Item 5, Item 6. Fees and Compensation including Performance Based Fees
Our advisory fees vary based on the type of client account. Below is a summary of the fees we earn
across the different types of client accounts that we provide advisory services to.
With respect to the Fund clients, we received quarterly management fees and annual performance
based compensation. Management fees ranged from 1.0% to 2.0% per annum of the Fund’s net asset
value and were deducted at the beginning of each quarter from investor accounts. Performance based
fees ranged from 10% to 20% of annual net gains (including unrealized gains and losses) and, in some
cases, in excess of a designated hurdle rate. Performance fees were deducted from investor accounts as
of the last day of the fiscal year or at any point when an investor redeems from a Fund.
We generally do not permit investors in our Funds to redeem or withdraw capital other than at the end
of a quarter, so refunds of prepaid fees for partial quarters are not applicable to our investors. We
charge investors that contribute or subscribe for capital during a quarter for the pro-rata management
fee associated with amount of time the newly subscribed capital is invested during that initial quarter.
Performance based fees are subject to a loss carry forward provision or “high water mark,” which means
NewStar Capital is only entitled to a performance fee once an investor (or in the case of Funds that are
formed as corporations, a series of shares) has recovered any losses since the last performance based
fee was charged. Any such loss carry forward will be proportionately reduced for redemptions.
Depending on the legal structure of each Fund, performance based fees might be paid as a fee to
NewStar Capital, or through a reallocation of capital to NewStar Capital as the general partner to certain
Funds.
Certain initial or “strategic” investors in our Funds receive special allocations of profit within the Funds
pursuant to supplemental agreements or “side letters.” NewStar Capital reduces certain management
or performance based fees otherwise earned to offset the impact of these special allocations on
investor accounts, so that no investor will pay more than the stated management and performance fees
per the respective offering circulars and investment management agreements.
Also, NewStar Capital does not generally collect management or performance based fees from investors
that are affiliated with our firm including owners and employees. Otherwise, advisory fees for our Funds
are generally not negotiable.
Note that NewStar Capital’s Fund clients, Feingold O’Keeffe Master Fund and the Feingold O’Keeffe
Secured Value Funds, are currently in liquidation. NewStar Capital has waived management fees since
June 30, 2016 for the Feingold O’Keeffe Master Fund, Ltd and since September 1, 2016 for the Feingold
O’Keeffe Secured Value Funds. NewStar Capital does not plan to charge any future fees as we finalize
the liquidation of both strategies.
With respect to the CLOs that we manage, we generally receive collateral management fees ranging
from 30 to 50 basis points per annum of the underlying collateral value of the respective CLO. Collateral
management fees are calculated and paid in on a quarterly basis in arrears by the Trustee of each CLO.
In addition, NewStar Capital is entitled to receive an additional incentive collateral management fee
generally equal to 20% of the interest and principal proceeds otherwise payable to the subordinated
note (“equity”) investors of the CLO in the event those equity investors have already received an
internal rate of return (“IRR”) ranging from 12% to 15%, depending on the CLO. Payment of incentive
collateral management fee commences on the quarterly payment period that the subordinated note
holders have reached the respective CLOs IRR (ranging from 12% to 15%), and will continue to be paid
on all remaining quarterly payment dates once the IRR requirement has been initially satisfied.
With respect to our SMA Clients, fee arrangements are negotiated prior to the engagement of NewStar
Capital as an investment manager. SMA fees are negotiated with each Client based on the scope of
advisory services, the amount of capital invested, and the expected duration of such investments.
Currently, NewStar Capital receives management fees of 0.75% per annum based on the net asset value
of a SMA Client’s account and performance based incentive fees equal to 10% of any aggregate net
profits of a Client’s account in excess of a designated hurdle rate. The performance based fees are also
subject to a loss carry forward provision, similar to that as discussed above with respect to each Fund’s
performance based fees. Fees are calculated and deducted directly by each separate account owner.
The management fee is paid to NewStar Capital quarterly in arrears and the performance based fees are
paid to us annually in arrears.
In addition to paying investment management fees and performance-based fees or allocations, client
accounts are also subject to other investment expenses such as custodial charges, brokerage fees,
commissions and related costs; interest expenses; taxes, duties and other governmental charges;
transfer and registration fees or similar expenses; costs associated with foreign exchange transactions;
other portfolio expenses associated with products or services that may be necessary or incidental to the
Fund’s investment strategy. Client assets are invested in pooled investment vehicles; as such, Fund
investors generally bear their pro rata share of the underlying Fund’s operating and other expenses
including, in addition to those listed above: sales expenses, legal expenses; internal and external
accounting, audit and tax preparation expenses; and organizational expenses. In the case of Funds
structured as a master-feeder fund, such feeder funds bear a pro rata share of the expenses associated
...