ISSUE I 2010VOLUME II

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ROM THE DESK OF INVESTMENT OFFICER

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HOW YOUR FUNDS PERFORMED

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Falcon

ocus

ADDRESSING THE NEEDS OF FALCONS AND SECURING THEM AGAINSTGLOBAL HEADWINDS.

A QUARTER AT A TIME

The final nail on the Western Economy, Indian growthand the trends in the coming years

Playing the Devil’s

Advocate

Dear Investor,In investing, like life, it pays to bea visionary. Mistakes are a part and parcel of taking the risk,

listening to your guts but that’s

how the game is played. A vast

majority of us, can’t digest the

pain which comes from beingwrong. We are, after all a lossaverting machine. But then, Idigress.The American-European-Asianfinancial axis is in my belief, goingto go a drastic makeover. Asianeconomies, in broad strokes areEurope on the other hand is undergoing a drastic realignment with the current challenges of life. Howironic, a year and a half back, in 2009 Feb, Obama

makes a case that government can’t afford to hold back on

spending, and today the European Economies are making a case for austerity programs.On broad strokes, India will face occasional turbulence at the worst case, but in general if you are an Indian

citizen, there is no reason why you shouldn’t believe in the Indian government will not bring in the

700million strong mid tier households into the pan-Asian growth story. That being said, look for companieswhich a family with a sudden spurt in wealth tend to gravitate towards.heavily dependent on Western fundhouses, which are directly linkedwith the state of Western economies.But, in the next 10 years, thisrelation is going to go for a toss,when it will be apparently clear, that Western markets are in for a 20-30year bear market with occasionalbear market spikes lasting upto 12-15months.It reminds me, somehow of the same

game, being played in 1980’s whenJapan was the “go

to” country for

Americans whether for economiccues or auto manufacturers.

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PERSPECTIVES

FLYING

VOLATILITY

AND

ALPHA

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Falcon Pride Edge:

Working the markets

The diminishing volatility, though correctly

predicted but couldn’t be successfully

harnessed

By the end of May 2010,half of the global financialecosystem was reeling

under the “attack of theEurpean debt”.

Markets tanked almost unilaterally, and thosecaught on the long sidewere killed violently.Your fund though was nett short moving into May, andby the time May ended, wecorrectly foresaw that markets will undergo atremendous churn, a churnwhich will kill volatilitytotally.The way, Falcon PrideFunds works, it needsvolatility to get its alphamoving. And when, we

didn’t have that, we ran

into a considerable risk of

losing our “alpha”. Andthat’s what happened. As

we were short the marketsin June, markets made noovertures to fall further, asignal that momentum isfading.

During June, theill-timing of vegashort bets proved to be costly for the fund. We haveended up 6%down on June.Though we havestill beaten index b .6%

But our efforts to sellvolatility were underminedas well, and we ended upwith a drawdown of 6% asthe month closed, though,within limits but surelytesting.June had been one of thetoughest months, withcommodities and equities,crashing almost in alockstep. Thus leaving us,with no effective way toroute our investments.But, by the end of the first week or so in June 2010,we reversed our positions,added on NIFTY futures onthe long side. Whilekeeping our exposureeffectively capped, wedrastically have increasedour longs in the last week of June.Our added positions,consist of ABAN, BRFL,NIFTY among others on thelong side. We have got short side exposure as wellin the equities, but they areon a much lower side of therisk spectrum.I do believe that going

ahead 2010’s second half

will show a much improvedperformance, on the part of broad indices.And added on top of it,Falcon Pride Funds willonly go forward with thesophistication of better andnewer trading programs toensure that we keep ongrowing your wealth inlockstep with ourexpectations irrespectiveof what the market isdoing.The lessons of the past month had beeninstrumental in making usunderstand the nature of the beast, and rest beassured that we have takenour lessons seriously.