Bank of America Merrill Lynch Q3 2010 Hedge Fund Industry Overview

Capital IntroductionsGlobal Hedge Fund Industry OverviewQ3 2010

Bank of America Merrill Lynch

22

Table of Contents

Executive summary 3

Hedge fund industry overview 4 - 15

• Asset levels 4

• Performance 5 - 6

• Risk appetite 7 - 9

• New launches 10 - 15

Hedge fund industry trends 16 - 26

• Hedge fund manager trends 16 - 19

• Hedge fund investor trends 20 - 26


3

Executive summary

• Optimism returned in Q3 2010 as positive September performance boosted YTD returns:

• Investors continued to allocate in Q3 2010 for the fifth consecutive quarter, mostly to the largest firms. New capital inflows of $19 billion were double the inflows of Q2 2010(1). Industry assets were up 7.3% to $1.77 trillion due to performance-based gains and new capital inflows(1).

• The HFRI Fund Weighted Composite Index posted a gain of 5.17% YTD at the end of Q3 2010(1). Merger Arbitrage and CTA Advisors were the strategies closest to their high watermarks(2). 56.4% of hedge funds reached their respective high watermarks in the trailing twelve months(1).

• Risk appetite remained subdued in Q2 and Q3 2010: De-leveraging in May and June followed a sharp correction in the markets(2). Despite a slight increase in leverage in July, managers’ leverage and net exposures remain below peaks(3). Short interest levels are slightly higher in Europe than in the US(4).

• Investment activity continues: New launches in 1H 2010 exceeded liquidations for the first time since 2007(1). US funds represent 55% of the new launches globally, raising approximately $11 billion in assets in 1H 2010 or more than double the levels of 1H 2009(5).The majority of new launches in 1H 2010 are from established players(5). The size of fund launches is smaller than historical levels(5). In Europe new launches in 1H 2010 raised $6.9 billion; $3.75 billion in European hedge funds and $3.1 billion in UCITS funds(6).

• M&A activity in the alternative asset management industry has continued to increase in 2010.

• Q3 was the first quarter since 2007 in which funds of funds saw positive net inflows. Funds of funds assets increased by 6.7% in Q3 2010(1).

Sources: (1) Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010, www.hedgefundresearch.com.(2) Bank of America Merrill Lynch Hedge Fund Monitor, July 19th 2010. Bank of America Merrill Lynch research is available at www.mlx.ml.com.(3) Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010. (4) Dataexplorers.com, October 13th, 2010.(5) Absolute Return.com, July 1st, 2010.(6) Hedge Fund Intelligence “UCITS hedge funds: boom time?” September 21st, 2010.

Summ

ary


4

Total assets in the hedge fund industry increased by 7.3% in Q3 2010.

1. Industry overviewA

sset levels

-$200$0

$200$400$600$800

$1,000$1,200$1,400$1,600$1,800$2,000

2005 2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010($200)($150)

($100)

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Estim ated Assets Net Asset Flow

• In Q3 2010, the hedge fund industry’s assets were up 7.3% to $1.77 trillion from $1.65 trillion in Q2 2010 due to a combination of performance-based gains and new capital inflows.

• The hedge fund industry saw the largest quarterly capital inflow since Q4 2007 : $19 billion in Q3 2010 bringing total YTD inflows to $42.3 billion. In comparison 2008 and 2009 saw outflows of $154 billion and $131 billion respectively.

• 57% of managers saw inflows in Q3 2010, similar to Q2 2010. 75% of the net inflow (or $14.2 billion) was allocated to the largest firms – those with assets under management above $5 billion.

• 74% of net asset flows in Q3 2010 were allocated to Relative Value and Macro strategies, attracting 37% each.

7.3% growth

$billion

Source: Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010, www.hedgefundresearch.com. Please note that this source applies to all the data presented on this page.

Industry net asset flows and industry assets (in US$ billion), 2005 – Q2 2010

Indu

stry

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imat

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et asset flows

$billion• Peak assets: $1.9 trillion in Q2 2008

• Trough assets: $1.3 trillion in Q1 2009


5

Event-Driven

Fixed Income-Corporate

Multi-Strategy

Relative Value

Merger Arbitrage

Equity Hedge

Equity Market Neutral

Distressed/Restructuring

HFRI Fund Weighted Composite

Macro

Quantitative Directional

Fixed Income-Convertible Arbitrage

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

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Hedge funds returned 3.75% YTD after positive performance in July and September*.

• The HFRI weighted composite index was up 3.61% in September (5.17% YTD) with strong performance in Macro and Equity Hedge Strategies**.

• YTD 2010, the most profitable strategies are Multi-Strategy, Fixed Income and Relative Value. Equity Market Neutral, Equity Hedge and Macro are the least profitable strategies.

… and returned 3.61% for the month in September 2010*Hedge funds started to recover in July from earlier losses in Q2 2010*…

• Estimated return for the Bank of America Merrill Lynch diversified hedge fund composite(1) is up 3.75% YTD at the end of September 2010*.

• Gains in July (1.55%) and September (2.54%) reversed losses from earlier this year*.

(1) The Diversified Hedge Fund composite is designed to represent the overall Hedge Fund universe and measure its performance by equal weighted average of all strategies.(2) The HFRI Monthly Indices (HFRI) are equally weighted performance indices utilised globally as an industry benchmark. (3) Bloomberg performance YTD as of October 1st, 2010 of S&P 500 Index.

Sources: * Bank of America Merrill Lynch Hedge Fund Monitor, October 11th, 2010.** HFRI Monthly Indices performances, October 19th, 2010 numbers http://www.hedgefundresearch.com.

1. Industry overviewPerform

ance

Bank of America Merrill Lynch Diversified Hedge Fund Composite Monthly Returns from July 2009 to September 2010

HFRI Indices(2) Performances YTD as of the end of September 2010

S&P 500(3) : 0.7% YTD

Ret

urn

(%)


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2003 2004 2005 2006 2007 2008 2009 Q1 2010 Q2 2010 Q3 2010

44% of Hedge Funds remain below their high watermarks*.

HFRI Fund Weighted Composite Index – Percentage of constituent funds at high watermark (HWM), 2003 – Q3 2010*

% F

unds

at H

igh

Wat

erm

arks

Max: 88% in 2007

Min: 50% in 2009

(1) Trailing 12 months ending Q3 2010.

Sources: * Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010.** “Half of funds may not get paid in 2010” AbsoluteReturn-alpha.com, October 2010. *** Bank of America Merrill Lynch Hedge Fund Monitor, July 19th, 2010.**** Bank of America Merrill Lynch Hedge Fund Monitor, January 19th, 2010.

(1)

Note: Hedge funds often apply high watermarks for performance fee calculations: they calculate performance fees based on increases in the net asset value (NAV) of the fund in excess of the highest net asset value it has previously achieved. High watermarks are intended to limit excessive risk taking.

1. Industry overview

• 56.4% of hedge funds are at their respective HWM in the trailing twelve months(1) in Q3 2010 vs. 54.4% in Q2 2010*.• The chart above illustrates the percentage of funds at their HWM during each year. Calculations are based on the net asset value history of each

fund that reports to HFR*.• 21% of funds need to produce a median return of 3% to return to their HWMs and earn performance fees for 2010**. • According to Bank of America Merrill Lynch Research:

– Merger Arbitrage and CTA advisors are the strategies closest to their high watermarks as of July 2010***.– In January 2010, most strategies were expected to still take 6 to 12 months to climb back to their HWM****.

Performance


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Cash S&P 500

Risk appetite in Q2 2010* was more subdued following an increase in Q1 2010**.

1. Industry overviewR

isk appetite

Estimated hedge fund cash holdings by quarter (2005 - 2010)

Source: Bank of America Merrill Lynch Global Research, September 2010.

Estimated hedge fund net holdings by quarter (2005 - 2010)

Source: Bank of America Merrill Lynch Global Research, September 2010.

EstimatedCash Levels S&P 500 Index

Estimated HF cash holdings have returned to pre-crisis levels

S&P 500

Net Exposure($bn)

Estimated net exposure

S&P 500 Index

(1) Net exposure to the equity market is defined as long minus short as % of capital.(2) Gross exposure is defined as long and short positions as % of capital. Estimates based on quarterly 13F filings and estimated short positions of the equity holdings of 817 funds.

Sources: * Bank of America Merrill Lynch Hedge Fund Monitor, October 11th, 2010.** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th,2010.

.

