AVIVA INVESTORS G7 FIXED INCOME FUND - April 2013
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AVIVA INVESTORS G7 FIXED INCOME FUND April 2013 Prepared for professional clients and /or qualified investors only. It is not to be viewed by or used with retail clients
G7 Fixed Income Fund
IMPORTANT INFORMATION
NOT FOR PUBLIC DISTRIBUTION
The distribution and offering of shares may be restricted by law in certain jurisdictions. The content of this
document should not be viewed as an offer or solicitation to subscribe for shares of the fund by anyone in any
jurisdiction in which such an offer or solicitation is not lawful or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to make such an offer or solicitation.
This presentation is for information purposes only and is not intended for and may not, without the express consent of
Aviva Investors, be distributed to, and may not be relied upon by, any other party, including, without limitation, any
advisory or other client of the recipient.
The Aviva Investors G7 Fixed Income Fund is a Cell of Aviva Investors Alternative Funds PCC Limited, a protected cell
investment company incorporated in Guernsey.
This presentation is not available for general distribution in, from or into the United Kingdom because the Aviva Investors
G7 Fixed Income Fund is an unregulated collective investment scheme whose promotion is restricted by sections 238 and
240 of the Financial Services and Markets Act 2000. When distributed in, from or into the United Kingdom, this document
is only intended for persons having professional experience of investing in unregulated schemes, high net worth
companies, partnerships, associations or trusts and personnel of any of the foregoing having professional experience of
investing in unregulated schemes (each within the Financial Services and Markets Act 2000 (Promotion of Collective
Investment Schemes) (Exemptions) Order 2001), persons outside the European Economic Area receiving it electronically,
persons outside the United Kingdom receiving it non-electronically and any other persons to whom it may be
communicated lawfully. No other person should act or rely on it.
2
G7 Fixed Income Fund AGENDA 1 Performance review 2 Investment philosophy and process 3 What are we focusing on? 4 Risk management Appendix 1: The capability Appendix 2: Key terms and investor breakdowns Appendix 3: Trade examples Appendix 4: Biographies Appendix 5: Introduction to Aviva Investors Appendix 6: GIPS performance & disclosures
G7 Fixed Income Fund
1. PERFORMANCE REVIEW
4
G7 Fixed Income Fund
G7 FIXED INCOME FUND PERFORMANCE
GBP TRANCHE 1
%
10
9
8
7
6
5
4
3
2
1
0
-1
1 month 3 months 6 months 1 year 3 years 5 years Since inception
(%)*
G7 Fixed Income 1 month GBP LIBOR
1 month 3 months 6 months 1 year 3 years 5 years Since
As at 28 February 2013
(%) (%) (%) (%) (%)* (%)* inception (%)*
G7 Fixed Income Fund (GBP- tranche I ) 0.65 0.27 0.23 1.49 3.41 6.48 9.39
1 month GBP LIBOR 0.04 0.12 0.25 0.58 0.61 1.45 3.11
Annualised volatility of monthly returns: 2.7% since inception
Source: Aviva Investors as at 28 February 2013. *Annualised returns. Returns are reported in GBP, net of fees. Past performance is not a guide to
future performance. Inception date: 3 February 2003 5
G7 Fixed Income Fund
PORTFOLIO RETURNS SO FAR…
• Our modest returns this year have masked the underlying volatility we see in individual positions,
demonstrating to us that our portfolios will generate a good return if we get our calls right
• Equally we feel pleased with our risk management over the year as that has kept us the right side of
zero in a year when many macro funds have struggled with negative returns
• We continue to focus on identifying genuine alpha* and not simply introducing carry and beta** bias
into our portfolios
• Capturing alpha in this environment is tricky if you are wary of the risks you expose your portfolio to
•
• Sure there are plenty of carry and roll-down trades available, though most are crowded, and many
investors seem happy to reap risk premia on the basis that central banks will protect against the risks
that those premia are supposedly based on
• But neither of those are alpha trades, they’re beta at best
• Alpha opportunities do present themselves although timing is more important now than ever and it’s
hard for a cautious investor to justify the size of position that might have been used pre-crisis
• We’ve further developed our process to help enhance the timing element, hopefully keeping us out of
trouble when the risks are too great, but allowing us to capture alpha conservatively when it is
reasonable to do so
*alpha – the amount by which a portfolio outperforms the market due to the skill of the manager in choosing investments.
**beta – An estimate of how much an individual stock will move given a change in the market in the overall level of the market of which it forms part. Also, the return from any
portfolio or stock which is the result of being part of a particular market . 6
G7 Fixed Income Fund
RISKS SIMILARITIES POST 2008 VERSUS NOW
2008
• Post 2008 much criticism was made of collateralised debt obligations, engineered to have few risks while
offering very attractive yields.
• There is now a realisation that the risks had just been pushed into the extreme tails and materialised only
in an event that no-one thought would happen, a housing market crash.
Now
• Now, we see the US, UK and European Central Banks are supporting risk assets, supposedly removing
the tail-risks
• This leaves the extreme tail-risk that central banks fail in their efforts, or change course (by choice or by
force) - leaving risk assets exposed to a major sell off
• But no-one thinks that’s going to happen!
• You don’t have to believe that will happen but surely the parallels in risk management between 2008 and
now concern us.
7
G7 Fixed Income Fund
GOING FORWARD…
• We are starting to find attractively priced medium to longer term volatility positions in some markets
and are looking to implement more tail hedges and blow-up trades
• Asset swap behaviour is returning to normal, being driven more by supply and demand than
dominated by risk-on, risk-off sentiment
• Allows us to exploit opportunities in this space more assertively as we won’t simply be adding risk to
our big macro call that we are expressing elsewhere in our book
• Another theme we see developing is the structural deterioration in Japan.
