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Goldman Sachs Asset Management’s Quantitative Investment Strategies (“QIS”) team assesses approximately 10,000
stocks globally on a daily basis and uses sophisticated portfolio management techniques and proprietary risk models to
construct portfolios in a risk managed framework. These products are designed to add value from bottom-up stock
selection, and not other style biases.
Investment The primary goal of each of the Goldman Sachs Asset Management’s QIS equity strategies is to achieve consistent
Objective1 relative outperformance. In working toward this goal, the portfolio management team seeks to:
• Generate excess returns that are positive, stable, explainable and repeatable
• Maintain style, sector, risk and capitalization characteristics similar to the relevant benchmark with a target beta of 1.0
• Employ low-cost trading techniques
Investment • It is possible to add value from active management. Although markets are competitive, they are not perfectly efficient.
Philosophy The disciplined application of quantitative techniques helps enable the investment management process to
systematically uncover and exploit sources of value.
• A combination of qualitative and quantitative insights enhances results. Economic theory must motivate any factor
being considered for inclusion in our investment model and empirical research must support that rationale.
• Rigorous risk management adds value. Risk management is as important as return forecasting in managing portfolios
effectively. It is essential to mitigate unintended active risks.
2. Careful portfolio After stocks are assigned alphas by the stock selection model, portfolios are created
construction through an optimization process that maximizes the portfolio’s expected return (net of
transaction costs) for a given level of risk. We believe to effectively manage portfolio risk,
the optimizer must recognize the risk associated with each stock and should respond
quickly to changing market conditions. For this reason, we have developed our own
proprietary risk models that we believe allow us to better measure and manage portfolio
risk. To better capture the changing risks in the market, we update our proprietary risk
models with daily data and place higher weight on the most recent information.
3. Efficient Transaction costs are considered at every step of the process, from weighting the
implementation investment themes, to portfolio optimization, to trading. After conducting extensive pre-
trade analysis, we implement and trade our portfolios using integrated trading systems
and sophisticated transaction cost management techniques. In this way, we expect that all
trades will result in a net benefit to the portfolio.
Expected returns are estimates of hypothetical average returns of economic asset classes derived from statistical models. There can be no assurance that these returns can be achieved.
Actual returns are likely to vary. Please see additional disclosures.
Portfolio Quantitative Investment Strategies (QIS) comprises a globally integrated team of highly qualified investment professionals.
Management QIS is organized into four functional areas: (1) Alpha Strategies, which oversees the research, portfolio construction and
Team3 implementation of our alpha models across all major asset classes, including global equities, fixed income, currencies,
commodities, volatility and reinsurance; (2) Customized Beta Strategies, which focuses on solutions that encompass
various beta and hedging capabilities; (3) Trading, which develops and implements both discretionary and algorithmic
trading; and (4) Client Portfolio Management, which serves as the primary liaison between our clients and the portfolio
management effort. A dedicated Information Technology group of over 30 professionals also supports the team. In addition,
there are Senior Portfolio Managers who oversee all aspects of their product areas from research to implementation and
are ultimately responsible for supervising and monitoring the process, implementation and controls.
Katinka Domotorffy, CFA, is the Head of QIS and also the Chief Investment Officer of both our alpha and beta strategies.
Bill Fallon, PhD is the Head of Research and co-CIO for our Alpha Strategies while Don Mulvihill, is the co-CIO for our
Customized Beta Strategies. Collectively, the CIOs of the QIS team have an average of 21 years of industry experience.
The QIS team offers significant depth of experience in equity, fixed income, currency, commodities markets as well as beta
and hedging capabilities and many team members have been published in leading academic journals.
QIS: Equity Our approach can be customized to various benchmarks in different market capitalizations.
