Orchard Holdings Group, LLC, a Delaware limited liability company (“Orchard” or the “Adviser”) is
based in Cincinnati, Ohio, and has been in business since 2010. Orchard began as the proprietary
private equity group for the family of Richard T. Farmer, Founder of Cintas Corporation (NASDAQ:
CTAS). Orchard has since evolved into a company owned by entities of Mr. Farmer’s family and by its
two operating principals, Phil Collins and Peter Boylan.
Orchard is a highly specialized investment management firm with a limited clientele. Orchard
primarily manages a limited number of private investment funds that invest in private equity and
private debt investment opportunities (the “Funds”). Orchard also advises a limited number of
separately managed accounts for individuals, trusts and certain entities (collectively, “Individual
Clients”) with respect to specific direct investments and co-investment opportunities. Orchard identifies
investment opportunities, monitors performance and manages the acquisition, oversight and disposition
of the investments of each Fund. Affiliates of Orchard serve as the general partners or managing
members (the “GPs”) of each Fund. The management services provided for each Fund are further
described in that Fund’s offering memorandum, limited partnership or limited liability company
agreement, and the management/advisory agreement (if any) between Orchard and a Fund (the
“Documents”).
The primary focus of Orchard’s investment management services is identifying, evaluating,
structuring, executing and managing privately negotiated investments in operating entities, with a
primary focus on non-public middle market companies. In addition, Orchard opportunistically pursues
investments in other types of securities, including but not limited to minority equity positions, growth
equity investments, equity positions in public companies, structured credit products, debt investments
and real estate. Orchard’s investment strategy is very opportunistic, but generally focuses on
identifying investments that are advantaged by a longer-term time horizon and a greater degree of
flexibility than traditional institutional investment funds.
From time to time, Orchard personnel and/or its consultants may serve on a portfolio company’s
board of directors or otherwise act to influence control or management of a portfolio company
on behalf of a Fund or Individual Clients that hold an interest in that company.
Orchard does not participate in any wrap fee programs.
Orchard generally does not take full discretionary authority regarding the investment of client assets.
Rather, Funds (or sub-funds or Series within funds) generally are formed, and Individual Clients are
contacted, to invest into a single or limited number of investment opportunities. Accordingly, it is
unlikely that Orchard would need to allocate investment opportunities amongst multiple Funds or
Individual Clients. If such a situation should arise, however, Orchard would allocate investment
opportunities on a fair and equitable basis after considering various factors including, without limitation,
the goals and objectives, investment assets, liquidity, portfolio diversification, etc. of its Funds and
Individual Clients.
As of June 30, 2019, Orchard managed approximately $309,834,000 of client assets, all on a non-
discretionary basis.
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As compensation for Orchard’s investment management services, an annual management fee is paid
from each Fund or by each Individual Client. In general, the management fees range from 0% - 2%
annually of either the total capital committed to a Fund by its investors or capital actually invested, or
the total assets in a separately managed account of an Individual Client.
The amount of the management fee may vary for each Fund or each investor in a Fund, and for each
Individual Client, and is determined through negotiations at the time the Fund or separately managed
account is formed and generally is not changed thereafter. The management fee is generally invoiced
quarterly in arrears or advance, may be deducted from the Funds’ or Individual Clients’ assets, and is
generally subject to waiver or reduction by Orchard at its sole discretion, including in connection with
investments made by Orchard’s affiliates or own personnel. Orchard has waived or modified fees
borne by certain Orchard affiliates who have invested in the Funds. If management fees are invoiced
in advance and the Fund or separately managed account is dissolved before the conclusion of the
period covered by the advance payment, the unearned management fees are returned to the Fund or
separately managed account in connection with its dissolution. Individual Clients generally pay fees
economically similar to that of the Funds.
Orchard sometimes receives a fee from the portfolio company in which a Fund invests for professional
consulting services provided by Orchard to such company. Such consulting fees may or may not be
set off against management fees payable by Funds or Individual Clients to Orchard. It also is possible
that portfolio companies will bear certain expenses which otherwise would have been the obligation of
Orchard or the Funds and Individual Clients.
The GPs also generally receive a performance allocation or “carried interest.” The Documents
generally provide for a distribution waterfall pursuant to which the net proceeds realized by a Fund
(both dividend or interest payments and proceeds from dispositions of a Fund’s investments) are
shared between the GP and the limited partners after the limited partners have been paid back their
contributed capital and have received a preferred return. The preferred return to the limited partners
may vary from Fund to Fund, and in some cases may include a catch up provision. The GPs may
waive or reduce the carried interest that they receive in connection with investments by a particular
limited partner. Individual Clients generally pay fees economically similar to the performance allocations
or carried interest received from the Funds.
