MountjoyMountjoy CapitalCapital

Independent QualitativeIndependent QualitativeHedge Fund DiagnosticsHedge Fund Diagnostics

Rene LevesqueRene Levesquewww.mountjoycapital.comwww.mountjoycapital.com

Service OfferingService Offering

Ongoing HF research, screening and rankingOngoing HF research, screening and ranking

Specific searches & benchmarkingSpecific searches & benchmarking

Operational and investment due diligenceOperational and investment due diligence

HF portfolio selection & constructionHF portfolio selection & construction

Rene LevesqueRene Levesque

Proprietary equity derivatives trader, complianceProprietary equity derivatives trader, complianceofficer, middle office, risk manager and operationsofficer, middle office, risk manager and operations

Buy side and sell side experienceBuy side and sell side experience

Over 4300 hedge funds interviewed and evaluated sinceOver 4300 hedge funds interviewed and evaluated since2004 (over 2000 under the2004 (over 2000 under the MountjoyMountjoy Banner)Banner)

11--person HF research team at 2.4Bperson HF research team at 2.4B FoHFFoHF covering allcovering allstyles and geographiesstyles and geographies

Strategic interviewing training by former CIAStrategic interviewing training by former CIAoperativesoperatives

WARNING !!!WARNING !!!

Not all hedge fundsNot all hedge funds

deploy absolute return strategies.deploy absolute return strategies.

……and for as long as you (or your consultant) fails toand for as long as you (or your consultant) fails torecognize this, you shall continue to subsidize andrecognize this, you shall continue to subsidize and

provide a living to those who will ultimately fail youprovide a living to those who will ultimately fail youwhen a real hedge fund strategy is needed the most.when a real hedge fund strategy is needed the most.

False PerceptionsFalse Perceptions

NotNot Key Ingredients to Absolute Returns:Key Ingredients to Absolute Returns:

Long and short positions (Jones Model)Long and short positions (Jones Model)

Paired positionsPaired positions

Market neutralityMarket neutrality

Targeted volatility levelsTargeted volatility levels

Portfolio diversificationPortfolio diversification

……but perhaps key to reducing volatility of returns.but perhaps key to reducing volatility of returns.

False PerceptionsFalse Perceptions

NotNot Key Ingredients to Absolute Returns:Key Ingredients to Absolute Returns:

Deep due diligence orDeep due diligence or ““private equityprivate equity”” stylestyleresearchresearch

CatalystCatalyst--driven investingdriven investing

Buying on dips and selling on strengthBuying on dips and selling on strength

Distinguishing Alpha from BetaDistinguishing Alpha from Beta

……but perhaps key to outperform reference benchmark.but perhaps key to outperform reference benchmark.

Key To Absolute ReturnsKey To Absolute Returns

Dynamic allocation of risk to ideas currently receptiveDynamic allocation of risk to ideas currently receptiveto the marketto the market

Discipline in liquidating those that are no longerDiscipline in liquidating those that are no longerreceptive to the marketreceptive to the market

Portfolio construct:Portfolio construct:

NetNet: Aligned/biased to prevailing overall tend/sentiment: Aligned/biased to prevailing overall tend/sentiment

GrossGross: Sized to prevailing volatility regime: Sized to prevailing volatility regime

Sources & Origin of AbsoluteSources & Origin of AbsoluteReturn StrategiesReturn Strategies

Disintermediation from bankDisintermediation from bank’’s proprietary desks proprietary desk

Hedge Fund Manager = Analyst + PM + RM + Trader +Hedge Fund Manager = Analyst + PM + RM + Trader +Entrepreneur + Business ManagerEntrepreneur + Business Manager

““Back Down The New Haven LineBack Down The New Haven Line”” articlearticle

What is an Absolute Return Strategy?What is an Absolute Return Strategy?

MoreMore ““tradingtrading--orientedoriented”” than an investmentthan an investmentstrategystrategy

““The market is a collective perception of reality. It willThe market is a collective perception of reality. It willprove you right or wrong, not the truth !!prove you right or wrong, not the truth !!””

Trading = disciplined and dynamic calibration ofTrading = disciplined and dynamic calibration ofrisk exposuresrisk exposures

Key Elements of Absolute ReturnsKey Elements of Absolute Returns

LiquidityLiquidity

Effectively navigate between perception and realityEffectively navigate between perception and reality

Nimble/Trading styleNimble/Trading style

Disciplined & HumbleDisciplined & Humble

Portfolio Inclusion and SizingPortfolio Inclusion and Sizing

InvestmentInvestment

Index constituent & idea generationIndex constituent & idea generation

Valuation gap and convictionValuation gap and conviction

Absolute ReturnAbsolute Return

Idea generationIdea generation

Market receptivity/acknowledgmentMarket receptivity/acknowledgment

Loss tolerance/disciplineLoss tolerance/discipline

Portfolio ConstructionPortfolio Construction

InvestmentInvestment

Breadth of idea generationBreadth of idea generation

Underlying valuation gap and convictionUnderlying valuation gap and conviction

Investment policyInvestment policy

Absolute returnAbsolute return

Net: prevailing market direction and sentimentNet: prevailing market direction and sentiment

Gross: volatility regimeGross: volatility regime

Valuation Gap & ConvictionValuation Gap & Conviction

I like the stock at 100I like the stock at 100

I like it more at 90I like it more at 90

I love it at 80I love it at 80

II ““blowblow--upup”” at 40 !!!at 40 !!!

Best Strategies for Absolute ReturnBest Strategies for Absolute Return

Discretionary Global MacroDiscretionary Global Macro

Actively Traded Equity Long ShortActively Traded Equity Long Short

Systematic Global MacroSystematic Global Macro

Key Determinants (basic)Key Determinants (basic)

BackgroundBackground

AlignmentAlignment

ProcessProcess

Idea GenerationIdea Generation

InfrastructureInfrastructure

Pulse of Risk & Return DriversPulse of Risk & Return Drivers

Unique Features/Competitive AdvantagesUnique Features/Competitive Advantages

DisciplineDiscipline

Catalyst PushCatalyst Push

Market SentimentMarket Sentiment

Core + Opportunistic TradingCore + Opportunistic Trading

Dynamic Exposure CalibrationDynamic Exposure Calibration

Implied Strategy SkewImplied Strategy Skew

Liquidity, Liquidity, LiquidityLiquidity, Liquidity, Liquidity

Key Determinants (specific)Key Determinants (specific)

MountjoyMountjoy CapitalCapital

Rene LevesqueRene Levesque

438 402 2022438 402 2022

rene@mountjoycapital.comrene@mountjoycapital.com