GRAHAM ALTERNATIVE INVESTMENT FUND II LLC Annual Report - How They Did This Year

I’ve written this guide to help you understand how Graham Alternative Investment Fund II LLC (GAIF II) works. My goal is to turn complex financial filings into plain English so you can decide if this fund fits your personal goals.

1. What does this company do?

Think of GAIF II as a professional trader for your portfolio. Instead of just buying stocks and hoping they rise, the fund uses complex strategies to trade futures, currencies, and metals. The fund aims for steady profits regardless of how the stock market performs. By using a mix of strategies, the fund tries to move independently of the S&P 500. This structure acts as a "hedge" during market swings, helping to balance out a traditional portfolio of stocks and bonds.

2. Who is running the show?

Graham Capital Management runs the fund and oversees over $20 billion in assets. Founder Kenneth G. Tropin leads the firm’s macro-trading philosophy. A major update this year is the addition of Jens Foehrenbach as President and Co-Chief Investment Officer, starting in February 2025. He joins from Man Group, where he managed massive quantitative portfolios. The leadership team includes veteran traders, risk managers, and data scientists who use over 100 computer models, updated weekly, to adjust for changing interest rates and global events.

3. How they invest your money

The fund splits its focus evenly. Half the money goes into "Discretionary" strategies, where human traders use economic analysis to make bets. The other half goes into the "K4D" Systematic program, which uses computer models to trade based on price trends.

The fund uses significant borrowed money, often holding positions worth over five times the fund’s actual value to boost returns. They trade in over 150 global markets, including interest rate swaps, commodities, and major currencies. They use software to stress-test their positions daily, aiming to limit daily losses to 1.5% of the fund’s total assets.

4. Key risks: What could go wrong?

This is the most important part to understand:

• High Risk: The fund uses complex financial contracts that can lead to quick gains or losses. Because they borrow money to trade, a 1% move in the market can cause a 5% or larger swing in your investment value.
• No Control: You have no say in how they trade. The manager can move money between strategies or change asset classes at any time.
• Complexity and Fees: This is not a "set it and forget it" investment. The fund charges a 2% annual management fee and takes 20% of the profits. You must be an "accredited investor" (high net worth or high income) to participate because of the risks involved.

5. Future outlook

The fund is built for the long term, with a planned end date of December 31, 2050. The managers have the flexibility to change strategies whenever they see fit. They are currently investing heavily in AI to improve trade execution and reduce costs, with a specific focus on navigating today’s high-interest-rate environment.

Final Thought for Your Decision: GAIF II is designed for investors looking to diversify away from traditional stock and bond markets. Because of the high fees, the use of borrowed money (leverage), and the requirement to be an accredited investor, this fund is best suited for those who have a high tolerance for risk and are looking for a sophisticated, active trading approach to complement their existing portfolio.