The Best Offense Is a Strong Defense Depressions. Wars. Flash Crashes

® Summer 2015 OR FAMILIES AND INSTITUTIONS WITH ASSETS INTENDED TO ENDURE FACROSS GENERATIONS, MITIGATING THE RISK FROM SEVERE WEALTH-DESTROYING MARKET EVENTS (KNOWN AS TAIL RISK OR FAT TAIL PMS 627 EVENTS) WILL PROVE OVER TIME TO BE THE MOST IMPORTANT SOURCE OF INVESTMENT OUTPERFORMANCE, OR ALPHA. FOR THIS REASON, FIELDPOINT PRIVATE BELIEVES OUR FIRST RESPONSIBILITY IS TO HELP CLIENTS PROTECT THEMSELVES FROM THE FULL FORCE OF THESE EVENTS, AND EVERY ELEMENT OF OUR INVESTMENT EDGE, PHILOSOPHY, PROCESS, EXECUTION AND INTELLECTUAL WILL IS DIRECTED AT THIS OBJECTIVE. IT IS ALL MADE MANIFEST IN OUR APPROACH TO RISK, WHICH WE OUTLINE IN THIS WHITE PAPER. The Best Offense is a Strong Defense The philosophy and science behind Fieldpoint Private’s approach to risk.

BY BILL KENNEDY, CFA, Chief Investment Officer Typically, the wealth entrusted to Fieldpoint Private is loom due to shifting demographics, – or has the potential to be – multi-generational. Such geopolitics, emerging technologies, “Tail-risk events or ‘fat tail’ events wealth is a rare and worthy consequence of excellence and advancements in health care, are the bulges that we find on and perseverance. multiplied by economic policies and the tail ends of a normal distri- regulation. Pick a fat tail event in the However, by virtue of its longevity, it is subject to last hundred years and you will find bution curve. Fat tails innumerable and often unpredictable threats, both its spark somewhere in this list. The measure risks and their impact. interpersonal and financial. But the chief market threat world continues to be ill-prepared They represent the risk that a is the destructive force of rare, historic tail risk events. It for this kind of risk environment. is the great paradox of investing: at any given time, tail particular event will occur that risk events are unlikely, but over time, they are inevitable. The World Economic Forum (WEF) appears so catastrophically Their economic effects can be catastrophic and enduring defines risk in two categories. damaging, unlikely to happen, (the Great Depression), or sharp and fleeting (the “flash Global risk is an uncertain event and difficult to predict, that crash”), or somewhere in between. Regardless, the data or condition that, if it occurs, can many of us choose to simply is clear: putting a floor on the downside in these events cause significant negative impact for ignore it. Until it happens.” proves, over time, to be the most important determinant several countries or industries within of long-term investment success. the next 10 years. An example would – Ian Bremmer, The Fat Tail THE INEVITABILITY OF TH E be a worldwide shortage of fresh UNPREDICTABLE water. Putting a floor on the downside cannot simply mean WEF defines arisk trend as a long-term pattern currently taking risk out of the equation, however. Without risk, taking place that could amplify global risks and/or alter you cannot support a lifestyle or defend against inflation. the relationship between them.1 Two examples are the If you risk too much, thoughtlessly, you’ll erase capital unprecedented growth of debt as a percentage of GDP ® and hobble your ability to recover. and quantitative easing (QE), a pair of risk trends that Yet investors are forced to make decisions regarding are core to Fieldpoint Private’s views on market risk. risk in an increasingly complex world. “Fat tail” events

1 World Economic Forum (2015), Global Risks 2015 (10th ed.), Geneva, Switzerland. Fieldpoint Private 1 Though we may understand these risks, The GlobalGlobal RisksRisks Landscape Landscape 2015 2015 their impact on the future is always unknown. There are times when we Water crises Spread of infectious have an idea of the range of possible Weapons of diseases mass Failure of Interstate outcomes (the “known unknowns”), destruction conflict Critical information Energy price climate-change and times when we have no idea of infrastructure shock adaption breakdown Fiscal crises Unemployment what those outcomes might be (the 5.0 or underemployment “unknown unknowns”). This explains Biodiversity loss and Cyber ecosystem collapse Terrorist attacks the difference between risk and Failure of financial attacks Asset bubble mechanism or institution uncertainty; the former is measurable average Food crises Profound social insecurity while the latter is not. 4.74

