FAIRLIGHT CAPITAL

BEST EMERGING MANAGER FUND – EQUITY HEDGE

The last 18 months have been a very challenging period for everyone. However, as a small company, Fairlight Capital was already working via video calls and using cloud file storage meaning work challenges were not as great for them as for some others.

RESPONDING TO COVID-19

In fact, Andrew Martin, Managing Director of Fairlight, says: “In terms of meeting with investors and arranging third-party calls, the acceleration of remote-working technologies has probably helped us.”

He adds: “We believed that the markets and economies would bounce back strongly after the dip in March 2020, and so we rotated the portfolio, using the volatility to our advantage, to reposition the portfolio for recovery and subsequent growth. We have done well in finding cheap valuation, quality stocks that also have excellent growth. We have focused, and will continue to have a global focus, on stocks that has enabled us to find better value and businesses across different regions.”

LOOKING TO GROW

To build on this performance, Martin says: “We will continue to follow the same processes and approach as we have always done, using growth and value metrics combined with deep fundamental analysis and business quality analysis. As we grow the universe of stocks, we look to migrate to larger companies, but we are still an emerging, smaller fund and so we have a long road ahead of us.”

For now, Fairlight are focusing all their efforts on the current portfolio, but soon will consider launching an AI fund that utilises machine learning to match the investment processes they follow in an automated way that will allow them to scan the global universe of stocks on a real-time basis, using the same approach that has led to its success so far.

Martin comments: “The model we would employ for such a fund would be based on our internal criteria, rather than historical returns, to ensure that it is future-proof and matches our investment process as closely as possible.”

REFLECTIONS AND REALISATIONS

As the markets recover from the impact of the pandemic, Martin says that Fairlight have realised that they need to own the fact that they take on a certain kind of risk: “Ours is to have full market exposure and concentrated positions in names where we have a strong conviction,” he says. “We avoid too much diversification (beyond 8-10 names) in order to maximise returns.”

Over the last decade, long-short equity funds have struggled in comparison to CTA and fixed income strategies. Assets have moved out of long-short equity into index funds and ETFs as well as prominent tech names and themed assets. Fairlight believe that there is a lot of potential for future outperformance in long-short equity funds that work hard at stock picking and fundamental analysis.

Going forwards and as Fairlight’s AuM grows, it will migrate to look at larger businesses to invest in, although the approach will stay fundamentally the same.

“I believe that what has worked for us in the past will continue to work well in the future, but we will likely have to work even harder to search for undervalued, hidden gems and continue the level of successful performance we have achieved so far,” Martin concludes.

ANDREW MARTIN

CHIEF EXECUTIVE OFFICER, MANAGING DIRECTOR, FAIRLIGHT CAPITAL

Andrew Martin has over 17 years of institutional investment management experience working for large global insurance companies and asset managers managing multibillion-dollar portfolios. He has developed, structured, and successfully launched several multi-billion-dollar funds and investment structures. He began his career as a Business Consultant with Accenture, working in the energy and financial sectors. Martin graduated with a BSc in Theoretical Physics from the University of York and gained a Doctorate in Astrophysics from the University of Oxford.

Manager Information Sheet October 2021

Fairlight Capital LLC

500 West Putnam Avenue AUM: $2.70m Suite 400 Firm: Alternative Investment Manager

Greenwich, CT 06830 Founded: April 2013

+1 203 542 7325 www.fairlightcapital.com info@fairlightcapital.com @Failight_Cap

Fairlight Capital Process

Idea Generation

Sale Process Research

Ongoing Monitoring Purchase Process

1.) Idea Generation: Public VC/PE approach, proprietary "Owner Financials" valuation model and public securities database.

2.) Research: statistical quantitative analysis and backtesting of value/growth/quality criteria returns. Qualititative, intensive analysis phase, competitor analysis, multi-decade financial analysis, channel checks.

3.) Purchase Process: stock specific order types, patient trading strategy, optimized to minimize market impact.

4.) Ongoing monitoring: backtesting of value criteria, continuous verification back to original qualitative thesis, quarterly result analysis and rolling news alerts.

5.) Sale process: portfolio rotation based on look-through yield and other metrics. Qualitative factors dependent on value realization, optimized versus Owner Financials portfolio valuation.

Chief Investment Officer

Nick Peters is the Chief Financial Officer of a small manufacturing company located in the Midwest. Here, he is responsible for financial controls, human resources, IT management and operational management. Prior to his current position, Nick worked as an equity analyst at two value oriented asset managers. Nick has extensive experience analyzing microcap stocks and special situations. Nick graduated with a B.S. in Economics from the University of Wisconsin and gained a Masters in Finance from Vanderbilt University. Nick also served in the United States Marine Corps.

Chief Executive Officer

Andrew Martin has over 17 years of institutional investment management experience, working for large global insurance compani es and asset managers managing multi-billion portfolios. He has developed, structured, and successfully launched several multi-billion dollar funds and investment structures. He began his career as a business consultant with Accenture, working in the energy and financial sectors. Andrew graduated with a B.Sc. in Theoretical Physics from the University of York and gained a doctorate in Astrophysics from the University of Oxford.

Disclaimer:

THIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN INTEREST IN ANY INVESTMENT FUNDS MANAGED BY FAIRLIGHT CAPITAL LLC. ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO QUALIFIED INVESTORS BY MEANS OF A CONFIDENTIAL OFFERING MEMORANDUM AND ONLY IN THOSE JURISDICTIONS WHERE PERMITTED BY LAW.

AN INVESTMENT IN THE FUNDS IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FOR WITHDRAWAL, REDEMPTION AND TRANSFERABILITY OF INTERESTS ARE RESTRICTED, SO INVESTORS MAY NOT HAVE ACCESS TO CAPITAL WHEN IT IS NEEDED. THERE IS NO SECONDARY MARKET FOR THE INTERESTS AND NONE IS EXPECTED TO DEVELOP.

THE FEES AND EXPENSES CHARGED IN CONNECTION WITH THIS INVESTMENTMAY BE HIGHER THAN THE FEES AND EXPENSES OF OTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS. NO ASSURANCE CAN BE GIVEN THAT THE INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT AN INVESTOR WILL RECEIVE A RETURN OF ALL OR PART OF HIS OR HER INVESTMENT. INVESTMENT RESULTS MAY VARY SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD.