invesco perpetual global targeted returns fund investment … · 2014-09-09 · invesco perpetual...

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Title

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Invesco Perpetual Global Targeted Returns Fund Investment process

David Millar This presentation is for Professional Clients

only and is not for consumer use. Head of Multi Asset

Citywire New Model Adviser September 2014

Invesco Perpetual Global Targeted Returns Fund Investment proposition

1

126 ideas as at 31 August 2014. 2MSCI World. *Please note there is no guarantee this gross performance target or volatility target will be achieved.

Portfolio: Typically 20-30 individual investment ideas across asset classes1

Target return: 3-month Sterling LIBOR plus 5% on a rolling, three-year annualised basis*

Target volatility: Less than half global equity2 volatility over a rolling, three-year period*

For illustrative purposes only.

Fund risk

Total independent risk

Div

ers

ific

ation b

enefit

Investing in ideas

Invesco Perpetual Global Targeted Returns Fund Investment philosophy

“We believe we can achieve positive total returns over all market environments over a rolling 3-year period through an unconstrained approach to sourcing return ideas and through robust risk management”

David Millar, Head of Multi Asset

2

Unconstrained approach:

2-3 year investment horizon

High conviction macro investment ideas

Across asset types and geographies

Robust risk management:

Risk-based analysis

True diversification

Transparency and liquidity

Source: Invesco Perpetual.

Invesco Perpetual Multi Asset capability Core investment team with broad multi discipline support

3

Source: Invesco Perpetual as at 30 June 2014.

A team of macro specialists solely focused on the Invesco Perpetual Global Targeted Returns Fund

David Millar, FIA – Head of Multi Asset, Fund Manager 25 years of investment experience Background as an actuary and fixed interest fund manager

Dave Jubb, FIA – Fund Manager, Multi Asset 32 years of investment experience Background as an actuary and investment strategist

Richard Batty, PhD – Fund Manager, Multi Asset 19 years of investment experience Background in economics and investment strategy

Gwilym Satchell, PRM – Risk Manager, Multi Asset 6 years of multi-asset investment experience

Qualified risk manager

Georgina Taylor – Product Director, Multi Asset 13 years of investment experience Background in sell-side equity

Danielle Singer – Sr Client Portfolio Manager, Multi Asset 12 years of investment experience Background in multi asset portfolio strategy

Saul Shaul – Fund Analyst, Multi Asset 8 years of investment experience Background in front office IT

Steve Hawes – Trainee Analyst, Multi Asset 4 years of investment experience Background in investment performance, client services

Front office

Invesco Ltd.’s Chief Economist

Henley investment teams

Other Invesco teams

CIO oversight and operations

Dealing

Global team (incl. multi asset specialist, Simon Ferguson)

Operations

Invesco Global Operating Platform

Marketing Support

Multi asset product managers, Damian May & Michelle Shwarzman

Governance

Independent risk function

Global performance measurement and Risk

Compliance

Internal audit

On-the-ground presence in 20 countries, serving clients in more than 150 countries

Investing in ideas Our three step process

4


Approving ideas

Thematic

T

Economic

E

Analytic

A

Managers

M

Combining ideas

Risk Scenarios Structure Liquidity

Implementing ideas

Order Comply Execute Review 4 Review and Oversight

1 Research

2 Fund management

3 Implementation

Approving ideas

Approving ideas: a repeatable process A TEAM approach

6


Multi Asset team

Invesco Chief Economist

CIO challenge process

External research calls

Proprietary research databases

In

pu

ts

Henley and IVZ fund managers

Research

no

te

Must generate a positive return in our central economic thesis

Initial sizing and implementation route

Assigned a 1, 2 or 3 star rating

Justification for the idea in words

Economic and corporate drivers

Industry standard and proprietary valuation metrics

The views of Invesco asset class specialists

Monthly IDEAS and Macro meeting

Monthly economic update

Quarterly oversight meeting

Monthly Investment meeting and calls

Weekly research calls

Weekly and monthly research updates

1 Research

Thematic

T

Economic

E

Analytic

A

Managers

M

Approving ideas

Approving ideas Sourcing individual research ideas

7

Idea: US bond duration

We believe that the 30-year US bond will provide return as the yield curve flattens on any bond sell-off and gives protection from any risk market sell-off which will be reflected in US 10-year bond yields rising.

Idea: US dollar vs the euro

The long-term growth outlook favours the US over Europe. The euro looks expensive and therefore is our chosen implementation route for this economic view.

Idea: UK vs Swiss equities

Cyclical stocks in the UK are good value relative to the expensive defensive stocks in Switzerland. The Swiss Franc is also strong which will be a drag on profitability for exporters in Switzerland.

Idea: Global corporate sector

We believe the global corporate sector is in good shape. We have chosen to access the corporate sector via equities rather than corporate bonds, on valuation grounds, and implement the view through two IP equity funds.

