Risk Parity: The Interrogation -...

Sponsored By

Risk Parity: The Interrogation November 6, 2013

Kip McDaniel

Editor-in-Chief

aiCIO

Jim Haskel

Sr. Portfolio

Strategist

Bridgewater

Lee Partridge

CIO

Salient Partners

Scott Wolle, CFA

CIO

Invesco Global

Asset Allocation

15,086 – 10/13

Jim Haskel

Senior Portfolio Strategist

Bridgewater

Key Points

• There are only two ways to beat cash:

• Passively hold risky assets (asset allocation)

• Actively trade risky assets (active management)

• Most institutional investors hold an overwhelming majority of their

risk in their asset allocation.

• At its core, Risk Parity is about building a diversified asset

allocation.

• Diversified portfolios will outperform concentrated portfolios over

time but will underperform periodically in the short-term.

• While many investors pay attention to short-term performance

differences, these differences contain little useful information.

Traditional Portfolios are Highly

Concentrated in Equities

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF

MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS

LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT

WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. Past performance is not indicative of future results. Please review the “Important Disclosures and Other Information” located at the end of this presentation.

Capital Share

Traditional Asset Allocation

Risk Share

Equities

Mortgages

Nominal Gov t Bonds

Hedge Fund

Real Estate

Corp. Bonds

IL Bonds

Commodities

Currency


-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Drawdowns (Gross of Fees Total Return)

Traditional Asset Allocation Equity Component

Correlation: 96%

Diversification Outperforms Concentration Over Time

“Traditional Asset Allocation” refers to the USD Traditional Portfolio. Returns are cumulative excess returns above cash, shown gross of fees. Prior to 2002, All Weather Strategy returns are based on All Weather Asset Mix (see All Weather Asset Mix Disclosure). It

is expected that the simulated performance will periodically change as a function of both refinements to our simulation methodology and the underlying market data. From 2002 to present, All Weather Strategy returns are based on All Weather II Strategy.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING

THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY.

SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE

PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. Past performance is not indicative of future results. Please review the “Important Disclosures and Other Information” located at the end of this presentation.

-100%

0%

100%

200%

300%

400%

500%

600%

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

All Weather StrategyCumulative Performance Attribution

(LN)

Equities Nominal Bonds IL Bonds Commodities Other

-100%

0%

100%

200%

300%

400%

500%

600%

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Traditional Asset AllocationCumulative Performance Attribution

(LN)

Equities Nominal Bonds IL Bonds Commodities Other

Total Return 12.4%

Excess Return 6.8%

Stdev. 10.0%

Sharpe Ratio 0.68

Performance (Annualized)

Total Return 9.9%

Excess Return 4.3%

Stdev. 10.6%

Sharpe Ratio 0.40

Performance (Annualized)

Strategic Asset Allocation is a Long-Term Proposition

“Traditional Asset Allocation” refers to the USD Traditional Portfolio. Returns are total returns, shown gross of fees. Please note the returns shown for All Weather are simulated prior to June 1996 using the All Weather Asset Mix (see All Weather Asset Mix

Disclosure). It is expected that the simulated performance will periodically change as a function of both refinements to our simulation methodology and the underlying market data. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE

CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT

ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE

ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE

SHOWN. Past performance is not indicative of future results. Please review the “Important Disclosures and Other Information” located at the end of this presentation.

All Weather

Expected Sharpe Ratio


Expected Sharpe Ratio

0.65 0.35

Frequency of Outperformance

(All Weather vs. Traditional Asset Allocation)

Timeframe ExpectedActual

(1970 - Present)

1 year 60% 61%

5 years 72% 70%

10 years 79% 76%

20 years 87% 87%

30 Years 92% 100%

Achieving Your Target Return Will Likely Require

Better Asset Allocation

Active Management Asset Allocation Cash Total Return

Traditional

Portfolio

“Traditional Asset Allocation” refers to the USD Traditional Portfolio. The beta return since 1970 is calculated by subtracting the return of the risk free rate since 1970 from the Traditional portfolio total return since 1970. HYPOTHETICAL OR SIMULATED

PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO.

ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED

TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE

PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. Past performance is not indicative of future results. Please review the “Important Disclosures and Other Information” located at the end of this presentation.

+ + =

+ + =

Current

? 4.3% 5.6%

? ? 1.4%

9.9%

?

Through Sep-2013

Since 1970

Appendix

All Weather’s Sensitivity to Secular Moves in Yields

Please note the returns shown for All Weather are simulated prior to June 1996 using the All Weather Asset Mix (see All Weather Asset Mix Disclosure). It is expected that the simulated performance will periodically change as a function

of both refinements to our simulation methodology and the underlying market data. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE

RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE

UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT

THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. Past

performance is not indicative of future results. Please review the “Important Disclosures and Other Information” located at the end of this presentation.

Annualized Gross of Fees 1946 - Sep. 1981

Total Return 8.7%

Excess Return 4.3%

Standard Deviation 7.4%

Sharpe Ratio 0.58

Annualized Gross of Fees Oct. 1981 - Present

Total Return 11.9%

Excess Return 7.1%


Sharpe Ratio 0.74

Annualized Gross of Fees Whole Period

Total Return 10.2%

Excess Return 5.6%


Sharpe Ratio 0.66

All Weather Strategy Historical Performance

1.6%

16.5%

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

1000%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

U.S. 10 Year Treasury Note Yield All Weather Cumulative Excess Return (ln)

2.6

20th Century Low in Yields

-45.0%

-40.0%

-35.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

70 75 80 85 90 95 00 05 10

Drawdowns (Total Returns Gross of Fees)

Traditional Asset Allocation All Weather 10% USD Strategy

Surprise Fed Tightening

Surprise Fed Tightening

Global Finanical CrisisFlight to Cash

Tight Money

Discounted

Tightening

Tight Money Hurts All Assets

“Traditional Asset Allocation” refers to the USD Traditional Portfolio. Please note the returns shown for All Weather are simulated prior to June 1996 using the All Weather Asset Mix (see All Weather Asset Mix Disclosure). It is expected that the simulated

performance will periodically change as a function of both refinements to our simulation methodology and the underlying market data. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE

AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE

RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT

THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. Past performance is not

indicative of future results. Please review the “Important Disclosures and Other Information” located at the end of this presentation.

Important Disclosures and Other Information

Please read carefully the following important disclosures and other information as they provide additional information relevant to

understanding the assumptions, research and performance information presented herein. Additional information is available upon

request except where the proprietary nature of the information precludes its dissemination.

