FundForward Middle East

ThePeople&IdeasShapingTheFutureofAssetManagement.
FirsTEvErEdiTionoFFundForwardForTHEMiddlEEasTFirsTEvErEdiTionoFFundForwardForTHEMiddlEEasT
Sébastien Hénin
Explores Why
Arab Oil Producers
Are Enjoying
A Pricing
Bonanza
Hasnain Malik
Reveals Exclusive
Research On The
Geopolitical
Outlook
For Different
Regional Markets
Saker Nusseibeh
Hopes To Find The
“Alpha
Advantage’
Through Passive Vs
Active Stock Selection &
Portfolio Management
Sébastien Hénin
Explores Why
Arab Oil Producers
Are Enjoying
A Pricing
Bonanza
Hasnain Malik
Reveals Exclusive
Research On The
Geopolitical
Outlook
For Different
Regional Markets
Saker Nusseibeh
Hopes To Find The
“Alpha
Advantage’
Through Passive Vs
Active Stock Selection &
Portfolio Management

Making a plan:
The MyFundForum networking platform and app
allows delegates to prioritise their week. View the
whole agenda and decide which high profile
sessions, smaller group discussions and
networking opportunities you need to attend
and, more importantly, who you need to meet.
Catching up on the news:
Being busy people, it is easy to get ‘out of the
loop’ on what is happening in the region and
reading the news online can only tell you so much.
It will be fascinating to talk with delegates and
speakers, as well as listening to what is said on the
stage and get a feel for what is really happening.
But news comes in all shapes and sizes these
days! It’s always interesting to get ‘sucked into’
the event’s twitter feed and see what people are
saying, thinking and enjoying at the conference.
Use the hashtag #FFME14 and tweet
@FundForum and let people know what
you are thinking.
Connecting
with the right
people:
MyFundForum
networking
platform and app
allows you to search
for the relevant people
you want to meet and
set up meetings with them.
It’s exciting to watch the industriousness of the
FundForum Middle East delegates: shaking
hands, exchanging business cards, engaging in
lively discussions with peers.
New this year:
Manager networking package: asset managers
have been signing up to have their own
networking table in the exhibition area, and
throughout the event we’ll expect to see
meetings taking place there and documents
being passed around. It is sure to be a real hub.
Meeting & networking:
There are two networking receptions this year,
taking place on Sunday and Monday - sure to
be a centre of activity. For every old friend
you bump into, try to connect with someone
completely new and make the most of the
diversity of the delegation.
Enjoying moments of calm:
Every so often everyone needs the chance to kick
back, relax and re-energise (by which read ‘drink
some coffee’) and it’s always at these moments
that you have the most interesting conversations:
meet acquaintances and new contacts and get
a chance to learn what they are doing.
What I’ll Be Doing At
fundforum
Middle East
FundForum Middle East 2014 What do you think? - #FFME14
1

We start by looking at topics for
the region.
Hasnain Malik of Exotix, provides
an extract from a recent report
on Frontier Markets. Malik
explains why investor sentiment
veers between euphoria and
despair when looking at many of
these markets. To read more, go
to page 5
Imco Brouwer of Gulf Research
Centre, looks at the challenges
facing the GCC states in terms
of labour markets and migration.
To read more, go to page 7
Our third piece examining
regional outlooks is Sébastien
Hénin’s ‘A bonanza for Arab oil
producers’. Hénin looks at the
reasons behind current high oil
prices and tracks the ensuing
increase in GCC government
budget expenditures. To read
more, go to page 8
Finally, Akber Khan, Al Rayan
Asset Management, provides an
interesting perspective on the
importance of Saudi Arabia.
To read more, go to page 9
Our first look at asset allocation
comes from Saker Nusseibeh
of Hermes Investment
Management. Nusseibeh looks
at the real value of active asset
allocation and stock selection as
sources of portfolio returns. To
read more, go to page 11
A second paper looking at the
theme of ‘Asset Allocation &
Cyclicality’ comes from Bernard
Caralp of Sedco Capital.
Caralp explores the well-known
theory of diversification across
a portfolio and in dealing with
market cyclicality (ignore it at
your peril!) To read more, go to
page 13
Our final two papers look at two
specific investment strategies.
Shawn Mato, Aviva Investors,
takes a look at multi-strategy
portfolios as a means of
combining short-term investment
ideas with shorter-term risk
management. To read more, go
to page 15
Last, but by no means least,
Michael Rimmer, Origin Asset
Management, argues the case
for bottom-up stock filtering as
a means of value investing and
a better alternative to macro
strategies and forecasting. To
read more, go to page 17
I hope that you will enjoy reading
these features, and take the
opportunity to challenge and
question the authors on their
views. I’ll be looking forward
to doing so myself- either with
a coffee during a networking
break, or during One-To-One
time, or even whilst the individual
is on the stage! Get your
questions ready!
I look forward to seeing you
in Dubai.
Ellie Bates - Director,
FundForum Middle East 2014
The Magazine For FundForum On The People And Ideas
Shaping The Future of Asset Management.
Welcome to FundForum Middle East’s first ever
edition of FundForward. Here you’ll find insights
to inspire you from some of this year’s speakers,
covering important regional geopolitical themes,
thoughts on asset allocation as well as investment
product innovation. Make the most of the
unparalleled access which FundForum Middle
East gives you: if something here grabs your
attention here, meet the writer in person!
M i d d l e E a s t 2 0 14
FundForum Middle East 2014Join @FundForum on Twitter a
2

