Adviser Episteme Capital Partners (UK), LLP (the “Adviser”), together with its principal affiliates, Episteme
Capital Partners (Cayman), Ltd. (“ECP (Cayman)”) and Episteme Capital Partners (US), LLC (“ECP
(US)”) was formed in February 2009. Adviser maintains its principal office in London. ECP (Cayman),
an exempted company with limited liability organized under the laws of the Cayman Islands, maintains its
principal place of business in the Cayman Islands and is the ultimate parent company and governance body
of both Adviser and ECP (US). ECP (US), a Delaware limited liability company, maintains its principal
place of business in Rye Brook, NY and provides certain administrative, middle and back office services
to Adviser pursuant to an administrative agreement. As further described in Item 10 below, Adviser is
registered as an Alternative Investment Fund Manager with the FCA, and the Adviser, ECP (Cayman) and
ECP (US) are each registered with the U.S. Commodity Futures Trading Commission (the "CFTC").
The individual principals (the “Principals”) as a group control ECP (Cayman) and Adviser. The Principals
are the following individuals:
Adrian Eterovic (born in 1962) is a Principal, the Chief Executive Officer and the Chief Investment Officer
(the “Chief Investment Officer”) of Adviser. Mr. Eterovic is also a Director of ECP (Cayman). Previously,
Mr. Eterovic was the CEO of JWM Partners (UK) from 2004 to 2009 and was co-chairman of JWM
Partners’ Investment Committee from 2003 to 2005. From 1993 to 1999 he was with Long-Term Capital
Management (UK) and prior to that he was with Salomon Brothers Inc. He holds an M.Sc. in Statistics from
Imperial College London (2015), a Ph.D. and an M.A. in Economics from Harvard University (1994), and
an Sc.D. degree in Structural Engineering and two M.S. degrees, one in Mechanical Engineering and the
other in Civil Engineering, from the Massachusetts Institute of Technology (1992) as well as a B.S. in
Physics and a Mechanical and Electrical Engineering degree from the National University of Cordoba
(1987).
Gustavo Lau (born in 1964) is a Principal of Adviser. Previously, Mr. Lau was a senior fixed income trader
at JWM Partners (UK) from 2000 to 2009, and prior to that was with Long-Term Capital Management
(UK) since 1994. He holds a M.S. degree in Computer Science from the Universidad Simon Bolivar,
Venezuela (1988) and attended the MBA program at the IESE Business School, Spain (1994). Mr. Lau is
a Mathematics Masterclass lecturer for the Royal Institution of Great Britain.
Jameel Kassam (born in 1984) is a Principal of Adviser. Mr. Kassam was a Strategist at the Adviser from
its inception until May 2014. Prior to that he held the same role at JWM Partners from early 2007. He holds
an MPhys degree in Physics from the University of Oxford (2006).
Richard Leahy (born in 1948) is a Director of ECP (Cayman) and a Principal of ECP (US). Previously,
Mr. Leahy was a founding partner of JWM Partners, and prior to that he was a principal of Long-Term
Capital Management since 1993. He was formerly a Managing Director of Salomon Brothers and Co-Head
of the Mortgage Securities Department. He holds a B.S. degree in Economics from Boston State College
(1970) and attended graduate school at the University of Pennsylvania.
Osvaldo Canavosio is a Principal of ECP (US). Prior to joining Episteme Capital, Mr. Canavosio was
formerly Head of Manager Research and Sector Head - Global Macro at Man FRM in New York. He was
also a member of Man FRM’s Investment Committee and Man FRM’s Management Committee. Osvaldo
has 25 years of global investment experience. Prior to joining Episteme, he worked at Man FRM for over
ten years serving in several capacities including research and portfolio management. From 2004 to 2008,
he worked at Vega Asset Management/Proxima Alfa Investments in New York, where he was a
Managing Director for Business Development. Before this he was Head Trader at Citibank Argentina.
Osvaldo holds a master’s degree in Finance from Universidad Torcuato Di Tella (1999) in Argentina as
well as an Economics degree (honors) from Universidad Católica Argentina (1996). He is also a CFA
Charterholder.
Helaine Rosenbaum Dryden is a Principal of ECP (US) and the General Counsel and Chief Compliance
Officer of the Episteme Capital Group. Ms. Dryden was previously General Counsel and Chief
Compliance Officer at JWM Partners which she joined at its founding in 2000. Prior to JWMP, she was
Associate General Counsel of Long-Term Capital Management from 1997 to 2000. Prior to LTCM, Ms.
Dryden was an associate at Debevoise & Plimpton where her clients primarily consisted of investment
advisors and her practice encompassed advice regarding securities and other financing transactions as
well as mergers & acquisitions. From July 1989 to July 1991, she was employed by Morgan Stanley &
Co. as a financial analyst. Ms. Dryden received a B.A. degree from U.C. Berkeley in Economics (1989)
and a J.D. degree from Harvard Law School (1994). She is admitted to the Bars of the States of New
York and Arizona. She is also a member of the Impact Investment Exchange (IIX) Advisory Board.
Gina Roman is a Principal of ECP (US) and the Chief Financial Officer of Episteme Capital Group.
Previously Ms. Roman was a Controller at JWM Partners which she joined at its founding in 2000. Ms.
Roman was Assistant Controller at LTCM. Ms. Roman previously practiced as a CPA in Pennsylvania
(1985-1993) and worked as a CFO of a privately held International Textile company (1994-1999). Ms.
Roman is a graduate of Temple University with a Bachelor of Business Administration Degree,
Accounting major.
Advisory Services Adviser provides investment advisory services to pooled investment vehicles that are exempt from
registration under the Investment Company Act of 1940, as amended (the “1940 Act”) and whose securities
are not registered under the Securities Act of 1933, as amended (the “Securities Act”) (each, a “Fund” and
collectively the “Funds”), as well as provides discretionary sub-advisory services to various managed
accounts (the “Managed Accounts”) each of which, as of the date of this Brochure, are solely composed of
futures portfolios (consisting of futures contracts and foreign exchange forwards) and have either claimed
an exemption under the rules and regulations of the CFTC or are not otherwise required to be registered as
a commodity pool under such rules and regulations.
As the investment adviser of the Funds, Adviser’s services consist of identifying opportunities for
acquisition, management, monitoring, and disposition of investments of the Funds. Investment advice is
provided directly to the Funds, subject to the discretion and control of the managing member, the board of
directors or general partner of the applicable Fund, and not individually to the members, shareholders or
limited partners of the Funds.
Of the Funds currently sponsored by Adviser, only Systematic Quest Portfolio Company, Ltd. ("SQP") is
available for investment by external investors. SQP is organized in a “master-feeder” structure.
Systematic Quest Fund I, LLC (the “Onshore Fund”) and Systematic Quest Fund II, Ltd. (the “Offshore
Fund”) are feeder funds, each of which achieves its objective by investing substantially all of its assets
directly or indirectly in SQP. SQP’s investment approach has a balanced combination of fundamental,
technical and liquidity strategies.
Adviser also provides discretionary investment management services to the Managed Accounts as well as
to three additional strategies which are only currently offered to internal investors.
Clients establish the Managed Accounts by depositing assets into accounts maintained by independent
custodians, prime brokers or futures clearing merchants and entering into an Advisory Agreement (as
defined below) specifying the client’s investment objectives and the benchmark strategy. The Managed
Accounts currently are managed in one of three strategies:
1. Episteme Systematic Quest (hereinafter referred to as “ESQ”) which is a multi-asset class
systematic global macro strategy. ESQ’s investment approach has a balanced combination of
fundamental, technical, and liquidity strategies. The strategy trades the most liquid foreign
exchange forwards and government bond, short term interest rate, equity index and commodity
futures. ESQ may also be combined with a cash management strategy as “ESQTR”. ESQTR is
the strategy implemented by SQP.
2. Episteme Systematic Financial (hereinafter referred to as “ESF”) which is a multi-asset class
systematic global macro strategy. ESF’s investment approach has a balanced combination of
fundamental, technical, and liquidity strategies. The strategy trades the most liquid foreign
exchange forwards and government bond, short term interest rate and equity index futures. It does
not invest in physical commodity futures. This is a subset of the strategy implemented by ESQ.
3. Episteme Emerald (hereinafter referred to as “Emerald”) which is a quantitative systematic macro
program, which blends fundamental and technical strategies implemented through a diversified set
of futures and FX markets. These strategies are also a subset of the strategy implemented by ESQ
although it is subject to independent portfolio optimization from ESQ. Accordingly, trades are
subject to different weightings and may be in the opposite direction from ESQ.
