A non-exhaustive list of risks investing in commingled funds and White Brook Capital Partners in particular
In considering an investment in the Fund, prospective investors should be aware of certain special considerations and risk factors, which include, but are not limited to, the following:
General Investment Risk, i.e., the risk of deterioration in the financial markets in general;
Strategy Risk, i.e., the risk of failure of the Manager’s investment strategy;
Institutional Risk, i.e., the risk that the Fund could incur losses due to: (i) the failure of counterparties to perform their contractual commitments to the Fund; (ii) the financial difficulty of brokerage firms, banks or other financial institutions that hold assets of the Fund;
Fund Structure Risk, i.e., the special considerations and risks arising from the operation of certain provisions of the LLC Agreement;
Operational Risk, i.e., the special considerations and risks arising from the day-to-day management of a pooled investment vehicle like the Fund; and
Tax Risk, i.e., the special considerations and risks arising from the operation of an investment vehicle treated as a partnership for U.S. federal tax purposes.
Certain special considerations and risk factors that fall under these general categories are described below. Others are referred to elsewhere in this Memorandum and will not be repeated here. Prospective investors should therefore read this entire Memorandum before subscribing for Interests. In addition, the inclusion of specific special considerations and risk factors in this Memorandum should not be construed to imply they are described in complete detail, or that there are no other special considerations or risk factors that apply to an investment in the Fund.
General Investment Risk
All investments in securities and other financial instruments involve substantial risk of volatility (potentially resulting in rapid declines in market prices and significant losses) arising from any number of factors that are beyond the control of White Brook, such as: changing market sentiment; changes in industrial conditions, competition and technology; changes in inflation, exchange or interest rates; changing domestic or international economic or political conditions or events; changes in tax laws and governmental regulation; and changes in trade, fiscal, monetary or exchange control programs or policies of governments or their agencies (including their central banks). Changes such as these, as well as innumerable other factors, are often unpredictable and unforeseeable, rendering it difficult or impossible to predict or foresee future market movements. Unexpected volatility or illiquidity in the markets in which the Fund holds positions could impair its ability to achieve its objectives and cause it to incur losses.
Although White Brook believes that the Fund’s investment strategy helps mitigate the risk of loss, an investment in the Fund is nevertheless subject to loss, including possible loss of the entire amount invested. No guarantee or representation is made that the Fund will be successful, and the Fund’s investment results may vary substantially over time.
The business of investing in securities is highly competitive and the identification of attractive investment opportunities is difficult and involves a high degree of uncertainty.
White Brook will invest in the securities of companies understood to be mid-capitalization, ranging from $750 million to $15 billion at the time of investment. Such companies may offer greater opportunities for capital appreciation than larger companies, but investments in such companies may involve certain special risks. Such companies may have limited product lines, markets or financial resources and may be dependent on a limited management group. While the markets in securities of such companies have grown rapidly in recent years, such securities may trade less frequently and in smaller volume than more widely held securities. The values of these securities may fluctuate more sharply than those of more widely held securities. In addition, there may be less publicly available information about the issuers of these securities or less market interest in such securities than in the case of larger companies, and it may take a longer period of time for the prices of such securities to reflect the full value of their issuers’ underlying earnings potential or assets.
The success of the long positions established for the Fund by White Brook will depend in large part on White Brook’s ability to accurately assess the fundamental value of those positions. An accurate assessment of fundamental value depends on a complex analysis of a number of financial and legal factors. No assurance can be given that White Brook will be in a position to assess the nature and magnitude of all material factors having a bearing on the value of the Fund’s long positions, or that White Brook will accurately assess the impact of all factors of which it is aware.
While White Brook expects to focus on the common stock of U.S. mid-cap companies, from time to time it may also invest a portion of the Fund’s assets in the common stock of non-U.S. companies, in companies outside the mid-cap space, or in other securities that are convertible into equity or that otherwise may be a proxy for equity, such as preferred stock or convertible securities. From time to time, the Fund also may invest in initial public offerings of equity securities (i.e. “new issues”). The Fund does not expect to use “leverage” (i.e., margin financing) in making investments.
