Gars citywire (jl 09 october 2013)

October 2013

Christopher Nichols, FIA

Global Absolute Return Strategies

This communication is for investment professionals only and should not be distributed to or relied upon by retail clients. It is only intended for use in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required.

2

Asset Allocation - the difficulty of choice…

Cash

Japanese Equities

US Equities

Discrete Yearly Performance (%) by Market

Source: Lipper Hindsight, total returns, in £ terms, 31 December 2012

Global High Yield Bonds

UK Investment Grade Bonds

UK Gilts

UK Equities

European Equities

UK Small Cap

UK Direct Property

Asia Equities Ex Japan

Emerging Market Equities

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

7.06 10.45 17.55 18.89 50.46 22.87 37.43 12.81 59.39 22.94 15.57 36.29

6.65 10.14 40.88 17.44 40.49 20.13 32.21 3.18 57.67 21.91 8.09 17.82

5.90 9.25 40.54 14.87 34.25 18.12 15.72 -0.12 52.72 19.23 7.60 17.02

3.05 0.46 32.67 13.83 24.08 16.75 5.32 -1.85 44.22 18.68 3.39 14.07

1.62 -10.63 29.74 13.07 22.04 16.30 5.27 -2.14 30.12 17.47 2.87 13.42

0.91 -14.57 22.44 12.84 18.96 15.91 3.72 -12.77 20.09 16.90 0.76 12.30

0.20 -15.02 20.86 8.11 18.83 2.73 3.58 -22.53 12.60 14.51 -3.46 11.10

-9.56 -18.74 15.73 6.75 17.33 1.57 1.85 -23.99 8.09 14.49 -12.73 10.91

-13.29 -22.68 11.24 6.60 13.46 0.69 1.28 -29.93 2.18 7.80 -13.55 3.60

-15.48 -27.04 5.12 4.83 8.78 0.57 -5.47 -31.15 0.71 7.20 -14.71 2.70

-20.05 -27.77 2.10 3.39 7.93 -0.41 -5.75 -35.18 -1.16 5.75 -15.16 2.08

-27.42 -29.58 0.32 1.97 2.72 -6.73 -17.92 -48.32 -5.28 0.66 -17.57 0.79

Building Diversified Portfolios

• Strategic Benchmark

� Which asset classes are used

� Broad allocations

• Tactical Asset Allocation: e.g. +/-5%

• Tracking Error limit

Conventional governance:

Periodic exercise to review the asset allocation 3

44

Traditional approach – Uncertain outcome

Source: Rainmaker - Median Workplace Australian Diversified Balanced Fund performance March 2004 to March 2013

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2004 2006 2008 2010 2012An

nu

ali

se

d %

re

turn

Typical returnexpectation

Annualised rolling 3 year returns Typical Australian Default Balanced Strategy

5

Limited diversification in typical Australian pension portfolios

High weighting in correlated risk assets reduces diversity

6

Source: IPD UK Monthly Property Index, All Property; Federal Reserve Trade-Weighted Exchange Value of US Dollar vs 6 Countries; Dow Jones UBS –Commodity Index; Barclays Capital Global Corporate Index, Excess Returns; Barclays Capital Emerging Markets Index, Excess Returns; Barclays Capital US High Yield Index, Excess Returns; Standard Life Investments, 31 December 2011

Finding durable diversity difficult

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

PropertyCurrency

BasketCommodities

IG Corporate

Bonds

EmergingMarket Bonds

High Yield Bonds

2000-2007 2008-2011

Correlation of Global Equities with other markets

77

Building Diversified Portfolios

• Strategic Benchmark

• Tactical Asset Allocation limits: e.g. +/-5%

• Tracking Error limit

• Adaptable to changing market conditions

• Maximise breadth of investment freedom

• Constrain risk in scale & materiality, not nature

• Appropriate liquidity

Conventional Governance:

Our objectives:

8

The Global Absolute Return Strategies Fund

A proven track record in delivering the Fund objectives

Objective:

• Cash +5% per year (gross) performance target over rolling 3 years periods

• Expected volatility: 4% - 8%

Key Components:

• Broad investment freedom – diverse ideas

• Risk controlled implementation – diverse portfolio

• Longer investment outlook – reliable/biased return

99

Performance

* Source: Standard Life Investments converted $ performance of £, institutional pooled pension portfolio to the 07/06/2011. US$ GARS SICAV portfolio performance from the 08/06/2011 to the 31/08/2013. Volatility calculations based on monthly performance data** Source: Thomson Datastream, 6 month US$ LIBORSource: Standard Life Investments, gross performance from 12/06/2006 to 31/08/2013Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presented above is supplementary information to the US GARS GIPS® composite report, which is enclosed in the Appendix for your reference

• 7.6% CAGR*(from inception to 31/08/2013)

• 5.9% Volatility(monthly returns, from 01/07/2006 to 31/08/2013)

• US$45bn overall AUM(as at 31/08/2013)

US$7.2bn SICAV portfolio size(as at 31/08/2013)

• >1400 institutional investors (as at 31/08/2013)P

ric

e (

ind

ex

ed

to

10

0 a

t in

ce

pti

on

)

