Fees and Compensation
The HCC Funds pay HCC a fixed management fee payable quarterly (prorated for partial
quarters) in advance based on the total market value of the assets of each investor’s capital
account or attributable to each class or sub-class of shares, as applicable. In addition, the
HCC Funds pay an affiliate of HCC a performance-based incentive allocation based on net
capital appreciation (over the management fee and subject to a loss carryforward
mechanism). HCC may waive or reduce the management fee and incentive allocation for
investors that are members, principals, employees or affiliates of HCC, relatives of such
persons and certain large or strategic investors. In addition, certain initial investors
designated as founding limited partners or founding shareholders are subject to a lower
management fee and incentive allocation. A pro rata portion of any management fee paid
in advance will be returned to any investor that withdraws prior to quarter-end. The fees
and allocations applicable to each HCC Fund are set forth in detail in each HCC Fund’s
offering memorandum.
Separately managed account clients generally pay HCC a quarterly management fee,
payable in arrears, and a performance-based incentive fee based on net capital appreciation
(over the management fee and subject to a loss carryforward mechanism). The quarterly
management fee and the annual incentive fee each is negotiable for separately managed
account clients.
Management Fee and Incentive Allocation
Generally, the HCC Funds pay HCC a quarterly management fee for investment advisory
services equal to 1/4 of 1.5% (1.5% on an annualized basis) or 0.375% per quarter, of each
investor’s capital account or the net asset value of each class or sub-class of shares held by an
investor, as applicable, at the beginning of each such quarter. If a new client account is
established during a quarter or a client makes an addition to its account during a quarter, the
management fee will be charged as of the effective date of the investment management
agreement or the date of the additional contribution based on the value of the assets as of the
applicable date and will be prorated for the number of days remaining in the quarter.
HCC does not deduct the management fee from client accounts; rather, HCC bills client
accounts.
Generally, at the end of each fiscal year or upon the complete redemption of an investor, an
affiliate of HCC is entitled to an incentive allocation in an amount equal to 20% of the net
capital appreciation or the increase in the net asset value of each class or sub-class of shares
for such fiscal year (which includes both realized gains and losses and unrealized
appreciation and depreciation of securities held in such HCC Fund’s portfolio) after
deducting the management fee for such fiscal year, subject to a loss carryforward
mechanism.
Additional Fees and Expenses
In addition to paying management fees and incentive allocations, the client accounts bear their
own expenses, including, but not limited to, fees paid to HCC, legal, auditing, accounting,
consulting and other professional expenses, administration expenses, research expenses
(including research-related travel) and investment expenses such as commissions, interest on
margin accounts and other indebtedness, custodial fees, bank service fees, regulatory
compliance-related monitoring and filing fees and expenses (including, without limitation, the
preparation and filing of Form PF), insurance (including the HCC Funds' pro-rata share of
D&O and E&O insurance) and other expenses related to the purchase, sale or transmittal of
client assets.
The client accounts may be invested in money market mutual funds, Exchange Traded Funds,
or other registered investment companies. In these cases, the client accounts bear their pro
rata share of the management fee and other fees of such fund, which are in addition to the
management fee paid to HCC. Herring Creek Fund, LP and Herring Creek Offshore Fund,
Ltd. each bear their pro rata share of the expenses of Herring Creek Master Fund, LP. In
addition, the client accounts incur brokerage and other transaction costs. Please refer to Item