ALCHEMY INDIA LONG TERM FUND

Fund Snapshot

 

 

EXECUTIVE SUMMARY

 

Focused, Bottom-Up Strategy

Alchemy focuses on bottom-up stock picking based on  primary research using a disciplined process. The team takes long-term concentrated positions with the objective of generating long-term absolute returns on investors’ capital.

 

Outstanding Track Record

Alchemy’s Co-mingled Fund Alchemy India Long Term Fund (Fund) has delivered an annualized alpha of 4.3% since its inception. Separately, the Separate Managed Account Mandate, managed until October 21, 2024, delivered an annualized alpha of 3.8%.

 

Experienced Management Team

Alchemy is led by experienced professionals,  investment whose experience spans several market cycles of investing in the Indian equity markets. This long-tenured team possesses extensive networks of intelligence  and relationships that are critical when evaluating companies and identifying trends at the ground level.

 

Rigorous Risk Management

Alchemy has a robust infrastructure that enables rigorous risk management based on continuous review, including but not limited to sector and company-specific factors that impact medium- and long-term fundamental performance, to ensure the soundness and integrity of the firm’s investment thesis. A regular review by Alchemy India’s (advisor to Alchemy GIFT LLP) Investment Committee brings sanctity to the investment process.

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THE ALCHEMY EDGE

 

Strong Investment Leadership

Continuity in philosophy and strategy, with Co-Founder Hiren Ved as Alchemy India’s Director & CIO. Hiren and the Alchemy Investment Team have built a culture of performance excellence that has been instrumental in the consistency of Alchemy’s investment strategy and ensuring the continuity of its track record.

 

Tremendous On-The-Ground Insight

Comprehensive networks of relationships built over decades provide the team with a regular flow of intelligence and insight on stocks/sectors/businesses and potential opportunities.

 

Organization Of Choice Amongst Investors

Alchemy has a top-tier standing among leading global institutional investors and some of the top Indian families, which has been built on a consistent long-term track record and impeccable firm integrity.

 

Outstanding Culture

Alchemy is renowned for its collaborative and innovative culture—one that prioritizes quality of ideas and is focused on generating consistent alpha combined with superior client experience.

 

RISK MANAGEMENT TEAM

Alchemy GIFT LLP’s risk management team monitors mandate and regulatory compliance on a daily basis. The tracking is done through the EZE Castle software and reported at the end of the day to the fund management team. The portfolio manager has 5-7 business days to act on breaches, if any. In addition, Alchemy India risk management team follows objective and quantifiable risk metrics to monitor and control risk through daily and monthly risk reports. The dimensions of risk metrics include absolute and relative performance compared to relevant benchmarks, stock and sector concentration limits, liquidity analysis and adherence to laid-out mandate /strategy objectives.

FUND STRATEGY

Alchemy India Long Term Fund (The Fund) continues its strategy and investment philosophy using number of levers to generate long-term absolute returns on investor capital.

LONG ONLY INDIAN EQUITIES

Publicly Listed Companies

The Fund takes long-term concentrated positions in publicly listed companies in India without being benchmarked to any index.

PIPES/IPOs

From time to time, the Fund will invest in PIPES and IPOs that the management team deems compelling.

FUND’S INVESTMENT PHILOSOPHY

• Growth at a Reasonable Price: This approach is rooted in the hypothesis that India is a high-growth economy and that the best way to benefit is to identify and invest in companies that are best equipped to take advantage of the emerging domestic and global opportunities.

 

• Invest forthe Long Term: The intention is not to trade in and out of investments to capture short-term volatility.

 

Investment Process Philosophy

They believe that consistent and superior long-term absolute returns can be made across market cycles by investing in growth companies with good management teams.

 

Robust Financial Metrics

Alchemy like businesses that address large and growing external opportunities, have a competitive advantage in effectively exploiting those opportunities and have a scalable business model with a higher-than-average Return on Capital Employed (ROCE) over the investment horizon.

 

Strong Growth Fundamentals

While growth companies form the core of the portfolio, Alchemy also tactically invest in deep value opportunities and special situations that may appear due to and during market cycles.

 

Exceptional Management Teams

Alchemy believe that management teams are key to business success. Alchemy look for managements which have aggression and are aligned to business outcomes while simultaneously having respect for governance and capital allocation.

 

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A Proven, Time-Tested Investment Process

Alchemy uses filters based on investment themes and regularly interacts with trade and industry analysts to build a parallel working universe. This helps the firm generate a more accurate list of ideas that offer true potential.

 

Idea Generation

• Identify and filter stocks on the basis of long-term secular themes/trends based on the assessment of the macro and policy environment.
• Portfolio managers/analysts come up with recommendations.
• Run quantitative screens on a tracking universe of approx. 350 stocks with the help of the quant team.
• Ideate based on company visits, management meetings, channel checks and attending sector- and industry-specific conferences.
• Network with other leading investors and analysts.

 

Meeting Management & Industry Experts

• Create a broad and initial understanding of the company's business and financial model with all publicly available information.
• Interact with the target company's ecosystem – management teams/customers/suppliers/competitors, etc.—to gain deeper insights and understanding.
• Encourage the analyst and fund management team to visit/interact with a wide ecosystem of companies – both under and outside the coverage universe.