• In Q2 2010 risk appetite shifted following an increase in Q1*:• Net exposure(1) fell by 14% to $174 billion or to the level of 33% net long by the end of Q2 2010**. Hedge fund gross exposure(2) fell by 12% to

$780 billion or to the level of 150% at the end of Q2 2010**. • Cash holdings were estimated at 7.6% at the end of Q2 2010, below the historical average of 8-10% (peak was near 30% in Q4 2008)**.• Market Neutral funds slightly increased equity exposure to above 50% long / 50% short benchmark*.


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Margin Debt S&P 500

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Net Exp Long Exp Short Exp

De-leveraging in May and June followed a sharp correction in the equity markets. Leverage began to increase again in July*.

NYSE margin debt vs. S&P 500 (January 2008 to August 2010)**

(1) Margin debt refers to the amount market participants borrow on credit from their prime brokers. Increasing margin debt shows an increased risk appetite and leverage.

• Hedge fund leverage, as measured by NYSE Margin Debt(1), is back to $230 billion but remains below the July 2007 peak of $381 billion*.

• By contrast, margin debt levels were up 5.4% in March and 6.3% in April 2010 (which was back to September 2008 level), reaching $262 billion and demonstrating increasing risk appetite in Q1***.

• Equity Long/Short funds reduced their market exposure to roughly 20% net long by the end of September 2010, well below the historical average range of 35-40% net long****.

• There is a risk that in a deeper correction margin calls can hit the equity market and force another wave of de-leveraging*.

Estimated hedge fund equity leverage(2) (2005 – 2010)*

(2) Estimates are based on analyses of equity holdings and do not include derivatives.

HF leverage is back to late 2008 levels

Estimated hedge fund % long and short exposure by quarter

Sources: * Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010.** Bloomberg and NYSE data as of August 2010.*** Bank of America Merrill Lynch Hedge Fund Monitor, June 7th, 2010.**** Bank of America Merrill Lynch Hedge Fund Monitor, October 11th, 2010.

Risk appetite


Mar

gin

Deb

t ($m

)

S&

P 500


9

Short interest levels are marginally higher in Europe than in the US but in both regions they are at historically low levels*.

Breakdown of EURO STOXX 600 components by level of short interest, October 1st 2010*

Sources: * Dataexplorers.com as of October 13th, 2010 ** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010. Bank of America Merrill Lynch research is available at www.mlx.ml.com.

.

Risk appetite


Breakdown of S&P 500 components by level of short interest, October 1st 2010*

S&P 500: Short interest (borrowed stock) as a % of total shares Number of companies

Less than 1 % short 162Between 1% and 2% short 89Between 2% and 3% short 69Between 3% and 4% short 38Between 4% and 10% short 105More than 10% short 37Total 500

Eurostoxx 600: Short interest (borrowed stock) as a % of total shares Number of companies

Less than 1 % short 148Between 1% and 2% short 178Between 2% and 3% short 95Between 3% and 4% short 59Between 4% and 10% short 104More than 10% short 16Total 600

• Hedge funds are the primary reason for the sharp increase in short interest levels in recent years. Our research estimates that they are now responsible for 85% of total short positions in the US market**.

• In the US, the most common short level (as expressed by the borrowed stock as a percentage of total shares) on the S&P 500 was less than 1% as of October 1st, 2010 which is the same level as in July and August 2010*.

• In Europe, the most common short level on the EURO STOXX 600 was between 1% and 2% as of October 1st 2010 vs. less than 1% in July and August*.

• This remains below the 5% peak seen during the financial crisis in June 2008**.

• The majority of top shorts in the US are cyclicals whilst in Europe they are split between cyclicals and defensives indicating mixed sentiment in the market*.


10

New launches picked up* in 1H 2010, with the majority from established players**. Launch sizes remain smaller than historical levels**.

Sources: * Hedge Fund Research, Second Quarter 2010 Industry Report, Inc. © HFR, Inc, July 2010, www.hedgefundresearch.com.** Absolute Return as of July 1st, 2010.*** EuroHedge First-Half New Fund Survey, July 22nd, 2010 and EuroHedge database as of July 2010.**** AsiaHedge First-Half New Fund Survey, July 21st, 2010.

1. Industry overviewN

ew launches

Key trends of fund launches in 1H 2010

• New launches exceeded liquidations in Q1 2010 for the first time since 2008*.

• The majority of new launches in 1H 2010 are from established players**.

• The size of fund launches is smaller than historical levels**.

• More start-ups are running separately managed accounts than in previous years**.

• 2010 has produced the first multibillion-dollar launch since 2008, Overland Advisors**.

• New launches have raised globally approximately $20 billion in 1H 2010:

• US funds account for the majority of the assets raised in 1H 2010 with 55% of globally raised assets or $10.9 billion**.

• European funds account for 35% or $6.9 billion, including UCITS III funds***.

• Asian funds represent 11% or $2.1 billion of new launches****.

-1,750-1,500-1,250-1,000

-750-500-250

0250500750

1,0001,2501,5001,7502,0002,250

2004 2005 2006 2007 2008 2009 Q1 20100.0

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LaunchesLiquidationsRatio of new launches/liquidations

Number of funds

Ratio of new launches to liquidations improved to 1.1 in Q1 2010*

Ratio


11

New US funds raised approximately $11 billion in assets in 1H 2010, more than double the levels in 1H 2009. The number of new US funds(2) also doubled.

Launched assets by strategyTop 10 US fund launches in 1H 2010

• As of July 2010, this year’s top ten new US hedge funds gathered a combined $8.1 billion or approximately 74% of all new US fund assets. • Fund launches in the US amounted to $10.9 billion in June 2010, which is more than double that of the same period in 2009 but 27% less than the 1H

2007 peak.• The number of new funds launched also doubled. At least 43 funds(2) launched in 1H 2010, up from 21 in 1H 2009, but significantly less than the 81

launches in 1H 2007.(1) Including $3.4 billion of managed accounts.(2) Funds with at least $25 million of assets under management. (3) Estimated assets under management.

Source: Absolute Return as of July 1st, 2010. Please note that this source applies to all the data presented on this page.

$8,104m Total

250 Feb-10 Event driven FrontPoint Rockbay Event

287 Jan-10 Macro First Quadrant Essential Beta

350 Mar-10 Long/Short equity Sursum Partners

400 Feb-10 Macro Galle Global Macro Partners

485 Jan-10 Event driven BHR Master

500 May-10 Distressed Alden Global Value Recovery

500 Jan-10 Long/Short equity Paulson Gold

500(3)Jan-10 Event driven Highbridge Event Driven

1,232(3)Jun-10 Commodities Astenbeck Commodities

3,600(1)Mar-10 Multi StrategyOverland Relative Value

AUM ($m)Inception Date StrategyFund Name


ew launches

Total assets: $10.9 billion. Number of funds(2): 43

Multi-s trategy33.4%

Event driven16.6%

Com m odities13.0%

Macro10.1%

Long/short equity16.2%

Dis tressed6.6%

Credit4.2%


12

58 European fund launches raised $3.8 billion in 1H 2010, an 80% asset increase since 1H 2009’s lows.

• 58 European fund launches raised $3.8 billion in 1H 2010, an approximate 80% increase compared to the $2.1 billion raised in 1H 2009 by 47 funds, but this

remains much lower than the $15.5 billion raised in 1H 2007.

• As of July 2010, the top five new European hedge funds gathered a combined $2.1 billion, approximately 55% of the new European fund assets.

• Long / Short Equity, Macro and Multi-strategy were the most popular strategies in 1H 2010, representing respectively 43%, 16% and 15% of the assets

raised.

• The new fund activity in Europe is lagging that in the US and Asia given the lower confidence that investors currently have in the European outlook, partly as

a result of the volatility in Europe since the start of the year and the uncertainty surrounding the AIFM Directive.

• More than half of the new hedge funds in 1H 2010 were UK-based (or 75% in term of assets), followed by 14% for Swiss-based new launches.(1) Estimated assets under management.

Source: EuroHedge First-Half New Fund Survey, July 22nd ,2010 and EuroHedge database as of July 2010. Please note that this source applies to all the data presented on this page.

Top 5 European fund launches in 1H 2010

$2,135m Total

200(1)Mar-10CommoditiesBrevan Howard Commodities

350May-10Long/Short equity Ridley Park Paragon

460Mar-10MacroCapula Tail Risk

5251H 2010Multi-Strategy1798/Lombard Odier Energy

600 Jan-10 Long/Short equity Theleme



ew launches

European fund launches since 1H 2000Total number of funds vs. AUM

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13

39 new UCITS III funds raised $3.1 billion in 1H 2010 in Europe*.

