Welcome to the first Cheyne Newsletter, providing a summary of key events from 2009 and our thoughts on 2010.

1. Cheyne Capital Annual Newsletter
January 2010
2010 Newsletter
Dear Fellow Investors
Welcome to the first Cheyne Newsletter, providing a summary of key events from 2009 and our thoughts on 2010.
After the traumatic economic dislocation in 2008, which resulted in an almost unprecedented destruction in value for investors worldwide, 2009 saw some return to
normality in valuations and returns. We are pleased to report that Cheyne had a very busy and successful year in terms of repositioning to better reflect current
market opportunities, adding new management, new fund managers, new investment vehicles, and helping our investors achieve attractive returns. Today Cheyne
manages net assets of approximately US$ 5.5 billion across corporate credit, real estate and asset-backed strategies, event driven, convertible bonds, equity long-
short, equity macro, and fund of funds.
Highlights of 2009
In April, we were pleased to announce the appointment of Chris Goekjian as Chief Investment Officer (“CIO”). As CIO, Chris has taken overall
responsibility for the risk management of all Cheyne-managed funds and investment products, the oversight of portfolio management teams, and the
development of new investment products. Prior to joining Cheyne, Chris was Founder and CIO of Altedge Capital (UK) Ltd, and previously spent 10
years at Credit Suisse, where he was head of the Global Fixed Income Division, a member of the Executive Board, and had overall responsibility for
over US$ 300 billion of trading positions and over 100 traders worldwide. Chris’s appointment is an important strategic addition to our investment and
risk management capabilities.
We are proud of our fixed income expertise, investing across the full credit spectrum from investment grade to distressed and high yield. A big theme
for 2009 was riding the recovery of the dislocated credit markets, which Cheyne took advantage of with the launch of the Cheyne Real Estate Debt
Fund. This fund invests in unleveraged European real estate debt markets (CMBS/RMBS/loans), and tailors fund investment criteria with target returns
of 10-30% depending on investors' risk/return preferences. The initial share class launched in August 2009 and has had uninterrupted monthly
profitability since, returning 12.73%** since inception.
Our award-winning Credit team manages the Cheyne Long/Short Credit Fund, which has recently been nominated for the Eurohedge Credit Fund
of the Year 2009 award. The fund has directional and relative value sub-strategies, positioning individual credits long or short based on our
fundamental analysis and market view. The fund has a five-year track record and was up 24.90%** in 2009, having fallen only -4.95% in 2008. In
addition, the long only, unlevered Corporate Bond portfolio of the Cheyne Total Return Credit Fund takes selective exposure to predominantly
investment-grade corporate bonds, aiming to secure high returns with relatively low default risk. Since its launch in May, this product is up 10.9%**.
Recently, the Credit team’s success has been recognised by institutional investors who have selected them to take over the management and
restructuring of significant credit portfolios.
In September, Cheyne hired arguably the most successful equity trading team ever to emerge from Morgan Stanley Europe to form the Cheyne
Equity Macro Fund. Led by Jorge Giampaoli and Paul Ruddleston, this fund follows a short-term, liquid, macro-based equity trading strategy. The
appointment of the team allows Cheyne to broaden our equities offerings in line with investor demand. Previously, Jorge was responsible for
Proprietary Trading for the Morgan Stanley European Equity division, and Paul was Managing Director and Head of Global Market Trading Strategy,
and as such he was responsible for the equity strategy for all proprietary equity groups at the firm.
In September we also announced the launch of our first UCITS III compliant vehicle, the Cheyne Select UCITS Fund Plc. With an absolute return
strategy, the first class of the fund aims to generate long-term absolute capital appreciation by investing in global convertible bonds. With Cheyne’s
origins deeply rooted in converts, the Cheyne Select Convertibles Fund builds on a 10-year track record and expertise in long-only and hedge fund
convertible bond management. Cheyne’s Long Only Convertible Bond Programmme has seen a strong rebound in 2009 and was up 37.4%** for
the year.
Cheyne’s European Event Driven Fund, which launched at the start of October, invests in liquid European credit and equity situations, seeking net
returns of 15-20%. The Event Driven team, one of the largest and most experienced groups of Event Driven specialists in Europe today, seeks to
identify the most attractive opportunities across the entire capital structure. The current positioning of the fund favours high yield and credit
restructuring situations over equity opportunities. The fund got off to a very strong start in its first three months, producing positive returns each month.
