Description of Advisory Firm ClearLight Partners Management, LLC, ClearLight Partners Management II, LLC and ClearLight Partners
Management III, LLC (“ClearLight,” “we,” “our,” or “us”) are Delaware limited liability companies
headquartered in Newport Beach, California. The inception dates of the firms are April 2000, April 2007
and January 2014, respectively. Michael Kaye is the principal owner, as he owns at least 25% of
ClearLight Partners Management, LLC, ClearLight Partners Management II, LLC and ClearLight Partners
Management III, LLC.
ClearLight is a middle-market private equity firm. We invest in and contribute to the expansion of
established and profitable middle-market businesses. ClearLight’s long-term perspective allows our
management partners to focus on building companies with enduring value. Our investments are true
partnerships and our management partners have significant equity stakes in the business they lead.
Advisory Services Offered ClearLight serves as investment adviser to private equity partnerships (the “Funds”) that we have
organized. The Funds seek to achieve attractive total returns through investments in middle-market
businesses. This Form ADV Part 2A Brochure is not an offer to sell, or a solicitation of an offer to
purchase, membership interests in our Funds. These Funds are not publicly available and we are not
offering or accepting new partnership interests. Interests in the Funds are not registered under the
Securities Act of 1933, as amended (the “Securities Act”) or under state securities laws in reliance upon
exemptions contained in the Securities Act and in state securities laws for transactions not involving a
public offering.
See
Item 10 – Other Financial Industry Activities and Affiliations below for information regarding the
Funds. For information about our discretionary authority, see
Item 16 - Investment Discretion below.
We describe the Fees charged for investment supervisory services below under
Item 5 - Fees and
Compensation.
Tailored Services and Client Imposed Restrictions We manage the Funds according to the investment objectives outlined in the fund documents. Since the
Funds are pooled investment vehicles, investors in the Funds may not impose restrictions on the
investments held in the Funds.
Assets Under Management As of 12/31/2019, ClearLight’s discretionary assets under management were $114,159,031.
ClearLight Brochure Revised March 10, 2020 7
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While fee structures may vary depending on the type of private fund managed, the typical fee structure
for the private equity funds that ClearLight manages consist of: (1) management fees, which are based
on a percentage of the applicable fund assets; (2) carried interest, which is a performance-based fee;
and (3) due diligence fees, which are one-time upfront fees. Additionally, we charge certain expenses
(“organizational” and “ongoing”) to the Funds (this is fully described in each fund’s Operating
Agreement).
ClearLight is authorized under the Operating Agreement to charge and deduct advisory fees directly
from the Funds. ClearLight’s management fees are accrued and are payable quarterly in advance based
on the total capital commitments initially and, after the investment period, the fees are calculated as a
percentage of invested capital.
ClearLight may charge the underlying portfolio company(ies) due diligence fees for work undertaken as
part of completing a fund transaction. Such fees include, but are not limited to, break-up, topping,
monitoring or similar due diligence fees (“Portfolio Company Fees”). The terms of such due diligence
fees vary depending on each situation; however, they are generally agreed to in advance when the fund
is established. ClearLight charges the underlying portfolio company(ies) an ongoing management fee for
the advisory services provided to the portfolio company(ies). This management fee is negotiable with
the portfolio company.
ClearLight’s management fees will be equal annually to the lesser of (a) ClearLight’s annual operating
expenses (the “Operating Expenses”) and (b) 2.00% during the investment period and thereafter 1.25%
of the aggregate capital commitments of all of the fund members based on the initial available capital.
To the extent the Operating Expenses in any one year are less than either 2.00% or 1.25% of each Fund’s
initial available capital, the difference will be carried forward and available in future years to the extent
required to defray Operating Expenses.
ClearLight will reduce its management fees that the Funds pay by an amount equal to 50% of any
Portfolio Company Fees paid by portfolio companies to ClearLight’s Managing Member during such
quarter. The Funds may bear additional fees and expenses, which are outlined in the Funds’ Operating
Agreement.
Termination Generally, the private investment funds may not be terminated prior to the dissolution of the Funds.
However, there may be exceptions outlined in Operating Agreement for each Fund.
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ClearLight may receive a performance-based fee as a portion of compensation. The performance-based
fees are in the form of carried interest. All Funds managed have a performance fee arrangement, so we
do not have an incentive to favor one fund over another.
ClearLight Brochure Revised March 10, 2020 8
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ClearLight provides investment advisory services solely to private equity funds organized primarily for a
single foreign public company. The Funds are not accepting new investors.
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OF LOSS Investment Objectives Our primary objective is to generate long-term capital appreciation by investing in growth capital and
leveraged companies targeting both emerging and middle-market companies in a group of selected
industries that offer the potential for capital appreciation. We identify potential investments, acquire,
hold, and dispose of investments and monitor the investments of the Fund. We conduct due diligence to
an extent deemed reasonable and appropriate based on the facts and circumstances applicable to each
investment. Generally, we concentrate on investments with fair market values between $10 and $250
million in which there are opportunities to create significant value post-investment by utilizing the
strategic and operating expertise of ClearLight.
