Africa – Opening the last frontier market

1. Africa – Opening the last frontier market January 2009

2. Africa – Opening the last frontier market Presentation to the Securities & Investment Institute – CPD Seminar 29 January 2009 Dr Ayo Salami 2

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4. Africa Moving from promises to results “Africa is indeed on the move. In contrast with the 1990s, conflicts in Africa have declined, economic performance has improved and some clear ‘high performers’ are beginning to emerge.” World Bank 2006 “Africa has learnt to trade more effectively with the rest of the world, to rely more on the private sector, and to avoid the very serious collapses in economic growth that characterized the 1970s, 1980s and even the early 1990s.” World Bank 2007 “Since 1995 there has been at least one African equity market among the top 10 best performing markets in the world. Last year (2007), it was Zambia, posting gains of 127% in US dollar terms. Joining Zambia among the best performing markets was Malawi (up 114%), Cote D’Ivoire (up 105%) and Nigeria (up 90%). In 2006, Malawi was the best performing stock market in the world posting gains of 129% in US dollar terms.” African Business Research Limited (2008) 4

5. Why invest in Africa? Africa A Lie by Omission 5

6. Misconceptions about Africa The view from abroad : • Investing in Africa is risky • The region is a basket case that is politically unstable • Regulations are insurmountable • There are no investment opportunities 6

7. Africa in Perspective Global Land Mass and Proportion of World’s Resources Square Miles: China 3,705,390 United States 3,618,770 India 1,266,595 Europe 1,905,000 Argentina 1,065,189 New Zealand 103,736 Total 11,664,680 Africa 11,707,000 Proportion of global resources in Africa: Land Mass 20% Diamonds 90% Gold 50% Phosphate 90% Platinum 40% Petroleum 8% Natural Gas 12% Source: Academic Centre for Education Development Source: Ayittey, George B.N. Africa Betrayed, 1993, Palgrave Macmillan , ISBN: 0312104006 7

8. Political Overview Wind of change blowing across Africa – declining political risk Circa.1980 Current Source: Duet, African Business Research 8

9. Macro Overview 12 consecutive years of growth in real per capita CDP Population and GDP Growth (Sub-Saharan Africa ex South Africa) Source: World Bank Data 9

10. Macro Overview African growth is now among the highest in the world GDP Growth across the world Source: World Economic Outlook Database October 2008

11. Macro Overview Slower growth but NO recession GDP Growth forecast across the world (2009-2011) Source: World Economic Outlook Database October 2008

12. Macro Overview Some out-performing economies 2009 – Forecast growth in Real GDP Angola 12.8 % Sudan 7.7% Nigeria 8.1% Uganda 8.1% Mozambique 6.7% Rwanda 5.6% Botswana 4.6% Equatorial – Guinea 4.6% Source: World Economic Outlook Database October 2008

13. Macro Overview Sound monetary policies …. Source: World Bank data 13

14. Macro Overview … have controlled money supply and reduced inflation Source: World Bank data 14

15. Macro Overview External debt is becoming sustainable Source: World Bank data 15

16. Macro Overview With a little help from our friends in China As the Chinese economic resurgence has proceeded, Africa has become more important for China as a source of the raw materials needed by the Chinese manufacturing sector. African economies, in particular oil and commodity producers have benefited substantially from China’s demand for raw materials The historical trade deficit with China’s has now become a surplus Source: WTO Direction of trade statistics 16

17. Correlation with other global markets Low correlation with other global markets offers diversification opportunities Correlation matrix between regional equity markets Correlation coefficients based on daily equity returns between 1/1/2000 and 29/09/2006 Source: MSCI, African Business Research 17

18. African Equity Markets From Cape to Cairo There are 22 stock exchanges in Africa with a combined market value of US$480.1 billion and 2,072 listed equities Number of listed companies Market Value Sub-Saharan Africa (ex –SA) 533 $79.7 bn $228.3 bn 427 South Africa $172.1 bn 1,112 North Africa Data as at 31 December 2008 18

19. Trading and settlement Love thy neighbour – but don’t take counterparty risk 12 countries (94% of the stock markets – ex South Africa) have electronic and automated trading platforms. More countries are already planning a switch over. Also more markets are moving towards the international standard of t+3 settlement cycle 19

20. Size matters ? Market values of stock exchanges in Africa Jumbo Large Medium Small Data as at 31 December 2008 20

21. There is a good distribution of economic sectors • Jointly, banks, telecoms, construction and consumer goods companies represent 70% of the total capitalisation of sub-Saharan African equity markets – ex South Africa. • One of the least known open secrets of the investment world is that African banks are among the most profitable in the world with average ROE above 30%. • The high proportion of telecom companies reflects Africa’s status as the fastest growing telecoms market in the world. The average mobile phone user in Nigeria spends US$22 per month – nearly double that of a Chinese user. Data as at 31 December 2008 21

22. African equity markets – Great returns Annual returns to Sub-Saharan Africa equity markets (ex – South Africa) over 1999 – 2008 Average annual returns of 9% (in US$) over the last 10 years from Jan. 1999 to December 2008, relative to 6.6% for emerging markets, -2.5% for G7 countries, 3.7 for global small companies and -2.2% for the All Global equity markets. Source: Local Stock Exchanges, African Business Research 22

23. Equity returns among the best in the world Average annual returns to various regions (1999 to 2008) Source: MSCI, African Business Research 23

24. 2008 – One for the history books

25. 2008 – Down but not out!

