Capital Introductions

Global Hedge Fund Industry Overview

Q3 2010
 Table of Contents

Executive summary 3

Hedge fund industry overview 4 - 15

• Asset levels 4
• Performance 5-6
• Risk appetite 7-9
• New launches 10 - 15

Hedge fund industry trends 16 - 26

• Hedge fund manager trends 16 - 19
• Hedge fund investor trends 20 - 26

Bank of America Merrill Lynch

 Summary
Executive summary

• Optimism returned in Q3 2010 as positive September performance boosted YTD returns:

• Investors continued to allocate in Q3 2010 for the fifth consecutive quarter, mostly to the largest firms. New capital inflows of $19
billion were double the inflows of Q2 2010(1). Industry assets were up 7.3% to $1.77 trillion due to performance-based gains and
new capital inflows(1).
• The HFRI Fund Weighted Composite Index posted a gain of 5.17% YTD at the end of Q3 2010(1). Merger Arbitrage and CTA
Advisors were the strategies closest to their high watermarks(2). 56.4% of hedge funds reached their respective high watermarks
in the trailing twelve months(1).
• Risk appetite remained subdued in Q2 and Q3 2010: De-leveraging in May and June followed a sharp correction in the markets(2). Despite
a slight increase in leverage in July, managers’ leverage and net exposures remain below peaks(3). Short interest levels are slightly higher
in Europe than in the US(4).
• Investment activity continues: New launches in 1H 2010 exceeded liquidations for the first time since 2007(1). US funds represent 55% of
the new launches globally, raising approximately $11 billion in assets in 1H 2010 or more than double the levels of 1H 2009(5).The majority
of new launches in 1H 2010 are from established players(5). The size of fund launches is smaller than historical levels(5). In Europe new
launches in 1H 2010 raised $6.9 billion; $3.75 billion in European hedge funds and $3.1 billion in UCITS funds(6).
• M&A activity in the alternative asset management industry has continued to increase in 2010.
• Q3 was the first quarter since 2007 in which funds of funds saw positive net inflows. Funds of funds assets increased by 6.7% in Q3
2010(1).

Sources:
(1) Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010, www.hedgefundresearch.com.
(2) Bank of America Merrill Lynch Hedge Fund Monitor, July 19th 2010. Bank of America Merrill Lynch research is available at www.mlx.ml.com.
(3) Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010.
(4) Dataexplorers.com, October 13th, 2010.
(5) Absolute Return.com, July 1st, 2010.
(6) Hedge Fund Intelligence “UCITS hedge funds: boom time?” September 21st, 2010.
3

Bank of America Merrill Lynch

 1. Industry overview
Total assets in the hedge fund industry increased by 7.3% in Q3 2010.

• In Q3 2010, the hedge fund industry’s assets were up 7.3% to $1.77 trillion from $1.65 trillion in Q2 2010 due to a combination
of performance-based gains and new capital inflows.
• The hedge fund industry saw the largest quarterly capital inflow since Q4 2007 : $19 billion in Q3 2010 bringing total YTD
inflows to $42.3 billion. In comparison 2008 and 2009 saw outflows of $154 billion and $131 billion respectively.
• 57% of managers saw inflows in Q3 2010, similar to Q2 2010. 75% of the net inflow (or $14.2 billion) was allocated to the
largest firms – those with assets under management above $5 billion.
• 74% of net asset flows in Q3 2010 were allocated to Relative Value and Macro strategies, attracting 37% each.

Industry net asset flows and industry assets (in US$ billion), 2005 – Q2 2010
$billion • Peak assets: $1.9 trillion in Q2 2008 $billion
$2,000 7.3% growth $250
Industry estimated assets

• Trough assets: $1.3 trillion in Q1 2009

$1,800 $200
$1,600
$150

Net asset flows

$1,400
$1,200 $100
$1,000 $50
$800 $0
$600 ($50)
$400
($100)
$200
($150)

Asset levels
$0
-$200 ($200)
2005 2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
Es tim ated As s ets Net As s et Flow

Source: Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010, www.hedgefundresearch.com. Please note that this source applies to all the data presented on this page.

Bank of America Merrill Lynch

 1. Industry overview
Hedge funds returned 3.75% YTD after positive performance in July and
September*.

Hedge funds started to recover in July from earlier losses in … and returned 3.61% for the month in September 2010*
Q2 2010*…
Bank of America Merrill Lynch Diversified Hedge Fund Composite Monthly HFRI Indices(2) Performances YTD as of the end of September 2010
Returns from July 2009 to September 2010
Multi-Strategy

3.0% Fixed Income-Corporate

Fixed Income-Convertible
Arbitrage
2.0% Relative Value
Return (%)

Distressed/Restructuring
1.0%
Event-Driven

0.0% Quantitative Directional

HFRI Fund W eighted
Composite
-1.0% Merger Arbitrage S&P 500(3) : 0.7% YTD
Macro
-2.0%
Equity Hedge

-3.0% Equity Market Neutral

Jul-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

May-10

Jun-10

Jul-10
Sep-09

Sep-10
Aug-09

Apr-10

Aug-10
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

• Estimated return for the Bank of America Merrill Lynch diversified • The HFRI weighted composite index was up 3.61% in September
hedge fund composite(1) is up 3.75% YTD at the end of September (5.17% YTD) with strong performance in Macro and Equity Hedge
2010*. Strategies**.
• Gains in July (1.55%) and September (2.54%) reversed losses • YTD 2010, the most profitable strategies are Multi-Strategy, Fixed

Performance
from earlier this year*. Income and Relative Value. Equity Market Neutral, Equity Hedge and
Macro are the least profitable strategies.

(1) The Diversified Hedge Fund composite is designed to represent the overall Hedge Fund universe and measure its performance by equal weighted average of all strategies.
(2) The HFRI Monthly Indices (HFRI) are equally weighted performance indices utilised globally as an industry benchmark.
(3) Bloomberg performance YTD as of October 1st, 2010 of S&P 500 Index.

Sources: * Bank of America Merrill Lynch Hedge Fund Monitor, October 11th, 2010.
** HFRI Monthly Indices performances, October 19th, 2010 numbers http://www.hedgefundresearch.com. 5

Bank of America Merrill Lynch

 1. Industry overview
44% of Hedge Funds remain below their high watermarks*.

HFRI Fund Weighted Composite Index – Percentage of constituent funds at high watermark (HWM), 2003 – Q3 2010*
100%

90%

80% Max: 88% in 2007

Min: 50% in 2009
% Funds at High

70%
Watermarks

60%

50%

40%

30%

20%

10%

0%
2003 2004 2005 2006 2007 2008 2009 Q1 2010 Q2 2010 Q3 2010 (1)

• 56.4% of hedge funds are at their respective HWM in the trailing twelve months(1)
in Q3 2010 vs. 54.4% in Q2 2010*.
• The chart above illustrates the percentage of funds at their HWM during each year. Calculations are based on the net asset value history of each
fund that reports to HFR*.
• 21% of funds need to produce a median return of 3% to return to their HWMs and earn performance fees for 2010**.

Performance
• According to Bank of America Merrill Lynch Research:
– Merger Arbitrage and CTA advisors are the strategies closest to their high watermarks as of July 2010***.
– In January 2010, most strategies were expected to still take 6 to 12 months to climb back to their HWM****.
(1) Trailing 12 months ending Q3 2010.

Sources: * Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010.
** “Half of funds may not get paid in 2010” AbsoluteReturn-alpha.com, October 2010. Note: Hedge funds often apply high watermarks for performance fee calculations: they calculate
*** Bank of America Merrill Lynch Hedge Fund Monitor, July 19th, 2010. performance fees based on increases in the net asset value (NAV) of the fund in excess of the highest
net asset value it has previously achieved. High watermarks are intended to limit excessive risk taking.
6
**** Bank of America Merrill Lynch Hedge Fund Monitor, January 19th, 2010.
Bank of America Merrill Lynch
 1. Industry overview
Risk appetite in Q2 2010* was more subdued following an increase in Q1 2010**.

