C.Y Actuaries Conference 2014: The Future of Asset Management in Cyprus and Greece

Opportunities for the Asset Management Industry
in Cyprus & Greece – A Consultant’s View
Marios Yiannas
28 May 2014
The information in this presentation is confidential and should not be distributed to third parties without the prior approval of
Cronje & Yiannas Actuaries and Consultants Ltd.

Setting the Scene
Love is NOT in the air…
46
49
50
57
57
60
62
66
73
Financial Services
Banks
Media
Pharmaceuticals
Energy
Consumer…
Food & Beverage
Automotive
Technology
2013
48
51
51
59
59
65
66
70
79
Financial Services
Banks
Media
Pharmaceuticals
Energy
Consumer…
Food & Beverage
Automotive
Technology
2014
Sources: Edelman Trust Barometer, CFA & Edelman Trust Study

Current Landscape for Institutional Business
Cyprus
PENSION & PROVIDENT FUNDS
• Only 12% of Total Pension & Provident Fund assets are under
professional management
• Just 150m (5% of total) under management by local asset managers
• Linked to investment strategies dominated by cash...
• ... lack of trust in the industry...
• … lack of suitable skills and/or solutions offered
INSURANCE COMPANIES (LIFE BUSINESS)
• Individual savings products exist but no group pension policies yet
• Around 60% of Unit-Linked assets are under professional management
(€1 bn of UL funds plus c. 0.4bn own funds)
• Mandates typically handed over to pooled funds of global managers
• A very small proportion is under management by local asset
managers…
• ... which mainly relates to local assets... which are being unwound
• Lack of suitable skills and/or solutions offered on global markets
• A significant proportion is still managed in-house
€3bn
€350m
€1bn (U-L)
€600m

Current Landscape for Institutional Business
Greece
PENSION FUNDS
• The establishment of IORPs (“TEA”) has just started and is expected to
take off
• Currently around 15 TEA’s (vs. Cyprus 1.300…!!!)
• Main form or supplementary retirement provision going forward…
• Industrial sector funds popular (e.g. insurance employees, F&B,
oil & gas, economists), international companies (e.g. Johnson &
Johnson) and local associations (e.g. casino workers, tax employees)
• Significant pool of assets (e.g. TEA Insurance companies 500m)
• First beauty parades already conducted
INSURANCE COMPANIES (LIFE BUSINESS)
• Significant market size – both individual savings and group pension
policies exist
• A significant proportion of that is under professional management
• Local managers are typically employed in mandates
• Variety of solutions offered...
• … but mostly restricted to asset managers within the same group
• “Interest-bearing”: “bond-like” and in-house
• Solvency II will force a shift from “interest-bearing” to unit-linked
€6-8bn (U-L)
€3-4bn
TEA

More Opportunities
Demographics, policy and fiscal conditions
POOR COVERAGE CURRENTLY FROM
SUPPLEMENTARY PENSION PLANS
1/3 of working population in Cyprus,
expect less in Greece after auxiliary
sector reform
AGEING POPULATION
Social Security Systems cannot
provide adequate replacement ratios
and face sustainability pressures –
2nd and 3rd pillars are critical
LONGER ACCUMULATION PHASE
Longer contribution periods,
increased demand for growth assets
LONGER LIFE EXPECTANCY IN
RETIREMENT
More demand for asset management
whilst in retirement
REVIEW OF IORP DIRECTIVE
Emphasis on sound systems of
governance, risk management and
investments
LOCAL LEGISLATION
Consideration of mandatory 2nd pillar
provision (e.g. NEST in the UK),
operation of industry pension plans
(e.g. TEA in Greece)
LOCAL REGULATIONS
Framework for Group Pension Policies
(e.g. Class 7 in Cyprus)
Orders from Pensions Regulators on the
management of pension plans
GOVERNMENTS CANNOT PICK UP THE
BILL OF PENSION PROVISION
Pay As You Go becomes Debt As You
Go under the current economic
conditions of debts and deficits
CROSS GENERATIONAL SUBSIDIES
Not a great place to be for a current
20-40 year-old!
STABILITY OF PUBLIC FINANCES IS
CRUCIAL TO ALL COUNTRIES
Avoid Defined Benefit pension
promises
Shift burden to private sector,
corporate and individuals
PEOPLE CANNOT AFFORD TO SAVE
Truth is, they cannot afford not to!!!
DEMOGRAPHICS POLICY FISCAL CONDITIONS
Make your OWN savings, save MORE, save for LONGER and invest WISELY

Grab the Opportunity with both hands
Step 1: Avoid the sins of the past
• Long period of asset destruction
• Clients’ needs were not properly addressed
• Worked in competition to rather than in harmony with the clients’ consultants
• Blurred lines between strategy, advice, asset management, brokerage and custody
• Conflicts of interest not properly addressed
• No focus on specialization – jack of all trades
• Lack of separation between different implementation strategies
• Lack of innovative solutions
“Those who do not remember the past are condemned to repeat it”
Benjamin Graham – The Intelligent Investor

Step 2: Meeting client needs and building trust
What are the current needs of institutional investors in Cyprus & Greece:
• Implementation of approved investment strategy given to manager
• Access to global markets – traditional and alternative asset classes
• Construction of a well-diversified, balanced portfolio subject to their risk budget
• Advice in transitioning from current portfolio and managing illiquid exposures
• Appropriate solutions – simple is beautiful, avoid unnecessary complexity
• Regular and clear reporting
• Smooth cooperation with consultants
• Building a relationship based on trust

Step 3: Modus operandi
Pension/Provident Funds (Cyprus Law based on IORP Directive, expect similar for TEA)
• Every pension/provident fund MUST appoint:
1. A Consultant for General Investment Matters (strategy, support, monitoring)
2. A Consultant for Specific Investment Matters (investment advice, implementation)
Although some exemptions may apply, prudent management and international best-
practice require the appointment of professionals for these functions
• Clear distinction of roles and responsibilities is desirable
Insurance companies
• Adopt similar structure to above with due regard to size, skills and expertise of
in-house investment team/committee
• Set up clear processes and terms of reference for each of the parties involved
Establish a modus operandi which is beneficial for the people it is supposed to serve!

