presentation to portfolioconstruction conference 2008 “the ... · 30.06.2008 · presentation....

CREDIT SUISSE ASSET MANAGEMENT (AUSTRALIA) LIMITEDABN 57 007 305 384 AFSL 238390

Presentation to PortfolioConstruction Conference 2008

“The Paradox of Passive Alpha –Passive Hedge Funds Management”g g

Kate Wilkie

Vice President, Alternative Investments AustraliaVice President, Alternative Investments Australia

Important Information

Issued by Credit Suisse Asset Management (Australia) Limited (Credit Suisse) ABN 57 007 305 384 AFSL 238390. Credit Suisse has used its best endeavours to ensure the accuracy reliability and completeness of the information contained in thisSuisse has used its best endeavours to ensure the accuracy, reliability and completeness of the information contained in this presentation. Subject to law, Credit Suisse, its directors, employees, affiliates and consultants do not provide any warranty oraccept any liability for errors or omissions or any losses or damages suffered by the recipient of this presentation or any other person.

Thi t ti h b d f l i f ti l f th i t d d i i t It d t t k i t tThis presentation has been prepared for general information only for the intended recipients. It does not take into account an individual’s objectives, financial situation or needs, which are necessary considerations before making any investment decision. Opinions constitute our judgment at the time of issue and are subject to change.

Offers for investments in the Credit Suisse/ Tremont Index Strategies Fund are made in, or accompanied by a copy of the current g p y pyAlternative Investment Funds Product Disclosure Statement (PDS). You should consider the PDS in deciding whether to acquire or continue to hold the product. If you wish to invest, you will need to complete an application form contained in, or which accompanies the current PDS. Please contact us directly should you have any queries in relation to the information in this presentation on 1300 366 890, or to obtain a copy of the PDS.

Net Returns are calculated using pre-distribution month end withdrawal unit prices, and assumes all income is reinvested in additional units. Total returns are calculated by adding back the Management Costs deducted. As benchmark performance is gross of fees, we recommend that the total returns performance figures be used when comparing our performance with the relevant benchmark performance. Past performance is not necessarily indicative of future performance. Returns may be volatile

d f tand may vary from year to year.

2CREDIT SUISSE ASSET MANAGEMENT (AUSTRALIA) LIMITEDABN 57 007 305 384 AFSL 238390

Agenda

1. Introduction - Rationale for Investing in Alternatives

2. Passive Hedge Fund Investing

Rationale of Index Based InvestingHedge funds: premised on the skill of the manager to add AlphaMarket drivers of Risk

3 H d F d I di i P tf li C t t3. Hedge Fund Indices in a Portfolio Context

4. Performance and Outlook

3

1. IntroductionRationale for Investing in Alternatives


Australian HNWs want more Alternatives in their PortfolioCurrent allocations versus maximum % of total assets that investors believe should be in alternatives (among those with $2million+ in total investable assets)

% of all investment assets in alternatives among those utilising alternatives

25%

Maximum percentage of total assets that should be invested in alternative investments at the current time

Current allocation

Perceived maximum

Mean 18% 25%

15%

20% Median 13% 18%

Maximum allocation

10%

15%

Current allocation

5%

Source: Copyright 2007 Investment Trends Pty Ltd. Dec 06 Alternative Investments: Investor Report.

0%0% 1% 2% 3% 4% 6-9% 10-

14%15-

19%20-

29%30-

39%40-49%

50-59%

60-69%

70-79%

80-89%

90-99%

100%

5

py g y p


High Net Worth Investors (HNW) in Alternatives

Global HNW financial wealth is over USD 33 trillion

Clients with net financial investable assets of over USD 1 million

8.7 million households worldwide

Investment goals shifting from preservation to wealth growth accumulation

10%19% 20% 22%

Changes in typical Asset Allocation, 2002-2007

25%

13% 13% 11%

16% 16% 15%

15%

Alternative InvestmentsReal Estate

30%

24% 21% 22%

Real EstateCashFixed IncomeEquities

Source: Merrill Lynch World Wealth Report 2006

20%

28% 30% 31%

2002 2004 2005 2007

6

y p


Global HNW allocations to Alternatives f % % (1)

Australian investors in Alternatives have doubled in 5 years(2)

Australians who invest in Alternatives allocate 18% of their portfolios to them and target 25%(2)

Increased from 25% to 37% in 5 years (1)

Australians who invest in Alternatives allocate 18% of their portfolios to them and target 25%(2)

Their three leading Alternative Investments are Infrastructure, Private Equity and Unlisted Property(2)

50% Proportion of HNW investors ($2million+ investable assets)

38%35%

27%

25%

30%

35%

40%

45%

50% Proportion of HNW investors ($2million+ investable assets) using each type of alternative asset class(2)

19% 18%14%

9%

2%

0%

5%

10%

15%

20%

25%

0%

Infras

tructu

re fun

dsPriv

ate eq

uity f

unds

Unliste

d prop

erty

Commod

ities f

unds

edge

/abso

lute r

eturn

funds

Fund o

f hed

ge fu

nds

Mortga

ge tru

sts

CDOs

(1) Source: Merrill Lynch World Wealth Report 2006. Clients with net financial investable assets of over US$1m. Alternatives includes property.

