A.The Investment Adviser. HoldCo is the investment manager for a total of six (6) pooled
investment vehicles (each a “Fund” or a “Client” and collectively the “Funds” or the “Clients”).
Vikaran (Vik) Ghei and Michael (Misha) Zaitzeff are the members of the respective general partners of HoldCo. Currently, HoldCo has six employees, four of whom perform investment advisory functions and none of whom are registered representatives of a broker-dealer. Mr. Ghei and Mr. Zaitzeff are not, and have never been, HoldCo employees.
HoldCo is a Delaware limited partnership and an investment adviser located in New York, New York. HoldCo was founded in December 2013 and serves as the sole investment manager to six (6) pooled investment vehicles. The Funds are as follows with the general partner for each in parentheses: HoldCo Opportunities Fund, L.P. (VM GP I LLC), HoldCo Opportunities Fund II, L.P. (VM GP IV LLC), HH HoldCo Co-Investment Fund, L.P. (VM GP V LLC), HoldCo Co-Investment Fund II, L.P. (VM GP VI LLC), HoldCo Opportunities Fund III, L.P. (VM GP VII LLC), and HH HoldCo Co-Investment Fund II, L.P. (VM GP VIII LLC).
HoldCo Opportunities Fund, L.P., HoldCo Opportunities Fund II, L.P., and HoldCo Opportunities Fund III, L.P. are managed on a fully discretionary basis. HoldCo Opportunities Fund III, L.P.’s investment period started on May 15, 2019. HH HoldCo Co-Investment Fund, L.P., HH HoldCo Co-Investment Fund II, L.P., and HoldCo Co-Investment Fund II, L.P. are not managed on a fully discretionary basis (i.e. new investments require the consent of limited partners, but post-investment oversight and sale decisions do not). Each of HoldCo Opportunities Fund, L.P., HoldCo Opportunities Fund II, L.P., HH HoldCo Co- Investment Fund, L.P., HoldCo Co-Investment Fund II, L.P., and HH HoldCo Co-Investment Fund II, L.P.
are closed to additional investors.
As outlined on Schedule A of Form ADV, HoldCo is owned by VM GP II LLC, which serves as its general partner, and by its limited partner, VM Limited Partner I LP.

B.Types of Advisory Services. HoldCo’s advisory services are limited to acting as investment
manager to the Funds, which are pooled investment vehicles. The investment objective of the Funds is to generate positive absolute returns, while minimizing the risk of loss of invested capital. The Funds will seek to achieve this investment objective through opportunistic investments across a broad investment mandate. HoldCo will generally employ a fundamental, value-driven investment approach in selecting investments on behalf of the Funds. The Funds will focus on various investment strategies, including distressed, event-driven, and special situations strategies. These strategies are discussed in greater detail in each Fund’s offering documents. The Funds may pursue other investment strategies if they fall within the investment mandate for the Fund. HoldCo believes that it is favorable to retain flexibility in allocating capital so as to take advantage of attractive investment opportunities as they arise.

C.Tailored Advice and Investment Restrictions. HoldCo generally utilizes similar strategies for
each of the Funds but maintains discretion to tailor its advisory services to the specific needs of a Fund when deemed necessary. HoldCo’s advisory services to the Funds are outlined in various governing documents such as limited partnership agreements, private placement memoranda, investment management agreements and other applicable offering documents. These documents outline appropriate investment criteria and investment restrictions and limitations.

D.Wrap Fee Programs. HoldCo does not participate in wrap fee programs.
E.Client Assets Under Management. As of August 31, 2019, HoldCo’s total “regulatory assets
under management” were $1,057,162,000. Of this amount, HoldCo managed $782,362,000 on a discretionary basis and $274,800,000 on a non-discretionary basis.
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A.HoldCo receives management fees based on a percentage of committed capital (the “Management
Fee”) from HoldCo Opportunities Fund II, L.P. and HoldCo Opportunities Fund III, L.P. during their investment periods and, after the expiration of the investment periods, based on deployed capital plus a portion of remaining capital reserved for follow on investments. None of the other Funds pay management fees. Performance fees (“Performance Compensation”) are charged to the Funds based on investment performance achieved for each Fund (subject to hurdle rates and with “catch-up” provisions if applicable).
The fees and expenses applicable to each Fund are set forth in detail in the respective Fund’s offering documents, limited partnership agreements, and other operative documents. However, all fees are subject to negotiation. Additionally, HoldCo has the right to enter into agreements, such as side letters, with underlying investors in the Funds that may in each case provide for terms that are more favorable than the terms provided to other underlying investors in the Funds.

B.HoldCo Opportunities Fund II, L.P. and HoldCo Opportunities Fund III, L.P., each pay their
Management Fee to HoldCo quarterly from their assets. Performance Compensation, when earned, is deducted from a Fund’s distribution proceeds when such Fund makes carried interest distributions to its limited partners, provided that certain other conditions have been met.

C.In addition to the fees and allocations described above, the Funds may also incur, and bear the cost
of, (i) investment-related expenses, including, but not limited to, brokerage commissions, clearing and settlement charges, custodial fees, interest expense, consulting and professional fees relating to particular investments or contemplated investments, investment-related travel and lodging expenses and research- related expenses; (ii) operational expenses, including, but not limited to, legal expenses, accounting; audit and tax preparation expenses, insurance premiums; fees for each Fund’s Administrator; and other similar expenses; and (iii) organizational expenses, including, but not limited to, expenses relating to the offer and sale of interests in the Funds, including associated legal expenses.
In certain circumstances, expenses may be allocated, from time to time, among the Funds on a basis that HoldCo considers equitable based on the relevant facts and circumstances and in accordance with its current expense allocation policy.
HH HoldCo Co-Investment Fund, L.P., HoldCo Co-Investment Fund II, L.P, HH HoldCo Co- Investment Fund II, L.P., and any future co-invest vehicles, will not bear investment expenses related to any unconsummated investment (sometimes referred to as “broken deal expenses”), to the extent that such investment was also to be allocated to any other Fund advised by HoldCo had such investment been consummated, as further disclosed in the related governing documents for each Fund.
Item 12 further describes the factors that HoldCo considers in selecting or recommending broker- dealers for Client transactions and determining the reasonableness of their compensation (e.g., commissions).

D.HoldCo Opportunities Fund II, L.P. and HoldCo Opportunities Fund III, L.P., each pay HoldCo a
Management Fee quarterly in advance. If either of these Funds terminates prior to the end of a quarter for which a Management Fee have been pre-paid, any excess fees will be returned to that Fund.

