SB Value Partners, L.P. is a registered investment adviser with the U.S. Securities and
Exchange Commission. SB Value Partners, L.P., a Texas limited partnership (which is also
referred to as the “Advisor” or the “General Partner”), is the sole general partner for the
following affiliated partnerships (which are referred to as the “Partnerships”) and are
discussed throughout this Brochure. The General Partner of SB Value Partners, L.P. is
Foxfield Investments, LLC, of which Scott Barnes is President. Barnes Holdings Corporation,
LLC (BHC), a company primarily controlled by Scott Barnes, is a limited partner of SB Value
Partners, L.P. The General Partner manages the affairs of the Partnerships and has full and
exclusive management authority over all investment decisions, asset allocations, dispositions,
distributions, and Partnership affairs. Each of the Partnerships has established a minimum
initial investment amount, which may be waived at the General Partner’s discretion. As of
December 31, 2019, SB Value Partners, L.P. managed total client assets of approximately
$2,677,765,979 with approximately $ 73,705,425 on a discretionary basis and $ 2,604,060,554
on a non-discretionary basis.
The various programs offered are described below:
• SAB Moderate Equity Partnership, L.P. (Moderate Equity Program)
• SAB Capital Markets, L.P.
• Separately Managed Accounts
• Trust Acquisition Referral Programs
• Institutional Asset Management
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SAB Moderate Equity Partnership, L.P. (Moderate Equity Program)
SAB Moderate Equity Partnership, L.P.’s investment objective is to maximize its annual rate
of gain in intrinsic business value, primarily through the ownership of community banks in
the United States. The General Partner intends to employ principally a value-oriented
investment strategy that stresses long term investment publicly traded common and preferred
community bank stocks and bonds, U.S. T-Bills, insured bank deposits and money market
accounts. The General Partner may invest in concentrated equity positions in order to
maximize potential investment returns. The sale (or purchase) of equity options may be
used to hedge (or potentially protect) equity positions, generate additional income or acquire
equities at more attractive prices.
SAB Capital Markets, L.P.
The principal investment objective of SAB Capital Markets, L.P. is to maximize its annual
rate of gain through the trading of various fixed income municipal securities. The primary
strategy for achieving this objective will be the purchase of bonds at the “bid” and sale of
bonds at the “offer” in order to profit from the spread between the “bid” and the “offer.”
The bonds will be held for a short period of time and typically not to maturity. SAB Capital
Markets, L.P. also may invest in government and agency debt obligations.
Separately Managed Accounts (Capital Markets Strategy)
The principal investment objective of our Separately Managed Account strategy is to
maximize the Account’s annual rate of gain through the trading of municipal securities.
The primary strategy for achieving this objective will be the purchase of bonds at the “bid”
and sale of bonds at the “offer” in order to profit from the spread between the “bid” and
the “offer.” The bonds will be held for a short period of time and typically not to maturity.
Accounts of Associated Persons or Affiliates may participate in the SMA program, a conflict of
interest between SB Value and its clients.
We allocate the bonds we purchase for the SMA’s according to our trade allocation policy. This
policy has been designed on the basis of fairness and objectivity. In general, the policy gives
priority to the accounts with the largest deviation from their target percentage. As a result of
the random trade allocation process, not all accounts will hold exactly the same positions. Also,
as a result of the random trade allocation process, accounts of all clients, including those of
affiliates, will generate different performance returns.
On occasion, circumstances might arise where deviations to the trade allocation policy may
occur. These circumstances include, but are not limited to, an account or accounts have reached
their investment capacity; an account or accounts have reached the target percentage of
invested capital; an account or accounts have reach specific concentration limits. In these
circumstances, it may be necessary to allocate bonds to other accounts, which may include
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affiliated accounts, that have the available capacity to purchase the bonds. These stated
modifications to the allocation process may result in no purchased bonds allocated to an account
for a given trade.
