RPM Risk & Portfolio Management AB

FOR PROFESSIONAL INVESTORS ONLY

RPM Evolving CTA FundCapturing the Ascent

RESEARCH SUMMARY

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Important Information

This material is issued by RPM Risk & Portfolio Management AB (“we” and/or “us”). We are reg-istered in Sweden with company number 556254-9039 and have our office at Norrmalmstorg 16, SE-111 46 Stockholm, Sweden. We are authorised and regulated by Finansinspektionen (the Swedish Financial Supervisory Authority).

This material is issued by us only to and/or is directed only at persons who are professional clients or eligible counterparties. To the extent that investments and/or investment services are referred to herein, they are only available to such persons and other persons should not act or rely on the information contained herein. In particular, any investments and investment ser-vices are not intended for persons who are retail clients and will not be made available to retail clients. The information contained herein is intended only for the person or entity to which it is directed and may contain confidential and/or privileged material. Any retransmission, dissemi-nation or other unauthorised use of this informationby any person or entity is strictly prohibited. If you have received this communication in error, please contact the sender immediately and delete this material in its entirety.

This material contains general information about us and is not intended to constitute an offer or solicitation of an investment or service in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. However, the distribution of information contained in this material in certain countries may be restricted by law and persons are required to inform themselves and to comply with any such restrictions. Persons interested in receiving further information about any investment or service should inform themselves as to: (i) the legal requirements within the countries of their nation-ality, residence, ordinary residence or domicile; (ii) any foreign exchange control requirement which they might encounter; and (iii) the income tax and other tax consequences which might be relevant. Nothing contained herein constitutes investment, legal, tax or other advice, nor is it to be relied upon when making investment or other decisions. You should obtain relevant and specific professional advice before making any decision to enter into an investment transac-tion. An application for shares in any investment fund to which we provide investment advisory services or any other service should only be made having read fully the relevant prospectus. It is your responsibility to use such prospectus and by making an application you will be deemed to represent that you have read such prospectus and agree to be bound by its contents.

This material may contain projections or other forward-looking statements. These forwardlook-ing statements are based on our current expectations and beliefs about future events as of the date of this material. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and we are under no obligation to, and expressly disclaims any obligation to, update or alter any forwardlooking statements whether as a result of such changes, new information, subsequent events or otherwise.

The information contained herein is based on sources that we believe to be reliable but no rep-resentation or warranty, expressed or implied, is made as to its accuracy, completeness or cor-rectness. To the extent this material contains past performance information, past performance may not be repeated and should not be seen as a guide to future performance. The value of the investments and the income therefrom may go down as well as up and investors may not get back the original amount invested. Your capital could be at risk. You are not certain to make money from your investments and you may lose money. Exchange rates may cause the value of overseas investments and the income therefrom to rise and fall.

IMPORTANT INFORMATION REGARDING PRO-FORMA PERFORMANCE RESULTS: Proforma per-formance results have many inherent limitations, some of which are described below. No rep-resentation is being made that the Fund will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between pro-forma performance results and the actual results subsequently achieved by any particular fund. One of the limita-tions of pro-forma performance results is that they are generally prepared with the benefit of hindsight. In addition, pro-forma trading does not involve financialrisk, and no pro-forma trading record can completely account for the impact offinancial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading strategy in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

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Introduction .......................................................................................................................................................................4

Age, Assets, and CTAs......................................................................................................................................................5

CTA Performance as a Function of Age and Size ........................................................................................................6

Investing with the “Best of the Biggest”........................................................................................................................7

The CTA Life Cycle ............................................................................................................................................................8

Evolving CTAs and other Classifications ........................................................................................................................9

The Fund Manager, RPM .................................................................................................................................................11

The Fund ............................................................................................................................................................................13

Contents

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In the wake of the remarkably strong performance of Managed Futures in 2008, the industry experienced significant capital inflows. However, most of these inflows were directed towards a limited number of CTAs with large assets under management.

CTAs trading smaller assets were largely ignored.

An immediate result of investors’ preference for large CTAs was an unprecedented asset con-centration in the industry with less than 10% of the managers controlling more than 90% of the industry’s assets (see Fig. 1). Smaller CTAs have, however, as a collective outperformed their larger counterparts over the last five years (see Fig. 2).

