City of Cincinnati Retirement System
                         Investment Committee

                          February 5, ...
ABS Investment Management LLC



                                     2008 Year-End Review
                               ...
2008 Year in Review

    Equity Long/Short as an Equity Replacement

    ABS Firm Update
            Diversified investor ...
Equity Replacement Adds Value
                      Using equity long/short as an equity replacement has consistently prov...
Equity Long/Short Strategies Remain Intact

    Hedge funds experience significant redemption requests during the second h...
ABS Firm Update
ABS Investor Base & Geographic Investments


               Profile of Investor Base                           Firm-wide H...
ABS Employee Update

              We both began and ended the year with seventeen employees and
                         ...
ABS Organizational Chart


                                                     Management Committee*




                ...
2008 Industry Review
Challenges Faced by Hedge Funds in 2008
     Government Intervention
       Ineffective regulations and bailouts, such as ...
Unprecedented Government Interventions
              Credit crisis forces unprecedented government intervention



       ...
Impact of Interventions: Volatility

     With government equity infusions, loan guarantees, and short selling restriction...
Deleveraging and Sector Rotation
                 Heightened volatility leads to a reduction in overall exposure by equity...
Why Equity Long/Short in 2009?


     Equity long/short portfolios are well-positioned for 2009 due to a handful of
     f...
2008 ABS Global Portfolio Review
Interventions Hurt Long/Short Strategies
                Three months with substantial government-induced volatility were ...
ABS Global Portfolio Performance and Exposure
                    ABS Global Cumulative Performance Since Inception       ...
Return Attribution: by Exposure Bias
                 As shown below, long biased funds suffered the largest losses, as th...
Return Attribution: by Strategy
                 Asian and European strategies were the primary drivers of negative attrib...
ABS Global in 2009
     The portfolio currently has the following characteristics:
         Exposure:
         Low gross a...
Conclusion
     Why Equity Long/Short?
        Using equity long/short as an equity replacement has consistently proven to...
Disclosure Information




     This presentation is for discussion purposes only and has been prepared solely as a prelim...
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City of Cincinnati Retirement System Investment Committee

