Hedge Fund Strategies – Market Update Q2 2020 CONFIDENTIAL – NOT FOR REDISTRIBUTION The Notes and Disclosures following this presentation are an integral part of this presentation and must be read in connection with your review of this presentation. GCM Grosvenor®, Grosvenor®, Grosvenor Capital Management®, GCM Customized Fund Investment Group® and Customized Fund Investment Group® are trademarks of Grosvenor Capital Management, L.P. and its affiliated entities. This presentation has been prepared by Grosvenor Capital Management, L.P. and GCM Customized Fund Investment Group, L.P. ©2020 Grosvenor Capital Management, L.P. and GCM Customized Fund Investment Group, L.P. All rights reserved. The Crisis in Context How Should We Think About This Market? The Q1 drop in equity markets had few historic parallels with respect to both the speed and depth of the market’s decline. This was a historically deep and rapid drawdown The speed of the market decline was unprecedented Every S&P 500 drawdown (-5% or more) from a market top, The 2020 market decline was among the fastest 10% corrections since 1928 (64 observations) (6 trading days) in the S&P 500's history 20% 0% Feb 20th to March 23rd 2020 COVID-19 (Feb 2020) COVID-19, -34% -1% Feb 20th to Feb 27rth 2020 0% (6 trading days) -2% -3% -20% -4% -40% Jan -5% Slowest 10% 1973, - correction (1980) 48% 190 trading days -6% Mar 2000, -49% -60% -7% Oct 2007, -57% Fastest previous 10% correction -8% (2018) Average for all 8 trading days -80% previous 10% Sep 1929, -86% -9% corrections (1928-2019) -100% -10% 0 100 200 300 400 500 600 0 50 100 150 200 Trading Days to Market Bottom Trading Days Since Market Top Data source: Bloomberg Finance L.P. Past performance is not necessarily indicative of future results. No assurance can be given that any investment will achieve its objectives or avoid losses. 2 COVID-19 is Not Yet Receding While some nations in Europe and Asia have managed to reduce COVID-19 new infection rates, case counts in the U.S. and globally continue to rise. U.S. COVID-19 cases and deaths Global COVID-19 cases and deaths Weekly increase in confirmed cases and deaths Weekly increase in confirmed cases and deaths 500,000 20,000 1,500,000 50,000 Total global cases Cases (LHS) Cases (LHS) topped 13 million Deaths (RHS) The rate at which Deaths (RHS) new cases are 400,000 being confirmed 16,000 1,200,000 40,000 in the U.S. has doubled since June 22 300,000 12,000 900,000 30,000 Total deaths represent over 4% of total cases 19 19 Cases Reported 19 Reported Cases reported - - 19 Related Deaths 19 Related Deaths - 200,000 8,000 - 600,000 20,000 COVID COVID New New COVID New COVID 100,000 4,000 300,000 10,000 Total deaths topped 130,000 in the U.S. 0 0 0 0 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun Data as of July 13, 2020. Data source: Bloomberg Finance L.P. 3 Aggressive Policy Response The COVID-19 crisis is causing economic contraction at unprecedented speed and scale globally, the monetary and fiscal policy responses to the crisis have been similarly unprecedented. Q2 GDP decline is estimated to be worse than the Central banks swiftly initiated aggressive monetary Great Depression, coupled with higher policy in response to the Growing Economic Crisis unemployment than the Global Financial Crisis1 15 week change in G3 central bank balance sheets (USD$ in billions) January 1, 2017 to June 30, 2020 $6,000 G3 Central Bank Asset Purchases exceed $5.0 trillion in the past 15 weeks $5,000 $4,000 $3,000 $2,000 $1,000 $0 ($1,000) 2017 2018 2019 2020 Fed ECB BOJ Total 1 Estimates provided by Goldman Sachs. Data as of June 30, 2020. Data sources: Bloomberg Finance, L.P. Goldman Sachs. 4 Substantial Divergence in Market Recovery There has been a stark divergence within equity markets in 1H 2020: › Growing solvency concerns have led firms with strong balance sheets to materially outperform those with weak balance sheets. › Rapid transition towards the digital workplace is helping growth equities, led by mega-cap U.S. technology equities, to outperform value by a significant margin. Growth equity materially outperforming value Strong balance sheets outperforming as well December 31, 2019 to June 30, 2020 December 31, 2019 to June 30, 2020 30% 30% 20% +21.0% 20% FANGMA Stocks1 10% 10% +9.1% +7.9% Goldman Sachs’ Strong Balance Sheet Index 0% 0% S&P 500 Growth Total Return Index 27% gap -10% -10% -15.5% -20% -20% -17.9% -30% -30% S&P 500 Value Total Goldman Sachs’ Weak Return Index Balance Sheet Index -40% -40% -50% -50% Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 1 Includes market cap weighted performance of Facebook, Apple, Netflix, Google, Microsoft and Amazon. Data sources: Bloomberg Finance L.P.; Goldman Sachs. Past performance is not necessarily indicative of future results. No assurance can be given that any investment will achieve its objectives or avoid losses. 