BEYOND 60/40 NAVIGATING THE

ALTERNATIVE INVESTMENT UNIVERSE

David Kaufman, LL.B., CAIA

President, Westcourt Capital Corporation

April, 2013

STEP-BY-STEP 1. Define Portfolio Objectives

2. Test Objectives Against Current Portfolio

3. Identify Opportunity Set of Asset Classes & Strategies

4. Identify Allocations

5. Identify Managers

6. Test New Portfolio over Adequate Time Period

P a g e 2

Allocating to Alternatives: Baseline Considerations

LIQUIDITY: There is little likelihood that 100% portfolio liquidity would be required to satisfy liabilities in real-time. However, liquidity is still an important consideration because a lack of liquidity requires “locking in” to a specific strategy for an extended period of time. This applies the most to private equity (5-7 years). (See liquidity table on next slide.)

RECOGNIZABILITY: It may be important that a significant portion of the portfolio be “recognizable” to lay observers. This militates in favour of more liquid, publicly traded investments.

TRANSPARENCY: It is advantageous to have transparency in investment holdings at all times. While most alternative managers provide transparency, it is often backward-looking and this should be considered.

COMPLEXITY: Distinct from transparency in that an investment can be transparent and still be complex. Complexity affects the ability to assess any investment’s position from a portfolio perspective, but is not in itself negative. Complexity does require more of a “trust me” approach to manager review and selection.

PREDICTABILITY: Some investments are liquid, recognizable, transparent, and not complex but are still not necessarily predictable. Many alternative strategies (i.e., private and public real estate and infrastructure) are predictable because of expected periodic cash distributions.

P a g e 3

Alternative Liquidity & Financial Crisis

P a g e 4

Investment Liquidity Sensitivity Notes

Public Real Estate & Infrastructure

1-30 Days High Majority in instant-liquidity with high volumes

Private Real Estate 30 Days Medium Illiquidity of underlying assets cannot be ignored

Equity & Credit Market Neutral

30 Days Low Agnostic as to market direction

Deep Value Equities 30-90 Days High Must accept volatility and consider long-term

Private Equity 5-7 Years High

(Mark to Market) Must accept volatility and consider long-term

Managed Futures 1-30 Days Inverse Would hold during periods of financial stress

Risk Management Issues with Alternatives

Understand how lower liquidity creates a smoothing effect.

Rebalancing can be hard or impossible with illiquid investments.

In some cases, difficulty marking certain assets (no public bid).

Have to have more staff or use consultants (increased costs).

Even with staff and consulting, need training – traditional fundamental analysis of little use with certain alternatives. CAIA instead of or in addition to CFA good start for analysts in this space.

STEP 1:

PORTFOLIO OBJECTIVES

P a g e 6

Portfolio Objectives: Macro (example)

Capital Preservation

Long-Term Growth of Portfolio

Income Generation to Match Liabilities

Inflation Protection

Adequate Liquidity to Satisfy Collateral Needs

P a g e 7

Portfolio Objectives: Micro (example) Target Total Return: 6% p.a.

Volatility: Annualized standard deviation ≤ total return

Downside Deviation: Annualized downside deviation ≤ 4%

Excess Beta* (Up Beta – Down Beta): >0.2

Asset Correlation: 85% ≤ 0.65

Liquidity: 80% of portfolio can be liquidated in 30 days or less

Capacity: Recommended strategies have capacity for allocation

P a g e 8

*Measured against Balanced Benchmark

STEP 2:

TEST OBJECTIVES VS.

CURRENT PORTFOLIO &

CURRENT OUTLOOK

P a g e 9

Current Portfolio (example)

60%

40%

Asset Allocation

Equity

Fixed Income

P a g e 1 0

-45%

-35%

-25%

-15%

-5%

5%

15%

25%

Sep-0

7

No

v-07

Jan-0

8

Mar-0

8

May-0

8

Jul-0

8

Sep-0

8

No

v-08

Jan-0

9

Mar-0

9

May-0

9

Jul-0

9

Sep-0

9

No

v-09

Jan-1

0

Mar-1

0

May-1

0

Jul-1

0

Sep-1

0

No

v-10

Jan-1

1

Mar-1

1

May-1

1

Jul-1

1

Sep-1

1

No

v-11

Jan-1

2

Mar-1

2

May-1

2

Jul-1

2

Sep-1

2

Fund 1

Fund 2

Fund 3

Fund 4

Fund 5

Fund 6

Fund 7

Fund 8

Fund 9

Fund 10

Fund 11

Current Portfolio

Balanced Benchmark

Current Portfolio: 5yr Historical Performance (example)

