An overview of innovative dynamic asset allocation solutions: from academia to the investment world

1. A new approach to asset
allocation
Certified by

2. Active Asset Allocation
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Notre Vision
Our Vision
Active Asset Allocation puts in pratice a responsible approach to preserve the financial
ressources managed for the long term, such as pensions of future generations
By applying the state-of-the-art of the academic research to the investment world, Active Asset
Allocation brings financial engineering to the service of institutional investors. The rare
combination of academic expertise and investment experience allows Active Asset Allocation to
help investors define and understand better their risks in order to manage them in a sustainable
way
Active Asset Allocation designs asset allocation solutions that help investors and asset managers
to honor their commitments, either by optimising ALM for the former or by controlling the
inherent risk of the assets for the latter
Active Asset Allocation philosophy relies on portfolio insurance techniques that aim to better
preserve capital and maximize performances within the constraints decided by each investor
Conciliate security and performance comes with a perfect control of risk
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3. Active Asset Allocation
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Our Métier
NotreActivity
Promote innovation within the asset allocation world thanks to our academic research and its
application to the investment world
Help the investor define the set of risks and thresholds that should not be exceeded
Add value by creating a customised solution for the investor by adapting the asset allocation to
his constraints and not to return forecasts
Help asset managers design diversified funds (including target-date funds) capable of respecting
risk parameters and preserving the invested capital
Study and find in a stochastic environment (stress tests with at least 1000 scenarios) an optimal
asset allocation between a protective « core » and more risky « satellites » capturing the
performance. The allocation will be based only on the risk limits that we have established with
investors and that takes into account their particular needs and constraints, including
regulation. Our decisions do not depend on mathematical forecasts of gains and losses
Consider risk management as a new leverage of structural performance for asset management
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4. Active Asset Allocation
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Our Activity
Dynamic
Allocation
Client Input
We identify your
constraints and the
asset classes you
would like to invest
in
We design a
customised model
and test it in a
stochastic
environment
Customization
of solutions and
stress test
Monthly we
propose a
rebalancing of your
asset allocation
Protection in
case of a sudden
and unexpected
event
We monitor daily
your portfolio and
the level of risk
We advise you on the asset allocation,
you keep the control of your investments
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We upgrade on an
on-going basis our
models thanks to
our internal
research
Research and
Innovation

5. Active Asset Allocation
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Our Expertise
Notre Expertise
Active Asset Allocation offers to private banks, asset managers and institutional investors its
expertise in dynamic asset allocation, including in a ALM environment (presence of liabilities):
approach based on risk management only
a real alternative to diversification or tactical allocation, which did not produce the expected
results these last years, especially when it comes to risk management and capital
preservation
a real alternative in ALM compared to fixed allocation strategies or de-risking strategies, the
objective of which is to reduce exposure to risky assets when a threshold is reached in
terms of capital
Active Asset Allocation use state-of-the-art asset allocation models and a proprietary
