Subordinated and Hybrid Financial Debts Presentation of the expertise
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Subordinated and Hybrid Financial Debts
Presentation of the expertise
Lazard Credit Fi
Lazard Subordinated Financial Debt - Hybrid Contingent
26TH NOVEMBER 2019
DOCUMENT EXCLUSIVELY INTENDED FOR RANKIA
Lazard Fund Managers is a common initiative of Lazard Asset Management LLC, its subsidiaries and Lazard Frères Gestion SAS.
Lazard Fund Managers (Ireland) Limited, Sucursal en España, is registered with the CNMV with number 18, having its registered office at Paseo de la Castellana, 140, Piso 10, letra E, Madrid
and is a branch office of Lazard Fund Managers (Ireland) Limited, incorporated in Ireland and supervised by the Central Bank of Ireland.
Contents
I. Lazard Fund Managers
II. Subordinated and Hybrid Financial Debts Expertise
A. What? Overview of the Financial Debts Segment
B. Why? Fundamentals have improved a lot
C. Who? Team, Investment Approach, Clients
D. How? Strategies and Portfolios
E. Conclusion
Appendices
Disclaimer
1 Lazard Fund Managers
I Lazard Fund Managers
Lazard
Over 170 Years of International Financial Expertise
ASSET MANAGEMENT FINANCIAL ADVISORY
1,000+ employees 1,400+ employees
400+ investment professionals 55% of 2018 revenues
45% of 2018 revenues
$231bn of Assets Under Management* Mergers & Acquisitions
Institutional Asset Management Debt & Restructuring Advisory
Wealth Management Government and Sovereign Advisory
Australia Middle East US Hong Kong
Belgium Netherlands France India
UK Italy
Canada Singapore Japan
France South Korea Argentina Mexico
Australia Middle East
Germany Spain Belgium Netherlands
Hong Kong Switzerland Brazil Panama
Canada Peru
Ireland UK Chile Singapore
Italy US China Spain
Colombia Sweden
Japan Germany Switzerland
Source: Lazard.
* Assets Under Management (AUM) as of 30 September 2019 3 Lazard Frères Gestion
Information reserved for professional investors.
Lazard
Asset Management Expertise
LAZARD ASSET MANAGEMENT & LAZARD FRÈRES GESTION
KEY FIGURES
1848 +1000 +400 $231bn
Lazard brothers found Lazard Employees worldwide Research and Portfolio of AUM
Frères management specialists
EUROPE NORTH AMERICA
MIDDLE EAST ASIA-PACIFIC
Source: Lazard. As of 30 September 2019
Information reserved for professional investors. 4 Lazard Frères Gestion
Lazard Fund Managers
Overview
Lazard Fund Managers offers investors a range of UCITS managed by Lazard Asset Management and Lazard Frères Gestion,
providing a single point of access to the investment expertise of two firms within the Lazard family with distinct capabilities but
shared beliefs.
Lazard Fund Managers’ UCITS fund range combines the best investment ideas of Lazard Asset Management and Lazard Frères
Gestion in developed and emerging markets.
The offering, which encompasses Equity, Fixed Income, Multi-Assets and Alternative Investment Funds managed by Lazard’s
experienced investment professionals, builds on our tradition of evolving our investment platform by developing innovative
investment solutions to meet our investors’ needs.
Throughout all market environments, our managers maintain a disciplined approach to investing with a research-driven
investment process focusing on financial productivity and valuation.
We are committed to active management and we believe there are substantial opportunities for investors to invest in companies
with healthy balance sheets and sustainable returns.
We Are Lazard Fund Managers
5 Lazard Fund Managers
Lazard Fund Managers
Assets under Management
Asset breakdown by asset class
1
Assets under Management2:
USD 231 billion | EUR 212 billion | CHF 230 billion
1 Others reflect institutional & private mandates and outstanding funds in life insurance as well as private Equity.
2 Asof 30 September 2019. Includes those of Lazard Asset Management LLC (New York) and its affiliates as well as those of Lazard Frères Gestion
(Paris) or other asset management businesses of Lazard Ltd. 6 Lazard Fund Managers
Lazard Fund Managers
Investment Funds
EQUITY FIXED INCOME
GLOBAL EUROZONE EMERGING MARKETS
Global Equity Franchise Lazard Actions Euro* Emerging Markets Bond
Global Listed Infrastructure Lazard Dividendes Min Var* Emerging Markets Debt Blend
Equity Lazard Small Caps Euro* Emerging Markets Local Debt
Global Managed Volatility Emerging Markets Total Return Debt
NORTHERN EUROPE
EMERGING MARKETS Norden* EUROPE
Emerging Markets Equity Lazard Credit Fi*
US
US Equity Concentrated
CONVERTIBLES MULTI-ASSET
GLOBAL GLOBAL
Lazard Convertible Global* Diversified Return Strategy
As of 30 September 2019 and is subject to change.
This information is for illustrative purposes only and should not be considered an offer or solicitation with respect to any product managed by Lazard.
*Funds managed by Lazard Frères Gestion
7 Lazard Fund Managers
II Subordinated and Hybrid Financial Debts
Expertise
Alternatives available for investors in the Fixed Income
market
In our opinion, investors have three ways of achieving returns on the Fixed Income market:
1 Lengthening the maturity
2 Going down in terms of credit quality
3 Going down in the capital structure
Source: Lazard Frères Gestion, Bloomberg.
