Amundi Asset Management (Previously Credit Agricole Asset Management)

Amundi Asset Management (previously Credit Agricole Asset Management)

 Manages global multi-sector bonds for MLC (since 2010)

 Manages A$1,192 billion across the world as at 30 June 2014

 Amundi was formed by combining the asset management expertise of two major financial institutions: Crédit Agricole S.A. and Société Générale.

 The Global Fixed Income Team is based in Singapore and London.

 Amundi has been managing global fixed income since 1965.

Why MLC has chosen Amundi? The team’s pragmatic approach to generating investment ideas served them well during the extreme market conditions of recent years. They also bring a different perspective, being based outside the US. Amundi’s distinctive investment approach complements MLC’s other multi-sector bond managers very well. Philosophy on investing

Amundi’s investment process is based on a rigorous global top-down approach consisting of allocating the active risk of the portfolio across several normally low-correlated sources of added value. The key factors to generating strong risk-adjusted outperformance include:  accuracy and, as importantly, statistical consistency of market views  broad diversification between assets, strategies, managers and instruments, with a clear-cut split between long-term statistical (market) diversification and short-term objective (managers) diversification  focus on portfolio construction based upon an overlay of separate risk allocations  balanced mix between active relative value (long/short) management and pure market directional anticipation, and  systematic quantification and continuous monitoring of all contributors to risk and performance.

Investment process Amundi’s five-step risk (and not asset) allocation process is based on the quantification, allocation and monitoring of active risk budgets (relative to a benchmark), with a proven ability to control the risk contribution and diversification effect of our positions across government bonds, corporate, currencies and emerging credit.

Amundi Strategic Economic Research Idea Generation: Macroeconomic, Macroeconomic Analysis 1 quantitative models Quantitative Research Fixed Income Platform

External Research

Scenario Construction: Market Data Architects Committee & 2 Strategic Views Sheet

Risk Adjusted Model Management Portfolio Construction 3 Guidelines Control: Risk Continuous Ex-ante & Ex-post risk & performance monitoring monitoring & performance risk Ex-post & Ex-ante

Implementation of Actual Market Timing, Portfolio & Tactical Trading etc Management 4 5

Source : Amundi The five steps of this process are as follows.

Step 1: Macroeconomic analysis The Global Fixed Income team benefits from the Research resources of Amundi Group, including but not limited to our Crédit Agricole S.A.’s Macro Economic Research department , Amundi’s Strategy, Emerging Debt & Currency team (London), Corporate Credit team (London, Paris & Singapore), and Amundi’s GFI Quantitative Research team (London & Paris), to put together a monthly macro-economic scenario for the G10 markets. For developed G10 currencies, the Global Fixed Income team runs a proprietary Purchasing Power Parity (PPP) model to determine long-term trends on currencies with similar state of economic development.

Step 2: Construction of the strategic bond and currency scenario The “architect forum” convenes on an ad hoc basis, whenever market conditions dictate, to determine the team’s strategic and tactical views on the main global sovereign, corporate and emerging bond (if applicable) and currency markets as well as alternative risk scenarios. It is the role of the architects to establish a strategic set of investment views on all asset classes by considering the views of all team members and, where necessary, challenging the views of the team in order to examine our investment rationale and arrive at a robust conclusion. The architect managers assign scores ranging from +4 to -4 depending on their level of conviction. If the team does not have a view on an asset class or strategy, it will give a neutral (=) or no view (X) score. These scores (+4 to -4) represent an anticipated divergence of the asset class or strategy from its long-term performance. The global fixed income and currency views generated by the architect forum as well as those produced by other fixed income teams are gathered by the senior members of the Fixed Income Platform for debate prior to submitting the final cut to the Investment Orientation and Policy Committee (“Global Investment Committee”) for approval. Market views as well as key flagship portfolio positions are formally reviewed and validated on a regular basis (at least monthly) at the Fixed Income platform and the Global Investment Committee levels to ensure Amundi’s global views are correctly implemented in client portfolios. The resulting set of qualitative views and positions are then quantified and optimised by the London-based Quant Research analysts, using a proprietary optimiser. This allows the translation of qualitative views into statistically consistent quantitative forecasts taking into account past volatilities and correlations.

