Item 5 – Fees and Compensation
A. Describe how you are compensated for your advisory services. Provide your fee
schedule. Disclose whether the fees are negotiable.
The following is a general description of fees and compensation of the Funds. Investors in the Funds
also bear certain expenses, as described in Item 5.C below. Investors should refer to the Governing
Documents of the applicable Fund for a complete understanding of how SC is compensated for its
advisory services; the information contained herein is a summary only and is qualified in its entirety
by such documents.
Management Fees
SC charges each Fund a management fee (the “Management Fee”), generally 2% per annum assessed
quarterly in advance. The Management Fee charged to each Fund is specified in the Governing
Documents of that Fund. All Management Fees are negotiated with the Fund’s investors during the
fundraising period of the applicable Fund and are not subject to negotiation thereafter. Generally,
Management Fees are initially calculated based upon each investor’s committed capital for the period
of time during which each Fund is making investments; thereafter, the Management Fee will be equal
to a percentage of each investor’s invested capital, subject to various other factors.
The General Partners are permitted, in their sole discretion, to reduce or waive all or a portion of the
Management Fee. Management Fees can differ from one Fund to another, as well as among investors
in the same Fund. Such differences can arise from the size of an investor’s commitment to a Fund,
different investor classes, provisions of side letter agreements or other negotiated terms. Fees are
generally waived for SC employees, affiliates and Siltstone Administration employees investing in a
Fund.
The Governing Documents permit a reduction to Management Fees by (i) the amount of fees paid by
such Fund to entities or persons acting as a placement agent in connection with the offer and sale of
interests in such Fund; (ii) costs incurred by SC in connection with the organization of such Fund that
exceed a limit as specified in such Fund’s Governing Documents; and (iii) if applicable, certain
supplemental fees and compensation with respect to portfolio investments, including closing fees,
investment banking fees, placement fees, commitment fees, breakup fees, litigation proceeds from
transactions not consummated, monitoring fees, consulting fees, directors’ fees and other similar fees
(whether in the form of cash, securities or otherwise), the amount of which are paid by the Funds
(directly, or indirectly by the portfolio investments) and are determined by SC on a transaction-by-
transaction basis, subject to the terms set forth in each Fund’s Governing Documents. All such
supplemental fees received will offset in whole against the Management Fee, net of any expenses
incurred in connection with such portfolio investment; however, to the extent any such fees are
received by non-SC employees such as Siltstone Administration employees, such fees will not be
subject to an offset against Management Fees. For the avoidance of doubt, to date SC has not received
any such supplemental fees.
Carried Interest
Each Fund’s General Partner is entitled to be allocated carried interest (“Carried Interest”) with
respect to the Funds, which is generally equal to 20% of all realized profits net of all expenses in excess
of a compounded preferred return (equal to 8% for Fund II and the Litigation Funds and 10% for
Fund I) and catch-up provisions. As described above, and as will potentially be true with respect to
future Funds, each Fund’s Carried Interest arrangement can differ, and each calculation as well as any
clawback provisions are further described (i) in full detail in the relevant Fund’s Governing Documents
and (ii) more briefly in Item 6, below. Note that the General Partners are owned and controlled by
employees of Siltstone Capital. As a result of this arrangement, a conflict of interest exists as there is
an incentive to seek greater risk in an attempt to generate greater levels of carried interest.
B. Describe whether you deduct fees from clients’ assets or bill clients for fees incurred.
If clients may select either method, disclose this fact. Explain how often you bill clients or
deduct your fees.
Management Fees are deducted from the applicable Fund’s account quarterly, in advance, as of the
first business day of each calendar quarter.
C. Describe any other types of fees or expenses clients may pay in connection with your
advisory services, such as custodian fees or mutual fund expenses. Disclose that clients will
incur brokerage and other transaction costs, and direct clients to the section(s) of your
brochure that discuss brokerage.
Manager Expenses
SC and its affiliates are responsible for: (i) ordinary expenses of the Firm, (ii) lease or other payments
for SC’s office space, utilities and office equipment, and (iii) the compensation of officers and
employees and the operating and overhead costs of SC, including salaries and expenses related to
providing investment management by SC, except for any such costs or expenses that constitute
Administration Fees (as defined below) paid by the Fund or an affiliate thereof.
Fund Expenses
Main Funds
Each of the Main Funds (and for purposes of this subsection a “Fund”) is governed by its own
Governing Documents, which details a complete description of expenses for such Fund. While
differences exist among Funds, the following is a description of expenses generally charged to each
Fund. The Funds will pay all out-of-pocket operating expenses incurred by a Fund or by SC or any
other person advancing such amounts on a Fund’s behalf (except those reimbursed by a portfolio
investment), including, but not limited to: (i) all fees, costs and expenses necessary to register or qualify
a Fund under any applicable federal, state or foreign laws, or to maintain such registrations or
...