Gam emerging market rates strategy - citywire vienna 2010

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Emerging Market Rates StrategyApril 2010

2

Emerging Market Rates StrategyPerformance from 1 Nov 2004 to 30 Mar 2010

Source: GAM, Thomson ReutersPast performance is not indicative of future performance. Performance is provided net of fees.

FOR ILLUSTRATIVE PURPOSES ONLY

CompoundGrowth% p.a.

AnnualisedStandardDeviation

Emerging Market Rates Strategy -

USD 14.53 8.25

Compound 3-Month Libor in USD 3.42 0.52

Some funds following the Emerging Market Rates Strategy have certain claims against Lehman Brothers International (Europe) Limited. These claims, which amounted to 22.1% of the relevant assets as at 1 December 2008, were segregated into special class shares. Performance of these shares is excluded from performance information otherwise provided for said funds. Performance of the special class shares of the funds from 1 December 2008 to 30 March 2010 is -95.9%.


USDCompound 3-Month Libor in USD

0 %

20 %

40 %

60 %

80 %

100 %

2005 2006 2007 2008 2009

3

Emerging Markets Rates Strategy

●

Actively invests in emerging market bonds and FX, seeking to deliver consistent absolute returns via:–

Country selection –

Active currency management–

Views on interest rates and duration–

Robust credit selection

●

Top-down, conviction investors with a focus on anticipating the changing drivers of emerging markets–

Seek to profit from understanding the ‘crisis cycle’–

Actively manage risk at portfolio, country and position level–

Emphasis on maintaining liquidity: can unwind majority of portfolio in <3 days with minimal price impact

●

Balance meaningful position sizes with diversification–

Typically 30 –

40 positions across 8 –

12 investment ideas–

Capture both strategic and tactical opportunities

●

Sophisticated, unconstrained strategy developed over more than a

decade of emerging market debt investing

Overview

Holdings and allocations subject to change.

4

Emerging Market Rates Strategy

Return objective To produce absolute returns of approximately 10% over LIBOR pa regardless of market conditions

Manager Paul McNamara and Caroline Gorman

Investment style Top-down, macro driven approach focused on value-based opportunities

InstrumentsLocal and hard currency denominated sovereign and quasi-sovereign bonds and related derivatives (eg interest rate swaps, CDS etc)

Currencies and their related derivatives

Risk objective Typical monthly VaR of 6 –

8% (99% confidence)

Key characteristics

4Source: GAMThere is no guarantee that targets will be achieved.

55

Paul McNamaraInvestment Director–

12 years’

investment experience–

Holds a Masters degree in Economics from the London School of Economics

–

CFA charterholder

Emerging Market Rates

Caroline GormanInvestment Manager–

11 years’

financial experience–

Holds an MSc in Investment Management from the Cass Business School in London

Robert ChampionDealer–

Provides support and execution for bonds and currencies

Investment team manages over USD2.8 billion in assets

5Source GAMAssets under management as at 31 Dec 2009. Team experience as at 31 March 2010.

Denise PrimeInvestment Manager–

13 years’

financial experience

–

Holds a CFA charterholder

and a BA in Economics from Bryn Mawr

College, PA, USA


Investment Approach

77


●

Harness information advantage of a combined 25+ years' emerging market debt and FX investing–

A comprehensive, top-down, macroeconomic approach is required to understand what drives emerging markets

–

Certain common indicators exist that can systematically identify

crisis cycles

●

Fundamental, value-based approach instils discipline–

Focus on trade-off of upside vs downside potential–

Maximise capture of price movements within each market–

Willing to take directional stance in ‘recovery stories’

eg Turkey 2003, Russia 2009

●

Active approach to risk management–

Extensive use of scenario testing–

Liquidity a key consideration in instrument selection–

Coherent, logical limits in portfolio construction –

Clear upside and downside expectations on each position

Investment approach

88

Investment processTop-down, thematic process with fundamentals at its core

●

Assess global economic environment to search for key uncertainties●

Understand emerging market growth, capital flows and financial conditions

Clear view of countries nearing inflection points

~8 –

12 investment ideas

Set of realisable investment opportunities

Portfolio of 30 –

40 positions

Portfolio rebalancing

●

Identify ‘recovery’

