pga presentation

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PARADIGM Global Advisors, LLCFund of Hedge Funds

Table of Contents

I. Firm Overview

II. Our Differentiating Philosophy

III. Investment Process

IV. Biographies

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I. Firm OverviewParadigm Global Advisors was founded in 1989 by Dr. James Park.

Independent Firm with 28 Employees (14 of which are Dedicated to Due Diligence and Asset Allocation Teams)

SEC Registered Investment Advisor Since 1996 with Fourteen Year Track Record.

Exclusively Focused on Managing Hedge Funds

Unique Investment Process – Information Processors

- One of the Most Robust Hedge Fund Databases

Institutional and High Net Worth Focus

Global Presence, Reach and Capabilities

Consistent, Solid Risk Adjusted Performance and Alpha

Low Correlation to Traditional Asset Classes

Well Diversified Portfolios Across Strategies and Managers (Over 80 Managers in Master Fund)

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WHY IS PARADIGM THE BEST ALTERNATIVE?

14 YEAR TRACK RECORD

• Founded in 1989 and an SEC Registered Investment Advisor, PARADIGM has $1.6 billion in assets under management and advisory.

TRULY GLOBAL PRESENCE AND INVESTMENTS• Headquarters in New York City and representative offices in Los Angeles, Monte Carlo and Tokyo • Invested with over 90 hedge funds globally.

CAPACITY• Asset allocation methodology and unique ability to identify smaller and/or younger highly skilled managers

ensures capacity for its investors• Capacity with over 30 closed managers and capacity agreements with 24 managers with whom they

invested early .

PASS: PARADIGM’S PROPRIETARY QUANTITATIVE RANKING SYSTEM• Unique, proprietary technology developed by Dr. James Park, PARADIGM Chairman and CEO. • Contains track records for over 15,500 managers and is used to generate proprietary indices and ranking

and selection tools.

PERFORMANCE• Ranked as the number one performer for eight and nine year investment periods in 2004 and ranked sixth

for 2004 returns.

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I. Firm Overview – Paradigm’s Global Presence

Headquarters: New York

Representative Offices : Los Angeles, Monte Carlo, Tokyo

Distribution Agreements Worldwide: Banks, Insurance Companies, Broker Dealers

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James Park, JD, PhDChairman & CEO

Average experience in the Alt. Inv. Industry : 9 years

Average experience with PARADIGM : 6.25 years

14 people are involved in the investment process

Research/Asset Allocation

Information Technology Marketing & Client Services Business Administration

Shirley XianHedge Fund Analyst

Gordon KellyHedge Fund Analyst

Nikolay Fedorovskiy, PhDDirector of Research

Denis BychkovResearch Analyst

Matteo SolbiatiHead of European Branch

Gerald ToledanoVice President –Structuring

Jim Hirchak, CPADirector of Risk Mgt/Compliance

Angela McConicoAdministrative Assistant

Alla BabikovaDirector

Katherine HanAssociate- Client Services

Jeffrey SchneiderSenior Vice President

Stephen CovelloSenior Vice President - Operations

Rafael CastellanosVice President

Shinichi OnodaDirector

Kevin YoonComputer Graphics

28 (+1) employeesJonathan Guerbato

Associate

Seth MoskowitzAssociate – Client Services

Jean-Michel SavreSenior Vice President

Robin LiuHedge Fund Analyst

John PageSenior Vice President

Travis CameronAdministrative Assistant

Joint Venture with Cyril Finance in France

Philippe AlterSenior Analyst

Nick M. MarkolaSenior Vice President

Louis J. HannaSenior Vice President

Laurent BenzaquineVice President

Stephane FarouzePartner

Markus KarrPartner

Victor PopovResearch Analyst - Consultant

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I. Firm Overview - Paradigm’s Range of Products

Regulated Products

• US Futures Fund

• UK Structured Note

• Italian Structured Note

• Chilean Products

• French Alternative Fund

Domestic Funds of Funds ProductsDomestic Funds of Funds Products• Core Program (2)• Leveraged Program (2)• Sector Funds (1)

Off-shore Funds of Funds Products• Core Program (4)• Leveraged Programs (1)• Sector funds (4)• White Label Products (4)• Structured Products (2)

JP Morgan provides custodial services and leverage for PARADIGM’s Offshore Funds

PARADIGM has passed due diligence and has been approved for leverage & guaranteed products by:

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I. Firm Overview

Paradigm Global Advisors Does NOT:

Make Directional Market Bets

Take Outsized Risks to Achieve Higher Returns

Neglect to Analyze and Compare Manager Skill versus the Market

Invest with managers who are directional risk takers

Allocate to trend followers

Invest with Mangers with excessive lock-up provisions (exceeding 2 years)

Allocate to fixed Beta managers

Allocate to managers with multitude of strategies

Invest in Mortgage-Backed Securities, Dedicated Emerging Market Managers or Currencies

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Treat Hedge funds as information processors rather than financial companies.

