New recipes for investment success 21 May 2009 FOR PROFESSIONAL INVESTORS ONLY Emma Douglas & Mark Johnson

2 The knives are out for pensions…

3 Try changing the ingredients 1.Your DC default option… 2.The governance of your DB scheme…

4 What’s wrong with Lifestyle? Members hate seeing their investments fall in value Members don’t understand benchmarks Members retire earlier than they expected —In some schemes 80% retire early Members think managers are making tactical asset allocation decisions I’m alright, I’m in Lifestyle

5 Diversified Growth Strategies Has a return target Cash + 3-4% or RPI + 5% Multi-asset portfolio Invests in equities, bonds and cash Also property, high yield bonds, commodities, hedge funds, private equity etc Capital preservation bias No guarantee

6 From a member’s perspective Medium-low risk Aiming for long term capital growth Expected to outpace inflation Less volatile than traditional funds Capture most market upside in rising markets BUT Capital preservation ethos helps to limit downside Money is being managed by experts

7 Does it work? GBP Composite data - 31 December 2003 to 31 March 2009 Source: BlackRock Annualised Average Return (%) Annualised Absolute Volatility (%) FTSE All Share 1.5%13.4% BlackRock Target Return 5.3%6.3% Best Monthly Return (%) Worst Monthly Return (%) # of Negative Months FTSE All Share 6.3%-13.2%25/63 BlackRock Target Return 3.3%-6.4%19/63

8 Can we communicate? ‘Snorkelling not scuba diving’

9 % Weight in Fund Sep- 05 Dec- 05 Mar- 06 Jun- 06 Sep- 06 Dec- 06 Mar- 07 Jun- 07 Sep- 07 Dec- 07 Mar- 08 Jun- 08 Jul- 08 Aug- 08 Sep- 08 UK Equities25.1%35.2%13.2%11.5%15.2%20.3%15.1%20.1%11.8%9.5%9.0%15.7%12.1% 14.9% Overseas Equities2.2%5.6%0.9%6.0%9.5%12.0%8.3%10.8%7.5%4.3%4.0%8.6%0.6%0.2%1.6% Emerging Market Equities3.7%8.2%0.0% 0.3%2.3%2.7%1.9%3.2%5.0%5.8%3.0%2.7% 2.5% Sector Equities0.0% 2.0%1.6%1.1%2.2%4.0%5.4%8.2%6.7%5.6%5.2%5.1%4.7%2.3% Natural Resources0.0%0.4%1.0%0.4%2.7%0.5%0.7%0.2%3.3%2.4%3.3%1.7%3.0%3.7% Infrastructure0.3% 2.9%2.3%2.1%1.0%5.6%8.3%6.5%6.0%5.1%4.3%4.0% 0.3% Hedge Funds0.0% 4.0%5.7%7.7%10.0%10.7%8.5%10.8%10.3%10.4%10.0%9.1% Global Currency0.0% 4.1%3.5%1.2%1.4%1.1%0.0% Property0.3%0.4%0.0%2.6%5.7%5.6%7.2%6.3%5.2%4.6%3.5%3.1%2.0%2.1% Diversified Commodities0.0% 0.5%1.0%2.0% 1.2%0.8%2.5%3.7%2.9%3.5%3.0%2.9% Derivative Strategies0.0% 2.3%0.7%1.1%0.9%3.0%3.1%4.7%4.1%4.0%4.4%5.5% Private Equity0.0% 1.5%1.3% 1.0%1.2%1.3% Fixed Interest & Short Duration Cash64.4%25.5%15.4%11.6%27.2%9.9%11.3%13.6%5.9%5.3%6.2% 5.0%5.6%8.6% Cash4.0%24.4%64.5%55.3%23.6%34.7%30.6%19.3%36.0%38.3%37.5%33.5%47.0%47.2%45.2% Total Portfolio % Not this! Source: BlackRock. *Positions taken from the BIJF Target Return Fund, a representative account. Launch date of BIJF TR Fund June

10 DC Target Return Fund December 2007 Looks fine in a pie chart! DC Target Return Fund March 2009 Property, 3.0% Overseas Equities, 3.0% Hedge Funds, 6.0% Short Duration Fixed Income Portfolio, 28.0% Cash & Derivatives Cover 28.0% Emerging Market Equities, 9.0% Sector Equities, 3.0% UK Equities 11.0% Infrastructure, 7.0% Private Equity, 2.0% UK Equities 15.5% Natural Resources, 2.2% Diversified Commodities, 3.5% Derivative Strategies, 2.9% Overseas Equities, 4.2% Hedge Funds, 5.5% Private Equity Funds, 1.2% Infrastructure, 0.2% Credit & Convertibles 22.1% Government Bonds 8.1% Cash & Derivatives Cover 20.9% Emerging Markets, 4.3% Short Duration Fixed Income Portfolio, 9.4%

