Liberty Street Horizon Fund

Philosophy

Horizon's investment philosophy begins with the acknowledgement that the greatest determining factor of a portfolio's long-term, successful performance is the mitigation of risk. Many investment professionals measure risk in degrees of prior volatility; Horizon assesses risk in terms of the probability of real capital loss. It is generally appreciated that equity investing is an inherently risky exercise; yet it is less appreciated that investment returns are asymmetrical, meaning that negative returns require larger off-setting positive returns just to arrive at break-even.

The Horizon methodology entails rigorous in-house research as well as a dynamic approach to portfolio construction. The process results in, what Horizon believes to be, securities selected with asymmetric return properties — those for which reward potential exceeds downside risk, both in magnitude and probability. Adherence to this methodology yields what Horizon calls a "margin of safety" approach to investing.

It is Horizon's desire to invest the Fund's capital in fundamentally good businesses. In most cases the selection will be made when these companies will be considered out of favor by the media or analysts because of a general misunderstanding of their underlying businesses and/or their long-term prospects. Often, price inefficiencies are generated by actual "negative news" pertaining to a particular enterprise. In such cases, opportunities can be created by the overreaction of the media or analysts to what amounts to a slight or transitory disruption in a business plan.

Horizon's methods are pragmatic; believing that a qualitative approach is more important than quantitative. Horizon relies on fundamental research for its ideas, and employs quantitative analysis for further clarification, recognizing that data means nothing without context.