Item 5. Fees and Compensation
A. Our firm receives compensation from each of our clients based on the percentage
of assets managed. In addition, the firm or its affiliate receives performance-based
compensation from the private funds that we manage. Detailed information
concerning our compensation and fees is contained in the offering memoranda and
the operating agreements of each of our clients. Fees payable by investors in our
fund clients are generally not negotiable; however, we (including our general
partner affiliates) have the discretion to agree to different compensation with
investors in the funds or waive compensation, including for investors that are our
affiliates or employees. Fees for managed accounts are determined on a case-by-
case basis.
B. We charge management fees with respect to our private fund clients monthly in
arrears or in advance, as set forth in the offering memoranda and the operating
agreements of each of our clients, and with respect to our separately managed
accounts monthly or quarterly in advance or in arrears as may be agreed with the
account holder. Performance-based compensation with respect to our hedge fund
client funds is determined annually, based on realized and unrealized gains and
losses, at the end of each fiscal year or an earlier withdrawal date with respect to
any capital withdrawn prior to the end of a fiscal year.
C. Our client funds bear all of their organizational and offering expenses. Generally,
each fund bears the following costs and expenses: expenses in connection with the
its investments (including, without limitation, brokerage commissions, spreads and
other fees, development fees, commissions, bank charges, transfer fees and fees and
expenses as a result of investing in certain instruments), whether or not
consummated; research-related costs and expenses, including market data and
statistical services and the costs related to developing and maintaining a network of
consultants and profit-sharing arrangements of advisors, sub-advisors, consultants,
appraisers and finders in connection with the fund’s investment activities and other
expenses incurred in obtaining research and other information, including travel,
entertainment and other expenses; expenses incurred in connection with each
entity’s ongoing operations (including legal and regulatory, administrative,
accounting, tax, audit and insurance expenses of each entity, as well as the fund’s
allocable share of the fees and expenses of any third-party providers of “back office”
and “middle office” services and systems relating to trade settlement, and
accounting and related operations for the fund); reasonable custodial fees; interest;
and certain extraordinary expenses, such as litigation and indemnification expenses.
The investment management agreements relating to separately managed accounts
contain specific information on the expenses borne by them that are generally more
limited than expenses that can be charged to the private funds. Certain types of
expenses are subject to limitation as provided in the funds’ offering documents and
the managed account agreements.
When the firm incurs expenses on behalf of multiple clients, we allocate the
expenses among the applicable clients in a fair and equitable manner and consistent
with the clients’ governing documents. We typically allocate expenses directly
related to a specific investment among the clients based on the relative value of the
positions being acquired, held or sold, and shared expenses not directly related to a
specific investment based on the relative net asset value or account balances of
clients, subject to the relevant clients’ governing documents. To the extent that our
managed account agreements limit our ability to allocate any shared expenses to
these clients, the firm bears that client’s allocable portion of such expenses.
However, we can apply other expense allocation formulas and methods that we
determine to be fair and equitable.
Please refer to a fund’s offering documents for further information regarding the
fund’s fees and expenses. Also, Item 12 details our broker selection and
compensation policies.
D. Our hedge fund client funds pay management fees monthly in arrears. Since
investors in our hedge funds may make withdrawals only at the end of each quarter,
fund investors do not bear management fees in excess of what they owe for the
entire period.
E. Neither the firm nor any of our principals or employees receives any transaction-
based compensation for the sale of securities in any funds or separate accounts
managed by our firm.