LIQUID HEDGE FUND STRATEGIES AS A PORTFOLIO ......2,853 Brazil Fund Alt - Other 8/28/2007 167 165...

For Professional Investor Use Only. Not for Distribution to Retail Client.

LIQUID HEDGE FUND STRATEGIES AS A PORTFOLIO DIVERSIFIER: WHY NOW?March 2020

Bill Santos Senior Managing DirectorInstitutional Portfolio Management & Business DevelopmentK2 Advisors


For Professional Investor Use Only. Not for Distribution to Retail Client. 1

Table of Contents

Market Insights

Where Are We in the Equity/Bond Market Cycle?

Liquid Hedge Fund Strategies as a Diversifier

ESG & Liquid Hedge Strategies

Reasons to Invest Now


MARKET INSIGHTS


Source: Morningstar direct as of 31 January 2020Please see Important Disclosures and Disclaimers at the end of this presentation which provide detailed information regarding information presented herein and are integral part hereof.

Global Liquid Hedge Fund Strategies$940bn Industry AUM

• In 2019, the fund industry saw net outflows of $43bn

› Despite outflows over 1Y the Multi-Strategy category remains the largest category by assets ($413bn)

› Over 1Y, Relative-Value Arbitrage was the main industry bright spot with flows over $4.4bn

Fund Industry

Global Category MS Categoryy

AUMin $mn #Funds 3M Flows 6M Flows 1Y Flows 3Y Flows

Currency Currency 23,044 209 -851 1,768 91 1,797 Currency Total 23,044 209 -851 1,768 91 1,797

Long/Short Equity

Long/Short Equity - US 8,260 54 294 124 524 585 Long/Short Equity - Europe 17,959 147 -787 -1,078 -3,700 -435 Long/Short Equity - Global 42,590 277 -1,122 -3,318 -6,589 -9,436 Long/Short Equity - Other 41,083 616 2,146 3,695 2,936 4,679 Long/Short Equity - UK 9,750 19 -383 -389 -1,220 -1,312

Long/Short Equity Total 119,640 1,113 148 -966 -8,050 -5,919

Market Neutral Market Neutral - Equity 54,835 264 -2,401 -6,124 -13,059 -8,436 Relative Value Arbitrage 18,662 58 930 2,763 4,428 5,735 Market Neutral Total 73,497 322 -1,471 -3,360 -8,631 -2,701

Multialternative Multi Strategy 413,337 2,384 7,876 6,291 -11,980 4,532 Volatility 12,859 76 480 736 306 520 Multialternative Total 426,197 2,460 8,356 7,027 -11,674 5,053

Other Alternative

Long/Short Credit 108,542 270 278 -304 -3,399 7,076 Systematic Futures 22,313 155 -1,596 -1,504 -2,390 -3,429 Global Macro 43,431 125 1,300 -260 -6,944 10,531 Event Driven 16,175 68 561 561 1,629 3,493 Other 100,820 1,094 560 3,527 -2,695 -4,383 Trading - Leveraged/Inverse 6,048 124 -346 -621 -824 -1,634

Other Alternative Total 297,329 1,836 756 1,400 -14,625 11,653

Grand Total 939,708 5,940 6,938 5,868 -42,888 9,883


Manager Selection MattersLiquid Hedge Fund Strategies Globally

Top 10 Selling Funds in Latin AmericaRanked by 1Y Net Sales: $13.2 bn

Top 10 Largest FundsRanked by AUM: $77.8 bn

795

812

858

1,073

1,177

1,239

1,340

1,402

2,203

2,277

BB Allocation Private FIC FIM LP

Itaú Global Dinâmico FIC FIM

Itaú Managed Portfolio 3 FIC FIM

Itaú Global Dinâmico Plus FIC FIM

BB Alocação Ativa FIC FI RF Prev

Kapitalo Master II FIM

Itaú Master Global Dinâmico FIM

Absolute Vertex Master FIM

Legacy Capital Master FIM

BB Brasilprev Top Pré FI RF

Source: Morningstar direct as of 31 January 2020Please see Important Disclosures and Disclaimers at the end of this presentation which provide detailed information regarding information presented herein and are integral part hereof.

