CASE STUDY: Using AI To Manage Corporate 401K Plans

By John Bailey, Lumenai Investments LLC

This presentation and all information provided has been prepared solely for information purposes and does not constitute an offer to sell, or a solicitation of an offer to buy, any interest in any investment vehicle, and should not be relied on as such. Nor does this document disclose the risks or terms of an investment in any investment strategy managed by Lumenai or any of its affiliates.

Lumenai stands at the forefront of modern investment management by blending advanced artificial intelligence with proven financial strategies. For corporations, this means a more efficient way to manage 401(k) retirement funds, leading to better growth over time. For employees, it offers a personalized investment path, aiming to maximize returns for their retirement. In essence, Lumenai strives to simplify and enhance the 401(k)-retirement planning process for companies and their teams alike.

About Lumenai:

Lumenai’s investment engine is powered by the ETS Asset Management Factory and offers a distinct and tailored investment service designed for discerning investors, fiduciaries, and advisors. With its robust lineage in quantitative/AI investing since 1987, the ETS team consists of over 60 seasoned professionals, encompassing data scientists, engineers, and physicists. Having adeptly managed over $7B in AUM for distinguished clients such as HSBC, Rothschild Bank, and BNP Paribas, ETS's pedigree in the industry is unrivaled.

Application to 401(k) Plans:

Lumenai employs the ETS Chameleon model to refine 401(k) Plans by:

1. Fund Selection: Strategically pinpointing top-ranked mutual funds to maximize returns.
2. Portfolio Management: Actively curating four distinctive portfolios tailored to various risk profiles - from Conservative to Very Aggressive.

About Chameleon?

• Launched in January 1998
• Track Record of 20+ years
• Managing $1.7B assets
• Global clients, dedicated R&D/team

AI Investment Process

Lumenai's investment ethos is anchored in capitalizing on global opportunities while ensuring capital preservation during market volatility. This dual-pronged approach leverages Lumenai’s adaptive investing program, Chameleon:

1. Data Analytics: An exhaustive quantitative and qualitative analysis is employed to categorize the fund universe. Lumenai's prodigious database classifies over 12,000 fund classes and 200 ETF listings into 154 distinct investment opportunities, guaranteeing the selection of the most lucrative assets.
2. Dynamic Allocation: Employing a bottom-up approach, Chameleon's allocation mechanism is fluid, adjusting to daily market shifts using criteria such as momentum, risk, and correlation. Through Machine Learning, market regimes are discerned, facilitating astute decision-making and curbing unnecessary turnover.

The Investment Process

A Quantitative Methodology with a bottom-up approach in two iterative processes

Investment Track Record:

Chameleon's commendable track record is a testament to its prowess. Comparative charts and tables from 2000 to 2022 exhibit Chameleon's models outperforming Unit Linked and other global benchmarks, solidifying its position as a stalwart in the investment sector.?

Chameleon: Global Moderate Real Track

Accumulated Returns

Source: ETS HD. Simulated results from 31/12/1999 to 31/12/2022. Management Fee: 50bp, Transaction Fee: Obp, and NO Performance Fee. Risk free rate = 0.ETS calculations. *Source: Real results of the registered Fund. Unit Linked Moderate from Mutua Vida. Data compiled from 31/12/1999 until 31/12/2020. In this vehicle the fees are included at the underlying level.

***Source ETS HD. Synthetic Index composed by 50% MSCI All Country World Price + 50% Xtrackers II Eurozone Gov. Bond 1-3, with LOC currency from 31/12/2022.

Figures related to past performances and/or simulated performances refer to pas periods and are not reliable indicators of future results.

Chameleon: Global Moderate Real Track

Annual Returns

Source ETS HD. Simulated results from 31/12/1999 to 31/12/2022. Management Fee: 50bp, Transaction Fee: Obp, and NO Performance Fee. Risk free rate = 0.ETS calculations. *Source: Real results of the registered Fund. Unit Linked Moderate from Mutua Vida. Data compiled from 31/12/1999 until 31/12/2020. In this vehicle the fees are included at the underlying level.

Managed Portfolio Options:

Lumenai presents a suite of four AI-driven portfolios, each meticulously designed to cater to varying investment horizons and objectives:

1. Conservative: Crafted for those with short-term horizons (1-4 years), this option emphasizes capital preservation coupled with the potential for modest growth. Ideal for employees nearing retirement or those who prefer a more cautious approach to investment.
2. Moderate: Tailored for individuals looking at an intermediate-term (5-10 years) horizon, it strikes a harmonious balance between growth and preservation. Suited for employees with a moderate risk appetite who still seek meaningful growth.
3. Aggressive: Targeted for those with a long-term outlook (11-15 years), this option accentuates growth-oriented investments. Perfect for younger employees or those comfortable with a higher risk to achieve potentially higher returns.
4. Very Aggressive: Geared for the visionary investor with a very long-term horizon (15+ years), this portfolio leans heavily towards maximizing growth potential. Best suited for those who have a high risk tolerance and a long time before retirement.