countries entering significant growth phase●

Identify ‘crisis’

markets at risk of violent devaluation/default

●

Capture current economic indicators in each country●

Assess where investment ideas and economic conditions come together

●

Identify structural and tactical trades●

Select instruments that are purest expression of views●

Size and time trades based primarily on technical analysis

●

Monitor market developments, position level and portfolio level risk ●

Conduct regular stress-testing and monitoring with GAM Risk Team

‘Crisis cycle' filter

Macro market backdrop

Country analysis

Portfolio construction

Risk management

and monitoring

Step 1

Step 2

Step 3

Step 4

Step 5

Activity/description Outcome

9

Step 1: Crisis cycle filter

●

Apply ‘crisis filter’

to highlight countries at extremes of economic cycle

–

Developed and tested over more than a decade –

Scores each country based on nine economic drivers –

Focused on complex areas (eg public and private sector debt crises, inflationary episodes, policy mismanagement etc.)

–

Identifies economies approaching inflection points

●

'Recovery countries' become focus for long investment opportunities

–

Score less than three ‘negatives’–

Expected to have healthier, stable economies –

May signal turning point to recovery for defaulted countries

●

'Crisis countries' become focus for short investment opportunities–

Score five or more 'negatives’–

Signals significant potential for violent devaluation or default

Certain indicators can systematically identify turning points in

economic cycles

Source: GAM

1010

Step 1: Crisis cycle filterExample: Russian positioning and the crisis indicators

in the 2008 credit crisis

Russia Aug 08 Mar 09

Falling foreign exchange reserves X

Falling ratio of FX reserves to broad money

X

Zero or negative real interest rates

X

Rapidly rising inflation X

Rapid rise in Credit/GDP ratio X

High and rising current account/exports of goods and services

Uncompetitive exchange rate X

(Qualitative) Vulnerable banking sector

X X

(Qualitative) Rapid deterioration in fiscal X

Source: GAM

●

Apply ‘crisis filter’

to highlight countries at extremes of economic cycle

–

Developed and tested over more than a decade –

Scores each country based on nine economic drivers –

Focused on complex areas (eg public and private sector debt crises, inflationary episodes, policy mismanagement etc.)

–

Identifies economies approaching inflection points

●

'Recovery countries' become focus for long investment opportunities

–

Score less than three ‘negatives’–

Expected to have healthier, stable economies –

May signal turning point to recovery for defaulted countries

●

'Crisis countries' become focus for short investment opportunities–

Score five or more 'negatives’–

Signals significant potential for violent devaluation or default

1111

Step 1: Crisis cycle filterExample: Russian positioning and the crisis indicators

in the 2008 credit crisis (cont.)

Source: Bloomberg and GAM. * Ruble basket is calculated as a sum of 0.55 USD/RUB and 0.45 EUR/RUB. Example based on actual investment decisions taken by the investment team in the GAM Emerging Market Hedge fund during 2008. As of Oct 2009

25

27

29

31

33

35

37

39

41

43

Go short Russia

Ruble basket* through the crisis

Go long Russia

Jun 08 Sept 08 Dec 08 Mar 09 Jun 09 Sept 09

●

Two months of reserves stability after sharp USD200bn fall between August 2008 and January 2009

●

Ruble banking sector deposits stabilised in February 2009 after the stabilisation of the exchange rate

August 2008: Take short position via FX●

Real interest rates becoming more negative –

Measured by 3m Mosprime

–

2009 CPI forecast●

From August 2008 reserves begin to fall –

Ratio of reserves to broad money also begins to fall●

Banking system vulnerable to shocks–

Fitch’s Banking System Indicator of ‘D’

is second worst category

–

Tighter liquidity position of the corporate sector threatening asset quality

–

Credit facilities secured by shares proving to be a threat to system stability

●

Rapidly rising inflation: from 9.4% in Sept 2007, to 15% in Sept

2008

March 2009: Take long position via bond and FX purchases●

Real rates turned sharply positive–

Peaked close to 20% in January 2009 ●

Ruble had depreciated ~30% in basket terms since the team squared its position

–

Brought the exchange rate to a more competitive/ appropriate level after the commodity-driven collapse in Russia’s terms of trade

