SVB Asset Management Economic Report Q3 2016

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Q3 Quarterly Economic Report 2016

SVB Asset Management | Quarterly Economic Report Q3 2016 1016-0087GUEXP0217

Table of Contents

2

Thoughts from the desk 3

Overview 4

Domestic economy 6

U.S. Federal Reserve and monetary policy 12

Markets and performance 16

Global economy 21

Portfolio management strategy 26


Thoughts from the desk Nine and fifteen. As we head into the last quarter of 2016, these two numbers especially resonate on the Desk. They illustrate the current state of global easy money. Nine years represents the shortest French Treasuries offering non-negative yields while fifteen-year commitments in Japanese and German sovereign obligations is the turning point to produce positive returns when held to maturity -- barring any tail risk events to their respective regions.

Interest rates in the U.S. vastly differ from the aforementioned markets as Fed rhetoric turned bullishly hawkish, despite passing on two opportunities to re-normalize monetary policy during the third quarter. While economic data points towards continual growth and strengthening of economic activities, especially in labor markets, the Fed stuck to its data dependent stance. At its latest committee meeting the Fed commented, “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” With the presidential general election in close proximity to the Fed’s scheduled meeting in November, markets have keyed in on the December 14 meeting as the likely date for a quarter percentage point rate increase.

Supporting the Fed’s decision to remain on the sidelines during the quarter were familiar economic trends. First, Q2 GDP rose but at a modest 1.4 percent annualized rate even though personal consumption rebounded as sentiment turned more positive on the prospects of improvements in income. Second, although job growth in the private sector remains healthy at an average of 192k new jobs created per month for the trailing three months, this has not translated to meaningful wage growth. Lastly, core inflationary readings are trending towards the Fed’s two percent target but only on a pace to keep the federal funds rate unchanged.

As accommodative monetary policies continue to feed the appetite for risk related assets, geopolitical uncertainties, on the other hand, serve as catalysts for flights to quality. Subsequent to the rally in U.S. government securities resulting from Brexit, government yields traded at narrow ranges for much of the quarter while yields on short term credit instruments climbed steadily with a notable spike at quarter-end. The combination of money market fund reform (outflow of prime funds into government funds), compliance to new regulations by foreign banking organizations, and investor demand for high quality assets at quarter-end propelled commercial paper and repo rates.

In other investment grade sectors, total return performance favored 3-5 year corporates as low volatility stabilized price performance while they benefited from upsized income return. Notably, the 1-3 year ABS sector also performed well. Looking forward, should the Fed follow through on a rate hike in December, the risk/reward profile of low income generating securities, Treasuries, will be challenged to produce positive return.

While volatility was markedly lower in Q3 as compared to recent quarters, Q4 will likely be the return of event risk. Uncertainty surrounding the results of the U.S. presidential election, likely rate tightening by the Fed, divergent central bank policies, and nearing the trigger date of Article 50 by Britain are uncertainties the markets must weigh. As such, we believe a portfolio with a defensive duration posture, balanced allocation to corporate credits and tactical addition of government securities should help absorb event risk volatility.

3


Overview

!  Volatility subsided in the third quarter as the Federal Reserve refrained from raising interest rates at both policy meetings. With the initial shock of Brexit over, Treasury yields steadily reverted to levels seen earlier in the summer.

!  With economic data pointing towards greater strength in the labor markets, Fed officials conveyed a hawkish tone throughout the quarter temporarily increasing probabilities for a rate hike. Ultimately – at the September FOMC meeting – they acknowledged the case for a rate hike had strengthened but decided to wait for further evidence of continued progress towards its objectives.

!  Looking ahead, the Fed continues to stress a gradual approach to raising interest rates. As implied by the “Dot Plot”, the Fed projects one interest rate increase of 25 basis points for the remainder of 2016.

U.S. Federal Reserve and monetary policy

!  Q2 GDP rose by 1.4 percent. The third revision revealed stronger than originally estimated business spending on structures and equipment with a revision to +1 percent versus an initial reading of -0.9 percent.

