EFTA00293330.pdf

.ATORUS September 2014 EFTA00293330 Agenda ATORUS • Overview 3 • Founding Partners 4 • Investment Strategy 5 • Investment Methodology 6 • Key Differentiating Factors 12 • Previous Track Record 13 • 20 Year Simulation 14 • Contact Information 24 • Disclaimer 25 2 EFTA00293331 Overview . ATORUS  Atorus utilizes a systematic methodology for investing across a global universe of highly liquid securities  The target return objective is gross average annualized returns of 24% with a Sharpe Ratio of 1.2X  The investment strategy is scalable, highly liquid, and transparent which aims to minimize downside volatility and generate consistent returns  The founders Michael Fowler and Joshua Levy have worked together for 7 years, developing and employing a risk-conscious and proprietary dynamic trading methodology  Atorus is headquartered in Weston, MA as a Registered Investment Advisor in the state of Massachusetts  Atorus is in its pre-launch phase, targeting an initial capital raise of $100m for a launch date of Q4 2014 3 EFTA00293332 Founding Partners ATORUS The Founding Partners of Atorus met in 2006, when they began collaborating on research and development of what are now the underlying insights of the Atorus trading methodology. Diverse backgrounds and experience combined with complementary skill sets is the foundation for creating, developing, and growing the Atorus trading methodology into a global, leadership•driven asset management business. Michael J. Fowler — Partner & Chief Investment Officer (trading, position level analysis and quantitative systems development, risk management) Michael's career has been focused on understanding the nuances of complex financial systems and other markets. In 2007 Michael was the Co•Founder and Senior Portfolio Manager at Red Dot Trading, LLC, where in cooperation with Joshua, he was responsible for the day to day trading of a sector specific core listed-equity book. Prior to this, he was the Director of Structured Products & Finance at The Geneva Group in New York where he was responsible for developing financial structures to provide bank-regulatory capital relief solutions given Basel II risk re•weightings. Michael also focused on project and acquisition financings primarily in the infrastructure, real estate and energy industries, including the acquisition of London City Airport by various European banks. He began his financial career at the age of 14 as a runner for the American Stock Exchange and at the age of 16 was hired by the hedge fund MHG Capital as an equity and equity derivatives trader. Michael is an avid ultra marathoner who runs 50 and 100 mile+ races. Joshua L. Levy — Partner & Chief Executive Officer (quantitative systems development and implementation, operations and trading). Joshua has largely focused on understanding what makes companies grow and prosper and bringing simplicity and systematic thinking to complex processes. Since 2002 Joshua has been instrumental in directing and supporting the growth of Round Hill' Capital a European investment / asset management company that has invested more then $6B USD in capital. In 2007, Joshua co- founded Red Dot Trading, LLC with partner Michael Fowler.. Joshua was also the Director of Private Investments at MUUS Asset Management, a Connecticut-based private equity firm, where he was responsible for the operational restructuring and management of portfolio companies in the real estate, automotive, and energy industries. Prior to MUUS Asset Management, Joshua worked at Alvarez & Marsal Europe where he focused on advising distressed international companies and their debt restructurings. In 1996, he founded Creative Ideas International, a consumer goods distribution and marketing firm in Eastern Europe, which he then sold to a NYSE listed company in 2001. Recognized as a global operations and turnaround expert, he holds an MBA from the MIT Sloan School of Management and a BA from Vanderbilt University. Joshua is an enthusiastic ice hockey goalie and has played for teams in the USA, Poland and Norway. 