Item 5 – Fees and Compensation
Amount of Our Fees
Annual Management Fee
Our annual standard management fee for the Fund is 2.0% of the assets managed for the
Fund. That fee is negotiable. Some underlying investors may pay more or less than others
depending on certain factors, including the type and size of the account and the total amount of
assets managed for a group of related investors.
Our management fee is paid as follows: Upon initial investment, management fee is paid
for the first twelve months and is deducted from the Fund’s assets. For years 2 forward, the fee is
paid in advance at the beginning of each quarter and is deducted from the fund’s assets. Our
management fee is based on the value of the assets managed at the beginning of the applicable
quarter. We do not make adjustments to the quarterly fee due to assets added or withdrawn during
a quarter. If our advisory agreement begins during a quarter, we will prorate the fee for the initial
partial quarter, based on the number of days from the beginning of the agreement until the end of
the initial quarter. If there is not enough cash in the account to pay our fee, we may sell some Fund
assets to pay the fee.
Our advisory agreement with the Fund may be terminated on [__] days’ written notice by
us or the Fund’s General Partner. If the agreement with us terminates during a quarter, we will
refund a pro rata portion of the fee paid for that quarter, based on the number of days between the
end of the [__]-day notice period and the end of the quarter.
Share of Distributable Cash
The Fund’s General Partner, PetroAlpha Energy LLC (the “General Partner”), is affiliated
with PA Management. In addition to the management fee received by us, the General Partner
shares in a portion of the excess of the sum of all cash receipts of all kinds over cash disbursements
(or reserves therefor) for partnership expenses, liabilities or other obligations (“Distributable
Cash”) held by the Fund from the disposition of the Fund’s portfolio investments (“Portfolio
Investments”) representing a return of capital contributions.
Distributable Cash attributable to any Portfolio Investment shall initially be apportioned
among the partners in the Master Fund (including the General Partner) in proportion to their
respective capital contributions to such Portfolio Investment and distributed as follows. With
respect to items (iii)-(iv) below, each of the Fund’s and Offshore Feeder’s underlying partner
accounts shall be considered and calculated separately, such that the Distributable Cash to be
allocated to each such underlying partner can be provided:
PA Management LLC
Form ADV Part 2A – Disclosure Brochure 5
(i) 5% Preferred Return. First, 100% to each partner until such partner has received
cumulative distribution equal to a 5% per annum cumulative return, on such partner’s aggregate
capital contributions calculated from the date the capital contribution is made until the date such
capital contribution is returned;
(ii) Return of Contributed Capital. Second, beginning no earlier than after the end of
the fifth quarter following the Fund’s initial closing (“Initial Closing”), 100% to each partner until
such partner has received, the Capital Return Amount (defined below) relating to such quarter;
(iii) Catch-Up to 20%. Third, beginning no earlier than after the end of the fifth quarter
following the Initial Closing, 100% to the General Partner until cumulative distributions to the
General Partner equal no more than 20% of the total cumulative distributions to the partner and
the General Partner; and
(iv) 80/20 Share. Thereafter, beginning no earlier than after the end of the fifth quarter
following the Initial Closing, (A) 80% to each partner in the Master Fund and (B) 20% to the
General Partner, except as may otherwise be agreed with the General Partner.
“Capital Return Amount” means an amount calculated by the General Partner reflecting a
return of a portion of each partner’s capital contribution relating to an applicable quarter.
Performance-Based Portfolio Management Fees
Qualified Clients will pay an annual fee of 2% of assets under management along with a
20%performance fee based on capital appreciation. If the portfolio rises in value, then the client
will pay 20% on that increase in value, but if the portfolio drops in value, then the client will not
incur a new performance fee until the portfolio reaches the last highest value, adjusted for
withdrawals and deposits, which is generally known as a “high water mark.”
Other Fees
Fees in addition to our management fee and the General Partner’s share of Distributable
Cash will be incurred by the Fund, and indirectly borne by investors. For example, the Fund will
incur costs related to an annual audit and fees payable to a custodian that holds client assets. These
fees and expenses are not shared with us. We evaluate the relative annual costs of other service
providers as a part of our investment decision making process. Investors should review the fees
charged by these other service providers and our fees to fully understand the total amount of fees
paid and to evaluate the advisory services we provide.
The Fund shall pay or reimburse the General Partner and its affiliates for (i) all expenses
incurred in connection with the organization of the Fund and the offer and sale of Interests,
including but not limited to, documentation of performance and the admission of Limited Partners,
(ii) all operating expenses of the Fund such as tax preparation fees, governmental filing fees
(including blue sky filing fees) and taxes, administrator fees, communications with Limited
Partners and ongoing legal, accounting, auditing, bookkeeping, consulting and other professional
fees and expenses, (iii) all Fund trading costs and expenses (e.g., brokerage commissions, margin
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