Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 78 of June 15, 2020 on Approval of the Rules for Choosing Foreign Organizations Managing Pension Assets of the Unified Accumulative Pension Fund

Registered in the Ministry of Justice of the Republic of Kazakhstan on 30.06.2020 No. 20909

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«KAZAKHSTAN REPUBLIC'S		REPUBLICAN STATE INSTITUTION
NATIONAL BANK»
		«NATIONAL BANK
REPUBLICAN		OF THE REPUBLIC OF KAZAKHSTAN»
STATE INSTITUTION
BOARD		RESOLUTION
DECISION
June 15, 2020		No. 78

Almaty city		Almaty city

On Approval of the Rules for Choosing Foreign Organizations Managing Pension Assets of the Unified Accumulative Pension Fund, Including Requirements for Them, When Entrusting Them to Perform Actions Necessary for Managing Pension Assets of the Unified Accumulative Pension Fund

(with amendments and additions:

Resolution No. 144 dated 21.12.2020, reg. No. 21916;
Resolution No. 23 dated 23.04.2024, reg. No. 34349)

Chapter 1. General Provisions

These Rules for Choosing Foreign Organizations Managing Pension Assets of the Unified Accumulative Pension Fund, Including Requirements for Them, When Entrusting Them to Perform Actions Necessary for Managing Pension Assets of the Unified Accumulative Pension Fund (hereinafter – the Rules) are developed in accordance with the Social Code of the Republic of Kazakhstan, the Law of the Republic of Kazakhstan "On the National Bank of the Republic of Kazakhstan" and determine the procedure for choosing foreign organizations managing pension assets of the Unified Accumulative Pension Fund (hereinafter – the Fund), including requirements for them, when entrusting them to perform actions necessary for managing the Fund's pension assets.
The following terms are used in the Rules:

enhanced index asset management – a type of management in which the value of the variability of return deviation (tracking error) is from 0.5 (zero and five tenths) to 2 (two) percent inclusive. Enhanced index management assumes a moderate deviation from the main indicators of the benchmark portfolio;
information ratio – the ratio of the level of excess return to the variability of return deviation (tracking error);
specialized system – software and (or) a special internet resource possessing a database of investment and (or) analytical data necessary for analyzing the activities of external managers;
specialized mandate – a mandate transferred to external management for the purpose of asset diversification by applying investment strategies that involve unique investment approaches at the level of individual asset classes, management types, countries, and regions;
diversification – the placement of pension assets into various financial instruments for the purpose of reducing the risk of their losses in accordance with the requirements established by the National Bank of the Republic of Kazakhstan;
managerial control – the ability of one legal entity to directly and (or) indirectly determine decisions and (or) influence decisions made by another legal entity, due to participation (ownership) in such a legal entity;
exchange market – a set of relations using the trading systems of the trading organizer, which carries out organizational and technical support of trading;
global mandate – a portfolio whose investments go beyond the borders of one country (market, region);
investment due diligence – a complex of analytical measures aimed at a comprehensive check and assessment of the effectiveness of the external manager's investment activities;
institutional investor – a legal entity carrying out investment of funds into financial instruments;
group of companies – legal entities that are together under the managerial control of one legal entity, or legal entities where one of them has managerial control over another legal entity;
assets under advisory services – assets managed by an external manager for which the external manager advises the client on asset investment management;
mandate – a portfolio with specific investment characteristics;
margin account – an account for conducting transactions with derivative financial instruments, opened in a clearing organization and used for placing collateral for transactions and conducting settlements for transactions with derivative financial instruments;
operational due diligence – a complex of analytical measures aimed at a comprehensive check and assessment of the effectiveness of the external manager's operational activities;
regional mandate – a portfolio whose investments are concentrated within the borders of one country (market, region);
portfolio manager – a person responsible for managing client assets;
external manager – a foreign organization, including a bank, created in accordance with the legislation of a foreign state, specializing in investment management of client assets and carrying out its activities on international financial markets;
external management – a type of pension asset management in which pension assets are transferred to investment management to an external manager;
external transit management – a type of asset management in which pension assets are transferred to an external transit manager for the purpose of minimizing risks associated with changes in the structure of transferred assets before choosing and (or) transferring assets to an external manager under the corresponding mandate;
external transit manager – a foreign organization, including a bank, created in accordance with the legislation of a foreign state, specializing in external transit management of client assets and carrying out its activities on international financial markets;
transit period – a temporary period applied to a portfolio, established in accordance with the Rules for the purpose of bringing it into compliance with the parameters established by the investment management agreement;
authorized subdivision – a subdivision of the National Bank carrying out management and monitoring of the Fund's pension assets;
National Bank leadership – the Chairman of the National Bank, the Deputy Chairman of the National Bank overseeing the authorized subdivision;
excess return level – the difference between the actually achieved level of return and the level of return of the benchmark portfolio;
forex operations – purchase and (or) sale of foreign currency on the exchange and over-the-counter markets.