4 EFTA00293333 Investment Strategy . ATORUS Atorus is a global multi-strategy fund with a systematic bias that hinges on Price Movement and Volatility. HOW? • In any one time, the Fund invests in 400+ highly liquid positions globally across multiple asset classes • Each position is systematically chosen to minimize risk by taking into account volatility randomness low correlation and asset class diversification to deliver profits for investors in up and down markets • The effective diversification of the portfolio dampens the downside volatility of returns while minimizing negative impact on profitability • Within the portfolio, directional bets are taken on individual positions via systematic trade management • Atorus cuts beta on losing positions and lets winners run • Atorus targets a Profit Factor of 2.5X and a Win Ratio. ' of > 40%. The magnitude of winners more than offsets losers • Systematic Trade Management on individual long and short positions is driven by analysis of TIME and VOLATILITY • Historical 20-year backtest of 23.66% gross IRRs, a Sharpe ratio of 1.2, and with 88% positive rolling yearly returns (See Track Record for details) • Profit Factor: The ratio of the avg. realized gain on a profitable trade divided by the average realized loss on a losing trade • Win/Loss Ratio: The percentage of profitable trades 5 EFTA00293334 Investment Methodology The Atorus investment methodology utilizes 3 discrete investment modules. ir * . ATORUS Portfolio Construction Directional Bias of Individual Positions & Timin Risk Control 6 EFTA00293335 Investment Methodology IBOXX GLOBAL INFLATION PROTECTION, 9.00% IBOXX HIGH YIELD, 9.00% Citi WGBI RATES, 27.00% COMMODITIES, 5.00% LISTED EQUITIES, 16.50% G20 EQUITY INDE FUTURES (EIF 17.00% US SECTORS, 6.66% EMERGING MARKETS INDEX FUTURE, 6.66% _EU SECTORS, 3.33% 4 A. TORUS • Portfolio construction is both systematic and dynamic • The goal is to maximize randomness ,minimize basis and attribution risk, and construct a portfolio to mitigate correlation • We define 'risk' not as notional dollars of exposure, but rather based upon the continuously updated realized volatility. High volatility assets receive lower dollars of exposure versus lower volatility assets • We target an annualized portfolio volatility, and then allocate the risk among the following categories 7 EFTA00293336 Investment Methodology Directional Bias of Individual Positions & Timing 4ATORUS • Determining the directional bias and profiting from 'large' movements, whether long or short, is the foundation of the strategy • Subjective factors are removed in favour of Atorus' disciplined, systematic approach • Proprietary calculations of changes in realized volatility and price movement alter the timing of entry and exit. - Volatility scales. As volatility increases our perspective is tightened, allowing for a quick reaction on the directionality of an individual position - This protects the Atorus portfolio against a common event where profits which took 6 months to achieve are not lost in 30 days - In simple terms, if realized volatility is not changing, portfolio positions are maintained so as not to sell at the bottom and buy at the top of mini trends EFTA00293337 Investment Methodology Directional Bias of Individual Positions & Timing (cont.) . ATORUS • Atorus does not establish any arbitrary targeted net directional bias for the portfolio or for any subsector of the portfolio. Atorus does not generally short rates or other credit instruments • Portfolio bias is generated by the aggregate of our individual position bias rather then any defined targets - if Atorus is expressing a particular net-directional bias, it is likely we are experiencing outsized profits across multiple positions • Key Points:  Mean reversion is against the ethos of our strategy given average trade duration of 100 periods  No moving averages or technical analysis  Keep losers small and winners big  Time is always a variable  No 'trend' following  Low turnover of positions. Atorus Proprietary Research "Volatility Scales." Changes in realized volatility alter the speed at which the price of a security can change. In 14,363 daily observations of the S&P500, which includes The Cuban Missile Crisis, Inflation of the 1970s, S&L Crisis, LTCM, 9/11, Tech Crash, and the Financial Crisis, our predicted max volatility in the next period is only exceeded 177 times or 1.23% of the time, with no clustering of these outcomes. When exceeded, the average error is only 26% more than the prediction. 