Information Session - Fall 2015

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AIF Fall Information Session

AIF Managing Directors• Otto Warmbier,

SSG• Olivier Fioroni, RV • Krishna Korupolu,

GM

AIF Executive Board• Doug Chan, CEO • Aneesh Shah, CFO• Kartik Gupta, COO • Alex Rein, CMO• Angela Shen, CIO• Varun Kulkarni,

CRO

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Who we areStructure of AIF

AIF General Body

– Open Discussion of Portfolio Composition and Positions

– Market Overview and Current Events– Pitches by Portfolios– “Chalk Talks”– Guest Speakers, Valuation Workshops, Interview

Preparation

Global Macro Relative ValueSpecial

Situations

– Three Different Investment Strategies Some Market-Neutral, Some Directional

– Better Research– Opportunities for Mentorship

Risk Management

GB Meetings: Fridays 3:00-4:00 PM RRH

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Where we are

Interview prep | Mock interviews | Valuation prep Modeling workshops | Alumni outreach

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Why Invest?

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Why Invest?

• World’s largest, most challenging, and profitable game

• Two types of people in the world:– Those who lend (invest)– Those who borrow (spend)

• Riskier not to invest

• Time Value of Money

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Overview of the Financial Markets

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Asset Classes AIF Looks to Invest In

AIF looks to invest a variety of asset classes and we like to group assets into the following categories:• Capital Vehicles – Equity and Fixed Income assets

are the tools through which the financial markets transfer those who demand capital from those who supply the capital

• Risk Vehicles – Derivatives are assets used for moving risk from party in the market who wants to no longer worry about it (hedgers) to those who wish to profit from it (speculators)

• Real Assets – These assets transfer typically something of intrinsic value from one party to another

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Investment Process

1 •Generate Ideas•Members and Managing Directors generate and discuss ideas together

2 •Research•Members research with guidance from Managing Director

3 •Pitch•Team pitches to General Body and Investment Committee

4 •Review•Investment Committee reviews pitch, final approval from faculty advisor

5 •Execute•Chief Financial Officer executes trade

6 •Re-evaluate•Coverage Directors regularly review positions and presents to Investment Committee

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Why AIF?

• We go beyond the traditional long-short equity model of other investment groups and pursue other investing strategies and asset classes

• Our small size allows for superior mentorship and training

Fund Overview

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Global Macro Group

• GM manages a catalyst-driven portfolio that seeks to monetize macroeconomic developments around the world and take directional positions on global assets / flows

• Use various asset classes including fixed income, currency and commodity stocks, futures, and options to replicate the relevant delta exposure

• Potential opportunities require economic, financial, political, social, and geographical analysis to identify potential sources of value

• Managing Director: Krishna Korupolu• Coverage Director: Avi Ramesh, Ryan Wang

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• JPY is overvalued in its link to the USD

• BOJ shooting for aggressive easing; deterioration in the balance of payments (weakening export competitiveness)

• Debt to GDP: 237%; largest creditor nation

• Political Pressures: Shinzo Abe calling for unlimited QE

• USD-JPY to rise to 90 (10% overvalued)

• Estimates range 90-100• 82.13 high (as of April

2013)

• What happened?– Abe came in, and his

policy of unlimited QE occurred within a week – exit.

Investment Background Investment Thesis

Case Study: USD/JPY Currency Trade

Global Macro Group

• Managing Director: Krishna Korupolu• Coverage Director: Avi Ramesh, Ryan Wang

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Special Situations Group

• SSG manages an event-driven portfolio focused on mergers, acquisitions, spinoffs, bankruptcies, employee buyouts and other special situations

• Trading strategies are structured around the general theory of risk arbitrage

• Market neutral positions for M&A trades• Long/short focus for spinoffs

• Managing Director: Otto Warmbier• Coverage Director: Ozair Ahmad, Daoud Schelling

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• HA had negative free cash flow the last four years due to heavy capital expenditures

• CapEx set to significantly decline in year 2015

• Newly established Asian routes also set to mature

• New activist investor takes position on board

• Additional macroeconomic tailwinds and monopoly in inter-island market

• Investor misperception that negative FCF would continue

• Long HA in March 2014 at ~$13.50 for 1 year, $20.69 target from DCF and Comps, with 48% upside

• Exited at $18.25 in 8 months for a 35% gain

Investment Background Investment Thesis

Case Study: Hawaiian Airlines (HA)

Special Situations Group

• Managing Director: Otto Warmbier• Coverage Director: Ozair Ahmad, Daoud Schelling

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Relative Value Group

• Use fundamental analysis to understand the intrinsic value of a business

• Monetize mispricing in the market: long undervalued securities and short overvalued securities

• Use both quantitative and qualitative means to generate positive market neutral returns

• Managing Director: Olivier Fioroni• Coverage Directors: Karan Babbarwal, Joseph Tobin

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• Management transformed SKX into a sustainable business by improving inventory control and innovating

• Shift to higher quality product while maintaining affordable prices

• Shift towards company owned retail to reduce risk and improve unit economics

• Market is misperceiving SKX business model and management shift

• Growth in same store sales combined with retail build-out

• Diversifying risk through international expansion

• Took a long position in March 2015 at $72.13

• 8/25/15 stock price: $136.82 (+97.81% in six months)

