We are pleased to share with you our 2007 Q3 activities. Our engagements have ranged from a start-up infrastructure/leverage lease group in San Francisco to a most unique assignment with one of the world’s prominent rating services. Quite a variety – we continue to broaden our business model and expertise by taking advantage of the many challenging opportunities being offered us via the marketplace.

The constant throughout all of this – there’s no shortage of intelligent human capital, ingenuity or desire to create quality investment products for the institutional world. We’re proud to be more than observers to these efforts.

VIRGINIA VENTURES’ 2007 began with an assignment from a global, multi-strategy hedge fund of funds manager, MayerCap of New York City. MayerCap specializes in locating, vetting, investing in and monitoring new/emerging hedge fund managers. The trend for emerging or de novo hedge fund managers has “taken hold” with many institutional investors and interest in this sector of the hedge fund marketplace continues to strengthen.

MayerCap was co-founded by Eldon Mayer and Dr. Sam Kirschner. Eldon Mayer, former co-founder of $7Bln asset management firm, Lynch & Mayer, is a 35+ year veteran on hedge funds and investment management. Sam Kirschner, is a noted clinical psychologist (so appropriate for our world, eh?), and served as financial advisor to Forbes 400 families and several corporate entities.

MayerCap professionals are dedicated to all aspects of education of the hedge fund world and have been published several times over. Eldon and Sam co-authored The Investor’s Guide to Hedge Funds which is currently in its second printing.

Our focus has been to introduce MayerCap’s three FoFs to institutional investors with existing absolute return portfolios; i.e., The High Alpha Fund, Diversified Strategies Fund and Corporate Financing Fund. These funds are ideal complements to core holdings of larger, older FoFs.

MayerCap represents a firm of the future – diverse clients, distinctive product and an educational philosophy.

IN 2002, it was our good fortune to be referred to Michael Golub, a large cap value manager located in San Mateo, CA. His company, The Golub Group, was imbedded inside a San Francisco research firm. We were engaged to evaluate the firm’s business model (a service we provide for investment managers and consultants).

We concluded that the business model under which the firm operated would be better served as an independent entity. Shortly thereafter, we successfully (and amicably) “lifted-out” his team. They retained 98% of their existing clients (primarily HNW and family offices) and to date, have tripled their AUM to over $625MM. They recently opened a new office in Pasadena, CA.

Today, the firm boasts over five years of highly competitive performance and self-management. We have begun the process of introductions, database work and institutionalization of the firm to assist in their expansion into the institutional marketplace.

We are confident Golub’s process, discipline and client service model plays precisely to investors interested in an independent, clean, discernable process with an excellent track record and unequalled service.

This is a nice success story about dedicated professionals with a vision for managing a business and firm commitment to investment and service excellence.

WE mentioned infrastructure. Early in 2007, we were introduced to a formidable group that lifted out of the Bank of America Capital Group in San Francisco. These professionals were the senior management team from BOA in infrastructure and leverage leasing. They averaged more than twenty years managing a $20BN+ portfolio with annual transactions exceeding $10BN. The financings ranged from standard airplane leasing to exotic infrastructure ports, rail, water and even the HVAC system at one of Las Vegas’ most prestigious hotel complexes. This new entity, Bridgeway Capital, focuses on mid-market ($500mm and under) financings in the identical spaces.

Our job – start-up, firm financing, and fund creation.

Bridgeway has blossomed quickly. As you know, the infrastructure world is exploding. MacQuarie, Goldman, Morgan Stanley, Blackstone and a host of others have created enormous funds to buy projects like the Illinois Toll Road, major international airports, port and public rail projects etc. Public private partnerships are being forged to bring capital and technical assistance to energy, water, transportation, and telecom.'

Bridgeway currently has two major focuses. The development of a port facility in Guaymas, MX and Water Capital, a joint venture involving a water leasing group from Mexico City. Both projects are critical infrastructure financings, have enormous economic and ecological impact.

Guaymas International Container Terminal and Guaymas – AZ Intermodal Rail Corridor is critical to port activity as it will off-load a significant number of tankers from the ports of Long Beach, Los Angeles, Oakland and Seattle. These ports are nearing capacity. It will save days of transportation (read that: Green House Gases (GHG’s), and fuel consumption wasted seaman hours and delivery time) to points anywhere east of the Phoenix area to Memphis, Chicago or St. Louis. This financing will be approximately $150mm, include a full port restoration and upgrade, a rail system to Nogales, MX (on the border of Nogales, AZ) and full port security and infrastructure.

Virginia Ventures introduced this opportunity and will secure long term financing options. Exit valuations exceed $300MM in five years.

