new oak creating an effective risk modeling framework (pensions risk management)

For more information please contact: Ron D’Vari, CEO/Co-Founder(212) [email protected]

Or visit us on the web at:www.newoakcapital.com/solutions

Liability Driven Investing (“LDI”)

31 October 2011

Effective Risk and Asset Modeling Requirements

Various Approaches to Managing to Liabilities

Dodd-Frank

LDI Financial Technology and Infrastructure Needs

http://www.newoakcapital.com/solutions

http://www.db.com/presse/en/content/3310.htm

PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.

2TABLE OF CONTENTS

I|Various Approaches to Managing to Liability Benchmarks

I I|Liability Driven Investi ng and Alpha Strategies

I I I|Relatively New Alpha Strategies

IV|An Example of a Scalable Strategy: Quantitative Global Equity

V|Dodd-Frank and Its Impact on LDI

VI|LDI - Solutions and Infrastructure Needs

Appendix I|OpenRisk M

Appendix II|Investment Support Services


3

Asset Liability Management Approach Various Styles

Basic cash-flow matched, key rate duration matched to full liability-driven investment with sophisticated asset allocation for active management of surplus

Surplus Optimization Using alternative, real and uncorrelated assets and styles Unique long dated assets: Life settlements, Structured settlements Real Assets: Real estate, Commodities Dollar Neutral Strategies: Long/Short global equities, Long/Short ETF Unique liquidity management: Short High Yield (“SHYLD”) Strategies (REO Finance, Supply Chain Finance,

Asset Based Finance)

Customized Solutions Customized style and benchmark construction consistent to funding status and institutional profile Separate accounts or commingled funds Broad array of fixed income, equity, and alternative asset types and strategies including esoterics

Liquid Fixed Income: All liquid fixed income (Short Duration, Core, Core+, Long Duration) Illiquid Fixed Income: Loans , structured products, specialty finance Equities: Long/Short, Event Driven, International Quant Equities, ETFs, High Frequency, Private Equities Real Investing: Real Estate, Land, Commodities Multi-Strat Macro: Free-to-roam

Ongoing Risk Management and Reporting Ongoing in-depth risk assessment, valuation, performance monitoring Daily benchmark variance analysis and marked-to-market Full cash flow scenario analysis Periodic benchmark performance attribution

Comprehensive approach can meet complex institutional, product lines, and regulatory requirements

CREATING AN EFFECTIVE RISK MODELING FRAMEWORK FOR LDI


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I. Various Approaches to Managing to Liability Benchmarks


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Role of the benchmarkWhat risk to manage?An Illustrative Case StudyTraditional liability benchmarks and choice of discounting

Static spreadDynamic spread

How do you measure the manager’s performance in A/L framework?

Impact of spread volatility on performance measurementDistortion due to static spread assumptionManager behavior and its impact on expected returns

Case for dynamic-spread liability benchmark

Role of Min-VAR Optimization in Asset/Liability ManagementKey-rate-duration matched dynamic spread benchmarksKey-rate-duration matched market-based benchmarks

CHALLENGES OF MANAGING TO LIABILITY BENCHMARKS


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DefinitionsThe following risks measure variability of:Absolute Return Risk = Std. Dev. (Portfolio Return)Relative Risk = Std. Dev. (Portfolio Return - Benchmark Return)Relative-to-Liability Risk = Std. Dev. (Portfolio Return - Liability Return)

Basis Risk = Std. Dev. (Benchmark Return - Liability Return)

How Should Risk Be Measured?Portfolio vs. Cash (Total Return Risk), Portfolio vs. Benchmark (Relative Risk), orPortfolio vs. Liability (Relative-to-Liability Risk)?

WHAT RISK(S) TO MANAGE TO?


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WHAT IS RELEVANT?

Choice of benchmark can be a critical determinant of returnsMarket-based benchmarks - Basis RiskLiability-based benchmarks - Absolute Risk

What seems to be most relevant?

The answer is “it depends!” or “it is regime dependent”Short-Run Total/Absolute (sponsor) or Relative Risk (manager)

Long-Run Relative-to-Liability Risk (sponsor)

Is there a pattern?In down-markets there is reversion to liability-based approach

Absolute returns look uglyRelative returns look horrific because liabilities outpace markets

In up-markets market-based benchmarks rule


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RECENT EXPERIENCE

Up-market Period: 1984-2000, 2003-2007, 2009-2010Market-based strategies outperformed liability benchmarksBasis risk was profitable and led to huge pension surplusesSponsors tended to down play relative risk to liability benchmarks

Contributions to pension plans were kept at minimum

Down-Market Period: 2000- 2003, 2007-2009, 2011Liabilities have significantly outperformed portfolios and market-based benchmarks

Basis risk has materialized and has led to huge pension deficitsSponsors are re-evaluating relative risk to liability benchmarksContributions to pension plans are resuming and a must Sponsors are reneging on their liabilitities

Extension of retirement ageReducing post retirement health benefitsCutting off defined benefit (e.g. California)


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OPTIMAL ALLOCATION OF ASSETS - DIFFERENT APPROACHES

Optimal Utility Function ApproachOptimization is generally cast in absolute risk-return space

Inter-temporal risk is measured in absolute terms rather than relative to the liabilities Based on some form of efficient frontier

Market-based benchmarksChoice of benchmark is driven by risk-tolerance (utility)

Liabilities ignored for the most partLiability Immunization Approach

Optimization is cast in relative-to-liability risk-return spaceInter-temporal risk is measured relative to the liabilities

Estimation of liabilities are keyDiscounted-liabilities form the benchmark

Discounting methodology variesChoice of discounting methodology can influence results significantly

Modern portfolio management ignores risks vs. liabilities


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OPTIMAL UTILITY FUNCTION APPROACH

Establish Efficient Frontier and Utility FunctionSelect investable asset classes and corresponding indicative market indices

Establish length of time and frequency of measurement most relevant

Identify risk tolerance or a risk-return utility function Establish Optimal Benchmark/Asset Mix

Optimize Sharpe Ratio by solving for optimal asset class on efficient frontier and risk tolerance

Actively ManageOptimize information ratio, i.e. alpha/tracking error

Risks vs Liabilities Are Ignored

Benchmark - Optimal Sharpe Ratio

Management - Optimal Information Ratio


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TRADITIONAL LIABILITY IMMUNIZATION APPROACH

Establish Liability BenchmarkLiability Cash Flows: Establish realistic liability (RL) or participating liability (PL) cash flow stream

Discounting Methodology: Establish a discounting methodology

Curve - Zero coupon curve + some spreadTreasury, agency, or swapTail Rate - A discount rate for flows past 30 years

Spread - Sufficient spread that meets the liabilities in the long run and provide with additional risk-adjusted return

Manage Assets vs. BenchmarkAdd alpha over liability benchmark through

Actively manage key-rate duration around liability benchmark

Actively manage spread exposureDiscounting methodology affects funding status

Static spread discounting of liabilities could distort funding status significantly


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TRACKING ERROR ATTRIBUTION IN ASSET LIABILITY

Asset and Liability PerformanceAsset = Duration/Curve Move+ Spread Moves + Credit Blow UpsLiability = Cash Flow Changes + Duration/Curve Move

Asset/Liability Return DifferencesActuarial gain or lossMismatch in duration/curve exposureSpread volatilityCredit blow ups

Management performance may be hard to isolate


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AN EXAMPLE OF A STUDY RUN IN APRIL 2001

LiabilitiesDate: April 01 Aggressive Moderate* Conservative Moderate

Spread to Treasury (bp) 150 125 100 125Average Quality A-/BBB+ A- A A-Minimum Quality BB BB BBB- BBEffective Duration 11.4 11.6 11.8 11.6Portfolio Expected Return (IRR) 7.3% 7.1% 6.8% 7.1%Relative Expected Return 0.2% 0.0% -0.2% 0.0%Relative Volatility 2.3% 0.0% 1.2% 0.0%Absolute Volatility 8.0% 7.6% 7.1% 7.6%

Efficient Frontier Portfolio

Cash 0.0%

Equity 50%

Fixed - Core 40%

High Yield 10%

Portfoli Expected Return 10.18%Relative Expected Return 3.08%Relative Volatility 14.17%Portfolio Standard Deviation 9.34%

Immunized Portfolio

Various Allocations Considered


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BASIC RISK/RETURN DATA

Cash

Expected Return 4.50%

Equity

Expected Return 9.0%Standard Deviation 17.5%

Correlation to Core 0.3Correlation to High Yield 0.4Correlation to Long Bond 0.15

Relative Std Dev to Liability 17.97%Economic Downturn Stress Senario -29.2%

Fixed Income

10 year Treasury Yield 5.30%

30 year Treasury Yield 5.85% Liability

10s Yield Beta to 30s Yield 1.20 Core High Yield Aggressive Moderate Conservative (Moderate)

Spread over Treasury (bp) 0.75% 3% 1.50% 1.25% 1% 1.25%Expected Return 6.05% 7.80% 7.35% 7.10% 6.85% 7.10%

Duration 4.5 4 11.44 11.63 11.82 11.63Treasury Yield Standard Deviation 0.50%

Spread Standard Deviation 0.25% 0.45% 0.40% 0.25% 0.20% 0.25%Spread Correlation to Treasury 0.40 0.50 0.2 0.4 0.4 0.4

