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FTSE Hedge

FTSE Hedge. Why Index Hedge Fund Investments ?. Direct investment More than 6,000 unregulated funds, many closed Variable quality Poor background information and transparency Large minimum investment size Wide variation in liquidity Fund of funds More than 1,000 unregulated funds

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FTSE Hedge

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  1. FTSE Hedge

  2. Why Index Hedge Fund Investments ? • Direct investment • More than 6,000 unregulated funds, many closed • Variable quality • Poor background information and transparency • Large minimum investment size • Wide variation in liquidity • Fund of funds • More than 1,000 unregulated funds • Variable quality • Outsourced due diligence and poor transparency • High fees Carl Beckley

  3. But Which Index to Use ? • Complete but un-investable peer group indices • So many indices to choose, so many biases to suffer • Representative but un-investable index platforms • Adverse selection problem • Adequate capacity • Weighting methodology • Representative of hedge fund risk and returns Carl Beckley

  4. Clear Objective and Goals • The objective: To reflect the aggregate risk and return characteristics of the universe of open hedge funds, so as to be: • Investable • Representative • Diversified • Transparent • Evolutionary • And hence a sound basis for liquid investment Investability Weight Vs Fund Size Investability Weight Large Closed Small Open Fund Size Carl Beckley

  5. Construction Process Carl Beckley

  6. Investability Weights Constituents FTSE Hedge Index Series classification system Global Index Sub Index Directional Sub Index Event Driven Sub Index Non Directional Sub Index Equity Hdg Sub Index CTA/MF Sub Index Marco Sub Index Merger Arb Sub Index Dist & Opps Sub Index Convert Arb Sub Index Equity Arb Sub Index Fixed Inc Arb Carl Beckley

  7. Investability Weights Constituents FTSE Hedge Index Series Strategy weights* * Last revised at annual recomposition (March 2005) Carl Beckley

  8. Directional Strategies Carl Beckley

  9. Non-Directional Strategies Carl Beckley

  10. Event Driven Strategies Carl Beckley

  11. 150 140 130 120 110 100 90 80 Pro-Forma Results vs. FOFs and Equities 190 180 170 160 Jun-98 Jun-99 Jun-03 Jun-04 Jun-00 Jun-01 Jun-02 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Dec-99 Dec-00 Sep-01 Dec-01 Sep-02 Dec-02 Sep-03 Sep-04 Dec-97 Sep-98 Dec-98 Sep-99 Sep-00 Dec-03 Dec-04 FTSE Hedge Global Composite HFR Fund of Funds Index JPM Global Bond Index FTSE All-World Index Carl Beckley

  12. Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Dec-97 Sep-98 Dec-98 Sep-99 Dec-99 Sep-00 Dec-00 Sep-01 Dec-01 Sep-02 Dec-02 Sep-03 Dec-03 Sep-04 Dec-04 Performance 1997 - 2004 5% FTSE Hedge Global Composite 4% 3% 2% 1% 0% -1% Pro-forma -2% -3% 8% HFR FoF Index 6% 4% 2% 0% -2% -4% -6% -8% FTSE All-World Index 10% 5% 0% -5% -10% -15% Time series of monthly returns by asset class Carl Beckley

  13. Returns Relative to Equities and Bonds FTSE Hedge NAV Backcast FTSE All-World Index JPM Global Bond Index HFR FoF Index 15% -15% -10% -5% 0% 5% 10% Carl Beckley

  14. Asset Class Comparisons Carl Beckley

  15. Competitive Advantage • A global brand • Broad asset class representation • Trading strategy • Manager location • Transparent rule based manager selection • Full qualitative due diligence overlay • Index based upon representation and Investability • Rigorous risk control, independent valuation (DPM) • Real objective, real benchmark Carl Beckley

  16. Contact Details Carl Beckley Director, Markets Development FTSE Group Tel No: +44 (0) 20 7448 1820 Email: carl.beckley@ftse.com Carl Beckley

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