The total permissible volume of pension assets of the Fund transferred to external management to a single external manager shall not exceed 10 (ten) percent of the volume of the Fund's pension asset portfolio in foreign currency.
In case of exceeding the limit provided for in paragraph 3 of the Rules, including in the event of the merger of two existing external managers, the authorized subdivision eliminates the non-compliance within 3 (three) months from the date of such excess occurrence.
Pension assets of the Fund are transferred to external management for the purposes of:

reducing the level of risks associated with management types;
increasing the yield of managing the Fund's pension assets by using the experience, analytical materials, research, and technical resources of the external manager;
improving the efficiency of managing the Fund's pension assets by applying expertise and consultations in asset management obtained from external managers;
introducing new asset classes for which there is no experience in independent asset management.

The choice of management type (active, enhanced index, or passive (index)) and the benchmark portfolio for the external manager is carried out in accordance with the goals of managing the Fund's pension assets and restrictions provided for in the Fund's investment declaration, depending on the market situation.
A fixed commission fee and (or) a commission fee dependent on the results of managing the Fund's pension assets transferred to external management or external transit management is paid to the external manager or external transit manager in accordance with the investment management agreement.

Chapter 2. Procedure for Choosing External Managers of the Fund's Pension Assets, Including Requirements for Them, When Entrusting Them to Perform Actions Necessary for Managing the Fund's Pension Assets

The procedure for selecting external managers is organized by the authorized department.
The authorized department publishes information on the official Internet resource of the National Bank, as well as on other information and analytical resources available to potential external managers, regarding the planned selection of an external manager, compiles a list of potential external managers, and sends information to potential external managers.

A mandatory condition for considering the proposal of a potential external manager is their consent to include the conditions provided for in paragraph 24 of these Rules in the investment management agreement.

The potential external manager submits to the National Bank in electronic form and/or on paper the minimum information requested from the potential external manager, in accordance with Appendix 1 to these Rules. It is permitted to obtain information from the authorized department from a specialized system.
The authorized department carries out a comparative analysis of all received proposals from potential external managers, taking into account the mandatory requirements for them when entrusting them to perform actions necessary for the management of pension assets, provided for in paragraphs 12 and/or 13 of these Rules.

If a potential external manager meets the mandatory requirements for them when entrusting them to perform actions necessary for the management of pension assets, provided for in paragraphs 12 and/or 13 of these Rules, the authorized department carries out a comparative analysis of proposals from potential external managers in accordance with the evaluation criteria for carrying out a comparative analysis of proposals from potential external managers (hereinafter – Evaluation Criteria) according to Appendix 2 to these Rules to form a long list of potential external managers (hereinafter – long list).

When carrying out a comparative analysis of proposals from potential external managers, it is permitted to use the National Bank's own data on current external managers of the National Bank's foreign exchange assets and assets held in trust management by the National Bank.

For the purpose of clarifying the information provided by a potential external manager, it is permitted for the authorized department to send additional requests to such a potential external manager. In the event that a potential external manager fails to provide the additionally requested information, the score for the corresponding criterion in the Evaluation Criteria is not taken into account.

For the selection of external managers for global mandates, the mandatory requirements for them when entrusting them to perform actions necessary for the management of pension assets are:

experience in working with financial instruments into which pension assets of the Fund are planned to be invested – no less than 10 (ten) years, of which no less than 5 (five) years of experience in working on the announced mandate, or if the potential external manager has under management exclusively similar regional mandates – no less than 5 (five) years of experience in working on regional mandates, which make up no less than 75 (seventy-five) percent of the coverage of the global mandate.

