Our Company
Based in Greenwich, Connecticut, Night Owl Capital Management, LLC (“Night Owl Capital” or
the “Company”), is an independent, privately-held Delaware limited liability company that has
been an SEC-registered investment adviser since 1993. The Company changed its name from
Southfield Investment Management, LLC in October of 2011.
The principal owners of the Company are John Kim and Eileen Ohnell.
Our Services
Night Owl Capital provides investment management services to both separately managed
accounts and private investment funds (e.g., hedge funds).
Separately Managed Accounts
Night Owl Capital provides investment management services for high net worth individuals and
institutions. Following the investment philosophy outlined in the section “Our Investment
Philosophy” (see below), Night Owl Capital manages separate investment accounts for clients.
While most client portfolios will match the Company’s “model” portfolio, some portfolios may
differ depending on the individual circumstances of a client.
Night Owl Capital will also at times manage investment accounts on a non-discretionary basis.
Private Investment Funds
Important Note: Private investment funds advised by Night Owl Capital are not offered or sold to
the public. They are accessible only to investors who are “Accredited Investors” as defined in
Regulation D under the Securities Act of 1933 and "Qualified Clients" as defined in Rule 205-3 of
the Investment Advisers Act of 1940, who receive a confidential private placement memorandum
issued by the fund and who ultimately become parties to the limited partnership agreement
governing operation of the fund. Night Owl Capital is the investment manager of Night Owl Partners, LP (the “Partnership”).
Please see the “Investment Strategies” section of this disclosure brochure for additional
information regarding the investment objectives, types of investments and risk exposures of Night
Owl Partners, LP.
The terms and conditions for participation in Night Owl Partners, LP, including management and
incentive fees, conflicts of interest and risk factors, are set forth in the fund’s offering documents,
which each prospective investor shall receive, and be required to complete and submit certain
portions thereof to Night Owl Capital in order to demonstrate qualification for a fund investment.
Because of the “pooled” nature of private investment funds, clients may not impose restrictions
on investments in certain securities or types of securities.
Our Investment Philosophy Night Owl makes concentrated, long-term public equity investments in growing companies. Our
focus is on finding world-class businesses whose earnings power we can forecast with confidence
for multiple years into the future. We invest primarily in mid-cap and large-cap companies across
geographies, although the majority of our portfolio companies are in the U.S.
Throughout the Company’s history, Night Owl Capital has followed the same investment
principles:
Invest in High Quality Companies
We focus on identifying companies with superior long-term earnings growth potential. When
evaluating companies, we spend our time forecasting earnings power 3-5 years into the future
instead of predicting earnings for the next quarter or year. We take this long-term view because
the value of a stock depends far more on a company’s future cash flows than on its current
earnings.
We hone in on industries and companies that are experiencing secular tailwinds or
transformations that allow us to develop a high level of confidence in our ability to forecast their
futures. We often find companies that meet this threshold when there is a systemic change in a
business or industry with clear beneficiaries.
We search for superior businesses with proven business models that have unique, enduring
franchises with sustainable competitive advantages. These businesses must have attractive
growth opportunities – we look for companies that are capable of growing their intrinsic value for
a number of years. Finally, we want our companies to have disciplined management teams that
allocate capital wisely.
Wait for an Attractive Valuation
Once we find a business we like, we estimate the company's intrinsic value based on a discounted
free cash flow analysis. We then wait for the market to provide us an opportunity to buy shares
below this intrinsic value. We are willing to be patient. We believe that not overpaying will
result in superior results over the long term and better downside protection for our investors.
Use Concentrated Portfolios
Given our stringent requirements, only a limited number of companies meet our investment
criteria. As a result, our portfolio tends to be concentrated typically holding 15-25 companies at
one time. We do not have a standard position size. Instead, we size positions based on our
estimate of the dispersion of possible outcomes and not based on expected return. Our largest
positions can exceed 10%, but the average position is about 4-5%.
Invest for the Long Term
We are long-term investors. Given our selective investment criteria, once we find a company we
like, we tend to hold it for a long time. We believe that the best way to build wealth is to find
great businesses and hold them while they grow and prosper. Our long-term investment horizon
results in low portfolio turnover and low trading and tax expenses. Notwithstanding our long-
term investment horizon, we will sell a position if we foresee a deterioration in the company's
fundamentals and / or its valuation is far above our view of its intrinsic value.
Our Investment Team The Night Owl Capital investment team consists of the following professionals:
John S. Kim
Managing Director Mr. Kim graduated from Yale University
magna cum laude with a BA in Ethics, Politics and
Economics in 1995. Mr. Kim also received his J.D. from Yale Law School in 2000. Mr. Kim has
served as Managing Director of Night Owl Capital since 2003. Prior to that, Mr. Kim was an
Associate in the Mergers & Acquisitions Department of Morgan Stanley from 2000 to 2003. He
also served as an equity analyst at J. Bush & Co. from 1999 to 2000 and as a consultant at Mercer
Management Consulting from 1995 to 1997. Mr. Kim is married to Eileen Ohnell.
Charlie Gao
Analyst Mr. Gao joined Night Owl Capital in 2014. Prior to joining the firm, Mr. Gao worked at The
Blackstone Group as an analyst in their alternative asset management group. Mr. Gao graduated
from the University of Pennsylvania with a B.S. in Electrical Engineering,
magna cum laude.
Andrew Sherlock
Analyst Mr. Sherlock joined Night Owl Capital in 2017. Prior to joining the firm, Mr. Sherlock was a
summer analyst at Goldman Sachs in their options research group and Rockefeller & Co. in their
global healthcare strategies group. Mr. Sherlock graduated from Yale University with a B.S. in
Mathematics and Economics.
Eileen Ohnell
President and Chief Compliance Officer Ms. Ohnell joined Night Owl Capital in 2019. Immediately prior to joining the firm, Ms. Ohnell
was the Director of Research and a Managing Director at Ionic Capital Management, which she
joined at launch in 2006. From 2000-2005, Ms. Ohnell was a Vice President and senior analyst at
Highbridge Capital Management working with the team that started Ionic. Ms. Ohnell’s previous
experience includes working as an equity analyst at Night Owl Capital (when it was called
Southfield), writing research for Renaissance Capital and as a consultant at Mercer Management
Consulting (now Oliver Wyman). Ms. Ohnell graduated from Princeton University in 1995 with
an A.B. in history, cum laude, and is a CFA charterholder. Ms. Ohnell is married to John Kim.
