ACCREDITED INVESTORS ONLY
IN MAKING AN INVESTMENT DECISION, YOU MUST RELY ON YOUR OWN EXAMINATION OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE UNITS OR DETERMINED IF THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM, AND THE FUND’S PARTNERHIP AGREEMENT. YOU WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
IMPORTANT NOTICE
THIS RISK FACTORS DISCUSSION EXCERPT IS NOT AN OFFER TO SELL NOR SOLICITATION OF AN OFFER TO BUY SECURITIES. PLEASE CAREFULLY READ THE FOLLOWING INFORMATION. Your review of these pages of Risk Factors signifies your acceptance of, and agreement to be bound by, each and every one of the following terms and conditions: The information contained herein is for informational purposes only and is not an offering of or a solicitation to buy securities or otherwise make an investment. Securities may only be offered or sold pursuant to registration of the securities or by asking for the complete Private Placement Memorandum and all of its accompanying documents (hereinafter collectively referred to as the “PPM”) from Barrett Capital, LLC (hereinafter referred to as the “Company”). The Company’s offering is limited strictly to those persons who are qualified as “accredited investors” as defined in Regulation D promulgated under the United States Securities Act of 1933, as amended. Material information will be detailed in the offering documents, including, but not limited to, the Risk Factors set forth herein. Regardless of whether spoken or written, nothing shall be considered as giving investment, legal or tax advice, or an offer, or solicitation, to buy and/or sell any type of investment products or securities. Prior to making any investment, you should consult with a professional financial advisor, legal and tax advisor to assist in due diligence as may be appropriate and determining the appropriateness of the risk associated with a particular investment. All information contained herein is provided “as is,” and the Company expressly disclaims making any express or implied warranties with respect to the fitness of the information contained herein for any particular usage, its merchantability, or its application or purpose. In no event shall the Company be responsible or liable for the correctness of any such material or for any damage or lost opportunities resulting from the use of this data. Please bear in mind that past performance does not indicate future results and that there can be no assurance that comparable results will be achieved by the Company in its offering of securities. The Company reserves the right to modify, revise or withdraw any or all of the information contained herein in its sole discretion and without prior notice. The SEC’s Office of Investor Education and Advocacy has issued Investor Alerts to educate individual investors about advertisements and announcements for investment opportunities in certain securities offerings. Private companies such as Barrett Capital LLC engage in private placements to raise funds from investors. Private placements are not subject to some of the laws and regulations that are designed to protect investors, such as disclosure requirements that only apply to registered offerings. Be cognizant that “Forward-Looking Statements” are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties that could cause the actual results to differ materially from the expected results. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by an investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. These forward-looking statements include, without limitation, the Company’s expectations with respect to the anticipated financial returns it expects to generate on a monthly and annual basis.
RISK FACTORS
There are risks associated with investing in the Fund, the majority of which are not within the Fund’s or the Manager’s control. These risks include, among others, trends in the economy, particularly the capital markets, fluctuations in the interest rate environment, income tax laws, government regulations, and the availability of satisfactory investment opportunities.
The risk factors set forth below are those that, at the date of this PPM, the Manager deems to be the most significant. When new alternative investment categories are added to the investment program, they will come with a new set of risks that may not be outlined in this list. If there are specific new risks envisioned in a new investment. Other factors ultimately may affect an investment in the Company in a manner and to a degree not now foreseen. Prospective investors should carefully consider, in addition to the matters set forth elsewhere in this PPM, the factors discussed below. An investment in the Company should form only a part of a complete investment program, and an investor must be able to bear the loss of its entire investment. Prior to investing in the Fund, Investors should perform their own analysis of the investment opportunities and objectives presented and discuss investing in the Fund with their own advisors.
Risks Relating to an Investment in the Fund – General Best Reasonable Efforts Offering
This Offering is being conducted on a “best reasonable efforts” basis by the Manager only. No guarantee can be given that all or any of the securities will be sold, or that sufficient proceeds will be available to conduct successful operations. Receipt of a relatively small amount of capital contributions may reduce the ability of the Fund to spread investment risks through diversification of its portfolio.
Lack of Diversification
As a result of the Fund’s operating methodology, the Fund’s portfolio may be generally concentrated in no more than a handful of investments at one time. Consequently, unfavorable performance of one or more of the investments could have an adverse material impact on the aggregate returns realized by Investors.
No Guarantee of Profitability
There can be no assurance that cash flows from trades of equities will be sufficient to create net profits for the Fund even if the Manager believes in each investment’s economic viability. Poor performance by a few of the trades could significantly affect the total returns to Investors. In addition, there is no guarantee that a preferential Return will be paid to the Unit Holders on a cyclical basis, if at all.
No Guaranteed Return of Investor’s Capital Contributions
Investment in the Fund is speculative and involves a high degree of risk. There can be no guarantee that an Investor will realize a substantial return on the investment, or any return at all, or that the Investor will not lose the entire investment. For this reason, each prospective Investor should read this PPM and all documents in the Subscription Booklet carefully and should consult with his, her, or its own legal counsel, accountant(s), or business advisor(s) prior to making any investment decision.
The U.S. Equity Markets Have Been Red Hot, May be Retreating
In general, stock markets have enjoyed a long period of bullish momentum, but with an unstable economy, signs are beginning to show that the markets are due for bearish correction(s). What this means to the Fund is an opportunity to pick and choose from equities where panicked investors may be heading for the exits on their investment and cashing in their remaining profits. The Fund is not tied to a single business sector or exchange, but over the past several years, many choice profit making opportunities have been realized in a bull market. Obviously, this trend may be reversing with periods of extreme volatility in an up-and-down roller coaster. This is good for the Fund as The Manager sees opportunity in a downward trending and up-and-down trending market.
Borrowing by the Company
As described in this PPM, the Fund may choose from time to time to borrow funds pursuant to a Credit Facility. Although the purpose of leverage is to provide flexibility and additional liquidity options to the Fund as well as potentially increase the overall Unit Holder return, its use is inherently risky and can instead increase the risk of loss.
The interest rates at which the Fund is able to borrow funds will affect the Fund’s operating results. While the use of borrowed funds will increase returns if the Fund earns a greater return on the incremental investments purchased with borrowed funds than it pays for the funds, the use of leverage will decrease returns if the Fund fails to earn as much on such incremental investments as it pays for the funds. The effect of leverage may therefore result in a greater decrease in the net asset value of the Fund than if the Fund was not so leveraged. The use of leverage has the potential to magnify the gains or the loss on the Fund’s investments and to make the Fund’s returns more volatile.
