% There is marginal difference in the average number of funds redeemed per year across the regions, with Europe and Asia having a slightly lower average number of redemptions per year than the US. Number of new hedge fund allocations in 2012/2013 The average number of new investments respondents expect to make in 2013 is 6.7, which is marginally higher than the number made in 2012. Confidential Page 41 of 90
    • Appendix II – Key Industry Trends and Forecasts1. Forecasts and Risks Hedge Fund Industry AuM Forecast 2.6 2.50 Upper Quartile 2.42 Lower Quartile 10.1% (US$ trn) 2.3 ` 2.30 Average 2.2 2 31-Dec-2012 31-Dec-2013 We asked investors for their forecast of total hedge fund industry assets by the end of 2013, assuming the industry ended 2012 with $2.2 trillion in assets. Investors predict a 10.1% increase in industry assets to $2.42 trillion, with a lower quartile of $2.30 trillion and an upper quartile of $2.50 trillion. Allocation to cash as a percentage of FoHFs’ overall portfolios Fund of Hedge Funds increased their average cash allocation from 6% at the beginning of last year to 5% at the beginning of this year. This level is 2% above their long-term target cash allocation. Confidential Page 42 of 90
    • Investors’ views on sources of risk for the hedge fund industry over the coming year 2013 2012 Just as in our last two surveys, investors are convinced that crowded trades and herd mentality pose the single biggest threat to the industry, by making it more difficult for Hedge Funds to achieve truly differentiated performance. In addition, investors now regard additional regulatory changes as the second biggest threat to the hedge fund industry in 2013, which is up from the fifth spot last year. The risk of sovereign default, which was the second greatest risk for the last two years in a row, and counterparty/credit-risk which was the third greatest risk last year, have fallen off dramatically, dropping to tenth and ninth place respectively with only 13% of respondents identifying each as significant risks. Other potential risks identified by investors included Hedge Funds taking on excessive beta, accelerated hedge fund closures (impacting capacity), as well as asset/liability mismatches between Hedge Funds and their clients (impacting liquidity.2. Market Returns Investors’ predictions on market returns for 2013 Confidential Page 43 of 90
    • Average return prediction – by market type On average, investors predict markets to return between 2.9% and 10.4% this year, with investors most optimistic about Equity markets across regions, predicting Equity markets to return between 7.3% and 10.4% this year. Credit Markets, particularly European and US, have the lowest predicted returns; however 80% of respondents predicted that the US credit market will return between 0% and 10%, while 84% predicted European credit would have positive performance. Return expectations for Hedge Funds in 2013 appear optimistic, forecasting 6.9% versus a forecast of 5.4% last year, with no investors expecting negative returns in the year. Investors’ predictions on best performing hedge fund strategies in 2013 The most number of investors (34%) predict that Long/Short Equity will be the top performing strategy this year, while the least number predict that Dedicated Short-Biased Confidential Page 44 of 90
    • Investors’ predictions on best performing hedge fund strategies in 2013 – by investor type Investors’ predictions on best performing hedge fund strategies in 2013 – by region By investor type, there are slight discrepancies within almost all strategies: Retail Intermediaries are slightly more bullish than other investor types on Long/Short Equity and Managed Futures, however, less bullish on Global Macro, a reversal from last year, and Credit-Structured. By region, there is not a great deal of dispersion within each strategy, though US investors are slightly more bullish on Emerging Markets and Event-Driven, while investors from Asia are slightly more bullish on Multi-Strategy. Investors from EMEA are on par with the average across the regions, and are particularly bullish on Long/Short Equity and Managed Futures. Confidential Page 45 of 90
