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Deep-In-The-Money Hedge Strategy Monthly

January 2012, Issue #6

www.RenovatioAM.com

10Y Monthly Value-At-Risk Ranking

ending 11/2011 95% VaR 99% VaR 10Y Monthly Max

Drawdown Ranking

Max Drawdown Ending 11/2011

Equity Market Neutral 1.47% 2.08% Merger Arbitrage 6% Merger Arbitrage 1.51% 2.14% Global Macro 8%

Lehman AGG 1.79% 2.53% Funds Of Funds 11% Global Macro 2.15% 3.04% Equity Market Neutral 11%

Fixed Income Arb 2.19% 3.09% CTA Global 12% Relative Value 2.24% 3.17% DITMo 16%

DITMo 2.32% 3.28% Relative Value 16% Funds Of Funds 2.48% 3.50% Distressed Securities 17%

Event Driven 2.93% 4.14% Fixed Income Arb 18% Distressed Securities 3.04% 4.30% Event Driven 20%

Long/Short Equity 3.46% 4.89% Long/Short Equity 22% Convertible Arbitrage 3.61% 5.10% GOLD 26%

CTA Global 4.04% 5.71% Convertible Arbitrage 29% High Yld 4.71% 6.66% BXMCovdCall 32%

Emerging Markets 5.01% 7.08% Emerging Markets 35% BXMCovdCall 5.84% 8.26% Lehman AGG 36% Short Selling 6.18% 8.74% Short Selling 42%

SP500 7.56% 10.69% SP500 53% GOLD 8.45% 11.95% High Yld 73% REIT 12.63% 17.87% REIT 73%

10Y Sharpe Ratio Ranking Green=High; Red=Low 1 Yr 3 Yr 5 Yr

End Nov ’11 10 Yr

Distressed Securities 0.93 1.84 0.56 1.29

Merger Arbitrage 1.11 2.26 1.03 1.21

Global Macro 0.45 1.21 0.86 1.20

Event Driven 0.62 1.70 0.53 1.01

Relative Value 0.90 2.18 0.61 0.96

GOLD 0.51 1.11 0.87 0.96

DITMo 1.41 1.21 0.48 0.94

Emerging Markets 0.46 1.39 0.35 0.91

Fixed Income Arbitrage 1.31 2.82 0.48 0.86

Equity Market Neutral 1.02 1.25 0.29 0.82

High Yld 0.38 2.04 0.44 0.72

Long/Short Equity 0.64 1.21 0.34 0.66

CTA Global 0.41 0.22 0.68 0.64

Convertible Arbitrage 0.59 2.50 0.41 0.52

Funds Of Funds 0.02 0.65 -0.11 0.45

BXMCovdCall 0.34 0.79 0.02 0.25

REIT 0.26 0.67 -0.11 0.24

SP500 0.29 0.58 -0.12 0.02

Short Selling 1.01 -0.58 0.14 -0.06

Lehman AGG -0.04 0.43 -0.01 -0.30

Prepared by: Pj de Marigny, DITMo Strategies ©2011 RENOVATIO ASSET MANAGEMENT, LLC

Contents

VaR, Maximum Drawdown, Sharpe Ratio Rankings…Cover Page

20 Index Risk/Return Summary (10,5,3,1 Year)...page 2

Disclosure, Sources & Methodology……………………..page 3

Manager Commentary………………….page 4

Attributions for 20 Indexes ………………….pages 5-6

Universe Batting Average and Risk-Adjusted UBA…page 7

Correlations (10,5,3,1 Year)………pages 8-9

Scattergram (10Y Monthly Risk/Return)...page 10

Risk & Return Probabilities (10,5,3,1 Year)…..pages 11-14

Return Bar Charts (10,5,3,1 Year)………pages 15-16

VAMI Line Charts…………………………………….page 17

Return Ranking Matrices (2002-Oct2011)...page 18

Hedge Strategy Definitions.............page 19-20

Annualized Mo SD

BXM CovdCall

Convertible Arbitrage

CTA Global

Distressed Securities

DITMo Emerging Markets

Equity Mar-ket Neutral

Event Driven

Fixed Income

Arbitrage

Funds Of Funds

Global Macro

GOLD High Yld

Lehman AGG

Long/Short Equity

Merger Arbitrage

REIT Relative

Value Short

Selling SP500

10Yr Return 4.15% 5.56% 7.08% 10.26% 6.43% 11.38% 4.38% 8.09% 5.77% 4.05% 7.37% 20.33% 8.82% 0.61% 6.53% 5.73% 4.45% 6.42% 0.18% 0.91%

10Yr StdDev 12.29% 7.60% 8.50% 6.40% 4.88% 10.54% 3.10% 6.17% 4.60% 5.21% 4.52% 17.79% 9.92% 3.76% 7.29% 3.18% 26.61% 4.72% 13.01% 15.93%

5Yr Return 0.93% 5.56% 6.90% 6.14% 4.55% 5.59% 2.95% 5.69% 4.75% 0.87% 6.05% 21.93% 6.85% 1.68% 4.45% 5.57% -7.80% 5.43% 2.90% -2.30%

5Yr StdDev 14.81% 10.10% 7.64% 8.11% 5.91% 12.96% 4.12% 7.55% 6.33% 6.47% 4.87% 20.39% 12.99% 3.67% 8.57% 3.58% 34.64% 6.07% 14.16% 18.91%

3Yr Return 12.40% 19.93% 3.16% 15.48% 7.76% 16.72% 4.86% 12.95% 12.52% 4.69% 7.07% 28.76% 24.25% 3.21% 11.26% 7.27% 20.74% 11.49% -7.10% 11.64%

3Yr StdDev 13.71% 6.70% 7.21% 7.01% 4.81% 10.29% 2.40% 6.26% 3.60% 4.48% 4.27% 18.89% 10.08% 3.29% 7.61% 2.33% 34.05% 4.24% 14.17% 19.00%

1Yr Return 5.92% 4.35% 4.92% 8.88% 7.23% 6.20% 5.08% 6.17% 4.99% 1.77% 3.85% 26.00% 4.82% 1.65% 7.25% 4.96% 5.59% 5.31% 16.56% 5.63%

1Yr StdDev 14.35% 4.37% 8.14% 7.51% 3.73% 10.22% 3.14% 7.21% 2.39% 5.15% 4.61% 23.25% 8.46% 2.90% 8.73% 2.80% 23.19% 3.83% 14.49% 17.23%


DISCLOSURE

“Deep-In-The-Money” Hedge Strategy Monthly report is intended for educational and discussion purposes only. Renovatio Asset Management is

structured as a registered investment advisor limited liability company located in Newport Beach, California offering investment management services.

Renovatio is not a wealth advisory or financial planner, neither is this material intended to offer financial advice or recommend any investment.

The material herein is offered without charge, fees, or expectation of receiving any remuneration, to financial professionals, students, industry

associations, and other interested parties. This material is offered without guarantee of accuracy in methodology or calculation and is not meant to imply

recommendation of any strategy reflected in this report. Source of thirteen Hedge Categories data provider is Edhec Risk Institute. Data provider for SPX

(SP500), BXM (CBOE SPX at-the-money Covered Call Index), WFBIX (proxy for Lehman/Barclay Aggregate Bond Index) and CSHY (Credit Suisse

High Yield Index) is Bloomberg, LP. “REIT” is Dow Jones U.S. Select REIT (benchmarking Wilshire REIT Index) used instead of NAREIT to account

for liquidity convenience. GOLD is the GOLDS Commodity Index. DITMo Model Index is a customized “Deep-In-The-Money” Buy/Write index

provided by Renovatio Asset Management and prepared by Pj de Marigny.

Methodologies and calculations were developed and prepared by Pj de Marigny, DITMo Strategies Portfolio Manager and Risk Manager for Renovatio

Asset Management Alternative Strategies. Pj de Marigny is a Director of GARP, Southern California Chapter. He holds an M.S. in Banking & Financial

Services Management (Boston University), an M.B.A. with QI Concentration (Colorado State University), a B.A. in Biblical Studies (Ambassador

College, Pasadena CA), and a B.S. in Accounting (St. Francis College, NYC). Pj is a member of the Wharton CPD Circle with 15 years of professional

experience. Pj is also a Columnist for HedgeCo (W. Palm Beach, FL), a Hedge Fund Data/Services Provider. PJ does not advertise professional

certifications. Please eMail [email protected] for report enhancement suggestions, errata, general questions and comments.

DITMo® is a Deep-In-The-Money Buy-Write Model Index that is reflective of a risk averse version of a covered call strategy. The methodology for

calculation is meant to capture changing sensitivity to the underlying long equity value and is calculated as follows:

DITMo MODEL METHODOLOGY:

This attribution is drawn solely from the sample model portfolio. Return attributions reflected here involved stress-testing the sample portfolio using Algorithms, then using those results in the formulation of a return series based solely on the results of SP500 performance to capture up and down participation that differs within various return ranges typical of a covered call strategy payoff. The portfolio includes 70 to 100 SP500 equity “Buy/Writes” typically written at a strike price below the market price of the underlying equity with intention to have the underlying equity called away thereby creating a cash flow composed of exercised options, option premium, dividends and interest. There is no guarantee that the portfolio will exhibit similar attributes to this model or that the portfolio holdings will be similar to the portfolio holdings reflected here. This is intended for one-on-one discussion purposes only. The model was constructed using equity ask price and short call bid price that would represent the minimal acceptable trade net of execution and management fees.

