Robeco Divirente VaR 4

1
Robeco Divirente VaR 4

• Absolute Return Fixed Income

Chris van der Oord Vice President Fixed
Income Paris, 15 March 2007
2
Introduction Robeco Divirente VaR 4

• Robeco Fixed Income product
• Absolute Return Fixed Income product with limited
  downside risk (VaR 4)
• Uses Full Discretion / All Strategy approach
• Wide variety of performance drivers
• Diversification of strategies and no dominant
  bets
• Aims to generate stable returns in rising and
  declining markets
• Attractive risk return profile
• Lower volatility than bonds and higher expected
  return than cash
• Given flattish yield curve attractive
  proposition

3
Agenda

• Introduction to Robeco and its fixed income
  capabilities
• VaR 4 limiting the downside
• Full Discretion / All Strategy
• Robeco Divirente VaR 4
• Summary

4
Robeco a leading international asset manager

• Headquartered in the Netherlands and investment
  offices in Europe, US, Japan and the Middle East
• EUR 142 bn (31 dec 2006) assets under management
  across different asset classes (equity, fixed
  income and alternative investments)
• 700 institutional clients, ca. 1.5 million retail
  clients
• 100 owned by Rabobank, AAA-rated
• Singular focus on asset management

Robeco house in Rotterdam
5
Robeco is active on a global scale
6
Robeco one of the leading fixed income managers
in Europe

• Morningstar's Survey of Top European FIXED
  INCOME Fund Groups (since July 2004)
• 1st rank in March 2006 also in July 2004 and July
  2005
• Top 3 ranking in 8 out of the past 29 months
• Top 5 ranking in 16 out of the past 29 months
• Top 10 ranking in 23 out of the past 29 months

7
Success factors of Robeco fixed income, coming
together

• Continuous innovation proven track record
• We are committed to innovation by constantly
  reviewing our existing range of investment
  strategies to expand our sharp edge in investing
• Integration of quantitative strategies
• Structured investment process where quantitative
  strategies play a key role
• Risk budgeting to create value
• We favor active use of the available risk budget
  (TE), focusing on those areas where we can add
  value for our clients
• Accountable Teams
• Our outspoken investment decisions are taken by
  highly focused fund manager teams consisting of
  max. 5 persons
• On average over 10 years experience and high
  stability
• Motivated to perform
• Strong emphasis on performance measurement,
  putting pressure on teams to perform
• Bonus of team members related to fund performances

8
Position in product range fixed income
Alpha
?
All Strategy Euro Bonds
All Strategy
Divirente VaR 4
Rorento
Flex-o-rente
Lux-o-rente
Quant. duration
Core funds
Liquidity funds
Euro Bond
Global Bonds
Cash
Euro
Global
Benchmark ?
9
Agenda

• Introduction to Robeco and its fixed income
  capabilities
• VaR 4 limiting the downside
• Full Discretion / All Strategy
• Robeco Divirente VaR 4
• Summary

10
VaR 4 limiting downside risk

• The risk budget of the fund is determined by a
  VaR limit
• VaR 4 means that 12-month returns (before fee)
  will not be less than cash-4 with 95
  confidence.
• VaR computed by sophisticated risk model under
  UCITS-III(delta-normal methodology, credit risk
  related to spread level)

95
Cash-4
12-months return ?
11
Managing the VaR

• Forward-looking approach
• Portfolio complies with forward-looking VaR (95)
  of cash-4,i.e. limit on downside returns of
  current portfolio for coming year
• Not backward-looking(i.e. not reducing risk
  after underperformance like CPPI)
• No hard guarantee (unlike e.g.
  principal-protected note)
• Continuously utilizing risk budget facilitates
  meeting return target
• Forward-looking approach fits with daily in- and
  outflows

12
Divirente a decade of experience with VaR funds

• Robeco Divirente, Dutch retail VaR fund, launched
  in 1997
• 5 Morningstars
• Assets under Management EUR 800mln
• Lower volatility than bonds, higher returns than
  cash

Robeco Divirente return 5 year ann. 3.56 volatili
ty 0.91 Sharpe ratio 1.1 Dec 2006, gross of
fees
Cumulative performance
13
Agenda

