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Chris Adair Senior Vice President, Applied Strategy and Overlay Ryan Labs Asset Management LDI: The Spectrum of Solutions

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Page 1: LDI: The Spectrum of Solutions - P&I EVENTSconferences.pionline.com/.../1110_LDI_The_Spectrum_of_Solutions_Adair.pdfLDI: The Spectrum of Solutions Tactical/strategic strategies based

Chris Adair

Senior Vice President, Applied Strategy and Overlay

Ryan Labs Asset Management

LDI: The Spectrum of Solutions

Page 2: LDI: The Spectrum of Solutions - P&I EVENTSconferences.pionline.com/.../1110_LDI_The_Spectrum_of_Solutions_Adair.pdfLDI: The Spectrum of Solutions Tactical/strategic strategies based

Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Preamble

The performance returns reflected in this presentation are based on

simulated, hypothetical or historical performance results that do not reflect

the actual performance of any client account. The performance of the “Tail-

Risk Hedge” is backtested, which means that it reflects the retroactive

application of the investment program to historical data for periods during

which the investment program did not exist. Important disclosures regarding

the simulated and hypothetical performance returns contained herein,

including the inherent limitations of simulated and hypothetical returns, are

provided at the end of this presentation. Please consider these important

disclosures when reviewing the contents of this presentation.

There can be no assurance that the program discussed herein will achieve

profits or avoid incurring substantial losses, or that the investment program

will achieve its stated goals.

2

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

LDI: Influence to Solutions

Customized based on corporate funding risk considerations:

Risks Objectives

Funding status

Open/Closed/ Frozen

Plan Sponsor/ Actuarial

AccountingIncome

Statement + Balance Sheet

PBGC Premiums

Contributions

3

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Funding Status –The Good, The Bad, The Ugly

Data source: PPA yield curve from Ryan Labs. Asset performance from Bloomberg and Barclays. Data series starts 2001.

Year

Ending

S&P

Return

AGG

Return

Liability

Return

Funding

Change

Dec -

201216.0% 4.2% 10.5% -0.5%

Year

Ending

S&P

Return

AGG

Return

Liability

Return

Funding

Change

Dec –

2013 32.4% -2.0% -5.0% 18.52%

Year

Ending

S&P

Return

AGG

Return

Liability

Return

Funding

Change

Dec –

2008-37.0% 5.2% 5.1% -22.4%

4

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Custom Liability Index: Real-Time Measure of Liabilities PPA, FAS 158, Pension Risk Transfer (PRT)

5

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Liability Quarterly Returns Risk

Dashboard

6

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

LDI: The Spectrum of Solutions

Tactical/strategic strategies based on LDI objective, glide path, etc…

Strategy Objective

Long Duration Bonds Hedge interest rate risk

Treasury Futures/Swaps Increase interest rate hedge

Swaptions Tactical interest rate hedge

Equity Tail-Hedging Strategies Reduce left-tail equity risk

Diversified Asset Allocation

(Alternative Beta)

Reduce equity concentration risk

7

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Sample Pension Plan

• 60/40 pension plan

• Goal: Understand, decompose and mitigate risk exposures

40%

60%

US Aggregate

S&P 500

14%

0% 100%

Liabilities

$100

Assets

$80

*We assume that equity duration is zero.

Under-

Funded

$20

Duration (Years)

AGG Liabilities

2.2

13.0

Equity* Total

0.0

5.5

Interest Rate Hedge:

8

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Risk Dashboard –Extreme Left-Tail Risk Example

1 – Year Period

Start

Assets

$80.0

Liabilities

$100.0

Difference

$-20.0

$ Funding Change

DecompositionAssets: $-17.1 Liabilities: $5.2 $-22.3

Interest Rate: $-32.2

Equity: $-18.3

Credit: $+28.2

1 – Year Period

Finish

Assets

$62.9

Liabilities

$105.2 $-42.3

Investment performance uses historical market data. Barclays generic index performance decomposition done by Barclays.

