UNIFI High Yield Fund

• Unifi High Yield Fund (HYF) is a discretionary fund that focuses on capital market event arbitrage and fixed income investment opportunities with the goal of achieving net post-tax returns of 3% per year above inflation (CPI).
• The aim is to consistently outperform typical fixed income instruments in terms of compounded annual returns while maintaining a strict focus on capital preservation.
• The minimum ticket size to invest in this fund is ₹1 crore.

Objective – Unifi High Yield Fund (HYF) is a discretionary fund that seeks to earn net post-tax returns of 3% per year over core inflation by concentrating on event arbitrage and fixed-income investing opportunities in capital markets. The goal is to continually outperform traditional fixed-income instruments in terms of compounded yearly returns. The emphasis on capital protection is unwavering.

Approach – The basic investing strategy of Unifi HYF is to seek the pockets of opportunity produced by the ebb and flow of economic trends, company activities, and human emotion. We keep a careful eye on a variety of asset classes and design easy strategies to keep up with the market’s changing prospects, constantly keeping in mind the possibility of unexpected outcomes. Typically, the bulk of a portfolio’s assets is placed in carefully analyzed fixed income instruments, which serve as a foundation for the portfolio, offering consistent yields without significant market volatility. To boost total returns to the targeted level, the balance is invested opportunistically in event arbitrage, structured high yield credit, and highly selected directional transactions.

Structure – Unifi High Yield Fund is a trust that is registered with SEBI as a Category III Alternative Investment Fund. It is a privately pooled investment vehicle governed by independent trustees and operating on stated investment philosophy. The independent custodian and fund accountant is HDFC Bank Limited. The fund is open-ended and has a monthly subscription and redemption window.

Nominal and High Yield Debt –

The AA to Investment Grade segment offers opportunities to maximize after-tax yields while balancing risks. Most debt investments are made with the intention of holding them until maturity (HTM), but some may be traded opportunistically to maximize capital gains or reduce risk.
A trust-based Category III Alternative Investment Fund, Unifi High Yield Fund, is registered with SEBI. Set investment philosophy and independent trustee oversight govern this privately pooled investment vehicle. The independent custodian and fund accountant is HDFC Bank Limited. The fund has a monthly window for subscriptions and redemptions and is open-ended.

Conventional Equity

• High / above average return potential
• Accompanied by extreme volatility

Conventional Debt

• Low / below average volatility
• Hardly any real returns post-tax, and inflation

High Yield Fund

• Endeavor to generate net post-tax returns of 3% p.a over the rate of core inflation)
• Minimal / below-average volatility

As a result of the cyclical nature of asset valuations and erroneous risk-return expectations, investors are forced to either

• Settle for sub-par returns or,
• Bear volatility beyond one’s temperament leads to capital loss

Opportunities for risk-adjusted arbitrage and fixed income resulting from

• Corporate events
• Macro-economic cycles
• Emerging credit

Event Arbitrage opportunities 

The main strategy for making investments is to take advantage of corporate event arbitrage possibilities in the listed capital markets, which by nature have little link to market volatility and economic cycles.

Generally, we participate in those opportunities where –

The scrip has enough liquidity, the management is generally sound, the share acquisition process is completely transparent, and it is reasonably estimated that the risk-reward balance, after taking into account the possibility of the offered shares not being accepted (in the case of public tenders) and the capital loss/risk on the shares not accepted, is in our favor.

Debt Investments – Approach and Strategy

The AAA to Investment Grade category would be the main emphasis to maximize after-tax returns while managing risks. All debt investments are typically made using the Hold to Maturity (HTM) philosophy, however some of them may be exchanged strategically to optimize capital gains or reduce risk. To increase the total yields of the portfolio, arbitrage opportunities that arise from the following options will be carefully explored.

Subsidiary – Holding Company –

• Focus on 100% Subsidiaries whose papers are rated lower than their highly rated Parent companies but offer a higher yield.
• Tactical Calls – Consider macro-economy driven opportunities like softening of Yield Curve (duration play) due to falling in Interest Rates and conducive Rating Upgrades cycle resulting in capital gains
• Wholesale to Retail – Bulk Buying from Bank Treasuries / Primary Issuances at finer rates and selling in smaller lots with a markup to HNIs / Private Provident Fund Treasuries.
• Aggregator of Retail Lots – Provide the much-needed liquidity channel for retail bondholders at market yields plus the spread.

Structured Papers from Emerging Financial Sectors- Consider high yield opportunities arising from well-capitalized and professionally managed Alternative NBFCs focusing on

The following criteria are firmly applied for the selection of investment opportunities in this segment –

• Fundamentally sound and profitable business model
• Management with a proven track record
• A robust process for credit evaluation, security creation, operations control, and collections
• Presence of seasoned Private Equity investors on the board
• The recent round of promoter / private equity infusion strengthened the capital adequacy
• Short Term Maturity and being in the top quadrant of the Company’s Liability Repayment profile, placing our exposure in a positive Asset Liability bucket.

Finding pockets of opportunity continually produced by the ebb and flow of economic trends, company activities, and human emotion is the cornerstone of Unifi HYF’s investing approach. We keep a careful eye on various asset classes and develop straightforward strategies to continuously access the market’s developing prospects, constantly keeping an eye out for likely events that can surprise us. Typically, the bulk of the portfolio is made up of carefully considered fixed-income investments that serve as a foundation, offering steady rates without a lot of market volatility. To increase the total returns to the targeted level, the remaining portion is opportunistically invested in event arbitrage, structured high yield credit, and extremely selective directional transactions.

Corporate events, including mergers, acquisitions, buybacks, regulation-triggered/voluntary open offers made to the public by controlling shareholders, delisting of a firm, the announcement of special dividends, etc., can create event arbitrage opportunities. Most of these deals have deal-specific risk-return payoffs with no link to market cycles.