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Investment Asset Classes

A Brief Introduction

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Traditional Asset Classes

US Stocks $11.9T EAFE Stocks $14.4T US Fixed Income $13.9T Intl Fixed Income $17.2T US High Yield $.8T

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Emerging Markets

EM Stocks $6.4T Bonds $.4T

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Alternatives

Real Estate $11.5T/$90T Commodities >$4T Timberland $.06T Hedge funds $1.6T* PE $2T VC .25T*Versus 22.4B worldwide in mutual funds

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Real Estate-How Much IS Publicly-Traded?

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Commodities as Asset Class

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Commodity Trading Vs Production

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Timber

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Timber

Traditionally institutional ETFs CUT and WOOD

Asset Class Correlation Bonds 0.03 International Equity 0.76 Domestic Equity 0.69 REITs 0.55 Commodities 0.20 3-Month T-Bill 0.08 Source ETFDB.com

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Hedge Funds

Not mutual funds• Not subject to SEC regulation (so far)

• Organized as limited partnership• Small number of sophisticated investors

• Common feature is use of leverage

High returns in 1990s• Lack of correlation has not held up recently

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Hedge Funds Different From Mutual Funds

Investment by manager Limited to high net worth investors Concentrated bets Fees – large Little regulatory oversight Lack of liquidity Lack of transparency Asset allocation is slippery High attrition Can hold riskier assets Significant leverage

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Estimated Growth of Assets / Net Asset Flow Hedge Fund Industry 1990 – Q1 2007

$38,910 $58,370$95,720

$185,750

$256,720

$456,430$490,580

$539,060

$57,407$91,431

$4,406$55,340

$23,336$46,545

$99,436$126,474

$60,222

$374,770$367,560

$625,554

$820,009

$1,105,385

$972,608

$167,360$167,790

$1,464,526

$1,568,400

$73,585

$8,463

$70,635

$14,698

($1,141)

$36,918$27,861 $46,907

($100,000)

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000

$1,100,000

$1,200,000

$1,300,000

$1,400,000

$1,500,000

$1,600,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Q12007

Ass

ets

(In

$M

M)

Estimated Assets Net Asset Flow

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Some Hedge Fund Strategies

Mutual funds are long-only Long/short equity

• Statistical arbitrage

• Market neutral

Event Driven Global Macro Arbitrage

• Convertibles arbitrage

• Relative value

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Hedge Funds

Near collapse of Long-Term Capital Management• $3.6 billion bailout

• Precipitated SEC scrutiny of hedge funds

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Regulation of Hedge Funds

Generally unregulated• Exemption for less than 100 investors

• Exemption if accredited

Scandals such as Canary Capital Partners

• Illegal trading with mutual funds

• Amaranth Advisors, 2006

• SEC scrutiny

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Offshore Hedge Funds

Major centers include Cayman Islands, Bermuda, Dublin, Luxembourg.

Rules • Generally not burdensome

• Anonymity

• Tax advantages

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The following 5 slides* are from:

AIMA’s Roadmap To Hedge Fundspublished November, 2008

Alternative Investment Management Association

* Also slide # 29

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Hedge Fund Fee Justification

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Returns According to Industry Group (IAMA)

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Example of Quick Summary - Timber