Net Flows

Name Assets$mn Category Inception 1Y 3Y 5Y

DWS Concept Kaldemorgen 12,804 Multi Strategy 05/02/11 4,295 5,734 9,187

Invesco Global Tgtd Rets UK 12,566 Multi Strategy 09/09/13 -3,221 1,038 11,710

BSF Fixed Income Strategies 7,978 Long/Short Credit 09/30/09 -450 1,476 5,813

Legg Mason WA Mcr OppBd 7,910 Long/Short Credit 11/29/13 540 4,824 6,291

BNY Mellon Real Return 7,762 Multi Strategy 09/01/93 -2,881 -5,911 -6,952

H2O Multibonds 6,104 Global Macro 08/23/10 512 2,547 2,451

Insight Broad Opportunities 6,085 Multi Strategy 09/07/09 85 1,415 3,934

ASI Global Absolute Ret Strat 5,904 Multi Strategy 01/29/08 -8,585 -27,212 -24,495

Aviva Investors Mlt-Strat Trgt Ret 5,434 Multi Strategy 07/01/14 -1,596 1,138 5,243

H2O Adagio 5,334 Global Macro 08/23/10 -2,933 4,080 4,657

Updated


Latin America Hedge Fund Strategies Fund Size and Category Breakdown

Breakdown of Latin American hedge funds by AUM1

1. Source: EurekaHedge, as of 05 March 20202. Source: Morningstar direct as of 31 January 2020Please see Important Disclosures and Disclaimers at the end of this presentation which provide detailed information regarding information presented herein and are integral part hereof.

Breakdown of Latin American hedge funds by Category2

Net Flows

Monringstar Category Fund CountAssets

$mn 1Y 3Y 5Y

Brazil Fund Alt - Multi Strategy 1069 114,186 15,387 37,822 30,149

Brazil Fund Alt - Other 413 29,805 -487 3,273 1,200

Brazil Fund Alt - Equity Long biased 244 18,281 3,968 3,633 1,868

Brazil Fund Alt - Debt & Currencies 137 16,880 1,241 3,300 -1,262

Brazil Fund Alt - Equity Long-short 172 9,671 1,039 3,317 1,328

Chile Fund Alternative Strategies 3 409 363 41 0

Total above 2,038 189,232 21,512 51,385 33,283

Net Flows

Name Assets$mn Category Inception 1Y 3Y 5Y

BB Brasilprev Top Pré FI RF 5,120 Brazil Fund Alt - Multi Strategy 4/16/2013 2,277 774 2,825 SPX Nimitz Master FIM 4,083 Brazil Fund Alt - Other 11/24/2010 -560 2,331 2,505 Kapitalo Master II FIM 3,857 Brazil Fund Alt - Multi Strategy 8/30/2010 1,239 3,113 3,332 Itaú Managed Portfolio 3 FIC FIM 3,521 Brazil Fund Alt - Multi Strategy 1/2/2014 858 3,122 3,350 Bradesco Athenas PGBL/VGBL FIC FI RF 3,004 Brazil Fund Alt - Debt & Currencies 1/3/2019 - - -Itaú Oiti FIM C Priv IE 2,853 Brazil Fund Alt - Other 8/28/2007 167 165 2,622 Legacy Capital Master FIM 2,822 Brazil Fund Alt - Multi Strategy 11/22/2017 2,203 - -Absolute Vertex Master FIM 2,572 Brazil Fund Alt - Multi Strategy 3/6/2015 1,402 2,197 -Bahia AM Maraú Master RFC FIM 2,543 Brazil Fund Alt - Debt & Currencies 12/14/2012 391 2,521 2,562 BB Alocação Ativa FIC FI RF Prev 2,481 Brazil Fund Alt - Debt & Currencies 8/23/2016 1,177 2,229 -

