Asset Management Tactical Quarterly - Credit Suisse · Source: Investment Company Institute against...

Asset Management

Asset Management Tactical Quarterly Q3 2010

Executive Summary 3

Hedge Funds 4

Private Equity 13

Credit Strategies 14

Commodities 16

Credit Suisse Asset Management | Tactical Quarterly2

About the Asset Management Tactical Quarterly

Welcome to the first issue of Credit Suisse Asset Management’s Tactical Quarterly.

In line with our mission to share knowledge and provide focused investment solutions to investors worldwide by leveraging the firm’s best ideas, access, resources and capabilities globally, the Tactical Quarterly offers a range of views from our leading portfolio managers on the trends and opportunities shaping today’s financial markets.

We hope you find the insights in this new publication to be a useful tool in helping you develop solutions and investment strategies.

We would also like to hear your feedback as we continue to further develop this new quarterly publication. For further information or to comment on any views expressed here, please contact your Credit Suisse Asset Management relationship manager or write to us at [email protected].

Credit Suisse Asset Management | Tactical Quarterly 3

Executive Summary

Although encouraged by September’s global equity market rallies, many investors have been hamstrung by the uncertainty over the global economic growth outlook, the general lack of directionality in global equity markets and high levels of correlations among stocks so far in 2010. These conditions were particularly strenuous for stock pickers and quantitative strategies in the first half of the year as global equity markets exhibited a binary “risk-on, risk-off” trade pattern. On the other hand, these macro-driven market conditions have been beneficial to relative value hedge fund strategies (such as fixed income arbitrage and convertible arbitrage), event driven, and tactical strategies (such as managed futures and systematic global macro). There may be signs of improvement in these market dynamics, however, going into the fourth quarter.

The points above are some of the key market developments presented by our portfolio managers and business heads in this first issue of Credit Suisse Asset Management’s Tactical Quarterly. Readers will also find our managers’ views on alternative investment areas such as hedge funds, private equity, credit and commodities. Some key themes covered in this issue include:

Ɓ Global business cycles have tapered off since the end of the first quarter of 2010, while corporate earnings in much of the world have been supportive of global equity markets. We believe that we could see an improvement for directional strategies such as long/short equity in the fourth quarter if correlations decrease and trading volumes continue to increase as they did in September.

Ɓ Global macro managers have been well positioned to take advantage of thematic trading opportunities arising from macroeconomic divergence among developed and emerging market countries, especially in currencies and interest rates—systematic macro managers in particular had a strong third quarter.

Ɓ Event driven hedge fund managers believe investors may consider taking advantage of inefficiencies in the current financial landscape across a number of areas, such as merger-arbitrage and distressed-debt investments.

Ɓ The outlook for US fixed income is positive in senior loans, high yield bonds and collateralized loan obligations, with record levels of issuance and spreads narrowing in the third quarter.

Ɓ Investment levels by private equity firms continue to gain momentum globally with an increased focus on emerging markets, particularly in Asia and Latin America. While investments have picked up in the US and Europe, other regions, including China, have become increasingly important markets. Global private equity firms are offering local-currency-denominated funds, such as in renminbi for investments in China.

In summary, while 2009 was a strong year for directional hedge fund managers, 2010 has generally been more favourable to relative value and systematic macro-oriented strategies through the third quarter. Private equity, credit strategies and commodities present strong investment themes, with the globalization of investments becoming an increasingly important factor.


Hedge Funds

Ɓ Global business cycles have tapered off since the end of the first quarter of 2010—with the only exception of Australia—raising concern about a global economy growing but losing momentum (Display 1). Europe appears more resilient in this cycle than the United States.

Ɓ Corporate earnings worldwide remain generally supportive of equity markets, especially in the US, Japan and Switzerland. Our models have a moderate equity overweight, with a tilt towards Europe, Asia and the United Kingdom.

Global Tactical Asset Allocation/Global MacroAnne Sophie Van Royen, Ph.D.Portfolio Manager and Head, GTAA

Xiaomeng Yang, Ph.D. Co-Portfolio Manager, GTAA

Display 1: OECD Leading Indicators Point to Slowdown in Global Economic Growth1

1 OECD leading indicators summarize information on early signals contained in a number of key short-term economic indicators known to have a leading relationship with GDP for 35 countries. Data from July 2008 to July 2010.Source: Bloomberg and Credit Suisse

Ɓ Global fixed income has been supported by yield dynamics, but the sector’s attractiveness has been eroded by expensive valuations and a modest comeback of risk appetite. Overall, the prospect of further quantitative easing in the US has been an important driver supporting Treasuries, while sovereign risk in Europe has somewhat abated.

