Company PAGE 3 COMPANY

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2 Disclaimer The funds referred to in the booklet have not been approved by the Swiss Financial Market Supervision Authority (Finma) pursuant to the Swiss Collective Investment Schemes Act of 23 June 2006 (CISA) and its implementing regulations. Therefore, these funds may only be distributed to qualified investors, such as defined in provision 10 3 of the CISA and in the Ordinance of 22 November 2006 on Collective Investment of Capital and may only be distributed in Switzerland or from Switzerland. The information and the document relative to these funds do not constitute a public offer and can only be used by qualified investors as described above. They are strictly confidential and cannot be disseminated to any other person without Fundo s prior consent. Fundo S.A. cannot be held responsible for the non-accuracy, the non-completeness and the nonavailability of the information and the document relative to the funds; it cannot be held responsible for the damages resulting from actions taken on the basis of these information and documents. The funds described in the booklet can be subject to sales restrictions in some countries. It is therefore up to each investor to check what are these restrictions and if they apply to them.

3 Company Since its foundation in 2002, Fundo has specialised in understanding and managing risks associated with equities in institutional clients portfolios. From the very outset, it has offered asset-management services geared, in the main, towards Swiss and international occupational pension fund schemes. MANAGING RISKS IN EQUITY PORTFOLIOS Market risk is one of the factors having the greatest influence over volatility in asset allocations. As a result, it can exert a considerable impact on the soundness of a pension fund s financial position. So this risk can be actively managed, Fundo has devised since it first started up in business, in partnership, most notably, with EPFL (Swiss Federal Institute of Technology), tools to provide protection against risk in a dynamic way. In addition, since 2002, Fundo has been publishing the Fundo V-LPP indices, which are representative of this particular approach; since 2007, it has been managing portfolios according to this principle. SECURING STABLE RETURNS In tandem, Fundo launched a complementary product range focusing on assets that are not listed and whose stable returns contribute towards endowing institutional clients financial position with a greater degree of stability. This range, with the first investment product being launched centred on the theme of microfinance in 2006, is currently being broadened. In the long run, it should number four distinct sub-funds. A MANAGER OF SWISS COLLECTIVE INVESTMENTS Since 2012, Fundo SA has been subjected to supervision from Finma which granted the company the authority to operate as a manager of Swiss collective investment schemes (Article 13, para. 1, of the Swiss Federal Law on Collective Investment Schemes CISA). Under this framework, the company also abides by the Swiss Federal Law on Combating Money Laundering & Terrorist Financing (AMLA) and is monitored by a self-regulation organisation (SRO). COMPANY PAGE 3

4 Services Risk-Driven Cashflow-Driven Asset Allocation Listed Equities Funds SIF LUX Mandates VLPP VDI Risk Overlay Funds Fundo VLPP Fundo Equity World (VDI) Finethic Microfinance Merchant Finance Indices Fundo VLPP 25 Fundo VLPP 40 Risk-Driven There are two principles that guide Risk-Driven investing: firstly, determining the risk budget by quantifying risk as a function of volatility; secondly, managing this risk budget so that it is fully urtilised without going over-budget. I THE RISK BUDGET Investment risk and the rewards garnered from taking this risk form the cornerstone of pension fund investing. Therefore risk should be budgeted and reviewed on a constant basis against that budget. However, two issues arise: Institutional clients seldom formulate a risk budget; and Investment risk varies over time. Accordingly, Fundo works with its clients to help them to set their risk budget; once set, Fundo constantly monitors the variation in investment risk enabling the pension fund to take best advantage of swings in markets and not fall victim to them. This is done by optimising and adapting the asset allocation within the risk budget set by the client. I ASSET ALLOCATION VLPP Mandates Fundo VLPP Fund Fundo VLPP indices I LISTED EQUITIES VDI Mandates Risk Overlay Mandates Fundo Equity World (VDI) Fund PAGE 4 SERVICES / RISK-DRIVEN