Back to basics
Investment Control Cycle
Monitoring
Strategy
Implementation
Objectives
Risk and return
Asset allocation
Asset class strategy
Investment guidelines
Performance
Manager evaluation
Adherence to
guidelines
Fund selection
Security selection
Investment advice
Tactical allocation
Keep your eyes on the ball!!!

Thank you!
Marios Yiannas FIA
Cronje & Yiannas Actuaries and Consultants Ltd
18 Spyrou Kyprianou Avenue
1075 Nicosia, Cyprus
Tel: +357 22 456006
Fax: +357 22 456007
Email: marios.yiannas@cyactuaries.com
www.cyactuaries.com

Clear and independent institutional investment analysis
The Evolution of Institutional
Manager Research & Analytics
Steve Butler
Managing Director, CAMRADATA

Typical Consultant Research Process

CAPS Pooled Fund Survey - 1984 to 2012

Growth in structured data - 2014
Geography Coverage Asset
Managers
Investment
Strategies
Mercer GIMD Global All Asset
Classes
2,300 26,000
CAMRADATA Live European Traditional
Asset Classes
750 5,000
CAPS 2002 CAMRADATA 2014
Balanced / Multi Asset 30 Products 363 Products
UK Equity 45 Products 166 Products
Global Equity 685 Products

Research Process

Quant Screen

Floating Bar Charts

Cumulative Relative Returns

Risk/Return Chart

Relative rolling 36 risk adjusted against
peer group

Dependency Analysis

ESG Integration Analysis
Viewing Companies with a rating: CC & CCC
TOYOTA MOTOR CORP
APPLE INC
HEWLETT-PACKA RD CO
ENEL SPA
EDF
NESTLE SA
UNILEV ER PLC
THYSSENKRUPP AG
ARCELORMITTAL
ROYAL DUTCH SHELL PLC
SAMSUNG ELECTRONICS CO., LTD
INTEL CORP

UCITS DO NOT HAVE A GUARANTEED RETURN AND PREVIOUS PERFORMANCE DOES NOT GUARANTEE FUTURE RETURNS
May 2014
The Benefits of a Structured Approach
to Fund Selection
The Future of Asset Management in
Cyprus and Greece

Agenda
Mutual Fund Investing Gaining Importance1
Agenda
Passive vs Active Investing2
A Structured Approach to Fund Selection3

 Professional Management
 Diversification
 Low cost
 Liquidity
 Regulation & Transparency
 Counterparty and Country Risk eliminated
Mutual Fund Investing Gaining Importance
In the aftermath of the crises in Greece and Cyprus, Institutional Investors
increased their allocation in Mutual Funds in order to benefit from:
More than 5000 distinct strategies available in Europe

Passive vs Active Investing
To be Active or not to be?
Passive Investing advocates argue that active managers cannot beat their
benchmarks. This is on average true.
Investing is a zero sum game: In order for an investor to outperform its
benchmark one or more investors must underperform.
On average:
 Passive Investors will underperform their benchmark by the fees of
the average Fund.
 Active Investors will underperform their benchmark by the fees of
the average Fund.
Since Passive Funds have lower fees then on average outperform Active
Funds.
The magic word here is “on average”. What about the variation of outcomes?

Since Passive Funds replicate an Index, they have low variation of outcomes.
They usually underperform their benchmark by the management fee.
With Passive Investing, an Investor knows he/she can be close and below its
benchmark
90
100
110
120
130
140
150
160
170
21/5/2009
21/8/2009
21/11/2009
21/2/2010
21/5/2010
21/8/2010
21/11/2010
21/2/2011
21/5/2011
21/8/2011
21/11/2011
21/2/2012
21/5/2012
21/8/2012
21/11/2012
21/2/2013
21/5/2013
21/8/2013
21/11/2013
21/2/2014
21/5/2014
ETF MSCI EUROPE

Active Investing has a big variation of outcomes. Whether someone can
outperform its benchmark is a direct function of how good your Fund
Selector is:
With Active Investing, an Investor can outperform its benchmark
60
80
100
120
140
160
180
200
Best Performing Fund MSCI EUROPE Worst Performing Fund

Example 1: Global Equities
80
180
280
380
480
580
680
19/8/1996
19/3/1997
19/10/1997
19/5/1998
19/12/1998
19/7/1999
19/2/2000
19/9/2000
19/4/2001
19/11/2001
19/6/2002
19/1/2003
19/8/2003
19/3/2004
19/10/2004
19/5/2005
19/12/2005
19/7/2006
19/2/2007
19/9/2007
19/4/2008
19/11/2008
19/6/2009
19/1/2010
19/8/2010
19/3/2011
19/10/2011
19/5/2012
19/12/2012
19/7/2013
19/2/2014
Global Equities Advised Fund MSCI WORLD

Example 2: European Equities
30
50
70
90
110
130
150
29/12/2000
29/8/2001
29/4/2002
29/12/2002
29/8/2003
29/4/2004
29/12/2004
29/8/2005
29/4/2006
29/12/2006
29/8/2007
29/4/2008
29/12/2008
29/8/2009
29/4/2010
29/12/2010
29/8/2011
29/4/2012
29/12/2012
29/8/2013
29/4/2014
European Equities Advised Fund MSCI EUROPE

To be Active or not to be? Yes, but only if you have a quality Fund
Selection process in place.
Most Fund Selectors rely on ratings made by Databases like:
 Morningstar
 Lipper
 Citywire
Using the rating databases could be an input, but a Fund Selector could
not rely to them.
A structured qualitative skewed approach should be in place to ensure
proper Fund Selection, to ensure a higher probability to outperform
the benchmark.
To be Active or not to be? YES

Categorization
&
Initial Screening
Quantitative
Scoring
Qualitative
Analysis
Final Decision
Steps of a structured Fund Selection process
Fund Selection
conducted quarterly on
a tabula rasa basis
Fund Selection Process

Filters imposed for limiting universe :
 Liquidity Screening by AuM ≥ € 50 million
 Track record availability (at least 3 years of track record is
necessary)
Categorization
&
Initial Screening
A Structured Fund Selection methodology
Categorization & Initial Screening
Categorization
&
Initial Screening
 All mutual funds are categorized under 90 categories
 Systematic execution guarantees the validity of comparison
and selection
 Comparing “like with like” is ensured by correct assignment
to peer groups