!  Consumption expanded by a solid 4.3 percent, the strongest figure since the end of 2014. The muted pace of expansion in Q2 supported the case for the Fed to hold off on raising rates in the September FOMC meeting.

!  Q3 payrolls averaged 192,000 jobs and contributed to the Fed’s decision to hold off on a rate hike in the September FOMC.

!  Oil prices have rebounded from the low in February. In addition, at the end of September OPEC agreed to negotiate the first production cut in eight years, contributing to spike in prices at quarter end.

!  Wage growth ticked up toward quarter end and could contribute to future inflation pressures.

Domestic economy

4


Overview

!  Stability returned after the United Kingdom’s June decision to depart the European Union, as the immediate impact of the decision was limited to a weaker sterling and lower British interest rates.

!  A low interest rate environment persisted to start the second half of the year, with monetary easing policies continuing to prevail in major economies. Countries lowering benchmark interest rates include the UK, Australia, New Zealand, Iceland and Russia.

!  Emerging economies were mostly easing as well, with rate cuts seen in Argentina, Kenya, Malaysia and Uganda. Among the handful of countries tightening monetary policy were Mexico, Nigeria and Columbia.

!  Economic activity in Eurozone countries inches ahead, while the Nordic area remains steady in the face of low oil prices and high home prices. China trots ahead at a better than expected pace.

!  Emerging businesses continued to attract equity investments across the globe, though the pace was slower compared to the previous year.

Global economy

!  Fixed income total returns were solidly positive across the board in Q3 with investment grade and high yield leading the charge. At the sector level, Utilities/Energy outperformed as spreads tightened, largely due to a rebound in oil prices post-OPEC meeting.

!  Corporate credit fundamentals remain solid overall, particularly among larger and higher-quality companies, and credit metrics remained little-changed from the previous quarter across all sectors.

!  Global market trends have been supporting credit markets as investors search for alternatives to negative-yielding debt created by unconventional monetary policies abroad. Investment grade credit remains attractive as demand is robust and fundamentals are strong.

Markets and performance

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Domestic economy


GDP Steady

GDP and components

Source: Bureau of Economic Analysis (BEA), Congressional Budget Office (CBO) and SVB Asset Management. Data as of 09/30/2016. Note: GDP values shown in legend are % change vs. prior quarter, on an annualized basis.

!  Q2 GDP rose by 1.4 percent. The third revision revealed stronger than originally estimated business spending on structures and equipment with a revision to +1 percent versus an initial reading of -0.9 percent. Consumption expanded by a solid 4.3 percent, the strongest figure since the end of 2014.

!  The muted pace of expansion in Q2 supported the case for the Fed to hold off on raising rates in the September FOMC meeting.

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-3.0

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Personal consumption Gross private domestic investment Net exports Government GDP


Consumption Headwinds ahead Consumption overview

Consumer sentiment — University of Michigan Retail and food service sales

!  In Q2 the consumer rebounded with highs not seen since 2014. !  Personal savings decreased slightly to 5.7 percent, however the relatively

steady number hints that consumers continue to be cautious. !  Retail sales came in below expectations with purchases falling 0.3 percent

in August. The decrease signals that the consumer could slow down. !  Consumer sentiment increased for the first time at the end of the quarter

as Americans appeared more optimistic about incomes and continued low inflation.

Source: Bureau of Economic Analysis (BEA), Congressional Budget Office (CBO) and SVB Asset Management. Data as of 09/30/2016. Note: GDP values shown in legend are % change vs. prior quarter, on an annualized basis.

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Personal consumption (LHS) Personal savings (LHS) Household debt to disposable income ratio (RHS)

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Ex autos Vehicle sales


Employment Solid pace Labor force participation rate Employment landscape

Employment to population ratio !  The August payroll report of 167,000 contributed to the Fed’s decision to

hold off on a rate hike in the September FOMC. !  Despite the lower than forecasted August payroll report the 3-month

average for the quarter was 192,000 while the unemployment rate increased slightly to 5.0 percent due to an increase in the participation rate.

!  The labor force participation rate continues to hover around 62.8 percent which could potentially mean the unemployment rate bumps up if more people choose to participate in the labor market.

Source: U.S. Bureau of Labor and Statistics (BLS), SVB Asset Management, National Bureau of Economic Research (NBER). Data as of 10/07/2016. Note: The underemployment rate U-6 defined as persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate they want and are available for a job and have looked for work in the past 12 months.

9

-15.0

-10.0

-5.0

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15.0

-1,000.0

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Non-farm payroll (LHS) Unemployment rate (RHS) U-6 (RHS)

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62

63

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Labor force participation rate (LHS) Unemployment rate (RHS)

55 56 57 58 59 60 61 62 63 64


U.S. housing Firm footing Home prices — indexed to 100 Home sales and supply

Household formation Housing affordability

Source: Bloomberg and SVB Asset Management. Data as of 09/30/2016.

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Total sales (new & existing) Existing home supply

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Median home price FHFA purchase Case-Schiller 20 city

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Housing affordability 30 -year fixed mortgage rates


Inflation Needs momentum Crude oil and gasoline prices Core PCE — % change from prior year

Wage growth !  Core PCE continues to trend closer to the Fed’s two percent target,

however the Fed continues to consider the timing of the next rate hike. !  Oil prices have rebounded from the low in February. In addition, at the end

of September OPEC agreed to the first production cut in eight years, contributing to spike in prices at quarter end.

!  Wage growth ticked up toward quarter end and could contribute to future inflation pressures.

Source: Bloomberg and SVB Asset Management. Data as of 09/30/2016. Note: The underemployment rate U-6 defined as persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate they want and are available for a job and have looked for work in the past 12 months.

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Core PCE Fed target Monetary policy threshold

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Crude oil (LHS) Daily national average of gasoline prices (RHS)

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U.S. Federal Reserve and monetary policy


Q4 2015 Q1 2016 Q2 2016 Q3 2016

The Fed’s tone shifts at the October FOMC meeting, and markets refocus their attention on a December rate hike.

Despite strengthening employment and inflation in the U.S., the Fed refrains from a second rate hike during the quarter as global conditions continue to pose risks.

A recovery in oil and hawkish Fed-speak earlier in the quarter drives interest rates temporarily higher. The yield on the 2-year Treasury note hits 92 bps in May.

Subsequent to Brexit, Treasury yields experience a period of low volatility for much of the summer. Furthermore, we continue to see a flatter yield curve as evidenced by the tighter spread.

Employment and inflation readings head in the right direction. October’s report was the strongest of the year, and the unemployment rate fell to 5 percent. Core CPI reaches the important 2 percent level. Core PCE stands at 1.3 percent.

Central banks around the world implement additional easing measures with the BOJ adopting a negative interest rate policy, China cutting reserve requirements and the ECB expanding their asset purchase program into the corporate bond market.

A confluence of factors in June brings rates back down to H12015 levels. At center stage is Brexit which sent investors towards safe havens such as U.S. Treasuries. A disappointing employment report and a dovish tilt from the FOMC meeting also lowers probabilities for future rate hikes.

Solid employment reports and inflation readings drive hawkish comments from Fed members and temporarily increase probabilities for a rate hike. At the September FOMC meeting, they said the case for a rate hike has strengthened but decide to wait for further evidence of continued progress towards its objectives.

Continued weakness in China and depressed oil prices make headlines throughout the quarter.

After hitting recent lows, oil prices see some stabilization towards quarter-end as world leaders discuss a production freeze.

Markets are focused on broader implications of Brexit, while central banks such as the ECB and Fed stand ready to provide liquidity if needed.

Looking ahead, the Fed continues to stress a gradual approach to raising interest rates. The Fed’s median forecast projects one interest rate increase for the remainder of 2016.

Historical interest rates Relative calm

Source: Bloomberg and SVB Asset Management. Data as of September 29, 2016.

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0.0

0.2

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1.2

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2-year treasury yield 1-year treasury yield


2015 2016 2017 2018

Economic projections: United States

Change in real GDP 2.6% 1.8% 2.0% 2.0%

Unemployment rate 5.3% 4.8% 4.6% 4.5%

Core PCE inflation 1.4% 1.7% 1.8% 2.0%

Economic projections: Eurozone


CPI inflation 0.0% 0.2% 1.2% 1.6%

Unemployment rate 10.9% 10.1% 9.9% 9.6%

Economic projections: China

Change in real GDP 6.9%

CPI inflation 1.4%

Unemployment rate 4.1%

Economic projects: Japan


CPI inflation 0.8% 0.1% 1.7% 1.9%

Central bank economic projections Still accommodative

Source: Federal Reserve, European Central Bank, National People’s Congress of China, Bank of Japan. Data as of September 29, 2016. Forecasts are not available for all periods.

14


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Per

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Federal Reserve rate projections Very gradual

Source: Bloomberg and Federal Reserve. Data as of September 21, 2016. Percentages below the chart reference the median forecasted rate at the end of each period.

September 2016 median 0.375% 0.625% 1.125% 1.875% 2.625% 2.875%

June 2016 median 0.375% 0.875% 1.625% 2.375% – 3.00%

March 2016 median 0.375% 0.875% 1.875% 3.000% – 3.25%

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Markets and performance


Basic statistics Spread change Total return % Excess return %

Spread Yield Duration QTD YTD QTD YTD QTD YTD

1-3yr Treasuries 0.00 0.78 1.90 0.00 0.00 -0.11 1.33 0.00 0.00

1-3yr agencies 13.00 0.93 1.91 -1.00 4.00 0.03 1.31 0.07 0.02

0-3yr MBS 29.00 1.54 2.54 4.00 11.00 0.13 1.25 0.13 -0.33

1-3yr ABS 73.00 1.41 1.32 -15.00 -11.00 0.42 1.86 0.41 0.82

1-3yr IG corporates 87.00 1.68 1.91 -10.00 -21.00 0.34 2.61 0.42 1.18

3-5yr IG corporates 104.00 2.14 3.75 -24.00 -32.00 0.81 5.24 1.07 2.07

5-10yr IG corporates 146.00 2.94 6.46 -22.00 -39.00 1.50 9.27 1.91 3.33

1-5yr high yield 585.00 7.24 2.90 -139.00 -256.00 5.02 14.07 5.15 11.96

1-3yr corporates by rating

AAA 36.00 1.15 2.12 0.00 14.00 -0.04 1.58 0.07 -0.03

AA 59.00 1.37 1.99 1.00 3.00 0.04 1.91 0.13 0.44

A 76.00 1.53 1.87 -6.00 -5.00 0.22 2.18 0.29 0.73

BBB 116.00 2.04 1.92 -23.00 -56.00 0.64 3.57 0.72 2.18

1-3yr corporates by sector

Financial 93.00 1.70 1.91 -9.00 -3.00 0.30 2.23 0.38 0.82

Industrials 82.00 1.59 1.91 -12.00 -34.00 0.36 2.86 0.44 1.41

Utility/energy 88.00 1.65 1.89 -12.00 -30.00 0.36 2.87 0.44 1.45

Fixed income returns Overview

Spread is based on Option Adjusted Spread. Duration is based on Modified Duration. Data as of September 30, 2016. Source: Bloomberg, BofA Merrill Lynch and SVB Asset Management.

17


Total return comparisons

All returns above are on Total Return basis. YTD 2016 returns are on an annualized basis up to September 30, 2016. FI Credit refers to Barclays 1-3 year US Investment Grade Fixed Income portfolio; Treasury refers to Barclays 1-3 year US Treasury portfolio; Gold refers to S&P GSCI Gold Spot; WTI refers to Spot West Texas Intermediate Crude Oil; Wilshire refers to Wilshire 5000 Total Market Index; REIT refers to MSCI US REIT Index; S&P 500 refers to S&P 500 Index. Source: Thomson Reuters, Barclays Live and SVB Asset Management.

2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016

WTI 57.68%

US Treasury 6.67%

WTI 78.00%

Gold 29.67%

Gold 10.23%

REIT 16.47%

Wilshire 33.06%

REIT 28.24%

S&P 500 1.40%

WTI 30.24%

Gold 31.35%

Gold 5.53%

Wilshire 28.29%

REIT 26.97%

WTI 8.15%

Wilshire 16.05%

S&P 500 32.39%

S&P 500 13.69%

REIT 1.30%

Gold 23.16%

US Treasury 7.31%

FI Credit 0.30%

S&P 500 26.46%

Wilshire 17.18%

REIT 7.48%

S&P 500 16.00%

WTI 7.32%

Wilshire 12.70%

FI Credit 0.85%

REIT 11.79%

FI Credit 5.96%

S&P 500 -37.00%

REIT 26.27%

WTI 15.10%

S&P 500 2.11%

Gold 6.96%

FI Credit 1.45%

FI Credit 1.12%

Wilshire 0.70%

S&P 500 7.73%

Wilshire 5.61%

Wilshire -37.23%

Gold 23.96%

S&P 500 15.06%

FI Credit 1.75%

FI Credit 3.69%

REIT 1.26%

US Treasury 0.63%

US Treasury 0.56%

Wilshire 6.65%

S&P 500 5.49%

REIT -39.05%

FI Credit 11.59%

FI Credit 4.15%

US Treasury 1.55%

US Treasury 0.43%

US Treasury 0.36%

Gold -1.51%

US Gold -10.50%

FI Credit 2.61%

REIT -17.84%

WTI -53.52%

US Treasury 0.80%

US Treasury 2.40%

Wilshire 0.98%

WTI -7.08%

Gold -28.26%

WTI -45.76%

WTI -30.50%

US Treasury 1.44%

Ass

et c

lass

retu

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Credit cycle Corporate credit health remains resilient !  While leverage remains near historic lows, operating margin across the corporate sector has been declining since peaking in late 2014. !  For larger and higher-quality companies, however, operating margin has stabilized and is even ticking up slightly.

19

S&P 100 S&P 500

Source: Bloomberg.

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Operating margin (LHS) Total debt to total asset (RHS)

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Operating margin (LHS) Total debt to total asset (RHS)


Credit cycle Corporate credit fundamentals hold steady !  Most corporate sectors showed credit metrics that showed little change sequentially over the previous quarter.

S&P 500 debt to assets by sector

S&P 500 operating margin by sector

Source: Bloomberg, operating margin trailing 12 months data.

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0

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Energy Materials Industrials Consumer discretionary

Consumer staples Health care Financials Information technology

Telecom services Utilities

June 2016 September 2016

-15

-5

5

15

25

Energy Materials Industrials Consumer discretionary

Consumer staples Health care Financials Information technology

Telecom services Utilities

June 2016 September 2016

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Global economy


United States United Kingdom Eurozone China Japan

Central bank Federal Reserve Bank of England European Central Bank People's Bank of China Bank of Japan

Benchmark rate 0.25-0.50 percent 0.25 percent 0.0 percent 4.35 percent -0.1 percent

Current policy

Discussing rate hikes, as inflation rises toward 2 percent target with table employment.

August rate cut in response to EU referendum outcome. No action taken in September.

Maintained previous cuts on refinancing rate & deposit rate with no change to its expanded QE program.

No additional action since February’s 50 bps reserve ratio cut; lending and deposit rates steady.

Eased via targeting 10 year rates near zero and commitment to push inflation above 2 percent.

Inflation

Unemployment 4.9% 4.9% 10.1% 4.0% 3.0%

Analysis

Rate hike expected by year end, with additional hikes in 2017 doubtful.

No further action in 2016, as the near term economic impact of an EU exit is mild.

No additional action expected, but skewed towards more easing or refinement of current QE program.

Recent economic improvements reduce the need for further rate and reserve ratio cuts in 2016.

No further easing near term, with bias for further action in 2017.

Easing

Easing

Stable

Easing Rising

Central banks Shepherding in lowland

Source: Federal Reserve, European Central Bank, Bank of England, The People’s Bank of China, Bank of Japan, Bloomberg, SVB Asset Management.

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1.0%

0.0% 1.0% 2.0%

1.2%

0.0% 1.0% 2.0%

-0.20%

-0.20% 0.80% 1.80%

2.3%

0.0% 2.0%

0.70%

0.00% 1.00% 2.00%


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Bill

ions

, eur

os

Eurozone The snail Eurozone current account Eurozone economic activity

Equity financing for VC-backed, EU based companies !  Expansion continues to slither along in the Eurozone, though there has

been some weakening through the summer months. There has been no material impact from the UK decision to depart the Eurozone. Spain has seen particularly strong growth, while services overall have fared better than manufacturing in most countries.

!  A persistently strong current account surplus has contributed to the strength of the Euro currency, and correspondingly, is keeping inflation well below the ECB’s 2 percent target. Weak imports are helping to sustain the surplus.

!  Equity raised by in the second quarter of 2016 by venture-capital backed companies was €3.0 billion, which was higher than the previous quarter, but lower than the previous year’s second quarter, according to Dow Jones VentureSource. Consumer services companies received particular financing attention. Source: Markit, European Central Bank, Dow Jones VentureSource, Bloomberg, SVB Asset Management.

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Nordics The eagle Sweden: Housing prices march on Norway: Inflating inflation

Denmark: Rebounding domestic consumption

24

Source: Statistics Norway, Statistics Sweden, Eurostat, Bloomberg, SVB Asset Management.

!  Norway inflation soared to the highest rate since at least 2000 in July, helped by a depreciated Kroner. Norway is one of the few developed economies with robust inflation. The Norwegian economy has adapted to low oil prices, with economic activity moving into expansionary mode supported by exports and government spending.

!  Sweden home prices continue to fly higher, attracting the attention of the Riksbank, which has moved interest rates into negative territory to combat Krona appreciation. Underwriting standards remain stable. Domestic demand has been good, with both services and manufacturing activity showing recent expansion.

!  Denmark domestic demand remains in growth mode despite a recent softening. Household consumption helped drive an economic rebound over the past year, with spending on autos, housing, and services increasing at a good pace.

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China The horse Tech spending still growing solidly Economic activity

Equity raised by VC-backed, China based companies !  Economic activity trotted ahead to begin the second half of 2016, with

manufacturing activity picking up the pace. Services remain steady and solidly in expansionary mode, with retail sales accelerating in August.

!  Fixed-asset investment has increased over 8 percent in 2016 through August, with investments in technology one of the fastest growing areas.

!  Venture capital backed, China based companies attracted equity financing at a steady clip into the second quarter of 2016 based on data from Dow Jones VentureSource.

!  Consumer services companies garnered the most investment and deal flow in the second quarter.

Source: China Federation of Logistics and Purchasing, Dow Jones VentureSource, National Bureau of Statistics of China, Bloomberg, SVB Asset Management.

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Manufacturing Non-Manufacturing

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Fixed asset investment: information transmission, computer services, software

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Portfolio management strategy


Portfolio strategy Macro overview

Source: SVB Asset Management and Bloomberg. Data as of 10/07/16. Past performance is not a guarantee of future results. The above is not to be construed as a recommendation for your particular portfolio.

Economy

Rates

Duration

Sector

Stable data •  Q2 2016 GDP: +1.4%, consumer spending +4.3% •  Labor market has averaged 192,000 new jobs over Q3. •  Weekly jobless claims 2016 average: 265,000. Below 300,000 since March 2015. •  Inflation rising towards Fed targeted level

Flat yield curve

•  18-Month Treasuries yielding 0.73%, 24-month Treasuries yielding 0.76% •  2016 pick up from 18 to 24 months has ranged from 0 to +9 •  2s10s Curve average since July: +83 (10 year average is +168)

Defensive •  Short and intermediate benchmarks: long duration vs. benchmark as coupon

income should offset price volatility. •  Intermediate plus benchmarks: stay neutral to benchmark. •  Long benchmarks: shorter to manage price fluctuations

Overweight spread product

•  Favor corporate bond, commercial paper and asset-backed securities. Diversify by security type, sector and issuer concentration.

•  As rates rise, spread product will help protect bond prices due to higher income accruals.

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0.27

0.45

0.58 0.65

0.73 0.76 0.85 0.88

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

Per

cent

Bond

Yield

Yield pickup from shorter tenure

3-month T-bill 0.27% ----

6-month T-bill 0.45% 0.18

9-month T-bill 0.58% 0.13

1-year Treasury 0.65% 0.07

1.5-year Treasury 0.73% 0.08


2.5-year Treasury 0.85% 0.09


Portfolio Strategy Relative value curve analysis Front end Treasury yield curve

Source: SVB Asset Management and Bloomberg. Data as of 9/30/2016. Past performance is not a guarantee of future results. The above is not to be construed as a recommendation for your particular portfolio.

Flat

Flat

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1

2 3

1

2

3

Double digit yield pick up

Flat curve = low relative value

Flat curve = low relative value

CP ABS AA Ind A- Ind AA Fin A- Fin

90D 0.80 0.83 0.62 0.76 0.60 0.91

180D 1.05 0.93 0.79 0.91 0.98 1.09

270D 1.15 0.99 0.84 1.02 1.02 1.31

1Y 1.04 0.95 1.17 1.16 1.36

1.5Y 1.13 0.94 1.17 1.22 1.42

2Y 1.22 1.02 1.33 1.31 1.55

2.5Y 1.29 1.10 1.36 1.41 1.62

3Y 1.36 1.20 1.46 1.48 1.73

Commercial Paper 90 day CP yield = 2yr Treasury

Asset-Backed Securities

ABS provide high credit quality and price stability

AA Finance AA Finance yields comparable to A- Industrials


0.50 0.38

0.25 0.13

0.00

-0.13 -0.25

-0.38 -0.50 -0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

Per

cent

-100 -75 -50 -25 Base case +25 +50 +75 +100

% in market value

Short duration 3 month T-bill

Short duration 3-6 month T-bill

Intermediate duration 6 month T-bill

Intermediate plus duration

9 month T-bill

Long duration 1 year Treasury

Benchmark duration

0.25

0.375

0.50

0.75

1.0

Portfolio duration target

Portfolio strategy Duration and interest rate risk management

Source: SVB Asset Management and Bloomberg. Past performance is not a guarantee of future results. The above is not to be construed as a recommendation for your particular portfolio as individual portfolio durations will vary.

Duration (price sensitivity) analysis

!  We exercise a disciplined benchmarking approach to manage portfolio duration where we position duration in a +/- 30 percent band around the appropriate benchmark.

!  In a rising rate environment where a portfolio is more susceptible to unrealized losses, we mitigate this risk by managing average duration relative to the benchmark and by limiting exposure to longer-dated investments. This allows for greater investment opportunity to take advantage of higher anticipated rates.

*Example of portfolio with duration of 0.5 years

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-30% Neutral +30% -30% Neutral +30% -30% Neutral +30% -30% Neutral +30% Neutral -30% +30%


Our team Portfolio Management Team

Eric Souza [email protected] Paula Solanes [email protected] Renuka Kumar, CFA [email protected] Jose Sevilla [email protected] Hiroshi Ikemoto [email protected] Jason Graveley [email protected]

President, SVB Asset Management

Lauri Moss [email protected]

Head of Investment Strategy and Portfolio Management

Ninh Chung [email protected]

Head of Credit Research

Melina Hadiwono, CFA [email protected]

Credit and Risk

Tim Lee, CFA [email protected] Daeyoung Choi, CFA [email protected] Nilani Murthy [email protected]

Silicon Valley Bank Partners

Teresa Quizon [email protected]

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This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

All material presented, unless specifically indicated otherwise, is under copyright to SVB Asset Management and its affiliates and is for informational purposes only. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without the prior express written permission of SVB Asset Management. All trademarks, service marks and logos used in this material are trademarks or service marks or registered trademarks of SVB Financial Group or one of its affiliates or other entities. ©2016 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. B_SAM-16-15121 Rev 10-27-16.

SVB Asset Management, a registered investment advisor, is a non-bank affiliate of Silicon Valley Bank and member of SVB Financial Group. Products offered by SVB Asset Management:

Are not insured by the FDIC or any other federal government

agency

Are not deposits of or guaranteed by a bank

May lose value

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Documents

SVB Asset Management Economic Report Q3 2016