Ɓ We also see positive momentum supporting commodities, especially in agriculture and metals.

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Ɓ Macroeconomic divergence across countries and between developed and emerging economies has remained significant. The resulting global imbalances and structural issues continued to create thematic trading opportunities for macro managers, as market uncertainty persisted regarding these processes and the overall global economic growth trajectory.

Ɓ With the transfer of liabilities from the private to the public sector in response to the global financial crisis of 2008-2009, structural issues surrounding the sustainability of sovereign debt levels for the US and the Eurozone came to the forefront of financial markets

Global MacroSami Robbana Portfolio Manager and Head, Global Macro Research, Alpha Strategies Group

Display 2: Outlook on Foreign-Exchange Volatility Presents Trading Opportunities Based on Growing Volatility Divergence

Data from September 2007 to September 2010Source: Bloomberg and Credit Suisse

Hedge Funds

in the first half of the year, requiring high levels of government intervention.

Ɓ At the same time, removal of government stimulus measures has been difficult to coordinate and the potential for policy errors remains significant, in our view.

Ɓ In currencies, which we believe will remain an area of focus for managers, the reversal of global structural imbalances continue to drive directions in markets (e.g., central-bank interventions and currency-pegging issues) providing trading opportunities (Display 2).

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Event DrivenSebastien Fiaux Portfolio Manager, Head, Event Driven Research, Alpha Strategies Group

Distressed Credit Ɓ The distressed-credit sector appears to anticipate that the significant amounts of leverage incurred by many global companies in pre-2008-crisis years is now unsustainable under the “new normal” earnings expectations.

Ɓ Much of this debt will be maturing in the next three to four years, creating a so-called “wall of maturities” (Display 3). Some of this debt may be difficult to refinance and, therefore, could create opportunities stemming from companies’ pre-emptive recapitalizations, forced restructurings or liquidations.

Ɓ New opportunities may also arise from the emergence of non-US distressed credit markets, which have been

Display 3: “Wall of Maturities” in Next Three-to-Four Years May Lead to Opportunities

As of June 30, 2010Source: Credit Suisse Global Leveraged Finance

Hedge Funds

driven by unprecedented global issuance, such as the US$1 trillion European leveraged debt market.

Ɓ Other relevant market drivers for distressed managers are new capital requirements (notably Basel III) and new banking rules in the US limiting proprietary investing activities for large investment banks (the so-called Volcker Rule). We believe that the new rules could potentially accentuate the supply and demand imbalance in credit markets.

Ɓ Small- to mid-cap restructurings form the bulk of the global opportunity set, limiting participation from the largest funds.

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Risk Arbitrage Ɓ There are a number of drivers that we believe will generate activity in the risk-arbitrage sector in the coming months. These include: the need for private equity capital that was raised in 2006 to be put to work (within a five-year window); cash levels on corporate balance sheets reaching all-time highs (Display 4); weak organic growth rates for companies (an incentive for growth through mergers and acquisitions (M&A)); increasing cross-border M&A activity; and ease of financing from strong capital markets.

Ɓ US companies are trading at discounts when compared to historical long-term P/E levels, making

Hedge Funds

Display 4: Corporate Firm Valuation and Liquid Asset Levels Point to Increased M&A Activity in 2011

As of June 30, 2010Source: Credit Suisse Global Leveraged Finance

them attractive to acquirers, in our view. We also believe that the abundance of capital-rich buyers and unwilling sellers is likely to lead to more hostile takeovers and increased deal premiums.

Ɓ We therefore expect to be entering a worldwide M&A upswing in 2011, especially in the areas of strategic transactions and hostile situations.

Ɓ The severity of financial crisis and continued risk aversion among corporate management and boards has attenuated the M&A recovery, but is having the effect of adding to the M&A backlog.