Cash** Target ReturnGARS*

85

90

95

100

105

110

115

120

125

130

135

140

145

150

155

160

165

170

175

180

556065707580859095

100105110115120125130135140145150155160165170

1010

Risk Comparison

* Source: Standard Life Investments converted $ performance of £, institutional pooled pension portfolio to the 07/06/2011. US$ GARS SICAV portfolio performance from the 08/06/2011 to the 31/08/2013. Volatility calculations based on monthly performance data** Source: Thomson Datastream, MSCI World ($)*** Source: Standard Life Investments, performance from 01/07/2006 to 31/08/2013 Source: Standard Life Investments, gross performance from 12/06/2006 to 31/08/2013

Delivering returns with less risk

Price (

indexe

d to 1

00 a

t in

ception)

Global Equities** GARS (Net)*

• Volatility***:GARS 5.9%Global Equities 18.0%(annualised, using monthly data, 31/08/2013)

• Maximum Drawdown:GARS -15.7%Global Equities -57.5%(using daily data, to 31/08/2013)

• VaR (95%, weekly):GARS -1.4%Global Equities -4.7%(using weekly data, to 31/08/2013)

Up months*** 61/86 vs. 49/86

(GARS vs. Global)

Upside capture 35.2%

Downside capture 9.1%

11

Uncorrelated return in down markets

Source: Standard Life Investments, net converted € performance of £ Fund to 26/01/2011, thereafter € GARS SICAV performance to 30/06/2013 * Source: Thomson Datastream, 6 month Euribor and MSCI World (€)

3.5 3.31.7 1.8 2.3

1.3

-4.0

0.6

-4.4

3.3

0.7

5.5

11.3

1.5

4.6

2.3

4.8

-0.6

0.2

-1.3

1.6

3.7

5.5

-1.9

3.3

1.3

3.8

-0.4

0.9 0.9 1.0 1.1 1.2 1.2 1.1 1.3 1.3 1.1 0.5 0.4 0.3 0.3 0.2 0.2 0.3 0.3 0.3 0.4 0.5 0.4 0.3 0.3 0.1 0.1 0.1

5.64.2

1.6

5.2

-2.7

-5.0

-16.0

-0.9

-4.8

-20.8

-7.6

14.6

12.8

6.1

9.6

-3.3

2.2

11.0

-0.8 -1.5

-9.8

11.3

8.9

5.4

0.1

10.8

-0.4

-25

-20

-15

-10

-5

0

5

10

15

20

Q3

'06

Q4

'06

Q1

'07

Q2

'07

Q3

'07

Q4

'07

Q1

'08

Q2

'08

Q3

'08

Q4

'08

Q1

'09

Q2

'09

Q3

'09

Q4

'09

Q1

'10

Q2

'10

Q3

'10

Q4

'10

Q1

'11

Q2

'11

Q3

'11

Q4

'11

Q1

'12

Q2

'12

Q3

'12

Q4

'12

Q1

'13

Q2

'13

% R

etu

rn

GARS (gross) Cash (Euribor) * Global Equities *

12

Process

Integrated with full skill set across Standard Life Investments

Idea Generation

Selection

Implementation

Investment

Governance &

Oversight

• Independent Risk

Analysis

• Counterparty Risk

Management

• Investment

governance

Fundamental economic analysis

Asset class team views and

strategies

Quantitative modelling

Valuation

modelling

Multi Asset Risk and Structuring

Pre-trade risk Diversification measurement Scenario Analysis

Strategic Investment Group

• Review • Debate • Ratify / Reject

ConvictionDiversityLiquidity

Multi Asset Management

Strategy implementation Final position sizing Execution

Broad investment opportunity set

• Traditional risk-premia

• Selective Equity, Credit and Real-Estate exposures

• Security selection – ‘alpha’

• Cyclical investment opportunities

Interest rates Steepening of European interest rate curve

Currencies Long Mexican Peso vs Australian Dollar

Volatility Asian Market vs S&P 500

• Relative value opportunities:

Search across geographies and asset classes for return opportunities 13

Geography Nikkei vs Kospi Equity

Sector US Tech vs Taiwan Equity

Size Large Cap vs Small Cap US Equity

Cross-asset Bank Credit vs Equity

Portfolio outlook / themes

• Multi-Speed Global Growth�US Equity

�US Equity Technology vs Taiwan

�German vs French Equity

• Central Bank Policy�European Duration (Forward-Start)

� Japanese vs Korean Equity

�US Dollar vs Japanese Yen

14

Source: Standard Life Investments UK GARS portfolio, 31 August 2013

Maximising our insight on global investment markets

• Sustainable Income�High Yield Credit

�Global REITS

• Chinese Rebalancing�Chinese Equity

�Mexican Peso vs Australian Dollar

�US Dollar vs Canadian Dollar

Co

rre

lati

on

co

eff

icie

nt

(to

Glo

ba

l E

qu

itie

s)

15

Discretionary risks, with diversity

Source: Standard Life Investments, 30 June 2013

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

16

How much would you allocate?

Which of these investment strategies is the most risky?

