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  • 1. Citywire - Frankfurt GAM Star Global Convertible Bond Tuesday, 7 June 2011Ben Helm – Investment ManagerAlex McKnight – Investment Manager This document is confidential and intended solely for the use of the person to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person.
  • 2. GAM Star Global Convertible Bond – USDPerformance from 17 Dec 2010 (inception) to 29 Apr 2011Source: GAM, Bloomberg 2Past performance is not indicative of future performance. Performance is provided net of fees. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPSsupplemental text.
  • 3. Why convertibles?Superior risk return profile to credit or equities ● Asymmetry Example: A typical convertible bond payoff – Bond protection 160 – Equity upside – Optionality 140 120 CB value (USD) 100 80 60 40 20 0 0 20 40 60 80 100 120 140 Stock price (USD) Parity CB Price Bond floor Soft bond floorSource: GAM 3
  • 4. Why UCITS III?UCITS III: Why actively manage and hedge? ● Don’t follow the index! Example: A typical convertible bond payoff ● Don’t take risks you don’t like Bond Equity – Rate, credit, equity… 160 The fair value line ● Do selectively hedge broad market 140 risks Expensive 120 ● Do structure positions to profit during market falls CB value (USD) 100 80 60 Cheap/mispriced 40 20 0 0 20 40 60 80 100 120 140 Stock price (USD) Parity CB Price Bond floor Soft bond floorSource: GAM 4
  • 5. How do we manage convertibles?Background ● The index doesn’t work ● CB Arbitrage as a hedge fund doesn’t fit within a UCITS framework ● Portfolio of bonds targeting credit and equity themes while hedging specific and broader risks does work – Since 2005 in JB Absolute Return funds 5
  • 6. Investment philosophy and processStructural mispricings are frequent and can be exploited We believe that… ● Convertible bond markets are ultimately driven by economic fundamentals – Understanding the macro backdrop is key to making money from convertibles ● Structural mis-pricing occurs due to imperfect information available in equity and bond markets – Non-economic decision-making – Variation of macroeconomic influences over time – Influence of market backdrop, sentiment and geography on behaviour ● Dominance of traditional, constrained investors perpetuate these inefficiencies – Greed, fear and forced selling provide ongoing opportunities So we seek to use the full set of tools available to profit from these inefficiencies Investment process 1. 2. 3. 4. Macro: Global outlook Sectoral analysis Issuer filtration Portfolio for local selection and analysis construction First and foremost Opportunities emerge Financial, structural, Three types of trading a macro house through sectoral and strategic analysis; not strategy create a regional filters just number crunching diversified portfolio 6
  • 7. Portfolio construction: Trading strategies across the curveEach strategy works in a different part of the curve Directional Trades Directional Trades 160 (Long) (short) ● Different trade types work across different 140 parts of the curve CB value (USD) 120 ● The weight of the 100 Mispriced portfolio to any trade type at a given point in 80 time is aligned with overall market 60 conditions 40 ● Broad market conditions 20 most supportive of each type of trade are shown 0 in the lower graph 0 20 40 60 80 100 120 140 Stock price (USD) Weight of portfolio assets Parity Convertible Bond Price Recovery Recessionary Bond floor (Turning point) Growth (Towards the (Upswing) Soft bond floor trough) Mispriced Bond Balanced Equity Economic cycle – Recovery Economic cycle – Growth Economic cycle –Recessionary Focus on trade typeSource: GAM 7
  • 8. Portfolio construction: Trading strategies across the curveIn a recovering environment most opportunities arise through security mispricing 160 ● Seek to position the portfolio to capitalise on 140 – Mispricings that arise CB value (USD) 120 in difficult markets ie ‘distressed pricing’ 100 Mispriced – Mean-reversion trades 80 – Basis trades 60 ● The team’s key questions: 40 – “What is seriously mispriced?” 20 – “What will bounce 0 fastest?” 0 20 40 60 80 100 120 140 Stock price (USD) ● Sell down what they do not want to be holding 3 months Weight of portfolio assets hence Recovery Parity (Turning point) Convertible Bond Price Bond floor Mispriced Bond Balanced Equity Soft bond floor Economic cycle – Recovery Focus on trade typeSource: GAM 8
  • 9. Portfolio construction: Trading strategies across the curveTend to focus on long and short directional trades during growth markets Directional Trades 160 (Long and short) ● Seek to position the portfolio to capitalise on 140 – Bond issuers whose CB value (USD) 120 stock is undervalued Mispriced – Lift from short term 100 stock movements 80 ● The team’s key questions: 60 – “Where are the areas of growth?” 40 – “How do we structure 20 the trade to get exposure to only the 0 0 20 40 60 80 100 120 140 risks we like?” Stock price (USD) Weight of portfolio assets Parity Growth Convertible Bond Price (Upswing) Bond floor Mispriced Bond Balanced Equity Soft bond floor Economic cycle – Growth Focus on trade typeSource: GAM 9
