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Active Manager Profiles

Managed Portfolio Service New Zealand Funds Management Limited Level 16, Zurich House 21 Queen Street Private Bag 92163 Auckland 1142 New Zealand

30 April 2018


Legal disclaimer Please note that this document is provided for information purposes only. It is not intended to be a substitute for specific professional advice on investments, financial planning, taxation or any other matter. While the information provided in this document is stated accurately, to the best of our knowledge and belief, NZ Funds, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed in this document except as required by law. Please note that past performance is not necessarily an indication of future returns.


Manager & Strategy Overview

Active Bond Strategy* australasian | global bonds Dividend & Growth Strategy australasian shares LSV Asset Management global shares Impala Resource Fund global commodity shares

– Closed

Suvretta Offshore Fund Ltd. global long | short shares

– Close pending

Kynikos Global Capital Partners Ltd. global long | short shares H2O Global Alpha Fund global macro ISAM Systematic Management global trend following

– Close pending

* Proxy strategy for 50 | 50 combination of Core Income Portfolio + Global Income Portfolio

active manager profiles : : 30 april 2018


Active Bond Strategy New Zealand Funds Management Limited (“NZ Funds”) is one of New Zealand’s largest privately owned wealth management firms. Originally founded in 1988 to manage Lion Nathan’s superannuation fund, NZ Funds has gained extensive expertise in managing listed New Zealand and global bonds by continuously managing bond portfolios in-house since 1992.

Background NZ Funds is an investment manager based in Auckland with offices throughout New Zealand. NZ Funds’ investment team includes five CFA charterholders and a strong and experienced back-office team of over 40 employees. NZ Funds is one of the few investment managers in New Zealand with expertise in global investment management across multiple asset classes, including: local and international bonds, shares, currencies, commodities and alternative managers. The NZ Funds Active Bond Strategy’s (the “Strategy”) unconstrained investment approach to investing in both New Zealand and global bonds provides many diversification opportunities. This is particularly relevant in today’s increasing interest rate environment. Diversification and a strong asset or sector backing reduces the risk of the Strategy being materially impacted by an issuer of a bond failing to meet its obligations. Bonds with shorter terms to maturity reduce the impact of increases in interest rates. Despite the increasing interest rate environment, bonds remain appropriate for investors who plan to use their capital in the next 24 to 36 months. New Zealand bonds tend to initially hold their value in a sell off, due to the high level of retail ownership. There comes a point however, when some New Zealand bonds can “gap” in price and bargains can be purchased. Such buys can boost returns for many years to come. The Strategy’s highly liquid global bond holdings gives NZ Funds the flexibility to take advantage of these price/value discrepancies, should the opportunity arise.

Key biographies Mark Brooks, Principal & Head of Income Mr. Brooks is a Principal of NZ Funds and has over 20 years of experience as a Portfolio Manager. From 2003 to 2007, he was a Senior Portfolio Manager at a London based hedge fund Credaris with funds under management of €800 million. Since rejoining NZ funds in 2008, Mr. Brooks has played an integral role in the management of both the NZ Funds income portfolios and the development of the in-house research process. Josh Wilson, Principal & Portfolio Manager Mr. Wilson has 14 years’ experience in investment analysis and portfolio management. Since 2011 he has been the lead Portfolio Manager for Australasian shares at NZ Funds. Prior to joining NZ Funds, from 2007 to 2011 he served as a top-rated Equity Analyst for Collins Stewart, a London-based stockbroker. From 2004 to 2006 he worked as an Investment Analyst for AMP Capital in Wellington. Mr. Wilson holds a Bachelor of Commerce (Finance) from the University of Otago and is a CFA charterholder. David Wilson, Principal & Investments Strategist Mr. Wilson has been the Investment Strategist at NZ Funds since 1997. He is responsible for recommending the macro-economic positions within the income portfolios. These includes currency and duration positions. Prior to working at NZ Funds, Mr. Wilson worked at J B Were as Chief Economist and spent 9 years at the Reserve Bank of New Zealand. Mr. Wilson holds a BCA in economics from Victoria University of Wellington, is a CFA charterholder and a chartered accountant.

active manager profiles : : 30 april 2018


Investment mandate The NZ Funds Active Bond Strategy is designed to match the returns achieved by a 50/50 combination of Australasian bonds and global bonds. The Strategy is made up of two underlying portfolios, the Core Income Portfolio and the Global Income Portfolio, both of which are managed by the NZ Funds investment team. The Core Income Portfolio owns a diversified portfolio of bonds issued by New Zealand and Australian based companies, with the Australian bonds hedged back into New Zealand dollars. Global Income Portfolio owns a diversified portfolio of bonds issued predominately by large United States companies, with the bonds predominantly hedged back into New Zealand dollars. The current environment advocates holding approximately half of the Strategy in onshore bonds and half offshore.

Idea generation Idea generation is tailored to reflect the relative size of the Australasian and global bond markets. The market in Australasia is small so all relevant and available securities are screened and considered. For the large universe of global bonds the focus is on listed companies which benefit from the tailwind of strong and growing industries and/or are undergoing transformational business change.

Investment process The Strategy employs a value-based credit selection process which is focused on the question “Is this business a good candidate to lend to?” To answer this question, substantial emphasis is placed on historical financial analysis, and an eight-factor credit checklist. This enables the team to form their own understanding of each business and the industry outlook to ultimately assess value. This focus leads to the Strategy holding a wide variety of industries, companies across the credit spectrum including high yield and unrated securities and often a relatively concentrated number of companies. NZ Funds has implemented a systematic approach to portfolio management under which investment positions are formally reviewed on a regular basis, and portfolio decisions are subject to rigorous peer review by the broader NZ Funds investment team. NZ Funds believes investors are best served by investment decisions made regardless of index composition. This means the Strategy composition may differ considerably from the index, and as such there is potential for substantial deviation from index returns.

Risk management The Strategy’s two underlying portfolios typically hold around 20 positions each. This is concentrated for an income orientated strategy. This reflects NZ Funds view that risk management starts with a deep understanding of each business owned combined with robust monitoring. In addition to individual company credit risk the Strategy faces three core market risks – credit risk, interest rate risk and currency risk. These risks, which are also opportunities to add value, are actively managed by the team using a systematic framework. This framework details each portfolios’ ability to add or reduce each of these market risks based on a defined risk budget (see below). Overarching all NZ Funds strategies is a proprietary risk model which uses historical volatility and/or tracking error to determine, in combination with NZ Funds’ investment conviction, the appropriate weight to each investment position within the Strategy. The implied risk of each position is then aggregated to ensure the Strategy is within its risk budget.

active manager profiles : : 30 april 2018


Active Bond Strategy Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Strategy (NZ$)

-0.2%

-0.9%

-0.5%

1.9%

2.8%

3.3%

3.5%

NZ / Intenational Bond Index (NZ$)

-0.3%

-0.4%

-0.2%

2.2%

2.4%

2.9%

2.9%

Risk adjusted excess performance

0.1%

-0.5%

-0.3%

-0.3%

0.4%

0.5%

0.6%

calendar

2017

2016

2015

2014

2013

Strategy (NZ$)

4.5%

5.9%

2.2%

5.3%

3.3%

NZ / Intenational Bond Index (NZ$)

5.1%

2.3%

3.6%

4.4%

1.2%

cumulative

1 year

2 year

3 year

4 year

5 year

Strategy (NZ$)

1.9%

5.7%

10.4%

15.9%

19.0%

NZ / Intenational Bond Index (NZ$)

2.2%

4.9%

8.8%

14.0%

15.6%

Performance profile* 150

3%

100

0%

Portfolio cumulative returns

Portfolio monthly returns -3%

50 Oct 12

Apr 13

Oct 13

Apr 14

* Before tax and after wholesale fees of 0.55%.

active manager profiles : : 30 april 2018

Oct 14

Apr 15

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

Monthly returns

Cumulative returns

125


Portfolio information Holdings (top 10) company

30 April 2018 Sector

apr 2018

Geography

sector

apr 2018

region

apr 2018

HCA

4.9%

Financials

20.1%

North America

52.0%

Flex

4.9%

Utilities

14.3%

New Zealand

32.6%

First Data

4.6%

Energy

14.1%

Australia

15.4%

Westpac Bank

4.4%

Cash

14.1%

BlueScope Steel

4.3%

Health Care

10.8%

Insurance Australia Group

4.3%

Materials

10.0%

Valeant Pharmaceuticals

3.8%

Consumer Staples

3.9%

Woodside Finance

3.6%

Consumer Discretionary

3.8%

Meridian Energy

3.4%

Real Estate

3.1%

Devon Energy

3.4%

Other

5.7%

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

0.5%

Average return (annual)

4.0%

3.0%

Tracking error

1.9%

Standard deviation (annual)

1.8%

1.1%

Maximum 1 month decline for portfolio (Index same month)

-1.1%

-0.4%

Information ratio

0.2

Beta (to comparitive index)

84%

Maximum 1 month decline for comparitive index (Fund same month)

-0.4%

-0.7%

Alpha (beta adjusted)

1%

Largest accumulative fund decline

-1.8%

-0.9%

R squared

25%

Up/down month ratio

3.3

3.9

Sharpe ratio

1.2

Excess return during negative months

1.3%

Tracking error during negative months

1.7%

Correlation to S&P500

0.5

Correlation to Barclays Global Bond Index

0.6

active manager profiles : : 30 april 2018


Dividend & Growth Strategy New Zealand Funds Management Limited (“NZ Funds”) is one of New Zealand’s largest privately owned wealth management firms. Originally founded in 1988 to manage Lion Nathan’s superannuation fund, NZ Funds has gained extensive expertise in listed New Zealand shares by continuously managing New Zealand share portfolios in-house since 1992.

