STANLIB Multi-Manager Offshore Funds Brochure
01 Introduction 02 Key Investment Professionals 03 Investment Philosophy 04 Rationale Behind Investment Philosophy 07 Investment Process 16 Offshore Fund Range 17 Why STANLIB Multi-Manager Offshore?
Introduction STANLIB Multi-Manager is a wholly owned subsidiary of the Liberty Group. The business was established in 1999 with current assets under management in excess of R50 billion, R20 billion of which is global. We manage a spectrum of multi-strategy investment solutions for private and institutional clients. Our offshore assets are managed from London. STANLIB Multi-Manager has an advisory agreement with FundQuest UK Limited a subsidiary of BNP Paribas Investment Partners within the BNP Paribas Group. Through this agreement, STANLIB Multi-Manager is supported by the manager research and portfolio construction capabilities provided by FundQuest. The BNP Paribas Group has structured their investment business on a multi-boutique model, based on a partnership approach. FundQuest is the multi-manager specialist of the Group, providing innovative product solutions. Established business Long term track record managing offshore assets Sizeable offshore business with in excess of R20 billion under management Reputable global partner with extensive experience Investment management is our only business 1
Key Investment Professionals STANLIB Multi-Manager s global funds are managed by Kent Grobbelaar, who is based in London and has exposure to more than 30 investment professionals based in Paris, London and Singapore. Kent has full access to the FundQuest research, manager proprietary database, portfolio construction tools and risk management models. The figure below shows the key STANLIB Multi-Manager investment personnel (refer Appendices for more detail). Figure 1 Offshore Portfolio Manager Kent Grobbelaar South Africa CIO Joao Frasco FundQuest Partnership Manager Selection Quantitative Research Qualitative Research Portfolio Management Research European Equities Guy Davies Quants Jean Marie Piriou Portfolio Management Thierry Creno Pankaj Shah Portfolio Management Malcolm Holmes Fixed Income / Absolute Return / Alternatives Peter Norton Global Equities Hans Hamre Research Support A truly global business Experienced investment professionals Partnership model allows access to a wide range of skills and expertise 2
Investment Philosophy We believe markets are efficient over the long term. However, pricing inefficiencies exist in the short term and asset managers adopt different strategies through various market cycles. It is these opportunities that we look to exploit for the benefit of our clients. We believe risk-adjusted returns can be maximised through applying the widest levels of information to the broadest range of investment opportunities. We aim to combine: Alpha from identifying and accessing high quality active asset managers, combined effectively to reduce risk with; Beta through exploiting changing market conditions and capturing relative value across countries, asset classes, market capitalisation and investment styles We aim to maximise the information ratio 1 for given performance targets and believe that alpha is a more appropriate measurement of a manager s relative performance after adjusting for risk. Clearly defined investment philosophy Maximise investment opportunities through various market cycles Combine alpha with beta management 1. Measures a portfolio manager s ability to generate excess returns relative to a benchmark 3
Rationale Behind Investment Philosophy Wider Opportunity Set The fundamental law of active management states that the information ratio from active management increases with the square root of breadth available to the manager. Grinold 2 states that the value added through active management is based on two parameters - the manager s skill and the breadth of opportunities available. Maximizing the value-add would be achieved through broadening the opportunity set and that clearly implies providing managers with more tools to add value. IR = n + IC + TC Information ratio Opportunity set Information coefficient Transfer coefficient Added value (risk-adjusted) Breadth of investable universe Hit rate Value of correct decision Beta Management We consider active (alpha) and passive (beta) mandates as complementary approaches in building portfolios. While passive mandates offer the diversified market exposure at low cost, active mandates offer the alpha (relative outperformance) potential. Markets are efficient, inefficient or semi-efficient through various stages of the full market cycle. For this reason, we believe that along with active management, passive management has an important role to play in a global portfolio - adding a passive component to any portfolio should be an active investment decision. Various research studies have validated our rationale for combining high active (alpha) and passive (beta) management. The median information ratio of combined active/passive portfolios outperformed closet active managers Research 3 conducted by index provider MSCI, shows that across different equity market segments allocating for example 60% of the investments to passive mandates and 40% to a high active risk manager, led to an active risk level (tracking error) similar to that of low active risk managers. By comparison, an 80/20 allocation exhibits less active risk see Table 1. 2. Grinold, R. (1989). The Fundamental Law of Active Management. The Journal of Portfolio Management. 15(3). 30-37 3. Collective insight (Autumn 2011): Combining active and passive management p.16-18 4