For illustration purposes only. 9 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSAsset class features
Yield, duration and issuer rating
Yield to Worst1 Modified Duration Average issuer rating
1 Sovereigns 0.1% 8.2 A+
Euro Corporates 0.4% 5.2 A-
Euro Senior Banks 0.2% 4.1 A
Corporate Hybrids IG 1.8% 4.4 A-
3 Corporate Hybrids HY 2.2% 3.5 BBB
Financial Hybrids 2.8% 3.9 A-
Indices used:
EG00: ICE BofAML Euro Government Index
ERS0: ICE BofAML Euro Corporate Senior Index
EB3A : ICE BofAML Euro Senior Banking Index
GNEC: ICE BofAML Global Hybrid Non-Financial Corporate Index
HNEC: ICE BofAML Global Hybrid Non-Financial High Yield Index
BCCGTREH: Bloomberg Barclays Global Contingent Capital Hedged Index
Source: Lazard Frères Gestion, Bloomberg, as of 28 October 2019.
1. YTW in Euro
The yield is the counterparty of a capital risk. Past yields do not guarantee the capital or future performance. 10 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSWhat are the advantages of hybrid debt?
Credit risk on Investment Grade issuers
Shorter maturity
An additional spread vs senior debt
Source: Lazard Frères Gestion.
The above opinion was expressed as of the date of this presentation and is likely to change. 11 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSWhat?
A Overview of the Financial Debts
SegmentRelative size of Financial Subordinated Debts
Versus similar strategies
Financial Subordinated Debts from Western European issuers compare to European High Yield
Corporates and Emerging Govies (in € billions)
700
684
600
477
500
Tier 2
472 387
400
300
200
AT1
100
212
0
Financial Subordinated European High Yield Emerging Markets - Sovereign Hard
Currency
Source : Lazard Frères Gestion, Bloomberg, as of 31 December 2018.
Methodology: ICE BofAML Global High Yield Index (HW00) for global high yield bonds, Bloomberg Barclays Global Contingent Capital Total Return
Index Unhedged EUR (BCCGTREU) for AT1 bonds, JP EMBI Global for Emerging Sovereign Bonds.
We extract bonds issued by western European issuers from IG, HY and AT1 index to make the computations.
Data are as of 31/12/2018 in EUR.
The above opinion was expressed as of the date of this presentation and is likely to change. 13 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSWhy are issuers issuing hybrid debt ?
Regulatory reasons:
T2
2%
Tier 1 leverage ratio
Equity
AT1
1,5%
Cost
Rating agencies reason:
Support for credit
ratings
T2: Tier 2 Debt / AT1: AT1 Debt.
For illustrative purposes only. 14 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSYield/Volatility profile
Capital Credit spreads
structure of a Yields
bank In basis points Yield
7%
6%
Senior 90 1.1%
Investment
5% universe
2.1 1.8
Tier 2 193 2.0% 4%
2.1 1.8
Additional Tier 1 410 3.5% 3%
2%
Equity
1%
0% Vol.
0% 5% 10% 15% 20%
Senior Banks Tier 2 Banks Tier 2 Insurance AT1 Equity
Sources: Lazard Frères Gestion, Bloomberg.
Spread levels as of 5 September 2019.
Indices used : JP Morgan Subordinated Security Index Senior, JP Morgan Subordinated Security Index Lower Tier 2 Banks, JP Morgan Subordinated
Security Subordinated Incos Index and Bloomberg Barclays Global Contingent Capital for AT1 / Equity : Stoxx 600 Banks.
Past performance does not guarantee future performance. Performance over less than one year is provided for illustration purposes only.
Performance data is provided for information purposes only and should be assessed over the recommended investment period. 15 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSPerformance overview
Cumulative return since 31 December 2008
CUMULATIVE PERFORMANCE FROM 31/12/2008 TO 30/09/2019
250
+ 228%
200
150
+112%
100
+60%
50
+24%
0
-50
-100
AT1 Tier 2 Senior Equity (Dividend included)
Sources : Lazard Frères Gestion, JP Morgan, Barclays and Bloomberg. As of 30 September 2019, in euro hedged.
Cumulative performance since 31/12/2008 to 30/09/2019.
Inception date Global Bloomberg Barclays 09/05/2014.
Indices used: JP Morgan Subordinated Security Index Senior, JP Morgan Subordinated Security Index Lower Tier 2 Banks and Bloomberg Barclays Global
Contingent Capital for AT1 / Stoxx 600 Bank equity.
Past performance does not guarantee future performance.
Performance data is provided for information purposes only and should be assessed over the recommended investment period. For illustrative
purpose only. 16 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSWhy?
B Fundamentals have improved a lot and
let’s talk about the RisksFundamentals
Capital Asset Quality Earnings Liquidity
p. 75-76 p. 77 p. 78
Source: Lazard.
The above opinion was expressed as of the date of this presentation and is likely to change. 18 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSDifferent risk/return profiles
Banks: AT1 vs Equity
AT1 Banks equity
5Y annualised
Performance 6.4% -4.5%
5Y annualised
Volatility 5.2% 22.5%
Solvency risk Solvency risk
Earnings volatility risk
Source: Lazard Frères Gestion, Bloomberg, as of 30 September 2019.
Performance and volatility figures over 5 years.
Index: Bloomberg Barclays Global Contingent Capital (AT1: BCCGTREH) / Stoxx 600 Banks dividends reinvested (Banks equity: SX7R).
Past performance does not guarantee future performance.
