Download - Hedge Fund Incubation

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THE ONLY CONFERENCE FOCUSED ON HEDGE FUND SEEDING & INCUBATION!• Hear directly from leading seeders about what they’re

looking for and what they expect from managers• Learn how to best develop your business at

different growth stages• Uncover key elements of terms & conditions in

seeding/incubation contracts• Discover how seeders can help middle-stage funds

break through to the next level of profitability• Increase your odds of raising capital through effective

presentations• Determine the pros & cons of capital raising through third-party

marketers, prime brokers and seeders• Learn to attract capital from non-traditional sources

PLUS: Attend our one-of-a kind workshop focused on contract Terms & Conditions: Key legal issues you need to know before the deal is signed!

OUR SPEAKING FACULTY:Jay B GouldPillsbury Winthrop Shaw Pittman LLPRon GeffnerSadis & Goldberg, LLCMarc D. Abel, CPA, MSTStonebrook Fund ManagementJohn M. Pagli, Jr.Pursuit Partners LLCVictor L. ZimmermannCurtis, Mallet-Prevost, Colt & Mosle LLPMarc MehrespandK&L GatesJeff LandleHardt Group

Antonio Fernández-MontesProxima Alfa InvestmentsRiva M WallerMan InvestmentsCarrie SimonIR2 Inc.Michael L. WeissFrontier Financial Advisors Cary M. Klivan, CPAAmber Partners (USA), Inc.Alan D. SwerskyOlympia Capital Management, Inc.Julianne RecineAIG Investments

Matthew T. HoffmanWeston Capital Management LLCMark AbeshouseAugustus Capital LLCThe Augustus MJK FundDoug CramerAlternative Access Capital, LLCJohn MassyCapital Z Investment Partners, LLCChristopher J. AcitoInvestcorpPaul EckelEmerging Manager

Steven M. SimmonsTerra Nova Financial, LLCDeborah G. GeorgeGrowing Emerging Managers’ ServicesJeff M. McCarthyJefferies & Company, Inc.Rob DavisMerlin SecuritiesSteve ShenfeldMD Sass Macquarie FinancialStrategies Management LLCStephen DreskinTouchstone Group, LLC

Liz Flores, CAIACrestview Capital FundsMichael H. FinnellMIT Associates, LLCRichard BeleutzAlternative Investment Resource, LLCPhilippe JorionPacific Alternative Asset ManagementCompanyFred FraenkelMillennium 3 CapitalLance FriedlerSadis & Goldberg, LLC

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CONFERENCE SPONSORS:GOLD SPONSOR SILVER SPONSOR

Thank you for attending the conference!

Financial Research Associates is an accredited institution and we pride ourselves on the cutting edge presentations delivered at our conferences. We make every effort to secure advance copies of

these presentations for your continued review following the close of the conference.

From time to time due to proprietary concerns or internal legal constraints, speakers are unable to submit presentations for

duplication and distribution. In this rare case, we encourage you to utilize the contact details provided in their biography to request a

single copy of the presentation.

The 4th Annual Hedge Fund Incubation & Seeding Conference

January 30-31, 2008 The Flatotel Hotel

New York City ______________________________________________________________________________ DAY ONE Wednesday, January 30, 2007 8:00 AM Conference Registration & Continental Breakfast 8:30 AM OPTIONAL PRE-CONFERENCE WORKSHOP

Terms & Conditions for Starting a Hedge Fund through Seeding/Incubation Ron Geffner, Partner

SADIS & GOLDBERG LLP John M. Pagli, Jr., Director of Strategic Business Development PURSUIT PARTNERS LLC Victor L. Zimmermann, Partner CURTIS, MALLET-PREVOST, COLT & MOSLE LLP Marc Mehrespand, Senior Associate K&L GATES Workshop will include a 15-minute refreshment break from 10 am to 10:15 am

11:15 AM Luncheon for Workshop Attendees / Registration for Main Conference

12:15 PM Conference Chairman’s Welcome and Opening Remarks Jay Gould, Partner

PILLSBURY WINTHROP SHAW PITTMAN LLP

12:25 PM The Challenge of Identifying New Talented Hedge Fund Managers: How and Where Can We Find Them?

Antonio Fernàndez-Montes PROXIMA ALFA INVESTMENTS

12:45 PM Supply & Demand Analysis: Have the Terms of Seeding/Incubation Evolved in Light of the Volatility of the Summer of 2007? Jeff Landle, Chief Investment Officer HARDT GROUP Steve Shenfeld, Sr. Managing Director MD SASS MACQUARIE FINANCIAL STRATEGIES MANAGEMENT LLC Antonio Fernàndez-Montes PROXIMA ALFA INVESTMENTS

1:15 PM Developing a Business Plan for your Hedge Fund: Learning to Align the Planets for Success

Riva M. Waller, Head of Investment Structures Group MAN INVESTMENTS Carrie Simon, President

IR2 INC.

Michael L. Weiss, CEO FRONTIER FINANCIAL ADVISORS

2:15 PM Operational Perspective: What Do Funds Need to Build at Different Stages

of Growth? Marc D. Abel CPA, MST, Chief Financial Officer STONEBROOK FUND MANAGEMENT

Cary M. Klivan, CPA, President AMBER PARTNERS (USA), INC.

Alan D. Swersky, CPA, Head of Operational Due Diligence

OLYMPIA CAPITAL MANAGEMENT, INC.

Julianne Recine, Vice President, Head of Operational Due Diligence AIG INVESTMENTS

3:15 Afternoon Break

*A Two Part Seeder/Manager Discussion on Early & Middle Seeding Considerations*

3:30 PM Part I: Seeder’s Criteria & Allocation Considerations For Smaller/Earlier

Stage Funds Seeder Perspective: Matthew T. Hoffman, Chief Investment Officer WESTON CAPITAL MANAGEMENT LLC

Hedge Fund Perspective: Mark Abeshouse, Managing Member & CEO AUGUSTUS CAPITAL LLC Co-General Partner THE AUGUSTUS MJK FUND Marketer Perspective: Doug Cramer, President ALTERNATIVE ACCESS CAPITAL, LLC

4:20PM Part II: Middle-Staging Seeding

John Massy, Vice President CAPITAL Z INVESTMENT PARTNERS, LLC Hank Murphy, Principal, Manager Development INVESTCORP

4:45 PM End of Day One

DAY TWO Tuesday, January 31, 2008 8:00 AM Continental Breakfast 8:45 AM Conference Chairman’s Recap of Day One Jay Gould, Partner

PILLSBURY WINTHROP SHAW PITTMAN LLP *A Three-Part Capital Raising Analysis: * 9:00 AM Part I: Increasing Your Odds of Raising Capital by Properly Creating &

Presenting Your Story

Moderator: Paul Eckel, Founder EMERGING MANAGER Panelists: Steven M. Simmons, Senior Vice President, Institutional Sales and Trading

TERRA NOVA FINANCIAL, LLC Deborah G. George, President GROWING EMERGING MANAGERS’ SERVICES Jeff M. McCarthy, Senior Vice President JEFFERIES & COMPANY, INC. Rob Davis, Partner MERLIN SECURITIES

10:15 AM Part II: Raising Capital Moderator: Stephen Dreskin, Managing Director TOUCHSTONE GROUP, LLC Panelists: Doug Cramer, President ALTERNATIVE ACCESS CAPITAL, LLC Liz Flores, CAIA, Marketing Director CRESTVIEW CAPITAL FUNDS Michael H. Finnell, Managing Partner MIT ASSOCIATES, LLC Jewel Huijnen, Hedge Funds BEAR STEARNS ASSET MANAGEMENT

11:15 AM Morning Break 11:30 AM Part III: Looking at Non-Traditional Capital Raising Sources: From Plan

Sponsors Trends to New Global Opportunities Richard Beleutz, Managing Partner ALTERNATIVE INVESTMENT RESOURCES, LLC John M. Pagli, Jr., Director of Strategic Business Development PURSUIT PARTNERS LLC

12:15 AM Luncheon for all Attendees

1:30 AM PAAMCO Study: Do Emerging Managers Out-Perform Mature Managers? Phillippe Jorion, Managing Director PACIFIC ALTERNATIVE ASSET MANAGEMENT COMPANY

2:15 PM New Buzz Surrounding Non-Traditional Assets…Environmental Trading,

Energy, Real Estate Hedge Funds, Natural Resources, Intellectual Property, etc. Hans Hurschler, Head, Hedge Fund Ventures RMF INVESTMENT MANAGEMENT Michelle McCloskey, Head of New Alternatives RMF INVESTMENT MANAGEMENT

3:00 PM Legal, Regulatory, Compliance Perspective

Lance Friedler, Partner SADIS & GOLDBERG LLP

Marc Mehrespand, Senior Associate

K&L GATES

3:45 PM End of Conference

Dear Conference Participant:

On behalf of Financial Research Associates, LLC, I would like to cordiallywelcome you to this industry event.

We have developed this event based on extensive industry research,structuring the topics and gathering together the speaker faculty based onfeedback from numerous industry participants. Our goal is to provide youwith the most up-to-date industry information possible, along with top-notchnetworking opportunities. Every effort has been made on our part to obtainthe speakers presentation to be included in the book that you havereceived. If a speaker’s presentation is not in the book, we would ask thatyou contact the speaker directly. If we have failed to meet yourexpectations in any way, please let us know by completing the evaluationform provided at this event. Of course, we would like to hear positivefeedback as well!

We appreciate that you have chosen to spend your time and trainingdollars with us, and we’re committed to satisfying your informational needs.Again, welcome to this event and thank you for your participation--we trulyvalue your business.

Sincerely,

Lori Medlen, PresidentFinancial Research Associates, LLC

Upcoming Events

Please visit our website www.frallc.com for information on any of the following

If you have any additional questions or requests for information beyond what is in this document book, please feel free to contact us at any time.

A link with final speaker presentations will be forwarded via email

approximately 7 business days after the conference.

