The document compares hedge funds and liquid alternatives, revealing that institutional-quality hedge funds generally provide better returns and risk-adjusted performance despite barriers to entry. While liquid alternatives offer liquidity, they often do so at the cost of potential returns and access to more sophisticated investment strategies. The analysis concludes that for investors not constrained by liquidity demands, hedge funds are preferable due to their superior performance and risk management capabilities.

1. Crystal Capital Partners, LLC
Q3-2012
Investment Strategies
Hedge Funds vs. Liquid Alternatives:
Bleeding Green
In the case of a serious medical emergency, what surgeon would you choose? Would you look
for the least expensive or the most accomplished? It’s likely that we all agree we would opt for
the most accomplished. Accordingly, shouldn’t we treat our investments with the same level
of care?

2. Investment Strategies | Liquid Alternatives
Introduction
Since the aftermath of the financial crisis, market participants and financial advisors have
placed a renewed emphasis on downside protection and the inclusion of non-correlated assets within a client’s strategic asset allocation
mix.
This has naturally resulted in an overwhelming
interest in Alternative Investments; particularly
hedge funds and their more readily tradable
counterparts known as liquid alternatives.
However, it is important to recognize the considerable tradeoff investors encounter between
Crystal’s hedge fund
portfolio services break
down the common
barriers associated with
hedge fund investing.
these two products. While liquid alternatives are
certainly a more liquid solution, there are significant costs involved in utilizing them as a substitute for an actual direct hedge fund allocation.
Specifically, the ability to access daily liquidity
comes at the expense of capturing attractive
absolute and risk-adjusted returns, which have
been historically reserved for the most institutional-quality hedge funds.
This paper summarizes the differences between
institutional-quality hedge funds and liquid alternative funds.
Advisors turn to liquid alternatives because institutionalquality hedge funds present high barriers to entry. Crystal’s
hedge fund portfolio services break down these barriers. Our
comprehensive services help advisors become a full-service
alternative investment firm providing their clients the opportunity
to invest like the world’s largest investors. Our services include
customized portfolios, low minimums, a roster of 70+ institutional-quality hedge funds vetted by our rigorous due diligence
process, institutional safe guards, heightened transparency,
portfolio construction tools, private label services, and more.
Please see Important Disclosures at the end of this document
Page | 1

3. Investment Strategies | Liquid Alternatives
Investment Strategies | Liquid Alternatives
Hedge Funds vs. Liquid Alternatives
While liquid alternatives undoubtedly serve to benefit the liquidity-conscious investor who may not be able to access hedge funds directly, hedge funds often
outperform their liquid alternative counterparts by a number of different measures.
As we compare liquid alternatives to hedge funds, we explore whether the liquidity
benefits of these products outweigh the associated costs.
The Cost of Liquidity in an Illiquid World
The Reality of the Return Potential
Alternative Investments, which are typically
structured as private placements, are generally considered illiquid investments as they cannot be actively traded in the marketplace with
a readily known price. Hedge funds, however,
fall on the more liquid segment of the Alternative
Investment liquidity spectrum
By and large, liquid alternatives have been marketed as a cost-effective means of extracting
both outsized absolute returns as well as attractive risk-adjusted returns in the marketplace.
However, the ability to capture “alpha” in the
market is exceedingly difficult and opportunities
are largely exploited by the most sophisticated
investors.
The illiquidity of Alternative Investments, which
in some cases can be a source of return, limits
their attractiveness to investors; particularly the
high net worth client who may be constrained by
ongoing financial obligations such as funding a
college tuition or simply the desire to retire and
underwrite living expenses through both capital
gains and income generated from an investment portfolio.
Investors have increasingly turned to liquid alternatives as a means to expand their investment universe while preserving a level of portfolio liquidity with which they have historically
been comfortable.
This ability to turn-over a portfolio daily while
providing access to differentiated sources of
returns has been the primary contributor to the
growth in the liquid alternatives industry.
