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STRUCTURED FINANCE Operations Report

Sorin Funds
Operations Quality Rating Report

Fund Description
Investment Manager: Sorin Capital Management, LLC (“SCM”)
Rated Funds: Sorin Master Fund, Ltd.
Sorin Fund, L.P. (Domestic)
Sorin Offshore Fund, Ltd.
Sorin Plan Offshore Fund, Ltd.
LEAD ANALYST: AUM (as of September 2006): $335mm
Founder and CEO: James J. Higgins
Courtenay Sturdivant,
CPA Minimum Investment: $5mm
Analyst Subscriptions: Monthly
(212) 553-1044
Courtenay.Sturdivant@moodys.com Redemptions: Quarterly with 90 day notice; 20% gate
Lockup: 1 year
CONTACTS: Fund Inception Date: August 1, 2004
Gary Witt, Ph.D. Report Date: September 1, 2006
Managing Director Source: SCM
(212) 553-4352
Gary.Witt@moodys.com

Kevin L. Gaines, CFA Rating Summary: The OQ1- rating1 on the Sorin funds expresses Moody's opin-
VP/Senior Analyst ion that SCM has built and maintains an infrastructure with excellent operations
(212) 553-4513 quality with only a few areas for improvement. The rating considers the nature of
Kevin.Gaines@moodys.com
the investment strategy and the complexities of the asset classes traded.
Jim Leahy, Esq Valuation for some of the Sorin funds' assets, such as the illiquid, securitized prod-
VP/Senior Credit Officer
ucts, is challenging and SCM has a process that strikes a reasonable balance
(212) 553-4187
Jim.Leahy@moodys.com between accuracy and independence. SCM has retained high quality service pro-
viders for administration, audit, prime brokerage, and legal advice as well as for
Michael T. Ryan non-core areas such as systems and human resources. While the founder and
Senior Associate CEO Jim Higgins is clearly the "key man", SCM employs a professional and quali-
(212) 553-1418
Michael.Ryan@moodys.com
fied staff that has extensive experience in the commercial real estate debt market.
The competence of the personnel and robust infrastructure underpin the strong
Brett Hemmerling rating in each category of operations quality.
Investor Liaison
(212) 553-4796
Brett.Hemmerling@moodys.com

WEBSITE:
www.moodys.com
1 For rating framework please see the Moody's Special Report, "Moody's Approach to Evaluating and Assign-
ing Operations Quality Ratings to Hedge Funds", June 27, 2006.

September 1, 2006
Fund Overview: The rated Sorin funds use a master feeder structure that invests in commercial real estate
debt and derivatives with allocations to Asset Backed Securities and related derivatives. The investment strat-
egy includes taking strategic leveraged credit spread positions in CMBS and ABS across the entire credit spec-
trum. Credit spread risk is either fully or partially hedged with credit default swaps and all interest rate risk is
hedged with various debt and derivative securities. The investment manager, Sorin Capital Management, led
by Jim Higgins ("Higgins") has a core group of traders that have extensive experience and knowledge of the
specialized CMBS market. While the underlying risks of the fund are narrowly focused, a broad range of finan-
cial instruments, such as securitizations and credit derivatives, are utilized to exploit the opportunities associ-
ated with those risks.
2

