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The Attraction of Hedge Fund Indices: Current Trends in the Alternative
Investment Market
November 2007
Copyright 2007, Credit Suisse Group and/or its affiliates. All rights reserved.
Slide 2
The information provided herein is confidential and may not be distributed to others without the consent of Credit Suisse Alternative Capital, Inc. Funds and Alternative Solutions. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities; no offer to sell or solicitation of an offer to buy any security may be made without the delivery of a private placement memorandum. The use of risk management tools and models do not guarantee investment performance. Past performance is not indicative of future results. This presentation may not be altered except by members of Funds and Alternative Solutions. Please see additional disclosures on page 2.
This material has been prepared by Credit Suisse Tremont Index, LLC (“Credit Suisse”) on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. This material is for informational and illustrative purposes only and is intended solely for the information of those to whom it is distributed by Credit Suisse. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of Credit Suisse. Credit Suisse does not represent, warrant or guarantee that this information is suitable for any purpose and it should not be used as a basis for investment decisions. This material does not purport to contain all of the information that a prospective investor may wish to consider. This material is not to be relied upon as such or used in substitution for the exercise of independent judgment. Past performance is no guarantee of future results.
This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy. The reader should not assume that any investments in companies, securities, sectors and/or markets identified or described were or will be profitable. Current and future portfolio compositions may be significantly different from the information shown herein. Investing entails risks, including possible loss of some or all of the investor’s principal.The investment views and market opinions/analyses expressed herein may not reflect those of Credit Suisse Group as a whole and different views may be expressed based on different investment styles, objectives, views or philosophies.
The performances shown herein may not be the experience of other managers within the same sector and may significantly differ in material respects. The performance figures provided herein are estimated and are subject to change.
This informational report does not constitute research or an offer to buy or sell a security or hedge fund and may not be used or relied upon in connection with any offer or sale of a security or hedge fund or fund of hedge funds. Investments in hedge funds are speculative and involve a high degree of risk. Hedge funds may exhibit volatility and investors may lose all or substantially all of their investment. A hedge fund manager typically controls trading of the fund and the use of a single advisor’s trading program may result in a lack of diversification. Hedge funds also may use leverage and trade on foreign markets, which may carry additional risks. Investments in illiquid securities or other illiquid assets and the use of short sales, options, leverage, futures, swaps, and other derivative instruments may create special risks and substantially increase the impact of adverse price movements. Hedge funds charge higher fees than many other types of investments, which can offset trading profits, if any. Interests in hedge funds may be subject to limitations on transferability. Hedge funds are illiquid and no secondary market for interests typically exists or is likely to develop.
The only legally binding terms of this investment product including risk considerations are set forth in the private placement memorandum and subscription documents which are available upon request. This document does not constitute an offer or invitation to enter into any type of financial transaction. The issuer has no obligation to issue this investment product. Before deciding to invest, prospective investors should carefully read the relevant private placement memorandum and subscription documents and pay particular attention to the risk factors contained therein and determine if this investment product suits the investor’s particular circumstances and should independently assess (with the investor’s professional advisers) the specific risks (maximum loss, currency risks, etc.) and the legal, regulatory, credit, tax and accounting consequences. Prospective investors should have the financial ability and willingness to accept the risk characteristics of this investment product. This investment product is intended only for investors who understand and are capable of assuming all risks involved. Credit Suisse makes no representation as to the suitability of this investment product for any particular investor nor as to the future performance of this investment product.
Credit Suisse is part of Credit Suisse Group’s asset management business. The asset management business of Credit Suisse Group is comprised of a network of entities around the world. Each legal entity is subject to distinct regulatory requirements and certain asset management products and services may not be available in all jurisdictions or to all client types. There is no intention to offer products and services in countries or jurisdictions where such offer would be unlawful under the relevant domestic law.
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risk, and differences in accounting methods; these risks are generally heightened for emerging market investments. Investments in small companies may be more volatile and less liquid than investments in larger companies. The charts, tables and graphs contained in this document are not intended to be used to assist the reader in determining which securities to buy or sell or when to buy or sell securities. Benchmarks are used solely for purposes of comparison and the comparison does not mean that there will necessarily be a correlation between the Fund’s returns and the benchmarks.
The strategies mentioned here may help to decrease the risk of your investments; however, they may also limit the upside potential of your investments. For more information regarding these risks, please contact us.
Important Legal Information
Slide 3
The information provided herein is confidential and may not be distributed to others without the consent of Credit Suisse Alternative Capital, Inc. Funds and Alternative Solutions. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities; no offer to sell or solicitation of an offer to buy any security may be made without the delivery of a private placement memorandum. The use of risk management tools and models do not guarantee investment performance. Past performance is not indicative of future results. This presentation may not be altered except by members of Funds and Alternative Solutions. Please see additional disclosures on page 2.
