Success In Investment

6XFFHVVLQ ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH &RPSOHWH)LUP

0HUULOO/\QFK &R,QF %$55$6WUDWHJLF&RQVXOWLQJ*URXS -XQH

0HUULOO/\QFK &R,QFLVRQHRIWKHZRUOG·VOHDGLQJILQDQFLDO PDQDJHPHQWDQGDGYLVRU\FRPSDQLHVZLWKRIILFHVLQFRXQWULHVDQGWRWDO FOLHQWDVVHWVRIDERXWWULOOLRQ$VDQLQYHVWPHQWEDQNLWLVWKHWRSJOREDO XQGHUZULWHUDQGPDUNHWPDNHURIGHEWDQGHTXLW\VHFXULWLHVDQGDOHDGLQJ VWUDWHJLFDGYLVRUWRFRUSRUDWLRQVJRYHUQPHQWVLQVWLWXWLRQVDQGLQGLYLGXDOV ZRUOGZLGH7KURXJK0HUULOO/\QFK,QYHVWPHQW0DQDJHUVWKHFRPSDQ\LVRQH RIWKHZRUOG·VODUJHVWPDQDJHUVRIILQDQFLDODVVHWV 7KH)LQDQFLDO,QVWLWXWLRQV*URXS),* DW0HUULOO/\QFKSURYLGHV,QYHVWPHQW %DQNLQJVHUYLFHV0 $DGYLFHDVZHOODVHTXLW\DQGGHEWXQGHUZULWLQJ WR EDQNVLQVXUDQFHFRPSDQLHVDVVHWPDQDJHUVILQDQFLDOWHFKQRORJ\DQGRWKHU VSHFLDOW\ILQDQFHFRPSDQLHVZRUOGZLGH2YHUWKHSDVWILYH\HDUV0HUULOO /\QFK),*KDVEHHQWKHOHDGLQJILQDQFLDODGYLVRUWRWKHDVVHWPDQDJHPHQW LQGXVWU\ZLWKDPDUNHWVKDUHLQPHUJHUDQGDFTXLVLWLRQWUDQVDFWLRQVRI DQGDPDUNHWVKDUHLQFDSLWDOUDLVLQJWUDQVDFWLRQVRI

%$55$6WUDWHJLF&RQVXOWLQJ*URXS%6&* VSHFLDOL]HVLQSURYLGLQJ PDQDJHPHQWFRQVXOWLQJVHUYLFHVH[FOXVLYHO\WRLQYHVWPHQWPDQDJHPHQWILUPV %6&*GHOLYHUVYDOXHWRLWVFOLHQWVWKURXJKDXQLTXHFRPELQDWLRQRIGHHS LQGXVWU\NQRZOHGJHDQGH[SHULHQFHVROXWLRQVRULHQWHGWKRXJKWOHDGHUVKLSDQG DSURYHQDELOLW\WRFUHDWHFKDQJHZLWKLQRUJDQL]DWLRQV %6&*·VVHUYLFHVUDQJHIURPGHYHORSLQJVWUDWHJLFYLVLRQVWKURXJKGHVLJQLQJ DQGLPSOHPHQWLQJWDFWLFDOEXVLQHVVSODQVLQFOXGLQJPHUJHUDQGDFTXLVLWLRQ DVVHVVPHQWDQGSRVWPHUJHULQWHJUDWLRQ:LWKRYHU\HDUVRIH[SHULHQFH %6&*KDVZRUNHGH[WHQVLYHO\LQDOOPDMRUIXQFWLRQDODUHDVLQFOXGLQJ LQYHVWPHQWVVDOHVDQGFOLHQWVHUYLFH IRUERWKWKHLQVWLWXWLRQDODQGUHWDLO PDUNHWV%6&*·VFOLHQWEDVHUHSUHVHQWVPDQ\RIWKHZRUOG·VOHDGLQJ LQYHVWPHQWPDQDJHUV %6&*HPSOR\VDWHDPRIWKLUW\SURIHVVLRQDOVWKDWUHSUHVHQWDSXUSRVHIXO EOHQGRIPDQDJHPHQWFRQVXOWLQJLQYHVWPHQWPDQDJHPHQWLQYHVWPHQW FRQVXOWLQJDQGPDUNHWUHVHDUFKH[SHULHQFHV7KURXJKDQDIILOLDWLRQZLWK %$55$5RJHUV&DVH\DQLQYHVWPHQWFRQVXOWLQJILUPUHSUHVHQWLQJFOLHQWVZLWK RYHU%LQDVVHWV DQG%$55$,QFWKHZRUOG·VOHDGLQJSURYLGHURI LQYHVWPHQWDQDO\WLFV %6&*LQWHJUDWHVDVWLOOEURDGHUVHWRILQYHVWPHQW H[SHUWLVHDQDO\WLFDOWRROVDQGJOREDOSHUVSHFWLYHV

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



7DEOHRI&RQWHQWV $FNQRZOHGJHPHQWV



,QWURGXFWLRQDQG([HFXWLYH6XPPDU\ • :K\DQRWKHULQGXVWU\UHYLHZ" • 2UJDQL]LQJRXUWKRXJKWV • 3ULPDU\FRQFOXVLRQV



 8QGHUVWDQGLQJ


 • • • •

3ULPDU\,QGXVWU\,PSOLFDWLRQV 7KH&OLHQW3DUWQHU&RPSHWLWRU&3& SDUDGLJPFRQQHFWVXVDOO 0DQXIDFWXULQJTXDOLW\UHLJQV &OLHQWVHJPHQWVPDWWHU (IILFLHQF\HQHUJL]HVWUXHWDOHQW



 • • •

&ULWLFDO6XFFHVV)DFWRUV7KH&RPSOHWH)LUP %XVLQHVVPDQDJHPHQW ,QYHVWPHQWPDQXIDFWXULQJ 'LVWULEXWLRQ



 • • •

0RGHOVIRU6XFFHVV )RXUYLDEOHEXVLQHVVPRGHOV 2SWLPDOVL]H 0DQDJLQJIRUJURZWK



&RQFOXVLRQ



$SSHQGL[0DQDJH(PEHGGHG$OSKD&XW7KRVH+LGGHQ&RVWV



0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



$FNQRZOHGJHPHQWV 7KLVSDSHUZDVMRLQWO\SUHSDUHGE\0HUULOO/\QFK &R,QFDQG%$55$6WUDWHJLF&RQVXOWLQJ*URXSDQGLVEDVHG RQUHVHDUFKFRQGXFWHGE\ERWKILUPV 0HUULOO/\QFK &R,QFFRQWULEXWRUVLQFOXGH *UHJRU\-)OHPLQJ 'DYLG1+HDWRQ %$QGUHZ+RRYHU &KULVWRSKHU*.LUN 5DKXO0HKWD

+HDG86)LQDQFLDO,QVWLWXWLRQV*URXS 9LFH3UHVLGHQW)LQDQFLDO,QVWLWXWLRQV*URXS 9LFH3UHVLGHQW)LQDQFLDO,QVWLWXWLRQV*URXS $VVRFLDWH)LQDQFLDO,QVWLWXWLRQV*URXS $QDO\VW)LQDQFLDO,QVWLWXWLRQV*URXS

%$55$6WUDWHJLF&RQVXOWLQJ*URXSFRQWULEXWRUVLQFOXGH -RKQ)&DVH\ &KULVWRSKHU-$FLWR -HE%'RJJHWW .HYLQ34XLUN <:D\QH/LQ :*UHWK/HVWHU -HQQLIHU00HOYLOOH -DFRE$6WDKOHU 9LUJLQLD&/XWNLQV $P\9LGHLUD

&KDLUPDQ%$55$5RJHUV&DVH\ 0DQDJLQJ'LUHFWRU 0DQDJLQJ'LUHFWRU 0DQDJLQJ'LUHFWRU $VVRFLDWH'LUHFWRU 6HQLRU$QDO\VW $QDO\VW $QDO\VW $GPLQLVWUDWLYH$VVLVWDQW $GPLQLVWUDWLYH$VVLVWDQW

%$55$6WUDWHJLF&RQVXOWLQJ*URXS0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



$FNQRZOHGJHPHQWV :HZRXOGOLNHWRWKDQNDQXPEHURIVHQLRUH[HFXWLYHVLQWKHLQYHVWPHQWPDQDJHPHQWLQGXVWU\ZKRSURYLGHGXVZLWK WKRXJKWVDQGLGHDVRQWKHRSSRUWXQLWLHVDQGFKDOOHQJHVWKH\DUHIDFLQJ7KHLUXQLTXHSHUVSHFWLYHVDQGLQVLJKWV DVVLVWHGXVLQVKDSLQJWKLVSDSHU 6SHFLDOWKDQNVWR -HVVLFD0%LEOLRZLF] 0DUVKDOO1&DUWHU &KULVWRSKHU0&RQGURQ 0LFKDHO:5'REVRQ .HQQHWK/'RZG-U

3UHVLGHQW &KLHI([HFXWLYH2IILFHU &KDLUPDQ 3UHVLGHQW &KLHI2SHUDWLQJ2IILFHU +HDGRI$VVHW0DQDJHPHQW 'LUHFWRURI,QYHVWPHQWV

1DWLRQDO)LQDQFLDO3DUWQHUV&RUS 6WDWH6WUHHW&RUSRUDWLRQ 0HOORQ)LQDQFLDO&RUSRUDWLRQ 'HXWVFKH%DQN$* &LWLJURXS,QF&RQVXPHU%DQN

3DWULFLD&'XQQ /DXUHQFH')LQN *UHJRU\&)LVKHU &DURO*DOOH\ -RKQ+*D\

&KDLUPDQ &KDLUPDQ &KLHI([HFXWLYH2IILFHU &KDLUPDQ*OREDO,QYHVWPHQW&RPPLWWHH -RLQW&KLHI2SHUDWLQJ2IILFHU )LUVW9LFH3UHVLGHQW &R+HDGRI&RUSRUDWH6WUDWHJ\

%DUFOD\V*OREDO,QYHVWRUV %ODFN5RFN,QF 'HXWVFKH$VVHW0DQDJHPHQW 0HUULOO/\QFK,QYHVWPHQW0DQDJHUV 0HUULOO/\QFK &R,QF

5RJHU+HUWRJ 5LFKDUG0+RUOLFN :LOOLDP5.DW] -XGDK6.UDXVKDDU /DZUHQFH-/DVVHU

3UHVLGHQW &KLHI2SHUDWLQJ2IILFHU 0DQDJLQJ'LUHFWRU*OREDO,QVWLWXWLRQDO*URXS 9LFH3UHVLGHQW(TXLW\5HVHDUFK )LUVW9LFH3UHVLGHQW(TXLW\5HVHDUFK 3UHVLGHQW &KLHI([HFXWLYH2IILFHU

6DQIRUG&%HUQVWHLQ &R,QF )LGHOLW\,QVWLWXWLRQDO$VVHW0DQDJHPHQW 0HUULOO/\QFK &R,QF 0HUULOO/\QFK &R,QF 3XWQDP,QYHVWPHQWV

%ULGJHW$0DFDVNLOO (GZDUG(0DGGHQ :LOOLDP-1XWW -HIIUH\03HHN :$OOHQ5HHG

3UHVLGHQW &KLHI([HFXWLYH2IILFHU 9LFH&KDLUPDQ &KDLUPDQ &KLHI([HFXWLYH2IILFHU 3UHVLGHQW 3UHVLGHQW &KLHI([HFXWLYH2IILFHU

2SSHQKHLPHU)XQGV,QF )LGHOLW\0DQDJHPHQW7UXVW&RPSDQ\ $IILOLDWHG0DQDJHUV*URXS 0HUULOO/\QFK,QYHVWPHQW0DQDJHUV *HQHUDO0RWRUV,QYHVWPHQW0DQDJHPHQW&RUS

5REHUW/5H\QROGV :LOOLDP-5LWWOLQJ -HIIUH\/6KDPHV -RKQ/6WHIIHQV 7DNHMLUR6XH\RVKL

3UHVLGHQW 'LUHFWRU1RQ3URSULHWDU\)XQGV &KDLUPDQ &KLHI([HFXWLYH2IILFHU 9LFH&KDLUPDQRIWKH%RDUG ([HFXWLYH9LFH3UHVLGHQW

)LGHOLW\,QYHVWPHQWV,QVWLWXWLRQDO5HWLUHPHQW*URXS 0HUULOO/\QFK &R,QF 0)6,QYHVWPHQW0DQDJHPHQW 0HUULOO/\QFK &R,QF 1LNNR$VVHW0DQDJHPHQW&R/WG

$OVRZHDUHLQGHEWHGWR-RVHSK61DQNRI5RELQ63HOOLVK*UHJRU\75RJHUV3DWULFN-5XGGHQDQG :LOOLDP6WHUOLQJIRUWKHLUFULWLTXHVRISUHOLPLQDU\GUDIWVRIWKLVSDSHU,QDGGLWLRQZHZLVKWRDFNQRZOHGJHWKH DVVLVWDQFHRI1LJHO$GDP&KDLUPDQRI&RPSWRQ&RQVXOWLQJ*URXS,QFD%RVWRQEDVHGILQDQFLDOFRPPXQLFDWLRQV ILUP