Important Disclosures This presentation contains proprietary information regarding Bridgewater Associates, LP (“Bridgewater”) and the strategies Bridgewater manages and is being furnished on a confidential basis

to a limited number of sophisticated prospective investors for the purpose of evaluating an investment with Bridgewater. By accepting this presentation, the prospective investor agrees that it

(and each employee, representative or other agent of such prospective investor) will use the information only to evaluate its potential interest in a fund or strategy described herein and for no

other purpose and will not divulge any such information to any other party. No part of this presentation may be (i) copied, photocopied or duplicated in any form by any means or (ii)

redistributed without the prior written consent of Bridgewater. Notwithstanding anything to the contrary, a prospective investor, and each employee, representative or other agent of such

prospective investor, may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and tax structure of a fund described herein (and any of

the transactions contemplated hereby) and all materials of any kind (including opinions or other tax analyses) that are provided to a prospective investor relating to such U.S. federal and state

income tax treatment and tax structure.

This presentation has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or to participate in any trading

strategy. Any such offering, will be made pursuant to a definitive offering memorandum (the “OM”) which will contain the terms and risks of making an investment with Bridgewater in the

relevant fund and other material information not contained herein and which will supersede this information in its entirety. In the event of any discrepancy between the information shown in this

presentation and the OM, the OM will prevail. Investors should not construe the contents of this presentation as legal, tax, accounting, investment or other advice. Any decision to invest in a

Bridgewater fund or strategy described herein should be made after carefully reviewing the OM (including the risks described therein) and all other related documents, conducting such

investigations as the prospective investor deems necessary and consulting such investor’s own investment, legal, accounting and tax advisors in order to make an independent determination

of the suitability and consequences of an investment in such fund or strategy.

An investment in any Bridgewater fund or strategy involves significant risks and there can be no assurance that any fund or strategy will achieve its investment objective or any targets or that

investors will receive any return of their capital. An investment in any Bridgewater fund or strategy is suitable only for sophisticated investors and requires the financial ability and willingness to

accept the high risks inherent in such an investment (including the risk of loss of their entire investment) for an indefinite period of time. Past performance is not indicative of future results.

This presentation and the OM will only be made available to persons or entities who are “accredited investors” under the Securities Act of 1933, as amended, and “qualified purchasers” under

the Investment Company Act of 1940, as amended.

The distribution of this presentation and the OM may be restricted by law in certain jurisdictions, and it is the responsibility of persons into whose possession this presentation or the OM comes

to inform themselves about, and observe, any such restrictions.

Certain information contained herein constitutes forward-looking statements (including projections, targets, hypotheticals, ratios, estimates, returns, performance, opinions, activity and other

events contained or referenced herein), which can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or

other variations (or the negatives thereof) thereof. Due to various risks, assumptions, uncertainties and actual events, including those discussed herein and in the OM, actual results, returns or

performance may differ materially from those reflected or contemplated in such forward-looking statements. As a result, prospective investors should not rely on such forward-looking

statements in making their investment decisions. Any forward-looking statements contained herein reflect Bridgewater’s current judgment and assumptions which may change in the future, and

Bridgewater has no obligation to update or amend such forward-looking statements.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT

REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY,

OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED

WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE

SHOWN.

Any tables, graphs or charts relating to past performance, whether hypothetical, simulated or actual, included in this presentation are intended only to illustrate the performance of indices,

strategies, or specific accounts for the historical periods shown. When creating such tables, graphs and charts, Bridgewater may incorporate assumptions on trading, positions, transactions

costs, market impact estimations and the benefit of hindsight. Such tables, graphs and charts are not intended to predict future performance and should not be used as a basis for making any

investment decision. Bridgewater has no obligation to update or amend such tables, graphs or charts.

Statements regarding target performance or target ratios related to assumed risk budgets, liabilities, volatility, target volatility, tracking error or other targets should not be considered a

guarantee that such results can or will be achieved. For example, Bridgewater may adjust returns to match, for instance, the annualized standard deviation of two or more return series but this

adjustment does not suggest that the returns or assets are similar with respect to other aspects of the risk such as liquidity risk. Any statements with respect to the ability to risk match or risk

adjust in the future are not a guarantee that the realized risks will be similar and material divergences could occur. All performance and risk targets contained herein are subject to revision by

Bridgewater and are provided solely as a guide to current targets.

Important Disclosures Discussions related to the risk controlling capabilities of low risk portfolios, diversification, passive investing, risk management, risk adjusting, and any other risk control theories, statements,

measures, calculations and policies contained herein should not be construed as a statement that Bridgewater has the ability to control risk or that the investments or instruments discussed are

low risk. Active trading comes with a monetary cost and high risk and there is no guarantee the cost of trading will not have a materially adverse impact on any account, fund, portfolio or other

structure. Bridgewater manages accounts, funds and strategies not referred to herein. Additionally, even where accounts, funds or strategies are traded similarly, performance may materially

diverge based on, among other factors, timing, the approved instruments, markets, and target risk for each strategy or market. The price and value of the investments referred to in this

presentation and the income, if any, derived therefrom may fluctuate.

Statistical and mathematical measures of performance and risk measures based on past performance, market assumptions or any other input should not be relied upon as indicators of future

results. While Bridgewater believes the assumptions and possible adjustments it may make in making the underlying calculations are reasonable, other assumptions, methodologies and

adjustments could have been made that are reasonable and would result in materially different results, including materially lower results. Where shown, targeted performance and the abilities and

capabilities of the active and passive management approaches discussed herein are based on Bridgewater’s analysis of market data, quantitative research of the underlying forces that influence

asset classes as well as management policies and objectives, all of which are subject to change. The material contained herein may exhibit the potential for attractive returns, however it also

involves a corresponding high degree of risk. Targeted performance, whether mathematically based or theoretical, is considered hypothetical and is subject to inherent limitations such as the

impact of concurrent economic or geo-political elements, forces of nature, war and other factors not addressed in the analysis, such as lack of liquidity. There is no guarantee that the targeted

performance for any fund or strategy shown herein can or will be achieved. A broad range of risk factors, individually or collectively, could cause a fund or strategy to fail to meet its investment

objectives and/or targeted returns, volatilities or correlations.

Where shown, information related to markets traded may not necessarily indicate the actual historical or current strategies of Bridgewater. Markets listed may or may not be currently traded and

are subject to change without notice. Markets used for illustrative purposes may not represent the universe of markets traded or results available and may not include actual trading results of

Bridgewater. Other markets or trading, not shown herein, may have had materially different results. Attribution of performance or designation of markets and the analysis of performance or other

performance with respect to scenario analysis or the determination of biases is based on Bridgewater’s analysis. Statements made with respect to the ability of Bridgewater, a fund, a strategy, a

market or instrument to perform in relation to any other market, instrument or manager in absolute terms or in any specific manner in the future or any specified time period are not a guarantee of

the desired or targeted result.