1212

Step 2: Macro market backdrop

●

Develop global macro views on what drives asset prices within the global financial system

–

Use focused approach because whole system is too complicated to model in its entirety

●

Leverage wider investment team of 11 other fixed income sector specialists

–

Average 14 years’

investment experience –

Specialisations across full range of bond and currency markets

–

Formal and informal discussions generate and test ideas

●

Emerging markets team use global macro views to determine key drivers of emerging market behaviour

–

Define best variables to monitor emerging markets in current environment

–

Set expectations for capital flows, growth and financial conditions over the medium term

●

Results in 8 –

12 key investment ideas with greatest influence in near and medium-term

Emerging markets must be viewed in context of global market dynamics

12Source: GAM as at 28 February 2010

Foreign Exchange

Mark Dragten (10)

Convertibles

Ben Helm (13) Alex McKnight (13)

High Yield Bonds

Johannes Wagner (14)

Global Macro and Foreign Exchange

Adrian Owens (22)

Global Rates and Foreign Exchange

Clare Hepburn (15)

TradersPortfolio Managers

Sector Specialists (Years investment experience)

Emerging Market Debt and Foreign Exchange

Caroline Gorman (12)


Paul McNamara (13)


Robert Champion (14)

Investment Manager

Daniel Sheard (23)

Investment Grade and Structured CreditDarren Reece (26)Haroon

Shaikh (2)

Government Bonds and Interest Rates

Philip Mann (22) Tom O’Shea (16)

Long Only and Absolute Return Fixed Income

Tim Haywood (22)

Long Only and Absolute Return Fixed Income

Chris Jarman

(3)


Denise Prime (13)

1313

Step 2: Macro market backdrop

Global Theme Emerging Market Opportunity

Continuing difference between cyclical slowdowns (countries with healthy financial systems) and much deeper balance-sheet recessions

●

Capital flows to stronger-growth countries –

which are overwhelmingly emerging

Concerns about sustainability of government balance sheets in the developed world (PIIGS and beyond)

●

Emerging market allocations from global investors likely to be bigger on a diversification/flight to quality basis

Absence of inflationary pressure ●

Loose monetary policy everywhere, but especially in the developed world

Systematic analysis of emerging market economies –

and emerging market versus developed relationships

●

Long emerging market currencies versus majors

●

Identifying “growth”

currencies as relatively closed economies

●

Long front-end of yield curves

Example: From global views to local themes –

Q1 2010

Source: GAM as at March 2010

1414

Step 3: Country analysis

●

Experience enables managers to understand what is driving each market at a certain point in time

●

Apply proprietary 'market driver matrix' tool–

Captures 14 current and forecast economic indicators–

Highlights global influences, systematic factors (eg commodity prices) and purely idiosyncratic local factors for each market

●

Analyse matrix with particular sensitivity to –

Global risk appetite–

Domestic liquidity–

Forecast revisions in certain variables

●

Outcomes of analysis: –

Testing, validation and evolution of investment ideas–

Identification of specific markets best positioned to play them out

●

Results in well-defined set of realisable investment opportunities

Drivers of emerging market currency and fixed income performance

vary over time

Example: Market driver matrix

Source: GAM

15

●

Portfolio balances opportunities over different time horizons:

●

Choose instruments that provide good liquidity and allow purest expression of views on:–

Currency: Exchange traded currency futures and forwards–

Rates/duration:

Interest rate swaps–

Credit: Credit default swaps and occasional exposure to corporate credits–

All of the above: Government and quasi-government bonds

●

Time entry and exit of positions using–

A range of technical analyses –

Identification of catalysts and timeframes for realisation

●

Results in medium-diversified portfolio 30 –

40 positions across the 8 –

12 themes

●

Structural trades: typically >80% of assets–

Fundamentally-driven trades, seriously mispriced–

Sizeable positions in highest conviction ideas –

Can last for months

15

Step 4: Portfolio constructionSeeking to capture high-conviction opportunities in a low-correlation portfolio