(2) Source: Copyright 2007 Investment Trends Pty Ltd. Dec 06 Alternative Investments: Investor Report. Based on a quantitative survey conducted over November 2006 through January 2007 of over 3,000 Australian investors who have utilised Alternative Investments. Covers a broad range of alternative investments

Hedg

7


Increase in Alternatives investing as wealth increasesby average portfolio size and income

Tax effective inv’s Fund of hedge funds1.15Higher

Wraps/Mastertrusts Margin lending

into sharesGearing into mgd funds

Tax effective inv s

Private Equity funds

Hedge/absolute return funds

Futuresg

ETFsHigher

My own home

IMAs

Gearing into mgd funds

SMSFsInv. PropertyWarrants

Self-funding warrants

q y

LICs

Instalment warrants Infrastructure funds

Hybrid securities

ETOs

1.0

inco

me

Term

Super (abovemin. cont'ns)

Managed funds

Unlisted propertytrusts

Pooled dev. funds

Mortgage trusts

LICsIndex-backed

fundsCommodities funds

Ave

rage

deposit

Shares held in my own name

Online savings account

CFDsMortgage trusts

Capital guaranteed prod’s

0 75Lower

Average portfolio size 0.6 1.5

Lower Higher1.0

0.75

Source: Copyright 2007 Investment Trends Pty Ltd. Dec 06 Alternative Investments: Investor Report

8

py g y p


Why Include Alternatives in your Portfolio - Three-Year Risk -R tReturn

Asset Class Performance (3 years to 31-Dec-07)25%

ASX Equities

20%

rn

ASX Property

EMD

Global EquitiesEuro CBs

Asian CBs

GHIF10%

15%

nnua

lised

retu

r

CS/Tremont Hedge Fund Index

GHIFBenchmark

AUD CashLGA

Global Bonds

AFIAUD ILBs

High Yield Global CBsLoans

5%

An

US Preferreds

-5%

0%

0% 2% 4% 6% 8% 10% 12% 14%0% 2% 4% 6% 8% 10% 12% 14%

Annual standard deviation of returns

Sources: Bloomberg, JP Morgan, Lehmans & CS

9


2. Passive Hedge Fund Investing


Rationale of Index Investing

Belief in the market average as a long term efficient investment solution

Traditional asset classes have demonstrated the benefits of index investingTraditional asset classes have demonstrated the benefits of index investing

Easy access to diversified Hedge Fund exposure minimising individual fund risk

Access to many closed funds

Rules-based index construction leads to increased transparency

Cost efficient (no performance fee)

11


Credit Suisse/Tremont Hedge Fund IndexAiming for the Standard of Traditional IndicesFirst asset weighted hedge fund index to follow the construction characteristics of equity and bond indices as closely as practical

Representative

Aiming for the Standard of Traditional Indices

Representative

Database with over 5,000 hedge funds representing USD 1.3 trillion in assetsConstructed as a “real” index including closed and illiquid fundsAsset-weighted index as are all other market leading traditional indicesComprehensive compilation of data continually maintained and expandedEmbedded in Credit Suisse and Tremont infrastructures with over 200 dedicated hedge fund professionalsFull historical calculation back to 1994 including funds that ceased to exist.

ObjectiveEmploy rules-based construction process to maintain objectivityAdhere to strict reporting guidelines.

TransparentCredit Suisse/Tremont Hedge Fund Index discloses its constituent funds, sector-weights and methodologyHigh level of transparency through a comprehensive web site www.hedgeindex.com, including up-to-date and historical informationinformation.

An efficient and cost effective solution to gain Hedge Fund Exposure.