E.Neither HoldCo nor any of its supervised persons accepts compensation for the sale of securities
or other investment products, including asset-based sales charges or service fees from the sale of mutual funds.
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HoldCo has entered into agreements with each of their respective Funds with respect to the payment of Performance Compensation. The manner in which Performance Compensation is paid is set forth in each Fund’s respective offering and governing documents, such as limited partnership agreements. Performance Compensation is paid only once a Fund realizes gains and is not paid based on unrealized capital gains or losses. As described in Item 5 above, HoldCo receives a Management Fee from HoldCo Opportunities Fund II, L.P. and HoldCo Opportunities Fund III, L.P.
The existence of the Performance Compensation arrangements may create an incentive for HoldCo to seek more speculative investments on behalf of the Funds than would otherwise be the case in the absence of such performance-based compensation. In addition, due to the method of calculating the performance based fees, the compensation of the general partner may be affected by the timing of dispositions and other factors which may be within the control of HoldCo.
In the allocation of investment opportunities, performance-based compensation arrangements may create an incentive to favor Funds which pay greater performance-based compensation over Funds which pay less. HoldCo maintains an allocation policy that dictates how investments are allocated among the Funds, which was negotiated with the investors of each Fund and is set forth in the applicable documents governing the Funds. HoldCo endeavors to allocate investments among the Funds in a fair and equitable manner and in accordance with its investment policy.
As discussed in Item 5.A, HoldCo may enter into side letter agreements with certain underlying investors of the Funds that may provide for terms, including with respect to Performance Compensation, that are more favorable that the terms provided to other underlying investors in the Funds.
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HoldCo provides investment advice to private funds, each of which is a privately-offered pooled investment vehicle. The interests in the Funds managed by HoldCo were offered in private placements, and in reliance on Section 3(c)(7) of the Investment Company Act of 1940, as amended (the “Company Act”), to persons who are “qualified purchasers” as defined under the Company Act, and who are subject to certain other conditions, which are set forth in the offering documents for the Funds. Typically, HoldCo generally requires a minimum investment for limited partners of its Funds which are outlined in the offering documents of each respective Fund. Minimum investments are negotiable at HoldCo’s discretion.
HoldCo does not provide investment advice to separately managed accounts, individuals, trust, investment companies, or pension plans.
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A.The Funds’ general investment objective is to generate positive absolute returns while minimizing
the risk of loss of invested capital. HoldCo will seek to achieve this investment objective through opportunistic investments across an extremely broad investment mandate described below. HoldCo will generally employ a fundamental, value-driven investment approach in selecting investments on behalf of the Funds. HoldCo’s investment mandate is broad, however, and HoldCo may invest anywhere in an entity’s capital structure, including in debt or equity, and in both foreign and domestic assets. HoldCo believes that it is favorable to retain this flexibility to take advantage of attractive investment opportunities as they arise. However, investing in securities or real assets involves risk of loss that clients should be prepared to bear.
In analyzing investments, HoldCo generally utilizes a fundamental, “bottoms-up” investment process. To determine whether a specific investment meets a Fund’s investment criteria, HoldCo will typically evaluate sources of value, the relationship of price to book value, and future cash flows, among other things. HoldCo will also typically examine the capital structure of an issuer with the goal of identifying the security or instrument that presents the most favorable risk/reward profile. HoldCo also seeks to understand possible future outcomes as well as possible events that could have a significant impact on an investment’s overall returns, including what legal rights and remedies are afforded to the holders of various securities. HoldCo will also seek to understand the risk and sources of upside potential in each given investment and ensure that the position’s size is appropriate in light of the size and composition of committed capital and the overall portfolio.
It is anticipated the Funds will be exposed to a variety of asset classes and geographies. HoldCo has no formulaic criteria as to asset type, asset size, liquidity, geography, earnings, or industry that would by itself disqualify an investment. Moreover, the holding period for the Funds’ investments may vary greatly with multi-year holding periods at the long end down to periods that are less than a year. Certain Funds provide for an investment limit in a single issuer. These limits are based on aggregate capital commitment of the limited partners.
Specifically, HoldCo may invest in new money or secondary market investments in or related to any geographic location (both foreign and domestic) which may take the form of, without limitation, loans, debt, hybrid securities (including trust preferred securities), equity, direct interests, or other interests in:
•Financial institutions, including without limitation banks, insurance companies, and real estate investment trusts (“REITs”), and any asset held by such financial institutions;
•Structured financial products, including without limitation collateralized debt obligations and asset-backed securities, and any asset held by entities related to such structured financial products; and
•Stressed, distressed, and special situation investments across all issuer and asset types including, without limitation, investments that may involve any of the following characteristics: bankruptcy, insolvency, or liquidation; stressed and distressed issuers; extraordinary corporate events; complex operating businesses, capital structures and securities; transitions in credit quality; legal and regulatory changes or challenges; limited research coverage; and non-investment grade or non-rated securities.
From time to time the Funds may take a directional short position in credit or equity, including through the use of derivatives, either to serve as a hedge against an existing long position or in connection with a directional investment thesis.
Regardless of the strategy employed, investing in securities involves a risk of loss, including the loss of capital. Each Fund and each investor and potential investor in the Funds should be prepared to bear such risk.
B.Certain Investment Risk Factors of the Funds
Investment Complexity. As an element of HoldCo’s investment style, the Funds may pursue unusually complex investment opportunities. This can often take the form of substantial business, regulatory or legal complexity that would deter other investment managers. HoldCo’s, and consequently the Funds’, tolerance for complexity presents risk, as such transactions can be more difficult, expensive and time-consuming to finance and execute; it can be more difficult to manage or realize value from the assets acquired in such transactions; and such transactions sometimes entail a higher level of regulatory scrutiny or a greater risk of contingent liabilities. Any of these risks could harm the Funds’ performance.
Illiquidity of Investments. The Funds may invest a significant amount of their capital in securities, loans or other assets for which no, or only a limited, market exists or that are subject to legal or other restrictions on transfer. Moreover, certain investments may be sourced directly through private transactions and may not have an active market. The market prices, if any, for such assets tend to be volatile, and may fluctuate due to a variety of factors that are inherently difficult to predict, including, but not limited to, changes in interest rates, prevailing credit spreads, general economic conditions, financial market conditions, domestic or international economic or political events, and developments or trends in any particular industry. Accordingly, the Funds may not be able to sell assets when a Fund desires to do so or to realize what HoldCo perceives to be the fair value of its assets in the event of a sale. The sale of illiquid assets and restricted securities often require considerable time and the incurrence of significant selling expense. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. In addition, in times of extreme market disruption, there may be no market at all for one or more of the asset classes held by the Funds, potentially resulting in the inability of the Funds to dispose of their assets for an indefinite period of time.
Investments May Be Junior. In certain cases, the companies in which a Fund invests may have indebtedness or equity securities, or may be permitted to incur indebtedness or to issue equity securities, that rank senior to the Fund’s investment. By their terms, such instruments may provide that their holders are entitled to receive payments of dividends, interest or principal on or before the dates on which payments are to be made in respect of the Fund’s investment. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a company in which an investment is made, holders of securities ranking senior to the Fund’s investment would typically be entitled to receive payment in full before distributions could be made in respect of the Fund’s investment. After repaying senior security holders, the company may not have any remaining assets to use for repaying amounts owed in respect of the investment. If any assets remain, holders of claims that rank equally with the investment would be entitled to share on an equal and ratable basis in distributions that are made out of those assets. Also, during periods of financial distress or following an insolvency, the ability of the Fund to influence a company’s affairs and to take actions to protect their investments may be substantially less than that of the senior creditors.
Uncertain Exit Strategies. Due to the illiquid nature of certain of the Funds’ current positions (and positions which may be acquired in the future), HoldCo is unable to predict with confidence what the exit strategy will ultimately be for any given position, or that one will definitely be available. Exit strategies which appear to be viable when an investment is initiated may be precluded by the time the investment is ready to be realized due to economic, legal, political or other factors.
Availability of Investments and Execution Risks. There are risks and uncertainties with respect to the availability and selection of investments. Investors in the Funds will be relying on the ability of HoldCo to identify, structure, consummate, leverage, manage and realize returns on attractive investments.
The business of identifying and structuring investments is highly competitive and involves a high degree of uncertainty. No assurance can be given that the Funds will be successful in obtaining suitable investments. Even if an attractive investment opportunity is identified, there is no certainty that a Fund will be permitted to invest in such opportunity (or invest in such opportunity to the fullest extent desired).
Accordingly, there can be no assurance that the Funds will be able to identify and complete attractive investments. Even if such investments are identified, there can be no assurance that they will not decline in value considerably while held by the relevant Fund, including, without limitation, as a result of a drop in LIBOR or other interest rates (including to levels below 0%), extended weakness in the credit or other markets, or other circumstances. In addition, competition for investment opportunities may have the effect of increasing costs, thereby reducing investment returns to the Funds. In addition, there may be significant execution risk in the Funds’ investment programs. Some of these execution risks include, but are not limited to, investments that are dependent on a corporate restructuring occurring (for example a bankruptcy plan, a voluntary exchange of securities, a demutualization, or other restructuring), the ability to convince holders of securities or other interests to sell, and obtaining consent from the board, management, or stakeholders of a company to transact. The Funds may invest in complex, heavily negotiated transactions, and there is additional risk that such investments will take a substantial amount of time to execute, and have terms associated with them that may ultimately prove to be unfavorable to the Funds.
Competition for Investments. The Funds compete for, among other things, investment opportunities. The competition for investment opportunities is based primarily on the pricing, terms and structure of a proposed investment and certainty of execution. A number of factors serve to increase competitive risks:
•A number of competitors in some of the areas in which the Funds may invest or try to invest may have greater financial, technical, marketing and other resources and more personnel, and, in the case of some asset classes or geographic regions, longer operating histories, more established relationships, greater expertise or better reputation;
•Some of these competitors may also have a lower cost of capital and access to funding sources that are not available to the Funds, which may create competitive disadvantages with respect to investment opportunities;
•Some competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively for investments;
•Some competitors may be subject to less regulation or less regulatory scrutiny and accordingly may have more flexibility to undertake and execute certain businesses or investments than the Fund does and/or bear less expense to comply with such regulations than the Funds; and
•There are relatively few barriers to entry impeding the formation of new funds, including a relatively low cost of entering these businesses, and the successful efforts of new entrants into the Funds’ various lines of business, including major commercial and investment banks and other financial institutions, have resulted in increased competition.
The Funds may lose investment opportunities if they do not match investment prices, structures and terms offered by competitors. Alternatively, the Funds may experience decreased investment returns and increased risks of loss if it matches investment prices, structures and terms offered by competitors. This competitive pressure could adversely affect the Funds’ ability to make successful investments, which would adversely impact the Funds.
Small and Mid-Cap Company Investments. The Funds may invest in small- and mid- capitalization companies, which may expose the Funds to greater investment risks. Investments in these companies may present greater opportunities for returns but also involve greater risks than are customarily associated with investments in more established and larger capitalized companies. The securities of less seasoned and smaller capitalized companies may have no trading market. If one exists, the securities are often traded in the over-the-counter market and have fewer market makers and wider price spreads, which may in turn result in making the Funds’ investments more vulnerable to adverse general market or economic developments than would investments in larger, more established companies.
