Seminar on Professional Development 26 December 2012

1. Pakistan Society of Actuaries Seminar on Professional Development 26 December 2012

2. Introduction • Asad Raza Bhojani (abhojani@ublfunds.com) • Qualification • Fellow of the Institute and Faculty of Actuaries, UK • Education • BSc in Actuarial Science from the London School of Economics • Work Experience • Senior Manager – UBL Fund Managers (2009 – Present) • Manager Asset Allocation – Legal & General Investment Management, UK (2006-2008) • Investment Consultant – Towers Watson, UK (2000 – 2006)

3. Agenda • The Investment Process • Question and Answers

4. The investment process Specifying objectives Investment Process Determining asset allocation Monitoring portfolio Implementing asset allocation

5. Specifying objectives Investment Process Specifying objectives

6. Investment Process Sample investment objectives for corporates/individuals • The main investment objective of the client is to generate income and growth • Willingness to take some risk to generate income and growth • To preserve the real (ie inflation adjusted) purchasing power of assets • Diversify the portfolio to provide potential for long-term growth and reduce potential for large losses • Achieve an annual return target of x%

7. Investment Process Sample investment objectives for employee funds • The acquisition of suitable assets of appropriate liquidity to meet the cost of current and future benefits which the employee fund undertakes to provide • To limit the risk of assets failing to meet the liabilities • To control the long-term cost of maintaining the employee fund • To maximise benefits for employee fund members • Achieve an annual return target of x% • Maintain y% of net assets in bank accounts to meet liquidity requirements

8. Investment Process How much risk should be taken by corporates / individuals? Time horizonScope to take The period of investmentlongermore risk Liquidity requirement Available cash and other liquid assets largermore risk to meet expected and unexpected cash outflows Investment restrictions The number of restrictions on thefewermore risk investment portfolio Size The size of the investment portfoliolargermore risk

9. Investment Process How much risk should be taken by employee funds? Scope to take Covenant The sponsor covenant to meet future funding stronger more risk Maturity The term of liabilities and period of future funding longer more risk Surplus The current funding level: current assets minus larger more risk liabilities Size The size of the investment portfolio larger more risk Liquidity Available cash and other liquid assets larger more risk to meet expected and unexpected cash outflows

10. Specifying the objectives Investment Process Determining asset allocation Monitoring the Portfolio Implementation of asset allocation Specifying the objectives • Outline investment objectives • Identify financial goals and expectations • Risk tolerance • Time Horizon • Special investment preferences Incorporated in an Investment Policy Statement

11. Investment Process Determining asset allocation Determining the asset allocation

12. Specifying objectives Investment Process Determining asset allocation Monitoring Portfolio Implementing asset allocation Determining asset allocation • Biggest decision with the most impact on return and risk • Develop an asset allocation / investment strategy • Based on the defined objectives

13. Investment Process Equities High risk Corporate bonds Government securities Low risk Available asset classes • Fixed Income • Government backed securities (Treasury bills and PIB) • Corporate bonds (TFC) • Money market instruments • Mutual funds • Shariah compliant investments • Equities • Domestic • Mutual funds with exposure to international equities • Shariah compliant investments

14. Investment Process Risk / Return Trade - off Range of returns Variability of returns Increasing equity allocation The higher the equity content in your portfolio, the more variable the returns

15. Investment Process Implementation of asset allocation Implementation of asset allocation

16. Investment Process Implementation of asset allocation • Implementation of asset allocation / investment strategy • Extensive research process • Economies • Asset classes eg equities and/or fixed income • Sectors • Securities • Presentation of recommendations to the Investment Committee • Investment Committee generally comprises of the most senior and experienced investment professionals • A house-view is agreed on by the Investment Committee • Execution of the house-view in the most efficient way

17. Investment Process Portfolio construction

18. Investment Process Monitoring portfolio Monitoring the portfolio

19. Investment Process Monitoring the investment strategy • Regular monitoring of the investment strategy is important to ensure that it continues to meet the investment objectives • Circumstances change frequently and it is important that the investors can react to these changes as appropriate. For example, changes to • financial markets (the risk and reward characteristics of various asset classes) • the Client’s risk and reward beliefs • the Company’s future payments schedule • The Client should consider the particular circumstances which would trigger a review of investment strategy and put in place a regular monitoring framework

20. Specifying the objectives Investment Process Determining asset allocation Monitoring the Portfolio Implementation of asset allocation Monitoring the portfolio: Reporting • Fund Managers’ report • Market review • Market outlook • Strategy • Performance • Holdings report • Asset Allocation • Holdings • Valuation • Transactions / Activity • Review meetings with client

21. Thank you and questions ?