• Introduction to Robeco and its fixed income
  capabilities
• VaR-4 limiting the downside
• Full Discretion / All Strategy
• Robeco Divirente VaR 4
• Summary

14
Full Discretion freedom to act

• Typical opportunity set global fixed income
  markets
• Many performance drivers to add incremental value
• Diversified strategy exploits all drivers,
  resulting in attractive returns
• Freedom to follow themes wherever value adding
  opportunities exist
• Exploiting the right performance driver at the
  right time
• Disciplined investment and decision making
  process to sustain performance
• Taking bets in a risk controlled manner
• Risk management fully embedded in investment
  process
• Rorento, Robeco Fixed Incomes flagship fund,
  employs Full Discretion approach
• Global fixed income fund launched in 1974, AuM
  EUR 3 billion

15
Team approach in managing Full Discretion fund
Asset allocation
FIXED INCOME ASSET ALLOCATION COMMITTEE
16
Main features Fixed Income Asset Allocation

• Organization
• By group of most senior investment portfolio
  managers
• Representatives from all market analysis teams
• Meeting at least once a month
• Decides on allocation trades over fixed income
  categories
• Active positions in investment grade credits,
  high yield, asset backed securities and emerging
  debt
• Swap spread positions
• Short-term allocation decision time horizon 2-3
  months
• Input used
• Bottom-up market analysis from Rates, Credits and
  ABS teams
• Top-down view on current state of financial
  markets and valuations

17
Examples Fixed Income Asset Allocation
66.5
Overweight Subordinated Bank Paper
US High Yield vs European High Yield
61.5
56.5
51.5
46.5
41.5
36.5
JPM SSI All Subordinated ASS EUR
31.5
26.5
Aug 2004
Feb 2005
Aug 2005
Feb 2006
Aug 2006
Feb 2004
US High Yield versus European High
Yield Implemented strategy Overweight US HY vs
underweight European HY Sept 06 Jan 07
Spread Tier 1 bank paper versus government
bonds Implemented strategy Long Tier1 vs short
Itraxx as of Sept 06
18
Main features rates process

• Duration decision
• Predicting direction of interest rate movements
  in EMU, US and Japan
• Country and region allocation
• Confronting yield differences between markets
  with divergences in economic developments
• Yield curve allocation
• Anticipating future shape of yield curve
• Money market allocation
• Confronting money market view with implied market
  rates
• Combination of qualitative and quantitative
  analyses
• Prominent position for quantitative duration
  model

19
Example Rates trade Regional Allocation
Development yield spread Unites States versus
Europe
20
Main features credit process

• Major decisions
• Active positioning of the portfolios market
  sensitivity (credit beta)
• - What level of risk to run at what moment in
  credit cycle?
• - Both overweight or underweight the market
  (long/short)
• Skillful issuer selection
• - Focus on issuers in lower rating categories
• - Long/short issuer portfolio is implemented
  with derivatives
• - Also credit curve strategies on individual
  issuers
• Combination of qualitative and quantitative
  analyses
• - Prominent position for quantitative bond
  selection tool CoALA
• - As well as quantitative credit beta model

21
Agenda

• Introduction to Robeco and its fixed income
  capabilities
• VaR-4 limiting the downside
• Full Discretion / All Strategy
• Robeco Divirente VaR 4
• Summary

22
Robeco Divirente VaR 4 product description

• Absolute Return Fixed Income productwith limited
  downside risk (VaR 4)
• Employs all Robeco Fixed Income asset classes,
  performance drivers and instruments (All Strategy
  / Full Discretion approach)
• Aims to generate stable returns in rising and
  declining markets
• Target return (Gross) EONIA 150 to 200bp
  (currently 5.1-5.6)
• Performance-related fee (hurdle rate EONIA 150
  bp)
• Luxembourg SICAV (UCITS III) and daily liquidity
• Inception date 2 November 2006

23
Optimal allocation over performance drivers

• Expected return contribution per performance
  driver

Indicative ranges -4 lt Duration lt 4 -2 lt
Credit Beta lt 2 -2 lt Issuer position lt 2 -10 lt
Asset Allocation (per trade) lt 10
24
Risk budgeting Robeco Divirente VaR 4

• Determine allocation to performance drivers based
  on
• realistic assumptions on IR per performance
  driver(based on performance attribution back
  test models)
• attainable and desirable risk level per driver
• robust diversification rather than full
  optimization
• Resulting partial target risk and expected return
  are feasiblegiven track records

