FAQ

About Hedge Funds
About Cheetah Capital Management Group (CCMG) Funds

About Hedge Funds

1. What is a hedge fund?
A hedge fund can be defined as an investment strategy that employs both long and short positions, uses leverage and derivatives, and is much less dependent on market direction than long-only investments such as stocks, bonds and mutual funds. Hedge funds have a distinct advantage over traditional mutual funds in that broader and more sophisticated investment strategies can be employed in the pursuit of positive returns with lower volatility in both rising and falling markets.

2. How big is the hedge fund industry?
Hedge funds are not a new concept. This distinct asset class has been in existence since their introduction back in 1949 by Alfred Jones. Having been embraced by institutions and the super-affluent for decades, hedge funds have also become the preferred alternative investment class for retail investors. The amount of money being invested in this area over the last ten years has grown at a rate between 25 and 30% annually, with worldwide investment >$2 trillion across some 15,000+ funds.

3. Are hedge funds risky?
The most common misconception about hedge funds is that they are volatile. With press coverage vague, inaccurate, or both, this misconception is further fuelled by what media attention they do receive being often negative due to an obscure story focusing on one of several thousand funds that performed poorly. In actual fact, hedge funds in general are a more conservative and less volatile investment vehicle than traditional stocks and mutual funds. Historical performance has proven that hedge funds enhance a portfolio's diversification and risk/reward ratio. The benefit to the investor is increased return for the same or lower level of risk.

4. What is the difference between a hedge fund and a mutual fund?
Hedge funds differ from mutual funds in many ways, with the following being the major differences between them:

5. How many different hedge fund strategies are there?
There are 14 primary investment categories in the hedge fund industry, the common thread being that they aim to generate returns regardless of market direction. Long/short equity is the most popular investment strategy, accounting for over 30% of all hedge fund allocations worldwide.

- Long/Short Equity                        - High Yield
- Event Driven                                - Convertible Arbitrage
- Fixed Income Arbitrage                - Global Macro
- Dedicated Short Bias                   - Emerging Markets
- Distressed Securities                   - Special Situations (Risk Arbitrage)
- Managed Futures                        - Equity Market Neutral
- Fund of Funds                             - Venture Funds

6. Who invests in hedge funds?
Hedge funds are making inroads into mainstream institutional investing. Already a growing trend in the United States, the greater use of hedge funds by Canadian endowment and pension funds is underway. The University of Toronto and Ivy League endowment funds such as those of Harvard, Yale and Stanford are now significant hedge fund investors.

Institutional commitments are also on the rise as the Ontario Teachers Pension Plan Board and the California Public Employees Retirement System (CALPERS) increase their allocations to alternative strategies.

Among the growing list of corporate investors that have made allocations to hedge funds include: Daimler Chrysler, General Motors, Dupont, Eastman Kodak, IBM, Nabisco, Nestle, Pfizer and R.J. Reynolds. The proprietary trading desks of all major US investment firms such as Credit Suisse First Boston, Goldman Sach's, Morgan Stanley Dean Witter, Lehman Brothers, and UBS Warburg are all practitioners of hedging and alternative investment strategies catering to the needs of their high net worth investors and institutional clients.

Many of the world's wealthiest individuals and families use hedge funds when investing their personal fortunes. Among these individuals are Sir John Templeton, Warren Buffet, Bill Gates and the Rockefellers.

7. What are the provincial minimums for investing in hedge funds?

CANADA: In Ontario, Quebec, Nova Scotia, Saskatchewan, New Brunswick, North West Territories and Nunavut the minimum investment is $150,000. In Newfoundland the minimum investment is $100,000. In British Columbia, Manitoba, Alberta, Yukon and Prince Edward Island the minimum investment is $97,000.

For Unitholders who purchased Units under the Accredited Investor Exemption, the Offering Memorandum Exemption, or the Private Placement Exemption, additional investments in Units of the Fund are permitted (the "Additional Investments"). Notwithstanding the foregoing, for Unitholders who purchased Units under the Private Placement Exemption, Additional Investment in the Fund are permitted in amounts less than the Private Placement. Thresholds applicable in British Columbia, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, the Northwest Territories, Nunavut and Yukon, provided that the Unitholder initially purchased Units for not less than the Private Placement Threshold and holds Units valued not less than the Private Placement Threshold at the time of the Additional Investment. Additional Investments are subject to a minimum of $5,000.

USA: The minimum investment is $500,000. Typically, $1,000,000. Smaller minimum possible depending on management discretions.

