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Slide 1: Citywire Absolute Returns Cabinet March 2009 Colin McLean, Managing Director SVM Asset Management 1
Slide 2: Credit bubble Source: Ned Davis Research 2
Slide 3: Fannie Mae / Freddie Mac Daily QFRE, QFNM Price Line, QFRE, Last Trade(Last) USD 04/03/2009, 0.4100 60 55 50 45 40 35 30 25 20 15 10 5 .1234 Line, QFNM, Last Trade(Last) 04/03/2009, 0.4100 02/06/2006 - 05/03/2009 (GMT) Price USD 60 55 50 45 40 35 Fannie Mae Freddie Mac 30 25 20 15 10 5 .1234 Jul Q2 06 Aug Sep Q3 2006 Oct Nov Dec Q4 2006 Jan Feb Mar Q1 2007 Apr May Jun Q2 2007 Jul Aug Sep Oct Q3 2007 Nov Dec Jan Q4 2007 Feb Mar Q1 2008 Apr May Jun Q2 2008 Jul Aug Sep Q3 2008 Oct Nov Dec Q4 2008 Jan Feb Mar Q1 2009 [Delayed] Source: Reuters 3
Slide 4: US subprime crisis: according to the experts 2200 15 May 2006: “The mortgage market is going to be a great market in this country for a long time” – Ken Thompson, Wachovia ex-CEO 16 March 2007 “The problems in the subprime market seem likely to be contained” – Ben Bernanke 16 Aug 2007: “Looking over periods of stress that I’ve seen, this is the strongest global economy we’ve had” –Hank Paulson, Treasury Sec 2000 1800 5 Dec 2007:”We believe the probability that [AIG] will sustain an economic loss is close to zero” – Martin Sullivan exCEO of AIG Price Index 1600 9 Oct 2006: “I think the worst of this [housing market] may be over” – Alan Greenspan 10 July 2007: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing” – Chuck Prince, Citigroup ex-CEO 7 May 2008: “I do believe that the worst is likely to be behind us” – Hank Paulson 1400 1200 1000 10 Mar 2008: “Bear Stearns’ balance sheet, liquidity and capital remain strong” – Alan Schwartz, ex-CEO of BS 800 Oct-06 Dec-06 Feb-07 Jun-07 Oct-07 Jun-06 Feb-06 Dec-05 Dec-07 Feb-08 Apr-06 Aug-07 Aug-06 Apr-08 Apr-07 Jun-08 Source: Markit ABX Subprime 4
Slide 5: Experts on the economy and markets Gordon Brown 2006 Budget: “no return to boom and bust” Daily Q.FTAS Line, Q.FTAS, Last Trade(Last) 27/10/2008, 1,877.95 02/07/2007 - 31/10/2008 (GMT) Price GBP 14.5.08 Bolton says now is the time to buy a package of bank shares 3,300 3,200 Sept 07 Bill Mott: shares in banks are now “dirt cheap” Jan 08 Anatole Kaletsky “the credit crunch is now almost over” July 08 Anatole 3,100 Kaletsky “market prices are 3,000 sometimes plain 2,900 wrong” 2,800 9.5.08 Horlick “This guy has managed to return 1-1.2% per month after year after year” 10.9.08 Bill Gross, Pimco, Lehman has positive equity, some good assets 16 Jul 08 01 18 01 16 01 16 Aug 08 Sep 08 Oct 08 2,700 2,600 2,500 2,400 2,300 2,200 2,100 2,000 .12 FTSE All Share Index 02 16 Jul 07 01 16 03 17 01 16 Aug 07 Sep 07 Oct 07 01 16 03 17 02 16 01 18 03 17 01 16 01 16 02 16 01 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 5 Source: Reuters
Slide 6: How big is Banks’ leverage? Leverage Ratio (total assets/equity) 30-Jun-08 UBS ING Group HSBC Holding Barclays Bank BBV Argentaria Deutsche Bank Fortis KBC Lloyd's TSB RBS Credit Agricole BNP Paribas Credit Suisse 33.3 24.4 34.1 18.8 40.5 36.1 33.4 46.9 48.8 20.1 61.3 20.1 2007 63.9 35.3 18.4 52.7 18.6 52.5 26.4 20.5 31.0 21.8 34.8 31.5 31.5 6 Source: www.voxeu.org 20.09.08 Gros & Micossi calculations on data drawn from FT.com
Slide 7: Banks: market cap Market Value as of January 20th 2009, $Bn Market Value as of Q2 2007, $Bn RBS Morgan Stanley 49 1 6 4. 6 10. 3 1 7 2 6 7. 4 32. 5 2 6 35 Deutsch e Bank 76 120 Credit Agricole 67 Societe Generale 80 Barclays 91 BNP Paribas 108 Unicredit 93 UBS 116 Citigroup HSBC JP Morgan 165 215 255 Credit Suisse 75 Goldman Sachs 100 Santander 116 2 7 35 64 19 85 97 Source: Bloomberg, 20.01.09, JP Morgan 7
Slide 8: M 10.0 15.0 20.0 25.0 30.0 35.0 0.0 5.0 M ar -0 Financials Unwinding of banks and financials bubble Banks & Financials as % of UK Market Banks Source: SVM Data: Citibank 5 ay -0 5 Ju l-0 5 Se p05 No v05 Ja n06 M ar -0 6 M ay -0 6 Ju l-0 6 Se p06 No v06 Ja n07 M ar -0 7 M ay -0 7 Ju l-0 7 Se p07 No v07 Ja n08 M ar -0 8 M ay -0 8 Ju l-0 8 Se p08 No v08 Ja n09 M ar -0 9 8
Slide 9: Calling markets is a futile exercise Focusing on stocks is more rewarding. There will be winners and losers. Unsustainable business models will fail. Specific stocks may have bottomed. Policy responses will produce beneficiaries. Strong businesses will survive and prosper. Last year within the FTSE All-Share there were 31 stocks up and 580 losers. Source: Bloomberg 9