New European UCITS III hedge fund strategy breakdown by assets under management, in 1H 2010*

Sources: * EuroHedge First-Half New Fund Survey, July 22nd, 2010. ** Hedge Fund Intelligence, Global Review 2010, Spring 2010 issue.


ew launches

Fixed Incom e0.4%

Long/Short Equity38.7%

Market Neutral16.9%

Convertible Arbitrage

32.4%

Em erging Markets

2.4%

Macro4.7%

Multi-Strategy4.1% Credit

0.4%

$2,124m Total

1351H 2010MacroVirtuoso Fund

2821H 2010Long/Short equity

PF (Lux) Corto Europe

325Feb-10Long/Short equity

GLG Alpha Select UCITS

369Jan-10Market NeutralMW TOPS Global Alpha ETF

1,013 1H 2010 Convertible Arbitrage

PF (Lux) Convertible Bond


Top 5 UCITS III launches in 1H 2010*

• According to Hedge Fund Intelligence, 146 UCITS III hedge funds managed $30 billion at the end of 2009**.

• 39 new UCITS hedge funds raised $3.1 billion in 1H 2010. European Long/Short Equity was the largest strategy in terms of AUM and accounted for 50% of the number of funds*.

• The largest new UCITS fund was in Convertible Arbitrage, with the $1 billion PF Lux Convertible Bonds Fund launched by Jabre Capital and Pictet*.

• The top 5 new funds accounted for 68% of total assets with $2.1 billion raised*.• The UK was the largest location by number of funds (54% of funds)*.

Total assets: $3.1 billion. Number of funds: 39


14

53 Asian funds raised $2.1 billion in assets in 1H 2010, twice as much as in 1H 2009.

• As of July 2010, the top ten new Asian hedge funds gathered a combined $1.2 billion, approximately 57% of new Asian fund assets.• 53 Asian funds raised $2.1 billion in assets in 1H 2010 vs. $1.1 billion raised by 39 funds in 1H 2009. 60% of them are based in Hong Kong.• The average size in 1H 2010 was $40 million in line with 1H 2009 average size but this includes only 7 funds above $100 million with most of the

launches in the $10 – 30 million range.• More than 70% of the new launches are managing Long/Short Equity strategies.

Source: AsiaHedge First-Half New Fund Survey, July 21st, 2010. Please note that this source applies to all the data presented on this page.

Asian fund launches since 1H 2005Total number of funds vs. AUM

Top 10 Asian fund launches in 1H 2010

541H-10Credit Gen2 Partners: Asia Private Credit

100Jun-10Event DrivenADM Kazakhstan Capital Restructuring

150Apr-10Long/Short equityTuriya

$1,211m Total

64 Apr-10Long/Short equityCAM Greater China Small Cap

75 Apr-10 Event Driven Blacks Link Asia Event Driven

100 Jan-10 Long/Short equity Janchor Partners Pan-Asian

1201H-10Event DrivenIncome Partners Asian Opportunities

128Apr-10Event DrivenADM CEECAT

170Jun-10Long/Short equityKilometre Capital Growth Asia Master

250 1H-10CommoditiesHillhouse: Gaoling Natural Resources

AUM ($m)

Inception Date StrategyFund Name


ew launches

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Launches Liquidations

The total universe of hedge funds is 9% lower than at its peak in 2007.

Estimated Number of Funds Launched/Liquidated 1996 -Q2 2010

• Since the peak in 2007, 2,911 (28.8%) funds have closed and in the same time frame 1,898 (18%) have launched.

• Hedge fund liquidations YTD are 417. In 2009 the industry experienced 1,023 liquidations, (14.8%), whilst in 2008 this number was 1,471, (21.4%).

• Hedge fund launches YTD (455) are still well below the peak year level of 2,073 in 2005. In 2009 there were 784 new launches (11.4%) and in 2008 this number was 659 (9.6%).


Estimated Number of Funds: Hedge Funds vs. Fund of Funds 1996- Q3 2010

• In Q3 2010 the industry was made up of 7,062 hedge funds and 2,112 fund of funds vs. 6,982 and 2,101 respectively in Q2 2010.

• At the peak in 2007 there were 7,634 hedge funds and 2,462 fund of funds.

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Hedge Funds Fund of Funds

Average:858

Average: -411


ew launches/ liquidations


16

Asset concentration among the largest managers continues to rise: 5% of hedge fund managers controlled 60% of the industry’s assets in Q3 2010*.

… representing over 60% of total industry assets*5% of firms manage AUM of $5 billion or above*…

$100 to $250 Million14.5%

$250 to $500 Million9.2%

$500M to $1 Billion7.3%

$1 to $5 Billion11.4%

<$100 Million52.5%

> $5 Billion5.1%

$250 to $500 Million3.4%

$500M to $1 Billion5.3%

$1 to $5 Billion26.0%

$100 to $250 Million2.4%

<$100 Million1.6%

> $5 Billion61.3%

Sources: * Hedge Fund Research, Third Quarter 2010 Industry Reports, Inc, October 2010, www.hedgefundresearch.com.** Hedge Fund Research, Second Quarter 2010 Industry Reports, Inc, June 2010, www.hedgefundresearch.com.*** “Recovery in European hedge fund asset growth stalls in the first half” EuroHedge, September issue, 2010.

Distribution of industry assets by number of firms Distribution of industry assets by firm AUM size

Manager trends

2. Industry trends

• The hedge fund industry stands at $1.77 trillion as of the end of Q3 2010*.

• 5% of firms manage assets of $5 billion or above, representing 61% of total assets under management (AUM) or $1.08 trillion*, a slight increase from H1 2010**.

• 16% of firms manage assets of $1 billion or above, representing 87% of total AUM or $1.54 trillion, compared to $1.42 trillion in Q2 2010**.

• In Europe in terms of strategy, Managed Futures funds have overtaken European Long/Short Equity as the largest strategy group by assets. In contrast Equity Long/Short is still the largest strategy in terms of assets on a global basis*. Long/Short Equity still has by far the largest market share by number of funds in Europe and globally***.


1717

The largest managers continue to get larger.

(1) JP Morgan includes JP Morgan Asset Management and Highbridge Capital Management with AUM of $24.64 billion and $16.46 billion respectively as of July 2010.(2) Acquisition of Barclays Global Investors in 2009.(3) Announcement of acquisition by Man in May 2010.

Source: * Hedge Fund Intelligence (HFI) Global Review 2010, September 2010, AbsoluteReturn-alpha.com** Hedge Fund Intelligence (HFI) Global Review 2010, Spring 2010.

Manager trends

Top 15 US hedge fund managers*

Total assets of top 15 US funds 15.6%370.3368.9

0.0%15.0 15.0 Renaissance Technologies

5.6%16.0 16.9 Elliott Management Corporation

-24.6%23.6 17.8 D.E. Shaw Group

-10.0%20.0 18.0 Avenue Capital Group

7.30%17.7 19.1 Goldman Sachs Asset Management

1.6%19.0 19.3 King Street Capital Management

-3.4%20.7 20.0 Farallon Capital Management

0.92%21.8 22.0 Baupost Group

9.0%20.8 22.7 Angelo, Gordon & Co.

2.84%22.2 22.8 BlackRock

7.7%23.5 25.3 Och-Ziff Capital Management Group

0.0%27.0 27.0 Soros Fund Management

-3.1%32.0 31.0 Paulson & Co.

7.03%38.21 41.1 JPMorgan Highbridge (1)

16.7%43.6 50.9 Bridgewater Associates

Jan-10Jul-10

1H10 growth

(%)

Firm capital ($bn)US firms

20.9%141.7171.3Total assets of top 15 European funds

2.2%4.54.6Cheyne

40.0%3.54.9Marshall Wace

3.7%5.45.6Spinnaker Capital

-25.5%8.06.0The Children's Investment Fund

35.7%5.67.6Brummer & Partners

-6.2%8.17.6Transtrend

48.1%5.27.7Gartmore IM

12.5%7.28.1Sloane Robinson

15.6%9.010.4GLG Partners3

4.2%11.812.3Winton

17.6%11.914.0Lansdowne Partners

172.9%5.916.1Blackrock2

35.5%12.416.8BlueCrest

14.2%19.021.7Man Inv.

15.3%24.227.9Brevan Howard AM

Jul-09Jan-10

2H09 growth

(%)

Firm capital ($bn)European firms

Top 15 European hedge fund managers**

2. Industry trends

13.5%30.534.5Total assets of top 15 Asian-Pac (incl. Japan) funds

Hong Kong

Australia

HK / Japan

Hong Kong

Australia

Singapore

Singapore

Hong Kong

Hong Kong

Japan

Singapore

Singapore

Japan

Hong Kong

Australia

Country

n.an.a1.0Keywise Capital

n.an.a1.0West AM

0.0%1.11.1Rockhampton

-13.3%1.51.3Pacific Alliance

-26.3%1.91.4Boronia

15.4%1.31.5Aisling Analytics

6.7%1.51.6Hillhouse Capital

-5.9%1.71.6ADM Capital

33.3%1.21.6Value Partners

0.0%1.61.6Horizon Asset

-30.4%2.31.6Artradis Fund

6.3%1.61.7Sansar Capital

21.4%1.41.7Penta Investment

0.0%2.12.1PMA

21.2%11.313.7Platinum AM

Jul-09Jan-10

2H09 growth

(%)

Firm capital ($bn)Asian firms

Top 15 Asian-Pacific (including Japan) hedge fund managers**


18

UCITS hedge fund assets have increased by 127% from $22 billion* to $50 billion** since the beginning of 2010.

