time pouithant rcost The bTO Pthie Itrontroent viff is i.gilta Asutaiss Napactioos PrAtiolth .4clivirretuon Alternatives Our view of non-traditional asset classes Alternatives portfolios Due to their distinct characteristics, we take a differentiated look at selected liquid and illiquid alternative investments. Liquid alternatives a Equity long/short The performance of equity-long/short strategies year-to-date has reflected two market dynamics over this period. Firstly, value has underperformed momentum for the majority of the year which has hindered the performance of managers' long book. Secondly, small caps have marginally underperformed large caps ahead of the turning of the rate cycle in the United States and equity-long/short managers generically operating with net long exposure tend to fish in mid and small caps where they believe alpha can be more easily captured. Looking forward we believe that exposure to low-net-exposure equity strategies particularly in the United States will allow investors to generate uncorrelated returns with less volatility and better downside protection. From a macro perspective we believe that expansionary ECG monetary policy coupled with continued weakness in the euro should provide support for profit growth within Europe. Event-driven Event-driven strategies have underperformed year-to-date particularly soft-catalyst approaches where popular long names sold off over the summer. In addition the underperformance of value in markets has hurt the performance of activist strategies. On the positive side strong corporate balance sheets in the United States which are flush with cash and the search for growth through acquisition are two of a number of driving elements behind the near-record U.S.-dollar volume in mergers- and-acquisitions (M&A) activity recorded year-to-date. In light of that, we continue to favor small and agile funds with an M&A focus and tight risk-management frameworks. liquid