For testing performance consistency and persistency
qualified funds are scored based on an in-house model
Major metric pillars
Metrics
ScorecardRisk
Returns
Manager Tenure
Metrics vs Benchmark
Risk/Return
Fund Size (AUM)
Quantitative
Scoring
Quantitative Scoring
Qualitative
Analysis

Risk
Returns
Metrics vs Benchmark
Risk/Return
• Total returns (YTD, 3y, 5y)
• Annual returns
• Annual returns rank %
category
• Morningstar return
• Morningstar return rank %
category
• Sharpe (1y, 3y, 5y, 10y, 15y)
• Sortino (1y, 3y, 5y, 10y, 15y)
• Standard deviation
(1y, 3y, 5y, 10y, 15y)
• R squared
• Beta
• Tracking Error
ReturnRisk Risk/Return
• Upside/Downside
capture ratio
• Batting average
• Alpha
• Treynor
• Information
Ratio
Quantitative Scoring: Scorecard metrics
Metrics
Scorecard

 Primary focus is on the Strategy of the fund
 PARENT, PEOPLE, PROCESSES (PPP) are studied in detail
 Information gathering means:
− Meetings with Fund Managers
− Conference Calls
− Holdings look through
− Investment Conferences
 SWOT (quality) cards for top scoring funds
Qualitative
Analysis
Qualitative Analysis
We could characterize the selection methodology as
“qualitative skewed”
More than 300 meetings and calls per annum

Final Decision
• In depth qualitative analysis and internal focus group
final steps
Focus on top
2-3 funds with
highest quant
score
Continuous
monitoring &
feedback
Detailed
presentation
of Metrics
Scorecards
In depth
discussion on
Fund Strategy,
PPP
DEBATE
& DECISION
Final Decision
per category

Step 1:
Funds categorization
The full cycle of the fund selection process is run quarterly on a “tabula rasa” basis
Universe of over 1,300 funds from 15
global Fund Managers; 90 categories
Step 2:
Initial screening
20-40 % reduction of
initial Funds list
List screened by:
 Exclusion of funds with low
Morningstar rating and/or
low fund size
Step 3:
Quantitative
Final ranking based on:
 Fund Strategy
 Performance consistency
 Investment mgt team
 Investment mgt process
Information gathered on regular
interviews with Asset Managers
Ranking based on:
 Performance
 Volatility
 Risk/return ratios
 Alpha/beta
Methodology reviewed
bi-annually to optimize
assessment criteria
Final decision
Top 3 Funds
per category
Top 3 Funds
per category
Mutual Funds’ organized by:
 Asset classes (equities, FI, etc.)
 Geographies (US, EU, Asia, etc.)
 Style (Small–Medium–Large cap)
 High yield–investment grade–
government–corporate
 Industry Sectors & Themes
Geographies
Step 4:
Qualitative
 Debate
 Decision
per category
Top 1 Fund
per category
Strategy
Parent
People
Process

Summary
 Mutual Fund Investing Gains Importance
 It pays out to be Active – But only when proper Fund Selection
methodology is in place
 A Structured Fund Selection Methodology can significantly increase
the probability for an Investor beating its benchmark
Choose your Fund Selector carefully

Thank you!
The Benefits of a Structured Approach to Fund Selection

May 2014
ALPHA TRUST MUTUAL FUND MANAGEMENT S.A.
21, Tatoiou str., 145 61 Kifissia, Greece, Tel.: +30. 210 6289300, Fax: +30. 210 8089150
url : www.alphatrust.gr, email: info@alphatrust.gr ,
General Electronic Commercial Registry: 882401000, Tax Registration Number 094317734 Athens Tax Office,
Hellenic Capital Market Commission’s License 24/669/23.12.2013
UCITS OFFER NO GUARANTEED RETURN AND PAST PERFORMANCE DOES NOT GUARANTEE THE FUTURE ONE.
" An Outline of Distinct Pension Fund and Unit-Linked Investment Strategies”

Alpha Trust Group
Who we are
 Alpha Trust is today the oldest and largest independent asset manager domiciled in Greece.
 55 employees of which 18 Investment Professionals located in Athens.
 Alpha Trust Hellenic Equity Fund is the only overall five-star Morningstar rated fund with long
track record in the Morningstar category of Greece Equity.
 Supervised by the Hellenic Capital Market Commission.

Mutual Fund Management
Institutional Mandates - 2008-2013
Alpha Trust Mutual Fund Management S.A. was awarded the mandate
for the establishment and the investment management of The
Economists’ Occupational Pension Fund Domestic Balanced Fund. The
mandate was awarded following an RFP process in which the top 10 local
mutual fund management companies participated.
for the management of two Domestic Mutual Funds: the Interlife Equity
Fund and Interlife Balanced Fund.
The management of Interamerican Life Insurance Co., Part of Achmea
and the 2nd largest Life insurer in the Greek market, announced its
decision to include Alpha Trust Mutual Fund Management S.A. products
in its unit linked offerings to individual and corporate customers.
Interlife General Insurance Company
The Economists’ Occupational Pension Fund

ΤΕΑ INTERAMERIΚAN
S&B Industrial Minerals S.A. and Interamerican Life Insurance S.A.
awarded the mandate for the management of the new M/F S&B
PENSION Global Equity Fund of Funds to Alpha Trust Mutual Fund
Management S.A..
On 13, September 2013, Alpha Trust AE Mutual Funds Management was
awarded the mandate for the management of part of the Occupational
Fund “ΤΕΑ ΕΑPΑΕ”’s portfolio, following an RFP process, in which the
largest Greek banks participated.
for the establishment and the investment management of the TEA
Interamerican Global Balanced Fund of Funds. The mandate was
awarded following an RFP process in which selected foreign and local
asset managers participated.
S&B Industrial Minerals S.A.
Occupational Pension Fund of
Interamerican
Mutual Fund Management
Institutional Mandates
ΤΕΑ ΕΑPΑΕ
Occupational Fund

Pension Plan Management Policies
Integrated
Decision
Process
Funding
Policy
Benefits
Policy
Investment
Policy
In the wake of the recent financial crisis, fund trustees, plan sponsors, and administrators are
reconsidering traditional Pension Plan Management policies.