• UCITS hedge fund assets have reached almost $50 billion consisting of 254 single manager hedge funds ($46.1 billion of assets) plus 42 fund of funds ($3.1 billion assets)**.

• The UCITS hedge fund industry has grown significantly since 1H 2009 when there were only 25 UCITS managers with a combined $4 billion AUM**.

• In 1H 2010 in Europe newly launched UCITS hedge funds raised $3.1 billion, a similar figure to the $3.75 billion raised in traditional hedge funds***.

• The top 23 UCITS hedge funds have combined assets of $24.9 billion, almost half of total UCITS hedge fund assets*.

• In 2010 at least 142 (vs. 94 in 2009) hedge fund managers are considering a UCITS launch – 60 are European, 36 are US based, and 15 are Asia based (including 31 fund of funds)****.

UCITS Hedge Funds with $500m+ in AUM as of August 31st 2010*

1 AUM as of June 30th 2010, Hedge Fund Intelligence Database.

Sources: * EuroHedge “Recovery in European hedge fund asset growth stalls in the first half”, September 2010. ** Hedge Fund Intelligence “Hedge Funds using the UCITS wrapper top $50 billion” October 1st, 2010.*** Hedge Fund Intelligence “UCITS hedge funds: boom time?” September 21st, 2010.**** Hedge Fund Intelligence “142 more Hedge Fund Managers Considering a UCITS launch” September 21st, 2010.

Company AUM ($m) Domiciled Company AUM

($m) Domiciled

Blackrock UK Absolute Alpha Fund (UCITS) 3,140 UK MW TOPS UCITS Fund (Market Neutral) 930 LuxembourgAmundi Funds Volatility Euro Equities (UCITS) 1,980 Luxembourg HSBC GIF Global Macro (UCITS) 830 LuxembourgExane Gulliver Fund (UCITS) 1,917 France Kairos International Sicav Dynamic (UCITS) 789 LuxembourgSEB Asset Selection (UCITS)1 1,744 Luxembourg Absolute Insight UK Equity Market Neutral Fund (UCITS) 719 IrelandThreadneedle Target Return Fund (UCITS)1 1,319 UK Gartmore UK Absolute Return Fund 706 LuxembourgExane Templiers Fund (UCITS) 1,213 Luxembourg Amundi Fund Dynarbitrage Volatility (UCITS) 690 LuxembourgPF (Lux) Convertible Bonds (UCITS) 1,100 Luxembourg AC SVMN 7 Vol Fund (UCITS) 650 LuxembourgThreadneedle Absolute Return Bond Fund (UCITS)1 1,005 UK Gartmore European Absolute Return Fund (UCITS) 633 LuxembourgAmundi Funds Volatility World Equities (UCITS) 992 Luxembourg Exane Ceres Fund (UCITS) 598 LuxembourgJupiter Absolute Return Fund (UCITS) 970 UK BlueTrend (UCITS) 554 LuxembourgExane Archimedes Fund (UCITS) 960 Luxembourg Az Fund1 Active Selection (UCITS)1 549 LuxembourgArtemis Strategic Assets Fund (UCITS) 954 UK

Manager trends

2. Industry trends


19

M&A activity in the alternative asset management industry has increased in 2010.

Manager trends

2. Industry trends

Sources:1 "Shumway Capital sells stake to Goldman Sachs’ Petershill fund", Bloomberg.com, January 5th, 2010.2 "Gottex takes over Constellar funds of funds" Hedge Funds Review, January 20th , 2010.3 Blackstone Website, Press Release, January 20th, 2010.4 AMG Website, Press Release, February 1st & 20th, 2010.5 "Fortress to Acquire Logan Circle Partners" Reuters.com, February 16th, 2010.6 "Religare to Acquire Majority Stake in Northgate Capital" RTTNews.com, February 23rd , 2010.7 Standard Life Investments Website, Press Release, March 23rd,2010.8 "Goldman Sachs Buyout Firm Acquires Stake in Ganek's $4 Billion Hedge Fund" Bloomberg.com, April 2nd, 2010.9 "Sciens acquires managed account platform from Partners Group" Hedgeweek.com, April 22nd , 2010.10 Skybridge Website, Press Release, April 14th, 2010.

11 "F&C to acquire UK asset firm Thames River" Reuters.com, April 28th, 2010.12 Carlyle Website, Press Release, April 29th, 2010. 13 Man Group Website, Press release, May 17th, 2010.14 Martin Currie Website, Press Release, June 1st,2010.15 "Shroders acquires 49% stake in RWC", Investment Week.com, June 22nd, 2010.16 Olympia Capital Management, Press Release, August 31st, 2010.17 "Stenham Acquires Montier Partners", hedgeweek.com, September 6th, 2010.18 Sparx Website, Press Release, September 6th , 2010.19 "Allianz exits hedge funds with asset sales to Nexar" Reuters.com September 13th, 2010.20 Credit Suisse Website, Press Release, September 14th, 2010.21 Moelis Website, Press Release, September 27th , 2010.22 "BlueBay shares jump on £963m RBS deal", FT.com, October 18th , 2010.

Definitions:

FoF = Funds of Funds

AM = Asset Manager

HF = Hedge Fund

HFMA = Hedge Fund Managed Accounts

IMF = Investment Management Firm

Acquirer Type Region Acquired Company Type Region Date of Announcement Acquired Target AUM Scope of Acquisition

1 Goldman Sachs (Petershill) FoF US Shumway Capital Partners HF US 05 January 2010 $8 bn 8%

2 Gottex Fund Management FoF US Constellar FoF US 20 January 2010 $150 m 100%

3 Blackstone / GSO AM US Callidus IMF US 20 January 2010 $3.2 bn CLO & CDO portfolio

4 Affiliated Managers Group HF US Artemis IMF EU 01 February 2010 $16 bn Majority Stake

4 Affiliated Managers Group IMF US Pantheon Ventures FoF EU 10 February 2010 $22 bn 100%

5 Fortress Investment Group IMF US Logan Circle AM US 16 February 2010 $12 bn 100%

6 Religare Enterprises AM EU Northgate FoF US 23 February 2010 $3 bn Majority Stake

7 Standard Life Investments AM EU Aida Capital FoF EU 23 March 2010 Undisclosed 75.1%

8 Goldman Sachs (Petershill) FoF US Level Global Investors HF US 02 April 2010 $4 bn Minority stake

9 Sciens Capital Management AM US Partners Group AM EU 12 April 2010 Undisclosed 100 % of Managed accounts platform

10 Skybridge Capital AM US Citi Alternative Investments FoF EU 14 April 2010 $4.2 bn 100%

11 F&C Asset Management AM EU Thames River Capital AM EU 28 April 2010 £4.2 bn 100%

12 Carlyle Group PE US Stanfield Capital Partners AM US 29 April 2010 $5.1 bn CLO Portfolio

13 Man Group AM EU GLG Partners HF EU 17 May 2010 $24 bn 100%

14 Martin Currie Investment Management AM EU Sofaer Capital’s European

Long/Short Equity business HF EU 01 June 2010 $280 m 100%

15 Schroders AM EU RWC Partners HF EU 22 June 2010 Undisclosed 49%

16 Olympia Capital Management FoF EU Sal.Oppenheim France FoF EU 31 August 2010 Undisclosed FoF Division

17 Stenham Asset Management FoF SA Montier Partners FoF EU 06 September 2010 $400 m 100%

18 MCP Asset Management FoF Asia Asia unit of Sparx Group Co HF Asia 06 September 2010 Undisclosed 100%

19 Nexar Capital Group AM EU Allianz Alternative Asset Management FoF EU 13 September 2010 $1.9 bn 100%

20 Credit Suisse Asset Management AM EU York Capital Management HF EU 14 September 2010 $14 bn Minority stake

21 Moelis & Co IMF US Gracie Credit Opportunities Fund HF US 27 September 2010 $2 bn 100%

22 Royal Bank of Canada IMF CAN BlueBay Asset Management AM EU 18 October 2010 $40 bn 100%

Consolidation in the Hedge Fund Industry YTD 2010


20

-1000

100200

300400

500600

700800

2004 2005 2006 2007 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

Funds of Funds Assets ($Billion)

Funds of funds experienced asset growth of 5.3% in Q3 2010.