• While this is a call that has been made previously and not worked, we see the change in the current
account balance as being a key difference this time
• The recent current account deficit may be a short-term one-off but we doubt Japan will return to
running a significant surplus anytime soon
• There is also plenty of government issuance to come this year which will continue to provide an
opportunity set for us, and we expect more genuine macro plays to occur over next year as well
• We feel that the success of central banks this year in forestalling any build up in market concerns was
fortuitous and will be a tough act to repeat next year
• So we remain cautiously optimistic of our return prospects in the near future, if pretty pessimistic still
on the likelihood of policy makers getting to grips with solving the problems western economies are
facing
8
G7 Fixed Income Fund
2. INVESTMENT PHILOSOPHY AND
PROCESS
9
G7 Fixed Income Fund
OUR INVESTMENT PHILOSOPHY
We believe that most trading opportunities arise from major economic themes and market
dislocations
A deep understanding of economic drivers and market dynamics enables investors to earn excess
returns by exploiting these opportunities. To do this well requires:
Ability to identify trends and exploit the markets’ tendency to overreact
Disciplined management of downside risks
Diversified sources of added value
10G7 Fixed Income Fund
INVESTMENT UNIVERSE
30% 70%
Macro directional trends and corrections Relative value & pricing anomalies
Asset allocation Yield curve
Directional rates
positioning Supply/demand
Cross market trades
Short end
Swap spread Futures basis trading
positioning
Currency trades positioning
Higher volatility Lower volatility
Higher market Lower market
correlation correlation
Seeking returns from a variety of sources
11G7 Fixed Income Fund
FOUR-STEP INVESTMENT PROCESS
Step One Step Two Step Three Step Four
Asset – Macro view Portfolio Implementation
allocation
Construction
– Central – Trade sizes
Idea generation
investment – Risk budgeting
themes – Stop losses
Directional
rates – Security
selection – Profit targets
Relative
value
Developing a “big Formulating high Allocating risk across Rigorous risk
picture” conviction themes themes and trades controls
Process based on rigorous analysis
12G7 Fixed Income Fund
STEP ONE: IDEA GENERATION
LAYER ONE: FIXED INCOME ASSET ALLOCATION (QUALITATIVE ANALYSIS)
1
GDP cycle analysis Asset allocation flows Trading environment
P1 P2 P3 P4
Low volatility High volatility
Global Cash
Global 2Y
Phase 3 Phase 4
Global 10Y Trending
Global IG Credit Outperform Outperform
Global High Yield
Phase 2 Phase 1
Emerging Market Debt
Non-
Emerging Local Currency
trending
Developed Inflation Linked
Underperform Outperform
Emerging Inflation Linked
Global Equities
Global Emerging Equities
No clear
Underperform Outperform pattern
Tracking GDP over cycles enables us Identify the performance of asset classes, …and to identify the trading environment
to identify where we are in the cycle.. based on the cyclicality of capital and income
A thorough understanding of the macro environment provides the framework for qualitative discussion
13G7 Fixed Income Fund
STEP ONE: IDEA GENERATION
LAYER TWO: DIRECTIONAL ANALYSIS (QUANTITATIVE ANALYSIS)
1
Three types of systematic models employed Global duration scorecard example:
– Fundamental driven long-term value model
– Fundamental driven medium-term cyclical models Global duration Duration 2y bonds
(e.g. GDP, inflation)
U.S. EMU Japan U.K.
– Price driven trend-based models (e.g. Momentum,
Leading Indicators 1 1 -1 1
support/resistance levels)
Short run indicators -1 -1 0 -1
Outputs combined in scorecards Fundamental Signal 0 0 -1 0
– Establish consensus view
Technical (pattern) 0 0 0 0
– Identify main themes
Trend 0 -1 -1 -1
Technical Signal 0 -1 -1 -1
Glass box approach to modelling
– Reduces opacity of assumptions
-1 = bullish
– Allows us to determine the level of conviction in 0 = neutral
outputs 1 = bearish
Scorecard analysis based on simple but robust proprietary models
For illustrative purposes only 14G7 Fixed Income Fund
STEP ONE: IDEA GENERATION
LAYER THREE: RELATIVE VALUE(TECHNICAL ANALYSIS)
1
Technical analysis Relative value analysis Fundamental analysis
60
40
20
0
-20
-40
-60
Jul-08
Oct-08
Apr-09
Oct-09
Apr-06
Jul-06
Apr-07
Jul-07
Apr-08
Jan-09
Jan-10
Jan-06
Oct-06
Jan-07
Oct-07
Jan-08
Jul-09
UK 10yr gilt moving averages UK gilts relative value 10yr30yr vs. 5yr10yr curve
– Example: 10yr rates moving – Example: UK Gilt 2.25% Mar ‘14 – Example: 10yr30yr vs. 5yr10yr
average convergence/ vs. Gilt 5% Sep ’14
– Looking for tactical curve trading
divergence opportunities
– Momentum, support and
resistance levels to inform trade
timing and profit target/stop loss
setting
Deep understanding of market dynamics
Source: Bloomberg, Screenshots taken in March 2010 for illustrative purposes only and do not reflect current market conditions 15G7 Fixed Income Fund
STEP TWO: CENTRAL INVESTMENT THEMES
2
– Analytical process culminates in the identification of a set of investment themes with relatively low
correlation
– Each theme will be expressed via approximately five trading strategies at any one time
– Thematic approach is applied to all funds
Macroeconomic view
“Economic growth rolling over”
Theme 1 Theme 2 Theme 3 Theme 4 Theme 5
Tail hedges Active trading Long volatility Bank funding to Long the USD
around bias remain under currency
government pressure
bond supply
Source: Aviva Investors sovereign absolute return investment team. March 2013 16G7 Fixed Income Fund
STEP TWO: CENTRAL INVESTMENT THEMES
2
Theme Type Market Instruments
Tail hedges Directional Euro/US/JPY Swaptions, bonds options
Active trading around Government bonds (outright or
Relative value UK/Euro/US
government bond supply against swaps)
Long volatility bias Directional US/UK/Euro Buy hedges against risk-off scenario
Bank funding to remain Long the Libor basis (e.g. receive
Relative value UK/Euro/US
under pressure 6m Libor, pay 3m Libor)
Long the USD currency Directional Global FX forward contracts
Source: Aviva Investors sovereign absolute return investment team, March 2013. This slide is for illustrative purposes only and does not purport to
show the fund’s current positions. 17G7 Fixed Income Fund
STEP THREE: PORTFOLIO CONSTRUCTION
3
Target 6% p.a. (net of fees) at portfolio level
i.e. 0.5% per month
Aim to deliver Aim to deliver Aim to deliver Aim to deliver Aim to deliver
0.10% per 0.10% per 0.10% per 0.10% per 0.10% per
month month month month month
Theme 1 Theme 2 Theme 3 Theme 4 Theme 5
Trade 1
Trade 2 The number of trades within a theme
depends on the conviction level
Trade 3
On average the portfolio runs about 25
Trade 4
trades
Trade 5
Target for internal fund management purposes only and is not a guarantee or indication of future returns 18G7 Fixed Income Fund
STEP FOUR: IMPLEMENTATION
4
What do we use?
