This presentation is only for qualified investors attending the Liquid Alternative event. The importance of liquid alternatives in a portfolio context Industry Overview Schroder GAIA & GAIA II Update Andrew Dreaneen Head of Schroder GAIA Product & Business Development For professional investors and advisers only.
Agenda Global hedge fund landscape Drivers for hedge fund allocations and common misconceptions Available strategies & setting a framework Thoughts and considerations for choosing UCITS hedge funds Schroders capabilities in liquid alternatives Conclusions 1
Global hedge fund landscape
Global hedge fund assets Source: HFI Global Autumn Review 2016 3
Global hedge fund assets Source: HFI Global Autumn Review 2016 4
Drivers for hedge fund allocations and common misconceptions
Demand for Alternatives Substantial growth forecasted over the next five years Global alternative assets (US$ in trillions) by asset class type Global alternative assets (US$ in trillions) by sector Global alternative assets (US$ in trillions) by region 20,0 20,0 20,0 18,0 16,0 14,0 14.6 18.1 2.1 Commodities Liquid alternatives Institutional loans 18,0 16,0 14,0 14.6 18.1 2,5 Sovereign wealth funds Insurers High-net-worth 18,0 16,0 14,0 14.6 18.1 1.0 Middle East and Africa Latin America Asia-Pacific 12,0 10.8 Real estate 12,0 10.8 12,0 10.8 10,0 8,0 8.1 0.9 4,8 Hedge funds 10,0 8,0 8.1 1,5 5,6 Mass affluent 10,0 8,0 8.1 0.5 Europe 6,0 4,0 3,2 6,0 4,0 2,8 Pension funds 6,0 4,0 North America 2,0 Private equity 2,0 2,0 0,0 2012 2015F 2018F 2020F 0,0 2012 2015F 2018F 2020F 0,0 2012 2015F 2018F 2020F Source: Strategy and PWC 2015 6
$Bn Club of UCITS Absolute Return Investors Reasons for Allocating Investment considerations for Allocating Simply look for outperformance ; 22% Reduced duration risk; 2% Providing uncorrelated returns to overall portfolio; 55% S&P 500 MSCI World MSCI AC Asia Pacific ML High Yield index HFRI Egerton 0.47 0.50 - - 0.68 Sirios 0.42 0.47 - - 0.60 Indus - 0.66 0.79-0.74 Paulson 0.24 0.28 - - 0.39 Managing cash to offset illiquid instruments; 7% BSP - - - 0.03 0.08 NGA 0.54 - - 0.71 0.65 Substitute for fix income exposure; 8% Reduce equity beta; 6% BlueTrend 0.00 0.03-0.03 0.14 Two Sigma* -0.23-0.23 - -0.18-0.16 Cat Bond -0.08-0.02-0.09-0.02 Source: Morgan Stanley Absolute Return UCITS Survey Results November 2015. 155 Respondents with Absolute Return UCITS AUM: $91bn Source: Schroders as at 30 September 2016 (strategy inception for each manager). *Please not Two Sigma is based on simulated returns, please refer to the full simulated performance disclaimers at the back of the presentation 7
% AUM # Products AUM (USDbn) Examples Who are the main providers of liquid alternatives today? AUM dominated by Asset Managers 75%: but Hedge Fund Managers now 25% Long Only Asset Managers Convergence Asset Managers Hedge Fund Managers Using distribution capabilities to build alternatives businesses Marketing HF expertise to UCITS investor base 93.2 60.1 50.6 58 207 185 45.7% 29.5% 24.8% 8 Source: HFR, HFI, Strategic Consulting analysis, as at 30 September 2015.
