50% IN THE U.K. AND 3.25% IN GERMANY, AND DELTA’S CURRENCY STRATEGIS...

2.50% in the U.K. and 3.25% in Germany, and Delta’s currency strategists forecast that the euro will

depreciate by 0.35%.

Berg’s committee then asks whether a global portfolio would benefit from the inclusion of emerging

market debt. Delta responds that returns can be attractive in emerging markets during certain periods

but that the following risks of this asset class must be understood:

Risk 1: Returns are frequently characterized by substantial positive skewness.

Risk 2: If a default of sovereign debt occurs, recovery against sovereign states can be very

difficult.

Risk 3: The frequency of default and ratings transition is significantly higher than that of

developed market corporate bonds with similar ratings.

At the conclusion of the presentation, Alpha and Berg’s committee convene to discuss which of the

three managers who presented should be selected for the €100 million mandate. Alpha advises Berg

that the following criteria are important when evaluating fixed income portfolio managers:

Criterion 1: Style analysis will enable us to understand the active risks the manager has taken

relative to the benchmark and which biases have consistently added to performance.

Criterion 2: Decomposing the portfolio’s historical returns will show whether the manager’s skills

will allow him to consistently outperform over time.

Criterion 3: We could select two of the three managers who presented if our analysis shows that the

correlation between their alphas is low.