1) The document discusses the growth of regulated investment funds like UCITS funds in replacing offshore hedge funds. It summarizes the issues with offshore hedge funds like lack of transparency and regulatory oversight. 2) Performance of traditional investments like bonds and equities have been lower than liabilities in recent years, making alternatives like hedge funds more attractive for pension funds. However, hedge funds also face challenges of low yields and volatility. 3) Going forward, there is a trend toward more regulated and transparent onshore funds that provide downside protection and absolute returns. UCITS funds are growing rapidly in Europe and address investor needs for liquidity, transparency and tax efficiency.

1. Gauging Institutional Interest and the Role of Regulated Investment Funds in a Post Crisis World 04 October 2011 Dominique Grandchamp, CFA Senior Investment Consultant Mercer (Switzerland) SA [email_address] +41 22 918 10 15

2. Agenda 2) The Present - Where is the Performance? 3) The Future - How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions

4. Agenda 2) The Present - Where is the Performance? 3) The Future - How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions

5. The Present – Where is the Performance? Example: Switzerland’s Pension Fund System Cash Bonds 35% Equities 30% Real Estate 20% Commodities, HFs, PE 8% 7%

6. The Present – Where is the Performance? Example: Performance last 10 years Cash Bonds Equities Real Estate Alternatives Liabilities 1% 4% 0% 3.5% 5% 3%

7. The Present – Where is the Performance? Example: Low Yield on Bonds

8. The Present – Where is the Performance? Challenges ahead… Yield on bonds < Liability growth Uncertain performance of equities coupled with high volatility Look at more defensive, absolute return strategies

9. Agenda 2) The Present – Where is the Performance? 3) The Future – How to Invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions

11. The Future – How to invest in Hedge Funds? Hedge Funds increase Defensiveness Embed defensiveness in the equity bucket… … so as to reduce the overall risk Low Volatility Small Cap Broad market strategies Emerging Markets Defensive Strategies Small Cap Indexed Equities Emerging Markets Performance Drivers

13. The Future – How to invest in Hedge Funds? Hedge Funds increase Defensiveness Defensive Strategies Active Managers Heuristic (Fundamental Indexing) Quality Strategies Optimized (Minimum Volatility) Absolute Return Variable Bias Indexed Strategies

14. The Future – How to invest in Hedge Funds? Hedge Funds increase Defensiveness CTAs Global Macro Relative Value Long/Short Equity Equities

15. Long-only Funds Offshore Hedge Funds + FoFs Onshore Hedge Funds (SIFs) 1 2 3 4 Mandates+ Managed Account Platforms 5 Ucits Hedge Funds 6 Indices+ Replication The Future – How to invest in Hedge Funds? Old and New Access Points

16. The Future – How to invest in Hedge Funds? The Great Convergence Trend towards absolute return Increasingly benchmark-agnostic Trend towards “onshorisation” Preference for liquidity and transparency Long-only Ucits III Mandates + Macs Onshore HFs (XIFs) Offshore HFs Liquidity High High High Medium Low Transparency Medium Medium High Medium Medium Asset Control Medium Medium High Low Low Tax Efficiency High High Low Medium Low Low Beta Low Medium High High High Regulatory oversight High High Low High Low Benchmark awareness High Medium Low Low Low Long-only Ucits III Managed Accounts Onshore HFs Offshore HFs

17. The Future – How to invest in Hedge Funds? Which Access Point for Whom? Banks Pension Plans Insurance Family Office FATCA LPCC UCITS Solvency AIFMD

18. The Future – How to invest in Hedge Funds? Which Access Point for Whom? Onshore, Ucits III Offshore HFs Family Office   Banks   Insurance   Pension Plans F,D,I,S,P   Pension Plans CH, UK, Holland, Nordics  

20. The Future – How to invest in Hedge Funds? EU goes UCITS….

21. The Future – How to invest in Hedge Funds? Who does not love UCITS???

22. The Future – How to invest in Hedge Funds? Who loves UCITS???

23. Agenda 2) The Present – Where is the Performance? 3) The Future – How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions

24. Ucits Hedge Funds Growth 750+ Ucits Hedge Funds Up and Running # Funds # New Launches Source: Absolute Return

25. Ucits Hedge Funds Growth 120 Billion EUR AuM reached Source: Absolute Return

26. Ucits Hedge Funds Growth Length of Track Record Length of track record (years)

27. Ucits Hedge Funds Growth Fund AuM (EUR)

29. Agenda 2) The Present – Where is the Performance? 3) The Future – How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions

30. Conclusions Ucits and onshore Hedge Funds will continue to grow Convergence with long-only products Lower performance than in the past, defensiveness is welcome Institutional interest is taking off in selected jurisdictions Fund of Hedge Funds model challenged and struggling Stick to a robust due diligence process Traditional Hedge Funds remain to capture illiquidity premium

31. www.mercer.com Dominique Grandchamp Mercer (Switzerland) SA Avenue Reverdil 8-10 1260 Nyon Switzerland +41 22 918 10 15 dominique.grandchamp@mercer.com www.mercer.com