0HUULOO/\QFK &R,QF%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



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

2UJDQL]LQJ2XU7KRXJKWV $OOIXWXUHVXFFHVVIXOILUPVUHJDUGOHVVRIVL]HZLOOVKDUHDFRPPRQVHWRI FKDUDFWHULVWLFV:HUHIHUWRVXFKFRPSDQLHVDV&RPSOHWH)LUPV7KLVSDSHU GHVFULEHVWKH&RPSOHWH)LUPLQGHWDLOERWKWKHFDSDELOLWLHVLWSRVVHVVHVDQGKRZLWLV 0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



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•

7KH&OLHQW3DUWQHU&RPSHWLWRU&3& SDUDGLJPFRQQHFWVXVDOO 0DQDJHUVZLOOKDYHDQHYHULQFUHDVLQJVHWRIRSSRUWXQLWLHVIRUDOOLDQFHV SDUWQHUVKLSVDQGDFTXLVLWLRQV&RPSHWLQJILUPVZLOOILQGLWQHFHVVDU\WR HQWHULQWRUHODWLRQVKLSVZLWKRQHDQRWKHULQRUGHUWRVRXUFHLQYHVWPHQW PDQXIDFWXULQJOHYHUDJHGLVWULEXWLRQFKDQQHOVDQGRXWVRXUFHRSHUDWLRQV 6XFFHVVIXOILUPVZLOOIRFXVH[FOXVLYHO\RQWKHDFWLYLWLHVWKDWWKH\GREHVW XVLQJ&3&UHODWLRQVKLSVWRGHOLYHUWKHEDODQFH

•

0DQXIDFWXULQJTXDOLW\UHLJQV8QUHOHQWLQJDGYDQFHVLQFOLHQWDQG LQWHUPHGLDU\VRSKLVWLFDWLRQLQDOOVHJPHQWVDQGJHRJUDSKLHV ZLOOSODFHD SUHPLXPRQWKHKLJKHVWTXDOLW\LQYHVWPHQWPDQXIDFWXULQJ4XDOLW\ZLOO EHGHILQHGQRWRQO\LQWHUPVRIKLVWRULFSHUIRUPDQFHEXWZLOODOVR LQFOXGHDQDSSUHFLDWLRQRILQYHVWPHQWSURFHVVHJWUDQVSDUHQF\DQG SHUFHLYHGUHSHDWDELOLW\ DQGDJUHDWHUUHFRJQLWLRQRIWKHULVNVWDNHQWR SURGXFHDJLYHQUHWXUQ

•

&OLHQWVHJPHQWVPDWWHU+LVWRULFDOO\WKHLQYHVWPHQWPDQDJHPHQW LQGXVWU\KDVEHHQSURGXFWGULYHQ*RLQJIRUZDUGILUPVWKDWXQGHUVWDQG DQGHPEUDFHWKHXQLTXHQHHGVDQGSUHIHUHQFHVRIWKHLUWDUJHWFOLHQW VHJPHQWVZLOOEHFULWLFDOWRDFRPSHWLWLYHDGYDQWDJH

•

(IILFLHQF\HQHUJL]HVWUXHWDOHQW%DUULHUVWRHQWU\LQLQYHVWPHQW PDQDJHPHQWZLOOUHPDLQORZSURYLGLQJHPSOR\PHQWDOWHUQDWLYHVIRUWKH PRVWWDOHQWHGLQGLYLGXDOV,QUHVSRQVHLQYHVWPHQWPDQDJHPHQWILUPV PXVWFUDIWSURIHVVLRQDOHQYLURQPHQWVZKHUHWKLVWDOHQWLVPRVW SURGXFWLYH7KLVZLOOUHTXLUHPRUHWKDQMXVWSURYLGLQJDQHTXLW\VWDNHWR NH\LQGLYLGXDOVVXFFHVVIXOILUPVZLOOQRWHQFXPEHUWUXHWDOHQWZLWK EXUHDXFUDF\RUDYHUDJHFROOHDJXHV

&KDSWHUGHILQHVWKHIDFWRUVWKDWZLOOGHWHUPLQHVXFFHVVLQWKHWKLUGJHQHUDWLRQ 6SHFLILFDOO\ZHGHVFULEHVL[WHHQFDSDELOLWLHVWKDWGHILQHD&RPSOHWH)LUP&RPSOHWH )LUPVEULQJWREHDUDEURDGVHWRIEDODQFHGFDSDELOLWLHVLQLQYHVWPHQWPDQXIDFWXULQJ GLVWULEXWLRQDQGEXVLQHVVPDQDJHPHQW7KH\IRFXVRQFRUHFRPSHWHQFLHVDQG DJJUHVVLYHO\OHYHUDJHWKH&OLHQW3DUWQHU&RPSHWLWRUQH[XVWRHQKDQFHDQGH[WHQG WKHLUFDSDELOLWLHV

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



'HVSLWHWKHLUFRPPRQFKDUDFWHULVWLFV&RPSOHWH)LUPVZLOOQRWEHKRPRJHQRXV,Q IDFWDV&KDSWHUGHVFULEHVIRXUSULPDU\EXVLQHVVPRGHOVZLOOEHYLDEOHLQWKHWKLUG JHQHUDWLRQ • 'LVWULEXWLRQ6SHFLDOLVWDGLVWULEXWRURISULPDULO\WKLUGSDUW\LQYHVWPHQW SURGXFWVWKURXJKSURSULHWDU\FKDQQHOV •

6LQJOH3ODWIRUP0DQXIDFWXUHUDVLQJOHLQYHVWPHQWSODWIRUPZKLFK IRFXVHVRQPRUHVSHFLDOL]HGDVVHWFODVVHVRULQYHVWPHQWVW\OHVDQG OHYHUDJHVWKLUGSDUW\FKDQQHOVIRUGLVWULEXWLRQ

•

)UDQFKLVH&RQJORPHUDWHWZRRUPRUHLQYHVWPHQWSODWIRUPVZKLFK VKDUHDFHQWUDOO\PDQDJHGGLVWULEXWLRQFDSDELOLW\

•

)LQDQFLDO+ROGLQJ&RPSDQ\FROOHFWLRQRIQRQLQWHJUDWHG&RPSOHWH )LUPVEURXJKWWRJHWKHUIRUILQDQFLDOUHDVRQVVXFKDVFUHDWLQJDOLTXLG HTXLW\FXUUHQF\

3ULPDU\&RQFOXVLRQV $PRQJWKLVSDSHU·VPRUHVSHFLILFSURSRVLWLRQVH[HFXWLYHVRILQYHVWPHQW PDQDJHPHQWILUPVVKRXOGFRQVLGHUWKHIROORZLQJ •

7RGD\RQO\DKDQGIXORIFRPSDQLHVDUHFORVHWREHLQJ&RPSOHWH)LUPV 0DQ\RIWKH&RPSOHWH)LUPFDSDELOLWLHVDUHQRWLQFRUSRUDWHGLQVHFRQG JHQHUDWLRQLQYHVWPHQWPDQDJHUV

•

'LVWULEXWLRQDQGPDQXIDFWXULQJPXVWLQFUHDVLQJO\EHPDQDJHG LQGHSHQGHQWO\WRWKHKLJKHVWTXDOLW\SHUIRUPDQFHVWDQGDUGVDQG HFRQRPLFUHWXUQ7KHFURVVVXEVLGL]DWLRQWKDWW\SLFDOO\UHVXOWVIURP YHUWLFDOLQWHJUDWLRQZLOOQRWEHDVYLDEOHLQDQHQYLURQPHQWWKDWDOORZVIRU QRQSURSULHWDU\DOWHUQDWLYHVIRUVRXUFLQJRUGLVWULEXWLQJSURGXFWV

•

:LWKUHJDUGWRLQYHVWPHQWPDQXIDFWXULQJPDQDJHUVPXVWHYROYHIURP SURGXFWILUPVLQWRFDSDELOLW\ILUPV&DSDELOLW\ILUPVFDQIOH[LEO\VXSSRUW DEURDGQXPEHURISURGXFWVYDU\LQJLQVW\OHDFWLYHULVNEHQFKPDUN HWF ZLWKDVLQJOHLQYHVWPHQWSODWIRUP7KLVHYROXWLRQZLOOFUHDWH LQFUHDVHGVSHFLDOL]DWLRQEHWZHHQSRUWIROLRFRQVWUXFWLRQDQGUHVHDUFK

•

0DQDJHPHQWRI(PEHGGHG$OSKDWKHIULFWLRQDOFRVWVRIUXQQLQJD SRUWIROLRZLOOHPHUJHDVDQHVVHQWLDOFRQWULEXWRUWRLQYHVWPHQW PDQXIDFWXULQJTXDOLW\DQGSHUIRUPDQFH

•

6W\OHLVGHDGORQJOLYHVW\OH5HFHQWFRQGLWLRQVLQWKHHTXLW\DQGIL[HG LQFRPHPDUNHWVKDYHGHPRQVWUDWHGWKHLQDGHTXDFLHVRIVLPSOH´VW\OH ER[HVµDQGWKHFRPPRQEHQFKPDUNVDVVRFLDWHGZLWKWKHP*RLQJ IRUZDUGVW\OHGHILQHGPRUHFRPSUHKHQVLYHO\E\LWVXQGHUO\LQJULVN IDFWRUV ZLOOEHYLHZHGDVRQO\RQHRIPDQ\DFWLYHEHWVWRZKLFKD PDQDJHUFDQDWWULEXWHVNLOOVZLWKLQDQHPHUJLQJULVNEXGJHWLQJ IUDPHZRUN

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

 •

7RHPSRZHUDILUP·VEHVWSURIHVVLRQDOWDOHQWWHFKQRORJ\VKRXOGEH VXEVWLWXWHGIRUDQ\KXPDQFDSLWDOWKDWGRHVQRWGLIIHUHQWLDWHWKHILUP DOVRRUJDQL]DWLRQVZLOOQHHGWREHFRQWLQXDOO\VWUHDPOLQHG´PHULWRFUDF\ WKURXJKGRZQVL]LQJµ 

•

3RWHQWLDODFTXLUHUVRILQYHVWPHQWPDQDJHPHQWILUPVPXVWQRWEHYLFWLP WRWKH´$80IHWLVKµ$FTXLVLWLRQVPXVWLQFUHDVLQJO\IRFXVRQTXDOLW\ QRWQHFHVVDULO\VL]H7KHOLNHO\LQGXVWU\FRQVROLGDWLRQLQDVVHWVZLOOFRPH JUDGXDOO\DVFOLHQWVWUDQVIHUDVVHWVWRTXDOLW\&RPSOHWH)LUPV

•

6XFFHVVIXOILUPVPXVWEHSUHSDUHGWRUHJXODUO\UHF\FOHHTXLW\´G\QDPLF UHFDSLWDOL]DWLRQµ WRFRQWLQXDOO\SURYLGHLQFHQWLYHDQGUHWDLQULVLQJWDOHQW

•

7KHVXFFHVVIXOLQWHJUDWHGJOREDOEXVLQHVVPRGHOZLOOUHPDLQHOXVLYHKHOG EDFNE\VLJQLILFDQWFRVWVRIFRPSOH[LW\DQGWKHXQFHUWDLQW\RIZKHQ JOREDORSSRUWXQLWLHVZLOOHPHUJH7KLVFUHDWHVDZLQGRZRIRSSRUWXQLW\ IRUORFDOSURYLGHUVWRWUDQVLWLRQLQWR&RPSOHWH)LUPVLQRUGHUWRPDLQWDLQ DQGJURZPDUNHWVKDUH

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDSWHU

8QGHUVWDQGLQJ
0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS



6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

*LYHQWKHLQGXVWU\·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·VILUPVDUHWKHUHIRUHEURDGO\FKDUDFWHUL]HGDVKDYLQJRYHUGHYHORSHG LQYHVWPHQWPDQXIDFWXULQJRUJDQL]DWLRQVUHODWLYHWRGLVWULEXWLRQ LPPDWXUHEXVLQHVV PDQDJHPHQWVNLOOVKLJKIL[HGFRVWVDQGDSUROLIHUDWLRQRIPHGLRFUHSURGXFWV7KHVH H[FHVVHVRIWKHVHFRQGJHQHUDWLRQKDYHSHUVLVWHGEHFDXVHWKHEXOOPDUNHW·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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

Future success will require efficiency and focus.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



ZLOOSRVVHVVVXSHULRUEXVLQHVVPDQDJHPHQWVNLOOVIRFXVHGRQHQKDQFLQJFRUH FRPSHWHQFLHV:HUHIHUWRPDQDJHUVSRVVHVVLQJDOOWKHFULWLFDOVXFFHVVIDFWRUVWR WKULYHLQWKHWKLUGJHQHUDWLRQDV´&RPSOHWH)LUPVµVHH&KDSWHUIRUDFRPSOHWH GHILQLWLRQRIWKH&RPSOHWH)LUP 

:KDW V'ULYLQJ&KDQJH" 7KUHHH[WHUQDOIDFWRUVDUHIXQGDPHQWDOO\UHVKDSLQJWKHLQYHVWPHQWPDQDJHPHQW LQGXVWU\WHFKQRORJ\FDSLWDOPDUNHWVDQGJOREDORSSRUWXQLWLHV7KHFRQIOXHQFHRI WKHVHIRUFHVLVDFFHOHUDWLQJWKHWUDQVLWLRQEHWZHHQWKHVHFRQGDQGWKLUGJHQHUDWLRQV DQGZLOOLQIOXHQFHWKHFDSDELOLWLHVUHTXLUHGIRUIXWXUHVXFFHVV:HRQO\EULHIO\ VXPPDUL]HWKHVHIDFWRUVDVZHEHOLHYHWKDWWKH\KDYHEHHQZHOOGLVFXVVHGLQRWKHU LQGXVWU\RYHUYLHZV

Technology will create new opportunities for both distribution and manufacturing.