●

Tactical trades: typically <20% of assets–

Driven more by technical factors–

Exploit temporary pricing anomalies –

Depend heavily on liquidity–

Typically last weeks or even days

Source: GAM

1616

Step 5: Risk management and monitoring

●

Scenario analysis carried out pre and post implementation of positions

●

Investment managers constantly monitor the portfolio –

Clear target valuations and stop-losses on each position –

Update tools and expectations with new information –

Monitor correlation between positions–

Review daily RiskMetrics reports

●

Additional oversight from independent GAM Risk Team –

Reports directly to GAM’s Group COO–

Conduct weekly, in-depth performance and risk reviews–

Meet weekly with portfolio managers to discuss RiskMetrics reports

●

Actively manage costs and market, credit, counterparty, liquidity and legal risks–

Strong preference for markets with guaranteed liquidity via primary dealer system

●

Liquidity

Integral part of investment process; actively managed at several

levels

Example: Portfolio stress-testing

Source: GAM

RiskMetrics reports


Positioning and Outlook

1818

Market outlook –

Q1 2010

●

The developed world is sentenced to a long spell of sub-trend GDP, debt repayment, balance sheet repair and private-sector saving

–

Capacity of governments to offset this is limited–

Monetary policy is going to remain loose in the financially-stressed world –

Developed and European emerging –

for a very long time

●

Emerging markets are coming out of a conventional rather than a balance-sheet recession–

Recovery will be faster and more complete–

Growth differentials will approach historical records

●

Loose money plus superior growth have always been beneficial for

emerging market asset prices and currencies–

Huge gains already occurred from post-Lehman bounce, but emerging markets still a good place to invest

●

Discussion of an emerging market ‘bubble’

looks premature–

Neither valuations nor multiples are at historic highs–

Only performance versus developed markets is at historic extremes, which is entirely justified given their excellent economic outlook

●

Emerging markets have the growth, the yield and the potential–

While the easy money has been largely made, and some positions are crowded, the expectation is for superior returns

Loose money plus superior growth have always been beneficial for

EM asset prices and currencies

The views expressed are those of the manager at the time of publication and are subject to change. These views are aimed to help

readers in understanding the Fund manager's investment process and should not be construed as investment advice.

Source: GAM

1919


●

Long a basket of select high-yielding sovereigns and corporates in US Dollars–

Vietnam PDI, PDVSA (Venezuelan oil), Halyk

Bank (Kazakhstan), Republic of Iraq–

Long Brazil and Romania bonds

●

Long interest rates in Brazil

●

Long Turkish Lira vs US Dollar

●

Small positions in local currency ‘special situations’

(BTAS in PLN, BCCRD in KZT, Russian Railways in RUB)

●

Long US Dollar vs Russian Ruble (Weakest “BRIC”

–

good risk-reward)

●

Long Mexican Peso vs US dollar –

technical trade picking on technically-weak short positions

●

Long high growth EM currencies, Indonesian rupiah, Indian rupee

●

Short at-risk developed markets vs EM ie–

Short euro versus Mexican peso–

Short UK pound versus Swedish krona

(proxy for Baltic recovery)

●

Greece and Portugal CDS protection on Eurozone

concerns

Source: GAMHoldings and allocations subject to change. As GAM Star Emerging

Market Rates is not yet launched, the chart above shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the same investment process and is shown for

illustrative purposes only .

Current positioning as at 28 February 2010

2020


●

The funds following the strategy are also running a short interest-rates trade in India ($4000 dv01), and long Greece ($3700 dv01) and Portugal ($2000 dv01) CDS protection positions

●

The funds following the strategy hold USD denominated credit worth 40% of NAV, and total of 86% of NAV

●

The funds following the strategy hold unencumbered cash (net of margin posted vs FX and OTC) of 22% of NAV

Bond and currency breakdown as a % of fund NAV as at 28 Feb 2010

-50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0

EURO

Sterling

New Turkish Lira

Hungarian Forint

Azerbaijan

Vietnam

Nigeria

Iraq

Ukraine Hryvnia

Columbian Peso

Venezuela

Polish Zloty

Indian Rupee

Chinese Renmimbi

Argentinian

Peso

Kazakhstan Tenge

Russian Rouble

New Romanian Leu

Indonesian Rupiah

Mexican Peso

South African Rand

Swedish Kronor

Brazilian Real

FX forwards

Local currency bonds

USD denominated bonds

Source: Bloomberg; GAMAllocations and holdings are subject to change. The chart above

shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the indicated investment process and is shown for illustrative purposes only. Latest data available at time of production.

