UBS Institutional Consulting

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1 ab UBS Institutional Consulting A strategic approach for institutional investors

2 UBS Institutional Consulting provides the vast resources of a global financial services leader with hands-on guidance from your own local dedicated consulting team

3 Our Consulting Process Today s institutional investors face new challenges in investment management. To meet your strategic goals, be it creating or revising an investment policy statement, managing risk/return objectives, changing your asset allocation or evaluating investment managers, you must sort through an unprecedented number of investment products and strategies. Structuring and maintaining an optimal investment program is an on-going concern. Our experienced Institutional Consultants understand the issues facing institutions and are committed to finding customized solutions that address your objectives and goals. We bring all of the extensive resources, expertise, services and strategies that UBS has to offer to our clients. We are committed to combining our experience, knowledge and energy to provide customized solutions that address your objectives and goals. UBS Institutional Consulting concentrates on the four primary investment management needs of institutional investors: Investment Policy Planning Assistance Asset Allocation Modeling Manager Search, Identification and Recommendation Ongoing Consulting and Performance Measurement UBS Institutional Consulting Process Assess Current Situation Risk/Reward Profile Assistance with Investment Policy Development and Review Investment Policy Planning Assistance Asset Allocation Modeling Asset Allocation Analysis Overall Portfolio Design Institutional Consulting Clients Portfolio and Manager Reviews Portfolio Rebalancing Develop Further Action Plans as Needed Committee Education Ongoing Consulting and Performance Measurement Manager Search, Identification and Recommendation Investment Manager and Mutual Fund Search, Evaluation and Recommendation Strategy Integration Cost Analysis 1

4 UBS Institutional Consulting UBS Institutional Consulting provides advisory services and has been serving the investment consulting needs of institutional investors since Our institutional clients include corporations, private and public retirement plans, Taft-Hartley plans, municipalities, foundations and endowments. UBS Institutional Consulting consists of a select group of consultants who serve institutional clients from locations around the country. Because of the unique and often complicated investment needs of the institutional investor, our Institutional Consultants must satisfy certain educational and experience requirements before they can provide Institutional Consulting services. In addition, Institutional Consultants are required to maintain the designation of Certified Investment Management Analyst (CIMA ) or Chartered Financial Analyst (CFA ). Our Consultants differentiate themselves through an unwavering dedication to client service and success in the development of long-term relationships with their clients. We combine the advantages of an attentive boutique structure with the vast resources of a leading global financial firm. Institutional Consultants take a disciplined approach to pursuing your investment objectives. Our Consultants have significant experience in helping to understand the needs and objectives of each client. Our ability to convert this understanding into a customized investment plan enables our clients to effectively pursue their goals. In addition to the high level of service provided by your Consultant, each is supported by the firm s investment research professionals who are specialists in a variety of areas. 2

5 Investment Policy Planning Assistance Your Institutional Consultant can assist you in the development of a written investment policy statement. It is important that the investment policy statement provide clear and comprehensive guidelines. The investment policy should specify goals and objectives, and detail the acceptable investment vehicles that may be used to pursue your goals. The investment policy also provides a means for effective internal and external communication of the investment goals. A written investment policy statement can be an invaluable guide to disciplined, systematic decision making. At its basic level, an investment policy statement provides specific definitions of investment goals, objectives, risk tolerance and any appropriate time horizon. It also defines asset allocation parameters and acceptable investments, and specifies rebalancing strategies. It can also establish appropriate indexes and/or peer groups to be used as benchmarks in evaluating investment performance. Without this guidance, it is difficult to analyze performance or identify which investment managers should be hired to pursue your needs. A clearly defined investment policy is an important part of a well-executed investment plan. The starting point for developing an investment policy statement is the risk profile. In order to build a profile of your return and risk requirements, your Consultant will discuss thoroughly with you your required return, your needed liquidity levels, and your expectations with respect to returns. As part of the consulting process, you may be asked to answer a series of questions to gauge your risk tolerance level. You may also be asked to choose from hypothetical portfolios, each with different risk and return characteristics. After analyzing this information, we can determine potential asset mixes suitable for your objectives and risk comfort level. 3

6 Asset Allocation Modeling UBS Institutional Consulting takes a strategic approach to asset allocation. We combine the power of portfolio optimization technology and the knowledge and experience of the firm s senior investment professionals and researchers with the hands-on guidance of your experienced Institutional Consultant. Our asset allocation process is consistent with modern portfolio theory and is based on mean-variance optimization models. These models are fine-tuned to reflect long-term assumptions regarding capital markets and the economy, as well as new developments in asset allocation technology and academic research. Our approach begins with the identification of major assets classes, which may include alternative investments such as hedge funds, private equity, real estate and managed futures. For each of these asset classes, capital market assumptions the expected risk, return and correlation are determined. We view asset classes not only by their specific characteristics, but also by their potential effect upon the total portfolio. The relative risk/return characteristics of each asset class are analyzed, as well as the correlation between them. This is important in attempting to reduce total portfolio volatility, the key to more stable investment results. UBS has developed an industry-leading assumptions development process designed to accommodate both traditional and alternative asset classes in an integrated and consistent manner. Over time, portfolio allocations will shift from their targets due to varying performance by different asset classes. We will work with you to rebalance the portfolio. When UBS updates its capital market assumptions, this may also necessitate revisiting your target portfolio weightings in order to enhance results and minimize risk. 4