7HFKQRORJ\ 7HFKQRORJ\LVWKHPRVWSRZHUIXOLQIOXHQFHDWZRUNRQERWKWKHGLVWULEXWLRQDQG PDQXIDFWXULQJFDSDELOLWLHVRILQYHVWPHQWPDQDJHPHQWWRGD\7KHPDJQLWXGHRIWKLV LPSDFWVKRXOGQRWFRPHDVDVXUSULVHPRVWLQYHVWPHQWPDQDJHPHQWOLNHWKHUHVWRI ILQDQFLDOVHUYLFHVLQYROYHVWKHSURFHVVLQJRIGLJLWDOLQIRUPDWLRQ:LWKUHJDUGWR GLVWULEXWLRQPDQDJHUVPXVWUHPHPEHUIRXULPSRUWDQWDVSHFWVRIQHWZRUNWHFKQRORJ\ 

,QVWDQWDQHRXVLQIRUPDWLRQGLVVHPLQDWLRQDQGGLVFRYHU\ 7HFKQRORJLFDOGHYHORSPHQWVKDYHOHGWRWKHZLGHVSUHDGDYDLODELOLW\RI LQIRUPDWLRQRQSURGXFWSHUIRUPDQFHWKDWKDVGUDPDWLFDOO\FKDQJHGEX\HU EHKDYLRU)RUH[DPSOHLQWKHPXWXDOIXQGPDUNHWWKHDELOLW\WRLGHQWLI\ WRSSHUIRUPLQJIXQGVRQDQDOPRVWLQVWDQWDQHRXVEDVLVKDVHQFRXUDJHG LQYHVWRUVWRSODFHDQXQSUHFHGHQWHGSUHPLXPRQSHUFHLYHGIXQG SHUIRUPDQFH&KDUWVKRZVWKHLQFUHDVHGFRUUHODWLRQEHWZHHQPXWXDO SHUIRUPDQFHDQGQHWIORZVRIDVVHWV



/RZHUWUDQVDFWLRQDQGVZLWFKLQJFRVWV:LWKWKHJURZWKLQ DOWHUQDWLYHGHOLYHU\FKDQQHOVWUDQVDFWLRQDQGVZLWFKLQJFRVWVKDYHIDOOHQ 7KLVLVFRQWULEXWLQJDWOHDVWLQSDUWWRUDSLGO\ULVLQJUHGHPSWLRQUDWHV



6WDQGDUGVIRULQWHURSHUDELOLW\'ULYHQE\WKHFRPPRQSURWRFROVXVHG E\WKHLQWHUQHWLQIRUPDWLRQFDQEHPRUHUHDGLO\H[KDQJHG



0DVVFXVWRPL]DWLRQ7KHFRVWVRIGHVLJQLQJDQGGHOLYHULQJFXVWRPL]HG VHUYLFHWRDQ\LQGLYLGXDODUHIDOOLQJUDSLGO\

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



7HFKQRORJ\DOVRHQDEOHVKLJKHUTXDOLW\LQYHVWPHQWPDQXIDFWXULQJ6RPHH[DPSOHV RIWKLVLPSDFWLQFOXGH •

$UWLILFLDO,QWHOOLJHQFHZLOOLQFUHDVLQJO\EHVXEVWLWXWHGIRUKXPDQFDSLWDO

•

,QWHUQHWRULQWUDQHWWHFKQRORJLHVIDFLOLWDWHWKHVKDULQJRINQRZOHGJHDQG UHVHDUFKDFURVVDQRUJDQL]DWLRQ

•

7RROVIRUULVNFRQWURODWWULEXWLRQDQGSRUWIROLRFRQVWUXFWLRQDUH EHFRPLQJPRUHVRSKLVWLFDWHGDQGEURDGO\DYDLODEOH

&KDUW3HUFHQWRI7RWDO1HW)ORZVE\0RUQLQJVWDU5DWLQJ 200% 150% 108% 100% 55% 50% 0%

1% 44%

60%

73%

8% 32%

44& &55 Star StarFunds Funds

72%

Unrated Unrated Funds Funds

(81%)

1,1,22&&33 Star StarFunds Funds

33% (6%)

(50%) (100%) Net Flows

$93B 1994

$214B 1996

$221B 1998

$157B 1999

6RXUFH6WUDWHJLF,QVLJKW6LPIXQG0HUULOO/\QFK

&DSLWDO0DUNHW&KDOOHQJHV ,WLVQRWJHQHUDOO\DSSUHFLDWHGWKDWWKHPDMRULW\RIWKHLQGXVWU\·VJURZWKRYHUWKHSDVW IHZ\HDUVKDVUHVXOWHGIURPPDUNHWUHWXUQVQRWQHWQHZIORZVRIDVVHWV&KDUW SUHVHQWVWKHFRPSRQHQWVRIJURZWKIRUPXWXDOIXQGV 7KHUHIRUHIRULQYHVWPHQWPDQDJHUVWKHSULPDU\FDSLWDOPDUNHWFKDOOHQJHLVSUHSDULQJ IRUDQRUPDORUTXLWHSRVVLEO\DEHORZQRUPDOUHWXUQHQYLURQPHQW$VSUHYLRXVO\ PHQWLRQHGWKHSURORQJHGEXOOPDUNHW·VFRQVLVWHQWDVVHWIORZVDQGVWHDG\IHHOHYHOV KDYHIORRGHGPDQ\PDQDJHUVZLWKUHYHQXHVDQGVKLHOGHGWKHPIURPDGGUHVVLQJ EXVLQHVVLQHIILFLHQFLHV([LVWLQJFRVWVWUXFWXUHVZLOOSXWPDQ\PDQDJHUVXQGHUILQDQFLDO SUHVVXUHLQDORZHUJURZWKHQYLURQPHQW$VVKRZQLQ&KDUWUHYHUVLRQWRKLVWRULFDO JURZWKUDWHVLPSOLHVDVLQJOHGLJLWJURZWKUDWHIRUWKHQH[WGHFDGH

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

How many firms will be economically viable in a normal return environment?

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDUW&RPSRQHQWVRI0XWXDO)XQG*URZWK 0%

30%

1999

32.0%

1998

50.4%

1997

49.6%

55.1%

1996

46.5%

1995

39.4%

1994

21.6%

68.0%

-172.7%

272.7%

1993

21.8% 44.9%

53.5%

26.8%

60.6%

2.0% 60.6% 35.8%

64.2%

1992

24.3% 21.1%

79.5%

20.5%

Net New Cash Flows (Sales Plus Reinvestments Less Redemptions)

25.3%

19.0%

Effect of Market Increase (Decrease)

6RXUFH6WUDWHJLF,QVLJKW6LPIXQG0HUULOO/\QFK

Global opportunities are greatest.

*OREDO2SSRUWXQLWLHV 7KHH[SHFWHGJURZWKUDWHVRIGHPDQGIRULQYHVWPHQWPDQDJHPHQWVHUYLFHVDUHJUHDWHVW RXWVLGHRIWKHPDWXUHPDUNHWV'HPRJUDSKLFWUHQGVVXFKDVWKHDJLQJRISRSXODWLRQV DQGLQFUHDVHLQOLIHH[SHFWDQF\FRPELQHGZLWKDJHQHUDOXQGHUIXQGLQJRIUHWLUHPHQW VFKHPHVDURXQGWKHZRUOGZLOOIXHOFRQWLQXHGJURZWKLQWKHZRUOGZLGHGHPDQGIRU LQYHVWPHQWPDQDJHPHQWVHUYLFHV5HJXODWRU\UHIRUPZLOOHQDEOHLQYHVWPHQWPDQDJHUV ERWKORFDODQGIRUHLJQWRWDNHDGYDQWDJHRIWKHVHRSSRUWXQLWLHV)RUPDQDJHUVLQ PDWXUHPDUNHWVZKRDUHIDFLQJPRUHOLPLWHGJURZWKSDWWHUQVWKHVHHPHUJLQJPDUNHWV DUHSDUWLFXODUO\HQWLFLQJ &KDUW5HYHUVLRQWRWKH0HDQ 100

7.1% Implied Return 3.4% Implied Return 10

S&P 500 Historic Return

Long Term Return 1970-2000 (13.7%)

1

Long Term Return 1926-2000 (11.4%)

0.1

1990

1992

1994 S&P 500

1996

1998

2000

Historical Average Since 1926

2002

2004

2006

2008

Historical Average Since 1970

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS 0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS



6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

8QIRUWXQDWHO\WKHUHUHPDLQVFRQVLGHUDEOHXQFHUWDLQW\DVWRKRZZKHQDQGZKHWKHUWR DGGUHVVWKHVHRSSRUWXQLWLHV6XFFHVVIXOO\´JRLQJJOREDOµ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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDSWHU

3ULPDU\,QGXVWU\,PSOLFDWLRQV 7KHVKLIWWRWKHWKLUGJHQHUDWLRQZLOOEHFKDUDFWHUL]HGE\JUHDWHUEX\HUVRSKLVWLFDWLRQ LQFUHDVHGFRPSHWLWLRQDQGFRQWLQXHGORZEDUULHUVRIHQWU\$VDUHVXOWWKHUHDUHIRXU DVSHFWVRIWKHHYROYLQJFRPSHWLWLYHHQYLURQPHQWZKLFKDOOPDQDJHUVPXVW XQGHUVWDQG    

7KH&OLHQW3DUWQHU&RPSHWLWRU&3& 3DUDGLJP&RQQHFWV8V$OO 0DQXIDFWXULQJ4XDOLW\5HLJQV &OLHQW6HJPHQWV0DWWHU (IILFLHQF\(QHUJL]HV7UXH7DOHQW

7KLVFKDSWHUZLOOGLVFXVVLQGHWDLOWKHVHIRXUFRQFHSWVDQGWKHPRVWLPSRUWDQWLVVXHV WKDWDUHGLUHFWO\DVVRFLDWHGZLWKHDFKRIWKHP

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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



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•

'LVWULEXWLRQLGHQWLWLHV)LUPVWKDWIRFXVRQGLVWULEXWLRQZLOOGHYHORSEUDQGV WKDWDVVXUHDFFHVVWREHVWLQFODVVSURGXFWVDQGVHUYLFHV,QWHUPHGLDULHV ZLOOVWUHVVREMHFWLYHDGYLFHWKDWKHOSVLQWKHVHOHFWLRQRIDSSURSULDWH LQYHVWPHQWSURGXFWV

•

0DQXIDFWXULQJLGHQWLWLHV7KLUGJHQHUDWLRQILUPVWKDWFKRRVHLQYHVWPHQW PDQDJHPHQWDVWKHLUFRUHFRPSHWHQF\ZLOOQHHGDEUDQGLPDJHEXLOW DURXQGPDQXIDFWXULQJTXDOLW\

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

Distribution and manufacturing must be exposed to a market discipline.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



0DQXIDFWXULQJ4XDOLW\5HLJQV $OOFOLHQWVHJPHQWVDQGWKHLQWHUPHGLDULHVZKRVHUYHWKHPDUHEHFRPLQJPRUH VRSKLVWLFDWHGDERXWTXDQWLWDWLYHDQGTXDOLWDWLYHSURGXFWDWWULEXWHV6XFFHVVIXOILUPV PXVWFUHDWHSURGXFWVWKDWVSHFLILFDOO\DUWLFXODWHWKHULVNVWRZKLFKWKH\DUHH[SRVHG DQGFRQVLVWHQWO\GHOLYHUUHWXUQVDSSURSULDWHWRWKDWOHYHORIULVN7RDVVXUHWKLV TXDOLW\PDQDJHUVZLWKLQYHVWPHQWSURFHVVHVWKDWDUHWUDQVSDUHQWDQGLQFRUSRUDWHULVN PDQDJHPHQWDQGPRQLWRULQJFDSDELOLWLHVZLOOEHLQFUHDVLQJO\IDYRUHG Process matters as much as past performance.