futureevents
The 6th Annual FundForum USA
27-29October2014,
MandarinOrientalinBoston
The 7th Annual FundForum Latin America
1–3December2014,HotelSofitelSantaClara,
CartagenainColombia
The 9th Annual FundForum Asia
13–16April2015,
JWMarriottinHongKong
The 25th Annual FundForum International
June2015,
Venuetobeannounced
FundForum USA
Mandarin Oriental in Boston
FundForum Latin America
HotelSofitelSantaClara,CartagenainColumbia
What do you think? - #FFME14
Our regular feature to show you whats going on in the world of
up-comming Fundforum events and functions.
FundForum International
Venue to be announced for Europe
FundForum Asia
JW Marriott in Hong Kong

inside this issue
contents
5 – FROntieR MARKets - Hasnain Malik
7 – MiGRAtiOn & LABOuR MARKets - Imco Brouwer
8 – UNDERSTANDING OIL PRICES - Sébastien Hénin
9 – Importance of KSA - Akber Khan
11 – Finding the Alpha Advantage - Saker Nusseibeh
13 – Rising investment star - Bernard Caralp
15 – FRESH INVESTMENT APPROACHES - Shawn Mato
17 – SYSTEMIC INVESTMENT - Michael Rimmer
20 – rising rate environment - Fred Ingham
21 – FLOOR PLAN OF EVENT - The Asian Family and Private
24 – Fundforum TV
Special Thanks and Credits
FundForward Editorial Team:
Amos Rojter and Eleanor Bates
Sponsorship: Ian Law
Design Team : LockOn Productions:
lockonproductions.com
Artistic director: Chris Shields, LockOn Productions

Between euphoria
and despair.
Frontier and smaller Emerging
markets are often viewed as the
next BRICS type of long-term
investment opportunity. While
economic growth in the Frontier
is likely to be higher (coming
off a lower base), it is also
likely to be more fragile given
weaker political and economic
institutions. Although the
incidence of economic failed
states, where property rights
are violated, is rare, we find
Frontier investors veer between
euphoria over the trajectory
of growth and despair. This is
exacerbated by the ongoing,
rapid growth in the pool of
capital allocated to the Frontier
and a shortage of liquid,
accessible public equities.
Proprietary analytical
framework.
We seek to qualitatively
identify positive investment
opportunities where political
and economic risks are
improving (based on an analysis
of political factors such as
cohesion in the ‘deep-state’,
stability of the relationship with
key international geopolitical
sponsors and potential
structural macroeconomic
catalysts and shocks) and where
there is evidence of investor
despair (reflected in the de-
rating of the market valuation
multiple or in discounts to
previous index peaks).
Preferred markets.
Among the African, Middle
Eastern and South Asian
markets covered in this report
we like Oman and Sri Lanka
the most. We are also positive
on the risk outlook for Egypt,
Bangladesh, Morocco, Saudi
(international) and Dubai,
although valuation and price
performance suggest some of
this is priced in. While we have
concerns over the deteriorating
risk outlook in Nigeria, valuation
and performance arguably
already compensates. Among
the other larger markets, we
are more cautious than many
on Abu Dhabi, Kenya, Kuwait,
Qatar and Saudi (domestic).
The Middle East
The US détente with Iran
is re-ordering geopolitical
relationships across the region
and more interventionist foreign
policy by the GCC states. In
our view, beneficiaries of these
changes, in terms of improving
political and economic risk, are
Dubai, Egypt (see Africa section
below) and Oman. On the other
hand, we see deteriorating risk
profiles in Kuwait, Qatar and
Saudi. The GCC as a group has
outperformed and re-rated in
valuation multiple terms relative
to global Frontier and Emerging
market peers due to defensible
dollar pegs in an environment
of QE taper, high oil prices
and, in the case of Qatar and
Hasnain Malik,
Managing Director,
Head of Frontier Markets Strategy,
EXOTIX PARTNERS LLP
Hasnain Malik gives
a keynote address on
the morning of day 2
of the main conference,
23rd Septmber.
FRONTIER MARKETS
Country Contrarian
S t r ate g y
5

