Fees and Compensation
Fee arrangements with clients will vary and are negotiable based upon specific investment advisory
services and the size of the client account, among other factors. H2O generally charges clients a
management fee based on the percentage of assets under management, according to a breakpoint
schedule.
Although the specific fee schedule that H2O negotiates with a client may vary, the standard management
fee generally ranges from 0.10% to 2% of assets under management. H2O generally bills clients (and clients
pay) for fees and expenses incurred or otherwise payable on a quarterly basis, approximately 30 days
subsequent to each quarter’s end. Fees for partial quarterly periods will be calculated and paid on a pro
rata basis. Clients may obtain a refund of any pre-paid fees if the advisory contract is terminated before
the end of the billing period by contacting H2O, at the contact information that appears on the cover page
of this Brochure.
Clients of H2O may bear certain other fees, expenses and costs (in addition to H2O’s advisory fees) which
are incidental or related to the maintenance of an account or the buying, selling and holding of
investments including, but not necessarily limited to: (1) custodial charges; (2) brokerage fees, commissions
and related costs and expenses; (3) governmental charges, taxes and duties; (4) transfer fees, registration
fees and other expenses associated with buying, selling or holding investments; (5) withholding taxes
payable and required to be withheld by issuers or their agents; and (6) fees associated with investments in
pooled investment vehicles. These fees and expenses would vary, depending on the type of investment
mandate.
To the extent practicable, H2O is willing to work with any service providers with whom clients might have
relationships or preferred rates; however, as a rule H2O does not engage in soft commission agreements.
To the extent a client’s assets are managed through a limited partnership or similar vehicle, H2O may pay
for the organizational costs of establishing such vehicle or such costs may be borne by the investment
vehicle, depending on the circumstances and as disclosed to clients and investors. Any ongoing operating
costs will be charged to the vehicle and, indirectly, to all clients invested in such vehicle.
Please see “Brokerage Practices” below for additional information regarding brokerage.
Performance-Based Fees and Side-By-Side Management
H2O may charge clients a performance fee in addition to a standard management fee based on individual
agreements with its clients. The amount charged typically is calculated based on a portfolio’s
outperformance of a pre-determined benchmark (e.g., JP Morgan GBI Broad), according to a breakpoint
schedule based on assets under management. These performance fees are only charged if permitted by
the applicable SEC rule. Although the specific performance fee schedule that H2O negotiates with a client
may vary, the standard performance fee generally ranges from 15% to 20% of performance above the
benchmark. H2O performance fees generally include a “high water mark” meaning that the performance
fee only applies to net profits achieved after previous losses have been recovered.
It is possible that accounts with different performance fee structures will make the same investments.
These conflicts are resolved by the Advisers’ aggregation and allocation procedures described in the
Brokerage Practices section below. Performance fees may be based on absolute return or the fee may be
calculated based on performance relative to a benchmark. When a performance fee is calculated based on
performance relative to a benchmark, it is possible that a client could pay a performance fee even though
its portfolio suffered a loss during the calculation period.
H2O seeks to identify potential conflicts of interest and treat all clients and accounts fairly and equitably in
resolving potential and actual conflicts of interest. In order to identify and mitigate such conflicts, H2O has
adopted and maintains compliance policies regarding the side-by-side management of accounts and
maintains compliance and risk management personnel that monitor these issues. Such policies seek to (i)
identify practices that may potentially favour accounts in which H2O or its personnel have a greater
ownership and/or pecuniary interest over accounts in which H2O and its personnel have a lesser (or no)
ownership and/or pecuniary interest, (ii) prevent H2O and its personnel from inappropriately favouring
some accounts over others, (iii) detect potential violations, (iv) provide a process to determine when a
particular compliance requirement may conflict with proper and appropriate management of client
accounts, and (v) promptly resolve any violations detected.