Source: Invesco Perpetual as at 31 July 2014. For illustrative purposes only.

1 Research

Equities Government Bonds

Corporate Bonds

Real Estate Collective Investment Schemes

Volatility Instruments

Inflation Products

Currencies Commodities

Each idea includes a suggested implementation route from across asset types and instruments

Approving ideas US dollar versus the euro

8

For illustrative purposes only. Source: Bloomberg, as at 25 August 2014.

The long-term growth outlook favours the US over Europe; the euro is expensive

European banks are still deleveraging, deflation is a real risk and ultimately the ECB will need to take aggressive action to weaken the currency. Flow drivers (US investors buying European assets, FX reserve diversification) are also slowing

Fair value is around 1.25. Current level is 1.31

IP fixed income managers believe in a US economic recovery starting to take hold. Members of our European equity team agree that the euro needs to weaken.

1 Research

Thematic

T

Economic

E

Analytic

A

Managers

M

1.26

1.31

1.36

1.41

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

US d

ollars

per

Euro

US dollars per 1 Euro

Approving ideas UK equities versus Swiss equities

9

Source: Datastream as at 31 July 2014. For illustrative purposes only.

Favour UK relative to Swiss equities because they are cheaper and should benefit from a gradual global/emerging market pick up

The Swiss Franc is expensive and Swiss equities are vulnerable if global interest rates rise

The UK market is on a 10% discount to where the market typically trades versus Switzerland

Some of our IP European equity managers are overweight UK equities and underweight Swiss equities

1 Research

Thematic

T

Economic

E

Analytic

A

Managers

M 16% 9% 5% 4% 4% 4% 1%

-2% -12%

-30% -40%

-20%

0%

20%FTSE 100 sector

weights rel toSwiss Market Index

Approving ideas Our central economic thesis

10

Source: Invesco Perpetual as of 31 July 2014. For illustrative purposes only.

Global monetary accommodation Continued low short interest rates but potential for rises (e.g.UK, US) Central bank hubris? Further action if needed but with ever-reducing impact Growth multiplier deficiencies remain across economies

Low, but positive, global economic growth Growth momentum is below previous cycle levels; Downside risks in some developed economies; EM policy and market adjustments Concerns over sustainability in China and the impact on commodities

Continued disinflation Deflation concerns in some developed markets, e.g. Europe Emerging market adjustments will be helped by disinflation Implied inflation priced into forward interest rates is too high

Diminishing support for risk assets Cautious whether future earnings will grow enough to support equity valuations Economic justification for IG and HY credit valuations is difficult Diversified alpha as an additional source of value

Market interference as a source of volatility Continued macro-prudential tightening changing the investment landscape Potential for policy errors Long-term impacts from the misallocation of capital

1 Research

Combining ideas

Combining ideas Our fund management process

12


A number of risk measures: independent risk, contribution to risk, total fund risk

Test a range of possible, even if not probable, scenarios

Use derivatives where appropriate for efficient and precise implementation

Engage dealers in liquidity analysis

Risk

Scenarios

Structure

Liquidity

2 Fund management

Ideas expressed through derivatives

Ideas expressed through funds

Cash and derivatives

Funds

Physical portfolio breakdown Portfolio breakdown by risk

c.60% c.40%

Combining ideas

0

2

4

6

8

10

12

14

16

18

20

Independent risk Fund risk

Volatility - UK Equity vs UK Rates

Volatility - Chinese Equities

Volatility - Australian Dollar vs US Dollar

Volatility - Asian Equities vs US Equities

Interest Rates - US vs Europe

Interest Rates - US Duration

Interest Rates - UK vs France

Interest Rates - Sweden vs Europe

Interest Rates - Selective EM Debt

Interest Rates - Japanese Curve Flattener

Interest Rates - European Curve Steepener

Interest Rates - Australian Short Rates

Equity - US Large Cap vs Small Cap

Equity - UK vs Switzerland

Equity - Sell Puts as Long US Equity

Equity - Sell Puts as Long German Equity

Currency - US Dollar vs Euro

Currency - US Dollar vs Canadian Dollar

Currency - Norwegian Krone vs UK Pound

Currency - Brazilian Real vs Chilean Peso

Credit - European Curve Flattener

Credit - High Yield

Equity - UK

Equity - Selective Asia Exposure

Equity - Global

Equity - European Divergence

Combining ideas Achieving diversification

13

Source: Invesco Perpetual as at 31 August 2014. 1There is no guarantee this target will be achieved. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 August 2014, subject to change.

Total fund risk 4.31%

Total independent risk 18.88%

2 Fund management

50% of global equity risk

Diversification benefit

A portfolio designed to target equity-like returns for less than half the risk of global equities

over a rolling, three-year period1

Combining ideas Stress testing and economic scenario analysis

14

1Blue line indicates probability-weighted best estimate, red line indicates worst case using lower quartile outcomes. For illustrative purposes only.

