Nordic Hedge Fund Investor Survey 2011

TABLE OF CONTENTS

Table of Contents
Acknowledgement Key Findings Investor Profile Distribution of survey respondents by country Distribution of survey respondents by assets Distribution of survey respondents by investor type Distribution of AUM by investor asset size Maximum percentage allocation of total assets to hedge funds (excl FoHF) Current percentage allocation to hedge funds (excl FoHF) Allocation to single managers versus Fund of Hedge Funds The Investment Process Length of investment process How investors find hedge funds Use of external advisors when investing Use of external consultants to make operational DDQ Number of manager meetings during 2010 Number of first meetings during 2010 Reinvestments in hedge funds Thresholds To Invest Track record requirements Investors level of interest in managers number of years in operation Investors appetites for funds AUM levels Maximum concentration Minimum asset size Liquidity requirements Acceptance of lock-ups Sensitivity to fee structures Interest in managed accounts Legal structure preferences Allocations Expectations of hedge fund allocations increase/decrease during 2011 Regions where investments have been made during 2010 Regions where investors expect to increase their allocations during 2011 Distribution of investments 2010 by strategy Expected increase of allocations for 2011 by strategy Strategies expected to perform favourably during 2011 Strategies that are hard to find UCITS Funds Investments in UCITS Funds Considerations to invest in UCITS Funds Conclusions Contact Details 4 5 6 6 6 7 7 8 8 9 10 10 10 11 11 12 12 13 14 14 14 15 15 16 16 17 17 18 18 19 19 19 20 20 21 21 22 23 23 23 24 26

SEB Enskilda Nordic Hedge Fund Investor Survey | 3

ACKNOWLEDGEMENT

Acknowledgement
For the second year, we are pleased to present the SEB Enskilda Capital Introduction 2011 Nordic Hedge Fund Investor Survey. This empirical survey collects responses from investors actively allocating capital to hedge funds. We intend to continue conducting this survey on an annual basis. The responses we have received provide a valuable insight into the Nordic investor sentiment and we would like to thank all the investors that have participated.

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KEY FINDINGS

Key Findings
Investor profile
The respondents of this survey represent over $600 billion of assets under management. The biggest investors are Pension Funds1, Insurance Companies and Asset Managers2. Investors that have a mandate to allocate up to 30 % of their total assets represent 75 % of the respondents, excluding Fund of Hedge Funds. Within this interval, the average maximum allocation rate is 7 % and the most frequent investor type is Pension Funds. Most investors have not yet filled their maximum allocation quota to hedge funds and thus have capacity to invest more in hedge funds. Compared with last year, more investors are investing in single managers as opposed to investing in Fund of Hedge Funds.

Investment process
The investment process has become longer and exceeds six months for many of the respondents. The most common way to find hedge funds is through hedge fund seminars and conferences as well as Capital Introduction teams. Most Nordic investors are confident in their own ability to pick hedge funds and do not use external advisors when investing and when making operational DDQ.

The large majority of the respondents do not seed hedge funds. Among the ones that do seed, 50 % seed to receive a fee discount or capacity. There is a good appetite to invest in funds that investors have not yet invested in.

Thresholds to invest
Most investors want at least two years of track record before they invest. Also, there is a trend to prefer managers with at least five years of experience. However, 21 % say that they are willing to invest at an early stage. Nordic investors have a large flexibility with regards to fund asset size. Nordic investors focus on the fund strategy, whereas the legal structure is a secondary issue.

There is an increased interest in funds that have $ 250m-$ 1b in assets under management.

Allocations
32 % of investors expect to increase their allocations to hedge funds and only 2 % expect to decrease their allocations. Last year, 14 % of the investors expected to decrease their allocations. Global Macro and Long/Short Equity were most popular during 2010, which is what the investors expected in last years survey. Global Macro is expected to keep its popularity during 2011. Global Macro, Event Driven and Equity Long/Short are the strategies that the investors expect to perform most favourably during 2011.

We see an increased interest in investing in the Asia Ex-Japan region.

1 2

In this survey Pension Funds include State, Corporate, and Mutual Pension Funds Investment companies and wealth management

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INVESTOR PROFILE

Investor Profile
Distribution of survey respondents by country
12%

13%

60% 15%

Sweden

Finland

Denmark

Norway

Swedish investors represent 60 % of the Nordic investors in this survey.

Distribution of survey respondents by assets

Asset Manager Insurance Company Pension Fund Funds of Funds Advisor Family Oce/Private Investor Bank Private Bank 11 7 4 4 1 135 185

266

50

100

150 AUM ($ billion)

200

250

300

The respondents of this survey represent $613 billion. The biggest investors are assets managers, insurance companies and pension funds with more than $580 billion in assets under management.