  1. 1. City of Cincinnati Retirement System Investment Committee February 5, 2009 12:00PM Centennial II – Meeting Room A AGENDA Call to Order Approval of Minutes December 4, 2008 New Business 12:15 PM - Conference Call: PIMCO o Susie Wilson and Sapna Shah 1 PM Conference Call: ABS Investment Management o Mark Murphy and Laurence Russian Brett Christenson, Marquette Associates: o 2008 Investment Performance Report Adjournment Next Meeting: April 2, 2009 - Centennial II, HR – Room A
  2. 2. ABS Investment Management LLC 2008 Year-End Review Equity Long/Short FoHFs January 2009 55 Railroad Avenue Greenwich CT 06830 (203) 618-3737 *Please see the end of this presentation for important disclosure information. ABS Investment Management
  3. 3. 2008 Year in Review Equity Long/Short as an Equity Replacement ABS Firm Update Diversified investor base Stability of investment and operational team Hedge Fund Industry Review Hedge funds face new challenges in 2008 Why equity long/short in 2009 ABS Global Portfolio Review 2008 Performance attribution Current portfolio structure Conclusion Why equity long/short? Why equity long/short now? Why ABS? 2 ABS Investment Management
  4. 4. Equity Replacement Adds Value Using equity long/short as an equity replacement has consistently proven to be a successful way to invest in the equity markets Flexible portfolio management allows funds to protect capital during down periods and capture upside in positive markets: Equity Long/Short Cumulative Performance 5.5 CSFB-Tremont Equity L/S Index 5.0 MSCI All Country World Index 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Dec-93 Jun-94 Dec-94 Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 1-Year 3-Year 5-Year 1994-2008 CSFB- MSCI AC CSFB- MSCI AC CSFB- MSCI AC CSFB- MSCI AC Tremont L/S World Tremont L/S World Tremont L/S World Tremont L/S World Cumulative Return -19.91% -43.56% +4.11% -26.49% +27.42% -9.36% +301.40% +50.46% Annualized Return -19.91% -43.56% +1.35% -9.75% +4.97% -1.95% +9.71% +2.76% Annualized Volatility 12.04% 24.89% 9.72% 18.20% 8.37% 15.23% 10.22% 14.99% 3 ABS Investment Management
  5. 5. Equity Long/Short Strategies Remain Intact Hedge funds experience significant redemption requests during the second half of 2008 Due to the liquidity available in the equity markets, the vast majority of equity long/short managers pay redemptions AND maintain their portfolio structure Generally, equity long/short funds are able to service redemptions without putting up gates, suspending redemptions, or side pocketing assets Strategies that depend on leverage to generate performance will find limited availability and high costs, which should have very limited impact for fundamental equity long/short managers Potential regulation of the hedge fund industry should impact equity long/short funds less in comparison to other strategies, as funds already are required to disclose long positions and invest in securities that trade on regulated exchanges 4 ABS Investment Management
  6. 6. ABS Firm Update
  7. 7. ABS Investor Base & Geographic Investments Profile of Investor Base Firm-wide Hedge Fund Managers Private Label Pension Sub-Advisory Europe, 10% Plans, 22% (Full UK, 2% Discretion), 23% Asia, 15% Global, 27% Endowments & Japan, 4% Foundations, 14% Financial Emerging Institutions, Markets, 5% ABS 10% Employees, Latin America, 1% 1% High Net North America, Worth Non- High Net 36% US, 8% Worth US, 22% Institutional 69% Total Firm-wide assets $2.1 billion High-Net-Worth 31% *All statistics are estimated and measured on a dollar basis as of January 1, 2009 6 ABS Investment Management
  8. 8. ABS Employee Update We both began and ended the year with seventeen employees and have no plans to reduce our team Tae Kim left ABS on June 30th. Tae started his own hedge fund. He had been a qualitative investment analyst for three years, starting at ABS in July 2005. Jeff Alleva joined ABS in September as a qualitative analyst based in Greenwich. Prior to joining ABS, he was in the Investment Banking group at Bear Stearns. Before Bear Stearns he was an analyst at Duke University Management Company and a minor league pitcher in the Kansas City Royals organization. He received a BA from Duke University and an MBA from Duke University’s Fuqua School of Business. We are actively interviewing candidates and hope to add the following hires over the next 6-12 months: Qualitative Investment Analyst to Hong Kong office Junior Operations Analyst 7 ABS Investment Management
  9. 9. ABS Organizational Chart Management Committee* Client Service and Risk Management Portfolio Management and Research Operations Business Development Michael Halper, David Finn, Mark Murphy, Sean White, CFA Alain De Coster* CFA CPA CFA Ioanna Laurence Russian*, Donald Leung, Frank Docimo, Christian Thorn Chatzistamatiou CFA CFA (Hong Kong) CPA Guilherme Valle*, Omar Yacoub Dayana Ovalle Amber Johnston CFA Alison Hill, Jeff Alleva Greg Moroney Office Manager Investment analysts speak eight languages: Cantonese, Dutch, English, French, Greek, Mandarin, Portuguese, & Spanish 8 ABS Investment Management
  10. 10. 2008 Industry Review
  11. 11. Challenges Faced by Hedge Funds in 2008 Government Intervention Ineffective regulations and bailouts, such as short selling bans and direct cash infusions to the finance, insurance, and auto industries creates tremendous market volatility Redemptions & Deleveraging The hedge fund community has its first bout with negative performance and substantial net outflows, forcing managers to sell longs and cover shorts at the worst time Common Holdings With a large number of new managers and increased AUM over the past 5 years, “unique” ideas become widely held among hedge funds Liquidity Issues Credit securities become illiquid and cause multi strategy hedge funds to liquidate equity positions, impose gates, side pockets, and freeze redemptions 10 ABS Investment Management