26. 2008 – RIP A terrible year for everyone • Africa was not spared the carnage in the international financial markets • Larger markets like Nigeria, Kenya, Mauritius were hit by international emerging market funds struggling to cope with redemptions • Smaller markets held up well, but at the expense of reduced liquidity • Nigeria’s fall was compounded by the unresolved issue of margin-lending from the banking sector • Performance of the financial markets did not reflect corporate earnings news flow. Average EPS growth for 2008 was 32%

27. Lose on the currency swingGain on the growth roundabout Sub-Saharan Africa equity returns in US$ since 1999 (excluding South Africa and Zimbabwe) Source: Local Stock Exchanges, African Business Research 27

28. Trading Liquidity Spreading equity culture reflected in rising turnover Annual traded volume has increased by 25x since 2000 Source: Local Stock Exchanges, African Business Research 28

29. What about volatility?“Give a dog a bad name” Standard deviation of annual returns (1999 – 2008) The risk from investing in Africa is similar to that of other emerging markets. The perception that Africa is inherently riskier is not supported by data Source: MSCI, African Business Research 29

30. Risk – Return RatioHow “Sharpe” is that? Sharpe ratio for Sub-Saharan Africa is 1.5x better than for emerging markets generally Source: MSCI, African Business Research 30

31. Risk of Loss You think I am a loser, wait till you meet my siblings Number of losing months (Jan 2000 to December2008, 108 Months ) Source: MSCI, African Business Research Risk of Loss for Africa is similar to other regions of the world 31

32. Historic Value At Risk Always look on the bright side of life Outside the developed world, Africa has the lowest Historic VAR Source: MSCI, African Business Research 32

33. Risk and Performance The linear relationship predicted by the CAPM does not appear to hold in Africa - similar result has been found in other markets. Annual returns to risk segments (2000 - 2007) Source: Local Stock Exchanges, African Business Research 33

34. Risk and Performance Although the linear relationship between risk and return is violated, risk is still a statistically significant determinant of returns. Results from Annual regression of returns against Beta (2000 – 2007) Red indicates statistically significant relationships Source: Duet Asset Management 34

35. Size and Performance Small firm effect found in other markets is also present in Africa Annual returns to size segments (2000 - 2007) Source: Local Stock Exchanges, African Business Research 35

36. Risk and Size Paradoxically – smaller companies have consistently lower betas relative to large companies Beta for size segments (2000 - 2007) Annual returns to risk segments (2000 - 2007) Source: Local Stock Exchanges, African Business Research 36

37. Investment strategies • Key sectors for equity investors • Banks • Telecoms • Breweries • Construction and cement • Consumer goods • Increasing number of investment vehicles are becoming available. In the last 3 years about 10 new Africa focused funds have been launched • Research can be challenging but fun

38. Dynamics of economic reform We believe Africa is positioned here on the growth curve Africa is just beginning to realise the benefits of the economic restructuring of the 1990’s. Africa has had the pain, the gains are about to become evident 15 years ago, Africa would not have been able to cope with a doubling of energy prices. Despite recent doubling of oil prices few African countries have required balance of payments support from the IMF. The continent is less vulnerable to external shocks. Total output X Expected Output Private sector output Public sector output Cost of input Source: Olivier Blanchard; The Economics of Post-Communist Transition 38

39. Would you invest in these countries? A country recently endured a long and bloody civil war, the assassination of its president, a financial panic and an influx of poor immigrants United States of America Taiwan A country formed from the ruins of a vanquished army forced from its historic homeland to a small barren island A country divided after a long and destructive civil war and still technically at a state of war Korea A country that started a regional war, suffered a humiliating defeat, heavy bombing that destroyed its infrastructure and without a history of civil liberties or democratic government Japan 39

40. Duet: Who are we? We are farmers not hunters

41. Duet Group is a client-focused financial group specialising in Alternative Asset Management that is dedicated not only to generating superior investment returns, but also to delivering risk management, transparency and client service required by sophisticated investors. Duet Group was founded by Henry Gabay & Alain Schibl in June 2002 in London. Osman Semerci joined Duet Group in April 2008 as Chief Executive Officer and Managing Partner. As of 1st July 2008 Duet Group has USD 1.8 billion of equity under management. DUET GROUP Overview 41

42. Duet’s primary focus is its client’s needs. It strives to understand their individual investment objectives. Values such as integrity, fairness and transparency ensure its reputation. Through these qualities it looks to build solid, long-lasting relationships with its clients. Through commitment and respect to its people Duet aims to create a close, collegial working environment. This is essential to produce optimum results from its individual team members and thus determines its overall success. Duet’s commitment to excellence ensures that they approach each task in hand with professionalism and dedication. DUET GROUP Values and Principles 42

