Item 5. Fees and Compensation
A. Advisory Fees and Compensation
Asset-Based Compensation
Downtown Management Company, L.L.C. (the “Manager”), an affiliate of the Adviser through
common ownership, is compensated for providing management services necessary for the day to
day administration of the Adviser’s pooled investment funds. The Manager charges each Limited
Partner in its pooled investment funds an investment management fee based on the value of the
Limited Partner’s capital account in such pooled investment fund.
Management fees are charged monthly or quarterly in advance based on the total market value of
the assets in each Limited Partner’s capital account (including net unrealized appreciation or
depreciation of investments and cash, cash equivalents and accrued interest) on the first day of
each month or quarter. The management fee is equal to 1% on an annual basis of the net assets
of the Limited Partners’ capital accounts measured as of the beginning of each monthly or
quarterly period. If a new Limited Partner account is established during the period or a Limited
Partner makes an addition to its capital account during the period, the investment management
fee will be charged as of the effective date of the additional contribution based on the value of the
assets as of the applicable date and will be prorated for the number of days remaining in the
period. These fees are negotiable.
Performance-Based Compensation
The Adviser also receives a performance-based incentive allocation that is based on a share of
capital gains on or capital appreciation earned and allocable to each Limited Partner in their
pooled investment funds, if any.
The Adviser, as the General Partner of the pooled investment funds, receives a quarterly or
annual incentive allocation equal to 20% of the net profits earned and allocable to each Limited
Partner, if any, subject to a “loss carryover” provision (the “Incentive Allocation”). Such Incentive
Allocation reduces the income allocable to the Limited Partner and increases the income
allocable to the Adviser. The Incentive Allocation of profits made to the Adviser is in compliance
with Rule 205-3 under the Investment Advisers Act of 1940. A more complete description of the
Incentive Allocation is included in the Confidential Offering Memorandums of each of the
Adviser’s pooled investment funds. This Incentive Allocation is negotiable.
B. Payment of Fees
The Manager deducts the Management Fee from each Limited Partner’s capital accounts in each
pooled investment fund by authorizing the fund’s respective custodian to pay such Management
Fees to the Manager.
C. Other Fees and Expenses
In addition to paying management fees and performance-based incentive allocations, investors in
the Adviser’s pooled investment funds bear all expenses required for the operation of the funds,
including, without limitation, expenses of a third-party administrator, research related expenses
(such as the cost of service contracts for quotation equipment and information and database
services, subscriptions and other third-party research services), out-of-pocket expenses incurred
in investigating investment opportunities, fees and expenses of attorneys, accountants, auditors,
experts and custodians, interest and all expenses related to investments or potential investments
and to the acquisition, holding, and sale or other disposition of investments. During the two most
recent calendar years ended December 31, 2016 and 2015 the ratio of expenses to average net
assets of Downtown Associates I, L.P. was 1.64% and 1.21%, respectively and of Downtown
Associates II, L.P. was 1.51% and 1.23%, respectively. This ratio includes the management fee
and other fund operating expenses, but excludes the incentive allocation to the Adviser.
The assets of the pooled investment funds may be invested in money market mutual funds, ETFs
or other registered investment companies. In these cases, the investors in the Adviser’s pooled
investment funds will bear, indirectly, their pro rata share of the investment management fee and
other fees/expenses of such funds, which are in addition to the management fee paid to the
Manager, fund operating expenses and the incentive allocation made to the Adviser.
In addition, investors in the Adviser’s pooled investment funds will incur brokerage and other
transaction costs in connection with the funds’ purchases and sales of investment securities.
Each of the Adviser’s pooled investment funds has retained BTIG, L.L.C., d/b/a Baypoint Trading
(“Baypoint”) to execute trades, through its personnel, on behalf of the funds. Each fund currently
pays Baypoint an incremental commission equal to one-cent (1¢) on each share traded by
Baypoint for the fund. These brokerage and other transaction costs are an addition to the cost of
investment securities purchased or a reduction from the proceeds from the sale of investment
securities.
Please refer to Item 12 of this Firm Brochure for a discussion of the Adviser’s brokerage
practices.
D. Prepayment of Fees
Investors in the Adviser’s pooled investment funds are required to pay the Manager’s fees in
advance. Management fees are paid by Downtown Associates I, L.P. on a monthly basis in
advance. Management fees are paid by Downtown Associates II, L.P. on a quarterly basis in
advance. Investors may obtain a refund of a pre-paid management fee if such investor makes a
capital withdrawal prior to the expiration of the period covered by the management fee payment.
The Manager will refund such prepaid management fee on a pro rata basis based upon the
number of days remaining in the management fee period.
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