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Thematic Investments

Thematic Investments. Philippe ROHNER FIAP Seminar, Warsaw, May 28th 2009. Agenda. Identifying megatrends Two thematic investments opportunities - Water - Clean Energy Conclusions. Identifying megatrends. Table of contents. Investment opportunities. Clean Energy. 1. Knowledge.

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Thematic Investments

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  1. Thematic Investments Philippe ROHNER FIAP Seminar, Warsaw, May 28th 2009

  2. Agenda • Identifying megatrends • Two thematic investments opportunities - Water - Clean Energy • Conclusions

  3. Identifying megatrends Table of contents

  4. Investment opportunities Clean Energy 1. Knowledge Water Generics 15. Ageing 2. Environment Timber 3. Acceleration 14. Democratisation 4. Hyper complexity 13. Health Biotech 12. Globalisation 5. Networks Digital Communication 6. Commercialisation 11. Individualisation Premium Brands 7. Affluence 10. Dematerialisation 9. Polarisation 8. New Technology Security Sources: CIFS Copenhagen, Pictet

  5. How to invest in the water industry

  6. Water – a basic resource Source: K.S.B. Treatment Group

  7. 1. Outdated or non-existent infrastructure • Worldwide water infrastructure is completely outdated • Operational issue: • Thames Water* with 20’000 miles of water pipes: • 1’100 miles to be replaced in 2005-2010 => equivalent of 91 years for the entire network. • 50% of mains over 100 years old30% of mains over 150 years old • Financial issue: • USD 485-896 bn of capital spending needed between 1999-2019** • Legal issue: • EU current and anticipated legislation (2006-2025) will trigger capital expenditure up to EUR 350 bn *** SUBSTANTIAL AND INEVITABLE INVESTMENTS HUGE OPPORTUNITY FOR EQUIPMENT MANUFACTURERS Sources: * Thames Water, Evidence to the House of Lords , 4th October 2006 ** ‘The Clean Water and Drinking Water Infrastructure Gap Analysis’ US EPA, Office of Water, Sept. 2002 *** David Owen, Independent Water Sector Analyst

  8. 2. Outsourcing of water services • Municipal level • Outsourcing of water business with Public-Private-Partnership (PPP) • PPPs operate with up to less than 30% costs than pure public suppliers* • Better quality through performance targets • Ever stronger water quality standards • Ever scarcer financing • Industry level • Reduction of operating costs due to margin erosion • Focus on core business • Need for reliable water supply (semiconductor, tourism) • Liberalisation of service markets worldwide • General Agreement on Trade in Services (GATS) HUGE BUSINESS OPPORTUNITY FOR WATER SERVICE COMPANIES * Source: The Hudson Institute, The NAWC Privatization Study; A Survey of the Use of Public-Private Partnerships in the Drinking Water Utility Sector; June 1999

  9. 19% 3% 18% 54% 27% 19% 9% Water services outsourcing - forecasts Market potential 2003-2015 Population (2003) Potential 2015 Already completed privatisation (%) 389m 316m 301m 44% 15% 9% 1’398m Western Europe North America Central & Eastern Europe 1’954m 1% 6’092m 459m 12% 16% 721m World Middle & South Asia 19% 5% Middle- & South America South East Asia 11% Middle East & Africa A $260 BN MARKET GROWING AT 6% PER ANNUM Source: David Owen, Managing Director Envisager Ltd, 2007

  10. Dynamics of water prices (1989-2008) HISTORICAL WATER PRICES IN CALIFORNIA Source: SEC filing American States Water 2008, Bloomberg Opec crude oil basket

  11. Sector characteristics • Market still underpricesstrategic importance of the water industry • Strong fundamentals- under supply- rising demand- sustainable growth for contributors water value chain for water supplyand infrastructure • Still highly fragmented industry,consolidation continuing • Attractive risk – return profile SECTOR CHARACTERISTICS RELATIVE TO WORLD EQUITY MARKET 9 Water portfolio 8.0 8 MSCI World 7.8 rising prices 7 6 5.4 5 4.8 4 3.8 3 2.9 2.2 2 2.1 1.6 1 0 Cashflow growth Price to Cashflow Price to Book Div Yield FY1 relative average (FY0-FY2) FY1 market cap Source: MSCI, IBES, Worldscope, Pictet Asset Management, as of 04/02/09

  12. How to invest in clean energy Table of contents

  13. Historical evolution of the energy mix ENERGY CONSUMPTION BY TYPE Source: U.S: Department of Energy ENERGY HAS BEEN IN A CONTINOUS TRANSITION SINCE THE INDUSTRIAL REVOLUTION