Performance data is provided for information purposes only and should be assessed over the recommended investment period. For
illustrative purpose only.
The above opinion was expressed as of the date of this presentation and is likely to change. 19 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORS1
Financial Subordinated Debts
Quick summary about securities features – Coupons Risks
Cash flows
K
Average rating: BBB
Fixed & Mandatory 1 2 3 4 5 10
Tier 2 Coupons Volatility*: 2.5%
Call
K
2 3 5 Average rating: BB
1 4 10
Fixed & Optional
AT1 Coupons Volatility*: 5.2%
3
2
1
4 6 Rating: NR
5
Variable & Optional
Equity Dividends Volatility*: 22.5%
Source : Lazard Frères Gestion, Bloomberg. For illustrative purpose only.
*5 years annualized volatility as of 30 September 2019, on a daily basis.
Indices used: JP Morgan Subordinated Security Index Lower Tier 2 Banks (JPSULTEI Index) / Bloomberg Barclays Global Contingent Capital for AT1
(BCCGTREH Index) / Stoxx Europe 600 Banks for equities (SX7R).
The above opinion was expressed as of the date of this presentation and is likely to change. 20 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORS2
Default rate
Financials vs Corporates default rate over the long term
Average cumulative default rate over 10 years was:
4.9% for Financials Institutions
11.5% for Corporates
Standard & Poor's publication of its annual study on Corporate Default Rates between 1981 and 2018:
10-Year Cumulative Default Rates
25
All financials All nonfinancials
20
15
10
5
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: S&P. Data on Corporates are biased by the high weight of issuers in the HY category (60% of non-financial issuers vs. 26% for financial
issuers) all geographical areas combined as of December 2018.
Nevertheless, the cumulative overall default rates over 5 years between 1981 and 2018, all geographical areas and all sectors combined, are 0.49%
for A-rated issuers (vs. 0.30% for European financial issuers), 1.64% for BBB issuers (vs. 0.24%) and 6.78% for BB issuers (vs. 1.43%).
The above opinion was expressed as of the date of this presentation and is likely to change. For illustrative purpose only. 21 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORS4
Volatility is normalised and limited
260-day trailing standard deviation trend
70
60
50
40
30
20
10
0
Stoxx 600 Europe Banks ND
Bloomberg Barclays Global Contingent Capital Total Return Index Value Hedged EUR
JPM SUSI T1 Index
JPM SUSI LT2 Index
Source: Lazard Frères Gestion, JP Morgan and Bloomberg. As of 30 September 2019.
Standard Deviation on a daily basis over 260 days. 22 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORS3 5
Rising Rates impact on Capital Instruments Securities
Cash flow illustration
Old generation
From year 1 to year 10:
Fixed 5% coupon Euribor 3 Months + initial Spread + step-up 100bps
=
1 to 3% coupon
Coupons
Coupons declined Securities prices declined
1 2 3 4 5 6 7 8 9 10 from 40 to 80% from 15 to 30%
Years
New generation
From year 1 to year 5: From year 6 to year 10:
6.25% coupon 5.481% coupon if Rates rise / decline
5Y Euros Mid-Swaps Rates at 0.840% 5Y Euros Mid-Swaps Rates at 0.071%
Coupon will rise
Coupon declined
Coupons
by 12%
Coupon will decline
15
Security price declined
1 2 3 4 5 6 7 8 9 10
by 1%
Years
Source: Lazard Frères Gestion, Bloomberg, as of 30 September 2019.
Security: Santander 6.25%, callable in March 2019.
The above opinion was expressed as of the date of this presentation and is likely to change. For illustrative purpose only. 23 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSC Who?
Team, Investment Approach, ClientsLazard Fixed Income Investment Resources
Global platform
New-York Frankfurt Singapore
Paris
US, EM & Global Fixed Income Global, Euro & Nordic Fixed Income
MONTHLY MEETING
€ 34 Bn in Assets Under Management Global Fixed Income Team
As of 30 June 2019
60 professionals
BI-MONTHLY MEETING
60 professionals within the Fixed Income
Franchise (Lazard Group) European Credit Research Team
12 professionals
25 Lazard Fund Managers
Source: Lazard Asset Management and Lazard Frères Gestion, as of 30 June 2019. Include LAM expertise.
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSA dedicated investment team on Financial sector
2 Fund Manager / Analyst dedicated to Hybrid and Subordinated Financial Debt
François LAVIER, CFA Alexis LAUTRETTE
Lead Fund Manager/Analyst Fund Manager/Analyst
23 years of experience 10 years of experience
12 years at Lazard Frères Gestion 2 years at Lazard Frères Gestion
Lazard Frères Gestion Fixed Income Management Team
8 Fund Manager/Analyst 21
1 Money Market Fund Manager years of experience
1 Fund Manager Assistant in financial markets on average
Head of Fixed Money Market
Income Fund Manager
Éléonore Frédéric Benjamin Camille Alexia François Alexis Lionel Jean-Philippe
Bunel Penel Le Roux Suh Latorre, CFA Lavier, CFA Lautrette Clément Quiterio
Source : Lazard Frères Gestion, as of September 2019.
Our team is traditionally stable, unfortunately, we are unable to guarantee the presence of the managers listed above during the life of the product.