Funds of hedge funds net asset flows and assets (in US$ billion), 2004 – Q3 2010.

Decrease in funds of hedge funds assets

• Since peak in 2007: -25%

• In 2009: - 4%

• In Q3 2010, the HFRI funds of funds index was up 3.25% vs. -1.0% in Q2 2010.

• As of Q3 2010, funds of funds assets stand at $602 billion, up 6.7% from $564 billion in Q2 2010 according to HFR.

• Fund of funds assets are still 25% less than at the peak of $799 billion in 2007.

• Funds of funds assets are up 5.3% YTD 2010. If this trend continues 2010 will represent the first year of growth for fund of funds since 2007.

• Only 33% of funds of funds experienced inflows in Q3 2010 compared to 57% of managers. Net inflows were $256 million.

• Peak: $799 billion in 2007.

• Trough: $526 billion in Q1 2009.

Net Asset Inflows Net Asset OutflowsEstimated assets

Investor trends2. Industry trends



21

The 106 fund of funds in the Billion Dollar Club control $595 billion in AUM.

The 10 largest funds of hedge funds control over a third of industry assets

(1) The Billion Dollar Club refers to the firms with more than $1 billion under management.(2) Total alternative assets including custody $33.211bn.(3) As of March 31st 2010.

Source: Hedge Fund Intelligence, Global Review 2010, September 2nd, 2010 (data as of June 2010)– N.B. The InvestHedge Billion Dollar Club List is published every 6 months. Please note that this source applies to all the data presented on this page.

Please note that the data from Hedge Fund Intelligence differ from those reported by Hedge Fund Research used in previous pages.

• The fund of fund industry is a third less in number and has half of the assets that it had in June 2008. At the peak of the industry in 2008, 161 funds ran a combined $1.1 trillion.

• The largest funds of hedge funds still control over a third of industry assets:– The top 10 fund of hedge funds manage $210 billion in assets as of June 2010 and control 35% of the Billion Dollar Club’s assets(1) compared to

37% in January 2009. – 16 firms have more than $10 billion under management in June 2010, versus 21 firms in 2009. They manage 50% of the Billion Dollar Club’s

assets, in contrast to 58% ($410 billion) in 2009.– The 5 new entrants to the top 10 since the peak in 2008 are : Blackstone Alternative Asset Management, Goldman Sachs Asset Management,

Morgan Stanley, Blackrock Alternative Advisors and Pacific Alternative Asset Management Co.– An institutional client base and/or the ability to provide managed accounts solutions are key for the largest funds of funds to defend their market

share and continue to grow. Product innovation is also another driver of growth.

2. Industry trendsInvestor trends

61 6981

105119 126 134 135 142 147 151

137

114106

117

57

161

$0

$200

$400

$600

$800

$1,000

$1,200

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

020406080100120140160

Billion Dollar Club assets evolution since 2002

Fund of Hedge Funds AUM $bn Jun-2010

AUM $bn Jan-2010

Growth $bn Growth

1 Blackstone Alternative Asset Management 28.51 27.87 0.64 2.29%2 HSBC Alternative Investments(2) 26.83 23.27 3.56 15.32%3 UBS Global Asset Management A&Q 24.21 27.96 -3.76 -13.43%4 Grosvenor Capital Management 22.95 22.53 0.42 1.86%5 Goldman Sachs Asset Management 20.82 20.07 0.75 3.74%6 Permal Investment Management 19.00 19.40 -0.4 -2.06%7 Morgan Stanley 17.53 14.11 3.42 24.23%8 GAM Multi-Manager(3) 17.00 16.10 0.9 5.59%9 BlackRock Alternative Advisors 16.80 16.20 0.6 3.70%

10 Pacific Alternative Asset Management Co. 16.60 16.30 0.3 1.84%Global Top 10 Funds of Hedge Funds 210.25 203.81 6.43 -


22

Seeding activity has picked up since the beginning of 2010.

Sources:(1) 'Ex-Polygon credit heads eye $100m launch', FinancialNews.com, May 21st 2010.(2,3) 'FRM Capital makes strategic investments in JD Capital Management and WestSpring Advisors' hedgetracker.com, August 17th 2009.(4) ‘FRM Capital Seeds its First Asian Focused Hedge Fund', PRNewswire.com, October 5th 2009.(5) 'FRM Capital Advisors enters relationship with Varna Capital', Hedgeweek.com, July 28th 2010.(6) ‘FRM Capital seeds Asia-focused hedge fund Sensato’ FinAlternatives.com, October 27th 2010.(7-11) 'FrontPoint grabs Rockbay event-driven execs for multistrat buildup' Hedgefundintelligence.com, February 25th 2010.(12-15)'Standing shoulder to shoulder', HFMWeek.com, June 23rd 2010.(16) 'IMQubator completes sixth seed deal', HFMWeek.com, July 7th 2010.(17-19) 'InfoVest21 Seeding Activity', infovest21.org, July 8th 2010.(20) 'Man Group seeds 5:15 Capital Management fund', HFMWeek.com, July 22nd 2009.

(21) 'NewAlpha backs Melchior European for $30 million' hedgefundintelligence.com, May 6th 2009(22) ‘NewAlpha AM seeds Armored Wolf Alpha Fund’ Thehedgefundjournal.com, January 13th 2010.(23) 'NewAlpha invests in G Capital Fund', thehedgefundjournal.com, June 3rd 2010.(24-27) Revereglobal.com(28) Skybridge.com, March 13th 2009.(29) 'Skybridge invests in manager Wyetree', Reuters.com, May 11th 2009.(30) 'SkyBridge invests in Viathon Capital's Whitewater Fund', Hedgeweek.com, July 13th 2010.(31) 'Credit Suisse Commodities Unit Bolts’, Wall Street Journal, September 24th 2010, AbsoluteReturn alpha.com..

Investor trends2. Industry trends

Seeder Region Sources Fund being invested in Region Date of Announcement Size of Seeding Fund FocusCyan Management Group US 1 Warwick Capital Partners EU May-10 $100 m European Distressed & Special Situations Credit Fund

2 West Spring Advisors US Jul-09 $60 m Credit 3 JD Capital Management US Aug-09 N/A Volatility Trading4 Isometric Capital Management ASIA/PAC Oct-09 N/A Asian Equities Fund5 Varna Capital US Jul-10 N/A Long / Short Equity 6 Sensato US Oct-10 $50 m Long / Short Equity focused on Asia-Pacific7 FrontPoint Direct Lending US Feb-10 N/A Direct Lending Strategy8 FrontPoint Event Driven US Feb-10 N/A Event-driven and Special Situations 9 FrontPoint Australia Long/Short ASIA/PAC Mar-10 N/A Australia Long/Short Equity10 FrontPoint Global Statistical Arbitrage US N/A N/A Global Statistical Arbitrage11 Emerging Market Macro US N/A N/A Emerging Market Macro Fund12 Branta Solutions EU Jun-09 €25 m Long / Short Sustainable Investing 13 Callanish Global Macro Fund EU Apr-10 €25 m Global Macro Systematic14 Cavenagh Asia Fund EU May-10 €25 m Asian Interest Rates/Currencies15 mCapital EU May-10 €25 m Asian/EU Multi-Strategy16 Boston and Alexander convertible arbitrage fund EU Jul-10 €25 m Convertible Arbitrage Fund17 Stonerise Capital Partners Master Fund US Jan-09 $100 m Equity Fund 18 Crystal Japan Fund US Aug-09 $75 m Commodities Fund19 Sothic Capital European Opportunities Master Fund EU Sep-09 $75 m European Distressed-Companies Fund

MAN (RMF) EU 20 5:15 Capital Management US Jul-09 $50 m Global Fixed Income Arbitrage with Macro Overlay21 Melchior European EU May-09 $30 m Long / Short European Equity Fund 22 Armored Wolf US Jan-10 $40 m Global Macro 23 G Capital Master Fund US Jun-10 N/A Global Macro24 Bayswater Asset Management US Jul-09 N/A Global Macro25 Broadmark Asset Management US Aug-09 N/A Tactical Long / Short Equity26 Quest Partners US Oct-10 N/A Systematic CTA27 Dickson Capital Management EU N/A N/A Long / Short Equity focused on Western Europe28 Union Avenue Advisors US Mar-09 N/A Emerging Markets29 WyeTree Asset Management EU May-09 $50 m Distressed Mortgage Fund30 Viathon Capital US Jul-10 N/A Credit Opportunities Fund

Blackstone US 31 Taylorwoods Capital Management EU Sep-10 $150 m Commodities Fund

EU

USFront Point

Overview of Seeding Activity in the Hedge Fund Industry, 2009 - October 2010

FRM

Larch Lane/PineBridge Investments US

IMQ (APG) EU

NewAlpha Asset Management EU

SkyBridge Capital US

Revere Capital Advisors US


23

• Institutional investors are expected to increase their allocation to alternative investments from 14% in 2009 to 19% over the next two to three years. Their allocation to hedge funds is expected to increase to 5.7% by 2012 from 4.2% in 2009*.

