Attractive Opportunities. Controlled Risk. Quantitative Fund Management.

Transcription

1 Attractive Opportunities. Controlled Risk. Quantitative Fund Management. DekaBank Deutsche Girozentrale

2 Foreword. Dear Investors, More than 15 years ago, Deka Investment made the decision to establish an independent quantitative investment style. Today, we are one of the largest quantitative teams in Germany and Europe a success story that hardly anyone expected at the beginning. We use a systematic approach for all of our strategies. Our purely quantitative investment process is based on fundamental relationships. Our models capture and analyse the flood of information on the markets. The result: transparent, verifiable investment decisions. Income return proportional to the portfolio risk is at the core of our decision making. We have been able to consistently demonstrate the stability of our performance in the past. Our models continued to function, even during the difficult times of the financial crisis. Our investment style is based on three constants: a systematic approach, transparent decisions and stable performance. Dr. Ulrich Neugebauer, Head of Quantitative Fund Management Managing Director Deka Investment GmbH instead of chasing every fashion, our use of a sustainable approach for investment has paid off. We want to focus on our strengths to create added value for investors. We pay particular attention to the transparency of our decisions. After all, we are dealing with your assets. Our consistent and disciplined use of models, and the clear and systematic investment process allow us to provide explanations for our investment decisions and how they are implemented at all times. Innovation is particularly important in our team. Product research and development incorporates a wide range of perspectives. Our investment professionals combine their diverse academic backgrounds to continuously develop innovative approaches and investment solutions. Sincerely, Dr. Ulrich Neugebauer

3 Contents. Foreword 2 01 Quantitative approach 4 Theoretically and empirically sound 6 Broad range of product solutions 7 Quantitative asset allocation 8 Proven institutional mutual funds 10 Trend following Portfolio management 12 Quantitative equity funds 12 Quantitative fixed income funds 14 Exchange Traded Funds 16 Risk management Implementation examples 18 Implementation example: Savings bank 19 Implementation example: foundation 20 Implementation example: pension fund 22 Individual support Deka Institutional 25 DekaBank Outstanding service 26 Contact 27

4 01 Quantitative approach In volatile markets, systematic investment counts. The situation in capital markets has been particularly challenging since 2008 and is made worse by the environment of historically low interest rates since Adequate returns are needed in order to meet day-to-day obligations. Instead, returns are falling, investments are increasingly more regulated and risk budgets are low. Investors therefore need an approach that allows them to systematically take advantage of market opportunities. Deka Investment has developed a purely quantitative investment process based on fundamental relationships to capture and analyse the flood of market information. We make investment decisions that are fully transparent and verifiable, whilst controlling for risk at all times. Comprehensive, in-depth analysis helps us to realistically assess investment performance in advance in order to avoid unpleasant surprises. Facts and figures. 290 Quantitative fund management manages over 290 mutual and institutional funds. The investment philosophy entails: ƕ ƕ Extensive research as a basis for model development 41 More than 41 billion euros in assets under management. ƕ ƕ Focus on proprietary forecasting and risk models no black boxes ƕ ƕ Careful verification of model results under changing market conditions 40 More than 40 investment professionals work in quantitative fund management. ƕ ƕ Continuous monitoring of performance and risk parameters Continuous optimization of existing processes 4

5 Investment process and risk management. Forecast models Research Model development Portfolio management Performance analysis Risk models Information feedback Source: DekaBank As of 03/2016 Investment concepts for every riskreturn profile. We offer our clients investment concepts for all major asset classes. We devise individual solutions by combining proven asset class strategies. Funds are tailored exactly to the desired risk-return profile of the investor, who often wants to avoid losses beyond a certain threshold and therefore to concentrate on low absolute risks. Systematic implementation. Meeting these requirements means adhering to a disciplined and proven approach. This is the only way to identify attractive return opportunities in an increasingly complex and dynamic market environment and turn them into investment strategies. Active investment decisions combined with professional risk management are required. Many investors require: Targeted risk management ƕ ƕ Protection against volatility and drawdowns in extreme market phases ƕ ƕ Professional risk management using state-of-the-art methods 5

