orbe institutional mar 2012

8/2/2019 Orbe Institutional Mar 2012

1/26

www.orbeinvestimentos.com

Value investing is simple to understand, but difficult to implement.

The hard part is discipline, patience, and judgment

Seth Klarman, Baupost Group1


2/26

CONFIDENTIA

Orbe Investimentos

2

Brazil equity manager

So Paulo-based long-only equity firmmanaging $250M

Differentiated investment philosophyIndependent, bottom-up, research driven

value investing with an active corporate

governance approachCohesive team

3 partners since inception with a total

of 10 investment professionals

Significant alpha generation & performance+40%* annualized return since inception vs. Ibovespa

+30%, making it the second best performing equity fund

in the country

Independent ownership

fully aligned with investors with significant partner

capital invested since inception in Jan 03.

Best Ideas fund

Concentrated in 8-12 holdings

*Orbe Value results since inception (2003)


3/26

CONFIDENTIA3

Timeline

Orbe Brazil Fundpasses US$ 50

million in assets

1st USInstitutional

investor

VIGOR, our food company,was sold to a strategic buyer.In 2008, Orbe negotiated thesale of our shares so that thecompany could be takenprivate. The price received wasclose to 100% premium onmarket prices.

In Nov/2008, Unibanco andIta merged to create thelargest bank in BR. In thetransaction,Unibancos

voting shares we owned had

a huge premium.

FirstBrazilian

institutional investor

Orbe Valueclosed to newinvestors in

Brazil

Annual

Return49,35% 48,23% 25,36% 84,91% 82,00% -18,50% 35,62% 18,91% -19,07% 1,86%

Cumulative * 49,35% 121,37% 177,51% 413,15% 833,95% 661,19% 932,29% 1.127,50% 893,39% 1001,10%

* Returns are considered in Brazilian Real because the exchange rate can change the real return. Exchange Rate BRL/USD: 1,73

Inception

CVM authorize

sOrbe to receive

contributions frominvestors

Orbe BrazilFund starts

Outsourcedadministration/RTA to BNY Mellon


4/26

CONFIDENTIA

Investment Team

Fernando Camargo Luiz

Fabio Figueiredo Carvalho

Flavio Rissato Adorno

Mathias Wagner

Rafael Leite

Bruno Igel

Fernando Pina

Nicole Ficker

Rodolpho Ruiz

Tito vila

Frederico Bacelal

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Portfolio Manager

NameEducation/Experience

Engineer/Mackenzie; Harvard OPM(2013/ Banco Unibanco, Banco Abn-amro

BA Mackenzie; MBA FEA-USP; HarvardOPM(2012) / FAMA Investimentos

BA, EAESP-FGV / Bain & Co.

BA, Economics, IBMEC/SP

BA, Business Administration IBMEC/SP



BA, Business Administration IBMEC/SP/ Po de Aucar (CBD), Alpargatas

BA, Economics, FEA/USP

CIO 15 years experience in public equities

COO

Research Manager

Senior Analyst

Senior Analyst

Analyst

Analyst

Junior Analyst

CFOBA, Economics, PUC/SPIN

VESTMENTCOMMITEE

Partner

4

BA, Economics, FEA/USP

Analyst


5/26CONFIDENTIA

Orbe Value - Track Record

Funds returns are net of all fees and expensesThe Fund is compared against the Ibovespa, FGV-100 and CDI. The Ibovespa, which is the official index from Brazilian Bovespa exchange, is composed of over 40 companies, mainly of large caps with a combined market

capitalization exceeding US$1.2 trillion. The index is very concentrated in 4 sectors: Oil, Mining, Steel and Banks. FGV-100 is an index calculated using the Stockholders equity of the 100 largest companies listed, except banks

and government-controlled businesses. CDI is the Brazilian interbank rate, used as reference for fixed-income instruments. There are major differences between the stocks selected by Orbe and Ibovespa and FGV-100 including

that Orbe actively manages very concentrated portfolios typically investing in only 8 to 12 companies, from the 450 listed. The Ibovespa & FGV-100 are unmanaged and there may be differences in other features includ ing

liquidity and volatility. Orbe Value Fee Structure: 2.3% a year management fee and 20% above FGV-100 incentive fee paid annually.5