In light of the complex and evolutionary nature of the equity investment marketplace, White Brook reserves the right to use its discretion in managing the Fund’s assets based on factors or criteria it deems appropriate.
Mid-cap equities typically do not trade as frequently as the equities of larger companies. The markets for some of the Fund’s instruments may have limited liquidity and depth. This lack of depth could be a disadvantage to the Fund, both in the realization of the prices which are quoted and in the execution of orders at desired prices.
Use of Derivatives
The Fund may use derivative instruments, such as purchasing put and call options, in order to enact its investment strategy. The use of such instruments and techniques may result in leveraging the Fund’s assets, thereby exposing the Fund to significant risks.
Among other things, the prices of derivative instruments can be highly volatile. Price movements of derivative instruments are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events and policies. In addition, governments from time to time intervene, directly and by regulation, in certain markets, particularly those in options. Such intervention often is intended directly to influence prices and may, together with other factors, cause all of such markets to move rapidly in the same direction because of, among other things, interest rate fluctuations.
Uncertainties remain as to how the markets for these instruments will perform during periods of unusual price volatility or instability, market illiquidity or credit distress. Market movements are difficult to predict and financing sources and related interest rates are subject to rapid change. One or more markets may move against the derivatives positions held by the Fund, thereby causing substantial losses. Many of these instruments are not traded on exchanges but rather through an informal network of banks and dealers who have no obligation to make markets in them and can apply essentially discretionary margin and credit requirements (and thus in effect force the Fund to close out its positions).
Cash and Cash-Equivalents
White Brook may from time to time invest Fund assets in high quality short-term instruments such as U.S. Treasury securities, “money market” mutual funds, ETFs and corporate bonds. White Brook may maintain a sizeable positions in cash and cash-equivalents should there not be sufficient opportunities to invest in at an acceptable risk/return tradeoff.
Broad Investment and Trading Mandate
The LLC Agreement does not impose significant restrictions on White Brook’s investing and trading for the Fund, and permits the Fund to invest and trade in a broad range of securities and other financial instruments. White Brook expects that, under current market conditions, the Fund will focus on the investment strategy described herein. White Brook, however, may engage in other strategies from time to time (either in lieu of or in addition to the strategy described herein) to take advantage of changing market conditions and investment opportunities, without notice to the Members. This could involve changes in the types of securities and other instruments in which the Fund trades and invests, as well as changes in the markets in which such securities and other instruments trade. There can be no assurance that pursuing additional strategies, either in lieu of or in addition to the strategy described herein, would be successful or not result in losses.
Suspensions of Trading
Securities and futures exchanges typically can suspend or limit trading in any instrument traded on the exchange. A suspension or limitation of trading could render it impossible for the Fund to liquidate a position or positions in a timely manner. A delay in exiting a position or positions could expose the Fund to losses with respect to such position(s), which could increase as the delay continues.
Failure of Exchanges and Clearinghouses
The Fund is subject to the risk of the failure of any of the exchanges on which its positions trade or of the clearinghouses for such exchanges.
Some of the markets in which the Fund will invest and trade are over-the-counter or “interdealer” markets. The participants in these markets typically are not subject to the type of strict credit evaluation and regulatory oversight applicable to members of “exchange based” markets, and transactions in these markets typically are not settled through exchanges or clearinghouses that guarantee the trades of their participants. Rather, the responsibility for performing a particular transaction rests with the counterparties to the transaction. This results in the risk that a counterparty may not settle a transaction with the Fund in accordance with its terms, either because it is unwilling or unable to do so (for example, because of a credit or liquidity problem of the counterparty), thereby exposing the Fund to loss. In response to such risk, many counterparties now require the posting of collateral. However, this collateral may be difficult to liquidate in a market crisis. In addition, in the case of a default by a counterparty, the Fund could become subject to adverse market movements while it attempts to execute a substitute transaction.
“Counterparty risk” is accentuated in the case of contracts having longer maturities, where events may intervene to prevent settlement, or where an investor has concentrated its transactions with a single or small number of counterparties. The Fund is not restricted from dealing with any particular counterparties or from concentrating any or all of its transactions with one counterparty.
