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Investment Fundamentals Forum - Asset Allocation 2 October 2014 6.30pm to 9.00pm SGX Auditorium Investment Fundamentals Forum Copyright © CFA Singapore and SGX. All rights reserved.

Portfolio management: Process & people Chong Yoon Chou, Investment Director Aberdeen Asset Management Asia Limited

Investment Fundamentals Forum Copyright © CFA Singapore and SGX. All rights reserved.

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Contents • Aberdeen Asset Management • Process & people • Equity • Investment culture • Summary

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About Aberdeen Asset Management • Aberdeen is a global asset management company listed on the London Stock Exchange, a FTSE 100 member since 2012 • Experienced management team • AuM of $551.4bn and market capitalisation of $10.2bn • Geographically diverse – 33 offices across the world • Over 2,500 staff including over 600 investment professionals worldwide • Investment expertise drawn from the three main asset classes: equities, fixed income and property, as well as tailored investment solutions spanning multiple asset classes (including alternatives and quantitative equities) • Transparent approach to investing

* Fully diluted Source: Aberdeen Asset Management, 30 Jun 14

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A diversified and global business

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A diversified asset base 30 Jun 14

$bn

Aberdeen Solutions

215.8

Equities

180.2

Fixed Income

120.5

Property

By asset class Property 6% Fixed income 22% Aberdeen solutions 39%

34.9

Total

Equities 33%

551.4

A priority is to build on the increased scale and diversity of our distribution relationships

Source: Aberdeen Asset Management

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International reach: 33 offices across the world AuM by domicile

Asia Pacific 7%

Middle East & Africa 3%

Americas 13%

Sales & Distribution Miami New York Philadelphia Toronto Investment centres New York Philadelphia Toronto

United Kingdom 57%

Property centre Philadelphia

Head Office Aberdeen Sales & Distribution Amsterdam Budapest Copenhagen Edinburgh Frankfurt Geneva Helsinki Jersey London Luxembourg Madrid Milan Oslo Paris Stockholm Zurich

Investment centres Edinburgh London Budapest Paris Property centres Amsterdam Copenhagen Edinburgh London Oslo Stockholm

Brussels Frankfurt Helsinki Milan Paris

Sales & Distribution Bangkok Hong Kong Singapore Sydney Taipei Tokyo Melbourne Investment centres Bangkok Hong Kong Kuala Lumpur Singapore Sydney Tokyo

Europe ex UK 20% Property centre Singapore Investment Centre São Paulo

Source: Aberdeen Asset Management, 30 Jun 14

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Representative offices Seoul Shanghai

Global reach, local understanding, independent thinking

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The hallmarks of Aberdeen • Asset management is our primary business – sole focus on our clients' portfolios and their interests • We favour teams not star fund managers • Global reach and a local understanding – our managers are based within the region in which they invest • Transparent investment processes: – Fundamental investors – Predominantly long-only – We don’t chase market fads – Investment decisions are only based on doing our own research ourselves • Collegiate, entrepreneurial, open

Long established and stable investment teams

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‘A House Process’ – why? Development, rationale and alternatives

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Aberdeen equity investment – history • Aberdeen equity investment process – first ‘company note’ in 1992 • Hugh Young appointed as Head of equities to oversee the introduction and the application of the process

Geographical roll-out of investment process

Asia inc. Japan 1985

Australia

GEM

UK

US

Cont. Europe

Feb ‘01

Apr ‘02

Sep ‘02

Sep ‘02

Apr ‘03

• Group-wide roll-out of the investment process ‘completed’ by Apr 2003 • Global database – controls, checks and balances

Source: Aberdeen Asset Management PLC

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Developing a House Process Generic

• Investment philosophy – too generic to be of any use? • Investment styles – Growth ‘v’s value – Bottom-up ‘v’s top-down – Indexation - size – Team/organisation structure • Investment process – bringing style one step further • House process – replicating style-process across the group

Specific

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• Business – differentiation + competitive advantage

Single consistent investment process

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Process-driven performance Performance = ƒ(Process, People, Time horizon, Market, Luck) • ‘Luck’ and ‘Markets’ are exogenous influences* • ‘Time horizon’ given by clients (hopefully!) • ‘Process’ vs ‘People’ - which is a more controllable factor?

* With indexation, performance = ƒ(Market)

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People?

Performance = ƒ(Processi, Peoplex-z, Time horizon, Market, Luck) People = ƒ(Skill, Experience, Attitude, Processj, Luck) • ‘Skill’ ‘Experience’ ‘Attitude’ factors obvious but subjective. Benefits of diversity • Processi ≠ Processj • Peoplex-z - organisational complexities. Challenges of team work

* With indexation, performance = ƒ(Market)

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Behind process-driven team structure

Performance = ƒ(Processρ, FMƩ i, Time Horizon, Market, Luck) FMi = ƒ(Skilli, Experiencei, Processρ, Attitudei, Lucki) • ‘Team-process’ over the ‘one-fund-one-manager’ paradigm • Tendency to grow staff from bottom to ensure purity of thought and disciplines • Skill & experience geared towards a ‘process’ • Team structure + generalist-rotation approach ‘diversifies attitude’

More effective to get the right process and then the right people behind the process 12

Putting it into practice – Aberdeen Equities

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Equity investing at Aberdeen • One, fundamentally driven, bottom-up investment process • Over 100 investment professionals – stable team, long length of service • Never invest prior to meeting company management • Regional teams: Asset managers based where we invest • Low portfolio turnover – buy and hold company shares for the long term • We are benchmark aware, not benchmark driven • If we don’t like a stock we won’t own it

Proprietary research is core to Aberdeen’s process

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Aberdeen investment process: quality first then price Company visit note

Step 1: Quality Pass or fail?

