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In Equity Hedged, we maintain our full-sized allocation and our focus on US sector specialists in high conviction areas like healthcare and on style agnostic managers more likely to rebalance towards value as rates move higher. Intensifying Chinese regulation in key private sectors such as education and technology are changing the landscape for alpha generation in the region. As such, our focus in APAC is shifting to tactical, low net managers that can pivot away from impacted industries until the dust settles. We continue to believe that fundamentals will come to the forefront as economies normalize and reopen, hopefully allowing managers to make up for the long and especially short alpha that proved elusive year-to-date. Factor volatility remained high with multiple reversals in Q1 and Q2, and the market struggled to digest the impact of rapidly changing US interest rates (discount rates) on future earnings and valuation models. This environment continues in early Q3, but we believe it should eventually wane in coming quarters. However, to achieve balance between value and growth, we are examining managers who can potentially benefit from exposure to cyclical sectors and value-oriented stocks.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

Our Credit / Income strategy will maintain core allocations to the ABS, Agency MBS and Corporate Long / Short sub-strategies, with the potential to increase Agency MBS. In Agency MBS, faster-than-expected prepayments for higher coupon collateral, yield curve flattening and new prepayment model assumptions released from YieldBook, a widely utilized model, resulted in material widening in option-adjusted spreads (OAS). Our ABS allocations seek to capture carry while minimizing duration; this means we must be selective and concentrate on only a few high conviction segments. Similarly, co-investments allow us to be surgical in allocating to idiosyncratic opportunities. In Corporate Long / Short, our focus remains on more trading-oriented approaches, particularly since corporate credit has broadly recovered and spreads are near all-time tights, appearing priced to perfection. HFS is also exploring ways to hedge for a risk-off scenario or catalysts that could cause credit spreads to widen.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

In Relative Value, we allocate to a diversified mix of sub-strategies and employ targeted manager selection within those. As such, we are unlikely to make major changes in Q3. Capital Structure / Volatility Arbitrage, which includes SPACs, was the latest focus of our top-ups in Q2. For Fixed Income Relative Value (FIRV), we will watch for steeper yield curves and new guidance on the removal of quantitative easing to assess whether to increase our allocations. As mentioned last quarter, we will leave Merger Arbitrage allocations unchanged and rely on event-focused Equity Hedged and Multi-Strategy managers to increase exposure to event-driven approaches, based on their judgement. As the world hopefully becomes less COVID-19 impacted, Quant Equity returns might improve relative to the recent past. However, their models and historical data sets will have to navigate the higher inflation and eventual rate hike regimes, wherein it’s possible a lesson learned from COVID-19 is that faster repositioning and proactive intervention can complement fully systematic investment processes.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

HFS maintains a moderately positive outlook on Discretionary Trading. We expect episodic volatility from central bank communications and upcoming data releases to provide opportunities for developed market (DM) managers. These sometimes conflicting economic signals on the bumpy path toward reopening will likely bring a healthy level of volatility, which may make it difficult to hold large structural positions. Managers who can move positioning more dynamically and implement strong portfolio construction should be better placed to outperform. We also maintain our conviction in Commodities strategies, which are expected to benefit from today’s macro environment and policy objectives. Commodities trading is a challenging, cyclical strategy that is fraught with manager turnover; nonetheless, we may add here as we find managers that meet our high criteria.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

The use of indices is for illustrative purposes only.

BCOM Index
The Bloomberg Commodity Indices are a family of financial benchmarks designed to provide liquid and diversified exposure to physical commodities via futures contracts. The Bloomberg Commodity Index is composed of commodity futures contracts and seeks to track futures price movements. The Index is calculated on an excess return basis and reflects future price movements. The Index rebalances its holdings annually, weighted two-thirds by trading volume and one-third by world product and weight-caps applied at the commodity, sector and group level for diversification. Roll periods for the Index typically occur from the sixth to the tenth business day, based on the roll schedule. The Index was formerly known as the Dow Jones-��ţ�������� Commodity Index.

MSQQUGRL Index
The Morgan Stanley US Growth Long Basket selects the top 15% of the most liquid stocks from the Russell 3000 index based on standard growth measures. The basket is designed to be highly liquid and is rebalanced quarterly. At rebalance, stock weights are subject to a 2% maximum and aggregate sector weights to a 25% maximum.

MSQQUVLL Index
The Morgan Stanley US Value Long Basket selects the top 15% of the most liquid stocks from the Russell 3000 index based on standard value measures. The basket is designed to be highly liquid and is rebalanced quarterly. At rebalance, stock weights are subject to a 2% maximum and aggregate sector weights to a 25% maximum.

The strategies described herein are speculative and entail substantial risks which may place your capital at risk. An investment in these strategies includes the risks inherent in an investment in securities, as well as specific risks associated with limited liquidity, the use of leverage, short sales, options, futures, derivative instruments, investments in non-US securities and illiquid investments. The Fund invests largely in other unregulated hedge funds. Such a portfolio of hedge funds may increase an investor’s volatility for potential losses or gains.

A particular manager of any strategy, from time to time, may invest a substantial portion of the assets managed in an industry sector. As a result, the manager’s investment portfolio may be subject to greater risk and volatility than if investments had been made in the securities of a broader range of issues. There can be no assurances that any particular strategy (hedging or otherwise) will be successful or that it will employ such strategies with respect to all or any portion of its portfolio. These strategies can be highly illiquid, are not required to provide periodic pricing or valuation to investors, and may involve complex tax strategies.

The strategies may be highly leveraged and the volatility of the price of its interests may be great. The fees and expenses charged by any individual manager of a strategy may substantially offset any trading profit.

Please note that the views expressed herein are those of ��ţ�������� Hedge Fund Solutions, a distinct business unit of ��ţ�������� Asset Management (Americas) LLC (“��ţ�������� Hedge Fund Solutions”). All such information and opinions are subject to change without notice.

The views expressed are as of July 2021 and are a general guide to the views of a division within ��ţ�������� Asset Management. This document does not replace portfolio and fund-specific materials. Commentary is at a macro or strategy level. Please note that past performance is not a guide to the future. Potential for profit is accompanied by the possibility of loss. The value of investments and the income from them may go down as well as up and investors may not get back the original amount invested. This document is a marketing communication. Any market or investment views expressed are not intended to be investment research. The document has not been prepared in line with the requirements of any jurisdiction designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this document does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. The information and opinions contained in this document have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. All such information and opinions are subject to change without notice.

A number of the comments in this document are based on current expectations and are considered “forward-looking statements.” Actual future results, however, may prove to be different from expectations. The opinions expressed are a reflection of best judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed. Furthermore, these views are not intended to predict or guarantee the future performance of any individual security, asset class, and the markets generally, nor are they intended to predict the future performance of any portfolio or fund.

Except where otherwise indicated herein, the information provided herein is 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. Certain information contained in this presentation constitutes "forward-looking statements," 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 of other variations thereon or comparable terminology. Due to various risks and uncertainty, actual events or results or the actual performance of a Fund may differ materially from those reflected or contemplated in such forward-looking statements.