approach developed through research in finance, combined with extensive investment
experience
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6. Active Asset Allocation
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Publications relative to our les bases de
Quelques publications décrivant approach
notre approche
“In defense of Pro-cyclicality”, IPE Investment Pensions Europe, Avril 2012, Adina Grigoriu
“Risk Control through Dynamic Core-Satellite Portfolios of ETFs: Applications to Absolute
Return Funds and Tactical Asset Allocation”, The Journal of Alternative Investments, Fall 2010,
pp. 47 – 57, Noel Amenc, Felix Goltz, Adina Grigoriu
“The EDHEC European ETF Survey 2010” – An EDHEC-Risk Institute Publication, May 2010,
Felix Goltz, Adina Grigoriu, Lin Tang
“Risk Control through Dynamic Core-Satellite Portfolios of ETFs: Applications to Absolute
Return Funds and Tactical Asset Allocation” – An EDHEC-Risk Institute Publication, January
2010, Noel Amenc, Felix Goltz, Adina Grigoriu
“Constructing Absolute Return Funds with ETFs – A Dynamic Risk Budgeting Approach”,
Institutional Investor Journal, Fall 2008, Vol. 2008, No. 1: pp. 37 – 46, Noel Amenc, Felix Goltz,
Adina Grigoriu
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7. Active Asset Allocation
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Memberships and Labels
Active Asset Allocation has developed a partnership with the Centre for Complexity
and Interdisciplinary Studies in Finance (CCISF), a research centre from the University
of Nice­Sophia Antipolis, promoting new and cutting edge interdisciplinary research on
financial markets seen as complex systems. The research centre is supported by the
CNRS ( French National Research Centre for Science) and the INRIA ( French National
Research Institute in Computer Science)
The ANRT (French National Agency in Research and Technology) is sponsoring the
thesis of one of our research engineers with the collaboration of Active Asset Allocation
and the University of Nice­Sophia Antipolis
Active Asset Allocation received the seal of approval of «Finance Innovation», a centre
from Paris EUROPLACE, encouraging young firms to develop innovative techniques in
finance and is incubated by Paris Incubateurs Finance
Active Asset Allocation is member of the French Institute of Actuaries
Active Asset Allocation is member of the ACIFTE ( Association of Financial Advisers and
Analysts authorised by the AMF, the French regulator)
Active Asset Allocation has received the innovation award by the Entreprendre network
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8. Active Asset Allocation
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Management Team
Adina Grigoriu
Olivier Hiezely
Founding Partner - CEO
Founding Partner - Chairman
Adina has an actuarial degree, is a member of
the French Institute of Actuaries and has 15
years experience in different finance fields,
including quantitative modelling.
Olivier has completed a MBA with EDHEC in
2008.
He is an engineer with more than 20 years of
professional experience in the field on
organisation and information systems.
An asset allocation specialist, she started her
career as a derivatives trader. She then joined
BNP Paribas Asset Management where she held
several positions ranging from product manager
to fund manager and head of ALM. She joined a
spinoff of the EDHEC-Risk Institute in 2007 to
develop the Dynamic Core Satellite approach
and its application to institutional portfolios.
During her career, Adina has advised numerous
asset managers and institutional clients on
designing and managing multi-asset portfolios,
including hedge funds.
He has worked for 18 years at L’OREAL and
developed an excellent understanding of the
challenges and the strategies involved in a
multinational company.
8
He has extensive experience in both people
and projects management. Olivier has a strong
personality focused on results. During his
career, he developed a culture of excellence
and performance, along with good
interpersonal skills.

