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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
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
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
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 2012An
nu
ali
se
d %
re
turn
Typical returnexpectation
Annualised rolling 3 year returns Typical Australian Default Balanced Strategy
5
Limited diversification in typical Australian pension portfolios
High weighting in correlated risk assets reduces diversity
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%
PropertyCurrency
BasketCommodities
IG Corporate
Bonds
EmergingMarket Bonds
High Yield Bonds
2000-2007 2008-2011
Correlation of Global Equities with other markets
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
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
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$ LIBORSource: Standard Life Investments, gross performance from 12/06/2006 to 31/08/2013Standard 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)P
ric
e (
ind
ex
ed
to
10
0 a
t in
ce
pti
on
)
Cash** Target ReturnGARS*
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
165
170
175
180
556065707580859095
100105110115120125130135140145150155160165170
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 (
indexe
d to 1
00 a
t in
ception)
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
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 3.31.7 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
5.64.2
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
% R
etu
rn
GARS (gross) Cash (Euribor) * Global Equities *
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
ConvictionDiversityLiquidity
Multi Asset Management
Strategy implementation Final position sizing Execution
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
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
Co
rre
lati
on
co
eff
icie
nt
(to
Glo
ba
l E
qu
itie
s)
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
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
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
To
tal sta
nd
-alo
ne r
isk
18Greater number of ‘moving parts’ allows for more return consistency
Investment risk is well diversified
Source: Standard Life Investments
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 MarksSource: GARS SICAV, RiskMetrics, 30/06/2013 19
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
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 EstateCashSecurity Selection
FXEquitiesVolatility
InflationCreditDuration
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
Appendices
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
Multi-Asset Investing Team
Critical combination of skills and experience
* Based in Canada GARS Portfolio ManagersWhilst 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 thereforenot 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 industryAverage 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
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
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
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 MaxNon-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
1 Y
ea
r Eq
uiva
len
t Vo
latility
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
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 CategoriesStandalone
risk% of total
standalone 2 DiversificationPosition-removal
CorrelationMarginal
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
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 CategoriesStandalone
risk% of total
standalone 2 DiversificationPosition-removal
CorrelationMarginal
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
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.
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
GARS SICAV performance
Source: Standard Life Investments, 31/08/2013Converted € 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 -10.47Q1 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 0.17Q3 11 1.60 0.45 1.15 Q3 11 1.39 0.45 0.93 Q3 11 1.60 -9.79 12.63Q4 11 3.65 0.44 3.20 Q4 11 3.43 0.44 2.99 Q4 11 3.65 11.34 -6.90Q1 12 5.52 0.34 5.16 Q1 12 5.30 0.34 4.94 Q1 12 5.52 8.90 -3.10Q2 12 -1.90 0.25 -2.14 Q2 12 -2.10 0.25 -2.35 Q2 12 -1.90 -0.16 -1.74Q3 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 1.19Q1 13 3.78 0.08 3.69 Q1 13 3.56 0.08 3.48 Q1 13 3.78 10.75 -6.30Q2 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
Diverse client base
A conversion rate of £1:US$1.5167 as at 30/06/2013 has been usedSource: Standard Life Investments, 30/06/2013
US$ 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
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 DisclosuresA 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 DisclosuresDerivatives 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 capitalIncludes part period return for 2006 from 01/07The 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 LibidThe standard annual fee applicable to this composite is 1.00%, but individual fees are negotiated on an account basisThis 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
AssetsNumber 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
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