It is permitted to calculate the experience of a potential external manager taking into account the work experience of legal entities included in its group of companies;

total size of client assets held under management by the potential external manager (including assets under advisory services) – no less than the equivalent of 25 (twenty-five) billion United States dollars (hereinafter – USA);
total size of client assets for the considered mandate held under management by the potential external manager – no less than the equivalent of 1 (one) billion United States dollars, or if the potential external manager has under management exclusively similar regional mandates – no less than the equivalent of 1 (one) billion United States dollars for regional mandates, which make up no less than 75 (seventy-five) percent of the coverage of the global mandate.

For the selection of external managers for specialized mandates, the mandatory requirements for them when entrusting them to perform actions necessary for the management of pension assets are:

experience of the potential external manager in working with financial instruments into which pension assets of the Fund are planned to be invested – no less than 5 (five) years, of which no less than 3 (three) years of experience in working on the announced mandate, or if the potential external manager has under management exclusively similar regional mandates – no less than 3 (three) years of experience in working on regional mandates, which make up no less than 75 (seventy-five) percent of the coverage of the global mandate.

It is permitted to calculate the experience of a potential external manager taking into account the work experience of legal entities included in its group of companies;

total size of client assets held under management by the potential external manager (including assets under advisory services) – no less than the equivalent of 1 (one) billion United States dollars;
total size of client assets for the considered mandate held under management by the potential external manager – no less than the equivalent of 150 (one hundred fifty) million United States dollars.

At the same time, the volume of pension assets transferred to one external manager does not exceed 50 (fifty) percent of the volume of assets in investment management for the considered mandate held under management by such external manager.

It is permitted for the authorized department to contact clients of a potential external manager with a request for the results and quality of asset management for clients.
The conclusion prepared by the authorized department on the long list, containing a comparative analysis of proposals from potential external managers and recommendations for their selection, is submitted for consideration to the Chairman of the National Bank, who, based on the results of the consideration, approves a short list of potential external managers with the most advantageous offers (hereinafter – short list) by applying a resolution to the conclusion of the authorized department.

The authorized department conducts negotiations with potential external managers from the short list for the purpose of improving the terms of offers from external managers.

The authorized department conducts an additional assessment of proposals from potential external managers from the short list according to the Evaluation Criteria for carrying out a comparative analysis of proposals from potential external managers from the short list within the framework of investment and operational due diligence in accordance with Appendix 3 to these Rules.
When conducting investment and operational due diligence to obtain additional information about the procedure for making investment decisions and risk control procedures, it is permitted for the authorized department to hold meetings with potential external managers and visit their offices.
In the event that a potential external manager, who has not previously been in contractual relations with the National Bank, is proposed for selection as an external manager, visiting their office is mandatory.
The decision on the selection of external managers is made by the Board of the National Bank.

In cases of the successor to an external manager acquiring the rights and obligations arising from the investment management agreement due to the reorganization of such external manager, as well as in cases of an external manager transferring their rights and obligations arising from the investment management agreement to another legal entity (company), the selection of such persons as an external manager is carried out without conducting the procedures provided for in paragraphs 9, 10, and 11 of these Rules.

If an external manager, who carries out external management of part of the foreign exchange assets of the National Bank and/or assets held in trust management by the National Bank, under a similar mandate with a positive level of excess return for a period of no less than 3 (three) years, meets the requirements for them when entrusting them to perform actions necessary for the management of pension assets established by paragraphs 12 and/or 13 of these Rules, then by decision of the Chairman of the National Bank, their candidacy is submitted for consideration by the Board of the National Bank as an external manager without conducting the procedures provided for in paragraphs 9, 10, and 11 of these Rules.
To reduce the risks of asset concentration in external management within one mandate (but not one type of management), the number of active external managers is no less than 2 (two) external managers.
For the purpose of accelerating the process of selecting external managers, replacing active external managers, and increasing competition among external managers, it is permitted for the authorized department to form a reserve list of potential external managers (hereinafter – reserve list) from among potential external managers from the short list for subsequent approval by the Board of the National Bank.

The authorized department monitors the activities of external managers included in the reserve list and updates information annually within the framework of investment and operational due diligence.

The transfer of pension assets of the Fund to an external manager from the approved reserve list is carried out after the decision of the Board of the National Bank on their selection as an external manager is made, without conducting the procedures provided for in paragraphs 9, 10, and 11 of these Rules.