Research indicates that the main reasons behind this performance differential are increas-ing age and increasing assets under management. Both factors seem to be associated with declining risk-adjusted performance by causing increased dependence on very liquid financial markets, path dependence, endogenicity, and fewer degrees of freedom. In short: the very large CTAs suffer from the negative aspects of their own success.

Investors’ focus on the very large and well-known CTAs has thus created an opportunity: A large-ly untapped resource of managers that are young, innovative, nimble, and adaptive – character-istics that have become instrumental for success in today’s ever-changing market environment.

The RPM Evolving CTA Fund offers a unique opportunity to access a select group of CTAs in the most dynamic and competitive phase of their life-cycle. RPM Risk & Portfolio Management AB (RPM) acts as the fund’s Investment Manager, utilizing 20 years of experience and research in identifying, evaluating, selecting, and managing a dynamic portfolio of CTAs.

Introduction

FIGURE 2. MANAGER UNIVERSE (BARCLAY CTA) OUTPERFORMING LARGE-CAP CTAs (BARCLAY BTOP 50) OVER THE LAST FIVE YEARS*

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Source: BarclayHedge

FIGURE 1. ASSET CONCENTRATION IN THE MANAGED FUTURES INDUSTRY

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31-Dec-1989 31-Dec-1994 31-Dec-1999 31-Dec-2004 31-Dec-2009 31-Dec-2011 Line of equality

Source: RPM schematic based on data from BarclayHedge

*The Barclay CTA Index is a leading industry benchmark of representative performance of commodity trading advisors. There are currently 602 programs included in the calculation of the Barclay CTA Index for the year 2012, which is unweighted and rebalanced at the beginning of each year.

The BTOP50 Index seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The BTOP50 employs a top-down approach in selecting its constituents. The largest investable trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50. In each calendar year the selected trading advisors represent, in aggregate, no less than 50% of the investable assets of the Barclay CTA Universe.

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Age, Assets, and CTAs

Managed Futures and Asset Concentration

The Managed Futures industry is estimated to manage approximately USD 330 billion today, making it the single largest alternative investment strategy.

Inflows to the industry in recent years have been concentrated to the very largest CTAs, leading to an unprecedented asset concentration. Less than 10% of the CTAs are managing more than 90% of the assets allocated to the industry.

There are strong indications that this trend is driven by larger institutional investors. There are also strong indications that their focus on the largest managers is not optimal from a risk/re-turn perspective. Larger CTAs have actually underperformed a broader, equal-weighted universe of CTAs in recent years. A study of today’s largest CTAs indicates that they collectively had their best risk-adjusted performance (in both absolute and relative terms) when they were in their early years and when they were trading significantly less assets than today (see Fig. 3 and 4).

FIGURE 3. LARGE-CAP CTA PERFORMANCE CONDITIONED ON AGE*

Source: RPM schematic based on data from BarclayHedge

FIGURE 4. LARGE-CAP CTA PERFORMANCE CONDITIONED ON ASSETS UNDER MANAGEMENT*

Source: RPM schematic based on data from BarclayHedge

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*Two CTAs were excluded from the analysis due to short track record

*Two CTAs were excluded from the analysis due to short track record

Shows the average, rolling 36 month risk-adjusted edge over Barclay CTA Index for the 20 largest CTAs in 2012 for their first 9 years (108 months) of trading. Each point on the graph shows the average excess rate of return per unit risk. A reading of 0.5 which occurs after 4 years (48 months) is interpreted as “these CTAs returned, on average, 0.5 more units of performance per unit risk than the industry over the last 36 months”. It covers track records with starting dates ranging from 1983 to 2006.

Figure 3.

Figure 4. Relates the same CTAs’ risk-adjusted edge to their AuM. The blue bars answer the question: “What was their average future 36 month risk-adjusted edge over the industry for an investment made when their AuM was in the indicated interval (percent of each CTA’s peak AuM)?”

The red bars answers the question: “What was their average risk-adjusted edge for all 36 month periods ending with AuM in the indicated interval?”

Please note that the methodology implies that the sample sizes in each AuM interval vary significantly.

