Leverage and Costs

A general partner or any managed account client can choose greater leverage than an advisors required minimum account size. The limited partship structure passes liability to the GP. Limited partners have no risk beyond their initial capital contribution plus distributions paid back. Managed account clients assume their own liability.

managed_futures_power_of_leverage

The chart above shows $1000 Unit value of money from December 2008 through February 2012, traded at three degrees of leverage. Single, double and triple monthly return data was applied to a $1000 Vami Index. Returns are net of clearing and advisor costs, yet before General Partner fees. THE MODEL IS HYPOTHETICAL AND ONLY DEMONSTRATES THE POWER OF LEVERAGE.

Definitions

Notional Value is a client elected account size. For example. Asume an advisor has a minimum account size of $1 Million. A client can fund their account with 33% or $300,000. They elect to trade the cash as $1Million. Many times the advisor is paid a management fee on $1M or the minimum account size. The cash is traded at 3.33X leverage. See NFA Definition and explanations

Actual Funding - Cash committed to trading by the client. Funds that a client agrees can be transferred from another account are included.

When building investments, costs are ALWAYS evaluated within the composite investment and VALUE ADDED frame of reference. Costs are evaluated in context with:

Cost Considerations

Costs At Various Funding Levels
Leverage Used	Funded Value	Fees	Fees	Fees
Fully Funded	$1,000,000	4%	5%	7%
2X Leverage	$500,000	8%	10%	14%
3X Leverage	$333,000	12%	15%	21%

The table above represents hypothetical fees charged to any partnership. Incentive fees are not included because they are not a fixed cost. Incentive fee calculations are usually in the break-even analysis of any partnership document.

Advisors may bill management fees on a fully funded account value. We believe management fees should be paid based on the leverage chosen by the client.

Cost and Return

Cost can only be considered relative to the context of risk and potential return. We live in a world of relationships. Science teaches us that nothing in the universe is accurately evaluated in isolation, let alone your investment.

Returns at Various Funding Levels
100% Funded	50% 2X	33% 3X L
40%	80%	120%
30%	60%	90%
20%	40%	60%
10%	20%	30%
-10%	-20%	-30%
-15%	-30%	-45%
-20%	-40%	-60%
-25%	-50%	-75%

Cost relative to return based on capital at risk relative to the account size required by the advisor. Evaluate client comfort, risk of loss, risk of unwanted compliance issues, right use of time.
Margin requirements needed to achieve potential returns at fully funded values.
Draw downs, strategy, time value and margin are used to determine the appropriate use of leverage.
Draw down, actual margin risk relative to NET return for the client AT the degree of leverage chosen.
Costs are evaluated as a ratio relative to return on capital at risk, rather than the account size.