1. Alternative/Traditional Investment Management Convergence Presentation to the Montreal Stock Exchange Canadian Annual Derivative Conference Yvan Fontaine, CFA Château Frontenac, Quebec August 18, 2005

2. 2 Alternative/Traditional Investment  Definition of alternative/traditional investment  Alternative investments related to fixed income  Future trends in alternative/traditional investments in fixed income

3. 3  Investments with a low correlation to traditional asset classes  Hedge Funds  Investments without a specific line in an investment policy Definition of Alternative/Traditional Investment

4. 4 Typical U.S. Investment Policy  Stocks  Domestic  International  Emerging Markets  Small Cap  Bonds  Domestic  International  High Yield  Emerging Markets  Real Estate  Alternative Investments  Hedge Funds Definition of Alternative/Traditional Investment

5. 5 Typical Canadian Investment Policy  Variable Income  Domestic Stocks  U.S. Stocks  International Stocks  Fixed Income  Short Term  Domestic Bonds  Mortgages  Miscellaneous or others

6. 6 Alternative Investments Related to Fixed Income  International  Emerging Debt  High Yield  Distressed Bonds  Mezzanine Bonds  Private Placements  Convertible  Credit Derivatives (CDO, CLO,CDS)

7. 7 Alternative Investments Related to Fixed Income  International  Emerging Debt  High Yield  Distressed Bonds  Mezzanine Bonds  Private Placement  Convertible  Credit Derivatives (CDO, CLO,CDS)  Overlay  Hedge Funds  Portable Alpha

8. 8 Future Trends in Alternative/Traditional Investments  Excellent historical Canadian bond returns  Important reduction in risk premiums  Removal of the foreign content limit  Recent Canadian dollar appreciation  Low equity returns, low interest rates  Pension funds matching problems

9. 9 Excellent Historical Canadian Bond Returns Source: JP Morgan

10. 10 Important Reduction in Risk Premium Source: Datastream

11. 11 Important Reduction in Risk Premium Source: Bloomberg

12. 12 Changes in the Foreign Content Limit & Recent Canadian Dollar Appreciation Source: Bloomberg

13. 13 Future Trends in Fixed Income  Customized benchmarks, better matching  Stable or increased fixed income portion of asset mix  More tools given to the domestic manager  Access to foreign securities, use of derivatives  Problem of leverage  More international allocation  Portable Alpha  Replicate views with derivatives  Leverage of the T-bills portion of a beta stock portfolio