9. Active Asset Allocation
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Structure et Organisation
AACIF
KPMG
Apple MCS
FUI
9
Cabinet Simon

10. Active Asset Allocation
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Our Values
For those who trust us and those who will
ilit
sib
on
sp Trust
y
In
An nov
tic ati
ipa on
tio
n
Re
Sustainability
Security
rely on academic research and put into practice the state-of-the-art of
academia, design solutions to respond to specific client needs
portfolio insurance, long term guarantee, preservation of assets ( ex:
pensions)
protect value, avoid excess of risk (in a downward or upward trend)
Exigence
Equilibre
Respect
Intégrité
hS
t
Diversity
Excellence
Excellence
ec
Hig
sp
ta
n
Maîtrise
adaptation to the environment and permanent reconsideration...with
enthusiasm
Re
da
rd
s
The Team
cultures, men - women, variety of backgrounds and horizons
software know-hows, mathematical calculus and modelling are internal
expertises
individual reliability to serve the team, personal stability
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11. Active Asset Allocation
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Some of our valuable clients and partners
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12. Active Asset Allocation
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Quelques conférences/séminaires dans lesquels nous
Conferences
avons présenté l’approche de gestion des risques
October 2013, IPE 360, Noordwijk, Netherlands
dynamique : exte
June 2013, Factset Symposium, Monaco
June 2013, Infinity Conference 2013, Aix en Provence
April 2013, Assurfinance 2013, Paris
February 2013, Matinale Affo ( French Association of family offices), Paris
January 2013, Matinale EIFR, Paris
October 2012, APG «Academic Advisory Board» seminar, Amsterdam
October 2012, IPE 360, Windsor
June 2012, IPE 360, Paris
May 2012, Pitmans Trustees, London
April 2011, Opal Financial Group, Investment Consultants Forum Europe, De-Risking Solutions : Liability Driven
Investments, London
December 2010, Collège Interdisciplinaire de la Finance, seminar Quantitative Behavioral Finance, Nice
October 2010, Generali Investments, Pan-European Institutional Clients Conference, Istanbul
May 2009, EDHEC-RISK, Edhec Institutional Days, Paris
December 2008, EDHEC-RISK, Edhec Alternative Investment Days, London
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13. Active Asset Allocation
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Our Customised Solutions for the
Institutional Investors and the Asset
Management Community
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14. Active Asset Allocation
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Why ? (1)
Active Asset Allocation has developed a set of quantitative tools able to simulate asset
behaviors in a stochastic environment allowing to design dynamic asset allocation solutions
based on risk management
We use asset classes defined by the investor and the constraints he has to respect ( allocation
min/max, risk limits, ...) as a working base
Our studies allow to define for instances :
the optimal mix between asset classes
the strategic benchmark
the fees structure
if the objectives are achievable, and if necessary the possible adjustments to make so that
the objectives can be met
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Why? (1I)
The technology can be applied to different issues :
for an asset manager : design of a balanced fund, design of a diversified bond fund
( sovereign, corporate, EM, high yields, ...), design of an equity fund with draw-down
constraints
for a foundation : preservation of endowments
for a pension fund : inclusion of liabilities and management of the asset/ liability balance
for target-date funds: the optimisation of the allocation depending on other parameters
than the horizon in order to preserve part of the capital
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16. Active Asset Allocation
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Our Solution to Manage the Assets:
Dynamic Asset and Risk Management
( DARM)
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17. 8.0%
Active Asset Allocation
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7.5%
7.0%
Solutions
Implementations
6.5%
Limits of the diversification strategy
6.0%
5.5%
The last 10 years have shown the limits of this approach :
5.0%
10 years ago, an investor who wanted 4.5%
a performance of 7% would have chosen an
3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0%
allocation 60% equities, 40% bonds
Efficient frontier built on hypotheses at the end of 2001
Efficient frontier calculated with 2001-2011 risks an returns
8.5%
9.5%
8.0%
Expected annualized returns
19.0%
7.5%
7.5%
5.5%
7.0%
3.5%
6.5%
1.5%
6.0%
-0.5%
5.5%
-2.5%
5.0%
4.5%
3.0%
5.0%
7.0%
9.0%
11.0% 13.0% 15.0% 17.0% 19.0%
-4.5%
1.5%
Annualized volatility
9.5%
7.5%
5.5%
3.5%
6.5%
11.5%
16.5%
21.5%
Annualized volatility
The results of a diversified allocation depend on the hypotheses of returns, volatilities and
correlations: they are often wrong!
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Limits of the tactical allocation
The tactical allocation aims to improve the performances of the diversified allocation under
tracking error budget
The allocation is regularly readjusted depending on views on the futur returns of assets (asset
manager convictions or forecasts of a quantitative model)
In any case, this implies relying on bets
Performances are very volatile, from a fund manager to another and from a year to another
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DARM Principles
Our DARM (Dynamic Asset and Risk Management) solution is inspired from portfolio insurance
techniques :
Division of the portfolio into two components : a component with low or less risk to protect
the capital, and a component with more risk, which allows to capture the performance
We aim to protect a certain level of capital that we materialise with a Floor
But we have added important improvements :
possibility to invest simultaneously in all the asset classes the investor wants to include in the
portfolio ( and not only in one risk-free asset and one risky asset)
Less risk of being fully invested into money market instruments (often the drawback of a CPPI)
Variable multiplier taking into account market risk changes
Management of several protection levels (floors)...
Our solution can dynamically control the negative returns of a portfolio in order to limit losses
without limiting the performance
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DARM solution: asset control
Characteristics of the DARM solution:
relies on risk management rules only
does not require return forecasts and does not
rely on past risk/return
increase exposure to risky asset (Satellite) when it
over performs Core & vice versa
Portfolio
Cushion
generates accumulation of over performance =
creation of cushion, i.e. greater exposure to
Satellite
DARM Innovations :
Customised
Model
Inclusion of
several
assets
Levels and
types of
floors
adapted
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New source of
performance

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Stochastic universe
Return distribution for DARM vs. Diversification
DARM
1125
750
375
0
-0,5 1
2,5
4
5,5
7
8,5 10 11,5 13 14,5
10-year annualized returns
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Number of simulated scenarios
Diversification
1500