Balanced Benchmark AR: 3.09% SD: 10.71% SHP: 0.29 Current Portfolio AR: 3.01% SD: 8.77% SHP: 0.34

Current Portfolio (example) Tested Against Micro Objectives (previous 60 months)

P a g e 1 2

*Measured against Balanced Benchmark

Objectives (Annualized) Target Example Portfolio

Target Total Return 6% p.a. X : 3.01%

Volatility (StDev) ≤ total return X : 8.77%

Downside Deviation ≤ 4% X : 7.92%

Excess Beta (Up Beta – Down Beta)* ≥ 0.2 X: -0.19

Asset Correlation 85% ≤ 0.65 X : 73% ≤ 0.65

Liquidity 80% (≤ 30 days) : 100%

P a g e 1 3

Challenges Moving Forward

Likelihood that equity returns will continue to be in rage of 0-8% with volatility > 10% (higher deployment takes further away from micro objectives). (risk-adjusted return risk)

30-year bond run is at an end. We don’t know when, but we’re not market timers. (duration risk)

30-year total returns of stocks/bonds (any mix) of 8%+ is impossible to repeat. (stagnation risk)

On a relative scale, institutional investors not allocating to alternatives are falling further behind every year. (job risk)

STEP 3:

IDENTIFY OPPORTUNITY SET

P a g e 1 4

P a g e 1 5

Degrees of Freedom

“Pure” Approach to Portfolio Construction

No “Sacred Cows”

Assumes Every Asset Class/Strategy Starts at 0%

Inclusion of any Asset Class/Strategy Must be Defended

Requires Cross-Platform Scoring System as Guide: i.e. Heat Map

P a g e 1 6

Asset Classes vs. Investment Strategies Asset Classes: Cash, Equities, Debt, Real Assets

Can Be Accessed Cheaply (ETFs) or Through Active Management

Typically Long-Only, No Leverage

Investment Strategies: Use of Asset Classes, Active Management

Often Absolute Return Focused

Long/Short, Leverage, Derivatives (Enhance Returns/Manage Risk)

Rules-Based or Free Active Management

Higher Management Fees, More Risk Management

STEP 4:

DETERMINE ALLOCATIONS:

HEAT MAP

P a g e 1 7

P a g e 1 8

Methodology of Heat Map 1. Identify Objectives:

A. Capital Preservation (Low Volatility, Insurance, Hedge)

B. Long-Term Growth

C. Income Generation (Expected Periodic Predictable Yield)

D. Inflation Protection

E. Liquidity (Adequate to Satisfy Liabilities)

P a g e 1 9

Methodology of Heat Map (Cont’d)

High Yield Debt (Long/Short) Fixed Income

High Yield Debt Fixed Income

International Long Bond Fixed Income

Canadian Real Return Bond Fixed Income

Hedge Fund - Credit Strats Alternative-HF

Hedge Fund - Market Neutral Alternative-HF

Hedge Fund - Long /Short Alternative-HF

Managed Futures * Alternative-MF

Private Equity LBO - FoF Alternative-PE

Global Infra ( Public) Equity

Real Estate Public Equity

International Long Equity (Div.) Equity

International Long Equity (Growth) Equity

Emerging Long Equity Equity

Real Estate Private Real Assets

Farmland - leased, no leverage Real Assets

Long Commodities Real Assets

Gold Real Assets

Timberland Real Assets

Equity

Alternative

Fixed Income

Real Assets

2. Identify Asset Categories:

P a g e 2 0

Methodology of Heat Map (Cont’d) 3. Score from 0-5 Attributes of Investments vs. Objectives

Assets Asset Category .

Capital Preservation

Long Term Growth

Income Generation

Inflation Protection

Liquidity

Global Infra ( Public) Equity 3 3 4 4 5

High Yield Debt (Long/Short) Fixed Income 4 1 5 4 4

Real Estate Private Real Assets 4 1 5 4 3

Real Estate Public Equity 3 2 4 4 5

Hedge Fund - Credit Strats Alternative-HF 4 3 2 3 3

Managed Futures * Alternative-MF 4 3 0 4 5

High Yield Debt Fixed Income 2 2 5 2 5

Hedge Fund - Market Neutral Alternative-HF 4 3 1 2 4

Farmland - leased, no leverage Real Assets 4 3 2 4 0

Private Equity LBO - FoF Alternative-PE 4 5 0 3 0

Long Commodities Real Assets 2 5 0 4 5

Hedge Fund - Long /Short Alternative-HF 3 3 2 2 4

International Long Equity (Div) Equity 2 3 2 3 5

International Long Equity (Growth) Equity 2 5 0 2 5

Gold Real Assets 2 4 0 4 5

Emerging Long Equity Equity 1 4 2 2 5

Capital Preservation

Long Term Growth

Income Generation

Inflation Protection

Liquidity

Objective Weights

40% 15% 25% 5% 15%

35% 20% 25% 5% 15%

35% 25% 20% 10% 10%

30% 30% 20% 10% 10%

Economic Scenarios

Recession; With

debt

Recession; No

debt

Near Stall Speed

New Normal

34% 34% 22% 10%

P a g e 2 1

Methodology of Heat Map (Cont’d) 4. Identify Four Possible Economic Scenarios:

A. New Normal; Near Stall Speed; Recession; Financial Crisis

5. Apply Weights to Objectives for each Economic Scenario

Assets Asset Category .

Capital Preservation

Long Term Growth

Income Generation

Inflation Protection

Liquidity .

New Normal

Near Stall Speed Economy

Recession; No debt deflation

/crisis

Recession; With debt deflation /

crisis

Final Score

.

Allocation

Global Infra ( Public) Equity 3 3 4 4 5 70 70 72 72 71 7.86%

High Yield Debt (Long/Short) Fixed Income 4 1 5 4 4 66 69 73 76 70 7.74%

Real Estate Private Real Assets 4 1 5 4 3 64 67 70 73 67 7.48%

Real Estate Public Equity 3 2 4 4 5 64 65 68 69 66 7.31%

Hedge Fund - Credit Strats Alternative-HF 4 3 2 3 3 62 63 62 63 62 6.94%

Managed Futures * Alternative-MF 4 3 0 4 5 60 61 59 60 60 6.69%

High Yield Debt Fixed Income 2 2 5 2 5 58 58 64 64 60 6.66%

P a g e 2 2

Methodology of Heat Map (Cont’d) 6. Score Each Investment with Objective Weights (x20)

7. Score Each Investment with Scenario Weights: Final Score

8. Choose Top 15 Final Scores

9. Allocate Based on Top 15 Final Scores

P a g e 2 3

Using the Results to Allocate MATH IS OUR SERVANT, NOT OUR MASTER

Heat Map Approach is NOT Mathematical Optimizer

Apply Subjective Review & Correlation Study

Using Heat Map as Guide, Create Ranges

Consider Variables (Such as Recognizability & Liquidity)

Within Ranges, Select “Day-1” Allocations

Begin Manager Selection Process

STEP 5:

IDENTIFY MANAGERS

P a g e 2 4

Manager Selection Checklist

1. Assets Under Management: Must be in scale with prospective allocation.

2. Capacity: Must be appropriate for prospective allocation.

3. Manager Experience: Whether at a large institution or managing fund, adequate experience.

4. Manager Expertise: Clear best-in-class academic and practical training.

5. Risk-Adjusted Performance: In line with investment objectives within defined constraints.

6. Risk-Adjusted Performance vs. Peer Group: Quantitative evidence of quality of manager.

7. Operations/Infrastructure: Solid core; front and back office.

8. Best in Class Service Providers: Auditors, dealers, lawyers, counterparties.

9. Subjective Competence: Reference checks, interviews, character evaluation.

Manager Selection Process

Identify Universe of Potential Managers

(Not All Managers, But Adequate Representative List)

Apply Quantitative Filters

(Too Small, Too New, Poor Performance etc.)

Detailed Quantitative/Qualitative Analysis

Deep Dive

Due Diligence

Recommendations

STEP 6:

TEST NEW PORTFOLIO

P a g e 2 7

Current vs. Recommended Portfolio

P a g e 2 8

60%

40%

Current Portfolio

Equity Fixed Income

44%

28%

12% 6% 10%

Recommended Portfolio

Alternatives Equity Fixed Income Real Assets Opportunistic

-25%

-15%

-5%

5%

15%

25%

35%

45%

55%

Au

g-07

Oct-0

7

De

c-07

Feb

-08

Ap

r-08

Jun

-08

Au

g-08

Oct-0

8

De

c-08

Feb

-09

Ap

r-09

Jun

-09

Au

g-09

Oct-0

9

De

c-09

Feb

-10

Ap

r-10

Jun

-10

Au

g-10

Oct-1

0

De

c-10

Feb

-11

Ap

r-11

Jun

-11

Au

g-11

Oct-1

1

De

c-11

Feb

-12

Ap

r-12

Jun

-12

Au

g-12

Oct-1

2

De

c-12

Current

Recommended

Total Portfolio Returns

Current Portfolio AR: 3.01% SD: 8.77% SHP: 0.34 Recommended AR: 8.18% SD: 3.74% SHP: 2.29