4.7% Chinese Equity

28.2% EU Corporate Bonds

10.1% US $ vs €

They all are expected to contribute the same to volatility: 1%

Source: Standard Life Investments, 30 June 2013

9.38%

4.13%

0%

2%

4%

6%

8%

10%

12%

14%

Diversification benefits

Expected volatility

Market Returns

Directional Returns

Relative Value

Security Selection

1717

Risk profile

• The portfolio is exposed to multiple & diverse market risks

• 13.5% is total stand-alone investment risk that is deployed to seek returns

• Equivalent equity volatility is 14.3%

• Independent risk analysis shows the benefits of investment diversification

Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013

To

tal sta

nd

-alo

ne r

isk

18Greater number of ‘moving parts’ allows for more return consistency

Investment risk is well diversified

Source: Standard Life Investments

Historical Stress-scenario analysis

% Move

Black Monday 1987

Gulf War 1990

Rate Rise 1994

Mexican Crisis 1995

Asian Crisis 1997

Russian/LTCM

Tech Wreck (April 07 - 14, 2000)

Sept 11th

Equity Sell-Off (August 23 - October 09, 2002)

Equity Rally (October 10 - November 27,2002)

Gulf War 2 (March 01 - 23,2003)

Bond Rally (May 01 - June 13, 2003)

Bond Sell-Off (June 14 - July 31, 2003)

Emerging Market Sell-Off 2006 (May 01 - June 08, 2006)

Subprime Debacle 2007 (July 15 - August 15, 2007)

Bank Meltdown 2008 (September 12 - October 15, 2008)

Euro Crisis (July 22 - August 23, 2011)

QE Jitters (May 22 - June 24, 2013)

-28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18

GARS Portfolio

MSCI World move

* MSCI World Returns prior to 2000 denoted in European Currency Units, except for 1987 which is denoted in German MarksSource: GARS SICAV, RiskMetrics, 30/06/2013 19

20

Hypothetical Stress-scenario testing

Scenarios currently of interest:

• Abrupt end to QE

• EU moves apart

• Commodity shock

• China crisis

• Trade war

• QE continues

Source: Standard Life Investments, Bloomberg. May-2013

An evolving process subject to formal annual review

21

Stability through return from multiple sources

Source: Standard Life Investments, 31 December 2012

-10%

-5%

0%

5%

10%

H2 2006 2007 2008 2009 2010 2011 2012

Real EstateCashSecurity Selection

FXEquitiesVolatility

InflationCreditDuration

22

Key benefits of GARS

Longer term outlook � Exploits established inefficiencies

� Low turnover / costs

Durably diverse� Broad range of return-seeking strategies

� Work well together in many scenarios

Transparent� Full risk & return attribution

� Regulated / onshore

Accessible / Liquid� Daily access

� No notice, lockup or gate

Fits existing portfolios� Low correlation

� Low flat fee structure – a core solution

Exceptional rewards for modest risk levels

Appendices

24

The Standard Life DB Pension fund experience

Background (2004)

� 20% scheme deficit

� Standard Life Demutualisation

Genesis of Absolute Return Mandate:

� Traditional investment strategies could not achieve growth and risk objectives

� 2 part response:

� Liability hedging: – remove unrewarded risk

� AR mandate: – remove unmanaged risk

� Less than half the risk vs liabilities

Liabilities plus approach avoided the volatility in funding position

Source: Standard Life Investments and Towers Watson Statistics, 31 March 2013* The average UK Institutional Pension Portfolio

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

CAPS median

Liability Benchmark

Liabilities Plus

25

Multi-Asset Investing Team

Critical combination of skills and experience

* Based in Canada GARS Portfolio ManagersWhilst the Real Returns and Rates teams do provide macro research and views, they do not have a direct input into the management of the GARS Portfolio and are thereforenot included in the number of investment professionals for the product and are therefore greyed out.Source Standard Life Investments, 09 September 2013

MAI Team Members Staff Area Average years in industryAverage years at Standard Life

Investments

Economic Framework 10 Global Strategy 18 11

Risk Investigation 6 Multi-Asset Risk 13 8

Idea Implementation 17 Multi-Asset Management 16 9

TenureSize Strength

Christopher Nichols FIA

Mark Foster FFA

Malcolm Jones FFA

Tam McVie

Stuart Peskin CFA

Andrew Spooner

Global Investment Specialists

Head of Multi-Asset and Macro Investing

Global Strategy

Andrew Milligan

Frances Hudson

Jason Hepner CFA

Douglas Roberts

CFA PRM

Dr Anne Friel PRM

Multi-Asset Risk

Dr Brian Fleming

Dr Robert de Roeck

Dr Jens Kroeske PRM FRM

Guy Stern CFA

Roger Sadewsky

Colette Conboy

David Kirkpatrick

Scott Smith CFA

Dr Ian Pizer CFA

Multi-Asset / Macro Portfolio Management

Audrey Simpson

Harry Smith

Julia Mikhniak

Craig Hoyda

Alex Berry

Multi-Asset Implementation

Murray Forbes

Malin Nairn James Esland

Multi-Asset Business Management

Multi-Asset

Neil Matheson CFA*

Global Economics

Alex Grassino*

Adam Rudd CFA

Jennifer Catlow CFA

Govinda Finn

Neil Richardson

Rates

Philip Laing

Jack Kelly

Sebastian Mackay CFA

Liam O’Donnell CFA

Real Returns

Jonathan Gibbs

Katy Forbes CFA

Adam Skerry

Tom Walker

Owen McCrossan FIA

Richard Martin FIA

Jeremy Lawson

Ross Hutchison

Rachel Forshaw

Strategy activity in recent quarters

Q4 2012 Q3 2013

� Amended European Financials Capital Structure to be Senior Financials vs Main index credit with short bank equity

� Closed Australian Yield Curve

Flattener

� Closed US forward start duration

� Added US yield curve Steepener (10y vs 30y)

