Item 5 – Fees and Compensation
Management Fees
The Master Funds each pay Crestwood a management fee with respect to the non-
discretionary operational and administrative services Crestwood provides to the applicable
Feeder Fund and the discretionary investment advisory services it provides to the Master
Funds. The management fee is calculated as a percentage of assets under management by
Crestwood in each Feeder Fund. Crestwood Partners II pays Crestwood a management fee
that is calculated as a percentage of assets under management in Crestwood Partners II.
Management fees for each Feeder Fund and Crestwood Partners II are set out in detail in
the confidential private placement memorandum for the applicable Fund. Fees are payable
quarterly in advance based on the quarter-end asset value as of the first business day of the
calendar quarter. Each underlying investor in a Feeder Fund pays the portion of the fee
attributable to that investor’s holdings in the Feeder Fund. The management fee paid to
Crestwood by the Long/Short Funds is equal to 1.5% per year, or 0.375% per quarter. The
management fee paid to Crestwood by the Long Only Funds ranges from 1.0% per year (or
0.25% per quarter) down to 0.6% per year (or 0.15% per quarter) depending on assets under
management in those funds. Fees paid in advance are not refundable.
Performance-Based Compensation
Performance Allocation for the Long/Short Funds
At the end of each fiscal year, by virtue of its holding of performance allocation shares in
Crestwood Capital Master, Crestwood Capital Group, LLC, an affiliate of Crestwood,
receives a performance-based allocation equal to a percentage of the net profits of
Crestwood Capital Master that are attributable to each investor in each Long/Short Feeder
Fund, in compliance with Rule 205-3 under the Investment Advisers Act of 1940, as
amended (the “Advisers Act”). At the end of each fiscal year, Crestwood Capital Group,
LLC also receives a performance-based allocation equal to a percentage of the net profits
allocated to each investor in Crestwood Partners II, in compliance with Rule 205-3 under
the Advisers Act. With respect to Class A Series A Shares of Crestwood Capital
International and One Year Lock-Up Interests of Crestwood Capital and Crestwood
Partners II (as each such term is defined below), the performance allocation is equal to
20%. With respect to Class A Series B Shares of Crestwood Capital International and
Consecutive Three Year Lock-Up Interests of Crestwood Capital and Crestwood Partners
II (as each such term is defined below) the performance allocation for the initial three year
period (the “Initial Consecutive Three Year Lock-Up”) is equal to 17.5% of the net profits
of the applicable Fund, and the performance allocation for any subsequent three year period
(each a “Renewal Consecutive Three Year Lock-Up”) is 15.5%. Crestwood Capital Group,
LLC serves as the general partner to Crestwood Capital and Crestwood Partners II.
Crestwood makes the performance allocation pro rata from the account of each underlying
Fund investor in the amount attributable to that investor’s holdings in the applicable Fund.
The performance allocation is subject to a high-water mark. This means that no
performance allocation is made unless the value of Long/Short Feeder Fund assets has
increased since the prior allocation, adjusted for capital withdrawals and contributions. If
a Long/Short Fund terminates its investment management agreement, or an underlying
investor withdraws its assets from the Fund, fees will be allocated on a pro rata basis.
Performance Fee for the Long Only Funds
At the end of each fiscal year Crestwood receives a performance fee equal, in the aggregate,
to a percentage of the net performance attributable to each investor in the Long Only Feeder
Fund, above the Hurdle Rate (as defined immediately below) in compliance with Rule 205-
3 under the Advisers Act. Specifically, Crestwood will be paid a performance fee equal to
the applicable percentage of the amount by which performance attributable to each
investor’s account exceeds the return for the MSCI World Growth Index during the same
period (the “Hurdle Rate”). In a period during which the Long Only Feeder Fund’s
performance is below the Hurdle Rate, no performance fee will be paid or accrued. The
performance fee payable from One Year Lock-Up Interests is 20%. The performance fee
payable from Initial Consecutive Three Year Lock-Up Interests is 17.5% and the
performance fee payable from Renewal Consecutive Three Year Lock-Up Interests is
15.5%.
Fee Differential
In extremely limited circumstances, certain underlying investors in the Feeder Funds or
Crestwood Partners II may pay lower fees or have other unique arrangements such as the
waiver or rebate of the management fee, the performance allocation or performance fee,
provided that the applicable Fund is not harmed. For example, Crestwood employees, and
in certain instances, affiliates of such employees, do not pay the management fee and are
not subject to the performance allocation or performance fee. In addition, investors in one
of the Feeder Funds or Crestwood Capital II may have specially tailored arrangements with
respect to their investment in a Fund. These arrangements could create preferences or
priorities for certain investors in a Fund as compared to other investors. Crestwood may
enter into these arrangements without the consent of, or notice to, other Fund investors,
and these arrangements may not be available to all investors in the applicable Fund.
Crestwood will not intentionally disclose information about a Fund only to select investors.
However, to the extent that certain investors receive information in response to a specific
request made to Crestwood, Crestwood does not proactively offer that information to all
investors and therefore it is possible that certain investors may receive more detailed
information about a Fund than others.
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