Return Standard Deviation 2.89% 3.29% 8.01% 7.47% 7.19% 7.47%

Sharpe Ratio 0.54 1.00 0.36 0.35 0.33 0.35

Expected Relative Return to Liabilities -1.05% 0.70% 0.25% 0.00% -0.25% 0.00%Relative Return Standard Deviation 6.64% 6.81% 2.29% 0.00% 1.18% 0.00%

Information Ratio -0.16 0.10 0.11 n.a -0.21 n.a

Economic Downturn Stress Senario

Equity Return -29%Fixed - Yield Changes

10 yr Treas Yield Change -1.00% Liability

30Yr Treas Yield Change -0.75% Core High Yield Aggressive Moderate Conservative Moderate

Spread Change 0.25% 0% 0.35% 0.25% 0% 0.25%

Fixed - Returns 9.43% 10.20% 11.92% 12.91% 13.35% 12.91%

Long Duration

Long Duration


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COMPARISON OF DIFFERENT STRATEGIES

Initially 15% Overfunded ExampleImmunized

Market Based Approach

Aggressive Immunized & Tail+Surplus in Equity

(Future Overlay)

Aggressive Immunized & Surplus in Equity (Future Overlay)

Aggressive Immunized + Surplus in Equity

(No Future Overlay)

Portfolio Weights - % Liabilities

Cash 0.0% -25.0% -15.0% 0.0%Equity 58% 25.0% 15.0% 15.0%

Fixed - Core 46% 0.0% 0.0% 0.0%High Yield 12% 0.0% 0.0% 0.0%

Long Duration 0.0% 0.0% 0.0% 0.0%Aggressive 0.0% 115.0% 115.0% 100.0%

Moderate 0.0% 0.0% 0.0% 0.0%Conservative 0.0% 0.0% 0.0% 0.0%

Total - % Liabilities 115.0% 115.0% 115.0% 115.0%

Long Term ExpectationsLiability Expected Return 7.10% 7.10% 7.10% 7.10%

Portfoli Expected Return - % Liabilities 10.18% 9.58% 9.13% 8.70%Relative Expected Return - % Liabilities 3.08% 2.48% 2.03% 1.60%

Relative Volatility 14.17% 8.31% 8.29% 8.28%Relative Information Ratio 0.22 0.30 0.24 0.19Sharpe Ratio 0.47 0.41 0.40 0.40

Economic Downturn ScenarioPortfolio 1-Yr Return - % Liabilities -11.30% 5.28% 8.65% 7.54%Liability 1-Yr Return - % Liabilities 12.91% 12.91% 12.91% 12.91%

Relative 1-Yr Return - % Liabilities -24.21% -7.63% -4.26% -5.37%

Ending Surplus (Deficit) - % Liabilities -9.21% 7.37% 10.74% 9.63%


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RESULTS SUMMARY

Optimal Sharpe ratio allocation, when viewed from relative stand point, is

Highly risky in economic downturn scenarioNot highest information ratio

Variations of immunized strategy can lead to Superior relative risk profileModest give up in expected returnMuch lower exposure to economic downturn scenario


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DISTORTION DUE TO STATIC-SPREAD DISCOUNTING IN VOLATILE SPREAD MARKETS

Introduces Funding status mismeasurementMeasurement tracking error

Makes it harder to distinguish impact ofCredit calls/mistakesCurve bets/mismanagement

Leads to sub-optimal spread allocationTracking error risk leads to risk avoidanceManagers may under invest in spread products and miss opportunities to earn higher yields

Static spread discount rates distorts funding status and leads to sub-optimal sector allocation


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Monthly Spread History - Jan 1989 to Jan 2003Source: Salomon Yield Book and State Street Research

CASE FOR DYNAMIC-SPREAD LIABILITY BENCHMARKS -HISTORICAL SPREAD VOLATILITIES


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TRADITIONAL ALTERNATIVES TO STATIC SPREAD DISCOUNTING

Two AlternativesMarket-based Spread

Examples include: Single-A long corporatesSwap spreadHigh-grade corporate option-adjusted spread

Portfolio SpreadSome use duration-weighted option adjusted spread of the portfolio

Both Alternatives May Not Be OptimalMarket and portfolio asset mix may not be necessarily optimal from absolute volatility standpoint

Traditional alternatives to static spread discounting are not necessarily optimal


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OPTIMAL RISK-CONSTRAINED DYNAMIC SPREAD METHODOLOGY

BenefitsMinimizes tracking error and other forms of risk such as VAR vs. static-spread liability benchmark

Based on an optimal allocation among spread sectors across all maturities

Downside risk constraints can be used to control allocation of risk

It is equivalent to highest Sharpe ratio portfolio in absolute space

Optimal Dynamic-Spread methodology leads to benchmarks with minimum variance w.r.t. static-spread liabilities


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OPTIMAL RISK-CONSTRAINED DYNAMIC SPREAD METHODOLOGY - BASIC STEPS

Step 1: Target Return Over Treasury– Establish required long term spread to meet long term

liabilities– Add a target strategic added value

Step 2: Define Investible Fixed Income Universe – Treasuries, Agencies, ABS, CMBS, AAA-AA Corporates, A

Corporates, BBB Corporates, BB Corporates, Mortgage Pass-Throughs

Step 3: Collect appropriate historical volatility of option-adjusted spreads (OAS) for all sectors

Step 4: Define Allocation Constraints


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Step 5: Perform Risk Constrained Optimization– Objective: Min VAR (or Single Downside Risk)– Constraints:

• Duration Weighted OAS = Target Return Over Treasury• Other constraints such as

Duration Spread < x1

Spread Product % < x2

ABS and CMBS % < x3

High Grade Corporates <x4

High Yield % <x5

Etc.

Step 6: Mark-to-Market Duration Weighted Spread Periodically

• Keep sector weights constant • DWLOAS = Duration-Contribution Weighted Liability OAS

OPTIMAL RISK-CONSTRAINED DYNAMIC SPREAD METHODOLOGY - BASIC STEPS


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Dynamic Spread Liability Return For Each Period– DSLV1 = Cash flows discounted at Treasury+ beginning DWLOAS1– DSLV2 = Cash flows discounted at Treasury+ ending DWLOAS2– Return Liability = DSLV2/DSLV1 - 1– Note: Process has to be unitized to each cash flow disbursement

Review Funding Status and Surplus/Deficit Status – Portfolio - DSLV– Required return over treasuries– Appropriateness of VAR

ONGOING EVALUATION OF DYNAMIC-SPREAD LIABILITY BENCHMARK


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HISTORICAL SPREAD SUMMARY


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OPTIMIZATION FRAMEWORK


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RISK OPTIMIZATION RESULTS


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Duration Weighted Liability OAS (DWLOAS) does not reflect downgraded issues leaving the benchmark each month!

This can lead to significant over-statement of liability benchmark returns

Solution: Key-rate-matched Market Based Benchmarks

ISSUES NOT CAPTURED BY DYNAMIC-SPREAD LIABILITY BENCHMARK


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KEY-RATE-MATCHED MARKET-BASED BENCHMARKS

ni

i 1ii MktSec *W Benchmark Blended

Definitions– Sum of Square of Key Rate Errors = Sum (BB_Kduri minus Liab_KDuri)^2– BB_KDuri = Blended Benchmark Key-Rate Duration I– Liab_KDuri = Static Spread Liability Key-Rate Duration I

Solve for Wi’s– Minimize Sum of Key Rate Errors Squared – Subject to chosen constraints

Revisit optimization periodically– Key-rate drift– Funding level– Risk tolerance


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KEY-RATE-MATCHED MARKET-BASED BENCHMARKS

• Marking-to-Market Liabilities– Discount liability cash flows at Treasury + Duration-Weighted OAS of the Benchmark

• Benchmark Return = RB = Σ { Wi * Ret Secti }• Benefits

– Better Reflects Market Conditions – Less subject to market spread volatility

– Clear Mandate - Managers are more accustomed to managing portfolios against market-based benchmarks

– Transparent – More transparency of manager’s active management added value

– More Observable – Can be independently measured


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SUMMARY

Optimal portfolios in absolute space can lead to significant risk vs. liabilities

Static-spread liabilities can introduce significant mismeasurement of funding status and distort active management

Dynamic-Spread Liability Benchmarks improve funding distortions but introduces credit migration and performance measurement ambiguities

Key-Rate-Matched Market-Based Benchmarks mitigate many issues related to funding status and performance measurement

Should lead to clearer definition of risk and more optimal active management in volatile markets


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II. Liability Driven Investing


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Level I: Comprehensive portfolio strategy and capability analysis Asset-Liability AssessmentVarious Fund Due Diligence

management and operational evaluation risk measures, scenario analysis, drawdown, performance analysis and attribution

Level II: Liability-Driven InvestingAsset and strategy allocationPortfolio construction & optimization

Level III: Ongoing asset management and evaluation of emerging asset classesDistinguished by thoughtful and in-depth ongoing risk assessment, valuation, performance

monitoring and attribution for broad array of fixed income, equity, and alternative asset types and strategies including esoterics

Customized Strategies:

Fixed Income – Short duration, Core, Core+, Long Duration, Immunization, Equity – Quant Equity (US, Non-US, Global), Long Only130/30, Long/ShortAlternatives - Structured Products, Asset-based Lending, Specialty Finance, Esoterics