� Added Indian Rupee vs Singapore Dollar

� Added Global REIT basket

� Modified US Equity Tech vs Small Cap to also be short Taiwan

Q1 2013

� Closed European Financials Capital

Structure (completed April 08, 2013)

� Added Chinese Equities (via HSCEI futures)

� Closed UK vs Europe forward start

duration

� Closed Korean Equity

� Long Equity Volatility contracts expired

� Added Asian v S&P Variance(closed NKY v S&P variance)

� Added EUR yield curve Steepener (10y v 30y, 4yrs forward)

Source: Standard Life Investments GARS portfolio, 30 September 2013

Q2 2013

� Closed Chinese vs Japanese FX

volatility strategy

� Added Long German vs French Equity (equity futures on DAX and CAC)

� Closed European Swaption Steepener

� Closed German vs French Duration

� Closed Global Index Linked Bonds

� Added European Duration (Forward Start)

26

� Added Japanese vs Korean Equity

� Closed Russian Equity

� Closed Indian Rupee vs Singapore Dollar

� Closed US Steepener

� Added Oil Majors – Equity

� UK Credit now 80% duration hedged

� Closed US Large vs Small Cap Equity

27

Our philosophy

Beliefs:

Taking longer term market views biases the investment outcome in your favour

• The marginal investor has a short time horizon

• This causes market inefficiency over 2 to 5 year horizons

• Exploitable only by those who are diligent, creative and patient

We can create performing, low risk, portfolios from these longer term strategies

• We combine many strategies so we can afford to be patient

• In the short term they behave differently, so some can be relied upon to be paying off

• Resulting in low portfolio risk with strong return potential

Approach:

We build reliable performance portfolios for many future outcomes

• All our strategies are expected to deliver material returns over 3 years based on our central view of future market conditions

• Selection criteria focus on those strategies that also maintain performance even if our central view is wrong

• So if some strategies do fail we have others that will out-perform to compensate

• We are vigilant to avoid concentration of risk

2828Study rejects hypothesis of ‘random walk’ over 2-8 year view

Philosophical foundation:Hard evidence for asset allocation opportunity horizon

• Picking short-term market peaks and troughs is notoriously difficult

• Research indicates opportunities for mean reversion do exist on a 2-5 year investment horizon

• Investment decisions to exploit these opportunities are based on in-depth qualitative analysis

Non-Outlier MaxNon-Outlier Min

75%25%

Median

Box Plot: 1-Year Equivalent Volatility of UK Equity Market

Total 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

ea

r Eq

uiva

len

t Vo

latility

y_1

0.06

0.10

0.14

0.18

0.22

0.26

0.30

0.34

bzw sur

y_2

bzw sur

y_4

bzw sur

y_8

bzw sur

y_16

bzw sur

2929

Individual strategies risk

% of equity vol1 ρ

Volatility 4.13% 28.8% 0.05

Fully correlated risk categories 13.50% 94% 1

Uncorrelated risk categories 2.97% 21% 0

VaR (99%, 1 month) 213,329,807 4.02% as % of NAV

Risk CategoriesStandalone

risk% of total

standalone 2 DiversificationPosition-removal

CorrelationMarginal

attribution3

Exposures

Long Short Nominal

Long USD v CAD 1.24% 9.18% -2.41% -0.49% -0.51 -0.33% 14.6% -14.2% 14.6%Global equity 1.01% 7.48% 1.93% 0.62% 0.54 0.70% 8.1% -1.5% 6.5%Long USD v EUR 0.92% 6.78% -1.08% -0.04% -0.16 0.06% 9.1% -9.0% 9.1%High yield credit 0.77% 5.72% 1.82% 0.51% 0.60 0.55% 9.8% 0.0% 9.8%US equity large v small cap 0.76% 5.65% -1.61% -0.24% -0.39 -0.17% 9.5% -9.4% 9.5%Long MXN v AUD 0.66% 4.85% 0.57% 0.09% 0.06 0.14% 7.3% -7.0% 7.3%US steepener 0.62% 4.62% 1.19% 0.22% 0.29 0.27% 18.8% -7.0% 18.8%US equity 0.62% 4.58% 1.61% 0.38% 0.57 0.41% 3.8% 0.0% 3.8%Global REITs 0.59% 4.37% 1.69% 0.41% 0.66 0.43% 3.9% 0.0% 3.9%Chinese Equity 0.59% 4.34% 1.57% 0.36% 0.56 0.38% 2.8% 0.0% 2.8%Stock Selection 0.57% 4.20% 0.00% 0.04% 0.00 0.08% 0.0% 0.0% 0.0%Russian Equity 0.55% 4.08% 1.69% 0.40% 0.70 0.42% 2.3% 0.0% 2.3%European equity 0.49% 3.64% 0.44% 0.05% 0.05 0.08% 9.5% -9.5% 0.0%Long USD v JPY 0.49% 3.61% 1.14% 0.19% 0.34 0.21% 4.8% -4.8% 4.8%Mexican rates v EUR 0.48% 3.55% 1.27% 0.23% 0.43 0.25% 7.5% -2.6% 4.9%US equity tech v small cap 0.46% 3.42% -0.85% -0.06% -0.19 -0.04% 4.3% -4.3% 4.3%UK equity 0.44% 3.22% 1.45% 0.29% 0.63 0.30% 7.6% -4.8% 2.8%German v French Equity 0.43% 3.18% -0.52% -0.01% -0.08 0.01% 4.3% -4.2% 4.3%US equity tech v Taiwan 0.38% 2.81% 0.60% 0.06% 0.12 0.08% 2.6% -2.4% 2.6%European long-end curve steepener 0.27% 2.01% 0.71% 0.07% 0.23 0.08% 15.6% -6.7% 15.6%Long INR v SGD 0.24% 1.75% 0.76% 0.08% 0.31 0.08% 3.5% -3.6% 3.5%Asian v S&P variance 0.22% 1.60% 0.46% 0.03% 0.12 0.04% 0.0% 0.0% 0.0%UK corporate bonds 0.20% 1.45% 0.41% 0.03% 0.11 0.03% 3.3% 0.0% 3.3%FX Hedging 0.16% 1.21% 0.42% 0.02% 0.13 0.03% 2.7% -0.1% 2.8%EU corporate bonds 0.13% 0.95% 0.50% 0.03% 0.24 0.03% 3.6% 0.0% 3.6%HSCEI v FTSE variance 0.08% 0.60% -0.20% 0.00% -0.06 0.00% 0.0% 0.0% 0.0%European forward-start duration 0.07% 0.55% -0.16% 0.00% -0.04 0.00% 9.5% 0.0% 9.5%Liquid Instruments 0.02% 0.18% 0.25% 0.01% 0.32 0.01% 2.8% 0.0% 2.8%Relative variance income 0.02% 0.17% 0.20% 0.01% 0.22 0.01% 0.0% 0.0% 0.0%Global index-linked bonds 0.02% 0.16% -0.24% -0.01% -0.33 -0.01% 0.5% -0.5% 0.0%Hang Seng v S&P volatility 0.01% 0.09% -0.05% 0.00% -0.02 0.00% 0.1% -0.1% 0.1%Cash 0.00% 0.00% 0.00% 0.00% 0.00 0.00% 42.1% 0.0% 42.1%

