Convertible Bonds Thematic 13 October 2008

De-leveraging has forced many assets into distressed territory; Convertible bonds represent an asset class with limited downside and considerable upside; A concrete catalyst exists which we will help drive this market back to normality.

Background:

During our December 2006 conference call (offering our investment outlook for 2007) our general investment advice to clients was to de-lever by removing excess borrowing & excess risk from their portfolios (please feel free to contact us for a transcript). This was based upon our position that capital was too cheap, volatility was unsustainably low and that market conditions would shortly change to reflect a return to risk aversion after a long hiatus. Those changes materialised very violently during the summer of 2007 with the beginning of the credit crisis (ignited by the realisation of severe problems within the US housing market). In September 2007 we circulated to all Alternative Investments clients a bound five page credit crisis presentation which provided a brief explanation along with quantitative proof, evidencing the dramatic moves in markets (Yen carry-trade unwind to cite one example). We concluded with the generic investment view that the UK property market was due for a correction and that the British Pound (GBP) would weaken going forward. The timing of those two calls was rewarding for those clients that took action based on our advice.

Subsequently, in the beginning of 2008 we forecasted broad equity index weakness along with a strengthening of both the US Dollar (USD) and the Singapore Dollar (SGD) vs. weakness for both the EUR and the GBP. Since then we have witnessed one of the strongest sell-offs of GBP in 30 years and we continue to see the EUR decline due to a weakening European economy and a unjustifiably hawkish European Central Bank (ECB). The theme of de-leveraging continues and has created, at the moment, what we believe to be excellent investment opportunities for our clients. One of these special opportunities is within the Convertible Bond (CB) space. We have been conducting research and meeting managers specialising in this area for several months now and we believe the time to take action is upon us.