The following investment strategies are also available for Managed Accounts.
1. Episteme Fixed Income Opportunities (previously referred to as the Global Liquid Opportunities
strategy and hereinafter referred to as “GLO”), a short-horizon fixed income event-driven strategy.
It uses highly liquid G8 government bond futures, but it could potentially use government bonds.
This is a subset of the strategy implemented by ESQ.
2. Episteme Systematic Commodities (hereinafter referred to as “ESC”), a multi-asset class
systematic global macro strategy. ESF’s investment approach has a balanced combination of
fundamental, technical, and liquidity strategies. The strategy trades the most liquid commodity
futures. This is also a subset of the strategy implement by ESQ but it does not invest in financial
futures.
Adviser seeks to achieve the investment objectives of its clients by utilizing a wide range of investment
strategies across multiple assets classes including futures, foreign exchange forwards and listed equities.
The various strategies and asset classes are described more fully in Item 8 below.
Adviser may in the future organize other investment funds, including feeder funds for the Funds or parallel
funds for employees of Adviser, or manage investment funds or separately managed accounts that may
either co-invest with the Funds and/or the Managed Accounts or follow an investment program similar to
or different from the Funds’ and Managed Accounts’ programs. Adviser may also establish special purpose
vehicles or subsidiaries and Advisor or the Funds may invest in or act through such special purpose vehicles
or subsidiaries.
Services are provided to the Funds and the Managed Accounts in accordance with the investment and
advisory, investment management, trading advisory or client advisory agreements with each of the
respective Funds and Managed Accounts (each, an “Advisory Agreement”) and/or organizational
documents of the applicable Fund. Investment restrictions for the Funds or Managed Accounts, if any, are
generally established in the organizational or offering documents of the applicable Fund or the Advisory
Agreements with respect to a Managed Account.
All discussions of the Funds in this brochure, including but not limited to their investments, the strategies used in managing the Funds, the fees and other costs associated with an investment in the Funds, and conflicts of interest faced by Adviser and its affiliates in connection with management of the Funds are qualified in their entirety by reference to each Fund’s respective confidential offering memorandum (if any) and governing documents (referred to collectively as “Offering Documents.”). Similarly, all discussions of the Managed Accounts in this brochure, including but not limited to their investments, the strategies used in managing the Managed Accounts, the fees and other costs associated with the Managed Accounts, and conflicts of interest faced by Adviser and its affiliates in connection with management of the Managed Accounts are qualified in their entirety by reference to each Managed Account’s respective Advisory Agreement and any other relevant governing documents. Assets Under Management As of July 1, 2019, Adviser managed approximately $926 million on a discretionary basis, which includes
both securities portfolios and commodities and futures accounts.
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As compensation for investment advisory services, the Funds and the Managed Accounts are subject to
fees, including Management Fees (as defined below), at a fixed rate and/or performance compensation,
based upon the performance of the respective Funds and Managed Accounts. Pursuant to the terms of the
relevant Advisory Agreement and/or Fund constituent documents, the compensation may be payable to
Adviser or one of its affiliates. In the event the Management Fee and/or performance compensation is
payable to an affiliate of Adviser, such payment is in lieu of direct payment to Adviser.
The Management Fees and Performance Compensations (as defined below) charged to the Funds are
described further below. Adviser may negotiate alternative fees or allocations on a client-by-client basis
with other Funds. Further, the Funds offer different series or tranches of interests as detailed in the Offering
Documents which may not pay fees under specified circumstances.
With respect to Managed Accounts, the Adviser has established a minimum Managed Account size of $20
million and such accounts are subject to fee schedule starting at a 1% management fee, charged monthly
and a 20% performance fee set annually. The actual fees charged for the Managed Accounts are
individually negotiated with each Managed Account. Different client facts and circumstances will be
considered in determining such fees or allocations, including the client’s investment strategy, assets under
management, account composition, reporting requirements, economies of scale, if any, and any other
factors Adviser deems relevant. Actual Management Fees range up to 1% and may be dependent upon the
trading level or net asset value of the Managed Account as well as the terms of performance compensation.
Performance fees (“Performance Fees”) range up to 25%. The calculation methodologies and the timing
of payment of such fees are set forth in the Advisory Agreements with the Managed Accounts. The Adviser
reserves the right to waive the minimum account size depending upon the strategy and other specific client
facts and circumstances. Any such smaller Managed Account may be subject to a different fee schedule.
Management Fee for the Funds As of the beginning of each calendar month, the management fee (the “Management Fee”), an aggregate
fixed fee calculated and payable monthly and calculated directly or indirectly on the net asset value of each
investor’s capital account in the Funds (each a “Capital Account”). As of August 1, 2019, the Management
Fee shall be at the following annual rates:
Tranche A and C: 1.0%
Tranche F: 2.0%
The Management Fee is debited directly or indirectly against the investors’ Capital Accounts and paid to
Adviser or ECP (Cayman) pursuant to the terms of each of the Funds’ organizational documents and the
relevant investment management agreement. For purposes of calculating the Management Fee, net asset
value includes net realized and unrealized profits and losses. The Management Fee may be waived or
reduced with respect to any investor. the Management Fees are generally waived for investments by
employees of Adviser, the general partner or managing member of a Fund (as defined below), Adviser, the
Principals, or their related persons, including estate planning vehicles of such persons and certain other
persons or entities associated with such persons (collectively, the “Related Persons”). If the investment
management agreement is terminated before the end of the billing period, Adviser refunds a pro rata portion
of the pre-paid fee to the Funds’ accounts.
Performance Compensation for the Funds As further detailed below, the Adviser (through its affiliates) may receive an allocation or fee related to the
performance depending on the underlying tranche. Currently performance compensation is payable at the
following rates:
Tranche A and C: 20.0% crystalized quarterly
Tranche F: 0.0%
In accordance with the terms of the relevant Offering Documents, the Tranche F Interests and Tranche F
Shares are available until such time as the Net Asset Value of SQP is equal to or greater than $100 million.
The Net Asset Value of SQP as of July 1, 2019 was approximately $58 million. After the Net Asset Value
of SQP is equal to or greater than $100 million, Tranche F will no longer be offered, and the Onshore Fund
and Offshore Fund will respectively only issue to external investors Tranche A Interests and Tranche C.
As further described in the Offering Documents, under the Tranche A Interests and the Tranche C Shares,
in each calendar quarter, the Adviser (through its affiliates) will be entitled to a performance allocation with
respect to the Tranche A Interests or a performance fee with respect to the Tranche C Shares (hereinafter
such performance allocation or such performance fee referred to as the “Performance Compensation”) equal
in the aggregate to 20% of any net profit allocable to each investor for such calendar quarter in excess of
any loss recovery with respect to such investor’s Capital Account adjusted for contributions, withdrawals
and distributions. Prior to July 31, 2019, the Performance Compensation was charged on an annual basis.
For tracking purposes, the Onshore Fund has issued one series of Tranche A Interests to an affiliated
investor.
Adviser, Episteme Capital, LP ("Episteme Capital"), in its capacity as the managing member of the Onshore
Fund, or the Board of Directors of the Offshore Fund may from time to time enter into letter agreements or
other similar agreements (collectively, “Side Letters”) with one or more investors which provide such
investors with additional and/or different rights (including, without limitation, with respect to management
fees and performance compensation) than provided in the governing documents of the Funds. Adviser or
Episteme Capital may, in their sole discretion, reduce or waive the Management Fee and Performance
Compensation with respect to any investor. Adviser and Episteme Capital generally intend to waive the
Management Fee and Performance Compensation for employees of Adviser and other Related Persons.
The Performance Compensation will be allocated from the Tranche A Capital Accounts and deducted from
the Tranche C Capital Accounts as of the close of each calendar quarter (and as of each other date on which
Adviser or Episteme Capital determines it is appropriate or necessary to make a determination of the
Performance Compensation with respect to an investor, including a date on which an investor withdraws
all or a portion of its Capital Account). Each separate contribution to the Fund may be treated as a separate
Capital Account or a sub-account of such Capital Account. In the event that a separate Capital Account or
sub-account is established, until such time as a Fund effectuates a capital account roll-up as described in
the relevant Offering Document, the computations required to be made for purposes of computing the
Performance Compensation will be made separately with respect to separate contributions to or withdrawals
from the Fund by a particular investor, to reflect appropriately the different times at which investors may
have contributed capital to the Fund or withdrawn capital from the Fund and the net asset values at such
times. As a result, a Performance Compensation may be charged with respect to a specific investment in
the Fund made by an investor even if no Performance Compensation would have been charged had all of
such investor’s investments been aggregated for purposes of calculating the Performance Compensation.