The $5 billion dollar hedge fund club Many of the largest hedge fund managers now available in UCITS US Based Managers Abrams Capital Management GMT Capital Adage Capital Management GoldenTree Asset Management Anchorage Capital Group Greenlight Capital Angelo, Gordon & Co. HBK Capital Management Apollo Management Highfields Capital Management Appaloosa Management JANA Partners Avenue Capital Group Kayne Anderson Capital Advisors Bain Bain Capital/Brookside Capital Partners King Street Capital Management Balyasny Asset Management Lone Pine Capital Baupost Group Luxor Capital Group Blue Ridge Capital Magnetar Capital BlueMountain Capital Management Marathon Asset Management Bracebridge Capital Mariner Investment Group Bridgewater Associates Mason Capital Management Carlson Capital Millennium Management Caxton Associates Monarch Alternative Capital Centerbridge Partners Moore Capital Management Cerberus Capital Management MSD Capital Citadel Pennant Capital Management Coatue Capital Perry Capital Convexity Capital Management Pershing Square Capital Management Corvex Management Pine River Capital Management D.E. Shaw Group PointState Capital Davidson Kempner Capital Management Renaissance Technologies Discovery Capital Management Samlyn Capital DW Partners Scopia Capital EJF Capital Senator Investment Group Element Capital Silver Point Capital Ellington Management Group Soroban Capital Partners Elliott Management Corporation Steadfast Capital Management Emerging Sovereign Group Taconic Capital Advisors Eton Park Capital Management Third Point Farallon Capital Management Tiger Global Management Fir Tree Partners Trian Fund Management First Quadrant ValueAct Capital Management Glenview Capital Management Viking Global Investors AQR Capital Management Maverick Capital Beach Point Capital Management MKP Capital Management Blackstone Group/GSO Capital Partners Och-Ziff Capital Management Group Canyon Capital Advisors Omega Advisors Fortress Investment Group Paulson & Co. Graham Capital Management Tudor Investment Corp Grantham, Mayo, Van Otterloo Two Sigma Investments Halcyon Asset Management Visium Asset Management Indus Capital Partners York Capital Management 20% 75% UK Based Managers Capula Investment Management LLP Lansdowne Partners The Children's Investment Fund AKO Brevan Howard Asset Management LLP Cheyne Capital Management CQS (UK) LLP Egerton Capital Marshall Wace LLP Odey Asset Management Winton Capital Management Limited Man GLG Source: Schroders analysis and HFI data based on US and UK headquartered hedge fund centric managers with $5bn+ AUM data as at 01 January 2015. Those launched UCITS funds in blue as at 31 May 2016. 9
Despite limitations, liquid alts can provide similar benefits to hedge funds Performance comparison UCITS vs. offshore hedge funds 30% Opportunity set 20% 10% Number of funds HFRI HFRU 2,200 500 0% -10% Regulatory regime Flexible UCITS -20% -30% 2008 2009 2010 2011 2012 2013 2014 2015 2016 HFRI Fund Weighted Composite Index Industry performance HFRU Hedge Fund Composite Index Index YTD 2016 F/Y2015 F/Y 2014 Traditional Hedge Fund HFRI Offshore Hedge Fund Weighted Composite Index Liquid Alternatives HFRU UCITS Hedge Fund Composite Index Source: HFR as of 30 September 2016 10 Annualised Return Annualised Volatility Drawdown Months to Recover Correlation to S&P 500 (5 years) 4.2% -1.1% 3.0% 2.6% 6.4% -20.1% 14 0.85 0.5% 1.5% 4.7% 1.9% 3.3% -6.3% 10 0.68
Available strategies & setting a framework
A broad range of liquid alternatives strategies are now available Main constraints: liquidity, leverage and eligible assets 49 59 41 61 32 14 25 24 106 112 233 Long / Short Equity Global Macro Fixed Income Equity Market Neutral CTA Emerging Markets Multi-Strategy Event-Driven Currency Volatility Commodities Source: Morningstar, Citywire, Alix Capital, Kepler. As at 31 July 2015. 12 Morningstar 443 Funds, 19 Categories 18 27 16 28 11 14 15 16 28 4 2 1 1 11 30 37 88 39 Alix Capital 756 Funds, 11 Categories 57 Multi-Strategy Long / Short Debt Fund of Funds Multi-Strat Long / Short Equity Global Long / Short Equity Europe Global Macro Market Neutral Equity Systematic Futures Long / Short Equity US Long / Short Equity Emerging Markets Long / Short Equity UK Currency Event Driven Debt Arbitrage Volatility Fund of Funds Equity Diversified Arbitrage Fund of Funds (other) Long / Short Equity (other) Citywire 675 Funds, 13 categories 55 41 57 30 30 13 8 6 31 32 31 20 26 60 20 11 7 46 74 2 1 1 57 189 Kepler 417 Funds, 13 Categories 90 154 Long / Short Equity Bond Strategies Fund of Funds Market Neutral Multi-Strategy Global Macro Managed Futures Event Driven Currency Voltatilty Emerging Market Equity Commodities Convertibles Equity Long / Short Credit Global Macro Managed futures Market Neutral Multi-Strategy Event Driven Multi-Asset Currency Volatility Commodities Replication Strategies Statistical Arbitrage
Evolution of portfolio construction with liquid alternatives A simple but effective approach to diversification Equity Fixed Income Other Core Small/Mid/Large Cap Growth/Value/Blend Sector Specific Sovereign Investment Grade High Yield Aggregate Cash Equity diversifiers: Bond diversifiers: Portfolio diversifiers: Liquid Alternatives Equity Long Short Market Neutral Absolute Return Credit Long Short Relative Value Event Driven CTA/Macro Catastrophe Bonds Source: Schroders as at 30 September 2016 13
