John Tuohy Acuvest Limited Alternatives A framework for making decisions about alternatives

1.What are alternative investments? 2.Are institutional investors allocating significant assets to alternatives? 3.What is the investment case for alternatives? 4.Where do alternatives fit in a portfolio? 5.What are some of the questions that need to be considered in evaluating a particular investment? Key questions 2

Pension fund assets > $36 trillion ( top 16 countries ). Significant increase in allocation to alternatives ( top 7 markets). Asset allocation Source: Global Pension Asset Study – Towers Watson

Distribution of alternative assets All InstitutionsPension Funds Hedge Funds35%19% Private Equity29%35% Property24%35% Illiquid Credit3%2% Commodities3%1% Infrastructure5%8% Other1%- 100% * As at end Source: Global Alternatives Survey 2014 – Towers Watson 4

Investment case 1.Diversification 2.Time varying nature of expected returns 5

Bond yields Source: Barclays Capital’s Curve. 6

Markets have had a good run 7 20 Year Sources: DATASTREAM, BOFA ML EUR BROAD MKT. 10+Y (E) - TOT RETURN INDEX, MSCI AC WORLD - TOT RETURN INDEX (Local Currency)

Expected returns Investors need to take more risk, or take risk more efficiently, to achieve comparable returns Europe Traditional Portfolio Total Return Risk Free RateBetaAlpha Since %=5.5%+4.5%+? Expected ? =0.3%+3.3%+? Source: Bridgewater 8

Portfolio construction framework Strategic Asset Allocation Dynamic Asset Allocation Return Objective Increasing Return Increasing Correlation To Equities Growth Defensive Managed Growth / Risk Equity Risk Premium Illiquidity Risk Premium Long Only Smart Beta Long/Short Property Private Equity Infrastructure Illiquid Credit Credit Risk Premium Multi Asset Funds DGF / Abs Return Funds GTAA Global Macro Which Can Include: Commodities And Currencies Bonds Defensive Strategies Managed Futures Tail Risk Insurance Corporate High Yield EM Debt Highly Rated Eurozone Gov. Bonds Managing Risk 9

Evaluating 1.Investment case 2.Price 10

Key messages 1.Diversification is important 2.Only invest in what you understand 3.DC schemes need to find ways to access illiquid alternatives 11