Presentation on:

Hedge Funds and SRI Investing

William C. Crerend, CFAPresident & CEO

TBLI Conference Europe – November 2009

Prepared for professional investors only

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About EACM Advisors LLC [“EACM”]

● Approximately US$2.7 billion fund of hedge funds manager1

● One of the most experienced managers with over 18 years in managing hedge fund of funds portfolios

● Wholly-owned subsidiary of BNY Mellon

EACM exercises investment autonomy and substantial operating control

1 Based on assets of fund of hedge fund products as at 1 Oct 2009

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Background

● Through its relationships with faith based investors, BNY Mellon Asset Management identified a desire for socially responsible hedge fund exposure and discussed with EACM

● Mutual belief that such exposure would be beneficial long-term for such institutions, if it could be done appropriately

● Few investment vehicles that satisfy such requirements:

SRI consistent

High quality investment managers

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Process of Consultation

● Consulted faith based investors as to:

Objectives

Governing principles

Terms

Size of potential allocations

● Consulted leading hedge fund managers on a highly selective basis and performed EACM’s own evaluation:

Impact on strategy

Interest level

Operational capabilities

● Regular process of review involving EACM and independent board

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Prerequisites

What does a high quality solution require?

● Investment perspective

Importance of diversification in hedge fund arena – multi-manager approach

Manager quality

Diverse strategy exposures

● SRI perspective

Consensus

Transparency

Independent review

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Guiding Principles

● Listen to views from investors and managers

● Emphasis on investment quality

● Only consider managers being used in other (i.e., non-SRI) vehicles

● Seek strategy diversification similar to that present in EACM's other multi-strategy mandates

● Ensure sufficient transparency to monitor adherence to principles

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Guiding Principles

● The strategy’s prohibited investments include companies that derive a significant (or, in some cases, any) portion of their revenues from tobacco, alcohol, gambling, pornography, abortion and the production of weapons of mass destruction

● In cases where the strategy’s underlying Portfolio Managers acquire positions in companies that derive a small portion of their revenues from activities inconsistent with the tenets of faith-based investing, when possible the goal is to decrease or terminate a particular company’s involvement in such activities by the exercise of proxy voting and participation in shareholder resolutions, when available

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Challenges

Investor issues

● Significant diversity of views within the faith based investment community

● Opportunity cost

● Consultants – lack of familiarity

Manager reluctance

● Investment

● Operational

Strategy issues

● L/S equity concentration

● Extreme market stress over the past two years

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Addressing the Challenges

Recruit talented managers ● Leverage existing relationships● Address screens● Emphasise long-term potential● Feedback● Growing familiarity and enthusiasm Very active in discussing and trouble shooting operational issues with managers● Screens● Mechanics

Find common ground and identify mechanism to permit investors to provide feedback on an ongoing basis.

Focus on the highest quality/most experienced managers and risk controls – operational and investments areas.

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Portfolio Management Process

Manager Research & Selection

Strategy Allocation

Monitoring

Portfolio Construction

Macro Analysis

Preliminary Screening & Analysis

Investment Evaluation

Operational Risk Review

Portfolio

Investment Operations

+- +- +- +-

EventDriven

Relative Value

GlobalMacro

EquityHedge

Strategy allocations are subject to change, without notice, at the discretion of EACM Advisors LLC, the strategy’s investment managerPlease see important disclosures at the back of this presentation for additional information

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Strategy Allocation

● Macroeconomic views are derived from analysis of a wide array of inputs: investment research, historical context, market sentiment, manager outlooks

● Views drive target allocations designed to balance opportunity and volatility

● Incremental tilts within strategies designed to maximise near-term return potential across an array of sub-strategies

● Focus on fundamentally-driven, opportunistic managers

● Low and medium volatility objectives

Strategy allocations are subject to change, without notice, at the discretion of EACM Advisors LLC, the strategy’s investment managerPlease see important disclosures at the back of this presentation for additional information

Strategic Target 25% 35% 30% 10%

Tactical Tilts 20-35% 25-40% 25-35% 7-10%

Sub-strategies Multi-Strategy

Equity Market Neutral

Convertible Arbitrage

Opportunistic

Equity Event

Credit Oriented

US Opportunistic

Global/International

Dedicated Short

Discretionary

Relative Value -

+

GlobalMacro

EquityHedge-

+

EventDriven-

+

-

+

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Current Portfolio PositioningUnderweight● Opportunistic Equity Event-Driven (Special Situations, Value with a catalyst, Merger

