markets fund solutions │rmb performance linked...

Strictly Private and Confidential

BCI Roadshow

Global Markets Fund Solutions │RMB Performance Linked Investment

6 September 2016

Paul Mendes RMB Global Markets Fund Solutions

Equity Structurer

[email protected]

Sonja Kriel Ashburton Investor Services

Business Development Manager

[email protected]


RMB — a division of FirstRand Bank Ltd.

Retail & commercial

banking

Corporate & investment

banking

Instalment

finance

Investment

management

FirstRand Bank Limited FirstRand Investment

Management

2 2


RMB Alternative Investment Solutions

RMB non-traditional investment solutions include a combination of the following:

Alternative

assets

Capital

guarantees

Efficient

structure

Access to

funds

3


RMB Performance Linked Investment (RMB PLI)

• Financial instrument issued by FirstRand Bank (trading as Rand Merchant Bank)

• Accessed via the Ashburton Investor Services Platform (AIS)

• Bank Note (wrapper) – OTC investment

• RMB PLI returns linked to RMB Products

(e.g. RMB Bespoke Note, SP90, SP100, PF80, ELN)

• RMB PLI can reference multiple RMB Products

− Allows for multiple strategies under one investment

• Redemptions

− RMB Product dependant (linked to liquidity of reference assets)

− Partial or Full

− IT3c tax certificate upon full/partial from the RMB PLI

4

Efficient

structure


RMB PLI Investment Products – RMB Bespoke Note (RMB BN)

5

RMB BN reference assets

• SA listed equity (local classification on JSE), ETF’s, ETN’s

• SA CISs

• SA Hedge Funds (segregated portfolios, RIHF & QIHF)

• On balance sheet RMB Solutions:

IFA House/Strategic solution

External Asset Management ability

Access to

funds

Capital

guarantees

Efficient

structure

Alternative

assets

RMB BN Attributes

• On balance sheet Note

• Allows investor a choice of 3 strategies:

Tracking (pass through)

Gearing (leveraged exposure)

Guarantees (3-5 year term, variable %, max 100%)

• Efficient dynamic allocation

• CAT II or CAT IIA


RMB Bespoke Note (RMB BN)

6

Access to

funds

Capital

guarantees

Efficient

structure

Alternative

assets

RMB BN Product Summary

• CPPI risk management methodology (Constant Proportion Portfolio Insurance)

• Methodology allows for dynamic risk management of multi asset class, and multi asset portfolios

• Provides an alternative hedging technique to traditional optionality (Vol trading)

• Mathematical approach that allows for dynamic asset allocation

• All reference assets are allocated a risk adjusted Asset Quality weighting (AQ)

• Explicit capital guarantee

Variable percentage, maximum 100%, dependant on AQ of portfolio

Guarantee is term dependant (can be broken at MtM)

Degree of risky asset exposure is a function of the guarantee requirement and term

• Dynamic Gearing

Maximum 1x leverage (i.e. R100 Notional + R100 Gearing = R200 Exposure), dependant on AQ of portfolio

100% exposure to reference asset from inception

Dynamically adjustable (e.g. can increase with increase in NAV)

Strictly Private and Confidential 7

How does a Geared RMB BN work with CPPI?

Dynamic Gearing Constant Proportion Portfolio Insurance (max 1x gearing, dependant on AQ)

What happens if equity market rises by 10%?

Bullish

markets

Term Initial

capital Scenario NAV

Cash

balance Exposure

Gap

risk Gearing Comment

Start of month 1 R100 R100 -R100 R200 50% 1x

End of month 1 Equity rises 10% R120 -R100 R220 55% 083x Less than 1x geared

Option to buy R20 worth of risky assets to get back up to 1x gearing

Start of month 2 R120 -R120 R240 50% 1x

Bearish

markets

Term Initial

capital Scenario NAV

Cash

balance Exposure

Gap

risk Gearing Comment

Start of month 1 R100 R100 -R100 R200 50% 1x

End of month 1 Equity falls 10% R80 -R100 R180 44% 1.25x More than 1x geared

Obligation to sell R20 worth of risky assets to get back down to 1x gearing

Start of month 2 R80 -R80 R160 50% 1x

What happens if equity market falls by 10%?


