Item 5. Fees and Compensation
A. The rate of GMOE’s advisory (or management) fee varies with the type of product or asset
class being managed, the investment strategy being employed, and the vehicle type in which
the strategy is being implemented. GMOE’s fees are primarily asset-based and calculated at
an annual rate as a percentage of the value of the net assets in the account.
In some cases, GMOE may be paid a combination of an asset-based fee and a performance
fee. The performance fee may take the form of a special allocation of profit to GMO, or an
affiliate, from a GMO pooled vehicle. (Special allocation and performance-based fees or
performance fees are referred to interchangeably throughout this brochure.) The performance
fee may be calculated in a variety of ways depending on multiple factors including, but not
limited to, the nature of the strategy, relevant performance benchmarks and performance
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hurdles, and is generally calculated based on both realized and unrealized amounts. Please
see Item 6, “Performance-Based Fees and Side-by-Side Management” for more information.
Under appropriate circumstances, in GMOE’s discretion and where permitted by applicable
law, the terms of an investment advisory contract, including fee schedules, terms of payment
and termination provisions, may be negotiable. GMOE may, for fee calculation purposes,
agree to aggregate the assets of related accounts that are being managed for the same client,
even if such account(s) is/are managed by an affiliate of GMOE. In those circumstances, the
aggregate accounts may receive the benefit of a lower effective fee due to the combined level
of assets.
The GMO Funds pay management fees to GMOE and bear total net annual expenses as
described in the attached Schedule I and as described in their respective prospectuses, as
supplemented and/or amended from time to time.
With respect to the fees paid by the GMO Funds, GMOE has discretion to waive, reduce or
rebate a portion of the asset-based fees and/or performance fees for any period for some or all
investors. GMOE also has discretion to admit investors or accept additional subscriptions
from existing investors subject to such other fee arrangements as it deems appropriate and
generally without notice to or consent from other investors. Note that this summary of fees is
as of March 15, 2019 and may not reflect subsequent changes.
B. Fees are accrued daily or monthly and generally paid in arrears. The amount of the asset-
based fee is prorated if GMOE provides advisory services for periods of less than a full
payment cycle (e.g., at the beginning or end of GMOE’s engagement to provide advisory
services). For accounts with performance fees, performance fee payment obligations are
generally triggered by redeeming from a GMO Fund and at the end of an account’s
performance-measurement period (typically, annually). GMOE requires that fees be paid
within the calendar year in which they were billed, and with respect to fees billed as of
December 31 of each year, no later than December 31 of the following year.
C. In the event GMOE manages a separately managed account, such client will incur brokerage
costs, third-party execution costs (if any) and other transaction costs associated with
GMOE’s management of the accounts’ portfolio securities. Please see Item 12, “Brokerage
Practices” for a description of GMOE’s brokerage practices.
In addition to advisory fees, clients invested in the GMO Funds, whether directly or through
a separately managed account, will bear the other fees and expenses paid by the GMO Funds
(to the extent not otherwise waived or reimbursed by GMOE), including but not limited to
custody fees, brokerage commissions and third-party execution fees, if any, administration,
legal, audit, tax, accounting, and certain other fees and expenses, which may include interest
costs, commitment costs, purchase premium, redemption or other charges, other investment
related costs (including investment-related legal and tax expenses and overdraft charges), and
extraordinary, non-recurring and certain other unusual expenses such as taxes and non-U.S.
investment related costs (including, without limitation, associated local legal, tax and
accounting costs). Some GMO Funds also charge purchase premiums and/or redemption
fees, which are paid by the investor to the relevant GMO Fund (and not to GMOE) upon
purchases into, or redemptions from, such GMO Fund.
GMOE has contractually agreed to bear some of the operational expenses for some of the
GMO Funds it advises (e.g., accounting and transfer agency expenses). The extent to which
GMOE bears those expenses varies by GMO Fund. Therefore, when negotiating those
expenses with third-party service providers (which may be negotiated for all pools advised
by GMOE and its affiliates at the same time), GMOE has an economic incentive to favor a
fee structure that shifts expenses from funds for which GMOE or one of its affiliates has a
greater reimbursement obligation to those funds for which GMOE or its affiliate has a lesser
(or no) reimbursement obligation. Further, to the extent that GMOE has discretion to allocate
a client’s assets among GMO Funds, it has an incentive to allocate to GMO Funds where it
has a limited reimbursement obligation.
D. Clients do not pay GMOE’s fees in advance.
E. Neither GMOE nor any of its supervised persons accepts compensation for the sale of
securities or other investment products.