Activities related to the conclusion of an investment management agreement and further monitoring of the fulfillment of its conditions are carried out by the authorized department.
The investment management agreement contains the following conditions:

on the right of the National Bank to terminate the investment management agreement in advance in the following cases:
failure of the external manager to achieve excess return on portfolio management compared to the benchmark portfolio; violation by the external manager of restrictions established by the Fund's investment declaration; changes to the Fund's investment declaration; presence of a resolution of the Board of the National Bank with submission of written notification to the external manager and indication of the date of termination of the investment management agreement;
on the right of the National Bank at its own discretion at any time to replenish (withdraw) pension assets of the Fund held in external management;
on the submission by the external manager of information about the movement of its personnel responsible for managing the pension assets of the Fund transferred to external management;
on the visit of the external manager by employees of the National Bank and independent auditors for the purpose of checking operations on the account, as well as obtaining additional information about the external manager, the procedure for making investment decisions, and risk monitoring procedures;
on the prohibition of attracting as brokers or counterparties to transactions with pension assets of the Fund transferred to external management, persons affiliated with the external manager;
on the liability of the external manager for violation of the limit of expected deviation of yield (ex-ante tracking error) established in the investment management agreement;
on the liability of the external manager for possible losses caused to the Fund due to negligence, intentional non-fulfillment of obligations, or fraud on the part of the external manager;
on the obligation of the external manager to advise, train, or conduct internships for employees of the National Bank carrying out the management and monitoring of pension assets of the Fund;
on the obligation of the external manager to submit to the National Bank on a regular basis in accordance with the investment management agreement the following reports:
reporting on operations performed for the previous working day on a daily basis; portfolio valuation (distribution of assets by various classes and types of currencies, portfolio composition at the end of the reporting month, market value of assets at the end of the reporting month); portfolio movements (list of all transactions concluded during the reporting quarter, sorted by various classes and currencies, maturity date, dividend payment, and accrued interest); analysis of portfolio management results (monthly, quarterly, and overall portfolio management results in terms of achieved yield, portfolio risk indicators, and level of yield deviation variability (tracking error) compared to the benchmark portfolio); report on the state of relevant markets and their impact on the portfolio and/or macroeconomic overview; strategy overview and explanation of the most important changes in portfolio structure; current investment strategy; contribution of various factors to portfolio yield for active asset management;
on the external manager carrying out, at the end of each month or on the date of completion of the transit period, a reconciliation of the composition of the portfolio transferred to external management with the data of the bank(s)-custodian(s) in accordance with the investment management agreement;
on the external manager submitting information on operations conducted to the bank-custodian responsible for consolidated accounting no later than the next working day after the agreement and completion of transaction confirmation procedures between the external manager and the broker;
on the external manager submitting information, documents on the procedures for the approval of brokers, as well as agents and counterparties of the external manager;
on the external manager submitting information on the presence of internal risk management policies and procedures of the external manager, reducing the risk of abuse and conflict of interest, including ensuring equal distribution of transactions among client portfolios;
on the external manager holding meetings with the authorized department with a frequency of once a year to present the results of management of pension assets of the Fund, compliance with investment restrictions, assessment of the market situation and its possible impact on the portfolio and on the implementation of investment operations with pension assets of the Fund;
on the external manager submitting information on measures applied by supervisory authorities and participation in court proceedings;
on the external manager submitting to the National Bank a reconciled with the bank(s)-custodian(s) full report on the portfolio on the date of termination of the investment management agreement;
on signing the investment management agreement in Kazakh, Russian, and in a language determined by mutual agreement of the parties;
on the possibility of making changes and/or additions to the investment management agreement with the written consent of both parties.

The National Bank, in accordance with the investment management agreement, carries out the transfer of pension assets of the Fund to external management by transferring money and/or securities to the accounts of the National Bank at the bank(s)-custodian(s) intended for external management.
When transferring pension assets of the Fund to external management, the transit period for forming the portfolio in accordance with the target parameters established by the investment management agreement is taken into account. The duration of the transit period does not exceed 15 (fifteen) working days.
Pension assets of the Fund transferred to external management are stored in the accounts of the National Bank in the bank(s)-custodian(s) and in a margin account with a clearing broker.
From the day of transfer of pension assets of the Fund to external management, the authorized department conducts daily monitoring of the external manager's activities by checking compliance with restrictions established in the investment management agreement, monitoring transactions made by the external manager, and assessing risk and yield indicators of the portfolio in external management.
The authorized department, in accordance with the investment management agreement, no less than once a year conducts a meeting with the external manager or organizes a video or teleconference, at which the external manager reports on management results, compliance with investment restrictions, provides an assessment of the market situation and its possible impact on the portfolio and on the implementation of investment operations with pension assets of the Fund.
The effectiveness of active external managers is assessed based on the methodology for assessing the effectiveness of an external manager, provided in Appendix 4 to these Rules. Based on the results of the conducted assessment of the effectiveness of the external manager as a whole and by asset classes for the last 3 (three), 5 (five) years and more from the start of management, taking into account the charged commission fee, the management of the National Bank makes a corresponding decision on replenishing (withdrawing) pension assets of the Fund or continuing (terminating) work with this external manager, or submitting this issue for consideration by the Board of the National Bank.
By decision of the management of the National Bank, the withdrawal of pension assets of the Fund or early termination of the investment management agreement is carried out without the procedure specified in paragraph 30 of these Rules.
A report on the management results of external managers is submitted by the authorized department for consideration by the Board of the National Bank no less than once a year.