1. Regulatory stress testing of the portfolio using StatPro based on periods of historic market stress, e.g. Lehmans, European debt crisis

2. Analysis by the Multi Asset team of possible scenarios going forward

2 Fund management

Scenario Characteristics

Japan deflation Nikkei at 9000 and Japanese Yen at 75 to the US Dollar

Nationalism Spanish spreads 5% over bunds, Asian equities down 20%

EM outflows Emerging markets FX index down 20%, US 5-Yr Treasuries yields up 150bps

Regional War Crude rises to $150, European equities fall 25%

Cash is King S&P falls to 1000, yield on US 10-yr Treasuries rises to 5%

Melt Up European equities up 30%, Commodities CRB index up 20%

Debt Deflation S&P falls to 1000, yield on US 10-year Treasuries falls to 1%

0 5 10 150

50

100

150

Sim

ula

tio

n c

ou

nt

Fund return

Distribution of potential fund returns for a given scenario1

Combining ideas Thinking carefully about implementation

15

Source: Invesco Perpetual as at 31 July 2014. For illustrative purposes only. *assumes option implementation at 2 times notional of futures implementation

2 Fund management

Idea: Favour UK relative to Swiss equities because they are cheaper and should benefit from a gradual global/emerging market pick up

Equities Government Bonds

Corporate Bonds

Real Estate Collective Investment Schemes

Volatility Instruments

Inflation Products

Currencies Commodities

-15

-10

-5

0

5

10

15

5107 5376 5659 5957 6270 6600 6930 7277 7640 8022 8423

Level of the FTSE 100

payout using call options* payout using equity index futures

Combining ideas A slowly evolving portfolio

16

Q3/4 2013

+

+

-

o

Interest Rates - UK vs Germany

Equity - UK vs Switzerland

Equity - Nasdaq vs Taiwan

Equity - Europe to European Divergence

Q1 2014

+

+

-

o

o

Currency - Norwegian Krone vs UK Pound

Volatility - UK Rates vs Equity

Interest Rates – US Curve Steepener

Interest Rates - UK vs Germany to UK vs France

Equities – protection added to UK and Global ideas

Q2 2014

+

+

-

Currency – US Dollar vs Euro

Interest rates – Selective EM Debt

Currency – US Dollar vs Japanese Yen

Q3 2014

+

+

-

o

Equities – Sell DAX Puts as Long German Equity

Interest Rates – Japanese Curve Flattener

Credit – European Financials

Interest Rates – US Duration now includes implementation through swaptions

Source: Invesco Perpetual as at 31 July 2014. For illustrative purposes only.

2 Fund management

Combining ideas Our risk management process

17

GPMR = Global Performance Measurement and Risk.

2 Fund management

CIO Oversight

Managed by Richard Underwood, Head of Investment Oversight

Based in Henley on the investment floor

Independently analyse fund information

Interact with the multi asset fund managers on a day to day basis on the fund

Questions range from the risk of the fund to how many ideas we have in the fund at any one time

Independent Risk Function (IRF)

Primary role is to report to the regulators

Use a separate risk system StatPro

Run historic stress tests on the fund to highlight risks

The Multi Asset team meet with the IRF monthly to discuss stress test results and to reconcile risk models

4 Review and Oversight

Implementing ideas

Implementing ideas Invesco Global Trading Desk

The Global Trading Desk includes 46 trading professionals on 9 desks in 7 countries

19

Source: Invesco Perpetual as at 31 December 2013. Numbers are subject to rounding.

Order

Comply Americas Houston (6) Atlanta (14) Toronto (2)

UK & Europe London/ Henley (10)

Asia Pacific Hong Kong (6)

Tokyo (5) Taipei (2)

Melbourne (1)

Alternatives & FX 521.40bn

Cash equities - Americas 119.7bn

Cash equities - Asia (incl. Japan) 41.70bn

Cash equities - EMEA 64.10bn

Invesco: trading volumes, US$746.9bn (2013)

9%

5%

16% 70%

Execute

Review

3 Implementation Implementing ideas

Implementing ideas The operational and trading platform

20

Source: Invesco as at 14 February 2014. For illustrative purposes only.


• A Global Fund Manager

• Global derivatives dealing capability

• Global Performance Measurement and Risk and Compliance

• Integrated global operating platform

3 Implementation

TRADE EXECUTION

Conclusion

Conclusion Why consider Invesco Perpetual for Multi Asset?

We believe changing market dynamics require access to an unconstrained research agenda in order to generate positive returns long term.

The Invesco Perpetual Global Targeted Returns Fund seeks to offer a target return for investors through genuine diversification from a single integrated product using a portfolio of investment ideas.

