Ermitage Group General Creds Usa   Q1 2010
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  • 1. 1 Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Ermitage introduction 1st Quarter 2010 These presentation materials and the information contained herein, and any oral or other written information disclosed or provided is strictly confidential and may not be reproduced or redistributed, in whole or in part, nor may its contents be disclosed to any other person under any circumstances without the express written consent of Ermitage Asset Management Jersey Limited. An investment in the Funds is speculative and involve a high degree of risk. The Funds may, through their investments, employ certain trading techniques that may include short selling, options, and the use of leverage which may increase the risk of investment loss. As a result, performance may be volatile and an investor may lose some or all of his or her investment. Furthermore, the ability to withdraw investments or redeem shares or to transfer such shares or interests will be limited. It is anticipated that there will not be a secondary market for interests or shares in the Funds nor is any expected to develop. Fees and expenses may offset trading profits. Please refer to the Confidential Private Offering Memorandum when available for all risks associated with investments in the Funds.
  • 2. 2 Ermitage profile Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Founded 1975, $1.8bn AUM Alternative pioneer – 1st HF investment 1984 Owned by Caledonia Investments Plc 46 staff – Jersey, London, New York FoHF’s, Single Funds, Wealth Management Macro-driven portfolios, integrating top-down view with bottom-up selection Manage CalPERS customised portfolio Edge: Intelligent Portfolio Design
  • 3. 3 Ermitage – key milestones Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Ermitage Ltd MBO completed: Ermitage founded 1st FoHF launched 1975 Management/Caledonia Investments Plc 1997 2006 1984 2001 2007 1st HF Investment Acquired by Liberty OPTICS Portfolio Group System launched
  • 4. 4 Specialist teams, aided by innovative systems Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary
  • 5. 5 All FoHF’s are not created equal Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Designed to deliver specific objectives Built to perform in multiple scenarios Obsessed with ‘market wizards’ Each manager given portfolio role Bundle top managers together Managed for ‘real world risk’ High market /event correlation Low diversification, downside protection
  • 6. 6 Ermitage – investment philosophy Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Markets are complex & dynamic …don’t fit Efficient Market model Periodic, fundamental changes Not uncorrelated ‘asset class’ Forecasting near term impact of Dynamic, adaptive strategies market changes is vital Portfolios need clear objectives Effected by market environments Selecting Q1 managers no guarantee Knowing behaviour pattern key of reliable future returns Selected managers given specific role Aim: robust ‘all weather’ portfolio
  • 7. 7 Investment process Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Manager Selection Portfolio Construction Active Management Identify definable edge Built for varied market scenarios Sub-strategy allocations Classification by style / focus Focus on style diversification Manager vs. forecast returns Forecasts for different scenarios Every manager given specific role Portfolio re-tested vs. scenarios
  • 8. 8 Hedge fund research – LEWIS Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Qualitative evaluation by strategy specialists LEWIS Qualitative & Quantitative Database All research stored in proprietary LEWIS system: – Statistical analysis on 4500+ funds – Multiple data feeds (Altvest, Tass, Eurohedge) – Manager ‘rolodex’, documents, meeting notes – Operational Due Diligence reports – Alpha / beta return, performance, risk, correlation analysis – Benchmark / peer group regression
  • 9. 9 Portfolio construction – OPTICS Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Ermitage’s proprietary system Transforms forecasts into effective portfolios Glass box process helps evaluate: – Capital allocation (by strategy / manager) – Managers’ roles in portfolio – Portfolio behaviour in different scenarios – Performance versus objectives
  • 10. 10 Portfolio construction – guiding principals Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Be precise about portfolio objectives Be specific about beliefs Don’t extrapolate the past into the future – the world does change Create a clear link between beliefs, objectives, and actions Don’t overlook (or downplay) the ‘what-if-we’re-wrong’ scenarios Examine the key positions embedded in each portfolio Confront reality directly – don't accept what conflicts with common sense Use models as guides and recognise their limitations
  • 11. 11 Managing ‘investment risk’ Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Qualitative assessment by specialist team Style diversification (not just by ‘name’) Manager’s ability to perform to potential Position size limits 5 independent references compulsory Liquidity risk analysis P&L analysis – are returns repeatable? Factor risk analysis (e.g. beta, market cap) Multiple scenario forecasting Flag report / IMC Exception Report Continuous scenario testing