Important Information Regarding Hypothetical Back-Tested Performance
The hypothetical back-tested performance shown is for illustrative purposes only and does not represent actual performance of any client account. Credit Suisse did not manage any accounts using the strategies described herein for the periods shown and does not represent that the hypothetical returns would be similar to actual performance had the firm actually managed accounts in this manner.
Back-Tested, hypothetical or simulated performances have certain inherent limitations: (i) It is designed with the benefit of hindsight and may not reflect the impact that certain economic and market factors might have had on the decision-making process. (ii) It does not reflect actual client asset trading and cannot accurately account for the impact of financial risk or the ability to withstand losses. (iii) The information is based, in part, on hypothetical assumptions made for modeling purposes that may not be realized in the actual management of accounts. No representation or warranty is made as to the reasonableness of the assumptions made or that all assumptions used in achieving the returns have been stated or fully considered. Assumption changes may have a material impact on the model returns presented. This material is not representative of any particular client’s experience. Investors should not assume that they will have an investment experience similar to the hypothetical performance shown. There are frequently material differences between hypothetical performance results and actual results subsequently achieved by any investment strategy. Notwithstanding the foregoing, Credit Suisse believes that the model performance shown is reasonably representative of its management style and is sufficiently relevant for consideration.
Unlike an actual performance record based on trading actual client portfolios, simulated results are achieved by means of the retroactive application of a back-tested model itself designed with the benefit of hindsight. Back-tested performance does not reflect the impact that material economic or market factors might have on an adviser's decision making process if the adviser were actually managing a client’s portfolio. The back-testing of performance differs from actual account performance because the investment strategy may be adjusted at any time, for any reason and can continue to be changed until desired or better performance results are achieved. The back-tested performance includes hypothetical results that do not reflect the reinvestment of dividends and other earnings or the deduction of advisory fees, brokerage or other commissions, and any other expenses that a client would have paid or actually paid. No representation is made that any account will or is likely to achieve profits or losses similar to those shown. Alternative modeling techniques or assumptions might produce significantly different results and prove to be more appropriate. Past hypothetical back-test results are neither an indicator nor guarantee of future returns. Actual results will vary, perhaps materially, from the analysis. As a sophisticated investor, you accept and agree to use such information only for the purpose of discussing with Credit Suisse your preliminary interest in investing in the strategy described herein.
Copyright 2007, Credit Suisse Group and/or its affiliates. All rights reserved.
Important Legal Information
Slide 4
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Agenda
� Alpha Benchmarking
� Industry Trends
� Indexation to Replication
� Replication Techniques
Alpha Benchmarking
Slide 6
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
� Alpha: Returns only available to a handful of investors by extracting performance over and above the market norm that cannot be simplified by a systematic process.
� Traditional Beta: Returns that can be extracted by traditional processes using long-only investing techniques.
� Alternative Beta: Returns that can be extracted by specific processes using “hedge fund techniques”such as short-selling, leverage and derivatives.
Alternative Beta through ReplicationHedge Fund Industry Definitions
Slide 7
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Credit Suisse/TremontHedge Fund Index Platform
CTHI*
Credit Suisse/TremontHedge Fund Index
“Broad Index Benchmark”
HEDG*
� Representative Index of the Hedge Fund Industry
� Asset weighted
� 486 Hedge Funds included
Credit Suisse/Tremont Blue Chip Investable Hedge Fund Index
“Blue Chip Investable Index”
INVX*
� The 6 largest open funds in each of the 10 sectors**
� Asset weighted
� 60 Hedge Funds included
Credit Suisse/TremontSector Invest Indices
“Sector Invest Indices”
SECT*
� 10 Indices representative of each of the 10 sectors
� Asset weighted
� 10-25 Hedge Funds included per sector***
Platform Overview
*Bloomberg ticker symbols **If any sectors do not have six eligible funds, the remaining funds are chosen in order of size as the largest remaining eligible funds by AUM in the other sectors until a total of 60 member funds is determined, but on the basis that once a fund is chosen from a particular sector, a further member fund is not chosen from that sector until all other sectors with remaining eligible funds have contributed to the selection process. Please refer to the Index Rules.***The minimum number of funds can be below the above mentioned minimum if there are fewer eligible funds in the sector.
� Hedge Index Tracker Portfolio � Index Linked Products � Index Linked Products
Slide 8
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Alternative Beta through ReplicationReturn Comparison to Multi-Strategy FOFs
October 2002 through September 2007
Source: Credit Suisse/Tremont Index LLC, Bloomberg, as of 9/30/2007. Data since October 2002.