Failure of Custodians
Financial institutions such as broker-dealers and banks will have custody of the Fund’s assets, including its margin deposits. Often these assets will not be registered in the name of the Fund. Financial difficulty, fraud or misrepresentation at one of these institutions could impair the operational capabilities or capital position of the Fund.
Fund Structure Risk
Dependence on the Manager and its Principal
White Brook will make all investment and trading decisions for the Fund. No Member, in its capacity as such, may take part in the management or conduct of the business or affairs of the Fund or transact any business in the name of or otherwise for or on behalf of the Fund. As a result, the success of the Fund will depend to a great extent on the investment skills of White Brook’s principal, Mr. Alsikafi. The Fund could be adversely affected if, because of illness, resignation or other factors, such person’s services were not available for any significant period of time.
Exculpation and Indemnification
The LLC Agreement provides that White Brook shall not be liable for monetary or other damages to the Fund or any Member for: (i) losses sustained or liabilities incurred by the Fund or such Member, except to the extent that it is Judicially Determined (as defined in the LLC Agreement) that an act or omission of White Brook was material to the matter giving rise to such losses or liabilities and that such act or omission constituted criminal wrongdoing, willful misfeasance, bad faith or gross negligence on the part of White Brook; (ii) losses sustained or liabilities incurred by the Fund or such Member arising from or otherwise relating to any act or omission of any person selected by White Brook to perform services for or otherwise transact business with the Fund, except to the extent that it is Judicially Determined that White Brook’s selection of such person involved criminal wrongdoing, willful misfeasance, bad faith or gross negligence on the part of White Brook and was material to the matter giving rise to such losses or liabilities; or (iii) circumstances beyond White Brook’s control, including changes in tax or other laws, rules or regulations or the bankruptcy, insolvency or suspension of normal business activities of any broker-dealer, bank or other financial institution that holds the Fund’s assets.
The LLC Agreement also provides that no member, partner, shareholder, other beneficial owner, manager, director, officer, employee or agent of White Brook or of any affiliate of White Brook shall be liable for monetary or other damages to the Fund or any Member for losses sustained or liabilities incurred by the Fund or such Member, except to the extent that it is Judicially Determined that an act or omission of such person was material to the matter giving rise to such losses or liabilities and that such act or omission constituted criminal wrongdoing, willful misfeasance or bad faith on the part of such person.
Finally, the LLC Agreement provides that the Fund shall, to the fullest extent permitted by law, indemnify each “Manager Associate” – i.e., White Brook, each of its affiliates, and each member, partner, shareholder, other beneficial owner, manager, director, officer, employee or agent of White Brook or of any affiliate of White Brook – against any and all losses, damages, liabilities, costs, expenses (including reasonable legal and expert witness fees and related costs and expenses), judgments, fines, amounts paid in settlement, and other amounts (including costs and expenses associated with investigation or preparation), actually and reasonably paid or incurred by such Manager Associate in connection with any and all legal or similar proceedings that arise from or relate, directly or indirectly, to any act or omission (or alleged act or omission) of such Manager Associate in connection with the LLC Agreement or the business or affairs of the Fund and in which such Manager Associate may be involved, or is threatened to be involved, as a defendant, witness, deponent or otherwise (but not as a plaintiff, unless White Brook agrees otherwise in its sole and absolute discretion), whether or not the same shall proceed to judgment or be settled or otherwise be brought to a conclusion, except to the extent that it is Judicially Determined that such Manager Associate is not entitled to be exculpated in respect of such act or omission as provided above.
The foregoing provisions could make it difficult for the Fund or a Member to recover funds from a Manager Associate in the event that a Member or Members believe that such Manager Associate has breached a duty to the Fund. The Fund may (but is not required to) obtain insurance to cover its indemnification obligations under the LLC Agreement. Such insurance, if obtained, may result in substantial costs to the Fund. If such insurance is not obtained and the Fund’s indemnification obligations under the LLC Agreement should be substantial, the return to investors will be adversely affected.
Notwithstanding the foregoing, no exculpation or indemnification of a Manager Associate shall be permitted under the LLC Agreement to the extent such exculpation or indemnification would be inconsistent with the requirements of federal or state securities laws or other applicable law.
