Investment Management Services
Prepared by:
John W. D. Nicholson,
National Bank Private Wealth 1859
Request for Proposals: Investment Advisory and management Services
TABLE OF CONTENTS
1.
DESCRIPTION OF THE COMPANY
A. Basic information
B. Private Wealth 1859 integrated offering
2.
MANAGEMENT STYLE
A. Overall approach
B. Specific points concerning our management style
C. Non-Traditional Investments
D. Other risk control measures
E. Internal and external research
3.
ADDITIONAL INFORMATION
A. Communication
B. Management fees
C. Management policy on voting rights
4.
CONCLUSION
1. DESCRIPTION OF THE COMPANY
A. BASIC INFORMATION
NATIONAL BANK FINANCIAL GROUP
National Bank Financial Group provides a full range of financial services to consumers,
small and medium-sized enterprises and large corporations. The Financial Group operates
in three sectors of activity – Personal and Commercial Banking, Wealth Management and
Financial Markets – with assets of more than $145 billion as at December 31, 2010. The
Financial Group, which relies on a team of more than 18,322 employees, offers a full
range of services, particularly banking and investment solutions for individual clients and
large corporations, securities brokerage, insurance, wealth management, mutual fund
management and pension plans.
National Bank Financial Group is the sixth largest bank in Canada, with branches in most
provinces across the country. Its clients in the United States, Europe and elsewhere in
the world are served by a network of representative offices, subsidiaries and alliances.
Founded in 1859, National Bank celebrated its 150th anniversary in 2009. Its securities
are listed on the Toronto Stock Exchange. Its head office is in Montreal.
OUR PRIVATE INVESTMENT MANAGEMENT SERVICE
In 1972, our Private Investment Management service initially oriented its activities to
meet the needs of individuals, holding companies, estates and religious communities.
For the past 17 years, pension plans have also been able to call on our services. Since
the beginning, the cornerstone of Private Investment Management has been establishing
a long-term business relationship with clients by offering them high-quality
communication-oriented service to help them understand investment strategies.
2
PRIVATE WEALTH 1859
In 1859, a group of seven Canadian business people united to meet their unique banking
needs. Together, they founded an institution called National Bank.
A century and a half and generations of clients later, National Bank has created a new
business unit imbued with the sense of customer service that has inspired the Bank since
its very beginnings, known as National Bank Private Wealth 1859.
This new business unit is intended to provide unparalleled financial services to wealthy
individuals and their families as well as corporations and foundations. The mission of
Private Wealth 1859 is to provide clients with complete, made-to-measure financial
solutions, an integrated suite of management options and highly personalized, effective
and confidential services.
Private Wealth 1859 is a team of more than 125 professionals working closely with more
than 3,000 advisors in the Bank's branch network and its full-service brokerage arm,
National Bank Financial.
B. PRIVATE WEALTH 1859 INTEGRATED OFFERING
We are particularly proud of our service offering, but we understand that, very often, the
difference is in the way and the manner. For each portion of our offering, we call on
highly specialized professional who take their role very seriously.
3
CLIENT SERVICES
The relationship between you and your Principal Advisor is at the very heart of Private
Wealth 1859’s business model. The Principal Advisor is a generalist with the training and
experience to fully understand and apply all the various disciplines of a comprehensive
wealth management offering.
PORTFOLIO MANAGEMENT
The goal of our methodology is to grow your capital over the long term while minimizing
your portfolio’s volatility. In terms of portfolio management, we favour a delegated
approach built on the expertise, experience and independence of professional managers.
The result is complete diversification of your portfolio by sector, asset class, country,
region and management style.