The information listed above is current as of the date of this presentation. 26 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSAnalysis resources dedicated to Financial sectors
A combination of Fixed Income & Equity expertise
Fixed Income
DEVELOPED EMERGING
COUNTRIES COUNTRIES
François Lavier Alexis Lautrette Ulrich Teutsch Agnese Melbarde Seung-Ho Ahn
23 years of experience 10 years of experience 20 years of experience 11 years of experience 18 years of experience
11 years at LFG 1 year at LFG 9 years at LAM 7 years at LAM 5 years at LAM
Equity
Scander Bentchikou Jonathan Morris
17 years of experience 30 years of experience
9 years at LFG 11 years at LAM
Source : Lazard Frères Gestion, as of September 2019.
LFG for Lazard Frères Gestion: François Lavier, Alexis Lautrette, Scander Bentchikou.
LAM Lazard Asset Management: Ulrich Teutsch, Agnese Melbarde, Seung-Ho Ahn, Jonathan Morris.
Our team is traditionally stable, unfortunately, we are unable to guarantee the presence of the managers listed above during the life of the product.
The information listed above is current as of the date of this presentation. 27 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSInvestment Approach
A model of Fund Manager/Analyst In-depth knowledge of the regulations
(impacts on securities, clauses specific to hybrids,
200 meetings with issuers over the last year covenants ...)
BOTTOM-UP
INVESTMENT
APPROACH
An active and unconstrained investment Seek to generate among the best risk-
approach adjusted return for our clients
12 years of track record
on the asset class
Source: Lazard Frères Gestion.
For illustrative purpose only.
The above opinion was expressed as of the date of this presentation and is likely to change. 28 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSClient base
Breakdown by client type Top 10 investors
Name % of total assets
Insurers 49%
French Non-Life Insurer 18%
French Life Insurer 14%
Private Banks / Family Offices 28%
French Corporate 11%
French Life Insurer 4%
Corporates 11% Italian Life Insurer 4%
French Asset Manager 3%
French Pension Fund 2%
Asset Managers 8%
Spanish Private Bank 2%
French Asset Manager 2%
Pension Funds 3%
French Composite Insurer 2%
0% 20% 40% 60%
Source: Lazard Frères Gestion, March 2019.
The top 10 investors refer to the top 10 clients of open-funds, dedicated funds or mandates invested in Subordinated Financial Debt and managed by Lazard
Frères Gestion. 29 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSReasons for investing in Financial Subordinated and
Hybrid Debt Strategies
Asset class attractiveness
PRIVATE BANKS / FAMILY
INSURERS OFFICES / ASSET CORPORATES
MANAGERS
Yield enhancement
Good quality credit of issuers
Good risk-adjusted returns
Fundamentals are improving
Visibility on fundamentals
Expertise delegated to external AM Not sensitive to ratings of those securities Expertise delegated to external AM
Not investing directly in AT1 Not investing directly in AT1
Not investing directly in Tier 2 outside of Not investing directly in Tier 2
best rated entities
Not investing hugely in subordinated
debts of insurers
Source: Lazard Frères Gestion. 30 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSD How?
Strategies and PortfoliosA track record of twelve years – Lazard Frères Gestion
Total AUM
3000 3 000
€ 2 449M
2500 2 500
2000 2 000
1500 1 500
1000 1 000
500 500
0 -
Open Funds Others (Mandates, Dedicated Funds, Dated Closed Funds) Total AUM €M (Right scale)
Source: Lazard Frères Gestion, as of 30 September 2019. 32 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSAsset Under Management Lazard Frères Gestion
€ 2.4 BN
Assets Under Management
SENIOR FINANCIAL
SUBORDINATED
SUBORDINATED FINANCIAL DEBT DEBT
CREDIT
BUY & HOLD
€ 2.2Bn € 17M € 209M
AUM AUM AUM
BLEND HYBRID CONTINGENT BUY & HOLD
€ 1 144M € 342M € 708M
AUM AUM AUM
DEDICATED
OPEN FUND OPEN FUND DATED FUND MANDATES OPEN FUND MANDATE
FUND
€ 913M € 231M € 342M € 21M € 687M € 17M € 209M
AUM AUM AUM AUM AUM AUM AUM
Legend:
Financial Subordinated
Hybrid Financial
Hybrid Corporate
Source: Lazard Frères Gestion, as of 30 September 2019. GIPS Classification: Product and Strategies offering.
Does not include LAM AUM. 33 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSWhich is making us different, or, at least, complementary?
Average rating at the security
Insurance companies Legacy instruments Non-GSIB issuers
level
BBB- 18% 17% 79%
BB 6% 20% 71%
Recovery stories Large size securities USD, GBP securities AT1
30% 69% 25% 17%
24% 77% 30% 75%
But also But not
GSIB issuers 21% 29% China, Russia, Turkey, Brazil… x x
Private placements x x
Credit Linked Notes x x
Legend:
Lazard Credit Fi < €150M securities 0.1% 0.2%
Subordinated Financial Debt Hybrid Contingent Strategy – Hybrid Contingent < €300M securities 7.5% 6.5%
Subordinated Financial Debt Hybrid Contingent Strategy – Representative Account
GSIB: Global Systemically Important Banks (G-SIBs) Defined by the Financial Stability Board (FSB), list of banks which are large enough to put
Financial Stability at risk in case of failure of one of them. They are defined depending on the scale and the degree of influence they hold in global and
domestic financial markets.
Sources: Bloomberg and Lazard Frères Gestion, as of 30 September 2019.
