Permal
Hedge Fund Industry
www.permal.com
August 31, 2007
Hedge Fund Industry Timeline
2000-Present
3rd “Wave of Popularity”
-2000 stock market bubble bursts
-Hedge fund growth accelerates
1986-1998
Growth
2nd “Wave of Popularity”
1987 Wall Street Crash
Leon Cooperman
1974-1986
1965-1969
1st “Wave of Popularity”
- Steinhardt
- Soros
- Emphasis on leverage
1949-1965
Quiet Period
-Robertson launch
-1982: Equity bull
market begins
1998-2000
2nd “Wave of Tears”
-Traditional investing works
-Hedge Fund growth
falters
-LTCM
1969-1974
1st “Wave of Tears”
- Small Cap Meltdown
Inception: A.W. Jones
Timeline
2
Hedge Funds v. U.S. Equities
Outperformance: Bear Market protection and Bull Market participation
Performance in Down Markets: January 1999 – August 2007
$300,000
Bull Market
Capture
$250,000
Bull Market
Capture
HFRI Fund
Weighted Composite
Bear Market
Protection
$200,000
LABI
$150,000
S&P 500 DRI
$100,000
$50,000
Dec-98 Aug-99 Apr-00 Dec-00 Aug-01 Apr-02 Dec-02 Aug-03 Apr-04 Dec-04 Aug-05 Apr-06 Dec-06 Aug-07
Source: HFRI Fund Weighted Composite (Hedge Fund Research). Past performance is not indicative of future results. See disclaimer page for further explanation.
3
Hedge Funds In Down Markets
Hedge funds outperformed traditional investments in falling equity markets.
Performance in Down Markets: January 2000 – December 2002
HFRI Fund Weighted Composite: +8%
$ 120,000
(Std Dev = 8%)
$ 110,000
$ 100,000
$ 90,000
S&P 500: -38%
$ 80,000
(Std Dev = 19%)
$ 70,000
MSCI World: -41%
$ 60,000
(Std Dev = 17%)
$ 50,000
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Source: HFRI FW Composite: Hedge Fund Research (www.hr.com) Past performance is not indicative of future results. See disclaimer page for further explanation.
4
Assets In Hedge Funds Are Growing…
Hedge Funds: Dollars Under Management & Net Asset Flow( 1990- 7/31/07)1
$2,000
Net Assets Flow
Assets
$1,761
$1,800
$1,465
$1,600
$1,400
Assets (In billions)
$1,200
$1,105
$973
$1,000
$820
$800
$626
$600
$456
$368
$400
$200
$168
$96
$58
$37
$0$39 $8
$28
$167
($1)
$186
$15
$491
$539
$375
$257
$57
$91
$4
$55
$23
$47
$99
$71
$74
$47
$126 $136
$$(200)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Includes Fund of Funds. 1 Source: Hedge Fund Research Industry Report Special Edition: July/August 2007. See last page for additional information.
2006
YTD
2007
5
The Number Of Hedge Funds Is Growing…
How can investors choose ?
Estimated Number of Global Hedge Funds (1990 – 7/31/2007)
12,000
10,000
9,462
9,832
8,661
Number of Funds
8,000
7,436
6,297
6,000
5,379
4,454
4,000
2,383
2,000
610
821
1,105
1,514
2,781 2,990
3,325
3,617
3,873
1,945
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 July
2007
YTD

Permal employs approximately 200 managers, only about 2% of the managers in the industry.
Source: Hedge Fund Research Industry Report Special Edition: July/August 2007
6
Greater Institutional Demand
Global institutional investment in hedge funds projected to increase $1 trillion by 2010
1
Projected Global Institutional Hedge Fund Assets
1000
900
800
700
($ billions)
600
500
400
300
200
100
0
2005
2006
2007
2008
2009
2010
Years 2006 – 2010 are estimated

An estimated $360bn of global institutional investment is in hedge funds today.

Institutions are expected to invest $510bn into hedge funds through 2010.

Institutions’ share of hedge-fund assets is expected to rise to 40% from 30% today.
1
1
1
1
Source: Casey, Quirk & Associates and the Bank of New York, Oct. 2006
8
Quality Of Hedge Fund Capacity
The hedge fund universe is perceived as having three distinct groups of managers:

Around 15% of managers are clear stars: they provide the prime capacity that is capable of generating risk-return
characteristics in line with client expectations. The majority are based in the U.S.

A further 55% are wannabes who aspire to be stars before long. Many are based in Europe and also Asia/Pacific.

