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A Standard Life Investments
presentation
March 2009
This communication is intended for investment professionals only and must not be relied on by anyone else.
2
Multiple return sources is superior to single returns
Maximizing your return potential
• Taking risk should be a calculated, purposeful strategy
• To maximize return, all risk should be put to maximum use at all times
• Portfolio manager expertise is essential to achieving this
3
Multi-Asset philosophy
A structure which allows for opportunities in bull and bear mkts
• Holding multiple asset classes alone may not suffice
• Timing markets in the short term is fraught with dangers
• Outlook is clearer for those with a 3 year investment horizon
4
The theory of diversification
Time
Blending the right mix of strategies creates greater consistency
Different strategies will behave differently over time
Time
5
Diversity, what diversity?
Rolling 6m correlationUS Equities UK Equities
Source: Standard Life Investments, Datastream 2/3/09
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…even long-held relationships have broken
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-2/3
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Rolling 3m correlationCorporate Bonds FTSE All Share
Source: Standard Life Investments, Datastream 2/3/09
7
Fear and panic………
September 2008
6 mth LIBOR 0.1
Gilts 0.5
UK IPD -2.4
£ Corp Bonds -4.5
GARS -6.3
CS/Tremont Hedge Fund Index* -6.5
FTSE APCIMS Balanced -8.2
FTSE 100 -12.9
Source: Lipper, * www.hedgeindex.com
October 2008
0.3
0.5
-3.8
-3.1
1.0
-6.8
-7.9
-11.9
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A broad range of approaches
Market Returns
Relative Value
Enduring diversity – through a wider opportunity set
Stock SelectionOpportunistic
9
Current thinking
Volatility across markets remains at extreme levels
• Central scenario is muted recovery rather than ‘V’ shaped one
• Outlook for Europe looks particularly vulnerable
• Interest Rates to remain lower for longer
• Extreme distortion creating opportunities for investors with longer term horizons
10
Korea or Japan – opportunity?
Daily Q.TOPX, Q.KS11 04/01/2008 - 10/03/2009 (TOK)
Value
None
.123
-50
-45
-40
-35
-30
-25
-20
-15
-10
-52.327
-42.429
16 01 18 03 17 01 16 01 16 02 16 01 16 01 18 01 16 01 16 04 17 01 16 05 16 02 16 02
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
Source: Standard Life Investments, Reuters, 01/01/08 - 2/3/09
TopixKOSPI
11
Korea vs Japan –relative value opportunity
Source: Standard Life Investments, Reuters, 01/01/08 - 2/3/09
Daily QKRW=, QJPY= 01/01/2008 - 10/03/2009 (GMT)
Value
/USD
.123
-10
0
10
20
30
40
50
6060.831
-10.248
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
US Dollars/ Japanese YennUS Dollars / Korean Won
12
Risk profile of multi-market return strategy
Stand-alone risk breakout
• Volatility:
GARS9.2%
Global 21.3%Equities
(annualised, using weekly data, to 2/3/2009
Source: Standard Life Investments, 27/2/2009
16.23%
7.32%
0%
5%
10%
15%
20%
25%
Expected Volatility
Diversification Benefits
13
Global Absolute Return Strategies Fund
Source: Standard Life Investments, performance of the institutional pooled pension fund from 12/6/2006 to 2/3/2009
Target updated to Libor + 5% post 28/1/08 ** Source: Datastream (net of 0.18% tracker fund fee)
75
85
95
105
115
125
135
Jun
06
Jul 0
6
Aug 0
6
Sep 0
6
Oct 06
Nov 0
6
Dec 0
6
Jan
07
Feb 0
7
Mar
07
Apr 0
7
May
07
Jun
07
Jul 0
7
Aug 0
7
Sep 0
7
Oct 07
Nov 0
7
Dec 0
7
Jan
08
Feb 0
8
Mar
08
Apr 0
8
May
08
Jun
08
Jul 0
8
Aug 0
8
Sep 0
8
Oct 08
Nov 0
8
Dec 0
8