Hedge Funds: Premised on the Skill of the Manager to add Alphag g pStructure

A partnership, corporation or other investment vehicle with an absolute return goal, often expressed as a spread

over or multiple of the risk free rate (examples: 3x T bills LIBOR+7%) as opposed to a relative return benchmarkover or multiple of the risk-free rate (examples: 3x T-bills, LIBOR+7%), as opposed to a relative return benchmark

like the Russell 2000 or S&P 500

LiquidityLiquidity is typically monthly quarterly or annually and falls between traditional assets (immediately or daily) andLiquidity is typically monthly, quarterly or annually and falls between traditional assets (immediately or daily) and

long-term alternatives like private equity or timber (3-10 years)

FeesA hedge fund manager is generally paid two fees: a “Management Fee” based on assets in the fund and aA hedge fund manager is generally paid two fees: a Management Fee based on assets in the fund and a

“Performance Fee” based on profits made each year (you may hear “2 and 20” as a standard fee – 2%

Management Fee and 20% Performance Fee)

StrategyStrategy

Hedge fund managers give themselves extensive trading flexibility in their offering documents but typically

specialize in a given strategy or geographic area of trading. This flexibility includes the use of both long and short

positions and leveragep g

CapitalHedge fund managers may “open” and “close” their fund based on the inflow of assets and opportunities in their

strategy

13


M k t D i f Ri kMarket Drivers of Risk

EQUITY MARKET NEUTRAL

EVENT DRIVEN

CONVERTIBLE ARBITRAGE

LONG/ SHORT EQUITY

DEDICATED SHORT BIAS

GLOBAL MACRO

MANAGED FUTURES

FIXED INCOME ARBITRAGE

EMERGING MARKETS

MULTI-STRATEGY NEUTRAL DRIVEN ARBITRAGE EQUITY SHORT BIAS MACRO FUTURES ARBITRAGE MARKETS STRATEGY

Equities

Credit Spreads

Liquidity

Interest Rates

Implied Volatility

Realized Volatility

Hedge fund indices can save the investor significant outlay in resources needed formanager due diligence and risk systems needed to extract alpha from the hedge fund market

Note: Strategies are based upon the Credit Suisse/Tremont Hedge Fund Index Sectors

14

Note: Strategies are based upon the Credit Suisse/Tremont Hedge Fund Index Sectors.


3. Hedge Fund Indices in a Portfolio Context


The Addition Of Hedge Funds Can Lower Risk Whil I i R t

Adding 20% HEDG

While Increasing Returns

9.10%

9.30%

Adding 10% HEDG8 78% Annualized Return

Adding 15% HEDG8.92% Annualized Return7.72% Annualized Risk

Adding 20% HEDG9.06% Annualized Return7.55% Annualized Risk

8 0%

8.90%

Ret

urn

(%)

8.78% Annualized Return7.90% Annualized Risk

Adding 5% HEDG8.64% Annualized Return8.10% Annualized Risk Adding 0% HEDG

8.50% Annualized Return8 32% A li d Ri k

Annualized Total Returns (%)8.50%

8.70%R

■ US Stocks : S&P 500 Total Return Index■ US Bonds : Lehm an Aggregate Bond Index■ International Stocks : MSCI World Index

8.32% Annualized Risk

Annualized Total Returns (%)8.30%

7.40% 7.55% 7.70% 7.85% 8.00% 8.15% 8.30% 8.45%

Annualized Standard Deviation (%)

■ Hedge Funds: Credit Suisse/Trem ont Hedge Fund Index

Time Period: January 1994 through December 2007.Sources: Credit Suisse Tremont Index LLC, Bloomberg. The performance shown is for illustrative purposes only and does not represent performances of any Credit Suisse investment. Riskmeasured by standard deviation, a statistical measurement of dispersion around an average which depicts how widely returns varied over a certain time period. Allocation: Initial allocationcomprised of: 40% US bonds, 45% US stocks and 15% international stocks. As HEDG was added, other asset classes were reduced proportionately. HEDG is defined as the Credit Suisse/TremontHedge Fund Index, the index tracks the performance of a diversified portfolio of hedge funds. Past performance does not guarantee future results.

16


Hedge Funds in Bear MarketsResilience of Hedge Fund Indices in last equity bear market (2000-2002)

0%10%20%

-30%-20%-10%

-60%-50%-40%

9 0 0 0 0 0 0 1 1 1 1 1 1 2 2 2 2 2 2

Dec

-99

Feb-

00

Apr

-00

Jun-

00

Aug

-00

Oct

-00

Dec

-00

Feb-

01

Apr

-01

Jun-

0

Aug

-01

Oct

-01

Dec

-01

Feb-

02

Apr

-02

Jun-

02

Aug

-02

Oct

-02

Dec

-02

Credit Suisse/Tremont Hedge Fund Index MSCI World IndexCredit Suisse/Tremont Hedge Fund Index MSCI World Index