    • 3. Appetite for Start-Ups Yearly evolution in ability to invest on day one New carve-out of 3+ year sub-strategy within 2013 39% 30% an established multi- 2012 56% 20% strategy hedge fund 2011 67% 13% firm 2010 65% 6% Start-up manager with 2013 38% 28% 3+ year track record from another hedge 2012 51% 24% fund 2011 61% 14% 2010 61% 6% 2013 26% 23% Spin-out of bank prop- trading desk with 3+ 2012 38% 22% year track record 2011 52% 14% 2010 47% 6% Start-up manager with directly relevant 2013 17% 13% investing experience but 2012 20% 13% no explicit track record 2011 30% 9% 2010 28% 5% Start-up manager with 2013 15% 10% somewhat relevant 2012 14% 11% investment experience 2011 26% 6% (e.g. in long-only) 2010 25% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% We can theoretically invest on day 1 We can theoretically invest on day 1 only for a fee discount/equity share Effect of the following track records on investor’s decision to investNew carve-out of 3+ year sub-strategy within an established multi-strategy hedge fund firm 39% 24% 5% 23% 8% Start-up manager with 3+ year track record from another hedge fund 38% 22% 6% 26% 8%Spin-out of bank prop-trading desk with 3+ year track record 26% 16% 7% 36% 15% Start-up manager with directly relevant investing experience but no explicit track record 17% 7% 6% 36% 34% Start-up manager with directly relevant investing experience but no explicit track record 17% 7% 6% 36% 34% Start-up manager with somewhat relevant investment experience (e.g. in long-only) 15% 5% 4% 34% 41% 0% 20% 40% 60% 80% 100% Can invest on day 1 Can invest on day 1 only for a fee discount Can invest on day 1 only for a revenue share or equity stake Can only invest 12 months post-launch Can only invest 36 months post-launch 69% of respondents are able to invest in a manager with a 3+ year track record carve-out from an established hedge fund, versus 25% of respondents for managers who have somewhat relevant investment experience and no explicit track record. Confidential Page 46 of 90
    • Active or interested in Seeding All End Investors 59% 60% Institutional Intermediaries Retail Intermediaries 47% 50% 48% 42% 40% 29% 32% 30% 30% 26% 27% 25% 22% 20% 14% 10% 0% Already active Not active but interested Not interested Within Day 1 investing, 22% of the respondents in the survey are already active in seeding, and an additional 30% are interested/considering seeding. Overall, a quarter of institutional intermediaries and end investors that responded to the survey are active in seeding. Dedicated Em erging Manager program m es 100% All End Investors Institutional Intermediaries Retail Intermediaries 89% 90% 78% 83% 83% 80% 70% 60% 50% 40% 30% 20% 13% 11% 9% 8% 8% 8% 10% 3% 6% 0% Yes No, but we intend to No, and we do not intend launch one to launch one Within Day 1 investing, Fewer than 10% of investors have an Emerging Managers platform, with only 8% looking intending to launch one. Confidential Page 47 of 90
    • 4. Fees and Economics Investors’ views on the following approaches to im proving asset/ liability m atching We are generally able to invest No impact on our decision if clearly justified by asset liquidity Materially increases the hurdle to invest No interest/ability to allocate Fund Level Gates 35% 36% 21% 8% Investor Level Gates 28% 31% 30% 11% Hybrid Gates 25% 35% 30% 11% Staggered Redemption 21% 25% 38% 15% Obligatory Side Pockets 8% 11% 36% 45% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Investor predictions on the hedge fund ‘market standard’ (2/20) fees Investors anticipate fees to continue its downward trend with 62% of respondents predicting that the standard 2/20 fee structure will likely decrease across the board. Confidential Page 48 of 90
    • Percentage of investors to negotiate fe es when m aking hedge fund investm ents Fees continue to be a primary consideration for both investors and managers. Close to half of the respondents occasionally negotiate fees and almost a quarter always negotiate. Investor preferences to m anagers ha ving hurdle rates 77% of investors prefer managers to have a hurdle rate. The majority are indifferent to the type of hurdle rate (40%) however, 22% preferred a hurdle rate based on a benchmark as opposed to a fixed percentage. Confidential Page 49 of 90