  • 10. Portfolio construction: Trading strategies across the curveRecessionary environments present most opportunities through equity-focused trades Directional Trades Directional Trades 160 (Long) (short) ● Seek to position the portfolio to capitalise on 140 – Short opportunities in CB value (USD) 120 companies with falling stock prices 100 – Continuing growth of 80 good companies 60 ● The team’s key questions: – “Which companies are 40 the winners and which 20 the losers?” – “Is the cost of the short 0 0 20 40 60 80 100 120 140 trade structure Stock price (USD) justified?” Weight of portfolio assets Parity Recessionary (Towards the Convertible Bond Price trough) Bond floor Mispriced Bond Balanced Equity Soft bond floor Economic cycle – Recessionary Focus on trade typeSource: GAM 10
  • 11. How does our hedging work? Fund Value Equity Market Long Only Convertible Portfolio The Gap Risk ProtectionSource: GAM 11
  • 12. Some examplesShire Pharmaceuticals Shire 2 3/4% 2014 - Cheap Bond eventually noticed... 130 125 120 115 110 105 Fair Bond Price Actual Price 100 19 20 23 20.5 21 21.5 22 24 19.5 22.5 23.5 14 15 14.5 15.5 16 17 17.5 18 18.5 16.5 Stock PriceSource: Bloomberg 12
  • 13. Some examplesBulgari Bulgari 5 3/8% 2014 - Pays for itself, and then some more...300280260240220200180160140 Fair Bond Price120 Actual Price Equity Parity Value100 4 4.3 4.6 4.9 5.2 5.5 5.8 6.1 6.4 6.7 7 7.3 7.6 7.9 8.2 8.5 8.8 9.1 9.4 9.7 10 10.3 10.6 10.9 11.2 11.5 11.8 12.1 Stock PriceSource: Bloomberg 13
  • 14. Summary ● Global, absolute return approach to trading convertibles – Flexibility in trading styles enables performance in most macro environments ● Two highly experienced convertibles managers – Combined 35 years experience analysing, selecting and structuring convertibles trades – Backed by the full resources of an established fixed income team ● Demonstrated skill both in managing the risks and extracting value from convertible bonds ● More than five year track record of delivering consistent returns via their offshore fund ● Asymmetric asset class with low correlation with other fixed income strategies, equity indices and traditional bond benchmarksSource: GAM 14As at 31 Mar 2011.
  • 15. AppendixThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  • 16. The case for investing in convertible bondsAttractive features embedded in convertibles are being recognised by growing set of market participants ● Asymmetric return profile gives convertibles significant benefits over other structures: Example: A typical convertible bond payoff – Are effectively corporate bonds with an embedded call 160 option on the stock, providing upside potential – Incorporate the security of a floor on the corporate bond, 140 protecting the downside 120 CB value (USD) ● Different trading strategies work in each part of the curve 100 allowing investors to profit from all of them 80 ● Structural support for convertibles segment: – Larger and more diversified investor base following the 60 stresses of 2008 40 – Significant institutional investors are injecting cash into the 20 convertibles market 0 ● 2011 expected to be supportive to convertibles 0 20 40 60 80 100 120 140 – Higher levels of issuance expected Stock price (USD) Parity CB Price Bond floor Soft bond floor – Rate rising environment will support equities, hence convertiblesSource: GAM 16
  • 17. Historical performance of convertibles vs other asset classesConvertible bonds have outperformed both equities and high yield bonds over time Performance from 31 Dec 1997 to 30 Apr 2011Source: Bloomberg, Thomson Reuters 17
  • 18. GAM Star Global Convertible BondStrategy overview ● Diversified absolute return convertible bond fund launched in December 2010 – Successful track record managing absolute return, hedge fund and long only convertibles for more than 5 years – Responsible for assets of approximately USD 1.7 bn ● Managed by two experienced convertible bond managers – Combined experience of 35 years in the convertibles markets Mispriced – Fundamental investors seeking value opportunities at the macro, country, sector and company level convertible bonds – Backed by resources of wider GAM fixed income team Event driven ● Flexible, value-driven strategy designed to perform in most market environments trades – Utilises three distinct trade types Mispriced Directional trades Event driven convertible bonds (Long and Short) trades – No strategy slippage: all themes involve convertibles ● Portfolio is inherently diversified across – Global convertibles markets – Approximately 40 – 60 trades – Liquid end of the convertibles universeSource: GAM as at 31 Dec 2010 18Allocations and holdings are subject to change.
