Institutional Investments:Institutional Investments:Where Do We Go From Here?Where Do We Go From Here?

(Please tell me it’s up!)(Please tell me it’s up!)

Presented by:Presented by:

Rick L. Smith, SVP, Institutional InvestmentsRick L. Smith, SVP, Institutional Investments

Carolina First BankCarolina First Bank

A trade name of TD Bank, N.A.A trade name of TD Bank, N.A.

In a very chaotic environment for In a very chaotic environment for Equity and Fixed Income markets, we Equity and Fixed Income markets, we

will have a discussion of where we will have a discussion of where we have come from, where we are, and have come from, where we are, and

where industry professionals think we where industry professionals think we might be headed. might be headed.

Where we have come from . . .Where we have come from . . .

Events of the past 24 months: Let’s ReviewEvents of the past 24 months: Let’s Review

$600 Billion Auction rate securities market freezes

US seized control of AIG in an $85 billion bailout

Federal takeover of Fannie Mae and Freddy Mac

Lehman Brothers filed for bankruptcy

Washington Mutual seized by regulators

Bear Stearns forced sale to JP Morgan

Indy Mac seized by regulators - 2nd largest

Wachovia forced sale to Citibank/Wells Fargo

Madoff’s $50 billion dollar fraud

The $64 billion dollar Reserve MM fund freezes

Congress passes $700 billion bailout plan

Big 3 Auto Makers seek government bailout

26 Bank failures across the US in 2008

S&P index declines by 50% – What’s next 2009/10?

140 Bank failures in 2009

44 States issue Budget Short Fall Forecast

California issues IOU’s as money runs out

132 Bank failures to date in 2010

Unemployment approaches 10%

Largest Budget in US History Passed $3.1 Trillion

European debt crisis

Merrill, Lehman & Bear Stearns no longer exists

Current US Deficit 13 Trillion

How Much Is $13 Trillion?How Much Is $13 Trillion?

You would need to spend

$13.00 per second

$780.00 per minute

$46,800.00 per hour

$7,862,400.00 per week

$31,449,600.00 per month

$377,395,200.00 per year

For The Next 32,000 years

Alan Greenspan

Ben Bernanke

Mid 2000 6.50%

Mid 2004 1.00%

Mid 2007 5.25%

Mid 2008 2.00%

Source: Board of Governors Federal Reserve

Feds Recent US Monetary PolicyFeds Recent US Monetary Policy

Present 0 – 25bps

QE2 (Quantitative Easing)

You Don’t Know Who is Swimming You Don’t Know Who is Swimming Naked until You Drain the Lake . . .Naked until You Drain the Lake . . .

Warren Buffet Warren Buffet

Bear Stearns Gross leverage ratio: 29.9 to 1% of 3rd qtr. Revenue Investing its own $ 23%

Lehman BrothersGross leverage ratio: 30.2 to 1% of 3rd qtr. Revenue Investing its own $ 37%

Morgan StanleyGross leverage ratio: 32.2 to 1% of 3rd qtr. Revenue Investing its own $ 24%

Goldman SachsGross leverage ratio: 24.5 to 1% of 3rd qtr. Revenue Investing its own $ 61%

Merrill LynchGross leverage ratio: 23.3 to 1% of 3rd qtr. Revenue Investing its own $ 37%

* Source: Data from 2nd quarter 2007 Conte Nast Portfolio Magazine

November 2007

With Leverage of 30 to 1, it takes a reduction of 3% in assets to wipe out all equity

Low Rates = Dangerous Amounts of DebtLow Rates = Dangerous Amounts of Debt(A Slide From My Presentation October 2008)(A Slide From My Presentation October 2008)

Where we are . . . Where we are . . .

U.S. Bank FailuresU.S. Bank Failures

As A Result of The Past 18 MonthsAs A Result of The Past 18 Months

Institutional Behavior

“Facing Massive Losses, Endowments & Foundations are moving lockstep out of the Endowment Investment

Model after years of double digit returns.” (*)

• The 10 Largest University Endowments Lost a Combined $36 Billion

• Harvard alone lost 10 billion of its $37 billion endowment

• 81% of Nonprofits polled have altered their Investment Models due to recent Markets

*Source: Institutional Investor Magazine, Nov 2009

The Lost Decade in Equities, The S&P The Lost Decade in Equities, The S&P 500 has been Flat since 2000 . . . 500 has been Flat since 2000 . . .

Where industry professionals Where industry professionals think we might be headed . . . think we might be headed . . .

Fed Funds Implied ProbabilityFed Funds Implied Probability

Money Goes Where Money is Money Goes Where Money is Treated the Best . . . Treated the Best . . .

US Treasury Securities at unprecedented low yields

T-Bills/Treasury's

Yields

90 Day yield 13 bps 2 Yr. yield 36 bps (lowest is history) 5 Yr. yield 118 bps10 Yr. yield 257 bps

Where Is The Smart Money Going?

Where are the markets heading?

Equities

StocksInterest rates

Fixed Income

Bonds Interest rates

Conventional Wisdom, Investing 101

Asset Allocation & Rebalancing

Investment

Objective Fixed IncomeCurrent Income

Income & Growth Balanced Growth Appreciation All Equity

Target Asset Mix (Equity%/Fixed Income%) 0 / 100 20 / 80 35 / 65 50 / 50 65 / 35 80 / 20 100 / 0

Target Range Equity exposure (%) Fixed income exposure (%)

0 90 - 100

10 - 30 70 - 90

25 - 45 55 - 75

40 - 60 40 - 60

55 - 75 25 - 45

70 - 90 10 - 30

90 - 100 0

Risk Level Lowest Low Below Average Average Above Average High Highest

Investment Policy allow s portfolio manager to be +/- 10% around the stated equity and fixed income targets for each investment objective.

Fixed Income Equity

Strategic Asset Allocation

Conservative Moderate Aggressive

Asset Allocation PolicyAsset Allocation Policy

Correlation of StocksCorrelation of Stocks

Take Away For 2011Take Away For 2011

1) Have A Plan (Investment Strategy/Policy)

2) Be Consistent (Follow Your Plan)

3) Rebalance to Target Allocations

4) Consistent Returns Year-Over-Year Are The Goals