20130822+sciens+fund+of+funds+management+holdings+ltd

Fund & Asset Manager Rating Group

www.fitchratings.com 22 August 2013

Fund of Hedge Fund Managers / Caymans

Sciens Fund of Funds Management Holdings Ltd Full Rating Report

Key Rating Drivers

Solid Adaptability, Staff Turnover: Sciens Fund of Funds Management Holdings Ltd (Sciens)

has continued to expand and diversify its managed accounts offering, which is at the centre of

its growth strategy. Operating profitability has increased in 2012 from the 2011 low levels.

Sciens demonstrates an overall solid organisational structure and governance mechanisms,

with adequate separation of businesses and functions. The continued staffing turnover and

attrition over the past 12 months has led to the current low levels of staff relative to business

size. Hiring is in progress to support senior staff.

Sound Control Environment: Control functions consist of a dedicated risk team within a

separate affiliate and compliance officers. Solid investment risk management and compliance

monitoring are supported by solid data management, risk analytics and reporting capabilities.

Operational risk management is well embedded throughout the organisation and benefits from

automated workflows, documented procedures and system-based controls.

Disciplined Formalised Process: The investment process is well documented based on a

robust blend of fundamental and quantitative analysis. The competitive advantage of the funds

research and portfolio construction stems from deep access to underlying hedge fund data and

risk analysis capabilities.

Strong Administration Capabilities: Sciens's operations platform is robust, enabling a

controlled, fully automated implementation of workflows with a variety of service providers.

Funds of hedge funds (FoHF) investment administration is handled by Sigma Asset

Management (Guernsey) Limited (Sigma), the manager of the funds.

Leading IT Platform: A proprietary integrated technological platform, risk analytics and

centralised in-house data management capabilities are the companys key strengths. Sciens

also makes available to investors an interactive look-through application that allows them to

perform in-depth analysis of managed accounts.

Category Scores

Good Standards High Standards Highest Standards

Company

Controls

Investments

Operations

Technology

Source: Fitch

Profile

Alternative Asset Manager: Sciens Capital Management LLC (SCM) and its predecessor

firms were founded in 1988 and began alternative asset management activities in 1994. Sciens

is owned by John Rigas (71.5%). As of 30 June 2013, the group managed and advised on

about USD5.6bn of assets. Assets under management (AUM) of FoHF and managed accounts

were USD3.4bn (both in direct investments and advisory). Around forty of SCMs 100-plus

employees are dedicated to the FoHF and managed account platform (MAP).

Asset Manager Rating

Sciens Funds of Funds Management rating was converted to High Standards, Stable Outlook from M2- on 22 April 2013. The rating was affirmed on 24 June 2013.

Outlook Stable

Profile

Asset under management (end 2012)

USD5.2bn

Operating EBITA 2012 Undisclosed Date of creation 1988 Domiciliation Cayman Islands

(Sciens) UK (SCL)

Ownership John Rigas (71.5%), other Sciens affiliates (28.5%)

Total staff 100 (around 40 for Sciens FoF Management Ltd)

Investment professionals 7 (for FoHF)

Analysts

Manuel Arrive, CFA +33 1 44 29 91 77 [email protected] Alastair Sewell +44 20 3530 1147 [email protected]


Sciens Fund of Funds Management Holdings Ltd

August 2013 2

AUM Breakdowns

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2007 2008 2009 2010 2011 2012

FoHF Managed accounts FoHF advisory Private equity

By Asset Type

(USDm)

Source: Sciens

Asia & Middle

East

28.5%

Americas

0.2%

Europe

59.8%

Other

11.5%

By Investor Location(% of total FoHF AUM (including Advisory)

As at December 2012)

Source: Sciens

Opportunistic

19.3%

Global macro

0.5%

Managed

futures

0.7%

Relative value

19.3%

Equity

38.7%

Fund of

managed

accounts

10.7%

Alternative beta

10.7%

By Strategy (Managed Accounts)(As at December 2012)

Source: Sciens

Thematic

FofHF

10%

Multo-Strategy

90%

By Strategy (FoHF)(As at December 2012)

Source: Sciens

Company Structure

Sciens Fund of Fund Management Holdings Group at 31 March 2013

Source: Transaction documents

Sciens Fund of Funds Management Holdings Ltd.

Cayman

Sciens Investment Management LLC

Delaware

Sciens Capital Limited England

Sigma Asset Management (Guernsey)

Limited Guernsey

Sciens FOF Consulting Group

Ltd. Cayman

Sciens Offshore Management Ltd.

