Designing Target-Date Strategies that Provide Predictable Retirement Outcomes

Transcription

1 Designing Target-Date Strategies that Provide Predictable Retirement Outcomes Glenn A. Dial Head of US Retirement Strategy Allianz Global Investors Tim Friederich Solutions Specialist Allianz Global Investors Maarten Rust Senior Director Financial and Pension Risk Philips

2 Back to the Future DB-ization of DC Plans Plan Type Goal Range of Outcomes Defined Benefit Guaranteed Income None $22k per year Degree of Certainty 100% Target Date Packaged Maximize Average Account Balance High $450k Average Balance $280k $750k 80% Target Date Custom Reliable Income Narrow $22k per year $20k----$26k 95% Numbers are for illustrative purposes only

3 Return (%) Why Is Risk Management So Important? Largest Loss Since 2008 for 59+ Year Olds 2015 Target-Date Funds 0 Fund A Fund B Fund C Fund D Fund E Fund F Fund G Fund H Fund I Fund J Fund K Fund L Fund M Fund N Fund O Fund P Fund Q Fund R Fund S Fund T Fund U Fund V Fund W Fund X Fund Y Fund Z A QDIA must be diversified so as to minimize the risk of large losses. - US Department of Labor, Sept. 06 Source: Morningstar Direct. Data represents the largest loss from peak to trough period between 01/01/2009 and 06/30/2014. Past performance is no guarantee of future results. For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. 3

4 Flows (Millions $) Behavioral Economics At Work: TDF Investors Near Retirement Sell During Market Downturns During the 2008 Financial Crisis, net flows into target-date funds near retirement turned negative Target-Date Funds 1, Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Source: SimFunds. Data as of 03/31/2014. For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. 4

5 Customized Target-Date Solutions 1. Unique Resources Creating optimized participant outcomes Plans may be taking more investment risk than is necessary by not optimizing plan design elements to achieve meaningful savings rates to generate desired replacement income targets Behavioral Finance Actions Save (increase participation) Save More (increase Deferral Rates) Save Smarter (position investments wisely) Optimized Participant Outcomes Investment Strategies Glidepath Risk Profile Conservative Moderate Aggressive 5

6 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. Different building blocks of customization on the road to outcome-oriented DC plans Glidepath Design with Optimization Multiple Glidepaths Dynamic Management Income Solutions Defensive Aggressive Strategic Asset Allocation Dynamic Multi Asset Plus Income Return Moderate Defensive 0% Return Conservative Increase of return potential over a market cycle Substantial mitigation of downside risk Schematic illustrations. The information and charts above are provided for illustrative purposes only, and not an accurate representation of the characteristics of an portfolio. The charts do not reflect actual data or show actual performance and are no indication of future characteristics or performance. 6

7 The ultimate goal: Limit the downside, keep the upside Portfolio Return Benefits of asymmetric risk/return profile: 1. Focus on downside-protection. Investors weigh losses twice as heavy as equal-sized gains. (D. Kahneman, A. Tversky) 0% Market Return 2. Smooth road to investment goal. This asymmetric risk-return profile seeks to reduce volatility and create a smoother road to the investor s goals. 3. Increased potential to performance in the long run. You gain by not losing: In order to make up for a loss of -20% in one year, you need a 25% return in the next year. For a loss of -40% in one year, you need a 67% return the next year. Strategy seeks to avoid high portfolio losses 0% Schematic illustration for illustrative purposes only. This is not an accurate representation of an actual Risk Management Overlay portfolio. The charts do not reflect actual data or show actual performance and are not indicative of future results. For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. 7