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INVESTOR PROFILE

Distribution of survey respondents by investor type

35% Pension Fund 30% 29% Asset Manager Insurance Company Funds of funds 20% 20% Advisor / Consultant Family Oce / Private Investor 15% 15% 12% 10% 7% 5% 7% 5% 3% 0% 2% Bank Endowment / Foundation Private Bank

25%

Most of the respondents represent pension funds and asset managers.

Distribution of AUM by investor asset size

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% < $100m $100m - $500m $500m - $1,000m $1,000m - $10,000m > $10,000m 5% 8% 21% 21% 45%

Almost 70 % of investors have at least $1 billion under management.

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INVESTOR PROFILE

Maximum percentage allocation of total assets to hedge funds (excl FoHF)

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% < 10% 10% - 20% 20% - 30% 30% - 50% > 50% 4% 4% 30% 40%

22%

Investors that have the mandate to allocate up to 30 % of their total assets represent 75 % of the respondents, excluding Fund of Hedge Funds. Within this interval, the average maximum allocation rate is 7 % and the most frequent investor type is Pension Funds.

Current percentage allocation to hedge funds (excl FoHF)

60%

55%

50%

40%

30%

23%
20%

16%

10%

6% 0%

0% < 10% 10% - 20% 20% - 30% 30% - 50% > 50%

55 % of investors have allocated less than 10 % of their total assets to hedge funds. Within the interval of 0 30 %, the average current percentage allocation is 6 % and the most frequent investor type is Pension Funds.

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INVESTOR PROFILE

Allocation to single managers versus Fund of Hedge Funds

60% 51% 50%

40%

30% 22% 20% 11% 10% 0% 16%

0% < 25%

25% - 50%

50% - 75%

75% - 100%

100%

78 % of investors do their major hedge fund investments in single managers, as opposed to investing in Fund of Hedge Funds.

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INVESTMENT PROCESS

The Investment Process

Length of investment process
50% 46% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% < 1 month 1-3 months 3-6 months > 6 months 3% 8% 43%

57 % of investors have an investment process that is shorter than six months.

How investors find hedge funds

(multiple answers allowed)
70% 61% 60% 50% 40% 30% 20% 10% 0% 39% 54% 54% 51%

Hedge fund seminars and conferences Capital Introduction teams Other Industry colleagues Third party marketeer 24% 22% 15% 12% Online hedge fund research providers Investment advisors Newspapers & Magazines Newsletters

To find hedge funds, most investors use hedge fund seminars and conferences as well as Capital Introduction teams.

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INVESTMENT PROCESS

Use of external advisors when investing

27%

Use external advisors Do not use external advisors 73%

Almost three quarters of investors are confident in their own ability to pick hedge funds.

Use of external consultants to make operational DDQ

32%

Use external consultants Do not use external consultants 68%

About one third of investors use external consultants to make operational DDQ on hedge funds before investing.

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INVESTMENT PROCESS

Number of manager meetings during 2010

40% 36% 35% 31% 30% 25% 20% 15% 10% 5% 0% 0-25 25-50 50-75 75-100 >100 8%

22%

3%

The investors together had more than 3,000 manager meetings during 2010. 31 % of investors had more than 100 meetings.

Number of first meetings during 2010

60%

55%

50%

40%

30%

20%

17%

14% 11%

10% 3% 0% 0-25 25-50 50-75 75-100 >100

The investors were asked how many managers they met for the first time. 55 % of the respondents answered that they met up to 25 managers for the first time during 2010.

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INVESTMENT PROCESS

Reinvestments in hedge funds

40% 35% 30% 25% 20% 15% 10% 5% 0% 0-10% 10-25% 25-50% 50-75% 75-100% 9% 6% 25% 22% 38%

During 2010, 37 % of the respondents placed the majority of their allocations in hedge funds that they had not yet invested in.

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THRESHOLDS TO INVEST

Thresholds to Invest
Track record requirements
35%

32%

30%

25% 21% 20% 21% 22%

15%

10%

5%

4%

0% 0-6 months 6-12 months 12-24 months 24-36 months > 36 months

Most investors want 24 months or more of track record before they are willing to invest. However, 21 % say that they are willing to invest at an early stage.

Investors level of interest in managers number of years in operation

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6% 6% Day 1 6% Less than 1 year 1-2 years 2-5 years Greater than 5 years 44% 35% 38% 69% 47% 21% 18% 44% 38% 32% 47% No Interest Low Medium High 12% 0% 3%

3% 3%

28%

The majority of investors seek managers with at least two years of experience.

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THRESHOLDS TO INVEST

Investors appetites for funds AUM levels

100% 11% 90% 80% 70% 60% 50% 40% 30% 20% 20% 10% 0% 6% < $50m $50m-$250m $250m-$1b $1b-$5b > $5b 26% 34% 37% 47% 40% 26% 40% 46% No interest Low Medium High 3% 6% 0% 14% 32% 3%

51% 40% 18%

Most investors prefer funds with $250m-$1b in assets under management.