– Cash bonds
Liquidity and market
position – Exchange-traded interest rate derivatives
– Over-the-counter interest rate derivatives
Timing and expected
horizon – Credit default swaps
– Currency derivatives
Trade Optimal
Target profit
selection trade size – Equity indices
– Commodity derivatives
Maximum downside
/stop-loss
Correlation with existing How do we use it?
portfolio
– Directional example:
Put/Call spreads (exchange-traded), Receiver/payer
spread (OTC)
– Asset swaps example:
Futures versus swaps; cash + repos versus swaps
Building in downside risk control
19G7 Fixed Income Fund
3. WHAT ARE WE FOCUSING ON?
20G7 Fixed Income Fund
OUR INVESTMENT PROCESS
There are 4 cycles at work in the
macro backdrop:
– Capital cycle Capital destruction
Fundamentals Upside growth
– Income cycle Valuation
– Liquidity cycle Momentum
– Volatility cycle
Our investment process is designed to identify:
– Potential points of inflection in GDP cycle
– Rotation between asset classes (asset allocation shifts)
– Capital increases / decreases at asset class level
– Income generation / capital destruction phases
Our process culminates in the formulation of a set of relatively lowly correlated themes
21G7 Fixed Income Fund
OUR CENTRAL INVESTMENT THEMES
Macroeconomic view
“Economic growth rolling over”
Theme 1 Theme 2 Theme 3 Theme 4 Theme 5
Yields rising Relative value Long volatility Bank funding to Long the USD
theme active trading bias remain under currency
pressure
These themes apply across our strategies
Source: Aviva Investors sovereign absolute return investment team, February 2013 22G7 Fixed Income Fund
ARE YIELDS SET TO RISE FURTHER?
EONIA – Euro overnight interest rate (%) 5 year swap rates (%)
0.09 1.25
1.20
0.08 1.15
Swap rate (%)
Index rate (%)
1.10
0.07 1.05
1.00
0.06 0.95
0.90
0.05 0.85
02 Jan 11 Jan 22 Jan 31 Jan 11 Feb 20 Feb 02 Jan 11 Jan 22 Jan 31 Jan 11 Feb 20 Feb
2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013
• One of the major market moves in 2013 has been the unwind of 2012’s carry trade at the front end of
Europe
• With a fiscal cliff resolution, a hawkish ECB meeting in January and a larger than expected 1st LTRO
repayment
• Crowded positioning meant a 35bps sell off in 5y rates as the carry trade was unwound with stops
being triggered and short positions been initiated
Source: Bloomberg as at 21 February 2012
23G7 Fixed Income Fund
ARE RISK-ASSETS OVERVALUED ?
60% 70
65
40%
60
20%
55
0% 50
45
-20%
40
-40%
35
-60% 30
Nov-99 Mar-01 Aug-02 Dec-03 Apr-05 Sep-06 Jan-08 Jun-09 Oct-10 Mar-12 Jul-13
S&P 500 YoY (LHS) ISM Manufacturing
Source: Aviva Investors, Bloomberg as at February 2013 24G7 Fixed Income Fund
BEWARE OF GEOPOLITICAL RISK
EMBED TAIL HEDGES INTO PORTFOLIOS
Option market based tail risk monitor Long volatility strategy P&L using a combination
Increase
of ‘green lights’ to time hedges
volatility
hedges when 800 1800
option market
700
shows 1600
increasing 600
Index level
Index level
signs of stress 1400
500
400 1200
Decrease 300
volatility 1000
200
hedges when
800
option market 100
indicates a 0 600
more benign Dec 2005 Apr 2007 Aug 2008 Dec 2009 Apr 2011 Aug 2012
environment
Long vol strategy P&L (LHS) S&P Index (RHS)
– Implied volatility hedges have an inherent cost of carry, making systematic buy and hold strategies
expensive over time. Performance can be enhanced by adding to hedges at times of anticipated near
term market stress.
