Bullero Alpha Strategy

1. Bullero Alpha Strategy August 2013

2. Overview • We are launching an absolute return PMS product from September 2013 • We are different - we construct a portfolio with a blend of • Market neutral alpha generating strategies • Blue chips bought only at distress valuations – we believe the market may offer such opportunities in the run up to the elections • Our source of return is not market timing, or long-only investments • We view stringent risk management as a key driver to sustained performance in financial markets • Initial proprietary capital commitment to strategy from Bullero – INR 10 million • The team at Bullero Capital has over 45 years of combined experience in the Indian financial markets

3. History and vision Bullero Capital is promoted by the Khandelwal family based out of New Delhi. The family has a rich history in the financial markets. The original family firm, Narayandas Khandelwal & Co was one of the founder members of the Calcutta Stock Exchange. The group took membership of the National Stock Exchange in 1995 under Archna Securities Pvt Ltd which extended till 2003. Since then, the shift had focused to maintaining a proprietary book and expanding exposure to real estate. We intend on developing our asset management business via the Portfolio Management license and grow our AUM to about Rs 100 crore under the absolute return strategy gradually The next step will be setting up of a closed AIF fund to trade across all asset classes – equities, currencies, commodities, fixed income – with potential for leverage.

4. Management philosophy • We are a fiduciary to our clients – client interests come first, always. • We seek to build relationships that are built on principles of trust, truthfulness and ethical conduct • We value truth and excellence above all traits – we need to know • We believe that the economy and markets are continuously changing. • We pride ourselves on being able to nimbly trade the markets, and strive to deliver superior risk-adjusted returns to our clients • Our attempt to deliver superior returns necessitates consistent, focused research to improve our methods, generate new ideas and work to identify regime changes in the markets and the economy

5. Organization chart

6. Investment team Varun Khandelwalis the principal officer at Bullero Capital. He has been responsible for managing the proprietary desk spanning equities, fixed income, real estate and options at Bullero since 2010. Bullero’s proprietary desk holds investment stocks and runs algorithmic strategies, statistical arbitrage and volatility trades expressed via options. He has extensively applied his expertise in statistically tested strategies to enhance investment returns. Prior to joining Bullero, Varun worked at Oxus Investments under SurjitBhallafrom 2007 to 2010, starting as a research associate and quickly progressing to portfolio manager. He helped develop investment strategies, portfolio analytics framework and generating investment ideas for the portfolio. Varun served as a Visiting Faculty in Finance at Birla Institute of Management Technologyfrom 2011-2012. He was on the editorial board of Developing Trends, an institutional macro publication on India. He holds a MSc Economics from the University of Warwick, UK and a BA (Hons) Economics from Delhi University.

7. Investment team Tarun Khandelwal has over 35 years of experience in the financial services industry as a broker, proprietary trader and investment manager. He specializes in applying the combination of fundamental analysis and technical analysis to markets. Tarun has extensive experience in broking, investing and trading. He has a deep knowledge of financial markets, promoter groups, political alliances, government policies, business models and corporate governance in India. Tarun has been running a proprietary trading operation since 2003 till date. Prior to that, he was running Archna Securities Pvt Ltd, an NSE broker since 1995. Tarun founded Archna Securities Pvt Ltd in 1992 in Kolkata. Before founding Archna Securities, he worked in the family firm – Narayan Das Khandelwal & Co – a founding member of the Calcutta Stock Exchage. He has seen Indian markets develop from their incipient stages of the outcry system.

8. Investment team SanchitMehdiratta started his career at Bullero over three years ago as an analyst. Sanchit specializes in developing mathematical trading models, statistical testing of trading trading strategies, implementing algorithmic trading solutions and risk management. His responsibilities include implementation of portfolio strategies, monitoring portfolio risk, and the upkeep of our financial databases. He has a degree in Mathematics from Hans Raj College, University of Delhi. ShivaniLalhas over four years of experience in the financial markets. She started her career with Bullero in 2009 as an analyst and trader. Her responsibilities include trade execution, risk reporting and independent implementation and monitoring of risk limits. She has a degree in Commerce from the University of Delhi.

9. Investment philosophy Qualitative Quantitative • We invest in blue chip companies trading at cheap valuations offered by market declines • These investment candidates are estimated within the context of the domestic and global macroeconomic factors • We apply technical analysis to define entry/exit points from our investment stocks • Blue chip stocks have stop losses as well; we believe things can go wrong in any segment of the market. • We believe that innovation is essential; we apply the latest investment research and build proprietary models that are differentiated from street research • We take a disciplined, quantitative approach to finding opportunity, capturing alpha, managing risk and assessing performance • The ability to monitor statistical index/stock/sector relationships in real-time provides us with a deeper understanding and provides unique trading opportunities

10. Investment strategies

11. Investment process

12. Investment process Our edge is in our research driven investment process • Before establishing any positions, the team evaluates a variety of factors not easily captured by traditional valuation models • Global business and credit cycles • Liquidity cycle • Market technicals • Political dynamics • Likely economic policy path • As a policy, we do not take positions contrary to dominant macroeconomic themes; we are not a bottoms’ up fund • The portfolio is a product of ongoing research and risk assessment

13. Example – pairs trading • Pairs trading helps generate returns uncorrelated with equity market performance; they are a useful instrument for diversification of portfolio risk • We monitor over 1000 intra-sector and inter-sector pairs across different instruments on a daily basis using our quantitative models • Our models are proprietary – we do not use the bollinger bang/standard deviation/correction methods commonly used by the sell side • Pairs trading is usually avoided during earnings season and during periods of market stress