Slide 10: Sector rotation and bubbles : market weights 35 33.3% 30 30.4 % Resource s 33.6% 25 20 15 10 19.3% Financial s 16% Banks 7.8% 31.12.06 30.6.0 8 5.3.09 11.2 % 31.3.0 1 TMT 14.1% 28.2.0 3 Funds need pragmatic, flexible approach; full range of tools Source: SVM Data: Deutschebank, Citibank 10
Slide 11: Traditional tools are restricting  Long only fund managers did not have the tools to produce positive returns in 2008.  The average fund in the IMA UK All Companies returned -31.9%*  To be effective in performance and risk you needed the ability to short stocks.  Shorting requires a different skill set : experience is key. % Growth SVM Saltire Fund FTSE All-Share Cash (3 mth LIBOR) 2008 19.7 -29.9 5.8 2007 26.5 5.3 6.1 2006 16.2 16.8 4.9 2005 5.8 22.0 4.8 2004 12.6 12.8 4.7 Since launch 84.9 33.4 35.9 Source: SVM/Lipper - since launch figures 27.02.09 *Source Lipper: 1 year to 31.12.08 11
Slide 12: Landscape changing for retail investors.  Growing and diverse IMA Absolute Return Sector.  UCITS regulations open up long/short investment, changing the landscape for retail investors. SVM Saltire v FTSE All-Share 80.0% 60.0% 40.0% 20.0% 120% Captured approx. 80% of the upside. 90% 60% 30% 0.0% 0% Nov-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 -20.0% -30% -40.0% SVM Saltire -60.0% -80.0% FTSE All Share Net Long/Short Position -90% -120% -60% Source: SVM/Lipper 12
Slide 13: Profiting long and short - example C&C Group Source: Bloomberg/SVM  Ability to go long and short enhances opportunity for profit 13
Slide 14: Short example Uniq  Indebted  Margins under pressure  Pension Issues 14
Slide 15: Aviva plc : relative performance Source: Reuters 15
Slide 16: Framing - words matter Occurrences of: Underperform Disappointed Bad/worse/worst Poor/poorly Weaker/weakness Challenge 2 0 8 1 5 7 Achieve/achievement Good/better/best Excellent Grow/growing/growth Improve/improvement Strong/stronger/strength Success 85 150 15 207 73 150 55 Source: Aviva plc 2007 report SVM analysis 16
Slide 17: Next plc – earnings per share misleads Source: Next plc, SVM graph 17
Slide 18: Next plc 10 years’ revenue, post tax profit, EPS and shareholders’ funds Earnings per share Profits after tax Revenue Shareholders funds Source Next plc, SVM graph, indexed to base 1 18
Slide 19: Are there bargains in low P/Es? Selected P/E ratios 7000 6500 6000 5500 5000 4500 4000 3500 1/ 07 5/ 08 /0 6 /0 7 /0 8 07 08 01 /0 9/     Cattles Punch Yell Anglo Irish Bank 0.9X 1.0X 2.3X 1.2X /0 9 9/ /0 1 /0 5 /0 01 /0 01 01 01 01 01 /0 Source: SVM/Lipper 19
Slide 20: Long  Top line growth.  Improving margins.  Trade value.  Cash conversion. Short  Weak balance sheets.  Pension issues.  Refinancing.  Acquisition led growth, weak business models. 20
Slide 21: Risk warning Please remember that past performance should not be seen as an indication of future performance. Stockmarkets and currency movements may cause the value of an investment to fall as well as rise and investors may not get back the amount originally invested. The SVM Saltire Fund is a Professional Investor Fund and is available only to ‘qualifying investors’ as defined in the Prospectus. The Fund is domiciled offshore therefore some of the protections afforded to investors under the UK Financial Services & Markets Act 2000 may not apply. SVM Asset Management Ltd has holdings in this fund. Disclaimer The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form without the express permission of SVM Asset Management and to the extent that it is passed on, care must be taken to ensure that this is in a form which accurately reflects the information presented here. Regulatory Status SVM Asset Management is authorised and regulated by the Financial Services Authority. 21
Slide 22: Appendix 22
Slide 23: Defining hedge funds look a lot like banks but less risky Banks Hedge Funds Leverage Systemic Risk Public Money Transparency 18x upwards Yes Already $ Trillions Most now under 1.5x Largest potentially, others not. No Significant use of Level 3 Nearly all give monthly valuations, not marked to marked to market market, annual audits valuations, some weekly CEOs of 5 US inv. banks Rewards depend on success Earned $3.1bn 2003/7 Rewards 23