    • Appendix III – Focus on Pensions and Institutions1. Pension Funds are Leading Flows to Hedge Funds Public pension plans reported allocating an average of $4.1billion to Hedge Funds, a higher total than any other investor type. Further, the top end of the range at $5.3 billion is also the highest allocation cited of all investors. Allocations to SMHFs in US$ millions 6,000 Upper Quartile Lower Quartile Average 5,000 5,275 4,000 3,720 4,064 3,000 3,075 SMHF investments today - 2,037 370 1,000 484 3,427 2,475 2,000 1,450 2,175 1,800 1,539 1,318 1,225 1,760 138 376 755 463 1,300 US$ millions 1,000 874 250 100 100 80 200 75 200 83 104 300 173 120 - 1,220 Within the pension and insurance segment of investors, public pension plans have the highest reported allocations to Hedge Funds, with a range of $1.2 billion to $5.3 billion and an average of $4.1 billion. Allocation to SMHFs in US$ millions – Pensions and Insurance 6,000 5,275 5,000 SMHF investments today - 4,000 4,064 3,000 2,000 2,175 1,318 1,225 1,300 1,000 1,220 - 250 200 Pension Fund - Pension Fund - Insurance Private / Public Company Corporate Upper Quartile Lower Quartile Average Confidential Page 50 of 90
    •  Public pension funds planned to increase the number of hedge fund allocations made in 2013 at a higher rate than most other investors as seen on the chart below, an increase of 19% above existing allocations. Number of new hedge fund allocations in 2012/2013 Public pension plans expected to increase their allocations to Hedge Funds more so than corporate pensions and insurance companies, at a rate of 19% rather than 12% and -2%, respectively. Number of new hedge fund allocations in 2012/2013 – Pensions and Insurance 8.0 -2% +12% +19% 5.4 5.6 5.5 6.0 5.0 4.4 4.4 4.0 2.0 0.0 Pension Fund - Private / Pension Fund - Public Insurance Company Corporate 2012 2013 Confidential Page 51 of 90
    •  Public plans allocated $141 million on average initially and $198 million long-term, corporate plans allocated $50 million on average initially and $75 million long-term, while the consolidated average of all investors is $25 million initially and $50 million long-term. Typical allocation size in US$ millions – Initial and long-term target All 80 60 50 50 40 25 20 25 ` 3 8 - Typical initial Typical long-term investment size holdings Upper Quartile Lower Quartile Average Pension Fund – Private/Corporate Pension Fund – Public 100 82 300 294 80 75 60 60 200 200 193 50 141 40 100 20 ` 79 ` 79 20 20 - - Typical initial Typical long-term Typical initial Typical long-term investment size holdings investment size holdings Upper Quartile Lower Quartile Average Upper Quartile Lower Quartile Average Compared with the rest of the investor universe, pension plans had fewer total allocations, with 16 on average for public plans and 15 on average for corporate plans. Total number of distinct SMHF investments within hedge fund portfolios Upper Quartile Lower Quartile Average 85 80 70 66 60 45 53 45 41 41 40 41 SMHF investments today - 37 34 25 30 34 20 29 19 25 25 16 20 21 17 24 15 15 18 15 16 10 10 11 9 13 5 number 5 4 - Confidential Page 52 of 90
    •  Corporate and public pensions typically had fewer hedge fund investments than did insurance companies, with averages of 15 and 20 investments, respectively, while insurance companies had an average of 21 investments. Total number of distinct SMHF investments within hedge fund portfolios – Pensions and Insurance2. Institutions’ Objectives for their Hedge Fund Portfolios The top priorities as ranked by investors were high risk-adjusted returns and diversified returns versus equity markets, with 73% and 72% of respondents ranking the goals as very important, respectively. Importance of the following objectives for Institutions’ Hedge Fund Portfolio Very important Somewhat important Not important High risk-adjusted returns 73% 25% 2% Diversified/uncorrelated returns, vs equity 72% 25% 4% markets High absolute returns 46% 43% 11% Diversified/uncorrelated returns, vs other 35% 51% 14% hedge fund holdings Low volatility of returns 23% 68% 9% 0% 20% 40% 60% 80% 100% 73% of pension investors expected target returns of 5-10% from their hedge fund investments. Target Hedge Fund Returns Confidential Page 53 of 90
    • 3. Selection Process and Due Diligence 31% of pension plans and insurance companies required AUM to be greater than $250 million before they can invest and nearly 50% required funds to be $500 million in size. Minimum AUM that institutional investors require to consider investing Nearly 80% of pension plans reported taking 4-12 months to perform due diligence on a hedge fund manager. Institutions’ typical lead time for making a hedge fund allocation from first contact Once a pension fund has made the decision to move forward with an allocation, it is common to negotiate terms. 43% of pension plans reported always negotiating performance fees, and 42% reported always negotiating management fees. How frequently institutions negotiate the following terms Confidential Page 54 of 90
