Company Background.

Fund Manager Database

November 2005

About Citywire• Founded 1999 • Reuters owns 25%• Independent • FSA regulated • Actuarially approved data• Non-executive directors

include the Chairman of ITN, Chief Executive of Lipper.

• 54 people

Management Team

• Lawrence Lever: Solicitor

Chairman of Citywire (48)

• David Turner: Editor/publisher of FT

Intermediary Titles (40)

• Richard Lander: Ex Times, Independent, Author, Media Industry Consultant (48)

• George Ball: ex Financial News

Euromoney (40)

Data Resource

• Our own team of multi-lingual data researchers • Fastest growing part of our resource• Proprietary methodology formulated.• Investment of £millions• Jonathan Miller, Head of Research

Business Overview• Fund Manager database covers over 8200

retail fund managers in over 24 countries• Publishing activities: magazines, website,

content licensing to third parties• Citywire Funds Insider, New Model

Adviser, Citywire Courier, Asset Allocation Quarterly, Fund Manager International

• Events – The Citywire Cabinet, Chief Executive and Chief Investment Officer Forums

Philosophy

• Put the investor first and the rewards will follow

• Active fund management from quality managers can deliver the long term returns that we all need

• We support the open architecture trend

Our coverage

• We have introduced Citywire Fund Manager ratings in Germany, France, Switzerland and Austria

• Next year: Italy, Spain, Luxembourg, Asia and the US

• In Germany, Citywire is tracking over 1500 managers running nearly 2000 retail funds

• Publish overseas fund manager data in Fund Manager International

• Free to registering fund selectors• Website: www.citywire-fmi.com

Facts and figures on Fund Manager Moves

• More than half of the individual fund managers who were running retail funds in the UK three years ago are no longer running them now.

• Many of those who are still there after three years have switched jobs

• Since January 2005 Citywire has recorded 600 changes in its total fund manager database.

Manager Moves

The actual numbers are:– 832 retail fund managers in our UK database in

August 2002– Only 387 of them still running retail funds in August

2005.– Many of those 387 had changed jobs– In short, we have seen HUGE movement of retail

fund managers in the UK over the last few years

How do we do it?

• Citywire gathers the career histories of retail fund managers directly from fund management groups

• If they move firms, we track this

• If they switch funds, we track this

• If they take on extra funds, we track this

• We continually re-verify this information with the groups

• We have an audit trail for every single manager

• Our methodology is approved by external actuaries AKG

Fund Manager Data

• Rank managers on absolute performance

• Rate managers on risk adjusted returns

• Take into account fund switches, extra funds, switches in jobs

• Aggregates performance where manager running more than one fund

Ratings Explained

• Based on Information Ratio• Takes into account fund and fund

group switches• Calculated monthly• AAA, AA, A ratings represent well

above average risk adjusted performance

• Less than 10% get any rating • Less than 1% AAA rated• Purely quant based

QUANT V QUAL

• Citywire is FSA regulated• Ratings are actuarially approved

by external actuaries AKG• Objective and hard fact• Cover the whole market, no matter

how small • Ratings are compared to the whole

of market – subjective systems are selective

• Nobody pays us to be rated.

Citywire Fund Manager Ratings• - Citywire Fund Manager Ratings reflect how much 'added value' in

terms of outperformance against the benchmark the manager has delivered for each 'unit' of risk assumed.

• - The Ratings are calculated using the Citywire Manager Ratio, which is based on the Information Ratio.

• - The manager must have a minimum of 30 months performance against a benchmark to be eligible for a rating.

• - Where a manager runs more than one fund with the same benchmark, the risk adjusted performance is calculated based on an average monthly return for these funds.

• - The above process is repeated for each benchmark the manager runs a fund against (using the 30 month principal) with the separate Manager Ratios averaged to give an overall figure.

Rating Calculation – Illustrated example

Citywire Fund Manager Ratings – a quantitative approach

• - Managers are sorted in descending order based on their Manager Ratios (across all 30 sectors). 

• - All managers with a Ratio of 0.25 or above (delivering at least 0.25% of 'added value' for each 1% of Tracking Risk assumed) will gain a Rating.

• - The managers that exceed the threshold have their ratios averaged and are separated into two pools.

• - All managers within the lower of these two pools will achieve a Citywire ‘A’ rating.

• - This averaging procedure is repeated for the upper pool to separate the leading managers into ‘AAA’ and ‘AA’

• - Only managers within these three pools receive a rating, categorised into ‘AAA’, ‘AA’ or ‘A’. 

• - Those managers whose Manager Ratio is below the threshold level are un-rated.

Benchmarks

• Benchmarks are firstly attributed at a sector level and then assigned at fund level.

• Individual benchmarks for funds are assigned based on the following criteria:

-          the fund objective

-          the one applied by the fund manager

-          R2

-          Tracking error

Citywire Fund Manager Rankings

• Citywire’s Rankings track the performance of individual fund managers in their sector,

• The overall manager’s record will take account of both the number of funds each manager has run concurrently and also different funds they have run over time and will also highlight ‘career breaks’ during the period.

• Based on the ‘average monthly personal performance’ of each manager. This is calculated as a simple average based on the monthly performance of the underlying funds.

