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Importance of liquid alternatives Key themes for discussion

Schroders’ capabilities

Defining Dispelling liquid the myths alternatives Liquid alternatives

Past and Use in future portfolios growth

Source: Schroders

1 Schroders’ capabilities

Defining Dispelling liquid the myths alternatives Liquid alternatives

Past and Use in future portfolios growth Schroder GAIA and Schroder GAIA II Dedicated platforms for liquid alternative strategies

n Access to leading fund managers n Directly invested not master feeder/index approach n Subject to ‘gold standard’ regulation n Risk management by managers and Schroders n Schroders performs extensive due diligence n Strategies that complement Schroders’ existing funds

Source: Schroders

3 07/03/17 9:29 AM Schroder GAIA and Schroder GAIA II Diverse product offering

Global Credit Long Schroder GAIA Egerton Equity* Schroder GAIA BSP Credit

US Schroder GAIA Sirios US Equity Catastrophe Bonds Schroder GAIA Cat Bond* Pan-Asian Schroder GAIA Indus PacifiChoice AUM of Merger $5.7bn Schroder GAIA Paulson Schroder GAIA BlueTrend Merger Arbitrage

Liquid Distressed Debt Equity & and Equity Systematic Macro Schroder GAIA II NGA Schroder GAIA Turnaround Diversified*

Source: Schroders as at 28 February 2017, *Hard closed”.

4 07/03/17 9:29 AM Schroders Liquid Alternatives Diverse product offering with approximately $18bn AUM

European Total Return ~ $31m EURO Credit L/S ~ $37m 3x European L/S ~ $1,174m, $438m, $159m Strategic Bond ~ $1,435m Sirios US Equity~ $1,056m Bond ~ $121m UK L/S ~ $92m EMD Absolute Return ~ $3,863m Asian Total Return ~ $2,589m Asian Bond Absolute Return ~ $387m Indus PacifiChoice~ $94m BSP Credit ~ $29m Global Market Neutral ~ $105m Egerton Equity ~ $1,286m

$7,022m $5,872m

$2,275m $3,255m

Global Energy ~ $513m BlueTrend ~ $299m Global Gold ~ $113m Two Sigma Diversified ~ $1,499m Agriculture ~ $104m Paulson Merger Arbitrage ~ $310m Commodity ~ $856m Wealth Preservation ~ $38m Commodity Total Return ~ $10m Multi-Asset Total Return ~ $20m Global Cities Real Estate ~ $224m Global Target Return ~ $20m Asia Pacific Cities Real Estate ~ $128m NGA Turnaround ~ $16m Cat Bond ~ $1,247m Strategic / Alt Risk Premia ~ $73m Flexible Cat bond ~ $60m

Estimated AUM data provided. Source: Schroders as at 28 February 2016.

5 Schroders’ capabilities

Defining Dispelling liquid the myths alternatives Liquid alternatives

Past and Use in future portfolios growth Liquid alternatives A powerful tool in the tool kit

Liquid Alternatives § Access to strategies in a regulated format § Liquid alternatives offer Long only improved transparency and Passive Smart Beta Alternatives active liquidity § They can offer better risk adjusted returns § Interesting for portfolio construction due to reduced volatility and decorrelation characteristics

§ 12.7% growth in liquid alternative universe over the last 5 years 1

Source:1 Barclays Strategic Consulting survey results, Kepler Absolute UCITS Annual Review (Jan 2016), Eurekahedge data (Jan 2017)

7 Liquid alternatives defined Uncorrelated, liquid, transparent and diversified

Liquid Alternative characteristics Reasons to allocate Typically benchmark unconstrained 1 2 3 4 Ability to take long and short positions

Portfolio diversification benefits

Use of leverage

At least twice monthly dealing

Greater transparency Strengthen Enhanced Access Reduce liquidity and unique directional the risk return transparency May offer protection in down sources of market risk compared to profile of a markets portfolio traditional alternatives