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Event Driven (continued)Sebastien Fiaux Portfolio Manager, Head, Event Driven Research, Alpha Strategies Group


Hedge Funds

Ɓ Long/short equity managers faced a challenging environment in the first half of the year because of global equity market sell-offs, high stock correlations and low trading volumes. Displays 7 and 8 illustrate the outflows from equity mutual funds globally in favor of bonds.

Ɓ Combined with an overall lack of trends, the diminishing liquidity levels and low stock dispersion have worked

Long/Short EquityVanita GaonkarPortfolio Manager and Head, Long/Short Equity and Equity Market Neutral Research, Alpha Strategies Group

Display 7: Global Equities Have Been Experiencing Outflows…

Display 8: … In Favor of Global Bonds

Data from January 2009 to September 2010Source: Investment Company Institute

against fundamental analysis, making it challenging for managers to identify profitable themes.

Ɓ However, a shift occurred in September as global equity markets experienced a sharp rise in performance, correlations eased and trading activity ramped up. Rising volumes and increased stock dispersion could signal the potential for improvement for long/short equity managers in the fourth quarter.

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Ɓ 2010 has seen some of the highest levels of correlation among risky assets globally. In the US, S&P 500 Intra-index correlations (correlations of stocks within major indices) breached levels last seen during the crisis of 2008 (Display 9). Furthermore, these correlation levels occurred in a relatively low volatility environment (with the VIX volatility index in the low 20s). This dual combination of high correlation and low volatility has created a difficult environment in the last few quarters for stock pickers and quantitative managers (who tend to focus on capturing alpha within a pool of idiosyncratic risk).

Ɓ As we go into the final quarter of the year, we suggest keeping a close eye on correlation—especially implied correlations in global equity markets. Shorter-maturity implied correlations have declined substantially towards the end of the third quarter and realized correlations have started to follow suit. If correlations’ declines persist—especially following US Federal Reserve announcements on quantitative easing (QE2)—we believe it will signal the potential start of an overall normalization within the market’s risk framework. This should be encouraging for the performance of various hedge fund related strategies that are sensitive to idiosyncratic or stock-specific risk.

Ɓ The fall in correlations is not the only sign that normalization is occurring within risk perceptions. Correlation levels have been moving in sync with the gyrations surrounding perceptions of “crash risk.” One way to measure the degree of “crash risk” priced into the market is by analyzing implied

Multi-Strategy ArbitrageMika ToikkaGlobal Head, Multi-Strategy Arbitrage

Timothy Schwider Portfolio Manager, Multi-Strategy Arbitrage

Display 9: 2010—Record Levels of Correlation in a Low-Volatility Environment

Data from October 2000 to September 2010Source: Bloomberg and Credit Suisse

Hedge Funds

volatility skews (the relative price difference between out-of-the-money puts and calls). While index skews have declined from extreme levels earlier in the year, the decline was sharpest in short maturity options after the Fed signalled that QE2 would likely be a reality. While longer-dated volatilities have also seen some decline, they remain relatively high. This relatively steep term structure of volatility reflects the fact that the market may be comfortable with near term risks but is still pricing in much higher levels of concern for the next year and beyond. With regard to volatility skews, our view is that the “new normal” for skews will be at much higher equilibrium levels than before the crash of 2008. We expect the overall demand for crash protection to remain with us for a long time to come.

Ɓ With the VIX hovering around 20%, the market is currently pricing in a shorter term “Bernanke Put.” That is, the overall perception seems to be that the Fed will provide the “right” level of quantitative easing to keep the equity markets higher in the near term and mitigate any potential for a 2008-type market crash scenario. However, the old adage that you “buy the rumor and sell the fact” will focus concern on the immediate aftermath of the QE2 announcement.

Ɓ In our view, there are too many underinvested investors and an extremely wide range of macro views about the future path of global economies to assume that the ride to year-end is going to be smooth. Regardless of the market’s reaction to QE2, we recommend keeping a close eye on correlations and index volatility skews for continued signs of overall normalization, but be prepared to fasten your seat belts.

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Ɓ Fixed income funds have had a strong year, benefiting from uncertainty around European sovereigns and the sustainability of the global economic recovery. Volatility remains elevated in the intermediate and longer end of US and European sovereign yield curves, offering attractive opportunities for relative value strategies.

Ɓ Government bond curves are expected to remain steep since global central banks seem intent on keeping short-term rates at historically low levels for the foreseeable future, offering a number of arbitrage opportunities for managers.