  12. 12. Unprecedented Government Interventions Credit crisis forces unprecedented government intervention Interest Rate Cuts Expanded FDIC Short Selling Insurance for Restrictions US Deposit Accounts Actions Decrease Systemic Risk Engineered Nationalization Mergers for of Financial Troubled Institutions Banks Purchase of Direct Equity Troubled Investments Mortgage in Banks by Assets by US Governments Government However, government actions fail to ease investor nerves, and the resulting uncertainty creates massive volatility, sector rotation, and further deleveraging 11 ABS Investment Management
  13. 13. Impact of Interventions: Volatility With government equity infusions, loan guarantees, and short selling restrictions, volatility spikes significantly in the second half of 2008: Dramatic Increase in Market Volatility 9.0% 60-Day Trailing Volatility 8.0% Daily volatility of financials rises w ell 7.0% above levels in 1998, 2000, and 2002 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 S&P 500 Index S&P Financials Index Since Sept 1 (4 months), the S&P 500 experiences 35 intra-day moves over 5%. From January 1998 to August 2008 (10+ years), there were a total of just 16 intra-day moves over 5%, and none during the past five years (2003-2007). 12 ABS Investment Management
  14. 14. Deleveraging and Sector Rotation Heightened volatility leads to a reduction in overall exposure by equity long/short funds, as managers reduce exposure and position concentration Redemptions during the second half of 2008 force even the best-performing funds to sell/cover positions in order to pay investors Deleveraging puts pressure on commonly-held long positions and heavily shorted stocks, as evidenced by the massive sector rotation in financial versus non- financial stocks from the second to third quarter: Common Long Sectors Q2 Q3 Financial-Related Shorts Q2 Q3 Metals & Mining 6.52% -44.55% Autos -21.51% 0.06% Oil & Gas Services 24.98% -35.56% Banks & Thrifts -26.36% 16.48% Steel 7.01% -44.84% Bond Insurers -61.49% 72.92% Technology 1.16% -16.84% Homebuilders -23.96% 18.92% Sector rotation is exacerbated by the global ban on short selling, as stocks on the SEC’s restricted list rallied +23.6% in the two days following the ban (Sept 18th & 19th), while the S&P 500 gained just +8.5%. *Sector and Industry index information sourced from Bloomberg. Bloomberg Tickers include: Metals & Mining – BWMING, Oil & Gas Services – BWOILS, Steel – BWIRON, Technology – MXWD0IT, Auto Manufacturers – S15AUTO, Banks & Thrifts – BKX, Bond Insurers – Simple Average of (DEXB BB, MBI, ABK), Homebuilders – SPSIHO. 13 ABS Investment Management
  15. 15. Why Equity Long/Short in 2009? Equity long/short portfolios are well-positioned for 2009 due to a handful of factors: 1. Fewer Players: reduction in the number of hedge funds will ease the “herding” into common long and short positions 2. Quality Upgrade: formerly hard-closed funds re-opened due to redemptions 3. Lower AUM: managers who grew too large will regain portfolio flexibility, especially on the short side 4. Market Dislocations: extreme volatility without regard for underlying fundamentals create compelling opportunities long and short Equity long/short funds should be able to generate strong returns on capital without high levels of market exposure or position concentration 14 ABS Investment Management
  16. 16. 2008 ABS Global Portfolio Review
  17. 17. Interventions Hurt Long/Short Strategies Three months with substantial government-induced volatility were particularly negative for ABS portfolios (combined loss of -14.7% for ABS Global): 1. January: Funds cut long positions as January Peak to trough Recovery Jan Return markets sell off aggressively in the 1st half of Consumer -13.21% +7.57% -6.64% the month, then rally during the final week Financials -14.80% +8.82% -7.28% fueled by surprise Fed cuts of 125 basis points Technology -15.56% +4.47% -11.79% ABS Global: -4.85% Energy -16.46% +5.11% -12.20% MSCI AC World: -8.26% 2. March: Market declines again, forcing managers to reduce long positions, but the March Average Performance Bear Stearns bailout leads to a massive rally in Heavily-Owned Longs* -5.5% heavily-shorted financial stocks, forcing High Short Interest Shorts* +4.0% managers to cover shorts and reduce exposure, resulting in another whipsaw ABS Global: -3.40% MSCI AC World: -1.73% Huge Volatility Forces Short Covering in Sept 5% 3. September: Lehman’s bankruptcy, short 0% selling bans, and direct government -5% interventions contribute to record levels of -10% volatility and deleveraging -15% ABS Global: -7.20% -20% Restricted Shorts Rally 23% in 2 Days MSCI AC World: -12.73% 9/2 9/4 9/6 9/8 9/10 9/12 9/14 9/16 9/18 9/20 9/22 9/24 9/26 9/28 9/30 *Performance based on data from the Goldman Sachs Hedge Fund Trend Monitor 16 ABS Investment Management
  18. 18. ABS Global Portfolio Performance and Exposure ABS Global Cumulative Performance Since Inception ABS Global Exposure Chart 140% 160% 120% 140% 100% 120% 80% 100% 60% 80% 40% 60% 20% 40% 0% 20% MSCI AC World ABS Global A -20% 0% Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 GROSS NET LONG SHORT Data Through: 1-Year 3-Year 5-Year December-08 ABS Global MSCI AC World ABS Global MSCI AC World ABS Global MSCI AC World Cumulative Return -18.89% -43.56% 9.50% -26.49% 28.75% -9.36% Annualized Return -18.89% -43.56% 3.07% -9.75% 5.18% -1.95% Annnualized Volatility 10.07% 24.89% 9.59% 18.20% 8.56% 15.23% *ABS Global Portfolio performance return data net of 1% management fee and 5% incentive fee charged to class B shares. December performance is an estimate. 17 ABS Investment Management
