Item 5: Fees and Compensation
1888 provides investment advisory services to each SMA pursuant to an investment advisory
agreement (the “Advisory Agreements”) and serves as the non-member manager of each of the
Funds.
Each SMA has an Advisory Agreement that details the fees applicable to managing the account.
The SMA portfolios will generally be allocated to one or more Funds and would be subject to each
applicable Funds’ fees and expenses.
The applicable Fund’s Governing Documents, set forth in detail the fee structure relevant to each
such Fund. The terms of the Advisory Agreements are generally established at the outset of the
Client relationship and the fees, as applicable to investments in the Funds, are subject to amendment
in accordance with the terms of the applicable Fund’s Governing Documents. All investors and
prospective investors in a Fund should review the Governing Documents of each Fund in which
they have invested or intend to invest in conjunction with this Brochure for complete information
on the fees and compensation payable with respect to a particular Fund.
Management Fee
1888 does not receive a management fee (the “Management Fee”) from the Funds. However, the
Funds bear certain expenses whether incurred directly by a Fund or by 1888 (Please see Fund
Expenses below). To the extent that 1888 manages any Direct Investments, 1888 receives a
Management Fee for its monitoring and reporting of certain Direct Investments valued at
$5,000,000 or greater, which are directly billed to Clients holding such Direct Investments.
Incentive Fee
1888 will charge each Fund an annual incentive fee with respect to the performance of the Funds
(the “Incentive Fee”). The Incentive Fee is accrued quarterly, and the accrual is equal to the Fund’s
Gross Profit/Loss for the applicable calendar quarter multiplied by a per annum rate of 2.5%. “Gross
Profit/Loss” means (i) income from, and increases in the market value of, the Fund’s investments,
less (ii) losses from and decreases in the market value of the Fund’s investments, less (iii) any
liabilities and paid or accrued but unpaid Fund expenses. If the sum of all quarterly accruals is zero
or less, no Incentive Fee is earned by 1888.
1888’s services may be terminated by any of the Funds as set out in the applicable Governing
Documents. Upon termination, any earned, unpaid Incentive Fees will generally be due and payable.
In the event that a Client withdraws from a Fund prior to the end of any fiscal year, such Client’s
pro rata share of any unpaid and unallocated quarterly Incentive Fee accruals attributable to periods
prior to and including the date of such Client’s withdrawal from the Fund are allocated to the Client
prior to the distributions of the proceeds of the Client’s withdrawal.
Fund Expenses
Each Fund bears its own expenses, including, but not limited to, the following whether incurred
directly by the Fund or by 1888: investment expenses (e.g., expenses that, in 1888’s discretion, are
related to the investment of the Fund’s assets, whether or not such investments are consummated,
such as brokerage commissions, expenses relating to short sales, clearing and settlement charges,
custodial fees, bank service fees and interest expenses); investment-related travel expenses (which
are travel expenses related to the purchase, sale or transmittal of, or due diligence regarding, the
Fund’s investments, whether or not such investments are consummated); professional fees
(including expenses of consultants, investment bankers, attorneys, accountants and other experts)
relating to investments; fees and expenses relating to software tools, programs or other technology
utilized in managing the Fund (including third-party software licensing, implementation, data
management and recovery services and custom development costs); research and market data
(including any computer hardware and connectivity hardware (e.g., telephone and fiber optic lines)
incorporated into the cost of obtaining such research and market data); administrative expenses
(including fees and expenses of the administrator, if any); external valuation expenses (including
the cost of accounting software packages); audit and tax preparation expenses; costs of printing and
mailing reports and notices; taxes; corporate licensing; regulatory expenses (including filing fees);
organizational expenses; expenses incurred in connection with the offering and sale of the Fund’s
limited liability company interests and other similar expenses related to the Fund; indemnification
expenses; and extraordinary expenses. Such expenses borne by the Fund, other than any expenses
that 1888 determines should be allocated to a particular member or members, will be debited to the
capital accounts of all the members on a pro rata basis in accordance with their capital account
percentages. To the extent that expenses to be borne by the Fund are paid by 1888 or its affiliates,
the Fund shall reimburse such party for such expenses.
If any of the expenses are incurred jointly for the account of the Funds and any other accounts, such
expenses shall be allocated among the Funds and such other accounts in proportion to the size of
the investment made by each to which such expense relates, or in such other manner as 1888
considers fair and equitable.
By investing with 1888, each Client bears asset-based fees of both 1888 and the Portfolio Funds as
well as any performance-based fees of 1888 and the Portfolio Funds. Thus, SMAs with investments
in a Portfolio Fund via a Fund may be subject to higher operating expenses than if such SMA
invested in a Portfolio Fund directly.
Item 6: Incentive Based Fees and Side-by-Side Management
Incentive-Based Fees
As described under “Incentive Fee” in Item 5 above, 1888 receives performance-based
compensation from the Funds in accordance with each Fund’s Governing Documents.
Although incentive fees are a method of compensation generally used to align the Adviser’s
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