Other Expenses Adviser and its affiliates are authorized to incur and pay in the name and on behalf of the Funds all expenses
which they deem necessary or advisable. Adviser will be responsible for and shall pay, or cause to be paid,
all of its Overhead Expenses, except as described below. For this purpose, “Overhead Expenses” for a
fiscal year include overhead expenses of an ordinarily recurring nature such as rent, utilities, supplies,
secretarial expenses, stationery, charges for furniture, fixtures and equipment, employee benefits including
insurance, payroll and other taxes and compensation (and related costs) of all personnel. All other expenses
will be borne by the Funds, including organizational expenses, legal, accounting, bookkeeping, global tax
and regulatory compliance, auditing, consulting and other professional expenses, including those of
valuation firms; administration fees and other expenses charged by or relating to the services of third-party
providers of administration services; expenses related to various operational functions of a Fund related to
the implementation and administration of a Fund’s accounts with bank and brokerage firms to permit the
trading, delivery, payment, clearance, settlement and custody of a Fund’s investments, including any fee
payable under a written agreement among a Fund, Adviser and/or ECP (US) as disclosed in a Fund’s
Offering Document, third-party and out-of-pocket research and market data expenses; interest and fees
(including commitment, structuring and underwriting fees) on margin loans, committed loan facilities, total
return swaps and other indebtedness; bank service, custodial and similar fees; fees and expenses (including
travel expenses) related to the analysis, purchase or sale of investments, whether or not the investments are
consummated; expenses related to the purchase, monitoring, sale, settlement, custody or transfer of Fund
assets (directly or through trading affiliates); third party and out-of-pocket fees and expenses relating to
systems and software used in connection with the operation of the Funds and investment related activities
(including any accounting, risk management, trading and administrator-like functions that Adviser
performs in-house); fees and expenses in connection with any advisory board or committee as disclosed in
a Fund’s Offering Document, entity-level taxes; fees and expenses relating to the offer and sale of Fund
interests (including organizational fees and expenses and filing and legal fees); and other ordinary and
extraordinary expenses associated with the operation of the Funds and their investment activities.
As noted in Item 12 of this brochure, although Adviser typically has authority to select brokers to execute
transactions for Managed Accounts, typically Adviser is not responsible for selecting custodians, clearing
brokers, futures commission merchants or other service providers. These Managed Accounts bear all costs
associated with trading and maintaining their investment accounts, as described above, including without
limitation: commissions, custody fees, debit balances, taxes and other transaction-related costs.
For certain Funds, Episteme may agree to pay certain costs, including organizational expenses, exceeding
a specific amount. Please see the Funds’ Offering Documents for further details.
Adviser and its supervised persons do not accept compensation or commissions for the sale of securities or
other investment products.
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As disclosed above under Item 5, FEES AND COMPENSATION, Adviser or one of its affiliates receives
Performance Compensation, which are each based on performance of the respective Funds and the Managed
Accounts. The Funds pay a Performance Compensation calculated at the same rate, subject to waivers or
reductions for certain investor accounts. Certain Managed Accounts pay Performance Fees calculated at
different rates, as negotiated with each such Managed Account, and such Performance Fees may be higher
or lower than the Performance Compensation paid by the Funds.
The payment of Performance Compensation at varying rates may create an incentive for Adviser to
disproportionately allocate time, services or functions to Funds or Managed Accounts paying Performance
Compensation at a higher rate or allocate investment opportunities to such Funds or Managed Accounts.
Generally, this conflict is mitigated by policies and procedures of Adviser, including that Adviser generally
allocates transactions in which more than one client is eligible to participate pro rata among such clients.
Please also see Items 11 and 12 below regarding trade aggregation, as well as Item 11 below for additional
information relating to how conflicts of interests are generally addressed by Adviser.
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Adviser currently provides investment advisory services to the Funds and the Managed Accounts. With
respect to the Funds, investment advice is provided directly to the Funds, subject to the discretion and
control of the managing member, the board of directors or general partner of the applicable Fund, and not
individually to the investors in the Funds.
Interests in the Funds are offered pursuant to applicable exemptions from registration under the 1940 Act
and the Securities Act. Investors in the Funds may include high net worth individuals, trusts, estates,
charitable organizations, pension plans, corporations, limited partnerships, limited liability companies, and
similar entities.
The minimum initial investment in each Fund available for external investment is $1,000,000. The board
of directors of the Offshore Fund, with respect to the Offshore Fund, and Episteme Capital, as the managing
member of the Onshore Fund, may each waive this minimum in its sole discretion.
Adviser also provides discretionary sub-advisory services to various Managed Accounts each of which, as
of the date of this Brochure, are solely composed of futures portfolios (consisting of futures contracts and
foreign exchange forwards) and have either claimed an exemption under the rules and regulations of the
CFTC or are not otherwise required to be registered as a commodity pool under such rules and regulations.
All such clients meet the definition of a “qualified eligible person” as defined in Regulation 4.7 under the
Commodity Exchange Act and consent to being treated as an exempt account under CFTC Regulation
4.7(c) if a Section 4.7 exemption has not been made. Further all Managed Accounts which incur a
performance fee are “qualified clients” under Rule 205-3 of the Investment Advisers Act. As of the date
of this Brochure, the Managed Accounts exclusively trade futures and foreign exchange forwards. The
minimum size for such Managed Accounts is $20 million and subject to further negotiation dependent on
several factors, including, but not limited to, the strategy to be deployed by the Managed Account and
whether the Managed Account requires middle or back office services to support it.
Adviser may in the future provide advisory services to other funds and separately managed accounts for
high net worth individuals, trusts, estates, charitable organizations, pension plans, corporations, limited
partnerships, limited liability companies, and similar entities.
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Methods of Analysis and Investment Strategies Adviser deploys the investment strategies as described below:
Episteme Systematic Quest, Episteme Systematic Financials, Episteme Systematic Commodities and Emerald
The Episteme Systematic Quest Strategy (“ESQ”) is undertaken by certain Managed Accounts. SQP runs
the ESQTR strategy which utilizes the ESQ strategy together with a cash management strategy. The
Episteme Systematic Financials Strategy (“ESF”) undertakes the same strategies as ESQ but excludes
strategies in physical commodity futures. The Episteme Systematic Commodities Strategy (“ESC”)
undertakes the same strategies as ESQ but excludes strategies in financial futures. Adviser allocates capital
among systematic, model-driven strategies with instruments that are expected to provide liquidity, and may
develop new strategies and/or retire existing strategies as market opportunities change, subject to maximum
risk exposures. All three of these strategies include, but are not limited to, Core Systematic Strategies (as
defined below) and Liquidity Strategies (as defined below). A qualitative overlay, as further described
below, which may override certain aspects of the trading models may occur opportunistically to respond to
market developments and/or risk conditions that are not captured by the models. Finally, Emerald runs a
subset of the ESQ strategies but with separate independent portfolio optimization.
The objectives of ESQ are generally pursued by using bond, deposit, equity index and commodity futures
as well as currency (FX) futures and forwards and may be conducted in any future, commodity, currency,
contract or derivative thereof, including but not limited to notes, bonds, equities, physical commodities,
derivatives on the foregoing (including, without limitation, contracts known as swaps and other similar
notional principal contracts), contracts based on indices on the foregoing, futures, options and forwards on
the foregoing. Investments within the strategy may also include, but are not limited to, any financing
transactions with respect to the foregoing. The strategies and transactions may be denominated in any
currency, including notional or basket currencies. As stated above, ESF and ESC pursue the same
objectives although using subsets of the set of asset classes traded by ESQ. Emerald also pursues a subset
of these strategies but subject to independent portfolio optimization and therefore the weightings and
directions of the Emerald trades may differ from those in ESQ.
The Core Systematic Strategies The “Core Systematic Strategies” are a family of systematic strategies that trade futures and currency
forward contracts and seek to generate returns across a number of asset classes. The Core Systematic
Portfolio is a portfolio of all positions over time that attempts to capture the expected returns from the Core
Systematic Strategies while at the same time being in compliance with applicable risk management
constraints. The Core Systematic Portfolio can be decomposed into positions grouped by asset class (the
“Asset Class Portfolios”). Depending on the parameters of the overall strategy, Asset Class Portfolios
include, but are not limited to currencies (futures and/or forwards) and bond futures, deposit short-term
interest rate futures, equity index futures, commodities and commodity futures and currency (FX) futures
and forwards. The Core Systematic Portfolio may not be active in all asset classes at all times. Other asset
classes may be added over time.
