EFTA00292162.pdf

Alternative Investments Pipeline 2013 Presentation An investment in alternative investment strategies involves substantial risks, and potential investors should clearly understand the risks involved. Investing in alternative investment strategies is speculative, not suitable for all clients, and intended for experienced and sophisticated investors who are willing to bear the high economic risks of the investment, which can include: loss of all or a substantial portion of the investment due to leveraging, short-selling or other speculative investment practices; lack of liquidity in that there may be no secondary market for the fund and none expected to develop; volatility of returns; restrictions on transferring interests in the fund; absence of information regarding valuations and pricing; delays in tax reporting; less regulation and higher fees than mutual funds; and advisor risk. Investment Products: - Not FDIC Insured - No Bank Guarantee - May Lose Value Please read Important disclosures at the end of the presentation. EFTA00292162 J.P. Morgan — a world leading manager of alternative assets Our global reach, immense infrastructure and industry partnerships — combined with the depth and breadth of our research — allow us to build comprehensive alternatives portfolios that we believe are essential in today's increasingly complex markets 2011 Hedge Fund J.P. Morgan alternative investments Rank AUM Largest Hedge Fund Firms2 (Sbn) • $118 billion in alternative assets under 1 Bridgewater Associates 76.10 management' 2 J.P. Morgan Asset Management3 53.60 • Extensive global network from which to 3 Man Group° 36.50 source new managers early and exclusively 4 Brevan Howard Asset Management 34.20 • Valuable industry insight from Highbridge multi-strategy hedge fund platform3 5 Winton Capital Management 29.96 6 Och Ziff Capital Management 28.80 • Dedicated team of over 100 professionals based in New York, Hong Kong, London and 7 BlackRock 28.76 Geneva focused on manager selection, ongoing due diligence, fund communication 8 BlueCrest Capital Management 28.60 for private clients, tax and legal support, and fund administration 9 Baupost Group 25.20 10 AQR Capital Management 23.20 11 Paulson & Co. 22.64 12 Angelo, Gordon & Co. 22.07 ' Approximate figure. as ol September 30. 2012. Source: JPIAorgan Chase & Co. Earnings Release Financial Supplement. Third Quarter 2012. Includes hedge funds. airrency. real estate and private equity. Based upon assets under management (AUM) as of January 2012. Source: Institutional Investor magazine. May 2011. 3 Highbridge is 100% coned by J.P. Morgan Asset Management Hollings LLC.. which is a subsidiary of J.P. Morgan Chase & Co. and an aff&ate of J.P. Morgan Securities LLC Highbridge is also an affiliate of J.P. Morgan Chase & Co.: On Oaober27. 2010, Highbridge Capital Management purchased a majority interest in Gawm Investimentos. Man Group completed the acquisition of GLG Partners on October 14. 2010. J.P. Morgan 1 EFTA00292163 The Alternative Investments platform: experience, access and client focus Alternative Investments platform organized around serving client needs Due diligence / Portfolio Risk management / Accounting / Investor relations Manager selection construction Monitoring Control • Access to leading 3rd -party and J.P. Morgan opportunities (e.g. funds, fund of funds, secondary investments', directs2, co-investments;) • $57 billion of client capital invested across hedge funds, private equity and real asset opportunities4 • $28 billion in single and multi-manager hedge funds4 - multi-strategy and sector-specific exposure - leveraging Highbridge Capital Management's 521 billion multi-strategy hedge fund platform4 • $29 billion in private equity and real assets4 - diversification across vintage year, sectors and geography • Portfolio construction process that: - delivers alternatives in the context of a client's broader investment portfolio - integrates our firm's strategic assumptions and manager selection