2121


USD

●

Our expertise is macro –

rather than bottom-up credit●

Primary judgement was that credit markets had overshot –

choices therefore 1) macro 2) low-rated

Regional, sector and credit breakdown

as a % of fund NAV at 28 Feb 2010

4.5

4.7

33.1

44.0

Middle East and Africa

Asia

Latin America

Central and Eastern Europe

Geography Credit Quality

2.8

4.6

21.2

12.6

42.7

2.5

0 10 20 30 40 50

Not Rated

Defaulted

B

BB

BBB

A

4.6

5.0

5.6

22.5

48.7

Distressed

System Banks

Strategic

Majority state-owned

Sovereigns

Sector

10 20 30 40 500 10 20 30 40 500 60

Source: GAMAllocations and holdings are subject to change. The chart above shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the indicated investment process and is shown for illustrative purposes only. Latest data available at time of production.

2222


USD

Source: GAMNote: figures are expressed as VaR / Fund NAV using 97.5% confidence interval per 1month. The chart above shows the positioning of an offshore fund managed by Paul McNamara and Caroline Gorman

that follows the indicated investment process and is shown for illustrative purposes only. Latest data available at time of production.

Maturity and risk as a % of fund NAV as at 28 February 2010

Maturity Breakdown Risk type Breakdown

0.0% 0.5% 1.0% 1.5% 2.0%

0 -

6M

6M -

18M

18M -

3Y

3Y -

7Y

7Y -

15Y

15Y+

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

FX Risk

IR Market

IR Mkt and Credit

IR Credit

Equity Risk

Volatility

3.5%

2323

Debt: The one great certainty

●

One issue will dominate the global economy for the next decade

●

Emerging Markets are the right way round on this

Source: IMF, Fiscal Implications of the Global Economic and Financial Crisis Staff Position paper

24

Emerging Markets score well on debt sustainabilityPublic debt and fiscal deficit 2009 as a % of GDP

-14

-12

-10

-8

-6

-4

-2

0

Greece

Italy

US

IndiaUK

Ireland

Spain

Portugal

Israel

Hungary

MalaysiaSouth

Africa

RomaniaRussia

NigeriaCzech Poland

Turkey

VenezuelaUkraine

Vietnam

China

IndonesiaMexico

Colombia

Philippines

Brazil

Argentina

Public debt/GDP (%)

Fisc

al d

efic

it/G

DP

(%)

Chile Korea

0 20 40 60 80 100 120

●

Few emerging market countries in the ‘bad corner’

Source: European Commission, IMF, Credit Suisse, Romanian Ministry of Finance

2525

Loan/Deposit ratio

0 50 100 150 200

IndiaJapanMalaysiaCzech RepublicTaiwanSingaporeHong KongTurkey SlovakiaPolandMexico BrazilPeru IndonesiaColombia ThailandSouth Africa Bulgaria HungaryRomaniaKoreaRussiaLatviaUkraine Kazakhstan

ChinaPhilippines

LithuaniaEstonia

Banking crises make all the difference

“We find that banking crises almost invariably lead to sharp declines in tax revenues as well significant increases in government spending … On average, government debt rises by 86 percent during the three years following a banking crisis. These indirect fiscal consequences are thus an order of magnitude larger than the usual bank bailout costs that are the centrepiece of most previous studies.”

Banking Crises: An Equal Opportunity Menace, Reinhart and Rogoff 2008

●

Central Europe enjoyed a boom which had many of the features of the Anglo-Saxon loan bubble financed by Western European banks. Eastern Europe went through a slightly different process, where foreign flows were intermediated by domestic banks.

●

While the numbers are frightening ($4.7 trn

globally, $1.7trn in the European time zone, 80% European-financed), the detail is less so.

●

Crucially beyond the region, only South Korea has had anything remotely resembling the banking crisis of the west.

●

Emerging Markets also came into the crisis with much healthier public balance sheets to start with. So they have more resources to face what is on balance a smaller problem.