View the Fund of Funds as a conglomerate of superb information processors.

Bottom up (manager centric) investment approach.

Employ unique theoretical and statistical methodology which is based on Dr. Park’s PdDthesis that applies Modern Portfolio Theory to hedge funds – Park Ratio.

Paradigm owns proprietary patent-pending algorithms designed to identify exceptional hedge fund manager skill and predict probability of future performance.

Over the past 16 years, Paradigm has built proprietary , one of the most comprehensive and robust hedge fund databases globally. System Pass contains in excess of 15,000 track records, is fully customizable and models for numerous biases.

models for the following hedge fund biases: survivorship, self-selection, self-reporting, liquidation, Bull Market/Bear Market.

Utilize Park RatioTM (proprietary technique) which facilitates aggregate hedge fund analysis, style analysis, cluster analysis, and portfolio attribution analysis.

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Construct well diversified portfolios across strategies and managers (over 80 managers in master fund). Low average allocation per manager

Rank hedge fund managers by skill not by return.

Paradigm constructs hedge fund indices and sub indices in order to rank managers relative to their peers and to identify best in class managers.

Paradigm has the expertise and the technology to identify smaller and younger highly skilled managers and managers deploying novel, niche or unique strategies.

MAR/Hedge consistently ranks Paradigm’s multi-manager funds among the world’s top ten funds of hedge funds on a return and risk-adjusted return basis.

Paradigm’s approach generates consistent, solid risk adjusted returns, Alpha and a low correlation to traditional asset classes.

Volatility centric allocations, not dollar centric.

Investment team with significant experience in the identification, selection, due diligence and monitoring of hedge funds and strategies.

Access to top tier hedge funds as the firm is able to at times allocate to small, nimble and periodically closed hedge funds.

Alignment of interests – no conflict of interest.


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III. INVESTMENT PROCESSParadigm Global Advisors LLC., employees a unique approach to fund of hedge funds investing by treating underlying hedge funds as information processors not just as financial companies and ranking them by skill not returns. The firm employs proprietary and theoretical and statistical methodology based on it’s founders research and doctoral studies.

The four pinnacles of Paradigm’s investment philosophy which take into account changing hedge fund and market conditions are:

a) Manager Selection, b) Quantitative Analysis, c) Due Diligence and d) Portfolio Allocation and Risk Management

Quantitative Analysis

Portfolio Allocation and Risk Management

Manager Selection

Due Diligence

PARADIGM Global

Advisors

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Manager Selection

Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Manager Selection

Paradigm Global Advisors LLC., sources hedge fund managers from:

Proprietary Sources

Public Sources

Other Sources

Proprietary

Strategic Investors

Institutional Allocators

Hedge Fund Managers

Consultants

Industry Contacts (developed over past 16 years)

Academics

Prime Brokers

Industry Conferences

Direct Submissions

Third Party Databases

Lawyers

Accountants

Administrators

Prime Broker Symposiums

Competitors/ Other Fund of Fund Managers

Publications

MAR/Hedge

Absolute Return

Asia Hedge

Barron’s

Hedge Fund Alert

Albourne Village

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Manager Selection

Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Manager Selection

Database of 8,700 active managersQuantitative Filtering

Ranking by Skill

400 managersQualitative AnalysisInterview Process

Due-Diligence Process

100 managersApproved List

Inv. Committee ApprovalAllocation Process

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Statistical ranking using Paradigm's proprietary theoretical modeling filter, and identifying best of breed managers

Paradigm purchases monthly manager data from 8 different hedge fund data providers and such data is subsequently entered into system PASS.

PASS contains track records for over 15,500 managers (8,700 active managers and 6,800 inactive managers) and ranks them by skill (not returns)

Utilize System PASS to measure Hedge Fund AlphaTM , Hedge Fund BetaTM and Park RatioTM (aggregate analysis, style analysis, cluster analysis, portfolio contribution analysis)

In addition, the system conducts mean-variance and other standard statistical analysis.



