Presentation on theme: "Guaranteed Accumulation and Decumulation Solutions"— Presentation transcript:
1 Guaranteed Accumulation and Decumulation Solutions May 2010
2 Lifecycle Investing A new market environment Trend towards private provisioning clearly visible:Growth of DC plans and personal pension productsUnitised Life offering as replacement for traditional life policiesIncreased regulatory focus on fiduciary duties of advisors and distributorsGrowth of Guaranteed products post crisis.Strong momentum in supply of Target Date ‘Lifecycle’ products globally
3 Lifecycle Investing Current Attractiveness At the end of 2009 pension assets for the 13 largest markets were estimated at USD 23,290 bn*Globally huge increases will occur in the AUM for pensions creating opportunity for Lifecycle Funds (7.5% Europe, Asia 17.2%, 19.5% CEE CAGR until 2015 with a significant shift from DB to DC (second pillar of retirement assets).Pension provision act of 2006 in the US made Target Date Funds/Lifecycle one of three possible Qualified Default Investment Alternatives (QDIA’s) creating huge interest in this market, now spreading worldwide.There is an established trend towards the provision of Defined Contribution pensionsPersonal saving for retirement via insurance schemes is increasing (third pillar of retirement assets).Source: * Towers Watson, 2010 Global Pension Asset Survey
4 Lifecycle Investing European Market 4Lifecycle Investing European MarketPension investment assets + Life Insurance assetsSource: Allianz GI Pensions Research
5 Lifecycle Investing Catering for different investor needs Different Lifecycle solutions for different investors, depending on the individual investor’s investment knowledge, time commitment, etc.Required time commitment and investment knowledgeTarget RiskTarget DateGuaranteedLevel of security and ease of use“Manage your Lifestyle”“Select your Lifestyle”“Guarantee your Lifestyle”Source: BNPP-IP.
6 Risk not related to liabilities Risk related to liabilities Lifecycle InvestingWhere does Lifecycle fitForms the base of individuals portfolios matching future financial liabilitiesSpecialtiesSingle stocksIndividual Mutual FundsNotesLifecycle InvestingSpeculationWealth CreationLiability MatchingHigh risk investmentsRisk not related to liabilitiesLow risk investmentsRisk related to liabilities
7 Lifecycle Investing Structural Attractiveness of Lifecycle All-in-one packageTarget date investing allows the investors to choose a date closest to the financial liabilityThe trend towards private provisioning is creating an attractive environment for new investment solutionsStructural growth, driven by the increasing need for investors to plan for their own financial future large shift from Defined Benefit (DB) to Defined Contribution (DC).Increased awareness of the post retirement marketDecumulation solutions which offer participation in the equity market due to the increase in life expectancies are gaining momentum
8 Market Opportunity A new market environment Demographics:Concentration of wealth in 55+ segmentSupplemental income required to continue current lifestyleMarket:Low yields significantly reduce attractiveness of traditional income productsIncreased focus on transparency and costs
9 Market Opportunity Shift from Accumulation to Decumulation As baby boomers approach retirement, rather than further building up wealth, investors will increasingly be looking to drawdown from their accumulated wealthWorking lifeInitial wealthAccumulated wealthRetirement incomeAccumulationDecumulationNear retirementOld age
10 Guaranteed Accumulation Solutions Highest Daily NAV GuaranteeAt maturity the investor receives the highest unit value ever attained during the life of the fundGuaranteed value (at maturity)EUR 75Unit valueEUR 75EUR 70Guaranteed Value:EUR 75EUR 65EUR 67EUR 60EUR 59EUR 55EUR 50Guaranteed Value:EUR 50Initial PurchaseMaturity DateSource: BNPP-IP. For illustrative purposes only. Not drawn to scale The Management Company reserves the right not to increase the Guaranteed Value at a Recalculation Moment if a Fund’s assets consist solely of fixed income securities such as money market instruments or time deposits.
11 Guaranteed Accumulation Solutions Comparison of lifecycle productsProduct FeaturesCommon Guaranteed productsTraditional Target Risk productsTraditional Target Date productsTarget Click FundsTarget dated, with range of end datesVery long investment horizons availableAutomatic risk-reduction over timeContinuous equity exposureExplicit GuaranteeAutomatic profit ‘lock-in’Clear and simple cost structureOpen-end structureSource: BNPP-IP.