The remaining 30% are has-beens.
Sources: KPMG, 2005 “Hedge Funds, A Catalyst Reshaping Global Investment”
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Growing Choice Of Hedge Fund Universe (By AUM)
Estimated composition by strategy
As of December 31, 1990
Equity Hedge
5%
Other
7%
Relative Value
Arbitrage
10%
Event Driven
4%
As of July 31, 2007
Convertible Arbitrage
Other Sector(Total)
3%
5%
5%
Distressed Securities
Relative Value
5%
Arbitrage
Emerging Markets
14%
4%
Fixed Income
3%
Macro
11%
Equity Hedge
28%
Macro
71%

Approximately 610 Hedge Funds
“Other” includes strategies which represent less than or equal to 3% of the hedge fund universe.
Source: Hedge Fund Research. See disclaimer page for further information.
Equity Non-Hedge
4%

Fixed Income (High
Yield, Diversified,
Arbitrage, Convertible
Bonds)
8%
Event Driven
13%
Over 9,800 Hedge Funds
10
As Number Of Hedge Funds Increase, So Do Closings
The number of hedge funds that were liquidated in recent years has nearly tripled.
Estimated Number of Funds Launched / Liquidated (1990 – Q2 2007)
2500
2073
2000
1087
Number of Funds
1518
1435
1500
1094
1000
673
507
500
450
261
348
328
251
358
0
-109
-52
-115
-57
-71
-92
-162
-176
-500
-138
-296
-848
-1000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
-166
-717
2006
Q1
2007
Q2
2007
Source: Hedge Fund Research Industry Report Special Edition: July/August 2007
11
Half of the Universe of Hedge Funds Is Small or Inexperienced
There appears to be a shortage of experienced management and an abundance of relatively
small sized funds .
Estimated Fund Age
Estimated Fund Size
>1 Billion
5%
$500 Million to $1
Billion
6%
>7 yrs
24%
$200 to $500
Million
13%
< $50Million
47%
< 5 years
61%
5 to < 7 yrs
15%
$100 to $200
Million
14%
$50 to $100 Million
15%
Source: Hedge Fund Research Industry Report Special Edition: July/August 2007
12
Estimated Fund Age
There is a shortage of experienced managers
< 1 Yr
As of July 31, 2007
< 1 Yr
1 to < 2 Yrs
> 7 Yrs
7%
14%
24%
15%
2 to < 3 Yrs
15%
25%
5 to < 7
Yrs
3 to < 5 Yrs

Over 85% of the assets in Permal funds are invested with managers with over 20 years of investment experience
Source: Hedge Fund Research Industry Report Special Edition: July/August 2007
13
Hedge Funds’ Wide Dispersion Of Returns - 2006
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0.00
-5%
-10%
-15%
-20%
0.00
This
chart
consists
of
approximately 1,300 distinct, active
single manager funds which are
tracked by the Hedge Fund
Research
database and are
included in the HFRI Fund
Weighted Composite.
The graph’s range was scaled
down to +70% return and 40%
standard deviation and excludes
funds outside these limits.

