Item 5 — Fees and Compensation
RCP will generally receive management fees and performance-based compensation for its
investment advisory services. The rate of RCP's management fees may vary depending upon
factors such as, among others, the type of account, the risks being managed, the amount of assets
being managed, the investment horizon or time period associated with the assets being managed,
the investment strategies being employed by RCP, the client’s unique circumstances and the
complexity of the account(s). In certain unique situations, we may decide to bill clients on a cost
reimbursement model, where we allocate costs associated with advising our clients and request
reimbursement from them.
RCP's management fees generally are asset-based and calculated at an annual rate as a percentage
of the assets managed by RCP.
Management fees are typically paid by deducting the amount of the fee from the applicable account.
Our advisory fee is prorated and invoiced quarterly, in arrears. Both our standard Investment
Advisory Agreement and the custodial/clearing agreement may authorize the custodian, or the
fund administration agreement may authorize the administrator, to debit the Client’s account for
the amount of our advisory fee and to directly remit that advisory fee to us in compliance with
regulatory procedures.
We or our affiliate, Rational Capital Partners GP, LLC (“RCPGP”), a Delaware limited liability
company, will typically also receive performance-based fees. Such performance-based
compensation (including incentive allocations, incentive fees, carried interest or other amounts, as
the case may be) may be calculated in several different ways depending on the nature of the Client's
strategy, any applicable lock-up periods, performance benchmarks and performance hurdles, and
may be assessed on unrealized appreciation. Performance-based compensation is calculated on the
realized and unrealized net profits allocated to each Client's (or investor's) account for a fiscal year
and payable annually in arrears or upon redemption; performance compensation can also be a
percentage of proceeds realized upon a liquidation event. The rate of the performance-based
compensation may vary and, in some cases, is negotiable, and may be payable more or less
frequently depending on the Client or the arrangement. Performance-based compensation,
depending on, among other things, the strategy, may be subject to preferred return hurdles, catch-
up allocations, clawbacks and/or loss recovery provisions, sometimes referred to as a “high water
mark.” Performance-based compensation is typically paid or made (as applicable) directly by the
applicable Client. To the extent that RCP charges performance-based compensation, such
performance-based compensation will comply with the requirements of Section 205 and Rule 205-
3 under the Advisers Act and such other provisions as are applicable.
RCP may reduce or waive management fees, performance-based compensation and/or certain
expenses for certain investors, including affiliates of RCP, employees or partners of RCP (such
as members of the applicable investment team) and strategic investors of RCP.
RCP's investment management agreements generally provide that the Client and/or RCP may
terminate the contract upon proper notice to the other party. As permitted by applicable law, the
terms of an investment management agreement, including fee schedules, terms of payments,
performance fees and termination provisions, are generally negotiated and may vary. From time
to time, at a Client’s request, RCP may undertake to waive its management fee and instead be
paid or reimbursed RCP’s allocable direct and indirect expenses.
RCP also charges fees for special projects and/or other ad hoc assignments. This includes fees
and performance-based compensation charged on deals that are syndicated to individuals or
institutions that do not have dedicated investment vehicles set up with RCP. Any such fees are
reflected in an investment management agreement or similar document on a project-by-project
basis.
Our clients will incur other fees, including fees paid to broker-dealers, custodians, and third-party
managers in connection with our management of their assets. Currently, we do not intend to
receive any portion of these fees. Broker-dealers charge brokerage commissions and/or
transaction fees for effecting certain securities transactions (e.g., transaction fees are charged for
certain no-load mutual funds), and in almost all cases, RCP’s fees and compensation will be
calculated and charged to its Client(s) after the deduction of applicable underlying manager fees
and performance-based compensation, fees paid to third-party entities mentioned above, as well
as expenses incurred by the investment vehicles.
EXPENSES
There are several categories of expenses that are allocated to and among Clients. These categories
are discussed below. The same categories of expenses may be incurred by the funds and other
products into which our Clients invest.
Fund Organizational and Operational Expenses. These are expenses that are related to the
organization and operation of investment funds (Funds) or other Clients that are not directly
related to sourcing investments or to any particular portfolio company.
Examples of organizational expenses are legal, accounting, and filing expenses incurred in
connection with organizing and establishing any Fund and the related general partner, and the
marketing and offering of interests in such Fund, including commissions, costs, fees, and
expenses of any placement agent or finder and legal, accounting, filing, capital raising, travel and
accommodation, printing and other similar costs, fees, and expenses. RCP compensates third
parties, including brokers and placement agents and others, in connection with the solicitation of
certain prospective Clients and investors. Such referral fees may be a percentage of such Client's
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