LDI == Disciplined Approach to InvestingCREATING AN EFFECTIVE RISK MODELING FRAMEWORK FOR LDI


33

Asset Management Infrastructure Tailored and Integrated Front To Back Office Solutions - Full turn-key front-to-back solutions and services Front Office: Decision support infrastructure, portfolio management workstation, up-to-date portfolio risk analytics & reporting, trade order

management and execution, valuation, asset liability management and relative value analysis tools Middle Office: Trade capture and processing, services, interface with depository and custodial services, collateral management, counterparty

management, performance attribution and benchmark comparison Back Office: Investor reporting, integration with third party administrators, performance attribution

Solution Elements Quantitative and fundamental valuation, pricing and risk analysis of:

equities, fixed income, real estate, commodities Hedge fund strategies, fund of funds Private equities Structured products Derivatives Esoterics Emerging assets

Valuation of hard -to-value assets including residential, commercial, consumer, equipment, project finance loans and structured products Cash flow forecasting, sensitivity analysis, stress testing , scenario analysis, relative hedge analysis, economic/rating agency/statutory capital Daily, weekly, monthly portfolio and security valuation and risk analytics for broad array of fixed income, equity, structured products,

derivatives, and alternative asset types

LDI ChallengesCREATING AN EFFECTIVE RISK MODELING FRAMEWORK FOR LDI


34KEY LDI REQUIREMENT - KNOWLEDGEWARE

Core Competencies: Experienced professionals providing independent and transparent solutions

Experienced Professionals

• Team comprised of traditional and emerging assets as well as geo-political experts with deep experience in trading, portfolio and risk management

• Quantitative and fundamental skills• Deep understanding of intrinsic values• Comprehensive - asset and liability

sides

Disciplined Processes

• Transparent• Well tested• Understood throughout organization• Scalable• Focused on both assets and liabilities• Covering both liquid and illiquid assets• Complex liability structures

Advanced Technology

• Accessible throughout the entire process – allocation, portfolio management, risk management

• Open technology to provide customized analytics, data management an actionable reporting,

Market Experience, Technology and Process

Traditional and Emerging Assets

Asset Liability Risk Management

Evaluation, Investing,

and Trading

Integrated Infrastructure

Analysis

Reporting

Decision

Making


35

Knowledge-Driven Advice and

Services

Integrated

DisciplinedTransparent

Scalable

EnablersKEY LDI REQUIREMENT -KNOWLEDGEWARE

Management

Experience

Infrastructure

ScalableDisciplined ProcessesCustomizable SolutionsEfficient

Integrated Technology,Granular Data, Open Analytics Platform, Flexible ReportingProcess and Workflow

Seasoned Senior Management with Deep Operating and Team of Cross Functional Expertise

Asset Management, Risk Management, Solutions, Knowledge-Driven Support Services


36

III. Relatively New Alpha Strategies


37EXAMPLES OF RELATIVELY NEW ALPHA STRATEGIES

Emerging Sectors (New Media , Renewable)

Equity - High Frequency, Global Quant Equity

Merchant Banking

Distressed and/or Illiquid Fixed Income

Distressed Real Estate

Specialty Finance

Esoterics

Frontier Investing


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Market-Based Fixed Income Short-Duration, Core, Core+, Long Duration, High Yield, Emerging Markets, Real Portfolios

Global Quant Equities Long only, Long/Short, 130/30 US-only, Non-Us, or Global for small, medium, large and all cap

Hedge Funds and Fund of Funds Myriad of strategies

PRIVATE EQUITY Renewable

New Media

Cloud-computing

Merchant banking

ALPHA STRATEGIES AND STYLES


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Active Trading High Quality; High Yield; Leveraged Loan; Emerging Markets

Distressed Debt and Real Estate Structured Products Residential: REO Bridge Finance, Nonperforming Loans; REO Equity CRE Recapitalization Consumer Finance

Specialty Finance Asset-based Finance Supply Chain Finance Insurance Linked: Premium finance, life settlement, longevity swaps Esoterics: Structured settlement, Intellectual Property, Litigation

Real Estates Debt, Equity, Distressed Operating Companies and REITS Core, Value Add, Opportunistic

Broad Based Asset Expertise Is Utilized Through Internal and External Resources

ALPHA FIXED-INCOME AND REAL ESTATE STRATEGIES


40

StructuredCredit Expertise and Tools

Residential Real Estate

Commercial Real Estate

Consumer Credit

Leveraged Finance

Specialty Finance

Exotics

Credit crisis has created unique opportunities within structured credit universe

EMERGING STRATEGIES: MANAGING COMPLEX PRODUCTS FROM LOANS TO SECURITIES

Spectrum of issues within structured credit leads to highly attractive and scalable skill-based asset management opportunities

Structured product expertise, technology and process knowledge is highly specialized and leads to significant operational leverage


41

IV. An Example of a Scalable Strategy: Quantitative Global Equity


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Well-defined investment philosophy and well disciplined process.

We term our Philosophy Fundamental Objective

We believe human behavioral biases drive many existing market inefficiencies

We use both quantitative and qualitative research methods to exploit these inefficiencies

Our Philosophy’s practical and analytical process dominates “emotionally driven” approaches

Our Process manages multi-dimensional risks by using rigorous risk controls

Fundamental Quantitative Practical

GLOBAL QUANTITATIVE EQUITY Example of Equity Investment Philosophy


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We have vast expertise in equity valuation techniques across equity asset classes. Our team have outperformed their benchmarks in long only, long short, and market neutral strategies. We have experience in both public and private equity analysis throughout the world and across company size.

Factor Analysis

Valuation

Long/Short Relative Value

Proprietary Nonlinear Transaction Cost Analysis

Portfolio Optimization and Trading

Includes transaction cost management Risk Management

Scenario Testing Time Series

Attribution Analysis

GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Experience and Approach


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We base our Investment Process upon three main concepts: Alpha Driven

High alpha stocks are purchased and held – except when alpha data is suspect

Stocks become sell candidates when alpha drops below the top quintile

Risk Controlled

Stocks chosen to replace stocks sold are chosen to help control risk as well as to raise portfolio average alpha

Market, Size, Style, and Energy risk are kept close to benchmark exposure – Northfield, BARRA, Axioma are useful tools

Region, Sector, and Region/Sector weights are kept to within +/-10% of benchmark weights

Transaction Cost Sensitive

Alpha must exceed estimated transaction costs

Transaction costs are non-linear as trade sizes increase

GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Process


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How attractively is the stock priced relative to industry peers?

Are analysts and investors upgrading their view of the stock?

Are insiders at the company acting as if the stock is cheap in a shareholder-friendly way?

Has the stock appreciably out/underperformed its industry peers recently?

Cause of Inefficiency Factor Group Factor Group Description

Momentum/Sentiment

Relative Value

Insider/Management

Short-Term/Technical

Imperfect Reaction to New Information

Emotional Investor Behavior

Separation of Ownership and Management

Impatient Trading and/or Short-term Overreaction

News AnalyticsIncomplete Information Set Does stock price reflect qualitative information?

We Believe Human Behavioral Biases are the key to Quantitative Modeling.

GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Experience and Approach


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We divide the world into 90 categories by Region and Economic Sectors.

Portfolio Weights are controlled, relative to these categories, as part of a rigorous risk control process which also controls for market beta, style, and size risks.

Region 0 1 2 3 4 5 6 7 8

Sector FTSE AWI Weight United States

Europe ex UK

UK & Ireland

Australia & New Zealand

Asia Pacific Japan Canada

Middle East & Africa

Latin America

0 Oil & Gas 4.23% 1.27% 1.55% 0.18% 0.78% 0.12% 0.83% 0.71% 0.66%

1 Basic Materials 1.20% 1.38% 1.13% 0.88% 0.99% 0.61% 0.76% 0.48% 0.83%

2 Industrials 4.80% 2.45% 0.42% 0.23% 1.73% 1.64% 0.22% 0.15% 0.21%

3 Consumer Goods 4.25% 3.02% 1.05% 0.08% 1.24% 1.85% 0.05% 0.08% 0.34%

4 Health Care 4.50% 1.71% 0.74% 0.10% 0.09% 0.43% 0.00% 0.21% 0.01%

5 Consumer Services 4.93% 0.98% 0.79% 0.37% 0.53% 0.65% 0.17% 0.22% 0.26%

6 Telecommunications 1.39% 1.24% 0.59% 0.05% 0.70% 0.35% 0.11% 0.26% 0.30%

7 Utilities 1.45% 1.21% 0.35% 0.09% 0.36% 0.41% 0.03% 0.10% 0.22%

8 Financials 6.80% 4.43% 1.83% 1.48% 3.34% 1.37% 1.32% 0.63% 0.92%

9 Technology 6.75% 0.63% 0.10% 0.00% 1.43% 0.56% 0.12% 0.01% 0.00%



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We believe experience-driven insights into the data are critical to the Process.

Bad Earnings Data: Spreadsheet Manual Entry

Conditions Change: Morning Earnings Surprise

Conditions Persist: Short-Term Price Reversal Window

Complex Industry Schemes: Japanese Financials, European Industrials

Global Correlations: Oil and Financials


Good managers confirm the quantitative results, they don’t obey it.


