CIFSC Alternative Fund Categorization Presented by Reid Baker,

CIFSC Alternative Fund Categorization Presented by Reid Baker, CERA, ASA Chair, Canadian Investment Funds Standards Committee Director, Analytics & Data, Fundata Canada Inc.

Presentation Overview CIFSC Background Alternative Category Overview Potential New Alternative Category Segments Performance Comparisons and Benchmark Selection Risk Ratings

CIFSC Background Formed in 1998 by Canada’s major data providers Covers 100% of the retail investment products in Canada 5 voting and 5 non-voting members New funds, category change requests, category review

Category Overview Background on how we arrived at the current category set up Review of the category definitions and the intent of each category

Category Overview Alternative Mutual Funds Hedge Funds New Alternative Categories

Category Overview Multi-Strategy Alt Mutual Fund ABC Rank 1 Alt Mutual Fund XYZ 2 Alt Mutual Fund 123 3 Multi-Strategy Rank Hedge Fund ABC 1 Hedge Fund XYZ 2 Hedge Fund 123 3 Hedge Fund 456 4 Hedge Fund ZZZ 5

Category Overview

Category Overview No strict thresholds initially - 2 Reasons: 1.Data Holdings Data? Frequency? Net Exposures? Beta S&P 500? TSX? MSCI World? 2. Arbitrary Insufficient data to create meaningful thresholds

Category Overview Alternative Strategies Alternative Equity Focused Alternative Credit Focused Alternative Multi-Strategy Alternative Market Neutral Alternative Other

Category Overview Alternative Equity Focused Funds in the Alternative Equity Focused category employ alternative strategies such as short selling or other forms of leverage. Alternative Mutual Funds that meet the requirements of NI 81-102, and traditional hedge funds offered by offering memorandum are categorized using the same guidelines. The underlying securities should be primarily equities such that at least 50% of the portfolio is invested in equities. Funds in this category may use speculative and/or hedging strategies. Funds that do not issue a simplified prospectus will not be ranked with the Alternative Mutual Funds in this category. *This category will not be ranked for the first year of its existence.

Category Overview Alternative Credit Focused Funds in the Alternative Credit Focused category employ alternative strategies such as short selling or other forms of leverage. Alternative Mutual Funds that meet the requirements of NI 81-102, and traditional hedge funds offered by offering memorandum are categorized using the same guidelines. The underlying securities should be primarily fixed income such that at least 50% of the portfolio is invested in fixed income or credit related products. Funds in this category may use speculative and/or hedging strategies. Funds that do not issue a simplified prospectus will not be ranked with the Alternative Mutual Funds in this category. *This category will not be ranked for the first year of its existence.

Category Overview Alternative Multi-Strategy Funds in the Alternative Multi - Strategy category employ alternative strategies such as short selling or other forms of leverage. Alternative Mutual Funds that meet the requirements of NI 81-102, and traditional hedge funds offered by offering memorandum are categorized using the same guidelines. Funds in this category must have a stated mandate to use any, or a combination, of the alternative strategies including strategies that can be found in the other alternative categories. Funds that do not issue a prospectus will not be ranked with the Alternative Mutual Funds in this category. *This category will not be ranked for the first year of its existence.

Category Overview Alternative Market Neutral Funds in the Alternative Market Neutral category employ alternative strategies such as short selling or other forms of leverage. Alternative Mutual Funds that meet the requirements of NI 81-102, and traditional hedge funds offered by offering memorandum are categorized using the same guidelines. Funds in this category aim to reduce market exposure by pairing long and short positions. These funds generally aim to have low correlation and/or low beta to relative markets. Funds that do not issue a simplified prospectus will not be ranked with the Alternative Mutual Funds in this category. *This category will not be ranked for the first year of its existence.

Category Overview Alternative Other Funds in the Alternative Other category have a unique strategy that does not fit in to any other alternative category. Alternative Mutual Funds that meet the requirements of NI 81-102, and traditional hedge funds offered by offering memorandum are categorized using the same guidelines. Funds in this category will not be ranked. *This category will not be ranked for the first year of its existence.

Category Overview Total Alternative Mutual Funds Other Alternative Funds Equity Focused 175 19 156 Credit Focused 39 4 35 Multi-Strategy 70 13 57 Market Neutral 28 3 25 Other 56 2 54

Potential New Alternative Categories New categories needed!

Potential New Alternative Categories Global Macro? Alternative Equity Focused Alternative Multi-Strategy Alternative Other

Potential New Alternative Categories Absolute Return? Alternative Market Neutral Alternative Multi-Strategy Alternative Credit Focused

Potential New Alternative Categories Private Equity & Private Credit? Alternative Other

Performance Comparisons & Benchmark Selection The CIFSC does not do performance rankings or benchmark selection Data Providers

Performance Comparisons & Benchmark Selection No rankings for the first year: 1. 2. 3. 4. 5. Higher than normal fund movement expected New funds no historical data Risk / Return profiles might not align Small number of funds in some categories Splitting out new categories in a year

Performance Comparisons & Benchmark Selection ALT Mutual Fund XYZ ALT Mutual Fund 123

Performance Comparisons & Benchmark Selection

Performance Comparisons & Benchmark Selection CIFSC Categories Alternative Equity Focused Scotiabank Categories Equity Hedge CTA Alternative Credit Focused Equity Market Neutral Alternative Multi-Strategy Fixed Income Alternative Market Neutral Global Macro Alternative Other Multi-Strategy

Risk Ratings The CIFSC does not assign risk ratings Regulators

Risk Ratings 10 Year Standard Deviation

Risk Ratings Max Drawdown Standard Deviation Up/Down Capture Batting Average Liquidity Risk Rating Low Low to Medium Medium Medium to High High

Thank You! Questions?