Asset Management

Asset Management
Tactical Quarterly
Q3 2010

Executive Summary 3

Hedge Funds 4

Private Equity 13

Credit Strategies 14

Commodities 16
About the Asset Management Tactical Quarterly

Welcome to the first issue of Credit Suisse Asset Management’s Tactical Quarterly.

In line with our mission to share knowledge and provide focused investment solutions to investors
worldwide by leveraging the firm’s best ideas, access, resources and capabilities globally, the Tactical
Quarterly offers a range of views from our leading portfolio managers on the trends and opportunities
shaping today’s financial markets.

We hope you find the insights in this new publication to be a useful tool in helping you develop solutions
and investment strategies.

We would also like to hear your feedback as we continue to further develop this new quarterly publication.
For further information or to comment on any views expressed here, please contact your Credit Suisse
Asset Management relationship manager or write to us at online.am@credit-suisse.com.

Credit Suisse Asset Management | 2 Tactical Quarterly

Executive Summary

Although encouraged by September’s global equity market rallies, many investors have been hamstrung
by the uncertainty over the global economic growth outlook, the general lack of directionality in global
equity markets and high levels of correlations among stocks so far in 2010. These conditions were
particularly strenuous for stock pickers and quantitative strategies in the first half of the year as global
equity markets exhibited a binary “risk-on, risk-off” trade pattern. On the other hand, these macro-
driven market conditions have been beneficial to relative value hedge fund strategies (such as fixed
income arbitrage and convertible arbitrage), event driven, and tactical strategies (such as managed
futures and systematic global macro). There may be signs of improvement in these market dynamics,
however, going into the fourth quarter.

The points above are some of the key market developments presented by our portfolio managers and
business heads in this first issue of Credit Suisse Asset Management’s Tactical Quarterly. Readers
will also find our managers’ views on alternative investment areas such as hedge funds, private equity,
credit and commodities. Some key themes covered in this issue include:

ƁƁ Global business cycles have tapered off since the end of the first quarter of 2010, while corporate
earnings in much of the world have been supportive of global equity markets. We believe that we
could see an improvement for directional strategies such as long/short equity in the fourth quarter if
correlations decrease and trading volumes continue to increase as they did in September.

ƁƁ Global macro managers have been well positioned to take advantage of thematic trading
opportunities arising from macroeconomic divergence among developed and emerging market
countries, especially in currencies and interest rates—systematic macro managers in particular had
a strong third quarter.

ƁƁ Event driven hedge fund managers believe investors may consider taking advantage of inefficiencies
in the current financial landscape across a number of areas, such as merger-arbitrage and
distressed-debt investments.

ƁƁ The outlook for US fixed income is positive in senior loans, high yield bonds and collateralized loan
obligations, with record levels of issuance and spreads narrowing in the third quarter.

ƁƁ Investment levels by private equity firms continue to gain momentum globally with an increased
focus on emerging markets, particularly in Asia and Latin America. While investments have picked
up in the US and Europe, other regions, including China, have become increasingly important
markets. Global private equity firms are offering local-currency-denominated funds, such as in
renminbi for investments in China.

In summary, while 2009 was a strong year for directional hedge fund managers, 2010 has generally
been more favourable to relative value and systematic macro-oriented strategies through the third
quarter. Private equity, credit strategies and commodities present strong investment themes, with the
globalization of investments becoming an increasingly important factor.

Tactical Quarterly Credit Suisse Asset Management | 3

Hedge Funds
Global Tactical Asset Allocation/Global Macro
Anne Sophie Van Royen, Ph.D.
Portfolio Manager and Head, GTAA
Xiaomeng Yang, Ph.D.
Co-Portfolio Manager, GTAA

ƁƁ Global business cycles have tapered off since the end
of the first quarter of 2010—with the only exception
of Australia—raising concern about a global economy
growing but losing momentum (Display 1). Europe
appears more resilient in this cycle than the United States.
ƁƁ Corporate earnings worldwide remain generally
supportive of equity markets, especially in the US,
Japan and Switzerland. Our models have a moderate
equity overweight, with a tilt towards Europe, Asia
and the United Kingdom.
ƁƁ Global fixed income has been supported by yield
dynamics, but the sector’s attractiveness has been
eroded by expensive valuations and a modest
comeback of risk appetite. Overall, the prospect of
further quantitative easing in the US has been an
important driver supporting Treasuries, while sovereign
risk in Europe has somewhat abated.
ƁƁ We also see positive momentum supporting
commodities, especially in agriculture and metals.