Bridgewater research utilizes (in whole and in part) data and information from public, private, and internal sources. Some internally generated information may be considered theoretical in nature

and subject to inherent limitations associated therein, including but not limited to, an ability to find appropriate inputs. External sources include the Australian Bureau of Statistics, International

Energy Agency, Investment Management Association, International Monetary Fund, National Bureau of Economic Research, Organisation for Economic Co-operation and Development, United

Nations, US Department of Commerce, World Bureau of Metal Statistics, World Economic Forum, as well as information companies such as Asset International, Inc., BBA Libor Limited,

Bloomberg Finance L.P., CEIC Data Company Ltd., Consensus Economics Inc., Credit Market Analysis Ltd., Crimson Hexagon, Inc., Dealogic LLC, Ecoanalitica, Emerging Portfolio Fund

Research, Inc., Global Financial Data, Inc., Global Trade Information Services, Inc., Haver Analytics, Inc., Markit Economics Limited, Mergent, Inc., Moody’s Analytics, Inc., MSCI, Paramita

Tecnologia Consultoria Financeira LTDA, Property and Portfolio Research, Inc., RealtyTrac, Inc., RP Data Ltd., SNL Financial LC, Standard and Poor’s, Thomson Reuters, TrimTabs Investment

Research, Inc. and Wood Mackenzie Limited. While we consider information from external sources to be reliable, we do not independently verify information obtained from external sources and

we make no representation or warranty as to the accuracy, completeness or reliability of such information. In some circumstances Bridgewater submits performance information to indices, such

as Dow Jones Credit Suisse Hedge Fund index, which may be included in this material.

None of the information related to a fund or strategy that Bridgewater may provide is intended to form the basis for any investment decision with respect to any retirement plan’s assets. Any

information Bridgewater provides should be independently and critically evaluated based on whatever other sources deemed appropriate, including legal and tax advice; it is also not intended to

be impartial investment information or advice as Bridgewater may recommend one or more Bridgewater products in connection with such information, which would result in additional fees being

paid to Bridgewater. Bridgewater’s status as an ERISA fiduciary with respect to the management of any existing or future Bridgewater product(s) in which you invest would be (or continue to be)

set forth in that product’s applicable governing instruments. You are responsible for ensuring that your decision to invest in any Bridgewater product does not violate the fiduciary or prohibited

transaction rules of ERISA, the U.S. Internal Revenue Code or any applicable laws or regulations that are similar.

This presentation was written in connection with the promotion or marketing of a Bridgewater fund or strategy, and it was not intended or written to be used and cannot be used by any person for

the purpose of avoiding penalties that may be asserted under the U.S. Internal Revenue Code.

All amounts and percentages in this presentation are approximate and have been rounded for presentation purposes.

Statements in this presentation are made as of the date appearing on this presentation. Neither the delivery of this presentation or the OM shall at any time under any circumstances create an

implication that the information contained herein is correct as of any time subsequent to such date. Bridgewater has no obligation to inform potential or existing investors when information herein

is stale, deleted, modified or changed.

All Weather Strategy Disclosure

Past results are not necessarily indicative of future results.

Bridgewater All Weather Strategy Performance Disclosure:

For the period June 1996 (the inception of the strategy) through August 2001 the performance is based on the

total return of the Bridgewater All Weather strategy as implemented for Bridgewater's principals and their

affiliates and was not fully hedged to the US Dollar. The All Weather strategy is structured to be fully hedged,

and the performance reflected after August 2001 includes these hedging transactions. For the period of

August 2001 through present the performance shown is the actual total returns of the longest running fully

funded All Weather account. For the entire history excess returns are calculated by subtracting the cash

return of the US repo rate from the total returns described above. Of note, the All Weather strategy’s target

leverage, volatility and return, as well as the asset mix varied from June 1996 to July 2005. From August 2005

through the present the strategy has targeted 10% volatility. Bridgewater manages additional All Weather

portfolios not included in this performance history.

Gross of fees performance is gross of management fees and includes the reinvestment of interest, gains, and

losses. Returns will be reduced by the investment advisory fees and any other expenses that may be incurred

in the management of the account.

Net of fees performance has been calculated using our standard fee schedule for a minimum size account,

which are the highest fees we have or would currently charge an account. Investment advisory fees are

described in Bridgewater’s ADV Part 2A.

No representation is being made that any account will or is likely to achieve returns similar to those shown.

Trading in futures is risky and can result in losses as well as profits. PAST RESULTS ARE NOT

NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance as of the current month is estimated and

subject to change.

All Weather Asset Mix Disclosure:

Where shown, simulated returns for All Weather are created using the All Weather asset mix. The All Weather

asset mix performance is simulated by applying All Weather asset mix weights, which are determined by

Bridgewater's proprietary process for building an environmentally balanced portfolio, to historical market

returns. We use actual market returns when available and otherwise use Bridgewater Associates' proprietary

estimates, based on other available data and our fundamental understanding of asset classes. Simulated

asset returns are subject to considerable uncertainty and potential error, as there is a great deal that cannot

be known about how assets would have performed in the absence of actual market returns. The All Weather

asset mix simulation is an approximation of our actual process but not an exact replication, and may have

differences including but not limited to the precise mix of markets used and the weights applied to those

markets. It is expected that the simulated performance will periodically change as a function of both

refinements to our simulation methodology and the underlying market data. Where noted, the All Weather

Asset Mix Net of Fees returns have been calculated using our standard fee schedule for a minimum size

account, which are the highest fees we have or would currently charge an account. Investment advisory fees

are described in Bridgewater’s ADV Part 2A. No claim is being made of the All Weather Asset Mix’s ability to

perform in absolute terms or relative to any market return in the future, during market events not represented

or during market events occurring in the future. Market conditions and events vary considerably, are

unpredictable and can have unforeseen impacts resulting in materially adverse performance results.