Ɓ The combination of substantial government bond supply and diminishing activity from bank proprietary trading desks allows arbitrageurs to profit from consistent trends in the auction cycle. The reduced presence of “sophisticated” capital also creates short-term trading opportunities around futures expiries, given the considerable trading volume generated by less price-sensitive players, such as macro and managed futures hedge funds.

Relative ValueFred ShekHead, Convertible Arbitrage and Multi-Strategy Research, Alpha Strategies Group

Display 10: End of US Fed’s MBS Purchase in March 2010 Created New Conditions for Relative Value Plays on Mortgages

Data from October 2008 to September 2010Source: Credit Suisse Fixed Income Research

Hedge Funds

Ɓ US mortgages have been another profitable area for relative value traders in 2010. Mortgage-backed securities (MBS) richened substantially from November 2008 to March 2010, propped up by the Fed’s purchase of over US$1 trillion of agency bonds. Following the Fed’s exit, volatility around MBS spreads increased, presenting traders with new themes (Display 10).

Ɓ On the convertible bond front, the primary market seems to have opened up after the summer doldrums, with more new deals expected to be issued in coming months. We believe convertible valuations remain cheap relative to fair value, and there continue to be a fair amount of corporate actions such as M&A, bond buybacks and debt refinancings that may serve as positive catalysts for bond prices.

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Hedge Fund ReplicationJordan Drachman, Ph.D. Head, Alternative Beta Strategies Research

Peter Little Head, Alternative Beta Strategies Portfolio Management and Implementation

Ɓ The Liquid Alternative Beta group’s models indicated that investors’ risk aversion was trending lower in the third quarter.

Ɓ The long/short equity hedge fund replication model put a greater emphasis on the technology sector by replacing the S&P 500 Index with the Nasdaq Index, while shorting the financials sector. The model also maintained long emerging markets exposure throughout the quarter.

Ɓ The event driven hedge fund replication model has indicated that illiquidity is not a factor in that sector’s

Display 11: High Yield Spreads Have Narrowed in the Third Quarter as Investors Hunt for Yield1

1US high yield bonds measured by the Markit CDX North America. High Yield Index; investment grade bonds measured by the Markit CDX North America Investment Grade Index. Data from June 30, 2010 through September 30, 2010.Source: Bloomberg and Credit Suisse

Hedge Funds

performance, perhaps indicating that, in their search for yield, investors are ignoring the risk associated with holding illiquid assets. The model has also identified an increasing exposure to distressed debt, indicating that credit is a key driver of profits in this sector.

Ɓ Another indication that investors are beginning to re-risk was the narrowing of the spread between US high yield bonds and investment grade bonds (Display 11), amidst record issuance for high yield bonds for the year as of the end of September (see Credit section of this document for further detail).

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Ɓ Private equity fundraising trended lower in 2010 worldwide as a larger number of fund managers delayed fundraising to focus on portfolio company growth. In the latest quarter, global fundraising totalled US$41 billion compared to US$92 billion for the same period last year.

Ɓ The investment level by private equity fi rms continues to gain momentum. There have been four consecutive quarters of increasing investment pace since the second quarter of 2009 when US$17.9 billion was invested (Display 12). The level of investments reached US$49.7 billion in the second quarter of 2010, up 179% year-over-year. CFIG believes this pace has been driven partly by the improved lending environment and record high-yield and leveraged-loan issuance volumes.1

Ɓ Private equity investment exits have increased in 2010.

– Global IPO activity has increased to over 290 year-to-date (as of September 30) compared to 177 for full-year 2009. Of the IPOs transacted in the US this year, 62% were sponsored by private equity fi rms.

– The level of M&A has also contributed to successful exits for private equity fi rms. Deal volume has been particularly strong, especially for the start of 3Q 2010.

Fund of Private Equity FundsKelly WilliamsHead, Customized Fund Investment Group

Nadim BarakatChief Investment Offi cer, Customized Fund Investment Group

1Source: Venture Economics, September 20102Source: Dealogic, September 20103Source: Venture Economics, September 2010

Display 12: If Future Deal Volume Follows a Similar Pattern, the Current US$1 Trillion of Dry Powder Would Burn Off in 4.5 Years...