Defined Benefit (DB) & Defined Contribution (DC) Pension Plans
Pension Plans Generally Come In One Of Two Varieties:
Defined Benefit (DB) & Defined Contribution (DC)
Retirement plans are based on the formula:
C + I = B (contributions + investment earnings = benefits)
DB plans: A promise for the future { C + I = B }
DC plans: The employee is taking the investment risk {C+ I = B}

Strategy Description Comment
CPPI
Assets are rebalanced between
bonds and the “Risky part”
Low perceived cost, but
administratively complex and potential
for “cash lock”
Target Volatility
Allocations between growth and
conservative assets is determined
based on volatility
Theoretically attractive approach that is
beginning to gain traction in the market
Target Date
Allocations between growth and
conservative assets is determined
based on age
Consistent with existing approaches,
but can be ineffective through periods
of sustained volatility
The recent financial crisis forced many DC plan administrators to reassess their
investment strategies
DC Investment Strategies

Constant Proportion Portfolio Insurance

Target Volatility Funds

Target Date Funds

DB Investment Strategies
Strategy Description Comment
Strategic Asset
Allocation
Allocation between asset classes is based on historic
risk/return data
Depend on past data /
Not necessarily
consistent with short
term constrains
Traditional LDI
It involves the construction of a Liability hedging
portfolio
Removes financial risk –
suitable for 100% funded
funds
De risking
Systematic switching from risky assets to Liability
hedging assets
Combines Strategic Asset
Allocation & LHP
strategies
Dynamic Asset
Allocation
Dynamic allocation between a Liability hedging
portfolio & a Performance Seeking Portfolio
Combination of de-risking
and re-risking processes
in relation to the funding
status of the Pension
As funding levels decline, the need for investment strategies that focus on
Asset – Liability matching increases

The liability hedging portfolio
Source: AEGON

The Importance of Active Asset Allocation: An example
Source: Alpha Trust
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
04/09 10/09 04/10 10/10 04/11 10/11 04/12 10/12 04/13 10/13 04/14
ALPHA TRUST HELLENIC EQUITY FUND Athens Compo Sh Pr Index
Alpha Trust Hellenic Equity Fund
5Y Performance
(30/04/2009-30/04/2014)

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
15% 20% 25% 30% 35% 40%
cumulativereturn
volatility
ALPHA TRUST HELLENIC EQUITY FUND
GREECE EQUITY Category Average
Athens Compo Share Price Index
Source: Alpha Trust
Alpha Trust Hellenic Equity Fund
5Y Risk Return Analysis
(30/04/2009-30/04/2014)

-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
04/09 10/09 04/10 10/10 04/11 10/11 04/12 10/12 04/13 10/13 04/14
GENIKI BOND DOMESTIC Barclays Greece Govt All Bonds
Source: Alpha Trust
Geniki Domestic Bond Fund
5Y Performance
(30/04/2009-30/04/2014)

-20%
0%
20%
40%
60%
80%
10% 15% 20% 25% 30% 35%
cumulativereturn
volatility
BOND GREECE Category Average
Barclays Greece Govt All Bonds
Source: Alpha Trust
(30/04/2009-30/04/2014)

-2%
-1%
0%
1%
2%
3%
4%
5%
6%
04/09 10/09 04/10 10/10 04/11 10/11 04/12 10/12 04/13 10/13 04/14
GENIKI EURO MONEY MARKET FUND - SHORT TERM Citigroup EUR 1 Month EUR Depo
Source: Alpha Trust
Geniki Euro Money Market Fund – Short Term
5Y Performance
(30/04/2009-30/04/2014)

-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
04/09 10/09 04/10 10/10 04/11 10/11 04/12 10/12 04/13 10/13 04/14
The Economists Occupational Pension Fund BENCHMARK *
Source: Alpha Trust
The Economists Occupational Pension Fund
5Y Performance
(30/04/2009-30/04/2014)

-60%
-40%
-20%
0%
20%
40%
60%
5% 10% 15% 20% 25% 30% 35% 40%
cumulativereturn
volatility
Athens Compo Sh Pr Index
Barclays Greece Govt All Bonds
BALANCED (GREECE) Category Average
ETAO BENCHMARK *
* benchmark: 30%Athens Compo Sh Pr Index+40%Citigroup EUR 1 Month EUR Depo+30% Bond Index, which as of 01/01/2013 Barclays
EuroAgg Total Return, SBGRL as of 01/04/2010 to 31/12/2012, SBEB before 01/04/2010
Source: Alpha Trust
(30/04/2009-30/04/2014)

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
04/09 10/09 04/10 10/10 04/11 10/11 04/12 10/12 04/13 10/13 04/14
The Economists Occupational Pension Fund PORTFOLIO
Source: Alpha Trust
The Economists Occupational Pension Fund vs Alpha Trust Stable Weights Portfolio
5Y Performance
(30/04/2009-30/04/2014)
Alpha Trust Stable Weights Portfolio

Source: Alpha Trust
-10%
0%
10%
20%
30%
40%
50%
60%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
cumulativereturn
volatility
Alpha Trust Stable Weights Portfolio
The Economists Occupational Pension Fund vs Alpha Trust Stable Weights Portfolio
(30/04/2009-30/04/2014)

• There is No Such Thing as “One Size Fits All”.
• Different Investment Strategies can help Pension Funds to control
Risk.
• Implementation of clear and well defined Investment strategies is
vital for a viable and realistic Pension System.
• Active Asset Allocation improves significantly the Risk-adjusted
Returns.
Concluding Remarks
Thank you

Managing Exposures
in Illiquid Instruments
28 May 2014
C∙Y Actuaries Conference:
“The future of Asset Management
in Cyprus and Greece”

OVERVIEW
 Definitions – What are illiquid instruments
 The link between Liquidity and Quality
 Examples of Illiquid Instruments
 Valuation Methods – Marking to Market
 Case Study – Cyprus Government Bonds
 Trading Illiquid Instruments
 Other Options for Managing Exposures
 Summary of key points - Questions

Illiquid instruments: Definition
ILLIQUID means:
The state of a security
or other asset that
cannot easily be sold or
exchanged for cash
without a substantial
loss in value.
The lack of ready buyers also leads to larger discrepancies between the asking
price (from the seller) and the bidding price (from a buyer) that would be
found in an orderly market with daily trading activity.
Illiquid assets also
cannot be sold quickly
because of a lack of
ready and willing
investors or speculators
to purchase the asset.