Source: Schroders

8 Schroders’ capabilities

Defining Dispelling liquid the myths alternatives Liquid alternatives

Past and Use in future portfolios growth investing from European investors 3 main product groups available

AUM from European Hedge Fund Vehicles Total AUM Investors 1.

u Offshore, unregulated HF vehicle

u Most popular pre-2008/9, but comparatively low Offshore demand in Europe in recent years $3.1tn $600bn Hedge Fund u AIFMD regulations have made the marketing of offshore HFs more challenging

2. u Liquid, regulated European onshore fund structure that can be used for alternatives

UCITS u Harmonised format that can be ‘passported’ across $300bn $240bn Liquid Europe for distribution purposes Alternatives u Suitable for sale to retail as well as professional investors

3. u New onshore structures post-AIFMD implementation; less stringent regulation than UCITS funds

Non-UCITS u Structures include QIAIF, RIAIF, PIF (Ireland); Part II, $60bn (est.) $60bn (est.) Onshore Fund SIF, SICAR (Lux); some formats (e.g. RIAIF) may be suitable for sale to retail investors

u Still largely unproven as a concept for HF managers

Source: HFR, HFI, Central Bank of Ireland, McKinsey “The Mainstreaming of Alternative Investments” (2011), Barclays Strategic Consulting estimates and analysis, Preqin Hedge Fund Spotlight November 2016

10 Recent growth of the liquid alternatives in UCITS Significant growth since 2009

Growth of UCITS AUM, 2009 – 2016

$300bn

$280bn

Pre-AIFMD growth phase Initial $217bn $220bn post-crisis growth $175bn Development of UCITS vs. phase $167bn $165bn Offshore HFs Total AUM 2016 ($bn) $122bn

3055 $57bn 10x

300

Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 UCITS Alternatives HFs

n CAGR 23% for alternative UCITS, vs. 10% for offshore

n 75% of the AUM from Asset Managers – but HFs are growing much faster

Source: Barclays Strategic Consulting survey results, Kepler Absolute UCITS Annual Review (Jan 2016), Eurekahedge data (Jan 2017)

11 Schroders’ capabilities

Defining Dispelling liquid the myths alternatives Liquid alternatives

Past and Use in future portfolios growth Investor rationale for choosing UCITS funds 4 key reasons for hedge fund investors

n Superior liquidity is most commonly cited Liquidity 43% n Many funds packaged into FOF structures offering daily liquidity

Investor n Solvency II for companies Regulations / Tax 30% n UCITS – CGT vs offshore funds - income tax

Transparency / n Previously bad experiences e.g. Madoff Regulated Format 22% n Comfort with additional transparency and the regulatory oversight

Ease of Investment n UCITS funds are substantially easier to offer to clients 4%

Source: Barclays Strategic Consulting survey results only

13 Hedge funds: A proven source of diversification Adding hedge fund strategies can help improve return and reduce risk over the long term

Return

5.4% 20% Alts 5.2%

5.0% 10% Alts 4.8%

4.6%

4.4%

100% Bond 50% Bond 4.2% 50% Equity 100% Equity 4.0% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% Barclays Global Aggregate Bond Index HFRI MSCI World Volatility

Source: Schroders, as at 31 December 2016. Annualised returns and volatility calculated over a 21 year horizon.