Estimated hedge fund net holdings by quarter (2005 - 2010) Estimated hedge fund cash holdings by quarter (2005 - 2010)
Estimated
Net Exposure S&P 500 Index
S&P 500 Index Cash Levels
($bn)
35% 1,600
400 Estimated net exposure 1,600
1,500
350 1,500 30%
S&P 500
1,400
300 1,400 25%
Estimated HF cash 1,300
1,300
250 20% holdings have returned
1,200
1,200 to pre-crisis levels
200 15% 1,100
1,100
150 1,000
1,000 10%
100 900
900
5%
50 800
800
0% 700
0 700

Dec-05
Mar-06
Jun-06

Dec-06
Mar-07
Jun-07

Dec-07
Mar-08
Jun-08

Dec-08
Mar-09
Jun-09

Dec-09
Mar-10
Jun-10
Sep-05

Sep-06

Sep-07

Sep-08

Sep-09
M ar-05
J un-05

D ec -05
M ar-06
J un-06

D ec -06
M ar-07
J un-07

D ec -07
M ar-08
J un-08

D ec -08
M ar-09
J un-09

D ec -09
M ar-10
J un-10
Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Cash S&P 500

Net Exposure S&P 500

Source: Bank of America Merrill Lynch Global Research, September 2010. Source: Bank of America Merrill Lynch Global Research, September 2010.

• In Q2 2010 risk appetite shifted following an increase in Q1*:

Risk appetite
• Net exposure(1) fell by 14% to $174 billion or to the level of 33% net long by the end of Q2 2010**. Hedge fund gross exposure(2) fell by 12% to
$780 billion or to the level of 150% at the end of Q2 2010**.
• Cash holdings were estimated at 7.6% at the end of Q2 2010, below the historical average of 8-10% (peak was near 30% in Q4 2008)**.
• Market Neutral funds slightly increased equity exposure to above 50% long / 50% short benchmark*.

(1) Net exposure to the equity market is defined as long minus short as % of capital.
(2) Gross exposure is defined as long and short positions as % of capital. Estimates based on quarterly 13F filings and estimated short positions of the equity holdings of 817 funds.

Sources: * Bank of America Merrill Lynch Hedge Fund Monitor, October 11th, 2010.
** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th,2010. 7
.
Bank of America Merrill Lynch
 1. Industry overview
De-leveraging in May and June followed a sharp correction in the equity
markets. Leverage began to increase again in July*.

NYSE margin debt vs. S&P 500 (January 2008 to August 2010)** Estimated hedge fund equity leverage(2) (2005 – 2010)*
400,000 1,600
Estimated hedge fund % long and short exposure by quarter
350,000 1,400
250.0%
300,000 1,200 HF leverage is back to
200.0% late 2008 levels
Margin Debt ($m)

250,000 1,000
150.0%

200,000 800 100.0%

S&P 500
150,000 600 50.0%

0.0%
100,000 400
-50.0%
50,000 200
-100.0%

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10
Sep-05

Dec-05

Mar-06

Sep-06

Dec-06

Mar-07

Sep-07

Dec-07

Mar-08

Sep-08

Dec-08

Mar-09

Sep-09

Dec-09

Mar-10
0 0
May-08

Nov-08

May-09

Nov-09

May-10
Jan-08
Feb-08
Mar-08
Apr-08

Jun-08
Jul-08

Sep-08
Oct-08

Dec-08
Jan-09
Feb-09
Mar-09
Apr-09

Jun-09
Jul-09

Sep-09
Oct-09

Dec-09
Jan-10
Feb-10
Mar-10
Apr-10

Jun-10
Jul-10
Aug-08

Aug-09

Aug-10
Net Exp Long Exp Short Exp

Margin Debt S&P 500

(1) Margin debt refers to the amount market participants borrow on credit from their prime brokers. Increasing margin debt (2) Estimates are based on analyses of equity holdings and do not include derivatives.
shows an increased risk appetite and leverage.

• Hedge fund leverage, as measured by NYSE Margin Debt(1), is back to $230 billion but remains below the July 2007 peak of $381 billion*.

Risk appetite
• By contrast, margin debt levels were up 5.4% in March and 6.3% in April 2010 (which was back to September 2008 level), reaching $262 billion and
demonstrating increasing risk appetite in Q1***.
• Equity Long/Short funds reduced their market exposure to roughly 20% net long by the end of September 2010, well below the historical average range of
35-40% net long****.
• There is a risk that in a deeper correction margin calls can hit the equity market and force another wave of de-leveraging*.
Sources: * Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010.
** Bloomberg and NYSE data as of August 2010.
*** Bank of America Merrill Lynch Hedge Fund Monitor, June 7th, 2010. 8
**** Bank of America Merrill Lynch Hedge Fund Monitor, October 11th, 2010.
Bank of America Merrill Lynch
 1. Industry overview
Short interest levels are marginally higher in Europe than in the US but in both
regions they are at historically low levels*.
Breakdown of S&P 500 components by level of short Breakdown of EURO STOXX 600 components by level
interest, October 1st 2010* of short interest, October 1st 2010*
S&P 500: Short interest (borrowed Eurostoxx 600: Short interest (borrowed
Number of companies Number of companies
stock) as a % of total shares stock) as a % of total shares

Less than 1 % short 162 Less than 1 % short 148

Between 1% and 2% short 89 Between 1% and 2% short 178
Between 2% and 3% short 69 Between 2% and 3% short 95
Between 3% and 4% short 38 Between 3% and 4% short 59
Between 4% and 10% short 105 Between 4% and 10% short 104
More than 10% short 37 More than 10% short 16
Total 500 Total 600

• Hedge funds are the primary reason for the sharp increase in short interest levels in recent years. Our research estimates that they are now
responsible for 85% of total short positions in the US market**.

• In the US, the most common short level (as expressed by the borrowed stock as a percentage of total shares) on the S&P 500 was less than 1% as of
October 1st, 2010 which is the same level as in July and August 2010*.

• In Europe, the most common short level on the EURO STOXX 600 was between 1% and 2% as of October 1st 2010 vs. less than 1% in July and
August*.

• This remains below the 5% peak seen during the financial crisis in June 2008**.

Risk appetite
• The majority of top shorts in the US are cyclicals whilst in Europe they are split between cyclicals and defensives indicating mixed sentiment in the
market*.

Sources: * Dataexplorers.com as of October 13th, 2010

** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010. Bank of America Merrill Lynch research is available at www.mlx.ml.com.
.
9

Bank of America Merrill Lynch

 1. Industry overview
New launches picked up* in 1H 2010, with the majority from established
players**. Launch sizes remain smaller than historical levels**.
Key trends of fund launches in 1H 2010 Ratio of new launches to liquidations improved to 1.1 in Q1
2010*
• New launches exceeded liquidations in Q1 2010 for the first
time since 2008*. Number of funds Ratio
2,250 6.0
• The majority of new launches in 1H 2010 are from established 2,000
players**. 1,750
5.0
1,500
• The size of fund launches is smaller than historical levels**.
1,250
• More start-ups are running separately managed accounts than 1,000
4.0
in previous years**. 750
500
• 2010 has produced the first multibillion-dollar launch since 250 3.0
2008, Overland Advisors**. 0
-250
• New launches have raised globally approximately $20 billion -500
2.0

in 1H 2010: -750
-1,000
• US funds account for the majority of the assets raised in 1.0
-1,250
1H 2010 with 55% of globally raised assets or $10.9 -1,500
billion**. -1,750 0.0
2004 2005 2006 2007 2008 2009 Q1 2010

New launches
• European funds account for 35% or $6.9 billion,
Launches
including UCITS III funds***.
Liquidations
• Asian funds represent 11% or $2.1 billion of new Ratio of new launches/liquidations

launches****.
Sources: * Hedge Fund Research, Second Quarter 2010 Industry Report, Inc. © HFR, Inc, July 2010, www.hedgefundresearch.com.
** Absolute Return as of July 1st, 2010.
*** EuroHedge First-Half New Fund Survey, July 22nd, 2010 and EuroHedge database as of July 2010. 10
**** AsiaHedge First-Half New Fund Survey, July 21st, 2010.
Bank of America Merrill Lynch
 1. Industry overview
New US funds raised approximately $11 billion in assets in 1H 2010, more than
double the levels in 1H 2009. The number of new US funds(2) also doubled.
Top 10 US fund launches in 1H 2010 Launched assets by strategy

Fund Name Strategy Inception Date AUM ($m) Macro Credit

10.1% 4.2%
Overland Relative Value Multi Strategy Mar-10 3,600(1)
Multi-s trategy
Astenbeck Commodities Commodities Jun-10 1,232(3)
33.4%
Highbridge Event Driven Event driven Jan-10 500(3)