Display 1: OECD Leading Indicators Point

to Slowdown in Global Economic Growth1

OECD Leading Indicators

2%
Month-Over-Month Change

1%

0%

-1%

-2%

-3% July 08 Nov08 Mar 09 July 09 Nov 09 Mar 10 July 10

United States Europe

1
OECD leading indicators summarize information on early signals contained in a number of key short-term economic
indicators known to have a leading relationship with GDP for 35 countries. Data from July 2008 to July 2010.
Source: Bloomberg and Credit Suisse

Credit Suisse Asset Management | 4 Tactical Quarterly

Hedge Funds
Global Macro
Sami Robbana
Portfolio Manager and Head, Global Macro Research, Alpha Strategies Group

ƁƁ Macroeconomic divergence across countries and
between developed and emerging economies has
remained significant. The resulting global imbalances
and structural issues continued to create thematic
trading opportunities for macro managers, as market
uncertainty persisted regarding these processes and
the overall global economic growth trajectory.
ƁƁ With the transfer of liabilities from the private to the
public sector in response to the global financial crisis
of 2008-2009, structural issues surrounding the
sustainability of sovereign debt levels for the US and
the Eurozone came to the forefront of financial markets
in the first half of the year, requiring high levels of
government intervention.
ƁƁ At the same time, removal of government stimulus
measures has been difficult to coordinate and the
potential for policy errors remains significant, in our view.
ƁƁ In currencies, which we believe will remain an
area of focus for managers, the reversal of global
structural imbalances continue to drive directions
in markets (e.g., central-bank interventions
and currency-pegging issues) providing trading
opportunities (Display 2).

Display 2: Outlook on Foreign-Exchange Volatility Presents Trading

Opportunities Based on Growing Volatility Divergence

Select Currency Pair Volatility

450
400
Index (Rebased to 100)

350
300
250
200
150
100
50
Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
EUR/USD 3-mo Implied Volatility USD/JPY 3-mo Implied Volatility
AUD/JPY 3-mo Implied Volatility EUR/CHF 3-mo Implied Volatility

Data from September 2007 to September 2010

Source: Bloomberg and Credit Suisse

Tactical Quarterly Credit Suisse Asset Management | 5

Hedge Funds
Event Driven
Sebastien Fiaux
Portfolio Manager, Head, Event Driven Research, Alpha Strategies Group

Distressed Credit
ƁƁ The distressed-credit sector appears to anticipate that the
significant amounts of leverage incurred by many global
companies in pre-2008-crisis years is now unsustainable
under the “new normal” earnings expectations.
ƁƁ Much of this debt will be maturing in the next three
to four years, creating a so-called “wall of maturities”
(Display 3). Some of this debt may be difficult to
refinance and, therefore, could create opportunities
stemming from companies’ pre-emptive recapitalizations,
forced restructurings or liquidations.
ƁƁ New opportunities may also arise from the emergence
of non-US distressed credit markets, which have been
driven by unprecedented global issuance, such as the
US$1 trillion European leveraged debt market.
ƁƁ Other relevant market drivers for distressed managers
are new capital requirements (notably Basel III) and
new banking rules in the US limiting proprietary
investing activities for large investment banks
(the so-called Volcker Rule). We believe that the new
rules could potentially accentuate the supply and
demand imbalance in credit markets.
ƁƁ Small- to mid-cap restructurings form the bulk of the
global opportunity set, limiting participation from the
largest funds.

Display 3: “Wall of Maturities” in Next

Three-to-Four Years May Lead to Opportunities

Global Maturities

300
253

200
(US$ Billion)

142 145
127 128
114
100 69 68 76
61 45 65
45
26 17
2 9 0
0

2010 2012 2014 2016 2018

Leveraged Loans High Yield Bonds

As of June 30, 2010

Source: Credit Suisse Global Leveraged Finance

Credit Suisse Asset Management | 6 Tactical Quarterly

Hedge Funds
Event Driven (continued)
Sebastien Fiaux
Portfolio Manager, Head, Event Driven Research, Alpha Strategies Group

Risk Arbitrage
ƁƁ There are a number of drivers that we believe will
generate activity in the risk-arbitrage sector in the
coming months. These include: the need for private
equity capital that was raised in 2006 to be put to work
(within a five-year window); cash levels on corporate
balance sheets reaching all-time highs (Display 4);
weak organic growth rates for companies (an incentive
for growth through mergers and acquisitions (M&A));
increasing cross-border M&A activity; and ease of
financing from strong capital markets.
ƁƁ US companies are trading at discounts when
compared to historical long-term P/E levels, making
them attractive to acquirers, in our view. We also
believe that the abundance of capital-rich buyers
and unwilling sellers is likely to lead to more hostile
takeovers and increased deal premiums.
ƁƁ We therefore expect to be entering a worldwide M&A
upswing in 2011, especially in the areas of strategic
transactions and hostile situations.
ƁƁ The severity of financial crisis and continued risk
aversion among corporate management and boards has
attenuated the M&A recovery, but is having the effect
of adding to the M&A backlog.