Background NZ Funds is an investment manager based in Auckland with offices throughout New Zealand. NZ Funds’ investment team includes five CFA charterholders and a strong and experienced back-office team of over 40 employees. NZ Funds is one of the few investment managers in New Zealand with expertise in global investment management across multiple asset classes, including: local and international bonds, shares, currencies, commodities and alternative managers. NZ Funds has continuously managed New Zealand share portfolios in-house since 1992. The New Zealand Equity Income Fund (founded in 1992) and the New Zealand Property and Infrastructure Fund (founded in 1993) were merged in 2003 to form the Dividend & Growth Portfolio. As a result, NZ Funds has one of New Zealand’s longest domestic share investment track records. NZ Funds’ Dividend and Growth Strategy (the ’Strategy’) owns a diversified range of New Zealand shares and selective exposure to Australian shares, particularly in sectors which are under-represented in the New Zealand market such as natural resources.

Key biographies Josh Wilson, Principal & Portfolio Manager Mr. Wilson has 14 years’ experience in investment analysis and portfolio management. Since 2011 he has been the lead Portfolio Manager for Australasian shares at NZ Funds. Prior to joining NZ Funds, from 2007 to 2011 he served as a top-rated Equity Analyst for Collins Stewart, a London-based stockbroker. From 2004 to 2006 he worked as an Investment Analyst for AMP Capital in Wellington. Mr. Wilson holds a Bachelor of Commerce (Finance) from the University of Otago and is a CFA charterholder. James Grigor, Principal & Portfolio Manager Mr. Grigor has 14 years’ experience in investment analysis and portfolio management. Commencing his career with NZ Funds in 2004, Mr. Grigor spent five years as an equity analyst researching NZ and Australian equities and external managers. This was followed by six years in London, first as a management consultant at EY, followed by a role as an investment analyst in a private equity firm conducting management buyouts and growth capital investments. Prior to rejoining NZ Funds, Mr. Grigor was the Head of Portfolio Strategy at Macquarie Private Wealth and Chair of the Macquarie Private Wealth Investment Committee. Mr. Grigor is a CFA charterholder. David Wilson, Principal & Investments Strategist Mr. Wilson has been the Investment Strategist at NZ Funds since 1997. He is responsible for recommending the macro-economic positions within the income portfolios. These includes currency and duration positions. Prior to working at NZ Funds, Mr. Wilson worked at J B Were as Chief Economist and spent 9 years at the Reserve Bank of New Zealand. Mr. Wilson holds a BCA in economics from Victoria University of Wellington, is a CFA charterholder and a chartered accountant.

active manager profiles : : 30 april 2018


Investment mandate The Strategy invests in New Zealand and Australian shares with a target of outperforming a 70/30 combination of New Zealand and Australian share market indices after fees. Positions may also be held across a variety of instruments (e.g. currency, equity futures) to hedge against perceived market risks.

Idea generation NZ Funds focuses on buying shares in large, good quality, dividend paying companies, and regularly reviews the market for new opportunities in this category. NZ Funds seeks to buy these shares at an attractive price, and aims to hold them for the long term, whilst monitoring them closely. Along with dividend yield, when researching new investment opportunities, substantial emphasis is placed on historical financial analysis, and understanding industry structure and outlook. Various valuation techniques are employed, as relevant to the particular company and/or sector.

Investment process NZ Funds employs a dividend yield approach to share selection which it believes offers several benefits. First, it provides a value discipline which has been shown academically to produce attractive risk-adjusted returns. Secondly, it creates a bias toward better quality companies as a dividend payment typically requires a reasonable level of cash generation and financial strength. Thirdly, dividends can provide clear valuation support in the event of a significant market decline, reducing the impact on the Strategy of such an event. Finally, the approach is ideally suited to the high-yielding nature of the New Zealand and Australian share markets. NZ Funds has implemented a systematic approach to portfolio management under which investment positions are formally reviewed on a regular basis, and portfolio decisions are subject to rigorous peer review by the broader NZ Funds investment team. NZ Funds believes investors are best served by investment decisions made regardless of index composition. This means the Strategy composition may differ considerably from the index, and as such there is potential for substantial deviation from index returns.

Risk management The Strategy typically holds around 15 - 20 long positions. It can also take short positions in individual shares, although in aggregate this is expected to be only a modest part of the Strategy. Position sizes are based on conviction, volatility and liquidity considerations. Overarching all NZ Funds’ strategies is a proprietary risk model which uses historical volatility and/or tracking error to determine, in combination with NZ Funds’ investment conviction, the appropriate weight to each investment position within the Strategy. The implied risk of each position is then aggregated to ensure the Strategy is within its risk budget. Positions may also be held across a variety of instruments (e.g. currency, equity futures) to hedge against perceived market risks. These ‘macro’ positions are managed centrally across all NZ Funds’ strategies by the Chief Investment Officer and Investment Strategist.

active manager profiles : : 30 april 2018


Dividend & Growth Strategy Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Strategy (NZ$)

3.0%

-0.6%

4.8%

9.0%

12.7%

13.6%

14.0%

NZ / AUS Equity Index (NZ$)

2.4%

0.4%

3.7%

12.9%

12.5%

12.2%

12.9%

Risk adjusted excess performance

0.5%

-1.0%

1.1%

-3.9%

0.1%

1.4%

1.1%

calendar

2017

2016

2015

2014

2013

Strategy (NZ$)

21.9%

13.0%

15.9%

19.1%

7.5%

NZ / AUS Equity Index (NZ$)

21.0%

10.0%

12.1%

16.7%

19.1%

cumulative

1 year

2 year

3 year

4 year

5 year

Strategy (NZ$)

9.0%

26.9%

46.7%

75.0%

92.4%

NZ / AUS Equity Index (NZ$)

12.9%

26.6%

41.4%

61.8%

83.4%

Performance profile* 250

10% 224

150 0% 100

50

Portfolio cumulative returns

Portfolio monthly returns -10%

0 Oct 12

Apr 13

Oct 13

Apr 14

Oct 14

Apr 15

* Before tax and after wholesale fees of 1%. Includes imputation credits.

active manager profiles : : 30 april 2018

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

Monthly returns

Cumulative returns

200


Portfolio information Holdings (top 10)

30 April 2018 Sector sector

Geography

company

apr 2018

apr 2018

Rio Tinto

12.6%

Materials

22.2%

New Zealand

72.5%

Meridian Energy

10.0%

Telecommunications

16.2%

Australia

27.5%

Metlifecare

9.9%

Utilities

15.4%

Chorus

9.8%

Health Care Equipment

14.5%

Trade Me

7.2%

Energy

11.0%

Woodside Petroleum

5.9%

Retailing

10.8%

Z Energy

4.2%

Insurance

4.2%

Trustpower

4.1%

Food & Beverage

4.1%

Australian futures index

4.1%

Consumer Services

1.8%

Tower

3.7%

region

apr 2018

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

2.7%

Average return (annual)

9.6%

9.7%

Tracking error

4.3%

Standard deviation (annual)

9.8%

10.3%

Maximum 1 month decline for portfolio (Index same month)

-5.3%

-1.2%

Maximum 1 month decline for comparitive index (Fund same month)

-4.5%

-5.7%

-7.0%

-6.6%

2.3

2.2

Information ratio Beta (to comparitive index)

0.6 103%

Alpha (beta adjusted)

1%

Largest accumulative fund decline

R squared

79%

Up/down month ratio

Sharpe ratio

1.1

Excess return during negative months

4.7%

Tracking error during negative months

6.0%

Correlation to S&P500

0.7

Correlation to Barclays Global Bond Index

0.2

active manager profiles : : 30 april 2018


LSV Asset Management LSV Asset Management (“LSV”) is a global equity manager, founded in 1994 by finance professors Josef Lakonishok, Andrei Shleifer and Robert Vishny. LSV uses a quantitative investment approach which identifies undervalued shares with the potential for mediumterm appreciation. While LSV’s investment approach has been refined over the years, it is still based on the original academic findings of Dr Lakonishok, Dr Shleifer and Dr Vishny. LSV is Chicago-based with over US$105 billion in assets under management.