• The Hedge Fund Generals, a cloning strategy from BofAML’s research combining the most concentrated and popular stocks among hedge funds, outperformed the broader market by 1.5% in 2010 and has gained 99% since the March 2009 lows (as of the end of August 2010)**.

– The strategy has outperformed the S&P 500 index by 82bp per month/247bp per quarter between September 2003 and August 2010**.

– In 2009, the index outperformed the S&P 500 by 46% while delivering a higher return to volatility ratio***.

23

Institutional investors still believe in hedge funds’ diversification benefits and their ability to generate alpha*.

Sources: * Russell Investments, “2010 Global Survey on Alternative Investing” June 2010.** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010. *** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, June 23rd, 2010.

2. Industry trends

YTD Returns

Investor trends

•Outperforming the S&P 500 by ~65% between late November 2008 and June 2009

•Late October 2009 sell-off

•Heavy sell-off by hedge funds in late September 2008 following the Lehman collapse

Daily Chart of the HF Generals vs. the S&P 500 (June 2008 – September 2010)**

The HF Generals rallied by 99% since March 2009 lows, outperforming the market by 1.5% in 2010**

The BofAML Diversified HF composite delivered a higher return than the S&P 500 in 1H 2010***

Return/volatility ratio - comparison by strategy (1H 2010)***

Sharpe Ratio (12 months)

DedicatedShort Bias

Managed Futures Equity Market

Neutral

Macro

MergerArbitrageEquity

Long/Short

Diversif ied HFComposite

Distressed Credit

Event Driven

S&P 500

Convertible Arbitrage

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

-1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00


24

The hedge fund industry is forecast to benefit from inflows largely supported by pension funds*. The largest 100 alternative managers hold $817 billion of alternative assets on behalf of pension funds**.

• Global pension assets reached $23 trillion in 2009, up 15% from end of 2008, due to the good market performance in 2009 and the high exposure of pension funds to equities***.

• Exposure to alternative assets(1) continues to grow, reflecting pension funds’ growing appetite for diversification***.

• Alternative assets managed on behalf of pension funds by the top 100 managers amounted to approximately $817 billion in 2009 or 48% of their total assets under management ($1.7 trillion), little changed from 2008**.

• Funds of hedge funds(2) accounted for 13% (or $104 billion) of alternative pension fund assets for the top 100 managers in 2009, similar to 2008**.

Distribution of alternative assets managed by the Top 100 alternative investment managers on behalf of pension funds***

Total alternative assets: $817 billion

(1) Alternative assets are defined by hedge funds, property, private equity, commodities and other assets outside of Equities, Bonds and Cash in the Towers Watson Study.(2) Only the indirect hedge fund investments were considered via funds of hedge funds. Any direct investments into hedge funds are excluded.

Sources: * The Bank of New York Mellon and Casey Quirk Analysis 2009: The Hedge Fund of Tomorrow: Building an Enduring Firm, April 2009.** Towers Watson, 2010 Global Alternatives Survey, June 2010. *** Towers Watson, 2010 Global Pension Asset Study, January 2010.

Real Estate$425bn

52%

Private Equity$169bn

21%

Fund of hedge funds(2)$104bn

13%

Infrastructure$99bn12%

Commodities$20bn

2%



25

North America accounted for the largest proportion of pension fund assets in alternatives in 2009 at 53%*.

• In 2009, North America accounted for 53% or $433 billion of the pension fund assets in alternatives for the top 100 alternative managers, followed by Europe and Asia*.

• The 15 largest investments in hedge funds from US pension funds(1) are estimated at $47 billion or 5% of their assets, with 67% as direct investments as of September 2009**.

• 61 US pension funds(1) reported investments in hedge funds, amounting to $72 billion or 2% of their assets, with 61% as direct investments**.

$15,526$31,609$47,135$940,994Total of top 15 investments

$732$964$1,696$8,131Jefferson CityMissouri State Employees15

$26,395$44,294$72,056$4,107,237Total of all investments1

$939

$1,015

-

-

-

$304

-

$959

-

-

-

$4,540

$1,357

$5,680

Funds of

Funds

$757

$1,047

$2,065

$2,127

$2,270

$2,599

$2,965

$2,078

$3,386

$3,469

$3,476

-

$4,241

$165

Direct Investments

$1,696

$2,062

$2,065

$2,127

$2,270

$2,903

$2,965

$3,037

$3,386

$3,469

$3,476

$4,540

$5,598

$5,845

Total of HF Investments

$47,700

$46,547

$58,300

$45,903

$17,471

$125,692

$68,698

$71,135

$48,203

$91,358

$45,740

$41,757

$198,765

$25,594

Assets

RichmondVirginia Retirement6

ChicagoBoeing7

TrentonNew Jersey8

AlbanyNew York State Common9

New YorkCitigroup10

CityFund

HarrisburgPennsylvania School Employees4

BostonMassachusetts PRIM3

SacramentoCalifornia Public Employees2

14

13

12

11

5

1

Rank

DearbornFord Motor

Basking RidgeVerizon

StamfordGeneral Electric

OaklandCalifornia University

AustinTexas Teachers

HarrisburgPennsylvania Employees

Top 15 largest investments from US Pension Funds with defined benefits assets in hedge funds - assets in $ millions **


Distribution by region of alternative assets managed by the Top 100 alternative managers on behalf of pension funds*

Total alternative assets : $817 billion1 US Pension Funds with defined benefits assets.

Sources: * Towers Watson, 2010 Global Alternatives Survey, June 2010.** Pensions & Investments, September 30th 2009. This is an annual survey.

Europe34%

North America53%

Asia Pacif ic8%

Other5%


26

Pension plans are using alternative investments to improve the investment efficiency of their portfolio.

(1) Excluding UK

Sources: * Mercer, Asset allocation survey and market profiles, European institutional market place overview 2010, April 2010. The survey covered over 1,000 plans from 11 countries, with total assets of over €500 billion. ** AIMA Australia/University of NSW Hedge Fund survey, May 2010.*** South Korean - NPS, JoongAng Daily, July 22nd 2010.**** Rainmaker - Australian Data, March 2010.

Europe• The average allocation to hedge funds by UK pension plans has risen

from around 9% in 2009 to over 13% as highlighted by Mercer 2010European pension plans survey*.

• UK pension plans are seeking to control equity volatility by increasing their allocation to hedge fund strategies*.

• European pension plans as a whole are still looking to increase their exposure to these vehicles, despite some loss of faith in hedge funds from existing investors*:

– 14% of European(1) plans intend to increase their allocation to funds of hedge funds vs. 5% in the UK.

– No current European(1) plans have been reported to increase direct allocations to hedge funds vs. 4% in the UK.

European(1) and UK pension plans allocations to hedge funds and funds of funds*.


Australia’s 10 largest allocators to hedge funds as of March 2010****.

Asia including Australia• Australia's pension funds continue to allocate to alternative investments.

Their average allocation to alternatives is approximately 14%. Hedge fund allocations are approximately 2.5% of their overall portfolio, however this is expected to grow to 5% by 2020**.

• In Asia, the South Korean National Pension Service (with $240 billion AUM) is planning to increase investments in alternatives from 4.5% as at the end of 2009, to above 10% by 2014***.

83Suncorp Investment Management

101United Funds Management

111Perpetual

145Funds SA

239Queensland Investment Corporation

653BT Investment Management

997Victorian Funds Management Corporation

1,081Russell Advisors

1,264AMP Capital

7,832Future Fund Management Agency

Total Hedge Fund investments ($m)Hedge Fund

0.9%

3.2%1.4%

13.2%

8.0% 8.6%

3.8%

9.9%

0%

3%

6%

9%

12%

15%

Europe(1) UK Europe(1) UK Europe(1) UK Europe(1) UK

Hedge Fund of Funds

% Schemes with an Allocation Average Allocations to Asset Class %

Hedge Funds


27

Q3 2010 Global Hedge Fund Industry Overview: Primary Contacts

The Q3 2010 Global Hedge Fund Industry Overview was produced by the Bank of America Merrill Lynch Capital Introductions team*. If you have any queries or comments, please contact us.