5 VLPP Mandates VLPP mandates are explicitly addressed to Swiss professional pension management and mixed management mandates whose make-up is geared towards LPP indices. There, however, the similarities stop. Fundo does not, in reality, manage a pre-set allocation by applying rebalancing rules to reshuffle the allocation to move it closer into line with benchmark weightings. Its made-to-measure management can be adapted to suit all types of strategic allocation as agreed in consultation with the client. I METHODOLOGY The approach devised by Fundo is geared towards managing a risk budget according to its flexible exposure to certain asset classes. If risks rise, the allocation is rebalanced and shifted towards the least volatile asset classes (bonds and cash). If risks fall, exposure to the riskiest asset classes, typically equities, will be increased so that the risk budget assigned to that particular portfolio can be used to its maximum extent. I A PORTFOLIO ENJOYING GREATER STABILITY Active monitoring of the portfolio s volatility by employing Fund VLPP principles helps to minimise losses especially maximum losses with less time taken to recoup those losses. By adhering to the prudential principle of risk control, this dynamic management approach provides a greater measure of stability for the assets being managed and better balance between the pension fund s assets and liabilities. As a result, the need for any remedial measures (e.g. an employer being required to make significant un-budgeted one-off capital infusions, or beneficiaries having to agree to a reduction in benefits) can be avoided or at least significantly reduced. The chart above illustrates the pattern for an asset allocation managed according VLPP principles since The portfolio s volatility is measured daily. As soon as a pre-set tolerance limit is reached, the portfolio rebalancing mechanism kicks in to increase or decrease the weighting accorded to risk assets. RISK-DRIVEN PAGE 5

6 Fundo VLPP Fund For institutional clients used to managing scheme assets in the form of balanced management mandates or funds, Fundo has created the Fundo VLPP investment fund incorporated under Swiss law based on the same approach as pursued with VLPP management agreements. This collective investment scheme enables institutional clients to gain access to Fundo s VLPP methodology, even for quite small-scale investments. I METHODOLOGY The risk budget for the Fundo VLPP fund is defined by the Pictet LPP 25 index. If risks rise, the allocation is rebalanced and shifted towards the least volatile asset classes (bonds and cash). If risks fall, exposure to the riskiest asset classes, such as equities, will be increased so that the risk budget assigned to that particular portfolio can be efficiently used. I A PORTFOLIO ENJOYING GREATER STABILITY Active monitoring of the portfolio s volatility helps to minimise losses especially maximum losses with shorter times taken to recoup those losses. By adhering to the prudential principle of risk control, this dynamic management approach provides a greater measure of stability for the assets being managed and better balance between the pension fund s assets and liabilities. As a result, the need for any remedial measures (e.g. an employer being required to make significant un-budgeted one-off capital infusions, or beneficiaries having to agree to a reduction in benefits) can be avoided or at least significantly reduced. The portfolio s volatility is measured daily. As soon as the pre-set tolerance limit is reached, the portfolio rebalancing mechanism kicks in to increase or decrease the weighting accorded to risk assets. PAGE 6 RISK-DRIVEN

7 Fundo VLPP Indices Indices in the Fundo VLPP index family are constructed on the basis of the thinking that underpinned the formulation of the LPP 2000 index family developed by Pictet. The series of assets underlying both indices are the same, but their weightings are different. Weightings are fixed in the LPP family of indices whereas they become variable in the VLPP family. I METHODOLOGY To ensure volatility of the VLPP composite index matches the median volatility of the corresponding LPP index, weightings for the various components are reassessed at the end of each month. At times when markets are experiencing considerable swings, the proportion in the most volatile components, in this instance equities, is scaled down to offset the extra fluctuations that they are engendering. This mechanism shifts into reverse during phases where markets are enjoying subdued volatility. I SEEKING TO IMPROVE THE RISK/RETURN TRADE-OFF Controlling volatility and rebalancing asset classes according to shifts in risk mean that the Fundo VLPP index can perform distinctly better than the Pictet LPP 25 and LPP 40 benchmark indices, with volatility reduced by around 25%. RISK-DRIVEN PAGE 7

