Investor Overview - March 2020

Concentrated portfolio of high-conviction long and short investments for

above-market wealth creation on a 3-6 year horizon

About us

For additional information, please contact Anand Batepati, abatepati@gfmgrp.com, gfmfocus.com

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 WE ARE PRINCIPALS INVESTING OUR OWN MONEY ALONGSIDE OUR CLIENTS

§ WE CONSIDER OURSELVES TO BE AN INVESTMENT PARTNERSHIP. We are co-investors alongside our clients,

with a shared motivation – to protect and grow our pooled capital over time. We make money when our
clients make money, otherwise not. Very few investment managers are aligned this way.

§ WE ARE ONLY PAID WHEN OUR CLIENT’S PORTFOLIO APPRECIATES BEYOND ITS PREVIOUS HIGHEST VALUE,
OTHERWISE NOT. We are compensated solely on performance fees, with no hidden charges. Performance
fees are earned when the client’s portfolio appreciates above its previous highest value (the high-
watermark), otherwise not.

§ WE ARE NOT AGENTS WITH DIFFERENT MOTIVATIONS FROM OUR CLIENTS. We do not make money from
the passage of time (management fees) or activity (commissions). Other than performance fees, we have
no other source of income. We also do not charge our operating costs to our clients. Almost all fund
managers charge their operating costs to the fund (and hence to their clients).

§ EACH CLIENT’S CAPITAL IS HELD IN A SEPARATELY MANAGED ACCOUNT OPENED IN THEIR NAME AT A
THIRD-PARTY FINANCIAL INSTITUTION FOR BROKERAGE & CUSTODY. Separately Managed Accounts are
100% transparent, more tax-efficient than funds, and legally safer when viewed from a client’s perspective.
This is the preferred investing format for the largest institutional investors, and we at GFM have made this
format available to all our clients at no charge.

About us

Private and confidential 2

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 WE INVEST THROUGH SEPERATELY MANAGED COMPARISON: FUNDS (MUTUAL OR HEDGE FUNDS)
ACCOUNTS (SMA) OPENED FOR EACH CLIENT

§ Brokerage-custody account opened in the client’s

name at a third-party financial institution.
Investments are held in the client’s name.
§ Only the client can make deposits or withdrawals
§ Investors own fund units, not the underlying
or otherwise touch the money.
investments. In stressed situations, this has led
§ Only GFM can invest the capital in the account as to problems like clients being prevented from
per the Investment Management Agreement redeeming. That can never happen with SMAs.
between GFM and the client.
§ Only very large funds are cost-efficient for
§ Broker-custodian directly sends account investors. For smaller funds, the fixed cost
statements, executes transactions and safe-keeps burden can seriously hamper investor returns.
client assets. Fixed expenses are near-zero.
§ In a fund setup, new investors get taxed from
§ 100% transparent, more tax-efficient vs. a fund, prior year portfolio activities! This can never
and safer from a client perspective. happen in a SMA.
About us

Private and confidential 3

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 We invest with the aim of doubling our client's
capital in 3-6 years by investing in a few special
businesses with small permanent downside risk and
disproportionately large upside potential. The
implied return is higher than stock market averages.
Our long investments are where the market price is OUR CLIENT-PARTNERS
at a large discount to our take-private valuation,
We seek clients who think of buying stock as buying
where such value is growing, and visible catalysts are
ownership interest in a business, like we do.
in play to facilitate the investment thesis.
As owners, we know that we will grow our wealth if
Our short positions are structural decliners or
the business prospers, we did not overpay when
stressed companies. Shorts are sized significantly
buying, and if the management is honest with us.
smaller than longs. Our shorts generate cash in
market declines which enables us to “buy low”. Therefore, in-depth business knowledge,
fundamentals, valuation, accounting scrutiny and
A carefully assembled portfolio of such holdings are
management evaluation consumes our focus as
monitored over unfolding events for evidence that
investment managers.
our thesis is on the right track. Holdings are then
thoughtfully capital managed to reflect our highest- We do not think of stocks as a number bouncing on a
conviction opportunities. graph that we buy for 100 to hopefully sell it to
someone else at 120 – and fast! That is a game we
do not believe in and do not play.
About us