All Weather

Total Return in USD

Last 1 Year -3.3%

Last 3 Years 8.4%

Last 5 Years 7.3%

Last 10 Years 7.9%

Annualized Returns (Jun-96 through Sep-13)

Annualized Return 8.7%


Sharpe Ratio 0.55

All Weather Strategy Performance (Net of Fees)

Net Since Inception Jun-96 through Sep-13

All Weather II Strategy Disclosure

All Weather

Total Return in USD

Last 1 Year -2.4%

Last 3 Years 8.8%

Last 5 Years 10.9%

Last 10 Years 9.7%

Annualized Returns (Jun-96 through Sep-13)

Annualized Return 9.8%


Sharpe Ratio 0.61

All Weather II Strategy Performance (Net of Fees)

Net Since Inception Jun-96 through Sep-13

Past results are not necessarily indicative of future results. WHERE SHOWN, HYPOTHETICAL OR SIMULATED

PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE

RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE

PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE

UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK

OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY

ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY

ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

Bridgewater All Weather II Strategy Performance Disclosure:

For the period June 1996 (the inception of the strategy) through August 2001 the performance is based on the

total return of the Bridgewater All Weather strategy as implemented for Bridgewater's principals and their

affiliates and was not fully hedged to the US Dollar. The All Weather strategy is structured to be fully hedged,

and the performance reflected after August 2001 includes these hedging transactions. For the period of

August 2001 through September 2008 the performance shown is the actual total returns of the longest running

fully funded All Weather account. Of note, the All Weather strategy’s target leverage, volatility and return, as

well as the asset mix varied from June 1996 to July 2005. From August 2005 through present the strategy has

targeted 10% volatility. From October 2008 through September 2009 returns are simulated based on the All

Weather target allocations constrained from shifts based on Bridgewater's depression gauge (i.e. not shifting

the allocations based on the recognition of a potential extreme recessionary or depressionary economic

environment for the purposes of capital preservation). From October 2009 through present the performance

shown is the actual returns of the fully funded All Weather II Account (which is similarly constrained from shifts

based on Bridgewater’s depression gauge). For the entire history excess returns are calculated by subtracting

the cash return of the US repo rate from the total returns described above. Bridgewater manages additional All

Weather portfolios not included in this performance history.

Gross of fees performance is gross of management fees and includes the reinvestment of interest, gains, and

losses. Returns will be reduced by the investment advisory fees and any other expenses that may be incurred

in the management of the account.

Net of fees performance has been calculated using our standard fee schedule for a minimum size account,

which are the highest fees we have or would currently charge an account. Investment advisory fees are

described in Bridgewater’s ADV Part 2A.

No representation is being made that any account will or is likely to achieve returns similar to those shown.

Trading in futures is risky and can result in losses as well as profits. PAST RESULTS ARE NOT

NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance as of the current month is estimated and

subject to change.

All Weather Asset Mix Disclosure:

Where shown, simulated returns for All Weather are created using the All Weather asset mix. The All Weather

asset mix performance is simulated by applying All Weather asset mix weights, which are determined by

Bridgewater's proprietary process for building an environmentally balanced portfolio, to historical market

returns. We use actual market returns when available and otherwise use Bridgewater Associates' proprietary

estimates, based on other available data and our fundamental understanding of asset classes. Simulated

asset returns are subject to considerable uncertainty and potential error, as there is a great deal that cannot

be known about how assets would have performed in the absence of actual market returns. The All Weather

asset mix simulation is an approximation of our actual process but not an exact replication, and may have

differences including but not limited to the precise mix of markets used and the weights applied to those

markets. It is expected that the simulated performance will periodically change as a function of both

refinements to our simulation methodology and the underlying market data. Where noted, the All Weather

Asset Mix Net of Fees returns have been calculated using our standard fee schedule for a minimum size

account, which are the highest fees we have or would currently charge an account. Investment advisory fees

are described in Bridgewater’s ADV Part 2A. No claim is being made of the All Weather Asset Mix’s ability to

perform in absolute terms or relative to any market return in the future, during market events not represented

or during market events occurring in the future. Market conditions and events vary considerably, are

unpredictable and can have unforeseen impacts resulting in materially adverse performance results.

USD Traditional Portfolio

This page contains the allocation information for the historical simulation of the Traditional portfolio, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility,

tracking error, and correlations used in this analysis. Where shown, prior to 1970 the portfolio was constructed by weighting 65% U.S. Equities and 35% U.S. 10-year bonds.

The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates’ understanding of standard asset allocation (which may change without

notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index

constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon

request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL

OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT

ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR

OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO

SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO

ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

AlphaAlphaAlphaAlphaAlphaAlphaAlphaAlphaAlphaAlphaAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAsset

Corp

ora

te B

onds

Equiti

es

Equiti

es

Equiti

es

Equiti

es

Hedge F

und

Infla

tion-L

inked B

onds

Mort

gages

Nom

inal G

ovt B

onds

Real E

sta

te

Com

moditi

es

Corp

ora

te B

onds

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Curr

ency

Equiti

es

Equiti

es

Equiti

es

Equiti

es

Infla

tion-L

inked B

onds

Mort

gages

Nom

inal G

ovt B

onds

Real E

sta

te

U.S

. C

orp

ora

te B

onds (

Exte

nded)

U.S

. Larg

e-C

ap E

quiti

es (

Exte

nded)

U.S

. P

rivate

Equity

/ V

C (

Exte

nded)

U.S

. S

mall-

Cap E

quiti

es (

Exte

nded)

World E

quiti

es E

x-U

S (

Exte

nded)

Cash

U.S

. IL

Bonds (

Exte

nded)

U.S

. M

BS

(E

xte

nded)

U.S

. G

ov't

Bonds (

Exte

nded)

U.S

. R

eal E

sta

te (

Exte

nded)

Com

moditi

es (

GS

CI -

Exte

nded)

U.S

. C

orp

ora

te B

onds (

Exte

nded)

AU

DvsU

SD

CA

DvsU

SD

CH

FvsU

SD

DK

KvsU

SD

EU

RvsU

SD

GB

PvsU

SD

HK

DvsU

SD

JP

YvsU

SD

NO

KvsU

SD

NZ

DvsU

SD

SE

KvsU

SD

SG

DvsU

SD

U.S

. Larg

e-C

ap E

quiti

es (

Exte

nded)

U.S

. P

rivate

Equity

/ V

C (

Exte

nded)

U.S

. S

mall-

Cap E

quiti

es (

Exte

nded)

World E

quiti

es E

x-U

S (

Exte

nded)

U.S

. IL

Bonds (

Exte

nded)

U.S

. M

BS

(E

xte

nded)

U.S

. G

ov't

Bonds (

Exte

nded)

U.S

. R

eal E

sta

te (

Exte

nded)

Exposure TypeAsset Class Exposure Allocation Return Volatility Ratio

Alpha Corporate Bonds U.S. Corporate Bonds (Extended) 4.60% 0.75% 3.00% 0.25 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Alpha Equities U.S. Large-Cap Equities (Extended) 20.00% 1.00% 4.00% 0.25 0.00 1.00 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00

Alpha Equities U.S. Private Equity / VC (Extended) 3.00% 2.50% 10.00% 0.25 0.00 0.40 1.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00