– ‘Green lights’ include:
– Upcoming macro events not fully reflected in option prices
– Changes in implied volatility term structure
– Changes in the volatility of implied volatility
– Trend changes in implied volatility levels
Source: Bloomberg, 2 October 2012 25G7 Fixed Income Fund
FIXED INCOME TEAM
Raphaelle Moysan,
CFA (15,3) Client
Shahid Ikram (23,23) portfolio manager
Paul Abberley (32,4)
Chief Investment Officer
Interim Chief Executive
and Head of Fixed Income Zahra Sachak (6,2)
Officer
Client portfolio
manager
Hassan Nabi
(6,3) Client relationship
manager
Benjamin Carter
(G7 Fixed Income Fund
4. RISK MANAGEMENT
27G7 Fixed Income Fund
RISK MANAGEMENT FRAMEWORK
Type of risk Official fund restrictions Desk guidelines Independent oversight
5 day, 95% confidence interval: 2% soft limit (5 business day Independent portfolio risk
rectification period), 3% hard limit (immediate rectification) team:
Stop loss set at 6% NAV (automatic liquidation of portfolio) Daily monitoring of VaR and
Market risk Risk budgeting integral to process of
Max 40% NAV in a single collective investment vehicle, (20% trade selection / timing daily risk analysis available
• Main drivers: interest in vehicle which invests mainly in other collective vehicles) Monthly formal risk analysis
rates and currencies Target profit and stop-losses put in
Max 20% GAV in corporate debt place at theme and trade level – dissecting the portfolio risk by
• Typically increased themes/trades closed out as soon as currency, strategy and
Max 20% GAV in equities (not directly)
through use of leverage possible once these levels are reached interest rate sensitivities as
Max 10% GAV in commodities (not directly) well as stress-testing under
Max loss on unhedged short position is 100% of value of various theoretical and
position at time of investment. historical scenarios.
Credit risk Counterparty sign-off and
• Principally derives from Individual counterparty, issuer and OTC exposure limits monitoring by Aviva Investors
exposure to trading applied as per the fund prospectus Availability of 23 ISDA lines with daily Credit Committee
counterparties & issuers Minimum credit rating of sovereign/corporate issuers for collateral posting Max. exposure to any one
of securities held by the long-term debt: BBB-/Baa3 counterparty (excluding PB):
fund 20% gross assets
Liquidity risk
Aim to hold minimum of 50%
• Suspension or restriction unencumbered cash
of trading on exchange
Over 75% of portfolio able to be
• Available liquidity from liquidated within 3 business days
OTC counterparties
Quarterly oversight by
independent board
Operational risk Independent fund administrator: State Street (Guernsey) Ltd Robust operational model
Annual SAS 70 reviews of
investment manager
28G7 Fixed Income Fund
MARKET RISK LIMIT
Sovereign credit
G7 Fixed Income Fixed Income
opportunities
hedge fund Macro hedge fund strategy
hedge fund strategy
VaR limit 5 day, 95% confidence level 5 day, 95% confidence level 5 day, 95% confidence level
(soft)* < 2% < 4% < 4%
VaR limit 5 day, 95% confidence level 5 day, 95% confidence level 5 day, 95% confidence level
Value at (hard) < 3% < 5% < 5%
Risk
Methodology Historical Historical Historical
Software GlobeOp GoRisk GlobeOp GoRisk GlobeOp GoRisk
Stop Portfolio
6% 10% 10%
Losses level
Robust risk management framework
*Soft VaR limit for UCITS compliant strategy is an internal team guideline only 29G7 Fixed Income Fund
MARKET RISK METRICS
Value at Risk Sensitivity analysis
Value at Risk (5 day, 95% confidence interval) is the Key sensitivities are closely monitored, overall and by
primary risk metric… main currency
Contribution to VaR by Currency
VaR Summary 95% 99% Currency Incremental VaR Volatility WorstLoss
5-days (%) 0.34 0.53 AUD -2.49% 0.02% 0.02%
30-days (%) 0.57 0.86 CAD 0.54% 0.00% 0.01%
CHF -0.07% 0.01% 0.03%
DKK 1.72% 0.01% 0.02%
EUR 37.80% 0.21% 0.85%
GBP 6.48% 0.08% 0.29%
1 Year Weekly Return vs Weekly VaR JPY 23.83% 0.07% 0.18%
NZD -1.10% 0.00% 0.01%
1.50% SEK 0.86% 0.01% 0.03%
1.00% USD 24.69% 0.05% 0.16%
0.50% KRW 8.10% 0.07% 0.07%
0.00% NOK -0.37% 0.01% 0.04%
-0.50% 10,000
dv01(£)
-1.00%
0
-1.50%
-10,000
-2.00%
Mar-12
May-12
Oct-12
Dec-12
Apr-12
Jul-12
Aug-12
Jan-13
Feb-12
Jun-12
Sep-12
Nov-12
Feb-13
-20,000
-30,000
Weekly Returns Weekly VaR
-40,000
-50,000
-60,000
AUD CAD CHF CNY DKK EUR GBP JPY KRW NOK NZD SEK USD
Stress testing
…as are range of stress and scenario tests
BEAR_FLATTENING IR_DOWN_100BP IR_UP_100BP STANDARD_RISK USD_UP_6P
Total P&L 4,249,929 2,442,269 7,240,733 -647,358 2,965,150
Percentage P&L 0.91% 0.52% 1.54% -0.14% 0.63%
04_Russian_Crisis_L H_SUBPRIME_04MAR08_1
EUR_STANDARD H_10SEP2001_21SEP2001 H_LEHMAN_15SEP08_25SEP08
TCM_31Aug98 7MAR08
Total P&L 1,882,083 3,409,765 3,021,769 849,557 902,433
Percentage P&L 0.40% 0.73% 0.64% 0.18% 0.19%
Source: Aviva Investors Risk Management Team as at 28 February 2013 30G7 Fixed Income Fund
RISK AND COMPLIANCE OVERSIGHT
John Lister
Aviva Group Chief Risk Officer
Paul Abberley
Interim Chief Executive Officer Aviva
Investors
Executive
Patrick Neville Richard Field committee
Chief Financial Officer Global Chief Risk Officer level
Shahid Ikram Gabrielle Dixey UK Director of Business risk Regional risk
Chief Investment Officer Global General Counsel Investment Risk department departments
& Head of Fixed Income
Investment team Other legal Ross Head of Investment Head of investment Head of Investment
functions Maclean Risk – Aviva Investors risk – GIS Risk – Strategy
Head of London
Compliance
Regulatory Fixed Income Equities Team Alternatives
risk Team Team
department 2 risk analysts 1 risk analyst 1 risk manager
1 data analyst 2 data analysts 1 risk analyst
Source: Aviva Investors as at March 2013 31G7 Fixed Income Fund
OPERATIONAL MODEL
Board of directors
Aviva Investors
Alternative Funds PCC
Limited
G7 Fixed Income Fund
Custodian Administrator Manager Prime brokers Auditor Legal advisors
BNP Paribas Ltd State Street Aviva Investors Barclays Capital KPMG (CI) Ltd Guernsey: Mourant
Trust Company (Guernsey) Ltd Channel Islands Securities Ltd Ozannes
(Guernsey) Ltd Merrill Lynch England: Linklaters
International
Investment Other trading
Manager counterparties
Aviva Investors
London Limited
Operations service
provider
GlobeOp Financial Services
Ltd
32G7 Fixed Income Fund
APPENDIX 1: THE CAPABILITY
33G7 Fixed Income Fund
WHY THE G7 FIXED INCOME FUND?