Failure of The Global Risk Landscape chart on national goverance State collapse the right illustrates different types or crisis 4.5 Extreme of perils based on their probability Misuse of weather events Large-scale technologies Data fraud involuntary migration (“Likelihood”) and their severity Unmanageable or theft inflation (“Impact”), as reported by WEF survey Failure of Deflation Natural catastrophes critical infrastructure respondents who were asked to assess Man-made environmental global risks over the next decade. catastrophes The blue markers denote economic risk factors. For Fieldpoint Private, it is important to understand how these are influenced by the other factors Failure of urban planning on the chart - environmental (green),

geopolitical (yellow), societal (red) and 4.0 Impact technological (purple) risk factors. 3.5 4.0 4.5 5.0 5.5 4.82 Source: World Economic Forum Fieldpoint Private’s Risk Likelihood average Management Philosophy The first rule of compounding wealth over long periods Recovering from investment mistakes can be costly. If is not to lose it in the process. If you take too little risk, you lose 50% of your money, you will need 100% return you may not reach your objectives; if you take too much, to recover to your original starting point. you may temporarily lose capital or, in catastrophic Math can be cruel. conditions, suffer permanent capital impairment.

!"#$%&'()*+,-./(01"2.1(!"1#3*"+4 Turbulence Tail-risk events tend to be driven by inflation/deflation and liquidity shocks, and are characterized by violent swings in capital flows, liquidity and correlations within and between asset classes. Fieldpoint Private 2 This is why risk management is the cornerstone ofthe 2. Which risk-targeted portfolio allocation should I Fieldpoint Private investment philosophy. select? 3. What are my current risk-factor exposures and what is To assume the right amount of risk requires experience, the optimal mix of risk factors needed to achieve practice, and a comprehensive understanding of risks my risk-targeted portfolio? embedded in the portfolio. Taking risk and mastering 4. What is the probability of permanent capital market uncertainty require a willingness to seek out impairment based on my risk-targeted portfolio? innovative portfolio solutions, learn new skills and follow 5. How much capital would I temporarily lose in the a disciplined approach in the face of market turbulence. event of a broad stock market sell-off of -20% or more? It requires a willingness to be coached, to accept support from others, to ask questions, and to get beyond the need Fieldpoint Private advisors are experienced and trained at to appear to be in control. helping clients maintain discipline and master the anxiety associated with periods of market turbulence. When One of the most profoundly important roles played investors commit to risk-targeted portfolios, they accept by the Fieldpoint Private advisor is helping clients find a steady hand on the wheel during normal markets, along the right amount of risk to take to realize specified with the flexibility to steer around “fat tail” events. investment goals. In constructing risk-managed portfolios, our advisors help clients answer five key Fieldpoint Private’s investment process employs investment questions: macroeconomic research to identify portfolio risks. 1. What targeted volatility will help achieve my goals and We measure dozens of global economic data series and objectives? attempt to identify important signals that tend to act as

FIELDPOINT PRIVATE’S SEVEN RISK MANAGEMENT PRINCIPLES:

1. Risk is a necessity 5. Do not chase returns You have to put something at risk in order to build Asset volatilities are more consistent and predictable wealth. There must be a reasonable benefit (utility) than asset returns. For this reason, we do not chase for each unit of risk taken in an investment portfolio; or optimize around returns. We spend less time predicting and more time preparing; 2. Risk management generates alpha Over time, the compounding effect of eliminating a 6. Participation Ratios portion of major market draw-downs (i.e. bear market Investment managers and assets can be selected and moves of -20% or greater) is one of the single greatest optimized using Participation Ratios (PR) – the sources of wealth creation; measured difference between upside capture (how an asset performs relative to a benchmark in up markets) 3. Avoid permanent capital impairment and downside capture (how an asset performs relative Fieldpoint Private’s first duty is to mitigate the risk to a benchmark in down markets); of permanent capital impairment and protect client portfolios from “fat tail” events; 7. Risk-targeted Portfolios We do not believe that traditional 60/40 portfolios 4. We seek upside participation and are diversified. Risk-targeted portfolios (RTP) downside protection manage to a targeted level of volatility. This approach This is the holy grail of investing; we seek it through provides greater diversification and dynamically risk budgeting, allocating capital to both passive and adjusts the portfolio’s risk allocations as market active strategies, and prudent risk monitoring and volatility and asset correlations change. Risk-targeted reporting; portfolios improve the chance of delivering market- like returns with lower volatility or risk.