Table 1 Tracking Error Statistics of Active Equity Funds Median Tracking Error US Large / Mid Cap US Small Cap EAFE / World ex US World Emerging Markets Low Active Risk Manager Universe 3.1 5.5 3.3 3.6 3.3 Whole Manager Universe 4.5 8.1 4.6 6.1 4.8 High Active Risk Manager Universe 8.2 11.7 7.2 10.0 7.7 Source: MSCI, evestment Alliance. 10 years ending 31 March 2010. Low and high active risk manager universes are defined as the two groups of managers who have a bottom quartile/top quartile tracking error respectively Active Risk Profile of Different Combinations of Passive and High Active Risk Mandates Median Tracking Error of Different Combinations US Large / Mid Cap US Small Cap EAFE / World ex US 40% Passive / 60% High Active Risk 4.9 7.0 4.3 6.0 4.6 60% Passive / 40% High Active Risk 3.3 4.7 2.9 4.0 3.1 80% Passive / 20% High Active Risk 1.6 2.3 1.4 2.0 1.5 World Emerging Markets Source: MSCI, 10 years ending 31 March 2010 Table 2 below shows the simulated historical performance of high versus low active risk managers in the 10 years ended March 2010. Across all segments, high active risk managers achieved higher excess returns and information ratios. The gap between the information ratios of high and low active risk managers has been most significant amongst global managers and emerging market managers. As a result, the combinations of passive and very active (alpha) managers achieved higher information ratios in each market segment. Table 2 Historical Performance of Different Combinations of Passive and High Active Risk Mandates (10 Years) Median Excess Return US Large / Mid Cap US Small Cap EAFE / World ex US World Emerging Markets Low Active Risk Manager Universe 0.77 0.86 0.06 0.20-0.02 High Active Risk Manager Universe 4.04 3.09 1.27 5.47 3.07 Median Information Ratio US Large / Mid Cap US Small Cap EAFE / World ex US World Emerging Markets Low Active Risk Manager Universe 0.21 0.17 0.03 0.05-0.01 High Active Risk Manager Universe 0.44 0.26 0.21 0.64 0.41 Median Information Ratio of Different Combinations US Large / Mid Cap US Small Cap EAFE / World ex US World Emerging Markets 40% Passive / 60% High Active Risk 0.43 0.25 0.18 0.63 0.38 60% Passive / 40% High Active Risk 0.42 0.24 0.17 0.62 0.37 80% Passive / 20% High Active Risk 0.42 0.23 0.16 0.61 0.35 Source: MSCI 5
Active manager success rates inconclusive through full market cycles In 2010, FundQuest released a comprehensive white paper 4 entitled When Active Management Shines vs. Passive - the analysis covered more than 30,000 mutual funds over a 30-year period ended February 2010. The study revealed that the percentage of managers that outperformed their respective segments (benchmark category), which the study refers to as the manager success rates, was mixed and depends largely on the market behaviour within the respective segments during market cycles. The analysis found that after adjusting for risk, active managers on average generated positive alpha in bull markets, but negative alpha in bear markets over the 30-year period. The study reconfirms that both active and passive investments have their strengths and weaknesses, resulting in a role for blending both types of investing to optimally manage portfolios. Table 3 below shows the median manager success rates in a number of segments, for the period ended August 2013. Success rates in 2009 were superior to those in 2011. Over a 5-year cycle however, they were low, implying that 2008 and 2010 were also bad years for active investment management. Interestingly, both small cap and emerging market funds fared as badly or lagged their developed market/large cap counterparts providing little evidence to supporting 100% active management in these sectors, which are supposed to be under-researched and inefficient. Kindly note that this does not imply that active management always underperforms, evidence is merely highlighting the importance of blending active investments with passive investments during certain environments. In this regard see the Portfolio Construction section on page 12. Table 3 29/08/2008 to 30/08/2013 31/12/2010 to 30/12/2011 31/12/2008 to 31/12/2009 Universe Benchmark Return #Funds Global Equity Large Cap Global Equity Small Cap Global Emerging Markets Equity Large Cap MSCI World NR USD MSCI World Small Cap NR USD MSCI EM GR USD Avg Rel. Perf. Return #Funds Avg Rel. Perf. Return #Funds Avg Rel. Perf. 19.27% 628-10.99% 18.11% 729-4.57% 66.57% 688 4.92% 28.57% 14-13.91% 13.33% 15-6.01% 53.33% 15 0.26% 16.35% 159-10.91% 25.47% 212-2.10% 27.27% 176-4.50% Passive management is an active investment decision Core low active managers achieve low success rates Both active and passive investments have their strengths and weaknesses Blend highly active with passive management 4. http://www.fundquest.com/press-resea.htm 6