Total (exposures ex.cash): 13.50% 100.00% 3.28% 4.13% 172.2% -91.8% 153.3%

Diversification benefit: 9.38%

Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013

1. MSWORLD equity vol (14.3%) 2. Limit on % total standalone: 30% 3. Also known as Contribution to Risk

2.72%

2.30%

1.13%

0.87%

0.59%

0.57%0.28%

0.02%Equities

FX

Duration

Credit

Property

Security Selection

Volatility

Cash

30

Strategy groupings risk

1. MSWORLD equity vol (14.3%) 2. Limit on % total standalone: 40% 3. Also known as Contribution to Risk

% of equity vol1 ρ

Volatility 4.13% 28.8% -0.41

Fully correlated risk categories 8.50% 59% 1

Uncorrelated risk categories 3.93% 27% 0

VaR (99%, 1 month) 213,329,807 4.02% as % of NAV

Risk CategoriesStandalone

risk% of total

standalone 2 DiversificationPosition-removal

CorrelationMarginal

attribution3

Exposures

Long Short Nominal

Equities 2.72% 32.00% 1.77% 1.58% 0.23 2.17% 54.8% -36.2% 18.6%FX 2.30% 27.03% -3.20% -0.56% -0.48 0.04% 38.6% -28.9% 67.5%Duration 1.13% 13.28% 1.92% 0.65% 0.48 0.76% 48.8% -13.7% 35.2%Credit 0.87% 10.27% 1.88% 0.56% 0.57 0.61% 16.7% 0.0% 16.7%Property 0.59% 6.94% 1.69% 0.41% 0.66 0.43% 3.9% 0.0% 3.9%Security Selection 0.57% 6.67% 0.00% 0.04% 0.00 0.08% 0.0% 0.0% 0.0%Volatility 0.28% 3.28% 0.40% 0.03% 0.07 0.04% 0.1% -0.1% 0.0%Cash 0.02% 0.29% 0.25% 0.01% 0.32 0.01% 44.9% 0.0% 44.9%Inflation 0.02% 0.25% -0.24% -0.01% -0.33 -0.01% 0.5% -0.5% 0.0%

Total (exposures ex.cash): 8.50% 100.00% 2.70% 4.13% 163.4% -79.4% 141.9%

Diversification benefit: 4.38%

Stand-alone contributions Stand-alone and marginal contributions

Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013

3131

Regular liquidity monitoring

Considerable cash buffer beyond 99% VaR stress

Fund SZVZ

Valuation date 28/06/2013 OTC Derivatives

Total fund value 5,308,043,940 6,917,949 collateral posted (c)

Available cash 2,115,483,694 (a) 78,901,783 collateral held

Eligible securities 0 (b) 73,419,563 mark to market

Exchange traded

(margin)

OTC

(collateral)

Total derivatives

covered by cash cash

Standalone Risk 3.00% 2.10%

VaR (99%, 1m) 106,877,294 (d) 74,812,890 (e) 181,690,185 (d)+(e)

Available cover 2,115,483,694 (f) 2,001,688,451 (g) 2,108,565,745 (h)

Cover for 1m VaR 19.8 26.8 11.6

RAG Status GREEN GREEN GREEN

Legend

(f) = (a)

(g) = (a)-(d)-(c)

(h) = (a)-(c)

RED < 1 * 1 month VaR

AMBER < 2 * 1 month VaR

GREEN > 2 * 1 month VaR

The primary status is that on the total derivative cover, however an amber status on either ET or OTC cover requires review by Fund Management. The

RAG status limits are:

Availability of cash is managed by the Money Market Team. The VaR figures inform this process, as documented in the Cash Management Policy.