The fund is run by a dedicated team of macro specialists who have a fundamental long term investment horizon, consistent with the philosophy across the Henley-based investment centre.

The fund has access to diversified alpha sources across Invesco Perpetual and Invesco product range.

The team is embedded in a truly global investment management organisation underpinned by a global infrastructure across distribution, dealing, oversight, and global 3rd party relationships.

22

Appendix

Invesco Perpetual Global Targeted Returns Fund Portfolio physical investment

24

For illustrative purposes only. This information relates to the portfolio based on market conditions as at 6 March 2014, subject to change.

Funds

Invesco Asian Equity Fund – Stuart Parks – Henley

IP Monthly Income Plus Fund – Paul Causer, Paul Read, Ciaran Mallon – Henley

IP Global Equity Fund – Nick Mustoe & Team – Henley

Invesco Pan European Structured Equity Fund – Michael Fraikin, Thorsten Paarmann – Frankfurt

Invesco Pan European Equity Fund – John Surplice, Martin Walker – Henley

IP Income Fund – Mark Barnett – Henley

IP UK Growth Fund – Martin Walker – Henley

IP Global Equity Income Fund – Nick Mustoe & Team – Henley

Cash

Cash will be managed to the same criteria as Invesco Short-Term Investment Company (Global Series) plc (STIC – £ only)

– Managed by Invesco Fixed income – Counterparty exposures limited – Global Credit Research team

Cash

Funds

APT output Assessing each individual trade and its contribution to the risk of the portfolio

25

Source: Invesco Perpetual as at 31 August 2014. Sum of representative idea sizes: 358.0%. Definitions: Independent risk: The risk of the idea in isolation. Risk impact: The change in the portfolio’s risk as a result of adding the idea to the portfolio. Marginal risk: The attribution of the overall portfolio volatility to each idea. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 August 2014, subject to change. *Residual FX refers to the risk arising from unhedged currency exposure rather than an individual investment idea. 1Global equity represented by MSCI World Index.

% of global equity1

Portfolio volatility 4.31 27.5% Fund value £496,524,414 Sum of independent risk 18.88 120.2% 99% 1-month VaR £14,399,208 Equity beta -0.07

Idea Independent

risk Risk

impact Marginal

risk Equity

correlation Position

Size Long Short

Credit - European Curve Flattener 0.94 -0.17 -0.04 0.52 33.2% 33.2% 33.2%

Credit - High Yield 0.75 0.19 0.21 -0.49 3.0% 11.6% 8.6%

Currency - Brazilian Real vs Chilean Peso 0.49 0.08 0.13 0.07 4.8% 4.8% 4.7%

Currency - Norwegian Krone vs UK Pound 0.67 0.10 0.15 0.32 7.7% 7.7% 7.5%

Currency - US Dollar vs Canadian Dollar 0.71 0.20 0.24 -0.66 9.8% 9.8% 9.8%

Currency - US Dollar vs Euro 0.69 0.00 0.04 -0.48 7.9% 7.9% 7.7%

Equity - European Divergence 1.58 0.63 0.93 -0.56 16.5% 16.5% 15.4%

Equity - Global 1.02 0.19 0.29 0.14 4.2% 12.3% 8.1%

Equity - Selective Asia Exposure 1.40 -0.19 -0.04 0.28 6.8% 11.8% 5.0%

Equity - Sell Puts as Long German Equity 0.33 0.02 -0.10 0.91 1.5% 1.6% 0.1%

Equity - Sell Puts as Long US Equity 0.22 -0.01 -0.08 0.96 1.4% 1.4% 0.0%

Equity - UK 0.77 0.21 0.24 0.09 5.0% 12.1% 7.1%

Equity - UK vs Switzerland 0.60 0.03 0.07 0.01 7.1% 6.5% 7.1%

Equity - US Large Cap vs Small Cap 0.52 0.04 0.10 -0.41 5.8% 5.8% 5.6%

Interest Rates - Australian Short Rates 0.52 0.14 0.19 -0.22 29.1% 29.1% 0.0%

Interest Rates - European Curve Steepener 0.58 0.10 0.14 0.06 28.2% 28.2% 11.3%

Interest Rates - Japanese Curve Flattener 0.41 -0.01 0.03 -0.16 15.4% 15.4% 13.5%

Interest Rates - Selective EM Debt 0.73 0.03 0.09 0.54 4.9% 4.9% 0.0%

Interest Rates - Sweden vs Europe 0.70 0.05 0.10 -0.14 19.0% 19.0% 18.8%

Interest Rates - UK vs France 0.66 0.22 0.26 -0.44 29.4% 29.4% 29.4%

Interest Rates - US Duration 1.17 0.51 0.65 -0.60 24.5% 24.5% 6.8%

Interest Rates - US vs Europe 0.73 0.17 0.23 -0.13 14.7% 14.7% 14.7%

Volatility - Asian Equities vs US Equities 1.07 -0.07 0.00 0.13 12.5% 12.2% 12.5%

Volatility - Australian Dollar vs US Dollar 0.52 0.09 0.14 -0.43 14.5% 14.4% 14.5%

Volatility - Chinese Equities 0.79 0.44 0.25 -0.53 15.5% 15.5% 0.0%

Volatility - UK Equity vs Rates 0.08 0.07 0.04 -0.30 1.3% 2.9% 1.7%

Cash & Residual FX 0.23 0.03 0.05 0.48 34.3% 36.6% 2.3%

APT output Risk contribution

26

Source: Invesco Perpetual as at 31 August 2014. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 August 2014, subject to change.