8 The SAA contains 50 % bonds and 50% stocks (see footnote) Representative account (approx. 738 mn EUR) Successful risk management in different market regimes Supplemental Information Performance (Net of Fees) Mandate 118.4% SAA 69.6% Year Mandate with Risk Mitigation Strategy SAA Benchmark (50% Equity/ 50% Fixed Income) Added Value 2014 YTD 8.00% 6.92% 1.08% % 8.88% 3.19% % 13.07% -3.81% % 0.04% 2.37% % 12.02% -3.31% % 20.19% 0.18% % % 19.59% % -0.03% 0.05% % 4.01% 2.25% 2005 (since Feb.) 15.66% 14.07% 1.59% Over time, the risk mitigation strategy has created the desired asymmetric return profile. Source: IDS/Allianz Global Investors, per June 30, SAA Benchmark is comprised of 50% Equity and 50% Fixed Income: 44.4% MSCI World Net TR, 5.6% MSCI EM Net TR, 26% JPM EMU Bond Index, 12% Barclays Euro Aggregate, 5% Barclays Euro Corporate, 4% JPM EMBI Global Composite, 3% Barclays World Inflation-Linked. Performance of a representative account net of fees in Euros as of June 30, Past performance is not indicative of future results. Portfolio characteristics and performance are Supplemental Information, and supplement the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR Composite presentation in the Appendix. Net returns were calculated on a total return basis, including all dividends (income and expense) and interest, accrued income, realized and unrealized gains or losses, and are net of all brokerage commissions, execution cost, investment advisory fees, and any performance fees. The portfolios in the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR have a similar Strategic Asset Allocation ( SAA or benchmark ) when measured by the percentage of equities, REITs, commodities or other assets with equity-like risk characteristics ( risk assets ). Individual portfolio performance can vary significantly due to the risk budgeted path-dependent returns. For example, portfolios may have different dates upon which their risk budgets are reset, based on individual clients guidelines, and this feature may produce significant dispersion among the portfolios in a given period. This path-dependent aspect of the strategy produced unusually high dispersion between this representative account (which represented a significant percentage of the total assets under management in the Composite) and the other portfolios in the Composite and relative to the SAA/benchmark in October 2008, which resulted in significant outperformance of the Composite s performance relative to the benchmark/saa in See additional disclosure at the end of this presentation. 8

9 Allocation Annual Returns Statistics Representative account (approx. 738 mn EUR) Portfolio allocation and performance statistics (net of fees) Supplemental Information 40% 30% 20% 10% 0% -10% -20% -30% SAA 31.3% -19.3% Mandate 26.7% 5.4% 8.0% -8.7% min/max are minimum and maximum returns of rolling 12-month scenarios; mean is the arithmetic mean max mean min Mandate SAA Return total 118.4% 69.6% Volatility 5.9% 7.0% Sharpe Ratio Min. return 12m rolling -8.7% -19.3% 100% 90% MSCI World Performance 80% 70% 60% 50% SAA Equity Quota 40% 30% 20% 10% 0% Cash 7.6% Bonds 47.5% Stocks 44.9% diversified allocation aggregated to bonds/ stocks level Source: IDS/Allianz Global Investors, per June 30, SAA Benchmark is comprised of 50% Equity and 50% Fixed Income: 44.4% MSCI World Net TR, 5.6% MSCI EM Net TR, 26% JPM EMU Bond Index, 12% Barclays Euro Aggregate, 5% Barclays Euro Corporate, 4% JPM EMBI Global Composite, 3% Barclays World Inflation-Linked. Performance of a representative account net of fees in Euros as of June 30, Past performance is not indicative of future results. Portfolio characteristics and performance are Supplemental Information, and supplement the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR Composite presentation in the Appendix. Net returns were calculated on a total return basis, including all dividends (income and expense) and interest, accrued income, realized and unrealized gains or losses, and are net of all brokerage commissions, execution cost, investment advisory fees, and any performance fees. The portfolios in the Dynamic Multi Asset Plus Moderate Asymmetric Total Return EUR have a similar Strategic Asset Allocation ( SAA or benchmark ) when measured by the percentage of equities, REITs, commodities or other assets with equity-like risk characteristics ( risk assets ). Individual portfolio performance can vary significantly due to the risk budgeted path-dependent returns. For example, portfolios may have different dates upon which their risk budgets are reset, based on individual clients guidelines, and this feature may produce significant dispersion among the portfolios in a given period. This path-dependent aspect of the strategy produced unusually high dispersion between this representative account (which represented a significant percentage of the total assets under management in the Composite) and the other portfolios in the Composite and relative to the SAA/benchmark in October 2008, which resulted in significant outperformance of the Composite s performance relative to the benchmark/saa in See additional disclosure at the end of this presentation. 9

