1. Prestel and Partner Family Office Forum Zurich November 2014 Low correlations within portfolio building 0 STEPHAN GERWERT /// CHRISTIAN HAMMES

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3. SECTION 1Quick look at theory SECTION 2Why? SECTION 3Challenges and practical implications when working with correlation SECTION 4Investment ideas within the liquid and illiquid portfolio Agenda 2

4. STEPHAN GERWERT /// CHRISTIAN HAMMES SECTION 1 Quick look at theory

5. STEPHAN GERWERT /// CHRISTIAN HAMMES Three main aspects 1.Correlation talks about the dependence of at least two variables among each other. 2.Correlation is a general concept not just bound to portfolio-theory. 3.Correlation either positive, negative or zero and range bound from -1 to +1 4

6. STEPHAN GERWERT /// CHRISTIAN HAMMES SECTION 2 Why?

7. STEPHAN GERWERT /// CHRISTIAN HAMMES Why do investors care about correlation? Diversify a portfolio and reduce volatility Source: Goldman Sachs. 15.8.14 / Left triangle = 5 year correlation Examples (5y corr.) DAX / EuroStoxx50: 0,93 DAX / S&P GSCI: 0,45 DAX / Gold: 0,17 DAX / RexP: -0,44 6

8. STEPHAN GERWERT /// CHRISTIAN HAMMES Why should investors care about correlation? Morphia US Capital Costs rise EM Hard Landing EU Debt Crisis intensifies Growth Slowdown Bond Bubble bursts Inflation New Iron Curtain Abenomics fail Current Status Main Scenarios Side Scenarios Geopolitical / Regional Implications 7 Trouble in South China Sea

9. STEPHAN GERWERT /// CHRISTIAN HAMMES SECTION 3 Challenges and practical implications when working with correlation

10. STEPHAN GERWERT /// CHRISTIAN HAMMES 1.Correlation does not imply causation. => Make use of short term deviations where threre is a cause-effect relationship. What aspects relating to correlation do investors tend to forget? 9 2. The correlation value cannot be interpreted the same for different variables. => Expected intermarket relationships should hold true. 3. Correlation among two variables is not a constant and market manipulation is huge. => Make use of mean reversion. 4. Tough to measure correlation for illiquid assets. => Be pragmatic, use common sense and don´t make a science out of it 5. Constantly high correlation among similar assets are a fact. => Focus on fundamentals and relative strength

11. STEPHAN GERWERT /// CHRISTIAN HAMMES SECTION 4 Investment ideas within the liquid and illiquid portfolio

12. STEPHAN GERWERT /// CHRISTIAN HAMMES Real 10 year return expecations of liquid asset classes Source: Research Affiliates GOAL 11 VOLATILITY

13. STEPHAN GERWERT /// CHRISTIAN HAMMES The usual suspects Liquid portfolio:  Commodities Illiquid portfolio:  Hedge Funds (to heterogeneous to go into detail; some are liquid)  Private Equity  Real Estate  Infrastructure  Land and Forestry  Luxury Goods (art, watches, wine, cars) 12

14. STEPHAN GERWERT /// CHRISTIAN HAMMES Invest in preparedness, not prediction Insurance Linked Securities Private Debt Factoring Microfinance Volatility Distressed debt Smart Beta Quantitative strategies … 13 Net Return: 7% - 8% p.a. Volatility: 3% - 4% p.a. Max. Drawdown: < 5%

15. STEPHAN GERWERT /// CHRISTIAN HAMMES THE END Thank you for your attention. Q&A