Emerging Market Rates Strategy
April 2010




This document is confidential and intended solely for the use of the person ...
Emerging Market Rates Strategy
Performance from 1 Nov 2004 to 30 Mar 2010




                                            ...
Emerging Markets Rates Strategy
Overview




     ●     Actively invests in emerging market bonds and FX, seeking to deliv...
Emerging Market Rates Strategy
Key characteristics




                                                  To produce absolu...
Emerging Market Rates
Investment team manages over USD2.8 billion in assets




                                          ...
Investment Approach




This document is confidential and intended solely for the use of the person to whom it is given or...
Emerging Market Rates Strategy
Investment approach




  ●   Harness information advantage of a combined 25+ years' emergi...
Investment process
Top-down, thematic process with fundamentals at its core




   Step 1             Activity/description...
Step 1: Crisis cycle filter
Certain indicators can systematically identify turning points in economic cycles




    ●   A...
Step 1: Crisis cycle filter
Example: Russian positioning and the crisis indicators in the 2008 credit crisis




    ●    ...
Step 1: Crisis cycle filter
Example: Russian positioning and the crisis indicators in the 2008 credit crisis (cont.)



  ...
Step 2: Macro market backdrop
Emerging markets must be viewed in context of global market dynamics



                    ...
Step 2: Macro market backdrop
Example: From global views to local themes – Q1 2010




     Global Theme                  ...
Step 3: Country analysis
Drivers of emerging market currency and fixed income performance vary over time




             ...
Step 4: Portfolio construction
Seeking to capture high-conviction opportunities in a low-correlation portfolio




    ●  ...
Step 5: Risk management and monitoring
Integral part of investment process; actively managed at several levels



        ...
Positioning and Outlook




This document is confidential and intended solely for the use of the person to whom it is give...
Market outlook – Q1 2010
Loose money plus superior growth have always been beneficial for EM asset prices and currencies

...
Emerging Market Rates Strategy
 Current positioning as at 28 February 2010




     ●    Long a basket of select high-yiel...
Emerging Market Rates Strategy
Bond and currency breakdown as a % of fund NAV as at 28 Feb 2010



   Brazilian Real
     ...
Emerging Market Rates Strategy - USD
Regional, sector and credit breakdown as a % of fund NAV at 28 Feb 2010




    ●    ...
Emerging Market Rates Strategy - USD
Maturity and risk as a % of fund NAV as at 28 February 2010




    Maturity Breakdow...
Debt: The one great certainty




  ●     One issue will dominate the global economy for the next decade
  ●     Emerging ...
Emerging Markets score well on debt sustainability
Public debt and fiscal deficit 2009 as a % of GDP




                 ...
Banking crises make all the difference


                                                                         Loan/Dep...
Emerging market growth prospects look good in 2010
GDP growth estimates 2010




            %                          ● ...
High weight of food in emerging market CPIs
Food weight in emerging market CPIs




            %
      70                ...
Watch credit growth for Emerging Market inflation alert




                       35


                       30


      ...
Why GAM for Emerging Market Rates?




 ●   Highly experienced emerging market debt managers
       – Structured and repea...
Appendix




This document is confidential and intended solely for the use of the person to whom it is given or sent
and m...
Emerging Market Rates Strategy
Performance from 1 Nov 2004 to 30 Mar 2010




                                            ...
Emerging Market Rates Strategy
Performance history to 30 Mar 2010




                                                    ...
Emerging Market Rates Strategy
Compound annual growth rates as at 30 Mar 2010




                          32.33

       ...
Emerging Market Rates Strategy - USD
Performance since inception to 28 Feb 2010




                              Jan     ...
Managing Emerging Market Fixed Income during the credit crunch




     ●    Tight control of liquidity and gearing
     ●...
About GAM’s Fixed Income capabilities
Expertise across the full spectrum of fixed income sectors



                      ...
GAM / Augustus corporate history
Timeline of important developments




             Fixed income
                  team  ...
Paul McNamara




 Investment Director
 Paul McNamara is an Investment Director and lead manager on of the emerging market...
Caroline Gorman




  Investment Manager
  Caroline Gorman is an Investment Manager and co-manager of the emerging markets...
Denise Prime




  Investment Manager
  Denise joined Augustus Asset Managers in April 2010 from Rogge Global Partners, wh...
Robert Champion




 Dealer
 Robert Champion is a Dealer at GAM where he provides dealing support to a number of
 investme...
GAM Risk Management Team
Independent, regular oversight of risk




●    GAM Risk Team provides reporting and risk oversig...
Disclaimer


 Source: GAM unless otherwise stated. (Unless otherwise noted, where shown, performance is shown net of fees,...
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Gam emerging market rates strategy - citywire vienna 2010