5 Year Return History

5-Year Annual Return History

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012

RecommendedPortfolio

Current Portfolio

*Sept 2007-Dec 2007

2007* 2008 2009 2010 2011 2012

Recommended 1.23% - 5.57% 19.59% 13.93% 5.80% 10.37%

Current 0.66% - 18.89% 19.10% 11.51% 0.08% 7.93%

5-Year Drawdown Analysis

Max Drawdown Recovery

Current - 26.08% 21 Months

Recommended - 7.71% 8 Months

-30%

-25%

-20%

-15%

-10%

-5%

0%

Current Recommended

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Fixed Income 1 1.00

Fixed Income 2 1.00 1.00

Fixed Income 3 1.00 1.00 1.00

Fixed Income 4 0.52 0.52 0.52 1.00

Fixed Income 5 0.88 0.88 0.88 0.79 1.00 Total Crosses 741

Fixed Income 6 0.33 0.33 0.33 0.36 0.38 1.00 >0.65 202

Fixed Income 7 0.27 0.27 0.27 -0.04 0.17 0.24 1.00 0.3 to 0.65 223

Fixed Income 8 0.17 0.17 0.17 0.52 0.37 0.41 -0.20 1.00 -0.3 to 0.3 288

Fixed Income 9 0.12 0.12 0.12 0.51 0.34 0.35 0.02 0.55 1.00

Small Cap 1 0.00 0.00 0.00 0.61 0.29 0.27 -0.24 0.71 0.68 1.00

Small Cap 2 -0.16 -0.16 -0.16 0.47 0.15 0.18 -0.20 0.36 0.42 0.60 1.00

Small Cap 3 -0.03 -0.03 -0.03 0.54 0.28 0.18 -0.12 0.56 0.46 0.70 0.63 1.00

Small Cap 4 -0.03 -0.03 -0.03 0.64 0.28 0.33 -0.26 0.76 0.62 0.91 0.68 0.67 1.00

Growth 1 -0.09 -0.09 -0.09 0.57 0.24 0.25 -0.34 0.81 0.61 0.84 0.65 0.72 0.92 1.00

Growth 2 0.02 0.02 0.02 0.42 0.25 0.32 0.14 0.42 0.43 0.54 0.49 0.85 0.48 0.54 1.00

Growth 3 -0.09 -0.09 -0.09 0.57 0.24 0.25 -0.34 0.81 0.61 0.84 0.65 0.72 0.92 1.00 0.54 1.00

Growth 4 -0.22 -0.22 -0.22 0.51 0.15 0.18 -0.25 0.59 0.58 0.77 0.73 0.79 0.81 0.90 0.68 0.90 1.00

Growth 5 -0.04 -0.04 -0.04 0.38 0.22 0.36 0.06 0.53 0.45 0.61 0.51 0.86 0.57 0.65 0.93 0.65 0.74 1.00

Growth 6 0.02 0.02 0.02 0.42 0.25 0.32 0.14 0.42 0.43 0.54 0.49 0.85 0.48 0.54 1.00 0.54 0.68 0.93 1.00

Growth 7 -0.17 -0.17 -0.17 0.37 0.10 0.27 -0.11 0.54 0.45 0.68 0.52 0.87 0.65 0.69 0.84 0.69 0.73 0.90 0.84 1.00

Growth 8 0.11 0.11 0.11 0.61 0.36 0.46 -0.07 0.62 0.63 0.72 0.60 0.74 0.73 0.72 0.76 0.72 0.74 0.77 0.76 0.71 1.00

Growth 9 0.04 0.04 0.04 0.47 0.27 0.20 -0.33 0.66 0.52 0.74 0.55 0.70 0.66 0.74 0.61 0.74 0.70 0.69 0.61 0.73 0.73 1.00

Value 1 -0.09 -0.09 -0.09 0.57 0.24 0.25 -0.34 0.81 0.61 0.84 0.65 0.72 0.92 1.00 0.54 1.00 0.90 0.65 0.54 0.69 0.72 0.74 1.00

Value 2 0.12 0.12 0.12 0.73 0.45 0.20 -0.34 0.73 0.49 0.77 0.62 0.73 0.82 0.90 0.57 0.90 0.82 0.63 0.57 0.65 0.70 0.76 0.90 1.00

Value 3 -0.03 -0.03 -0.03 0.60 0.29 0.18 -0.39 0.76 0.50 0.75 0.64 0.76 0.81 0.93 0.58 0.93 0.86 0.68 0.58 0.71 0.71 0.77 0.93 0.92 1.00

Value 4 0.02 0.02 0.02 0.42 0.25 0.32 0.14 0.42 0.43 0.54 0.49 0.85 0.48 0.54 1.00 0.54 0.68 0.93 1.00 0.84 0.76 0.61 0.54 0.57 0.58 1.00