Fieldpoint Private 3 MRI SIGNAL TRIGGER MEANING Green MRI >0 and above its moving average Generally bullish for equities Amber MRI > 0 and below its moving average Generally positive for equities, but turbulent Red MRI is near or <0 Generally bearish for equities

1.5 Macro Risk Indicator 2,300 !"#$%&'$()$*+,-+,./$0'"$123'$(4" 1.0

0.5 1,800

0.0 1,300 -0.5 800 -1.0 S&P 500 MRI -1.5 12 per Mov. Avg. ( MRI) 300 June 95 June 97 June 99 June 01 June 03 June 05 June 07 June 09 June 11 June 13 June 15

Macro Risk Indicator (MRI) measures the momentum of U.S. gross domestic product (GDP) using consensus forcasts. A negative MRI signals decelerating economic momentum and suggests higher volatility and turbulence. The wise response to a declining MRI is to (a) raise cash, (b) reduce risk allocations to equities and credit (c) increase risk allocations to rates. A positive MRI reading signals accelerating momentum and decreased turbulence. The wise response to a rising MRI is to (a) reduce cash, (b) increase risk allocation to equities, and credit, and (c) decrease risk allocations to rates.

5&67($83'9$:4;36&1(7$%58:/!!"#$!%&'()*&(!+,&!%-%&.+)%!-/!0121!3*-((!4-%&(+56!7*-4)6+!89:;&!"#$!(53.'?(!4&6&?&*'+5.3!&6-.-%56!%-%&.+)%!'.4!()33&(+(!,53,&*!>-?'+5?5+@!'.4!+)*A)?&.6&1!!B,&!C5(&!*&(7-.(&!+-!'! risk events. These include marginal changes views, exposing that equities are responsible for a in monetary4&6?5.5.3!"#$!5(!+-!8'&!"#$!*&'45.3!(53.'?(!'66&?&*'+5.3!&6-.-%56!%-%&.+)%!'.4!4&6*&'(&4!+)*A)?&.6&1!!B,&!C5(&!*&(7-.(&!+-!'!*5(5.3!"#$!5(! commodity+-!8'Stocks Stocks the variability and 100% of the levels of portfolio returns 60% 90% over time2, and for the next six decades this “Modern Portfolio Theory” (MPT) reigned as the dominant philosophy governing investment strategy. MPT acolytes came to view a 60/40 portfolio (60% Unbalanced In a traditional 60/40 portfolio, stocks may account for 60% stocks/40% bonds) as properly diversified. But the of the asset value, but they can account for up to 90% of the risk. financial crisis would eventually lay waste to these

