Graviton Implemented Consulting GRAVITON. Our Thinking Professional investment process is critical in environment where there is broad choice & regulation.

Graviton Implemented Consulting

GRAVITON

Our Thinking

• Professional investment process is critical in environment where there is broad choice & regulation is severe

• Important that this process fits client’s advice process, there’s no one size fits all

• Free up time to service clients more effectively by reducing operational burden

• There should be pricing benefit in product

• Risk and compliance is critical but should be done by professionals

• In a competitive world, marketing provides an edge

The Product

Inclusive process to understand

advice process

Define investment

philosophy and process

Define investment mandate

Portfolio Construction

Process

Portfolio Implementation

On-going compliance and

portfolio monitoring

The Benefits

• Intermediary participation in the portfolio management process

• A well-defined investment committee framework

• A documented investment philosophy and process

• Clear investment mandates suited to your unique client base

• Portfolios that are implemented and continually monitored by investment professionals, and managed

incorporating input from the investment committee

• Scheduled quarterly meetings where decisions are documented and minuted

• Confidence that you are meeting your legal and compliance obligations

• Access to SMMI’s market and manager research, a dedicated investment professional and key account

manager

• Marketing support that differentiates your practice through proprietary investment reporting

• Stream-lined investment administration and the ability to implement portfolio changes across your client

base in one easy process

• Competitive pricing

• By design ICF offers intermediaries involvement in multi-management process

• Provides platform to share research and views with qualified investment professional

• Inclusive process to construct investment portfolios that matches your advice process

• Process guided by robust Investment Philosophy & Process, Investment Mandates & Manager Buy List

Essentially, one needs to believe in the advice you give

Investment Committee Framework (ICF)

Framework in practice

1. Initial discussions to ensure synergies when committee Establish Investment Philosophy

2. Define Investment Mandate for each portfolio to ensure full spectrum of intermediary’s book is serviced

3. Establish Manager selection process – comprehensive Manager Buy List & process to add manager

4. Establish Portfolio Management process – tactical asset allocation & manager selection approach

5. Compliance monitoring

1. Establish Investment Philosophy

• Investment Committee believes:

It’s prudent to base portfolio management on good investment principles:

- A long term investment horizon improves likelihood of achieving superior returns

- Skilful managers are selected for the long term

- Maintaining a long term horizon could detract from returns over short term due to markets

- Short term underperformance doesn’t validate a manager switch

- Fundamental changes to a manager’s philosophy, process or team may however

- A well-diversified portfolio should result in smoother return profile

- Over-diversification could reduce the likelihood of achieving long term superior returns

- Emotional decision making could result in a permanent loss of capital

- Trying to time the markets is not value adding

- Short term opportunities may however arise where tactical positions will be taken on mispriced assets

Let’s talk about your advice process?

• What is your DSP/CSP split of your book?

- DSP: typically tax sensitive, income not always required, non-Reg 28, inside or outside of wrap solutions?

- CSP (Pre-retirement): no income, not tax sensitive, Reg 28

- CSP (Post-retirement): income requirement, not tax sensitive, Reg 28

• What risk profiles do you believe your current client base reside in?

• What is your promise to your clients?

- To beat or keep up with inflation or is it critical to rather keep up with peers?

- To protect capital in market correction or to keep up with the market?

- Smoother return profile, i.e. lower drawdowns, but possibility of short term underperformance to markets

• What portfolio construction methodology do you follow?

- Building block approach

- Split funding approach (outsource AA decision)

- Hybrid approach (combination of above)

This discussion helps to clarify what the different options are and which one you feel most inclined to use

Let’s talk about your advice process?

• Your preference for Active or Passive & why?

• Bias towards or against any manager?

• Established asset managers or upcoming talent?

• Do you have a list of funds most commonly used?

• Are you a majority stakeholder in any fund? [ring fencing triggered if own > 5% of fund]

• Is there an all-in-fee (advice, investment & platform fee) that you benchmark against?

• What pricing do you have access to?

Graviton’s Investment Philosophy

Markets driven by two opposing forces - Fear vs. Greed

Results in mispricing

Graviton exploits short term inefficiencies by:

Selection of skilful managers

Blending of complementary managers

Tactical allocation to managers & asset classes

Rigorous research forms the cornerstone of Graviton’s investment philosophy

Graviton is supported by the strong research capabilities of the SMMI investment team

Investment Professional - Rafiq Taylor

Rafiq joined Sanlam Multi Manager International in 2006 after starting

his career at Glacier Financial Solutions. He was appointed in the position

of Investment Analyst and was mentored by Nersan Naidoo, one of the

founding members of the multi management methodology at SMMI.

