Our investment process starts with the basic principle that hedge funds are complex small businesses.  In deciding whether to invest in a small business, it is important to analyze business strategy, operational expertise and controls, management expertise and experience, and capital flows.  We, therefore, emphasize qualitative due diligence first and use quantitative analysis to corroborate and validate our conclusions.

Understanding the factors that drive risk and return in a particular hedge fund strategy is a critical element of the process.  This understanding allows us to monitor the business to assess whether it is performing in accordance with expectations.  Granville Capital's proprietary investment process is divided into five broad areas:

• Identification of Investment Strategies
• Sourcing and Screening Managers
• Due Diligence
• Portfolio Construction
• Manager Monitoring

Managers are sourced in a variety of ways, including industry relationships, prime brokers, conferences, existing managers, and referrals from clients.  Once identified, the manager goes through a qualitative analysis which includes the following factors:

• Investment strategy analysis
• Management team evaluation
• Review of investment process
• Business infrastructure and operations review
• Articulation of the investment "edge"
• Risk controls review
• Informal reference checks

We are trying to identify managers that have a proven ability to preserve capital and make money under varying market conditions.  Once through the qualitative process, the manager is then screened on a quantitative basis.  Performance is analyzed using key metrics and then the returns are compared to similar managers and benchmarks in our databases.  Assuming the manager passes the first two screens, an on-site meeting with the manager to start the due diligence process.

Creating a portfolio of hedge funds starts with articulating the objectives for the fund.  Given risk and return targets, Granville Capital employs a combination of "top down" and "bottom up" decisions to construct the portfolio.  A top down allocation among the strategies and styles is made taking into consideration the risks, returns, and correlations of the various strategies.  From the bottom up, we then allocate to managers from our pool seeking diversification by combining the different strengths and specializations of the managers.  We feel it is critically important for portfolio construction to be executed by the same people who have performed the due diligence and therefore have the in-depth knowledge of each manager's investment process.  Strategy and manager allocations are then quantitatively analyzed for risk and return characteristics.  Portfolio risks are monitored to assess any potential impact on expected performance.  The portfolio is actively managed to replace managers who fail to meet expectations for their business while also, on the margin, adapting the portfolio to changing market conditions and new investment opportunities.

Once a manager is funded, the investment management team monitors the manager closely through on-site visits, review of all manager communications, risk management reports and discussions with the manager's staff.  We constantly compare our observations to our original investment thesis for the business and investment performance.  Investment results are compared to the manager's peers, and we monitor changes in staff and capital flows for any impact they may have on our investment.  A key to effectively monitoring a manager is to engage in a meaningful dialogue and develop a close working relationship.  A competitive advantage of Granville Capital is that our investment management team is comprised of senior professionals at the same level as the manager, that have the depth and experience to understand the manager’s business and develop lasting relationships.  Strong manager relationships are also a valuable source of bottom up ideas for portfolio allocation decisions.

• The singular focus of the firm is managing alternative investments, with a special emphasis on hedge funds.  There are no conflicts of interest in providing other products and services.
  
  
• Our goal is to produce exceptional risk-adjusted returns for our limited number of clients, paying attention to preservation of capital and investment performance.  We are in the performance business, not the asset gathering business.
  
  
• We limit growth of our assets under management in order to maintain the flexibility to invest in smaller, high potential managers, which should result in better performance over time.
  
  
• We are sufficiently large to have the necessary resources and infrastructure to manage hedge fund portfolios, yet we are small enough for senior management to be involved across all parts of the investment process, which enhances the quality and depth of the decisions on manager selection and portfolio construction.
  
  
• The investment management team has significant experience in managing hedge funds of funds over the last 15¼ years with a demonstrated record of excellent performance and preservation of capital in difficult markets.
  
  
• The investment management team has significant experience in all phases of managing and monitoring investment businesses.