Concentration of Investments. Although the Funds are subject to certain limitations on their investments, which are set forth in their respective offering documents, a Fund’s assets may become concentrated in particular asset classes, strategies, issuers, geographies and markets. Accordingly, the Funds may not enjoy the reduced risks of a broadly diversified portfolio, which could cause the Funds’ investments to be more susceptible to particular economic, political, regulatory, technological or industry conditions or occurrences compared with a fund, or a portfolio of funds, that is more diversified or that has a broader industry focus. As a result, the aggregate return of a Fund’s portfolio may be volatile and may be affected substantially by the performance of only one or a few holdings. Additionally, HoldCo may not be able, and is not obligated, to reduce or hedge such risks.
Valuation. Certain of the Funds’ investments, which HoldCo may believe are fundamentally undervalued or overvalued, may not ultimately be valued in the capital markets at the prices and/or within the timeframe that HoldCo anticipates. Purchasing securities at prices which HoldCo believes to be distressed or below fair value is no guarantee that the price of such securities will not decline even further.
Further, because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, a Fund’s valuation of an investment may not necessarily reflect the prices that would actually be obtained by the Fund when such investment is realized. For example, there may be liabilities such as unknown or uncertain tax exposures with respect to investments, especially those outside of the United States, which may not be fully reflected in the Funds’ valuations.
Effect of Tax Laws on Investments. The Funds may make certain investment decisions that are, at least in part, based on HoldCo’s valuation of certain tax assets, such as net operating loss carry-forwards and the preservation of such tax asset through, for example, the 382(l)(5) exception of the tax code. Tax laws and regulations are complicated, subject to governmental review and change, and it is possible that such tax assets ultimately will not have the value that HoldCo anticipated at the time the investment decision was made.
Hedging. While the Funds may employ hedge strategies for certain risks, they are not required to and there is a significant possibility they will not. Not hedging may subject the Funds to additional risks (interest rate risk, credit risk, and general market risk, among others) that could have been mitigated by hedging. Even if the Funds do engage in hedging transactions, such transactions may reduce certain risks but may not eliminate potential losses arising from fluctuations in the value of the Funds’ portfolio investments or related securities, currencies, interest rates or other assets, and entail other risks. In addition, unanticipated changes in securities or currency prices or other rates may result in a poorer overall performance for a party than if it had not entered into any hedging transactions. In the event of an imperfect correlation between a hedging transaction and the portfolio position it is intended to protect, the desired protection may not be obtained and a party may be exposed to risk of loss. In addition, it is not possible to hedge fully or perfectly against any particular risk. Moreover, hedging transactions may not be available at all or at a reasonable cost to the Funds.
While hedging arrangements may reduce certain risks, hedging itself may entail certain other risks.
Hedging may require the posting of cash collateral at a time when a Fund has insufficient cash or illiquid assets such that the posting of the cash is either impossible or requires the sale of assets at prices that do not reflect their underlying value. Moreover, these hedging arrangements may generate significant transaction costs, including potential tax costs, which would reduce the returns generated by an investment.
Derivative Instruments. Certain swaps, options and other derivative instruments may be subject to various types of risks, including market risk, liquidity risk, credit risk, legal risk and operations risk. The regulatory and tax environment for derivative instruments in which the Funds may participate is evolving, and changes in the regulation or taxation of such securities may have a material adverse effect on the Funds.
Call Options. The seller (writer) of a call option which is covered (i.e., the writer holds the underlying security) assumes the risk of a decline in the market price of the underlying security below the purchase price of the underlying security less the premium received, and gives up the opportunity for gain on the underlying security above the exercise price of the option. The seller of an uncovered call option assumes the risk of a theoretically unlimited increase in the market price of the underlying security above the exercise price of the option. The securities necessary to satisfy the exercise of an uncovered call option may be unavailable for purchase, except at much higher prices, thereby reducing or eliminating the value of the premium. Purchasing securities to cover the exercise of an uncovered call option can cause the price of the securities to increase, thereby exacerbating the loss. The buyer of a call option assumes the risk of losing its entire premium investment in the call option.
Put Options. The seller (writer) of a put option which is covered (i.e., the writer has a short position in the underlying security) assumes the risk of an increase in the market price of the underlying security above the sales price (in establishing the short position) of the underlying security plus the premium received, and gives up the opportunity for gain on the underlying security if the market price falls below the exercise price of the option. The seller of an uncovered put option assumes the risk of a decline in the market price of the underlying security below the exercise price of the option. The buyer of a put option assumes the risk of losing its entire investment in the put option.
Index or Index Options. The value of an index or index option fluctuates with changes in the market values of the assets included in the index. Because the value of an index or index option depends upon movements in the level of the index rather than the price of a particular asset, whether the Funds will realize appreciation or depreciation from the purchase or writing of options on indices depends upon movements in the level of instrument prices in the assets generally or, in the case of certain indices, in an industry or market segment, rather than movements in the price of particular assets.
Index Futures. The price of index futures contracts may not correlate perfectly with the movement in the underlying index because of certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, participants may close futures contracts through offsetting transactions that would distort the normal relationship between the index and futures markets. Second, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market also may cause price distortions. Successful use of index futures contracts by the Funds also are subject to HoldCo’s ability to correctly predict movements in the direction of the market.
Futures Contracts. The value of futures contracts depends upon the price of the securities, such as commodities, underlying them. The prices of futures contracts are highly volatile, and price movements of futures contracts can be influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments, as well as national and international political and economic events and policies. In addition, investments in futures contracts are also subject to the risk of the failure of any of the exchanges on which the Funds’ positions trade or of its clearing houses or counterparties. Futures positions may be illiquid because certain commodity exchanges limit fluctuations in certain futures contract prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits”. Under such daily limits, during a single trading day no trades may be executed at prices beyond the daily limits. Once the price of a particular futures contract has increased or decreased by an amount equal to the daily limit, positions in that contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. This could prevent the Funds from promptly liquidating unfavorable positions and subject the Funds to substantial losses or prevent it from entering into desired trades. Also, low margin or premiums normally required in such trading may provide a large amount of leverage, and a relatively small change in the price of a security or contract can produce a disproportionately larger profit or loss. In extraordinary circumstances, a futures exchange or the CFTC could suspend trading in a particular futures contract, or order liquidation or settlement of all open positions in such contract.
Non-U.S. Futures Transactions. Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally “linked” to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, the Funds may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. In addition, the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting therefrom, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the time the foreign futures contract is liquidated or the time the foreign option contract is liquidated or exercised.
Forward Contracts. The Funds may enter into forward contracts and options thereon, including non-deliverable forwards, which are currently not traded through clearinghouses, although this is expected to change. The principals who deal in the forward contract market are not required to continue to make markets in such contracts. There have been periods during which certain participants in forward markets have refused to quote prices for forward contracts or have quoted prices with an unusually wide spread between the price at which they were prepared to buy and that at which they were prepared to sell. The imposition of credit controls or price risk limitations by governmental authorities may limit such forward trading to less than that which HoldCo would otherwise recommend, to the possible detriment of the Funds.
In its forward trading, the Funds will be subject to the risk of the failure of, or the inability or refusal to perform with respect to its forward contracts by, the principals with which the Funds trades. The Funds’ assets on deposit with such principals will also generally not be protected by the same segregation requirements imposed on certain regulated brokers in respect of customer funds on deposit with them.
HoldCo may order trades for the Funds in such markets through agents. Accordingly, the insolvency or bankruptcy of such parties could also subject the Funds to the risk of loss.
Contracts for Differences. Contracts for differences (“CFDs”) are privately negotiated contracts between two parties, buyer and seller, stipulating that the seller will pay to or receive from the buyer the difference between the nominal value of the underlying instrument at the opening of the contract and that instrument’s value at the end of the contract. The underlying instrument may be a single security, stock basket or index. A CFD can be set up to take either a short or long position on the underlying instrument.
The buyer and seller are both required to post margin, which is adjusted daily. The buyer will also pay to the seller a financing rate on the notional amount of the capital employed by the seller less the margin deposit. A CFD is usually terminated at the buyer’s initiative. As is the case with owning any financial instrument, there is the risk of loss associated with buying a CFD. There may be liquidity risk if the underlying instrument is illiquid because the liquidity of a CFD is based on the liquidity of the underlying instrument. A further risk is that adverse movements in the underlying security will require the buyer to post additional margin. CFDs also carry counterparty risk, i.e., the risk that the counterparty to the CFD transaction may be unable or unwilling to make payments or to otherwise honor its financial obligations under the terms of the contract. If the counterparty were to do so, the value of the contract may be reduced.
Entry into a CFD transaction may, in certain circumstances, require the payment of an initial margin and adverse market movements against the underlying stock may require the buyer to make additional margin payments. CFDs may be considered illiquid. To the extent that there is an imperfect correlation between the return on a Fund’s obligation to its counterparty under the CFDs and the return on related assets in its portfolio, the CFD transaction may increase a Fund’s financial risk.
Failure to Enter into Offsetting Trade. To the extent a Fund invests in a futures contract or long option, unless an offsetting trade is made, the Fund would be required to take physical delivery of the commodity underlying the future or option. To the extent it fails to enter into such offsetting trade prior to the expiration of the contract, it may suffer a loss since neither it nor HoldCo has the operational capacity to accept physical delivery of commodities.
Exotic Options. Exotic options are typically, but not always, traded over-the- counter (“OTC”).
OTC contracts may not trade in a liquid market and pricing may be opaque. The illiquidity of these markets can be exacerbated in times of market stress. The Funds may incur substantial costs entering into and exiting positions that could have a material impact on performance. Exotic options may be subject to a higher degree of pricing risk as demonstrated by instances in which different counterparties in the market employ different valuation and pricing methodologies to the same exotic option. Because exotic options can often be highly customized, there is lower visibility with respect to the pricing and valuation of these instruments.
Exotic options may be subject to high levels of price volatility. For example, in the case of barrier options, as the price of the asset underlying the option trades closer to a barrier level, the delta of the option (i.e., the ratio of the change in the price of the underlying asset to the corresponding change in the price of the option) and the gamma of the option (i.e., the rate of change of the delta with respect to the underlying asset’s price) may become very high. Exotic options may be subject to higher levels of model risk than commonly traded options because standard models are not able to adequately capture or predict the risks associated with the exotic options. Exotic options may be “path dependent”. This means that their terminal value (at exercise or expiration) depends upon the value of the underlying asset, not only at the time of exercise or expiration, but also at prior points in time. In this sense, the option’s terminal value depends upon the “path” taken by the underlying asset over the life of the option. For example, a barrier option’s value at expiration depends upon both the value of the underlying asset at expiration and whether the past value of the underlying asset ever satisfied a barrier condition. In contrast, a vanilla option (e.g., a call option) is not path dependent. Its value at exercise or expiration depends on the value of the underlying asset only at that point in time. The additional features incorporated by exotic options require additional judgments regarding the likelihood of certain conditions being satisfied, any one of which can result in loss if made incorrectly. An OTC option may be closed out only with the counterparty, although either party may engage in an offsetting transaction that puts that party in the same economic position as if it had closed out the option with the counterparty; however, the exposure to counterparty risk may differ. OTC options generally involve greater credit and counterparty risk than exchange-traded options.
