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TABLE OFCONTENTSNEWS .............................................................. .. 2

MkEt cp iNdicES:tlE of N iMpENdiNg dEth? ...3

iN SEch of bSoltE EtN ...4

iS voltility ciSiS-poof SSEt? ....................... 5

coNtctS ...................................................... 6

Januar 2012

For professional Investors - not to be distributed in the UK

A BNP Paribas Investment Partner

The best of (both) worlds...How do we respond most effectively to your demands? Do we propose innovative solutions that provide exposure to all asset classesand investment strategies? Or do we also provide you with, through a single entry point, the best quantitative and alternative assetmanagement expertise?

The THEAM offer is designed to simplify and optimise the relationship between managers and investors. By bringing together the specialisedmanagement teams of BNP Paribas AM (SIGMA) and BNP Paribas CIB (Harewood AM), THEAM pairs the technical know-how and innovationof an investment bank with a culture of long-term performance and an asset managers risk monitoring. With so many changes in economic,

nancial and regulatory terms, this new structure seeks to bring the best of both worlds to clients, integrating the values that today arecritical in meeting investors expectations: liquidity, transparency, accessibility and innovation.

More specically, the THEAM offer centres around four management families: index-based management, active systematic management,guaranteed or protected management as well as alternative management. In each of these areas, these teamstoday nearly 120employeesdevelop cutting-edge expertise by relying (upstream, if necessary) on BNP Paribas CIBs research capacity. Our goal is clear: to

focus exclusively on our core strenghts , to design and build competitive products, offering you, our clients, tailored solutions so that you canfocus on your core work: managing strategic allocation.

We have one request: that THEAM be the architect of your investment solutions.

Happy new year ! ges gurn

Chief Executive Ofcer

TEAMaTEAM NEETTE

Written 11 January 2012

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TEAM AUNCE IT FITAETIINg CAMPAIgN

thEM aune s rs aersn amann 5 Seemer w an a n e rn ae nana newsaer les Es. ts naaman as a er se a: to positionTHEAM within its competitive environment,and to ensure it has a solid position in a rapidlychanging environment.

As a symbol of this strategy, THEAM, yourinvestment architect , joined forces with thecreative services of Publicis, which designed a3D geometric structure. This cube representsthe tailored, solid and transparent investmentsolutions offered by THEAM. It is an iconographicand modular structure that simply and concretelyillustrates our process enabling us to meet ourclients desired outcomes. The simultaneouslyirregular and incomplete aspect of the cubesupports the idea of constructing solutions withthe customer and that of searching for a producttailored to their needs.

This initial phase of the advertising campaign,which ended in early October, was followed by asecond web-based marketing campaign, whichstarted on 6 December, alongside the launchof our new website www.theamfunds.com, thesame day.

TENgTENINg ATENATIEINETMENT TEAM

tree exers n aernae nesmens jnethEMs eams n Seemer. Eric Debonnetleads a team of ten employees based in Parisand dedicated to hedge fund solutions. Thierryde Rycke and David Gilleron, named co-CIOs foralternative management, now manage hedge

fund investments.

The recruitment of these three senior employees,who have all held strategic trading-deskpositions, will enable THEAM to strengthen itscapacities in the selection of managers andbuilding portfolios. It demonstrates THEAMsambition to become a top-rung player in liquidand transparent alternative investments aswell as its will to create investment solutions inline with the internal resources and the specicrequirements and constraints of each investor.

BNP PAIBA ACqUIE 50 %OF INNOCAP

thEM as srenene s resene n eaernae nesmen mare. On 3 October,BNP Paribas increased its stake in Innocap

from 25 % to 50 %, a leading player in managedaccount solutions specialising in alternativemanagement.

Established in 1996, Innocap was a wholly-owned

subsidiary of National Bank of Canada until May2007. The teaming of BNP Paribas with Innocapsmajority shareholder allowed the company torise to become one of the global leaders in the

eld of managed account solutions. Increasingits share will enable THEAM to signicantlyimprove its international position.

Innocap offers investors a wide range of hedgefund strategies steered by recognised, innovativeand cutting-edge managers, by proposing liquidand transparent alternative investments. As of30 June, 2011, Innocap had USD 3.2 billion inassets under management.

dane terer azzHead Business

Development Services


Thierry De Ryckeco-CIO

Eric DebonnetHead of Hedge FundSolutions

David Guilleronco-CIO


NEWSiane Terver Aazzotti

Head BusinessDevelopment Services

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The academic consensus is that an efcientportfolio is a diversied one, where diversicationcriteria take into account volatility andcorrelations between underlyin securities.