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Average conditioned on AuM at the end of each 36 month period

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An analysis of all CTAs since 1990 confirms this observation. Young CTAs and CTAs trading smaller assets have on average outperformed the industry, albeit with a large variation around the average (see Fig. 5 and 6). There are also significant differences between sub-strategies within the CTA space: Trend-following strategies are sensitive to both age and large assets but less so than short term and fundamental strategies. A trend-follower would on average lose its edge over the industry at a market share of 0.6% (today approximately USD 2 bn.) while a fundamental manager would be expected to perform in line with the industry already at ap-proximately USD 330 million.

FIGURE 6. CTA PERFORMANCE CONDITIONED ON YEARS OF EXISTENCE - THREE DIFFERENT SUB-STRATEGIES

FIGURE 5. CTA PERFORMANCE CONDITIONED ON MARKET SHARE - THREE DIFFERENT SUB-STRATEGIES

All Managers Trend Following Short-term Trading Fundamental

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Source: RPM schematic based on data from BarclayHedge

Source: RPM schematic based on data from BarclayHedge

The underlying analysis covers all CTA flagship programs in the Barclay CTA database since 1990. The graphs shown are logarithmic fits to the average over- or underperformance related to each market share and age, respectively.

The observation that today’s large CTAs had their best performance when they were young and trading smaller assets, seems to be true for the entire CTA universe.

Figure 5 & 6.

CTA Performance as a Function of Age and Size

The Small-Cap Premium

RPM’s Investment Research investigated to what extent there exists a return premium associ-ated with CTA managing smaller assets relative to larger CTAs. The highlights from the study included the following observations:

1 CTAs managing smaller assets do, on average, have a return advantage over large CTAs.

2 A part of this “Small-Cap Premium” is related to backfilled data and, thus, less reliable. After adjusting for backfill biases, the premium still exists, albeit smaller than suggested by most databases.

3 Drop-out and volatility risks are high for very young CTAs, but these risks are signifi- cantly reduced already after 24 months of trading.

4 The average correlation between smaller CTAs is less than half of the correlation between CTAs trading large assets.

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Recent asset flows to the Managed Futures industry reveal that the typical (institutional) inves-tor invests with:

1. CTAs that have performed well in the past2. CTAs that have large assets under management

RPM conducted an extensive database simulation in order to assess the success of such an investment strategy: The simulation defined the largest CTAs at each month-end since the early 1990s and selected the CTAs with the highest Sharpe-ratio over the preceding 36 months.

Hypothetical investments were made in the selected CTAs for the following 36 months after which the investments were evaluated. The process was repeated monthly covering all 36 months period up to July 2012. Well over 1,500 selections and hypothetical investments in sin-gle and multi-manager portfolios were made. (For a description of the methodology, see below).

The selected, pro-forma, CTA-portfolios had a median Sharpe-ratio of 1.7. The actual invest-ments had a median Sharpe-ratio of 0.3. The distributions for the pre- and post-investment portfolios are shown in Figure 7. Past performance was certainly not indicative of future return.

FIGURE 7. EXPECTED VERSUS ACTUAL SHARPE WHEN INVESTING WITH THE “BEST OF THE BIGGEST”

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Source: RPM schematic based on data from BarclayHedge

Investing with the “Best of the Biggest”

The simulation was performed as follows: At each month end starting in February 1994, the 10, 15 and 30 largest CTAs in terms of AuM were identified. Each CTA’s Sharpe-ratio over the preceding 36 months was calculated. The best, the 3 best and the 5 best CTAs in terms of Sharpe-ratio were selected from each AuM group, resulting in 9 CTA portfolios being selected at each month end. The CTAs were given equal risk allocations that were kept constant over the subsequent 36 month period. In total, 1611 CTA-portfolios were selected and evaluated.

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Source: RPM schematic based on data from BarclayHedge

FIGURE 8. “BEST OF THE BIGGEST” BACKTEST, MEDIAN SHARPE RATIOS

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The development of a typical CTA seems to fit well in the standard corporate life cycle (see Figure 9).

Start-up phase

The CTA starts to build a track-record, often managing assets from friends and family, with very limited resources at hand. Drop-out risk and operational risks are high as is often the volatility.

