THE SEARCH FOR YIELD: FLEXIBLE BONDS. PATRICK BARBE London, 21 March 2017

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1 THE SEARCH FOR YIELD: FLEXIBLE BONDS PATRICK BARBE London, 21 March 2017

2 The new euro bond universe: no longer the easy carry gain Selection of the return types delivered by sovereign, covered and corporate bonds No positive return without additional risk A steep curve starting from -91bp with the well-known roll-down effect which is vital for alpha generation Large discrepancies between the issuer countries, mainly due to country bias Source: Barclays Capital as at end of February /03/2017 2

3 Flexible and active portfolio management A new bearish global bond market trend started in Q ECB policy helped the decoupling, but quantitative easing should begin to be tapered from 2018 Bund yields remain close to the lows Source: Bloomberg, ESA/ BNP PAM, as of 28/02/2017 Higher volatility to come due to oil price moves and a sell-off risk for US Treasuries Core rates are still low There is a split on the pivotal 5-year euro maturity: with low risk below it and considerably higher risk above Roll-down & carry do not pay anymore for the risk on long-term maturities FLEXIBLE & ACTIVE PORTFOLIO MANAGEMENT MAY BRING VALUE Source: Bloomberg, BNPP AM, 10/03/ /03/2017 3

4 Flexible, unconstrained investments A growing and appealing product range topping EUR 5 billion (AUM) Investment Horizon Strategy Performance objective 6 month Investment Horizon Enhanced Cash 6 months Strategy Objective +70 bps* Vs Eonia 1 year Investment horizon Enhanced Cash 1 year SRI Strategy Objective +100 bps* Vs Eonia 3 year Investment Horizon Euro Flexible Strategy Objective +350/400* bps Vs Euribor 3M 17/03/2017 4

5 Flexible bond strategy Provides innovative investment solutions whatever the rate evolution Active and flexible euro bond portfolio management Selecting the best strategies of our team Without benchmark replication (avoiding negative returns) Increasing our team risk budget up to 3 times: volatility capped at annualised 6% asset leverage: maximum 4 times Enhanced by other sources of added value: Diversification strategies: convertibles, high yield, Europe, equity indices... Tactical opportunities detected by our quantitative models Based on 25 years of euro fixed-income investment experience Targeting an absolute performance of Euribor 3M + 400bp annualised before fees over a three-year investment horizon There is no guarantee that the target performance will be achieved. 17/03/2017 5

6 Parvest Flexible Bond Euro An innovative core-plus approach relying on the proven expertise of the investment team CORE ACTIVE AND FUNDAMENTAL APPROACH EURO CONVICTIONS Up to 3 times Countries Interest rates (duration; curve) Strategic sector allocation Issuer selection Pillar 1: DIVERSIFICATION Specific exposures Convertible bonds High-yield bonds Pan-European bonds Equity index derivatives Pillar 2: TACTICAL Discretionary management of two quantitative models: Interest rates Forex Discretionary approach throughout the investment process 17/03/2017 6

7 Parvest Flexible Bond Euro Core approach based on the usual investment process of the team by selecting the best strategies with a medium term horizon: Our Capabilities rely on a long term track-record: A euro medium term bond investment generated on average 7% over the last 25 years Attractive absolute performance distribution over any rolling 3-year investment horizon CORE PLUS 1 PLUS 2 50% Barclays Euro Aggregate 5-7 yrs + 50% Barclays Euro Aggregate 3-5 yrs Period Annualised performance over 3-year period Source: BNPP AM, March /03/2017 7

8 Parvest Flexible Bond Euro Pillar 1 - Diversification CORE PLUS 1 PLUS 2 Pillar 1: DIVERSIFICATION Diversification into various sources of added value Up to 10% via UCITs or up to 20% in offbalance sheet exposures of the total assets of the portfolio Depending on the topdown views of the team Convertible bonds High-yield bonds Pan-European, etc. Equity indices To invest in hybrid products between fixed income and equities To benefit from the carry of high-return products To get additional returns across Europe To benefit from equity trends 17/03/2017 8

9 Parvest Flexible Bond Euro Pillar 2 relative value quantitative models Discretionary tactical portfolio management CORE PLUS 1 PLUS 2 Pillar 2: TACTICAL Factor: computed from raw historical data for each country Signals: values relative to the universe Allocation: market beta neutral Frequency: weekly rebalancing Quantitative bond allocation 10-year government bond futures Quantitative FX strategy 1-week currency forwards To generate absolute performance by exploiting long-term yield differentials among some major sovereign issuers: Australia, Canada, Germany, UK and the US To generate absolute performance by exploiting differentials in domestic interest rates and equity markets to invest in some of the most liquid currencies: Australia, Canada, eurozone, Japan, UK, US, New Zealand, Norway, Sweden and Switzerland 17/03/2017 9

10 Parvest Flexible Bond Euro Pillar 2 asset exposure used for quantitative models CORE PLUS 1 PLUS 2 Source: Bloomberg, BNPP AM, 28/02/ /03/