For illustrative purpose only. Figures may vary over the time. 34 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSESG integration overview
EXTERNAL INPUTS: ESG DATABASES INTERNAL DATABASE OUTPUTS ESG
ESG ANALYST
ESG TEAM ANALYSIS
For issuer with a weak Global Score
EQUITY & FIXED INCOME TEAMS
Pascale Petit
Source: Lazard Frères Gestion.
As of 30 September 2019. For illustrative purpose only. 35 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSStrategies
Strategy profiles
Capital structure Subordinated Financial Debt - Hybrid
Lazard Credit Fi
Contingent
Investment horizon : 3 years Investment horizon : 5 years
Senior
Currently focused on
Tier 2
Tier 2
Currently focused on
Additional Tier 1 Additional Tier 1
Equity
Investment objective Strategy description
The investment objective is to outperform compounded ICE The Subordinated Financial Debt – Hybrid Contingent strategy
BofAML Euro Financial Index, expressed in euros, net of charges, invests primarily in subordinated debt (AT1) issued by European
over a recommended investment period of three years. financial institutions.
Lazard Credit Fi Fund Index: ICE BofAML Euro Financial Index.
Subordinated Financial Debt - Hybrid Contingent Strategy Index: Global Contingent Capital Total Return hedged in EUR, net income reinvested. 37 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSStrategies with identifiable profiles
Breakdown by level of subordination
Lazard Credit Fi Subordinated Financial Debt - Hybrid Contingent
Senior Additional
11% Tier 1
17% Legacy Tier
1
20%
Tier 2
5%
Legacy Tier 1
15%
Additional
Tier 1
75%
Tier 2
57%
Allocations are subject to change.
Subordinated Financial Debt Hybrid Contingent Strategy – Representative Account
Sources: Bloomberg and Lazard Frères Gestion, as of 30 September 2019.
Excluding cash and UCITS 38 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSStrategies with identifiable profiles
Key figures
Lazard Credit Fi Subordinated Financial Debt - Hybrid Contingent
YIELD1 YIELD1
2.3% 4.0%
3Y ANNUALISED 3Y ANNUALISED
PERFORMANCE1 PERFORMANCE1
5.1% 6.6%
3Y 3Y
VOLATILITY1 VOLATILITY1
3.6% 4.8%
Subordinated Financial Debt Hybrid Contingent Strategy – Representative Account
Source: Lazard Frères Gestion, as of 30 September 2019.
1. As of 30 September 2019. Yield in euro hedged, on a weekly basis.
The yield is the counterparty of a capital risk. Past yields do not guarantee the capital or future performance. Past performance is not
indicative of future performance. 39 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSStrategies with identifiable profiles
Key figures
Lazard Credit Fi Subordinated Financial Debt - Hybrid Contingent
AVERAGE SPREAD AVERAGE SPREAD
VS. GOVERNMENT VS. GOVERNMENT
319 BPS 489 BPS
MODIFIED MODIFIED
DURATION DURATION
4.3 4.4
SPREAD SPREAD
DURATION DURATION
4.4 4.6
Subordinated Financial Debt Hybrid Contingent Strategy – Representative Account
Source: Lazard Frères Gestion, as of 30 September 2019. 40 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSFor Investors looking at Income
Distribution of coupons payment
Lazard Credit Fi Subordinated Financial Debt - Hybrid Contingent
4,8%
4,7%
4,6%
4,7%
4,4%
4,3%
4,1% 4,6% Average
4,0% 3,9%
Average
3,7%
4,4%
3,4%
3,1% 4,2%
4,2%
3,0%
2,8%
2,5% 4,0%
2016 2017 2018 2019 2017 2018 2019
Subordinated Financial Debt Hybrid Contingent Strategy – Representative Account
Source: Lazard Frères Gestion, as of 30 September 2019.
The yield is the counterparty of a capital risk. Past yields do not guarantee the capital or future performance. Past performance is not
indicative of future performance. 41 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSE Conclusions
Legend:
Lazard Credit Fi
Subordinated Financial Debt - Hybrid Contingent
What makes us different ?
Good compromise size
Flexibility Agility Group support
Large resources of the Lazard Group for Research
2019 turnover 80% Non-GSIB 79% / 71% and Portfolio Management
Communication
Availability Marketing materials
1-to-1 meeting with PM
Conference call on demand Many documentation available p.39-40-41
Expertise
Rigorous Analysis
Tremendous Fundamental Analysis and
Track record knowledge of our Universe:
Longest experience – since March 2008 no Banco Popular
no Monte dei Paschi*
Deep Expertise
79% / 71%
Less well-known entities Focused on Western Europe
Important knowledge on Legacy Instruments 15% / 20% No exposure to China, Russia, Turkey, Brazil
Recovery story 30% / 24%
*in 2017.
Subordinated Financial Debt Hybrid Contingent Strategy – Representative Account
Source: Lazard Frères Gestion, as of 30 September 2019. For illustration purposes only.
Securities are given for illustration purposes only and may not be included in our portfolio.