Chapter 3. Procedure for selecting an external transit manager of pension assets of the Fund, including requirements for them when entrusting them to perform actions necessary for the management of pension assets of the Fund

To select an external transit manager, the authorized department sends a request to potential transit managers for information on coverage markets, transit management strategies, and service costs by instrument classes and markets, and conducts an analysis of the received proposals.
A mandatory requirement for selecting an external transit manager, when entrusting it with actions necessary for managing pension assets, is experience in transit management of portfolios of financial instruments subject to transit management of not less than 5 (five) years.

The decision on the choice of an external transit manager is made by the Chairman of the National Bank.

Measures related to the conclusion of an investment management agreement and further monitoring of the fulfillment of its conditions are carried out by the authorized department.
The investment management agreement contains the following conditions:

on the right of the National Bank to terminate the investment management agreement in advance in the following cases:
violation by the external transit manager of the conditions of the investment management agreement; decisions of the Chairman of the National Bank;
on the right of the National Bank at its own discretion at any time to replenish (withdraw) pension assets of the Fund located in external transit management, if such actions do not affect any unfinished external transit management of the Fund's pension assets;
on the provision by the external transit manager of information on the movement of its personnel responsible for managing the pension assets of the Fund transferred to external transit management;
on the visit of the external transit manager by employees of the National Bank and independent auditors for the purpose of checking transactions on the account, as well as obtaining additional information about the external transit manager, the procedure for making investment decisions, and procedures for monitoring risks;
on the liability of the external transit manager for possible losses caused by negligence, intentional non-fulfillment of obligations, or fraud on the part of the external transit manager;
on the provision by the external transit manager of information on transactions conducted to the bank-custodian responsible for consolidated accounting, no later than the next working day after the agreement and completion of trade confirmation procedures between the external transit manager and the broker;
on the provision by the external transit manager of information and documents on the procedures for approving brokers, as well as agents and counterparties of the external transit manager;
on the provision by the external transit manager of information on the presence of internal policies and procedures for managing the risks of the external transit manager, reducing the risk of abuse and conflict of interest, including ensuring equal distribution of trades among client portfolios;
on the obligation of the external transit manager to submit to the National Bank in accordance with the investment management agreement within 10 (ten) working days after the completion of the transit period the following reports:
reporting on all securities transactions made by the external transit manager and its affiliated brokers (dealers) and futures brokers during the transit period; report on the results of the external transit management of the Fund's pension assets, including the difference in the cost of trade execution, broker commissions, market impact, difference in purchase and sale exchange rates for forex operations, taxes, and lost profit as of the date of completion of the transit period; report on the state of the relevant markets and their impact on the portfolio; review of the strategy and explanation of the most important changes in the portfolio structure;
on the provision by the external transit manager of information on measures applied by supervisory authorities and participation in court proceedings;
on the provision by the external transit manager at the time of completion of the transit period of reconciled with the bank(s)-custodian(s) full portfolio reporting as of the date of completion of the transit period in accordance with the investment management agreement;
on the signing of the investment management agreement in Kazakh, Russian, and in a language determined by mutual agreement;
on the possibility of making changes and/or additions to the investment management agreement with the written consent of both parties.

The National Bank, in accordance with the investment management agreement, carries out the transfer of the Fund's pension assets to external transit management by transferring money and/or securities to the accounts of the National Bank at the bank(s)-custodian(s) intended for external transit management.

The transfer of the Fund's pension assets to the external transit manager is carried out for a period of no more than 12 (twelve) months.