The diagram below shows how individual portfolio managers contribute to the team’s view by bringing their value add within the risk budget. Laurent Crosnier, the London Branch CIO, has the final decision-making power concerning the views.

Global Macro Views Directional Relative Value Tactical Management Country Allocation Bond Selection Bonds Duration Curve Allocation Short-Term Trading

G4 Allocation EM Ccy Allocation $ Exposure Currencies Intra/Inter-bloc Allocation Short-Term Trading EM Ccy Allocation

Regional Allocation Market/Industry

Credit Credit Exposure Macro Sector Allocation Bond Selection

Short-Term Trading

External / Local Debt Corporate

Emerging Emerging Exposure Region, Country, Curve Bond Selection Emerging Exposure Short-Term Trading

Note: the chart illustrates the average risk allocation across directional, relative value and overlay strategies. The investment universe and risk budget can be tailored to each client’s constraints.

Step 3: Model portfolio construction The resulting market scenario is then reconciled with different sets of client investment constraints (benchmark, tracking error, investment universe) to produce model portfolios. This process is handled by the same Quant Research analysts, again with the aid of inhouse optimisation software. Each portfolio (set of specific constraints) has a corresponding model portfolio that provides a target bond and currency risk allocation.

Step 4: Client portfolio construction and tactical management Construction of the client portfolio consists of investing the optimised strategic model portfolio and implementing tactical positions within each portfolio’s pre-defined leeway. The goal is to supplement the statistical (asset class) diversification with the benefit of the fund managers’ specialist expertise and market experience. Depending on the investor’s guidelines, this tactical management may represent up to one third of the total tracking error of the portfolio and includes:  relative value management (i.e., arbitrages between government, quasi-government, agency and supranational bonds, etc.)  tactical management of modified duration using bond futures, and  tactical management of currency exposure.

Step 5: Continuous risk monitoring Risk is monitored and managed at every stage of the investment process, and continuous risk monitoring takes place both ex-ante and ex-post to ensure compliance with portfolio guidelines. Risk is monitored at three levels:

First level  Investment teams The investment teams continuously monitor portfolios’ composition and consistency with the investment strategy as well as the authorised risk limits. The tools at the disposal of each manager enable him/her to check the impact of any investment decision on the portfolio structure and its compliance with the applicable constraints (risk profile, regulatory, contractual and internal constraints). Once the preliminary controls have been completed, the managers send their instructions to the trading desk through the electronic order book, thus ensuring an audit trail (pre-allocation, time registration).  Trading The traders receive orders from the electronic order book, check consistency and feasibility and then place orders in line with Amundi’s best execution policy with authorised counterparties.  Middle Office The Middle Office checks that counterparty confirmations match the orders executed by the trading desks. It ensures that all transactions are processed correctly and updates the account holdings and positions monitoring system (DECALOG), thus guaranteeing accurate portfolio positions. The Middle Office also reconciles positions with custodians.

Second level Two specialised independent functions are involved at the second control level:

 Risk Department Amundi Singapore has a dedicated local risk control team (three staff) which is fully integrated in terms of method and organization to the Amundi Risk Business Line. Independent from operational departments, the Risk Department reports to the CEO and also to the Risk Department of Amundi. The main responsibilities of the Singapore Risk Team are:

 Ensuring that Amundi Singapore complies with all commitments as part of its investment activities (contractual, legal, regulatory),  Defining a supervisory and monitoring activities framework, to ensure that these commitments are met and/or to identify any discrepancy against these commitments to enable appropriate corrective actions,  Providing the entity (and its customers, regulators and other authorities, and auditors) with reliable and independent data in key aspects in the conduct of its activities. This mainly relates to the definition of pricing policy, securities valuation, risk indicators (such as market risk) and portfolios’ performance measurement and attribution.