11 What challenges are DB clients facing? Anything but a quiet life! The Day Job DB Plan Closings Accounting Changes ‘Perfect Storm’ in Markets Actuarial Changes Volatile Funding Levels Increased Complexity Regulatory Changes

12 Where Has Effort Been Invested? Typical Trustee time spent Mismatch between value and time spent Selection of Managers Manager Structure Dynamic Asset Allocation Strategic Asset Allocation Contribution to overall success

13 What is Fiduciary Management? Fiduciary Management involves (partial) outsourcing of the day to day management of the Pensions Scheme to a Fiduciary Manager The Fiduciary Manager is responsible for a number of key functions traditionally undertaken by client The key benefit for clients is that one single party is accountable for the design, implementation and oversight of the plan’s investment activities Partnership approach allows the sponsor and the pension fund to focus on high-level strategic objectives Success requires a close partnership between the Sponsor/Pension Fund, their Advisors and the Fiduciary Manager

14 Why Fiduciary Management? Pension Fund Trustees and Sponsors are faced with Greater emphasis on risk management - requires a higher level of diversification and data Increased complexity of financial products, creation of new asset classes Increased regulatory requirements and introduction of international accounting standards Increased complexity of Governance and Compliance rules Cross over between strategy and tactics driven by market volatility, shorter timeframes and more diverse allocations ‘In –Sourcing’ to get the benefits of an in house manager but without the limitations

15 Examples of Fiduciary Management Full Board of Trustees responsible for setting strategic objectives and monitoring BlackRock responsible for strategic advice, dynamic asset allocation, portfolio structure, manager selection Partial Members wished to outsource the management of their alternatives portfolio BlackRock responsible for the selection, implementation and risk monitoring across hedge funds, private equity, property, infrastructure and commodities

16 Fiduciary Management Illustration Client Fiduciary Manager Custodian Risk Management Asset Allocation Portfolio Implement- ation Performance Monitoring Fiduciary Managed Actuary/ Consultant Portfolio Manager(s) Custodian Performance Measurement Risk Management Traditionally Managed Process should capture all interdependencies to meet a client’s objectives Actuary/ Consultant Client

17 Tracking Pension Scheme Funding Level Development Weekly Monthly Source: BlackRock.

18 A Client’s Perspective of a Fiduciary Relationship Source: BlackRock Tactical investmentsMonitor and select fiduciary Investment performanceAsset allocation policyBenefits Consultancy Benchmark selection Funding Set risk budget Valuation assumptions Implement asset allocationManage all suppliers Comprehensive reporting - risk and performance Scheme administration Guidance on strategyHedging strategy Manager monitoring and de-selectionBenefits policy, payment structure Manager selection/ termsCashflow management Portfolio constructionCovenant managementMonitor Fiduciary Investment strategy (Investment Input) Investment strategy Investment Strategy (Liability Perspective) Risk modelling and managementScheme GovernanceActuarial Fiduciary ManagerTrusteesConsultant

19 Bringing it All Together Discuss Scheme Investment Objectives & ALM Study Strategic Advice Risk & Performance Analysis Client Service & Reporting Your Pension Scheme Portfolio Construction & Implementation Long Term Investment Strategy

20 So if you want a healthier pension scheme …

21 … maybe there is a simpler ingredient

22 Any questions?

24 Note to User: This is a standard compliance page for general presentations only The following notes should be read in conjunction with the attached document: 1.Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Services Authority. Registered office: 33 King William Street, London, EC4R 9AS. Tel: Registered in England No For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. 2.Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time. 3.Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. 4.This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. 5.Subject to the express requirements of any client-specific investment management agreement or provisions relating to the management of a fund, we will not provide notice of any changes to our personnel, structure, policies, process, objectives or, without limitation, any other matter contained in this document. 6.Unless otherwise specified, all information contained in this document is current as at May THIS MATERIAL IS FOR DISTRIBUTION TO PROFESSIONAL CLIENTS AND SHOULD NOT BE RELIED UPON BY ANY OTHER PERSONS.