The Fund may be unable to meet its obligations to a lender under a Credit Facility. If this occurs, the Fund may be liable for increased payments and penalties to the lender. The lender may also foreclose on any Fund assets in which it holds a security interest. As such, the Fund’s inability to perform under a Credit Facility could have significant negative effects on the Fund, its assets, and ultimately the Unit Holders.
The Fund could be in a position where it must borrow funds in order to cover its operating expenses, overhead, or committed investments. In any of these events, it is uncertain whether debt financing will be available to the Fund on desirable terms, or at all. If the Fund is unable to secure debt financing in these circumstances, the Fund could end up in default of its obligations to third parties and incur significant penalties and other negative consequences. If the Fund is able to secure debt financing in these circumstances, the Fund could be highly leveraged and would be subject to all the risks associated with borrowing.
Governmental Regulation
The industry in which the Fund will become an active participant may be highly regulated at both state and federal levels, both with respect to its activities as an issuer of securities and its investing activities. Some of these regulations are discussed in greater detail below under “U.S. Securities Laws and Foreign Investors,” “Compliance with Anti-Money Laundering Requirements,” “Compliance with Dodd-Frank Act,” “Usury Risk,” “Risk that the Fund May Become Subject to the Provisions of the Investment Company Act of 1940,” “Risk that the Manager May Become Subject to the Provisions of the Investment Advisers Act of 1940,” “The Fund’s Reliance on Exclusions from the Investment Company Act May Impact Certain Investment Decisions,” and “Recent and Anticipated Legislative and Regulatory Activity.” The Fund or the Fund Assets may be subject to governmental regulations in addition to those discussed in this PPM, and new regulations or regulatory agencies may develop that affect the Fund’s operations and ability to generate revenue. The Fund will to comply to the best of its abilities through its advisers with all applicable regulations affecting the markets in which it operates. However, such regulation may become overly burdensome and therefore may have a negative effect on the Fund’s ability to perform.
U. S. Securities Laws and Foreign Investors
The offer and sale of the Limited Partnership Units will not be registered under the Securities Act or the laws of any applicable state pursuant to an exemption from the registration requirements of the Securities Act, and the securities laws of certain states. Each Investor must furnish certain information to the Manager and represent, among other customary private placement representations, that it is acquiring its Units for investment purposes and not with a view towards resale or distribution. The acquisition of Units by each Investor also must be lawful under applicable state securities laws or the laws of the applicable foreign jurisdiction if the Investor is a non-U.S. person.
The Units have not been, and will not be, registered under the Securities Act. Accordingly, the United States securities laws impose certain restrictions upon the ability of a Member to transfer such Units, or a Unit Holder to assign such Units. Units may be offered, sold, transferred, or delivered, directly or indirectly, unless (i) such Units are registered under the Securities Act and any applicable state securities laws, or (ii) an exemption from registration under the Securities Act and any applicable state securities laws is available. Moreover, there will be no liquid, public market for the Units, and none is expected to develop.
Further, Units may not be offered, sold, transferred, assigned, or delivered, directly or indirectly, to any “Unacceptable Investor.” Unacceptable Investor means any person who is known to be a:
(a) person or entity who is a “designated national,” “specially designated national,” “specially designated terrorist,” “specially designated global terrorist,” "foreign terrorist organization,” or “blocked person” within the definitions set forth in the Foreign Assets Control Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended;
(b) person acting on behalf of, or an entity owned or controlled by, any government against whom the United States maintains economic sanctions or embargoes under the Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended--including, but not limited to--the “Government of Sudan,” the “Government of Iran,” the “Government of Cuba,” the “Government of Syria,” and the “Government of Burma”; or
(c) person or entity subject to additional restrictions imposed by the following statutes or Regulations and Executive Orders issued thereunder: the Trading with the Enemy Act, the Iraq Sanctions Act. Pub. L. 101-5 13, Title V, §§ 586 to 586J, 104 Stat. 2047, the National Emergencies Act, 50 U.S.C. §§ 1601 et seq., the Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. 104 132, 110 Stat. 1214 1319, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., the United Nations Participation Act. 22 U.S.C. § 287c, the International Security and Development Cooperation Act, 22 U.S.C. § 2349aa-9, the Nuclear Proliferation Prevention Act of 1994, Pub. L. 103 236, 108 Stat. 507, the Foreign Narcotics Kingpin Designation Act, 21 U.S.C. §§* 1901 et seq., the Iran and Libya Sanctions Act of 1996, Pub. L. 104 172, 110 Stat. 1541, the Cuban Democracy Act. 22 U.S.C. §§ 6001 et seq., the Cuban Liberty and Democratic Solidarity Act. 22 U.S.C. §§ 6021-91, and the Foreign Operations, Export Financing and Related Programs Appropriations Act, 1997, Pub. L. 104 208, 110 Stat. 3009 172, or any other law of similar import as to any non U.S. country, as each such Act or law has been or may be amended, adjusted, modified, or reviewed from time to time.
Compliance with Anti-Money Laundering Requirements
The Fund may be subject to certain provisions of the USA PATRIOT Act of 2001 ("the Patriot Act"), including, but not limited to, Title III thereof, the International Money Laundering and Abatement and Anti-Terrorist Financing Act of 2001 ("Title III"), certain regulatory and legal requirements imposed or enforced by the Office of Foreign Assets Control (“OFAC”) and other similar laws of the United States. In response to increased regulatory concerns with respect to the sources of the Fund’s capital used in investments and other activities, the Manager may request that Investors provide additional documentation verifying, among other things, such as each Investor’s identity and the source of funds the Investor used to purchase Units. The Manager may decline to accept a subscription if this information is not provided or on the basis of the information that is provided. Requests for documentation and additional information may be made at any time during which an Investor holds a Unit or Units. The Manager may be required to report this information or report the failure to comply with such requests for information, to appropriate governmental authorities, in certain circumstances without informing a Member or Unit Holder that such information has been reported. The Manager will take such steps as it determines are necessary to comply with applicable law, regulations, orders, directives, or special measures, including, but not limited to, those imposed or enforced by OFAC, the Patriot Act, and Title III. Governmental authorities are continuing to consider appropriate measures to implement anti- money laundering laws and at this point it is unclear what steps the Manager may be required to take; however, these steps may include prohibiting a Member from making further contributions of Capital to the Fund, or Unit Holder from lending further monies to the Fund, depositing distributions or interest to which such Member or Unit Holder would otherwise be entitled into an escrow account, or causing the withdrawal of such Investor from the Fund.
