REPRINTED FROM Insights: A Dow Jones Indexes Newsletter Dow Jones Credit Suisse Hedge Fund Indexes SM For a really in-depth look at the industry, you can read our 2010 Hedge Fund Industry Review (www.hedgeindex.com). The Dow Jones Credit Suisse Hedge Fund IndexSM team prepared it. It examines the drivers of hedge fund Brian performance in 2010 and explores some of the more Peterson noteworthy trends that have characterized hedge funds. It also examines possible themes for this year. Director of Credit Suisse Index Co., Insights: How have investor attitudes toward hedge LLC, and Head of funds and hedge fund indexes changed since before the the Hedge Fund recent financial crisis? Index Group within Credit Suisse Asset Peterson: Hedge funds experienced a 19% loss in 2008. Management This was the first year in a decade that they didn’t deliver positive performance as an asset class. Then in 2009 and 2010, hedge funds rebounded. They Insights sat down with Brian Peterson of Credit actually offered better risk-adjusted returns than traditional Suisse Asset Management to discuss the state asset classes. The fact is that they emerged from one of of the hedge fund industry and an exciting new the most significant market dislocations to date, producing offering within the Dow Jones Credit Suisse their highest return in 10 years. That really helped to bolster Hedge Fund Index family. investor confidence and interest. SM As a result, the industry saw an estimated $22.6 billion in inflows in 2010. This represents the largest annual inflows into Insights: What kind of interest are you seeing in the the space since 2007, and it shows the promise to continue. Dow Jones Credit Suisse Hedge Fund IndexesSM this year? At the same time, we continue to see greater focus on Peterson: One of the big stories of 2010 was the ability transparency, liquidity, risk management and operational due of the overall hedge fund industry to surpass its previous diligence. These trends have also helped to increase interest high water marks. In the two years since global markets in hedge fund indexes. bottomed out, hedge funds have returned a cumulative 31.55%—that’s a 5.67% gain over their pre-crisis highs From an investor perspective, the diversified nature of the (as of December 31, 2010). In addition, according to our Dow Jones Credit Suisse Hedge Fund IndexesSM helps research, more than 80% of hedge fund assets are now anyone who wants to follow the broad market rather than above their previous high water marks. individual managers. It also communicates the aggregate performance of the hedge fund industry. So hedge funds’ ability to generate positive performance, despite increased volatility in overall markets, has prompted Keep in mind that a hedge fund index isn’t meant to provide renewed interest in this space. As the industry’s premier a subjective view on the direction of individual hedge funds asset-weighted hedge fund indexes, the Dow Jones Credit and strategies. Instead, an index-based approach tries to Suisse Hedge Fund IndexesSM have received increasing mirror the return of all sectors. investor and media attention, with extensive coverage in major publications, including The Wall Street Journal. Insights: Credit Suisse only recently teamed up with Dow This index is priced daily, and it’s set to become the new Jones Indexes to publish its hedge fund indexes. What did industry standard for tracking the performance of the liquid Credit Suisse find appealing about working with them? hedge fund universe. Its enhanced liquidity and transparency will also allow us to create unique new products. Peterson: Dow Jones Indexes has a reputation for integrity as an experienced calculation agent. As a global brand We’re offering investors objective, transparent and cost- name and an index leader, we believe that partnering with efficient gauges of the hedge fund industry. Overall, we believe them provides added credibility for these indexes. that the Dow Jones Credit Suisse Core Hedge Fund IndexSM represents a significant innovation in hedge fund indexing. For our part, Credit Suisse is a leader in the alternatives space. We have more than $28.9 billion in hedge fund assets under management. We’ve also been ranked one of Insights: What’s the outlook for hedge fund indexing? the top 15 largest fund-of-hedge-fund providers in recent Peterson: Hedge funds play an important role in the market, surveys (by Institutional Investor). and we’re committed to measuring their performance. That Our alliance marries the hedge fund expertise of Credit way, we can provide the appropriate tools for market players, Suisse with the indexing expertise of Dow Jones Indexes. including investors, hedge fund and fund of hedge fund Together, we have an industry-leading index family that managers, academic researchers and anyone else interested boasts one of the largest databases in the industry, with more in the performance of the hedge fund space. than 8,000 hedge funds representing $1.1 trillion in assets. In You have to remember what a significant part of the market addition, by combining our two companies’ distribution and hedge funds represent. We currently estimate the market at marketing capabilities, we’re looking to increase our market $1.7 trillion—and that number is growing. The Dow Jones presence, brand recognition and index representation. Credit Suisse Hedge Fund IndexSM family provides a platform to track the industry and industry trends because it captures Insights: Tell us about the newest index: the Dow Jones the most important information. Credit Suisse Core Hedge Fund IndexSM. Why was it created? In addition, hedge fund indexes can serve as benchmarks How is it different from the other indexes in the family? for investors to measure their performance. This is also the Peterson: The credit crisis of 2008 heightened hedge fund case for funds within the industry that might want to gauge investors’ awareness of their liquidity needs. As a result, how they’re performing relative to their peers. These two today they’re actively seeking objective, transparent insight factors can’t be underestimated. into the performance of the hedge fund industry. Now that the worst of the financial crisis seems to be behind The new Dow Jones Credit Suisse Core Hedge Fund Index SM us, sentiment has shifted on hedge funds. Our research and was launched in response to this demand. It fills a void for experience suggest that today’s investors are focusing more investors seeking a reliable and trustworthy performance keenly on manager reputation and track records as well as gauge of liquid, investable hedge funds. strong operational platform and oversight. We’re finding that they need our indexes more than ever before. The index was designed to track the performance of this market. It’s the first asset-weighted hedge fund index to comprise managed accounts and other regulated fund For more information on the Dow Jones structures sourced from across a range of platforms. This Credit Suisse Hedge Fund Indexes , visit: SM represents an advantage over other investable indexes, which are limited to the funds available on single managed- > > www.hedgeindex.com account platforms. It also ensures that the index provides the broadest representation of the liquid hedge fund universe—without platform bias.