The strategy is both a bottom-up and top-down approach contrived to target less than a one-third market beta (market risk) and an after-fee 8-10% return that are solely dependent on market performance. Risks of strategy underperformance includes, but is not limited to a scenario of SP500 excessive performance within a month that will result in a muted upside capture of that performance. Similarly, downside excessive loss of the SP500 in a given month is muted only within limited bounds cushioning only a moderate drawdown of the market in any given month. The strategy should be considered by those willing to tradeoff upside participation for a limited amount of loss mitigation in any given month.

The model return series and resulting attributes were constructed according to the following methodology (per month):

SPX DITMo(Y) <-10% +3.26% + .69(SPX)

=/-5% to =/–10% -.62% + .11(SPX)

-5% to 5% +.68% + .25(SPX)

=>5% +1.67% + .02(SPX)


Portfolio Manager Commentary

For January 2012, front page VaR and Max Drawdown Rankings were added. It is interesting to consider from a strategy viewpoint what past year is indicative of the

coming year, and what has changed from last year? “Commentary” has 4 topics: Present Issues; Market Scenario; Strategy Considerations; and Concept of the Month.

Present Issues

The U.S. is poised to continue at an anemic 2% GDP with 200k jobs added monthly translating into about 50k monthly decrease in unemployment. The most present

economic risks are geopolitical. Europe’s impending economic slowdown threatening Eurozone cohesion and monetary system could prolong the U.S. recovery, canni-

balize emerging markets, and destabilize EMEA balance. The presidential election is a path-dependent gambit determining whether GDP will be a private equity “J” or

a tax the rich “tilde.” Another distinction is whether bankruptcy that forces a restructured business plan and risk consideration at a cost of pension and job loss is prefer-

able to government bailout of larger organizations. It is apparent that capital formation is better done by Koch Industries than DOE, but not as apparent is adverse im-

pact of regulation disproportionately on small business that is the incubator of productivity and entrepreneurism. The remaining unlikely scenario is a Jeffersonian-style

Revolution that threatens to starve “the monster” (federal budget) and reclaim monetary policy from the central bank. In this unlikely scenario the result would be se-

vere deflation without monetary stimulation and “V” recovery. Money centers are unique facilitators of capital needing [Basel] standards with or without a central bank.

Market Scenario

George Soros and other experts believe Eurozone cohesion and the Euro are essential. The issues of sovereign debt and viability of Euroland money centers will force a

compromise of separating the bloc into two components: A Malta Mediterranean Union and Brussels Northern Union. The Euro must integrate with the USD, become a

fiat currency, or convert to a G20 SDR to survive. Iran is less dangerous itself than Europe’s exposure to it’s Mediterranean influence.

Strategy Considerations

For directional, momentum and trend managers strategy may be dynamic, but for non-directional arbitrage managers setting a strategy is problematic. Directional hedge

classes are known to be more amenable in defined business cycles—recovery, peak, decline and trough. While it seems that every Institutional CIO is herding to UN-

CORRELATED classes, it should be noted that there is no such thing. That is, there are DISCORRELATED classes that are quantitative methods of speculation—but

somewhere there is correlation to one or a number of factors undefined. Larger institutions are lulled into a false safety by consultants believing correlation is risk. The

strategy with increased opportunity sets is Fixed Income Arb and close second is Global Macro. Greater VOL attenuation lacking shocks is a fertile RV environment.

Concept of the Month

Charles Koch in his book, “THE SCIENCE OF SUCCESS” quotes F.A. Hayek, “The solution of the economic problem is a voyage of exploration into the unknown, an

attempt to discover new ways of doing things better.” In this content-driven world creating a Learning Organization Investment Manager is the same as industry, that

is, knowledge transfer of what is useful to improve. The invariant problem of allocation models understates the value of change. There is no manager selection criteria

-as a determinant of future success- more important than philosophy and changing vision. All attributes and allocations change in varying time horizons and investment

levels due to what I call “The Spanish Armada” effect. That is, 70% of all HF investments are by large institutions. Consultants and due diligence is biased toward larg-

er managers. As the Spanish Armada continued to enhance their ships structurally with oak, they were easily beaten by the flexibility of the small ship British Navy.

UBA and RAUBA are variations of “Batting Average” that differs from percentile that is connected to absolute values. UBA is simply the batting average that reflects the percent of strategies beaten in

our 20 universe index. RAUBA takes the UBA measurement multiplied by the multiple of return/risk. Both measures are mechanisms of ranking and do not reflect any intrinsic quantitative attribute.

(Errata: A parentheses was inadvertently omitted in prior month(s) SR calculation that had the effect of multiplying the numerator instead of the denominator. Some return calculations also truncated

the latest return in the data series.)


DITMo® Report Date Jan-12

30Yr Tres Bond 10Yr Avg

end 11/11 4.60%

10Yr Tres Note 10Yr Avg

end 11/11 3.94%

T-Bill (Riskless) 10Yr Avg

end 11/11 1.79%

Sortino MAR threshold% (month)

10Avg30yrTBond

0.38%

Period Ending 30Nov2011 DITMo® SPX

Observations 120 120

RED=Lowest Row Value

Green=Highest Row Value

Performance (10Y/monthly unless stated)

DITMo SPX Convertible Arbitrage

CTA Global


Emerging Markets

Equity Market Neutral

Event Driven

Fixed Income Arbitrage

Global Macro

Long/Short Equity

Merger Arbitrage

Relative Value

Short Selling

Funds Of Funds

Lehman AGG

BXMCovdCall

High Yld REIT GOLD

(Below) Annualized AVG RETURN YTD

5.74% 0.32% 3.16% 0.82% 6.21% 4.63% 4.44% 3.97% 4.76% 1.51% 4.31% 4.07% 4.01% 23.39% -0.19% 3.41% 3.62% 3.49% 3.97% 12.69%

1Y AVG RETURN 7.07% 6.82% 4.35% 5.11% 8.80% 6.50% 5.01% 6.24% 4.91% 3.88% 7.37% 4.89% 5.25% 16.37% 1.88% 1.67% 6.69% 5.80% 9.86% 14.26%

3Y AVG RETURN 7.61% 12.82% 18.53% 3.36% 14.72% 16.07% 4.79% 12.43% 11.92% 6.94% 10.99% 7.06% 11.01% -6.36% 4.69% 3.22% 12.66% 20.12% 17.60% 27.06%

5Y AVG RETURN 4.64% -0.52% 5.94% 6.97% 6.30% 6.30% 3.00% 5.83% 4.85% 6.00% 4.73% 5.49% 5.49% 3.84% 1.07% 1.74% 2.03% 8.23% -0.14% 20.71%

10Y AVG RETURN 6.37% 2.19% 5.72% 7.22% 10.01% 11.39% 4.34% 7.99% 5.73% 7.24% 6.60% 5.63% 6.35% 1.02% 4.12% 0.68% 4.85% 9.24% 8.56% 19.02%

1Y CAGR 7.31% 5.92% 5.21% 2.42% 10.79% 8.63% 5.52% 7.09% 5.94% 4.05% 9.39% 4.52% 5.95% 13.19% 2.64% 1.25% 4.57% 5.63% 7.75% 26.15%

3Y CAGR 7.05% 8.96% 19.19% 3.84% 14.20% 16.24% 2.76% 12.02% 11.48% 7.43% 11.04% 7.23% 10.79% -6.20% 4.34% 4.49% 7.43% 21.30% 11.27% 33.27%

5Y CAGR 4.67% -1.88% 5.95% 7.35% 6.75% 6.86% 3.10% 6.19% 4.94% 6.61% 5.14% 5.83% 5.75% 2.08% 1.43% 1.93% 0.76% 7.63% -6.18% 23.10%

10Y CAGR 6.37% 0.96% 5.66% 7.06% 10.38% 11.69% 4.38% 8.15% 5.80% 7.44% 6.67% 5.71% 6.44% 0.05% 4.15% 0.66% 3.92% 9.01% 4.90% 20.11%

2011 (Partial) 5.33% -0.85% 2.86% 0.53% 5.60% 3.85% 4.10% 3.48% 4.42% 1.32% 3.71% 3.76% 3.68% 22.79% -0.27% 3.15% 2.46% 2.92% 1.28% 22.92%

2010 8.66% 12.78% 1.33% 2.02% 3.78% 1.76% 1.38% 2.89% 1.11% 2.02% 4.10% 0.91% 1.95% -6.61% 1.96% 2.73% 5.86% 14.42% 23.32% 29.52%

2009 8.39% 23.45% 46.78% -1.91% 30.40% 37.87% 5.07% 25.74% 24.49% 10.39% 20.01% 9.97% 21.16% -20.53% 10.67% 0.81% 25.91% 54.22% 21.03% 24.36%

2008 -8.93% -38.49% -26.50% 15.61% -21.29% -33.65% -8.36% -

18.49% -17.40% -3.22% -18.92% -2.35% -14.91% 31.52% -19.72% 0.82%

-28.65%

-26.17%

-42.54% 5.77%

2007 9.50% 3.53% 3.86% 9.91% 7.18% 20.79% 8.34% 9.62% 6.01% 12.93% 10.56% 9.09% 9.43% 7.40% 10.07% 1.56% 6.59% 2.65% -20.97% 30.98%

2006 12.01% 13.62% 12.33% 5.87% 15.26% 18.84% 7.47% 15.47% 7.43% 7.50% 11.76% 13.71% 11.85% -8.28% 11.24% -0.52% 13.33% 11.91% 30.52% 23.15%

2005 9.33% 3.00% -1.92% -0.33% 9.23% 17.18% 6.53% 7.31% 4.64% 9.49% 11.33% 4.95% 5.24% 7.28% 6.81% -2.92% 4.25% 2.26% 8.38% 17.92%