Compliance with Dodd-Frank Act and Similar Regulations
The U.S., state, and foreign governments have taken or are considering extraordinary actions in an attempt to address real or perceived underlying causes of financial crisis and fraud and to prevent or mitigate the recurrence. These actions or other actions under consideration could result in unintended consequences or new regulatory requirements which may be difficult or costly to comply with. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act or the “Dodd-Frank Act,” creates a Financial Services Oversight Council to identify emerging systemic risks and improve interagency communication, creates a Consumer Financial Protection Agency authorized to promulgate and enforce consumer protection regulations relating to financial products, which would affect both banks and non-bank finance companies, imposes a comprehensive new regulatory regime of financial markets, including derivatives and securitization markets and creates an Office of National Insurance within Treasury. While the bill has been signed into law, a number of provisions of the law remain to be implemented through the rulemaking process at various regulatory agencies. It is unforeseeable what the final form of these rules will be when implemented by the respective agencies, but certain aspects of the new legislation, including, without limitation, the additional cost of higher deposit insurance and the costs of compliance with disclosure and reporting requirements and examinations by the new Consumer Financial Protection Agency, could have a significant impact on the Fund’s business, financial condition, and results of operations. Additionally, it is unforeseeable whether there will be additional proposed laws or reforms that would affect the U.S. financial system or financial institutions, including the Fund, whether or when such changes may be adopted, how such changes may be interpreted and enforced or how such changes may affect the Fund.
Other laws, regulations, and programs at the federal, state, and local levels are under consideration that seek to address the economic climate and to impose new regulations on various participants in the financial system. It is unforeseeable the effect that these or other actions will have on the Fund’s business, results of operations and financial condition. Further, the failure of these or other actions and the financial stability plan to stabilize the economy could harm the Fund’s business, results of operations, and financial condition.
General Compliance, Litigation and Claims Issues
The Company must comply with various legal requirements, including requirements imposed by the securities laws, tax laws and pension laws in various jurisdictions as well as compliance and reporting requirements imposed on Commodity Pool Operators “CPOs” by the Commodity Futures Trading Commission “CFTC” and National Futures Association “NFA”. Should any of these laws change over the term of the Company, the legal requirements to which the Company and the Members may be subject could differ materially from current requirements. This compliance and reporting requirement may also prove expensive for the Company and time consuming for Manager. The Company and Manager as independent legal entities may also be subject to lawsuits or proceedings by government entities or private parties. Except in the event of a lawsuit or proceeding arising from Manager’s willful misfeasance, bad faith or gross negligence in the performance of its duties, expenses or liabilities of the Company arising from any suit or proceeding shall be borne by the Company. Under certain circumstances, the Company may find it necessary to establish a reserve for contingent liabilities or withhold a portion of a Member’s settlement proceeds at the time of withdrawal, in which case, the reserved portion would remain at the risk of the Company’s activities.
The Future of Regulatory Oversight and Compliance is Unknown
The securities markets are subject to comprehensive statutes, regulations and margin requirements. In addition, the Securities and Exchange Commission and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of securities both inside and outside the United States is a rapidly changing area of law and is subject to modification by government and judicial action. The effect of any future regulatory change on the Company is impossible to predict but could be substantial and adverse.
Revised Regulatory Oversight and Enforcement is Impossible to Predict
In addition to proposed and actual accounting changes, there have recently been certain well- publicized incidents of regulators unexpectedly taking positions which prohibited trading strategies which had been implemented in a variety of formats for many years. In the current unsettled regulatory environment, it is impossible to predict if future regulatory developments might adversely affect the Company.
Conflicts of Interest Risks
The Manager, the Originator, and their principals are subject to various conflicts of interest in managing the Fund. The Fund will pay the Manager and/or Originator substantial fees that are not determined by arm’s length negotiations. The Fund will pay a quarterly Management Fee to the Manager of 3% (annualized) of the total collective AUM as determined on the last day of each quarter. Given that the Management Fee is calculated off the AUM, a potential incentive exists for the Manager to inflate the AUM in order to increase the Management Fee.
The Manager will be the representative of the Unit Holders for purposes of actions on the Units. Please see the sections of this PPM titled “RISK FACTORS -- Risks Specific to Unit Holders” and “Conflicts of Interest.”
The Fund does not have its own officers, directors, or employees. The Manager supervises and controls the business affairs of the Fund, locates investment opportunities for the Fund, raises capital for the Fund, administers the financial affairs of the Fund, and renders certain other services, in each case subject to delegation to other firms or Affiliates of the Manager or Originator. The Manager, however, will devote only such time to the Fund’s affairs as may be reasonably necessary to conduct its business. The Manager, and/or its Affiliates and principals, may be a manager of other companies (some of which may directly compete with the business of the Fund) and have other business interests of significance.
Risk of Additional Investors
The Fund is going to operate in the early Cycles as a nearly open-end fund, which means it does not have restrictions on the number of Units the Fund will issue up to its limit of 10,000,000 Units or $10 million in investment and proceeds capital. If demand is high enough, the Fund may continue to issue Units no matter how many Investors there are, up to a ceiling of ten million Units.
Additional Units may be sold from time to time to the Manager, its Affiliates, new Investors, or current Investors that choose to exercise their Reinvestment Option but only during the Cycle Window. As additional Units are issued, the increase in Units may reduce the amounts the Fund has available to make distributions to any one Investor, as distributions will need to be distributed amongst more Units. The Fund intends to only accept additional capital to the extent it will result in additional yields sufficient to provide for the associated distributions, but the Fund cannot assure Investors that this will happen. In addition, subsequent sales may be at a Unit Price higher or lower than the current Unit Price, or on terms that are more or less favorable to the Unit Holders than under the current Unit Schedule. Since all Unit Holders are Pari Passu, however, Investors that paid different amounts may be entitled to similar returns.
At the end of each Cycle, proceeds will be distributed to the Members’ Capital Account where the Unit price for the end of the Cycle will be readjusted for the forward cycle by either: (i) allowing the Investor to withdraw proceeds or principal, or (ii) reallocating Units representing the proceeds to each Investor in a new Cycle with all Units again starting at $1.00 per Unit.
For example only, Investor A invests $100,000 and the returns after the first Cycle are net 30% per Unit so Investor has his original 100,000 Units and $30,000 of proceeds. The value of a Unit at the close of the Cycle is “book value” of $1.30 per Unit. This is just an example for the purposes of demonstration using “easy” mathematics. The Manager does not believe returns for thirteen months will be limited to 30% of base investment.
