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Barclays Global Investors Us Debt Index Fund - PowerPoint

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									Investment trends in the global hedge fund
business




Antoine Massad – CEO, Man Investments Middle East Limited
May 2006                                                    A member of the Man Group
Important notes


This document is not an invitation to make an investment in any product to which Man Investments
Limited (or any other member of Man Group plc’s group of companies) provides investment advisory or
any other services, nor does it constitute an offer for the sale or purchase of bonds (or any other
instruments) issued by any entity.
Information contained herein is provided from the Man database except where otherwise stated.
Potential investors should note that alternative investments can involve significant risks and the value of
an investment may go down as well as up. There is no guarantee of trading performance and past or
projected performance is not necessarily a guide to future results.
This material is communicated by Man Investments Limited, which is authorised and regulated by the
Financial Services Authority.
This material is only to be communicated to investment professionals, market counterparties or
intermediate customers and must not be relied upon by any other person.


www.maninvestments.com




                                                                                                              2
Three broad themes

•   Growth and consolidation of the hedge fund industry
•   Shifting client need
•   New styles, strategies and sources of alpha




                                                          3
  Projected growth of the global hedge fund industry
                    FYI: This chart is updated to 31 Dec 2004




                  25000                                                                                                                                                    3000             Hedge fund attrition rate1
                                     Number of hedge funds
                                     Projected number of hedge funds – 20% growth p/a                                                                                                        1999                             4.7 %
                                     Projected number of hedge funds – 10% growth p/a                                                                                      2500
                  20000                                                                                                                                                                      2000                             6.4 %
                                     Hedge fund assets
                                     Projected hedge fund assets – 20% growth p/a                                                                                                            2001                             4.3 %
                                                                                                                                                                           2000
                                     Projected hedge fund assets – 10% growth p/a                                                                                                            2002                             3.8 %
                  15000

                                                                                                                                                                           1500
                                                                                                                                                                                             2003                             5.3 %
                                                                                                                                                                                             2004                             5.3 %
                  10000
                                                                                                                                                                           1000
Number of funds




                   5000
                                                                                                                                                                           500




                                                                                                                                                                                   USD bn
                      0                                                                                                                                                    0

                             1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

                                                                                     Source: Hedge Fund Research, Inc (HFRI).
                                                                                     Please note that from 2005 to 2010 the chart                             Take this disclaimer
                                                                                     shows a projection of how the number of funds
                                                                                     and hedge fund assets may increase. The lower
                                                                                     projection shows a 10% increase and the upper projection
                                                                                     a 20% increase in the number of fund and hedge fund assets
                                                                                     each year from 2004. Please note that as at 31 December 2004,
                                                                                     the actual number of funds is 7,436 and the hedge fund assets is
                                                                                     USD 973 billion.
  Source: Hedge Fund Research, Inc. (HFRI) and Hennessee Group LLC. Please note that from 2006 to 2010 the chart shows a projection of how the number of funds and hedge fund assets may increase. The lower projection shows
  a 10% increase and the upper projection a 20% increase in the number of fund and hedge fund assets each year from 2002. Please note that as at 31 December 2005, the actual number of funds is 8,664 and the hedge fund assets
  is USD 1,105 billion. 1Please note the hedge fund attrition rates are for the Hennessee Hedge Fund Index.

                                                                                                                                                                                                                                      4
Average assets per hedge fund
                               2D Graph 1


         140
                                            •   Since 1997 average assets per
         120
                                                hedge fund around the USD 120
                                                million mark
         100
                                            •   Steady continuous growth for the
         80                                     last 9 years
         60


         40


         20
USD mn




           0
                 90

                 91

                 92

                 93

                 94

                 95

                 96

                 97

                 98

                 99

                 00

                 01

                 02

                 03

                 04

                 05
               19

               19

               19

               19

               19

               19

               19

               19

               19

               19

               20

               20

               20

               20

               20

               20




Source: HFR Industry Report.




