do emerging managers add value ( dec 2008 )

Do Emerging Managers add valueDo Emerging Managers add value

By: Peter Urbani, CIO,Infiniti Capital, Feb 2009

Why an Emerging Managers Portfolio Why an Emerging Managers Portfolio ??

• Emerging Manager Funds (defined as those Hedge Funds Funds which are less than 36 months old and have less than $300m in AUM) tend to be run by highly motivated, entrepreneurial and focused managers. In addition, the exploitable opportunity set they have identified in the marketplace is more likely to persist over the short-term. All of this translates into excess returns or alpha of up to 400bp per annum.

• Infiniti Capital seeks to capture this excess alpha through its two Emerging Manager Portfolios - Invenio and Conquistador II.

P.1

Average return of Emerging Managers highest in first 3 Average return of Emerging Managers highest in first 3 yearsyears

Average Hedge Fund Return versus Age in M onths

10.0

10.5

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0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120

Age in Months

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Note: This study is independent of time in that we pose the question as – “How does a manager perform during his/her first 36 months” irrespective of when they occur

P.2

Excess Returns of Emerging Managers to Established ManagersExcess Returns of Emerging Managers to Established Managers

83.7% Cumulative Excess returns over 18.0 years translates into annual CAGR of + 3.44% p.a.

80%

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83.7

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91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Cumulative Excess Returns of Emerging Managers

Excess Returns of Emerging Managers less than 36 months old and less than $300m AUM over Established Managers older than 36 months


903

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1,913

723

0

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90 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Emerging Managers versus Established Managers

Emerging Managers less than 12 months old and less than $100m AUM

Established Managers older than 12 months

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776

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1,508

632

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748

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1,233

611

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90 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08




3

Why Emerging Managers – They generate more Why Emerging Managers – They generate more AlphaAlpha

P.7

Emerging Managers versus Established ManagersAnalysis of 7960 Funds from HedgeFund.Net Data from 31 Dec 1990 to 31 Dec 2008

Age and Size Mean Std Dev Skew Kurt HPR Years CAGR AlphaEmerging < 36 months and < $300m 14.65% 5.89% -0.51 3.54 1233% 18.0 15.48% 3.96%Established > 36 months 11.16% 6.62% 0.34 3.92 611% 18.0 11.51%

Emerging < 24 months and < $200m 15.69% 5.73% -0.22 2.70 1508% 18.0 16.69% 5.00%Established > 24 months 11.31% 6.44% -0.02 3.20 632% 18.0 11.69%

Emerging < 12 months and < $100m 16.94% 5.46% 0.13 1.64 1913% 18.0 18.15% 5.73%Established > 12 months 11.96% 6.30% -0.09 3.27 723% 18.0 12.42%



All All 13.04% 6.07% -0.24 3.14 900% 18.0 13.65%

Value Added Monthly IndexValue Added Monthly Index

0

1000

2000

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VAMI

Infiniti Capital Emerging Manager Index < 36 and 300 Infiniti Capital Established Manager Index > 36

HFRI US Fund of Funds Diversified Index MSCI Daily TR Gross World Free USD

HFRI US Fund of Funds Diversified Index

Increase in NAV per Unit

P.8

Infiniti Emerging Manager <36m Index Statistics versus BenchmarksInfiniti Emerging Manager <36m Index Statistics versus Benchmarks

P.9

Analysis period (Jan/1993 ~ Dec/2008)

Total Return in the period 352.47% 208.46% 167.52% 155.52%

Avg Monthly Return 0.80% 0.60% 0.53% 0.58%

Compound Annual Rate of Return 9.89% 7.29% 6.34% 6.04%

Std Deviation (Ann.) 5.05% 5.36% 6.61% 14.48%

Skewness -1.27 -0.96 -0.47 -1.08

Excess Kurtosis 5.62 3.15 3.46 2.53

Sharpe Ratio (Risk Free Rate = 1.42%) 1.62 1.08 0.75 0.38

Maximum Drawdown -17.11% -19.14% -21.56% -46.31%

Best Fit Distribution Gumbel (Min) J ohnson (Lognormal) Modified Normal Gumbel (Min)