0%
2%
4%
6%
8%
10%
12%
14%
16%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
Annualized Standard Deviation
An
nu
alize
d R
etu
rn
Man-Glenwood Multi-Strategy Fund Ltd RMF Investment Strategies Ltd - Class N - RMF Four Seasons Strategy RMF Investment Strategies Ltd - Class VV : RMF Top Twenty II
Permal Multi-Manager Funds - Permal Investment Holdings NV HSBC Portfolio Selection Fund - HSBC GH Fund GAM Trading Inc
GAM Diversity II Inc GAM Composite Absolute Return USD Inc GAM Strategic Funds Inc - GAM Strategic Diversity USD
GAM Trading III Inc GAM Diversity Inc GAM Trading II Inc
Green Way Ltd DBC Vision International Ltd Alternative Capital Enhancement - Ace Multi Strategy Fund USD
Morgan Stanley Select Investment Strategies - Global Diversified Pictet Alternative Funds - MOSAIC 1 Pictet Alternative Funds - MOSAIC 2
Tremont Opportunity Fund Ltd Leveraged Capital Holdings NV LODH Alternative Strategies USD
La Fayette Holdings Ltd La Fayette Regular Growth Fund Ltd Ivy Rising Stars Fund LP
Haussmann Holdings NV Absolute Alpha Fund PCC Ltd - Diversified Series Share Cell Credit Suisse/Tremont Hedge Fund Index
Coast Diversified Fund Ltd Comas Strategy Fund Ltd RMF Absolute Return Strategies II Ltd (Class B)
Aurora Limited Partnership Aurora Global Opportunities LP Baloise Alternative Investment Strategies Ltd
Ivy Rising Stars Offshore Fund Ltd RMF Absolute Return Strategies I Ltd Quantum Endowment Fund NV
HSBC Alternative Portfolio - Hedge Investments Fund
Credit Suisse/Tremont
Hedge Fund Index
Slide 9
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
What is Alpha?
� Hedge (fund of) funds intend to generate alpha not beta!
– Alpha only exists in presence of beta (beta source must be identified)
– Alpha is misused as a substitute for total return
– Standard benchmarking choice is often equity, bond indices or cash
� If hedge funds are uncorrelated this can hardly be the right benchmark
– Should alpha be measured against a hedge fund index?
� Alpha = Risk Adjusted Returns / Standard Deviation
– Hedge funds measure alpha by the risk adjusted excess return of the fund relative to the return of the individual hedge fund sector
– Fund of funds measure alpha by the risk adjusted excess return of the fund relative to the return of a Broad Hedge Fund Index
Slide 10
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Hedge Fund Alpha- Where Is It?
� If Benchmark is S&P 500: Index
– CS/Tremont Hedge Fund Index delivered statistically significant positive alpha
– HFRI FOF Composite Index delivered statistically significant positive alpha
Source: Credit Suisse Tremont Hedge Fund Index LLC, Lipper/TASS, Bloomberg, HFR. All performance data shown above was taken from publicly available sources. Credit Suisse Tremont Index LLC does not guarantee the
accuracy of such data. Performance data from January 2000 through September 2007.
� If Benchmark is HFRI FOF Index:
– CS/Tremont Hedge Fund Index delivered statistically significant positive alpha
– S&P 500 Index produced statistically significant negative alpha
CS/Tremont Hedge
Fund Index
HFRI FOF
Composite Index
Beta 0.14 (3.95, 0) 0.15 (4.95, 0)
Alpha 0.68% (4.93, 0) 0.51% (4.32, 0)
Correlation 0.38 0.46
Compared to
S&P 500 Total
Return Index
CS/Tremont Hedge
Fund Index
S&P 500 Total
Return Index
Beta 1.05 (25.16, 0) 1.45 (4.95, 0)
Alpha 0.14% (2.45, 0.02) -0.54% (-1.32, 0.19)
Correlation 0.94 0.46
Compared to
HFRI FOF
Composite
Index
Slide 11
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
First asset weighted hedge fund index to follow the construction characteristics of equity and bond indices as closely as practical
� Representative
– Database with over 5,000 hedge funds representing $1.1 trillion in assets
– Constructed as a “real” index including closed and illiquid funds
– Asset-weighted index as are all other market leading traditional indices
– Comprehensive compilation of data continually maintained and expanded
– Embedded in Credit Suisse and Tremont infrastructures with over 200 dedicated hedge fund professionals
– Full historical calculation back to 1994 including funds that ceased to exist
� Objective
– Employ rules-based construction process to maintain objectivity
– Adhere to strict reporting guidelines
� Transparent
– Credit Suisse/Tremont Hedge Fund Index discloses its constituent funds, sector-weights and methodology
– High level of transparency through a comprehensive web site, including up-to-date and historical information
Credit Suisse/Tremont Hedge Fund IndexAiming for the Standard of Traditional Indices
Slide 12
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Construction Overview
� Unrestricted
Index Universe
Approximately 900 hedge fund managers, 1,900 member funds
� Audited financials
� Minimum $50MM in assets
� Minimum 1 year track record
� Consistent reporting to database
� Fund document review (PPM, audited financials, marketing materials)
� Completed questionnaire
� Strategy assignment by Credit Suisse/Tremont
� Ranking by AUM
� Number of funds to represent 85% of sector AUM
� Return calculated monthly
� Quarterly rebalancing
� Inclusion of closed funds