2. Ibbotson and Kaplan [2000] Fieldpoint Private 4 approach is different. We start by working with our to economic growth, which would cause us to move, clients to determine how much volatility (risk) they say, 5% out of equities and into U.S. Treasurys. can withstand while still achieving their long-term Fieldpoint Private utilizes a dynamic, risk-factor-based goals and objectives. portfolio construction process that accounts for the When you take this approach, you are taking advantage reality of constantly churning volatility and correlations of two surprising economic realities: within and between asset classes. A dynamic rebalancing process is employed to adjust optimal risk Reality 1 People have a more finely tuned sense of fear levels over time and different market states. This helps than greed. You can more accurately predict how much Fieldpoint Private’s investment process to account for financial pain you can tolerate than what your future the reality of fat tail events. net worth will be. These portfolios start with a specific volatility target Reality 2 Volatility doesn’t just measure pain – it is a (4%, 6%, 8%, 10%, 12%) – calculated as the annualized stable driver of long-term portfolio returns. standard deviation. Net net, when it comes to investing, the best way to Volatility measures the size of change in the value of express your goals is to express your fears, and the best a security or asset class; higher volatility means the way to drive your long-term upside is to target the fluctuations will be higher, lower volatility means amount of volatility you can stomach along the way. peaks and troughs will be smaller. This is what Risk-Targeted Portfolios are designed to accomplish. The methodology is comprised of five key With RTP setting the allocation, we employ a second innovations designed to benefit investors: risk-targeted methodology to identify the investment vehicles to populate it - a performance metric called the First, we work with each client to identify their risk Participation Ratio. target, essentially stipulating the level of portfolio volatility that is consistent with their investment objectives. This is spelled out in your Investment Policy Statement. Net net, when it comes to Second, we build your strategic model portfolio, investing, the best way treating your risk target like a budget and apportioning to express your goals is to how much of your total risk will come from various risk express your fears, and the factors. best way to drive your long- Third, we analyze the sensitivity of this strategic term upside is to target the portfolio to key risk factors (eg. interest rates, economic growth, inflation etc.). Think of it as part amount of volatility you can stress test, part time machine, modeling a host of stomach along the way. characteristics (returns, downside exposure, interest rate risk, correlations etc.) against decades of real-world events, including fat-tail events and times of crises. Participation RatioR) (P Fourth, we utilize a robust portfolio optimization When we talk about protecting client portfolios methodology that seeks to explicitly allocate risks from tail-risk events, we often describe it as providing related to specific asset classes and segments. This “upside participation and downside protection” – the technique is highly granular, using an unusually high holy grail of investing. number of asset classifications in order to provide greater diversification. It does not rely on a guess or Fieldpoint Private uses the Participation Ratio (PR) to estimate of future returns. gauge the degree to which an asset, segment, manager or portfolio delivers upside participation and downside Fifth,we tactically tilt risk factor weights for your protection. portfolio based on prevailing economic and market conditions (eg. quiet vs. turbulent). As an example, The ratio represents the difference between an when market conditions indicate economic turbulence, investment’s upside capture ratio (UCR) and we would tilt your portfolio away from risk factors tied downside capture ratio (DCR). Fieldpoint Private 5 Some definitions mighthelp. 2. The Russell 2000 Value index stands out as the poster child for “upside participation and downside Upside-capture ratios (UCR) are calculated by taking protection,” with a beta of 0.97 (to the Russell 3000 an asset’s monthly return during periods when the Index), and a UCR of 1.03, a DCR of 0.94, and PR benchmark was positive and dividing it by the of 0.09, the highest of any index during the time benchmark’s return during the same month. frame of the study. Conversely, downside-capture ratio is calculated by 3. The Russell 1000 Index (large-cap) shows very taking an asset’s monthly return during the periods little difference from the broader market index when the benchmark was negative and dividing it by benchmark (Russell 3000 Index). the benchmark’s return.

By extension, the Participation Ratio is simply the difference between the two. Thus, PR represents the net effectiveness of participating on the upside while Over long periods, the protecting on the downside. compounding effect o f The higher the UCR, the better. mitigating market The lower the DCR, the better. drawdowns could prove UCR = E (ry/rx) when rx > 0 dramatic to an DCR = E (ry/rx) when rx < 0 PR = UCR – DCR investor’s wealth. E = expectation or average ry = strategy return in excess of cash rx = index return in excess of cash

PR impact at the segment level 4. The Russell 2000 Index (small-cap) has a higher We can use PR to measure the effectiveness of an asset, return and higher volatility than Russell 1000 Index segment, manager or portfolio. To illustrate how it (large-cap), reflective of small-cap companies’ works, we analyze equity styles (large-cap vs. small- volatile cash flows. cap, value vs. growth) in the table below (Russell style 5. Small-cap stocks (Russell 2000 Index) generally have indices for the period from January, 1979 to April, lower Sharpe ratios than large-cap, suggesting 2014). they delivered lower risk-adjusted returns over the Here are a few key observations: 1979-2014 period. 1. Value stocks (Russell 1000 Value Index and Russell 6. Both growth indices (Russell 1000 Growth Index 2000 Value Index) provided superior risk-adjusted and Russell 2000 Growth Index) have negative alpha returns, as characterized by higher Sharpe ratios. and negative Participation Ratios.