Sources of returns for Core Systematic Strategies in the portfolio may include value, carry, momentum,
mean-reversion, cross-market effects, seasonal effects, flows/positions, and macro effects. Other sources
of returns may be added over time.
Strategy trades have horizons ranging from intraday to several months. The future and currency markets
have been selected on the basis of a number of criteria, including sufficient liquidity, although no assurance
can be given in this regard. Strategies have a life-cycle that spans the original investment hypothesis,
modeling, back-testing, implementation and retirement. It is intended that at any point in time a number of
strategies will be in development and production at different stages of their life-cycle.
The Liquidity Strategies The “Liquidity Strategies” are a family of short-horizon strategies which are undertaken with respect to
various demand and supply events in the government bond, commodity and currency markets and seek to
profit from capturing the liquidity premium created by these short-term events. These positions may be
hedged or un-hedged depending on the event or market and are pursued globally in a disciplined and
systematic manner. The holding period for these positions is typically one to several days.
Other Strategies ESQ and ESF may at times also run a VIX futures strategy. Other strategy families may be added over
time.
Discretionary Risk Reduction Notwithstanding their model-driven target volatilities, sizing within the ESQ and ESF portfolios may be
discretionarily reduced from time to time depending on market risk conditions perceived not to be
adequately captured by the risk models.
Qualitative Overlay In addition to the foregoing, a qualitative overlay permits certain discretionary trades to be added to the
portfolio to take advantage of the investment team’s significant market experience. Such trades,
collectively the “Overlay Portfolio,” are limited to a targeted maximum volatility of 2% of SQP’s net asset
value. It is expected that trading within the overlay will be infrequent and typically will be used to respond
to market developments and/or risk conditions that are not captured by the models. Managed Accounts
trading in the ESQ and ESF are expected to participate in similar trades scaled pro-rata based on capital
although a Managed Account may choose to exclude such overlay.
Implementation of the ESQ and ESF investment strategies sometimes involves nearly simultaneous
transactions in markets for different instruments and in different locations. Actual holding periods vary
depending on how quickly or whether the targeted objectives for the positions are realized and on other
market factors. The ESQ and ESF strategies may involve the use of borrowed funds (such as margin
borrowings) and other forms of leverage, the extent of which fluctuates depending on market conditions
and the risk level of SQP and any relevant Managed Account pursuing such strategies.
Episteme Fixed Income Opportunities Strategy (“GLO”) The Episteme Fixed Income Opportunities Strategy (formerly referred to as the Global Liquid Opportunities
Strategy and hereinafter referred to as "GLO") is related to the fixed income liquidity strategy pursued by
the Adviser's flagship fund, SQP. GLO tracks hundreds of liquidity events per year and typically trades
around a substantial subset of such events. The strategy may take positions ahead of an event and/or after
the event. Either pre- or post-event trades may be directional, partially or fully hedged.
Investment Risks An investment in a Fund or Managed Account involves a high degree of investment risk, including the risk
that the entire amount invested may be lost. A Fund or Managed Account will make investments using
strategies and financial techniques with significant risk characteristics. No guarantee is made that the
investment objectives of a Fund will be realized. Below is a list of potential investment risk factors that are
reportable in this brochure. There is no guarantee that this is a complete list of the risks, that Adviser will
be able to control investment risks or that the risks will not aggregate in a manner adverse to a Fund or the
Managed Account. Additional risks associated with an investment in a Fund may be disclosed in the
Offering Documents of that Fund or the risk factors provided in connections with the opening of any
Managed Account. For the purposes of this section on Investment Risks, references to the “Fund” shall
include the Managed Accounts.
The following matrix identifies some of the types of risks associated with ESQ, ESF, ESC and GLO. Risks
not marked for ESQ, ESF, ESC or GLO may, however, still apply to some extent at various times.
Investment Risk ESQ (including ESQTR) ESF EMERALD ESC GLO General Economic and Market Conditions x x X x x
Risks of Global Investing x x X x x
Futures and Related Options x x X x x
Risks of Derivative Instruments x x X x x
Hedging Transactions x x X x x
Options
Swaps
Short Sales
Market Liquidity and Leverage x x X x x
Portfolio Turnover x x X x x
Risks of Trade Errors x x X x x
Risks of Reliance on Models x x X x x
Other Instruments and Future Developments x x X x x
Custodial Risk x
The risks associated with particular investments include, but are not limited to, the following:
General Economic and Market Conditions. The success of Adviser’s strategies may be affected by general
economic and market conditions, such as interest rates, availability of credit, inflation rates, economic
uncertainty, changes in laws, and national and international political circumstances. General fluctuations
in the market prices of securities may affect the value of the investments held by a Fund. Unexpected
volatility or changes in liquidity could impair the Fund’s profitability or result in it suffering losses.
Instability in the securities markets will also likely increase the risks inherent in a Fund’s investments.
There is no guarantee that ordinary and prudent precautions for natural and other disasters will provide an
effective connection between Adviser and markets in the event of large-scale disruptions in the United
Kingdom or, alternatively, in the countries where Adviser executes trades.
Risk of Global Investing. A Fund invests in various capital markets throughout the world. As a result, the
Fund is subject to risks relating to (i) currency exchange matters, including fluctuations in the rate of
exchange between the United States dollar and the various foreign currencies in which the Fund’s positions
will be denominated, and costs associated with conversion of investment principal and income from one
currency into another and (ii) the possible imposition of withholding, confiscatory or other taxes on income
received from or gains with respect to such positions. In addition, certain of these capital markets involve
certain factors not typically associated with investing in established securities markets, including risks
relating to (i) differences between markets, including potential price volatility in and relative illiquidity of
some foreign securities markets and market manipulation, (ii) the fact that less information may be available
regarding Securities of non-U.S. issuers and the absence of uniform accounting, auditing and financial
reporting standards, practices and disclosure requirements and less government supervision and regulation
of exchanges, brokers and issuers and (iii) certain economic and political risks, including political or social
instability, potential exchange control regulations and potential restrictions on foreign investment and
repatriation of capital. In addition, transaction costs of investing in non-U.S. securities markets are
generally higher than in the U.S. The Fund might have greater difficulty taking appropriate legal action in
non-U.S. courts. Non-U.S. markets also have different clearance and settlement procedures that, in some
markets, have at times failed to keep pace with the volume of transactions; thereby creating substantial
delays and settlement failures that could adversely affect the Fund’s performance.
Futures and Related Options. Adviser utilizes futures contracts in pursuing investment strategies on behalf
of a Fund. A futures contract is an agreement between two parties to buy and sell a specific quantity of a
commodity (including a securities index or an interest-bearing security) for a set price at a future date. A
Fund may also buy and sell call and put options on futures or on securities indexes in addition to or as an
alternative to purchasing or selling futures contracts, or, to the extent permitted by applicable law, to earn
additional income.
The use of futures and options involves certain special risks. Futures prices are highly volatile at times,
and are influenced by many external economic, governmental, and world events. The low margin deposits
normally required in futures trading permits an extremely high degree of leverage, which can result in a
substantial gain or loss to a Fund from a relatively small price movement. Additional risks associated with
futures trading are described below:
•
Price Volatility. Futures contracts have a high degree of price variability and are subject to
periodic rapid and substantial changes. Price movements for futures contracts which the Account
trades may be influenced by, among other things, changing supply and demand relationships,
government, trade, fiscal and economic events and changes in interest rates. Governments from
time to time intervene, directly and through regulation, in certain markets, often with the intent to
influence prices directly. Consequently, substantial losses could occur.
•
Futures Markets are Leveraged and Speculative. The markets in which a Fund trades are
speculative, highly leveraged and involve a high degree of risk. Volatility increases risk,
particularly when trading with leverage. Due to such leverage, even a small movement in price
could cause large losses for a Fund. Market volatility and leverage mean that the Account could
incur substantial losses, potentially impairing its equity base and ability to achieve its long-term
profit objectives even if favorable market conditions subsequently develop.
•
Illiquidity of Markets. Futures positions cannot always be liquidated at the desired price. It is
difficult to execute a trade at a specific price when there is a relatively small volume of buy and
sell orders in a market. A market disruption, such as when governments may take or be subject to
political actions, which disrupts the markets in their currency or major exports, can also affect the
liquidity of the futures markets thereby making it difficult to liquidate a position. Periods of
illiquidity have occurred from time to time in the past. Such periods of illiquidity and the events
that trigger them are difficult to predict and there can be no assurance that Adviser will be able to
do so. There can be no assurance that market illiquidity will not cause losses for a Fund.