Credit - European Curve Flattener Credit - High Yield

Currency - Brazilian Real vs Chilean Peso Currency - Norwegian Krone vs UK Pound

Currency - US Dollar vs Canadian Dollar Currency - US Dollar vs Euro

Equity - European Divergence Equity - Global

Equity - Selective Asia Exposure Equity - Sell Puts as Long German Equity

Equity - Sell Puts as Long US Equity Equity - UK

Equity - UK vs Switzerland Equity - US Large Cap vs Small Cap

Interest Rates - Australian Short Rates Interest Rates - European Curve Steepener

Interest Rates - Japanese Curve Flattener Interest Rates - Selective EM Debt

Interest Rates - Sweden vs Europe Interest Rates - UK vs France

Interest Rates - US Duration Interest Rates - US vs Europe

Volatility - Asian Equities vs US Equities Volatility - Australian Dollar vs US Dollar

Volatility - Chinese Equities Volatility - UK Equity vs Rates

RiskOn

PartialRiskOn

Neutral

PartialRiskOff

RiskOff

Credit

Currency

Equity

Interest Rates

Volatility

Australia

Asia

Canada

Europe

France

Germany

Global

Japan

LatAm

Norway

Sweden

Switzerland

UK

US

Review and oversight A structured approach

27


Weekly Multi Asset fund management meeting Multi Asset team, dealing team To review risk positions,

implementation of investment ideas and fund performance

External research calls Multi Asset team, other investment

team representatives, external strategists

To filter the research available from investment bank and other external strategists

Monthly Multi Asset macro meeting Multi Asset team To define the central economic thesis Multi Asset ideas meeting (‘TEAM’) Multi Asset team to assess new

investment ideas and revisit existing ideas on a rolling quarterly basis

Investment team meeting Nick Mustoe, CIO & investment teams John Greenwood’s economic outlook • Monthly economic update Independent risk function To discuss stress tests and compare

risk models

Quarterly Multi Asset investment oversight meeting CIO, Head of Investment Oversight,

Heads of Desks, Multi Asset fund managers

To review additions/deletions/changes to investment ideas

Multi Asset governance meeting Independent risk and compliance

review

Annual CIO challenge Multi Asset fund managers; Nick

Mustoe, CIO; Head of Investment Oversight

To review investment ideas and portfolio risk


CIO Challenge The CIO Challenge covers the following areas of focus

28

1 Performance Performance against relevant peer groups and indices on a discreet and

cumulative basis. Performance dispersion.

Systems: Lipper, Morningstar, StatPro Composites

2 Assets, Flows & Liquidity Information relating to assets managed, subscriptions, redemptions, net

flow, liquidity of underlying portfolio to trade to cash.

3 Attribution/Contribution Attribution showing the relative contribution to performance. For equity

this could be measured at Country, Industry, Sector and stock level. For Fixed Income portfolios this could be measured to show contribution by credit rating, duration, issuer and issue

4 Risk Risk reward charts and total fund level. Risk reports showing tracking

error, beta, highest marginal contribution to risk by stock etc

5 Financial Attributes Analysis showing the style tilts of the portfolio to value, growth,

momentum, yield etc.

6 Active Positioning Information relating to active positions by Country, Industry, Sector,

Stock for equities. For Fixed Income active positions by credit, duration, industry and issuer.

7 Transaction Analysis Portfolio activity over the period under review including charts of

purchase/sale activity relative to stock price movements.

8 Stock Analysis Individual stock analysis often using broker research to challenge the

decisions made by a Fund Manger at a very granular level.


Cash management Short-Term Investments Company (Global Series) plc “STIC Global”

Invesco Global Liquidity has US$79.7 billion in assets worldwide

There are 19 investment professionals dedicated to the short-term space

The team has an average 17 years of industry experience, and over a decade working as a team at Invesco

The cash allocation pool will be invested in the STIC Global money market fund and in other highly rated short-term debt instruments

29

Source: Invesco as at 30 June 2014.

The Global Liquidity team aims to achieve:

Preservation of principal Liquidity Yield

Credit risk is mitigated by investing in a portfolio of high quality and well diversified short-term debt instruments supported by an independent credit approval and monitoring process.

