Alteram Optimal Equity: Enhancing a Core-Satellite Model with Hedge Funds François Rimeu, Co-Manager, UFG Alteram EDHEC Alternative Investment Days London 10 December 2008 1
Summary Company overview 3 Crédit Mutuel 4 Groupe UFG 5 UFG Alteram 6 Alteram Optimal Equity: Implementation & Results 8 Implementation 9 Funds selection process / Targeted profiles 10 Satellite: Construction & Objective 11 Satellite Monitoring 12 Results 17 AOE vs EuroStoxx 50 Index 18 Satellite Performance 19 Satellite vs Core portfolios 20 Weighting / Betas Evolution 21 Alteram Optimal Equity : Ranking 22 2
Company Overview Crédit Mutuel - Groupe UFG - UFG Alteram 3
Crédit Mutuel A first-class reference 2 nd retail bank in France Over 15 million clients Over 5 000 agencies Over 60 000 professionals Credit rating S&P: AA- / A1+ Fitch: AA- / F1+ Moody s: Aa3 / P1 Crédit Mutuel Nord Europe, parent company of Groupe UFG, 3 rd larger division of Crédit Mutuel 4
Groupe UFG A Multi-Specialist Investment Company Sole asset management of Crédit Mutuel Nord Europe Four investment expertises located in dedicated units Real estate investment UFG Real Estate Managers Funds of hedge funds UFG Alteram Private equity UFG Private Equity Long only asset management UFG Investment Management One goal: To provide investors with a relevant range of investment alternatives to so-called traditional asset classes One Group: Over 450 professionals sharing expertise and resources One philosophy: Independence through interdependence 5
UFG Alteram A leading French FoHF Manager Launched in 2001 1.7bn under management A reputed and experienced team A comprehensive range of extremely diversified low-volatility FoHFs Relevant approach implemented through a quality process 6
UFG Alteram Competitive Advantages A sizeable and experienced team of hedge funds specialists covering Fund selection (Sourcing, analyses ) Portfolio construction Legal and Operations Risk budgeting and control A renowned team having access to the best-in-class French-regulated vehicles, proof of overall well-assessed risk framework A risk-budgeting approach that has proven its worth in delivering attractive risk-adjusted returns A state of the art IT infrastructure 7
Implementation & Results 8
Implementation 9
Fund Selection Process UNIVERSE REQUESTED DATA DISCRIMINATING OUTPUTS Track record < 24 months Assets > $100m Funds identification: name, strategy, date, launch Track record < 52 weeks Liquidity criteria Style Drift Significant Events Capacity criteria 120 Hedge Funds Historical returns Historical exposures to risk factors Investment Capacity Specific Events Directional Funds : Consistent exposure to factors not linked to European equity market (interest rates, credit, exposure to non European equities factors ) 25 Eligible Funds Liquidity An unstable beta to European equity market Non directional funds : Consistent exposure to risk factors (equity, interest rate, credit) which challenges the Market Neutral character of the fund Targeted strategies in Alteram Optimal Equity : Long / Short Europe Market Neutral : uncorrelated equity strategies. No correlation vs equities market, rate, credit and commodities is shown 10