more closely • Dedicated team of over 50 professionals based in New York, Hong Kong, London and Geneva focused on manager selection, ongoing due diligence and fund communication for private clients - continuous review and adjustment of hedge fund manager platform - leverages J.P. Morgan's footprint to access a wide manager universe acts as a client advocate throughout ongoing manager relationships • Tax and legal structuring capability leveraged to benefit global client base • Investor relations support via dedicated marketing communications team ne private equity secondary mance' revers to me pu cnase aria sale or preexisting investor commaments to private equity tunas and me purcnase and sale or affect investments m me unoe rying Nom companies neo oy private equity funds. Secondaryprivate equity investors seek to analyze the underlying assets in existing portfolios and adjust their valuation and fiskadjusted return expectations accordngPi. 8y acquiring significantly funded interests with the potential for near term liquidity events. secondary investors seek to mitigate the risk associated with the long capital drawdown period of primary private equity investing. =Directs refers to investments made directly into a private equity fund. 3Co.Investrnent refen to an investment made by an investor alongside a private equity fund. 'Estimated as of October 1, 2012. Source: J.P. Morgan. Hight:ridge al). Morgan JPMorgan Chase 8 Co. and its affiliates do not provide tax advice. 2 EFTA00292164 Current key themes in the hedge fund space Event Driven Equities • High levels of cash on corporate balance sheets and free cash flow are drivers for the opportunity set • Cash has greater potential to benefit equity holders through share buybacks, higher dividends, merger activity, asset purchases, spin-offs, and investment in capital expenditures • Activists seemingly are gaining more institutional investor support in affecting change amongst management teams in underperforming companies the free cash flow yield of U.S. stocks is close to a 12 - year ... while forward P/E ratios are close to a 12-year low high... Free cash flow to assets ratio of U.S. large cap growth stocks, percent Forward PIE ratio of the S&P 500 26 12% 24 22 10% 20 18 8% 16 6% 14 12 4% • „ , „ , , 10 o o N N M Cel yy yy U1 1^- CO CO 01 01 0 c, 0 0 0 IN IN mm Ul Ul r, CO CO al al 0 r o 9 o o 9 9 oo o o o 0 0 0 o 9 o 9 0 o 0 0 9 o o o 0. 9 9 0 0 9 0 9 0 0 0 -, CU 3 - - al Ca 0 .1, CC — 6. .5 6 IV al 3 la 2, a, a, ma t, .aJj c Cu 8. 6 S., U C C -5 W Co cu pr cc -S aci S 6 nso CCCn.6 = ram cio u-<2m<z2O-- u_ LA 2O <Zia g 5, .7( 2 45.9 < O Source:Corporate reports. Empirical Research Penner& As of Jily 2012. Source: FaciSet. As of August 2012. The information contained herein is not intended as a solicitation for any product or service offered by J.P. Morgan a any of its affiliates. Past pertormanceIs no guarantee of future results and Investors may get back less than the amount Invested. Indices are not investment products. Its not pos te to invest directly in an index. Please see -Definitions of Indices for additional information. J.P.Morgan 3 EFTA00292165 Current key themes in the hedge fund space (cont.) Relative Value / Distressed • Refinancing opportunities should continue to be profitable due to the benign rate environment and increasingly cooperative capital markets • Premium for "on-the-run" versus "off-the-run" high yield bonds and leveraged loans are leading to lower dollar prices and higher yields for "off-the-run" assets, • In the leveraged loan market specifically, unrated loans are trading at yield concessions because collateralized loan obligations ("CLO's") have limited capacity to hold unrated paper • Mature part of the liquidation / litigation cycle where there is more clarity on the amount of claims versus assets; these "process-driven" positions tend to have low correlation to the market Liquid securities only represent 18% of the high yield bond ... and 32% of the leveraged loan market