Diversification from bond market and risky asset class exposures
– Low correlation with credit markets*
– Low correlation with equity markets**
– Low correlation with hedge fund indices***
– Search for pure alpha in sovereign markets throughout the economic cycle
Focus on capital preservation
– Managing downside risk prudently and targeting low volatility, stable returns are Aviva Investors top priorities
– Long, established track record of Aviva Investors using sophisticated techniques for asset liability management and
for alpha generation
– Strong credit ratings and insurance background of Aviva provide clients with financial reassurance
Compelling risk return proposition
– medium to low volatility: 2.7% (since inception to 28 February 2012)
– attractive Sharpe ratio: 2.5 (since inception to 28 February 2012)
* The correlation between G7 and the Merrill Lynch Global Corporate Index (excess returns above government bonds)
since inception of the fund is -0.26
** The correlation between G7 and the MSCI World Index (GBP) since inception is -0.19
*** The correlation between G7 and the DJCS Hedge Fund Index since inception of the fund is -0.20. The correlation
between G7 and the DJCS Fixed Income Arbitrage Index since inception of the fund is -0.16. The correlation between G7
and the DJCS Global Macro Index since inception of the fund is 0.08.
Source: Aviva Investors / Dow Jones Credit Suisse Hedge Index LLC, as at 28 February 2013.
G7 Fixed Income Fund inception date: 3 February 2003. All data sourced from Bloomberg/Aviva Investors as at 28 February 2013. Past performance is
not a guide to future performance 34G7 Fixed Income Fund
PRODUCT SUITE OVERVIEW
Sovereign relative value Fixed income Sovereign credit opportunities
hedge fund macro hedge fund hedge fund
Description Relative value focused hedge fund Macro focused hedge fund Credit focused hedge fund
Legal structure Offshore Guernsey cell Offshore Guernsey cell Offshore Guernsey cell
Inception 31 January 2003 25 July 2008 23 September 2009
AuM* USD 715 million USD 352 million USD 34 million
Target return** 1 month £ Libor + 6% (net) 1 month £ Libor + 10% (net) 1 month £ Libor + 5-10% (net)
Liquidity Monthly Monthly Monthly
Relative value trades*** 70% 30% 50%
Directional trades*** 30% 70% 50%
More than USD 1.1 billion in sovereign absolute return strategies
*Assets under management as at 28 February 2013
** Target for internal fund management purposes only and is not a guarantee or indication of future returns
*** Broad indication only 35G7 Fixed Income Fund
APPENDIX 2: INVESTOR BREAKDOWNS
36G7 Fixed Income Fund
INVESTOR BREAKDOWN
G7 FIXED INCOME FUND
By investor type By geographic location
Institutional, 86% UK, 83%
HFoF Institutional, 9% Europe, 9%
US, 2%
Wealth Management, 3%
Asia, 6%
Family Office, 1%
High Net Worth, 1%
By investor type Investor concentration
100%
90%
Other,
80% 28%
70%
Aviva Affiliate, 43%
60%
Non Affiliate, 57% 50%
40%
Top 5,
30% 71%
Top 2,
20%
43%
10%
0%
Source: Aviva investors as at 19 February 2013 37G7 Fixed Income Fund
APPENDIX 3: TRADE EXAMPLES
38G7 Fixed Income Fund
RELATIVE VALUE TRADE EXAMPLE
LONG UK GILT 2042 VS. SHORT UK GILT 2046
Spread trade: long UK Gilt 4.5% 2042 & short UK Gilt 4.25% 2046
1.50
Opened the trade on 28/02/2012:
1.45 • Long: UK Gilt 2042
35m @ 125.60 = -£44,341,948.38 Net profit on position = +£94,459.98
1.40
• Short: UK Gilt 2046
Yield difference bps
1.35
33m @ 122.23 = £40,684,609.02 Closed the trade on 02/03/2012:
1.30 • Short: UK Gilt 2042
• Net position= -£3,657,339.36 33m @ 124.02 = £43,797,198.36
1.25
• Long: UK Gilt 2046
1.20 35m @ 120.29 = -£40,045,399.02
1.15 • Net position = £3,751,799.34
1.10
1.05
28-Feb-12 29-Feb-12 01-Mar-12 02-Mar-12 03-Mar-12 04-Mar-12 05-Mar-12 06-Mar-12
• UK Gilt 4.5% 2042 was due to become the next 30 year benchmark bond
• We expected the bond price to increase as the market slowly switched from surrounding
bonds into the new benchmark bond
Net profit on the position* = 0.02%
Source: Aviva Investors Fixed Income Sovereign Absolute Return Team, Bloomberg.*Calculated as £3,751,799.34 - £3,657,339.36 = £94,459.98 /
£444,294,974 39G7 Fixed Income Fund
DIRECTIONAL TRADE EXAMPLE
EUR 10 YR/10 YR RECEIVER SWAPTION BUTTERFLY
EUR 10 yr/10 yr Swap Rate
5.0
11 August 2011 • A “risk on” 2010 – central macro view: risk bullish. A
4.8
- took profits at number of receiver swaptions were implemented to
a swap rate of tail hedge the downside risk to our view
4.6 3.9%. Closed
out at 33 cents.