Return in R$ Return in US$


6/26CONFIDENTIA

Approach & Core Investment Themes

Opportunities in Brazil

6

Orbe Approach


7/26CONFIDENTIA

Initial document

Review of all publicinformation

FinancialStatements

Releases

Understanding BusinessModel

Clients Suppliers Competitors Value Added Regulation

Basic Math Time allocation

Investment Process

Trading

Weekly Portfolio Committee

450 listed companies inBrazil

Formal Screening Process Quarterly Improvements Price variation Red lights

Themes selectedaccording to macroscenario

Ideas brought byinvestment team members

Monitoring of insiders

Monitoring of executivechanges

Monitoring of local fundsportfolios/situation

Idea Sourcing MonitoringDue Diligence Processes

Complete qualitativeanalysis

Meetings withmanagement

Competitors

Clients

Sector specialists

CompetitiveAdvantages

Complete quantitativeanalysis

DCF to Equity Comparables Balance Sheet

Reflect all qualitativeview of the company in

the DCF Scenarios Capex Working

Capital Growth

Quarterly formal review ofresults

Regular meetings withmanagement

Review of competitors

Monitoring of clients andsuppliers

Improvements suggestion Liquidity Governance Operations M&A

Valuation review

7


8/26CONFIDENTIA

Risk X Return - (plotted Brazilian equity long-only funds with at least 5 year record)

Source: ANBIMA public database. Daily updates to this and other comparative information can be sourced on-line at www.anbima.com.br

5 years - From Sep/2006 to Oct/2011.

IBOVESPA and FGV-100 are main equity indexes. CDI is the fixed income benchmark rate in the country. Volatility is expressed in annual terms.

8

Volatility

Return


9/26CONFIDENTIA

Main Holdings

9

By Revenue - Mar/2012 By Market Cap Mar/2012

CONFIDENTIAL


10/26CONFIDENTIA

Some further thoughts on Investment Philosophy

Buy into companies, not markets. We like businesses. Listed stocks are just the way we buy parts of companies. Companies with

heightened Governance & Transparency, and strong business models, with highly qualified proven management teams.

Essential factors that the broader market may show but are often lacking in individual companies.

Dont fall in love. Discipline is the key quality for good value investing. Our past success has been dependent on the effective

search, rigorous analysis and diligence, monitoring and constant re-analysis of companies. We are conservative in

evaluating any company, using stress scenarios and incorporating pessimistic projections to evaluate possible downside

cenarios.

Dont overpay. We look for real returns of at least 20% per year. With this in mind, our main focus is really on buying bargain

companies so that the downside risk is really minimized.

Qualitative > Quantitative. While we rely on financial valuation techniques constantly to search for value, qualitative measures

are still more important in the long term. We dedicate a considerable amount of time monitoring the companies

business evolution its competition, their new investment projects, cost reductions, market growth strategies,...

Recognize weakness and adjust accordingly. The Brazilian stock market continues to be much more inefficient than the US or

European markets in terms of depth, breadth and liquidity. Active management in long term portfolios is not just

advisable but necessary to reflect the reality of the Brazilian market structure and adjusts pro-actively.

Fight the good fight. We are very active yet non-combative investors and will always try to team up with companys

management/shareholders to help create value for all shareholders.

10


11/26

CONFIDENTIA

LEGAL ENTITY Orbe Brazil Fund

MINIMUM INVESTMENT USD $100,000

MANAGEMENT FEE 2% per annum

PERFORMANCE FEE 20% over 6 month LIBOR + 6%

LOCK-UP Initial 1st year

HIGH WATER MARK Yes

REDEMPTIONS Quarterly with 3 months notice

REDEMPTION FEE None

MANAGEMENT COMPANY Orbe Investimentos

CUSTODIAN Banco Bradesco (2nd largest Brazilian bank)

ADMINISTRATOR BNY Mellon in Brazil / Caceis in Bermuda

AUDITOR KPMG

LEGAL Wakefield & Quin

Terms & Conditions

11


12/26

CONFIDENTIA

Annex 1

Orbe Value Examples of Current and Past Investment Cases

12
http://www.vigor.com.br/images/grupo/down/vigor.zip


13/26

CONFIDENTIA

Vigor (sold)

Industry: Food/Dairy Products

Initial Acquisition: R$ 0.60 in May 2006

Sale: R$ 5.83 in Feb 2009

Total Return: 972% or 153% a year

Vigor was a strategic asset in Brazilian food industry

Large national player with low valuation

Strong milk origination contracts

Migrating to higher margin products from

fluid milk to yogurt and cheeses

Very strong brands and distribution chain

Group Bertin a Strategic buyer

Large Brazilian food company, meat processor

High volumes, but very low margins in core

business.