Investor can elect to withdraw, but doesn’t. Investor pays his own tax on the returns outside of the Fund capital. Investor then elects to go forward with the Fund into another Cycle and, therefore, at the closing of the Cycle Window, Investor’s Capital Account shows an adjusted price of $1.00 per Unit, but Investor now has 130,000 Units going into the next Cycle.
Risk of Lack of Knowledge in Geographic Markets
Although the Fund intends to focus its investments in locations with which the Manager is generally familiar, the Fund runs a risk of experiencing underwriting challenges or issues associated with a lack of familiarity in some markets. Each market has nuances and idiosyncrasies that affect values, marketability, desirability, and demand that may not be easily understood from afar. While the Manager believes it can effectively mitigate these risks in a myriad of ways, there is no guarantee that investments in geographic markets outside its physical location (or even inside this perceived boundary) will perform as expected.
Risks of Participation or Fractional Interests in Fund Assets
Other owner(s) of a Participation in such an Asset may have different ideas, motivations, or desired outcomes than the Fund which may give rise to disputes in how to manage the Asset.
There may be complications in disposing of Participation that require additional time, money, and cooperation of parties who may be adverse at the time of maturity or disposition of the Asset, which may reduce the amount recovered by the Fund on such an Asset.
The Manager and/or the Fund may not control or have influence over the transaction involving the Asset subject to the Participation agreement. Such a scenario would subject the Fund to the decisions of another party, whose interests may be adverse to those of the Fund.
There may be regulations or laws that govern or influence a Participation that are unknown at the time the investment is made, but which have a negative impact on the Asset at the time of maturity or disposition.
The Fund’s Investments are Illiquid in Nature
Although some of the Fund’s investments may generate current income, the illiquidity commonly associated with some investments may limit the Fund’s ability to vary its portfolio of investments in response to changes in economic and other conditions. Illiquidity may result from the absence of an established market for investments as well as the legal or contractual restrictions on their resale. In addition, illiquidity may result from the decline in value of a asset comprising one of the
Fund’s investments. There can be no assurances that the fair market value of any asset held by the Fund will not decrease in the future, leaving the Fund’s investment relatively illiquid.
Furthermore, although the Manager expects that the Fund’s investments will be disposed of prior to dissolution, the Fund may have to sell, distribute, or otherwise dispose of its investments at a disadvantageous time as a result of dissolution.
Digital Operations Risk
The Fund relies heavily on software, technology and the cloud with all documents secured and managed digitally. The Manager utilizes software that allows it to track and manage its investments with confidence and accuracy. However, there are risks associated with technology. Defects in software products and errors or delays in processing of electronic transactions could result in:
In addition, the Fund relies on technologies supplied by third parties that may also contain undetected errors, viruses, or defects that could have a material adverse effect on the Fund’s financial condition and results of operations. There is always a potential in the technology- dependent marketplaces that cybersecurity risks can result in incidents that cause or be exacerbated by critical infrastructure systems and process failures beyond the reasonable control of the Fun Manager.
Asset Valuation Risk
Many of the Company’s Investments may be difficult to value. Where market quotations are not readily available or deemed unreliable, the Company will value such Investments in accordance with fair value procedures adopted by Manager. Valuation of illiquid investments may require more research than for more liquid investments. In addition, elements of judgment may play a greater role in valuation in such cases than for Investments with a more active secondary market because there is less reliable objective data available. An instrument that is fair valued may be valued at a price higher or lower than the value determined by other funds using their own fair valuation procedures. Prices obtained by the Company upon the sale of such Investments may not equal the value at which the Company carried the Investment on its books, which would adversely affect the asset valuation of the Company.
Other General Risks of an Investment in the Fund Newly Formed Entity
The Fund is a newly formed entity with no operating history on which prospective Investors may base an evaluation of likely performance, and the Fund will be the first fund managed by the Manager. To the extent that the principal(s) are responsible for the investment results of previous investment funds, those results are, in any event, past results and are not necessarily indicative of future results of the Fund’s investments. There can be no assurance that any of the Fund’s investments will perform as well as the past investments of the principals, or that the Fund’s investments will meet the Fund’s target return.
Risk of Loss
A Member could incur substantial or even total losses on an Investment in the Company. An investment in the Company is only suitable for persons willing to accept this high level of risk.
No Operating History
The Company issuing the Membership Units is a recently formed entity and has no operating history upon which prospective investors can evaluate its performance. There can be no assurance that the Company will achieve its investment objectives.
Unspecified Investments
The Fund has not identified the particular investments it will make. Accordingly, an Investor must rely upon the ability of the Manager in making investments consistent with the Fund’s investment objectives and policies. Although the principals have been successful in locating investments in the past, the Fund may be unable to find a sufficient number of attractive opportunities to invest its committed capital or meet its investment objectives.
Furthermore, there may be a period of time before the Manager fully invests the proceeds of this Offering and begins to make distributions or payments. The Manager will attempt to invest the proceeds as quickly as prudence and circumstances permit; however, no assurance can be given as to how quickly the proceeds will be invested. Consequently, the distributions you receive on your investment may be reduced pending the investment of the Offering proceeds in Fund Assets.
The Fund’s Due Diligence May Not Reveal All Factors Affecting an Investment and May Not Reveal Weaknesses in Such Investments.
There can be no assurance that the Manager’s due diligence processes will uncover all relevant facts that would be material to an investment decision. Before making an investment, the Manager will assess the strength of the underlying properties and any other factors that they believe are material to the performance of the investment. In making the assessment and otherwise conducting customary due diligence, the Manager will rely on the resources available to them and, in some cases, investigations by third parties.
Reliance on Management
The Manager will make all Fund management decisions, including Fund Asset selection. The Fund will be relying in large part on the Manager’s acquisition expertise. The Manager may resign at any time with one year notice to the Members without liability to the Fund.
Key Person Provision
The Manager’s principal and Key Person is Alex Barrett. The Fund’s Limited Partnership Agreement shall contain a provision that, upon the death or permanent disability of Mr. Barrett, the Fund shall place an immediate moratorium on new investments for up to one year. The Members shall have the right to appoint a replacement Key Person during the moratorium period. If no replacement Key Person is appointed by a vote of the Members within the maximum one- year moratorium period, the Fund shall permanently cease to make new investments and proceed with an orderly liquidation of its Assets.
