In its Guidelines for Avoiding Conflicts of Interest and Dealing with Gifts and Benefits, MEAG has documented rules that MEAG MUNICH ERGO AssetManagement GmbH (‘MEAG AMG’) and MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH (‘MEAG KAG’) have adopted with regard to the identification, documentation, escalation and management of conflicts of interest.

As an asset management company, MEAG KAG is required by law to act solely in the interests of its investors. MEAG KAG performs its activities honestly and with the care and diligence required to act in the best interests of the investment funds and portfolio management mandates it manages, its investors and the integrity of the market. Due to internal company processes, MEAG AMG also applies the Guidelines for Avoiding Conflicts of Interest and Dealing with Gifts and Benefits.

At an asset management company such as MEAG KAG, which provides a wide range of services for a large number of investors and clients, conflicts of interest cannot always be avoided. In accordance with the relevant statutory requirements, we herewith inform about the precautions we take to deal with conflicts of interest:

Possible conflicts of interest

A ‘conflict of interest’ is a situation in which one or more natural or legal persons have conflicting interests and the pursuit of one interest could be detrimental to another interest.

Conflicts of interest may arise, for example,

• between MEAG, other companies in Munich Reinsurance Company Group (‘Munich Re Group’), the management, MEAG employees, external companies and persons contractually associated with MEAG, and other third parties and the investment funds and portfolio management mandates managed by MEAG KAG, the investors and customers, or
• between the investors and customers themselves, or
• between the investors and the investment funds managed by MEAG KAG or
• between different investment funds managed by MEAG KAG.

Conflicts of interest are also conceivable between MEAG and the asset managers and other outsourcing companies, investment advisory firms or custodians it commissions.

Conflicts of interest also include those that may arise from the integration of sustainability risks into processes, systems and internal controls.

For example, the following things may lead to conflicts of interest within organisational units and process interfaces:

• the receipt of benefits from third parties in the form of gifts, dinner invitations, trips or in connection with investment services;
• obtaining information that is not publicly known (‘insider information’);
• personal relationships of employees or management or persons associated with them;
• the participation of these persons in supervisory or advisory boards;
• the position as a group company vis-à-vis customers;
• reallocations in the investment funds;
• identical interests of multiple clients (e.g. fund/portfolio management) in a purchase or sale of a certain property;
• identical interests of multiple clients in acquiring a share in investment projects;
• grouping of related buy and sell orders (‘block trades’);
• investors attempting to conclude transactions in fund units at known unit prices, thus gaining an advantage over other investors.

Organisational measures, guidelines and rules as means of general conflict-of-interest management

By means of organisational measures, guidelines and rules (‘mitigating measures’) including those described below, MEAG strives to ensure that potential conflicts of interest are avoided as far as possible or, where they are unavoidable, that they are disclosed and resolved appropriately, with due regard to the interests of investors, investment funds or portfolio management mandates.

• To prevent even the emergence of potential conflicts of interest, attention was paid when structuring the company to ensuring the separation of functions, in particular of those irreconcilable with each other. The principle of the separation of functions applies all the way up to management board level.
• In addition, a Compliance function was set up to monitor the precautions taken against conflicts of interest in all company divisions and to regularly train all employees, for instance with regard to legal requirements. The Compliance function for MEAG KAG is outsourced to the MEAG AMG Compliance function.
• By implementing a combination of preventive measures, including physical separation, restricted access and appropriate organisation of communication and documentation between business units and with third parties (‘Chinese walls’), MEAG sets high standards in its dealings with investors, clients and business partners.
• MEAG introduced the Munich Re Group Code of Conduct and is committed to it, thus obliging its employees to high ethical standards. MEAG expects its employees to act diligently and honestly, lawfully and professionally, to observe market standards and, in particular, to always observe the interests of its clients.
• Since it cannot be ruled out that remuneration may be a factor influencing employee behaviour, MEAG KAG has established remuneration principles, guidelines and directives which together form an appropriate set of rules to prevent remuneration structures that could offer employees an incentive to act in contravention of their responsibilities, legal and regulatory requirements or Munich Re Group's Code of Conduct.
• Private investment transactions by employees (‘employee transactions’) can lead to conflicts of interest. MEAG has therefore issued regulations for employee transactions.
• MEAG maintains a ‘Restricted List’ to counter possible conflicts of interest, e.g. by banning certain business transactions.
• Furthermore, it has established rules for the acceptance and granting of benefits and their disclosure (e.g. acceptance limit for gifts EUR 40.00/ban on accepting travel invitations, etc.).
• To avoid potential conflicts of interest when commissioning third parties, a procurement guideline is used to ensure that those involved in the procurement process do not create any basis for conflicts of interest.
• MEAG maintains an insider list and a watch list to monitor sensitive information and prevent the misuse of insider information.
• When delegating tasks, MEAG ensures that investor interests are safeguarded.
• Measures have been implemented to avoid churning and window dressing. Churning is the frequent reallocation of investments by an asset manager. Window dressing refers to measures that aim to artificially improve the financial situation of a company or a fund at the end of a reporting period, such as targeted accounting policy interventions or reallocations in the investments to present a better picture of the financial situation than is actually the case.
• MEAG has taken the measures needed to ensure equal treatment of all investors in its investment funds or portfolio management mandates, e.g.
  • A clearly defined and documented process for allocating investment opportunities, using an allocation scoring system with predefined criteria to break score ties in the field of real estate;
  • Pro rata reduction of participation in investment projects in the event of an allocation that is lower than the offers submitted, as well as organisational measures to ensure a fair flow of information among those involved in the project;
  • Rules for dealing with block trades.
• MEAG checks for conflicts of interest when designing new products;
• In addition, the custodians have specific order acceptance deadlines (cut-off times) to prevent investors from gaining an advantage over other investors by knowing unit prices;
• Furthermore, the Compliance function conducts regular compliance training seminars for employees.

Overcoming a specific conflict of interest

By identifying, preventing and managing conflicts of interest, MEAG strives to ensure that conflicts of interest do not adversely affect the interests of clients, MEAG, its owner or other stakeholders.

The following measures may be taken to manage a specific conflict of interest (individually or in combination):

• Adjusting organisational measures, guidelines and requirements;
• Not providing or avoiding the service, activity or situation that triggers the conflict of interest, if it cannot be prevented or effectively dealt with by other means, or
• Disclosing the conflict of interest to inform the parties concerned about it and its likely impact on them.

If there is a conflict of interest between MEAG and an investor, the investor's interests take precedence. If, in individual cases, the investor's justified interests cannot be given precedence, the investor must be informed of the nature and origin of the specific conflict of interest before the respective transaction is carried out (i.e. for example in the sales documents or the sales prospectus of the investment fund)

MEAG KAG draws particular attention to the following points:

In portfolio management, MEAG KAG's clients have delegated the management and thus also the decisions on the purchase and sale of financial instruments to their asset manager. This means that MEAG KAG makes the decisions on the specific purchases and sales within the framework of the agreed mandates without first obtaining the client's consent.

This constellation can intensify an existing conflict of interests. MEAG KAG counters risks that may arise from it by taking suitable organisational measures (see above), in particular by selecting investments that are aligned with the client's interests.

In this way we can ensure that performance, continuity of portfolio management and compliance with the investment objectives agreed upon with the client are prioritised when selecting financial instruments.