6 Theoretically and empirically sound. Transparent and systematic. An integrated approach to quantitative investment strategies. We take great care in advising our clients. Client portfolios are managed using a clearly defined quantitative investment process. Investment decisions are transparent. The investor s risk-return profile and individual constraints provide the framework for the implementation of models in the portfolio. Direct contact between the investor and a specialist is essential for this process. Deka Investment uses an integrated approach to quantitative investment strategies all the way from the first client meeting to the ordering of securities. Integration of theory and practice. In 2013, DekaBank established IQ-KAP, a private institute for capital market research. It provides a forum for academics and practitioners to discuss current topics, take part in research projects and introduce their own ideas. Our investment professionals incorporate the find ings into their own research process. IQ-KAP Forum for research and practice. This creates added value for our investors in a number of different ways: ƕ ƕ Clear processes and a manageable team size allow investment decisions to be implemented quickly. ƕ ƕ Our investment approach is theoretically and empirically sound. ƕ ƕ Risk management is a basic component of the investment strategy. ƕ ƕ Strategies are continuously developed using the latest academic research and methods. The core mission of IQ-KAP is to perform quantitative research in the area of capital markets and prepare academic papers in cooperation with universities and partners. Modern methods are used to empirically investigate and explain capital market phenomena and answer fundamental investment-related questions. More information: 6

7 Broad range of product solutions. Tailored solutions using modular products Modular flexibility. We offer institutional investors a variety of ways to implement their market views and investment strategies. Due to the modular design of our products, we can offer solutions that are precisely tailored to individual risk-return profiles. Selected investment concepts. Quantitative equity funds Quantitative fixed income funds Trend-following strategies Broad range of investment solutions Overlay management Exchange Traded Funds (ETFs) Globale tactical asset allocation (GTAA) Source: Deka Investment As of 03/2016 7

8 Quantitative asset allocation. The Quantitative Asset Allocation team is our centre of competence for solutions managing multi-asset class funds with risk-controlled investment approaches and efficient management of risk budgets. The solutions range from benchmark-based investment concepts to our global tactical asset allocation (GTAA) products with a focus on total return. Core building blocks are quantitative-fundamental, trendfollowing and pure risk management strategies. Facts and figures The team has more than 24.7 billion euros in assets under management. We offer our clients a wide range of product solutions: ƕ ƕ Benchmark-free strategies based on fundamental data 177 The different asset allocation strategies are implemented in 177 portfolios. Trend-following investment strategies Pension products ƕ ƕ Use of hedging strategies 1 at the individual asset and portfolio levels Dr. Heiko Opfer Head of Asset Allocation Our risk management approach is the common thread connecting all of these products. Our approach goes beyond the traditional analysis of markets, credit risks and liquidity risk. When calculating the optimal allocation structure, we include explicit modelling of fat tails and take into account the predictive power of our return estimates. We also have many years of expertise implementing risk management and portfolio insurance solutions. Our goal is to use the client s risk budget as efficiently as possible, whether for a pension solution, an institutional fund or an overlay in a master fund. 17 years of investment experience Doctorate in economics At Deka since 2004 Volatile capital markets require flexible investment decisions and sophisticated risk management. The Asset Allocation team offers clients a broad range of custom-tailored solutions. The quality of these products is underscored by a successful long-standing track record. 1 No guarantee is provided that the use of these portfolio insurance strategies will lead to successful realisation of desired investment objectives. 8