Figure 1
Rating Details2
1
Moody's Assessment

5
Systems &
Providers

Resources

Reporting &

Operations
Compliance

Valuation
Continuity
Regulatory

Business

Process
Service

Internal
Human

Control
Risk
Source: Moody's

Valuation Process
SCM effectively addresses valuation in multiple ways. Independence is maintained by having dealers send a
copy of their pricing information directly to the administrator. A detailed monthly valuation package reflecting
and summarizing all the pricing information is produced and made available to interested investors. Per its writ-
ten valuation process, SCM attempts to obtain three or more dealer quotes whenever possible, but for the sake
of increased accuracy, will sometimes use its own valuation as long as it is within the range of outside quotes
received.
Moody's assessment of this valuation process included a review of several monthly valuation packages, lengthy
discussions with relevant SCM personnel, discussions with independent CMBS market participants, and a visit
to the administrator. Due to the complexity and illiquidity of some of its investments, risk remains in Sorin's val-
uation process. However, in Moody's opinion SCM has done a very good job at minimizing that risk given the
investment strategy.
Service Providers
• Auditor
SCM uses Rothstein Kass & Co. as its independent auditor. Moody's assessment is that the auditor possesses
the knowledge and acumen to provide sufficient audit and attest functions. Rothstein Kass & Co. has over 20
years of experience servicing domestic and offshore hedge funds, funds of funds, private equity funds and com-
modity pools. The firm has over 650 employees in NY, NJ, CA, TX, CO and the Cayman Islands. Rothstein
Kass & Co. provides a variety of services to its alternative investment clients including start-up and partnership
organization, audit, tax and accounting services, and management information systems and support. Rothstein
Kass & Co. performed the 2004 and 2005 fund audits for SCM and is engaged to perform the 2006 fund audit.
In addition Rothstein Kass & Co. is engaged to perform the 2005 audit on SCM, the investment manager.

2 OQ Ratings are comprised of five numerical levels indicating operational strengths and weaknesses. The graph above represents rating subcatego-
ries scored from “1” being Excellent to “5” being Poor.

2 • Moody’s Investors Service Sorin Funds


• Administrator
SCM's administrator is GlobeOp Financial Services ("GlobeOp"). Moody's conducted an onsite visit at one of
the New York GlobeOp facilities and concluded that GlobeOp is capable of both efficiently and effectively
reporting the Sorin funds' financial position. GlobeOp was founded by four partners, previously employed by
Long Term Capital Management. The firm has over 400 employees worldwide in North America, India, and the
Cayman Islands. Redundancy is built into GlobeOp's data retention infrastructure via the following: multiple T1
lines and back-up DSL lines, multiple phone service providers, back-up exchange and file servers on two differ-
ent continents, and back up power generators for its buildings. GlobeOp is in the process of having a SAS 70
audit completed. GlobeOp provides the Sorin funds with middle and back office support and administration.
This includes trade capture, reconciliation, accruals, NAV calculation, AML/KYC, shareholder reporting, and
wire payments. GlobeOp independently produces the investor statements and directly mails these statements
to each investor.
• Prime Brokerage
Bear Stearns Securities Corp ("Bear") and Lehman Brothers ("Lehman") provide prime brokerage services for
SCM. In Moody's opinion, the brokers provide scalable, high caliber service to SCM. Bear is used primarily for
CMBS and ABS transactions, while Lehman is used primarily for U.S. treasury securities. Both Bear and Leh-
man are reputable and well established Wall Street firms and possess the business acumen, professional staff,
and infrastructure to provide SCM with top tier service.
• Legal Counsel
Seward & Kissell LLP provides SCM with domestic general legal, tax, and ERISA advice. The firm was founded
in 1890 and has offices in New York and Washington DC. The firm has seven practice groups and specializes
in business, financial and commercial law, and related litigation.
Moody's discussed various general legal, tax, and ERISA issues with a representative from Seward & Kissell
LLP and ascertained that the legal representation appears to be competent and sufficient.
• Internal Administration
Trade reconciliations are performed on a daily basis. The CFO's group reconciles the cash activity, position
records, daily trade summaries, and the portfolio manager's book. Once this reconciliation process is com-
pleted, the CFO's group reconciles all trades with each prime broker and the administrator. Each prime broker
and the administrator receive the trade blotter during the day and at the end of trading. The administrator
receives trade confirmations directly from each prime broker. All positions are reconciled by the next day and
any discrepancies are researched and corrected. SCM's trade reconciliation process provides confidence that
transactions are properly identified, classified, and recorded.
The wire process is structured to reduce the possibility of one person initiating and authorizing a transaction. All
wire transfer requests are initiated by SCM and sent to GlobeOp with supporting documentation. After
GlobeOp's review, the transaction is sent back to Sorin for authorization. Two signatures are required from a
SCM authorized signature list. The wire is sent back to GlobeOp and GlobeOp releases the monies for pay-
ment. SCM has a layered and robust process to authenticate and authorize payments.
• Human Resources
SCM has outsourced most of its human resources functions to a Professional Employment Organization.
Moody's independently discussed with a representative of the company the various services it provides to
SCM. This entity provides services such as payroll, health benefits, 401K investments, and other human
resources related issues to SCM. This outsourcing allows the employees of SCM to maintain their focus on
contributing to the investment and business related functionalities.
SCM employs 13 staff personnel: two traders, two portfolio managers, six credit and research analysts, one
accountant, a CFO/CCO, and one administrative assistant. Since the inception of SCM, there has been no
employee turnover. Incentives are structured to retain key employees by deferring compensation and linking it
to performance.
The professional and educational backgrounds of the investment professionals appear to be appropriate and in
line with the competency and knowledge base necessary for the industry. All of the trading/portfolio manage-
ment professionals worked at Bear Stearns prior to their employment at SCM.