-40 -20 0 20 40

Marginal Contribution ($MM)

$-1.9$-30.1

$-18.3

$35.3$3.1

9

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Impacts to Funding Volatility

Low

$-22.3

Mean

$-1.7

High

$18.7

Low: Represents the period ending 12/31/2008

Mean: Represents the period ending 12/31/2012 (mean scenario for AGG strategy)

High: Represents the period ending 12/31/2013

Portfolio with AGG

10

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Solution: Adding Long Duration Fixed Income

• 60/40 pension plan: Objective to hedge interest rate risk with fixed income

• Goal: Understand, decompose and mitigate risk exposures

40%

60%

US Treasury LongS&P 500

Could also use Long G/C, Long Credit, Custom LDI

Liabilities

$100

Assets

$80

*We assume that equity duration is zero.

Under-

Funded

$20

Duration (Years)

Interest Rate Hedge:

TSYL Liabilities

7.2

13.0

Equity* Total

0.0

18.0

0% 100%

44%

11

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Term Structure of Interest Rate Risk

Strategy | Interest Rate Hedge

Aggregate | 14%

Custom LDI | 32%

Long Credit | 35%

Long Gov/Credit | 38%

Long Treasuries | 44%

Custom LDI Aggregate

Long Credit

Long Gov/Credit Long Treasuries

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Impacts to Funding Volatility

Portfolio w/

AGG

Portfolio w/

Long Duration

Low $-22.3 $-15.9

Mean $-1.7 $-1.6

High $18.7 $14.3

Low: Represents the period ending 12/31/2008

Mean: Represents the period ending 12/31/2012 (mean scenario for AGG strategy)

High: Represents the period ending 12/31/2013

Portfolio with

Long Duration

Portfolio with AGG

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Solution: Adding Long Duration F.I. + Swaps/Futures

• 60/40 pension plan: Increase interest rate hedge with fixed income and

overlay

• Goal: Understand, decompose and mitigate risk exposures

40%

60%

US Treasury Long

S&P 500

100%

88%

44% 44%0%

Liabilities

$100

Assets

$80

*We assume that equity duration is zero.

Under-

Funded

$20

Interest Rate Hedge:

Swaps/Futures Overlay

Liabilities

14.313.0

Equity* Total

0.0

Duration (Years)

TSYL

18.0

Swaps

18.0

14

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Strategy: Overlay Completion Example

44%

Swap

Overlay88%

Original IRH

60%

STOCK40%

BOND

Target IRH

60%

STOCK

40%

BOND

Disclosure: The duration of the 40% bond portfolio matches the duration of liabilities

In this particular example, implementing Swap Overlay more than doubles

the Interest Rate Hedge (IRH), 44% to 88%, while still maintaining a 60%

allocation to a growth portfolio.

Assume 60/40 Portfolio

80% Funded

Step 1

Calibrate Overlay

Notional

Step 3

Ste

p 2

Set

Target

IRH

15

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Impacts to Funding Volatility

Portfolio

w/ AGG

Portfolio

w/ Long

Duration

Portfolio

w/ Long

Duration +

Swaps

Low $-22.3 $-15.9 $-7.7

Mean $-1.7 $-1.6 $-0.3

High $18.7 $14.3 $9.3

Low: Represents the period ending 12/31/2008

Mean: Represents the period ending 12/31/2012 (mean scenario for AGG strategy)

High: Represents the period ending 12/31/2013

Portfolio with Long

Duration + Swaps

Portfolio with Long Duration

Portfolio with AGG

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Solution: Adding Long Duration F.I. + Tail-Risk Hedge

40%

60%

US Treasury Long

S&P 500 + Tail-Risk Hedge

• 60/40 pension plan: Increase interest rate hedge with fixed income and

add tail-risk hedge to reduce left-tail equity risk

• Goal: Understand, decompose and mitigate risk exposures

TSYL Liabilities

7.2

13.0

Equity* Total

0.0

18.0

0% 100%

44%

Duration (Years)

Interest Rate Hedge:Liabilities

$100

Assets

$80

*We assume that equity duration is zero.

Under-

Funded

$20

17

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Tail-Risk Hedging (Hypothetical)

Past performance is no guarantee of future results. Please see additional disclosures at the end of this presentation regarding model andbacktested performance.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN

HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL

RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN

GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

Date from 2007 to 2016. Source: Bloomberg. Ryan Labs may use one or more of the investment processes identified above.