 Compliance Department The Compliance Department consists of more than 50 employees (including three in Singapore) and its main role is to ensure compliance with rules, compliance codes and professional standards while overseeing client interests, market integrity and the independence of asset management. Applicable rules are identified and included in the employee handbook, the Compliance Manual and the Anti- Money Laundering Manual and are monitored through the implementation of procedures. There is an annual compliance monitoring program that is approved by Amundi’s senior management. Each subject covered by the program is detailed in an analysis sheet defining its aim, terms and frequency.

Third Level The 22-member Audit Inspection Unit is responsible for the internal audit at Amundi and its subsidiaries. Its interventions are defined within the scope of a multi-year audit plan. The Audit Inspection Unit’s role is to provide senior management (Chief Executive Officer) and Crédit Agricole Group’s Internal Audit Department (in charge of the internal audit for all Crédit Agricole S.A. subsidiaries) with an independent and professional opinion of internal controls and the risk monitoring measures in place within Amundi Group.

We continuously adapt and fine-tune our investment process to take advantage of changing market conditions. The sources of added value, the process and fund management tools of Amundi’s Global Fixed Income team are coherent with one another, providing consistency in our performance. Amundi believes the following points make its global fixed income and currency investment process unique and stand out from its competitors:  an investment philosophy based on risk allocation rather than asset allocation  a strong emphasis on diversification at all levels (statistical and objective)  a clear separation between long-term strategic investment decisions, which apply to all accounts/funds through the model portfolios, and short-term tactical overlay (trading, specific risks e.g. emerging credit)  a systematic monitoring of sources of risk and value at each step of the process, and  a clear-cut decision with one decision-maker for each source of performance. Investment people The investment team for the MLC portfolio is seated in Singapore and the investment personnel are:  Philippe Jauer, CIO Global Fixed Income & Forex Asia, Amundi Singapore  Philip Chow, Director, Head of Global Fixed Income, Amundi Singapore, and  Lhoucine Aderdor, GFI Senior Portfolio Manager, Amundi Singapore They are supported by a global credit and research team and in Singapore they are supported by a dedicated treasurer, two fixed income dealers and a product specialist.

The six architects who are responsible for strategic decisions in GFI portfolios are:  Laurent Crosnier, CFA, CIO, Amundi London  Cédric Morisseau, Head of Global Fixed Income, Absolute Return & Currency Management, Amundi London  Philippe Jauer, CIO, Amundi Singapore  Fabio Castaldi, Head of Absolute Return, Amundi London  Merrick Styles, Co-Head of Investments, Amundi UK Limited, and  Christopher Morris, Co-Head of Investments, Amundi UK Limited. The “architect forum” meets on an ad-hoc basis whenever the market conditions warrant it to determine the team’s strategic and tactical views on the main global, corporate and emerging bond, equity and currency markets. Cedric Morisseau is responsible for crystallising and formulating the views of the team. Laurent Crosnier has the ultimate decision-making authority concerning team market views. The market views as well as key portfolio positions are reviewed on a regular basis at Amundi Group’s Fixed Income platform and Global Investment Committee levels on an ongoing basis and at least monthly on a formal basis. The Global Investment Committee, chaired by Pascal Blanqué (Amundi Group’s Global CIO), reviews and validates the Amundi macroeconomic scenario, reviews and validates the key investment parameters of a set of key flagship portfolios, and provides risk and investment guidance to the teams whenever deemed necessary. It works as a permanent forum and meets formally once a month. The Fixed Income Platform Executive Committee gathers the teams’ views, including the architects’ views, discusses and validates the overall fixed income flagship portfolios and reports to the Amundi Global Investment Committee. The committee is also responsible for making sure that Amundi’s global views are correctly implemented in the client portfolios, and determines the portfolio manager’s leeway in terms of implementation. Our Global Fixed Income, Absolute Return & Currency investment process relies on teamwork and depends on all portfolio managers contributing freely and transparently. It is an ongoing process with decisions taken any time as markets dictate, without the constraints of pre-scheduled committees.