  • 19. GAM Star Global Convertible BondKey characteristics To achieve positive medium-term returns with low correlation to either equity or Objective bond markets Managers Ben Helm and Alex McKnight Instruments Invests globally in convertible bonds and their related derivative instruments Index for comparison UBS Convertible Global Focus Investment Grade Index Hedged to USD Return objective 1 Net returns of cash + 8% pa Volatility objective 8 – 12% pa over the medium termSource: GAM 191 There is no guarantee that targets will be realised.
  • 20. GAM Star Global Convertible BondFund features Fund Type Irish UCITS III Base currency USD Inception date 17 December 2010 Dealing day Daily Minimum subscription USD 10,000 (or in currency equivalent of share class) Institutional: 0.85% pa Investment Manager and Sponsor Fees1 Ordinary: 1.15% pa Redemption terms Daily with 5 business days’ notice Performance Fee2 10% on a high watermark basis ISIN IE00B5BRTG34 Identifiers WKN: A1H4AY Source: GAM 201 Excludes administration and custodian fee – please see Prospectus for further details on fees.2 Performance fee of 10% is levied on the price appreciation on a high watermark basis.
  • 21. GAM Star Global Convertible Bond InvTop 10 holdings (of 71) as at 29 Apr 2011Source: GAM 21Allocations and holdings are subject to change. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPS supplemental text.
  • 22. GAM Star Global Convertible BondExperienced co-managers working collaboratively Ben Helm Alex McKnight Investment Manager Investment Manager – 22 years’ investment experience – 14 years’ investment experience – Joined team in 2005 – Joined team in 2007 – Trading and managing convertible bonds – Working with convertible bonds, credit and FX since 1993 since 1996 – Holds a BSc from the University of Edinburgh – Holds a B Comm from University College Dublin – CFA charterholder Supported by: Team of 14 other fixed income Independent GAM Market Risk sector specialists for macro Team for risk monitoring and theme insights oversightSource GAM. 22Team experience as at 30 Apr 2011
  • 23. GAM Fixed Income Investment teamsSpecialist teams with average experience of 13 years and average tenure of 8 years Long Only and Absolute Global Macro and Foreign Return Fixed Income Exchange Tim Haywood* (22) Daniel Sheard (20) Adrian Owens* (23) Tom O’Shea (17) Rahul Mathur (5) Philip Mann (20) Convertibles Ben Helm (22) Credit Alex McKnight (14) Darren Reece (20) Emerging Markets Haroon Shaikh (3) Paul McNamara* (14) Johannes Wagner (15) Caroline Gorman (5) Amy Kam (-) Denise Prime (6) Foreign Exchange Dealer Mark Dragten (6) Chris Jarman (13)Source: GAM as at 30 Apr 2011 23*Investment Directors
  • 24. GAM’s convertible bond capabilityFundamental approach combined with technical knowledge allows for a full spectrum of strategies Investment approach AuM Long only ● Fundamental approach to credit and equities Approx USD 100mn via segregated account ● Takes full account of technical profiles and asymmetry ● May have an FX overlay Unconstrained All of long only + Total approx USD 1.5 bn absolute return ● Dampens volatility of returns and increases potential risk- ● GAM Star Global Complexity level adjusted returns through hedging with Convertible Bond – Equity derivatives USD100mn – Credit derivatives ● GAM’s absolute return – Interest rate derivatives bond funds USD 1.4 bn ● Able to benefit from bear as well as bull markets Hedge fund All of unconstrained AR + Approx USD 130mn strategies via the GAM Convertible ● Short single stock hedging Bond Hedge fund ● Gearing employed ● Much greater ability to extract value from volatility strategies and parity playsSource: GAM as at 31 Dec 2010 24
  • 25. Investment philosophy and processStructural mispricings are frequent and can be exploited We believe that… ● Convertible bond markets are ultimately driven by economic fundamentals – Understanding the macro backdrop is key to making money from convertibles ● Structural mis-pricing occurs due to imperfect information available in equity and bond markets – Non-economic decision-making – Variation of macroeconomic influences over time – Influence of market backdrop, sentiment and geography on behaviour ● Dominance of traditional, constrained investors perpetuate these inefficiencies – Greed, fear and forced selling provide ongoing opportunities So we seek to use the full set of tools available to profit from these inefficiencies Investment process 1. 2. 3. 4. Macro: Global outlook Sectoral analysis Issuer filtration Portfolio for local selection and analysis construction First and foremost Opportunities emerge Financial, structural, Three types of trading a macro house through sectoral and strategic analysis; not strategy create a regional filters just number crunching diversified portfolio 25