Market risk is mitigated by limiting the weighted average maturity of the Portfolio to a maximum of 60 days.

Liquidity risk is mitigated by maintaining a minimum of 30% of AUM in securities maturing within 1 week.

The fund managers continuously assess the impact of economic and market events on liquidity.

Immediate liquidity: fund is open daily and has same day settlement.

There are no restrictions on frequency of dealing, size of transaction or on retained balances.

Portfolios are priced competitively, allowing for more selective portfolio construction while seeking to deliver competitive yield.

The fund yield is comparable to the overnight interbank market rate.

Daily yield is calculated with income accrued each day.

Source: Invesco as at 14 February 2014. For illustrative purposes only.

Operating platform

30

OVERSIGHT

RESOURCING

TRADE EXECUTION

Workflow Steps Systems Process & Controls Workflow Steps Systems Process & Controls

P2 CRD

Apollo APT

Bloomberg FMC

MatLab Datastream

CRD FMC ITR

CRD P2

FMC Apollo BWISE

CRD FMC

Bloomberg SWIFT ITERO CTM

BNYM CADIS FMC

GlobeOp

FMC BNYM/InvestOne

Apollo

CRD TRAC

Miles Software BWISE StatPro

Counterparty Risk DB RCBanken

IT Applications: Peoplesoft; Plateau; Success Factors; SharePoint; Complinet Process & Controls: Annual Appraisals & Development Plans; Recruitment Process; Continual Professional Development; Regulatory Training; Resource & Succession Planning; Remuneration Policy; Conduct / Ethics Policies; Segregation of Duties

Process & Controls: Company Boards; CIO Challenge Process; Daily, Monthly & Quarterly Risk Reviews (RPLS); IP Management Group; Regular Broker Reviews; Internal Audits; Compliance Monitoring; Dealing Commission Committee; TCF Training & Scorecards; Derivatives Committee; New Instruments Committee; Departmental Procedures; Breach Reporting; Counterparty Risk Committee

Portfolio Valuation / Modelling Tool Fund Manual

/ POM / IPG Derivative Forms

Bank Loan Checklists Data automation

FM Daily /Weekly sign off Derivative Matrix

Overdraft monitoring Notification of strategy/idea

Pre Trade risk analysis IM Procedures

CRD Access Segregation Trade entry controls

IM Procedures

FM Sign Off of unquoted / illiquid securities

Quarterly Pricing Committee Fair Value policy

Fund Manager weekly & Monthly Review and Sign Off

GlobeOP v BNYM Pricing Validation

Broker Approval & Set Up Process Trade by Trade Broker Assessment

Broker Contracts / MiFID / ISDA Price ‘spot checking’

Transaction Cost Analysis Matching & Confirmation process

Execution by G.T Function IM Procedures

Pre Trade Alerts Breach Recording Pre Trade Blocks

Stock Availability checks Compliance Approvals

IVZ Restricted list

Daily Reconciliations of Cash & Stock to Custodian

/ Bank Weekly Market

Reconciliation IP / BNYM Oversight of Swing Pricing

Fund Manager Reviews and Sign off

Daily Post Trade checks against Regulatory and Investment Restrictions

Daily IRF Checks to RPLS/Derivatives Matrix

Breach Reporting to Management & Board

Strategy notifications The Multi Asset team includes the IRF in its notification emails to enable the IRF to effectively identify and analyse complex, multi-legged derivative transactions after they are executed

Investment risk meetings The Multi Asset team, the Investment Oversight team and the IRF meet at least monthly

Fund manager reviews The IRF meet with fund managers on a quarterly basis to discuss the key risks of their portfolios

Independent Risk Function (IRF) Monitoring

31


In

dep

en

den

t ris

k f

un

cti

on

Derivatives oversight The IRF conduct monitoring of executed derivative transactions on an on-going basis and to provide regular reporting/escalation to the Derivatives Committee

APT risk report The IRF have access to APT and run a daily report for market risk analysis purposes so as to identify any emerging risks early on

Risk profile & limit system

The IRF, on a daily basis, monitor the risk limits for market risk, liquidity risk, the sum of the notionals of all derivatives used and counterparty risk

Daily

Monthly

Quarterly

Daily

Monthly

Quarterly

Market Risk Risk Profile & Limit System (RPLS)

32


Green Yellow Amber Red

Absolute VaR <6 ≥6 ≥8 ≥20

Strategy Relative Volatility (upper bound) <120 ≥120 ≥133.33 N/A

Strategy Relative Volatility (lower bound) >80 ≥80 ≥66.67 N/A

Fund Relative Volatility <40 40≥ 50≥ N/A

The RPLS includes internal risk limits developed by the Independent Risk Function in consultation with the fund manager taking into account the fund’s investment objectives/strategy and risk profile.