+LJKHVWVWDQGDUGVIRULQYHVWPHQWSURFHVVHVUHTXLUHG ,QDOOPDUNHWVHJPHQWVLQYHVWPHQWSURFHVVTXDOLW\LVEHFRPLQJDPRUHVLJQLILFDQW FRPSRQHQWLQPDQDJHUVHOHFWLRQUHWHQWLRQ7KLVTXDOLW\LVEHLQJUHFRJQL]HGLQDOO PDUNHWVHJPHQWVWREHDVLPSRUWDQWDVSHUIRUPDQFH:HEHOLHYHWKDWWKHLQYHVWPHQW SURFHVVHVRIOHDGLQJPDQDJHUVZLOOVKDUHVRPHFRPPRQDWWULEXWHV •

3URFHVVZLOOEHWUDQVSDUHQWFRQVLVWHQWSHUFHLYHGWREHUHSHDWDEOHDQG ULVNFRQWUROOHG

•

(DFKVWHSLQWKHSURFHVVZLOOKDYHDVSHFLILFVHWRIREMHFWLYHVDQGPHWULFV

•

3URFHVVZLOOLQFRUSRUDWHV\VWHPDWLFIHHGEDFNDQGPRQLWRULQJRIHDFK VWHS

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

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



%X\HUULVNEXGJHWLQJZLOOEHFRPHPRUHULJRURXV %X\HUVZLOOVFUXWLQL]HWKHPDQXIDFWXUHUV·´ULVNEXGJHWµ,QDGRPHVWLFHTXLW\ SURGXFWWKHPDQDJHUFDQDGGYDOXHWKURXJK´ULVNIDFWRUVµVW\OH LQGXVWU\DOORFDWLRQ RUVWRFNVHOHFWLRQ,QDIL[HGLQFRPHSURGXFWPDQDJHUVFDQDGGYDOXHWKURXJK GXUDWLRQ\LHOGFXUYHVHFWRUDOORFDWLRQLVVXHVHOHFWLRQHWF6FUXWLQ\RIWKHVHDOSKD FRQWULEXWLRQVZLOOEHFRPHWKHQRUP&KDUWLOOXVWUDWHVWKHHPHUJLQJULVNEXGJHWLQJ IUDPHZRUN &KDUW%X\HU·V5LVN%XGJHWHPHUJLQJIUDPHZRUN Equity

Fixed Income

Style (Risk Industry Stock Country Country/ Factors) Allocation Selection Allocation Currency Duration Manager 1 (Domestic Equity)

x

x

x

x

Manager 2 (International Equity)

x

x

x

x

Manager 3 (Global Fixed Income)

Yield Curve

Sector Issue Allocation Selection

x x

x

x

x

x

Total Buyer Risk Budget

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

$QLPSOLFDWLRQRIULVNEXGJHWLQJLVWKDWFXUUHQWHTXLW\VW\OHFDWHJRULHVZLOOEHFRPH OHVVUHOHYDQWEHFDXVHWKH\RYHUVLPSOLI\WKHFRPSRQHQWVRIDFWLYHULVN)RUH[DPSOH ´YDOXHµLVDVW\OHRILQYHVWLQJWKDWKDVH[SRVXUHVWRPXOWLSOHULVNIDFWRUV7KHVH H[SRVXUHVYDU\VLJQLILFDQWO\EHWZHHQPDQDJHUVHYHQEHWZHHQWKRVHLQWKHVDPH ´VW\OHFDWHJRU\µ 7KHHPHUJHQFHRIVRSKLVWLFDWHGULVNPDQDJHPHQWWRROVKDVLQWURGXFHGDFOHDUDQG DFFXUDWHZD\WRPHDVXUHDFWLYHSRUWIROLRULVNLQHTXLW\7KH\EUHDNGRZQWKH HOHPHQWVRIDFWLYHULVNLQWR´ULVNIDFWRUVµZKLFKDUHIDFWRUVUHSUHVHQWLQJIXQGDPHQWDO FKDUDFWHULVWLFVWKDWGHILQHDFRPSDQ\·V´VW\OHµ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·VRWKHULQYHVWPHQWV %$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

Traditional style categories will no longer define equity allocation.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



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now where your Alpha comes from.

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

Customized benchmarks will become commonplace.

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´VWDQGDUGµEHQFKPDUNVZLOOOLNHO\GHFUHDVHLQSRSXODULW\WRPHDVXUH ULVN5DWKHUDFXVWRPL]HGEHQFKPDUNZLWKH[SRVXUHWRVSHFLILFULVNIDFWRUVVLPLODU WRWKHSURGXFWPLJKWEHXVHG$VDUHVXOWWKH´QRUPDOµEHQFKPDUNZLOOPHDVXUHWKH HIIHFWLYHQHVVRIDPDQDJHUDORQJDVSHFLILFGLPHQVLRQRIULVN$´QRUPDOµ EHQFKPDUNLVDSXUHUUHSUHVHQWDWLRQRIDPDQDJHU·VSKLORVRSK\DQGZLOOPRUH

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS



6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

DFFXUDWHO\UHIOHFWWKHVW\OH8VLQJD´QRUPDOµEHQFKPDUNLVWKHPRVWDFFXUDWHZD\WR PHDVXUHDPDQDJHU·VWUXHSHUIRUPDQFHDQGFDQDOVREHXVHGDVHIIHFWLYHPDUNHWLQJ WRRO $OWHUQDWLYHLQYHVWPHQWVWUDWHJLHVZLOOEHPDLQVWUHDP $QRWKHUGLUHFWFRQVHTXHQFHRIJURZLQJDSSUHFLDWLRQIRUWKHULVNUHWXUQWUDGHRIIZLOO EHJUHDWHULQWHUHVWLQ´DOWHUQDWLYHµVWUDWHJLHV7KHVHZLOOEHFRPHLQFUHDVLQJO\ LPSRUWDQWLQWKHFRQWH[WRIHYROYLQJEX\HUULVNEXGJHWLQJWHFKQLTXHV7KHPRVW DSSHDOLQJDVSHFWRIWKHVHSURGXFWVLVGHOLYHU\RIH[FHVVUHWXUQZLWKDORZHU FRUUHODWLRQWRPRUHWUDGLWLRQDODVVHWFODVVHV:KLOHWKHVHVWUDWHJLHVFDQRIIHUKLJK DEVROXWHUHWXUQVWKH\DOVRGLYHUVLI\DSRUWIROLRDQGGHFUHDVHRYHUDOOULVN,Q LQVWLWXWLRQDOSRUWIROLRVDOWHUQDWLYHVWUDWHJLHVKDYHKDGWKHODUJHVWJURZWKUDWHRIDOO DVVHWFODVVHVLQWKHSDVWILYH\HDUV,QWKHIXWXUHWKHVHDVVHWFODVVHVZLOOEH LQFUHDVLQJO\OHVV´DOWHUQDWLYHµDVWKH\JDLQEURDGHUDFFHSWDQFH 7UDGLWLRQDODOWHUQDWLYHLQYHVWPHQWVLQFOXGHKHGJHIXQGVPDUNHWQHXWUDOVWUDWHJLHV UHDOHVWDWHGLVWUHVVHGDQGSULYDWHHTXLW\7KHVHVWUDWHJLHVZKLFKIRFXVRQPDUNHWDEOH VHFXULWLHVZLOOEHVXEMHFWWRHYROYLQJPDQXIDFWXULQJTXDOLW\VWDQGDUGV7KDWLVWKH\ ZLOOQHHGGHPRQVWUDWHGSURFHVVWUDQVSDUHQF\DQGSHUFHLYHGUHSHDWDELOLW\,WZLOOEH FULWLFDOIRUWKHPWRMXVWLI\FXUUHQWIHHDUUDQJHPHQWVDQGIXWXUHILW 1HZHUFRQFHSWVRIPL[LQJDQGPDWFKLQJGLIIHUHQWDVVHWFODVVHVIRUDGHVLUHGULVN UHZDUGSURILOHRU´6WUDWHJLF6ROXWLRQ3RUWIROLRVµZLOOEHFRPHPRUHSUHYDOHQWLQ PRVWIXWXUHFOLHQWVHJPHQWV$VEX\HUVEHFRPHPRUHHGXFDWHGVRSKLVWLFDWHGZD\V RIDGGLQJDOSKDWRFRUHKROGLQJVZLOOEHFRPHSUHYDOHQW7KHFRQFHSWRISRUWDEOH DOSKDLVWKHDELOLW\WRDGGYDOXHWRDEHQFKPDUNRULQGH[WKURXJKGHULYDWLYHVDQG DGGLQJDFRPSRQHQWRIDQRWKHUDVVHWFODVV)RUH[DPSOHDPDQDJHUFDQEX\LQGH[ IXWXUHVWRJDLQH[SRVXUHWRWKHEHQFKPDUNDQGXVHWKHUHPDLQLQJFDVKLQWKH SRUWIROLRWRJDLQDOSKDWKURXJKDPDQDJHU·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

 &OLHQW6HJPHQWV0DWWHU $ILUP·VDELOLW\WRXQGHUVWDQGWKHQHHGVRILWVNH\H[LVWLQJDQGSRWHQWLDOFOLHQWVZLOO EHFRPHVLJQLILFDQWO\PRUHLPSRUWDQWLQWKHWKLUGJHQHUDWLRQ+LVWRULFDOO\DVLQPRVW HYROYLQJLQGXVWULHVLQYHVWPHQWPDQDJHPHQWILUPVKDYHEHHQSURGXFWGULYHQILUVW %$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

Low correlation, portable alpha.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



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·VZDUIRUWDOHQW

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS



6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

 7HFKQRORJ\VXEVWLWXWHVIRUKXPDQFDSLWDO 5DSLGDGYDQFHVLQWHFKQRORJ\LQFOXGLQJWKHDSSOLFDWLRQRIQHZWHFKQRORJLFDOWRROV ZLOOLQFUHDVLQJO\VXEVWLWXWHIRUKXPDQFDSLWDO$XWRPDWLRQFDQEHDGYDQFHGLQDUHDV VXFKDVGDWDFROOHFWLRQDQGFOHDQVLQJFOLHQWVHUYLFHUHSRUWJHQHUDWLRQSRUWIROLR FRQVWUXFWLRQDQGWUDGLQJ7KHUHDUHWZRUHDVRQVIRUWKLVFKDQJH)LUVWLQGXVWU\ VDODU\OHYHOVHYHQIRUPRGHUDWHO\VNLOOHGLQGLYLGXDOVKDYHULVHQVRVXEVWDQWLDOO\WKDW ILUPVZLOOKDYHLQFUHDVHGLQWHUHVWLQILQGLQJDOWHUQDWLYHVSDUWLFXODUO\LQDORZHU JURZWKHQYLURQPHQW6HFRQGLQFUHDVHGWHFKQRORJ\ZLOOLQFUHDVHSURGXFWLYLW\RIWKH PRVWWDOHQWHGLQGLYLGXDOV  (TXLW\RZQHUVKLSZLOOEHFRPHPRUHSUHYDOHQW 7RDOLJQORQJWHUPLQWHUHVWVEHWZHHQILUPVDQGLQGLYLGXDOVWKLUGJHQHUDWLRQILUPV ZLOOSURYLGHWKHLUEHVWHPSOR\HHVZLWKHTXLW\RZQHUVKLS:HGLVFXVVRZQHUVKLSLQ JUHDWHUGHWDLOLQ&KDSWHU  2UJDQL]DWLRQVZLOOVWUHDPOLQH 0RVWRIWHQWDOHQWLVPRVWSURGXFWLYHZKHQXQHQFXPEHUHGE\EXUHDXFUDF\DQG DYHUDJHSHUVRQQHO7RSLQYHVWPHQWSURIHVVLRQDOVZLOOFRQWLQXHWRVHHNHIILFLHQW RUJDQL]DWLRQV,QWKHWUDQVLWLRQIURPVHFRQGWRWKLUGJHQHUDWLRQILUPVPD\EH IRUFHGWRUHGXFHSHUVRQQHOLQFHUWDLQIXQFWLRQDODUHDVHVSHFLDOO\LQLQYHVWPHQW PDQXIDFWXULQJ7KLVVWUHDPOLQLQJLVWRLQFUHDVHHIILFLHQF\QRWWRDFKLHYHFRVW VDYLQJV $FKDOOHQJHIRUWKHLQGXVWU\LVWKDWLWVGULYHIRUHIILFLHQF\GRHVQRWUHFUHDWHDVWDU V\VWHP7KHWKLUGJHQHUDWLRQZLOOGHPDQGWKDWLQGLYLGXDOVEHH[FHOOHQWDWZRUNLQJLQ FRQFHUWZLWKWKHLUFROOHDJXHVJURXQGHGE\VRXQGSURFHVV

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

Meritocracy through downsizing.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDSWHU

&ULWLFDO6XFFHVV)DFWRUV7KH&RPSOHWH)LUP Complete Firms will dominate the Third Generation.