12 Guaranteed Decumulation Solutions Payout structure Guaranteed coupon determined by length of income period (100/N=X%)Option to include growth factor of guaranteed coupons upfrontFurther increase of guaranteed coupon via lock-in of investment performanceAfter N years no investments left (no longevity coverage)CouponsYear 1Year 2Year 3Year 4Year 7Year N-1(Maturity date)Year NReturn componentSafe componentGuaranteed couponOptional growth factorInvestment linked growth factorInvestmentInvestment datePayoutFor illustrative purposes only. Not drawn to scale
13 Guaranteed Decumulation Solutions A flexible solution Product can be tailored in various ways:Length of decumulation phaseUpfront growth factorOr... full customisation of coupon profileComposition of Return ComponentType of lock-in mechanism (including possibility of discretionary lock-in)Product can be wrapped in various ways:As an open ended fundAs a segregated mandate, dedicated to a distribution clientClient can add features, i.e. insurance riders (longevity, mortality)
14 Combining Accumulation and Decumulation Instead of immediate income, provides deferred income:Spans across accumulation and decumulation phaseReturns in accumulation phase increase guaranteed coupons in decumulation phaseBenefits for investors:More upside to guaranteed couponOn average, longer equity exposureLess interest rate risk due to gradual ‘annuitisation’Benefits for distributors:Target broader segment (imminent retirees)Combining accumulation and decumulation reduces redemption risk at retirementFurther innovation and product differentiation
15 For illustrative purposes only. Not drawn to scale Combining Accumulation and Decumulation Deferred Guaranteed Income SolutionsGuaranteed coupons determined as follows:Up front guaranteed coupon determined at start of accumulation phaseIncrease in guaranteed coupon as result of performance in accumulation phaseFurther increase in guaranteed coupon as result of performance in decumulation phase.....For illustrative purposes only. Not drawn to scale
16 Guaranteed Lifecycle Solutions They offerGuaranteed Lifecycle SolutionsReturnSecurityGlobal equity exposureLeveraged investmentsCash buffer to top up equityFull protection at maturityLock-in of investment gainsAutomatic risk reductionRange of Target DatesNo penalties for withdrawalsInvest any amount at any timeFlexibilitySource: BNPP-IP.
17 DisclaimerThis material is issued and has been prepared by BNP Paribas Asset Management (“BNPP AM”) * and has been approved for publication in the UK by BNP Paribas Asset Management U.K. Ltd (“BNPP AM UK”)**, a member of BNP Paribas Investment Partners (BNPP IP)***.This material is produced for information purposes only and does not constitute:an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever orany investment advice.This material makes reference to certain financial instruments (the “Financial Instrument(s)”) authorised and regulated in its/their jurisdiction(s) of incorporation.No action has been taken which would permit the public offering of the Financial Instrument(s) in any other jurisdiction, except as indicated in the most recent prospectus, offering document or any other information material, as applicable, of the relevant Financial Instrument(s) where such action would be required, in particular, in the United States, to US persons (as such term is defined in Regulation S of the United States Securities Act of 1933). Prior to any subscription in a country in which such Financial Instrument(s) is/are registered, investors should verify any legal constraints or restrictions there may be in connection with the subscription, purchase, possession or sale of the Financial Instrument(s).Investors considering subscribing for the Financial Instrument(s) should read carefully the most recent prospectus, offering document or other information material and consult the Financial Instrument(s)’ most recent financial reports. The prospectus, offering document or other information of the Financial Instrument(s) are available from your local BNPP IP correspondents, if any, or from the entities marketing the Financial Instrument(s).Opinions included in this material constitute the judgment of BNPP AM at the time specified and may be subject to change without notice. BNPP AM is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the Financial Instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for a client or prospective client’s investment portfolio.Given the economic and market risks, there can be no assurance that the Financial Instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the Financial Instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to the Financial Instruments may have a significant effect on the results portrayed in this material. Past performance is not a guide to future performance and the value of the investments in Financial Instrument(s) may go down as well as up. Investors may not get back the amount they originally invested.The performance data, as applicable, reflected in this material, do not take into account the commissions, costs incurred on the issue and redemption and taxes.This document is directed only at person(s) who have professional experience in matters relating to investments (“relevant persons”). Any investment or investment activity to which this document relates is available only to and will be engaged in only with Professional Clients as defined in the rules of the Financial Services Authority. Any person who is not a relevant person should not act or rely on this document or any of its contents.*BNPP AM is an investment manager registered with the “Autorité des marchés financiers” in France under number 96-02, a simplified joint stock company with a capital of 62,845,552 euros with its registered office at 1, boulevard Haussmann Paris, France, RCS Paris**BNPP AM UK is an investment manager authorised and regulated by the Financial Services Authority, with its registered office at 10 Harewood Avenue, London, NW1 6AA (Company No ).*** “BNP Paribas Investment Partners” is the global brand name of the BNP Paribas group’s asset management services. The individual asset management entities within BNP Paribas Investment Partners if specified herein, are specified for information only and do not necessarily carry on business in your jurisdiction. For further information, please contact your locally licensed Investment Partner.P