When a bond is sold that is owned in more than one account, the quantity sold will be aligned
with the account that most logically benefits, trying to match identical quantities whenever
possible. When a bond that is owned in more than one account as a result of an aggregated
(block) trade, the sale allocation will follow the purchase allocation procedures. SB Value has
adopted a Code of Ethics intended to address actual and potential conflicts between SB Value
and its clients.
There are further details regarding trade allocation procedures outlined in the Investment
Management Agreement specific to these types of accounts and are generally reserved for
financial institutions, banks, other institutional investors and high net worth individuals.
Trust Acquisition Referral
SB Value serves in the role of finder for Trust Acquisition Referrals involving single trust
wealth management accounts or groups of such accounts. SB Value does not offer fiduciary
or investment management services to acquired accounts. Trust Acquisition targets are
identified by SB Value and referred to the potential purchaser. SB Value assists the potential
purchaser and seller of the trust account(s) in the preliminary exchange of information and
communications between the parties. Should an agreement take place between the potential
purchaser and seller of aforementioned accounts, purchaser then pays a referral fee to SB
Value.
Institutional Asset Management
For ultra high-net worth individuals or entities, on a discretionary or non-discretionary basis,
SB Value offers independent portfolio analytics, due diligence and portfolio support. The firm
will also offer investment recommendations, consistent with the client’s objectives and risk
tolerance. Clients may impose restrictions on investing in certain securities or types of
securities. Recommendations given to any client may differ from recommendations given, or
the timing and nature of the action taken, with respect to other client accounts.
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agencies, if any, of the Partnerships. (Additional information is contained in the PPM, which
is available upon request).
Separately Managed Accounts (SMA’s)
No annual management fee will be charged to the separately managed accounts. The SMAs
will pay an incentive- b a s e d fee (see below Performance Based Fees). In addition to the
performance based fee, the Accounts are responsible for their pro- rata share of expenses,
including without limitation, salaries, office rent, clearing and trading costs, and other
expenses which relate directly to the daily operation of the account including charges
assessed by sub-advisors and/or custodians.
Operating Expenses for both the partnerships and SMAs are deducted from client accounts
on a monthly basis pursuant to the terms of the partnership agreements and investment
management agreements. Clients will receive a monthly summary of all fees and expenses
attributable to the accounts.
Trust Acquisition Referral
SB Value serves in the role of finder for Trust Acquisition Referrals and receives finders fees
from the purchasing institution. Finders fees paid by the purchasing institution to SB Value
are up to 0.60% of the assets under management of the selling institution for the first year.
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Institutional Asset Management
SB Value offers a fixed fee for advisory services provided to the Institutional Asset Management
Accounts. Generally, the fixed fee for these services is between $25,000 - $100,000.
Depending on a variety of circumstances, alternative fee arrangements are negotiated from time
to time. Generally, these fees are payable and assessed monthly in arrears. Upon agreement
between the client and the Adviser, these fees may be assessed and payable quarterly. Upon
agreement between the client and the Adviser, these fees may also be assessed and payable
annually in advance. Generally, these fees are automatically deducted from client accounts,
but clients who request may be billed for our fees. Please note that in addition to the advisory
fees discussed in this section, clients are also responsible for the costs of custody, commissions,
mark-ups and other charges by the custodian for resulting transactions in their Institutional
Asset Management Account.
Performance Based Fees and Side-by-Side Management
The Partnerships and Separately Managed Accounts do not pay a management fee to the
General Partner. The General Partner’s sole source of compensation for managing the affairs
of the Partnerships and Separately Managed Accounts is performance-based profit
participation. As of the last business day of each calendar year (a “Performance Period”), the
General Partner will receive a percentage of each limited partner’s and separately managed
account’s Net Profits (the “Profit Participation”) as follows:
1) In the case of limited partners of SAB Equity Partnership, L.P. (Moderate Equity
Program) the percentage is 20%
2) In the case of limited partners of SAB Capital Markets L.P. and the Separately
Managed Accounts the percentage is 25%
“Net Profits” generally means profits less partnership expenses. The Profit Participation is
only charged in a year when Net Profits for a limited partner and separately managed
accounts exceed the aggregate amount of any net losses from previous Performance Periods
that have not been recouped by Net Profits in subsequent Performance Periods. A full
description of the compensation and expenses for each of the Partnerships is disclosed in the
Private Placement Memoranda or Investment Management Agreement, which are available
upon request.