Top 10 Largest Funds in Latin America2Ranked by AUM: $32.8 bn

0

20

40

60

80

100

120

140

0


Latin America Hedge Fund Strategies Manager Location and Strategy Types

Source: EurekaHedge, as of 05 March 2020Scope: The Eurekahedge Latin American Hedge Fund Database is a database of hedge funds that are either based in Latin America (from Mexico to Chile) or based outside of Latin America but investing into it (such as fundsbased in Miami and New York). Included in this database of South American funds are single manager hedge funds, commodity trading advisors (CTAs), managed futures, long only absolute return funds and Brazilian multimercadofunds. Please see Important Disclosures and Disclaimers at the end of this presentation which provide detailed information regarding information presented herein and are integral part hereof.

Hedge Funds by Manager Location

Brazil United Kingdom United StatesCayman Islands Mexico SpainBahamas Uruguay SwitzerlandHong Kong

Hedge Funds by Strategy

Long Short Equities Multi Strategy Bottom-UpFixed Income Macro Distressed DebtOthers Value Dual ApproachEvent Driven

6


WHERE ARE WE IN THE EQUITY/BOND MARKET CYCLE?


For illustrative and discussion purposes only. The diagram above is a hypothetical illustration of the business cycle. There is not always a chronological, linear progression among the phases of the business cycle, and there have been cycles when the economy has skipped a phase or retraced an earlier one. * A growth recession is a significant decline in activity relative to a country’s long-term economic potential. We use the “growth cycle” definition for most developing economies, such as China, because they tend to exhibit strong trend performance driven by rapid factor accumulation and increases in productivity, and the deviation from the trend tends to matter most for asset returns. We use the classic definition of recession, involving an outright contraction in economic activity, for developed economies. Source: Fidelity Investments (AART); as of 30 April 2019. Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof.

Will the Market Cycle Turn?Major Economies Positioning in the Cycle

China

UK

Germany, France, Italy

United States

Japan, Australia, South Korea, Canada

India, Brazil, Mexico

Spain

Relative Performance of Economically Sensitive Assets

Economic Growth

Inflationary PressuresRed = High

Green = Strong

+

-

Cycle Phases EARLY MID LATE RECESSION• Activity rebounds (GDP, IP,

employment, incomes)• Credit begins to grow• Profits grow rapidly• Policy still stimulative• Inventories low; sales improve

• Growth peaking• Credit growth strong• Profit growth peaks• Policy neutral• Inventories, sales grow;

equilibrium reached

• Growth moderating• Credit tightens• Earnings under pressure• Policy contractionary• Inventories grow; sales growth

falls

• Falling activity• Credit dries up• Profits decline• Policy eases• Inventories, sales fall

RECOVERY EXPANSION CONTRACTION


0

500

1000

1500

2000

2500

3000

3500

O-08 O-09 O-10 O-11 O-12 O-13 O-14 O-15 O-16 O-17 O-18 O-192008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

9

For illustrative and discussion purposes only. 1. S&P 500 Index data from 01 January 2008 through 31 January 2020. Source: Man Institute, The Case for Liquid Alternatives; February 2020Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof.

The Five Elliott WavesEquity markets appear to follow distinct and predictable patterns driven by investor sentiment.The Fifth Wave is almost always followed by a significant step downward

Fifth Stage• Total dominance of

positive narratives

• Participation of unsophisticated investors in the rally

• Unwillingness of market participants to contemplate the possibility of a correction

(I)

(II)

(III)

(IV)

(V)

S&P 500 Index1 and the Five Waves


“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria”.