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Our team has outperformed their benchmarks since 1996

Managed 5-star Morningstar international equity long-only fund

Responsible for $10 billion in long-only mandates

Demonstrated value-add from both long and short positions

Asset Class BenchmarkTime

PeriodStrategy Return

Benchmark Return

Period Alpha

International 130/30*

BNY ADR/FTSE

2004 to 2010 9.8% 7.1% 2.7%

Long Only International** MSCI EAFE 1996 to

2002q1 5.9% -0.9% 6.8%

US Large Cap*** S&P 500 1996 to 2010 9.4% 6.8% 2.6%

US SMid Cap*** Russell 2500 1996 to 2010 17.5% 9.3% 8.2%

* Returns are gross of fees. Note on the Benchmark and Universe: The fund Benchmark changed from the Bank of New York ADR Index to the FTSE All-World ex US Index on 1/1/2007 to reflect the expansion of the portfolio’s composition. Through November 2006, our universe consisted of the 650 most liquid ADRs and US GDRs. On December 1, 2006, our universe expanded to include 4,000 of the most liquid common equity shares on local exchanges in the global markets ex-US. Data referring to excess return over a “Benchmark” refers to the Benchmark that was in effect at the time in question.

** Long Only International performance was produced at ING/Aeltus Investment Management in mutual fund and institutional separate account vehicles including a five star Morningstar rated mutual fund.

*** Large Cap and Smid Cap performance was produced at ING/Aeltus Investment Management in mutual fund and institutional separate account vehicles from 1996 until 2004.

GLOBAL QUANTITATIVE EQUITY Quant Equity Team’s Investment Performance


49

49

We have developed a superior International Small Cap Model:

Global SC Fund Alpha Predicted Actual

9/30/2003 Tracking Error Tracking Error

Inception 2003 14.63% 16.50% 1.88% 3.9% - 4.1% 6.0%

2004 30.42% 43.22% 12.80%

2005 22.51% 50.62% 28.11% Periodicity Hit Rates

2006 32.55% 45.15% 12.60%

2007 13.56% 23.21% 9.65% Monthly 69%

2008 -52.03% -46.02% 6.02% Quarterly 93%

2009 61.24% 69.32% 8.09% Annually 100%

Part Year - Nov 2010 14.13% 19.81% 5.67%

Annualized Since Inception 13.21% 24.90% 11.69%

Time Period September 2003 to November 2010;

GLOBAL QUANTITATIVE EQUITY Quant Equity Product Research & Development


50

International v FTSE AWI ex US

Smid Cap v Russ 2500 Index

Large Cap v S&P 500 Index

Large Cap v Russ 1000 Index

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%12.5%

9.8%

8.6%7.7%

Annualized Alpha

Annualized Alpha

An additional model for the US market:

Top Decile Versus BenchmarkTime Period 2001 to 2010

GLOBAL QUANTITATIVE EQUITY Quant Equity Product Research & Development


51

V. Dodd-Frank and Its Impact on LDI


52

The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Act") passed in July 2010 and required several regulatory agencies including the SEC, CFTC and FDIC to propose and finalize more than 500 rules in order to give shape and structure to the sweeping reform of the financial regulatory system envisioned by the Act.

Several key regulations under Title VII of the Act related to the $600+ trillion derivatives market are being finalized in 2011

General objectives are transparency, reducing systematic risk, ensuring orderly markets OTC derivatives markets

Significant objective is to move the OTC derivatives transactions (“Swaps”) activities to the regulated exchanges with clearing through central clearing housesUse of clearinghouses “mutualize “ the counterparty risks among members hence

reduce the systematic risks Implications:

The definition of “swap” is very broadAll parties will be affected and need to assess the relevant compliance rules,

operational risks, business costs, and how it affects them. No one is exempted from record keeping, reporting, and rules of conduct

THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT


53

Collateral management requirements including Counterparty risk managementLiquidity managementRisk-based margining

•Marked-to-market and Value-At-Risk•Collateral optimization

Operational•Collateral amount verification •Collateral movements mechanism and costs

Administrative•Record keeping and reporting•Rules of conduct

Hedge Fund TransparencyFund-of-fund position aggregationCollateral management validation and optimizationHard-to-value assets and investor reporting

Challenges and Requirements Ahead for OTC Derivatives Activities

Fund Managers Under Dodd-Frank


54

Types of Transactions Currently involved in (“on the book”) Contemplated transactions

Entity Classification Highly Regulated – depends on level of activity as well as purpose

•SD – Swap Dealer• MSP – Major Swap Participants

Eligible Financial Participants –ECP•Can do bilateral transactions•Must have a level of sophistication and financial means

Less Regulated - Commercial End Users (“CEU”)• Must be using it for hedging or mitigate risk•Cannot be a financial entity!

Execution and Clearing Requirements Not all swap types require centralized execution and clearing but most do

Methodical Steps to TakeFund Managers Under Dodd-Frank


55

CREDIT RISK EXPOSURES• SECURITIES LENDING• PORTFOLIO LOANS• OTC DERIVATIVES

• IF NOT ALREADY WILL BE 100% SUBJECT TO ISDA, CSA, AND COLLATERAL POSTINGCOLLATERAL MANAGEMENT MITIGATES COUNTERPARTY CREDIT RISK BUT INTRODUCES

OPERATIONAL RISKSCREDIT RISK MANAGEMENT LEADS TO COLLATERAL MANATEMENT

OPERATIONAL ISSUESTIMELY FORECAST OF VARIATION MARGINS

• DERIVATIVES AND COMPLEX SECURITIES PRICINGSENARIO ANALYSIS VALUATION AGENT AND DISPUTE MECHANISIM

COMPLEX DOCUMENTAIONOPTIMIZATIONTIMELY EXECUTION

REHYPOTHECATION CAN LEAD TO CASCADING EFFECTS

Integral part of risk and liquidity managementCOLLATERAL MANAGEMENT FOR INSTITUTIONAL ASSET MANAGERS


56WHO NEEDS COUNTERPARTY AND COLLATERAL RISK MANAGEMENT CAPABILITIESVAST ARRAY OF FINANCIAL INSTITUTIONS WITH COUNTERPARTY EXPOSURES

Banks

Insurers , REITS, Specialty Finance

Asset Managers/Treasurers

Pension & Endowments

• Global and Domestic Banking Institutions

• Life and P&C Insurance Companies, Reinsurers, REITS, Specialty Finance

• Pension Funds, Foundations and Endowments

• Traditional and Alternative Asset Managers, Treasurers

Governmental Agencies • Central Banks, Sovereign Funds, Supra-nationals, Government Agencies


57

VI. LDI - Solutions and Infrastructure Needs


58

INTEGRATED APPROACH TO ASSET

MANAGEMENT SERVICES

Front Office: Portfolio Workstation,

Risk & Trade Management, ALM

Middle Office: Trade Processing, Clearing, Valuation, Collateral

Management

Back Office: Reporting,

Performance Measurement,

Attribution

Liquidity, Credit & Asset Liability Management

Counterparty and Collateral

Management

Regulatory Reporting & Compliance

LIABILITY DRIVEN INVESTING

GLOBAL FIXED INCOME

FIXED INCOME DERVIATIVES

STRUCTURED: RMBS, CMBS,

ABS, CDO, CLO, CSO, SIVS

WHOLE LOANS REAL ESTATE ALTERNATIVES

GLOBAL EQUITIES

EQUITIES DERIVATIVES

PRIVATE EQUITIES

DATA WAREHOUSE ADVISORY SOLUTIONS SERVICES

LDI REQUIRES AN NTEGRATED APPROACH TO RISK, ASSET AND FINANCIAL MANAGEMENT


59

Asset/Risk Management

Well-Defined Strategies: Fixed, Equities, Asset-Based Lending, Specialty Finance

Front Office: Portfolio, Risk & Trade Management

Middle Office: Trade Processing, Clearing, Valuation,

Collateral Management



Attribution

Credit Risk & Asset Liability Management



Management

INFRASTRUCUTURE REQUIREMENTS RAPIDLY RISING WITH THE SIZE OF OPPORTUNITIESASSET MANAGEMENT/RISK MANAGEMENT ENVIRONMENT

The environment is ideal penetrating and capturing market share in regimented global fixed income, equity, and alternative asset management

• The mounting importance of asset liability and credit management

• The growing demand for global fixed income and diversified equity products

• Increase in fixed income-focused financial institutions

• Global quant equity opportunities• Global growth of multi-family offices• Ever increasing demand for articulated and

transparent asset management by pension plans, private wealth and financial institutions

• The mounting complex regulatory risk management and reporting requirements


60

Portfolio Mgmt

Alpha Models

Risk MgmtCredit

Analytics

DerivativesComplexSecurities & Loans

EquitiesFixed Income

Web-based Reporting

Customizable Risk Models

Rapid Deployment

Multi-Entity

High Availability

Hosted Services, Cloud Computing

Must be designed to leverage the best technology and expertise to provide best-in-class solutions to optimize the following key concerns: Transparent and comprehensive Embracing modern technologies to overcome legacy platform issues Incorporate valuation, attribution, scenario analysis & reporting

TRANSPARENT, COMPREHENSIVE, AND SCALABLE

Performance Scalability

Customization Usability

TM

ANALYTICAL PLATFORMS NEEDS


61

Sophisticated Analytical & Execution Platform Needed

Credit intensive analysis is needed for most instruments to uncover risks not apparent from traditional analysis. Forward-looking views and scenarios to

Multivariate stresses needed to be applied around forecasts to capture alternate future states of the world Interest rates, currencies, defaults,

LOANS/CREDITS

COMPLEX SECURITIES

GRANULARITY

COMPLEXITY

DERIVATIVES ILLIQUID LIQUID CONTINGENT CLAIMS

RMBS CMBS Consumer ABS HY & IG Bonds Esoteric Assets

Residential Mortgage

Commercial Mortgage

Consumer / StudentLoans

CorporateCredit Esoterics Contracts

SECURITIES AND DERIVATIVES

Comprehensive state-of-the-art large scale analytical systems needed for valuation and risk management of complex securities and portfolios .