Background LSV is a value equity manager employing a proprietary quantitative process to evaluate individual stocks and construct portfolios. LSV have a quantitative value approach but with a key emphasis on momentum in determining when to buy a share. LSV’s investment philosophy is based on behavioural finance. Share prices can deviate from intrinsic/fundamental value because of the actions of naïve (unsophisticated) investors who trade based on emotion/psychology as opposed to fundamentals. The fundamental premise of LSV’s investment philosophy is that superior long-term results can be achieved by systematically exploiting the judgmental biases and behavioural weaknesses that influence the decisions of many investors. These include: the tendency to extrapolate the past too far into the future; to wrongly equate a good company with a good investment irrespective of price; to ignore statistical evidence and to develop a “mindset” about a company. Dr Lakonishok, Dr Shleifer and Dr Vishny are finance professors, well known for their work on behavioural finance. The premise of their academic research is outlined in the research paper ‘Contrarian Investment, Extrapolation, and Risk’ which the founders co-authored in 1994. Dr Shleifer and Dr Vishny have retired from the business but Dr Lakonishok remains the Chief Executive and Chief Investment Officer. The employees own a majority of the firm’s equity with SEI owning the remainder.

Key biographies Josef Lakonishok, Ph.D., Founder, Chief Executive Officer & Chief Investment Officer Dr. Lakonishok heads the research and investment team at LSV and is involved in all portfolio management and research functions. He has more than 30 years of investment and research experience. Dr Lakonishok is a former William G. Karnes Professor of Finance at the University of Illinois. Prior to assuming this position in 1987, he was a Professor of Finance at Cornell University. Before that, he held various staff and visiting professorships. Bhaskaran Swaminathan, Ph.D., Partner & Director, Research Dr. Swaminathan’s started at LSV in 2004 after a distinguished academic career. His research interests include asset pricing, behavioural finance, market efficiency and stock valuation. His work has been published in major academic journals. At Cornell University, he was twice selected, “Teacher of the Year” and was awarded the “EMBA Globe Award for Teaching Excellence”. Menno Vermeulen, CFA, Partner, Portfolio Manager & Senior Quantitative Analyst Mr. Vermeulen has more than 22 years of investment experience and was one of the first employees of LSV Asset Management. Mr. Vermeulen has a long history of working closely with Dr. Lakonishok to apply some of his academic theories. At LSV Asset Management, Mr.Vermeulen is a leader and an active member of LSV’s quantitative and implementation team.

active manager profiles : : 30 april 2018


Investment mandate LSV use a quantitative investment model to choose out-of-favour, undervalued shares which have the potential for near-term appreciation. Momentum in price and/or earnings provide a signal that the company may be able to achieve higher profitability than currently expected by the market. This in turn leads to a re-rating of the company’s likely future.

Idea generation LSV buys shares that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. They believe that these out-of-favour securities will produce superior future returns if their future growth exceeds the market’s low expectations. To begin with LSV differentiates between a “value” share, a poor performer with expected poor future potential, and a “glamour” share, a good performer with expected good future potential. The stocks are classified as such (value or glamour) based on four metrics: book-to-market (B/M, the opposite of price-to-book), cash flow-to-price (C/P), earnings-to-price (E/P), and five-year average growth rate of sales (GS). LSV’s philosophy is that value strategies produce superior returns because investors do not fully understand the phenomenon of mean reversion and hence, investors “extrapolate past performance too far into the future.” Therefore, to exploit this behavioural weakness, LSV believe investors should buy “value” shares and sell “glamour” shares.

Investment process The portfolio decision making process is quantitative and driven by a proprietary model that ranks securities on fundamental measures of value, past performance and indicators of recent positive changes. A risk control process controls for residual risk relative to a benchmark. The process is continuously refined and enhanced by LSV’s investment team although the basic philosophy has never changed – a combination of value and momentum factors. The quantitative techniques LSV uses to select individual securities is what would be considered a “bottom-up” approach. The manager chooses out-of-favour, undervalued shares which have the potential for near-term appreciation. The process is segmented into different capitalisation ranges or regions.

Risk management Dr. Lakonishok warns against ignoring statistical evidence and to develop a ‘mindset’ about a company. He notes: “we don’t visit companies, and we don’t talk to analysts”. He also cautions investors against “the tendency to extrapolate the past too far into the future”. The competitive strength of this strategy is that it avoids introducing the process to any judgmental biases and behavioural weaknesses that often influence investment decisions. LSV overlay strict risk controls that limit the over- or under-exposure of the portfolio to industry and sector concentrations. LSV also limit exposures in individual securities to ensure the portfolios are broadly diversified, further controlling risk. To ensure the portfolios are broadly diversified, the portfolio will hold 80 to 120 shares. A stock is sold when either the ranking of the stock in the quantitative investment model falls below the top 40% of shares in the model or, when the portfolio weight exceeds 2.5% relative to the benchmark. This leads to a turnover of approximately 30% per year.

active manager profiles : : 30 april 2018


LSV Asset Management Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Portfolio (US$)

0.3%

-5.1%

3.0%

13.1%

16.8%

8.2%

9.8%

MSCI ACWI (US$)

1.0%

-5.4%

3.6%

14.2%

14.6%

7.4%

8.8%

Risk adjusted excess performance

-0.6%

0.2%

-0.6%

-1.0%

2.2%

0.7%

1.0%

calendar

2017

2016

2015

2014

2013

Portfolio (US$)

22.6%

15.5%

-4.9%

3.9%

25.9%

MSCI ACWI (US$)

24.0%

7.9%

-2.4%

4.2%

22.8%

cumulative

1 year

2 year

3 year

4 year

5 year

Portfolio (US$)

13.1%

36.5%

26.6%

34.7%

59.3%

MSCI ACWI (US$)

14.2%

31.4%

24.0%

33.2%

52.4%

Performance profile* 250

10%

Cumulative returns

150 0% 100

50

Portfolio cumulative returns

Portfolio monthly returns -10%

0 Oct 12

Apr 13

Oct 13

Apr 14

Oct 14

Apr 15

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

* After External Investment Manager fees, before tax and NZ Funds fees. NZ Funds mandate with LSV Asset Management started in October 2014. Data prior to then is composite performance of the same strategy.

active manager profiles : : 30 april 2018

Monthly returns

191

200


Portfolio information Holdings (top 10) company

30 April 2018 Sector

apr 2018

Geography

sector

apr 2018

region

apr 2018

Tatneft

2.1%

Financials

18.9%

United States

49.9%

Total

1.7%

Information Technology

17.7%

Japan

8.8%

Pfizer

1.7%

Healthcare

10.6%

France

4.3%

Amgen

1.7%

Consumer Discretionary

10.0%

Canada

4.0%

ITOCHU

1.7%

Industrials

9.7%

United Kingdom

3.5%

Magna International

1.7%

Materials

9.1%

South Korea

3.0%

Nippon Telegraph & Telephone

1.7%

Consumer Staples

7.7%

Germany

2.5%

Cisco Systems

1.6%

Telecommunications

6.1%

Taiwan

2.4%

KLA-Tencor

1.6%

Energy

5.3%

China

2.0%

Everest Re Group

1.6%

Other

4.9%

Other

19.6%

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

0.7%

Average return (annual)

12.1%

10.6%

Tracking error

3.3%

Standard deviation (annual)

10.1%

9.9%

Maximum 1 month decline for portfolio (Index same month)

-5.4%

-6.0%

Information ratio

0.2

Beta (to comparitive index)

97%

Maximum 1 month decline for comparitive index (Fund same month)

-5.0%

-6.9%

Alpha (beta adjusted)

1%

Largest accumulative fund decline

-13.0%

-10.5%

R squared

92%

Up/down month ratio

2.0

2.0

Sharpe ratio

0.7

Excess return during negative months

3.4%

Tracking error during negative months

3.2%

Correlation to S&P500

0.9

Correlation to Barclays Global Bond Index

-0.1

active manager profiles : : 30 april 2018


Impala Resource Fund Impala Asset Management (“Impala”) is a specialist manager of cyclical sectors and companies with over US$2.5 billion in assets under management. Impala was founded in 2004 by Robert Bishop. Prior to Impala, Mr. Bishop was a senior professional at Soros Fund Management, Maverick Capital, Kingdon Capital, Tiger Management and Salomon Brothers. In August 2016 Impala launched the Impala Resource Fund to take advantage of an inflection point in global commodities.