1 yr cumulative performance attribution

Source: Standard Life Investments GARS SICAV portfolio, 30 June 2013

Quarter Q3 12 Q4 12 Q1 13 Q2 13 Cumulative contribution over 1

yearNumber of strategies 31 34 35 35

Security Selection 0.1% 0.0% 0.1% 0.1% 0.4%

UK Equity 0.0% 0.0% 0.3% 0.0% 0.2%

Global Equity 0.1% 0.0% 0.5% 0.2% 0.8%

European Equity 0.1% 0.3% 0.2% 0.0% 0.7%

US Equity 0.1% -0.1% 0.3% 0.1% 0.4%

Russian Equity 0.2% 0.1% 0.0% -0.3% -0.1%

Korean Equity 0.2% -0.1% -0.1% 0.0%

Chinese Equity -0.1% -0.2% -0.4%

Investment Grade Corporate Bonds 0.8% 0.4% 0.1% -0.1% 1.3%

High Yield Credit 0.5% 0.3% 0.4% -0.1% 1.2%

Global Inflation-Linked Bonds 0.3% 0.3% 0.3% -0.3% 0.6%

Cash 0.1% 0.1% 0.1% 0.1% 0.3%

Global REITs 0.1% 0.2% 0.0% 0.3%

Australian yield curve flattener 0.0% 0.0% 0.1%

European Bond Yield Steepener 0.1% 0.1% 0.0% 0.1% 0.3%

European Long-End Curve Steepener 0.0% -0.2% -0.2%

European Duration (forward Start) 0.0% 0.0%

US Long Bond Yields (Forward-Start) 0.4% 0.1% 0.5%

US Steepener 0.0% 0.3% -0.3% 0.0%

Long Equity Volatility -0.1% -0.2% -0.1% -0.3%

Long US Dollar vs Euro -0.1% -0.2% 0.3% -0.1% -0.2%

Long US Dollar vs Japanese Yen -0.1% 0.5% 0.4% 0.2% 0.9%

Long US Dollar vs Canadian Dollar -0.4% 0.1% 0.3% 0.5% 0.5%

Long Indian Rupee vs Singapore Dollar -0.1% 0.1% -0.2% -0.1%

Mexican Government Bonds vs Euro 0.3% -0.1% 0.6% -0.1% 0.6%

Other FX 0.0% 0.0% 0.0% -0.1% -0.1%

Long Brazilian Real vs Australian Dollar 0.0% 0.0%

Long Mexican Peso vs Australian Dollar 0.0% 0.0% 0.2% 0.4% 0.6%

US Large vs US Small Cap Equity 0.1% -0.2% -0.2% 0.0% -0.4%

US Equity Technology vs US Equity Small Cap 0.1% -0.4% -0.2% 0.1% -0.5%

US Equity Technology vs Taiwan 0.0% 0.1% 0.1% 0.2%

European Financials Capital Structure 0.4% 0.1% -0.3% 0.0% 0.2%

UK vs European Forward-Start Duration 0.0% 0.0% 0.0% 0.0% 0.0%

German vs French duration 0.0% -0.1% 0.0% -0.1% -0.1%

German vs French Equity 0.0% 0.0%

China Equity vs UK Equity Volatility 0.0% 0.1% 0.0% 0.0% 0.1%

Relative Variance Income 0.2% 0.3% 0.2% 0.0% 0.7%

Hang Seng vs S&P volatility 0.1% -0.1% 0.0% 0.0% 0.0%

Asian Basket vs US Variance 0.0% 0.0% 0.0%

Chinese Yuan volatility vs Japanese Yen volatility 0.0% 0.0% -0.1% 0.0% -0.1%

Residual 0.2% 0.0% 0.0% -0.2% -0.1%

TOTAL Fund 3.4% 1.4% 3.8% -0.4% 8.2%

32

33

GARS SICAV performance

Source: Standard Life Investments, 31/08/2013Converted € performance of £, institutional pooled pension portfolio to the 26/01/2011. GARS SICAV portfolio performance from the 27/01/2011.

GROSS Portfolio 6m Euribor Relative NET Portfolio 6m Euribor Relative GROSS Portfolio MCSI World (€) Relative