Value 5 0.17 0.17 0.17 0.52 0.37 0.41 -0.20 1.00 0.55 0.71 0.36 0.56 0.76 0.81 0.42 0.81 0.59 0.53 0.42 0.54 0.62 0.66 0.81 0.73 0.76 0.42 1.00

Value 6 0.02 0.02 0.02 0.42 0.25 0.32 0.14 0.42 0.43 0.54 0.49 0.85 0.48 0.54 1.00 0.54 0.68 0.93 1.00 0.84 0.76 0.61 0.54 0.57 0.58 1.00 0.42 1.00

Value 7 0.02 0.02 0.02 0.42 0.25 0.32 0.14 0.42 0.43 0.54 0.49 0.85 0.48 0.54 1.00 0.54 0.68 0.93 1.00 0.84 0.76 0.61 0.54 0.57 0.58 1.00 0.42 1.00 1.00

Value 8 0.08 0.08 0.08 0.58 0.35 0.47 -0.01 0.56 0.63 0.69 0.64 0.74 0.71 0.73 0.78 0.73 0.78 0.81 0.78 0.72 0.95 0.72 0.73 0.70 0.70 0.78 0.56 0.78 0.78 1.00

Value 9 0.06 0.06 0.06 0.54 0.32 0.46 -0.01 0.55 0.58 0.68 0.63 0.82 0.68 0.70 0.89 0.70 0.77 0.88 0.89 0.81 0.94 0.75 0.70 0.68 0.70 0.89 0.55 0.89 0.89 0.94 1.00

Value 10 0.17 0.17 0.17 0.62 0.43 0.18 -0.27 0.65 0.60 0.79 0.53 0.71 0.74 0.81 0.61 0.81 0.77 0.66 0.61 0.66 0.77 0.82 0.81 0.84 0.82 0.61 0.65 0.61 0.61 0.77 0.77 1.00

Alternative 1 -0.22 -0.22 -0.22 0.04 -0.01 0.03 -0.12 0.13 0.10 0.22 0.15 0.26 0.17 0.27 0.24 0.27 0.31 0.32 0.24 0.38 0.10 0.20 0.27 0.16 0.23 0.24 0.13 0.24 0.24 0.18 0.21 0.18 1.00

Alternative 2 0.34 0.34 0.34 0.72 0.54 0.38 -0.22 0.67 0.59 0.67 0.51 0.49 0.73 0.65 0.35 0.65 0.49 0.36 0.35 0.37 0.71 0.55 0.65 0.68 0.60 0.35 0.67 0.35 0.35 0.65 0.59 0.66 0.03 1.00

Alternative 3 0.22 0.22 0.22 -0.01 0.10 -0.03 0.05 0.10 0.03 -0.05 -0.20 -0.27 -0.02 -0.01 -0.25 -0.01 -0.15 -0.22 -0.25 -0.23 -0.09 0.11 -0.01 -0.06 -0.04 -0.25 0.10 -0.25 -0.25 -0.09 -0.13 0.02 -0.14 -0.01 1.00

Alternative 4 -0.01 -0.01 -0.01 0.73 0.35 0.17 -0.35 0.57 0.43 0.69 0.67 0.64 0.78 0.75 0.39 0.75 0.68 0.42 0.39 0.49 0.60 0.51 0.75 0.75 0.73 0.39 0.57 0.39 0.39 0.56 0.55 0.61 0.17 0.67 -0.12 1.00

Alternative 5 1.00 1.00 1.00 0.52 0.88 0.33 0.27 0.17 0.12 0.00 -0.16 -0.03 -0.03 -0.09 0.02 -0.09 -0.22 -0.04 0.02 -0.17 0.11 0.04 -0.09 0.12 -0.03 0.02 0.17 0.02 0.02 0.08 0.06 0.17 -0.22 0.34 0.22 -0.01 1.00

Alternative 6 -0.07 -0.07 -0.07 0.07 -0.10 -0.05 -0.23 0.06 -0.32 0.04 -0.19 0.14 0.06 0.11 0.15 0.11 0.10 0.12 0.15 0.15 0.08 0.09 0.11 0.19 0.17 0.15 0.06 0.15 0.15 0.04 0.09 0.16 -0.03 -0.04 0.10 0.04 -0.07 1.00

Alternative 7 0.25 0.25 0.25 0.29 0.27 0.26 -0.26 0.72 0.38 0.47 0.14 0.09 0.54 0.52 -0.09 0.52 0.19 0.00 -0.09 0.06 0.28 0.37 0.52 0.38 0.39 -0.09 0.72 -0.09 -0.09 0.23 0.14 0.36 -0.02 0.61 0.30 0.31 0.25 -0.08 1.00