*Ranked #1 Global Capital Introductions Team by Global Custodian 2010.

Americas

Justin Fredericks (Head of US) +1 646 855 0233 [email protected] Hammond +1 646 855 5226 [email protected] Lucas +1 646 855 0695 [email protected] Kevin Lynch +1 646 855 1707 [email protected] Ryan +1 646 855 1833 [email protected] Solomon +1 646 855 4431 [email protected]

Europe

Mairead Kenny (Head of Europe) +44 20 7996 8703 [email protected] Natalie Benjamin-Pinel +44 20 7995 3824 [email protected] Bogaardt +44 20 7995 8676 [email protected] Buinevici +44 20 7995 6313 [email protected] Alice Kennon +44 20 7995 3402 [email protected] Jess Larsen +44 20 7995 0661 [email protected]

Asia Pacific including Japan

Futoshi Ago +813 6225 7986 [email protected] Bryant-Rubio +852 2161 7321 [email protected] Fallon +852 2161 7872 [email protected] Emma Lynch +613 9659 2577 [email protected]

“…the force is with Bank of America Merrill Lynch again.” Global Custodian

“[Bank of America Merrill Lynch]… head and shoulders above the others we have used in every possible aspect.” PB Client in GC Survey

“Product offering has gone from strength to strength over the last few years.”PB Client in Global Investor/isf Survey

“...when the environment turned against us they stood shoulder to shoulder supporting us through the tough times.”PB Client in Global Investor/isf Survey

Most Innovative in Prime BrokerageThe Banker 2010 Investment Banking Awards

#1 European Prime Broker#1 Global Capital Introductions63 Best in Class Awards for global performance*Global Custodian Prime Brokerage Survey 2010

Global Markets Financing and Futures

* Considering best in class equivalent to #1

“ Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking af� liates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking af� liates of Bank of America Corporation (“Investment Banking Af� liates”), including, in the United States, Banc of America Securities LLC, Merrill Lynch Professional Clearing Corp., and Merrill Lynch, Pierce, Fenner & Smith Incorporated, all of which are registered as broker-dealers and members of FINRA and SIPC, and in other jurisdictions, Merrill Lynch International or other locally registered entities. Investment products offered by Investment Banking Af� liates:

Are Not FDIC Insured ● May Lose Value ● Are Not Bank Guaranteed. ©2010 Bank of America Corporation. ARB5L4C3

#1 Global Synthetic Provider Winner in 13 out of 16 categoriesGlobal Investor/ISFs 2010 Annual Synthetic Financing Survey


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“Bank of America Merrill Lynch” (BofAML) is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, which are both registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, locally registered entities.

Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.

Where this communication constitutes a financial promotion/marketing communication it is issued and approved for distribution in the UK by Merrill Lynch, Pierce, Fenner & Smith Limited or Merrill Lynch International only to, and South Africa by Merrill Lynch International only to, and directed at, (a) persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(1) of the Order (all such persons together being referred to as "relevant persons"). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is only available to relevant persons and will be engaged in only with relevant persons. The UK compensation scheme and rules for the protection of retail clients do not apply to the services provided or products sold by non-UK regulated affiliates. For distribution in Germany this marketing communication is issued and approved by Merrill Lynch International and addressed to professional clients and eligible counterparties within the meaning of § 31 a Abs. 2 and 4 WpHG (Wertpapierhandelsgesetz). The material in this marketing communication is not investment research or a research recommendation as defined by § 34 b WpHG and has accordingly not been prepared in accordance with any legal requirements designed to promote the independence of investment research nor is it subject to any dealing prohibition on dealing ahead of the dissemination of investment research. For distribution in Austria this marketing communication is issued and approved by Merrill Lynch International and addressed to professional clients and eligible counterparties within the meaning of §§ 58, 59 WAG (Wertpapieraufsichtsgesetz).

The information herein was obtained from various sources. We do not guarantee its accuracy. This information is for your private information and is for discussion purposes only. A variety of market factors and assumptions may affect this analysis, and this analysis does not reflect all possible loss scenarios. Some products may place your capital at risk, yield figures quoted may not display all the short and long term prospects for the investment. There is no certainty that the parameters and assumptions used in this analysis can be duplicated with actual trades. Any historical exchange rates, interest rates or other reference rates or prices which appear above are not necessarily indicative of future exchange rates, interest rates, or other reference rates or prices. Neither the information, recommendations or opinions expressed herein constitutes an offer to buy or sell any securities, futures, options, or investment products. Foreign currency denominated investments are subject to fluctuations in exchange rates that could have apositive or adverse effect on the investor's return. Unless otherwise stated, any pricing information in this message is indicative only, is subject to change and is not an offer to deal. Some investments or services may have complex charging structures and the firm may receive more than one element of remuneration. Where relevant, the price quoted is exclusive of tax and delivery costs. Any reference to the terms of executed transactions should be treated as preliminary and subject to our written confirmation.

This document was produced by and the opinions expressed are those of Merrill Lynch International as of the date of writing and are subject to change. 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. Bank of America Merrill Lynch has no obligation to update any of the forward-looking statements in this document.

Bank of America Corporation and its affiliates (collectively, the “BAC Group”) comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and strategic advisory services and other commercial services and products to a wide range of corporations, governments and individuals, domestically and offshore, from which conflicting interests or duties, or a perception thereof, may arise. In the ordinary course of these activities, parts of the BAC Group at any time may invest on a principal basis or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions, for their own accounts or the accounts of customers, in debt, equity or other securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, potential counterparties or any other company that may be involved in a transaction. Products and services that may be referenced in the accompanying materials may be provided through one or more affiliates of Bank of America Corporation. We are required to obtain, verify and record certain information that identifies the Company, which information includes the name and address of the Company and other information that will allow us to identify the Company in accordance, as applicable, with the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) and such other laws, rules and regulations as applicable within and outside the United States.

We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed herein is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything that may appear herein or in other materials to the contrary, the Company shall be permitted to disclose the tax treatment and tax structure of a transaction (including any materials, opinions or analyses relating to such tax treatment or tax structure, but without disclosure of identifying information or, except to the extent relating to such tax structure or tax treatment, any nonpublic commercial or financial information) on and after the earliest to occur of the date of (i) public announcement of discussions relating to such transaction, (ii) public announcement of such transaction or (iii) execution of a definitive agreement (with or without conditions) to enter into such transaction; provided, however, that if such transaction is not consummated for any reason, the provisions of this sentence shall cease to apply.

Any information or written material provided to you concerning a fund has been prepared and issued by, and is the responsibility of, the fund or the manager. Neither Bank of America Merrill Lynch, LLC, nor any of its affiliates (together “BofA Merrill Lynch”) have taken any steps to verify the adequacy, accuracy or completeness of such information or written material and as such BofA Merrill Lynch has not approved it. Neither BofA Merrill Lynch nor its respective officers, directors, agents or employees make any warranty of any kind, either as to the suitability of the fund as an investment of any kind, or that an investment in the fund will yield positive results, or assume any responsibility for, and none of these parties shall be liable for, any losses of any kind relating to the adequacy, accuracy, completeness or reasonableness of any information or written material being provided, or the use of that information or written material. The distribution of any such information or written material by BofA Merrill Lynch should not be construed as (i) an endorsement or recommendation by BofA Merrill Lynch of any fund or manager or any information provided by any fund or manager, (ii) advice given by BofA Merrill Lynch about the merits of, or the legal, regulatory, tax or financial consequences of, investing in the fund, or (iii) an offer or solicitation to acquire or dispose of any interest in any fund. Under no circumstances will there be any direct contractual relationship between BofA Merrill Lynch or any of its affiliates and yourself in relation to the funds described or referred to herein; therefore, you shall have no right to claim directly against BofA Merrill Lynch or its affiliates in relation to any investment made in the funds described herein.

You should review carefully any materials provided and any statements made by a fund or its manager and should perform whatever due diligence you and your advisers deem appropriate.


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BofA Merrill Lynch has or may develop business relationships with and does or hopes to earn fees and commissions from these managers and funds. Through those relationships it may possess information about a manager or fund. Even if it has this information, BofA Merrill Lynch has no responsibility to, and will not, disclose that information – whether negative or positive – and will not provide any advice or recommendation to prospective investors about the information. BofA Merrill Lynch may use this information at its discretion to further its business interests. Further, BofA Merrill Lynch has or may develop a business or client relationship with you, which may have an advisory aspect to it (“Advisory Relationship”). Any information or written material accompanying this disclaimer shall not under any circumstances be deemed to be part of this Advisory Relationship and BofA Merrill Lynch shall be under no obligation to offer recommendations and/or advice pursuant to this Advisory Relationship in respect of the information or written materials attached. You should not construe silence by BofA Merrill Lynch or their respective officers, directors, agents and employees as approval or endorsement of any statements made by the fund and their managers.