UAE, index upgrades, but
structural vulnerabilities persist
(rising fiscal breakeven oil price,
under-employment, public
sector dependency, duplication
in national development
strategies) and we call for a
more selective approach.
Dubai should continue to
benefit from ‘refugee capital’
and the ultimate softening of
Iranian sanctions. Real estate
is slowing down but a systemic
crash similar to 2008 looks
very unlikely. Dubai equities
have outperformed almost all
peers but there is more to go
for in the blue-chip plays on its
unrivalled regional hub status.
Oman should also benefit if Iran
sanctions are lifted, allowing
construction of the Iran-Oman-
India gas pipeline which should
alleviate shortages of gas
required for industrialisation and
re-establish Oman as a hub for
trading between Iran and India.
Oman is near its lowest trailing
price/book for 5 years.
Kuwait’s political paralysis
and associated project
spending delays are a theme
investors are familiar with. But
political risk appears to be
deteriorating as opposition
elements increasingly express
their discontent outside the
institutional ‘vent’ of Parliament.
Stocks with international
exposure have offered a hiding
place but their exposure to
Iraq deterioration hampers this.
Land banks in real estate stocks
at least offer stores of value for
abundant local liquidity.
Qatar equities are at their
most expensive for 5 years, in
trailing price/book terms, and
the MSCI index is the only one
in MENA to have surpassed
the peak seen prior to the
global financial crisis. Similar
to Abu Dhabi, Qatar offers
relative portfolio defensiveness
in a risk-off global context.
However, in a slowly improving
global growth outlook Qatar’s
higher-risk growth (now driven
more by domestic construction
than gas export capacity) and
the commercial risks resulting
from its interventionist foreign
policy (‘loss’ of potential gas
customers such as Egypt and
Pakistan) make it less appealing,
in our view.
We split Saudi into
‘International’, comprising Banks
and Chemicals, and “Domestic’,
mainly Consumers. A turn in
US interest rates and slowly
improving global growth favour
‘International’, whereas rising
labour costs, more mature
penetration, rising political risks
and upward valuation re-rating
makes us more cautious on
“Domestic”. If Cabinet approval
for direct foreign ownership
sets Saudi on a path to ultimate
MSCI EM inclusion, then
anticipation of related funds
inflow should help all stocks,
but note there is no shortage of
local liquidity and market trailing
price/book is already its highest
for 5 years.
Worsening Improving
Political and Economic Risk
Complacency
Out-performer
High Valuation
Despair Under
performer
Low Valuation
InvestorExpectations
Oman
Sri Lanka
Morocco
Jordan
Tunisia
Lebanon
Nigeria
Bahrain
Zimbabwe
Kuwait
Bangladesh
Pakistan
Saudi (i) Egypt
DubaiSaudi (d) Qatar
Kenya
Abu Dhabi
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6

All members of the Gulf
Cooperation Council
(GCC), albeit having different
sizes in terms of population
and resources, face similar
challenges. These include:
the continuous growth of
the foreign nationals vs.
nationals, both in absolute and
relative terms; the failure of
substituting foreign nationals
by nationals in the labour
market; the persisting low level
of productivity of both national
and foreign workers in most
occupations; and the structural
discrimination of (often highly
educated and skilled) women
from the labour market.
These challenges are obviously
related to others, such as:
the (perceived) challenges
to national identities and
societal models; the (need
for) search for alternative
models of development
which rely decreasingly on the
declining natural resources;
the continuous discrepancies
between declarations in favour
of GCC regional integration
and the lack of decision and
especially implementation
towards this goal; and the
incessant search to become
visible globally and achieve
more prominent international
political roles which increase
pressures for reform.
Obviously, there are many
explanations for the (persistence
/ growth) of these challenges.
It will not suffice to state that
most of the GCC countries
became independent forty
years ago, that the oil and gas
revenues increased massively
around the same time, and that
many developments escape
their control. Here we focus
on two issues that contribute
in explaining the persistence
of the above mentioned
challenges and that should
be addressed if the GCC
countries want to address them
effectively.
Firstly, the capacity to develop
and implement evidence-
based policies. Many ministries,
departments, and agencies
have been set up over the past
decades and produce data,
analyses and recommendations.
In the realm of population and
labour statistics, for example,
the capacity of the GCC states
has increased dramatically.
However, data collection
is still largely inconsistent
and uncoordinated and
harmonization and pooling
data is non-existent. Actually,
there is neither a culture nor
a practice of sharing data, not
only with the stakeholders
and the larger public, but also
among agencies. Research
capacity in the various agencies
has improved, but has still a
long way to go to incorporate
data, evaluate past policies
and formulate sound policy
recommendations.
Secondly, in the decision-
making procedures in the GCC
countries a few stakeholders
have an enormous weight
and most stakeholders
are excluded, while policy
recommendations prepared
by the various agencies are not
taken into account.
If both these issues are not
addressed vigorously and
convincingly, we will continue
to hear about, for example, the
need for and success of the
nationalization of the workforce
while in reality the reliance on
foreign workers increases and
the participation of nationals
in the labour market remains
stable in absolute terms and
diminishes in relative terms.
Challenges for the GCC States:
Labour Markets, Migration and Beyond
Imco Brouwer,
Executive Director,
Gulf Labour Markets & Migration Programme,
GULF RESEARCH CENTER
Imco Brouwer
particiaptes in one
of the strategy lab
sessions, during
the afternoon of
day 1 of the main
conference
MIGRATION & LABOUR MARKETS
7

