GHF Sicav

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The product evolution in Funds of Hedge Funds
from Multi-strategy funds to Advisory services
Lipper Conference Paris, the 16th of January 2007
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Agenda

• Generali Thalia who we are
• The evolution of the hedge fund industry since
  the year 2000
• The future of the hedge fund industry single
  managers
• The future of the hedge fund industry funds of
  hedge funds
• Conclusions

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Generali Thalia who we are
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THALIA Group

• Thalia is an international Hedge Fund competence
  centre, founded in 2003 and owned by BSI (51)
  and the Generali Group (49).
• The creation of this company was planned by the
  Generali Group and BSI in order to include Hedge
  Funds in the range of financial services offered
  to the clients. The international presence of
  Generali made it necessary to organize this new
  activity in such a way that competences and
  products might be available and unified at a
  European level
• Thalia manages over 3bn in Funds of Hedge Funds.
  It acts as portfolio manager for BSI Mutimanager
  funds as well as for Generali Hedge Fund Sicavs.
  Thalia is also advisor for Generali Thalia
  Investments France, Generali Thalia Investments
  Italy and for other institutional clients
• Thalia has its main office in Lugano and a
  presence in New York. The company employs 18
  people and has more than 8 years of experience in
  Hedge Fund due diligence, Portfolio Management
  and Analysis, Risk Management and Marketing

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Thalias group current products services
Advisory
Portfolio Management
Other Products / Services
Generali Hedge Fund Sicav
Multi Manager Funds
3 authorised funds
8 single-strategy sub-funds
2 multi-strategy funds
1 ARIA fund

• Third party Investment Advisory
• Structured Products
• Tailor-made Portfolios
• Advisory on BSI mandates

Long/Short US, Europe and Asia- Pacific
GTII Directional
Risk Fund
GTIF Multi Strategy
GTII Multi strategy
1 contractual fund
Yield Enhancement
Global Macro
GTII Yield Enh.
GTIF a Diversifié
Event Driven
Multi Arbitrage
Convertible Arb.
Fixed Income
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Generali Thalìa Investments France

• GTIF was created in December 2006 in order to
  manage and develop investment opportunities in
  the hedge fund world on behalf of the Generali
  Investments Group
• Shareholders are Generali Investments (65),BSI
  (25) and Thalìa SA (10)
• GTIF works in close collaboration with Thalìa SA,
  who acts as advisor
• GTIF is officially authorized by the AMF to
  manage both French and foreign alternative
  investments products (AMF Agreements of March and
  April 2007)
• GTIF currently manages two funds of hedge funds
  (GTIF Multi-Strategy GTIF Alpha Diversifié)
  with a total invested capital of 280M.

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GTIF Multi-Strategy characteristics

• Multi-Strategy fund of hedge funds under French
  regulation (OPCVM Aria) launched on March 30,
  2007 with 100m. Performance YTD (March -
  November 2007) of 5.90
• Portfolio construction selection of the best of
  breed and most experienced managers, with a
  bottom-up approach, top-down strategic allocation
  (quantitative and qualitative model)
• 33 single managers, 6 strategies
• Weight of relative value strategies of minimum
  30
• Targets on a 5-year basis annualised net return
  of 8 and annualised volatility between 3 and 5
  
• Monthly liquidity (5/35 days notice period for
  subscriptions/redemptions, minimum subscription
  of 10,000)
• Fees
• 0.5 management fee
• 20 performance fee over EONIA 0.75

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The evolution of the hedge fund industry since
2000
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The evolution of the industry some general
comments

• The hedge fund industry registered a very
  significant growth rate in the last few years and
  such growth was only marginally impacted by the
  equity market crisis of the years 2000-2002
• Total managed assets have been growing by 19.5
  on an annual basis to an estimated 1.4tn at the
  end of 2006. Since the average performance
  contribution can be estimated at an average
  annual 7.5 (net of fees), net inflows amounted
  to around 12 per annum as a proportion of the
  existing assets stock.
• The growth in managed assets benefited not only
  the existing funds but also contributed to the
  birth of a large numbers of new players
  (estimated at around 7,500 units, most of them in
  the long/short area)
• The growth in funds of hedge funds has been quite
  spectacular too, but more in terms of assets than
  in terms of new players.
• The concentration ratio of the industry grew in
  the period the top 50 funds represent today 47
  of total assets vs. 35 in 2003.