When transferring the Fund's pension assets to external transit management, the transit period for forming the portfolio in accordance with the target parameters established by the investment management agreement is taken into account. The duration of the transit period does not exceed 15 (fifteen) working days.
Pension assets of the Fund transferred to external transit management are stored in the accounts of the National Bank at the bank(s)-custodian(s) and in a margin account with a clearing broker. It is permitted to place the Fund's pension assets in a margin account of the external transit manager opened with a third party, provided there is an agreement between the National Bank and the external transit manager on the conditions for conducting transactions in such an account or the conditions for conducting transactions in such an account in the investment management agreement.
From the date of transfer of the Fund's pension assets to external transit management, the authorized department conducts daily monitoring of the activities of the external transit manager by checking compliance with the restrictions established in the investment management agreement, monitoring transactions made by the external transit manager.

Appendix 1
to the Rules for the Selection of Foreign Organizations Managing Pension Assets of the Unified Accumulative Pension Fund, Including Requirements for Them, When Entrusting Them with Actions Necessary for the Management of Pension Assets of the Unified Accumulative Pension Fund

Minimum Information Requested from Potential
External Manager

Experience of the potential external manager in the considered type of mandate.
Volume of client assets held (held previously) under the management of the potential external manager over the last 5 (five) years, including:

volume of total assets held (held previously) under management;
volume of assets for the considered type of mandate;
volume of assets of institutional clients (including central bank assets);
volume of assets for segregated accounts.

Information on portfolio managers and client relationship managers who will be responsible for assets transferred to external management.
Information on personnel movement over the last 10 (ten) years among employees of the investment block of the potential external manager (portfolio managers, analysts, and traders).
Detailed description of the investment process, portfolio management methods, market research, information sources used, and model for valuing financial instruments.
How modeling, monitoring, and management of active market risk are carried out (in the case where the considered type of mandate relates to active management).
Presence of specialized software for monitoring and managing risks.
Historical results of portfolio management for a similar mandate over the last 5 (five) years with an analogous or similar type benchmark portfolio.
Description of software used to calculate profitability, risk, applied in financial and analytical reporting.
Brief description of internal corporate governance.
Liability of the external manager to the National Bank in case of violation of the conditions of the investment management agreement.
Information on types of insurance used to protect the client from errors of the external manager.
Conditions for organizing training.
Information on the expected level of commission fees for external management.
Audited financial report of the potential external manager for the last financial year.
Internal policies and procedures of the external manager regulating issues of reducing the risk of abuse and conflict of interest, including ensuring equal and fair distribution of trades among client portfolios, verification of the list and procedures for approving brokers, agents, and counterparties of the external manager.

Appendix 2
to the Rules for the Selection of Foreign Organizations, Managing Pension Assets of the Unified Accumulative Pension Fund, Including Requirements for Them, When Entrusting Them with Actions Necessary for the Management of Pension Assets of the Unified Accumulative Pension Fund

Evaluation Criteria for Conducting Comparative Analysis of Offers from Potential External Managers