Our Assets Under Management As of December 31, 2018, the total amount of client assets managed by Night Owl Capital is
approximately $624,729,000. Of this total amount, $302,013,000 of client assets are managed on
a discretionary basis and $322,716,000 of client assets are managed on a non-discretionary basis.
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Separately Managed Accounts The annual fee for Night Owl Capital’s separately managed account services will be charged as a
percentage of assets under management. The investment management fee charged is determined
by the composition of a client’s account. Client accounts are charged a fee based on an
annualized rate of 1.5% for the first $5 million and 1.0% on assets over $5 million.
Fees are paid quarterly in advance and are calculated and assessed in the first business week of a
calendar quarter based on the market value of an account on the last business day of the preceding
quarter. Market value is as reflected in the custodian’s statement as of the end of the quarter plus
any accrued interest on fixed income securities. In the event the account custodian cannot
provide a market value, Night Owl Capital will determine the asset’s fair market value. Fees will
be adjusted if there are additions or withdrawals during the first sixty days of the quarter of assets
equal to 15% or more of the total value of the account on the date of the addition or withdrawal.
Such fees will be calculated based on the annualized rate for the particular type of account, the
number of days remaining in the quarter on the date of the addition or withdrawal and the amount
of the assets added or withdrawn, and will be assessed or credited, as applicable, in the quarter
following the quarter in which the addition or withdrawal was made.
Fees are typically deducted directly from a client’s account.
Private Investment Fund Night Owl Capital acts as investment adviser for Night Owl Partners, LP, a private investment
fund organized as a pooled investment vehicle, and charges an asset based management fee of
approximately 1.0% per year on assets under management. Additionally, an affiliate of Night
Owl Capital serves as general partner of Night Owl Partners, LP and shares in the profits based
on the performance of the assets under management pursuant to the terms of the relevant
agreement. Generally, Night Owl Capital’s affiliate will receive 20% of the net profits generated
above an annual non-cumulative hurdle rate of 10%. Asset based fees are generally payable on a
quarterly basis in advance and the performance-based allocation accrues monthly and generally is
payable annually or more frequently and is subject to a “high water mark.” This means that no
performance allocation will be made as to net profits in a period to the extent they “restore” net
losses previously allocated to an investor in the investment vehicle. Night Owl Capital in its
capacity as investment adviser (or its affiliate in its capacity as general partner) for an investment
vehicle, is reimbursed for allocable legal, accounting and administrative expenses that are directly
related to such investment vehicle or such investment vehicle’s investments.
Because the general partner (an affiliate of Night Owl Capital) receives a performance allocation,
an investor in Night Owl Partners, LP must be a “Qualified Client.” As defined in Rule 205-3
under the Investment Adviser Act of 1940, as amended, a “Qualified Client” is an individual or
company that immediately after entering into an investment contract has at least $1,000,000
under management with the advisory firm or an individual or a company with a net worth (or a
joint net worth, in the case of an individual, with assets held jointly with a spouse) of more than
$2,100,000 immediately before entering into the investment contract.
The terms and conditions for participation in Night Owl Partners, LP, including management and
performance allocation, conflicts of interest and risk factors, are set forth in the fund’s offering
documents, which each prospective investor shall receive, and be required to complete and
submit certain portions thereof to Night Owl Capital in order to demonstrate qualification for a
fund investment.
Important Additional Fee Information Fee Only
Night Owl Capital is compensated solely by fees paid by its clients and does not accept
commissions or compensation from any other source (i.e., mutual funds, insurance products or
any other investment product).
Fees Negotiable
Night Owl Capital retains the right to modify fees, including minimum account sizes, in its sole
and absolute discretion, on a client-by-client basis based on the size, complexity and nature of the
advisory services provided. As a result, a small number of clients may have fee arrangements
that differ from the fee schedule described above.
Balanced Account Fees
Night Owl Capital also manages balanced accounts for individual clients who have as a
secondary objective higher income and/or the preservation of capital. Balanced account clients
are charged an advisory fee based on an annualized rate of 1.0%. Balanced accounts are no
longer marketed to new clients.
Fixed Income Account Fees
Night Owl Capital also manages some accounts that are invested primarily in fixed income
securities. Fixed income account clients are charged a fee based on an annualized rate of 0.35%.
Fixed income accounts are no longer marketed to new clients.
Direct Debiting of Client Accounts
In order for Night Owl Capital’s advisory fees to be directly debited from a client’s account, the
client provides written authorization (in Night Owl Capital’s investment management agreement)
permitting Night Owl Capital to bill the custodian. In addition, the account must be held by a
qualified custodian and the qualified custodian must agree to send to the client an account
statement on at least a quarterly basis. The account statement must indicate all amounts disbursed
from the account including the amount of advisory fees paid directly to Night Owl Capital.
Clients are informed that it is their responsibility to verify the accuracy of the fee calculation and
that the account custodian will not determine whether the fee is properly calculated.
Termination of Client Relationship
The investment advisory contract may be terminated by either party upon seven day’s prior
written notice. Upon termination, the prorated amount of any pre-paid fees for the remainder of
the quarter following termination will be refunded. Night Owl Capital will either credit the fee
directly to the client account or send a check to the client for the amount of the refund.
Mutual Fund Fees
All fees paid to Night Owl Capital for investment advisory services are separate and distinct from
the fees and expenses charged by mutual funds to their shareholders. These fees and expenses are
described in each fund's prospectus. These fees will generally include a management fee, other
fund expenses, and a possible distribution fee. If the fund also imposes sales charges, a client
may pay an initial or deferred sales charge. A client could invest in a mutual fund directly,
without the services of Night Owl Capital. In that case, the client would not receive the services
provided by Night Owl Capital which are designed, among other things, to assist the client in
determining which mutual fund or funds are most appropriate to each client's financial condition
and objectives. To the extent that client assets are invested in money market funds or cash
positions, the fees for monitoring those assets are in addition to the fees included in the internal
expenses of those funds paid to their own investment managers, which are fully disclosed in each
fund’s prospectus. Accordingly, the client should review both the fees charged by the funds and
the fees charged by Night Owl Capital to fully understand the total amount of fees to be paid by
the client and to thereby evaluate the advisory services being provided.
