Sheena Sahibdeen

299 Park Avenue

New York, NY 10171

Dear Ms. Sahibdeen,

UBS's reputation as one of the top investment management firms in the world motivates

me to consider a career with your firm. The fast-paced environment and focus on results

and excellence that define UBS would be an ideal place for me in terms of both

personality and skills.

I strive in intense, competitive environments. As a world-level athlete in several sports, I

have developed an insatiable appetite for peak performance and continuous learning. My

trainer and world martial arts champion often said, "Impossible is just someone's

opinion." I live by those words. My unique mix of previous work experience and my

record as a professional athlete demonstrate a level of focus, a pattern of setting and

achieving objectives, as well as adaptation to change.

I live everyday with passion because I embrace change as a daily challenge. Nothing will

prevail over genuine human relations because we succeed as a team, or we fail as

individuals. The skills outlined on my attached resume, along with my work experience,

CFP and RIA certifications demonstrate my aptitude in finance. These skills and the

personal qualities and beliefs I bring to my work fit well with UBS work ethic and make

me an ideal candidate for a career with UBS.

I would welcome the occasion to further discuss career opportunities with UBS, and I

look forward to hearing from you soon. If you have any questions, feel free to contact me

Sincerely,

Aleksey Vayner

175 Park Street #3A • New Haven, CT 06511 • (203) 823-7026 • Aleksey.Vayner@yale.edu

B.A., in Eastern-European History

for Institutional Investors, Investment Management, Financial Statement Analysis, and Private

Equity Investing

NASD Series 65, Registered Investment Advisor

CFP®, Certification

York, NY. August 2006. Available online at http://www.lulu.com/alekseyvayner

Youth Empowerment Strategies Inc., Manhattan, NY 2006 - present

children's lives by implementing a variety of innovative personal achievement and core skills

development programs in some of NYC's most troubled neighborhoods; www.empowerachild.org

Vayner Capital Management LLC., Manhattan, NY

The Atlantic Philanthropies (USA) Inc., Manhattan, NY

using Ibbottson Analyzer, and computed correlations to identify real alpha returns by managers

Law Offices of Anthony LeCrichia, Manhattan, NY

duties, and computer hardware/software assistance

One Source Mortgage Corp., Hackensack, NJ

corresponded with borrowers, lenders, title agencies and attorneys.

Roosevelt Island Racquet Club, Manhattan, NY

analysis, equity risk premium, portfolio optimization, performance measurement

Calyx, LexisNexis, hardware

Political Union, Yale Ski Team, Yale Ballroom Dance Team

Difficult market conditions press institutional investors for greater diversification into

alternative sources to generate positive returns. In their efforts to generate alpha returns,

institutions and sophisticated investors have been drawn to hedge funds since this alternative

investment vehicle has demonstrated sustained ability to beat the indexes and mutual fund

returns. Yale's endowment, managed by David Swensen, allocated roughly 17% of portfolio to

hedge fund managers last year, while some foundations invested as much as 50% of their

portfolio into hedge funds.

Quality returns that result from a manager's skill at beating indexes through active asset

selection without increasing risk to the portfolio are called alpha. Returns that result from mere

exposure to market risk are termed beta. An ever-increasing array of funds to choose from

creates a challenge of finding superior hedge fund managers who consistently generate alpha

returns. Recent influx of money into hedge funds, subsequent competition, and low market

volatility, have reduced alpha-generating opportunities; as the result hedge fund managers have

increasingly turned to taking in risk premiums for the investor, then packaging this beta and

presenting it to investors as alpha returns. As Bruce Brittain of PIMCO bonds accurately notes,

"what is sold as alpha, may in fact be hidden beta exposure as well as a potential Greek alphabet

soup of risks—gamma, rho, vega, etc" (sensitivity of options to the underlying asset, interest and

implied volatility of the underlying asset, respectively).

This occurs in part because alpha cannot always be separated from beta. Strategies that

convertible bond strategies are often short credit duration and long equity volatility; merger

arbitrage strategies utilize short equity puts; global macro funds have duration and currency

exposures; and long-short portfolios often have residual long equity exposure. However, while

this justifies the phenomena to an extent, it does not ease the challenge of evaluating a manager's

skill, since knowing whether the hedge fund manager produces alpha or beta is essential to

creating a balanced, risk-adverse portfolio. Investors should expect, and demand significant

alpha when paying 2% management and 20% incentive fees charged by most hedge fund

managers.