Liquid alternatives Equity Diversifiers Return 6,00% 5,00% Long equity index with Sirios 4,00% Long equity index with equity long short 3,00% 2,00% 1,00% Long equity index 0,00% 4,00% 6,00% 8,00% 10,00% 12,00% 14,00% 16,00% 18,00% Volatility Annualised Return Annualised Volatility Sharpe Ratio Maximum Drawdown Correlation* 100% World Stocks 1.71% 15.67% -0.04-55.37% - 50% World Stocks, 50% Equity Hedge Fund Index 3.82% 11.87% 0.13-44.08% 0.84 50% World Stocks, 50% Schroder GAIA Sirios US Equity 5.32% 10.72% 0.29-37.07% 0.47 Schroders, as at 31 March 2016 * Correlation given between World Stocks and Equity Hedge Fund Index, and World Stocks and Schroder GAIA Sirios US Equity. Source: World Stocks: MSCI World, Equity Hedge Fund Index :HFRI Equity Hedge, GAIA Sirios: From July 1999 to February 2013 the Sirios offshore fund is used, from March 2013 onwards Schroder GAIA Sirios US Equity C Acc USD is used 14
Liquid alternatives Portfolio Diversifiers - CTA Return 6% 5% Traditional portfolio with BlueTrend 4% 3% 2% Traditional portfolio with CTA index Traditional portfolio 1% 0% 4,00% 4,50% 5,00% 5,50% 6,00% 6,50% 7,00% 7,50% 8,00% Volatility Annualised Return Annualised Volatility Sharpe Ratio Maximum Drawdown Correlation* 20% Cash, 40% World Stocks, 40% World Bonds 3.59% 7.37% 0.25-25.97% - 32% World Stocks, 32% World Bonds, 16% Cash, 20% CTA Index 3.62% 6.16% 0.30-19.24% 0.05 32% World Stocks, 32% World Bonds, 16% Cash, 20% Bluetrend 5.13% 6.81% 0.49-16.43% 0.12 Schroders, as at 31 March 2016 *Correlation given between a portfolio of 20% Cash, 40% World Stocks, 40% World Bonds and CTA index, followed by Bluetrend. Source: Cash :USD 1M LIBOR, World Stocks: MSCI World, World Bonds: Barclays Global Aggregate, CTA Index: Newedge CTA Index, Bluetrend: BlueTrend Fund Limited (Class A USD) inception date was 1 April 2004. The management fee for Class A Shares was 1.5% from inception to 30 June 2011 and 2% from 1 July 2011 to 31 July 2014. 15
Thoughts and considerations for choosing UCITS hedge funds
UCITS Hedge Fund vs. Offshore Hedge Fund High level considerations Prime broker Eligible Assets UCITS hedge fund Requirement to have an independent custodian so typical prime broker arrangement is not possible Prescribed includes by of way of example cash, transferable securities, derivatives, funds Offshore hedge fund Prime broker Flexible Commodities, Property Excludes commodity futures, limited to equities, ETFs, and financial indices Can also invest in derivatives on individual commodities, properties, and physical property/commodities Borrowing Limited to 10% on a temporary basis Can borrow e.g. up to 200% on a permanent basis Leverage 200% global exposure or prescribed VaR limit Flexible Short sales Short sales not permitted, can only seek short exposure via derivatives Short sales permitted Diversification 5/10/40 Flexible Minimum dealing/ valuation frequency Twice monthly (typically weekly) Annually although most monthly or quarterly 17
Rigorous manager selection process and monitoring Overview Strategy selection Investment due diligence Operational due diligence Ongoing risk management Source: Schroders, 30 September 2016 18
Strategy selection Offering products that fit within the UCITS framework Source: Schroders as at 30 September 2016. Note: this chart is meant to be indicative only. There will be different types of funds within each of these strategies which may or may not be eligible for UCITS. Each hedge fund needs to be evaluated on a case by case basis. Sophisticated UCITS funds can potentially permit high leverage, so long as VaR limits are respected 19
Investment manager selection Full due diligence performed based on key requirements for a given strategy Investment due diligence Experience Track record and skill Investment process Integrity Size Reputation Preliminary regulatory compatibility assessment Risk management capabilities Fit with regulatory requirements Investment diversification rules Asset eligibility Market & liquidity risks Operational due diligence Initial review of available regulatory, marketing, and personnel materials Full documentation review covering all key business areas Onsite visit including thorough validation of all points and processes raised in the documentation review GAIA Investment Committee Source: Schroders, as at 30 September 2016 20
Group due diligence Independent group due diligence process Pre-full DD review Full DD and RFI review Onsite review DD conclusion and ongoing monitoring Full background check review on entire firm and employees Initial high level RFI Key financial and insurance policy verification undertaken Internal stakeholder review and sign off Detailed review of: Organisational structure Investment risk/operational risk framework including capabilities of managing a regulated fund Compliance: Key policies and procedures to be provided Operation: How a fund is managed in a regulated environment Full IT/Security/BCP to ensure minimum Schroders/industry best practices A full review and discussion with the investment manager On-desk review of endto-end processes. Testing of processes and output validation Challenging the RFI responses where appropriate (based on internal review) Explanation of how GAIA operates and how the Manager will need to adapt to its framework Post DD visit, conclusion report issued to senior management Integration planning and launch of product commences with Lux and Manager Group policy dictates annual RFI review with an on-site visit every two years Source: Schroders, as at 30 September 2016 21