  1. 1. Emerging Market Rates Strategy April 2010 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. 2. Emerging Market Rates Strategy Performance from 1 Nov 2004 to 30 Mar 2010 Compound Annualised Growth Standard % p.a. Deviation 100 % Emerging Market 14.53 8.25 Rates Strategy - USD 80 % Compound 3-Month 3.42 0.52 Libor in USD 60 % Some funds following the Emerging Market Rates Strategy have certain claims against Lehman Brothers International (Europe) Limited. These claims, which amounted to 22.1% of the relevant assets as at 1 December 2008, were segregated into special class shares. Performance of these shares is excluded from 40 % performance information otherwise provided for said funds. Performance of the special class shares of the funds from 1 December 2008 to 30 March 2010 is -95.9%. 20 % 0% Emerging Market Rates Strategy - USD Compound 3-Month Libor in USD 2005 2006 2007 2008 2009 FOR ILLUSTRATIVE PURPOSES ONLY Source: GAM, Thomson Reuters 2 Past performance is not indicative of future performance. Performance is provided net of fees.
  3. 3. Emerging Markets Rates Strategy Overview ● Actively invests in emerging market bonds and FX, seeking to deliver consistent absolute returns via: – Country selection – Active currency management – Views on interest rates and duration – Robust credit selection ● Top-down, conviction investors with a focus on anticipating the changing drivers of emerging markets – Seek to profit from understanding the ‘crisis cycle’ – Actively manage risk at portfolio, country and position level – Emphasis on maintaining liquidity: can unwind majority of portfolio in <3 days with minimal price impact ● Balance meaningful position sizes with diversification – Typically 30 – 40 positions across 8 – 12 investment ideas – Capture both strategic and tactical opportunities ● Sophisticated, unconstrained strategy developed over more than a decade of emerging market debt investing Holdings and allocations subject to change. 3
  4. 4. Emerging Market Rates Strategy Key characteristics To produce absolute returns of approximately 10% over LIBOR pa regardless of Return objective market conditions Manager Paul McNamara and Caroline Gorman Investment style Top-down, macro driven approach focused on value-based opportunities Local and hard currency denominated sovereign and quasi-sovereign bonds and Instruments related derivatives (eg interest rate swaps, CDS etc) Currencies and their related derivatives Risk objective Typical monthly VaR of 6 – 8% (99% confidence) Source: GAM 4 There is no guarantee that targets will be achieved.
  5. 5. Emerging Market Rates Investment team manages over USD2.8 billion in assets Paul McNamara Investment Director – 12 years’ investment experience – Holds a Masters degree in Economics from the London School of Economics – CFA charterholder Caroline Gorman Denise Prime Robert Champion Investment Manager Investment Manager Dealer – 11 years’ financial experience – 13 years’ financial – Provides support and – Holds an MSc in Investment experience execution for bonds and Management from the Cass – Holds a CFA charterholder currencies Business School in London and a BA in Economics from Bryn Mawr College, PA, USA Source GAM 5 Assets under management as at 31 Dec 2009. Team experience as at 31 March 2010.
  6. 6. Investment Approach 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.
  7. 7. Emerging Market Rates Strategy Investment approach ● Harness information advantage of a combined 25+ years' emerging market debt and FX investing – A comprehensive, top-down, macroeconomic approach is required to understand what drives emerging markets – Certain common indicators exist that can systematically identify crisis cycles ● Fundamental, value-based approach instils discipline – Focus on trade-off of upside vs downside potential – Maximise capture of price movements within each market – Willing to take directional stance in ‘recovery stories’ eg Turkey 2003, Russia 2009 ● Active approach to risk management – Extensive use of scenario testing – Liquidity a key consideration in instrument selection – Coherent, logical limits in portfolio construction – Clear upside and downside expectations on each position 7
  8. 8. Investment process Top-down, thematic process with fundamentals at its core Step 1 Activity/description Outcome ‘Crisis cycle' ● Identify ‘recovery’ countries entering significant growth phase Clear view of countries filter nearing inflection points ● Identify ‘crisis’ markets at risk of violent devaluation/default Step 2 Macro market ● Assess global economic environment to search for key uncertainties ~8 – 12 investment backdrop ● Understand emerging market growth, capital flows and financial conditions ideas Step 3 Country analysis ● Capture current economic indicators in each country Set of realisable ● Assess where investment ideas and economic conditions come together investment opportunities Step 4 ● Identify structural and tactical trades Portfolio ● Select instruments that are purest expression of views Portfolio of 30 – 40 construction positions ● Size and time trades based primarily on technical analysis Step 5 Risk management ● Monitor market developments, position level and portfolio level risk Portfolio and monitoring rebalancing ● Conduct regular stress-testing and monitoring with GAM Risk Team 8