Manager Selection

Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Quantitative Analysis

14% = 0 + 1.4 (+10%)R = α + β (PARADIGM Hedge Fund Index) + ε

HF

9% = 2 + 0.7 (+10%)

Beta Measures Risk

Alpha Measures Skill

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Developed by Paradigm using patent-pending technology, Cluster Analysis groups hedge funds into certain discrete style categories.

Strategy correlations are unstable over time and could possibly diminish portfolio diversification. In order to display more stable correlation structures, Paradigm performs Cluster Analysis.

Discrete style categories used in Cluster Analysis could be perceived as equivalents of asset classes.

Discrete style categories have well defined but differentiated correlation, risk and return characteristics.

The Cluster Analysis process allows Paradigm to evaluate managers whose performance distinguishes them from peers in their cluster.

Outliers often require additional research and investigation, as they may indicate the presence of exceptionally skilled managers, fraudulent managers, or managers deviating from their stated styles.

Y

X

Z

Y

X

Z



Manager Selection

Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Quantitative Cluster Analysis

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III. Investment Process – Quantitative Analysis Quantitative Analysis


Manager Selection

Due Diligence

PARADIGM Global

Advisors

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Due Diligence - Qualitative Analysis

Initial interview with asset allocation team members

Interview with senior asset allocation team members

Determine manager’s level of skill/expertise

Information processing vs. market timing

Establish value added by potentially engaging the manger

Due Diligence - Manager Evaluation Process

Background check, confirm educational and employment history including personal and professional references

Manager developments and organizational changes

Confirm AUM with a prime broker and conduct fundamental portfolio analysis

Gather prospectus and audited financial statements

Check for violations/customer complaints with SEC

Manager office visit

PARADIGM proprietary manager questionnaire

Operational checklist including infrastructure, risk controls, trade execution and service providers

Leave no stone unturned – conduct comprehensive evaluation



Manager Selection

Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Due Diligence

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Approved Manager Characteristics



Manager Selection

Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Due DiligenceDue Diligence - Manager Approval Process

Set manager specific and style specific reward/risk parameters

Bottom up investment manager approach

Institute minimum test account

Analyze return stream against expectations

Monitor for discrepancies between past and actual performance

Conduct strategy and value added analysis

Cluster analyze historical manager performance

Commitment to being invested with only top tier information processors

Report to investment committee

Due Diligence – Approved Manager Characteristics

No fixed beta managers

Very little emerging market

No long term systematic trend followers

No directional risk takers

Marked to market securities

Average size: $50 to $150 million

Average track record: Three years

Single strategy focus (signals expertise)

Has a clearly defined investment process

Wealthy and invested in own fund

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Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Portfolio Allocation and Risk Management

Portfolio Construction

Strategic and tactical approach

Maximization of Reward/Risk ratio

Bottom up (manager) versus top down (sector) approach

Equal Allocation by volatility and not by $

Sector Optimization

Portfolio liquidity

Credit Exposure

Leverage

Correlation analysis and economic driver analysis

Monthly portfolio rebalancing at the manager level and sector level

Broad diversification: 50 to 100 managers

Diversification benefit

Manager and strategy concentration

5% maximum allocation to a single manager

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Due Diligence

PARADIGM Global

Advisors

III. Investment Process – Portfolio Allocation and Risk Management

Risk Management

Ongoing quantitative analysis using actual returns Cross correlation analysis

Manager returns reviewed on a daily, weekly, monthly basis

Manager returns reviewed in context of other managers of similar style

Peer comparison and peer group rankings

Rolling returns and standard deviation trends

Continuous monitoring for red flags Style drift and strategy changes

Unusual drawdowns or profits

Returns inconsistent with strategy

Rapid asset growth, capital inflows and outflows

Regulatory concerns

Negative industry reputation

Loss of focus, personal life issues

Employee turnover

Unwillingness to share information

Manager diversifies personal assets away from the fund/partnership

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VI. Biographies

James Park, J.D., Ph.D., Chairman and Chief Investment Officer

Dr. Park is responsible for directing the overall management and investment activities of PARADIGM Global Advisors, LLC. He has 13 years of direct hedge fund investment experience. Between 1991 and 1998, Dr. Park was a professor of finance at Long Island University, where he founded the Center for Financial Markets Research. Dr. Park completed his Ph.D. in financial economics in 1995 at the Columbia Business School, where he also taught. His dissertation on hedge funds is the first of its kind. He is a recognized author of pioneering research on the behavior of hedge funds. Prior to launching his academic and financial careers, Dr. Park was an Assistant District Attorney in Massachusetts. From 2001 to 2003, he served as an elected member of the Nominating Committee for the National Futures Association. Dr. Park earned a B.S. in economics from the Wharton School of Finance, University of Pennsylvania, and a J.D. from Harvard and Columbia Law Schools.

