Presentation by Stone House Consulting at the 2nd Annual Hedge Fund Operations and Technology Conference in April 2009.

1. Top 10 Listfor MasteringOperational Due Diligence 2nd Annual Hedge Fund Operations and Technology Conference 21 April 2009 Holly H. Miller, Partner Stone House Consulting, LLC 21 April 2009 1 © 2009 Stone House Consulting, LLC

2. Interesting Points Operational risk is defined as ‘risk without reward’ More than 50% of hedge fund failures relate to operational risks with a primary contributor being a basic lack of segregation of accounting roles between the front office and the back office1 The administrators represent as many potential problems as the hedge funds 21 April 2009 2 …and this slide was prepared BEFORE the Madoff scandal! 1 Data based on a March 2003 study by Christopher Kundro and Stuart Feffer with Capco (www.capco.com). The study is based on 100 hedge fund failures over the past 20 years. © 2009 Stone House Consulting, LLC

3. A Word of Advice Prepare! Lists Counterparties with ISDAs, Service providers Vendors Systems Organization charts Workflows PPMs Agenda Make sure you are on the same page Agree who talks about what 21 April 2009 3 © 2009 Stone House Consulting, LLC

4. #1 – Plan for the Worst Disaster Fraud Staff loss Unfavorable markets Regulatory changes Counterparty failure Prime broker failure Escalation procedures Think about all the things that can go wrong – and talk about them 21 April 2009 4 © 2009 Stone House Consulting, LLC

5. #2 – Independent Oversight Independent review of: Investment management activity Investment guideline compliance Adherence to discipline Execution quality Risk monitoring Pricing Conflicts Independent fund administrator Independent auditor Periodic internal review – and testing – of processes Formal committees Pricing Best execution Conflict Investment review Risk 21 April 2009 5 © 2009 Stone House Consulting, LLC

6. #3 - Document Processes and policies - including escalation procedures (and review these periodically) Compliance Risk monitoring Subscription / redemption (including KYC, AML and Patriot Act) Trading (including orders and executions) Settlement Cash movements and securities delivery (including margin and collateral) Reconciliation (including all collateral) Corporate action monitoring Month-end closing Pricing Fund accounting (including review of external administrator work) Counterparty selection and approval 21 April 2009 6 © 2009 Stone House Consulting, LLC

7. #3 – Document (continued) Service level agreements Internal External Events Orders, trades and confirmations Reconciliation (including review) Pricing (what was obtained and from whom) Fund accounting (review of external administrator work) Investment and research meetings Committee meetings (e.g. minutes) Trade errors 21 April 2009 7 © 2009 Stone House Consulting, LLC

8. #4 – Staff Appropriately Adequate headcount Including operations, accounting, compliance and IT Knowledge, skills and experience Complex strategies require additional expertise Training Cross training Understand best practices Supervisory qualifications Segregation of duties Clearly identified CCO and CRO 21 April 2009 8 © 2009 Stone House Consulting, LLC

9. #5 – Discipline and Consistency Discipline with a repeatable process – and make sure your stats back that up! Buy and sell disciplines Investment guidelines Consistent pricing process Consistent trade allocation policy 21 April 2009 9 © 2009 Stone House Consulting, LLC

10. #6 - Ensure a Level Playing Field Provide all investors with a consistent level of information If additional transparency is provided to one investor, managers should be willing to offer it to all investors upon request 21 April 2009 10 © 2009 Stone House Consulting, LLC

11. #7 – Disclose Changes to valuation policies Key personnel changes Service provider changes Changes to biographical or disciplinary information regarding the firm or key staff New side letters or parallel managed accounts that grant terms to certain investors that could, in certain circumstances, adversely impact other investors, Occurrence of operational issues that could impact the fund Discovery of fraud or wrongdoing within the firm or by a key service provider When in doubt... 21 April 2009 11 © 2009 Stone House Consulting, LLC

13. #9 – Shadow Records Investment accounting Partnership accounting Features: Full audit trail Automated maturity, expiration, income, withholding and reclaim processing User security based on roles Backups Record retention GIPS® compliance and verification 21 April 2009 13 © 2009 Stone House Consulting, LLC

14. #10 - Metrics Quantify, measure and monitor material risks taken by the fund on a frequency appropriate to the fund’s characteristics Risk monitoring should be appropriate to the fund’s strategy, investments and characteristics Recognize relationships and risk factors may change over time, so review the process regularly Non-quantifiable or measurable risks should still be monitored Business volumes, cost drivers and stress ratios, e.g. Trades Wires Subscriptions / redemptions Accounts / funds Investors Fail rates Match rates Staff 21 April 2009 14 © 2009 Stone House Consulting, LLC

15. Two Last Pieces of Advice Practice what you preach Be honest 21 April 2009 15 © 2009 Stone House Consulting, LLC

16. About Stone House Consulting Strategic, operational and IT consulting for investment managers and hedge funds Breadth of knowledge. We have proven, hands-on experience across all instrument types and all investment vehicles, including institutional separate accounts, mutual funds, hedge funds, private equity funds and SMA (‘wrap’) accounts. First-hand experience. We have worked as consultants – and we have worked on the buy side. We understand the competing demands, requirements, deadlines and priorities that our clients face every day. And we have seen the pitfalls first hand. The Cornerstone program. Our flagship program, Cornerstone, is designed to ensure asset managers reduce their costs by 10-30% within a year. 21 April 2009 16 © 2009 Stone House Consulting, LLC

17. Holly H. Miller Holly H. Miller is a partner at Stone House Consulting, LLC, providing strategic, operational and IT consulting services to investment managers and hedge funds. Prior to founding Stone House Consulting, she was Chief Operating Officer at M.D. Sass Investors Services, managing $15 billion in hedge funds, private equity funds, traditional separate accounts and SMA (‘wrap’) accounts across 18 investment strategies and 15 investment management firms, including Waterfall Asset Management, Resurgence Asset Management, Re/Enterprise Asset Management, Crow Point Partners, Arcadia Asset Management, Ascent Real Estate Partners, Denahi Global Investments, Taurus Funds Management, Three Kingdoms Capital and M.D. Sass-Macquarie Financial Strategies. During her 30-year career, Ms. Miller was East Coast Region Manager for Citisoft, Inc. where her clients included Nuveen Investments, Dimensional Fund Advisors, Lord Abbett, T. Rowe Price and DuPont Capital Management. She has also managed operations teams for Bank Julius Baer, J.&W. Seligman and Citigroup. Ms. Miller’s understanding of all aspects of the investment management and hedge fund business from investment decision-making to sales and marketing to trade settlement to performance measurement, coupled with her seasoned project management skills, result in a powerful ability to assist clients with long-term strategic planning, evaluating outsourcing, streamlining operational processes, selecting and implementing systems, cutting costs and reducing risk. 21 April 2009 17 © 2009 Stone House Consulting, LLC

18. Contact Details Holly H. Miller Partner +1 610 358 1791 phone +1 917 587 2411 cell +1 509 479 1831 fax hmiller@stonehouseconsulting.com Stone House Consulting, LLC Strategic, operational and IT consulting for investment managers and hedge funds www.stonehouseconsulting.com New York | Philadelphia | Wilmington 18 21 April 2009 © 2009 Stone House Consulting, LLC