Background The Impala Resource Fund (the “Fund”) is a long-biased, commodity-focused hedge fund that was launched on 1 August 2016 to take advantage of a rally in commodities, believing that we are in a cyclical inflection point in global commodity markets. The Fund will expand upon and leverage the commodity themes within Impala’s main fund, but without the thematic constraints. Economically sensitive companies require a different analytical toolkit than more traditional equity analysis. Impala’s highly experienced and specialised investment team has first-hand experience of past cycles, as well as a deep understanding of the complexities and market behaviour of stocks. The team has successfully invested across market and economic cycles by capitalising on this knowledge and developing an investment strategy that incorporates their keen sense of where specific companies and industries are in the economic cycle, how they should perform at that point in the cycle, and how this cycle differs from previous cycles. The firm employs a dedicated macro specialist to help interpret economic influences and confirm their bottom-up research.

Key biographies Robert Bishop, Managing Partner & Chief Investment Officer Mr. Bishop founded Impala Asset Management in 2003. He is the Managing Partner of the firm. In 2002-2003, he was Chief Investment Officer at Soros Fund Management overseeing the Quantum Endowment Fund. As a Principal at Maverick Capital from 1998-2002, he oversaw investments in basic industries including manufacturing, commodity, transportation, energy and other cyclicals. Mr. Bishop was a Portfolio Manager at Kingdon Capital from 1995-1998 where he specialised in cyclical stocks and commodities and from 1992-1995, he was Managing Director of Tiger Management Corp specialising in cyclical stocks and commodities. From 1986-1992, Mr. Bishop was an equity analyst at Salomon Brothers. Jacques Bouthillier, Senior Analyst Mr. Bouthillier joined Impala in 2004 at the firm’s inception. Mr. Bouthillier is a senior analyst with primary responsibilities for macro economic analysis. Prior to joining Impala, he was Managing Director at Soros Fund Management from 2002 to 2004 where his principal areas of coverage were autos, housing, basic materials and capital goods. From 2000-2002, Mr. Bouthillier was Senior Analyst and Portfolio Manager at Alliance Capital Management. From 1992- 2000, M.r Bouthillier worked as an analyst covering cyclical industries at the following firms: Lawhill Capital (1997-2000), Alliance Capital (1993-1997), and Loomis Sayles (19921993). Tom McNamara, Senior Analyst Mr. McNamara joined Impala in 2008. Mr McNamara is a senior analyst with primary coverage of energy companies. Prior to joining Impala, Mr. McNamara was a Portfolio Manager/Managing Director at FrontPoint Stadia Morgan Stanley. From 2003-2006, he was an Analyst/Portfolio Manager for Moore Capital Management. From 2002-2003, he was an Analyst Sector Head for Andor Capital. From 2000-2002, he was an Analyst for Maverick Capital. Prior to his time as a manager, Mr. McNamara spent 6 years as a senior metals & mining analyst at Kidder Peabody and CIBC Oppenheimer.

active manager profiles : : 30 april 2018


Investment mandate Impala invests in commodity and commodity-related companies such as metals and mining, energy, building materials, and industrial companies. The fund seeks to maximise returns in strong markets and protect returns in weak markets through a long/short strategy albeit with a long bias.

Idea generation Impala seeks to invest in highly leveraged underappreciated companies at the beginning of the cycle and takes short positions in leveraged, over-appreciated companies late in the cycle. The Fund pursues a “value” approach based on what it perceives to be the potential earnings for different stages of the economic cycle and what normalised earnings of a company should be. All investment ideas are generated internally with the research analysts having individual sub-sector specialisations. Analysts utilise a value-oriented process to identify companies that appear over or under-valued relative to their fundamentals. Ideas are generated through the investment team’s nuanced understanding of companies within the universe and their behaviour over market cycles.

Investment process Impala believe that investing in cyclical stocks is a full-cycle endeavour not limited to early recovery and neat chronological progression. Economically sensitive companies require a different analytical tool-kit than more traditional equity analysis and thus their first-hand experience of past cycles and the interplay of economic forces on underlying company fundamentals gives Impala a key investment edge. Impala seeks to construct a portfolio of high conviction names based on a risk/reward profile and invests over a 12 to 24-month investment horizon. The value-oriented investment process focuses on the interplay of economic forces on underlying company fundamentals to identify stocks that are oversold or overbought, identify cost or pricing leverage points and use acute trading skills to scale positions and create opportunity. Analysts perform a rigorous, bottom-up analytical review of a company’s operating model, balance sheet, capital allocation scheme, competitors, customers, and suppliers. Detailed financial models of the company are built and maintained to determine intrinsic value and there is regular and constructive dialogue with company management. Potential investments are evaluated in the context of liquidity and macro factors. Final investment decisions are made by the portfolio manager (typically Mr. Bishop) emphasising optimal entry price.

Risk management Impala believes that risk management is integral to the investment process and as such is not bifurcated. Impala conduct an ongoing review of each position where the investment thesis is continuously confirmed. At the same time, their macro specialist reviews data to confirm the analysts’ bottom-up research. Rigorous attention is also paid to liquidity. Rigid stop loss limits are not imposed. Rather the portfolio manager exits positions when price targets are met or when new information materially changes expectations or risk/reward profiles. Generally, position sizes do not exceed 10% NAV at cost. Given the sector focus of the Fund, it is expected to have around 15 positions and will not be thematically diversified. Resource companies do tend to have a higher beta than other shares. The Fund, being sector specific, will have a low level of diversification and will be highly correlated to commodity markets. To mitigate this, leverage is also conservative at an expected maximum of 150% gross, 100% net. Exposure to commodity futures is limited to 5% of the net asset value.

active manager profiles : : 30 april 2018


Impala Resource Fund Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Portfolio (US$)

3.6%

-3.1%

13.9%

26.4%

-

-

-

S&P 500 Total Return Index (US$)

0.3%

-6.2%

2.8%

11.1%

-

-

-

Risk adjusted excess performance

3.4%

1.2%

11.9%

18.6%

-

-

-

calendar

2017

2016

2015

2014

2013

Portfolio (US$)

28.4%

-

-

-

-

S&P 500 Total Return Index (US$)

19.4%

-

-

-

-

cumulative

1 year

2 year

3 year

4 year

5 year

Portfolio (US$)

26.4%

-

-

-

-

MSCI ACWI (US$)

11.1%

-

-

-

-

Performance profile* 200

20%

100

0%

Portfolio cumulative returns

Portfolio monthly returns -20%

0 Jul 16

Oct 16

Jan 17

Apr 17

Jul 17

* After External Investment Manager fees, before tax and NZ Funds fees. Inception August 2016.

active manager profiles : : 30 april 2018

Oct 17

Jan 18

Apr 18

Monthly returns

Cumulative returns

150


Portfolio information Holdings

30 April 2018 Sector sector

Geography

asset class

apr 2018

apr 2018

region

apr 2018

Teck Cominco

*

Materials

65.1%

United States

46.8%

Warrior Met Coal

*

Industrial

15.5%

Canada

32.3%

Hess Corporation

*

Energy

18.0%

Europe

13.0%

Caterpillar Inc

*

Consumer

2.0%

Latin America

5.1%

Rio Tinto ADR

*

Other

0.6%

Asia

4.1%

Long Exposure

105.0%

Short Exposure

4.0%

Gross Exposure

109.0%

Number of Longs

37

Number of Shorts

5

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

26.2%

Average return (annual)

26.4%

13.1%

Tracking error

18.2%

Standard deviation (annual)

18.2%

7.5%

Information ratio

0.64

Maximum 1 month decline for portfolio (Index same month)

-5.0%

1.3%

Beta (to comparitive index)

59%

Maximum 1 month decline for comparitive index (Fund same month)

-2.0%

-3.8%

Alpha (beta adjusted)

18%

Largest accumulative fund decline

-12.2%

-8.7%

R squared

6%

Up/down month ratio

1.3

4.3

Sharpe ratio

1.4

Excess return during negative months

34.4%

Tracking error during negative months

13.5%

Correlation to S&P500

0.2

Correlation to Barclays Global Bond Index

-0.4

active manager profiles : : 30 april 2018


Suvretta Offshore Fund Ltd. Suvretta Capital Management (“Suvretta”) is arguably one of the worlds pre-eminent investment managers today. A New York based hedge fund, Suvretta was founded by Aaron Cowen in 2012. Mr Cowen is the former Co-Portfolio Manager of SAC Capital, a hedge fund which compounded its clients’ wealth by approximately 25% per year for over 21 years. Suvretta focuses on large US companies and uses a long/short investment approach. Funds under management have grown to US$4 billion.

