Item 5. Fees and Compensation
In consideration for advisory services, the firm receives compensation in
the form of asset-based management fees and/or performance-based
incentive fees or allocations.
The ALRA Fund
We receive a monthly management fee (“Management Fee”) from the ALRA
Fund in arrears in an amount equal to 0.65% per annum of the net asset
value (“NAV”) of each investor’s capital account in the ALRA Fund as of the
end of each calendar month (1/12 of 0.65% is charged as of the end of
each calendar month). We have a negotiated agreement with one investor
in the ALRA Fund under which we are entitled to a performance fee in
exchange for a reduced monthly Management Fee. The Management Fee
is deducted from the investors’ capital accounts in the ALRA Fund.
There is no sales charge associated with investing in the ALRA Fund. The
ALRA Fund generally bears the costs and expenses associated with its
operations, including investment expenses. The ALRA Fund is responsible
for its ongoing direct administrative professional expenses (such as audit,
tax return preparation, accounting and legal fees), its transaction
expenses (such as brokerage commissions), miscellaneous expenses (such
as regulatory and filing fees), custodial fees and any extraordinary
expenses it may incur. The organizational costs and expenses of the Fund,
including its initial offering expenses were borne by HSS, our predecessor.
We may agree to a different fee arrangement in respect of any investor in
the ALRA Fund, or we may waive or reduce the Management Fee in respect
of any investor in the ALRA Fund, in our sole discretion.
The Tactical Fund
We receive a quarterly Management Fee from the Tactical Fund in arrears
in an amount equal to 1.5% per annum of the NAV of each investor’s
capital account in the Tactical Fund as of the end of each calendar quarter
(1/4 of 1.5% is charged as of the end of each calendar quarter). The
Management Fee is deducted from the investors’ capital accounts in the
Tactical Fund.
Investors in the Tactical Fund are also assessed an annual performance
allocation equal to 15% of profits experienced by each investor’s capital
account during the fiscal year in excess of a non-cumulative 5% hurdle
threshold (net of the Management Fee) (the “Performance Allocation”). The
Performance Allocation is made to our affiliate that serves as general
partner of the Tactical Fund. An investor’s capital account will need to
exceed the hurdle in each calendar year in order to be subject to the
Performance Allocation for that period.
We may, in our sole discretion, agree to a different Management Fee
and/or Performance Allocation arrangement in respect of any investor in
the Tactical Fund, or waive or reduce the Management Fee or Performance
Allocation in respect of any investor.
There is no sales charge associated with investing in the Tactical Fund.
The Tactical Fund generally bears the costs and expenses associated with
its operations, including investment expenses, ongoing direct
administrative and professional expenses (such as audit, tax return
preparation, accounting and legal fees), its transaction expenses (such as
brokerage commissions), miscellaneous expenses (such as regulatory and
filing fees), custodial fees and any extraordinary expenses it may incur.
The Tactical Fund is also responsible for its organizational costs and
expenses, and for offering expenses. Notwithstanding the foregoing, the
firm (or any of its affiliates) may decide to pay all or any amount of the
foregoing Tactical Fund expenses. In this regard, the firm has decided to
pay the costs and expenses (excluding transaction costs) of liquidating the
Tactical Fund including, without limitation, the cost of a final liquidation
audit of the Tactical Fund.
Separate Accounts
Management fees for separate account services are negotiated on a client-
by-client basis and may range from 0.2% to 1.5% per annum, charged
monthly or quarterly in arrears, depending on the types of services a client
requires. In addition, we may charge a performance-based fee equal to a
negotiated percentage of the increase in value experienced by a client’s
account on a quarterly or annual basis. Please note that lower
management fees are typically accompanied by higher performance fees
and vice versa. We generally bill our fees quarterly to our separate account
clients for either direct payment by the client or client-directed deduction
from the account. We do not charge clients in advance for fees.
Separate account clients are subject to brokerage fees, regulatory fees,
transaction costs, custodian fees and other costs and expenses, regardless
of whether the account realizes any profits. We make commercially
reasonable efforts to minimize these costs.
Neither the firm nor any of its supervised persons accept compensation for
the sale of securities or other investment products, including asset-based
sales charges or service fees from the sale of mutual funds.