•
No Intrinsic Value of Positions. Futures trading is a risk transfer economic activity. The futures
markets are fundamentally different from the securities markets in that for every gain there is an
equal and offsetting loss rather than an opportunity to participate over time in general economic
growth. Overall stock and bond prices could rise or fall significantly, and the economy as a whole
could prosper or falter without regard to whether the Fund trades profitably or unprofitably.
•
Trading on Non-U.S. Exchanges. Trading contracts denominated in currencies other than U.S.
dollars, unless Adviser hedges a Fund against fluctuations in exchange rates, a Fund will be subject
to the risk of adverse exchange-rate movements between the dollar and the functional currencies of
such contracts. If Adviser does not hedge against fluctuations in the exchange rate, a Fund could
incur substantial losses from a Fund’s trading on foreign exchanges due to adverse exchange rate
movements, which losses might not have occurred had the Fund limited its trading to U.S. markets.
In addition, some non-U.S. exchanges, in contrast to U.S. exchanges, are “principal markets” in
which performance with respect to a contract is the responsibility only of the member with which
the trader has entered into a contract and not of the exchange or clearinghouse, if any. In the case
of trading on such non-U.S. exchanges, a Fund will be subject to counterparty risk, including,
among others, counterparty credit risk and the risk that the counterparty will not perform. It is also
possible that a Fund will not have the same access to certain trades as do various other participants
in non-U.S. markets. Due to the absence of a clearinghouse system on many non-U.S. markets,
such markets are significantly more susceptible to disruptions, which may include prolonged
suspensions of trading and involuntary settlement of positions at artificial prices, than on U.S.
exchanges.
•
Daily Price Fluctuation Limits. United States commodity exchanges may limit fluctuations in
futures contracts prices during a single day by regulations referred to as “daily price fluctuation
limits” or “daily limits.” During a single trading day, no trades may be executed at prices beyond
the daily limit. Once the price of a particular commodity futures contract has increased or decreased
to the limit point, positions in the commodity futures contract can be neither established nor
liquidated unless traders are willing to effect trades at or within the limit. Futures prices have
occasionally moved the daily limit for several consecutive days with little or no trading. Similar
occurrences could prevent a Fund from promptly liquidating unfavorable positions and subject a
Fund to substantial losses that could exceed the margin initially committed to such trades.
•
Speculative Position Limits. The CFTC and domestic exchanges have established speculative
position limits (“position limits”) on the maximum position which any person, or group of persons
acting in concert, may hold or control in particular futures and options contracts. Adviser is and
will continue to be the manager for multiple accounts. Under current regulations, all accounts are
combined with the positions held by a Fund under Adviser’s management for position limit
purposes. In addition, Adviser may trade for its own account and the accounts of its principals.
This trading could preclude additional trading in such contracts by Adviser for a Fund.
Risks of Derivative Instruments. A Fund may engage in a variety of derivative transactions. All derivative
instruments, including options, forward contracts and swap contracts involve risks different from, and, in
certain cases, greater than the risks presented by more traditional investments. The following is a general
discussion of important risk factors and issues concerning the use of derivatives that investors should
understand before investing in a Fund.
Counterparty Credit Risk. This is the risk that a loss may be sustained by a Fund as a result of the failure
of the other party to a derivative (usually referred to as a “counterparty”) to comply with the terms of the
derivative contract. The credit risk for exchange-traded derivatives is generally less than for over-the-
counter derivatives, because the clearing house, which is the issuer or counterparty to each exchange-traded
derivative, provides additional protections in the event of non-performance by the counterparty. For
operational reasons, a Fund may allow a prime broker to retain possession of collateral. To the extent a
Fund allows a prime broker or any over-the-counter derivative counterparty to retain possession of any
collateral, a Fund may be treated as an unsecured creditor of such counterparty in the event of the
counterparty’s insolvency. (See “Custodial Risk” and “Counterparty Risk.”)
Liquidity Risk. Liquidity risk exists when a particular instrument is difficult to purchase or sell. If a
derivative transaction is particularly large or if the relevant market is illiquid (as is the case with many over-
the-counter derivatives or the credit markets), it may not be possible to initiate a transaction or liquidate a
position at an advantageous price. Less liquid derivatives may also fall more in price than other securities
during market falls.
Leverage Risk. Because many derivatives have a leverage component, adverse changes in the value or level
of the underlying asset, rate or index may result in a loss substantially greater than the amount invested in
the derivative itself. In the case of swaps, the risk of loss generally is related to a notional principal amount,
even if the parties have not made any initial investment. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment.
Hedging Transactions. A Fund may utilize financial instruments, both for investment purposes and for risk
management purposes in order to: (i) facilitate the sale of any such investments, (ii) enhance or preserve
returns, spreads or gains on any investment, (iii) hedge the interest rate or currency exchange rate on any
of a Fund’s liabilities or assets, (iv) protect against any increase in the price of any investment in a Fund
anticipates purchasing at a later date or (v) for any other reason that Adviser deems appropriate.
The success of the hedging strategy of a Fund will be dependent upon Adviser’s ability to correctly assess
the degree of correlation between the performance of the instruments used in the hedging strategy and the
performance of the investments in the portfolios being hedged. Since the characteristics of many Securities
change as markets change or time passes, the success of a Fund’s hedging strategy will also be subject to
Adviser’s ability to continually recalculate, readjust, and execute hedges in an efficient and timely manner.
While a Fund may enter into hedging transactions to seek to reduce risk, such transactions may result in a
poorer overall performance for a Fund than if it had not engaged in any such hedging transactions. For a
variety of reasons (e.g., cost and probability of occurrence of risk), a Fund may not hedge against particular
risks or may not establish a perfect correlation between such hedging instruments and the portfolio holdings
being hedged. An imperfect correlation may prevent a Fund from achieving the intended hedge, and failure
to hedge or an imperfect hedge may expose a Fund to risk of loss.
Counterparty Risk. Certain markets in which a Fund may effect transactions are “over-the-counter” or
“interdealer” markets, and may also include unregulated private markets. The participants in such markets
typically are not subject to the same level of credit evaluation and regulatory oversight as are members of
“exchange-based” markets. This exposes the investor to the risk that a counterparty will not settle a
transaction in accordance with its terms and conditions because of a dispute over the terms of the contract
(whether or not bona fide) or because of a credit or liquidity problem, thus causing a Fund to suffer a loss.
Such “counterparty risk” is accentuated for contracts with longer maturities where events may intervene to
prevent settlement, or where a Fund has concentrated its transactions with a single or small group of
counterparties. A Fund may also be exposed to similar risks with respect to non-U.S. brokers in
jurisdictions where there are delayed settlement periods. A Fund is not restricted from dealing with any
particular counterparty or from concentrating any or all transactions with one counterparty. The ability of
a Fund to transact business with any one of a number of counterparties, the lack of any meaningful and
independent evaluation of such counterparties’ financial capabilities and the absence of a regulated market
to facilitate settlement may increase the potential for losses by a Fund. Similar risks also arise in connection
with derivative instruments and brokerage arrangements that a Fund may put in place. (See “Counterparty
Credit Risk” and “Custodial Risk.”)
A Fund may only close out “over-the-counter” transactions (including swaps and contracts for differences)
with the relevant counterparty, and may only transfer a position with the consent of the particular
counterparty. Also, if the counterparty defaults, a Fund will have contractual remedies pursuant to the
agreement related to the transaction, but there is no assurance that contract counterparties will be able to
meet their obligations pursuant to such contracts or that, in the event of default, a Fund will succeed in
enforcing contractual remedies. There also may be documentation risk, including the risk that the parties
may disagree as to the proper interpretation of the terms of a contract. If such a dispute occurs, the cost and
unpredictability of the legal proceedings required for a Fund to enforce its contractual rights may lead a
Fund to decide not to pursue its claims against the counterparty. A Fund thus assumes the risk that it may
be unable to obtain payments owed to it under contracts relating to over-the-counter transactions or that
those payments may be delayed or made only after a Fund has incurred the costs of litigation.