As a result, the most institutional-quality hedge
funds have consistently earned above average
rates of return that exceed those of liquid alternatives.
For example, as depicted in Table 1, the average
of Crystal’s top three Multi-Strategy Hedge Fund
Candidates* delivered 12.02% in annualized returns over the past five years, while the average
of the top three liquid alternative funds produced
a meager 3.79% (see appendix for additional
data points).
Additionally, investors in these institutional-quality hedge funds were appropriately compensated
for the level of risk assumed, as Sharpe ratios
for the multi-strategy hedge funds on average
exceeded 1.0 (see Table 1). The same cannot
be said for those investors allocating to liquid alternative funds.
* Candidate Funds - Institutional-quality hedge funds that are offered through Crystal Capital Partners and that are * available for inclusion
in a custom hedge fund portfolio.
Page | 2

4. Investment Strategies | Liquid Alternatives
Table 1: Top 3 Hedge Funds vs. Top 3 Liquid Alternative Funds by Return - 5 Year Statistics
Annualized
RoR
5 Years
Standard
Deviation
Cumulative
Value
Max
Drawdown
Sharpe
Ratio
Correl. to Percent Months
S&P 500
Positive
Multi Alternative Liquid Alt. Mutual Fund A
6.13%
7.19%
140.08%
17.08%
0.70
0.66
58.82%
Multi Alternative Liquid Alt. Mutual Fund B
2.88%
5.92%
117.44%
18.43%
0.31
0.75
66.18%
Multi Alternative Liquid Alt. Mutual Fund C
2.36%
14.01%
112.59%
35.53%
0.18
0.84
57.38%
3.79%
9.04%
123.37%
23.68%
0.40
0.75
60.79%
Crystal Multi-Strategy Hedge Fund A
13.70%
9.22%
206.99%
9.77%
1.31
0.16
66.18%
Crystal Multi-Strategy Hedge Fund B
12.76%
6.10%
197.45%
10.45%
1.81
0.31
82.35%
Crystal Multi-Strategy Hedge Fund C
9.60%
4.50%
168.07%
4.52%
1.80
0.03
77.94%
12.02%
6.61%
190.84%
8.25%
1.64
0.17
75.49%
Liquid Alts Average
Hedge Funds Average
Timeframe: 2007 - Aug. 2012
Source: Crystal Capital Partners from fund manager reporting, Morningstar MultiAlternative Index and Yahoo! Finance
Limitations Imposed by Liquidity Demands
Dearth of Investment Talent
In order to meet their daily liquidity requirements, liquid alternatives are forced to severely
limit the range of investment strategies they can
pursue and are bound to the more liquid end of
the hedge fund strategy spectrum.
While the liquid alternatives industry comprises
of a few notable participants — namely Cliff Asness’ AQR Capital Management — the hedge
fund space has traditionally attracted the finest
trading talent and the most intellectual individuals across Wall Street.
Therefore, a majority of liquid alternatives simply employ long/short equity, global macro, and/
or managed futures strategies.
In comparison, the hedge fund industry consists
of a much larger universe of strategies with
some of the more compelling investment approaches unavailable in a liquid alternative fund
structure.
For example, distressed credit funds, which
have produced attractive annualized returns of
11.1% over the past 3 years (HFRI Distressed/
Restructuring Index for the period related to
Jan. 2009 – Jul. 2012)* and are currently eager
to exploit opportunities emanating from Europe,
are unavailable in liquid alternative funds due to
these liquidity constraints.
With the inception of the Volcker Rule, as well as
the fact that banks are limited in the amount of
compensation they can reward, this reality has
only intensified as of late. In fact, an increasing number of hedge funds have publicly commented that the hiring pool, particularly from the
sell-side investment firms, has never been as
abundant as it is today.
