Carnelian Asset Advisors Structural Shift Fund- Cat III AIF

Key Portfolio Attributes

Mr. Vikas Khemani

Fund Type: Category III AIF

Structure: Close Ended

Tenure of Fund: 5 years (from the date of final closing)

No. of stocks: 20-25

Investment Manager’s Name: Carnelian Asset Advisors Pvt Ltd.

Founder: Mr. Vikas Khemani

Co-Founder & Fund Manager: Manoj Bahety

Fund Manager’s Experience: 22+ years of experience in financial services

Fund Manager’s Qualification: CA, CFA (USA)

Investment Objective

The investment objective of the Carnelian Asset Advisors Structural Shift Cat III AIF Fund is that it is designed to capture structural decadal shifts presenting large opportunity in:

1. Manufacturing led by conducive regulatory and global environment
2. Tech evolution empowered by digital & SAAS platform with Indian companies at the forefront

In other words, Carnelian Structural Shift Fund (CSSF) is a SEBI registered CAT III AIF that aims to capture structural decadal shifts presenting large opportunity in MANUFACTURING led by conducive regulatory and global environment and TECH EVOLUTION empowered by digital & SaaS platform with Indian companies at the forefront.

The fund is a unique blend of mid/small cap companies across listed/unlisted space with niche core competence & large opportunity size, proven track record and impeccable management capabilities.

Investment Philosophy

The investment philosophy of the Carnelian Asset Advisors Structural Shift Cat III AIF Fund is that the fund is a mix of manufacturing and IT.

Depending upon the valuation and other investment matrix at the time of investment, approx. 2/3rd of the fund allocation shall go to manufacturing, whereas 1/3rd shall be invested IT and related stocks.

Carnelian Team select stocks based on their proprietary MCO framework, where MCO is:
M- Magic
C- Compounder
O – Opportunistic

Investment Strategy

The investment strategy of the Carnelian Asset Advisors Structural Fund is that that the investment team looks for the following biases while evaluating potential companies for the fund’s portfolio:

Thematic Bias:

– Look for companies which are operating either in the MANUFACTURING or the IT space
– India is currently on the cusp of a manufacturing boom led by focus on Atmanirbhar Bharat, production linked incentives, China + 1 global shift, cost competitiveness, etc

– On the IT side, the sector is witnessing strong trends of digitalisation, SaaS, cloud migration, tech enabled platforms, etc

Fundamental Bias:

– Higher growth in revenues and profits compared to peers and industry
– Superior unit economics and high return ratios
– Low leverage, adequately diversified and structurally low-risk business model

Leadership Bias:

– Leadership or recognised promise for leadership in its market segment
– Multiple moats that come together to sustain and further its leadership position
In addition to these biases, the team also evaluates potential companies for the quality of their management and adherence to corporate governance policies.

Depth & Quality of Management Team:

Focus is on partnering with high-quality management teams with the depth and breadth for quality execution and multiple centres of competence, backed by a track record of delivering results.

Corporate Governance:

Zero-tolerance approach in the evaluation of corporate governance standards while selecting investments.

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What market capitalisation does the fund target?

CSSF is a sector specific however a market cap agnostic fund. Still, as a benchmark, the fund invests in companies with market cap of more than 1000 cr. The focus is more on strength of the company. A typical company that fits the fund’s investment criteria would have most of the following characteristics:

Market leaders in their respective industries
Low or no leverage
High conviction on their ability to grow in the next 3-5 years (defined internally as more than the nominal GDP)
Available at pricing where we have a margin of safety during adverse market conditions and a more significant chance for upside that is risk-adjusted

What are the types of instruments the fund will invest?

The fund will primarily invest in a portfolio of equity and equity related securities of Indian listed and unlisted companies. Temporary surplus funds will be deployed in liquid funds.

Are any concentration limits at an individual investment level defined for the fund?

As a risk mitigation strategy, they limit the exposure in the below manner:

Single stock exposure – 10%
Sector exposure limit – 40%

Single promoter group exposure – 20%
Exposure to unlisted shares to be capped at 40%
Check against human biases
- Any portfolio stock falling >20% vis à vis benchmark requires the PM to revisit & re-evaluate the investment hypothesis & present to the IC within 7 days
- Any fresh buying in the stock will be halted till IC approval
- Stock will be sold if the IC is not convinced with the re-evaluation finding

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