99% Normal Value at Risk (VaR) -2.59% -3.00% -3.91% -9.15%

99% Best Fit Value at Risk (VaR) -3.77% -4.05% -5.95% -12.54%

99% Normal Conditional Value at Risk (CVaR) -3.09% -3.52% -4.56% -10.56%

99% Best Fit Conditional Value at Risk (CVaR) -4.91% -5.14% -8.40% -15.79%

Return In December 2008 0.07% -0.15% -1.47% 3.26%

Compound Return In Last 3 Months -8.23% -9.13% -9.57% -21.65%



Compound Return Year To Date -16.51% -18.37% -20.66% -40.33%

Infiniti Capital Emerging Manager Index < 36 and 300

Infiniti Capital Established Manager

Index > 36 HFRI US Fund of Funds

Diversified Index MSCI Daily TR Gross

World Free USD

Best Fit PDFs for Fund and BenchmarksBest Fit PDFs for Fund and Benchmarks

-8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00%

PDFs for Infiniti Capital Emerging Manager Index < 36 and 300 and Benchmarks


Infiniti Capital Established Manager Index > 36


MSCI Daily TR Gross World Free USD

This chart shows the ‘Best Fit’ distributions of the Fund and the Benchmarks. Its is demonstrating the Upside Potential or Shortfall of the Fund Relative to the chosen Benchmarks.

P.10

Relative Drawdown vs MSCI Daily TR Gross World Free Relative Drawdown vs MSCI Daily TR Gross World Free USDUSD

-0.7%

-5.1%

0.3%0.8%1.7%1.2%

-0.8%

0.3%

-0.1%

0.4% 1.2%0.6%0.6%

-1.3%-0.4%

1.6%

-0.4%-0.5%

0.3%

-1.6%-1.3%

0.4%

-1.8%

0.6% 0.3%

-2.5%

-17.1%

-1.2%

-13.4%

-2.7%-3.6%-1.4%

-5.8%-6.5%

-2.8%

-12.6%-14.4%

-18.0%

-3.8%-3.4%

-14.0%

-11.0%-9.5%

-2.6%-3.2%-2.2%

-4.0%-2.4%

-0.1%

-3.3%

-0.5%

-2.9%

-13.7%

-40.7%

-45.0%

-40.0%

-35.0%

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-15.0%

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-5.0%

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5.0%Infiniti Capital Emerging Manager Index < 36 and 300 MSCI Daily TR Gross World Free USD

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Drawdowns v.s MSCI Daily TR Gross World Free USD

The grey bars show the peak to trough drawdown’s of the benchmark over the review period. The red bars show the coincident returns of the Fund over the corresponding periods.

P.11

Rolling 12 month Annual Standard Deviation vs Rolling 12 month Annual Standard Deviation vs BenchmarksBenchmarks

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Infiniti Capital Emerging Manager Index < 36 and 300 Infiniti Capital Established Manager Index > 36

MSCI Daily TR Gross World Free USD HFRI US Fund of Funds Diversified Index

Rolling 12m StDev for Benchmarks & Infiniti Capital Emerging Manager Index < 36 and 300

P.12

Table of RoRs for Infiniti Emerging Managers FundsTable of RoRs for Infiniti Emerging Managers Funds

The Infiniti Invenio Sub-Trust USD 1x Class returns are the unleveraged returns of the Infiniti Invenio Sub-Trust

P.13

2007 0.99% 0.55% 0.75% 1.36% 1.54% 0.77% 0.65% -1.15% 2.29% 2.15% -1.11% 1.02% 10.19%

2008 -2.45% 2.02% -1.93% 1.63% 1.47% -0.84% -1.94% -1.41% -5.71% -6.49% -1.93% 0.07% -16.51%


2007 0.54% 0.46% 0.53% 0.95% 1.15% 0.53% 0.33% -1.67% 1.76% 1.91% -0.55% 0.41% 6.47%

2008 -1.69% 1.44% -1.84% 0.24% 1.28% 0.73% -3.08% -1.89% -2.25% -4.22% -1.58% 0.26% -12.05%