Paulson Gold Long/Short equity Jan-10 500

Dis tres s ed
6.6%
Alden Global Value Recovery Distressed May-10 500

BHR Master Event driven Jan-10 485 Long/s hort

equity
Galle Global Macro Partners Macro Feb-10 400
16.2%
Sursum Partners Long/Short equity Mar-10 350

First Quadrant Essential Beta Macro Jan-10 287

Event driven Com m odities
16.6% 13.0%
FrontPoint Rockbay Event Event driven Feb-10 250

Total $8,104m Total assets: $10.9 billion. Number of funds(2): 43

New launches
• As of July 2010, this year’s top ten new US hedge funds gathered a combined $8.1 billion or approximately 74% of all new US fund assets.
• Fund launches in the US amounted to $10.9 billion in June 2010, which is more than double that of the same period in 2009 but 27% less than the 1H
2007 peak.
• The number of new funds launched also doubled. At least 43 funds(2) launched in 1H 2010, up from 21 in 1H 2009, but significantly less than the 81
launches in 1H 2007.
(1) Including $3.4 billion of managed accounts.
(2) Funds with at least $25 million of assets under management.
(3) Estimated assets under management.

Source: Absolute Return as of July 1st, 2010. Please note that this source applies to all the data presented on this page.
11

Bank of America Merrill Lynch

 1. Industry overview
58 European fund launches raised $3.8 billion in 1H 2010, an 80% asset increase
since 1H 2009’s lows.

Top 5 European fund launches in 1H 2010 European fund launches since 1H 2000
Total number of funds vs. AUM
Inception 200 18,000
Fund Name Strategy AUM ($m)
Date 180 16,000
Theleme Long/Short equity Jan-10 600 160 14,000
140

Assets raised ($m)

Number of Funds
1798/Lombard Odier Energy Multi-Strategy 1H 2010 525 12,000
120
10,000
Capula Tail Risk Macro Mar-10 460 100
8,000
80
Ridley Park Paragon Long/Short equity May-10 350 6,000
60

Brevan Howard Commodities Commodities Mar-10 200(1) 40 4,000

20 2,000
Total $2,135m
0 0
1H 1H 1H 1H 1H 1H 1H 1H 1H 1H 1H
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Num ber of funds As s ets rais ed ($m )

• 58 European fund launches raised $3.8 billion in 1H 2010, an approximate 80% increase compared to the $2.1 billion raised in 1H 2009 by 47 funds, but this
remains much lower than the $15.5 billion raised in 1H 2007.
• As of July 2010, the top five new European hedge funds gathered a combined $2.1 billion, approximately 55% of the new European fund assets.
• Long / Short Equity, Macro and Multi-strategy were the most popular strategies in 1H 2010, representing respectively 43%, 16% and 15% of the assets

New launches
raised.
• The new fund activity in Europe is lagging that in the US and Asia given the lower confidence that investors currently have in the European outlook, partly as
a result of the volatility in Europe since the start of the year and the uncertainty surrounding the AIFM Directive.
• More than half of the new hedge funds in 1H 2010 were UK-based (or 75% in term of assets), followed by 14% for Swiss-based new launches.
(1) Estimated assets under management.

Source: EuroHedge First-Half New Fund Survey, July 22nd ,2010 and EuroHedge database as of July 2010. Please note that this source applies to all the data presented on this page. 12

Bank of America Merrill Lynch

 1. Industry overview
39 new UCITS III funds raised $3.1 billion in 1H 2010 in Europe*.

Top 5 UCITS III launches in 1H 2010* New European UCITS III hedge fund strategy breakdown by
assets under management, in 1H 2010*
Fund Name Strategy Inception Date AUM ($m) Em erging
Convertible Markets Fixed Incom e
PF (Lux) Convertible Bond 1H 2010 1,013 2.4% 0.4%
Arbitrage Multi-Strategy
MW TOPS Global Alpha ETF Market Neutral Jan-10 369 4.1% Credit
Macro 0.4%
Long/Short
GLG Alpha Select UCITS Feb-10 325 4.7%
equity Long/Short
Long/Short Equity
PF (Lux) Corto Europe 1H 2010 282 Market Neutral
equity 38.7%
16.9%
Virtuoso Fund Macro 1H 2010 135

Total $2,124m

• According to Hedge Fund Intelligence, 146 UCITS III hedge funds managed
$30 billion at the end of 2009**.
• 39 new UCITS hedge funds raised $3.1 billion in 1H 2010. European Convertible
Long/Short Equity was the largest strategy in terms of AUM and accounted for Arbitrage
50% of the number of funds*. 32.4%

New launches
• The largest new UCITS fund was in Convertible Arbitrage, with the $1 billion PF Total assets: $3.1 billion. Number of funds: 39
Lux Convertible Bonds Fund launched by Jabre Capital and Pictet*.
• The top 5 new funds accounted for 68% of total assets with $2.1 billion raised*.
• The UK was the largest location by number of funds (54% of funds)*.

Sources: * EuroHedge First-Half New Fund Survey, July 22nd, 2010.

** Hedge Fund Intelligence, Global Review 2010, Spring 2010 issue.

13

Bank of America Merrill Lynch

 1. Industry overview
53 Asian funds raised $2.1 billion in assets in 1H 2010, twice as much as in 1H
2009.
Top 10 Asian fund launches in 1H 2010 Asian fund launches since 1H 2005
Inception AUM Total number of funds vs. AUM
Fund Name Strategy
Date ($m)

Hillhouse: Gaoling Natural Resources Commodities 1H-10 250

80 6,000

Kilometre Capital Growth Asia Master Long/Short equity Jun-10 170 70

5,000
60
Turiya Long/Short equity Apr-10 150

Number of Funds

Assets raised ($m)

4,000
50
ADM CEECAT Event Driven Apr-10 128
40 3,000
Income Partners Asian Opportunities Event Driven 1H-10 120
30
2,000
ADM Kazakhstan Capital Restructuring Event Driven Jun-10 100 20
1,000
Janchor Partners Pan-Asian Long/Short equity Jan-10 100 10

Blacks Link Asia Event Driven Event Driven Apr-10 75 0 0

1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H
CAM Greater China Small Cap Long/Short equity Apr-10 64 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010

Num ber of funds As s ets rais ed ($m )

Gen2 Partners: Asia Private Credit Credit 1H-10 54

Total $1,211m

New launches
• As of July 2010, the top ten new Asian hedge funds gathered a combined $1.2 billion, approximately 57% of new Asian fund assets.
• 53 Asian funds raised $2.1 billion in assets in 1H 2010 vs. $1.1 billion raised by 39 funds in 1H 2009. 60% of them are based in Hong Kong.
• The average size in 1H 2010 was $40 million in line with 1H 2009 average size but this includes only 7 funds above $100 million with most of the
launches in the $10 – 30 million range.
• More than 70% of the new launches are managing Long/Short Equity strategies.

Source: AsiaHedge First-Half New Fund Survey, July 21st, 2010. Please note that this source applies to all the data presented on this page. 14

Bank of America Merrill Lynch

 1. Industry overview
The total universe of hedge funds is 9% lower than at its peak in 2007.

Estimated Number of Funds Launched/Liquidated 1996 - Estimated Number of Funds: Hedge Funds vs. Fund of Funds
2,500 Q2 2010 9,000 1996- Q3 2010
2,000 8,000

1,500 7,000

1,000 6,000
Average:858
500 5,000

0 4,000
Average: -411 3,000
-500

-1,000 2,000

-1,500 1,000

-2,000 0

Q1 2010

Q2 2010

Q3 2010
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
1H 2010
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Launches Liquidations Hedge Funds Fund of Funds

New launches/ liquidations

• Since the peak in 2007, 2,911 (28.8%) funds have closed and in the same time frame • In Q3 2010 the industry was made up of 7,062 hedge funds and 2,112
1,898 (18%) have launched. fund of funds vs. 6,982 and 2,101 respectively in Q2 2010.
• Hedge fund liquidations YTD are 417. In 2009 the industry experienced 1,023 • At the peak in 2007 there were 7,634 hedge funds and 2,462 fund of
liquidations, (14.8%), whilst in 2008 this number was 1,471, (21.4%). funds.
• Hedge fund launches YTD (455) are still well below the peak year level of 2,073 in
2005. In 2009 there were 784 new launches (11.4%) and in 2008 this number was
659 (9.6%).