Use of Leverage in Making Investments for the Fund
“Leverage” is the ability of the Fund to take advantage of its assets and gains while still locked into assets that have not been liquidated through borrowing. The Company may use leverage as a part of its investment program, including the use of borrowed funds. While such strategies and techniques increase the opportunity to achieve higher returns on the amounts lent, they also increase the risk of loss. To the extent the Company makes investments with borrowed funds, its net assets will tend to increase or decrease at a greater rate than if borrowed funds are not used. The level of interest rates generally, and the rates at which such funds may be borrowed in particular, could affect the operating results of the Company. If the interest expense on borrowings were to exceed the net return on the Investments made with borrowed funds, the Company’s use of leverage would result in a lower rate of return than if the Company were not leveraged.
Leverage is the key to gaining compounded returns by borrowing against a present position that is not ready for liquidation but shows a significant gain. By accessing credit lines specific for the purpose, the Fund can catapult its returns by engaging another position and paying off the leverage when the original asset used as collateral is liquidated.
Risk if Manager Withdraws or is Terminated
The Fund presently only has one Manager. If the Manager, subject to its one-year notice requirement, withdraws from the Fund, is terminated by the Members for Cause, or is terminated as Manager by dissolution or bankruptcy, it may be difficult or impossible for the Members of the Fund to locate a suitable replacement for the Manager. If it is unable to replace the Manager, the Fund would proceed with liquidating the Fund’s Assets, which may or may not be able to be successfully executed.
Risk of Litigation
The Fund’s investment activities may include activities that will subject it to the risks of becoming involved in litigation by third parties. The expense of defending claims against the Fund by third parties and paying any amounts pursuant to settlements or judgments would be borne by the Fund and would reduce net assets and could require the Partners to return distributed capital and earnings to the Fund. The General Partner, the Investment Manager, and their Affiliates will be indemnified by the Fund in connection with such litigation, subject to certain conditions.
Risks Associated with a Changing Economic Environment
As a result of the credit crisis and the occurrence of several high-profile bankruptcies, recent government bailouts, bank failures, other negative corporate events and certain other recent events, the financial markets have been disrupted in general and the availability and cost of capital for the Fund and that of the Fund’s competitors have been adversely affected. The achievement of the Fund’s targeted rate of return is dependent, at least in part, upon the Fund’s ability to access capital at rates and on terms the Manager determines to be acceptable. If the Fund’s ability to access capital becomes significantly constrained, the Fund’s financial condition and future investments may be significantly adversely affected.
Risk of Repayment of Fund Assets and Redeployment of Cash
There is a risk that when Fund Assets are paid off, there may not be sufficient quality opportunities to immediately redeploy the proceeds received from these payoffs into new Fund Assets. If the Fund is unable to locate new Assets in a timely manner, the excess cash may water down the overall yield to the Fund or the Manager may choose to repay Investors a portion or all of their Capital Account earlier than expected.
Competition for Fund Assets
The business and arena in which the Fund is engaged is highly competitive, and the Fund and Manager compete with numerous established entities, some of which have more financial resources and experience in the business than the Fund or Manager. The Fund and Manager expect to encounter significant competition from other market participants including but not limited to private equity fund managers, pension funds, and institutional investors, and other people and/or entities with objectives similar in whole or in part to those of the Fund. Any general increase in the availability of capital for such purposes may increase competition for Fund Assets and could reduce the yields they produce, including those of the Fund.
Risk of Loss of Funds in Money Market Account
The Fund intends to place all its cash which is not otherwise invested in Fund Assets in Money Market Accounts. Each Money Market Account will consist of investments that are immediately liquid, and that, in the Manager’s judgment, are sufficiently safe while producing a yield on the Fund’s cash. The Manager intends to choose such investments which appear to have a very low probability of loss. Notwithstanding the foregoing, any investment inherently involves certain risks.
Absence of Registration Under Applicable Securities Laws
This Offering is being made under certain federal and state securities laws exemptions. As such, the Units have not been registered under the Securities Act, or applicable state securities laws. Therefore, no regulatory authority has reviewed the terms of this Offering, including the nature and amounts of the compensation, the disclosure of risks and tax consequences, and the fairness of the terms of this Offering. Further, Investors do not have all of the protection afforded in registered and/or qualified offerings, and they must judge the adequacy of disclosure and the fairness of the terms of this Offering without the benefit of prior review by any regulatory authority.
Furthermore, the Fund may fail to comply with the requirements of the exemptions from registration on which it is relying. If so, Unit Holders could rescind their purchase of Units under applicable state and federal securities laws. If enough Unit Holders successfully sought rescission, the Fund and the Manager would face severe financial demands, which would adversely affect the Fund.
Absence of Regulatory Oversight
While the Fund may be considered similar to an investment company, it is not presently, and does not propose in the future, to register as such under the Investment Company Act of 1940 or the laws of any other country or jurisdiction and, accordingly, the provisions of the Investment Company Act (which, among other matters, require investment companies to have a majority of disinterested directors, require securities held in custody to be individually segregated at all times from the securities of any other person and to be clearly marked to identify such securities as the property of such investment company, and regulate the relationship between the adviser and the investment company) will not be applicable to the Fund. In addition, the Manager is not registered as an investment adviser under the Investment Advisers Act of 1940 or as a Commodity Trading Advisor under the Commodity Exchange Act (or any similar law). Furthermore, the Manager is exempt from registration with the Commodity Futures Trading Commission as a commodity pool operator.
Risk That the Fund May Become Subject to the Provisions of the Investment Company Act of 1940
The Fund intends to operate so as to not be regulated as an investment company under the Investment Company Act (as defined herein) based upon certain definitions and exemptions thereunder. Companies that are subject to the Investment Company Act must register with the SEC and become subject to various registration, governance, and reporting requirements. Compliance with such restrictions would limit the Fund’s flexibility and create additional financial and administrative burdens on the Fund. The Fund believes it can avoid these restrictions based on one or more exemptions provided for companies like the Fund. Specifically, the Fund expects to be exempted from registration under the Investment Company Act because the Fund will not make a public offering of the Units and the Fund will be primarily engaged in purchasing or acquiring mortgages and other liens on, and interests in, real estate as determined under exemptions from the Investment Company Act and rules issued thereunder. Accordingly, the Fund does not expect to be subject to the restrictive provisions of the Investment Company Act.