Cayman

Sciens CFO I Management Ltd.

Cayman

Sciens Fund of Funds

Management Ltd. Cayman

Sciens Group Fund Services

Limited Guernsey

Sciens Group Risk Services Limited

England

John Rigas

Sciens FOF Offshore Holdings

Ltd.Cayman

71.5%28.5%

Ownership 100% Unless Stated Dormant and Liquidating Companies Omitted

Rating Scope

Related Criteria

Asset Manager Rating Criteria (April 2013)



August 2013 3

Company High Standards

Key Findings

Well-established, specialist, privately owned, alternative asset manager, hedge fund investor since 1994.

Consolidator of the industry between 2008 and 2010, now focusing on organic growth (through MAP).

Low albeit improving profitability of FoHF and MAP business at current AUM levels (accelerating growth of MAP in 2013).

Structural independence of firm and its affiliates (hosting separate businesses and functions), complemented by appropriate

governance practices.

Staff turnover and attrition since 2011 allowed a reduction of personnel costs but increased key person dependency and individual

workload. Senior staff is in place with hiring being in progress to support them further.

Sciens has a concentrated client base.

Shareholding and Financial Standing

Privately owned

alternative asset manager

SCM is an independent New York-based alternative asset manager established in 1994, originally

focused on private equity. The predecessor firms of SCM, however, trace their roots back to 1988.

The founder and ultimate owner of SCM is John Rigas. He is now chairman and chief executive officer

of SCM. John Rigas has overall responsibility for the firm and its management.

As at 30 June 2013, the group managed assets in private equity, venture capital, structured finance,

real estate, aviation and FoHF for a total of USD5.6bn.

Activities segregated in

separate affiliates

The FoHF business is hosted by the dedicated affiliate, Sciens, incorporated in the Cayman Islands.

Sciens Group Fund Services Limited (SGFS) is a managed account services provider and the manager

of Sciens Group Alternative Strategies PCC Limited, a Guernsey-based managed account platform.

Both these entities were acquired from Partners Group AG (and rebranded) in April 2010.

Sciens Capital Limited (SCL) serves as investment advisor to Sigma, its affiliated offshore fund of funds

investment manager, incorporated in Guernsey. Sigma is dedicated to management, operations,

compliance with the funds policies and legal due diligence on the underlying hedge funds for the FoHF

business.

Sciens Group Risk Services Limited (SGRS) provides risk management services.

Sciens Management LLC is the dedicated private equity affiliate of the group.

Low profitability, AUM

growth in 2013

Fitch has reviewed the consolidated audited financial statements of Sciens. Fitch did not review the

financial statements of SCM and other affiliates. Based on the information provided, Fitch concluded

that the financial condition of Sciens is adequate.

The FoHF and MAP business show a low profitability and cash flow generation at current AUM levels.

However, operational profitability has increased in 2012, largely due to lower costs. In 2013, AUM

growth (driven by MAP AUM increasing from USD504m to over USD763m as at end of June), and

performance fees increasing should contribute to higher revenues.

Despite the positive momentum in AUM growth in the year to date, a major challenge for the company

is to accelerate fund raising to increase the revenue base and profitability.



August 2013 4

Company (continued) High Standards

Experience

FoHF manager since 1994,

MAP since 2010

FoHF activities started in 2003 at Sciens and in 1994 at Atlas, a London-based FoHF advisor, acquired

by Sciens in September 2008. Through Atlas, Sciens has a 19-year track record.

After 2008, Sciens has defined and executed in a timely and appropriate manner its external

growth strategy to adapt to structural changes in the industry.

One of the key drivers of the acquisition of Atlas in 2008 was the companys technological and

operational platform. Subsequently, Sciens was appointed in April 2009 as sub-advisor of the residual

FoHF activities of Fairfield Greenwich Group, which totalled USD2.4bn at the time. In April 2010, Sciens

acquired the managed account platform of Partners Group AG.

Sciens management swiftly restructured the firm around the core Atlas legacy platform and MAP. In

Fitchs view, Sciens has demonstrated its ability to consolidate teams and platforms.

Sciens has diversified the managed accounts it offers, which, along with a focused, rationalised range

of liquid traditional FoHFs, is at the centre of its growth strategy.