Source: Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010, www.hedgefundresearch.com. Please note that this source applies to all the data presented on this page. 15

Bank of America Merrill Lynch

 2. Industry trends
Asset concentration among the largest managers continues to rise: 5% of hedge
fund managers controlled 60% of the industry’s assets in Q3 2010*.
• The hedge fund industry stands at $1.77 trillion as of the end of Q3 2010*.

• 5% of firms manage assets of $5 billion or above, representing 61% of total assets under management (AUM) or $1.08 trillion*, a slight increase from H1
2010**.

• 16% of firms manage assets of $1 billion or above, representing 87% of total AUM or $1.54 trillion, compared to $1.42 trillion in Q2 2010**.

• In Europe in terms of strategy, Managed Futures funds have overtaken European Long/Short Equity as the largest strategy group by assets. In contrast
Equity Long/Short is still the largest strategy in terms of assets on a global basis*. Long/Short Equity still has by far the largest market share by number
of funds in Europe and globally***.

5% of firms manage AUM of $5 billion or above*… … representing over 60% of total industry assets*

Distribution of industry assets by number of firms Distribution of industry assets by firm AUM size
$100 to $250
$1 to $5 > $5 Billion $250 to $500
<$100 Million Million
Billion 5.1% Million
1.6% 2.4%
11.4% 3.4%

$500M to $1
$500M to $1
Billion
Billion
5.3%
7.3%
<$100 Million
52.5% $1 to $5

Manager trends
$250 to $500 Billion
Million > $5 Billion 26.0%
9.2% 61.3%

$100 to $250
Million
14.5%
Sources: * Hedge Fund Research, Third Quarter 2010 Industry Reports, Inc, October 2010, www.hedgefundresearch.com.
** Hedge Fund Research, Second Quarter 2010 Industry Reports, Inc, June 2010, www.hedgefundresearch.com.
*** “Recovery in European hedge fund asset growth stalls in the first half” EuroHedge, September issue, 2010. 16

Bank of America Merrill Lynch

 2. Industry trends
The largest managers continue to get larger.

Top 15 US hedge fund managers* Top 15 European hedge fund managers** Top 15 Asian-Pacific (including Japan) hedge fund managers**

1H10 2H09 Firm capital ($bn) 2H09

Firm capital ($bn)
US firms Firm capital ($bn) European firms growth Asian firms Country growth
growth
Jan-10 Jul-09 (%) Jan-10 Jul-09 (%)
Jul-10 Jan-10 (%)
Bridgewater Associates 50.9 43.6 16.7% Brevan Howard AM 27.9 24.2 15.3% Platinum AM Australia 13.7 11.3 21.2%

JPMorgan Highbridge (1) 41.1 38.21 7.03% Man Inv. 21.7 19.0 14.2% PMA Hong Kong 2.1 2.1 0.0%

Paulson & Co. 31.0 32.0 -3.1% BlueCrest 16.8 12.4 35.5% Penta Investment Japan 1.7 1.4 21.4%

Soros Fund Management 27.0 27.0 0.0% Blackrock2 16.1 5.9 172.9% Sansar Capital Singapore 1.7 1.6 6.3%

Och-Ziff Capital Management Lansdowne Partners 14.0 11.9 17.6% Artradis Fund Singapore 1.6 2.3 -30.4%
25.3 23.5 7.7%
Group
Winton 12.3 11.8 4.2% Horizon Asset Japan 1.6 1.6 0.0%
BlackRock 22.8 22.2 2.84%
GLG Partners3 10.4 9.0 15.6% Value Partners Hong Kong 1.6 1.2 33.3%
Angelo, Gordon & Co. 22.7 20.8 9.0%
Sloane Robinson 8.1 7.2 12.5% ADM Capital Hong Kong 1.6 1.7 -5.9%
Baupost Group 22.0 21.8 0.92%
Gartmore IM 7.7 5.2 48.1% Hillhouse Capital Singapore 1.6 1.5 6.7%
Farallon Capital Management 20.0 20.7 -3.4%

King Street Capital Management 19.3 19.0 1.6% Transtrend 7.6 8.1 -6.2% Aisling Analytics Singapore 1.5 1.3 15.4%

Goldman Sachs Asset Brummer & Partners 7.6 5.6 35.7% Boronia Australia 1.4 1.9 -26.3%
19.1 17.7 7.30%
Management
Avenue Capital Group 18.0 20.0 -10.0% The Children's Investment Fund 6.0 8.0 -25.5% Pacific Alliance Hong Kong 1.3 1.5 -13.3%

D.E. Shaw Group 17.8 23.6 -24.6% Spinnaker Capital 5.6 5.4 3.7% Rockhampton HK / Japan 1.1 1.1 0.0%

Elliott Management Corporation 16.9 16.0 5.6% Marshall Wace 4.9 3.5 40.0% West AM Australia 1.0 n.a n.a

Manager trends
Renaissance Technologies 15.0 15.0 0.0% Cheyne 4.6 4.5 2.2% Keywise Capital Hong Kong 1.0 n.a n.a

Total assets of top 15 European Total assets of top 15 Asian-Pac

Total assets of top 15 US funds 368.9 370.3 15.6% 171.3 141.7 20.9% (incl. Japan) funds 34.5 30.5 13.5%
funds

(1) JP Morgan includes JP Morgan Asset Management and Highbridge Capital Management with AUM of $24.64 billion and $16.46 billion respectively as of July 2010.
(2) Acquisition of Barclays Global Investors in 2009.
(3) Announcement of acquisition by Man in May 2010.

Source: * Hedge Fund Intelligence (HFI) Global Review 2010, September 2010, AbsoluteReturn-alpha.com
** Hedge Fund Intelligence (HFI) Global Review 2010, Spring 2010. 17

Bank of America Merrill Lynch

 2. Industry trends
UCITS hedge fund assets have increased by 127% from $22 billion* to $50
billion** since the beginning of 2010.
• UCITS hedge fund assets have reached almost $50 billion consisting of 254 single manager hedge funds ($46.1 billion of assets) plus 42 fund of
funds ($3.1 billion assets)**.
• The UCITS hedge fund industry has grown significantly since 1H 2009 when there were only 25 UCITS managers with a combined $4 billion
AUM**.
• In 1H 2010 in Europe newly launched UCITS hedge funds raised $3.1 billion, a similar figure to the $3.75 billion raised in traditional hedge
funds***.
• The top 23 UCITS hedge funds have combined assets of $24.9 billion, almost half of total UCITS hedge fund assets*.
• In 2010 at least 142 (vs. 94 in 2009) hedge fund managers are considering a UCITS launch – 60 are European, 36 are US based, and 15 are
Asia based (including 31 fund of funds)****.

UCITS Hedge Funds with $500m+ in AUM as of August 31st 2010*

AUM AUM
Company Domiciled Company Domiciled
($m) ($m)
Blackrock UK Absolute Alpha Fund (UCITS) 3,140 UK MW TOPS UCITS Fund (Market Neutral) 930 Luxembourg
Amundi Funds Volatility Euro Equities (UCITS) 1,980 Luxembourg HSBC GIF Global Macro (UCITS) 830 Luxembourg
Exane Gulliver Fund (UCITS) 1,917 France Kairos International Sicav Dynamic (UCITS) 789 Luxembourg
1
SEB Asset Selection (UCITS) 1,744 Luxembourg Absolute Insight UK Equity Market Neutral Fund (UCITS) 719 Ireland
1
Threadneedle Target Return Fund (UCITS) 1,319 UK Gartmore UK Absolute Return Fund 706 Luxembourg
Exane Templiers Fund (UCITS) 1,213 Luxembourg Amundi Fund Dynarbitrage Volatility (UCITS) 690 Luxembourg
PF (Lux) Convertible Bonds (UCITS) 1,100 Luxembourg AC SVMN 7 Vol Fund (UCITS) 650 Luxembourg
1
Threadneedle Absolute Return Bond Fund (UCITS) 1,005 UK Gartmore European Absolute Return Fund (UCITS) 633 Luxembourg

Manager trends
Amundi Funds Volatility World Equities (UCITS) 992 Luxembourg Exane Ceres Fund (UCITS) 598 Luxembourg
Jupiter Absolute Return Fund (UCITS) 970 UK BlueTrend (UCITS) 554 Luxembourg
1
Exane Archimedes Fund (UCITS) 960 Luxembourg Az Fund1 Active Selection (UCITS) 549 Luxembourg
Artemis Strategic Assets Fund (UCITS) 954 UK
1 AUM as of June 30th 2010, Hedge Fund Intelligence Database.