WORLD OF COMPLEXITY

Cross-Asset Class Capability Is Required for A Comprehensive Counterparty and Collateral Management System


62

Fixed Income

Portfolio Management

Risk Management

Complex Securities &

Esoterics

Stratus - Loan Collateral

Management

Equity

Alpha & Risk Models

Portfolio Management

Electronic Trading

Derivatives

Risk & Valuation


Next Generation Portfolio and Risk Management PlatformOPEN RISK SOLUTIONS

TM

Integrated platform – open, flexible, connecting risk management, portfolio management, trading, collateral management, financial management and reporting

Multi-asset class covering, liquid, illiquid, complex and derivatives, US and international Proprietary plus open-interface credit and factor models supporting risk management, alpha generation,

and asset allocation


63

NewOak OpenRisk provides a comprehensive capabilities to managing multi-asset-class portfolios Leveraging NewOak’s superior credit analytics and technology, NewOak can provide cost effective services across a variety of

important functions:

With a customizable service model, NewOak can multiple deployment options: Data Services Hosted “Software-as-a-Service” In-House installation and management.

Next Generation Valuation & Risk Services

•See-through valuation, loss, cash flow analysis of structured products – RMBS, CMBS, CDO. CLO, EsotericsDeep-Dive Credit Analysis

•Risk reporting across first and second order sensitivitiesRisk Reporting

•Projected interest and principal (maturity, calls and prepayments) cash flows provided for static (fixed-rate) and user defined dynamic scenarios (customizable shocks)Cash Flow Forecasting

•The impact of changes in fixed rate and spread to benchmark upon projected cash flowsReinvestment Rate Analysis

•Portfolio and asset class sensitivities to changes in realized and projected inflation ratesInflation Risk

•Projected return and forward-looking risk profile from user-defined interest rate shocksHorizon Analysis

•Aggregate analytics provided at sector, subsector and cusip levelsDrilldown Capability

NEWOAK SOLUTIONS OpenRisk™ - OpenFixed


64

COUNTERPARTY RISK MANAGEMENT

COUNTERPARTY CREDIT ANALYSIS

CREDIT EXPOSURESDERIVATIVES & LOANS

ISDA & CSA

VALUATION & Monitoring

OPTIMIZATION

TIMELY EXECUTION

Opportunities and Perils In Counterparty and Collateral ManagementCOUNTERPARTY RISK MANAGEMENT

Spectrum of complex documentation interpretation, computation, valuation, optimization, and execution leads to challenges and opportunities for state-of-the-art collateral management systems and operations

Legacy

TodayFuture


65

Optimization/Netting

Credit

Valuation/Sensitivities

Documentation

Cross Collateral Capability

Integrate Data from multiple sources and formats

Rules-based workflow engine

Customizable Reporting and Stratification of Portfolio

Real-time reporting and status update

Web-based for global distribution

Collateral Management Capabilities Is Becoming A RequirementFLEXIBLE SYSTEM APPROACH TO REDUCE OPERATIONAL RISK

Systems to consolidate data across multiple platforms, sources and formats into a single integrated framework.

Collateral Management &

ReportingExecute

Analyze

Collect

CSA, Master ISDA, Scripting

Method Agent

Position Tracking

SimulationLiquidity

Management Monitoring Dispute Resolution


66

Web-based Reporting

Customizable Risk Models

Rapid Deployment

Multi-Entity

High Availability

Hosted Services, Grid Computing

Analytical and Execution PlatformTRANSPARENT VALUATION AND EXECUTION SYSTEM

Comprehensive Platform:

OpenRisk™ has been designed to leverage the latest technologies and NewOak’s expertise to provide best-in-class solutions. In addition, OpenRisk™ helps optimize the following key concerns:

Transparent and comprehensive

Embrace modern technologies to overcome legacy platform issues

Asset Class Contribution

Expected Liabilities

Net Cash Flows

0100000002000000030000000400000005000000060000000

Quarter

0100000020000003000000400000050000006000000

Quarter

-100000000

100000002000000030000000400000005000000060000000

Quarter

Performance Scalability

Customization Usability

TM


67

Extensive capabilities across all aspects of securities finance:

Collateral Management ServicesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE

Repo

•MRA/GMRA: Repurchase Agreements

•Core and Complex Fixed Income

ISDA

•Initial Margin

•Margin Verification

Exchange

•FCM•DCM

Central Clearin

g

•Verification and Checking of Central Clearing

•Cross Margining and Risk Based Margining

MRA – Master Repo Agreement ; GMRA – Global MRA


68

Collateral Management Services: StratusSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE

• Daily Mark to Market• Collateral Validation

• Domestic and International• Complex Securities• Corporate Sovereigns

• Multi-Counterparty• Tri Party

Repurchase Agreements: MRA and GMRA Modeling


69


• Daily Mark to Market• Collateral Validation

• Initial Margin, Thresholds, Minimum Amounts

• Risk-Based Margining• Cross Margining

ISDA: Credit Support Annex Modeling


70

DOCUMENTATION• ISDA and CSA

• SUITABILITY• ENFORCEABILITY• OPERATIONALLY IMPLEMENATABILITY

• MARK-TO-MARKET RULES• FREQUENCY INTERVALS• METHODOLOGY• VALUATION AGENT• NETTING RULES• NOTICE RULES

• COLLATERAL POSTING RULES• ELIGIBLE COLLATERAL• HAIR CUTS• HYPOTHECATION AND REHYPOTHECATION RULES

• DISPUTE MECHANISM • LIQUIDATION PROCEDURES

COLLATERAL MANAGEMENT MITIGATES COUNTERPARTY CREDIT RISK BUT INTRODUCES EFFECTS

COLLATERAL MANAGEMENT - OVERVIEW


71

Call & return amounts Credit Support Document (CSD) and Annex (CSA)Marked-to-Markets (MTM)Independent AmountsMinimum Transfer AmountsNetting RulesThreshold AmountsValuation Percentage or (“Haircut”)

GLOSSARY OF BASIC TERMS IN AN ISDA


72

INTEGRATED APPROACH

Front Office: Portfolio, Risk & Trade Management

Middle Office: Trade Processing, Clearing, Valuation, Collateral

Management



Attribution

Liquidity, Credit & Asset Liability Management


Management


NEED FOR AN INTEGRATED FRONT, MIDDLE, AND BACK OFFICE SOLUTIONSOPERATIONAL MAZE – COLLATERAL AND COUNTERPARTY MANAGEMENT

THE CREDIT CRISIS AND FINANCIAL REFORM HAS CREATED A MOUNTING DEMAND TO ADDRESS THE COLLATERAL MANAGEMENT ISSUES AS AN INTEGRAL PART OF THE OVERALL RISK MANAGEMENT, TRADING, AND COUNTERPARTY MANAGEMENT

Legacy

TodayFuture


73

Central Clearing and Industry Future ChallengesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE

Need to Provide transparency and independence for clients• Hybrid Role for Custodian (Initial margin in custodial account)

Risk-Based Margining• Validation of models and methodology• Reconciliation

Collateral Optimization• Economics and Risk• Costs and opportunities within managerial collateral


74

:


Technology Driven Solutions:• Customized Implementation: Multi: Entity, User,

Jurisdiction• Credit Support Annex Modeling

Independent Valuation and Risk of Securities and Derivatives:• Validation and Control• Reconciliation

Risk-Based Margining:• Support for multiple methodologies and calculations• No Black Box

NewOak’s Integrated Approach to Collateral Management


75

Process: Reconciliation of trades and pricing. Calculation of amounts relative to specific CSA terms. Validation of pricing and risk analytics. Senior Collateral Management Expertise.

Capture all necessary components for initial and variation margin. Calculation of Collateral Movement, Reason and Amount.


Management Margin Calculation Report


76


Margin Management Calculation Report:


77


Management Risk-Based Margin Calculation Report (VaR Margin):


78

Hedge fund Transparency Services SOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE

State of the industry:

FT April 2011: “Assets under management in the global hedge fund industry have soared to an all-time peak, surpassing the pre-crisis high thanks to the strongest investor inflows in years.The world’s hedge funds at present manage $2,002bn of client funds, according to Hedge Fund Research, the industry’s leading data provider.

That comfortably exceeds the $1,930bn peak of June 2008, just months before the collapse of Lehman Brothers triggered big losses and huge investor redemptions in the industry’s worst-ever crisis.

At its nadir, the hedge fund industry’s assets were just $1,330bn in the first quarter of 2009.