  • 26. 1. Macro: Global outlook for local selectionBackdrop of diverse macro views helps to identify potential ● Convertibles investment managers work with wider investment team to develop global market outlook – 14 other fixed income sector specialists averaging 12 years’ investment experience – Specialisations span full range of bond and currency markets – Formal and informal discussions generate and test ideas ● Provides meaningful market context for the co-managers’ analysis of convertibles markets ● Convertibles team specifically seeks to understand what is fuelling growth globally – Macro influences? – Micro influences? – Geography-, sector- and industry- specific factors? ● Growth areas are typically accompanied by volatility – a rich source of opportunities for convertiblesSource: GAM as at 31 Mar 2011 26
  • 27. 2. Sectoral analysis on a local basisMethodically focuses on most promising opportunities ● Focus on market segments expected to experience growth Illustration: Regional sector macro analysis ● Typically assess ideas by industry sector +1 0 -1 – Apply macro filter based on ~10 key economic characteristics – Evaluate sector dynamics in each major global region Degree of concentration (US, Europe, Asia ex Japan and Japan) Power of buyers/suppliers – Score each regional sector: 1 = positive Barriers to entry 0 = neutral Role of regulation -1 = negative Competitive geography ● Overall score summarises: Importance to economy – The localised macro view for the sector in the current market – The competitive position of the industry, highlighting winners Macro economic trends and losers Growth rates ● Then aggregate regional score to solidify the team’s view on opportunities in the sector globally Technological changes ● Day-to-day reassessment of views based on market dynamics Effects of new entrants – Framework provides a sanity check on ideas Changing regulation – Helps to codify shifts and opportunities Overall score: +4Source: GAM 27
  • 28. 3. Issuer filtration and analysisMulti-dimensional, company specific analysis used to identify specific opportunities ● Combines elements of both an equity analyst and a credit analyst to conduct in-depth analysis of companies – Gives holistic picture of the convertible bond opportunities from each company – In essence, views are fundamentals driven, not price-driven – we have to like the equity to hold the bond ● Combine complementary sources of information and analysis to form views: External information sources One-to-one meetings/ calls Company filters Focus on contrary views: Focus on management Focus on fundamentals: Have we missed something? attitude: What’s driving company • External analysts Do we trust them? growth? • Travel extensively to Asia and • Analyse key strategic, structural, • Broker contacts in local markets Europe financial and bond/ stock issue • Company filings • Approximately 40+ companies per characteristics year; often small-mid cap • Run each metric on standalone • Company presentations/ • Focus where deals are outstanding basis conference calls • Often cross the wall pre-deal • And relative to peer group, ratings and spread levels ● Views culminate in buy, sell or hold rating for each company, feeding into portfolio constructionSource: GAM 28Holdings and allocations are subject to change.
  • 29. 3. Issuer filtration and analysis – Illustration: Company filtersMetrics applied on standalone and relative basis for each company Strategic Financial metrics +1 0 -1 +1 0 -1 Market share Fixed charge coverage Cost position Gross debt levels Technological advantages Cash levels Management Tangible assets (& backstop buyer) Capital plans Basic free cash flow Acquisition strategy EBITDA margins Basis of competition Overall score: 0 Attitude towards leverage Bond/ stock issues Overall score: +5 +1 0 -1 Structural issues Stock and bond liquidity +1 0 -1 Borrow and stability Debt maturity profile Credit default / asset swap availability Financial flexibility Implied volatility relative to realizable options Structural seniority Takeover, dividend language Contractual seniority Breakeven analysis Overall score: +1 Worst case scenario Overall score: +3Source: GAM 29
  • 30. 4. Portfolio constructionTargeting most promising opportunities through a well-diversified approach ● Using the buy-rated securities, the managers build portfolios to capture growth and opportunities ● Assemble long-term positions that seek to deliver absolute returns through diversified exposures: – Across all geographies – Spanning all credit ratings, but focused on liquid issues – Participating in three distinct trading strategies Mispriced Directional trades Event driven convertible bonds (Long and Short) trades ● Managers maintain absolute flexibility in strategy type and regional exposure ● Each trading strategy has advantages in different market environments, providing tools for: – Potential outperformance regardless of market conditions – Achieving low correlation to equity and bond markets ● Selectively hedge out interest rate, credit and equity risk to align the portfolio with views on current market environment – Strictly within UCITS III parameters ● Results in 40 – 60 positions – Typically executes 2 to 5 trades per day, depending on opportunities presentSource: GAM 30Allocations and holdings are subject to change.