Maximum concentration
30% 27% 25% 27%

23%

20%

18%

15%

10%

5% 0%

5%

0%

0-5%

5-10%

10-15%

15-20%

20-25%

> 25 %

The majority of the respondents restrict their investments to represent a maximum percentage of 20 % of a fund.

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THRESHOLDS TO INVEST

Minimum asset size

30%

25% 21% 20%

24% 22%

15%

15%

10%

9%

9%

5%

0% < $50m $50m-$100m $100m-$250m $250m-$500m > $500m Have no such requirement

15 % of investors do not require funds to have a minimum asset size before they invest. 47 % of investors that do have minimum asset size limitations require the fund to be bigger than $100 million.

Liquidity requirements
100% 90% 14% 80% 70% 60% 50% 40% 30% 20% 28% 10% 0% Daily Weekly Monthly Quarterly 6% Less liquid 59% 50% 22% 61% 25% 30% 19% 3% 17% 33% 30% No Interest Low Medium High 3% 3%

8%

17% 42%

30%

The respondents prefer more liquid strategies, where monthly liquidity is the most common requirement.

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THRESHOLDS TO INVEST

Acceptance of lock-ups

47% 53%

Accept lock-ups Do not accept lock-ups

53 % of investors accept lock-ups if the strategy so requires.

Sensitivity to fee structures

Draw-down recapture high water mark

24%

63%

13%

Incentive fees greater than 20%

12%

59%

29%

Expenses pass through structures

6%

74%

20%

Management fees 2% or greater

12%

65%

23%

Management fees 2% or less

88%

12% 0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Acceptable - if net returns warrant

May consider - but prefer not

Precludes investment

The respondents are the least sensitive to management fees at 2 % or less.

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THRESHOLDS TO INVEST

Interest in managed accounts

37% Interest in structured solutions No interest in structured solutions

63%

37 % of investors are interested in structures solutions such as managed accounts.

Legal structure preferences

(multiple answers allowed)

50%

25%

No preference UCITS On-shore

23%

O-shore

20%

0%

10%

20%

30%

40%

50%

60%

50 % of investors have no preference regarding legal structure.

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ALLOCATIONS

Allocations
Expectations of hedge fund allocations increase/decrease during 2011

32% Increase Decrease Remain unchanged 66% 2%

32 % of the Nordic investors are expecting to increase their allocations to hedge funds during 2011. Only 2 % of the respondents expect to decrease their allocations.

Regions where investments have been made during 2010

(multiple answers allowed)

78% 68% 63% 44% 17% 17% 15% 2% Europe USA Nordic Asia ex-Japan Latin America Japan Eastern Europe Africa

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

The European, American and Nordic regions were the largest targets for the Nordic investors during 2010.

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ALLOCATIONS

Regions where investors expect to increase their allocations during 2011

(multiple answers allowed)

46% 39% 37% 24% 12% 10% 7% 5% USA Europe Asia ex-Japan Nordic Latin America Japan Eastern Europe Africa

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

The American region represents the largest investment target during 2011.

Distribution of investments 2010 by strategy

(multiple answers allowed)
61% 56% 49% 46% 44% 44% 41% 34% 32% 22% 17% 17% 17% 12% 10% 10% 10% 7% 7% 0% 10% 20% 30% 40% 50% 60% 70%
Global Macro Equity Long/short Event Driven Credit Multi Strategy CTA/Managed Future Market Neutral Fixed Income Arbitrage High Yield/Distressed Commodities Other Merger Arbitrage Currencies Volatility Arbitrage Statistical Arbitrage Equity Long/short, High Turnover Trading Convertible Arbitrage Equity Long/short, Small/Mid Cap Equity Long/short, Short bias

Global Macro and Long/Short Equity were the two most popular strategies during 2010.

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ALLOCATIONS

Expected increase of allocations for 2011 by strategy

(multiple answers allowed)
39% 22% 22% 20% 17% 17% 17% 15% 15% 10% 10% 10% 10% 7% 2% 2% 2% 0% 0% 0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Global Macro Event Driven CTA/Managed Future Fixed Income Arbitrage Market Neutral Equity Long/short Commodities Other Credit Multi Strategy Merger Arbitrage High Yield/Distressed Currencies Equity Long/short, High Turnover Trading Volatility Arbitrage Statistical Arbitrage Equity Long/short, Sector bias Equity Long/short, Small/Mid Cap Equity Long/short, Short bias Convertible Arbitrage

Global Macro is expected to be the most popular strategy during 2011.