The latest figures show growth over the past two years has been almost as rapid as at the height of the credit boom. Between end-2005 and end-2007, total assets managed rose by $763bn, compared with $689bn from trough to peak over the past 24 months.”


79

Hedge fund Transparency ServicesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE


The industry continues to be dominated by a handful of big names. One 20th of the hedge fund groups control two-thirds of the industry’s total assets, according to HFR data.Stung by concerns over funds’ operational sophistication in the wake of the Madoff affair, investors have been wary of allocating to lesser-known names, marketers say.

Investor have changed their approach to their asset class, demanding more in depth transparency as well as more frequently.

The biggest investors have also moved assets to separately managed accounts but that is not economically viable for most.

However transparency requires additional process and investment to make it useful.

There is a pronounced need for outsourced assistance.


80



According to a Boston Consulting Group Analysis, Annual spend on market risk is large; estimated at $7.3B worldwide.1

Largest spend within HF and asset manager segments; North America and Europe are critical markets.

ASP offering represents significant cost savings for HF, FoHF and asset managers.• Annual operating spend of $2.3B (32%) and one time, up-front costs associated

with implementing risk software of $5B (68%).

Important criteria across segments are customization, flexibility, integration; Data management appears to be a key competitive differentiator.


81



The Competitive Landscape has changed dramatically

The current market opportunity: In the aftermath of the credit crisis, intuitional investors have gone back into hedge

funds after massive redemptions left the hedge fund market well below current levels.

Investors are seeking a different investment style with their hedge fund investments, greater and more frequent transparency and more focus on control of their investment and due diligence.

However, most institutional investors lack the infrastructure and resources to both accumulate and then reintegrate the position level information from the managers back into their investment process.


82

Hedge fund Transparency Services SOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE


This has led them to engage third party providers to assist with this process. However there has been some unsettling developments within this niche market of providing transparency services to institutional investors. Leading into the crisis, there were 3 main competitors in the hedge fund transparency space:

• RiskMetrics: nearly 50% market share• MeasuRisk: nearly 30% market share• State Street/IFS: Nearly 20% market share

These 3 had dedicated business to leverage their analytical capabilities to acquire the manager position and provide back various risk measures and other information describing exposures and volatility levels.

While the 3 had very different strengths and weak nesses, their collective business facilitated information flows to investors from managers in an otherwise opaque and tightly controlled market.


83



Today, the landscape has changed materially: RiskMetics and MeasuRisk were both sold to MSCI Barra. Quickly the intellectual property from MeasuRisk was folded into the RiskMetrics platform and their teams were either absorbed or disbanded.

Simultaneously there has been a legion of defections the RiskMetrics staff, across the board from executive to core technology staff. The consensus from those departing is that Barra is not the environment to pursue a career outside of equities and indices, their core business. This has led to a diminished product and service set and can only portend to what will be in the near future as more investors place increased reliance on transparency services as part of their portfolio surveillance function.


84

This presentation provides certain information regarding NEWOAK CAPITAL LLC. By accepting this presentation, the recipient agrees that it will use, and it will cause its directors, officers, employees, agents, professional advisors and representatives to use, the information herein for internal purposes only and will not divulge any such information to any other person without New Oak’s prior consent.

The presentation is a general summary of NEWOAK CAPITAL LLC and its respective businesses, and does not purport to be a complete description of NEWOAK CAPITAL LLC, its respective businesses or its financial condition. This information was accurate as of the date of this presentation but views and outlooks may have changed. Neither NEWOAK CAPITAL LLC nor its representatives or affiliated make any representation or warranty as to the accuracy or completeness of this presentation, or the validity, completeness or accuracy of assumptions underlying any estimates or projections contained herein. No one assumes any duty to update this presentation or revise any of the statements contained herein, whether as a result of new information, future developments or otherwise.

Non-factual statements, including those regarding possible future events (“forward looking statements”), constitute only subjective views and/or present intentions; are not representations or warranties; and are subject to change. These statements are necessarily speculative and arbitrary in nature, and investors should expect that some or all of the assumptions underlying these statements will not materialize, or will vary significantly from actual results. These variations may be material.

There is no guarantee that views and opinions expressed in this presentation will be correct, and intentions to buy or sell particular securities investments or types of securities or investments in the future may change. The views expressed in this presentation were current as of the date of this report. Do not assume that every account managed by New Oak follows every investment strategy discussed in this presentation. Past performance is no guarantee of future results.

Do not distribute this presentation in any manner to any third party without our prior written consent. This presentation should not be considered a recommendation to buy, sell or hold a security or investment and no one should rely upon it as research or investment advice.

NOTICE


85

The information in this document does not constitute an offer to sell or the solicitation of an offer to purchase any securities from any entities described herein. Any such offer will be made solely to qualified investors by means of private placement memoranda and related subscription materials. Such offer would not be registered under the U.S. Securities Act of 1933 (the “Act”), and any securities from such offer may not be offered or sold in the United States without registration under the Act or exemption thereunder.

All information herein is subject to change without notice, revision or update. NewOak Capital Markets LLC (“NewOak”) makes no representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future, and any such reliance shall be unreasonable.

This document is confidential and is intended solely for the information of the person to whom it has been delivered. It is not to be reproduced or distributed, in whole or in part, by any means, without the prior written consent of NewOak.

Nothing contained herein should be construed as tax, accounting or legal advice. Any statements regarding past performance are not guarantees of future results.

INVESTING IS SPECULATIVE AND INVOLVES RISK OF LOSS. YOU SHOULD REVIEW CAREFULLY ANY OFFERING MATERIALS, INCLUDING THE DESCRIPTION OF THE RISKS, FEES, EXPENSES, LIQUIDITY RESTRICTIONS AND OTHER TERMS BEFORE MAKING A DECISION TO INVEST.

FORWARD-LOOKING STATEMENTS Any estimates and projections contained herein have been prepared by NewOak are not guarantees of future performance and involve significant elements of subjective judgment and analysis that are inherently subject to uncertainties and changes in circumstances. Some of the statements in this presentation may constitute forward-looking statements, and may be identified by the use of words such as “expect,” “plan,” “anticipate,” “intend,” “believe,” “seek,” “estimate,” “will,” “could,” “should,” “potential,” “designed” and similar words or negatives of same. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements contained in this presentation involve risks and uncertainties, including but not limited to statements as to:

• general volatility of the securities markets in which NewOak invests;• changes in business strategy;• availability, terms and deployment of capital;• availability of qualified personnel;• changes in the securities industry, interest rates, the debt securities markets or the general economy;• increased rates of default and/or decreased recovery rates on investments;• changes in governmental regulations, tax rates and similar matters;• changes in generally accepted accounting principles by standard-setting bodies;• availability of targeted investment opportunities;• the degree and nature of NewOak’s competition; and• other global, political, economic, business, competitive, market and regulatory forces.

The forward-looking statements are based on the beliefs, assumptions and expectations of future performance, taking into account all relevant information currently available at NewOak. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to NewOak or are within its control. If a change occurs, the business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements.

CERTAIN ASSUMPTIONSThe expected returns set forth in this presentation are calculated based on various assumptions that NewOak believes to be reasonable under the circumstances or that have been provided by third parties NewOak deems reliable, although no warranty is made that such assumptions will prove to be correct, and other professionals may have differing assumptions. Such assumptions include, without limitation, the prepayment curve shape and interest rates. No assurance can be given that such returns can or will be achieved.

DISCLAIMER


86

Appendix I. OpenRiskTM


87

Fixed Income Risk Analytics

Base risk analytics to describe portfolio metrics including credit analytics.

Dynamic drilldown provides aggregate and security specific analytics

NEWOAK SOLUTIONS OpenRisk™


88

Key Rate Sensitivities

Calculation of key rate duration, customizable to a client’s specific needs and reportable at the portfolio any aggregate level.

Drilldown capabilities allows users to aggregate or drill-down to user defined sector, subsector, and CUSIP levels



89

Dynamic Cash Flow Forecasting

Ability to dynamically generate portfolio and security specific cash flows (principal, interest, matured bonds, calls, puts and structured cash flows)

Aggregate cash flows by periods User has the ability to change interest rate scenarios and periodicity assumptions driving cash flows



90

Reinvestment of Cash Flows and Assumptions

The ability to forecast variability of future reinvestment cash flow streams at a fixed rate or a spread to LIBOR or other benchmark.



91

Credit Analytics: RMBS

The RMBS Transition Matrix shows such statistics as % DQ30, DQ60, DQ90, FC, REO and Prepays on collateral, stratified by user-defined criteria.