ASIA: The minimum investment is $250,000. Typically, $500,000. Smaller minimum possible depending on management discretions.

8. What are the accredited investor rules for investing in hedge funds?
Please see Accredited Investor Rules

9. Key Characteristics of Hedge Funds

10. Benefits of Hedge Funds

Investors in hedge funds are, in most countries, required to be sophisticated investors who will be aware of the risk implications of these factors. They are willing to take these risks because of the corresponding rewards: leverage amplifies profits as well as losses; short selling opens up new investment opportunities; riskier investments typically provide higher returns; secrecy helps to prevent imitation by competitors; and being unregulated reduces costs and allows the investment manager more freedom to make decisions on a purely commercial basis. 

Investors should be aware that an investment in a hedge fund, including a fund of hedge funds, is generally considered to be speculative, illiquid and to involve a substantial element of risks. With respect to hedge fund investments, prospective investors should consider the following risk factors, in general, in addition to the specific risk factors which may be associated with any particular investment, in evaluating the merits and suitability of making such an investment:

• No guaranteed return of capital. Not FDIC-insured products. The value of investments and the income derived therefrom may fall as well as rise, and investors may be at risk of losing all or a substantial amount of their investments in a hedge fund. Past results are not a guarantee as to the future performance of an investment.

• Regulation different from mutual funds. Privately offered hedge funds are not subject to the same regulatory requirements as mutual funds.

• Limited access to information on investments. The general partner or investment manager for a fund of funds may only have limited information with regard to the actual underlying investments made by the managers and may have little or no means of verifying information provided by managers.

• Use of non-traditional investment techniques. Various risks are associated with the securities and other investments in which hedge fund managers may invest and the specialized investment techniques which they may use.

• Use of leverage. Hedge fund managers may use leverage, including borrowing to buy securities on margin. Investors will bear the associated financial risk to the extent they invests with managers employing leverage. This, as well as other speculative investment practices which may be employed by hedge fund managers, may increase the risk of investment loss.

• Fees and expenses. Investors in funds of hedge funds generally bear the fees, expenses and performance-based allocations at the fund level and also at the underlying manager level. The fees and performance-based allocations payable by such a fund and its investors are higher than the fees typically charged by registered mutual funds. Such fees and expenses may offset trading profits. In addition, hedge fund managers typically charge investors a withdrawal/redemption fee (also known as a surrender charge) if they withdraw money from the fund before a certain period of time has elapsed since the money was invested. The purpose is to encourage long-term investment in the fund: as a fund's investments need to be liquidated to raise cash for withdrawals, the fee allows the fund manager to reduce the turnover of its own investments and invest in more complex, longer-term strategies. The fee also dissuades investors from withdrawing funds after periods of poor performance. The fee is typically known as a "withdrawal fee" where the fund is a limited partnership and a "redemption fee" where the fund is a corporate entity.

• Limits of Transferability. There is generally no secondary market for hedge fund investments and there may be restrictions on transferring interests in any such investment.

• Certain tax risks. An investment in a hedge fund may involve certain tax risks. In addition, in the context of funds of funds, potential delays in manager reporting may require investors to seek extensions of the deadline to file their tax returns.

The foregoing does not purport to be a complete enumeration or explanation of the general risks involved in investing in hedge funds. A fund's offering materials or a manager's disclosure document typically describes the risks and conflicts of interest relating to an investment in such fund and to its operations. Each prospective investor is urged to read those documents carefully to determine whether an investment in such fund is suitable for such investor in light of, among other things, such investor's financial situation, his or its need for liquidity and other investments.

About Cheetah Capital Management Group (CCMG) Funds

1. What are the different hedge fund strategies that Cheetah Capital Management Group (CCMG) funds employ?
Cheetah Capital Management Group (CCMG) currently has one value-focused fund that employ the Long/Short Equity Strategy, one venture capital fund investing in start-ups, and several other value-oriented private investment funds. This figures may change.

2. What management fee do the Cheetah Capital Management Group (CCMG) funds charge?
The management fee paid by the Cheetah Capital Management Group (CCMG) Hedge Funds to the manager will be up to 2.00% (*) per annum of the net asset value of the fund depending on investor qualifications.

3. What performance fee do the Cheetah Capital Management Group (CCMG) funds pay the managers?
Each fund pays the manager/managing partner a performance fee equal to 20% (*) of the increase in net asset value of the investment of each unitholder of a fund on pre-tax basis. If the performance fee in respect to the investment in any year is negative, then the negative amount will be carried forward and deducted from any positive performance fee in future years. In other words, the performance fee will be based on a "high water mark" for the investment by each unitholder.