  • 31. Portfolio construction: Trading strategies across the curveEach strategy works in a different part of the curve Directional Trades Directional Trades 160 (Long) (short) ● Different trade types work across different 140 parts of the curveCB value (USD) 120 ● The weight of the 100 Mispriced portfolio to any trade type at a given point in 80 time is aligned with overall market 60 conditions 40 ● Broad market conditions 20 most supportive of each type of trade are shown 0 in the lower graph 0 20 40 60 80 100 120 140 Stock price (USD) Weight of portfolio assets Parity Convertible Bond Price Recovery Recessionary Bond floor (Turning point) Growth (Towards the (Upswing) Soft bond floor trough) Mispriced Bond Balanced Equity Economic cycle – Recovery Economic cycle – Growth Economic cycle –Recessionary Focus on trade type 31
  • 32. Portfolio construction: Trading strategies across the curveIn a recovering environment most opportunities arise through security mispricing 160 ● Seek to position the portfolio to capitalise on 140 – Mispricings that ariseCB value (USD) 120 in difficult markets ie ‘distressed pricing’ 100 Mispriced – Mean-reversion trades 80 – Basis trades 60 ● The team’s key questions: 40 – “What is seriously mispriced?” 20 – “What will bounce 0 fastest?” 0 20 40 60 80 100 120 140 Stock price (USD) ● Sell down what they do not want to be holding 3 months Weight of portfolio assets hence Recovery Parity (Turning point) Convertible Bond Price Bond floor Mispriced Bond Balanced Equity Soft bond floor Economic cycle – Recovery Focus on trade type 32
  • 33. 4. Portfolio construction: Trading strategies across the curveTend to focus on long and short directional trades during growth markets Directional Trades 160 (Long and short) ● Seek to position the portfolio to capitalise on 140 – Bond issuers whoseCB value (USD) 120 stock is undervalued Mispriced – Lift from short term 100 stock movements 80 ● The team’s key questions: 60 – “Where are the areas of growth?” 40 – “How do we structure 20 the trade to get exposure to only the 0 0 20 40 60 80 100 120 140 risks we like?” Stock price (USD) Weight of portfolio assets Parity Growth Convertible Bond Price (Upswing) Bond floor Mispriced Bond Balanced Equity Soft bond floor Economic cycle – Growth Focus on trade type 33
  • 34. 4. Portfolio construction: Trading strategies across the curveRecessionary environments present most opportunities through equity-focused trades Directional Trades Directional Trades 160 (Long) (short) ● Seek to position the portfolio to capitalise on 140 – Short opportunities inCB value (USD) 120 companies with falling stock prices 100 – Continuing growth of 80 good companies 60 ● The team’s key questions: – “Which companies are 40 the winners and which 20 the losers?” – “Is the cost of the short 0 0 20 40 60 80 100 120 140 trade structure Stock price (USD) justified?” Weight of portfolio assets Parity Recessionary (Towards the Convertible Bond Price trough) Bond floor Mispriced Bond Balanced Equity Soft bond floor Economic cycle – Recessionary Focus on trade type 34
  • 35. 4. Portfolio construction: Liquidity and exposure managementStructured approach to ensure liquidity and diversification of risk ● Typically ~100% of NAV is invested in liquid instruments including – Convertible and fixed income bonds – typically the entirety of the portfolio – Equities – opportunistic and infrequent, principally to express very short term views – Related derivatives on any of these assets within UCITS III powers ● Illiquid instruments are defined as those that meet two criteria: – They are not priced regularly on Bloomberg, and – They have an issue size of <USD 300 million ● Max 10% of NAV in a single issue To limit credit risk ● Max 20% of NAV in a single issuer ● No financial gearing – Long convertible cash bond exposure limited to 100% of the NAV – Shorting for exposure only via credit derivatives, futures, options and stock total return swapsSource: GAM. 35Holdings and allocations are subject to change.
  • 36. Risk management and monitoringActive risk management on the desk and independently Risk management ● The investment managers seek to add value through their skill in managing risk – Able to hedge out constituent (credit, equity, rates) risk on both an individual name and overlay basis – Do not take oversize equity risks; operate within defined limits – Maintain strict liquidity standards – Stop loss and take profit limits are applied to positions wherever possible Risk monitoring RiskMetrics Reports ● GAM Market Risk Team provides the managers with daily, weekly and monthly risk analysis and monitoring – Comprehensive risk management platform covering the fund’s full range markets and instruments – Daily VaR of individual positions, strategies and total portfolio – Weekly historic and speculative stress tests to reveal any potential correlations ● GAM Market Risk Team seeks to identify any risk hotspots and to challenge managers with additional oversight 36
  • 37. Transparency Dedicated to sharing information with investors ● Fully transparent month-end portfolio holdings available to investors on request with ten working day lag¹ ● Month end risk report available to investors on request with ten working day delay¹ ● Monthly performance reporting, risk analysis and manager commentary ● Monthly, recorded conference call at mid-month, where investment manager discusses market themes across all strategies the team runsSource: GAM. 371 Subject to the signing of a confidentiality agreement.