Alpha Equities U.S. Small-Cap Equities (Extended) 5.00% 1.50% 6.00% 0.25 0.00 0.40 0.40 1.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00

Alpha Equities World Equities Ex-US (Extended) 14.00% 1.80% 6.00% 0.30 0.00 0.40 0.40 0.40 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00

Alpha Hedge Fund Cash 5.00% 4.90% 7.00% 0.70 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Alpha Inflation-Linked Bonds U.S. IL Bonds (Extended) 3.00% 0.25% 1.00% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00

Alpha Mortgages U.S. MBS (Extended) 4.60% 0.50% 2.00% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00

Alpha Nominal Govt Bonds U.S. Gov't Bonds (Extended) 4.60% 0.50% 2.00% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00

Alpha Real Estate U.S. Real Estate (Extended) 5.00% 1.50% 6.00% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40

Asset Commodities Commodities (GSCI - Extended) 2.00% 5.81% 23.25% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.20 0.20 -0.10 -0.20 0.50

Asset Corporate Bonds U.S. Corporate Bonds (Extended) 4.60% 2.20% 8.79% 0.25 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.30 0.00 0.80 0.70 0.40

Asset Currency AUDvsUSD 0.69% 0.00% 12.40% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency CADvsUSD 1.05% 0.00% 6.50% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency CHFvsUSD 0.91% 0.00% 13.81% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency DKKvsUSD 0.08% 0.00% 12.63% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency EURvsUSD 4.26% 0.00% 12.78% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency GBPvsUSD 3.19% 0.00% 11.34% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency HKDvsUSD 0.22% 0.00% 4.88% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency JPYvsUSD 3.05% 0.00% 13.52% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency NOKvsUSD 0.11% 0.00% 11.55% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency NZDvsUSD 0.03% 0.00% 15.29% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency SEKvsUSD 0.30% 0.00% 12.58% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Currency SGDvsUSD 0.11% 0.00% 6.36% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Asset Equities U.S. Large-Cap Equities (Extended) 40.00% 4.18% 16.72% 0.25 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75 -0.20 0.20 0.20 0.60

Asset Equities U.S. Private Equity / VC (Extended) 3.00% 5.82% 23.27% 0.25 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75 -0.20 0.20 0.20 0.60

Asset Equities U.S. Small-Cap Equities (Extended) 5.00% 5.07% 20.29% 0.25 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75 -0.20 0.20 0.20 0.60

Asset Equities World Equities Ex-US (Extended) 14.00% 5.21% 17.35% 0.30 0.00 0.40 0.40 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.75 0.75 0.75 1.00 -0.15 0.15 0.15 0.45

Asset Inflation-Linked Bonds U.S. IL Bonds (Extended) 3.00% 1.65% 6.60% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 -0.20 -0.20 -0.15 1.00 0.10 0.20 0.00

Asset Mortgages U.S. MBS (Extended) 9.20% 1.78% 7.14% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 -0.10 0.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.15 0.10 1.00 0.80 0.10

Asset Nominal Govt Bonds U.S. Gov't Bonds (Extended) 9.20% 1.69% 6.77% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 -0.20 0.70 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.15 0.20 0.80 1.00 0.20

Asset Real Estate U.S. Real Estate (Extended) 5.00% 5.02% 20.06% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.50 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.60 0.60 0.60 0.45 0.00 0.10 0.20 1.00

Exposure Type

Correlation matrix, Sharpe ratios and return expectations based on Bridgew ater

assumptions. Beta volatilities estimated using historical data from the period 01/01/1970 -

09/30/2013.

Asset Class

Exposure

Scott Wolle

CIO, Global Asset Allocation

Invesco

15,086 – 10/13

Invesco Balanced-Risk Allocation Strategy

Diversification framework

Source: Invesco analysis. For illustrative purposes only.

FOR US INSTITUTIONAL INVESTOR USE ONLY — NOT FOR USE WITH THE PUBLIC

Growth Assets

Deflation Hedges

Inflation Hedges

Inflationary Growth

Included:

Commodities

Excluded:

Direct Real Estate

Infrastructure

TIPS

Non-Inflationary Growth

Included:

Developed Equities

Excluded:

Emerging Equities

Private Equity

High Yield/Credit

Recession

Long-Term Government Bonds (hedged)

Risk-based allocation

Risk attribution as of September 30, 2013

Source: Invesco analysis. Data as of 09/30/13. Composite Inception: 09/30/08. Note: Returns are gross of fees; net returns will be lower. Past performance is not a

guarantee of future results. Please see pages 6-7 for complete performance and GIPS® disclosure.


IBRA Attribution (annualized) Bonds (%) Stocks (%) Commodities (%) Active Positioning (%)

Cash (%) Total (%)

Return Since Inception 4.62 2.19 2.59 2.08 0.19 11.68

Risk Since Inception 5.17 5.53 5.18 1.66 0.08 9.93

Since Inception Beta

0.37

0.37

0.31

0.00 0.25 0.50 0.75 1.00

S&P 500

DJ-UBS

10y Tsy

IBRA Beta to Common Indices

0.08

5.17

5.53

5.18

1.66 7.69

9.93

0

2

4

6

8

10

12

14

16

18

20

Cash Bonds Stocks Commodities Active

Positioning

Diversification Total

Diversification Benefit

IBRA since inception risk attribution (%)

Intelligent beta

Investment results: 09/30/08 – 09/30/13

DJ-UBS is the Dow Jones-UBS Commodity Index. Bar L-T Treasury is the Barclays Long-Term Treasury Index. Sources: Invesco and DataStream. Returns are

gross of fees; net returns will be lower. Past performance is not a guarantee of future results. Please see pages 6-7 for complete performance and GIPS®

disclosure.

0.0

0.3

0.5

0.8

1.0

IBRA Bonds Bar L-TTreasury

Sin

ce I

nception S

harp

e R

atio

0.0

0.1

0.2

0.3

0.4

IBRA Equities MSCI World

Sin

ce I

nception S

harp

e R

atio

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

IBRA

Commodities

DJ-UBS

Sin

ce I

nception S

harp

e R

atio

Commodities Equities Bonds


Source: Invesco analysis. *Invesco Balanced-Risk Allocation composite Inception: 09/30/08; this information is based on the Invesco Balanced-Risk Allocation

composite. Targets reflect internal risk and return objectives. **Excess return refers to the difference between the total return of the portfolio and the strategic return

of the portfolio. Data as of 09/30/13. Returns for all periods greater than one year are annualized. For complete performance GIPS® disclosure, see pages 6-7.