Bought controlling stake in Nov 2007.

Minority Shareholders

Orbe was large enough to prevent Bertin from

taking Vigor private without negotiating a fairdeal for smaller shareholders.

Signed agreement to sell full position in Sep

2008. -5%0%

5%

10%

15%

20%

25%

30%

35%

40%

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

199 8 199 9 2 000 2 001 2 002 2 003 2 004 2 005 2 006 2 007

R$000

Revenue and Margin Evolution

Net Revenue Gross Margin EBIT Margin

13
http://www.vigor.com.br/images/grupo/down/vigor.ziphttp://www.schulz.com.br/home/


14/26

CONFIDENTIA

Schulz (current)

New strategic focus: Heavy Vehicles parts

Growing new business: Heavy Vehicle Parts (10% revenues in

2003 to 75% of revenues in 2011)

Favorable economic moment and company expansion.

Focus on Trucks, Buses and Contruction/Agricultural Machinery

different from competitors, which focus on light small cars.

Volvo World Certified Partner - great quality, state-of-the-art

plant .

Brazil as export base for Trucks, Busses and Tractors

Industry: Truck, Bus & Agri Machinery parts

Initial Acquisition: R$ 0,86 in Dec 2004

Return to date: 967 % or 46% per yearCurrent price: R$ 9.17

EV/Ebitda 2011: 6.0x

Portfolio Exp. (current): 8%

Investment Rationale:

Very attractive valuation

2 good business, dominant strong position in both

Admired company, history of excellence

Very competent management

Strategic asset in a industry going trough many changes

and fast expansion in the country.

14

Initial Acquisition

Stock Pricein R$

Traded VolumeR $ million / week
http://www.schulz.com.br/home/


15/26

CONFIDENTIA15

Schulz has been a position in the fund since end of 2004. We focus on never having more than 15% of any business exposure. When this limit is reached we have to sell in order to reduce the

concentration. When prices fall, we buy to keep our exposure level this is very clear in the second semester of 2008 on the chart above. When prices go up we sell in order to keep the exposure also within defined limits. Since the bottom of the 2008 crisis for Schulz(mar/09), for example, we have sold about 60% of our shares, because of the ~260% price increase.Typically, we reduce exposure when prices go up reaching levels we are not as comfortable with. If prices keep going up, we mightdecide to cut the entire position and move the capital back to cash, or other names in the portfolio.

Trading/ExposureDisciplined Buying/Selling to control exposure/risk


16/26

CONFIDENTIA

Sector exposure (and cash balances)

16


17/26

CONFIDENTIA

Annex 2Why Brazil

17


18/26

CONFIDENTIA

Across the board improvements in the Brazilian environment over the last 15 years

Main risks/issues have improved over recent years

Political EconomicExchange Rate and

ReservesCapital Markets

Continuity seen in most

policies, independent of ruling

party or coalitions.

Stronger democracy has

consolidated, for 30 years now,

with no chance of dictatorial ornationalistic movement.

Investment Grade achieved and

consolidated, a sign of

confidence in macro political

overview.

While Leftist candidate was

elected in 2002, Brazil

maintained positive economic

course and a pro-business

environment. New government

following similar steps.

7th largest economy in the

world with a broad industrial

base, large internal consumption

market, and low exports reliance.

Currently under best economic

moment ever, with GDP growth,heavy new investments, strong

internal markets and controlled

inflation.

Low credit penetration,

underleveraged population and

institutions, and reduced impact

from international crisis.

Inclusion of tens of millions of

new middle-class helping to

support spending and economic

growth.

Real $ FX appreciation expectedin the medium-term but

equilibrium levels seen between

R$/US$ 1.50 and 1.80 for the

short term.

Public debt is locallydenominated with no external

debt outstanding.

Over US$ 350 Billion in

international reserves, and

increasing.

Now over 450 listed companies,up from around 300 5 years ago.

Currently already close to 200 of

those have highest levels of

transparency and corporate

governance.

IPOs resumed in 2010, after a

break due to the 08 crisis.

Fast development also on the

debt market, with several new

instruments and issues.

Strong balance sheets and

recent large investments from

companies, expanding capacity

and allowing good growth in

coming years.