43. DUET GROUP Group Structure Duet Asset Management Duet Private Equity & Real Estate Duet Financial Products Hedge Funds BR.I.T Platform Structured Products • Duet Multi Strategy • Duet Global Opportunities • Duet Convertibles • Duet Special Situations • Astor Duet Managed Futures • Duet Global Macro • SLCDO 1 • Brazil: ITACARE Real Estate Fund • India: SARE South Asia Real Estate Fund • India: Duet India Hotels Fund • Turkey: Duet Golden Horn Real Estate Fund Fund of Funds Duet Real Estate Capital Markets • GSAH Optimum • Duet Luxury Hotel Fund I • Placement Agent Long Only Funds Duet Private Equity Corporate Finance • Duet Victoire Africa Index Fund • DPEL 1 43

44. DUET GROUP Operating Model Alain Schibl Founding Partner & Co-Chairman Henry Gabay Founding Partner & Co-Chairman Osman Semerci Managing Partner & CEO Trading Private Equity Financial Products Hedge Funds Real Estate Investor Relations New Business Development Marketing CFO Risk Management 44 Compliance Operations Technology 44

45. DUET GROUP Funds • Duet Asset Management is authorised and regulated by the FSA and is registered as an Investment Advisor with the SEC. • Duet’s mission is to become the leading provider of absolute return investment strategies to sophisticated investors. Each strategy aims to deliver risk-adjusted absolute returns uncorrelated to broad market indices. • Duet integrates its Investment Managers through a common infrastructure and economic alignment based on shared equity ownership. The alignment of incentives is critical to achieving sustainability, team collaboration, developing and retaining quality people and building a long-term franchise value. • Duet Asset Management Ltdis the Investment Manager of: Hedge Funds Long Only Funds Fund of Funds • Duet Multi Strategy • Duet Global Opportunities • Duet Convertibles • Duet Special Situations • Astor Duet Managed Futures • Duet Global Macro • Duet Victoire Africa Index Fund • GSAH Optimum 45

46. Duet Victoire Africa Index Fund The fund seeks to replicate the performance of a proprietary benchmark index that measures the investment returns of large capitalisation stocks listed on stock exchanges in sub-Saharan Africa excluding the Johannesburg Stock Exchange. The benchmark index is the “Sub-Saharan Africa Large Companies Index”. This is a customised market-cap weighted index developed by Dr Ayo Salami and his research team. Sub-Saharan Africa Large Companies Index – US$ Returns 46

47. Investment Strategy The Duet Victoire Africa Index is composed of all companies listed on stock exchanges in Sub-Saharan African countries (ex South Africa) with a market capitalisation above $250 million that meet minimum trading liquidity requirements. The index will replicate the benchmark index by investing all, or substantially all, of its assets in the stocks that make up the “Sub-Saharan Africa Large Companies” Index, holding each stock in approximately the same proportion as its weighting in the index. The index manager will ensure that the index rules are closely adhered to at all times, however, the investment guidelines allow the index manager to temporarily remove stock from the portfolio if he becomes aware of a company suffering from financial distress or illiquidity. 47

48. Africa – The Indexing Approach • Significant challenges are faced for investors seeking alpha. Active managers in Africa are compelled to use a bottom-up approach to stock selection with liquidity and market size as two of the key screening criteria. By the time a stock will meet the minimum liquidity constraints that most active fund managers are using, the stock is not likely to be under-valued. • Higher transaction costs in emerging markets combined with high turnover can represent a significant performance hurdle for active managers in emerging markets. • Index funds deliver a highly transparent investment processes, that consistently comply with fund guidelines and regulations. • Index funds provide investors with low cost access to the performance of different financial markets. • For the large relatively liquid stocks in Africa, a passive investment strategy will prove to be effective. Even in Africa it is difficult to consistently beat the market. In the search for alpha, you are more likely to find beta and sigma. 48

49. Index Membership Rules • The primary factors that determine index membership are liquidity and market value. • To be eligible for inclusion in the index, each individual security must achieve a traded turnover of at least 0.1% of its market capitalisation in the quarter preceding the index review date and in at least 2 of the 4 quarters prior to the quarterly index review date. • At each quarterly review date all securities that satisfy the liquidity constraint and have a market value above $250 million are selected. Inclusion and deletion of index constituents is managed according to the following buffer rules:- • An index constituent is not deleted from the index until its market capitalisation has been below $250 million for at least 2 consecutive quarters. • Anon constituent is not added to the index until its market capitalisation has been above $250 million for at least two consecutive quarters. • Constituentcompanies in the index are reviewed on the last day of March, June, September and December and the rules governing index membership is implemented by a computer algorithm. • The index is capped and no single constituent has a weighting of more than 10%. • The aggregate weighting for all securities from a single country is capped at 40%. 49

50. Historic Simulation Benchmark Index – Price Returns The historic performance of the Index was simulated back to 31 March 1999 to create a time series of daily returns for the index, with quality revision of the securities in the index. The index has generated positive returns in 27 out of the last 35 quarters. 50