Background Suvretta is seeking to generate long-term, equity-like returns in a risk-controlled manner. Suvretta employs a global long/short equity strategy that includes deep fundamental analysis, “industry before company” investing and an appreciation for macroeconomic influences on equities. The investment strategy starts with investing in industries which benefit from secular growth or shorting industries in secular decline. The firm strives to own great companies in solid industries and short companies which are in weak industries and/or are losing market share. The investment philosophy also emphasises companies which have management teams that are either good or bad stewards of capital for the portfolio’s long and short ideas.

Key biographies Aaron Cowen, Portfolio Manager & Managing Member Mr Cowen has over 20 years of experience as a portfolio manager and research analyst. Prior to forming Suvretta, he served as a Portfolio Manager at Soros Fund Management where he independently managed the firm’s largest long/short equity portfolio. Mr Cowen also advised Chief Investment Officer Keith Anderson on managing a larger book of equities and led a team of research analysts. From 2008 to 2010, Mr Cowen served as the Chief Investment Officer at SAC Capital Management. From 2002 to 2008, he was a Partner and Managing Director at Karsch Capital Management. Keith Weiner, Managing Director, President & Chief Operating Officer Prior to joining Suvretta, Mr Weiner was an Executive Director, Senior Investment Officer, and Investment Specialist at UBS Alternative Investment Solutions for ten years where he served on the Global Investment Committee. During Mr Weiner’s tenure at UBS, AUM grew from US$1 billion to US$30 billion. Mr Weiner’s role over the years involved hedge fund selection, monitoring, and portfolio construction with a primary focus on equity strategies as well as sourcing, acquiring, and managing new clients. Adam Miller, Managing Director & Senior Analyst Prior to joining Suvretta, Mr. Miller worked as a Research Analyst with Mr. Cowen at Soros Fund Management in 2011. Prior to joining Soros, Mr. Miller worked as an Associate at Trimaran Capital Partners, an investment firm with over $2 billion under management across various equity and debt funds. Mr. Miller also served as an Investment Analyst at Trian Credit Partners, a credit opportunity fund comanaged by Trian Partners and Trimaran Capital Partners. Previously, he worked in leveraged finance and equity derivatives at BNP Paribas.

active manager profiles : : 30 april 2018


Investment mandate Suvretta focuses on investing in mid- and large-capitalisation companies where they believe they can generate a differentiated investment view that can easily be expressed in equities that are liquid. While Suvretta recognises there are opportunities in small capitalisation companies, they do not think they offer a great risk/reward profile. The sectors that Suvretta invests in include, but are not limited to, consumer/retail, TMT, healthcare services, industrials, financials and energy. Areas Suvretta do not invest in are industries and companies in which equity performance is driven by binary events or “data point” trading.

Idea generation Suvretta employs an “industry before company” approach to identify attractive industries and companies for risk-adjusted returns. The investment team conducts due diligence on both businesses and industry fundamentals, focusing on competitive strengths and weaknesses, revenue growth, profitability, liquidity and free cashflow. Ideas are generated from proprietary screens, industry contacts, trade journals, private companies and selective sell-side research. The strength of the investment strategy is not only identifying the investment opportunities but also in assessing the fundamental prospects of the ideas and utilising financial modelling/analysis to arrive at a valuation target while managing downside risk.

Investment process Suvretta looks to focus on industries which are experiencing secular growth. This means, they argue, they do not have to rely on country specific GDP growth. The investment team find that having an appreciation for the macroeconomic environment and an industry before company approach differentiates Suvretta’s process and may provide a competitive advantage. However, the investment process is still driven by in-house deep fundamental research. The investment team creates and develops a proprietary financial model for each company to determine the earnings potential and underlying intrinsic values. The investment process is iterative, relying on the experience of the entire team. Mr Cowen as the Portfolio Manager, is the ultimate decision-maker for the fund. The long portfolio will tend to include high cashflow companies with good growth prospects (growth at reasonable price). The short portfolio will be companies which are expected to experience balance sheet impairment. The three key reasons for holding a short are creative destruction, too much leverage and/or misuse of capital and companies at peak cycle earnings. Suvretta will not always hold individual short positions. If they believe the environment is especially conducive to industry consolidation or merger and acquisition activity they will not attempt to short individual shares. Instead, shorts will be implemented via a short index future position.

Risk management Suvretta has between 25 - 40 longs and 25 - 40 short positions with the top 10 - 15 positions typically comprising up to 90% of the portfolio. No single sub-sector represents more than 20%. There are no formal stop losses. The belief is that if the investment team has conviction in a position, Suvretta will want to own more of a position as the price decreases. If the overall fund declines 5%, the investment team will review the investment thesis of the positions that are contributing to the loss. If the portfolio loses 10%, the gross exposure will be cut and then the net exposure will follow. However, these are not hard and fast rules; it is an iterative process. The gross leverage range is typically 150 - 175% with a net exposure range of between 30 - 60%. The portfolio is primarily liquid mid to large capitalisation shares focused on North America and Europe. Suvretta monitor liquidity to ensure they can exit the majority of the portfolio in three days at 25% of average trading volume. active manager profiles : : 30 april 2018


Suvretta Offshore Fund Ltd. Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Portfolio (US$)

-1.2%

-5.1%

-1.6%

13.2%

14.6%

8.6%

13.0%

MSCI ACWI (US$)

1.0%

-5.4%

3.6%

14.2%

14.6%

7.4%

8.8%

Risk adjusted excess performance

-1.6%

-2.8%

-3.2%

7.0%

8.2%

5.3%

9.1%

calendar

2017

2016

2015

2014

2013

Portfolio (US$)

24.5%

3.2%

7.1%

13.1%

26.3%

MSCI ACWI (US$)

24.0%

7.9%

-2.4%

4.2%

22.8%

cumulative

1 year

2 year

3 year

4 year

5 year

Portfolio (US$)

13.2%

31.4%

28.1%

53.2%

83.9%

MSCI ACWI (US$)

14.2%

31.4%

24.0%

33.2%

52.4%

Performance profile* 250

10%

203

150 0% 100

50

Portfolio cumulative returns

Portfolio monthly returns -10%

0 Oct 12

Apr 13

Oct 13

Apr 14

Oct 14

Apr 15

* After External Investment Manager fees, before tax and NZ Funds fees.

active manager profiles : : 30 april 2018

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

Monthly returns

Cumulative returns

200


Portfolio information Holdings company

30 April 2018 Sector

apr 2018

sector

Geography apr 2018

region

apr 2018

Adobe Systems Inc.

*

Information Technology

39.3%

North America

47.0%

Airbus SE

*

Materials

11.9%

Europe

5.9%

DowDuPoint Inc.

*

Industrials

10.2%

Asia

12.1%

Salesforce.com, Inc.

*

Consumer Discretionary

6.1%

Latin America

0.0%

Tencent Holdings Ltd.

*

Consumer Staples

2.0%

Other

0.0%

Long Exposure

87.3%

Real Estate

-0.2%

Short Exposure

22.3%

Other

-0.4%

Gross Exposure

109.6%

Energy

-0.5%

Number of Longs

20

Financials

-1.2%

Number of Shorts

16

Healthcare

-2.2%

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

1.2%

Average return (annual)

13.3%

10.6%

Tracking error

8.5%

Standard deviation (annual)

8.1%

9.9%

Maximum 1 month decline for portfolio (Index same month)

-5.2%

-0.7%

Information ratio

0.1

Beta (to comparitive index)

44%

Maximum 1 month decline for comparitive index (Fund same month)

-3.1%

-6.9%

Alpha (beta adjusted)

5%

Largest accumulative fund decline

-5.9%

-10.5%

R squared

38%

Up/down month ratio

2.0

2.0

Sharpe ratio

1.0

Excess return during negative months

15.2%

Tracking error during negative months

8.4%

Correlation to S&P500

0.6

Correlation to Barclays Global Bond Index

-0.0

* Individual company weight not disclosed.

active manager profiles : : 30 april 2018


Kynikos Associates (“Kynikos”)* was founded in 1985 by James Chanos. It is both the oldest and largest short orientated equity manager in the world. Kynikos profit from declines in the value of businesses by selling the shares short at high prices and then buying them back at lower prices. James Chanos is famous for having profited from the collapse of WorldCom and Enron and more recently a number of prominent Chinese companies. Kynikos has accumulated over two decades of superior risk-adjusted returns. Kynikos is based in New York and manages over US$3 billion.