Joanne Miner Financial Research Associates, LLC

315 Main Street, Suite A Pineville, NC 28134

704.889.1557Office 704.889.1292 Fax [email protected] www.frallc.com

A Special Thanks to Our Gold Sponsor

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The 4th Annual Hedge Fund Seeding &

Incubation Conference

January 30-31 2008

The Flatotel New York City

OPTIONAL PRE-CONFERENCE WORKSHOP Terms & Conditions for Starting a Hedge Fund through Seeding/Incubation

Ron Geffner, Partner

SADIS & GOLDBERG LLP

John M. Pagli, Jr., Director of Strategic Business Development PURSUIT PARTNERS LLC

Victor L. Zimmermann, Partner

CURTIS, MALLET-PREVOST, COLT & MOSLE LLP

Marc Mehrespand, Senior Associate K&L GATES

Ron S. Geffner Partner Ron S. Geffner is a member of Sadis & Goldberg LLP and oversees the Financial Services Group. He regularly structures, organizes and counsels private investment vehicles, investment advisory organizations, broker-dealers, commodity pool operators and other investment fiduciaries. Mr. Geffner also routinely counsels clients in connection with regulatory investigations and actions. Mr. Geffner's broad background with federal and state securities laws and the rules and regulations of the National Association of Security Dealers, Commodities Futures Trading Commission and various other regulatory bodies, enables him to provide strategic guidance to a diverse clientele. He provides legal services to hundreds of hedge funds, venture capital funds and funds of funds, organized in the United States and offshore. Mr. Geffner began his legal career with the United States Securities and Exchange Commission, where he investigated and prosecuted violations of the Federal securities laws. He also assisted federal and state criminal agencies such as the Federal Bureau of Investigation, U.S. Attorney's Office and the Attorney General's Office, in connection with their investigations of possible criminal violations of federal and state securities laws. Prior to joining Sadis & Goldberg, Mr. Geffner was associated with two other New York City based law firms, where he represented domestic and offshore private investment vehicles, as well as broker-dealers, registered investment advisers and registered investment companies. He began his corporate legal career as in-house counsel to the Investment Management Industry Services Group of PricewaterhouseCoopers LLP. He provided legal advice to the Group regarding investment advisers, registered investment companies and broker-dealers. Mr. Geffner is often interviewed as a legal expert in the securities industry and has been interviewed on television on Fox News, CBS Morning Show, CBS Evening News with Dan Rather, Squawk Box and Power

Lunch on CNBC, British Broadcasting Channel, Bloomberg Radio, and is regularly quoted in The New York Times, The Wall Street Journal, Bloomberg News, Barron's, Barron's Online, Reuters, Dow Jones, Financial Times, New York Newsday, London Daily News, TheStreet.com, Private Equity Week and other national and international publications. On April 6, 2005, Mr. Geffner was invited to speak to the U.S. Commodity Futures Trading Commission in Washington D.C. as a panelist on the CPO and Commodity Pool Roundtable in connection with recent developments in the hedge fund industry. In addition, he has published a number of leading industry and legal articles. Mr. Geffner received his J.D. in 1991 from Benjamin N. Cardozo School of Law, and received his B.A. degree in 1988 from Rutgers University. He is a member of the New York and New Jersey Bars.

JOHN M. PAGLI, JR. Director of Strategic Business Development

Pursuit Partners LLC John M. Pagli,. Jr., is the newly appointed Director of Strategic Business Development at Pursuit Partners LLC, an alternative investment management firm that focuses exclusively on the fixed income market, specializing in structured finance transactions across a wide range of asset classes. He is responsible for global business development, investor relationship management, media relations, new product creation, and strategic development. Prior to joining Pursuit Partners, Mr. Pagli was the Managing Director for Alternative Investments, principally responsible for marketing alternative investments and sourcing alternative managers, at Proctor Investment Managers LLC. Before that, he consulted to various hedge fund managers launching new funds on marketing and strategic development. He also previously led sales and marketing and investor relationship management functions as Executive Vice President and Chief Operating Officer at Para Advisors; as Managing Director in charge of North American institutional sales and marketing at Alpha Investment Management; and as a Managing Partner of Forest Investment Management LLC, President of Forest Investment Management LP and President of the Forest Global Convertible Fund Ltd. Earlier in his career, he worked at Pacific Harbor Capital, a private equity firm, and at Merrill Lynch Capital Markets as an investment banker in mergers and acquisitions. Mr. Pagli graduated cum laude from Boston University School of Management with a BSBA degree with concentrations in finance and international economics, and received an MBA with distinction with concentrations in corporate finance and corporate strategy from New York University Stern School of Business Administration. He is registered with the SEC and NASD under Series 3, 7 and Series 63 licenses, and is a candidate for the Chartered Alternative Investment Analyst (CAIA) designation.

Areas of Practice Mr. Mehrespand is a senior associate in the securities and investment management groups. He represents investment advisers, banks, broker-dealers and other participants in the financial services industry in a practice that encompasses the major federal securities and commodities laws as well as general corporate law. In particular, Mr. Mehrespand regularly works with clients to form and operate U.S. and offshore private investment funds. Mr. Mehrespand also:

• Registers newly-formed investment advisers, commodity pool operators, commodity trading advisors and investment companies.

• Prepares organizational and disclosure documents for private and public offerings of securities and the sponsors of such offerings.

• Creates private funds structured as employees’ securities companies. • Advises clients that deal with futures contracts and options on futures contracts on

applicable provisions of CFTC and NFA regulations. • Represents clients before the SEC on a broad range of corporate and securities law issues

such as proxy contests and investment adviser examinations. • Advises broker-dealers and clients working with broker-dealers on relevant NASD

regulations. • Structures executive employment and compensation arrangements. • Has advised regulators outside of the United States on securities and corporate law

reforms in those countries.

Bar Admissions

• Bar of District of Columbia • Bar of Maryland

Education

• J.D., George Washington University Law School (1998) • M.A., George Washington University (1998) (International Affairs) • B.A., George Mason University (1994)

DC-978855 v1

Conference Chairman’s Welcome and Opening Remarks

Jay Gould, Partner PILLSBURY WINTHROP SHAW PITTMAN LLP

Jay B. Gould | Partner [email protected] San Francisco 50 Fremont Street San Francisco, CA 94105-2228 Ph +1.415.983.1226 Fax +1.415.983.1200

Practices

Corporate & Securities Investment Funds & Investment Management Alternative Investments

Industries

Financial Services

Mr. Gould practices in the Corporate & Securities area and is co-leader of Pillsbury WinthropShaw Pittman’s Investment Funds & Investment Management Practice Team. He counsels clientsinvolved in all aspects of the financial services industry. Mr. Gould represents U.S. registeredinvestment companies, hedge funds, offshore investment companies, investment advisers, retailand institutional broker-dealers, and municipal bond underwriters. Mr. Gould has extensiveexperience in drafting private placement memoranda, partnership and limited liability companyagreements, subscription agreements, registration statements, proxy statements, periodic reports,no-action letters, applications for exemptive relief and other documents for filing with the SEC, theNASD, and other regulatory agencies.

Mr. Gould advises investment companies, investment advisers and broker-dealers on mergersand acquisitions. He also provides counsel on matters involving corporate governance andSarbanes-Oxley compliance; mortgage securitizations and sales; collateralized debt offers; jointventures and strategic relations; and retail, institutional and offshore securities distributionstrategies and regulatory considerations.

Prior to joining the firm, Mr. Gould served as Chief Counsel for E*TRADE Global AssetManagement, Inc., Vice President with TransAmerica Life Companies, Senior Counsel to Bank ofAmerica NT&SA, and as an attorney with the Securities and Exchange Commission, White &Case LLP, and two other major international law firms.

Education

J.D., Catholic University of America, Columbus School of Law, 1983 B.A., University of Washington, 1978

Admissions

State of California, District of Columbia

Affiliations

2004-2007, Board of Directors, Association for Corporate Growth, San FranciscoChapter; Board of Directors, Association for Corporate Growth, San Francisco Chapter;Advisory Board, The Wall Street Lawyer; California State Bar Financial InstitutionsCommittee; Bay Area Hedge Fund Professionals Group, Board of Directors, NorthwestHedge Fund Society; National Association of Corporate Directors

Speaking Engagements

Seeking the Globally Cooperative Solution: Establishing the Highest Standards fromwithin the Industry, Moderator, Tokyo Hedge Fund Symposium, Tokyo, Japan,November 13, 2007

Valuation: Complexities in the Valuation of Hedge Fund Portfolios, Moderator, ManagedFunds Association Risk Management and Valuation Seminar, New York, NY,September 18, 2007

Introduction to Carbon Trading and Finance Seminar, How to Create a Carbon HedgeFund, Speaker and Sponsor, San Francisco, CA, July 17, 2007

Legal/Regulatory Panel, Speaker, Banc of America Securities Prime Brokerage, 6thAnnual Northeast CFO/COO Summit, New York, NY, July 10, 2007

Evaluating The True Impact Of Basel 2 On The Hedge Funds Industry: Will It JustImpact Banks Or Will It Dampen The Wider Investor Landscape?, Moderator, IQPCHedge Fund Investments Japan IQ 2007, Tokyo, Japan, June 12, 2007

Hedge Funds, VCs and Climate Change Converge, Moderator, San Francisco, CA, May10, 2007

New SEC and CA Regulatory Proposals Affecting Hedge Fund Advisers, Distributorsand Investors, Moderator, San Francisco, CA, January 18, 2007

Legal & Regulatory Update, Speaker, 5th Annual West Coast CFO/COO Summit,Managing a Growing Hedge Fund Business, San Francisco, CA, November 18, 2006

13F Filing & Trading Strategies, Trade Secrets or Fair Game?, Speaker, IncreMentalAdvantage conference call, October 25, 2006

Hedge Fund Activism – Offensive and Defensive, Moderator, San Francisco, CA,October 18, 2006

Hot Topics in the Hedge Fund Industry, Speaker, NICSA Alternative InvestmentConference, Los Angeles, CA, October 5, 2006

How ‘ACT II’ of the SEC’s Regulation of Hedge Funds Will Potentially Impact theIndustry?, Speaker, GAIM USA Fund of Funds, New York, NY, September 20, 2006

Firm Publications

Waves of Change Hit Shores of Offshore “Tax Havens”, 30-May-2007

Round II - The SEC Takes Aim at Hedge Funds and Private Equity Funds with ProposedFiduciary Rule and Increased Accredited Investor Standard, 05-Jan-2007

Should Hedge Fund Managers Hedge Their Exposure to Lawsuits?, 24-Oct-2006

SEC Staff Provides No-Action Relief as a Result of Court's Goldstein Decision, 14-Aug-2006

Performance and Advertising — A Practical Guide for Hedge Funds in the Post Registration Era, 26-Jul-2006