10 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. Transition risk affects everyone who hedges against longevity risk Timeline Savings Phase 30+ years of saving Retirement Income Phase 20+ years of spending Primary Focus Areas Portfolio Value Retirement Income Transition Major Risks for Individuals! Market Risk Did your asset value decline at an unfavorable time?! Transition Risk How much income can you afford at current interest rates?! Longevity Risk Will you outlive your money given your asset value and current rates? 10

11 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. Pricing a guaranteed income stream Today s Price of Income Retirement Retirement Income Stream Factoring in Survival Probabilities age Depending on Interest Rates Furthermore, the retirement income stream can include several features, e.g. indexation, income to dependents in case of death, etc. 11

12 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public /12 Example: fair value of an annuity over time* Fair value of an income stream of $1,000 per month for a 65-year-old US investor $220,000 $200,000 $180,000 $160,000 $140, / / / / /01 male female 60/40 portfolio +13.6% +12.4% -21.6% $120,000 $100,000 $80,000 $60, male female / / / / /07 male female 60/40 portfolio +15.9% +14.2% +5.9% * This price does not factor in any cost. Survival probabilities are based on the Period Life Table of the Social Security Administration of the USA, as of Interest rates are the US Treasury Constant Maturity Rates as published by the St. Louis Fed. Interest rates for maturities between reported maturities are interpolated. The 60/40 portfolio consists of 60% stocks (represented by the S&P 500 Total Return Index) and 40% fixed income (Barclays US Aggregate Index) and is monthly rebalanced. The above diagram illustrates a hypothetical example only and is no guarantee of future performance. 12

13 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. The importance of transition risk Saving for retirement has a reason: To have money in retirement. The positive trend of increasing life expectancies bears the risk for retirees to outlive their money and increases longevity risk. When protecting against longevity risk (which is advisable to do to some extent in most cases) investors are exposed to transition risk. The impact of transition risk is significant and, closer to retirement, can have an even bigger impact than market risk. how can I manage transition risk? 13

14 allocation Combination possible (also with decumulation through drawdown) For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. How to manage transition risk The optimal solution will always take into account the specific retirement plan, its characteristics and its investment goals, as well as the plan setup and regulatory requirements. Two possible approaches: Include income products in glidepath Annuity Focus Strategy 100% 80% income 60% 40% 20% return-generating 0% years to retirement Include retirement income product in glidepath already in savings phase and gradually shift towards income as a focus. It is important that the glidepath accounts for the particular risk-return profile to determine the optimal allocation. Reduce interest rate sensitivity mismatch between the portfolio and the targeted retirement income stream/product. This enables to reduce transition risk while maintaining high flexibility (no purchases of guarantee products during savings phase necessary yet). The above diagram illustrates a hypothetical example only and is not indicative of past or future performance. 14

