QLAB INVEST

Intelligent strategy engineering

CONVEX RETURN SOLUTIONS

HUMAN BEHAVIOURAL IMPACT ON FINANCIAL MARKETS

BEHAVIOURAL TRAITS

Biases Herding Greed Fear

MARKET DYNAMICS

Overwhelming body of evidence for irrational investor behaviour stemming from innate biases buried deep within our brains that we are often not aware of, let alone can control

Leads to market dynamics which are not completely random and exhibit enough persistence to be exploitable

Persistence does not mean strong predictability and the uncertainty requires a robust and independent risk

management process which takes into account the real behaviour of markets rather than a theoretical abstraction

Momentum Cycles

Bubbles Crashes

QLAB Invest uses its core competencies in quantitative methods, portfolio construction and risk

management to develop models that exploit repeating tendencies in market dynamics

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QLAB Invest treats the assets as competing and exploits the cycles with systematic active selection and risk management

HIGHLY LIQUID INVESTMENT UNIVERSE

• Four asset classes: US Equities, Commodities (CCI), G10 Currencies long vs. USD, 2 & 5 YR US Treasury Bonds

• Shaded areas shows the periods of more than a year where one or more asset returns were negative

• During every occasion at least one other asset class had positive return

• Passively holding all assets is not a free lunch and comes with tail risk and high emotional cost

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INVESTMENT OBJECTIVES – TWO STRATEGIES & RISK PROFILES

INVESTMENT UNIVERSE

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QLAB Dynamic Allocation (QLAB Convexity DL Fund) • Risk controlled dynamic exposure to QLAB Asset Allocation,

up to x3 leverage aiming to enhance returns

• Risk: 12 – 15% volatility, drawdown tolerance -15%

• Return objective[1] over 3yrs: cash + 10%

VALUE – HIGH RETURNS

High, risk-adjusted returns with

lower, more stable volatility and

much lower drawdown risk compared

to equities providing good

diversification properties

QLAB Asset Allocation (QLAB Convexity Fund) • Rotates between and within assets aiming to participate

in rising markets and avoid falling markets

• Risk: 4 - 6% volatility, drawdown tolerance -10%

• Return objective[1] over 3yrs: cash + 5%

VALUE – PEACE OF MIND Inflation beating returns, stable

volatility and low drawdown risk, defensive in falling markets, stay

invested through the cycles

[1] Net of trading costs, gross of product fee

QLAB ASSET ALLOCATION – INVESTMENT PROCESS

TOP-DOWN ASSET GROUP SELECTION

1. Systematic process converts relative performance to

statistical significance creating buy/no-change/exit signals for

Equities, Commodities, Bonds and FX as asset groups

2. Weights across the assets groups are subject to a portfolio

risk budget of 6% volatility taking into account non-normality

in financial assets (fat tails) and stressed market correlations

3. Hard exposure constraints are applied

BOTTOM-UP SINGLE ASSET SELECTION

1. Systematic selection of single asset exposure driven by relative return

persistence amongst single positions within the same asset group

2. Weights to individual assets within a group are subject to risk-

normalisation (risk-parity) and hard exposure limits

3. The output results in allocations to individual US Equity Sectors,

Single Commodities, US Treasury bonds, FX and cash, in the most

defensive mode 100% cash is possible, no shorting

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OBJECTIVES 3YR HORIZON: RETURN CASH + 5%, VOLATILITY 4-6%

QLAB DYNAMIC ALLOCATION – INVESTMENT PROCESS

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• A dynamic leverage (DL) process uses a risk

budget driven process to gain dynamic exposure

to the underlying QLAB Asset Allocation strategy

• Exposure is varied on a monthly basis up to a

maximum exposure of 300% based on short term

risk and performance according to a robust

statistical process

• The objective is to offer significant

outperformance to the underlying strategy at a

maximum drawdown risk of -15%

• On average volatility risk is lower than equities

and much more stable

• Drawdown risk is significantly reduced

• Correlation to equities is low on average yet varies

from high and positive when equities are

increasing to low or negative during equity bear

markets

OBJECTIVES 3YR HORIZON: RETURN CASH + 10%, VOLATILITY 12-15%

PERFORMANCE

NOTES • Naive portfolio fixed weights: 25% Equities, 25% Commodities, 20% FX, 30% Fixed Income, rebalanced monthly, calculated gross • QAA and QDA Indices are net of replication cost per annum • Strategy indices live 1-Jan-11 • Exchange Traded Certificates live since 5-Aug-13 • Funds live since 1-Dec-14

DATA AS OF 3-FEB-2015

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DRAWDOWN RISK VERSUS THE NAIVE MARKET PORTFOLIO AND US EQUITIES / COMMODITIES

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• The market portfolio worst drawdown is -27% with

frequent drawdowns approaching -10%

• QLAB Asset Allocation worst drawdown is -7.2% with

only 5 occasions worse than -5% in 15 years [1]

