The decision to close positions in the Demo Fund is as crucial as the decision to open them. This process is governed by clear criteria, ensuring that each exit aligns with the fund’s strategic objectives and risk management framework. The closure of positions is triggered by one of three distinct events.

1. Achievement of Expected Closure Events

Target Price Realization: When an asset reaches its predetermined target price, a position may be closed to realize gains. This target is set based on the initial investment thesis and expected asset performance.

Risk Event Occurrence: If a risk event identified in the investment thesis materializes, a position may be closed to mitigate potential losses. This includes market shifts, regulatory changes, or project-specific issues that adversely impact the asset’s outlook.

2. Better Risk/Reward Opportunities

Portfolio Review: Continuous monitoring of the portfolio and candidates for inclusion ensures the fund is always positioned optimally in terms of risk and return.

Replacement with Superior Options: If a new asset, either in the portfolio or on the candidate list, demonstrates a significantly better Risk-Reward ratio, it may replace an existing position. This decision is based on a thorough analysis that the new asset offers higher returns for a similar or lower level of risk.

3. Transfer to “Trashbag” Fund

Disappointment or Failure to Meet Thesis: Projects that fall short of the fund’s expectations, either through underperformance or deviation from their initial investment thesis, are earmarked for the “Trashbag” fund.

Rationale for Trashbag Inclusion: This category includes assets that have disappointed portfolio managers or no longer align with the fund’s strategic direction. The decision is based on comprehensive reviews, ensuring that only assets truly misaligned with the fund’s objectives are categorized as such.

Managed Exit: Assets in the “Trashbag” fund are strategically exited, either immediately or at an opportune moment, to minimize potential losses or salvage residual value.

Closing Process and Considerations

Decision Making: The Portfolio Committee plays a crucial role in deciding when to close positions, guided by the fund’s strategic objectives and the aforementioned criteria.

Timely Execution: The timing of position closures is carefully planned to optimize returns or minimize losses, depending on the reason for the exit.

Market Conditions: Consideration of market conditions is paramount in deciding the timing and manner of position closures.

Conclusion

Closing positions in the ABC Demo Fund is a strategically important process, guided by clear criteria and focused on optimizing the fund’s overall performance. Whether realizing gains, seizing better opportunities, or managing underperforming assets, each closure decision is made with the fund’s long-term objectives and risk management principles at the forefront.