Shorting. Short selling involves selling securities which are not owned and borrowing them for delivery to the purchaser, with an obligation to replace the borrowed securities at a later date. Short selling allows the investor to profit from declines in market prices to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. The extent to which a Fund will engage in short sales depends upon HoldCo’s investment strategy and opportunities. A short sale creates the risk of a theoretically unlimited loss in that the price of the underlying security could theoretically increase without limit, thus increasing the cost to the Fund of buying those securities to cover the short position. There can be no assurance that a Fund will be able to maintain the ability to borrow securities sold short. In such cases, the Fund can be “bought in” (i.e., forced to repurchase securities in the open market to return to the lender).
There also can be no assurance that the securities necessary to cover a short position will be available for purchase at or near prices quoted in the market. Purchasing securities to close out the short position can itself cause the price of the securities to rise further, thereby exacerbating the loss.
Counterparty Risk. The Funds expect to establish relationships to obtain financing, derivative intermediation and prime brokerage services that permit the Funds to trade in any variety of markets or asset classes over time. However, there can be no assurance that the Funds will be able to establish or maintain such relationships. An inability to establish or maintain such relationships could limit the Funds’ trading activities, create losses, preclude the Funds from engaging in certain transactions or prevent the Funds from trading at optimal rates and terms. Moreover, a disruption in the financing, derivative intermediation and prime brokerage services provided by any such relationships could have a significant impact on the Fund’s business due to its reliance on such counterparties.
A Fund may effect transactions in the “over-the-counter” or “OTC” derivatives markets. The stability and liquidity of OTC derivatives transactions depends in large part on the creditworthiness of the parties to the transactions. In the OTC markets, a Fund enters into a contract directly with dealer counterparties which may expose the Fund to the risk that a counterparty will not settle a transaction in accordance with its terms because of a solvency or liquidity problem with the counterparty. Delays in settlement may also result from disputes over the terms of the contract (whether or not bona fide). In addition, the Fund may have a concentrated risk in a particular counterparty, which may mean that if such counterparty were to become insolvent or have a liquidity problem, losses would be greater than if the Fund had entered into contracts with multiple counterparties. Certain OTC derivative contracts require that a Fund post collateral.
If there is a default by a counterparty, the applicable Fund under most normal circumstances will have contractual remedies pursuant to the agreements related to the transaction. However, exercising such contractual rights may involve delays or costs which could result in the net asset value of the Fund being less than if it had not entered into the transaction. Furthermore, there is a risk that any of such counterparties could become insolvent and/or the subject of insolvency proceedings. In such case, the recovery of the Fund’s securities from such counterparty or the payment of claims therefor may be significantly delayed and it may recover substantially less than the full value of the securities entrusted to such counterparty. In addition, there are a number of proposed rules that, if they were to go into effect, may impact the laws that apply to insolvency proceeding and may impact whether the Fund may terminate its agreement with an insolvent counterparty.
Collateral that a Fund posts to its counterparties that is not segregated with a third party custodian may not have the benefit of customer-protected “segregation” of such funds. In the event that a counterparty were to become insolvent, the Fund may become subject to the risk that it may not receive the return of its collateral or that the collateral may take some time to return.
In addition, a Fund may use counterparties located in jurisdictions outside the United States. Such local counterparties usually are subject to laws and regulations in non-U.S. jurisdictions that are designed to protect customers in the event of their insolvency. However, the practical effect of these laws and their application to the Fund’s assets are subject to substantial limitations and uncertainties. Because of the range of possible factual scenarios involving the insolvency of a counterparty and the potentially large number of entities and jurisdictions that may be involved, it is impossible to generalize about the effect of such an insolvency on the Fund and its assets. Investors should assume that the insolvency of any such counterparty would result in significant delays in recovering the Fund’s securities from or the payment of claims therefor by such counterparty and a loss to the Fund, which could be material.
Central Clearing. In order to mitigate counterparty risk and systemic risk in general, various U.S.
and international regulatory initiatives are underway to require certain derivatives to be cleared through a clearinghouse. In the United States, clearing requirements were part of the Dodd-Frank Act. The CFTC imposed its first clearing mandate on December 13, 2012 affecting certain interest rate and credit default swaps. It is expected that the CFTC and the SEC will introduce clearing requirements for other derivatives in the future. Trades submitted for clearing will be subject to minimum initial and variation margin requirements set by the relevant clearinghouse, the FCM, as well as possible SEC or CFTC mandated margin requirements. The Fund is not in direct privity with the clearinghouse, but instead acts through a member of the clearinghouse, an FCM, which acts as a quasi-agent, guaranteeing the obligations of the Fund to the clearinghouse. This regime is modeled in large part after the U.S. futures clearing regime.
Clearing through FCMs has in certain cases led to losses caused by operational failure or fraud.
As products become more standardized in order to be cleared, standardized derivatives may mean a Fund may not be able to hedge its risks or express an investment view as well as it would using customizable derivatives available in the over-the-counter markets. Compared to the OTC derivatives market, a Fund may be subject to more onerous and more frequent (daily or even intraday) margin calls from both the clearinghouse and the FCM. Virtually all of the margin models that are utilized by the clearinghouses are dynamic, meaning that, unlike many of a Fund’s bilateral swap contracts where the amount of initial margin posted on the contract is typically static throughout of the life of the contract, the amount of the initial margin that is required to be posted in respect of a cleared contract will fluctuate, sometimes significantly, throughout the life of the contract. The dynamic nature of the margin models utilized by the clearinghouses and the fact that the margin models might be changed at any time may subject a Fund to an unexpected increase in collateral obligations by clearinghouses during a volatile market environment which could have a detrimental effect on the Fund. Clearinghouses also limit collateral that they will accept to cash, U.S. treasuries and, in some cases, other highly rated sovereign and private debt instruments, which may require the Fund to borrow eligible securities from a dealer to meet margin calls and raise the costs of cleared trades to the Fund. In addition, clearinghouses may not allow the Fund to portfolio margin (or cross margin) its positions, which may increase the amount of overall margin that the Fund needs to post. While clearinghouse margin models are dynamic and may change daily, they are also different from the margin models applied by OTC derivative dealers. The OTC derivative dealers generally have a model that is supported by a team of individuals that analyze the credit risk of each fund and fund manager by reviewing, among other variables, strategy, performance, key portfolio managers, sophistication of technology and operations, traditional volatility, types of products, and lock-up periods.
The model used by the dealers to apply margin is tailored for the risk of each fund and fund manager. In contrast, the clearinghouse margin model is applied across all types of counterparties and there is no analysis of individual counterparty risks. This may mean that the clearinghouse margin model may be less fluid. It may mean that it is also more expensive overall for a Fund than if specific factors of the Fund were considered.
Also, each clearinghouse only covers a limited range of products and a Fund may have to spread its derivative portfolio across multiple clearinghouses, which in turn reduces the benefits of netting that derivatives users rely on to mitigate counterparty risk.
Although standardized clearing for derivatives is intended to reduce risk (for instance, they may reduce the counterparty risk to the dealers to which a Fund would be exposed under OTC derivatives), it does not eliminate risk. Rather, standardized clearing transfers risk of default from the over-the-counter derivatives dealer to the central clearinghouse, which may increase systemic risk, potentially more so than a failure by an OTC derivatives counterparty. The failure of a clearinghouse could have a significant impact on the financial system. Even if a clearinghouse does not fail, large losses could force significant capital calls on member firms during a financial crisis, which could lead member firms to default, worsening the crisis. Because these clearinghouses are still developing and the related bankruptcy process is untested, it is difficult to speculate what the actual risks would be to a Fund related to the default of a clearinghouse.
While the futures model worked well during the Lehman crisis in 2008, there has been no testing whether the model is scalable so that it would apply to derivatives more generally. In addition, there is no one international standard for clearinghouses; existing clearinghouses have different waterfalls that apply upon the insolvency of a clearinghouse or a clearinghouse member and it is possible that a Fund could be in a worse position if a clearinghouse were to fail than had it executed a trade with a traditional derivative counterparty. Also, a clearinghouse will likely require that a Fund relinquish control of its transactions if the clearinghouse were to become insolvent, and, therefore, a Fund would not be able to terminate and close out of a defaulting clearinghouse’s positions, but would become subject to regulators’ control over those positions. In such a circumstance, a Fund may not be able to take actions that it deems appropriate to lessen the impact of such clearinghouse default. Clearinghouses tend to trade in particular products in order to achieve economy of scale. This heightens the concentration risk for a Fund, which might not be easily hedged. In that case, a Fund may only be able to protect itself from clearinghouse risk by exiting the market entirely, potentially foregoing an entire segment of beneficial transactions.
Applicable regulations may also require a Fund to make public information regarding its swaps volume, position size and/or trades, which could detrimentally impact a Fund’s ability to achieve its investment objectives.
Non-Controlling Interests in Companies. A Fund may hold a non-controlling interest in companies in which it invests. The success of the Fund’s investments in such companies will depend in part on the consent of existing management and directors, and other shareholders (especially controlling shareholders). Because the Fund will not control such companies, the ability to exit from such investments may be limited. Additionally, the Fund is likely to have a reduced ability to influence management of such companies. A Fund, through HoldCo, may also have disagreements with controlling shareholders over the strategy and operations of such companies. As a result of the foregoing, a Fund’s investments in such companies may perform poorly. The likelihood of holding non-controlling interests is increased when investing in regulated institutions such as banks and insurance companies.
Third Party Information and Models. The Funds will rely heavily on third party data and other information that is obtained from various sources—third-party data services providers, publicly-available information, information obtained from market participants, and information received from companies, among others. Although the Funds, through HoldCo, will evaluate all such information and may seek independent corroboration when appropriate and when independent corroboration is reasonably available, the Funds often will not be in a position to confirm the completeness, genuineness or accuracy of such information and, in some cases, complete and accurate information is not available. The Funds’ investments rely on the accuracy of such information and they may not perform as expected if such information is inaccurate. The Funds’ investments will also depend on HoldCo’s analytical models. All models ultimately depend on HoldCo’s judgment and the assumptions embedded in the models. To the extent that, with respect to any investment, the judgment or assumptions are incorrect, the Funds could suffer losses.
Moreover, HoldCo has compiled certain data that it believes to be highly proprietary and not widely disseminated. To the extent that such data become more widely available, there is risk HoldCo will lose some of its proprietary edge, which could result in lower performance by the Funds.
Reliance on Certain Relationships. HoldCo has relationships with intermediaries, financial institutions, investment bankers, commercial bankers, financial advisers, attorneys, accountants, consultants and other individuals within their networks. HoldCo more specifically has unique relationships with certain parties associated with issuers of collateralized debt obligations (“CDOs”), including CDO investors, CDO indenture trustees, indenture trustees of trust preferred securities (“TruPS”), CDO managers, and certain professionals who provide services to these parties. HoldCo’s ability to use its network of relationships is vital to, among other things, sourcing investment opportunities. Since HoldCo expects that many investments may be sourced away from traditional broker-dealers trading desks, these relationships are of particular importance. Thus, if HoldCo fails to maintain its existing relationships or develop new relationships, the Funds’ investment performance may suffer.
Credit Default Swaps. Credit default swaps can be used to implement HoldCo’s view that a particular credit, or group of credits, will experience credit improvement or deterioration. In the case of expected credit improvement, a Fund may sell credit default protection in which it receives a premium to take on the risk. In such an instance, the obligation of the Fund to make payments upon the occurrence of a credit event creates leveraged exposure to the credit risk of the referenced entity. A Fund may also buy credit default protection with respect to a referenced entity if, in HoldCo’s judgment, there is a high likelihood of credit deterioration. In such instance, the Fund will pay a premium regardless of whether there is a credit event.
Vulnerability to Interest Rate Changes. Many of the securities in which the Funds invest or may invest will be fixed-rate debt or similar securities or instruments, and therefore will decline in value when interest rates rise. Also, because the value of real estate and certain other assets often declines when interest rates rise, the value of some of the collateral underlying the securities in which the Funds invest may decline at the same time as the securities themselves. Therefore, rising interest rates could substantially reduce the value of the Funds’ investments and the price the Funds would receive if they tried to dispose of such investments.
