- Confidential Document, Property of Graduate Leverage, LLC, rev 033110

Alpha RealizedToday’s Financial Market Dynamics

& Consequences for MBAs

• Perspective on Today’s Market Conditions

• Potential Changes in MBA Career Pathing

• Implications for Management of Your Personal Finances

Agenda

Perspective on Today’s Market Conditions

Coming Off A Credit Crisis . . .

1. Subprime Mortgage Market: Poor underwriting standards

2. Lax Federal Reserve Interest Rate Policy: i.e. the “Greenspan Put”

3. SEC 2004 Rule Change: allowed budge bracket broker-dealers to increase leverage from 12-1 to 35-1 (three of five firms failed)

4. Unregulated Credit Default Swap Market

5. Rating Agencies: conflicting interests resulting in mispriced risk

6. Liquidity Issues: too many players borrowing short and lending long

7. Mark to Market Accounting

8. Fannie Mae & Freddie Mac

9. Political Issues: lobbyists wield too much influence

10.Too Much Leverage

Reasons for Great Contraction (Credit Crisis)

Leverage Measures

$5.1

$14.7$ Trillion

2001 2010

Federal Debt

All Debt Markets Experienced Unprecedented GrowthAll Debt Markets Experienced Unprecedented Growth

Source: US Treasury

Fed Re-Liquefied

Fed Monetary Base

Equity Rebound

Commodity Rebound

Silver Increased 88% in 2010Silver Increased 88% in 2010

Jan, 2010 Jan, 2011

Surprised Stocks Still In Favor

Stock Potential Returns (Shiller)

Today’s Level

Prediction of Future Stock Returns

Stock Potential Returns (Tobin’s Q)

Consumer Leverage

Corporate Leverage

Government Debt

Government Debt

Unemployment

Structural Unemployment Poses Greatest RiskAt Current Pace Of Hiring Full Employment Reached In 2017

Structural Unemployment Poses Greatest RiskAt Current Pace Of Hiring Full Employment Reached In 2017

Source: Haver Analytics

Average Duration of Unemployment

Economic Prospects

Risks:

• Lack of Deleveraging could cause another crisis (of greater proportions)

• Structural unemployment headwinds

• Impact of change in fiscal and monetary polices

• Housing market supply overhang and transition from federal support

Risks Have Shifted From Alpha To BetaRisks Have Shifted From Alpha To Beta

What’s Required To Restore Balance:

• Structural issues in labor and capital must be addressed

• Deleveraging of corporate, consumer and government

• Shift to current account surplus

• Restoration of market-based housing industry

Summary

Perspective on Today’s Market Conditions

1. US in need of potentially painful rebalancing

2. Macro issues will continue to dominate risk management

3. Valuations indicate potential for future volatility if not factored properly

Potential Changes in MBA Career Pathing

MBA Career Prospects

110

100

120

130

140

2005 06 07 08 09 10

Advanced Economies

Emerging Economies

GDP Growth

Source: The Conference Board

MBA Career Prospects

Financial Services

Consulting

Tech / Media

Fortune 500

Other

Pre-Credit CrisisPost-Credit Crisis

Source: Macroeconomic Advisors

Financial Services Sector

Source: World Economic Forum

World Economic Forum Report

US Still Showing Leadership:

• Innovation

• Access to Capital for Private Companies

Summary

Changes in MBA Career Pathing

1. Shift to International Corporations and EM-Focused Businesses

2. Entrepreneurship Will Still Thrive and Display Favorable Risk/Reward

3. Innovative and High Growth Companies

4. Financing of Emerging Markets and Other High Growth Sectors

Implications for Management of Your Personal Finances

Primary Theme

• Increased in Public and Private Leverage

-Government will need to increase taxes

-Slower growth in industrialized countries

-Greater macro volatility

-Need to manage debt with financial allocation framework

Looming Tax Increases

It Is Already Happening:• Jan 12, 2011: Illinois Lawmakers Pass 67% Income Tax Increase, Largest In History• 30 States Have Raised Taxes By more than 4% (Includes fees, excise taxes, etc.)

It Is Already Happening:• Jan 12, 2011: Illinois Lawmakers Pass 67% Income Tax Increase, Largest In History• 30 States Have Raised Taxes By more than 4% (Includes fees, excise taxes, etc.)

* Based on data collected by GL internal student database

Changes in Student Debt Levels

Rapid Increase In Debt LevelsRapid Increase In Debt Levels

$30k

$41k

1996 2003

$84K

2010

Salary

$120k

$70k

$55k

Debt Considerations

Non-Profit

$150,000

$100,000

Student Debt

$50,000

$84k $84k $84k

Salaries and Debt Levels

Large Corporation or Financial Markets

Small Firm or Start-up

Career Path Determines Debt Management Strategy Career Path Determines Debt Management Strategy

Current MBA Career Path Breakdown

Large Corporation or Financial Markets ~ 55%

Banking Consulting General Management Private Equity Hedge Fund Wealth Management Corporate Treasury Sales or Marketing

Non-Profit Sector ~ 10%

Non-Profit Private Sector Federal Sector State or Local Municipality NGO

Small Firm or Start-up ~ 45%

Small or Medium Enterprise Venture-backed Business Start-up Sole Proprietorship

Source: US News, Select School Reports

Debt Implications

Corporation or

Financial Markets

Corporation or

Financial MarketsSmall Firm or

Start-up

Small Firm or

Start-upNon-Profit

Sector

Non-ProfitSector

• Liquidity Management

• Subsidy & Loan Forgiveness

• Financial Allocation

New Program Details

Income Based Repayment:

• Limits monthly payment to 15% of discretionary income

Loan Forgiveness:

• Outstanding debt forgiven after 10 years for public service

• Outstanding debt forgiven after ~20 years for private sector

Small Firm or

Start-up

Small Firm or

Start-up

New Federal Programs (March, 2010)

Non-ProfitSector

Non-ProfitSector

Liquidity & Loan Forgiveness

= Standard

= IBR$1,000

$500

$1,500

$988

1st 5th 10th

Repayments Years

Monthly Payment Loan Repayment

$498Debt

Forgiven ($97k)

Total Debt Payments of $118,601

Total Debt Payments of $54,234

Total Debt Burden Reduced By More Than 50% Total Debt Burden Reduced By More Than 50%

Non-ProfitSector

Non-ProfitSector

Liquidity & Loan Subsidies

= Standard

= IBR$1,000

$500

$1,500

$988

1st 5th 10th

Repayments Years

Monthly Payment

Loan Repayment

Liquidity Relief & $5,000 In Loan Subsidies Liquidity Relief & $5,000 In Loan Subsidies

Small Firm or

Start-up

Small Firm or

Start-up

Lower Loan Payment

& Subsidies Over 4 Year

Liquidity & Financial Allocation

Small Firm or

Start-up

Small Firm or

Start-upCorporation or

Financial Markets

Corporation or

Financial Markets

1st 5th 10th 15th 20th

$500

$1,000

Repayments Years

Monthly Payment

Utilize Deferment or Forbearance Increase in Liquidity of $24,000

Excess Liquidity For Start-up Equity Or Home Down PaymentExcess Liquidity For Start-up Equity Or Home Down Payment

Financial Allocation

1960 1987 2001

7.4% Average S&P Return (A/T)

7.4% Average S&P Return (A/T)

0%

1940

PLUS Loan

S&P 500

A/T Returns

8.1% AveragePLUS Return

8.1% AveragePLUS Return

Sources: Yale Econ/Robert Shiller, Standard & Poor’s, Federal Reserve, Bloomberg

Today’s PLUS Loan Has Outperformed S&P Over Past 70 Years Today’s PLUS Loan Has Outperformed S&P Over Past 70 Years

Corporation or

Financial Markets

Corporation or

Financial Markets

15%

7.5%

Financial Allocation

11.1% Pre-TaxS&P Return

11.1% Pre-TaxS&P Return

0%

10%

20% PLUS Loan

S&P 500

Pre-Tax Returns

12.2% Pre-TaxPLUS Return

12.2% Pre-TaxPLUS Return

1960 1987 20011940Sources: Yale Econ/Robert Shiller, Standard & Poor’s, Federal Reserve, Bloomberg

AAA Munis

PLUS Loan Has Sharpe Ratio Greater Than Any Potential Investment On Efficient Market Frontier

PLUS Loan Has Sharpe Ratio Greater Than Any Potential Investment On Efficient Market Frontier

Corporation or

Financial Markets

Corporation or

Financial Markets

Financial Allocation

Where would PLUS Loan plot?

Now Legendary Hedge Fund Investor John Paulson’s Favorite “Asset” Class?

Fixed Income Liabilities

In Good Company

Required Action Items

Grace End DateGrace End DateTodayTodayGraduationGraduation

1) Complete High Rate Consol 2/15/2011

Large Firm

Small Firm

Non-Profit

3a) Consol Low Rate Loans 10/15/2011

4a) Enter Targeted 12/10/2011

3b) Consol Low Rate Loans 8/15/2011

4b) Enter IBR 10/1/2011

3c) Consol Low Rate Loans 5/1/2011

4b) Enter PSLF 7/11/2011

* To maximize IBR Subsidy borrower should establish credit or deductions prior to year end

2) File Taxes Minimizing AGI

3/20/2011

Corporation or

Financial Markets

Corporation or

Financial MarketsSmall Firm or

Start-up

Small Firm or

Start-upNon-Profit

Sector

Non-ProfitSector

New Financial Issues

PositiveNet worth

NegativeNet worth

$100k

$200k

$300k

$2.2m

$1.2m

$600k

Professional Development Period

(10-15yrs)

Asset Accumulation Period

(25yrs)

Start UndergradFinish MBA

Program

RetainFinancial Advisor

Intermediary Period

Corporation or

Financial Markets

Corporation or

Financial MarketsSmall Firm or

Start-up

Small Firm or

Start-upNon-Profit

Sector

Non-ProfitSector

Historical Approach To Financial Management Neglects Liquidity, Debt & Proper Financial Allocation

Historical Approach To Financial Management Neglects Liquidity, Debt & Proper Financial Allocation

within 1 week

Support Process

Personal Info Card

Fill out Card

Review Personalized Assessment

Retain GL Advisor to Carry Out Process

Complete Process Yourself

Execute Debt Management Objectives

Please Initiate Process By Feb 15th To Ensure Completion Please Initiate Process By Feb 15th To Ensure Completion

Contact Info:ccatrina@gladvisor.com

Cell: 949.943.9954

Overview• We have compiled and analyzed your personal debt portfolio in order to determine

the optimal debt management strategy. The tasks outlined below include each step required to minimize your cost of debt.

• Below your task list you will also find a detailing of the savings as well as your loan portfolio for your records.

Required Tasks To Achieve Plan Objective:1. November 15, 2010: Consolidate all low rate loans as initial in-school application

2. February 15, 2011: Complete Add-on Consolidation application form to include all low rate loans occurred in spring disbursement

3. March 1, 2011: Verify in-school deferment status on all consolidated loans to prevent payment and ensure subsidy

4. March 20, 2010: Complete tax filing process according to specific filing status: i)Non-Exempt: File using deductions for AGI to maximize subsidy and minimize