  9. 9. Step 1: Crisis cycle filter Certain indicators can systematically identify turning points in economic cycles ● Apply ‘crisis filter’ to highlight countries at extremes of economic cycle – Developed and tested over more than a decade – Scores each country based on nine economic drivers – Focused on complex areas (eg public and private sector debt crises, inflationary episodes, policy mismanagement etc.) – Identifies economies approaching inflection points ● 'Recovery countries' become focus for long investment opportunities – Score less than three ‘negatives’ – Expected to have healthier, stable economies – May signal turning point to recovery for defaulted countries ● 'Crisis countries' become focus for short investment opportunities – Score five or more 'negatives’ – Signals significant potential for violent devaluation or default Source: GAM 9
  10. 10. Step 1: Crisis cycle filter Example: Russian positioning and the crisis indicators in the 2008 credit crisis ● Apply ‘crisis filter’ to highlight countries at extremes of Russia Aug 08 Mar 09 economic cycle Falling foreign exchange X – Developed and tested over more than a decade reserves – Scores each country based on nine economic drivers Falling ratio of FX reserves to X – Focused on complex areas (eg public and private sector debt broad money crises, inflationary episodes, policy mismanagement etc.) Zero or negative real interest X – Identifies economies approaching inflection points rates ● 'Recovery countries' become focus for long investment X Rapidly rising inflation opportunities – Score less than three ‘negatives’ Rapid rise in Credit/GDP ratio X – Expected to have healthier, stable economies High and rising current – May signal turning point to recovery for defaulted countries account/exports of goods and ● 'Crisis countries' become focus for short investment opportunities services – Score five or more 'negatives’ Uncompetitive exchange rate X – Signals significant potential for violent devaluation or default (Qualitative) Vulnerable X X banking sector (Qualitative) Rapid X deterioration in fiscal Source: GAM 10
  11. 11. Step 1: Crisis cycle filter Example: Russian positioning and the crisis indicators in the 2008 credit crisis (cont.) August 2008: Take short position via FX ● Real interest rates becoming more negative Ruble basket* through the crisis – Measured by 3m Mosprime – 2009 CPI forecast ● From August 2008 reserves begin to fall 43 – Ratio of reserves to broad money also begins to fall Go long Russia ● Banking system vulnerable to shocks 41 – Fitch’s Banking System Indicator of ‘D’ is second worst 39 category – Tighter liquidity position of the corporate sector 37 threatening asset quality Go short Russia – Credit facilities secured by shares proving to be a 35 threat to system stability ● Rapidly rising inflation: from 9.4% in Sept 2007, to 15% in Sept 33 ● Two months of reserves stability after 2008 sharp USD200bn fall between August March 2009: Take long position via bond and FX purchases 31 2008 and January 2009 ● Real rates turned sharply positive ● Ruble banking sector deposits stabilised – Peaked close to 20% in January 2009 29 in February 2009 after the stabilisation of ● Ruble had depreciated ~30% in basket terms since the team the exchange rate squared its position 27 – Brought the exchange rate to a more competitive/ 25 appropriate level after the commodity-driven collapse in Russia’s terms Jun 08 Sept 08 Dec 08 Mar 09 Jun 09 Sept 09 of trade Source: Bloomberg and GAM. 11 * Ruble basket is calculated as a sum of 0.55 USD/RUB and 0.45 EUR/RUB. Example based on actual investment decisions taken by the investment team in the GAM Emerging Market Hedge fund during 2008. As of Oct 2009
  12. 12. Step 2: Macro market backdrop Emerging markets must be viewed in context of global market dynamics Portfolio Sector Specialists Traders ● Develop global macro views on what drives asset prices Managers (Years investment experience) within the global financial system – Use focused approach because whole system is too Long Only Investment Government Investment Long Only and complicated to model in its entirety and Absolute Manager Bonds and Grade and Absolute Return Fixed Interest Rates Structured Return ● Leverage wider investment team of 11 other fixed income Income Credit sector specialists Fixed Income Tim Haywood Daniel Sheard Philip Mann (22) Darren Reece – Average 14 years’ investment experience (26) Chris Jarman (3) (22) (23) Tom O’Shea – Specialisations across full range of bond and (16) Haroon currency markets Shaikh (2) – Formal and informal discussions generate and test ideas Global Foreign High Yield Convertibles Global ● Emerging markets team use global macro views to Macro and Exchange Bonds Rates determine key drivers of emerging market behaviour Foreign and Foreign Exchange – Define best variables to monitor emerging markets Exchange in current environment Adrian Mark Dragten Johannes Ben Helm (13) Clare – Set expectations for capital flows, growth and Owens (22) (10) Wagner (14) Alex McKnight financial conditions over the medium term Hepburn (15) (13) ● Results in 8 – 12 key investment ideas with greatest influence in near and medium-term Emerging Emerging Emerging Emerging Market Debt Market Debt Market Debt Market and Foreign and Foreign and Foreign Debt and Exchange Exchange Exchange Foreign Exchange Paul Caroline Denise Prime Robert McNamara Gorman (12) (13) Champion (14) (13) Source: GAM as at 28 February 2010 12 12
