Presentation of Yves de Naurois during the 11th Annual Fund Compliance & Risk Management Conference hosted by ESAFON in Luxembourg on the 18th of June 2013. In this presentation Yves is using his experience in advising UCITS funds to steer the topic of conversation around Updating Risk & Collateral Management for UCITS using EPM Techniques.

1. The 11th Annual Fund Compliance & Risk Management
Conference
Updating Risk & Collateral UUUpppdddaaatttiiinnnggg RRRiiissskkk &&& CCCooollllllaaattteeerrraaalll MMMMaaaannnnaaaaggggeeeemmmmeeeennnntttt
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Yves de Naurois
18-06-2013

2. Efficient Portfolio Management
Techniques
- Repos
- Reverse Repos
- Securities Lending

3. 3
Repos & Reverse Repos
Repurchase agreement (spot sale + forward contract)
Open, OOOpppeeennn,,, tttteeeerrrrmmmm,,,, oooovvvveeeerrrrnnnniiiigggghhhhtttt
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Securities
Cash
Seller Buyer
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Securities
Cash “+”
(repo rate)
RRRReeeeppppoooo
RRRReeeevvvveeeerrrrsssseeee
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Title of securities legally transferred
Coupons passed back to repo seller
Global exposure remains with repo seller
Buyer has a counterparty exposure

4. 4
Repos & Reverse Repos
Repurchase agreement (spot sale + forward contract)
Loan
Borrower Lender
Collateral
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RRRReeeevvvveeeerrrrsssseeee
RRRReeeeppppoooo
SSSSeeeeccccuuuurrrriiiittttiiiisssseeeedddd llllooooaaaannnn

5. 5
Securities Lending
Lender
Securities
Collateral
Securities
Lending
House
Short Seller
Securities
Collateral
Title transferred to borrower
Coupon + dividends passed backed to lender
Lender receives a fee
Lender securitised loan is securitised by collateral

6. 6
Efficient portfolio management
techniques - Disclosures
PPPPrrrroooossssppppeeeeccccttttuuuussss sssshhhhoooouuuulllldddd::::
– Disclose the usage of EPM techniques (risks, counterparties, conflicts of interests involved)
– Include costs/fees policy of the techniques. Who receives them (Related parties to the UCITS
management company or depositary)
AAAAnnnnnnnnuuuuaaaallll RRRReeeeppppoooorrrrtttt sssshhhhoooouuuulllldddd aaaallllssssoooo ccccoooonnnnttttaaaaiiiinnnn::::
– Exposure through EPM techniques
– The identified counterparties
– Type and amount of the collateral received (to reduce the counterparty exposure)
– Revenues arising from EPM techniques
SSSSeeeeccccuuuurrrriiiittttyyyy lllleeeennnnddddiiiinnnngggg::::
– UCITS should ensure to be able to recall any security lent at any time (7 days)
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– UCITS should ensure to be able to recall the full amount of cash at any time (7 days)
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7. 7
Repurchase Agreement
Global
Exposure
Counterparty
Risk
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Securities sold (posted)
+
Reinvestment of loan
(if r > risk free rate)
Leverage
Value of securities sold (posted)
mmmmiiiinnnnuuuussss
loan
(vs > L)

8. 8
Reverse Repurchase Agreement
Global
Exposure
Counterparty
Risk
RRRReeeeppppoooo
BBBBuuuuyyyyeeeerrrr
No reinvestment of
collateral None
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Value of reinvestment
Leverage
Cash lent + repo rate
Value of securities posted
Adjusted by haircut
Reinvestment of collateral idem
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RRRReeeeppppoooossss

9. 9
Securities Lending
Global
Exposure
Counterparty
Risk
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lllleeeennnnddddeeeerrrr
None
Value of reinvestment
Leverage
Value of Securities lent
No reinvestment of
collateral
Reinvestment of collateral
(cash only)
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RRRReeeeppppoooossss
mmmmiiiinnnnuuuussss
Adjusted value of collateral
VC > SL
idem

10. 10
Collateral management for OTC
Derivatives and EPM techniques
Liquidity
•Highly
liquid
Valuation
•Daily Basis at
least
Issuer Credit
Quality
•High quality
Correlation
• Issuer of
collateral
independent
from
counterparty
Risk of
Collateral
Management
• Identification and
mitigation of legal
and operational
risks
Holding of the
Collateral
•Depositary
• Third party
custodian
Non-cash
Collateral
• Not be sold or
reinvested
Cash Collateral can
only be invested in:
• Deposits
• HQ Bonds
• Reverse repo
• Short-term money
market funds
IIIIFFFF the associated collaterals of OTC derivatives and EPM Techniques are compliant
with the following criteria:
They rrrreeeedddduuuucccceeee the associated ccccoooouuuunnnntttteeeerrrrppppaaaarrrrttttyyyy eeeexxxxppppoooossssuuuurrrreeee
Prospectus should include the collateral policy of the UCITS
(types, levels, re-investment policy)

11. 11
Should you have any questions…
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Yves de Naurois
Executive Chairman
+352 42 26 11 301
ynaurois@arkus-fs.com