11 Parvest Flexible Bond Euro Correlation analysis among pillars Correlation analysis 3-m rolling correlation between core & tactical pillar Diversification by low-correlated strategies Active management of pillars exposure Source: BNPP AM, analysis from 11/2015 to 01/ /03/

12 Parvest Flexible Bond Euro Risk simulation Expected vs. realised risk/performance Core approach Pillar 1 Pillar 2 Euro aggregate Diversification Quant models Expected volatility breakdown* 2.50% 0.23% 2.06% Expected performance contribution* 2.35% 0.32% 1.94% Expected gross leverage* 85% 10% 176% Performance attribution Full-year % 0.22% 0.26% * Performance shown refers to simulated past performance based on historical results and is not a reliable indicator of future performance. Source: BNPP IP. 17/03/

13 Parvest Flexible Bond Euro I-share performance net of fees, as at end February 2017 Source: BNP Paribas Asset Management as of end February 2017 Past performance or achievements are not indicative of future performance. 17/03/

14 Parvest Flexible Bond Euro Performance gross of fees, as of end February 2017 Performance at the end of February 2017 February Last 3M YTD Last Last Last Last Since (Gross of fees - %) 12M 24M* 36M* 60M* inc.,** Parv est Flex ible Bond Euro 0,07 0,38-0,51 2,51 1,70 1,86 2,20 100% EURIBOR 3M -0,03-0,08-0,05-0,29-0,17-0,06-0,04 Ex cess return 0,09 0,47-0,45 2,80 1,87 1,92 2,23 Performance History (%) - Full year Parv est Flex ible Bond Euro 3,20 2,06 2,07 100% EURIBOR 3M -0,26-0,01 0,21 Ex cess return 3,46 2,07 1,86 Performance History (%) - February to February Parv est Flex ible Bond Euro 2,51 0,90 2,19 100% EURIBOR 3M -0,29-0,05 0,17 Ex cess Return 2,80 0,94 2,01 Risk indicators (annualised) Last Last Last Last Last Since 36W 52W 24M 36M 60M inc.,** Fund v olatility (%) 1,83 1,95 2,78 2,59 2,51 100% EURIBOR 3M 0,00 0,01 0,04 0,06 0,06 Tracking error (%) 1,83 1,95 2,78 2,59 2,51 Information ratio -0,25 1,44 0,67 0,74 0,89 All figures gross of fees (in EUR) * annualised performance **first NAV date: 29/12/2013 annualised Past performance or achievements are not indicative of current or future performance. 17/03/

15 Parvest Flexible Bond Euro Our flexibility as shown by modified duration (MD) and yield curve allocation: Total portfolio exposure (MD in years) Portfolio maturity allocation (MD in years) Source: BNP Paribas Asset Management as of 10/03/2017 Past performance or achievements are not indicative of future performance. 17/03/

16 Parvest Flexible Bond Euro Flexibility as shown by allocation to the main countries: Exposure to main core/semi-core (MD in years) Exposure to other main countries (MD in years) Source: BNP Paribas Asset Management as of 10/03/2017 Past performance or achievements are not indicative of future performance. 17/03/

17 Conclusion Parvest Flexible Bond Euro An absolute return innovative solution with disciplined management Investors stand to benefit from major market trends as well as bond market volatility Possibility to go short interest rates No structural exposure to credit Focus on the liquidity of the underlyings An experienced and recently reinforced investment team of 17 portfolio managers supported by our financial engineering team A proven 25-year track record generating regular annual returns over the various market cycles BNP Paribas: providing solutions 17/03/

18 Parvest Flexible Bond Euro Fund characteristics Reference index Performance objective Investment universe Fund structure Fund characteristics Euribor 3 months Outperform Euribor 3M by 400bp gross of fees annualised over the recommended investment horizon of three years Euro bonds mainly as well as convertibles bonds, cash instruments and derivatives. FX instruments Sub-fund of the PARVEST UCITS V sicav registered under Luxembourg law Inception date* January 2014 Investment horizon Annualised volatility Minimum 3 years Maximum 6% annualised Modified duration leeway Between -3 to +5 ISIN codes: Fees (estimated OCR all-inclusive as of 30/11/2015) Classic Capitalisation LU / Institutional Capitalisation LU / Privilege Capitalisation LU Classic share: 118bp / Institutional share: 58bp / Privilege share: 75bp AUM EUR 140 million as at end February 2017 Portfolio manager Patrick Barbe, CIO Euro Sovereign & Aggregate * Inception date as of 27 December 2013 in the French vehicle BNP Paribas Flexible Bond Euro which was absorbed by the Parvest Flexible Bond Euro fund as of 31 January 2014 Source: BNP Paribas Asset Management.The above rules are internal guidelines mentioned for your information only and subject to change. Prospectus and KIID guidelines are leading. There is no guarantee that the performance objective will be achieved. 17/03/