Background Kynikos aims to achieve consistently strong absolute investment returns, regardless of market conditions. The strategy starts with the fundamentally selected short positions and hedges these positions with long equity positions to isolate and capture the unique out performance. Kynikos seeks to identify and sell short equities which will be revalued downward from the current prices due to a deteriorating profit outlook. Kynikos believes a 2 x long fund, 1 x short fund is the best way to profit from short positions but continue to give investors exposure to equity markets which, in general, go up over time. One of Kynikos’ competitive advantages is the ability to source and borrow shares cheaply. This enables it to both implement positions other managers are unable to borrow and to hold positions for longer. Kynikos’ borrowings costs over time have been around 50bps, well below the market average of close to 200bps. One of the senior Kynikos manager’s sole responsibility is to source shares in order to implement short positions.

Key biographies James Chanos, President and Head Portfolio Manager James Chanos is President and Head Portfolio Manager of Kynikos which he started in 1985. He started his investment career in the 1980s working as an analyst, researching shares which were candidates for shorting. He exposed Baldwin-United which subsequently filed for bankruptcy (1983). At the time, this was the largest bankruptcy in the United States. In 1985, he established Kynikos (Greek for cynic). In 2001, Kynikos sold Enron short. Between graduation from Yale University in 1980 and starting Kynikos, Mr Chanos gained financial experience as an analyst with Paine Webber, Gilford Securities and Deutsche Bank. Charles Hobbs Senior Managing Director, Co-Portfolio Manager Mr. Hobbs joined Kynikos as a research analyst in 1993. Prior to Kynikos, he worked for two years as a financial analyst in the corporate finance division of Morgan Stanley. The portfolio is constructed using research ideas generated by the research staff. Position sizes are then chosen and managed by Mr. Chanos; Mr. Hobbs and Mr. Glaymon. David Glaymon Managing Director, Co-Portfolio Manager Prior to joining Kynikos in 2002, Mr. Glaymon worked as a senior equity research analyst at JP Morgan H&Q covering emerging telecommunications companies. Mr. Glaymon also served as Vice President at Salomon Smith Barney and Scotia Capital Markets. Between them, Mr. Chanos and Mr. Glaymon have been in the investment business for over 35 years and have operated in very senior positions at the highest levels of the hedge fund industry for over 25 years. They developed outstanding judgment in regard to both portfolio management and the managing of individual positions as a result of this experience. * The Investment Adviser to the Kynikos Fund is KA Advisers International LLC. The Investment Adviser is controlled by Kynikos Associates LP. active manager profiles : : 30 april 2018


Investment mandate Kynikos believes a short fund, in combination with a long fund (the overall portfolio having a long bias) creates a portfolio with both better alpha capture and lower overall risk. The short portfolio exploits global market inefficiencies while the levered long exposure enhances efficient market returns.

Idea generation Kynikos undertake fundamental research to identify companies. They tend to look at the same factors as a quality manager but from a short perspective. Kynikos will closely watch the quality of corporate earnings and return on invested capital.Kynikos performs its own investment research, which is compiled from publicly available filings, industry publications, discussions with company management, discussions with competitors, industry consultants, and direct product research. The specialised nature of Kynikos’ investment operations require that most investment ideas be generated from non Wall Street sources. This process is aided, however, by the many years Kynikos has spent analysing companies from a short seller’s perspective, which allows it to identify and exploit recurring themes in the capital markets.

Investment process Kynikos’ investment process is based on fundamental research of both companies and industries. Kynikos seeks to identify companies whose shares will decline due to a deteriorating profit outlook, unsustainable growth, increased business competition, or lack of a viable long-term business plan. This is an area where they believe there is more ability to add value as it is less competitive. Kynikos employs many analytical techniques: balance sheet analysis, income statement analysis, flow of funds statement analysis, and the important interactions between the three. Other important measures that Kynikos watches closely are the quality of corporate earnings and a company’s return on invested capital. Industry analysis can either complement company specific analysis or itself be a source of short sale candidates. Increasing competition, pending overcapacity, changing industry risk profiles, and the miscalculation of market size for a company’s product, can all lead to the downward revaluation of shares. Perhaps Kynikos’ most significant competitive advantage is its ability to execute (i.e., put on) investment ideas. Kynikos has the ability to borrow shares for a reasonable cost. This advantage will allow Kynikos to profit from situations in which many, if not most, other hedge funds will not have the ability to get involved. Kynikos consider the ability to borrow stocks to be perhaps the single greatest advantage that Kynikos has relative to virtually all other hedge funds, and it will be almost impossible for other hedge funds to replicate as the “barriers to entry” are substantial.

Risk management Risk is managed daily by overall portfolio dollar commitment and by individual position size. Individual short position sizes are managed on a percent of capital basis, with 5% being the targeted limit for any one position. The portfolio is analysed and managed on an ongoing basis in relation to their sector exposure and concentration relative to various indices. Weightings of the portfolio versus the sector weightings of the various United States markets are reviewed daily. Kynikos do not use stop loss orders to manage individual position risk. Kynikos can borrow shares to enter a short position for a reasonable cost. This advantage will allow it to profit from situations in which most other hedge funds will not have the ability to get involved. Kynikos consider the ability to borrow shares to be perhaps the single greatest advantage that it has, because not only is it a differentiating factor, but it will be almost impossible for other hedge funds to replicate as the “barriers to entry” are substantial. active manager profiles : : 30 april 2018


Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Portfolio (US$)

-0.3%

-8.0%

-7.2%

0.9%

4.2%

2.7%

5.9%

MSCI ACWI (US$)

1.0%

-5.4%

3.6%

14.2%

14.6%

7.4%

8.8%

Risk adjusted excess performance

-0.9%

-5.1%

-9.2%

-6.9%

-3.8%

-1.4%

1.1%

calendar

2017

2016

2015

2014

2013

Portfolio (US$)

16.4%

-5.4%

8.7%

9.5%

20.7%

MSCI ACWI (US$)

24.0%

7.9%

-2.4%

4.2%

22.8%

cumulative

1 year

2 year

3 year

4 year

5 year

Portfolio (US$)

0.9%

8.7%

8.3%

21.5%

33.3%

MSCI ACWI (US$)

14.2%

31.4%

24.0%

33.2%

52.4%

Performance profile* 250

10%

200

0% 100

50

Monthly returns

Cumulative returns

150 150

Portfolio cumulative returns

Portfolio monthly returns -10%

0 Oct 12

Apr 13

Oct 13

Apr 14

Oct 14

Apr 15

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

* After External Investment Manager fees, before tax and NZ Funds fees. Kynikos Global Capital Partners Ltd. was established in July 2015. Data prior to then is the performance of a mandate following the same strategy.

active manager profiles : : 30 april 2018


Portfolio information Holdings company

30 April 2018 Sector (net)

dec 2017*

sector

Geography (net) dec 2017*

region

dec 2017*

Gross Long Exposure

183.1%

Information Technology

22.1%

North America

56.0%

Gross Short Exposure

-82.0%

Financials

19.2%

Europe

23.0%

Total Gross Exposure

265.2%

Industrials

12.5%

Japan

11.0%

Net Exposure

101.1%

Consumer Staples

12.0%

EM

10.0%

Other

2.0%

Number of Long Positions

29

Materials

9.2%

Number of Short Positions

96

Energy

6.9%

Top 10 Longs as % of Equity

138.3%

Telecommunication Services

5.4%

Top 10 Shorts as % of Equity

-26.7%

Real Estate

5.2%

Utilities

4.9%

Health Care

3.7%

* Data updated on a six-month basis.

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

-4.8%

Average return (annual)

9.6%

4.2%

Tracking error

9.9%

Standard deviation (annual)

13.0%

15.4%

Information ratio

-0.5

Maximum 1 month decline for portfolio (Index same month)

-17.1%

-19.8%

Beta (to comparitive index)

55%

Maximum 1 month decline for comparitive index (Fund same month)

-17.1%

-19.8%

Alpha (beta adjusted)

1%

Largest accumulative fund decline

-8.2%

-10.5%

R squared

33%

Up/down month ratio

1.8

1.4

Sharpe ratio

0.2

Excess return during negative months

9.2%

Tracking error during negative months

10.0%

Correlation to S&P500

0.6

Correlation to Barclays Global Bond Index

0.0

active manager profiles : : 30 april 2018


H2O Global Alpha Fund H2O AM LLP (“H2O”) is a global macro manager which takes top-down views across financial markets. H2O was established by Bruno Crastes and his team in 2010. It invests in a wide range of global asset classes, switching its focus depending on valuation, economics and global trends but with a smaller amount of money than other global macro managers. In doing so, H2O offers investors higher liquidity, hence the name. H2O is based in London and manages over US$12.0 billion.