Conquistador II Sub-Trust

2007 0.58% 0.52% 0.55% 1.30% 0.63% 0.76% 1.12% -1.72% 2.22% 2.37% 0.17% 0.15% 8.92%

2008 -1.85% 1.45% -0.81% -0.10% 0.88% 0.32% -2.26% -0.73% -2.44% -5.37% -1.88% 0.63% -11.69%

Infiniti Invenio Sub-Trust USD 1x Class

2007 0.84% 0.39% 0.53% 1.31% 1.47% 0.65% 0.17% -1.73% 2.36% 2.10% -1.44% 0.50% 7.31%

2008 -2.33% 1.73% -2.20% 1.18% 1.69% -0.87% -2.40% -1.24% -5.97% -6.57% -2.59% -0.15% -18.37%

Infiniti Capital Established Manager Index > 36

2007 1.29% 0.82% 1.15% 1.68% 2.15% 0.53% 0.19% -2.18% 1.88% 3.07% -1.47% 0.33% 9.72%

2008 -2.83% 1.24% -2.59% 0.97% 1.85% -0.81% -2.61% -1.39% -6.53% -5.72% -2.65% -1.47% -20.66%


Infiniti Pure Emerging Manager Fund Statistics versus BenchmarksInfiniti Pure Emerging Manager Fund Statistics versus Benchmarks

Emerging Manager Funds have better Risk and Return characteristicsP.14

Analysis period (Jan/2003 ~ Dec/2008)

Total Return in the period 52.33% 49.46% 32.51% 23.09%

Avg Monthly Return 0.59% 0.57% 0.40% 0.30%

Compound Annual Rate of Return 7.27% 6.93% 4.80% 3.52%

Std Deviation (Ann.) 4.19% 4.39% 5.58% 6.08%

Skewness -2.33 -1.50 -2.06 -1.58

Excess Kurtosis 8.02 2.65 5.95 3.58

Sharpe Ratio (Risk Free Rate = 1.42%) 1.36 1.23 0.62 0.37

Maximum Drawdown -12.24% -12.42% -17.11% -21.56%

Best Fit Distribution Gumbel (Min) Gumbel (Min) Gumbel (Min) Gumbel (Min)

99% Normal Value at Risk (VaR) -2.22% -2.38% -3.34% -3.78%

99% Best Fit Value at Risk (VaR) -3.20% -3.41% -4.65% -5.20%

99% Normal Conditional Value at Risk (CVaR) -2.63% -2.81% -3.89% -4.37%

99% Best Fit Conditional Value at Risk (CVaR) -4.14% -4.40% -5.90% -6.57%

Return In December 2008 0.63% 0.26% 0.07% -1.47%




Compound Return Year To Date -11.69% -12.05% -16.51% -20.66%

Infiniti Invenio Sub-Trust USD 1x Class

Conquistador II Sub-Trust



Performance of Infiniti Funds against BenchmarksPerformance of Infiniti Funds against Benchmarks

P.15

Note. The HFR New Managers return for December 2008 has not yet been finalised we have used 0% as an estimate

70

75

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85

90

95

100

105

31-Dec-07 31-Mar-08 30-Jun-08 30-Sep-08 31-Dec-08

Infiniti Emerging Manager Funds past 12 Months

Conquistador II Sub-Trust : -12.05%

Infiniti Invenio Sub-Trust USD 1x Class : -11.69%

HFR New Managers Fund : -23.09%

HFRXEW Equal Weighted Strategies : -21.90%

HFRI US Fund of Funds Diversified Index : -20.66%

20.0% Cash + 30.0% Bonds + 50.0% Equities : -20.42%


P.16

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Infiniti Emerging Managers Index < 24m : -13.24%


Infiniti Established Managers Index > 36m : -18.37%

HFRI US Fund of Funds Diversified Index : -20.66%

EDHEC Funds of Funds : -19.72%


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P.18


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50:50 Blend Emerging & Established Managers : -18.33%

Emerging Managers versus Established ManagersEmerging Managers versus Established Managers

Emerging Managers have compound average excess alpha to Established Managers of 1.24% p.a.