Credit Suisse / Tremont Database
Approximately 5,000 funds
Credit Suisse / Tremont Hedge Fund Index
10 style-based sectors – approximately 400 hedge fund managers, 900 member funds
Funds representing the top 85% of assets in each sector are included
Fixed Income Arbitrage
Long / ShortEquity
Convertible Arbitrage
Dedicated Short Bias
Emerging Markets
Managed Futures
Global Macro
Equity Market Neutral
Multi-Strategy
Event Driven
Slide 13
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Rationale of Index Investing
� Belief in the market average as a long term efficient investment solution
� Traditional asset classes have powerfully demonstrated the benefits of index investing for decades
� Easy access to diversified Hedge Fund exposure minimizing individual fund risk
� Access to many closed funds
� Rules-based index construction leads to increased transparency
� Cost efficient because there is no performance fee
Industry Trends
Slide 15
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-9
3
Jun-9
4
Dec-9
4
Jun-9
5
Dec-9
5
Jun-9
6
Dec-9
6
Jun-9
7
Dec-9
7
Jun-9
8
Dec-9
8
Jun-9
9
Dec-9
9
Jun-0
0
Dec-0
0
Jun-0
1
Dec-0
1
Jun-0
2
Dec-0
2
Jun-0
3
Dec-0
3
Jun-0
4
Dec-0
4
Jun-0
5
Dec-0
5
Jun-0
6
Dec-0
6
Jun-0
7
Convertible
Arbitrage
Dedicated Short Bias
Emerging Markets
Equity Market
Neutral
Event Driven
Fixed Income
Arbitrage
Global Macro
Long/Short Equity
Managed Futures
Multi-Strategy
The asset allocation of the most recent month is based on estimated assets.
Index investing follows dynamically the asset flows of the industry “market consensus”
Index Asset Flows
Source: Credit Suisse Tremont Index LLC as of 09/28/07.
Slide 16
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Source: Credit Suisse Tremont Index LLC
Sector Performances are Highly Variable Ranking 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
1Dedicated Short
15%
Global M acro
31%
Emerging
M arkets
34%
Global M acro
37%
M anaged
Futures
21%
Long/Short
Equity
47%
Convertible
Arbit rage
26%
Global M acro
18%
M anaged
Futures
18%
Emerging
M arkets
29%
Event Driven
14%
Emerging
M arkets
17%
Emerging
M arkets
20%
2
Emerging
M arkets
13%
Long/Short
Equity
23%
Global M acro
26%
Emerging
M arkets
27%
Long/Short
Equity
17%
Emerging
M arkets
45%
Dedicated Short
16%
Convertible
Arbitrage
15%
Dedicated Short
18%
Event Driven
20%
Emerging
M arkets
12%
Dedicated Short
17%
Event Driven
16%
3
M anaged
Futures
12%
Event Driven
18%
Event Driven
23%
Long/Short
Equity
21%
Equity M arket
Neutral
13%
Event Driven
22%
Equity M arket
Neutral
15%
Event Driven
11%
Global M acro
15%
Global M acro
18%
Long/Short
Equity
12%
Long/Short
Equity
10%
M ulti-Strategy
15%
4Event Driven
1%
Convert ible
Arbit rage
17%
Convert ible
Arbit rage
18%
Event Driven
20%
M ulti-St rategy
8%
Convert ible
Arbit rage
16%
Global M acro
12%
Equity M arket
Neutral
9%
Equity M arket
Neutral
7%
Long/Short
Equity
17%
Global M acro
8%
Global M acro
9%
Long/Short
Equity
14%
5
Fixed Income
Arbit rage
0%
Fixed Income
Arbitrage
12%
Long/Short
Equity
17%
M ulti-St rategy
18%
Global M acro
-4%
Equity M arket
Neutral
15%
M ult i-St rategy
11%
Fixed Income
Arbit rage
8%
Emerging
M arkets
7%
M ult i-Strategy
15%
M ult i-St rategy
8%
Event Driven
9%
Convertible
Arbitrage
14%
6
Equity M arket
Neutral
-2%
M ult i-Strategy
12%
Equity M arket
Neutral
17%
Equity M arket
Neutral
15%
Convert ible
Arbit rage
-4%
Fixed Income
Arbitrage
12%
Event Driven
7%
Emerging
M arkets
6%
M ulti-Strategy
6%
M anaged
Futures
14%
Fixed Income
Arbit rage
7%
M ulti-St rategy
8%
Global M acro
14%
7M ulti-St rategy
-3%
Equity M arket
Neutral
11%
Fixed Income
Arbitrage
16%
Convertible
Arbitrage
14%
Event Driven
-5%
M ult i-Strategy
9%
Fixed Income
Arbit rage
6%
M ulti-St rategy
6%
Fixed Income
Arbitrage
6%
Convert ible
Arbit rage
13%
Equity M arket
Neutral
7%
Equity M arket
Neutral
6%
Equity M arket
Neutral
11%
8Global M acro
-6%
M anaged
Futures
-7%
M ult i-Strategy
14%
Fixed Income
Arbit rage
9%
Dedicated Short
-6%
Global M acro
6%
M anaged
Futures
4%
M anaged
Futures
2%
Convert ible
Arbit rage
4%
Fixed Income
Arbitrage
8%
M anaged
Futures
6%
Fixed Income
Arbit rage
1%
Fixed Income
Arbitrage
9%
9
Convertible
Arbitrage
-8%
Dedicated Short
-7%
M anaged
Futures
12%
M anaged
Futures
3%
Fixed Income
Arbit rage
-8%
M anaged
Futures
-5%
Long/Short
Equity
2%
Dedicated Short
-4%
Event Driven
0%
Equity M arket
Neutral
7%
Convertible
Arbitrage
2%
M anaged
Futures
0%
M anaged
Futures
8%
10
Long/Short
Equity
-8%
Emerging
M arkets
-17%
Dedicated Short
-5%
Dedicated Short
0%
Emerging
M arkets
-38%
Dedicated Short
-14%
Emerging
M arkets
-6%
Long/Short
Equity
-4%
Long/Short
Equity
-2%
Dedicated Short
-33%
Dedicated Short
-8%
Convertible
Arbitrage
-3%
Dedicated Short
-7%
Slide 17
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Analysis performed on the Credit Suisse/Tremont database for funds which had a full year of returns in 2006. Data Windsorized to remove outliers at a 2 standard deviation level. The net performance numbers for the Hedge Index Tracker are estimates and are net of 1% management fee and expenses.Source: Credit Suisse Tremont Index LLC.