Schroder GAIA risk management framework Several layers of risk management oversight for each hedge fund NGA Governance meetings Monthly GAIA risk meetings Monthly monitoring by Schroder GAIA Investment Committee Quarterly monitoring by Schroder GAIA II Board Operational due diligence Initial detailed operational due diligence On-going monitoring of original due diligence findings Annual update of initial report, biennial formal update including on site visit Investment manager risk controls Pre-trade compliance Daily reviews Portfolio limits/risk controls (leverage, liquidity, sector, single position, VaR) Independent regulatory risk and compliance monitoring Post-trade compliance monitoring Investment risk monitoring: counterparty risk, liquidity, global exposure, VaR Independent daily risk oversight Performed by specialist hedge fund analysts in conjunction with multi asset risk team Investment guidelines/stress tests/style drift/exposures/performance Robust risk management with independent oversight and governance Source: Schroders, 30 September 2016 22
Extensive global and local distribution support Over 250 distribution professionals servicing clients in >30 countries Brazil Colombia Chile Peru Panama Uruguay Argentina Mexico US offshore Netherlands Denmark Germany Switzerland Austria UK Luxembourg Spain Italy Portugal France Sweden Finland Norway Greece Belgium Ireland China Hong Kong Korea Japan Singapore Taiwan Israel Dubai Source: Schroders, as at 31 August 2016 23
Transparent client-friendly marketing materials Ensures investors are well informed Sales support Targeted fund information for investors globally Active support for global intermediary partners Comprehensive marketing information Fund launch video Dedicated website Monthly factsheets Quarterly letters Quarterly webcasts Peer analysis Specialised client reports Explanatory sales documents Source: Schroders, as at 30 September 2016 24
Introducing Schroder GAIA
Schroder GAIA and Schroder GAIA II Overview of sub-funds Schroder GAIA Launch date Manager Fund Strategy Geographic focus AUM (USD) 25 Nov 2009 Schroder GAIA Egerton Equity* Equity long short Global 1,377m 27 Feb 2013 Schroder GAIA Sirios US Equity Equity long short Predominantly US 1,366m 21 Oct 2013 Schroder GAIA Cat Bond Catastrophe Bonds Global 1,099m 25 Jun 2014 Schroder GAIA Paulson Merger Arbitrage Merger Arbitrage US, Canada and Western Europe 503m 17 Jun 2015 Schroder GAIA BSP Credit Credit long short Predominantly US 35m 9 Dec 2015 Schroder GAIA BlueTrend Trend Following Global 350m 6 Jul 2016 Schroder GAIA Indus PacifiChoice Equity long short Pan Asian including Japan 92m 24 Aug 2016 Schroder GAIA Two Sigma Diversified Schroder GAIA II Equity Market Neutral / Systematic Macro Predominantly US Launch date Manager Fund Strategy Geographic focus AUM (USD) 2 Mar 2016 Schroder GAIA II NGA Turnaround Distressed Predominantly US 12m 325m Source: Schroders as at 30 September 2016 *Hard closed, but subject to Capacity Restricted Dealing. Total AUM 5,159m 26
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014 2015 Schroder GAIA Egerton Equity Equity long short fund with significant outperformance over time Egerton Capital Limited: AUM $14.6bn Independent money management firm based in London, founded in 1994 by John Armitage Experienced investment team of 16 professionals Employee investments account for c. 7% of total firm assets Key to success is research-intensive stock picking. Bottom-up approach to stock selection creates a portfolio that is dynamic, eclectic, and uncorrelated Fund key features Fundamental long short equity fund, typically long-biased Straightforward, liquid strategy investing predominantly in large cap equities Opportunistically invest in corporate bonds Uses little or no leverage Reduces volatility through the use of alpha shorts, hedges (e.g. index put options) and cash Avoids large drawdowns Performance objective The strategy aims to deliver equity type returns with less volatility than the market over the medium to long term Performance analysis (Egerton s equity long short strategy*) 2000% 1500% 1000% 500% 0% Schroder GAIA Egerton Equity Strategy MSCI World Portfolio Manager John Armitage, Egerton Strategy* Index Inception date 25 November 2009 Annualised return 13.3% 6.7% Base currency EUR Annualised volatility 9.6% 14.0% Institutional share class fee 1.25%/20% Sharpe ratio 1.1 0.3 Liquidity Weekly (on Wed) and month end Maximum drawdown -28.3% -50.8% Source: Schroders and Egerton as at 31 August 2016. *Performance shown for chain-linked track record of Egerton long short Equity B1 USD since its inception in September 1994. Egerton s offshore fund has been used from December 1994 to November 2009. From December 2009 onwards Schroder GAIA Egerton Equity C Acc USD Hedged has been used. MSCI World Index is used. Performance is shown net of fees, NAV to NAV. 27