Product Offerings Representative Target Excess Target Tracking
Product Benchmark Returns (bps) Error (%)
US Equity
Enhanced US Large Cap S&P 500, Russell 1000 60-100 1-2
Structured US Large Cap S&P 500, Russell 1000 100-160 2-4
Structured US Large Cap Growth Russell 1000 Growth 100-160 2-4
Structured US Large Cap Value Russell 1000 Value 100-160 2-4
Structured US Small/Mid Cap Russell 2500 120-200 2-4
Structured US Small Cap Russell 2000 120-200 2-4
Structured US Total Market Russell 3000 120-200 2-4
Regional Equity
Structured UK FTSE All-Share 70-150 1-2.5
Structured Europe MSCI Europe 75-150 1-2.25
Structured Japan MSCI Japan, TOPIX 70-150 2.75
Multi-Regional Equity
Structured International Country Neutral MSCI EAFE 85-175 2.5
Structured International with Country Tilts MSCI EAFE 140-215 1.5-2.5
Structured International with Overlay MSCI EAFE 155-235 1.5-2.5
Structured Global Country Neutral MSCI World 85-175 1-2
Structured Global with Country Tilts MSCI World 140-240 1.5-2.5
Structured Global with Overlay MSCI World 155-270 1.5-2.5
Structured Emerging Markets with Country Tilts MSCI Emerging Markets 300 4-6
Structured International Small Cap Country Neutral MSCI EAFE Small Cap 180-240 2-2.5
Structured All Country World ex-US w/ Country Tilts MSCI ACWI ex-US 140-250 1.5-3
There is no assurance that the targets above can or will be met.
For illustrative purposes only.
3 As of March 2010.
Quantitative Investment Strategies – Equity
STRATEGY PROFILE
Tracking Error (TE) is one possible measurement of the dispersion of a portfolio’s returns from its stated benchmark. More specifically, it is the standard deviation of such excess returns. TE figures are representations of
statistical expectations falling within “normal” distributions of return patterns. Normal statistical distributions of returns suggests that approximately two thirds of the time the annual gross returns of the accounts will
lie in a range equal to the benchmark return plus or minus the TE if the market behaves in a manner suggested by historical returns. Targeted TE therefore applies statistical probabilities (and the language of uncertainty)
and so cannot be predictive of actual results. In addition, past tracking error is not indicative of future TE and there can be no assurance that the TE actually reflected in your accounts will be at levels either specified in
the investment objectives or suggested by our forecasts.
The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
The strategy may include the use of derivatives. Derivatives often involve a high degree of financial risk because a relatively small movement in the price of the underlying security or benchmark may result in a
disproportionately large movement in the price of the derivative and are not suitable for all investors. No representation regarding the suitability of these instruments and strategies for a particular investor is made.
THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. Past performance is not
indicative of future results, which may vary. Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship,
residence or domicile which might be relevant. Opinions expressed are current opinions as of the date appearing in this material only. No part of this material may, without GSAM’s prior written consent, be (i) copied,
photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient. References to indices, benchmarks or other measures of
relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. The index composition may not reflect the manner in
which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark. Indices are
unmanaged. The figures for the index reflect the reinvestment of dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices.
This presentation has been communicated in the United Kingdom by Goldman Sachs Asset Management International which is authorised and regulated by the Financial Services Authority (FSA). This presentation has
been issued or approved for use in or from Hong Kong by Goldman Sachs (Asia) L.L.C. This presentation has been issued or approved for use in or from Singapore by Goldman Sachs (Singapore) Pte. (Company Number:
198602165W). With specific regard to the distribution of this document in Asia ex-Japan, please note that this material can only be provided to GSAM’s third party distributors (for their internal use only), prospects in
Hong Kong and Singapore and existing clients in the referenced strategy in the Asia ex-Japan region.
References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results.
The index composition may not reflect the manner in which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may
deviate from those of the benchmark.
This material is provided at your request for informational purposes only. It is not an offer or solicitation to buy or sell any securities.
Expected Returns
Expected return models apply statistical methods and a series of fixed assumptions to derive estimates of hypothetical average asset class performance. Reasonable people may disagree about the appropriate
statistical model and assumptions. These models have limitations, as the assumptions may not be consensus views, or the model may not be updated to reflect current economic or market conditions. These models
should not be relied upon to make predictions of actual future account performance. GSAM has no obligation to provide updates or changes to such data.
Copyright © 2010 Goldman, Sachs & Co. All Rights Reserved. (33158.SA.TMPL) QISSP/03-10