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Current Portfolio CorrelationsFixed Income Small Cap Equity Growth Equity Value Equity Alternative Investments

EH PE

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Fixed Income 1 1.00

Fixed Income 2 0.66 1.00

Credit 1 -0.11 0.03 1.00

Credit 2 0.92 0.70 -0.19 1.00

Credit 3 -0.07 0.10 0.70 -0.07 1.00 Total Crosses 300

Credit 4 0.04 -0.11 0.40 -0.05 0.23 1.00 >0.65 12

Credit 5 -0.15 -0.06 0.77 -0.23 0.51 0.46 1.00 0.3 to 0.65 64

Credit 6 -0.16 0.09 0.71 -0.21 0.57 0.51 0.72 1.00 -0.3 to 0.3 222

Equity 1 0.47 0.42 0.20 0.40 0.14 0.21 0.25 0.26 1.00

Equity 2 -0.08 0.07 0.55 -0.16 0.42 0.31 0.59 0.71 0.32 1.00

Equity 3 -0.13 -0.17 0.48 -0.23 0.21 0.54 0.65 0.68 0.34 0.56 1.00

Equity 4 -0.20 -0.08 0.49 -0.24 0.29 0.33 0.48 0.60 0.25 0.56 0.71 1.00

EH Equity Hedge 1 -0.19 0.01 0.21 -0.22 0.22 0.28 0.16 0.36 0.01 0.15 0.22 0.17 1.00

PE

Private Equity -0.17 -0.21 0.59 -0.24 0.43 0.42 0.57 0.60 0.15 0.33 0.57 0.57 0.23 1.00

Managed Futures 1 0.19 0.15 -0.19 0.22 -0.19 -0.09 -0.10 -0.14 0.00 -0.20 -0.13 -0.15 -0.14 -0.13 1.00

Managed Futures 2 0.12 0.11 -0.22 0.23 -0.23 0.02 -0.18 -0.14 0.04 -0.12 -0.21 -0.15 0.00 -0.12 0.46 1.00

Private Real Estate 1 0.06 -0.04 -0.10 0.16 -0.13 -0.15 -0.16 -0.23 -0.04 -0.24 -0.25 -0.21 -0.02 0.05 -0.08 0.24 1.00

Private Real Estate 2 -0.03 0.14 0.15 0.04 0.09 -0.06 0.15 0.09 0.10 0.22 0.02 0.10 0.07 -0.06 0.04 0.02 -0.33 1.00

Private Real Estate 3 -0.03 -0.32 -0.05 -0.07 -0.08 0.12 0.04 -0.15 -0.07 -0.19 0.12 0.15 -0.03 0.51 0.10 0.05 0.22 -0.23 1.00

Real Estate Hedge 1 -0.19 -0.05 0.54 -0.21 0.39 0.18 0.57 0.58 0.10 0.62 0.44 0.54 0.23 0.44 -0.19 -0.09 -0.14 0.16 0.03 1.00

Real Estate Hedge 2 0.11 0.06 0.48 0.07 0.49 0.36 0.47 0.59 0.56 0.63 0.57 0.56 0.19 0.46 -0.13 -0.08 -0.18 0.08 0.14 0.59 1.00

Market Neutral 1 -0.21 0.00 0.17 -0.16 0.18 0.10 0.09 0.27 -0.35 -0.03 0.00 0.13 0.10 0.33 0.00 0.10 0.14 -0.27 0.06 0.02 -0.23 1.00

Market Neutral 2 -0.25 -0.26 -0.04 -0.31 -0.08 -0.01 0.02 -0.02 -0.17 -0.02 0.03 -0.07 -0.10 -0.02 -0.02 0.06 -0.13 0.14 0.16 -0.15 -0.25 0.11 1.00

Market Neutral 3 -0.01 0.01 0.14 -0.03 -0.02 0.21 0.28 0.20 0.10 0.12 0.09 0.16 0.00 0.37 0.27 0.24 0.11 -0.08 0.37 0.20 0.10 0.30 0.11 1.00

Market Neutral 4 0.05 0.17 0.30 -0.03 0.12 0.19 0.42 0.50 0.35 0.68 0.54 0.41 0.07 0.09 -0.14 -0.08 -0.25 0.20 -0.32 0.37 0.45 -0.21 0.06 -0.14 1.00

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Recommended Portfolio Correlations

%

4.00%

21.33%

74.00%

F.I Credit Equity MF Private RE RE Hedge Market Neutral

Portfolio Correlations

TSX Balanced

Correlation 0.93 0.92

Beta 0.48 0.76

Up Capture 39.7% 68.8%

Down Capture

58.8% 82.0%

Excess Capture

-19.1% -13.2%

TSX Balanced

Correlation 0.83 0.85

Beta 0.19 0.30

Up Capture 23.8% 44.5%

Down Capture

5.8% 9.2%

Excess Capture

18.0% 35.3%

Current Portfolio Recommended Portfolio

The current portfolio is highly sensitive to the equity markets and is not efficient when

measured against an equity or balanced benchmark. The recommended portfolio focuses

on smoother returns and limiting the possibility of large drawdowns.

