Trends in Alternative Asset Management

Andrew McCollumPrincipal, Greenwich Associates

May 2, 2012

Funding gaps remain a problem for U.S. corporations and public funds.

2 CONFIDENTIAL

Source: Greenwich Associates 2011, U.S. IMF-11.Mean calculation excludes reported answers of "0" and / or "None".

U.S. Corporate Funds’ Average Funding Ratio of DB Plans U.S. Public Funds’ Average Solvency Ratio of DB Plans

7.6% actuarial assumption

7.6% actuarial assumption

99% 101%

80%83%

89%

0%

20%

40%

60%

80%

100%

120%

2007 2008 2009 2010 2011

Pro

ject

ed B

enef

it O

blig

atio

n

87% 86%83%

76% 77%

0%

20%

40%

60%

80%

100%

120%

2007 2008 2009 2010 2011

Sol

venc

y R

atio

3 CONFIDENTIAL

Allocations have changed significantly over the past ten years, with allocations to alternatives up dramatically.

47%

15%7%

44%

16%10%

14%

29% 28%34%

17%

33%

Domestic equities International equities Fixed income Alternatives

45%

14%9%

43%

19%11%

17%

31%26% 28%

22%30%

Domestic equities International equities Fixed income Alternatives

42%

12%16%

34%

17%25%

34%26%

20% 22%17%

22%

Domestic equities International equities Fixed income Alternatives

2001 2006 2011

Corporate DB

Public DB

Endowment/Foundation

Source: Greenwich Associates, 2011.

182

17

121

64

37

77

10

19

31

31

22

99

29

118

88

88

116

97

200 150 100 50 0 50 100 150 200

Hedge Fund

Private Equity

Equity Real Estate

International Fixed Income

U.S. Fixed Income

International Equity — Passive

International Equity — Active

U.S. Equity — Passive

U.S. Equity — Active

Number of U.S. Investors

Significantly Decrease Significantly Increase

Allocations to alternative asset categories is expected to increase further in the years ahead.

4 CONFIDENTIAL

U.S. Investors’ 3-Year Institutional Asset Allocation Expectations

Source: Greenwich Associates 2011, U.S. IMF-11.Note: Three year outlook. “No Change” column indicates number of U.S. investors with no allocation changes planned for a given asset class. Results are for corporate and union fund defined benefit plan assets, public fund defined benefit plan assets, and endowment and foundation fund investment pool assets.

No Change

467

489

496

506

496

487

475

459

473

5 CONFIDENTIAL

Most Important Hedge Fund Selection Criteria

55%

63%

23%

31%

20%

14%

16%

14%

9%

13%

41%

21%

58%

44%

37%

41%

39%

38%

37%

30%

0% 20% 40% 60% 80% 100%

Clarity of investment philosophy

Quality of f irm's investment team

Risk management infrastructure

Identif iable source of alpha

Portfolio transparency

Liquidity Terms

Quality of reporting and communications

Separation of investment and operationsmanagement roles

Past investment performance

Fees

Very Important Important

Top Hedge Fund Strategies Currently Employed, by Assets

Source: SEI/Greenwich Associates Hedge Fund White Paper 2011. Source: SEI/Greenwich Associates Hedge Fund White Paper 2011.

To meet with success in the institutional market, firms must align products, business model, and communications with client needs.

5%

8%

10%

13%

15%

27%

33%

42%

53%

82%

Relative value

Commodities/CTA

Fixed incomearbitrage

Market neutral

Special situations

Distressedsecurities

Macro

Credit

Event driven

Long/short equity

6 CONFIDENTIAL

Key Takeaways

▪ Evolving client needs will drive further demand for alternatives products.

▪ Alternatives managers will face increasing competition (and vice versa) from traditional long-only managers.

▪ Increased competition will “institutionalize” the alternatives industry, impacting business models, client servicing, communications, operations, and fees, among other areas.

▪ Alternatives firms must evolve to meet this shifting landscape.

▪ The alternatives industry will require talented – and qualified – individuals to address these challenges.