Item 5. Fees and Compensation
Fees
Our firm, or an affiliate of our firm, typically receives compensation from our clients based on the
percentage of assets we manage and by receiving performance-based compensation.
The management fee is typically an amount up to 1.5% per year of each client’s net assets, which depending
on the client, is determined and payable either monthly or quarterly, in advance or in arrears. Certain of
our clients do not pay a management fee. Any client that pays a management fee in advance will generally
not have the ability to terminate the applicable advisory contract before the end of the billing period, and
as a result we generally do not provide for a refund of management fees.
With respect to certain of our clients, the incentive compensation is up to 20% of the net realized and
unrealized appreciation in each such client’s net assets. We typically determine and charge such incentive
compensation on an annual basis, but will determine and charge it for shorter periods under certain
circumstances (such as with respect to amounts withdrawn or redeemed from a client). The incentive
compensation is subject to a loss carryforward or high-water mark provision that generally requires that
any losses suffered by such clients (adjusted to reflect withdrawals and redemptions) be offset by
subsequent net profits before our firm is entitled to subsequent incentive compensation from such clients.
With respect to each investor in certain of our other clients, we typically receive incentive compensation in
an amount up to 20% of distributions to such investor after a return to such investor of (i) an amount equal
to capital contributions made by such investor for portfolio investments, management fees and expenses
and (ii) in some cases, a preferred return on such amounts at a rate up to 10% (which is compounded for
certain clients).
Our fees are deducted from the accounts of the investors in our client funds and invoiced to our managed
account clients. Our fees are generally not negotiable, but our firm has in the past waived, reduced, or
otherwise modified the management fee and/or incentive compensation arrangement for certain investors
in our client funds (including affiliates of our firm) and may do so in the future. In addition, we occasionally
enter into side letter arrangements with certain investors in our client funds, in which we grant such
investors preferential fee terms. The fees applicable to our managed account clients and future clients
depend on each individual arrangement.
Although the foregoing is a brief summary of the management fee and incentive compensation
arrangements applicable to our clients, please note that this brief summary is not a substitute for the detailed
terms provided in each client’s Governing Documents.
Expenses
The expenses paid by clients are set forth in their Governing Documents. Such expenses differ among
clients. Thus, although the following is a summary of expenses our clients will generally bear, it is not an
exhaustive or complete list with respect to all clients. Investors and prospective investors and clients and
prospective clients should therefore review the relevant Governing Documents carefully because such
documents, and not this brochure summary, describe more precisely the expenses such client will bear.
Generally, each of our clients bears its own operating and other expenses, including, but not limited to:
The management fee (as applicable);
Fees to the administrator (the “Administrator”);
Investment expenses (i.e., expenses related to the investment of our client fund’s assets,
including, without limitation, brokerage commissions, interest, professional and consulting
fees relating to particular investments and expenses related to the purchase and sale of
securities, investment-related travel and lodging expenses and research-related expenses,
including, without limitation, news and quotation equipment and services (e.g., Bloomberg
terminal expenses and exchange feed expenses));
Legal expenses including, without limitation, costs associated with regulatory compliance (e.g.,
expenses related to anti-money laundering monitoring, expenses related to investor-related
compliance obligations (e.g., FATCA), expenses related to position-specific regulatory filings
(e.g., Schedules 13, Forms 13F, Forms 3, 4, and 5, and Hart-Scott-Rodino notifications), and
expenses related to non-position-specific regulatory filings (e.g., Forms 13H and Forms D));
Accounting, audit and tax preparation expenses;
Taxes;
Other expenses associated with the operation of the client (e.g., third party valuation expenses
and premiums for certain insurance policies); and
All extraordinary expenses.
Expenses to be borne by more than one client are allocated across the applicable clients in a fair and
equitable manner, generally pro rata based on the size of the applicable investment or client (as applicable),
based on which clients would receive the benefit of the expenses paid (e.g., for research on an investment
that has not yet been purchased for any client), or in another manner that we deem to be fair and equitable.
Neither our firm nor any of our supervised persons receives any transaction-based compensation for the
sale of securities or other investment products.
From time to time, our firm also allocates a portion of certain clients’ capital to money market funds. In
addition to the fees and expenses discussed above, clients will indirectly incur similar fees and expenses if
we invest their capital in such funds, as these funds in turn pay similar fees and expenses to their investment
managers and other service providers.
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