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Positioning of our DARM solution
Traditional approach:
diversification
Traditional approach:
tactical allocation
Traditional approach:
portfolio insurance
Risk Parity Approach
Our approach:
Dynamic allocation
Objective
asset return
asset return
risk management
risk management
risk management
Risk Measurement
volatility
volatility
capital loss
volatility, DD,VaR
capital loss
Asset Allocation
Fixed allocation
dynamic allocation given
performance forecasts
Fixed allocation defined by
the insurance portfolio
approach
Dynamic allocation so as to
have the same risk exposure
within each asset class
Dynamic allocation between
the core and the satellite
depending on the margin of
error
Benchmark
cap weighted market indices
cap weighted market indices
-
-
-
Performance
Measurement
overperformance compared
to market indices
absolute performance
absolute performance
absolute performance
absolute performance
Risk Management
symmetric tracking error
compared to benchmark
symmetric tracking error
compared to benchmark
-
-
asymmetric tracking error
Cushion management
-
-
once the cushion is
consumed, there are no
more options to perform
-
the cushion is rebuilt by
construction if consumed
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Our solution for Target-Date Funds:
DARM Horizon
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Philosophy of Horizon Strategy
We adapted DARM (Dynamic Asset and Risk Management), our solution that allows investors
to maximize their performance while taking into account their risk constraints, to the
requirements of retirement savings. In an environment where bonds offer returns that are no
longer attractive, the DARM Horizon is a response to growing demand for savings
products exposed to risky assets, but with an efficient risk control. It offers an
alternative to current models of de-risking, which principle is hazardous when the risk-free
asset is no longer risk-free.
This solution relies on the utilization of several risk-controlled portfolios (DARMs), with
different levels of risk. The capital is distributed among these portfolios by a desensitization
that is no longer time-linked, but designed to progressively lock-in gains.
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Our strategy back-tested over a 15-year period
DARM
Horizon
Performance of the strategy compared to the industry’s standard products in France
300
7,8%
250
Annualized Returns
200
Maximum Loss -10,8%
Industry
De-risking
150
100
Annualized Returns
50
0
4,6%
Maximum Loss -17,8%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
DARM horizon historical allocation to each asset class
100 %
75 %
50 %
25 %
0 %
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Equities
Bonds
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Cash

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Our solution for Investors with Liabilities:
Dynamic Asset Liability Management
(DALM)
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The need of a new Asset Liability Management
On one hand, 2008 credit tsunami and market conditions ever since
On the other hand, the lack of appropriate goals for pension funds:
peers benchmarking instead of analysis of particular needs
target absolute return instead of liabilities as a benchmark
too much reliance on hypothesis and long term static allocation
short term margin for error not taken into account
... have completely changed the pensions landscape
Consequence: pension funds have witnessed a worsening in their funding ratios and are now
concerned about being able to produce investment returns that are high enough to deliver their
promises to members without jeopardising the financial health of the sponsor company in the
process
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Traditional strategies in Asset/Liabilities Management
Most common approaches currently used:
Traditional LDI : takes the financial risks away by hedging the liabilities, BUT the funding gap
is then only filled by contributions AND 100% funded situation might not be good enough
given all the other risks that lay with the liabilities ( mortality, life expectancy, inflation, ...)
Long term fixed allocation based on risk and return expectations needs accurate forecasts
over the investment horizon and is not compatible with short-term constraints; when
proven wrong, they require higher and higher returns and can lead to virtually infinite
contributions
Traditional De-risking : systematical switching from «growth» assets to «matching» assets
when funding level improves on a «flight» plan to fully funded can be as bad as fixed
allocation and can also lead to virtually infinite contributions
Our solution is more comprehensive than traditional de-risking: the
dynamic allocation is ongoing
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DALM principles
Our Dynamic Asset and Liability Management solution is an extension of our DARM solution to the
presence of liabilities
Again, the portfolio is divided into two components :
The Liability Hedging Portfolio (LHP), correlated to the liabilities
The Performance Seeking Portfolio (PSP), invested in riskier assets, structured following the DARM
approach
Risk management is done through protecting a chosen level of funding ratio. The protection level can go
up when the funding ratio improves
The investment in the PSP depends not only on risk-aversion & market conditions, but also on the
margin for error (i.e. how far is the actual funding ratio from the funding ratio we are trying to protect)
De & Re Risking:
Short term and Medium/Long term De-Risking
Short term Re-Risking
Short term decisions are predefined and do not involve market forecasts
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Design methodology of Dynamic ALM
Asset Classes
Interest rate curve
Liabilities
Generation of
stochastic
scenarios
Creation of
building blocks
Best stochastic match for
the Liability Hedging
Portfolio
Combine assets by pairs and
find the best parameters to
construct the PSP
Liabilities
analysis
Statistical
analysis
Analysis of the distribution of the
funding ratio, necessary
contributions, surplus, expected
return, volatility, max drawdown, etc...
Finding of
optimal
parameters
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Design of the DALM solution
that best fits the pension fund
liabilities stream and particular
constraints, to ensure risk is
properly managed no matter the
scenario