2004 10.87% 8.99% 1.10% 5.17% 17.89% 14.30% 4.71% 12.43% 6.26% 4.60% 8.62% 4.83% 5.71% -4.66% 7.08% -0.90% 8.30% 11.95% 26.45% 5.54%

2003 13.45% 26.38% 10.80% 11.64% 27.34% 31.27% 6.29% 20.48% 8.35% 17.25% 19.31% 8.34% 12.15% -23.87% 11.45% -1.18% 19.37% 27.94% 27.75% 19.37%

2002 -3.02% -23.37% 8.60% 14.57% 5.86% 5.76% 4.71% -1.08% 7.56% 4.96% -6.38% -0.90% 2.77% 27.27% 1.26% 3.89% -7.64% 3.10% -3.04% 24.77%

10 Yr Average Monthly Gain

1.05% 3.11% 1.39% 2.29% 1.61% 2.40% 0.68% 1.48% 0.85% 1.34% 1.78% 0.83% 1.08% 3.29% 1.13% 0.76% 2.21% 1.93% 4.85% 4.79%

10 Yr Average Monthly Loss

-1.55% -3.92% -1.65% -1.69% -1.50% -2.72% -0.74% -1.58% -1.29% -0.81% -1.73% -0.89% -1.13% -2.81% -1.29% -0.92% -3.07% -2.36% -6.04% -3.56%

10 Yr Batting Avg 542 395 426 411 732 768 379 637 479 489 526 432 484 395 374 216 395 547 532 842

VAMI (120 Months) $1,863 $1,093 $1,717 $1,981 $2,655 $2,937 $1,534 $2,175 $1,751 $2,036 $1,881 $1,745 $1,862 $1,017 $1,487 $1,062 $1,501 $2,327 $1,544 $6,363

Attributions for 20 Indexes


Risk Analysis DITMo SPX Convertible Arbitrage

CTA Global Distressed Securities

Emerging Markets


Event Driven


Global Macro

Long/Short Equity

Merger Arbitrage

Relative Value

Short Selling

Funds Of Funds

Lehman AGG

BXMCovdCall

High Yld

REIT GOLD

10Y Monthly VaR 95% 2.32% 7.56% 3.61% 4.04% 3.04% 5.01% 1.47% 2.93% 2.19% 2.15% 3.46% 1.51% 2.24% 6.18% 2.48% 1.79% 5.84% 4.71% 12.63% 8.45%

10Y Monthly VaR 99% 3.28% 10.69% 5.10% 5.71% 4.30% 7.08% 2.08% 4.14% 3.09% 3.04% 4.89% 2.14% 3.17% 8.74% 3.50% 2.53% 8.26% 6.66% 17.87% 11.95%

10Y Annualized StdDev 4.88% 15.93% 7.60% 8.50% 6.40% 10.54% 3.10% 6.17% 4.60% 4.52% 7.29% 3.18% 4.72% 13.01% 5.21% 3.76% 12.29% 9.92% 26.61% 17.79%

Downside Deviation 4.09% 12.42% 6.09% 7.58% 5.42% 8.51% 4.41% 6.57% 7.49% 10.69% 2.69% 3.09% 4.50% 6.22% 3.85% 3.41% 3.91% 9.70% 12.24% 7.36%

Sortino 0.41 0.01 0.15 0.03 0.33 0.16 0.29 0.17 0.18 0.04 0.46 0.38 0.26 1.09 -0.01 0.29 0.27 0.10 0.09 0.50

Kurtosis (Monthly 10Y) 14.48 1.23 13.80 -0.49 4.15 4.20 20.08 2.88 21.12 -0.08 1.08 1.59 9.26 -0.07 4.32 1.67 3.58 10.25 5.61 0.70

Skew (Monthly 10Y) -3.03 -0.62 -2.39 0.08 -1.31 -1.22 -3.37 -1.24 -3.41 0.04 -0.75 -0.85 -2.04 0.29 -1.50 -0.47 -1.07 -1.67 -0.75 -0.28

(10Y) Max Drawdown 16% 53% 29% 12% 17% 35% 11% 20% 18% 8% 22% 6% 16% 42% 11% 36% 32% 73% 73% 26%

Risk/Return Ratios DITMo SPX Convertible Arbitrage


Emerging Markets


Event Driven


Global Macro

Long/Short Equity

Merger Arbitrage

Relative Value

Short Selling

Funds Of Funds

Lehman AGG

BXMCovdCall

High Yld

REIT GOLD

(3Y) Calmar 0.48 0.24 0.63 0.29 0.89 0.46 0.43 0.62 0.67 0.88 0.50 1.25 0.69 -0.15 0.44 0.09 0.40 0.28 0.24 1.06

(10Y) (30Y Avg TBond MAR) OMEGA

2.00 1.22 2.33 1.35 3.00 2.53 3.44 2.75 4.71 1.93 1.86 3.80 3.00 0.90 2.08 1.40 1.93 2.64 1.61 1.61

1Y Sharpe Ratio 1.41 0.29 0.59 0.41 0.93 0.46 1.02 0.62 1.31 0.45 0.64 1.11 0.90 1.01 0.02 -0.04 0.34 0.38 0.26 0.51

3Y Sharpe Ratio 1.21 0.58 2.50 0.22 1.84 1.39 1.25 1.70 2.82 1.21 1.21 2.26 2.18 -0.58 0.65 0.43 0.79 2.04 0.67 1.11

5Y Sharpe Ratio 0.48 -0.12 0.41 0.68 0.56 0.35 0.29 0.53 0.48 0.86 0.34 1.03 0.61 0.14 -0.11 -0.01 0.02 0.44 -0.11 0.87

10Y Sharpe Ratio 0.94 0.02 0.52 0.64 1.29 0.91 0.82 1.01 0.86 1.20 0.66 1.21 0.96 -0.06 0.45 -0.30 0.25 0.72 0.24 0.96

Benchmark Analysis 10Yr SPX

DITMo SPX Convertible Arbitrage


Emerging Markets


Event Driven


Global Macro

Long/Short Equity

Merger Arbitrage

Relative Value

Short Selling

Funds Of Funds

Lehman AGG

BXMCovdCall

High Yld

REIT GOLD

SPX UPCapture 46.27% 100.00% 53.53% 72.62% 66.64% 94.69% -39.51% 66.64% -20.70% 94.69% -42.44% 29.11% -9.19% 59.89% -23.23% 38.72% -12.43% 48.45% -15.25% 63.73%

SPX DownCapture 18.97% 100.00% 30.33% 43.91% 23.01% 47.17% -74.07% 23.01% -105.24% 47.17% -32.36% 10.21% -66.57% 25.82% -43.04% 13.82% -53.85% 16.95% -70.83% 37.16%

DITMo Tracking Error v Strats>.7 Corr

N/A 3.35% N/A N/A N/A N/A N/A 1.29% N/A N/A 1.49% N/A 1.01% N/A N/A N/A 2.45% 2.13% 6.75% N/A

DITMo Information Ratio N/A 0.10 N/A N/A N/A N/A N/A -0.11 N/A N/A -0.01 N/A 0.00 N/A N/A N/A 0.19 0.06 -0.03 N/A

Universe Batting Average 542 395 426 411 732 768 379 637 479 489 526 432 484 395 374 216 395 547 532 842

( Annualized Avg) Active Premium v SPX

-4.18% N/A -3.53% -5.03% -7.83% -9.20% -2.16% -5.81% -3.54% -5.05% -4.42% -3.45% -4.16% 1.17% -1.93% 1.51% -2.66% -6.80% -5.88% -

16.86%

(10Y, Risk Free=Avg 3mo TBill) Treynor

0.16 0.00 0.16 -4.19 0.31 0.21 0.33 0.22 0.27 0.47 0.14 0.29 0.21 0.01 0.12 0.54 0.04 0.17 0.06 5.03

Other Measures DITMo SPX Convertible Arbitrage


Emerging Markets


Event Driven


Global Macro

Long/Short Equity

Merger Arbitrage

Relative Value

Short Selling

Funds Of Funds

Lehman AGG

BXMCovdCall

High Yld

REIT GOLD

(Barra Annualizing) Jensen Alpha

5.75% 0.00% 5.18% 7.24% 9.44% 10.40% 4.18% 7.37% 5.41% 6.98% 5.83% 5.35% 5.87% 2.50% 3.69% 0.72% 3.32% 8.04% 5.47% 18.97%

(RAP) M2 Alpha 14.93% 0.40% 8.23% 10.16% 20.47% 14.49% 13.12% 16.02% 13.63% 19.18% 10.52% 19.25% 15.37% -0.95% 7.10% -4.70% 3.96% 11.54% 3.76% 15.34%

(Slope) SPX Beta 28.11% 100.00% 24.49% -1.29% 26.34% 44.90% 7.62% 28.22% 14.69% 11.62% 35.27% 13.12% 21.65% -67.70% 19.54% -2.05% 69.68% 42.99% 118.70% 3.43%

10Y M2 16.72% 2.19% 10.02% 11.95% 22.26% 16.28% 14.91% 17.81% 15.42% 20.97% 12.31% 21.04% 17.16% 0.84% 8.89% -2.91% 5.75% 13.74% 5.84% 17.22%

Correlation r 91.73% 100.00% 51.32% -2.42% 65.56% 67.82% 39.19% 72.88% 50.82% 40.92% 77.06% 65.71% 73.00% -82.88% 59.68% -8.68% 90.26% 68.99% 71.04% 3.07%