Display 4: Corporate Firm Valuation and Liquid

Asset Levels Point to Increased M&A Activity in 2011

Corporate Liquid Assets, S&P 500 Index P/E Ratio

8.0% 35x
Average P/E 30x
7.0% S&P 500 P/E Ratio (x)
Liquid Assets (%)

25x
6.0%
20x
5.0%
15x
4.0%
10x
3.0% 5x
2.0% 0x
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
90 92 94 96 98 00 02 04 06 08 10
Liquid Assets as % of Total Assets S&P 500 P/E Ratio
from Non-Financial Corp. Business (Right Hand Side)

As of June 30, 2010

Source: Credit Suisse Global Leveraged Finance

Tactical Quarterly Credit Suisse Asset Management | 7

Hedge Funds
Long/Short Equity
Vanita Gaonkar
Portfolio Manager and Head, Long/Short Equity and Equity Market Neutral Research, Alpha Strategies Group

ƁƁ Long/short equity managers faced a challenging against fundamental analysis, making it challenging
environment in the first half of the year because of for managers to identify profitable themes.
global equity market sell-offs, high stock correlations
and low trading volumes. Displays 7 and 8 illustrate ƁƁ However, a shift occurred in September as
the outflows from equity mutual funds globally in global equity markets experienced a sharp rise in
favor of bonds. performance, correlations eased and trading activity
ramped up. Rising volumes and increased stock
ƁƁ Combined with an overall lack of trends, the diminishing dispersion could signal the potential for improvement
liquidity levels and low stock dispersion have worked for long/short equity managers in the fourth quarter.

Display 7: Global Equities Have

Display 8: … In Favor of Global Bonds
Been Experiencing Outflows…

Global Equity Mutual Funds Global Bond Mutual Funds

Net Cash Flow Net Cash Flow

Cumulative Flow (US$ Billion)

25 40 60 700
Monthly Flow (US$ Billion)

20
Cumulative Flow (US$ Billion)

30 600
50
Monthly Flow (US$ Billion)

15
20
10 500
10 40
5
400
- - 30
-5 -10 300
-10 20
-20 200
-15
-30 10 100
-20
-25 -40
- -
-30 -50 J M M J S N J M M J
J M M J S N J M M J
09 09 09 09 09 09 10 10 10 10 09 09 09 09 09 09 10 10 10 10
Monthly Flows Cumulative Flows (Right Hand Side)

Data from January 2009 to September 2010

Source: Investment Company Institute

Credit Suisse Asset Management | 8 Tactical Quarterly

Hedge Funds
Multi-Strategy Arbitrage
Mika Toikka
Global Head, Multi-Strategy Arbitrage
Timothy Schwider
Portfolio Manager, Multi-Strategy Arbitrage

ƁƁ 2010 has seen some of the highest levels of correlation
among risky assets globally. In the US, S&P 500 Intra-
index correlations (correlations of stocks within major
indices) breached levels last seen during the crisis of
2008 (Display 9). Furthermore, these correlation levels
occurred in a relatively low volatility environment (with the
VIX volatility index in the low 20s). This dual combination
of high correlation and low volatility has created a difficult
environment in the last few quarters for stock pickers and
quantitative managers (who tend to focus on capturing alpha
within a pool of idiosyncratic risk).
ƁƁ As we go into the final quarter of the year, we suggest
keeping a close eye on correlation—especially implied
correlations in global equity markets. Shorter-maturity
implied correlations have declined substantially towards
the end of the third quarter and realized correlations have
started to follow suit. If correlations’ declines persist—
especially following US Federal Reserve announcements
on quantitative easing (QE2)—we believe it will signal
the potential start of an overall normalization within the
market’s risk framework. This should be encouraging for the
performance of various hedge fund related strategies that
are sensitive to idiosyncratic or stock-specific risk.
ƁƁ The fall in correlations is not the only sign that normalization
is occurring within risk perceptions. Correlation levels
have been moving in sync with the gyrations surrounding
perceptions of “crash risk.” One way to measure the degree
of “crash risk” priced into the market is by analyzing implied
volatility skews (the relative price difference between out-of-
the-money puts and calls). While index skews have declined
from extreme levels earlier in the year, the decline was
sharpest in short maturity options after the Fed signalled that
QE2 would likely be a reality. While longer-dated volatilities
have also seen some decline, they remain relatively high.
This relatively steep term structure of volatility reflects the
fact that the market may be comfortable with near term
risks but is still pricing in much higher levels of concern for
the next year and beyond. With regard to volatility skews,
our view is that the “new normal” for skews will be at much
higher equilibrium levels than before the crash of 2008. We
expect the overall demand for crash protection to remain with
us for a long time to come.
ƁƁ With the VIX hovering around 20%, the market is currently
pricing in a shorter term “Bernanke Put.” That is, the overall
perception seems to be that the Fed will provide the “right”
level of quantitative easing to keep the equity markets higher
in the near term and mitigate any potential for a 2008-type
market crash scenario. However, the old adage that you
“buy the rumor and sell the fact” will focus concern on the
immediate aftermath of the QE2 announcement.
ƁƁ In our view, there are too many underinvested investors and
an extremely wide range of macro views about the future
path of global economies to assume that the ride to year-end
is going to be smooth. Regardless of the market’s reaction
to QE2, we recommend keeping a close eye on correlations
and index volatility skews for continued signs of overall
normalization, but be prepared to fasten your seat belts.