Hard Times for Soft Dollars, 20-Jul-2006

To Be Or Not To Be: Asian Hedge Funds Face U.S. Registration and DistributionConundrum, 20-Jun-2006

Lessons Learned from Enforcement Cases and Deficiency Letter, Speaker, Marketing &Advertising Compliance Forum for Investment Advisors, New York, NY, September 14,2006

How Do You Raise Capital?, Speaker, Hedge Fund Incubation and SeedlingConference, New York, NY, September 12, 2006

Asian Hedge Funds: Legal, Operational and Cultural Considerations of Hedge FundOrganization and Investment in Japan and Elsewhere, speaker, San Francisco, CA,April 19, 2006

Registration Lite, Speaker, Hedge Fund Symposium 2006; Hong Kong, January 2006

U.S. securities laws and the obligation of certain hedge fund managers under the newU.S. hedge fund adviser registration rule and the liability provisions of the U.S.securities laws, presented to Nordea Bank Legal Department, Stockholm, Sweden,December 2005

Markets in Financial Institutions Directive (MiFID) Conference, Speaker, Luxembourg,December 2005

Application of U.S. securities laws to certain Japanese sales and marketing activities,Speaker, Alternative Investment Management Association (AIMA), Tokyo, Japan,September 2005

Obligations under the Securities Act of 1933, the Securities Exchange Act of 1934, theInvestment Company Act of 1940 and the Investment Advisers Act of 1940 regardingcertain Nordea Bank activities in the U.S., presentation to senior Nordea Bankexecutives, Copenhagen, Denmark, May 2005

Concept Clash — Differing Duties Under Investment Advisers Act and DelawarePartnership Law, 12-Jun-2006

External Publications

Securities and Tax Implications for Hedge Fund Managers in Post-FIEL Japan,ComplianceAsia, 01-Jun-2007

The Secret Life of Hedge Funds May Be Over, Institutional Investor Hedge Fund AssetFlows & Trends Report 2006-2007 , March 2007

NASD Expands Fairness Opinion Disclosure, International Financial Law Review, August1, 2005

Capital Introduction for Hedge Funds, What Lies Beneath, Hedgeco.Net, 22-Nov-2004

The Challenge of Identifying New Talented Hedge Fund Managers: How and Where Can We Find Them?

Antonio Fernàndez-Montes

PROXIMA ALFA INVESTMENTS

Antonio Montes. (14th June 1965) Married, 3 kids

I joined Proxima Alfa as CIO in November 2006, coming from JPMorgan Chase , where I worked at the Proprietary Trading Group in London, as a Global Macro Senior trader, mainly focusing on G-10 FX , Fixed Income, Stock indices and Commodities. On the top of my trading responsibilities, I was part of the group management committee, being actively involved both in the selection of senior traders and the risk/capital allocation. I started my career in Financial Markets in 1989, and have worked for FG (Merrill Lynch), as Head of Spanish Fixed Income and Equity Derivatives , then moved to Banque Paribas Capital Markets in London(1993-1996), as responsible for Southern European Government Bonds Trading, which included taking proprietary risk in fixed income and associated derivatives markets. From 1996 until 2001, worked as a proprietary trader at BBVA in Madrid. I hold a degree in Economics and Business Administration by Universidad Complutense of Madrid and have been a professor at a number of postgraduate programs in Finance (ICADE, CEU). I am currently a professor at the Master in Financial Markets from IEB (Instituto de Estudios Bursátiles).

Supply & Demand Analysis: Have the Terms of Seeding/Incubation Evolved in Light of the Volatility of the Summer of 2007?

Jeff Landle, Chief Investment Officer

HARDT GROUP

Steve Shenfeld, Sr. Managing Director MD SASS MACQUARIE FINANCIAL STRATEGIES MANAGEMENT LLC

Antonio Fernàndez-Montes

PROXIMA ALFA INVESTMENTS

Jeff Landle Mr. Landle is the Chief Investment Officer and a founding principal of HARDT GROUP, a global alternative investment manager. He is responsible for investment strategy, asset allocation, product development, oversees the manager search, selection and monitoring functions and chairs the Investment Advisory Board. HARDT GROUP provides investors with innovative and flexible investment programs encompassing single strategy and multi strategy alternative investment funds. Prior to co-founding HARDT GROUP in 2004, Mr. Landle was a Managing Director and Chief Investment Officer of HVB Alternative Advisors Inc. Previously, Mr. Landle spent five years at Commonfund, most recently as the Head of Alternative Investments. He has held senior positions at Blackstone Alternative Asset Management, Twenty-First Securities Corp, Moore & Schley, and E.F. Hutton. Mr. Landle holds a BS in Finance from St. John's University in New York and an MBA in Finance from New York University. He is a Chartered Financial Analyst (CFA) charterholder.

1

P R E S E N T A T I O NTO THE 4th ANNUAL HEGDE FUND INCUBATION & SEEDING CONFERENCE

JANUARY 30 - 31st, 2008

2

HEGDE FUND SEEDING

Evolution Of The Market

New Principles

Next Wave

2

3

Hedge Funds More Institutional

Higher Barriers to Entry

Critical Mass Increased

Crowded Space

EVOLUTION

4

More Seeders / More Funds

Still A Buyer‘s Market

If Flows Slow or Reverse

Need More Than Money. . .

Staying Power

NEW PARADIGM

3

5

NEXT WAVE

Size

Terms

More Choices

Independence or Success?

Steven Shenfeld, Senior Managing Director of M.D. Sass–Macquarie Financial Strategies GP, L.L.C. He has over 23 years of investment management and capital markets experience. Prior to joining the firm in 2001, he was Head of Global Finance Sales and Trading, Bankers Trust and General Partner of Avenue Capital Group. Mr. Shenfeld is also Founder/Board Member of Finacity. Mr. Shenfeld earned his B.A. Economics at Tufts University and his MBA from the University of Michigan.

1

MD SASS – MACQUARIE Financial Strategies

The 4th Annual Hedge Fund Incubation & Seeding Conference

Steven Shenfeld

January 30, 2008

2

The Seeding Continuum

Pre-Set Sunset or Buyout Exit

Little Governance

Little Operational Involvement

Share of Revenues or Some Equity

Discounted Fee

or Active Marketing

Marketing Introductions

Pre-Set Sunset or Buyout Exit

Little Governance

Little Operational Involvement

Share of Revenues or Some Equity

Discounted Fee

Mentoring

Portfolio Administration

or Active Marketing

Marketing Introductions

Research Support

Shared Governance

Substantial Equity

No Share of Revenues

Discounted or No Fee

No Pre-Set Sunset or Buyout Exit

Working Capital for Multi-Year Period

Office Space Often Provided

Substantial Operational Involvement

Technology and Systems Support

Tax Optimization

Initial Management Company Accounting

Initial Risk Management

Initial Legal & Compliance

No Equity Some Equity Substantial Equity

Seed InvestorCornerstone Investor Partners

2

3

The M.D. Sass-Macquarie Value Proposition

Why Do Portfolio Companies Partner With M.D. Sass-Macquarie Financial Strategies?

– Faster: M.D. Sass and Macquarie have the critical infrastructure, brand, and marketing resources to accelerate the growth of their portfolio businesses

– Cheaper And Flexible Infrastructure: it is cheaper and more flexible to “rent” the services of $13billion AUM platform than to overinvest initially in your own

– Allocation Of Energy And Focus: teams can focus on managing investments and not on ancillary responsibilities associated with starting and growing businesses

– Risk Mitigation: Sass-Macquarie provide risk and compliance oversight coupled with reduction of capital requirements of principals

– Higher Probability Of Success: 18 out 26 of the businesses that M.D. Sass as backed have been successful including 3 of the new portfolio

– Institutional Credibility: leveraging resources, relationships and experience of FinStratincreases institutional readiness of portfolio company which is critical for due diligence

4

FinStrat Investment Cycle

M.D. Sass-MacquarieFinancial

Strategies, L.P.

4. Value Creation• Continuous application of

expertise and infrastructure• Identification of strategic partners

3. Build Investment Management Business• Provide working capital and Track

Record Capital• Provide access to M.D. Sass

expertise and infrastructure

2. Evaluation & Due Diligence• Investment criteria• Rigorous analysis

1. Deal Sourcing• Proprietary network• Industry reputation

5. Exits• Strategic sales• IPOs• Sales to Joint Venture

Partners• Combining companies

to position for sale

Cash Return:• Return of andon Track Record Capital

Cash Return:• Free Cash Flow from Portfolio Company Operations

Cash Return:• Sale of Portfolio

Company

3

5

The Current Environment

Competition between Seeders has increased as has diversity of players

Competition for Institutional Investors has increased with oversupply of managers

Large Funds continue to win market share from smaller firms increasing pressure on emerging managers to reach critical mass sooner

Seeding opportunities changing from purely startups to second or mid stage firms (<$100mm in AUM and <5 years of audited results)

Alignment of Seeding Partner’s objectives with Principals objectives is critical to maximizing returns for both parties

Carefully structure partnerships to align the interests of clients, investment professionals and Fund

Make sure your partner has a track record of lifting company’s prospects not just a source of capital

Ensure that your business is properly financed and expectations are realistic if growth is slower than hoped for

Antonio Montes. (14th June 1965) Married, 3 kids

I joined Proxima Alfa as CIO in November 2006, coming from JPMorgan Chase , where I worked at the Proprietary Trading Group in London, as a Global Macro Senior trader, mainly focusing on G-10 FX , Fixed Income, Stock indices and Commodities. On the top of my trading responsibilities, I was part of the group management committee, being actively involved both in the selection of senior traders and the risk/capital allocation. I started my career in Financial Markets in 1989, and have worked for FG (Merrill Lynch), as Head of Spanish Fixed Income and Equity Derivatives , then moved to Banque Paribas Capital Markets in London(1993-1996), as responsible for Southern European Government Bonds Trading, which included taking proprietary risk in fixed income and associated derivatives markets. From 1996 until 2001, worked as a proprietary trader at BBVA in Madrid. I hold a degree in Economics and Business Administration by Universidad Complutense of Madrid and have been a professor at a number of postgraduate programs in Finance (ICADE, CEU). I am currently a professor at the Master in Financial Markets from IEB (Instituto de Estudios Bursátiles).

1

The challenge of identifying newemerging HF Managers


Antonio Fernández-Montes

30th January 2008

Source: Euromoney


2

HF Managers coming from “Long Only”

Transition requires a certain change of style.