As of December 31, 2009Source: Morgan Stanley’s “In the Flow” (December 2008), Thomson SDC, Thomson VentureXpert as of December 31, 2009, and Credit Suisse analysis

As of December 31, 2009Source: Emerging Markets Private Equity Association

Display 13: ...While in Emerging Markets, Private Equity Penetration Has Room to Grow

Private Equity

Year-to-date global M&A transactions reached nearly US$1.5 trillion compared with US$1.7 trillion for full year 2009. For the third quarter of 2010, M&A transactions increased 26% over last quarter on a dollar volume basis and 55% over last year’s third quarter. Also worth noting is that private equity sponsored M&A transactions now represent over 14% of total deal value, up from less than 10% last year.2

Ɓ Private equity in Asia continues to expand. Over US$19 billion of funds have been raised for this region year-to-date in 2010 compared with US$17 billion in 2009. China has become an important market as global private equity fi rms have offered local funds with over US$9 billion raised year-to-date in renminbi denomination. Private equity investment in Latin America has also been exhibiting solid growth and interest from investors.3 Display 13 suggests there is room to grow for PE in several emerging markets.

Ɓ Private equity fund selection remains critical. Top-quartile private equity managers have been able to achieve strong returns on over various economic cycles. CFIG believes that top-performing managers are less sensitive to capital market conditions due to their ability to add operating value to companies.

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Credit Strategies

John G. PoppGlobal Head, Credit Investment Group

Collateralized Loan Obligations (CLOs)

Ɓ Global CLO secondary markets experienced a strong rally in September 2010, despite a substantial supply in the form of bid-list activity.

Ɓ Equity and mezzanine tranches showed the largest increases, while original AAAs were flat on the month.

Ɓ Absent a large macroeconomic or geopolitical event, we expect continued positive price performance during the fourth quarter of 2010.

Ɓ We believe hedge funds and proprietary trading desks will be opportunistic sellers; their bid lists should be well received by dealer desks and traditional CLO accounts that have cash on the sidelines that needs to be put to work.

Ɓ On the new issue front, we expect a few lower leverage, cleaner, simpler CLOs will price, as equity tranches have been placed and there appears to be ample demand for new issue liabilities.

US Senior Secured Loans

Ɓ An increase in new US loan issuance (Display 14) offers opportunities to access attractive risk-adjusted returns in senior secured loan markets. New issue loans provide LIBOR floors of 1.5% to 3%, higher spreads than vintage deals and seniority levels in the capital structure equal to, or better than, high yield bonds.

Ɓ We continue to see opportunities in better-quality performing loans with attractive current interest income, relatively low-default risk, and yield targets of LIBOR plus 5% to 7% (assuming a three-year average life).

– Return potential in excess of these target yield levels could arise from positive events such as M&A, refinancings and bond-for-loan takeouts.

Ɓ Amendments to older vintage loans provide the opportunity to enhance risk-adjusted returns through: increased spreads to LIBOR, the inclusion of LIBOR floors, maturity extensions and bond-for-loan takeouts resulting in loan paydowns.

Display 14: Senior Loan Issuance Indicates Renewed Growth

Source: JP Morgan

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Ɓ The re-opening of both debt and equity capital markets has made capital available to a broad selection of companies, allowing many non-investment grade issuers to refinance and extend maturities.

Ɓ The improved debt market liquidity, combined with a stabilizing near-term fundamental backdrop, has decreased expectations for defaults.

Credit Strategies

Ɓ The new issuance market continues to be robust, hitting a 12-month rolling all-time high in September 2010 (Display 15).

Ɓ We continue to focus on select new issues, especially those that are senior secured in predominantly defensive industries with little-to-moderate debt ahead of the high yield bond claim.

Display 15: Record High Yield Issuance May Signal Improved Opportunities

Source: JP Morgan

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John G. Popp (continued)Global Head, Credit Investment Group


Commodities

Ɓ Commodities prices have tended to perform best during periods of unexpected inflation (Display 16). We may be headed into such an environment should developed governments continue to attempt to boost tepid economies through fiscal and monetary measures. Certain developed countries are either discussing or currently engaging in devaluing their currencies in order to keep their exports globally competitive, while fiscal policy remains accommodative worldwide. As a result, investors may continue to seek out investments that should retain their value in spite of inflation, benefitting commodities generally, and precious metals in particular.