    •  A recent trend highlights the shift away from fund of funds towards direct investment. The percentage allocation of direct allocations to Hedge Funds looked to shift from 55% to 61% on average by the end of 2013. Institutions’ percentage allocation to Hedge Funds via SMHFs (versus FoHFs) 80% 61% 60% 55% 40% 20% 0% Jan-13 Expected Dec 2013 The majority of investors (79%) relied on hedge fund specialist consultants for advice on their hedge fund allocations rather than traditional consultants that may have other areas of expertise (14%). Preference for various types of Advisors/Consultants for purposes of hedge fund investments Most investors relied on consultants for both investment and operational due diligence (79%), while some (14%) relied on consultants for operational due diligence only. Use of Advisors/Consultants for purposes of Investment and Operational due diligence Confidential Page 55 of 90
    • 4. Hedge Funds in the Portfolio 70% of hedge fund positions were held in dedicated hedge fund/alternatives buckets, while 21%held at least some hedge fund positions in traditional asset class buckets. Allocations to Hedge Funds through dedicated hedge fund vs. traditional asset class buckets Of those pension funds and insurance companies that allocate into traditional asset class buckets, 50% did so with both Equities and fixed income Hedge Funds whereas 38% did so only with Equities funds. Asset classes that investors allocate into traditional asset class buckets Hedge fund turnover of 8% in pension portfolios was relatively low compared with other investor segments, where the average percentage of annual turnover was closer to 10%. Annual turnover of each investor’s hedge fund portfolio Average Turnover = 8% Average Turnover = 8% Average Turnover = 10% Confidential Page 56 of 90
    • 5. Outside of Traditional Hedge Funds In addition to investing in Hedge Funds, investors cited existing activity in longer-dated vehicles and co-investment opportunities. 29% of pension plans were already active in longer-dated vehicles and 25% cited interest. Further, more interest was cited in dedicated emerging manager programs than from other investor types with 36% of the segment citing existing allocations or interest. In addition to Hedge Funds, investors are interested in the following Already Active Not active but interested Not interested Longer dated vehicles (3-5yr) 29% 25% 46% Co-investment opportunities 11% 34% 55% Dedicated Emerging manager/seeding 16% 20% 64% programmes Yield-oriented products 14% 21% 64% Equity stakes in funds 7% 23% 70% Seeding vehicles 9% 16% 75% 0% 20% 40% 60% 80% 100% Of the various means available for investing via a managed account, the use of single manager funds or “funds of one” as they are otherwise known attracted the largest proportion of active or very interested investors with 18% already active and 8% showing interest. Institutions’ preferred routes for investing via managed accounts Already active Very interested Somewhat interested Not interested Single investor funds 18% 8% 30% 44% Ad hoc/opportunistic managed accounts 14%4% 29% 53% Own proprietary platform 6%0% 24% 69% Segregated accounts in a 3rd-party 12% 10% 24% 53% platform Commingled accounts in a 3rd-party 4% 4% 29% 63% platform 0% 20% 40% 60% 80% 100% The majority of pension plans were either active or interested in multi-strategy Hedge Funds, 50% of pension plans and insurance companies were active in multi-strategy SMHFs and 26% showed interest. Also popular were dedicated advisors/consultants with roughly 40% of pension plans citing existing investments or interest. Confidential Page 57 of 90