Usually difficult to abandon the long bias.

Evaluation of technical knowledge of instruments, markets.

Investor´s demands are different.


HF Managers coming from Existing HF (Spin-offs)

Evaluation of degree of responsibility on fund performance.

Check possible “style drift” vs. “continuation” of strategy.

Track record attribution: evaluation of previous fund setup/research.

Are any of their previous investors willing to invest day-one?


3

HF Managers coming from Academic / Research Analysts

Usually quantitative-based strategies.

Back-tested and pro-forma track records.

No real money trading experience.

A cheap option?


HF Managers coming from Trading at Banks

Proprietary traders vs Market makers.

Risk Management framework will be different.

Evaluation of track-record is complex. No real capital allocation.

Evaluation on the bank´s resources / environment to generation of P&L.

No experience at dealing with HF investors.

Entrepreneurial skills?


Developing a Business Plan for your Hedge Fund: Learning to Align the Planets for Success

Riva M. Waller, Head of Investment Structures Group

MAN INVESTMENTS

Carrie Simon, President IR2 INC.

Michael L. Weiss, CEO

FRONTIER FINANCIAL ADVISORS

Riva Waller Based in New York, Riva Waller is the Head of the Investment Structures Group for Man Investments. The team, with members in London, New York and Pfäffikon (Switzerland), works with Man Investment Content Engines to provide legal due diligence with respect to investments and allocations for third party managers. In addition, their key area of focus is the structuring and implementation of the Managed Account platform of over 100 managed accounts, giving content engines the ability to allocate funds to hedge fund managers. Riva joined Man Group plc in 1993 as Controller to the CTA division of Mint Investment Management Company. In 2000, she began working with the Man Investment Products New Managers’ Initiative Team where her responsibilities included helping to build the implementation procedures for the managed account platform and trouble shooting various operational issues including valuation and operational due diligence. Prior to joining Man Investments, Riva was a senior accountant with J.H. Cohn LLP, an accounting and consulting firm based in Roseland, New Jersey. Ms. Waller earned her BS degree from Rutgers University in New Jersey.

Carrie Simon IR2, Inc. Prior to founding IR2, Inc. in 2007, Ms. Simon was Director of Client Services and a partner of MKP Capital Management, LLC, an alternative asset manager with fixed income expertise (1999-2006). During her tenure, the firm’s assets grew from less than $300 million to nearly $4 billion. As Director of Client Services, Ms. Simon was responsible for marketing MKP Capital's hedge funds and for the firm's investor relationships. While at MKP, Ms. Simon developed the infrastructure MKP relied upon for client services, both external (marketing) communications and internal data management. Prior to joining MKP in 1999, Ms. Simon was employed by Halsey & Co. While there, she assisted the President of the company market its hedge fund clients to a wide array of investors. Ms. Simon was introduced to the hedge fund industry as a conference producer, organizing the “Hedge Fund Investors Summit”, among others, for Information Management Network (1997-1999). Ms. Simon received a B.A. in Law & Society from the University of California, Santa Barbara (1994), and a Master in International Affairs (MIA) from Columbia University (1997).

Operational Perspective: What Do Funds Need to Build at Different Stages of Growth?

Marc D. Abel CPA, MST, Chief Financial Officer

STONEBROOK FUND MANAGEMENT

Cary M. Klivan, CPA, President AMBER PARTNERS (USA), INC.

Alan D. Swersky, CPA, Head of Operational Due Diligence

OLYMPIA CAPITAL MANAGEMENT, INC.

Julianne Recine, Vice President, Head of Operational Due Diligence AIG INVESTMENTS

Marc Abel Chief Financial Officer Stonebrook Fund Management LLC Marc Abel is responsible for all financial and compliance matters for all aspects of Stonebrook’s business. He was an integral part of the registration process with the SEC in May of 2005. He has 15 years of experience in the investment advisory services and prior to joining Stonebrook, Marc was a tax manager with Ernst & Young, LLP and before that Rothstein, Kass & Co. P.C. Marc holds a Bachelor of Science in Business Administration from Washington University in St. Louis and obtained his CPA in 2002 and completed his Masters of Science in Taxation from Seton Hall University. He is a member of the Hedge Fund Business Operations Association and serves on the board of the Hedge Fund CFO Advisory committee. He is a speaker at several conferences.

AMBER PARTNERS (USA), INC.

Cary M. Klivan, CPA

Cary Klivan is Managing Director of Amber Partners (USA), Inc. Prior to joining Amber, Mr. Klivan was Head of HSBC Securities Services, Bermuda – a division with approximately 200 staff performing full service fund administration and custody services for hedge funds, fund of hedge funds, private equity funds and institutional clients. He previously held the position of Director of Client Services for the Alternative Fund Services Division of the Bank of Bermuda (New York) Limited (now part of HSBC Securities Services) from October 1998 up until end August 2004. In this capacity, Mr. Klivan was responsible for the administration operations of over 100 staff performing accounting and valuation, registrar and transfer agency and custody servicing to the alternative funds sector. Cary is a CPA with over 20 years experience in the investment company industry. He began his career with Price Waterhouse and worked five years there as an Investment Company Industry Specialist in their Audit Department. He then joined Goldman Sachs as a Financial Analyst in their Asset Management Division. Just prior to joining the Bank of Bermuda, Cary worked for Chase Manhattan Bank where he has held a couple of key positions in their Unit Investment Trust Department: first as Manager of their Fixed Income Operations and, later, as their Risk Management Officer.

Alan D. Swersky, CPA - Olympia Capital Management, Inc. Alan Swersky is Head of Operational Due Diligence for Olympia Capital Management and Chief Operating Officer. Current responsibilities are to supervise the Operational Due Diligence team as they perform comprehensive on-site interviews with key accounting, operational, compliance and legal personnel of prospective Hedge Fund investments, monitor current Hedge Fund investments, review all relevant fund legal and marketing documents, evaluate the Fund’s management company, and build relationships among the various Hedge Fund service providers. Prior to joining Olympia in 2001, he was a Vice President of Hedge Fund Accounting at Weiss Peck & Greer, responsible for the accounting and operations of various internal hedge funds. He began his career in the Hedge Fund business as an auditor at the firm of Goldstein Golub Kessler. He received a Bachelor of Arts degree in Accounting from Muhlenberg College and a MBA in Finance/Marketing from Fordham University’s Graduate School of Business. He is a Certified Public Accountant licensed in the State of New Jersey.

Julianne Recine Senior Business Analyst AIG Global Investment Group Ms. Recine joined AIG Global Investment Group in June 2004. She is a Senior Business Analyst with over nine years of experience in the investment services industry. She is responsible for Operational Due Diligence. Prior to joining AIG Global Investment Group she was Vice President of Investor Services at EnTrust Capital Inc. Her responsibilities included hedge fund administration and due diligence, client services and marketing and operations. Ms. Recine’s previous employment includes Goldman, Sachs & Co. where she worked as a Sales Assistant in the Private Client Services division and Brown Brothers Harriman where she worked in foreign currency trading. Ms. Recine holds and MBA and Bachelor’s of Business Administration in International Business from Iona College’s Hagan School of Business.

Part I: Seeder’s Criteria & Allocation Considerations For Smaller/Earlier Stage Funds

Seeder Perspective: Matthew T. Hoffman, Chief Investment Officer

WESTON CAPITAL MANAGEMENT LLC

Hedge Fund Perspective: Mark Abeshouse, Managing Member & CEO

AUGUSTUS CAPITAL LLC Co-General Partner

THE AUGUSTUS MJK FUND

Marketer Perspective: Doug Cramer, President

ALTERNATIVE ACCESS CAPITAL, LLC

Matthew T. Hoffman is the Chief Investment Officer at Weston Capital Management LLC, a global hedge fund alternatives provider with $2.5bn in assets under management, with offices in New York, London, Palm Beach and Connecticut. Mr. Hoffman is responsible for overseeing the firm’s investment activities and serves as a member of Weston’s Investment Oversight Committee, its Management Committee, and is a Director on its Hedge Fund Incubation Board. Mr. Hoffman focuses on identifying emerging managers of quality and potential, evaluating specialized strategies, seeding promising new talent, and building portfolios around them. Mr. Hoffman has over 25 years of experience in the global investment markets serving in various executive and management roles for firms in the US, London, Hong Kong and Tokyo. Immediately prior to joining Weston, Mr. Hoffman was a founding partner and Chief Investment Officer for Mayer & Hoffman Capital Advisors, LLC. Mr. Hoffman has held senior management positions in asset management and trading at Credit Suisse, UBS O’Connor, Merrill Lynch and Chase Manhattan. Mr. Hoffman holds Bachelor’s degrees in Mathematics / Economics and Biology and an MBA in Finance from the University of Chicago.

Mark Abeshouse Bio

Mr. Abeshouse is the Chairman and Managing Member of Augustus Capital LLC, Augustus Trading LLC, and Augustus Advisors LLC.

Augustus Capital serves multiple functions as a small “family office” where we allocate our proprietary assets and those of our clients, for whom we advise

on global asset allocation, in various areas of “alternative investments” such as hedge funds, private equity, real estate, natural resources, etc. Augustus

Capital LLC is also a Broker-Dealer registered with the SEC and NASD specializing in the sponsorship and distribution of unique, competitively

advantaged alternative investments such as hedge funds, CTAs, and private placements as well as the creation of customized, multi-advisor, non-traditional

products. As a Broker-Dealer, licensed Series 7 Registered Representatives can affiliate and raise capital for hedge funds under our supervision and using

our proprietary distribution network. Augustus Trading LLC is a Broker-Dealer Market Maker on the Pacific Stock Exchange. Lastly, Augustus Advisors

LLC is a Registered Investment Advisor and has recently became nationally recognized for creating the entire menu of “alternative investment products”

for turnkey asset management platforms of institutions such as banks, insurance companies, and independent Broker-Dealer firms in the U.S. In addition,

Augustus Advisors is an incubator of emerging hedge fund managers who offer unique strategies and or clearly defined competitive advantages. Augustus

Advisors LLC then becomes the general partner of such emerging manager hedge funds when we bring them to market. One such new hedge fund is the

Augustus MJK Fund – a beta neutral, highly quantitative, global, long/short equity product. (It is offfered to investors worldwide.)

