The document discusses using Northfield's Enterprise Engine (EE) structural risk model to provide integrated risk analysis across asset classes for both portfolio management and enterprise risk purposes. Key points: 1) EE uses a consistent factors-based approach to model risk across equities, fixed income, property, and other asset classes; 2) It employs structural models to assess credit and illiquid asset risk rather than relying solely on ratings and appraisal smoothing; 3) EE can be used at different levels of detail for different audiences and provides customizable reporting and risk decomposition.

1. NORTHFIELD Using a Structural Model for Enterprise Risk April 12th 2011 Presented by Nick Wade Director, Asia Marketing Northfield Information Services Inc. nick@northinfo.com +81(0)3 5403-4655 +61(0)2 9238-4284

3. CRO/Board/Trustees/Investment Committee need high-level risk across the firm

4. Client needs vary - Who is the asset owner?

5. Returns for illiquid assets e.g. direct property contain “appraisal smoothing” effects and do not reflect underlying risk i.e. it’s not a real price.

6. Risk Models typically used for fund management are not consistent across asset classes and markets, and usually ignore “difficult” asset classes like property, infrastructure, private equity.

8. E.g. what will happen if oil prices go up? Does my portfolio reflect my belief that Toyota will perform twice as well as BHP?

10. Good: typically an integrated platform

11. Bad:one dimensional, return-based; problematic for Illiquid instruments

12. Solution: Find an integrated Platform that can do bothOffer a customizable reporting tool on top of a set of smart components that can deliver both “VaR” and also multi-factor risk decomposition consistently and comparably across asset classes and markets satisfying both fund management and enterprise risk requirements

14. difficult assets can be “proxied” with equity securitiesCredit Ratings, Accounting data are reliable

17. Cover unlisted assets using a structural model, not historical returns

18. Use market-implied credit measures, not agency ratings

19. Embed into a firm-wide integrated platform

21. Risk Management (Risk Model Family)

22. Asset Allocation Tools (ART)

24. Structural Model for unlisted/illiquid asset classes – avoid issues with appraisal smoothing

25. Structural Model for Credit Risk – avoid agency credit ratings

26. Over 5 million individual instruments plus client defined terms:Global equity securities: developed and emerging, including externally managed funds Global fixed interest: developed and emerging government, corporate, convertible, CMO, MBS, ABS, muni, and agency bonds, and private placements, including externally managed funds Global REIT securities Direct investment in property down to tenant level Direct investment in infrastructure projects down to cashflow level Derivative securities such as swaps, futures, options Hedge Funds with undisclosed constituents

28. Atomic Approach to Risk

29. One set of factors for all asset classes

30. Market Risk

32. Credit risk

38. Sharpe style-analysis to get index weightings

42. 60,000 equity and 500,000 fixed interest instruments as standard

43. structural model for credit risk that is independent of credit ratings

44. structural model for illiquid assets avoiding appraisal smoothing

45. On-demand access to a further universe of over 5 million CMO, MBS, ABS, muni, and agency securities

48. Investment sense,broad acceptance & academic approval

49. Intuitive factors used to describe risks

50. Analysis that is comparable across markets

51. Systematic risks detected & understood

52. “Glass box” – open, clear models & systems