Citywire Absolute Returns Cabinet March 2009 Colin McLean, Managing Director SVM Asset Management

Credit bubble Source: Ned Davis Research

Fannie Mae / Freddie Mac Source: Reuters Fannie Mae Freddie Mac

US subprime crisis: according to the experts Source: Markit ABX Subprime 15 May 2006 : “The mortgage market is going to be a great market in this country for a long time” – Ken Thompson, Wachovia ex-CEO 9 Oct 2006 : “I think the worst of this [housing market] may be over” – Alan Greenspan 16 March 2007 “The problems in the subprime market seem likely to be contained” –Ben Bernanke 10 July 2007 : “As long as the music is playing, you’ve got to get up and dance. We’re still dancing” – Chuck Prince, Citigroup ex-CEO 16 Aug 2007 : “Looking over periods of stress that I’ve seen, this is the strongest global economy we’ve had” –Hank Paulson, Treasury Sec 5 Dec 2007 :”We believe the probability that [AIG] will sustain an economic loss is close to zero” – Martin Sullivan ex-CEO of AIG 10 Mar 2008: “Bear Stearns’ balance sheet, liquidity and capital remain strong” – Alan Schwartz, ex-CEO of BS 7 May 2008 : “I do believe that the worst is likely to be behind us” – Hank Paulson

Source: Reuters Experts on the economy and markets 10.9.08 Bill Gross, Pimco, Lehman has positive equity, some good assets 9.5.08 Horlick “This guy has managed to return 1-1.2% per month after year after year” July 08 Anatole Kaletsky “market prices are sometimes plain wrong” 14.5.08 Bolton says now is the time to buy a package of bank shares Sept 07 Bill Mott: shares in banks are now “dirt cheap” Jan 08 Anatole Kaletsky “the credit crunch is now almost over” FTSE All Share Index Gordon Brown 2006 Budget: “ no return to boom and bust”

How big is Banks’ leverage? Source: www.voxeu.org 20.09.08 Gros & Micossi calculations on data drawn from FT.com Leverage Ratio (total assets/equity) 30-Jun-08 2007 UBS 46.9 63.9 ING Group 48.8 35.3 HSBC Holding 20.1 18.4 Barclays Bank 61.3 52.7 BBV Argentaria 20.1 18.6 Deutsche Bank 52.5 Fortis 33.3 26.4 KBC 24.4 20.5 Lloyd's TSB 34.1 31.0 RBS 18.8 21.8 Credit Agricole 40.5 34.8 BNP Paribas 36.1 31.5 Credit Suisse 33.4 31.5

Banks: market cap Source: Bloomberg, 20.01.09, JP Morgan Market Value as of Q2 2007, $Bn Market Value as of January 20 th 2009, $Bn Deutsche Bank Credit Agricole Societe Generale Barclays BNP Paribas Unicredit UBS Goldman Sachs Santander Citigroup JP Morgan HSBC Credit Suisse Morgan Stanley RBS 49 120 76 67 80 91 108 93 116 75 100 116 255 165 215 16 4.6 10.3 17 26 7.4 32.5 26 35 27 35 64 19 85 97

Unwinding of banks and financials bubble Source: SVM Data: Citibank Financials Banks

Calling markets is a futile exercise Focusing on stocks is more rewarding. There will be winners and losers. Unsustainable business models will fail. Specific stocks may have bottomed. Policy responses will produce beneficiaries. Strong businesses will survive and prosper . Last year within the FTSE All-Share there were 31 stocks up and 580 losers. Source: Bloomberg

Focusing on stocks is more rewarding.

There will be winners and losers.

Unsustainable business models will fail.

Specific stocks may have bottomed.

Policy responses will produce beneficiaries.

Strong businesses will survive and prosper .

Last year within the FTSE All-Share there were

31 stocks up and 580 losers.

Sector rotation and bubbles : market weights Source: SVM Data: Deutschebank, Citibank Funds need pragmatic, flexible approach; full range of tools 31.3.01 28.2.03 30.6.08 31.12.06 5.3.09 10 15 20 25 30 35 33.3% TMT 14.1% Resources 33.6% 11.2% 30.4% Financials 16% 19.3% Banks 7.8%

Traditional tools are restricting Long only fund managers did not have the tools to produce positive returns in 2008. The average fund in the IMA UK All Companies returned -31.9%* To be effective in performance and risk you needed the ability to short stocks. Shorting requires a different skill set : experience is key. Source: SVM/Lipper - since launch figures 27.02.09 *Source Lipper: 1 year to 31.12.08 35.9 4.7 4.8 4.9 6.1 5.8 Cash (3 mth LIBOR) 33.4 12.8 22.0 16.8 5.3 -29.9 FTSE All-Share 84.9 12.6 5.8 16.2 26.5 19.7 SVM Saltire Fund Since launch 2004 2005 2006 2007 2008 % Growth

Long only fund managers did not have the tools to produce positive returns in 2008.

