Item 5 Fees and Compensation
Management Fees
Gabalex receives management fees from the Master Fund. Management fees are
calculated by a third-party administrator, directly deducted from the Master
Fund’s custodial account on the first day of each quarter, and are paid quarterly
in advance at a rate of .50% (2.0% per annum) based on the net asset value
(“NAV”) of the shares of the Offshore Feeder and the capital account values of the
Onshore Feeder as of the first day of such quarter. Management fees are prorated
for any new subscriptions or contributions during the quarter. In the event a
Private Fund Client terminates its operations or terminates its advisory
agreement with Gabalex prior to the end of a quarter, Gabalex will refund the
Private Fund Client for any unearned management fees deducted from its
custodial account. In the event an investor requests and receives permission to
withdraw or redeem from a Feeder Fund prior to the end of a quarter, Gabalex
will refund any unearned management fees to the applicable Private Fund Client
for the ultimate benefit of such investor. The amount of any such refund will be
calculated by dividing the most recent management fee by the number of days in
the quarter and multiplying that figure by the number of days left in the quarter
following the date of termination. The general partner of the Onshore Feeder,
which is an affiliate of Gabalex (the “General Partner”), in its sole discretion may
reduce or waive the management fee with respect to itself, its principals and
affiliates and strategic investors; however, fees are not negotiable.
Performance‐Based Compensation
For the Offshore Feeder, Gabalex is entitled to an incentive fee of 15% of the net
realized and unrealized appreciation in the NAV of each series of shares above a
hurdle rate of 6% on an annualized basis. For the Onshore Feeder, the General
Partner, is entitled to a performance allocation equal to 15% of the increase in
each limited partner’s capital account above a hurdle rate of 6% on an annualized
basis. Hurdle rates are prorated for any period of less than one year. Incentive
and/or performance fees are calculated by a third-party administrator (i) as of the
end of each fiscal year or (ii) upon an investor’s complete or partial redemption,
and are deducted from the Private Fund Client’s custodial account annually.
Under this method, if there is a loss for an accounting period, the incentive fee will
not apply to future periods until the loss has been recovered. The General Partner,
in its sole discretion, may reduce or waive the performance allocation with
respect to certain investors, including its principals and affiliates or strategic
investors in the Onshore Feeder.
The manner in which management and performance-based compensation are
charged by Gabalex is more fully described in each Feeder Fund’s offering
Gabalex Capital Management LLC
memorandum.
Other Fees and Expenses
In addition to management and performance-based compensation, the Feeder
Funds pay all of their own fees and expenses, including any and all research fees,
interest on margin accounts, legal, accounting and other professional fees, charges
on securities sold short, custodial fees, trustee fees, brokerage commissions, bank
service fees, interest on loans and debit balances, any taxes applicable to such
Client on account of its operations, expenses and fees related to the purchase, sale
or transmittal of its assets and all other reasonable expenses related to the
management and operation of the Client, as determined by Gabalex or the General
Partner, as applicable. Each Feeder Fund also pays, through its investment in the
Master Fund, its pro rata share of the Master Fund’s expenses (including those
related to its investment program). Such expenses include, without limitation,
industry and market consultants, experts, investment newsletters, Bloomberg
and other research and research related information. The Master Fund also pays
a portion of the Directors and Officers Liability Coverage (D&O Insurance) and
Errors and Omission Insurance (E&O Omissions Insurance) maintained by
Gabalex. Expenses specifically attributable to a specific investor or group of
investors of the Clients are charged solely to such investor(s). Expenses related
to investment adviser registration and compliance are paid for by Gabalex.
As noted above, Clients pay all research fees and expenses relating to their
investment program. Certain research and execution related products and
services that benefit the Clients and are not able to be purchased via invoice may
be paid for using commissions or “soft dollars” that are generated from the Master
Fund’s brokerage transactions. Please see Item 12 “Selecting Broker Dealers”
below for additional information regarding the circumstances under which
Gabalex receives research products or services from brokers with whom Gabalex
executes trades.
Client portfolios may invest in mutual funds and exchange-traded funds as part of
Gabalex’s investment strategy in order to gain access to certain sectors, markets,
or securities. Investments in mutual funds and exchange-traded funds, however,
generally include an embedded investment management fee paid to the
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