Private and confidential 4

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 ANAND BATEPATI – CO-FOUNDER OF GFM
Portfolio manager and co-investor alongside clients.
20 years of finance experience in New York, London,
Hong Kong. Two finance master's degrees.
§ Successful long/short equity investor with a
concentrated portfolio.
§ Activist short-seller with published investigative
reports showing hard evidence of fraud.
§ Designed quant investment strategies that
managed US$ 10 billion at Bear Stearns.
§ Founded a Fund of Hedge Funds in London. CAREER HISTORY
§ Co-founded and sold a tech startup in the US.
Became a private equity investor after that.
Unique mix of fundamental and quantitative skills.
Has held roles in value investing, derivatives trading,
private equity and accounting.
Uses field investigators, industry experts to
investigate businesses. Uses tech to enhance About us

productivity (accounting quality screens, keyword

scanners for keywords in filings, etc.).
Has built excellent DD capabilities at minimal fixed § HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
cost. E.g.: deployed 10+ investigators full time for §
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
We manage investment accounts of stocks, bonds and currencies
weeks to validate a short thesis with field evidence. §
§
Emphasis on financial and investor education
Referral network of complimentary services: tax, legal, physical property
About us

Private and confidential 5

§ Founding partners each have over 15 years’ experience in global financial
markets at top-tier firms in New York, London, and Hong Kong
§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 PERFORMANCE UPDATE AS OF MARCH 2020

About us

Private and confidential 6

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 ACTUAL RESULTS FROM OUR APPROACH

This chart is as of 29 February 2020. See attached brokerage statements for performance data used to create this chart.

About us

Private and confidential 7

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 OUR PERFORMANCE SNAPSHOT AT 46 MONTHS

In USD GFM Focus Vanguard FTSE Vanguard Total

(After costs and Global Stocks Bond Market
fees) ETF (VT) ETF (BND)
Starting Value 100,000 100,000 100,000
Ending Value 131,505 119,225 110,237
Total Period Return 31.5% 19.2% 10.2%
Annualized Return 7.4% 4.7% 2.6%
Average Monthly Return 0.8% 0.7% 0.4%
Max Monthly Return 13.6% 8.0% 2.8%
80 Percentile Monthly Return 4.0% 2.8% 1.1%
20 Percentile Monthly Return -1.7% -1.3% -0.1%
Annualized Volatility 17% 12% 3%
Maximum Drawdown -23% -16% -5%
Correlation - 0.73 -0.23
Beta - 1.03 -1.15
Postive Months 65% 72% 61%
Negative Months 35% 28% 39%
Months 46 46 46
About us

Private and confidential 8

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 DOES OUR PERFORMANCE SUGGEST THAT WE CAN DOUBLE THE PORTFOLIO VALUE IN 3-6
YEARS?

26% annualized target growth

rate. Double every 3 years.
GFM Focus intended
portfolio growth rate
12% annualized growth rate.
Double every 6 years.
8% annualized growth rate.
Double every 9 years. Long-
term stock market average.

After 44 months since we started, GFM Focus had recorded a 9.3% annualized growth after costs, which implies
a double every 8 years.

At this point in time, we have outperformed: 1) stock and bond ETFs, 2) outperformed the long-term stock
market average, and 3) outperformed many funds (which trail indices by their expense ratio or more).

However, our growth rate was below our intended range. So does that mean we cannot double every 3-6 years
going forward?