Tactical allocation approach

09/30/08 – 09/30/13


3.40%

0.96%

0.27%

2.30%

1.76%

1.48%

2.08%

0%

1%

2%

3%

4%

4Q08* 2009 2010 2011 2012 YTD 2013 SinceInception*

Excess R

etu

rn**

Since inception summary data

Excess Return

Target: 1.60%

Realized: 2.08%

Volatility

Target: 2.00%

Realized: 1.66%

Information Ratio

Target: 0.80

Realized: 1.25

Drawdown

Maximum: 1.21%

Trough: 01/2010

Invesco Balanced-Risk Allocation Composite - USD

GIPS® compliant - Schedule of investment performance

Currency: US dollar. *Inception date: 09/30/08. Invesco Worldwide has prepared and presented this report in compliance with the US and Canadian

version of the Global Investments Performance Standards (GIPS®). For complete GIPS® disclosure, see following page.

Invesco Worldwide claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in

compliance with the GIPS standards. Invesco Worldwide has been independently verified for the periods 1st January 2003 thru 31st December 2012.

The legacy firms that constitute Invesco Worldwide have been verified since 2001 or earlier. The verification reports are available upon request.

Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis

and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does

not ensure the accuracy of any specific composite presentation.


2012 12.32 11.81 0.12 6.97 0.03 2 $ 1,509.1 $ 497.1 N/A

2011 11.81 11.31 0.11 8.44 0.03 2 984.9 479.8 N/A2010 15.26 14.75 0.15 N/A N/A 1 488.9 475.3 N/A

2009 21.41 20.86 0.23 N/A N/A 1 344.2 298.2 N/A

2008 (3 months) -3.10 -3.21 0.27 N/A N/A 1 23.8 254.6 N/A

Annual Compound Rates of Return Ended December 31, 2012

1 Year 12.32 11.81 0.12

2 Years 12.06 11.56 0.12

3 Years 13.12 12.61 0.13

Since Inception* 13.34 12.84 0.21

Period Gross Rate of Return (%)

Net Rate of Return

(%)

Benchmark Return (%)

Composite 3-Yr St Dev

(%)

Benchmark 3-Yr St Dev

(%)

Number of

Portfolios

Composite Assets

(USD Millions)

Total Firm Assets

(Billions)

Composite Dispersion

(%)

Invesco Balanced-Risk Allocation Composite - USD

GIPS® compliant – Performance notes

1 Invesco Worldwide (“The Firm”) manages a broad array of investment strategies around the world. The Firm comprises U.S.-based Invesco Advisers, Inc. and all wholly

owned Invesco firms outside of North America. All entities within the Firm are directly or indirectly owned by Invesco Ltd. GIPS-compliant firms whose assets are managed by

subsidiaries of Invesco Ltd. are Invesco Canada Ltd. and Atlantic Trust.* Invesco Senior Secured Management, Inc. Invesco Private Capital, Inc. and Invesco PowerShares

Capital Management LLC are also affiliates of the Firm. Each is an SEC-registered investment adviser and is marketed as a separate entity. Invesco Great Wall Fund

Management Co. Ltd (IGW) is a fund management company established under China Securities Regulatory Commission’s approval. Their assets are excluded from total Firm

assets. During 2012 new guidance was issued requiring firm assets be calculated net of leverage. This guidance is applied for years ending 2012 and forward.

* Atlantic Trust intends to engage in a transaction in which it would become a direct or indirect subsidiary of Canadian Imperial Bank of Commerce (“CIBC”), a Canadian-

based financial institution. The transaction is expected to close during the third calendar quarter of 2013.

2 The objective of the Balanced-Risk Allocation investment strategy is to outperform the index, Barclays U.S. Treasury 3-month Bellwether, by 6% over a rolling three to five

year investment horizon. The strategy will strive to achieve this objective with a proprietary risk parity strategy that targets 8% portfolio risk and seeks to minimize the risk of

large draw downs with a risk-balanced investment process. Portfolio risk is defined as the annualized standard deviation of the strategy’s returns. The strategy is intended to

target equity-like returns with bond-like risk. Effective March 30, 2012, the Composite name was changed from Invesco Premia Plus Composite to Invesco Balanced-Risk

Allocation Composite – USD.

3 The composite is benchmarked to the Barclays U.S. Treasury 3-month Bellwether index. During April 2009, the decision was made to retroactively change the Composite’s

benchmark from the Citigroup Treasury Bill-3 Month index to the Barclays U.S. Treasury 3-month Bellwether index. The benchmark was changed due to data availability. The

benchmark is used for comparative purposes only. Investments made by the Firm for the portfolios it manages according to respective strategies may differ significantly in

terms of security holdings, industry weightings, and asset allocation from those of the benchmark. Accordingly, investment results and volatility will differ from those of the

benchmark.

4 The Balanced-Risk Allocation strategy invests entirely in long-only commodity, equity and bond futures in different regions around the globe targeting equity-like returns with

bond-like risk. The composite’s notional value will generally not exceed 2 times capital.

5 Valuations and portfolio total returns are computed and stated in U.S. Dollars. The firm consistently values all portfolios each day on a trade date basis. Portfolio level returns

are calculated as time-weighted total returns on daily basis. Accrual accounting is used for all interest and dividend income. Past performance is not an indication of future

results.

6 Composite dispersion is measured by the standard deviation across asset-weighted portfolio returns represented within the composite for the full year. The three-year

annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36 months. The standard deviation is not presented

when there is less than 36 months.

7 Gross-of-fee performance results are presented before management and custodial fees but after all trading commissions and withholding taxes on dividends, interest and

capital gains, when applicable. Net-of-fee performance results are calculated by subtracting the highest tier of our published fee schedule for the product from the monthly

returns.

The management fee schedule is as follows:

45 basis points on the first $100 million

35 basis points thereafter.

As of May 31, 2010, the Composite minimum has been changed to $25 million. Prior to this date there was no Composite minimum.

8 The composite creation date is September 30, 2008.

9 A complete list of composite descriptions is available upon request. Polices for valuing portfolios, calculating performance, and preparing compliant presentations is available

upon request.

10 Valuations and portfolio total returns are computed and stated in U.S. Dollars. The firm consistently values all portfolios each day on a trade date basis. Portfolio level returns

are calculated as time-weighted total returns on daily basis. Accrual accounting is used for all interest and dividend income. Past performance is not an indication of future

results.


Invesco disclaimer

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is

not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an

investment making decision. As with all investments there are associated inherent risks. Please obtain and review all financial

material carefully before investing. Past performance is not indicative of future results. This does not constitute a recommendation

of the suitability of any investment strategy for a particular investor. The opinions expressed herein are based on current market

conditions and are subject to change without notice.