Sorin Funds Moody’s Investors Service • 3


Key man risk is an issue due to SCM's short performance history and multiple roles of two key employees, Hig-
gins and Tom Tam ("Tam"). Higgins is involved with portfolio management, risk management, marketing, and
business management. Tam is both the Chief Compliance Officer and CFO.
• Regulatory Compliance
SCM initially registered with the SEC on April 8, 2005 as an investment manager. SCM is not registered with
the NFA/CFTC as a CTA/CPO due to an exemption it qualifies for. The designated Chief Compliance Officer is
Tam. The offshore funds are registered with the Cayman Islands Monetary Authority as exempted companies.
SCM has an extensive compliance manual that is updated on an annual basis. The compliance manual itself
has been customized to meet SCM's investment strategy and business needs. SCM commits to continuous
forensic testing of its compliance procedures, such as monitoring prime brokerage best execution, review of
personal trading records, and random employee e-mail inspections.
The Sorin Plan Offshore Fund, Ltd. is comprised solely of ERISA and foreign benefit plan investors. The under-
lying assets of the Master fund would be deemed as ERISA Plan Assets if the Sorin Plan Offshore Fund, Ltd.'s
assets under management were to exceed 25% of total managed assets. On a monthly basis all ERISA and
foreign benefit plan monies are monitored and a contribution dollar value limit is calculated. It is not SCM's
intention to become an ERISA Plan Asset manager at this time. The process in place to monitor this appears
adequate and sufficient.
SCM's compliance culture is supported by Tam, who had previous relevant compliance and financial account-
ing experience. The commitment from Higgins and dedicated CCO make for a robust environment.
• Systems and Business Continuity
SCM outsourced its network design and information technology infrastructure development to an independent
service provider. Moody's met with a representative from this provider and discussed the services and structur-
ing of SCM's information technology systems. The independent service provider performs onsite scheduled
monthly maintenance, software updates, emergency technical support, daily maintenance, and on-site and off-
site user support. SCM is not ultimately dependent on this provider in order to maintain the integrity of their
infrastructure due to the fact that SCM's systems are industry standard and other service providers should be
able to perform maintenance services if necessary.
SCM's information technology infrastructure consists of Microsoft software and networking coupled with high-
quality hardware. Internet connectivity is redundant and is designed to provide access for employees and man-
agement in emergency situations. E-mail and data file back-up and recovery systems appear to meet SCM's
business and compliance needs.
SCM has instituted a disaster recovery and business continuity plan and documented the protocol in the event
of business interruption. The CCO is the designated contingency coordinator responsible for SCM's disaster
recovery and business continuity plan. SCM has established a strong information technology infrastructure cou-
pled with an adequate business continuity plan.
• Risk Reporting and Control
The daily risk reports produced internally at SCM for the Sorin funds are detailed and effectively measure spread
risk throughout the portfolio and within specific sub-categories. The trading team produces all internal risk
reports and is very focused on risk control; however, there is no internal risk reporting separate from the trading
function. Another weakness in risk reporting and control is the absence of specific, monitored risk limits.
Two reports are used to manage funding risk, the repo maturity report and a section of the overall risk report
that aggregates the cost of a chosen quantity increase in all repo borrowing rates. Funding risk is addressed by
using CDOs for term funding, spacing repo maturities whenever possible and by the maintenance of a signifi-
cant liquidity reserve.