Sources: Bloomberg; Credit Suisse Index Co., Inc. All data was obtained from sources believed to be reliable. Credit Suisse Index Co., Inc. does not guarantee the accuracy of such data

17


Hedge Fund Index Performance

Hedge fund performance in 20 most recent down equity months

Hedge fund performance relative to global markets

0%

2%

4%

300%

350%

400% Credit Suisse/ Tremont Hedge Fund Index

S&P 500 Index

MSCI World Index

Lehman U.S. Aggregate Bond Index

-4%

-2%

150%

200%

250%

-10%

-8%

-6%

5 5 7 7 8 8

0%

50%

100%

Mar

-04

Apr-

04Ju

l-04

Jan-

0 5M

ar-0

5Ap

r-05

Jun-

05Au

g-05

Oct

-05

Dec

-05

May

-06

Feb-

07Ju

n-07

Jul-0

7N

ov-0

7D

ec-0

7Ja

n-08

Feb-

08M

ar-0

8Ju

n-08

Credit Suisse/ Tremont Hedge Fund Index S&P 500 Index

-50%

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

* Please refer to the End Notes for important disclosures regarding the various Credit Suisse/Tremont Indices described herein. Source: Credit Suisse Tremont Index LLC, Bloomberg. All data was obtained from 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. Past performance is not indicative of future performance.

Credit Suisse/Tremont Hedge Fund Index* had positive returns in 8 of the 20 most recent down equity months and outperformed equities in 19 out of the 20 observations

18

not indicative of future performance.


4. Performance and Outlook


Index Asset FlowsIndex investing follows dynamically the asset flows of the industry “market consensus”

100%

70%

80%

90% ConvertibleArbitrage

Dedicated Short Bias

Emerging Markets

50%

60%

70%

Equity MarketNeutral

Event Driven

20%

30%

40%Fixed IncomeArbitrage

Global Macro

Long/Short Equity

0%

10%

20%

93 94 94 95 95 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08

Managed Futures

Multi-Strategy

The asset allocation of the most recent month is based on estimated assets.

Source: Credit Suisse Tremont Index LLC as of 6/30/2008

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

Dec

-

Jun-

20

e asset a ocat o o t e ost ece t o t s based o est ated assets


Sector Performances are Highly Variable Ranking 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

1Dedicated

Short15%

Global M acro31%

Emerging M arkets

34%

Global M acro37%

M anaged Futures

21%

Long/Short Equity

47%

Convert ible Arbit rage

26%

Global M acro18%

M anaged Futures

18%

Emerging M arkets

29%

Event Driven14%

Emerging M arkets

17%

Emerging M arkets

20%

Emerging M arkets

20%

2Emerging M k t

Long/Short E it Global M acro

Emerging M k t

Long/Short E it

Emerging M k t

Dedicated Sh t

Convert ible A bit

Dedicated Sh t Event Driven

Emerging M k t

Dedicated Sh t Event Driven Global M acro2 M arkets

13%Equity23% 26%

M arkets27%

Equity17%

M arkets45%

Short16%

Arbit rage15%

Short18% 20%

M arkets12%

Short17% 16% 17%

3M anaged Futures

13%

Event Driven18%

Event Driven23%

Long/Short Equity

21%

Equity M arket Neutral

13%

Event Driven22%


15%

Event Driven11%

Global M acro15%

Global M acro18%

Long/Short Equity

12%

Long/Short Equity

10%

M ult i-Strategy15%

Long/Short Equity

14%

4 Event Driven1%


17%

Convert ible Arbitrage

18%

Event Driven20%

M ult i-Strategy8%


16%

Global M acro12%


9%


7%

Long/Short Equity

17%

Global M acro8%

Global M acro9%

Long/Short Equity

14%

Event Driven13%1% 17% 18% 20% 8% 16% 12% 9% 7% 17% 8% 9% 14% 13%

5Fixed Income

Arbitrage0%

Fixed Income Arbitrage

12%

Long/Short Equity

17%

M ult i-Strategy18%

Global M acro-4%


15%

M ult i-Strategy11%


8%

Emerging M arkets

7%

M ult i-Strategy15%

M ult i-Strategy8%

Event Driven9%


14%

M ult i-Strategy10%

6Equity M arket

Neutral-2%

M ult i-Strategy12%


17%


15%


-4%

Fixed Income Arbit rage

12%

Event Driven7%

Emerging M arkets

6%

M ult i-Strategy6%

M anaged Futures

14%


7%

M ult i-Strategy8%

Global M acro14%


9%

7 M ult i-Strategy-3%


11%


16%


14%

Event Driven-5%

M ult i-Strategy9%


6%

M ult i-Strategy6%


6%


13%


7%


6%


11%

Dedicated Short

6%

8 Global M acro-6%

M anaged Futures

-7%

M ult i-Strategy14%


9%

Dedicated Short-6%

Global M acro6%

M anaged Futures

4%

M anaged Futures

2%


4%


8%

M anaged Futures

6%


1%


9%

M anaged Futures

6%

Convert ible Dedicated M anaged M anaged Fixed Income M anaged Long/Short Dedicated Equity M arket Convert ible M anaged M anaged Convert ible9