Trading and Other Costs
All fees paid to Night Owl Capital for investment advisory services are separate and distinct from
transaction fees charged by broker dealers associated with the purchase and sale of equity
securities and options. In addition, fees do not include the services of any co-fiduciaries,
accountants, broker dealers or attorneys. Please see the section entitled “Brokerage Practices” on
page 14 of this disclosure brochure for additional information on brokerage and other transaction
costs.
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As stated in the “Fees and Compensation” above, under certain circumstances an affiliate of
Night Owl Capital is eligible to receive a performance-based allocation (
e.g., for its management
of Night Owl Partners, LP). In addition, Night Owl Capital manages client accounts where it is
not eligible to receive performance-based compensation for its advisory services.
Situations – such as those described above – where Night Owl Capital manages both accounts
that pay performance-based compensation and accounts that do not pay performance-based
compensation gives rise to certain conflicts of interest that have the potential to motivate Night
Owl Capital to favor its performance-based account clients over other clients. For example,
performance-based compensation is typically significantly higher than the asset-based fees paid
on traditional accounts. In the case of private investment funds, many investment advisers,
including Night Owl Capital or its related persons, have significant investments in the funds that
they manage. As a result, Night Owl Capital has additional incentives to favor the performance-
based clients over other clients by allocating investment opportunities to the performance-based
accounts. Finally, because performance-based compensation is not paid unless Night Owl Capital
achieves a certain level of performance, the performance allocation arrangement may create an
incentive for Night Owl Capital to make investments that are more risky or more speculative than
might be the case in the absence of an allocation based on performance.
Night Owl Capital has implemented various policies and procedures to mitigate real or potential
conflicts of interest. Currently, the assets of Night Owl Capital’s separately managed account
clients and the Partnership are custodied at different brokerage firms or custodians.
Consequently, Night Owl Capital may use different brokers for the separately managed accounts
and the Partnership, respectively, to execute a transaction that involves the same security. In
addition, Night Owl Capital will execute most transactions in a serial manner in order to prevent
the brokers from competing with one another for order flow. Night Owl Capital will alternate the
order of execution to ensure that no client receives favorable treatment in execution.
In the event that Night Owl Capital is buying or selling highly liquid securities (e.g., large cap
stocks), Night Owl Capital may determine that the simultaneous execution of transactions by
different brokers representing different Night Owl Capital clients will not adversely impact the
execution price for Night Owl Capital’s various clients. In such a case, Night Owl Capital may
instruct brokers representing Night Owl Capital’s different clients to execute the transactions at
the same time.
In cases in which Night Owl Capital uses a single broker to buy or sell the same security for both
the separately managed accounts and the Partnership, Night Owl Capital will typically allocate
between the separately managed accounts and the Partnership on a pro rata basis. In certain
instances where it would not be prudent to allocate on a pro rata basis, an alternate methodology
may be employed.
Please see the section entitled “Brokerage Practices” on page 14 of this disclosure brochure for
additional information on Night Owl Capital’s brokerage practices.)
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Night Owl Capital provides investment advisory services to individuals (including high net worth
individuals), trusts, estates, charitable organizations, corporations, other types of business entities
and private investment funds organized as pooled investment vehicles (commonly known as
“hedge funds”).
Engaging the Services of Night Owl Capital
Separately Managed Accounts
All clients wishing to engage Night Owl Capital for investment advisory services must sign an
investment management agreement that governs the relationship with Night Owl Capital. The
investment management agreement describes the services and responsibilities of Night Owl
Capital to the client. It also outlines Night Owl Capital’s fee in detail.
In addition to completing Night Owl Capital’s internal documents (e.g., investment management
agreement), clients must complete certain broker-dealer/custodial documentation. Upon
completion of these documents, Night Owl Capital will be considered engaged by the client. A
client has an ongoing responsibility for ensuring that Night Owl Capital is informed in a timely
manner of changes in the client’s investment objectives and risk tolerance.
Private Investment Fund
Investors in Night Owl Partners, LP will be required to complete a subscription agreement
(including an investor questionnaire to determine their eligibility for investment in the fund) and
become a party to the operating agreement that governs the operation of Night Owl Partners, LP.
Conditions for Managing Accounts Separately Managed Accounts
Night Owl Capital requires new clients to have a minimum account of $1,000,000 although Night
Owl Capital retains the right to reduce or waive this minimum account size. Accounts of less
than $1,000,000 may be set up when the client and Night Owl Capital anticipate the client will
add additional funds to the accounts bringing the total to $1,000,000 within a reasonable time.
Private Investment Funds
The minimum capital contribution by a limited partner to Night Owl Partners, LP is $1,000,000,
subject to the discretion of the fund’s general partner (an affiliate of Night Owl Capital) to accept
lesser amounts.
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Types of Investments Night Owl Capital will typically invest in a range of securities including, domestic and foreign
equity securities, warrants, corporate debt securities, commercial paper, certificates of deposit,
municipal and United States government securities, mutual funds and options.
Investment Strategies Separately Managed Accounts
Night Owl Capital’s core strategy for its separately managed accounts is to invest in domestic and
foreign equity securities that the Company believes will compound in value over a long-term
investment horizon. Night Owl Capital may utilize different investment strategies based upon the
needs of the client.
Using a long-term purchase strategy generally assumes the financial markets will go up in the
long-term which may not be the case. There is also the risk that the segment of the market that
you are invested in or your particular investments will decrease in value even if the overall
financial markets advance. Purchasing investments long-term may create an opportunity cost
(e.g., “locking-up” assets that may be better utilized in the short-term in other investments).
Private Investment Partnerships
Night Owl Partners, LP, the private investment limited partnership managed by Night Owl
Capital has a similar investment strategy as the separately managed accounts, but may at times
employ strategies and pursue investment opportunities that Night Owl Capital deems unsuitable
for its separately managed accounts. These strategies may include, but are not limited to, higher
portfolio concentration, illiquid securities, short positions, leverage, “special situations” and
derivatives.
