QUART ER LY R E V I EW O F H EDGE F UNDS & A LT E RNAT I V E I N V E S T I NG JANUARY 2015 VOLUME 15 ISSUE 1

DISTRIBUTING RELATED PARTY EXEMPT PRODUCTS

CANADIAN HEDGE FUNDS – CYCLES COULD HAVE HELPED!GETTING A HANDLE ON DEFLATION

2014 YEAR-END REVIEW: A RESUME OF DEVELOPMENTS ANDTRENDS IN THE INVESTMENT INDUSTRY OVER THE PAST YEAR

CANADIAN HEDGE WATCH INTERVIEWSJASON MANN OF EDGEHILL PARTNERS

@RadiusFE

Volume 15 Issue 1 - January 2015 7

CHW You talk about your fund being “adaptive” in order to protectgains. Can you explain what you mean by that?

JM Essentially we want to have our cake and eat it too. We want to beable to participate meaningfully with market rallies and we also want tobe able to gear down our risk as market conditions become morechallenging in order to hang onto those gains. We do this in a few ways.Firstly, we are highly liquid where no position is so large that it can’t besold within a single day. This allows us to adapt the fund quickly as themarket rolls over, where we both reduce net exposure as well as rotateto more defensive styles/strategies. Our goal is to reduce the “beta” ofthe fund from about 0.75 in a bull market to approximately zero in a bearmarket. The graphic below shows our actual portfolio compositionthrough September and October of 2014 and you can see exactly howwe geared down risk and the resulting outperformance vs the TSX.

CHW Do you short stocks as a hedge? Or to make money?

JM Yes! We use shorts both to hedge the systematic market risk (iehedge our long positions) as well as to derive profits by shorting badcompanies that have a high probability of underperforming in absoluteterms. In declining markets, our shorts tend to decline much faster thanour longs providing more protection than their absolute dollar investmentmight suggest. Over the life of the fund our shorts in aggregate havemade money despite our benchmark being up 38%, so they can indeedbe a source of profits as well as a hedge.

We also believe in shorting a basket of individual stocks that we haveassessed as "bad" companies as opposed to shorting an ETF or other indexinstrument. We would rather be short the worst companies and not just themarket average as there is an opportunity to add alpha by doing so.

CHW How do you define risk?

JM Risk can be defined in a number of ways, the most important ofwhich is the permanent loss of an investor’s capital (and given that weare the fund’s largest investors this is very meaningful to us!). Given thatwe have a number of ways to mitigate permanent losses as we’vedescribed, the next most important risk for us is drawdown risk, which isthe temporary loss from a previous peak. We are very sensitive tocontrolling drawdown because investors would much prefer a smoothride than a volatile one even if the end result is the same. A “buy andhold” strategy assumes you have a long time frame to recover your losses(which not all of our investors will have), and it also assumes that youdidn’t sell at the bottom turning your drawdown into a permanent loss.Avoiding drawdowns and volatility helps mitigate that risk for our clients.Because of the systematic way we run the fund we are able to backtesthow the fund would have performed had we done the exact same thingswe to today back through history. The chart below, taken from our 20-year backtest as well as our actual results, illustrates exactly what we aretrying to achieve in terms of cutting out the drawdown risk whilecontinuing to participate on upside.

Jason Mann is the portfolio manager of the EHP Advantage Fund. Prior toco-founding EdgeHill, Jason Mann was Managing Director, Co-Head of theAbsolute Return/Arbitrage Group at Scotia Capital. The Absolute ReturnGroup is responsible for developing and delivering cross-platform “alpha”generating ideas for the hedge fund community. Jason also managed Scotia’smerger-arbitrage, event-driven and quantitative proprietary trading strategies,and had responsibility for trading and overseeing a proprietary trading bookas large as $250 million that achieved positive returns in each year managed.Jason holds an Honours Bachelor degree in Business Administration fromWilfrid Laurier University and a CFA designation.

www.canadianhedgewatch.com6

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Jason MannPortfolio Manager,

EHP Advantage Fund

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Benchmark EHP Advantage Fund

Founded in 2010, EdgeHill Partners is a multi-fund alternative asset manager for accreditedinvestors and was built with the backing of a family office partner. EdgeHill manages the EHPAdvantage Fund as well as an offshore mandate.

Canadian Hedge Watch Can you tell us a bit about the EHP Advantage Fund, and wherewould it fit in an investor’s portfolio?

Jason Mann The EHP Advantage Fund is a highly liquid, long/short, North American equity fundthat is appropriate as a core equity holding and as a replacement for traditional long only mutualfunds or passive ETFs. We target a return of 10-12% net of fees with substantially lower drawdownsthan the market. We use a highly disciplined, systematic process for our stock selection and lookfor specific attributes that we believe lead to better performance. We want to buy only stocks thatare cheap, rising and stable and short stocks that are overvalued, falling and volatile. What makesus unique is our ability to adapt the fund to changing market conditions – as markets become morevolatile and as pre-determined risk levels are triggered we gear down risk materially and rotate tomore defensive strategies to protect gains. In essence, we can act like a long-biased fund andparticipate with the market most of the time, and during times of stress we act like a market-neutralfund to preserve capital.

CHW Why a systematic approach to stock selection?

