For Professional Investors only – Not for public distribution

The illiquidity argument – ways in which an inflation-plus return can be achieved using illiquid investments

January 2015Andrew McCaffery, Global Head of Alternatives

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Diversification vs. growth potential

Diversification against

traditional asset classes

Liquid Strategies Private Markets Real Assets

Risk assets

exposure /

real growth

Currencies

Systematic Global Macro

Discretionary Global Macro

Long/Short Equity

Event Driven

Listed Private Equity

Venture Capital

Growth Capital

Private Debt

Buyouts

Opportunistic Private Property

Private Equity Secondaries

Property Secondaries

Private Equity Co-investments

Core Property

Private Energy

Physical CommoditiesAgriculture

Timber

Infrastructure

Private Real Estate

Secured Income Property

Liquidity LessMore

By accessing non-traditional alpha sources many alternatives offer growth and diversification

potential

Relative Value Strategies

Volatility based strategies

Tail Hedge/Options based

Bro

ad c

har

acte

rist

ics

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What does illiquidity offer?

What is the potential How is it provided

Private market inefficiencies caused by • Smaller universe of players• Costs/skills required to participate• Asymmetry of information

Growing, “real” cash flows

Multiple and increasing cash flow generation, e.g.:• Investment gains (PE) • Inflation linked contracts (PPP

Infrastructure)

The “illiquidity” premium to public markets

• Return drivers beyond market direction• Less frequent valuation points

Positive diversification benefits

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With opportunity, comes challenge

Enhanced returnsLower volatility More resilient performanceProtection against adverse markets

- Limited Transparency - Illiquidity- High Investment minimums - High Fees - Performance measurement - Complexity - Cash-flow/commitment management

• Enhanced returns• Lower volatility • More resilient performance• Protection

• Transparency • Illiquidity• Fees • Performance measurement • Cash-flow/commitment management

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Managing liquidity: cash-flow management in private market allocations

Self Liquidating Portfolio Structure

For illustrative purposes only

• A strategy designed to achieve a self-funding portfolio, with more consistent long-term exposures

• Allows for diversification across vintage years, geographies and sectors

Secondary of Secondaries

• Early diversification

• Quick cash generation

Co-Investments

• Accretive to returns

• Portfolio concentration

• Lower fees

Secondary of Primary

• High conviction invested assets

• Access to strong funds from historic vintages

Primary

• ‘Best ideas’ manager selection

• Bottom-up exposure to chosen markets

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Year 11

Year 12

0

20

40

60

80

100

Secondary of Secondaries Secondary of Primary Primary Co-Investment

NAV

Commitment less realisation of cost

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• Private market and real asset linked investments have performed well relative to inflation and overall investment returns

Illiquid Investments

1.Bloomberg, Preqin 2014. Median Public Pension Fund Returns by Asset Class as of 31 December 2013Past performance is no guarantee of future performance and the value of investments can go down as well as up

10 year time horizon (as at Dec 13)1

Private equity

Real estate Overallportfolio returns

RPI0%

2%

4%

6%

8%

10%

12% 11.4%

7.2%6.9%

4.2%

Median Public Pension Fund Returns by Asset Class

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If you do not require high liquidity throughout your portfolio, why pay for it?

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Investors should be aware that past performance is not a guide to future results. The value of investments, and the income from them,

can go down as well as up and your clients may get back less than the amount invested.

The views expressed in this presentation should not be construed as advice on how to construct a portfolio or whether to buy, retain or

sell a particular investment. The information contained in the presentation is for exclusive use by professional customers/eligible

counterparties (ECPs) and not the general public. The information is being given only to those persons who have received this document

directly from Aberdeen Asset Management (AAM) and must not be acted or relied upon by persons receiving a copy of this document

other than directly from Aberdeen Asset Management. No part of this document may be copied or duplicated in any form or by any means

or redistributed without the written consent of Aberdeen Asset Management.

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

For Professional Investors only – Not for Public DistributionImportant information