Security Analysis The security analysis method typically employed by Night Owl Capital is fundamental analysis.
Risk Associated with Methods of Analysis
The analysis of securities requires subjective assessments and decision-making by experienced
investment professionals, however, there is always the risk of an error in judgment.
Night Owl Capital’s securities analysis methods rely on the assumption that the companies whose
securities the firm purchases and sells, the rating agencies that review these securities, and other
publicly-available sources of information about these securities, are providing accurate and
unbiased data. While Night Owl Capital is alert to indications that data may be incorrect, there is
always the risk that the firm’s analysis may be compromised by inaccurate or misleading
information.
Fundamental analysis, when used in isolation, has a number of risks:
Information obtained may be incorrect and the analysis may not provide an accurate
estimate of earnings, which may be the basis for a stock’s value. If securities prices adjust
rapidly to new information, utilizing fundamental analysis may not result in favorable
performance.
The data used may be out of date.
It ignores the influence of random events such as oil spills, product defects being exposed,
acts of God and so on.
It assumes that there is no monopolistic power over markets.
The market may fail to reach expectations of perceived value.
Sources of Information In conducting security analysis, Night Owl Capital may utilize the following sources of
information: financial newspapers and magazines, research materials prepared by others,
inspection of corporate activities, corporate rating services, annual reports, prospectuses, filings
with the U.S. Securities and Exchange Commission and company press releases.
Risk
General
All securities investing and trading activities risk the loss of capital. The value of equity
securities may fluctuate in response to specific situations for each company, industry market
conditions, and general economic and financial market conditions. There can be no assurance
that Night Owl Capital's investment activities will be successful or that clients will not suffer
losses.
General Economic and Market Conditions
The success of Night Owl Capital’s investments may be affected by general economic and market
conditions, such as economic cycles, poor equity markets, interest rates, availability of credit,
inflation rates, economic uncertainty, changes in laws, and national and international political
circumstances. These factors may affect the level and volatility of securities prices and the
liquidity of the investments. Unexpected volatility or illiquidity could impair the investment’s
profitability or result in losses.
Limited Diversification
A client’s account may likely have limited diversification. There are no percentage limitations
imposed by law or otherwise on the percentage of a client’s assets that may be invested in the
securities of any one issuer. To the extent that the client’s account is concentrated in a few key
industries, the risk of loss is greater than if the portfolio were invested in a more diversified manner
among various sectors. In addition, although the diversification of the client’s investments in a
variety of securities is intended to reduce the client’s exposure to adverse events associated with
specific issuers, the number of client investments will be limited. As a consequence, the client’s
returns as a whole may be adversely affected by the unfavorable performance of even a single
investment.
Small Capitalization Stocks
Night Owl Capital may invest in equity securities without restriction as to market capitalization,
such as those issued by smaller capitalization companies, including micro cap companies. The
prices of the securities of smaller companies may be subject to more abrupt or erratic market
movements than larger, more established companies, because these securities typically are traded
in lower volume and the issuers typically are more subject to changes in earnings and prospects.
In addition, due to thin trading in securities of some micro- and small-capitalization companies, an
investment in those companies may be illiquid.
Non-U.S. Securities
Night Owl Capital may invest in securities of, and derivatives of securities of, non-U.S. issuers
(both public and private) and in depository receipts, such as American Depository Receipts
(“ADRs”), that represent indirect interests in securities of non-U.S. issuers. Non-U.S. securities
may be listed on non-U.S. exchanges or traded in non-U.S. over-the-counter markets. Investments
in non-U.S. securities can be affected by risk factors generally not thought to be present in the U.S.
These factors include, but are not limited to, the following: varying custody, brokerage and
settlement practices; difficulty in pricing; less public information about issuers of non-U.S.
securities; less governmental regulation and supervision over the issuance and trading of securities
than in the U.S.; the unavailability of financial information regarding the non-U.S. issuer or the
difficulty of interpreting financial information prepared under non-U.S. accounting standards; less
liquidity and more volatility in non-U.S. securities markets; the possibility of expropriation or
nationalization; the imposition of withholding and other taxes; adverse political, social or
diplomatic developments; limitations on the movement of funds or other assets between different
countries; difficulties in invoking legal process abroad and enforcing contractual obligations; and
the difficulty of assessing economic trends in non-U.S. countries. Investment in non-U.S. countries
also generally involves higher brokerage and custodian expenses than does investment in U.S.
securities.
Other risks of investing in non-U.S. securities include changes in currency exchange rates (in the
case of securities that are not denominated in U.S. dollars) and currency exchange control
regulations or other non-U.S. or U.S. laws or restrictions, or devaluations of non-U.S. currencies.
A decline in the value of a non-U.S. currency versus the U.S. Dollar would reduce the U.S. Dollar
value of the client’s portfolio securities denominated in such non-U.S. currency, all other things
being equal. In addition, Night Owl Capital may incur costs in connection with conversion between
various currencies. The foregoing risks may be greater in emerging industrialized and less
developed countries.
Initial Public Offerings
Night Owl Capital may purchase securities of companies in initial public offerings or shortly
thereafter. Special risks associated with these securities may include a limited number of shares
available for trading, illiquidity, lack of investor knowledge of the issuer, and limited operating
history. These factors may contribute to substantial price volatility for the shares of these
companies. The limited number of shares available for trading in some initial public offerings may
make it more difficult for Night Owl Capital to buy or sell significant amounts of shares without
an unfavorable impact on prevailing market prices. In addition, some companies in initial public
offerings are involved in relatively new industries or lines of business, which may not be widely
understood by investors. Some of these companies may be undercapitalized or regarded as
developmental stage companies, without revenues or operating income, or the near–term prospect
of achieving them.
Fixed-Income Securities
Night Owl Capital may, from time to time, invest in fixed-income securities. The value of
fixed-income securities will change in response to fluctuations in interest rates and applicable
credit spreads, including general corporate credit spreads and industry and company-specific
credit spreads. In addition, the value of certain fixed-income securities can fluctuate in response
to perceptions of credit worthiness, political stability or soundness of economic policies. All
other things being equal, when interest rates decline, the value of fixed-income securities
generally can be expected to rise. Conversely, when interest rates rise, the value of fixed-income
securities generally can be expected to decline. Night Owl Capital may invest in fixed-income
securities of U.S. and non-U.S. issuers.