- Sir John Templeton

10


LIQUID HEDGE FUND STRATEGIES AS A DIVERSIFIER


Combining Hedge Strategies

Investing across Alternative Strategies Can Offer Building Blocks for Creating Additional Portfolio Diversification

Long Short EquityMakes both long and short investments in stocks and stock indexes

Event DrivenSeeks to invest in companies undergoing corporate restructuring events

Relative ValueLooks for opportunities to profit from pricing inefficiencies

Global MacroFocuses on macroeconomic trends around the world

12


1. Data as of January 1, 2020.For illustrative and discussion purposes only. Not representative of the portfolio composition or performance of any Franklin K2 mutual funds. Past performance is not an indicator or a guarantee of future performance.Source: MSCI, Bloomberg Barclays, Hedge Fund Research, Inc. - www.hedgefundresearch.com. The HFRI Fund Weighted Composite Index is being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report. Important data provider notices and terms available at www.franklintempletondatasources.com.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012BarCap

Glob Agghdgd

10.34%

BarCap Glob Agg

hdgd7.24%

BarCap Glob Agg

hdgd8.45%

MSCI World Net

TR unh30.81%

MSCI World Net

TR unh12.84%

HFRIFWI USD unh

9.30%

MSCI World Net

TR unh17.95%

HFRIFWI USD unh

9.96%

BarCap Glob Agg

hdgd5.58%

MSCI World Net

TR unh26.98%

HFRIFWI USD unh10.25%

BarCap Glob Agg

hdgd5.40%

MSCI World Net

TR unh13.18%

HFRIFWI USD unh

4.98%

HFRIFWI USD unh

4.62%

HFRIFWI USD unh-1.45%


HFRIFWI USD unh

9.03%

MSCI World Net

TR unh7.56%


MSCI World Net

TR unh7.09%



MSCI World Net

TR unh9.55%


HFRIFWI USD unh

6.36%

MSCI World Net

TR unh-14.05%

MSCI World Net

TR unh-17.83%

MSCI World Net

TR unh-21.06%

BarCap Glob Agg

hdgd3.11%

BarCap Glob Agg

hdgd4.89%

BarCap Glob Agg

hdgd4.28%

BarCap Glob Agg

hdgd3.64%

BarCap Glob Agg

hdgd5.33%

MSCI World Net

TR unh-42.08%

BarCap Glob Agg

hdgd5.09%

BarCap Glob Agg

hdgd4.61%

MSCI World Net

TR unh-7.62%

BarCap Glob Agg

hdgd5.72%

2013 2014 2015 2016 2017 2018 2019 20201MSCI

World Net TR unh24.10%

BarCap Glob Agg

hdgd7.59%

BarCap Glob Agg

hdgd1.02%

HFRIFWI USD unh

5.44%

MSCI World Net

TR unh20.11%

BarCapGlob Agg

hdgd1.76%

MSCI World Net

TR unh25.19%

BarCapGlob Agg

hdgd1.67%

HFRIFWI USD unh

9.13%

HFRIFWI USD unh

2.98%


MSCI World Net

TR unh5.32%

HFRIFWI USD unh

8.59%



MSCI World Net

TR unh0.57%

BarCap Glob Agg

hdgd-0.14%

MSCI World Net

TR unh2.93%

MSCI World Net

TR unh-2.74%

BarCap Glob Agg

hdgd3.95%

BarCap Glob Agg

hdgd3.04%

MSCI World Net

TR unh-10.44%

BarCapGlob Agg

hdgd8.22%


Percent 1st Place Finishes

Percent 2nd Place Finishes

Percent 3rd Place Finishes

Equities 38% 24% 38%Bonds 43% 0% 57%Hedge Funds 19% 76% 5%

Hedged Strategies Offer Investors Additional Diversification Versus Stocks And Bonds

13

http://www.hedgefundresearch.com/http://www.franklintempletondatasources.com/


-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

Retu

rn

Standard Deviation

14

For illustrative and discussion purposes only. Source: Bloomberg, HFR, MSCI. All returns are shown in USD. MSCI World Index is the MSCI World Index – Gross Returns. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Unlike most asset class indexes, HFR Index returns reflect fees and expenses. Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof. Past performance is not an indicator or a guarantee of future performance.

