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Gars citywire (jl 09 october 2013)

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  • 1. October 2013 Christopher Nichols, FIA Global Absolute Return Strategies This communication is for investment professionals only and should not be distributed to or relied upon by retail clients. It is only intended for use in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required.
  • 2. 2 Asset Allocation - the difficulty of choice… Cash Japanese Equities US Equities Discrete Yearly Performance (%) by Market Source: Lipper Hindsight, total returns, in £ terms, 31 December 2012 Global High Yield Bonds UK Investment Grade Bonds UK Gilts UK Equities European Equities UK Small Cap UK Direct Property Asia Equities Ex Japan Emerging Market Equities 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 7.06 10.45 17.55 18.89 50.46 22.87 37.43 12.81 59.39 22.94 15.57 36.29 6.65 10.14 40.88 17.44 40.49 20.13 32.21 3.18 57.67 21.91 8.09 17.82 5.90 9.25 40.54 14.87 34.25 18.12 15.72 -0.12 52.72 19.23 7.60 17.02 3.05 0.46 32.67 13.83 24.08 16.75 5.32 -1.85 44.22 18.68 3.39 14.07 1.62 -10.63 29.74 13.07 22.04 16.30 5.27 -2.14 30.12 17.47 2.87 13.42 0.91 -14.57 22.44 12.84 18.96 15.91 3.72 -12.77 20.09 16.90 0.76 12.30 0.20 -15.02 20.86 8.11 18.83 2.73 3.58 -22.53 12.60 14.51 -3.46 11.10 -9.56 -18.74 15.73 6.75 17.33 1.57 1.85 -23.99 8.09 14.49 -12.73 10.91 -13.29 -22.68 11.24 6.60 13.46 0.69 1.28 -29.93 2.18 7.80 -13.55 3.60 -15.48 -27.04 5.12 4.83 8.78 0.57 -5.47 -31.15 0.71 7.20 -14.71 2.70 -20.05 -27.77 2.10 3.39 7.93 -0.41 -5.75 -35.18 -1.16 5.75 -15.16 2.08 -27.42 -29.58 0.32 1.97 2.72 -6.73 -17.92 -48.32 -5.28 0.66 -17.57 0.79
  • 3. Building Diversified Portfolios • Strategic Benchmark Which asset classes are used Broad allocations • Tactical Asset Allocation: e.g. +/-5% • Tracking Error limit Conventional governance: Periodic exercise to review the asset allocation 3
  • 4. 44 Traditional approach – Uncertain outcome Source: Rainmaker - Median Workplace Australian Diversified Balanced Fund performance March 2004 to March 2013 -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 2004 2006 2008 2010 2012 Annualised%return Typical return expectation Annualised rolling 3 year returns Typical Australian Default Balanced Strategy
  • 5. 5 Limited diversification in typical Australian pension portfolios High weighting in correlated risk assets reduces diversity
  • 6. 6 Source: IPD UK Monthly Property Index, All Property; Federal Reserve Trade-Weighted Exchange Value of US Dollar vs 6 Countries; Dow Jones UBS – Commodity Index; Barclays Capital Global Corporate Index, Excess Returns; Barclays Capital Emerging Markets Index, Excess Returns; Barclays Capital US High Yield Index, Excess Returns; Standard Life Investments, 31 December 2011 Finding durable diversity difficult 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Property Currency Basket Commodities IG Corporate Bonds Emerging Market Bonds High Yield Bonds 2000-2007 2008-2011 Correlation of Global Equities with other markets
  • 7. 77 Building Diversified Portfolios • Strategic Benchmark • Tactical Asset Allocation limits: e.g. +/-5% • Tracking Error limit • Adaptable to changing market conditions • Maximise breadth of investment freedom • Constrain risk in scale & materiality, not nature • Appropriate liquidity Conventional Governance: Our objectives:
  • 8. 8 The Global Absolute Return Strategies Fund A proven track record in delivering the Fund objectives Objective: • Cash +5% per year (gross) performance target over rolling 3 years periods • Expected volatility: 4% - 8% Key Components: • Broad investment freedom – diverse ideas • Risk controlled implementation – diverse portfolio • Longer investment outlook – reliable/biased return
  • 9. 99 Performance * Source: Standard Life Investments converted $ performance of £, institutional pooled pension portfolio to the 07/06/2011. US$ GARS SICAV portfolio performance from the 08/06/2011 to the 31/08/2013. Volatility calculations based on monthly performance data ** Source: Thomson Datastream, 6 month US$ LIBOR Source: Standard Life Investments, gross performance from 12/06/2006 to 31/08/2013 Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presented above is supplementary information to the US GARS GIPS® composite report, which is enclosed in the Appendix for your reference • 7.6% CAGR* (from inception to 31/08/2013) • 5.9% Volatility (monthly returns, from 01/07/2006 to 31/08/2013) • US$45bn overall AUM (as at 31/08/2013) US$7.2bn SICAV portfolio size (as at 31/08/2013) • >1400 institutional investors (as at 31/08/2013) Price(indexedto100atinception) Cash** Target ReturnGARS* 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 165 170 175 180