• US equities and global commodities lost between 20%

and 50% twice in the last 15 years

• QLAB Dynamic Allocation worst drawdown is -13.6% with

only 6 occasions worse than -10% in 14 years [1]

The absence of an excessive left tail in either QLAB strategy gives investors the peace of mind to stay

invested through the market cycle – the best way to earn good returns over time

[1] 11 years of simulated returns + 4 years strategy index live, the cash live track record starts August 2013

DATA AS OF 3-FEB-2015

INTUITIVE AND DECISIVE ASSET ALLOCATION MOVES

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No equities during tech-wreck crisis

No equities or commodities during credit crisis

Increased treasuries & dynamic FX during QE & currency wars

No bonds (zero duration) during Fed rate hike

Dynamic duration during interest rate uncertainty

QLAB ASSET ALLOCATION

S&P 500 TR

THE ASSET ALLOCATION PROCESS RESULTS IN CONVEX RETURNS

• Chart shows QLAB Asset Allocation strategy 1YR rolling returns versus the naive rebalanced market portfolio

• Clear evidence for convexity shows the effectiveness of the risk management and the positive momentum detection

• Rolling returns stay positive in QLAB Asset Allocation when negative in the naive portfolio whilst capturing good upside

• Option traders would recognize this as being long volatility, considered a healthy position to hold in general

1 YEAR ROLLING RETURNS OF QLAB ASSET ALLOCATION VERSUS NAIVE MARKET PORTFOLIO

HIGH BETA IN UP MARKETS

LOW BETA IN DOWN MARKETS

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30 years of simulated returns 4 years strategy index live

MARKET UNCERTAINTY

• By many accounts stocks and government bonds are over-valued, commodities are volatile and complex to access

and currencies are caught between the various central banks each trying to stimulate their own economies

• It’s impossible to predict now which are the assets to hold for the next few years, therefore the intelligent approach

is to hold a diversified mix of liquid assets and be ready to react and reallocate as conditions change

• The Convexity funds capture the upside when assets do well but when markets decline the highly systematic

investment process manages the downside risk by switching into better performing assets or, in the event of a full

crisis, holding cash

DIVERSIFICATION

• Investors already hold other assets: equities, bonds and a range of funds, both traditional and alternate

• The Convexity Funds are run systematically providing good diversification to discretionary processes

• The fact that the funds are multi-asset and run in an absolute return fashion also diversifies portfolios which are

holding allocations to single assets such as equities or bonds and also traditionally managed benchmark funds

RISK MANAGEMENT INCLUDED

• Whilst the investor’s advisor or portfolio manager also manages risk at the portfolio level, the Convexity funds

provide another level of built-in risk management in that they have stable and well defined risk profiles, even in a

market crisis, and thus can help stabilize the returns of a portfolio through the market cycle

• The resulting peace of mind means investors are more likely to stay invested through the cycle, the best way to pick

up good returns over time

• Given the far lower drawdown risk than comparable market portfolios the funds are more all-weather in nature

meaning an investment decisions is less susceptible to timing risk

INVESTMENT RATIONALE

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WHY QLAB INVEST

PERFORMANCE WITH PEACE OF MIND • Attractive risk adjusted returns with well defined and stable risk profiles

• Single and multi-asset solutions in absolute return and relative return formats

• Fully systematic processes ensure investment discipline and avoids behavioural biases

• Diversification to other equity, bond and alternative strategies

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RESEARCH DRIVEN INNOVATION • Core competences in statistical research, quantitative methods, risk management and portfolio construction

• Proven model robustness resilient to non-normality in markets, correlation risk and rising interest rates

• Strategy indexation and independent product management adds an unprecedented level of integrity

CLIENT CENTRIC SOLUTIONS • A range of liquid strategy indices published daily, low-cost investment solutions available through partners

• QLAB models available via license to support or extend existing investment processes or funds

• Luxembourg fund solutions QLAB Convexity and QLAB Convexity DL for professional investors, www.rpm.se

• Exchange traded products QLAB Asset Allocation and QLAB Dynamic Allocation in Switzerland, www.nhbpro.ch

QLAB INVEST – THE COMPANY IN A NUTSHELL

We want our clients to have the peace of mind to stay invested through the market cycle and to sleep well

knowing that our investment strategies deliver consistent and well defined risk and return results

We embrace active management and sound risk management principles to develop robust

investment processes that exploit repeating tendencies in market behaviour providing solutions

with the highest liquidity, unparalleled transparency and always with a fair deal on cost

With expertise in quantitative methods, portfolio construction and efficient implementation

we focus on research & development across the most liquid asset classes and markets globally

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OUR GOAL

WHAT WE DO

OUR SKILLS

SOLUTIONS A range of absolute and relative return investment strategies, working systematically with the highest

discipline to avoid behavioural traps. Each strategy is published as a dynamic index to show risk and

performance independently to the various investment options provided by our product partners