Investment Process Our investment process covers the following four main steps: 1 2 3 4 5 Selection of an appropriate benchmark Blending active with passive Manager selection Portfolio construction and optimisation Ongoing monitoring / TAA 1. An Appropriate Benchmark It All Starts With Beta The first step in our process is the choice of the most appropriate benchmark (beta). A key differentiator in our process is our ability to broaden and deepen the opportunity set to include a wider investable market that includes both developed and emerging markets, as well as large, mid and small cap stocks. Many asset managers select to or are mandated with a benchmark that allows them to invest in off-benchmark markets and/or stocks. This results in clients taking on additional risk, also known as off-benchmark risk, which is acceptable when the asset manager outperforms, but is to the client s detriment when the manager underperforms the chosen benchmark. We consider the aforementioned as beta outperformance and not alpha. It is therefore crucial for us to ensure we select the appropriate benchmark (market return) and that the benchmark is aligned with the underlying asset manager s allocated mandate. The graph below shows why it is important not to confuse alpha with beta. 450 400 350 300 Percentage Growth (USD) 250 200 150 100 50 0-50 30/08/2013 31/12/2012 30/04/2012 31/08/2011 31/12/2010 30/04/2010 31/08/2009 31/12/2008 30/04/2008 31/08/2007 29/12/2006 28/04/2006 31/08/2005 31/12/2004 30/04/2004 29/08/2003 31/12/2002 30/04/2002 31/08/2001 29/12/2000 MSCI World GR USD MSCI World Small Cap GR USD MSCI EM GR USD Source: FundQuest/Morningstar; Percentage growth total return from 29/12/2000 to 30/08/2013 7
As part of our investment process, we use the MSCI All Countries IMI 5 benchmark. Table 4 below demonstrates how such an appropriate benchmark allows us to broaden our opportunity set ( breadth ) - a more widely investable benchmark that includes both developed and emerging markets, as well as small capitalisation stocks. Table 4 % of ACWI IMI MSCI World 75.89 Plus MSCI EM Standard 11.17% Equals MSCI ACWI 87.06% Plus MSCI DM Small Cap 11.40% Plus MSCI EM Small Cap 1.54% Equals MSCI ACWI IMI (New Benchmark) 100% MSCI World Index MSCI AC Country World Index MSCI AC Country World Index IMI Companies Market Cap (US$mn) Companies Market Cap (US$mn) Companies Market Cap (US$mn) 1,648 22,900,438 2,418 326,308,803 8,550 30,289,935 Source: MSCI The first active decision is the choice of the optimal strategic benchmark The benchmark more adequately reflects the risk / return trade-off of the investable universe 5. MSCI All Country World Investable Market Index (ACWI IMI) - a broad and investable global equity benchmark for asset allocation; performance measurement and attribution, covering approximately 8,500 securities across size, style and sector segments in 45 developed and emerging markets 8
2. Blending Active with Passive FundQuest s research on active management highlights how low equity manager success rates in the core / blended space have been across various market cycles this coincides with research conducted by MSCI and Lin et al (2009) 6, which found global equity managers with larger active bets achieved higher information ratios than their peers with smaller active bets. For that reason we construct portfolios by combining alpha (highly active asset managers 7 ) with beta (passive asset managers 8 ). We believe this to be a more efficient allocation in optimally blending portfolios through different market cycles. MorningStar Category Success Rate 1 Success Rate 2 Success Rate 3 Success Rate 4 Success Rate 5 World Stock n/a 69% 72% 51% 43% Universe Benchmark % # Funds 29/08/2008 to 30/08/2013 31/12/2010 to 30/12/2011 31/12/2008 to 31/12/2009 Avg Rel. Perf % % # Funds Avg Rel. Perf % % # Funds Global Eq Large Cap MSCI World NR USD 19.3 628-11.0 18.1 729-4.6 66.6 688 4.9 Global Eq Small Cap Global EM Eq Large Cap MSCI World Small Cap NR USD Avg Rel. Perf % 28.6 14-13.9 13.3 15-6.0 53.3 15 0.3 MSCI EM GR USD 16.4 159-10.9 25.5 212-2.1 27.3 176-4.5 Source: BNP Paribas IP FundQuest. Proprietary research on 32k funds, 30 years (five cycles Bull and Bear periods) Split Between Active and Passive There are times when the allocation to passive can be increased depending on the market environment. Research indicates that the current optimal split between the active and passive components of a portfolio varies over time. The ratio guidelines are as follows Active: 40% - 70% Passive: 30% - 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Active 40% - 70% Passive 30% - 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: BNP Paribas IP - FundQuest 6. Lin, W, Hoffman, P and Duncan, A (2009); Investing in global equities an alternative approach to structuring equity portfolios Journal of Portfolio Management, 35(2) 7. Active management: Attempt to beat the market as measured by a particular index 8. Passive management: Aim to mimic the returns from a given index by buying all or most of the holdings in that index 9