4.4 • This position would make money in the situation
10yr/10yr Euro Swap Rate (%)
when yields fall - structured to give a high payout
4.2
ratio
Concerns
4.0 surrounding
the Euro • Long dated swaptions (rather than shorter dated)
3.8
crisis The were traded to minimise theta decay
3.6 increased, position
yields fell became
3.4 6 December 2010 – we and the delta much • Out of the money (rather than at the money)
implemented a receiver of the closer to swaptions were struck to ensure a low cost hedge
3.2 swaption butterfly at a swaptions at the
reference 10 yr/10 yr swap increased. money.
3.0 • Our other themes were positioned for rising yields.
rate of 4.2%. How?
2.8 • Bought 3.0% strike swaption
• Sold 2.3% strike swaption
• Given the moves seen in July 2011 we decided it
2.6 • Bought 1.5% strike swaption was prudent to lock in profits at a 2:1 ratio approx
• Net payment = 18.5 cents (33:18.5)
2.4
Jan-11
Jun-11
Dec-10
Feb-11
Mar-11
Apr-11
Jul-11
Aug-11
Sep-11
Nov-10
May-11
• The trade captured the large macro economic shift
while maintaining a long volatility bias
Net profit on position* = 0.07%
Source: Aviva Investors Fixed Income Sovereign Absolute Return Team. *net profit/fund assets under management = €447,534 / €612,043,007
40G7 Fixed Income Fund
APPENDIX 4: BIOGRAPHIES
41G7 Fixed Income Fund
BIOGRAPHIES
Paul Abberley Shahid Ikram James Kenney, MA, FIA
Interim Chief Executive Chief Investment Officer, Head of Fixed Portfolio Derivatives Manager
Officer, Aviva Investors Income, Aviva Investors London
Joined investment industry in 1981 Joined investment industry in 2001
Joined investment industry in 1990
Main Responsibilities Main Responsibilities
Paul joined Aviva Investors as Chief Main Responsibilities Responsible for the development, approval
Executive Aviva Investors London, Control of investment processes, managing engagement and execution of derivatives strategies in
adding Global Investment Solutions in with global capital markets and management of fixed investment management.
2011. He was appointed interim CEO income investment staff. Shahid also oversees the
in May 2012 and is responsible for the development of sovereign products with a particular focus Experience & qualifications
leadership and governance of the on hedge funds. James joined Aviva Investors originally as a
company. As CEO he continues to derivatives analyst. He then progressed to
deliver the business strategy while Experience & qualifications portfolio derivatives manager for the sovereign
maintaining close relationships with Shahid joined the firm in 1990 as a gilt fund manager, team in August 2006. Prior to joining Aviva
Group counterparties and clients. becoming head of global sovereign debt and absolute Investors, James worked as an investment
Growth of external sales is a top returns. He has managed Aviva Investors’ first hedge fund, analyst at Mercer Investment Consulting whilst
priority. a sovereign relative value fund, since its launch in 2003. studying for the Actuarial qualification.
In 2009, Shahid became deputy CIO for Fixed Income and
in 2012 he was appointed CIO in London, overseeing a James holds an MA in mathematics from
Experience & qualifications
He was previously at ABN Amro Asset wide range of capabilities including hedge funds, emerging Trinity College, Cambridge University. He also
Management for eight years where he market debt, global bonds, UK sovereign, credit, liquidity holds the investment management certificate,
worked in a series of fixed income roles and convertible bonds. He is also the chair of the Aviva the Institute of Actuaries’ certificate in
and as CEO for London. Investors London Desk Heads College, an internal group of derivatives and advanced certificate in
senior investment professionals overseeing strategy and derivatives. James is a fellow of the Institute of
Paul has also worked as a global head risk across all active asset classes. Actuaries.
of fixed income at Lombard Odier. Paul
holds an MA in Philosophy, Politics and Shahid holds a BSc (Hons) in mathematics, statistics and
Economics from Keble College, Oxford. computing from Greenwich University and is an associate
member of the Institute of Investment Management and
Research (IIMR).
42G7 Fixed Income Fund
BIOGRAPHIES
Trevor Welsh Upkar Kambo, CFA Ben Maynard, CFA
Senior Fund Manager Head of Quantitative Strategies Derivatives Analyst
Joined investment industry in 1984 Joined investment industry in 1992 Joined investment industry in 1996
Main Responsibilities Main Responsibilities Main Responsibilities
Trevor has primary responsibility for multi asset Co-ordination of range of internal and external Managing the derivative strategy and
liability managed portfolios, cash plus portfolios quantitative inputs. Maintaining, enhancing, and portfolio analytics team.