Illiquid instruments: The Bid-Offer Spread
A common measure to assess the liquidity of an instrument is its BID-OFFER
SPREAD. This can vary from a few basis points to several percentage points:

Illiquid instruments:
Typical characteristics
Uncertainty about Fair Value
Lack of a market where active trading takes place
Very few (if any) dealers/brokers providing quotes
Small issue sizes – typically under $200 million
Investors – Hedge Funds, Distressed Investors, Speculators
Credit Quality - Non-Investment Grade

The link between liquidity & quality
As instruments deteriorate in quality the nature of investors changes from long
only real money accounts to hedge funds. As the latter investors demand big
discounts for holding risky assets we often see big gaps in this process of
investor profile change. E.g. Cyprus Government Bond 2020:

The link between Liquidity & Quality
CYPRUS:
 KOXA
Cyprus Government Bonds issued
under Cyprus Law and traded on
the Cyprus Stock Exchange (CSE)
 Bonds of Local Banks
Senior, Subordinated & convertible
securities
 Unlisted Shares
 Corporate Bonds
 Asset Backed Securities (ABS)
 Structured Credit Products
e.g. CDOs, CLNs
 Bonds rated CCC and below
 Shares of Small Cap Companies
GLOBAL:

Marking to Market: Valuation Methods
 Reliable valuation of assets for which markets become illiquid is a
big challenge but also, arguably, the most important step in the
process of managing portfolios of illiquid instruments.
 There are several valuation methods that can be used but it is
always important to consult the market since, especially for illiquid
bonds, a price derived by a model will rarely be found in the market.
 There is no “one size fits all” approach.
 In each case one should look for the best possible benchmark and
assess the results based on the relevance to that benchmark.

Marking to Market: Case Study KOXA
 One of the most common instruments found in investment
portfolios of local institutional accounts are Cyprus Government
Bonds which are listed on the Cyprus Stock Exchange and are under
Cyprus Law.
 While the International Bonds (Euro Medium Term Notes – EMTNs)
of Cyprus have become very liquid, trading with a bid-offer spread of
50 basis points, the domestic government bonds market is at the
early stages of its development hence it still is relatively illiquid.
So Why do the bonds of the same issuer (Republic of
Cyprus) trade so differently and how can we price KOXAs
given that they are so illiquid ?

MAIN DIFFERENCES
between KOXAs &
EMTNs:
EMTNs KOXAs
Average Issue Size (EUR) 719,666,667 58,993,446
Number of Issues 6 37
Average Coupon 4.25% 5.27%
Nature of Investors Majority foreign Majority local
Legal Framework English Law Cyprus Law
Trading Venue OTC Stock Exchange +
OTC

Plotting the Yield Curve: Using the 3 points provided by the
EMTN market and the 10-year GGB as a benchmark for our 10-
year yield we interpolate a hypothetical EMTN yield curve:
STEP 1

Deciding the premium: Investors interested in the KOXAs
would typically demand a premium for holding these
instruments instead of the EMTNS.
STEP 2
This premium is a factor of:
 Liquidity: An investor demands a premium for holding an illiquid
asset instead of holding a liquid one.
 Law: The recent example of the Greek PSI has made many investors
more comfortable with debt instruments that are governed by
English Law versus debt which is governed by the Law domestic to
the country of exposure of the issue (in our example, Cyprus).

Adding the premium and reverse engineering the implied
cash prices:STEP 3

An ALTERNATIVE SOLUTION is to load our page on Bloomberg
(FBME<GO>) where we price all of the Cyprus Government bonds
(both EMTN and KOXA):
!

Trading Illiquid Instruments
 Accurate valuation of the instruments will obviously result in a
better informed BUY / SELL / HOLD DECISION by the portfolio
manager or investment committee.
 However, given that we are discussing illiquid instruments it has to
be highlighted that it is not always possible to achieve the price that
results from the valuation, unless the valuation is based on a firm
price provided by a reliable market maker in the securities.
How can you achieve the best price?

PARAMETERS to consider for best price achievement:
How big is the position relative to the issue size?
How are related markets performing at the time
of your decision?
Are there more buyers or sellers at the time of
execution?
Are you getting pricing from enough sources?
Size
Timing
Market Dynamics
Pricing Sources

 Over the past year we have seen local accounts both selling (either
because of funds breaking up or implementing diversification
strategies) and buying (optimizing cash positions in banks).
 The demand of hedge funds and other international investors for
Cyprus risk has led to the creation of a fairly efficient OTC market.
 Most government bonds can settle on Euroclear and international
custodians can facilitate OTC transactions in the issues of banks and
corporates.

 This means that although it might appear on the Cyprus Stock
Exchange (CSE) that there is no liquidity for the locally issued
bonds, there is an OTC market which is developing and through
which investors can potentially execute their investment decisions.
 Using our case study as example, a local investor can sell or buy
KOXAs via Euroclear if their counterparty either cannot hold the
securities on the CSE directly or simply because this is their
preferred settlement method.

Alternative risk management solutions
 Selling the position is not the only way to manage an exposure.
 Illiquid markets often create the need for alternative solutions to reduce
the exposure to a market/issuer.
 For bonds an alternative solution is to buy protection against the default of
the issuer via a Credit Default Swap (CDS).
 Interest Rate Swaps (IRSs) can be used in the event that the main concern
for the exposure is hikes in interest rates rather than a default of the issuer.
 For equities, if the stock is illiquid it is unlikely that a liquid derivative will
exist. However, one can use proxy hedges e.g. chose the index with the
highest positive correlation and open a position in the opposite direction
either via the index or a derivative of the index.

Summary: Key Points
 Many local institutional accounts have been locked in instruments
which are considered to be illiquid
 The recent improvement in the Cyprus bond market has created a spill
over of demand to the illiquid securities.
 There are valuation methodologies for these securities and marking the
portfolio to market is crucial.
 An OTC market is developing and the majority of listed fixed income
securities now trade outside of the exchange.
 There are alternative solutions for managing risk if selling is either not
desirable or not possible.