3. Manager Selection Our manager selection process encompasses thorough quantitative and qualitative screening as well as an operational due diligence process through which we aim to select high alpha unconstrained managers that are able to deliver above average returns consistently. The diagram below briefly outlines the manager selection stages Quantitative analysis: generating ideas Segmentation of universes: clustering In-depth like-for-like returns based analysis Screening, clustering and scoring of opportunities Pre-selection list Qualitative research: building conviction Fundamentally attractive Suitable Investment due diligence Recommendations Ongoing monitoring Risk due diligence: risk mitigation Independent Experienced Љ Љ...ratifies recommendations Quantitative Analysis Risk due diligence Approved list The first stage of our manager selection process is the construction of peer groups whereby the analysts conduct research (i.e. the collation of composite performance and portfolio data) and interviews in order to perform initial screening, clustering, evaluation of performance consistency (returns-based analysis) and initial scoring of asset managers. Step 1: Involves the collation of composite performance data into universes derived from third party providers (such as Morningstar), direct asset management houses and in-house reconstruction of broken manager records. This allows the quantitative team to build a proprietary database for further analysis. Step 2: Entails FundQuest proprietary quantitative analysis combining two methodologies to screen and cluster data within the database - Љ Љ Clustering analysis: this analysis groups mandates / funds into clusters based on the correlation of their absolute returns / volatility to multiple factors considered important to specific markets (examples include market capitalisation, exposure to emerging economies etc.); Priori analysis: provides an overlay to clustering and uses a number of factors (which differ by market) to divide a universe (examples include relative risk, beta etc.). The above analysis typically results in the constitution of peer groups, which collectively provide coverage of the overall market. Step 3: The third step deals with the interpretation and qualification of peer groups. The retrospective performance of managers is analysed relative to like-peers within pre-defined peer groups. Five years of discrete performance history is used to assess consistency (or shorter where relevant to cover a market cycle). Discrete calendar year performance is used to avoid any distortion from cumulative returns and managers track records from previous companies are taken into consideration, where appropriate. Subject to a qualitative overlay, those investment managers in the highest 20% (by 10
consistency ranking ) will merit further analysis i.e. will be placed on a core/watch list. Typically, over a five-year period a Long Term Quantitative (LTQ) score allows for one poor year of performance, acknowledging that even the best managers will underperform at some point. Various quantitative checks assess the validity of performance records, looking at factors such as benchmark correlation / tracking error etc. Third party multi-factor software is also used to investigate present and historic portfolios for style consistency and attribution. The purpose is to provide insight as to how specific investment approaches are likely to react in different market environments and is a useful double check to the segmentation of universes. Qualitative Analysis Our qualitative research focuses on two main outcomes as part of the overall qualitative research process - understanding sources of added value (i.e. are they repeatable?) and identifying the period / context that is most suitable for alpha generation. The analysts typically meet with the Core / Watch list asset managers twice a year, with formal conference calls taking place in alternate quarters. In order to avoid personal bias and to maintain momentum, intellectual debate and objectivity, teams of two analysts hold around 1,000 research meetings per annum. The areas of qualitative analysis focus on four key areas People (experience, stability and investment culture) Process and philosophy (consistency, stability and discipline) Performance (consistency who owns the track record) Product (holdings