Investment Opportunities in Global Credit Markets 1 March 2007 Richard Hodges-Associate Director, Fixed Income

Agenda  Leverage cycle: what is different this time around?  Earnings growth point to a slowdown in momentum…  Cheap loan refinancing has kept defaults low…  The never ending search for additional alpha  Adopting new Tools & Techniques brings Symmetry to Returns

Leverage cycle: what is different this time around? Debt reduction Credit Equities The bubble bursts Credit Equities Debt growing faster than profits Credit Equities Profits growing faster than debt Credit Equities

however still remain a positive influence... Earnings growth point to a slowdown in momentum…

Earnings strong but expectations have already peaked….. Source: Lehman Brothers

...how long before we can expect an increase? Cheap loan refinancing has kept defaults low… Source: Moody’s Investor Services

...how long before we can expect an increase? Cheap loan refinancing has kept defaults low… Source: Bank of America

Drivers:  excess liquidity  exponential growth in structured credit  global carry trade Results:  expensive asset class but still offer pockets of value  increased leverage Outlook:  profit growth slows  leverage increases further  but spreads likely to remain at these levels for the remainder of the year How can we create alpha in this scenario? Aug-02 Nov-02 Feb-03 May-03Aug-03 Nov-03 Feb-04 May-04 Aug-04 Nov-04 Feb-05 May-05Aug-05 Nov-05 Feb-06 May-06Aug-06 Nov EMBI+ Index (LH scale)HE00 Index (LH scale)VIX Index (RH scale) BPS % Merrill Lynch Global Broad Market Index – Option Adjusted Spreads The never ending search for additional alpha

Adopting new Tools & Techniques brings Symmetry to Returns  UCITS 3 provides retail investors with access to financial instruments needed to benefit from deteriorating credit markets  Use of credit default swaps brings symmetry of return opportunities to retail investors  No longer just about 'avoiding the land mines'

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