Historical Model: Tail-Risk Hedge enhanced equity performance while mitigating equity volatility

• Reduced downside risk: Left Tail Loss (Mean of worst 10 returns) reduced to -12% from -35%

• Did not compromise positive skew

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Impacts to Funding Volatility

Portfolio

w/ AGG

Portfolio

w/ Long

Duration

Portfolio w/

Long Duration

+ Tail-Risk

Hedge

Low $-22.3 $-15.9 $7.4

Mean $-1.7 $-1.6 $-1.6

High $18.7 $14.3 $14.4

Low: Represents the period ending 12/31/2008

Mean: Represents the period ending 12/31/2012 (mean scenario for AGG strategy)

High: Represents the period ending 12/31/2013

Portfolio with Long Duration

+ Tail-Risk Hedge

Portfolio with Long Duration

Portfolio with AGG

19

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Solution: Adding Long Duration F.I. + Swaptions

• 60/40 pension plan: Build a tactical interest rate hedge

• Goal: Understand, decompose and mitigate risk exposures

40%

60%

US Treasury Long

S&P 500

Liabilities

$100

Assets

$80

TSYL Liabilities

7.2

13.0

*We assume that equity duration is zero.

Equity* Total

0.0

18.0

0% 100%

44%

Duration (Years)

Under-

Funded

$20

Swaptions

Interest Rate Hedge:

20

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

0.55

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

1

1.05

0.50 0.80 1.10 1.40 1.70 2.00 2.30 2.60 2.90 3.20 3.50 3.80 4.10 4.40 4.70 5.00

Fu

nd

ing

Ra

tio

30 Year Treasury Yield

Strategy: Swaption Collar

As interest rates increase, funding ratio improves; as interest rates drop,

funding ratio deteriorates

Assumptions: 1. The duration of the bond portfolio is less than the duration of the liabilities 2. For illustrative purposes only, no change to the risk asset portfolio

Funding Ratio Increases

as Rates Increase Funding Cap

Funding Floor

Yld Down 100 bps

OR

Yld Up 100 bps

Reduces

interest rate

timing risk

Upper and lower

positions – zero

upfront cost

Cut off the tails

21

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Impacts to Funding Volatility

Portfolio

w/ AGG

Portfolio

w/ Long

Duration

Portfolio w/

Long Duration

+ Swaptions

Low $-22.3 $-15.9 $-8.1

Mean $-1.7 $-1.6 $-1.6

High $18.7 $14.3 $9.45

Low: Represents the period ending 12/31/2008

Mean: Represents the period ending 12/31/2012 (mean scenario for AGG strategy)

High: Represents the period ending 12/31/2013

Portfolio with Long

Duration + Swaptions

Portfolio with Long

Duration

Portfolio with AGG

22

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

A Basket of Solutions: Evolution of Risk Management

100%80%

Tail Hedging

Swaptions

Swaps

Long Duration

Risk Appetite

Funding Ratio

23

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Disclosures

Past performance is not a guarantee or a reliable indicator of future results. Swaps are a type of derivative; swaps are increasingly subject to central clearing and exchange-

trading. Swaps that are not centrally cleared and exchange-traded may be less liquid than exchange-traded instruments. Derivatives may involve certain costs and risks such as

liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives involves leverage and could

lose more than the amount invested. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio.

The overlay strategies are only available to Eligible Contract Participants as defined in Commodity Exchange Act Section 1 (a) (18) in ECP’s conjunction with the bond mandate

described herein. This presentation only contains summary information regarding the overlay investment management approaches and is not a complete description of the

investment objectives, portfolio management and research that supports these approaches. There is no guarantee that these investment strategies will work under all market

conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. No

representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. Hypothetical or simulated

performance results have several inherent limitations. Unlike an actual performance record, simulated results do not represent actual performance and are generally prepared

with the benefit of hindsight. There are frequently sharp differences between simulated performance results and the actual results subsequently achieved by any particular

account, product, or strategy. In addition, since trades have not actually been executed, simulated results cannot account for the impact of certain market risks such as lack of

liquidity. There are numerous other factors related to the markets in general or the implementation of any specific investment strategy, which cannot be fully accounted for in the

preparation of simulated results and all of which can adversely affect actual results.