BETA EU APA

This consensus goes as far as conrming thatthe main performance component of an active-management portfolio, regardless of the assetclass involved, is underlying market beta. Thistheory does not go as far as concluding that

alpha or, in other words, the managers talent does not exist. It simply espouses that thisalpha is rarely important or enduring.

IEIF, O IE

Although diversication explains the greaterpart of a portfolios performance, this postulateis full of consequences. For active management,the most important factor is its capacity togenerate outperformance. This is also the case

for traditional , i.e. cap-weighted, indices thatstructurally suffer from a low level of diversication.Often too concentrated, with an excessively

momentum-based bias, traditional indices do nottake into account existing correlations betweentheir component securities. This explains theattraction of more efcient indices, i.e. indicesbuilt according to criteria based on the concept ofdiversication.

CONITION OF EFFICIENC

Clearly, in order to uphold their promisesvis--vis traditional indices, these newbenchmarks must be constructed based on ascientically sound methodology. Thus, it isclear that many of these new offers, notablyin the area of equity indices, do not take intoaccount the foundations of diversicationand correlation factors between securities.Constructing portfolios based on fundamental,accounting or economic criteria may lead to thecreation of less concentrated indices, but notnecessarily ones that are optimally diversied.Ultimately, few methodologies really enablegenuinely efcient portfolios to be obtained.However, two recent developments warrantattention: the Global Minimum Variance (GMV)approach* ; and the approach developed by theEDHEC Risk Institute**, supported for several

years by BNP Paribas Investment Partners,and which involved a robust approximation ofthe tangent portfolio known as the Max SharpeRatio (MSR).

AT ABOUT OPEATIONA CAPACIT?

The efciency concept is based on the idea thatif a portfolios performance is mainly explainedby exposure to market factors*** (betas, valuebias, momentum bias, etc.), then the fund shouldideally be exposed directly to these factors andother elements that generate risk without rewardshould be reduced. In practice, it is crucial tocheck that the friction costs generated fromliquidity management and portfolio turnoverremain under control.

Although this efcient approach is interesting, itis unlikely to be able to take over from the moretraditional approaches in the near future, as itis simply another attempt to beat the markets.In other words, it is a new active managementstrategy which has often seen promising recentperformance and whose behavior iss particularlywell adapted to the current market environment.

dens paneChief Investment Ofcer

*The Global Minimum Variance approach, developed by Black and

Litterman, takes into account volatility and historic correlations inorder to choose investments and their weightings within a portfolio.**BNP Paribas Investment Partners (BNPP IP) sponsors the EDHECRisk and Asset Management Research Centres research chair inasset-liability management and institutional asset management.The new equity indices created by the EDHEC Risk Institute are anillustration of this partnership. THEAM is a partner of BNP Paribas IP.***Harvesting Risk Premia with Strategy Indices September 2011 MSCI Research Inside.

Mare a nes: ae an

menn ea?The increasin inuence of index-

based manaement, notably driven

by institutional investors desire to

concentrate their attention on their

strateic allocation, is a core trend.

Another, more recent, trend dedicates

the development of alternative indices

to cap-weihted indices. But do

these supposedly efcient indices

spell the death of their traditionalcounterparts?



POINTOF VIEW

enis Panel

Chief Investment Ofcer

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TE CONCEPT

To respond to this issue, our absolute returnmulti-strategy range sets out to offer investorsregular performance, decorrelated from the

nancial markets and thus without structuralor hidden exposure to underlying asset betas. Toaccomplish this, managers implement a exibleinvestment process that enables them to adaptto changes in volatility.

INETMENT PIOOP

Our investment philosophy is based on keyprinciples: Multi-strategy, multi-underlying and multi-

style management Overall risk management No structural bias in exposure to underlying

markets Daily liquidity

What renders this management philosophyeffective is that it is based on a thoroughunderstanding of underlying strategies by themanagers who implement them. This is whyportfolios are managed exclusively by internalTHEAM teams.

Strategies are either discretionary or modeldriven , but always adaptable to market

congurations.

The search for diversication of managementstyles, market cultures, trading models andunderlyings is at the core of this innovativeapproach to achieve the central aim ofmanagement: sustainable performance.

