Cass Capital Partners LLP hedge fund Fund objective To achieve long term capital appreciation for investors

with absolute return orientation, using a long-short trend following strategy on S&P500 index ETF. Fund strategy Opportunistic- Managed futures/CTA trend following strategy Benchmark S&P500 index Fund deployment guidelines 1. The funds are either 100% long, or 100% short, or 100% idle(historically idle durations have been very small) 2. When no position is taken, idle funds earn an annual interest rate of Fed funds rate minus 150 bps. 3. This is not a leveraged fund, i.e. we buy or short-sell on 100% margin. The short sale of the ETF costs us 25bps annually. 4. We ignore other transaction costs. Strategy rationale 1. Historical studies have suggested that the spreads between high and low rated corporate bonds are narrow in bull markets, and wide during bear markets. But generally, widening and narrowing of the spreads have acted as a leading(or coincident sometimes) indicator of the upcoming bear and bull markets. We use this early warning property of Moodys AAA/BAA corporate index spreads (MOODCAAA MOODCBAA indices on Bloomberg) to time our trades. 2. But S&P500 price action is the ultimate indicator. So early warnings of a bear and bull markets should also be confirmed with the price action. When we are riding a trend, we get alert when a liquidation warning is seen, but to take the advantage of momentum effect in trends, position is not liquidated unless met with some specific price action. 3. To make sure that while our position gets maximum out of the trends it gets into, and exits sideways markets and trend-reversals as soon as possible, we use 25/50/100 day exponential moving average crossovers on both AAA/BAA spread and S&P500 index to time precise trade points. Trading rules 1. If the fund is idle(or short), the primary buy(or short-cover) signal is given when the 25 day exponential moving average of the AAA/BAA spread goes below the 50 day moving average(spread starts to narrow). 2. If the fund is long(or idle), the primary sell(or short-sell) signal is given when the 25 day exponential moving average of the AAA/BAA spread goes above the 50 day moving average(spread starts to widen).

3. If the fund is idle, and a primary buy signal is seen, the fund buys 100% only if the 50 day exponential moving average of S&P500 index is above the 100 day moving average. This condition ensures that we get into a trend only when it has actually started, and dont get whipsawed by a sideways movement. If the second condition is not met, and as long as the primary signal is present, the fund waits idle till the 50 day average crosses over the 100 day average before taking a 100% long position. 4. If the fund is short, and a primary short-cover signal is given, the fund closes 100% short position only if the 25 day moving average of S&P500 index is above the 50 day moving average. This condition ensures that the fund is able to take the full advantage of momentum in the trends it is riding. If the second condition is not met, and as long as the primary signal is present, the fund continues to remain short till the 25 day average crosses over the 50 day average before liquidating the short position. 5. If the fund is idle, and a primary sell signal is given, the fund shorts 100% only if the 50 day moving average of S&P500 index is below the 100 day moving average. This condition ensures that we get into a trend only when it has actually started, and dont get whipsawed by a sideways movement. If the second condition is not met, and as long as the primary signal is present, the fund continues to remain idle till the 50 day average crosses below the 100 day average before initiating the short position. 6. If the fund is long, and a primary sell signal is given, the fund liquidates 100% long position only if the 25 day moving average of S&P500 index is below the 50 day moving average. This condition ensures that the fund is able to take the full advantage of momentum in the trends it is riding. If the second condition is not met, and as long as the primary signal is present, the fund continues to remain long till the 25 day average crosses below the 50 day average before liquidating the long position.