Risk / Return Over a 10-year Period January 2010 – January 2020

Bloomberg Barclays Global Agg TR Index Value Unh USD

HFRX Global Hedge Fund Index

Bloomberg Barclays Euro Aggregate TR Index Value Unh USD

MSCI World TR Gross USD

ML Emerging Market Credit Latin America USD

MSCI Latin America Net TR


40% Fixed Income 40% Equity20% Hedge Fund

A Complement to a Traditional PortfolioAn Allocation to Hedge Strategies Could Have Helped Improve Return Potential without Significantly Increasing Risk

20-Year Period Ending March 31, 2019

For illustrative purposes only; assumes monthly rebalancing; not representative of the proposed fund’s portfolio composition or performance. Equity is represented by the MSCI World Index. Fixed Income is represented by the Bloomberg Barclays Global Aggregate Index. Hedge Strategies are represented by the HFRI Fund Weighted Composite Index.Source: FactSet. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at www.franklintempletondatasources.com. Source: Hedge Fund Research, Inc. - www.hedgefundresearch.com. The HFR indices are being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report. Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof. Past performance is not an indicator or a guarantee of future performance.

Traditional Portfolio Portfolio with a 10% Hedge Component

3%

4%

5%

6%

7%

3% 5% 7% 9% 11% 13% 15%

ANNU

ALIZ

ED R

ETUR

N

ANNUALIZED RISK (STANDARD DEVIATION)

100% Equity50% Fixed Income 50% Equity

100% Fixed Income

45% Fixed Income 45% Equity10% Hedge Fund

90% Equity10% Hedge Fund

90% Fixed Income10% Hedge Fund

80% Equity20% Hedge Fund

80% Fixed Income20% Hedge Fund

Portfolio with a 20% Hedge Component

15


-1.32%

1.30%

-1.48%

-6.84%

-0.09%

1.28%

0.19% 0.48%

-0.92%

0.77%

-2.97% -2.91%-3.66% -3.69%

-3.27%-3.76% -3.81%

-2.97% -2.79%

-3.97%

-8.00%

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%Feb-99 Jul-03 Apr-04 Oct-08 Jan-09 Dec-09 Nov-10 May-13 Sep-14 Nov-16

HFRI Fund Weighted Composite Index Bloomberg Barclays GlobalAgg Total Return Index Value Unhedged USD

16

For illustrative and discussion purposes only. *Averages shown for noted down periods.Source: Bloomberg, HFR. All returns are shown in USD. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Unlike most asset class indexes, HFR Index returns reflect fees and expenses. Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof. Past performance is not an indicator or a guarantee of future performance.

Downside Protection

Average*: HFRI Fund Weighted Composite Index -0.66%

Average*: Bloomberg Barclays Global Agg TR Value Unhedged USD -3.38%

February 1990 – January 2020

10 Worst Months for the Bloomberg Barclays Global Aggregate Bond Index vs HFRI Fund Weighted Composite Index


-3.45%-1.96%

-8.70%

-2.83%-1.54%

-6.13%-6.84%

-0.09%-1.21%

-2.89%

-9.34%-10.53%

-13.32%

-8.80%

-10.98%-11.85%

-18.93%

-8.73%-10.17%

-9.48%

-20.00%

-18.00%

-16.00%

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%Aug-90 Sep-90 Aug-98 Sep-01 Sep-02 Sep-08 Oct-08 Jan-09 Feb-09 May-10

HFRI Fund Weighted Composite Index MSCI World TR Gross USD

17

For illustrative and discussion purposes only. *Averages shown for noted down periods. Most recent data available.Source: HFR, MSCI. All returns are shown in USD. MSCI World Index is the MSCI World Index – Gross Returns. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Unlike most asset class indexes, HFR Index returns reflect fees and expenses. Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof. Past performance is not an indicator or a guarantee of future performance.

Downside Protection

February 1990 – January 2020

Average*: HFRI Fund Weighted Composite Index -3.57%

Average*: MSCI World Index USD -11.21%

10 Worst Months for the MSCI World Index vs HFRI Fund Weighted Composite Index


For illustrative purposes only.Our process is dynamic and subject to change over time or in response to requirements of a particular mandate. Not all capabilities are relevant for all asset classes.Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof.