In addition to Absolute VaR, the RPLS includes three further risk metrics computed by APT:

a) each derivative strategy’s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) – upper bound;

b) each derivative strategy’s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) – lower bound; and

c) the portfolio’s (total, diversified) Relative Volatility vs. the MSCI World Index (GBP).

Liquidity Risk Monitored by GPMR using RC Banken system

Based on outflows (historical data or scenarios) and holdings

Largest 1/5/10 days outflows at a 90 to 99.9% confidence level (using Generalized Extreme Value Distribution)

For each security, a bid-ask spread from a variety of sources: – In Normal Market Conditions – In Fire Sale Market Conditions

Outputs of the model: portfolio breakdown by liquidity level, liquidity ratios, losses given the net outflows

33


Collateral Management Reducing counterparty risk

34

1. Introduction Invesco has a collateral policy to reduce counterparty risk on OTC derivatives

transactions

2. Collateral requirements

Invesco requires collateral for the following types of transactions: stock lending, reverse repurchase transactions, and OTC derivative transactions

In practice, Invesco will generally only accept cash as collateral on OTC derivative transactions

OTC derivative transactions won’t trigger automatic collateral payments and will be based on appropriate materiality levels, therefore no initial margin exchanged

Daily check on concentration and spread rules by portfolio ops; additional reporting provided to compliance and IRF

3. Collateral coverage

In relation to OTC derivatives we operate a minimum transfer amount under the Credit Support Annex (CSA) where applicable:

– The fund will obtain or pay collateral where the netted unrealised gain or loss is greater than 250,000 in the base currency of the fund

– For smaller funds, where 250,000 is significantly more than 0.5% of the NAV, a smaller amount can be agreed and specified in the CSA

Where the fund is in receipt of collateral or where collateral is re-invested for more than 20% of NAV then additional checks will need to be completed to ensure compliance with ESMA guidelines

4. Stress testing

Stress tests on the liquidity of the collateral to be implemented if collateral exceeds 30% of the fund’s NAV

Liquidity stress tests are performed in line with portfolio liquidity stress tests by GPMR

5. Re-investment of collateral

Cash collateral received as a result of transactions in OTC derivatives contracts will be held at the custodian of the fund

Any cash collateral re-invested is done so in line with the ESMA guidelines


Team biographies

David Millar: FIA, Head of Multi Asset and Fund Manager

Based in Henley-on-Thames, David joined Invesco Perpetual in January 2013 and heads the Multi Asset team. After commencing his investment career with Scottish Widows in 1989, where he qualified as an actuary, David joined the Fixed Interest team at Scottish Widows Investment Partnership in 1996, becoming Head of Bond Strategy and chair of their Bond Policy Group. In 2008, he joined Standard Life Investments as Investment Director in their Multi-asset investing team. He was one of the portfolio managers within their Global Absolute Return Strategies capability and was chair of their Bond Investment Group. David holds a BSc (Hons) in Mathematical Statistics from the University of Cape Town and is a Fellow of the Institute and Faculty of Actuaries.

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Richard Batty: PhD, Fund Manager

Based in Henley-on-Thames, Richard joined Invesco Perpetual in March 2013, and serves as a fund manager for the Multi Asset team. Previously, he had worked at Standard Life Investments since 2003 where he was the Global Investment Strategist in their Strategy team which is now part of Standard Life’s Multi-asset Investing team, gaining additional responsibilities for Global Tactical Asset Allocation in 2012. Prior to joining Standard Life Investments, he began his investment career at James Capel/HSBC as an equity strategist in 1995. During this part of his career, Richard became a highly-rated, senior member of its industry renowned Economics and Strategy group. In 1994, he was awarded a PhD in Financial Economics from Brunel University, where he was a part-time research assistant and taught both graduate and undergraduate students.

Dave Jubb: FIA, Fund Manager

Based in Henley-on-Thames, Dave joined the company in March 2013, and serves as a Fund Manager for the Multi Asset team. Prior to this, he worked at Standard Life Investments where he was an Investment Director, Multi Asset Investing, and was one of the fund managers of the firm’s Global Absolute Return Strategies capability. Dave joined Standard Life Group in 1982 as a computer programmer and after a period in the Actuarial Department of Standard Life Canada, he joined Standard Life Investments where he held positions as a fixed income fund manager and strategist before joining their Multi-asset Investment team in 2006. Dave graduated from St Andrews University in 1982 with a BSc (Hons) in Mathematics and is a Fellow of the Institute and Faculty of Actuaries.