(Pearson Product Moment) R-squared

84.15% 100.00% 26.34% 0.06% 42.98% 45.99% 15.36% 53.12% 25.83% 16.75% 59.38% 43.18% 53.29% 68.69% 35.62% 0.75% 81.48% 47.59% 50.47% 0.09%


-500

0

500

1000

1500

2000

2500

3000

10 Year (2002-2011 end Nov)

5 Year (2007-2011 end Nov)

3 Year (2009-2011 end Nov)

YTD 2011 end Nov (12mo SD)

Risk-Adjusted UBA (RAUBA)

0

200

400

600

800

1000

1200

10 Year (2002-2011 end Nov)

5 Year (2007-2011 end Nov)

3 Year (2009-2011 end Nov)

YTD ending Nov 2011

Universe Batting Average (UBA)

Risk-Adjusted UBA (RAUBA) BXM

CovdCall Convertible Arbitrage

CTA Global




Event Driven

Fixed In-come Arb

Funds Of Funds

Global Macro

GOLD High Yld

Lehman AGG

Long/Short Equity

Merger Arb

REIT Relative

Value Short

Selling SP500

10 Year (2002-2011 end Oct) 133 312 342 1173 714 829 536 835 600 290 798 962 486 35 471 777 89 658 6 22

5 Year (2007-2011 end Oct) 23 266 418 494 413 282 317 460 427 45 614 974 277 135 279 769 -71 490 97 -38

3 Year (2009-2011 end Oct)) 381 1984 92 1897 765 1197 712 1307 2382 184 465 1335 1815 189 700 1204 321 1427 -158 279

1 Year (YTD ending Oct 2011) 109 314 64 1058 1631 415 1190 405 1650 18 176 1118 210 239 481 1118 38 730 1083 0

Universe Batting Average (UBA) BXM

CovdCall Convertible Arbitrage

CTA Global




Event Driven

Fixed Income Arb

Funds Of Funds

Global Macro

GOLD High Yld

Lehman AGG

Long/Short Equity

Merger Arb

REIT Relative

Value Short

Selling SP500

10 Year (2002-2011 end Nov) 395 426 411 732 542 768 379 637 479 374 489 842 547 216 526 432 532 484 395 395

5 Year (2007-2011 end Nov) 368 484 463 653 537 653 442 611 568 337 495 905 526 295 537 495 316 547 474 316

3 Year (2009-2011 end Nov) 421 667 211 860 474 737 351 632 684 175 281 877 754 193 474 386 526 526 316 456

YTD ending Nov 2011 263 316 105 895 842 684 737 474 789 53 211 1000 368 421 579 632 158 526 947 0


HEDGE FUND STRATEGIES 10-YEAR CORRELATION MATRIX (Monthly 10Y ending 11/11)

Convert CTA Distressed Emerging Equity

Mkt Event Fixed Inc Global

Long/

Short Merger Relative Short Funds Of DITMo SP500 WFBIX BXM CSHY DWRTF GOLDS

Arbitrage Global Securities Markets Neutral Driven Arbitrage Macro Equity Arbitrage Value Selling Funds CovdCall Index Lehman

AGG CovdCall High Yld REIT GOLD

Convertible Arbitrage 1.00 0.05 0.78 0.72 0.49 0.78 0.88 0.50 0.68 0.63 0.88 (0.46) 0.74 0.53 0.51 0.16 0.52 0.81 0.42 0.20 CTA Global 0.05 1.00 0.09 0.16 0.24 0.12 0.03 0.66 0.20 0.14 0.09 (0.03) 0.31 (0.06) (0.02) 0.14 (0.09) (0.07) 0.01 0.38

Distressed Securities 0.78 0.09 1.00 0.83 0.67 0.94 0.79 0.59 0.83 0.70 0.90 (0.57) 0.86 0.66 0.66 (0.06) 0.63 0.78 0.52 0.08 Emerging Markets 0.72 0.16 0.83 1.00 0.62 0.88 0.72 0.75 0.91 0.72 0.91 (0.57) 0.91 0.67 0.68 0.05 0.65 0.69 0.47 0.23

Equity Mkt Neutral 0.49 0.24 0.67 0.62 1.00 0.68 0.52 0.56 0.65 0.51 0.63 (0.29) 0.72 0.36 0.39 (0.21) 0.46 0.46 0.30 (0.02) Event Driven 0.78 0.12 0.94 0.88 0.68 1.00 0.73 0.66 0.94 0.85 0.95 (0.67) 0.92 0.70 0.73 (0.08) 0.69 0.76 0.50 0.10

Fixed Inc Arbitrage 0.88 0.03 0.79 0.72 0.52 0.73 1.00 0.49 0.61 0.55 0.84 (0.42) 0.73 0.60 0.51 0.18 0.50 0.78 0.46 0.22 Global Macro 0.50 0.66 0.59 0.75 0.56 0.66 0.49 1.00 0.73 0.59 0.65 (0.38) 0.80 0.37 0.41 0.14 0.34 0.40 0.27 0.49

Long/Short Equity 0.68 0.20 0.83 0.91 0.65 0.94 0.61 0.73 1.00 0.82 0.91 (0.69) 0.92 0.71 0.77 (0.09) 0.71 0.66 0.49 0.16 Merger Arbitrage 0.63 0.14 0.70 0.72 0.51 0.85 0.55 0.59 0.82 1.00 0.80 (0.64) 0.79 0.63 0.66 0.02 0.63 0.62 0.44 0.16

Relative Value 0.88 0.09 0.90 0.91 0.63 0.95 0.84 0.65 0.91 0.80 1.00 (0.65) 0.91 0.74 0.73 0.01 0.70 0.81 0.54 0.19 Short Selling (0.46) (0.03) (0.57) (0.57) (0.29) (0.67) (0.42) (0.38) (0.69) (0.64) (0.65) 1.00 (0.55) (0.77) (0.83) 0.17 (0.70) (0.61) (0.60) (0.05)

Funds Of Funds 0.74 0.31 0.86 0.91 0.72 0.92 0.73 0.80 0.92 0.79 0.91 (0.55) 1.00 0.61 0.60 (0.02) 0.56 0.63 0.37 0.25 DITMo CovdCall 0.53 (0.06) 0.66 0.67 0.36 0.70 0.60 0.37 0.71 0.63 0.74 (0.77) 0.61 1.00 0.92 (0.02) 0.86 0.70 0.71 0.15

SP500 Index 0.51 (0.02) 0.66 0.68 0.39 0.73 0.51 0.41 0.77 0.66 0.73 (0.83) 0.60 0.92 1.00 (0.09) 0.90 0.69 0.71 0.07

WFBIX Lehman Agg 0.16 0.14 (0.06) 0.05 (0.21) (0.08) 0.18 0.14 (0.09) 0.02 0.01 0.17 (0.02) (0.02) (0.09) 1.00 (0.10) 0.13 0.10 0.31

BXM CovdCall 0.52 (0.09) 0.63 0.65 0.46 0.69 0.50 0.34 0.71 0.63 0.70 (0.70) 0.56 0.86 0.90 (0.10) 1.00 0.70 0.66 0.07 CSHY High Yld 0.81 (0.07) 0.78 0.69 0.46 0.76 0.78 0.40 0.66 0.62 0.81 (0.61) 0.63 0.70 0.69 0.13 0.70 1.00 0.68 0.14

DWRTF REIT 0.42 0.01 0.52 0.47 0.30 0.50 0.46 0.27 0.49 0.44 0.54 (0.60) 0.37 0.71 0.71 0.10 0.66 0.68 1.00 0.14 GOLDS GOLD 0.20 0.38 0.08 0.23 (0.02) 0.10 0.22 0.49 0.16 0.16 0.19 (0.05) 0.25 0.15 0.07 0.31 0.07 0.14 0.14 1.00


Convert CTA Distressed Emerging Equity

Mkt Event Fixed Inc Global

Long/

Short Merger Relative Short Funds Of DITMo SP500 WFBIX BXM CSHY DWRTF GOLDS

Arbitrage Global Securities Markets Neutral Driven Arbitrage Macro Equity Arbitrage Value Selling Funds CovdCall Index Lehman

AGG CovdCall High Yld REIT GOLD

Convertible Arbitrage 1.00 (0.01) 0.84 0.83 0.50 0.86 0.93 0.58 0.78 0.72 0.94 (0.58) 0.81 0.65 0.62 0.22 0.61 0.86 0.49 0.19 CTA Global (0.01) 1.00 0.06 0.17 0.22 0.12 (0.07) 0.69 0.24 0.09 0.09 0.01 0.31 (0.03) 0.03 (0.02) (0.02) (0.11) (0.07) 0.41

Distressed Securities 0.84 0.06 1.00 0.89 0.68 0.97 0.86 0.61 0.90 0.73 0.94 (0.61) 0.88 0.72 0.72 (0.06) 0.69 0.79 0.56 0.02 Emerging Markets 0.83 0.17 0.89 1.00 0.63 0.91 0.82 0.78 0.94 0.74 0.94 (0.56) 0.93 0.69 0.70 0.09 0.67 0.73 0.49 0.15

Equity Mkt Neutral 0.50 0.22 0.68 0.63 1.00 0.70 0.53 0.55 0.68 0.51 0.64 (0.29) 0.71 0.38 0.44 (0.35) 0.52 0.49 0.30 (0.14) Event Driven 0.86 0.12 0.97 0.91 0.70 1.00 0.83 0.69 0.95 0.84 0.96 (0.64) 0.93 0.71 0.74 (0.04) 0.71 0.78 0.53 0.02