Biographies for the team managing the MLC portfolio

Philippe Jauer, CIO Global Fixed Income & Forex Asia – Amundi Singapore

Philippe Jauer joined the Amundi London branch in November 2004 as a Global Fixed Income portfolio manager. At the beginning of 2006, he was also appointed Head of Treasury management. In 2008, he joined the Global Fixed Income & Currency team in Amundi Singapore as CIO Global Fixed Income & Forex Asia. He is a member of the board of Amundi Singapore. Philippe started his career in 1990 as a Fixed Income & Derivatives Trader at Caisse des Dépôts & Consignations (1989–1992). In 1992, he joined Credit Suisse First Boston as a Treasurer (1992–1993). In 1993, he joined Elf Aquitaine as Head of the proprietary fixed income portfolio (1993–1996). In 1996, he moved to Credit Agricole Corporate and Investment Bank, first as Head of Interest Rate Structured Products Portfolio (1996–97), then as a Proprietary Trader on Interest Rate and Credit (1997–2001) based in New York, and finally as Head of Group Treasury Department (35 staff) for Banque Saudi Fransi in Saudi Arabia, a subsidiary of Credit Agricole (2001– 2004). Philippe holds a Masters degree in Economics from the University of Paris I Panthéon La Sorbonne, a Postgraduate degree in International Finance from the University of Paris V Rene Descartes and a Postgraduate degree in Financial Analysis from CNAM.

Philip Chow, Director, Head of Global Fixed Income – Amundi Singapore

Philip Chow joined Amundi Singapore in 2012 as Director – Head of Global Fixed Income, reporting to Philippe Jauer, CIO, Global Fixed Income & Currency Management - Asia. Prior to joining Amundi Singapore, Philip was Head of Fixed Income Asia at AXA Investment Managers Singapore, having transferred in June 2011 from the London office where he spent 4 years as a senior portfolio manager in the fixed income team. Philip has 21 years of experience in global bond markets covering rates, credit and FX during this time in London prior to the move to Singapore. Philip began his career at the UK discount house Seccombe Marshall & Campion, where he worked as a sales/bond analyst from 1992 until 1996. He then joined King & Shaxson as a senior bond analyst before moving to the buy side in 1996 with Threadneedle Asset Management as a fixed income portfolio manager where he covered Sterling, European, Asian and Global rates, credit and currencies. Subsequently, in 2002, he joined WestLB Asset Management as Head of UK and Global Spread Products to set up their global credit bond offering. In 2005, he joined F&C Asset Management as Director of Fixed Income to manage global bonds & currencies before he joined AXA IM London in 2007. Philip graduated in 1992 from the London School of Economics and Political Science with a BSc (Econs) in Monetary Economics. He is also a CFA charterholder.

Lhoucine Aderdor, GFI Senior Portfolio Manager – Amundi Singapore

Lhoucine Aderdor joined Amundi London (previously known as Crédit Agricole Asset Management London) in 2003. He has been a Portfolio Manager with the Global Fixed Income & Currency team based in Singapore since January 2010. Before that, he held the following positions at the London office: Money Market Manager (2009), FX Trader/Portfolio Manager (2005-2008) and Middle office manager (2003-2005). Before joining Amundi London, he worked for a Hedge Fund as a Trading Analyst (2003). Lhoucine holds a postgraduate diploma in Finance from University of Rennes, France (2002-2003), a Masters in Business (majoring in Finance) (1999-2001) and a Bachelor in Economics (1996-1999).

