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Guaranteed Accumulation and Decumulation Solutions. May 2010. Lifecycle Investing A new market environment. Trend towards private provisioning clearly visible: Growth of DC plans and personal pension products Unitised Life offering as replacement for traditional life policies

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lifecycle investing a new market environment
Lifecycle Investing A new market environment

Trend towards private provisioning clearly visible:

  • Growth of DC plans and personal pension products
  • Unitised Life offering as replacement for traditional life policies
  • Increased regulatory focus on fiduciary duties of advisors and distributors
  • Growth of Guaranteed products post crisis.
  • Strong momentum in supply of Target Date ‘Lifecycle’ products globally
lifecycle investing
Lifecycle Investing

Current Attractiveness

  • At the end of 2009 pension assets for the 13 largest markets were estimated at USD 23,290 bn*
  • Globally huge increases will occur in the AUM for pensions creating opportunity for Lifecycle Funds (7.5% Europe, Asia 17.2%, 19.5% CEE CAGR until 2015 with a significant shift from DB to DC (second pillar of retirement assets).
  • Pension provision act of 2006 in the US made Target Date Funds/Lifecycle one of three possible Qualified Default Investment Alternatives (QDIA’s) creating huge interest in this market, now spreading worldwide.
  • There is an established trend towards the provision of Defined Contribution pensions
  • Personal saving for retirement via insurance schemes is increasing (third pillar of retirement assets).

Source: * Towers Watson, 2010 Global Pension Asset Survey

slide4

4

Lifecycle InvestingEuropean Market

Pension investment assets + Life Insurance assets

Source: Allianz GI Pensions Research

lifecycle investing5
Different Lifecycle solutions for different investors, depending on the individual investor’s investment knowledge, time commitment, etc.

“Guarantee your Lifestyle”

“Select your Lifestyle”

Guaranteed

Target Date

“Manage your Lifestyle”

Level of security and ease of use

Target Date

Target Risk

Required time commitment and investment knowledge

Lifecycle Investing

Catering for different investor needs

Source: BNPP-IP.

lifecycle investing6

High risk investments

Risk not related to liabilities

  • Specialties
  • Single stocks

Speculation

  • Individual Mutual Funds
  • Notes

Wealth Creation

Low risk investments

Risk related to liabilities

Liability Matching

  • Lifecycle Investing
Lifecycle Investing

Where does Lifecycle fit

Forms the base of individuals portfolios matching future financial liabilities

lifecycle investing structural attractiveness of lifecycle
Lifecycle InvestingStructural Attractiveness of Lifecycle
  • All-in-one package
    • Target date investing allows the investors to choose a date closest to the financial liability
  • The trend towards private provisioning is creating an attractive environment for new investment solutions
    • Structural growth, driven by the increasing need for investors to plan for their own financial future large shift from Defined Benefit (DB) to Defined Contribution (DC).
  • Increased awareness of the post retirement market
    • Decumulation solutions which offer participation in the equity market due to the increase in life expectancies are gaining momentum
market opportunity a new market environment
Market OpportunityA new market environment
  • Demographics:
    • Concentration of wealth in 55+ segment
    • Supplemental income required to continue current lifestyle
  • Market:
    • Low yields significantly reduce attractiveness of traditional income products
    • Increased focus on transparency and costs
slide9

Accumulation

Decumulation

Working life

Near retirement

Old age

Initial wealth

Accumulated wealth

Retirement income

Market OpportunityShift from Accumulation to Decumulation

As baby boomers approach retirement, rather than further building up wealth, investors will increasingly be looking to drawdown from their accumulated wealth

guaranteed accumulation solutions
Guaranteed Accumulation Solutions

Highest Daily NAV Guarantee

At maturity the investor receives the highest unit value ever attained during the life of the fund

EUR 75

Guaranteed value (at maturity)

Unit value

EUR 75

EUR 70

Guaranteed Value:

EUR 75

EUR 65

EUR 67

EUR 60

EUR 59

EUR 55

Guaranteed Value:

EUR 50

EUR 50

Initial Purchase

Maturity Date

Source: BNPP-IP. For illustrative purposes only. Not drawn to scale The Management Company reserves the right not to increase the Guaranteed Value at a Recalculation Moment if a Fund’s assets consist solely of fixed income securities such as money market instruments or time deposits.

guaranteed accumulation solutions11
Guaranteed Accumulation Solutions

Comparison of lifecycle products

Source: BNPP-IP.

guaranteed decumulation solutions payout structure
Guaranteed Decumulation Solutions Payout structure
  • Guaranteed coupon determined by length of income period (100/N=X%)
  • Option to include growth factor of guaranteed coupons upfront
  • Further increase of guaranteed coupon via lock-in of investment performance
  • After N years no investments left (no longevity coverage)

Coupons

Year 4

Year 1

Year 2

Year 3

Year 7

Year N-1

Year N

(Maturity date)