However, the liquid alternatives space is not experiencing a comparable influx of talent like their
hedge fund peers as they are by and large confronted with the same challenges as the bulge
bracket banks: the inability to offer double-digit
payouts on profits and sizeable cash bonus to
attract and retain talented personnel. **
* CrystalTools ©
** Bloomberg Online: Billion-Dollar Traders Quit Wall Street for Hedge Funds, May 7, 2012
Page | 3

5. Investment Strategies | Liquid Alternatives
Downside Risk Protection
The market drawdowns experienced in 2008
are still quite vivid in the minds of investors today. When allocating capital to outside managers, investors generally seek to understand how
a fund performs in the face of market turmoil
and how skilled a manager is at protecting investor capital.
The growth in liquid alternatives however, only
truly developed after 2008, at which time the
industry was managing less than $40 billion in
assets.1
Today, liquid alternative industry assets represent $125.7 billion,2 resulting in a large universe
of funds that have not obtained the necessary
track record in order for them to be analyzed
in relation to one of the worst market environments of recent times.
Nonetheless, for the few pioneers of the liquid
alternatives industry who can boast at least a 5
year track record, we can observe that Crystal’s
Multi-Strategy Hedge Fund Candidates did a far
superior job in protecting investor capital. *
As Table 1 reveals, not only was volatility significantly reduced but max drawdown figures were
also considerably less than their liquid alternative counterparts (see appendix for additional
data points).
* See table 1 in appendix.
Correlation to Equity Markets
In an environment that has witnessed increasing correlations among all asset classes, seeking return
streams that are uncorrelated to one another is of significant importance.
In fact, according to the 2011 Alternative Investment Survey of U.S. Institutions and Financial Advisors
conducted by Morningstar and Barron’s Magazine,1 diversification and low correlation is the primary
driver behind increasing ones strategic asset allocation to alternative investments.
Table 2 highlights the overwhelming diversification benefits that hedge funds offer, while liquid alternatives approach a nearly perfect positive correlation to the S&P 500.
Table 2: Correlation to S&P 500 - 5 years
1.0
0.97
High
Correlation
to S&P 500
0.84
0.75
0.66
Moderate
Correlation
to S&P 500
Low
Correlation
to S&P 500
0.31
0.16
MultiStrategy
Hedge
Fund A
0.03
MultiStrategy
Hedge
Fund B
MultiStrategy
Hedge
Fund C
Candidate Hedge Funds
Multi
Alternative
Liquid
Alt. A
Multi
Alternative
Liquid
Alt. B
Multi
Alternative
Liquid
Alt. C
Liquid Alternatives
MSCI
World
S&P 500
Indicies
Timeframe: 2007 - Aug. 2012
Source: Crystal Capital Partners from fund manager reporting, Morningstar MultiAlternative Index and Yahoo! Finance
Page | 4

6. Investment Strategies | Liquid Alternatives
Conclusion
Crystal’s Multi-Strategy Hedge
Fund Candidates clearly outperform the leading liquid alternative
funds.
Moreover, liquid alternatives are
severely limited in the investment
strategies they are able to pursue
as well as the fact that the industry’s abbreviated track record renders them unproven in market periods when downside protection is
of the utmost importance.
Additionally, liquid alternatives’
high correlation to the equity markets calls into question their ability
to diversify a portfolio.
For those qualified investors who
are not constrained by liquidity pressures, institutional-quality
hedge funds possess a much
greater risk/reward pay off than
the leading liquid alternative funds
can offer. *
* Source: RAMIUS TRADING STRATEGIES LLC;
The Emergence of Liquid Alternatives and the
Case for Managed Future Mutual Funds, 2012
and Crystal Capital.
Page | 5

7. Investment Strategies | Liquid Alternatives
Appendix: Additional Data Points
Top 10 Crystal Capital Partners Multi-Strategy Hedge Fund Candidates by Return - 5 Year Statistics
Annualized
RoR
5 Years
Standard
Deviation
Cumulative
Value
Max
Drawdown
Sharpe
Ratio
Correl. to Percent Months
S&P 500
Positive
Crystal Multi-Strategy Hedge Fund A
13.70%
9.22%
206.99%
9.77%
1.31
0.16
66.18%
Crystal Multi-Strategy Hedge Fund B
12.76%
6.10%
197.45%
10.45%
1.81
0.31
82.35%
Crystal Multi-Strategy Hedge Fund C
9.60%
4.50%
168.07%
4.52%
1.80
0.03
77.94%
Crystal Multi-Strategy Hedge Fund D
8.81%
3.91%
161.36%
6.40%
1.88
0.41
80.88%
Crystal Multi-Strategy Hedge Fund E
6.48%
17.60%
142.72%
18.49%
0.38
0.52
77.94%
Crystal Multi-Strategy Hedge Fund F
6.31%
10.59%
141.41%
54.94%
0.52
0.10
55.88%
Crystal Multi-Strategy Hedge Fund G
5.23%
6.90%
133.47%
12.64%
0.60
0.15
55.88%
Crystal Multi-Strategy Hedge Fund H
4.93%
5.01%
124.20%
6.28%
0.92
-0.10
62.96%
Crystal Multi-Strategy Hedge Fund I
4.92%
6.79%
131.28%
17.12%
0.57
0.32
63.24%
Crystal Multi-Strategy Hedge Fund J
4.80%
5.90%
130.44%
16.93%
0.62
0.61
69.12%
7.75%
7.65%
153.74%
15.75%
1.04
0.25
69.24%
Max
Drawdown
Sharpe
Ratio
Hedge Funds Average
Timeframe: 2007 - Aug. 2012
Source: Crystal Capital Partners from fund manager reports
Top 10 Morningstar MultiAlternative Index by Return - 5 Year Statistics
Annualized
RoR
5 Years
Standard
Deviation
Cumulative
Value
Correl. to Percent Months
S&P 500
Positive
Multi Alternative Liquid Alt. Mutual Fund A
6.13%
7.19%
140.08%
17.08%
0.70
0.66
58.82%
Multi Alternative Liquid Alt. Mutual Fund B
2.88%
5.92%
117.44%
18.43%
0.31
0.75
66.18%
Multi Alternative Liquid Alt. Mutual Fund C
2.36%
14.01%
112.59%
35.53%
0.18
0.84
57.38%
Multi Alternative Liquid Alt. Mutual Fund D
2.03%
9.69%
111.87%
27.16%
0.14
0.87
56.72%
Multi Alternative Liquid Alt. Mutual Fund E
0.86%
14.79%
104.98%
40.33%
0.05
0.91
58.82%
Multi Alternative Liquid Alt. Mutual Fund F
0.49%
12.03%
102.81%
31.72%
0.00
0.85
58.82%
Multi Alternative Liquid Alt. Mutual Fund G
1.07%
10.86%
106.22%
32.85%
0.04
0.73
63.24%
Multi Alternative Liquid Alt. Mutual Fund H
0.52%
14.97%
102.98%
45.08%
0.03
0.92
52.94%
Multi Alternative Liquid Alt. Mutual Fund I
0.43%
5.11%
102.37%
11.90%
-0.09
0.45
56.92%
Multi Alternative Liquid Alt. Mutual Fund J
4.04%
5.79%
116.41%
10.06%
0.69
0.79
67.39%
Liquid Alts Average
2.08%
10.04%
111.78%
27.01%
0.21
0.78
59.72%
Timeframe: 2007 - Aug. 2012
Source: Morningstar MultiAlternative Index and Yahoo! Finance Morningstar and Yahoo! Finance
1. Morningstar, Inc. “Morningstar & Barron’s 2011 Alternative Investment Survey of U.S. Institutions and Financial Advisors.” May 2012. http://corporate.morningstar.com/us/documents/MarketResearchSurveys/MorningstarBarrons2011Survey.pdf
2. Goodman, Beverly. “An Alternative to Hedge-Fund Alternatives.” Barron’s Magazine. 26 May 2012. Print.
Page | 6

8. Crystal Capital Partners, LLC.
1111 Kane Concourse, Suite 404
Bay Harbor Islands, FL 33154
T. (305) 868 - 1500
F. (305) 868 - 1595
www.crystalfunds.com
DEFINITIONS:
MSCI World Index tracks the stocks of approximately 1,300 companies representing the stock markets of 22 countries.