4. Do your funds have a high water mark?
All Cheetah Capital Management Group (CCMG) hedge funds have a high water mark. Having a high water mark indicates that if the manager loses money over one time period they have to get back to the previous level before getting a performance fee on new gains. For example, you invest $100,000 in a fund and your investment increases to $110,000 after year one, and then falls to $107,000 after year two. With a high watermark in effect, the manager would not be entitled to a subsequent performance fee until after surpassing the highest point of value of the investment (the high watermark) - which in this case is $110,000 achieved in year one.

5. What type of risk management controls do you have in place?
Cheetah Capital Management Group (CCMG) Hedge Funds are monitored daily to ensure the portfolio does not breach several risk measurements including leverage, maximum position size, gross long and short exposure, and net exposure. In this regard, each fund's risk is controlled by ensuring (*):

i) leverage will not exceed 200% of the Net Asset Value (NAV) of the Fund. CCMG will rarely use leverage as we believe in margin of safety and risk-aversed investment philosophy. CCMG will only use leverage when the upside odd is heavily on our side and the downside is very minimal both in term of probability and possibility.
ii) maximum single position size will generally not exceed 50% of net assets (exceptions apply)
iii) gross long exposure of the Fund will not exceed 200%
iv) gross short exposure of the Fund will not exceed 100%
v) net exposure of the Fund will remain between 0% (market neutral) and 150%

6. What is the maximum risk to my investment capital?
The maximum risk to your investment capital is the amount initially invested. The use of limited leverage, short selling, options and derivatives does not affect your investment capital.

7. What are the leverage restrictions on Cheetah Capital Management Group (CCMG) funds?
Each fund can leverage to a maximum of 200% (*) (at the time of investment) of the Fund's Net Asset Value. CCMG generally does not favor taking high level of leverage to generate above average return on capital. However, we do not view leverage as a bad thing; in fact, we might use leverage when we stumble upon situations where the upside odds are heavily on our side.

8. Is there a lock-up period?
There is two (2) year lock-up period (24 months + 1 day) for Cheetah Capital Management Group (CCMG) hedge funds.
The investment objective of each of the Funds is designed for investors with medium- to-long-term investment horizons seeking to achieve above-average returns over that period and is not designed as a short-term investment. Therefore, the Manager may charge a 3.0% (*) redemption fee, based on original cost, to any unitholders who redeem units within the first twenty-four (24) months of purchasing the units.

9. Do the fund managers invest their own capital in the funds?
At Cheetah Capital Management Group (CCMG) the fund managers are required to invest their own capital into the funds they manage. CCMG team invests significant amount of their net-worths in the funds.

10. What are the redemption rules for the funds?
Units of the funds may be redeemed on end of every two (2) years (24 months + 1 day). Each fund will be valued on the last trading day of every year (although we have two (2) years lock-up period (24 months + 1 day)). The units will be redeemed at the applicable unit value at the close of business on such valuation day.

11. Tax implications?
Unitholders will generally be required to include in their income for tax purposes for a year the net income and the taxable portion of net realized capital gains, if any, paid or payable to them in the year (which may include management fee distributions and performance fee distributions) including such amounts reinvested in additional units. Generally, amounts distributed in excess of the Fund's net income and net realized capital gains will be treated as a return of capital and will not be taxable to unitholders but will reduce the adjusted cost base of the Units. Unitholders are urged to consult their own tax advisors regarding their tax situation. This outline is not, and is not intended to be, tax advice to any particular unitholder.

12. How are fund distributions handled?
Distributions are paid on the next day after the last business day of the second year (since we have two (2) years lock-up period (24 months + 1 day)), and at such other times as may be determined by the manager, and are automatically reinvested in additional units. All distributions to be reinvested will be done, without charge, at the net asset value per unit determined as of the date of distribution. No sales charge is payable with respect to any purchase of units made under the reinvestment program.

Management fee distributions are distributed monthly and performance fee distributions are distributed from time to time as determined by the manager (generally upon completed trading/investment transactions); such distributions are automatically reinvested in additional units. Distributions may include distributions out of capital.

Unitholders are urged to consult the Confidential Offering Memorandum for complete information regarding fund distributions.

Disclaimer:

• All the information provided above may change at anytime.

• (*) = the figures may change at Cheetah Capital Management discretion.

• Past performance does not indicate future performance. Cheetah Capital Management Group is a value-oriented investment management company and not a bank; Products & services of CCMG are only suitable to select accredited investors who understand and accept the risks and fees involved investing in alternative investment funds.