Ɓ With developed economies’ growth staying low, we expect developing countries to drive demand

Display 16: Commodities Prices Tend to Perform Best During Periods of Unexpected Inflation1

1Unexpected inflation is based on the historical relationship between 1-month Treasury bills and US Consumer Price Index. Data from January 1970 to September 2009Source: Ibbotson, Bloomberg, and Credit Suisse Asset ManagementPast Performance does not guarantee future results.

Nelson LouieGlobal Head, Commodities Group

Christopher BurtonPortfolio Manager, Commodities Group

for commodities, especially those needed for infrastructure. We also expect copper, corn, soybeans and especially crude oil to remain well supported.

Ɓ Energy prices continue to be impacted by macro-economic factors in addition to fundamentals, with the former potentially being the key driver over the short term.

Ɓ Based on statements made by Fed Chairman Ben Bernanke at the September 22nd Federal Open Market Committee meeting, subduing deflation will be a top priority of the Federal Reserve. As more and more quantitative easing takes place, we expect US-dollar-denominated commodity prices to continue to rise. We continue to believe investors will benefit from including commodities in a well-diversified portfolio.

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About the Authors

Nadim M. Barakat, Managing Director, is the Chief Investment Officer of the Customized Fund Investment Group within Private Equity in Alternative Investments. Mr. Barakat holds a B.Sc. (Hons) degree in Systems Engineering and Operations Research from the University of Virginia (USA).

Christopher Burton, CFA, Director, is the Lead Portfolio Manager and Trader for the Commodities Team. Mr. Burton earned a B.S. in Economics with concentrations in Finance and Accounting from the University of Pennsylvania’s Wharton School of Business.

Jordan Drachman, Ph. D., Director, is Head of Research for the Liquid Alternative Beta team. Mr. Drachman has received a B.S. in Mathematics from MIT and Ph.D. in Mathematics from Stanford University.

Sebastien Fiaux, Vice President, is Head of the Event Driven sectors in the Hedge Fund Research and Selection team within Alpha Strategies. Mr. Fiaux earned an M.S. in Finance, Economics and Statistics from ENSAE, an M.A. in Political Science from the Institute of Political Science and a Masters in Financial Engineering from Cornell University.

Vanita Gaonkar, Director, is the Head of the Long/Short Equity and Equity Market Neutral sectors in the Hedge Fund Research and Selection team within Alpha Strategies. Ms. Gaonkar earned a B.A. in Mathematics and Economics from Wesleyan University.

Peter Little, CFA, Director, is Head of Portfolio Management and Implementation for the Liquid Alternative Beta team. Mr. Little holds B. Comm. in Finance from the University of Port Elizabeth in South Africa in 1995.

Nelson Louie, Managing Director, is Global Head of the Commodities Group. Mr. Louie holds a Bachelor of Arts degree in Economics from Union College.

John G. Popp, Managing Director, is the Group Head of the Credit Investments Group, with primary responsibility for making investment decisions and monitoring processes for CIG’s global investment strategies. Mr. Popp graduated with a B.A. from Pomona College and an M.B.A. from the Wharton Graduate of the University of Pennsylvania. Sami Robbana, Director, is the Head of the Global Macro sector in the Hedge Fund Research and Selection team within Alpha Strategies. Mr. Robbana

earned a B.B.A. in Finance from L’Ecole des Hautes Commerciales (H.E.C) de Montreal, a Minor in Economic Sciences from Universite de Montreal, and attended McGill University Graduate Business School. Timothy Schwider, Ph.D., Director, is a member of the Quantitative Equities Group management team focusing his research on global equities. Mr. Schwider holds a B.S. in Mathematics from Harvey Mudd College, and a Ph.D. in Mathematics from the University of Michigan. Fred Shek, CFA, Director, is the Head of the Convertible Arbitrage and Multi-Strategy sectors in the Hedge Fund Research and Selection team within Alpha Strategies. Mr. Shek earned a B.S. in Accounting from Binghamton University in 1994 and is a CFA Charter holder. Mika Toikka, Managing Director, is a Portfolio Manager and Global Head of Multi-Strategy Arbitrage in Alternative Investments at Credit Suisse. He is also the Head of Volaris Volatility Management. Mr. Toikka holds an M.S. in Applied Economics from the University of California Santa Cruz and a B.A. in Economics from the University of California at Davis.