• 19 years of investment experience within asset management and the fund of hedge fund industry • Founded QLAB Invest as a research activity focussing on advanced systematic portfolio construction techniques • Previous roles include, CIO of Hamilton Lunn (FO), adviser at Gems Advisors (FOHF), founder/CIO of J&S Asset Management • Specialist in systematic application of investment models, fluent in statistical methods and mathematical processes - paying

specific attention to behavioural finance • Holder of CAIA, IMC. Studied MSc in Applied Statistics at Sheffield University, UK

• 14 years of experience of data management at Reuters and LCF Rothschild Asset Management Ltd • Expertise in large scale quantitative data analysis, neural networks and programming, statistical model testing and applications • Founder of Grad communications serving companies within the asset management industry • Holds a Degree in Electronic Engineering from Warsaw Polytechnic and an HND in Computing and Mathematical Sciences from

University of Greenwich

Dr. Steven Bates, Partner & CEO

Jan-Erik M. Skoglund, Managing Director & Founder

Bart Nagorka, CTO & Founder

QLAB INVEST HAS A HIGHLY SKILLED AND EXPERIENCED MANAGEMENT TEAM

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• 19 years of experience within asset management plus 10 years physics research at CERN and in the UK • Held senior positions in investment management at UBS and trading and risk management at Merrill Lynch • Former owner at Swissrisk Financial Systems which specialises in portfolio optimisation and risk management • Expertise in mathematical modelling, risk management and financial solution structuring • Holds a Ph.D. in high energy particle physics from the University of Cambridge, UK

QLAB INVEST HAS A STRONG CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE

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• Successful academic career in computer science and applied mathematics publishing several books and research papers • Founder of Security Engineering AG, a leading supplier of security solutions for the Swiss banking industry • Last 12 years as business angel in the venture capital community and investment manager in the hedge fund space • Holds a Ph.D. from the Swiss Federal Institute of Technology and was Assistant Professor at the University of California, San Diego

• Long and successful financial career at the most senior levels, most notably Group CEO of UBS • Board member of Union Bancaire Privée, Warteck Invest, Neue Helvetische Bank and several private industrial companies • Founder and owner of Löwenfeld Beteiligungen with a focus on private equity transactions • Member of the Advisory Board of the Economic Department of the University of Zurich • Holds a Ph.D. in Economics with a focus on Econometrics from the University of Zurich

Dr. Rainer A. Rueppel, Partner & Chairman

Dr. Marcel Rohner, Partner & Member of the Board

• Chairman and Founder of Armada Investment AG, established as his family office organization after the successful merger of his B2B software company TRADEX Technologies to Ariba for 5.6 billion dollars in March of 2000

• With a passion for entrepreneurial activities he brings unique business experience as both an investor and an entrepreneur • A partner involved in building and growing numerous innovative companies including Nutmeg, Oanda and Alegra Capital • He is also a proactive initiator of several social investment projects and an active member of the World Economic Forum

Daniel Aegerter, Partner

• 16 years experience within alternative investment & hedge fund sector plus 14 years in UHNW advisory • Held senior sales positions at Man Investments & UBS • Expertise in systematic, rules based strategies and application within general risk spectrum • Successfully brought to market a number of systematic based solutions for institutional and UHNW investors • Consultant to RPM Risk & Portfolio Management AB

John Bennett, Partner

Intelligent strategy engineering

CONTACT

QLAB Invest Switzerland AG Odeon Haus | Limmatquai 2 8001 Zurich | Switzerland www.qlabi.com

QLAB Invest UK Ltd Level 33 | 25 Canada Square London | E14 5LQ | UK

Jan-Erik M. Skoglund, CAIA Managing Director, London T +44 207 038 8082 E jskoglund@qlabi.com

Steven Bates, Ph.D. CEO, Zurich T +41 55 535 5605 E sbates@qlabi.com

QLAB INVEST

John Bennett London T +44 207 118 0288 E john.bennett@rpm.se

DISCLAIMER This document does not constitute an offer, a solicitation, an advice or a recommendation to purchase or sell any investment products associated with the material described herein. The purpose of this document is to describe the principles, research and ideas behind the QLAB Invest strategy indices. Prior to an investment in any product tracking a strategy index, you should make your own appraisal of the investment risks as well as from a legal, tax and accounting perspective, without relying exclusively on the information provided by QLAB Invest. Investment products tracking the indices must be issued or/and marketed by a regulated company. This document is strictly for informative purpose. The single source of the underlying asset data is Thomson Reuters Datastream and QLAB Invest cannot guarantee the correctness of the underlying asset data and cannot be held legally responsible in this regard. Any references made to historical performance up to the official live inception do not reflect actual live performance and can be subject to selection, curve fitting and other statistical biases. Performance in investment products linked to the indices may be reduced by the effect of commissions, fees or other charges in excess of those already factored into the index calculations. The level of the indices will fluctuate due to the volatility of the underlying exposures and past performance or volatility is not necessarily indicative of future results.