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Rio Asset Management LLC

Rio Asset Management LLC. Firm Structure, Investment Strategy and Process November, 2006. Mission Statement.

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Rio Asset Management LLC

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  1. Rio Asset Management LLC Firm Structure, Investment Strategy and Process November, 2006

  2. Mission Statement Rio Asset Management will strive to create portfolios of the world’s leading smaller, rapidly growing companies. We believe smaller companies provide the best potential for long term growth and the addition of alpha to our clients’ portfolios.

  3. Rio Asset Management LLC Principal • Michael W. (Mike) Gerding • Mike Gerding is the Principal and founder of Rio Asset Management LLC, and brings 20 years international investing experience to the firm. • Prior to creating Rio Asset Management LLC, Mike was the lead international portfolio manager at Wasatch Advisors. He joined Wasatch Advisors and launched the Wasatch International Growth Fund in June, 2002. In addition to the mutual fund, Mike was responsible for managing separate small cap international portfolios for several institutional clients. The products were closed due to capacity constraints in the fall of 2005. • Prior to Wasatch Mike worked at Denver Investment Advisors (DIA) where he was a vice president and portfolio manager of both the Westcore International Frontier and International Select Funds. Prior to joining DIA, Mr. Gerding was a senior vice president at Founders Asset Management in Denver, CO and a portfolio manager of the Founders Worldwide Growth, International Equity and Passport Funds. From 1985 through 1990, Mr. Gerding was a portfolio manager with NCNB Texas. • Mr. Gerding earned a Master of Business Administration and a Bachelor of Business Administration in Finance from Texas Christian University. He has taught international investing with the ABA Executive Trust Program. He is a Chartered Financial Analyst and a member of the Denver Society of Security Analysts. • Mike has spent 25 years volunteering with young people. He is an avid fly fisherman, having fly fished on 5 continents. Mike is also an avid outdoorsman, enjoying spending time in the Rocky Mountains. Mike is a native of Albuquerque, New Mexico.

  4. Firm Structure • Rio Asset Management LLC is registered as an Investment Adviser and is based in Denver, Colorado • Firm is structured as LLC with potential for additional equity holders • Equity will be an important component of long term compensation for senior employees • Compensation for investment professionals will also have significant performance component

  5. Investment Style and Process

  6. Why International Small Cap? We believe that earnings growth drives stock prices. Through intensive, bottom-up research, we seek to identify growing international small cap companies that offer solid upside potential. This asset class continues to be one of the least exploited by investors.

  7. Portfolio Construction • Bottom-up investment philosophy • Portfolio is built one company at a time • Country and sector aware, but not driven • No attempt to mirror any index • Fund will own equities in both developed and emerging markets • Portfolio does not hedge currency • Average of 60-80 positions at any time • Turnover has historically ranged between 40-75%

  8. Ideal Company Characteristics • Market capitalization of less than $5 billion • Weighted average market cap of less than $2.5 billion • Revenue and earnings growth rates greater than relevant country and industry • Strong management track record • Sustainable competitive advantage • Sufficient trading liquidity • Rational valuations relative to country/industry

  9. Primary Investment Tools • Screening using both internal and external data • Bloomberg data • Other third party aggregated data • Brokerage Databases • Internal Databases • Company meetings • Traveling to meet with managements is critical. We each travel internationally several weeks a year • These are in-depth, one on one meetings with senior executives in their offices, and often include site visits • We also meet regularly with our existing holdings • We will meet with managements of competitors, suppliers and customers when appropriate

  10. Primary Investment Tools, cont’d • Detailed models are built to drive our earnings estimates • Models provide both historic and estimated earnings detail • Models also provide comparative data versus industry and country • Detailed note files are kept of all meetings and earnings updates, as well as other company information • Portfolio data sheet is kept real time to update company data as well as aggregate portfolio data

  11. Examples of Typical Stocks • Park24 • Largest independent Japanese parking lot operator • Long relationship with management • 24% growth expected, 40x EPS • Straumann • One of two worldwide leaders in dental implants • A pioneer in this industry • A global leader in niche industry • 30x EPS, 20%+ growth. • Has seen significant multiple expansion over the last few years

  12. Examples of TypicalEmerging Market Stocks • Submarino • Brazil’s leading e-commerce company. • Revenues up 50%+, EPS up >300% • Very small overall market share with significant potential • Li Ning • China’s leading sporting goods brand • Strong management • Potential to be regional or global brand • Traded in Hong Kong, which limits market risk • 21x EPS for 30%+ growth

  13. Other Successful Stocks • Puma • Carphone Warehouse • Homex • Bijou Brigitte • CSR PLC • Elekta AB

  14. Atypical Success Stories • Energy-Cairn Energy • UK based oil and gas development company • Very strong at finding and developing oil and gas fields • Typically not attractive on P/E basis • Soco International is a similar company • Biotech/Emerging Pharma-Actelion • Developed leading product for PAH • We purchased before drug was approved, but close enough to potential approval to minimize risk • We use probability models to estimate potential for earnings • Other biotech holding have included Neurochem and Angiotech Pharmaceuticals

  15. Sell Disciplines • Target price achieved • Upside and downside price targets based on internal models and valuation • Targets are relative to country and/or industry • Targets are used as points of re-evaluation, not mandated sell • Unexplained earnings disappointment • Management deviates from expectations • Loss of confidence in management

  16. Portfolio Data

  17. Top Portfolio Holdings *Based on 12/31/05 holdings in the Wasatch International Growth Fund **PEs using FY2 Est. are weighted harmonic averages. Aggregate market values and EPS growth are weighted averages.

  18. Portfolio Characteristics *Source: FactSet and internal data Based on Wasatch International Growth Portfolio

  19. Country Diversification vs. MSCI

  20. Industry Diversification vs. MSCI

  21. Rio Asset Management LLC • 3200 Cherry Creek South Drive • Suite 130 • Denver, CO 80209 • (303) 951-7390 • Mike Gerding e-mail: mgerding@rioam.com

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