consistent with philosophy, terms / pricing) Intensive desk research is also undertaken on an ongoing basis. A thorough knowledge of asset managers and the key drivers in their markets maximises the quality of debate, be it internal or with asset managers. Agendas are agreed upon prior to meetings and the Research Support Team compiles comprehensive preparation packs. The investment process also takes advantage of secondary research. From an institutional perspective, FundQuest accesses the research of Mercer Investment Consulting (Global Investment Manager Database) which provides qualitative views, manager ratings, news flow and demographic data on more than 2,000 management groups, from over 2,500 research reviews per annum carried out by over 30 full time research analysts. In addition, Standard and Poor s Management Group Research provides qualitative views and quantitative analysis of asset managers. An overall score of 70 or more out of 100 indicates a pass rate for the qualitative hurdle. In addition to face-to-face meetings, regular ad-hoc calls are undertaken with asset managers to discuss recent performance, market dynamics and any changes to people, process etc. Full investment reports are written, peers reviewed and posted on the FundQuest internal proprietary database (CUDOS) following each meeting. Reports are written to a prescribed content, including a clear opinion and an assessment of how the asset manager may perform throughout a market cycle. CUDOS is an immensely powerful tool, which, regardless of location, enables the team to access qualitative and quantitative analysis on the broadest universe of asset managers and to interpolate the information as appropriate. CUDOS was developed for and by FundQuest s investment team specifically to aid interpretation and decision making. The Core Lists reflect the universe segmentation undertaken (i.e. defensive, core, aggressive and small caps). Core Lists only include investment managers that have passed the qualitative and quantitative hurdles. In addition, each recommended asset manager is awarded a Conviction Score (typically one to three) and an assessment of Risk (typically A to C), the latter representing an assessment of how it may react to differing market environments. Risk Due Diligence - Risk Mitigation The overall goal of the risk due diligence (RDD) exercise is to provide an independent opinion of the quality of the asset managers operational infrastructure. The RDD is a five step process consisting of the following - Step 1: Short List Committee (due diligence agenda, fund referencing and frequency: bi monthly) Step 2: Operational analysis (corporate structure, fund structure, background checks and portfolio structure) Step 3: On-site visit (interviews, trade process, investment process, operations etc) Step 4: Referencing (investment approval form, risk profile, due diligence report and ranking grid) Step 5: Monitoring (documentation update, etc) 11
The RDD team provides the Selection Committee with input on the following to ratify their recommendations: Business model and infrastructure (share holding structure, financial stability, human capital, technological capabilities etc) Operations (middle and back office capabilities, pricing etc) Risk management processes and culture (monitoring and controls regarding investment guidelines) Legal and compliance disciplines (personnel and systems etc) Portfolio construction is based on the research analysts approved buy list and model portfolio, however Kent Grobbelaar, as the Portfolio Manager, has the final say regarding the overall mix of asset managers and more importantly engages with the underlying managers directly. Performance is monitored relative to analyst recommendations while we also ensure adherence to South African rules and regulations. Quarterly Investment Committee meetings are held and chaired by FundQuest CIO, Christophe Belhomme. The main purpose of these meetings is the ratification of Core/Lists and recommendations appointment and / or termination of asset managers. The Core Lists reflect the universe segmentation undertaken earlier. Core/ Watch Lists only include asset managers that have passed the qualitative and quantitative hurdles and are focused to ensure they represent the full research conviction of the respective teams. A short list of these managers is maintained for each peer group. Asset managers on this Watch List are also subject to regular monitoring of both performance and qualitative characteristics. The effective maintenance of the Watch List is crucial in guaranteeing our ability to respond promptly to any significant deterioration in either the quantitative or qualitative characteristics of a Core List manager. As an integral element of the investment process, the sell-discipline draws on the significant level of information and analysis undertaken by the respective teams. The sell-discipline draws on three main catalysts for changing an asset manager, as follows - Fit a belief that the inclusion of an asset manager within a model or live portfolio no longer fits well, for example if there are unanticipated biases Event - such as corporate, manager or team changes which are viewed in a negative light and Relative conviction - if as a result of ongoing research, relative conviction in an alternative asset manager is greater than a Core List incumbent A rigorous quantitative and qualitative process Extensive coverage of funds Proprietary databases Risk due diligence performed to mitigate risks Clear sell-discipline in place 12