  13. 13. Step 2: Macro market backdrop Example: From global views to local themes – Q1 2010 Global Theme Emerging Market Opportunity Continuing difference between cyclical slowdowns ● Capital flows to stronger-growth countries – (countries with healthy financial systems) and much which are overwhelmingly emerging deeper balance-sheet recessions Concerns about sustainability of government balance ● Emerging market allocations from global sheets in the developed world (PIIGS and beyond) investors likely to be bigger on a diversification/flight to quality basis Absence of inflationary pressure ● Loose monetary policy everywhere, but especially in the developed world Systematic analysis of emerging market economies – ● Long emerging market currencies versus and emerging market versus developed relationships majors ● Identifying “growth” currencies as relatively closed economies ● Long front-end of yield curves Source: GAM as at March 2010 13
  14. 14. Step 3: Country analysis Drivers of emerging market currency and fixed income performance vary over time Example: Market driver matrix ● Experience enables managers to understand what is driving each market at a certain point in time ● Apply proprietary 'market driver matrix' tool – Captures 14 current and forecast economic indicators – Highlights global influences, systematic factors (eg commodity prices) and purely idiosyncratic local factors for each market ● Analyse matrix with particular sensitivity to – Global risk appetite – Domestic liquidity – Forecast revisions in certain variables ● Outcomes of analysis: – Testing, validation and evolution of investment ideas – Identification of specific markets best positioned to play them out ● Results in well-defined set of realisable investment opportunities Source: GAM 14
  15. 15. Step 4: Portfolio construction Seeking to capture high-conviction opportunities in a low-correlation portfolio ● Portfolio balances opportunities over different time horizons: ● Structural trades: typically >80% of assets ● Tactical trades: typically <20% of assets – Fundamentally-driven trades, seriously mispriced – Driven more by technical factors – Sizeable positions in highest conviction ideas – Exploit temporary pricing anomalies – Can last for months – Depend heavily on liquidity – Typically last weeks or even days ● Choose instruments that provide good liquidity and allow purest expression of views on: – Currency: Exchange traded currency futures and forwards – Rates/duration: Interest rate swaps – Credit: Credit default swaps and occasional exposure to corporate credits – All of the above: Government and quasi-government bonds ● Time entry and exit of positions using – A range of technical analyses – Identification of catalysts and timeframes for realisation ● Results in medium-diversified portfolio 30 – 40 positions across the 8 – 12 themes Source: GAM 15
  16. 16. Step 5: Risk management and monitoring Integral part of investment process; actively managed at several levels RiskMetrics reports ● Scenario analysis carried out pre and post implementation of positions ● Investment managers constantly monitor the portfolio – Clear target valuations and stop-losses on each position – Update tools and expectations with new information – Monitor correlation between positions – Review daily RiskMetrics reports ● Additional oversight from independent GAM Risk Team – Reports directly to GAM’s Group COO Example: Portfolio stress-testing – Conduct weekly, in-depth performance and risk reviews – Meet weekly with portfolio managers to discuss RiskMetrics reports ● Actively manage costs and market, credit, counterparty, liquidity and legal risks – Strong preference for markets with guaranteed liquidity via primary dealer system ● Liquidity Source: GAM 16
  17. 17. Positioning and Outlook 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.
  18. 18. Market outlook – Q1 2010 Loose money plus superior growth have always been beneficial for EM asset prices and currencies ● The developed world is sentenced to a long spell of sub-trend GDP, debt repayment, balance sheet repair and private-sector saving – Capacity of governments to offset this is limited – Monetary policy is going to remain loose in the financially-stressed world – Developed and European emerging – for a very long time ● Emerging markets are coming out of a conventional rather than a balance-sheet recession – Recovery will be faster and more complete – Growth differentials will approach historical records ● Loose money plus superior growth have always been beneficial for emerging market asset prices and currencies – Huge gains already occurred from post-Lehman bounce, but emerging markets still a good place to invest ● Discussion of an emerging market ‘bubble’ looks premature – Neither valuations nor multiples are at historic highs – Only performance versus developed markets is at historic extremes, which is entirely justified given their excellent economic outlook ● Emerging markets have the growth, the yield and the potential – While the easy money has been largely made, and some positions are crowded, the expectation is for superior returns Source: GAM 18 The views expressed are those of the manager at the time of publication and are subject to change. These views are aimed to help readers in understanding the Fund manager's investment process and should not be construed as investment advice.