However, the SEC has recently indicated that it may seek to narrow the exemption from registration for entities engaged in purchasing or acquiring mortgages and other liens on real estate. If the Fund fails to qualify for exemption from registration as an investment company, its ability to conduct its business as described herein will be compromised. Any such failure to qualify for such exemption would likely have a material adverse effect on the Fund.
Risk that the Manager May Become Subject to the Provisions of the Investment Advisers Act of 1940
The Manager has not registered as an investment adviser under the Investment Advisers Act of 1940 (the “Investment Advisers Act”) and intends to operate so as to not be required to register as an investment adviser with the SEC. Specifically, a provider of investment advice as to real estate, and not as to securities, should not be considered an “investment adviser” for purposes of the Investment Advisers Act. In addition, even if the Manager were to be deemed an investment adviser, investment advisers are not required to register under the Investment Advisers Act so long as they have less than $110 million in AUM, and the Manager expects to be further exempted from registration so long as the Manager has less than $150 million in AUM based on the fact that it is solely a manager of a real estate fund that is a qualifying private fund exempt from registration under the Investment Company Act. If the Manager were deemed to be an investment adviser, and if or when the Manager exceeds that threshold, unless it is eligible for another exemption, it will be required to register under the Investment Advisers Act and will be subject to various restrictive provisions provided for therein. The Manager cannot determine at this time what, if any, impact such registration and restrictions will have on its business or the business of the Fund.
Because the Manager views itself as being solely in the business of advising the Fund as to securities and NOT the individual Investor, as a blind pool investment where the Investor has no say about the type of asset, quantity of investment, timing, leverage or any other business-related objective or management of the SPV, the Manager does not intend to register under the Investment Advisers Act or any equivalent laws of one or more states that pertain to offering of investment advice on securities (“State Advisers Acts”).
Nevertheless, given that each state may adopt its own interpretations, the Manager could be required at some point to register with one or more State Advisers Acts. State Advisers Acts are similar to the Investment Advisers Act but generally apply to investment advisers that are not subject to the Investment Advisers Act because of the amount of AUM or other exemptions from registration. The Manager intends to seek exemptions from such registration where possible. If the Manager does have to register under one or more State Advisers Acts, such registration may create administrative and financial burdens on the Manager, and the Manager’s operation of the Fund could be adversely affected to the extent that technical requirements or prohibitions were to prevent the Fund from operating as planned or add costs to the Fund such as certain custody related requirements. So long as the Manager is not an investment adviser, it does not owe the Fund a formal fiduciary duty as such, and the Fund does not benefit from the protections of the Advisers Act or State Advisers Acts.
The Fund’s Reliance on Exclusions from the Investment Company Act May Impact Certain Investment Decisions
To the extent that the Fund invests solely in real estate and not in securities, it should not be considered an investment company under the Investment Company Act. It is nevertheless conceivable that certain ways in which the Fund’s investments are structured could be construed as securities for purposes of the Investment Company Act. The Investment Company Act excludes an issuer that follows a real estate program from the definition of an “investment company” if it is “primarily engaged” in, the origination or acquisition of mortgages and other liens on, and/or interests in, real estate. The Manager has not sought a no-action letter from the SEC to confirm that the Fund is eligible for this exemption. However, the Manager will rely on guidance issued by the SEC stating that so long as qualifying percentages of the Fund’s assets consist of (1) mortgages and other liens on or interests in real estate; and (2) the remaining percentage of the Fund’s assets consist primarily of real estate related assets, the Fund will remain exempt from the Investment Company Act registration requirements. Because the Fund is relying on an exemption that is dependent on the nature of the Fund’s investment holdings, the Manager may need to consider such restrictions when assessing a potential investment for the Fund and may decide not to pursue an asset because such asset would jeopardize the Fund’s use of the exemption, as opposed to whether or not the asset would otherwise be a sound investment for the Fund.
Recent and Anticipated Legislative and Regulatory Activity
The U.S. Congress, the SEC, and other regulators have taken, or represented that they may take, action to increase or otherwise modify the laws, rules, and regulations applicable to techniques and instruments in which the Fund may invest. New (or modified) laws, rules, and regulations may prevent, or significantly limit the ability of, the Manager from using certain such instruments or from engaging in such transactions. This may impair the ability of the Manager to carry out the Fund’s investment strategy and may otherwise have an adverse impact on the Fund’s returns.
Compliance with such new or modified laws, rules, and regulations may also increase the Fund’s expenses and therefore, may adversely affect the Fund’s performance. It is not possible at this time to predict with certainty what, if any, impact the new or modified regulations will have on the Manager or the Fund, and it is possible that such impact could be adverse and material.
Investment by Benefit Plans
In considering the acquisition of Units to be held as a portion of the assets of an “employee benefit plan” within the meaning of Section 3(3) of ERISA (“a Benefit Plan” or “Plan”), a Plan fiduciary, taking into account the facts and circumstances of such trust, should consider, among other things: (a) the effect of the “Plan Asset Regulations” (Labor Regulation Section 2510.3-101) including potential “prohibited transactions” under the Code and ERISA; (b) whether the investment satisfies the “exclusive purpose,” “prudence,” and “diversification” requirements of Sections 404(a)(l)(A),(B) and (C) of ERISA; (c) whether the investment is a permissible investment under the documents and instruments governing the plan as provided in Section 404 (a)(l)(D) of ERISA; (d) the Plan may not be able to distribute Units to participants or beneficiaries in pay status because the Manager may withhold its consent; and (e) the fact that no market will exist in which the fiduciary can sell or otherwise dispose of the Units and the Fund has no history of operations. The prudence of a particular investment must be determined by the responsible fiduciary with respect to each employee benefit plan, taking into account the facts and circumstances of the investment.
ERISA Risks
Any Investor that invests funds belonging to a qualified retirement plan or IRA should carefully review the tax risks provisions of this PPM as well as consult with their own tax advisors. The contents hereof are not to be construed as tax, legal, or investment advice.
PROSPECTIVE BENEFIT PLAN INVESTORS ARE URGED TO CONSULT THEIR ERISA ADVISORS WITH RESPECT TO ERISA AND RELATED TAX MATTERS, AS WELL AS OTHER MATTERS AFFECTING THE BENEFIT PLAN’S INVESTMENT IN THE FUND. MOREOVER, MANY OF THE TAX ASPECTS OF THE OFFERING DISCUSSED HEREIN ARE APPLICABLE TO BENEFIT PLAN INVESTORS WHICH SHOULD ALSO BE DISCUSSED WITH QUALIFIED TAX COUNSEL BEFORE INVESTING IN THE FUND.