5 Headwinds for Beta Driven Returns As global central banks lower rates and infuse liquidity into markets, beta driven returns appear challenged; yields in corporate credit markets have been driven to record lows while the recovery in equity markets has pushed forward P/E multiples towards record highs. Historically high equity multiples are a headwind for Historically low yields reduce return expectations in expected ‘beta’ returns long-only credit markets as well S&P 500 P/E Ratio (12m Consensus Forward Earnings) Bloomberg Barclays U.S. Aggregate Corporate Yield to Worst December 31, 2009 to June 30, 2020 December 31, 2009 to June 30, 2020 26 6/30: 5.0% Current level 99.6th Percentile 24 4.5% 22 4.0% 20 500 Price Per Earnings Ratio Earnings Per Price 500 S&P 18 3.5% 50th percentile 50th percentile 16 3.0% 14 2.5% 12 Current level: lowest in last 10 years 10 2.0% 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020 Data source: Bloomberg Finance, L.P. Unless apparent from context, all statements herein represent GCM Grosvenor’s opinion. Past performance is not necessarily indicative of future results. No assurance can be given that any investment will achieve its objectives or avoid losses. 6 Tailwinds for Equity Alpha While elevated valuations and a tenuous macroeconomic environment are a headwind for equity beta returns, we expect rising dispersion in equity markets to provide a tailwind for hedge fund alpha generation as the pandemic drives increased dispersion and volatility in the marketplace. S&P 500 single stock dispersion: 1991-2020 Higher rates of equity market dispersion have Spread between top & bottom quartile returns (trailing 90 days) for historically benefitted hedge fund alpha generation underlying stocks in the S&P 500: January 1, 1991 to July 1, 2020 Next 24mo HFRI FW Index ann. alpha vs. trailing S&P 500 dispersion 1991-2020 60% 25% July 1, 2020 Equity Market Dispersion 50% 20% 40% 1 15% Current level: 24% 10% 30% Hedge Fund Alpha Fund Hedge 5% 20% 0% 10% -5% 5% 10% 15% 20% 25% 30% 0% Equity Market Dispersion2 1991 1998 2005 2012 2020 1 HFRI FW Index Annualized Alpha next 24 months. 2 Trailing 3mo Total Return Differential Between Top & Bottom Quartile Individual Stocks in S&P 500. Data source: Bloomberg Finance L.P. Past performance is not necessarily indicative of future results. No assurance can be given that any investment will achieve its objectives or avoid losses. 7 Tailwinds for Credit Alpha The pre-crisis surge in high risk borrowing, combined with COVID-19 induced economic stress, is leading to a growing pool of stressed and distressed credit securities. We expect this to create a ripe backdrop for fundamental and distressed credit strategies. Leveraged credit has grown substantially High yield spreads remain elevated on a historical basis Billions outstanding in face value Credit Suisse U.S. High Yield Spread to Worst 2,000 bps $1,523 $1,420 1,500 bps 1,000 bps Current level: 711 bps 2.8x Third Quartile 3.1x 500 bps 4.8x 0 bps 13.5x 2000 2004 2008 2012 2016 2020 $542 Number of bonds trading at >1000 bps spread $452 3000 $320 2500 2000 1500 $105 1000 661 bonds 500 as of 6/30 YE YE YTD YE YE YTD 2000 2008 2020 2000 2008 2020 0 High Yield Leveraged Loans 2008 2011 2014 2017 2020 Data as of June 30, 2020. Data source: Bloomberg Finance, L.P. Unless apparent from context, all statements herein represent GCM Grosvenor’s opinion. Past performance is not necessarily indicative of future returns. No assurance can be given that any investment will achieve its objectives or avoid losses. 8 Hedge Fund Industry Perspective The Role of Hedge Funds Taking a Long Term View on Absolute Returns Focusing on absolute returns and limiting drawdowns are essential aspects of hedge fund investing. Over time, this approach has been effective, and has displayed less than half the volatility of broad equity markets. Despite industry challenges, investors remain supportive and hedge fund assets are near all time highs. Pre-Global Financial Crisis Estimated hedge fund industry AUM Cumulative returns: January 1, 1990 to February 28, 2009 $ billions: January 1990 to June 2020 1000% HFRI FW Composite 4,000 800% 600% YTD Q2 2020: 400% $3,176.8 Thousands 200% 3,000 Risk Free Rate1 + 500 bps 0% Post-Global Financial Crisis 2,000 Cumulative returns: March 1, 2009 to June 30, 2020 100% HFRI FW Composite 80% 1,000 60% 40% 20% Risk Free Rate1 + 500 bps 0 0% 1994 1995 2005 2006 2016 2017 1990 1991 1992 1993 1996 1997 1998 1999 2000 2001 2002 2003 2004 2007 2008 2009 2010 2011 2012 2013 2014 2015 2018 2019 1 Risk Free Rate defined as the FTSE 3-Month U.S.