assets which are designed to target outsize returns. As short-term risk appetite ebbs and flows, we manage equity beta actively. This year, we sold $850 million of equities at market highs between March and July and then reinvested as markets slumped in August and September. Active in-house overlay capital management to dampen risks and to enhance returns will become increasingly important to us as volatility remains high and other providers of proprietary capital are forced to deleverage.


As our cash flows have become increasingly positive, we have been able to take greater advantage of the premium returns afforded by illiquid assets. Our exposure to private equity has more than doubled over the past five years to 28% of our portfolio and our weighting to public equities has declined by 21% to 41%. Cash and hedge funds made up 32% in September 2008 at the time of the bankruptcy of Lehman; these have been reduced to 20% as we have redeployed monies towards less liquid assets.


Figure 5 Regional asset allocation (%)


 UK  North America  Global  Japan  Europe  Asia Pacific ex. Japan


 Faster growing markets Note that these figures are net of the investment- related liabilities and the Wellcome Trust Bonds. The figures are look through on public equity funds but not on private funds.


1.5 3 .


Figure 4b Evolution of asset allocation, directly and indirectly managed (%)


 Direct  Indirect  Cash


9.3 13.0 6.1 3.2


67.7 63.8 82.5


67.7


23.2 10.5


Note that the percentages exclude foreign exchange and derivative overlays.


Sept 2008


Sept 2009


Sept 2010


Sept 2011


Annual Report 2011 | 19


26.5


29.3


5


4


2


.


1


2


4


.


4


9


.


8


7


.


1


8


9 .


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