Diversification of investor

base in progress

Sciens investor base consists of around 120 clients (mostly global institutions), as at June 2013. It is

diversified by region and by client type (see charts on page 2), but shows some concentration, as the

five largest clients accounted for about 75% of AUM as of 30 June 2013.

The largest FoHF client represents about 30% of FoHF AUM. The MAP has 38 institutional investors as

at June 2013. The largest MAP investor represents 40% of AUM.

Sciens has gained three and 26 new clients for FoHF (including advisory) and MAP, in the year to June

2013.

Governance and Independence

Appropriate company

supervision

SGFS is regulated by the Guernsey Financial Service Commission (GFSC) in Guernsey and by the

Commodities and Futures Trading Commission (CFTC) in the US. SCL is regulated by the Financial

Conduct Authority (FCA), the Securities & Exchange Commission (SEC) and the CFTC. Sigma is

regulated by the GFSC, the SEC and the CFTC.

None of the FCA, the SEC or the CFTC has inspected the relevant FoHF companies of the group

which fall under their jurisdiction. The GFSC visited the MAP while it was owned by Partners Group in

2009. No major issues were raised.

There is no independent board director on the board of Sciens, SCL or SGFS. Sigma has two

independent directors. There are also two independent directors on the board of SGAS and on each of

Sigmas ongoing funds.

Deloitte (Cayman) is the auditor of Sciens. KPMG Channel Islands Ltd is the appointed auditor for the

MAP. Deloitte LLP (Guernsey) is the auditor for Sigma and its funds.

Well formalised intra-

group relationships

Intra-group service level agreements govern the relationship between the Sciens affiliates which have

outsourced certain functions to other affiliates of the Sciens group. SCL provides management, legal,

marketing and investor relations support to SGFS. SGRS provides risk management services to SGFS

and Sigma. Most FoHF operations are delegated to Sigma.

In general, the FoHF business and the MAP are segregated to prevent FoHF business from obtaining

detailed information about the portfolio construction of the underlying managed accounts unless

specific mandates allow this. A separate risk management affiliate SGRS is in charge of monitoring the

FoHF and MAP investment activities, thereby reinforcing the independence of the risk management

function.



August 2013 5

Company (continued) High Standards

Sound investment vehicle

governance

Funds are domiciled in the Cayman Islands or Guernsey. Some funds are listed on the Channel

Islands and Irish stock exchanges. The majority of Sigma FoHF has two independent board

members. Board meetings are generally held every six months at a minimum.

The MAP consists of Guernsey-based protected cell company structures. MAP assets are held by

the various custodian and sub-custodians. The MAP is separated from trading advisors for all

governance and controls issues.

Staffing

Clear organisational

structure, staff turnover

Sciens has a good organisational structure, with an adequate separation of businesses and

functions, often through separate companies.

Sciens has experienced staffing turnover and attrition since 2011, which has led to the current low

levels of staff relative to business size. In Fitchs view, this tends to increase key person dependency

and individual workload, particularly for MAP personnel, legal and FoHF portfolio management.

High calibre, renewed

senior staff

Stavros Siokos, who joined in 2011 is based in London and heads the FoHF and MAP business. He

provides leadership for the whole platform, thereby reducing the historic reliance on John Rigas, who

retains an overall responsibility for the firm and its management. Notable new hires are Alex Allen,

who joined in 2011 as senior portfolio manager (PM), and in 2012, Tim Wilkinson who is responsible

for global business development and distribution.

In 2012-13, the head of MAP and the head of MAP operations left. The head of MAP operations was

replaced by a former holder of that position who rejoined the company and Stavros Siokos has taken

over as head of MAP. Sciens is in the process of adding junior to medium level staff to support the

senior staff in place.

Good alignment of

interest

Sciens employees have a market competitive base salary and a discretionary bonus, which is not

directly linked to fund performance for PMs. A bonus is paid in three tranches per year. Employees

may invest in the FoHF products, subject to the approval of the CEO and compliance officers. A long-

term incentive plan for senior managers has recently been implemented.

Funds typically have a 10% Performance fee, no hurdle rate with high water mark.

Structure Diagram

a Share their roles with other teams in the chart

b Including 4 external third party marketers

Source: Transaction documents

John Rigas Chairman Group CEO

Christopher Meyering General Counsel

Legal, Compliance Support (3)

a

Dr. Stavros Siokos, Ph.DCEO

Tim WilkinsonPresident

Accounting, Treasury, Tax & IT

(4)

Sciens Group Risk Services (SGRS)

(5)

Sciens Managed Account Platform

(Map) Dr. Stavros Siokos,

Ph.D.