Derivatives Risk

The GAA Strategies invest (directly or indirectly) a substantial portion of its assets in "derivatives"–so-called because their value

"derives" from the value of an underlying asset (including an underlying security), reference rate or index–the value of which may

rise or fall more rapidly than other investments. The strategies invest principally in exchange-traded futures across a diverse mix

of assets including equities, bonds and commodities. The GAA Strategies are long-only, so the portfolios will hold no net short

positions at any time. For some derivatives, it is possible to lose more than the amount invested in the derivative. If the portfolios

use derivatives to "hedge" a portfolio risk, it is possible that the hedge may not succeed. This may happen for various reasons,

including unexpected changes in the value of the rest of the portfolios. Over the counter derivatives are also subject to

counterparty risk, which is the risk that the other party to the contract will not fulfill its contractual obligation to complete the

transaction.

Leverage Risk

The GAA Strategies employ leverage as a fundamental element within the investment strategies. The implementation of a risk

parity strategy requires the use of leverage in order to increase the risk of the government bond allocation in the strategy so that it

can be balanced against the portfolio’s exposure to stocks and commodities. The use of derivatives facilitates the ability to create

the desired level of leverage in the portfolio. Leverage may cause the portfolio to be more volatile than if the portfolio had not

been leveraged because leverage can exaggerate the effect of any increase or decrease in the value of securities held by the

portfolio.


15,086 – 10/13

15,086 – 10/13

Lee Partridge

CIO

Salient Partners

Disclosures

The opinions expressed in these materials represent the personal views of Salient’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 fluctuation and change. Consequently, it must be noted that no one can accurately predict the

future of the market with certainty or guarantee future investment performance.

This presentation contains “forward-looking statements.” Forward-looking statements can be identified by the words “may,” “will,” “intend,” “expect,” “estimate,”

“continue,” “plan,” “anticipate,” “could,” “should” and similar terms and the negative of such terms. By their nature, all forward-looking statements involve risks

and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially

affect actual results are the performance of the portfolio securities, the conditions in the U.S. and international financial, markets, and other factors. Actual

results could differ materially from those projected or assumed in our forward-looking statements.

This publication is provided for informational and discussion purposes only and was not issued in connection with any proposed offering of securities. It was

provided without regard to the specific investment objectives, financial situation or particular needs of any specific recipient and does not contain investment

recommendations. This publication is also designed to provide general information about economics, asset classes and strategies. All sector and asset

allocation recommendations must be considered in the context of an individual investor’s goals, time horizon and risk tolerance. Not all asset classes and

strategies will be suitable for all investors.

The information in this publication was obtained from sources believed to be accurate, but we do not guarantee that it is accurate or complete. Salient Partners,

L.P., and affiliates do not provide tax or legal advice. Please contact your legal and or tax professional to determine how the information contained in this

publication may apply to your situation. This information is for United States residents only. Past performance is no guarantee of future results.

Research and advisory services are provided by Salient Advisors, L.P., a wholly owned subsidiary of Salient Partners, L.P. Salient Advisors, L.P., is a Securities

and Exchange Commission Registered Investment Adviser. Registration as an Investment Adviser does not imply any level of skill or training.

Salient is the trade name for Salient Partners, L.P., which together with its subsidiaries provides asset management and advisory services. Insurance products

offered through Salient Insurance Agency, LLC (Texas license #1736192). Trust services provided by Salient Trust Co., LTA. Securities offered through Salient

Capital, L.P., a registered broker-dealer and Member FINRA, SIPC. Each of Salient Insurance Agency, LLC, Salient Trust Co., LTA, and Salient Capital, L.P., is

a subsidiary of Salient Partners, L.P.

© 2013 Salient. All Rights Reserved.

For Investment Professional Use Only. Not for Further Distribution.

27

Salient Risk Parity Index vs. 60/40 Portfolio1

For illustrative purposes only. Note that an investor cannot invest directly into an Index. Past performance is no guarantee of future Index results.

The Salient Risk Parity Index has been retrospectively calculated by Salient Index Management, LLC, and did not exist prior to January 2012. Accordingly, the results shown during the retrospective periods do not reflect actual returns. Certain futures contracts and

credit default swap instruments comprising the underlying assets classes were not available from January 1990 to January 2012, during which period the Index was backtested. Futures contracts unavailable during this time were included in the underlying asset

classes as available. Credit default swaps comprising the Global Credit asset class were included beginning February 2009. Past performance is not necessarily indicative of how the Index will perform in the future. Performance of the Index does not reflect the

deduction of fees or expenses. The performance of any investment product based on the Salient Risk Parity Index would have been lower than the Index as the result of fees and/or costs. Note that an investor cannot invest directly in the Index. The Salient Risk

Parity Index represents hypothetical performance since the Index does not reflect any particular investment program and may, therefore, have certain inherent limitations, some of which are described below. Since this is Index performance, it does not represent

the performance of any investment account or the results of actual trading, and no representation is being made that any account using the Index as a benchmark will experience performance similar to the Index’s performance. In fact, it is not uncommon for

investment programs targeting a particular index to have performance that diverges materially from the performance of the relevant index. In addition, hypothetical performance does not involve financial risk, and no hypothetical performance record can completely

account for the impact of financial risk that exists in an investment program that is actually trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect

actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can

adversely affect actual trading results.

Source: Bloomberg, Salient Index Management, LLC. Data from January 1990 to September 30, 2013. 1 The 60/40 Index represents an allocation of 60% MSCI AC World Index Total Return, 40% Barclays Aggregate Bond Index.

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

(40%)

(35%)

(30%)

(25%)

(20%)

(15%)

(10%)

(5%)

0.00%

Gro

wth

of

$1

D

raw

do

wn

Year

$1

$1

$2

$4

$8

$16

60/40

Salient Risk Parity Index


Salient Risk Parity Index – Largest Drawdowns

For illustrative purposes only. Note that an investor cannot invest directly into an Index. Past performance is no guarantee of future Index results.

Please note that the returns presented here are the result of a hypothetical investment framework. Backtested performance is NOT an indicator of future actual results and do the results above do NOT represent returns that any investor actually attained.