Stephane Farouze, Managing DirectorStructured Products and Institutional Marketing

Mr. Farouze joined PARADIGM in early 2003 as Managing Director of Structured Products and Institutional Marketing. He has 11 years of experience in alternative investments and derivative products. Prior to joining PARADIGM, Mr. Farouze was the Global Head of Sales and Structuring at Societe Generale Asset Management’s Alternative Investments Group, where he grew assets under management from $3.4 billion to over $15 billion in less than three years. He has launched in excess of 100 capital-guaranteed products in Italy, Spain, France, Germany, Hong Kong, Singapore and Japan. Before joining SocGen, Mr. Farouze headed the foreign exchange derivatives desk for the Italian markets at BNP Paribas, Commerz Bank, and Smith Barney. He has a B.A. in finance and economics from San Diego State University.

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Markus Karr, Managing DirectorAsset AllocationMr. Karr is Managing Director of Asset Allocation at PARADIGM, where he and his team assist Dr. Park in implementing the company’s research in the areas of manager selection and portfolio allocation. He joined the firm in 1994 and has more than ten years of hedge fund investment experience. Mr. Karr earned a B.S. in computer science and engineering from the Massachusetts Institute of Technology, where he concentrated his studies on modeling and simulation design. He was a registered Commodity Trading Advisor from 1995 to 2002 and is currently a member of the National Futures Association.

P. James Hirchak, CPA, DirectorCompliance and Risk ManagementMr. Hirchak is responsible for compliance and risk management at PARADIGM. Before joining the firm in 2002, he was Treasurer and Senior Vice President of Gardner Capital Management, where he was part of an investment team focused on financial, administrative and due diligence issues. Prior to joining Gardner, Mr. Hirchak was Treasurer and Chief Operating Officer of Moran Group, LP, an investment partnership managing U.S. and foreign investments in excess of several hundred million dollars. Between 1990 and 1992, Mr. Hirchak was Treasurer and Chief Operating Officer of Structured Asset Management, a quantitative money manager and wholly owned subsidiary of Templeton International. Prior to 1990, he held various financial and administrative positions on the trading floors of Drexel Burnham Lambert and Kidder Peabody & Co. in New York. Mr. Hirchak holds a B.S. in accounting and a M.B.A. in finance from Utah State University.

Nikolay Fedorovskiy, Ph.D., Director ResearchMr. Fedorovskiy joined PARADIGM in 2000 as Director of Research responsible for designing and securing the online statistical reporting system used by PARADIGM’s asset allocation team. He also leads the research and development of various statistical algorithms used in PARADIGM’s quantitative analysis of hedge funds. He gained extensive experience in computer programming and engineering while working for Russia’s Institute of Electric Power, where he created a programming language for semantic networks. Mr. Fedorovskiy received his Ph.D. in mathematics from Moscow State University, where he majored in high algebra and computer modeling.

VI. Biographies

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Alla Babikova, DirectorMarketing and Client ServicesMs. Babikova joined PARADIGM in 2001 as the Director of Marketing and Client Services. She has more than seven years of experience in sales and marketing for the financial and hedge fund industries. Prior to joining PARADIGM, she was the Head of Marketing and Client Services for Waterford Partners, LLC, a global hedge fund manager. From 1996 to 1998, Ms. Babikova covered private and institutional domestic clients as an equity sales professional at Renaissance Capital, LLC, a major Russian investment bank. In 1995, she worked at Credit Suisse First Boston in Moscow. Prior to joining CSFB, she spent two years as an interpreter for a joint venture between Gulf Canada and British Gas. Ms. Babikova holds a B.A. in French and English from Novgorod University of Foreign Languages.

Matteo Solbiati, DirectorHead of European BranchMr. Solbiati joined PARADIGM in March 2003. From 1995 to 2003, he worked for Fineco Sim (Bipop Group), a leading Italian broker, where he expanded the derivatives desk and eventually became the Head of Trading and Structured Products, managing a team of 35 people. He developed innovative structured products on various underlying commodities for insurance, retail and institutional clients, as well as for fund managers. Mr. Solbiati graduated from Bocconi University in Milan with a Master’s degree in applied statistics.

VI. Biographies

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