March 2008

KEY factors

• The economy continued to show further signs of weakness during the month of March causing fears of a looming recession. New home sales fell by 8.52%, manufacturing continued to disappoint with a 2 basis point increase, the CPI Urban Consumer All Items (SA) Index increased by 34 basis points, and non-farm unemployment increased to 5.1% from 4.8% the month prior.
• Major events during the month continued to focus on the U.S. presidential elections, record high oil and gold prices, and the U.S. Dollar reaching new lows against the Euro.
• U.S. equity markets continued their general trend downwards in March. The fall of Bear Stearns drove fears of further possible mortgage market and liquidity issues causing a sell-off of financial stocks which drove the market down. The U.S. Federal Reserve cut the fed funds rate by 75 basis points to 2.25%.
• Non-U.S. equity markets also experienced generally negative performance in March. Investor concerns over a global economic slowdown and inflation played a role in suppressing equity prices.
• The entire U.S. yield curve shifted downwards in the month of March.

MARKET COMMENTARY

U.S. and global equity markets posted mostly negative returns in March with the S&P 500 Index (TR) down 43 basis points and the MSCI World Index (U.S. Dollar TR) down 96 basis points. In the United States, small cap stocks (Russell 2000 Index (TR)) were up 42 basis points but large cap stocks (Russell 1000 Index (TR)) were down 68 basis points. The Russell 1000 Growth Index (TR) was down 61 basis points, slightly outperforming the value component (Russell 1000 Value Index (TR)) which was down 75 basis points.

Performance in non-U.S. equity markets was also mostly negative in March with the MSCI EAFE Index (U.S. Dollar TR) down 1.05% and the MSCI Emerging Markets Free Index (U.S. Dollar TR) down 5.29%. The FTSE 250 Price Index (USD) was down 54 basis points and the Nikkei 225 Price Index (JPY) was down 7.92%. The MSCI Europe 15 Index (U.S. Dollar TR) was up 42 basis points.

U.S. government and credit quality fixed income markets were mostly positive in March. The U.S. yield curve experienced the sharpest decrease at the 3-month yield rate of 52 basis points. The Lehman U.S. Aggregate Index was up 34 basis points, the Lehman U.S. Government/Credit Index was down 1 basis point, and the Lehman U.S. Corporate High Yield Index was down 34 basis points.

The U.S. Dollar experienced mixed performance against most major currencies in March. The U.S. Dollar was down 4.01% against the Euro, 4.05% against the Yen, and up 27 basis points against the pound.

Hedge Fund Index Commentary

The CASAM/CISDM Equal Weighted Hedge Fund Index was down 2.33% for the month of March reflective of the general direction of component hedge fund strategies. The equity long/short Asia strategy experienced the worst performance, down 4.29%, followed by emerging markets and sector strategies, down 2.60% and 2.43%, respectively.

The CASAM/CISDM Convertible Arbitrage Index was down 2.38% for the month of March. Technical selling in the investment grade and high yield universe forced deleveraging of hedge funds and outright redemptions. The Merrill Lynch Convertible Bonds Index – All Qualities was down 2.12%.

The CASAM/CISDM Distressed Securities Index was down 79 basis points for the highly volatile month of March. Markets recovered towards the end of the month following the pending Bear Stearns buyout. The Lehman U.S. Corporate High Yield Index was down 34 basis points.

The CASAM/CISDM Emerging Markets Index was down 2.60% for the month of March. The negative return reflected the negative performance of the MSCI Emerging Markets Free Index (U.S. Dollar TR), down 5.29%.

The CASAM/CISDM Equity Long/Short Index was down 2.27% for the month of March. U.S. equity markets experienced negative returns across a broad range of capitalizations with the Russell 3000 Index (TR) down 59 basis points. Small cap stocks (Russell 2000 Index (TR)) were up 42 basis points, outperforming large cap stocks (Russell 1000 Index (TR)) which were down 68 basis points. Value names (Russell 3000 Value (TR)) and their growth counterparts (Russell 3000 Growth (TR)) were down 58 basis points and 61 basis points, respectively.