Egerton Long/Short vs. Schroder GAIA Egerton Equity Similarities and differences between GAIA Egerton UCITS and Cayman fund Investment manager Investment strategy Portfolio liquidity Leverage/ gross exposure Typical number of positions Long exposure (single securities) Short exposure (single securities) Options Egerton Long/Short John Armitage, Egerton Capital Market directional equity long short Schroder GAIA Egerton Equity Liquid portfolio focussed on mid/ large cap securities Max 150% Longs 40 60 positions Shorts 60 100 positions Mainly physical securities/ occasionally synthetic Mainly physical securities/occasionally synthetic Always synthetic (UCITS requirement) Occasionally used for hedging (single name and indices) 190 180 170 160 150 140 130 120 110 100 Institutional fees 1.00%/15% performance fee 1.25%/15% performance fee Dealing frequency Monthly (30 days notice) Weekly (3 days notice) Minimum investment $1m $500,000 90 nov/09 nov/10 nov/11 nov/12 nov/13 nov/14 nov/15 Schroder GAIA Egerton Equity C Acc EUR Egerton European Equity Fund Ltd - Class B The Egerton Long/Short strategy can operate comfortably within the UCITS framework. However, there will be performance divergence through time as a result of the differences outlined above Source: Sirios as at 30 September 2015 28
Schroder GAIA Paulson Merger Arbitrage Superior risk-adjusted returns that are uncorrelated to the broader markets Paulson & Co. AUM $11.1bn* Globally renowned hedge fund founded by John Paulson in 1994 Strategies include merger arbitrage, event-driven, credit and special situations. The merger funds have one of the longest and most successful track records, compounding at 11.2% over the last 22 years** Proven team of 54 experienced investment professionals consisting of both sector and M&A transaction specialists Performance objective The fund targets an absolute return of 8 10% net of fees Performance analysis (Paulson Partners LP**) 1400% 1200% Fund key features An absolute return focused merger arbitrage UCITS fund looking at opportunities in US, Canada and Europe Predominantly listed equities with opportunistic exposure to credit Aims to deliver returns in all market cycles by using different strategies. ie; cash/stock deals, topping bids, bankruptcies, restructurings High potential for alpha generation given sophisticated investment approach seeking unique and complex merger situations Capital preservation, low correlation to markets and low volatility just 2 down years since inception in 1994 and returned +7.9% in 2008 1000% 800% 600% 400% 200% 0% 1994 1996 1998 1999 2001 2003 2005 2006 2008 2010 2012 2013 2015 Schroder GAIA Paulson Merger Arbitrage Strategy Portfolio Managers John Paulson, Andrew Hoine, Jim Hoffman Inception Date 25 June 2014 Base Currency USD Institutional share class fee 1.25%/20% Liquidity Weekly (on Wed) and month end Ann. Ret. Ann. Vol. Correlation to Paulson Paulson Merger Arbitrage** 11.2% 9.5% 1.00 S&P500 9.5% 14.9% 0.24 HFRI Merger Arbitrage Index 7.1% 3.5% 0.43 Source: Schroders as at 31 August 2016. * Paulson as at 1 September 2016. **Inception July 1994. Performance shown for Paulson Partners LP from July 1994 until June 2014 and Schroder GAIA Paulson Merger Arbitrage C Acc USD has been used from July 2014 onward. Performance is shown net of fees, NAV to NAV. 29
Paulson Partners LP vs. Schroder GAIA Paulson Merger Arbitrage Main similarities and differences between GAIA Paulson UCITS and US Onshore fund Investment manager Investment strategy Portfolio liquidity Leverage/gross exposure Typical number of positions Paulson Partners LP John Paulson, Paulson & Co. Merger Arbitrage Schroder GAIA Paulson Merger Arbitrage Liquid portfolio focussed on mid/ large cap securities Leverage of up to 1.5x of the long market value in the portfolio and 2.0x of the long plus short market value in the portfolio 200% 30 60, diversified across geography, sector and instrument type 110 105 100 95 90 Long exposure (single securities) Mainly physical securities/occasionally synthetic Mainly synthetic securities/occasionally physical 85 Short exposure (single securities) Mainly physical securities/occasionally synthetic Always synthetic (UCITS requirement) 80 Asset classes Concentration Predominantly listed equity with opportunistic exposure to credit Issuer Size (at cost) <12% Issuer Size (at market) <18% Bank debt, commodities and private/restricted equity are not permitted within UCITS Restricted by UCITS 5/10/40 rule Fees 1.0%/20% performance fee 1.25%/20% performance fee Dealing frequency Minimum investment Quarterly (60 days notice) Weekly and month end (3 days notice) $5m $500,000 75 70 65 jun/14 dez/14 jun/15 dez/15 jun/16 Schroder GAIA Paulson Merger Arbitrage C Acc USD Pauslon Partners LP Source: Schroders and Paulson & Co. as at 31 July 2015 30
Jan-04 Aug-04 Mar-05 Oct-05 May-06 Dec-06 Jul-07 Feb-08 Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Schroder GAIA BlueTrend Diversified Systematic Macro Trend Following Strategy Investment Manager: AUM $9.5 bn* Systematica founded in January 2015 after a decade of experience within BlueCrest Capital Management Systematica manage total assets of $9.5bn, with $7.4bn in their trendfollowing strategy* Investment team headed by Leda Braga, former President and Head of Systematic Trading at BlueCrest Capital Management Fund key features Diversified systematic trend following fund, launched in April 2004 Extremely competitive track record with average annualised return of 10%, with 14% annualised volatility Positive in 9 out of the past 10 years Uncorrelated returns over time/delivered positive returns in both up and down markets Performed well in periods of prolonged market downturns like 2008 Trades the most liquid assets among equity, currency, commodity and fixed income Investment team Head Leda Braga Inception date 9 December 