Backtested results are calculated by the retroactive application of a model constructed on the basis of historical data and based on assumptions integral to the model which may or may not be testable and are subject to losses. The Salient Risk Parity Index has

been retrospectively calculated by Salient Index Management, LLC, and did not exist prior to January 2012. Accordingly, the results shown during the retrospective periods do not reflect actual returns. Certain futures contracts and credit default swap instruments

comprising the underlying assets classes were not available from January 1990 to January 2012, during which period the Index was backtested. Futures contracts unavailable during this time were included in the underlying asset classes as available. Credit

default swaps comprising the Global Credit asset class were included beginning February 2009. Performance of the Index does not reflect the deduction of fees or expenses. The performance of any investment product based on the Salient Risk Parity Index

would have been lower than the Index as the result of fees and/or costs. Note that an investor cannot invest directly in the Index. The Salient Risk Parity Index represents hypothetical performance since the Index does not reflect any particular investment

program and may, therefore, have certain inherent limitations, some of which are described below. Since this is Index performance, it does not represent the performance of any investment account or the results of actual trading, and no representation is being

made that any account using the Index as a benchmark will experience performance similar to the Index’s performance. In fact, it is not uncommon for investment programs targeting a particular index to have performance that diverges materially from the

performance of the relevant index. In addition, hypothetical performance does not involve financial risk, and no hypothetical performance record can completely account for the impact of financial risk that exists in an investment program that is actually

trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general

or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Source: Salient Index Management, LLC, as of October 2013. Please see www.salientindices.com for further information.

-30%

-20%

-10%

0%

10%

20%

30%

Month 0 Month 2 Month 4 Month 6 Month 8 Month10

Month12

Month14

Month16

Month18

Month20

Month22

Month24

Month26

Month28

Month30

Drawdown 2008

Drawdown 2001

Drawdown 1994

Drawdown 1990

Drawdown 1997

Current Drawdown

Time

Retu

rn (

%)


Notional Exposures of Sample Risk Parity Portfolio

For illustrative purposes only. Note that an investor cannot invest directly into an Index. Past performance is not indicative of future results.

The results shown during the retrospective periods do not reflect actual returns. Performance of the Sample Risk Parity Portfolio does not reflect the deduction of fees or expenses and thus, the performance of any investment product based on the Sample Risk

Parity Portfolio would have been lower as the result of fees and/or costs. The Sample Risk Parity Portfolio represents hypothetical performance and does not reflect any particular investment program and may, therefore, have certain inherent limitations, some

of which are described below. Since this is hypothetical performance, it does not represent the performance of any investment account or the results of actual trading. In addition, hypothetical performance does not involve financial risk, and no hypothetical

performance record can completely account for the impact of financial risk that exists in an investment program that is actually trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material

points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical

performance results and all of which can adversely affect actual trading results.

Source: Salient Advisors, L.P., as of October 2013.

Equities: Capitalization-weighted returns from the NYSE, Amex, and NASDAQ accessed from CRSP. Rates: 10-year U.S. Treasury Bond returns, as accessed from CRSP. Commodities: Returns of the Continuous Commodity Index as accessed via

Bloomberg.

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Commodities

Rates

Equities

Date

No

tio

na

l E

xp

os

ure

(%

)

The Sample Risk Parity Portfolio consists of Equities, Rates and Commodities run at a 10%

volatility level, with each asset class contributing one third of the risk to the portfolio.




Parity Portfolio would have been lower as the result of fees and/or costs. The Sample Risk Parity Portfolio represents hypothetical performance and does not reflect any particular investment program and may, therefore, have certain inherent limitations, some of

which are described below. Since this is hypothetical performance, it does not represent the performance of any investment account or the results of actual trading. In addition, hypothetical performance does not involve financial risk, and no hypothetical




Source: Salient Advisors, L.P., October 2013.

Equities: Capitalization-weighted returns from the NYSE, Amex, and NASDAQ accessed from CRSP. Rates: 10-year U.S. Treasury Bond returns, as accessed from CRSP. Commodities: Returns of the Continuous Commodity Index as accessed via

Bloomberg.

Asset Class Correlations

Date

36

Mo

nth

Ro

llin

g C

orr

ela

tio

n

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1963 1966 1968 1970 1972 1974 1976 1979 1981 1983 1985 1987 1989 1992 1994 1996 1998 2000 2002 2005 2007 2009 2011

Correlation (Equities,Rates)

Correlation (Equities,Commodities)

Correlation (Rates,Commodities)

Rolling 36-Month Correlations Between Asset Classes of the Sample Risk Parity Portfolio


Cumulative Return:

Sample Risk Parity Portfolio vs. 60/40



Parity Portfolio would have been lower as the result of fees and/or costs. The Sample Risk Parity Portfolio represents hypothetical performance and does not reflect any particular investment program and may, therefore, have certain inherent limitations, some of

which are described below. Since this is hypothetical performance, it does not represent the performance of any investment account or the results of actual trading. In addition, hypothetical performance does not involve financial risk, and no hypothetical




Source: Salient Advisors, L.P., October 2013.

60/40 Portfolio - 60% MSCI World Index & 40% Barclays Aggregate Bond Index.

Methodology for Creation of Risk Parity Portfolio - Starting in January 1971 (using data from January 1969-December 1970), we calculate the covariance of the assets based on rolling 24-month observations and solve for portfolio weights that would lead to

equal estimates of risk for each asset and estimated total portfolio volatility of 10%. Risk contributions are re-calculated monthly, after which the portfolio is rebalanced.

Methodology for Creation of Counterfactual Risk Parity Portfolio - All data and portfolio construction methodologies are consistent with the creation of the standard risk parity portfolios. Counterfactual bond yields are generated by subtracting 4.64% from the

historical yields from January 1971-December 1981. Counterfactual bond returns are then generated for on-the-run bonds issued at par with coupons equal to the counterfactual yield. Counterfactual price returns are calculated using changes in the

counterfactual yield, while coupon returns accrue based on the level of counterfactual yield.

$-

$1

$2

$3

$4

$5

$6

$7

Dec-70 Dec-71 Dec-72 Dec-73 Dec-74 Dec-75 Dec-76 Dec-77 Dec-78 Dec-79 Dec-80 Dec-81 Dec-82 Dec-83 Dec-84 Dec-85

Risk Parity

Risk Parity Counterfactual

60/40

60/40 Counterfactual

Date

US

Do

lla

rs


Q&A Session

Kip McDaniel

Editor-in-Chief

aiCIO

Jim Haskel

Sr. Portfolio

Strategist

Bridgewater

Lee Partridge

CIO

Salient Partners

Scott Wolle, CFA

CIO

Invesco Global

Asset Allocation

Sponsored By

Additional Questions

Salient Partners 4265 San Felipe, 8th Floor

Houston, TX 77027

Phone: 713.993.4675

salientpartners.com

Invesco Two Peachtree Pointe

1555 Peachtree Street, NE

Atlanta, GA 30309

Phone: 800.241.5477

invesco.com/dc

Bridgewater Associates One Glendinning Place

Westport, CT 06880

Phone: 203.226.3030

bwater.com

Risk Parity: The Interrogation -...

Documents

Transcript of Risk Parity: The Interrogation -...