Volatility of oil prices is
also another important
indicator to take into account
in any analyses. We are not
only well below the long term
volatility average but we have
even reached an historic
bottom. Since mid-2010, we
have entered in the longest
period of low price volatility
since the 90’s.
On the supply side the oil
market went through significant
changes. The geopolitical
situation in the MENA region
had some severe consequences
in terms of output for countries
such as Libya, Iran and Syria
which have lost almost 2
million barrels per day of
production during the last two
years. At the same time the
oil production in the USA has
increased by 2.5 million barrels
per day since the beginning
of the shale revolution and the
country will soon be back on
the international stage as an
exporter of refined products.
Meanwhile the demand is
growing consistently at a yearly
average of 1 million barrels per
day driven mainly by emerging
economies. The market is well
balanced and the visibility is
quite good despite intensifying
geopolitical issues in key
production areas.
In this favorable context, GCC
governments benefit from lifted
revenues and a great visibility
on it to increase significantly
their budget expenses. The
context has been particularly
serious for public budgets.
Following the Arab spring
powers in place have to deal
with a more demanding
population and an ongoing
demographic pressure. Indeed,
the region has the highest
growth population rate in the
world at 2% per year.
Budget expenditures have
increased at a double digit pace
since 2011 within the GCC. With
an average break-even level at
USD80 per barrel, governments
can however feel at ease when
implementing their decisions.
The first round of public
expenses was targeting salary
increases and social benefits in
a region where most nationals
are employed by the public
sector. The next round of
public spending which has just
started will target infrastructure
in sectors such as education,
healthcare, power and
transport. In an environment in
which governments have limited
leeway to postpone their capital
expenditures decisions, the
current oil price environment
represents a key support.
a bonanza
for Arab oil producers
Sébastien Hénin,
Head Asset Management,
THE NATIONAL INVESTOR
Oil prices are trading close to their highest levels. The average price for oil (Brent quality)
during the first half of 2014 reached USD108.8 per barrel, a level very close to yearly
average prices recorded since 2011. During this period oil prices have been consistently
trading above the average price of 2008, the year that oil prices reached a historic high.
Sébastien Hénin
will be contributing to
a panel discussion on
opportunities in MENA
during the Global Asset
Allocation Summit,
21st September.
UNDERSTANDING OIL PRICES
8

MSCI’s reclassification of UAE
and Qatar from Frontier to
Emerging Markets was akin to
these countries winning a prize
on the global stage. After much
excitement, extensive press
coverage and billions of dollars
of foreign inflows, the long-
awaited upgrades are behind
us. So what happens next?
Some impacts are already
visible while others will take
years to emerge. Quick wins
included the virtuous cycle
from a jump in liquidity,
squeezing bid-offer spreads
and attracting further volume.
The narrative in global financial
media will change. Dubai will
no longer just be a popular
destination for tourists and real
estate investors; Abu Dhabi’s
domestic spending plans will
enjoy greater external attention;
while Qatar will see articles
about more than just its own
investments abroad. Increased
capital inflows will expand
equity markets adding another
option to finance government
plans and associated private
sector expansion.
A recalibration of shareholders
will follow. Many international
investors have long invested
in the GCC and higher
correlation to global markets
is evident in the stocks they
favour. As foreign ownership
rises, UAE and Qatari equities
will also see indiscriminate
selling during times of global
‘de-risking’. However some
of these new investors have
considerably longer horizons
than existing shareholders
and companies will see
greater demands to improve
transparency and come up the
investor communication curve.
The importance of
Saudi Arabia
While attention has been on
UAE and Qatar, the real prize
in the GCC would be to add the
Kingdom of Saudi Arabia
(KSA) to the fold.
In early 2013, H.E. Mohammad
Al-Sheikh was named Chairman
of the Capital Markets
Authority (CMA). After a few
adjustments, such as moving
the work-week to the regionally
conventional Sunday-Thursday,
in July 2014 Al-Sheikh’s CMA
announced that the Saudi
equity market will open to
foreign investors in 2015.
Regulatory change is never
rushed in Saudi Arabia and
this is likely to be a measured
and gradual liberalisation.
Akber Khan,
Head Of Asset Management,
AL RAYAN ASSET MANAGAMENT
EXOTIX PARTNERS LLP
After years of anticipation, the UAE and Qatar have finally been reclassified from
Frontier to Emerging Markets by MSCI. While local exchanges and regulators have
done the heavy lifting so far, the onus will now be on listed companies to prove
themselves to a more international audience. However the region’s giant, Saudi Arabia,
remains in the shadows. If, or rather when, the Kingdom opens up to foreign investors,
the GCC will be firmly on the global investment map.
THE IMPORTANCE OF KSA
9

The Kingdom’s size
and potential are
compelling. The $750
billion economy should
continue to grow in the
mid-single digits and
accounts for almost
half of the GCC’s GDP.
KSA’s 28 million people
represent more than
60% of the region
and Saudis make up
75% of their country’s
population in stark
contrast to Qatar and
the UAE where just
one-in-nine are citizens.
While Qatar boasts the
greatest proportion of
millionaire households
of any country (at
16%) and Abu Dhabi’s
$100,000+ GDP/
capita makes it one of
the highest globally,
Saudi’s more modest
$26,000 reflects
a demographic
closer to an average
emerging economy.
The Kingdom is
home to the ultra-
wealthy but also a
very large middle
class, low income and
unemployed. This
brings to bear familiar
themes for global
investors such as
urbanisation
and industrialisation
which are limited
in the region.
The Saudi stock
market boasts superior
breadth and depth
versus regional peers.
164 listed companies
(92 in the UAE, 43 in
Qatar) with average
daily volumes ($2.2
billion+) more than
double the UAE and
Qatar combined.
The Kingdom offers
superior diversification
and is not dominated
by banks and real
estate companies.
There are numerous
petrochemical
producers benefitting
from some of the
cheapest feedstock
in the world as well as
dozens of consumer
and industrials which
are key beneficiaries of
enhanced government
spending.
MSCI Saudi Arabia’s
$490 billion market
capitalisation
compares to MSCI
South Africa at $430
billion (≈7.5% weight
in MSCI EM) and
$370 billion for MSCI
Mexico (≈5.0%).
Foreign ownership
limits would lower
Saudi’s weight, but the
GCC’s overall weight
in global indices would
become significant.
So while UAE and
Qatari equity markets
bask in their upgrade
to MSCI EM, the
true coming of age
for the region will be
if, or when, Saudi
joins them.
10