Options
Night Owl Capital typically does not buy or sell options for its separately managed accounts.
Night Owl Capital may at times do so at the request of a client. The use of options involves a
high degree of embedded leverage, which can involve greater market risk, especially when not
used to hedge an underlying security. Accordingly, special risks are associated with the use of
options. In addition to directional risks of the underlying securities, options are subject to
fluctuations in the volatility of the underlying security and fluctuations in prevailing interest rates
to a lesser extent. For options used in hedging, there can be no guarantee of a correlation between
price movements in the option and in the portfolio securities being hedged. A lack of correlation
could result in a loss on both the hedged securities and the hedging vehicle so that the return
might have been better had hedging not been attempted. In addition, a decision as to whether,
when and how to use options involves the exercise of skill and judgment which are different from
those needed to select portfolio securities, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior, currency fluctuations or interest rate
trends. If Night Owl Capital is incorrect in its forecasts regarding market values, currency
fluctuations, interest rate trends, or other relevant factors, the client may be in a worse position
than if Night Owl Capital had not engaged in options transactions. Although Night Owl Capital
is experienced in the use of options as an investment technique, this experience does not
completely mitigate the risk that the potential loss incurred by the client in writing options is
unlimited.
There also can be no assurance that a liquid market will exist at a time when Night Owl Capital
seeks to close out an option position. Lack of a liquid market for any reason may prevent Night
Owl Capital from liquidating an unfavorable position.
Leverage and Margin Transactions
Night Owl Capital typically does not buy securities on margin for its separately managed
accounts. Night Owl Capital may at times do so at the request of a client. A client may use
margin borrowing so long as, immediately after incurring such debt, the aggregate debt in the
client’s account does not exceed 50% of the market value of the client’s total assets at that time.
The use of margin borrowing is a speculative technique that involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. To the extent a client’s account is
leveraged, the value of its assets will tend to increase more when its portfolio securities increase
in value, and to decrease more when its portfolio securities decrease in value, than if its assets
were not leveraged. In addition, use of leverage by a client will increase the exposure of the
client’s investments to adverse economic factors such as rising interest rates, an economic
downturn or deterioration in the value of such investments. As a result of an economic downturn
or dislocations in the credit markets, as have occurred in recent years, a client may be unable to
obtain the desired amount of leverage or may be required to liquidate investments if existing
leverage facilities are withdrawn or reduced, either of which could have an adverse impact on the
client’s returns. While the margin borrowing limit is 50% of total assets, determined at the time
of incurring the debt, that test is only applied at the time of a borrowing by the client. A client is
not required to maintain on an ongoing basis aggregate debt at or below 50% of its total assets, so
it is possible that, after the client incurs debt, the client’s assets may deteriorate in value, in which
case the client’s aggregate debt may significantly exceed 50% of its total assets.
Private Investment Funds
Private investment funds (commonly known as hedge funds) generally involve various risk
factors and liquidity constraints, a complete discussion of which is set forth in the fund’s offering
documents, which will be provided to each investor for review and consideration. Each
prospective investor will be required to complete a subscription agreement, pursuant to which the
investor shall establish that they are qualified for investment in the limited partnership, and
acknowledges and accepts the various risk factors that are associated with such an investment.
Cybersecurity Risk
As part of our business, we store, process, and transmit a large volume of electronic information,
including information relating to securities transactions and personally identifiable information of
our clients. Our service providers may also store, process, and transmit similar information.
While we have procedures and policies in place to safeguard this information, there are no
guarantees that these efforts will succeed. Intentional cybersecurity breaches include
unauthorized access to systems, networks, or devices; infection from computer viruses or other
malicious software code; and attacks that shut down, disable, slow, or otherwise disrupt
operations and business processes. In addition, unintentional incidents can occur, such as the
inadvertent release of confidential information. Breach of our information systems may cause
information relating to clients, including client transactions and personally identifiable
information, to be lost or improperly accessed, used or disclosed. Our service providers face the
same electronic information security threats. A breach could cause Night Owl Capital and/or a
client account to incur regulatory penalties, reputational damage, additional compliance costs
associated with corrective measures, and/or financial loss.
Cash Management Night Owl Capital does not set target percentages for cash in a client’s account. The amount of
cash in a client’s account is a function of Night Owl Capital’s ability to find suitable investments
for the account. Typically, cash is held in a core money market fund. Night Owl Capital may, on
occasion, use certificates of deposit, fixed income securities and other cash alternatives.
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Night Owl Capital serves as adviser to Night Owl Partners, LP, a private investment fund
organized as a pooled investment vehicle. Night Owl Capital has implemented various policies
and procedures to mitigate real or potential conflicts of interest. Please see the section entitled
“Performance-Based Fees and Side-By-Side Management” of this disclosure brochure for
additional information about any potential conflicts of interest and how such conflicts are handled
by Night Owl Capital.
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Our Code of Ethics
Night Owl Capital has adopted a Code of Ethics to prevent violations of federal securities laws.
The Code of Ethics is predicated on the principle that Night Owl Capital and its employees owe a
fiduciary duty to its clients. Accordingly, Night Owl Capital expects all employees to act with
honesty, integrity and professionalism and to adhere to federal securities laws. Night Owl Capital
and its employees are required to adhere to the Code of Ethics. At all times, Night Owl Capital
and its employees must (i) place client interests ahead of the Company’s; (ii) engage in personal
investing that is in full compliance with the Company’s Code of Ethics; and (iii) avoid taking
advantage of their position. Clients and prospective clients may request a copy of Night Owl
Capital’s Code of Ethics by contacting Michele Montano at 203-302-3870.
Prohibition on Use of Insider Information
Night Owl Capital has also adopted policies and procedures to prevent the misuse of “insider”
information. A copy of Night Owl Capital’s Insider Trading policies and procedures is available
to any client or prospective client upon request. For a copy of Night Owl Capital’s Insider
Trading policies and procedures, please contact Michele Montano at 203-302-3870.
