Item 5 - Fees and Compensation
The specific terms for the compensation of Redwood Grove by the Fund are dictated by the
Fund’s Offering Documents. All of Redwood Grove’s Limited Partners are “qualified
purchasers” (as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended
(the “1940 Act”)).
The General Partner will receive a quarterly management fee (the “Management Fee”),
calculated at an annual rate of (a) 0.80% (0.20% per quarter) of each Class A Limited Partner’s
Redwood Grove Capital, LLC Form ADV Part 2A
Capital Account, (b) 0.80% (0.20% per quarter) of each Class B Limited Partner’s Capital
Account, and (c) 0.95% (0.2375% per quarter) of each Class C Limited Partner’s Capital
Account (the “Management Fee”).
The Management Fee will be calculated and paid quarterly in arrears, based on the value of each
Limited Partner account, as of the last day of the quarter. The General Partner has the ability to
reduce, otherwise modify, or waive the Management Fee with respect to any Limited Partner. If
capital contributions are made at any time other than at the beginning of a calendar quarter, a
pro rata portion of the Management Fee will be paid to the General Partner in respect of such
capital contribution (based on the actual number of days remaining in such partial quarter). If
capital accounts are withdrawn at any time other than at the end of a calendar quarter, a pro-rata
portion of the Management Fee will be paid to the General Partner (based on the actual number
of days elapsed in such partial quarter) for such partial quarter. The General Partner, in its sole
discretion, is permitted to waive these withdrawal restrictions as to any Limited Partner (in
accordance with the Offering Documents).
In general, the Fund bears and shall be responsible for its own expenses, investment related
expenses such as the Fund’s brokerage commissions, interest on margin accounts and other
indebtedness, custodial fees, bank service fees, withholding and transfer fees, taxes, systems and
technology expenses, third party research tools, corporate licensing fees, legal and auditing
expenses, accounting, fund administration, marketing expenses, filing fees and expenses
(including regulatory filings made in respect of the Fund such as Form PF preparation and filing
expenses), outsourced risk management advisory and software, investment related consultants
and travel costs that are research related, expenses incurred with respect to the preparation,
duplication and distribution to Limited Partners and prospective investors of Fund Offering
Documents, annual reports and other financial information, any other services or service
provider expenses deemed necessary by the General Partner on behalf of the Fund.
The General Partner bears its own expenses, including office space and utilities, computer
equipment and software (not otherwise paid by the Fund) and secretarial, clerical, employee
related and other personnel, except as assumed by the Fund or except as paid for through the
permitted use of commission dollars. At the option of the General Partner, the organizational
expenses of the Fund may be amortized over a period of 60 months from the date the Fund
commenced operations. The amortization of organizational expenses over 60 months is not in
accordance with U.S. generally accepted accounting principles and could result in an exception
opinion in the auditors’ report in the annual audited financial statements if the effect of the
difference between amortization and recognition of these expenditures when incurred is deemed
material to the financial statements.
Item 6 - Performance Fees and Side-by-Side Management
The General Partner will receive an allocation, generally annually, equal to 10% of amount by
which each Class A Limited Partner’s capital account performance exceeds the Russell 1000
Value Index’s annualized rate of return (the “Hurdle Rate”) as of the end of each calendar year
(the “Incentive Allocation”), subject to a “high water mark” (as defined in the Offering
Documents). An Incentive Allocation will also generally be made as to amounts withdrawn, as
of the effective time of the withdrawal by such Limited Partner. The General Partner, in its sole
discretion, has the ability to reduce, otherwise modify or waive the Incentive Allocation with
respect to any Limited Partner, including for Limited Partners that are affiliates, employees,
members or partners of the General Partner, members of the immediate families of such persons
and trusts or other entities for their benefit.
Redwood Grove Capital, LLC Form ADV Part 2A
For the avoidance of doubt, the General Partner does not receive an Incentive Allocation, or
other performance-based allocation, from Class B Limited Partners or Class C Limited Partners.
The Hurdle Rate will reset each fiscal year such that if the Fund fails to achieve the Hurdle Rate
during any year, there is no requirement that any such shortfall be recovered in a subsequent
year prior to allocating the Incentive Allocation to the General Partner. The Hurdle Rate will be
pro-rated (calculated on an annualized basis) for shorter periods with respect to Limited Partners
who were first admitted, who withdrew or who made additional capital contributions during a
fiscal year.
As discussed above, the General Partner is entitled to receive an Incentive Allocation and
therefore has an incentive to favor riskier investments because of such compensation structure.
However, the General Partner has policies and procedures in place to ensure investments are
being evaluated based on the Fund’s investment strategy and risk profile rather than
performance-based compensation.