15 DMAP Moderate Asymmetric Total Return EUR Period Composite Gross Return (%) Benchmark* (%) DYNAMIC MULTI ASSET PLUS MODERATE ASYMMETRIC TOTAL RETURN EUR No of Portfolios Period End Total Assets in Mio Composite Dispersion (%) Composite St Dev 3Y (%) Benchmark St Dev 3Y (%) % of FIRM assets Total Firm Assets in Mio Allianz Global Investors is a global asset management business, operating under the marketing name Allianz Global Investors through affiliated entities worldwide, with approximately EUR 345 billion in assets under management and advice as at 31 December The Firm claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. For purposes of compliance with GIPS the "Firm" is defined as Allianz Global Investors Europe GmbH, the business unit that is managed by the Global CIO, Allianz Global Investors and consists of the fund management teams in Germany that report to CIO Allianz Global Investors Europe GmbH and Global CIO Allianz Global Investors Multi Asset, the members of which participate in the Allianz Global Investors global research meetings and the infrastructure of Allianz Global Investors globally. For periods ending before December 31, 2011, the Firm was defined as a investment advisory organization which operated under the brand name RCM ("RCM Europe"). In 2012, through a global restructuring of the Allianz Global Investors business, the group of firms that coordinate their research, investment and/or trading activities (the Global Investment Platform ) was expanded to include additional investment advisory firms. As a result the firm name (former RCM Europe) has been changed first to Allianz Global Investors Kapitalanlagegesellschaft mbh, and later to Allianz Global Investors Europe GmbH. Allianz Global Investors Europe presents the DYNAMIC MULTI ASSET PLUS MODERATE ASYMMETRIC TOTAL RETURN EUR strategy in Europe. Allianz Global Investors Europe has been verified for periods by an independent verifier. 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. A complete list and description of Allianz GIobal Investors Europe's composites is available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance is available upon request. This Composite, created in December 2013, includes all fee-paying, discretionary portfolios denominated in EUR that follow the Dynamic Multi Asset Plus active asset allocation approach with the following characteristics: The accounts within this composite are managed with the objective of delivering an improved risk / return profile compared to their custom benchmarks or Strategic Asset Allocations (SAA). The weight of equity type asset classes (e.g. equities, REITs or commodities) in the SAA or benchmark is above 40%, but below or equal to 70%. For the accounts within this composite, the absolute risk is actively managed. The Dynamic Multi Asset Plus investment approach also includes accounts that have previously been associated with other composites, e.g. ARP BALANCED, MULTI ASSET BALANCED PLUS DEFENSIVE, MULTI ASSET BALANCED PLUS DYNAMIC or MULTI ASSET BALANCED PLUS OPPORTUNITY. The inception date of the composite is April 1,2005. Allocation shifts within Dynamic Multi Asset Plus portfolios are implemented, in many cases, via futures or other derivatives, both long and short. As short futures are hedging instruments, hedging is a key component of the Dynamic Multi Asset Plus approach. Some funds are allowed to have an investment degree above 100%. Performance results and valuations are presented in EUR. In contrast to the benchmark, composite returns are net of non-reclaimable withholding taxes on dividends, interest and capital gains. Beginning July 1, 2009 the repayable portion of the withholding tax is reported as a deferred asset. The resulting effect is considered to be immaterial. The returns are stated gross of management / advisory and custodial fees. Actual returns will be reduced by management / advisory fees and other expenses that may be incurred in the management of an account. For segregated portfolios, the management fee starts at 50bps p.a., subject to scale and to a minimum fee. The dispersion of annual returns is measured by the standard deviation across equal-weighted account returns represented within the composite for the full year. Standard deviation is not considered statistically meaningful when there are fewer than five accounts in the composite during the period. Past performance is not a reliable indicator of future performance. You should not make any assumptions about the future performance based on this information. Investment results will vary depending on market conditions, exchange rate fluctuations, the composition of the portfolio of securities, trading expenses, etc. Investment results will vary among individual portfolios within the composite. There may be a difference in the exchange rate used for calculating benchmark returns and those used for valuation of the portfolios. The effect of these differences is deemed to be immaterial. These factors and possible differences in calculation methods should be considered when comparing composite results with those published by other investment information providers, investment advisers, investment vehicles and unmanaged indices. Results should also be considered relative to the risks associated with the investment objectives of the portfolios within the composite. Allianz Global Investors U.S. LLC ( AllianzGI US ) is an investment advisory firm registered with the U.S. Securities and Exchange Commission and presents the above referenced strategy in the United States. Registration does not imply a certain level of skill or training. Certain portfolios in the composite are managed through a participating affiliate arrangement by investment professionals supervised by AllianzGI US, employed by an affiliate of AllianzGI US located outside of the United States and not registered with the SEC as an investment adviser. Such investment professionals are associated persons of AllianzGI US, as that term is defined in the U.S. Investment Advisers Act of 1940, as amended. For a complete list of the Firm s composite descriptions, as well as information regarding the Firm s policies for valuing investments, calculating performance, and preparing compliant presentations, please write to Allianz Global Investors U.S. LLC, 555 Mission Street, Suite 1700, San Francisco, CA Period Composite Gross Return p.a. (%) , ,348 1 Year , ,096 2 Years , ,341 3 Years , ,186 4 Years NA ,287 5 Years NA ,619 6 Years NA ,971 7 Years NA ,097 8 Years Benchmark* p.a. (%) For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. 15