Models Used - This presentation provide performance for a “Production Model” and a “Historical Model.” Each model’s investment program (described below) is identical. The

performance of the “Historical Model” is backtested, it reflects the application of the investment program over periods during which the investment program did not exist. The

performance of the “Production Model” reflects the application of the investment program for the period following its development. Neither the “Production Model” nor the

“Historical Model” reflects the performance of any client account

The performance of the Historical Model and Production Model contains two components: (i) a underlay of investments whose performance tracks the S&P 500 and (ii)

application of the Defensive Risk Premia (“DRP”) tactical hedging overlay. The tactical hedging positions will typically consist of treasury futures. The size of the tactical hedge

is continuously adjusted in response to Ryan Lab’s review of market risk indicators, which seek to determine whether volatility is increasing risk exposure. If Ryan Labs

determines that certain equities and treasures risk indicators identify a likely sell-off, it will increase hedge ratio, potentially up to 175% of the assets of the underlay. There is no

guarantee that Ryan Labs will accurately identify or respond to risk indicators.

24

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Disclosures

Backtested Returns - Hypothetical backtested returns have many inherent limitations. Unlike actual performance, hypothetical backtested returns do not represent actual

investment decisions for client accounts. Since investment decisions were not made, performance results may under- or over-compensate for the effect, if any, of certain market

factors, such as lack of liquidity and cash held as collateral for futures trading, and may not reflect the impact that certain economic factors may have had on the decision-making

process. Although Ryan Labs developed the hypothetical backtested performance herein according to certain defined rules and standards, all backtested performance is

developed with the benefit of hindsight. Other periods selected (if data had been available) may have different results, including losses. There can be no assurance that Ryan

Labs will achieve profits or avoid incurring substantial losses.

Ryan Labs cannot assure that the hypothetical backtested performance results will be similar to Ryan Labs’ management of the model or that the results shown in the

hypothetical backtested performance would be similar to what Ryan Labs’ performance would have been had it actually been managing the model in this manner for the period

presented. Ryan Labs believes that the backtested performance shown is reasonably representative of its expected management of the model and is sufficiently relevant for

consideration by potential clients.

Model Returns - The performance presented reflects model performance an investor may have obtained had it invested in the manner shown and does not represent

performance that any investor actually attained. The model performance presented is based upon the assumptions discussed above. Certain of the assumptions have been

made for modeling purposes and are unlikely to be realized. No representation or warranty is made as to the reasonableness of the assumptions made or that all assumptions

used in achieving the returns have been stated or fully considered. Model returns have many inherent limitations and may not reflect the impact that material economic and

market factors may have had on the decision-making process if client funds were actually managed in the manner shown. Actual performance may differ substantially from the

model performance presented. Changes in the assumptions may have a material impact on the model returns presented. The period presented was primarily a period of rising

returns. Other periods selected may have different results, including losses. There can be no assurance that Ryan Labs will achieve profits or avoid incurring substantial

losses.

Where indicated, returns are gross of advisory fees, net of transaction costs, and include the reinvestment of dividends. If the expenses were reflected, the performance shown

would be lower. Actual fees are described in Part 2A of Ryan Labs’ Form ADV and will vary depending on, among other things, the applicable fee schedule and account size.

For example, if $100,000 were invested and experienced a 10% annual return compounded monthly for 10 years, its ending value, without giving effect to the deduction of

advisory fees, would be $270,704 with annualized compounded return of 10.47%. If an advisory fee of 0.95% of the average market value of the account were deducted monthly

for the 10-year period, the annualized compounded return would be 9.43% and the ending dollar value would be $246,355.

General discussions contained within this presentation regarding the market or market conditions represent the view of either the source cited or Ryan Labs. Nothing contained

herein is intended to predict the performance of any investment. There can be no assurance that actual outcomes will match the assumptions or that actual returns will match

any expected returns. The information contained herein is as of the date hereof, unless otherwise indicated, is subject to change, and Ryan Labs assumes no obligation to

update the information herein.

