Updated High Yield Individual Account Strategy - June 2015 Monthly Performance: 0.9% in GEL and 3.71% in US$. Cumulative performance for 2015 : 56.8% in GEL and 16.6% in US$
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Updated High Yield Individual Account Strategy June 2015
1. Individual Account Strategy | High Yield | Georgia | June 2015
$/US$ 2.2483
Not a bank deposit or a regulated investment product | Not insured | May lose value
24/07/2015
INDIVIDUALACCOUNTSTRATEGYHIGHYIELDGEORGIAINDIVIDUALACCOUNTSTRATEGYHIGHYIELD
Strategy Details
Inception date 1/11/2013
Base currency US$, €, £ or $
Total net assets > $ 2.0 million
Target annualised return (net of all fees & expenses) US$ 12.5%/$ 17.5%
Maximum maturity of the underlying assets1
5 years
Management fee (% of the NAV p.a.)2
2.0%
Performance fee (% of the annualised net return above the Hurdle Rate)3
20%
Hurdle rate (regardless of the Base Currency) 10% ($) / 5% (other currencies)
Expenses (% of the NAV p.a.)4
<0.25%
Minimum investment US$10,0005
Maximum investment (negotiable) US$250,000
Frequency of account statements Monthly
Minimum holding period 180 days
Redemption notice 90 days
Redemption FX rate The NBG rate as of the settlement date6
Portfolio Construction & Limits
Maximum permissible % of the NAV
Georgian issued instruments >80%
Georgian Treasury bills <25%
US$, € denominated bank deposits & CDs <25%
$ denominated bank deposits & CDs <50%
Promissory notes issued by non-bank lenders ($ & US$) <75%
Loans to non-bank lenders (primarily $ & US$) <90%
Working capital credit facilities <75%
Managed P2P lending opportunities (primarily $) <75%
Bank-issued subordinated debt and preferred shares <25%
Similar instruments in Azerbaijan, Armenia, Ukraine, Kazakhstan & Central Asia <20%
Other instruments <10%
Long only, no leverage, no derivatives, no currency hedging
Top Five Holdings As of 30 June 2015
Instrument Currency Yield7
% of NAV
Structured working capital facility $ 37% 16%
Loan to a non-bank lender US$ 15% 12%
Managed P2P lending $ 57% 8%
Loan to a non-bank lender US$ 15% 6%
Loan to a non-bank lender US$ 15% 6%
Total 48%
# of instruments held 23
% of NAV in $ 64%
% of NAV in US$ 36%
Investment Team & Track Record
The Team
Investment Committee Relevant experience
Lado Gurgenidze 21 years
Goga Melikidze 11 years
Tengiz Lashkhi 9 years
Investment Manager
Tengiz Lashkhi 9 years
Track Record
Since 17 April 2014, the individuals comprising the Investment Team have been managing JSC Liberty Finance,
the SPV established by Liberty Securities and its staff, which seeks to provide high total return from current
income by offering investors high-yield Participating Promissory Notes and has the investment mandate
similar to that of the HY IAS, with the same list of the Permissible Investments and portfolio construction
principles, but has a significantly lower risk profile. Please see the Liberty Finance Factsheet at
http://bit.ly/1KGn1Ot.
Performance History As of 30 June 2015
Last Month YTD Cumulative8 Cumulative8
Annualised
$ 0.99% 6.00% 40.04% 32.29%
US$ 3.71% 4.83% 11.79% 9.80%
Since June 2013, the individuals comprising the Supervisory Board of LF have been managing the
Managed Peer To Peer Lending Individual Account Strategy (MP2PL IAS), which invests in short term
unsecured consumer loans originated via eLoan.ge.