The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock’s weight in the index is proportionate to its market value. The S&P 500 is one
of the most widely used benchmarks of US equity performance.
Cumulative Value time value of money is the value of money figuring in a given amount of return for a given amount of time. For example 100 dollars of today’s money held for a year at 5 percent
interest is worth 105 dollars. The Cumulative value is therefore the value of money after several periods of returns: 100 dollars invested now would be worth 100 * (1+ x1%) after a period that
returned x1%, would be worth 100 * (1+x1%)*(1+x2%) after the second period and so on.
The Volcker rule separates investment banking, private equity and proprietary trading (hedge fund) sections of financial institutions from their consumer lending arms. Banks are not allowed to
simultaneously enter into an advisory and creditor role with clients, such as with private equity firms. The Volcker rule aims to minimize conflicts of interest between banks and their clients through
separating the various types of business practices financial institutions engage in.
Standard deviation reflects a portfolio’s total return volatility, which is based on a minimum of 36 monthly returns. The larger the portfolio’s standard deviation, the greater the portfolio’s volatility.
Max drawdown is an indicator of the risk of a portfolio based on a certain strategy. It measures the largest single drop from peak to bottom in the value of a portfolio (before a new peak is achieved).
Sharpe ratio is calculated by subtracting the risk-free rate – such as that of the 10-year U.S. Treasury bond – from the rate of return for a portfolio and dividing the result by the standard deviation
of the portfolio returns. The Sharpe ratio tells us whether a portfolio’s returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although
one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio’s Sharpe ratio, the
better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.
IMPORTANT DISCLOSURES:
This Document is for informational purposes only and is not an offer to sell or the solicitation of an offer to buy an interest in any of the Funds managed or advised by Crystal Capital Partners, LLC
(“Crystal”). This document contains only summary information about the Funds and is qualified in its entirety by, and should be read in conjunction with, the more detailed information contained in
the Offering Memorandum for each Fund.
The interests in the Fund have not been registered with the SEC under the Securities Act, or under the securities laws of any state of the United States or under the securities laws of any other jurisdiction, and the Funds have not been registered as an investment company under the Investment Company Act of 1940, as amended, and are being offered and sold in reliance on exemptions from the
registration requirements of such laws.
The information contained in this Document has been prepared to assist interested parties in making their own evaluation of the opportunity and does not purport to be complete or to contain all of the
information that a prospective investor might consider important in connection with an investment in the Fund. In all cases, interested parties should conduct their own investigation and analysis of the
Fund, the data set forth in this Document and such other data as they may consider relevant to an investment decision. The information contained in this Document does not constitute legal, tax, accounting, regulatory or investment advice, and persons considering an investment in the Fund should consult their own legal and financial advisors with respect to the application of United States securities,
tax or other laws and accounting and regulatory provisions to their particular, as well as any consequences arising under the laws of any other jurisdiction.
The liquidity schedule constitutes the “best available” liquidity as of the date hereof. The liquidity terms described are for a particular exposure. From time to time, the Fund and/or the Outside Portfolio
Manager may offer different liquidity terms. “Best available” liquidity assumes availability when soft lock terms are applicable.
The pro forma results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not
represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of
liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or
is likely to achieve profits or losses similar to these being shown.