Provide comprehensive performance reporting across a database of 25+Millions residential mortgage loans Users can customize their categorization by vintage, lien type, collateral type and characteristics



92

Credit Analytics: RMBS Performance

The RMBS analytics allow users to look at both historical and projected performance, showing such statistics as % DQ30, DQ60, DQ90, FC, REO and Prepays on collateral, stratified by user-defined criteria


The RMBS Severity Matrix shows Loss Severity data on collateral, stratified by user-defined criteria


93

OpenRisk™ Portfolio Credit SummaryNEWOAK SOLUTIONS OpenRisk™

Portfolio My Test 1.12As of Date 8/31/2010Purpose ALL_SECURITY TYPES DEFAULT ASSUMPTIONS – YIELD

Class Type CUSIP Description Coupon Maturity Original Par (#k) Current Par (#k)

NAV (#k) % NAV Price Source

TOTAL 10,961.68 6,895.10 4,710.66 100.00% 68.23

ABS Auto Loan 90327MAC2 USAA0801 A3 4.16 4/15/2012 840.98 724.29 720.98 15.31% 99.36 NOC

14312UAD9 CARX0703 A4 5.32 2/15/2013 205.00 205.00 198.96 4.22% 96.82 NOC

44920NAF1 HYAR07A A4 5.21 3/15/2014 637.00 637.00 609.71 12.94% 95.48 NOC

65475FAD7 NART08A A3 3.89 8/15/2011 496.52 438.05 437.69 9.29% 99.74 NOC

TOTAL 2,179.50 2,004.34 1,967.33 41.76% 97.95

Credit Card 161571AQ7 BOIT_1 05A7 4.55 1/15/2011 93.44 93.44 91.82 1.95% 98.06 NOC

14041NBX8 COET_1 05B1 4.9 2/15/2015 140.00 140.00 18.60 0.39% 13.07 NOC

14041NAZ4 COET_1 03C4 6 10/15/2010 200.00 200.00 15.92 0.34% 7.69 NOC

TOTAL 433.44 433.44 126.34 2.68% 28.91

HELOC 881561WU4 TMT059HG M3 4.75 8/25/2035 45.62 11.08 0.30 0.01% 2.34 NOC

126671B21 CWHE03E NOTE 1M Libor + 26 7/15/2029 358.00 19.93 13.77 0.29% 69.07 NOC

126686AB0 CWHE06H 2A1A 1M Libor + 15 11/15/2036 100.00 40.22 20.54 0.44% 51.05 NOC

126673KQ4 CWHE04L 2A 1M Libor + 28 2/15/2034 86.86 7.44 4.78 0.10% 64.22 NOC

1266715Y8 CWHE04C NOTE 1M Libor + 22 1/15/2034 100.00 9.13 6.13 0.13% 67.17 NOC

12670CAA5 CWH0700C A 1M Libor + 15 5/15/2037 100.00 44.89 24.52 0.52% 54.61 NOC

126673KP6 CWHE04L 1A 1M Libor + 28 2/15/2034 160.00 15.65 10.84 0.23% 69.26 NOC

92906AAA7 GPHE06H1 UCF_AX 1M Libor + 17 3/12/2037 100.00 24.85 17.11 0.36% 68.83 NOC

TOTAL 1,050.48 173.19 98.01 2.08% 56.54

TOTAL 3,663.43 2,610.98 2,191.68 46.53% 83.74

RMBS Home Equity 36244KAG0 GSA06HE3 M2 1M Libor + 30 5/25/2046 45.62 45.62 21.54 0.46% 47.20 NOC

12667AAC0 CWHE0612 2A2 1M Libor + 15 7/25/2036 52.94 41.09 34.34 0.73% 83.56 NOC

126670YG7 CWHE0605 2A2 1M Libor + 18 9/25/2034 821.67 463.59 391.72 8.32% 84.49 NOC

805564QR5 SAST0403 A1A 1M Libor + 34 12/25/2034 409.00 21.29 12.19 0.26% 57.25 NOC

126670EY0 CWHE0512 4A 1M Libor + 28 2/25/2036 444.00 85.78 69.71 1.48% 81.26 NOC

86359BV24 SAS05WF1 M9 1M Libor + 230 2/25/2035 45.66 14.41 1.18 0.03% 8.17 NOC

805564SW2 SAST0503 M5 1M Libor + 65 11/25/2035 388.77 388.77 190.57 4.05% 49.00 NOC

004375BX8 ACCT0403 2M7 1M Libor + 250 10/25/2034 1,888.39 447.26 363.19 7.71% 81.16 NOC

126670NJ3 CWHE05B5 M5 1M Libor + 76 11/25/2035 231.00 231.00 124.12 2.63% 53.71 NOC

126670RL4 CWHE0517 MV8 1M Libor + 225 12/25/2035 6.01 6.01 1.55 0.03% 25.83 NOC

17312GAC5 CTM07AH3 A3C 1M Libor + 26 5/25/2037 769.60 769.60 424.50 9.01% 55.15 NOC

040104RJ2 ARS06W01 M2 1M Libor + 43 3/25/2036 806.20 806.20 342.01 7.26% 42.41 NOC

04542BMG4 ABF05WF1 M9 1M Libor + 170 2/25/2034 447.37 164.12 113.05 2.40% 68.85 NOC

073879VL9 BSHE05T1 M6 1M Libor + 170 5/25/2035 37.00 16.81 2.72 0.06% 16.13 NOC

04541GTP7 ABSH05H6 M5 1M Libor + 68 7/25/2035 243.00 243.00 143.55 3.05% 59.06 NOC

073879E38 BSHE05T2 M2 1M Libor + 67 8/25/2035 643.50 530.07 275.36 5.85% 51.93 NOC

TOTAL 7,279.72 4,274.62 2,511.32 53.31% 58.73

Whole Loan 437690CH1 HMS04006 A3A 1M Libor + 55 1/25/2035 18.54 9.50 7.66 0.16% 80.61 NOC

TOTAL 18.54 9.50 7.66 0.16% 80.61

TOTAL 7,298.26 4,284.12 2,518.98 53.47% 58.78

TOTAL 10,961.68 6,895.10 4,710.66 100.00% 68.23


94

OpenRisk™ Sample Reports – Forecasted Cash Flows for Single Asset Class

Forecasted Cash Flows


Cusip :

Scenario DM Prin Wrdn Cum Loss Life

1 1290.266235 0 4.083602905

2 1291.695068 0 4.10709095

3 1289.519043 0 4.225723267

4 1286.908936 0 4.366422653

5 1283.067749 0 4.445511818

18.70564651

CASH_RMBS_5 68.07893372 15 -0.59682333 4.742804527 30.35211945 19.33748436

CASH_RMBS_4 68.82089233 15 -0.57872921 4.538986683 29.9769249

16.63384438

CASH_RMBS_3 69.3677063 15 -0.55710852 4.407880306 29.5104847 17.58159828

CASH_RMBS_2 69.77047729 15 -0.54490805 4.302575111 28.97035789

Cum Loss Curr

CASH_RMBS_1 69.63279724 15 -0.5539692 4.356078148 29.92904663 16.44619942

SNP

Assumption Price Yield Mod Duration

Avg Life Default Curr

Orig Moodys Baa3

Orig SNP BBB

Moodys Baa3

Collateral Type SUBPRIME

Tranche Name 2M7

Tranche Type MEZ_FLT

Issuer Accredited Mortgage Loan Trust

Deal Accredited Mortgage Loan Trust 2004-3

Deal Type Home Equity

004375BX8 Deal ID : ACCT0403 As Of Date : 4/30/2010

Cusip 004375BX8


95

OpenRisk provides an advanced equity management trading portal; The equity portfolio manager workstation (OpenEquity) is targeted towards investors worldwide.

This comprehensive suite of trading tools, covers front to back-office processes with specific emphasis on:

Our advanced trading solutions product facilitates investors’ investment decision making processes to help generate superior returns on investments.

NEWOAK SOLUTIONS OpenRisk™ - OpenEquity

OpenEquity Portfolio

Management Workstation

(PWM”)

Portfolio Manager Workstation

Alpha Signaling

Risk ModelingBack-Office Processing

Equity Trading

Customized Portfolio Manager Workstation

Powerful Alpha Signaling

Robust Risk Management

Sophisticated Equity Trading

Seamless Back-Office Processing

Portfolio Manager Workstation “PMW”


96

Portfolio Manager Workstation

The Portfolio Manager Workstation provides an extensive array of tools combining the data sources needed to make informed investment decisions that yields profitable results.

The platform employs a fully customized user interface (UI) that integrates seamlessly into any Microsoft infrastructure.

NEWOAK SOLUTIONS OpenRisk™ - Equity

Portfolio Manager

Workstation

Alpha Signaling

Risk Modeling ALTRON Back-Office

Processing

•Equity positions, dollar balances, industry weightings, risk exposures, non-linear transaction cost estimates

Integrated Pre-Trade Analysis

•Equity pricing, currency rates, and textual news that converts into measureable sentiment sources

Real-Time Analytics

•Provides investors a disciplined method to monitor a stock news and incorporate that in its alpha and risk measures

Surveillance Tools

•Choose investment style, horizons, and regions to invest

Custom Alpha Signals

•Identify risk exposure levels, view signals at granular levels, and make trade decisions on a seamless platform

Integrated into Portfolio Manager Workstation

Benefits to investors:


97

Our proven alpha generating can be tailored to your specific investment style, with a proven track record.

The Alpha Signal capability supports investing in both domestic and international strategies worldwide.

Benefits to investors:

Annualized Alpha6.72%

5.02%3.83%

3.21%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

International Strategy Real Estate Strategy Leveraged MarketNeutral

U.S. Strategy

Anualized Alpha

DISCLIAMER:Since fund inception through November 30, 2010.The fund Benchmark changed from the Bank of New York ADR Index to the FTSE All World ex. US Index

on 1/1/2007 to reflect the expansion of the portfolio’s composition. Data referring to the “Benchmark” refers to the Benchmark that was in effect at the time in question.

