Unifi Alternative Investment Fund Pre reface Investor Predicament - PowerPoint PPT Presentation

Unifi Alternative Investment Fund

Pre reface 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 • Minimal / below average any real returns 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 Inv nvestment Obje jectiv ive 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 redemption AUM INR 405 crores Management & Min Investment INR 1 crore 1% per annum fixed and 20% performance Performance over hurdle rate (Chargeable Monthly) Fees Setup Fees None Hurdle Rate Non cumulative pre tax return of 10% p.a. Lock in period None Independent Custodian & IL&FS Securities Services Ltd S&P CRISIL Valuation Accountant

Investment Allocation Approach Unifi AIF’s core investment strategy is Chan Change e in in Inf Infla lati tion to exploit corporate event arbitrage Expec Ex ecta tati tions 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 Chan Change e in in besides tax efficiency. Select Equities Select Equities Economic Eco c Growth Gro th Rate Rate Expec Ex ecta tati tions 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 Ev Event Arb Arbit itrage oppo pportunit ities • 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 Deb ebt Arb Arbit itrage oppo pportunit itie ies • 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+ Years 15 150 150+ investments (Out of 200+ opportunities reviewed) 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 Offer Price: 195 215 Volume (in 00's) 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

Debt Investments – Approach and Strategy Investment Stra rategy - 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. Tactic tical Calls - Consider macro-economy Subsidiary – Holding Company – 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. Wholesale le to to Retai ail – Bulk Buying from Bank Aggregato tor of of Reta tail il 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.

Debt Investments – Approach and Strategy Struct ctured Papers fr from Emergi ging Fina nanci cial Sect ctors- Consider high yield opportunities arising from well-capitalized and professionally managed Alternative NBFCs focusing on SME Financing Commercial Vehicles Affordable Housing backed by Micro Financing Financing Mortgages The following criteria is firmly applied for selection of investment opportunities in this segment -  Fundamentally sound and profitable business model  Management with proven track record  Robust process for credit evaluation, security creation, operations control and collections  Presence of seasoned Private Equity investors in the board  Recent round of promoter / private equity infusion strengthening the capital adequacy  Short Term Maturity and being in the top quadrant of the Company’s Liability Repayment profile thereby placing our exposure in a positive Asset Liability bucket.