  • 10. 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 165 170 1010 Risk Comparison * Source: Standard Life Investments converted $ performance of £, institutional pooled pension portfolio to the 07/06/2011. US$ GARS SICAV portfolio performance from the 08/06/2011 to the 31/08/2013. Volatility calculations based on monthly performance data ** Source: Thomson Datastream, MSCI World ($) *** Source: Standard Life Investments, performance from 01/07/2006 to 31/08/2013 Source: Standard Life Investments, gross performance from 12/06/2006 to 31/08/2013 Delivering returns with less risk Price(indexedto100atinception) Global Equities** GARS (Net)* • Volatility***: GARS 5.9% Global Equities 18.0% (annualised, using monthly data, 31/08/2013) • Maximum Drawdown: GARS -15.7% Global Equities -57.5% (using daily data, to 31/08/2013) • VaR (95%, weekly): GARS -1.4% Global Equities -4.7% (using weekly data, to 31/08/2013) Up months*** 61/86 vs. 49/86 (GARS vs. Global) Upside capture 35.2% Downside capture 9.1%
  • 11. 11 Uncorrelated return in down markets Source: Standard Life Investments, net converted € performance of £ Fund to 26/01/2011, thereafter € GARS SICAV performance to 30/06/2013 * Source: Thomson Datastream, 6 month Euribor and MSCI World (€) 3.5 3.3 1.7 1.8 2.3 1.3 -4.0 0.6 -4.4 3.3 0.7 5.5 11.3 1.5 4.6 2.3 4.8 -0.6 0.2 -1.3 1.6 3.7 5.5 -1.9 3.3 1.3 3.8 -0.4 0.9 0.9 1.0 1.1 1.2 1.2 1.1 1.3 1.3 1.1 0.5 0.4 0.3 0.3 0.2 0.2 0.3 0.3 0.3 0.4 0.5 0.4 0.3 0.3 0.1 0.1 0.1 5.6 4.2 1.6 5.2 -2.7 -5.0 -16.0 -0.9 -4.8 -20.8 -7.6 14.6 12.8 6.1 9.6 -3.3 2.2 11.0 -0.8 -1.5 -9.8 11.3 8.9 5.4 0.1 10.8 -0.4 -25 -20 -15 -10 -5 0 5 10 15 20 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 %Return GARS (gross) Cash (Euribor) * Global Equities *
  • 12. 12 Process Integrated with full skill set across Standard Life Investments Idea Generation Selection Implementation Investment Governance & Oversight • Independent Risk Analysis • Counterparty Risk Management • Investment governance Fundamental economic analysis Asset class team views and strategies Quantitative modelling Valuation modelling Multi Asset Risk and Structuring Pre-trade risk Diversification measurement Scenario Analysis Strategic Investment Group • Review • Debate • Ratify / Reject Conviction Diversity Liquidity Multi Asset Management Strategy implementation Final position sizing Execution
  • 13. Broad investment opportunity set • Traditional risk-premia • Selective Equity, Credit and Real-Estate exposures • Security selection – ‘alpha’ • Cyclical investment opportunities Interest rates Steepening of European interest rate curve Currencies Long Mexican Peso vs Australian Dollar Volatility Asian Market vs S&P 500 • Relative value opportunities: Search across geographies and asset classes for return opportunities 13 Geography Nikkei vs Kospi Equity Sector US Tech vs Taiwan Equity Size Large Cap vs Small Cap US Equity Cross-asset Bank Credit vs Equity
  • 14. Portfolio outlook / themes • Multi-Speed Global Growth US Equity US Equity Technology vs Taiwan German vs French Equity • Central Bank Policy European Duration (Forward-Start) Japanese vs Korean Equity US Dollar vs Japanese Yen 14 Source: Standard Life Investments UK GARS portfolio, 31 August 2013 Maximising our insight on global investment markets • Sustainable Income High Yield Credit Global REITS • Chinese Rebalancing Chinese Equity Mexican Peso vs Australian Dollar US Dollar vs Canadian Dollar
  • 15. Correlationcoefficient(toGlobalEquities) 15 Discretionary risks, with diversity Source: Standard Life Investments, 30 June 2013 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
  • 16. 16 How much would you allocate? Which of these investment strategies is the most risky? 4.7% Chinese Equity 28.2% EU Corporate Bonds 10.1% US $ vs € They all are expected to contribute the same to volatility: 1% Source: Standard Life Investments, 30 June 2013