Satellite : Construction & Objective Construction in-sample / out-sample of a 8 to 12 funds portfolio under constraints to fit to the required profile The optimisation is realised via AlternativeSoft which allows constructing efficient frontier according to various goals: minimization of volatility, modified Value at Risk, Conditional Value at Risk or max DrawDown. Main constraints: Constraints Minimum Maximum Weight N/A 2.5/ Nbr of funds Period / Length 24 months N/A Number of underlyings 8 12 The main criterion is minimization of CVaR Objective of the satellite: Positive correlation with the European equities market Stable α Not volatile β and easy to valuate Cf: slide results 11
Satellite Monitoring The monitoring of the satellite is set up at different levels: Weekly monitoring of each HFs beta: Date Fund 1 Fund 2 Fund 3 Fund 4 Fund 5 Fund 6 Fund 7 Fund 8 Satellite net exposure 18/09/2008 3.94% 28.00% -15.90% 31.00% 0.30% -4.87% 18.20% 39.44% 11.99% 25/09/2008 2.95% 25.00% -12.50% 38.00% 0.70% -2.85% 18.40% 38.51% 12.37% 02/10/2008 3.51% 32.00% -11.40% 34.00% -1.50% -2.81% 18.90% 37.96% 12.36% 09/10/2008 3.84% 21.00% -10.80% 26.00% 0.90% -3.69% 22.60% 31.12% 9.72% 16/10/2008 3.84% 17.00% -8.50% 25.00% 1.80% -2.57% 16.50% 33.53% 9.72% 23/10/2008 3.11% 15.00% 2.50% 31.00% 0.10% 0.54% 18.60% 26.87% 10.27% 30/10/2008 4.59% 13.00% 3.10% 30.00% -2.50% 2.51% 20.40% 24.53% 10.33% 06/11/2008 5.11% 7.00% -0.80% 34.00% 2.60% 2.73% 26.90% 21.18% 9.84% 13/11/2008 3.01% 12.00% 2.00% 38.00% 2.80% 1.21% 32.80% 24.28% 12.36% 20/11/2008 2.10% 8.00% 6.50% 39.00% 3.50% 1.89% 33.60% 21.29% 12.11% 27/11/2008-0.20% 11.00% 8.00% 38.00% 0.80% 0.51% 34.50% 23.56% 12.11% 12
Satellite Monitoring The monitoring of the satellite is set up at different levels: Monitoring of Satellite vs Core s performances on a weekly basis: Date Performance Performance Weight Weight Performance Satellite Fund Satellite Core Core 11/09/2008-0.87% -1.84% 53.08% 74.86% -1.84% 18/09/2008-1.16% -5.89% 55.44% 75.47% -6.95% 25/09/2008-1.60% 4.42% 57.78% 72.17% 7.41% 30/09/2008-0.96% -4.29% 54.05% 77.22% -4.88% 02/10/2008-0.62% -1.31% 54.05% 75.17% -1.30% 09/10/2008 0.39% -10.50% 57.04% 74.61% -14.37% 16/10/2008-2.56% -6.55% 64.39% 66.33% -7.39% 23/10/2008 0.69% 1.76% 64.51% 63.25% 2.07% 31/10/2008 0.71% 4.34% 64.73% 63.42% 6.12% 07/11/2008 0.56% 0.36% 64.73% 67.42% -0.01% 14/11/2008 0.03% -3.56% 66.32% 66.28% -5.41% 21/11/2008-0.89% -8.52% 68.56% 62.17% -12.73% 13
Satellite Monitoring The monitoring of the satellite is set up at different levels: Adjustment related to the model according to cushion size (between 18:00 and 18:30 each Thursday) Date 14/11/2008 β Ptf 0.706 Cum. Return PF -25.31% Cum. return diff 3.99% Cum. Return Bench -29.30% Weight Satellite/NAV 68.56% Cushion / NAV 10.32% Weight Futures/NAV 62.17% Cushion 2 474 816 Sell Futures Order Futures exposures 14 905 039 131 461 14