                                                                                   5
…But is it a two way street
Life time of hedge funds that ceased reporting

 1978 to 2005
                                                                                                                         Year   Funds closed
                  500
                                                                                                                         2005           335

                  400                                                                                                    2004           348

                                                                                                                         2003           287
                  300
                                                                                                                         2002           261

                                                                                                                         2001           272
                  200
Number of funds




                  100


                    0

                            1   2   3     4     5      6        7   8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
                        Life time in years


Source: Man database and TASS Research.
Please note that 2486 hedge funds were used in this analysis.


                                                                                                                                               6
Industry size in context

                                                                                                                                                       Total assets
        Rank                  Manager                                                                  Country
                                                                                                                                                       (USD millions)
        1.                    UBS                                                                      Switzerland                                     1,975,000

        2.                    Allianz Group                                                            Germany                                         1,459,323

        3.                    Barclays Global Investors                                                UK                                              1,361,949

        4.                    State Street Global Advisors                                             US                                              1,354,330

        5.                    Fidelity Investments                                                     US                                              1,286,107

        6.                    AXA Group                                                                France                                          1,185,316

        7.                    Crédit Suisse                                                            Switzerland                                     1,078,815

        8.                    Capital Group                                                            US                                              1,020,952

        Top 20 managers = USD 18.2 trillion

Source: Pensions & Investments/Watson Wyatt Global 500 survey September 2005. Ranked by total global assets under management as at 31 December 2004.




                                                                                                                                                                        7
Strategy compositions 1990 vs 2005
Industry adapts to changing opportunities

AUM by strategy 1990                                                        AUM by strategy 2005

1       Global macro                               58.3 %                   1   Equity hedge                   36.9 %
2       Managed futures                            17.9 %                   2   Relative value arbitrage       20.4 %
3       Relative value arbitrage                   12.3 %                   3   Event driven                   14.7 %
4       Equity hedge                                5.2 %                   4   Global macro                   10.0 %
5       Event driven                                3.6 %                   5   Managed futures                 6.7 %
6       Distressed securities                       2.0 %                   6   Distressed securities           4.4 %
7       Convertible arbitrage                       0.4 %                   7   Emerging markets                3.8 %
8       Emerging markets                            0.3 %                   8   Convertible arbitrage           3.1 %
                                                                   78
                                                               5 6                                                     7   8
                                                           4                                                       6

                                                                                                               5
                                                   3
                                                                                                                                   1
                                                                                                           4


                                                                        1

                                                       2                                                           3

                                                                                                                               2


Source: HFR Industry Report and Stark & Co, Inc.




                                                                                                                                       8
  Strategy performance1
  Returns remain stable

          16 %                                                                                                    14.7%



          12 %
                                                                     10.7%                      10.7%
                           9.3%
                                                                                                                          8.2%
          8%                        6.7% 7.2%                                                            7.4%                                                                 7.5%
                                                                                6.7%
                                                     6.2% 6.6%                                                                              6.3% 6.2%                 5.9%

                                                                                                                                    4.1%
          4%

                                                                                        0.4%
          0%

                                                                                                                                                             -1.9%
Returns




          -4 %

                                                            t
                           acr
                               o
                                         rag
                                             e          hor            res          ive
                                                                                       n
                                                                                                   sed         tral            rag
                                                                                                                                   e          nds
                        lm           rbit            g/s          futu         t dr            res          neu           rbit           f fu
                     ba         ue
                                   a
                                              ty l
                                                  on          ged         Eve
                                                                             n           Dis
                                                                                             t
                                                                                                       rke
                                                                                                          t           le a            do
                 Glo         val          qui            ana                                        ma           rtib             Fun
                        tive            E              M                                       uity          nve
                    ela                                                                   Eq              Co
                  R

                        Average annual return (last 5 years)
                        Return last 12 months


  Source: Bloomberg. There is no guarantee of trading performance and past performance is not indicative of future results. 1As of 31 December 2005.
  Please note that the HFRI index data over the past 4 months may be subject to change. All indices represented by HFRI except for Managed futures, which is represented by Stark & Co., Inc.