Cheyne also welcomes Altedge to our family of managed products. In August we assumed the management responsibilities of US$ 200 million fund
of fund assets. With a six-year track record, the two Altedge flagship funds have added an extra dimension to Cheyne’s investment activities. The
Fund of Funds team, led by Cem Habib, won two nominations for best multi-strategy funds in 2006 and 2007, and the best newcomer fund of hedge
funds award for the CTA fund of funds in 2008.
Finally, over the last year Cheyne has placed even greater importance on broadening and expanding our excellent client relationships. To this end,
Max Nardulli was appointed as Head of International Sales and Distribution in October. Max is responsible for marketing Cheyne’s range of
Cheyne Capital Overview – January 2010 Cheyne Capital Management (UK) LLP

2. products globally, excluding the United Kingdom. He joins from Goldman Sachs Asset Management, where he was head of the alternative capital
markets team, responsible for EMEA and Asia ex-Japan. Tom Wiggin joined as Head of UK Marketing in November. Tom has long been
acquainted with Cheyne and joins us from Deutsche Bank in London where he worked since 1998, most recently as Managing Director, responsible for
hedge fund relationships in Europe.
All performance stated above is net of fees. **Performance as at 31.12.09 is based on Cheyne’s internal preliminary figures. Please see Disclaimer detailed below.
Outlook for 2010
Most major equity indices were up over 20% in 2009 and over 65% from the March 2009 lows. To put this rally in context, despite a solid 2009,
equities will exit the noughties with their worst 10-year performance history on record (eg MSCI World Index is down -17% since 1999). Equities are
more reasonably valued today on several key metrics, for example, the forward P/E ratio is 50% lower than it was 10 years ago, the dividend yield is
2x higher, and the risk-free rate of return is 40% lower. Prior to the last decade, there have been thirteen 10-year periods with negative stock returns.
In every subsequent 10-year period, the annual returns have exceeded 10% and doubled the return of government bonds. Improving corporate profits,
the re-emergence of M&A, reasonable valuations and, eventually, positive fund flows should be supportive for equities in 2010, but greater selectivity
will be required. In 2009 smaller cap equities rallied the most as illustrated by the equally-weighted S&P 500 index which outperformed the S&P 500 by
a whopping 20%. As a firm we believe the best risk-reward in equities today is in large cap equities with iconic brands, strong balance sheets, foreign-
sourced earnings, and pricing power.
Meanwhile, strong funds flows into credit should ensure a continuation of the robust performance enjoyed by investment grade credit in 2009 and
fuel ongoing compression between crossover and investment-grade spreads. Even at current levels, investment-grade is pricing in Depression-era
default rates, which Cheyne feels are unlikely to be realised, given the healthy liquidity profiles and access to capital that most investment-grade
credits continue to enjoy. Nonetheless, individual credit selection remains key both to avoiding defaults and maximising returns from trading names
within the funds. Cheyne's rigorous research capability positions us to identify trading opportunities, and should renewed deterioration in economic
conditions or a cessation of the global carry trade precipitate a new round of spread widening, we will be well placed to avoid the problematic names in
our long-only portfolios and position them for trading gains in our long-short funds.
European high yield performed extremely well in 2009 and yields continue to look attractive for institutional and retail investors seeking good yield in
a lower interest rate environment from an asset class where default rate expectations, although still higher than long run averages, are coming down
fast. On the supply side, LBO/fallen angel borrowers needing to refinance shorter term debts and extend past the big wall of 2014/2015 maturities will
focus on the high yield market, given loan market new issuance remains relatively sluggish. Forecasts of supply into Europe suggest EUR 40-45bn+ of
new issuance for 2010. This should lead to a transformation of the European high yield market in terms of breadth and depth. Moving into 2010, there
is a much smaller distressed bond market focused on actual distressed assets, as opposed to good companies with distressed bond prices. This is
highlighted by the proportion of European high yield bonds trading under 60 which fell from 51% at the end of 2008 to 3.9% at the end of 2009.
Nonetheless, Cheyne believes that 2010 will be another positive year for European high yield, although not to the extent of 2009, and expects to see
many trade opportunities around the refinancing wall event that Cheyne is well placed to take advantage of, including inter alia bond tenders,
distressed exchanges, debt-for-equity offers, and bond calls.