  14. NEW INVESTMENT IN RENEWABLE ENERGY: NEW BUILD ASSET FINANCE Billions of $ `04-12 CAGR: 34% Source: New Energy Finance, February 2009(Forecasts for 2009-2012 are preliminary numbers) Investment in renewable energy CLEAN ENERGY HAS FELT THE IMPACT OF THE CREDIT CRISES BUT 2010 LOOKS PROMISING

  15. CLEAN ENERGY INVESTMENT THEMES Environment Energy Wind Oil Water Solar Hydroelectric Biomass Geothermal Nuclear Ocean Natural Gas WasteManagement Energy Efficiency Coal Clean energy defined

  16. Drivers for Clean Energy • Environment: There is increasing consensus on climate change, the world is responding • Energy supply:Today’s energy resources are finite • Energy independence:Concerns over dependence on imported energy

  17. Carbon Free Energy - Solar - Wind - Hydroelectric - Geothermal - Tidal/Wave Supply Low Carbon Energy - Natural Gas - Biomass - Waste to energy - CO2 Capture & Storage - Lighting - Batteries - Power monitoring & control - Heating, cooling & insulation - Appliances - Flywheels - Fuel cell Energy Efficiency Demand Clean energy presents opportunities TRANSITION TO CLEAN ENERGY WILL DRIVE GROWTH IN DIVERSE AREAS

  18. P/E VS EPS GROWTH EV/EBITDA VS EBITDA GROWTH 20x 20x Clean Energy portfolio 15x 15x MSCI World FY1 EV/EBITDA FY1 P/E 10x 10x Clean Energy portfolio MSCI World 5x 5x x x 0% 5% 10% 15% 20% 25% -20% -10% 0% 10% 20% FY1 EBITDA Growth FY1 EPS Growth Clean Energy portfolio characteristics CLEAN ENERGY IS MORE EXPENSIVE THAN GLOBAL EQUITIES BUT GROWS MUCH FASTER Source: FactSet, as of 27/02/09

  19. 3. Conclusions

  20. Theme based Investing - Summary Remarks • Pricing in Externalities: Identifies new investment themes • Traditional Investment Sectors are not theme based • Indices neglect theme based investment opportunities • Theme based investing is process and not benchmark driven

  21. RISK/RETURN PROFILE OF A WATER INVESTED PORTFOLIO (JAN 2000 – MAR 2009) 10% 5% Energy Water Portfolio 0% Consumer staples Materials Utilities MSCI Composite Return p.a. -5% Health Care Industrials World Financials -10% Cons Discretionary Telco Services -15% Tech -20% 0% 5% 10% 15% 20% 25% 30% 35% Volatility p.a. Risk/return profile Source: Pictet Asset Management, FactSet

  22. Diversification benefits CORRELATION MATRIX (MAR 02 – MAR09) Source: MPI Stylus in USD

  23. Simulation of historical performance of an equally weighted theme fund portfolio 160 150 140 130 120 110 100 Δ=+4.08% 90 80 02.02.2004 19.07.2004 03.01.2005 20.06.2005 05.12.2005 22.05.2006 06.11.2006 23.04.2007 08.10.2007 24.03.2008 08.09.2008 MSCI World Theme fund basket Past performance is no guarantee of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. Return benefits • Equal weighting with monthly rebalancing • Out performance against the MSCI World after management fees Source: Pictet; in EUR; historical performance over 5 years from January 31, 2004 to January 30, 2009, monthly rebalancing

  24. Conclusions • Why Pension Funds ? • Thematic investments offer a very attractive growth and return profile aligned with Pension Funds investment objectives • Global Equity Exposure regardless of MSCI traditional sectorisation • Access to a group of companies not reflected in traditional indexes and unresearched • Why Now ? • The investment framework is in constant evolution and fully supported by governments and Capital markets, creating new opportunities for long term Institutional Investors THEMATIC INVESTMENT APPROACH ALLOWS PENSION FUNDS TO BENEFIT FROM MEGATRENDS, MEANING LONG TERM & SUSTAINABLE INVESTMENT THEMES

  25. MANY THANKS FOR YOUR ATTENTION Philippe Rohner Senior Investment Manager Sector & Theme funds Team Pictet Asset Management Geneva - Switzerland Gonzalo Rengifo Abbad Country Head - Iberia and Latin America Pictet & Cie (Europe) S.A., Sucursal en España Madrid - Spain

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