Recommended & Current Portfolio

Objectives (Annualized) Target Current Portfolio Recommended Portfolio

Target Total Return 6% p.a. X : 3.01% : 8.18%

Volatility (StDev) ≤ tot. return X : 8.77% : 3.74%

Downside Deviation ≤ 4% X : 7.92% : 2.41%

Excess Beta (Up Beta – Down Beta)* ≥ 0.2 X : -0.19 : 0.30

Asset Correlation 85% ≤ 0.65 X : 73% ≤ 0.65 : 96% ≤ 0.65

Liquidity 80% (≤30 Days) : 100% : >90%

Tested Against Micro Objectives (previous 60 months)

P a g e 3 5

*Measured against Balanced Benchmark

ADDITIONAL ANALYSIS

3 6

P a g e 3 7

Efficient Frontier Ex

pec

ted

Ret

urn

Risk

High

Low High

Same Return, Less Risk

Same Risk, More Return

Efficient Frontier

P a g e 3 8

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Ret

urn

Standard Deviation

Current Funds Current + Long Only + Alternatives Current Portfolio

Target Portfolio R: 6.0% SD: 6.0%

Current Portfolio Ex. R: 5.14% SD: 10.07%

“Optimal” Portfolio Ex. R: 7.56% SD: 2.22%

“Target Return on EF” Portfolio Ex. R: 6.0% SD: 1.26%

Recommended Funds

“Optimal” Portfolio

P a g e 3 9

Investment Optimal Portfolio on Blue Frontier

Fixed Income Fund 1 Fixed Income Fund 2 Fixed Income Fund 3 Equity Index Fund 1 Equity Fund 1 Equity Index Fund 2 Equity Index Fund 3 Equity Index Fund 4 Equity Fund 2 Equity Fund 3 Credit Fund 1 Credit Fund 2 Equity Fund 4 Equity Fund 5 0.60% Credit Fund 3 55.27% Market Neutral Fund 1 Market Neutral Fund 2 Market Neutral Fund 3 5.39% Long/Short Fund 1 Managed Futures Fund 1 1.64% Private Equity Fund 1 10.48% Infrastructure Fund 1 Public Real Estate Fund 1 Private Real Estate Fund 1 26.62%

1%

55%

5% 2%

10%

27%

Equity Fund 5 Credit Fund 3

Market Neutral Fund 3 Managed Futures Fund 1

Private Equity Fund 1 Private Real Estate Fund 1

“Target Return on EF” Portfolio

P a g e 4 0

Investment Optimal Portfolio on Blue Frontier

Fixed Income Fund 1 2.50% Fixed Income Fund 2 10.05% Fixed Income Fund 3

Equity Index Fund 1 Equity Fund 1

Equity Index Fund 2 Equity Index Fund 3

Equity Index Fund 4

Equity Fund 2 Equity Fund 3 Credit Fund 1

Credit Fund 2 Equity Fund 4

Equity Fund 5 Credit Fund 3 29.94% Market Neutral Fund 1

Market Neutral Fund 2 0.83% Market Neutral Fund 3 5.52%

Long/Short Fund 1 2.79%

Managed Futures Fund 1 1.85% Private Equity Fund 1 30.03%

Infrastructure Fund 1 3.53% Public Real Estate Fund 1 3.28% Private Real Estate Fund 1 9.68%

2% 10%

30%

1% 5% 3% 2%

30%

4% 3% 10%

Fixed Income Fund 1 Fixed Income Fund 2

Credit Fund 3 Market Neutral Fund 2

Market Neutral Fund 3 Long/Short Fund 1

Managed Futures Fund 1 Private Equity Fund 1

Infrastructure Fund 1 Public Real Estate Fund 1

Private Real Estate Fund 1

Monte Carlo (Current Portfolio) All Portfolio Statistics Annualized Return

Annualized Standard Deviation Annualized Sharpe (RF)