For more information about the fund’s other characteristics and risks, please refer to the prospectus available from the company on request or on
www.lazardfreresgestion.fr 43 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSAppendices
6
Communication – Product focus
Product Marketing Material
Product presentation (on a quarterly basis)
Market outlook
Philosophy and Investment process
Positioning and performance
Fund profile - 4 pager (on a quarterly basis)
Market environment key points
Performance snapshot
Characteristics
45 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORS6
Communication – Markets thoughts & Sales Help
Thought leadership Material
Market Flash – Financial Debts
Asset Class Sales Deck Letter from the Manager
(Bi-monthly) (occasional)
(on a yearly basis)
Financial Debt Universe snapshot Systematic risk indicators Views on the market
Correlation analysis Primary market issuances Key events and comments
Asset classes comparison Financial Debt and Money Market Education and regulation changes
key indicators
46 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORS6
Communication – Reporting Material
Reporting and Performance Analysis Material
Factsheet (on a monthly basis; 2 pages)
Positioning and performance
Performance analysis (on a monthly basis; 17 pages)
Performance contribution / attribution
47 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSReminder of Risks for Investors
Fixed Income
Risk of capital loss: Currency risk:
The strategy does not provide any guarantees or capital protection. It is The strategy may invest in securities and UCIs that are themselves
therefore possible that you may not recover the full amount of your initial permitted to purchase stocks denominated in currencies other than the
investment. euro. The value of these assets may decline in line with changes in the
exchange rates.
Interest rate risk:
Risk of a fall in the value of equities, and hence in the portfolio, resulting Liquidity risk:
from a change in interest rates. Because of its sensitivity range, the This is the risk that a financial market can absorb the volumes of sell (or
value of this component of the portfolio may decrease, either in the case buy) transactions only by significantly decreasing (or increasing) the
of a rise in interest rates if the portfolio's sensitivity is positive, or in the price of assets when trade volumes are low or when there are market
case of a fall in interest rates if the portfolio's sensitivity is negative. tensions, resulting in a possible decrease in the fund's net asset value.
Credit risk: Equity risk:
Credit risk is the risk that the borrower does not repay his debt or cannot Investors are exposed to equity risk. Fluctuations in share prices may
pay the coupons during the lifetime of the security. Risk of a fall in the have a negative impact on the fund’s net asset value. The fund's NAV
value of equities, and hence in the portfolio, due to a change in the credit may decrease during periods in which equity markets are falling.
quality of the issuers or to the change in credit spreads. Because of its
credit sensitivity range, the value of this component of the portfolio may Counterparty risk:
decrease, either in the case of a rise in spreads, if the portfolio's credit
sensitivity is positive, or in the case of a fall in spreads if the portfolio's Counterparty risk is related to the use of over-the-counter products. The
credit sensitivity is negative. strategy is exposed to the risk of non-payment or delivery by the
counterparty with which the transaction is negotiated. This risk may
result in a decline in the fund's NAV.
Risks linked to contingent or subordinated securities:
The strategy may be exposed to contingent or subordinated securities. Risk associated with investment in the futures markets:
Subordinated debt and contingent convertible bonds are subject to
specific risks of non-payment of coupons and capital loss in certain The use of derivatives may cause exposure to an upward or downward
circumstances. At a certain solvency threshold, referred to as the change of the fund’s net asset value.
"trigger” threshold, the issuer may or must suspend the payment of
coupons and/or reduce the nominal value of the security or convert such
bonds into shares. Notwithstanding the thresholds specified in the
issuing prospectuses, the supervisory authorities may apply these rules
preventively if the circumstances require, based on a subjective
threshold known as the "point of non-viability". These securities expose
holders to either a total or partial loss of their investment following their
conversion into shares at a predetermined price or because of the
application of a discount provided for contractually in the issuing
prospectus or applied arbitrarily by a supervisory authority. Holders of
these securities are also exposed to potentially large price fluctuations in
the event that the issuer has insufficient equity or experiences difficulties.
48 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSLazard Credit Fi
Characteristics Countries of registration
PVC EUR PVD EUR PC EUR PD EUR PC H-USD PC H-CHF TC EUR RVC EUR RVD EUR
Management company Lazard Frères Gestion
Custodian Caceis Bank
Delegated agent for the centralisation of orders
Caceis Bank and Lazard Frères Banque, on behalf of clients for whom it provides custody account-keeping services
from December 4th 2017
Legal form French open-end investment fund
AMF classification International bonds and debt securities
Subject to European Directive 2009/65/EC Yes Yes Yes Yes Yes Yes Yes Yes Yes
PEA eligible No No No No No No No No No
CHARACTERISTICS
Inception date 7-Mar.-08 29-Jul.-14 14-Apr.-14 31-Jan.-14 5-Jan.-16 20-Feb.-17 31-Jan.-18 3-Jul.-09 31-Jan.-18
Currency Euro Euro Euro Euro USD CHF Euro Euro Euro
ISIN code FR0010590950 FR0012074151 FR0011844034 FR0013306743 FR0013076932 FR0013236791 FR0013305935 FR0010752543 FR0013306735
Appropriation of distributable amounts:
Accumulation Distribution Accumulation Distribution Accumulation Accumulation Accumulation Accumulation Distribution
allocation of net income
Accumulation Accumulation Accumulation
Appropriation of distributable amounts:
Accumulation and/or distribution Accumulation and/or distribution Accumulation Accumulation Accumulation Accumulation and/or distribution
allocation of net realised capital gains
and/or retained and/or retained and/or retained
Benchmark ICE BofAML Euro Financial Index
Minimum initial subscription None 1 share 500 000 euros 1 share 1 share 1 share ≥ 500 000 euros 1 share 1 share
PLACING
ORDERS
Frequency of NAV calculation Daily Daily Daily Daily Daily Daily Daily Daily Daily
Execution of orders Based on the next NAV for orders placed before 12:00am
Subscription / redemption settlement date D (NAV date) + 2 business day / D (NAV date) +2 business days
Ongoing charges(1) 0.28% 0.28% 0.66% 0.66% 0.71% 0.72% 0.66% 0.95% 0.95%
0.265% of the net 0.265% of the net 0.665% of the net 0.665% of the net 0.715% of the net 0.715% of the net 0.665% of the net 0.965% of the net 0.965% of the net
Financial management fees maximum (incl. asset (excluding asset (excluding asset (excluding asset (excluding asset (excluding asset (excluding asset (excluding asset (excluding asset (excluding
Taxes) UCIs managed by UCIs managed by UCIs managed by UCIs managed by UCIs managed by UCIs managed by UCIs managed by UCIs managed by UCIs managed by
LFG) LFG) LFG) LFG) LFG) LFG) LFG) LFG) LFG)
Administrative fees external to the management
0.035% of the net asset
company maximum (incl. Taxes)
Not retained by the
Subscription fee maximum 4% max 4% max 4% max 4% max 4% max 4% max 4% max 4% max 4% max
Fund
(incl. Taxes)
Retained by the Fund None None None None None None None None None
FEES
Not retained by the
None None None None None None None None None
Redemption fee maximum Fund
(incl. Taxes)
Retained by the Fund None None None None None None None None None
30% of the Fund's 30% of the Fund's
30% of the Fund's 30% of the Fund's
outperformance outperformance
outperformance outperformance
relative to the relative to the
Performance fees with High Water Mark relative to the relative to the
index. This fee will None None None None None index. This fee will
index. This fee will index. This fee will
be capped at 2%. be capped at 2%.