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Growth of the hedge fund industry 2000-2006

• The growth of the funds of funds component
  registered a very strong growth, also as a result
  of the institutionalisation of the industry
• We had the first signs of concentration among
  single managers
• These growth rates can be repeated in the next
  3-5 years but are going to slow down afterwards
• Increasing demand from institutional investors
  benefited so far the FOHFs segment more than the
  single managers but this may change in the future

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Break-up and evolution of assets under
management FOHF vs. Single managers
(1)(2) Source Hedge Fund Research , Hedge Fund
Intelligence
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Major trends in the industry

• Higher barriers to entry
• 30-50m for single managers
• 100m for funds of hedge funds
• New strategic paradigm for the industry
• All managers must offer a sustainable business
  model, not just trading capabilities and
  performances
• Institutional investors such as insurance
  companies, pension funds and others require an
  integrated approach to HF investing
• Competition is ramping up substantially
• On pricing (particularly for FOHFs)
• On performance
• On service quality and support

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An overview on the structure of the industry (1)

• The hedge fund industry is entering into a more
  mature phase of its lifecycle
• Some of the funds of hedge funds company reached
  a size comparable to the one of mid-size
  traditional asset managers and well above the
  10bn mark.
• A 1bn or above size for a single manager has
  become quite common
• The market is already in the middle of a
  concentration process which is involving not only
  hedge fund companies but also traditional fund
  management players

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The structure of the industry (2)Ranking by AUMs
as at the 30th of June 2006
Source Investhedge
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Hedge Fund MA activity 1998-2006
Fonte Freeman Co., Bloomberg
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The evolution of single managers
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A comparison between 1990 and 2006
1990
2006

• 1.5tn under mng.
• Growth of
• Long/Short
• Relative value
• Institutional approach

• 40 bn under mng.
• Direct investments
• HNW individuals
• Above 70 of investm. In macro funds

Source Hedge Fund Research, Thalia analysis
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The major changes of the last five years

• The Global Macro strategy, once predominant,
  continued to loose importance vs. other
  directional strategies
• The vast majority of new funds was concentrated
  in the Long/short area these funds are simpler
  to manage and require a lower initial capital
  when compared to relative value start-ups
• The average initial capital to start a new fund
  grew very substantially in the last decade
• We noticed a much higher mortality of new
  ventures (50 of lapse rates), due to both
  operating issues and insufficient performances
• The most successful start-ups (typically large
  spin-offs of existing companies) tend to raise
  larger amount of capital then previously but then
  to close to new investors within 18-24 months
  from launch

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Single managers where are they going?

• The choice for an original investment strategy
  is becoming fundamental for the success of single
  managers in the more crowded areas
• For a number of reasons (strategys complexity,
  average performance required, barriers to entry)
  some strategies attract a much more limited
  number of new players
• Convertible arbitrage
• Fixed Income (relative value)
• Multi Arbitrage
• Many large hedge funds have incorporated in their
  product offering both long-only and flexible
  funds, moving towards eroding market share of
  traditional mutual funds on their own turf.

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Single managers randonnée (2)
FREESTYLE
FREERIDE

• 13030 funds
• Long only
• Flexible/absolute return
• Activism
• Sector funds

• Distressed
• Private Equity style
• Credit structures
• Illiquid securities
• New markets fund (es. certificates on carbon
  emission)

Fonte Morgan Stanley, Thalia analysis
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The evolution of funds of hedge funds
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A look at the past

• The funds of hedge funds industry experienced a
  very strong growth in the last five years
• The reason of the growth lies in the closeness to
  the needs of most institutional and private
  investors alike investment diversification and a
  reasonable risk/return profile
• New entrants in the sector in the last five years
  have been limited in number because of increasing
  barriers to entry on minimum AUMs and operational
  issues
• The level of competition among funds is very
  high, in terms of both pricing and performance
• The major risk for funds of funds is the one of
  being disintermediated by final investors once
  they have reached enough size and knowledge of
  the industry

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Evolution in funds of fundsthe Swiss case
Multistrategy vs. Single strategy funds in the
Swiss market
In the last ten years the Swiss market clearly
moved towards the adoption of a more  strategy
focused  approach.
Source Thalia analysis
In the future, FOHFs will remain tied to their
ability to capture new inflows into such
investments. Large funds are likely to get much
larger with samller funds growing mostly by
effect of performance and will have to adapt to
changing market conditions. Hence, the sector may
break-up in two distinct sub-sectors
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FOHFs evolutionInvestors vs. advisors
Multi-strategy funds
70-90s
Single-Strategy funds
00s
ADVISORY
CAPITAL INTENSIVE
Pure advisory (Fund selection)
Hedge fund Seeding Incubation
Quantitative portfolio building
Managed accounts
Due Diligence Services alia
 Direct  single manager platforms
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Conclusions

• The hedge fund industry has reached a certain
  maturity over the years, as a result of its
  increasing penetration both at the HNWI and
  institutional level
• The process also took to an increasing
  correlation / similarity among the different
  products
• The industry will certainly consolidate in the
  near future barriers to entry will becaome
  stronger access to large and powerful
  distribution channel becomes key for survival
• Performance is only one of the factors in the
  institutional market, others being
• Brand
• Product range
• Service and support
• Only very few large players will be able to offer
  a full and integrated product range we aimed at
  being one of those

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QA

• and thanks for your attention