Monthly Russell Russell Russell Russell Russell Russell Russell Returns 3000 1000 1000 G 1000 V 2000 2000 G 2000 V Mean 0.63% 0.63% 0.59% 0.66% 0.69% 0.59% 0.78% Volatility 4.50% 4.45% 5.02% 4.27% 5.69% 6.64% 5.05% Sharpe ratio 0.12 0.12 0.10 0.13 0.10% 0.07% 0.13 Beta 1.00 0.99 1.08 0.90 1.12 1.28 0.97 Alpha 0.00% 0.01% -0.09% 0.09% -0.02% -0.22% 0.17% UCR 1.00 0.99 1.06 0.91 1.16 1.28 1.03 DCR 1.00 0.98 1.11 0.85 1.19 1.43 0.94 PR 0.00 0.01 -0.05 0.06 -0.03 -0.15 0.09 Source: Journal of Portfolio Management, Russell data From January, 1979 Through April, 2014

Risk-Targeted Portfolios force the investor to ask important questions about the quantity and types of risks they are willing to accept in order to meet their long-term investment objectives. Setting portfolio volatility targets with your advisor enables you to size and budget the amount of risk exposure you want from each factor (growth, inflation, interest rate).

3. Qian, E. (2015). On the Holy Grail of ‘Upside Participation and Downside Protection’. The Journal of Portfolio Management, 41 (2), 11-22. Fieldpoint Private 6 Participation Ratio matters

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60/40 Portfolio Risk-managed strategy

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12/1/84 1985-2000 100,000 80,000 Participation Ratio matters 60,000 40,000 20,000 1985-2000 3,000 1927-1970 0 2,500 2,000 7/1/86 2/1/87 9/1/87 4/1/88 6/1/89 1/1/90 8/1/90 3/1/91 5/1/92 7/1/93 2/1/94 9/1/94 4/1/95 6/1/96 1/1/97 8/1/97 3/1/98 5/1/99 7/1/00 12/1/85 11/1/88 10/1/91 12/1/92 11/1/95 1,500 10/1/98 12/1/99 Downside Protection1,000 = Alpha 500

A hypothetical risk-managed portfolio that0 mitigated

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downs since 1927 would derive substantial long- 60/40 Portfolio Risk-managed strategy term benefits from compounding. The tan lines 2000-2014 250,000 represent a portfolio of 60% S&P 500 Index and 40% 200,000 14,000 1970-1985 U.S. 10-year Treasury notes. The green lines repre- 150,000 2000-2014 12,000 sent a hypothetical portfolio using the Participation10,000 100,000 8,000 50,000 4 6,000 Ratio of Fieldpoint Private’s Focus List managers. 0 4,000 2000-2014 2,000 6/1/01 6/1/03 6/1/05 6/1/06 6/1/07 6/1/08 6/1/09 6/1/11 6/1/13 6/1/02 6/1/04 6/1/10 6/1/12 6/1/14 12/1/01 12/1/03 12/1/05 12/1/06 12/1/07 12/1/08 12/1/09 12/1/11 12/1/13 0 12/1/00 12/1/02 12/1/04 12/1/10 12/1/12 12/1/14

60/40 Portfolio Risk-managed Strategy

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12/1/84 1985-2000 Participation Ratio matters 100,000 80,000 3,000 1927-1970 60,000 1985-2000 2,500 40,000 2,000 1985-2000 1,500 20,000 1,000 0 500 0 7/1/86 2/1/87 9/1/87 4/1/88 6/1/89 1/1/90 8/1/90 3/1/91 5/1/92 7/1/93 2/1/94 9/1/94 4/1/95 6/1/96 1/1/97 8/1/97 3/1/98 5/1/99 7/1/00 12/1/85 11/1/88 10/1/91 12/1/92 11/1/95

