5. FEES AND COMPENSATION
Balestra Capital is engaged in providing investment supervisory services to clients, including
private investment funds, institutions and high net worth individuals. Below is a summary of the
fees and compensation typically associated with such services.
Dated: March 27, 2017 Page 5 of 27
Balestra Capital, Ltd. Part 2A of Form ADV: Firm Brochure
A. PRIVATE INVESTMENT FUNDS:
Balestra Capital acts as investment manager to the Flagship Fund and Balestra Spectrum, which
are US private investment funds sponsored by the firm or our affiliate, BCM.
I. The Flagship Fund:
The Flagship Fund, a Delaware limited partnership, is a global macro-economic hedge fund for
which Balestra Capital serves as investment manager.
Balestra Capital receives a management fee from the Flagship Fund on a quarterly basis, payable
in advance by the fund at the beginning of each quarter and deducted from each investor’s capital
account. For Class A Interests, the quarterly management fee equals 0.375% of the net asset
value of the interests, which amounts to 1.5% annually. For Class B Interests, the quarterly
management fee equals 0.5% of the net asset value of the interests, which amounts to 2.0%
annually. The management fee is pro-rated and refunded to the fund’s investors for partial
quarters.
BCM, an affiliate of Balestra Capital and the general partner of the Flagship Fund, receives a
profit allocation, calculated as of the end of the calendar year, in an amount equal to 20% of
realized and unrealized net profits of each limited partner in the Flagship Fund, subject to a loss
carry forward provision such that no profit allocation is made unless all prior losses have been
first recouped. Mr. James L. Melcher, Balestra Capital’s President and CIO, serves as the
Manager of BCM.
II. Balestra Spectrum:
Balestra Spectrum, a Delaware limited liability company, is a macro-driven fund of hedge funds
for which Balestra Capital serves as investment manager.
Balestra Capital receives a management fee from Balestra Spectrum on a quarterly basis, payable
in advance by the fund at the beginning of each quarter and deducted from each investor’s capital
account. The quarterly management fee equals 0.30% of the net asset value of the fund, which
amounts to 1.2% annually.
BCM serves as the managing member of Balestra Spectrum. BCM receives from Balestra
Spectrum a profit reallocation, calculated as of the end of the calendar year, in an amount equal
to 10% of realized and unrealized net profits in excess of a hurdle rate equal to the total annual
return of the 90-day U.S. Treasury note. This performance-based compensation is subject to a
loss carry forward provision such that no such compensation is paid or made to BCM unless all
prior losses have been first recouped by the fund. We discuss the conflict of interests associated
with this form of performance-based compensation (i) further below in this Item under the
heading titled “C. Performance-Based Compensation”, (ii) in Item 6 below, and (iii) and under
the heading titled “Summary of Risks of Balestra Capital’s Investment Strategy” in Item 8
below.
Dated: March 27, 2017 Page 6 of 27
Balestra Capital, Ltd. Part 2A of Form ADV: Firm Brochure
In addition to the asset-based fees, performance–based compensation and other direct expenses
described further below in this Item under the heading titled “D. Other Fees and Expenses” that
investors will bear at the Balestra Spectrum level, investors in our fund of hedge funds portfolio
will also indirectly bear similar fees, expenses and performance-based compensation of the
investment funds in which Balestra Spectrum invests.
III. Different Fee Schedules:
Balestra Capital’s, and BCM’s management fees and performance-based compensation can be
discounted or waived with respect to any investor for any particular period of time at the sole
discretion of Balestra Capital or BCM, as applicable. This discounted rate or waiver is not
available to all or even most investors in the Balestra Funds.
IV. Side Letters:
From time to time, a prospective large or strategic investor considering an investment in the
Balestra Funds might seek to enter into a side letter with BCM and/or Balestra Capital (in their
discretion), pursuant to which such investors would be afforded different rights or terms than
those offered to other investors including, without limitation, relating to advisory fees,
subscriptions and withdrawals, access to portfolio information and other risk metrics. Currently,
there are no such side letters outstanding with respect to the Balestra Funds.
B. DISCRETIONARY SEPARATE ACCOUNT MANAGEMENT:
The fee structure for each separately managed account depends on the nature of the services
provided, the amount of assets in the account and the circumstances of the relationship between
the underlying managed account client and Balestra Capital. Generally, management fee
determinations are based on the market value of the account at the beginning of each quarter (net
of liabilities) and are billed and payable quarterly, in advance. Incentive fees, if any, for the
discretionary accounts are calculated as of the end of each calendar year and paid shortly
thereafter. Generally, incentive fees are calculated as a percentage of realized and unrealized
appreciation in the account and may be subject to a loss carry forward provision, a hurdle rate or
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