Contingent Liabilities on Disposition of Investments. In connection with the disposition of a Fund’s investment in a portfolio company, the Fund may be required to make representations about the business and financial affairs of such portfolio company typical of those made in connection with the sale of a business. The Fund also may be required to indemnify the purchasers of such Fund’s investment to the extent that any such representations are inaccurate or with respect to certain potential liabilities. These arrangements may result in the incurrence of contingent liabilities for which reserves or escrows may need to be established.
Fraud. The Funds may make or invest in loans that may subject the Funds to the risk of fraud. Of paramount concern in loan transactions is the possibility of material misrepresentation or omission on the part of the borrower. Such inaccuracy or incompleteness may adversely affect the valuation of the collateral underlying the loans or may adversely affect the ability of the Funds to perfect or effectuate a lien on the collateral securing the loan. The Funds will rely upon the accuracy and completeness of representations made by borrowers to the extent reasonable, but cannot guarantee such accuracy or completeness. Under certain circumstances, payments to the Funds may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance or a preferential payment.
Activist Investing. The Funds may make investments where HoldCo believes significant activism is necessary in order to “unlock” value. Such activism may require, among other things, (1) identifying companies where investment returns can be achieved through corporate and/or strategic action, (2) driving forward a corporate restructuring (for example, one or more sale/merger transactions, capital raises, a company’s repurchase of debt or equity securities, a liquidation, a bankruptcy plan, a voluntary and consensual exchange of securities, a demutualization, or other restructuring), (3) garnering consent of a company’s board of directors, officers, shareholders, and other stakeholders, (4) enforcing rights through litigation, or (5) changing the corporate governance of the company.
To implement such actions, HoldCo, or other members of the investing group, may work with the management team of the target company to design an alternate strategic plan and assist them in its execution and may secure the appointment of persons selected by HoldCo to the company’s management team or board of directors. HoldCo’s Funds may also initiate investor actions (including those that may be opposed by company management). Such investor actions may include, among other things, re-orienting management’s operational focus, initiating the sale of the company (or one or more of its divisions) to a third party, or an acquisition by the Fund or other members of the investing group. To accomplish the foregoing, HoldCo may cause the Fund to acquire a “control” position in the company’s securities.
Corporate governance strategies may prove ineffective for a variety of reasons, including: (i) opposition of management or investors of the subject company, which may result in litigation and may erode, rather than increase, the value of the subject company’s securities; (ii) intervention of a governmental agency; (iii) efforts by the subject company to pursue a “defensive” strategy, including a merger with, or a friendly tender offer by, another company; (iv) market conditions resulting in material changes in prices; (v) the presence of corporate governance mechanisms such as staggered boards, poison pills and classes of stock with increased voting rights; and (vi) the necessity for compliance with applicable securities laws. In addition, opponents of a proposed corporate governance change may seek to involve regulatory agencies in investigating the transaction or the Funds and such regulatory agencies may independently investigate the participants in a transaction, including the Funds, as to compliance with securities or other laws.
Furthermore, successful execution of a corporate governance strategy may depend on the active cooperation of investors and others with an interest in the subject company. Some shareholders may have interests which diverge significantly from those of the Fund, and some of those parties may be indifferent to the proposed changes. Moreover, securities that HoldCo believes are fundamentally undervalued or incorrectly valued may not ultimately be valued in the capital markets at prices and/or within the timeframe HoldCo anticipates, even if a corporate governance strategy is successfully implemented. Even if the prices for a subject company’s securities have increased, no guarantee can be made that there will be sufficient liquidity in the markets to allow the Funds to dispose of all or any of its securities therein or to realize any increase in the price of such securities.
Activism, restructurings and negotiations related to distressed securities, bank loans and other investments of the Fund can be contentious and adversarial. It is by no means unusual for participants to use the threat of, as well as actual, litigation as a negotiating technique. It is possible that HoldCo or a Fund may be named as defendants in legal or regulatory proceedings. The expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments will generally be borne by the applicable Fund and may reduce performance. Moreover, HoldCo expects that its investment strategy generally may require the use of significant legal resources, such as bankruptcy, litigation, regulatory (for example bank and insurance), and corporate counsel. These legal costs may reduce the performance of a Fund. Because much of a Fund’s strategy involves pursuing smaller “off-the-run” strategies, risk related to legal resources may be exacerbated because such legal resources may be, in percentage terms, a greater component than in larger situations where costs can be borne by a larger asset base. For example, the costs of developing a bankruptcy plan of reorganization in a small company with fewer assets will likely be a larger expense in percentage terms than in a large company where expenses can be spread over a larger asset base. As a result of the foregoing, HoldCo relies on obtaining legal services on a cost effective basis as part of its strategy, and if HoldCo is not able to do so, this may reduce the performance of the Fund.
Equity Activism. The Funds may pursue an activist role and seek to effectuate corporate changes with respect to an investment. The costs in time, resources and capital involved in such activist investments depend on the circumstances, which are only in part within the applicable Fund’s control, and may be significant, particularly if litigation against the Fund and/or HoldCo ensues. In addition, the expenses associated with an activist investment strategy, including potential litigation, expenses related to the recruitment and retention of board members, executives and other individuals providing business assistance to HoldCo in connection with an activist campaign (including, for example, consultants and corporate whistle-blowers) or other transactional costs, will be borne by the applicable Fund. Such expenses may reduce returns or result in losses.
The success of a Fund’s activist investment strategy may require, among other things: (i) that portfolio companies whose equity prices can be improved through corporate and/or strategic action are properly identified; (ii) that the applicable Fund acquire sufficient securities of such portfolio companies at a sufficiently attractive price; (iii) a positive response by the management of portfolio companies to shareholder engagement; (iv) a positive response by other shareholders to shareholder activism and the Fund’s proposals; and (v) a positive response by the markets to any actions taken by portfolio companies in response to shareholder activism. None of the foregoing can be assured.
Activist strategies employed in respect of a Fund’s investments may prove ineffective for a variety of reasons, including: (i) opposition of the management, board and/or shareholders of the subject company, which may result in litigation and may erode, rather than increase, shareholder value; (ii) intervention of one or more governmental agencies; (iii) efforts by the subject company to pursue a ‘‘defensive’’ strategy, including a merger with, or a friendly tender offer by, a company other than the Fund’s; (iv) market conditions resulting in material changes in securities prices; (v) the presence of corporate governance mechanisms, such as staggered boards, poison pills and classes of shares with increased voting rights; and (vi) the necessity for compliance with applicable securities laws. In addition, opponents of a proposed corporate governance change may seek to involve regulatory agencies in investigating the transaction or the Fund and such regulatory agencies may independently investigate the participants in a transaction, including the applicable Fund, as to compliance with securities or other law. This risk may be exacerbated to the extent the Fund develops and utilizes novel activist strategies. Furthermore, successful execution of an activist strategy may depend on the active cooperation of shareholders and others with an interest in the subject company. Some shareholders may have interests which diverge significantly from those of the applicable Fund and some of those parties may be indifferent to the proposed changes.
Moreover, securities that are believed to be fundamentally underpriced or incorrectly priced may not ultimately be valued in the capital markets at prices and/or within the time frame HoldCo anticipates, even if an activist strategy is successfully implemented. In respect of portfolio companies in which a Fund holds a long position, even if the prices for a portfolio company’s securities increase, no guarantee can be made that there will be sufficient liquidity in the markets to allow the Fund to dispose of all or any of its securities therein or to realize any increase in the price of such securities. The converse applies equally in respect of portfolio companies in which the Fund holds a short position.
Regulatory Restrictions on the Ownership of Securities. The investment strategies pursued by a Fund may be affected by applicable U.S. state and federal laws and regulations governing the beneficial ownership of public securities, which may inhibit a Fund’s ability to freely acquire and dispose of certain securities. Should such Fund be affected by such rules and regulations, it may not be able to transact in ways that would realize value for the Fund.
In addition, any changes to government regulations could make some or all forms of activist strategies unlawful or impractical. Accordingly, such changes, if any, could have an adverse effect on the ability of a Fund to achieve its investment objective.
Litigation. Investments in distressed securities, bank loans and other investments, including reorganizations, restructurings, and, more generally, negotiations related to such investments, can be contentious and adversarial. It is by no means unusual for participants in such investments to use the threat of, as well as actual, litigation as a negotiating technique. HoldCo and any of the Funds, and perhaps certain of their larger investors, may be named as defendants in civil proceedings, regardless of whether such proceedings are meritorious. The expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments would generally be borne by the Funds and would reduce net assets or could require investors in the Funds to return distributed capital and earnings.
If any civil or criminal lawsuits resulted in a finding of substantial legal liability or culpability, the lawsuit could materially and adversely affect a Fund’s business, results of operations and financial condition or cause significant reputational harm, which could seriously impact the Fund’s ability to conduct its business. The Funds and HoldCo depend to a large extent on business relationships and a reputation for integrity to source investment opportunities for the Funds. As a result, allegations of improper conduct by private litigants or regulators, whether the ultimate outcome is favorable or unfavorable to the applicable Fund, as well as negative publicity and press speculation about the Fund or its investment activities, whether or not valid, may harm the applicable Fund’s and HoldCo’s reputation, which may be more damaging to the applicable Fund than to other types of businesses.
Distressed Investments. The Funds may invest in issuers that are in weak financial condition, experiencing poor operating results, have substantial capital needs or negative net worth, face special competitive or product obsolescence problems, including companies involved in bankruptcy or other insolvency proceedings and in securities that are non-performing or in default. These may be particularly risky investments although they also may offer the potential for correspondingly high returns. Among the risks inherent in investments in troubled entities is the fact that it frequently may be difficult to obtain information as to the true condition of such issuers. Such investments may also be adversely affected by laws relating to, among other things, fraudulent transfers and other voidable transfers or payments, lender liability and the bankruptcy court’s power to disallow, reduce, subordinate or disenfranchise particular claims. Such companies securities may be considered speculative, and the ability of such companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments within such companies. In addition, there is no minimum credit standard that is a prerequisite to a Fund’s investment in any instrument, and a significant portion of the obligations and securities in which a Fund invests may be below investment grade or have no rating. The level of analytical sophistication, both financial and legal, necessary for successful investment in companies experiencing significant business and financial difficulties is unusually high. There is no assurance that the value of an investment in a distressed issuer or the prospects for a successful reorganization or similar action will be correctly evaluated. In any reorganization or liquidation proceeding relating to a company in which a Fund invests, the Fund may lose its entire investment, may be required to accept cash or securities with a value less than the Fund’s original investment and/or may be required to accept payment over an extended period of time. Under such circumstances, the returns generated from the Fund’s investments may not be adequate for the risks assumed.
In liquidation (both in and out of bankruptcy) and other forms of corporate reorganization, there exists the risk that the reorganization either will be unsuccessful (due to, for example, failure to obtain requisite approvals, including regulatory approvals), will be delayed (for example, until various liabilities, actual or contingent, have been satisfied) or will result in a distribution of cash or a new security the value of which will be less than the purchase price to a Fund of the security in respect to which such distribution was made.
A Fund’s investments in distressed issuers may take various forms including claims, debt and debt- like instruments, equity and equity-like instruments, and loans. All of the foregoing investments may be in the form of newly issued instruments or purchased on a secondary basis.
A Fund’s investment program may include investments in bank loans and participations, including through new loan origination. These obligations are subject to unique risks, including: (i) the possible invalidation of an investment transaction as a fraudulent conveyance under relevant creditors’ rights laws; (ii) so-called lender-liability claims by the issuer of the obligations; (iii) environmental liabilities that may arise with respect to collateral securing the obligations; and (iv) limitations on the ability of a Fund to directly enforce its rights with respect to participations. In analyzing each bank loan, a Fund, through HoldCo, compares the relative significance of the risks against the expected benefits of the investment.
Successful claims by third parties arising from these and other risks will b please register to get more info