Sources: * EuroHedge “Recovery in European hedge fund asset growth stalls in the first half”, September 2010.
** Hedge Fund Intelligence “Hedge Funds using the UCITS wrapper top $50 billion” October 1st, 2010.
*** Hedge Fund Intelligence “UCITS hedge funds: boom time?” September 21st, 2010.
**** Hedge Fund Intelligence “142 more Hedge Fund Managers Considering a UCITS launch” September 21st, 2010. 18

Bank of America Merrill Lynch

 2. Industry trends
M&A activity in the alternative asset management industry has increased in
2010. Consolidation in the Hedge Fund Industry YTD 2010

Acquired Target
Acquirer Type Region Acquired Company Type Region Date of Announcement Scope of Acquisition
AUM
1 Goldman Sachs (Petershill) FoF US Shumway Capital Partners HF US 05 January 2010 $8 bn 8%

2 Gottex Fund Management FoF US Constellar FoF US 20 January 2010 $150 m 100%

3 Blackstone / GSO AM US Callidus IMF US 20 January 2010 $3.2 bn CLO & CDO portfolio

4 Affiliated Managers Group HF US Artemis IMF EU 01 February 2010 $16 bn Majority Stake

4 Affiliated Managers Group IMF US Pantheon Ventures FoF EU 10 February 2010 $22 bn 100%

5 Fortress Investment Group IMF US Logan Circle AM US 16 February 2010 $12 bn 100%

6 Religare Enterprises AM EU Northgate FoF US 23 February 2010 $3 bn Majority Stake

7 Standard Life Investments AM EU Aida Capital FoF EU 23 March 2010 Undisclosed 75.1% Definitions:

8 Goldman Sachs (Petershill) FoF US Level Global Investors HF US 02 April 2010 $4 bn Minority stake FoF = Funds of Funds
100 % of Managed accounts AM = Asset Manager
9 Sciens Capital Management AM US Partners Group AM EU 12 April 2010 Undisclosed
platform
HF = Hedge Fund
10 Skybridge Capital AM US Citi Alternative Investments FoF EU 14 April 2010 $4.2 bn 100%

11 F&C Asset Management AM EU Thames River Capital AM EU 28 April 2010 £4.2 bn 100%
HFMA = Hedge Fund
Managed Accounts
12 Carlyle Group PE US Stanfield Capital Partners AM US 29 April 2010 $5.1 bn CLO Portfolio
IMF = Investment
13 Man Group AM EU GLG Partners HF EU 17 May 2010 $24 bn 100% Management Firm
Martin Currie Investment Sofaer Capital’s European
14 AM EU HF EU 01 June 2010 $280 m 100%
Management Long/Short Equity business

15 Schroders AM EU RWC Partners HF EU 22 June 2010 Undisclosed 49%

16 Olympia Capital Management FoF EU Sal.Oppenheim France FoF EU 31 August 2010 Undisclosed FoF Division

17 Stenham Asset Management FoF SA Montier Partners FoF EU 06 September 2010 $400 m 100%

18 MCP Asset Management FoF Asia Asia unit of Sparx Group Co HF Asia 06 September 2010 Undisclosed 100%
Allianz Alternative Asset
19 Nexar Capital Group AM EU FoF EU 13 September 2010 $1.9 bn 100%
Management
20 Credit Suisse Asset Management AM EU York Capital Management HF EU 14 September 2010 $14 bn Minority stake

Manager trends
21 Moelis & Co IMF US Gracie Credit Opportunities Fund HF US 27 September 2010 $2 bn 100%

22 Royal Bank of Canada IMF CAN BlueBay Asset Management AM EU 18 October 2010 $40 bn 100%

Sources:
1 "Shumway Capital sells stake to Goldman Sachs’ Petershill fund", Bloomberg.com, January 5th, 2010.
2 "Gottex takes over Constellar funds of funds" Hedge Funds Review, January 20th , 2010.
3 Blackstone Website, Press Release, January 20th, 2010.
4 AMG Website, Press Release, February 1st & 20th, 2010.
5 "Fortress to Acquire Logan Circle Partners" Reuters.com, February 16th, 2010.
6 "Religare to Acquire Majority Stake in Northgate Capital" RTTNews.com, February 23rd , 2010.
7 Standard Life Investments Website, Press Release, March 23rd,2010.
8 "Goldman Sachs Buyout Firm Acquires Stake in Ganek's $4 Billion Hedge Fund" Bloomberg.com, April 2nd, 2010.
9 "Sciens acquires managed account platform from Partners Group" Hedgeweek.com, April 22nd , 2010.
10 Skybridge Website, Press Release, April 14th, 2010.
Bank of America Merrill Lynch
11 "F&C to acquire UK asset firm Thames River" Reuters.com, April 28th, 2010.
12 Carlyle Website, Press Release, April 29th, 2010.
13 Man Group Website, Press release, May 17th, 2010.
14 Martin Currie Website, Press Release, June 1st,2010.
15 "Shroders acquires 49% stake in RWC", Investment Week.com, June 22nd, 2010.
16 Olympia Capital Management, Press Release, August 31st, 2010.
17 "Stenham Acquires Montier Partners", hedgeweek.com, September 6th, 2010.
18 Sparx Website, Press Release, September 6th , 2010.
19 "Allianz exits hedge funds with asset sales to Nexar" Reuters.com September 13th, 2010.
20 Credit Suisse Website, Press Release, September 14th, 2010. 19
21 Moelis Website, Press Release, September 27th , 2010.
22 "BlueBay shares jump on £963m RBS deal", FT.com, October 18th , 2010.
 2. Industry trends
Funds of funds experienced asset growth of 5.3% in Q3 2010.

• In Q3 2010, the HFRI funds of funds index was up 3.25% vs. -1.0% in Q2 2010.
• As of Q3 2010, funds of funds assets stand at $602 billion, up 6.7% from $564 billion in Q2 2010 according to HFR.
• Fund of funds assets are still 25% less than at the peak of $799 billion in 2007.
• Funds of funds assets are up 5.3% YTD 2010. If this trend continues 2010 will represent the first year of growth for fund of funds
since 2007.
• Only 33% of funds of funds experienced inflows in Q3 2010 compared to 57% of managers. Net inflows were $256 million.

Funds of hedge funds net asset flows and assets (in US$ billion), 2004 – Q3 2010.
Funds of Funds Assets ($Billion) Decrease in funds of hedge funds assets
• Peak: $799 billion in 2007.
800 • Since peak in 2007: -25%
• Trough: $526 billion in Q1 2009.
700 • In 2009: - 4%

600
500
400
300
200

Investor trends
100
0
-100
2004 2005 2006 2007 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

Net Asset Inflows Estimated assets Net Asset Outflows

Source: Hedge Fund Research, Third Quarter 2010 Industry Report, Inc. © HFR, Inc. October 2010, www.hedgefundresearch.com. Please note that this source applies to all the data presented on this page.

20

Bank of America Merrill Lynch

 2. Industry trends
The 106 fund of funds in the Billion Dollar Club control $595 billion in AUM.
• The fund of fund industry is a third less in number and has half of the assets that it had in June 2008. At the peak of the industry in 2008, 161 funds ran
a combined $1.1 trillion.
• The largest funds of hedge funds still control over a third of industry assets:
– The top 10 fund of hedge funds manage $210 billion in assets as of June 2010 and control 35% of the Billion Dollar Club’s assets(1) compared to
37% in January 2009.
– 16 firms have more than $10 billion under management in June 2010, versus 21 firms in 2009. They manage 50% of the Billion Dollar Club’s
assets, in contrast to 58% ($410 billion) in 2009.
– The 5 new entrants to the top 10 since the peak in 2008 are : Blackstone Alternative Asset Management, Goldman Sachs Asset Management,
Morgan Stanley, Blackrock Alternative Advisors and Pacific Alternative Asset Management Co.
– An institutional client base and/or the ability to provide managed accounts solutions are key for the largest funds of funds to defend their market
share and continue to grow. Product innovation is also another driver of growth.