9 EFTA00293338 Investment Methodology Risk Control Risk control is achieved by systematically managing: • Position Entry/ Exit Points: — Minimum of 10 days entry and exit - 'smoothing the noise' •ATORUS • Portfolio Leverage: — Anticipated average gross leverage (notional risk exposure / NAV) of 3.8 X (can be tailored for each investor) • Position Sizing: — Designed to limit downside risk — No human discretion — Realized volatility of security determines the size of an allocation — Calculated for potential maximum targeted impact loss and a balanced positive impact from winners to NAV — Position sizing increases as winners are leveraged in declining notional amounts at target price levels informed by realized volatility • Rebalancing: - The portfolio is rebalanced as realized volatility of the individual positions change. The goal is to keep a consistent targeted annualized volatility. irrespective of the volatility environment of the broader markets 10 EFTA00293339 Investment Methodology Risk Control (cont.) ATORUS • Portfolio Drawdown Risk Reduction: • If the portfolio experiences certain decreases from peak NAV. subsequent new positions are systematically 'penalized' in terms of the amount of notional dollars of risk • Portfolio Excess Directionality Risk Reduction: • If the portfolio begins to experience predefined 'excess' directionality in either the Rates or Non-Rates portion of the portfolio. subsequent new positions are systematically 'penalized in terms of the amount of notional dollars of risk • Turnover & Average Hold Period: • Portfolio turnover is estimated to be 3.5 X per year • Average hold period for positions is 100 days. Alpha is generated on moves of 20-30 X average realized vol. which generally does not occur over short time intervals • Stop Outs & No Dollar Cost Averaging: All positions have stop-outs, which are recalculated daily and relative to the realized volatility of the position Never dollar cost averaging. Keep losers small and winners big 11 EFTA00293340 Key Differentiating Factors * AT° RUS  Cohesiveness; The Partners have worked and traded together since 2007. Their backgrounds, experiences and strengths are different & complimentary  The managers have a deep understandings of complex systems and trading. They have both respect for market forces and dedication to discipline, order, and operational excellence  A unique investment approach combines three discrete investment modules; portfolio construction, the directional bias of individual positions and timing, and strict and methodical risk control  Measurement of return is on an absolute basis.  No risk of style drift  Our focus is on achieving high absolute returns, with proportionally low downside volatility  Strategy can be tailored to specific investor's annualized volatility targets  Daily exposure, MTM and profit data are available for each security for each day of our 20 year simulation upon request 12 EFTA00293341 Previous Track Record •ATORUS • The team managed a $50million (avg. notional risk of $100MM) portfolio for a European Bank from September 2011 to June 2013.  Sector specific mandate experienced low correlation to broader markets even during market declines.  Track record is non-portable as it is derived from a managed account and part of a broader portfolio.  Win ratio of 38% achieved.  Realized profit factor of 2.25X  Generated positive returns on months with large market draw downs (September 2011, May 2012)  Below is the percentile distribution of realized gains and losses on a per trade basis, showing how losses were kept small relative to winners. $1,500,000 $1,000,000 $500,000 $(500,000) $(1,000,000) 1. ~, ,6.4. o yo ,Q,dp o • A. (34. 1. 