Martlet Asset Management, LLC (“Martlet”) was established in July 2018 and is an
independent asset management firm focused on liquid alternative investments. Martlet
intends to provide advice to private funds.
Jane Buchan, CEO and co-CIO of Martlet, holds the largest membership interest and the
only interest greater than 25%. Other senior members of Martlet include Philippe Jorion,
co-CIO and co-Head of Alternative Beta; Judith Posnikoff, Managing Director and CCO;
Kevin Williams, CFO/COO; and Lisa Fridman, co-Head of Alternative Beta.
As of January 1, 2019, Martlet began managing a private fund on a discretionary basis
with approximately $101.4 million (as of December 31, 2018) in assets under
management. This private fund (Martlet Alternative Beta Master Fund, LP, formerly
known as Pacific Alternative Beta Master Fund, LP (the “Alt Beta Fund”)), was funded in
February 2018 and managed by Pacific Alternative Asset Management Company, LLC
(“PAAMCO”) from inception to December 31, 2018. The investment team managing the
Alt Beta Fund at Martlet were employees of PAAMCO until December 31, 2018 and
managed the Alt Beta Fund from its inception at PAAMCO. A feeder fund, Martlet
Alternative Beta Fund, Ltd., to the Alt Beta Fund was established May 1, 2019.
References to the Alt Beta Fund (or the “Fund”) will include the feeder fund as well as
the master fund where appropriate. As of January 1, 2020, Martlet managed
approximately $149 million in discretionary assets.
The Alt Beta Fund follows a liquid alternative investment approach that focuses on
investment anomalies (alternative risk premia) that are diversified across asset classes
(e.g., equities, fixed income, currencies and commodities) and types of alternative risk
premia (e.g., value, carry, momentum, volatility). Martlet intends to trade both
commodity interests and securities for the Alt Beta Fund.
Martlet has various other private funds under development. A particular research focus
is on identifying opportunities that arise in the capital markets due to market
microstructure anomalies and supply and demand imbalances. Each of these private
funds is expected to have distinct investment processes and procedures as well as its
own respective fee structure. New private funds may not be appropriate for all clients.
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For the Alt Beta Fund, as of July 1, 2019 the standard management fee is 0.75% (annual
of assets under management) for allocations from new investors as of and after that
date.
Martlet generally expects to deduct fees from the assets of each private investment fund.
Fees are generally payable monthly in advance. For fee arrangements that call for
payment of fees in advance, upon redemption Martlet will refund fees for any period of
time Martlet did not provide services and only charge for the actual period of time Martlet
provided investment advisory services.
As detailed in each private fund’s governing documents, each investor in a private fund
will also pay its pro rata portion of the private fund’s ongoing expenses and any
extraordinary or non-recurring expenses. Ongoing expenses include transaction (e.g.,
brokerage commissions or swap charges), administrative, insurance premiums, fidelity
bonds, custody, legal, tax preparation, audit and accounting expenses, the fees and
expenses of third-party service providers as may be considered necessary by Martlet,
Directors’ fees and expenses, pricing and valuation agents and other expenses,
including extraordinary or non-recurring expenses, that are reasonably incurred in
connection with the operation of the business and maintenance of the underlying private
funds.
Please see the response to Item 12 for additional information on brokerage
commissions.
Neither Martlet 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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Martlet expects to serve as a manager and/or adviser to private funds for tax-exempt
investors such as offshore limited partnerships, limited liability companies and
companies that are pooled investment vehicles. For the Alt Beta Fund, in general, the
minimum initial investment amount is $5,000,000. Investors may generally not effect a
partial redemption if, after such redemption, the net asset value of their investment
would be less than the applicable minimum investment amount.
Each investor in a Martlet private investment fund must generally be an “accredited
investor” as defined in Regulation D of the Securities Act of 1933 and a “qualified
purchaser” as defined in the Investment Company Act of 1940 and the regulations
thereunder. In the case of certain offshore funds, non-U.S. investors need not be
“accredited investors” or “qualified purchasers” so long as each such non-U.S. person is
(1) not a “U.S. person” as defined in Regulation S under the Securities Act of 1933, as
amended, or a “United States person” as defined in the Internal Revenue Code of 1986,
and (2) must be a “Non-United States person” as defined in Regulation 4.7 under the
Commodity Exchange Act.
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The Alt Beta Fund pursues a strategy of harvesting anomalies (alternative risk premia)
across asset classes (e.g., equities, fixed income, currencies and commodities) and
types of alternative risk premia (e.g., value, carry, momentum, volatility). The investment
process involves following academic research on alternative risk premia, evaluating the
underlying rationale for a particular premium and analysis of various implementation
approaches. Review of the strategy trading algorithm, performance, risk characteristics
and cost structure is conducted as part of the process.
