Hedge Fund Awards 2014

2014 International Hedge Fund Awards Based on our strong performance and consistent work, we man- aged to cultivate strong relationships with institutional investors both in Europe and in Asia, as our investable region is now on the spotlight. We have set the basis for growing our pool of assets and at the same time increase our products offered with the forth- coming launch of our new low volatility / absolute return fund in Q1 2014. This will complement our higher risk emerging market strategy and provide more flexibility to our investors. We consider the “Emerging Markets Independent Advisor of the Year” award an exceptional achievement for this year as it’s a confirmation of the excellent work done at AppleTree Capital. We will definitely give our best to repeat it in 2014. Hedge Fund Industry The Hedge Fund industry is undergoing a significant transformation. Regulatory changes across the globe and the emergence of “com- petitive” investment products makes the landscape challenging. The times of “2 guys, a Bloomberg and a dream” are evaporating fast. Companies must ensure that they have all the checking/ monitor- ing mechanisms in place to reduce operational risk. Structure, risk management and transparency become more and more impor- tant. We expect Hedge Funds to focus on compliance, and the attraction of new assets via differentiated strategies. We believe that the strong flow of institutional money to alternative investments will continue, especially in liquid, transparent Long/ Short Equity strategies. Customers will be pushing for liquidity, transparency and tailor made fee arrangements. Fund of Funds should continue to attract assets but investors will be looking for more niche oriented strategies. Moreover, traditional investors like pension funds may be inclined to increase their al- location to alternative investments to enhance returns and reduce downside volatility. This will provide a significant pool of liquidity for hedge funds, however the process should be relatively slow. Most assets will continue to flow to the largest managers as has been the case in the past years. In the mean time smaller managers like AppleTree Capital can attract interest by offering strong returns, high quality structures and niche market opportunities. Despite the changes, we are positive on the industry. Competition is very high and will become higher but this is of great benefit to investors who have an increasing range of products to choose from. And as long as investors are happy, the prospects of the industry are bright. Summary view for our Emerging Market universe Within 2013, flows into equities rose significantly, marking a re- versal in the crisis-era inflows in bonds. Most of the flows were directed in developed markets which to drove to their significant outperformance compared to emerging markets. For 2014 we expect the flows in equities to continue. Portfolios are normalized to a more balanced equity/ bond mix from a 3 year consensus of underweight equities. The encouraging growth prospects in the US and the relative recovery in Europe should again direct the majority of these flows into developed markets, as Emerging Markets overall face several headwinds: - Tapering resulting in stronger dollar which diverts capital flows - Fall in commodity prices - Corporate governance - Rising external financing costs as Fed trims stimulus - Potential political risk. Nevertheless, Emerging Markets are the sum of a diverse bunch. Al- though we remain skeptical on the 2014 performance of the tradition- al EMs (BRICs), Emerging Europe should be the notable exception. The process of deleveraging in these European economies (the majority of which are members of the EU) is now reaching its end hence, there is potential for a reacceleration of growth. In most cases macroeconomic imbalances have been addressed, valuations have become extremely appealing while a significant increase in direct investment has occurred. Perceived risk has fallen sharply and this is reflected in the sharp deceleration of government bond spreads. The respective equity markets have rebounded but in most cases they have not fully compensated the severe drop in bond yields. We believe that the region provides a very appealing prospect for superior risk adjusted returns as it combines the “safety zone” and support of EU membership, with superior growth prospects and beaten down valuations. We favor selected companies, themes and sectors in SE Europe (notably in Greece and Romania) while we remain negative on Tur- key which faces rising external financing costs and political issues. In Russia we move away from commodity related exposures favor- ing catalyst based “pair-trades” , financials and real estate. In CEE we remain skeptical as Poland’s pension fund overhaul and Hun- gary’s bank books are a significant equity market drag. The strat- egy worked well during 2013 and we feel that will again produce benchmark-beating returns for our investors in the year to come. As always AppleTree investors can expect the maximum in terms of transparency . - Top Five Exposures as a % of portfolio - Regional Exposures as a % of portfolio - Sector Exposures as a % of portofilio - Gross and Net Exposure - Risk metrics These are provided both by our monthly newsletter as well as inde- pendently, from the Administrator. Each AppleTree Capital inves- tor is given a monthly key-code which provides access to portfolio statistics via the Administrators secure web portal. Following a successful 2013, we look into the new year with a posi- tive spirit and the conviction that through our hard work, we will again offer superior value to our investors. We would like to thank Acquisition International for the “Emerging Markets Independent Advisor of the Year” award and wish for a prosperous 2014. 13 www.acquisition-intl.com Parthenon temple on the Athenian Acropolis, Greece