2015 Base currency USD Institutional share class fee 1.50%/20% Liquidity Weekly (on Wed) and month end Performance objective The fund aims to provide capital growth by adopting a pure systematic trend following strategy, across global markets, based on quantitative signals with multiple time horizons. It targets returns of 10-15%. Performance analysis (BlueTrend strategy**) 300% 250% 200% 150% 100% 50% 0% -50% BlueTrend HFRI Fund Weighted Composite Index Barclays Global Aggregate Bond Index MSCI World Strategy Annualised return 9.8% Annualised volatility 14.1% Maximum drawdown -22.1% Source: Systematica Investments and Schroders, as at 31 August 2016. * Systematica Investments, as at 1 August 2016. AUM data based on estimates, and is subject to change. Managed by BlueCrest Capital Management Group from inception to 1 January 2015 when Systematica Investments Limited (acting in its capacity as general partner of Systematica Investments LP) became the investment manager. **BlueTrend strategy refers to an SMA from January 2004 to March 2004 and BlueTrend Fund Limited (Class A USD) from 1 April 2004 to 31 December 2015. From 1 January 2016 onwards performance is provided for Schroder GAIA BlueTrend C Acc USD. Performance is shown net of fees, NAV to NAV. 31
BlueTrend vs. Schroder GAIA BlueTrend Main similarities and differences between GAIA BlueTrend UCITS and offshore fund Investment manager Investment strategy BlueTrend Master Fund Limited Schroder GAIA BlueTrend Systematica Investments Limited (acting as a general partner of Systematica Investments LP) Trend Following 115 110 Domicile Cayman Islands Luxembourg Portfolio liquidity Leverage/gross exposure Long/short exposures Asset classes Liquid and diversified portfolio across 200 markets 600% 2,300% Futures Commodities, FX, Bonds, Equity Indices 105 100 Government concentration No restrictions Government exposure replicated through IRS (no govt. exposure over 100% per UCITS regulations) 95 Fees 1.50% / 20% performance fee* 1.50% / 20%** performance fee 90 Dealing frequency Monthly (30 days notice) Weekly and month-end (3 days notice) 85 jan/16 mar/16 mai/16 jul/16 set/16 Minimum investment US$1m US$500,000* Schroder GAIA BlueTrend C Acc BlueTrend Offshore *For investments up to $75 million. **C share class. Please note these are the stated management and performance fees and do not include other administrative fees. Source: Schroders and Systematica Investments, as at 30 September 2016. 32
Conclusion Liquid Alternatives represent a new and rapidly growing asset class for investors Whilst UCITS has a number of constraints, many hedge fund strategies can be run comfortably within the framework Long short strategies make sense now to help diversify client portfolios Investors should consider blending long only strategies together with long short strategies, and include alternative funds within the core portfolio as opposed to an alternatives bucket Fund selectors should focus on established managers that have a proven track record of producing consistent risk adjusted returns Emphasis should be on strategies with uncorrelated returns streams, reduced volatility and proven downside protection Schroders offers a broad range of liquid alternative funds including a leading platform of external managers Source: Schroders, September 2016 33
Two Sigma Diversified simulated returns Methodology The return stream presented in the next slide seeks to reflect the simulated performance of a hypothetical portfolio focused on liquid strategies in US equity, futures and FX markets for the period referenced. Specifically, the hypothetical portfolio is constructed by allocating (a) 15% of the portfolio s capital in support of a managed futures portfolio (the Macro" portfolio) and (b) 85% of the portfolio s capital in support of an equity market neutral portfolio (the "Equity" portfolio, and together with Macro portfolio, the Adjusted Results ). The simulated performance of the hypothetical portfolio were then each further modified on a pro-forma basis to adjust performance and volatility based on certain historically-perceived variables: (i) volatility was adjusted by scaling the simulated performance of the hypothetical portfolio in a given year such that volatility is presented half-way between the hypothetical volatility result and targeted volatility (8.0%) and (ii) performance was discounted by subtracting 75% of the average monthly simulated performance of the Adjusted Results. In each case, Gross Returns of Class C Shares are gross of fees and estimated operating expenses and net of estimated trading expenses. "Net Returns of Class C Shares are net of a hypothetical 1.4% annualized management fee accrued and paid monthly in advance and a hypothetical 20% performance fee (or allocation) accrued monthly and paid annually (subject to standard high water mark, where applicable), but are gross of estimated operating expenses and net of estimated trading expenses. Please note that fees vary by share class and additional fees and fund expenses apply. The simulated strategy's settings or investment methodology may not be representative of any future portfolio due to, among other things, the addition or deletion of trading models, changes in optimization settings, changes in model weightings and other variables. The simulated and/or pro-forma performance results shown are for illustration purposes only as part