Academics and institutional
investors then took two
extraordinary leaps of faith.
The first was to dismiss stock
picking (except when they
were willing to pay hedge fund
managers two-and-20 fees).
The second was to assume they
were skilled at asset allocation
– and are therefore able to add
value by this means!
In turn, this spawned a whole
industry geared towards
creating value out of
asset allocation, with no more
proof that alpha exists
in asset allocation than in
stock selection!
After 2008, more and more
‘outcome-oriented’ strategies
have been created, promising
remarkable returns through
magical asset allocation
modality and built either
through new factor-based
investing, overlays or
sophisticated models using
such new tools as ‘volatility’.
New strategies to invest in,
such as direct loans, have also
emerged.
Saker Nusseibeh,
Cheif, Executive Officer,
HERMES INVESTMENT MANAGEMENT
& Chairman, THE 300 CLUB
The accepted wisdom in the institutional investment world is that strategic asset
allocation (SAA) dictates portfolio returns, and the accepted corollary is that specific stock
picking value-add is random. This was partly built on Gary Brinson’s work, in which he
observed that SAA determined more than 93.6% of the variability of portfolio returns1
. In
2000, Roger Ibbotson and Paul Kaplan concluded that it explained all returns2
.
f i n d i n g t h e
Alphaa d v a n t a g e
■ 1 Weightings rebalanced at the end of each calendar year. Underlying exposures managed against standard industry benchmarks, such as the MSCI All Countries World Index for global equities.
■ 2 Based on quarterly returns.
Multi-asset
portfolio1
Return 7.28% 4.48% 13.60%
30 June 1998
30 June 2013
30 June 1998
30 Sep 2008
Run up to Lehman
1 Oct 2008 to
30 Jun 2013
After Lehman
Standard
deviation
7.56% 7.27% 7.96%
GBP
(annualised)
UK CPI
Return 2.23% 1.78% 3.24%
Standard
deviation
0.31% 0.22% 0.26%
State Street
Global
Services WM
50 Universe2
Return 5.83% 4.77% 8.16%
Standard
deviation
10.80% 11.20% 9.83%
11

Still, there is no proof that any
of this actually works in the long
term because asset allocation
only adds value when directed
by skill (alpha). I would argue
that a careful study of the
facts reveals that alpha is rare
in both stock selection and
asset allocation.Moreover, the
rush towards sophisticated
new models is, in my view,
entirely without merit, in that it
complicates what is essentially a
simple proposition.
To prove this point, we at
Hermes created a multi-asset
paper portfolio and compared
its long-term returns against
those of the large pension funds
in the UK, constituting the State
Street Global Services WM50
Universe. From 1998-2013, it
outperformed them by an
annualised 1.35% in GBP terms
with a lower standard deviation
of 3.27%. It made a real return
of more than 5% annualised!
During the financial crisis, it
outperformed peers by 5.44%
and with less volatility, with real
returns of over 4% annualised!
What did the multi-asset
portfolio that beat the
competition and produce
such remarkable real return
‘outcome’ contain? 1980s-style
asset allocation:
■ Global equities: 40%
■ Global bonds: 35%
■ Corporate credit: 15%
■ Private equity: 10%
The main difference between
our model and all the
sophisticated models touted
by fund managers today is
that it held a static strategy
over 15 years, only rebalancing
once a year. It ignored market
movements and crises and
just held steady. This particular
strategy invested in indices
and was therefore remarkably
cheap, yet it beats all the
expensive computer-model-
driven, back-tested offerings of
outcome and access strategies.
Why? For the same reason that
people now use index funds
to access beta, and even smart
beta. Unless you know you have
skill in stock selection, buy beta.
Similarly, unless you know you
have skill in asset allocation,
adopt a long-term static
approach.
Rare skill boosts SAA
As I indicated at the start,
investment skill does exist.
The 2010 findings of Ibbotson
and colleagues show that
active management
contributes significantly to
portfolio returns3.
As with stock picking, it is
possible to exhibit skill in asset
allocation. However, I would
argue that skill is as rare in
asset allocation as it is in stock
selection – if not more so –
because the required depth of
knowledge and holistic view
cannot be acquired through
models or a short career span.
Where it can be found, it can
add value, as demonstrated
by my colleague, Alan Brown,
Schroders’ former CIO4, who
argues that a skilled asset
allocator can add value through
dynamic asset allocation.
Conclusion
The conclusion is therefore
simple. If you think you can find
skill or alpha as a stock picker,
construct portfolios with high
active shares. If you are unsure
of your skill, become a beta
jockey, and buy either beta or
smart beta exposure.
Likewise, if you think your
30-year investment career
and holistic understanding
of geopolitics, behavioural
finance and the financial system
makes you one of the very rare
people who exhibit alpha in
asset allocation, then apply it
either in a standard format, a
model, or dynamically. If you
are unsure, then decide on a
long-term static SAA, switch
your screens off and go to the
beach for the next 15 years.
Chances are you will achieve an
amazing ‘outcome’ of positive
real returns and beat more than
85% of other investors!
STATISIC
REFERENCES
■ “Determinants of Portfolio Performance,”
by Gary Brinson et al. Published July/August
1985 in the Financial Analysts Journal.
■ “Does Asset Allocation Policy Explain
40,90, or 100 Percent of Performance?”
by Roger Ibbotson and Paul Kaplan.
Published January/February 2000 in the
Financial Analysts Journal.
■ “The Equal Importance of Asset Allocation
and Active Management,” by Roger
Ibbotson et al. Published March/April 2010
in the Financial Analysts Journal.
■ “Dynamic Asset allocation and Fund
Governance,” by Alan Brown. Published
April 2013 by the 300 Club.Saker
Nusseibeh founded the 300 Club and is
a current participant.
12

