Mongolia

Sustainable Growth

Private Equity Fund

19 June 2015

Because things are the way they are, things will not stay the way they are

- Bertold Brecht A commercially-focused organisation can invest for both financial and social returns for the nation, this will be the basis for sustainable growth in Mongolia.

1. A Diverse Economy

2. Growth Opportunities

3. Diversification

4. Economic Impacts

5. Social Impacts

6. Ecological Impacts

7. Structured Impact

8. Sectoral Focus (1)

9. Sectoral Focus (2)

10. Investment Focus

11. Case Study

12. Fund Structure

13. Investment Comparison

14. How to Invest

Contents

1 A DIVERSE economy

JUNE 2015: FUND 1

As a resource-rich nation,

Mongolia is also developing

and differentiating its economy

Enhancing absorptive capacity

requires broad growth and a

perspective beyond typical

investment pace metrics

Private investment can take

the lead in generating non-

mineral growth, foregrounding

rich opportunities

Projected average growth of 5.9% 2015-

2020 non-mineral GDP

Far less volatility than mineral-related GDP

growth

Diversification is a key focus

Raising profile of expanding sectors

Resilience across cycles

0

8

15

23

30

2011 2012 2013 2014 2015

Mongolia Mineral & Non-Mineral GDP Growth History

Mineral GDO Growth Non-mineral GDP Growth

2 GROWTH opportunities

JUNE 2015: FUND 1

Mongolia has the right mix of wealth and income growth that

will promote strong consumer

demand in the medium and

long term. OBG The Report 2014

Mongolia needs to diversify the economy by developing value

chains for high-quality, locally

made agricultural products.

Establishing genuine Mongolian

brands. IMF - 2015

Economic diversification

Employment creation

Additional liquidity

Stimulating growth

Encouraging transparency

Raising profile of growth sectors

SECTOR FOCUS OUTCOMES

Agriculture

Mechanisation

Standardisation

Production for domestic markets

Expanding export base

Job creation

Food security & import substitution

New export opportunities

Real Estate & Construction Rehabilitation of distressed assets

Preparing for growth in indirect demand

Emphasis upon Value-add

Expansion of service sector

Job creation

Improvements in low-end retail sector

Financial Sector New financial sector products

Insurance

Improved private-sector financing

Capital market growth

Manufacturing Moving up the value-chain Improved export opportunities

Value-add production

Job creation

Healthcare Diagnostics

Laboratory facilities

Healthcare improvements

Technology and skills transfer

Tourism Developing a more synergetic sector

Tourism infrastructure

Technology and skills transfer

Sectoral collaborations on infrastruture

Education Support facilities (i.e. student housing)

Expanding opportunities

Technical and vocational skills

Improvements in employability

Upscaling skills

Infrastructure Small-scale energy security

Clean-tech Clean-tech adoption

3 Diversification

JUNE 2015: FUND 1

4 ECONOMIC Impacts Economic diversification

Employment creation

Additional liquidity

Stimulating growth

Encouraging transparency

Raising profile of growth sectors

JUNE 2015: FUND 1

The fund will initially focus on

issuing debt financing, whilst

managers work to prepare

appropriate projects for

equity financing.

Diversified approach spreads

risk and ensures return

across cycles - exemplified by

14%+ yields on low-end retail

real estate 2013-1015

5 SOCIAL Impacts

JUNE 2015: FUND 1

Human capital improvement

Employment creation

Improving social housing

Creating sustainable living

conditions

Food security

Strong growth should not only be

measured in nominal terms, but

also be felt by the entire

population and the benefits of

growth should be equitably

shared - Axel van Trotsenburg - World Bank Vice President for East Asia

& Pacific.

Mongolia ranks 103 in the

United Nations Human

Development Index, up 3 places

from 2013

6 ECOLOGICAL Impacts

JUNE 2015: FUND 1

Emphasis upon clean-tech

Improved energy usage

Small-scale and nodal energy

solutions

Carbon intensity of Mongolian energy sector is highest

among regional countries Ministry of Environment & Green

Development

Mongolia is a renewable energy paradise Asia Nikkei

7 STRUCTURED Impact

JUNE 2015: FUND 1

Social Ecological

Economic Triple bottom line:

Economy, Society,

Environment

Diversification:

Enhance and underpin

growth in diverse sectors

Systemic approach:

Understanding synergies

and outcomes in our

investments Equitable Social Environment

8 SECTORAL focus (1)

JUNE 2015: FUND 1

SECTOR DIRECT CONTRIBUTION GROWTH OPPORTUNITY

Agriculture Accounts for 16% of GDP and 40%

of employment

20% of the world's cashmere

production, with this industry set for

new growth

Meat and crop production growing to

meet national demand, with sown

areas for vegetable and fodder crops

growing 3.3 and 7% annually

Develop new value-chains

Create Mongolian brands for export

Standardisation

China / Russia export

Real Estate &

Construction

Construction sector achieved 91%

growth Q1-3 2013, accessing pent-

up demand on the back of lower cost

mortgages.

Despite contracting 11% in first 9

months of 2014, construction

continues to underpin growth as

other sectors grow

Accessing indirect demand

Low-level retail as driver of job

growth and regeneration

Distressed asset rehabilitation

Financial Sector

Fastest growing sector of Mongolia

since 2010. 20% in 2014 and

accounts for 5% of total GDP of

2014.