    • Institutions’ interest in allocating to Hedge Funds via the following vehicles Already Active Not active but interested Not interested Multi-strategy SMHFs 50% 26% 24% Dedicated Advisor/Consultant 25% 16% 58% Bespoke/customised FoHFs 16% 15% 69% Niche FoHFs (e.g. credit funds only) 13% 16% 71% Broad/diversified FoHFs 18% 4% 78% FoHF providing Advisory-only service 5%13% 82% 0% 20% 40% 60% 80% 100%6. Pensions and Institutions’ Strategy PreferencesFor Pensions and Insurance groups, the top 3 most sought after strategies are Credit - Relative Value, Event Driven andCredit – ABS/Structured Credit. Long/Short Equity, which is ranked first by the universe surveyed is ranked 10 th byPensions and Insurance groups All principal strategies, ranked by current net demand – Pensions and Insurance 40% 31% 30% 25% 24% 23% 23% 20% 19% 18% 18% 14% 13% 10% 10% 9% 9% 9% 10% 6% 6% 4% 4% 4% 2% 0% 0% 0% -2% -4% -4% -4% -4% -4% -6% -10% -8% Confidential Page 58 of 90
    • Appendix IV – Alternative Routes to Absolute Return1. UCITS/Regulated Funds Year-on-year comparison of appetite for UCITS Hedge Funds Percentage active in 2012 = 20% Percentage active in 2013 = 21% 2012 2013 The percentage of investors with some level of activity in UCITS Hedge Funds has increased to 21% this year, from 20% last year. Appetite for UCITS Hedge Funds – by investor type Retail Intermediaries have the most active interest in UCITS, with 32% planning to increase allocations, versus 6% for End Investors. Confidential Page 59 of 90
    • Appetite for UCITS Hedge Funds – by region European investors are the most active in UCITS, with 32% planning to increase their allocation, versus 3% of investors in the Americas.2. Managed Accounts Year-on-year comparison of appetite for managed accounts Percentage active in 2012 = 26% Percentage active in 2013 = 35% 2012 2013 The percentage of investors with some level of activity in managed accounts has increased to 35% this year, from 26% last year. Confidential Page 60 of 90
    • Appetite for managed accounts – by investor type There is a fairly even distribution of managed account appetite among investor types, although a slightly higher than average proportion of Institutional Intermediaries plan both to increase and maintain allocations this year (24% and 21% respectively) Appetite for managed accounts – by region Breaking managed account appetite down by region, the distribution is fairly even, with no major shifts from the average. Confidential Page 61 of 90
    • 3. Alternative Investment Formats and Structures Other formats investors’ absolute-return investments can take 2012 highlighted over 70% of respondents had no allocation and no plan to allocate for all alternative formats. However, this year indicates more interest in alternative formats with plans to increase current allocation in long only funds offered by Hedge Fund managers to 15% versus 4% last year. Confidential Page 62 of 90
    • Appendix V – Strategy Appetite All principal strategies, ranked by current net demand Top ten biggest “swings”, ranked by absolute year-on-year change in net demand Confidential Page 63 of 90
    • Yearly evolution of net demand across main strategies Confidential Page 64 of 90
    • 1. Equity Strategies Long/Short Equity – General  Percentage actively increasing or considering increasing allocations: 42%  Net percentage actively increasing or considering increasing allocations: 35% Long/Short Equity – Trading  Percentage actively increasing or considering increasing allocations: 22%  Net percentage actively increasing or considering increasing allocations: 12% Confidential Page 65 of 90
    • Long/Short Equity – Fundamental  Percentage actively increasing or considering increasing allocations: 40% Net percentage actively increasing or considering increasing allocations: 34% Long/Short Equity – Short-Biased  Percentage actively increasing or considering increasing allocations: 4% Net percentage actively increasing or considering increasing allocations: -7% Confidential Page 66 of 90
    • Equity Market Neutral – Quantitative Percentage actively increasing or considering increasing allocations: 16% Net percentage actively increasing or considering increasing allocations: 9% Equity Market Neutral – Fundamental Percentage actively increasing or considering increasing allocations: 13% Net percentage actively increasing or considering increasing allocations: 5% Confidential Page 67 of 90
    • Equity Sector – General  Percentage actively increasing or considering increasing allocations: 20% Net percentage actively increasing or considering increasing allocations: 16% Equity Sector – Natural Resources  Percentage actively increasing or considering increasing allocations: 8% Net percentage actively increasing or considering increasing allocations: 0% Confidential Page 68 of 90