The discussion above summarizes the investment process in effect as of the date of this
Brochure. Our investment process has been refined over time and we expect to
continue to refine our investment process over time. We may make material
modifications to our investment process without notice to investors.
Investing in securities and other assets involves a risk of loss, including complete loss,
that investors in Martlet private funds, including the Alt Beta Fund, should be prepared to
bear. The prices of securities and other assets in which the private funds will invest may
be volatile. Market moves are difficult to predict and are influenced by, among other
things, government trade, fiscal, monetary and exchange control programs and policies;
changing supply and demand relationships; national and international political and
economic events; changes in interest rates; and the inherent volatility of the
marketplace. In addition, governments from time to time intervene, directly and by
regulation, in certain markets, often with the intent to influence prices directly. The
effects of governmental intervention may be particularly significant at certain times in the
financial instrument and currency markets, and such intervention (as well as other
factors) may cause those markets and related investments to move rapidly.
Each Martlet private investment fund will acquire investment assets that have not yet
been identified. Accordingly, prospective investors do not have an opportunity to review
the terms upon which any assets are acquired prior to investing with Martlet. The
likelihood that an investor will realize gain depends on the skill and expertise of Martlet in
selecting those assets.
Non-U.S. Exchanges and Markets: A private investment fund may engage in trading on
non-U.S. exchanges and markets. Trading on such exchanges and markets may
involve certain risks not applicable to trading on U.S. exchanges and is frequently less
regulated.
Derivatives: The Alt Beta Fund trades derivatives (“Derivatives”). These are financial
instruments that derive their performance, at least in part, from the performance of an
underlying asset, including, but not limited to, stocks, bonds, commodities, currencies,
interest rates, volatility and market indices. The Derivatives that the Alt Beta Fund may
use include, without limitation, futures, options, swaps and swaptions.
Derivatives can be volatile and involve various types and degrees of risk, depending
upon the characteristics of the particular Derivative and the portfolio as a whole.
Derivatives permit the Alt Beta Fund to increase or decrease the level of risk, or change
the character of the risk, to which its portfolio is exposed in much the same way as the
Alt Beta Fund can increase or decrease the level of risk, or change the character of risk,
of its portfolio by purchasing or selling specific securities.
If the Alt Beta Fund trades Derivatives at inopportune times or Martlet judges market
conditions incorrectly, such investments may lower the Alt Beta Fund’s return or result in
a loss. The Alt Beta Fund could also experience losses if the Derivatives were poorly
correlated with its other investments or if the Alt Beta Fund was unable to liquidate its
position because of an illiquid secondary market. The market for many Derivatives is, or
suddenly can become, illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for Derivatives.
Swaps: The Alt Beta Fund enters into swap transactions. Swap agreements historically
have been over the counter (“OTC”), two-party contracts entered into primarily by
institutional investors for periods typically ranging from a few weeks to more than one
year. In a standard swap transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. There are
various types of swaps, including but not limited to, total return swaps, variance swaps,
credit default swaps and interest rate swaps; all of these and other swaps are derivatives
and as such, each is subject to the general risks relating to derivatives described above.
Futures Contracts: The Alt Beta Fund will enter into futures and futures-related
transactions, such as options on futures. With futures contracts, there is a risk that a
counterparty may not be able to meet its obligations. The counterparty for most futures
and futures-related contracts traded in the United States and on most non-U.S. futures
exchanges is the clearinghouse associated with each exchange. In general,
clearinghouses are backed by corporate members of the clearinghouse who are
required to share any financial burden associated resulting from the non-performance by
one of its members and, as such, should reduce this counterparty risk.
Options: The Alt Beta Fund will invest in options. The purchase or sale of an option
involves the payment or receipt of a premium payment and the corresponding right or
obligation, as the case may be, to either purchase or sell the underlying security or other
instrument for a specific price at a specific time or during a certain time period.
Purchasing options involves the risk that the underlying instrument does not change
price in the manner expected, so that the option expires worthless and the investor loses
the premium paid. Selling options involves potentially greater risk as the investor is
exposed to the actual price movement in the underlying security or other instrument in
excess of the premium payment received.
OTC Transactions: The Alt Beta Fund will invest in derivative instruments that are not
traded on organized exchanges (i.e., are OTC) and, as such, are not standardized. In
general, there is less governmental regulation and supervision in the OTC markets than
of transactions entered into on an organized exchange. In addition, many of the
protections afforded to participants on some organized exchanges, such as the
performance guarantee of an exchange clearinghouse, will not be available in
connection with OTC transactions. This exposes the Alt Beta Fund to the risk that a
counterparty may not settle a transaction because of a credit or liquidity problem or
because of disputes over the terms of the contract. In addition, the Alt Beta Fund will be
subject to the risk of the inability of counterparties to perform with respect to
transactions, whether due to insolvency, bankruptcy, governmental prohibition or other
causes, which could subject the Alt Beta Fund to losses.
