Item 5. Fees and Compensation
Circumference’s fees differ depending on the nature of the services Circumference provides.
Following is a summary of Circumference’s fees. Information about a private fund’s fee
structure is more fully described in the governing documents for that fund.
Core Value Fund
The Core Value Fund advised by Circumference generally charges fees consisting of an annual
management fee based upon the assets under management in the underlying investor’s capital
account with the private fund. An affiliate of Circumference, CG Core Value GP, LLC, which
serves as the general partner to the Core Value Fund (the “CVF General Partner”), is also
entitled to receive an annual performance-based allocation that is calculated based upon a
percentage of the net capital appreciation (if any) of the underlying investor’s capital account
with the private fund at the end of each fiscal year.
CG’s current fee schedule is generally as follows:
Management Fee: 1.5% annually
Performance Allocation: 10%, as described below
Compensation may be negotiable, and some underlying investors may pay more or less than
others for the same services depending, for example, on total assets under management by
Circumference. The Core Value Fund does not typically charge performance-based
compensation to underlying investors who are employees of Circumference Group.
Management fees typically are payable quarterly in advance based on the assets in the underlying
investor’s capital account at the beginning of the quarter. In the case of an underlying investor
withdrawing funds from his or her capital account other than as of the last day of a quarter,
Circumference will refund to the underlying investor a pro rata portion of the management fee
charged for that quarter (based on the actual number of days remaining in the quarter and the
ratio of the amount withdrawn to such investor’s capital account immediately prior to the
withdrawal).
Performance based compensation (if any) typically is allocated from each underlying investor’s
capital account to the General Partner’s capital account in arrears at the end of each fiscal year.
In the case of an underlying investor who was admitted into a fund after January 1, performance
based compensation (if any) is allocated for the period from the date of investment through the
end of the fiscal year in which the underlying investor was admitted to the fund. In the case of
an underlying investor withdrawing funds other than as of the end of a fiscal year, a performance
allocation (if any) is allocated on the period from the first day of the fiscal year through the date
of withdrawal. Any loss in an account is carried forward so that no performance allocation is
charged to an account unless the cumulative prior losses have been recouped (commonly referred
to as a “high water mark provision”). Performance based compensation may create an incentive
for Circumference, an affiliate of the General Partner, to make investments that are riskier or
more speculative than it would otherwise make.
Circumference charges the capital accounts of the underlying investors in the fund for the
management fees. The General Partner reallocates from the capital accounts of the underlying
investors in the fund any performance based allocation. The General Partner, in its discretion,
may distribute or invest any performance allocation allocated to its capital account.
The underlying investors in the private fund bear the costs and expenses of the fund, including
without limitation trading costs and expenses (such as brokerage commissions, interest on
margin accounts, expenses related to short sales, clearing and settlement charges), research tools,
ongoing legal, accounting and bookkeeping fees and expenses, and fund administrator fees.
Circumference bears its own operating, general, administrative and overhead costs and expenses.
The Core Value Fund offering documents discuss the fund expenses in detail. Also, please see
the response to Item 12 below for further information about brokerage expenses. Circumference
charges the capital accounts of the underlying investors in the fund for the costs and expenses of
the fund based on the assets in the underlying investor’s capital account at the beginning of the
quarter.
Private Equity Funds
Circumference’s compensation from its Private Equity Funds is negotiated on a fund by fund
basis and may include finder’s fees, management fees, performance fees and other advisory or
services fees. Information about a Private Equity Fund’s fee structure is more fully described in
the governing documents for that fund. Typically, Circumference is compensated by its Private
Equity Funds through a management services agreement and performance-based fees.
In the case of performance-based fees, the Private Equity Fund’s governing documents provide
for the allocation of performance-based fees in the form of profit allocations to the relevant
general partner or designated member, as the case may be. The Private Equity Funds generally
have a profit allocation ranging from 10% to 15% of the net profits attributable to each
underlying investor, which is paid to the general partner or managing member, as the case may
be, at the end of the specified fee period. The profit allocation is calculated as specified in each
Private Equity Fund’s governing documents. Depending on the particular Private Equity Fund,
hurdle rates and preferred returns may apply to the profit allocation. Circumference Group
Private Equity Funds typically do not charge performance-based fees to Circumference Group
affiliates invested in the Private Equity Fund.
In the case of management services fees, Circumference Group typically enters into a
management services agreement with the portfolio companies in which the Private Equity Funds
invest. Under these agreements, the portfolio company will pay Circumference Group a fixed
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