Sep-12 0.36 0.04 0.32 Sep-12 0.29 0.04 0.25 Sep-12 0.36 0.71 -0.35

Oct-12 0.36 0.04 0.32 Oct-12 0.28 0.04 0.25 Oct-12 0.36 -1.36 1.74

Nov-12 0.53 0.03 0.50 Nov-12 0.46 0.03 0.43 Nov-12 0.53 0.96 -0.42

Dec-12 0.44 0.03 0.41 Dec-12 0.37 0.03 0.34 Dec-12 0.44 0.56 -0.12

Jan-13 0.88 0.03 0.85 Jan-13 0.81 0.03 0.78 Jan-13 0.88 2.10 -1.20

Feb-13 1.48 0.03 1.45 Feb-13 1.41 0.03 1.39 Feb-13 1.48 4.05 -2.47

Mar-13 1.37 0.03 1.35 Mar-13 1.30 0.03 1.27 Mar-13 1.37 4.25 -2.76

Apr-13 1.37 0.03 1.34 Apr-13 1.30 0.03 1.27 Apr-13 1.37 0.53 0.83

May-13 0.47 0.03 0.45 May-13 0.40 0.03 0.37 May-13 0.47 1.86 -1.36

Jun-13 -2.18 0.02 -2.20 Jun-13 -2.25 0.02 -2.27 Jun-13 -2.18 -2.71 0.55

Jul-13 0.71 0.03 0.68 Jul-13 0.64 0.03 0.61 Jul-13 0.71 3.07 -2.29

Aug-13 -0.89 0.03 -0.92 Aug-13 -0.96 0.03 -0.99 Aug-13 -0.89 -1.40 0.52

YTD 3.20 0.22 2.97 YTD 2.62 0.22 2.39 YTD 3.20 12.14 -7.97

1 Year (%) 4.95 0.36 4.58 1 Year (%) 4.07 0.36 3.70 1 Year (%) 4.95 13.10 -7.20

2 Years (% p.a.) 8.43 0.83 7.53 2 Years (% p.a.) 7.51 0.83 6.63 2 Years (% p.a.) 8.43 18.54 -8.53

3 Years (% p.a.) 4.97 1.05 3.88 3 Years (% p.a.) 4.08 1.05 3.00 3 Years (% p.a.) 4.97 12.59 -6.77

4 Years (% p.a.) 7.81 1.05 6.69 4 Years (% p.a.) 6.90 1.05 5.79 4 Years (% p.a.) 7.81 13.25 -4.80

5 Years (% p.a.) 8.52 1.38 7.05 5 Years (% p.a.) 7.61 1.38 6.14 5 Years (% p.a.) 7.80 4.08 3.58

Q3 06 3.50 0.86 2.61 Q3 06 3.28 0.86 2.39 Q3 06 3.50 5.56 -1.95

Q4 06 3.27 0.94 2.31 Q4 06 3.05 0.94 2.09 Q4 06 3.27 4.21 -0.90

Q1 07 1.72 1.00 0.71 Q1 07 1.50 1.00 0.50 Q1 07 1.72 1.64 0.08

Q2 07 1.85 1.06 0.78 Q2 07 1.63 1.06 0.57 Q2 07 1.85 5.18 -3.16

Q3 07 2.27 1.16 1.10 Q3 07 2.06 1.16 0.89 Q3 07 2.27 -2.70 5.11

Q4 07 1.29 1.24 0.05 Q4 07 1.07 1.24 -0.16 Q4 07 1.29 -4.99 6.60

Q1 08 -3.99 1.14 -5.07 Q1 08 -4.19 1.14 -5.27 Q1 08 -3.99 -15.99 14.28

Q2 08 0.63 1.25 -0.61 Q2 08 0.42 1.25 -0.82 Q2 08 0.63 -0.86 1.51

Q3 08 -4.37 1.33 -5.62 Q3 08 -4.57 1.33 -5.82 Q3 08 -4.37 -4.83 0.48

Q4 08 3.32 1.10 2.19 Q4 08 3.10 1.10 1.97 Q4 08 3.32 -20.84 30.51

Q1 09 0.74 0.54 0.20 Q1 09 0.53 0.54 -0.01 Q1 09 0.74 -7.64 9.07

Q2 09 5.48 0.38 5.08 Q2 09 5.26 0.38 4.85 Q2 09 5.48 14.58 -7.94

Q3 09 11.30 0.29 10.98 Q3 09 11.06 0.29 10.74 Q3 09 11.30 12.81 -1.34

Q4 09 1.52 0.26 1.26 Q4 09 1.31 0.26 1.05 Q4 09 1.52 6.14 -4.35

Q1 10 4.56 0.24 4.30 Q1 10 4.33 0.24 4.08 Q1 10 4.56 9.58 -4.59

Q2 10 2.30 0.25 2.04 Q2 10 2.08 0.25 1.83 Q2 10 2.30 -3.33 5.82

Q3 10 4.76 0.29 4.46 Q3 10 4.54 0.29 4.24 Q3 10 4.76 2.19 2.52

Q4 10 -0.64 0.32 -0.95 Q4 10 -0.85 0.32 -1.16 Q4 10 -0.64 10.98 -10.47Q1 11 0.24 0.34 -0.10 Q1 11 0.03 0.34 -0.31 Q1 11 0.24 -0.82 1.07

Q2 11 -1.29 0.43 -1.71 Q2 11 -1.50 0.43 -1.92 Q2 11 -1.29 -1.46 0.17Q3 11 1.60 0.45 1.15 Q3 11 1.39 0.45 0.93 Q3 11 1.60 -9.79 12.63Q4 11 3.65 0.44 3.20 Q4 11 3.43 0.44 2.99 Q4 11 3.65 11.34 -6.90Q1 12 5.52 0.34 5.16 Q1 12 5.30 0.34 4.94 Q1 12 5.52 8.90 -3.10Q2 12 -1.90 0.25 -2.14 Q2 12 -2.10 0.25 -2.35 Q2 12 -1.90 -0.16 -1.74Q3 12 3.31 0.16 3.15 Q3 12 3.09 0.16 2.93 Q3 12 3.31 5.39 -1.97

Q4 12 1.34 0.10 1.24 Q4 12 1.12 0.10 1.02 Q4 12 1.34 0.14 1.19Q1 13 3.78 0.08 3.69 Q1 13 3.56 0.08 3.48 Q1 13 3.78 10.75 -6.30Q2 13 -0.37 0.08 -0.45 Q2 13 -0.58 0.08 -0.66 Q2 13 -0.37 -0.38 0.00