Rather than putting together
a basket of individual
companies and relying on market
timing to get in and out at the
right time, research shows that
an investor is better off investing
broadly across many markets,
adhering to an asset mix that suits
his/her circumstances: a blend
of stocks, bonds and other asset
types – and geographic location
of these – that works best for his
/her personal circumstances (age,
liquidity requirements, risk profile,
etc.) Furthermore, it is worth
noting that few actively managed
portfolios are able to outperform
the market consistently.
Diversification reduces
risk without compromising
performance. This reduces the
impact of individual holding and
enables investors to scientifically
employ the risk factors that
offer higher expected returns.
Keeping one’s eggs in more
than one basket is the age-
old means of reducing risk.
Investing across various asset
classes – stocks, bonds, real
estate, cash, and subsets of
each across different investment
styles– allows one to benefit
(and avoid or minimize losses) at
any stage of the market cycle.
And, here is the word: Cycle!
It is essential to keep in mind
that just about everything in our
world proves to be cyclical. The
basic reason for this cyclicality
is the involvement of human
instincts being in our decision
making process. Mechanics
can go straight forever but
processes which involve people
provide variable and cyclical
results mainly due to their
emotionality and inconsistency.
When people feel good about
the way things are going, their
behavior is strongly impacted.
They spend more and save less.
They borrow to increase their
enjoyment, even though doing
so makes their financial position
more precarious.
They act as if things will do well
for ever and investments that
are outperforming will continue
to do so.
Bernard Caralp,
CIO- Head Asset Management,
SEDCO CAPITAL
RISING INVESTMENT STAR
Whether in academia or the real world, asset allocation had
been proven to be the primary and unquestioned driver of portfolio
performance ahead stock picking or market timing.
&Cyclicality
Asset Allocation
13

But as Heraclitus
once said “Change
is the only constant”.
All these things are
quickly reversible
supporting the fact not
only that extremes of
cycles are largely due
to people’s emotions
and weaknesses but
also that cycles are
self-correcting and
their reversal is not
necessarily dependent
on exogenous events.
Cycles reverse (rather
than going on forever)
because trends create
the reasons for their
own reversal. In fact,
success carries within
itself the seeds of
failure, and failure the
seeds of success.
Ignoring cycles and
extrapolating trends
is one of the most
dangerous things an
investor can do. But
cycles will never stop
occurring. Economies
will wax and wane
as consumers
spend more or
less, responding
emotionally to
economic factors or
exogenous events,
whether geopolitical
or naturally occurring.
Companies will
anticipate a rosy
future during an up
cycle and thus over-
expand facilities and
inventories; these will
become burdensome
when the economy
turns down. Investors
will overvalue
companies when they
are doing well and
undervalue them w
hen things get difficult.
And yet, every decade
or so, people decide
cyclicality is over.
This belief exemplifies
a way of thinking
based on the
dangerous premise
that “this time it’s
different”. These four
words should trigger
fear and suggest asset
allocation “cyclical”
rebalancing for any
investor/manager
who understands the
past and knows that it
repeats itself.
To support such
reallocations, the
credit cycle deserves
a special mention
as a factor driving
the fluctuations of
the economic cycle.
It takes only a small
fluctuation in the
economy to produce
a large fluctuation in
the availability of credit
with great impact on
asset prices and back
on the economy itself.
At the extreme, it is
easy to notice that the
worst loans are made
at the best of times
and vice versa. Does
this remind you of
something?
Bernard Caralp
speaks during a panel
on the second day of
the main conference,
23rd September.