One effective method to identify superior managers is to utilize correlation analysis

techniques to separate returns from market risk exposure (beta component) from the returns that

result from a manager's skill at delivering excess returns (alpha) in his niche strategy. In the

context of alpha-beta analysis it is also important to keep in mind that hedge fund strategies

differ greatly from one another, because investment returns, volatility, and risk vary enormously

among the different hedge fund strategies. Some strategies which are not correlated to equity

markets are able to deliver consistent returns with extremely low risk of loss, while others may

be as, or more volatile than mutual funds. Many, but not all, hedge fund strategies tend to hedge

against downturns in the markets being traded. Successful investment in a hedge fund depends

on a thorough review and careful selection of its management team, understanding their

investment approach, and how it affects the risk profile of your existing portfolio. However, the

amount of alpha that is consistently present in the portfolio remains the most important factor for

a portfolio's long-term investment success.

For analytical purposes of estimating the investment's beta, investors often use historical

returns for various funds and for the market. When the beta is identified, the investment's

residual return is simply the total return minus the beta, multiplied by the market return. Bob

Litterman at Goldman Sachs, a co-developer, along with the late Fischer Black, of the Black-

Litterman Global Asset Allocation Model, (a key tool in Goldman Sachs Asset Management's

asset allocation process), explains simply that "the average value of the residual return is the

historical alpha of the product. The volatility of the residual returns is its active risk (B.

returns are often not available for hedge funds however, it makes the task of separating alpha

from beta more difficult. Analysis that focus on correlations between the manager's returns and

respective naïve strategy replications and indexes within market cycles produce a clearer picture

as to the alpha and beta returns present in the portfolio (i.e. the quality of hedge fund managers

that make up a particular portfolio). Correlation is a statistical technique which can show

whether and how strongly pairs of variables are related. High correlation between hedge fund

managers' returns and naïve strategies (or even indexes) is a sign of high beta and rather low

alpha returns. Naïve strategy is one that is passive (an investment that does not require active

stock selection process that a manager would engage in to generate alpha, thus done with little

effort and low management cost), yet accurately reflects the systematic risks hedge fund

managers generally take. Hedge funds correlation statistics are presented then between their

respective indexes and the naïve strategies. While other methods for evaluating a managers'

performance are available, this remains to be the best for individual investors and smaller firms

who do not have institution-size resources and capital to carry out grand due diligence processes.

Consider proprietary analysis of hedge fund returns performed by Bridgewater Associates, a

currency investment powerhouse, a fund that manages over $120 billion dollars in assets, and

provides a variety of specialized alpha overlay strategies. Their research focused on five

strategies, and has demonstrated that some of the most popular hedge fund strategies appear to

possess high correlations to respectively naïve strategies. For accurate presentation we replicated

Bridgewater's naïve emerging markets and distressed strategies because their correlations were

particularly high and noteworthy. The research performed by Bridgewater Associates in the

market of alternative

investments is quite

revealing with respect

to high beta present

among certain

strategies. For

example, Bridgewater

discovered that a naïve

strategy of buying into every M&A announcement you see in the newspaper returned 10%, while

M&A arbitrage hedge funds returned 9%. Of the seven investment strategies tested only one beat

More revealing is Bridgewater's discovery of the high correlation of hedge funds within

strategies. After pooling together data for over 1600 hedge funds and looking at the typical

correlation between managers, Bridgewater saw that they were extremely correlated to one

another.

This data is evidence that many hedge fund managers are taking in risk premiums, and are not

capturing alpha returns by means of active security selection. Low correlations between these

managers would be evidence that they may have captured true alpha.

In some cases, beta returns are not hard to separate from alpha returns. Presented below are my

analysis of replicated emerging market and distressed securities strategies in greater detail.

Utilizing Ibbotson Analyzer Software I created weighted inputs to mimic the risks active

managers take. The weights allocated to particular component of a naïve strategy are shown in

the charts. All the indexes, the CSFB/Tremont, and hedge fund returns are presented over cash,

meaning that Merrill Lynch US 3 month Treasury bill was subtracted from the index or hedge

fund's returns. All subtractions are geometric. When Ibbotson Analyzer ran the correlation

analysis I generated the six months rolling returns line graphs, also presented bellow.