About us

Private and confidential 9

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 KEY OBSERVATION: PERFORMANCE SNAPSHOTS CAN LOOK VERY DIFFERENT AT DIFFERENT TIMES

GFM FOCUS AT 17 MONTHS: GFM FOCUS AT 27 MONTHS:

26% ANNUALIZED GROWTH RATE 19% ANNUALIZED GROWTH RATE
(PORTFOLIO DOUBLES EVERY 3 YEARS) (PORTFOLIO DOUBLES EVERY 4 YEARS)

Here we have three portfolio snapshots of GFM Focus, all of which show that we have performed well:
§ At 44 months: a 9% growth rate, which implies a double every 8 years.
§ At 17 months: a 26% growth rate, which implies a double every 3 years.
§ At 27 months: a 19% growth rate, which implies a double every 4 years.
We are confident of going back to our intended range of doubling at a 3-6 year rate in the coming months as
the catalysts we see in our big investments start getting recognized by the market.
Our long-standing clients have seen our past investments gain 50%, 100%, or higher in just a few months as
their catalysts played out. Our realized investments in Atwood Oceanics, Xpel, Wheelock, and Telstra are
examples of this. Their case studies are profiled below.
About us

Private and confidential 10

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 34 YEARS OF MICROSOFT: DEMONSTRATION THAT INVESTMENTS HAVE LOW & HIGH GROWTH
PERIODS – EVEN WHEN THEY REMAIN GREAT INVESTMENTS DURING THE ENTIRE PERIOD
MICROSOFT: AN OUTSTANDING “DOUBLE EVERY 3 YEARS” MICSORSOFT HAS BEEN A FOUNTAIN OF WEALTH
INVESTMENT AT 26% ANNUALIZED GROWTH OVER 34 YEARS
§ USD 100k in Microsoft’s IPO in March 1986 would have
been worth a whopping USD 260 million in March 2020.

Fast § USD 100k in the S&P 500 Index would have been worth
appreciation USD 1.3k million – “only” a 13x appreciation.
Slow phase § Microsoft outperformed the stock market by 200 times in
Fast
appreciation appreciation this 34-year period. A once in a lifetime result, with luck.
phase phase
YET, EVEN THIS WEALTH MACHINE UNDERPERFORMED ITS
OWN AVERAGE GROWTH RATE FOR 14 YEARS
§ The bottom chart shows a 14-year period where
Microsoft’s stock price has languished.
§ The stock underperformed its own average growth rate
over 54% the time on 1-, 3- or 5-year horizons.
§ Microsoft had negative returns 14-23% of the time on 1-,
3- or 5-year horizons.
Even a phenomenal investment like Microsoft has had periods
of low or even negative growth in its market value.
At GFM Focus, we invest with the aim of doubling capital on a
3-6 year horizon.
14 years of low growth in MSFT stock price
We are confident that we will soon experience a period of
high growth. We are awaiting a couple of big investment
theses to start playing out. We are well positioned, and
underlying catalysts are gaining momentum.
About us

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§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 PAST INVESTMENTS THAT SHOWCASE OUR APPROACH

About us

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§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 ATWOOD OCEANICS US$ 450M 6.5% 2020 BONDS EXECUTED LONG CASE
Bond Price
Sold at 2x plus
coupons here

Bought here

INVESTMENT CASE
• Atwood Oceanics was an oil services sector casualty in early 2016 with oil prices falling below US$ 50.
• Deep water oil production was uneconomic at these prices, and the market feared widespread oil rig rental cancellations.
Companies here were leveraged and the situation looked similar to the shipping sector collapse of 2009-2014.
• Atwood’s securities had collapsed on this view, but our analysis showed that Atwood, Ensco and Noble Energy were
significantly healthier than financially distressed peers like Pacific Drilling or Paragon Offshore.
• At the time, Atwood had enough cash to operate for 4-5 quarters on zero revenue, and management was already taking
action to cut the cash burn (discounted contract extensions, cold-stacking of rigs, etc.). They also had a hidden “option” to
raise cash – by selling older rigs as scrap. These actions could have materially extended their survival at low revenues.
• Meanwhile, Atwood’s bonds were trading <40 cents (recovery rate levels) while it was at least 1 year away from bankruptcy.
• We bought the bonds, and were encouraged to see noted investors like Bruce Berkowitz also piling in.
About us
• We received generous coupons while waiting for a rebound and sold at 2x, after Atwood announced that it sold itself.
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§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 VOCUS GROUP VOC:AU EXECUTED SHORT CASE