Withholding of Distributions
Under certain circumstances, White Brook may find it necessary upon withdrawal by a Member to establish a reserve for contingent liabilities and withhold a certain portion of such Member’s Capital Account(s). In addition, at any given time, the Fund may not be able to liquidate sufficient assets to make required payments to withdrawing Members or to satisfy all of its obligations upon dissolution.
Returns of Distributions
No Member, in its capacity as such, will be personally liable for the debts, liabilities, obligations or commitments of the Fund, and each Interest, when issued and fully paid for in accordance with the provisions of the related Subscription Agreement, will be fully paid and nonassessable. However, if the Fund incurs a withholding tax or other tax obligation with respect to any Interest, and if the amount of any such obligation exceeds the balance of the Capital Account associated with such Interest, then the Member that holds such Capital Account must, upon demand by White Brook, pay to the Fund, as a capital contribution, an amount equal to such excess. In addition, a Member will be required to return to the Fund amounts previously distributed to it by the Fund, together with reasonable interest on such amounts determined by White Brook in its reasonable discretion, under certain limited circumstances, such as where: (i) the amount previously distributed was distributed in violation of the Delaware Limited Fund Act or was distributed in error due to a miscalculation of the Fund’s NAV; (ii) White Brook determines that a particular liability or expenditure that becomes fixed or is incurred in an accounting period subsequent to the accounting period in which the distribution was made is properly chargeable to such prior accounting period; or (iii) the amount previously distributed is necessary to satisfy such Member’s pro rata share of the Fund’s obligation to indemnify White Brook and its related parties pursuant to the terms of the LLC Agreement. See Section 5.3 of the LLC Agreement for a more complete description of the limited circumstances in which a Member may be required to return amounts to the Fund.
Limited Voting Rights
Members will not have the right to vote on any matter affecting the Fund except for: (a) transactions in which the admission of an additional managing member to the Fund would result in an “assignment” of the LLC Agreement within the meaning of the Advisers Act of 1940, as amended (the “Advisers Act”) (see Section 3.4(b) of the LLC Agreement); (b) certain amendments to the LLC Agreement (see “Amendment of LLC Agreement,” below); (c) the continuation of the Fund following the occurrence of a Key Person Event (see Section 3.8 of the LLC Agreement); and (d) the appointment of the liquidating trustee of the Fund in certain limited circumstances (see Sections 11.2(a) of the LLC Agreement). No Member or Members, individually or collectively, shall have any right, power or authority to remove or expel White Brook, to cause White Brook to withdraw from the Fund, to appoint a successor Manager in the event of the withdrawal or bankruptcy of White Brook or otherwise, or to terminate the Fund, unless such right, power or authority is conferred on it or them by law.
Amendment of LLC Agreement and Certificate of Formation
White Brook may amend the LLC Agreement and the Certificate of Formation of the Fund (the “Certificate”) without Member approval for (among other things):
certain tax and regulatory purposes (provided that White Brook takes such measures as are reasonably necessary to prevent such an amendment from having a material adverse effect on the Fund or the Members generally);
certain ministerial purposes; and
such other purposes as White Brook may determine to be necessary, appropriate, advisable, incidental or convenient to the management and conduct of the business and affairs of the Fund, provided that, in White Brook’s judgment, no amendment for any such other purpose has or could reasonably be expected to have a materially adverse effect on the Fund or the Members generally.
In no event, however, may White Brook effect any amendment that would: (i) require a Member to pay any sum of money whatsoever in respect of such Member’s Interest, whether in the form of a Capital Contribution, a loan or otherwise, other than that which such Member has agreed to pay by way of such Member’s Subscription Agreement, the LLC Agreement or another agreement executed and delivered by such Member; (ii) materially modify the increases and decreases of Net Assets (as defined in the LLC Agreement) or the amount of distributions to which such Member is entitled under the LLC Agreement, without the consent of such Member; or (iii) modify the limited liability of a Member, without the consent of such Member.