Sciens Investment Services

Tim Wilkinson (9)b

Sciens Fund of Hedge Funds John

Rigas - CIO

Sciens Advisory Solutions

Roberto Botero (2)

Map Legal (3)Map

Operations (4)

Operations & Due Diligence

(8)

Investment Research, Data (8)



August 2013 6

Controls High Standards

Key Findings

Risks are actively overseen by management, investment committee and risk committee.

Control functions consist of a dedicated investment risk team within a separate affiliate, SGRS and compliance officers.

Sciens has a demonstrated ability to oversee and control a large number of service providers.

System-based controls and automated workflows contribute to embedding risk management in the processes.

Underlying hedge fund and portfolio surveillance is well framed through numerous formal risk triggers.

Risk and statistical analysis and reporting, supported by solid data management and risk analytics with central IT platform.

High quality investment risk reporting packs.

Overall Risk Control Framework

Enterprise-wide risk

oversight by management

The investment committee (IC) reviews market and liquidity risks of the portfolios. A risk committee has

been put in place to review the risk books and raise specific concerns to the IC on a monthly basis.

Sigma, which is the entity in charge of FoHF investment administration, has an operational risk

committee, with the minutes reviewed by the Sigma board. The MAP does not have a risk committee.

SGRS, the dedicated risk management affiliate of five focuses on risk and statistical analysis. Its main

duties are to screen and monitor hedge fund managers as well as to monitor, measure and report

portfolio risks. This function is also responsible for data management, including the consolidation and

clean-up of hedge fund and portfolio data, monitoring risk triggers and exposures and other quantitative

modelling.

Sciens has a chief compliance officer reporting to John Rigas. Sciens does not have an internal audit

function, providing a third line of defence.

Embedded, system-based

operational risk control

The good automated workflows and interfaces with third parties contribute to mitigating operational risk.

FoHF order management is automated between SCL and Sigma. Instructions are then sent by Sigma

using Scienss core system to the fund administrator and/or custodian as appropriate. The MAP

benefits from direct feeds from prime brokers and counterparties, thereby avoiding reliance on trading

advisors.

Sciens has set up comprehensive risk controls parameters in its systems. For instance, the company

tracks daily several thousand risk limits, soft limits and warning limits. Risk tools automatically write the

error status into an SQL error log database.

Procedures are documented, up to date and centralised. Escalation procedures are effective with a

rapid notification to the Board facilitated by the small size of the company.

Sciens encountered just one material error, which was almost fully compensated by the third parties

involved. Sciens expects to recover the full amount shortly.



August 2013 7

Controls (continued) High Standards

Strong third party

oversight

FoHF administration is conducted independently by a number of administrators and custodians. The

main administrators Kleinwort Benson Fund Services (since 1994). The main custodians have been

ABN AMRO Guernsey since 2002 and UBP, Geneva since 2010. Service level agreements are in

place with FoHF service providers and the performance of these is monitored by Sigma through key

indicators and annual on-site reviews.

SEI Investments Global Funds Services Limited and SS&C Technologies Inc provide sub-

administrators services to SGFS (NAV determinations, trade reconciliations and reporting). All newly

launched cells are now sub-administered by SEI.

In July 2013, Sciens replaced HSBC Securities Services (Guernsey) Limited with ABN AMRO

(Guernsey) Limited for the custody, transfer agency and registrar functions for the MAP, following

HSBCs decision to discontinue these services in Guernsey.

Sciens follows a rigorous on-boarding procedure to select trading advisors for the MAP and the

relationship is formalised in an Service Level Agreement. Prime brokerage terms are agreed on cell

by cell basis. MAP service providers produce a monthly report to SGFS, which has been tailored by

SGFS. The reporting is then discussed during a bi-monthly oversight call with the service provider.