Managed P2P Lending IAS Performance Currency Net Annualised IRR
eLoan $ 55.11%
Contact Details
Liberty Securities Ltd
The Liberty Tower, 74 I. Chavchavadze Ave., Tbilisi 0162 Georgia
www.libertysecurities.ge
Sales Investment Manager
Temur Iremashvili, Director Tengiz Lashkhi
Mobile: +995 591 158 877 Mobile: +995 591 709 280
temur.iremashvili@libertysecurities.ge tengiz.lashkhi@libertysecurities.ge
sales@libertysecurities.ge Skype: tengiz.lashkhi
Skype: temur_75
1. Except for preferred shares and subordinated debt
2. Annual fees charged by Liberty Securities accrued daily and paid quarterly in arrears
3. Payable annually in arrears or upon withdrawal of funds by the investor, whichever occurs earlier, if the annualised net rate of
return for the year or on the funds withdrawn, as the case may be, exceeds the annualised Hurdle Rate
4. Annual operating expenses other than the fees charged by Liberty Securities
5. Investments less than US$10,000 or equivalent in $, may be accepted by Liberty Securities in its discretion, subject to a $ 300
administration fee charged upon subscription
6. Accessible at http://www.nbg.ge/index.php?m=582&lng=eng
7. Gross annualised yield
8. Since 17 April 2014
9. As at the period end
Investment Objective & Philosophy
The Liberty Securities High Yield: Georgia Individual Account Strategy (the “HY IAS”) seeks to provide high total
return from current income through investment in a range of fixed-income assets situated principally in Georgia,
and mostly denominated in the local currency.
Why Georgian High Yield Strategy?
Georgia, a top reformer in the world in 2006-2011 according to the World Bank, has experienced a long period
of high economic growth rates in 2004-2012 and has evolved into an attractive low-tax jurisdiction with full
currency convertibility and attractive business climate (currently ranked by the World Bank as No. 15 in the Ease
of Doing Business global rankings and ranked No. 22 in the WSJ-Heritage Foundation Economic Freedom Index).
Georgia’s economic growth in 2013 and 2014 amounted to 3.3% and 4.8% (preliminary), respectively.
Georgia’s economic openness, attractive location, and liberal visa and trade regime have contributed to
Georgia’s ongoing transformation into a regional tourism, trade and financial hub.
Due to the growing receipts from tourism and remittances, export growth and stable FDI, portfolio and donor
inflows, Georgia has been comfortably financing its current account deficit in the past decade, although 2015
has proved to be challenging due to regional turmoil. Its currency, the Lari ($), has depreciated by
approximately 34% against the US$ since the beginning of 2009, and inflation is currently at 4.5%.
The Georgian banking sector is among the most stable, dynamic and innovative in the FSU/SEE and has grown
by over 1,500% since 2003, with total banking assets reaching US$10.4 bn as of 30 June 2015; nonetheless, the
banking penetration rate remains low, with bank credit to GDP at 49% and bank credit to individuals to GDP at
23% at 31 December 2014.
The historically high interest rates on bank loans and deposits have decreased considerably in the past 36
months, with 12-month bank term deposits in US$ currently yielding no more than 4%-5% (compared with 8%-
10% attainable in 2002-2012).
The Georgian non-bank lending sector has experienced robust growth in the past five years, with the aggregate
loan book of the non-bank lenders exceeding US$450 mln as of 31 December 2014 (up from less than US$30
mln in 2006). The non-bank lending sector comprises over 70 microfinance companies regulated by the National
Bank of Georgia, several dozen unregulated pawn shops and up to 20 newly-established unregulated online
lenders that are currently unregulated. Given their lending rates that typically exceed 25% p.a. for secured loans
and 60% for unsecured loans, these lenders attract funding at the rates reaching, and sometimes exceeding,
10% p.a.
Why Liberty Securities?
Founded and managed by individuals at the forefront of the financial services sector development in Georgia for
over 10 years
Rigorous bottom-up driven investment screening process to identify the best risk-reward opportunities based
on the investment team’s superior understanding of the banking and non-bank lending markets in Georgia
Investment discipline and risk controls ensuring the diversification insofar as possible within the set boundaries
of the investment strategy
Access to attractive opportunities, such as, for instance, instruments issued by Liberty Bank, promissory notes
and loans yielding over 10% issued by selected non-bank lenders, and access to the managed P2P lending
platform (eLoan.ge) owned and operated by eCapital, a Liberty Securities affiliate
Why the Individual Account Strategy?
