Are Emerging Markets Really the Answer? 9 February 2012

Bill Smith Chief Executive Officer, UK

Agenda A. History and fundamentals of emerging markets B. The case for diversification C. The ever expanding universe D. Conclusion

Emerging Markets

More than 80% of the world’s population

75% of the world’s landmass

75% of FX reserves

50% of GDP

65% of GDP Growth

Only 13% of the world’s equity market capitalisation As of 31 December 2010 Source: Lazard

The World in Numbers Emerging Economies as a Percentage of the Total World Population Landmass Energy Consumption GDP at PPP Exports GDP at Market Rates Market cap (full market) Market cap (float adjusted) 0

10

20

Emerging Markets

30

40

50

Developed Markets

As of 31 December 2010 Source: BP, CIA World Factbook, IMF World Economic Outlook, MSCI The information in the chart above is for illustrative purposes only and does not represent any product offered by Lazard.

60

70

80

90

100

The Case For Investing In Emerging Markets Strong Fiscal Indicators in EM

Lower Debt / GDP Ratios in EM

(Fiscal Deficit as % GDP)

(Debt as % GDP)

4

100

2

90

0

80 70

-2

60

-4

50 -6 40

-8

30

-10

20

-12

10

-14 2000

2002

2004

2006

Emerging Markets

2008

2010 2012F

United Kingdom

Includes 20 EM countries Source: Moody’s and Lazard, as of November 2011 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change.

0 2000

2002

United States

2004

2006

2008 2010F 2012F

Eurozone

Trade Between Emerging Markets Increasing Emerging Markets reliance on the US and Europe is expected to fall Emerging Markets Countries – Share of Total Exports 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1990

1992 US

As of 31 December 2010 Source: IMF, UBS

1994 EU

1996

1998 Intra EM

2000 Others

2002

2004

2006

2008

2010

Emerging Markets Consumers Continue to Spend Domestic Consumption Growth (% YoY) 10

8 6 4 2 0 -2 -4 2001

2002

2003

Emerging Markets

2004

Developed Markets

As of 30 June 2011 Estimated data is not a promise or guarantee of future results and is subject to change. Source: Haver Analystics, Lazard estimates

2005

2006

2007

2008

2009

2010

2011

Different Investment Environments Call for Different Approaches 3.0 2 Jul 1997 Thai baht devalues

16 Jan 1999 Brazil real devalues

Profit taking in China’s market

2.0

Greenspan’s comments on China/inflation Russian crisis

1.0

Liquidity-led recovery

Malaysian capital controls implemented

Federal Reserve comments on inflation

Argentine peso devalues

Global Credit Crisis Turkish lira devalues

Indonesian rupiah goes to 15,000/$

0.0 1997

1998

1999

2000

2001

MSCI Emerging Markets Index As of 31 December 2011 Source: Lazard, MSCI

2nd Gulf War Brazilian Election Turmoil

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

The Case for Emerging Markets Diversification MSCI Emerging Markets Index 0%

25

-10%

20 -20% 15

-30%

-40%

10

-50% 5 -60% -70% 1988

0 1990

1992

Returns (RHS)

1994

1996

1998

2000

Drawdown from Peak (LHS)

Source: Lazard, MSCI As of 21 December 2011 The information in the chart above is for illustrative purposes only and does not represent any product offered by Lazard.

2002

2004

2006

2008

2010

Drawdown Comparison A balanced approach can reduce entry point risk by curtailing drawdowns 0%

-10%

-20%

-30%

-40%

-50% Return1

-60%

Volatility1

 Emerging Markets Equity2

7.0%

25.0%

 Emerging Markets Equity and Debt3

9.3%

14.4%

-70% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1 Annualized over the period from 2/8/1995 to 12/21/2011.

As of 21 December 2011

2 MSCI Emerging Markets Index

Source: Lazard, J.P. Morgan, MSCI

3 50% MSCI Emerging Markets Index, 25% J.P. Morgan ELMI+ Index, 25% J.P. Morgan EMBI Global Diversified Index, rebalanced quarterly

The information in the charts above is for illustrative purposes only and does not represent any product offered by Lazard.