    • Equity Sector – Financials Percentage actively increasing or considering increasing allocations: 14% Net percentage actively increasing or considering increasing allocations: 9% Equity Sector – Real Estate  Percentage actively increasing or considering increasing allocations: 9% Net percentage actively increasing or considering increasing allocations: 6% Confidential Page 69 of 90
    • Equity Sector – TMT Percentage actively increasing or considering increasing allocations: 14% Net percentage actively increasing or considering increasing allocations: 9% Equity Sector – Consumer/Retail Percentage actively increasing or considering increasing allocations: 11% Net percentage actively increasing or considering increasing allocations: 8% Confidential Page 70 of 90
    • Equity Sector – Utilities  Percentage actively increasing or considering increasing allocations: 5% Net percentage actively increasing or considering increasing allocations: 0% Confidential Page 71 of 90
    • 2. Fixed Income/Derivative Strategies Fixed Income Arbitrage/Relative Value  Percentage actively increasing or considering increasing allocations: 22%  Net percentage actively increasing or considering increasing allocations: 14% Convertible Bond Arbitrage  Percentage actively increasing or considering increasing allocations: 8%  Net percentage actively increasing or considering increasing allocations: 0% Confidential Page 72 of 90
    • Convertible Bond Arbitrage – Long-Only  Percentage actively increasing or considering increasing allocations: 3% Net percentage actively increasing or considering increasing allocations: -2% Credit – Multi-Strategy  Percentage actively increasing or considering increasing allocations: 18% Net percentage actively increasing or considering increasing allocations: 10% Confidential Page 73 of 90
    • Credit – Relative Value  Percentage actively increasing or considering increasing allocations: 21% Net percentage actively increasing or considering increasing allocations: 13% Credit - ABS/Structured Credit  Percentage actively increasing or considering increasing allocations: 26% Net percentage actively increasing or considering increasing allocations: 16% Confidential Page 74 of 90
    • Credit – Leveraged Loans/High Yield  Percentage actively increasing or considering increasing allocations: 14% Net percentage actively increasing or considering increasing allocations: 1% Global Macro - Discretionary  Percentage actively increasing or considering increasing allocations: 29% Net percentage actively increasing or considering increasing allocations: 22% Confidential Page 75 of 90
    • Global Macro - Systematic Percentage actively increasing or considering increasing allocations: 16% Net percentage actively increasing or considering increasing allocations: 7% CTA/Managed Futures Percentage actively increasing or considering increasing allocations: 17% Net percentage actively increasing or considering increasing allocations: 7% Confidential Page 76 of 90
    • 3. Other Strategies Event-Driven – General  Percentage actively increasing or considering increasing allocations: 35%  Net percentage actively increasing or considering increasing allocations: 30% Event-Driven – Distressed  Percentage actively increasing or considering increasing allocations: 23%  Net percentage actively increasing or considering increasing allocations: 14% Confidential Page 77 of 90
    • Event-Driven – Risk Arbitrage  Percentage actively increasing or considering increasing allocations: 15% Net percentage actively increasing or considering increasing allocations: 9% Emerging Markets – Equity  Percentage actively increasing or considering increasing allocations: 37% Net percentage actively increasing or considering increasing allocations: 34% Confidential Page 78 of 90
    • Emerging Markets – Fixed Income/Credit  Percentage actively increasing or considering increasing allocations: 21% Net percentage actively increasing or considering increasing allocations: 17% Multi-Strategy  Percentage actively increasing or considering increasing allocations: 14% Net percentage actively increasing or considering increasing allocations: 6% Confidential Page 79 of 90
    • Commodity Strategies  Percentage actively increasing or considering increasing allocations: 17%  Net percentage actively increasing or considering increasing allocations: 7%Environment, Social and Governance (Socially Responsible Investing) Strategies  Percentage actively increasing or considering increasing allocations: 4%  Net percentage actively increasing or considering increasing allocations: 2% Confidential Page 80 of 90