While we do not seek to operate each portfolio company within the Funds, we generally serve on the
Board of Directors. We seek to advise each portfolio company on the strategic direction,
recapitalizations and operations of the company.
Investment Process Our investment philosophy and investment process goal is to have our interests aligned with those of
the partnership investment opportunities. Because each situation is unique, we have an investment
process that we adapt to each investment opportunity. In our search for repeatable attractive
investment opportunities, we utilize the criteria outlined below. Our holding period for each investment
opportunity is targeted at 4 to 7 years; however, there might be exceptions where portfolio companies
are held for less than 4 years.
Investment Strategy
We provide shareholder liquidity and growth capital to profitable growth companies. We strive to value
the companies conservatively.
Investment Criteria
Generally, we look for long-term partnerships with outstanding companies which meet the following
criteria:
Company Characteristics
• Strong management team in place that seeks to continue leading the company in the future
• History of consistent growth and profitability
• Revenues of $20 - 250 million
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• Operating Income/EBITDA of $5 - 25 million
Geography
• Companies based in the US or Canada
Industry Focus
ClearLight has a broad investment charter. Areas of particular interest are:
• Specialty Manufacturing and Distribution Services Businesses:
o Business Services
o Education and Training
o Health Care Services
o Specialty Finance Services
o Consumer Products and Services
Investment Size
ClearLight invests $10 - 50 million of equity
• ClearLight can provide mezzanine financing with its equity investment
• ClearLight also leads larger investments with co-investors
Monitoring and Reporting
We take an active approach to monitoring partnership investments. Generally, we analyze monthly,
quarterly and annual financial reports for each portfolio company. In most cases, we participate in Board
of Director meetings and have ongoing communications with the portfolio companies.
Investing Involves Risk Investment in private funds is speculative and involves a substantial degree of risk, which is why
investing in private funds may not be suitable for all investors and is intended for sophisticated investors
who can accept the risks associated with its investments. The investments may lose all or a substantial
portion of their value and investors must be prepared to bear the risk of loss of their investments.
Investors will not have recourse except with respect to the assets of the Fund. The Fund documents
outline important information for investors. Investors should review all fund document(s) carefully and
should consider conducting additional due diligence before investing in any private fund.
Private Equity Funds
Private equity consists of investors who invest in private fund(s) and those fund(s) invest directly into
private companies or conduct buyouts of public companies that result in a delisting of public equity.
Capital for private equity is often raised from investors. In almost all cases, a private equity fund is a
private investment vehicle that is typically not registered under federal or state securities laws. So that
private equity funds do not have to register under these laws, issuers make the funds available only to
certain sophisticated or accredited investors and cannot be offered or sold to the general public. Private
funds are generally smaller than mutual funds because they are often limited to a small number of
investors and have a more limited number of eligible investors. Investors should consider conducting
ClearLight Brochure Revised March 10, 2020 10
additional due diligence before investing in private equity. The primary risks of private equity funds
include the following:
1. Private equity funds do not sell publicly and are therefore illiquid. An investor generally is not
able to exit a private equity fund or sell its interests in the fund before the fund closes.
2. Private equity funds are subject to various other risks depending upon the types of investments
that the private equity fund invests in.
3. Private equity investments often demand long holding periods to allow for a turnaround of a
distressed company or a liquidity event such as an IPO or sale to a public company.
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ClearLight and our personnel seek to maintain the highest level of business professionalism, integrity,
and ethics. ClearLight does not have any disciplinary information to disclose.
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ClearLight is a Managing Member of the ClearLight Partners, LLC, ClearLight Partners II, LLC, and
ClearLight Partners III, LLC, private equity funds. These private equity funds are not publicly offered or
traded and are organized as limited liability companies. This Form ADV Part 2A Brochure is not an offer
to sell, or a solicitation of an offer to purchase, any membership interests.
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TRANSACTIONS AND PERSONAL TRADING Code of Ethics ClearLight believes that we owe clients the highest level of trust and fair dealing. As part of our fiduciary
duty, we place the interests of our clients ahead of the interests of the firm and our personnel.
ClearLight’s personnel are required to conduct themselves with integrity at all times and follow the
principles and policies detailed in our Code of Ethics.
ClearLight’s Code of Ethics attempts to address specific conflicts of interest that either we have
identified or that could likely arise. ClearLight’s personnel are required to follow clear guidelines from
the Code of Ethics in areas such as gifts and entertainment, other business activities, prohibitions of
insider trading, and adherence to applicable federal securities laws. Additionally, individuals who
formulate investment advice for our clients, or who have access to nonpublic information regarding any
clients’ purchase or sale of securities (all considered “Access Persons”), are subject to personal trading
policies governed by the Code of Ethics (see below).