Step 2: Valuation

Aberdeen universe of stocks

Revisit • • • • •

Business strategy Management Financials Transparency Shareholders’ interests

Source: Aberdeen Asset Management

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• • • • •

Cheap or expensive?

Step 3: Portfolio construction

Watch list

Monitor

Price/earnings Price to cash flow Price to book ROE Dividend Yield

• Risk controls • Model portfolio

Investment process is the same for all long only equity accounts regardless of client

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Equity Assets under Management 30 Jun 14

$bn

Emerging Markets

57.8

Asia Pacific

57.8

Global

50.4

UK

8.3

US

3.2

Europe

2.8

Total Equity AuM

Equities UK 4.6%

US 1.8%

Europe 1.5%

Emerging Markets 32.1%

Global 28.0%

Asia Pacific 32.1%

180.2

Total may not add up due to rounding Excluding equity component of Multi-Asset mandate Source: Aberdeen Asset Management

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Equity capabilities Head of Equities Hugh Young Global

Edinburgh

Bangkok Tokyo

Stephen Docherty

Pacific Basin Hugh Young

GEM

Japan

Devan Kaloo

Kwok Chern-Yeh London

UK/Europe

Australia

Jeremy Whitley

Robert Penaloza

US Paul Atkinson

Hong Kong Kuala Lumpur

Philadelphia

Sao Paulo

Singapore Paris

Source: Aberdeen Asset Management, 30 Jun 14

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Sydney

Over 100 investment professionals world-wide

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Other areas of Aberdeen…

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Fixed Income investment process

Trading

Risk Tailoring

Macro Assessments

Investment Ideas

Sovereign Research

Fundamental research Investment ideas

Risk Framework

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Credit Research

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Direct property investment process Allocation, selection and management of risk

Allocation

Selection

Define • Risk tolerance • Risk controls

Management

Quality

Price

Portfolio

Pass or fail?

Fundamental value

Risk management

• Durability of income

• Cheap or expensive?

• Investment plans

• Income growth potential

• Long-term, team-based view of income potential and risks

• Health checks

• Due diligence

• Asset management plans

• Comparison to market price

Investment process is consistent across direct property, regardless of geography and client type

Source: Aberdeen Asset Management

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Aberdeen Solutions process High level investment process

Asset allocation views

Strategy committee

Portfolio construction

Implementation

Portfolio Construction

Portfolio Management

Manager selection

Investment Strategy and Research Portfolio Management heads

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Portfolio Management

Portfolio Management

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Aberdeen culture…

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This is the Aberdeen culture • Simple, effective and shared processes are at the core of what we do • We function best in teams – collective wisdom • Individual effort – we do our own research • Regional teams are based locally – decision at greatest point of knowledge • Low turnover – within our portfolios and within our investment teams

A single focus: all we do is manage our clients’ assets

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Summary

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In summary • People should be built around the process, not the other way round. • Simple and transparent investment processes are core tools to consistent performance • Collective wisdom of our investment teams – not star fund managers

A well established, diversified and growing investment manager

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‘What counts in the end is the right performance that works’ Aberdeen Equities

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Disclaimer Important: The information in this presentation is not for general circulation and should not be considered an offer, or solicitation, to deal in any of the mentioned funds. The information is provided on a general basis for information purposes only, and is not to be relied on as advice, as it does not take into account the investment objectives, financial situation or particular needs of any specific investor. Any research or analysis used to derive, or in relation to, the information herein has been procured by Aberdeen Asset Management Asia Limited (‘Aberdeen Asia’) for its own use, and may have been acted on for its own purpose. The information herein, including any opinions or forecasts have been obtained from or is based on sources believed by Aberdeen Asia to be reliable, but Aberdeen Asia does not warrant the accuracy, adequacy or completeness of the same, and expressly disclaims liability for any errors or omissions. As such, any person acting upon or in reliance of these materials does so entirely at his or her own risk. Past performance is not indicative of future performance. Any projections or other forward-looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. No warranty whatsoever is given and no liability whatsoever is accepted by Aberdeen Asia or its affiliates, for any loss, arising directly or indirectly, as a result of any action or omission made in reliance of any information, opinion or projection made in this presentation. The information herein shall not be disclosed, used or disseminated, in whole or part, and shall not be reproduced, copied or made available to others. Aberdeen Asia reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice. Aberdeen Asset Management Asia Limited, Registration Number 199105448E

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