Growth phase

The successful CTA receives external assets, invests the new financial resources into building the operational infrastructure and risk management systems. Complementary staff is hired and the development of the trading models continues. Operational and drop-out risks are reduced significantly and performance is often well above industry average.

Maturity phase

With continued competitive performance and a strong ability to build and manage an asset management business with all its functions, the CTA eventually develops into the Maturity phase. The CTA is managing large assets, the brand name is global, and asset inflows from in-stitutional investors are increasing. Performance is gradually converging to the industry average and research focus is often shifted from model innovation to defensive research: execution, slippage, and market liquidity issues.

Decline/Rejuvenation

Performance continues to deteriorate, eventually leading to asset outflows. Some CTAs are unable to reinvent themselves due to a number of psychological, organizational, and financial factors, while others may stage a comeback – rejuvenate – by force of will, creativity, and energy.

Source: RPM schematic

The CTA Life Cycle

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FIGURE 9. THE DIFFERENT PHASES OF A TYPICAL CTA LIFECYCLE

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The research findings indicate that large assets under management may influence performance negatively (“diseconomies of scale”) and that the sensitivities to assets under management are different for different strategies in the CTA universe.

By using both age and assets under management (i.e. market share) as the key criteria, the CTA universe can be classified into four development phases; a methodology inspired by the corpo-rate life-cycle (see Fig. 10). Generally speaking, an Evolving CTA would normally be between 2-7 years of age, trading assets above USD 30 million but below USD 2 billion – depending on the strategy pursued by the CTA. Please note that these criteria are indicative and not conditioned to sub-strategies.

Younger CTAs managing smaller assets are classified as Emerging (Start-up), older CTAs man-aging larger assets are classified as Large-Cap (Maturity), and older CTAs managing less than approx. USD 2 billion are classified as Matured (Decline/Rejuvenation).

The sub-universes defined as above are dynamic. The CTAs that constitute e.g. the Evolving CTA universe are changing over time as CTAs may move into the other universes by increasing age and increasing or decreasing assets under management.

From a risk/return perspective, CTAs in the Evolving phase are the most attractive. Risks are significantly reduced, performance is strong and the staff is often confident, energized and creative. The CTA is rapidly evolving into a successful and professional asset management company. This is the time to invest with the CTA – a window of opportunity.

Source: RPM schematic

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FIGURE 10. CTA UNIVERSE DEFINED AS DISTINCT SUB-GROUPSEvolving CTAs and other Classifications

From a risk/return perspective, CTAs in the Evolving phase are the most attractive. Risks are significantly reduced, performance is strong, and the staff is often confident, energized, and creative. The CTA is rapidly evolving into a successful and professional asset man-agement company. This is the time to invest with the CTA – a window of opportunity.

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Historical Performance of “Evolving Managers”

The historical performance of the CTA sub-universes, defined by age and size, is shown in Fig. 11 & 12. Note that the age and size criteria applied for the purpose of this publication are gen-eral and not conditioned to the investment strategies. Please also note that only CTA Flagship programs are included, i.e. for CTAs publishing performance from several programs, only the largest in terms of assets is included.

The Emerging CTA sub-universe has the strongest performance. However, the underlying data is heavily influenced by various biases, the most important being back-fill and survivorship biases, which makes the performance numbers less reliable (the Emerging sub-universe index graph is not shown).

The Evolving CTA sub-universe outperformed the Large Cap universe with approx. 3% p.a. at an equal volatility of 10%. As expected, the Matured CTA universe shows the weakest performance both in terms of returns and drawdowns.

Fig. 13 shows the rolling 36 month returns from Evolving, Large Cap and Matured CTAs. The return differential between the three sub-universes are relatively consistent over time, albeit there have been periods when all three have performed almost identically.

The outperformance of the Evolving CTA universe relative to their Large Cap peers, is due to both the Small Cap premium discussed earlier and the lower correlation between the Evolving CTAs.