40 4 1 4,' <s° e p & do do o o o o 4) 9° 47 P e - \43 o e 4° o 9 49. cb<3 e O,C) 9 e e 9 9 cl)(3 .,9° —Ili-aProfit by Percentile 13 EFTA00293342 20 Year Simulation 90 80 . ATORUS • 20 year simulation encompassing nearly 1,200 securities (see/request Simulation Assumptions regarding transaction & slippage costs, etc. or to see position level exposures and underlying formulas) • Gross IRRs of 23.66% with Sharpe Ratio (daily) of 1.2X • Outperforms SPX Index by 60X over period • Low turnover with average trade signal duration of 100 days • No in-sample optimization , Machine Learning techniques, Genetic Algos, or Feed Forward Neural Networks 70 - 60 a. • 50 0 • 40 5 a 30 20 10 BRKM —AAPL —SPX —Atorus - 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 14 EFTA00293343 20 Year Simulation (cont.) •ATORUS • 54 of 78 positive quarters, with best quarter 2X magnitude of worst quarter • Best calendar year of 63.5% , two down calendar years, and worst down 8.47% Descriptive Statistics Historical Daily Shame Positive Quarters Negative Quarters 1.19 Positive Years 18 Q1 Q2 Q3 54 2014 6.04% 8.28% 16.50% 2014 2013 4.47% -5.68% 11.04% 14.16% 24.91% 2013 2012 -7.34% -7.99% 3.26% 3.98% -8.47% 2011 10.71% 6.29% -6.29% -5.19% 4.55% 2011 2010 2.87% -7.12% 17.14% 5.13% 17.66% 2010 2009 -3.85% 7.39% 30.82% 7.78% 45.60% 2009 2008 2.33% 8.73% 10.70% 26.01% 55.21% 2008 2007 5.99% 10.08% 21.54% 5.80% 50.03% 2007 2006 9.93% -7.98% 7.92% 12.96% 23.32% 2006 2005 -4.10% 4.90% 14.60% 7.28% 23.68% 2005 2004 13.82% -12.33% 5.12% 30.47% 36.86% 2004 2003 13.54% -0.88% 11.27% 30.59% 63.54% 2003 2002 -5.54% 16.67% 24.54% -3.21% 32.84% 2002 2001 -0.29% -11.01% 35.04% -16.96% -0.50% 2001 2000 -2.01% -10.95% 4.68% 10.43% 0.87% 2000 1999 -16.41% 6.61% -1.50% 20.02% 5.36% 1999 1998 15.88% 2.92% 9.10% -4.20% 24.65% 1998 1997 -4.92% 19.02% 1.33% -6.26% 7.48% 1997 1996 0.41% 6.53% 5.37% 15.29% 29.95% 1996 1995 19.97% 8.09% -0.22% 8.55% 40.46% 1995 I } 15 EFTA00293344 O O ;ft O 5661 S661 9661 9661 L661 L661 9661 9661 6661 Sr Rate of Change NJ O 000.1••••• 000? C TO TOO? ZOOZ ZOO? - £00Z - £00? - 1700Z VOOZ SOOZ - SOOZ 900? - 900Z - LOOZ - L00? - 800? - 600Z - 600Z - OTOZ OTOZ TIOZ HOZ ZT 7702 £T0Z HOZ HOZ 0 Dov 2unicqj PoPad-C9E— • 88% positive rolling 365-period returns. 41) 0 VI EFTA00293345 20 Year Simulation (cont.) sATORUS • Impact in NAV percentage points by category over previous 365days - Shows multiple and constantly shifting sources of alpha, validating robustness of methodology —WGBI & TIPS —MACRO —Listed Equity 80.0% 60.0% 40.0% 6 20.0% z 0.0% 1995 1996 -20.0% -40.0% 17 EFTA00293346 20 Year Simulation (cont.) •ATORUS • 90 Period Return Probability Distribution - Given risk management systems and general trading strategy, positive returns show increasing autocorrelation with an increase in the time interval Descriptive Statistics Avg. 90 Period Positive RoC 11% % Positive RoC 70% Excess Kurtosis 0.9355234 Avg. 90 Period Negative RoC -6% % Negative RoC 30% No. of Observations 5,064 Avg. Positive/Avg. Negative 1.82 Skew 0.72 m 2,500 2,000 1,500 1,000 500 2,021 1,254 1,006 - 3 264 320 158 4 4 - -70.00% -60.00% -50.00% -40.00% -30.00% -20.00% -10.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 100.00% 90.00% 80 00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% m m PDF (L HS) -CDF(R HS) EFTA00293347 20 Year Simulation (cont.) • Draw downs do not persist. No drawdown has exceeded targeted worst. • Unlevered-SPX draw downs and downside volatility nearly 2X worse than Atorus. 0.00% -5.00% -10.00% I -15.00% -o m -20.00% -25.00% -30.00% -35.00% 0.00% -10.00% e -20.00% g • -30.00% g -40.00% -50.00% -60.00% —Drawdown from Peak . ATORUS u Imi imb eg NI 0 N 0 N Al Al IV NJ 0 0 0 N ha I-a i-a t 4 cl. • O• (er (a) . 4) ^y. • gyp. 4) yoo. JEE Privale and Confidential 19 EFTA00293348 20 Year Simulation (cont.) . ATORUS • The volatility of the Fund mean reverts much faster than broader markets. By design, when realized volatility increases, the portfolio rebalances individual positions to bring the annualized volatility closer to the target. 100.00% 80.00% 60.00% • to 40.00% O 20.00% C 0.00% -20.00% -40.00% 1 .. .... UN to to CD V> CO ND to ti ll 0U1 ID tO ID to to to t/1 NNJ 4.1 CO CO tO —365 Period Rolling RoC N M NNAIMMAIN Al Al MMAINNN 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 0 0 .9 .9 0 0 0 0 0 0 •-• •-• Ni NJ lu 40 lT lT ON ON N-J N 03 03 lID %JD 0 0 N Fb NJ 0 K, 0 0ho, 13. 13. 