Kellogg Hedge Fund Conference: Search for Alpha Bob Litterman, Ph.D. Head of Quantitative Resources Group Goldman Sachs Asset Management August 15, 2006

1 Source of hedge fund returns: alphas, betas, costs January 1995 – March 2004 The study conducted by Ibbotson & Chen finds that alphas are significantly positive. Source: Chen, Ibbotson. “Sources of Hedge Fund Returns: Alphas, Betas, and Costs”. Yale ICF Working Paper No August 2005.

2 Hedge fund industry performance and asset flows January 1994 – March 2006 Credit Suisse/Tremont Hedge Fund Universe Total Hedge Fund Assets Under Management Rolling 12-Month Returns Quarterly Asset Flows Source: Credit Suisse/Tremont

3 Credit Suisse/Tremont Convertible Arbitrage Hedge Fund Universe Convertible arbitrage performance and asset flows January 1994 – March 2006 Total Convertible Arbitrage Assets Under Management Rolling 12-Month Returns Quarterly Asset Flows Source: Credit Suisse/Tremont

4 General Notes THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. Opinions expressed are current opinions as of the date appearing in this material only. No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient. Indices are unmanaged. The figures for the index reflect the reinvestment of dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices. This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. © 2006 Copyright Goldman, Sachs & Co. All rights reserved. Rev #