Collins Stewart Select Funds

1. Collins Stewart Select Funds Use of Alternative Investment Vehicles in Fund of Funds Mark Piper & Justin Oliver Investment Directors

2. Agenda • Who we are • The use of Alternatives in Fund of Fund investing • Importance of Blending

3. Collins Stewart • London listed, independent financial services group • Assets under management and administration of £5bn • Established multi-manager and multi-asset approach • £1.1bn in discretionary Multi-manager assets • £200m in multi-manager funds (Select Funds) • Pioneers in multi-manager investing • Multi-manager fund track records since March 2000 • Long standing use of alternatives, thanks to our offshore heritage Long-standing Multi-Manager with Alternatives Expertise

4. The Use of Alternatives in FoF Investing

5. Fund of Funds • Historically, the Fund of Fund investment world has concentrated exclusively on: • Fund selection • Blending • …of only two asset classes • Equities • Bonds Fund of Funds: the complete outsourced investment solution

6. A new Asset Class • Historically, Alternatives not available to UK investors in regulated vehicles • Hedge Fund-like returns now available to Fund of Fund managers • IMA sector: Absolute Return • Daily liquidity • Greater transparency • Increased opportunity set • Regulated, UCITS III • An additional blending tool for managers Fund of Funds need to keep pace with the industry

7. Alternative asset classes within UCITS III scope • Total Return Bond Funds • Equity long-short Funds • Managed Futures Funds • Global Macro • Natural Resources Funds The most sophisticated of products now available to FoF managers

8. Caveat Emptor • Broadening the range of investments categories requires broader experience: • Alternatives not an homogenous asset class • Marketing hype vs. investment ability • Longevity – historic track record and survivability • Different analytical skill set required to evaluate this specialist asset class A new level of fund analysis is required

9. Not all Alternative Funds are the same • Wide range of returns available • 2009 YTD difference between best and worst performing funds in IMA Absolute Return Sector = 42.17% • Know what you are buying • Some funds are relative (market) return ….not absolute return • Need to do your due diligence 2008 2009

10. Total Return Bond Funds • Manager Selection remains vitally important • Not every fund has been a success • There is a need to know where your manager is positioned and fully understand the risks they are taking

11. Track records – a good long-only manager……

12. …..does not always make a good long-short manager

13. Introducing Alternatives requires extra due diligence • Track records of UCITS III Alternative Funds are usually short or non-existent • To avoid the disasters extensive due diligence needs to be conducted • CSFM can leverage off our hedge fund expertise and manager knowledge • Implement the same operational due diligence for sophisticated Alternative Investment Funds as we do for hedge funds Superior due diligence processes are essential

14. Where do Alternative Investment funds fit? • At the very outset, it is important to establish why any Alternative fund is being held • an asset allocation decisions • part of a blended fund exposure (i.e. fund selection) • There are advantages and drawbacks to each of underlying reason for investment Alternatives can be used for a variety of reasons

15. Importance of Asset Allocation Source: Bloomberg based in GBP except for HFR index (USD). From 31/12/89 to 30/09/08

16. Importance of portfolio construction – Where do Alternative Investment funds fit? • Did this UK equity UCITS III fund perform well over the second half of last year? • Held as part of UK equity fund holdings?  • Held to deliver positive returns/beat cash?X Significant Outperformance of UK equity market but failure to deliver positive returns during a "once in a lifetime “shorting opportunity

17. Importance of portfolio construction – Where do Alternative Investment funds fit? • Has this UK equity Absolute Return fund done a good job since the “rally” began? • Held to deliver positive returns/beat cash?  • Held as part of UK equity fund holdings? ? • Have no doubt that fund groups will be extolling the different virtues of the fund depending on the market environment!

