27. november 2014 Nordea Investment Management AB Manager Selection – fixed income.

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1 27. november 2014 Nordea Investment Management AB Manager Selection – fixed income

2 Nordea Alternatives & Manager Selection 2 Alternatives & Manager Selection is based on Nordea Asset Management’s production strategy to broaden and complement the product range. Key Highlights Nordea Alternatives & Manager Selection - a centralised competence centre for search, selection and monitoring of external managed products Responsible for negotiations and for entering of strategic partnership with external managers A&MS has a team of 20 investment professionals located in Finland, Sweden, Denmark and Luxembourg The team is divided into Portfolio Managers (with regional responsibility) and Product Managers (product responsibility) A&MS has three product-lines: White labeling products Guided funds Managed portfolios

3 The search process in a single slide 14/04/2011 3 Definition of “search- mandate” Investigate and describe the universe Mandate Universe Initial – de-selection of obvious ”no gos” - basic statistical key measures 2nd quantitative screening – more advanced risk and performance measures based on proprietary models Long List Qualitative assessment– The 5 factors, Telcos, ”Q&A sessions” with all managers based on RFP Short List On site visits – one full day with each manager. Compliance & business due diligence Final 3 The final selection is based on all the information gathered throughout the whole process Preferred Actively monitored and replaced if needed Mandate Qualitative assessment On siteSelectionInitial deselection Monitoring Quantitative analysis

4 Composite returns vs fund returns Pro’s and con’s with both but there’s fundamental differences We (in fixed income) prefer composite returns Why I don’t like fund returns? Cut off point for pricing – NAV calculated at different times, causes volatility Dilution levy (swing pricing) – causes volatility Dilution levy vs non levy – penalizes some funds Funds with massive growth in AuM will be penalized compared to steady AuM funds given bid-ask spreads etc. GIPS composites are not completely free of issues Cherry picking of mandates included in the composite Dispersion in underlying strategy returns AuM in composite vs. AuM in strategy (representative account) 14/04/2011 4

5 The 1st number crunching We calculate a variety of numbers based on the monthly returns We remove the managers we don’t like one by one Too low tracking error, massive swings in performance etc. 14/04/2011 5

6 The 2nd number crunching Various rolling metrics such as Rolling tracking error, beta, alpha, information ratio, Sharpe ratio etc. Return distribution absolute & relative to benchmark Various up/down market graphs (up-side capture/downside protection etc) Drawdown Again, managers are deselected one by one based on Too significant variation in metrics over time Dependency of outperformance on a few observations (months) Too dependent on market directionality for outperformance 14/04/2011 6

7 7 Qualitative Assessment on long listed managers based on: People, Philosophy & Style  Quality and experience of Portfolio Managers  True management tenure of track record  Key Individuals for process  Strength of research Process & performance  Credibility of process  Repeatability of process  Transparency of process  Performance in relation to style  Trading skills Risk management  Managers view on risk  Risk management process  Risk management team Business Management  Incentive structure  Strategic importance of strategy at firm level  Capacity management  Retention of key individuals Manager Evaluation People, Philosophy & Style Process & Performance Risk Management Business Management

8 8 Qualitative Assessment The 4 factors – conference call process 1.Prior to conference calls  Prepare questions based on all the information gathered from the manager (RFP, DDQ, presentation etc.) and the quantitative analyses of the track record 2.During the conference calls (duration typically between 1.5 and 2.5 hours)  Short presentation by the manager, but outspoken focus on Q & A  Looking for the ”red line” between philosophy and investment performance  Always focus on uncovering biases in the investment strategy  Always talking to lead portfolio manager 3.After conference calls  Assessing the manager and writing a memo on each manager Compliance is not discussed at the conference call  This is handled separately by Nordea Investment Management’s Compliance department

9 The role of performance in the qualitative process Once we initiate the qualitative part, the returns are “good enough” – the data might however not be In the RFP we enquire about/look into: Dispersion within the composite lack of AuM in the composite – can the manager perform with higher AuM? AuM in composite vs strategy 14/04/2011 9

10 10 On site visits Always on-site at the asset manager and more than one participant from AMS present Agenda of the on-site meetings: Presentation of investment company by CEO, CIO, Head of Global Sales or partner Presentation of investment strategy By the lead portfolio manager (other team members might be present) Then interview with other team members (without the presence of the lead portfolio manager) Presentation of risk management and of the systems utilized by the team 1 full day for each on-site visit Minutes and input to Investment memo is written before visiting the next manager * Compliance on-site separately conducted by Nordea compliance department A manager meeting is considered crucial, we never recommend a manager without having done onsite due diligence

11 Monitoring Once selected we look at Managers own composite, our GIPS calculated returns and the fund returns Always dispersion between GIPS and fund NAV (our clients experience the NAV return, so we have to pay attention to it) Often dispersion between manager GIPS and our GIPS Difference in guidelines, ramp up period of mandate, flows, price sources 14/04/2011 11

12 Kun for professionelle investorer* © Nordea Investment Management AB, Regeringsgatan 59 SE-10751 Stockholm, Sverige med filialer og/eller tilknyttede selskaber. Oplysningerne i dette materiale er ment alene som generel orientering. Materialet skal ikke anses som investeringsrådgivning af nogen art eller som en opfordring til at investere i finansielle produkter eller instrumenter, gennemføre nye eller afvikle eksisterende transaktioner eller følge en bestemt handelsstrategi. Materialet er ikke et tilbud om at sælge eller en opfordring til at købe værdipapirer. Sådanne tilbud kan kun fremsættes i et prospekt eller lignende aftaledokument. Informationen heri erstattes derfor i sin helhed af et sådant prospekt eller aftaledokument i sin endelige form. En investeringsbeslutning skal derfor alene baseres på den endelige og gældende juridiske dokumentation, herunder fx prospekt, aftaledokument eller det seneste dokument med central investorinformation om den påtænkte investering. Dette dokument indeholder oplysninger fra en lang række forskellige kilder. Selvom oplysningerne i materialet anses for at være korrekte, gives der ingen sikkerhed eller garanti for nøjagtigheden eller fuldstændigheden af oplysningerne, og potentielle investorer kan supplere disse oplysninger med information fra andre kilder for at sikre et godt grundlag for en investeringsbeslutning. Potentielle investorer eller modparter bør rådføre sig med deres professionelle skatterådgivere samt juridiske og økonomiske rådgivere m.fl. om de mulige konsekvenser af en investering, de påtænker at foretage, herunder om de mulige risici og fordele ved den pågældende investering. Potentielle investorer eller modparter bør fuldt ud forstå den påtænkte investering og forvisse sig om, at de har foretaget en uafhængig vurdering af den påtænkte investerings hensigtsmæssighed alene ud fra deres egne forhold og ønsker. Investeringer i afledte finansielle instrumenter og instrumenter i fremmed valuta kan være udsat for betydelige udsving, hvilket kan påvirke værdien af en investering. Investeringer i Emerging Markets (de nye vækstmarkeder) indebærer en højere risiko. Værdien af investeringerne kan svinge kraftigt, og der gives ingen garanti for værdien af sådanne investeringer. Offentliggjort og udarbejdet af Nordea Investment Management AB med filialer og tilknyttede selskaber, som er registreret i og reguleret af tilsynsmyndighederne i deres respektive hjemlande. Medmindre andet er anført, er alle skøn og vurderinger mv. foretaget af Nordea Investment Management AB eller dette selskabs filialer og/eller tilknyttede selskaber. Dette materiale skal betragtes som fortroligt og må ikke gengives eller distribueres uden forudgående tilladelse. Materialet må ikke videregives til private investorer. Oplysningerne i dette materiale er alene tiltænkt professionelle investorer og kvalificerede investorer og er ikke udarbejdet med henblik på generel offentliggørelse. Nordea Investment Management AB (med filialer og/eller tilknyttede selskaber) påtager sig intet ansvar og kan ikke gøres ansvarlig for oplysningerne i materialet. Ligeledes kan Nordea Investment Management (med filialer og/eller tilknyttede selskaber) ikke på nogen måde gøres ansvarlig for eventuelle konsekvenser som følge af brugen af oplysningerne i materialet. Henvisning til selskaber eller investeringer i dette materiale skal ikke opfattes som en anbefaling om køb eller salg af disse, men tjener alene som illustration. De skattemæssige konsekvenser afhænger af investors individuelle forhold og kan ændre sig over tid. * som investerer for egen regning – i henhold til definitionen i MiFID For Professionals Only