Indemnification
The Fund will be required to indemnify the Manager and certain affiliated persons and entities of the Manager for liabilities incurred in connection with the affairs of the Fund. Such liabilities may be material and may have an adverse effect on the returns to the Members and Unit Holders. The indemnification obligation of the Fund will be payable from the assets of the Fund, and Investors may be required to return certain amounts distributed to them to fund the indemnity obligations of the Fund.
The Proprietary Nature of the Fund’s Investment Strategy
All documents and other information concerning the Company’s portfolio of investments will be made available to the Company’s auditors, accountants, attorneys and other agents in connection with the duties and services performed by them on behalf of the Company. However, because Manager’s investment techniques may be proprietary, the Company Agreement will provide that neither the Company nor any of its auditors, accountants, attorneys or other agents will disclose to any person, including investors in the Company, any of the investment techniques employed by Manager in managing the Company’s Investments or the identity of specific Investments held by the Company at any particular time.
Risks Specific to Unit Holders
Risk that the Stated Value of Individual Fund Assets is Incorrectly Determined by the Manager
The Manager will develop and utilize a consistent methodology to calculate the Stated Value of each individual Fund Asset on an ongoing basis, typically calculating this Stated Value for each Fund Asset at the time of origination or acquisition and at the end of each calendar quarter. The Manager will use methodologies that it deems reasonable based on various valuation practices commonly used in similar businesses in the industry including Broker Price Opinions (“BPOs”), Comparative Market Analyses (“CMAs”), appraisals, comparable sales of other assets similar to Fund Assets, historical data and trends from actual sales, disposition or performance of Fund Assets, cash balances (in the case of cash Assets), and other such methodologies generally used and accepted in the market. The determination of Stated Value of any given Fund Asset may be highly subjective and may change continuously on an ongoing basis. There is no guarantee that any Stated Value as determined by the Manager of one or more of the Fund Assets is an accurate representation of the true current value of any Fund Asset and as such, the Unit Price may not fairly represent the then current true value of the Units. Furthermore, the Manager may be subject to certain conflicts of interest in determining the Stated Value since such Stated Value will be the basis for the calculation of its management fees.
Although the Manager will use methodologies that it believes are based on reasonable approaches to establishing value, it may modify, alter, or improve its methodologies in its sole discretion at any time during the life of the Fund. The Manager will make all determinations as to Stated Value of the Fund Assets in its sole discretion. There is a risk that the price charged for a Unit does not reflect its Value. The $1.00 starting price of a Unit is completely arbitrary and the end of Cycle value could possibly be somewhat arbitrary if an investment is still proceeding while the Cycle Window is open for twenty-one days. If, however, all assets are cash or cash equivalent holdings at the time of the Cycle Window, the price per Unit can be more accurately calculated though due to fluctuations may vary right up until the very minute the Cycle Window closes and asset trading re-commences.
The price at which the Fund will offer Units pursuant to the Offering, and the price at which a Unit Holder will purchase additional Units under the Reinvestment Option, will fluctuate based on the collective Stated Value (see immediately above) of all of the individual Fund Assets at the end of each calendar quarter. At the end of each quarter, the price of a Unit will be calculated by dividing the total Stated Value of all the Assets by the total number of outstanding Units. Because the Stated Value of any given Fund Asset may not accurately reflect its actual value, the Price may not accurately reflect the actual value each Unit at any given point. Hence, the price of a Unit could be adjusted by a premium or discount at any given point in time if the Assets were sold in a secondary market. Investors should realize that the only measure of fair market value for a Unit is the price that would be determined under a ready market for the Units. Because no ready market for the Units exists or is anticipated, a perfectly accurate determination of the fair market value of the Units cannot be established.
Restrictions on Withdrawal of Member Capital
Investors will be required to hold their Units for a minimum of 13 months before they may request withdrawal. Withdrawal requests for reasons of financial hardship or emergency during the Commitment Period may be considered on a case-by-case basis subject to a penalty equal to a sliding scale based on the holding requirement published by the Manager each year. The Manager will have no obligation to consider any hardship Withdrawal requests during the Commitment Period and will be entitled to charge a higher or lower Withdrawal Fee. All Withdrawal Fees charged and collected will be considered income to the Fund. The cost of any required appraisal specifically for an emergency or hardship withdrawal shall be borne by the requesting Unit Holder.
After the Cycle Commitment Period expires, Withdrawal requests will be considered on a first come, first served basis. A Member will be required to provide the Manager a 45-day notice for any withdrawal request and any withdrawal actually provided will be done only during the Cycle Window period of twenty-one days following the end of the 45-day notice period at the then current Unit Price as determined by the Manager.
The Manager will have no obligation to grant any particular withdrawal request other than during a Cycle Window and then only by the 45-day notice in advance to allow for liquidation or bridge financing to cover the withdrawal, if necessary. No Member will be given priority for withdrawal over any other Member for any reason other than the date upon which the request was made. The Manager may redeem Units Pari Passu at any time at the then current Price in its sole discretion without penalty to the Manager or the Fund.
Due to the above restrictions, including the Manager’s ability to reject any redemption request in its discretion, even after the Cycle Commitment Period, there is no assurance that a Member will be permitted to redeem all of his, her or its Units at any particular time due to investments that have not been fully liquidated. As a result, a Unit Holder may be required to maintain his, her, or its investment indefinitely until liquidation sufficient to cover the Member’s request occurs.
Restrictions on Transfer of Units
The Units are restricted as to transfer under the state and federal tax and securities laws. In order to preserve the Fund’s status as a limited liability company making this exempt offering under certain SEC rules, Unit Holders will not be free to sell or transfer Units without consent from the Manager, which the Manager may withhold in its discretion.
There is no market for the Units, public or private, and there is no likelihood that one will ever develop. Investors must be prepared to hold their Units as a long-term investment and should not anticipate being permitted to transfer their Units. To comply with applicable tax and securities laws, the Manager may refuse advice to consent to a transfer or assignment of Units.
Rights of Unit Holders are Restricted
No Unit Holder can exercise control over the Fund’s affairs, which is entirely in the hands of the Manager.
Federal Income Tax Risks
As with any investment that generates income and/or loss and distributes cash, an investment in the Fund has federal income tax risks. The significant tax risks are discussed in greater detail later in this PPM. All Investors are encouraged to review the tax risk section with competent tax counsel. This discussion does not constitute tax advice and is not intended to substitute for tax planning.