Jan
09
Feb 0
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Cash (Libor) GARS (Gross) Global Equities** Target Return
14
Appendices
15
Global Absolute Return Strategies
• UK 6 month Libor
• UK 6 month Libor + 5 % (Gross of fees) over a 3 year rolling basis(updated target post January 2008)
• Expected range: 4% to 8%*
• Retail 1.50% AMC, 1.62% TER• Institutional 0.75% AMC, 0.87% TER
* NB These are not hard limits
Benchmark
Performance Target
Robust Risk Control
Charges
16
Diverse pool of return-seeking positions
Long European Duration
Medium European Duration
Global Equity
Long BRL vs JPY
US Equity
Long GBP vs EUR
Long Japanese Duration
European Equity
Long US Duration
EUR Fwd Short-Term Rates
Short UK Inflation
Long USD vs JPYLong USD vs EUR
KOSPI - TOPIX Rel Value
GBP Fwd Short-Term Rates
Stock SelectionStrategic short FTSE VolUK Equity
Financial Sector Credit
UK Relative Value SMI - DAX Relative Value
Short Cable Vol
FTSE Dividend SwapEU High Yield Bonds
FXEPRA Short PutFTSE v DAX vol spread
J REIT
UK Nominal Bonds
Global Index Linked BondsEU Nominal Bonds
Long TRY vs CAD
Share of Risk Exposure
Source: Standard Life Investments, 27/02/ 2009
Understanding the risks shows the potential rewards
17
Comprehensive risk controls
Risk Management
• Fund risk restrictions: Volatility target range 4% to 8% Strategy risk limit, 40% of aggregate stand alone risk Sub-strategy limit, 30%
• Multi-Asset Investing team includes 3 highly qualified risk managers Track individual strategy development using "V-mask" technology Industry standard systems – Northfield, APT and UBS Delta
• Active risk monitored by three accountable groups Multi-Asset Investing team, headed by Euan Munro Risk Management team, which is integrated within the front office Client Fund Management team
18
Critical combination of skills and experience
Implementation of multi-asset solutions
• Responsibility for Multi-asset management for £63bn of funds
• Combines key components for successful multi-asset investment
• On-desk full time risk analysis
Source: Standard Life Investments, 31 December 2008
Asset Class SpecialistsChristopher Nichols FFA Malcolm Jones FFA
Owen McCrossan FIATammas McVie
Euan Munro FFAHead of Multi-Asset
Investing
Strategic Research &
Idea GenerationAndrew Milligan
Dr Richard BattyFrances HudsonDouglas Roberts
Jason Hepner CFANeal Caldwell
Gwilym Satchell
Multi AssetManagement
Guy Stern CFA
Colette ConboyAudrey Simpson David Jubb FFA
Harry SmithMurray Forbes
David Millar FFAMalin Nairn
Derek QuinnDavid Kirkpatrick
RiskAnalysis
Dr Brian Fleming CFA
Dr Anne Friel PRMDr Brendan Walsh
John Whelan
Staff Area Years in industryYears at Standard Life
Investments
11 Fund Management 18 10
4 Risk 10 8
7 Strategy 16 9
19
Cumulative Performance Attribution
Contributions since Q3 2006
Quarter Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08Cumulative contribution
Number of strategies 13 13 14 15 16 17 21 23 29 33Stock selection -0.20% 1.30% 1.19% 0.74% -0.28% -0.60% 0.00% 0.80% -0.90% -0.50% 1.53%
Cash 0.25% 0.21% 0.30% 0.48% 0.32% 0.30% 0.40% 0.40% 0.40% 0.30% 3.41%Global Index Linked Bonds 0.37% -0.07% 0.08% -0.11% 0.39% 0.40% 0.40% 0.10% 0.00% -0.30% 1.26%
Financial Sector Credit 0.20% 0.40% -0.30% 0.30% 0.60%UK Equity 0.57% 0.70% 0.22% 0.56% -0.11% 0.10% -1.00% -0.30% -0.50% -0.20% 0.03%Corporate Bonds 0.32% 0.26% 0.06% -0.18% 0.27% 0.20% -0.10% -0.10% -0.40% -0.30% 0.03%
European property 0.00% -0.20% -0.10% -0.70% -1.00%Japanese Property -0.10% -0.70% 0.00% -0.30% -0.30% -1.39%