The average fund in the IMA UK All Companies returned -31.9%*

To be effective in performance and risk you needed the ability to short stocks.

Shorting requires a different skill set : experience is key.

Landscape changing for retail investors. Growing and diverse IMA Absolute Return Sector. UCITS regulations open up long/short investment, changing the landscape for retail investors. SVM Saltire FTSE All Share Net Long/Short Position Source: SVM/Lipper Captured approx. 80% of the upside. SVM Saltire v FTSE All-Share -80.0% -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0 % 80.0% Nov-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 -120% -90% -60% -30% 0% 30% 60% 90% 120%

Growing and diverse IMA Absolute Return Sector.

UCITS regulations open up long/short investment, changing the landscape for retail investors.

Profiting long and short - example C&C Group Source: Bloomberg/SVM Ability to go long and short enhances opportunity for profit

Ability to go long and short enhances opportunity for profit

Short example Uniq Indebted Margins under pressure Pension Issues

Indebted

Margins under pressure

Pension Issues

Aviva plc : relative performance Source: Reuters

Framing - words matter Occurrences of: Source: Aviva plc 2007 report SVM analysis Underperform 2 Achieve/achievement 85 Disappointed 0 Good/better/best 150 Bad/worse/worst 8 Excellent 15 Poor/poorly 1 Grow/growing/growth 207 Weaker/weakness 5 Improve/improvement 73 Challenge 7 Strong/stronger/strength 150 Success 55

Next plc – earnings per share misleads Source: Next plc, SVM graph

Next plc 10 years’ revenue, post tax profit, EPS and shareholders’ funds Source Next plc, SVM graph, indexed to base 1 Shareholders funds Revenue Profits after tax Earnings per share

Are there bargains in low P/Es? Selected P/E ratios Cattles 0.9X Punch 1.0X Yell 2.3X Anglo Irish Bank 1.2X Source: SVM/Lipper 3500 4000 4500 5000 5500 6000 6500 7000 01/09/06 01/01/07 01/05/07 01/09/07 01/01/08 01/05/08 01/09/08

Selected P/E ratios

Cattles 0.9X

Punch 1.0X

Yell 2.3X

Anglo Irish Bank 1.2X

Long Top line growth. Improving margins. Trade value. Cash conversion. Short Weak balance sheets. Pension issues. Refinancing. Acquisition led growth, weak business models.

Long

Top line growth.

Improving margins.

Trade value.

Cash conversion.

Short

Weak balance sheets.

Pension issues.

Refinancing.

Acquisition led growth, weak business models.

Risk warning Please remember that past performance should not be seen as an indication of future performance. Stockmarkets and currency movements may cause the value of an investment to fall as well as rise and investors may not get back the amount originally invested. The SVM Saltire Fund is a Professional Investor Fund and is available only to ‘qualifying investors’ as defined in the Prospectus. The Fund is domiciled offshore therefore some of the protections afforded to investors under the UK Financial Services & Markets Act 2000 may not apply. SVM Asset Management Ltd has holdings in this fund. Disclaimer The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form without the express permission of SVM Asset Management and to the extent that it is passed on, care must be taken to ensure that this is in a form which accurately reflects the information presented here. Regulatory Status SVM Asset Management is authorised and regulated by the Financial Services Authority.

Please remember that past performance should not be seen as an indication of future performance. Stockmarkets and currency movements may cause the value of an investment to fall as well as rise and investors may not get back the amount originally invested. The SVM Saltire Fund is a Professional Investor Fund and is available only to ‘qualifying investors’ as defined in the Prospectus. The Fund is domiciled offshore therefore some of the protections afforded to investors under the UK Financial Services & Markets Act 2000 may not apply. SVM Asset Management Ltd has holdings in this fund.

Disclaimer

The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form without the express permission of SVM Asset Management and to the extent that it is passed on, care must be taken to ensure that this is in a form which accurately reflects the information presented here.

Regulatory Status

SVM Asset Management is authorised and regulated by the Financial Services Authority.

Appendix

Defining hedge funds - look a lot like banks but less risky Banks Hedge Funds Leverage 18x upwards Most now under 1.5x Systemic Risk Yes Largest potentially, others not. Public Money Already $ Trillions No Transparency Significant use of Level 3 valuations, not marked to market, annual audits Nearly all give monthly marked to market valuations, some weekly Rewards CEOs of 5 US inv. banks Earned $3.1bn 2003/7 Rewards depend on success