ITEM 5 FEES AND COMPENSATION
The following provides a general description of fees, compensation and expenses of the CLO
private funds. The governing documents and offering documents of the CLO private funds
describe the fees, compensation and expenses in greater detail.
As compensation for the portfolio management obligations under the relevant agreements related
to CLOs, the Firm receives fees for its investment advisory services. There are two types of fees:
management fees and incentive fees.
Funds that retain the Firm directly as Collateral Manager pay fees based on the total principal
amounts of their portfolio investments in debt securities. The funds pay their investors and their
service providers, including the Firm, according to established priorities. The source of payments
is investment returns from portfolio investments. The Firm’s management fee is paid at two
different priorities; one prior to payment of amounts payable to senior investors and one
subsequent. Generally, the “Senior Collateral Management Fee” and the “Subordinated
Collateral Management Fee” rate is equal to approximately 0.425% per annum of portfolio
assets.
Fees are paid by the fund quarterly in arrears. Upon termination of the investment management
agreement (the “Collateral Management Agreement”) for any reason both the Senior and
Subordinated Collateral Management Fees will be prorated for any partial period between
quarterly payment dates.
Funds that retain the Firm as Collateral Manager may also pay incentive fees. Payment of this
fee depends on whether the fund has met all senior payment obligations and whether the fund has
met certain minimum standards of investment return with respect to one or more junior classes of
securities. Generally, the incentive fee is equal to 20% of the amount available for distribution by
the fund once all prior payment obligations are satisfied, and is paid quarterly in arrears.
When the Firm serves as a sub-investment manager on behalf of Collateral Managers to other
funds, the Collateral Managers pay the Firm a management fee calculated by an agreed-upon
rate.
The CLO private funds may invest in securities and other assets that are illiquid and lack a
readily assessable market value.
The Firm may also waive fees to noteholders under certain circumstances. The Firm has entered
into certain arrangements with certain noteholders where such noteholders effectively pay lower
fees. This arrangement could provide further incentive for the Firm to make more speculative
investments than would otherwise be the case.
In the event of a termination of an advisory contract, the Firm may be compensated pro rata for
the period for which advisory services were rendered.
Neither the Firm nor any of its supervised persons accepts compensation for the sale of securities
or other investment products.
The funds do incur and may be responsible for other expenses separate and apart from the Firm’s
investment management or performance fees. The funds reimburse the Firm for expenses
incurred by the Firm in the performance of its services and these expenses typically may include:
(1) costs and expenses with respect to any workout, restructuring, recapitalization, amendment,
waiver or consent of or with respect to certain investments and the protection or enforcement of
rights thereunder; (2) costs and expenses in connection with the acquisition of director and
officer insurance; (3) legal, custodial, accounting, audit, specialty and custom software, and
related costs and expenses for the monitoring of the investments; (4) expenses incurred in
obtaining credit ratings on investments; and (5) certain other fees and expenses that may be
authorized under a fund’s governing documents or investment management agreement. Each
Fund, as determined by the Firm, shall be responsible for only a pro rata portion of the
reasonably documented cost or expenses allocable to one or more Funds, based on the aggregate
assets under management to which such costs or expenses are allocable, or other considerations
that the Firm may deem equitable.
Please also refer to “Brokerage Practices” under Item 12 of this brochure for more information
regarding the transaction costs that clients bear.