  • 17. 9.38% 4.13% 0% 2% 4% 6% 8% 10% 12% 14% Diversification benefits Expected volatility Market Returns Directional Returns Relative Value Security Selection 1717 Risk profile • The portfolio is exposed to multiple & diverse market risks • 13.5% is total stand-alone investment risk that is deployed to seek returns • Equivalent equity volatility is 14.3% • Independent risk analysis shows the benefits of investment diversification Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013 Totalstand-alonerisk
  • 18. 18Greater number of ‘moving parts’ allows for more return consistency Investment risk is well diversified Source: Standard Life Investments
  • 19. Historical Stress-scenario analysis % Move Black Monday 1987 Gulf War 1990 Rate Rise 1994 Mexican Crisis 1995 Asian Crisis 1997 Russian/LTCM Tech Wreck (April 07 - 14, 2000) Sept 11th Equity Sell-Off (August 23 - October 09, 2002) Equity Rally (October 10 - November 27,2002) Gulf War 2 (March 01 - 23,2003) Bond Rally (May 01 - June 13, 2003) Bond Sell-Off (June 14 - July 31, 2003) Emerging Market Sell-Off 2006 (May 01 - June 08, 2006) Subprime Debacle 2007 (July 15 - August 15, 2007) Bank Meltdown 2008 (September 12 - October 15, 2008) Euro Crisis (July 22 - August 23, 2011) QE Jitters (May 22 - June 24, 2013) -28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 GARS Portfolio MSCI World move * MSCI World Returns prior to 2000 denoted in European Currency Units, except for 1987 which is denoted in German Marks Source: GARS SICAV, RiskMetrics, 30/06/2013 19
  • 20. 20 Hypothetical Stress-scenario testing Scenarios currently of interest: • Abrupt end to QE • EU moves apart • Commodity shock • China crisis • Trade war • QE continues Source: Standard Life Investments, Bloomberg. May-2013 An evolving process subject to formal annual review
  • 21. 21 Stability through return from multiple sources Source: Standard Life Investments, 31 December 2012 -10% -5% 0% 5% 10% H2 2006 2007 2008 2009 2010 2011 2012 Real Estate Cash Security Selection FX Equities Volatility Inflation Credit Duration
  • 22. 22 Key benefits of GARS Longer term outlook Exploits established inefficiencies Low turnover / costs Durably diverse Broad range of return-seeking strategies Work well together in many scenarios Transparent Full risk & return attribution Regulated / onshore Accessible / Liquid Daily access No notice, lockup or gate Fits existing portfolios Low correlation Low flat fee structure – a core solution Exceptional rewards for modest risk levels
  • 23. Appendices
  • 24. 24 The Standard Life DB Pension fund experience Background (2004) 20% scheme deficit Standard Life Demutualisation Genesis of Absolute Return Mandate: Traditional investment strategies could not achieve growth and risk objectives 2 part response: Liability hedging: – remove unrewarded risk AR mandate: – remove unmanaged risk Less than half the risk vs liabilities Liabilities plus approach avoided the volatility in funding position Source: Standard Life Investments and Towers Watson Statistics, 31 March 2013 * The average UK Institutional Pension Portfolio -0.20 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 CAPS median Liability Benchmark Liabilities Plus
  • 25. 25 Multi-Asset Investing Team Critical combination of skills and experience * Based in Canada GARS Portfolio Managers Whilst the Real Returns and Rates teams do provide macro research and views, they do not have a direct input into the management of the GARS Portfolio and are therefore not included in the number of investment professionals for the product and are therefore greyed out. Source Standard Life Investments, 09 September 2013 MAI Team Members Staff Area Average years in industry Average years at Standard Life Investments Economic Framework 10 Global Strategy 18 11 Risk Investigation 6 Multi-Asset Risk 13 8 Idea Implementation 17 Multi-Asset Management 16 9 TenureSize Strength Christopher Nichols FIA Mark Foster FFA Malcolm Jones FFA Tam McVie Stuart Peskin CFA Andrew Spooner Global Investment Specialists Head of Multi-Asset and Macro Investing Global Strategy Andrew Milligan Frances Hudson Jason Hepner CFA Douglas Roberts CFA PRM Dr Anne Friel PRM Multi-Asset Risk Dr Brian Fleming Dr Robert de Roeck Dr Jens Kroeske PRM FRM Guy Stern CFA Roger Sadewsky Colette Conboy David Kirkpatrick Scott Smith CFA Dr Ian Pizer CFA Multi-Asset / Macro Portfolio Management Audrey Simpson Harry Smith Julia Mikhniak Craig Hoyda Alex Berry Multi-Asset Implementation Murray Forbes Malin Nairn James Esland Multi-Asset Business Management Multi-Asset Neil Matheson CFA* Global Economics Alex Grassino* Adam Rudd CFA Jennifer Catlow CFA Govinda Finn Neil Richardson Rates Philip Laing Jack Kelly Sebastian Mackay CFA Liam O’Donnell CFA Real Returns Jonathan Gibbs Katy Forbes CFA Adam Skerry Tom Walker Owen McCrossan FIA Richard Martin FIA Jeremy Lawson Ross Hutchison Rachel Forshaw
