Overview of CIS Industry December 2013

Industry overview International data Hedge funds Consumer behaviour Agenda Industry overview International data Hedge funds Consumer behaviour

Overview of local CIS Industry by Leon Campher, CEO of ASISA Agenda Overview of local CIS Industry by Leon Campher, CEO of ASISA

CIS Overview (Rand Denominated Portfolios) R1.499tr – Total Net Assets R25bn – Flows - 4th Quarter 2013 R177bn – Flows - Calendar 2013 1062 Portfolios - 31 December 2013

CIS Statistics December 2010 CIS Overview (Rand Denominated Portfolios) CIS Statistics December 2010

CIS Statistics December 2010 Net Quarterly Flows (Rand Denominated Portfolios) CIS Statistics December 2010

CIS Statistics December 2010 Net Annual Flows – SA Funds (Excluding Real Estate) CIS Statistics December 2010

CIS Statistics December 2010 Portfolio Allocation - SA Funds MA = Multi Asset, IB = Interest Bearing, FI = Fixed Interest

CIS Statistics December 2010 Portfolio Allocation - SA Funds (Excluding Money Market Portfolios) December 2009 December 2013 CIS Statistics December 2010 MA = Multi Asset, IB = Interest Bearing, FI = Fixed Interest

Net Annual Inflows (Rand denominated funds) SA – Multi Asset High Equity - R46.15bn SA - Multi Asset – Low Equity - R40.1bn SA – Interest Bearing – Short Term - R23.1bn SA – Multi Asset - Income - R18.6bn SA Interest Bearing – Money Market – R14.7bn

Net Annual Outflows (Rand denominated funds) SA – Equity – Large Cap - (R987m) SA – Equity – Resources - (R802m) Regional – Multi Asset – Flexible - (R235m) SA – Equity – Financial - (R31m)

Largest CIS Managers STANLIB ALLAN GRAY CORONATION INVESTEC OLD MUTUAL (All funds) STANLIB ALLAN GRAY CORONATION INVESTEC OLD MUTUAL NEDGROUP ABSA SANLAM PRUDENTIAL MOMENTUM 77.2% of CIS Assets

Largest CIS Managers ALLAN GRAY CORONATION INVESTEC STANLIB OLD MUTUAL (Excluding Money Market Funds) ALLAN GRAY CORONATION INVESTEC STANLIB OLD MUTUAL NEDGROUP SANLAM PRUDENTIAL MOMENTUM 79.7% of CIS Assets

Largest funds Allan Gray Balanced Fund R83 453 Absa Money Market Fund (Rand millions) Allan Gray Balanced Fund R83 453 Absa Money Market Fund R54 791 Coronation Balance Plus Fund R51 100 Allan Gray Equity Fund R36 993 Investec Opportunity Fund R35 566 Allan Gray Stable Fund R32 928 Standard Bank Money Market Fund R32 079 Foord Balanced Fund R31 594 Standard Bank Corporate Money Market Fund R30 602 Coronation Balanced Defensive Fund R27 923

CIS Statistics December 2010 Sector Performances (One year to 31 December 2013) CIS Statistics December 2010 Source: Profile Media

CIS Statistics December 2010 Sector Performances (Five years to 31 December 2013 – annualized) CIS Statistics December 2010 Source: Profile Media

CIS Statistics December 2010 Sector Performances (Ten years to 31 December 2013 - annualized) CIS Statistics December 2010 Source: Profile Media

Indices (Rands - 12 months ending 31 December 2013) Source: Inet Bridge

Indices (Rands - 5 years ending 31 December 2013) 21.3% 19.9% 19.0% Source: Inet Bridge

Agenda International data

International Data (30 September 2013) Int. SA Total Assets - $28.8tr Equity Funds - $12.3tr 42.7% 25% Bond Funds - $7.1tr 27.4% 18% Balanced Funds - $3.5tr 12.2% 38% Money Market Funds – $4.7tr 16.3% 19% Other Funds – $1.2tr 4.2% - Source: International Investment Funds Association

Agenda Overview of Hedge Fund Industry by Robert Foster, convenor of the ASISA Hedge Fund Standing Committee

Overview of SA Hedge Fund Industry AUM : R46.4 billion (December 2013) Included in survey: 55 active single manager Cat IIA licensed managers (excluding FoHF managers); 107 different mandated funds 27 of current ASISA members have Cat IIA licenses or Cat IIA licensed affiliated companies – managing more than 47% of the AUM 10 largest single manager teams all manage >R2 billion in hedge fund products; in aggregate manage 70% of total industry assets 15 largest single manager teams manage 82% of the AUM 20 largest single manager teams manage 89% of the AUM

Integrated part of industry Company Total Company AUM (in R billion) Total Hedge Fund AUM (in R billion) Manager A 36 6,291 Manager B 10 4,325 Manager C 400+ 3,644 Manager D 300+ 3,154 Manager E 3 3,147 Manager F 60+ 3,322 Manager G 2,096 Manager H 2,262 Manager I Manager J 2 1,629 Size of AUM managed by largest 10 managers R 32.2 % of total industry assets managed by largest 10 managers 69.90% Source: Novare Investments