Orchard generally invests for the Funds and Individual Clients on a long-term basis. Accordingly,
unless otherwise provided in a Fund’s Documents or client agreements, Orchard generally expects
investment management fees and management services fees to be paid over the entire life of a Fund
on realized income. A GP’s performance compensation is generally paid after a Fund’s disposition of
an investment although performance compensation may also be payable after a partial disposition on
realized income or separately managed account but not on unrealized income.
To the extent provided in the Documents, Orchard pays out of its management fees, closing fees, and
management service fees certain operating expenses, including expenses on account of rent, utilities,
office supplies, office equipment, travel, entertainment, compensation of its managers, consultants
and employees, and other routine administrative expenses related to the services and facilities that it
provides to the Funds.
Subject to any special provisions contained in its Documents, each Fund or Individual Client bears all
other expenses of its operation to the extent not borne by its portfolio company or companies (which
may bear expenses relating to the management services provided). This includes organizational and
offering costs, legal, accounting, insurance, consulting, research, brokerage (including investment
banking) and finders’ fees (if any), custody, transfer, registration, advisory board, interest, taxes,
reporting, extraordinary expenses, and the costs of sourcing, investigating, identifying, analyzing,
pursuing, negotiating, consummating, acquiring, holding, managing and selling actual or potential
investments. With regard to brokerage and investment banking fees, please see the discussion below
under Item 12, “Brokerage Practices.”
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The existence of performance-based compensation has the potential to create an incentive for Orchard
to make more speculative investments on behalf of the Funds than it would otherwise make in the
absence of such arrangement, although Orchard generally considers performance-based compensation
to better align its interests with those of its investors. In addition, Orchard may have an incentive to
allocate investments or otherwise provide preferential treatment to certain Funds if such Funds have
more favorable performance-based compensation terms than other Funds. That potential not
withstanding all Orchard Funds and Individual Clients investing in a specific investment will be charged
similarly structured, fully-disclosed fees. Accordingly, Orchard believes it has no incentive or practical
ability to favor accounts for which it may receive a performance-based fee or allocation.
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As described above under Item 4, “Advisory Business,” Orchard primarily manages a limited number
of private investment funds (i.e., “Funds”) that invest in private equity and private debt investment
opportunities, and also advises on a limited number of direct investments by certain individuals, trusts
and entities. Orchard does not serve as the investment adviser to Individual Clients with respect to
investments in the Funds. Orchard’s Funds are offered exclusively to accredited investors and
qualified purchasers or knowledgeable employees of Orchard. Any required minimum investment
amount is clearly disclosed in the offering materials of each Fund.
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Methods of Analysis and Investment Strategies
Orchard’s Funds and Individual Clients primarily invest in either convertible and/or participating
preferred stock, mezzanine debt securities, or common stock of private operating portfolio companies
in negotiated transactions. The Funds and Individual Clients make both “control” and “non-control”
investments. The Funds and Individual Clients also invest opportunistically in debt securities, structured
products, real estate and public securities (both debt and equity). A Fund or Individual Client may
engage in a joint transaction with other affiliated or unaffiliated private equity funds or investors,
and Orchard may make an investment managed by a third-party manager.
Prior to making each investment, Orchard carries out an extensive analysis of a target portfolio
company’s current operations, management, competitive position, financial strength, plans, and
prospects. The due diligence analysis generally includes consideration of at least the following: target
company’s market, product and services, and management; its regulatory, environmental, tax, legal,
accounting contingencies; and liquidity.
In addition to portfolio company investments, Orchard opportunistically makes other investments in
private or public securities and real estate. These investments are evaluated based on their projected
risk adjusted returns based on their risk profile and liquidity, and their suitability for Orchard’s clients
risk tolerance and objectives. Typically such analysis involves analyzing multiple potential scenarios
and evaluating the probability associated with various potential return outcomes, including the
probability of total or partial loss of investment and the potential impact of short term financial market
volatility or dislocation. Orchard will perform extensive due diligence using a combination of in-house
and/or outside third party resources.
Risk of Loss
Orchard primarily manages a limited number of private investment funds (i.e., the “Funds”) that
invest in private equity and private debt investment opportunities, and also advises on a limited
number of direct investments by certain individuals, trusts and entities. Accordingly, Orchard does not
provide comprehensive advisory services to the Funds or Individual Clients for all or substantially of
their investments.
As the investment strategies of Orchard are highly specialized, Funds and Individual Clients must be
prepared to bear a complete loss of their investments. Investments pursued by Orchard may be
risky, and a Fund’s or Individual Client’s account may be highly concentrated, possibly comprised of a
single investment, and may be extremely illiquid and difficult to value.
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Trading
Code of Ethics
Orchard endeavors at all times to operate in conformity with applicable law and to conduct its
business in the highest ethical and professional manner. Orchard’s Code of Ethics (the “Code”)
contains ethical principles and standards of business conduct to which personnel are held. The Code
includes requirements of confidentiality relating to clients, disclosure of any conflicts of interests, and
a personal trading policy.