White Brook may amend the LLC Agreement or the Certificate in a manner that materially adversely affects or could reasonably be expected to have a material adverse effect on the Fund or the Members generally if White Brook gives written notice to the Members, at least thirty (30) calendar days prior to the implementation of such amendment, setting forth, in reasonable detail, all material facts relating to such amendment, and obtains the consent of the Members to such amendment prior to the implementation thereof. In situations where White Brook is required to obtain the consent of Members to an amendment to the LLC Agreement, White Brook may obtain such consent by way of “negative consent.” Under this procedure, White Brook would inform Members of the proposed amendment no later than thirty (30) calendar days prior to the implementation of the amendment, and the amendment would be deemed to be approved if a majority in interest of the Members who are not affiliated with White Brook fail to object to such amendment within that time frame. For this purpose, a Member who has a right to redeem its entire interest in the Fund prior to the proposed implementation of such amendment would automatically be deemed not to have objected to such amendment.
White Brook may also use the “negative consent” procedure for other purposes, such as obtaining consent to: (i) actions and practices involving actual or potential conflicts between the interests of White Brook or any of its related parties, on the one hand, and the Fund or the Members, on the other hand, and (ii) the admission of an additional managing member in situations where the admission of an additional managing member would result in a change in the actual control or management of the Fund.
White Brook may not amend the LLC Agreement or the Certificate in a manner that has or could reasonably be expected to have a material adverse effect on one or more specific Members without the consent of the affected Member(s).
The LLC Agreement or the Certificate may not be amended without the consent of White Brook.
See Sections 10.1 and 10.2 of the LLC Agreement for a complete description of the different situations in which White Brook may amend the LLC Agreement and the Certificate.
Withdrawal of the Manager
White Brook may withdraw amounts from its Capital Account at any time, without notice to the Members. In addition, White Brook may withdraw as the Fund’s managing member upon giving not less than ninety (90) calendar days’ prior written notice to the Members (or not less than forty-five (45) calendar days’ prior written notice in the event White Brook has caused the Fund to appoint a successor manager connection with such withdrawal). In that case, White Brook may withdraw the entire balance of its Capital Account.
Members generally will be required to keep confidential all matters relating to the Fund and its business and affairs (including communications from White Brook). The exceptions to this general rule of confidentiality are described in Section 8.6(b) of the LLC Agreement. Members will also be required to acknowledge and keep confidential any Proprietary Information of the Fund and to consent to injunctive relief to ensure its compliance with such obligations. The names “White Brook”, “White Brook Capital” and “White Brook Capital Partners” and any use thereof belong to White Brook and the Members will disclaim expressly any interest therein.
Term of the Fund
The term of the Fund is unlimited. White Brook, however, may dissolve the Fund at any time upon giving written notice of such dissolution to the Members. Upon the dissolution of the Fund, Members will have no further withdrawal rights, but only the right to receive distributions from the Fund in connection with its winding up. For a complete description of the circumstances giving rise to the dissolution of the Fund and the procedures to be followed in connection with the dissolution and winding up of its business and affairs and the distribution of its assets in connection therewith, see Article XI of the LLC Agreement.
No Operating History
The Fund was organized on February 6, 2019 and has no operating history. The past performance of other separate accounts managed by White Brook or its sole principal does not necessarily indicate that the Fund will be successful in the future.
Substantial Fees and Expenses
The Fund is subject to substantial fees, transaction costs and other costs and other expenses, regardless of whether it realizes any profits. Among other things, investors will bear the Management Fees. As a result, the Fund will have to earn substantial profits to avoid depletion of its assets due to such costs and expenses.
White Brook’s Incentive Allocations depend on, and reward White Brook for, continuing increases in the Fund’s profitability, but do not directly penalize White Brook for losses. This creates an incentive for White Brook to invest and trade the Fund’s assets in a manner that could be riskier or more speculative than would otherwise be the case.
Because the Fund will establish a separate Capital Account for each separate capital contribution a Member makes to the Fund, the determination of whether an Account has experienced Net Profit will be made with respect to each Account. Thus, it is possible that, depending on the various times at which an investor makes capital contributions and the timing of the Fund’s profits and losses, one or more Capital Accounts held by such investor could experience Net Profit, while the value of other Capital Accounts held by such investor could have experienced losses, with the result that the Member may bear an Incentive Allocation even where it has experienced loss on its overall investment.