INETMENT TATEgIE

Our investment philosophy is based on vestrategies:global tatistics driven Strategy based on

momentum of equity indices and interest rates(model-driven).

Active Forex Discretionary strategy ofintervention on Forex markets (short-termstrategy).

global Market Timin Strategy identifying andexploiting market reversals (via options).

global Macro Discretionary strategy that takesadvantage of macroeconomic market themes.

dynamic Beta Quantitative macro model-driven strategy.

TE POCE

Allocation between different strategies is carriedout according to a risk budgeting approach. A risk envelope is assigned to each sub-

strategy, in the form of a volatility budget anda maximum authorised level of loss, on anannual basis.

A specic risk budget is kept within theportfolios, to hedge against two situationsconsidered potentially dangerous: when allthe underlying strategies move in the samedirection, or when an unexpected event

drastically changes market sentiment. Inboth cases, the portfolios may be hedgedby purchasing options. This overall hedgemanagement prevents underlying strategymanagers from cutting positions.

Allocation of risk budgets to each sub-strategyalso takes into account qualitative aspects, suchas managers track-records and the historicaldecorrelation between underlying strategies.

TAgETThe absolute return multi-strategy rangeproposes different products declined by volatilityprole and performance target.

UE

This range is primarily suited to professionalinvestors looking for diversication. It seemsto be of interest to investors concerned byrisk management, whether in terms of assetallocation, portfolio construction or monitoring.

TEAM AANTAgE

Absolute performance management withoutexposure bias to underlying markets

Proven management in median or highvolatility phases

A leverage effect asymmetrical to marketconditions (signicant gamma tied to options) Compliant alternative UCITS management

process Daily liquidity

crse MunHead of Absolut Return

SooN to bE EpNdEd offE!

The absolute return multi-stratey offer willsoon include three products differentiatedby volatility prole and performancetarets. In addition to existin funds (with,respectively from 1 to 2.5 % volatility forthe rst one and 10 to 20 % volatility forthe second one) , this rane will include anaverae volatility fund (5 % to 9 %).

in sear asue reurn

ince 2008, nancial markets have been

movin at a different pace. tructural

market imbalances have induced

drastic chanes in the behaviour of

volatility from bein very low to bein

very hih. These sudden chanes in

volatility hold strateies structurally

exposed to market risk (beta) in check.


FOCUSMANAGER

Christophe Moulin

Head of Absolute Return

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This uestion is more pressin than ever: whichassets should be added to the portfolio to stave offextreme losses enerated by nancial crises? Thefailure of traditional diversication techniues inperiods of overall stress increases interest in anoften overlooked asset: volatility.

AT I OATIIT?

Volatility measures the degree of an assets pricechange, and is thus an indicator of risk. This riskcan either be measured after the fact as realised

or historical volatility, in which case it is a simplemathematical observation. Or it can be a risk thatis anticipated by markets, referred to as implied volatility, the level of which depends on thebalance of supply and demand. Volatility is thus a

fully-edged asset. It has a unique characteristic:a generally negative correlation with the changesin its underlying. There are various methods formanaging exposure to this decorrelating asset,which we will look at now.

AT TATEgIE AE TEE FOEPOUE TO OATIIT?

One group of strategies consists of being exposedto the implied volatility of an underlying asset,

for protection or diversication purposes. The long exposure is even more protective than themarket for an underlying that experiences a sharpcorrection. The steeper the markets change, themore certain the increase in volatility. In otherwords, our holdings are the most reliable when wehave the greatest need.A second group of strategies is to invest in volatility

risk premiums (i.e. the difference between anunderlyings implied volatility and its realisedvolatility at maturity). Some strategies alsotake advantage of a period of high volatility byselling options while limiting directional risk onthe underlying.A third group of strategies balances the volatilityof these various risk premiums betweendifferent underlyings or different maturities.This type of strategy produces absolute returnperformance.

INETABE POUCT

Volatility is a complex asset that requiresspecic knowledge and monitoring. Managingexposure to volatility involves, among otherthings, taking direct positions on futuresmarkets as well as variance swap and optionpositions, areas in which not all investorsnecessarily have the technical or regulatoryability to participate.