The CASAM/CISDM Equity Long/Short Asia Index was down 4.29% for the month of March, reflective of the negative performance of the Nikkei 225 Price Index (JPY), down 7.92%.

The CASAM/CISDM Equity Long/Short Europe Index was down 1.40% for the month of March. The weak U.S. Dollar, which dropped to an all time low against the Euro, contributed to the negative performance for the strategy. Although the MSCI Europe 15 (U.S. Dollar TR) Index was up 42 basis points, the FTSE 250 Price Index (USD) was down 54 basis points.

The CASAM/CISDM Equity Market Neutral Index was down 13 basis points for the month of March. Throughout the month, equity markets continued to experience a high level of volatility, uncertainty, and wild swings. Volatility, as measured by the VIX ranged between 24.6% and 32.24%, with an intra-month volatility of 27.10%.

The CASAM/CISDM Event-Driven Multi-Strategy Index was down 1.60% for the month of March. Continued struggles in the credit market combined with equity market volatility contributed to negative performance for the strategy. The Lehman U.S. Corporate High Yield Index was down 34 basis points.

The CASAM/CISDM Fixed Income Arbitrage Index was down 74 basis points for the month of March. Short term rates experienced the largest declines along the U.S. yield curve following the U.S. Federal Reserve 75 basis point cut in interest rates.

The CASAM/CISDM Global Macro Index was down 37 basis points for the month of March. The poor performance of the equity and fixed income markets contributed to the negative performance of the strategy. The MSCI World Index (U.S. Dollar TR) was down 96 basis points.

The CASAM/CISDM Merger Arbitrage Index was down 22 basis points for the month of March. Announced merger activity was significantly lower during the month than over the same period last year. Globally, a total of $325 billion in deals were announced.

The CASAM/CISDM Mortgage-Backed Securities Index was down 1.30% for the month of March. The mortgage market continued to suffer pricing pressure due to the reduced risk exposure of investors and a deteriorating credit environment. The Lehman Fixed Rate Mortgage Backed Securities Index was up 56 basis points.

The CASAM/CISDM Sector Index was down 2.43% for the month of March. Five of the ten major S&P 500 industry sectors were negative for the month. The worst losses were registered in the health care sector, down 4.98%, while telecommunications posted the best performance, up 4.89%.

The CASAM/CISDM Sector Technology Index was down 90 basis points for the month of March. Contributing to the negative performance of the sector technology strategy were communications equipment, electronics, IT services, networking and infrastructure, and software and computer services, which all experienced losses.

The CASAM/CISDM Fund of Funds Index fell 2.30% for the month of March. The negative performance of the index reflected the negative results seen across all hedge fund strategies in March.

CTA Index Commentary

The CASAM/CISDM CTA Equal Weighted Index fell 14 basis points for the month of March. The CASAM CISDM CTA Equal Weighted Systematic Index was down 36 basis points while the CASAM CISDM CTA Equal Weighted Discretionary Index was up 1.10%. Equity CTA managers posted the highest performance among CTAs with the CASAM CISDM CTA Equal Weighted Equity Index up 3.22%. The CASAM CISDM CTA Equal Weighted Physicals Index was down 1.06% and the CASAM CISDM CTA Equal Weighted Diversified Index was down 1.00%. The CASAM CISDM CTA Equal Weighted Currency Index was up 1.37% and the CASAM CISDM CTA Equal Weighted Financials Index was up 65 basis points. The broad commodity markets posted predominantly negative results in March. The GSCI TR Index was down 1.17%, the GSCI Metal TR Index was down 4.37% and the GSCI Agriculture TR Index was down 12.98%. The energy sector performed well with the GSCI Energy Index up 2.22%.