PARADIGM Global Advisors, LLC

Fund of Hedge Funds

Table of Contents

I. Firm Overview
II. Our Differentiating Philosophy
III. Investment Process
IV. Biographies

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 I. Firm Overview
¾ Paradigm Global Advisors was founded in 1989 by Dr. James Park.

¾ Independent Firm with 28 Employees (14 of which are Dedicated to Due Diligence and Asset
Allocation Teams)

¾ SEC Registered Investment Advisor Since 1996 with Fourteen Year Track Record.

¾ Exclusively Focused on Managing Hedge Funds

¾ Unique Investment Process – Information Processors

¾ - One of the Most Robust Hedge Fund Databases

¾ Institutional and High Net Worth Focus

¾ Global Presence, Reach and Capabilities

¾ Consistent, Solid Risk Adjusted Performance and Alpha

¾ Low Correlation to Traditional Asset Classes

¾ Well Diversified Portfolios Across Strategies and Managers (Over 80 Managers in Master Fund)
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 WHY IS PARADIGM THE BEST
ALTERNATIVE?

¾ 14 YEAR TRACK RECORD

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

¾ 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.

¾ 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 .

¾ 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.

¾ 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, PhD
Chairman & CEO

Markus Karr Stephane Farouze

Partner Partner

Research/
Information Technology Marketing & Client Services Business Administration
Asset Allocation

Nikolay Fedorovskiy, PhD Shinichi Onoda Alla Babikova Jim Hirchak, CPA
Director of Research Director Director Director of Risk Mgt/Compliance

Denis Bychkov Kevin Yoon Jeffrey Schneider Stephen Covello

Research Analyst Computer Graphics Senior Vice President Senior Vice President - Operations

Victor Popov Jean-Michel Savre Seth Moskowitz

Research Analyst - Consultant Senior Vice President Associate – Client Services

Gordon Kelly John Page Katherine Han

Philippe Alter
Hedge Fund Analyst Senior Vice President Associate- Client Services
Senior Analyst

Shirley Xian Louis J. Hanna Angela McConico

Joint Venture with
Hedge Fund Analyst Cyril Finance in France
Senior Vice President Administrative Assistant

Robin Liu Nick M. Markola Travis Cameron

Hedge Fund Analyst Senior Vice President Administrative Assistant
14 people are involved in
Rafael Castellanos
Matteo Solbiati the investment process Vice President
Head of European Branch
Average experience in the Alt.
Laurent Benzaquine
Inv. Industry : 9 years Vice President
Gerald Toledano
Vice President –Structuring Average experience with
Jonathan Guerbato
PARADIGM : 6.25 years
Associate 28 (+1) employees
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 I. Firm Overview - Paradigm’s Range of Products
Domestic Funds of Funds Products Regulated Products
• Core Program (2)
• US Futures Fund
• Leveraged Program (2)
• Sector Funds (1) • UK Structured Note

• Italian Structured Note

Off-shore Funds of Funds Products
• Core Program (4) • Chilean Products
• Leveraged Programs (1)
• French Alternative Fund
• 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:

¾ Make Directional Market Bets

¾ Take Outsized Risks to Achieve Higher Returns

¾ Neglect to Analyze and Compare Manager Skill versus the Market

¾ Invest with managers who are directional risk takers

¾ Allocate to trend followers

¾ Invest with Mangers with excessive lock-up provisions (exceeding 2 years)

¾ Allocate to fixed Beta managers

¾ Allocate to managers with multitude of strategies

¾ Invest in Mortgage-Backed Securities, Dedicated Emerging Market Managers or Currencies

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 II. Our Differentiating Philosophy

¾ Treat Hedge funds as information processors rather than financial companies.

¾ View the Fund of Funds as a conglomerate of superb information processors.

¾ Bottom up (manager centric) investment approach.

¾ Employ unique theoretical and statistical methodology which is based on Dr. Park’s PdD
thesis that applies Modern Portfolio Theory to hedge funds – Park Ratio.

¾ Paradigm owns proprietary patent-pending algorithms designed to identify exceptional hedge

fund manager skill and predict probability of future performance.

¾ 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.

¾ models for the following hedge fund biases: survivorship, self-selection, self-
reporting, liquidation, Bull Market/Bear Market.