4. Portfolio Construction Manager Diversification Manager diversification is a key component in our portfolio construction process. Research 9 has shown (see graph below) that active median asset managers have underperformed the MSCI AC World Index consistently over time. The graph shows the trailing 12-month excess return of global equities (net) relative to the MSCI All Countries Index. Similarly the graph highlights there is a significant divergence between the top and bottom performers, proving the point that manager selection is vital. We believe it is important to diversify single manager risk by diversifying between asset managers, thereby allowing us to deliver a more consistent risk / return outperformance profile over time. 20 15 10 % Excess Return 5 0-5 -10-15 -20-25 8/1/2012 2/1/2012 8/1/2011 2/1/2011 8/1/2010 2/1/2010 8/1/2009 2/1/2009 8/1/2008 2/1/2008 8/1/2007 2/1/2007 8/1/2006 2/1/2006 8/1/2005 2/1/2005 8/1/2004 2/1/2004 8/1/2003 2/1/2003 Source: FundQuest/Morningstar 95th Percentile Median 5th Percentile Construction of Equity Portfolio The main objective for the active equity building block is to combine investment styles to (1) generate a beta of one relative to the benchmark to ensure the overall portfolio is balanced - no single manager should dominate the returns of the entire portfolio; and (2) to achieve appropriate style diversification. A range of classifications exists to cluster investment styles. We make use of the following manager style classifications to construct and optimise the active equity building block - Value Style The strategy of selecting stocks that trade for less than their intrinsic value. Value managers actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to both good and bad news, resulting in stock price movements that do not correspond with the company s long-term fundamentals. Typically, value managers select stocks with lower-than-average price-to-book or price-to-earnings ratios and / or high dividend yields Growth Style A strategy whereby a manager seeks stocks with what they deem good growth potential. In most cases, a growth stock is defined as a company, whose earnings are expected to grow at an above-average rate compared to its industry or the overall market 9. BNP Paribas IP - FundQuest 13
Defensive Style During bear markets these managers typically perform better than the market, however, during a bull market cycle they perform below the market. Betas of defensive managers are typically less than one Aggressive Style During bull markets these managers tend to perform better than the market; however, during a bear market they perform below the market. Betas of aggressive managers are typically more than one The difficulty in predicting a winning style in a particular market, points to the importance of adopting a globally balanced approach. Value versus growth performance fluctuates at different times and magnitudes throughout countries around the world. Since individual markets tend to experience different cycles of economic growth, corporate profits, inflation and interest rates, value and growth stock performance differ between markets globally. Although it is often said that growth and value investing are diametrically opposed, a better way to view these two styles is to consider a quote by Warren Buffett - growth and value investing are joined at the hip. In conjunction with value and growth style diversification we also blend the equity portfolio with our Beta Barbell clustering methodology. Market conditions over the past number of years have made it increasingly difficult to box managers as growth or value quality growth has been very defensive, while deep value has been very aggressive. The aforementioned allows us to further optimise the equity building block through market cycles along with the flexibility to adjust the beta exposure, if needed to, of the overall portfolio. Passive Building Block In addition to the standard manager selection criteria, a number of issues are taken into consideration in the final selection of asset managers. These include portfolio design, fund rules, segregated accounts, asset size, fees, tracking errors and market coverage. Aligned with our investment philosophy of widening the opportunity set ( breadth ), the combined passive mandates (i.e. weightings and indices) broadly present the respective portfolios with