Pelargos Asia Alpha Fund May 2015

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1 Fund Performance In May the Pelargos Asia Alpha Fund Class B shares lost 0.55%. The MSCI Asia Pacific ex Japan (MSCI APxJ) index declined 2.95% over the month. Year-to-date, the fund is up 5.41%, whilst the MSCI Asia Pacific ex Japan (MSCI APxJ) index gained 6.66%. The volatility of the fund is 5.9% since inception, compared to 23.2% for the MSCI APxJ index. Fund Performance Share Class NAV MTD YTD ITD 1, , % -0.55% % 3.85% 1.98% Market Environment In May, most Asian equity indices moved down after last month s strong performance. Overall the MSCI APxJ Index declined 2.95%. The sell-off was broad based. All sectors of the MSCI APxJ declined, with defensive sectors, Health Care and Consumer Staples, outperforming. In addition, most country indices were down. Only the Indian and Indonesian stock markets performed well, in contrast to their poor performance last month. On the macroeconomic front, the weak data from China persisted. Inflation and the HSBC manufacturing PMI again came in softer than expected. Additionally, the trade numbers were down strongly. Consequently, Chinese policy makers also continued their support of the economy by cutting the benchmark interest rate for the third time in six months. In addition, they increased the deposit ceiling for the banks. The Reserve Bank of Australia lowered their benchmark interest rate further, while in the rest of Asia, most central bank policy makers stayed on hold. During the month the dollar strengthened versus most Asian currencies. The FED president, Janet Yellen, commented that raising the borrowing costs this year would be appropriate if the economy continues to recover in line with her expectations. Whether the increase in benchmark interest rates will occur this year remains to be seen as U.S. economic data in May came in mixed. Moreover, the overall economy remains weak as witnessed by last month's revised real GDP growth of -0.7%. This was mainly driven by downward revisions of net exports and inventory investments. Commodity prices also seem to point to economic weakness with industrial metals selling off since the beginning of May while precious metals are holding up. Top & Bottom Industry Movers Industry Group MTD YTD PB PE Health Care Consumer St. Materials Industry Group -0.4% -1.2% -2.2% MTD 8.9% 4.3% 6.1% YTD PB PE Telcom Energy Consumer Disc. General Statistics % Return long book % Return short book # Long stocks # Short stocks % Long stocks % Short stocks # Up days / Down days Daily Correlation with MSCI AP ex JP Turnover as % NAV -5.6% 5.1% % 3.3% % -0.9% Source: Bloomberg -2.3% -2.3% % 59% 10 / Largest Long & Short Holdings Longs Shorts Newcrest Mining Genting Singapore Great Wall Motor Bank East Asia Zijin Mining H Tsingtao Brewery China Const Bank Want Want China Samsung Elec Prf Sands China Source: Citi Financial Services Single Stock Activity Largest Buy & Buy Cover* Largest Sell & Short Sell** Tingyi Hldg BC China Overseas Land S Hollysys Automat B Bank Central Asi SS Country Garden BC Tata Motors Adr S Agile Property BC Natl Aust Bank SS Uni President BC Wharf Hldg SS * B = Buy; BC = Buy Cover Source: Citi Financial Services ** S = Sell; SS = Short Sell Investment Strategy In line with last month our overall positioning remained stable, geared towards the Greater China region and in style towards value and momentum stocks. However, among our top five long and short holdings we did make some changes. Firstly on the short side, we partially covered our biggest short position in Tingyi Holdings. The stock has sold off over the last few months and reached solid support at HKD16, at which point we decided to take some risk of the table as the risk reward ratio became unattractive. We will monitor the stock closely and if the stock breaks through this support level we will add to the short. Furthermore, we reduced our pair trade in the Chinese property sector. Even though we still hold a negative view on the sector we reduced the gross exposure to the pair trade to account for the risk of a low quality rally which might be triggered by more news on government support. In April we initiated a short position in the Hong Kong retail sector, which we increased in May. Hong Kong retail sales numbers for April were weak, shrinking 2.9% year over year. 1