Convenience and liquidity
Low investment minimums
Diversification
Return History NAV per notional HY IAS Investment Unit*
$ US$ $ US$
October 2013 100.0 59.9
November 2013 2.6% 1.4% 102.6 60.6
December 2013 3.7% 1.1% 106.4 61.3
January 2014 3.5% 0.9% 110.1 61.8
February 2014 1.9% 3.8% 112.3 64.2
March 2014 2.9% 3.0% 115.4 66.0
April 2014 2.7% 1.4% 118.6 66.9
May 2014 2.6% 2.5% 121.6 68.6
June 2014 3.0% 3.2% 125.3 70.8
July 2014 1.0% 2.6% 126.5 72.6
August 2014 0.4% 0.7% 127.0 73.1
September 2014 1.9% 0.9% 129.3 73.8
October 2014 -0.4% -0.5% 128.8 73.4
November 2014 0.1% -4.4% 128.9 70.2
December 2014 1.5% 0.1% 130.9 70.2
January 2015 6.1% -3.8% 138.9 67.5
February 2015 1.9% -3.3% 141.5 65.3
March 2015 4.4% 1.5% 147.7 66.3
April 2015 5.3% 3.7% 155.5 67.3
May 2015 -0.1% 0.1% 155.4 67.2
June 2015 0.9% 3.7% 156.8 69.7
Performance, since inception As of 30 June 2015
$ US$ EUR GBP
Cumulative 56.8% 16.6% 44.2% 19.2%
Annualised 34.1% 10.0% 26.6% 11.6%
Risk Metrics
$ US$
Volatility** 0.40% 0.45%
Sharpe Ratio*** 0.15 0.01
NAV per notional HY IAS Investment Unit* (rebased)
*The notional HY IAS Investment Units are set out for illustrative purposes only for the ease of tracking and assessing the historical
performance of the Individual Account Strategy. The NAV per notional HY IAS Investment Unit is calculated on a daily basis and equals the
aggregate NAV of the Individual Account Strategy divided by the total number of the notional HY IAS Investment Units
**Volatility represents the standard deviation of daily returns
***The current yield (6.287%) of the 12-month Georgian Treasury Bills has been used as the risk-free rate
2. Individual Account Strategy | High Yield | Georgia | June 2015
Not a bank deposit or a regulated investment product | Not insured | May lose value
24/07/2015
INDIVIDUALACCOUNTSTRATEGYHIGHYIELDGEORGIAINDIVIDUALACCOUNTSTRATEGY
Individual Account Strategy Operational Details and Key Terms & Conditions
Base Currency
Investments into the HY IAS can be made in $, US$, € or £, with the account statements and redemptions also denominated in the Base Currency chosen by the investor.
Investment size:
Minimum Investment: US$10,000 or equivalent in $, € or £ (investments less than US$10,000 or equivalent in other currencies may be accepted by Liberty Securities in its discretion,
subject to a $ 300 administration fee charged upon subscription)
Maximum Investment: US$250,000 (negotiable) or equivalent in $, € or £
Redemptions and Cash Distributions
The Minimum Holding Period prior to the submission of the Redemption Notice is 180 days, following which the Redemption Notice may be submitted by the investor at any time.
Redemption Notice: 90 days.
Withdrawal of the funds by the investor will occur at the effective NAV per notional HY IAS Investment Unit as of the withdrawal date.
The Redemption Notice Template can be accessed at http://bit.ly/1ETNnf8.
The Management Fee and Other Expenses
Management Fee: 2.0% p.a.
Accrued on a daily basis and paid quarterly in arrears to Liberty Securities, by way of debiting the Management Fee from the investor’s Asset Management Account.
If funds are contributed into the investor’s Asset Management Account or a withdrawal of funds is made before the end of the calendar quarter, the Management Fee in
respect of such funds will be calculated and accrued daily based on the number of calendar days during the calendar quarter in question during which such funds had been
invested in the investor’s Asset Management Account.
Performance Fee: 20% of the annualised net return above the annualised Hurdle Rate.
Payable annually in arrears or upon withdrawal of funds by the investor, whichever occurs earlier. The Performance Fee will be calculated and debited from the investor’s
Asset Management Account on the last day of the calendar year or on the date of the withdrawal, as the case may be. In case the last day of the calendar year is not a
business day, the Performance Fee shall be paid on the next business day.
Hurdle Rate: 10% p.a., if the Base Currency is $, and 5% p.a. in case of all other currencies.
Audit, legal and all other expenses incurred in connection with the HY IAS will not exceed 0.25% p.a. and will be accrued on a daily basis and debited quarterly from the investor’s
Asset Management Account.