Following the extraordinary dislocation of the European asset backed market in 2008, the market recovered substantially in 2009. Over the course of
2010, we expect continued strength for first pay, good quality, highly rated asset backed bonds (RMBS or single loan CMBS), as real money accounts
and hedge funds continue to enter the space. Spreads in this sector will, we believe, continue to tighten over the course of the year prompting
investors to look for yield further down the capital structure. Cheyne believes the asset backed market offers substantial value against other fixed
income asset classes. This will be a key opportunity for investors with the ability to analyse the underlying properties and related capital structures.
With a focus on those specific market segments that continue to amply discount a reversal of the burgeoning global economic and financial markets
recovery, we approach 2010 with fresh optimism.
Wishing you the very best for 2010,
Jonathan Lourie
CEO
Hedge Fund Standards (HFS)
Cheyne Capital is one of the initial signatories to the Hedge Fund Working Group and is proud to have its Funds operate in accordance
with the Best Practice Standards of the Hedge Fund Standards Board.
Cheyne Investor Relations
Please contact the Cheyne Investor Relations Team for more information:
Phone: +44 20 7968 7380 Fax: +44 20 7968 7682
Email: CheyneInvestor.Relations@cheynecapital.com / info@cheynecapital.com Website: www.cheynecapital.com
Cheyne Capital Overview – January 2010 Cheyne Capital Management (UK) LLP

3. Disclaimer
Performance for the Cheyne Blended Long Only Convertible Bond Programme is based upon a compilation of regional Long Only portfolios managed by Cheyne Capital Management (UK) LLP. Please contact
Cheyne Capital Management (UK) LLP for details of the methods used to pool segregated accounts and derive the monthly performance figures shown above. Past performance is not indicative of future results
and there can be no assurances that the Fund will achieve comparable results.
The data contained herein is the opinion of Cheyne Capital Management (UK) LLP as to the potential net asset value and net monthly/yearly return and is provided for illustrative purposes. This opinion does not
constitute a valuation as described in the private placement memorandum. It is intended for your own use, and should not be quoted, circulated or otherwise referred to without our express prior consent.
Any opinions as to potential value presented herein represent Cheyne Capital Management (UK) LLP assessment of a particular position or positions only as of the relevant market close on the date indicated, or
the price at which indicative values were most recently received or derived, unless otherwise specified, and the opinion is not applicable at any other time. It may not be possible to deal any indicative values. This
does not constitute an offer to buy or sell securities at these or any other level. If an indicative value is expressed in terms of a position of a specified size, then the opinion is applicable only with respect to that
size.
The information presented in this opinion is based on assumptions, historical information and pricing data that Cheyne Capital Management (UK) LLP in its sole discretion considers appropriate or
reasonable. Cheyne Capital Management (UK) LLP does not represent that this information is accurate, complete or current and Cheyne Capital has no liability with respect thereto. Third party or other valuation
estimates may be received at a lesser frequency than, or out of synchronisation with, these opinions. As a consequence opinions can be understated or overstates, and sometimes considerably. The factors
constituting this opinion are subject to change without notice and Cheyne Capital Management (UK) LLP has no obligation to update you as to any such changes. This opinion may not reflect valuations you would
receive from any other parties.
Please note that the formal valuation provided in accordance with the private placement memorandum may differ materially from this opinion. Consequently, recipients of this opinion should consider this when
utilising the data. Cheyne Capital expressly disclaims any responsibility for (i) the accuracy of the models or estimates used (ii) any errors or omissions in computing the opinion (iii) any uses to which the opinion is
put. Cheyne Capital also accepts no liability for any loss suffered by you as a result of your reliance on any data contained herein. This opinion is intended to be used by you only as a reference and we suggest
you consult your professional advisors regarding your use of it.
Any questions regarding the nature of this information should be raised promptly with the Cheyne Capital Management (UK) LLP Investor Relations Department.
The information contained in this document, especially as regards portfolio construction/parameter type information, reflects Cheyne Capital’s current thinking and may be changed or modified in response to its
perception of changing market conditions, or otherwise, without further notice to you. Accordingly, the information herein, in respect of investment products and services relating to Funds and other investment
products (“Funds”), should be considered indicative of Cheyne Capital’s current opinion and should not be relied on in making any investment decisions. Any projections or analysis provided to investors and
potential investors in evaluating the matters described herein may be based on subjective assessments and assumptions which may not prove valid. Any projections or analysis should not be viewed as factual and
should not be relied upon as an accurate prediction of future results.
