active asset allocation solutions

A new approach to asset allocation

Certified by

Active Asset Allocation Solutions Implementations

We Protect, You Perform

Conciliate security and performance comes with a perfect control of risk

Notre VisionOur Vision

Active Asset Allocation puts in pratice a responsible approach to preserve the financial ressources managed for the long term, such as pensions of future generations

By applying the state-of-the-art of the academic research to the investment world, Active Asset Allocation brings financial engineering to the service of institutional investors. The rare combination of academic expertise and investment experience allows Active Asset Allocation to help investors define and understand better their risks in order to manage them in a sustainable way

Active Asset Allocation designs asset allocation solutions that help investors and asset managers to honor their commitments, either by optimising ALM for the former or by controlling the inherent risk of the assets for the latter

Active Asset Allocation philosophy relies on portfolio insurance techniques that aim to better preserve capital and maximize performances within the constraints decided by each investor

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Active Asset Allocation



Notre MétierOur ActivityPromote innovation within the asset allocation world thanks to our academic research and its application to the investment world

Help the investor define the set of risks and thresholds that should not be exceeded

Add value by creating a customised solution for the investor by adapting the asset allocation to his constraints and not to return forecasts

Help asset managers design diversified funds (including target-date funds) capable of respecting risk parameters and preserving the invested capital

Study and find in a stochastic environment (stress tests with at least 1000 scenarios) an optimal asset allocation between a protective « core » and more risky « satellites » capturing the performance. The allocation will be based only on the risk limits that we have established with investors and that takes into account their particular needs and constraints, including regulation. Our decisions do not depend on mathematical forecasts of gains and losses

Consider risk management as a new leverage of structural performance for asset management

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Our Activity

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Protection in case of a sudden and unexpected

event

We identify your constraints and the asset classes you

would like to invest in

We upgrade on an on-going basis our models thanks to

our internal research

We monitor daily your portfolio and

the level of risk

We design a customised model

and test it in a stochastic

environment

Monthly we propose a

rebalancing of your asset allocation

We advise you on the asset allocation, you keep the control of your investments

Dynamic Allocation

Customization of solutions and

stress test

Client Input

Research and Innovation




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Notre ExpertiseOur Expertise

Active Asset Allocation offers to private banks, asset managers and institutional investors its expertise in dynamic asset allocation, including in a ALM environment (presence of liabilities):

approach based on risk management only

a real alternative to diversification or tactical allocation, which did not produce the expected results these last years, especially when it comes to risk management and capital preservation

a real alternative in ALM compared to fixed allocation strategies or de-risking strategies, the objective of which is to reduce exposure to risky assets when a threshold is reached in terms of capital

Active Asset Allocation use state-of-the-art asset allocation models and a proprietary approach developed through research in finance, combined with extensive investment experience




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Quelques publications décrivant les bases de notre approche

Publications relative to our approach

“In defense of Pro-cyclicality”, IPE Investment Pensions Europe, Avril 2012, Adina Grigoriu

“Risk Control through Dynamic Core-Satellite Portfolios of ETFs: Applications to Absolute Return Funds and Tactical Asset Allocation”, The Journal of Alternative Investments, Fall 2010, pp. 47 – 57, Noel Amenc, Felix Goltz, Adina Grigoriu

“The EDHEC European ETF Survey 2010” – An EDHEC-Risk Institute Publication, May 2010, Felix Goltz, Adina Grigoriu, Lin Tang

“Risk Control through Dynamic Core-Satellite Portfolios of ETFs: Applications to Absolute Return Funds and Tactical Asset Allocation” – An EDHEC-Risk Institute Publication, January 2010, Noel Amenc, Felix Goltz, Adina Grigoriu

“Constructing Absolute Return Funds with ETFs – A Dynamic Risk Budgeting Approach”, Institutional Investor Journal, Fall 2008, Vol. 2008, No. 1: pp. 37 – 46, Noel Amenc, Felix Goltz, Adina Grigoriu




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Memberships and Labels


Active Asset Allocation has developed a partnership with the Centre for Complexity and Interdisciplinary Studies in Finance (CCISF), a research centre from the University of NiceSophia Antipolis, promoting new and cutting edge interdisciplinary research on financial markets seen as complex systems. The research centre is supported by the CNRS ( French National Research Centre for Science) and the INRIA ( French National Research Institute in Computer Science)