16 DMAP Moderate Asymmetric Total Return EUR The portfolios in this composite have a similar Strategic Asset Allocation ( SAA or benchmark ) when measured by the percentage of equities, REITs, commodities or other assets with equity-like risk characteristics ( risk assets ), with the objective of achieving asymmetric returns, participating in up markets while mitigating losses in down markets. Individual portfolio performance can vary significantly due to the risk budgeted path-dependent returns. For example, portfolios may have different dates upon which their risk budgets are reset, based on individual clients guidelines, and this feature may produce significant dispersion among the portfolios in a given period. In 2008, an account with a risk budget that reset on October 1 would be exposed to risk assets, including equities, when the equity markets were experiencing one of the sharpest declines in history; this higher exposure would reflect the asset allocation to risk assets based upon the SAA set in the client guidelines and its long-term exposure to risk assets. On the other hand, a portfolio with a risk budget that reset on January 1 would likely, in a year like 2008, have already met its target risk level based on the portfolio s SAA and therefore would have been de-risked, protecting it from the sharp decline in the equity markets. This path-dependent aspect of the strategy produced unusually high dispersion between a single portfolio (which represented a significant percentage of the total assets under management in the Composite) and the other portfolios in the Composite and relative to the SAA/benchmark in October 2008, which resulted in significant outperformance of the Composite s performance relative to the benchmark/saa in Performance is presented gross of fees. Gross returns were calculated on a total return basis, including all dividends and interest, accrued income, realized and unrealized gains or losses, and are net of all brokerage commissions and execution costs, and do not give effect to investment advisory fees which would reduce such returns. The presentation does not reflect the deduction of investment advisory or other applicable fees. AllianzGI US s standard investment advisory fees are described in Part 2A of its Form ADV. Actual fees charged may vary by portfolio due to various conditions, including the type of client and the amount of assets under management. The effect of advisory fees on performance compounds over time. As an example, the effect of investment advisory fees on the total value of a portfolio -- assuming (a) $1,000,000 investment, (b) portfolio return of 5% per year, and (c) 0.75% annual investment advisory fee -- would be $7,816 in the first year, $46,801 over five years, and $117,273 over ten years. * The composite Benchmark is Asset Weighted Benchmark. The calculation of asset weighted benchmark returns uses the beginning-of-period weightings of each fund in the composite and the monthly performance of the funds individual benchmarks. As of 2013, the breakdown of the benchmark is 35.3% of '28% JP MORGAN EMU INVESTMENT GRADE RETURN, 20% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET), 15% IBOXX EURO CORPORATES RETURN, 10% HFRX GLOBAL HEDGE FUND EUR INDEX PRICE, 7% JP MORGAN EMBI+ COMPOSITE HEDGED RETURN, 7% MONEY MARKET EONIA (1 DAY MATURITY) (EUR), 7% MSCI EM (EMERGING MARKETS) EUR TOTAL RETURN (NET), 6% MSCI EUROPE SMID CAP TOTAL RETU RN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 23.6% of '50% JP MORGAN EMU INVESTMENT GRADE RETURN, 50% MSCI THE WORLD INDEX TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 15.3% of '44.4% MSCI THE WORLD IND EX TOTAL RETURN (NET), 26% JP MORGAN EMU BOND INDEX RETURN, 12% BARCLAYS CAPITAL EURO-AGGREGATE RETURN, 5.6% MSCI EM (EMERGING MARKETS) TOTAL RETURN (NET), 5% BARCLAYS CAPITAL EURO-AGGREGATE: CORPORATE RETURN, 4% JP MORGAN EMBI GLOBAL COMPOSITE RETURN, 3% BARCAP WORLD INFLATION LINKED RETURN REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 8.1% of '50% JP MORGAN EMU BOND INDEX 1 TO 3 Y RETURN, 35% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET), 15% MSCI EMU EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 7.8% of '50% EURO STOXX 50 TOTAL RETURN (NET), 50% MERRILL LYNCH EMU DIRECT GOVERNMENTS AAA-AA RATED 1-10 YRS EUR UNHEDGED UNHEDGED REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 2.8% of '40% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET), 25% JP MORGAN EMU IN VESTMENT GRADE RETURN, 15% IBOXX EURO CORPORATES RETURN, 10% JP MORGAN EMBI+ COMPOSITE HEDGED RETURN, 10% MSCI EM (EMERGING MARKETS) EUR TOTAL RETUR N (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 2.7% of '55% JP MORGAN EMU INVESTMENT GRADE 1 TO 7 Y RETURN, 45% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and 1.5% of '50% MSCI Wo rld Total Return (Net) + 50% JP Morgan EMU Bond Index' and 1% of '60% MSCI THE WORLD INDEX TOTAL RETURN (NET), 40% JP MORGAN EMU GOVT BOND INDEX RETURN REBASED LAST BUSINESS DAY OF MONTH IN EUR' and.7% of '50% JP MORGAN EMU BOND INDEX 3 TO 5 Y RETUR N, 30% MSCI EUROPE TOTAL RETURN (NET), 10% DOW JONES UBS COMMODITY RETURN GROSS, 10% MSCI WORLD EX EUROPE TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and.5% of '40% JP MORGAN EMBI+ COMPOSITE HEDGED RETURN, 40% EM CROSS HEDGED WITH USD TO EUR TOTAL RETURN (NET), 20% DOW JONES UBS COMMODITY HEDGED IN EUR TOTAL RETURN REBASED LAST BUSINESS DAY OF MONTH IN EUR' and.5% of '50% JP MORGAN EMU INVESTMENT GRADE 1 TO 7 Y RETURN, 50% MSCI THE WORLD INDEX EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR' and.2% of '50% JP MORGAN GLOBAL GBI HEDGED RETURN, 50% MSCI THE WORLD HEDGED IN EUR TOTAL RETURN (NET) REBASED LAST BUSINESS DAY OF MONTH IN EUR'. The breakdown of the custom benchmark for different time periods is available upon request. All details and information contained in this report have been carefully investigated and checked by IDS/Allianz Global Investors GmbH Analysis and Reporting Services (IDS/Allianz Global Investors), however IDS/Allianz Global Investors does not assume liability for the accuracy and/or completeness of the content 4/2014 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. 16