19 INVESTMENT PROCESS AND RISK MONITORING 17/03/

20 Investment philosophy and style Management principles of the portfolio: 1. Fundamental analysis Long-term interest-rate trends and their correlation with all markets mainly resulting from an analysis of the macroeconomic environment, which helps identify inflation and credit trends 2. Active portfolio management Analysis of the relative value between bonds allows us to identify daily investment opportunities and integrate them into our long-term outlook Market prices are generated as a result of the expectations of market players who take varying levels of risk and have different investment horizons (issuers, investment funds, portfolio managers, traders, etc.) This research is based on our detailed analysis of capital flows, excessive market consensus and changes in regulatory constraints 3. Risk management A specific risk approach via realistic scenarios to respond to the challenge of asymmetry between gains and losses in bond portfolios Fundamental, active, with risk under control 17/03/

21 Investment team A stable, specialised and business-driven team Patrick Barbe chief investment officer Market heads Investment specialists Duration, curve, countries Yanick Loirat Claude Guérin (countries) Credit Eric Plantier (corporate) Arnaud-Guilhem Lamy (financials & SRI) Specific portfolio Insurance & Flexible Vito Cavaliere Portfolio managers Romain Massey Kaizhou Wang Simone Augst, Fadi Berbari, Peter Benshop, Patrick Caillieux, Marie-Edmée de Monts de Savasse, Tao Li, Hélène Nottin, Sergejs Prala, Gerd Renning, Antonio Serpico Strategy, credit, SRI, financial engineering Dedicated quantitative specialist You Leang Tran Combines different talents specialised by sub-markets and products which benefit to performance Market heads coordinate the specialised portfolio managers for efficient research and idea generation Systematic implementation of trade ideas across portfolios where permissible Specialised, accountable and incentivised managers 16 portfolio managers with 15 years of experience on average, 14 years of which spent within the firm *Source: BNP Paribas Asset Management /ESA as of May /03/

22 Euro Sovereign & Aggregate Investment team Five key decision-makers: the CIO and the market heads Yanick Loirat, PhD Vito Cavaliere Market head Interest rates and countries 16 years business experience, including 8 years at BNP Paribas Asset Management In charge of country selection & yield curve strategies to determine model and reference portfolios Based in Paris Arnaud-Guilhem Lamy Market head financials credit and SRI 15 years business experience including 7 years at BNP Paribas Asset Management Responsible for issuer selection, defining the issuer list and spread targets for financials & covered Responsible for SRI Sovereign & Aggregate investments Based in Paris Patrick Barbe, Actuary CIO Euro Sovereign & Aggregate investment team 28 years business experience, all at BNP Paribas Asset Management General team management Overall responsibility for all euro fixed-income strategies Overall market forecasts and risk allocation Based in Paris Market head specific portfolio management 12 years business experience including 7 at BNP Paribas Asset Management Responsible for specific portfolios such as insurance style, buy-and-hold, enhanced cash and portfolios dedicated to Italian clients. Based in Paris Eric Plantier, Actuary Market head corporate credit 28 years business experience, including 8 years at BNP Paribas Asset Management Investment-grade corporate credit Responsible for issuer selection, defining the issuer list and spread targets Based in Paris *Source: BNP Paribas Asset Management/ESA as at end July /03/

23 Investment process RISK CONTROL TACTICAL APPROACH FORECAST Macroeconomic scenario Three-month interest rate forecast & risk budget allocation STRATEGIC ALLOCATION Allocation of rates and credit-risk budgets Stress-testing of extreme market scenarios ISSUER SELECTION Comparison and discussion Model portfolio with selected issuers PORTFOLIO CONSTRUCTION Micro-inefficiency opportunities Market timing Tactical trading TOP-DOWN APPROACH BOTTOM-UP APPROACH FUNDAMENTAL, ACTIVE, WITH RISK UNDER CONTROL 17/03/

24 BOTTOM UP Investment process: decision making INPUT STEPS DECISION MAKERS TOP DOWN Strategy BNPP AM committee Market heads* Market heads* Quantitative analyst 1 Forecasts Economic scenario 3-month interest rate forecast and risk budget 2 Strategic allocation Allocation of rates and credit risk budgets Stress-testing extreme market scenarios Eurozone Core FI head Patrick Barbe Eurozone Core FI head Patrick Barbe Credit analysts Specialised Managers Quantitative analyst 3 Issuer selection & model portfolio Comparison and discussion Model portfolio with selected issuers Market heads* Specialised managers 4 Portfolio construction Reference funds and real portfolios Selecting securities Tactical management Portfolio managers* CLIENT PORTFOLIO 17/03/

25 Front office risk management 1 SIMULATION 2 IMPLEMENTATION Risk budget & return objectives established by portfolio manager Performed by the quantitative specialist VaR approach Portfolio Risk allocation and implementation performed by the portfolio manager Pre-trade controls Electronic trading platform via dealing desk Real-time exposure monitoring 4 PERFORMANCE ATTRIBUTION 3 RISK MONITORING Performed by risk management using Barclays Point Performed by the portfolio manager on an ongoing basis Source : BNP Paribas Investment Partners/Proges/ESA, 2016, for illustration purposes only 17/03/

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