8 Risk Overlay Mandates In those cases where institutional clients already have portfolio-management structures they are happy with, Fundo can round these out by providing them with an extra cushion of protection. To do this, Fundo employs a hedging methodology offering better control of risks stemming from swings in the equities compartment of institutional clients portfolios. I METHODOLOGY Courtesy of its model first developed in 2002, Fundo measures a portfolio s exposure to equity risk on a daily basis and, if needed, undertakes hedging activities designed to lessen this exposure so as to provide the portfolio with extra protection during phases of big swings in share prices. The hedging involves selling futures contracts in equity indices to diminish exposure should volatility rise and buying back the contracts to increase net exposure again once the risks begin to recede. I BENEFITS This Risk Overlay approach affords portfolios greater resilience to big market swings by limiting the extent of maximum losses. As a result, the need for any remedial measures (e.g. an employer being required to make significant un-budgeted one-off capital infusions, or beneficiaries having to agree to a reduction in benefits) can be avoided or at least significantly reduced. When a given market index s volatility deviates from its historical average to a material level, the portfolio s exposure to that particular market is reduced by selling futures contracts on the relevant market index. Once the volatility in that market moves back closer to its historical average, the futures contracts are sold thereby returning the portfolio to its initial level of exposure to the given market. PAGE 8 RISK-DRIVEN

9 VDI Mandates VDI mandates are founded on the same methodology employed for Risk Overlay mandates. In addition to the hedging though, they encompass management by Fundo of a portfolio of international shares that can account for all or a portion of the pension fund s allocation to this particular asset class. I METHODOLOGY Under this type of mandate, the portfolio s target asset allocation is defined according to Fundo s allocation modelling which assigns the weighting for an index and the exposures by market. So as to optimise costs, exposure to exchange-rate risks and the liquidity of positions, investments are made through futures contracts on the following markets: the USA, Europe, Japan, the UK, Switzerland, Australia and Canada. When market volatility is low, the target allocation is the same as that for the selected index, as a passive management strategy is more efficient according to this model. When market prices are undergoing bigger swings i.e. market volatility is high, exposure to each market is reduced depending on its volatility level. I BENEFITS Dynamically managing risk inherent in exposure to equities makes it feasible to improve the portfolio s risk/return trade-off and boost confidence levels in the predictability of how it will perform. Under the terms of a VDI mandate, the client s portfolio is invested in a mix of index futures so as to replicate a predefined index as a passive strategy. When a given market index s volatility deviates from its historical average to a material level, the portfolio s exposure to that particular market is reduced by selling futures contracts on the relevant market index. Once the volatility in that market moves back closer to its historical average, the futures contracts are sold thereby returning the portfolio to its initial level of exposure to the given market. RISK-DRIVEN PAGE 9

10 Fundo Equity World (VDI) Fund The Fundo Equity World (VDI) fund is a sub-fund of a Luxembourg-based SICAV Part II. It has been managed according to the approach implemented by Fundo for its VDI mandates since November 2011, based on the MSCI World TR Hedged to CHF benchmark index. I METHODOLOGY This fund s target asset allocation is defined on the basis of the weightings in the MSCI World index, with exposures to markets defined according to Fundo s proprietary model. So as to optimise costs, exposure to exchange-rate risks and the liquidity of positions, investments are made through futures contracts on the following markets: the USA, Europe, Japan, the UK, Switzerland, Australia and Canada. When market volatility is low, the target allocation is the same as that for the MSCI World benchmark, as a passive management strategy is more efficient according to this model. When market prices are undergoing bigger swings i.e. market volatility is high, exposure to each market is reduced depending on its volatility level. I BENEFITS Dynamically managing risk inherent in exposure to equities makes it feasible to improve the portfolio s risk/return trade-off and boost confidence levels in the predictability of how it will perform. The impact of such spells of market upheaval is thus limited thanks to dynamic control of exposures. The risk of maximum losses is reduced by a factor varying between 35% and 50%. PAGE 10 RISK-DRIVEN