Traditional investment
strategies employed by
long-term investors, biased
to equities and bonds, have
often struggled to provide
the investment performance
schemes want in recent years.
As the US Federal Reserve (Fed)
contemplates the timing of
the next rate rise and the euro
zone skirts a period of deflation,
the prospects for improved
performance from traditional
approaches look limited.
Time for a fresh
approach
We believe an outcome-focused
strategy could meet the needs
of many long-term investors
to generate sufficient returns
to remove any funding deficit
while reducing the volatility of
funding levels.
More complex investment
strategies must be employed
to combine suitable types
of investment to provide the
performance investors typically
expect. What is needed is a
strategy that provides value
during a negative environment
while not costing too much
during a normal environment.
In our view portfolios need to
become much more diverse
than in the past to achieve their
desired risk and return aims. In
particular reducing portfolio
volatility levels can be done
Shawn Mato,
Fund Manager, Global Convertible Bonds
AVIVA INVESTORS
FRESH INVESTMENT APPROACHES
Multi-strategy portfolios combining diverse long-term investment ideas with shorter-term
risk management could deliver many investors’ risk and return objectives, says Shawn
Mato, a convertibles fund manager at Aviva Investors.
Simplicity out of
complexity
ShawnMato‘s
colleague,DanielJames,
givesasolotalkduringthe
morningofthefirstdayof
themainconference,
22ndSeptember.
15

more effectively
by combining
investments in
traditional asset
classes such as
equities, bonds
and property with
financial instruments.
This allows a wide
range of investment
views to be taken in
portfolios, possibly
including views on
interest rates, inflation
and volatility.
Multi-strategy
investing
More than anything,
we believe that in
taking a long-term
approach to meeting
client needs, it is
crucial to focus on
portfolio construction
and build portfolios
that combine long-
term investment ideas
with shorter-term risk
management.
We launched the
Aviva Investors Multi-
Strategy Target Return
Fund in July 2014.
The fund targets
average annual
returns of 5 per cent
above the European
Central Bank rate over
a rolling three-year
period with less than
half the volatility levels
of equities.
We believe
constructing a flexible,
robust portfolio
is as important as
coming up with good
investment ideas.
And, by drawing ideas
from our capabilities
around the business,
which may include
equities, fixed
income, convertibles,
currencies and
interest rates we can
create truly diverse
portfolios.
Risk considerations
are at the heart
of portfolio
construction when
selecting strategies.
By blending
each strategy in
the appropriate
proportions we
can generate lower
portfolio risk than
the sum of the risks
of each strategy
irrespective of
market conditions.
We manage each
strategy to remain
within set tolerance
levels so portfolio
risk is consistently
diversified.
“In our view
portfolios need
to become much
more diverse
than in the past
to achieve their
desired risk and
return aims.”
16

Origin Asset Management is
proud to be different. It’s
slogan is ‘evidence, not opinion’,
meaning its five-strong team of
investment professionals does
not rely on macro and market
forecasting, nor on external
stock analysis to guide their
unconstrained, high conviction
global, emerging market and
small cap strategies.
‘We are different. We do not
do macro and we do not
forecast. Making forecasts at
the economic or company
level tends to over-inflate your
sense of confidence; it is a
real behavioural issue,’ asserts
Michael Rimmer, partner at
Origin Asset Management.
He also sees little value in
buying in research from the
investment community. Too
much research input from
multiple sources can lead to
“management by committee”
which dilutes conviction and
return potential. Instead, Origin
relies on hard evidence that
individual stocks have good
growth prospects.
Stock filtering is a bottom-up
process that relies on four
key factors: management
performance; reasonable
valuation; share price trends;
and earnings revisions.
‘A company has to be well-
managed. The management
need to know what they are
doing. Value investors look for
companies in distress, but they
then have to predict how and
when a turnaround will happen,’
says Rimmer.
Linked to this is growth. Most
investors tend to concentrate
on growing earnings per share.
Predictably, the Origin team
Michael Rimmer,
Partner,
ORIGIN ASSET MANAGEMENT
Forecasting is a mug’s game. Real evidence a company is
growing is best for stock pickers, says Michael Rimmer,
partner at Origin Asset Management.
SYSTEMIC INVESTMENT
EvidenceBEATSopinion
17

takes a different tack.
They also look for asset growth,
a strong signal that companies
are making money and
reinvesting to
create further value. The
approach currently provides
a bias towards technology,
healthcare and selected
industrials across Origin’s five
investment strategies.
Yet such consistent growth
stocks also tend to be highly
prized, a trait reflected by often
high valuations. As Rimmer
points out, he wants to avoid
buying yesterday’s winners
without being the last into
any stock. Stocks must be
undervalued - but not for all
the wrong reasons.
‘We look at the earnings and
operating environment and
whether they are getting
better. It provides a nearer term
indication a company is doing
well,’ he says. Whilst Origin does
not rely on external forecasters,
it does set each potential stock
in context.
Rimmer says the market is
generally efficient. If the first
three criteria are met and the
market agrees - as measured
by relative technical strength -
then a stock may make it into
a portfolio. ‘We do not go to
company meetings either. But
we still retain a personal touch
through our long experience
and relentless focus on the
things we care about. Our
approach reduces the number
of false positives and weeds out
the noise,’ says Rimmer.
‘It is a systemic approach, not
pure quant. The machine is
never in charge. Empirical
evidence shows the four
characteristics deliver over time,
but we try to be modest. In our
process, we never pretend we
know more than we actually do,’
he adds.
Origin portfolios do not hug
the benchmark, and each has
a high tracking error. The team
also has a wider margin at
broad country or regional level
to select the stocks they think
best fit their criteria. Position
size and liquidity are important,
yet stock specific risk is reduced
by maintaining a diversified
portfolio at all times.
‘The process is decidedly
‘risk-on’,’ says Rimmer. Its mid-
cap bias will lead to lagging
performance when markets
seek shelter in big, high
dividend stocks. But it generally
turns round quickly when more
normal conditions return, as in
2013, which was a strong one for
the firm, further enhancing its
long term track record.
Even in a downturn, we can
outperform. Our focus on high
return, low leverage and non-
cyclical stocks equals quality
- and the market always comes
back to rewarding strong
corporate fundamentals,’
says Rimmer.
“A company has to be
well-managed.
The management need
to know what they
are doing.”
Michael Rimmer
speaks during a panel
looking at Emerging
Markets on the Global
Asset Allocation
Summit Day,
21st September.

