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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
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CONFIDENTIA
Orbe Investimentos
2
Brazil equity manager
So Paulo-based long-only equity firmmanaging $250M
Differentiated investment philosophyIndependent, bottom-up, research driven
value investing with an active corporate
governance approachCohesive team
3 partners since inception with a total
of 10 investment professionals
Significant alpha generation & performance+40%* annualized return since inception vs. Ibovespa
+30%, making it the second best performing equity fund
in the country
Independent ownership
fully aligned with investors with significant partner
capital invested since inception in Jan 03.
Best Ideas fund
Concentrated in 8-12 holdings
*Orbe Value results since inception (2003)
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CONFIDENTIA3
Timeline
Orbe Brazil Fundpasses US$ 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
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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
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
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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$
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Approach & Core Investment Themes
Opportunities in Brazil
6
Orbe Approach
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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
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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
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Main Holdings
9
By Revenue - Mar/2012 By Market Cap Mar/2012
CONFIDENTIAL
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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
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LEGAL ENTITY Orbe Brazil Fund
MINIMUM INVESTMENT USD $100,000
MANAGEMENT FEE 2% per annum
PERFORMANCE FEE 20% over 6 month LIBOR + 6%
LOCK-UP Initial 1st year
HIGH WATER MARK Yes
REDEMPTIONS Quarterly with 3 months notice
REDEMPTION FEE None
MANAGEMENT COMPANY Orbe Investimentos
CUSTODIAN Banco Bradesco (2nd largest Brazilian bank)
ADMINISTRATOR BNY Mellon in Brazil / Caceis in Bermuda
AUDITOR KPMG
LEGAL Wakefield & Quin
Terms & Conditions
11
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Annex 1
Orbe Value Examples of Current and Past Investment Cases
12
http://www.vigor.com.br/images/grupo/down/vigor.zip8/2/2019 Orbe Institutional Mar 2012
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Vigor (sold)
Industry: Food/Dairy Products
Initial Acquisition: R$ 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$000
Revenue and Margin Evolution
Net Revenue Gross Margin EBIT Margin
13
http://www.vigor.com.br/images/grupo/down/vigor.ziphttp://www.schulz.com.br/home/8/2/2019 Orbe Institutional Mar 2012
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Schulz (current)
New strategic focus: Heavy Vehicles parts
Growing new business: Heavy Vehicle Parts (10% revenues in
2003 to 75% of revenues in 2011)
Favorable economic moment and company expansion.
Focus on Trucks, Buses and Contruction/Agricultural Machinery
different from competitors, which focus on light small cars.
Volvo World Certified Partner - great quality, state-of-the-art
plant .
Brazil as export base for Trucks, Busses and Tractors
Industry: Truck, Bus & Agri Machinery parts
Initial Acquisition: R$ 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
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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
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Sector exposure (and cash balances)
16
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Annex 2Why Brazil
17
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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
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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
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Dynamic Economy 7th largest in the world
20
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Economic Stability
21
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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
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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
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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
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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
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CONFIDENTIA26
Tel: 55 11 3465 5600
orbe@orbeinvestimentos.com
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.
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