-8%

Dedicated Short-7%

M anaged Futures

12%

M anaged Futures

3%


-8%

M anaged Futures

-5%

Long/Short Equity

2%

Dedicated Short-4%

Event Driven0%


7%


2%

M anaged Futures

0%

M anaged Futures

8%


5%

10Long/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%


-3%

Dedicated Short-7%


4%

Source: Credit Suisse Tremont Index LLC

21


Fund Performance in 2007 was Highly VariableDispersion Between Funds is High Top Quartile Funds are Rare

22%(11%)ConvertibleArbitrage

100%

49%

40%

24%

(13%)

(9%)

(6%)

Equity Market

EmergingMarkets

Dedicated Short

60%

70%

80%

90%

Qua

rtile

52%

26%

49%(9%)

(8%)

(29%)Fixed Income

Arbitrage

Event Driven

Neutral

30%

40%

50%

% o

f Fun

ds in

Eac

h

60%

30%(17%)

(28%)Long/Short

Equity

Global Macro

Arbitrage

0%

10%

20%

CVARB94 Funds

DEDSH35 Funds

EMMKT154 Funds

EQNTR94 Funds

EVDRV260 Funds

FIARB124 Funds

GLMAC87 Funds

LOSHO669 Funds

MGFUT130 Funds

MULTI112 Funds

44%

36%

(18%)

(15%)

Multi Strategy

Managed Futures

94 Funds 35 Funds 154 Funds 94 Funds 260 Funds 124 Funds 87 Funds 669 Funds 130 Funds 112 Funds

% 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)

Analysis performed on the Credit Suisse/Tremont database for funds which had a full year of returns in 2007. Data Windsorized to remove outliers at a 2 standard deviation level.Source: Credit Suisse Tremont Index LLC.

22


Hedge Funds: Positioning & Outlook

PositioningBroad hedge fund indices performed well in bear markets

Highly diversified

Attractive fee structureAttractive fee structure

OutlookHedge funds maintained an attractive risk-return profile as compared to equity indices

Hedge funds are quickly adjusting to changing market conditions

Long term conditions have improved for a number of hedge fund strategiesLong-term conditions have improved for a number of hedge fund strategies

Hedge funds continue to provide attractive risk-adjusted returns

23


4. Q&A


Credit Suisse Alternative Investments –An established market leading provider of Alternative Investments with over USD146 B in AuM globallyAn established market leading provider of Alternative Investments with over USD146 B in AuM globallyAustralia – 5th Largest Alternative Market by Size

($ in billions) Australia – AI AuM CS AI Businesses

DirectHF $7.0

PE FoF$10.0

Unlisted Infra-

Listed Infrastructure $16.0Real Estate

Core$25

HY21.4

Volatility Management

$4.3

(US$ in billions)(US$ in billions)Direct

PE $10.0

Hedge FoF$5.0

HF $7.0 Infrastructure

$25.0Real EstateOpportunity

Quantitative Resources

$42.2

$25Hedge FoF

$5.0

Unlisted Real EstateFunds $25.0

PE FoF

LBO

Listed Property Trusts $67.0

LBO

Hedge FoF$26 4

OtherMezzanine

Secondaries

$26.4

AuM: US$146 billionS CS A l i

AuM: US$165 billion

25

Source: CS Analysis.


Let’s start thinking about…

This session was:1. awful2. mediocre3 good3. good4. excellent

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Let’s start thinking about…

Time’s Up!This session was:1. awful2. mediocre3 good3. good4. excellent

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Benefits of Investing in Hedge Funds with Credit Suisse

Credit Suisse – A proven leader in hedge fund investingInvesting in Hedge Funds since 1994Investing in Hedge Funds since 1994One of the largest Hedge Fund Allocators Launched leading benchmark CS/Tremont in 1999

Offering Australian investors CS/Tremont Index Strategies FundEfficient access to Hedge Funds through index strategyEfficient access to Hedge Funds through index strategyBroadly diversified exposure including access to closed fundsDaily liquidityNo performance fee

28


presentation to portfolioconstruction conference 2008 “the ... · 30.06.2008 · presentation....

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