Defining your investor profile: investment horizon and risk tolerance
Drafting an investment policy statement: clear rules of engagement
Choosing internal and external portfolio managers
Determining optimum combinations of asset classes, sectors and regions
Combining management styles: value, growth and other
Applying strategic and tactical management: risk-return balance and adjustments
according to market events
Optimizing investment choices from a tax standpoint
Monitoring and adjusting on an ongoing basis
OTHER SERVICES
When you do business with Private Wealth 1859, you also have access to our specialized
experts in financial planning (finances, tax planning, legal considerations, investments,
insurance and estate planning) as well as agreements with some of the country's most
prestigious accounting and law firms for complex situations that may require planning a
tax decision or seeking advice on cross-border issues.
2. MANAGEMENT STYLE
A. OVERALL APPROACH
We believe that management style and investment philosophy are the most important
aspects for clients to consider when choosing a manager. We place a great deal of
4
importance on preservation of capital and the fact that our investment decisions are
based on fundamental analysis. Naturally, like many investment and pension fund
managers, we are also concerned with relative short-term returns, but not at any price.
This means that our priority is designing and implementing an investment strategy that
not only matches your investment objectives and return criteria, but also allows you to
be comfortable at all times. Our practical, mid-sized decision-making structure gives us
the flexibility to achieve this state of comfort.
We offer a multi-management platform designed to adapt discretionary management to
clients' needs. This approach brings together our internal partner and outside portfolio
managers with a view to optimizing portfolios. We oversee and monitor how the
management styles and parameters initially established are followed. Our platform
consists of nine portfolio managers, including eight who are outside National Bank
Financial Group.
We have also developed an analysis system for risk measures and correlations between
the various styles of our managers that allows us to determine the optimal allocation of
mandates between the managers. This maximizes the potential returns while minimizing
volatility, based on the objectives and characteristics of each of our clients.
We will therefore be pleased to work closely with you to optimize the allocation among
our managers. The effective combination of internal and external managers allows us to
achieve the target personalized asset allocation for each of our clients.
EXTERNAL MANAGERS
The managers who are mandated to select securities for the various asset classes are
chosen and monitored by the team of Private Wealth 1859 portfolio managers, supported
by the National Bank Financial Group Investment Committee (made up of members of
management of National Bank Wealth Management). External consultant firms Aon and
Mercer also take part in the process. All managers are selected based on a well-defined
management style with a view to obtaining complementary styles.
Selected managers meet specific criteria concerning company organization and strategic
orientation, experience and stability of key employees, the investment process and the
soundness of the approach, performance and risk management.
Factors that can lead to the termination of an association with managers include
structural changes to the organization, shortcomings in the investment process or a
change in the investment philosophy. Chronic under-performance will also trigger a
change in managers.
5
We can help you choose from some of the best managers in North America and the topperforming mandates. Should a manager fail to meet our expectations, we can make a
change without any conflict of interest.
B. SPECIFIC POINTS CONCERNING OUR MANAGEMENT STYLE
PRIVATE WEALTH 1859
The Private Wealth 1859 management team uses an approach that favours capital
preservation. The team seeks sustained returns with a low level of volatility, even for
growth-oriented portfolios. The discipline used for this approach has borne itself out:
Over the past 10 years, our managers' portfolios have generated returns that compare
favourably to their benchmarks.
Our Private Wealth 1859 managers are attuned to markets and in charge of strategically
positioning portfolios. Base scenarios and perspectives are reviewed quarterly, while
weekly meetings ensure thorough and close follow-up regarding developments on the
6
economic scene and in capital markets. Portfolios are constantly monitored and aligned
with the investment policy and strategy. Securities selection is delegated to our external
managers, who are experts in their respective asset classes.
C. NON-TRADITIONAL INVESTMENTS
Institutional Investors had historically invested in equities to pursue growth and fixed
income securities to help offset market volatility. We believe that this strategy is less
effective in the current context of low interest rates. Bonds may no longer provide
sufficient returns to offset the increased volatility of the equity markets.
The above chart tracks the number of days when S&P 500 daily volatility was greater
than 3%. From 1950 to 1999, the market registered only 75 days on which such high
levels of volatility were recorded. In the 12 year period since 2,000 alone, we have
already witnessed 126 days of such market volatility.
On the fixed income side, record low interest rates have resulted in a scenario in which
bond prices offer two possible scenarios: remain stagnant, or begin rising. The former,
results in no observable hedge against the increased volatility of the equity markets, and
the latter results in falling values in fixed income portfolios with virtually no correlation
positive or negative to the equity markets.
7
The question becomes; how does the prudent investor prepare for the inevitable rise in
interest rates (and corresponding fall in bond prices) and properly diversify their portfolio
against the increased volatility in the equity markets?
Non-Traditional Investments offer investors the opportunity to replace a portion of their
fixed income and equity portfolios with an asset class which provides low or negative
correlation to the movements of interest rates. As a result, the addition of these
securities lowers portfolio volatility overall, provides income, and increases long-term
returns.
70% Traditional / 30%
Alternative
(50/30/20)
100% Traditional
(60/40)
The above chart demonstrates how a portfolio of 70% traditional investments and 30%
alternative investments provides lower volatility and the potential for higher returns.
8
Non-Traditional Investments includes private equity, infrastructure (toll highways and
bridges), active bond management, and use of derivatives in a strictly defensive manner.
Through its Style Diversified Multi-Manager Platform, Private Wealth 1859 offers clients
access to some of the worlds most accomplished managers in this field, including,
Pimco, Fierra Capital, Casgrain, Tobam, and Lazard.
D. OTHER RISK CONTROL MEASURES
Research has shown that asset allocation is responsible for 95% of portfolio volatility. We
can first validate the soundness and relevance of your investment policy statement. The
asset allocation proposed to you will maximize returns according to your level of risk
tolerance.
We will devote a great deal of time with you to advise you and guide you in establishing
your optimal asset allocation. Our clients greatly appreciate our expertise in this area.
E. INTERNAL AND EXTERNAL RESEARCH
Private Wealth 1859 is supported by a large team of analysts, economists and
researchers.
National Bank Financial employs close to 50 professional researchers in a variety of
sectors of activity. Our team of analysts has been named one of the two best in Canada
for the quality of our research the past five years by Brendan Wood International, a
major consulting firm.
We have also worked with independent firm Argus Research and Credit Suisse First
Boston (CSFB) for its U.S. and international research for many years. CSFB is recognized
for the excellence of its research and is consistently ranked among the top three firms in
the United States. Lastly, we have access to research produced by all managers who
have been assigned a management mandate by the Financial Group. This lengthy list
includes the largest U.S. and European corporate banks.
ADDITIONAL INFORMATION
A. COMMUNICATION
The quality of our highly personalized service is one of the main things that sets us apart
from the competition. As soon as our relationship begins, we make it a point of honour to
adapt our service to our clients' needs by:
9