Source: RPM schematic based on data from BarclayHedge

FIGURE 12. LONG TERM PERFORMANCE OF EVOLVING UNIVERSE VERSUS OTHER CTA SUB-GROUPS AT 10% VOLATILITY

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Source: RPM schematic based on data from BarclayHedge

FIGURE 11. PERFORMANCE STATISTICS AT 10% VOLATILITY; EVOLVING MANAGERS COMPARED TO OTHER CTA SUB-GROUPS

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Source: RPM schematic based on data from BarclayHedge

FIGURE 13. ROLLING 36 MONTH RETURNS

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The Company

RPM Risk & Portfolio Management AB is a Managed Futures specialist based in Stockholm, Sweden. The company started investing in CTAs in 1993 and offers investment products, risk management services, customized investment mandates, research, and CTA access to institu-tional clients worldwide.

RPM’s investment offerings are built around the company’s own managed account platforms in Luxembourg and the Cayman Islands, offering highly liquid, transparent, and flexible investment structures.

RPM is also proud of its state-of-the-art reporting and monitoring services, giving investors full transparency and oversight on a daily basis. For select clients, RPM recently launched its real-time interactive monitoring system that offers additional features such as scenario testing, simulations etc.

The company is known for its research-focused approach. By a disciplined investment process, RPM actively allocates between CTAs and sub-strategies aiming to deliver the unique benefits of Managed Futures while minimizing downside risk.

A History of Selecting Rising Stars

RPM have allocated to roughly 50 CTAs over the years. 35 of these CTAs were in the Evolving phase at the time of the allocation. 15 CTAs have at the time of writing left the Evolving phase during the RPM investment. 6 of these CTAs developed into Large Cap CTAs, indicating both strong performance and ability to successfully manage a growing asset management company.

The largest three managers (based on total AUM) that RPM currently is allocated to, had as-sets in the range of 0.7% to 2.1% of their respective peak assets at the time of allocation. We expect that several of the current Evolving managers will continue their success and eventually become the next generation’s CTA stars.

FIGURE 14. RPM USD COMPOSITE AGAINST GLOBAL EQUITIES AND BONDS

Source: RPM and Bloomberg

The Fund Manager - RPM

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A Structured Investment Process

The investment process supporting RPM’s Evolving CTA Fund follows a well defined 6-step process:

1. Screening and Grouping

RPM screens and defines sub-strategy groups, i.e. Trend Following (TF), Short-Term (ST), Fun-damental Trading (FT) from a universe of well above 1,000 CTAs. Strategy-specific age and size restrictions are applied in order to identify managers in the Evolving CTA phase.

2. Ranking & Evaluation

RPM sets up ranking criteria in order to focus on the most interesting Evolving CTAs. The rank-ing is done every month-end. RPM then evaluates managers according to both quantitative and qualitative criteria. Criteria include performance measures, correlation measures, instruments traded etc.

3. Due Diligence

The highest ranked candidates will be subject to RPM’s due diligence process which is per-formed both on investment strategy and on operational level.

4. Manager Selection

RPM selects Evolving CTAs who meet the high standards as set out by the due diligence pro-cess. Managers will be added and removed when judged appropriate by grouping criteria and pre-defined kick out rules. 5. Portfolio Construction

RPM constructs the portfolio in line with its strategy balancing concept. Long-term strategy target is one third to each sub-strategy Within each strategy group, managers will receive equal risk allocations with a cap on very low-risk programs.

6. Portfolio Management

RPM will actively manage the portfolio in order to make sure that managers comply with the Evolving Manager requirements. Expected manager turnover is up to 30% on an annual basis.

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FIGURE 16. THE RPM INVESTMENT PROCESS IN 6 STEPS

13RPM Risk & Portfolio Management ABPHONE +46 8 440 69 00 ADDRESS Norrmalmstorg 16, SE-111 46 Stockholm, SWEDEN E-MAIL info@rpm.se WEB www.rpm.se

The RPM Evolving CTA Fund will, subject to approval from regulatory authorities, be offered to institutional investors during the spring of 2013.

The intention is to utilize RPMs Luxembourg CTA platform for investors domiciled within the European Union and other jurisdictions for which the SICAV investment format is desirable.

For other investors, RPM intends to utilize its Cayman platform, with identical CTA allocations.

Investors with an interest in the offering(s), should contact RPM for a recent update on the status of the Fund(s).

The Fund