The graph below illustrates that the monthly returns of emerging market hedge funds, as

collected by CSFB/Tremont, are over 80% correlated to a naïve 50/50 mix of emerging market

equities and bonds. Hedge fund managers specializing in emerging market strategies often fail to

outperform this simple combination. In 2003 the naïve strategy approach returned over 50%,

while emerging market hedge funds returned 28.7% (Bridgewater, 2004).

over cash

Convertible Arbitrage 60%

Dedicated Short Bias 51%

Emerging Markets 59%

Equity Market Neutral 42%

Event Driven 66%

Fixed Income Arbitrage 52%

Global Macro 47%

Long/Short Equity 63%

Managed Futures 57%

Multi Strategy 53%

JP Morgan EMBI+ Composite 50%

S&P/IFCI Emerging Composite 50%

Interval: 6

Return Values

-8.0%

7.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.7%

0.5%

May

1994

May

2004

Dec

1994

Jun

1995

Dec

1995

Jun

1996

Dec

1996

Jun

1997

Dec

1997

Jun

1998

Dec

1998

Jun

1999

Dec

1999

Jun

2000

Dec

2000

Jun

2001

Dec

2001

Jun

2002

Dec

2002

Jun

2003

Dec

2003

CSFB/Tremont Emerging Markets (%Total Return) EM Strategy Replication 2

('EM Strategy Replication 2' should be written as 'EM Naïve Strategy')

Similar scenario occurs with hedge fund managers within distressed securities strategy, where

the correlation is 0.8, rounded. To create a naive distressed securities strategy one would subtract

the US Government TR from Merrill Lynch 1-5 year C rate high yield to create a corporate

spread, and weight the spread with an applicable EMBI index. Thus, closely replicating the

systematic risks that hedge fund managers take in this niche market, the level of correlation

could be used as an initial test as to whether or not a manager is producing alpha returns. (The

highest correlation was produced with intermediate term US Government TR.)

Corporate Spread1 =

ML 1-5 Yr C Rated Hi Yld – US IT Gvt

28%

Corporate Spread2 =

Altman NYU Defaulted Debt - US IT Gvt

28%

JP Morgan EMBI+ Composite 44%

Interval: 6

Return Values

-8.0%

11.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

1.2%

1.0%

May

1997

Apr

2004

Dec

1997

Jun

1998

Dec

1998

Jun

1999

Dec

1999

Jun

2000

Dec

2000

Jun

2001

Dec

2001

Jun

2002

Dec

2002

Jun

2003

Dec

2003

CSFB/Tremont Distressed Distressed Strategy Replication

The current low-return (from traditional asset classes) environment increases investor reliance on

alpha to generate solid positive returns. By separating alpha from beta, investors can focus on

finding high alpha managers irrespective of asset class. While results of presented alpha/beta

analysis are not definitive, they demonstrate where and how practical application of the theory is

used. With naïve strategy replication and correlation analysis it is easy to determine that many

managers consistently have high betas and correlations to a series of different valuation criteria.

Such hedge funds, unfortunately, often represent 25% or more of all the hedge funds in

foundations' portfolios. More than 50% of Asia/Japan oriented hedge fund managers appear to

have high correlations to their respective indexes. Of course, in analyzing the returns of hedge

fund managers and the amount of alpha they generate investors should not limit themselves to

correlation analysis. At least several other evaluation criteria of alpha and beta returns, besides

correlation, should be considered, including but not limited to, capital, cost, capacity, and

Capital is the amount of dollars that it takes to create an X dollar amount of given alpha returns.

It might be an industry standard to expect a good equity manager to generate $4 for every $100

of assets, while a good bond manager is expected to generate only $1 from the same asset level.

Since it is capital first and foremost, and not risk that is the investor's constraint to generating

alpha returns, high risk and higher volatility strategies appear to be more attractive because they

require less capital. It is worth noting that at the same time search for alpha in active

investments, according to Goldman Sachs' active alpha investment specialists, is an approach to

portfolio management that divides sources of risk into three specific components, interest rate,

market, and active risk, to optimize portfolio's risk while maximizing its returns (GS, Letter to

these risks allows for greater accuracy and efficiency in sizing and monitoring of risks, which in

turn should allow portfolio managers to significantly increase active risk (add active managers to

the portfolio) since its not correlated with market risk. This should positively impact the amount

of alpha in total expected returns.