90% of business in Mongolia are

SMEs, but few have access to

finance. Efficient and broad financial

intermediation is critical.

SME financing

Manufacturing Manufacturing contributes around

7% to national GDP, although this is

slowing

Primary and tertiary activities

are growing faster than

manufacturing.

Growth is imperative to move up the

value chain

Identify manufacturing opportunities

that use local raw materials, can be

economically produced and compete

in international markets

9 SECTORAL focus (2)

JUNE 2015: FUND 1

SECTOR DIRECT CONTRIBUTION GROWTH OPPORTUNITY

Healthcare

Private healthcare providers

leading the growth of medical

sector, accounting for over 15% of

healthcare financing

Healthcare remains a key concern,

with need for improved financing,

insurance and technical facilities

Testing facilities

Diagnostic centres

Insurance

Tourism

4% of GDP, growth, 5%+ growth

2013-2014.

Accounts for 58,000 jobs directly

and indirectly

Expected sector growth of 5.7% p.a

by 2024 (3.6% of GDP)

Tourism supported by Government

as a key growth industry

Shared tourism infrastructure

Hotels and hospitality investment

Education

A well educated workforce

increased opportunities and

national economic and social

success.

Deficit of over 43.1 million US$ in

education funding.

Improvements planned to current

supply driven irrelevant vocational education for youth and adults

Number of students growing 0.6%

p.a.

Modernise vocational training

Support PPP programs in primary

and secondary education

Provide supporting facilities

including student accommodations

Infrastructure

Road and rail links crucial to

development of mining sector

Urban infrastructure in critical

condition,

US$5 billion worth of trade deals

with China signed

US$80 billion required for major

infrastructure projects

Equity in nodal infrastructure

platforms

Co-investment in clean-tech energy

10 INVESTMENT focus

JUNE 2015: FUND 1

HORIZON SHORT-TERM MID-TERM I MID-TERM II

Sectors Agriculture & Food Production

Distressed Assets

Financial Sector

Real Estate Yielding Assets

Agriculture & Food Production

Distressed Assets

Technology

Education

Manufacturing

Tourism

Small-scale energy

Healthcare

Financial Sector

Real Estate

Manufacturing

Agriculture & Food Production

Investment Structure Debt / Equity (80/20) Debt / Equity (70/30) Debt / Equity (60/40)

Target Return (IRR) 14-20% 13-16% 12-16%

Exit Disposal of assets

Conversion of debt

Amoritisation

Disposal of assets

Conversion of debt

Amoritisation

Disposal of assets

Conversion of debt

Amoritisation

Fund Allocation 35% 35% 30%

11 Case Study

JUNE 2015: FUND 1

Investment Multiple retail locations, including two marketplaces

Investment Size US$ 5.1 mm

Tenor 3 years into 5 year investment strategy

Risk management Deal structure + transaction monitoring on title transfer

Exit Sale of structure - improved attractiveness as a result of large balance of developable land

Return Profile Current NAV US$ 6.2 mm (6% capital appreciation per year) + 14% NET yields, expected ROI of 2.03

over 5 years.

Social Good Created 200+ direct jobs

12 FUND structure

JUNE 2015: FUND 1

LLC Debt

International Audit

SPV

PE Fund (Mongolia domiciled holding co.)

BoD comprised of

independent members

Independent

managers with

sector-specific

track-record

originate

investment

opportunities

Arms Length Asset

Management

Board of Directors

Investors

Fund Management

Arms Length Asset

Management

Arms Length Asset

Management

40% 60%

13 INVESTMENT comparison

JUNE 2015: FUND 1

Risk

Retu

rns

Government Bonds

Bank Term Deposits

Direct Real Estate Ownership

Vehicle Typical Return Considerations

15.7%+ Additional

exposure to

market upside

Bank Term

Deposits 15.1% typical Minimal risk

Govt Bonds 13%-16% Lowest risk

Direct RE

Ownership 8%-14%

Highest risk and no

differentiation

14 HOW to Invest

JUNE 2015: FUND 1

Fund Size US$ 100 million

Tenor 5 years

Fund Structure Closed-ended Private Investment

Fund

Currency USD, Investments will be made in

USD and MNT

Investment Mechanisms Debt & Equity

Management Fee 2% of committed capital annually

payable quarterly in advance

Performance Fee 19% of NAV growth, with 8%

hurdle

Valuation / Reporting Audited NAV published annually

and reporting quarterly

Return Profile 15.7 % IRR

Expertise in identifying high-

growth opportunities Economy, Society, Environment

Experienced Management Asset managers with sector-specific

knowledge participate in management

Sustained growth across

Mongolias cycles Long-term outlook and focus on

essential goods and services

Independent, Experienced

Board International board selected based

upon EM investment track-record

Thank You

FOR MORE INFORMATION PLEASE CONTACT

Alex Skinner +976 97 07 55 50 alex@umc-alpha.mn

Monsor Nyamdavaa +976 99 10 82 46 monsor@umc-alpha.mn

Mongolia Sustainable Growth Private Equity Fund