The 10 largest funds of hedge funds control over a third of Billion Dollar Club assets evolution since 2002
industry assets

Fund of Hedge Funds

AUM $bn AUM $bn Growth
Growth $1,200 151 161
Jun-2010 Jan-2010 $bn 142 147 137
160
134 135
1 Blackstone Alternative Asset Management 28.51 27.87 0.64 2.29% $1,000 126 140
119 117 114
2 HSBC Alternative Investments(2) 26.83 23.27 3.56 15.32% 105 106 120
3 UBS Global Asset Management A&Q 24.21 27.96 -3.76 -13.43% $800
81 100
4 Grosvenor Capital Management 22.95 22.53 0.42 1.86% $600 69 80
5 Goldman Sachs Asset Management 20.82 20.07 0.75 3.74% 57 61
6 Permal Investment Management 19.00 19.40 -0.4 -2.06% $400 60
7 Morgan Stanley 17.53 14.11 3.42 24.23% 40

Investor trends
$200
8 GAM Multi-Manager(3) 17.00 16.10 0.9 5.59% 20
9 BlackRock Alternative Advisors 16.80 16.20 0.6 3.70% $0 0
10 Pacific Alternative Asset Management Co. 16.60 16.30 0.3 1.84%
Jun-02

Dec-02

Jun-03

Dec-03

Jun-04

Dec-04

Jun-05

Dec-05

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10
Global Top 10 Funds of Hedge Funds 210.25 203.81 6.43 -

(1) The Billion Dollar Club refers to the firms with more than $1 billion under management.
(2) Total alternative assets including custody $33.211bn.
(3) As of March 31st 2010.

Source: Hedge Fund Intelligence, Global Review 2010, September 2nd, 2010 (data as of June 2010)– N.B. The InvestHedge Billion Dollar Club List is published every 6 months. Please note that this source applies to all the
data presented on this page.
21
Please note that the data from Hedge Fund Intelligence differ from those reported by Hedge Fund Research used in previous pages.

Bank of America Merrill Lynch

 2. Industry trends
Seeding activity has picked up since the beginning of 2010.

Overview of Seeding Activity in the Hedge Fund Industry, 2009 - October 2010
Seeder Region Sources Fund being invested in Region Date of Announcement Size of Seeding Fund Focus
Cyan Management Group US 1 Warwick Capital Partners EU May-10 $100 m European Distressed & Special Situations Credit Fund
2 West Spring Advisors US Jul-09 $60 m Credit
3 JD Capital Management US Aug-09 N/A Volatility Trading
FRM EU 4 Isometric Capital Management ASIA/PAC Oct-09 N/A Asian Equities Fund
5 Varna Capital US Jul-10 N/A Long / Short Equity
6 Sensato US Oct-10 $50 m Long / Short Equity focused on Asia-Pacific
7 FrontPoint Direct Lending US Feb-10 N/A Direct Lending Strategy
8 FrontPoint Event Driven US Feb-10 N/A Event-driven and Special Situations
Front Point US 9 FrontPoint Australia Long/Short ASIA/PAC Mar-10 N/A Australia Long/Short Equity
10 FrontPoint Global Statistical Arbitrage US N/A N/A Global Statistical Arbitrage
11 Emerging Market Macro US N/A N/A Emerging Market Macro Fund
12 Branta Solutions EU Jun-09 €25 m Long / Short Sustainable Investing
13 Callanish Global Macro Fund EU Apr-10 €25 m Global Macro Systematic
IMQ (APG) EU 14 Cavenagh Asia Fund EU May-10 €25 m Asian Interest Rates/Currencies
15 mCapital EU May-10 €25 m Asian/EU Multi-Strategy
16 Boston and Alexander convertible arbitrage fund EU Jul-10 €25 m Convertible Arbitrage Fund
17 Stonerise Capital Partners Master Fund US Jan-09 $100 m Equity Fund
Larch Lane/PineBridge Investments US 18 Crystal Japan Fund US Aug-09 $75 m Commodities Fund
19 Sothic Capital European Opportunities Master Fund EU Sep-09 $75 m European Distressed-Companies Fund
MAN (RMF) EU 20 5:15 Capital Management US Jul-09 $50 m Global Fixed Income Arbitrage with Macro Overlay
21 Melchior European EU May-09 $30 m Long / Short European Equity Fund
NewAlpha Asset Management EU 22 Armored Wolf US Jan-10 $40 m Global Macro
23 G Capital Master Fund US Jun-10 N/A Global Macro
24 Bayswater Asset Management US Jul-09 N/A Global Macro
25 Broadmark Asset Management US Aug-09 N/A Tactical Long / Short Equity
Revere Capital Advisors US
26 Quest Partners US Oct-10 N/A Systematic CTA
27 Dickson Capital Management EU N/A N/A Long / Short Equity focused on Western Europe
28 Union Avenue Advisors US Mar-09 N/A Emerging Markets

Investor trends
SkyBridge Capital US 29 WyeTree Asset Management EU May-09 $50 m Distressed Mortgage Fund
30 Viathon Capital US Jul-10 N/A Credit Opportunities Fund
Blackstone US 31 Taylorwoods Capital Management EU Sep-10 $150 m Commodities Fund

Sources:
(1) 'Ex-Polygon credit heads eye $100m launch', FinancialNews.com, May 21st 2010.
(2,3) 'FRM Capital makes strategic investments in JD Capital Management and WestSpring Advisors' hedgetracker.com, August 17th 2009. (21) 'NewAlpha backs Melchior European for $30 million' hedgefundintelligence.com, May 6th 2009
(4) ‘FRM Capital Seeds its First Asian Focused Hedge Fund', PRNewswire.com, October 5th 2009. (22) ‘NewAlpha AM seeds Armored Wolf Alpha Fund’ Thehedgefundjournal.com, January 13th 2010.
(5) 'FRM Capital Advisors enters relationship with Varna Capital', Hedgeweek.com, July 28th 2010. (23) 'NewAlpha invests in G Capital Fund', thehedgefundjournal.com, June 3rd 2010.
(6) ‘FRM Capital seeds Asia-focused hedge fund Sensato’ FinAlternatives.com, October 27th 2010. (24-27) Revereglobal.com
(7-11) 'FrontPoint grabs Rockbay event-driven execs for multistrat buildup' Hedgefundintelligence.com, February 25th 2010. (28) Skybridge.com, March 13th 2009.
(12-15)'Standing shoulder to shoulder', HFMWeek.com, June 23rd 2010. (29) 'Skybridge invests in manager Wyetree', Reuters.com, May 11th 2009.
(16) 'IMQubator completes sixth seed deal', HFMWeek.com, July 7th 2010. (30) 'SkyBridge invests in Viathon Capital's Whitewater Fund', Hedgeweek.com, July 13th 2010.
(17-19) 'InfoVest21 Seeding Activity', infovest21.org, July 8th 2010. (31) 'Credit Suisse Commodities Unit Bolts’, Wall Street Journal, September 24th 2010, AbsoluteReturn alpha.com.
(20) 'Man Group seeds 5:15 Capital Management fund', HFMWeek.com, July 22nd 2009. .
22

Bank of America Merrill Lynch

 2. Industry trends
Institutional investors still believe in hedge funds’ diversification benefits and
their ability to generate alpha*.

• Institutional investors are expected to increase their allocation to alternative investments from 14% in 2009 to 19% over the next two to three years. Their allocation to
hedge funds is expected to increase to 5.7% by 2012 from 4.2% in 2009*.

• The Hedge Fund Generals, a cloning strategy from BofAML’s research combining the most concentrated and popular stocks among hedge funds, outperformed the
broader market by 1.5% in 2010 and has gained 99% since the March 2009 lows (as of the end of August 2010)**.
– The strategy has outperformed the S&P 500 index by 82bp per month/247bp per quarter between September 2003 and August 2010**.
– In 2009, the index outperformed the S&P 500 by 46% while delivering a higher return to volatility ratio***.