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14,000 1970-1985 12,000 10,000 2000-2014 1970-1985250,000 8,000 200,000 6,000 4,000 150,000 2,000 100,000 0 50,000

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3,000 1927-197080,000 2,500 60,000 2,000 1927-1970 40,000 1,500 20,000 1985-2000 1,000 0 500 0 7/1/86 2/1/87 9/1/87 4/1/88 6/1/89 1/1/90 8/1/90 3/1/91 5/1/92 7/1/93 2/1/94 9/1/94 4/1/95 6/1/96 1/1/97 8/1/97 3/1/98 5/1/99 7/1/00 12/1/85 11/1/88 10/1/91 12/1/92 11/1/95

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60/40 Portfolio Risk-managed strategy To help ensure the proportional differences are clear, we have divided the 1929-2014 time frame into four sepa- rate graphs, each with its own relevant scale. Consider 7/1/86 2/1/87 9/1/87 4/1/88 6/1/89 1/1/90 8/1/90 3/1/91 5/1/92 7/1/93 2/1/94 9/1/94 4/1/95 6/1/96 1/1/97 8/1/97 3/1/98 5/1/99 7/1/00 12/1/85 11/1/88 10/1/91 12/1/92 11/1/95 10/1/98 12/1/99 14,000 1970-1985 the charts a progression, with the values of each picking Risk-managed Strategy 12,000 up where the previous chart’s time frame left off. 10,000 2000-2014 8,000 250,000 6,000 200,000 4,000 150,000 2,000 0 100,000 50,000

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11/1/80 4. PR calculation is based on data0 from 4/2008 - 3/2015. Managers were excluded12/1/84 from 2000-2014 analysis if track record starts after 4/2008 or if client allocation is less than $10 million. 6/1/01 6/1/03 6/1/05 6/1/06 6/1/07 6/1/08 6/1/09 6/1/11 6/1/13 6/1/02 6/1/04 6/1/10 6/1/12 6/1/14 Fieldpoint Private 7 12/1/01 12/1/03 12/1/05 12/1/06 12/1/07 12/1/08 12/1/09 12/1/11 12/1/13 12/1/00 12/1/02 12/1/04 12/1/10 12/1/12 12/1/14 1985-200060/40 Portfolio Risk-managed Strategy 100,000 80,000 60,000 40,000 20,000 1985-2000 0 7/1/86 2/1/87 9/1/87 4/1/88 6/1/89 1/1/90 8/1/90 3/1/91 5/1/92 7/1/93 2/1/94 9/1/94 4/1/95 6/1/96 1/1/97 8/1/97 3/1/98 5/1/99 7/1/00 12/1/85 11/1/88 10/1/91 12/1/92 11/1/95 10/1/98 12/1/99 7/1/86 2/1/87 9/1/87 4/1/88 6/1/89 1/1/90 8/1/90 3/1/91 5/1/92 7/1/93 2/1/94 9/1/94 4/1/95 6/1/96 1/1/97 8/1/97 3/1/98 5/1/99 7/1/00 12/1/85 11/1/88 10/1/91 12/1/92 11/1/95 10/1/98 12/1/99 2000-2014 Risk-managed Strategy 250,000 200,000 150,000 100,000 50,000 0 2000-2014 6/1/01 6/1/03 6/1/05 6/1/06 6/1/07 6/1/08 6/1/09 6/1/11 6/1/13 6/1/02 6/1/04 6/1/10 6/1/12 6/1/14 12/1/01 12/1/03 12/1/05 12/1/06 12/1/07 12/1/08 12/1/09 12/1/11 12/1/13 12/1/00 12/1/02 12/1/04 12/1/10 12/1/12 12/1/14

60/40 Portfolio Risk-managed Strategy 7/1/86 2/1/87 9/1/87 4/1/88 6/1/89 1/1/90 8/1/90 3/1/91 5/1/92 7/1/93 2/1/94 9/1/94 4/1/95 6/1/96 1/1/97 8/1/97 3/1/98 5/1/99 7/1/00 12/1/85 11/1/88 10/1/91 12/1/92 11/1/95 10/1/98 12/1/99

Risk-managed Strategy This implies growth stocks provide solid psideu In other words, in a hypothetical market downdraft in participation but give it all back and more during which the benchmark declines, the second portfolio market downturns. reduces the loss by roughly one-third.