Investment Background Investment Thesis

Case Study: Skechers USA Inc. (NYSE:SKX)

Relative Value Group

• Managing Director: Olivier Fioroni• Coverage Directors: Karan Babbarwal, Joseph Tobin

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Risk Management Group

• Protect investments from unpredictable market movements– Volatile oil prices– Rising/falling interest rates– Equity bubbles

• Enhance investment theses by reducing “market noise”

• Apply qualitative and quantitative analytical methods to ensure robust returns– Industry analysis– Value-at-risk– Regression

• Chief Risk Officer: Varun Kulkarni• Coverage Director: Aditya Chaudhry

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• XYZ Corp. sells in the US but produces in Japan; a drop in USD/JPY can seriously hurt margins

• Potential solution: simultaneously long XYZ equity and short USD/JPY to alleviate exchange rate risk

• XYZ Corp. manufactures widgets and is undervalued– Superior management

team– High-growth market – Cheap access to capital– Market unfairly

discounting widget manufacturers due to huge bubble in widget market last year

Investment Thesis Potential risk

Diagnosing market noise: an example

Risk Management Group

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• Historical Simulation• Monte Carlo Simulation• Parametric Modeling

• Value-at-Risk Analysis (VaR) measures the potential loss in value of a risky asset or portfolio over a defined period for a given confidence interval

• If VaR on a stock is $ 1,000 at a one-week, 95% confidence level, then there is a only a 5% chance that the value of the asset will drop more than $ 1,000 over any given week

• Ensures that risks are not taken beyond the level at which the fund can absorb the losses of a probable worst outcome.

Concept Methodologies

Risk Management Tool: Value-at-Risk Analysis

Risk Management Group

• Chief Risk Officer: Varun Kulkarni• Coverage Director: Aditya Chaudhry

AIF Opportunities

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• Comm School Admissions– ~90% first-round acceptance rate to McIntire’s Class of 2017,

compared to 41% for UVA– 100% first-round acceptance rate to McIntire’s Class of 2016

• Job/Internship Placement

4th Year DestinationsMoelis & CompanyBlackstoneGuggenheim PartnersGoldman SachsNomura SecuritiesCapital One

2nd and 3rd Year InternshipsCredit SuisseGoldman SachsEvercoreJ.P. Morgan IBDMoelis & CompanyUVIMCOMillstein & Co.

Guggenheim PartnersInvestureGreentech Capital AdvisorsPerella Weinberg PartnersErnst & YoungRothschildJefferies

Why AIF?Our exec. team will work with you to achieve your career goals

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Why AIF?Speaker Series• Kyle Bass – President, Hayman

Capital Management• Christine Richard – CEO, Orion

Research• Larry Kochard – CEO, UVIMCO• Cecil Ang – Sr. Research Associate,

Sands Capital• Ryan Yin – Analyst, Tiger Pacific• Chris Wong – Analyst, CPMG • Rob Whitener – Analyst, BlackRock• Steven Soranno – Calvert

Investments• Various McIntire Professors

Internal Chalk Talks• Basic Rules of Investing• Comparable Companies

Analysis• Discounted Cash Flow

Valuation• Leveraged Buyout Valuation• Spotting Frauds• Introduction to WACC• Introduction to Beta• Investment Idea Generation• Volatility and Pricing Models

for Options• Natural Resources Modeling• Banking Industry Investing• Finance Interviews

Recruiter Lectures• Breaking into Hedge Funds• ESG Investing• Intrinsic Value Investing• Market Efficiency & the Futures

Market• Alternative Investments

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What we look for

1. Smart, ambitious, hardworking2. Dedicated to AIF3. Interested in investing – prior experience

not required4. Interested in markets and current trends5. Excel in a certain field – all majors

welcome

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Member Profile

• Statistics– 11% AIF acceptance rate in

Fall 2014– Average UVA GPA: 3.8– All current fourth years

interned in either Investment Banking, Asset Management or Consulting

– 80% of members are Comm/Pre-Comm majors. 20% are majoring in a variety of other fields

• Special Achievements– Jefferson Scholars– Echols/Rodman Scholars– Raven Society– Beta Gamma Sigma– Phi Beta Kappa– Dean and Intermediate

Honors– Multiple Business

Competition Winners– John Griffin Class– Chris Shumway Class– Other prestigious UVA

activities

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New Member Probation• Five Week Training Process:

– Intro to investing, investing strategies, and asset classes

– Intro to industry analysis and basic financial accounting

– Financial modeling and valuation training

– Case studies on famous investments

• New members will submit a full memo on 5th week

• Full membership is contingent on successful completion of the five week process

• New and returning member requirements: 1 full pitch and 1 other presentation per year

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• Submit your resume and include a paragraph indicating your interest/experience in investing to AIFMcIntire@gmail.com by Thursday, September 3rd at 5:00pm with the subject line “Last Name, First Name, AIF Fall Membership Application”

• Interviews will be conducted with selected candidates Saturday and Sunday (September 5th & 6th) in the Commerce School in 15 min intervals.

Recruitment Process

Thursday

Sep. 3rd

Applications Due

Saturday

Sep. 5th

Interviews

SundaySep. 6th

Interviews

Key Dates

Q&A