Fixed Inc Arbitrage 0.93 (0.07) 0.86 0.82 0.53 0.83 1.00 0.54 0.74 0.67 0.91 (0.58) 0.80 0.71 0.63 0.18 0.62 0.84 0.51 0.23 Global Macro 0.58 0.69 0.61 0.78 0.55 0.69 0.54 1.00 0.79 0.58 0.70 (0.40) 0.83 0.45 0.49 0.11 0.42 0.44 0.27 0.41

Long/Short Equity 0.78 0.24 0.90 0.94 0.68 0.95 0.74 0.79 1.00 0.81 0.92 (0.63) 0.93 0.70 0.77 (0.02) 0.72 0.70 0.51 0.06 Merger Arbitrage 0.72 0.09 0.73 0.74 0.51 0.84 0.67 0.58 0.81 1.00 0.81 (0.61) 0.80 0.65 0.68 0.09 0.66 0.68 0.48 0.03

Relative Value 0.94 0.09 0.94 0.94 0.64 0.96 0.91 0.70 0.92 0.81 1.00 (0.66) 0.93 0.76 0.74 0.09 0.72 0.84 0.56 0.13 Short Selling (0.58) 0.01 (0.61) (0.56) (0.29) (0.64) (0.58) (0.40) (0.63) (0.61) (0.66) 1.00 (0.54) (0.76) (0.80) 0.06 (0.68) (0.67) (0.68) (0.03)

Funds Of Funds 0.81 0.31 0.88 0.93 0.71 0.93 0.80 0.83 0.93 0.80 0.93 (0.54) 1.00 0.64 0.63 0.00 0.60 0.65 0.35 0.16 DITMo CovdCall 0.65 (0.03) 0.72 0.69 0.38 0.71 0.71 0.45 0.70 0.65 0.76 (0.76) 0.64 1.00 0.91 0.16 0.87 0.77 0.79 0.21

SP500 Index 0.62 0.03 0.72 0.70 0.44 0.74 0.63 0.49 0.77 0.68 0.74 (0.80) 0.63 0.91 1.00 0.04 0.91 0.75 0.81 0.09

WFBIX Lehman Agg 0.22 (0.02) (0.06) 0.09 (0.35) (0.04) 0.18 0.11 (0.02) 0.09 0.09 0.06 0.00 0.16 0.04 1.00 0.02 0.15 0.13 0.46

BXM CovdCall 0.61 (0.02) 0.69 0.67 0.52 0.71 0.62 0.42 0.72 0.66 0.72 (0.68) 0.60 0.87 0.91 0.02 1.00 0.76 0.77 0.06 CSHY High Yld 0.86 (0.11) 0.79 0.73 0.49 0.78 0.84 0.44 0.70 0.68 0.84 (0.67) 0.65 0.77 0.75 0.15 0.76 1.00 0.74 0.16

DWRTF REIT 0.49 (0.07) 0.56 0.49 0.30 0.53 0.51 0.27 0.51 0.48 0.56 (0.68) 0.35 0.79 0.81 0.13 0.77 0.74 1.00 0.10 GOLDS GOLD 0.19 0.41 0.02 0.15 (0.14) 0.02 0.23 0.41 0.06 0.03 0.13 (0.03) 0.16 0.21 0.09 0.46 0.06 0.16 0.10 1.00



Convertible CTA Distressed Emerging Equity Mkt Event Fixed Inc Global Long/Short Merger Relative Short Funds Of DITMo SP500 WFBIX BXM CSHY DWRTF GOLDS

Arbitrage Global Securities Markets Neutral Driven Arbitrage Macro Equity Arbitrage Value Selling Funds CovdCall Index Lehman Agg CovdCall High Yld REIT GOLD

Convertible Arbitrage 1.00 0.16 0.72 0.73 0.48 0.78 0.83 0.56 0.69 0.62 0.87 (0.47) 0.71 0.34 0.42 (0.10) 0.40 0.80 0.33 (0.11) CTA Global 0.16 1.00 0.23 0.32 0.31 0.31 0.13 0.81 0.39 0.32 0.28 (0.21) 0.54 0.27 0.27 0.10 0.22 0.12 0.19 0.55

Distressed Securities 0.72 0.23 1.00 0.84 0.75 0.97 0.79 0.60 0.87 0.65 0.91 (0.46) 0.89 0.58 0.59 (0.31) 0.50 0.61 0.42 (0.23) Emerging Markets 0.73 0.32 0.84 1.00 0.68 0.88 0.68 0.76 0.92 0.67 0.91 (0.42) 0.86 0.52 0.61 (0.07) 0.54 0.60 0.46 (0.13)

Equity Mkt Neutral 0.48 0.31 0.75 0.68 1.00 0.82 0.43 0.57 0.83 0.71 0.71 (0.31) 0.82 0.50 0.51 (0.32) 0.51 0.38 0.22 (0.17) Event Driven 0.78 0.31 0.97 0.88 0.82 1.00 0.75 0.69 0.94 0.76 0.96 (0.51) 0.93 0.60 0.65 (0.26) 0.60 0.66 0.45 (0.20)

Fixed Inc Arbitrage 0.83 0.13 0.79 0.68 0.43 0.75 1.00 0.51 0.59 0.48 0.81 (0.43) 0.68 0.40 0.42 (0.07) 0.32 0.66 0.31 (0.05) Global Macro 0.56 0.81 0.60 0.76 0.57 0.69 0.51 1.00 0.77 0.55 0.70 (0.45) 0.82 0.49 0.54 0.07 0.45 0.48 0.40 0.39

Long/Short Equity 0.69 0.39 0.87 0.92 0.83 0.94 0.59 0.77 1.00 0.78 0.92 (0.52) 0.91 0.65 0.72 (0.19) 0.68 0.60 0.53 (0.14) Merger Arbitrage 0.62 0.32 0.65 0.67 0.71 0.76 0.48 0.55 0.78 1.00 0.74 (0.44) 0.68 0.57 0.64 (0.03) 0.72 0.63 0.47 (0.21)

Relative Value 0.87 0.28 0.91 0.91 0.71 0.96 0.81 0.70 0.92 0.74 1.00 (0.58) 0.89 0.60 0.66 (0.18) 0.59 0.74 0.52 (0.17) Short Selling (0.47) (0.21) (0.46) (0.42) (0.31) (0.51) (0.43) (0.45) (0.52) (0.44) (0.58) 1.00 (0.44) (0.69) (0.71) 0.15 (0.55) (0.53) (0.61) 0.07

Funds Of Funds 0.71 0.54 0.89 0.86 0.82 0.93 0.68 0.82 0.91 0.68 0.89 (0.44) 1.00 0.49 0.54 (0.24) 0.47 0.49 0.29 (0.05) DITMo CovdCall 0.34 0.27 0.58 0.52 0.50 0.60 0.40 0.49 0.65 0.57 0.60 (0.69) 0.49 1.00 0.93 (0.00) 0.84 0.55 0.80 0.05

SP500 Index 0.42 0.27 0.59 0.61 0.51 0.65 0.42 0.54 0.72 0.64 0.66 (0.71) 0.54 0.93 1.00 (0.05) 0.90 0.61 0.81 0.04

WFBIX Lehman Agg (0.10) 0.10 (0.31) (0.07) (0.32) (0.26) (0.07) 0.07 (0.19) (0.03) (0.18) 0.15 (0.24) (0.00) (0.05) 1.00 (0.00) 0.02 0.19 0.32

BXM CovdCall 0.40 0.22 0.50 0.54 0.51 0.60 0.32 0.45 0.68 0.72 0.59 (0.55) 0.47 0.84 0.90 (0.00) 1.00 0.57 0.69 0.02 CSHY High Yld 0.80 0.12 0.61 0.60 0.38 0.66 0.66 0.48 0.60 0.63 0.74 (0.53) 0.49 0.55 0.61 0.02 0.57 1.00 0.64 0.04

DWRTF REIT 0.33 0.19 0.42 0.46 0.22 0.45 0.31 0.40 0.53 0.47 0.52 (0.61) 0.29 0.80 0.81 0.19 0.69 0.64 1.00 0.04 GOLDS GOLD (0.11) 0.55 (0.23) (0.13) (0.17) (0.20) (0.05) 0.39 (0.14) (0.21) (0.17) 0.07 (0.05) 0.05 0.04 0.32 0.02 0.04 0.04 1.00

HEDGE FUND STRATEGIES 1-YEAR CORRELATION MATRIX (Monthly 1Y ending 11/11) Convertible CTA Distressed Emerging Equity Mkt Event Fixed Inc Global Long/Short Merger Relative Short Funds Of DITMo SP500 WFBIX BXM CSHY DWRTF GOLDS

Arbitrage Global Securities Markets Neutral Driven Arbitrage Macro Equity Arbitrage Value Selling Funds CovdCall Index Lehman Agg CovdCall High Yld REIT GOLD

Convertible Arbitrage 1.00 0.28 0.93 0.73 0.83 0.92 0.83 0.50 0.87 0.85 0.95 (0.25) 0.84 0.44 0.45 (0.38) 0.45 0.52 0.34 (0.48) CTA Global 0.28 1.00 0.33 0.32 0.32 0.37 0.22 0.92 0.41 0.30 0.36 (0.36) 0.61 0.31 0.31 (0.11) 0.19 0.21 0.27 0.43

Distressed Securities 0.93 0.33 1.00 0.86 0.94 0.99 0.71 0.60 0.98 0.92 0.99 (0.16) 0.92 0.46 0.51 (0.41) 0.58 0.57 0.37 (0.46) Emerging Markets 0.73 0.32 0.86 1.00 0.87 0.85 0.39 0.64 0.92 0.71 0.83 0.16 0.89 0.06 0.18 (0.17) 0.29 0.29 0.08 (0.39)