,and also specialises in the actively managed developing new models for use in the fixed income
UK and global inflation funds. process - e.g. forecasting (econometric and Experience & qualifications
otherwise), valuation, technical. Liaise with risk team Before joining Aviva in 2008, Ben worked
Experience & qualifications to develop more comprehensive risk analytics for at Henderson Global Investors for five
Trevor joined the firm in 1998. At Aviva fixed income needs, and contribute to their integration years as a derivative specialist and head
Investors he has progressed from portfolio in the investment process. of the equity derivative trading desk. Prior
management strategist to Senior Fund to this he worked at AMP Asset
Manager in the UK Sovereign team. In Experience & qualifications Management (NZ) as a client service
February 2003 he was involved with the launch Prior to joining Aviva Investors, Upkar spent 11 years manager and at NCL Investments as an
of our sovereign relative value hedge fund at UBS Asset Management as a quantitative analyst equity trader.
strategy. Trevor previously worked for Philips and strategist, the last seven years of this role was
and Drew/UBS from 1984 – 1998 as executive spent specialising in fixed income. Ben is a full CFA charter holder holds and
director for European fixed income exchange also holds an MA (Hons) in archaeology
traded derivatives where he specialised in the He holds a BEng (Hons) in engineering from Imperial from University of Edinburgh.
futures market. College, London University, an MPhil in management
studies (finance) from Queens’ College, Cambridge
Trevor holds a BA (Hons) in Economics, University and an MBA from the London Business
Financial Management and Accounting from School. Upkar is a CFA charterholder and is a
Sheffield University. member of the Institution of Investment Management
and Research (IIMR).
43G7 Fixed Income Fund
BIOGRAPHIES
Raphaelle Moysan, CFA Zahra Sachak
Client Portfolio Manager – Fixed Client Portfolio Manager – Fixed
Income Income, Absolute Returns
Joined investment industry in 1998 Joined investment industry in 2006
Main Responsibilities Main Responsibilities
Raphaelle joined Aviva Investors as a client Interface between the investment team and
portfolio manager to cover the sovereign generalist sales force focusing on the
absolute return capability. sovereign absolute return capability.
Experience & qualifications Experience & qualifications
Raphaelle joined Aviva Investors in 2010. Zahra joined Aviva Investors in 2010. Prior to
She previously worked in fixed income this, Zahra joined Schroder Investment
derivatives structuring and trading at Management as a graduate trainee working as
Goldman Sachs, Merrill Lynch and JP a Product Specialist – Fixed Income focusing
Morgan and in single hedge funds. on UK & European Fixed Income.
Raphaelle holds a Bachelor’s degree in Zahra holds a BSc (Hons) in Mathematics from
Finance from Ecole Supérieure de Commerce Royal Holloway – University of London. She
de Paris. She is also a CFA charterholder. holds the IMC qualification and has recently
passed CFA Level 2.
44G7 Fixed Income Fund
APPENDIX 5: INTRODUCTION TO AVIVA
INVESTORS
45G7 Fixed Income Fund
INTRODUCING AVIVA INVESTORS
Owned by Aviva plc, the UK’s largest insurer* and one of Europe’s leading providers of life
and general insurance
• Listed on the London and New York stock exchanges
• Standard & Poor’s A+ rating (strong), with a stable outlook
• Aviva Investors operates around the world
• Local market insight, supported by full range of global services
• Over 1,200 employees in 15 countries and 20 locations
Financial stability and a wealth of experience and resources
*Based on aggregate FY10 UK life and pension sales (PVNBP) and general insurance gross written premiums.
All data as at 31 December 2012. Source: Aviva Investors and Aviva plc
46Absolute Return Convertibles
EXPERTISE TO BUILD EFFECTIVE SOLUTIONS
We work together with our clients to: Capability across the asset classes
• Understand their goals Total AUM of $436 bn
• Invest to meet their risk-return targets Fixed Income
63%
• Build tailored portfolios where required
Equities
15%
Our experience: Investment
Solutions
• A long-term, successful relationship 10%
Multi-asset
with Aviva 4%
• Created innovative products to help Real Estate
Aviva enhance its client offering 8%
Helping you to achieve your investment goals
Source: Aviva Investors as at 31 December 2012 47Absolute Return Convertibles
OUR STRATEGY
A GLOBALLY INTEGRATED ASSET MANAGER
Investment strategies
that aim to balance risk
and reward, drawing from
expertise across global
markets
Broad range
of clients including large
corporations, institutional
investors and wealth
managers
• More than 1,200
employees
• Based in 20 locations
• Across 15 countries
NORTH AMERICA EUROPE MIDDLE EAST ASIA PACIFIC
and CANADA Dublin Ireland Dubai (DIFC) UAE Singapore
Boston Massachusetts Frankfurt Germany Melbourne, Sydney Australia
Chicago Illinois London United Kingdom Taipei Taiwan
Des Moines Iowa Luxembourg
Louisville Kentucky Paris France
New York New York Stockholm Sweden
Toronto Canada Utrecht Netherlands
Warsaw Poland
Zurich Switzerland
Source: Aviva Investors as at 31 December 2012. 48G7 Fixed Income Fund
PROVEN AND SUCCESSFUL INVESTMENT STRATEGIES
Specialist teams provide in-depth knowledge and expertise in local markets
Fixed income Absolute Returns Equities Real estate
• Liquidity • Fixed income macro
• Sovereign UK & Euro • UK • Global real estate
& relative value
• Global aggregate hedge funds • European • Local real estate in UK,
• Credit • Convertible arbitrage • Asia Europe and Asia
• High Yield hedge fund & absolute • US • Multi-manager
• Emerging market debt return • Real estate securities
• Quantitative
• Convertible bonds • Credit absolute return • Specialist funds
• Active LDI • Global markets alpha
• Global inflation
Global investment solutions –
managing assets that benefit from scale and consistency
Global business development –
sales, marketing, client servicing and product development