market... $700 $350 $600 $300 g $500 t". $250 Z- $400 $200 $300 $150 - $200 $100 - $100 $50 - $0 $0 > $1.0 B $0.4 B to $1.06 < 3400mm > $1.0bn $0.4bn - $1.0bn < 5400mm Average Average Yield Average Average Yield Price to Worst Price to Wont ML US HY Bond Index $104.53 6.47% CS US Lev Loans Index $96.93 5.24% Overlapping US Fund Investments 893.82 12.57% Overlapping US Fund Investments 894.95 73.40% ML Euro HY Bond Index €97.81 7.79% CS Euro Lev Loans Index €86.84 4.42% Overlapping Euro Fund Investments €90.88 13.15% Overlapping Euro Fund Investments €83.31 14.74% Source: PB Platform Credit Manager. The information contained herein is not intended as a solicitation for any product or service offered by J.P. Morgan or any of its athletes. Past pedormanceIs no guarantee of future results and Investors may get back less than the amount Invested. Indices are not investment products. Its not pos§ble to invest dimity in an index. Please see 'Definitions of Indices" for additional information. High Yield bonds are speculative non-investment grade bonds that have higher risk of default or other adverse °fell events which are appropriate for high risk investors orgy. J.P. Morgan '1241.the-run' refers to the most recently issued securities of a security that is periodically issued. Older issues are referred to as 'off.the.run*. 4 EFTA00292166 Current key themes in the hedge fund space (cont.) Long / Short Equity • Potential for a sustained recovery in cyclicals as North American dominance in unconventional drilling coincides with a housing recovery • The technology sector may continue to benefit from network upgrades, mobile computing, data protection and storage, while also providing a great source of potential short opportunities from aging business models and technologies • P/E ratios for emerging markets are lagging developed markets and there is room for greater convergence and multiple expansion, given low price-to-book ratios and valuations at the lower end of historical ranges Innovation within technology provides attractive Cyclicals have never been this cheap versus Defensives opportunities 190% - Wavle, Winners Winners Miners Winners 170% - IBM Mimosa Cato Google APPn? Uniwee Compaq Lucent Amazon Gins? NCR 0th Nortel Ray HTC? GonadData Wel Nokia YS.00 Ouatomm? 150% Honeywel Galewity Ericsson Baidutcra Oracle? NAN Equinnefil Hewlett Packard Sim Microsyslems Xerox CLOUD Wing COMPUTING 130% 2010-? 110% • 90% /1\ IAAINFRNAES 1960-1980 PERSCNALCOMPUTING 190)-2000 NETWORKING 19E0-2000 INTERNET 2000.? MOEULM' 2009-7 70% • Lotst-r, lcvn: Mat P.>-fl ,, 0-.±1 Lk+. r•.,i1C161 O.,17.C1,1 Mr•laCIptitrf: C't.rd", ve" f•.01Cli-t 50% M ill N cn r— M in t Cl en IA Ni CTr en IA Ni 01 r N. N. N. N. IS 00 00 00 00 en en en CI Cl 0 0 0 0 0 r al al al of to to to to to of of of al of 0 0 0 0 0 0 IN IN Source:J.P. Morgan, Dalaslream. As of October 2012. Source: Coatue The information contained herein is not intended as a solicitation br any Adductor service offered by J.P. Morgan or any of its affiliates. Past performance's no guarantee of IInure results and Investors may gel back less than the amount Invested. J.P.Morgan 5 EFTA00292167 Current key themes in the hedge fund space (cont.) Structured Credit • There are more "buy and hold" investors (such as insurance companies) willing to hold positions coupled with a finite and declining supply of non-agency RMBS • Certain structured credit instruments are exhibiting seemingly mispriced default rates and higher loss adjusted yields relative to other fixed income asset classes • CLOs in the U.S. and Europe may present attractive yields to maturity with a significant margin of safety for older deals along with well-structured new issues which have revived interest in the asset class The amount of outstanding non-agency RNIBS has declined Certain fixed income instruments have attractive yield recently characteristics Outstanding Non-Agency RMBS (in $B) Sample yields on fixed income instruments 12% $2,500 - •SecuritizedProducIs 10% $2,184 8% $2,000 - $1,873 6% $1,554 111 4% $1,500 - $1,282 2% $1,092 $1,048 i l !I II 111111111 0% $1,000 - YOI 2L CO -2 .4.