Outlook 2017

Despite the poor showing in 2016, we enter 2017 with more excitement that we have felt for a number of years. We believe 2016 will mark the turning point for hedge fund performance in general. It appears that the bear market in fixed income markets has finally taken hold, removing the main headwind that has plagued our managers over the last two years.

One important difference from the last few years is that the outlook in our view is strong for all strategies and we are
expecting a year in which the portfolio will be performing on all cylinders. Most notably, we expect the Global Macro managers to do well after a three-year lull. This is mainly driven by the Trump infused US economic expansion and the anticipated US tax reform, but also by Japanese assets being driven by economic fundamentals; and a lot of expected volatility in Europe.

The normalization of interest rates will be a key ingredient to improving returns for all our managers as it puts capital
discipline back in the equation. With zero interest rates zombie companies (and countries) are allowed to proliferate where they would normally fail. Winners and losers will diverge, allowing our Legends to capitalize on these trends.

Another reason for excitement is the fact that we are holding some funds with great rebound potential. Pershing
Square Holdings for example, while holding a portfolio of attractive companies with clear and active catalysts, trades at a
20% discount. This implies that the fund would make 25% by trading back to par, even if the underlying fund remains flat, something we clearly don’t expect. Other funds with clear rebound potential are Paulson and Lansdowne, who suffered in 2016 but retain conviction in their holdings and are in a position to sit it out.

For the foreseeable future, we won’t be paying performance fees for about 40% of our portfolio which should further help the rebound. Investors in Legends Fund alike, including new ones, are not paying Theta performance fees until we have made back the losses of 2016.

Most important to us is that across the portfolio our Legends are excited about the investment environment and see a clear roadmap – see for example our article about Moore Capital of last month.

As a result, we are confidently expecting to achieve satisfactory returns for our investors in 2017.