Item 5: Fees and Compensation
Pursuant to advisory agreements between Lionstone and the Funds, the Funds are generally
charged a management fee on a quarterly basis, in advance, equal to the per annum rate as noted
in the table below, based on the net asset value of each capital account (in each case, exclusive of
any interim accrual for the incentive fee / allocation). Additionally, an annual incentive fee /
allocation is charged, which is calculated based upon a percentage of the net profits of the Funds
at the end of each fiscal year, subject to a loss carryforward provision and non-cumulative hurdle
rate as described in the PPM for each Fund. Please see Item 6 below for a further discussion of the
annual incentive fee / allocation.
Lionstone’s current compensation schedule for the Funds is generally as follows:
Fund Management Incentive Hurdle High Water
Fee Fee / Allocation Rate Mark
Fund of Funds 1% 10% Yes Yes
Hedge Fund 1.5% 20% Yes Yes
Lionstone Capital Management LLC Form ADV Part 2A
Compensation is calculated based on the net asset value of each Fund. Net asset value includes net
realized and unrealized profits and losses. The expense of the management fee and the incentive
fee / allocation is not charged to Investors that are related persons of Lionstone, such as
employees, their spouses, or their children.
It should be noted that Lionstone has entered into side letter agreements with certain strategic
Investors that provide these Investors with different compensation arrangements.
In the event that an Investor is not invested in a Fund for the entire quarter, the management fee
for such quarter will be prorated. Additionally, if an Investor withdraws from a Fund at any time
other than at the end of a fiscal year, the incentive fee / allocation will generally be charged with
respect to such Investor as though the date of such Investor's withdrawal of capital was the last
day of a fiscal year.
Investors in the Funds also incur, directly and indirectly, certain additional expenses. Such
expenses include administration, custody, legal, audit, research, and other similar expenses
involved in the ongoing operation of the Funds. The non-research portion of research products or
services will be borne by Lionstone. Investors should review the relevant Fund’s PPM for a further
discussion of fees and expenses that are borne by the Funds.
Compensation to Portfolio Managers of Underlying Funds
The Fund of Funds will likely be subject to compensation charged by the underlying private
investment managers (“Portfolio Managers”). This compensation will likely include an asset-
based management fee, which will generally range from 1% - 2% on an annual basis, and in most
cases, a performance incentive arrangement, which will generally range from 15% - 30% of the
capital appreciation of the underlying portfolio funds for the year. These fees are in addition to any
fees charged by the Fund of Funds to Investors.
The Fund of Funds invest a portion of their assets, which may be significant, in certain affiliated
Funds. Although these Funds have higher fee structures than the Fund of Funds, Lionstone waives
fees associated with the investment in these Funds at the level of the Fund of Funds to prevent
charging duplicative fees. Notwithstanding the foregoing, there may be an incentive for Lionstone
to continue to invest a portion of the Fund of Funds assets in these Funds due to the higher fee
structures. Principals or employees of Lionstone may directly or indirectly benefit from such
investment even though the Fund of Funds may never realize any gain from such investment.
Please see an explanation of Lionstone’s investment analysis and risk factors in Item 8 below.
Item 6: Performance-Based Compensation and Side-By-Side Management
Performance-based compensation arrangements, such as an incentive fee or allocation, may create
an inducement for Lionstone to make investments which may be riskier or more speculative than
Lionstone Capital Management LLC Form ADV Part 2A
those which would be made under a different compensation arrangement. In addition, to the
extent that Lionstone or its affiliates charge different performance-based compensation to
different Funds, Lionstone’s principals will face conflicts when managing such accounts at the same
time, including that such persons may have an incentive to favor accounts for which such persons
receive higher performance compensation.
Notwithstanding the above, Lionstone attempts to ensure that all Funds are treated fairly and
equally and that incentive fees or allocations do not influence its allocation of investment
opportunities among the Funds. Lionstone does this by monitoring the investments made for the
Funds on an ongoing basis and endeavoring to ensure that the investments made are appropriate
without regard to the potential for performance compensation. Performance-based compensation
arrangements comply with the requirements of Rule 205-3 under the Investment Advisers Act of
1940, as amended (the “Advisers Act”).