Mr. Abeshouse has a diverse background on both the buy and sell sides of Wall Street as a trader and portfolio manager for major institutions.

In the first half of his career to date, he was a U. S. government bond trader at Salomon Brothers, a trading desk manager (specializing in derivatives of

all asset classes) at Morgan Stanley, and a discretionary global portfolio manager at Lazard Freres Asset Management. These experiences included

significant time spent on the floors of various exchanges. Prior to founding Augustus Capital LLC in 1997, Mr. Abeshouse was a founding principal

and Managing Director of the Aries Fund, a biotech hedge fund, where he was responsible for risk management, business development, and marketing.

Mr. Abeshouse currently has the following effective U.S. Securities Registrations: Series 3 (Commodity Futures); Series 5 (Interest Rate

Options); Series 7 (General Securities Representative); Series 15 (Foreign Currency Options); Series 24 (General Securities Principal); Series 63 (State

Blue Sky); and Series 65 (Registered Investment Advisor).

Mr. Abeshouse graduated Magna Cum Laude from the Wharton School of the University of Pennsylvania (BS Economics) in 1978 and Magna

Cum Laude from the Graduate Business School of the University of Chicago (MBA) in 1980. He is a member of the Pi Gamma Mu and Beta Gamma

Sigma honor societies.

Mr. Abeshouse is actively involved in a variety of community and charitable organizations. He is married to a corporate litigation attorney and

has two children and a dog (miniature dachshund). He remains an avid sports enthusiast (especially golf, tennis, and basketball) and card player.

Part II: Middle-Staging Seeding

John Massy, Vice President CAPITAL Z INVESTMENT PARTNERS, LLC

Hank Murphy, Principal, Manager Development

INVESTCORP

Hank Murphy Principal, Manager Development. Hank is the Head of Single Manager Development at Investcorp. He is responsible for sourcing and vetting hedge fund managers for Investcorp’s Single Manager Platform. Hank Joined Investcorp from Islander Advisors, a hedge fund marketing and consulting firm that he founded in 2003. Prior to that, he was a Vice President in Deutsche Bank’s Capital Introduction group, responsible for covering U.S. based hedge fund investors. He previously worked for Tiger Management; a New York based hedge fund, in an Investor Relations capacity. Before entering the hedge fund space, Hank worked in Boston for Franklin Portfolio Associates, a quantitative, institutional investment manager, in Marketing and Consultant Relations. He was previously a Consulting Associate with Cambridge Associates, a Boston based investment consultant specializing in servicing endowed non-profit institutions. Prior to entering the investment business, Hank served as an officer in the U.S. Navy. Hank graduated with a B.A. in English from the University of New Hampshire and an M.A. in International Relations from Boston University.

Conference Chairman’s Recap of Day One

Jay Gould, Partner PILLSBURY WINTHROP SHAW PITTMAN LLP

Jay B. Gould | Partner [email protected] San Francisco 50 Fremont Street San Francisco, CA 94105-2228 Ph +1.415.983.1226 Fax +1.415.983.1200

Practices

Corporate & Securities Investment Funds & Investment Management Alternative Investments

Industries

Financial Services

Mr. Gould practices in the Corporate & Securities area and is co-leader of Pillsbury WinthropShaw Pittman’s Investment Funds & Investment Management Practice Team. He counsels clientsinvolved in all aspects of the financial services industry. Mr. Gould represents U.S. registeredinvestment companies, hedge funds, offshore investment companies, investment advisers, retailand institutional broker-dealers, and municipal bond underwriters. Mr. Gould has extensiveexperience in drafting private placement memoranda, partnership and limited liability companyagreements, subscription agreements, registration statements, proxy statements, periodic reports,no-action letters, applications for exemptive relief and other documents for filing with the SEC, theNASD, and other regulatory agencies.

Mr. Gould advises investment companies, investment advisers and broker-dealers on mergersand acquisitions. He also provides counsel on matters involving corporate governance andSarbanes-Oxley compliance; mortgage securitizations and sales; collateralized debt offers; jointventures and strategic relations; and retail, institutional and offshore securities distributionstrategies and regulatory considerations.

Prior to joining the firm, Mr. Gould served as Chief Counsel for E*TRADE Global AssetManagement, Inc., Vice President with TransAmerica Life Companies, Senior Counsel to Bank ofAmerica NT&SA, and as an attorney with the Securities and Exchange Commission, White &Case LLP, and two other major international law firms.

Education

J.D., Catholic University of America, Columbus School of Law, 1983 B.A., University of Washington, 1978

Admissions

State of California, District of Columbia

Affiliations

2004-2007, Board of Directors, Association for Corporate Growth, San FranciscoChapter; Board of Directors, Association for Corporate Growth, San Francisco Chapter;Advisory Board, The Wall Street Lawyer; California State Bar Financial InstitutionsCommittee; Bay Area Hedge Fund Professionals Group, Board of Directors, NorthwestHedge Fund Society; National Association of Corporate Directors

Speaking Engagements

Seeking the Globally Cooperative Solution: Establishing the Highest Standards fromwithin the Industry, Moderator, Tokyo Hedge Fund Symposium, Tokyo, Japan,November 13, 2007

Valuation: Complexities in the Valuation of Hedge Fund Portfolios, Moderator, ManagedFunds Association Risk Management and Valuation Seminar, New York, NY,September 18, 2007

Introduction to Carbon Trading and Finance Seminar, How to Create a Carbon HedgeFund, Speaker and Sponsor, San Francisco, CA, July 17, 2007

Legal/Regulatory Panel, Speaker, Banc of America Securities Prime Brokerage, 6thAnnual Northeast CFO/COO Summit, New York, NY, July 10, 2007

Evaluating The True Impact Of Basel 2 On The Hedge Funds Industry: Will It JustImpact Banks Or Will It Dampen The Wider Investor Landscape?, Moderator, IQPCHedge Fund Investments Japan IQ 2007, Tokyo, Japan, June 12, 2007

Hedge Funds, VCs and Climate Change Converge, Moderator, San Francisco, CA, May10, 2007

New SEC and CA Regulatory Proposals Affecting Hedge Fund Advisers, Distributorsand Investors, Moderator, San Francisco, CA, January 18, 2007

Legal & Regulatory Update, Speaker, 5th Annual West Coast CFO/COO Summit,Managing a Growing Hedge Fund Business, San Francisco, CA, November 18, 2006

13F Filing & Trading Strategies, Trade Secrets or Fair Game?, Speaker, IncreMentalAdvantage conference call, October 25, 2006

Hedge Fund Activism – Offensive and Defensive, Moderator, San Francisco, CA,October 18, 2006

Hot Topics in the Hedge Fund Industry, Speaker, NICSA Alternative InvestmentConference, Los Angeles, CA, October 5, 2006

How ‘ACT II’ of the SEC’s Regulation of Hedge Funds Will Potentially Impact theIndustry?, Speaker, GAIM USA Fund of Funds, New York, NY, September 20, 2006

Firm Publications

Waves of Change Hit Shores of Offshore “Tax Havens”, 30-May-2007

Round II - The SEC Takes Aim at Hedge Funds and Private Equity Funds with ProposedFiduciary Rule and Increased Accredited Investor Standard, 05-Jan-2007

Should Hedge Fund Managers Hedge Their Exposure to Lawsuits?, 24-Oct-2006

SEC Staff Provides No-Action Relief as a Result of Court's Goldstein Decision, 14-Aug-2006

Performance and Advertising — A Practical Guide for Hedge Funds in the Post Registration Era, 26-Jul-2006

Hard Times for Soft Dollars, 20-Jul-2006

To Be Or Not To Be: Asian Hedge Funds Face U.S. Registration and DistributionConundrum, 20-Jun-2006

Lessons Learned from Enforcement Cases and Deficiency Letter, Speaker, Marketing &Advertising Compliance Forum for Investment Advisors, New York, NY, September 14,2006

How Do You Raise Capital?, Speaker, Hedge Fund Incubation and SeedlingConference, New York, NY, September 12, 2006

Asian Hedge Funds: Legal, Operational and Cultural Considerations of Hedge FundOrganization and Investment in Japan and Elsewhere, speaker, San Francisco, CA,April 19, 2006

Registration Lite, Speaker, Hedge Fund Symposium 2006; Hong Kong, January 2006

U.S. securities laws and the obligation of certain hedge fund managers under the newU.S. hedge fund adviser registration rule and the liability provisions of the U.S.securities laws, presented to Nordea Bank Legal Department, Stockholm, Sweden,December 2005

Markets in Financial Institutions Directive (MiFID) Conference, Speaker, Luxembourg,December 2005

Application of U.S. securities laws to certain Japanese sales and marketing activities,Speaker, Alternative Investment Management Association (AIMA), Tokyo, Japan,September 2005

Obligations under the Securities Act of 1933, the Securities Exchange Act of 1934, theInvestment Company Act of 1940 and the Investment Advisers Act of 1940 regardingcertain Nordea Bank activities in the U.S., presentation to senior Nordea Bankexecutives, Copenhagen, Denmark, May 2005

Concept Clash — Differing Duties Under Investment Advisers Act and DelawarePartnership Law, 12-Jun-2006

External Publications

Securities and Tax Implications for Hedge Fund Managers in Post-FIEL Japan,ComplianceAsia, 01-Jun-2007

The Secret Life of Hedge Funds May Be Over, Institutional Investor Hedge Fund AssetFlows & Trends Report 2006-2007 , March 2007

NASD Expands Fairness Opinion Disclosure, International Financial Law Review, August1, 2005

Capital Introduction for Hedge Funds, What Lies Beneath, Hedgeco.Net, 22-Nov-2004

Part I: Increasing Your Odds of Raising Capital by Properly Creating & Presenting Your Story

Moderator:

Paul Eckel, Founder EMERGING MANAGER

Panelists:

Steven M. Simmons, Senior Vice President, Institutional Sales and Trading TERRA NOVA FINANCIAL, LLC

Deborah G. George, President

GROWING EMERGING MANAGERS’ SERVICES

Jeff M. McCarthy, Senior Vice President JEFFERIES & COMPANY, INC.

Rob Davis, Partner

MERLIN SECURITIES

[email protected]

Emerging Manager

Paul Eckel is the Founder and Principal of Emerging Manager which was launched in

early 2004. Mr. Eckel has been involved in the hedge fund industry for the past sixteen

years as a hedge fund co-founder, COO, capital raiser and trader.