Derivative Counterparty Risk: The Alt Beta Fund’s use of Derivatives involves the risk
that the other party to the Derivative contract will fail to make required payments or
otherwise comply with the terms of the contract. If a counterparty becomes bankrupt or
otherwise fails to perform its obligations under a Derivative contract due to financial
difficulties, the Alt Beta Fund may experience significant delays in obtaining any
recovery under the Derivative contract in a bankruptcy or other proceeding. The Alt Beta
Fund may obtain only a limited recovery or may obtain no recovery in such
circumstances. The Alt Beta Fund may trade Derivatives by means of a prime broker or
an executing broker and is subject in either case also to counterparty risk with respect to
the broker. Although Martlet may attempt to mitigate the default risk to the Alt Beta
Fund through careful counterparty selection and proper monitoring and risk
management, counterparty defaults may still occur and any such occurrence may result
in losses to the Alt Beta Fund.
Hedging Risk: Although the Alt Beta Fund may attempt to hedge market risk arising
from its portfolio of financial instruments through the purchase and/or sale of various
other financial instruments, there can be no assurance that the Alt Beta Fund’s hedging
will prove successful. There might be imperfect correlation, or even no correlation,
between price movements of a financial instrument and price movements of the
investments being hedged. Such lack of correlation might occur due to factors unrelated
to the value of the instruments being hedged, such as speculative or other pressures on
the markets in which the financial instruments are traded.
Leverage: The Alt Beta Fund may seek to enhance returns through the use of leverage,
which can be described as exposure to changes in price at a ratio greater than 1:1 in
reference to the amount invested. Additionally, leverage may involve borrowing to buy
securities on margin or make other investments. Leverage magnifies both the favorable
and unfavorable effects of price movements in investments, which may subject the Alt
Beta Fund to a substantial risk of loss. In the event of a sudden, significant drop in value
of the Fund’s assets, it may not be able to liquidate assets quickly enough to meet its
margin or borrowing obligations. Also, as acquiring and maintaining positions on margin
allows the Fund to control positions worth significantly more than its investment in those
positions, the amount it may lose in the event of adverse price movements is high in
relation to the amount of investment.
General Economic Conditions: The success of any trading activity may be affected by
general economic conditions, which may affect the level and volatility of security prices,
currency exchange rates, interest rates and the extent and timing of investors’
participation in the markets for currencies, securities and other instruments. Unexpected
volatility or lack of liquidity in the markets in which the Fund directly or indirectly holds
positions could impair the Fund’s ability to continue to trade or cause it to incur losses.
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Martlet is required to disclose all material facts regarding any legal or disciplinary events
that would be material to the evaluation of Martlet or the integrity of Martlet’s
management. Martlet has no information applicable to this Item either for itself or for any
of its members.
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Neither Martlet nor any of its management persons is registered, or has an application
pending to register, as a broker-dealer or a registered representative of a broker-dealer.
Martlet was registered as a commodity pool operator with the Commodity Futures
Trading Commission (“CFTC”) as of November 15, 2018. As required by CFTC rules,
certain management persons of Martlet are registered as “associated persons” of
Martlet.
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Martlet is committed to complying with applicable laws and regulations and to
maintaining the highest ethical standards in connection with the management of Martlet.
The Code of Ethics reflects Martlet’s view on dishonesty, self-dealing, conflicts of
interest and trading on material, non-public information. Martlet will provide a client or
prospective client with a copy of its Code of Ethics on request.
The Code of Ethics requires each employee to provide initial and annual securities
holdings reports as well as quarterly securities transaction attestations. Martlet
employees will not be permitted to trade in most securities without prior approval of the
Chief Compliance Officer. In addition, Martlet employees and family members will not
be permitted to acquire interests in any limited offering (including any private investment
fund managed by Martlet) or initial public offering without the prior approval of the Chief
Compliance Officer.
In addition to managing conflicts of interest with respect to trading and preventing self-
dealing, Martlet has adopted and implemented various policies and procedures
regarding employees’ outside, non-Martlet business activities, political contributions,
giving and receipt of gifts and entertainment, and affiliations with third party service
providers. The intent of these policies and procedures is to minimize opportunities for
conflicts of interest to arise. Martlet employees may benefit from educational events
sponsored by industry service providers such as prime brokers, administrators, law
firms, audit firms, and other such professional service firms.
One senior member of Martlet serves as a director on the Alt Beta Fund. He does not
receive compensation for his service as director.