Control Framework

Source: Sciens, Fitch

Board Meeting

Sigma and SGFS - at least quarterly. SCL - as required SCL Board consists of J Rigas, C Meyering, S Siokos Sigma Board consists of J Rigas, C Meyering, J Sebire, M de Haaff and R Adair (last two independent) SGFS Board consists of S Siokos, S Bougourd and C Marley Oversight of reputation and business risks, assessment of control environment

Sciens Risk Committee

Meets as required Consists of A Allen, S Siokos, Risk Managers\ Review of investment risks at fund and manager level

Sigma Operational Risk Committee

Monthly Consists of relevant Sigma, SCL and SGRS staff Discusses all operational, legal and investment risk issues of Sigma's funds

Investment Committee

Weekly Consists of J Rigas, A Allen, S Siokos, F Mehregani and R Botero Review of portfolio investment and liquidity risk, approval of new funds (FoHF) and Trading Advisers (MAP)

Fund Boards (Sigma and MAP)

Sigma funds - at least six monthly; MAP at least quarterly Sigma funds generally have two independent directors; MAP has two independent directors



August 2013 8

Controls (continued) High Standards

Compliance and Controls

Key controls well

embedded

FoHF pre- and post-trade compliance checks, including fair allocation rules, are automated in Scienss

proprietary front office system where all limits are coded. Exposure versus regulatory, legal or internal

limits are monitored as part of proprietary quantitative risk report on a monthly and quarterly basis for

FoHF.

The execution of the FoHF investment decisions is undertaken by Sigma, which has the latitude to veto

any of SCLs recommendations. Sigma reviews recommendations for consistency with strategy, clarity,

liquidity impact, holding restrictions, the funds prospectus and due diligence, independently of Sciens

IC.

Pre-trade compliance controls versus risk limits for the MAP are performed by the trading advisor. Post

trade compliance is monitored by Scienss risk function as part of their daily processes. 500 metrics are

calculated and monitored on a daily basis for the MAP.

Investment Risk Management

Advanced quantitative

market risk management

FoHF portfolio market risk is assessed quantitatively, based on the net asset value (NAV) of the

underlying funds. Risk indicators, such as volatility, beta, risk contribution and value at risk (VAR), are

calculated and monitored by the risk team using proprietary analytics. Sensitivity analysis and other

quantitative analyses are carried out and reported periodically.

Invested funds are closely monitored using formal risk triggers to identify material changes in AUM,

style drift and abnormal fund performance, including performance against historical returns and versus

peer funds, as represented by strategy indices. Alongside the return-based analysis, Scienss analysts

also consolidate information gathered on the underlying funds via monthly risk reports adapted to each

strategy.

All risk indicators are summarised in a risk book. This document is produced by the data and risk team

systematically for each portfolio on a monthly basis and is made available to relevant PMs. It is formally

reviewed by the risk committee and the IC.

Market risk management of MAP is based on position-based VAR, sensitivities market parameters.

Stress test and scenario analysis are also conducted. Margin requirements, capital and risk

concentrations, exposure by asset class and sectors are also closely monitored. In total, more than 500

metrics are calculated and monitored on a daily basis.

Good control of liquidity

risk

The liquidity of underlying hedge funds is monitored monthly and reported to the IC on an aggregated

basis to ensure it is consistent with liquidity offered to investors, given redemption forecasts.

Simulations are conducted to estimate the cost of a rapid liquidation and the fraction of the portfolio

which could be liquidated within a certain timeframe.

The proprietary MAP generally offers daily, weekly or monthly liquidity, depending on the manager, and

daily NAV.

Counterparty Risk Management

Appropriate counterparty

risk management

Trading advisors of the MAP have to deal with counterparties that have been agreed by Sciens.

Sciens monitors counterparties daily through rating changes, CDS spreads and equity returns (where

possible). Counterparty exposure is monitored around agreed limits. Over-the-counter (OTC) credit

exposure is calculated based on the current market value and risk-based add-on. Margin requirements

and excess cash are monitored daily. Some of the MAP excess cash is unitised into a money market

cell managed by JPMorgan.



August 2013 9

Investments Highest Standards

Key Findings

Small team of seven investment professionals and two operational due diligence analysts.

Deep access to underlying hedge fund data and risk analysis capabilities.

Standard research process, based on a blend of quantitative and qualitative analysis, well formalised and effectively implemented.

Well documented hedge fund operational due diligence is conducted in an independent manner by Sigma.

Most decisions are taken at the five-person IC.

Portfolio construction is a risk-based, research-driven process, aiming at building more concentrated portfolios (by source of

uncorrelated alpha) but more diversified (by risk factors).

Investment Resources

Small investment team

John Rigas is the chief investment officer and has 26 years experience in the finance industry.

Alex Allen, with 15 years industry experience, is the head of research for Sciens FoHF. He is

supported by two research analysts in London. A senior PM left and the former head of research

retired in 2012. The small size of the investment team increases reliance on key persons such as

John Rigas and Alex Allen, in Fitchs opinion.