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Strengths of our DALM solution
Daily monitoring to ensure risk limits are not breached
Monthly rebalancing to ensure asset allocation is optimal given the funding status of the
pension fund and its long term goal
Exceptional rebalancing if half of the risk budget has been used intra-month
De & Re Risking features:
Short and medium/long term De-Risking: in the short term, the allocation to the risky
asset goes down as the funding ratio approaches the protection floor; in the medium/long
term, protection floor moves upward as scheme funding level rises, helping to reduce
probability that market gains and/or contributions are «squandered» by falling markets
Short term Re-Risking: when the funding ratio moves away from the protection floor, the
allocation to the risky asset goes up
Short-term decisions are based on formula and do not involve market predictions
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Positioning of our DALM solution
Traditional approach: focus on
assets
De-Risking strategy depending
on a glide path
Our solution: funding ratio
management, focus on
liabilities and their correlation
with the assets
Objective
asset return
wealth level
funding ratio management
Risk Measurement
asset volatility
asset volatility and funding
ratio level
funding ratio volatility (assets vs
liabilities)
Asset Allocation
long term fixed asset allocation
fixed allocation (ALM study) adjusted
with de-risking as funding level
thresholds are reached
dynamic allocation between the
core portfolio and the
performance driven portfolio
depending on the level of the
funding ratio
Benchmark
cap weighted market indices
cap weighted market indices
liabilities
Performance Measurement
over-performance compared to the
benchmark
over-performance compared to the
benchmark
liabilities + x%
Portfolio Monitoring
quarterly, update of the asset allocation
every one to three years
on-going
monitoring of the funding ratio, but derisking depending on the glide path
on-going
monitoring of the funding ratio to derisk and re-risk
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What you should remember from our solutions
The Dynamic Asset and Risk Management (DARM) solution allows to take into account
investors issues (capital preservation, regulation, ...) by redefining risk while respecting their
constraints (going beyond volatility,VAR, ...)
The DARM approach, inspired from portfolio insurance techniques, is an asset allocation
strategy which offers an interesting alternative to the fixed allocation based on past data and to
the tactical allocation based on forecasts
Its extension to ALM (Dynamic Asset Liability Management) allows to manage the funding ratio
volatility and to minimise needed contributions
our experience with US pension funds shows a 30% (up to 50%) reduction in contributions
over 10 years compared to other widespread approaches (traditional LDI, fixed allocation,
de-risking)
our results with French foundations and pension funds are much better than the results
achieved by other asset allocation strategies
Its extension to Target-Date Funds (DARM Horizon) allows to offer an alternative to current
models of de-risking, which principle is hazardous when the risk-free asset is no longer riskfree.
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Examples of past missions and ongoing work
Design of a dynamic risk management approach for a bond fund investing in international
credit instruments and for a diversified fund
Creation and implementation of a dynamic risk management solution for a fund of ISR funds
(DARM)
Analysis of the strategic asset allocation of a Dutch pension fund
Creation of a dynamic risk management approach (DARM Horizon) for a DC pension scheme
with different risk profiles
Creation and implementation of a dynamic ALM (DALM) for the US pension fund of a FTSE
100 company
Creation and implementation of a dynamic risk management approach for two French
foundations
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35. Active Asset Allocation
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Solutions
Implementations
Notredifference
Our Différence
We qualify risk management parameters by adapting them to the strategy of each single investor
and in accordance with regulation
We determine the risk budget that will be used precisely to protect capital and capture
performance. We communicate to the investment comittee an action plan for unexpected situations
We determine ex-ante the signals (for instances the alert thresholds or the opportunity levels) that
allow to take relevant and efficient asset allocation decisions between a «core» and «satellites»
We capture, register and calculate the very numerous data needed for the simulations and studies
that will indicate the best asset allocation options after a qualitative analysis of the results. Our
strong investment experience is a major advantage while interprating the results of our models
We design and implement complex models in accordance with the state-of-the-art of asset
allocation techniques. Such models are created in the best possible conditions of reliability, solidity
and efficiency. They are improved constantly thanks to our internal research, which provides clients
with continuous progress
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36. Active Asset Allocation
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Solutions
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Key figures
420 Million Euros advised and monitored daily
35% of ressources affected to research,
development and innovation
www.aaaic.com
contact@active-asset-allocation.com

37. contact@active-asset-allocation.com
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