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Nicosia , Conference June 4th 2014

Nicosia , Conference June 4th 2014. Lessons from existing Life-Cycle offerings. Target-Date «Life-Cycle » Funds. Definition.

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Nicosia , Conference June 4th 2014

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  1. Nicosia , Conference June 4th 2014

  2. Lessons from existing Life-Cycle offerings

  3. Target-Date «Life-Cycle» Funds Definition • Target date funds, which are also called lifecycle funds, are designed to offer a convenient way to invest for a person expecting to retire around a particular date. A target date fund pursues a long-term investment strategy, using a mix of asset classes (or asset allocation) that the fund provider adjusts to become more conservative over time. Research shows that asset allocation is one of the most important factors in long-term portfolio performance. • Diversification across asset classes • Avoiding extreme asset allocations • Automatic rebalancing • Automatic adjustment for changing risk profile • Source: www.ici.org Features

  4. Target-Date «Life-Cycle» Funds US MARKET • The target-date fund industry continues to have some of the most consistent cash flows among all open-end mutual funds For the past five years, net flows into these funds have averaged about USD 48 billion per year • In 2013 target-date funds took in nearly USD 51 billion in net new assets, bringing the industry’s total net assets up to USD 621 billion • Target date strategies is expected to capture 63.4% of 401(k) contributions in 2018 Source: Ibbotson; Global analytics firm Cerulli Associates

  5. Target-Date «Life-Cycle» Funds …and in Europe? • European Life-Cycle funds are structurally different to US funds and take a far more aggressive approach. • Some experiences: Austria: first introduced lifecycle investing in 2004 as a “target risk fund”. Now almost all schemes to secure retirement for employees (Pensionskasse) offer a lifecycle option Netherland: lifecycle funds have grown to such an extent that in 2007, the Pension Act required all defined contribution schemed to have a lifecycle default. Sweden: in 1998, the government passed pension reforms increasing the use of lifecycle funds. Although lifecycle represent only a small segment of the market, their role has endured for over a decade

  6. With previous offers, risk of sacrificing protection or performance • Target date offers with 100% max NAV formal protection • Risk of sacrificing upside potential in low interest rate environments • Opportunity cost for investment occurring in high rate context • Target date offers de-risking over time (“glide-path”) but no formal protection • Risk of protection being insufficient for some investors • Need to develop a new type of offering, combining protection and upside potential Source: BNPP IP, for illustrative purposes only

  7. Need for a solution adaptative to various interest rate regime Swap rates Interest rates: currently low… and unpredictable over a long term savings horizon ? • Our starting point to develop BNP Paribas Plan Easy Future Source: BNPP IP

  8. Innovation 1 • Protection mechanism Easy Future: ouranswer, based on two innovations • Protection and upside potential reconciled • Adaptation to market changes • An offer built to remain relevant in the future • Potential good news to come Aiming to reconciliate • - Value formally protected at maturity • Protection adaptative to: • Interest rate • Time remaining to maturity • Innovation 2 • Management of the risky assets • Reasonable sized cushion • High diversification • Risk-controlled leverage • A breakthrough approach documented in a white paper

  9. Easy Future for the investor in a nutshell Range of 8 open-ended target dated sub-funds ranging from 2018 to 2043, allowing to invest at one’s own pace and respect one’s own horizon, well-adapted to progressive savings Aiming to offer a good balance between: • capital growth potential: • a well-calibrated portion of funds invested in performance engines • an adaptative Formal Protection: • a formally protected value at maturity for each fund which can only increase over time & A Cushion Portfolio Insurance range of funds with relevant value proposal whatever time left to maturity & interest rates, hence well-adapted to progressive savings

  10. An adaptative protection mechanism • A formally protected Value at maturity, which can only increase over time • Common to all the investors of a given sub-fund • Formal protection given by the BNP Paribas Group • A daily calculation to determine the protection • Daily calculation of new potential value at maturity: • New value at maturity only taken into account if above previous one Protected Value at maturity = Current NAV x Current Protection Ratio The best of 2 1. Linked to time remaining to maturity 2. Linked to interest rate conditions Introducing a new approach: PIWAP = Portfolio Insurance With Adaptative Protection

  11. 2nd protection: highlighting the limits of traditional approaches Traditional guaranteed funds = pre-determined protection ratios Here 100% of investor’s capital guaranteed in 25 years Put asideassetsensuring protection Deduct size of cushioninvestable in riskyassets 1 2 Case 1: low interest rates (1.5%) Case 2: high interest rates (5%) ? ? Cushioninvestable in riskyassets 25 years 62 €* 100 € 25 years Cushioninvestable in riskyassets 100 € 11 €* 89 € Assetsensuring protection Assetsensuring protection 38 € NAV=100€ Protected NAV at maturity = 100€ NAV=100€ Protected NAV at maturity=100€  Protection excessively ambitious, upside potential sacrificed  Protection sacrificed, excessive risk taking Risk taking (protection/return couple) depends on rates and residual maturity Source: BNPP IP; for illustrative purpose only ; Management fees assumption: 1% - * Level of the cushion if a new protection is given