  • 26. Strategy activity in recent quarters Q4 2012 Q3 2013 Amended European Financials Capital Structure to be Senior Financials vs Main index credit with short bank equity Closed Australian Yield Curve Flattener Closed US forward start duration Added US yield curve Steepener (10y vs 30y) Added Indian Rupee vs Singapore Dollar Added Global REIT basket Modified US Equity Tech vs Small Cap to also be short Taiwan Q1 2013 Closed European Financials Capital Structure (completed April 08, 2013) Added Chinese Equities (via HSCEI futures) Closed UK vs Europe forward start duration Closed Korean Equity Long Equity Volatility contracts expired Added Asian v S&P Variance (closed NKY v S&P variance) Added EUR yield curve Steepener (10y v 30y, 4yrs forward) Source: Standard Life Investments GARS portfolio, 30 September 2013 Q2 2013 Closed Chinese vs Japanese FX volatility strategy Added Long German vs French Equity (equity futures on DAX and CAC) Closed European Swaption Steepener Closed German vs French Duration Closed Global Index Linked Bonds Added European Duration (Forward Start) 26 Added Japanese vs Korean Equity Closed Russian Equity Closed Indian Rupee vs Singapore Dollar Closed US Steepener Added Oil Majors – Equity UK Credit now 80% duration hedged Closed US Large vs Small Cap Equity
  • 27. 27 Our philosophy Beliefs: Taking longer term market views biases the investment outcome in your favour • The marginal investor has a short time horizon • This causes market inefficiency over 2 to 5 year horizons • Exploitable only by those who are diligent, creative and patient We can create performing, low risk, portfolios from these longer term strategies • We combine many strategies so we can afford to be patient • In the short term they behave differently, so some can be relied upon to be paying off • Resulting in low portfolio risk with strong return potential Approach: We build reliable performance portfolios for many future outcomes • All our strategies are expected to deliver material returns over 3 years based on our central view of future market conditions • Selection criteria focus on those strategies that also maintain performance even if our central view is wrong • So if some strategies do fail we have others that will out-perform to compensate • We are vigilant to avoid concentration of risk
  • 28. 2828Study rejects hypothesis of ‘random walk’ over 2-8 year view Philosophical foundation: Hard evidence for asset allocation opportunity horizon • Picking short-term market peaks and troughs is notoriously difficult • Research indicates opportunities for mean reversion do exist on a 2-5 year investment horizon • Investment decisions to exploit these opportunities are based on in-depth qualitative analysis Non-Outlier Max Non-Outlier Min 75% 25% Median Box Plot: 1-Year Equivalent Volatility of UK Equity Market Total Real Return Data: 1900 - 2002, Source BZW Equity Gilt Study Comparison with 40 random shuffled BZW data surrogates Non-overlapping return runs of length n 1YearEquivalentVolatility y_1 0.06 0.10 0.14 0.18 0.22 0.26 0.30 0.34 bzw sur y_2 bzw sur y_4 bzw sur y_8 bzw sur y_16 bzw sur
  • 29. 2929 Individual strategies risk % of equity vol1 ρ Volatility 4.13% 28.8% 0.05 Fully correlated risk categories 13.50% 94% 1 Uncorrelated risk categories 2.97% 21% 0 VaR (99%, 1 month) 213,329,807 4.02% as % of NAV Risk Categories Standalone risk % of total standalone 2 Diversification Position- removal Correlation Marginal attribution3 Exposures Long Short Nominal Long USD v CAD 1.24% 9.18% -2.41% -0.49% -0.51 -0.33% 14.6% -14.2% 14.6% Global equity 1.01% 7.48% 1.93% 0.62% 0.54 0.70% 8.1% -1.5% 6.5% Long USD v EUR 0.92% 6.78% -1.08% -0.04% -0.16 0.06% 9.1% -9.0% 9.1% High yield credit 0.77% 5.72% 1.82% 0.51% 0.60 0.55% 9.8% 0.0% 9.8% US equity large v small cap 0.76% 5.65% -1.61% -0.24% -0.39 -0.17% 9.5% -9.4% 9.5% Long MXN v AUD 0.66% 4.85% 0.57% 0.09% 0.06 0.14% 7.3% -7.0% 7.3% US steepener 0.62% 4.62% 1.19% 0.22% 0.29 0.27% 18.8% -7.0% 18.8% US equity 0.62% 4.58% 1.61% 0.38% 0.57 