PR impact at the manager level Over long periods, the compounding effect of We can apply the Participation Ratio (PR) framework mitigating market drawdowns could prove dramatic to Fieldpoint Private’s Focus List managers and to an investor’s wealth. The data illustrates that Fiduciary Investment Services (FIS) portfolios. investors may receive a double benefit of higher returns and lower volatility (and higher Sharpe ratios) by The Focus List contains the thoroughly vetted, constructing portfolios with investment strategies researched and recommended investment strategies on aimed at maximizing Participation Ratios. the Fieldpoint Private platform. Each Focus List manager tracks its own relevant benchmark. Upside The charts on the preceding page illustrate the mpacti capture ratios and downside capture ratios are of this compounding effect. measured for each strategy.

1927-2014 Return Risk Sharpe The Participation Ratio of our Focus List managers is 60/40 ( buy& hold) 8.32% 12.26% 0.35 approximately 0.34 (UCR 101% minus DCR 66% = PR-managed strategy 9.16% 11.27% 0.46 PR 34%) based on aggregate allocations by Focus List Difference 0.85% -0.99% 0.11 strategy.

CONCLUSION Focus List FIS 60/40 Portfolio As humans, we naturally interpret catastrophic Up Capture 100% 99% 100% (and near-catastrophic) market events as being the Down Capture 66% 87% 100% exceptions to more blissful “normal” times. For wealth Participation Ratio 34% 12% 0% that will be multi-generational, however, such events are the rule -- the messy, unpredictable, inevitable, Notes: PR calulations based on data from 4/2008-3/2015 except for FIS which is calculated since inception of 9/2013-3/2015. Focus List wealth-destroying rule. As Howard Marks of Oaktree PR based on actual aggregated client allocations on Fieldpoint Private Capital reminds us, “Most people view risk-taking platform; managers were excluded from analysis if track record started after 4/2008 or if client allocation is less than $10 million. 60/40 port- primarily as a way to make money…And when risk folio is 60% S&P 500 Index and 40% U.S.10-year Treasury notes. Past bearing doesn’t work, it doesn’t work, and people performance is not a guarantee of future results. really are reminded what risk’s all about.”

PR at the portfolio level Our Participation Ratio methodology shows that To illustrate PR impact at the portfolio level, we it is possible to position portfolios to mitigate the measure the risk-adjusted returns of two hypothetical impact of sharp market drawdowns over time without portfolios. The first portfolio is a “buy and hold” paying a proportionately high price in terms of strategy that assumes a standard allocation of 60% upside participation. Combined with asset allocation to the S&P 500 Index and 40% to the 10-year U.S. that follows the Risk-Targeted Portfolio approach, Treasury note. The second portfolio is the same 60/40 this provides a framework for the management of allocation, but assumes an upside capture ratio (UCR) multigenerational wealth that, over time, could well be of 100% and a downside capture ratio (DCR) of 66%. your family’s most important source of alpha. When The first portfolio’s PR is zero (UCR = 100% minus it comes to your portfolio, the best offense is indeed a DCR =100% = 0). The second portfolio’s PR is 0.34 good defense. n (UCR of 100% minus DCR of 66% = 34%), which equals that of our aggregate Focus List.

Fieldpoint Private 8 ABOUT FIELDPOINT PRIVATE

Headquartered in Greenwich, Connecticut, Fieldpoint Private (www.fieldpointprivate.com) is a boutique financial firm providing the highest degree of personalized, confidential wealth planning and private banking services. Catering to highly successful individuals, families, businesses and institutions, Fieldpoint Private offers a powerful combination of wealth management and strategy, family office, private banking and business banking services addressing every financial need for each of our Members including: wealth transfer advice, tax planning, aggregation and performance reporting, risk management, goals-based investing strategies, sophisticated investment selection, discreet and personalized banking, highly customized credit solutions, custom custody and trust solutions, highly attentive/ responsive service and concierge services.