  19. 19. Return Attribution: by Exposure Bias As shown below, long biased funds suffered the largest losses, as the majority of the world’s equity markets experienced their worst year since the 1930s Flexible funds perform well during the first half of the year, but the dramatic sector rotation during the third quarter had a significant negative impact Low exposure funds felt the pain of hedge fund deleveraging, especially in the healthcare and commodity-related sectors Gross Return by Exposure Bias Portfolio Contribution by Exposure Bias 5% 2% 2.1% 1.1% 0% 0% -5% -0.7% -0.6% -2% -1.4% -10% -7.8% -8.3% -9.5% -4% -3.3% -10.9% -12.7% -15% -6% -17.0% -6.0% -20% -7.0% -8% -25% -23.7% -8.0% -10% -30% -29.7% -12% -11.0% -35% 1st Half 2nd Half 2008 Total 1st Half 2nd Half 2008 Total Long-Bias Flexible-Bias Low Exposure Long-Bias Flexible-Bias Low Exposure *Attribution data presented gross of ABS fees but net of underlying fund fees. December performance based on estimates. 18 ABS Investment Management
  20. 20. Return Attribution: by Strategy Asian and European strategies were the primary drivers of negative attribution during the first half of 2008, as managers began the year with high levels of net exposure The third quarter’s sector rotation systematically took down all risky assets, resulting in losses for nearly all strategies September and October’s volatility and deleveraging cause substantial losses for US-focused strategies during the second half Portfolio Contribution by Strategy 1% 0% -1% -2% -3% -4% 1st Half 2nd Half 2008 Total -5% UK Equity US Equity Europe Financials TMT Europe Life EMEA Canadian Global Special US Small Global Asia L/S L/S Small Cap Equity L/S Equity L/S Equity L/S Sciences Equity L/S Emerging Situations Cap Equity Equity L/S Equity L/S Equity L/S Equity L/S Markets L/S *Attribution data presented gross of ABS fees but net of underlying fund fees. December performance based on estimates. 19 ABS Investment Management
  21. 21. ABS Global in 2009 The portfolio currently has the following characteristics: Exposure: Low gross and net exposure Style: Larger allocation to funds with a flexible portfolio management style Structure: High concentration in managers that have demonstrated ability to add value long AND short In addition to our normal research activities, our due diligence teams will focus on the following areas in 2009: Qualitative: Review high quality funds who have previously been closed Quantitative: Push for additional transparency from all underlying managers Operational: Scrutinize valuation policies and procedures of our underlying funds 20 ABS Investment Management
  22. 22. Conclusion Why Equity Long/Short? Using equity long/short as an equity replacement has consistently proven to be a successful way to invest in the equity markets Due to low leverage, high liquidity, exchange-traded securities, and substantial transparency, equity long/short strategies once again survive a major market upheaval Why Equity Long/Short Now? Fewer players and less AUM coupled with the best opportunity set in recent history (due to major stock and sector dislocations) Equity long/short funds should be able to generate strong returns on capital without high levels of market exposure or position concentration Why ABS? Principals working together and investing globally since 1994 Equity long/short specialization for more than a decade Independent firm focused on performance and personalized client service 21 ABS Investment Management
  23. 23. Disclosure Information This presentation is for discussion purposes only and has been prepared solely as a preliminary document to determine investor interest in ABS Offshore SPC (the “Fund”). The ABS Global Portfolio’s official name is ABS Offshore SPC Global Segregated Portfolio. Performance data provided for the Global Portfolio includes unaudited information for 2008 and an estimate for December 2008. This presentation shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified investor receives a final confidential private offering memorandum (the “Fund Documents”) describing the Fund. In the event of any inconsistency between this presentation and the Fund Documents, the Fund Documents will govern. This presentation is strictly confidential and is not to be provided to any person without the approval of ABS Investment Management LLC. An investment in the Fund will involve significant risks, including the risk of loss of the amount invested. Although benchmarks used in this presentation have been gathered using public and private sources and data we believe to be reliable, we make no representations as to their accuracy or completeness. The MSCI All Country World Equity Index (excluding dividends) is based in USD, symbol MXWD; it is not the Global Portfolio’s benchmark and is being provided as we believe it provides a similar geographic exposure to how the Global Portfolio’s underlying managers may invest. In considering the prior performance information contained herein, prospective investors should bear in mind that past performance is no guarantee of future results and there can be no assurance that the Fund will achieve comparable results. There can be no assurance that any targeted returns contained in this presentation can be realized or that actual results will not be materially lower than those targeted. 22 ABS Investment Management

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