12/06/06 -31/08/2013 (% p.a.) 7.80 2.31 5.37 12/06/06 -31/08/2013 (% p.a.) 6.89 2.31 4.48 12/06/06 -31/08/2013 (% p.a.) 7.80 4.55 3.11

2007 7.31 4.53 2.66 2007 6.41 4.53 1.80 2007 7.31 -1.18 8.59

2008 -4.53 4.92 -9.01 2008 -5.34 4.92 -9.77 2008 -4.53 -37.24 52.13

2009 20.07 1.47 18.32 2009 19.05 1.47 17.33 2009 20.07 26.72 -5.25

2010 11.33 1.10 10.12 2010 10.40 1.10 9.19 2010 11.33 20.14 -7.33

2011 4.21 1.67 2.50 2011 3.33 1.67 1.64 2011 4.21 -1.84 6.17

2012 8.38 0.85 7.47 2012 7.46 0.85 6.56 2012 8.38 14.75 -5.54

Diverse client base

A conversion rate of £1:US$1.5167 as at 30/06/2013 has been usedSource: Standard Life Investments, 30/06/2013

US$ Millions

UK Pooled 27,467

SICAV 6,899

Offshore Fund 1,148

Separate US Accounts 4,336

Strategic Investment Allocation Fund 1,025

Standard Life Staff Scheme 4,362

TOTAL 45,239

Client Types:

� Defined Benefit Pension Plans

� Defined Contribution Pension Plans

� Charities / Endowments / Foundations

� Retail investments

Client Diversity:

� Only 4 institutional pooled clients over US$303m

� The largest single pooled client has c.US$394m invested

Investment rationale:

� Equity replacement / DGF / Risk Parity

� Alternative asset / Global Macro / GTAA, with benefits

� Sustain income and real value of principle

US GARS

Composite Name US GARS

Creation Date 01-07-2006

Firm Standard Life Investments

Currency USD

Report End Date 31-12-2012

Composite Group Converted GARS

Benchmark 1 Month USD LIBID

Firm DisclosuresA complete list and description of all of the firm's composites are available from Standard Life Investments. There are no minimum asset levels set below which portfolios are not included in a composite. All performance calculations and returns have been calculated gross of management fees. All returns are presented on an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in market valuations and returns. All indices are on a gross of tax basis apart from FTSE UK indices which are net of Withholding Tax. There are no Non-Fee-Paying portfolios included in any composite. The Daily True Time Weighted Rate of Return methodology has been used from 2001 apart from unitised Cash Property GARS and Myfolio products where NAV performance is used. Prior to this NAV performance was used for all products. Additional information regarding policies for calculating and reporting returns is available upon request. Dispersion is calculated using high/low difference. Standard Life Investments 'The Firm' consists of all fee-paying funds managed by Standard Life Investments and its Subsidiaries which include Standard Life Investments (Mutual Funds) Limited SLTM Limited Standard Life Investments (Corporate Funds) Limited Standard Life Investments (USA) Limited and Standard Life Investments (Asia) Limited. Past performance results from Standard Life Investments Limited UK Firm and Standard Life Investments Limited Irish Firm have been linked to form the performance record of the new firm Standard Life Investments. The new firm was created on 01/01/2008. Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Standard Life Investments has been independently verified by Pricewaterhouse Coopers for the periods 1996 to 2012. The verification report is 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

Composite DisclosuresDerivatives may be used to vary exposure to markets and express views on the direction of currencies, interest rates, sectors and securities to enhance capital return, limit downside volatility and preserve capitalIncludes part period return for 2006 from 01/07The composite includes funds that invest in a highly diversified strategy including equities, bonds and cash with a derivative overlay in options, futures, swaps and currency forwards to deliver a positive absolute return. The fund is benchmarked against 1 month US LibidThe standard annual fee applicable to this composite is 1.00%, but individual fees are negotiated on an account basisThis composite includes GBP denominated funds that are converted into USD using 3 month USD Libor and 3 month GBP Libor rates

Anlzd Return (Composite)

Anlzd Return (Benchmark)

3 Year Anzld StdDev(Composite)

3 Year Anzld StdDev(Benchmark)

Dispersion Market Value Total Firm Assets% of Firm

AssetsNumber of Portfolios

Dec 2003 NA NA NA NA NA NA NA NA NA

Dec 2004 NA NA NA NA NA NA NA NA NA

Dec 2005 NA NA NA NA NA NA NA NA NA

Dec 2006 7.92 2.63 NA NA NA 61,396,573 250,034,719,675 0.02 1

Dec 2007 8.36 5.28 NA NA NA 480,921,603 273,159,275,038 0.18 1

Dec 2008 -6.35 2.58 NA NA NA 1,193,805,120 169,620,437,123 0.70 1

Dec 2009 19.25 0.20 7.19 0.60 NA 3,555,802,495 205,104,682,260 1.73 2

Dec 2010 10.75 0.13 7.31 0.35 1.33 10,897,493,192 206,244,327,020 5.28 2

Dec 2011 2.89 0.10 5.69 0.02 0.14 16,448,902,409 191,669,627,227 8.58 3

Dec 2012 7.86 0.11 4.62 0.01 0.73 27,699,502,152 217,691,673,950 12.72 3

36

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