• When a fund manager changes funds we will assume they start at the beginning of the month supplied to us by the group. Similarly when they surrender a fund we assume they ceased to run the fund at the start of the month supplied by the group.

• Joint-managers are identified as equally responsible and returns are attributed to each fund manager separately.

Ranking Calculation – Illustrated example

Does following the manager paint a better picture?

• Using Citywire filters, the Equity Germany sector has 74

funds with a 3 year history (source Lipper)

• - Citywire is tracking 56 managers in this sector

• - 38 managers have a 3 year record

…therefore nearly a third of the managers Citywire track in

the sector do not have a 3 year record.

• Following the manager shows where the REAL

experience lies.

The Actuaries

• Actuaries approve methodology, data collection and data reverification

• Objective external stamp of approval important

• Regular reviews• Approval of overseas rating

methodologies• Monthly recalculation

Persistency• UK ALL LISTED MANAGERS• In 2002, Citywire rated 27 managers at AAA out of a universe of 417

managers with three years of history in the UK.• 77.8% (21/27) of all AAA rated fund managers as at November 2005

were still out-performing the average fund manager three years later.• 73% of all RATED managers had either out-performed or moved on (to

hedge funds etc)

• IMA UK ALL COMPANIES SECTOR• In 2002, Citywire rated 13 managers at AAA out of a universe of 82

managers with three years of history in the IMA UK All Companies sector.

• 83.3% of AAA fund managers as at November 2005 were still out-performing the average fund manager three years later.

• Only 9.5% of all underperforming managers in 2002 out-performed over the next three years.

• If you followed the fund rather than the manager, you would have had a far lower chance of picking a fund which was likely to outperform over the next three years. Out of 113 actively-managed funds with a three year track record in this sector, only 31 funds (27.5%) outperformed the FTSE All-Share over the next three years.

Persistency of Out-performance • AAA rated fund managers have a very high chance of continuing to

out-perform their benchmarks and peers on a risk adjusted basis three years later.

• Citywire looked at those fund managers who were AAA rated in its UK database when ratings were first launched in August 2002.

• We asked how many of them had out-performed their benchmark on a risk adjusted basis three years later in August 2005.

• There were 38 AAA rated managers in August 2002. In August 2005 21 out of 27 still active in UK retail funds of them had out-performed.

• This represents 78% persistency of out-performance.

• Of all (152) rated managers in August 2002, 100 were still active in August 2005 (52 had moved on, many lost to the hedge fund world). Of these 100, 59 were out-performers and 41 underperformers.

Persistency of Under-Performance• Under-performing fund managers in the Citywire database are far more likely to continue under-

performing than they are to become out-performers. • We looked at the main equity sector, UK All Companies, which contained 89 active managers in

August 2002 • 42 of these managers had under-performed their benchmarks and peers on a risk adjusted basis

over the previous three years

• Three years later at August 2005 just 4 of these managers had actually gone on to out-perform their benchmark and peers, with 28 of the managers lost from the industry

 • This means that very few 'under-performers' go on to become out-performers in our database.

The figure is just 9.5%

• However, if you had studied the under-performing FUNDS three years ago the results would have been different.

• There were 113 FUNDS at August 2002 which had under-performed the sector average on a risk adjusted basis in the previous three years.

 • However, 31 of these FUNDS  went on to actually out-perform the sector average in the following

three years.

• This means that 27.5% went on to become out-performers.

Muresianu period

211.8

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Fidelity American (MF) % Growth TR GBP S&P 500 TR (IN:IN) % Growth TR GBP

The Fund outperformed massively

Example A

Post-Muresianu period

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The Fund is underperforming

Example B

Littlewood's last five years

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GREAT!

Example C

Print

• Fund Manager International Magazine

• Arranged by country• Rankings and Ratings• Discrete Year period analysis

Distributing the Citywire Ratings

• Financial Times, ……..Numerous mentions throughout the press including Reuters

• Highlighted continually in the Citywire media outlets – websites and magazines

A simple use of Citywire methodology

• Citywire built a model portfolio (Global Growth sector) based on its fund manager analysis. It made no attempt at calling the market (Lipper average asset allocation) and undertook no active switching (essentially a buy-and-hold strategy) with fees included 

• We designed it as a well-diversified portfolio (NOT a shoot-the-lights-out option) expected to suffer similar volatility to the median Global Growth fund but deliver higher performance  

Citywire model portfolio: 22-month returns 31.68%Inflation (RPI) 5.89%Libid (Risk-free returns) 8.76%FTSE World index 28.84%Median Global Growth unit trust 28.09%Global Growth unit trust (size-weighted average) 29.12%

Citywire model (Global Growth): 31.68% (56/171 - Q2)Volatility (22-months, annualised): 9.58% (60/171 - Q2)FTSE World index volatility 9.08%Median Global Growth unit trust volatility 10.01%Sharpe Ratio 1.10 (66/171 – Q2)Information Ratio (v FTSE World) 0.38 (55/171 – Q2)

A simple use of Citywire methodology

• Although Citywire doesn't rate managers with only a 22-month track record, if this record was maintained is manager would become A-rated by Citywire in due course.

• The opportunity for asset allocation tilts and active switches as developments occur could provide the potential for further added value.

A simple use of Citywire methodology