CIO Dinner - Cambridge 23 October 2013

2

Credit Cash Bonds Equity Commodities Real Estate

1800s (1902-1999) 5.70 6.20

1900s (1900-1999) 0.90 1.50 7.50

1900s (1900-1909) 2.40 1.60 8.80

1910s -2.50 -4.50 -2.30

1920s 5.80 6.60 16.90

1930s 9.00 2.40 5.80 2.50

1940s -2.70 -5.30 -2.90 3.50

1950s -1.10 -0.10 -1.40 16.70

1960s -0.80 1.60 0.10 5.20 3.90

1970s -1.20 -1.00 -1.70 -1.30 12.80 2.40

1980s 7.60 3.20 6.70 11.80 5.30 6.20

1990s 5.30 2.00 4.80 15.10 1.00 2.80

2000s (2000-2009) 5.20 0.10 4.10 -3.40 2.50 4.70

2010-2013* 3.64 -2.07 1.93 6.36 -3.91 14.62

Centuries, decades and years of average real returns

Average 2.77 0.57 2.02 6.68 3.54 5.77

Median 3.64 0.90 1.76 6.28 2.50 4.30

Miss Rate (%) 44 42 33 25 20 0

Source: Kleinwort Benson; Datastream, Ilmanen (2011) - Expected returns: An investor's guide to harvesting market rewards

3

Central banks The Japanese have arrived to the “high-stakes” QE game late, and they’re all in

7% 6%

17%

22%

26%

21%

26%

39%

UK US Eurozone Japan

2007 Data

Latest 4Q GDP

Central banks balance sheet (% of nominal GDP1)

The Fed and the BoJ have had notable increases in

their balance sheets over the second quarter of 2013

The Bank of Japan claims that it will double its

money supply within 24 months – though it is

starting from a much more burdened position

All central bank balance sheets have expanded in

2013, with the exception of the UK

Source:Bloomberg, Office of National Statistics, Bureau of Economic Analysis, Eurostat, Economic and Social Research Institute, National Central Banks

1. Balance sheet and GDP data as Q2 2013.

4

Mountains of debt

Since 2007, the US, UK, Germany, France and the

PIIGS have increased their government debt by $12

trillion

Government debt in the UK has increased by £760

billion in five years, raising debt as a percentage of

GDP from 44% to 93%

Deleveraging? It is more like re-leveraging

67

44

66

42

108

94 95

41

107 100

92

39

US UK Eurozone BRIC

2007

2013

2017

Gross Government Debt as % of GDP

Source: IMF, Bloomberg

1. 2013 and 2017 figures are IMF forecasts

5

1.9

0.0

1.0

2.0

3.0

1980 1991 2002 2013

P/B Average pre-1995 Average post-1995

Equities are at pre-crisis valuations

Equity valuations

Global equities: price to book ratio

1980 – Sep 2013*

1.8x

2.2x

Expensive

Cheap

Source: Datastream, Kleinwort Benson calculations * As of 1 September 2013

6

The Great Depression ...had some great years too

-18%

-32%

-48%

-15%

51%

0%

39%

27%

-38%

23%

-3%

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939

US Equity Returns

1929 - 1939

Source: Barclays Equity Gilts Study 2012

7

The Great Depression After a horrific loss, stocks rallied over 250% from a deeply undervalued position

Source: Barclays Equity Gilts Study 2012

$100

$25

$66

$49

20

30

40

50

60

70

80

90

100

1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939

US Equity Returns ($100 invested in 1928)

1929 - 1939

8

IMF house price to wage ratio

Chinese Tier 1 cities are more expensive than developed market cities

4.4 5.1 5.5 5.7

6.2 6.3 6.9 7.2

9.2 10 10.3

12.6 12.7

15.9

22.3

0

5

10

15

20

25

Source: IMF, Credit Suisse research