  19. 19. Emerging Market Rates Strategy Current positioning as at 28 February 2010 ● Long a basket of select high-yielding sovereigns and corporates in US Dollars – Vietnam PDI, PDVSA (Venezuelan oil), Halyk Bank (Kazakhstan), Republic of Iraq – Long Brazil and Romania bonds ● Long interest rates in Brazil ● Long Turkish Lira vs US Dollar ● Small positions in local currency ‘special situations’ (BTAS in PLN, BCCRD in KZT, Russian Railways in RUB) ● Long US Dollar vs Russian Ruble (Weakest “BRIC” – good risk-reward) ● Long Mexican Peso vs US dollar – technical trade picking on technically-weak short positions ● Long high growth EM currencies, Indonesian rupiah, Indian rupee ● Short at-risk developed markets vs EM ie – Short euro versus Mexican peso – Short UK pound versus Swedish krona (proxy for Baltic recovery) ● Greece and Portugal CDS protection on Eurozone concerns Source: GAM 19 Holdings and allocations subject to change. As GAM Star Emerging Market Rates is not yet launched, the chart above shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the same investment process and is shown for illustrative purposes only .
  20. 20. Emerging Market Rates Strategy Bond and currency breakdown as a % of fund NAV as at 28 Feb 2010 Brazilian Real ● The funds following the Swedish Kronor strategy are also running a South African Rand short interest-rates trade in Mexican Peso India ($4000 dv01), and long Indonesian Rupiah Greece ($3700 dv01) and New Romanian Leu Portugal ($2000 dv01) CDS Russian Rouble protection positions Kazakhstan Tenge Argentinian Peso ● The funds following the Chinese Renmimbi strategy hold USD Indian Rupee denominated credit worth 40% Polish Zloty of NAV, and total of 86% of NAV Venezuela Columbian Peso ● The funds following the Ukraine Hryvnia strategy hold unencumbered Iraq cash (net of margin posted vs Nigeria FX and OTC) of 22% of NAV Vietnam Azerbaijan Hungarian Forint USD denominated bonds New Turkish Lira Local currency bonds Sterling EURO FX forwards -50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 Source: Bloomberg; GAM 20 Allocations and holdings are subject to change. The chart above shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the indicated investment process and is shown for illustrative purposes only. Latest data available at time of production.
  21. 21. Emerging Market Rates Strategy - USD Regional, sector and credit breakdown as a % of fund NAV at 28 Feb 2010 ● Our expertise is macro – rather than bottom-up credit ● Primary judgement was that credit markets had overshot – choices therefore 1) macro 2) low-rated Geography Sector Credit Quality Central and Sovereigns 48.7 A 2.5 Eastern 44.0 Europe BBB 42.7 Majority 22.5 Latin America 33.1 state-owned BB 12.6 Strategic 5.6 B 21.2 Asia 4.7 System Banks 5.0 Defaulted 4.6 Middle East 4.5 and Africa Distressed 4.6 Not Rated 2.8 0 10 20 30 40 50 0 10 20 30 40 50 60 0 10 20 30 40 50 Source: GAM 21 Allocations and holdings are subject to change. The chart above shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the indicated investment process and is shown for illustrative purposes only. Latest data available at time of production.
  22. 22. Emerging Market Rates Strategy - USD Maturity and risk as a % of fund NAV as at 28 February 2010 Maturity Breakdown Risk type Breakdown 15Y+ Volatility 7Y - 15Y Equity Risk 3Y - 7Y IR Credit 18M - 3Y IR Mkt and Credit 6M - 18M IR Market 0 - 6M FX Risk 0.0% 0.5% 1.0% 1.5% 2.0% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Source: GAM 22 Note: figures are expressed as VaR / Fund NAV using 97.5% confidence interval per 1month. The chart above shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the indicated investment process and is shown for illustrative purposes only. Latest data available at time of production.
  23. 23. Debt: The one great certainty ● One issue will dominate the global economy for the next decade ● Emerging Markets are the right way round on this Source: IMF, Fiscal Implications of the Global Economic and Financial Crisis Staff Position paper 23
  24. 24. Emerging Markets score well on debt sustainability Public debt and fiscal deficit 2009 as a % of GDP Public debt/GDP (%) 0 20 40 60 80 100 120 0 Indonesia Mexico Argentina -2 China Colombia Fiscal deficit/GDP (%) Chile Brazil Hungary -4 Korea Venezuela Ukraine Philippines Italy Israel Vietnam Turkey -6 Nigeria Poland Czech Russia -8 Romania South Malaysia Africa Portugal -10 Spain India UK -12 US Greece Ireland ● Few emerging market countries in the ‘bad corner’ -14 Source: European Commission, IMF, Credit Suisse, Romanian Ministry of Finance 24
