Squaring

1. Squaring the Circle • Medical Schemes: Investing in a new asset class • Theron van Wyk, Managing Director • TriAlpha Investment Management (Pty) Ltd • 24th July 2007 The BHF Southern African Conference 22-25 July’07 Sun City

2. Squaring Contents the Circle • Introduction to the Hedge Fund Industry • How relevant are Hedge Funds for Medical Schemes? The BHF Southern African Conference 22-25 July’07 Sun City

3. Squaring What are Hedge Funds? the Circle Traditional Investments (e.g. equities, bonds) Hedge Funds Investment Objective Absolute Real Return Outperform a market benchmark Primary Source of Returns Market Based Manager Skill Investment Constraints Flexible Long Only Manager Compensation Based on AUM & Performance Based on AUM Fundamentally different The BHF Southern African Conference 22-25 July’07 Sun City

4. Squaring Growth of Emerging Markets Hedge Fund Industry the Circle Source: Hedgefund.net The BHF Southern African Conference 22-25 July’07 Sun City

5. Growth of South African Hedge Fund Industry the Circle The BHF Southern African Conference 22-25 July’07 Sun City

6. Squaring Contents the Circle • Introduction to the Hedge Fund Industry • How relevant are Hedge Funds for Medical Schemes? The BHF Southern African Conference 22-25 July’07 Sun City

7. Squaring Conundrum for Medical Schemes the Circle • Medical inflation has exceeded general inflation • Due to nature of liabilities a significant portion of assets are held in cash-related assets • Returns on most cash-related assets are not competitive in inflation-adjusted terms The BHF Southern African Conference 22-25 July’07 Sun City

8. Squaring Can Hedge Funds assist in addressing this challenge? the Circle NO • If Hedge Fund is part of volatile/risky section of Hedge Fund universe • If it is a single strategy Hedge Fund • If the liquidity is too low YES • If Hedge Fund is part of low risk/”cash enhancers” part of hedge fund universe • If it is a multi-strategy Fund of Hedge Funds • If the liquidity good The BHF Southern African Conference 22-25 July’07 Sun City

9. Squaring Generic Profile of ideal Hedge Fund solution the Circle Performance • Cash + 2% over any rolling 12 months (net of fees) Risk • Annualised volatility of 50% of ALBI volatility • Maximum drawdown 5% The BHF Southern African Conference 22-25 July’07 Sun City

10. Squaring South African Regulation the Circle • Hedge Funds are structured in various ways • Degree to which a Medical Scheme can invest depends on structure • Most common structure for local fund of hedge funds: Unlisted Debenture • In this case up to 5% of assets can be invested Extract from Annexure B of Reg.30 of the Medical Schemes Act The BHF Southern African Conference 22-25 July’07 Sun City

11. Squaring Conclusion the Circle • Hedge Fund industry well established and used by institutions internationally • SA Hedge Fund industry, although newer, following global growth path • Right type of Hedge Fund can be an additional tool for Medical Schemes to enhance cash returns without significantly increasing portfolio risk The BHF Southern African Conference 22-25 July’07 Sun City