25
Risk budgeting Robeco Divirente VaR
4illustration of some drivers

• Realistic assumptions per driver
• Low correlation between quant drivers
• Quant drivers improve breath and frequency
  of positions

26
Portfolio positioning an example

• Some recent positions

ABS, diversified financials
short Japan, US and EMU
long Usd HY vs short Eur HY
long Japan
long credits
short Euribor
Telefonica (L) vs Vodafone (S)
long Sweden, short Japan
2-10 flattener in UK
long US vs short EMU
27
Robeco Divirente VaR 4 performance attribution
Gross of fee
28
Risk Return profile Divirente VaR 4

• Cash Eonia 3.57 (Jan 2007), volatility
  0.16 (5-year)
• Bonds Lehman Brothers Euro Aggregate, vol.
  3.02 (5-year) yield 4.13 (Jan 2007), assume
  no curve rating changes
• Fund Robeco Divirente VaR 4 target return Eonia
  150-200 bp, target vol. lt 2

return
risk
29
Highlights Robeco Divirente VaR 4

• Aims to outperform cash by 150-200 bp (gross)
• Benefit from all Robeco Fixed Income
  capabilitieswith limited downside risk (low
  volatility target lt 2)
• Diversification over performance drivers leads
  tostable performance in rising and declining
  markets
• Attractive risk-return profile, particularly in
  current bond environment
• Daily liquidity available

30
General facts Divirente VaR 4

• Legal status
• Issue structure Open-endDomicile Luxembourg
• Legal status SICAV, UCITS III
• ISIN codes activated share classesClass 'D EUR'
  shares LU0272442467
• Class 'I EUR' shares LU0272442970
• Class 'E EUR' shares LU0272443515
• Bloomberg
• DIV VAR4 'D' SHS CAP EUR RCDVFDE LX
• DIV VAR4 'I' SHS CAP EUR RCDVFIE LX
• DIV VAR4 'E' SHS DIST EUR RCDVFEE LX
• Manager information
• Asset Manager Robeco Asset Management
• Fund Manager Olaf Penninga

• Product characteristics
• Asset class Absolute Return
• Size EUR 55 mln (Feb 07)
• Target return Eonia 150-200bp gross of fees
• Accumulating I-shares, D-shares, M-shares
• Distributing IE-shares E-shares B-shares
• Currencies EUR, USD, GBP, CHF
• Fees and costs
• Fixed fee I- and IE-shares 50 bp
• D-, B- and E- shares 80 bp
• M-shares 110bp
• Performance fee 25 (net performance -hurdle
  rate)
• hurdle rate Eonia 150bp
• Service fee I- and IE-shares 3 bp
• D-, B-,M- and E- shares 8 bp
• Tax dabonnement I- and IE-shares 1 bp
• D-, B-,M- and E- shares 5 bp

31
Disclaimer

• IMPORTANT INFORMATION
• This presentation has been carefully prepared by
  Robeco Asset Management, a trade name of Robeco
  Institutional Asset Management B.V. (hereafter
  Robeco). It is intended to provide the the
  audience with information on Robecos specific
  capabilities, but does not constitute a
  recommendation to buy or sell securities or
  investment products.
• The contents of this presentation are based upon
  sources of information believed to be reliable,
  but no warranty or declaration, either explicit
  or implicit, is given as to their accuracy or
  completeness. This presentation is not intended
  for distribution to or use by any person or
  entity in any jurisdiction or country where such
  distribution or use would be contrary to local
  law or regulation.
• Historical returns are provided for illustrative
  purposes only and do not necessarily reflect
  Robecos expectations for the future. The value
  of your investments may fluctuate. Results
  obtained in the past are no guarantee for the
  future.
• No rights whatsoever are licensed or assigned or
  shall otherwise pass to persons accessing this
  information.
• Robeco Institutional Asset Management B.V. is
  registered with the Netherlands Authority for the
  Financial Markets in Amsterdam. Robeco Divirente
  VaR 4 has applied for a license from the CSSF in
  Luxembourg and applied for a registration with
  the Netherlands Authority for the Financial
  Markets in Amsterdam. The prospectus is available
  at the office or on the website.