Money Talks: Money Making Secrets Your Bank Will Never Tell You! 14TH Eastern Africa Resource Mobilization Workshop Safari Beach Hotel Mombasa 30TH November 2007. Paul Wachira Mwai

Contents Social Responsible Investing. Defining Your Objective. Managing Your Risk. Investment Options. Social Responsible Investing. Q & A 2 2

Defining the Investment Objective Short Term v/s Long Term Capital Preservation v/s Inflation Protection Growth v/s Income Maximising return on Investment Creating Certainty of Income flows Managing your foreign Currency Exposure 3 3

Liability Based Asset Allocation A fully integrated investment strategy based on a thorough analysis of your objectives and liability structure It is letting the liabilities take the lead in determining how the assets should be invested Avoid taking unnecessary risk Proper immunisation should lead to the same sensitivity of assets and liabilities to external risk factors. 4 4

Asset Allocation Asset Class Allocation Average Return Long term Standard Deviation (Risk Rating) Purpose Cash & Call Deposits 2.5% 6% 5% Provide liquidity Bank Deposits 42.50% 7% 9.57% 1).Provide income to meet ongoing obligations, 2) reduce risk profile 3)provide liquidity Corporate Notes & CP 8% Government Paper 14% Domestic Equities 40% 29% 57% 1)Provide long-term growth 2) Inflation protection Offshore 15% 20% 1)Provide long-term growth 2) Inflation protection and 3)Diversifition from local economy Total 100% 5 5

Managing Foreign Currency Risk Define your objective and matching your Asset & Liability. Conflict between report requirement & the Objective Hedging / Diversify across currencies. 6 6

What it takes to beat Inflation 7

Long Term vs. Short Term Assets 8 8

Strength of diversity, power of focus Investment Options Bank Deposits Government Treasury Bills Government Treasury Bonds Property Investing Offshore Unit Trust Strength of diversity, power of focus

Domestic Interest Bearing Assets Provides mainly income though interests Lowest risk asset class, but … … Returns are lower on a long term basis than those of other asset classes to the extent that … …. Does not provide protection against inflation Their combination with other assets classes provides stability to returns Long term average returns of 13% per annum (latest 15 year TBond) Standard Deviation of 9.79% (low risk) 10

Investing in Long Dated Bond Returns vary form 9% on 1 year bond to about 13 % on 15 years Immunize your portfolio & march your asset and your liability 11

Stock Exchange Investment Returns derived mainly from capital gains Returns are better on a long term basis than those of interest bearing assets, but …. … Higher risk measured by volatility of returns Low correlation with Offshore / T-bills Higher long term return and correlation suggests a hedge against inflation Diversification (combination with other asset classes) can reduce portfolio risk and provide increased returns Long term average return of around 29% per annum Standard Deviation of 57% (high risk)   12

Property Investment Provides both income and capital gains Returns are better, on a long term basis, than those of interest bearing assets (though credible long term data is difficult to find for East Africa) .. .. But higher risk (like offshore and local equities) though volatility may be different to these other asset classes The combination with other asset classes again reduces portfolio risk, provides stability and enhanced returns Provides a better hedge against inflation than interest bearing assets Current Rental Yield 6%-14% depending on type; Residential, Retail, or Commercial 13

Performances are in US$ Offshore Investment Expanding Investment options to Emerging Market Funds for greater diversification Allocation more to equity rather than bonds funds Returns remain strong .. But need to manage dual risks of markets and currencies Performances are in US$   YTD 1 Year 3 Years 5 Years BRIC 59.77% 80.70% 54.75% 50.09% MSCI Emerging Market 42.95% 56.88% 38.57% 35.09% Global Equity Fund 13.24% 18.68% 58.72% 128.96% UK SMALL CAP 6.30% 23.10% 120.00% 277.80% 14

Pool of Savings Investor A F D C E B You receive Units in return for your investment. Each unit purchased on the same day in a specific fund gets the same value and is an undivided share of the pool of savings.

Balanced Fund 16

Balanced Fund - Returns 17

Equity Fund 18

Old Mutual Equity Fund - Returns 19

Money Market Fund 20

What it Takes to Beat Inflation 23 23

Long Term vs. Short Term Assets 24 24

Social Responsible Investing The belief that environmental, social and corporate governance issues DO affect the performance of investment portfolios As Investors, we have a duty to act in the best interest of our beneficiaries By ensuring that our investments INDEED help create a better world Putting your money to work to build a better tomorrow while earning competitive returns today….to sustain current and future generations 25 25

Social Responsible Investing How do we practice it ? Invest in profitable companies with respectable employee relations, strong records of community involvement, sound environmental impact practices, respect for human rights and safe products Proactive approach to advocating for good governance and shareholder rights 26 26

Asante Sana Paul Wachira Mwai Old Mutual Asset Manager Old Mutual Building Upper Hill Mara Road Nairobi pmwai@oldmutualkenya.com www.oldmutualkenya.com