The ANRT (French National Agency in Research and Technology) is sponsoring the thesis of one of our research engineers with the collaboration of Active Asset Allocation and the University of NiceSophia Antipolis

Active Asset Allocation received the seal of approval of «Finance Innovation», a centre from Paris EUROPLACE, encouraging young firms to develop innovative techniques in finance and is incubated by Paris Incubateurs Finance

Active Asset Allocation is member of the French Institute of Actuaries

Active Asset Allocation is member of the ACIFTE ( Association of Financial Advisers and Analysts authorised by the AMF, the French regulator)

Active Asset Allocation has received the innovation award by the Entreprendre network



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Management TeamOlivier Hiezely

Founding Partner - Chairman

Olivier has completed a MBA with EDHEC in 2008.

He is an engineer with more than 20 years of professional experience in the field on organisation and information systems.

He has worked for 18 years at L’OREAL and developed an excellent understanding of the challenges and the strategies involved in a multinational company.

He has extensive experience in both people and projects management. Olivier has a strong personality focused on results. During his career, he developed a culture of excellence a nd pe r fo rmance , a l on g w i t h good interpersonal skills.

Adina Grigoriu

Founding Partner - CEO

Adina has an actuarial degree, is a member of the French Institute of Actuaries and has 15 years experience in different finance fields, including quantitative modelling.

An asset allocation specialist, she started her career as a derivatives trader. She then joined BNP Paribas Asset Management where she held several positions ranging from product manager to fund manager and head of ALM. She joined a spinoff of the EDHEC-Risk Institute in 2007 to develop the Dynamic Core Satellite approach and its application to institutional portfolios.

During her career, Adina has advised numerous asset managers and institutional clients on designing and managing multi-asset portfolios, including hedge funds.




AACIF

KPMG

Apple MCS

Cabinet SimonFUI

Structure et Organisation

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Equilibre

Maîtrise

Excellence

Respect

Intégrité

Our Values

Exigence

The Team

rely on academic research and put into practice the state-of-the-art of academia, design solutions to respond to specific client needs

portfolio insurance, long term guarantee, preservation of assets ( ex: pensions)

protect value, avoid excess of risk (in a downward or upward trend)

For those who trust us and those who will

Inno

vatio

n

Ant

icip

atio

n

SustainabilitySecurity

Responsibility

Trust

cultures, men - women, variety of backgrounds and horizons

adaptation to the environment and permanent reconsideration...withenthusiasm

individual reliability to serve the team, personal stability

software know-hows, mathematical calculus and modelling are internalexpertises

High

Sta

ndar

ds

DiversityExcellence

Respect

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Some of our valuable clients and partners




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Quelques conférences/séminaires dans lesquels nous avons présenté l’approche de gestion des risques

dynamique : exte

Conferences


October 2013, IPE 360, Noordwijk, Netherlands

June 2013, Factset Symposium, Monaco

June 2013, Infinity Conference 2013, Aix en Provence

April 2013, Assurfinance 2013, Paris

February 2013, Matinale Affo ( French Association of family offices), Paris

January 2013, Matinale EIFR, Paris

October 2012, APG «Academic Advisory Board» seminar, Amsterdam

October 2012, IPE 360, Windsor

June 2012, IPE 360, Paris

May 2012, Pitmans Trustees, London

April 2011, Opal Financial Group, Investment Consultants Forum Europe, De-Risking Solutions : Liability Driven Investments, London

December 2010, Collège Interdisciplinaire de la Finance, seminar Quantitative Behavioral Finance, Nice

October 2010, Generali Investments, Pan-European Institutional Clients Conference, Istanbul

May 2009, EDHEC-RISK, Edhec Institutional Days, Paris

December 2008, EDHEC-RISK, Edhec Alternative Investment Days, London



Our Customised Solutions for the Institutional Investors and the Asset

Management Community

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Solutions



Why ? (1)

Active Asset Allocation has developed a set of quantitative tools able to simulate asset behaviors in a stochastic environment allowing to design dynamic asset allocation solutions based on risk management