18


19/26

CONFIDENTIA

Development and its effects

The middle-class has expanded rapidly and is one of the main drivers for the recent transformations of the Brazilian

economy landscape. A little over 50% of the population (more than 90 million people) are now considered middle-class, an

increase of 80% over the last 15 years.

19


20/26

CONFIDENTIA

Dynamic Economy 7th largest in the world

20


21/26

CONFIDENTIA

Economic Stability

21


22/26

CONFIDENTIA

Brazil Good position to weather international crisis

Some of the healthiest banks in theworld

Low credit exposure

Strict banking regulation

No exposure to Subprime Credits

Mortgage Loans represent only 2% of GDP

22


23/26

CONFIDENTIA

Orbe Universe vs. Ibovespa Index by industry

Two companies - Petrobras and Vale -represent 29% of the Index.

Ibovespa Index - in white

Industry weight

Orbe Universe in blueIndustry weight

The Orbe Universe of potentialinvestments is more indicative ofthe broader Brazilian economyand does not have the over

emphasis on commodities thatthe Ibovespa maintains.

5 Sectors represent 65% ofthe Bovespa. hardlyrepresentative of theBrazilian Economy

23


24/26

CONFIDENTIA

Relevant corporate governance & transparency improvements in recent years

The differentiated levels of Corporate Governance on the Bovespa

The New Market: Very high standards of corporategovernance. Transparency, Tag along rights, voting rights

(which are all not required specifically by Brazilian law).

Most listed companies that went public in the 70s & 80s

were motivated by government incentives. Transparency and

good corporate governance policies were not required at thetime and only now are these beginning to become part of

mainstream corporate culture.

The IPOs in recent years have initially adhered to

differentiated levels of corporate governance. Most have

implemented and adhered to new very high standards of

governance in response to investor demand.

Some old listing companies have also started to improve

governance and transparency by adhering to these

conditions in order to improve share price and liquidity.

24


25/26

CONFIDENTIA

Disclosure

The contents of this message are intended for informational purposes only and are not for distribution to and does not constitute an offer to sell or the

solicitation of any offer to buy or sell any securities to any person in any jurisdiction. While Orbe Investimentos has done its best to verify the accuracy of all

information contained herein, no reliance should be placed on the information or opinions in this communication or their accuracy or completeness, for thepurpose of making any investment or any other purpose. No representation, warranty or undertaking, express or implied, is given as to the information or

opinions in this communication or their accuracy or completeness, by Orbe Investimentos or by their respective directors, officers, partners, employees,

affiliates or agents, and no liability is accepted by any of the foregoing as to the information or opinions in this communication or their accuracy or

completeness.

Any investment information is intended for use by professional investors only. Under US Law, an offer to buy or sell any securities may only be made through

offering documents in compliance with the Securities Act of 1933 or exemptive provisions there under.

Past performance is not a guarantee of future returns. All investment strategies entail some risk. When an investment involves a transaction denominated in a

foreign currency, it may be subject to currency fluctuations that will have an impact on the value of the investment in another currency. In addition complex

tax structures and delays in distributing important tax information, differences in regulatory requirements and fees. Investments in the emerging markets

involve risks not normally associated with investments in more developed and economically stable jurisdictions with more sophisticated capital markets and

regulatory regimes. Such risks include political, economic and currency risks and the risk associated with investing in underdeveloped legal, regulatory and

accounting environments. In addition, investments are volatile, and have limited liquidity, transparency and depth, which may make it difficult to achieve a

desired purchase or sale price for investments or to purchase or sell investments at any particular time. Any investment should not be made without careful

reference to the relevant Prospectus. Nothing herein shall constitute an investment recommendation or investment, accounting, tax or legal advice. All content

is for informational purposes only.

Under US IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this

communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties

under federal, state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

25


26/26

CONFIDENTIA26

Tel: 55 11 3465 5600

[email protected]

DISCLAIMER

Orbe Investimentos e Participaes Ltda. does not market or distribute investment fund shares or any other financial asset. The information

contained in this material is of an exclusively informative nature. Investment funds are not secured by the fund administrator. or by the portfolio

manager. or by any other insurance mechanism. or by the fund guaranteeing the credits FGC. Past results do not represent any guarantee of

future yield. Investors are recommended to read carefully investment fund prospectus and regulations when investing.

orbe institutional mar 2012

Documents