Market Uncertainty and Rethinking DiversificationAlternatives Have Become the “Third Asset Class”

Risks such as…• Geopolitical Tensions

Opportunities such as…• Dispersion in Returns Across

and Within Asset Classes

Bonds

Alternatives

Equity1 Risk ON 2 Risk OFF

3 Risk UNCERTAIN

18


81%

59%52%

30% 30%

11%

Diversification Volatility DampenerGrowth/Enhanced Returns Current Income Inflation Hedge Deflation Hedge

As of December 2018

For illustrative and discussion purposes only. Source: Cerulli Associates. Most recent data available. Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof.

Primary Objective of Liquid Alternative Investment Strategy

Diversification Growth/Enhanced Returns

Volatility Dampener

Why Advisors Use Alternative Products

19


ESG & LIQUID HEDGE STRATEGIES


Sustainable Investing & It’s Impact on the Alternative Investments Industry Study

21

Source: KMPG Sustainable Investing: Fast-Forwarding its Evolution, February 2020Please see Important Disclosures and Disclaimers at the end of this presentation which provide detailed information regarding information presented herein and are integral part hereof.

85%Institutional investors are the biggest drivers of demand for ESG-oriented hedge funds

55%ESG-oriented hedge funds continue to target alpha returns, while managing fat-tailed far-off risks

15%Hedge fund managers have embedded ESG factors across their strategies

63%Progress hampered by lack of robust templates, consistent definitions and reliable data

55%

7%

38%

How are ESG factors being used? Which of the following best describes your organization’s strategy when it comes to ESG?

52% 50%

31%

19%12%

5%Sustainability

integrationNegative

screeningShareholderengagement

Impactinvesting

Positivescreening

Thematicinvesting

Target alphaTarget betaManage fat-tail/far-off risk

Hedge Fund Manager Survey


Sustainable Investing & It’s Impact on the Alternative Investments Industry Study

22

Source: The rise of impact — five steps towards an inclusive and sustainable economy; UK National Advisory Board on impact investing 2017 & Impact Management Project 2017Please see Important Disclosures and Disclaimers at the end of this presentation which provide detailed information regarding information presented herein and are integral part hereof.

1 2 3 4 5 6 7 8

Investment Approach Traditional Responsible Sustainable Impact-driven Philanthropy

Financial Goals Deliver competitive risk-adjusted financial returns

Tolerate higher risk

Tolerate below market returns

Partial capital preservation

Accept full loss of capital

Impact Goals

Avoid harm and mitigate ESG risks

Benefit all stakeholders

Contribute to solutions

Don’t consider; may have significant negative outcomes for people and the planet

Avoid harm; try to prevent significant effects on important negative outcomes for people and the planet

Benefit effect; important positive outcomes for various people and the planet

Contribute to solutions; have a material effect on important positive outcomes for underserved people or the planet

Progress along the Spectrum of Capital


ESG Investing & Alternatives: An Alpha Opportunity or Greenwashing?

23

1. List of Alternative UCITS products with an ESG focus is not designed to be exhaustive.Source: Kepler Absolute Hedge, ESG Investing & Alternatives: An Alpha Opportunity or Greenwashing?, February 2020Please see Important Disclosures and Disclaimers at the end of this presentation which provide detailed information regarding information presented herein and are integral part hereof.

Investment Style Description Alternative UCITS products with an ESG Focus1

Screening (Negative or Positive)

• Excluding stock/sectors based on ESG criteria i.e. tobacco companies, armaments, gambling, etc.

• Systematically screening and ranking stocks against various ESG metrics

• JPM Global Macro Sustainable• TwentyFour Sustainable Short-Term Bond

Income

ESG Integration• Explicitly and consistently including ESG

factors into fundamental financial analysis

• Protea UCITS II – ECO Advisors ESG Absolute Return

• LO Funds – TerreNeuve• Osmosis MoRE World Resource Efficiency

Fund Sustainable Market Neutral• LGT Sustainable Equity Market Neutral

Thematic Investing • Investing in themes explicitly related to sustainability e.g. clean energy

• TRIUM ESG Emissions• Coeli SICAV I – Energy Transition• DNB Eco Absolute Return

Impact Investing

• Targeting investment activity towards companies that have a positive impact on society through addressing environmental or social issues

• Ambienta X Alpha UCITS

Corporate Engagement/Shareholder Action/Activism

• The use of shareholder influence to direct change in corporate behavior, corporate structures, etc.

