Benefits of investing in the Fund

For investors seeking exposure to a portfolio comprised of primarily listed Australian equities, the Fund:

• aims to generate strong absolute returns in excess of the Benchmark;

• enables the Portfolio Managers to concentrate the Fund's capital in the opportunities they perceive to be offering the best risk-adjusted returns;

• is actively managed by Auscap's experienced Portfolio Managers; and

• looks to lower correlation with markets by holding both long and short positions.

Value driven investment philosophy

Auscap is a value-based, long short equities manager. 

The Fund targets attractive total return opportunities through disciplined investing. Auscap aims to preserve capital and generate long-term, compounding returns. Generating these returns is dependent on a number of assumptions which may not eventuate, including sufficient attractive investment opportunities, the market's recognition of the value of these opportunities in line with Auscap's expectations and the ability of Auscap to limit the number and impact of errors in analysis, assessment and execution of its investment strategy.

The Fund is a high conviction portfolio that is typically invested in 25-45 positions. The Fund is long biased, however may be net long, short or neutral depending on the strategies being employed by Auscap at the relevant time. Auscap will allocate capital in accordance with expected performance and risk measures. 

Short selling will be used to expand the range of available investment opportunities and achieve returns when the value of a security is expected to fall. See section 4.7 of the PDS for more information on short selling, and section 5 for the risks associated with short selling.

Auscap will seek to achieve investment returns by investing the Fund's capital in securities it believes will appreciate in value, whilst shorting securities it considers will depreciate in value. The typical asset classes invested in are listed Australian equities denominated in Australian dollars and cash. From time to time, the Fund may invest in other asset classes.

Risk Management

Disciplined risk management is a key focus for Auscap. Auscap's risk management process includes:

• daily monitoring of risk via internal control systems using aggregate, sector and single name exposure and various other risk management tools;

• monitoring of hard risk limits (e.g. the Fund may be geared up to 200% gross long or gross short and up to 150% net long or net short); and

• a quarterly review of the risk management processes by the Auscap Board.

Auscap's risk management process is dependent on its ability to properly assess and reduce risk where appropriate. This may or may not be successful.

How we invest your money

The typical asset classes invested in are listed Australian equities denominated in Australian dollars and cash. From time to time, the Fund may invest in other asset classes.

Investment process

1. Identify value opportunities: using financial valuation measures
   
2. Test data against investment criteria: including quantitative and qualitative research
   
3. Portfolio construction: with positions sized according to conviction and risk considerations
   
4. Regular re-evaluation and risk management: consideration of new information
   

Leverage

The Fund may be geared up to 200% gross long and gross short and up to 150% net long or net short.

Derivatives

Exchange-traded derivatives, including futures, may be used by the Fund for hedging and non-hedging purposes such as:

• to manage or reduce particular risks;

• to implement an investment strategy in a cost-efficient manner;

• a substitute for direct investment in securities; or

• to gain exposure to other types of investments where appropriate.

Short selling

Auscap will be engaged in the short sale of securities, enabling the Fund to profit from falls in the value of companies which it believes are overpriced. Short positions may also be entered into for risk management purposes. By holding long positions as well as short positions, the Fund typically has reduced correlation to movements in equity markets.

Liquidity

Auscap reasonably expects to be able to realise at least 80% of the Fund's assets at the value ascribed to those assets in calculating the Fund's NAV within 10 days (subject to any relevant transaction costs).