Background H2O was founded by four partners, who worked together at Credit Agricole Asset Management/Amundi. During their time at Amundi, Mr Crastes and Mr Chailley built a long track record of managing global fixed income and global macro portfolios. Of the thirteen investment team members at H2O, eight previously worked at Amundi and five of whom are now partners at H2O. The H2O Global Alpha Fund is a global macro fund with a strategy that bases its holdings - such as long and short positions in various equity, fixed income, currency, and commodities markets - primarily on top-down macroeconomic and political views of individual countries and asset classes. One of the key attributes of H2O is that they tend to display low correlations. Therefore, they tend to add true diversification to an investment portfolio, and tend to provide performance when broad markets or other strategies are under duress.

Key biographies Bruno Crastes, Founder & Chief Executive Officer Mr Crastes is a founding partner and the Chief Executive Officer of H2O. He began his career in 1989 as a bond portfolio manager in the Fixed Income team of Indosuez Asset Management. Following the merger of Indosuez with Segespar (Crédit Agricole Group) into CAAM in 1997, Mr Crastes became Head of Global Fixed Income and Currency Management. He was further promoted to Chief Investment Officer and Deputy Chief Executive Officer of CAAM London in November 2002, and Chief Executive Officer in 2005. From 2007 until 2010, while actively managing global fixed income portfolios, he sat on the Executive Committee of CAAM. Vincent Chailley, Founder & Chief Investment Officer Mr Chailley is a founding partner and the Chief Investment Officer of H2O. He started his career in 1995 in the Research & Development team of CPR Capital Markets department. In 1996, he joined CAAM, first as an analyst in the Strategy team, then as an investment manager in the Asset Allocation team. In July 1998, he transferred to the global fixed income, leading the team from 2002 to 2010. Mr. Chailley created and developed CAAM’s global absolute return product range, managing these funds personally until he left CAAM/Amundi in April 2010. These funds totalled €42 billion in assets. Loïc Cadiou, Partner, Investment specialist Mr Cadiou became a partner of H2O in 2010. Mr. Cadiou started his career in 1993 in the Macroeconomic Modelling department of OFCE (Observatoire Français des Conjonctures Economiques, a French think tank), before moving to the Research department of Banque Indosuez as an economist covering Europe. In 1996, he joined the International Modelling department of CEPII (another French think tank) and worked as a senior researcher on international economics (EMU, labour markets, exchange rates, demographics and emerging country crises). In July 2002, he joined CAAM (now Amundi) as an investment manager of emerging debt, global bond and absolute return portfolios.

active manager profiles : : 30 april 2018


Investment mandate H2O seeks opportunities in as wide an investment universe as possible. Therefore, its portfolio is global and may be spread across a wide range of asset classes including government and corporate bonds, currencies and equities in over forty countries across the globe. H2O believe that value diversification is the most stable and robust source of excess return over time. Diversification not only across asset classes and markets, but also by investment horizon and H2O’s portfolio managers’ expertise.

Idea generation As an alpha manager, H2O seek to take advantage of the inefficiencies available on global bond, credit, equities and currency markets. These inefficiencies are variable from one asset class to the other and can mean asset classes, such as currency, are volatile over the short term, while offering clear mean-reverting trends over the long run. To take advantage of the inefficiencies available in equity, fixed income, currency, and commodities markets, rather than consider these ideas from a traditional asset class point of view, they consider it from a driver or catalyst point of view. Analysing characteristics such as valuation, flows, technicals and macroeconomics, the bulk of H2O’s market views are based upon fundamental and judgmental considerations. However, technical factors may also be taken into consideration.

Investment process The three pillars of H2O’s investment process are: over the long run, value investment offers a strong and stable success ratio; diversification creates value and it is the best way to absorb short and medium-term volatility; and, risk is always an input, never an output, to generate structural risk-adjusted alpha. Each member of the investment team considers markets from a behavioural viewpoint rather than the traditional regional or asset class classifications. The key areas they focus on are trade flows, valuation, economic, technical and asset class specific. To develop their views, they use a combination of qualitative and quantitative inputs. Their style is to look for value over a one to five-year investment horizon and to reduce short-term fluctuations. Once the investment team has developed its views, the Chief Executive Officer and Chief Investment Officer construct the portfolio with 70% of the risk budget allocated to their desired long-term positions. 30% is allocated to overlays, hedges against market risk or short-term tactical trades. Portfolio construction is highly quantitative.

Risk management H2O consider active risk (known as Value at Risk - an estimate of how much the portfolio might lose over a set time) as an input, never an output. In other words, the pre-set risk budget establishes the framework within which all the portfolio must fit to deliver maximum alpha. The Value at Risk budget limit is 4.5% over one week with a confidence level of 95%. H2O portfolio managers started managing VaR budgets as early as 1993. They later realised that risk models have a much higher predictive value over short-term horizons, beyond which its value subsides sharply. This is even more relevant as H2O portfolio management is very active with a high turnover. When significant profits are realised and generate cash, they will either be allocated to existing positions to realign weightings, be deployed into new opportunities, or be kept as cash until new opportunities are identified. Existing positions will also be reviewed against the desired exposure if the weightings go significantly out of line. Positions limits are typically applied at the time of the initial investment however H2O do not believe a separate security stop loss policy is appropriate.

active manager profiles : : 30 april 2018


H2O Global Alpha Fund Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Portfolio (US$)

5.6%

7.2%

3.8%

14.0%

15.3%

7.8%

11.1%

MSCI ACWI (US$)

1.0%

-5.4%

3.6%

14.2%

14.6%

7.4%

8.8%

Risk adjusted excess performance

4.6%

12.8%

0.1%

-0.7%

0.0%

0.1%

1.9%

calendar

2017

2016

2015

2014

2013

Portfolio (US$)

10.2%

-1.4%

14.2%

9.0%

27.4%

MSCI ACWI (US$)

24.0%

7.9%

-2.4%

4.2%

22.8%

cumulative

1 year

2 year

3 year

4 year

5 year

Portfolio (US$)

14.0%

32.8%

25.3%

41.2%

69.0%

MSCI ACWI (US$)

14.2%

31.4%

24.0%

33.2%

52.4%

Performance profile* 250

15%

202

150 0% 100

50

Monthly returns

Cumulative returns

200

Portfolio cumulative returns

Portfolio monthly returns -15%

0 Oct 12

Apr 13

Oct 13

Apr 14

Oct 14

Apr 15

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

* After External Investment Manager fees, before tax and NZ Funds fees. Note: H2O Global Alpha Fund was established in February 2015. Data prior to then is the performance of a mandate following the same strategy.

active manager profiles : : 30 april 2018


Portfolio information Holdings asset class

30 April 2018 Sector

apr 2018

sector

Geography apr 2018

region

apr 2018

Bonds volatility exposure

23.0%

Financials

30.6%

European Monetary Union

Currencies volatility exposure

35.0%

Consumer Discretionary

11.2%

Japan

8.0%

Equities volatility exposure

42.0%

Utilities

1.2%

Europe ex-EMU

-1.5%

Strategic volaility exposure

80.0%

Telecommunications

0.7%

EM

-1.1%

Overlays volaility exposure

20.0%

Materials

-1.6%

North America

-34.7%

-142

Healthcare

-1.8%

Energy

-4.6%

Industrials

-4.8%

Total Duration Expsoure to US dollar

91.3%

Information Technology

-10.6%

Consumer Staples

-12.0%

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

37.6%

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

0.4%

Average return (annual)

13.5%

7.9%

Tracking error

16.5%

Standard deviation (annual)

12.5%

12.1%

-14.7%

-0.6%

6.6%

-9.4%

-15.5%

-10.5%

2.0

1.6

Information ratio

-0.0

Maximum 1 month decline for portfolio (Index same month)

Beta (to comparitive index)

18%

Maximum 1 month decline for comparitive index (Fund same month)

Alpha (beta adjusted)

10%

Largest accumulative fund decline

R squared

2%

Up/down month ratio

Sharpe ratio

0.4

Excess return during negative months

12.2%

Tracking error during negative months

18.5%

Correlation to S&P500

0.2

Correlation to Barclays Global Bond Index

-0.4

active manager profiles : : 30 april 2018


ISAM Systematic Management Formed in 2008, ISAM Systematic Management (“ISAM”) is an alternative investment manager whose management team has amassed over 150 years of combined experience within the quantitative alternative investment space. The management team has deep experience in institutional alternative asset management, particularly trend following strategies. ISAM is based in London and manages over $4 billion.