Source: GAM, ING

26

Emerging market growth prospects look good in 2010GDP growth estimates 2010

0

1

2

3

4

5

6

7

8

9

10

China

India

Brazil

Nigeria

Vietna

mInd

ones

iaMala

ysia

Korea

Chile

Turkey

Philipp

ines

Argenti

naMex

icoRus

siaIsr

ael

Ukraine

South

Africa

Czech

Rep

ublic

Poland

Colombia

Venez

uela

Roman

iaHun

gary

US UKJa

pan

Euro ar

ea

% ●

Emerging markets have much stronger growth prospects than the developed world

●

They have come through the credit crisis relatively unscathed

●

This is reflected in their growth prospects for 2010

Source: Credit Suisse, IMF

27

High weight of food in emerging market CPIsFood weight in emerging market CPIs

0

10

20

30

40

50

60

70

Nigeria

Ukraine

Philipp

ines

Russia

Indon

esia

Roman

iaTha

iland

Bulgari

aSerb

iaKaz

akhs

tanChin

aMala

ysia

Croatia

Colombia

Turkey

India

Poland

Mexico

Brazil

South

Africa

Czech

Rep

ublic

Hunga

ryIsr

ael

Euro ar

ea US UK

%●

Food price inflation still largely an isolated phenomenon, not the inflation threat it was in 2008

Source: GAM, Credit Suisse, Santander, Eurostat, US Dept of Labor, UK ONS –

basket weightings from 2007

28

Watch credit growth for Emerging Market inflation alert

Dec 2009*

End Dec 2007

Loan

gro

wth

(%y/

y)

-5

0

5

10

15

20

25

30

35

China Brazil India Indonesia Malaysia Poland Singapore Czech Republic

Hong Kong

Chile Mexico South Africa

Hungary

Source: GAM, Bloomberg, central bank websites* Or earlier if Dec 09 unavailable

2929

Why GAM for Emerging Market Rates?

●

Highly experienced emerging market debt managers–

Structured and repeatable process developed over more than a decade–

Backed by the full resources of an established, global fixed income team

●

Proven ability to understand and anticipate crisis cycles–

Willing to invest early in recovering markets–

Anticipate violent defaults and position to profit from them

●

Top-down, high conviction style expressed through diversified portfolio–

Global emerging markets–

Bonds, currency and credit–

Structural and tactical opportunities

●

Focus on active risk management and maintaining liquidity

●

Track record of producing strong, positive absolute returns

29


Appendix

31

Emerging Market Rates StrategyPerformance from 1 Nov 2004 to 30 Mar 2010




AnnualisedStandardDeviation


USD 14.53 8.25

Compound 3-Month Libor in USD 3.42 0.52

CompoundGrowth% p.a.



0 %

20 %

40 %

60 %

80 %

100 %

2005 2006 2007 2008 2009

32

Emerging Market Rates StrategyPerformance history to 30 Mar 2010



The funds following the Emerging Market Rates Strategy have certain claims against Lehman Brothers International (Europe) Limited. These claims, which amounted to 22.1% of the relevant assets on 1 December 2008, were segregated into special class shares. Performance of the special class shares is excluded from performance information otherwise provided for the fund. Performance of the USD class shares of the funds following the Emerging Market Rates Strategy from 1 December 2008 to 30 March 2010 is-95.9%.