Arbitrage) More difficult in highly volatile environment

● Fewer catalysts in near term Closely monitoring recent uptick in deal flow

Neutral● US Convertible Arbitrage

Increasing new issuance, waning demand, and reasonable historical valuations ● Opportunistic Equity Hedge

Individual company fundamentals driving stock prices; alpha opportunities both long and short

Strategic M&A and capital expenditures● Long oriented distressed

Anticipating supply increase Fewer market participants afford survivors attractive risk adjusted returns (e.g. DIPs)

Overweight● Fundamental Market-Neutral Equity

Increased volatility and increased dispersion among equities enhances the opportunity set for these strategies

● Opportunistic Credit Increased differentiation among corporate credit issues yields greater opportunities

both long and short Distressed debt capability will allow for participation once the opportunity set improves

for strategy Market dislocations have pressured the strategy, but have also created areas of

opportunity (e.g. distressed mortgages)

● Discretionary Macro Higher volatility across major asset classes enhances trading opportunities for macro

practitioners Desirable subset of managers

ManagerSelection

PortfolioConstruction

&Management

StrategyAllocation

InvestmentPremises

Strategy allocations are subject to change, without notice, at the discretion of EACM Advisors LLC, the strategy’s investment managerPlease see important disclosures at the end of this presentation

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Investment Process

There is no return without risk.● EACM job is to assess what risks a manager is taking and to

diversify those risks

The past does not predict the future.● Superior historical performance can be a trap

Diversification is more important than optimisation.● An optimiser is a tool, not a decision-maker

EACM look for skilled managers with a competitive edge.● EACM sift through the manager universe to concentrate on the

limited number of firms that may have that edge

EACM do not look for “investment geniuses.” Humility is the key to survival.

Decisions not driven solely by performance.● Performance must reconcile to strategy and risks taken

ManagerSelection

PortfolioConstruction

&Management

StrategyAllocation

InvestmentPremises

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1 The pie chart represents strategy allocations based on 1 Oct 2009 total fund assets excluding cash reserve of approximately 4%. Strategy and manager allocations, along with the number of underlying managers, are subject to change, without notice, at the discretion of EACM Advisors LLC, the investment manager.

Review Hedge Fund Risk Factors page for a listing of the various risks associated with any hedge fund investment. See Offering Memorandum for specific information regarding the Fund and the Investment Manager.

Global macro

15.3% / $33.1M

(2 managers)

Event-driven

35.2% /

$76.2M

(6 managers)

Relative value

21.1% / $45.8M

(3 managers)

Equity hedge funds

28.4% / $61.5M

(4 managers)

Strategy Allocation1

Mellon First Principle Fund, Ltd

● Launched 1 May 2006

● Current assets US$226 million1

● Underlying manager investments in separate accounts or special share classes

● Investment and support from major charitable, religious and healthcare organisations

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1 1 May 2006 – 30 September 2009 Created with MPI Stylus TM

Graph displays annualised returns for various trailing time periods of the Mellon First Principle Fund, Ltd (Class A shares) versus a quartile distribution of annualised returns (represented by gray and white bars) for the HFR FOF Offshore Diversified Universe. The letter “M” plots, for each time period, the annualised returns of the Fund. HFRI FOF Diversified Universe comprise onshore and offshore funds of hedge funds, selected by Hedge Fund Research, Inc., which invest with multiple managers across a variety of hedge fund strategies. There are no minimum asset size or operating history constraints.  All underlying funds of hedge funds report returns net of fees and in US dollars. 

Mellon First Principle Fund, Ltd performance results are based on terms for the Fund’s Class A shares. Investors in Class A shares are subject to the Fund’s regular schedule of fixed management and performance-based incentive fees, which equal, respectively, 1% of the total NAV of investors’ shares per annum, and 10% of any annual appreciation in the NAV of such shares in excess of 3M LIBOR. An investor’s actual returns for such periods depicted may differ from the figures shown above due to the timing of an investment, the Class of Fund shares purchased by the investor and the level of management fees paid by the investor.

Review Hedge Fund Risk Factors page for a listing of the various risks associated with any hedge fund investment. See Offering Memorandum for specific information regarding the Fund and the Investment Manager. Past performance is not indicative of future results.

