Robert WaughScottish Widows Investment Partnership

“When a measure becomes a target, it ceases to be a good measure.”

Professor Marilyn Strathern FBA

The Great Leap Forward

Sources of return

Annual returns of top decile pooled funds less returns generated by 90th percentile

Chasing the herd

Source: CAPS pooled report.

%

Return differential

5

10

15

20

25

30

35

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

The Old Model

Long/Short

100%Market Exposure0%

100%Best Sells

100% Best Buys

Long/Short

AbsoluteReturnStocks

Best Buy Ideas

Selling Futures

Market Exposure

SWIP solution

AbsoluteReturnStocks

Best Buy Ideas

Selling Futures

Market Exposure

SWIP solution

SWIP solution

AbsoluteReturnStocks

Best Buy Ideas

Selling Futures

Market Exposure

Absolute Return

Fund return to date1 October 2005 – 31 December 2006

FTSE *

Hedge Fund Index **

SWIP

4%

6%

8%

12%

14%

16%

18%

20%

22%

2% 4% 6% 8% 10% 12% 14% 16% 18%

To

tal

retu

rn p

.a.

Standard deviation p.a.

ATTRACTIVE

UNATTRACTIVE

1 October 2005 – 31 December 2006

FTSE *

Hedge Fund Index **Hedge Fund Index **

SWIP

4%

6%

8%

12%

14%

16%

18%

20%

22%

2% 4% 6% 8% 10% 12% 14% 16% 18%

To

tal

retu

rn p

.a.

Standard deviation p.a.

ATTRACTIVE

UNATTRACTIVE

Source: SWIP, Datastream, Credit Suisse/Tremont 31st December 2006Based on daily data except for Credit Suisse/Tremont which is based on monthly data* FTSE All Share** Credit Suisse/Tremont Hedge Fund Index: Long/Short EquityAll data on annualized basisGross of fees except for Credit Suisse/Tremont which is net of fees

Fund performance & largest drawdowns

Source: SWIP, 31st December 2006.

92

94

96

98

100

102

104

106

108

110

112

114

116

118

120

122

124

126

128

130

Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06

30 S

ep

t 2005 =

100

Fund - Total

FTSE All Share

3m LIBOR

-2.6%

-6.4%-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Fund FTSE

-6.5%-9.7%

-15.0%

-10.0%

-5.0%

0.0%

Fund FTSE

-4.3%-5.1%-6.0%

-5.0%-4.0%-3.0%-2.0%-1.0%0.0%

Fund FTSE

-2.5%-3.7%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

Fund FTSE

-1.2%

-3.4%-4.0%

-3.0%

-2.0%

-1.0%

0.0%

Fund FTSE

Current portfolio

0 25 75 100

CSR

HBOS

Drax

Xstrata

Cobham

Persimmon

BG

Hays

Ireland (W.H.) Group

Wolseley

Johnson Matthey

Intercontinental Hotels Group

Daily Mail & General Trust

Ladbrokes

GlaxoSmithKlineNext

AmvescapRaymarine

Gallaher Group Yell Group

Man GroupFirst Choice Holidays

ICIBerkeley Group

Land of Leather Barclays

CSR

HBOS

Drax

Xstrata

Cobham

Persimmon

BG

Hays

Ireland (W.H.) Group

Wolseley

Johnson Matthey

Intercontinental Hotels Group

Daily Mail & General Trust

Ladbrokes

GlaxoSmithKlineNext

AmvescapRaymarine

Gallaher Group Yell Group

Man GroupFirst Choice Holidays

ICIBerkeley Group

Land of Leather Barclays

Market exposure

27%

FTSE 100 Short

50

30%

50% Long FTSE 100 puts @ 6025

Short FTSE 100 calls @ 6425

Kenmore Property

Chesnara

HSBC Infrastructure

Queen’s Walk

Candover

Kenmore Property

Chesnara

HSBC Infrastructure

Queen’s Walk

Candover

CashCash

17%FTSE 250

Short

2%

LSE Short

Source: SWIP, 11th January 2007.

“When a measure becomes a target, it ceases to be a good measure.” Professor Marilyn Strathern FBA