We use asset classes defined by the investor and the constraints he has to respect ( allocation min/max, risk limits, ...) as a working base

Our studies allow to define for instances :

the optimal mix between asset classes

the strategic benchmark

the fees structure

if the objectives are achievable, and if necessary the possible adjustments to make so that the objectives can be met

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Solutions



Why? (1I)

The technology can be applied to different issues :

for an asset manager : design of a balanced fund, design of a diversified bond fund ( sovereign, corporate, EM, high yields, ...), design of an equity fund with draw-down constraints

for a foundation : preservation of endowments

for a pension fund : inclusion of liabilities and management of the asset/ liability balance

for target-date funds: the optimisation of the allocation depending on other parameters than the horizon in order to preserve part of the capital

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Solutions



Our Solution to Manage the Assets: Dynamic Asset and Risk Management

( DARM)

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Solutions



Limits of the diversification strategy

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The last 10 years have shown the limits of this approach :

10 years ago, an investor who wanted a performance of 7% would have chosen an allocation 60% equities, 40% bonds

The results of a diversified allocation depend on the hypotheses of returns, volatilities and correlations: they are often wrong!

Expe

cted

ann

ualiz

ed r

etur

ns

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0%

-4.5%

-2.5%

-0.5%

1.5%

3.5%

5.5%

7.5%

9.5%

1.5% 6.5% 11.5% 16.5% 21.5%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0%

-4.5%

-2.5%

-0.5%

1.5%

3.5%

5.5%

7.5%

9.5%

1.5% 6.5% 11.5% 16.5% 21.5%

Annualized volatility Annualized volatility

Efficient frontier built on hypotheses at the end of 2001Efficient frontier calculated with 2001-2011 risks an returns

Solutions



Limits of the tactical allocation

The tactical allocation aims to improve the performances of the diversified allocation under tracking error budget

The allocation is regularly readjusted depending on views on the futur returns of assets (asset manager convictions or forecasts of a quantitative model)

In any case, this implies relying on bets

Performances are very volatile, from a fund manager to another and from a year to another

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Solutions



DARM Principles

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Our DARM (Dynamic Asset and Risk Management) solution is inspired from portfolio insurance techniques :

Division of the portfolio into two components : a component with low or less risk to protect the capital, and a component with more risk, which allows to capture the performance

We aim to protect a certain level of capital that we materialise with a Floor

But we have added important improvements :

possibility to invest simultaneously in all the asset classes the investor wants to include in the portfolio ( and not only in one risk-free asset and one risky asset)

Less risk of being fully invested into money market instruments (often the drawback of a CPPI)

Variable multiplier taking into account market risk changes

Management of several protection levels (floors)...

Our solution can dynamically control the negative returns of a portfolio in order to limit losses without limiting the performance

Solutions



DARM solution: asset control

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Solutions

Characteristics of the DARM solution:

relies on risk management rules only

does not require return forecasts and does not rely on past risk/return

increase exposure to risky asset (Satellite) when it over performs Core & vice versa

generates accumulation of over performance = creation of cushion, i.e. greater exposure to Satellite

DARM Innovations :

Customised Model

Inclusion of several assets

Levels and types of floors

adapted

New source of performance

Portfolio

Cushion



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Solutions

0

375

750

1125

1500

Number of sim

ulated scenarios

-0,5 1 2,5 4 5,5 7 8,5 10 11,5 13 14,5

10-year annualized returns

Return distribution for DARM vs. Diversification

Diversification DARM

Stochastic universe



Positioning of our DARM solution

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Traditional approach: diversification

Traditional approach: tactical allocation

Traditional approach: portfolio insurance

Risk Parity Approach Our approach: Dynamic allocation

Objective asset return asset return risk management risk management risk management

Risk Measurement volatility volatility capital loss volatility, DD, VaR capital loss

Asset Allocation Fixed allocation dynamic allocation given performance forecasts

Fixed allocation defined by the insurance portfolio approach

Dynamic allocation so as to have the same risk exposure within each asset class

Dynamic allocation between the core and the satellite depending on the margin of error

Benchmark cap weighted market indices cap weighted market indices - - -

Performance Measurement

overperformance compared to market indices absolute performance absolute performance absolute performance absolute performance