The Fund Performance in 2006 was Highly Variable
4%
8%
54%
27%
31%
19%
29%
38%
31%
37%
26%
(15%)
(19%)
(11%)
(12%)
(17%)
(4%)
(4%)
(9%)
(15%)
Multi Strategy
Managed Futures
Long/Short Equity
Global macro
Fixed Income
Arbitrage
Event Driven
Equity Market
Neutral
Emerging Markets
Dedicated Short
Convertible
Arbitrage
Dispersion Between Funds Is High Top Quartile Funds Are Rare
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CVARB
124 Funds
DEDSH
33 Funds
EMMKT
168 Funds
EQNTR
159 Funds
EVDRV
302 Funds
FIARB
140 Funds
GLMAC
149 Funds
LOSHO
890 Funds
MGFUT
210 Funds
MULTI
118 Funds
% o
f F
un
ds in
Ea
ch
Qu
art
ile
% of Funds in the 4th Quarter % of Funds in the 3rd Quarter% of Funds in the 2nd Quarter % of Funds in the 1st QuarterCredit Suisse/ Tremont Hedge Fund Index, (Gross)
Slide 18
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Assessing Hedge Fund Investment Alternatives
Yes
Medium
Medium
Monthly (with lag), Daily estimates
Monthly (some products offer less than monthly with spread)
Manager fees (perf & mgt), Index fees (perf & mgt)
High
Primarily Beta
HF Indices
YesYesNoManager Specific
Risk (Head-line risk)
LowLowHighSuitable for
Structured Products
LowLowHighTransparency
Monthly (with lag)Monthly (with lag)Daily final values (no lag)Valuations
Monthly/Quarterly/ Semi-annualMonthly/Quarterly/ Semi-
annualDailyLiquidity
Manager fees (perf & mgt)Manager fees (perf & mgt),
FOHF fees (perf & mgt)Product fees
(mgt only, no perf)Cost
LowHighHighDiversification
Some Beta, Some AlphaSome Beta, Some AlphaSolely BetaPotential Alpha/Beta
Single ManagersFoHFsAlternative Beta
Indexation to Replication
Slide 20
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Evolution of Alternative Beta
1994
Fung & Hsieh publish a paper using Sharpe’s (1992) asset class factor model to
define common sources of hedge fund returns (later defined as “alternative
beta”) for the purposes of risk analysis
2004
2003
CS launches HF Index tracker fund as quantitatively managed product to
provide access to alternative beta represented in hedge fund indices
CS makes more granular exposure to sources of alternative beta available with
Sector Invest Indices
First fund launched that employs a combination of quantitative techniques with
liquid financial instruments to provide alternative beta
CS launches an Investable Hedge Fund Index to allow index-linked alternative
beta products
2006Factor indices launched out of investment banking structured derivative desks
2007
Other investment banks announce similar products or their intention to launch
similar products
2002
CS launches first asset-weighted HF Index in the first step to broadly measure
alternative beta as delivered by hedge funds1999
Slide 21
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
The Rationale Behind Investing in Alternative Beta Strategies
� Hedge fund & FOF fees are high: Awareness of management and performance fees charged for sometimes average returns on the single manager side, and a double layer of such fees with fund of funds
� Lower fees are possible: Market exists for cost effective access to hedge funds through indexation and hedge fund replication that offer lower fee structures and comparable returns
� Better investment terms are possible: Parallel move towards more liquidity, increased transparency, more frequent valuations, and the possibility to create a number of derivative structures in a more regulatory friendly environment
� FOF Performance: Actively managed Multi-Strategy FoFs face additional criticism in that they do not always outperform against a benchmark
� FOF Value Proposition: FoFs apply a high standard of due diligence when sourcing potential hedge funds for their investment platform but may not always provide adequate protection against manager default or blow-up
Slide 22
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
� Following similar trends: Indexation increased transparency and liquidity in returning alternative beta while Replication has further improved those factors
� Similar net of fee returns: Indexation offers lower fees than active FoHFs while Replication eliminates double layer through investments in liquid tradable securities
� Structure of data: Indexation helps in understanding of how hedge fund data is impacted by different fee levels, share classes and other hedge fund idiosyncrasies
� Strategy classification: Index style categorization of hedge funds with more granularity enables more precise modeling
� Superior hedge fund knowledge: Better factor selection for replication models due to thoroughunderstanding of returns and of risks that managers are being compensated for
The Natural Extension from Indexation to Replication
Slide 23
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Goals:
� To offer similar risk/return characteristics to hedge funds in aggregate
� To create exposure to tradable liquid risk factors which offer portfolio diversification benefits and high levels of liquidity and transparency
� To use statistical techniques on hedge fund returns to replicate their risk/return characteristics
Benefits:
� Increased liquidity, valuation and transparency
� Ability to achieve short or long exposure to various strategies
� Lower fees, no capacity constraints and fewer regulatory issues
� Sector level products can be used to hedge specific risks or facilitate more rapid reallocation of capital
Challenges:
� Finding a relevant benchmark to replicate
� Ensuring the models adjust to shifting opportunity sets in a timely manner
� Considering the risks inherent in all sectors
Alternative Beta through ReplicationA Closer Look at Hedge Fund Replication
Slide 24
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Benchmark (non-investable) hedge fund indices vs. investable hedge fund indices:Which is the more appropriate for replication modeling?
� Investable hedge fund indices already provide the following in an investable product:
– Alternative Beta
– Transparency
– Frequent valuations and liquidity
– Few capacity constraints
� Replication models should target non-investable hedge fund indices:
– No double layer of fees
– Accurate reflection of the hedge fund industry through performance of both closed and open funds
– Inclusion of more funds than investable hedge fund indices and hence more alternative beta
Model Construction
Slide 25
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Using Fund-Level Data
� Information is lost when indices are created
– Sector information is lost when aggregated into a broad index
– Fund information is lost when aggregated into a sector index
– Driving factors are averaged out at certain times
� Use factor analysis on individual fund returns
– Extracts dynamics from data
– Helps identify subsets of funds within each sector that behave similarly
Slide 26
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Alternative Beta through ReplicationHedge Fund Replication Models: Tapping Into Alternative
Beta � Multi-Factor-Model:
– Use a regression analysis that can identify liquid, tradable market factors that explain hedge fund returns
– Trading certain combinations of these factors can achieve alternative beta with hedge fund style returns
� Distribution Replication Analysis:
– Use liquid, tradable securities and complex derivatives to replicate statistical properties of hedge funds (volatility, correlation with stocks and bonds, etc.)
– Trading certain combinations of these factors daily can produce returns with the investor’s desired statistical properties
– The returns are not necessarily achieved in the same order as the hedge fund returns they are based on, leading to a large tracking error
� Mechanical Strategy Replication:
– Replicate strategies that hedge funds implement, using a rules-based approach
– Can be implemented for many hedge fund investment styles (i.e. Merger Arbitrage, Convertible Arbitrage and Volatility Arbitrage)
Replication Techniques
Slide 28
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Two Main Questions
� What to replicate?
� How to replicate?
Slide 29
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
What to Replicate?
� What benchmark should be used?
� Choices
– Equal-Weighted
– e.g. HFRI Fund Weighted Composite Index (“HFRI Composite Index”)
– Asset-Weighted
– e.g. Credit Suisse Tremont Hedge Fund Index (“CS/Tremont Broad Index”)
Slide 30
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Equal-Weighted Index
� Many replicators have chosen HFRI Composite Index
� Easy to fit
� Simple five factor model plus cash:
– S&P 500
– Russell 2000
– EAFE Index
– EM Index
– US Dollar Index
Slide 31
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
What to Replicate?
� Equal-Weighted HFRI Composite Index:
– Essentially identical to the HFRI Equity Non-Hedge sector
– Has been correlated for at least 10 years
– Not representative of the hedge fund universe
� Asset-Weighted CS/Tremont Broad Index:
– Has variable correlation to the CS/Tremont Long/Short Equity sector
– More representative of the hedge fund universe
– More dynamic, and therefore more difficult to model
� Answer: Asset-Weighted Index
Slide 32
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
How to Replicate?
� Need to create robust models that adapt to changing markets
� Issues to address:
– Is a broad model sufficient?
– Can fund-level information add any value?
– Does knowledge of fund/sector allocations help to model indices?
Slide 33
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Is A Broad Model Sufficient?
