Unifi Alternative Investment Fund Prefac face Investor Predicament - PowerPoint PPT Presentation

Unifi Alternative Investment Fund

Prefac face Investor Predicament Unifi AIF Proposition Conventional Equity Conventional Debt Event Arbitrage • High • Low • Consistent above average / above average / below average return potential volatility returns (~15%) • Accompanied by extreme • Hardly any real returns • Minimal / below average volatility post tax and inflation volatility (~12%) Cyclicality of asset values combined with misconstructed Risk adjusted arbitrage risk-return expectations push investors to either opportunities arising from • settle for sub-par returns (or) • corporate events • systemic changes • bear volatility beyond one’s temperament leading to • macro-economic cycles capital loss

Overview Inves estme ment nt Objecti ctive Unifi High Yield AIF is a discretionary fund focusing on event arbitrage and structured investment opportunities across multiple asset classes with an objective to generate absolute returns of 15% p.a with a standard deviation of 12% or less. The endeavor is to consistently generate superior compounded annual returns than conventional fixed income instruments with uncompromising emphasis on capital preservation. Fund Manager Unifi Capital Pvt . Ltd. Performance Monthly NAV & Quarterly Review Reporting Launch Date 04-Apr-2013. Open ended; Monthly subscription and Tenure AUM (INR Crs) INR 409 crores redemption Min Investment INR 1 crore 1% per annum fixed and 20% performance Fees over hurdle rate (Monthly Chargeable) Setup Fees None Non cumulative pre tax return of 10% per Hurdle Rate annum Lock in period None Independent Valuation S&P CRISIL Custodian & IL&FS Securities Services Ltd Accountant

Investment Allocation Approach Unifi AIF’s core investment strategy is Change in I Inflation to exploit corporate event arbitrage Expectatio tations opportunities that inherently have Rise Fall limited correlation to economic cycles and market volatility. In the debt segment, the focus is on high yield Event Arbitrage Event Arbitrage Nominal Bonds opportunities with an accrual mindset Rise Rise High Yield Bonds Rise High Yield Bonds Change in besides tax efficiency. Select Equities Select Equities Economi mic c Growth th Rate Expectatio tations 15.0 Fall Event Arbitrage Event Arbitrage - 10.0 Fall Fall 100% Floating rate 5.0 acceptance notes - Nominal Bonds -5.0 Gold ETFs 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Real GDP WPI Inflation

Investment Allocation Avg Avg Avg Indicative Strategies Instruments Allocation Allocation Allocation Allocation CY 2017 CY 2016 CY 2015 Arbitrage opportunities in Listed Equities arising from open offers, Event Arbitrage 0 – 100% 24% 20.0% 19.5% delisting, mergers & de-mergers, IPOs, Cash-Futures Conventional AAA & AA bonds of Nominal Bonds various Indian Companies – 0 – 50% 22% 22.3% 21.8% Typically HTM Structured Secured Corporate Debt, Commercial Papers, short Structured & High yield term bonds and tax efficient 0 – 75% 47% 46% 50% Debt Preference Shares of NBFCs focusing on Housing, SME , CV, Agri and Micro Finance. Equity, G-Secs and AAA debt Directional Calls 0 – 10% 1% 2.1% 1.7% (duration calls) For liquidity purposes/ temporary Cash / Liquid 6% 7.3% 9.7% parking of funds.

Investment Strategy ies Event nt Arbitrag age opport rtuni nities • Emerge from corporate events like acquisition, buyback regulation triggered / voluntary open offers made to the public by controlling shareholders, company delisting, merger of two listed companies etc. • The risk- return pay-off in most of such deals is deal-specific and has limited correlation to market cycles. • Emerge in such cases due to the perceived discount in the pre-event market price in relation to the open offer / post-event price, occurring largely due to asymmetric information distribution, difference in investment objectives and expectation amongst investors Debt t Arbitr trage ge opport rtuni nities ties • Also emerge across asset classes including • Conventional Debt (Wholesale-Retail Arbitrage; Subsidiary-Holding Company Arbitrage) • Structured High Yield Debt issuances collateralized with home loan, auto loan, micro finance receivables etc (Asset Liability Management Arbitrage in Alternative NBFCs )

