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Montreal Exchange Canadian Annual Derivatives Conference August 17-19, 2005

Montreal Exchange Canadian Annual Derivatives Conference August 17-19, 2005 Fairmont Le Chateau Frontenac. Alternative Investment Management Association (AIMA). Global, not-for-profit trade association

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Montreal Exchange Canadian Annual Derivatives Conference August 17-19, 2005

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  1. Montreal Exchange Canadian Annual Derivatives Conference August 17-19, 2005 Fairmont Le Chateau Frontenac

  2. Alternative Investment Management Association (AIMA) Global, not-for-profit trade association Corporate membership: Europe, Asia, Australia, North America (Chapters in Australia, Canada, Hong Kong, Japan and South Africa) Non-commercial communication with institutional investors, regulators, financial media Providing research, education, lobbying enhancing understanding, sound practices and industry growth

  3. AIMA Canada - www.aima-canada.org • Established in March, 2003 • Over 70 corporate members across Canada • Educational Initiatives • March 2004 – Guide to Sound Practices for Canadian Hedge Fund Mangers • June 2004 – AIMA Canada Primer • June 2005 – Guide to Sound Practices for Disclosure and Promotion of Alternative Investments in Canada • June 2005 – AIMA Canada Research Award • Actively communicating with regulators, media and other participants in the hedge fund community

  4. Growth of Canadian Hedge Funds IndustryHedge Funds by Product Type Assets in billions of dollars Source: Investor Economics

  5. Growth of Canadian Hedge Funds IndustryPrincipal-protected Products by Type December 2004 Source: Investor Economics

  6. Growth of Canadian Hedge Funds IndustryStand Alone Hedge Funds Assets in billions of dollars Source: Investor Economics

  7. Growth of Canadian Hedge Funds IndustryPure Fund of Hedge Funds Assets in billions of dollars Source: Investor Economics

  8. Canadian Hedge Fund Developments - 2005 • Portus Scandal/Norshield Liquidation • IDA Report: Regulatory Analysis of Hedge Funds” (May 18/05) • AIMA Canada’s Response • Formal response to IDA in September • Senate Banking Committee Appearance • Guide to Sound Practices For Disclosure & Promotion • Investor Checklist • AIMA Canada is actively communicating with regulators, media and other participants in the hedge fund community

  9. Global Hedge Fund Developments - 2005 • Performance Headwinds • Secular or Cyclical • Regulatory Developments • SEC (US) • FSA (UK) • Global Growth Continues • Global assets exceed $1 trillion • Inflows are moderating • Number of hedge funds continues to grow

  10. Growth in Hedge Funds Since 1990 $1,000,000 $972,608 $900,000 $820,009 $800,000 $700,000 $625,554 $600,000 $539,060 $490,580 Assets (In $MM) $500,000 $456,430 $400,000 $374,770 $367,560 $300,000 $256,720 $185,750 $200,000 $167,790 $167,360 $95,720 $99,436 $91,431 $70,635 $100,000 $73,585 $58,370 $57,407 $55,340 $46,545 $38,910 $36,918 $27,861 $23,336 $14,698 $8,463 $4,406 $0 ($1,141) ($100,000) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Estimated Assets Net Asset Flow Source: HFR 2004 Annual Report

  11. Estimated Number of Hedge Funds 1990 - 2004 8,000 7,436 7,000 6,297 6,000 5,379 5,000 4,454 Number of Funds 3,873 4,000 3,617 3,325 2,990 3,000 2,781 2,383 1,945 2,000 1,514 1,105 1,000 821 610 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: HFR 2004 Annual Report

  12. AIMA Canada Research Award – 2005 “Faulty Hypotheses and Hedge Funds”* • Many researchers claim portfolios of hedge funds expose investors to risks that can be surprising to the downside – this is based on the higher kurtosis and negative skew found in hedge fund returns • However, the occurrence of extreme returns in hedge funds (negative or positive) is much less frequent for hedge fund indices then for equity indices - why?? • The problem lies in the distribution of returns for hedge funds – they are not normal – and correcting for this demonstrates that “extreme events” in portfolios of hedge funds are surprisingly low! *Todd Brulhart & Peter Klein, KCS Fund Strategies (Vancouver)

  13. AIMA Canada Research Award - 2005

  14. AIMA Canada Research Award – 2005 “Faulty Hypotheses and Hedge Funds”* Conclusions • A diversified portfolio of hedge funds is suitable for a broad range of risk tolerances and large allocations are justified • The use of leverage on a diversified portfolio of hedge funds is supportable • Allocating to hedge funds by applying mean-variance tools only may cause investors to overlook risks associated with higher moments Caveat “Past performance is not indicative of future results” *Todd Brulhart & Peter Klein, KCS Fund Strategies (Vancouver)

  15. Summary Thoughts • Hedge Fund industry is alive and well and growing (albeit more slowly) • AIMA continues to: • Work with regulators, the media and other interested parties to promote the proper use of alternatives • Continues to promote due diligence, transparency and education Source: Investor Economics

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