ClearLight will provide a complete copy of the Code of Ethics to any client or prospective client upon
request.
ClearLight Brochure Revised March 10, 2020 11
Personal Trading Practices
ClearLight and our Access Persons may purchase or sell securities for themselves, regardless of whether
the transaction would be appropriate for a client’s account. Our policies to address these conflicts
include the following:
1. Conflicts of interest may arise when ClearLight’s personnel become aware of Limited Offerings
or IPOs, including private placements or offerings of interests in limited partnerships or any
thinly traded securities, whether public or private. Given the inherent potential for conflict,
Limited Offerings and IPOs demand extreme care. ClearLight’s personnel are required to obtain
pre-approval from the Chief Compliance Officer before trading in these types of securities.
2. ClearLight requires our personnel to report personal securities transactions on a quarterly basis.
3. Under certain limited circumstances, we make exceptions to the policies stated above.
ClearLight will maintain records of these trades, including the reasons for any exceptions.
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Due to the nature of private equity securities, ClearLight may use investment bankers for private equity
transactions. In addition to transaction costs, we evaluate several factors when considering an
investment banker we select. We will take into consideration an investment banker’s reputation,
negotiation ability, expertise, sector knowledge, and our prior experience working with them. We
recognize the value of these factors and we may select an investment banker that charges higher
transaction costs than another investment banker might have charged for effecting the same
transaction. We evaluate the reasonableness of transactions costs and the factors outlined above on an
ongoing basis.
ClearLight does not have any soft-dollar arrangements and does not receive any soft-dollar benefits.
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ClearLight continuously monitors the Funds. Several of ClearLight’s partners and principals review the
partnership investments at least monthly. The review and monitoring activities include but are not
limited to:
1. Participation on the portfolio company’s operating calls and board of director meetings;
2. Consistent contact with the managers of the portfolio companies regarding the operations,
capital structure, and strategic planning; and
3. Ongoing evaluation of the state of the market.
As an investment adviser to private equity funds (our “Clients”) we do not provide Clients with any
reports. However, annually we send copies of the audited financial statements to all investors in the
Funds.
ClearLight Brochure Revised March 10, 2020 12
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ClearLight has custody of the assets of the Funds because ClearLight, as the Managing Member of the
Funds, has legal ownership of the assets of the Funds. ClearLight has put controls in place, in compliance
with federal rules, to protect investor assets in the Funds. In addition, we receive an annual audit from
an independent accounting firm registered with, and subject to, regular inspection by the Public
Company Accounting Oversight Board, and we send copies of the audited financial statements to all
investors in the Funds within 120 days after their respective fiscal year end. An independent accounting
firm will also audit the Funds upon liquidation.
As a matter of policy and practice, ClearLight does not permit employees or the firm to accept or
maintain custody of client assets other than as identified above.
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ClearLight has full discretion to decide all investments made within the Funds. Limitations may include
the capital commitment and the investment period. We manage the Funds in accordance with the terms
outlined in the fund operating agreement.
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Typically, at least one of ClearLight’s principals or partners is on each portfolio company’s board. As a
board member, ClearLight generally has the authority to vote on certain issues that require board
approval. Each portfolio company’s board adopts a framework that outlines the issues and actions that
require board approval. We will only cast votes in a manner consistent with the best interest of our
client. At any time, clients may contact us to request information about how we voted or to get a copy
of our Voting Policies and Procedures. A brief summary of ClearLight’s Voting Policies and Procedures is
as follows:
Our objective in voting is to support proposals that maximize the value of the portfolio company over
the long term. While our goal is simple, the proposals we receive are varied and frequently complex.
ClearLight has a fiduciary responsibility for evaluating each proposal on its merits, based on the
particular facts and circumstances as presented.
In evaluating proposals, ClearLight will give substantial weight to the recommendations of the portfolio
company's board, absent guidelines or other facts that would support a vote against management.
ClearLight will evaluate the issue and cast a vote in a manner that in our opinion will maximize the value
of the portfolio company.
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Due to the nature of private equity, we do not foresee a circumstance where there will be a conflict of
interest. In the event that ClearLight has a conflict of interest regarding a proposal, we will inform the
portfolio company’s board of the conflict and may not participate in the proxy voting decision or
process.
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Registered investment advisers are required in this item to provide clients with certain financial
information or disclosures about the firm’s financial condition. ClearLight does not foresee any financial
condition that is reasonably likely to impair our ability to meet contractual commitments to clients.
In addition, under no circumstances do we require or solicit payment of fees in excess of $1,200 per
investor more than six months in advance of services rendered. Therefore, we are not required to
include a financial statement.
ClearLight has not been the subject of a bankruptcy petition at any time during the past ten years.
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