� It doesn’t work on all sectors
� A single modeling technique and set of factors probably won’t work for every sector
� A model of the broad index is implicitly ignoring the contributions of many of the sectors
� If these sectors don’t contribute much to the broad index, who cares?
CS/Tremont Sector R2
Square Error
Long/Short Equity 87.38% 90.07% Broad Index 76.13% 82.25%
Emerging Markets 62.87% 74.67% Multi-Strategy 51.04% 67.03%
Dedicated Short Bias 50.10% 51.05% Event Driven: Merger Arb 40.63% 59.56%
Event Driven: Multi-Strategy 30.97% 53.79% Event Driven 30.09% 57.24%
Convertible Arbitrage 10.41% 27.15% Equity Market Neutral 3.02% 47.88%
Managed Futures -1.33% 1.58% Global Macro -1.52% 38.95%
Event Driven: Distressed -10.41% 44.77% Fixed Income Arbitrage -20.55% 10.55%
Sources: Credit Suisse Tremont Index, LLC, Bloomberg. All data was obtained from publicly available sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from such sources and makes no representations and warranties as to accuracy, completeness or reliability of such information. Projections do not represent future returns.
Slide 34
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Jan 1997
Multi-
Strategy
0%
Global
Macro
45%
Long/Short
Equity
23%
Event
Driven
13%
Is A Broad Model Sufficient?� The influence of each hedge fund sector changes from month to month
� Any sector could eventually become important and therefore they must all be modeled individually
Aug 2007
Event
Driven
25%
Long/Short
Equity
30%
Multi-
Strategy
11%
Global
Macro
10%
Source: Credit Suisse Tremont Index, LLC.
Slide 35
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Putting It All Back Together
� Once the sectors have been modeled, they can be combined into a broad index
� Problem: sector allocations are dynamic
� If allocations aren’t known, they must be inferred
� Can these allocations be accurately inferred from return data?
� Regress returns of the CS/Tremont Broad Index vs. returns of each of its sectors to estimate weightings
Slide 36
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Inferring Sector Allocations
� Need actual monthly sector weightings to obtain a model that captures the dynamics of the industry in a timely fashion
Source: Credit Suisse Tremont Index, LLC.
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '070%
20%
40%
60%
80%
100%Estimated
Long/Short Equity
Event Driven
Global Macro
Multi-Strategy
Emerging Markets
Fixed Income Arbitrage
Equity Market Neutral
Managed Futures
Convertible Arbitrage
Dedicated Short Bias
Estimated Peak ExposureFebruary, 2002
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '070%
20%
40%
60%
80%
100%Actual
Actual Peak ExposureAugust, 2000
Slide 37
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
Contacts
Americas
Hong Kong
Stephen Pak +85 2 2101 6563 [email protected]
Tokyo
Akira Takahashi +81 3 4550 9232 [email protected]
Sydney
Kate Wilkie +61 2 8205 4159 [email protected]
Asia Pacific
London
Paul Brine +44 20 7888 1204 [email protected]
Zurich
Donald Rice +41 44 333 2330 [email protected]
Renato Aebi +41 44 332 4934 [email protected]
Europe
New York
Philippe Schenk +1 212 538 5738 [email protected]
Christian Hoffmann +1 212 538 8616 [email protected]
www.hedgeindex.com
Slide 38
The information provided herein is confidential and may not be distributed to others without the consent of Credit Suisse Alternative Capital, Inc. Funds and Alternative Solutions. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities; no offer to sell or solicitation of an offer to buy any security may be made without the delivery of a private placement memorandum. The use of risk management tools and models do not guarantee investment performance. Past performance is not indicative of future results. This presentation may not be altered except by members of Funds and Alternative Solutions. Please see additional disclaimers and end notes starting on slide 33.
Important Legal InformationThis document is for informational purposes only. The assumptions and parameters used have been selected by Credit Suisse Tremont Index LLC, and no guarantee is given as to the accuracy, completeness, or reasonableness of any such quotations, disclosure or analyses. All opinions and views expressed constitute judgments as of the date of this writing and may change at any time without notice or obligation to update. The strategy descriptions are provided by Credit Suisse Tremont Index LLC. No representation or warranty is made that any indicative performance or return indicated will be achieved in the future. The information contained herein is not and shall not constitute an offer to sell or a solicitation of an offer to buy shares, limited partnership interests or other securities in any of the products referred to herein. Any offer to sell such shares, limited partnership interests or other securities can be made by prospectus or private placement memorandum only. You cannot invest in the Indices directly or the basket described herein.
The returns provided herein by Credit Suisse Tremont Index LLC are based upon the allocation and the past performance of the underlying managers initially contained in the described indices. We rely on the actual performance returns provided by the underlying managers to a database which we believe to be reliable, but make no representations or warranties as to its accuracy or completeness. The underlying managers’ performance returns are unaudited and we make no representations as to their accuracy. In addition to the fees charged by the underlying hedge funds Credit Suisse might impose additional fees for its services. Please review the index description or private placement memorandum for a summary of the fees charged.