Fieldpoint Private was established in 2008 by 31 Founders with a specific vision and purpose. These extraordinary leaders of industry and community recognized the opportunity to create a financial firm totally attuned to peopwshed on the basis of personalization, responsiveness, and exclusivity, and an ensured commitment to impeccable service and consistently flawless execution. Our Member-oriented serviceapproach offers a unique client experience custom crafted to each Member’s financial needs.

Fieldpoint Private 9 COMPLIANCE DISCLOSURE This material is for informational purposes only and is not intended to be an offer or solicitation to purchase orell s any security or to employ a specific investment strategy. It is intended solely for the information of those to whom it is distributed by Field- point Private. No part of this material may be reproduced or retransmitted in any manner without prior written permission of Fieldpoint Private. Fieldpoint Private does not represent, warrant or guarantee that this material is accurate, complete or suitable for any purpose and it should not be used as the sole basis for investment decisions. The information used in preparing these materials may have been obtained from public sources. Fieldpoint Private assumes no responsibility for independent verifica- tion of such information and has relied on such information being complete and accurate in all material respects. Fieldpoint Private assumes no obligation to update or otherwise revise these materials. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon or used in substitution for the exercise of independent judgment and careful consideration of the investor’s specific objectives, needs and circumstances. To the extent such information includes estimates and forecasts of future financial performance, such estimates and forecasts may have been obtained from public or third party sources. Fieldpoint Private has assumed that such estimates and forecasts have been reasonably prepared on based on the best currently available estimates and judgments of such sources or represent reasonable estimates. Any pricing or valuation of securities or other assets contained in this material is as of the date provided as prices fluctuate on a daily basis. Past performance is not a guarantee of future results. Asset allocation models are based on capital market expectations for each classification and segment using a thirty (30) year time-series of historical returns and standard deviations. Returns and risk assumptions may vary from historical averages based on prevailing market conditions, Fieldpoint Private’s macro economic assumptions, and changes to assumptions including state and federal income tax rates, among others. These models and the information contained in these materials has been prepared from sources believed to be reliable, but is not guaranteed by Fieldpoint Private as to its accuracy or completeness. Asset allocation models represent the views of Fieldpoint Private’s investment professionals and are based on their broad investment knowledge, experience, research and analysis. However, market conditions, strategic approaches, return projections and other key factors upon which the views presented in these materials are based remain subject to fluctuations and change. Consequently, it must be noted that no one can accurately predict the future of the market with certainty or guarantee future investment returns or performance. The models displayed herein represent hypothetical performance and do not represent actual investments or the performance of any investment account or results of actual trading. These hypothetical models may have cer- tain inherent limitations. Modeled returns and past performance are no guarantee of future results. Models are based on pre-tax data. Fieldpoint Private does not provide legal or tax advice. Nothing contained herein should be construed as tax, accounting or legal advice. Prior to investing you should consult your accounting, tax, and legal advisors to understand the implications of such an investment. You may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of any transactions contemplated by these materials and all materials of any kind, (including opinions or other tax analyses), that are provided to you relating to such tax treatment and structure. For this purpose, the tax treatment of any transaction is the purported or claimed U.S. federal income tax treatment of the transaction and the tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed U.S. federal income tax treatment of the transaction. Investment advisory services offered by Fieldpoint Private Bank & Trust (“Bank”) and/or any non-deposit investment products which ultimately may be acquired as a result of the Bank’s investment advisory services: ARE NOT FDIC INSURED – ARE NOT BANK GUARANTEED – MAY LOSE VALUE

© 2015 Fieldpoint Private. All rights reserved. Banking Services: Fieldpoint Private Bank & Trust Registered Investment Advisor: Fieldpoint Private Advisors, Inc. and Fieldpoint Private Securities, LLC Securities: Fieldpoint Private Securities, LLC, Member FINRA, SIPC Information contained in this material is not legal advice. If you have received it in error please notify the sender and delete it from your stem.sy Any disclosure, distribution or copying of this material is strictly prohibited.

Fieldpoint Private 10