8.21

11.63

5.52

8.13 8.27

25.47

11.22

0.38

3.53

5.28 5.44

3.13

0.760.06

0%

5%

10%

15%

20%

25%

2004Since Inception

2005 2006 2007 2008 2009 2010YTD



33

Emerging Market Rates Strategy Compound annual growth rates as at 30 Mar 2010



32.33

16.90

13.7514.53

0.49

2.663.49 3.42

0%

10%

20%

30%

1 Year (Simple) 3 Years 5 Years Since Inception1 Nov 2004

Emerging Market Rates Strategy - USDCompound 3-Month Libor in USD


3434


USDPerformance since inception to 28 Feb 2010

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD NAV

2004 4.36 3.70 8.21 108.21

2005 1.55 4.58 -4.81 0.05 1.66 3.90 3.43 -0.66 1.83 -2.30 1.69 0.53 11.63 120.80

2006 3.04 0.87 -2.82 2.43 -3.27 -1.25 1.26 0.40 -0.54 1.68 1.90 1.93 5.52 127.47

2007 1.20 -1.57 2.70 2.13 2.90 -1.71 -2.30 -2.67 2.31 0.90 3.22 0.97 8.13 137.83

2008 1.06 1.85 0.14 -0.38 1.43 4.64 1.50 1.60 -3.46 -3.19 0.29 2.77 8.27 149.23

2009 0.42 2.33 2.62 3.27 7.71 -2.29 3.25 0.92 3.86 25.47 187.23

2010

Source: GAM, Thomson Reuters as at 28 Feb 2010. Latest data available at time of production.Past performance is not indicative of future performance. Performance is shown net of fees. The chart above shows the performance of an offshore fund managed by Paul McNamara and Caroline Gorman that follows the indicated investment process and is shown for illustrative purposes only.

-1.82 -0.13 3.16

4.29 3.00 7.42 201.13

Some funds following the Emerging Market Rates Strategy have certain claims against Lehman Brothers International (Europe) Limited. These claims, which amounted to 22.1% of the relevant assets as at 1 December 2008, were segregated into special class shares. Performance of these shares is excluded from performance information otherwise provided for said funds. Performance of the special class shares of the funds from 1 December 2008 to 30 March 2010 is

-95.9%.


3535

Managing Emerging Market Fixed Income during the credit crunch

●

Tight control of liquidity and gearing

●

Focus becomes a much more nimble, macro-oriented portfolio with relatively high weights to FX trading and a lower than usual emphasis on gearing-heavy relative value

●

Markets are in the process of returning to ‘normal’–

‘Normal’

is likely to look a lot more like 2004 than 2006

●

‘Rotate into the underperformer’

is a workable strategy in momentum-driven bull markets–

Bear markets are characterised by extreme and sustained divergence between stronger and weaker assets and currencies

●

Liquidity in all markets much reduced compared with even 15 months, let alone 2 years ago–

Trade sizes (dv01, FX notional) should be much smaller for the same target return than in previous periods–

Any trade with a price target that is less than 5x the bid-offer on the market can be dismissed out of hand

●

Bonds rather than CDS are the preferred method of taking credit exposure–

Avoids counterparty and regulatory risk

●

Manage market risk using hedges in G7 instruments (FX, Treasury futures)

Source: GAM as at 28 Feb 2010. The views expressed are those of the manager at the time of publication and are subject to change. These views are aimed to help

readers in understanding the Fund manager's investment process and should not be construed as investment advice.

36

Sector expertiseGlobal ratesCurrency

―

Discretionary―

Quantitative Emerging marketsConvertible bonds

TraditionalGlobal International Core PlusLocal emerging markets

About GAM’s Fixed Income capabilities

●

More than 25 years experience in specialist fixed income–

Active, fundamental approach developed by key management team together for over a decade

–

Capabilities across the traditional and alternatives fixed income spectrum

●

Manage fixed income assets of USD12.2bn for institutional and wholesale clients globally

●

Three core fixed income and currency capabilities:

36

Absolute ReturnAR bonds – DefenderAR bondsAR bonds - Plus

Source: GAM as at 31 Dec 2009 Latest data available. Assets under management are released on a

six monthly basis in line with GAM Holding policy.

Long onlyfixed incomeUSD 4.4bn

Absolute return

fixed incomeUSD 6.7bn

Hedge fund

strategies USD 1.1bn

Expertise across the full spectrum of fixed income sectors

37

1983

GAM / Augustus corporate historyTimeline of important developments

Local Emerging Bond Fund launched

1998 1999

First in-house SMHF

launched

GAM founded by Gilbert de Botton

and begins managing absolute

return strategies

First FoHFs launched

1989

Acquired by Julius Baer, but

continues to operate

independently

2005

Fixed income team

established at Julius Baer Investments

Limited (JBIL)

1983

First single manager

hedge funds launched

20022000

Launched Core Plus

long only FI strategy

1984 2004

Augustus formed following a

management buyout

2007

GAM acquires Augustus

May 2009

Parent company, GAM Holding

Limited, independently listed on SIX Swiss Stock Exchange

Sept 2009

Absolute Return Bonds

launched

Acquired by UBS, but continues to

operate independently

3838

Paul McNamara

Investment Director

Paul McNamara is an Investment Director and lead manager on of the emerging markets bonds and FX strategies. Paul joined Augustus (then Julius Baer Investments Limited) in 1997 from Julius Baer Holdings’

Export Credits Guarantee department, where he was an economist.