Risk Managementsymmetric tracking error compared to benchmark

symmetric tracking error compared to benchmark - - asymmetric tracking error

Cushion management - -once the cushion is consumed, there are no more options to perform

-the cushion is rebuilt by construction if consumed

Solutions



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Solutions

Our solution for Target-Date Funds:DARM Horizon



Philosophy of Horizon Strategy

We adapted DARM (Dynamic Asset and Risk Management), our solution that allows investors to maximize their performance while taking into account their risk constraints, to the requirements of retirement savings. In an environment where bonds offer returns that are no longer attractive, the DARM Horizon is a response to growing demand for savings products exposed to risky assets, but with an efficient risk control. It offers an alternative to current models of de-risking, which principle is hazardous when the risk-free asset is no longer risk-free.

This solution relies on the utilization of several risk-controlled portfolios (DARMs), with different levels of risk. The capital is distributed among these portfolios by a desensitization that is no longer time-linked, but designed to progressively lock-in gains.

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Solutions



Our strategy back-tested over a 15-year period

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DARM horizon historical allocation to each asset class

0

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0 %

25 %

50 %

75 %

100 %

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Equities Bonds Cash

Annualized Returns 7,8%Maximum Loss -10,8%

Performance of the strategy compared to the industry’s standard products in France

Annualized Returns 4,6%Maximum Loss -17,8%

DARM Horizon

Industry De-risking

Implementations



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Our solution for Investors with Liabilities:Dynamic Asset Liability Management

(DALM)

Solutions



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Solutions

The need of a new Asset Liability Management

On one hand, 2008 credit tsunami and market conditions ever since

On the other hand, the lack of appropriate goals for pension funds:

peers benchmarking instead of analysis of particular needs

target absolute return instead of liabilities as a benchmark

too much reliance on hypothesis and long term static allocation

short term margin for error not taken into account

... have completely changed the pensions landscape

Consequence: pension funds have witnessed a worsening in their funding ratios and are now concerned about being able to produce investment returns that are high enough to deliver their promises to members without jeopardising the financial health of the sponsor company in the process



Traditional strategies in Asset/Liabilities Management

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Solutions

Most common approaches currently used:

Traditional LDI : takes the financial risks away by hedging the liabilities, BUT the funding gap is then only filled by contributions AND 100% funded situation might not be good enough given all the other risks that lay with the liabilities ( mortality, life expectancy, inflation, ...)

Long term fixed allocation based on risk and return expectations needs accurate forecasts over the investment horizon and is not compatible with short-term constraints; when proven wrong, they require higher and higher returns and can lead to virtually infinite contributions

Traditional De-risking : systematical switching from «growth» assets to «matching» assets when funding level improves on a «flight» plan to fully funded can be as bad as fixed allocation and can also lead to virtually infinite contributions

Our solution is more comprehensive than traditional de-risking: the dynamic allocation is ongoing



DALM principlesOur Dynamic Asset and Liability Management solution is an extension of our DARM solution to the presence of liabilities

Again, the portfolio is divided into two components :

The Liability Hedging Portfolio (LHP), correlated to the liabilities

The Performance Seeking Portfolio (PSP), invested in riskier assets, structured following the DARM approach

Risk management is done through protecting a chosen level of funding ratio. The protection level can go up when the funding ratio improves

The investment in the PSP depends not only on risk-aversion & market conditions, but also on the margin for error (i.e. how far is the actual funding ratio from the funding ratio we are trying to protect)

De & Re Risking:

Short term and Medium/Long term De-Risking

Short term Re-Risking

Short term decisions are predefined and do not involve market forecasts

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Solutions



Design methodology of Dynamic ALM

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Liabilities analysis

Statistical analysis Finding of

optimal parameters

Creation of building blocks

Generation of stochastic scenarios

Asset ClassesInterest rate curveLiabilities

Best stochastic match for the Liability Hedging Portfolio

Combine assets by pairs and find the best parameters to construct the PSP

Analysis of the distribution of the funding ratio, necessary contributions, surplus, expected return, volatility, max drawdown, etc...