4 • Moody’s Investors Service Sorin Funds


APPENDIX 1: SERVICE PROVIDERS

Third-Party Service Providers


Type US Provider Offshore Provider
Administrator GlobeOp Financial Services LLC GlobeOp Financial Services
(Cayman) Limited
Auditor Rothstein Kass & Co., P.C. Rothstein Kass & Co. (Cayman) Limited
Legal Counsel Seward & Kissell LLP Ogier & Boxalls (Cayman)
Prime Broker Bear, Stearns Securities Corp. & Not Applicable
Lehman Brothers Inc.
Source: SCM

APPENDIX 2: SORIN MANAGEMENT TEAM

Management Team
Name Professional & Educational Experience
Jim Higgins From March 1997 to January 2004, Mr. Higgins was the co-Head of Bear Stearns'CMBS/Commercial Mort-
Founder and Chief gage business, where he was responsible for all capital commitment, new issuance, securitization, secondary
Executive Officer trading, structuring and research for CMBS, commercial mortgage whole loans and commercial real estate
CDOs. Under Mr. Higgins' leadership, Bear Stearns' CMBS business grew five-fold and was profitable in every
year during Mr. Higgins' tenure. Prior to Bear Stearns he was a trader for Smith Barney and began his career
as a commercial real estate lender for American National Bank, a subsidiary of First Chicago. Mr. Higgins has
an MBA from the University of Texas and a BBA in Finance from the University of Notre Dame.
Damon Caputo From October 1998 to January 2004, Mr. Caputo was employed at Bear, Stearns & Co., Inc., most recently as
Managing Director Managing Director and Head of CMBS Structuring. During his five years at Bear Stearns, Mr. Caputo struc-
tured and closed more than 50 CMBS and 10 CDO transactions; highlights include developing and obtaining
ratings for some of the most innovative and complex structures in the CMBS and CDO markets. Prior to Bear
Stearns, Mr. Caputo spent three years as a structured finance analyst with Criimi Mae (NYSE: CMM), a publicly
traded mortgage REIT which specialized in non-investment grade CMBS and commercial mortgage origina-
tion. He was responsible for the reverse engineering, valuation and structuring of all transactions owned and/
or issued by the company. Mr. Caputo brings significant structured finance knowledge and expertise to Sorin.
Mr. Caputo graduated from the University of Maryland with a Bachelor of Science in Accounting.
Jason Kelley Mr. Kelley joined Sorin in August 2004 from Real Estate Capital Partners ("RECP") where he was an Invest-
Senior Vice President and ment Manager and Senior Acquisitions Analyst. At RECP Mr. Kelley was responsible for office, retail and
Chief Credit Officer industrial property acquisitions in Philadelphia, New Jersey, Houston, Kansas City and Phoenix and performed
all financial, legal and property level due diligence for any proposed investment in those markets. Prior to
RECP, Mr. Kelley worked at Vornado Realty Trust as an associate in the Acquisitions and Capital Markets
groups where he worked on real estate transactions including the construction of the new Bloomberg building
in midtown Manhattan and the World Trade Center acquisition. He began his career with Donaldson Lufkin &
Jenrette as a mortgage underwriter in the commercial real estate finance group. Mr. Kelley graduated from
Princeton University with a Bachelor of Arts degree in American History.
Thomas Tam, CPA Mr. Tam joined Sorin in September 2004 from Fletcher Asset Management where he spent four years as Con-
Chief Financial Officer & troller. At Fletcher, he was responsible for the accounting and operations of twelve domestic and offshore
Chief Compliance Officer master-feeder investment vehicles. Prior to Fletcher, Mr. Tam spent three years at Tiger Management as a
Fund Controller where he had extensive exposure to a broad cross-section of investment products including
equities, fixed income, options, futures, foreign currency forwards, equity and fixed income derivatives and
private placements. Before joining Tiger, Mr. Tam spent three years as a Supervising Senior Accountant for
American Express Tax & Business Services (formerly Goldstein Golub Kessler & Co.) where his clients included
Tiger and Fletcher. Mr. Tam began his career with Grant Thornton as an auditor. Mr. Tam graduated from Pace
University with a Bachelor of Business Administration degree in Public Accounting. He is a Certified Public
Accountant.
Source: SCM

Sorin Funds Moody’s Investors Service • 5


Doc ID# SF79186

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6 • Moody’s Investors Service Sorin Funds