¾ Utilize Park RatioTM (proprietary technique) which facilitates aggregate hedge fund analysis,
style analysis, cluster analysis, and portfolio attribution analysis.
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 II. Our Differentiating Philosophy
¾ Construct well diversified portfolios across strategies and managers (over 80 managers in
master fund). Low average allocation per manager

¾ Rank hedge fund managers by skill not by return.

¾ Paradigm constructs hedge fund indices and sub indices in order to rank managers relative to
their peers and to identify best in class managers.

¾ Paradigm has the expertise and the technology to identify smaller and younger highly skilled
managers and managers deploying novel, niche or unique strategies.

¾ 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.

¾ Paradigm’s approach generates consistent, solid risk adjusted returns, Alpha and a low
correlation to traditional asset classes.

¾ Volatility centric allocations, not dollar centric.

¾ Investment team with significant experience in the identification, selection, due diligence and
monitoring of hedge funds and strategies.

¾ Access to top tier hedge funds as the firm is able to at times allocate to small, nimble and
periodically closed hedge funds.

¾ Alignment of interests – no conflict of interest. 9

 III. INVESTMENT PROCESS
Paradigm 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

PARADIGM Due
Manager
Global Diligence
Selection
Advisors

Portfolio Allocation
and Risk Management

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 Quantitative Analysis
III. Investment Process – Manager Selection
PARADIGM Due
Manager
Global Diligence
Selection
Advisors
Paradigm Global Advisors LLC., sources hedge fund managers from:
Portfolio Allocation
and Risk Management

Proprietary Public Other

Sources Sources Sources

Proprietary Prime Brokers Competitors/ Other Fund

of Fund Managers
Strategic Investors Industry Conferences
Publications
Institutional Allocators Direct Submissions
MAR/Hedge
Hedge Fund Managers Third Party Databases
Absolute Return
Consultants Lawyers
Asia Hedge
Industry Contacts Accountants
(developed over past Barron’s
Administrators
16 years)
Hedge Fund Alert
Prime Broker
Academics
Symposiums Albourne Village

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 Quantitative Analysis
III. Investment Process – Manager Selection
PARADIGM Due
Manager
Global Diligence
Selection
Advisors
Database of 8,700 active managers
Quantitative Filtering Portfolio Allocation
and Risk Management

Ranking by Skill

400 managers
Qualitative Analysis
Interview Process
Due-Diligence Process

100 managers
Approved List

Inv. Committee Approval

Allocation Process
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 Quantitative Analysis

III. Investment Process – Quantitative Analysis Manager

PARADIGM Due
Global Diligence
Selection
Advisors
¾ Statistical ranking using Paradigm's proprietary theoretical modeling filter,
and identifying best of breed managers Portfolio Allocation
and Risk Management

¾ Paradigm purchases monthly manager data from 8 different hedge fund data providers
and such data is subsequently entered into system PASS.

¾ 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)

¾ Utilize System PASS to measure Hedge Fund AlphaTM , Hedge Fund BetaTM and Park
RatioTM (aggregate analysis, style analysis, cluster analysis, portfolio contribution
analysis)

¾ In addition, the system conducts mean-variance and other standard statistical analysis.

R = α + β (PARADIGM Hedge Fund Index) + ε

HF
14% = 0 + 1.4 (+10%)
9% = 2 + 0.7 (+10%)

Alpha Measures Beta Measures

Skill Risk 13
 Quantitative Analysis
III. Investment Process – Quantitative
Cluster Analysis Manager
Selection
PARADIGM
Global
Due
Diligence
Advisors
¾ Developed by Paradigm using patent-pending
technology, Cluster Analysis groups hedge funds Portfolio Allocation
and Risk Management
into certain discrete style categories. Y

¾ Strategy correlations are unstable over time and Z

could possibly diminish portfolio diversification. In
order to display more stable correlation structures,
Paradigm performs Cluster Analysis.

¾ Discrete style categories used in Cluster Analysis

could be perceived as equivalents of asset classes.

¾ Discrete style categories have well defined but X

differentiated correlation, risk and return
characteristics.

¾ The Cluster Analysis process allows Paradigm to

evaluate managers whose performance
distinguishes them from peers in their cluster.

