(1 505 297) (698 090) At reporting date, the value of equity positions held as a

hedge against equity swaps, option and futures positions within Peregrine Equities (note 21.3) was:

Long positions 12 924 396 8 545 166 Short positions (14 790 239) (9 468 968) (1 865 843) (923 802) Futures 8 272 326 4 488 706 Options 1 868 291 1 056 331 Equity Swaps (8 244 218) (4 628 085) 1 896 399 916 952

43.1 Market risk (continued)

43.1.2.2 Equity sensitivity analysis

Investment into hedge funds and instruments held by consolidated hedge funds

To date, the group has successfully invested funds with Peregrine Capital, Green Oak Capital, Tower Capital Management, G3 Fund Managers, All Weather Capital, Cannon Asset Managers and Java Capital.

Peregrine Capital manages a suite of hedge funds, which focuses on South African listed equity counters. Stock selection is primarily bottom up, based on fundamental research employing disciplined and consistent research procedures. The funds aim to achieve positive returns regardless of the direction of the equity market.

The group continues to expand on the success achieved by Peregrine Capital by taking equity stakes in or entering into profit sharing arrangements with other single strategy managers across various hedge fund styles. At year-end, this included Green Oak Capital, Tower Capital Management, Cannon Asset Managers and Java Capital. The decision to invest and the quantum thereof forms part of the group’s capital allocation decision implemented and managed by the Holdings’ executives. The decision to remain invested in the funds once they have achieved financial success forms part of the investment of group capital.

In 2011 a subsidiary of the group provided the necessary capital to seed the establishment of certain new funds under the auspices of the Natural Selection Fund ("The Fund"), an initiative driven by Peregrine Securities ("Securities"). The Fund seeks to invest in smaller hedge funds with the potential for growth. The Fund has two related aims: to achieve above-average returns on its investments by identifying fledgling funds with a genuine competitive edge and to assist younger funds with the promise to extend their track record and increase their professional profile in order to reach a wider investment audience. At year-end Securities was invested in two (2014: one) such funds.

In all cases referred to above, fund managers are subject to appropriate due diligence and selected on the basis of the managers’ track record and experience, their approach to investment and risk management, as well as their ability to demonstrate sound operational procedures and acceptable legal infrastructure. Investment into the funds is on an arm’s length basis.

Operational controls surrounding the investment process include:

• management according to a fund mandate, which sets out investment parameters including target investments, maximum holdings and exposures, and various investment limits;

• investor review by way of daily access to portfolio information and regular reporting; • monitoring of positions against mandate limits;

• utilisation of external administrators for the provision of independent accounting, administration and valuation services; • utilisation of an appropriate prime broker;

• internal audit of controls and procedures surrounding fund valuations, mandate monitoring and KYC compliance, and • an annual audit of the funds by the group’s external auditors.

Investments into the funds managed by Peregrine Capital are diversified between growth and performance funds. Through Green Oak Capital, Tower Capital Management, Cannon Asset Managers and Java Capital investments are further diversified as the selected managers employ a variety of trading styles and strategies. The selection of funds and managers is part of the on-going and active management of the group’s statement of financial position and fits in with the core focus of the group in the hedge fund industry.

Peregrine measures the profit or loss of its proprietary investment portfolio monthly or more regularly if required and has the ability to exit investments on a monthly basis. As the majority of the funds in which the group has invested to date are managed in-house, Peregrine has access to detailed portfolio composition, risk reports and the ability to review underlying investment decisions of the fund manager. The risk management process surrounding the funds is viewed as fundamental and primary to the long-term success of the funds.