Biographies for the Architects Committee

Laurent Crosnier, CFA, CIO – Amundi London

Laurent Crosnier began his career in the financial industry in 1989 as a futures trader at ODDO, a European investment banking boutique. He joined Amundi in 1991 as a Euro Fixed Income manager and has been focusing on Euro Corporate management since 1997. Laurent was appointed Head of Inflation, Duration & Credit management in 2006 and then promoted to Head of the Euro Fixed and Credit Department in 2008. In April 2010, he was appointed Chief Investment Officer of Amundi London Branch. In October 2010, Laurent Crosnier has been promoted to the position of CEO of Amundi London Branch, retaining his position of CIO and continuing to act in this capacity. Laurent Crosnier and the investment managers in London have achieved a successful track record since this move and this has been reflected in both the returns achieved over this period and the stability of the team.

As a result of the success in this space and the subsequent growth in assets under management, Pascal Blanque, CIO Amundi, decided in April 2013 to separate the CEO and CIO positions, thus allowing Laurent Crosnier to concentrate exclusively on the investment side of the business for the further benefit of our clients. Laurent continues in his role as Deputy Head of Amundi’s Fixed Income platform (reporting to Eric Brard Global Head of Fixed Income) and as such will contribute to the development of the Alpha Fixed Income at the platform level. Laurent holds a Bachelor’s degree in Economics and a Postgraduate degree in Economics and Finance from the University of Paris Dauphine. He is also a CFA charterholder.

Cédric Morisseau, Head of Global Bonds, Absolute Return & Currency – Amundi London Cédric Morisseau began his investment career at Amundi in 1994. After working three years as an Assistant Fixed Income manager, he became a Global Fixed Income portfolio manager in 1997. In May 2006, he was promoted to Deputy Head - Global Fixed Income, Absolute Return & Currency Management, and in July 2010 he was promoted to Head of Global Fixed Income, Absolute Return & Currency Management. Cédric holds a Bachelor’s degree in Management and a Master’s degree in Political Science from the University of Paris II Panthéon-Assas.

Fabio Castaldi, Head of Absolute Return – Amundi London Fabio Castaldi started in 1993 as option trader on government bonds and managed volatility books until early 2006 on bond options and interest rates derivatives on Euro, USD and JPY markets. Since joining Amundi in 2006, he worked in the Global Balanced Team of Paris where he developed, with Alexandre Burgues, volatility overlay on multi asset class funds for a total AUM of EUR 2.5 bn. The focus was mainly on equity and interest rate volatilities. After working from October 2008 to March 2010 in the Volatility Team of Paris, he joined Amundi London in April 2010 to establish a multi-asset class volatility overlay for the GFI and absolute return funds. In January 2012 Fabio was appointed Head of Absolute Return, Amundi London. Fabio holds a master’s degree in Business Economics from the Università Commerciale L. Bocconi in Milan (1993).

Merrick Styles, Co-Head of Investment – Amundi (UK) Limited Merrick Styles joined Amundi London Branch in October 2005 as a quantitative portfolio manager with particular expertise in currency markets. He was in charge of managing all the Amundi London currency portfolios, unfunded overlays and some global macro mandates, before he was appointed Head of Absolute Return in July 2010. In January 2012, he was appointed Co-Head of Investments, Amundi UK Limited, and remains in his capacity as a member of the GFI team's architect committee. Merrick holds a BEng in Mechanical Engineering (University of Southampton), an Engineering Doctorate in Automotive Engineering (Cranfield University) and a MSc in Investment Management (CASS Business School).