Augustus was established in 2007 as part of a management buyout from Julius Baer, and came under GAM’s ownership in June 2009. Paul began his career as a lecturer at the University of Warsaw. He holds a Masters Degree in Economics from the London School of Economics and is a CFA charterholder.

3939

Caroline Gorman

Investment Manager

Caroline Gorman is an Investment Manager and co-manager of the emerging markets bonds and FX strategies. Caroline joined Augustus (then Julius Baer Investments Limited) in March 2006 from 4Cast Limited (London), where she worked for eight years as an emerging markets analyst. She previously worked as an economist in the Australian

Department of the UK Treasury. Augustus was established in 2007 as part of a management buyout from Julius Baer, and came under GAM’s ownership in June 2009. Caroline holds an MSc in Investment Management from the Cass Business School in London, a B.Comm

(Hons) from the University of Melbourne and the IMC.

40

Denise Prime

Investment Manager

Denise joined Augustus Asset Managers in April 2010 from Rogge Global Partners, where she was a EM bond portfolio manager, a role she also held previously

at Henderson Global Investors for 4 years. Previous experience includes 4 years as fixed income investment writer at Henderson, 2 years as editor of the Latin American Newsletters and 3 years as associate in JPMorgan’s

LatAm

DCM and M&A practice. Denise is a CFA charterholder

and holds a BA in Economics from Bryn Mawr

College, PA, USA

41

Robert Champion

Dealer

Robert Champion is a Dealer at GAM

where he

provides dealing

support to a number of investment managers as well as executing bond and currency trades and related derivative trades in rates, foreign exchange and credit.

Robert joined

GAM following its acquisition of the fixed income and foreign exchange specialist, Augustus in May 2009. He joined Augustus (then Julius Baer Investments Limited)

from Bear Stearns in 2005, and eight months later joined the trading desk.

Robert holds an HND in Business and Finance from Kingston University and the Investment Management Certificate. He is based in London.

42

GAM Risk Management Team

●

GAM Risk Team provides reporting and risk oversight on a weekly and monthly basis

●

The Head of Risk and one Risk Analyst meet weekly with each fixed income portfolio manager

●

Use RiskMetrics reports to identify and mitigate potential “risk hotspots”

●

Functionally independent

●

Reporting lines and escalation procedures to Group Chief Operating Officer

Source: GAM as of 28 Feb 2010.

Risk Analyst Risk Analyst

Group COO

Head of Risk

Independent, regular oversight of risk

Senior Risk Analyst

4343

Disclaimer

Source: GAM unless otherwise stated. (Unless otherwise noted, where shown, performance is shown net of fees, on a NAV to NAV basis).This material is confidential and is intended solely for the use of the person or persons to whom it is given or sent and may not be reproduced, copied or given, in whole or in part, to any other person. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. It is not an invitation to subscribe and is by way of information only. Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the relevant

fund. Copies of the fund’s prospectus, simplified prospectus and financial statements can

be obtained free of charge from GAM Fund Management Limited, George’s Court, 54-62 Townsend Street, Dublin 2. Shares are not available for sale

in any state or jurisdiction in which such sale would be prohibited. The Shares of the fund have not been registered under the US Securities Act of 1933, as amended (the “Securities Act”), and the fund is not registered under the US Investment Company Act of 1940, as amended (the “Company Act”). Accordingly, unless an exemption is available, such shares may not be offered, sold or distributed in the United States or to US persons. However, pursuant to an exemption from registration under the Securities Act and the Company Act, the shares may be sold or resold in the United States or to certain qualified US investors in transactions that do not constitute a public offering. The views expressed herein are those of the manager at the time and are subject to changes. The price of Shares may go down as well as up and the price will depend on fluctuations in financial markets outside GAM's control, as a result an investor may not get back the amount invested. Past performance is not indicative of future performance and reference to a security is not a recommendation to buy or sell that

security. Prices quoted refer to accumulation Shares unless otherwise stated. Historic data may be subject to restatement from time to time.This material has been issued and approved by GAM London Ltd, 12

St James's Place, London SW1A 1NX, authorised and regulated by the Financial Services Authority.

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