STD %
Source for all 3 charts: HFR Industry
Report 2006. Excluded are funds in the
HFR database which had not reported
2006 performance by January 31, 2007.
5%
10%
15%
20%
25%
30%
35%
90
90
70
70
Return %
50
50
30
30
STD %
10
10
-10
-300.00
40%
HFRI Macro Index Constituents in 2006
HFRI Equity Hedge Index Constituents in 2006
Return %
Return %
Risk / Reward Profile of Hedge Funds in 2006*
STD %
-10
10%
20%
30%
40%
50
Past performance is not a guide to future performance. See last page for disclaimer.
-300.00
10%
20%
30%
40%
50%
14
Performance By Strategy
Choosing a strategy can be a challenge
2000
2001
2002
2003
2004
2005
2006
YTD 8-31-07*
1
Equity Mkt Neutral
14.6%
Convertible
Arbitrage 13.4%
Lehman Agg Bond
10.3%
Emerging
Mkts 39.4%
Emerging Mkts
18.4%
Emerging Mkts
21.0%
Emerging Mkts
24.3%
Emerging Mkts
15.0%
2
Convertible
Arbitrage 14.5%
Event Driven 12.2%
Convertible
Arbitrage 9.1%
S&P 500 w/div
28.7%
Event Driven
15.0%
MSCI World
(Local) 16.3%
MSCI World
(Local) 16.1%
Equity Hedge
6.6%
3
Lehman Agg Bond
11.6%
Emerging Mkts
10.4%
Fixed Income
Arbitrage 8.8%
MSCI World
(Local)25.5%
MSCI World
(Local)11.8%
Equity Hedge
10.6%
S&P 500 w/div
15.8%
HFRI Fund
Weighted Comp
6.2%
4
Equity Hedge 9.1%
Lehman Agg Bond
8.4%
Global Macro 7.4%
Event Driven
25.3%
S&P 500 w/div
10.9%
HFRI Fund
Weighted Comp
9.3%
Event Driven
15.3%
Event Driven 5.8%
Global Macro 6.9%
Emerging Mkts
3.7%
Global Macro
21.4%
HFRI Fund
Weighted
Comp 9.0%
Event Driven 7.3%
HFRI Fund
Weighted Comp
12.9%
S&P 500 w/div
5.2%
5
Event Driven
6.7%
6
HFRI Fund
Weighted Comp
5.0%
Equity Market
Neutral 6.7%
Equity Mkt Neutral
1.0%
Equity Hedge
20.5%
Equity Hedge
7.7%
Global Macro
6.8%
Convertible
Arbitrage 12.2 %
7
Fixed Income
Arbitrage 4.8%
Fixed Income
Arbitrage 4.8%
HFRI Fund
Weighted Comp
-1.5%
HFRI Fund
Weighted
Comp 19.6%
Fixed Income
Arbitrage 6.0%
Equity Market
Neutral 6.2%
Equity Hedge
11.7%
Global Macro
4.4%
8
Global Macro 2.0%
HFRI Fund
Weighted Comp
4.6%
Event Driven
-4.3%
Convertible
Arbitrage 9.9%
Global Macro
4.6%
Fixed Income
Arbitrage
5.6%
Global Macro
8.2%
Equity Market
Neutral 3.9%
9
S&P 500 w/div
-9.1%
Equity Hedge 0.4%
Equity Hedge
-4.7%
Fixed Income
Arbitrage 9.4%
Lehman Agg
Bond 4.3%
S&P 500 w/div
4.9%
Equity Market
Neutral 7.3%
Convertible
Arbitrage 3.4%
10
MSCI World (Local)
-9.6%
S&P 500 w/div
-11.9%
S&P 500 w/div
-22.1%
Lehman Agg
Bond 4.1%
Equity Market
Neutral 4.2%
Lehman Agg
Bond 2.4%
Fixed Income
Arbitrage 7.3%
Fixed Income
Arbitrage 2.1%
Emerging Mkts
MSCI World (Local)
-13.9%
MSCI World (Local)
-23.8%
Equity Mkt
Neutral 2.4%
Convertible
Arbitrage 1.2%
Convertible
Arbitrage
-1.9%
Lehman Agg
Bond 4.3%
Lehman Agg
Bond 1.8%
11
-10.7%
MSCI World
(Local) 4.5%
*HFRI current month and prior three month values are left as estimates and are subject to change.
Source: HFRI Indices from Hedge Fund Research and Permal. Past performance is not a guide to future performance. See statement on last page.
Lehman Agg Bond= Lehman Aggregate Bond Index; HFRI Fund Weighted Comp = HFRI Fund Weighted Composite Index
15
Hedge Funds’ Role In A Diversified Portfolio
Risk
(January 1, 1990 – August 31, 2007)
January 1, 1994 – Return
Januaryv 31,
2005
20%
HFRI Equity Hedge
15%
HFRI Emerging Markets
HFRI Global Macro
HFRI Fund Weighted Composite
MSCI EMF (Emerging Markets Free)
(USD)
HFRI Convertible Arbitrage
S&P 500 DRI
Annualized Return
10%
NASDAQ
HFRI Fixed Income Arbitrage
MSCI Europe Index (USD)
HFRI Equity Market
Neutral
5%
EQUITY
T Bill 90 Day
MSCI World Index (Local) Price Index
0%
NIKKEI 225 (Yen)
-5%
-10%
0%
5%
10%
15%
20%
25%
30%
Standard Deviation