THANK YOU FOR YOUR ATTENTION!
IOANNIS PETRI
Head of Investment Services
T: +357 22 888 416
ioannis.petri@fbme.com
www.fbme.com

Global
Equities
Adding value
to performance

Globalization - we live in a global world
 Abolition of import tariffs / controls has benefited global trade
 Global trade (merchandise and services) now accounts for over 30% of the world’s GDP
 Cross border FDI’s are also at record highs
Global Equities
World exports of merchandise and services to world GDP
Source: IMF for world GDP, WTO Secretariat for merchandise trade, WTO Secretariat and UNCTAD for
commercial services
Inward and outward FDI ($bill current prices)
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
1970 1975 1980 1985 1990 1995 2000 2005 2010Source: UNCTAD Stat

Globalization - economic balance is shifting
 Globalization has also changed the economic landscape
 Developed economies now contribute much less to the world’s GDP vs emerging economies
 Whilst emerging market equities are also gaining in importance
Global Equities
Share of World’s GDP by region
Source: IMF /World Bank
Weights in MSCI All country Index 2102
Japan
Canada
US
UK
Pacific
Emerging Markets
Europe ex UK
Source: MSCI
US & Can
Japan
BRIC
EU top 5
Rest of World
0%
5%
10%
15%
20%
25%
30%
35%
40%
01/01/1990 01/01/1994 01/01/1998 01/01/2002 01/01/2006 01/01/2010

Globalization - corporate revenues are geographically diverse
 Based on latest data 46% of the revenue of S&P 500 US companies is derived from international operations vs 30% 15
years ago
 Revenues generated by emerging economies now surpass that of the US
 This has shifted the importance into global from local investing
Global Equities
S&P 500 companies’ non US sales as % of total
MSCI All country World Index sales vs market cap
30%
21%
11%
3%
32%
2%
51%
25%
8%
5%
11%
0%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
North America
Europe ex UK
Japan
Pacific ex Japan
Emerging markets
Other
Market Cap in MSCI
Revenue derived from
region
Source: MSCI / Capital Group
38%
39%
40%
41%
42%
43%
44%
45%
46%
47%
48%
49%
2003 2007 2011

Globalization - technological breakthrough
 High speed internet and communications have changed the investment landscape
 Barriers to global / international investing have been minimized
 Access to financial information is instant and shared across the world
 No disadvantage from remote investing
 Globalization of financial powerhouses also allows for easy access to quality primary research at minimum cost
 Online trading enables efficient execution
 Mobile access allows for 24h monitoring and eliminates time zone issues
Global Equities

Global Equities- what do we mean by global equity investing?
 Global equity investing is therefore the selection and investment in equities not on a localized but on a global basis
 It is the investment in the 43,512 globally listed companies
 The total capitalization of global equities is $57.527 trillion ( as of Jan ’14)
Global Equities
Number of listed companies
Source: World Federation of Exchanges members
Stock Market Capitalization
$26,980,552
$17,945,574
$3,003,475
$9,863,206
- 10,000,000.00 20,000,000.00 30,000,000.00
Americas
Asia - Pacific
Africa - Middle East
Europe
Source: World Federation of Exchanges members
10,219
23,759
1,824
7,710
0 5 000 10 000 15 000 20 000 25 000
Americas
Asia - Pacific
Africa - Middle East
Europe

Global Equities- why global equities make sense
 Global equities offer the following distinct advantages
 Diversification (geographical / segmental / currency)
 Ability to select ‘best of class’ global stocks rather than confined localized investments
 Opportunity for Alpha generation (additional return)
 Optimization of risk adjusted returns
 Better risk / return profiles
 Better downside protection
 Ability to capture true globalized economic reality
 Liquidity
Global Equities

Global Equities- why global equities make sense: smartphone industry
 The global smartphone industry represents a simple yet real example of the benefits of global equity investing
 The market exploded with units sold rising almost 10x from 173.5m in ‘09 to 1billion in ’13 for revenues of >$350bl
p.a.
 This represented a great opportunity for investment but with local only mandates such an opportunity would go
missing
 Market in 2009 represented mainly by 5 companies listed in 5 different stock markets across 3 different continents
Global Equities
Smartphone vendors shipments (units in millions)
Smartphone total market (units in millions)
-
200.00
400.00
600.00
800.00
1,000.00
1,200.00
2009 2010 2011 2012 2013
Source: IDC
Nokia
RIM (blackberry)
Apple
Samsung
HTC
Others
0
50
100
150
200
250
300
350
400
450
2009 2010 2011 2012 2013

Idea Generation
Criteria
evaluation
Investment
committee
approval
Global Equities- why global equities make sense: investment process Global Equities
Global analysis
and research
Analysis team
Asset
management
team
Quantitative Models
Qualitative Models
Primary /
Secondary research
Sector Analysis
Information
Gathering
Implementation
/ reevaluation
Macroeconomic
Analysis
Sector Analysis
Corporate Analysis
10,000 Companies
Observation
Management
Updates
Company Visits
Participation in
Analyst Meetings
and Conference
Calls

Idea Generation
Criteria
evaluation
Investment
committee
approval
Global Equities- why global equities make sense: investment process Global Equities
Quantitative criteria Qualitative criteria
Implementation
/ reevaluation
Fair Value >15% from current
price
Profitability: P/E, P/E/G, Div
Yield%
Value: ROE, ROIC,EBITDA
Margin
Prospects: EPS Gr, Rev Growth
Balance Sheet: BS Strength, P/B
Liquidity: EV/Ebitda, EBITDA/Net
Debt
Valuation: P/E, P/B< of average
Risk
Comparative valuation with
sector
Management Evaluation
Corporate Governance
Evaluation
Valuation of Information
Sector Prospects
Strategy Evaluation
Competitiveness evaluation
Possible Merger/Acquisition
scenarios
Minority Interest observations

