Item 5. Fees and Compensation
We, or an affiliate of our firm, generally receive compensation with respect to our clients based
on a percentage of assets under management and on the performance achieved for the account of
each of our client’s investors. Our clients generally have the ability to apply differing fee rates to
different investors. To accommodate this, our clients may establish separate series of interests
corresponding to each different fee series. Details concerning such terms are set forth in each of
our clients’ confidential offering memorandum and other governing documents.
Our fee arrangements vary by strategy and by client. For the Stelliam Funds our management fee
is generally calculated based on a percentage of net assets. We generally deduct the management
fee from our clients’ accounts monthly in arrears. For the fund of one, the fund’s investment
adviser pays us (as sub adviser) a management fee monthly in arrears. Our managed account
does not currently pay management fees. For any future managed account, any applicable
management fees will be separately negotiated with the client.
For our long/short fund, we, or an affiliate of our firm, generally receive performance-based
compensation calculated based on a percentage of net profits. Our performance-based
compensation for our long/short fund is calculated and charged annually, in arrears, and also at
the time of a distribution to an investor or when an investor withdraws or redeems its interest in
the long/short fund.
Our performance-based fee for our long-only fund is calculated and charged annually, in arrears,
and also at the time of distribution to an investor or when an investor withdraws or redeems its
interest in the long-only fund. A performance-based fee is due when the fund’s net profits over
the performance measurement period exceed the return of the S&P 500 index on a dividend-
reinvested basis plus a hurdle.
For both our long-short and long-only funds, performance-based compensation is calculated
based on overall performance, including realized and unrealized gains and losses, and is subject
to loss carry forwards from prior years based on a “high water mark” formula (adjusted to reflect
withdrawals and redemptions).
For our opportunity fund, our performance-based compensation is calculated based on the net
profits of an investment in the fund over a hurdle. We generally deduct any performance based
compensation from distributions otherwise payable to our investors in accordance with a
distribution waterfall described in the offering memorandum.
For the fund-of-one, our performance-based compensation takes the form of a fee paid to us (as
sub-adviser) by the fund’s investment adviser based on a percentage of annual net profits,
generally paid on an annual basis in arrears and upon termination of the account.
For our managed account, our performance-based compensation takes the form of a fee paid to
us by the client on a percentage of net profits that exceed a negotiated hurdle over the life of the
account.
A more detailed description of the fees that we charge each private investment fund client is
included in the client’s confidential offering memorandum or investment management
agreement, as applicable.
In addition to management and performance compensation, our clients are responsible for their
own investment and trading expenses; organizational and offering expenses, including expenses
for negotiating side letters or other arrangements with investors; and operating and
administrative fees and expenses. Client expenses typically include, but are not limited to, the
following: costs and expenses directly related to portfolio investments or prospective
investments (such as brokerage commissions, clearing and settlement charges, custody fees,
interest on debit balances or borrowings); fees and specific expenses incurred in obtaining,
maintaining or performing systems; research expenses; liability insurance premiums;
administrative services and out-of-pocket costs of the administration of our clients and our
client’s accounts; tax preparation, accounting, audit, operational, administration, secretarial and
legal expenses; costs of litigation or investigation involving our clients’ activities; and costs
associated with reporting and providing information to our clients’ investors. Please see Item 12
entitled “Brokerage Practices” for more information regarding our brokerage practices.
Neither our firm nor any of our supervised persons receives any transaction-based compensation
for the sale of securities or other investment products.