Item 5 - Fees and Compensation
Compensation
Management Fee
The Funds pay the General Partner an investment management fee ranging from 1% to
2% per annum depending on various factors including, but not limited to, the size of the
investment, an agreement by an Investor to maintain such investment for a significant
period of time or other similar commitment by an Investor, or the type of Fund. The
“Management Fee” is equal to the quarterly equivalent of a “Management Fee Rate”
applied to the net value of each Limited Partner’s (other than General Partner affiliates’)
Interest as of the beginning of each calendar quarter. The net value of an Interest is
measured by the balance in the relevant Limited Partner’s “Participation Account” (the
account established when the Funds accept an investor) and “Quarterly Distribution
Account,” (the account set aside to keep track of the share of net interest and dividend
income) before giving effect to distributions for the relevant quarter (as described in the
Disclosure Memorandum). The Management Fee Rate will generally be 2.0% per annum.
The General Partner may agree to vary the Management Fee paid as to particular Limited
Partners by separate agreement and may in its discretion, reduce or waive any
Management Fees at any time.
These fees are separate from and in addition to the distribution of profits through the
Performance Fee and reimbursement of expenses to which Echelon (and/or affiliates of
ours and/or the Funds) is entitled, which are described more fully in each Fund’s
disclosure documents.
Performance Fee
The Funds pay or allocate to the General Partner performance-based compensation. The
performance-based compensation is calculated based on a percentage of the net profits
of each Fund at the end of each fiscal quarter and ranges from 10% to 20% depending
on various factors including, but not limited to, the size of the investment, an agreement
by an Investor to maintain such investment for a significant period of time or other similar
commitment by an Investor, or the type of Fund, and is subject to a loss carryforward.
This will be effected through “Incentive Allocations” to the General Partner in its role as a
Partner in the Funds. If made, Incentive Allocations will generally be charged against the
relevant Limited Partners’ Quarterly Distribution Accounts, and distributions of interest
income from those accounts will be reduced by any Incentive Allocations made.
Incentive Allocations will generally be based on each calendar quarter’s performance and
made at the end of the relevant calendar quarter. However, if the General Partner were
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to allow a Limited Partner to withdraw capital other than as of a quarter-end, the Funds
would make an Incentive Allocation based on quarter-to-date performance, in proportion
to the reduction in the Limited Partner’s relevant Participation Account balance caused
by the withdrawal. That Incentive Allocation would reduce the withdrawal proceeds
payable to the withdrawing Limited Partner.
As noted above, for each Limited Partner, the Incentive Allocation will generally equal the
stated percentage of any “new Profit” tentatively allocated to that Limited Partner in each
quarter. “New Profit” will generally exclude profits that restore previous losses (as
adjusted for withdrawals). In addition (and as described in more detail below), new Profit
will generally exclude unrealized gains attributable to loans or similar instruments in the
Funds’ portfolio that are not readily traded.
In order to calculate new Profit and Incentive Allocations, the Fund will maintain a
“Carryforward and Calculation Account” for each Limited Partner with an initial balance of
$0. For each quarter, the Fund will calculate the change in the Fund’s Net Asset Value
(determined as described below) for that quarter, to arrive at the “Profit” or “Loss” for that
quarter. The Fund will then adjust each Carryforward and Calculation Account to reflect
the relevant Limited Partner’s share of the Profit or Loss so calculated. If, after making
these adjustments, the resulting Carryforward and Calculation Account balance is
positive, the General Partner will receive an Incentive Allocation, and the Carryforward
and Calculation Account’s balance will be reset to $0 at the beginning of the next quarter.
If, on the other hand, the resulting Carryforward and Calculation Account balance is
negative, that negative amount will remain in the account as a “loss carryforward,” and
the General Partner may receive an Incentive Allocation as to a Limited Partner only if
and to the extent subsequent net positive adjustments in the Limited Partner’s
Carryforward and Calculation Account exceed the Limited Partner’s loss carryforward.
The use of a loss carryforward is a variation on what is sometimes called a “high water
mark” procedure. If a Limited Partner withdraws capital while there is a loss carryforward,
that loss carryforward will be reduced in proportion to the reduction in the Limited
Partner’s Participation Account caused by the withdrawal.
Once made, an Incentive Allocation will not be reduced by losses incurred in later periods,
and the General Partner will not be required to return any Incentive Allocations. Please
refer to each Fund’s respective offering documents for more detailed information on each
Fund’s particular performance fee percentage and calculation, as applicable.
Valuation
Refer to the Funds’ Offering Documents for details on methods used to determine the
value of the Funds’ assets and liabilities.
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Separately Managed Accounts
Management Fee
We may manage private accounts for individuals, businesses, trusts, estates, and
charitable organizations (collectively "Clients") for a management fee payable at the end
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