Types of Clients
TLS provides discretionary investment advice to the TLS Funds. Partnership interests in
Inflation Defender are offered only to (i) “Accredited Investors” within the meaning given to
such term in Regulation D under the Securities Act and (ii) “Knowledgeable Employees” as
defined in Section 3(c)(5) of the Investment Company Act.
Methods of Analysis, Investment Strategies and Risk of Loss
An investment in any TLS Fund is speculative, illiquid, involves a high degree of risk and is
suitable only for persons who can assume the risk of losing their entire investment. Investing
in any security or future product involves risk of loss that investors should be prepared to
bear. As TLS Funds trade with a high degree of leverage, investors could lose all or
substantially all their investment. Those who are not familiar with such risks should not
consider investing in a TLS Fund. Please refer to the “Certain Risk Factors” section in the
Offering Memorandum for more information.
Analysis and Strategy
Inflation Defender Hedge Fund, L.P.
Inflation Defender’s principal investment objective is to achieve capital appreciation in all
stages of an inflationary environment.
In attempting to achieve the investment objective, TLS expects to invest in, hold, sell, sell
short and trade across asset classes, including equities, commodities, currencies, and
interest-rate instruments. Inflation Defender will potentially invest in common stock,
preferred stock, derivatives, bonds, commodities, commodity futures, forwards, swaps, and
currencies. Inflation Defender may also invest in cryptocurrencies, depending on guidance
from the Securities and Exchange Commission (the “SEC”) and other applicable regulators.
Inflation Defender will consider investments in different countries around the world.
Inflation Defender will take long and short positions. Inflation Defender does not intend to
invest in Treasury Inflation-Protected Securities (“TIPS”) except as part of a pair trade,
because TLS believes that investors in Inflation Defender can gain exposure to TIPS if desired
outside Inflation Defender with a lower cost profile. Finally, although TLS does not currently
expect to invest in real estate (directly or through REITs), it may determine in the future that
such investments are attractive in which case it may cause Inflation Defender to invest in
real estate.
Inflation Defender’s risk or return will not be managed relative to any securities index or
securities benchmark other than U.S. inflation. Rather, TLS will make allocation decisions
based on its view of the path of inflation in the United States, the stage of progress along that
path, and the historical and current attractiveness of a particular investment considering the
current stage of the inflation cycle. Based on TLS’s research, TLS believes that certain asset
classes perform differently at different stages of the inflation cycle. TLS expects that its
research, coupled with the pricing of a given investment or asset class, will drive decisions
around the allocation of Inflation Defender’s assets to different investments or asset classes.
Notwithstanding the foregoing thesis, TLS intends to be mindful of the possibility that from
time-to-time certain investments may already have discounted future inflation expectations,
and, thus, while the investment may have historically benefited from inflationary conditions,
such expectations may already be priced in. In that case, TLS may determine that certain
investments or asset classes are less attractive resulting in smaller allocations of Inflation
Defender’s assets.
Inflation Defender has broad targets as to allocation to different asset classes, but, because
Inflation Defender is opportunistic based on price, it may stray from those targets. Inflation
Defender may focus its investments in a particular asset class, sector, region, or country, and
in companies of any market capitalization, and those allocations may change over time.
However, Inflation Defender generally will not invest more than twenty percent (20%) of
the net asset value of its portfolio in any single asset (measured at the time of acquisition);
provided that, any such asset could temporarily exceed twenty percent (20%) of the
portfolio’s net asset value due to market fluctuations.
TLS evaluates potential investments using both fundamental analyses and quantitative
methods. Through a fundamental analysis, TLS seeks out companies or assets mispriced
from their intrinsic value. TLS also uses a proprietary investment model which generates
signals based on a quantitative analysis, which together with the results of TLS’s
fundamental analysis, is then used to determine which assets to buy, sell, or hold.
Quantitative analysis involves research into historical performance and develops models
based on that research. Because of its reliance on history, one of the key questions TLS will
consider is whether there is something different or unique about the current environment
which would render a model based on historical information inaccurate. TLS expects to have
a strong bias against selecting investments based on a determination that “this time is
different”, but TLS may determine to trim allocations to investments or reevaluate the
reliability of certain models based on a concern about historical information being an
unreliable indicator.
Because TLS’s fundamental and quantitative analyses are very sensitive to price, TLS’s
investment decisions are expected to be opportunistic in nature. As a result, TLS may cause
Inflation Defender to sell well-performing investments when it believes that better
opportunities are available elsewhere. Also, since TLS’s view is that mispriced investments
are inherently more volatile than properly priced investments, TLS expects that Inflation
Defender’s portfolio will be more volatile than a passively managed portfolio of similar
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