2 Performance The portfolio lost 0.55% in May, holding up in an environment where most Asian markets were down. The composite MSCI APxJ was down 2.95%. Our hedges provided some downside support for the portfolio. Also, in April we took profits in some of our biggest Chinese positions, which moderated the impact of the down move in the Chinese equity market. Our biggest gainer was Zijin Mining, which only started trading on the 27 th of May after having been suspended late April. The company raised capital via a private placement in the Shanghai markets to purchase three new (foreign) assets, finance construction of existing mines and increase working capital. The deal was well received by the market with the stock moving up 15% in the last few days of the month. Top Gainers & Losers Gainers CTR* Losers CTR* Zijin Mining H L 0.5% Great Wall Motor L -0.6% China Lesso L 0.3% China Overseas Land L -0.6% Sk Hynix L 0.3% Sk Telecom Adr L -0.5% Genting Singapore S 0.3% China Railway ConstrucL -0.3% Anhui Express H L 0.2% Uni President S -0.3% *CTR = Contribution On the short side, Genting Singapore contributed 0.26%. The company released first quarter earnings numbers which surprised negatively, coming in below market consensus. The VIP segment remains under pressure from the anti-corruption measures undertaken in China. This pressure was reflected in the management outlook, which described the market environment as challenging. In addition, the bad debt provision numbers are deteriorating and the outstanding balance to VIP gamblers has been increasing in size and duration. Value Factor Performance* P/E EV/EBITDA P/B Div Yld EV/IC FCF MTD -1.4% 0.4% -2.6% -1.6% -2.0% 2.3% YTD 4.5% -2.7% 5.7% -3.7% 6.4% 2.8% 10.0% 0.0% -10.0% % * Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Cumulative Percentage Return Percentage Average Daily Return Per Quintile [YTD] Performance Also worth mentioning is our short in Hanergy Thin Film Power, which fell just outside of the top five gainers last month. The share price dropped a spectacular 47% in less than 30 minutes, before being suspended. Although it remains unclear what exactly triggered the collapse, the company had recently come under increased scrutiny by the financial press and some analysts. They questioned the company's large inter-company and related party transactions, lack of transparency, claims of technological breakthroughs and mindblowing valuations after the >500% share price rally. But as charismatic chairman Li Hejun controls 80% of the shares via Hanergy Holdings Group, most investors shied away from betting against the stock. Given that the share price had rallied relentlessly in a kind of step function, we had initiated a relatively small short position that we intended to add to over time, as we expected upside momentum to fade. However, it remains to be seen whether we will be able to add to the short position at all, as the sell-off in the stock has now triggered formal investigation by the German and Hong Kong regulators and it is uncertain if/when/how the shares will resume trading. Our biggest losing position for the month is Great Wall Motors (GWM). The stock sold off after having reached its all time high in late April. Even though GWM's April sales numbers were solid, a great number of model launches are expected in the sector over the next months. Moreover, it seems the fear of increased pricing competition is increasing. These developments could provide further headwinds for the stocks which we are monitoring closely. Another negatively contributing stock for May was SK Telecom. First quarter numbers for the stock disappointed with operating profit under pressure from rising costs due to fierce marketing competition at the beginning of the quarter. Looking ahead the company upheld it's guidance for the year and will review its shareholder return policy later this year, which should provide some downside support for the stock. 2