Cost is another component worth evaluating; it is the price that investors pay for acquiring alpha

returns. The price of passive exposure to markets is practically null. A management fee for

holding an S&P 500 index position is approximately 5 bps, which translates into 1-2% of the

passive index position, an active investment strategy could consume as much as 50% of the

realized gross excess return. Considering the uncertainty of hedge fund managers outperforming

their respective benchmarks, it makes sense that hedge funds employ inventive fees. Incentive

fee payment structure makes sense if the information ratio expected by the investor is less than

what the manager asses it to be. It is clear that active manager fees should be proportional to

expected gross alpha, and the managers that have proven track records are expected to charge

more.

Information ratio relates to the confidence analysis, as it measures the degree of portfolio

manager skill. IR is the investor's expectation of the manager's alpha per unit of active risk, it is

the confidence component of investment returns analysis, and is probably the most difficult one

to forecast (GS, Letters to Investors. 2004). A strategy becomes more attractive as information

ratio increases. Typically net IRs of 0.2 or better are very desirable, while net IRs of 0.5 or

higher are not desirable and are rare. Since great investment results can be generated by luck in

the short-term, and past performance is not a predictor of future results, it is difficult to develop

confidence in manager's ability to create alpha. Nevertheless, most investors focus on recent past

performance and to develop the confidence in a hedge fund manager follow through with a

thorough due diligence analysis of the manager, his team, and the strength of their niche

investment strategy.

Capacity is the last component mentioned that should be considered in evaluating hedge fund

manager's returns. It simply refers to the fund's long-term ability to generate alpha in light of its

investment strategy and increased assets under management. Certain strategies in relatively small

and illiquid asset classes such as arbitrage, emerging market debt, high yield, convertible bonds

and few others are bound to have lower active returns in the future as money is injected into the

fund. Large inflow of cash into these strategies is likely to shift these markets toward

equilibrium, eliminating alpha generating opportunities.

Some active managers would suggest that the reason they generate less alpha returns lies with

the fiduciaries and the constraints imposed by them. Managers suggest that constraints are

chipping away at their alpha. While such claims not entirely true, there is evidence to suggest

that relaxing constraints will produce higher alpha returns. Fiduciaries try to limit the risk of their

portfolios by restricting their managers' ability to act. Some constraints such as having a risk

budget are simply necessary. The problem with constraints eroding alpha arises in the area of

risk control. Here constraints should act as a secondary level of risk control beyond internal

measures of control already taken by the active hedge fund manager. Instead, the limits on the

exposures that managers are permitted to take are often absolute and too rigid (B. Littlerman,

limit manager's access to investment opportunities, they in fact limit opportunity to generate

excess returns, creating deteriorating alpha. Actual constraints should always be adjusted to

reflect the manager's strategies and skill. Active currency management, for example, is a strategy

that generates attractive, quality risk-adjusted alpha returns if utilized within the framework of

relaxed constraints and diversification. This is evident because the universe of currencies is

small, and the typical analytical tools don't always work because the economic data varies

significantly from country to country. The key to alpha returns in this asset class, Litterman

suggests, is the diversification "not by currency type, but by style and strategy as well."

Transparency and liquidity are only some of the important factors to consider when mixing

currency types, styles, and strategies, but this form of diversification can positively impact riskadjusted

Although the focus has been on alpha and beta returns among hedge funds, there are many other

alternatives to finding and capitalizing on alpha returns. Alpha can also be found in a variety of

overlay strategies, private equity, commodities, real estate, and moving or 'porting' alpha from a

manager in one asset class to another. Portable alpha strategies are of key importance in the

alternative asset class divisions of investment banking powerhouses such as Goldman Sachs.

where you search for alpha need not be from the same as those in your strategic asset allocation."

In their example, liquid derivatives markets create opportunities to transport alpha from one

benchmark to another (GS, Letters to Investors, 2005).

Finally, it is important to remember that while alpha strategies may represent a more efficient

allocation of capital relative to a traditionally structured portfolio, they are considerably more

complex to manage. Implementation issues require serious consideration and study before

engagement. Many of the alpha solutions engineered by the investment industry have opaque

costs and require ongoing management oversight. Highly customized strategies may look

compelling on entry but may have significant exit costs or limited liquidity. To be successful, an

alpha strategy must identify managers with consistent alpha, find appropriate beta transfer

candidates, and have the expertise to execute the strategy. Managers producing consistent alpha

are impossible to identify if they are new to the industry and do not have a track record.

Individual sophisticated investors may loose their shirt investing with new hedge funds if they

lack institutional-size capital to conduct a thorough due diligence process.