Participation or Interest in Client Transactions Night Owl Capital may purchase or sell securities or investment products for its client portfolios
in which Night Owl Capital or its related personnel have a material financial interest.
An affiliate of Night Owl Capital acts as general partner of Night Owl Partners, LP. As the
general partner, the affiliate maintains a capital account in Night Owl Partners, LP and therefore,
receives allocations of net profit (or losses) of the Partnership. The general partner, portfolio
manager and employees of Night Owl Partners, LP have invested in the Partnership. In order to
create a strong congruity of interest between the management of Night Owl Partners, LP and its
investors, all investment professionals employed by Night Owl Capital are encouraged to invest
in the Partnership.
Night Owl Capital or individuals associated with Night Owl Capital may buy, sell, or hold in
their personal accounts the same securities that Night Owl Capital recommends to its clients. To minimize conflicts of interest, and to maintain the fiduciary responsibility Night Owl Capital
has for its clients, Night Owl Capital has established the following policy: in all cases, clients’
orders take precedence over those of Night Owl Capital or its related persons. If Night Owl
Capital engages in a buying or selling program with respect to a particular security, trades of
Night Owl Capital and its related persons in the security may be executed together with those of
clients in a series of transactions. In such cases, the trades of Night Owl Capital’s related persons
will only be executed if the price received improves the average price that the clients would have
otherwise received.
Night Owl Capital’s written compliance policies and procedures require that all trades made
by principals, employees and/or supervised persons of Night Owl Capital require prior
approval. Night Owl Capital will also maintain quarterly reports on all personal securities
transactions, except transactions in investment company securities and/or other exempt
transactions.
Additional Information At times, Night Owl Capital or its related persons may purchase securities that it deems
appropriate only for its or their own account. Based on the experience of Night Owl Capital or its
related persons holding the securities and on further research and due diligence, Night Owl
Capital may at a later time purchase such securities for client accounts at prices which might be
higher or lower than those originally paid.
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Best Execution Best execution has been defined by the SEC as the “execution of securities transactions for clients
in such a manner that the client’s total cost or proceeds in each transaction is the most favorable
under the circumstances.” The best execution responsibility applies to the circumstances of each
particular transaction and an investment adviser must consider the full range and quality of a
broker-dealer’s services, including, among other things, execution capability, commission rates,
the value of any research, financial responsibility and responsiveness.
When placing portfolio transactions for client accounts, Night Owl Capital’s primary objective is
to obtain the best price and best execution, taking into account the costs, promptness of execution
and other qualitative considerations.
Broker Analysis Night Owl Capital evaluates a wide range of criteria in seeking the most favorable price and
market for the execution of transactions. These include the broker-dealer’s trading costs,
efficiency of execution and error resolution, financial strength and stability, capability,
positioning and distribution capabilities, information in regard to the availability of securities,
trading patterns, statistical or factual information, opinion pertaining to trading and prior
performance in serving Night Owl Capital.
Also in consideration is such broker-dealers’ provision or payment of the costs of research and
other investment management-related services (the provisional payment of such costs by brokers
are referred to as payment made by “soft dollars”, as further discussed in the “Research/Soft
Dollars Benefits” section immediately below). Accordingly, if Night Owl Capital determines in
good faith that the amount of trading costs charged by a broker-dealer is reasonable in relation to
the value of the brokerage and research or investment management-related services provided by
such broker, the client may pay trading costs to such broker in an amount greater than the amount
another broker might charge.
Night Owl Capital’s Chief Compliance Officer is responsible for continuously monitoring and
evaluation the performance and execution capabilities of brokers that transact orders for our client
accounts to ensure consistent quality executions. In addition, Night Owl Capital periodically
reviews its transaction costs in light of current market circumstances and other relevant
information.
Brokerage Classification
Night Owl Capital classifies client accounts in two ways – prime and non-prime. Prime accounts
have assets greater than $100,000 and have a signed Prime Broker agreement in place with their
custodian. Non-prime accounts are those that have less than $100,000 in assets and are not
authorized to trade with brokers other than their custodian.
Non-Prime Brokerage Accounts
For its non-prime brokerage accounts, Night Owl Capital places trades with the Fidelity
Institutional Wealth Services Group (“Fidelity”) program sponsored by Fidelity Brokerage
Services, Inc. and the Charles Schwab Advisor Center (“Schwab”). For smaller, non-block
trades, Night Owl Capital executes trades electronically through the Fidelity and Schwab
electronic trading platforms. Most trades placed with Fidelity and Schwab are placed with a price
limit and are monitored to ensure that the executions are consistent with the current market
conditions.
Please see the disclosures in the “Research/Soft Dollar Benefits” section below for additional
information on benefits Night Owl Capital receives for directing client transactions to Fidelity.
Prime Brokerage Accounts
For its prime brokerage accounts, Night Owl Capital executes transactions with those brokers
who are able to both effect the best execution of a given order and supply research services used
in Night Owl Capital’s investment decision-making process. Night Owl Capital believes that
these brokerage firms often are able to provide superior execution since they make a market
and/or are familiar with the trading patterns of those securities. Successfully managing these
prime-brokerage relationships is instrumental in achieving overall lower execution costs. Night
Owl Capital and its clients benefit from these strong relationships in different ways. The brokers
used will continuously “show” Night Owl Capital the active level of interest in securities held by
Night Owl Capital’s clients in hopes of facilitating a natural trade whereby the broker represents
both the buyer and seller and, as a result, offer lower transaction costs.
Please see the disclosures in the “Research/Soft Dollar Benefits” section below for additional
information on benefits Night Owl Capital receives for directing client transactions to these
brokers.
Research/Soft Dollar Benefits
Custodial Brokers
Night Owl Capital utilizes custodial and other services of the Fidelity Institutional Wealth
Services Group (“Fidelity”) program sponsored by Fidelity Brokerage Services, Inc and Schwab
Advisor Services sponsored by Charles Schwab & Co. (“Schwab”). While there is no direct
linkage between the investment advice given to clients and Night Owl Capital's participation in
these programs, economic benefits are received by Night Owl Capital, which would not be
received if Night Owl Capital did not give investment advice to clients. These benefits include: a
dedicated trading desk that services advisors exclusively, a dedicated service group and an
account services manager dedicated to Night Owl Capital's accounts, access to a real-time order
matching system, ability to 'block' client trades, electronic download of trades, balances and
positions, access, for a fee, to an electronic interface with the custodian's software, duplicate and
batched client statements, confirmations and year-end summaries, and the ability to have advisory
fees directly debited from client accounts (in accordance with federal and state requirements).