While having manager research responsibilities, he started managing portfolios

under the supervision of Andrew Rumbelow (CIO) in 2009. He is currently the

portfolio manager for the implemented consulting proposition and manages the

Graviton Collective Investment Schemes.

Rafiq grew up in Cape Town and studied at the University of Cape Town. He is an avid

sportsman and enjoys running, playing cricket and touch rugby.

Qualifications - B.Com (Economics), B.Com (Hons) Financial Analysis & Portfolio Management, studying

towards CFA designation

Investment Professional – Marize vd Merwe

Marize joined Graviton as Retail Investment Specialist in September 2012. She

has 6 years’ experience in the financial services industry and started her

career at Jacques Malan Consultants & Actuaries in their investment consulting

department. In 2008 Marize joined the Glacier Research team as investment

analyst where her primary responsibility was research on the entire unit trust

universe. She was later appointed as a senior investment analyst where she

was responsible for Glacier’s investment consulting offering.

Qualifications:

- Bcomm (Hons) Financial Risk Management, University of Stellenbosch

- Postgraduate Diploma in Fin Planning (cum laude), University of Stellenbosch

- CFP® professional member

Supported by strong Team

Name DesignationIndustry

Experience SMMI Experience Qualifications

Andrew Rumbelow CIO 14 5 BcomAcc, PGDAcc, CA (SA), CFA

David Galloway Strategist and Portfolio Manager 19 8 BBusSc (Hons), BCom (Hons), MCom

Rafiq Taylor Portfolio Manager 9 7 BCom (Economics), Bcom (Hons) FAPM

Jason Liddle Investment Analyst 9 6BCom (Economics), HDipFMI (cum laude)

Mark Phillips Investment Analyst 2 2 BBusSc (Hons) Quantitative Management

Riad Daniels Portfolio Manager 16 1 BCom (FinAcc), CFA

Paul Wilson Investment Analyst 8 1 BSc (Hons) Actuarial Mathematics, CFA

Steven van Jaarsveld Investment Analyst 7 1 BCom Economics & Econometrics

Lilian van Zyl Investment Analyst 4 1BCom (Hons) Investment Management,

BCom Fin Analysis

Michael Muller Trainee Investment Analyst 0 0 BCom Investment Management

* All portfolio managers are involved in qualitative manager research process

The Differentiating Factor?

The SMMI investment team aim to distinguish between SKILL rather than LUCK

A structured, disciplined & independent process where:

- Manager research effort is qualitatively led

- Focuses on identifying manager skill which most often lies in superior investment philosophy, investment

process, people and strong organisational structure

- ‘True’ skill is more likely to result in persistent outperformance

- Qualitative process is supported by quantitative process

- Quantitative effort is merely to test investment thesis

- Quantitative tools (incl. proprietary tools) allow for analysis of historical performance and portfolio holdings of

manager to ascertain thesis for manager skill

- Seeks to analyse market conditions that are tail- or headwind to manager’s particular style

- Combining qualitative & quantitative research is critical as some managers find it difficult to translate what

are conceptually good ideas into their actual portfolios

- Aim is to identify manager’s ‘Native Beta’

Search for a manager’s ‘Native Beta’ is what differentiates SMMI

- Search for alpha is normally focused on relative performance (to stated benchmark)

- SMMI believes understanding real drivers of investment performance is essential

- Actively managed fund designed to offer combination of market (beta) & active (alpha) return

- When interacting with manager strong emphasis placed on insights gained regarding manager’s philosophy

- Continued interactions with manager to quantify ‘Real’ beta – a manager’s true investment style

- Believe skilful managers are able to identify in advance how they expect to achieve value-add

- Subsequent performance attribution confirms whether or not superior performance generated from those areas

identified in advance – skill vs. luck

- Once ‘Native’ or ‘Real’ Beta identified can one only assess if ‘true’ alpha (skill) really exists

The Differentiating Factor?

Strong Manager Research Process

Strong Manager Research Process

It’s a well-defined, independent process that consists of four components:

1. Screening

- To assist analysts to identify where to focus research effort

- Proprietary developed tool ranks managers periodically on performance & flow data

- Managers that rank different (positive/negative) to expectations are highlighted and subject to further review

2. Detailed Research

- On managers identified through screening process, on client request or through team discussions

- To develop and test thesis regarding existence and persistence of skill within a specific manager’s capability

- Analyst interacts with key individuals, both investment professional and business focused, to develop a view

on manager’s skill within a given capability

- Findings documented in manager research document which is presented to investment team for consideration

- If consideration is to add capability to SMMI Manager buy List a Due Diligence is required

Strong Manager Research Process

3. Due Diligence

- Role of DD is to ensure an objective view of specific capability is developed

- Acknowledge that biases can lead to inappropriate conclusion on particular manager