14. Example – pair trading

15. Example – quasi arbitrage • TATA Steel / Corus merger resulted in the issue of convertible shares that traded at a discount of about 16% to 18% to the TATA Steel shares; a riskless arbitrage trade involved buying the CCPS and shorting the TATA Steel futures • Such opportunities present themselves intermittently, and when structured properly, offer fantastic risk/reward trades for the patient investor • In the present market, Tata Motors / DVR offer a similar opportunity with an added element of risk – there is no conversion. The relationship can be statistically modeled and traded for superior-risk adjust returns • These trades present us opportunities to diversify risk and reduce portfolio/market correlation

16. Risk management We believe that without a strictly defined risk management system, even the best investment strategies may fail to deliver acceptable returns Risk management is the first step in the integrated investment process. It is a proactive, ex-ante approach to identify, quantify, and manage risks • Risk identification: No trade is executed without thorough analysis of all sources of market and instrument-specific risks • Risk measurement: Our quantitative, proprietary risk management system measures risk of each new trade/position from a variety of perspectives • Stand-alone volatility • Marginal contribution to portfolio volatility – low portfolio correlation preferred • Risk concentration in single name/sector • Risk constraints: Portfolio volatility, diversification, beta, single name crash/open offer

17. Risk management • Multiple strategies, one book: primary risk management is portfolio-wide • Portfolio PNL, directional risk, and stop level are monitored real-time. We have volatility targets for our portfolio; if volatility rises, we actively reduce exposure till portfolio volatility is in target zone • Beta exposure of the portfolio is re-estimated regularly via our proprietary quantitative algorithms; we are very sensitive to shifts in the beta of our exposures • Trading strategies have clearly defined, ex-ante, risk budgets. If these are exceed, the strategy is decommissioned till performance resurfaces • Entire portfolio has strict drawdown limits • 7.5% - evaluation of source of losses. If temporary, positions held. • 10% - If same problems persist, we reduce exposure. • 15% - sharp cut in exposure till drawdowns start recovering

18. Risk management • Systemic Risk • We believe systemic risks continue to exist in the global financial system, particularly in Europe, China and Japan • We monitor the macro economic conditions, bond markets, interbank money markets, and yield curves of countries around the world to stay alert to signs of rise in stress in the financial system • Lowering of portfolio exposure during periods of triggered systemic risk events • Crisis offers opportunity – only if you have cash • Maintenance of conservative portfolio in extreme situations with extensive application of qualitative analysis • Operational Risk • Use of offsite systems for operational redundancy • Duplication of trading and research systems on Amazon AWS Cloud • Avail services of high quality counterparties with strong financials

19. Fund structure • While not a SEBI requirement, we have appointed Kotak Mahindra Bank as custodians to the fund • For greater transparency in accounting and handling of client assets • Fund Accounting – profit/loss, NAV, reporting, etc. • Client’s Depository and Bank accounts • Allocation of trades by custodian/fund accountant according to pre-determined allocation matrix • We are a pure portfolio management firm – only charge management/performance fees from client • It is not our intention to develop a direct marketing channel; we will market our products through distribution channels only

20. Fund structure Distributor / Broker Bullero Capital Revenue Client CustodianKotak Mahindra Bank Accounting

21. Fund reporting • Kotak Bank has been appointed as the custodian of assets, and clearing member in cash/derivative segment • Kotak Bank is also the fund accountant responsible for maintain client accounts and performance reports • Client NAV is available on a daily end-of-day basis from Kotak • The set-up ensures transparency in handling of client assets and reporting

22. Data infrastructure • Bullero maintains one of the richest possible datasets on Indian financial markets • We analyze in real-time market data at the bid/offer level to estimate liquidity impacts, high frequency trading activity and strength of market moves • In addition to financial data, we have designed news bots to seek out company specific news from blogs and financial websites • Our back testing platforms are developed in-house by us using a combination of R, Stata, and C++ • Self developed systems enable us to avoid the common pitfalls that plague most users of commercial software such as over fitted trading models, poor live performance and restrictions on strategies spanning multiple instruments

23. Terms and service providers Fees and Charges Service Providers • Minimum investment: INR 2.5 million • Additional Investments: INR 100,000 • Management fee – 2% up-front • Performance fee – 20% annually • Hurdle Rate - none • High watermark – Yes • Entry load – none • Exit load - 5% if withdrawn prior to completion of first year • Custodian Fees – 20bps per annual • Brokerage – industry norms • Custodian: Kotak Mahindra Bank • Fund Accountant: Kotak Mahindra Bank • Legal Counsel:AnkurSood & Co • Brokers:India Infoline LimitedReligare Securities Limited

24. What is true…and clarifications.. • What is true? • The strategy is not leveraged as per compliance with SEBI regulations • The strategy may vary net exposure from 0% to 100% depending on market conditions and valutions • Strategy uses a combination of quant, fundamental and technical factors • and what needs clarification…. • Returns may be negative • This strategy is not a substitute for long-term equity investment portfolio

25. Contact Us Varun Khandelwal Managing Director Bullero Capital Pvt Ltd 306 ABW Towers MG Road, IFFCO Chowk Gurgaon 122 002, India Mobile: 99719 05678 Phone: +91 (124) 411 0803/04/05 Fax: +91 (124) 400 0806 Email: varun.khandelwal@bullerocapital.com