1. Currency – A source of Risk or Return? Engaged Investor Trustee Forum Gavin Francis – Managing Director, Pareto Investment Management Limited 21 May 2009

2. J:\Sales Team\MGI Presentations\01. Presentations\2009 (Presentations)\05. May 2009\Pareto Engaged Investor Trustee 2 Currency – a source of Risk or Return? ● Currency boost for UK pension funds ● The impact of currency can be controlled by hedging ● Outlook for sterling Now is the time to be thinking about your hedging policy

3. J:\Sales Team\MGI Presentations\01. Presentations\2009 (Presentations)\05. May 2009\Pareto Engaged Investor Trustee 3 Currency boost for UK Pension Funds ● Typical UK pension fund lost 20% in 2008 (CAPS survey) ● Weak pound was good news, because it boosted the value of foreign assets ● Euro up 30%, US dollar up 36%, yen up 64%! ● Typical UK pension fund holds 41% overseas, mainly in equities ● Estimated currency gain of 9.7% at the total portfolio level Currency risk is significant at the total portfolio level

4. J:\Sales Team\MGI Presentations\01. Presentations\2009 (Presentations)\05. May 2009\Pareto Engaged Investor Trustee 4 Controlling Currency Risk by Hedging ● Imagine a 10% currency loss last year: 20% fall becomes a 40% fall in the fund ● Over the long term: unhedged position has seen slow bleed, sudden gains ● Hedging offsets currency moves with realised cash flows ● Over long term: fully hedged position steady profits, sudden cash losses Foreign Currency Returns v Sterling -80.00% -60.00% -40.00% -20.00% 0.00% 20.00% 40.00% 60.00% Dec-89Dec-90Dec-91Dec-92Dec-93Dec-94Dec-95Dec-96Dec-97Dec-98Dec-99Dec-00Dec-01Dec-02Dec-03Dec-04Dec-05Dec-06Dec-07Dec-08 EURJPYUSD Static hedging policy is not ideal – need to be active Source: Pareto

5. J:\Sales Team\MGI Presentations\01. Presentations\2009 (Presentations)\05. May 2009\Pareto Engaged Investor Trustee 5 Outlook for sterling ● The pound is going up!  Sterling is over-sold, cheap for tourists, British exports, UK assets  UK has led the world in its actions, recent positive signs in housing/retail sales  Large financial sector set to benefit from global recovery > Time to lock in the windfall foreign currency gains of 2008 ● The pound is in terminal decline  Worst crisis since 1930, typical 30% bear rally in equities, recovery will take years  Parlous state of UK finances, no reserve status like the US dollar, low rates versus euro  Banks now tightly regulated and partially government owned > Holiday at home this summer and get used to it! ● Heightened uncertainty: leveraged financial risk exchanged for leveraged political risk Timing the currency market is as difficult as ever

6. J:\Sales Team\MGI Presentations\01. Presentations\2009 (Presentations)\05. May 2009\Pareto Engaged Investor Trustee 6 Currency Risk can be a source of return ● Take a look at the currency risk in your portfolio and its impact in 2008 ● Consider implementing a currency hedging policy actively  “If the facts change, I change my mind. What do you do sir?” John Maynard Keynes ● Since market timing is difficult, avoid becoming locked into a static position Skilfull risk management preserves and enhances wealth

7. J:\Sales Team\MGI Presentations\01. Presentations\2009 (Presentations)\05. May 2009\Pareto Engaged Investor Trustee 7 Important information This is a financial promotion and is not intended as investment advice. The information provided within is for use by professional investors and should not be relied upon by retail investors. All information relating to Pareto Investment Management Limited (‘Pareto’) has been prepared by Pareto for presentation by BNY Mellon Asset Management International Limited (‘BNYMAMI’). Any views and opinions contained in this document are those of Pareto at the time of going to print and are not intended to be construed as investment advice. BNYMAMI and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised by BNYMAMI to do so. This document is issued by BNY Mellon Asset Management International Limited. BNY Mellon Asset Management International Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Services Authority. BNY Mellon Asset Management International Limited and Pareto are ultimately owned by The Bank of New York Mellon Corporation. CP3628-19-05-2009(1D)