Evolution of the Emerging Markets Opportunity Set MSCI Emerging Markets IMI Index 2,785

2,779

2010

Nov 2011

2,576 2,419 2,205

2,187

2006

2007

2,015 1,787 1,582 1,315

2002

2003

2004

2005

2008

2009

Number of Constituents As of 30 November 2011. MSCI methodology changed from full-market cap weighting to free-float market cap weighting in 2002. This made the index constituents drop significantly in 31 May 2002. Source: MSCI

MSCI EM as a Proportion of MSCI ACWI But the long-term trend is up 16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00 2002

2003

2004

Source: MSCI Past performance is not a reliable indicator of future results

2005

2006

2007

2008

2009

2010

2011

MSCI Emerging Markets Index Expansion 1988: 10 Countries Thailand 9.06% Portugal 8.52%

2012: 21 Countries Thailand 1.91%

Argentina 1.81% Brazil 18.91%

Philippines 3.12%

Brazil 15.39%

Taiwan 10.83%

Chile 1.77%

South Korea 14.60%

China 17.86%

Chile 8.93%

Mexico 7.65%

Greece 5.29% Jordan 2.93% Malaysia 33.78%

Colombia 0.99% South Africa 7.68%

Russia 6.58% Poland 1.28% Philippines Peru 0.74% 0.67% Morocco 0.15%

As of 30 November 2011 Source: MSCI

Turkey 1.21%

India 6.43% Mexico 4.63%

Indonesia 2.96% Malaysia 3.46%

Czech Republic 0.33% Egypt 0.29% Hungary 0.27%

Emerging Market Debt Issuance Expands Hard Currency Gross Issuance (US $B) EM Sovereign 200

EM Corporates and Quasi-sovereign

160

120

80

40

0 2000

2001

2002

EM Sovereign As of 31 January 2012 Source: JP Morgan, Bank of America Merrill Lynch, ING

2003

2004

2005

2006

2007

EM Corporates and Quasi-sovereign

2008

2009

2010

2011

2012e

Conclusions • Fundamentals in emerging markets remain strong / intact • Expanding opportunity set allows for potential risk reduction

• The complexity and scale of ever expanding universe requires considerable resources / consideration

The60% History of Emerging Market Over of universe is now Investment GradeSovereign

Spreads

1600 Asian Financial Crisis BBB-

Russian Default

1400

LTCM Blowup

1200

BB+ Argentina Default

1000

Mexico upgraded to Investment Grade

Brazil Election Turmoil

BB

Global Financial Crisis US Downgraded

800 Russia upgraded to Investment Grade

Greek Debt Crisis

Local Debt Issuance Surpasses External Debt Issuance Brazil Upgraded to Investment Grade

600

BB-

400

B+ 200

Sovereign Spread represented by stripped spread (in bps) of J.P.Morgan EMBI Global Diversified Index [LHS] Average credit rating of the J.P.Morgan EMBI Global Diversified Index [RHS] B

Improved credit quality has led to lower spreads and lower volatility Source: J.P. Morgan As of 31 August 2011

Aug-11

Mar-11

Oct-10

May-10

Dec-09

Aug-09

Mar-09

Oct-08

May-08

Dec-07

Aug-07

Mar-07

Oct-06

May-06

Dec-05

Aug-05

Mar-05

Oct-04

May-04

Jan-04

Aug-03

Mar-03

Oct-02

May-02

Jan-02

Aug-01

Mar-01

Oct-00

May-00

Dec-99

Aug-99

Mar-99

Oct-98

May-98

Dec-97

0

MSCI Global Investable Market Indices Criteria A

Frontier

Emerging

Developed

Economic Development No requirement

No requirement

Country GNI per capita 25% above the World Bank high income threshold* for 3 consecutive years

2

3

5

Company size (full market cap)**

USD 434 mm

USD 867 mm

USD 1734 mm

Security size (float market cap)**

USD 34 mm

USD 434 mm

USD 867 mm

Security liquidity

2.5% ATVR

15% AVTR

20% ATVR

C1 Openness to foreign ownership

At least some

Significant

Very High

C2 Ease of capital inflows/outflows

At least partial

Significant

Very High

C3 Efficiency of the operational framework

Modest

Good & tested

Very High

C4 Sustainability of institutional framework

Modest

Modest

Very High

A1 Sustainability of economic development

B

Size and liquidity requirements

B1 Number of companies meeting the following standard index criteria

C

Market accessibility criteria

* High income threshold for 2007: GNI per capita of USD 11,456 (World Bank, Atlas method) ** Minimum in use for the May 2008 Semi-Annual Index Reviews, updated on a semi-annual basis

MSCI Emerging Market Classification MSCI emerging market classification approach aims to strike a balance between the economic development and the market accessibility of a country. It requires good efficiency of the operational framework and modest stability of the institutional framework, with significant accessibility for foreign ownership. MSCI covers all investable large and mid cap securities across the Emerging Markets and target approximately 85% of each market's free-float adjusted market capitalisation.

The MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.