IC consists of the most senior investment professionals of the firm: J. Rigas, S. Siokos, A. Allen, F.

Mehregani and R. Botero.

The head of research is responsible for the execution of asset allocations and manager selection,

while overseeing the risk management of portfolios. He has sufficient leeway in portfolio construction

but investment decisions are made on the basis of allocation and selection decisions reached by the

IC.

Research analysts are responsible for manager due diligence and making recommendations to the

IC. As head of research, the PM is well involved in the research process, beyond his typical role of

sourcing and managing relationships with managers. Operational due diligence is the responsibility of

two people one in Sigma and one in New York with support from the legal/risk teams and from

third-parties where specific expertise is required.

Very good access to

information

Superior access to quality fund data and markets feeds the proprietary research process and allows

advanced quantitative risk analysis and reporting in FoHF.

The MAP set up enables access to position-level information, provided from prime brokers and

custodians in T+1.



August 2013 10

Investments (continued) Highest Standards

Investment Discipline

Disciplined, flexible

investment process

Sciens implements a standard, iterative investment process, combining top-down tactical allocations

with bottom-up manager selection, as described in the diagram below. The process emphasises the

maximisation of manager selection alpha (through more concentrated portfolios by number of

managers) and the maximisation of downside protection (through more diversified and uncorrelated

sources of risks/returns).

Decisions are taken at the weekly IC meetings. The responsibilities of the IC are to set guideline limits

for strategic and tactical asset allocations, to provide final approval for manager-recommended lists

and to continuously review portfolio risk exposures.

Operational and legal due diligence, conducted both for the fund of funds and the MAP, covers all key

risks and is documented in an appropriate manner. The process includes the review of a compulsory

operational risk questionnaire, as well as a number of other requested documents and an on-site

review.

There are currently more than 100 funds approved for FoHF investments, including 34 funds from 31

managers approved on the MAP.

The trading advisors used on the MAP are subject to a comprehensive due diligence review conducted

by Scienss risk, legal, operations and business development teams, prior to the appointment to the

platform. The selection is documented in an on-boarding procedure report.

Investment Process


Asset Allocation

Investment Committee Oversight

Determine Strategic outlook

Consider Managers for Final due Diligence or Approval

Review Monthly Portfolio Allocation

Analyze Monthly Risk Reports

Review Recent

Performance

Fundamental Hedge Fund Monitoring

Regular Manager Contact

Formal Evaluation

Watch List Procedure

Annual operational Due Diligence

Quantitative Portfolio Risk

Monitoring

Identification of Unexpected or Undesirations or Sensitivity to Risk Factors

Stress Testing Marginal VAR

of Each Manager

Quantitative Risk Oversight Liquidity MonitoringManager Approval/ Selection

Marco-Economic Outlook/Scenarios Strategy Review & Ranking Recommends

Portfolio Construction

Risk/Return Expectations Portfolio Construction

Parameters

Due Dilligen Preliminary Approval Separate Operational Due Dilligence Monitoring Initial review



August 2013 11

Operations High Standards

Key Findings

Scalable, flexible, global operations platform both for the MAP and FoHF.

Straight through processing and effective control points exist between Sciens and service providers for the MAP and FoHF.

Recognised in-house risk reporting capabilities support investor communication and client services.

High quality of administrative processes and connectivity with external service providers both for MAP and FoHF.

Focused operations and legal team for the MAP.

Operational Procedures

Small operations teams

Most FoHF operations are delegated to Sigma, including cash management, relationship management

with underlying fund registrars, reconciliations and currency hedging. In this regard, Sigma appears

well equipped, with four full time staff with access to SIMS and a cash management system, IT2.

Three operations staff are in charge of MAP operations (relationship with trading advisors and sub-

administrators, payment execution, distribution of documentation.) and three are in charge of legal

(fund structuring, negotiation of legal documentation).

Road tested FoHF

administration capabilities

A good level of STP between SCL and Sigma supports the fund administration workflows. SCL

automatically submits recommendations to Sigma, which instructs administrators and/or custodians.

Once due-diligence status, cash and overall consistency have been checked, an instruction is

forwarded by Sigma using SIMS to the fund administrator and/or custodian as appropriate.

All residual cash positions are either placed on deposit with the custodian or in money market funds by

Sigma, which monitors and forecasts cash levels for up to three months, via the IT2 application.