7KHSUHYLRXVFKDSWHUGHVFULEHGWKHLQGXVWU\·VHPHUJLQJWKLUGJHQHUDWLRQ7RDFKLHYH VXFFHVVLQWKLVHQYLURQPHQWZHEHOLHYHWKDWDOOLQYHVWPHQWPDQDJHPHQWILUPV UHJDUGOHVVRIVL]HZLOOVKDUHDFRPPRQVHWRIFDSDELOLWLHV7KHVHFDSDELOLWLHVZLOO HQDEOHILUPVWR • • • •

)RFXVDWWHQWLRQRQWKHLUFRUHFRPSHWHQFLHVE\IXOO\OHYHUDJLQJ RXWVRXUFLQJDQGDOOLDQFHUHODWLRQVKLSVWRSURYLGHRWKHUFDSDELOLWLHV $VVXUHSURGXFWTXDOLW\ 'HVLJQDQGGHOLYHURSWLPDOSURGXFWDQGVHUYLFHRIIHULQJVWRWKHLUWDUJHW VHJPHQWV ,GHQWLI\DWWUDFWDQGUHWDLQWKHEHVWKXPDQFDSLWDO

$VOLVWHGLQ&KDUWZHLGHQWLI\VL[WHHQFULWLFDOWKLUGJHQHUDWLRQFDSDELOLWLHV:HUHIHU WRRUJDQL]DWLRQVWKDWSRVVHVVWKHVHFDSDELOLWLHVDV´&RPSOHWH)LUPVµ:HSURSRVH WKDWWKH&RPSOHWH)LUPFKHFNOLVWEHFRPHDEHQFKPDUNIRUHYDOXDWLQJDILUP·VIXWXUH FRPSHWLWLYHSRVLWLRQ 7HFKQRORJ\LVQRWGHILQHGDVDVHSDUDWHFDSDELOLW\7KLVLVQRWWRGRZQSOD\LWVUROH UDWKHUWHFKQRORJ\LVDQLPSOLHGFRPSRQHQWRIDOOVL[WHHQIDFWRUV)RUH[DPSOH .QRZOHGJH0DQDJHPHQWFDSDELOLW\QXPEHU UHTXLUHVDQHWZRUNLQIUDVWUXFWXUHWR FDSWXUHDQGGLVVHPLQDWHLQIRUPDWLRQDERXWPDUNHWVFOLHQWVDQGWKHILUPLWVHOI 6XIILFHLWWRVD\WKH&RPSOHWH)LUPPXVWEHIXOO\WHFKQRORJ\HQDEOHG

%XVLQHVV0DQDJHPHQW &RPSOHWH)LUPVPXVWHPSOR\H[FHOOHQWDQGEURDGEXVLQHVVPDQDJHPHQWDFXPHQ %XVLQHVVPDQDJHPHQWLVHVVHQWLDOWRIXOO\GHYHORSLQJDQGPDLQWDLQLQJWZRRIDILUP·V SULPDU\DVVHWVLWVSHRSOHDQGLWVFRPSHWLWLYHDGYDQWDJH

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



3XWWLQJLQSODFHWKHDSSURSULDWHEXVLQHVVPDQDJHPHQWUHVRXUFHVZLOOEHDFKDOOHQJH IRUPDQ\VHFRQGJHQHUDWLRQILUPV)LUVWWKHLQGXVWU\·VJHQHUDOEXVLQHVV PDQDJHPHQWVNLOOVDUHLQVKRUWVXSSO\6HFRQGO\PDQ\LQYHVWPHQWSURIHVVLRQDOV ZKRGRPLQDWHVHFRQGJHQHUDWLRQILUPVRIWHQDUHUHOXFWDQWWRRUGRQRW UHFRJQL]H WKHLPSRUWDQFHRIEXVLQHVVPDQDJHPHQWVNLOOV &KDUW7KH&RPSOHWH)LUP&DSDELOLWLHV&KHFNOLVW

Business Management

Investment Manufacturing

Distribution

1. Vision and Leadership

8. Clearly Defined Added Value

13. Channel Management

2. Strategy and Journey Management

9. Institutional Investment Process

14. Coordinated Distribution

3. Corporate Development

10. Quantitative Skills & Tools

15. Strategic Marketing

4. Integrated Business Performance Monitoring

11. Embedded Alpha Management

16. Thought Leadership

5. Knowledge Management

12. Protected Investment Teams

6. Corporate Governance 7. Human Capital Management

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

Tactical management will be insufficient.



6WUDWHJLF3ODQQLQJDQG-RXUQH\0DQDJHPHQW 0DQ\DVVHWPDQDJHPHQWFRPSDQLHVKDYHJURZQZLWKRXWDVWUXFWXUHGSODQQLQJ SURFHVV*RLQJIRUZDUGVWUDWHJLFSODQQLQJZLOOEHDQHVVHQWLDOFDSDELOLW\IRU LPSOHPHQWLQJVHQLRUOHDGHUVKLS·VYLVLRQIRUWKHILUP7KHVXFFHVVIXOPDQDJHPHQW WHDPIRFXVHVRQDQVZHULQJWKUHHSULPDU\TXHVWLRQV •

6WUDWHJLF9LVLRQ:KHUHGRHVWKLVILUPZDQWWREHDVDQRUJDQL]DWLRQ" 'HYHORSPHQWRIDVWUDWHJLFSODQUHTXLUHVDQXQGHUVWDQGLQJRIWKHRSWLRQV DYDLODEOHLQVHUYLQJYDULRXVPDUNHWVHJPHQWVZLWKH[LVWLQJDQGSRWHQWLDO SURGXFWV0DQDJHPHQWPXVWWKHQVHOHFWSULRULWLHVEDVHGRQWKHVL]HRI WKHRSSRUWXQLW\DVZHOODVWKHULVNVDQGFRVWVDVVRFLDWHGZLWKDWWDLQLQJD JLYHQPDUNHWSRVLWLRQ

•

*DS$QDO\VLV:KDWLVWKHILUP·VFXUUHQWFRQGLWLRQ" 7KHILUPPXVWKDYHDUHDOLVWLFSHUVSHFWLYHRQWKHVWUHQJWKRILWV FDSDELOLWLHVUHODWLYHWRLQGXVWU\EHQFKPDUNV

•

,PSOHPHQWDWLRQ3ODQ+RZGRHVWKHILUPJHWIURPKHUHWRWKHUH" 0DSSLQJDFRXUVHEHWZHHQWKHILUP·VFXUUHQWDQGLGHDOFRQGLWLRQUHTXLUHV GHWDLOHGDQGGLVFLSOLQHGEXVLQHVVSODQQLQJ,QDGGLWLRQUHVRXUFHVPXVW EHDOORFDWHGWRPRQLWRULQJWKHRQJRLQJLPSOHPHQWDWLRQRIWKDWEXVLQHVV SODQ:HUHIHUWRWKHODWWHUDFWLYLW\DV´MRXUQH\PDQDJHPHQWµ

&RUSRUDWH'HYHORSPHQWDQG$OOLDQFH0DQDJHPHQW 7KH&OLHQW3DUWQHU&RPSHWLWRUSDUDGLJPZLOOSURYLGHXQSUHFHGHQWHGRSWLRQVWR RXWVRXUFHFDSDELOLWLHVFUHDWHVWUDWHJLFDOOLDQFHVDQGDFTXLUHRWKHUILUPV'HGLFDWHG FRUSRUDWHGHYHORSPHQWUHVRXUFHVDUHHVVHQWLDOWRV\VWHPDWLFDOO\VHDUFKIRUVXFKQHZ RSSRUWXQLWLHVDQGHYDOXDWHULVNV,QWKLVUHJDUGWUDGLWLRQDOO\LQVXODULQYHVWPHQW PDQDJHPHQWILUPVPXVWFKDOOHQJHWKHPVHOYHVWREHDVH[WHUQDOO\RULHQWHGDVWRGD\·V WHFKQRORJ\FRPSDQLHV )LUPVPXVWDOVRUHFRJQL]HWKDWWKHUHLVHQRUPRXVYDOXHLQ WKHFRUSRUDWHGHYHORSPHQWSURFHVVLWVHOIHYHQLI&3&DUUDQJHPHQWVGRQRW PDWHULDOL]HWKHILUPJDLQVVLJQLILFDQWPDUNHWLQWHOOLJHQFH5LJRUVKRXOGVXSHUFHGH SHUIHFWLRQ ,QDGGLWLRQWRLGHQWLI\LQJQHZDOOLDQFHVLQYHVWPHQWPDQDJHPHQWILUPVPXVWDOVR EHFRPHDGHSWDWGLOLJHQWO\PDQDJLQJWKHHIIHFWLYHQHVVRIWKHVHUHODWLRQVKLSV ´DOOLDQFHPDQDJHPHQWµ $WDOOWLPHVGHGLFDWHGDQGIRFXVHGDOOLDQFHPDQDJHUV VKRXOGKDYHDGHWDLOHGXQGHUVWDQGLQJRIWKHJRDOVRIHDFKUHODWLRQVKLSDQGLWVRYHUDOO YDOXHWRWKHILUP&OHDUH[SHFWDWLRQVPXVWFRQWLQXDOO\EHFRPPXQLFDWHGWRHDFK SDUWQHUVKLS High quality information is the backbone of business management.

,QWHJUDWHG%XVLQHVV3HUIRUPDQFH0RQLWRULQJ +LJKTXDOLW\LQIRUPDWLRQZLOOEHFULWLFDOWRPDLQWDLQLQJWKHWKLUGJHQHUDWLRQILUP 7KLVLQIRUPDWLRQLQFOXGHVFOLHQWGDWDDQGFRQWDFWUHFRUGVFRPSHWLWRUUHVHDUFK LQYHVWPHQWSHUIRUPDQFHDQGULVNPDQDJHPHQW7REHHIIHFWLYHWKLVLQIRUPDWLRQ VKRXOGEHGHOLYHUHGFHQWUDOO\WKURXJKDFRPPRQWHFKQRORJ\LQIUDVWUXFWXUH

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



$VDQH[DPSOHFRQVLGHULQYHVWPHQWSHUIRUPDQFHDQGULVNPRQLWRULQJ/HDGLQJ LQYHVWPHQWPDQDJHPHQWILUPVPXVWEHDEOHWRPHDVXUHDWWULEXWHDQGFRQWUROWKHLU ULVNVERWKIRULQGLYLGXDOFOLHQWSRUWIROLRVDVZHOODVWKHRYHUDOOEXVLQHVV7KHUHDUH WKUHHFRPSRQHQWVRIVXFKDSHUIRUPDQFHPRQLWRULQJFDSDELOLW\ •

'HILQHG3URFHVVHVDIXOOXQGHUVWDQGLQJRIWKHSHUIRUPDQFHDQGULVN PDQDJHPHQWQHHGVRIWKHILUPDQGWKHSURFHVVHVIRUGHOLYHULQJWKLV LQIRUPDWLRQ

•

&HQWUDOO\&RRUGLQDWHG3URFHVVLQJDVLQJOHRSHUDWLRQDOXQLWGHYRWHGWR PRQLWRULQJWKHSURFHVVHVIRUDQDO\]LQJGDWDDQGGHOLYHULQJWKLV LQIRUPDWLRQ

•

6\VWHPVDQG'DWDEDVHVWHFKQRORJ\WKDWLQWHJUDWHVGLVSDUDWHGDWDVRXUFHV DQGGLVWULEXWHVWRDZLGHYDULHW\RIHQGXVHUV

$VLOOXVWUDWHGLQ&KDUWWKHDJJUHJDWHGSRUWIROLRFKDUDFWHULVWLFVDUHV\VWHPDWLFDOO\ FROOHFWHGDQDO\]HGDQGUHSRUWHGWRWKHFULWLFDOVHQLRUEXVLQHVVPDQDJHPHQW SHUVRQQHO &KDUW3HUIRUPDQFH0RQLWRULQJ)UDPHZRUN Senior Business Management Client Reporting

Product Development

Compliance

Risk Management

CIO

Portfolio Managers

Processing and Analytics Performance Measurement

Processing &

Analytics

Attribution Models

Financial Reporting

Data Aggregation

Data Aggregation

External Data

Internal Data Fixed Income

Client Data Internal Guidelines

Financial

Pricing

Historical Data

Covariance Matrices

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

.QRZOHGJH0DQDJHPHQW 7KHWLPHEHWZHHQWKHELUWKRIDQLGHDDQGZKHQLWLVDFWHGXSRQFDQKDYHVLJQLILFDQW LPSDFWRQWKHSHUIRUPDQFHRIDQ\RUJDQL]DWLRQ6WURQJFRPPXQLFDWLRQ LQIUDVWUXFWXUHDQGHIILFLHQWLQIRUPDWLRQGLVVHPLQDWLRQLVFULWLFDOIRUKLJKTXDOLW\ RUJDQL]DWLRQVDQGLVDSRWHQWLDODUHDRIFRPSHWLWLYHDGYDQWDJHWRPDQ\ILUPV:KLOH UHODWHGWR%XVLQHVV0RQLWRULQJ.QRZOHGJH0DQDJHPHQWGLIIHUVLQWKDWLWIRFXVHVRQ HOLFLWLQJDQGFDSWXULQJWKHLQVLJKWVRIHPSOR\HHVQRWVLPSO\WKHSURYLVLRQRIGDWD

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

Most firms leave their own knowledge untapped.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&OHDU&RUSRUDWH*RYHUQDQFHDQG2ZQHUVKLS 5HWDLQLQJWDOHQWHGHPSOR\HHVUHTXLUHVWKHPWRKDYHFRQILGHQFHWKDWWKHLUILUPZLOOEH PDQDJHGHIIHFWLYHO\7KHUHIRUHWKHFRUSRUDWHJRYHUQDQFHVWUXFWXUHSDUWLFXODUO\WKH PDQDJHULDOFRQWURODIIRUGHGWRWKHILUP·VSULQFLSOHV PXVWEHFOHDUDQGIXOO\ FRPPXQLFDWHGWRDOOHPSOR\HHV $OVRNH\HPSOR\HHVPXVWKDYHDGLUHFWHTXLW\VWDNHLQWKHLUILUP+RZHYHU VXFFHVVIXOILUPVPXVWQRWVLPSO\H[WHQGHTXLW\RZQHUVKLSRQFHWKH\PXVWEH SUHSDUHGWRUHJXODUO\UHF\FOHHTXLW\LQRUGHUWRFRQWLQXDOO\DWWUDFWDQGUHWDLQWDOHQWHG LQGLYLGXDOV:HUHIHUWRWKLVRQJRLQJSURFHVVDV´G\QDPLFUHFDSLWDOL]DWLRQµ +XPDQ&DSLWDO0DQDJHPHQW ,QYHVWPHQWPDQDJHPHQWILUPVPXVWPDQDJHKXPDQFDSLWDODVHIIHFWLYHO\DVWKHLU LQYHVWPHQWV7KHJRDORIWKHVHHIIRUWVLVWRPD[LPL]HWKHSURIHVVLRQDOGHYHORSPHQW RSSRUWXQLWLHVZLWKLQWKHILUPIRUDOOHPSOR\HHVDQGWKHUHIRUHLQFUHDVHUHWHQWLRQ 7KLUGJHQHUDWLRQILUPVZLOOGHYHORSSURJUDPVWRHQKDQFHDQHPSOR\HH·VHQWLUHFDUHHU SDWKUHFUXLWLQJWUDLQLQJHYDOXDWLRQDQGPHQWRULQJ&OHDUO\VXFKDFWLYLWLHVUHTXLUHD VLJQLILFDQWLQYHVWPHQWRIUHVRXUFHV/HDGHUVKLSLQDQGVWUXFWXULQJIRUSHUVRQQHO GHYHORSPHQWZLOOEHDGHILQLQJHOHPHQWRIWKH&RPSOHWH)LUP