Display 9: 2010—Record Levels of

Correlation in a Low-Volatility Environment
S&P 500 Intra-Stock Correlations
0.9
0.8
1 = Full Correlation

0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
00 01 02 03 04 05 06 07 08 09 10
Realized 3-mo Correlation Implied 3-mo Correlation
Data from October 2000 to September 2010
Source: Bloomberg and Credit Suisse

Tactical Quarterly Credit Suisse Asset Management | 9

Hedge Funds
Relative Value
Fred Shek
Head, Convertible Arbitrage and Multi-Strategy Research, Alpha Strategies Group

ƁƁ Fixed income funds have had a strong year, benefiting
from uncertainty around European sovereigns and the
sustainability of the global economic recovery. Volatility
remains elevated in the intermediate and longer end
of US and European sovereign yield curves, offering
attractive opportunities for relative value strategies.
ƁƁ Government bond curves are expected to remain steep
since global central banks seem intent on keeping
short-term rates at historically low levels for the
foreseeable future, offering a number of arbitrage
opportunities for managers.
ƁƁ The combination of substantial government bond supply
and diminishing activity from bank proprietary trading
desks allows arbitrageurs to profit from consistent
trends in the auction cycle. The reduced presence
of “sophisticated” capital also creates short-term
trading opportunities around futures expiries, given the
considerable trading volume generated by less
price-sensitive players, such as macro and managed
futures hedge funds.
ƁƁ US mortgages have been another profitable area
for relative value traders in 2010. Mortgage-
backed securities (MBS) richened substantially from
November 2008 to March 2010, propped up by
the Fed’s purchase of over US$1 trillion of agency
bonds. Following the Fed’s exit, volatility around
MBS spreads increased, presenting traders with new
themes (Display 10).
ƁƁ On the convertible bond front, the primary market
seems to have opened up after the summer
doldrums, with more new deals expected to be
issued in coming months. We believe convertible
valuations remain cheap relative to fair value, and
there continue to be a fair amount of corporate
actions such as M&A, bond buybacks and debt
refinancings that may serve as positive catalysts for
bond prices.

Display 10: End of US Fed’s MBS Purchase in March 2010

Created New Conditions for Relative Value Plays on Mortgages

Mortgages
350 richened with US
300 Fed purchase of
US$1 trillion of MBS
250
Spread to TSYs (bps)

New arbitrage
200 opportunities arise
as Fed policy
150 changes

100

50

0
Oct 08 Apr 09 Oct 09 Apr 10

Fannie Mae Spread to Treasuries

Data from October 2008 to September 2010

Source: Credit Suisse Fixed Income Research

Credit Suisse Asset Management | 10 Tactical Quarterly

Hedge Funds
Hedge Fund Replication
Jordan Drachman, Ph.D.
Head, Alternative Beta Strategies Research

Peter Little
Head, Alternative Beta Strategies Portfolio Management and Implementation

ƁƁ The Liquid Alternative Beta group’s models indicated
that investors’ risk aversion was trending lower in the
third quarter.
ƁƁ The long/short equity hedge fund replication model
put a greater emphasis on the technology sector
by replacing the S&P 500 Index with the Nasdaq
Index, while shorting the financials sector. The model
also maintained long emerging markets exposure
throughout the quarter.
ƁƁ The event driven hedge fund replication model has
indicated that illiquidity is not a factor in that sector’s
performance, perhaps indicating that, in their search
for yield, investors are ignoring the risk associated with
holding illiquid assets. The model has also identified an
increasing exposure to distressed debt, indicating that
credit is a key driver of profits in this sector.
ƁƁ Another indication that investors are beginning to re-
risk was the narrowing of the spread between US high
yield bonds and investment grade bonds (Display 11),
amidst record issuance for high yield bonds for the year
as of the end of September (see Credit section of this
document for further detail).