  • 12. 12 Managing ‘operational risk’ Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Specialist Ermitage team, power of veto 150+ questions, on-site interviews Service provider references Backtrack reports - key principals COO independent reference Monthly surveillance Quarterly independent transparency Annual accounts review
  • 13. 13 Fund solutions – track record of innovation Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary
  • 14. 14 Customised portfolios – harnessing HF talent Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Risk/return specified by client Uses robust, transparent process and advanced systems Investment goals driven by Designed for multiple scenarios Strategy specialists – niche areas liabilities Opportunities dictated by market Conservative risk appetite Environment change leads to Require transparency and risk/return volatility understanding of portfolio
  • 15. 15 Customised portfolios – key benefits Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Control … specify strategies, liquidity, risk/return targets, etc Synergy … with client objectives & existing investments Performance … increased probability of consistent risk adjusted returns Flexibility … adaptive to changing environments / circumstances Transparency … manager selection, due diligence, asset allocation Service … access to seniors, partnership approach
  • 16. 16 Ermitage – value adding expertise, processes, tools Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Established hedge fund specialist Track record of risk-adjusted performance* Leading edge systems (OPTICS, LEWIS) Intelligent portfolio design approach Innovative customised portfolio service Proactive, partnership culture *6 InvestHedge 2009 Award nominations; Winner of PAM and FT/Investor Chronicle 2009 Awards
  • 17. 17 Ermitage Asset Management Jersey Ltd 47 The Esplanade, St Helier, Jersey Channel Islands JE1 9LB Company overview │ Investment approach │ Risk management & ODD │ Client solutions │ Summary Tel: +44 (0) 1534 615500 Fax: +44 (0) 1534 615520 Ermitage UK Ltd 25 Savile Row, London, W1S 2ES Tel: +44 (0) 207 333 0900 Fax: +44 (0) 207 333 0443 Ermitage Americas Inc Suite 917, 9th Floor, 330 Madison Avenue New York, NY 10017 Tel: +1 646 495 5665 info@ermitagegroup.com www. ermitagegroup.com DISCLAIMER Ermitage Asset Management Jersey Limited ("EAMJL") is registered with the Jersey Financial Services Commission for the conduct of investment business and fund services business and with the U.S. Securities and Exchange Commission as an investment adviser. Information contained in this publication, where not externally sourced, has been provided by EAMJL. EAMJL has issued this publication which is for private circulation only, is published solely for information purposes and does not constitute an offer to sell or an invitation to buy any of the securities or funds mentioned herein or any other financial instruments. Subscriptions will only be received and units or shares issued on the basis of the current offering document (s) for the fund and prospective investors should carefully consider the risk warnings and disclosures for the fund set out therein. Investors should also consider any other factors that may be relevant to their circumstances. The investor must take an independent assessment of any legal, credit, tax, regulatory and accounting issues and determine with his or her professional advisors any suitability or appropriateness implications of any transaction contemplated or referred herein. Units or shares in the fund are not for sale in any jurisdiction in which such sale would be prohibited. Without limiting the generality of the previous statement, with particular reference to the UK, this document may only be distributed to and acted upon by those persons in the UK pursuant to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 as amended. None of the funds described herein are regulated under the Financial Services and Markets Act 2000, and for such funds protections provided by the UK regulatory system do not apply, nor are the benefits available under the Financial Services Compensation Scheme. When issued in the UK, this publication is issued by Ermitage UK Limited, which is authorised by the Financial Services Authority. The Fund will not register as an investment company under the U.S Investment Company Act of 1940, as amended (the “Company Act”) and, accordingly, the provisions of the Company Act will not be applicable to the Fund. Whilst reasonable efforts have been made to ensure the accuracy of the information herein, which may be based on proforma, estimated or unaudited figures, the Ermitage Group accepts no responsibility for its accuracy, nor the reasonableness of the conclusions based upon such information. The contents of this document are believed to be accurate at the date hereof but are subject to change without prior notification. Past performance is not a guarantee of future performance. The price of units or shares can go down as well as up and may be affected by changes in rates of exchange. An investor may not receive back the amount invested.