Currency management is the responsibility of Sigma, which prepares instructions on each valuation

date. All active funds are systematically hedged against their base currency.

Strong MAP operating

workflows

The MAP operating model is described in the diagram below. SGFS is the official manager and

administrator for each cell, but most administration activities are outsourced to third parties through

agreements.

Trading advisors are responsible for trade confirmation. Sub-administrators are responsible for trade

reconciliation and NAV calculation. The operations team and sub-administrators instruct cash

movements using restricted templates and dual sign-off.

Communication and Client Servicing

Standard, transparent

reporting

Investor relations are managed by two dedicated client services staff located in New York and London.

Monthly and quarterly investor reports are generated automatically from SIMS, which is also used as a

customer relationship management (CRM) tool. Monthly factsheet reports are sent out to investors

between the 15th and 20th day of the following month. Scienss investor website is available to FoHF

and MAP clients.

MAP investors have the ability to perform in-depth analysis of all cells, portfolio of client holdings in

individual cells within MAP and portfolio simulation using SMART Sciens Managed Account Risk

Technologies. Bespoke risk analysis is also available upon request.



August 2013 12

Sciens MAP Operating Model

Source: Fitch Sciens

Investors

Cell/Account

ABN Amro (Custodian bank)

Sciens (SGFS, MAP Operator)

Trading Advisor(Underlying HF

Investment Firm)

Market Counterparties

SEI, SS&C (Fund Sub-Administrator)

Prime Broker (Cell-Specific)

Client Invests in One or Several Funds/Accounts in the Platform

Reporting (via SMART Portal)

Fund Grants a Sub-Management Agreement to

MAC Operator

Fund Assets are Deposited at

Custodian Bank

Reconciliation and Controls Reports on

Matching and Positions Updates

MAP Grants a Trading Advisory Agreement (TAA)

Execution on Behalf of Sciens

HF Firm Sends Trade Details to

Administrator

Trade Reconciliation

Reports on Positions



August 2013 13

Technology High Standards

Key Findings

SIMS Scienss proprietary web-based tool integrates all critical fund research, portfolio risk management and front-office

operations on the same platform.

SMART is an interactive look-through engine allowing investors to perform in-depth portfolio analysis.

Numerous automated interfaces exist between SCL, Sigma and its service providers.

Centralised SQL database is fed by market data, hedge fund prices, portfolio valuations and cash flows.

RiskMetrics is complemented by various add-ons and SIMS for MAP risk analysis.

IT Resources

In-house small IT team Scienss in-house team consists of two IT professionals in charge of system maintenance and

development. Data management and data integrity is the responsibility of the risk team.

Systems

State of the art,

proprietary IT platform

SIMS is a proprietary integrated web-based application, customised to Scienss needs in the areas of

research, portfolio management and front office operational management. Risk analytics and portfolio

management tools are all centralised in SIMS.

As an enterprise-wide solution, SIMS supports MAP risk analysis functionalities, workflow management,

underlying fund monitoring, portfolio management, reporting and risk control. Sciens uses RiskMetrics as

an enterprise-wide risk analytics. Salesforce is the main CRM system.

SMART is an interactive look-through engine allowing investors to perform in-depth analysis of all cells on

MAP, portfolio of client holdings in individual cells within MAP and portfolio simulation.

Superior data

centralisation and system

interface

Data is centralised on a SQL database, which is fed by market data (automatically for Bloomberg, HFR,

Morningstar), hedge fund prices (semi-automatically), portfolio valuations and cash flows (through STP).

It consolidates the groups portfolio positions, NAVs and other information (due-diligence questionnaires,

call reports and e-mail copies, for example) on hedge funds. Data collection, analysis and reporting are

therefore facilitated by the central database.

RiskMetrics, which is complemented by various add-ons, is also linked with SIMS.

Sciens benefits from a full integration, due to a centralised infrastructure and an enterprise-wide, front-

to-back office system.

IT Security

Effective disaster

recovery plan

Sciens has comprehensive, tested disaster recovery and business continuity plans, with daily back-up

procedures and alternative emergency sites.



August 2013 14

IT Map


Risk Metrics

Risk Engine

SIMS

Core Front to Back System

Central Database

Bloomberg, HFR, Morningstar

Market Data

Administrator/ Prime Broker System

Portfolio Data

SMART

Client Interface

Proprietary System

Vendor Solution



August 2013 15

The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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