  25. 25. Banking crises make all the difference Loan/Deposit ratio “We find that banking crises almost invariably lead to sharp Estonia declines in tax revenues as well significant increases in Lithuania government spending … On average, government debt rises Kazakhstan by 86 percent during the three years following a banking Ukraine crisis. These indirect fiscal consequences are thus an order Latvia of magnitude larger than the usual bank bailout costs that Russia Korea are the centrepiece of most previous studies.” Romania Banking Crises: An Equal Opportunity Menace, Reinhart and Hungary Rogoff 2008 Bulgaria South Africa ● Central Europe enjoyed a boom which had many of the Thailand features of the Anglo-Saxon loan bubble financed by Colombia Western European banks. Eastern Europe went through a Indonesia slightly different process, where foreign flows were Peru intermediated by domestic banks. Brazil Mexico ● While the numbers are frightening ($4.7 trn globally, $1.7trn Poland in the European time zone, 80% European-financed), the Slovakia detail is less so. Turkey Hong Kong ● Crucially beyond the region, only South Korea has had Singapore anything remotely resembling the banking crisis of the west. Taiwan Czech Republic ● Emerging Markets also came into the crisis with much Malaysia healthier public balance sheets to start with. So they have Japan more resources to face what is on balance a smaller India problem. Philippines China 0 50 100 150 200 Source: GAM, ING 25
  26. 26. Emerging market growth prospects look good in 2010 GDP growth estimates 2010 % ● Emerging markets have much stronger growth prospects than 10 the developed world 9 ● They have come through the credit crisis relatively unscathed 8 ● This is reflected in their growth prospects for 2010 7 6 5 4 3 2 1 0 ge s ne bia M sia H nia ep a R ela ea Ko a In nam C and ze t h A e M a ry Vi ria Po ic R o ro n ilip y a Tu le Ar ine na a U el a N il c S K si in u ain Ph rke ic si Eu pa az di re ga l fri hi ra ar Ve om ub U ne U e a zu ay hi nt ex us p In l ig C om Br Ja Is So kr et un C do al ol R ch C Source: Credit Suisse, IMF 26
  27. 27. High weight of food in emerging market CPIs Food weight in emerging market CPIs % 70 ● Food price inflation still largely an isolated phenomenon, not the inflation threat it was in 2008 60 50 40 30 20 10 0 UK US Po a l M ina Cz outh azil ey za bia Uk ia lo a In ssia M d ico ilip e ia y Bu nd sia a Th nia ea Ro ia Eu rae an Ru s Re ca di Hu lic Co ati ar n Ph ain bi ne r ar s rk ge la la ar In h Afri st Ch ex Ka er ay ne a b m ng Br Is o lg pi Tu r ai m pu kh Cr S Ni ro al do S ec Source: GAM, Credit Suisse, Santander, Eurostat, US Dept of Labor, UK ONS – basket weightings from 2007 27
  28. 28. Watch credit growth for Emerging Market inflation alert 35 30 25 Loan growth (%y/y) 20 15 10 5 0 Dec 2009* -5 End Dec 2007 China Brazil India Indonesia Malaysia Poland Singapore Czech Hong Chile Mexico South Hungary Republic Kong Africa Source: GAM, Bloomberg, central bank websites 28 * Or earlier if Dec 09 unavailable
  29. 29. Why GAM for Emerging Market Rates? ● Highly experienced emerging market debt managers – Structured and repeatable process developed over more than a decade – Backed by the full resources of an established, global fixed income team ● Proven ability to understand and anticipate crisis cycles – Willing to invest early in recovering markets – Anticipate violent defaults and position to profit from them ● Top-down, high conviction style expressed through diversified portfolio – Global emerging markets – Bonds, currency and credit – Structural and tactical opportunities ● Focus on active risk management and maintaining liquidity ● Track record of producing strong, positive absolute returns 29
  30. 30. Appendix 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.
  31. 31. Emerging Market Rates Strategy Performance from 1 Nov 2004 to 30 Mar 2010 Compound Annualised Growth Standard % p.a. Deviation 100 % Emerging Market 14.53 8.25 Rates Strategy - USD 80 % Compound 3-Month 3.42 0.52 Libor in USD 60 % Some funds following the Emerging Market Rates Strategy have certain claims against Lehman Brothers International (Europe) Limited. These claims, which amounted to 22.1% of the relevant assets as at 1 December 2008, were segregated into special class shares. Performance of these shares is excluded from 40 % performance information otherwise provided for said funds. Performance of the special class shares of the funds from 1 December 2008 to 30 March 2010 is -95.9%. 20 % 0% Emerging Market Rates Strategy - USD Compound 3-Month Libor in USD 2005 2006 2007 2008 2009 FOR ILLUSTRATIVE PURPOSES ONLY Source: GAM, Thomson Reuters 31 Past performance is not indicative of future performance. Performance is provided net of fees.
  32. 32. Emerging Market Rates Strategy Performance history to 30 Mar 2010 25.47 25% 20% The funds following the Emerging Market Rates Strategy have certain claims against Lehman Brothers International (Europe) Limited. These claims, which 15% amounted to 22.1% of the relevant assets on 1 December 2008, were segregated into special class shares. Performance of 11.63 11.22 the special class shares is excluded from performance information otherwise 10% provided for the fund. Performance of the 8.21 8.27 USD class shares of the funds following 8.13 the Emerging Market Rates Strategy from 1 December 2008 to 30 March 2010 is 5.52 5.28 5.44 -95.9%. 5% 3.53 3.13 0.38 0.76 Emerging Market Rates Strategy - 0.06 0% USD Compound 3-Month Libor in USD 2004 2005 2006 2007 2008 2009 2010 Since Inception YTD FOR ILLUSTRATIVE PURPOSES ONLY Source: GAM, Thomson Reuters 32 Past performance is not indicative of future performance. Performance is provided net of fees.
