OFFICIAL INSTITUTIONS

New Horizons for Official Institutions an FT Remark and State Street Study

Executive Summary

April 2014

This presentation features data from the

2014 State Street Official Institutions

Study conducted by FT Remark.

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OFFICIAL INSTITUTIONS

State Street 2014 Official Institutions Study About the Research

These findings are based on fieldwork conducted during January 2014 by FT Remark. In association

with State Street, FT Remark surveyed 62 senior executives at official institutions – defined as central

banks, sovereign wealth funds and public pension reserve funds – to explore the opportunities and

challenges they face today and in the future. Additional interviews were conducted during February and

March to gain deeper qualitative insight.

58%

34%

8%

Respondents by Type

Central Bank

Sovereign Wealth Fund

Public Pension Reserve Fund

45%

29%

26%

Respondents by Region

EMEA

APAC

Americas

42%

11%

47%

Respondents by Role

Investment

Operations

Combination of above

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OFFICIAL INSTITUTIONS

State Street 2014 Official Institutions Study Top Priorities for Official Institutions

13%

15%

13%

21%

13%

25%

29%

31%

44%

47%

50%

65%

Developing talent

Supporting governance requirements

Optimizing investment strategy

Improving operational efficiency

Managing data

Managing risk

Percentage who rate as significant challenge*

Percentage who rate as No. 1 challenge

*Multiple selections allowed.

Source: State Street 2014 Official Institutions Study conducted by FT Remark

Official institutions are balancing a diverse, complex set of challenges.

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OFFICIAL INSTITUTIONS

State Street 2014 Official Institutions Study Managing Portfolio Complexity

80% Expect to increase their exposure to emerging markets securities

73% Have difficulty keeping up with the changes in regulation across the global markets

they invest in

51% Indicate that correctly measuring and monitoring the amount of currency risk they are

taking is a challenge

38% Believe that adjusting to higher interest rates will be their single biggest investment

strategy challenge over the next two years

35% Are concerned the cost of execution will go up given collateral issues and additional

reporting requirements

Official institutions are looking to new markets and types of investment to generate returns,

creating new levels of portfolio complexity.

Of the institutions we surveyed:

Source: State Street 2014 Official Institutions Study conducted by FT Remark CORP-0978

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OFFICIAL INSTITUTIONS

State Street 2014 Official Institutions Study Monitoring, Measuring and Reporting Risk

• 86 percent of respondents rate market risk as

one of their top three concerns, and it is the

biggest risk-related concern for more than one-

third (36 percent)

• Just under three-quarters (73 percent) say

operational risk is a top-three risk, and it comes

top for one-quarter (26 percent)

• Sixty percent of respondents plan significant

updates to their risk management systems over

the next two years

• Thirty-two percent of respondents say it is

difficult to recruit the talent they need for

effective risk management

0% 25% 50% 75% 100%

Legal risk

Political risk

Counterparty risk

Liquidity risk

Data security risk

Operational risk

Market risk

Most important

Second most important

Third most important

Of the multitude of risks that official institutions must now consider, the two biggest areas of

concern are market risk and operational risk.

Source: State Street 2014 Official Institutions Study conducted by FT Remark CORP-0978

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OFFICIAL INSTITUTIONS

State Street 2014 Official Institutions Study Optimizing Operations

Source: State Street 2014 Official Institutions Study conducted by FT Remark

4.79

4.95

5.28

5.43

4.41

4.56

4.61

5.57

Least

Important

1

Most

Important

6

Op

era

tio

ns

Minimizing operational costs

Maintaining an operating infrastructure that

fully supports investment policies/needs

Balancing mix of in-house and outsourced

activities

Ensuring integrated front-to-back office

processing

Data

Ensuring data security

Integrating performance and risk analytics

Conducting regular, comprehensive scenario

analysis and stress testing on portfolio

Managing and cleansing multiple data

streams in varying formats

Level of priority placed by official

institutions (average score)

Official institutions must create streamlined yet resilient operational models, which means

reducing costs while not compromising on standards.

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OFFICIAL INSTITUTIONS

Action Plan for Official Institutions Focus for the Future

Challenges Key Areas of Focus

Deliver Investment Objectives in a

More Complex Market Environment

• Reassess and balance risk against return, within specific

investment strategy, and develop appropriate benchmarks

• Increase exposure across markets and asset classes in a way that

supports strategy

Meet Changing Regulatory

Requirements Across Global Markets

• Stay up-to-date with requirements across all relevant markets

• Build and add to capability in risk and reporting

Identify and Manage Risks

Across More Diverse Areas

• Treat risk management as an ongoing process and perform regular audits

• Closely monitor liquidity profile to support risk management

Improve Operational

and Cost Efficiency

• Identify and eliminate process inefficiencies

• Refine outsourcing model to make best use of internal expertise and third-

party providers

Generate Greater Value From Data

• Consolidate data provision to minimize costs and maximize value

• Make use of powerful data and analytic decision-making tools to make

better-informed investment decisions and fulfil regulatory requirements

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