¾ 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.
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 Quantitative Analysis
III. Investment Process – Quantitative Analysis
PARADIGM Due
Manager
Global Diligence
Selection
Advisors

Portfolio Allocation
and Risk Management

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 Quantitative Analysis
III. Investment Process – Due Diligence
PARADIGM Due
Manager
Global
Due Diligence - Qualitative Analysis Selection
Advisors
Diligence

¾ Initial interview with asset allocation team members Portfolio Allocation

and Risk Management
¾ Interview with senior asset allocation team members
¾ Determine manager’s level of skill/expertise
¾ Information processing vs. market timing
¾ Establish value added by potentially engaging the manger

Due Diligence - Manager Evaluation Process

¾ Background check, confirm educational and employment history including personal and
professional references
¾ Manager developments and organizational changes
¾ Confirm AUM with a prime broker and conduct fundamental portfolio analysis
¾ Gather prospectus and audited financial statements
¾ Check for violations/customer complaints with SEC
¾ Manager office visit
¾ PARADIGM proprietary manager questionnaire
¾ Operational checklist including infrastructure, risk controls, trade execution and service providers
¾ Leave no stone unturned – conduct comprehensive evaluation 16
 Approved Manager Characteristics

Quantitative Analysis
III. Investment Process – Due Diligence
PARADIGM Due
Manager
Global
Due Diligence - Manager Approval Process Selection
Advisors
Diligence

¾ Set manager specific and style specific reward/risk parameters Portfolio Allocation
and Risk Management
¾ Bottom up investment manager approach
¾ Institute minimum test account
¾ Analyze return stream against expectations
¾ Monitor for discrepancies between past and actual performance
¾ Conduct strategy and value added analysis
¾ Cluster analyze historical manager performance
¾ Commitment to being invested with only top tier information processors
¾ Report to investment committee

Due Diligence – Approved Manager Characteristics

¾ No fixed beta managers
¾ Very little emerging market
¾ No long term systematic trend followers
¾ No directional risk takers
¾ Marked to market securities
¾ Average size: $50 to $150 million
¾ Average track record: Three years
¾ Single strategy focus (signals expertise)
¾ Has a clearly defined investment process
¾ Wealthy and invested in own fund
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 Quantitative Analysis
III. Investment Process – Portfolio Allocation and
Risk Management PARADIGM
Global
Due
Diligence
Advisors
Portfolio Construction
Portfolio Allocation
¾ Strategic and tactical approach and Risk Management

¾ Maximization of Reward/Risk ratio

¾ Bottom up (manager) versus top down (sector) approach
¾ Equal Allocation by volatility and not by $
¾ Sector Optimization
¾ Portfolio liquidity
¾ Credit Exposure
¾ Leverage
¾ Correlation analysis and economic driver analysis
¾ Monthly portfolio rebalancing at the manager level and sector level
¾ Broad diversification: 50 to 100 managers
¾ Diversification benefit
¾ Manager and strategy concentration
¾ 5% maximum allocation to a single manager
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 Quantitative Analysis
III. Investment Process – Portfolio Allocation and
Risk Management PARADIGM
Global
Due
Diligence
Advisors
Risk Management
Portfolio Allocation
¾ Ongoing quantitative analysis using actual returns and Risk Management

ƒ Cross correlation analysis

ƒ Manager returns reviewed on a daily, weekly, monthly basis
ƒ Manager returns reviewed in context of other managers of similar style
ƒ Peer comparison and peer group rankings
ƒ Rolling returns and standard deviation trends
¾ Continuous monitoring for red flags
ƒ Style drift and strategy changes
ƒ Unusual drawdowns or profits
ƒ Returns inconsistent with strategy
ƒ Rapid asset growth, capital inflows and outflows
ƒ Regulatory concerns
ƒ Negative industry reputation
ƒ Loss of focus, personal life issues
ƒ Employee turnover
ƒ Unwillingness to share information
ƒ Manager diversifies personal assets away from the fund/partnership 19
 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 Director

Structured 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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 VI. Biographies
Markus Karr, Managing Director
Asset Allocation
Mr. 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, Director

Compliance and Risk Management
Mr. 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

Research
Mr. 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. 21
 VI. Biographies
Alla Babikova, Director
Marketing and Client Services
Ms. 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, Director

Head of European Branch
Mr. 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.

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