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Best Execution:
Martlet, where applicable, will take all reasonable steps to obtain, when executing orders
or arranging the execution of orders, the best possible results for its clients taking into
account relevant execution factors (a non-exhaustive list is set forth in the following
paragraph).
The following factors, as relevant, may be considered when executing a trade on behalf
of a client: listed bids and asks; the opportunity for price improvement; transaction
costs; anonymity; liquidity; speed of execution; likelihood of execution and settlement;
quality of research; expertise with difficult securities; trading style and strategy;
geographic location; frequency of errors; access to new issues; size; and taking into
account the relevant factors above, commission rates.
When executing an order or arranging its execution, Martlet will consider the relative
importance of the execution factors listed above, taking into account the characteristics
of the private fund, the characteristics of the order itself and the financial instrument that
is subject to such order, and characteristics of the execution venues to which that order
can be directed. Ordinarily, in considering best execution, price and transaction costs
(including swap fees) will be given high relative importance in seeking to obtain the best
possible result. It may be the case, however, that only one counterparty can provide the
desired exposure.
Soft Dollars:
Martlet does not currently use soft dollars. In the future, if Martlet were to use soft
dollars, it only intends to use soft dollars to obtain products and services that fall within
the safe harbor provided by Section 28(e) of the Exchange Act.
Investor Referrals:
Martlet may receive client referrals from registered representatives of broker-dealers that
trade on behalf of Martlet’s private investment funds. Martlet is aware that such referrals
could pose a conflict of interest in that Martlet could have an incentive to direct
brokerage to broker-dealers that fail to achieve best execution in order to receive
referrals. Martlet will review referral relationships (if any) and the associated conflicts of
interest during its periodic evaluations of execution quality.
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Martlet accounts will be reviewed by the responsible portfolio management team. In the
case of the Alt Beta Fund, the co-Heads of Alt Beta review. Reporting on accounts is
specific to the contractual agreement and goal of each account including the nature and
frequency of reporting. Reports typically are provided as written reports on a monthly
basis and include, but are not limited to, various performance measures and descriptions
of performance drivers.
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Martlet does not receive any economic benefit from any person who is not a client for
providing investment adviser services for clients.
Martlet has a solicitation agreement in principle with PAAMCO for the Alt Beta Fund
whereby PAAMCO would share in management fees earned by Martlet with respect to
certain investors that invest in the fund (directly or via a feeder fund) prior to or as of July
1, 2019 due to PAAMCO’s solicitation efforts during 2018. The applicable compensation
arrangements will be provided in writing to any affected investor or client. There was
one investor under this solicitation agreement as of July 1, 2019. In addition, in certain
non-U.S. markets, where required by local regulations, Martlet intends to engage a third-
party distributor. Such distributor will be compensated on a flat fee per annum basis and
an additional flat fee per investor who subscribes through the distributor, all of which will
be paid by Martlet.
From time to time, Martlet may engage one or more consultants to provide market
research and consulting services relating to possible prospective clients.
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Martlet will be deemed to have custody of the assets of each private fund advised by
Martlet.
To comply with the requirements of the Investment Advisers Act of 1940, each private
fund advised by Martlet will be audited each year by an independent public accountant
and those audited financial statements will generally be provided to investors within 120
days of fiscal year end. Because the Alt Beta Fund relies on the CFTC 4.7(b)
exemption, its audited financial statements will be provided within 90 days of fiscal year
end.
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For those private funds where Martlet will have investment discretion, such as the Alt
Beta Fund, Martlet will typically be granted express discretionary authority, including a
power of attorney, through an investment management agreement or similar agreement
between Martlet and the private fund.
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While it is unlikely, given the securities Martlet currently trades, that Martlet will be asked
to consider many corporate actions (i.e., proxy votes), Martlet has adopted a policy
governing the voting of proxies. This policy is intended to ensure that Martlet will vote
proxy proposals, amendments, consents or resolutions (collectively, proxies) in a
prudent and diligent manner intended to enhance the economic value of the underlying
assets. Each proxy proposal is considered on its own merits and Martlet makes an
independent determination of whether to support or oppose management’s position.
Any actual or apparent conflict of interest between the interests of Martlet and its clients
will be resolved in a manner that is in the best interests of clients and, to the extent
possible, in a manner not affected by such actual or apparent conflict of interest.
A copy of Martlet’s proxy voting policy as well as information on how Martlet has voted a
private fund’s proxies is available to Martlet investors upon request.
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As Martlet does not require or solicit prepayment of more than $1,200 in fees per private
fund six months or more in advance, accordingly, it is not required to provide a balance
sheet. In addition, Martlet has never filed for bankruptcy and is not aware of any
financial condition that is expected to affect its ability to manage the private funds.
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