Christopher Morris, Co-Head of Investment – Amundi (UK) Limited Christopher Morris joined Amundi London Branch as an architect & senior portfolio manager in October 2010. In January 2012 he was appointed Co-Head of Investment of Amundi (UK) Limited, retaining specific responsibilities with Amundi London Branch, and remains in his capacity as a member of the GFI team's architect committee. Prior to this, Christopher spent six years as the Senior London Representative of the IMF’s Monetary and Capital Markets Department. He and his team in London wrote major sections of the IMF’s flagship Global Financial Stability Report. During the financial crisis he was responsible for modelling and describing the deleveraging process, and forecasting “how it will develop”. He also designed and performed versions of the bank “stress tests” to identify the capital shortfalls of global banks. Before joining the London Office, he was a Senior Economist in Washington DC, and in Tokyo during the Asian Crisis (for the then Research Department). In Tokyo, he led missions to financial centres in Asia and participated in the Financial Sector Assessment Program Study of Japan. He represented the IMF in regional policy for a (ASEAN; APEC; Manila Framework Group) and presented papers at a number of regional conferences and forums. Before that, he worked as an economist in the IMF’s South East Asia and Pacific Department in Washington DC and in the IMF’s Research Department. Before joining the IMF, Christopher worked in the UK Civil Service. He gave advice on privatisation to the governments of Hungary and Russia. Living in Hungary, he managed a team of consultants advising on the regulatory framework and privatisation strategy for the electricity industry. In Russia, he led a team advising the Russian Ministry of Fuels and Energy on various energy sector issues. Christopher graduated from the London School of Economics and has a Master’s degree in Economics from George Washington University in Washington DC He is a qualified accountant.

Organisation chart

Source: Amundi GFI, Aug 2014.

Investment idea: currency markets In order to implement their macroeconomic outlook, Amundi often chooses to express views through the currency markets. Amundi’s base case is that the US Federal Reserve (the Fed) will end its QE program in October 2014 and will hike its fed funds rate around mid-2015 as the labour market conditions have clearly improved in the US and inflation is now in line with the Fed’s target. Amundi expects US GDP growth to converge to 3% in the coming quarters. The labour market has also greatly improved in the UK, so much so that the BOE will be the first major central bank to hike its key rates. On the other hand, for the Eurozone, the base case is that the economic recovery will remain low and uneven and that inflation will remain extremely low, prompting the ECB to make further easing announcements. Amundi also expects the easing policy from the BoJ to continue for a long period. Against this backdrop, Amundi expects the USD to perform compared with developed currencies, as the short- term interest rates will gradually rise in the US. We also expect the EUR to depreciate, in line with poor macro performances and a very accommodative policy from the ECB. The US-EUR spreads will continue to widen, particularly on intermediate maturities. The yen is also expected to depreciate against the USD because of the divergence of monetary policies. The pound should appreciate vs the euro. In the US and UK, Amundi expects the bear flattening to continue. Amundi remains constructive on peripheral debt insofar as the ECB is likely to announce a QE program including purchases of sovereign securities. This strategy may no longer be included in Amundi’s portfolio as their view may have changed since this document was prepared.

Disclaimer: The information contained in this material has been provided to you by MLC Limited (ABN 90 000 000 402) and MLC Investments Limited (ABN 30 002 641 661) and is intended as general information only for residents of Australia. It is not intended to be a solicitation from Amundi to invest in any of its products directly, or to engage Amundi directly. The information is current as at July 2014, except for the amount managed which is updated as stated. It has not been prepared to take into account individual investment objectives, financial situation or investment needs. Prior to making an investment decision, you should assess whether the information in this material is appropriate to your particular investment objectives, financial situation or investment needs. It is recommended that you obtain financial advice specific to your situation before making any financial investment or insurance decision. Past performance is not indicative of future performance. The future value of your investment may rise and fall with changes in the market. An investment with MLC Limited or MLC Investments Limited does not represent a deposit with, or a liability of National Australia Bank Limited (ABN 12 004 044 937) or other member company of the National group of companies and is subject to investment risk including possible delays in repayment and loss of income and capital invested. None of MLC Limited or MLC Investments Limited or other member companies in the National Group of companies, or appointed managers guarantee the capital value or performance of any specific investments selected by investors except where specified in the current disclosure document.