In addition, the Fund does not apply a high water mark, which may be applied by other hedge funds. A high water mark is commonly the highest value that a fund has ever reached, ensuring that the value of the fund increases above the high water mark before the general partner or fund manager is permitted to charge further performance fees. Because the Fund does not apply a high water mark, if the Fund loses value and then subsequently recovers which results in an Incentive Allocation being charged, a Member may pay a performance fee twice for the same return, once for the recovered growth as well as the original growth.
Moreover, White Brook will not be required to “repay” any Incentive Allocation allocated to it in the event the subject Account subsequently experiences losses.
The Incentive Allocations made to White Brook will be determined on the basis of the value of the Fund’s assets, including value attributable to unrealized appreciation. Thus, Incentive Allocations may be made to White Brook based on positions that were profitable at the time such allocations were made but unprofitable when eventually liquidated.
Absence of Registrations
The Fund is offering Interests to investors pursuant to the exemption from registration under the Securities Act provided by Regulation D. In addition, the Fund will rely on the “exclusion” from the definition of “investment company” for certain “private” investment companies provided by Section 3(c)(1) of the Investment Company Act of 1940 (“ICA”). As a result, Members will not be afforded the protections that registration under the Securities Act and the ICA might provide.
There is no market for Interests and none is expected ever to develop. Consequently, the Members may not be able to liquidate their investment, or securities distributed to them in kind, in the event of an emergency or for any other reason. Interests may not be pledged as collateral for loans.
The LLC Agreement limits (i) the transferability of Interests and (ii) restricts the times at which the Members may withdraw funds from the Fund. Notwithstanding the Members’ limited ability to exercise withdrawal rights, there is no guarantee that the Fund will have sufficient cash available to make cash distributions in respect to such withdrawals.
White Brook is registered as an investment advisor in the states of California, Illinois, and New Jersey. White Brook is not currently registered with the Securities and Exchange Commission as an investment adviser under the Advisers Act. As an exempt adviser, White Brook is subject only to limited regulation under the Advisers Act. As a result, Members will not be afforded the protections that registration of White Brook under the Advisers Act might provide.
Status as a Partnership
The Fund expects to be classified as a partnership for federal income tax purposes. However, an entity that would otherwise be classified as a partnership for U.S. federal income tax purposes may be taxable as a corporation if it is a “publicly traded partnership.” The Fund may qualify for certain safe harbors that would prevent the Fund from being treated as a publicly traded partnership. Although no assurance can be given that the Fund will qualify for such safe harbors, White Brook intends to operate the Fund so that it will not be treated as a “publicly traded partnership.” If the Fund were not classified as a partnership but instead were classified as a corporation for federal income tax purposes, the Fund would be subject to tax at the entity level, and Members generally would also be taxable upon distributions received from the Fund.
There can be no assurance that the Fund’s tax returns will not be audited by the IRS or by state taxing authorities, or that adjustments to such returns will not be made as a result of such an audit. If an audit results in an adjustment, Members may be required to file amended returns (which also may be audited) and to pay back taxes, plus interest, which would not be reimbursed through distributions by the Fund.
Members’ Tax Liability May Exceed Cash Distributions
Cash distributions to the Members are made solely at the discretion of White Brook, which currently does not intend to make such distributions. If the Fund has realized profits for a taxable year, these profits will be taxable to the Members even though cash may not have been distributed to them. Also, the Fund may sustain losses offsetting such profits after the end of a Fiscal Year, so that a Member may never receive all of the profit on which he is taxed (although the Member may be entitled to carry back certain losses to offset previously realized profits).
Investments Not Tax-Driven
A substantial portion of the Fund’s income may constitute short-term capital gain, dividends other than “qualified dividend income,” interest or other portfolio type income, some or all of which may be subject to income tax at the highest “ordinary income” tax rate. Furthermore, White Brook’s trading decisions are based primarily on economic, and not tax, considerations. This could result, from time to time, in adverse tax consequences to Members.
CONFLICTS OF INTEREST
Because of White Brook’s role as sponsor and organizer of the Fund, the terms of the LLC Agreement were not the result of arm’s-length negotiation between White Brook, on the one hand, and the Fund, on the other hand.