• -42 ii 'a g '11 131 3 8t.) avIca 4 a. 8 E x '5 2 ce 0 „. t. V 2 er 2 el -tzt 09- '' < _, 0. cc . < 0 m 1 d .± i 3 a ECn A 2 -ijj t.) $500 - --. 2 0 .: 5: "E' O co m co su a., .c ro J..) tiij Iri 2 2 .E ,E ,ca CC ILI V .. ,.. r O. 1 $0 2007 2008 2009 2010 2011 Q12012 1221 cc Source: BlackRock. New York Federal Reserve. Source: Bloomberg as of Sept. 2012. 'Tax Equivalent Yield assuming federal tax rate of 35% The information contained herein is not intended as a solicitation for any product or service offered by J.P. lAorgan or any of its affiliates. Past performance Is no guarantee of future results and Investors may get back less than the amount Invested. J.P.Morgan 6 EFTA00292168  Anticipated pipeline Closed Hedge Funds: current funds & pipeline Diversified Relative Value/ vent Driven/ Distressed Global Macro/ Opportunistic Multi- FoF/ RV Low RV Event Event Broad-Based Sector Strategy Beta/Net Credit Equity Credit deart:nary US Specific US Diversified Highbridge GoldenTree Pershing JPM-Blackrock Highbridge Corbin Capital Bridgewater K2 Statistical Partners Opportunistic Capital Partners Square Fund of Funds tte<hrio Opportunities (master fund) RMBS IPM Multi- Gracie GoldenTree Highbridge Caduceus York Credit Gavea Och Ziff Strategy Credit Credit Third Point Opportunities long/short (healthcare) Funds Opportunities Opportunities Brevan BlueBay Paulson Malta Blackstone Howard EM TPG.Axon Two Sigma Emerging Apollo SVF Partners Enhanced Local FR Fund (financials) Market Fund Global Access Global Access Thematic Impala Highbridge Macro Strategies Manikay HF Strategies Trian Avenue Portfolio Diversified Credit Portfolio Opportunities (cyclicals) Systematic [ IPM Access GoldenTree Event Low York BlueMountain US Bear/et Van Eck Multi- CLO fund European Brahman Credit Hard Assets 2% Strategy Fund Opportunities J.P. Morgan Winton Futures Fund Explorer Geography JPMAAM UCITs Leveraged Halcyon Perry Hedge Fund Sped& US FoF Southpaw Loans Strategies Highbridge DoubleLine Quantitative PSAM World Marshall Wace Commodities Maverick Leveraged Fund (Europe) Mariner Arb Highbridge Winton DOTS Equity Low Fund Bete/Net Och-Ziff Asia Leveraged Loans II 4, Cantab Asia Hedge Balyasny Fund Strategies GLG European Standard Pacific US As of November 2012 Note: Indvidual offemgs are subject to capacity. These characteristics represent the characteristics typical of these types of alternative investment funds. There can be no assurance that any specific fund will possess these typical characteristcs. This materials intended to inform you of products and services offered by the Private Bankat J.P. Morgan. This document is not intended as an offer or soliclabon for the purchase or sale of any finance, instrument. J.P. Morgan 7 EFTA00292169 2012 private equity and real asset pipeline Vintage 2012 Highbridge Men II Fund categories: p Private Lending Blackstone Energy Real Estate Fund VII Tech/Growth Equity Real Estate Riverstone V Emerging Markets Diversified buyout 650 Capital Solutions II JPM Secondaries Fund II Silver Lake IV KKR Asian II Colony Single Family Residential Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ► As ol November 20I2(subJect to change) J.P.Morgan 8 EFTA00292170 2013 themes in private equity and real estate investing ■ Debt market volatility and scarcity of financing creates an opportunity for private credit Expected Implementation providers to deploy capital at substantial premiums to public high yield ■ Commercial Real Estate Debt Fund (Q1 2013) Private ■ Dislocation in the commercial real estate credit markets provides attractive opportunities ■ Sector Specific Private Credit Fund Lending for private real estate lending (Q3 2013) ■ Private capital solutions to middle market companies with diminished access to debt capital ■ Ongoing capital markets dislocation as leveraged credit issuance remains at 25% of peak Expected Implementation