17 Important Risk Considerations This presentation describes certain product capabilities of Allianz Global Investors U.S. LLC ( AllianzGI US ). These strategies may involve selling and buying derivatives including put and/or call options, futures and swaps and may not be suitable for every investor. No assurance can be given that any particular investment objective will be achieved. Among the risks specific to these strategies that AllianzGI US wishes to call to the attention of prospective investors are the following: The use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in the investments underlying the derivatives. Derivatives can be more volatile and involve significant risk and can disproportionately increase losses and reduce opportunities for gains. Derivative transactions may produce effects similar to leverage and expose an account to related risks. Consequently, an adverse change in the relative price level can result in a loss of capital that is more exaggerated than would have resulted from an investment that did not involve the use of leverage inherent in the derivative contract. For each strategy, the collateral requirement may vary depending on the use of an active or passive underlying portfolio, and on the extent to which the strategy uses derivatives. For each strategy, securities from the passive or active underlying portfolio may be pledged as collateral in order to implement the derivative positions. The collateral rules are based on the greater of Reg T rules (standard collateral rules defined by the CBOE and the SEC) and requirements of counterparties. When collateral is used to implement derivative positions, it is possible that a decline in market value of the positions could force the portfolio to cover any shortfall by liquidating non-cash assets. The timing of such liquidation may be adverse. When writing put and call options, the premium received may not be sufficient to offset any losses sustained from the volatility of the underlying investments. Call options purchased for an account and not sold prior to expiration will expire worthless if the value of the underlying security or index at expiration is less than the exercise price of the option, causing the account to lose its entire investment in the option. Put options purchased for an account and not sold prior to expiration will expire worthless if the value of the underlying security or index at expiration exceeds the exercise price of the option, causing the account to lose its entire investment in the option. The account may be required to sell investments at times it would not otherwise choose to do so in order to settle derivatives. Such sales may result in losses on such investments and will, in addition, involve transaction costs. Options on indices may not correlate perfectly with the underlying investments and may not act as expected. Such transactions may not achieve their objectives and may result in (or add to) losses to the account. Strategies described herein are dependent on the smooth functioning of the markets for the particular instruments being purchased or sold. If such markets do not operate as expected, the strategies described herein could be adversely affected. Past results are not necessarily indicative of future performance and performance may be volatile. 4/2014 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. 17

