Canadian Annual Derivatives Conference 2005: Emerging Hedge Fund Manager Selection Tanya E. Ghaleb-Harter August 2005 www.db.com/ars

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Emerging Hedge Fund Manager Selection Potential Benefits and Performance Drivers Potential Issues and Concerns Importance of Investment Process

Potential Benefits and Performance Drivers1 New fund managers are highly motivated to achieve positive performance early in an effort to attract and retain investors1 Emerging managers often take concentrated positions where they have the most conviction, while larger managers may be forced to dilute their best ideas Smaller managers are generally well-suited to adapt to changing market conditions, while their less nimble counterparts may be unable to exit losing positions during stressed market conditions In general, newer managers are eager to prove themselves and are positioned to outperform the overall hedge fund market1 Past performance is not an indication of future results. No assurance can be given that the investment objective will be achieved or that an investor will receive a return of all or part of his or her initial investment capital, and investment results may vary substantially over time.

Potential Issues and Concerns Tenure of Management Team: How much experience does the team have? How long have key people worked together? How were new team members chosen? How will the partnership work in the future? Type of Experience: Has the team ever managed fiduciary or proprietary capital? If proprietary, how much did the team rely on flow information from a trading desk? Will the team be able to manage risk appropriately for external clients? Track Record: Has an external auditor verified past performance, if any? Will a former client or employer attest to previous results? Can detailed return attribution be provided? What are key characteristics of positive and negative performance environments? Infrastructure: How much have the partners invested in the fund and firm? What kinds of systems are in place for research, trading, risk control and operations? What is the timeline for adding resources?

Importance of the Investment Process DB ARS Investment process – the three pillars 1 No assurance can be given that the investment objective will be met or that an investor will receive a return of all or part of his or her initial capital, and investment results may vary substantially over any given time period. 2 Based on DB Absolute Return Strategies’ evaluation of the manager.

Due Diligence Key steps for investing with a manager Duration of process is typically 2-6 months Requires multiple manager meetings prior to investment Review of audited financials may not be possible based on the length of the track record Lead analyst must produce an in depth due diligence review and investment recommendation report Operational review team must approve each fund separately from the investment analysts’ recommendations Recommendation must be approved by FoF Investment Committee The example above represents typical processes in DB ARS that occur during the due diligence process. The actual steps taken when investing in a manager may vary due to a number of factors, and are subject to change.

Portfolio Construction DB Absolute Return Strategies guidelines Sample set of internal portfolio objectives and guidelines for an emerging manager fund1 Annual volatility target2 Moderate Number of underlying funds 10 - 30 Typical exposures Relative Value 0-20% Event Driven 10-30% Long/Short Equity 40-70% Global Macro 10-30% Life of underlying fund 0-3 years Weighted average life of the underlying funds <2 years Maximum underlying fund exposure 15% 1. For illustrative purposes only. The internal guidelines can be changed at any time in the discretion of the Investment Adviser without notice to investors or the consent of the Fund. Please see a specific Offering Memorandum for descriptions of the definitive risk management guidelines and restrictions. 2. No assurance can be given that the investment objective will be achieved or that an investor will receive a return of all or part of his or her initial investment capital, and investment results may vary substantially over time. Target annual volatility low <5%, medium 5-10%, high >10%.

Risk Management Risk management is integral to every aspect of the FoF investment process

Hedge Fund Summary Risk Factors Any person subscribing for an investment must be able to bear the risks involved and must meet each of the Fund’s suitability requirements. Some or all alternative investment programs may not be suitable for certain investors. No assurance can be given that any of the Funds’ investment objectives will be achieved. A more complete description of the risks to be faced by investors in each of the Funds may be found in each Fund’s Offering Memorandum. The Funds are speculative and involve a substantial degree of risk. The Funds, or if applicable, its underlying Portfolio Funds will engage in speculative investment practices (e.g., short sales) that may increase the risk of investment loss The Funds may use leverage Past results are not necessarily indicative of future performance of the Funds. The Funds’ performance may be volatile An investor could lose all or a substantial amount of his or her investment The investment adviser or if applicable the subadviser has broad discretion over the trading of the Funds’ assets and the Funds are dependent on the services of the adviser The Funds are highly illiquid, and investors may redeem their shares only as stated in the Offering Memorandum. There is no secondary market for the investor’s shares in the Funds, and none is expected to develop Shares in the Funds may not be transferred without the Fund’s consent The Funds’ substantial fees and expenses must be offset by the Funds’ trading profits to achieve any net profits. In addition, the incentive compensation paid to the Funds’ investment adviser or if applicable subadviser may create an incentive for the investment adviser or subadviser to make more speculative investments than would otherwise be the case The Funds are not subject to the same regulatory requirements as a mutual fund A significant portion of the trades executed for the Funds may take place on foreign markets, and in non-U.S. securities and currencies The Funds are subject to significant conflicts of interest