The following aspects in a clearly defined process assist to control potential biases:

• Request manager to complete SMMI Request For Information (RFI)

• Three analysts individually review RFI

• Observations discussed in preparation for Due Diligence to identify aspects that require further clarification

• Due Diligence meeting with key members of business (CEO, CIO, Strategist, Head of Equities, Fixed Interest and/or

Absolute Return, Portfolio Manager)

• Critical that all analysts actively engage with key members to ensure full understanding of business, investment

philosophy and process

• Post DD meeting to ensure all aspects of business, investment philosophy and process are understood

• Identify ‘Key’ factors and where appropriate reschedule 2nd DD meeting to specifically test ‘Key’ factors

• Complete SMMI qualitative questionnaire and manager qualitative report

Strong Manager Research Process

4. Manager Buy List

- To clearly identify those capabilities where team believes manager possess skill

- Analyst presents completed research to broader investment team

- Acts as quality control to ensure analyst’s thesis on manager is supported by evidence presented in research

- Analyst obliged to provide view on capability in question

- A ‘Devil’s Advocacy’ view is also articulated

- Rigorous debate and discussion within investment team on research presented

- If team is of opinion work is incomplete, analysts required to undertake further work and re-present

- Team can either support analysts view (buy or +/- watch) presented or not

- If no clear consensus a blind vote will be taken

- Majority vote is required to support analysts view

- Votes of senior members carry greater weight than junior members

- Only Buy List Managers eligible for portfolio inclusion

Managing Risk is Critical

Various filters ensure proper risk management at every level of the investment process:

Selection of skilful managers

- Strong investment team supported by proven research process allows for the identification of ‘True skill’ which is more likely to result in persistent outperformance

Blending of complementary managers

- An in depth understanding of a manager’s investment style creates the ability to construct a well-diversified portfolio where manager strategies are different, yet complementary which in turn should result in a smoother return profile

Strong emphasis to quantify risk when constructing portfolios

- Aim to achieve higher return for same level of risk. A comprehensive risk management tool with dedicated quant analyst ensures a clear understanding of portfolio risk. Risk budgets are clearly articulated and spend in most optimal way

Tactical allocation to managers & asset classes

- A dedicated strategist in the investment team ensures a proper understanding of the prevailing macro environment. A strong view on the market may result in tactical shifts between managers/asset classes given an in depth understanding of the market conditions that are tail- or headwind to a manager’s particular style or a particular asset class

Active approach

- Reliable process ensures research and portfolios remain relevant. Active does not necessarily imply regular switches. Skilful managers are selected for the long term. Short term underperformance doesn’t validate a switch, but fundamental changes may

2. Define Investment Mandate

• Firm grasp of each fund’s objective

• Clearly define and document investment guidelines

• Investment guidelines include:

- Risk & return targets

- Investment universe

- Asset allocation limits

- Regulatory constraints

CRITICAL: Portfolio target (benchmark) aligns with investment objective

Does solution range service full spectrum of intermediary’s book?

CONSERVATIVE CAUTIOUS MODERATE MODERATE AGGRESSIVE

3. Discuss Manager Selection Process

• A comprehensive Manager Buy List exists that guide the manager selection process

- There’s sufficient choice across multiple ASISA categories

- Where new themes emerge managers will be added to the Buy List to allow access to particular theme

- Buy List managers are backed by a strong investment case and comprehensive research report

- Buy list Managers are believed to have strong competency in managing money – backed by SMMI & Glacier

Research

• Comprehensive research allows for an in depth understanding of a manager’s investment style which has the

following benefits:

- Allow for the construction of a well-diversified portfolio with smoother return profile through the cycle

- Ability to capitalise tactically from a change in market conditions given a good understanding of market

conditions that are tail- or headwind to a manager’s particular style

- Decision making based on facts removing emotion from the portfolio management process

- A better understanding of the inherent risk in a portfolio to better manage return expectations

3. To add a manager to Buy List

A few important criteria's needs to be considered to identify SKILL vs. LUCK:

1. People (including team’s culture)

- Suitably qualified & experienced investment professionals

- Stable, strong investment team

2. Robust investment philosophy & process

- Should be clearly defined, easy to understand and repeatable

- Understand market conditions & dynamics that is suitable to manager’s strategy

3. Organisational structure of asset manager

- Stable organisation plays significant role to provide environment for manager to deliver alpha

- Allows investment team to focus on money management and not operational, marketing or HR functions

4. Asset Size

- Avoid investing in fund where ownership becomes too substantial – limits efficient implementation

- Limited to R500m and / (or) less than 5% in one specific fund

5. Track Record

- A sufficient investment track record (normally 3yrs or more) to assist with analysis