0.41% 3.8% 0.0% 3.8% Global REITs 0.59% 4.37% 1.69% 0.41% 0.66 0.43% 3.9% 0.0% 3.9% Chinese Equity 0.59% 4.34% 1.57% 0.36% 0.56 0.38% 2.8% 0.0% 2.8% Stock Selection 0.57% 4.20% 0.00% 0.04% 0.00 0.08% 0.0% 0.0% 0.0% Russian Equity 0.55% 4.08% 1.69% 0.40% 0.70 0.42% 2.3% 0.0% 2.3% European equity 0.49% 3.64% 0.44% 0.05% 0.05 0.08% 9.5% -9.5% 0.0% Long USD v JPY 0.49% 3.61% 1.14% 0.19% 0.34 0.21% 4.8% -4.8% 4.8% Mexican rates v EUR 0.48% 3.55% 1.27% 0.23% 0.43 0.25% 7.5% -2.6% 4.9% US equity tech v small cap 0.46% 3.42% -0.85% -0.06% -0.19 -0.04% 4.3% -4.3% 4.3% UK equity 0.44% 3.22% 1.45% 0.29% 0.63 0.30% 7.6% -4.8% 2.8% German v French Equity 0.43% 3.18% -0.52% -0.01% -0.08 0.01% 4.3% -4.2% 4.3% US equity tech v Taiwan 0.38% 2.81% 0.60% 0.06% 0.12 0.08% 2.6% -2.4% 2.6% European long-end curve steepener 0.27% 2.01% 0.71% 0.07% 0.23 0.08% 15.6% -6.7% 15.6% Long INR v SGD 0.24% 1.75% 0.76% 0.08% 0.31 0.08% 3.5% -3.6% 3.5% Asian v S&P variance 0.22% 1.60% 0.46% 0.03% 0.12 0.04% 0.0% 0.0% 0.0% UK corporate bonds 0.20% 1.45% 0.41% 0.03% 0.11 0.03% 3.3% 0.0% 3.3% FX Hedging 0.16% 1.21% 0.42% 0.02% 0.13 0.03% 2.7% -0.1% 2.8% EU corporate bonds 0.13% 0.95% 0.50% 0.03% 0.24 0.03% 3.6% 0.0% 3.6% HSCEI v FTSE variance 0.08% 0.60% -0.20% 0.00% -0.06 0.00% 0.0% 0.0% 0.0% European forward-start duration 0.07% 0.55% -0.16% 0.00% -0.04 0.00% 9.5% 0.0% 9.5% Liquid Instruments 0.02% 0.18% 0.25% 0.01% 0.32 0.01% 2.8% 0.0% 2.8% Relative variance income 0.02% 0.17% 0.20% 0.01% 0.22 0.01% 0.0% 0.0% 0.0% Global index-linked bonds 0.02% 0.16% -0.24% -0.01% -0.33 -0.01% 0.5% -0.5% 0.0% Hang Seng v S&P volatility 0.01% 0.09% -0.05% 0.00% -0.02 0.00% 0.1% -0.1% 0.1% Cash 0.00% 0.00% 0.00% 0.00% 0.00 0.00% 42.1% 0.0% 42.1% Total (exposures ex.cash): 13.50% 100.00% 3.28% 4.13% 172.2% -91.8% 153.3% Diversification benefit: 9.38% Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013 1. MSWORLD equity vol (14.3%) 2. Limit on % total standalone: 30% 3. Also known as Contribution to Risk
  • 30. 2.72% 2.30% 1.13% 0.87% 0.59% 0.57% 0.28% 0.02% Equities FX Duration Credit Property Security Selection Volatility Cash 30 Strategy groupings risk 1. MSWORLD equity vol (14.3%) 2. Limit on % total standalone: 40% 3. Also known as Contribution to Risk % of equity vol1 ρ Volatility 4.13% 28.8% -0.41 Fully correlated risk categories 8.50% 59% 1 Uncorrelated risk categories 3.93% 27% 0 VaR (99%, 1 month) 213,329,807 4.02% as % of NAV Risk Categories Standalone risk % of total standalone 2 Diversification Position- removal Correlation Marginal attribution3 Exposures Long Short Nominal Equities 2.72% 32.00% 1.77% 1.58% 0.23 2.17% 54.8% -36.2% 18.6% FX 2.30% 27.03% -3.20% -0.56% -0.48 0.04% 38.6% -28.9% 67.5% Duration 1.13% 13.28% 1.92% 0.65% 0.48 0.76% 48.8% -13.7% 35.2% Credit 0.87% 10.27% 1.88% 0.56% 0.57 0.61% 16.7% 0.0% 16.7% Property 0.59% 6.94% 1.69% 0.41% 0.66 0.43% 3.9% 0.0% 3.9% Security Selection 0.57% 6.67% 0.00% 0.04% 0.00 0.08% 0.0% 0.0% 0.0% Volatility 0.28% 3.28% 0.40% 0.03% 0.07 0.04% 0.1% -0.1% 0.0% Cash 0.02% 0.29% 0.25% 0.01% 0.32 0.01% 44.9% 0.0% 44.9% Inflation 0.02% 0.25% -0.24% -0.01% -0.33 -0.01% 0.5% -0.5% 0.0% Total (exposures ex.cash): 8.50% 100.00% 2.70% 4.13% 163.4% -79.4% 141.9% Diversification benefit: 4.38% Stand-alone contributions Stand-alone and marginal contributions Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013
  • 31. 3131 Regular liquidity monitoring Considerable cash buffer beyond 99% VaR stress Fund SZVZ Valuation date 28/06/2013 OTC Derivatives Total fund value 5,308,043,940 6,917,949 collateral posted (c) Available cash 2,115,483,694 (a) 78,901,783 collateral held Eligible securities 0 (b) 73,419,563 mark to market Exchange traded (margin) OTC (collateral) Total derivatives covered by cash cash Standalone Risk 3.00% 2.10% VaR (99%, 1m) 106,877,294 (d) 74,812,890 (e) 181,690,185 (d)+(e) Available cover 2,115,483,694 (f) 2,001,688,451 (g) 2,108,565,745 (h) Cover for 1m VaR 19.8 26.8 11.6 RAG Status GREEN GREEN GREEN Legend (f) = (a) (g) = (a)-(d)-(c) (h) = (a)-(c) RED < 1 * 1 month VaR AMBER < 2 * 1 month VaR GREEN > 2 * 1 month VaR The primary status is that on the total derivative cover, however an amber status on either ET or OTC cover requires review by Fund Management. The RAG status limits are: Availability of cash is managed by the Money Market Team. The VaR figures inform this process, as documented in the Cash Management Policy.