Types of Clients
The General Partner primarily provides investment management services to the
Partnerships, individuals and associated trusts, estates, or charitable organizations, banks or
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thrift institutions, investment companies, pension and profit sharing plans and other
corporations or business entities.
Methods of Analysis, Investment Strategies and Risk of Loss
SAB Moderate Equity Strategy (includes Partnership)
The General Partner conducts fundamental, technical and cyclical analysis to select securities
for the Partnerships. The General Partner utilizes an array of research materials and
databases for stocks, bonds, and mutual funds, as well as industry and general economic
publications.
Although the Partnerships may vary their investment criteria, the SAB Moderate Equity
Partnership, LP presently intends to invest in community banking companies exhibiting the
following characteristics:
Strong Returns on Assets and Equity
Capable and Professional Management
Desirable Business Franchise
High Net Interest Margins
Excellent Efficiency Ratios
The General Partner also will invest in special situations such as corporate turn-arounds,
arbitrage and bank combinations. The General Partner intends that the foregoing strategy will
comprise the majority of the SAB Mod er a t e Equity Partnership’s activities. However,
there can be no assurance that the General Partner will continue to pursue this strategy.
Furthermore, over time, the General Partner may develop new investment strategies that
have risk/reward parameters different than the strategy currently employed and may
invest a portion of the Partnerships’ assets utilizing such differing investment strategies.
SAB Capital Markets Strategy (includes Partnership and SMAs)
Although the Partnerships may vary their investment criteria, the SAB Capital Markets, L.P.
presently intends to invest primarily in debt securities and other obligations issued by or on
behalf of:
• States
• Counties
• Municipalities
• Territories and Possessions of the United States and the District of
Columbia and their authorities, political subdivisions, agencies and
instrumentalities.
The General Partner intends that the foregoing strategy will comprise the majority of the
SAB Capital Markets, LP’s activities. However, there can be no assurance that the General
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Partner will continue to pursue this strategy. Furthermore, over time, the General Partner
may develop new investment strategies that have risk/reward parameters different than the
strategy currently employed and may invest a portion of the Partnerships’ assets utilizing
such differing investment strategies.
General. The descriptions contained herein of specific activities that may be engaged in by
the Partnerships should not be construed as in any way limiting the Partnerships’ investment
activities. The Partnerships may engage in investment activities and may invest in securities
that are not described herein but that the General Partner considers appropriate.
The description provided above is a brief overview of the methods used to analyze securities
and is not intended to be complete. The investment strategy for each of the Partnerships
varies. For a summary of the Partnerships and a description of the investment strategy
offered, see section entitled “Advisory Business.”
All investing involves a risk of loss and the investment strategies offered by the General
Partner could lose money over short or even long periods. No guarantee or representation is
made that the investment programs offered by the General Partner will achieve their
investment objectives. The description contained below is a brief overview of different
investment risks related to the General Partner’s advisory services:
Investing in securities is inherently risky - An investment in individual securities or in a
portfolio of securities could lose money. The General Partner cannot give any guarantee that
it will achieve its investment objectives or that any client will receive a return of their
investment.
Management Risk - Management risk means that your investment varies with the success and
failure of the General Partner’s investment strategies and the General Partner’s research,
analysis and determination of portfolio securities.
Stock Market Risk - The price of common stocks and other securities held may decline due to
market conditions.