,QYHVWPHQW0DQXIDFWXULQJ 4XDOLW\UHTXLUHVFRQVLVWHQWO\GHOLYHULQJSHUIRUPDQFHLQOLQHZLWKDILUP·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´LQVWLWXWLRQDOLQYHVWPHQWSURFHVVµEHFDXVHLWKDVWUDGLWLRQDOO\ EHHQDVVRFLDWHGZLWKPDQDJHUVVHUYLQJWKHPRVWVRSKLVWLFDWHGLQVWLWXWLRQDOFOLHQW VHJPHQWVSDUWLFXODUO\LQWKH86 

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDUWLOOXVWUDWHVDJHQHULFLQYHVWPHQWSURFHVVIRUGRPHVWLFHTXLW\7KLUG JHQHUDWLRQILUPVZLOOKDYHDQDUWLFXODWHGYLHZRQKRZWKH\FDQRUFDQQRW DGGYDOXH DWHDFKVWHSLQWKHLQYHVWPHQWSURFHVV$OVRDSSURSULDWHUHVRXUFHVPXVWEH GHGLFDWHGWRHDFKSURFHVVVWHSSDUWLFXODUO\WKRVHZKHUHWKHILUPH[SHFWVWREH GLIIHUHQWLDWHGLQWKHPDUNHWSODFH &KDUW,QYHVWPHQW3URFHVV)UDPHZRUN'RPHVWLF(TXLW\

€

DATA COLLECTION & CLEANSING PROCESS

Output

P1

Clean Data

S1, S2, .., Sn

ó ì

MACRO POLICY/ PHILOSOPHY

P2

SCREENING PROCESS

P3 Research Universe

S1, S2, .., Sn

ö

RESEARCH & ANALYSIS PROCESS Quantitative & Qualitative

P4A

P4B Stocks/Industries/ Themes You Can Buy

S1, S2, .., Sn

ú

STOCK SELECTION PROCESS

P5 S1, S2, .., Sn

÷

PORTFOLIO CONSTRUCTION & MANAGEMENT PROCESS (INCLUDES TRADING ANALYSIS)

Stocks/Industries/Themes You Will Buy

P6

S1W1, S2W2, .., SnWn

ø

Important Characteristics • Transparency • Consistency • Repeatability • Risk Management

PERFORMANCE ATTRIBUTION QUALITY CONTROL & ENHANCEMENT

P7

Portfolio Research for product innovation and validation

Process Improvements

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

4XDQWLWDWLYH6NLOOVDQG7RROV 4XDQWLWDWLYHUHVHDUFKVNLOOVDQGWRROVKDYHWDNHQRQDVLJQLILFDQWUROHLQWKH LQYHVWPHQWLQGXVWU\$QDSSURSULDWHOHYHORITXDQWLWDWLYHVXSSRUWIRUWKHUHVHDUFK DQGGHFLVLRQPDNLQJSURFHVVHVFDQSURYLGHVLJQLILFDQWOHYHUDJHWRWKHLQYHVWPHQW WHDPDQGFDQDGGYDOXH/HDGLQJPDQDJHUVFDQLQWHJUDWHTXDQWLWDWLYHWRROVLQWR VHYHUDOSDUWVRIWKHLQYHVWPHQWSURFHVV •

6FUHHQLQJDQGLGHDJHQHUDWLRQ

•

)XQGDPHQWDOUHVHDUFKVXSSRUW

•

3RUWIROLRFRQVWUXFWLRQ

•

$WWULEXWLRQDQDO\VLVDQGSHUIRUPDQFHPRQLWRULQJ

&RPSOHWH)LUPVZLOOPDVWHUDQGOHYHUDJHTXDQWLWDWLYHWRROVHYHQLIWKHLUFRUH SURFHVVHVDUHIXQGDPHQWDOLQQDWXUH

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

All firms should integrate quantitative analysis.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



(PEHGGHG$OSKD0DQDJHPHQW (PEHGGHG$OSKDUHIHUVWRWKH´IULFWLRQDOµ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nvestment platforms provide focus and accountability while preserving autonomy and culture.

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roduct Product11

Product Product22

Product ProductNN

Trading Trading

Portfolio Portfolio Construction Construction Team Team11

Fundamental FundamentalResearch Research

Portfolio Portfolio Construction Construction Team Team22

Portfolio Portfolio Construction Construction Team TeamNN

Quantitative QuantitativeResearch Research

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS 0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



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

'LVWULEXWLRQ ,QJHQHUDOZHH[SHFWWKLUGJHQHUDWLRQILUPVWREHKLJKO\FOLHQWIRFXVHG6WUDWHJ\ GHYHORSPHQWPXVWEHJLQIURPWKHSHUVSHFWLYHRIDWDUJHWFOLHQW·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

Client Segment

• Which client segments should be targeted?

Channel

• Through which delivery channels?

Package Vehicle

Implementation

Strategy

&KDUW8QGHUVWDQGLQJ&OLHQW6HJPHQWV

Product Investment Capability

• What non-investment services? • In what investment vehicle? • What specific products must be produced? • What investment capabilities are required?

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

&KDQQHO0DQDJHPHQW &RPSOHWH)LUPGLVWULEXWLRQRUJDQL]DWLRQVZLOOEHVWUXFWXUHGDURXQGFKDQQHOWHDPV ([DPSOHVRIFKDQQHOWHDPVLQFOXGHZKROHVDOHUVWRUHWDLOEURNHUDJHDVZHOODV LQVWLWXWLRQDOVDOHVSHRSOH$FKDQQHOPDQDJHPHQWWHDPVKRXOGLQFOXGHVDOHVSHRSOH FOLHQWVHUYLFHSHUVRQQHODQGDGPLQLVWUDWLRQYDU\LQJLQVL]HGHSHQGLQJXSRQWKH %$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



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´FRRUGLQDWHGµ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·VVLQJOHUHSUHVHQWDWLYHIRUHDFKRIWKHVHXQGHUO\LQJFDSDELOLWLHV7KH\ZRUN ZLWKLQYHVWPHQWSHUVRQQHOWRXQGHUVWDQGWKHSODWIRUP·VSURGXFWVDQGXQGHUO\LQJ FDSDELOLW\ 3URIHVVLRQDODQG6WUDWHJLF0DUNHWLQJ)XQFWLRQ $VLQGXVWULHVPDWXUHKLJKTXDOLW\PDUNHWLQJVNLOOVEHFRPHLQFUHDVLQJO\YDOXDEOH FDSDELOLWLHV7KHVHVNLOOVDOORZILUPVWRLGHQWLI\WDUJHWPDUNHWVGHILQHWKHLUQHHGV DQGGHYHORSWKHDSSURSULDWHSURGXFWVDQGVHUYLFHVWRVHUYHWKHP7KLUGJHQHUDWLRQ PDQDJHUVZLOOUHFRJQL]HWKHLPSRUWDQFHRIWKHPDUNHWLQJIXQFWLRQDFTXLUHRUUHQW PDUNHWLQJVWDIIDQGGHILQHFOHDUVWUDWHJLHVIRUDGGUHVVLQJWKHLUWDUJHWDXGLHQFH

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDUW7KH&RPSOHWH)LUP'LVWULEXWLRQ2UJDQL]DWLRQ Segment/

Segment/

Segment/

Channel 1

Channel 2

Channel 3

Channel ChannelTeam Team11 •Sales •Sales •Client Service •ClientService •Administration •Administration

Channel ChannelTeam Team22 •Sales •Sales •Client Service •ClientService •Administration •Administration

Channel ChannelTeam Team33 •Sales •Sales •Client Service •ClientService •Administration •Administration

Marketing Marketing

Administration Administrationand andOperations Operations

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

:HKLJKOLJKWWKUHHFULWLFDOPDUNHWLQJVNLOOV 3URGXFW'HYHORSPHQW,QGHVLJQLQJWKHULJKWSURGXFWVDQGVHUYLFHVIRUHDFKWDUJHW PDUNHWVHJPHQW&RPSOHWH)LUPVZLOOHPSOR\DVWUXFWXUHGSURGXFWGHYHORSPHQW SURFHVV7KHSURGXFWGHYHORSPHQWHIIRUWPXVWFUHDWHDVWURQJFRPPXQLFDWLRQOLQN EHWZHHQWKHPDQXIDFWXULQJDQGGLVWULEXWLRQRUJDQL]DWLRQVSURYLGLQJLGHDVIRUQHZ LQYHVWPHQWVWUDWHJLHVDQGIHHGEDFNRQPDUNHWWUHQGV7KHSURGXFWGHYHORSPHQW WHDPVKRXOGDOVRSOD\DQDFWLYHUROHLQWKHRQJRLQJDVVXUDQFHRISURGXFWTXDOLW\ :HDUHQRWGDPSHQLQJWKHFRQFHSWRILQQRYDWLRQEXWPRVWLQYHVWPHQWPDQDJHPHQW ILUPVKDYHQRWVXFFHHGHGSXUHO\E\IRFXVVLQJRQWKHFXWWLQJHGJHRISURGXFW GHYHORSPHQW %UDQG0DQDJHPHQW7KHPDUNHWLQJIXQFWLRQZLOODOVRKDYHWKHSULPDU\ UHVSRQVLELOLW\IRUPDQDJLQJDSURSHUSRVLWLYHDQGPHDQLQJIXOEUDQGLGHQWLW\WKDW FRPPXQLFDWHVWKHFRUHFRPSHWHQF\RIWKHILUP,PSRUWDQWO\EUDQGPDQDJHPHQW FDQEHDVSRZHUIXOLQGHYHORSLQJIRFXVLQWHUQDOO\DVLWLVIRUSURMHFWLQJDQLPDJH H[WHUQDOO\$VVXFKZHEHOLHYHWKHLQGXVWU\KDVRQO\EHJXQWRFUHDWLYHO\IHDWXUH PDQXIDFWXULQJTXDOLW\UDWKHUWKDQSURGXFWDWWULEXWHV 7UDLQLQJDQG(GXFDWLRQ/HDGLQJILUPVZLOOSXWLQSODFHIRUPDOSURFHVVHVIRU HGXFDWLQJWKHLUHPSOR\HHVVRWKDWWKH\HIIHFWLYHO\FRPPXQLFDWHWKHFRPSOH[IHDWXUHV DQGQXDQFHVRIWKHSURGXFWVDQGFDSDELOLWLHVWKH\RIIHUDUWLFXODWLQJPRUHWKDQWKH VLPSOHSURGXFWSURILOH7KH\ZLOOQHHGWKHDELOLW\WRHGXFDWHVRSKLVWLFDWHG LQWHUPHGLDULHVDQGFOLHQWVRQWKHWDQJLEOHEHQHILWVRIWKHLUILUPDQGWKHLUSURGXFWV

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



:KLOHWKHVHWKUHHPDUNHWLQJVNLOOVDSSHDUDVDODUJHUILUPPRGHOVPDOOHU RUJDQL]DWLRQVZLWKVWURQJFROODERUDWLYHFXOWXUHVFDQIXOILOOWKLVSURFHVV 7KRXJKW/HDGHUVKLS 7RPDLQWDLQ7KRXJKW/HDGHUVKLSDVDFRUHFRPSHWHQF\LVWR´WKLQNDKHDGµIRU\RXU FOLHQWV/HDGLQJLQYHVWPHQWPDQDJHPHQWILUPVZLOOEHUHTXLUHGWRRSHUDWHLQD FRQVXOWDWLYHDQGHGXFDWLRQDOPDQQHUZLWKWKHLUWDUJHWPDUNHWVDQGFOLHQWV /HYHUDJLQJSURSULHWDU\LQWHOOHFWXDOFDSLWDODVDPHDQVRILQIOXHQFLQJWKHEX\HUPDUNHW ZLOOEHDQHQRUPRXVFRPSHWLWLYHDGYDQWDJHLQWKHWKLUGJHQHUDWLRQ7KRXJKW /HDGHUVKLSLVWKHPRVWHIIHFWLYH´GLDORJXHJHQHUDWLRQWRROµWRUHDFKWKHILUP·VWDUJHW DXGLHQFHSULPDU\RULQWHUPHGLDU\ 7KRXJKW/HDGHUVKLSKDVWUDGLWLRQDOO\EHHQFRQVLGHUHGDVQHZWKLQNLQJRQ LQYHVWPHQWUHODWHGDFWLYLWLHV&RPSOHWH)LUPVZLOOFRQWLQXHWROHDGWKHZD\RQVXFK SURJUHVVLYHDQGXOWLPDWHO\LQGXVWU\DFFHSWHGLQYHVWPHQWSUDFWLFHV7KRXJKW OHDGHUVKLSLQFOXGHVERWKLQQRYDWLRQDQGQHZWKLQNLQJRQQHZVXEMHFWV