3 Risk Measurement and Management Last month s changes to the net and gross exposure were mainly driven by bottomup stock selection. The net exposure has been reduced over the last couple of months, while the gross exposure has remained fairly stable. The decrease in the net exposure has primarily been driven by an increase in our short book, which is partly caused by our short in Chinese index futures and partly driven by bottom-up stock selection. The ex ante portfolio beta is The style exposure of the portfolio, remains similar to previous months. The long book has relatively low valuation multiples (P/E, P/B and EV/EBITDA), high price and earnings momentum as compared to the short book. 140% 1 100% 80% 60% 40% 0% - -40% -60% 0% Jun Jul Aug Sep Oct Oct Nov Dec Jan Feb Mar Apr May Long Exposure [L] Gross Exposure [L] Short Exposure [L] Net Exposure [R] 45% 40% 35% 30% 25% 15% 10% 5% Source: Citi Financial Services* Fund Overview Price to Earnings (PE) EV/EBITDA Price to Book (PB) Dividend Yield EV/IC 1 month momentum 6 month momentum 9 month momentum Earnings momentum (1M) Earnings momentum (3M) CFROI Cash/MarketValue Style Exposure Beta Volatility Debt-to-equity Risk Statistics Delta Adjusted Volatility (ex-ante; 1yr daily data) Volatility (ex-ante; 5yr monthly data) Var (99%, 5 days) Beta (ex-ante) Long Short % 15% Long Short % 13.0% % 7.8% 3.4% 0.24 Source: GS and UBS PAS Outlook The investment community remains obsessed with three major global macroeconomic themes: the Fed tightening cycle, resolution of the Greek debt crisis and the Chinese economic slowdown. The market believes that US growth will be strong enough in 2nd half of this year for the Fed to start tightening. Recent labor market strength should support the US consumer and help reversing the 1H2015 slowdown, which many believe was caused by one-offs such as weather and port strikes. However, in our opinion the weakness in US growth is the result of a multi-year deleveraging cycle, which manifests itself in structurally lackluster corporate and consumer spending. In addition to domestic demand weakness, this year's US dollar strength is putting pressure on corporate profit margins, and acts as a further catalyst to cut capex. With anemic growth globally, it is unlikely the US economy will be bailed out by the rest of the world. Consensus expectations still call for the Greek government to give in and accept the ECB/European demands for further austerity. We are not so sure they will, and recent brinkmanship by the Syriza leadership has increased the possibility for a Greek exit. Anyone who has done the math on the Greek debt situation knows that Greece won't be able to pay it back in full. Partial debt forgiveness is required and it is up to the European Counsel, ECB, IMF and the Greek government to reach a sustainable agreement, rather than the extend-and-pretend solutions that have prevailed over recent years. Greece's creditors will have to walk a fine line as they do not want to trigger Spain or Italy's populist parties into demanding similar haircuts in the future. As the final negotiations near the June 30 IMF-repayment deadline, we expect to see more strategic leaking of proposals, which is likely to impact financial markets. Many countries in Asia have seen weak equity markets as macroeconomic data has been disappointing. The big exception to that is the Shanghai composite. The Shanghai stock market has been driven by retail investors, who believe the central government wants the equity market higher to support the IPO pipeline. In near term, Chinese stocks could still see some more upside as market breadth remains supportive. However, we are getting into the latter stages of this up-move. Chinese equity valuations are at the upper end of historic ranges, earnings growth is subpar, and we expect a volatile consolidation in the second half of We do not see much macroeconomic relief in the near term, but there is some valuation support, especially in cyclicals and financials. We expect Asian equity markets to remain in a (volatile) trading range, capped by the early May highs and supported by the December 2014 lows. We have therefore reduced the risk profile of the fund for now and are looking to add risk as value opportunities arise and markets show signs of stabilization. 3