Emerging Manager provides strategic capital raising and COO/fund launch consulting

services to a select group of hedge fund clients.

Prior to launching Emerging Manager, Mr. Eckel was the co-founder of three hedge

funds: Cydonia Capital, Naufal Capital and MicroCapital. At these funds, Mr. Eckel held

the roles of COO, trader and head of marketing. Paul began his career as a FX and

fixed income trader at Moore Capital and as a trader in the options department at

Caxton Corporation. Mr. Eckel holds the Series 7, 24, 63 and 65 licenses. Mr. Eckel

graduated from the University of Washington with a degree in Finance.

Mr. Eckel has been a speaker at various emerging manager conferences such as the

Opal Financial Emerging Managers Summit and at prior FRA Hedge Fund Seeding and

Incubation events.

Steven M. Simmons Terra Nova Financial Senior Vice President Steven Simmons is Senior Vice President with Terra Nova Financial, a leading publicly traded full service brokerage and financial services company based in Chicago. He is responsible for leading the prime brokerage and capital introduction programs at Terra Nova Financial, with special emphasis on emerging manager and hedge fund development. In 2006, the Opal Financial Group and Focus Point Press awarded Simmons and Terra Nova Financial the Emerging Broker of the Year Award for prime services dedicated to the emerging manager space. Simmons joined the firm in 2006 and brings over 17 years experience dealing with hedge funds within the institutional sales and trading industry. Prior to joining Terra Nova, he was a vice president at Future Trade Securities, where he was responsible for managing an electronic trading sales team catering to hedge funds. During his 5 year tenure at FutureTrade, he helped expand the hedge fund client base to several hundred clients, from an initial base of 7. Previously, Simmons had spent time at ITG and Knight Securities where he served in a traditional sales trader role responsible for developing and growing the hedge fund clientele. Simmons began his career in 1991 as a buy side trader responsible for money markets and credit derivatives in the capital markets division of the Norinchukin Bank, the Japanese quasi-governmental bank responsible for the fishing, farming and agricultural industries in Japan. Simmons graduated from Colgate University in Hamilton, NY with a B.A. in International Relations in 1991, and is a member of the President’s Club. He is also a junior board member of the Susan B. Komen Breast Cancer Foundation. Simmons holds Series 7, 63, and 55 securities licenses. Steven M. Simmons Sr. Vice President Terra Nova Financial 203 434 4465 [email protected]

mailto:[email protected]

Deborah G. George President

Growing Emerging Managers’ Services

Deborah G. George, Growing Emerging Managers’ Services (GEMS). Ms George has over 20 years of investment industry experience, specializing in putting emerging investment managers on the map by winning prestigious mandates. In 2005, she launched GEMS, an independent institutional marketing company focused on investment product positioning and strategy. She has a keen ability to effectively differentiate a manager’s value proposition and translate into an effective sales program. Previously, she was Director of Marketing and Client Service at Blaylock-Abacus Asset Management and has held similar positions at Philippe Investment Management, Valenzuela Capital Partners and HSBC Asset Management. Ms. George is a member of the CFA Institute and the NYSSA and of Chicago Women in Pensions. She served on the board of the Victims’ Information Bureau of Suffolk County from 1989-1998.

Rob Davis, Partner Rob brings 30 years of brokerage industry experience to Merlin. Most recently, he served as Chief Operating Officer at SDS Capital Group, a Greenwich, CT, based hedge fund. Previously, he was Managing Director and National Sales Manager at Montgomery Securities/Banc of America Prime Brokerage Services. Prior to Montgomery, Rob was the manager of Oppenheimer's Boston institutional equity sales team. He is the founder of Hedge Funds Care, the industry charity dedicated to the prevention and treatment of child abuse.

Part II: Raising Capital

Moderator: Stephen Dreskin, Managing Director

TOUCHSTONE GROUP, LLC

Panelists: Doug Cramer, President

ALTERNATIVE ACCESS CAPITAL, LLC

Liz Flores, CAIA, Marketing Director CRESTVIEW CAPITAL FUNDS

Michael H. Finnell, Managing Partner

MIT ASSOCIATES, LLC

Jewel Huijnen, Hedge Funds BEAR STEARNS ASSET MANAGEMENT

Stephen Dreskin Bio Stephen Dreskin, Managing Director, Touchstone Group, LLC, heads the international effort for Touchstone Group, LLC, a boutique placement agent raising money for private equity and hedge fund managers from primarily North American and European institutional investors. Touchstone’s current clients include an insurance-focused private equity fund, several long/short managers based outside of the US, and a global short-term interest rate arbitrage manager. He has over 20 years hedge fund, equities research, consulting and other professional experience. Prior to Touchstone, he was the founding principal of a hedge fund marketing firm, which has brought offshore capital to US hedge funds. Previous affiliations include Donaldson, Lufkin & Jenrette and Deloitte & Touche. He holds an MBA and an MA from The Wharton School of the University of Pennsylvania, where he was a fellow in the Lauder Institute and a BA from the University of Pennsylvania.

Mr. Finnell joined MIT Associates in April, 2002 from Bear Stearns, where he was Managing Director of Equity Capital Markets responsible for capital raising across a range of industries in the private, public and convertible markets. Prior to Bear Stearns, Mr. Finnell had 11 years experience as a Managing Director in Equity Capital Markets at ING Barings (formerly Furman Selz) and UBS Warburg. He also has worked in Debt Capital Markets, Financial Institutions Investment Banking and Corporate Lending. Mr. Finnell holds a BA in Political Science from St. Mary’s College of California and a graduate degree in International Management from the American Graduate School of International Management in Arizona.

Jewel Huijnen is an Associate Director in the Hedge Funds area of Bear Stearns Asset Management where she works on both the hedge funds that BSAM manages and externally seeded hedge funds. Prior to joining BSAM in 2007, Jewel worked as a Fund of Funds Analyst at the $5B hedge fund investments advisor (currently New Holland Capital) of the $250B Dutch ABP pension fund managing investments in pioneering hedge fund strategies. Prior to joining ABP, she was a Strategy Consultant at Accenture in Europe working with companies such as SocGen, Paribas and Unilever. She holds an MBA in Finance from The Wharton School and an MS in Industrial Design Engineering, with highest academic honors, from the Delft University of Technology in the Netherlands. In 2005, Jewel co-founded the Wharton Hedge Fund Network in New York, a professional association of 700+ Wharton alumni in the hedge fund industry. She has organized events featuring keynote speakers from prominent firms such as AQR, Avenue Capital, Credit Suisse, JANA Partners and Paulson & Co.

Part III: Looking at Non-Traditional Capital Raising Sources: From Plan Sponsors Trends to New Global Opportunities

Richard Beleutz, Managing Partner

ALTERNATIVE INVESTMENT RESOURCES, LLC

John M. Pagli, Jr., Director of Strategic Business Development PURSUIT PARTNERS LLC

Richard Beleutz - [email protected]

Richard N. Beleutz is responsible for the marketing of Alternative Investment Resource’s products and investment opportunities to the professional asset management community. He is involved with daily deal flow and generates leads and prospects for the firm.

Mr. Beleutz became involved with alternative investments in 2002 when he launched Beleutz & Associates, a quantitative model development outpost. B&A successfully raised $50 million in trading capital. B&A also provided modeling services to various institutional clients and developed a unique array of uncorrelated alternative investment options.

From 1993-2004, Mr. Beleutz built a $50 million retail financial advisory business with American Express Financial Advisors, attaining Platinum Advisor status in 2003. He developed extensive financial marketing experience through over a decade of building his book of clientele and through teaching advisors and managers these concepts since he entered management in 1995. In the 2001 & 2002, Mr. Beleutz grew his financial planning practice by approximately 700%. This ranked him 154th out of roughly 10,000 American Express Financial Advisors.

His knowledge of financial markets has earned him television appearances on ABC News. Mr. Beleutz holds Series 3, 7, 9, 10, 24 and 63 security licenses, IL Life Accident & Health Insurance and is a Certified Financial Planner. He received a BA in Economics from the University of Michigan in 1992.

mailto:[email protected]

JOHN M. PAGLI, JR. Director of Strategic Business Development

Pursuit Partners LLC John M. Pagli,. Jr., is the newly appointed Director of Strategic Business Development at Pursuit Partners LLC, an alternative investment management firm that focuses exclusively on the fixed income market, specializing in structured finance transactions across a wide range of asset classes. He is responsible for global business development, investor relationship management, media relations, new product creation, and strategic development. Prior to joining Pursuit Partners, Mr. Pagli was the Managing Director for Alternative Investments, principally responsible for marketing alternative investments and sourcing alternative managers, at Proctor Investment Managers LLC. Before that, he consulted to various hedge fund managers launching new funds on marketing and strategic development. He also previously led sales and marketing and investor relationship management functions as Executive Vice President and Chief Operating Officer at Para Advisors; as Managing Director in charge of North American institutional sales and marketing at Alpha Investment Management; and as a Managing Partner of Forest Investment Management LLC, President of Forest Investment Management LP and President of the Forest Global Convertible Fund Ltd. Earlier in his career, he worked at Pacific Harbor Capital, a private equity firm, and at Merrill Lynch Capital Markets as an investment banker in mergers and acquisitions. Mr. Pagli graduated cum laude from Boston University School of Management with a BSBA degree with concentrations in finance and international economics, and received an MBA with distinction with concentrations in corporate finance and corporate strategy from New York University Stern School of Business Administration. He is registered with the SEC and NASD under Series 3, 7 and Series 63 licenses, and is a candidate for the Chartered Alternative Investment Analyst (CAIA) designation.

PAAMCO Study: Do Emerging Managers Out-Perform Mature Managers?

Phillippe Jorion, Managing Director PACIFIC ALTERNATIVE ASSET MANAGEMENT COMPANY

Philippe Jorion Managing director, Pacific Alternative Asset Management Company (PAAMCO) Philippe Jorion works at the interface of the risk management and portfolio management functions at PAAMCO, a global fund of hedge funds. He is responsible for enhancing the risk infrastructure of the fund and evaluating new products and markets. He is also Chancellor’s Professor at the School of Business at the University of California at Irvine. He holds an M.B.A. and a Ph.D. from the University of Chicago, and a degree in engineering from the Université Libre de Bruxelles. Dr. Jorion has authored more than eighty publications directed to academics and practitioners on the topics of investment management and risk management. He is known as an expert on the topic of Value at Risk, having written a number of books, including “Value at Risk: The New Benchmark for Managing Financial Risk,” and the “Financial Risk Manager Handbook.” He is a frequent speaker at academic and professional conferences.