Hedge Fund AUM Source:  Novare Investments

Asset Breakdown by Strategy Most popular strategy equity long/short representing 60.7% of industry assets Source:  Novare Investments

HEDGUCATION – Long and Short Equity

HEDGUCATION MANAGER VIEW: A is a better company than B IMPLEMENTATION: Hedge fund go long A, short B (same rand value) IMPLEMENTATION: Long only fund go long A, 0% in B possible outcomes: IMPACT ON PERFORMANCE MANAGER VIEW CORRECT Hedge fund Long only BOTH PRICES UP (A more than B) 0.50% 1.00% A UP, B DOWN 1.50% BOTH PRICES DOWN (A less than B) -0.50% MANAGER VIEW INCORRECT BOTH PRICES UP (A less than B) A DOWN, B UP -1.50% BOTH PRICES DOWN (A more than B) -1.00%

Asset Net Flows by Strategy (2013) Source:  Novare Investments

Ten largest hedge funds Source:  Novare Investments

Concentration of assets Source:  Novare Investments

Track record Source:  Novare Investments

Investors into Single Funds Source:  Novare Investments

Investment Structures Source:  Novare Investments

Regulatory Environment The FAIS Act governs the specialist activity of the Category 11A Licensed Hedge Fund Managers since 2007. Highest levels of skill, experience and capital required. 97% of Industry Assets are externally administered by Category FAIS Category 1 Administrators. 89 % of Industry Funds use more than one Prime Broker. Hedge Fund Exposure in Retirement Funds now Regulated (Regulation 28) 2013. National Treasury, Industry and the FSB are finalising a new product regulatory framework for Hedge Funds. Two categories of Hedge Funds are proposed under the new product regulation namely Qualified Investor Funds and Retail Investor Funds. Retail Investor Funds will operate in a similar manner to Unit Trusts, under the Collective Investment Schemes Act.

Regulatory Environment (cont.) Administration / Valuation / Reporting Fund valuation for all SA hedge funds done by external third party (82% external administrator only; 17% combination of internal and external administrator) Funds managing 89% of AUM use one or more prime brokers

Liquidity of Underlying Assets – Equity long/short funds Source:  Novare Investments

Liquidity of Underlying Assets – Equity market neutral funds Source:  Novare Investments

Liquidity of Underlying Assets – Fixed Income hedge funds Source:  Novare Investments

Management Fees Source:  Novare Investments

Hedge fund calendar year returns 2013 2012 2011 2010 2009 2008 2007 Return ALSI 21.43% 26.68% 2.57% 18.98% 32.13% -23.23% 19.19% ALBI 0.64% 15.99% 8.82% 14.96% -0.99% 16.97% 4.21% Hedge Fund Top 10 by AUM 21.03% 19.31% 13.47% 17.43% 24.18% -0.06% 29.26% HedgeNews Africa SA Single Manager Composite 12.18% 10.54% 8.79% 9.81% 12.32% 9.03% 14.03% SA - Multi Asset Med Eq (UT) 14.61% 16.26% 5.24% 12.62% 11.92% -9.98% 12.22% Source:  Novare Investments, I-Net Bridge, MoneyMate, HedgeNews Africa

Hedge fund return statistics Ann 5 Year 6 Year Std Dev Sharpe Sortino (5%) ALSI 19.9% 11.3% 15.1% 17.7% 0.96 0.42 1.64 0.50 ALBI 7.7% 9.2% 6.1% 7.4% 0.44 0.56 0.63 0.97 Hedge Fund Top 10 by AUM 19.0% 15.6% 4.5% 5.7% 3.75 1.74 7.45 3.01 HedgeNews Africa SA Single Manager Composite 10.72% 10.44% 1.4% 1.6% 3.14 18.68 10.53 SA - Multi Asset Med Eq (UT) 12.1% 8.1% 6.6% 7.8% 1.03 0.41 1.79 0.53 Source:  Novare Investments, I-Net Bridge, MoneyMate, HedgeNews Africa

Rolling 6 month drawdown Source:  Novare Investments, I-Net Bridge, MoneyMate

Consumer behaviour by Peter Dempsey, Deputy CEO of ASISA Agenda Consumer behaviour by Peter Dempsey, Deputy CEO of ASISA

Should I listen to Market Commentators Peter Dempsey

Market Commentary “October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February”. “Pudd’nhead Wilson” – Mark Twain, 1894

Consumers Greed/Buy Fear/Sell Or Goals → Plan → Implement repeat

Financial Planning R Utilisation and preservation Creation and protection Building and protecting Net Worth Age 100

ALSI Total Return Source: Inet Bridge

Last 6 years – R100 000 invested

Alsi ? ? ? 2014 2020

Thank you