18. The Importance of Blending

19. Why blend different funds and styles? • Superior risk adjusted returns • This example combines three long-only UK equity funds (all held) within Collins Stewart Select Funds and one UK Absolute Return fund • 25% Macro-driven defensive fund • 25% Rotational manager • 25% Focused, bottom-up stock-picker • 25% Absolute Return • The result: • Superior performance • Alpha • Sharpe Ratio • Maximum Drawdown

20. A strong blend can outperform in the good times…. • The blend (taken from the earliest date when all were running) consistently outperformed the UK equity market during the “bull market” • This encompassed a period where equity returns were boosted by significant private equity investment, strong performance from the mining sector and outperformance of small and mid cap stocks (happy days!) • A strong blend can still outperform

21. …..and when the trend changes • Small and mid cap stocks underperformed • Private equity investment vanished • Miners and basic material stocks were hit extremely hard • Yet still the blend still outperforms

22. Collins Stewart Alternative Fund Selection • Analysing Hedge Funds / Alternatives since 1996 • Understand sophisticated investment structures • Understand liquidity issues • Manage a Fund of Hedge Funds • Pioneers in multi-manager, multi-asset investing • Long standing use of Alternatives in client portfolios • Multi-manager investing at the core of our business • £1.1billion AUM via multi-manager approach • £200m in Select Funds • Restructured existing funds to make available to UK investors World Class FoF investing requires long-term Alternatives expertise

23. Collins Stewart Select Funds Select Income Fund IMA Cautious Managed Select Diversity Fund IMA Cautious Managed Select Affinity Fund IMA Balanced Managed Select Opportunity Fund IMA Active Managed Range of funds with specific risk limits, available on: 23

24. Collins Stewart Select Funds • Select Diversity Fund • IMA Cautious Managed Sector • Restricted to max equity limit of 60% • 2nd Quartile over 1, 3, 5 years and Since Inception • Select Opportunity Fund • IMA Active Managed Sector • Purest form of our multi-manager skills • Unconstrained version – no max equity limit • 1st Quartile over 1, 3, 5 years and Since Inception Multi-manager investing is at the heart of our business

25. Summary • The Fund of Funds industry has evolved • UCITS III Alternative Investment funds universe expanding • Successful blending with traditional asset classes can enhance returns • Alternative Fund selection requires specific expertise to select and blend these funds • Collins Stewart’s expertise borne out of offshore heritage • Alternative, multi-manager investing since 1996 Multi-manager investing is at the heart of our business

26. Important Information This is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This has no regard for the specific investment objectives, financial situation or needs of any specific entity. For the UK: this is issued by Collins Stewart Europe Limited (“CSEL”) which is authorised and regulated by the Financial Services Authority. Registered Office: 9th Floor, 88 Wood Street, London, EC2V 7QR. For Guernsey, Isle of Man and Jersey: this is issued by Collins Stewart (CI) Limited (“CSCI”) which is licensed and regulated by the Guernsey Financial Services Commission, the Isle of Man Financial Supervision Commission and the Jersey Financial Services Commission and is a member of the London Stock Exchange, the Channel Islands Stock Exchange and ICMA. CSCI is registered in Guernsey and is a wholly owned subsidiary of Collins Stewart plc. CSEL, CSCI and/or connected persons may, from time to time, have positions in, make a market in and/or effect transactions in any investment or related investment mentioned herein and may provide financial services to the issuers of such investments. The information contained herein is based on materials and sources that we believe to be reliable, however, CSEL and CSCI make no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. All opinions and estimates included in this are subject to change without notice and CSEL and CSCI are under no obligation to update the information contained herein. None of CSEL, CSCI, their affiliates or employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from any use of this. CSEL and CSCI do not make any warranties, express or implied, that the products, securities or services advertised are available in your jurisdiction. Accordingly, if it is prohibited to advertise or make the products, securities or services available in your jurisdiction, or to you (by reason of nationality, residence or otherwise) such products, securities or services are not directed at you. Investments involve risk. The investments discussed in this may not be suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and, if in any doubt, should seek advice from an investment advisor. Past performance is not necessarily a guide to future performance and an investor may not get back the amount originally invested. Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from them, will be affected by movements in exchange rates. This effect may could be unfavourable as well as favourable. Levels and bases for taxation may change. Collins Stewart Wealth Management is a trading name of Collins Stewart (CI) Limited in Guernsey, Isle of Man and Jersey and of Collins Stewart Europe Limited in the UK.