9 Quantitative GTAA consistent focus on individual risk-return profiles. The majority of investors focus on absolute risks, which leads to the question: What portfolio can I use to achieve the maximum return while satisfying my risk budget? We have been using the quantitative GTAA investment concept to answer this question for more than 15 years. We combine modern optimisation approaches with fundamental-quantitative forecasting models that are proven both theoretically and empirically. Facts and figures More than 5.6 billion euros is currently invested in quantitative GTAA funds. This proven concept is being used for around 48 portfolios. ƕ ƕ We use macroeconomic data when generating our forecasts in order to include estimates of long-term economic growth and its implications for capital markets. The quality of our forecasts is also taken into account. ƕ ƕ Our proprietary optimisation model determines the allocation among asset classes that provides the highest potential return for a given level of risk. Risk management is an integral part of portfolio management. Custom-tailored investment concepts. A portfolio is only optimal if client-specific constraints and possibilities for expanding the portfolio are taken into account. Investment restrictions with respect to equity allocation, duration ranges, use of derivatives, foreign exchange, granularity, sustainability and hedging strategies are systematically integrated. The core investment universe of the product consists of global equity and fixed income investments that have proven their diversification potential during periods of crisis. The investment universe can be restricted to euro-denominated investments, or can be broadened. Exended Investment Universe. Basic fixed income investments: Core Eurozone government bonds (DE, FR), USD, YEN, GBP Basic equity investments: Germany, France, Italy, Holland, Spain, Switzerland, United Kingdom, Denmark, Sweden, United States, Canada, Japan, Australia Possibilities for expansion fixed income: Eurozone PIIGS and emerging market government bonds, EUR covered bonds, IG EUR & US corporates Possibilities for expansion equities: MSCI Emerging Markets Possibilities for expansion alternatives: Commodities ex agriculture, currencies and volatility Source: Deka Investment illustrative chart 9

10 Proven institutional mutual funds. Our quantitative GTAA approach forms the basis for two product lines, Sigma Plus and GlobalOpportunities Plus, and is implemented through four institutional mutual funds for different risk appetites. Two of these were specifically designed for foundations and municipal investors. ƕ ƕ Sigma Plus Konservativ 1 is the standard variant of the defensive investment concept and invests in the core universe with a maximum of 20 % in equities. ƕ ƕ Deka-Stiftungen Balance 1, a mutual fund for foundations, uses a sustainability filter for its asset classes and makes distributions quarterly. ƕ ƕ Deka-Kommunal Euroland Balance 1, a fund launched for municipal investors, is designed to appeal to risk averse investors and uses, for example, the Deka LowRisk strategy when selecting equities. ƕ ƕdeka-globalopportunities Plus 1 has a moderate risk profile and can serve as a proxy for an investment in global equities. The fund also takes advantage of short positions and leverage. 1 Ongoing charges incurred during the financial year (FY) of the fund: Deka-Stiftungen Balance: % (FY ); Deka-Kommunal Euroland Balance I (A): % (FY ); Deka-GlobalOpportunities Plus I (A): % (FY ). The ongoing charges may vary from year to year and do not include costs for buying and selling securities (transaction costs) or any fund performance fees. They do, however, include all costs incurred for investing in other funds, if such costs represent a significant percentage of the fund assets (e.g. for funds of funds). Additional legal information on ongoing charges is provided on page

11 Trend following. Use Eurotrend to participate in the capital markets. The goal of a trend-following strategy is to identify market trends in timely fashion and take appropriate positions to participate in the trend for as long as possible. The real challenge is to develop an approach that can correctly identify trend movements. How does a real trend differ from an erratic fluctuation? What position should a trendfollower take in a highly volatile sideways-moving market? This situation is particularly dangerous and leads to numerous incorrect decisions. The requirements outlined here were taken into account more than ten years ago during development of our Eurotrend Balance and Eurotrend Renten / Fixed Income trend-following systems. These systems are based upon a quantitative technical model developed by Deka that uses proprietary indicators to provide high quality information for the identification of trends. The indicators provide information on whether the capital market being analysed is in an upwards or downwards phase. The following product lines have been available on the market for many years: ƕ ƕ Deka-Euroland Balance 1 : This conservative balanced fund was the first mutual fund launched with this concept in 2003 and has since impressively documented that Eurotrend can also achieve attractive returns in volatile markets and markets affected by crises. 2 ƕ ƕ Deka-Balance Dynamisch 1 : This fund uses flexible investment limits and can invest fully in fixed income securities, equities or liquidity depending on the market situation. 2 Facts and figures billion euros in assets is currently under management in Eurotrend concepts. Further information on the reliability of the trend, the risk situation and the quality of the trend identification are also used when taking a position. The Eurotrend-Balance and Eurotrend Renten / Fixed Income product lines were introduced in 2001 and represent one of our core areas of asset management competence portfolios are being managed using Eurotrend concepts. The investment universe consists of Eurozone equities and government bonds. As a rule, investments are made to match the benchmark and derivatives are used to take active positions. A security selection component and / or portfolio protection strategy can also be added depending on client needs. 1 Ongoing charges incurred during the financial year (FY) of the fund: Deka-Euroland Balance: CF % (FY ); Deka-Balance Dynamisch I (A): % (FY ). The ongoing charges may vary from year to year and do not include costs for buying and selling securities (transaction costs) or any fund performance fees. They do, however, include all costs incurred for investing in other funds, if such costs represent a significant percentage of the fund assets (e.g. for funds of funds). Additional legal information on ongoing charges is provided on page Past performance is not a reliable indicator of future performance. 11