11 Cashflow-Driven In its efforts to guard against the occasionally erratic swings of the markets, Fundo has focused on investment opportunities offered by classes of unlisted assets, ones not vulnerable to market swings, thereby making it feasible to generate regular income streams for investors. I PROTECTING CAPITAL BY GENERATING RETURNS Institutional clients do not solely need to safeguard their capital; they also have to generate cash inflows with the greatest degree of regularity possible, thus enabling them to honour their commitments to pensioners in the long-term. To this end, Fundo offers pension schemes three complementary sub-funds: the first invested in microfinance; the second in renewable energies; the third in international commodities trading. A fourth product focusing on small-business financing is currently being developed. I FINETHIC S.C.A. SICAV-SIF INCORPORATED UNDER LUXEMBOURG LAW Finethic Microfinance: Launched in 2006, this sub-fund is centred on providing senior debt financing to microfinance institutions in emerging markets; this enables them to provide working capital loans and other services to micro and small businesses in their acutely underserved markets. Merchant Finance: Set up in 2013, this sub-fund is geared towards short-term financing of trade between buyers and sellers of commodity cargoes. SME Financing: Currently in the pre-launch study phase, this sub-fund will focus on financing of small businesses that have expanded thanks to input from microfinance. It is worth noting that the Finethic Microfinance sub-fund is already involved in some financing operations of this type. CASHFLOW-DRIVEN PAGE 11

12 Finethic Microfinance Microfinance was born out of the ashes of the failures of international humanitarian aid initiatives. In the space of 30 years, it has cemented its role as an alternative strategy for fostering economic development. It is predicated on the notion that it is more efficient to finance entrepreneurial initiatives in order to improve the fortunes of people in the most disadvantaged parts of the world in a sustainable way, rather than simply doling out aid without seeking to create value. I LENDING TO MICROBUSINESSES By providing loans to individuals or communities of individuals who traditionally have had no access to financial services, microbanks provide these micro-entrepreneurs with the opportunity to build profitable businesses which, if successful, will ensure financial independence for those individual micro-entrepreneurs in the future. I DIVERSIFICATION AND SOLID RETURNS The Finethic Microfinance sub-fund patently does not lend funds directly to individuals, but to local microfinancing institutions that independently manage their own client portfolios. Since it was set up in 2006, Finethic Microfinance has granted over 320 loans, totalling in excess of 300 million dollars, to more than one hundred such establishments located in 36 countries. To date, this sub-fund has never registered a negative monthly return. Since it was launched, Finethic Microfinance has provided investors with consistent and predictable returns. Broad diversification, the lack of currency risk and investments limited to granting of loans have enabled the sub-fund to attain its long-term goal of a return matching LIBOR basis points, with no negative returns at all. PAGE 12 CASHFLOW-DRIVEN

13 Merchant Finance The Merchant Finance sub-fund s investment objective is to offer institutional clients a source of extra diversification through involvement in the financing of international trade. This investment opportunity is arising at a time when investment and merchant banks are partly withdrawing from this arena on account of the ever more stringent regulations as regards to capital adequacy. I FINANCING WORKING CAPITAL All industrial businesses involved in the processing and transportation of raw materials are faced with the same need to finance their working capital before being in a position to resell their goods at higher prices. To keep their businesses running smoothly, they contract short-term senior loans, but, given the dearth of business lending, they are being obliged to redeploy their own capital resources. The upshot of this is a combination of shrinking business volume and less trade. I COLLATERALISED LOANS International trade is financed by bringing together lenders and borrowers who make reciprocal commitments to each other by issuing senior-ranked credit. The mechanics of this involve the credit extended being secured by the collateral of the goods already acquired and pre-sold at a price set in advance. This is the type of lending that the Merchant Finance sub-fund focuses on, its aim being to offer investors optimal diversification. CASHFLOW-DRIVEN PAGE 13

14 FUNDO SA Avenue de Tivoli 2 CH 1007 Lausanne T F FUNDO SA Dreikönigstrasse 31a CH 8002 Zürich T