Issuer Risk - The value of a security may decline for a number of reasons, which directly
relate to the issuer, such as management performance, financial leverage, and reduced demand
for the issuer’s goods and services.
Industry or Sector Emphasis Risk - Investing a substantial portion of assets in related industries
or sectors may have greater risks because companies in these industries or sectors may share
common characteristics and may react similarly to market developments.
Non-Diversification Risk - Non-diversified funds have the ability to take larger positions in a
smaller number of issuers than a diversified fund, which makes a non-diversified fund more
susceptible to financial, economic or market events impacting such issuers and a non-
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diversified fund’s share price may be more volatile than the share price of a diversified fund.
Mutual Fund and ETF Trading Risk - Programs may invest in mutual funds that are either open-
end or closed-end investment companies as well as ETFs. ETFs are investment companies
that are bought and sold on a national securities exchange. Unlike mutual funds, ETFs do not
necessarily trade at the net asset values of their underlying securities, which mean an ETF
could potentially trade above or below the value of the underlying portfolios. Additionally,
because ETFs trade like stocks on exchanges, they are subject to trading and commission
costs unlike mutual funds. Also, both mutual funds and ETFs have management fees that are
part of their costs.
Value Style Investment Risk - Value investments can perform differently from the market as a
whole and from other types of stocks. Value investments may be purchased based upon the
belief that a given security may be out of favor; that belief may be misplaced, or the security
may stay out of favor for an extended period of time.
Medium-Sized Companies Risk - Medium-sized companies may be more vulnerable to adverse
business or economic events than stocks of larger companies. Investing in securities of
medium-sized companies involves greater risk than investing in larger, more established
companies because they can be subject to more abrupt or erratic share price changes than
larger, more established companies.
Smaller Company Securities Risk - Securities of companies with smaller market capitalizations
tend to be more volatile and less liquid than larger company stocks. Smaller companies may
have no or relatively short operating histories or be newly public companies.
Foreign Investment Risk - Foreign securities include ADRs and similar investments, including
European Depositary Receipts (“EDRs”) and GDRs. Foreign securities may be subject to more
risks than U.S. domestic investments. These additional risks may potentially include lower
liquidity, greater price volatility and risks related to adverse political, regulatory, market or
economic developments. Foreign companies also may be subject to significantly higher levels
of taxation than U.S. companies, including potentially confiscatory levels of taxation, thereby
reducing the earnings potential of such foreign companies.
Emerging Markets Risk - Emerging markets may have obsolete financial systems and volatile
currencies and may be more sensitive than more mature markets to a variety of economic
factors. Emerging market securities also may be less liquid than securities of more developed
countries and could be difficult to sell, particularly during a market downturn.
Currency Risk - Investments in foreign securities involve exposure to fluctuations in foreign
currency exchange rates. Such fluctuations may reduce the value of the Fund’s investment in
a foreign security.
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U.S. Government Obligations Risk - If a government-sponsored entity is unable to meet its
obligations, the performance of a mutual fund that holds securities of the entity will be
adversely impacted. U.S. Government obligations are viewed as having minimal or no credit
risk but are still subject to interest rate risk.
Fixed Income – General Risks
Bond markets and prices fluctuate daily, and fixed income investments generally include
instruments with variable or floating rates, are subject to various risks, which means that as
the value of a fixed income investment fluctuates, you could lose money.
Fixed Income – Interest Rate Risk
Interest rate risk is the risk that fixed income securities and other instruments in the
portfolio will decline in value because of an increase in interest rates. As nominal interest
rates rise, the value of certain fixed income securities held by the investor is likely to
decrease. Fixed income securities with longer durations tend to be more sensitive to changes
in interest rates, usually making them more volatile than securities with shorter durations.