Anne-Sophie van Royen, Ph.D., Managing Director, is a Senior Portfolio Manager for the global tactical asset allocation strategies and products at Credit Suisse. Ms. van Royen holds an M.S. in Business Studies from the Ecole des Hautes Etudes Commerciales (HEC); a B.A. in Psychology from the Université de Paris-Saint Denis; and Ph.D. and M.S. degrees in Mathematical Economics from the Université de Paris-Sorbonne.

Kelly M. Williams, Managing Director, is the Group Head of the Credit Suisse Customized Fund Investment Group. Ms. Williams graduated magna cum laude from Union College in 1986 with a B.A. in Political Science and Mathematics, and received her Juris Doctor degree from New York University School of Law in 1989.

Xiaomeng Yang, CFA, Ph.D., Vice President, is a Portfolio Manager for the global tactical asset allocation strategies and products. Ms. Yang holds a B.A. in economics from Tsinghua University in Behiing, and a Ph.D. in Economics from Boston College. She is a CFA charter holder and holds a Financial Industry Regulatory Authority (“FINRA”) Series 3 license.


Credit Suisse Asset Management Publications

Robert Parker, Credit Suisse Senior AdvisorOctober Market UpdateOctober 2010—Strong earnings growth and easing economic concerns should support equity markets in the short term. Eurozone is clearly becoming a “two-track” economy. Some government bond markets may be overbought following latest flight to quality.

Liquid Alternative Beta: Enhancing Liquidity in Alternative PortfoliosJune 2010—How to increase a portfolio’s liquidity without sacrificing returns, especially in a post-crisis, low-yield environment? The paper illustrates how institutional investors can use Liquid Alternative Beta to seek to enhance portfolio liquidity, increase portfolio transparency, short hedge fund sectors and gain hedge-fund-like exposure when investment policies restrict direct hedge fund investments.

Can Infrastructure Investing Enhance Portfolio Efficiency? May 2010—The paper provides an in-depth look at infrastructure as an investment tool, and analyzes what role the asset class might play in institutional portfolios. Specifically, the paper examines whether infrastructure can be an effective tool to mitigate inflation and duration risks, reduce funding gaps, and enhance portfolio efficiency.

Gaining Efficient Hedge Fund Exposure Through Passive InvestingJanuary 2010—This paper examines the benefits of an index-based approach to hedge fund investing: Cost efficient access to the broad hedge fund industry, strong performance vs. active fund of funds, reduced manager-specific risk and a simplified core holding. Credit Portfolio Management in 2010: A Nimble Approach NeededJanuary 2010—Tracking and timing credit cycles can be challenging, particularly since today’s credit environment appears to be going through increasingly rapid cycle changes. We believe that fixed income investors need to be increasingly nimble and tactical in 2010, while at the same time considering strategic preparations for medium-to-longer-term regime changes in interest rates and inflation.

Risk Management: A Changing ParadigmNovember 2009—Renewed interest in risk management and the creation of a culture of risk awareness are driving current investment committee meeting agendas. This should come as no surprise in light of market events in 2008 and early 2009. While experience and judgment that have been battle-tested under various market conditions prepares CIOs for uncertainty in the future, how do they implement risk-based solutions while facing real-world events?

Risk Parity—A Risk-Based Approach to Portfolio StructuringNovember 2009—In this paper we discuss a different approach to portfolio risk management, called risk parity, which aims to equate the contribution of risk across asset classes and, as a result, create a portfolio which performs better in a variety of market conditions.

In Search of Liquidity and Transparency: Managed Accounts, Single Investor Funds and Custom PortfoliosOctober 2009—Investor interest in managed accounts has grown. This paper outlines four investment structures which may offer investors a range of solutions for greater liquidity and transparency in their hedge fund investments.

Preparing for Inflation: Is It Too Early to Position Your Portfolio?September 2009—As governments continue to implement stimulus programs, some investors worry about potential future inflation. Positioning your portfolio for increasing inflation before it strikes is critical.

Equity Market Neutral – Diversifier Across Market CyclesSeptember 2009—This paper examines the role that the Equity Market Neutral strategy can play in an alternatives portfolio, as it was one of the few strategies that remained uncorrelated to other asset classes during the 4Q 2008 market dislocation.