14 Evolution of portfolio construction with liquid alternatives A simple but effective approach to diversification

Equity Fixed Income Other

Sovereign Small/Mid/Large Cap Investment Grade Core Growth/Value/Blend Cash High Yield Sector Specific Aggregate

Equity diversifiers: Bond diversifiers: Portfolio diversifiers: Liquid Alternatives Equity Long Short Absolute Return Event Driven Market Neutral Credit Long Short CTA/Macro Relative Value Catastrophe Bonds

Source: Schroders as at 31 December 2016

15 Schroders’ capabilities

Defining Dispelling liquid the myths alternatives Liquid alternatives

Past and Use in future portfolios growth Main reservations and typical alternative allocations Fees, liquidity, education

Top reasons to hesitate on alternatives Alternatives allocation % of advisors

0.6 25 ‘Knowledge 0.5 gap’ 20 Can retail 0.4 allocations to alternatives increase with the 15 0.3 introduction of Liquid 0.2 Alternatives? 10

0.1

5 0 Fees Lack of liquidity Lack of Benefits Unclear how transparency uncertain strategy works in portfolio framework 0 Institutional Retail Institutional Retail

Source: , Morningstar/Barron’s, McKinsey, Simfund, November 2013

17 Myth 1: Liquid Alternatives don’t offer genuine hedge fund talent An increasing number of the largest hedge fund managers already offer UCITS

US Based Managers Abrams Capital Management GMT Capital Adage Capital Management GoldenTree Asset Management Anchorage Capital Group Angelo, Gordon & Co. HBK Capital Management Apollo Management Highfields Capital Management JANA Partners Kayne Anderson Capital Advisors Bain Capital/Brookside Capital Partners King Street Capital Management Balyasny Asset Management Lone Pine Capital Luxor Capital Group Magnetar Capital BlueMountain Capital Management Marathon Asset Management Bracebridge Capital Mariner Investment Group Mason Capital Management Carlson Capital Millennium Management 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 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 UK Based Managers Emerging Sovereign Group Taconic Capital Advisors Capula LLP Eton Park Capital Management Third Point Lansdowne Partners Management The Children's Fir Tree Partners Trian Fund Management 75% AKO First Quadrant ValueAct Capital Management Asset Management LLP Glenview Capital Management Cheyne Capital Management AQR Capital Management Maverick Capital 20% CQS (UK) LLP Beach Point Capital Management MKP Capital Management Egerton Capital Blackstone Group/GSO Capital Partners Och-Ziff Capital Management Group LLP Omega Advisors Fortress Investment Group Paulson & Co. Odey Asset Management Graham Capital Management Tudor Investment Corp Winton Capital Management Limited Grantham, Mayo, Van Otterloo Two Sigma Investments Man GLG Halcyon Asset Management Visium Asset Management Indus Capital Partners

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 30 November 2016. For illustrative purposes only and should not be viewed as a recommendation to buy or sell.

18 Myth 2: All liquid alternatives are hedge fund lite Schroder GAIA strategies represent core capabilities with low tracking error Egerton Sirios 1900 1400

1700 1300

1500 1200

1300 1100

1100 1000

900 900 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16

Schroder GAIA Egerton Equity - C Acc (EUR) Egerton European Equity Fund Ltd - Class B Schroder GAIA Sirios US Equity - C Acc (USD) Sirios Overseas Fund Paulson BlueTrend 1200 1150

1050 1100

950 1000

850 900

750 800

650 700 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17

"Schroder GAIA Paulson Merger Arbitrage - C Acc (USD) Paulson Partners LP Class A Schroder GAIA BlueTrend _C Acc USD Systematica BlueTrend Fund Limited Class A USD Source: Schroders as at 31 January 2017. Performance data is net of all fees and charges. The GAIA C share class has been used for all GAIA funds. For Egerton European Equity from November 2009 to 31 December 2011 the B16 share class has been used. Please note, Egerton’s offshore hedge fund included a provision for potential tax liabilities at the end of March 2010 resulting in a 5.1% decrease in the NAV. These tax liabilities did not impact Schroder GAIA Egerton Equity. For illustrative purposes the data here ignores this provision and therefore shows the two strategies on a more like for like basis. No indicative weekly NAVs were produced for Egerton’s B16 share class during April 2010, therefore the B1 share class has been used as a proxy over this period. From 1 January 2012 to 31 December 2012 the B29 share class was used. From 1 January 2013 onwards the B share class is used. Past performance is not a guide to future performance and may not be repeated. For illustrative purposes only and should not be viewed as a recommendation to buy or sell. 19 Myth 3: Liquid alternatives are inferior to hedge funds Despite limitations, liquid alts can provide similar benefits to hedge funds