These custodians may also make available to Night Owl Capital other products and services that
benefit Night Owl Capital, but may not benefit its clients’ accounts. Some of these other products
and services assist Night Owl Capital in managing and administering clients’ accounts. These
include software and other technology that provide access to client account data (such as trade
confirmations and account statements), facilitate trade execution (and allocation of aggregated
trade orders for multiple client accounts), provide research, pricing information and other market
data, facilitate payment of Night Owl Capital’s fees from its clients’ accounts, and assist with
back-office support, record keeping and client reporting. Many of these services generally may
be used to service all or a substantial number of Night Owl Capital’s accounts, including accounts
not maintained at the specific broker-dealer that is offering this particular service.
The benefits received through participation in these programs do not depend upon the amount of
transactions directed to, or amount of assets custodied by, the custodians.
While as a fiduciary Night Owl Capital endeavors to act in its clients’ best interest, Night Owl
Capital’s recommendation that clients maintain their assets in accounts with Fidelity or Schwab
may be based in part on the benefit to Night Owl Capital of the availability of some of the
foregoing products and services and not solely on the nature cost or quality of custody and
brokerage provided by these broker-dealers which may create a conflict of interest.
Other Brokers
Night Owl Capital executes transactions through brokers who are able to both effect the best
execution of a given order and supply research services used in the investment decision making
process. The only commission premiums paid are for proprietary research and research
conferences provided by a select number of brokers. In addition, Night Owl Capital may at times
allocate commissions between an execution broker and a broker providing research in order to
ensure both best execution and to compensate brokers for helpful research.
Brokerage Selection
Night Owl Capital Discretion
Night Owl Capital is authorized by the client to select the broker or dealer to be used and to
determine the commission rate paid. Please see the disclosures in “Best Execution” and “Broker
Analysis” sections above for additional information on the criteria used by Night Owl Capital to
select client brokerage.
Trade Aggregation/Allocation
It is the objective of Night Owl Capital to provide a means of allocating trading and investment
opportunities between advisory clients on a fair and equitable basis and in compliance with all
applicable state and federal guidelines. With respect to clients’ accounts with substantially
similar investment objectives and policies, Night Owl Capital may often seek to purchase or sell a
particular security in each account. Night Owl Capital will aggregate orders only when such
aggregation is consistent with its duty to seek best execution and is consistent with the investment
objective of each client. No client account will be unfairly favored over any other account.
Prices of securities that are purchased or sold in blocks are averaged and allocated proportionately
among all accounts for which such securities are appropriate. Executed trades are typically
allocated on a pro rata basis. In certain instances where it would not be prudent to allocate on a
pro rata basis, an alternate methodology may be employed.
Trade Errors Clients are reimbursed for any losses occurring in their accounts as a result of trading errors. In
such cases, Night Owl Capital will deposit the amount of any loss caused by the trading error
directly into the client’s account. Clients do not keep any gains in their account as the erroneous
trade is rebooked to Night Owl Capital’s error account and donated to charity.
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Reviews
While the underlying securities in client accounts are continuously monitored, each account is
reviewed at least monthly by Night Owl Capital’s investment professionals to ensure that
investment objectives are being met and to determine appropriate levels of cash balances,
industry concentrations and diversification.
Reports
Separately Managed Accounts
Separately managed account clients receive a monthly statement of transactions and positions in
their account directly from their custodian. These clients also receive trade confirmations each
time a transaction takes place in their accounts (although some clients elect to receive quarterly
confirmations). At the end of each quarter, clients receive detailed written evaluations of their
portfolios from Night Owl Capital showing costs of securities and current market values. The
current market value of the portfolio of the clients are as reflected in the custodian’s statements as
of the end of the quarter plus any accrued interest on fixed income securities. In addition, a
performance report showing results year-to-date and since inception of the account is distributed
quarterly to separately managed account clients. Clients are urged to compare the account
statement provided by the broker-dealer/custodian with those provided by Night Owl Capital.
Private Investment Funds Investors in private investment funds managed by Night Owl Capital will receive monthly reports
showing performance and market values. Limited partners will also receive an annual report with
audited financial statements including valuations of the limited partners’ capital accounts. The
general partner, an affiliate of Night Owl Capital, will be responsible for overseeing the
preparation of the annual Schedule K-1 for the limited partners.
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From time to time, Night Owl Capital may retain solicitors to refer clients to Night Owl Capital.
If a client is introduced to Night Owl Capital by either an unaffiliated or an affiliated solicitor,
Night Owl Capital may pay that solicitor a referral fee in accordance with the all requirements of
the Investment Advisers Act, and any corresponding state securities law requirements. Any such
referral fee shall be paid solely from Night Owl Capital’s advisory fee, and shall not result in any
additional charge to the client.
If the client is introduced to Night Owl Capital by an unaffiliated solicitor, the solicitor must, at
the time of the solicitation:
1. Disclose the nature of their solicitor relationship;
2. Provide each prospective client with a copy of the Night Owl Capital written disclosure
brochure;
3. Provide each prospective client a copy of the solicitor’s written disclosure statement that
discloses the terms of the solicitation arrangement between Night Owl Capital and the
solicitor, including the compensation to be received by the solicitor.
Any affiliated solicitor of Night Owl Capital shall disclose the nature of their relationship to
prospective clients at the time of the solicitation and will provide all prospective clients with a
copy of this written disclosure statement.
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Custody of separately managed account client assets will be maintained with the independent
custodian selected by the client. Night Owl Capital will not have physical custody of any assets
in the client’s account except as permitted for payment of advisory fees. Clients will be solely
responsible for paying all fees or charges of the custodian. Clients will authorize Night Owl
Capital to give the custodian instructions for the purchase, sale, conversion, redemption,
exchange or retention of any security, cash or cash equivalent or other investment for the client’s
account.