  • 32. 1 yr cumulative performance attribution Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013 Quarter Q3 12 Q4 12 Q1 13 Q2 13 Cumulative contribution over 1 yearNumber of strategies 31 34 35 35 Security Selection 0.1% 0.0% 0.1% 0.1% 0.4% UK Equity 0.0% 0.0% 0.3% 0.0% 0.2% Global Equity 0.1% 0.0% 0.5% 0.2% 0.8% European Equity 0.1% 0.3% 0.2% 0.0% 0.7% US Equity 0.1% -0.1% 0.3% 0.1% 0.4% Russian Equity 0.2% 0.1% 0.0% -0.3% -0.1% Korean Equity 0.2% -0.1% -0.1% 0.0% Chinese Equity -0.1% -0.2% -0.4% Investment Grade Corporate Bonds 0.8% 0.4% 0.1% -0.1% 1.3% High Yield Credit 0.5% 0.3% 0.4% -0.1% 1.2% Global Inflation-Linked Bonds 0.3% 0.3% 0.3% -0.3% 0.6% Cash 0.1% 0.1% 0.1% 0.1% 0.3% Global REITs 0.1% 0.2% 0.0% 0.3% Australian yield curve flattener 0.0% 0.0% 0.1% European Bond Yield Steepener 0.1% 0.1% 0.0% 0.1% 0.3% European Long-End Curve Steepener 0.0% -0.2% -0.2% European Duration (forward Start) 0.0% 0.0% US Long Bond Yields (Forward-Start) 0.4% 0.1% 0.5% US Steepener 0.0% 0.3% -0.3% 0.0% Long Equity Volatility -0.1% -0.2% -0.1% -0.3% Long US Dollar vs Euro -0.1% -0.2% 0.3% -0.1% -0.2% Long US Dollar vs Japanese Yen -0.1% 0.5% 0.4% 0.2% 0.9% Long US Dollar vs Canadian Dollar -0.4% 0.1% 0.3% 0.5% 0.5% Long Indian Rupee vs Singapore Dollar -0.1% 0.1% -0.2% -0.1% Mexican Government Bonds vs Euro 0.3% -0.1% 0.6% -0.1% 0.6% Other FX 0.0% 0.0% 0.0% -0.1% -0.1% Long Brazilian Real vs Australian Dollar 0.0% 0.0% Long Mexican Peso vs Australian Dollar 0.0% 0.0% 0.2% 0.4% 0.6% US Large vs US Small Cap Equity 0.1% -0.2% -0.2% 0.0% -0.4% US Equity Technology vs US Equity Small Cap 0.1% -0.4% -0.2% 0.1% -0.5% US Equity Technology vs Taiwan 0.0% 0.1% 0.1% 0.2% European Financials Capital Structure 0.4% 0.1% -0.3% 0.0% 0.2% UK vs European Forward-Start Duration 0.0% 0.0% 0.0% 0.0% 0.0% German vs French duration 0.0% -0.1% 0.0% -0.1% -0.1% German vs French Equity 0.0% 0.0% China Equity vs UK Equity Volatility 0.0% 0.1% 0.0% 0.0% 0.1% Relative Variance Income 0.2% 0.3% 0.2% 0.0% 0.7% Hang Seng vs S&P volatility 0.1% -0.1% 0.0% 0.0% 0.0% Asian Basket vs US Variance 0.0% 0.0% 0.0% Chinese Yuan volatility vs Japanese Yen volatility 0.0% 0.0% -0.1% 0.0% -0.1% Residual 0.2% 0.0% 0.0% -0.2% -0.1% TOTAL Fund 3.4% 1.4% 3.8% -0.4% 8.2% 32
  • 33. 33 GARS SICAV performance Source: Standard Life Investments, 31/08/2013 Converted € performance of £, institutional pooled pension portfolio to the 26/01/2011. GARS SICAV portfolio performance from the 27/01/2011. GROSS Portfolio 6m Euribor Relative NET Portfolio 6m Euribor Relative GROSS Portfolio MCSI World (€) Relative Sep-12 0.36 0.04 0.32 Sep-12 0.29 0.04 0.25 Sep-12 0.36 0.71 -0.35 Oct-12 0.36 0.04 0.32 Oct-12 0.28 0.04 0.25 Oct-12 0.36 -1.36 1.74 Nov-12 0.53 0.03 0.50 Nov-12 0.46 0.03 0.43 Nov-12 0.53 0.96 -0.42 Dec-12 0.44 0.03 0.41 Dec-12 0.37 0.03 0.34 Dec-12 0.44 0.56 -0.12 Jan-13 0.88 0.03 0.85 Jan-13 0.81 0.03 0.78 Jan-13 0.88 2.10 -1.20 Feb-13 1.48 0.03 1.45 Feb-13 1.41 0.03 1.39 Feb-13 1.48 4.05 -2.47 Mar-13 1.37 0.03 1.35 Mar-13 1.30 0.03 1.27 Mar-13 1.37 4.25 -2.76 Apr-13 1.37 0.03 1.34 Apr-13 1.30 0.03 1.27 Apr-13 1.37 0.53 0.83 May-13 0.47 0.03 0.45 May-13 0.40 0.03 0.37 May-13 0.47 1.86 -1.36 Jun-13 -2.18 0.02 -2.20 Jun-13 -2.25 0.02 -2.27 Jun-13 -2.18 -2.71 0.55 Jul-13 0.71 0.03 0.68 Jul-13 0.64 0.03 0.61 Jul-13 0.71 3.07 -2.29 Aug-13 -0.89 0.03 -0.92 Aug-13 -0.96 0.03 -0.99 Aug-13 -0.89 -1.40 0.52 YTD 3.20 0.22 2.97 YTD 2.62 0.22 2.39 YTD 3.20 12.14 -7.97 1 Year (%) 4.95 0.36 4.58 1 Year (%) 4.07 0.36 3.70 1 Year (%) 4.95 13.10 -7.20 2 Years (% p.a.) 8.43 0.83 7.53 2 Years (% p.a.) 7.51 0.83 6.63 2 Years (% p.a.) 8.43 18.54 -8.53 3 Years (% p.a.) 4.97 1.05 3.88 3 Years (% p.a.) 4.08 1.05 3.00 3 Years (% p.a.) 4.97 12.59 -6.77 4 Years (% p.a.) 7.81 1.05 6.69 4 Years (% p.a.) 6.90 1.05 5.79 4 Years (% p.a.) 7.81 13.25 -4.80 5 Years (% p.a.) 8.52 1.38 7.05 5 Years (% p.a.) 7.61 1.38 6.14 5 Years (% p.a.) 7.80 4.08 3.58 Q3 06 3.50 