If funds are contributed or withdrawn by the investor during the calendar quarter, the expenses in respect of such contributed or withdrawn funds, as the case may be, will
be calculated and accrued on a daily basis based on the number of calendar days during which such funds had been invested in the investor’s Asset Management Account in
the given quarter.
Account Statements
Account statements will be provided to the HY IAS investors monthly via email.
Taxation
A presentation accessible at the following link http://bit.ly/1F3pVhE summarises certain Georgian tax considerations that may be relevant to the asset management clients of Liberty
Securities that are investors in the various individual account strategies (IAS) and other products offered and/or managed by Liberty Securities or are holders of the promissory notes
issued by Liberty Finance, a majority-owned subsidiary of Liberty Securities, or by JSC EasyMoney, a micro finance lender affiliated with Liberty Securities. The summary is limited to
Georgian taxation issues, does not purport to be comprehensive, does not constitute tax advice or opinion, and prospective investors are strongly encouraged to consult their tax
advisors. No assurance is made that the considerations summarised may not be challenged by the Revenue Service of Georgia.
Account Opening and Investment Subscription (by invitation only, enquiries are welcome)
An investor fills out the Account Opening Application Form, signs an Asset Management Agreement and opens an Asset Management Account with Liberty Securities. These
documents can be accessed at http://bit.ly/1K6fhEx.
The investor wires the funds into his/her Asset Management Account and instructs Liberty Securities that the funds are earmarked for the High Yield: Georgia Individual Account
Strategy.
After receiving the investor’s funds, Liberty Securities places the cash in the Master Account, designated specifically for the HY IAS purposes.
Master Account and the Safekeeping of Investments
The Master Account is an account where all investors’ cash earmarked for the HY IAS is pooled, and into which all the cash distributions from the instruments in which the HY IAS is
invested are made.
The HY IAS investors’ funds pooled into the Master Account may only be used for the HY IAS purposes and are completely segregated from all other client or proprietary accounts of
Liberty Securities.
Liberty Securities will keep all investments made for the HY IAS in a separate Liberty Securities’ nominee account created for the purposes of safekeeping the HY IAS investments.
Liberty Securities will also open accounts with any counterparty for the purposes of the HY IAS to hold and safekeep any cash, securities and investments associated with the HY IAS
separately from any of its other accounts at such counterparties.
This document has been produced by Liberty Securities Ltd (“Liberty Securities”). Liberty Securities and/or persons connected with it may effect or may have effected a transaction or transactions for their own account in the
securities or instruments or strategies (collectively, the “Instruments”) referred to in this document or any related investment before the material is published to Liberty Securities’ clients, may have a position in the securities
and/or any related investment and may make a purchase and/or sale, or offer to make a purchase and/or sale, of the Instruments and/or any related investment from time to time, in the open market or otherwise, in each case
either as a principal or as an agent. Liberty Securities or persons connected with Liberty Securities may provide or have provided corporate finance, brokerage and other services to the issuer(s) of the Instruments and may seek to
do so in the future. Accordingly, information may be available to Liberty Securities and/or persons connected with it which is not reflected in this document. This document is not, and should not be construed as an offer to sell or a
solicitation of an offer to buy any securities. The information and opinions contained in this document have been compiled or arrived at by Liberty Securities from sources believed to be reliable and in good faith, but no
representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in this document constitute Liberty Securities’ judgment as of the date hereof and are
subject to change without notice. The information contained in this document is published for the assistance of the intended recipients, but is not to be relied upon as authoritative or be the basis for an investment decision. Liberty
Securities accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its contents. This document may include estimates, projections and other forward-looking statements. Due to
numerous factors, actual events may differ substantially from those presented. Liberty Securities assumes no duty to update any such statements. Any holdings of a particular Instrument discussed herein are under periodic review
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Performance includes reinvestment of all distributions. Past performance is not indicative of future results. Prior to investing, a prospective investor should carefully review all the relevant information and factors, consider the risks
and suitability of the Instruments based on his/her own investment objectives and financial position and consult with his/her financial, legal and tax advisors. Some of the Instruments described herein may not be a regulated
financial instrument and, as such, may not require the publication of a prospectus or similar document.