7 Manager Search, Identification and Recommendation After developing guidelines and objectives with you, your Institutional Consultant can begin to evaluate current managers. A screening process involving both qualitative and quantitative measures is used to objectively identify the most suitable manager candidates. We evaluate managers against their benchmarks and peers and use a variety of statistics to evaluate style purity and risk profile. The end result is a portfolio of complementary managers who enable the client to manage investment goals with appropriate risk. The manager search process is a collaborative effort between UBS research professionals and your Institutional Consultant. The UBS proprietary database used by your Institutional Consultant to conduct a manager search is generated by the Manager Research Group of Investment Solutions. Manager Research uses a proprietary, multi-step process to screen prospective managers. It is a carefully crafted and disciplined process focused on selecting appropriate managers to fulfill specific investment mandates. Manager Research considers 50 different criteria in every search. An integral part of the investment manager selection process is the due diligence effort. The managers selected by Manager Research must pass certain due diligence standards. Once accepted into our database, managers must continue to meet these criteria to remain in good standing. Independent manager databases are also subscribed to which provide information on thousands of investment strategies. The data collected spans from basic, firm-level information to detailed, product-specific information, and tracks dozens of manager characteristics. Your Institutional Consultant screens the appropriate asset classes, including alternative investments, for manager candidates that meet performance requirements outlined in your investment policy statement. Your Consultant will utilize multiple quantitative metrics such as peer ranking, manager tenure and asset size. The remaining universe of managers will then be reviewed using qualitative screens such as quality of organization and personnel, repeatable investment process, sound investment philosophy, disciplined buy and sell decisions, risk management and objectivity. 5

8 Ongoing Consulting and Performance Measurement Performance measurement is critical to overseeing and adjusting your investment strategy. Considerable value is gained by reviewing performance on a regular basis. Our Institutional Consultants use their knowledge of the global capital markets, investment sectors and the styles of the investment managers to analyze performance. Backed by technology and resources, your Institutional Consultant can employ wellknown analytical systems to help analyze investment performance. Benchmarks may be customized in order to select the most appropriate reference vehicles against which the specific investments will be measured. You will receive a Quarterly Performance Report that analyzes the performance of both the total portfolio and each investment manager s segment. This report contains detailed graphical and statistical data regarding performance. Where applicable, the report provides: A summary of assets at the beginning and end of the reporting period, including any additions or withdrawals, and industry standard time-weighted rates of return. A graphic and tabular representation of investment performance that may include comparisons to appropriate market indexes, inflation and your stated goals, as well as comparisons to a universe of similarly managed portfolios, market cycle comparisons, performance attribution and risk and return analysis. Your Institutional Consultant will help you objectively evaluate each manager s investment results on both an absolute and a relative basis. Together, you can evaluate the total performance of your investments and any factors that may require an adjustment to your investment strategy. Should a change of manager be warranted, your Institutional Consultant can assist you in conducting a new manager search. 6

9 Comprehensive Consulting Services UBS Institutional Consulting offers comprehensive consulting services designed to meet the needs of a wide range of institutional clients. Committee Education Consulting to any organization is not just about managing assets. It is also about educating the various groups associated with the organization. Our Institutional Consultants are available for staff training and board meetings. Every meeting is an opportunity to provide board members with ongoing development opportunities on a wide variety of topics relating to investment management, asset allocation, and capital market updates. We provide a continuous stream of current global and domestic research, as well as in-depth analysis of both the capital markets and global trends based on information from UBS Wealth Management Research or other UBS affiliates. Additional Services Institutional Consultants may provide the following additional consulting services: Assistance in Foundation and Endowment Spending Policy Formulation/Review Performance Attribution Analysis of Existing Portfolio Structure Asset/Liability Analysis Identification of Custodial Services 401(k) Services: Employee Education and Communication Assistance in Fund Identification Fund Performance Monitoring Identification of Third-party Administrators or Record Keepers While we do not provide tax or legal advice, we can coordinate our services with other firms you may have retained to provide administrative, legal and/or accounting support, in order to help you oversee your investments more efficiently and effectively. 7

10 About UBS UBS AG is the world s largest wealth manager a global financial services firm with presence in 50 countries. It serves a diverse client base that includes affluent individuals, corporations, institutions and governments. As an integrated firm, UBS creates added value for clients by drawing on the combined resources and expertise of all its businesses. Named World s Largest Wealth Manager by Scorpio Partnership in June 2007; Best at Relationship Management by Euromoney in January 2007; Best Provider of Equities and Fixed Income Portfolio Management by Euromoney in January 2007; Best provider of Hedge Fund Investments by Euromoney in January 2007; and Best Global Private Bank by Euromoney in January With headquarters in Zurich and Basel, Switzerland, UBS has significant operations in all of the world s major financial centers. Its shares are listed on the Swiss Stock Exchange (SWX), the New York Stock Exchange (NYSE) and the Tokyo Stock Exchange (TSE). Wealth management services in the United States are provided by UBS Financial Services Inc., a registered broker-dealer offering securities, trading, brokerage and related products and services. It is important that you understand the ways in which we conduct business and the applicable laws and regulations that govern us. As a firm providing wealth management services to clients in the U.S., we are registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Though there are similarities among these services, the investment advisory programs and brokerage accounts we offer are separate and distinct, differ in material ways and are governed by different laws and separate contracts. It is important that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. While we strive to ensure the nature of our services is clear in the materials we publish, if at any time you seek clarification on the nature of your accounts or the services you receive, please speak with your Institutional Consultant. For more information, please visit our website at UBS Institutional Consulting Services are advisory services and clients should read the ADV Disclosure Document applicable to UBS Institutional Consulting carefully before entering into a Consulting Services Agreement with UBS Institutional Consulting. 8

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12 2008 UBS Financial Services Inc. All Rights Reserved. Member SIPC. CFA and Chartered Financial Analyst are trademarks owned by the CFA Institute. CIMA is a registered certification mark of the Investment Management Consultants Association, Inc. in the United States of America and worldwide. ab UBS Financial Services Inc I270 UBS Financial Services Inc. is a subsidiary of UBS AG.