3. To add a manager to Buy List

Practical approach to add a manager to Buy List as prescribed by ICF:

• A member may put forward a request for a new fund to be analysed for placement onto Buy List

• Firstly, the member provides research showing:

- Fund adheres to minimum asset size

- There is sufficient track record

- Fund has the ability to offer superior long term performance by providing a performance report over full

market cycle

- Manager skill relative to peers on buy list and its respective benchmark by providing a qualitative

summary including investment philosophy & process

• Secondly, research reviewed and if committee is in agreement that fund has competitive advantage it will

be added to SMMI’s due diligence process

• Thirdly, a manager research report will be presented to SMMI’s investment team where discussion will take

place and a voting process for approval to go onto Buy List

• Lastly, comprehensive feedback will be provided in subsequent quarterly investment committee meeting if

not placed onto Buy List

3. Removing a manager from Buy List

Practical approach to remove a manager from the Buy List as prescribed by ICF:

• Short term underperformance does not validate a manager’s removal from Buy List

• Prevailing market conditions might be unsuitable to manager’s strategy as would be expected if one has good

understanding of management capability of manager

• Fundamental changes may however validate a removal from the Buy List which includes:

- Changes to key investment professionals or team dynamics

- Deviation from manager’s philosophy & process

- Substantial changes to organisational structure of asset management business

- Misrepresentation by manager to investment team

- Unexplained performance deviations compared to understanding of manager’s strategy

• A formal due-diligence will be conducted if there’s been fundamental changes and manager research report

be presented to GLC/SMMI Investment Committee for final decision to remove manager from Buy List

• Conclusive research will be presented to investment committee in next quarterly committee meeting

4. Discuss Portfolio Management Process

• Manager Buy List and Investment Mandate guides portfolio construction

• Firstly, aim to achieve a well-diversified portfolio across the following:

- Asset Classes

- Asset Managers

- Investment Strategies

Meanwhile ensuring portfolio is in line with appropriate benchmark and investor’s objectives

• Secondly, investment professional perform an exercise where aim is to achieve highest return for same level

of risk with a strong qualitative and quantitative focus:

- Qualitative: a good understanding of underlying manager risk ensures effective portfolio construction

- Quantitative: Risk budgets per Buy List Manager are clearly articulated and spend in most optimal way

• Portfolio to be aligned in the quarterly committee meeting ito:

- SMMI’s tactical asset allocation view, committee may not reflect opposing view, NEUTRAL or SIMILAR

- SMMI’s tactical manager allocation, when a Buy List manager falls out of favour in a given market

- If no tactical view, portfolio to be monitored for rebalancing if move too far away from original strategy

5. Compliance

• ICF monitored by SMMI’s Compliance Officer and forms integral part of process

• Sign off by compliance officer is prerequisite for commencement of next Investment Committee meeting

• Based on the following information:

- All research & interpretation offered by Investment Committee

- Minutes which includes:

a) Member’s contribution to meeting ito manager selection/changes & quantitative/qualitative reports

b) Tactical allocation changes & rebalances

c) Proposals for additional funds to buy list

d) All view offered & accepted by committee members

CRITICAL – Where FSP1 and fee is earned minutes will ensure compliance with Conflict of Interest regulation

- Investment decisions documented to substantiate committees robust philosophy & process

Disclaimer This presentation is for informational purposes only and should not be construed as financial, legal, tax,

investment or other advice. It does not constitute an offer to sell, or the solicitation of an offer to buy, any product (the “Information”).

The Information is not intended to be complete or final and is qualified in its entirety by an Investment Mandate. In the event the Information is inconsistent or contrary to the descriptions in or terms of the Investment Mandate, the Investment Mandate shall govern.

While every effort has been made to ensure the completeness and accuracy of the Information, Graviton, its shareholders, subsidiaries, clients, agents, officers and employees (collectively referred to as “Graviton”) do not make any representations or warranties regarding the accuracy or suitability of the Information.

Graviton does therefore not accept any responsibility or liability for the accuracy or sufficiency of the Information or for any errors, omissions or misstatements, negligent or otherwise, relating to the Information.

Graviton shall not be liable for any direct, indirect or consequential loss or damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the Information and any such liability is expressly disclaimed.

Graviton Financial Partners (Proprietary) Limited is approved as a Discretionary Financial Service Provider in terms of the Financial Advisory and Intermediary Services Act, 2002 (FSP. No. 4210). Registration Number 1998/025253/07 Registered Offices: The Oval, Kildare House, 1 Oakdale Road, Newlands, 7700, Telephone: (+27-21) 671-0630, Fax: (+27-21) 671 9317