Choose Your AI Managed Portfolio

For the end investor, choosing among these portfolios is straightforward. By understanding their own risk tolerance, time horizon to retirement, and investment objectives, they can select a portfolio that aligns with their personal needs. Lumenai's platform provides comprehensive insights and guidance to help each investor make an informed decision. Whether an employee is just starting their career, nearing retirement, or anywhere in between, there's a portfolio designed to meet their specific requirements. This tailored approach ensures that each individual is well-positioned to achieve their retirement goals.

Lumenai – Conservative Managed Portfolio

Objective: Short-term (1-4 years). For this time horizon it's important to balance preservation of capital with the potential for modest growth. A portfolio with a higher allocation to money market funds, government bonds, floating rate, and corporate credit, and a modest allocation to quality equity investments, such as large cap,? technology, and healthcare, would be appropriate. The risk target for this time horizon should be conservative to moderate.

Lumenai – Moderate Managed Portfolio

Objective: Intermediate-term (5-10 years). For this time horizon there is more room for growth-oriented investments. A portfolio with a moderate allocation to money markets, government bonds, floating rate, and corporate credit, and a larger allocation to quality- and growth-oriented equity investments, such as global, large caps, mid caps, technology, healthcare, energy, and natural resources would be appropriate. The risk target for this time horizon should be moderate to high.

Lumenai – Aggressive Managed Portfolio

Objective: Long-term (11-15 years): For this time horizon, the focus can be on growth-oriented investments. A portfolio with a lower allocation to money markets, government bonds, and corporate credit, and a larger allocation to quality- and growth-oriented equity investments, such as global, large caps, mid caps, technology, healthcare, energy, and natural resources, would be appropriate. The risk target for this time horizon should be high to very high.

Lumenai – Very Aggressive Managed Portfolio

Objective: Very long-term (15+ years): For this time horizon, the focus can be on growth-oriented investments. A portfolio with a small allocation to money markets, government bonds, and corporate credit, and the balance allocated to quality- and growth-oriented equity investments, such as global, large caps, mid caps, technology, healthcare, energy, and natural resources, would be appropriate. The risk target for this time horizon should be very high.

Getting Started:

Initiating one's journey with Lumenai is a streamlined and intuitive process, designed with both corporations and their employees in mind.

For Corporations:

Lumenai offers a holistic solution that not only simplifies the administrative side of retirement fund management but also adds value by ensuring optimal growth of these funds. By adopting Lumenai's AI-driven strategies, corporations can foster employee confidence, knowing that their 401(k) plans are being managed with precision and expertise. Moreover, the platform's integrated tools and analytics offer real-time insights, allowing for timely and informed decision-making. The result? A seamless, efficient, and value-driven retirement planning system that aligns with the company's objectives and enhances its benefits offering.

For Employees:

The onboarding process is straightforward. With a user-friendly interface, employees can easily set up and manage their retirement accounts. Lumenai's platform provides educational resources, insights, and personalized recommendations, ensuring that employees, regardless of their financial literacy, can make informed decisions about their retirement investments. By choosing from the four tailored portfolio options, they can align their investments with their risk tolerance and retirement goals. Plus, with regular updates and transparent reporting, employees can stay engaged and proactive in managing their retirement funds.

In essence, Lumenai not only simplifies the investment journey but also empowers corporations and their employees to take control of their retirement futures with confidence and clarity.

Conclusion:

Lumenai, by synergizing artificial intelligence with time-tested investment strategies, presents a paradigm shift in the realm of 401(k) Plan management. Such an integration not only provides corporations and their employees with a sophisticated and efficient investment solution but also establishes a new benchmark for the future of investment management. We invite stakeholders to consider this robust approach, ensuring a secure and prosperous retirement journey.

Important Disclosures

No securities commission or regulatory authority in the United States or in any other country has in any way passed upon the merits of an investment in Lumenai or the accuracy or adequacy of the information or material contained herein or otherwise. This information is not, and under no circumstances is to be construed as, a prospectus, a public offering, or an offering memorandum as defined under applicable securities legislation. The information contained herein does not set forth all of the terms, conditions and risks of an investment. This information is qualified in its entirety by, and is subject to, the information contained in the relevant offering documents. Prospective investors are advised to consult with their own independent advisors, including tax advisors, regarding a potential investment.

Any investment involves the risk of loss. Investment products are designed only for sophisticated investors who are able to sustain the loss of their investment. Accordingly, such investment products are not suitable for all investors. This presentation and all information provided has been prepared solely for information purposes and does not constitute an offer to sell, or a solicitation of an offer to buy, any interest in any investment vehicle, and should not be relied on as such. Nor does this document, any email, or any attachment hereto disclose the risks or terms of an investment in any investment vehicle managed by Lumenai or any of its affiliates.