Neither HoldCo nor any person employed by HoldCo have any legal or disciplinary events to disclose.
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A.Neither HoldCo nor any of its management persons are registered, or have an application pending
to register, as a futures commission merchant, commodity pool operator, a commodity trading advisor, or as an associated person of the foregoing entities.

B.See response to Item 10.A above.
C.Additionally, HoldCo’s affiliates serve as general partners to the Funds. HoldCo and its affiliates
will devote as much time to the activities of each of the Funds as they deem necessary and appropriate.
Subject to certain restrictions in the Funds’ offering documents, HoldCo is not prohibited from forming additional investment funds, from entering into other investment advisory relationships or from engaging in other business activities. If HoldCo or any of its affiliates decides to engage in such activities in the future, HoldCo or its respective affiliates, as applicable, will undertake to engage in such activities in a manner that is consistent with such party’s contractual and fiduciary duties to the existing Funds.
Nevertheless, these activities could be viewed as creating a conflict of interest in that the time and effort of the members and partners of HoldCo and its officers and employees will not be devoted exclusively to the business of the existing Funds but will be allocated between the business of the existing Funds and the management of any new clients.

D.HoldCo does not recommend other investment advisors for its Funds and consequently does not
receive compensation for recommending or selecting other investment advisers for its Funds.
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A.HoldCo has adopted a Code of Ethics for all HoldCo’s supervised persons describing its high
standard of business conduct, and fiduciary duty to its Funds. Among other things, the Code of Ethics requires that HoldCo’s employees as well as Vik Ghei and Misha Zaitzeff act in the best interests of the Funds to the exclusion of contrary interests, act in good faith and in an ethical manner, avoid conflicts of interest with the Funds to the extent reasonably possible, and identify and manage conflicts of interest to the extent that they arise. All supervised persons at HoldCo, including Vik Ghei and Misha Zaitzeff, must acknowledge the terms of the Code of Ethics annually and when it is amended.
In addition, the Code of Ethics sets forth formal policies and procedures with respect to the personal securities trading activities of HoldCo’s employees as well as Vik Ghei and Misha Zaitzeff. The Code of Ethics imposes certain restrictions on employee personal securities trading and requires that employees report all securities transactions on not less than a quarterly basis and provide a summary of securities holdings on at least an annual basis. The Code of Ethics also addresses outside activities of employees, conflicts of interest, policies and procedures concerning the prevention of insider trading, including restrictions on the acceptance of significant gifts and business entertainment items and limitations on political contributions.
Clients or prospective clients may request a copy of HoldCo’s Code of Ethics by contacting Joseph Geoghegan, HoldCo’s Chief Compliance Officer, [email protected].