presenting results to investment committee members on a quarterly
basis

providing monthly telephone updates to key organization members

completing all administrative tasks related to managing the portfolio (e.
g., deposits and withdrawals)

providing a full range of reports (e. g., returns, portfolio assessment,
treasury projection).
From the beginning of the relationship with each of our institutional clients, we establish
a service level agreement specifying how often meetings will be scheduled and what will
be discussed. Regular summaries are provided in the form of monthly and quarterly
portfolio statements.
The asset class allocation and each position are examined and if necessary corrected
every day by our Private Wealth team. The allocation between internal and external
managers is examined on a quarterly basis.
We regularly present our analysis so that you understand our process and can assess
how well we are carrying it out. We assume responsibility for results and are pleased to
submit our progress in achieving objectives based on the management parameters to
regular evaluations.
B. MANAGEMENT FEES
Our personalized approach also aims to offer all our clients a suitable pricing structure
that is highly competitive for their specific needs. We establish a single overall pricing for
all assets that will be personalized based on:
-
the level of service required
the allocation of assets in the overall portfolio
the involvement of outside managers
Our fee structure encompasses all transaction (brokerage) fees as well as securities
custody fees, internal and external management fees, administration, advice and service
charges. In short, no other fees will be charged. We offer a regressive pricing structure
based on your assets under management with us.
10
C. MANAGEMENT POLICY ON VOTING RIGHTS
Private Wealth 1859 delegates proxy voting rights to the managers of the various asset
classes. These managers serve as trustees and must act in the best interest of their
clients. All managers are required to adopt a proxy voting rights policy.
4. CONCLUSION
Our dedicated team of experts, personalized service, integrated global offering and
competitive pricing structure allow us to provide you with a service offering that is
specifically tailored to your needs.
We will be very pleased to work together with you.
You can count on us.
Because we keep the promises we make
National Bank Financial may act as financial advisor, fiscal agent or underwriter for certain companies
mentioned herein and may receive compensation for its services. National Bank Financial and/or its officers,
directors, representatives or associates may have a position in the securities mentioned herein and may make
purchases and/or sales of these securities from time to time in the open market or otherwise. The particulars
contained herein come from sources deemed to be reliable but are not guaranteed by us and may be
incomplete. The securities and investment sectors mentioned in this document are not necessarily suitable to all
types of investors. Please consult your principal advisor to verify if the securities or sectors are suited to your
investor profile and for full information, including the main risk factors, on these securities or sectors. The
securities are not guaranteed; their values change frequently, and past returns may not be repeated. This
solution entails management fees. The opinions expressed are those of John Nicholson, investment advisor,
and not National Bank Financial. National Bank Private Wealth 1859 is a trademark used under license by
National Bank of Canada and National Bank Financial. National Bank Financial is an indirect wholly owned
subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock
Exchange (NA:TSX)
11