  • 38. Illustrative performance, risk and portfolio informationNOTE: As GAM Star Global Convertible Bond launched on 17 December 2010, the charts in the following sectionshow the performance another portfolio managed by Ben Helm and Alex McKnight that is shown for illustrativepurposes only. The offshore GAM Convertible Bond Hedge fund is run significantly differently. Please seecomparison slide for details.This document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  • 39. A comparison of the GAM Convertible Bond vehiclesAs at April 2011 GAM Star GAM Convertible Fund Global Convertible Bond Bond Hedge Investment style Absolute return Hedge fund Regulation Irish UCITS III Cayman domiciled fund ● Long and short positions in individual convertibles (traditional, ● Long positions in individual convertibles (traditional, mandatories, preferences), credits and equities, as well as their mandatories, preferences), credits and equities indices and all related derivatives ● Seeks to dampen volatility of returns and increase potential ● Seeks to add alpha and to dampens volatility of returns through risk-adjusted returns through hedging with Instruments hedging with – Equity derivatives – Equity derivatives – Credit derivatives – Credit derivatives – Interest rate derivatives – Interest rate derivatives – Single name equity total return swaps – Single name equity stock shorts Index for comparison UBS Global Convertible Inv Grade Index hedged to USD Dow Jones Credit Suisse Convertible Arbitrage Index in USD To achieve positive medium-term returns with low correlation to To achieve positive returns in both rising and falling equity Investment objectives either equity or bond markets markets with low correlation to either equity or bond markets Target net returns1 Cash + 8% pa 15%+ pa with no down quarters Target annualised volatility1 8 – 12% pa 6 – 9% pa Max monthly VaR 20% (99% confidence) 9% (97.5% confidence) Typical gearing Up to 1x ~3x (Long cash bonds to NAV) Typical no. of positions 40 – 60 30 – 40 Position sizing Typical ~5%, max 10% in single name Typical 12%, max 20% in single name Liquidity (Inst’l class) Daily with 5 days’ notice Monthly with 90 days’ notice Fees (Inst’l class) 0.85% + 10% perf fee on HWM basis 1.50% + 20% perf fee on HWM basisSource: GAM. 391 There is no guarantee that targets will be realised.Holdings and allocations are subject to change.
  • 40. GAM Convertible Bond Hedge - USD 1Performance from 30 Jun 2005 (inception) to 30 Apr 2011 FOR ILLUSTRATIVE PURPOSES ONLYSource: JP Morgan Hedge Fund Services (Ireland) Ltd, Bloomberg 40Past performance is not indicative of future performance. Performance is provided net of fees. Presented as supplemental information only. Please refer to the relevant GIPS compliant report and the GIPSsupplemental text.
  • 41. Ben Helm Investment Manager Ben Helm is an Investment Manager, co-managing a convertible bond hedge fund and is a convertible bond sector specialist. Ben joined GAM following its acquisition of the fixed income and foreign exchange specialist, Augustus, in May 2009. Ben joined Augustus (then Julius Baer Investments Limited) in 2005. Prior to joining Augustus, he worked in a number of roles primarily in convertible bonds sales and trading at ING Barings from 1991 and HSBC from 2001. He started his career at Morgan Stanley International in 1986. Ben holds a BSc from the University of Edinburgh. He is based in London. . 41
  • 42. Alex McKnight Investment Manager Alex McKnight is an Investment Manager, co-managing a convertible bond hedge fund and is a convertible bond sector specialist. Alex joined GAM following its acquisition of the fixed income and foreign exchange specialist, Augustus, in May 2009. Alex joined Augustus in 2007 from Allied Irish Bank (AIB), where he was a senior trader for European convertible bonds within the fixed income group. Prior to this he was a credit analyst at AIB and began his career in markets there as a foreign exchange trader in 1996. Alex holds a BCom from the University College Dublin and is a CFA charterholder. He is based in London. 42
  • 43. GIPS Supplemental Information All GAMs discretionary assets have been allocated to appropriate GIPS composites. GAMs funds often are structured as investment pools with underlying currency classes and it is at the investment pool level that GIPS composite allocations have been made. Supplemental information shown in GAMs materials, including performance, geographic/industrial asset allocations, attribution details and other statistical analyses are based on a sample account of the relevant composite that represents the management style. Other accounts in the composite may have slightly different portfolio characteristics. In some cases sample accounts have history that pre-dates GAMs compliance with GIPS of 30 June 1996. Indices other than the benchmark are sometimes used in presentations for illustrative purposes. Please refer to the relevant GIPS compliant report. 43