0.86 2.61 Q3 06 3.28 0.86 2.39 Q3 06 3.50 5.56 -1.95 Q4 06 3.27 0.94 2.31 Q4 06 3.05 0.94 2.09 Q4 06 3.27 4.21 -0.90 Q1 07 1.72 1.00 0.71 Q1 07 1.50 1.00 0.50 Q1 07 1.72 1.64 0.08 Q2 07 1.85 1.06 0.78 Q2 07 1.63 1.06 0.57 Q2 07 1.85 5.18 -3.16 Q3 07 2.27 1.16 1.10 Q3 07 2.06 1.16 0.89 Q3 07 2.27 -2.70 5.11 Q4 07 1.29 1.24 0.05 Q4 07 1.07 1.24 -0.16 Q4 07 1.29 -4.99 6.60 Q1 08 -3.99 1.14 -5.07 Q1 08 -4.19 1.14 -5.27 Q1 08 -3.99 -15.99 14.28 Q2 08 0.63 1.25 -0.61 Q2 08 0.42 1.25 -0.82 Q2 08 0.63 -0.86 1.51 Q3 08 -4.37 1.33 -5.62 Q3 08 -4.57 1.33 -5.82 Q3 08 -4.37 -4.83 0.48 Q4 08 3.32 1.10 2.19 Q4 08 3.10 1.10 1.97 Q4 08 3.32 -20.84 30.51 Q1 09 0.74 0.54 0.20 Q1 09 0.53 0.54 -0.01 Q1 09 0.74 -7.64 9.07 Q2 09 5.48 0.38 5.08 Q2 09 5.26 0.38 4.85 Q2 09 5.48 14.58 -7.94 Q3 09 11.30 0.29 10.98 Q3 09 11.06 0.29 10.74 Q3 09 11.30 12.81 -1.34 Q4 09 1.52 0.26 1.26 Q4 09 1.31 0.26 1.05 Q4 09 1.52 6.14 -4.35 Q1 10 4.56 0.24 4.30 Q1 10 4.33 0.24 4.08 Q1 10 4.56 9.58 -4.59 Q2 10 2.30 0.25 2.04 Q2 10 2.08 0.25 1.83 Q2 10 2.30 -3.33 5.82 Q3 10 4.76 0.29 4.46 Q3 10 4.54 0.29 4.24 Q3 10 4.76 2.19 2.52 Q4 10 -0.64 0.32 -0.95 Q4 10 -0.85 0.32 -1.16 Q4 10 -0.64 10.98 -10.47 Q1 11 0.24 0.34 -0.10 Q1 11 0.03 0.34 -0.31 Q1 11 0.24 -0.82 1.07 Q2 11 -1.29 0.43 -1.71 Q2 11 -1.50 0.43 -1.92 Q2 11 -1.29 -1.46 0.17 Q3 11 1.60 0.45 1.15 Q3 11 1.39 0.45 0.93 Q3 11 1.60 -9.79 12.63 Q4 11 3.65 0.44 3.20 Q4 11 3.43 0.44 2.99 Q4 11 3.65 11.34 -6.90 Q1 12 5.52 0.34 5.16 Q1 12 5.30 0.34 4.94 Q1 12 5.52 8.90 -3.10 Q2 12 -1.90 0.25 -2.14 Q2 12 -2.10 0.25 -2.35 Q2 12 -1.90 -0.16 -1.74 Q3 12 3.31 0.16 3.15 Q3 12 3.09 0.16 2.93 Q3 12 3.31 5.39 -1.97 Q4 12 1.34 0.10 1.24 Q4 12 1.12 0.10 1.02 Q4 12 1.34 0.14 1.19 Q1 13 3.78 0.08 3.69 Q1 13 3.56 0.08 3.48 Q1 13 3.78 10.75 -6.30 Q2 13 -0.37 0.08 -0.45 Q2 13 -0.58 0.08 -0.66 Q2 13 -0.37 -0.38 0.00 12/06/06 -31/08/2013 (% p.a.) 7.80 2.31 5.37 12/06/06 -31/08/2013 (% p.a.) 6.89 2.31 4.48 12/06/06 -31/08/2013 (% p.a.) 7.80 4.55 3.11 2007 7.31 4.53 2.66 2007 6.41 4.53 1.80 2007 7.31 -1.18 8.59 2008 -4.53 4.92 -9.01 2008 -5.34 4.92 -9.77 2008 -4.53 -37.24 52.13 2009 20.07 1.47 18.32 2009 19.05 1.47 17.33 2009 20.07 26.72 -5.25 2010 11.33 1.10 10.12 2010 10.40 1.10 9.19 2010 11.33 20.14 -7.33 2011 4.21 1.67 2.50 2011 3.33 1.67 1.64 2011 4.21 -1.84 6.17 2012 8.38 0.85 7.47 2012 7.46 0.85 6.56 2012 8.38 14.75 -5.54
  • 34. Diverse client base A conversion rate of £1:US$1.5167 as at 30/06/2013 has been used Source: Standard Life Investments, 30/06/2013 US$ Millions UK Pooled 27,467 SICAV 6,899 Offshore Fund 1,148 Separate US Accounts 4,336 Strategic Investment Allocation Fund 1,025 Standard Life Staff Scheme 4,362 TOTAL 45,239 Client Types: Defined Benefit Pension Plans Defined Contribution Pension Plans Charities / Endowments / Foundations Retail investments Client Diversity: Only 4 institutional pooled clients over US$303m The largest single pooled client has c.US$394m invested Investment rationale: Equity replacement / DGF / Risk Parity Alternative asset / Global Macro / GTAA, with benefits Sustain income and real value of principle
  • 35. US GARS Composite Name US GARS Creation Date 01-07-2006 Firm Standard Life Investments Currency USD Report End Date 31-12-2012 Composite Group Converted GARS Benchmark 1 Month USD LIBID Firm Disclosures A complete list and description of all of the firm's composites are available from Standard Life Investments. There are no minimum asset levels set below which portfolios are not included in a composite. All performance calculations and returns have been calculated gross of management fees. All returns are presented on an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in market valuations and returns. All indices are on a gross of tax basis apart from FTSE UK indices which are net of Withholding Tax. There are no Non-Fee-Paying portfolios included in any composite. The Daily True Time Weighted Rate of Return methodology has been used from 2001 