of an ongoing business discussion with a sophisticated party and should not be relied upon when making an investment decision. Certain factors will likely cause the simulations to generate better performance than live trading of the associated strategy. These factors (which are further discussed on the last page of this report) include, but are not limited to, the following: (i) the simulations benefit from the use of the most recent models, research and optimizer settings used by Two Sigma (as defined below), all of which have been tested historically and in most cases have been fit to a period similar to the one shown and, therefore, benefit from portfolio settings that have been found to be optimal for such time period (e.g., more risk is taken in the simulations than would otherwise likely have been taken during periods of high volatility or deemed systemic risk); and (ii) the lack of operating expenses which, if included, would degrade performance in a compounded fashion over time. The last page of this document provides important details regarding these simulated performance statistics, which are subject to the explanations and disclaimers discussed therein. Past performance, especially simulated performance, is not an indicator or guarantee of future results 34
Important Information regarding simulated returns The simulated performance results shown above are for illustrative purposes only and were prepared for the recipient as part of ongoing discussions. Two Sigma Advisers, LP (the Investment Manager ) has worked with its affiliated investment adviser, Two Sigma Investments, LP (together with the Investment Manager, "Two Sigma") to engineer certain software that attempts to simulate the trading patterns that would have resulted had the Investment Manager utilized certain quantitative trading models over the period of January 1, 2005 through the date of this report. These simulated results should not be relied upon. These simulated results are based largely on historical information available from certain proprietary databases of Two Sigma compiled, in part, from multiple commercially available data sources, as well as certain assumptions made by Two Sigma about, among other things, trade execution, financing and market impact costs. While Two Sigma has expended considerable efforts attempting to clean and cross-check these inputs, Two Sigma cannot and has not independently verified the accuracy or completeness of such information, nor have the results of the simulation been independently verified or audited. Should any information used in the above simulation prove to be inaccurate, the simulated results themselves may be inaccurate. In addition, all simulated results have many inherent limitations. In particular, simulated results are often prepared with the benefit of hindsight, meaning models utilized in these simulations may have been developed explicitly with the benefit of data from the time period covered by these simulations. Additionally, simulated results do not involve financial risk or reflect actual trading under actual market conditions and do not reflect the ability to withstand losses or to adhere to an investment program despite trading losses. The simulation was also performed using only a finite number of variables. The actual performance of any trading program the Investment Manager ultimately elects to employ in the future will from time to time be dependent on, and influenced by, any number of factors, many of which (i) have not been taken into account in performing the simulation; (ii) are inherently difficult to quantify; and (iii) are outside the Investment Manager's control. Due to the nature of simulations, it is likely that actual trading performance will be materially lower than the simulated performance set forth herein. Simulations were run using Two Sigma's tradable universe of global futures, currencies, and equities that met proprietary inclusion criteria intended to foster, among other goals, adequate liquidity and issuer uniqueness, as well as a number of other factors. The tradable universe of global futures, currencies and equities, as well as trading models used by Two Sigma have evolved and are likely to continue to evolve over time. There can be no assurance that the trading program pursued by the Investment Manager on behalf of any of its investment products in actual trading will be the same or substantially the same as the ones that were subjected to the above simulation. Future performance may be affected by existing and/or new events or factors, which may or may not have played any material role in the past. Therefore no assurance or guarantee can be given that the actual trading results achieved using those strategies and/or models employed during this simulation, and/or others that are being used and/or may be used in the future, are or will be as successful and/or achieve the same results as those presented above. Past performance, especially simulated performance, is not an indicator or guarantee of future results. The results of the simulation are being provided to you by the Investment Manager solely to assist you in considering your potential interest in making an investment in a potential future investment product to be managed by the Investment Manager. In the event of any conflict between this document and the prospectus, the prospectus shall prevail. The securities discussed herein