At year-end all the hedge funds that the group invests in, except for the Stenham Emerging Market Fund, Stenham Macro UCITS Fund and Cannon Conduit Fund, were consolidated. The instruments held by the South African consolidated hedge funds include mostly equities listed on the JSE, listed government and corporate bonds and derivative instruments related to listed equities and bonds. The fair value of the instruments are measured using quoted prices in an active market for identical assets. These instruments are classified as level 1 per the fair value hierarchy (note 43.4). As a result of the nature of the instruments held by the consolidated funds into which the group has invested, the instruments are largely exposed to movements in the prices of equity instruments and bonds listed on the JSE.

69

market movements (up or down). The measurement of the impact on profit or loss is based on a fund beta, determined for each fund and for each of the market variables selected. The fund beta measures the correlation of the fund to a change in the underlying variable. The beta is derived by regression analysis of the fund's historic monthly performance relative to the performance of the variable selected, from the date of inception of the fund. A portfolio beta for the portfolio of hedge fund investments has been determined from the betas of the individual funds, weighted for the percentage invested in each fund at the reporting date.

It is important to note that the results of the regression analysis may not be statistically significant due to the small number of observations for certain of the newer funds. Also, past performance is not necessarily an indicator of future events. Consequently, the impact on profit or loss as presented may not accurately reflect the future performance of the funds under the scenarios presented.

Based on the simple regression analysis performed a 10% appreciation in the respective beta’s would result in the following impact on profit or loss, on a pre and post tax basis, and equity:

% change % change in portfolio Impact on Impact on Impact on Impact on in variable pre-tax profit or loss pre-tax profit or loss profit or loss post tax* profit or loss post tax*

2015 2014 2015 2015 2014 2014 R'000 R'000 R'000 R'000 Market Variable ALSI 10 2,93 3,29 20 466 14 736 15 764 11 350 Mid cap 10 4,90 5,96 34 273 24 677 28 506 20 524 Small cap 10 5,64 6,54 39 462 28 413 31 266 22 511 ALBI 10 2,78 4,40 19 468 14 017 21 061 15 164 * The impact on profit or loss post tax is deemed to be the same as the impact on equity.

A 10% depreciation in the respective betas will result in an equal but opposite effect to the amounts shown above.

The group holds a liquid investment in Stenham Emerging Markets Fund ("SEMF"), which is a Fund of Funds that invests in hedge funds and/or long only funds with exposure to emerging markets and has a 35 day notice period. Monthly valuations of the SEMF are performed by an independent administrator. The fair value of the group's investment into this global emerging market equity fund of funds is determined using the fair values of the underlying funds. These investments are classified as level 2 per the fair value hierarchy (note 43.4). An application for a full redemption was submitted prior to year-end, the proceeds of which will be received subsequent to 01 May 2015 trading date. As a result of the nature of the fund into which the group has invested, the investment is exposed to movements in the equity indices of specifically selected emerging markets. A sensitivity was performed by way of a regression analysis similar to the sensitivity performed for the South African hedge funds by calculating the correlation of the fund's beta to the MSCI Emerging Markets index.

The group holds a liquid investment in the Stenham Macro UCITS Fund ("SMUF"), which is a collection of investments in transferable securities and other liquid financial assets and has a 5 day notice period. Monthly valuations of the SMUF are performed by an independent administrator. The fair value of the group's investment into this fund is determined using the fair values of the portfolio of underlying transferable securities and other liquid assets held by the fund. These investments are classified as level 2 per the fair value hierarchy (note 43.4). As a result of the nature of the fund into which the group has invested, the investment is exposed to movements in the equity indices of transferable securities. No sensitivity analysis was performed on the investment in SMUF because less than 10 observations are available as the inception date of the fund was 01 January 2015.

43.1 Market risk (continued)

43.1.2.2 Equity sensitivity analysis (continued)

The table below depicts the sensitivity of the valuation of the investment in SEMF to a 10% change in the significant variables.

% change % change in portfolio Impact on Impact on Impact on Impact on in variable pre-tax profit or loss pre-tax profit or loss profit or loss post tax* profit or loss post tax*

2015 2014 2015 2015 2014 2014

R'000 R'000 R'000 R'000