The performance of the various Strategies presented herein are based upon a composite. A composite is an aggregation of one or more portfolios into a single group that represents a particular investment objective or strategy. Composite returns are calculated based on Global Investment Performance Standards (GIPS), are based upon the asset weighted average of the component portfolios' returns using beginning-of-period values, are calculated after the deduction of actual trading expenses incurred during the period, and are reported net of fees. A complete list and description of the firm's composites, including fee schedules and policies for calculating and reporting returns, are available upon request.COMPOSITE STRATEGIES ARE OPEN TO SEPARATELY MANAGED ACCOUNTS ONLY.

Portfolio Manager

Workstation

Alpha Signaling


Processing

• Choose investment style, horizons, and regions to invest

Custom Alpha Signals

• Identify risk exposure levels, view signals at granular levels, and make trade decisions on a seamless platform

Integrated into Portfolio Manager Workstation

• Discuss specific alpha factor needs with researchers and portfolio managers, at Alpha Equity

Dialogue with Alpha Equity Management colleagues

NEWOAK SOLUTIONS OpenRisk™ - EquityPortfolio Manager Workstation: Alpha Signaling


98

-1.00% -0.50% 0.00% 0.50% 1.00% 1.50%

Portfolio Manager Workstation: Equity and Currency Risk Modeling

Our risk management platform contains a suite of tools that range from real-time sensitivity analysis to portfolio attribution reporting.

The custom risk modeling enables daily risk calculations at the stock level aggregated to the portfolio level for the including:

Industry, sector, and region Beta, size, and style Oil, interest rates, and currencies

Benefits: Identifies risk contribution for each trade Ensures risk exposure tolerances are sustained Calculates detailed portfolio attribution Archives data for regulatory agency demands Produces in-depth reporting capabilities

Our risk modeling techniques allow investors to manage their risk real-time for better decisions and transparencies

Return from Alpha ModelReturn from Trading

Expenses

Return from Risk Factors

Return from Sector WeightsReturn from Currencies

Return from Region Weights

REPRESENTATIVE DETAILED ATTRIBUTION

Risk Factor Portfolio Exposure

Benchmark Exposure

Active Exposure

Factor Variance

Variance Contribution

CONTINENTAL EUROPE 0.00 0.01 (0.01) 386.99 0.18 ENGLISH-SPEAKING COUNTRIES 0.01 (0.00) 0.01 362.00 (0.14) SOUTH AMERICA & MEXICO 0.01 0.01 (0.00) 339.25 0.03 ASIA 0.04 0.04 0.00 448.21 (0.03) INDUSTRIAL SECTOR 0.35 0.19 0.15 495.01 (1.57) CONSUMER SECTOR 0.09 0.14 (0.06) 247.76 0.69 TECHNOLOGY&HEALTH SECTOR 0.13 0.13 (0.00) 283.12 0.01 INTEREST RATE SENSITIVE SECTOR 0.25 0.34 (0.10) 387.06 1.94 NON-ENERGY MINERALS 0.06 0.08 (0.01) 910.28 0.10 ENERGY MINERAL SECTOR 0.09 0.09 (0.00) 491.94 0.03 OIL PRICES IN USD (0.04) (0.03) (0.01) 1,255.90 0.08 DEVELOPING MARKET 0.02 0.06 (0.04) 176.16 0.51 SIZE (0.15) (0.07) (0.08) 63.18 0.63 VALUE/GROWTH (0.22) (0.39) 0.17 7.44 0.14

Factor Tracking Variance 6.33 Stock Specific Tracking Variance 12.59 Total Tracking Variance 18.91 Tracking Error 4.35

Illustrative Risk Decomposition For International Equity Strategy

NEWOAK SOLUTIONS OpenRisk™ - Equity

Portfolio Manager

Workstation

Alpha Signaling


Processing


99

Portfolio Manager Workstation is fully integrated with “ALTRON”, ITG’s award winning Triton Trade execution platform, co-developed by NewOak Capital and ITG.

Key Benefits Include: Broker-neutral global market and algorithm access List and single stock trading tools Extensive customization capabilities Independent post transaction cost analysis Fully integrated front to back-office operations

processing

ALTRON empowers the investor to determine the right strategy to trade worldwide.

Portfolio Manager

Workstation

Alpha Signaling


Processing

NEWOAK SOLUTIONS OpenRisk™ - EquityPortfolio Manager Workstation: Advanced Electronic Trading


100

Back-office processing sends equity, fixed income and currency trades to custodians in a seamless, straightforward process

Operations personnel provide the following services:

Corporate Actions Position Reconciliation Positions Repository Trade Verifications with all Clearing

Institutions Currency Transactions

The Integrated Equity Management Solutions system provides everything you need: software, market data, and back-office operation services

Portfolio Manager

Workstation

Alpha Signaling


Processing

NEWOAK SOLUTIONS OpenRisk™ - EquityPortfolio Manager Workstation: Back Office Services

Domestic

• Domestic• BNY Mellon• Deutsche Bank• UNX• ITG• Instinet

Prime Brokers

• State Street• J.P. Morgan• Morgan Stanley• Pershing• UBS

International

• J.P. Morgan• Morgan Stanley• ITG• Instinet• UBS

Administrative Services

• State Street• KPMG• Madison Grey• Bison Financial Services• GH&I

Executing BrokersClearing

Institutions/Custodians


101

Appendix II. Investment Support Services


102

COUNTERPARTY RISK MANAGEMENT

COUNTERPARTY CREDIT ANALYSIS

CREDIT EXPOSURESDERIVATIVES & LOANS

ISDA & CSAVALUATION & MONITORING

OPTIMIZATION

NewOak’s counterparty and collateral management offers an advantage in asset managementNEWOAK ‘S COLLATERAL AND COUNTERPARTY RISK MANAGEMENT

Alternative asset management requires sophisticated infrastructure for collateral and counterparty management

Spectrum of complex documentation interpretation, computation, valuation, optimization, and execution leads to challenges and opportunities for state-of-the-art collateral management systems and operations


103

NewOak Solutions: Front to Back Solutions

Asset Management Support Services

Front Office Middle Office Back Office

Pre & Post Trade Analytics.Trade Capture and Portfolio

Management.Risk Management Analytics:

Fixed income and Equity.Equity Portfolio Style Factor

analysis.Equity Order Management and

execution.Benchmark Relative analysis.Scenario and Stress Testing.

Trade Support Services

Confirmation

Reconciliation

Portfolio Pricing

Profit / Loss Analysis


Reporting

Investor Reporting.Accounting Support:

Independent Valuation for NAV..Reporting:

PerformanceExposureComplianceTransaction Cost AnalysisBenchmark Relative Reporting

NEWOAK ASSET MANAGEMENT PORTAL SOLUTIONS


104

• Decision Support Infrastructure:• Pre and Post Trade Analytics• Portfolio Management• Risk Management

•Market and credit risk•Domestic & international

• Execution Infrastructure:• Trade Execution• Transaction Cost Analysis

and Optimization

NewOak Solutions: Front OfficeNEWOAK ASSET MANAGEMENT PORTAL SOLUTIONS

Front Office Services Middle Office Services Back Office Integration

Assumption Vectos

Structured Securities

Fixed Income

Equity

Derivatives



105

NewOak Solutions: Analytics

Front Office Services Middle Office Services Back Office Services

Independent Valuation

•Reconciliation to prime brokers and CSA agreements•Collateral Challenges

Collateral Management:

•Performance across fixed and equity

Attribution Reporting:

•Performance Reporting•Compliance Reporting•Benchmark Relative Performance and Exposure Reporting

Customized investor reporting:

Portfolio Monthly ActiveFactor Factor ReturnExposure Return Contribution

Currencies 1 - Europe xUK -3.74% 1.57% -0.06%2 - UK & Ireland 4.11% 1.50% 0.06%3 - Australia/New Zealand 1.02% 1.23% 0.01%4 - Asia Pacific xJapan, A&NZ -1.24% 0.94% -0.01%Total Currencies -1.31% 0.11%




106

NewOak Solutions: Strategic Services

Front Office Middle Office Back Office Integration

• Full Integration with third party custodians and administrators for complete front to back capability




107

Ongoing Surveillance

Reports

Process Flow And Control

Collateral Characteristic

Origination Documentation

StratusCollateral Management

& Reporting

Execute

Analyze

Collect

Legal Documents & Data Files

Key Underwriting Variables

Ongoing performance, roll rates, cash flows

Expression engines, alerts, etc.

Stratus: The Intelligent Loan and Collateral Management System NEWOAK SOLUTIONS OPENRISK™ - STRATUS


108

Extensive capabilities across all aspects of securities finance:

Collateral Management Services: Stratus

Repo

•MRA/GMRA: Repurchase Agreements

•Core and Complex Fixed Income

ISDA

•Initial Margin

•Margin Verification

Exchange

•FCM•DCM

Central Clearin

g

•Verification and Checking of Central Clearing

•Cross Margining and Risk Based Margining

NEWOAK SOLUTIONS OpenRisk™ - Stratus

[email protected]

new oak creating an effective risk modeling framework (pensions risk management)

Documents

liability risk sponsor

liability relative

benchmark relative risk

benchmark return liability

benchmarkwhat risk

absolute return risk

ongoing risk management

liability benchmarksi