Display 11: High Yield Spreads Have Narrowed

in the Third Quarter as Investors Hunt for Yield1

Spread of High Yield to Investment Grade Bonds

540

520

500
Spread (bps)

480

460

440

420

400
July 2010 August 2010 September 2010

1
US high yield bonds measured by the Markit CDX North America. High Yield Index; investment
grade bonds measured by the Markit CDX North America Investment Grade Index. Data from June 30, 2010 through September 30, 2010.
Source: Bloomberg and Credit Suisse

Tactical Quarterly Credit Suisse Asset Management | 11

Private Equity
Fund of Private Equity Funds
Kelly Williams
Head, Customized Fund Investment Group

Nadim Barakat
Chief Investment Officer, Customized Fund Investment Group
Ɓ Private equity fundraising trended lower in 2010 worldwide Year-to-date global M&A transactions reached nearly
as a larger number of fund managers delayed fundraising US$1.5 trillion compared with US$1.7 trillion for
to focus on portfolio company growth. In the latest quarter, full year 2009. For the third quarter of 2010, M&A
global fundraising totalled US$41 billion compared to transactions increased 26% over last quarter on a dollar
US$92 billion for the same period last year. volume basis and 55% over last year’s third quarter.
Also worth noting is that private equity sponsored M&A
Ɓ The investment level by private equity firms continues transactions now represent over 14% of total deal
to gain momentum. There have been four consecutive value, up from less than 10% last year.2
quarters of increasing investment pace since the second
quarter of 2009 when US$17.9 billion was invested Ɓ Private equity in Asia continues to expand. Over US$19
(Display 12). The level of investments reached US$49.7 billion of funds have been raised for this region year-
billion in the second quarter of 2010, up 179% year-over- to-date in 2010 compared with US$17 billion in 2009.
year. CFIG believes this pace has been driven partly by the China has become an important market as global private
improved lending environment and record high-yield and equity firms have offered local funds with over US$9
leveraged-loan issuance volumes.1 billion raised year-to-date in renminbi denomination.
Private equity investment in Latin America has also been
Ɓ Private equity investment exits have increased in 2010. exhibiting solid growth and interest from investors.3
Display 13 suggests there is room to grow for PE in
– Global IPO activity has increased to over 290 year-to- several emerging markets.
date (as of September 30) compared to 177 for full-year
2009. Of the IPOs transacted in the US this year, 62% Ɓ Private equity fund selection remains critical. Top-quartile
were sponsored by private equity firms. private equity managers have been able to achieve strong
returns on over various economic cycles. CFIG believes
– The level of M&A has also contributed to successful that top-performing managers are less sensitive to capital
exits for private equity firms. Deal volume has been market conditions due to their ability to add operating
particularly strong, especially for the start of 3Q 2010. value to companies.

1
Source: Venture Economics, September 2010
2
Source: Dealogic, September 2010
3
Source: Venture Economics, September 2010

Display 12: If Future Deal Volume Follows Display 13: ...While in Emerging Markets,
a Similar Pattern, the Current US$1 Trillion of Private Equity Penetration Has Room to Grow
Dry Powder Would Burn Off in 4.5 Years...
Private Equity Investment Volume PE Penetration as % of GDP
$900
$818 0.32%
$800 $760 0.30% 0.30%
PE Investment/GDP (%)

0.27%
$700 0.25%
(US$ Billion)

$600 '01 - '05 '09E - '13E 0.20% 0.19%

$500 CAGR: 43% CAGR: 43% 0.17%
$440 0.15% 0.15%
$400 0.13% 0.12%
$336
$308 0.10%
$300 (50%) 0.07% 0.06%
(19%) $230 $212 $216 0.05%
$200 $151
0.03%
0.02%
$100 $100
$81
$106
$132 $107 0.00%
Eu a
e

ia
ia

a
ina
US

l
d

an
ica ran

azi
ic

ca
rop

ssi
l

As
Ind

r
Afr

Jap

00 01 02 03 04 05 06 07 08 09 10E 11E 12E 13E

Wo

Ch

Br

eri
Afr aha

Ru
Am
uth

b-S

As of December 31, 2009

So

tin
Su

Source: Morgan Stanley’s “In the Flow” (December 2008),

La

Thomson SDC, Thomson VentureXpert as of December 31, 2009, As of December 31, 2009
and Credit Suisse analysis Source: Emerging Markets Private Equity Association
Credit Suisse Asset Management | 12 Tactical Quarterly
Credit Strategies
John G. Popp
Global Head, Credit Investment Group

US Senior Secured Loans Collateralized Loan Obligations (CLOs)

ƁƁ An increase in new US loan issuance (Display 14)
offers opportunities to access attractive risk-adjusted
returns in senior secured loan markets. New issue
loans provide LIBOR floors of 1.5% to 3%, higher
spreads than vintage deals and seniority levels in the
capital structure equal to, or better than, high yield bonds.
ƁƁ Global CLO secondary markets experienced a strong
rally in September 2010, despite a substantial supply in
the form of bid-list activity.
ƁƁ Equity and mezzanine tranches showed the largest
increases, while original AAAs were flat on the month.