The views and opinions expressed within these publications are those of the authors, are based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date hereof.

For a copy of any of these papers, please contact your relationship manager or visit our website at www.credit-suisse.com.


Important Legal Information for Canadian InvestorsThis information is distributed in Canada by Credit Suisse Securities (Canada), Inc. (“CSSC”), a Canadian registered investment dealer and futures commission merchant. The observations and views contained herein may be different from or inconsistent with the observations and views of CSSC. The information contained herein is for informational purposes only and is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. Under no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities described herein and any representation to the contrary is an offence.

Important Legal Information for Investors in the US This material has been prepared by Credit Suisse Alternative Capital, Inc. (“Credit Suisse”) on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. All opinions and views constitute judgments as of the date of writing without regard to the date on which the reader may receive or access the information, and are subject to change at any time without notice and with no obligation to update. This material is for informational and illustrative purposes only and is intended solely for the information of those to whom it is distributed by Credit Suisse. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of Credit Suisse. Credit Suisse does not represent, warrant or guarantee that this information is suitable for any investment purpose other than as specifically contemplated by a written agreement with Credit Suisse and it should not be used as a basis for investment decisions. This material does not purport to contain all of the information that a prospective investor may wish to consider. This material is not to be relied upon as such or used in substitution for the exercise of independent judgment. Past performance does not guarantee or indicate future results.

This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that any investments in companies, securities, sectors, strategies and/or markets identified or described herein were or will be profitable and no representation is made that any investor will or is likely to achieve results comparable to those shown or will make any profit or will be able to avoid incurring substantial losses. This informational report does not constitute research and may not be used or relied upon in connection with any offer or sale of a security or hedge fund or fund of hedge funds. Performance differences for certain investors may occur due to various factors, including timing of investment and eligibility to participate in new issues. Investment return will fluctuate and may be volatile, especially over short time horizons. Investing entails risks, including possible loss of some or all of the investor’s principal. The investment views and market opinions/analyses expressed herein may not reflect those of Credit Suisse Group AG as a whole and different views may be expressed based on different investment styles, objectives, views or philosophies.

Investments in hedge funds are speculative and involve a high degree of risk. Hedge funds may exhibit volatility and investors may lose all or substantially all of their investment. A hedge fund manager typically controls trading of the fund and the use of a single advisor’s trading program may result in a lack of diversification. Hedge funds also may use leverage and trade on foreign markets, which may carry additional risks. Investments in illiquid securities or other illiquid assets and the use of short sales, options, leverage, futures, swaps, and other derivative instruments may create special risks and substantially increase the impact of adverse price movements. Hedge funds typically charge higher fees than many other types of investments, which can offset trading profits, if any. Interests in hedge funds may be subject to limitations on transferability. Hedge funds are illiquid and no secondary market for interests typically exists or is likely to develop. The incentive fee may create an incentive for the hedge fund manager to make investments that are riskier than it would otherwise make.

In addition, the investment strategy described herein relies on proprietary models and predictions with regard to the performance of an asset class or particular investment generated by these models and may not be accurate because of imperfections in the models, their deterioration over time, or other factors, such as the quality of the data input into the model, which involves the exercise of judgment. Even if the model functions as anticipated, it cannot account for all factors that may influence the prices of the investments, such as event risk.

The asset management business of Credit Suisse Group AG is comprised of a network of entities around the world. Each legal entity is subject to distinct regulatory requirements and certain asset management products and services may not be available in all jurisdictions or to all client types. There is no intention to offer products or services in countries or jurisdictions where such offer would be unlawful under the relevant domestic law.

The charts, tables and graphs contained in this document are not intended to be used to assist the reader in determining which securities to buy or sell or when to buy or sell securities. Benchmarks are used solely for purposes of comparison and the comparison does not mean that there will necessarily be a correlation between the returns described herein and the benchmarks. There are limitations in using financial indices for comparison purposes because, among other reasons, such indices may have different volatility, diversification, credit and other material characteristics (such as number or type of instrument or security).

Certain information contained in this document constitutes “Forward-Looking Statements” (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe”, or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.

IMPORTANT NOTE: The contents in the attached presentation can only be modified or edited in a way that the meanings are remained substantially the same. Any figures shown in the contents cannot be altered in any way.

Copyright 2010. CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved.

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