Liquidity and Risk Management Policy

Chapter I - Objective and Scope

DXA Gestora de Investimentos ("DXA" or "Manager") presents the Risk and Liquidity Management Policy for Investment Funds and Managed Portfolios ("Policy"), which was prepared in accordance with current legislation and aligned with the guidelines of ANBIMA's Regulation and Best Practices Code for Management of Third Party Resources.

The guidelines and rules established in this Policy must be observed by all employees in the third-party asset management and risk management activities.

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Chapter II - General Rules

Note that DXA only manages closed-end funds, redemptions are only allowed after the end of the term of the funds.

Section I - Illiquid Assets and Funds

Assets of immediate liquidity are defined as those whose settlement term is equal to or shorter than the settlement term of the shareholder redemption request. In the case of DXA the assets integrating the managed portfolios and the portfolios of the Funds managed by it are illiquid, since liquidation and redemption will only be possible at the end of the duration of the fund and/or of the investment term of the asset in the managed portfolio. In this sense:

a) Quotas of Investment Funds in Participations (FIP), will be considered as illiquid positions; and

b) Shares, debentures, subscription warrants, or other securities convertible or exchangeable into shares of Target Companies will be considered illiquid positions.

Furthermore, DXA does not perform stress tests, control asset concentration risk, and does not have a Risk Exposure Report, since they do not apply to its organizational model.  

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Section II - Mitigating and Aggravating Factors

Given that DXA only manages closed-end funds and that, therefore, redemptions are only allowed after the end of the fund's duration, the manager focuses on assets whose settlement term is equal to or shorter than the settlement term of the shareholders' redemption request. Thus, the mitigating and aggravating factors are not applicable to DXA's routine. 

Chapter III - Organizational Structure

The Management Company has a Risk and Compliance Committee, composed of the Director of Risk and Compliance, the Director of Management and a member of the Executive Committee, which meets every six months, or whenever necessary, when called by any of its members. The deliberations will be made by the vote of the majority of those present, and the minutes of the meetings must be drawn up, which may be in summary form.  

Section I - Responsibilities

The Risk and Compliance Officer is responsible for maintaining, updating and ensuring compliance with this Policy, participating in the Investment and Executive Committees of the Management Company, as well as supervising the risk team in order to ensure the monitoring and verification of the risks to which DXA, the Funds and the portfolios under management are exposed.

In order to ensure the area's independence, the Risk and Compliance Officer is not subordinated to the other Officers, exercising its function with discretion and independence.

The Risk and Compliance Committee is responsible for: (i) defining general guidelines on the Compliance, Risk and Internal Controls structure of the Management Company; (ii) monitoring and supervising, with independence and efficiency, the operations and activities developed by DXA and the compliance with applicable regulations, especially the rules contained in this Policy; (iii) to deliberate on the matters mentioned in this Policy, and to assess any doubts of the Collaborators, or specific situations with respect to the applicable legislation and regulations, as well as on the provisions of this Policy that cannot be decided by the Risk area; and (iv) and to deliberate on consequences of the noncompliance with this Policy, hearing the recommendation of the Chief Risk and Compliance Officer.

The Risk and Compliance Committee is independent, so decisions taken are implemented without the need for further review or approval.

The Executive Committee is the highest decision-making collegiate body in the Management Company and has the autonomy to supervise all activities, employees and other DXA Committees.

The Executive Committee's responsibilities include: (i) performing strategic and structural planning for DXA; (ii) evaluating the results of the Management Company and the performance of the managed investments; and (iii) making operational decisions and defining the Management Company's investment strategies.

Chapter IV - Types of Risk

The assets managed by DXA are, by their nature, subject to typical market fluctuations, adverse liquidity conditions, among other risks and, although DXA acts diligently in managing them and maintains risk management routines and procedures, there is no guarantee of complete elimination of risks and losses for DXA's customers. Accordingly, the assets managed by DXA are subject to the risk factors listed below on a non-exhaustive basis:

1. Market Risk. Inherent to investment in Private Equity are the liquidity risks of the Invested Company, the Secondary Market Risk for sale of fund shares, the foreign exchange risk, the Market Risk, and also the Risk related to Macroeconomic Factors and Governmental Policy.