Satellite Monitoring The monitoring of the satellite is set up at different levels: Monthly monitoring of each HF s risks integrated into UFG Alteram process (1/2): Date Fund AUM USD Status Long exposure Short exposure Gross exposure Net exposure Nb of long Positions Nb of short positions Net exposure Top 5 Long Financials Net exposure IT 31/12/2007 632.0 Hard closed 78.20% 57.70% 135.90% 20.50% 90 128 10.00% -4.70% 2.40% 31/01/2008 646.0 Hard closed 78.50% 79.80% 158.30% -1.30% 84 138 10.60% -8.40% 1.70% 29/02/2008 698.0 Hard closed 78.90% 83.10% 162.00% -4.20% 79 158 13.40% -9.30% 2.80% 31/03/2008 863.0 Hard closed 79.40% 70.40% 149.80% 9.00% 80 144 11.30% -7.00% 4.70% 30/04/2008 946.0 Hard closed 68.50% 58.30% 126.80% 10.20% 82 138 10.30% -5.90% 4.80% 31/05/2008 987.0 Hard closed 64.10% 53.50% 117.60% 10.60% 79 140 10.20% -4.10% 4.50% 30/06/2008 1034.0 Hard closed 56.60% 40.10% 96.70% 16.50% 79 133 9.50% -4.10% 4.70% 31/07/2008 1061.0 Hard closed 57.90% 43.40% 101.30% 14.50% 73 129 10.60% -2.20% 4.60% 31/08/2008 962.0 Hard closed 66.30% 39.50% 105.80% 26.80% 80 129 10.50% 1.70% 5.60% 30/09/2008 885.0 Soft Closed 60.30% 37.10% 97.40% 23.20% 88 134 11.20% 0.80% 5.80% 31/10/2008 733.0 Soft Closed 57.50% 39.20% 96.70% 18.30% 87 147 10.30% 7.90% 4.60% 15
Satellite Monitoring The monitoring of the satellite is set up at different levels: Monthly monitoring of each HF s risks integrated into UFG Alteram process (2/2) Date Net exposure Healthcare Net exposure Consumer Disc. Net exposure Industrials Net exposure Consumer Staples Net exposure Energy Net exposure Utilities Net exposure Telecom Net exposure Materials 31/12/2007 0.00% -7.70% 13.50% 0.00% 8.60% 0.00% -0.70% 9.20% 31/01/2008 0.00% -23.20% 12.30% 0.00% 7.60% 0.00% -0.40% 9.10% 29/02/2008-0.10% -25.30% 12.20% 0.00% 5.60% 0.00% -0.20% 10.10% 31/03/2008 0.80% -28.60% 23.80% 0.00% 6.40% 0.00% -0.10% 9.00% 30/04/2008 0.60% -23.70% 24.50% 0.00% 5.50% 0.00% -0.10% 4.50% 31/05/2008-0.40% -12.70% 12.00% 0.00% 6.30% 3.90% -2.40% 3.60% 30/06/2008 1.60% -8.60% 11.20% 0.00% 6.50% 3.60% -1.00% 2.60% 31/07/2008 2.00% -11.10% 13.00% 0.00% 5.40% 1.60% -2.10% 1.90% 31/08/2008 1.60% -7.20% 16.10% 0.00% 6.00% 0.60% 0.80% 1.60% 30/09/2008 1.90% -3.00% 11.10% 0.00% 3.60% -0.20% 1.50% 1.70% 31/10/2008 1.40% -6.20% 6.70% 0.00% 1.50% -0.10% 0.80% 1.70% 16
Results 17
Jun-08 Aug-08 Oct-08 Results AOE vs EuroStoxx 50 Index 140 Alteram Optimal Equity EuroStoxx 50 Index 130 120 110 100 90 80 70-19.29% -27.58% 18 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08
Oct-08 Results Satellite Performance 130 Satellite Edhec Long Short Equity Index Eurekahedge Long Short Equity Index 125 120 115 110 105 100 95 90 85 +5.42% -2.76% -11.35% 19 Mar-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08
Jun-08 Aug-08 Oct-08 Results Satellite vs Core portfolios 140 130 120 110 100 90 80 70 60 20 Apr-08 Satellite Core +5.42% -33.98% Mar-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08
Aug-08 Sep-08 Nov-08 Results Weighting / Betas Evolution 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 21 May-08 Jul-08 Feb-06 Apr-06 May-06 Jul-06 Aug-06 Oct-06 Nov-06 Jan-07 Feb-07 Apr-07 May-07 Jul-07 Aug-07 Oct-07 Nov-07 Jan-08 Feb-08 Apr-08 Satellite weight Core weight Satellite Beta Fund Beta
Ranking 22
Ranking Relative to the Equity Europe Category, Alteram Optimal Equity is fairly positioned during the considered periods: oct-08 AOE RANKING* Returns Rank Qtl Volatilty** Rank Qtl 6M -27.56% 102/344 2 23.90% 42/344 1 1 year -37.48% 83/331 2 19.97% 32/331 1 2 years -28.78% 25/279 1 16.14% 17/279 1 *Universe: French regulated funds (Equity Europe :Lipper category) ** Annualised volatility 23
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