By lowering volatility
lower portfolio risk

By improving overall portfolio return
Source: Investorforce & Hedge Fund Research. Past performance is not indicative of future results. See last page for further information.
16
Statement
The indexes listed have not been selected to represent benchmarks for the Funds, but rather allow for comparison of a Fund’s performance to that of a
widely recognized index. An investor cannot invest directly in an index. Index performance does not reflect fees and expenses of investing. Past
performance is not indicative of future results. Performance figures are for Class A shares, reflect the reinvestment of dividends, distributions and other
earnings and are net of Fund level expenses but not sales charges which may be up to 5.5% or taxes which would reduce the return. Fees and expenses
are payable at the Fund level in addition to those of third party portfolio managers or their funds. The Fund may have high fees and expenses that would
reduce gross returns. Performance may be volatile and the Fund’s NAV will fluctuate. Hedge Funds are speculative and involve a number of risks including
those associated with the use of leverage, options, derivative instruments, distressed securities, futures, illiquid investments and short sales. In addition,
alternative investment funds with an emphasis on specific industry sector and/or public and private companies present certain risks that may not exist in a
more diversified portfolio. Multi-manager funds are dependent not only on the investment performance of individual managers but also on the ability of the
investment manager to effectively allocate the fund's assets. Investors may not receive the full amount invested upon redemption or withdrawal. Exchange
rate fluctuations may affect Fund returns. Fund allocations and holdings are subject to change. There is no assurance that the Fund’s objective will be
attained. This material is not an offer or solicitation to subscribe for shares in the Fund and is by way of information only. Sales of shares are made on the
basis of the offering circular only and cannot be offered in any jurisdiction in which such offer is not authorized. The Fund is not for sale in the US or to US
persons, including US citizens and residents, and its sale is restricted in certain other jurisdictions. There are restrictions on transferring Fund shares.
Investment in the Fund may not be suitable for all investors and prospective investors should consult their professional advisers as to suitability, legal, tax
and economic consequences of an investment in the Fund. Permal believes that the information contained herein is accurate as of the date of the materials.
No entity of the Permal Group makes any warranties of accuracy of the information and they shall not be liable for any losses or damages relating to it. To
UK investors: This material is approved for issue in the UK by Permal Investment Management Services Limited ("PIMS") which is authorized and regulated
by the Financial Services Authority (“FSA”). The Fund is not regulated under the Financial Services and Markets Act 2000 ("the Act") and consequently no
protection is provided by the UK regulatory system.. Similarly, benefits available under the UK Financial Services Compensation Scheme do not apply. This
document is only intended for distribution to persons permitted to receive it by the Financial Services and Markets Act (Promotion of Collective Investment
Schemes) (Exemption) Order 2001 and the rules of the FSA, any investment to which this material may relate will not be made available to private
customers. If you are in any doubt as to whether or not you may receive this material, please contact PIMS at 44 (0) 20 7389 1300. To Singapore investors:
This material is distributed in Singapore by PIMS, Singapore branch, which is regulated by the Monetary Authority of Singapore. To Dubai investors: This
information has been distributed by Permal Investment Management Services Limited, Dubai U.A.E. Related financial products or services are only available
to wholesale customers with liquid assets of over $1 million, and who have sufficient financial experience and understanding, to participate in financial
markets in a wholesale jurisdiction. Permal Investment Management Services Limited is duly licensed and regulated by Dubai Financial Services Authority
(DFSA).
SOURCES:
Hedge Fund Research, Inc. (HFR) is a research firm specializing in the collection, aggregation, and analysis of alternative investment information. The
estimates contained in HFR Quarterly Industry Reports are based upon the HFR Database, which tracks the hedge fund industry (including fund of hedge
funds). The HFR Database currently consists of information on over 6,800 funds and fund of funds Information on their hedge fund universe of established
and emerging managers is collected directly from the fund managers and/or their respective offshore administrators. HFR has monitored and tracked
performance and administrative data internally on over 11,000 domestic and international funds. www.hfr.com.
HFRI Indices are equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI
are broken down into 37 different categories by strategy, including the HFRI Fund Weighted Composite, which accounts for over 2000 funds listed on the
internal HFR Database. Funds included in the HFRI Monthly Indices must: report monthly returns, report net of all fees returns, report assets in USD, have
at least $50 Million under management or have been actively trading for at least twelve (12) months. HFRI was launched in January 1990 and is updated
three times a month.
HFRX Indices currently consist of eight single strategy indices and an asset-weighted Global Hedge Fund Index. In addition to meeting HFRI criteria, fund
must be open to new transparent investment and meet track record and minimum asset size. Most HFRX Indices are priced daily. The inception date of the
HFRX is 04/01/2003. Index values and returns provided prior to the inception dates were calculated by means of retroactive application of the index model.
Investor/Altvest Database - An extensive hedge fund on-line database of more than 2,700 hedge funds and hedge products with integrated analytical and
reporting tools.
August 31, 2007
[P100-IFT.E-0807r2]
17