Fixed Income – Credit Risk
A fixed income investment could lose money if the issuer or guarantor of a fixed income
security is unable or unwilling, or is perceived (whether by market participants, ratings
agencies, pricing services or otherwise) as unable or unwilling, to make timely principal
and/or interest payments, or to otherwise honor its obligations. The downgrade of the credit
of a security held by an investor may decrease its value. Securities are subject to varying
degrees of credit risk, which are often reflected in credit ratings. Municipal bonds are subject
to the risk that litigation, legislation or other political events, local business or economic
conditions, or the bankruptcy of the issuer could have a significant effect on an issuer’s
ability to make payments of principal and/or interest.
Fixed Income – High Yield Risk
If your account is invested in high yield securities and unrated securities of similar credit
quality (commonly known as “junk bonds”), your account may be subject to greater levels of
credit and liquidity risk than if it did not invest in such securities. These securities are
considered predominately speculative with respect to the issuer’s continuing ability to make
principal and interest payments. An economic downturn or period of rising interest rates
could adversely affect the market for these securities and reduce the investor’s ability to sell
these securities (liquidity risk). If the issuer of a security is in default with respect to interest
or principal payments, the investor may lose its entire investment.
Fixed Income – Other Risks
Investing in fixed income securities includes other risks not specifically identified above
including but not limited to Extension risk, Prepayment (Call) Risk, and Liquidity Risk.
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Disciplinary Information
SB Value Partners, L.P. and its employees have not been involved in any legal or disciplinary
events in the past 10 years that would be material to a client’s evaluation of the company or
its personnel.
Other Financial Industry Activities and Affiliations
Barnes Holdings Corporation, LLC (BHC), a company primarily controlled by Scott A.
Barnes, is a limited partner of SB Value Partners, L.P. The general partner of SB Value
Partners, L.P. is Foxfield Investments, LLC, of which Scott A. Barnes is President.
SB Value Partners, L.P. acts as the general partner for the Partnerships. As such, the company
receives compensation (as described herein) for these activities as General Partner.
Code of Ethics, Participation or Interest in Client Transactions and Personal
Trading
SB Value Partners, L.P. has adopted a Code of Ethics for the purpose of instructing its
personnel in their ethical obligations and to provide rules for their personal securities
transactions. The General Partner and its personnel owe a duty of loyalty, fairness and good
faith towards their clients, and the obligation to adhere not only to the specific provisions of
the Code but to the general principles that guide the Code. The Code covers a range of topics
that may include: general ethical principles, reporting personal securities trading, exceptions
to reporting securities trading, reportable securities, initial public offerings and private
placements, reporting ethical violations, distribution of the Code, review and enforcement
processes, amendments to Form ADV and supervisory procedures. We will provide a copy of
the Code to any client or prospective client and any investor or prospective investor upon
request.
Transactions are affected in the best interests of the client. SB Value Partners, L.P. does not
permit insider trading and has implemented procedures to ensure that its policy regarding
insider trading is being observed by associated persons.
SB Value Partners, L.P. may offer its clients an opportunity to invest in private investment
partnerships (including the Partnerships) or investment limited liability companies to which
SB Value Partners, L.P. or a related person is general partner. Each offeree receives a copy of
the offering documents, which disclose the relationship between SB Value Partners, L.P. and
the investment partnership or company.
Associated persons may own an interest in or buy or sell for their accounts the same securities,
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which may be purchased or sold in the accounts of the Partnerships and the managed accounts.
Associated persons seek to ensure that they do not personally benefit from the short-term
market effects of their recommendations to investors and their personal transactions are
regularly monitored. Associated persons are aware of the rules regarding material non-public
information and insider trading. Associated persons may also buy or sell specific securities for
their accounts based on personal investment considerations, which SB Value Partners, L.P.
does not deem appropriate to buy or sell for investors.
Brokerage Practices
On behalf of the Partnerships and Separately Managed Accounts, SB Value Partners, L.P.
has the authority to determine, without obtaining specific client consent, (a) the securities
to be bought and sold; (b) direct the amount of securities purchased, sold, exchanged, and
otherwise traded; (c) place orders for the execution of such securities transactions with
broker/dealers (d) determine the commission rates paid and (e) select, authorize and oversee
sub-advisors to conduct such functions as described above.
