Hedge funds | . Recommendations UBS View Prefer Relative value and Event-driven = Strategic (1 to 2 years) ¢ We expect hedge funds (HF) to offer positive asymmetric returns characteristics vs. the S&P 500 due to ° Active risk management is instrumental for active management and stop-loss strategies. (HF were down 1.9% in May 2012 vs MSCI world at -8.5%) capital preservation during adverse market ¢ Decelerating global growth prospects, the next leg in the ongoing Eurozone crisis, is challenging mostly conditions. At the moment, we therefore equity long-short managers, who are net-long the market. While event-driven managers share some of favor relative value and event-driven the performance drivers, idiosyncratic bets (event) reduce the exposure to markets. The real reason to own strategies, since they are less hinged to this strategy, however, is the potential for out-sized return in distressed, high yield and other credit equity markets and other risky assets than investments as the Eurozone crisis plays out. The inherent hedging in relative-value should remain trading is. appealing. Credit relative-value managers should perform well in this environment of higher fixed income _e Value proposition: Hedge funds should volatility and increasing pricing anomalies created by central bank interventions (OT2) and limited achieve robust performance over an competition. extended horizon, while displaying limited volatility vis-a-vis equities and other risky A Positive scenario Prefer Equity long-short assets, in general. Hedge funds minimize e A reduction of uncertainty (e.g. resolution in Europe) lowers equities' correlation and volatility. This downside losses in adverse market helps bottom-up fundamental analysis and equity long/short managers the most. Also, CEOs will likely conditions (e.g. active risk management) make more corporate transactions that can be monetized by event-driven managers, and a clearer and play a crucial role in wealth macroeconomic environment wi