These materials are not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to local law or regulation. Distribution of this information to any person other than the person to whom this information was originally delivered and to such person’s advisors is unauthorized and any reproduction of these materials, in whole or in part, or the disclosure of any of the contents, without the prior written consent of Lumenai Investments LLC in each such instance is prohibited.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. The opinions, estimates, and investment strategies and views expressed in this document are based upon current market conditions and/or data and information provided by unaffiliated third parties—and are subject to change without notice. Certain information herein constitutes “forward looking statements.” Actual events or performance may differ materially from those contemplated by such forward-looking statements.

Past performance is not indicative nor a guarantee of comparable future results. Performance indicated includes the reinvestment of all dividends, interest, income, and profits. The investments discussed herein may fluctuate in price or value. Investors may get back less than they invested.

Portfolios or investments referenced herein are examples only and actual portfolios may differ significantly. References to our team, staff, history and track records refers to both Lumenai and its third-party quantitative/AI research partner(s) who are disclosed upon request to Lumenai clients, but which may change at any point without prior or subsequent notice.

This material contains certain forward looking statements, expected or target returns, opinions and projections that are based on the assumptions and judgments of Lumenai a with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Lumenai. Other events which were not taken into account in formulating such projections, targets or estimates may occur and may significantly affect the returns or performance of any Client managed by Lumenai. Because of the significant uncertainties inherent in these assumptions and judgments, you should not place undue reliance on these forward-looking statements, nor should you regard the inclusion of these statements as a representation by Lumenai that it will achieve any strategy, objectives or other plans. For the avoidance of doubt, any such forward looking statements, opinions, expected returns, assumptions and/or judgments made by Lumenai may not prove to be accurate or correct.

Investors must be (i) “accredited investors” as defined under the Securities Act of 1933, as amended, or (ii) “qualified purchasers” or “knowledgeable employees” as defined under the Investment Company Act of 1940 and the rules promulgated thereunder. Interests may not be purchased by non-resident aliens, foreign corporations, foreign partnerships, foreign trusts or foreign estates, all as defined in the Internal Revenue Code of 1986, as amended, or by entities that are exempt from federal income tax. Lumenai may decline any investor even if they meet such suitability requirements. Prospective investors will be furnished with an investment management agreement and will be required to complete and return it to Lumenai prior to setting up Lumenai accounts and starting any portfolio.

This material from Lumenai Investments, LLC is intended only for the individual or entity to which it is addressed. This material may contain information that is privileged, confidential and exempt from disclosure under applicable law. If you are not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you received this e-mail by accident, please notify the sender immediately and destroy this e-mail and all copies of it. Disclosure Required Under IRS Circular 230: Lumenai Investments LLC does not offer tax advice and any information contained in this communication, including any attachments, was not intended or written to be used, and cannot be used, for the purpose of avoiding federal tax-related penalties or promoting, marketing or recommending to another party any transaction or matter addressed herein.

Lumenai was granted use of the hypothetical returns by our third-party quantitative/AI research partner(s). Hypothetical results do not represent the results of actual trading using client assets and were achieved by means of the retroactive application of a hypothetical model that was designed with the benefit of hindsight and could be adjusted at will until desired or better performance results were achieved. No representation is being made that any investment will or is likely to achieve profits or losses similar to those shown herein. Indeed, the techniques and methodologies used in generating the hypothetical results may and likely will differ in practice from those utilized in any investment strategy of Lumenai Investments LLC. In practice there are frequently material differences between hypothetical results and the actual results achieved by any particular investment or trading program. Investor performance may vary substantially from any investment strategy model shown in this material for reasons including variances in actual holdings, variances in fees and expenses, market fluctuations, the inception date of investment, the timing of contributions or withdrawals, deviations from the model by the advisor, and the failure of the investment strategy’s assumptions to accurately model reality. Alternative models or assumptions which may be more appropriate could produce significantly different results. Since the returns are hypothetical, they should not be considered indicative of the skill of Lumenai Investments, LLC. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of losses are material points which can adversely affect actual results. Because hypothetical results do not involve actual trading, the results do not reflect the deduction of custodial charges or other miscellaneous fees, and the assumptions regarding transaction costs and expenses may be underestimated, the incurrence of any of which will have a negative effect on actual performance. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. “Back testing” refers to simulated, hypothetical performance if a given strategy had been applied in the past. Back tested performance results have inherent limitations. Chief among these is that back tests are generally prepared with the benefit of hindsight, being derived from the retrospective application of a model investment strategy which can be adjusted at will until desired or better performance results are achieved.

For more information on any mention of awards, please contact the Chief Compliance Officer as Lumenai maintains strict criteria for any industry award nominations that they may garner. Lumenai does not pay anyone for award nominations.