The Credit Suisse/Tremont Hedge Fund Indices are based upon index calculation rules which may be subject to change. The most recent version is available on www.hedgeindex.com. Index members may be removed or added based upon the Index’s criteria for inclusion and removal. Such criteria may include subjective measures and may be changed or modified without notice. Therefore, the actual performance of the indices may vary substantially from the performance presented herein. Past performance is not indicative of future performance.
The performance figures are based upon performance provided by hedge fund managers included in the index or obtained through the Credit Suisse/Tremont database to the Credit Suisse Tremont Index LLC, the Index Calculation Agent. Credit Suisse Tremont Index LLC believes such data is reliable but has made no independent representation as to its accuracy or completeness. Some of the underlying hedge fund's returns are denominated in a foreign currency and hence these returns deviate from what they would be if denominated in US dollars. The underlying hedge fund performance data is net of the underlying hedge fund managers' fees and expenses. Hedge funds are classified by their primary strategy as determined by the Index Calculation Agent in its sole discretion based on each underlying hedge fund's private placement memorandum and other offering materials. The information presented herein has been prepared on the basis of the publicly available information, internally developed data or other third-party sources believed to be reliable.
If you are a current or potential investor in a product based upon the Index, the performance of your product may differ materially from the Index performance presented herein. For time periods before the actual launch of the index the initial allocation of the index has been used for demonstration purposes along with the past performance of the underlying hedge funds included in the Index. The underlying hedge funds' performance returns are unaudited.
Please note that the availability to invest in these hedge funds is uncertain and is subject to change, at any time without prior notice. This information reflects the benefit of hindsight, and is not indicative of future performance. There can be no assurances that the underlying hedge funds will meet their investment objectives.
We have not run a contemporaneous investment model or actual portfolio in connection with the proposed investments presented. Actual investment performance will be made under different economic and market conditions and such time period presented herein does not necessarily reflect the performance in different economic cycles. It should not be assumed that investors will experience returns in the future comparable to the performance presented herein. The time period shown has been selected by Credit Suisse Tremont Index LLC for demonstration purposes only, nothing should be inferred or implied from this date.
Slide 39
The information provided herein is confidential and may not be distributed to others without the prior written consent of Credit Suisse. These materials do not constitute an offer to sell securities or a solicitation of an offer to buy securities. This presentation may not be altered except by Credit Suisse. Past performance is no guarantee of future results. Please see “Important Legal Information” on slides 2 through 3 for important disclosures regarding the data and information contained and the views and opinions expressed in this material.
EndnotesCredit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index LLC. It is an asset-weighted hedge fund index and includes only funds, as opposed toseparate accounts. The Index uses the Credit Suisse/Tremont database, which track over 5,000 funds, and consists only of funds with a minimum of US$50 million under management, a 12-month track record, and audited financial statements. It is calculated and rebalanced on a monthly basis, and shown net of all performance fees and expenses.
Credit Suisse/Tremont Investable Hedge Fund Index, comprised of 60 funds across 10 style-based sectors, is constructed as a sub-set of the Credit Suisse/Tremont Hedge Fund Index, the most widely quoted hedge fund index in the world. The Investable Index is asset weighted and enables investors to gain diversified exposure to the hedge fund industry. It is the exclusive property of Credit Suisse Tremont Index LLC.
HFRI Fund Weighted Composite Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all HFR hedge fund strategies and is asset weighted based on the distribution of assets in the hedge fund industry. It is the exclusive property of Hedge Fund Research.
S&P 500 Total Return Index: The Standard & Poor’s 500 Index is an unmanaged index (with no defined investment objective) of common stocks. It includes reinvestment of dividends, and is a registered trademark of McGraw-Hill Co., Inc. Investors cannot invest directly in an index.
Russell 2000 Total Return Index: The Russell 2000 Index is designed to be representative of the small-cap segment of U.S. equities. It is rebalanced annually to ensure that larger equities do not skew the performance of the small-cap segment and is comprised of the smallest 2000 securities from the Russell 3000. It includes reinvestment of dividends, and is the exclusive property of Russell Investment Group. Investors cannot invest directly in an index.
MSCI EAFE Total Return Index: The MSCI EAFE Index is an unmanaged Index designed to show the performance of equities in Europe, Australia and Far East. The Index is market capitalization weighted and includes equities from 21 developed markets. It includes reinvestment of dividends, and is the exclusive property of Morgan Stanley Capital International. Investors cannot invest directly in an index.
S&P/Citigroup BMI Emerging Markets Total Return Index: The S&P/Citigroup BMI Emerging Markets Index includes equities of over 1,500 companies spread among 26 countries. It includes reinvestment of dividends, and is a registered trademark of McGraw-Hill Co., Inc. Investors cannot invest directly in an index.
US Dollar Index: The US Dollar Index is designed to benchmark the performance of the US dollar. The Index averages the exchange rates between the US dollar and 6 major world currencies. The Index is calculated by the New York Board of Trade. Investors cannot invest directly in an index.