Unifi Event Arbitrage - Track Record 15 15+ Years 150 150+ investments (Out of 200+ opportunities reviewed) 1500 1500+ crores deployed successfully ~ 15 15% CAGR returns with a standard deviation of ~ 7% (Adjusted for Cash) 50.00% Synopsis of past performance 40.00% 30.00% Total no. of deals till 183 Jan 2018 20.00% % Returns 10.00% Profitable deals 161 0.00% 0 20 40 60 80 100 120 140 160 Average returns per 6% -10.00% deal -20.00% Average tenure of 3 - 4 -30.00% deals months Sequential Event Arbitrage Deals

Event Arbitrage Particulars FY17 FY16 FY15 FY14 FY13 FY12 Total no. of Historical No of Open Offers 51 73 60 60 74 71 offers 120 No. of offers 2 7 9 12 16 11 100 participated 80 Average offer 186 161 287 3941 523 288 size (in crs) 60 40 Largest Offer 415 1621 11449 29200 5222 931 invested (in crs) 20 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Smallest Offer 115 26 251 30 40 27 invested (in crs) Payment Date: 8th Dec 2015 PA Date: 14 Jul 2015 IIFL Open Offer In a typical open offer, the Acceptance: 100% Purchase Date: 25 Aug 2015 40000 225 price movement during the Return: 5.40% Purchase Date: 185 Similar to Debt Returns Annualized Returns: 18.79% period between public Volume (in 00's) Offer Price: 195 215 30000 Share Price announcement and the offer 205 20000 closure is largely insulated 195 from market volatility and 10000 185 delivers a debt like absolute return. 0 175 14/07/2015 14/08/2015 14/09/2015 14/10/2015 14/11/2015 14/12/2015 Volumes (in 00's) Share Price

Merger Arbitrage Case Study – (HCL – Geometric ric Merger) HCL-Geometric merger was announced in Apr 2016 wherein for every 43 shares of Geometric, its shareholder would get 10 shares of HCL Tech and 43 preference shares of 3DL PLM (7% redeemable) with a face value of Rs.68 each. We started tracking the spreads and entered into the trade in April 2016 where we reckoned that we could make 14% per annum. We bought shares of Geometric and sold HCL Tech in the futures market. HCL Tech being a highly liquid F&O scrip enabled us to hedge our Geometric exposure completely and lock-in the desired spreads. All the deal related approvals were obtained by Jan 2017 and the spreads had also narrowed to 8% p.a by then. As we had realized the intended holding period return of 14% p.a, we exited the trade during February month just before the record date for share swap and moved into another opportunity with better yield. . Below is the timeline of approvals and respective spreads. Annualized 140.00 HCL - Geometric Price Movement Event Date return 130.00 HCL Tech Geometric Merger Announcement date 1-Apr-16 25.22% 120.00 Unifi Entered the trade 4-Apr-16 14.97% NOC approval from exchange 8-Jun-16 13.61% 110.00 CCI Approval 21-Aug-16 14.10% 100.00 Shareholders approval 4-Oct-16 16.50% 90.00 High Court Approval 14-Dec-16 11.55% Copy of High court approval submitted 80.00 to exchange 18-Jan-17 12.05% Unifi Exit prior to record date of 15-03-17 28-Feb-17 7.83%

Debt Investments – Approach and Strategy Investment In vestment Str Strat ategy egy - The focus would be on opportunities in the AA to Investment Grade segment to optimize after tax yields while balancing risks. Typically, all debt investments are made with Hold to Maturity (HTM) mindset but some of it could be traded opportunistically to maximize capital appreciation or minimize risk. Arbitrage opportunities emerging from the following possibilities will be actively pursued to enhance the overall portfolio yields. Ta Tactic tical al Call Calls - Consider macro-economy Sub Subsidiary ary – Hold lding ng Co Compa pany ny – Focus on 100% driven opportunities like softening of Yield Subsidiaries whose papers are rated lower than their Curve (duration play) due to fall in Interest highly rated Parent companies but offer an higher Rates and conducive Rating Upgrades cycle yield. resulting in capital gains. Wholesa lesale le to to Retail ail – Bulk Buying from Bank Aggregat Aggr egator of of Ret etail ail Lo Lots ts – Provide the much Treasuries / Primary Issuances at finer rates and needed liquidity channel for retail bond selling in smaller lots with a mark-up to HNIs / holders at market yields plus spread. Private Provident Fund Treasuries.