Verbatim - due diligence forums Risk before pleasure Managing risk in Multi-asset and Multi-Strategy funds September – November 2015

Learning outcomes How risk targeting manifests itself within the management of a multi–asset fund How risk is managed in a multi-asset or multi-strategy fund, including counterparty risk Assessing risk for different asset classes and investment strategies Understanding the impact of risk across the portfolio over time

What do we mean by risk? Advisers Clients Fund Managers Advice Risk Business & Regulatory risk Clients attitude to risk Advisers Investment Risk Inflation and Interest Rate risk Savings Gap risk Clients Investment Risk Missing performance targets Regulatory Risk Fund Managers

How do savers & investors think about risk? Is it all about one standard deviation of volatility of monthly returns..?? It’s possible…but it’s more likely to be: Savings Risk: (shortfall risk) Inflation risk: Erosion of purchasing power Loss aversion: Regardless of volatility, UK savers seem to be very risk averse These attitudes are often in conflict with desired savings goals Source; How do savers think about and respond to risk? D. Blake & A Haig, Cass Business School, City University London February 2014 4

Multi-asset and Multi-Strategy funds A broad range of risks Duration risk Volatility Currency risk Credit risk Equity risk Inflation risk

Applied risk-metrics Absolute Relative Risk – relative or absolute..? Annual Volatility Alpha Tracking Error Sharpe Ratio Information Ratio Beta Absolute Relative

Evolution Multi-asset framework Multi-Strategy framework Past Present Balanced portfolios Flexible portfolios Past Present Asset class Investment opportunity Past Present Asset class diversification Risk factor diversification Past Present Lower correlation Higher correlation

Strategic asset allocation optimisation tools Long-term sustainable return and risk assumptions Looking into the risk-return expectations sourced from our in-house strategy team, one can observe that return expectations across the asset class spectrum are lower than their levels a few years ago. Fixed income in particular offers a lower return vs. the risk undertaken. Equities offer the highest returns but with the highest volatility Source: Thomson Reuters Lipper and Aviva Investors, data as at 30 June 2015. Past performance is not a guide to the future.

Differing approaches, differing characteristics MAF 20-60 (Cautious Managed) MAF – Volatility Targeted Multi Strategy – Cash + Peer group benchmarks Risk scored Tactical overlay Long only Maximum/ Minimum volatility Strategic and tactical Unconstrained Return target + Minimise volatility Risk scored? Positions Long and short

Navigating market volatility 20-60 shares v Multi-Strategy Target Return Fund % performance Source: Lipper as at 8 September 2015. Performance is shown net of all fees, in GBP. Inception date 1 July 2014. Past performance is not a guide to the future. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested Past performance is not a guide to the future. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested

Value at Risk: Mixed Investment 20-60% Shares 1 month VaR break down at 99% confidence level Value at Risk: 4.8% over 1 month at 99% certainty Source: Aviva Investors, as at 31 August 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.  Potential returns are based on a number of assumptions, may not be realised and are subject to risk.

Value at Risk – Multi-asset Fund II 1 month VaR break down at 99% confidence level Value at Risk: 4.5% over 1 month at 99% certainty Source: Aviva Investors, as at 31 August 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.  Potential returns are based on a number of assumptions, may not be realised and are subject to risk. Source: Aviva Investors, as at 31 August 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.  Potential returns are based on a number of assumptions, may not be realised and are subject to risk.

Value at Risk - Multi-Strategy Target Return Fund 1 month VaR break down at 99% confidence level Value at Risk: 2.8% over 1 month at 99% certainty Source: Aviva Investors, as at 31 August 2015. The data shown are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.  Potential returns are based on a number of assumptions, may not be realised and are subject to risk.

Multi-asset funds Risk management is integral to the investment process Asset allocation Fund management Investment objective Investment selection

Risk management for Multi-asset funds Range of risk tools to ensure robust management, including: Strategic Asset Allocation optimisation tools Aladdin Risk Management platform Independent Investment Risk Team

Construction Future timeframe Sep 11th 1 day move An alternative viewpoint independent from reliance on realised data for a different view of portfolio analysis Hypothetical events Historical events Sep 11th 1 day move MSCI World down by 30% Source: Aviva Investors, as of 31 August 2015. Past performance is not a guide to the future. The data shown are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Potential returns are based on a number of assumptions, may not be realised and are subject to risk.

Multi-asset and Multi-Strategy funds A broad range of risks Duration risk Volatility Currency risk Credit risk Equity risk Inflation risk

Portfolio implementation Multi-asset versus Multi-Strategy Nikkei 225 prices (%) Nikkei 225 rolling 30 day volatility (%) Source: Bloomberg and Aviva Investors as at 31 August 2015. Past performance is not a guide to the future. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested

Evolution Multi-asset framework Multi-Strategy framework Past Present Balanced portfolios Flexible portfolios Past Present Asset class Investment opportunity Past Present Asset class diversification Risk factor diversification Past Present Lower correlation Higher correlation

Learning outcomes How risk targeting manifests itself within the management of a multi–asset fund How risk is managed in a multi-asset or multi-strategy fund, including counterparty risk Assessing risk for different asset classes and investment strategies Understanding the impact of risk across the portfolio over time

Important Information This document is for investment professionals only. It is not to be distributed to or relied on by retail clients. Except where stated as otherwise, the source of all information is Aviva Investors as at 31 August 2015. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as personalised advice or a recommendation of any nature. Past Performance is not a guide to the future. The value of assets are subject to market fluctuations and can move irrationally and be unpredictably affected by many and various factors including political and economic events and rumours and as such the value of investments may go down as well as up and your clients may receive less than the original amount invested. As the funds may invest outside of the UK or hold currencies other than sterling, any currency exchange rate movement may cause the value of an investment to fall as well as rise. FTSE International Limited (“FTSE”) © FTSE 2015. FTSE® is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE data is permitted without FTSE’s express written consent. These products are not in any way sponsored, endorsed or promoted by any relevant stock market, relevant indices, related exchange or index and they do not accept any liability in relation to its issue, operation and trading. The Aviva Investors Multi-Strategy Target Income Fund and the Aviva Investors Target Return Fund are sub-funds of the Aviva Investors Funds ICVC. For further information please read the latest Key Investor Information Document and Supplementary Information Document for the fund and share class you require. AIMS Target Income - Derivative risks: As a result of the high degree of leverage typically employed when trading financial derivatives, a relatively small price movement in the underlying asset may result in substantial losses to the fund’s assets. The attention of investors is drawn to the ‘Risk Warnings’ contained in the Prospectus. Due to the fact the strategy will make significant use of financial derivatives, the following risk factor is particularly relevant: Investment in the Mission Portfolios range of funds is provided by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. There can be no assurance that these Funds will meet their investment objectives or that they will stay within their target volatility ranges. As the Funds will be subject to short-term market fluctuations and they aim, on average, to reflect investor risk profiles, over any three year period, they should be viewed as medium to long-term investments. The Prospectuses and the annual and interim reports are also available on request. Copies in English can be obtained from Aviva Investors UK Fund Services Limited, No. 1 Poultry, London EC2R 8EJ or by contacting our Relationship Management Team on 0800 0154773* or email them on fundandsalessupport@avivainvestors.com You can also download copies from our website. *Telephone calls may be recorded for training and monitoring purposes. Calls are free from landlines and mobiles. Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: No 1. Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.com Approved for use in United Kingdom Only. CI063523 09/2015