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDSWHU

0RGHOVIRU6XFFHVV 7KHSUHYLRXVFKDSWHUGHVFULEHGWKHFDSDELOLWLHVWKDWZLOOFKDUDFWHUL]HVXFFHVVIXOWKLUG JHQHUDWLRQLQYHVWPHQWPDQDJHPHQWILUPV+RZHYHUWKHVHVKDUHGFULWLFDOVXFFHVV IDFWRUVGRQRWLPSO\WKDW&RPSOHWH)LUPVZLOOEHKRPRJHQHRXV,QIDFWZHEHOLHYH WKDWIRXUEDVLFEXVLQHVVPRGHOVZLOOEHYLDEOH7KLVFKDSWHUGHVFULEHVWKHVHPRGHOV DQGWKHPHWKRGVE\ZKLFKWKH\ZLOODFKLHYHFRQWLQXHGJURZWK

)RXU9LDEOH%XVLQHVV0RGHOV $´EXVLQHVVPRGHOµLVDVSHFLILFRUJDQL]DWLRQDOGHVLJQWKDWSURYLGHVEHQHILWVE\ YLUWXHRILWVSDUWLFXODUVWUXFWXUH:HLGHQWLI\IRXUGLVWLQFWEXVLQHVVPRGHOVWKDWZLOO EHSUHYDOHQWLQWKHWKLUGJHQHUDWLRQ/HDGLQJILUPVZLOODGRSWRQHRIWKHVHPRGHOV RUHPSOR\VHYHUDOVLPXOWDQHRXVO\ :HGRQRWXQGHUHVWLPDWHWKHFKDOOHQJHLQDGRSWLQJDQ\RIWKHVHPRGHOV&XUUHQWO\ IHZILUPVDUHFORVHWRWKHVHGHVLJQV²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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS



6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

:HEHOLHYHWKDWPDQ\PXOWLOLQHILQDQFLDOVHUYLFHVFRPSDQLHVLQFOXGLQJEDQNVDQG LQVXUDQFHFRPSDQLHV ZLOOLQFUHDVLQJO\FRQVLGHUHPSOR\LQJWKH'LVWULEXWLRQ6SHFLDOLVW PRGHO  6LQJOH3ODWIRUP0DQXIDFWXUHU ,QWKHLQGXVWU\·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´)UDQFKLVH &RQJORPHUDWHµ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·SHUIRUPDQFHVDUHQRWFRUUHODWHG EXVLQHVVULVNLVGLYHUVLILHG6HFRQGDODUJHUSURGXFWDQGDVVHWEDVHFDQVXSSRUWD ODUJHUGLVWULEXWLRQIRUFH+RZHYHUDVGLVFXVVHGODWHULQWKLVFKDSWHUWKHFRVWVRI FRPSOH[LW\DVVRFLDWHGZLWKODUJHURUJDQL]DWLRQVFDQZRUNWRRIIVHWWKHVHEHQHILWV

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&KDUW7KH0XOWL3ODWIRUP%XVLQHVV0RGHO´)UDQFKLVH&RQJORPHUDWHµ

Executive Office

Investment Platform 1

Investment Platform 2

Investment Platform 3

Distribution Sales

Client Service

Responsible for all Investment Platforms Operations Technology

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

 )LQDQFLDO+ROGLQJ&RPSDQ\ $ILQDOWKLUGJHQHUDWLRQEXVLQHVVPRGHOLVWKH)LQDQFLDO+ROGLQJ&RPSDQ\7KHVH ILUPVEXLOGWKHLUUHODWLRQVKLSVDURXQGDILQDQFLDOFRPPLWPHQWEXWWDNHOLPLWHG PDQDJHULDOUROHVLQRQHRUPRUHLQYHVWPHQWPDQDJHPHQWILUPV7KHFRUH FRPSHWHQF\RIWKHVHFRPSDQLHVZLOOEHVHOHFWLQJLQYHVWPHQWPDQDJHPHQW FRPSDQLHVVXSSRUWLQJWKHLUVHQLRUPDQDJHPHQWDQGFUHDWLQJWKHILQDQFLDO HQJLQHHULQJUHTXLUHGLQRUGHUWRSURYLGHOLTXLGLW\DQGDVVXUHFRQWLQXLW\7KH )LQDQFLDO+ROGLQJ&RPSDQ\LVQRWD&RPSOHWH)LUPSHUVHUDWKHULWLVDFROOHFWLRQRI &RPSOHWH)LUPV :KLOH)LQDQFLDO+ROGLQJ&RPSDQLHVE\GHILQLWLRQZLOOQRWZRUNWRFHQWUDOL]HFRUH DFWLYLWLHVVXFKDVFUHDWLQJDVLQJOHFRPSUHKHQVLYHGLVWULEXWLRQJURXS WKH\FDQ EHQHILWIURPOLPLWHGFRRUGLQDWHGDFWLYLWLHV$VH[DPSOHV)LQDQFLDO+ROGLQJ &RPSDQLHVFDQVKDUHVRPHWHFKQRORJ\VHUYLFHVIRFXVHGFKDQQHOWHDPVVXFKDV PXWXDOIXQGZKROHVDOLQJ DQGJHQHUDOEHVWSUDFWLFHV&RRUGLQDWLRQZLOOEHEDVHGRQ WKHDOLJQPHQWRIVHOILQWHUHVWRQWKHSDUWRIHDFKDIILOLDWH 7KLUGJHQHUDWLRQ)LQDQFLDO+ROGLQJ&RPSDQLHVZLOOQRWEHOLPLWHGWRWKH´VWDQG DORQHµFRQJORPHUDWHV,QIDFWPDQ\ODUJHILQDQFLDOVHUYLFHVILUPVZLWKPRUHWKDQ RQHLQYHVWPHQWPDQDJHPHQWVXEVLGLDU\DUHFORVHUWRWKLVEXVLQHVVPRGHOWKDQWRWKH )UDQFKLVH&RQJORPHUDWH*RLQJIRUZDUGWKHVHILUPVPXVWDVVHVVWKHEHQHILWVRI LQWHJUDWLRQUHODWLYHWRWKHULVNVDQGFRVWV²HLWKHUPRGHOLVVXVWDLQDEOHSDUWLDOIRUFHG LQWHJUDWLRQLVFRPEXVWLEOH ,QDGGLWLRQWRWKHIRXUEXVLQHVVPRGHOVRXWOLQHGDERYHZHEHOLHYH7UDQVDFWLRQ 3URYLGHUVZLOOSUROLIHUDWH7RGD\WKHVHILUPVLQFOXGHFXVWRGLDQVDQGPXWXDOIXQG DGPLQLVWUDWRUVLQWKHIXWXUHWKH\ZLOOLQFOXGHDOOIXQFWLRQVWKDWFDQEH ´FRPPRGLWL]HGµLQFOXGLQJIXQGDFFRXQWLQJDQGGHILQHGFRQWULEXWLRQUHFRUG NHHSLQJ7KH&OLHQW3DUWQHU&RPSHWLWRUSDUDGLJPZLOOGLFWDWHWKDWWKHVHFDSDELOLWLHV 0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS



6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

ZLOOEHPRUHYDOXDEOHDVLQGXVWU\XWLOLWLHV7UHPHQGRXVVFDOHZLOOEHDGHILQLQJ IHDWXUHRIWKH7UDQVDFWLRQ3URYLGHUV

2SWLPDO6L]H $VXUSULVLQJO\FRPPRQO\DFFHSWHGSULQFLSOHLVWKDWLQYHVWPHQWPDQDJHPHQWILUPV PXVWEHFRPHLQFUHDVLQJO\ELJJHUWRVXUYLYH:HEHOLHYHWKDWVFDOHLVRQHRIWKHPRVW PLVXQGHUVWRRGFRQFHSWVLQWKHLQGXVWU\,WLVZRUWKZKLOHWRUHPHPEHUWKDWVL]H EULQJVERWKEHQHILWVDVZHOODVRIIVHWWLQJFKDOOHQJHV )LUPVFDQUHDOL]HWKUHHSULPDU\EHQHILWVIURPLQFUHDVHGVL]H •

%XVLQHVV5LVN'LYHUVLILFDWLRQ%\LQFUHDVLQJWKHQXPEHURILQYHVWPHQW SODWIRUPVILUPVDUHOHVVVXVFHSWLEOHWRSHUIRUPDQFHIOXFWXDWLRQVE\VW\OHRUDVVHW FODVV$OVRDEURDGSURGXFWRIIHULQJPD\EHYDOXDEOHWRYDULRXVPDUNHW VHJPHQWV

•

(FRQRPLHVRI6FDOH$OOWKLQJVEHLQJHTXDOEHLQJODUJHUFDQSRWHQWLDOO\LQFUHDVH WKHHIILFLHQF\RIVRPHEXWQRWDOO LQYHVWPHQWPDQDJHPHQWIXQFWLRQV

•

(FRQRPLHVRI6FRSH$EURDGHUDVVHWEDVHDFKLHYHGWKURXJKPXOWLSOH LQYHVWPHQWSODWIRUPVFDQVXSSRUWODUJHUPRUHVRSKLVWLFDWHGGLVWULEXWLRQWHDPV $VGLVFXVVHGHDUOLHUFOLHQWVDUHGHPDQGLQJDQLQFUHDVLQJOHYHORIVHUYLFHUHVXOWLQJ LQJUHDWHUUHVHDUFKWHFKQRORJ\DQGPDUNHWLQJFRVWV,QWKLVHQYLURQPHQW SURILWDELOLW\LVSURJUHVVLYHO\PRUHGHWHUPLQHGE\WKHDELOLW\WRVSUHDGWKHVHULVLQJ IL[HGFRVWVRYHUDODUJHUEDVHRIDVVHWVXQGHUPDQDJHPHQW

*LYHQWKDWELJJHUFDQEHEHWWHUZKDWLVWKHRSWLPDOVL]HRIDQLQYHVWPHQW PDQDJHPHQWILUP"6WUDWHJLVWVPXVWFRQVLGHUWKUHHRIIVHWWLQJIDFWRUV •

&RVWRIFRPSOH[LW\:HGHILQH´FRVWRIFRPSOH[LW\µDVWKHDGGLWLRQDO PDQDJHPHQWWLPHWDNHQWRFRRUGLQDWHDQGGHYHORSH[FHOOHQFHWKURXJKRXWDPRUH GLYHUVLILHGRUJDQL]DWLRQDQGWKHPLVVHGRSSRUWXQLWLHVUHVXOWLQJIURPVXE VWDQGDUGPDQDJHPHQWRYHUVLJKW8QIRUWXQDWHO\LQPDQ\VHFRQGJHQHUDWLRQ LQYHVWPHQWILUPVPDQDJHPHQWWDOHQWKDVEHHQLQVKRUWVXSSO\0DQ\RIWKHVH ILUPVKDYHDOUHDG\H[FHHGHGWKHLUPDQDJHPHQWEDQGZLGWK

•

'LVHFRQRPLHVRIVFDOHIRUVHYHUDODVVHWFODVVHVVPDOOFDSHTXLW\IRUH[DPSOH VFDOHFDQGHWUDFWIURPSHUIRUPDQFH

•

$OOVFDOHLVQRWHTXDOVFDOHPXVWEHFRQVLGHUHGUHODWLYHWRHDFKLQYHVWPHQW SODWIRUPRUFKDQQHOWHDPQRWLQDJJUHJDWH$VDVLPSOHH[DPSOHDVLQJOH SODWIRUPVLQJOHFKDQQHOILUPZLWKELOOLRQXQGHUPDQDJHPHQWZLOOOLNHO\EH PRUHFRVWHIIHFWLYHWKDQDPXOWLSODWIRUPPXOWLFKDQQHORUJDQL]DWLRQZLWK ELOOLRQXQGHUPDQDJHPHQW

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

The benefits of scale can be offset by costs of complexity.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

The truly global firm will remain elusive.



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·VWKLUGJHQHUDWLRQZHEHOLHYHWKDWJURZWKWKURXJKDFTXLVLWLRQFDQEH DQLQFUHDVLQJO\LPSRUWDQWVWUDWHJ\6WURQJEXVLQHVVPDQDJHPHQWZLOOEHWWHUHTXLS 0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&RPSOHWH)LUPVWRHYDOXDWHSXUFKDVHFDQGLGDWHVZLWKLQWKHORQJWHUPVWUDWHJLFJRDOV RIWKHILUP,QDGGLWLRQWKHPRGXODURUJDQL]DWLRQDOVWUXFWXUHRIWKH&RPSOHWH)LUP ZLOODOORZIRUHDVLHULQWHJUDWLRQ)LQDOO\ZHEHOLHYHWKDWDFTXLULQJILUPVDUHEHFRPLQJ PRUHNQRZOHGJHDEOHDERXWWKHUHTXLUHPHQWVIRUVXFFHVVLQLQYHVWPHQWPDQDJHPHQW &KDUW5LVLQJ7UDQVDFWLRQ9DOXHWR(%,7'$0XOWLSOHV 25.0x

20.0x

15.0x

10.0x

5.0x

0.0x Jul-92

Feb-94

Sep-95

Apr-97

Oct-98

May-00

6RXUFH0HUULOO/\QFK

*RLQJIRUZDUGZHSUHGLFWWKDWDFTXLUHUVRILQYHVWPHQWPDQDJHPHQWILUPVZLOOEH PRUHVHOHFWLYH:KLOHDQ´$80IHWLVKµ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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

Transactions; smarter, not necessarily bigger.

Consolidation will come.

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP

Acquirers must recognize the challenges in owning an investment firm.