P.19

13.00%

7.21%

8.39% 9.70% 10.19%

-16.51%

5.33%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

31-Dec-03 31-Dec-04 31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08

Infiniti Emerging Managers Index < 36m

Infiniti Established Managers Index > 36m

Avg Performance of Infiniti Emerging Managers Index

Infiniti Pure Emerging Managers Fund v.s.Emerging Infiniti Pure Emerging Managers Fund v.s.Emerging ManagersManagers

P.20

13.81%

10.41%

13.08%11.45%

8.92%

-11.69%

7.66%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

31-Dec-03 31-Dec-04 31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08

Infiniti Pure Emerging Manager Fund of Funds

Infiniti Emerging Managers Index < 36m

Avg Performance of Infiniti Pure Emerging Manager Fund

Infiniti Emerging Manager Fund has compound average excess alpha to Emerging Managers of 2.31% p.a.

Supporting LiteratureSupporting Literature

“Emerging managers have particularly strong financial incentives to create performance and may be more nimble than established ones. We find strong evidence of outperformance during the first two or three years of existence . Emerging managers, narrowly defined as having a maximum life of two years, generate an abnormal performance of 2.3% relative to the later years. This difference is statistically and economically significant.”

Aggarwal and Jorion - The Performance of Emerging Hedge Fund Managers

“‘Young’ funds outperform seasoned funds after adjustment for risk of failure. Investors should buy ‘young’ funds in the first three years of their existence.

Michael Howell, Managing Director, Crossborder Capital - The Young Ones

“Emerging managers, defined as managers with less than a two year track record, exhibit compelling absolute return profiles and have typically outperformed the overall hedge fund market.”

HFR Asset Management - Emerging Manager Out-Performance:

“Our conclusion is that despite the biases found in the data, investors may gain enhanced returns by investing in young hedge funds if proper due diligence is completed. Hedge funds under three years of age tend to perform better than do older hedge funds without necessarily adding to the volatility of returns.”

Lazard Asset Management - Early Performance In Hedge Fund Managers

“From Jan. 1, 2004, through Dec. 31, 2005, 167 "emerging managers" — those who started funds in 2003 and had $30 million to $250 million in assets — outperformed two leading hedge fund indexes. The class of 2003, or the 167 managers measured on an equal-weighted basis, returned 11.39 percent in 2004, compared with the MSCI equal-weighted index, at 6.55 percent, and the Credit Suisse/Tremont investable index, at 5.31 percent.”

Mayer & Hoffman Capital Advisors - Investing in Newer Hedge Funds

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Important NotesImportant Notes

• The information contained herein (the "information") is intended for illustrative purposes only, has been developed internally and has been based on variations of existing funds, managed accounts, simulations, extrapolations of other investment programs, pro forma data or taken from trade and statistical services and other sources that we deem reliable, although no warranty is made that the information is accurate or complete and it should not be relied upon as such.

• The information is not intended to depict or predict actual investment performance of any financial product and is subject to change without notice.

• Any opinions expressed herein reflect Infiniti Capital’s judgment at the date and time hereof and are subject to change without notice.

• The information should not be construed as legal, tax, investment or other advice.

• This does not constitute an offer to sell, or the solicitation of an offer to buy, any product. An offer may only be made by means of the offering memorandum and governing documents of the relevant funds (the "Fund Documents"), which should be read in their entirety.

• The information is not intended to be complete or final and is qualified in its entirety by the Fund Documents. In the event the Information is inconsistent or contrary to the descriptions or terms of the Fund Documents, the terms of the Fund Documents shall prevail.

• Interests in the funds are privately offered to investors who satisfy the eligibility criteria described in the Fund Documents.

• The Information is CONFIDENTIAL. It is intended only for the use of the person to whom this document is given and may not be reproduced or redistributed.

• Any securities discussed herein may not be suitable for all investors. Transactions of the type described herein may involve a high degree of risk, and the value of such instruments may be highly volatile.

• Past performance is not guarantee of, and cannot be construed as an indication of, future results.

P.22

do emerging managers add value ( dec 2008 )

Economy & Finance

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