Return component

Safe component

Guaranteed coupon

Optional growth factor

Investment linked growth factor

Investment

Investment date

Payout

For illustrative purposes only. Not drawn to scale

guaranteed decumulation solutions a flexible solution
Guaranteed Decumulation Solutions A flexible solution
  • Product can be tailored in various ways:
    • Length of decumulation phase
    • Upfront growth factor
    • Or... full customisation of coupon profile
    • Composition of Return Component
    • Type of lock-in mechanism (including possibility of discretionary lock-in)
  • Product can be wrapped in various ways:
    • As an open ended fund
    • As a segregated mandate, dedicated to a distribution client
    • Client can add features, i.e. insurance riders (longevity, mortality)
combining accumulation and decumulation
Combining Accumulation and Decumulation
  • Instead of immediate income, provides deferred income:
    • Spans across accumulation and decumulation phase
    • Returns in accumulation phase increase guaranteed coupons in decumulation phase
  • Benefits for investors:
    • More upside to guaranteed coupon
    • On average, longer equity exposure
    • Less interest rate risk due to gradual ‘annuitisation’
  • Benefits for distributors:
    • Target broader segment (imminent retirees)
    • Combining accumulation and decumulation reduces redemption risk at retirement
    • Further innovation and product differentiation
combining accumulation and decumulation deferred guaranteed income solutions
Combining Accumulation and DecumulationDeferred Guaranteed Income Solutions

Guaranteed coupons determined as follows:

  • Up front guaranteed coupon determined at start of accumulation phase
  • Increase in guaranteed coupon as result of performance in accumulation phase
  • Further increase in guaranteed coupon as result of performance in decumulation phase

.....

For illustrative purposes only. Not drawn to scale

guaranteed lifecycle solutions

Guaranteed Lifecycle Solutions

Guaranteed Lifecycle Solutions

They offer

Return

Security

  • Global equity exposure
  • Leveraged investments
  • Cash buffer to top up equity
  • Full protection at maturity
  • Lock-in of investment gains
  • Automatic risk reduction
  • Range of Target Dates
  • No penalties for withdrawals
  • Invest any amount at any time

Flexibility

Source: BNPP-IP.

disclaimer
Disclaimer

This material is issued and has been prepared by BNP Paribas Asset Management (“BNPP AM”) * and has been approved for publication in the UK by BNP Paribas Asset Management U.K. Ltd (“BNPP AM UK”)**, a member of BNP Paribas Investment Partners (BNPP IP)***.

This material is produced for information purposes only and does not constitute:

  • 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 commitment whatsoever or
  • any investment advice.

This material makes reference to certain financial instruments (the “Financial Instrument(s)”) authorised and regulated in its/their jurisdiction(s) of incorporation.

No action has been taken which would permit the public offering of the Financial Instrument(s) in any other jurisdiction, except as indicated in the most recent prospectus, offering document or any other information material, as applicable, of the relevant Financial Instrument(s) where such action would be required, in particular, in the United States, to US persons (as such term is defined in Regulation S of the United States Securities Act of 1933). Prior to any subscription in a country in which such Financial Instrument(s) is/are registered, investors should verify any legal constraints or restrictions there may be in connection with the subscription, purchase, possession or sale of the Financial Instrument(s).

Investors considering subscribing for the Financial Instrument(s) should read carefully the most recent prospectus, offering document or other information material and consult the Financial Instrument(s)’ most recent financial reports. The prospectus, offering document or other information of the Financial Instrument(s) are available from your local BNPP IP correspondents, if any, or from the entities marketing the Financial Instrument(s).

Opinions included in this material constitute the judgment of BNPP AM at the time specified and may be subject to change without notice. BNPP AM is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the Financial Instrument(s) in order to make an independent determination of the suitability and consequences of an investmenttherein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for a client or prospective client’s investment portfolio.

Given the economic and market risks, there can be no assurance that the Financial Instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the Financial Instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to the Financial Instruments may have a significant effect on the results portrayed in this material. Past performance is not a guide to future performance and the value of the investments in Financial Instrument(s) may go down as well as up. Investors may not get back the amount they originally invested.

The performance data, as applicable, reflected in this material, do not take into account the commissions, costs incurred on the issue and redemption and taxes.

This document is directed only at person(s) who have professional experience in matters relating to investments (“relevant persons”). Any investment or investment activity to which this document relates is available only to and will be engaged in only with Professional Clients as defined in the rules of the Financial Services Authority. Any person who is not a relevant person should not act or rely on this document or any of its contents.

*BNPP AM is an investment manager registered with the “Autorité des marchés financiers” in France under number 96-02, a simplified joint stock company with a capital of 62,845,552 euros with its registered office at 1, boulevard Haussmann 75009 Paris, France, RCS Paris 319 378 832. www.bnpparibas-am.com

**BNPP AM UK is an investment manager authorised and regulated by the Financial Services Authority, with its registered office at 10 Harewood Avenue, London, NW1 6AA (Company No. 02474627).

*** “BNP Paribas Investment Partners” is the global brand name of the BNP Paribas group’s asset management services. The individual asset management entities within BNP Paribas Investment Partners if specified herein, are specified for information only and do not necessarily carry on business in your jurisdiction. For further information, please contact your locally licensed Investment Partner.

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