  • 44. GAM Convertible Bond Composite (G333) GAM has prepared and presented this report Composite Performance 2007 2008 2009 2010 YTD in compliance with the Global Investment Performance Standards (GIPS®). A Composite Returns % 13.34 -28.22 56.08 11.35 5.33 complete list and description of composites is available on request. Benchmark Returns* % 5.17 -31.59 47.35 10.95 4.54 Composite Standard Dev 3Yr % N/A N/A 17.68 17.92 17.75 * The benchmark shown is for comparative purposes only. The composite is not Benchmark Standard Dev 3Yr % N/A N/A 13.49 13.57 13.10 managed to a specific benchmark. Number of Portfolios in Composite <6 <6 <6 <6 <6 There is no guarantee that targets will be High Return % N/A N/A N/A N/A N/A achieved. Low Return % N/A N/A N/A N/A N/A Composite Asset value (USDm) 197 57 73 134 147 Total Firm Assets (USDm) 75,783 39,207 49,372 54,289 57,340 1: Established in 1983, GAM delivers active investment management to private clients, institutions and intermediaries. All GAMs assets are included in the GIPS definition of the firm, except for clients who set up separately- managed accounts which are administered by an independent third party for their fixed income hedge strategy and/or currency hedge strategy. 2: GAM claims compliance with the GIPS® and has prepared and presented this report in compliance with the GIPS standards. GAM has been independently verified for the periods 30 Jun 1996 to 31 Dec 2009. GAM acquired Augustus Asset Managers Limited (Augustus) in May 2009. GAMs independent verification for the year ended Dec 2009 included the Augustus assets. The pre-acquisition track record of Augustus composites has been linked to the post-acquisition performance as the relevant requirements per the GIPS standard have been complied with. Augustus has complied with GIPS standards from Jan 2000 and was independently verified for the periods Jan 2000 to Dec 2005. The verification reports are available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm- wide basis and (2) the firms policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. 3: The composite was created by GAM in Mar 2010 and applied retrospectively. 4: Prior to GAMs acquisition of Augustus in May 2009 this composite was called Convertible Bond Hedge Fund Strategy. The composite strategy has not changed. 5: Accounts in the composite invest primarily in convertibles using a fundamental, top-down, global multi-strategy approach. The team trades convertible bonds of all credit ratings and invests globally with the main focus outside the US. They typically seek to achieve strong, positive absolute returns over cash regardless of market conditions. 6: Derivatives are an integral part of the investment strategy for the portfolios within the composite. Instruments used include interest rate forwards and swaps, and currency forwards, futures and options. For reporting purposes the fixed income securities included have been delta-adjusted on a 10 year US Treasury equivalent basis so that they can be compared like for like. Further detail is available on request. 7: Composite results are presented gross of investment management fees and net of trading expenses and net of withholding taxes on dividends, capital gains and interest. Benchmarks are gross of withholding taxes on dividends. 8: The maximum investment management fee for accounts is 1.5% per annum plus performance fees. Management fees may vary by product and jurisdiction. 9: High and low returns (for those constituents present in the composite throughout each period) are presented above to demonstrate dispersion within the composite. Dispersion information is only required by GIPS where there are 6 or more portfolios in the composite. 10: As of Mar 2011, the composite benchmark was changed from 3 Month Libor Index to Dow Jones Credit Suisse Convertible Arbitrage Index. This benchmark represents the broad convertibles hedge fund market, which is more meaningful than benchmarking it against cash, which is risk free. This new index has been applied retrospectively. 11: In 2005 GAM changed its methodology for calculating its Total Firm Assets (TFA) to follow the principles and guidelines of FINMA, resulting in TFA as of Nov 2005 increasing by 38%. In May 2009, GAM acquired Augustus resulting in an increase of 22% in TFA and a change in the Firm definition to incorporate an exclusion of certain assets as detailed above. GAMs TFA before these exclusions were $58,231 m. GAM discloses its TFA on a quarterly basis. Current data is as at 31 Mar 2011. 12: Total firm assets prior to the acquisition of Augustus relate to GAM, thus the percent of firm assets and total firm assets are not meaningful in respect of Augustus. 13: GAM aims to produce composite reports relatively quickly following month end. For this reason the most recent month end performance figures may be based on estimated month end figures. 14: Policies for valuing portfolios, calculating performance and preparing compliant presentations is available on request. 44Source: GAM as at 30 Apr 2011