be capped at 2%. be capped at 2%.
Last exercise: Last exercise:
Last exercise: 0,0% Last exercise: 0,0%
0.0% 0.0%
(1) Ongoing charges do not include: outperformance fees and transShare charges except in the case of subscription and/or redemption fees paid by the Fund when it buys or sells units in
another collective management vehicle. The data communicated, which include management and operating costs as well as transShare fees charged to the Fund, are based on the previous
exercise, ended in March 2019. These figures may vary from year to year. 49 Lazard Fund Managers
For more information about the fund’s other characteristics and risks, please refer to the prospectus available from the company on request or on www.lazardfreresgestion.fr
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSLazard Credit Fi
Risks
Risk of capital loss: It is possible that the Fund may not meet its Equity risk: The Fund may be subject to significant fluctuations in the
performance objectives. The fund is not guaranteed or protected. Therefore underlying equities through possible investments in convertible bonds.
investor may not recover its initial investment. The equity risk will remain accessory (less than 10%).
Exchange rate risk: Besides euro-denominated securities, the Fund may
Interest rate risk: There is a risk of a fall in the value of bonds and other invest up to 75% of its assets in securities denominated in US dollars
fixed-income securities and instruments, and hence in the portfolio, and/or pounds sterling. The resulting exchange rate risk (unhedged)
resulting from a change in interest rates. may not exceed 10% of the Fund's assets.
Credit risk: A bond issuer may default. Thus, such a default could bring Counterparty risk: This is the risk associated with the Fund’ use of
about a fall in the Fund’ net asset value. Even where there is no issuer’s financial futures, over-the-counter financial instruments and/or
transactions involving temporary purchases and sales of securities.
default, market variations in credit spreads may result in negative These transactions, entered into with one or more eligible
performance. These risks are even more important as the bond issuer’s counterparties, potentially expose the Fund to a risk of failure of any
quality declines. The fall in net asset value may be even greater as the Fund such counterparty, which may lead to default on payment.
is invested in debt belonging to the speculative or ‘high yield’ category. This
Fund must be considered as speculative for its investment holdings in Derivative instrument risk: The Fund may hold up to 100% of its net
securities with low rating. Furthermore, the use of speculative or ‘high yield’ asset value with a synthetic exposure to interest rate instruments and/or
index instruments. The use of derivative products on organised or over-
securities may involve a risk of greater fall in net asset value.
the-counter markets may expose the net asset value to strong upward or
downward variations, through underlying which react strongly to market
Risks linked to contingent or subordinated securities: The Fund maybe fluctuations.
exposed to contingent or subordinated securities. Holders of those
securities can partially or totally lose their investments following the
conversion into equities at a pre-determined price or a contractual haircut
Risk scale* :
as defined in clauses of the issue's prospectus, or arbitrarily decided by a
Supervisor. Holders of those securities can also be exposed to significant Lower risk, returns are likely to be Higher risk, returns are likely to be
lower higher
prices fluctuations in case of lack of solvency requirements or issuer's
difficulties.
1 2 3 4 5 6 7
Liquidity risk: This relates to the difficulty or impossibility of selling the
securities held in the portfolio at the appropriate time and at the portfolio’s *Exposure in the interest rate and exchange explains the UCITS ranking in this category. The
valuation price, on account of the reduced size of the market or the absence used historical data could not give a reliable indication of the future UCITS risk profile. Nothing
guarantees that the above category remains unchanged, and the ranking may evolve in the time.
of volume on the market on which these securities are usually traded. The lowest category is not synonymic of risk-free investment. Capital is not guaranteed.