Investors should understand the role of the Fund and the IRS concerning the tax issues involved in any investment in the Fund. The IRS may do any of the following:
The Fund will:
Risk that Distributable Cash May Not Flow to Unit Holders
The Fund’s distribution model provides for the payment of a number of obligations prior to the Unit Holders receiving their return of capital and share of profits. Specifically, interest and principal on any Credit Facility, Fund Expenses, the Management Fee, and repayment of maturing Units are all paid prior to the Preferred Return. If the Fund does not generate enough cash to satisfy all of these obligations, the Unit Holders will not receive any further payments from the Fund.
Loss on Dissolution and Termination
In the event of a dissolution or termination of the Fund, the proceeds realized from the liquidation of Assets, if any, will be distributed to the Unit Holders, but only after the satisfaction of claims of creditors, which include the Unit Holders, liquidation and fund expenses, and accrued Management Fees. Accordingly, the ability of a Unit Holder to recover all or any portion of its investment in the Fund under such circumstances will depend on the amount of funds so realized and claims to be satisfied therefrom. There is no guarantee of a return of any of a Unit Holder’s investment.
Delay on Issuance of Schedules K-1
The Company may not be able to provide final Schedules K-1 to Members for any given fiscal year until significantly after April 15 of the following year due to the timing of Cycles and the adjustments an Investor makes during a Cycle Window. The Company will provide Schedules K- 1 as soon as practical after receipt of all of the necessary information. Members should be prepared to obtain extensions of the filing date for their income tax returns at the U.S. Federal, state and local level.
Risk of Failure to Notify Manager of Desire to Cash-Out at Maturity
The Unit Holder will have responsibility for notifying the Manager of its desire to cash-out its Unit. No later than 45 days prior to the Maturity Date, a Unit Holder must notify the Manager of Unit Holder’s desire to cash-out and receive payment of outstanding principal and interest upon the Maturity Date. If the Unit Holder does not provide the 45 day Cash-Out Notice, the Unit upon the Maturity Date will automatically extend at the Unit rate less 1% until either (i) the Unit Holder notifies the Fund that it wishes for the outstanding balance of the Unit to be rolled over into a new Unit, based on the then current Unit Schedule, and such new Unit is executed, or (ii) 45 days after the Unit Holder provides a Cash-Out Notice. As such, a Unit Holder has the burden of providing timely notice in order to receive payment under a Unit on its Maturity Date; a Unit Holder’s failure to timely provide such notice will result in the Unit remaining outstanding past its Maturity Date.
Unit Holders Have No Right to Vote or to be Involved in Management
Unit Holders cannot exercise any control over the Fund’s affairs and will not have any vote or influence over the Fund, its investment policies, or any of its operations. The Manager will exercise
complete control over the Fund, subject to those limited items which the Members will be entitled to a vote as detailed in the Operating Agreement. The Manager has broad investment authority and may change its investment and underwriting policies (within the confines of its overall investment strategy) in its sole discretion, consistent with the duties it owes to all of the Unit Holders. The Operating Agreement also provides that in its sole discretion, the Manager may withdraw from the Fund at any time with one year’s notice, which may result in the Fund’s dissolution if a replacement is not named within such period. Because the Unit Holders will have no rights with respect to the Fund’s management and affairs, Unit Holders must rely entirely on the Manager to make the Fund profitable enough to be able to pay off amounts due under the Units.
Power of Attorney
Pursuant to the Subscription Agreement, the Unit Holder appoints the Manager as the initial Representative, and any successor Representative, as determined by the Manager, as its true and lawful representative and attorney-in-fact in such Unit Holder’s name, place, and stead to make, execute, sign, acknowledge, file, and record all instruments, agreements, or documents as may be necessary or advisable to reflect the exercise by the Representative of any of the powers granted to it under the Subscription Agreement and the Intercreditor Agreement.
The Unit Holder will further authorize the Representative to take any further action which the Representative will consider necessary or advisable in connection with any of the foregoing, giving the Representative full power and authority to do and perform each and every act or thing whatsoever requisite to be done in and about the foregoing as fully as such Unit Holder might or could do if personally present. The Unit Holder will be bound by any representation made by the Representative acting in good faith pursuant to such power of attorney, and the Unit Holder will waive any and all defenses which may be available to contest, negate, or disaffirm the action of the Representative taken in good faith pursuant to such power of attorney.
Reliance on Investment Manager
The Fund is wholly dependent upon the services of the Manager to direct the Fund’s operations. Should the services of the Manage be lost, such loss could severely impair the Fund and its ability to produce profits for investors. As an Investor, you need to be aware that you will have no right to participate in the management of the Fund, nor the choice of investment manager, and you will have no opportunity to select or to evaluate any of the Fund’s investments or strategies.
Market Disruptions and/or Catastrophic Events
Catastrophic events independent of the financial markets may cause market disruptions which would hinder the ability of the Fund to liquidate assets for an indeterminate period. Such disruptions could cause the liquidation of certain Fund Assets causing a substantial loss to the Fund.
Lack of Operating History
Since the Fund is a new entity, the actual performance of the Fund as opposed to its modeled performance is unknown. Though Mr. Barrett and his senior management advisers have had success in companies like the Fund and the Manager, that should not be construed as an indication of future results of any investment in the Fund.
Valuation of the Portfolio
For the purposes of allocation of profits and losses and the calculation of fees to the Manager, the net actual value of the Fund and its assets is determined in accordance with the valuation policies approved by the Manager. The values of the instruments the Fund will purchase and sell vary in value and are exposed to market volatility and any valuation of the Fund constructed by the Manager may not fully or accurately reflect the true value of the Fund Assets.
Dependence on Third-Party Relationships
The Fund is dependent upon relationships with third parties including brokers and clearinghouses that the Manager may enter into an agreement for the purchase and sale of Fund Assets. There is no assurance that such third parties may develop their own competitive services or products either during the relationship with the Manager or after the relations with the Manager expire. Accordingly, there can be no assurance that the Investment Manager’s existing relationships or future relationships will result in sustained business partnerships, successful service offerings, or significant revenues for the Fund.
Fees Set without Negotiation
The Management Fees were set by the Manager without negotiations with any third parties. It is possible that other advisors would perform the same service for less compensation than the Manager will receive under the current Fund arrangement.
Possible Effect of Withdrawals from the Fund
Substantial withdrawals and redemptions could require the Fund to liquidate investments more rapidly than would otherwise be desirable to raise the necessary cash to fund the withdrawals. This could adversely affect the value of interests in the Fund.
