Item 5 - Fees and Compensation
The extent to and specific manner in which our clients are responsible for fees,
performance-based compensation and/or expenses are set forth in each client’s applicable
written agreement with us (and, in the case of private investment fund clients that we may
manage in the future, in the offering documents for such funds).
In general, we receive our management fees on a quarterly basis (typically ranging from
approximately 1-2% annually) in arrears equal to one-fourth (1/4) of the applicable annual
management fee percentage based on the value of the account assets as of the last day of
each calendar quarter on which the New York Stock Exchange is open for trading. We
generally receive performance-based fees or allocations on an annual (or greater) basis in
arrears (typically equal to approximately 10% annually). We also may receive
performance-based fees or allocations on a withdrawal from the accounts that we manage.
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We typically have not deducted our fees from SMAs, although we may agree with our
SMA clients to do so in the future.
Clients generally bear all costs and expenses associated with their accounts, including,
without limitation: (i) all expenses associated with the organization and ongoing
administration of such accounts, including legal and accounting fees, (ii) all third party
administration, accounting, tax preparation, audit, bookkeeping, governmental fees and
taxes and legal and compliance fees and expenses of, or relating to, the accounts, (iv) all
expenses incurred for the benefit of the account related to the maintenance and procurement
of information technology and data related services, systems and equipment, valuation
services, proxy voting services and insurance, (v) all direct and incidental expenses relating
to research and due diligence of existing and potential investments (including, without
limitation, the use of consultants and attorneys) and research materials, and (vi) all trading
and investment related costs and expenses (e.g., brokerage commissions, margin interest,
expenses related to short sales, custodial fees, clearing and settlement charges and other
transaction costs).
The specific fees, performance-based compensation and/or expenses that are charged to
SMAs are negotiated on a case-by-case basis. SMAs will likely have management fee,
performance-based compensation and/or expense arrangements that differ in one or more
respects from those applicable to the Funds.
Management fees, performance-based compensation and/or expenses may be reduced or
waived in certain circumstances, including, without limitation, with respect to investments
in Funds by our personnel and/or other related persons. Our clients may agree to pay our
management fees in advance. Where management fees for SMAs are paid in arrears, they
typically will be prorated in the event of a withdrawal or the termination of the SMA on a
date other than the last day of the relevant fee period. Otherwise, management fees and
performance-based fees or allocations are generally not refundable, including upon the
termination of the advisory contract.
Unless our written agreements with our clients state otherwise: (i) incentive fees will be
pro-rated in the event of a withdrawal of assets or termination of a client account prior to
the end of the calendar year, and will cover the period from the beginning of the previous
calendar year through the applicable withdrawal or termination date (as applicable) and
will be based on the valuation as of such date; and (ii) management fees and performance-
based compensation will be paid to us by no later than ten (10) calendar days after the first
day of each month (and, with respect to performance-based compensation only, by no later
than January 10 of each year).
To the extent that we incur any expenses for the benefit of multiple clients, we generally
will allocate such expenses in any manner that we deem equitable, taking into account our
written agreements with such clients (and, if applicable, offering documents in the case of
clients that are Funds) and applicable facts and circumstances, including the relative size
of the applicable entity or account, the nature or source of the product or service and the
benefits derived from and the extent of use of the product or services. Nonetheless, the
portion of an expense that we allocate to a client for a particular product or service might
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not reflect the relative benefit derived by such client from that product or service in any
particular instance. Furthermore, it is possible that under some of our advisory contracts
we may not require a client to incur certain expenses, despite the fact that such client will
receive a benefit in connection with our incurrence of such expenses. In such an event, our
other clients may bear the additional share of any such expenses that would have been
allocable to the client that is not required to incur such expenses. Our expense allocations
often depend on inherently subjective determinations, but the expense allocations made by
us will be in good faith. There may be situations in which the appropriate allocation of
expenses in the course of evaluating potential investments may not be clear (for example,
if a client and one or more other clients considered making an investment that was not
consummated). Expenses will typically be allocated among the clients participating in the
relevant investment or potential investment. However, in all cases, subject to applicable
legal, regulatory, contractual or similar restrictions, we will make expense allocation
decisions in our sole discretion in good faith.
We may allocate a portion of certain clients’ capital to money market funds, exchange-
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