The HF Generals rallied by 99% since March 2009 lows, The BofAML Diversified HF composite delivered a higher
outperforming the market by 1.5% in 2010** return than the S&P 500 in 1H 2010***
Daily Chart of the HF Generals vs. the S&P 500 (June 2008 – September 2010)** Return/volatility ratio - comparison by strategy (1H 2010)***
•Heavy sell-off by
hedge funds in late YTD Returns Convertible
September 2008 A rbitrage Distressed
6%
following the Lehman Diversif ied HF
Credit
collapse Dedicated 4%
Composite
Short Bias 2%
Macro
Event Driven
•Late October 2009 0%
sell-off Managed Merger
-2%
Futures Equity Equity Market A rbitrage
-4% Long/Short Neutral
•Outperforming the -6%
S&P 500 by ~65%

Investor trends
-8% S&P 500
between late
November 2008 and -10%
June 2009 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00

Sharpe Ratio (12 months)

Sources: * Russell Investments, “2010 Global Survey on Alternative Investing” June 2010.
** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, September 7th, 2010.
*** Bank of America Merrill Lynch Hedge Fund Monitor, Quarterly Market Analysis, June 23rd, 2010.
23

Bank of America Merrill Lynch

 2. Industry trends
The hedge fund industry is forecast to benefit from inflows largely supported by
pension funds*. The largest 100 alternative managers hold $817 billion of
alternative assets on behalf of pension funds**.

• Global pension assets reached $23 trillion in 2009, up 15% Distribution of alternative assets managed by the Top 100
from end of 2008, due to the good market performance in alternative investment managers on behalf of pension funds***
2009 and the high exposure of pension funds to equities***.
Commodities
Infrastructure $20bn
• Exposure to alternative assets(1) continues to grow, reflecting $99bn 2%
pension funds’ growing appetite for diversification***. 12%

• Alternative assets managed on behalf of pension funds by Fund of hedge

funds(2)
the top 100 managers amounted to approximately $817
$104bn
billion in 2009 or 48% of their total assets under 13% Real Estate
management ($1.7 trillion), little changed from 2008**. $425bn
52%
• Funds of hedge funds(2) accounted for 13% (or $104 billion)
of alternative pension fund assets for the top 100 managers
in 2009, similar to 2008**. Private Equity
$169bn
21%

Investor trends
Total alternative assets: $817 billion

(1) Alternative assets are defined by hedge funds, property, private equity, commodities and other assets outside of Equities, Bonds and Cash in the Towers Watson Study.
(2) Only the indirect hedge fund investments were considered via funds of hedge funds. Any direct investments into hedge funds are excluded.

Sources: * The Bank of New York Mellon and Casey Quirk Analysis 2009: The Hedge Fund of Tomorrow: Building an Enduring Firm, April 2009.
** Towers Watson, 2010 Global Alternatives Survey, June 2010.
*** Towers Watson, 2010 Global Pension Asset Study, January 2010.
24

Bank of America Merrill Lynch

 2. Industry trends
North America accounted for the largest proportion of pension fund assets in
alternatives in 2009 at 53%*.

• In 2009, North America accounted for 53% or $433 billion of the pension Top 15 largest investments from US Pension Funds with defined benefits assets in
hedge funds - assets in $ millions **
fund assets in alternatives for the top 100 alternative managers,
Funds
followed by Europe and Asia*. Total of HF Direct
Rank Fund City Assets of
Investments Investments
Funds
• The 15 largest investments in hedge funds from US pension funds(1) are Pennsylvania
1 Harrisburg $25,594 $5,845 $165 $5,680
estimated at $47 billion or 5% of their assets, with 67% as direct Employees
investments as of September 2009**. California Public
2 Sacramento $198,765 $5,598 $4,241 $1,357
Employees
Massachusetts
• 61 US pension funds(1) reported investments in hedge funds, amounting 3
PRIM
Boston $41,757 $4,540 - $4,540
to $72 billion or 2% of their assets, with 61% as direct investments**. Pennsylvania
4 Harrisburg $45,740 $3,476 $3,476 -
School Employees
5 Texas Teachers Austin $91,358 $3,469 $3,469 -
Distribution by region of alternative assets managed by the
Top 100 alternative managers on behalf of pension funds* 6 Virginia Retirement Richmond $48,203 $3,386 $3,386 -
Other
7 Boeing Chicago $71,135 $3,037 $2,078 $959
A sia Pacif ic 5%
8% 8 New Jersey Trenton $68,698 $2,965 $2,965 -

Europe New York State

9 Albany $125,692 $2,903 $2,599 $304
Common
34%
10 Citigroup New York $17,471 $2,270 $2,270 -

11 California University Oakland $45,903 $2,127 $2,127 -

12 General Electric Stamford $58,300 $2,065 $2,065 -

Investor trends
13 Verizon Basking Ridge $46,547 $2,062 $1,047 $1,015

14 Ford Motor Dearborn $47,700 $1,696 $757 $939

North A merica Missouri State
53% 15 Jefferson City $8,131 $1,696 $964 $732
Employees
Total of top 15 investments $940,994 $47,135 $31,609 $15,526
Total alternative assets : $817 billion
1
Total of all investments1 $4,107,237 $72,056 $44,294 $26,395
US Pension Funds with defined benefits assets.

Sources: * Towers Watson, 2010 Global Alternatives Survey, June 2010. 25

** Pensions & Investments, September 30th 2009. This is an annual survey.
Bank of America Merrill Lynch
 2. Industry trends
Pension plans are using alternative investments to improve the investment
efficiency of their portfolio.
Europe Asia including Australia
• The average allocation to hedge funds by UK pension plans has risen • Australia's pension funds continue to allocate to alternative investments.
from around 9% in 2009 to over 13% as highlighted by Mercer 2010 Their average allocation to alternatives is approximately 14%. Hedge
European pension plans survey*. fund allocations are approximately 2.5% of their overall portfolio,
• UK pension plans are seeking to control equity volatility by increasing however this is expected to grow to 5% by 2020**.
their allocation to hedge fund strategies*.
• In Asia, the South Korean National Pension Service (with $240 billion
• European pension plans as a whole are still looking to increase their AUM) is planning to increase investments in alternatives from 4.5% as
exposure to these vehicles, despite some loss of faith in hedge funds
at the end of 2009, to above 10% by 2014***.
from existing investors*:
– 14% of European(1) plans intend to increase their allocation to
funds of hedge funds vs. 5% in the UK.
– No current European(1) plans have been reported to increase
direct allocations to hedge funds vs. 4% in the UK.
Australia’s 10 largest allocators to hedge funds as of March 2010****.
European(1) and UK pension plans allocations to hedge funds
and funds of funds*.
Total Hedge Fund
15% 13.2% Hedge Fund
investments ($m)
12% 9.9% Future Fund Management Agency 7,832
8.0% 8.6% AMP Capital 1,264
9%
Russell Advisors 1,081
6% 3.8%
3.2% Victorian Funds Management Corporation 997
3% 0.9% 1.4% BT Investment Management 653
Queensland Investment Corporation 239
0%

Investor trends
Europe(1) UK Europe(1) UK Europe(1) UK Europe(1) UK Funds SA 145
Perpetual 111
Hedge Funds Hedge Fund of Funds United Funds Management 101
% Schemes with an Allocation Average Allocations to Asset Class % Suncorp Investment Management 83
(1) Excluding UK

Sources: * Mercer, Asset allocation survey and market profiles, European institutional market place overview 2010, April 2010. The survey covered over 1,000 plans from 11 countries, with total assets of over €500 billion.
** AIMA Australia/University of NSW Hedge Fund survey, May 2010.
*** South Korean - NPS, JoongAng Daily, July 22nd 2010.
**** Rainmaker - Australian Data, March 2010.
26

Bank of America Merrill Lynch

 Q3 2010 Global Hedge Fund Industry Overview: Primary Contacts
The Q3 2010 Global Hedge Fund Industry Overview was produced by the Bank of America Merrill Lynch Capital Introductions team*. If
you have any queries or comments, please contact us.