the required global equity exposure as part of the passive building block. Construction of Bond Portfolio Typically, bond funds are benchmarked against a sovereign-only index and cannot take advantage of the wider opportunity set within the broader bond space. In order to benefit from an expanded opportunity set, we include corporate emerging market, high yield, securitized and inflation-linked bonds in the active bond building block. The exact same construction approach is applied with the active and passive building blocks. Constructing the portfolio on a multi-manager basis reduces single manager risk Multi-manager and style investing form the basis of the portfolio construction process Combination of passive and high active mandates achieve higher information ratios Passive mandates provide broad market exposure Active mandates reflect conviction in adding alpha through manager skill 14
5. Portfolio Monitoring / TAA The underlying asset managers and positioning of the portfolios are monitored on an ongoing basis. The research team s disciplined approach to qualitative and quantitative data ensures that relationships with asset managers do not cloud our judgment when making decisions as to which asset managers are most suitable at a point in time. Conversely, the relationships STANLIB Multi-Manager has with asset managers assists us in testing our views on whether the portfolios are still optimally constructed and provide us with an additional sounding board and ongoing open debate when making tactical decisions. We refer to our My-Side, Buy-Side, Sell-Side process - My-Side - as an active asset manager, we conduct our own research into global trends, prevailing market conditions and asset managers Buy-Side - our strategic relationship with underlying asset managers provides us with an opportunity to cross-check our theories against theirs and challenge their decisions Sell-Side - finally, we compare our research with external research conducted by international brokers and large investment banks My Side Sell Side Buy Side 15
Offshore Fund Range STANLIB Funds Limited is an open-ended investment company (OEIC) 10 domiciled in Jersey, Channel Islands, offering two dollar-denominated funds listed on the Dublin Stock Exchange, namely - STANLIB Multi-Manager Global Equity Fund; and STANLIB Multi-Manager Global Bond Fund. Table 5 STANLIB Multi-Manager Global Equity Fund Fund launched 1998 Description Investment objective Benchmark Custodian Administrator Auditors Fees Global multi-manager equity fund the fund has an active blend between passive and highly active managers To outperform the MSCI World over a rolling three year period, gross of fees 100% MSCI All Countries IMI Index The Bank of New York Mellon The Bank of New York Mellon PricewaterhouseCoopers (Jersey) Management fee: 0.8% p.a. (no performance fee) Table 6 STANLIB Multi-Manager Global Bond Fund Fund launched 1998 Description Investment objective Benchmark Custodian Administrator Auditors Fees Global multi-manager bond fund the fund has an active blend between passive and active managers To outperform JP Morgan WGBI over a rolling three year period, gross of fees 100% Barclays Multiverse Index The Bank of New York Mellon The Bank of New York Mellon PricewaterhouseCoopers (Jersey) Management fee: 0.65% p.a. (no performance fee) 10. The shares are listed and the company can adjust the amount of shares in the fund by either issuing (receives new money) or eliminating shares (when the fund pays out money). 16
Why STANLIB Multi-Manager Offshore? Long-term track record We have a reputable track record and experience in managing offshore assets on behalf of domestic clients since 1998. Unique business model We embrace a partnership business model that allows us to build strong strategic relationships. This provides us access to a wide range of world-class service providers and the ability to gain extensive investment insights. The multi-manager approach presents a compelling proposition Clients have access to world-class asset management houses we fulfil an important governance role by screening, evaluating and selecting asset managers. Sound investment philosophy and process A clear set of core beliefs are represented in our investment philosophy. The alignment of our thought process with that of FundQuest s, also makes effective construction and management of global mandates possible for South African clients. Adherence to the highest levels of governance and compliance We adopt a culture of good governance and compliance oversight. Our offshore funds are authorised and regulated by the Financial Services Authority (FSA) in the UK and are approved by the Financial Services Board (FSB) in South Africa. In addition, both funds are listed on a reputable exchange (Dublin) and administered by a reputable global business. Љ Љ Competitive fees and transparency Our management fees are highly competitive and we provide full transparency on overall service fees such as custody, audit and administration etc. 17