&RPSOHWLQJD6XFFHVVIXO,QYHVWPHQW0DQDJHPHQW$FTXLVLWLRQ :HUHFRJQL]HWKDWFKDQJHLQWKHRZQHUVKLSRILQYHVWPHQWPDQDJHPHQWILUPVLV GLIILFXOWDQGSRVVLEO\DPSOLILHGZKHQWKHQHZRZQHULVDODUJHILQDQFLDOVHUYLFHV FRPSDQ\+RZHYHUZHEHOLHYHWKDWQHZRZQHUVFDQWDNHVSHFLILFDFWLRQVWRHQVXUH UHWHQWLRQIXWXUHSHUIRUPDQFHDQGEXLOGHQWHUSULVHYDOXHZLWKLQDSXUFKDVHG LQYHVWPHQWPDQDJHPHQWFRPSDQ\  $UWLFXODWHDFOHDUVWUDWHJLFUDWLRQDOHIRUWKHSXUFKDVH7KLVVWDWHPHQWVKRXOG SUHVHQWDFRPSHOOLQJYLVLRQIRUDFKLHYLQJVXFFHVV²DPRUHVRSKLVWLFDWHGQRWLRQ WKDQVLPSO\´«ZHPXVWEHLQWKHLQYHVWPHQWPDQDJHPHQWEXVLQHVVµ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´YHQWXUHµRU ´SRUWIROLRLQYHVWPHQWµ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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



&RQFOXVLRQ $VWKHJOREDOLQYHVWPHQWPDQDJHPHQWLQGXVWU\UDSLGO\WUDQVLWLRQVWRLWV7KLUG *HQHUDWLRQZHHQFRXUDJHVHQLRUOHDGHUVWRWDNHILYHDFWLRQV 1. 5HFRJQL]HWKHFRPSHWLWLYHHQYLURQPHQWWKDWZLOOFKDUDFWHUL]HWKH7KLUG *HQHUDWLRQ • 7KH&OLHQW3DUWQHU&RPSHWLWRUSDUDGLJPFRQQHFWVXVDOO • 0DQXIDFWXULQJTXDOLW\UHLJQV • &OLHQWVHJPHQWVPDWWHU • (IILFLHQF\HQHUJL]HVWUXHWDOHQW 2. $VVHVV\RXUILUPDJDLQVWWKHVL[WHHQ&RPSOHWH)LUPFDSDELOLWLHVRXWOLQHGLQ &KDSWHUDQGEHJLQWRDGGUHVVJDSV 3. ,GHQWLI\\RXUFRUHFRPSHWHQFLHVHJLQYHVWPHQWPDQXIDFWXULQJGLVWULEXWLRQ WUDQVDFWLRQSURFHVVLQJ +RZFDQWKHVHFRUHFRPSHWHQFLHVEHOHYHUDJHGZLWKLQ DQGRXWVLGHWKHILUP":KDWDOWHUQDWLYHVH[LVWIRUGHOLYHULQJQRQFRUHDFWLYLWLHV" 4. $OLJQ\RXUEXVLQHVVYLVLRQZLWKWKHIRXUYLDEOHEXVLQHVVPRGHOVGLVFXVVHGLQ &KDSWHU • 'LVWULEXWLRQ6SHFLDOLVW • 6LQJOH3ODWIRUP0DQXIDFWXUHU • 0XOWL3ODWIRUP0DQXIDFWXUHU7KH)UDQFKLVH&RQJORPHUDWH • )LQDQFLDO+ROGLQJ&RPSDQ\ 5. 0DQDJHJURZWKFDUHIXOO\DQGZLWKFRQYLFWLRQ :HDUHYHU\RSWLPLVWLFWKDWSURSHUO\PDQDJHGWKH7KLUG*HQHUDWLRQZLOORIIHUJUHDW RSSRUWXQLWLHV

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



$SSHQGL[ 0DQDJH(PEHGGHG$OSKD&XW7KRVH+LGGHQ&RVWV ,QYHVWPHQWSURIHVVLRQDOVSDUWLFXODUO\WKRVHPDQDJLQJHTXLWLHVKDYHJHQHUDOO\ LJQRUHGWKHV\VWHPDWLFFRVWVRIUXQQLQJWKHLUSRUWIROLRV7KHVHFRVWVUHGXFHQHW UHSRUWHGSHUIRUPDQFH$VDFWLYHPDQDJHUVFRPHXQGHULQFUHDVLQJSUHVVXUHWR GHPRQVWUDWHWKHLUYDOXHUHODWLYHWRWKHLUSHHUVDQGWRLQGH[FRPSHWLWRUVFRQWUROOLQJ WKHVHFRVWVLVFULWLFDO :KDWLV(PEHGGHG$OSKD" :HXVHWKHWHUP(PEHGGHG$OSKDWRUHSUHVHQWWKHVHKLGGHQFRVWVRIPDQDJLQJDQ LQYHVWPHQWSRUWIROLR´$OSKDµLVDSRUWIROLR·VUHWXUQLQH[FHVVRIDUHOHYDQW EHQFKPDUN $V&KDUWLOOXVWUDWHV(PEHGGHG$OSKDGHWUDFWVIURPDPDQDJHU·V SRWHQWLDO$OSKDWKHUHWXUQWKDWFDQEHWKHRUHWLFDOO\SURGXFHGLQDIULFWLRQOHVV VHFXULWLHVPDUNHWZLWKRSWLPDOSRUWIROLRFRQVWUXFWLRQFKRLFHV(PEHGGHG$OSKD FRQVLVWVRIWKUHHEURDGFDWHJRULHVRIFRVWV

Managing Embedded Alpha can systematically improve returns.

•

7DQJLEOHFRVWVDUHH[SHQVHVWKDWDUHH[SOLFLWO\UHFRJQL]HG7KHPRVW SURPLQHQWWDQJLEOHFRVWVDUHPDQDJHPHQWIHHVDQGWUDGLQJFRPPLVVLRQV (DFKGROODUJLYHQDZD\IRUVD\PDQDJHPHQWIHHVLVDGROODUH[SOLFLWO\ GHWUDFWHGIURPWKHSRUWIROLRQHWUHWXUQ

•

0DQDJHGFRVWVUHVXOWIURPVXERSWLPDOSRUWIROLRFRQVWUXFWLRQ7KHUH DUHWKUHHSULPDU\PDQDJHGFRVWV$FWLYH5LVN&RVWVUHVXOWIURP XQLQWHQGHGULVNH[SRVXUHV7D[&RVWVDUHWKHFDSLWDOJDLQVFRQVHTXHQFHV IRUWD[DEOHDFFRXQWV0DQDJHUVZLWKDQLQVWLWXWLRQDOEDFNJURXQGDUH RIWHQWRRQHJOHFWIXORIWKHVHFRQVLGHUDWLRQV 1RW(TXLWL]HG&DVKFUHDWHV DQRSSRUWXQLW\FRVWIURPQRWNHHSLQJIXQGVIXOO\LQYHVWHG(DFKRIWKHVH FRVWVFDQEHPDQDJHGWKURXJKWKHSRUWIROLRFRQVWUXFWLRQSURFHVVIRU ZKLFKWKHUHH[LVWPDQ\DQDO\WLFDOWRROVWKDWFDQVXSSRUWWKLVGHFLVLRQ PDNLQJSURFHVV

•

,QYLVLEOHFRVWVDUHWKHFRVWVDVVRFLDWHGZLWKEX\LQJDQGVHOOLQJVHFXULWLHV LQFOXGLQJERWKWKHDGYHUVHPDUNHWLPSDFWRIWUDGLQJDQGWKHRSSRUWXQLW\ FRVWRIGHOD\LQJWUDGHH[HFXWLRQ7KHVHFRVWVFDQEHPDQDJHGWKURXJK H[SHUWWUDGLQJVNLOOVDQGWHFKQRORJ\

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

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



WKHQHWUHWXUQE\EDVLVSRLQWV$OVRLQVRPHOHVVOLTXLGPDUNHWVPDUNHWLPSDFW FDQFRVWKXQGUHGVRIEDVLVSRLQWV,QDOOUHGXFLQJ(PEHGGHG$OSKDFDQHDVLO\PDNH WKHGLIIHUHQFHEHWZHHQDYHUDJHDQGVXSHULRUSHUIRUPDQFH &KDUW7KUHH&RPSRQHQWVRI(PEHGGHG$OSKD Net Reported Alpha

Potential Alpha

Market Impact Opportunity Cost

Invisible Costs

Active Risk Taxes Not- EquitizedCash

Managed Costs

A L P H A

Trading Costs Management Fees

E M B E D D E D

Tangible Costs

Benchmark Return

6RXUFH%$55$6WUDWHJLF&RQVXOWLQJ*URXS

5HOHDVLQJ(PEHGGHG$OSKD ,QRUGHUWRUHOHDVH(PEHGGHG$OSKDLQYHVWPHQWPDQDJHUVPXVWGHYHORSD GLVFLSOLQHGVFKHPHWKDWLQFOXGHVWKHIROORZLQJSULQFLSOHV •

7DNHD+ROLVWLF9LHZ6RPHPDQDJHUVKDYHDGGUHVVHGWKHFRPSRQHQWV RI(PEHGGHG$OSKDLQDSLHFHPHDOPDQQHUZKHUHDVDVLQJOHIUDPHZRUN LVSUHIHUUHGWRHQVXUHVXIILFLHQWPDQDJHPHQWIRFXV(PEHGGHG$OSKD VKRXOGKDYHDVLQJOHFKDPSLRQZLWKLQWKHILUPW\SLFDOO\WKH&KLHI ,QYHVWPHQW2IILFHU

•

7DNHDQ$OSKD,QYHQWRU\7KUHHTXHVWLRQVQHHGWREHDQVZHUHGWR GHYHORSDFRKHUHQW(PEHGGHG$OSKDSROLF\:KLFKLQGLYLGXDOVLPSDFW (PEHGGHG$OSKDPRVWE\WKHLUDFWLRQV":KDWSURFHVVHVGRWKH\IROORZ LQPDNLQJGHFLVLRQV"+RZGRWKH\ZRUNWRJHWKHUWRUHDFKWKRVH GHFLVLRQV"

•

6HW3ULRULWLHV)HZILUPVKDYHWKHPDQDJHULDOEDQGZLGWKWRDGGUHVVDOO DVSHFWVRI(PEHGGHG$OSKDDWRQFH,GHQWLI\LQJSULRULWLHVUHTXLUHVDQ XQGHUVWDQGLQJRIWKHRSSRUWXQLWLHVZLWKLQHDFKFRPSRQHQW7KLV RSSRUWXQLW\ZLOOYDU\E\DVVHWFODVVDQGLQYHVWPHQWSKLORVRSK\

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF

6XFFHVVLQ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH&RPSOHWH)LUP



•

'HYHORSD6WUDWHJLF$JHQGDWKDW  6WDWHVDQGGHPRQVWUDWHVKRZPDQDJLQJ(PEHGGHG$OSKDZLOO EHFRPHDQLQWHJUDOSDUWRIWKHILUP·VDGGHGYDOXH  6HWVRXWDWLPHOLQHIRUDGGUHVVLQJHDFKFRPSRQHQW  0DNHVVRPHRQHUHVSRQVLEOHIRUGHYHORSLQJSROLFLHVDQG SURFHGXUHV  6HWVJRDOVE\ZKLFKWRPHDVXUHVXFFHVV

•

0DNHLW5HDORQWKH6KRS)ORRU$OOSHUVRQQHO²SRUWIROLRPDQDJHUV DQDO\VWVWUDGHUVSURGXFWGHYHORSHUVDQGVDOHVDQGFOLHQWVHUYLFHVWDII² PXVWEHIXOO\FRPPLWWHGWRPDQDJLQJ(PEHGGHG$OSKD7KLVLPSOLHV HGXFDWLQJHYHU\RQHDVWRWKHRSSRUWXQLW\FRPPXQLFDWLQJWKHVWUDWHJLF DJHQGDDQGDOLJQLQJLQFHQWLYHVDFFRUGLQJO\

•

7HOOWKH0DUNHW$FUHGLEOHDSSURDFKWRPDQDJLQJ(PEHGGHG$OSKD ZLOOGLIIHUHQWLDWHDPDQDJHUIURPFRPSHWLWRUVDQGVKRXOGEHDJJUHVVLYHO\ SURPRWHG3URSHUO\H[HFXWHGWKLVDSSURDFKFDQLPSURYHWKHSUREDELOLW\ RIVXSHULRUUHWXUQV

7KLVPDWHULDOLVEDVHGRQDSDSHUZULWWHQE\&KULVWRSKHU-$FLWR0DQDJLQJ'LUHFWRU%$55$6WUDWHJLF&RQVXOWLQJ *URXS%6&* DQG*UHJRU\75RJHUVIRUPHUO\RI%6&*DQGQRZ &KLHI2SHUDWLQJ2IILFHURI-RKQ/HYLQDQG &RPSDQ\&RSLHVRIWKHSDSHUDUHDYDLODEOHRQUHTXHVW

0HUULOO/\QFK &R,QF

%$55$6WUDWHJLF&RQVXOWLQJ*URXS

6XFFHVVLQ ,QYHVWPHQW0DQDJHPHQW %XLOGLQJDQG0DQDJLQJWKH &RPSOHWH)LUP

-XQH &RS\ULJKW0HUULOO/\QFK &R,QF %$55$6WUDWHJLF&RQVXOWLQJ*URXS

0HUULOO/\QFK &R,QF :RUOG)LQDQFLDO&HQWHU1HZ