Item 5. Fees and Compensation
Congruent, or our affiliates, primarily receive compensation in the form of management fees,
which are typically calculated as a percentage of assets under management, and performance-based
fees (collectively, “Fees”).
Fund Clients:
Congruent receives investment management fees based on a percentage of Fund assets under
management, paid quarterly in advance, calculated at an annual rate (typically 1.50%) of capital
commitments or equity capital invested adjusted downward for equity distributions and other than
temporary credit impairments. If an advisory contract is terminated before the end of the billing
period, the Client account will be credited on a proportionate basis dependent on the amount of
time the advisory contract was in effect for the period.
In addition to investment management fees, Congruent, or an affiliated entity, is entitled to receive
performance-based fees (“Carried Interest”) from the Funds. The Carried Interest amount is
calculated after the cumulative distributions from the respective Fund to its investors equal the
aggregate capital contributions made by the investors to the Fund plus a per annum internal rate
of return, compounded annually, on the aggregate capital contributions for the period the capital
contributions were outstanding (the “Preferred Return”). The Preferred Return rates for
Congruent’s Funds can vary from one Fund to the next depending on the market environment at
the time of fundraising. The Carried Interest amount is generally limited to 20% of a Fund’s net
profits over its life. Each Fund also contains a “catch-up” provision where, once the Preferred
Return is earned by a Fund’s investors, the Fund’s profits are allocated toward Carried Interest in
a larger percentage until the 20% cap is reached. Congruent has discretion to charge a Carried
Interest amount less than 20% for certain investors in the Funds.
After the final liquidation of the assets of a Fund, if the total Carried Interest payments made by
the Fund exceed the Carried Interest percentage defined in the Fund’s governing documents, the
excess Carried Interest will be returned to the Fund, net of any taxes paid or payable on the excess
amount. Additionally, to the extent Carried Interest payments were made by the Fund and unpaid
Preferred Return exists, Carried Interest payments will be returned to the Fund, net of taxes paid
or payable on the excess amount, to reduce any unpaid Preferred Return amounts in the Fund.
In addition to investment management fees, certain Funds also bear some costs and expenses
related to asset management services, which are based on a percentage of assets under
management, paid quarterly in advance, calculated at an annual rate (typically 0.10%) of capital
commitments or equity capital invested adjusted downward for equity distributions and other than
temporary credit impairments.
Congruent or the appropriate general partner to a Fund, from time to time, by virtue of a side letter
agreement, provides certain investors, but not all investors, terms of investment that are more
favorable than the terms outlined in the respective Fund offering documents. Such terms typically
include a reduction or waiver of some or all of the Fees, additional reports or information, or more
favorable transfer rights, among other terms.
Managed Account Clients:
Congruent typically earns management fees and performance-based fees from the managed
accounts we advise. The management fees and the performance-based fees for managed accounts
are negotiated on an individual basis.
Additional Fees or Expenses
Client accounts incur expenses related to the purchase, holding and disposition of investments
made on their behalf, which typically include, but are not limited to, some or all of the following:
brokerage commissions, acquisition fees, referral fees, agent fees, and other fees related to the
purchase, holding, servicing, administration or disposition of assets; due diligence expenses
(including, without limitation, investment-related travel expenses and expenses of consultants and
experts’ fees relating to particular portfolio assets), broken deal expenses, agent, custodian,
servicer, administrator, and trustee fees, expenses and indemnities, portfolio asset or collateral
protection advances or expenses, clearing and settlement charges, fees and expenses of any nature
relating to a workout or exercising rights and remedies with respect to Client assets; legal and
accounting expenses, including both internal and external, and a Client’s portion of any fees, costs,
expenses and indemnities associated with forming and participating in any joint venture, subsidiary
or other vehicle through which a Client holds an indirect investment; professional fees (including,
without limitation, fees and expenses of administrators, servicers, custodians, attorneys,
accountants, consultants, valuation firms and experts) incurred by a Client or by Congruent on
behalf of a Client; fees and expenses related to financial and tax reporting and otherwise providing
information to Clients and investors; independent valuation and pricing services; insurance and
indemnity expenses including without limitation, expenses related to D&O insurance, errors and
omissions insurance, and to lender liability insurance, in each case covering the Clients, Congruent
and its respective employees and affiliates; and other customary or extraordinary expenses or other
amounts related to a Client and its activities or incurred by Congruent on behalf of a Client.
Expenses incurred on behalf of more than one Client shall be allocated among such Clients on a
fair and equitable basis, in the sole discretion of Congruent. Please refer to Item 12 of this
Brochure for further disclosures related to brokerage practices.
It is Congruent’s practice in direct lending transactions which it leads, where possible, to take a
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