Market Liquidity and Leverage. A Fund may be adversely affected by a decrease in market liquidity for
the instruments traded by a Fund (e.g., by impairing a Fund’s ability to adjust its positions, balance sheet
and risk in response to trading losses or other adverse developments). The size of a Fund’s positions may
magnify the effect of a decrease in market liquidity for the instruments traded by a Fund. During such times,
Adviser may be unable to effectively dispose of certain assets, which could adversely affect its ability to
rebalance its investment portfolio or satisfy redemption requests of a Fund. Such circumstances may also
force Adviser to dispose of a Fund’s assets at reduced prices, thereby adversely affecting a Fund’s
performance. The existence of other market participants seeking to dispose of similar assets at the same
time could also adversely affect a Fund’s liquidity and Adviser’s ability to prevent losses with respect to
such assets. Changes in the overall market leverage (e.g., deleveraging or liquidations by other market
participants of the same or similar positions) may also adversely affect a Fund’s positions
Portfolio Turnover. A Fund has not placed any limit on the rate of portfolio turnover, and portfolio
securities may be sold without regard to the time they have been held when, in the opinion of Adviser,
investment considerations warrant such action. A high rate of portfolio turnover involves correspondingly
greater expenses than a lower rate, may act to reduce a Fund’s investment gains, or create a loss for investors
and may result in taxable costs for investors depending on the tax provisions applicable to such investors.
Risks of Trade Errors. The investment strategies employed by Adviser contemplate frequent and regular
trading by Adviser, which, as a result, may subject a Fund to a heightened risk of loss due to trading errors.
Generally, the Adviser defines a trade error as occurring in circumstances where either (i) the Adviser trades
a contract outside of the specified list of permitted instruments (whether established by the Adviser’s Chief
Investment Officer or set forth in an Advisory Agreement) or (ii) the Adviser makes an error in execution,
allocation or give-up of the target trades set by the Adviser’s models. Notwithstanding the foregoing, there
are circumstances where deviations from target trades do not constitute trade errors. Such circumstances
include, but are not limited to, cases where markets unexpectedly close, cases where exchange price limits
are hit, cases where, in the sole judgment of the Adviser, either prior or during execution of such trade,
Adviser determines that full execution of the target trade may be impractical due to lack of liquidity in the
market, and cases where the target size is below the threshold set for a minimum trade size. For the
avoidance of doubt, whereas the Adviser has put multiple safeguards in place to reduce the probability of
system issues with its systematic processes such as model, data and software errors, omissions,
imperfections and malfunctions, such system issues do not constitute trade errors.
Adviser has adopted the following procedures related to trade errors. Upon discovering a trading error, the
strategist must inform Adviser’s chief compliance officer (the “Chief Compliance Officer”) of such error
and the steps, if any, which have been taken to correct the error. To the extent a trade error occurs across
multiple accounts, to the extent possible, the trading error is allocated to the accounts in accordance with
the allocations rules established by Adviser’s trade allocation policy. Upon reporting to the Chief
Compliance Officer, the Chief Compliance Officer is provided with any further research required as to the
nature of the trading error and how the error was resolved. Adviser’s Principals and the Chief Compliance
Officer then discuss what changes may be made to Adviser's trading and operations processes and/or if new
policies and procedures should be adopted in order to try to prevent a similar error from occurring in the
future.
Although every effort is made to solve trading errors and to take steps to mitigate losses, Adviser relies on
the various provisions including liability and indemnification provisions in the Advisory Agreements of
each of the Funds and the Managed Accounts to determine Adviser’s resulting liability, if any, to each of
its relevant clients. The Funds’ Advisory Agreements currently provide that neither Adviser nor any of its
affiliates are contractually liable for (i) any acts or omissions arising out of, or in connection with, the client,
any investment made or held by the client or any governing agreement, unless such action or inaction was
performed or omitted fraudulently or in bad faith or constituted gross negligence (as defined under
Delaware Law) or willful misconduct, or for losses due to such action or inaction or (ii) the negligence,
dishonesty or bad faith of any broker or agent of the client, provided that such broker or agent was selected,
engaged or retained by Adviser or an affiliate in good faith. Although the Advisor seeks to negotiate the
same standard in the Advisory Agreements with the Managed Accounts, the governing law may be different
and the Managed Account may require additional procedures and policies, including but not limited to the
reporting of any trade errors and that, notwithstanding the specified standard of care, the Advisor bear losses
incurred with respect to any trade errors.
As a result of reliance on the standards of liability and indemnifications under the Advisory Agreement,
unless the Advisory Agreement explicitly provides otherwise, any negative or positive results of trading
errors are generally borne by the Funds and Managed Accounts to the extent Adviser and its affiliates
adhere to the contractual standard of care.
Adviser may negotiate Advisory Agreements with differing standards of care, differing governing laws,
and different contractual language specifically defining trade errors and/or addressing the resolution of
trading errors.
Risks of Reliance on Models. Trading decisions made by Adviser for a Fund are based on a variety of
statistical models, including forecast models, risk models, cost models and beta models. As applicable, the
profitability of a Fund depends on the accuracy of the underlying forecast and cost models; the risk control
of a Fund relies on the accuracy of the risk models; and the market exposure of a Fund relies on the accuracy
of the beta models. These models have been developed over time as a result of research and trading, but no
assurance can be given of their accuracy. Flaws in these models could prevent a Fund from achieving its
investment objectives.
Other Instruments and Future Developments. A Fund may take advantage of opportunities in the area of
swaps, options on various underlying instruments and swaptions and certain other customized “synthetic”
or derivative investments in the future. In addition, a Fund may take advantage of opportunities with respect
to certain other “synthetic” or derivative instruments which are not presently contemplated for use by a
Fund or which are currently not available, but which may be developed to the extent such opportunities are
both consistent with a Fund’s investment objective and legally permissible for a Fund. Special risks may
apply to a Fund’s investments in the future.
Custodial Risk. A Fund’s prime brokers will have custody of a Fund’s securities, cash, distributions and
rights accruing to a Fund’s securities accounts. At this time, each Fund has entered into prime brokerage
agreements with one or more prime brokers organized and/or operating in the United Kingdom or other
non-U.S. jurisdictions (such prime brokers, the “Non-U.S. Prime Brokers”), which prime brokers may be
unregulated affiliates of prime brokers that are registered U.S. broker-dealers (“U.S. Prime Broker”). In
addition, to the extent a Fund enters into prime brokerage agreements with U.S. Prime Brokers, such U.S.
Prime Brokers may allow for the transfer of collateral or assets to a Non-U.S. Prime Brokers. Non-U.S.
Prime Brokers may be subject to regulatory regimes that are substantially different from the regulatory
regime governing U.S. Prime Brokers and that do not provide customer protections similar in scope to the
customer protections provided by the U.S. regulatory regime. As such, following the insolvency or
bankruptcy of a Non-U.S. Prime Broker, a Fund may be unable to recover all, or a substantial portion of,
the collateral and other Fund assets held by such Non-U.S. Prime Broker and a Fund may be viewed as a
general unsecured creditor in any bankruptcy or insolvency proceeding with respect to such Non-U.S. Prime
Broker. In such circumstances, a Fund would seek to vigorously pursue its claims against such Non-U.S.
Prime Broker for the return of such assets, although no assurance can be given that any such recovery could
be made. In addition, following the insolvency or bankruptcy of a Non-U.S. Prime Broker, a Fund might
be unable to transfer or close out open positions with such Non-U.S. Prime Broker. If a Fund is unable to
adequately hedge such open positions, a Fund could incur significant liabilities to the Non-U.S. Prime
Broker.
Additionally, the amount of leverage that a Fund may obtain from a Non-U.S Prime Broker may be
significantly greater that the leverage that a U.S. Prime Broker could provide to a Fund under U.S. law,
and, unlike a U.S. Prime Broker, a Non-U.S. Prime Broker may have few or no restrictions on its ability to
rehypothecate collateral and other Fund assets held by the Non-U.S. Prime Broker. To the extent that a
prime broker has rehypothecated any assets of a Fund, a Fund may be unable to recover such assets in a
bankruptcy or insolvency proceeding and may only have an unsecured claim against the prime broker for
the value of such assets.
Other Possible Risks
There is no assurance that the above list is complete or that there are no other risks that may exist now or
may arise in the future.
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Related Commodity Pool Operators/Commodity Trading Advisors
Adviser is registered as a commodity pool operator ("CPO"), commodity trading adviser (“CTA”) with the
Commodities Futures Trading Commission (the “CFTC”). Each of Mr. Eterovic, Mr. Lau and Mr. Kassam
are registered as associated persons of Adviser.
ECP (US), an affiliate of Adviser, is registered as both a commodity pool operator (“CPO”) and CTA with
the CFTC. ECP (US) serves as the primary CPO of SQP, the Onshore Fund and the Offshore Fund (for
the purposes of this section, the “Pools”). In such capacity, ECP (US) is responsible for certain oversight
and reporting functions of the Pools. ECP (US) may also serve as a CTA with respect to the Managed
Accounts. Mr. Leahy is registered as an associated person of ECP (US).