Appendix A BNP Paribas Group BNP Paribas is a European leader in global banking and financial services and is one of the strongest banks in the world, rated AA by Standard and Poors. Present across Europe through all its business lines, the Group has one of the largest international networks with operations in many countries. BNP Paribas was voted the best bank in developed Europe (Global Finance, 2011), as well as 1st bank in the euro zone, 5th in the global banking sector, 1st among French enterprises and 11th of the world leading companies ( Global 2000 Forbes 2011). The BNP Paribas Group has structured their investment business on a multi-boutique model, based on a partnership approach, with three distinct groups of investment expertise - Multi-expertise investment BNP Paribas Asset Management, encompasses the major asset classes Specialist investment partners specialists in a particular asset class or field (mainly multi-management and alternative), operating as boutique-like structures Local solution providers local asset managers covering a specific geographical region and / or clientele FundQuest FundQuest UK is the multi-manager specialist investment partner of the BNP Paribas group and is an innovative multimanager with multi-asset class investment solutions. FundQuest s core competence is independent global asset manager research and selection. FundQuest assets under management and advice exceed $70 billion, covering a broad range of assets including equities, bonds, cash, property and hedge funds. As part of an advisory agreement with our strategic partner, FundQuest UK Limited, STANLIB Multi-Manager s offshore assets are managed from London. Our Chief Investment Officer, Joao Frasco leads our investment team with our portfolio manager, Kent Grobbelaar, based in London. Kent participates in various decision-making forums and has full access to the FundQuest proprietary research, manager selection, portfolio construction tools and risk management processes. 18
Appendix B Key Investment Personnel Joao Frasco, Chief Investment Officer - STANLIB Multi-Manager Years of Industry Experience: 12 Joao joined STANLIB Multi-Manager in February 2012, as Chief Investment Officer. He joins from the Alexander Forbes Group, where he started in 2006 in the Asset Consultants division in a consulting role, before moving to head up investment research for Alexander Forbes Financial Services in 2008. Joao started his career in employee benefit consulting at Glenvaal in 1991 before joining the IT industry for a number of years. Joao received a Bachelor of Science Degree in Actuarial Science and Mathematical Statistics at the University of the Witwatersrand. He is a CFA and CIPM Charter Holder, as well as a CAIA Charter Holder (Chartered Alternative Investment Analyst). Joao qualified as an actuary through the Institute of Actuaries in the UK and the Actuarial Society of South Africa. Kent Grobbelaar, Head of Portfolio Management, UK - STANLIB Multi-Manager (London) Years of Industry Experience: 16 Kent Grobbelaar is responsible for the management of the STANLIB Multi-Manager Global Funds. Before being seconded to FundQuest in London, Kent worked for STANLIB Asset Management (formerly SCMB) since 1997, and has over 10 years experience in managing global portfolios. Previously, Kent was offshore manager for Fidelity investments, having moved from his role as investment marketing manager for Standard Bank Fund Managers. Prior his current role he was head of international multi asset allocation for the groups foreign allowance funds. Kent holds a B Com (Hons) degree, as well as the ICMQ, FAUT and IMC qualifications. Malcolm Holmes, Head of Portfolio Management, South Africa - STANLIB Multi-Manager Years of Industry Experience: 17 Malcolm is the Head of Portfolio Management at STANLIB Multi-Manager. Malcolm started his career at Standard Bank in 1995 and was transferred into the Asset Management division in 1996, where he launched the Standard Bank Science and Technology Fund in 1999 and the Standard Bank Global Technology Fund in 2000. Allied to this, within the SCMB Asset Management portfolio management team, he was responsible for managing traditional balanced mandates for pension fund clients. In 2002, he moved to Lodestone Investments, which was subsequently renamed STANLIB Multi-Manager, as Portfolio Manager. Malcolm was educated at St. Andrew s College and then Rhodes University in Grahamstown, before moving to the University of Cape Town where he graduated with an Honours degree in Economics. He is a CFA Charter Holder. 19
Statutory Disclaimer and General Terms and Conditions As neither STANLIB Multi - Manager Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Multi - Manager Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Multi-Manager Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/763). 20
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