Nothing herein shall be construed as restricting any duty or liability owed to you by BofA Merrill Lynch arising out of any applicable law or rule.For investors located in Australia, the provision of any document or information concerning a fund to any person does not constitute an offer of interests to that person or an invitation to that person to apply for interests in any fund. Any such offer or invitation may only be extended to a person if that person has first satisfied the relevant fund or its manager that:

(a) the person is a sophisticated or professional investor for the purposes of section 708 of the Corporations Act 2001 (Cwlth) (“Corporations Act”); and

(b) the person is a wholesale client for the purpose of section 761G of the Corporations Act.

Any documents or information concerning a fund provided is not intended to be distributed or passed on, directly or indirectly, to any other class of persons, it is supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any purpose. Any documents or information concerning a fund provided is not a prospectus or product disclosure statement under Australian law. It is not required to, and does not, contain all the information which would be required in an Australian prospectus or product disclosure statement. It has not been lodged with the Australian Securities and Investments Commission (“ASIC”). As a prospectus or product disclosure statement is not required to be prepared or lodged with ASIC in respect of any interest or related financial instruments referred to in any documents or information concerning a fund provided, any person to whom any interest is issued or sold must not, within 12 months after the issue, offer (or transfer, assign or otherwise alienate) that interest to investors in Australia except in circumstances where disclosure to investors is not required under the Corporations Act.For investors located in France, BofA Merrill Lynch has not been appointed to engage in financial solicitation (démarchage) and nothing in its acting in the context of Capital Introduction shall be viewed as démarchage. BofA Merrill Lynch is not acting as placement agent for any fund and will not receive any finder’s fee or transaction-based compensation specifically related to any investment by the Investor in a fund.

For investors located in Hong Kong, the documents or information in relation to the funds described in this document may not have been delivered for registration to the Registrar of Companies in Hong Kong and its contents may not have been reviewed by any regulatory authority in Hong Kong. Accordingly: (i) the securities may not be offered or sold in Hong Kong by means of any document other than to persons who are "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and the Securities and Futures (Professional Investor) Rules made thereunder or in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of the Companies Ordinance; and (ii) no person may issue, or have in its possession for issue, any invitation, advertisement or other document relating to the securities whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the securities which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules made thereunder.For investors located in Italy, no offering of funds or distribution of any offering materials relating to the funds will be made in Italy unless the requirements of Italian law concerning the offering of securities have been complied with, including (i) the requirements of Article 42 and Article 93-bis and ff. of the Italian Financial Service Act and Consob Regulation No. 11971 of 14th May 1999, and (ii) all other Italian securities tax and exchange controls and any other applicable laws and regulations, all as amended from time to time.For investors located in Japan, any information or written material prepared and issued by the fund or the manager are limited to (a) information of macro economy or finance in nature or (b) generic information of the fund which are related to the basic policies or strategies of the fund or the manager.

Please contact a placement agent or distributor in the fund for offering document of the fund or any marketing materials. Also please note that interests in the fund have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, it will not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person except under circumstances which will result in compliance with all applicable laws, regulations and guidelines promulgated by the relevant Japanese governmental and regulatory authorities and in effect at the relevant time. For the purposes of this paragraph, a "Japanese Person" means a resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Control Law (Law No. 228 of 1949, as amended).

For investors located in the Netherlands, the Units or Shares, as the case may be, will not be offered or sold, directly or indirectly, in the Netherlands, other than to qualified investors, all within the meaning of article 1:12, and in the case of closed-ended investments schemes only, 5:3 of the Netherlands Financial Supervision Act (Wet op het financieel toezicht) and article 4 of the Financial Supervision Act Exemption Regulation (Vrijstellingsregeling Wft). In respect of the offering, the management company of the Fund does not require a license as a collective investment scheme pursuant to the Financial Supervision Act and is not subject to market conduct supervision of the Netherlands Authority for the Financial Markets and prudential supervision of the Dutch Central Bank (De Nederlandsche Bank N.V.).

For investors located in the People's Republic of China ("PRC" or "China", which, for the purpose of this document only, excludes Hong Kong, Macao and Taiwan), the funds described in this document may not be offered or sold directly or indirectly within the PRC. The offering document of the funds described in this document or any information contained or incorporated by reference herein relating to the funds does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. The offering document of the funds described in this document, any information contained herein or the funds described in this document have not been, and will not be, submitted to, approved by, verified by or registered with any relevant governmental authorities in the PRC and thus may not be supplied to the public in the PRC or used in connection with any offer for the subscription or sale of the funds in the PRC. The funds described in this document may only be offered or sold to the PRC investors that are authorised to engage in the purchase of the funds of the type being offered or sold. Investors are responsible for obtaining all relevant governmental approvals, verifications, licences or registrations (if any) from all relevant PRC governmental authorities, including, but not limited to, the State Administration of Foreign Exchange, the China Securities Regulatory Commission, the China Banking Regulatory Commission, and other relevant regulatory bodies, and complying with all relevant PRC regulations, including, but not limited to, any relevant foreign exchange regulations and/or overseas investment regulations.

For investors located in the Republic of Korea, the offering document of the funds described in this document is not, and under no circumstances is, to be construed as, a public offering of securities in Korea. Neither the fund, the fund manager nor BofA Merrill Lynch makes any representation with respect to the eligibility of any recipients of this document to acquire the interests of the fund under the laws of Korea, including but without limitation the Foreign Exchange Transaction Act and regulations thereunder. The interests of the fund have not been registered under the Financial Investment Services and Capital Markets Act of Korea and none of the interests of the fund may be offered, sold or delivered, directly or indirectly, or offered or sold to any person for re-offering or resale, directly or indirectly, in Korea or to any resident of Korea except pursuant to applicable laws and regulations of Korea.


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For investors located in Singapore, the offering document of the funds described in this document may not have been registered as a prospectus with the Monetary Authority of Singapore ("MAS") under the Securities and Futures Act, Cap. 289 of Singapore (the“SFA”) and the funds may not have been authorized or recognized by the MAS. Accordingly, the units or shares of the funds may not be offered to the Singapore retail public and may not be offered or sold, nor may the units or shares of the funds be the subject of an invitation for subscription or purchase, nor may this document or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the units or shares of the funds be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (a) to an institutional investor as defined in Section 4A of the SFA, or (b) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

For investors located in Spain in respect of Open-ended non-UCITS funds, the Funds have not been registered with the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores). Accordingly, the Funds may only be offered in Spain or targeted at Spanish residents pursuant to and in compliance with Law 35/2003, on CIS, Royal Decree 1309/2005 and any regulation issued thereunder.

For investors located in Switzerland, the funds described in this document may not have been authorised by the FINMA as a foreign collective investment scheme pursuant to Article 120 of the Swiss Federal Act on Collective Investment Schemes of June 23, 2006 (“CISA”). Accordingly, none of the units/shares of such funds may be sold, marketed or otherwise distributed in or from Switzerland by way of public advertising within the meaning of CISA and its implementing ordinances and notices, each as amended from time to time, and no offering material relating to any of the units/shares of such funds may be used in connection with any such offer or distribution. Investors cannot avail themselves of the protection afforded by CISA.

For investors located in the United Kingdom, these materials are only directed at persons who are investment professionals under Article 14 of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 and the investment or investment activity to which these materials relate is only available to and will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely upon the contents of these materials.

This information is not a publication of BofA Merrill Lynch Research (BofAML Research), although a BofAML Research report may be referenced as a link or as an attachment hereto. Any summary of BofAML Research is qualified in its entirety by the views of BofAML Research and the specific disclaimers associated with that report. This information is for discussion purposes and neither the information nor any opinions expressed constitutes a solicitation by us for the purchase or sale of any securities or other financial instruments.

BofAML and its affiliates do not operate as a banking entity in all jurisdictions. Some products and services may not be available in all jurisdictions or to all clients. Where products are not regulated by the FSA, this will be made clear. BofAML reserves the right to monitor electronic communications (subject to and in accordance with local laws).

Issued and approved by Merrill Lynch International, 2 King Edward Street, London EC1A 1HQ © 2010 Bank of America Corporation. All rights reserved. Additional Terms and Conditions available on: http://corp.bankofamerica.com/public/public.portal?_pd_page_label=support/termsconditions/default&icamefrom=cihome and http://www.ml.com/index.asp?id=7695_71373

Documents

Bank of America Merrill Lynch Q3 2010 Hedge Fund Industry Overview