No.	Evaluation Criteria	Score Assigned to Criteria (Significance of Indicator Defined in Percentages)
		Global Mandate	Specialized Mandate	Regional Mandate
1.	Historical Portfolio Management Results (when conducting comparative analysis of offers from potential external managers specializing in regional mandates and participating in the selection of a manager for a global mandate, indicators are normalized depending on the coverage of the corresponding mandate)	35 points	35 points	35 points
	annual geometric excess return for the last 3 (three) – 5 (five) years (in case if the excess return indicator for the period is less than 5 (five) years and is positive, the indicator is normalized relative to a 5 (five) year period)	40 percent	40 percent	40 percent
	average arithmetic indicator of the Information Ratio for the last 3 (three) – 5 (five) years (in case if the Information Ratio indicator for the period is less than 5 (five) years and is positive, the indicator is normalized relative to a 5 (five) year period)	60 percent	60 percent	60 percent
2.	Organization and Assets	15 points	15 points	15 points
	employee ownership in the organization's capital structure	25 percent	25 percent	25 percent
	average annual change (in percent) of assets under management (outflows and inflows over the last 3 (three) – 5 (five) years or since the beginning of management)	25 percent	25 percent	25 percent
	percentage of assets for this considered mandate to total assets under management (when conducting comparative analysis of offers from potential external managers specializing in regional mandates and participating in the selection of a manager for a global mandate, the volume of assets for regional mandates is used. This value is normalized depending on the coverage of the corresponding mandate)	25 percent	25 percent	25 percent
	share of the volume of assets of institutional investors to total assets under management	25 percent	25 percent	25 percent
3.	Team	15 points	15 points	15 points
	average experience of portfolio managers and analysts responsible for managing assets for the corresponding mandate	50 percent	50 percent	50 percent
	personnel movement among employees of the investment block (portfolio managers, analysts, traders) throughout the company (the lowest value is taken into account)	50 percent	50 percent	50 percent
4.	Presence of a type of insurance for client interests against actions or inactions of the external manager	5 points	5 points	5 points
5.	Level of Commission Fees for Management	18 points	20 points	20 points
	level of base commission fee (the lowest value is taken into account)	75 percent	75 percent	75 percent
	acceptance of the principle of paying commission fees based on the results of external management in case of achieving positive excess return exceeding similar indicators for past periods from the start of management by the external manager (net new high basis since inception)	10 percent	10 percent	10 percent
	acceptance of the condition for a minimum excess return threshold from which the calculation of commission fees based on the results of external management begins, not lower than the base commission fee	10 percent	10 percent	10 percent
	acceptance of the condition for paying commission fees based on the results of external management in installments over several years	5 percent	5 percent	5 percent
6.	Training of National Bank Employees	5 points	10 points	10 points
	short-term training lasting 1 (one) – 2 (two) weeks	50 percent	50 percent	50 percent
	providing the opportunity to undergo internship and/or secondment lasting from 1 (one) month	50 percent	50 percent	50 percent
7.	Provision	7 points	0 points	0 points
	letter-commitment to create a legal entity on the territory of the International Financial Center "Astana" or accreditation as a participant of the International Financial Center "Astana" in accordance with the current law of the International Financial Center "Astana" for the purpose of carrying out the corresponding financial activity, or provision of
	letter-confirmation of carrying out financial activity by the potential external manager as a participant of the International Financial Center "Astana"

Note:

The evaluation of the offer of a potential external manager is the sum of scores for all evaluation criteria according to their significance.
For the calculation of scores, each indicator is subject to normalization relative to the best indicator in the considered criterion among all potential external managers.
In this case, the normalized indicator of a potential external manager is the ratio of the external manager's indicator to the maximum value of the indicator for the considered criterion.
If the external manager manages assets under the announced mandate within another mandate, the historical results of managing these assets within the other mandate are evaluated.
When evaluating the training of National Bank employees, the following indicator system is used:

Indicator (Conditions for Employee Training)	Score Assigned to Indicator
External manager pays for flights, accommodation, meals	1
External manager pays for accommodation, meals	0.5
External manager pays for accommodation	0.2

Appendix 3
to the Rules for the Selection of Foreign Organizations Managing Pension Assets of the Unified Accumulative Pension Fund, Including Requirements for Them, When Entrusting Them with Actions Necessary for the Management of Pension Assets of the Unified Accumulative Pension Fund

Evaluation Criteria for Conducting Comparative Analysis of Offers from Potential External Managers from the Shortlist within Investment and Operational Due Diligence

Table 1. Quantitative Analysis

No.	Evaluation Criteria	Scores Assigned to Criteria (Significance of Indicators Defined in Percentages)
		Active Management	Enhanced Index Management	Passive (Index) Management
1.	Historical Profitability Indicators Considering Risk	40 points	50 points
	annual geometric excess return for the last 3 (three) – 5 (five) years (in case if the excess return indicator for the period is less than 5 (five) years and is positive, the indicator is normalized relative to a 5 (five) year period)	15 percent	20 percent	30 percent
	average arithmetic indicator of the Information Ratio for the last 3 (three) – 5 (five) years (in case if the excess return indicator for the period is less than 5 (five) years and is positive, the indicator is normalized relative to a 5 (five) year period)	30 percent	30 percent	50 percent
	Sharpe Ratio	15 percent	25 percent	20 percent
	Sortino Ratio	40 percent	25 percent	-
2.	Indicators for Evaluating the Stability of Historical Results	30 points
	Level of variability of return deviation (tracking error)	20 percent	40 percent	50 percent
	Benchmark Excess Ratio	30 percent	40 percent	50 percent
	Kurtosis Coefficient	10 percent	-	-
	Range of excess return indicator (absolute)	20 percent	-	-
	Duration of portfolio results exceeding the benchmark (in months)	20 percent	20 percent	-
3.	Downside Risk Indicators	30 points	20 points
	Variability of return deviation (tracking error) below the minimum threshold value	10 percent	10 percent	-
	Average Loss	10 percent	15 percent	25 percent
	Duration of unsatisfactory portfolio results against the benchmark (in months)	25 percent	15 percent	-
	Maximum Loss	15 percent	20 percent	25 percent
	Largest Drawdown of Portfolio Value	30 percent	20 percent	25 percent
	Duration of Portfolio Results Recovery	10 percent	20 percent	25 percent