ECP (Cayman), the ultimate holding company of Adviser, is registered as a CTA with the CFTC. ECP
(Cayman) serves as a CTA to the Pools as well as to many of the Managed Accounts. ECP (Cayman) has
further delegated its CTA responsibilities to Adviser.
For a description of material conflicts of interest created by Adviser’s relationship with the above mentioned
entities, as well as a description of how such conflicts are handled, please see Item 11 below.
European Union Alternative Investment Fund Manager Directive
As of July 22, 2016, the Adviser became registered as an Alternative Investment Fund Manager
(“AIFM”) under the European Union Alternative Investment Fund Manager Directive (“AIFMD”).
AIFMD is applicable to the funds which are considered Alternative Investment Funds (“AIFs”) under
AIFMD. As of December 31, 2016, the following clients of ECP (UK) were considered AIFs
Systematic Quest Portfolio Company, Ltd.
Systematic Quest Fund I, LLC; and
Systematic Quest Fund II, LLC.
Moreover, in furtherance of the rules under AIFMD, the investment management agreements with the
AIFs were amended and restated with the Adviser being appointed as the sole AIFM for each AIF and in
such capacity exercises discretionary investment management authority and is responsible for meeting the
requirements of AIFMD with respect to the AIFs.
Related Managing Member
Episteme Capital serves as the Managing Member of the Onshore Fund. For a description of material
conflicts of interest created by the relationship between Adviser and Episteme Capital, as well as a
description of how such conflicts are addressed, please see Item 11 below.
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AND PERSONAL TRADING Code of Ethics Adviser has adopted a Code of Ethics (the “Code of Ethics”) that states that it is generally improper for
Adviser or employees or certain other persons covered by the Code of Ethics (as used in this Item 11,
“employees”) to use for their own benefit (or the benefit of anyone other than a client) information about
Adviser’s trading or investment recommendations for a client or take advantage of investment opportunities
that would otherwise be available for a client. The Code of Ethics requires all employees to comply with
applicable U.S. federal securities laws at all times.
The Code of Ethics outlines written policies regarding personal trading in any brokerage or trading account
in which an employee, or any member of such employee’s immediate family, has any direct or indirect
control or beneficial ownership. The personal trading policies adopted by Adviser generally require
employees to seek pre-approval prior to trading all securities. Adviser’s Legal & Compliance Department
(the “Legal & Compliance Department”), under the supervision of the Chief Compliance Officer, reviews
such requests prior to approval to ensure no conflicts with transactions being undertaken or contemplated
to be undertaken on behalf of a Fund or a Managed Account. An employee is required to disclose all of his
or her personal account holdings to Adviser upon employment. Subject to certain exemptions, employees
of Adviser must provide Adviser with contemporaneous duplicate copies of all account statements. Further,
on a quarterly basis, employees must certify such account statements show all transactions and/or provide
details of any transactions not reflected in such statements as well as provide annual holdings reports.
The Code of Ethics requires the Legal & Compliance Department to regularly monitor all trading activity
in personal accounts to determine whether all personal trading activity in its employees’ accounts is
consistent with the requirements set forth in the Code of Ethics and does not otherwise indicate any
improper trading activities. Employees are required to immediately report any violation of Adviser’s
personal trading policies to the Chief Compliance Officer.
This summary of the Code of Ethics is qualified in its entirety by the Code of Ethics of Adviser, which is
available to clients and prospective clients upon request sent t
o [email protected] .
Conflicts of Interest The material reportable conflicts of interest encountered by a Fund or a Managed Account include those
discussed below, although the discussion below does not necessarily describe all of the conflicts that may
be faced by a Fund or Managed Account. Other conflicts may be disclosed throughout this brochure and
in the Offering Documents of each Fund and these materials should be read in their entirety. Adviser has
adopted policies and procedures to address and mitigate conflicts of interest, including those described
below.
Allocation of Investments. Consistent with its written Trade Allocation Policy, in order to effectuate
transactions, Adviser generally effects aggregated or combined trades (solely with respect to its futures
portfolios) to facilitate execution although such aggregation, may at times, disadvantage one client over
another with respect to a particular trade. Such aggregated trades are generally aggregated pro-rata based
upon capital or designated trading level among each account (including a Fund) trading the same strategy.
The pro-rata allocation may be changed if a different allocation method is deemed equitable based on (1)
investment restrictions relevant only to a specific client, (2) the need to rebalance portfolios as a result of
market moves or changes in capital or trading level, (3) the relative scale of existing positions, (4) a target
investment recommendation is below a minimum threshold due to the relative size of the client or (5) any
other reasons related to ensuring each client receives advice consistent with the Fund’s Offering Document
and/or Advisory Agreement. The Trade Allocation Policy governs both the initial sizing of an aggregated
trade as well as the resulting allocation of filled orders. The Legal & Compliance Department reviews all
aggregated orders at least quarterly in order to ensure that over time and in the whole, such aggregation
does not disadvantage any particular client or favor one particular client.
A Fund or Managed Account could be disadvantaged because of activities conducted by Adviser or its
affiliates for the other accounts as a result of, among other things: legal restrictions on the combined size
of positions which may be taken for all accounts managed by Adviser or its affiliates, thereby limiting the
size of a Fund’s Managed Account’s position; and the difficulty of liquidating an investment for more than
one account where the market cannot absorb the sale of the combined positions.
Although Funds and Managed Accounts may pursue investment objectives that are similar and investments
will generally be allocated proportionately to each account (including a Fund) with similar investment
objectives, the underlying portfolios may differ as a result of purchases and redemptions being made at
different times and in different amounts, changes in trading levels made more frequently in the Managed
Accounts than in a Fund, as well as because of different tax and regulatory considerations.
Transactions with Affiliates. The organizational documents of the Funds allow them to participate in
transactions in which Adviser, the general partner or managing member of a Fund (or any of their
employees, members and/or principals or any limited partner) is directly or indirectly interested. In
connection with such transactions, a Fund, on the one hand, and Adviser, the general partner or managing
member of a Fund, their employees, members and/or principals or limited partners, on the other hand, may
have conflicting interests. Adviser and the general partner or managing member of a Fund may also face
conflicts of interest in connection with purchase or sale transactions (involving an investment by a Fund)
with an affiliate of the Fund (including other Funds), including with respect to the consideration offered by,
and the obligation of, Adviser, the general partner or managing member of a Fund, and other affiliates.
Section 206 under the Advisers Act regulates principal transactions among an investment adviser and its
affiliates, on the one hand, and the clients thereof, on the other hand. Very generally, if an investment
adviser or an affiliate thereof proposes to purchase a security from, or sell a security to, a client (what is
commonly referred to as a “principal transaction”), the adviser must make certain disclosures to the client
of the terms of the proposed transaction and obtain the client’s consent to the transaction. In connection
with Adviser’s management of the Funds, Adviser and its affiliates may engage in principal transactions.
Adviser has established certain policies and procedures to comply with the requirements of the Advisers
Act as they relate to principal transactions, including that disclosures required by Section 206 of the
Advisers Act be made to the applicable Fund(s) regarding any proposed principal transactions and that any
required prior consent to the transaction be received.
Although Adviser does not generally intend to engage in principal transactions, the Offering Documents
and other documents relating to the Funds generally contain additional restrictions on the ability of the
Funds or Adviser to engage in principal transactions. In particular, in the event Adviser wishes to engage
in a principal transaction with a Fund, the Offering Documents of the Funds provide for the establishment
of either an Independent Client Representative or a Conflicts Review Committee to consent to any such
transaction.
Personal Trading. The Fund organizational documents do not prohibit the Adviser, the managing member
or general partner of a Fund, their affiliates, or their respective employees, members and/or principals or
any other partner from buying or selling securities or commodity interests for their own account. The
records of any such trades by the Adviser, the managing member or general partner of a Fund, their affiliates
or their employees, members and/or principals will not be open to inspection by the Funds’ investors.
Adviser maintains compliance policies and procedures, including personal trading policies, which are
designed to reduce potential conflicts of interest (see “Code of Ethics” above).
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Brokerage Policy and Procedures It is Adviser’s policy to execute portfolio transactions for client accounts in the best interests of clients,
including to seek to obtain “best execution” of each and every transaction made by Adviser for a client’s
account (except where Adviser does not have the authority to select the broker or dealer or to negotiate the
price or commission). The term “best execution” means seeking the best price and execution for a security
in the marketplace as well as ensuring that, in executing client transactions, clients do not incur unnecessary
brokerage costs and charges. Adviser is not obligated to obtain the lowest possible commission cost, but
rather, should determine whether the transaction represents the best qualitative execution for clients.