                                                                                                                                                                                                9
US inflation/base rate
                                                         2D Graph 1


10%                                                                                                                          •   High inflation/base rates in the late
                                                                                                                                 ’80s.
8%
                                                                                                                                    – Desire for more volatile
                                                                                                                                      products
6%
                                                                                                                             •   Low inflation/base rates in the ’90s
4%                                                                                                                                  – Desire for lower volatile and
                                                                                                                                      guaranteed products
2%



0%

         89     90     91     92     93     94     95     96     97     98     99     00     01    02     03     04     05
              US Inflation
              US Base rate




Source: Bloomberg. There is no guarantee of trading performance and past performance is not indicative of future results.




                                                                                                                                                                      10
Recent growth rates of hedge fund styles

              12%

              10%

              8%

              6%

              4%

              2%

              0%

              -2%

              -4%
Growth rate




              -6%

              -8%

                               ds                   ge                   ias                  ts                    al                      n               ge                    cro               e           es            y
                             n
                                             itra                    b
                                                                                        ar
                                                                                          ke                eu
                                                                                                               tr              r     ive                  ra               a                      dg          ur           teg
                        l fu             rib
                                                                  rt
                                                                                                          tn                td                    rb
                                                                                                                                                     it                 lm                    yh
                                                                                                                                                                                                 e        fut            ra
                      Al             a                      sh
                                                              o
                                                                                g   m
                                                                                                     ke                   en                  a                     a                   uit             d         lti-st
                                  le                                        gin                  r                   Ev                    me                    ob                    q             ag
                                                                                                                                                                                                       e
                             rtib                   ate
                                                        d
                                                                         er                   ma                                         o                     Gl                   te             an           Mu
                          ve                  ic                                          y                                          i nc                                      or
                        n               d                         Em                uit                                                                                       h                  M
                     Co              De                                         Eq                                           e   d                                      g/s
                                                                                                                         Fix                                     Lo
                                                                                                                                                                    n


                        Average quarterly growth rate period1
                        Q3 2005 growth rate

Source: TASS Research.
1Average quarterly growth rate is for the period 1 January 1994 to 30 September 2005.




                                                                                                                                                                                                                                  11
Investable indices vs. non-investable indices
31 July 2003 to 31 December 2005


Good performance….

                                                                   Ann.                                                                                                   Ann.
  Non-investable indices                                                               Investable indices                                                                                      Underperformance
                                                                  return                                                                                                 return

  CSFB/Tremont Hedge
                                                                   10.1 % CSFB/Tremont Investable Index                                                                      5.3 %                          4.8 %
  Fund Index
                                                                                       HFRX Global Hedge Fund
  HFRI Composite Index                                             11.3 %                                                                                                    4.1 %                          7.2 %
                                                                                       Index
  MSCI Hedge Fund
                                                                     8.8 % MSCI Hedge Investable Index                                                                       5.1 %                          3.7 %
  Composite Index

  N/A¹                                                                   N/A¹ S&P Hedge Fund Index                                                                           4.6 %                           N/A¹


But can you buy it?


Source: Bloomberg.
Please note that the HFRI index data over the past 4 months may be subject to change. There is no guarantee of trading performance and past performance is not indicative of future results.
¹No non-investable indices exist for Standard & Poors.

                                                                                                                                                                                                                  12
New styles/strategies

•   New styles
       – Commodities
       – Credit
       – Insurance
       – Longer term alpha
       – Emerging local market debt

•   New strategies
       – Asian opportunities
       – Healthcare
       – Special situations




                                      13
Conclusion

•   Is the industry too big?
•   There are new sources of alpha
•   Investable indices are not what they appear
•   Well managed fund of funds can deliver better returns
•   Structured products offering guaranteed return of capital are another safe way into hedge
    funds




                                                                                            14

								
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