12 02 Portfolio management Systematic processes transparent decisions. Quantitative equity funds. Deka Investment is a pioneer in the field of quantitative portfolio management in Germany and Europe. Our equity product range includes strategies such as LowRisk, Core equities, value equities and dividend focus. The Quantitative Equity team develops and implements model-based approaches for active management. Deka has had a quantitative investment process since the 1990s and we were quick to complement it with proprietary risk models ahead of the competition. Keeping control of absolute risk. Our Deka LowRisk Equity product line is designed to answer client demands for stability. It is a benchmarkfree approach that aims to reduce absolute risk while achieving an attractive risk-return ratio. The absolute risk of the portfolio is reduced using an integrated risk management approach focused on mitigating extreme losses. Facts and figures billion euros in assets are managed using our quantitative approach. 27 quantitative equity funds are managed. 4.3 billion euros is currently invested in LowRisk equity strategies. Expected risk-return profile of quantitative equity strategies. Expected annual return Core equities Deka LowRisk equities Deka-Europa Aktien Spezial Market portfolio Minimum-variance portfolio Source: Deka Investment chart illustrating the function of the different strategies Expected annual risk 12

13 Comparable risk, higher return opportunities Unique in the German market. We offer several LowRisk mutual funds that differ according to investment universe Eurozone, Europe and global. In addition, Deka-Europa Aktien Spezial 1 offers a leveraged form of the LowRisk strategy, something that is unique in the German market. It aims to achieve a higher return than the index in a variety of market phases but with a comparable level of risk. Sven Thießen Head of Quantitative Equities Our Core equities strategy has been offered since the end of the 1990s and provides a strong, benchmarkbased product that invests in equities that appear attractive based on a combination of criteria. The dividend focus of the value style or approach allows and enables the investor to access additional sources of return. Our Quantitative Equity team manages the following mutual funds: Deka-Globale Aktien LowRisk 1 Deka-Euroland Aktien LowRisk 1 Deka-Europa Aktien Spezial 1 Deka-EuropaValue 1 24 years of investment experience ƕ ƕ Masters level degree in business administration At Deka since 1997 Equities are becoming more attractive to many investors again due to the ongoing low interest rate phase in bond markets. Sven Thießen and his team use an integrated approach to risk to develop a wide variety of investment strategies. This allows every investor to find a suitable solution to match their individual risk profiles. The equity strategies mentioned above are also used for multi-asset mandates. 1 Ongoing charges incurred during the financial year (FY) of the fund: Deka-Globale Aktien LowRisk I (A): % (FY ); Deka-Euroland Aktien LowRisk CF (T): % (FY ); Deka-Europa Aktien Spezial I (A): % (FY ); Deka-EuropaValue CF: % (FY ). The ongoing charges may vary from year to year and do not include costs for buying and selling securities (transaction costs) or any fund performance fees. They do, however, include all costs incurred for investing in other funds, if such costs represent a significant percentage of the fund assets (e.g. for funds of funds). Additional legal information on ongoing charges is provided on page