Design of the DALM solution that best fits the pension fund liabilities stream and particular constraints, to ensure risk is properly managed no matter the scenario

Solutions



Daily monitoring to ensure risk limits are not breached

Monthly rebalancing to ensure asset allocation is optimal given the funding status of the pension fund and its long term goal

Exceptional rebalancing if half of the risk budget has been used intra-month

De & Re Risking features:

Short and medium/long term De-Risking: in the short term, the allocation to the risky asset goes down as the funding ratio approaches the protection floor; in the medium/long term, protection floor moves upward as scheme funding level rises, helping to reduce probability that market gains and/or contributions are «squandered» by falling markets

Short term Re-Risking: when the funding ratio moves away from the protection floor, the allocation to the risky asset goes up

Short-term decisions are based on formula and do not involve market predictions

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Strengths of our DALM solution

Solutions



Positioning of our DALM solution

Traditional approach: focus on assets

De-Risking strategy depending on a glide path

Our solution: funding ratio management, focus on

liabilities and their correlation with the assets

Objective asset return wealth level funding ratio management

Risk Measurement asset volatilityasset volatility and funding

ratio levelfunding ratio volatility (assets vs

liabilities)

Asset Allocation long term fixed asset allocationfixed allocation (ALM study) adjusted

with de-risking as funding level thresholds are reached

dynamic allocation between the core portfolio and the

performance driven portfolio depending on the level of the

funding ratio

Benchmark cap weighted market indices cap weighted market indices liabilities

Performance Measurement over-performance compared to the benchmark

over-performance compared to the benchmark

liabilities + x%

Portfolio Monitoring quarterly, update of the asset allocation every one to three years

on-going monitoring of the funding ratio, but de-

risking depending on the glide path

on-going monitoring of the funding ratio to de-

risk and re-risk

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Solutions



What you should remember from our solutionsThe Dynamic Asset and Risk Management (DARM) solution allows to take into account investors issues (capital preservation, regulation, ...) by redefining risk while respecting their constraints (going beyond volatility, VAR, ...)

The DARM approach, inspired from portfolio insurance techniques, is an asset allocation strategy which offers an interesting alternative to the fixed allocation based on past data and to the tactical allocation based on forecasts

Its extension to ALM (Dynamic Asset Liability Management) allows to manage the funding ratio volatility and to minimise needed contributions

our experience with US pension funds shows a 30% (up to 50%) reduction in contributions over 10 years compared to other widespread approaches (traditional LDI, fixed allocation, de-risking)

our results with French foundations and pension funds are much better than the results achieved by other asset allocation strategies

Its extension to Target-Date Funds (DARM Horizon) allows to offer an alternative to current models of de-risking, which principle is hazardous when the risk-free asset is no longer risk-free.

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Design of a dynamic risk management approach for a bond fund investing in international credit instruments and for a diversified fund

Creation and implementation of a dynamic risk management solution for a fund of ISR funds (DARM)

Analysis of the strategic asset allocation of a Dutch pension fund

Creation of a dynamic risk management approach (DARM Horizon) for a DC pension scheme with different risk profiles

Creation and implementation of a dynamic ALM (DALM) for the US pension fund of a FTSE 100 company

Creation and implementation of a dynamic risk management approach for two French foundations

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Examples of past missions and ongoing work



Notre DifférenceOur differenceWe qualify risk management parameters by adapting them to the strategy of each single investor and in accordance with regulation

We determine the risk budget that will be used precisely to protect capital and capture performance. We communicate to the investment comittee an action plan for unexpected situations

We determine ex-ante the signals (for instances the alert thresholds or the opportunity levels) that allow to take relevant and efficient asset allocation decisions between a «core» and «satellites»

We capture, register and calculate the very numerous data needed for the simulations and studies that will indicate the best asset allocation options after a qualitative analysis of the results. Our strong investment experience is a major advantage while interprating the results of our models

We design and implement complex models in accordance with the state-of-the-art of asset allocation techniques. Such models are created in the best possible conditions of reliability, solidity and efficiency. They are improved constantly thanks to our internal research, which provides clients with continuous progress

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420 Million Euros advised and monitored daily

35% of ressources affected to research, development and innovation

www.aaaic.com

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Key figures


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www.aaaic.com

active asset allocation solutions

Economy & Finance

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tactical asset allocation

optimal asset allocation

labelsactive asset allocation

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asset managers