Table 2. Qualitative Analysis

Evaluation Criteria	Satisfactory (Unsatisfactory)
Investment Process
1.1. Formation of Investment Portfolio
assessment of relevant restrictions and limits of the investment strategy of the proposed investment product
use of analytical research and implementation of investment ideas
assessment of portfolio management results for compliance with the stated style
Process of Decision Making on Purchase or Sale of Financial Instruments
decision-making model
presence of a clear and consistent discipline in the sale of financial instruments, as well as procedures for establishing loss limits (stop-loss)
Internal Control and Monitoring Procedures
2.1. Risk Management Process
internal order or regulation of the external manager's work on portfolio risk management
presence of software for managing and monitoring portfolio risks
Process of Executing Trades
presence of a Best Execution Policy, including the procedure for selecting and approving counterparties and trading venues
presence of compliance procedures and data reconciliation procedures
settlement of transactions with securities

Note:

The evaluation of the offer of a potential external manager from the shortlist is the sum of scores for all criteria given in Table 1, according to their significance.
For the purpose of calculating scores, each indicator is subject to normalization relative to the best indicator in the considered criterion among all potential external managers from the shortlist. In this case, the normalized indicator is the ratio of the indicator of the external manager from the shortlist to the maximum value of the indicator for the considered criterion.
When evaluating the investment process and internal control and monitoring procedures of a potential external manager within the framework of qualitative analysis, the criteria for which are given in Table 2, the following indicator system is used:

Indicator	Score Assigned to Indicator
Satisfactory – the process and/or procedures of the potential external manager correspond to the stated status, are clear, and can be easily interpreted	1
Unsatisfactory – the process and/or procedures of the potential external manager do not correspond to the stated status, are acceptable, however, there are problems in the implementation of decisions within the company	0

Appendix 4
to the Rules for the Selection of Foreign Organizations Managing Pension Assets of the Unified Accumulative Pension Fund, Including Requirements for Them, When Entrusting Them with Actions Necessary for the Management of Pension Assets of the Unified Accumulative Pension Fund

Methodology for Evaluating the Effectiveness of the External Manager's Work

The effectiveness of the external manager's work is assessed by assigning points to the external manager in accordance with the quantitative and qualitative indicators provided by this Methodology.
Quantitative indicators:
Information Ratio
| Information Ratio | Assigned Score |
| --- | --- |
| (Information ratio) | |
| >1 | 3 points |
| 0.5 – 1 | 2 points |
| 0 - 0.5 | 1 point |
| 0 | 0 points |
| (-) 0.5- 0 | (-) 1 point |
| (-) 1 - (-) 0.5 | (-) 2 points |
| <(-) 1 | (-) 3 points |
Qualitative indicators:

Staff turnover
| Staff Turnover (in percent) | Assigned Score |
| --- | --- |
| > 30 | (-) 0.5 points |
| 5 - 30 | (-) 0.25 points |
| 0 - 5 | 0 points |
Operational risk.
For each fact of violation of restrictions provided by the investment strategy established for the external manager in the investment management agreement, due to an operational error, 0.2 (zero whole two tenths) points are deducted from the assessment;
Compliance with a Code of Business Ethics.
For each fact of violation of business ethics by the external manager, 0.5 (zero whole five tenths) points are deducted from the assessment.
In case of systematic untimely execution of client instructions, 0.5 (zero whole five tenths) points are deducted from the assessment.

The final effectiveness assessment is calculated as the sum of scores for quantitative and qualitative indicators.

Resolution of the Board of the National Bank of the Republic of Kazakhstan No. 78 of June 15, 2020 on Approval of the Rules for Choosing Foreign Organizations Managing Pension Assets of the Unified Accumulative Pension Fund

Lineage: In force

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