    • 4. By Geographic Focus All principal geographies, ranked by current net demand Top ten biggest “swings”, ranked by absolute year-on-year change in net demand Confidential Page 81 of 90
    • Yearly evolution of net demand across all regions60% 2011 2012 2013 49%50% 47% 42% 40%40% 35% 34% 31% 30% 30% 30% 28%30% 23% 24% 23% 24% 22% 21% 21% 20% 18% 18% 18%20% 16% 16% 16% 14% 14% 12% 10% 10% 10%10% 6% 7% 4% 3% 1% 2%0%0% Confidential Page 82 of 90
    • 5. Regional Breakdown Global  Percentage actively increasing or considering increasing allocations: 26%  Net percentage actively increasing or considering increasing allocations: 22% North America  Percentage actively increasing or considering increasing allocations: 23%  Net percentage actively increasing or considering increasing allocations: 14% Confidential Page 83 of 90
    • Developed Europe  Percentage actively increasing or considering increasing allocations: 30% Net percentage actively increasing or considering increasing allocations: 24% Emerging Markets  Percentage actively increasing or considering increasing allocations: 44% Net percentage actively increasing or considering increasing allocations: 42% Confidential Page 84 of 90
    • Asia-Pacific  Percentage actively increasing or considering increasing allocations: 38% Net percentage actively increasing or considering increasing allocations: 35% Country-Specific Funds in General  Percentage actively increasing or considering increasing allocations: 14% Net percentage actively increasing or considering increasing allocations: 10% Confidential Page 85 of 90
    • Greater China  Percentage actively increasing or considering increasing allocations: 25% Net percentage actively increasing or considering increasing allocations: 24% Japan  Percentage actively increasing or considering increasing allocations: 20% Net percentage actively increasing or considering increasing allocations: 16% Confidential Page 86 of 90
    • India  Percentage actively increasing or considering increasing allocations: 9% Net percentage actively increasing or considering increasing allocations: 6% UK  Percentage actively increasing or considering increasing allocations: 5% Net percentage actively increasing or considering increasing allocations: 0% Confidential Page 87 of 90
    • Eastern Europe/CIS  Percentage actively increasing or considering increasing allocations: 7% Net percentage actively increasing or considering increasing allocations: 3% Latin America  Percentage actively increasing or considering increasing allocations: 17% Net percentage actively increasing or considering increasing allocations: 14% Confidential Page 88 of 90
    • Africa/MENA  Percentage actively increasing or considering increasing allocations: 13% Net percentage actively increasing or considering increasing allocations: 12% Confidential Page 89 of 90
    • Important Information and DisclaimersThis document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or residentof or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or usewould be contrary to law or regulation or which would subject Credit Suisse or its subsidiaries or affiliates (collectively“CS”) to any registration or licensing requirement within such jurisdiction. All trademarks, service marks and logos used inthis document are trademarks or service marks or registered trademarks or service marks of CS. CS disclaims any andall liability relating to these materials, including, without limitation, any express or implied representations or warranties forstatements or errors contained in, or omissions from, these materials. The information and material presented here areprovided to you for informational purposes and is intended for your use only. Nothing in this document constitutesinvestment, legal, accounting or tax advice, or a representation that any investment or service is suitable or appropriate toyour individual circumstances, or otherwise constitutes a personal recommendation to you. This document is not to berelied upon in substitution for the exercise of independent judgement. Additional information is, subject to duties ofconfidentiality, available on request.Copyright ©2013 CREDIT SUISSE GROUP and/or its affiliates. All rights reserved. Confidential Page 90 of 90