Item 5: Fees and Compensation
As compensation for our investment management services, we receive from each Fund an annual
management fee. In general, the management fees range from 0% - 2% annually of the total
capital committed to a Fund by its investors.
The amount of the management fee varies for each Fund, is determined at the time the Fund is
formed and generally is not changed thereafter. The management fee is generally invoiced
quarterly in arrears or advance and is generally subject to waiver or reduction by us in our sole
discretion, including in connection with investment made by our affiliates or our own personnel. If
a Fund’s management fees are invoiced in advance and the Fund is dissolved before the
conclusion of the period covered by the advance payment, the unearned management fees are
returned to the Fund in connection with its dissolution. In the case of our Multiple-investment
Funds for investors not affiliated with us, Fireman Capital Partners II, L.P. (“FCP II”) and Fireman
Capital Partners III, L.P. (“FCP III”), at the end of their investment period (i.e., the period within
which FCP II or FCP III can draw down capital or redeploy the proceeds of dispositions or other
realization events to invest in new portfolio companies), the management fee is calculated based
on capital contributions.
In certain circumstances, the management fee may be higher and charged once based on the
total capital committed to a Fund by certain investors. Our GP affiliates also generally receive a
performance allocation, described further below under Item 6, “Performance-Based Fees and
Side-By- Side Management,” based on the returns achieved on a Fund’s investments.
We also typically receive (1) a closing fee in connection with our Funds’ acquisition transactions
that is paid by either the portfolio company in which that Fund invests, the Fund itself, or both,
and (2) a management services fee from the portfolio companies in which a Fund invests. In the
case of a Multiple-investment Fund, we or a Fund’s GP may also receive a fee in connection with
an unconsummated transaction. Those fees vary in amount (but may be significant and exceed
the management fee paid to us by the investing Fund). In the case of our Single-purpose Funds,
closing fees paid by a portfolio company are not shared with the Fund that made the related
investment. In the case of FCP II, closing, unconsummated transaction and management service
fees paid by a portfolio company (or a contemplated portfolio company) are shared equally with
FCP II through a management fee reduction. Please see our discussion of related conflicts of
interest below under Item 14, “Client Referrals and Other Compensation.” Our receipt of closing
and management service fees may give rise to a conflict of interest between us a Fund, to the
extent that the fee in question is not used to offset fees that we would otherwise collect from
that Fund, because we could have an incentive to engage in investment transactions that are not
in a Fund’s best interest in order to collect those fees. As described below in Item 8, however, we
believe we rigorously evaluate each potential Fund investment in order to determine that it is in
the investing Fund’s best interest.
The Funds generally invest on a long-term basis. Accordingly, unless otherwise provided in a
Fund’s Documents, we generally expect our investment management fees and management
services fees to be paid over the entire life of a Fund. Our affiliated GPs’ performance
compensation is generally paid after a Fund’s disposition of an investment although performance
compensation may also be payable after a partial disposition. In the case of FCP II and FCP III,
performance compensation on earlier dispositions may be subject to “claw back" to compensate
investors for subsequent losses (if incurred). Investors in a Fund generally are not permitted to
withdraw or redeem interests in the Fund in which they invest prior to that Fund’s dissolution.
To the extent provided in the Documents relating to a Fund, we pay out of our management fees,
closing fees and management service fees certain operating expenses, including expenses on
account of rent, utilities, office supplies, office equipment, travel, entertainment, compensation
of our managers, consultants and employees and other routine administrative expenses related
to the services and facilities that we provide to the Funds. Subject to any special provisions
contained in its Documents, each Fund bears all other expenses of its operation to the extent not
borne by its portfolio companies (which may bear expenses relating to the management services
we provide). This includes organizational and offering costs, legal, accounting, insurance,
consulting, research, brokerage (including investment banking) and finders’ fees (if any), custody,
transfer, registration, advisory board, interest, taxes, extraordinary expenses and other items.
With regard to brokerage and investment banking fees, please see the discussion below under