Educational Session29th April, 2013

Alternative Investments The Good, the Bad and

the Ugly Markella Karadede

THE OPTIMAL MIX OF ALTERNATIVE INVESTMENTS V TRADITIONALS

Carbon Credits Classic Car Investing

Wine Investing

Cocoa Investing Jewelry Investing

Nanotechnology

THE FINE ART MARKET Rene Magritte Les Reflets du Temps, 1928Bought: $679,000 Sold at auction: $780,850 Gross IRR: 17.6% ART MARKET CHARACTERISTICS

Low Liquidity Large Transaction Costs High Barriers to Entry Highly Specialized Increasing Demand Decreasing or Stable Supply Made up of different smaller

markets

“PLAYERS ” Auction Houses Dealers Galleries Museums Art Advisors Private Collectors Art Funds

Wealth determines art market demand particularly in emerging markets like China, India or the UAE, where economic growth is vast (Credit Suisse Wealth Report, Dec 2010)

MARKET EXPERTISE AND ACCESS TO DATA

The wine investment market

changed about 8 years ago with

the introduction of formal

structured funds

The Internet has brought us

‘the wine revolution’

Trading platforms

Liv-Ex

Wine Merchant Platforms

Shanghai Wine Exchange

THE FINE WINE MARKET

CONSTRUCTING A WINE PORTFOLIO

IDEAL PORTFOLIO’S

Broad but focussed investment portfolio

Average acquisition price of $495 per bottle

Wines traded on a global & recognised secondary market

Wines that have a demonstrable track record with a frequency of high trading volumes

Original packaging and regular sized bottles

NOT SO GOOD PORTFOLIO’S

Off Vintage

Garage wines

Stock that has been in free circulation

Travelled wines

Bundled wines

Price permit drop from €28.70 a ton, 2008< €3 a ton in Feb 2013

OTC markets 94 million of CO2, 2010

Estimated 1 billion tonnes per annum by 2020

Germany, India and China ‘Market Shapers’

General Electric, Thompson Reuters, Google : “Green Spinning”

SIPP/ISA Investments target “ethical investors”

CARBON CREDITS

(NTI) estimates to attract 1 trillion market share by 2015 Nanotechnology (VC) drops 42% to $472 m in 2009 while 53% of VC firms show funding to remain flat in 2012-2013

Patent rights war (Universities V regional level)

R&D expenditures reduced from $47 m to $20 m in the years 2004 to 2007

Total research appropriations significantly dropped from $6.62 billion to $1.55 b in 2003-2010, more than 75%

NANOTECHNOLOGY

MYTHS SYRROUNDING ALTERNATIVE INVESTMENTS

1. Unique asset class

2. Only institutional investors and high networth individuals can access them

3. More volatile than stocks and bonds

4. Invest in derivatives which in turn increase more risk

5. Investors do not have access to their capital

6. Will always outperform stocks

7. It is easy to pick up the right alternative- just look at the historical performance

8. Fail to protect investors during the financial crisis

9. Expensive

10. Extremely well diversified portfolio

HOW HAS THE INVESTMENT STYLE ALTERED IN THE CURRENT ZERO INTEREST RATE

ENVIRONMENT? “Slimming &Trimming’’ of Funds

No Winning Jurisdiction Formulas

M&A - Love at First Sight

Collaboration not the operative word

Fewer transactions - Multiple Partners

Cash Hoarding Marathon

Fewer IPOS - Segmentational Listings

Invent Prototype of a Lean Start up Philosophy

OCD Regulatory Syndrome

HEDGE FUND EVOLUTION

DO HEDGE FUNDS USE A PORTFOLIO AS A HEDGE OR AS A TOTAL RETURN VEHICLE ?

LEVERAGE

<20%

REPO >47%

MARGIN LOAN

MECHANISMS >20%

SYNTHETICS

>31%

UNSECURED BORROWING

<2%

Black Swan Funds

The industry is now 3 times as largeFor every 4% net performance fee, HFM need to produce an additional $20billion of ALPHA

MOMENTUM INVESTING

V

COMPRESSION EFFECT

ARBITRAGE FOCUSED

MARKET NEUTRAL

ARE MUTUAL FUNDS A NEW BREED OF ALTERNATIVE HEDGE FUNDS?

Total mutual fund assets $8.3 trillion, 2012

Differences & Constraints

No insurance

Poor Performan

ce

Size Inefficiency of cash reserves

Loss of Control

Fee structur

e Dilution

Trading Limitation

s

Too much choice

HOW RESILIENT IS THE PE MODEL IN NOWADAYS?

WHAT ARE THE VENUES LEADING TO SUSTAINABLE BUSINESS GROWTH?

CONCLUSIONS

“Good Banking is boring banking”.

“We are here to maximize returns on investments, not to protect assets’’

“There are no bad investments if you prudently defend the composition of an investment portfolio of your choice”

THANK YOU FOR YOUR TIME!