Global Equities- why global equities make sense: smartphone industry
 Stock picking and investing in the market and in specific stocks was highly rewarding.
 Local only focus would pass / miss such opportunities
 The list also of companies that have also benefited from the growth in smartphone sales is limitless (Application
software developers, chip producers)
Global Equities
Smartphone vendors stock performance (% from 2009)
Source: Bloomberg
Smartphone vendors cumulative stock performance (% from
2009)
-200%
-100%
0%
100%
200%
300%
400%
500%
600%
700%
APPLE NOKIA BLACKBERRY SAMSUNGSource: Bloomberg
APPLE
NOKIA
BLACKBERRY
SAMSUNG
0%
100%
200%
300%
400%
500%
600%
700%
800%
01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014

Global Equities- historical global equity returns vs local markets
 Diversification and breadth means that historically global equities have had superior risk adjusted returns
 The MSCI AC World index and the S&P 500 index in EUR (the most diversified in terms of revenue) display these
characteristics
 This has huge implications for optimizing expected portfolio returns
Global Equities
Stock market returns -20 years
Source: Bloomberg
Stock market returns -20 years
Source: Bloomberg * FTSE / CSE 20 from 2000 onwards
S&P 500
MSCI AC World
index
ASE
CSE/FTSE
0%
100%
200%
300%
400%
500%
600%
700%
01/12/1994 01/12/1998 01/12/2002 01/12/2006 01/12/2010
S&P 500
(EUR)
MSCI AC
World (EUR)
Athens Stock
Exchange
(ASE)
Cyprus Stock
Exchange
(CSE) *
Total Return 262.69% 135.31% 41.8% -94.89%
Return Annualised 5.17% 4.5% 1.8% -19.43%
Volat Monthly 4.78% 4.21% 9.2% 12.9%
Volat Annualised 16.56% 14.58% 31.85% 44.74%

Global Equities- global equities as part of portfolio of assets
 Adding global equities in portfolios has historically been positive for returns
 Risk assumed is also much less compared to adding only locals stocks in portfolia
Global Equities
Indicative Portfolio returns -20 years
Source: Bloomberg
Indicative Portfolio returns -20 years
Source: Bloomberg * 1m Euribor
CASH
50 % MSCI AC
World index +
50% Cash
50%
70%
90%
110%
130%
150%
170%
190%
210%
01/12/1994 01/12/1998 01/12/2002 01/12/2006 01/12/2010
50% MSCI AC
& 50% Cash *
Cash*
Total Return 108.4% 63.7%
Return Annualised 4.16% 2.55%
Volat Annualised 7.35% 0.6%

Global Equities- implementing global equity strategies
 Primarily either through managed portfolios or funds
 Managed portfolio and funds can be passive or active
 Tracker strategies are also there for consideration
 Manager / fund selection as important as strategy selection
 Advantage of manager selection is that it can be more flexible / tailor-made
 Implementation method may depend on the portfolio size
Global Equities

Strategy
implementation
options
What will the
strategy be?
How will it be
implemented
Global Equities- implementing global equity strategies Global Equities
Self investing
Discretionary
asset manager
mandate
Funds
Active
management
Passive
management
strategies
Direct stock
selection
Managed
portfolio/
account
Funds / ETFs
etc

Strategy
implementation
options
Manager /
custodian
selection
Implementation
Global Equities- implementing global equity strategies Global Equities
Self investing
Discretionary
asset manager
mandate
Funds
Choice of
managers
Fund / ETF
selection by
advisor /
manager
Direct
investments /
safekeeping
Subscription /
purchase units
Monitoring
Rebalancing/
appraisal
Rebalancing/
appraisal

Contact Global Equities
Name Christos Akkelides
Head of Asset Management
ARGUS Stockbrokers Ltd
Address 25 Demostheni Severi Ave.,Metropolis Tower,
1st & 2nd Floor,1080, Nicosia, Cyprus
P.O. Box 24863, 1304, Nicosia, Cyprus
Email cakkelides@argus.com.cy
www.argus.com.cy
Telephone (357) 22 717000
(357) 22 717076
THANK YOU FOR YOUR ATTENTION!

Building Trust
Investment Governance and Responsibilities to Investors
Stephan Cronje & Alexis Yiannas
28 May 2014
The information in this presentation is confidential and should not be distributed to third parties without the prior approval of Cronje & Yiannas Actuaries
and Consultants Ltd.

Investment Governance
Background
A TRICKY
CONCEPT
OECD DEFINITION:
“Procedures and
processes according to
which the <investments>
are directed and
controlled.”
INSTITUTE ON
GOVERNANCE
DEFINITION:
“Governance determines
who has power, who
makes decisions, how
other players make their
voice heard and how
account is rendered”
SO WHAT LEADS TO GOOD GOVERANCE?
o The right structures and processes
o The right people
o The right dynamic
WHY IS GOOD GOVERNANCE IMPORTANT?
o TRUST! (no trust leads to no risk appetite)
o It aligns objectives and implementation and avoids excessive risk
o It gives you a much better chance for good outcomes
o It necessarily leads to good outcomes
o It can be legislated & regulated
o Good structures and processes alone lead to good governance
SOME MYTHS ABOUT GOOD GOVERNANCE:

INVESTMENT
COMMITTEE
BOARD OF
TRUSTEES OR
COMMITTEE
INVESTMENT
CONSULTANT
ASSET
MANAGER(S)
CUSTODIAN
FUND
MEMBERS
INVESTMENT
OBJECTIVES
ASSET CLASS
STRATEGY
INVESTMENT
CONSULTANT
SELECTION
ASSET
MANAGER(S)
SELECTION
PERFORMANCE
MONITORING
STRATEGIC
ASSET
ALLOCATION
INVESTMENT
BENCHMARKS
/ GUIDELINES
TRUSTEE
TRAINING
PORTFOLIO
HOLDINGS
SAFEKEEPING
Investment Governance Structure & Processes
Parties and Processes – A Pension Fund Example
RISK APPETITE