Equity Mkt Neutral 0.83 0.32 0.94 0.87 1.00 0.95 0.63 0.59 0.95 0.93 0.94 (0.12) 0.88 0.46 0.51 (0.40) 0.61 0.55 0.36 (0.37) Event Driven 0.92 0.37 0.99 0.85 0.95 1.00 0.69 0.62 0.98 0.94 0.99 (0.15) 0.93 0.46 0.51 (0.40) 0.61 0.56 0.37 (0.43)

Fixed Inc Arbitrage 0.83 0.22 0.71 0.39 0.63 0.69 1.00 0.34 0.58 0.70 0.73 (0.43) 0.59 0.60 0.49 (0.20) 0.45 0.63 0.51 (0.33) Global Macro 0.50 0.92 0.60 0.64 0.59 0.62 0.34 1.00 0.68 0.50 0.61 (0.28) 0.83 0.28 0.32 (0.11) 0.25 0.29 0.26 0.21

Long/Short Equity 0.87 0.41 0.98 0.92 0.95 0.98 0.58 0.68 1.00 0.90 0.97 (0.06) 0.95 0.38 0.47 (0.38) 0.55 0.50 0.33 (0.38) Merger Arbitrage 0.85 0.30 0.92 0.71 0.93 0.94 0.70 0.50 0.90 1.00 0.92 (0.17) 0.79 0.62 0.69 (0.51) 0.75 0.64 0.52 (0.34)

Relative Value 0.95 0.36 0.99 0.83 0.94 0.99 0.73 0.61 0.97 0.92 1.00 (0.21) 0.93 0.46 0.49 (0.41) 0.56 0.53 0.34 (0.45) Short Selling (0.25) (0.36) (0.16) 0.16 (0.12) (0.15) (0.43) (0.28) (0.06) (0.17) (0.21) 1.00 (0.19) (0.64) (0.38) 0.45 (0.21) (0.30) (0.30) (0.12)

Funds Of Funds 0.84 0.61 0.92 0.89 0.88 0.93 0.59 0.83 0.95 0.79 0.93 (0.19) 1.00 0.31 0.34 (0.28) 0.40 0.39 0.22 (0.30) DITMo CovdCall 0.44 0.31 0.46 0.06 0.46 0.46 0.60 0.28 0.38 0.62 0.46 (0.64) 0.31 1.00 0.94 (0.53) 0.84 0.86 0.87 0.20

SP500 Index 0.45 0.31 0.51 0.18 0.51 0.51 0.49 0.32 0.47 0.69 0.49 (0.38) 0.34 0.94 1.00 (0.50) 0.92 0.90 0.92 0.25

WFBIX Lehman Agg (0.38) (0.11) (0.41) (0.17) (0.40) (0.40) (0.20) (0.11) (0.38) (0.51) (0.41) 0.45 (0.28) (0.53) (0.50) 1.00 (0.42) (0.26) (0.15) 0.31

BXM CovdCall 0.45 0.19 0.58 0.29 0.61 0.61 0.45 0.25 0.55 0.75 0.56 (0.21) 0.40 0.84 0.92 (0.42) 1.00 0.87 0.84 0.08 CSHY High Yld 0.52 0.21 0.57 0.29 0.55 0.56 0.63 0.29 0.50 0.64 0.53 (0.30) 0.39 0.86 0.90 (0.26) 0.87 1.00 0.94 0.15

DWRTF REIT 0.34 0.27 0.37 0.08 0.36 0.37 0.51 0.26 0.33 0.52 0.34 (0.30) 0.22 0.87 0.92 (0.15) 0.84 0.94 1.00 0.40 GOLDS GOLD (0.48) 0.43 (0.46) (0.39) (0.37) (0.43) (0.33) 0.21 (0.38) (0.34) (0.45) (0.12) (0.30) 0.20 0.25 0.31 0.08 0.15 0.40 1.00


Hedge Strategies / Indexes (10Y ending 11/11)

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

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M

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R

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Annualized Monthly Standard Deviation

Hedge Fund / Indexes (10Y ending 11/11)

Convertible Arbitrage

CTA Global


Emerging Markets


Event Driven


Global Macro

Long/Short Equity

Merger Arbitrage

Relative Value

Short Selling

Funds Of Funds

DITMo

SP500

Lehman AGG

BXMCovdCall

High Yld

REIT

GOLD


Annualized RETURN PROBABILITY CHART (Discrete Monthly 10Y ending 10/11) Mo. Return Convertible CTA Distressed Emerging EquityMkt Event Fixed Inc Global L/Short Merger Relative Short Funds Of DITMo SP500 WFBIX BXM CSHY DWRFT GOLDS

= or > Arbitrage Global Securities Markets Neutral Driven Arbitrage Macro Equity Arbitrage Value Selling Funds CovdCall Index Lehman Agg CovdCall HiYield REIT GOLD

14% 0% 1% 6% 30% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 0% 2% 9% 27% 89%

13% 0% 3% 13% 39% 0% 1% 0% 0% 1% 0% 0% 0% 0% 0% 2% 0% 3% 15% 31% 92%

12% 1% 6% 25% 50% 0% 4% 0% 0% 2% 0% 0% 1% 0% 0% 3% 0% 5% 22% 35% 94%

11% 2% 11% 41% 61% 0% 10% 0% 1% 5% 0% 0% 1% 0% 0% 5% 0% 7% 32% 39% 96%

10% 5% 19% 59% 71% 0% 21% 0% 5% 10% 0% 2% 2% 0% 2% 7% 0% 11% 43% 43% 97%

9% 11% 30% 75% 79% 0% 37% 2% 16% 19% 0% 6% 3% 0% 7% 10% 0% 16% 54% 47% 98%

8% 20% 43% 87% 86% 0% 56% 9% 37% 31% 2% 18% 5% 1% 19% 14% 0% 23% 66% 52% 99%

7% 33% 56% 94% 92% 1% 73% 23% 62% 47% 13% 38% 8% 5% 39% 18% 0% 31% 76% 56% 99%

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© 2011 RENOVATIO ASSET MANAGEMENT Highlight is the Annualized Return at > or = 95% Confidence Data Source: Edhec Risk Institute; SPX/BXM/WFBIX/CSHY/DWRFT/GOLDS Comdty Index Data by Bloomberg, LP; DITMo provided by Renovatio Asset Mgt

Annualized RISK PROBABILITY CHART (Discrete χ2 Monthly 10Y ending 10/11) Std Dev. Convertible CTA Distressed Emerging EquityMkt Event Fixed Inc Global L/Short Merger Relative Short Funds Of DITMo SP500 WFBIX BXM CSHY DWRFT GOLDS

is less than: Arbitrage Global Securities Markets Neutral Driven Arbitrage Macro Equity Arbitrage Value Selling Funds CovdCall Index Lehman Agg CovdCall HiYield REIT GOLD

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17% 100% 99% 100% 96% 100% 100% 100% 100% 99% 100% 100% 70% 100% 100% 42% 100% 71% 99% 5% 4%

16% 100% 99% 99% 94% 100% 100% 100% 100% 98% 100% 100% 61% 100% 100% 31% 100% 62% 99% 2% 2%

15% 100% 98% 99% 91% 100% 99% 100% 100% 97% 100% 100% 50% 100% 100% 21% 100% 52% 98% 1% 1%

14% 100% 97% 98% 87% 100% 99% 100% 100% 95% 100% 100% 38% 100% 100% 13% 100% 40% 96% 0% 0%

13% 100% 95% 97% 80% 100% 98% 100% 100% 92% 100% 100% 26% 100% 100% 6% 100% 27% 94% 0% 0%

12% 100% 92% 95% 70% 100% 96% 100% 100% 87% 100% 100% 15% 100% 100% 2% 100% 16% 89% 0% 0%

11% 100% 86% 91% 57% 100% 93% 100% 100% 79% 100% 100% 7% 99% 100% 1% 100% 7% 82% 0% 0%

10% 100% 76% 84% 40% 100% 88% 100% 100% 67% 100% 100% 2% 99% 100% 0% 100% 2% 71% 0% 0%

9% 99% 61% 73% 23% 100% 78% 100% 99% 49% 100% 100% 0% 97% 100% 0% 100% 0% 55% 0% 0%

8% 98% 41% 55% 9% 100% 62% 100% 97% 29% 100% 99% 0% 94% 99% 0% 100% 0% 34% 0% 0%

7% 95% 20% 32% 2% 100% 39% 100% 93% 11% 100% 98% 0% 86% 98% 0% 100% 0% 15% 0% 0%

6% 87% 5% 11% 0% 99% 15% 100% 82% 2% 99% 94% 0% 69% 95% 0% 99% 0% 3% 0% 0%

5% 66% 0% 1% 0% 95% 2% 99% 58% 0% 98% 83% 0% 39% 85% 0% 97% 0% 0% 0% 0%

4% 29% 0% 0% 0% 80% 0% 96% 21% 0% 90% 52% 0% 8% 56% 0% 87% 0% 0% 0% 0%

3% 2% 0% 0% 0% 36% 0% 79% 1% 0% 56% 9% 0% 0% 12% 0% 50% 0% 0% 0% 0%

2.5% 0% 0% 0% 0% 10% 0% 52% 0% 0% 25% 1% 0% 0% 1% 0% 20% 0% 0% 0% 0%



0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

10Yr StdDev

5Yr StdDev

3Yr StdDev

1Yr StdDev

10, 5. 3. 1 Year Annualized Standard Deviation

(ending Nov 2011)