JM For us, a systematic approach enforces the discipline required to avoid the most commonbehavioural pitfalls that investors fall prey to. We are “evidenced based” in that we aren’t swayedby a good story, or by a management team that markets well, and we aren’t influenced by what ananalyst’s forward estimates (guesses) are. We only look to own companies that actually areundervalued, have good price momentum and have relatively low volatility. If we hold a stock andit no longer meets these criteria it is removed from the portfolio, no questions asked. Often peoplewant to “like” the stocks they hold, but they aren’t family or friends – when they aren’t workinganymore you need to be able to sell them without any emotional attachment. Our systematicapproach applies equally to how we manage risk in that we never second-guess our pre-determinedrisk levels. The worst time to make a risk decision is in the midst of a market decline. You need tohave a plan, and then stick to that plan.

EdgeHill Partners 2 Bloor Street East Suite 2102 Toronto, Ontario M4W 1A8 (416) 360-0310 info@ehpfunds.com www.ehpfunds.com

EHP Advantage Fund Facts

Investment Objective

Why Buy This Fund?

The Fund invests in a long/short portfolio of North American stocks by buying undervalued, rising, stable stocks and shorting overvalued, declining, volatile stocks. The Fund actively gears down risk in declining markets while rotating toward more defensive stocks and strategies to preserve capital.

• Targeting 10-12% with less volatility than market • Suitable as a core "all-weather" holding • Disciplined, process-driven approach • Actively managed to gear down risk in bear markets • Highly liquid with exposure to both Canada and U.S. • Optimal blend of performance and capital preservation • Weekly liquidity with six days notice

Investment Process We use a disciplined process to buy undervalued, lower volatility stocks with positive price momentum – attributes that have proven to lead to better future performance. We short stocks with the opposite attributes.

We evaluate and select from thousands of North American stocks to build a diverse portfolio. We balance performance with defence, while taking advantage of shorter-term opportunities as they arise.

We have a pre-determined process to gear down risk in poor markets and rotate to more defensive stocks and strategies. We aim to participate in bull markets and sit out bear markets.

Performance Strategies

Defensive Strategies

Real-Life Example of How We Protect Your Capital

Page 1

Portfolio Manager: Jason Mann Fund Structure: Mutual Fund Trust RSP / TFSA Eligible: Yes Subscription Amounts: CAD $25,000 initial, $5,000 additional Subscriptions: Weekly, Friday 4pm deadline Redemptions: 6 days notice, no penalty Reporting Frequency: Weekly

Fundserv Codes Class A: EHP100A 2% Mgmt Fee, 20% Performance Fee Class F: EHP100F 1% Mgmt Fee, 20% Performance Fee

Lockup: None High Water Mark: Yes, (no reset) Administrator: CommonWealth Fund Services Prime Broker: Bank of Nova Scotia Legal: McMillan LLP Auditors: KPMG

Dealer Compensation Class A: 1% Trailer & 10% of the Performance Fee Class F: not applicable

Performance returns refer to initial series of Class "A" Units, and are net of all fees and certain operating expenses. Returns are unaudited. Return calculations are annualizedand since inception unless otherwise noted. Statistics are calculated using monthly returns unless otherwise noted. Strategy Allocations are represented as percentages of net assets. Cash includes short proceeds. Benchmark statistics use total return Indicies. The composition of the Funds’ portfolio will significantly differ from the benchmark due to the investment strategy employed. Please see “Investment Strategies” in the Confidential Offering Memorandum for more details. This presentation is not an offer to sell nor a solicitation of an offer to purchase interests of the Funds. The Manager reserves the right to change any terms of the offering at any time. Offers and sales of interests in the Funds will be made only pursuant to an offering memorandum, complete documentation of the relevant Fund and in accordance with the applicable securities laws, and this presentation is qualified in its entirety by reference to such documentation, including the Risk Factors and Potential Conflicts of Interest disclosure set forth therein.

Fund Details

EdgeHill Partners 2 Bloor Street East Suite 2102 Toronto, Ontario M4W 1A8 (416) 360-0310 info@ehpfunds.com www.ehpfunds.com

Performance Review

Returns (Class A units, net of all fees)

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YTD

2014 0.6% 4.7% 0.4% 1.4% 1.2% 2.3% -0.6% 2.7% -1.0% 5.1% 1.0% 2.6% 22.2%

2013 3.2% 3.4% 1.5% 1.4% 1.2% 4.6% 3.7% 2.0% 22.9%

Growth of $100,000 (daily) Risk/Reward AnalysisFund Benchmark*

Annualized Return 27.6% 21.4%Annualized Std Deviation 5.8% 5.9%Winning Months 90% 90%Average Monthly Gain 2.4% 2.0%Average Monthly Loss -0.8% -1.4%Largest Drawdown -1.0% -1.7%Sharpe Ratio (1.5%) 4.5 3.4Correlation 0.45Beta 0.42Net Exposure 75%Gross Exposure 136%

Compound Returns (%) Source of Returns for Most Recent Month1 Mo 3 Mo 6 Mo 1 Yr Incep. Returns from Longs 1.6%

Fund 2.6% 8.9% 10.1% 22.2% 50.2% Returns from Shorts 1.0%Benchmark* 0.4% 3.6% 6.5% 17.3% 38.1%*50/50 composite of S&P/TSX TR and S&P 500 TR in $CAD terms

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$125,000

$135,000

$145,000

$155,000

Apr/13 Aug/13 Dec/13 Apr/14 Aug/14 Dec/14

Disclaimer Page 2

Highlights from Most Recent Commentary • Returns during the month of December came from both longs and shorts as defensive stocks continued to

rally and resource stocks (energy in particular) fell again • Markets had yet another v-shaped rally after being down as much as 7% in Canada, our disciplined process of

controlling risk held up well with the fund down 0.6% at its worst • The rally in equities wasn’t confirmed by either treasuries or commodities and we think investors are

increasingly being trained to buy every dip despite worsening global conditions