  33. 33. Emerging Market Rates Strategy Compound annual growth rates as at 30 Mar 2010 32.33 30% Some funds following the Emerging Market Rates Strategy have certain claims against Lehman 20% Brothers International (Europe) Limited. These claims, which amounted to 22.1% of the relevant 16.90 assets as at 1 December 2008, were segregated 14.53 into special class shares. Performance of these 13.75 shares is excluded from performance information otherwise provided for said funds. Performance of the special class shares of the funds from 1 10% December 2008 to 30 March 2010 is -95.9%. 3.49 3.42 2.66 0.49 Emerging Market Rates Strategy 0% - USD Compound 3-Month Libor in USD 1 Year (Simple) 3 Years 5 Years Since Inception 1 Nov 2004 FOR ILLUSTRATIVE PURPOSES ONLY Source: GAM, Thomson Reuters 33 Past performance is not indicative of future performance. Performance is provided net of fees.
  34. 34. Emerging Market Rates Strategy - USD Performance since inception to 28 Feb 2010 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD NAV 2004 4.36 3.70 8.21 108.21 2005 1.55 4.58 -4.81 0.05 1.66 3.90 3.43 -0.66 1.83 -2.30 1.69 0.53 11.63 120.80 2006 3.04 0.87 -2.82 2.43 -3.27 -1.25 1.26 0.40 -0.54 1.68 1.90 1.93 5.52 127.47 2007 1.20 -1.57 2.70 2.13 2.90 -1.71 -2.30 -2.67 2.31 0.90 3.22 0.97 8.13 137.83 2008 1.06 1.85 0.14 -0.38 1.43 4.64 1.50 1.60 -3.46 -3.19 0.29 2.77 8.27 149.23 2009 0.42 2.33 2.62 3.27 7.71 -2.29 3.25 0.92 3.86 -1.82 -0.13 3.16 25.47 187.23 2010 4.29 3.00 7.42 201.13 Some funds following the Emerging Market Rates Strategy have certain claims against Lehman Brothers International (Europe) Limited. These claims, which amounted to 22.1% of the relevant assets as at 1 December 2008, were segregated into special class shares. Performance of these shares is excluded from performance information otherwise provided for said funds. Performance of the special class shares of the funds from 1 December 2008 to 30 March 2010 is -95.9%. FOR ILLUSTRATIVE PURPOSES ONLY Source: GAM, Thomson Reuters as at 28 Feb 2010. Latest data available at time of production. 34 Past performance is not indicative of future performance. Performance is shown net of fees. The chart above shows the performance of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the indicated investment process and is shown for illustrative purposes only.
  35. 35. Managing Emerging Market Fixed Income during the credit crunch ● Tight control of liquidity and gearing ● Focus becomes a much more nimble, macro-oriented portfolio with relatively high weights to FX trading and a lower than usual emphasis on gearing-heavy relative value ● Markets are in the process of returning to ‘normal’ – ‘Normal’ is likely to look a lot more like 2004 than 2006 ● ‘Rotate into the underperformer’ is a workable strategy in momentum-driven bull markets – Bear markets are characterised by extreme and sustained divergence between stronger and weaker assets and currencies ● Liquidity in all markets much reduced compared with even 15 months, let alone 2 years ago – Trade sizes (dv01, FX notional) should be much smaller for the same target return than in previous periods – Any trade with a price target that is less than 5x the bid-offer on the market can be dismissed out of hand ● Bonds rather than CDS are the preferred method of taking credit exposure – Avoids counterparty and regulatory risk ● Manage market risk using hedges in G7 instruments (FX, Treasury futures) Source: GAM as at 28 Feb 2010. 35 The views expressed are those of the manager at the time of publication and are subject to change. These views are aimed to help readers in understanding the Fund manager's investment process and should not be construed as investment advice.
  36. 36. About GAM’s Fixed Income capabilities Expertise across the full spectrum of fixed income sectors Hedge fund strategies ● More than 25 years experience in specialist fixed income USD 1.1bn – Active, fundamental approach developed by key management team together for over a decade – Capabilities across the traditional and alternatives fixed income spectrum Long only Absolute return ● Manage fixed income assets of USD12.2bn for institutional fixed income fixed income and wholesale clients globally USD 4.4bn USD 6.7bn ● Three core fixed income and currency capabilities: Traditional Absolute Return Sector expertise Global AR bonds – Defender Global rates International AR bonds Currency Core Plus AR bonds - Plus ― Discretionary Local emerging markets ― Quantitative Emerging markets Convertible bonds Source: GAM as at 31 Dec 2009 36 Latest data available. Assets under management are released on a six monthly basis in line with GAM Holding policy.