ƁƁ We continue to see opportunities in better-quality ƁƁ Absent a large macroeconomic or geopolitical event, we

performing loans with attractive current interest income,
relatively low-default risk, and yield targets of LIBOR
plus 5% to 7% (assuming a three-year average life).
––Return potential in excess of these target yield
levels could arise from positive events such as M&A,
refinancings and bond-for-loan takeouts.
ƁƁ Amendments to older vintage loans provide the
opportunity to enhance risk-adjusted returns through:
increased spreads to LIBOR, the inclusion of LIBOR
floors, maturity extensions and bond-for-loan takeouts
resulting in loan paydowns.
expect continued positive price performance during the
fourth quarter of 2010.
ƁƁ We believe hedge funds and proprietary trading desks
will be opportunistic sellers; their bid lists should be
well received by dealer desks and traditional CLO
accounts that have cash on the sidelines that needs to
be put to work.
ƁƁ On the new issue front, we expect a few lower
leverage, cleaner, simpler CLOs will price, as equity
tranches have been placed and there appears to be
ample demand for new issue liabilities.

Display 14: Senior Loan Issuance Indicates Renewed Growth

New Issuance for Global Leveraged Loans
500
388
Issuance (US$ Billion)

400 325
300
184
200 154
90 99
57 60 58 72
100 28 44 34 38
0
Sept. 2010
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Global Leveraged Loans

Source: JP Morgan

Tactical Quarterly Credit Suisse Asset Management | 13

Credit Strategies
John G. Popp (continued)
Global Head, Credit Investment Group

US High Yield Loans

ƁƁ The re-opening of both debt and equity capital markets
has made capital available to a broad selection of
companies, allowing many non-investment grade issuers
to refinance and extend maturities.
ƁƁ The improved debt market liquidity, combined with
a stabilizing near-term fundamental backdrop, has
decreased expectations for defaults.
ƁƁ The new issuance market continues to be robust,
hitting a 12-month rolling all-time high in September
2010 (Display 15).
ƁƁ We continue to focus on select new issues, especially
those that are senior secured in predominantly
defensive industries with little-to-moderate debt ahead
of the high yield bond claim.

Display 15: Record High Yield Issuance

May Signal Improved Opportunities

New Issuance for Global High Yield Bonds

250

200
(US$ Billion)

150

100

50

0
Sept. 2010
1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

High Yield Bonds New Issuance

Source: JP Morgan

Credit Suisse Asset Management | 14 Tactical Quarterly

Commodities
Nelson Louie
Global Head, Commodities Group
Christopher Burton
Portfolio Manager, Commodities Group

ƁƁ Commodities prices have tended to perform best during
periods of unexpected inflation (Display 16). We may
be headed into such an environment should developed
governments continue to attempt to boost tepid
economies through fiscal and monetary measures.
Certain developed countries are either discussing or
currently engaging in devaluing their currencies in
order to keep their exports globally competitive, while
fiscal policy remains accommodative worldwide. As a
result, investors may continue to seek out investments
that should retain their value in spite of inflation,
benefitting commodities generally, and precious metals
in particular.
ƁƁ With developed economies’ growth staying low,
we expect developing countries to drive demand
for commodities, especially those needed for
infrastructure. We also expect copper, corn, soybeans
and especially crude oil to remain well supported.
ƁƁ Energy prices continue to be impacted by macro-economic
factors in addition to fundamentals, with the former
potentially being the key driver over the short term.
ƁƁ Based on statements made by Fed Chairman Ben
Bernanke at the September 22nd Federal Open Market
Committee meeting, subduing deflation will be a top
priority of the Federal Reserve. As more and more
quantitative easing takes place, we expect US-dollar-
denominated commodity prices to continue to rise. We
continue to believe investors will benefit from including
commodities in a well-diversified portfolio.