14 Quantitative fixed income funds. Quantitative fixed income management has offered custom-tailored fund solutions for institutional clients for more than 12 years. Government bonds, covered bonds and corporate bonds have rarely presented investors with such complex problems as today. As a result of low yields and increased regulation, achieving the steady flow of returns needed is scarcely possible any more using customary targets, risk profiles, investment limits, etc. In order to satisfy increased investor requirements, we focus on: ƕ ƕ Creating modular custom-designed fixed income portfolios based on a risk-controlled investment process ƕ ƕ Using a systematic approach to select bonds with attractive risk-return ratios Transparent, verifiable decision-making processes We have used this approach for years to generate additional returns through active yield curve management and flexible allocation and selection decisions. We use long-term fundamental relationships to predict yield levels and spread changes. The investment process also includes comprehensive management of market and credit risks. Risks are further reduced by the use of broad diversification and controlled, active weighting of individual issuers. Sources of return. Facts and figures. Duration Spread Allocation Yield curve billion euros in assets is managed in quantitative fixed income funds. Currency Rolldown Absolute risk (CPPI) Selection quantitative fixed income funds are managed. Active client portfolio Source: Deka Investment 14

15 Deka LowRisk Corporates. Risk-optimised investments in corporate bonds. Given low expected returns, investors are increasingly looking for ways to optimise potential returns while adhering to a limited risk budget. Corporate bonds continue to offer a good opportunity to improve current income without increasing the overall interestrate risk of a portfolio. The usual weighting based on market capitalisation increasingly leads to investing in high-debt issuers. In contrast, a portfolio strategy that focuses explicitly on risks specific to corporate bonds is an attractive addition to the range of investments available. Avoiding subjective influences The advantages of long experience. Most asset managers follow a traditional approach that may include quantitative techniques, but is predominantly based on subjective assessments at both the allocation and selection levels. A few competitors offer pure quantitative approaches. Deka Investment has the advantage of many years of experience compared to these competitors. As a result, we can offer our investors stable concepts for all market phases. Our track record for quantitative fixed income funds goes back to The first independent institutional fund was launched in We also use our knowledge of academic research combined with our own research to realistically assess the on-going quality of a quantitative investment approach. Dr. Michael Wegener Head of Quantitative Fixed Income Products 14 years of investment experience ƕ ƕ Doctorate degree in business administration with a focus on finance and statistics At Deka since 2004 Fixed income securities are the core of a portfolio for many institutional investors. The team develops modular, customtailored concepts based on a risk-controlled investment process. The quantitative investment process uses proprietary research and academic findings. Customised risk management and efficient implementation in client mandates are an integral part of the investment process. 15

16 Exchange Traded Funds. Exchange traded funds supplement our active quantitative fund management. Investors can make a broadly diversified investment with just a single transaction. Flexible stock exchange trading ensures high liquidity. Deka ETFs are stock exchange traded index funds that replicate reference indices and their performance with high precision. Whenever possible, they aim for full index replication. Unlike synthetic methods, the original securities included in the index are also used for replication. This provides our investors with high transparency and the best replication quality. Deka ETFs can be used for many investment strategies and offer a number of possibilities for institutional investors in particular: ƕ ƕ Broad diversification Liquidity and flexible trading Low total expense ratio High replication quality and transparency Overview of Deka ETFs. Equity ETFs Standard equity ETFs Strategy equity ETFs Fixed income ETFs German government bonds European government bonds Corporate bonds Jumbo covered bonds French government bonds Tax advantages under corporate income tax law Implementation of passive investment strategies. In addition to direct ETF purchases and adding ETFs to actively managed investment funds, we also enable institutional investors to invest in the passive replication of a market. Deka ETFs are therefore ideally suited to passive investments and our team know-how offers significant cost advantages. Facts and figures We have EUR 7 billion in assets under management in the ETF business unit. The ETF business unit manages more than 43 funds. 8 Our ETF unit is staffed by 8 employees. Investors subscribing to and purchasing fund units should be aware that this product involves certain risks and the amount repaid may be less than the amount of capital invested. In the worst case scenario, total loss could occur. 16