• CIAM Satellite Event-Driven

Five Investment Styles


REASONS TO INVEST NOW


For illustrative purposes only.Our process is dynamic and subject to change over time or in response to requirements of a particular mandate. Not all capabilities are relevant for all asset classes.Please see Important Disclosures and Disclaimers at the end of the presentation, which provide detailed information regarding information presented herein and form an integral part hereof.

Reasons to Invest Now

Market Uncertainty and Rethinking DiversificationAlternatives Have Become the “Third Asset Class”

Risks such as…• Geopolitical Tensions

Opportunities such as…• Dispersion in Returns Across

and Within Asset Classes

Bonds

Alternatives

Equity1 Risk ON 2 Risk OFF

3 Risk UNCERTAIN

25


Important Disclaimers and DisclosuresDEFINITIONS

Alpha – Returns which are not attributable to systematic exposures. This is the return remaining after accounting for the effects of Beta.

Average Correlation (Avg Corr) – The average of the pairwise correlations of a component to the other components in the portfolio.

Beta – the single factor relationship of a portfolio’s or component’s expected returns as compared to a benchmark. It is based on a single factor regression between a month-end holdings snapshot of the portfolio or component andthe benchmark. Betas presented herein were calculated by a third party risk aggregation provider using a Monte Carlo approach based on two years of historical daily return data, weighing more recent returns more heavily than olderreturn data (exponential weighting factor of 0.97) in a manner consistent with the VaR calculations used herein. In some cases K2 adjusts the beta data from the risk system to exclude the effects of illiquid and uncorrelated creditinstruments. In the event that data is not available from a third party risk aggregation provider, betas are estimated using up to 2 years of monthly returns of the portfolio and the benchmark.

Sharpe Ratio - A reward/risk ratio. The numerator, annualized geometric return less the risk-free interest rate (defined as annualized geometric return on 3-month U.S. Treasury Bills), indicates the excess reward earned above therisk-free rate. The denominator, annualized standard deviation, measures the volatility of monthly performance. The higher the Sharpe Ratio, the more return (reward) per unit of volatility (risk) has been achieved.

Standard Deviation - arithmetic standard deviation is a measure of dispersion indicating the degree to which each monthly return clusters about the mean return. Standard deviation is calculated based upon monthly returns throughthe same Monte Carlo approach described above in the definition of Beta, and, in the case of the figures shown on the Hypothetical Statistics page, annualized by multiplying by the square root of 12 (approximately 3.46).

BENCHMARK DEFINITIONS

MSCI World Index USD - The MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world In addition, MSCI tracks Emerging Markets.

Bloomberg Barclays GlobalAgg Total Return Index Value Unhedged USD - The Global Aggregate Index provides a broad-based measure of the global investment-grade fixed-rate debt markets. The Global Aggregate Index containsthree major components: the U.S. Aggregate Index, the Pan-European Aggregate Index, and the Asian- Pacific Aggregate Index. In addition to securities from these three benchmarks, the Global Aggregate Index includes GlobalTreasury, Eurodollar, Euro-Yen, Canadian, and Investment-Grade 144A index-eligible securities not already in the three regional aggregate indices.

The HFRI Fund Weighted Composite Index - is a global, equal-weighted index of over 2,000 single-manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in US Dollar and have aminimum of $50 Million under management or a twelve (12) month track record of active performance.

S&P 500 Index - Standard and Poor's 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500stocks representing all major industries.

HFRX Global Hedge Fund Index - The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies; including but notlimited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets inthe hedge fund industry.