In addition, White Brook and its related persons will be subject to significant conflicts of interest in managing the business and affairs of the Fund and in making investment and trading decisions for the Fund. Certain of these conflicts are described elsewhere in this Memorandum and will not be repeated here. Others are described below. While the conflicts described in this Memorandum are fairly typical of “hedge fund” managers, White Brook wishes to call your attention to them.
Neither White Brook nor any other Manager Associate is required to devote its full time or any material portion of its time to the business and affairs of the Fund. White Brook, however, is required to devote as much of its time to the business and affairs of the Fund as White Brook shall reasonably determine in good faith to be necessary to achieve the Fund’s objectives.
Currently, White Brook serves as adviser to multiple separately managed accounts which may have overlapping investment objectives, strategies and policies with those of the Fund (or different from those of the Fund). In addition, White Brook and its related persons may become involved in new business ventures, including other investment funds whose investment objectives, strategies and policies are the same as or similar to those of the Fund (or different from those of the Fund). In addition, White Brook and its related persons are not restricted from performing similar or different services for other funds and may sponsor or establish other funds. The Fund will not share in the risks or rewards of such other clients or business ventures, and such other clients or business ventures will compete with the Fund for the time and attention of White Brook and its related persons and might create additional conflicts of interest, as described below.
White Brook and its related persons may invest and trade in securities and other financial instruments for the accounts of clients other than the Fund and for their own accounts, even if such securities and other financial instruments are the same as or similar to those in which the Fund invests and trades, and even if such trades compete with, occur ahead of or are opposite those of the Fund. They will not, however, knowingly trade for the accounts of clients other than the Fund or for their own accounts in a manner that is detrimental to the Fund, nor will they seek to profit from their knowledge that the Fund intends to engage in particular transactions.
In the event that Mr. Alsikafi serves as a consultant to, sits on the board of directors of, or generates other fees from one or more of the companies in which the Fund invests, any compensation received by Mr. Alsikafi in doing so will be invested in the Fund.
White Brook might have an incentive to favor one or more of its other clients over the Fund (for example, with regard to the selection of particular investments) because those clients might pay White Brook more for its services than the Fund. White Brook and its related persons will act in a fair and reasonable manner in allocating suitable investment opportunities among their client and proprietary accounts. No assurance can be given, however, that (i) the Fund will participate in all investment opportunities in which other client or proprietary accounts of such persons participate, (ii) particular investment opportunities allocated to client or proprietary accounts other than the Fund will not outperform investment opportunities allocated to the Fund, or (iii) equality of treatment between the Fund, on the one hand, and other client and proprietary accounts of such persons, on the other hand, will otherwise be assured.
Subject to the considerations set forth above, in investing and trading for client and proprietary accounts other than the Fund, White Brook and its related persons may make use of information obtained by them in the course of investing and trading for the Fund, and they will have no obligation to compensate the Fund in any respect for their receipt of such information or to account to the Fund for any profits earned from their use of such information.
White Brook is not required to combine or arrange the orders of the Fund with the orders of any other client, or any proprietary account, of any Manager Associate.
The trading records of White Brook and its related persons will not be available for inspection by Members.
White Brook may from time to time engage placement agents to assist it in marketing Interests. If you acquire an Interest through a placement agent retained by White Brook, you should not view any recommendation of such agent as being disinterested, as the agent will generally be paid for the introduction out of the fees White Brook receives from the Fund. Also, you should regard such a placement agent as having an incentive to recommend that you remain an investor in the Fund, since the agent will generally be paid a portion of White Brook’s fees for all periods during which you remain an investor.
White Brook has fiduciary duties to the Fund to exercise good faith and fairness in all its dealings with it and will take such duties into account in dealing with all actual and potential conflicts of interest. If a Member believes that White Brook has violated its fiduciary duties, it may seek legal relief under applicable law, for itself and other similarly situated Members, or on behalf of the Fund. However, it may be difficult for Members to obtain relief because of the changing nature of the law in this area, the vagueness of standards defining required conduct, the broad discretion given White Brook under the LLC Agreement, and the broad exculpatory and indemnification provisions therein.