17 Risk management. Overlay Management. Risk management across the mandate as a whole. Institutional investors are currently under pressure from two sides. The low interest rate environment makes it difficult to achieve return targets and is forcing investors into riskier allocations. In addition, unexpected capital market volatility places increased demands on risk budgets that have often already been permanently strained by past financial market crises. Overlay management can address this conflict between the need to maintain a strategic orientation and shortterm risk avoidance. We therefore offer our clients overlay management at the master fund level that uses active risk management to limit losses and makes the best possible use of tight risk budgets in capital markets. Dynamic risk management. Multi-layer hedging concept. The core of an overlay is dynamic risk management at the overall fund level, consisting of continuous monitoring of assets and timely, forward-looking analysis of risks. Based on these two sources of information, derivatives are used to meet risk limits at the overall fund level. Our risk analysis goes far beyond traditional value-at-risk. Only a tightly integrated network of position-keeping, price data and risk analysis systems using the latest academic findings can ensure compliance with an agreed lower bound for fund value. We also make efficient use of what is generally a tight resource the risk budget at the master fund level. Dynamic risk management. Fund price Buffer Real time monitoring of assets and risk budget Value lower bound Risk Timely risk measurement and analysis Portfolio structure Reduce risks Make greater use of opportunities Risk management using derivatives and risk limits for segment managers January April July September December Source: Deka Investment illustrative chart 1 1 Chart illustrating the operation of dynamic risk diversification in overlay management. The performance shown is not an example of real performance and is not a reliable indicator of future performance. 17

18 03 Implementation examples Quantitative management in practice. We develop custom-tailored solutions to meet the individual needs of our institutional investors. The following case examples illustrate the procedure we follow and the criteria we use in our advisory process and for portfolio construction. Case example 1. Reallocation using the same risk budget. In order to compensate for a return shortfall from traditional fixed income investments, securities account A of a Savings bank was repositioned so that existing equity risks could be used more efficiently. Case example 3. Investment to match the structure of obligations. A portfolio was modelled to meet a variety of different liability structures for pension fund investments. A total-return concept was chosen for implementation. Case example 2. Dynamic allocation management. New asset classes / investment opportunities were added to a foundation portfolio in order to generate adequate returns. At the same time, the portfolio aims to achieve stable performance and satisfy sustainability criteria. 18

19 Implementation example: Savings bank. Case example 1: Reallocation using the same risk budget. The challenge. A large number of our clients face this challenge: the returns from traditional fixed income portfolios are inadequate to provide expected returns in a low interest rate environment. This specific case concerns a Savings bank with total assets of 2.5 billion euros. The mix of investments is typical for an institution of this size. Initial position. The total investment is 100 million euros. To date, 80 percent has been invested in fixed income and 20 percent in equities. Government bonds and covered bonds represent 40 percent of the fund and a further 20 percent is invested in companies in the EURO STOXX 50. Systematic repositioning. Based on these requirements, we performed a strategic analysis to calculate how much leeway was available for structuring the portfolio in accordance with the required risk budget. The key question was, how can the existing equity risk be used more effectively to achieve additional, stable returns? Our concept. Hedged increase in the portfolio equity allocation based on the LowRisk strategy. The traditional equity investment used to date was replaced by a LowRisk equity strategy. LowRisk concepts focus on the long-term expected returns from equities while simultaneously attempting to reduce risk of loss. Historical data shows that a reference fund managed using the LowRisk approach regularly did better than its pan-european benchmark index over the last five years both in terms of performance and risk factors. 1 Our client will be using a LowRisk strategy for its equity investments in the future, allowing it to raise its equity allocation to 27 percent while maintaining the same level of risk. Change in portfolio structure. German covered bonds Eurozone government bonds German covered bonds Eurozone government bonds 40% 40% 36,3% 36,3% DJ EURO STOXX 50 DJ EURO STOXX 50 20% 27,4% Source: Deka Investment As of January Past performance is not a reliable indicator of future performance. 19

20 Implementation example: foundation. Case example 2: Dynamic allocation management. The challenge. Our client is a foundation with 90 million euros in assets. The foundation assets should generate a regular 2.5 percent return in order to fund the foundation objectives and achieve sustainability. Initial position. In order to ensure that the foundation assets were preserved, investments were made exclusively in secure fixed income securities in the past. The foundation has relied on traditional benchmark concepts to date. The risk is that achieving the objective investment outperforms the benchmark does not necessarily mean a positive return. Our concept. Systematic repositioning. Instead of a one-sided fixed income orientation for the portfolio, we recommend that the client use a dynamic allocation management, which adjusts the fixed income and equity allocations based on market conditions. The strategy should aim at collecting risk premiums in a variety of capital markets while simultaneously making regular distributions and stable performance possible. 20

21 Combination of capital preservation and risk-adjusted returns. This strategy is implemented using a fund specifically designed for foundations, Deka-Stiftungen Balance 1. Our forecasts of the opportunities and risks of all eligible assets are used as the starting point for allocation decisions. The mix of fixed income, equities and liquidity which offers the highest return opportunities while not endangering capital preservation is determined on a monthly basis. Securities are selected based on a clear requirement to choose only investments with an attractive riskreturn profile in each category. Sustainability criteria are also taken into account at all times. Quantitative GTAA multi-level allocation management. Fundamental valuation of asset classes Optimisation process Risk assessment of asset classes Asset allocation Optimal portfolio Selection of equities Active individual security selection Portfolio weighting Selection of fixed income Active maturity selection Source: Deka Investment 1 Ongoing charges: Deka-Stiftungen Balance: %. The ongoing charges indicated here were incurred during the financial year of the fund ending in February The ongoing charges may vary from year to year and do not include costs for buying and selling securities (transaction costs) or any fund performance fees. They do, however, include all costs incurred for investing in other funds, if such costs represent a significant percentage of the fund assets (e.g. for funds of funds). Additional legal information on ongoing charges is provided on page

22 Implementation example: pension fund. Case example 3: Investment to match the structure of obligations. The challenge / initial position. We prepared a funding concept for the pension liabilities of a nationwide association with a number of independent regional institutions. One challenge was that the regional institutions had been managing their investments in a variety of different ways and the assets had to legally remain with each regional institution. Although each institution had formulated different requirements for managing their cover assets, a concept was developed to combine the investments under common management and exploit cost and administrative synergies. Method used. An analysis of the different pension liability structures was critical for successful implementation of the concept. In addition to data on individual pension agreements and employee master data, the actuarial analyses also took salary and pension trends into account. In addition to calculating the size of the pension provisions needed, this also allows a detailed cash flow profile to be determined for each institution. The detailed analysis is the most important tool for the advisors in our corporate fund savings competence team, who use it to calculate current liquidity needs and simulate different discounting examples. This creates a foundation that the investment professionals in Quantitative Fund Management can use to develop integrated investment models for funding. 22

23 Our concept. Repositioning. We recommended a fixed income concept using a total return approach as a basis for the combined pension investments of the public institutions. The priorities were ranked in the following order: first capital preservation, then liquidity and then return. The concept is based on a conservative benchmark: 1-month Euribor plus 100 basis points. Investments are made in EUR fixed income securities; no equity investments. Base portfolio components. Cash Corporate bonds Covered bonds Government bonds Source: Deka Investment Priority: capital preservation. The concept uses a number of different short-term hedging components aimed at reducing risk with no lasting reduction in positive expected returns, as the total return approach allows a variety of sources of return to be used in a riskcontrolled manner without a benchmark 23

24 Individual support. Individual customer support is very important to us. Our experts exchange information continuously to ensure an optimal customer relationship all the way from advice on strategy development and portfolio management to the implementation of clientspecific portfolio requirements. Denis Friess Head of Quantitative Institutional Mandates Yuxia Chen-Fietkau Head of Quantitative Portfolio Management 21 years of investment experience 22 years of investment experience ƕ ƕ Graduate in business administration and financial analyst Graduate in financial mathematics At Deka since 1994 At Deka since 1997 The team is responsible for institutional client support. The investment specialists are direct contacts for quantitative asset management products. They are also available for any questions about funds and investment strategies. The team implements previously-specified target structures for client portfolios. It chooses the appropriate securities for the portfolio, sends the orders generated by portfolio construction to the order system and works with our central trading desk to ensure that purchases and sales are made at the best possible prices. The unit also checks that investment restrictions are satisfied. This increases operational security during implementation of investment decisions. 24

