5. Fees and Compensation
Our Firm typically receives compensation from our Clients based on both the percentage of assets
that we manage and on performance achieved for a Client’s accounts. We structure our
performance-based compensation for the Fund as profit-sharing allocations through general
partner interests that we hold in the Fund. Performance fees for separately managed account
Clients are negotiated and set forth in the investment management agreement. For investors in the
Fund, our fees are generally not negotiable except under certain limited circumstances when we
enter into a side letter with an investor in the Fund. Our employees and certain of their affiliates
that are invested in the Fund, however, may not pay any performance-based compensation or asset-
based fees or may pay reduced amounts of performance-based compensation or asset-based fees.
For our other Clients, we may negotiate fees in our discretion.
Asset-Based Fee
We charge MHC Fund an asset-based fee at an annual rate of 1.0% of each investor’s capital
account balance. We deduct this fee from each investor’s account at the beginning of each month
based on the market value of each investor’s account on the last business day of the previous
month. Although we charge this fee in advance, because the investors in the Fund can only
withdraw money on the last day of a quarter (or, in other words, at the end of a month), they will
not pay a management fee more than what they owe.
Our separately managed account Clients pay a quarterly or monthly fee based on the assets under
management. The fee is negotiated with each Client.
Performance-Based Compensation
For the Fund, annually, for qualified clients, we receive 20% of each investor’s share of MHC Fund’s
net profits, subject to a loss carryforward requirement or cumulative “high water mark.” A high-water
mark is designed to ensure that we only receive performance compensation when an investor’s account
value for the year has recovered any losses from prior years. This performance-based
compensation is allocated to us from each investor’s account at the end of each year, or whenever
an investor makes a withdrawal, but only on the withdrawn amount.
Performance fees for separately managed account Clients are negotiated and set forth in the
investment management agreement.
Other Fees and Expenses
In addition to the asset-based fees and performance-based compensation we described above, the
Fund bears all costs and expenses directly attributable to the investment-related activity in the
Fund, including expenses related to:
• Research and investment information;
• Monitoring expenses;
• Investment expenses (including travel and first-class air travel incurred in connection with
investment due diligence or the assertion of rights or pursuit of remedies, proceedings or
participation in committees);
• underwriting and private placements;
• brokerage commissions and other transaction costs, including trade errors that are not the result
of bad faith, willful misconduct, or gross negligence;
• complying with applicable laws and regulations of governmental and self-regulatory bodies,
including costs incurred by us and our affiliates in complying with laws and regulations that apply
to any such entities because of our services, including the costs of third-party compliance
consultants;
• interest on debt balances or borrowings, custody fees, mark-ups, margin interest, expenses
related to short sales, and clearing and settlement charges;
• fees for professional advisors and consultants relating to investments or prospective
investments; and
• any withholding or transfer taxes.
The Fund also bears all out-of-pocket costs related to its administration and operation, including:
• all fees and expenses of accountants in connection with accounting and accounting advice
relating to the Fund’s affairs and all costs related to the keeping of the books and records of the
Funds including accounting and book-keeping services and the costs of the Fund’s administrator
and other outside service-providers or consultants;
• cost of the audit of the Funds’ financial statements and the preparation of its tax returns and
Schedule K-1s;
• the fees and expenses of the Fund’s counsel in connection with advice directly relating to the
Fund’s legal affairs, including, but not limited to, those incurred for the Fund to comply with any
applicable law, rule or regulation;
• any legal fees and costs (including settlement costs) arising in connection with any litigation
or regulatory investigation instituted against the Funds or the General Partner in its capacity as
such, including all expenses incurred in connection with any tax audit, investigation, settlement or
review of the Funds imposed on the Funds or any of its Partners;
• costs associated with reporting and providing information to existing and prospective
investors;
• costs of any outside appraisers, accountants, attorneys or other professionals and related travel
expenses (including first class travel) incurred, if any;
• costs and expenses restructurings of the Fund, if any;
• expenses incurred in the offering of interests in the Fund, including government filing fees and
expenses, legal and accounting fees, costs related to the admission of investors or the acceptance
of subscriptions; and
• all expenses related to liquidating the Fund.
We may choose to absorb some of the expenses we describe above on behalf of the Fund. In
addition, the fees and expenses we enumerated above may not contemplate every type of fee or
expense the Fund may incur. Please see the applicable Fund Offering Documents for more
information about the types of fees and expenses the Fund may incur.
With regard to separately managed account Clients, these Clients will be responsible for and
separately bear the cost of (1) any fees or expenses assessed to their investments or accounts by
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