Display 16: Commodities Prices Tend to Perform

Best During Periods of Unexpected Inflation1
Performance in Higher than Expected and Lower than
Expected Inflation Environments

Lower than Expected Inflation Higher than Expected Inflation

1.80 1.64
Average Monthly Returns (%)

1.60
1.37
1.40
1.20
1.00 0.84
0.80
0.60 0.48 0.42
0.40 0.27
0.20
0.00
S&P GSCI Ibbotson S&P 500 S&P GSCI Ibbotson S&P 500
Intermediate Intermediate
Term Bond Term Bond
1
Unexpected inflation is based on the historical relationship between 1-month Treasury bills and US
Consumer Price Index. Data from January 1970 to September 2009
Source: Ibbotson, Bloomberg, and Credit Suisse Asset Management
Past Performance does not guarantee future results.

Tactical Quarterly Credit Suisse Asset Management | 15

About the Authors
Nadim M. Barakat, Managing Director, is the Chief
Investment Officer of the Customized Fund Investment
Group within Private Equity in Alternative Investments.
Mr. Barakat holds a B.Sc. (Hons) degree in Systems
Engineering and Operations Research from the
University of Virginia (USA).
Christopher Burton, CFA, Director, is the Lead Portfolio
Manager and Trader for the Commodities Team. Mr.
Burton earned a B.S. in Economics with concentrations
in Finance and Accounting from the University of
Pennsylvania’s Wharton School of Business.
Jordan Drachman, Ph. D., Director, is Head of Research
for the Liquid Alternative Beta team. Mr. Drachman has
received a B.S. in Mathematics from MIT and Ph.D. in
Mathematics from Stanford University.
Sebastien Fiaux, Vice President, is Head of the
Event Driven sectors in the Hedge Fund Research
and Selection team within Alpha Strategies. Mr. Fiaux
earned an M.S. in Finance, Economics and Statistics
from ENSAE, an M.A. in Political Science from the
Institute of Political Science and a Masters in Financial
Engineering from Cornell University.
Vanita Gaonkar, Director, is the Head of the Long/
Short Equity and Equity Market Neutral sectors in the
Hedge Fund Research and Selection team within Alpha
Strategies. Ms. Gaonkar earned a B.A. in Mathematics
and Economics from Wesleyan University.
Peter Little, CFA, Director, is Head of Portfolio
Management and Implementation for the Liquid
Alternative Beta team. Mr. Little holds B. Comm. in
Finance from the University of Port Elizabeth in South
Africa in 1995.
Nelson Louie, Managing Director, is Global Head of the
Commodities Group. Mr. Louie holds a Bachelor of Arts
degree in Economics from Union College.
John G. Popp, Managing Director, is the Group
Head of the Credit Investments Group, with primary
responsibility for making investment decisions and
monitoring processes for CIG’s global investment
strategies. Mr. Popp graduated with a B.A. from
Pomona College and an M.B.A. from the Wharton
Graduate of the University of Pennsylvania.
Sami Robbana, Director, is the Head of the Global
Macro sector in the Hedge Fund Research and
Selection team within Alpha Strategies. Mr. Robbana
Credit Suisse Asset Management | 16
earned a B.B.A. in Finance from L’Ecole des Hautes
Commerciales (H.E.C) de Montreal, a Minor in
Economic Sciences from Universite de Montreal, and
attended McGill University Graduate Business School.
Timothy Schwider, Ph.D., Director, is a member of the
Quantitative Equities Group management team focusing
his research on global equities. Mr. Schwider holds a
B.S. in Mathematics from Harvey Mudd College, and a
Ph.D. in Mathematics from the University of Michigan.
Fred Shek, CFA, Director, is the Head of the Convertible
Arbitrage and Multi-Strategy sectors in the Hedge Fund
Research and Selection team within Alpha Strategies.
Mr. Shek earned a B.S. in Accounting from Binghamton
University in 1994 and is a CFA Charter holder.
Mika Toikka, Managing Director, is a Portfolio Manager
and Global Head of Multi-Strategy Arbitrage in Alternative
Investments at Credit Suisse. He is also the Head of
Volaris Volatility Management. Mr. Toikka holds an M.S.
in Applied Economics from the University of California
Santa Cruz and a B.A. in Economics from the University of
California at Davis.
Anne-Sophie van Royen, Ph.D., Managing Director, is
a Senior Portfolio Manager for the global tactical asset
allocation strategies and products at Credit Suisse.
Ms. van Royen holds an M.S. in Business Studies from
the Ecole des Hautes Etudes Commerciales (HEC); a
B.A. in Psychology from the Université de Paris-Saint
Denis; and Ph.D. and M.S. degrees in Mathematical
Economics from the Université de Paris-Sorbonne.
Kelly M. Williams, Managing Director, is the Group Head
of the Credit Suisse Customized Fund Investment Group.
Ms. Williams graduated magna cum laude from Union
College in 1986 with a B.A. in Political Science and
Mathematics, and received her Juris Doctor degree from
New York University School of Law in 1989.
Xiaomeng Yang, CFA, Ph.D., Vice President, is a
Portfolio Manager for the global tactical asset allocation
strategies and products. Ms. Yang holds a B.A. in
economics from Tsinghua University in Behiing, and a
Ph.D. in Economics from Boston College. She is a CFA
charter holder and holds a Financial Industry Regulatory
