Case Study - Why Hedge Funds?

Investing in the future, diversifying your risks

Masako Watanabe & Associates Limited1105 Printing House, 6 Duddell Street

Central, Hong Kong

www.investmw.comSummer 2006

Masako Watanabe & Associates Limited

Disclaimer

The products introduced herein are not authorized by Hong Kong SFC or any regulatory authorities in other countries.

This presentation is for information purposes only and is not an offer or solicitation to buy or sell securities. The private placement memorandum is the official document for the terms and conditions of the products.

Although the contents herein are based on information believed to be reliable, Masako Watanabe & Associates Limited makes no representation as to its accuracy or completeness.

This document is prepared for private use only and may not be copied, reproduced and passed to any third party without the prior written consent of Masako Watanabe & Associates Limited.

Masako Watanabe & Associates Limited

Managing Your Risk

• All investments carry some element of risk and hedge funds are no different

• However, contrary to their public image as risk-takers most hedge fund managers specifically focus on reducing risk and limiting volatility

• By including carefully chosen, hedge funds with low market correlation and good track record, an investor can significantly increase his portfolio's risk adjusted returns

• The following is a sample presentation on the effect the inclusion of hedge funds’ products can have on a traditional portfolio

Masako Watanabe & Associates Limited

24 %

+ 18 %

+ 16 %

+ 14 %

+ 12 %

+ 10 %

+ 8 %

+ 6 %

+ 4 %

4 % 6 % 8 % 10 % 12 % 14 % 16 % 18 % 20% 22 %

Volatility (Risk) （ % ）

Per

form

ance

（%

）Portfolio Theory in praxisDec 1990 – June 2006

Portfolio 2 60 % MSCI, 40% Sample Hedge Fund

Portfolio 1100% MSCI (stocks only)

High risk/return Hedge Fund

Masako Watanabe & Associates Limited

Volatility 13.4%

Volatility 13.4%

Comparison 10.000 USD Invested Dec 1990 – June 2006

Portfolio 1100 % MSCI (stocks only)

Portfolio 1100 % MSCI (stocks only)

39,940 USD

Volatility 6.5%

Volatility 6.5%

28,780 USD

Portfolio 3 100% Govt. Bond Index

Portfolio 3 100% Govt. Bond Index

RiskRisk10,000 USD10,000 USD RiskRisk10,000 USD10,000 USD

Sharpe ratio* 0.36

Sharpe ratio* 0.32

*mo

difi

ed

sh

arp

ra

tio (

risk

fre

e =

5%

)

Volatility 9.9%

Volatility 9.9%

70,080 USD

Portfolio 260 % MSCI +

40 % Hedge Fund

Portfolio 260 % MSCI +

40 % Hedge Fund

RiskRisk10,000 USD10,000 USD

Sharpe ratio* 0.91

Masako Watanabe & Associates Limited

Conclusion

• Diversify your portfolio by adding hedge fund products to: Reduce risk Increase returns A more balanced portfolio

• Interested to learn more? Contact us now!

• And never forget…

Masako Watanabe & Associates Limited