Team biographies (continued)

Gwilym Satchell: PRMTM Risk Manager

Based in Henley-on-Thames, Gwilym joined the company in March 2013. Prior to this, he commenced his career in 2008 at Standard Life Investments, where he was involved in Multi-asset Investing risk management, in particular the development of scenario analysis techniques. In addition, he was responsible for managing a range of liability-driven investment (LDI) funds. Gwilym holds the PRM™ designation which is an independent validation of skills and commitment to the highest standard of professionalism, integrity, and best practices within the risk management profession. He graduated from Warwick University in 2005 with a degree in Computer Science, and gained a Masters degree at the University of Edinburgh Business School in 2008.

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Georgina Taylor: Product Director

Based in Henley-on-Thames, Georgina joined our company in June 2013 and is the Product Director for the Multi Asset team. Georgina commenced her career with HSBC in 2001 as an Equity Strategist. She went on to join the Equity Strategy team at Goldman Sachs in 2004 where she wrote global equity and asset allocation research. Georgina gained asset management experience at Legal & General Investment Management, contributing to the overall asset allocation outlook for the firm and multi asset funds. Before joining Invesco Perpetual Georgina was head of Equity Strategy, EMEA, at State Street Global Markets, producing and presenting on asset allocation and equity research. Georgina holds a BSc (Hons) in Economics from the University of Bath.

Danielle Singer: Senior Client Portfolio Manager

Based in New York, Danielle joined the company in June 2014, and serves as a Senior Client Portfolio Manager for Invesco Perpetual’s Multi Asset team on their US strategy. Before joining the company, Danielle was a strategist and director of Global Investment Solutions (GIS) team at UBS, where she was involved in the review and setting of multi-asset and currency strategies, interacting with the investment team to coordinate investment strategy, and assisting clients as part of the GIS initiative. Previously, Danielle was an account manager for UBS’s Institutional Investment Management group. Prior to joining UBS in 2004, she worked on the auction rate securities desk at Deutsche Bank. Danielle earned a BA degree at Middlebury College and an MBA at the University of Chicago with concentrations in analytic finance and econometrics. She holds the Series 3, 7 and 66 registrations. Danielle is also a CFA charterholder and a member of the New York Society of Security Analysts.

Team biographies (continued)

Saul Shaul: Fund Analyst

Based in Henley-on Thames, Saul joined the company in May 2012 as an IT contractor working in front office IT and was later assigned to the implementation project working on the technical build of Invesco Perpetual’s Multi Asset investment platform. In January 2014 Saul joined the Multi Asset team as a fund analyst. Saul commenced his career in front office IT in 2006 and has worked as an IT contractor on several projects involving Fund Management and Trading systems. He graduated from The University of Portsmouth in 1998 with a degree in International Finance and Trade.

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Steven Hawes: Trainee Analyst

Based in Henley-on-Thames, Steve joined the company in July 2010, and since January 2014 has served as a Trainee Analyst within the Multi Asset team. Steve joined Invesco Perpetual as a Client Services Executive, specialising in investment performance. He graduated from the Sheffield Hallam University in 2010 with a BA (Hons) in Business and Financial Services and passed the Investment Management Certificate (IMC) in January 2013.

Simon Ferguson: CFA, Senior Dealer, Alternatives and Foreign Exchange

Simon Ferguson joined Invesco in 2013 as a senior trader on the Alternatives and FX Trading desk, covering global derivative markets. Simon was previously a co-portfolio manager at Cayuga Capital, starting in July 2010 and implementing investment views through derivative instruments across the equity, fixed income, credit, FX and commodity markets. From 2002, he worked for Hermes Investment Management, running the Tactical Asset Allocation Overlay for the British Telecom pension scheme. Prior to that, Simon worked for a number of sell-side firms from 1993, including Goldman Sachs, Schroders and Julius Baer (Paris). Simon graduated from the University of Wales, Bangor, with a first-class degree in Economics. Simon also holds the Chartered Financial Analyst designation and has recently passed the Chartered Institute for Securities & Investment Level 4 Derivatives (IAD) exam.

Important information

This presentation is for Professional Clients only and is not for consumer use.

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Past performance is not a guide to future returns.

Where David Millar has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual investment professionals.

The Invesco Perpetual Global Targeted Returns Fund makes significant use of financial derivatives (complex instruments) which will result in the fund being leveraged and may result in large fluctuations in the value of the fund. Leverage on certain types of transactions including derivatives may impair the fund’s liquidity, cause it to liquidate positions at unfavourable times or otherwise cause the fund not to achieve its intended objective. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the fund being exposed to a greater loss than the initial investment.

The Invesco Perpetual Global Targeted Returns Fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss. This counterparty risk is reduced by the Manager, through the use of collateral management.

The securities that the Invesco Perpetual Global Targeted Returns Fund invests in may not always make interest and other payments nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity, may mean that it is not easy to buy or sell securities. These risks increase where the fund invests in high yield or lower credit quality bonds and where we use derivatives.

For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents and the Supplementary Information Document. This information is available using the contact details shown.

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Invesco Perpetual is a business name of Invesco Fund Managers Limited. Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.