Strategies expected to perform favourably during 2011

(multiple answers allowed)
49%

7% 5% 2% 2% 0% 0% 0% 0% 0%

15% 15% 12% 10%

24% 22% 22% 20%

29% 29%

34%

Global Macro Event Driven Equity Long/short CTA/Managed Future Credit Multi Strategy High Yield/Distressed Fixed Income Arbitrage Merger Arbitrage Commodities Other Market Neutral Currencies Equity Long/short, High Turnover Trading Volatility Arbitrage Equity Long/short, Sector bias Statistical Arbitrage Equity Long/short, Small/Mid Cap Equity Long/short, Short bias Convertible Arbitrage

10%

20%

30%

40%

50%

60%

Global Macro and Event Driven are the strategies that most investors believe to perform most favorably during 2011.

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ALLOCATIONS

Strategies that are hard to find

When asked about strategies that the investors thought were hard to find, the responses from investors were mixed. Among others, Discretionary Macro, FX and CTA strategies were mentioned to be difficult to find.

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UCITS FUNDS

UCITS funds
Investments in UCITS funds

32%
Invested in UCITS funds Not invested in UCITS funds

68%

68 % of investors are invested in UCITS funds.

Considerations to invest in UCITS funds

39%

Consider investing in UCITS funds Do not consider investing in UCITS funds 61%

61 % of investors are considering investing in UCITS funds.

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CONCLUSIONS

Conclusions
The Nordic investors allocations to hedge funds are expected to grow further during 2011. 32 % of the investors are expecting to increase their allocations to hedge funds, compared to 2 % of the investors that are expecting to decrease their allocations. Furthermore, most investors have not yet reached their maximum allocation limits to hedge funds. In last years survey, the investors expected Global Macro to perform favourably during 2010 and like they stated the allocations to Global Macro funds increased from 2009 to 2010 by 43 %. Event Driven has experienced a strong increase of 120 % although only 22 % of the investors believed that it would perform favourably during 2010. This is also the case for Market Neutral, to which the investors have increased their allocation by 28 % although only 16 % expected it to perform favourably. Nordic investors seem to appreciate the risk-reducing effect a Market Neutral fund can have on the total portfolio. To be willing to invest, most Nordic investors require a hedge fund to have two years of track record, monthly liquidity and a fund size larger than $50 million. However, the investors seem to have the largest appetite for funds with AUM levels at $250m-$1b. The focus of the Nordic investor is primarily on the fund strategy, leaving the legal structure as a secondary issue. In addition, investors are not that sensitive to fee structures since proper alpha is worth paying for in a world where beta is almost for free. To conclude, this survey shows that the Nordic investor community is optimistic when it comes to hedge fund investments and that the investors seek a broad variety of hedge fund strategies.

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CONTACT DETAILS

Contact Details
Jonas Lindgren Head of Prime Brokerage +46 8 506 23 306 Charlotte Bonde Tamm Head of Capital Introduction +46 8 506 23 311 Albert Hammar Head of Prime Brokerage Sales +46 8 506 23 308 Caroline Lundstrm Survey Editorial +46 8 506 23 065

Prime Brokerage
SEB Enskilda Prime Brokerage is a unit exclusively set up to provide service to money managers with an absolute return focus, all strategies, structures and geographies. SEB Enskilda Prime Brokerage has over 30 years of experience with leading European and US Hedge Funds, and over 350 Hedge Fund clients.

Disclaimer
The information in this document has been compiled by SEB Merchant Banking, a division of Skandinaviska Enskilda Banken AB (publ) (SEB). It is produced for private information of recipients and SEB is not soliciting any action based upon it. All information has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Recipients are urged to base any investment decisions upon such investigations as they deem necessarily. To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or indirect loss arising from the use of this document or its content. Your attention is drawn to the fact that SEB, or any entity associated with SEB or its affiliates, officers, directors, employees or shareholders of such members may from time to time have holdings in the securities mentioned herein.

Confidentiality Notice
This report is confidential and may not be reproduced or redistributed to any person other than its recipient from the Bank. Skandinaviska Enskilda Banken AB (publ), 2011. All rights reserved.

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Investor Survey 2011

SEB Enskilda Prime Brokerage & Capital Introduction

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SEMB0064 2011.07

SEB is a leading Nordic financial services group. As a relationship bank, SEB in Sweden and the Baltic countries offers financial advice and a wide range of financial services. In Denmark, Finland, Norway and Germany the banks operations have a strong focus on corporate and investment banking based on a full-service offering to corporate and institutional clients. The international nature of SEBs business is reflected in its presence in some 20 countries worldwide. On 31 March 2011, the Groups total assets amounted to SEK 2,118 billion while its assets under management totalled SEK 1,372 billion. The Group has about 17,000 employees. Read more about SEB at www.sebgroup.com