20 EFTA00293349 20 Year Simulation (cont.) sATORUS • Leverage changes are driven by either (i) increases or decreases in realized volatility, (ii) decreases due to excess directional exposure, and/or (iii) decreases due to NAV drawdowns • For example, in our second best calendar year, 2008, an increase in volatility triggered systematic rebalances that resulted in gross exposure reductions without manager intervention 7.00 6.00 5.00 4.00 a 3.00 I 2.00 1.00 1 (1.00) (2.00) —Gross 1996 1997 1998 =9 2000 —Net —Net Ex-WGBI,TIPS 2004 2005 2006 2007 2 2010 2011 2 2013 2014 JEE Private and Confidential 21 EFTA00293350 20 Year Simulation (cont.) •ATORUS • Historical Decomposition of Exposures— the following is a snapshot of the portfolio composition by category as of August 29, 2014. Atorus is willing to provide full data series of daily exposures. Notional Exposure in B $ $12 $10 $8 6 $4 $2 $- 5(2) z ■ WGBI-L ■ TIPS-L ■ HY-L ■ Comdty-L ■ Comdty-S ■ EM-L ■ EM-S ■ EU Sec-L ■ EU Sec-S ■ US Sec-L US Sec-S EIF-L EIF-S Listed Equity - L Listed Equity -S 22 EFTA00293351 20 Year Simulation (cont.) • Historical Number of Positions Long & Short 600 400 (400) (600) —Total - Long —Total - Short . ATORUS .. ns 1996 1997 1 1 9 200 2001 2002 2003 2004 2 2 008 2009 23 EFTA00293352 20 Year Simulation (cont.) . ATORUS • By adjusting Portfolio Drawdown, Portfolio Excess Directionality and Targeted Max Drawdown risk parameters we can offer investors their preferred levels of absolute volatility and returns without changing our systematic methodology As Shown Unconstrained Constrained Average Annualized Return 24% 34% 12% Average Annualized Volatility over 20 years 18% 27% 9% 24 EFTA00293353 Contact Information . ATORUS For further information: Joshua Levy, Partner, Atorus Ph: E: Michael Fowler, Partner, Atorus P E: 86 Myles Standish Rd. Weston, MA 02493 USA 25 EFTA00293354 Disclaimer reA . TORUS This presentation is provided for informational and discussion purposes only and does not constitute a solicitation or an offer to provide investment management services. Any solicitation, if made, will be made only pursuant to an Investment Management Agreement ("IMA"). In the case of any inconsistency between the descriptions or terms in this document and the IMA, the IMA shall control. This document may not be reproduced or distributed in any format without the express written approval of Red Dot Trade Finance, LLC. While all information prepared in this document is believed to be accurate, Red Dot Trade Finance. LLC makes no express warranty as to its completeness or accuracy, nor can it accept responsibility for errors in this document. To the maximum extent permitted by law, Red Dot Trade Finance, LLC disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in this presentation prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. The information contained herein does not purport to contain all of the information that may be required to evaluate an investment . Ability to achieve investment objectives may be affected by a variety of risks not discussed herein. A prospective investor understands the nature of the investment and can bear the economic risk of such investment In considering any performance information contained herein, investors shall bear in mind that past or projected performance is not necessarily indicative of future results, and there can be no assurance that target returns will be met. The prior results of the principals is representative of their direct investment responsibilities utilizing the investment strategy methodology represented herein, but within a larger fund vehicle and may not reflect results of the vehicle. The investment strategy is speculative and involves a high degree of risk. Opportunities for withdrawal of funds are restricted, so investors may not have access to capital when it is needed. The portfolio composition, which is under the sole trading authority of Red Dot Trade Finance, LLC, may not be fully diversified and this lack of diversification may result in higher risk. Leverage, that is borrowing on margin, will be employed in the portfolio, which can make investment performance volatile, requires investment gains to be in excess of the cost of borrowing, and could result in losses to investors in excess of their principal. The investment strategy involves the purchase and sale of options and other leveraged derivative instruments, which can result in losses in excess of the capital in an investor's account. REGISTRATION: Red Dot Trade Finance, LLC is a Registered Investment Advisor, Atorus, is a DBA of Red Dot Trade Finance, LLC and is intended to be the investment vehicle of Red Dot Trade Finance, LLC the Registered Investment Advisor. 26 EFTA00293355