Investment Governance Structure & Processes
Parties and Processes – A Pension Fund Example
PROCESS / PARTY
BOARD OF
TRUSTEES
INVESTMENT
COMMITTEE
INVESTMENT
CONSULTANT
ASSET
MANAGER(S)
Investment
Objectives
Decision maker Provides Input Provides Input
Strategic Asset
Allocation
Portfolio
Holdings
Oversees Oversees Oversees Decision maker
Asset Manager
Selection
Performance
Monitoring
Oversees Decision maker Provides Input Provides Input
Trustee Training Decision maker Provides Input Provides Input
STRATEGY
Trust Deed and Rules
Statement of Investment Principles
TOR of Investment Committee
Engagement letter with Consultant
IMPLEMENTATION
Investment Manager Agreements
Asset Class Strategies
Manager Selection Process / Policy
MONITORING
Quarterly monitoring reports
EDUCATION
Trustee Training Policy / Logs

Investment Governance – People
Structure and process are not enough
EUROPEAN DIRECTIVES AND FIT AND PROPER?
o IORP II Directive (Article 23) and SOLVENCY II Directive (Article 42) provide fit and proper criteria
for people who effectively run the organization and people responsible for key functions.
o AT ALL TIMES have adequate:
 Professional qualifications (fit)
 Knowledge (fit)
 Experience (fit)
 Of good repute and integrity (proper)
o IORP II Directive requires Member States (i.e. pensions regulators) to assess fulfilment of
requirements through effective procedures and regular controls
o Solvency II Directives requires Member States (i.e. insurance regulators) to ensure companies
have proper policies in place ensure fit and proper status. Insurers are required to notify the
regulators of any changes.
FINDING THE RIGHT FIT IN PRACTICE?
QUALIFICATIONS
KNOWLEDGDE
EXPERIENCE
INTEGRITY
TIME
AVAILABILITY
INDEPENDENCE
ENGAGEMENT
ENTHUSIASM
Do I
have a
person
that fits
this
profile?
• Can this be addressed
through education?
• Should this be
outsourced?
• Can I manage conflicts
through a conflicts of
interest policy?
COMPLIANCE PRACTICAL DYNAMIC

Investment Governance – Conflicts of Interest
Policy example
Do I have a direct or indirect personal
interest which can or may be perceived
as influencing me in a matter under
discussion by the trustees / board /
committee?
Remain at the meeting
Participate in the discussion
Vote on the motion
NO
YES
Might my conflict of interest rise to a
financial gain?
YES
Disclose interest
DO NOT participate in the discussion
DO NOT vote on the motion
If the interest is or can be seen as
significant, leave the room for the
discussion of the motion
NO
Is this interest minor, insignificant and
unlikely to be seen as influencing me in
the execution of my duties?
NO
Disclose interest
Disclose interest
YES
Disclose interest
 Complete an annual declaration of interests and maintain a conflicts of interest log
 Notify the chairman of any potential conflicts of interest before the meeting if you are aware
 At the start of every meeting the chairman will request confirmation from the meeting that there are no
conflicts of interest
 Conflicts of interest disclosures are also required from advisors

Trust
Ethical
Standards
Comparability
Confidentiality
Communication
Accountability
Alignment of
Interests
Transparency
Integrity
Building Trust

Building Trust –
Responsibilities to Investors
GAINING INVESTORS’ TRUST IS VITAL TO THE INDUSTRY!
• Regulatory frameworks not enough!
• Asset Managers need to prove their commitment to client needs
• Place investors’ interest FIRST
 Investors should, and are beginning to pay more attention to their rights
• Significant improvement potential
However, this is usually overlooked.....

Building Trust –
Trust the most important attribute
CFA Institute and Edelman partnered to understand the state of trust in the
investment industry. The study conducted in July 2013 surveyed 1,604 retail and 500
institutional investors in the United States, United Kingdom, Hong Kong, Canada and
Australia.
Source: CFA & Edelman Trust Study

Building Trust –
Where are we now?
46
49
50
57
57
60
62
66
73
Financial Services
Banks
Media
Pharmaceuticals
Energy
Consumer Packaged…
Food & Beverage
Automotive
Technology
2013
48
51
51
59
59
65
66
70
79
Financial Services
Banks
Media
Pharmaceuticals
Energy
Consumer Packaged…
Food & Beverage
Automotive
Technology
2014
WHICH INDUSTRIES INVESTORS TRUST THE MOST?
Source: Edelman Trust Barometer

Building Trust –
Cost of Failure
FAILING TO BRIDGE THE TRUST DISCONNECT IN THE LOCAL
MARKET WILL LIKELY RESULT:
• Market / economy impact
o Shrinking of the industry
o Lack of fund flow to local / regional projects
o Domination of global market participants, and
o Additional cost and effort to investors
• Social Impact
o Retirement savings
o Employment (particularly financial services sector)

Building Trust –
Where to focus?
Source: CFA & Edelman Investor Trust Study
TOP ATTRIBUTES TO BUILDING TRUST – AN INVESTOR SURVEY
Transparency
• Clear investment processes
• Reduce/resolve conflicts of interest
• Full disclosure of fees
Ethical Standards and Integrity
• Adopt widely recognised standards and
practices - Asset Manager Code
• Disclosure of regulatory infringements in a
timely and complete manner
Avoid Ambiguity
• Fair representation portfolio, risks exposed,
returns achieved
• Accurate and comparable performance
reporting – Global Investment Performance
Standards (“GIPS”)

Building Trust –
Responsibilities to Investors
INVESTORS HAVE THE RIGHT TO:
• Independent, objective advice
• Fair treatment
• Disclosure of existing / potential conflicts
• Knowledge and understanding of client-specific circumstances
• Explanation of ALL fees and costs incurred by the client
• Confidentiality
Essential to place the investor first – proactive, rather than reactive policies and procedures

Building Trust –
Pre-requisites
A successful asset management house MUST:
• Develop solid investment processes
• Invest in quality personnel
• Adopt a consistent investment philosophy
• Manage and present risk properly
• Report performance figures in a consistent and reliable manner
• Invest in the right systems
FOCUS ON WHAT YOU DO BEST!

Thank you!
Stephan Cronje FFA
Alexis Yiannas, CFA
Cronje & Yiannas Actuaries and Consultants Ltd
18 Spyrou Kyprianou Avenue
1075 Nicosia, Cyprus
Tel: +357 22 456006
Fax: +357 22 456007
Email: stephan.cronje@cyactuaries.com
alexis.yiannas@cyactuaries.com
www.cyactuaries.com

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