Covered here for

a 50% gain

Shorted here

INVESTMENT CASE
• One of the best performers on ASX in 2016 – a classic “growth” stock. US$ 3.5 bn market cap and <1% short/float.
• #4 telco in a competitive sector dominated by Telstra, which was 100x the revenues of Vocus. Total customer base was flat.
• Stock was trading at 95x EV/EBITDA. We found extreme misunderstanding of financials on the sell side due to M&A.
• Vocus was a classic roll-up. It had acquired 2 companies/year for stock and had made negligible FCF cumulatively in its life.
CEO had made his entire fortune on stock options and the game was getting bigger each year.
• It was impossible to decipher organic growth or segment-wise profitability. But it was clear that Revenue/Tangible Assets was
collapsing, utilization was <30% with sector overcapacity; ROIC was falling and leverage rising. In addition, PPE (old capex)
was fast losing value with falling replacement costs and a new NBN regulation would kill consumer business margins.
• Its recent 5-6 acquisitions were low margin businesses. They had run out of acquisition targets by May 2016. CEO was to
change from the latest merger with M2 Group.
• Earnings disappointment of a peer changed sentiment. The old CEO sold all his stock after a failed coup. Stock collapsed.
About us

Private and confidential 14

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 XPEL TECHNOLOGIES DAP/U:CN EXECUTED LONG CASE

2x and still
holding

Bought here

INVESTMENT CASE Later sold around $2.75.

• Small cap with no smart money competition. Mistake - sold too early.
• Stock had collapsed on the news of patent lawsuit from 3M and was trading at EV/EBTIDA of 1x.
• At the time, XPEL was clocking 50% ROIC, 25-50% revenue growth and was funding growth from OCF. Reinvestment runway
was very long and management was stable and invested in the stock.
• Our experience with patent lawsuits suggested that the company was 1-2 years away from a Markman order and 3-5 years
away from a final judgment. Meanwhile, business was unaffected from the lawsuit from our channel checks.
• We further thought that this company could also be an acquisition candidate to someone like Newell.
• Our estimate of a legal worst case appeared unlikely to cripple the company in >2 years.
• Update: 3M lawsuit has been now settled, XPEL has been growing organically and through bolt-on acquisitions at <3x
EBITDA. ROIC has dropped due to a likely temporary issue and management appears focused on improving efficiency.
About us
• Stock is trading at a recent private placement price. It is still an acquisition candidate and we still think it is undervalued.
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§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 INVESTMENT THESIS – OUR STANDARDS
• Summary investment thesis.
Does the opportunity hit us on the head with a
club?
• Valuation vs. price, margin of safety, risk factors
and catalysts.
How big is the potential return? What is our
downside if we are wrong or unlucky? What can
break the thesis? What can narrow the
price/value gap?
• In-depth investment case and the reasons for
mispricing.
What gives us the confidence to go against the
world? How strong are our underlying facts?
• What does the opposite side believe? When
would they be right?
A technique to avoid blind spots and be
unbiased. What will a worst case post-mortem
look like?
• Verification done and topics for monitoring.
The insurance policy to ensure that the bet is
correct and the money relatively safe.