For more information about fund’s other characteristics and risks, please refer to the prospectus available from the company on request or on
www.lazardfreresgestion.fr 50 Lazard Fund ManagersLazard Subordinated Financial Debt – Hybrid Contingent GIPS Composite Information Source: Lazard. As of 30 June 2019. Past performance does not guarantee future performance. Performance over less than one year is provided for illustration purposes only. These performance data are provided for information purposes only and should be assessed over the recommended investment period. Information reserved for professional investors. Range of standard management fees takes into consideration share class charges of all portfolios contained within this composite. 51 Lazard Fund Managers
Disclaimer
This is a financial promotion and is not intended to constitute investment advice.
Lazard Credit Fi is a French mutual fund (Fonds commun de placement), authorised and regulated as UCITS by the Autorité des marchés financiers and
managed by Lazard Frères Gestion SAS.
Copies of the full Prospectus, the relevant Key Investor Information Document (KIID) and the most recent Report and Accounts are available in English,
and other languages where appropriate, on request from the address below or at www.lazardfreresgestion.fr. Investors and potential investors should read
and note the risk warnings in the Prospectus and relevant KIID.
Past performance is not a reliable indicator of future results. The value of investments and the income from them can fall as well as rise and you may not get
back the amount you invested. Any yield quoted is gross and is not guaranteed. It is subject to fees, taxation and charges within the portfolio and the
investor will receive less than the gross yield. There can be no assurance that the portfolio's objectives or performance target will be achieved. Any views
expressed herein are subject to change.
The returns from your investment may be affected by changes in the exchange rate between the portfolio's base currency, the currency of the portfolio's
investments, your share class and your home currency.
The information provided herein should not be considered a recommendation or solicitation to purchase, retain or sell any particular security. It should also
not be assumed that any investment in these securities was or will be profitable.
The contents of this document are confidential and should not be disclosed other than to the person or persons for whom it is intended.
FOR FINANCIAL PROFESSIONAL USE ONLY.
52 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSDisclaimer
Fixed income: Yields from bonds reflect in part the risk rating of the bond issuer. Investment in lower rated bonds increases the risk of default on
repayment and the risk to capital of the portfolio. High yielding assets may carry a greater risk of capital values falling or have limited prospects of capital
growth or recovery. Investment in high yield securities involves a high degree of risk to both capital and income. Yields from bonds reflect in part the risk
rating of the bond issuer. Investment in lower rated bonds increases the risk of default on repayment and the risk to capital of the portfolio.
Derivatives: The portfolio invests in financial derivative instruments ("FDIs"). While the use of FDIs can be beneficial, they also involve risks different
from, and in certain cases, greater than, the risks presented by more traditional investments. FDIs may be subject to sudden, unexpected and substantial
price movements that are not always predictable. This can increase the volatility of the portfolio’s Net Asset Value. FDIs do not always totally track the
value of the securities, rates or indices they are designed to track. The use of FDIs to gain greater exposure to securities, rates or indices than by a direct
investment, increases the possibility for profit but also increases the risk of loss. The Fund is also subject to the risk of the insolvency or default of its
counterparties to FDI investments. In such events the Fund may have limited recourse against the counterparty and may experiences losses.
S&P Credit Ratings: This may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s.
Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third
party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible
for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content
providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use.
Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages,
costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs or losses caused by negligence) in connection with any use of
their content including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell
securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment
advice.
JP Morgan: Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is
used with permission. The Index may not be copied, used or distributed without J.P. Morgan’s prior written approval. Copyright 2018, J.P. Morgan Chase
& Co. All rights reserved.
FOR FINANCIAL PROFESSIONAL USE ONLY.
53 Lazard Fund Managers
DOCUMENT INTENDED FOR PROFESSIONAL INVESTORSDisclaimer
This strategy is available by way of either a Fund or a segregated mandate, subject to any local regulatory restrictions or requirements.
United Kingdom, Finland, Ireland, Denmark, Norway and Sweden: The information is approved, on behalf of Lazard Fund Managers (Ireland) Limited, by
Lazard Asset Management Limited, 50 Stratton Street, London W1J 8LL. Incorporated in England and Wales, registered number 525667. Lazard Asset
Management Limited is authorised and regulated by the Financial Conduct Authority.
Germany and Austria: Lazard Asset Management (Deutschland) GmbH, Neue Mainzer Strasse 75, 60311 Frankfurt am Main is authorized and regulated in
Germany by the BaFin.
Belgium and Luxembourg: This information is provided by the Belgian Branch of Lazard Fund Managers Ireland Limited, at Blue Tower Louise, Avenue
Louise 326, Brussels, 1050 Belgium.
France: This information is provided by Lazard Frères Gestion SAS , 25, rue de Courcelles 75 008 Paris.
Italy: This information is provided by the Italian branch of Lazard Asset Management (Deutschland) GmbH. Lazard Asset Management (Deutschland)
GmbH Milano Office, Via Dell'Orso 2 - 20121 Milan is authorized and regulated in Germany by the BaFin.
Netherlands: This information is provided by the Dutch Branch of Lazard Fund Managers (Ireland) Limited, which is registered in the Dutch register held
with the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten).
Spain and Portugal: This information is provided by the Spanish Branch of Lazard Fund Managers Ireland Limited, at Paseo de la Castellana 140, Piso 10,
Letra E, 28046 Madrid and registered with the National Securities Market Commission (Comisión Nacional del Mercado de Valores or CNMV) under
registration number 18.
Switzerland: Lazard Asset Management Schweiz AG, Usteristraße 9, CH-8001 Zurich. Authorised and regulated in Switzerland by the FINMA.
FOR FINANCIAL PROFESSIONAL USE ONLY.
54 Lazard Fund Managers
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