  12. 2nd protection: paradigm change by linking it to interest rates Our proposition = adapt protection to interest rate conditions Invest a reasonably-sizedcushion in riskyassets Deduct the relevant protection giveninterest rates 1 2 Case 1: low interest rates (1.5%) Case 2: high interest rates (5%) ? 200 ? 25 years Cushioninvestable in riskyassets Cushioninvestable in riskyassets 25 85 25 25 years 75 75 Assetsensuring protection Assetsensuring protection NAV=100€ Protected NAV at maturity = 200€ NAV=100€ Protected NAV at maturity=85€ Protection and upside potential combined ; value proposition aiming at being relevant whatever interest rates Source: BNPP IP; for illustrative purpose only ; Management fees assumption: 1% - * Level of the cushion if a new protection is given

  13. Historical illustration of the protection ratios Protection ratios significantly above 100% for longer-dated funds in high interest rate contexts Source: BNPP IP & Bloomberg, au 01/10/13

  14. Protection at maturity ensured by low risk fixed income assets • A synthetic fixed income portfolio specific to each BNP Paribas Easy Future fund with a maturity matching the fund’s maturity • A zero coupon behavior • A synthetic exposure replication to a BNP Paribas collateralized bond • BNP Paribas ratings (4 April 2014): A+ (S&P), A1 (Moody’s), A+ (Fitch) • Maturity of the synthetic BNP Paribas bond matching the fund’s maturity • Funding level reflecting BNP Paribas rating and BNP Paribas UCI funding vehicles • An active duration management to optimize rebalancing between the Low risk fixed income portfolio and the cushion invested in risky asset Cushion invested in risky asset Low risk Fixed income Fixed income assets following strict guidelines

  15. Risky asset portfolio specifically designed for CPPI structure Cushion invested in Risky asset • Designed and managed to be used in CPPI structures with a controlled downside risk to minimize monetization: • Global diversification aiming at reducing downside risk • Leverage to boost returns but a flexible leverage aiming at reducing drawdown risk • A model portfolio based on risk budgeting approach to ensure diversification over time • 80 % of the risk budget allocated to directional exposure on traditional asset classes • 20% of the risk budget allocated to a largely diversified portfolio of absolute return strategies • An active management that can deviate from the model portfolio to benefit from market opportunities or protect from market threats • risk budget allocated to directional exposure can vary from 50% and 100% • risk budget allocated to absolute return leeway can vary from 0% and 50% Low risk Fixed income Combination aiming at being well-prepared to face different market conditions Source: BNPP IP; for illustrative purpose only

  16. Backtested benefit of the directional risky asset construction Diversification benefit: sharpe ratio improved: similar long termreturnswithlowervolatility 1 Flexible leveragebenefit: increasing the sharpe ratio and minimizingdrawdowns 3 Leveragebenefit: increasingrisk and, hence, return potential 2 Significant value brought by each of the three layers Source: THEAM as of 30/09/13

  17. Fund behavior: risky assets flat ; interest rates up Example • Example on BNPP Plan Easy Future 2038 : risky assets flat ; interest rates up Source: BNPP IP as of 16/09/13 for illustrative purpose only Starting point: Protected Value at maturity = Current Protection Ratio x current NAV = 110.4% x 100.0€ = 110.4€ 24.6€ 24.6% in line with 20% to 25% objective 75.4€ 75.4% Protected Value = 110.4€ Current NAV = 100.0€ Risky assets flat, interest rates up +1%*: 29.6% > 20% to 25% objective 25.0% back in line with 20% to 25% objective 24.6€ Protected Value at maturity = Current Protection Ratio x current NAV = 141.5% x 83.2€ = 117.7€ > 110.4€  Protected Value at maturity increased 20.8€ Rebalancing** 62.4€ 58.5€ Rebalancing into low risk Fixed income with higher rates 70.4% needed for protection 75.0% Current NAV = 83.2€ Protected Value = 117.7€  Current NAV down * From 2.67% to 3.67% ** From risky assets to fixed income instruments

  18. An extensive Marketing kit

  19. All the material gathered on a dedicated website http://easyfuture.bnpparibas-ip.lu/ Video Retail flyer, Q&A and protected values Simulator Redirection towardssubfund pages Source: BNPP IP - For illustrative purpose only

  20. Conclusion

  21. BNPP Plan Easy Future: main features & benefits Benefits for end client Benefits for distributor 8 target date funds, dated 2018 to 2043 Comprehensive range, completed over time to remain consistent Simple choice of relevant fund Upside potential thanks to well-calibrated risky asset exposure Room for capital to grow, evenwheninterest rates are low Cash lockriskminimized, sustainablefees Capital formally protected at maturity Visibilityat all times regarding minimum capital atmaturity, whichcanonlyincrease over time Differentiation vs. « glidepath » offerings A paradigm change vs. existingprotectedtarget date ones Adaptative to market environment Adaptation to progressive investment; Higher protection ratios for investmentsoccuringwithhigher rates Contact opportunitieswith client: on NAV and/or protected value A win-win value proposition, designed for the long term

  22. Disclaimer This material is issued and has been prepared by BNP Paribas Asset Management S.A.S. (BNPP AM)* 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. *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 64,931,168 euros with its registered office at 1, boulevard Haussmann 75009 Paris, France, RCS Paris 319 378 832. www.bnpparibas-am.com.] ** “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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