ITEM 5 – FEES AND COMPENSATION
In lieu of paying Aquatic an asset-based management fee, each Fund generally bears its pro rata share of
all operating and overhead expenses incurred by Aquatic, Aquatic Partners, and/or their respective
affiliates (such expenses, “Aquatic Operating and Overhead Expenses”). The Aquatic Operating and
Overhead Expenses include, but are not limited to: (i)(a) employee related expenses, including all direct
and indirect salaries, bonuses, deferred compensation, the fair value of any equity or option grants or
phantom equity or other equity-like grants such as profits interests (collectively, the “Grant Awards”) and
other compensation (excluding any compensation paid to Mr. Graham), and (b) payroll costs (for the
provider, taxes and processing), unemployment insurance, severance, non-compete payments, benefits
(e.g., medical and other health insurance, life insurance, disability insurance and retirement plan
administrator), reimbursement for training and education and industry conferences (including travel and
meals), placement fees, recruiting agency fees, relocation expenses, background checks, immigration
costs (legal and regulatory) and all other related employee fees and expenses; (ii) information and
technology related expenses, including all fees, expenses and upgrade costs related to hardware, data,
colocation, infrastructure (e.g., custom hardware, dark fiber, microwave and other networks), data centers
(including leases and support costs), cloud computing services, support services, software and software
development, depreciation of hardware and software costs, finance charges for leased equipment, API
development, systems engineering, development and operation, development of analytical programs, risk
management programs, trading tools, quote and order logic and management programs, information
technology and data security programs and other systems designed to manage and control cyber security
risk, hedging tools, connectivity, data, data hosting, and other similar items; and (iii) overhead expenses,
including rent, depreciation of leasehold improvements, utilities, supplies, non-Fund related business
travel (e.g., firm-sponsored off-site activities, continuing education, business meetings, recruiting,
marketing or investor relations, etc.), food and beverage-related expenses (e.g., employee lunches, office
pantry costs, team dinners and outings, etc.), administrative services and other similar items. Each Fund
reimburses Aquatic and its affiliates for the Aquatic Operating and Overhead Expenses for its pro rata
share of such expenses regardless of whether such Fund has realized any profit.
Aquatic seeks to allocate Aquatic Operating and Overhead Expenses fairly among the Funds in
accordance with one or more equitable allocation protocols established by Aquatic from time to time.
Aquatic will generally allocate expenses pro rata among the Funds based on each Fund’s investment into
the Trading Fund(s) as of the period the expense occurred (i.e., based on gross or levered assets). In
certain circumstances, the allocation may be based on each Fund’s Net Asset Value, but Aquatic expects
such occurrences to be infrequent. Aquatic believes its allocation methodology is reasonable, however,
other reasonable options may exist that may yield different results. While the allocation of Aquatic
Adviser Operating and Overhead Expenses among Funds is designed to generally reflect each Fund’s
consumption of resources of Aquatic (and its affiliates) and generation of revenue, future funds may not
ratably share in the payment of such expenses even though they may gain the benefit derived from such
expenses. The apportionment of Aquatic Operating and Overhead Expenses among the Funds involves
subjective determinations, which may involve conflicts of interest.
Further, each Fund must pay its pro rata share of Aquatic Operating and Overhead Expenses even if such
expenses are not used for the benefit of such Fund or its investors, which presents a conflict of interest.
Aquatic and its affiliates will derive certain material benefits as a result of receiving reimbursements for
the Aquatic Operating and Overhead Expenses. Such benefits include the Funds bearing a share of the
development costs of Aquatic’s and/or its affiliates’ intellectual property, data, hardware and trading
infrastructure, as well as the costs associated with certain resources used by the personnel of Aquatic
and/or its affiliates (collectively, the “Aquatic IP”) that would otherwise be borne by Aquatic and/or its
affiliates, enabling Aquatic and/or its affiliates to earn certain personal or business tax credits and
allowing Aquatic and/or its affiliates to attract and retain personnel that it might not otherwise be able to
attract or retain. For example, Aquatic Operating and Overhead Expenses borne by a Fund may be used to
fund or advance the development of the Aquatic IP and to pay the compensation of Aquatic personnel,
even though such Aquatic IP will not be owned by the relevant Fund (and, in certain cases, not being used
for the benefit of such Fund), and such Aquatic IP and personnel may be used by or employed on behalf
of, respectively, other funds or proprietary accounts launched by Aquatic. In addition, Aquatic and its
affiliates may enter into certain arrangements whereby Aquatic IP is licensed to third-parties and Aquatic
and its principals and affiliates (collectively, the “Aquatic Parties”) may provide related consulting
services and the Fund and the investors may not be entitled to receive a portion of the revenue generated
by such arrangements.
Aquatic believes this arrangement is more beneficial to investors than a traditional asset-based
management fee as the Funds will benefit from the use of the Aquatic IP and Aquatic’s unique services.
In addition to the Aquatic Operating and Overhead Expenses, Aquatic receives a performance-based fee
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