In order to help investment analysts in the risk analysis of an investment decision, micro and macroeconomic research, studies, and support spreadsheets are used, so that one can have an in-depth knowledge about the market.

Furthermore, because the Private Equity investment is made through Equity Investment Funds and managed portfolios, the liquidity risk is monitored internally. There is also no monitoring of credit risks, as they do not apply to the investment model used.

2. Operational Risk. In order to mitigate the effects of atypical situations on the Management Company's activities, a Business Continuity Plan was developed, in which, from the analysis of potential risks, action plans were prepared for contingency situations, in order to avoid the prolonged paralysis of its activities.

The Director of Risk and Compliance, together with the Chief Executive Officer of the Management Company, are responsible for monitoring Operational Risk. The Risk and Compliance Officer and the CEO are jointly responsible for the annual review, or whenever necessary, of the Continuity Plan, as well as for applying tests to verify its effectiveness.

In the occurrence of atypical situations and of higher operational risk, there will be an adequate treatment by the Manager.

3. Counterparty Risk. In active transactions (investments) undertaken by the Funds, the client should be understood as the counterparty to the transaction, whenever possible to be identified, and DXA will be responsible for their registration in the internal systems, on forms or spreadsheets, as well as their monitoring. For the identification of counterparties, DXA relies on service providers contracted by the funds, administrators and custodians. Any transaction that violates the precepts established in DXA's Policy should not be undertaken and the occurrence should be immediately reported to Compliance.

4. Concentration Risk. The greater the concentration of the fund's investments in a single company that issues securities, the greater the vulnerability of the fund in relation to the risk of that issuer. The fund may invest up to 100% (one hundred percent) of its resources in a single Invested Company, from any economic sector and geographic region in Brazil, without restrictions as to economic, operational, regulatory, or strategic conditions.

5. Liquidity Risk. Liquidity is understood as the capacity of an institution to honor its financial commitments at maturity, incurring little or no loss. Liquidity risk is translated by the possibility of the institution not being able to honor its commitments at maturity, or only doing so with high losses.  

This risk can be classified into Cash Flow Liquidity Risk and Market Liquidity Risk, being defined by the possibility of occurrence of the following factors:

a) Mismatch between asset liquidation flows and resource requirements to meet obligations incurred by the fund;

b) Atypical market conditions and/or other factors that cause lack of liquidity of the markets in which the securities integrating the fund are negotiated;

c) The fund's assets are insufficient to cover margin deposit requirements with counterparties; and

d) Unpredictability of redemption requests.

 Chapter V - Liquidity Risk Management Policy

The management of liquidity risk takes into account the specific characteristics of each investment fund, whether the condominium type is open or closed, the target public, the concentration limit, the redemption term, the investment and payment policy defined in the regulations of each one of the funds, and thus meet its cash obligations without harming investors.

Charges such as brokerage expenses, custody, auditing, administration fees, among others, are measured according to the monthly average of the last 12 months.

Considering that the funds that are intended to be managed are mostly FIPs, and given the illiquid nature of such assets, the liquidity risk for this product is mitigated. It is worth emphasizing the wide transparency granted to investors and that the liquidity of assets should always match the redemption payment deadlines.

Furthermore, the Liquidity Risk of the Funds under management also includes the monitoring of their capacity to honor their obligations and expenses, thus avoiding an incorrect estimate of provisions for the same. In case the Fund's resources are not sufficient to face its expenses, the Risk area will be responsible for informing the Management area, so that it can provide a capital call from the Fund's shareholders, observing its regulation.

In the case of managed portfolios when invested in closed-end companies, the treatment given to investment vehicles is the same as that applied to investment funds.

Chapter VI - Final Provisions

This policy will be re-evaluated on an annual basis, and may also be revised at different times if there is a need to adapt and improve it. The full version of the document can also be consulted on the institution's website via the following link: https://www.dxainvest.com/legal/política-de-gestao-deriscos-e-liquidez.

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