shall not be offered or sold, nor shall there be any solicitation of any offer to buy such securities, in any jurisdiction in which such offer, sale or solicitation would be unlawful until the requirements of the laws of such jurisdictions have been satisfied. An investment in any investment product is speculative and involves significant risk, including the risk of a total loss of capital. Opportunities for withdrawal or transfer of interests in a strategy may be limited and therefore an investor may not have access to its capital when it desires. This information is being furnished to the recipient on a confidential basis, is not intended for public use or distribution, and by accepting this file, you agree to keep confidential the existence of this document and the information contained herein. The recipient should not disclose, reproduce, distribute or otherwise make available the existence of and/or all or any portion of the information contained herein to any other person (other than its employees, officers and advisors on a need-to-know basis, whom the recipient will cause to keep the information confidential) without Schroders and the Investment Manager's prior written consent. 35
Important Information Risk Considerations For professional investors and advisers only. This material is not suitable for retail clients. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Important Information The views and opinions contained herein are those of Schroder Investment Management (Switzerland) AG, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. The data has been sourced by Schroders and should be independently verified prior to further publication or use. No responsibility can be accepted for errors of fact or opinion. This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder GAIA and Schroder GAIA II (the Companies ). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. The offering of shares in certain jurisdictions may be restricted and accordingly persons are required, by the Companies, to inform themselves of and observe any such restrictions. Subscriptions for shares of the Companies can only be made on the basis of its latest prospectus together with the latest audited annual report (and subsequent unaudited semi-annual report, if published). The prospectus, the key investor information document(s) for Switzerland (if available), the articles of association, the annual and semi-annual reports can be obtained, free of charge, at the offices of the Swiss representative, Schroder Investment Management (Switzerland) AG, Central 2, P.O. Box, CH-8021 Zurich (authorised and regulated by FINMA) and the Swiss paying agent, Schroder & Co. Bank AG, Central 2, P.O. Box, CH-8021 Zurich. Investments in the Companies entails risks, which are fully described in the prospectus. The Company has its registered office in Luxembourg and is regulated by the Commission de Surveillance du Secteur Financier. Past performance is no indication of future fund performance. This depends on the trends in markets, investment returns and exchange rates (if relevant), and how successful the asset manager is in implementing the investment policy. The performance shown does not take account of any commissions and costs charged when subscribing and redeeming units. Prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. This document is issued by Schroder Investment Management (Switzerland) AG, Central 2, 8001 Zurich For your security, communications may be taped or monitored. Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose without the data provider's consent. Third party data is provided without any warranties of any kind. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or www.schroders.ch contains additional disclaimers which apply to the third party data. 36
Important information This material was prepared by Schroder Investment Management, in response to a request from the client sent to Schroder and should not be understood as an analysis of any securities, advertising material, offer to purchase or sell, offer or recommendation of any financial assets or investment. The purpose of this material is exclusively informative and does not include investment objectives, financial conditions or the particular and specific needs of any shareholders or other investors. The opinions stated in this material pertain to Schroder and may change at any time. The opinions are based on the date of their submission and do not encompass any fact that may have arisen after this date, hence, Schroder is not compelled to update this material to reflect such provisions after the submission of the same. This material is for exclusive Financial Intermediary, Institutional and Consultant and should not be used as support material by other individuals. THIS MATERIAL IS HIGHLY CONFIDENTIAL AND SHOULD NOT BE REPRODUCED OR DISTRIBUTED, ENTIRELY OR PARTIALLY, TO PERSONS OTHER THAN THE ORIGINAL RECIPIENTS. The Fund and the distribution of the shares of the same are not registered at the Brazilian Securities Commission "CVM", and therefore do not meet certain requirements and procedures usually observed in public offerings of securities registered with the CVM, with which investors in Brazilian capital markets may be familiar. For this reason, the access of the investors to certain information regarding the Fund may be restricted. SCHRODER DOES NOT GUARANTEE PERFORMANCE. 37