The Advisor may place orders for the execution of transactions with or through any
broker/dealer as SB Value Partners, L.P. may select, and complying with Section 28(e) of
the Securities Exchange Act of 1934, may pay a commission on transaction fees in excess of
the amount of commission another broker or dealer would have charged. SB Value Partners,
L.P. will select such brokers that can affect transactions at the best price and execution
under the prevailing circumstances.
SB Value Partners, L.P. is responsible for the placement of the portfolio transactions of the
Partnerships and Separately Managed Accounts and the negotiation of any commissions paid
on such transactions. Portfolio securities normally are purchased through brokers on
securities' exchanges or directly from the issuer or from an underwriter or market maker for
the securities. Purchases of portfolio instruments through brokers involve a commission to
the broker. Purchases of portfolio securities from dealers serving as market makers include
the spread between the bid and the asked price.
Fixed income transactions are executed by a dedicated trading group through ECNs, other
Broker/Dealers, Broker’s Brokers, and other Registered Investment Advisors. Pershing
Advisor Solutions clears and settles all the Partnership's and Separately Managed Accounts’
securities and fixed income transactions, maintain custody of the Partnerships’ and
Separately Managed Accounts’ assets, and, if necessary, lend funds to the Partnerships in
connection with its trades. Securities transactions will be executed by brokers selected by
SB Value Partners, L.P. in its sole discretion and without the consent of the Partnerships
or Separately Managed Accounts. In placing portfolio transactions, SB Value Partners, L.P.
will seek to obtain the best execution for the Partnerships and Separately Managed
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Accounts, taking into account the following factors: the ability to effect prompt and reliable
executions at favorable prices (including the applicable dealer spread or commission, if
any); the operational efficiency with which transactions are effected, taking into account
the size of order and difficulty of execution; the financial strength, integrity and stability of
the broker; the risk in positioning a block of securities; the quality, comprehensiveness and
frequency of available research services considered to be of value; and the competitiveness
of commission rates in comparison with other brokers satisfying SB Value Partners, L.P.’s
other selection criteria.
Review of Accounts
The CCO or his designee will conduct a review of all holdings of the Partnerships and the
Separately Managed Accounts on a quarterly basis. Also, an independent auditor, Summit
LLC, will conduct reviews and calculate the Partnerships’ performance.
Client Referrals and Other Compensation
The General Partner may enter into arrangements with institutions and others whereby the
General Partner shares a portion of the Profit Participation in exchange for referral and other
services. Pursuant to Rule 206 (4)-3 of the SEC Rules under the Investment Advisors Act of
1940, where cash payments are made for solicitation, the General Partner has in place a
written agreement binding the solicitor to comply with the 1940 Act and Rules and requiring
delivery to the client of (a) Part 2 of the General Partner's Form ADV and (b) a written
Profit Participation sharing disclosure statement meeting the requirements of the Rule.
Because SB Value Partners, L.P. serves as the general partner of the Partnerships it is deemed
to have custody of the Partnerships’ assets. However, the Adviser does not maintain physical
possession of the Partnerships’ funds or securities. Custody of Partnerships’ assets are
maintained with an independent custodian, Pershing Advisor Solutions (PAS). Each Private
Fund partner receives, as soon as practicable (within 120 days, except under certain
unforeseeable circumstances), following each fiscal year end of the Partnerships annual
audited financial statements prepared in accordance with U.S. generally accepted accounting
principles.
While SB Value Partners does not have physical custody of client funds or securities in the
Separately Managed Accounts, it does have the ability to deduct fees from the accounts. The
qualified custodian sends statements directly to the clients no less than quarterly. Clients
should carefully review those statements for accuracy promptly upon receipt.
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