Emerging Managers

Philippe Jorion 1

The Performance of Emerging Hedge Fund Managers

Philippe Jorion

January 2008

Emerging Managers - P. Jorion

Emerging Managers

Philippe Jorion 2



Emerging Managers

Philippe Jorion 3

EMERGING HEDGE FUNDS:PLAN

Introduction to industryWhy invest in emerging managers?Pitfalls in performance measurementEmpirical evidenceConclusions

Hedge Fund IndustryFirst hedge fund started by A.W. Jones in 1949, taking long & short positions in equitiesFrom 1990 to 2007, industry has grown from:

$39 to $1,800 billion,530 to more than 10,000 managers

For investors:» CSFB hedge fund index returned 6.7% over cash

(over 1994-2007)» half the volatility, very low beta» excess return is basically “alpha”

Emerging Managers-Philippe Jorion

Emerging Managers

Philippe Jorion 4


Source: HFR

Growth of Hedge Fund Industry

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

2,000

4,000

6,000

8,000

10,000

12,000

Assets Number of Funds

($ Billion)

Why Should Hedge Funds Outperform?

Mutual funds generally fail to outperformHedge funds have more flexible investment opportunities:» ability to short, to leverage, to invest in derivatives,

and across a broader pool of assetsHedge funds are less regulated:» ability to set performance fees, lockup periods…

Hedge fund managers have stronger financial incentives to perform (and also invest part of their wealth in the funds they manage)


Emerging Managers

Philippe Jorion 5

Why Invest in Emerging Managers?

Incentive effects should be stronger: » with a lower initial wealth, marginal utility of a

given dollar is higher » if managers are younger, benefits are spread over

longer periodSize effects: » typically manager smaller pool of assets» with smaller pools of funds, less market impact» (however, mixed evidence for mutual funds)

New ideas and marketsEmerging Managers - P. Jorion

Fat and happy

Pitfalls with Studies of Emerging Managers

Databases are subject to “backfill,”“incubation,” or “instant-history” biasManagers report their performance voluntarilyAfter inception, fund performance is not made public during an incubation periodUpon good performance, fund is more likely to appear in the database, with previous historyUpon bad performance, fund does not appearDatabases are also subject to “survivorship”bias, but less important for this issue


Emerging Managers

Philippe Jorion 6

Backfill Bias


(1) Inception

date

Good performance

Bad performance

Fund added to the database

Fund never appears

(2)Date added

(3) Date of first performance

Reported

Survivorship Bias


Good performance

Bad performance

Fund alive

Dead Fund

Latest date

Fund 1

Fund 2

First performance

date

Disappearancedate

Not reported

Emerging Managers

Philippe Jorion 7

Effect of Backfill BiasFor mutual funds, Evans (2007) reports that mutual fund families often seed new funds whose performance is not made public until a ticker symbol is acquired» “incubated” is inception−ticker date > 12 months» performance difference of 4.7%

For hedge funds, Fung&Hsieh (2000) describe a median incubation period of 12 months» drop first 12 months for all funds» performance difference of 1.4%» such adjustment, however, is insufficient


Adjusting for BackfillTASS reports:(1) inception date: date of fund legal structure(2) performance start date: first monthly return(3) date added to database

Backfill period is difference in (3)−(2)» median backfill period is 480 days, 1.3 years» 36% of funds have backfill period > 2 years » 25% of funds have backfill period > 1165 days

Fund defined as “non-backfilled” if difference (3)−(1) < 180 days


Emerging Managers

Philippe Jorion 8

Portfolio ConstructionHedge funds are grouped into cohortsPortfolios are constructed from individual hedge funds aligned on the start of fund performance, separately for non-backfilled and backfilled groupsPortfolio averages are reported using raw returns as well as sector-adjusted returns:

which adjusts for sector effects, risk, and leverage (simple to implement)


StiitSit RRAR β−=


Hedge Fund Cohorts: Raw ReturnsPanel A: Funds With No Backfill

10.13%-0.53*442.88%11.83%98.77%0.44*671.95%9.97%88.97%-2.36*921.54%11.06%79.78%1.45*1431.03%6.69%69.93%-0.38*2211.12%8.90%5

11.19%-0.61*3241.07%8.32%412.01%0.46*5051.26%7.30%312.52%2.76*7490.82%7.99%212.73%9231.27%12.16%1

Average of Fund

Volatility

T-statistic of Equal

Return

Number of

Funds

Annualized Volatility

(Portfolio)

Raw Returns

(Annual)Cohort

Year

Emerging Managers

Philippe Jorion 9


Hedge Fund Cohorts: Raw ReturnsPanel B: Backfilled Funds

9.63%0.08*2611.39%11.34%99.97%0.09*3771.54%11.51%8

10.28%-1.46*5791.51%11.72%710.58%-0.54*8060.92%9.13%611.52%1.68*10641.32%8.26%511.90%0.82*14000.64%10.72%412.58%0.36*17881.21%11.84%313.19%5.28*21160.99%12.41%214.22%22670.62%18.60%1

Average of Fund

Volatility


Return

Number of

Funds

Annualized Volatility

(Portfolio)

Raw Returns

(Annual)Cohort

Year


Hedge Fund Cohorts: AlphasFunds With No Backfill

0.7431.06*442.08%-1.48%90.705-0.63*671.93%1.51%80.876-0.39*921.00%0.13%70.7892.09*1430.78%-0.37%60.711-1.23*2210.82%1.99%50.7420.24*3241.13%0.26%40.7750.45*5050.79%0.59%30.6862.35*7490.78%1.10%20.6609231.12%4.31%1

Average of Fund

Beta


AlphaNumber

of FundsStandard

ErrorAlpha

(Annual)Year

Emerging Managers

Philippe Jorion 10

Cumulative Alpha Sorted by Event Time

Start of Performance

-10

-5

0

5

10

15

20

25

30

0 12 24 36 48 60 72 84 96 108 120 132

Event Time (Months)

Cum

ulat

ive

Alp

ha (P

erce

nt)

Backfilled FundsNon-Backfilled FundsBackfilled Fund without Backfilled Data

Performance of Emerging Managers

Strong evidence of outperformanceUsing raw returns: 10.1% for the first 2 years, vs. 9.1% during the remaining 7 yearsUsing alphas: 2.7% for the first 2 years, vs. 0.4% laterVolatility and beta not very differentRegressing alpha on age, performance drops

by 28bp for each year of age


Emerging Managers

Philippe Jorion 11


Hedge Fund Cohorts: Alphas by SectorFunds With No Backfill

Year CBH SDMH ED EMN LSE SB EM MAC CTA MS1 3.6% 7.2% 2.9% 1.8% 5.0% 34.9% 0.8% 5.8% 3.1% 7.0%2 0.8% 5.6% -0.6% 3.3% 0.6% 16.1% 1.7% -1.1% -0.4% 4.2%3 -1.7% 3.0% -0.6% 2.8% -0.6% 10.7% 11.1% -5.8% 0.3% 4.6%4 -4.1% 0.1% -4.0% 1.3% 1.9% -0.7% -1.5% 2.3% 7.5% -6.5%5 -0.4% -0.9% -3.7% 3.8% 1.4% -1.9% 15.7% -0.9% 4.7% 8.8%6 -5.3% -4.2% -5.1% -6.6% 1.5% 1.1% -1.8% 7.1% 10.6% 6.9%7 -3.1% 5.6% -2.8% -3.4% 2.4% 3.8% -5.3% -3.8% 6.4%8 1.2% 6.3% -0.1% 12.7% -0.2% -2.8% -2.6% 4.9%9 -17.7% 8.8% -14.2% 3.7% -0.9% -3.5% 1.7%

Year CBH SDMH ED EMN LSE SB EM MAC CTA MS1 39 57 97 86 373 2 72 66 87 449 4 3 3 4 16 0 7 4 0 3

SectorAbnormal Performance

Number of Funds at Start of Year:

Backfill Effect on PerformanceBackfilled funds have large biasUsing raw returns: upward bias is 6.4% in first year, then 4.4%, 4.5%, 2.4%Some studies attempt to control for backfill bias by discarding first two years of performance: This is insufficient, however, as it leaves some backfilled funds in sampleStudies of emerging managers that do not

account for backfill bias are misleading


Emerging Managers

Philippe Jorion 12


Cumulative Alpha Sorted by Event Time:Truncating First 24 Months

0

5

10

15

20

25

0 12 24 36 48 60 72 84 96 108 120 132

Event Time (Months)

Cum

ulat

ive

Alp

ha (P

erce

nt)

Backfilled Funds

Non-Backfilled Funds

The Performance of Emerging Managers


Explanations?FeesSkillsSize

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Philippe Jorion 13

FeesFee cannot explain the differences:

Of course, effective fees can differ from the stated fees, which are the ones reported to the database and used to compute net returns Early investors in emerging managers can get a fee break, which makes returns for emerging managers even better than reported


19.651.50Non-backfilled19.631.43Backfilled

Incentive FeeMgt. FeeSample Average (%):

Skills: Performance Persistence

There is evidence that emerging managers do outperform, on averageIf this reflects skills, we would expect persistence in the performance: good managers to continue to outperform

(1) Test using regressions of alpha on past year

(2) Test by forming quintile (20%=1/5) portfolios sorted by alpha, computing returns next year


ititit bb εαα ++= −110

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Philippe Jorion 14


Performance Persistence: Alpha RegressionsFunds With No Backfill

Year t

Coefficient, Alpha

Year t-1 Standard Error

of CoefficientNumber of

Observations

Adj.