Some products are standardised and so maytake a temporary or structural position onvolatility, or benet by way of diversication

from additional returns generated by thisasset class.There are generally several groups ofproducts, organised by type of strategy.hen srae - This is in regard to purely

directional funds, which are very responsiveto changes in underlying markets.

deense srae - These products aredesigned for investors who wish to conserve

a position on the underlying asset whileoutperforming their benchmark by reducingthe level of volatility. These covered fundsuse strategies based on options.

dersan srae - This group includesabsolute return funds that implementvolatility arbitrage strategies and mixed

funds that combine directional and relativepositions on volatility.

cares erBusiness Developement Services

fiNNcil ciSiS: Which SttEgiEStkE dvNtgE of voltility?

In periods of intense volatility, such as theone that has affected markets since lastAuust, two types of strateies may beapplied. A tactical option would temporarilytake advantae of the increase in volatility(directional funds). A more defensive optionwould be to remain invested in euitymarkets while mitiatin the conseuencesof a further decline (covered funds).



EPERTISE

is a a rss-r asse?

The summers nancial crisis included

a now well-known scenario sky-

rocketin volatility illustratin onceaain the neative correlation of this

risk indicator with euity markets

durin steep downward phases. The

development of standardised products

now enables investors to take on a

tactical or structural volatility position

in order to make their portfolios less

vulnerable to stress scenarios.

hat strateies are available to

investors? hich should be favoured

today?

TEAM provides the answers.

Charles Alberti

BusinessDevelopment Services

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TEAMa #1 January 2012

nancial instrument, if permitted. Pleasenote that different types of investments, ifcontained within this document, involve varyingdegrees of risk and there can be no assurancethat any specic investment may either besuitable, appropriate or protable for a client orprospective clients investment portfolio.

Given the economic and market risks, there canbe no assurance that any investment strategiesor any nancial instrument will achieve its/theirinvestment objectives. Returns of the investment

strategies or nancial instruments may beaffected by, among other things, objectives oreconomic and market conditions, such as forinstance interest rates or volatility. Dependingon circumstances, nancial instruments usingdifferent investment strategies may have asignicant effect on the results portrayed ifcontained in this document. Past performanceis not a guide to future performance and thevalue of the investment strategies or nancialinstruments may go down as well as up. Certainstrategies discussed in this document involve theuse of derivatives, which are complex in nature

and give rise to substantial risk, including therisk of total loss o f any investment. Performancegures are shown, if any, net of managementfees, but do not include subscription fees ortaxes.

Sources: All externally sourced information has

been obtained from providers believed to bereliable, but THEAM makes no representation,express or implied that that such information isaccurate or complete.

*THEAM is an investment manager registeredwith the Autorit des marchs nanciers inFrance under number 04000048, a simplied

joint stock company with a capital of 8.317.840Euros with its registered ofce at 1, boulevardHaussmann 75009 Paris, France, RCS Paris 428753 214. www.theamfunds.com.

**BNP Paribas Investment Partners is the globalbrand name of the BNP Paribas groups assetmanagement services.

The individual asset management entities within

BNP Paribas Investment Partners if speciedherein, are specied for information only anddo not necessarily carry on business in your

jurisdiction. For further information, pleasecontact your locally licensed Investment partner.

CONTACTS



Emmanuel avy

CommunicationTel. +33 (0)1 58 97 25 [email protected]

TEAM clients servicesTel. +33 (0)1 58 97 15 [email protected]

www.eamuns.m

Publishergilles gurin

EditorEmmanuel avy

This document is issued and has been preparedby THEAM*, a member of BNP Paribas InvestmentPartners (BNPP IP)**. This document is produced

for information purposes only and it may notbe reproduced, in whole or in part, in any wayand under any circumstances, without the priorwritten consent of THEAM.

This document discuss opinions and ideas anddoes not constitute:1. an offer to buy nor a solicitation to sell, nor

shall it form the basis of or be relied upon in

connection with any contract or commitmentwhatsoever;

2. any investment advice

Opinions included in this document constitutethe judgement of THEAM at the time speciedand may be subject to change without notice,they are not to be relied upon as authoritativeor taken in substitution for the exercise of

judgement by any recipient and are not intendedto provide the sole basis of evaluation of anystrategy or instrument discussed herein. THEAMis not obliged to update or alter the informationor opinions contained within this document. .

This document is of a general nature and hasnot been written with a focus on the particularneeds of any specic recipient.

Investors should consult their own legal andtax advisors in respect of legal, accounting,domicile and tax advice prior to investing in anyinvestment strategies or nancial instrumentsin order to make an independent determinationof the suitability and consequences of aninvestment in the investment strategies or

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