Fund investments involve significant risks which are detailed in the prospectus. The portfolio risk management process includes an effort to monitor and manage risk but should not be confused with and does not
imply low risk. Fund performance data contained herein is net of fees and expenses unless otherwise stated. Past results or experience are not indicative of future performance. The value of investments can go
down as well as up and is not guaranteed. Interests may be subject to sudden and large falls in price or value resulting in a large loss on realisation which could equal the amount invested. Recipients are advised
to seek independent advice regarding tax, accounting, and legal considerations. Where derivative transactions have been entered into, the Funds may have agreed to provide risk analysis and related detailed
information to third parties that have entered into such transactions related to the Funds’ performance, and which may hedge exposure arising out of such transactions by changing investments in the Funds. The
information may include large exposures, types of exposures and classification of risks.
Entities within the Cheyne Capital Group, including Funds or accounts managed or advised by Cheyne Capital and its employees and advisors, may have positions in, and may effect transactions in, securities and
instruments of issuers mentioned herein. Cheyne has procedures in place which are designed to prevent its involvement in market abuse, including insider trading and market manipulation. In some instances
Cheyne will refrain from trading in relevant securities pursuant to these procedures.
This document does not constitute an offer to sell or solicitation of an offer to buy interests in any Fund or product and may not be used to make such an offer. Therefore no person receiving a copy of the
document may treat it as constituting an offer or invitation to him to buy investments, nor may he copy it for transmission to another person. If, however, an offer to sell investments is made in the future, it will be
subject to the terms of a formal prospectus or equivalent document circulated at the time and not on the basis of the information contained in this document. All information about the opportunities provided herein is
neither complete nor exact and is qualified by reference to a relevant prospectus or equivalent document, may only be relied upon as of the date hereof and is subject to modification, change or supplement without
prior notice to you and does not constitute any investment advice or recommendation. Investment in the Funds is governed by the current Private Placement Memorandum and constitutional and other
documentation relating to the Funds. All statements made in this communication should be read in conjunction with and subject to these documents and the stated Investment Objective and Policy of the Funds.
No person has been authorised to give any information or to make any representation, warranty, statement or assurance not contained in the relevant offering memorandum and if given or made should not be
relied upon. Investment in the Funds is only suitable for sophisticated investors for whom an investment in the Funds does not constitute a complete investment programme and who fully understand and are
willing to assume the risks involved. It is the responsibility of every person reading this document to satisfy himself as to the full observance of the laws of any relevant country, including obtaining any government
of other consent which may be required or observing any other formality which needs to be observed in that country and which might be relevant to the subscription, purchase, holding, exchange, redemption or
disposal of any investments.
These materials are not directed at, nor are they for distribution to, private customers as defined by the Financial Services Authority. The investment products specified are not recognised collective investment
schemes for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (the “Act”). These materials are for persons who can legitimately receive the data under the Act (Financial
Promotion Order 2005 as amended) or are persons to whom these materials may otherwise lawfully be distributed. This material is exempt from the scheme promotion restriction (in Section 238 of the Act) on the
communication of invitations or inducements to participate in unrecognised collective investment schemes on the grounds that it is being issued to and/or directed at professional clients or eligible counterparties.
Furthermore, to the extent permitted by law, neither Cheyne Capital Management (UK) LLP nor any of its affiliates, agents, service providers or professional advisers assumes any liability or responsibility nor owes
any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this presentation or for any decision based on it.
Interests in the Funds have not been and will not be registered under the US Securities Act of 1933 or qualified under any applicable state securities statute. The Funds are not and will not be registered as
investment companies under the US Investment Company Act of 1940. Cheyne Capital Management (UK) LLP is authorised and regulated by the Financial Services Authority (“FSA”). Registered address:
Stornoway House, 13 Cleveland Row, London, SW1A 1DH. Registered in the UK with company registration number OC321484. Marketing activities outside of the United Kingdom will generally be carried out in
accordance with private placement requirements by Cheyne Capital International Limited, Mercury House, 101 Front Street, 1st Floor, Hamilton HM12 Bermuda. This document should not be reproduced or
circulated to any other persons.
Cheyne Capital Overview – January 2010 Cheyne Capital Management (UK) LLP