Source: Aviva Investors as at 31 December 2012 49G7 Fixed Income Fund
APPENDIX 6: GIPS PERFORMANCE AND
DISCLOSURES
50G7 Fixed Income Fund
G7 FIXED INTEREST ABSOLUTE RETURN COMPOSITE &
DISCLOSURES
Composite Benchmark Number of Portfolios Market Value at Percentage of
Year Dispersion Total Firm Assets
Return Return (*throughout period) end of Period Firm Assets
Quarter To Date 0.09% 0.08% 1 (1) N/A 471,793,106 - -
Year To Date 0.09% 0.08% 1 (1) N/A 471,793,106 - -
Month To Date 0.65% 0.04% 1 (1) N/A 471,793,106 - -
2012 1.52% 0.64% 1 (1) N/A 470,088,917 - -
2011 4.26% 0.64% 1 (1) N/A 456,099,205 0.32% 143,217,403,309
2010 6.21% 0.55% 1 (1) N/A 514,584,281 0.36% 142,387,532,805
2009 7.82% 0.89% 1 (1) N/A 530,462,435 0.37% 141,904,207,047
2008 16.29% 5.57% 2 (2) N/A 489,853,134 0.36% 135,300,370,333
2007 12.09% 5.96% 2 (2) N/A 383,163,218 0.22% 174,529,956,735
2006 13.54% 4.82% 2 (1) N/A 294,630,570 0.18% 160,574,480,692
2005 6.12% 4.80% 1 (1) N/A 126,198,632 0.08% 155,130,806,273
2004 10.79% 4.67% 1 (1) N/A 252,787,597 0.18% 141,067,787,874
2003 (Mar) 12.91% 3.14% 1 (1) N/A 48,623,777 0.04% 116,525,244,219
Aviva Investors Global Services claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in
compliance with the GIPS Standards. Aviva Investors Global Services has been independently verified for the periods 1st January 1998 to 31st December 2010.
The verification reports are available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the
GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS
standards. Verification does not ensure the accuracy of any specific composite presentation. The firm is defined as Aviva Investors Global Services, which
includes all managed assets, excluding closed ended direct real estate investments. The firm was redefined as of 31 December 2010, when the direct closed end
assets were removed from the firm. Following a restructure within the Aviva Group, the assets managed by Aviva Investors Ireland Limited were transferred to
Aviva Investors Global Services in May 2010. The requirements and provisions for Performance Record Portability have been met and these assets continue to be
included in their original composites. Further details are available upon request. This composite includes funds investing in global fixed income assets with
absolute return target. Leverage and short positions are an integral part of the composite strategy and may magnify losses and gains to the extent that leverage is
deployed. The portfolios within this composite may leverage up to 210% of the Net Asset Value of the fund. This composite was created on 31/12/2004. With a
start date of 28/02/2003. Returns are presented net of management fees and other expenses. For unitised funds, gross returns are calculated by adding back the
Annual Management Charge (AMC), or part thereof, to the net return. Actual fees charged are dependent on the mandate and value of client assets. The fee scale
for pooled clients ranges from 0.2% p.a. to 1.8% p.a. and for segregated mandates the fee scale starts at 0.5% p.a. All income is taken gross of tax, but net of
irrecoverable taxes. Further information is available upon request. Aviva Investors Global Services has the ability to use leverage as part of its investment
management process depending on the investment management agreement. If the client management agreement permits the discretionary use of options and or
futures, AIGSL will employ these strategies if the manager believes an opportunity exists to add value to the portfolio or minimise risk. AIGSL is permitted to use
Efficient Portfolio Management (EPM) techniques as defined in the FSA Handbook. For Unit Linked Life funds a capital gains tax accrual is embedded in the unit
price. Composite dispersion is calculated using the asset-weighted standard deviation of all portfolios that were included in the composite for the entire year. If the
composite includes less than 5 portfolios for the full year no measure of dispersion is shown. Additional information regarding policies for valuing portfolios/funds,
and calculating and reporting returns is available upon request. A list and description of all composites is available upon request. This composite is benchmarked
against the 1mth LIBOR which is based on rates that contributor banks in London offer each other for inter-bank deposits. Past performance is not a guide to
future performance. All figures are in GBP, gross of fees.
As at 28 February 2013 (Code on StatPro: GBLHdgeFi+NUIM) 51G7 Fixed Income Fund
IMPORTANT INFORMATION
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (Aviva Investors) as at 31
March 2013.
The content of this document does not purport to be representational or provide warranties above and beyond those contained in the
Prospectus and subscription documentation of the Fund. The Prospectus and the subscription document contain the full terms,
conditions, representations and warranties in respect of the Fund. Nothing in this document shall be construed as forming any part of
those terms, conditions, representations or warranties.
Any opinions expressed are based on the internal forecasts of Aviva Investors and they should not be relied upon as indicating any
guarantee of return from an investment managed by Aviva Investors. No part of this document is intended to constitute advice or
recommendations of any nature.
The value of an investment in the fund can go down as well as up and investors may not get back the original amount invested. Past
performance is not a guide to the future.
The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as a
recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful
to make such an offer or solicitation.
Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: No. 1 Poultry, London EC2R 8EJ.
Authorised and regulated in the UK by the Financial Services Authority and a member of the Investment Management Association.
Contact us at Aviva Investors Global Services Limited, No. 1 Poultry, London EC2R 8EJ.
Compliance ref: 13/0334/30062013
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