Performance comparison UCITS vs. offshore hedge funds Opportunity set

30% HFRI HFRU 20% Number of 2,200 500 10% funds

0% Regulatory Flexible UCITS regime -10%

-20%

-30% 2008 2009 2010 2011 2012 2013 2014 2015 2016

HFRI Fund Weighted Composite Index HFRU Hedge Fund Composite Index Industry performance Correlation Annualised Annualised Months to Index 2016 2015 2014 Drawdown to S&P 500 Return Volatility Recover (5 years) Traditional Hedge Fund HFRI Offshore Hedge 5.5% -1.1% 3.0% 2.7% 6.3% -20.1% 14 0.85 Fund Weighted Composite Index Liquid Alternatives HFRU UCITS Hedge Fund 0.9% 1.5% 4.7% 1.9% 3.3% -6.3% - 0.67 Composite Index

Source: HFR as of 31 December 2016 Past performance is not a guide to future performance and may not be repeated.

20 Myth 4: All liquid alternatives are expensive What is most important price or performance?

Typical Fee Structures Cumulative performance

Cumulative Variable Typical Fees return since Fees 1800% 1994 1600%

1400% MSCI World 10bps None 172% ETF 1200% 1000%

800% Global Equity long 0.50-1.00% None 145% 600% only 400%

200%

HFRI 1.25-1.75% 15-20% 458% 0% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Schroder Global Equity Large Caps Blend Egerton MSCI World HFRI GAIA 1.25% 20% 1,462% Egerton Equity

Source: Morningstar, Schroders, as at 31 December 2016. Common inception date taken of September 1994. Egerton performance shows Egerton offshore fund from December 1994 until November 2009. From December 2009 onwards Schroder GAIA Egerton Equity C Acc EUR is used.

21 Summary The importance of liquid alternatives

n Liquid alternatives: – a powerful tool in the tool kit – good diversifiers for traditional portfolios – significant growth since 2009 – the future of the hedge fund industry – a strong wealth of talent available – UCITS products are not inferior to offshore – offer value for money, but selection is key

Source: Schroders as at 28 February 2017

22 Important Information

Schroders have expressed their own views and opinions in this presentation and these may change. Risk warnings: The capital is not guaranteed. The value of the fund will move similarly to the equity markets. Emerging equity markets may be more volatile than equity markets of well established economies. The title of securities may be jeopardized through fraud, negligence or mere oversight in some countries. However the access to such markets may provide a higher return to your investment in line with its risk profile. The Fund may hold indirect short exposure in anticipation of a decline of prices of these exposures or increase of interest rate where relevant. The Fund may be leveraged, which may increase the volatility of the Fund. The Fund may not hedge all of its market risk in a down cycle. Investments into foreign currencies entail exchange risks. Investments in instruments and deposits with financial institutions may be subject to price fluctuations or default of the issuer. Some of the invested and deposited amounts may not be returned to the fund. The investments denominated in a foreign currency of the share-class may not be hedged back to the currency denomination of the share-class. The share-class will be positively or negatively impacted by the market movements between those currencies. Important Information: This presentation does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder GAIA or Schroder International Selection Fund (the “Company”). Nothing in this presentation should be construed as advice and is therefore not a recommendation to buy or sell shares. Subscriptions for shares of the Company 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), copied of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) S.A. An investment in the Company entails risks, which are fully described in the prospectus. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. 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.com contains additional disclaimers which apply to the third party data. This presentation is issued by Schroder Investment Management Limited, 31, Gresham Street, EC2V 7QA, who is authorised and regulated by the FCA. Registration No 1893220, England. For your , all telephone calls are recorded.

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