Investment strategy in a fast changing environment

1. Investment strategy in a fast changing environment

2. Introduction 1. Initial lessons from the credit crises a. Inflation or disinflation b. Are we still in a low growth environment? 2. Applying the lessons learnt a. How have the fund strategies changed in the wake of the crisis? b. How does asset allocation protect against disasters? c. How do funds avoid negative return years? d. What should is the correct time horizon for investments? Sponsored by:

3. Initial lessons Financial market regulation on the increase Post crises • Regulation • Light regulation does not work • Volcker Rule limits prop trading & exposure to hedge funds • Frank-Dodd regulates banks, rating agencies, buyout firms & hedge fund Sponsored by:

4. Initial lessons Initial lessons Wider remit for monetary policy Post crises (continued) • Lessons for monetary policy • Macro financial stability • An open capital account reduces effectiveness • Lessons for fiscal policy • Counter cyclical policy to mitigate booms • Save for rainy days Sponsored by:

5. Weighing in on the inflation, deflation or disinflation debate Fed Balance Sheet vs. US CPI growth • Banks can create 10X more money than central banks through fractional reserving Source: OECD

6. Rate of growth will slow as the supply of credit is restricted US Credit Market Debt vs. US GDP Source: OECD

7. Applying the lessons learned from the financial crisis

8. How has fund strategy changed in the wake of the crisis? Sponsored by:

9. How has fund strategy changed in the wake of the crisis? Source: ICI, Deutsche Bank Research

10. How has fund strategy changed in the wake of the crisis? Source: Haver Analytics, Deutsche Bank

11. Domestic Vs. International equity Sponsored by:

12. How asset allocation protects against disasters?

13. Bonds versus Equities Barclays US Aggregate Total Return Un-hedged USD versus S&P 500 Source: Bloomberg

14. Equity returns were very poor • between 2000 & 2008 S&P 500 Rolling 10 Year Return

15. Do trustees and members have the • correct time horizon for investments? Source: BlackRock

16. Questions Sponsored by:

17. Global Interest Rates at Historical Lows Source: Bloomberg, Futuregrowth Sponsored by: 17

18. Japan Structural impediments remain USA Fed steps back – can Treasury play its part? The Developed WorldMonetary versus fiscal policy, unemployment headwinds to growth EU Structural impediments remain The Emerging World Re-calibration for the BRICs (18% of global GDP) Brazil Too much government & consumption India Large infrastructure and private sector backlog to overcome China Too much investment & not enough consumption 18

19. EM Twin Deficits Source: Bloomberg, Futuregrowth Sponsored by: 19

20. A weakening rand trend The Rand has depreciated between 25% & 50% against its major trading partners since Jan 2011 Source: Bloomberg, Futuregrowth Sponsored by: 20

21. Implications for investment • JSE All Share Index at record levels • Central Bank Policy rate at record low • Bond yields at multi-decade lows • Capital preservation as an investment strategy? Sponsored by:

22. Questions Sponsored by: