Q:  What is the historic background of the fund? A : The Palantir Fund was started about 3 years ago. The fund is designed as a core holding for investors who seek a long-short strategy providing true diversification with a focused global outlook. It also gives investors access to strategies that are normally associated with institutional investors but with low minimums, no leverage, transparency and daily liquidity. Q:  How is the long-short strategy different from a long-only strategy? A : In traditional long only portfolio, stocks are bought with the hope they will go up in price. This works well in a bull market but often not so well in a bear or sideways market. An effective long-short strategy attempts to make money in all market environments. Short positions can be incorporated to simply hedge or reduce risk in a long portfolio, but can also be used to actively seek profits. Because shorts make money when prices are falling, a long-short strategy can significantly reduce overall portfolio risk and volatility. When bear markets arrive, long-only managers typically find themselves limited to selling to raise additional cash or seeking more conservative stocks. The Palantir Fund is designed to be a core holding in all market environments. If an investor anchors his portfolio with a long-short approach, it allows the investor to be more market correlated in other parts of the portfolio. The Palantir Fund can take long-short positions in individual companies we believe to be under or over-valued. We also may employ “paired trades” which are a low-risk arbitrage of a high quality long and low quality short positions in similar securities (within the same industry). The combination of these techniques constructs an overall exposure or “risk profile” for the fund. Q:  What is your investment philosophy in the context of your long-short strategy? A : Our investment process is driven by a commitment to original thinking and research. Market trends change over time, and we believe that adhering solely to one type of analysis results in higher volatility and lower returns. The Palantir Fund uses multiple analytical techniques including fundamental, technical and cyclical analysis, and weights the results in response to the changing character of the market. Q:  How is your fund different from the other long-short funds in the market? A : The Palantir Fund is different from other long-short funds in many ways. While many long-short managers have extensive long-only experience, our management team has 19+ years of both long and short experience. The Palantir Fund is a flexible fund that is both global and style agnostic. Our size allows us to be nimble and buy many names that Wall Street doesn’t cover. We typically have very little overlap with our peers. Size also allows us to more effectively take advantage of pricing inefficiencies in the markets. Q:  How do you translate that thinking into your investment strategy? A : A primary goal of the fund’s research process is to develop investment themes that last anywhere from eighteen months to five years and incorporate several sectors of the market. An investment theme is a mosaic of different research ideas which creates a cohesive multi-sector investment thesis. Often an investment theme will lead to high conviction longs and shorts or paired trades. Since we manage a global portfolio, we need to be cognizant of political risks and other metrics of valuations across the globe. Right now, we are underweight in Europe because we see an intermediate-term risk in the very existence of the European Union and the Euro currency. With the exception of a very few companies in Europe, most of our assets are in Asia and the Americas. Q:  How do you form ideas and analyze them in order to take long positions? A : Palantir Fund has a commitment to original research. Because we are a smaller fund, we have the ability to invest in a wide spectrum of companies. Many of these companies are not followed by Wall Street. A good example is a company called Chaoda Modern Agriculture Holdings (682 HK) which is listed on the Hong Kong Stock Exchange. Chaoda produces and distribute organically grown vegetables and agricultural products. Chaoda is part of our “Agriculture in Asia” theme based on the thesis that as per capita income grows in a developing country past the subsistence level, people will look for more variety in their food with emphasis on higher quality and more proteins. We screened for agricultural companies within Asia or those that were exporting to Asia. With this top down approach, we began our bottom-up research and found Chaoda which is a vertically integrated grower, processor and packager of produce. The company has been growing by 25% to 30% both on the top and bottom lines, with no long-term debt and high free cash flows. When we invested, it was priced ridiculously low. Even now, it is trading at just 5.8 times its forward earnings. Q:  Would you illustrate your bottom-up research with an additional example? A : We have in our portfolio a U.S based firm called Synovis Life Technologies, Inc. (SYNO) which is a manufacturer of surgical devices, especially for vascular surgeries, with a strong balance sheet and healthy free cash flow. This is a small niche company with good growth potential. The FDA recently approved a new application for one of their devices, and the company is set to accelerate growth after a key acquisition of a competitor. Q:  On the short side, where and how do you look for companies? A : Our portfolio is made up of three buckets. The first one is for the long strategy, and the other two are for the short side. Of the two short buckets, one is for companies that are either vulnerable, overvalued or both. The other is used only occasionally to short indices if we think market risk is particularly elevated. Q:  What is your allocation ratio between the long and short positions? A : We typically are from 40% to 90% long and from 20% to 40% short in the portfolio. Q:  Do you leverage those positions? A : No, we don’t. Q:  How many positions do you typically have on the long and the short side? A : We manage a very concentrated portfolio, and we tend to have anywhere from 25 to 40 long positions and from 8 to 15 short positions. We will use paired trades in the portfolio to reduce risk and provide return. We are hoping that as we move forward into 2010, we are able to use more paired trades as we expect high quality stocks to outperform low quality stocks this year. Q:  How high can you allocate for any position? A : We never buy more than a 5% in initial position. But, a position could go above this range if it appreciates. Q:  What is the turnover in the fund? A : The turnover is similar to that of other long-short funds. It hovers around 400%, which may at first sound a little high, but that is mainly because of the very high turnover in the short positions, whereas the turnover in the long portion is somewhere around 80%. In fact, we have some stocks in the portfolio that have been with us since day one. Q:  Talking about risk, what are the main risks associated with your portfolio and how do you overcome them? A : As a long/short fund, market volatility and pull-backs can work to our advantage. We are always aware of our risk exposures and, unlike a long-only fund, we can actively adjust the fund’s correlation to the market. Philosophically, we would rather take a small loss today rather than a bigger loss tomorrow.