4 Historic Fund Performance (Monthly) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov % 0.92% 0.51% 5.50% -0.59% % 0.24% 0.13% -1.19% -1.46% 1.46% -0.44% 0.98% -0.87% -0.23% 1.39% % 1.53% 1.16% 0.37% -0.79% -3.32% -0.16% -0.50% -1.05% 1.61% 2.24% % 0.92% -1.67% -0.72% -2.42% -0.51% -0.36% -0.69% 1.81% -0.48% 1.26% % -1.69% 1.39% 0.29% -0.96% -0.84% 1.13% -2.41% -4.53% -1.03% 0.37% % -0.67% 2.95% -1.48% -3.10% -0.07% -0.84% 0.42% 0.81% 1.90% -0.80% % 0.56% -0.80% 0.77% 1.39% -0.84% 3.72% % 0.08% 1.61% Dec 1.28% 0.17% -0.53% 0.82% 0.79% 1.43% % 0.96% 0.55% 5.54% -0.55% % 0.28% % 0.96% % 0.18% % 1.58% % 0.82% -1.66% 1.44% -0.64% 2.99% 0.60% -1.15% 0.41% -1.63% -0.68% 0.33% -1.44% -1.42% -0.75% -2.38% -0.92% -3.06% 1.50% -0.40% 1.02% -0.76% 0.80% 2.24% -1.00% 4.68% -1.44% -0.19% 1.43% 1.33% -3.28% -0.11% -0.46% -1.01% 1.65% 2.29% -0.47% -0.80% -0.31% -0.64% 1.17% -2.36% -0.03% -0.80% 0.47% 0.86% -1.27% -0.83% 1.85% -0.43% -4.50% 0.85% -0.99% 1.94% 4.01% 0.12% -4.91% -0.06% 1.72% 0.22% 1.31% -0.48% 0.41% -0.75% 0.04% 0.87% 0.84% 1.54% -1.78% Historic Fund Performance (Yearly) % 3.57% -4.37% -8.97% -2.16% 10.89% 5.41% 1.44% 4.10% -3.88% -8.52% -1.67% 13.96% -7.02% Fund Facts Fund Facts Investment Manager Pelargos Capital Fund Size in EUR 147,463,974 Legal Status FGR (fund for joint account) Fund Size in USD $162,003,922 Fiscal Status VBI (tax exempt) Participations Outstanding Class A 243 Dividend Policy Reinvestment Base Currency EUR Participations Outstanding Class B 144,355 ISIN NL ISIN NL Minimum Subscription 10,000 Inception Date January 2009 Minimum Subscription 10,000 Inception Date July 2008 Dealing Day First business day of each month Subscription Any dealing day, 5 business days notice Company Facts Redemption 15 business days notice Firm AUM in EUR 245,760,209 Management Fee Class A 1.5% Firm AUM in USD $269,992,166 Management Fee Class B Performance Fee Class A 1.0% subject to High Watermark Portfolio Managers Performance Fee Class B 15% subject to High Watermark Angus Chiang Early Redemption Fee max 1% (accrues to Fund) Richard Dingemans Lock-up Class B 1 year Fund Description Investment Strategy Equity Long/Short Service Providers Investment Style Value with a twist Prime Brokers UBS AG, Goldman Sachs International Investment Objective Capital appreciation through investing in Administrator BNY Mellon Fund Services long/short positions Accountant PricewaterhouseCoopers Legal De Brauw Blackstone Westbroek N.V. Title Holder SGG Custody B.V. Depositary Bank of New York Mellon 4

5 Contact Details WTC The Hague, Tower E 7th floor Prinses Margrietplantsoen AM, The Hague The Netherlands +31 (70) Disclaimer Pelargos Capital B.V. has compiled this publication. Pelargos Capital B.V. is a management company and in that capacity avails of a license pursuant to section 2:65 of the Act on Financial Supervision of the Netherlands (Wft) as that section reads following the incorporation of the AIFM Directive in the Wft]. Although the information contained in this publication is composed with great care and although we always strive to ensure the accuracy, completeness and correctness of the information, imperfections due to human errors may occur, as a result of which presented data and calculations may vary. Therefore, no rights may be derived from the provided data and calculations. All information is provided "as is" and is subject to change without prior notice. Pelargos Capital B.V. does not warrant the adequacy, accuracy or completeness of any information and expressly disclaims any liability for errors or omissions therein. The recipients of this publication are responsible for evaluating the accuracy, completeness or usefulness of this information. The information contained in this publication does not constitute any recommendation, investment proposal, offer to provide a service, nor a solicitation to buy or sell any security or other investment product. The publication of this information may be subject to restrictions imposed by law in some jurisdictions. Pelargos Capital B.V. requests any recipient of this publication to become acquainted with, and to observe, all restrictions. Pelargos Capital B.V. accepts no liability for infringement of such restrictions. The recipient shall not distribute, forward or publish this information. No rights may be derived from the provided information, data and calculations. Also by risks inherent to this investment fund, the value of the investments may fluctuate. Past performance is no guarantee or guide to future performance. 5