20 Hedge Strategies and Indexes Hedge Strategies Data Source: Edhec Risk Institute

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

10Yr Return

5Yr Return

3Yr Return

1Yr Return

10, 5, 3, 1Yr Annual Returns (end Nov 2011)



-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

10Yr Return

10Yr StdDev

5Yr Return

5Yr StdDev

10 and 5 Year Annual Returns v. Std .Deviations

(end Nov 2011)


-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

3Yr Return

3Yr StdDev

1Yr Return

1Yr StdDev

3 and 1 Year Annual Returns v. Std. Deviations

(end Nov 2011)



$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

31/1

2/20

01

31/0

3/20

02

30/0

6/20

02

30/0

9/20

02

31/1

2/20

02

31/0

3/20

03

30/0

6/20

03

30/0

9/20

03

31/1

2/20

03

31/0

3/20

04

30/0

6/20

04

30/0

9/20

04

31/1

2/20

04

31/0

3/20

05

30/0

6/20

05

30/0

9/20

05

31/1

2/20

05

31/0

3/20

06

30/0

6/20

06

30/0

9/20

06

31/1

2/20

06

31/0

3/20

07

30/0

6/20

07

30/0

9/20

07

31/1

2/20

07

31/0

3/20

08

30/0

6/20

08

30/0

9/20

08

31/1

2/20

08

31/0

3/20

09

30/0

6/20

09

30/0

9/20

09

31/1

2/20

09

31/0

3/20

10

30/0

6/20

10

30/0

9/20

10

31/1

2/20

10

31/0

3/20

11

30/0

6/20

11

30/0

9/20

11

DITMo

SPX

Funds Of Funds

High Yld

REIT

VAMI: SPX, FoHF, HYB, REIT and

DITMo® (DITM Short Expiry Covered Calls)

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800

$1,900

$2,000

31

/12

/20

01

31

/03

/20

02

30

/06

/20

02

30

/09

/20

02

31

/12

/20

02

31

/03

/20

03

30

/06

/20

03

30

/09

/20

03

31

/12

/20

03

31

/03

/20

04

30

/06

/20

04

30

/09

/20

04

31

/12

/20

04

31

/03

/20

05

30

/06

/20

05

30

/09

/20

05

31

/12

/20

05

31

/03

/20

06

30

/06

/20

06

30

/09

/20

06

31

/12

/20

06

31

/03

/20

07

30

/06

/20

07

30

/09

/20

07

31

/12

/20

07

31

/03

/20

08

30

/06

/20

08

30

/09

/20

08

31

/12

/20

08

31

/03

/20

09

30

/06

/20

09

30

/09

/20

09

31

/12

/20

09

31

/03

/20

10

30

/06

/20

10

30

/09

/20

10

31

/12

/20

10

31

/03

/20

11

30

/06

/20

11

30

/09

/20

11

DITMo

Relative Value

VAMI: 10 Year : Relative Value vs DITMo®

DITM Short Expiry Covered Calls

DITMo® is a version of a Buy/Write Strategy used

for income and may be classified as Relative Value

10 Yrs Ending

Nov 2011

10 Yrs Ending

Nov 2011


2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD 11/11 Short Selling Emerging Markets REIT GOLD REIT GOLD Short Selling High Yld GOLD GOLD

GOLD High Yld Distressed Securities Emerging Markets GOLD Emerging Markets CTA Global Convertible Arbitrage REIT Short Selling

CTA Global REIT Emerging Markets Long/Short Equity Emerging Markets Global Macro GOLD Emerging Markets High Yld Distressed Securities

Convertible Arbitrage Distressed Securities Event Driven Global Macro Event Driven Long/Short Equity Lehman AGG Distressed Securities Distressed Securities DITMo

Fixed Income Arbitrage SP500 High Yld DITMo Distressed Securities Funds Of Funds Merger Arbitrage BXMCovdCall SP500 Fixed Income Arbitrage

Distressed Securities Event Driven DITMo Distressed Securities Merger Arbitrage CTA Global Global Macro Event Driven Convertible Arbitrage Equity Market Neutral

Emerging Markets BXMCovdCall SP500 REIT SP500 Event Driven Equity Market Neutral Fixed Income Arbitrage Event Driven Emerging Markets

Global Macro GOLD Long/Short Equity Event Driven BXMCovdCall DITMo DITMo GOLD Emerging Markets Merger Arbitrage

Equity Market Neutral Long/Short Equity BXMCovdCall Short Selling Convertible Arbitrage Relative Value Relative Value SP500 Fixed Income Arbitrage Long/Short Equity

Lehman AGG Global Macro Funds Of Funds Funds Of Funds DITMo Merger Arbitrage Fixed Income Arbitrage Relative Value Relative Value Relative Value

High Yld DITMo Fixed Income Arbitrage Equity Market Neutral High Yld Equity Market Neutral Event Driven REIT CTA Global Event Driven

Relative Value Relative Value Relative Value Relative Value Relative Value Short Selling Long/Short Equity Long/Short Equity Long/Short Equity Lehman AGG

Funds Of Funds CTA Global GOLD Merger Arbitrage Long/Short Equity Distressed Securities Funds Of Funds Funds Of Funds DITMo High Yld

Merger Arbitrage Funds Of Funds CTA Global Fixed Income Arbitrage Funds Of Funds BXMCovdCall Distressed Securities Global Macro Global Macro Convertible Arbitrage

Event Driven Convertible Arbitrage Merger Arbitrage BXMCovdCall Global Macro Fixed Income Arbitrage High Yld Merger Arbitrage Merger Arbitrage BXMCovdCall

DITMo Fixed Income Arbitrage Equity Market Neutral SP500 Equity Market Neutral Convertible Arbitrage Convertible Arbitrage DITMo BXMCovdCall Global Macro

REIT Merger Arbitrage Global Macro High Yld Fixed Income Arbitrage SP500 BXMCovdCall Equity Market Neutral Equity Market Neutral REIT

Long/Short Equity Equity Market Neutral Convertible Arbitrage CTA Global CTA Global High Yld Emerging Markets Lehman AGG Funds Of Funds CTA Global

BXMCovdCall Lehman AGG Lehman AGG Convertible Arbitrage Lehman AGG Lehman AGG SP500 CTA Global Lehman AGG Funds Of Funds

SP500 Short Selling Short Selling Lehman AGG Short Selling REIT REIT Short Selling Short Selling SP500

Date 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD 11/11

GOLD 24.77% 19.37% 5.54% 17.92% 23.15% 30.98% 5.77% 24.36% 29.52% 22.92%

Short Selling 27.27% -23.87% -4.66% 7.28% -8.28% 7.40% 31.52% -20.53% -16.62% 22.79%

Distressed Securities 5.86% 27.34% 17.89% 9.23% 15.26% 7.18% -21.29% 30.40% 14.09% 5.60%

DITMo -3.02% 13.45% 10.87% 9.33% 12.01% 9.50% -8.93% 8.39% 8.66% 5.33%

Fixed Income Arbitrage 7.56% 8.35% 6.26% 4.64% 7.43% 6.01% -17.40% 24.49% 9.98% 4.42%

Equity Market Neutral 4.71% 6.29% 4.71% 6.53% 7.47% 8.34% -8.36% 5.07% 5.37% 4.10%

Emerging Markets 5.76% 31.27% 14.30% 17.18% 18.84% 20.79% -33.65% 37.87% 11.18% 3.85%

Merger Arbitrage -0.90% 8.34% 4.83% 4.95% 13.71% 9.09% -2.35% 9.97% 6.45% 3.76%

Long/Short Equity -6.38% 19.31% 8.62% 11.33% 11.76% 10.56% -18.92% 20.01% 9.76% 3.71%

Relative Value 2.77% 12.15% 5.71% 5.24% 11.85% 9.43% -14.91% 21.16% 9.97% 3.68%

Event Driven -1.08% 20.48% 12.43% 7.31% 15.47% 9.62% -18.49% 25.74% 11.54% 3.48%

Lehman AGG 3.89% -1.18% -0.90% -2.92% -0.52% 1.56% 0.82% 0.81% 2.73% 3.15%

High Yld 3.10% 27.94% 11.95% 2.26% 11.91% 2.65% -26.17% 54.22% 14.42% 2.92%

Convertible Arbitrage 8.60% 10.80% 1.10% -1.92% 12.33% 3.86% -26.50% 46.78% 12.28% 2.86%

BXMCovdCall -7.64% 19.37% 8.30% 4.25% 13.33% 6.59% -28.65% 25.91% 5.86% 2.46%

Global Macro 4.96% 17.25% 4.60% 9.49% 7.50% 12.93% -3.22% 10.39% 8.47% 1.32%

REIT -3.04% 27.75% 26.45% 8.38% 30.52% -20.97% -42.54% 21.03% 23.32% 1.28%

CTA Global 14.57% 11.64% 5.17% -0.33% 5.87% 9.91% 15.61% -1.91% 9.78% 0.53%

Funds Of Funds 1.26% 11.45% 7.08% 6.81% 11.24% 10.07% -19.72% 10.67% 5.21% -0.27%