  • 45. DisclaimerSource: GAM unless otherwise stated. (Unless otherwise noted, where shown, performance is shown net of fees, on a NAV to NAV basis).This material is confidential and is intended solely for the use of the person or persons to whom it is given or sent and may not be reproduced, copied or given, inwhole or in part, to any other person. It is aimed at sophisticated, professional, eligible, institutional and/or qualified investors who have the knowledge andfinancial sophistication to understand and bear the risks associated with the investments described herein. Nothing contained herein constitutesinvestment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. It is not an invitation to subscribe and is by way ofinformation only.Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the fund. Shares are not available for sale in anystate or jurisdiction in which such sale would be prohibited.The Shares of the fund have not been registered under the US Securities Act of 1933, as amended (the Securities Act), and the fund is not registered under the USInvestment Company Act of 1940, as amended (the Company Act). Accordingly, unless an exemption is available, such shares may not be offered, sold ordistributed in the United States or to US persons. However, pursuant to an exemption from registration under the Securities Act and the Company Act, the sharesmay be sold or resold in the United States or to certain qualified US investors in transactions that do not constitute a public offering.The fund is not regulated under the Financial Services and Markets Act 2000 (the ‘Act’), consequently no protection is provided by the UK regulatory system.Moreover benefits available under the UK Financial Services Compensation Scheme do not apply. The fund is not authorised or registered for public sale in AsiaPacific. Therefore, no public marketing must be carried out for it in Asia Pacific. In Hong Kong, this material is restricted to professional investors (as defined in theSecurities and Futures Ordinance (Cap 571)) only. In other countries in Asia Pacific, this material should only be distributed in accordance with the applicable laws inthe relevant jurisdiction. The fund does not include the security of capital which is characteristic of a deposit with a bank or building society.In the Dubai International Financial Centre, this material has been distributed by GAM (Dubai) Limited. Related financial products or services are only available toprofessional clients who qualify as clients under the Dubai Financial Services Authority (the DFSA) rules. GAM (Dubai) Limited is duly licensed and regulated by theDFSA. The views expressed herein are those of the manager at the time and are subject to changes. The price of Shares may go down as well as up and the pricewill depend on fluctuations in financial markets outside GAMs control, as a result an investor may not get back the amount invested. Past performance is notindicative of future performance and reference to a security is not a recommendation to buy or sell that security. Holdings and allocations are subject to change.Prices quoted refer to accumulation Shares unless otherwise stated. Historic data may be subject to restatement from time to time. 45
  • 46. DisclaimerIn Japan, the fund mentioned herein shall not be disclosed publicly pursuant to the Financial Instruments and Exchange Law (‘the FIEL’) nor registered forpublic sale or private placement pursuant to the Law in Investment Trusts and Investment Companies. Therefore, none of the shares of the fund may besolicited in Japan. This document is intended for circulation to professional, institutional and/or qualified investors only. Any person who receives this documentis not allowed to distribute it to residents in Japan or to communicate any information about the funds mentioned in this document to residents in Japan.GAM Star Global Convertible Bonds is a sub-fund of GAM Star Fund plc. GAM Star Fund plc is an umbrella fund with segregated liability between sub-funds.GAM Star Fund plc is authorised as a UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities)Regulations, 2003 (S.I. No.211 of 2003) and is a recognised scheme under the Financial Services and Markets Act 2000. The fund is managed by GAM FundManagement Limited which is regulated by the Central Bank of Ireland. Copies of the fund’s prospectus, simplified prospectus and financial statements can beobtained free of charge from the representative in Switzerland GAM Anlagefonds AG, Klausstrasse 10, CH - 8034 Zurich, from the information agent inGermany Bank Julius Baer Europe AG, An der Welle 1, D-60322 Frankfurt am Main, or from the information agent in Austria, UniCredit Bank Austria,Schottengasse 6 - 8, A-1010 Vienna.Important information about hedge funds: Hedge fund strategies are speculative and are not suitable for all investors. GAM hedge fund products are onlyavailable to investors who are comfortable with the substantial risks associated with investing in hedge funds. An investment in hedge fund strategies includesthe risks inherent in an investment in securities, as well as specific risks associated with limited liquidity, the use of leverage, short sales, options, futures,derivative instruments, investment in overseas securities, junk bonds and illiquid investments. Hedge fund strategies may be leveraged and the volatility of theprice of their interests may be great..In the United Kingdom, this material has been issued and approved by GAM London Ltd, 12 St Jamess Place, London SW1A 1NX, authorised and regulatedby the Financial Services Authority. In Switzerland, issued by GAM Anlagefonds AG, Klausstrasse 10, CH - 8034 Zurich. 46