Annualized Downside Deviation (0%) Annualized Sortino (0%) Maximum Drawdown

Number Simulations 10,000 10,000 10,000 9,993 9,993 9,993

Mean 2.70% 5.57% 0.493 3.41% 4.446 4.25%

Median 2.31% 5.32% 0.461 3.25% 0.718 3.69%

Standard Deviation 5.92% 1.80% 1.094 1.49% 221.953 2.53%

Maximum 39.71% 23.79% 9.116 18.36% 21610.657 22.04%

Minimum -19.37% 1.67% -4.86 0.00% -2.87 0.00%

99th Percentile 18.48% 11.35% 3.342 7.84% 16.844 12.36%

95th Percentile 13.02% 8.81% 2.335 6.03% 6.908 9.09%

90th Percentile 10.24% 7.77% 1.842 5.28% 4.563 7.59%

80th Percentile 7.29% 6.82% 1.341 4.51% 2.778 6.07%

75th Percentile 6.31% 6.48% 1.151 4.21% 2.248 5.49%

70th Percentile 5.31% 6.18% 0.999 3.98% 1.866 5.03%

60th Percentile 3.70% 5.72% 0.715 3.60% 1.216 4.30%

50th Percentile 2.31% 5.32% 0.461 3.25% 0.718 3.69%

40th Percentile 1.02% 4.92% 0.216 2.92% 0.296 3.18%

30th Percentile -0.46% 4.53% -0.059 2.57% -0.126 2.67%

25th Percentile -1.21% 4.33% -0.206 2.38% -0.326 2.44%

20th Percentile -2.08% 4.11% -0.372 2.18% -0.536 2.19%

10th Percentile -4.43% 3.61% -0.836 1.71% -1.049 1.63%

5th Percentile -6.37% 3.23% -1.239 1.35% -1.414 1.25%

1st Percentile -10.25% 2.63% -2.112 0.65% -1.991 0.59%

Simulation Method: GARCH

Simulation Data Start: Sep-07 Portfolio: Current Portfolio

Simulation Data End: Dec-12

Number of Periods: 64

Simulation Period: Monthly

Number of Years: 1

Number of Simulations: 10000

Re-balancing: (None)

Risk Free Return: 0.00%

Minimal Acceptable Return: 0.00%

Fixed Random Sequence: Yes

Monte Carlo (Recommended Portfolio) All Portfolio Statistics Annualized Return

Annualized Standard Deviation Annualized Sharpe (RF)

Annualized Downside Deviation (0%) Annualized Sortino (0%) Maximum Drawdown

Number Simulations 10,000 10,000 10,000 9,883 9,883 9,883

Mean 7.84% 4.54% 1.821 2.00% 11.446 2.20%

Median 7.69% 4.32% 1.732 1.83% 4.024 1.82%

Standard Deviation 5.11% 1.48% 1.231 1.19% 126.788 1.65%

Maximum 48.03% 38.39% 8.567 26.93% 10086.274 24.36%

Minimum -17.16% 1.31% -2.314 0.00% -2.215 0.00%

99th Percentile 20.96% 9.30% 5.224 5.67% 88.952 8.21%

95th Percentile 16.18% 7.15% 3.974 4.06% 26.552 5.36%

90th Percentile 14.12% 6.32% 3.36 3.48% 15.765 4.20%

80th Percentile 11.80% 5.51% 2.767 2.84% 9.685 3.14%

75th Percentile 10.95% 5.23% 2.548 2.61% 8.061 2.82%

70th Percentile 10.24% 5.02% 2.35 2.41% 6.85 2.56%

60th Percentile 8.91% 4.65% 2.012 2.11% 5.26 2.14%

50th Percentile 7.69% 4.32% 1.732 1.83% 4.024 1.82%

40th Percentile 6.53% 4.01% 1.455 1.56% 3.063 1.52%

30th Percentile 5.32% 3.70% 1.164 1.31% 2.262 1.25%

25th Percentile 4.60% 3.55% 1.01 1.18% 1.881 1.11%

20th Percentile 3.77% 3.38% 0.841 1.03% 1.469 0.97%

10th Percentile 1.63% 2.97% 0.363 0.68% 0.544 0.63%

5th Percentile -0.18% 2.67% -0.015 0.44% -0.066 0.41%

1st Percentile -4.00% 2.14% -0.804 0.15% -1.014 0.15%

Simulation Method: GARCH

Simulation Data Start: Sep-07 Portfolio: Recommended Portfolio

Simulation Data End: Dec-12

Number of Periods: 64

Simulation Period: Monthly

Number of Years: 1

Number of Simulations: 10000

Re-balancing: (None)

Risk Free Return: 0.00%

Minimal Acceptable Return: 0.00%

Fixed Random Sequence: Yes