ML Emerging Market Credit Latin America USD – Renamed to BofAML BB & Lower Latin America Non-Sovereign USD External Debt Index (ICDL). ICE BofAML BB & Lower Latin America Non-Sovereign USD External Debt Index isa subset of ICE BofAML BB & Lower Non-Sovereign External Debt Index including all securities denominated in US dollars with a country of risk associated with the geographical region of Latin America.


Important Disclaimers and DisclosuresRISK CONSIDERATIONS

Investments in alternative investment strategies and hedge funds (collectively, “Alternative Investments”) are speculative investments, entail significant risk and should not be considered a complete investment program. An investment in Alternative Investments may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. There can be no assurance that the investment strategies employed by a manager of an investment entity will be successful.

The identification of attractive investment opportunities is difficult and involves a significant degree of uncertainty. Returns generated from Alternative Investments may not adequately compensate investors for the business and financial risks assumed. An investment in Alternative Investments is subject to those market risks common to entities investing in all types of securities, including market volatility. Also, certain trading techniques employed by Alternative Investments, such as leverage and hedging, may increase the adverse impact to which an investment portfolio may be subject.

Alternative Investments are generally not required to provide investors with periodic pricing or valuation and there may be a lack of transparency as to the underlying assets. Investing in Alternative Investments may also involve tax consequences and a prospective investor should consult with a tax advisor before investing. Investors in Alternative Investments will incur direct asset-based fees and expenses and, for certain Alternative Investments such as funds of hedge funds, additional indirect fees, expenses and asset-based compensation of investment funds in which these Alternative Investments invest.

DISCLAIMERS

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.

Data from third party sources may have been used in the preparation of this material and Franklin Templeton has not independently verified, validated or audited such data. Franklin Templeton accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user.

This presentation contains the returns of a manager or index without alterations. Performance data may be provided by the client. Further definitions of the data may be found below. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. The performance information presented herein does not reflect the deduction of investment advisory fees and expenses that an investor would pay to K2.

An investor’s return would be reduced by the annual management fees and incentive fees, if any, payable to K2 and the actual expenses of the structure chosen. For example, if an investor invested $1 million from January 1, 2008 through October 31, 2019 in a portfolio earning 8% annually, the investment, gross of fees, would be worth approximately $2,486,076 on October 31, 2019. On the other hand, had that investment been subject to a management fee of 0.75% and estimated expenses of 0.30%, that investment, net of these fees, would be worth approximately $2,214,655 on October 31, 2019. Please note that investors may pay different management and incentive fees.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other Franklin Templeton affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com - Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.

Offshore Americas: In the U.S., this publication is made available only to financial intermediaries by Templeton/Franklin Investment Services, 100 Fountain Parkway, St. Petersburg, Florida 33716. Tel:(800) 239-3894 (USA Toll-Free),(877) 389-0076 (Canada Toll-Free), and Fax: (727) 299-8736. Investments are not FDIC insured; may lose value; and are not bank guaranteed. Distribution outside the U.S. may be made by Templeton Global Advisors Limited or other sub-distributors, intermediaries, dealers or professional investors that have been engaged by Templeton Global Advisors Limited to distribute shares of Franklin Templeton funds in certain jurisdictions. This is not an offer to sell or a solicitation of an offer to purchase securities in any jurisdiction where it would be illegal to do so.

Please visit www.franklinresources.com to be directed to your local Franklin Templeton website.

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Slide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Hedged Strategies Offer Investors Additional Diversification Versus Stocks And BondsSlide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Primary Objective of Liquid Alternative Investment StrategySlide Number 21Slide Number 22Slide Number 23Slide Number 24Slide Number 25Slide Number 26Slide Number 27Slide Number 28

LIQUID HEDGE FUND STRATEGIES AS A PORTFOLIO ......2,853 Brazil Fund Alt - Other 8/28/2007 167 165...

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Transcript of LIQUID HEDGE FUND STRATEGIES AS A PORTFOLIO ......2,853 Brazil Fund Alt - Other 8/28/2007 167 165...