B.It is HoldCo’s policy that it will not affect any principal or agency cross securities transactions for
Client accounts. HoldCo will also not cross trades between Client accounts. Principal transactions are generally defined as transactions where an adviser, acting as principal for its own account or the account of an affiliated broker-dealer, buys from or sells any security to any advisory client. A principal transaction may also be deemed to have occurred if a security is crossed between an affiliated private fund and another Client account. An agency cross transaction is defined as a transaction where a person acts as an investment adviser in relation to a transaction in which the investment adviser, or any person controlled by or under common control with the investment adviser, acts as broker for both the Client and for another person on the other side of the transaction. Agency cross transactions may arise where an adviser is dually registered as a broker-dealer or has an affiliated broker-dealer.

C.To address potential conflicts of interest relating to Client securities holdings, the Code of Ethics
is designed to ensure that the personal securities transactions, activities and interests of HoldCo’s employees will not interfere with (i) making decisions in the best interest of the Funds and (ii) implementing such decisions. Employees, as well as Vik Ghei and Misha Zaitzeff, are prohibited from investing in all “Reportable Securities” (as defined in the Code of Ethics) except for exchange traded funds, without a documented exception from the Chief Compliance Officer and pre-clearance to trade. Such “Reportable Securities” include, but are not limited to, single name stocks, bonds and notes.
Employees, as well as Vik Ghei and Misha Zaitzeff, are permitted to trade, without pre-clearance from the Chief Compliance Officer, in certain exempt securities such as mutual funds, exchange traded funds, and U.S. government securities. Any other trades, including the sale of Reportable Securities held by an employee prior to his/her employment with HoldCo, require pre-clearance from the Chief Compliance Officer. Employee personal trading is continually monitored under the Code of Ethics to reasonably prevent conflicts of interest between HoldCo and its Clients.
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A.HoldCo is authorized to determine the broker or dealer to be used for each securities transaction
for the Funds. However, in determining the reasonableness of commissions and in selecting brokers and dealers to effect portfolio transactions for the Funds, HoldCo seeks to obtain best execution by considering such factors as the ability of the brokers or dealers to effect the transactions, their facilities, reliability and financial responsibility, and the costs of brokerage or research products or services which HoldCo considers to be of benefit to its Clients.
HoldCo does not participate in any soft dollar arrangements. However, the Funds’ offering documents permit HoldCo to utilize “soft dollars” on behalf of the Funds if such arrangements fall within the “safe harbor” under Section 28(e) of the Securities Exchange Act of 1934, as amended.
Client referrals are not considered in selecting or recommending broker-dealers.
HoldCo does not engage in directed brokerage arrangements.