Upon hire, all personnel are required to certify that they will comply with the provisions of the Code.
Orchard reviews the Code with each new employee. Orchard’s Chief Compliance Officer is responsible
for overseeing compliance with the Code.
Orchard will provide a copy of its Code of Ethics to any client or prospective client upon request.
Conflicts of Interest
Orchard is an independent adviser and has sought to minimize or eliminate conflicts of interest so that
investment decisions and other decisions are unencumbered by motives other than achieving clients’
goals.
In addition, Orchard or its employees may also purchase or sell for themselves securities or other
investments which one or more clients own, previously owned, or may own in the future. Orchard’s key
employees, and related entities, are allowed to invest personally in the Funds. The employees bear
their proportional share of the expenses of the funds but do not pay any fees to Orchard. Orchard and
its key employees may pursue investment opportunities which may not be suitable for the Funds or
Individual Clients and which may be similar to or different from investments made by the Funds or
Individual Clients.
Orchard charges the Funds and Individual Clients performance fees which may create an incentive to
recommend riskier investments.
Seeking to Minimize Other Potential Conflicts of Interest
Orchard seeks to minimize potential conflicts of interest between Orchard and clients and among
different clients in numerous ways including the following:
• Orchard has written policies and procedures regarding conflicts of interest; and
• At all times, Orchard seeks to allocate investment opportunities fairly and equitably.
Orchard generally pursues investment opportunities through special purpose Funds for each
specific investment opportunity.
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Private Equity Investments
Orchard generally does not engage in brokered transactions. Therefore, the Funds and Individual
Clients generally do not pay brokerage, investment banking or finders’ fees to third parties in
connection with their initial investment in a portfolio company. However, the portfolio company itself
typically pays an investment banking fee to a brokerage firm that was retained by the portfolio
company to find potential investors and assist the portfolio company in negotiating the terms of
Orchard’s investment transaction, and the portfolio company may also pay a finder’s fee to other
persons. In addition, in connection with a transaction relating to the sale or redemption of a Fund
investment or of the portfolio company’s assets or businesses, the portfolio company may engage an
investment banking firm, and perhaps other consultants, to advise it in connection with the transaction,
with the related fees paid by the portfolio company or, depending on the kind of transaction,
the investing Fund. Orchard does not participate in a portfolio company’s selection and retention of
such a broker or finder or the determination of the related fees in the Funds’ acquisition transactions,
but Orchard may participate in the choice, and in determining the terms of retention, of investment
banking and other advisers in connection with sale or disposition transactions. If Orchard does so
participate, decisions are made on the basis of the professional qualifications of the advisers in question
and of the fees they propose to charge.
Other Investments
Orchard generally does not engage in brokered transactions. However, if a broker is used, brokers
will be selected with a view to obtaining best execution of transactions. Orchard believes that best
execution is typically achieved not necessarily by negotiating the lowest commission rate but by seeking
to obtain the best overall result. Orchard will consider all factors it deems relevant including execution
capabilities, financial stability of the broker, responsiveness, confidentiality, promptness, clearance,
settlement, and price.
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Orchard primarily manages a limited number of private investment funds (i.e., the “Funds”) that
invest in private equity and private debt investment opportunities and also advises on a limited
number of direct investments by certain individuals, trusts and entities. Orchard generally pursues
investment opportunities through special purpose funds (or sub-funds, classes or series of funds) for each
investment opportunity. Therefore, all client accounts are monitored and reviewed on an ongoing and
continuous basis.
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Orchard does not compensate people outside of the firm for client referrals. Orchard does not receive
payment from persons other than a client for providing services to clients.
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Because Orchard’s affiliated entities are the general partners of all the Funds, Orchard is deemed to
have custody of the Funds’ assets. Orchard complies with that rule by utilizing the so-called “audit
approach” and is therefore not required to arrange for a qualified custodian, as defined in the rule, to
send quarterly account statements to Fund investors. Each Fund is audited annually and upon its
termination, with its audited financial statements sent to its limited partners within 120 days of the
Fund’s fiscal year end or promptly after the completion of a final audit.
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Orchard has discretionary authority over the Funds’ assets pursuant to the applicable partnership
agreement. Orchard generally does not have discretionary authority over the Funds’ assets or Individual
Clients’ accounts.
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Orchard primarily manages a limited number of private investment funds (i.e., the “Funds”) that
invest in private equity and private debt investment opportunities and also advises on a limited
number of direct investments by certain individuals, trusts and entities. Orchard generally does not
invest in securities for Individual Clients which provide for the voting of such securities, and Orchard,
therefore, generally does not have proxy authority to vote client securities.
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Orchard is not subject to any financial condition that impairs its ability to meet contractual and
fiduciary commitments to clients.
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