SP500 -23.37% 26.38% 8.99% 3.00% 13.62% 3.53% -38.49% 23.45% 12.78% -0.85%


Hedge Strategy Classification Definitions

1 -Convertible Arbitrage Convertible Arbitrage funds attempt to exploit anomalies in prices of corporate securities that are convertible into common stock (convertible bonds, warrants and convertible preferred stock). Convertible bonds tend to be under-priced because of market segmentation (i.e. investors discount securities that are likely to change types). Managers typically buy (or sometimes sell) these securities and then hedge part or all of the associated risks by shorting the stock. If the issuer does well, the convertible bond behaves like a stock; if the issuer does poorly, the convertible bond behaves like distressed debt. Delta neutrality is often targeted. Over-hedging is appropriate when there is con-cern about default as the excess short position may partially hedge against a reduction in credit quality. As a matter of fact, an ever growing number of Convertible Arbitrage managers turn to arbitrage credit risk rather than implicit volatility. Convertible Arbitrage is a Relative Value strategy. Hence Convertible Arbitrage funds may be used as “Risk Reducers” in portfolios. 2 -CTA Global Commodity Trading Advisers, commonly referred as to CTA Global funds or Managed Futures, invest in listed financial and commodity markets as well as in currency markets all over the world. Most of CTA Global funds play on market momentum (i.e. trend followers) or follow discretionary strategies. The others either use quantitative, fundamental or technical analysis. The great majority of these funds are specialized “boutiques” relying on proprietary trading techniques. Most of CTA Global funds use leverage either explicitly or implicitly (through the use of derivatives) to increase the impact of market moves on their portfolios. CTA Global funds’ performances tend to offer a relatively good protection against market downturns. As a consequence, CTA Global funds may be used as “Risk Reducers” in portfolios. 3 -Distressed Securities Distressed Securities funds attempt to benefit from the securities of undervalued companies which are subject to financial distress (i.e. restructuring, liquidation, bankruptcy, etc.). A typical strategy consists of buying the distressed company’s securities (from the senior secured debt to the ordinary shares) at a discount price, holding them through the whole restructuring process, and selling them after they have appreciated again. The performances of these funds depends on their ability to assess the probability of success of the different restructuring options, which in turn allows them to identify the securities that may be interesting in the case of an arbitrage strategy and the eventual amount of the investment to be made. Distressed Securities strategies are generally characterized by a relatively high return and a significant correlation with major bond and/or stock indexes. Consequently, Distressed Securities strategies may be used as “Return Enhancers” in portfolios. 4-Emerging Markets Emerging Markets funds invest in equity or debt of emerging (less mature i.e. less efficient and less liquid) markets, which tend to have higher inflation and volatile growth. Some Emerging Markets funds allocate all their capital to individual regions while others diversify their investments and shift their weightings among these regions according to their market views. Short selling is not permitted in many emerging markets, and, therefore, effective hedging is often not available, although Brady debt can be partially hedged via U.S. Treasury futures and currency markets. Emerging Markets strategies are generally character-ized by a relatively high return and a significant correlation with major bond and/or stock indexes. Hence, Emerging Markets strategies may be used as “Return Enhancers” in portfolios. 5 -Equity Market Neutral Equity Market Neutral funds take long and short positions in such a way that the impact of the overall market is minimized. Market neutral can imply dollar neutral, beta neutral or both. A dollar neutral strategy has zero net invest-ment (i.e., equal dollar amounts in long and short positions). A beta neutral strategy targets a zero total portfolio beta (i.e., the beta of the long side equals the beta of the short side). While dollar neutrality has the virtue of simplici-ty, beta neutrality better defines a strategy that is uncorrelated with the market return. Many practitioners of market-neutral long/short equity trading balance their longs and shorts in the same sector or industry. By being sector neutral, they avoid the risk of market swings affecting some industries or sectors differently than others. Equity Market Neutral is a Relative Value strategy. Hence Equity Market Neutral funds may be used as “Risk Reducers” in

6-Event Driven Event Driven funds tend to take advantage of pricing anomalies resulting from corporate transactions and special situations. Event Driven funds’ success depends on their ability to assess the probability of failure / success of such corporate events. This strategy includes: Ø Deal Arbitrage (long/short equity securities of companies involved in corporate transactions) Ø Bankruptcy/Distressed (long undervalued securities of companies that are usually in financial distress) Ø Multi-strategy (deals with both deal arbitrage and bankruptcy) Event Driven strategies are generally characterized by a relatively high return and a significant correlation with major stock and / or bond indexes. Consequently, Event Driven strategies may be used as “Return Enhancers” in portfolios. 7-Fixed Income Arbitrage Fixed Income Arbitrage funds try to exploit pricing anomalies within Fixed Income Markets. They generally attempt to hedge out most interest rate risk by taking offsetting positions in similar securities (government bonds, corpo-rate bonds, asset-backed securities, etc.). There are two major categories of fixed income arbitrage strategies: relative value and market neutral. > Relative value: This strategy seeks to construct a portfolio which takes advantage of the pricing anomalies detected while maintaining a diversified risk profile. Neutrality with regard to the duration is not systematically targeted. The main objective is to maximize the portfolio’s return while controlling the risk. > Market neutral: This strategy involves taking advantage of pricing anomalies between two or more sectors in the fixed income market, or between different securities in the same sector. The long and short positions are generally rebalanced in such a way as to maintain neutrality with regard to the market risk or the duration. Fixed Income Arbitrage is a Relative Value strategy. Hence Fixed Income Arbitrage funds may be used as “Risk Reducers” in portfolios.


9-Long/Short Equity Long/Short Equity funds invest in both long and short equity portfolios. They do not seek a permanently neutral position in terms of market risk (beta or dollar - neutral), even though that may occur temporarily, when the manager has no "feel" for the market. Long/Short Equity funds may switch from a long net position to a short net position, carry out arbitrage between cyclical stocks and growth stocks, or large capitalization firms and more modest-sized firms, etc. The investments generally concern regional stocks, or, more often, very specific sectors. Since Long / Short Equity funds generate a large part of their profits thanks to their long bias, Long/Short Equity may be regarded as a Directional strategy. Long / Short Equity funds may use leverage to enhance returns. As a result, Long / Short Equity funds are generally characterized by a relatively high return and a significant correlation with major stock indexes. Consequently, Long/Short Equity funds may be used as “Return Enhancers” in portfolios.

10-Merger Arbitrage Merger Arbitrage funds (which may also be referred as to Risk Arbitrage or Deal Arbitrage funds) invest in companies involved in a Merger or Acquisition process. They typically go long the targeted company and sell short the stock of the acquiring company. This strategy aims to capture the price spread (i.e. Merger Spread) between the current market price of the targeted company and the price offered by the acquiring firm. The performances of Merger Arbitrage funds greatly depend on their ability to assess the probability of success / failure of the corporate transactions. The exposure of Merger Arbitrage funds to market risk greatly depends on the transactions arrangement. Merger Arbitrage strategies are generally characterized by a relatively high return and a significant correlation with major stock indexes. Consequently, Merger Arbitrage strategies may be used as “Return Enhancers” in portfolios. 11-Relative Value The objective of Relative Value funds is to take advantage of the relative price differentials between related instruments (stocks, bonds…). This strategy usually includes Fixed Income Arbitrage / Equity Market Neutral / Convertible Arbitrage sub-indexes (see their respective sections for more details on the strategies). Relative Value strategies are generally characterized by low return and a correlation with major bond and stock indexes that is close to 0. Consequently, Relative Value strategies may be used as “Risk Reducers” in portfolios. 12-Short Selling Short Selling funds sell securities short in anticipation of being able to buy them back in the future at a lower price. The manager estimates that the securities, or the market, are overvalued or anticipates earnings disappointments, often due to accounting irregularities, new competition, change of management, etc. Short Selling funds are often used as a hedge to offset long-only portfolios and by those who feel that the market is approaching a bearish cycle. Short Selling funds are by nature strongly exposed to extreme risks since their short positions present infinite loss potential. As a result, short selling is strictly regulated and should be regarded with caution. Short Selling is a Directional strategy generally characterized by relatively volatile returns and a signifi-cant correlation with major stock indexes Due to their short bias Short Selling funds may be used as “Risk Diversifiers” in portfolios. 13-Fund of Funds Funds of Funds are portfolios of Hedge Funds offering the investor exposure to a wide range of alternative investment styles and strategies. Funds of Funds generally allocate capital to 15-30 hedge funds to achieve efficient risk diversification. Nevertheless a smaller number of funds may be used to concentrate capital on a particular strategy. Such funds of hedge funds aim to post high returns and are less concerned by manager and event risks. Conversely, a larger number of funds may be used to control for extreme risks. Most Funds of Funds invest in portfolios diversified by manager and strategy which enable them to produce consistent absolute returns with low levels of risk. As a result, Funds of Funds are often used as portable alpha strategies or as substitutes for cash in portfolios. Funds of Funds have very compelling characteristics since they provide hedge fund investors with access to experienced management, enhanced liquidity and less risk of default. They may also provide hedge funds investors with access to closed funds. The double fee structure is the main flip side of investing in funds of funds.

(Source: EDHEC-RISK Asset Management Research / www.edhec-research.com)

8-Global Macro Global Macro funds aim to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates, in turn affecting currency, stock, and bond markets. They participate in all major markets – equities, bonds, currencies and commodities – though not always at the same time. Global Macro funds use leverage and derivatives to accentuate the impact of market moves. They also utilize hedging, but the leveraged directional investments tend to have the largest impact on performance. Very frequently, Global Macro funds dilute the risk by investing in other directional funds; however, some funds may also focus their efforts on a reduced number of bets. Most global macro funds follow a top/down type management process. As a result, the importance of stock picking is reduced in comparison with the asset allocation process (both strate-gic and tactical). Due to a large exposure to stock, bond, currency and other markets, Global Macro is regarded as a Multi-Directional strategy. Consequently, Global Macro funds may be used as “Return Diversifiers” in

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