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1601 Cloverfield Boulevard, Suite 5050N Santa Monica, CA 90404 | www.daltoninvestments.com

Ben Graham Centers Value Investing

ConferenceIvey Business SchoolApril 2014


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January 2014 Page 1

This document does not constitute a solicitation of any shares in any investment vehicle managed by Dalton Investments LLC.

Such solicitations can only be made to qualified purchasers by means of the private placement memorandums, which

describe, among other things, the risks of making an investment. Additionally, this presentation does not constitute

investment advice of any kind. Opinions and estimates offered constitute our judgment and are subject to change without

notice, as are statements of financial market trends, which are based on market conditions.

STRICTLY CONFIDENTIAL

Not For Distribution


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January 2014 Page 2

Whats wrong with this picture?


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January 2014 Page 3

Brokers generate revenues frominvestment banking commissions

Investment banking clients(corporations) benefit from bullishratings

Only 5% of S&P 500 companyresearch reports are sells

Sell side analysts

Misalignment of Interests

48.8%46.0%

5.2%

Buy Hold Sell

S&P 500Analyst Ratings

Source: FactSet, October 2013


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January 2014 Page 4


Brokers

I know you purchased the stock

at $50 and now its $10, and they

filed for bankruptcy. But lets not

read too much into that

Brokers generate commissionsbased on trading turnover

The incentive is to maximizetransaction volume

Investors want the best investment

ideas


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January 2014 Page 5


Higher ratings can lead to additional business and revenues.

Rating Agencies

Investors want independent,objective ratings for bonds

Ratings agencies are paid by thecompanies whose bonds they arerating

In 2007, more than half of newlyissued mortgage-backed securitieswere rated AAA*

*Source: Milken Institute


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January 2014 Page 6



IPOs

*Selected from top 10 HK-listed IPOs of 2013 by market capitalizationSource: South China Morning Post, November 2013

Company * % pricechange onday one

% changesincelisting

Sinopec Engineering -0.38 -3.05

Chinalco MiningCorp International

-6.29 -25.71

China Harmony Auto -16.12 -12.83

WuzhouInternational

5.74 0.00

PanAsialum -13.08 -44.07Termbray Petro-kingOilfield Services

26.83 40.85

Time WatchInvestments

2.22 -40.74

Issuing companies want to maximizecapital raised

Investment banks want to maximizecommissions

Investors want a favorable price, but

IPOs tend to be overpriced andunderperform


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January 2014 Page 7



State-owned enterprises

An entity created by a government toundertake commercial activities onbehalf of the state

Managements interests tend to bemore aligned with politicians than withshareholders

Objectives other than maximizingprofitability; ex. maintainingemployment, growing asset base


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January 2014 Page 8

Japanese keiretsus


Japanese conglomerates withcomplex holding structures acrossmultiple subsidiaries

High inheritance tax in Japan dilutesfamily ownership

Management receives high cashcompensation but little performance-linked compensation

Salary OtherCompensation


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January 2014 Page 9

No incentive for breaking form

Alignment of Interests


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January 2014 Page 10

Individual incentives

aligned with group



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Skin in the game

*Schroeder, Alice. The Snowball: Warren Buffett and the Business of Life

To have "skin in the game" is to

have incurred monetary risk bybeing invested in achieving a goal

Warren Buffett used the term todescribe a situation wheremanagements interests are aligned

with those of shareholders*


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Skin in the game for executives

Management should own at least 5x

their annual salaries in companyshares

Managements stakes shouldrepresent the majority of theirpersonal net worth

Management = owner-operators

Salary CompanyShares


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Skin in the game at Dalton

Investment professionals place 50%

of their annual bonus into the firmsfunds

Investment professionalsbest ideasare in the firms portfolios


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Family businesses

Familybusiness?

Survivaloriented(%)

Growthoriented(%)

ControlOriented(%)

Yes 77.5 64.6 69.0

No 22.5 35.4 31.8

*Study conducted on 922 UK businesses by Manchester ScienceEnterprise Centre, 2003

Company is run by the founder

and/or founders family

Majority of the familys wealth is inshares of the company

Familys name and reputation are

tied to the business


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Family businesses

As owners, the family benefits when

other shareholders benefit

Managers think like owners, notemployees

More skin in the game

Alignment ofInterest

Margin ofSafety

BusinessQuality

Family businesses


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Case Study: Himax (HIMX US)

Himaxstake90%

OtherInterests

10%

Wu BrothersSource of Net Worth

Wu brothers collectively own 27% of

the companys shares

The stake represents nearly theirentire net worth

Source: Dalton estimates, Bloomberg


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-- Lee Shau Kee, 1998Founder of Henderson Land

He purportedly received US$190 million in dividends,tax-free

Mr. Dividend

All my friends ask me,' Am I number one in theworld in [receiving] dividend payments?Leetells Forbes during a recent interview in his

splendid headquarters high above Hong Kongscentral office district. I say,' I dont know, askForbes.



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Founder Company Salary

(2012)

Dividends received

(2012)

Chung Wai Ping Tao Heung US$28,000 US$6.7 million

David Chiu Far East Consortium US$350,000 US$6.2 million

Li Ka-Shing Cheung Kong US$1,200 US$422.8 million

Tycoons bank on dividends


Source: Capital IQ, Bloomberg


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Dividends vs. Salary

Hong Kong


Income taxes, while low, are muchhigher than dividend taxes

Executives minimize taxes bypaying higher dividends in lieu ofhigher salary

Shareholders benefit from higherdividends

RegionFlat

IncomeTax

DividendTax

CapitalGains

Tax

Hong Kong 15%* 0% 0%

*Residents have an alternative option of choosing a progressive tax with rates upto 17%Source: Deloitte, 2013


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Singapore

RegionTop

IncomeTax

DividendTax

CapitalGains

Tax

Singapore 20% 0% 0%

Residents are taxed at progressiverates up to 20% on income

Singapore residents also benefitfrom zero dividend taxes

Incentivizes owners to pay highdividends over high salaries

Source: Deloitte, 2013


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Japan

RegionTop

IncomeTax

DividendTax

CapitalGains

Tax

Japan 52.1%* 20% 20%

Japan historically has concentratedcompensation in base salaries

Japanese firms hold large amountsof cash

In recent years, dividend payoutshave been on the rise

*40% national tax + 10% local tax + 2.1% surtax starting in 2013Source: Deloitte, 2013


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Russia

RegionFlat

IncomeTax

DividendTax

CapitalGains

Tax

Russia 13% 0-9%* 0%

Dividends are taxed at 9% forindividual residents

Income tax comparatively higher at13%

Incentive is to pay higher dividendsversus higher salary

*Legal entities that own over 50% of a subsidiary are entitled to receive dividends tax-freeSource: Ernst & Young, Deloitte, 2013


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India

RegionTop

IncomeTax

DividendTax

CapitalGains

Tax

India 30% 0% 0%*

The top marginal tax rate in Indiafor individuals is 30%

Individuals do not pay taxes on thedividends they receive

Entrepreneurs pay lower taxes viadividend distributions than viasalary.

*Exempt if held longer than one year; otherwise taxed at 15%Source: Deloitte, 2013

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