25

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Disclosures

The information in this presentation may contain projections or other forward-looking statements regarding future events, targets or expectations regarding the strategies

described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from that

shown here. The information in this presentation, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be

superseded by subsequent market events or for other reason.

The indices referenced herein are broad-based securities market indices and used for illustrative purposes only. They have been selected as they are well known and are easily

recognizable. Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.

Investments cannot be made directly into an index. The performance of the indices represents unmanaged, passive buy-and-hold strategies, investment characteristics and

risk/return profiles that differ materially from managed accounts or investment funds, and in investment in a managed account or investment fun is not comparable to an

investment in such indices or in the securities that comprise the indices. Past performance is no guarantee of future results. Investments of the managed account or investment

fund may be illiquid, making, at times, fair market valuation impossible or impracticable. As a result, valuation of the managed account or investment fund may be volatile,

reducing the utility of comparison to any index whose underlying securities are priced according to market value, such as the indices. Investors should be aware that the

managed account or investment fund may incur losses both when major indices are rising and when they are falling.

The S&P 500 Index (“S&P 500”) is comprised of a representative sample of 500 large-cap companies. The index is an unmanaged, float-weighted index with each stock’s

weight in the index in proportion to its float, as determined by Standard & Poors. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance.

The Barclays Capital Aggregate Bond Index is a broad base index which represents the performance of investment grade bonds being traded in United States.

The Barclays Gov/Credit Long Index tracks publicly issued U.S. Treasury debt, U.S. government agency debt, taxable debt issued by U.S. states and territories and their political

subdivisions, debt issued by U.S. and non-U.S. corporations, non-U.S. government debt and supranational debt.

This material contains opinions and such opinions are subject to change without notice. Information contained herein has been obtained from sources believed to be reliable,

but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

Front office personnel are supervised by Ryan Labs; middle and back office personnel are supervised by Sun Life. Notional assets under management, where shown, represent

gross notional value of the overlay strategy managed by the indicated entity, and may significantly exceed the net exposure of the overlay strategies. The indicated entity may

not be responsible for securities portfolios associated with the overlay strategy.

The hypothetical examples shown are intended to illustrate the process and generic benefits of utilizing an overlay strategy and are not intended to represent the returns of any

actual Ryan Labs overlay strategy, or the hypothetical performance of any proposed Ryan Labs overlay strategy. The results are not reflective of any portfolio because important

factors such as risk constraints, trading costs, universe breadth, market capitalization, portfolio turnover, incremental market impact, number of holdings, sector/country/industry

weighting, and external analyst coverage which could materially influence an actual portfolio have not been considered.

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Payouts and contributions, in all illustrated samples, have the same underlying assumptions.

Disclosures

These Disclosures that are an integral part of the presentation, which is only intended for institutional investors and/or Qualified Eligible Persons.

PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF

QUALIFIED ELIGIBLE PERSONS, THIS DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE

COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR

UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES

TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT DOCUMENT.

The information contained herein employs proprietary projections of expected returns. The relative relationships and forecasts contained herein are

based upon proprietary research and are developed through analysis of historical data and capital markets theory. Any opinions and estimates offered

constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current or recent

market conditions.

THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS.

UNLIKE THE RESULTS SHOWN IN AN ACTUAL PERFORMANCE RECORD, THESE RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO,

BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR

THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING

PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO

REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE BEING

SHOWN.

PERFORMANCE RESULTS ARE GROSS OF INVESTMENT MANAGEMENT FEES. THE DEDUCTION OF AN ADVISORY OR OTHER FEES,

COMMISSIONS AND EXPENSES REDUCES AN INVESTOR’S RETURN. ACTUAL ACCOUNT PERFORMANCE WILL VARY DEPENDING ON

INDIVIDUAL PORTFOLIO SECURITY SELECTION AND THE APPLICABLE FEE SCHEDULE.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

MARKET PARTICIPATION PRESENTS THE POTENTIAL FOR LOSS AS WELL AS PROFIT.

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