WATER CAPITAL is a 10 year old company in Mexico City with a staunch commitment to the environment. Water Capital has a leasing business that solves the problem of utility infrastructure in Mexico.

In Mexico, no water or other services can be purchased except from the Government. There are scores of developments where there is limited or no access to clean hydro. This is how Water Capital distinguishes itself from most leasing companies. Approximately half of the leases it arranges are service leases for environmental equipment, often water processing units.

In Mexico, no water or other services can be purchased except from the Government. There are scores of developments where there is limited or no access to clean hydro. This is how Water Capital distinguishes itself from most leasing companies. Approximately half of the leases it arranges are service leases for environmental equipment, often water processing units.

As further evidence of its commitment to the environment, Water Capital is one of the co-sponsors of UMA. UMA is an environmental “think tank” involved in finding solutions to companies’ environmental problems. In the future, MA will become an academic setting, offering an MBA in Environmental Management. UMA is staffed by a world renowned advisory board consisting of environmental and sustainability experts.

Water Capital is now seeking up to $50mm in operational capital and we are working toward development of a fund for institutional investors. Water Capital estimates its project revenues will grow from a current $150mm/annum to well over $1BN in 5 years.

MID 2007, we were referred to Standard & Poor’s Corporation to examine their hedge fund activities. Frankly, at that time, we didn’t know S&P had any hedge fund activities. They do.

Our assignment has a far ranging list of responsibilities from examination of existing business structure to searching for new team members. It is instructive to understand that S&P has been rating hedge funds (and some FOF’s) since 2000. The firm has always boasted very in-depth financial services acumen, and as you know, S&P rates almost all of the world’s financial services (banks, insurance companies, asset managers, hedge funds and other financial vehicles) that choose to have a public or private rating.

Many hedge funds desire firm or fund ratings to enable them to attract more permanent capital from the issuance of Collateralized Fund Obligations (CFO’s), Collateralized Debt Obligations (CDO’s) or other capital vehicles. Today, there are only a few accredited places a hedge fund can go to obtain this rating for credit purposes. S&P is the oldest and largest of the agencies.

Much of our focus has been on the operational (non-credit) side of hedge funds. Specifically, there is a need in the marketplace for unbiased, balanced, well-articulated and opinionated reviews of the operational side of hedge funds and FOF’s. Moody’s, Fitch and a London firm, Amber Partners, are currently engaged in this type activity.

S&P is to developing a highly sophisticated evaluation process. This process will provide a hedge fund, aggregators, end-users and fiduciaries with a complementary piece of research that is invaluable in the examination of a hedge fund. Result - the Operational Capabilities Evaluation (OCE).

We have found neither consultants nor examiners have the resources to thoroughly examine hedge funds from this perspective and consider the OCE an excellent addition to their due diligence work.

As evidenced by the MFA’s, soon to be completed, “Hedge Fund Best Practices for 2007” and the formation by the Secretary of the Treasury of a working group lead by Russ Read of CAPERS to examine risk management and other operational issues within the hedge fund community, it is clear the trend is migrating toward greater understanding of operational issues and the associated risks.

OUR current pipeline is an interesting mix. Please excuse the absence of names:

• A $100BN+ global investment manager has asked us to examine a global long/short strategy – we have also been requested to conduct an institutional survey (large plans, consultants and FOF’s) to determine the fund’s efficacy in the U.S. Pending contract signatures.
• A mid-size investment banking organization with deep tentacles in the HNW space is contracting us to build an institutional arm for small/medium endowments/foundations. This will require acquisition and team-purchases to complete the investment squad. Pending final contract.
• We have recently been approached by a multi-product hedge FOF’s with $1BN in AUM. Their interest is in alignment with another FOF’s of similar size where efficiencies can take hold. Pending.
• A long only equity manager with $3BN AUM is contemplating transition of 45% of the equity, and seeks a platform to complement existing products and distribution. Pending final meetings.
• $400MM long/short hedge fund with 15+ year record desires new marketing effort. Pending final meetings.

DOMINANT trends we see in the marketplace today:

• A growing need for high quality investment services in the smaller institutional world.
• A ratcheted trend of mergers and acquisitions in the alts investing space.
• A determination by associations and the US Government to elucidate the professional investing public to the attributes and features of hedge funds. Hopefully, avoiding formal intrusion.
• A re-examination of our intellectual and practical approach to credit examination.
• An enormous investment focus on our planet’s infrastructure.
• A heightened concern about our natural planet. The difference – people are doing something about it through sustainability, focused energy and resource funds.

As Tom Friedman says, “Green…the new Red, White and Blue.”

The partners and associates of Virginia Ventures, LLC, appreciate your interest and invite any and all comments. Please contact us via email or phone at any time for more information.