Global Equity 0.54% 0.65% 0.19% 0.71% 0.02% -0.40% -1.30% 0.00% -0.80% -1.10% -1.50%US Equity -0.70% -1.10% -1.79%European Equity 0.53% 0.34% 0.66% 0.97% -0.12% -0.20% -1.40% -0.40% -1.10% -1.40% -2.13%
Long Japanese Duration 0.99% 0.81% 0.26% -0.15% 0.97% 0.50% 0.50% 0.60% 0.90% -0.50% 4.98%Long European Duration 0.33% -0.34% -0.33% -0.60% 0.12% 0.00% 0.00% -0.70% 0.70% 5.10% 4.23%GBP Short Rates -0.51% 0.75% 0.30% 0.10% 0.30% 0.80% 1.75%
EUR Short Rates -1.00% 0.60% 1.80% 1.39%Long USD vs EUR 0.30% 0.80% 1.10%
Long USD vs GBP 0.12% -0.22% -0.01% -0.22% -0.08% 0.50% 0.00% 0.00% 0.50% 0.59%Long US duration 0.20% 0.20%Turkish Lira 0.04% 0.04%
Other FX 0.10% -0.04% 0.07% 0.00% 0.08% 0.00% 0.20% 0.00% 0.00% -0.50% -0.09%Long TRY vs CAD -0.20% 0.10% -0.10%Long USD vs JPY -0.20% 0.20% 0.00% -0.80% -0.80%
Long BRL vs JPY -0.40% 1.00% -0.90% -1.30% -1.61%Long GBP vs EUR 0.10% -3.10% -3.00%
FTSE v DAX volatility spread 0.00% -0.20% 2.00% 1.80%S&P v Nikkei volatility spread -0.20% 1.20% 1.00%US short term swap spread 0.90% 0.90%
UK Equity Volatility 0.30% 0.20% 0.10% 0.60%Financial Relative Credit -0.40% 1.00% 0.60%UK Curve steepener 0.40% 0.40%
UK Large v Mid UK equity -0.39% -0.91% -0.35% 0.63% 0.28% 0.30% -0.50% 0.50% 0.20% 0.50% 0.25%Credit Curve Steepener 0.00% 0.10% 0.00% 0.10%
S&P Call Calendar Spread 0.10% 0.10%European Equity Volatility 0.20% 0.00% 0.02% -0.12% -0.01% 0.09%SMI v DAX equity 0.01% -0.30% 0.20% -0.10% 0.20% 0.00% 0.01%
USD v GBP volatility spread 0.00% 0.00%Short UK Inflation 0.21% -0.18% 0.00% -0.30% -0.27%
Long US v Short UK Inflation -0.50% -1.50% 0.00% -1.99%Residual 0.20% 0.01% -0.20% 0.20% 0.39% 0.30% 0.00% 0.00% 0.00% -0.10% 0.90%
Traditional risk premia no longer rewarding
Interest rate strategies performed well In this environment…..… as have relative value strategies
Source: Standard Life Investments, performance of the institutional pooled pension fund from 12/6/2006 to 31/12/2009
20
Source: Standard Life Investments
Study rejects hypothesis of ‘random walk’ over 2-8 year view
Evidence for Opportunities at Longer Timescales
Non-Outlier MaxNon-Outlier Min
75%25%Median
Box Plot: 1-Year Equivalent Volatility of UK Equity MarketTotal Real Return Data: 1900 - 2002, Source BZW Equity Gilt Study
Comparison with 40 random shuffled BZW data surrogates
Non-overlapping return runs of length n
1 Y
ear
Equ
ival
ent V
olat
ility
y_1
0.06
0.10
0.14
0.18
0.22
0.26
0.30
0.34
bzw sury_2
bzw sury_4
bzw sury_8
bzw sury_16
bzw sur
• Markets shown to be efficient over 1 year period
• Mean reversion or market inefficiency exists over periods greater than a year
• Investment decisions to exploit these opportunities are based on in-depth qualitative analysis
Market Data
21
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Remember - past performance is no guarantee of future performance.
Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and cannot be guaranteed.
Standard Life Investments Limited, tel. +44 131 225 2345, a company registered in Scotland (SC 123321) Registered Office 1 George Street Edinburgh EH2 2LL.
The Standard Life Investments group includes Standard Life Investments (Mutual Funds) Limited, SLTM Limited, Standard Life Investments (Corporate Funds) Limited and SL Capital Partners LLP. Standard Life Investments Limited acts as Investment Manager for Standard Life Assurance Limited and Standard Life Pension Funds Limited.
Standard Life Investments may record and monitor telephone calls to help improve customer service. All companies are authorised and regulated by the Financial Services Authority. ©2009 Standard Life Investments. www.standardlifeinvestments.com
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