See our prior work for a perspective

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Private and confidential 16

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 CAPITAL MANAGEMENT – SCALING WINNERS,
CUTTING LOSERS
Idealized portfolio: 10 x 10% long positions. 200 x 0.25%
short positions. Such a portfolio will do well in a 2008
scenario and generate cash to invest at the lows.
Risk control: We control downside using
sizing/scaling/timing rules. Each position has a pre-set
full size. We scale up initial positions to this full size when
identified catalysts start getting priced in. A “broken
thesis” is exited quickly.
Portfolio features: We short to make money, not to cut WHAT WE MEAN
beta. Portfolio weights are kept proportional to relative
risk/reward. Positions are monitored for margin of safety, Catalysts: We define catalysts as visible, upcoming
and verifiable facts to see if we are either right or wrong. “valuation game changers” that we have been able to
confirm through due diligence. They are three types –
Reality is a barbell portfolio: Several starter positions.
operational (e.g.: large business changes), fundamental
10-20 full sized long positions. Resultantly, each full-sized (e.g.: step change in margins) or capital structure (e.g.:
position will be “visibly working”. This keeps total capital buyback).
requirements low and returns high.
Starter positions: Initial exposure is a fraction of the pre-
Horizon: Long positions have a 3-6 year investment set full size and this position is scaled over time as
horizon as the thesis is usually based on events (spinoff, catalysts get priced in. This helps mitigate risks like being
activist engaging with the company) or catalysts flowing
too early into a position. It also keeps “dead” capital low.
into fundamentals (visible change in earnings, step-
change in market position). Stop losses: We cut three times by 2/3 each time from
our starter position if we breach pre-set loss triggers.
Short positions have a 1-year average horizon as timing is The key is to avoid a whipsaw by setting the right levels
critical here and because we cannot bet today on a less (we use standard deviation to ignore normal volatility).
visible event (say bankruptcy) 2 years away.
About us

Private and confidential 17

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 CAPITAL MANAGEMENT ILLUSTRATION – SIZING, SCALING, TIMING

We made 50% realized gain in less than 1-year. Scaled up as the position started working.
The stock had ample liquidity, cheap borrow, low short interest and a dispersed shareholding
(multiple borrow sources, near zero risk of an engineered short squeeze) to support a large
sized position. Controlling
losses
Scaling up
Starter position size
short
position
Research initiated
started
Short position
exited

About us

Private and confidential 18

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 STEPS IN INVESTING WITH GFM

§ SPEAK WITH GFM. Interact with us to gain a full perspective on partnering with GFM for your investing
goals. We pride ourselves in being open and transparent in all aspects of our business.

§ REVIEW AND SIGN THE INVESTMENT MANAGEMENT AGREEMENT. This is the governing document of our
relationship. We have written it in a simple language and without fine print.

§ PROVIDE THE ACCOUNT OPENING DOCUMENTS. GFM will then facilitate opening your Separately Managed
Account at a third-party financial institution. During this process, we would require the usual identity
documents like a passport copy or a utility bill.

§ FUND THE ACCOUNT. Once the account is open and you have taken over access, 2ire your funds into this
account. GFM will then start investing the money as per the Investment Management Agreement and the
broker/custodian will be sending you periodic statements. You can log in 24/7 and view your portfolio at
any time.

§ REACH YOUR PORTFOLIO MANAGER WITH ONE PHONE CALL. Anand Batepati and our team are one phone
call away in case you wish to discuss your portfolio at any time. This is in stark contrast to most funds
where you almost never can interact with the portfolio manager, except maybe at staged events.

As an investment partnership, we look forward to growing our clients’ wealth alongside our own in the years to
come.

About us

Private and confidential 19

§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)
 Anand Batepati
Co-Founder & Portfolio Manager | GFM Asset Management
+852 6478 0975 │ abatepati@gfmgrp.com | gfmfocus.com
7/F | 181 Queen’s Road Central │ Hong Kong

IMPORTANT INFORMATION
GFM is licensed and regulated by Hong Kong’s Securities and Futures Commission for Asset Management.
This document is prepared for discussion purposes only and all information herein is on a “as is” basis. Nothing
should be considered investment advice or a recommendation to buy or sell any security or investment asset.
GFM expressly disclaims all liability from the use of any information in this document.
Investing involves risks, including the risk that you may lose some or all the money that you invest permanently.
Past performance is not a guide to future returns. Future returns are not guaranteed and are uncertain.
This document is private and confidential and is for the intended recipient only. If you have received this in error,
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please destroy all copies and notify the sender.
§ HK SFC Licensed Type 9 Asset Management Firm (CE Ref BGT035)
§ US SEC Registered Investment Advisor
§ US-based accounts managed by GFM Asset Management LLC (FINRA CRD #283810)