  37. 37. GAM / Augustus corporate history Timeline of important developments Fixed income team Parent company, established at Launched First single Augustus formed GAM Holding Core Plus Local Emerging Julius Baer manager Absolute following a Limited, Bond Fund Investments long only FI hedge funds Return Bonds management independently strategy launched GAM Limited (JBIL) launched launched buyout listed on SIX acquires Swiss Stock Augustus Exchange 1983 1984 2000 2002 2004 2007 May 2009 Sept 2009 1983 1989 1998 1999 2005 GAM founded by First FoHFs First in-house Acquired by UBS, Acquired by Gilbert de Botton launched SMHF but continues to Julius Baer, but and begins launched operate continues to managing absolute independently operate return strategies independently 37
  38. 38. Paul McNamara Investment Director Paul McNamara is an Investment Director and lead manager on of the emerging markets bonds and FX strategies. Paul joined Augustus (then Julius Baer Investments Limited) in 1997 from Julius Baer Holdings’ Export Credits Guarantee department, where he was an economist. Augustus was established in 2007 as part of a management buyout from Julius Baer, and came under GAM’s ownership in June 2009. Paul began his career as a lecturer at the University of Warsaw. He holds a Masters Degree in Economics from the London School of Economics and is a CFA charterholder. 38
  39. 39. Caroline Gorman Investment Manager Caroline Gorman is an Investment Manager and co-manager of the emerging markets bonds and FX strategies. Caroline joined Augustus (then Julius Baer Investments Limited) in March 2006 from 4Cast Limited (London), where she worked for eight years as an emerging markets analyst. She previously worked as an economist in the Australian Department of the UK Treasury. Augustus was established in 2007 as part of a management buyout from Julius Baer, and came under GAM’s ownership in June 2009. Caroline holds an MSc in Investment Management from the Cass Business School in London, a B.Comm (Hons) from the University of Melbourne and the IMC. 39
  40. 40. Denise Prime Investment Manager Denise joined Augustus Asset Managers in April 2010 from Rogge Global Partners, where she was a EM bond portfolio manager, a role she also held previously at Henderson Global Investors for 4 years. Previous experience includes 4 years as fixed income investment writer at Henderson, 2 years as editor of the Latin American Newsletters and 3 years as associate in JPMorgan’s LatAm DCM and M&A practice. Denise is a CFA charterholder and holds a BA in Economics from Bryn Mawr College, PA, USA 40
  41. 41. Robert Champion Dealer Robert Champion is a Dealer at GAM where he provides dealing support to a number of investment managers as well as executing bond and currency trades and related derivative trades in rates, foreign exchange and credit. Robert joined GAM following its acquisition of the fixed income and foreign exchange specialist, Augustus in May 2009. He joined Augustus (then Julius Baer Investments Limited) from Bear Stearns in 2005, and eight months later joined the trading desk. Robert holds an HND in Business and Finance from Kingston University and the Investment Management Certificate. He is based in London. 41
  42. 42. GAM Risk Management Team Independent, regular oversight of risk ● GAM Risk Team provides reporting and risk oversight on a weekly and monthly basis Group COO ● The Head of Risk and one Risk Analyst meet weekly with each fixed income portfolio manager ● Use RiskMetrics reports to identify and mitigate potential “risk hotspots” Head of Risk ● Functionally independent ● Reporting lines and escalation procedures to Group Chief Operating Officer Senior Risk Analyst Risk Analyst Risk Analyst Source: GAM as of 28 Feb 2010. 42
  43. 43. Disclaimer Source: 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, in whole or in part, to any other person. Nothing contained herein constitutes investment, 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 of information only. Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the relevant fund. Copies of the fund’s prospectus, simplified prospectus and financial statements can be obtained free of charge from GAM Fund Management Limited, George’s Court, 54-62 Townsend Street, Dublin 2. Shares are not available for sale in any state 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 US Investment Company Act of 1940, as amended (the “Company Act”). Accordingly, unless an exemption is available, such shares may not be offered, sold or distributed in the United States or to US persons. However, pursuant to an exemption from registration under the Securities Act and the Company Act, the shares may be sold or resold in the United States or to certain qualified US investors in transactions that do not constitute a public offering. 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 price will depend on fluctuations in financial markets outside GAM's control, as a result an investor may not get back the amount invested. Past performance is not indicative of future performance and reference to a security is not a recommendation to buy or sell that security. Prices quoted refer to accumulation Shares unless otherwise stated. Historic data may be subject to restatement from time to time. This material has been issued and approved by GAM London Ltd, 12 St James's Place, London SW1A 1NX, authorised and regulated by the Financial Services Authority. 43

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