Consistent with Modern Portfolio Theory's application to hedge funds, manager selection process is essential in building an optimal portfolio.

The first step in this process is to screen the universe of hedge funds to avoid stock-pickers and market timers to make sure the funds in our portfolio derive profits by processing information rather than depending upon market performance. PARADIGM considers hedge funds a separate asset class because they perform a clearly discernible function (information processing), exhibit unique, definable fundamental characteristics (no reliance on market direction to generate returns) and their historic performance provides evidence of their uniqueness (low or no correlation to the performance of the overall stock or bond markets). By allocating to managers that fall into this asset class, our portfolios provide an INFORMATION PROCESSING PREMIUM(all patent pending) (similar to a risk or liquidity premium) that does not depend upon market performance.

Unlike most other fund of funds managers, PARADIGM does not rank managers based on return and Sharpe ratio. Despite its popularity and its widespread use, our research shows that Sharpe ratio has several flaws that do not contribute to building a superior portfolio. Sharpe ratio is a comparison statistic that answers the question, "Which manager is better or the best?" However, it does not give any insight into the more meaningful question of which managers contribute to an optimal portfolio of managers. We use portfolio measurements such as HEDGE FUND ALPHA(all patent pending), HEDGE FUND BETA(all patent pending) and PARK RATIO(all patent pending) because they have a basis in portfolio theory and have been proven (both statistically and in real-time fund management) to select the managers that contribute to an optimal portfolio. HEDGE FUND ALPHA(all patent pending) measures manager skill in relation to the rest of the peer group while Hedge Fund Beta measures a specific manager's risk relative to the passive index of all similar managers. PARADIGM assesses trader skill and employs statistical analyses that have been shown to meaningfully determine which managers, through their skill, will continue to show persistent returns.

Past performance is not necessarily indicative of future results.