The potential for hedge funds to
help mitigate downside and even
benefit from rising rates can make
them an attractive complement to
traditional allocations for all types
of investors, particularly in the
current environment.
For many, hedge fund investments
are helping to fill the void left by
declining fixed income allocations.
Since 2002, hedge funds have
posted strong performance during
periods of rising rates, due in part
to their ability to short, hold cash,
allocate among different asset
classes and move across different
sub-strategies.
A rising rate environment creates
attractive opportunities for specific
types of managers, including
fundamental equity long/short, credit
arbitrage and event-driven managers.
On May 2, 2013, the 10-year Treasury yield reached its year-to-
date low of 1.63%, before going on rise to 3.04% by year end. This
led to a meaningful outflow from investment grade fixed income
and conventional income generating strategies in mid to late 2013.
Although bonds have surprised on the upside in 2014, with the
10-year Treasury retracing to 2.45% at the time of writing, longer-
term investors have heeded the warning signs and continue to seek
alternatives to low bond yields and interest rate risk.
Fred Ingham,
Head of International Hedge Fund Investments,
Neuberger Berman Alternative Investment Management
Hedge Funds offer alternative to bonds in a
rising rate
environment
What do you think? - #FFME14

Fertile ground for
Long/Short picks
Higher interest rates generally
mean that hedge funds
receive higher rebates on
their short positions. This
environment also indirectly
exposes the disparity among
companies with varying
financing structures, margins
and business models, leading
to higher dispersion among
stocks. Consequently,
fundamental hedge fund
managers find these to be
fertile stock-picking conditions,
with the ability to generate
returns on both the long and
short sides of the portfolio
by identifying the best and
worst stocks.
Benefiting from
Credit arbitrage
opportunities
These managers also find
interesting relative value
opportunities during a rising
rate environment. For example,
a fund could invest in floating
rate bank loans and hedge
their credit exposure with
duration-sensitive fixed rate
corporate bonds. This position
has a net negative duration and
benefits directly as rates rise.
Additionally, rising interest rates
are associated with rising costs
for corporates with floating rate
debt financing. Identifying the
companies that will struggle to
refinance this expensive cost of
capital, as a short investment,
or those that can refinance this
debt as a long investment, also
leads to fundamental credit
selection decisions.
Risk premiums will
rise for merger stories
Merger arbitrage strategies,
where investors seek to profit
from trading in merger targets,
have returns comprised of the
risk-free rate and a spread (or
risk premium) above this rate.
The risk premium, among
other things, compensates an
investor for risks associated
with regulatory approvals, the
ability to secure deal financing,
shareholder approvals and
any uncertainties related to
delays in the timing of a deal
closing. As interest rates rise,
this risk premium typically
increases as well, perhaps most
obviously because the cost
of financing and the ability to
secure financing increases.
Additionally, the risk-free rate
itself is rising, which means the
combination of the risk-free
rate and the risk premium is
higher on an absolute basis in
periods of rising rates.
CTA and Global
Macro strategies are
less well set
Trend following strategies
(also known as “CTA”
strategies) have historically
typically maintained a long
position in government bonds,
and so offered protection in
a risk-off market. However,
more recently, low interest
rates have made it difficult
to trade with a long bond
bias. If interest rates continue
to rise, CTAs may begin to
short government bonds,
increasing their correlation to
risky assets. This could make
them less effective as portfolio
diversifiers over the medium
term. Similarly, we expect that
some global macro funds could
experience related issues in the
current environment and have
historically demonstrated less
diversification potential in rising
rate environments as well,
although they have fared better
than CTA strategies.
Timing
is difficult
Hedge funds have the potential
to protect capital and often
benefit from rising rates, which
can make them an attractive
complement to traditional
allocations for a variety of
investors. Although the exact
timing and future extent
of rising interest rates are
uncertain and dependent on
a number of factors, investors
may consider an allocation
to hedge funds versus more
traditional asset classes sooner
rather than later, particularly
given the run up in risk assets
over periods.
By diversifying across hedge
fund strategies and building
a conservatively positioned
portfolio with a robust short
book and modest gross
and net exposures, many
investors are targeting absolute
returns and a low beta to the
broader markets during these
challenging times.
20

FLOOR PLAN OF EVENT
The Mena investment
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2 Cyprus Investment Promotion Agency
3 Dubai International Financial Centre
4 Swissquote Bank
5 Swissquote Bank
6 Aviva Investors Global Services
7 Eze Software
8 The National Investor
9 Decypha
10 FactSet (UAE) LLC
11 MSCI
12 EPFR
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