# Pitch Deck Extraction strategy_and_portfolio Response ## Technical Context - **Task Name**: Pitch Deck Extraction - strategy_and_portfolio - **Workflow Run ID**: 34 - **Timestamp**: 2026-09-14T17:03:26.078Z ## Grounded Intelligence Data ### TOPIC: strategy_and_portfolio #### Executive Summary Warana Capital utilizes significant information asymmetries, extensive GP relationships, and a highly disciplined bottom-up underwriting approach to acquire illiquid, unlisted fund interests at deep discounts (averaging ~50%) to Net Asset Value (NAV) [Page 3, Page 5]. By targeting inefficient secondary market situations where investors are "trapped" in liquidating or gated funds, the GP captures arbitrage value without relying on underlying asset or NAV growth, securing substantial downside protection [Page 4, Page 5]. This specialized strategy has historically generated a cumulative performance of 20.7% IRR and 1.5x TVPI net of fees and expenses across its unified Dakota and Warana fund track record [Page 3]. --- #### 1. Primary Investment Objective & Core Strategy * **Primary Objective:** Target gross returns of >20% IRR and >1.3x Multiple on Invested Capital (MOIC) by purchasing unlisted, illiquid fund interests at substantial discounts [Page 5]. * **Core Arbitrage Playbook:** The strategy centers on providing immediate liquidity to investors who are otherwise locked or "trapped" in liquidating, gated, or side-pocketed funds, purchasing their positions at a steep discount, and capturing the valuation spread over the medium term as the underlying assets are resolved and distributed [Page 4, Page 5]. * **No Reliance on NAV Growth:** Warana's model does not rely on asset price appreciation or manager-reported NAV growth to achieve its target returns; value creation is almost entirely driven by the initial purchase discount capture [Page 5]. * **Conservative Valuations:** The GP rarely forecasts asset recovery values above the current net asset value published by the target fund's manager, maintaining a strict margin of safety [Page 5]. --- #### 2. Target Asset Classes, Situations, and Investment Criteria ##### Target Situations & Fund Assets (Preferred) * **Private Equity:** Equity managers awaiting a liquidity event or credit managers holding post-restructuring equity [Page 8]. * **Listed Equity:** Situations where the manager is unable or unwilling to sell due to valuation, post-IPO lock-ups, large size relative to daily trading volume, or board seat restrictions [Page 8]. * **Corporate Debt:** Unresolved or defaulted debt that is yet to mature or is currently in the midst of bankruptcy/restructuring [Page 8]. * **Real Estate:** Direct purchases out of funds or holdings in credit funds where real estate serves as collateral and the borrower has defaulted [Page 8]. * **Cash-Heavy Holdings:** Funds holding excess cash reserves earmarked against future fees, operational expenses, taxes, or potential litigation claims [Page 8]. * **Legal and Liquidation Claims:** Historical liquidation claims (such as Lehman estate claims), bankruptcy claims, tax claims, and other leftover litigation [Page 8]. ##### Situations Avoided or Priced Nominally * **No Earnings or Asset Value:** Tangible assets and cash flow are deemed crucial to assigning value; assets lacking these are avoided [Page 8]. * **Binary Outcomes:** Avoidance of assets highly dependent on volatile commodity prices or regulatory approvals, particularly in energy and biotechnology sectors [Page 8]. * **Early Stage / Venture Capital:** The GP avoids valuations based on revenue multiples or preceding financing rounds [Page 8]. * **Emerging or Frontier Markets:** Holdings in jurisdictions where Warana cannot rely on the rule of law or where there is high currency exposure [Page 8]. * **Longer Recovery Timelines:** Avoidance of long-dated assets where the projected path to liquidity exceeds 4 years [Page 8]. * **Suspicion of Fraud or Illegal Activity:** Avoided completely unless there is a clear, viable path to whistle-blowing or immediate manager replacement [Page 8]. --- #### 3. Sourcing Strategy & Competitive Advantages * **Information Advantage:** Warana utilizes over 13 years of cumulative data and diligence materials, tracking approximately 500 LP interests managed by more than 200 different managers [Page 3]. * **Proprietary Sourcing:** The GP utilizes proprietary relationships and an established reputation within the secondary hedge fund market to bypass highly competitive auctions [Page 3]. * **High Barriers to Entry:** Market entry is limited by restricted access to asset supply, GP transfer approval requirements, and the difficulty of obtaining reliable underlying diligence information [Page 3]. * **Bidding Selectivity:** Warana maintains