18 Disclosure All materials are presented for Institutional Client use only and are not intended for distribution to the public. The strategy may not achieve its desired results. Past performance is not indicative of future results. All returns are gross unless otherwise noted. Gross returns do not give effect to investment advisory fees, which would reduce such returns. Investment advisory fees are described further in Form ADV Part 2A Brochure of the investment adviser named in the performance presentation of the relevant strategy (the Adviser ). Advisory fees deducted periodically from accounts can have an impact on performance. As an example, the effect of investment advisory fees on the total value of a portfolio assuming (a) $1,000,000 investment, (b) portfolio return of 5% per year, and (c) 1.00% annual investment advisory fee would be $10, in the first year, $56, over five years, and $129, over ten years. Actual fees charged may vary by portfolio due to various conditions, including account size. The presentation may also contain net performance information. Notes to the performance presentation contained herein describe the methodology used to calculate net of fee performance. The results for individual accounts and for different time periods may vary. Descriptions of a strategy s investment process, and targeted, expected and similar forward-looking portfolio information are based on the Adviser s future expectations regarding the strategy. Although the Adviser manages the strategy with the goal of achieving these expectations, actual results may vary, and the publication of these expectations should not be construed as a guarantee. Representative account characteristics do not reflect composite performance, which may be different. On any given date, any portfolio managed in the indicated strategy may include securities not held by the representative account, and may not hold each security held in the representative account. Consequently, any particular account may have portfolio characteristics and performance that differ from those of the representative account. Portfolio characteristics and other information contained in this presentation have been obtained from independent research providers and other sources the Adviser believes to be reliable, but the Adviser cannot guarantee that the information is accurate, current or complete. Certain projected characteristics (such as the forward P/E ratio) of the Representative Account and indices shown may have been estimated. Estimates (est.) are preliminary and unaudited. Estimated data reflect subjective judgments and assumptions and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted in this brochure. For more information regarding account characteristics, please contact Allianz Global Investors U.S. LLC. ( AllianzGI US ) Nothing contained in this presentation constitutes an offer to sell, or the solicitation of an offer to buy or a recommendation to buy or sell any security; nor shall anything in this presentation be considered an offer or solicitation to provide services in any jurisdiction in which such offer or solicitation would be unlawful. The information provided is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular situation. The asset and industry reports contained herein are unaudited. The summation of dollar values and percentages reported may not equal the total values, due to rounding discrepancies. Where applicable, currency conversions are provided by Russell Performance Universe and are based on monthly linked performance converted from U.S. dollar, and exchange rates are provided by the Federal Reserve Statistical Release as of month end. Unless otherwise noted, equity index performance is calculated with gross dividends reinvested and estimated tax withheld, and bond index performance includes all payments to bondholders, if any. Indexes are referred to for comparative purposes only and are not intended to parallel the risk or investment style of the portfolios managed by the Adviser. Indexes do not utilize leverage. Index calculations do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index. Index data contained herein (and all trademarks related thereto) are owned by the indicated index provider, and may not be redistributed. MSCI or other index providers have not approved, reviewed or produced this report, make no express or implied warranties or representations and are not liable whatsoever for any data in the report. You may not redistribute the MSCI or other index data or use it as a basis for other indices or investment products. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. S&P Dow Jones Indices has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the S&P Dow Jones Indices data or use it as a basis for other indices or investment products. Allianz Global Investors U.S. LLC ( AllianzGI US ) is an SEC registered investment adviser that provides investment management and advisory services primarily to separate accounts of institutional clients and registered and unregistered investment funds. AllianzGI US manages client portfolios (either directly or through model delivery and wrap fee programs) applying traditional and systematic processes across a variety of investment strategies. AllianzGI US may also provide consulting and research services in connection with asset allocation and portfolio structure analytics. NFJ Investment Group LLC is an SEC registered investment adviser and wholly-owned subsidiary of AllianzGI US. Although Allianz Global Investors U.S. LLC is registered with the CFTC as a commodity pool operator ( CPO ) and commodity trading adviser ( CTA ), it operates client accounts in this strategy, including funds (if any) as if it were exempt from registration as a CPO or CTA. The strategies described herein are offered in the United States by AllianzGI US. In rendering investment advisory services to its clients, AllianzGI US may use the resources of its investment advisory affiliates ( Participating AGI Affiliates ), including risklab, to provide certain services to AllianzGI US clients. Under collaboration agreements, each of the Participating AllianzGI Affiliates and any of their employees who provide services to clients of AllianzGI US are considered "associated persons" of AllianzGI US as that term is defined in the Investment Advisers Act of 1940, as amended. 6/2014 Disclosure/2 For Institutional Plan Sponsor Use Only Not to be shown or distributed to the public. 18