Americas
Justin Fredericks (Head of US) +1 646 855 0233 justin.fredericks@baml.com
Elizabeth Hammond +1 646 855 5226 elizabeth.hammond@baml.com
Margaret Lucas +1 646 855 0695 margaret.lucas@baml.com
Kevin Lynch +1 646 855 1707 kevin.lynch@baml.com
Liana Ryan +1 646 855 1833 l.ryan@baml.com
Marissa Solomon +1 646 855 4431 marissa.solomon@baml.com

Europe
Mairead Kenny (Head of Europe) +44 20 7996 8703 mairead.kenny@baml.com
Natalie Benjamin-Pinel +44 20 7995 3824 natalie.benjamin-pinel@baml.com
Vanessa Bogaardt +44 20 7995 8676 vanessa.bogaardt@baml.com
Iulia Buinevici +44 20 7995 6313 iulia.buinevici@baml.com
Alice Kennon +44 20 7995 3402 alice.kennon@baml.com
Jess Larsen +44 20 7995 0661 jess.larsen@baml.com

Asia Pacific including Japan

Futoshi Ago +813 6225 7986 futoshi.ago@baml.com
Joanne Bryant-Rubio +852 2161 7321 joanne.bryant-rubio@baml.com
James Fallon +852 2161 7872 james.fallom@baml.com
Emma Lynch +613 9659 2577 emma.lynch@baml.com

*Ranked #1 Global Capital Introductions Team by Global Custodian 2010.

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Bank of America Merrill Lynch

 Global Markets Financing and Futures
Most Innovative in Prime Brokerage #1 Global Synthetic Provider Winner in 13 out of 16 categories
The Banker 2010 Investment Banking Awards Global Investor/ISFs 2010 Annual Synthetic Financing Survey
#1 European Prime Broker
#1 Global Capital Introductions
63 Best in Class Awards for global performance*
Global Custodian Prime Brokerage Survey 2010

“…the force is with Bank of America Merrill Lynch again.”

Global Custodian
“[Bank of America Merrill Lynch]… head and shoulders above the others we have used in every possible aspect.”
PB Client in GC Survey
“Product offering has gone from strength to strength over the last few years.”
PB Client in Global Investor/isf Survey
“...when the environment turned against us they stood shoulder to shoulder supporting us through the tough times.”
PB Client in Global Investor/isf Survey

* Considering best in class equivalent to #1

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Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.

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You should review carefully any materials provided and any statements made by a fund or its manager and should perform whatever due diligence you and your advisers deem appropriate.

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 BofA Merrill Lynch has or may develop business relationships with and does or hopes to earn fees and commissions from these managers and funds. Through those relationships it may possess information about a manager or fund. Even if it has this information,
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(a) the person is a sophisticated or professional investor for the purposes of section 708 of the Corporations Act 2001 (Cwlth) (“Corporations Act”); and

(b) the person is a wholesale client for the purpose of section 761G of the Corporations Act.

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Financial Service Act and Consob Regulation No. 11971 of 14th May 1999, and (ii) all other Italian securities tax and exchange controls and any other applicable laws and regulations, all as amended from time to time.For investors located in Japan, any
information or written material prepared and issued by the fund or the manager are limited to (a) information of macro economy or finance in nature or (b) generic information of the fund which are related to the basic policies or strategies of the fund or the manager.

Please contact a placement agent or distributor in the fund for offering document of the fund or any marketing materials. Also please note that interests in the fund have not been and will not be registered under the Financial Instruments and Exchange Law of
Japan (Law No. 25 of 1948, as amended) and, accordingly, it will not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person
except under circumstances which will result in compliance with all applicable laws, regulations and guidelines promulgated by the relevant Japanese governmental and regulatory authorities and in effect at the relevant time. For the purposes of this paragraph, a
"Japanese Person" means a resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Control Law (Law No. 228 of 1949, as amended).

For investors located in the Netherlands, the Units or Shares, as the case may be, will not be offered or sold, directly or indirectly, in the Netherlands, other than to qualified investors, all within the meaning of article 1:12, and in the case of closed-ended
investments schemes only, 5:3 of the Netherlands Financial Supervision Act (Wet op het financieel toezicht) and article 4 of the Financial Supervision Act Exemption Regulation (Vrijstellingsregeling Wft). In respect of the offering, the management company of the
Fund does not require a license as a collective investment scheme pursuant to the Financial Supervision Act and is not subject to market conduct supervision of the Netherlands Authority for the Financial Markets and prudential supervision of the Dutch Central
Bank (De Nederlandsche Bank N.V.).

For investors located in the People's Republic of China ("PRC" or "China", which, for the purpose of this document only, excludes Hong Kong, Macao and Taiwan), the funds described in this document may not be offered or sold directly or indirectly within the
PRC. The offering document of the funds described in this document or any information contained or incorporated by reference herein relating to the funds does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. The
offering document of the funds described in this document, any information contained herein or the funds described in this document have not been, and will not be, submitted to, approved by, verified by or registered with any relevant governmental authorities in
the PRC and thus may not be supplied to the public in the PRC or used in connection with any offer for the subscription or sale of the funds in the PRC. The funds described in this document may only be offered or sold to the PRC investors that are authorised to
engage in the purchase of the funds of the type being offered or sold. Investors are responsible for obtaining all relevant governmental approvals, verifications, licences or registrations (if any) from all relevant PRC governmental authorities, including, but not
limited to, the State Administration of Foreign Exchange, the China Securities Regulatory Commission, the China Banking Regulatory Commission, and other relevant regulatory bodies, and complying with all relevant PRC regulations, including, but not limited to,
any relevant foreign exchange regulations and/or overseas investment regulations.

For investors located in the Republic of Korea, the offering document of the funds described in this document is not, and under no circumstances is, to be construed as, a public offering of securities in Korea. Neither the fund, the fund manager nor BofA Merrill
Lynch makes any representation with respect to the eligibility of any recipients of this document to acquire the interests of the fund under the laws of Korea, including but without limitation the Foreign Exchange Transaction Act and regulations thereunder. The
interests of the fund have not been registered under the Financial Investment Services and Capital Markets Act of Korea and none of the interests of the fund may be offered, sold or delivered, directly or indirectly, or offered or sold to any person for re-offering or
resale, directly or indirectly, in Korea or to any resident of Korea except pursuant to applicable laws and regulations of Korea.
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Bank of America Merrill Lynch

 For investors located in Singapore, the offering document of the funds described in this document may not have been registered as a prospectus with the Monetary Authority of Singapore ("MAS") under the Securities and Futures Act, Cap. 289 of Singapore (the
“SFA”) and the funds may not have been authorized or recognized by the MAS. Accordingly, the units or shares of the funds may not be offered to the Singapore retail public and may not be offered or sold, nor may the units or shares of the funds be the subject of
an invitation for subscription or purchase, nor may this document or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the units or shares of the funds be circulated or distributed, whether directly or
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For investors located in Spain in respect of Open-ended non-UCITS funds, the Funds have not been registered with the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores). Accordingly, the Funds may only be offered in Spain or
targeted at Spanish residents pursuant to and in compliance with Law 35/2003, on CIS, Royal Decree 1309/2005 and any regulation issued thereunder.

For investors located in Switzerland, the funds described in this document may not have been authorised by the FINMA as a foreign collective investment scheme pursuant to Article 120 of the Swiss Federal Act on Collective Investment Schemes of June 23, 2006
(“CISA”). Accordingly, none of the units/shares of such funds may be sold, marketed or otherwise distributed in or from Switzerland by way of public advertising within the meaning of CISA and its implementing ordinances and notices, each as amended from time
to time, and no offering material relating to any of the units/shares of such funds may be used in connection with any such offer or distribution. Investors cannot avail themselves of the protection afforded by CISA.

For investors located in the United Kingdom, these materials are only directed at persons who are investment professionals under Article 14 of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001
and the investment or investment activity to which these materials relate is only available to and will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely upon the contents of
these materials.

This information is not a publication of BofA Merrill Lynch Research (BofAML Research), although a BofAML Research report may be referenced as a link or as an attachment hereto. Any summary of BofAML Research is qualified in its entirety by the views of
BofAML Research and the specific disclaimers associated with that report. This information is for discussion purposes and neither the information nor any opinions expressed constitutes a solicitation by us for the purchase or sale of any securities or other financial
instruments.

BofAML and its affiliates do not operate as a banking entity in all jurisdictions. Some products and services may not be available in all jurisdictions or to all clients. Where products are not regulated by the FSA, this will be made clear. BofAML reserves the right to
monitor electronic communications (subject to and in accordance with local laws).

Issued and approved by Merrill Lynch International, 2 King Edward Street, London EC1A 1HQ
© 2010 Bank of America Corporation. All rights reserved. Additional Terms and Conditions available on: http://corp.bankofamerica.com/public/public.portal?_pd_page_label=support/termsconditions/default&icamefrom=cihome and
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Bank of America Merrill Lynch