Background Trend following is an investment strategy in which market forcasts are based solely on recent price movements. The strategy depends on market trends to persist in order to add value. ISAM employs the trading strategies developed by its partners over many years of active fund management. The systems are purely trend following with a core driver of the research team’s effort being to maximise diversification. The firm was founded by Lord Stanley Fink and Larry Hite. Lord Fink is the former Chief Executive of Man Group, which at that time was one of the largest listed hedge funds in the world. Mr Hite is one of the forefathers of systematic trading, an immensely successful trend following approach to trading derivatives. The flagship program, ISAM Systematic Trend, is a pure trend following strategy and traces its roots back to 1981. The underlying system was originally developed and maintained by Man Group and became the first Commodity Trading Adviser (CTA) to reach US$1 billion under management. In May 2010, ISAM acquired the system with its 35-year track record and has subsequently developed it into an institutional, award-winning product.

Key biographies Roy Sher, Managing Partner Mr Sher is responsible for the day to day running of ISAM. He began his career at SBC Warburg in London and was posted to Hong Kong in 1996. While there he moved to Merrill Lynch where he was Head of Convertible Bond and Asset Swap Trading, and later a senior proprietary trader. He returned to London with Merrill Lynch in 2000. He joined GLG Partners in 2002. Alexander Lowe, Managing Partner Mr Lowe is, along with Mr Sher, responsible for the day to day running of ISAM. Mr Lowe was previously at Man Group, where he was Chief Executive Officer of Man Global Strategies (MGS) and a Director of Man Investments Ltd. MGS was a division of Man Group, running over 100 products investing US$19 billion of client money into a wide range of hedge fund strategies across the globe. Darren Upton, Chief Investment Officer Mr Upton is Chairman of the Investment Committee which oversees the ISAM Systematic Trend programme and directs the continued research into its improvements. A New Zealander, Mr Upton joined ISAM in June 2012. Prior to ISAM, he worked at AHL, one of the world’s largest CTAs, and part of Man Group.

active manager profiles : : 30 april 2018


Investment mandate ISAM invests in over 220 global financial and commodity futures markets with the aim to deliver returns which are uncorrelated with equity markets. Markets are included according to their liquidity and their ability to provide cost effective diversification. A market can be excluded from the portfolio if there is a substantial change in liquidity, execution costs or if a market is highly correlated to another traded market. ISAM’s size in conjunction with its research focus, enables them to secure genuine alpha from meaningful allocations to relatively small and under developed markets that are, to an extent because of their immaturity, appealing from both an outright performance and genuine diversification perspective.

Idea generation ISAM employs the trading strategies developed by the partners over many years of active portfolio management. The strategy is 100% systematic, capturing profits from market divergence, utilising trend seeking methods on a medium-term time frame with a shorter-term focus on risk management. A core driver of the research team’s efforts is to maximise diversification across the different signals, speeds and markets. This requires ongoing and current analysis of variables such as trading costs, volatility and correlations across all liquid markets, as well as various exogenous risk characteristics.

Investment process The system aggregates a combined signal for each market and calculates a “desired” position. The residual difference between desired position and held position constitutes the magnitude of the trade to be executed. The system executes at pre-specified times during the day for each individual market as determined through quantitative analysis of the market’s peak liquidity periods. All trading is done electronically via a Financial Information Exchange (FIX) connection with the executing broker. ISAM focus purely on divergence strategies (where they look to profit when there is a divergence between price movement and momentum) and would therefore not include any strategies that are not trend following in nature. They believe this specialisation gives them a research edge and affords their clients a deeper clarity around the offering.

Risk management Risk management is inherent in the investment process, including, but not limited to: pre-determined risk budgets for each market; risk limits which generate profit taking in mature trends; proprietary position sizing to modulate volatility risks; correlation analysis to improve portfolio diversification; and, pre-determined liquidity criteria for each market, monitored daily. While the firm does not follow a policy of discretionary override to positioning or risk, the investment committee could conclude that a given market(s) was either illiquid or cost ineffective to trade and choose to cease trading in that market(s). To determine the level of risk budget per market, risk and liquidity measures are used to determine the appropriate risk allocations, along with the level of correlation a market may have to others already in the portfolio. ISAM have a daily risk management process which is reviewed and signed off each day by the Risk Manager. This process includes a checklist of daily operational and investment risk measures, which are above and beyond those which are already incorporated within their trading models.

active manager profiles : : 30 april 2018


ISAM Systematic Management Performance & Analysis

30 April 2018

Performance* performance

1 month

3 month

6 month

1 year

2 year p.a.

3 year p.a.

5 year p.a.

Portfolio (US$)

1.6%

-11.7%

-5.6%

-1.2%

-6.8%

-3.4%

6.4%

New Edge CTA Index (US$)

0.4%

-8.8%

-1.5%

0.5%

-3.5%

-3.6%

1.1%

Risk adjusted excess performance

1.0%

1.4%

-3.3%

-2.0%

-1.6%

2.0%

4.7%

calendar

2017

2016

2015

2014

2013

Portfolio (US$)

2.0%

-12.2%

15.1%

62.0%

-10.7%

New Edge CTA Index (US$)

2.2%

-6.1%

0.0%

19.7%

2.7%

cumulative

1 year

2 year

3 year

4 year

5 year

Portfolio (US$)

-1.2%

-13.1%

-9.8%

57.0%

36.1%

New Edge CTA Index (US$)

0.5%

-6.8%

-10.4%

16.6%

5.7%

Performance profile* 250

15%

150

129 0%

100

50

Portfolio cumulative returns

Portfolio monthly returns -15%

0 Oct 12

Apr 13

Oct 13

Apr 14

Oct 14

Apr 15

* After External Investment Manager fees, before tax and NZ Funds fees.

active manager profiles : : 30 april 2018

Oct 15

Apr 16

Oct 16

Apr 17

Oct 17

Apr 18

Monthly returns

Cumulative returns

200


Portfolio information Holdings (net)

30 April 2018 Sector (net)

Value at risk

apr 2018

sector

apr 2018

sector

apr 2018

Equities

20.3%

Energy

17.2%

Equities

0.6%

Bonds

17.8%

Agricultures

15.0%

Energy

0.9%

Currencies

13.3%

Metals

12.8%

Agriculturals

0.5%

Rates

3.6%

Metals

0.4%

Bonds

0.3%

Currencies

0.4%

Rates

0.1%

asset class

Statistical analysis

30 April 2018

Performance Statistics (3 Year) measures

Risk Statistics (Aug 2012 – Apr 2018) apr 2018

measures

fund

index

Excess return

1.2%

Average return (annual)

10.6%

3.7%

Tracking error

7.6%

Standard deviation (annual)

18.4%

13.4%

Maximum 1 month decline for portfolio (Index same month)

-13.3%

-9.0%

Maximum 1 month decline for comparitive index (Fund same month)

-6.8%

-13.7%

-17.4%

-10.9%

1.3

1.2

Information ratio Beta (to comparitive index)

0.2 149%

Alpha (beta adjusted)

7%

Largest accumulative fund decline

R squared

80%

Up/down month ratio

Sharpe ratio

-0.3

Excess return during negative months

-6.8%

Tracking error during negative months

6.4%

Correlation to S&P500

0.0

Correlation to Barclays Global Bond Index

0.4

active manager profiles : : 30 april 2018


New Zealand Funds Management Limited Level 16, Zurich House 21 Queen Street Private Bag 92163, Auckland 1142 New Zealand T. 09 377 2277 E. coinvestment@nzfunds.co.nz www.nzfunds.co.nz

Wellington

Christchurch

Timaru

Level 3 Central on Midland Park 40 Johnston Street Wellington 6011

Level 1 203 Papanui Road Merivale Christchurch 8014

Level 1 2 Sefton Street East Timaru 7940

T. 04 473 7701 E. paul.french@nzfunds.co.nz

T. 03 366 9088 E. chris.wasley@nzfunds.co.nz

T. 03 683 1989 E. stephen.mcfarlane@nzfunds.co.nz

Wanaka

Dunedin

Invercargill

Level 2 Brownston House 21 Brownston Street Wanaka 9305

Level 2 Bracken Court 480 Moray Place Dunedin 9016

98c Yarrow Street Invercargill 9810

T. 03 443 2300 E. amanda.cleaver@nzfunds.co.nz

T. 03 477 4647 E. peter.ashworth@nzfunds.co.nz

T. 03 218 2895 E. nicki.morsink@nzfunds.co.nz

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