apart from unitised Cash Property GARS and Myfolio products where NAV performance is used. Prior to this NAV performance was used for all products. Additional information regarding policies for calculating and reporting returns is available upon request. Dispersion is calculated using high/low difference. Standard Life Investments 'The Firm' consists of all fee-paying funds managed by Standard Life Investments and its Subsidiaries which include Standard Life Investments (Mutual Funds) Limited SLTM Limited Standard Life Investments (Corporate Funds) Limited Standard Life Investments (USA) Limited and Standard Life Investments (Asia) Limited. Past performance results from Standard Life Investments Limited UK Firm and Standard Life Investments Limited Irish Firm have been linked to form the performance record of the new firm Standard Life Investments. The new firm was created on 01/01/2008. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Standard Life Investments has been independently verified by Pricewaterhouse Coopers for the periods 1996 to 2012. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation Composite Disclosures Derivatives may be used to vary exposure to markets and express views on the direction of currencies, interest rates, sectors and securities to enhance capital return, limit downside volatility and preserve capital Includes part period return for 2006 from 01/07 The composite includes funds that invest in a highly diversified strategy including equities, bonds and cash with a derivative overlay in options, futures, swaps and currency forwards to deliver a positive absolute return. The fund is benchmarked against 1 month US Libid The standard annual fee applicable to this composite is 1.00%, but individual fees are negotiated on an account basis This composite includes GBP denominated funds that are converted into USD using 3 month USD Libor and 3 month GBP Libor rates Anlzd Return (Composite) Anlzd Return (Benchmark) 3 Year Anzld StdDev (Composite) 3 Year Anzld StdDev (Benchmark) Dispersion Market Value Total Firm Assets % of Firm Assets Number of Portfolios Dec 2003 NA NA NA NA NA NA NA NA NA Dec 2004 NA NA NA NA NA NA NA NA NA Dec 2005 NA NA NA NA NA NA NA NA NA Dec 2006 7.92 2.63 NA NA NA 61,396,573 250,034,719,675 0.02 1 Dec 2007 8.36 5.28 NA NA NA 480,921,603 273,159,275,038 0.18 1 Dec 2008 -6.35 2.58 NA NA NA 1,193,805,120 169,620,437,123 0.70 1 Dec 2009 19.25 0.20 7.19 0.60 NA 3,555,802,495 205,104,682,260 1.73 2 Dec 2010 10.75 0.13 7.31 0.35 1.33 10,897,493,192 206,244,327,020 5.28 2 Dec 2011 2.89 0.10 5.69 0.02 0.14 16,448,902,409 191,669,627,227 8.58 3 Dec 2012 7.86 0.11 4.62 0.01 0.73 27,699,502,152 217,691,673,950 12.72 3
  • 36. 36 The information shown relates to the past. Past performance is not a guide to the future. The value of investment can go down as well as up. Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates. **Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time." All information, opinions and estimates in this document are those of Standard Life Investments, and constitute our best judgement as of the date indicated and may be superseded by subsequent market events or other reasons. This material is for informational purposes only and does not constitute an offer to sell, or solicitation of an offer to purchase any security, nor does it constitute investment advice or an endorsement with respect to any investment vehicle. Standard Life Investments (Hong Kong) Limited is licensed with and regulated by the Securities and Futures Commission in Hong Kong and is a wholly-owned subsidiary of Standard Life Investments Limited. Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments are authorised and regulated by the Financial Conduct Authority. Calls may be monitored and/or recorded to protect both you and us and help with our training. www.standardlifeinvestments.com © 2013 Standard Life, images reproduced under licence