Authority (“FINRA”) Series 3 license.
Tactical Quarterly
Credit Suisse Asset Management Publications
Robert Parker, Credit Suisse Senior Advisor
October Market Update
October 2010—Strong earnings growth and easing
economic concerns should support equity markets in
the short term. Eurozone is clearly becoming a “two-
track” economy. Some government bond markets may be
overbought following latest flight to quality.
Liquid Alternative Beta: Enhancing Liquidity in
Alternative Portfolios
June 2010—How to increase a portfolio’s liquidity
without sacrificing returns, especially in a post-crisis,
low-yield environment? The paper illustrates how
institutional investors can use Liquid Alternative Beta
to seek to enhance portfolio liquidity, increase portfolio
transparency, short hedge fund sectors and gain hedge-
fund-like exposure when investment policies restrict
direct hedge fund investments.
Can Infrastructure Investing Enhance
Portfolio Efficiency?
May 2010—The paper provides an in-depth look at
infrastructure as an investment tool, and analyzes what
role the asset class might play in institutional portfolios.
Specifically, the paper examines whether infrastructure can
be an effective tool to mitigate inflation and duration risks,
reduce funding gaps, and enhance portfolio efficiency.
Gaining Efficient Hedge Fund Exposure Through
Passive Investing
January 2010—This paper examines the benefits of an
index-based approach to hedge fund investing: Cost
efficient access to the broad hedge fund industry, strong
performance vs. active fund of funds, reduced manager-
specific risk and a simplified core holding.
Credit Portfolio Management in 2010: A Nimble
Approach Needed
January 2010—Tracking and timing credit cycles can be
challenging, particularly since today’s credit environment
appears to be going through increasingly rapid cycle
changes. We believe that fixed income investors need
to be increasingly nimble and tactical in 2010, while at
the same time considering strategic preparations for
medium-to-longer-term regime changes in interest rates
and inflation.
The views and opinions expressed within these publications are those of the authors, are based on matters as they exist as of the date of
preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or
circumstances existing, or changes occurring, after the date hereof.
For a copy of any of these papers, please contact your relationship manager or visit our website at www.credit-suisse.com.
Tactical Quarterly
Risk Management: A Changing Paradigm
November 2009—Renewed interest in risk management
and the creation of a culture of risk awareness are driving
current investment committee meeting agendas. This should
come as no surprise in light of market events in 2008 and
early 2009. While experience and judgment that have been
battle-tested under various market conditions prepares
CIOs for uncertainty in the future, how do they implement
risk-based solutions while facing real-world events?
Risk Parity—A Risk-Based Approach to
Portfolio Structuring
November 2009—In this paper we discuss a different
approach to portfolio risk management, called risk parity,
which aims to equate the contribution of risk across asset
classes and, as a result, create a portfolio which performs
better in a variety of market conditions.
In Search of Liquidity and Transparency:
Managed Accounts, Single Investor Funds
and Custom Portfolios
October 2009—Investor interest in managed accounts
has grown. This paper outlines four investment structures
which may offer investors a range of solutions for greater
liquidity and transparency in their hedge fund investments.
Preparing for Inflation: Is It Too Early
to Position Your Portfolio?
September 2009—As governments continue to implement
stimulus programs, some investors worry about potential
future inflation. Positioning your portfolio for increasing
inflation before it strikes is critical.
Equity Market Neutral – Diversifier Across
Market Cycles
September 2009—This paper examines the role that the
Equity Market Neutral strategy can play in an alternatives
portfolio, as it was one of the few strategies that remained
uncorrelated to other asset classes during the 4Q 2008
market dislocation.
Credit Suisse Asset Management | 17
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Certain information contained in this document constitutes “Forward-Looking Statements” (including observations about markets and industry and regulatory
trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”,
“anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe”, or the negatives thereof or other variations thereon or comparable terminology. Due
to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such
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IMPORTANT NOTE: The contents in the attached presentation can only be modified or edited in a way that the meanings are remained substantially the
same. Any figures shown in the contents cannot be altered in any way.

Credit Suisse Asset Management | 18 Tactical Quarterly

Copyright 2010. CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved.