BAILLIE GIFFORD

27 February 2015

Tom Wright and Patrick Edwardson

Devon County Council Pension Fund

Baillie Gifford Devon County Council Pension Fund February 2015

1

Our Relationship

Appointed:

29th May 2012

Strategy:

Diversified Growth

Portfolio Value:

£241,626,198

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Baillie Gifford Devon County Council Pension Fund February 2015

2

Diversified Growth Fund - Our Objectives

Return

To outperform the UK base rate by at least 3.5% per annum (net of fees) over rolling 5 year periods

Risk

Annualised volatility of less than 10% over rolling 5 year periods

Baillie Gifford Devon County Council Pension Fund February 2015

3

What the Fund Invests in

Baillie Gifford Devon County Council Pension Fund February 2015

4

Our Process – What we do

Assess long run returns for each asset class

Consider current situation

Ask: what might happen from here?

Allocate to each asset class according to:

Absolute valuations

Relative valuations

Risk characteristics

Portfolio context

When we do it

Baillie Gifford Devon County Council Pension Fund February 2015

5

0

10

20

30

40

50

60

70

80

90

100

Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14

%

Cash and Equivalents*

Special Opportunities

Insurance Linked

Absolute Return

Government Bonds

Infrastructure Bonds

Infrastructure

Emerging Market Bonds

Commodities

Structured Finance

Investment Grade Bonds

High Yield Credit

Property

Private Equity

Listed Equities**

Asset Allocation Since December 2008

Diversified Growth Fund Asset Class Weights Over Time

As at 31st December 2014

* Cash includes net active currency position ** Reflects effective exposure in portfolio, including futures positions; cash adjusted accordingly

Baillie Gifford Devon County Council Pension Fund February 2015

6

Fund Performance

Performance – 31st December 2008 to 31

st December 2014

Source: Bloomberg, Baillie Gifford & Co. Total returns from 31/12/08 to 31/12/14, net of fees, in sterling Rebased to 100 Indices (sourced from Bloomberg): Global Equities – FTSE All-World index; Base Rate – UK Bank of England

Positive performance delivered with low volatility

70

90

110

130

150

170

190

210

Dec-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14

BG Diversified Growth Pension Fund Global Equities Base Rate +3.5%

Baillie Gifford Devon County Council Pension Fund February 2015

7

Positioning

A cautiously positioned portfolio remains appropriate

Invested across a broad range of asset classes

Substantial allocations to more defensive asset classes such as cash and structured finance

Asset Allocation

BG Diversified Growth Fund, as at 31st December 2014

Source: Baillie Gifford & Co Totals may not sum due to rounding

* Reflects effective exposure in portfolio, including futures positions. Cash adjusted accordingly ** This number shows the unrealised P&L of the Active Currency positions open in the Fund as at 31

st

December 2014

We remain confident that the Fund can deliver on its objectives

Active Currency-1%**

Cash and Equivalents 7%

High Yield Credit

12%

Absolute Return 8%

Listed Equities 22%*

Insurance Linked 5%

Property 2%

Private Equity 2%

Investment Grade Bonds 6%

Structured Finance 14% Commodities 5%

Infrastructure 4%

Emerging Market

Bonds 13%

Special Opportunities 1%

Baillie Gifford Devon County Council Pension Fund February 2015

8

Our Current Views

Outlook

Continued supportive monetary policy and falling oil prices should be good for global growth

Risks remain

Uncertainty around the timing and impact of US interest

rate rises

Deflation in the Eurozone

Continued political tensions (the rise of Syriza,

Russia/Ukraine conflict, Middle East)

Valuation

Many asset classes appear priced to deliver lower returns

than in recent years

Appendices

Baillie Gifford Devon County Council Pension Fund February 2015

9

Diversified Growth Team

Dedicated team. Three managers plus three analysts and two investment assistants

Gradual increase in resources since inception

Continue to draw upon a wealth of internal and external resources

Regular meetings with Baillie Gifford Rates and Currencies, Credit and Equity teams

No change in investment process

Patrick Edwardson Head of Diversified Growth

Partner

22 yrs’ experience

22 yrs with Baillie Gifford

David McIntyre Investment Manager

7 yrs’ experience

7 yrs with Baillie Gifford

James Squires Investment Manager

9 yrs’ experience

9 yrs with Baillie Gifford

A team-based approach

Baillie Gifford Devon County Council Pension Fund February 2015

10

Internal Resources

Baillie Gifford Devon County Council Pension Fund February 2015

11

Our Long Term Return Expectations

We have made a small reduction to our ten-year estimate for inflation, largely to reflect current environment

Prospective nominal returns remain low, though many asset classes still offer a decent return over short term interest rates

Some market valuations are higher than six months ago, hence the lower return expectation

This is the case for equities, infrastucture, high yield bonds and insurance linked securities

As at 31st December 2014

10 Year %

Long Term %

Expected Return on Cash (UK base rate) 2.25 3.75

Expected UK CPI Inflation 2.00 2.25

Expected Return over Cash

10 Year %

Long Term %

UK Government Bonds -0.45 0.25

UK Index – Linked Government Bonds -0.35 0.00

Investment Grade (sterling) 0.75 1.25

High Yield Bonds 1.65 2.75

Senior Loans 2.50 2.00

Equities 3.50 3.50

UK Property 3.40 2.25

Infrastructure 3.65 3.25

Emerging Market Bonds 3.65 2.00

Commodities 1.00 1.00

Insurance Linked 2.75 3.00

Note: Expected returns exclude alpha generation from our exposure

Baillie Gifford Devon County Council Pension Fund February 2015

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Robust Risk Management

Central to our investment process

Four key pillars to our risk management process:

Diversification guidelines

Pragmatic use of risk models

Scenario analysis

Peer review and challenge

Focus on risk reflected in:

Low volatility since inception

Resilience in periods of market stress

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