Clients will receive directly from the custodian at least quarterly a statement showing all
transactions occurring in the client’s account during the period covered by the account statement,
and the funds, securities and other property in the client’s account at the end of the period.
Clients are urged to compare the account statement provided by the broker-dealer/custodian with
any statements provided by Night Owl Capital.
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Separately Managed Accounts
Night Owl Capital requires that it be provided with written discretionary authority (e.g., limited
power of attorney contained in Night Owl Capital’s investment management agreement) to make
the following determinations without obtaining the consent of the client before the transactions
are effected: (1) which securities are bought and sold for the account; (2) the total amount of
securities to be bought and sold; (3) selecting the broker or dealer with whom orders for the
purchase or sale of securities are placed for execution, unless specifically instructed to the
contrary through the investment management agreement or investment policy statement; and (4)
the prices and commission rates at which securities transactions are effected. Night Owl
Capital’s authority in making investment related decisions may be limited by account guidelines,
investment objectives and trading restrictions, as agreed between Night Owl Capital and the client
and set forth in writing in the investment management agreement or investment policy statement.
Private Investment Funds
As investment manager of Night Owl Partners, LP, Night Owl Capital is solely responsible for
researching, selecting and monitoring investments and in making decisions on when and how
much to invest with or withdraw from a particular investment. Limited partners in private
investment funds organized as limited partnerships do not have any right to participate in
management or in making investment decisions. In addition, Night Owl Capital has authority to
select the broker or dealer with whom orders for the purchase or sale of securities for the funds
are placed for execution. Night Owl Capital also has the authority to determine the prices and
commission rates at which securities transactions for the funds are effected.
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Proxy Voting Separately Managed Accounts
Night Owl Capital does not vote proxies on behalf of its separately managed account clients.
Therefore, although Night Owl Capital may provide investment advisory services relative to
client investment assets, it is the client that maintains exclusive responsibility for: (1) directing
the manner in which proxies solicited by issuers of securities beneficially owned by the client
shall be voted and (2) making all elections relative to any mergers, acquisitions, tender offers,
bankruptcy proceeding or other type events pertaining to the client’s investment assets. Night
Owl Capital and/or the client shall correspondingly instruct each custodian of the assets to
forward to the client copies of all proxies and shareholder communications relating to the client’s
investment assets. Night Owl Capital will, however, make tender offer elections for the client.
On rare occasions, if an issue is deemed critical, Night Owl Capital may contact clients and
suggest a particular vote. Clients can contact John Kim, Managing Director, at 203-302-3870 if
they have questions regarding a particular solicitation.
Private Investment Funds
The act of managing assets of clients may include the voting of proxies related to such managed
assets. Where the power to vote in person or by proxy has been delegated, directly or indirectly,
to the investment adviser, the investment adviser has the fiduciary responsibility for (a) voting in
a manner that is in the best interests of the client and (b) properly dealing with potential conflicts
of interest arising from proxy proposals being voted upon. Accordingly, Night Owl Capital has
instituted proxy voting policies and procedures (“Proxy Voting Policies and Procedures”) that are
designed to (i) ensure that proxies are voting in an appropriate manner and (ii) complement Night
Owl Capital’s investment policies and procedures regarding its general responsibility to monitor
the performance and/or corporate events of companies which are issuers of securities held in
managed accounts.
Night Owl Capital’s general policy is to vote proxy proposals, amendments, consents or
resolutions relating to client securities, including interests in private investment funds, if any
(collectively, “proxies”), in a manner that serves the best interests of the applicable fund as Night
Owl Capital determines in its sole discretion, taking into account the following factors: (i) the
impact on the value of the securities; (ii) the costs and benefits associated with the proposal; and
(iii) the customary industry and business practices. The Proxy Voting Policies and Procedures
also address how Night Owl Capital will vote proxies with regard to specific matters, such as the
election of Board members, mergers and acquisitions, compensation, independent auditors and
other matters. Investors may obtain a copy of the Night Owl Capital’s Proxy Voting Policies and
Procedures and the proxy voting record relating to Night Owl Partners, LP, by contacting Michele
Montano at 203-302-3870.
Class Action Settlements
Although Night Owl Capital has discretion over client accounts, it will not be responsible for
handling client claims in class action lawsuits or similar settlements involving securities owned
by the client. Clients will receive the paperwork for such claims directly from their account
custodians. Each client should verify with their custodian or other account administrator whether
such claims are being made on the client’s behalf by the custodian or if the client is expected to
file such claims directly.
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Prepayment of Fees Because Night Owl Capital does not require or accept prepayment of more than $1,200 in fees six
months or more in advance, Night Owl Capital is not required to include a balance sheet with this
disclosure brochure.
Financial Condition
Night Owl Capital does not have any adverse financial conditions to disclose.
Bankruptcy
Night Owl Capital has never been the subject of a bankruptcy petition.
Item 19 - Additional Information PRIVACY NOTICE
Night Owl Capital views protecting its clients' private information as a top priority and has
instituted policies and procedures to ensure that client information is private and secure. Night
Owl Capital does not disclose any nonpublic personal information about its clients or former
clients to any nonaffiliated third parties, except as permitted or required by law. In the course of
servicing a client's account, Night Owl Capital may share some information with its service
providers, such as transfer agents, custodians, broker-dealers, accountants, and lawyers, etc.
Night Owl Capital restricts internal access to nonpublic personal information about the client to
those persons who need access to that information in order to provide services to the client and to
perform administrative functions for Night Owl Capital. As emphasized above, it has always
been and will always be Night Owl Capital's policy never to sell information about current or
former clients or their accounts to anyone. It is also Night Owl Capital's policy not to share
information unless required to process a transaction, at the request of a client, or as required by
law. For the full text of Night Owl Capital’s Privacy Policy, please contact Michele Montano at
203-302-3870.
ANTI-MONEY LAUNDERING Night Owl Capital has adopted an anti-money laundering policy consistent with the requirements
of the United States PATRIOT Act.
CLIENT COMPLAINTS Clients may contact Michele Montano at 203-302-3870 to submit a complaint. Written
complaints should be sent to Night Owl Capital Management, LLC, 55 Old Field Point Road,
Greenwich, CT 06830.
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