B.As noted, HoldCo manages investments on behalf of a number of Funds. The Funds have
investment programs that are similar or overlap and may, therefore, under certain circumstances discussed below, participate with one another in investments.
Aggregation. HoldCo may aggregate trades pursuant to the following guidelines and policies (although each of the following may not apply to all aggregated trades):  if HoldCo believes such aggregation is consistent with its duty to seek best execution (which shall include best price) for its Clients and is consistent with the terms of HoldCo’s investment advisory agreements;  if HoldCo believes that aggregations would cause the Client’s costs of execution to be decreased;  if no Client would be impermissibly favored over any other Client that participates in the aggregated orders and all participating Clients would participate at the average price acquired for all transactions on a given business day;  if allocations are made pursuant to HoldCo’s allocation policies;  HoldCo’s books and records will separately reflect, for the Clients whose orders are aggregated, the securities held by and bought and sold for each Client;  Funds of the participating Clients whose orders are aggregated will be deposited with one or more banks or broker/dealers, and any cash attributable to the accounts will not be held collectively for the respective owners any longer than is commercially necessary to settle the purchase or sale in question on a delivery versus payment basis;  HoldCo will receive no additional compensation or remuneration of any kind as a result of the proposed aggregation procedure; and  individual investment advice and treatment will be accorded to each Client.
Allocation. HoldCo may, in certain circumstances, allocate orders among different Clients. The governing documents for each Fund discuss the means and method for allocating investments across the Funds, and HoldCo will comply with the terms set forth in such documents.
HoldCo will retain records of each trade order (specifying each participating account) and its allocation, which will be completed prior to the entry of the aggregated order. Any exceptions will be explained on the order ticket. HoldCo will maintain a record of any such allocations.
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A.HoldCo is responsible for reviewing and analyzing existing Fund positions and other opportunities
on an ongoing basis in connection with their investment decision-making process and to ensure that the Funds’ investments are consistent with each Fund’s objectives. HoldCo’s Valuation Committee (consisting of Vik Ghei, Misha Zaitzeff, and the Chief Financial Officer/Chief Compliance Officer) oversees and evaluates ongoing valuations of HoldCo’s Funds’ investments on a monthly, quarterly, and annual basis.
HoldCo’s Chief Financial Officer and Senior Accountant (overseen by Vik Ghei and Misha Zaitzeff) are responsible for investment reporting, which includes (depending on the Fund and as discussed below) monthly, quarterly, and annual reports.

B.More frequent reviews may be triggered by material changes in variables such as a Funds’
individual circumstances, or the market, political or economic environment.

C.Investors in the Funds managed by HoldCo receive monthly reports, quarterly unaudited financial
statements, and annual audited financial statements from such Funds’ administrators.1 please register to get more info

A.No one other than HoldCo’s Clients provide an economic benefit to HoldCo for providing
investment advice or other advisory services to the Clients.

B.HoldCo has entered, and may again in the future enter, into agreements with placement agents
and/or third party solicitors in connection with the solicitation of investors in the Funds and such agreements may provide for payment to the relevant party of a portion of the subscription amount by investors or ongoing payments to the relevant party based upon a percentage of the management fee or incentive compensation attributable to the investments introduced by such placement agent. At present, only HoldCo Opportunities Fund, L.P. and HoldCo Opportunities Fund II, L.P. have entered into arrangements with placement agents.
Unless otherwise expressly disclosed to an investor, any fees paid to placement agents and/or solicitors that are paid by a Fund will offset the Management Fee or Performance Compensation otherwise payable or allocated to HoldCo. To date, no Fund has incurred any fees to placement agents and/or solicitors.
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HoldCo is generally deemed to have constructive custody of the Funds’ assets because HoldCo or a HoldCo affiliate serves as general partner or manager of each Fund. However, HoldCo is not required to comply (or is deemed to have complied) with certain requirements under Rule 206(4)-2 under the Advisers Act (the “Custody Rule”) with respect to each Fund because it complies with the provisions of the so-called “Pooled Vehicle Annual Audit Exception.” This exemption, among other things requires that (i) each Fund will be subject to an audit, conducted in accordance with generally accepted accounting principles, at least annually by an independent public accountant that is registered with, and subject to regular inspection by, the Public Company Accounting Oversight Board, and, (ii) each Fund’s audited financial statements are delivered to investors within 120 days of each Fund’s fiscal year end.
Further, HoldCo is required to maintain the funds and securities (except for securities that meet the privately offered securities exemption in the Custody Rule) over which it has custody with a “qualified custodian.” Qualified custodians include banks, brokers, futures commission merchants and certain foreign 1HoldCo Co-Investment Fund II, L.P., and HH HoldCo Co-Investment Fund II, L.P., are self-administered.
financial institutions. A qualified custodian has been obtained for each Fund for which capital has been called and will be obtained for all other Funds prior to capital being called.
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As noted in Item 4 – Advisory Business, HoldCo Opportunities Fund, L.P., HoldCo Opportunities Fund II, L.P., and HoldCo Opportunities Fund III, L.P. are managed on a fully discretionary basis. HH HoldCo Co-Investment Fund, L.P., HoldCo Co-Investment Fund II, L.P., and HH HoldCo Co-Investment Fund II, L.P., are not managed on a fully discretionary basis (i.e. new investments require the consent of limited partners but post-investment oversight and sale decisions do not). HoldCo makes all investment decisions in accordance with its investment management agreements with each Fund and the investment objectives and strategies set forth in each Fund’s investment management agreements, governing documents, and offering materials.
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A.From time to time, HoldCo may vote securities held by its Funds on various matters, including
proxy proposals, amendments, consents or resolutions (collectively, “proxies”). HoldCo intends to vote proxies in a manner that best serves the interests of the Funds, as determined on a case-by-case basis.
HoldCo has appointed a proxy voting committee, and, upon receipt of a proxy from a Fund’s custodian or directly if a Fund is the record holder of a security, Vik Ghei and Misha Zaitzeff will review each proxy to determine how, or if, to vote the proxy, and the proxy voting committee will review the proxy to determine if it presents a conflict of interest. In determining how to respond, Vik Ghei, Misha Zaitzeff, and the proxy voting committee will consider the best interests of the applicable Fund.
HoldCo’s proxy voting policy is designed to determine if a conflict of interest exists and to ensure that if a material conflict of interest is identified, that the proxy vote is not improperly influenced by the conflict. Conflicts may arise from time to time in relation to proxy voting requirements, and HoldCo may vote proxies notwithstanding the existence of the conflict. HoldCo monitors all proxies for any potential conflicts of interest. If a material conflict of interest arises, the proxy voting committee will determine how to address the conflict.
Records are maintained of all proxy votes. Clients should contact HoldCo’s Chief Compliance Officer, Joseph Geoghegan, [email protected] a copy of the proxy voting policy or for information with respect to a specific proxy vote.

B.As noted above, HoldCo has authority to vote on behalf of its Funds. please register to get more info

A.HoldCo does not require or solicit prepayment of more than $1,200 in fees per Client six months
in advance. Accordingly, HoldCo is not required to include a balance sheet for its most recent fiscal year.

B.This item is not applicable to HoldCo as HoldCo does not have custody of Client funds or securities
nor does HoldCo solicit pre-payments of more than $1,200 in fees per Client six months in advance.

C.HoldCo has not been the subject of a bankruptcy petition at any time during the past ten years. please register to get more info