Adviser has adopted the following procedures to help it apply this policy.
Selection of Broker-Dealers Adviser is solely responsible for choosing the executing, prime and clearing brokers and futures
commission merchants for the Funds. In addition, although Adviser generally has discretion with respect
to the selection of the executing brokers for Managed Account transactions, the Managed Accounts
typically determine the selection of the relevant prime or clearing broker and futures commission merchant.
In negotiating commission rates and selecting brokers and/or dealers, Adviser will take into account a full
range and quality of a broker’s and/or dealer’s services, including but not limited to the following factors:
a. the price obtained and the commission rates, mark-ups or mark-downs, independent
amounts or margin (e.g. haircuts) and other costs of execution charged:
b. the execution capabilities required by the transactions;
c. the broker’s and/or dealer’s trading expertise, execution ability, facilities, clearing
capabilities and financial services offered;
d. the ability of the broker and/or dealer to execute similar transactions in liquid and, if
relevant, illiquid markets at competitive market prices without disrupting the relevant
market;
e. the broker’s and/or dealer’s ability to provide timely execution based on the size of order,
difficulty of execution and current market conditions;
f. the range of services offered by the broker and/or dealer, including the range of markets
and products covered, and quality of brokerage services provided;
g. the creditworthiness, integrity and responsiveness of the broker and/or dealer;
h. with respect to derivative transactions, the willingness of the broker and/or dealer to accept
and consent to assignments in a reasonable and timely manner; and
i. other matters relevant to the selection of a broker and/or dealer for portfolio transactions
for any client.
Since commission rates are generally negotiable, selecting brokers on the basis of considerations which are
not limited to applicable commission rates may at times result in higher transaction costs than would
otherwise be obtainable.
Research and Other Brokerage Services Adviser believes that valuable brokerage services may be provided to the Funds and Managed Accounts by
brokerage firms effecting transactions for the Funds. Accordingly, Adviser does not intend to seek lower
brokerage commissions to the extent that doing so might detract from the provision of brokerage services.
Notwithstanding the foregoing, due to changes under the European Union revised the Market in Financial
Instruments Directive II (“MIFID II”) effective as of January 3, 2018, the Adviser, as a full scope AIFM,
is within the scope of new MIFID II rules related to the unbundling of research. The Adviser currently
intends to pay directly for such services, including research, that its brokers have determined requires
unbundling from other services but may consider entering a research payment account in the future.
Further, the Adviser may still accept other brokerage services that do not fall either within the scope or
jurisdiction of the MIFID II unbundling rules. As it further refines, formulates and implements its policies
with regards the use of commissions or “soft dollars” it is Adviser’s intent to stay within the parameters of
Section 28(e) of the Securities Exchange Act of 1934, as amended.
When Adviser uses brokerage commissions to obtain additional services, Adviser receives a benefit because
Adviser may not have to pay for such services. Adviser may have an incentive to select or recommend a
broker-dealer based on its interest in receiving the service, rather than in Adviser’s clients interest in
receiving most favorable execution.
Directed Brokerage Adviser generally does not have client directed brokerage arrangements. Use of directed brokerage
arrangements may deprive a client of benefits that might otherwise be obtained by “bunching” the client’s
order with orders for other Adviser client accounts and may result in the client’s paying a higher
commission rate, receiving less favorable execution than if Adviser had discretion to select the broker or
negotiate the commission rate, or orders being placed at different times and potentially after orders are
placed for clients who have not implemented directed brokerage arrangements.
Aggregation of Orders Adviser generally “bunches” buy or sell orders for two or more accounts (solely with respect to its futures
portfolios) into a single large order and places the bunched order with a single broker or dealer for
execution. In many instances, such “bunching” of orders can result in more efficient execution than if each
order were placed separately. There may, however, be instances in which order bunching results in a less
favorable transaction than a particular account (including a Fund) would have obtained by trading
separately. See Item 11 “Conflicts of Interest” above for more information regarding conflicts of interest
related to aggregating or “bunching” orders.
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Oversight and Monitoring Adviser provides continuous advisory services for the Funds and Managed Accounts. The portfolio
investments of each Fund are primarily reviewed by a team of investment professionals, which currently
includes the Principals and Adviser’s strategists.
Reporting Adviser provides reports in accordance with the applicable Fund’s organizational and Offering Documents
and as may be agreed with particular investors. Adviser has engaged an independent public accounting
firm to prepare audited financial statements of the Funds generally within 120 days of the end of each fiscal
year or such shorter period as may be set forth in a Fund’s governing documents) or as soon as reasonably
practicable thereafter.
Adviser provides reports to the Managed Accounts as agreed in the relevant Advisory Agreement.
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While not a client solicitation arrangement, Adviser may from time to time engage one or more persons to
act as a placement agent in connection with the offer and sale of interests in the Fund to certain potential
investors or in connection with the establishment of a Managed Account. Such persons generally will
receive a fee which fees are generally paid by Adviser or an affiliate. To the extent any such compensation
has been paid with respect to a subscription by an investor or establishment of a Managed Account, such
compensation is disclosed in the subscription documents of such investor or the Managed Account
documentation.
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Item 15 is not applicable to Adviser, as the Funds’ “qualified custodian” is not required to send account
statements directly to Adviser’s clients under the custody rule.
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Adviser provides investment advice directly to the Funds and Managed Accounts pursuant to an Advisory
Agreement. With respect to the Funds, such advice is subject to the discretion and control of the general
partner or the board of directors of the applicable Fund, and not directly to the investors in the Funds. With
respect to the Managed Account, the client may specify within the Advisory Agreement an affiliated entity
which may provide an oversight function and/or limitations of discretion. Powers of attorney and any
restrictions on Adviser’s authority are set forth in the organizational documents and subscription documents
of the Funds and the Advisory Agreements of the Managed Accounts.
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In order to comply with Rule 206(4)-6 of the Advisers Act, Adviser has adopted Proxy Voting Policies and
Procedures with respect to those client accounts (1) which contain voting securities and (2) with respect to
which Adviser has the right to vote such client proxies. As of the date of this Brochure, the only accounts
which contain voting securities are only available to internal investors.
Adviser acknowledges that it is part of its fiduciary duty to vote client proxies in cases in which the cost of
doing so, in the judgment of Adviser, does not exceed the benefits to the relevant clients. Based on the type
of equity strategies conducted by Adviser on behalf of its accounts, Adviser has determined the costs
outweigh the benefits. This determination is based upon several factors. The expected holding periods are
determined based on multiple market signals, without regard to voting matters. As a result, the accounts
may hold voting securities for a short time period which is coincidental with a shareholder record date for
a meeting and very well may liquidate such positions prior to the actual meeting. Under such circumstances,
given the sheer number of expected positions, it may not be cost effective to monitor, review proposals and
vote at such meetings. Further, the accounts may hold significant amount of its positions in non-US
securities. While proxy voting is well established in the United States and other developed markets, voting
proxies of non-US companies located in certain jurisdictions, particularly emerging markets, may involve
a number of logistical problems that may have a detrimental effect on Adviser’s ability to vote such proxies.
As part of Adviser’s voting policies and procedures, in order to ensure that Adviser does vote in
circumstances where the benefits of voting would exceed the costs, the Chief Compliance Officer is charged
with periodically reviewing the trading strategy employed by the Adviser to ensure the factors influencing
the determination not to vote are still relevant. In addition, as new accounts are opened, the Chief
Compliance Officer will review such account to determine (1) whether the account is expected to contain
voting securities, (2) whether the client has delegated proxy voting authorization to Adviser and (3) whether
the strategy employed necessitates the voting of proxies in order for Adviser to fulfill its fiduciary duties.
A copy of Adviser’s voting policies and procedures is available to any client upon request sent to
[email protected] .
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Item 18.A is not applicable to Adviser, as it does not require or solicit prepayment of fees six months or
more in advance.
In response to Item 18.B, Adviser is not currently aware of any financial condition that is reasonably likely
to impair its ability to meet its contractual commitments to the Funds.
Item 18.C is not applicable to Adviser, as it has not been subject to a bankruptcy petition during the past
ten years.
ITEM 19. REQUIREMENTS FOR STATE-REGISTERED ADVISERS Item 19 is not applicable to Adviser as it is not registered with any State securities authority.
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