strict underwriting discipline; winning bids represent ~5% or lower of total evaluated NAV volume across their historical pipeline [Page 7]. * **"Free" Optionality Capture:** Warana systematically prices highly complex, non-core assets (e.g., litigation claims, agricultural land in emerging markets like Brazil, and levered real estate) at zero or nominal cost. These assets act as cost-free "options" that generate meaningful upside upon recovery, with the number of options per fund rising from ~11 in the 2017 Fund to ~49 in the 2021 Fund [Page 7]. --- #### 4. Model Price Construction & Due Diligence Methodology The GP builds its target model price through a four-part bottom-up framework: 1. **Expected Recovery:** Calculated as the standalone expected sale price of the asset; the model rarely assumes audited manager valuations will be recovered in full and rarely incorporates cash flow growth [Page 9]. 2. **Liquidity Timing:** Acknowledges that timing is highly challenging to estimate and that the vast majority of recoveries take longer than initial manager guidance [Page 9]. 3. **Manager Overlay:** Crucial evaluation of interest divergence between managers and investors, alongside qualitative assessments of GP quality accumulated over 10+ years of active market experience [Page 9]. 4. **Discount Rate:** Applying a target gross return hurdle of >20% (>1.3x multiple), which is scaled upward to account for additional perceived risk [Page 9]. --- #### 5. Portfolio Construction Parameters & Terms Based on previous Warana funds, the core portfolio parameters include: * **Investment Period:** 18 months from the initial capital call, with no capital recycling allowed after this period expires [Page 10]. * **Concentration Limits & Scale:** Funds are sized appropriately for the specific unlisted hedge fund secondary opportunity set, avoiding the necessity of "style drift" as the pipeline grows [Page 7, Page 10]. * **Tail-End Management:** The GP maintains the contractual ability to sell the remaining fund "tail" once the total fund NAV falls below $5 million, optimizing holding costs against slow recoveries [Page 10]. * **Co-Investment Rights:** The GP intends to establish dedicated Co-Investment vehicles for larger transactions that exceed standard fund allocation limits or involve different risk/return profiles (such as infrastructure funds targeting lower IRRs) [Page 10]. * **Foreign Exchange Policy:** Fund assets are expected to have primarily USD exposure. The fund does not hedge FX exposure; instead, any perceived FX risks are factored directly into upfront asset pricing [Page 10]. --- #### 6. Historical Performance and Financial Models ##### Historical Track Record (as of June 30, 2023) * **Dakota Funds (Vintage 2011–2015):** $252.6mm USD raised. Average purchase price: 40% of NAV. Projected Net IRR: 28%. Net TVPI: 1.70x. Net DPI: 1.69x. Less than 1% NAV remains [Page 4]. * **Warana 2017 Fund:** $34.4mm USD raised. Cash calls: 89%. Average purchase price: 56% of NAV. Projected Net IRR: 12%. Net TVPI: 1.29x. Net DPI: 1.29x. Net Cash Multiple: 1.32x (fully closed) [Page 4]. * **Warana 2018 Fund:** $50.5mm USD raised. Cash calls: 70%. Average purchase price: 51% of NAV. Projected Net IRR: 15%. Net TVPI: 1.40x. Net DPI: 1.19x. Net Cash Multiple: 1.55x [Page 4]. * **Warana 2019 Fund:** $77.5mm USD raised. Cash calls: 66%. Average purchase price: 24% (skewed by an outlier deep discount trade; average is 38% excluding this trade). Projected Net IRR: 18%. Net TVPI: 1.44x. Net DPI: 0.93x. Net Cash Multiple: 1.66x [Page 4]. * **Warana 2021 Fund:** $106.0mm USD raised. Cash calls: 78%. Average purchase price: 59% of NAV. Projected Net IRR: 22%. Net TVPI: 1.62x. Net DPI: 0.55x. Net Cash Multiple: 1.79x [Page 4]. ##### Current Fund Targets (Warana 2023 Fund) * **Capital Raised:** $106.0mm USD [Page 4]. * **Average Purchase Price:** 59% of NAV [Page 4]. * **Target Net Return:** Targeting Net IRR of >15–20% [Page 4]. * **Target Multiple:** Targeting Net TVPI of 1.3x [Page 4]. ##### Core Fund Terms * **Management Fees:** 2% per annum calculated solely on called capital during the investment period plus 4 years (capped at a maximum of 6 years including all extensions) [Page 10]. * **Carried Interest:** 20% carried interest over an 8% per annum non-compounding hurdle rate, featuring a general partner catch-up [Page 10]. Performance fees are explicitly structured to be paid on actual cash returns rather than paper valuations [Page 10]. * **Distributions:** During the active investment period, distributions are generally netted directly against capital calls. Post-investment period, cash distributions are returned to LPs as received, typically whenever available cash exceeds 1% of total invested capital [Page 10].