AAIC-C Arlington Asset Investment Corp

Vote FOR Proposal 5 on Arlington Asset?s Proxy Statement

Fellow Owners of Arlington Asset,

This letter relates to a proposal included on the
company?s 2022 proxy statement,
which asks shareholders to join
us in recommending the orderly
liquidation of the company.
As unhedged owners of over 4.4% of
AAIC stock, and as fully outlined below,
we believe this proposal offers
substantial benefits to our fellow
shareholders,
and we encourage you to vote in its favor.

Arlington Asset has performed disastrously
over the last decade,
destroying over half its book value
in the last five years alone, and failing to
declare a common dividend since
2019. As shareholders know well,
the stock?s performance
has been similarly unimpressive ? a
trend that regrettably shows few signs of reversal.

Adding insult to injury, while the
directors have restricted
distributions to common shareholders
for the last two years, they have
simultaneously paid
CEO Rock Tonkel over $3.5 million
in personal compensation, and have
each received fees of
over $320,000 themselves. To put it
delicately, this imbalance in
distributions raises serious
questions as to who is serving whom.

In light of this atrocious performance
and deeply
disordered governance, the time has
come for shareholders to weigh in
on Arlington Asset?s future, if any.
In considering that future, we see
little cause for optimism. The
managers have proven incapable stewards of capital for nearly a decade straight, and now
ask shareholders to join them for a hodgepodge of new investment strategies in which
they have neither competitive scale, nor any discernable advantage.

Finally, while deleveraging has
stemmed management?s
previously constant bleeding of
book value, we believe it has
also foreclosed
virtually any opportunity for
meaningful BV appreciation or
dividend income.
Stated simply, it appears Arlington
Asset has gone dead in the water,
holding just
enough assets to pay its executives,
but stranding shareholders in a zero-dividend, low-growth, and deeply discounted
security. The question now is an existential one ? whether these assets exist to pay
Rock Tonkel, or to actually offer value to their owners.

Board Inaction

In apparent recognition of the company?s failures, AAIC stock has traded at
anomalously large discounts to book
value for the last two years. And while an ultra-low-yield environment has
offered an extremely attractive opportunity to sell either the company or its assets,
the Board has refused to pursue any
shareholder-friendly transaction,
while continuing to personally extract
fees from the portfolio?s meager returns. While we would gladly invite the
Board to sell AAIC outright, after two
whole years of inaction on this matter,
we believe they are unlikely to entertain any buyout offer, and have thus
recommended liquidation as a last resort.

Perhaps most offensively, and despite
the market?s obvious rejection of the
company?s strategic pivoti, the
Board?s opposition letter parrots management?s implausible optimism with both
precision and salesmanship.
Despite management?s
consistent failure to create value,
the Board appears mindlessly loyal to them, and thus unwilling to take
action for the shareholders.

In light of these many inexcusable
decisions, we believe that the Board can no longer be trusted to advance the best interest of shareholders, and that it is now
incumbent on shareholders to act for ourselves.

Rationale for Liquidation

As of this writing on April 14th, 2022,
Arlington Asset?s most recently reported book value per share exceeds the
current stock price by 84%.ii Given that the company comprises little more than a
low-risk asset portfolio and its managers, such a persistent and staggering
discount would appear to reflect the market?s dim view of the company?s executives ?
an assessment amply supported by their track record. And while these chronic underperformers have enjoyed years of rich rewards at our expense, we shareholders bear no obligation to
continue subsidizing either their opulent compensation, or the severe costs of their mismanagement.

Stated simply, we believe management?s
long history of value destruction has
imposed a durable reputational discount
on the common stock, which seems unlikely to correct itself under their continued control.

Regrettably, and no thanks to the company?s appalling expense ratio, AAIC looks
similarly unattractive on an earnings basis. With G&A alone consuming over
two-thirds of net operating income,iii this subscale hovel is little more than an
ATM machine for its insiders. Coupled with its inept management, Arlington Asset?s
untenable scale and egregious cost structure leave very little to like about the company.

In light of these structural defects, AAIC appears very unlikely to be valued
favorably as an ongoing business. However, given the significant value of its
underlying asset portfolio, we believe
shareholders could nonetheless be richly rewarded through an orderly liquidation. With the company most recently
reporting a book value of $6.16,iv primarily in highly liquid agency securities,
v monetizing the investment portfolio might offer a substantial premium over any
recent stock price, and valuable liquidity on otherwise stagnant shareholder capital.

While we find this opportunity extremely attractive on an absolute basis, it appears
even more compelling given the Company?s prospects under current leadership. By way of an unfortunate hypothetical, if a liquidation could achieve shareholder proceeds
equal to at least 80% of book value, sticking a fork in AAIC would trigger its best
calendar-year performance since 2013.
Coincidentally, Mr. Tonkel took over as CEO the following year, and book value has declined by nearly 80% since.vi

If history is any guide, we believe Arlington Asset could best serve its shareholders
by simply monetizing its assets, and
delivering proceeds to shareholders.

In contrast to management?s strategic folliesvii and hopes for improvement, we view
liquidation as a reliable, risk-reducing, and likely lucrative measure which, for once, would rightly prioritize the interests of shareholders.

In our view, Arlington Asset?s investors have suffered under bumbling managers and an
impotent Board for long enough. As the lawful owners of the company, it is time that
we reclaim the fair value of our assets.