 

Conduct In-Depth Analysis And Evaluation

• Analysts pitch the ideas to the investment management team.
• Debate and determine if the qualitative and quantitative assessment of the business makes a good case to satisfy Alchemy's basic investment framework.
• A combination of fundamentals/valuation and risks are debated.
• If the stock satisfies all qualitative and quantitative criteria and is available at what Alchemy determines to be a reasonable valuation and risk-reward framework, the name is included in Alchemy's Investment Universe.

 

Portfolio Construction & Ongoing Review

• Portfolio Manager constructs a portfolio with the stocks in the universe, consistent with the philosophy and mandate.
• Analysts continually monitor the companies under their coverage for any fundamental shifts, events or other risks and regularly recalibrate models and targets for return expectations.
• Portfolio managers review their positions daily and at quarterly intervals along with the CIO.

 

Exiting Positions

• There is no set target price for stocks to exit, but Alchemy conducts a rolling review of potential risk-reward. 
• Stocks may be exited under the following conditions:
  • A major change in the hypothesis
  • Trimming to rebalance weights
  • Risk-reward not in favour of holding position and/or if a better alternative opportunity presents itself

 

DISCIPLINED PORTFOLIO CONSTRUCTION

1

Evaluate proposed portfolio entrants against stringent criteria, including:

• Reasonable price/premium
• Strong growth fundamentals
• Quality management team

 

2

If all requirements are met, name enters Alchemy investment universe

 

3

All investment universe names are reviewed on a regular basis in accordance with Alchemy’s investment process

Daily/Event Based Fundamental Risk Review

 

• Monitoring Fundamental variables that can substantially impact potential returns. Factors such as:
  • Impact on growth 
  • Return On Equity 
  • Cash conversion
  • Leverage
  • Management change and/or exit of key management personnel.

 

• Price Action:
  • Absolute Loss i.e., stock trading below average cost.
  • Relative Underperformance to benchmark/sector.

 

• Concentration Risk:
  • A stock holding is limited to a maximum of 15% of the portfolio.
  • A sector holding is limited to a maximum of 40% of the portfolio.

 

MONTHLY INVESTMENT AND RISK REVIEW

 

• Portfolio Attribution Analysis:
  • Top Contributors & Laggards to Alpha vis-à-vis benchmark – Sector & Stocks
  • Portfolio contributors and detractors
• Performance benchmarking review:
  • Compared to peers over various return periods.
  • Quartile analysis
• Group Level concentration and liquidity risk: 
  • Group holding by Market Cap & Group AUM
  • Liquidity Analysis- 6 months daily average volume with 25% participation.

 

Top  Holdings

 

 

Sector Allocation

 

 

Market Cap Allocation

 

 

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WHY GIFT CITY?

 

• The GIFT City promises to offer a wide range of services like capital market transactions, banking services, offshore asset management, and other financial transactions.
• The goal is to create a welcoming place where India-centric trading that's moved to Dubai, Mauritius or Singapore can return home.
• A free trade zone with various tax incentives enabling the flow of finance, financial products and services across borders.
• GIFT City is a planned business district in Gujarat, India. It is the new business destination offering competitive edge to
• Financial services and Technology related activities. An integrated development with Walk to Work concept adds  immense value to the business activities.
• Single unified regulator for IFSC- Powers vested in IFSCA with respect to regulation of financial institutions, financial services and financial products in the IFSC.
• IFSC Unit – Treated as a ‘non-resident’ under Indian exchange control regulations.
• Other benefits include (a) low-cost structure, (b) proximity to the large Indian market and (c) enabling ecosystem.
• In addition, the Investment Manager is a registered Investment Adviser with the Securities and Exchange Commission (SEC) of the USA.

 

OTHER REGISTRATIONS

 

U.S. Taxation:

The Fund is structured as a pass-through entity and has elected to be classified as a foreign partnership for U.S. federal income tax purposes. As such, each investor will receive a K-1/K-3 form at the conclusion of each fiscal year of the Fund, i.e., December 31, which is necessary for the computation of their individual income tax obligations. This form will reflect the investor's proportionate share of the taxable income or loss allocated to them, in accordance with the Fund's governing documents. Sample K1 form can be viewed on the official website of the IRS at Schedule K-1 (Form 1065).

 

U.K. Taxation:

The Fund holds “Reporting Fund” status under the U.K. HM Revenue and Customs (HMRC). It has been duly registered under Regulation 51 of The Offshore Funds (Tax) Regulations 2009, effective from January 1, 2024. As a result of this "Reporting Fund" status, income derived from the Fund by U.K. investors will be subject to a reduced tax rate. Further details regarding the Fund’s registration can be accessed via the following link:  HMRC Offshore Funds – Reporting Funds List.

 

Offer in Singapore:

The Fund is included in the list of restricted schemes maintained by the Monetary Authority of Singapore (MAS). Accordingly, Units in the Fund may be offered to persons in Singapore in compliance with Section 304 and Section 305 of the Securities and Futures Act 2001 (SFA). The list of restricted schemes can be accessed via the MAS website at MAS Restricted Schemes List.

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