R-squared

2 0.297** 0.046 733 0.054 3 0.303** 0.046 491 0.081 4 0.072** 0.061 314 0.001 5 0.114** 0.125 218 -0.000 6 0.077** 0.064 139 0.003 7 0.174** 0.106 88 0.019 8 -0.270** 0.124 65 0.056 9 -0.130** 0.183 43 -0.011

Conclusion: performance persists during first few years, significant for first two years» however, tests not very reliable


Performance Persistence: PortfoliosFunds With No Backfill

Year t

Alpha, Q5

Alpha, Q1 Alpha, Q3

Alpha, Q2

Alpha, Q1Difference

Q5-Q1 t

statistic

2 6.71% 3.36% 3.20% -0.81% -10.54% 17.25%** 5.49 3 5.44% 1.87% -0.09% -1.49% -7.92% 13.36%** 3.50 4 4.04% -0.93% 0.08% 0.70% -4.75% 8.79%** 2.20 5 8.09% -1.59% 4.67% 0.63% -2.65% 10.74%** 2.34 6 1.80% 1.63% 0.34% -3.80% -3.90% 5.69%** 1.73 7 1.21% 2.76% 3.93% -6.22% -2.31% 3.52%** 0.72 8 -1.10% 1.25% 3.33% 0.48% 3.50% -4.60%** 0.53 9 0.46% -5.21% -11.00% 7.29% 1.18% -0.72%** 0.08

Conclusion: performance persists during first few years, significant for first four years

Emerging Managers

Philippe Jorion 15

Is This a Size Effect? (1)Sort managers by size at month 0Keep managers in the same quintile (quintiles become unbalanced as small funds die earlier)Conclusion: No uniform size effect in alphasHowever, large managers do slightly better in the first two years: investors can identify new managers with greater skills and provide them with more funds



Alphas sorted by Age and Size at Inception

AverageStd.Dev.

Number

AgeSize 1 2 3 4 5 6 7 8 9 TotalSmallest 2.5% -0.1% 2.5% -3.5% 2.5% -2.9% 1.6% -3.6% -16.7% -2.0%

2.0% 2.2% 2.0% 2.2% 2.4% 1.9% 2.6% 2.6% 4.2% 0.9%$874,989 182 135 91 55 38 27 17 9 6

2 0.3% -0.3% -0.1% -1.6% 14.8% 2.8% -1.0% -0.8% 7.9% 2.5%1.5% 2.1% 2.7% 4.1% 6.6% 5.6% 4.3% 5.6% 7.1% 1.6%

$2,602,771 184 147 95 59 35 23 15 13 93 8.2% -0.5% 0.8% 2.4% -1.3% -1.1% 1.4% 0.3% 3.1% 1.5%

1.1% 1.3% 1.8% 2.1% 2.7% 2.8% 1.6% 1.9% 0.9% 0.6%$6,072,739 185 151 101 60 45 29 18 12 4

4 8.2% 4.1% 2.2% 4.3% 2.9% 0.6% 0.1% 3.4% 0.2% 2.9%1.1% 1.0% 1.4% 1.3% 1.5% 1.3% 2.9% 2.5% 3.5% 0.7%

$13,470,266 186 154 101 75 53 33 22 16 12Largest 4.4% 0.8% 0.5% -2.5% 0.9% -1.9% 0.0% 0.4% -2.6% 0.0%

1.3% 1.1% 1.1% 1.2% 1.2% 2.2% 2.2% 1.4% 1.6% 0.5%$55,937,174 186 162 117 75 50 31 20 17 13

AUM in 2006 dollars

Emerging Managers

Philippe Jorion 16

Is This a Size Effect? (2)Sort managers by size within calendar yearResort every year on size (quintiles now more balanced)Conclusion: No uniform size effect in alphasLarge managers do slightly better earlier



Alphas sorted by Age and Size

Average

AgeSize 1 2 3 4 5 6 7 8 9 TotalSmallest 13.7% -4.2% -1.9% -1.3% -3.7% -4.4% -3.9% 9.9% -9.0% -0.5%

3.8% 2.2% 2.5% 4.1% 3.8% 3.6% 2.8% 5.9% 5.4% 1.3%184 161 114 72 49 32 20 14 10

2 3.1% 2.4% 1.6% 4.8% 1.7% 0.8% -0.4% -0.3% 3.4% 1.9%3.4% 1.5% 2.2% 2.0% 2.2% 2.1% 2.3% 3.3% 5.6% 1.0%185 162 116 74 49 34 22 15 11

3 6.2% 1.5% -0.3% 3.3% -0.5% -0.1% 0.2% -2.5% 0.4% 0.9%1.5% 1.5% 1.6% 1.6% 2.2% 1.6% 1.7% 1.7% 1.7% 0.6%185 161 114 74 51 32 20 14 11

4 14.6% 2.9% 2.8% -0.8% 4.9% 3.0% 1.1% 1.0% 4.0% 3.7%3.2% 1.1% 1.2% 1.3% 2.1% 3.2% 1.3% 1.8% 2.2% 0.7%184 162 114 74 49 32 22 15 11

Largest 7.2% 2.8% 1.7% -0.4% 0.5% 4.6% 0.1% 1.4% 0.8% 2.1%2.2% 1.0% 1.0% 0.9% 1.2% 1.0% 1.3% 1.3% 2.5% 0.5%184 161 114 72 49 32 20 14 10

Std.Dev.Number

Emerging Managers

Philippe Jorion 17

Age and Size Effects

Regressing alpha on age, holding size fixed, performance drops by 48bp for each year of age


0.10300.0037

-0.0048*0.0293*

Coefficient

R-squared(0.0040)Size(0.0018)Age(0.0132)ConstantStd.Error

Regression of Alphas on Age and Size (N=55)

Monitoring Market Risk for Emerging Managers

Emerging managers typically have no track record; as a result, the investor cannot evaluate risk using historical returnsIdeally, such funds should provide position-level information, or transparencytransparencyWith transparency, position information can be combined with the history of risk factors to model the risk of the fund and understand how it interacts with the portfolio

Risk Management - Philippe Jorion

Emerging Managers

Philippe Jorion 18

Managing Operational Risk for Emerging Managers

(1) Before hiring, due diligence process provides some safeguard against operational risk: » ask about practices for pricing, trading, wiring

(2) After hiring, transparency of positions gives investors better control of operational risk: » investors can check positions pricing» investors can check inappropriate trading and style

drifts

Risk Management - Philippe Jorion

CONCLUSIONS: Performance of Emerging ManagersInterest in emerging fund managers is driven by perceptions of higher performancePerformance evaluation made difficult by the practice of backfilling databases, which causes serious biases in performance measuresAdjusting for backfill, we find strong evidence of outperformance for emerging managers during the first 2 or 3 years--not a size effectEach additional year of age lowers performance by about 48bp

Emerging Managers - Philippe Jorion

New Buzz Surrounding Non-Traditional Assets…Environmental Trading, Energy, Real Estate Hedge Funds, Natural Resources, Intellectual Property, etc.

Hans Hurschler, Head, Hedge Fund Ventures RMF INVESTMENT MANAGEMENT

Michelle McCloskey, Head of New Alternatives

RMF INVESTMENT MANAGEMENT

BiographiesKey professionals

Michelle McCloskey is Style Head for New Alternative Investments within RMF Hedge Fund Research. She is responsible for researching and defining new and leading edge investment opportunities for the group. Prior to joining RMF in 2006, Ms McCloskey worked for over twenty years in commodities trading, primarily in the energy sector, for at a variety of institutions including energy companies (BP), investment banks (Goldman Sachs and UBS), and hedge funds (Clinton Group and Cam Energy). Past experience also includes running a number of trading books, managing large groups of traders, and launching trading desks from the ground up at a variety of locations. Ms McCloskey graduated Magna Cum Laude with a BS in Chemical Engineering from Texas Tech University in Lubbock, Texas.

Hans Hurschler Head of RMF HedgeFund Venture Group

Hans Hurschler is the Head of RMF Hedge Fund Venture Group within RMF Investment Management, based in Pfäffikon, Switzerland. Prior to joining RMF in 2003, Mr Hurschler worked as an independent risk management consultant for institutional investors. From 1985 to 2001 he was a trader in fixed income derivatives at a number of major banks including Credit Suisse, Bank Julius Bär and Merrill Lynch Capital Markets AG in Zurich (1996-2001). He began his career as a trainee at Credit Suisse, Zurich, in 1985. Mr Hurschler has a degree in economics and management from the Kaderschule Zurich. He is also a Certified EFFAS Financial Analyst (European Federation of Financial Analysts Societies) and holds a Swiss Exchange Trader Diploma, a Swiss Options and Futures Trader Diploma and a Swiss Diploma as Financial Analyst and Investment Adviser.

Michelle McCloskey Style Head: NewAlternative Investments

Legal, Regulatory, Compliance Perspective

Lance Friedler, Partner SADIS & GOLDBERG LLP

Marc Mehrespand, Senior Associate

K&L GATES

Lance S. Friedler Partner Lance Friedler is a Partner at Sadis & Goldberg LLP in the firm's Corporate and Financial Services Group. Mr. Friedler regularly counsels clients on structuring and forming U.S. and non-U.S. private investment funds, including the investment manager and general partner entities to such funds. In addition, Mr. Friedler counsels investment managers on registration and on-going compliance issues with the SEC, including the preparation of all written compliance policies and procedures. Mr. Friedler's investment management experience is broad in scope and includes the preparation and negotiation of various types of agreements, seed capital arrangements and joint venture arrangements. Mr. Friedler received his JD cum laude from New York Law School in 1997 and his BS in Economics from Oneonta State College in 1992. Mr. Friedler was an Articles Editor on the New York Law School Journal of Human Rights.

Areas of Practice Mr. Mehrespand is a senior associate in the securities and investment management groups. He represents investment advisers, banks, broker-dealers and other participants in the financial services industry in a practice that encompasses the major federal securities and commodities laws as well as general corporate law. In particular, Mr. Mehrespand regularly works with clients to form and operate U.S. and offshore private investment funds. Mr. Mehrespand also:

• Registers newly-formed investment advisers, commodity pool operators, commodity trading advisors and investment companies.

• Prepares organizational and disclosure documents for private and public offerings of securities and the sponsors of such offerings.

• Creates private funds structured as employees’ securities companies. • Advises clients that deal with futures contracts and options on futures contracts on

applicable provisions of CFTC and NFA regulations. • Represents clients before the SEC on a broad range of corporate and securities law issues

such as proxy contests and investment adviser examinations. • Advises broker-dealers and clients working with broker-dealers on relevant NASD

regulations. • Structures executive employment and compensation arrangements. • Has advised regulators outside of the United States on securities and corporate law

reforms in those countries.

Bar Admissions

• Bar of District of Columbia • Bar of Maryland

Education

• J.D., George Washington University Law School (1998) • M.A., George Washington University (1998) (International Affairs) • B.A., George Mason University (1994)

DC-978855 v1

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