THE PRO FORMA COMPOSITE PERFORMANCE RECORD IS HYPOTHETICAL AND THESE TRADING ADVISORS HAVE NOT TRADED TOGETHER IN THE MANNER SHOWN IN THE COMPOSITE. HYPOTHETICAL
PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY MULTI-ADVISOR MANAGED ACCOUNT OR
POOL WILL OR IS LIKELY TO ACHIEVE A COMPOSITE PERFORMANCE RECORD SIMILAR TO THAT SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN A HYPOTHETICAL COMPOSITE
PERFORMANCE RECORD AND THE ACTUAL RECORD SUBSEQUENTLY ACHIEVED.
ONE OF THE LIMITATIONS OF A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD IS THAT DECISIONS RELATING TO THE SELECTION OF TRADING ADVISORS AND THE ALLOCATION OF ASSETS AMONG
THOSE TRADING ADVISORS WERE MADE WITH THE BENEFIT OF HINDSIGHT BASED UPON THE HISTORICAL RATES OF RETURN OF THE SELECTED TRADING ADVISORS. THEREFORE, COMPOSITE PERFORMANCE RECORDS INVARIABLY SHOW POSITIVE RATES OF RETURN. ANOTHER INHERENT LIMITATION ON THESE RESULTS IS THAT THE ALLOCATION DECISIONS REFLECTED IN THE PERFORMANCE
RECORD WERE NOT MADE UNDER ACTUAL MARKET CONDITIONS AND, THEREFORE, CANNOT COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FURTHERMORE, THE
COMPOSITE PERFORMANCE RECORD MAY BE DISTORTED BECAUSE THE ALLOCATION OF ASSETS CHANGES FROM TIME TO TIME AND THESE ADJUSTMENTS ARE NOT REFLECTED IN THE COMPOSITE.
The Fund and/or the Fund Manager use several sources of information to support the analysis in this Document, including information provided by investment managers, third party databases, and
other public and non-public sources. The Fund and/or the Fund Manager will make commercially reasonable efforts to ensure the reliability of the information, but make no warranty as to the accuracy,
completeness or suitability of the information. Such information is further subject to the qualifications and limitations contained in the Terms of Use Agreement and the Disclaimer made part of each
fund report.
The interests in the Fund are speculative, illiquid, involve substantial risk, and are a suitable investment only for a limited portion of an investor’s portfolio. Investors could lose all or substantially all
of their investment in the Fund. Neither the delivery of this Document nor any offers or sales hereunder shall create an implication that there has been no change since the date of this Document or
the Offering Memorandum in the matters disclosed herein. Before you decide to invest, read the entire Offering Memorandum for the specific fund of interest carefully, and in particular, consider the
“Risk Factor” section. If you, or your advisors, have questions concerning the operations, you should contact the Fund Manager at the address or phone number included in the Offering Memorandum.
None of the directors, officers, employees or advisers of Crystal or its affiliates or any other person makes any promise, guarantee, representation or warranty (expressed or implied) to any person as
to the fairness, accuracy or completeness of this Document or the information contained herein, or of any other information, materials or opinions, whether written or oral, that have been, or may be,
prepared or furnished by any of those companies, including, without limitation, economic or financial projections, if any, or risk evaluations.
The recipient acknowledges and agrees that all of the information contained herein is confidential, and if the recipient has previously accepted this Document, signed or agreed to Crystal’s Terms of
Use Agreement or Non-Disclosure Agreement, is subject thereto. Without limiting the generality of the foregoing: (1) the recipient will not reproduce this Document, in whole or in part; (2) if the recipient
does not wish to pursue this matter or is not an “Accredited Investor” within the meaning of Rule 501(a) under the Securities Act of 1933 and/or a “Qualified Purchaser” as such term is defined in the
Investment Company Act of 1940, as amended and (the “Securities Act”), it must return this Document to Crystal, as soon as practicable, together with any other materials relating to the Fund, which the
recipient may have received, or must destroy this Document and such other materials as soon as practicable and, in each case, must destroy, as soon as practicable, all copies of analyses, compilations,
studies or other documents prepared by it in connection with any information in this Document or such other materials.