1. Sustainable & Responsible hedge funds sprouting seeds?TBLI Amsterdam, November 2009 Erik Eidolf Executive Director Harcourt Investment Consulting AB A unique SRI-compliant Fund of Hedge Funds enabled by

2. Agenda and take aways

SRI/ESG is increasingly getting a foothold also in the alternative investment industry.

Hedge funds are particularly suited for SRI investing.

• They tend to be veryactive investors ;

• andlook toanticipate catalysts of change ,

• and aim toprofit from perceived inefficiencies

• and able to quicklyadapt to changing markets ,

• therefore suited to embrace SRI/ESG in their investment practices.

But, how can SRI/ESG be expressed in hedge fund context?

3. UN PRI Demand driven case for ESG/SRI

UN PRI

A truly global RI/ESG initiative

The PRI objecively shows growing interest in ESG/RI issues:

• more than 620 signatories globally

• represents over USD 18 trillion in assets

Mainstream asset managers and banks are joining

Private Equity firms increasingly signing up:

• PRI PE Workstream paving the way

Hedge funds to follow....

The Principles for Responsible Investments

We will incorporate ESG issues in investment analysis and decision-making processes.

We will be active owners and incorporate ESG issues into our ownership policies and practices.

We will seek appropriate disclosure on ESG issues by the entities in which we invest.

We will promote acceptance and implementation of the Principles within the investment industry.

We will work together to enhance our effectiveness in implementing the Principles.

We will each report on our activities and progress towards implementing the Principles.

4. A short primer: what is a hedge fund?

• Hedge funds vs. mutual funds (i.e. traditional long only funds)

• • HFs focus on absolute returnsdespite markets going up or down

• • Requires flexibilityto use virtually any type of financial instrument

• • HFs therefore haveless restrictions(e.g. ability to short sell, use leverage, etc)

• Hedge funds value added for an investor

• • Given their absolute return objective , compared to traditional asset managers HFsmay havethe potential to provide;

• • • higher risk adjusted returns

• • • low correlation to traditional asset classes

• • • the potential to preserve capital in falling markets

• What makes hedge funds interesting in SRI/TBLI context?

• • Hedge funds add tomarket efficiencyand are important providers of market liquidity

• • Hedge funds look toanticipate catalysts of change , and aim to profit from perceived inefficiencies.

• • Hedge funds therefore wellsuited to embrace ESG/SRIboth at present and in the future

5. Hedge funds a heterogenous group Fixed Income Equities Commodities Relative Value Relative Value Fixed Income Strategies: 1. Multi-Strategy Fixed Income 2. Fixed Income Arbitrage3. ABS & MBS 4. Asset-Based Lending Relative Value Equity Strategies: 9.Multi-Strategy Equity10.Event Driven Equity 11.Convertible & Volatility Arbitrage 12.Structured Equity Linked 13.Statistical Arbitrage 14.Market Neutral Equity Relative Value Commodity Strategies: 22. Multi-Strategy Commodity 23. Relative Value Energy Directional Directional Fixed Income Strategies: 5. Long/Short Rates 6. Long/Short Credit 7. Distressed Securities 8. Emerging Markets Debt Directional Equity Strategies: 15.Long/Short Global Equity 16.Long/Short US Equity 17.Long/Short European Equity 18.Long/Short Japanese Equity 19.Long/Short EM Equity 20.Long/Short Sectors 21.Short-Biased Equity Directional Commodity Strategies: 24. Metals Trading 25. Agricultural Trading26. Energy Trading 27. Power & Emissions Trading Directional Multi-Asset Class Strategies: 28. LT Trend-Following CTAs 29. ST Systematic Trading CTAs30.Global Macro31.Insurance-Linked 6. Implementing SRI in hedge fund context

Broader ESG/SRI implementation in hedge fund context:

Either the hedge fund can:

1) adjust its standard investment strategy by limiting its exposure to SRI/ESG compliant instruments, or

2) use SRI/ESG criteria as input based on how well SRI/ESG is reflected, or will be reflected, in the value of such instruments.

Partial E, S, G implementation are known asthematic initiatives

Thematic hedge funds focus on e.g. renewable energy, clean water etc,

A pitfall from a sustainability aspect is however that they are much less expansive, as sustainability in its broadest terms seeks to also incorporate other aspects such as human rights, broader environment risks, corruption etc.

7. Implementing SRI in hedge fund context

In the first approach, the hedge fund seeks to

utilize his/her skills in employing a certain hedge fund strategy whilst constraining the exposures to an SRI compliant list of instruments.

The critical aspect for the SRI investor is to assess the manager skill of the hedge fund as well as how well the hedge fund can manage the portfolio within the constrained universe of instruments.

This makes it easier for the hedge fund to embrace SRI as it is based on an existing investment process for which the hedge fund has a proven track record.

8. Implementing SRI in hedge fund context

The second approach

requires the hedge fund to fully integrate SRI/ESG criteria into the investment approach for going long good/sustainable companies and going short bad/unsustainable companies.

This approach is likely to become more commonplace in the future as SRI/ESG issues are increasingly being reflected in how the financial markets are evaluating instruments.

This approach is however likely to be more volatile than the constrained universe approach as ESG/SRI is not the sole catalyst for valuation changes of instruments

A challange for the investor is to not only assess the skill of the manager but also understand how ESG/SRI is implemented.

9. Growing pains, learn from the past

Parallels to development of the hedge fund industry from the late 1990s until today.

SRI world is similarly opaque and complex as the hedge fund industry used to be

Thelack of understanding : We believe that the SRI practitioners more should proactively disclose their SRI policies and procedures

Thelack of transparency : Full disclosure increases the understanding, which on a comparative basis merits the most serious practitioners in particular.

Thelack of a common definition : There is a chicken-and-egg problem related to creating standardized SRI solutions which is hampering the possibility for asset managers to create uniform SRI solutions.

Thus, the way forward is to get asset owners to push hedge funds to embrace ESG/SRI by means of transparency, collaborations and putting real assets into force.

10. Disclaimer An investment in an alternative investment carries substantial risks. The nature and extent of some of these risks differ from traditional investments in stocks and bonds. There can be no assurance that the advice or information provided above will lead to superior performance.In particular, the performance of an alternative investment may vary substantially over time. Investors bear the risk of losing all or part of their investment and thus should carefully consider the appropriateness of such investments for their portfolio. While the information contained in this document has been obtained from sources deemed reliable, no representation is made as to its accuracy or completeness, and it should not be relied on as such.Past performance is not necessarily indicative of future performance. 11. Contacts

Harcourt Investment Consulting

Stampfenbachstrasse 48

8006 Zrich - Switzerland

Tel: +41 44 365 1000

www.harcourt.ch

Storebrand Filipstad Brygge1 0114Oslo - Norway Tel: +47 22 31 50 50www.storebrand.no Folksam/KPA Bohusgatan 14 106 60 Stockholm - Sweden Tel: +46 8 772 60 00www.folksam.se www.kpa.se