How does a Capital Guarantee RMB BN work with CPPI?

Capital Guarantee Constant Proportion Portfolio Insurance (CPPI)

• A formulaic asset allocation strategy with two aims:

Maximising exposure to an asset

Ensuring a minimum guaranteed value at maturity

• Dynamically balances portfolio investment between risky

asset and safe asset

Risky asset (Top40 Index, Hedge Fund, CIS, Listed

RSA Equity)

Risk-free asset (cash investment /zero coupon bond)

• Dynamic protection methodology that adjusts investment

in response to market conditions

If the risky asset performs well, more is invested in it

and less in the risk-free asset

Objective is to maintain a safety net to ensure a

minimum guaranteed value, and invest as much as

possible in risky asset to maximise upside

Full

exposure

Reducin

g e

xposure

Incre

asin

g e

xposure

Time

Value

Principal

Repayment

NAV of

RMB Note

Present

Value (PV)

Maturity

Distance Initial

Investment/

Guaranteed

investment

“Distance” is the benchmark for

re-balancing and determines trading

level

Risk-free asset (Cash)

Risky asset

Reference level (changes due to

changes in interest rates)

8

Gap Risk


Benefits of the CPPI structure

Advantages Constraints

• Protection strategy via explicit capital guarantees

• Flexibility to reset guarantee at a higher capital value

• Dynamic allocation strategy

• Cost effective guarantee

• Potential for 200% exposure to the Funds (Gearing).

Non- recourse gearing

• Low cost loan facility (RMB Liquidity Enhancer)

• “Knock-out” event

If the performance is extremely poor and the investor is

moved entirely into risk-free assets, the investor will not

participate in an “upswing” (if there is one) of the

performance of the risky asset

• Path-dependent payoff profile

• Poor performance in very volatile sideways trending markets

performance of reference assets

If the reference asset does not follow a clear trend, the

trading leads to diminished returns through market timing

differences which may lead the investor to effectively “buy

high and sell low”

9


RMB Liquidity Enhancer

Issue Details

Term Same term as the investment product (minimum of 1-year)

Loan value 85% of Present Value of guarantee

Loan size Minimum of R 100 000 via Ashburton platform

Interest rate Prime-linked

Cash flows • One cash flow per month (not a transactional account)

• Full application amount paid out

Turnaround time Approximately 5 working days

Benefit Best of both worlds i.e. explicit guarantee plus liquidity and no redemption i.e. maintain exposure to

growth assets

Access to

funds

10


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For more information please visit

www.rmb.co.za/investments


Strictly Private & Confidential

This presentation has been prepared by FirstRand Bank Limited, acting through Rand Merchant Bank (“RMB”).

The information contained in this presentation is confidential and intended solely for the use of the intended recipient. This presentation may contain information

proprietary to RMB and accordingly may not be reproduced, acted upon or disseminated in whole or in part without RMB’s prior written consent. By attending this

presentation, the intended recipient undertakes to keep the information contained in the presentation confidential and not to do any act or allow same to be done on

his behalf which is in breach of the above mentioned prohibition.

This presentation contains information which has not been independently verified by RMB. RMB and its directors, officers, employees and agents make no

representation and give no warranty with respect to, and assume no responsibility for:

the correctness, accuracy and completeness or otherwise of the information contained in this presentation; or

the correctness or otherwise of the conclusions based on such information.

Any liability of whatsoever nature and howsoever arising on the part of RMB, their directors, officers, employees and agents relating to the contents of this

presentation is hereby expressly disclaimed.

This presentation is intended for discussion purposes only and does not represent a commitment, proposal, recommendation, advice, offer open for acceptance or

agreement to enter into a transaction. Any transaction is subject to the agreement of final terms to be set out in a separate written agreement. You are required to

seek your own legal, tax and financial advice before entering into any transaction. The decision to enter into any transaction and to assume the risks associated

with the transaction rests solely with the intended recipient.

June 2014

Disclaimer

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