25 04 Deka Institutional Volatile markets stable prospects. Deka Institutional is the Deka Group s brand for institutional investors. In addition to our wide range of institutional and mutual funds, capital market solutions and ETFs, our strength lies in our service model, which provides custom-tailored solutions for the entire value chain, from strategy analysis and product design to reporting and controlling. Effective integration of asset management and banking. Our goal is to optimally address the individual needs of investors using highly specialised teams that focus our strengths and expert knowledge for different investor groups. By combining services and expertise like portfolio management, fund administration and capital market competence under one roof, we benefit from the resources and broad range of products and research services offered by a large corporate group that we can use to the advantage of our investors. Supported by Sparkassen-Finanzgruppe, the largest financial alliance in Europe, the Deka Group also provides a solid foundation to the benefit of our investors. Facts and figures Our fund business manages more than 218 billion euros in assets. Deka Institutional is currently in charge of around 105 billion euros in assets for professional investors. Detailed information: Deka Institutional range of products and services. Specialist Teams Savings Banks Pensions Plans and Schemes Insurance Non-profit Institutions Public sector Financial Institutions Corporates Family Offices Product Solutions Fundamental Approach Quantitative Approach Real Estate Concepts Capital Market Solutions Lending Solutions Exchange Traded Funds (ETFs) Services Securities Services Asset Servicing Alternative Investment Platform (DALI) Advisory Services Fiduciary Management Strategic Consulting Consultant Relations Source: DekaBank 25

26 DekaBank. Outstanding service. DekaBank consistently receives very good ratings from the leading international rating agencies. The long-term unguaranteed ratings given by Standard & Poor s have recently stood at A, respectively. Investors who value sustainability will be attracted by the Prime status awarded by oekom. Ratings DekaBank. Standard & Poor s Moody s Unguaranteed ratings 1 Long-term rating A Short-term rating A-1 P-1 Guaranteed ratings 2 Long-term rating (guaranteed) AA- Aaa Ratings for public mortgage bonds 3 Mortgage bond rating AAA Aaa 1 Unguaranteed ratings which the leading international rating agencies Standard & Poor s and Moody s have assigned to DekaBank s liabilities since 19 July Guaranteed ratings assigned to DekaBank s liabilities up to 18 July 2001, irrespective of their term - or assigned for the transitional period from 19 July 2001 to 18 July 2005, with a maximum term expiring on 31 December Ratings for the public mortgage bonds issued by DekaBank. Source: S&P, Moody s As of 01 / 2016 (Moody s), 09 / 2015 (Standard & Poor s) Facts and figures A AAA Long-term unguaranteed rating by Standard & Poor s. Standard & Poor s rating for public mortgage bonds. Total expenses as a percentage of average fund assets for a financial year. Ongoing charges include all expenses incurred in connection with fund management, except for transaction costs and any performance fees. The ongoing charges indicated here apply to the last financial year of the fund concerned. Securities concepts are subject to fluctuations in value. These fluctuations could lead to losses. This information is no substitute for a meeting with an advisor. The sole binding basis for a purchase of a Deka investment fund is the key investor information, sales prospectus and reports for the fund, which are available in German from your Sparkasse bank, German state bank (Landesbank), Deka-Bank Deutsche Girozentrale, Frankfurt, Germany and at 26

27 Contact. There for you. Deka Institutionell DekaBank Deutsche Girozentrale Mainzer Landstraße Frankfurt Postfach Frankfurt Germany Phone: (+49) Fax: (+49)

28 D / 500 / m As at: 04/2016 DekaBank Deutsche Girozentrale Mainzer Landstraße Frankfurt Postfach Frankfurt Germany