Against Peers

Mellon First Principle Fund, Ltd. vs. HFR Diversified Fund of Funds Universe:

Annualised Returns Ending September 2009

1-25

-20

-15

-10

-5

0

5

10

15

Tot

al A

nnua

lised

Ret

urn,

%

Since Inception 3 Years 2 Years 1 Year

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Future Developments

● Continue to add quality managers

● Further broaden investor base

● Explore creation of new funds based on different criteria

● Keep listening to a wide range of SRI/ESG conscious investors

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Hedge Fund Risk FactorsInvestments in fund of hedge funds are speculative and involve special risks.● There can be no assurance that a fund’s investment objectives will be realised or that suitable investments

may be identified● An investor could lose all or a substantial portion of his or her investment● Successfully overcoming barriers to entry, e.g. legal and regulatory enterprise, does not guarantee

successful investment performance

Hedge funds are generally not subject to the same regulatory oversight and/or regulatory requirements as a mutual fund.● Investments may involve complex tax structures resulting in delays in distributing important tax

information● Underlying managers or their administrators may fair value securities and other instruments for which

there is no readily available market or third party pricing, or for which the manager believes the third party pricing does not accurately reflect the value of those securities, based on proprietary or other models

● Funds may not be required to provide periodic pricing or valuation information to investors

Performance may be volatile.● Underlying managers may employ leverage and other speculative investment practices that may increase

the risk of investment loss● Adherence to risk control mechanisms does not guarantee investment returns● High fees and expenses at both levels may offset an investor’s profits

EACM Advisors LLC as investment adviser may have total discretion over underlying manager and strategy selection and allocation decisions.● A lack of manager and/or strategy diversification may result in higher risk● EACM reserves the right to limit transparency and other notification to investors

There may be restrictions on transferring interests in a fund of hedge funds vehicle.● There is generally no secondary market for an investor’s interest in a privately-offered fund

This is not an inclusive list of all risk factors.● Investments in hedge funds may be suitable only for certain investors● Parties should independently investigate any area or manager, and consult with qualified investment, legal,

and tax professionals before making any investment

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Disclosures

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

Performance is shown net of fees and expenses and includes the reinvestment of dividends and capital gain distributions. Many factors affect fund performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. Some information in this report is based on unaudited information and is subject to change.

The enclosed material is confidential and not to be reproduced or redistributed without the prior written consent of EACM Advisors LLC (“EACM”). Any statements of opinion constitute only current opinions of EACM, which are subject to change and which EACM does not undertake to update. Nothing herein constitutes an offer to sell, or solicitation of an offer to purchase, any securities, nor does it constitute an endorsement with respect to any investment area or vehicle. Any offer of securities may be made only by means of a formal confidential private offering memorandum. Due to, among other things, the volatile nature of the markets and the investment areas discussed herein, they may only be suitable for certain investors. Parties should independently investigate any investment area or manager, and should consult with qualified investment, legal, and tax professionals before making any investment.

No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

BNY Mellon Asset Management is the umbrella organisation for The Bank of New York Mellon Corporation’s affiliated investment management firms and global distribution companies.

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Important information

This is a financial promotion and is not intended as investment advice. The information provided within is for use by professional investors and/or distributors and should not be relied upon by retail investors.

All information relating to EACM Advisors LLC (“EACM”) and Mellon First Principle Fund has been prepared by EACM for presentation by BNY Mellon Asset Management International Limited ('BNYMAMI'). Any views and opinions contained in this document are those of EACM at the time of going to print and are not intended to be construed as investment advice. BNYMAMI and its affiliates are not responsible for any subsequent investment advice given based on the information supplied.

This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised.

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested.

No warranty is given as to the accuracy or completeness of this information and no liability is accepted for errors or omissions in such information.

The impact of management and performance fees can be material. Generally, investment management fees are charged based upon the size of the portfolio. Some portfolios also include fees based on investment performance. A fee schedule providing further detail is available on request from BNYMAMI.

This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised by BNYMAMI to do so.

To help us continually improve our service and in the interest of security, we may monitor and/or record your telephone calls with us.

BNYMAMI is the global (ex US) distributor of the capabilities of its asset managers including those of EACM.

The Mellon First Principle Fund outlined are unregulated collective investment schemes. This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons.

In the UK this document is directed only at persons who are Professional Investors or Eligible Counterparties as defined by the FSA COBs Chapter 3 or are persons to whom this document may otherwise lawfully be issued or passed on (all of the persons above being referred to together as “relevant persons”).

This document is issued in the UK and in mainland Europe (excluding Germany) by BNY Mellon Asset Management International Limited. BNY Mellon Asset Management International Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Services Authority.

BNY Mellon Asset Management International Limited, EACM and any other BNY Mellon entity mentioned are ultimately owned by The Bank of New York Mellon Corporation.

CP4431-10-11-2009(1D)

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