Key Group Holdings (USA) Inc. (“Key Group USA”, “we”, “us”, “our”, or the “Firm”) is an investment adviser
organized on 20 January 2012. On October 22, 2015, Key Group Holdings (USA) LLC converted by operation of
Delaware law and incorporated as Key Group Holdings (USA) Inc. Under a proposed Master Services Agreement
(the “Agreement”) between Key Group USA and Key Group Holdings (Cayman), Ltd. (“Key Group Cayman”),
the Firm provides discretionary or non-discretionary advisory services to Key Group Cayman for its use in
connection with its clients, including a trading account (the “Account”) of an unaffiliated, third-party manager.
Key Group Cayman also provides discretionary advisory services to several separately managed pooled
investment vehicles (collectively referred to herein as “Managed Funds”). Key Group Cayman also acts as
investment manager, providing discretionary advisory services to the KGH Market Neutral Strategies Master
Fund SP (the “Fund”, a segregated portfolio of Key Group Holdings Master Fund SPC, a Cayman Islands
segregated portfolio company. The Account, the Managed Funds and the Fund are managed on a
pari passu
basis.
Key Group USA primarily focuses its advisory services in the energy and natural resources sectors, as well as
sectors we believe to be tangentially related, employing a long/short equity strategy. Key Group USA seeks
capital appreciation from its investment strategy while taking reasonable steps to protect capital relative to
the sought-after rate of return.
Key Group USA provides discretionary and non-discretionary advisory services to Key Group Cayman based on
specific investment objectives and strategies, as more specifically described in Item 8. Key Group USA does not
tailor advisory services to the individual needs of investors in the Account. With respect to its discretionary
advisory services, if any, Key Group USA may have complete discretion, subject to certain limitations, to trade
its strategy, including the buying and selling of securities, the selection of broker-dealers through which to
execute trades, the negotiation of trading commissions/rates, and the voting of shares. As to its discretionary
and non-discretionary advisory services, Key Group USA will tailor its services to the individual needs of Key
Group Cayman and its clients and Key Group USA expects in the future that it will negotiate with Key Group
Cayman and/or its clients, restrictions on investing in certain securities or types of securities.
Key Group USA is a wholly-owned subsidiary of KGHL Research (UK) Limited, which is itself a wholly-owned
subsidiary of Key Group Cayman. Millinvest, Ltd. is the owner of Key Group Cayman as of the date of submission
of this form. Sunil Jagwani is the ultimate beneficial owner of Millinvest, Ltd.
As of 31 December 2018, Key Group USA had regulatory assets under management of approximately US
$2,916,365,378 managed on a discretionary or non-discretionary basis with responsibility to make
recommendations as to specific securities and arranging or effecting their purchase and sale pursuant to the
Agreement.
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Pursuant to the Agreement, Key Group USA generally will receive a monthly sub-advisory fee (the “Sub-
advisory Fee”) equal to a percentage of Key Group USA’s costs incurred (expressed on cost-plus basis), which
is billed to Key Group Cayman and payable in arrears. Key Group USA may also receive an investment sub-
advisory fee (the “Investment Management Fee”) equal to a percentage of its client’s advisory fee. Fees for
any discretionary advice provided are currently expected to be fixed at cost-plus, but may be negotiable in
the future.
Key Group USA and its employees do not accept compensation, including sales charges or service fees, from
any person for the sale of securities or other investment products.
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The Firm may be entitled in the future to receive a performance allocation as part of the Agreement that is
calculated based upon a percentage of the net capital appreciation of its discretionary account, subject to a
“loss carry-forward” provision. Any performance allocation will be in accordance with the available exemption
set forth in Rule 205-3 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Net asset value for measuring assets for the calculation of the performance allocation includes net realized and
unrealized capital gains and losses. Capital gains are calculated net of all expenses of the Account except for
the Investment Management Fee which is subtracted from the performance allocation.
Any performance allocation may create an incentive for Key Group USA to recommend investments which may
be riskier or more speculative than those which would be recommended under a different fee arrangement.
Key Group USA has procedures designed and implemented to prevent this conflict from influencing investment
decisions.
Other than the Sub-Advisory Fee arrangement described in Item 5, no hourly, flat or asset-based fees are
charged to the client accounts.
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Methods of Analysis & Investment Strategy
Key Group USA acts as sub-adviser to Key Group Cayman (collectively, “Key Group”). Key Group’s aim is to
generate consistent positive returns, in varying market conditions, by investing, on both a long and short basis,
in equity securities of companies that operate predominantly in the natural resources and energy industries,
as well as certain sub-sectors we believe to be tangentially related. Key Group relies primarily on extensive
fundamental analysis of a broad universe of issuers within the identified sectors and sub-sectors. The accounts
managed by Key Group may also invest in certain commodity and commodity-related sub-sectors and certain
industrial sub-sectors. Potential investments include global equity, fixed income, commodity and derivatives
with the aim of capital appreciation in a disciplined manner. Key Group may use investments in commodities
futures contracts or other commodity-related derivatives for both hedging and speculative investing purposes.
Risk of Loss Factors
Investing in securities involves risk of loss that the clients should be prepared to bear. A client should consider
the following factors before investing. The following list of risk factors does not purport to be a complete
enumeration or explanation of the risks involved in an investment. Clients are urged to consult their
professional advisers and review the legal documents for an account before deciding to make an investment.
Sector Risks
The value of clients’ portfolios will be vulnerable to factors affecting the natural resources and energy
industries, such as increasing regulation and developments in the energy sector and energy conservation
incentives which can increase compliance costs and affect business opportunities for companies in which
clients may invest. Key Group’s focus on investments in select industries means the value of a client’s portfolio
may rise and fall more than the value of a similar investment in a strategy that invests more broadly. Clients
may also be affected by changing commodity prices, which can be highly volatile and are subject to risks of
oversupply and reduced demand.
Use of Leverage
The use of leverage, the act of borrowing capital to make investments, exposes clients to additional levels of
risks, including (i) greater losses from investments than otherwise would have been the case, (ii) margin calls
that could force Key Group to liquidate investment positions and (iii) losses on investments where the
investment fails to earn a return that equals or exceeds the cost of borrowing the capital in the first place. Also,
a sharp decline in the value of investments held by clients may affect Key Group’s ability to liquidate the
investments quickly, resulting in increased losses.
Short Sales
Short selling, or the sale of securities not owned by clients, involves certain specific risks. Short selling exposes
clients to the risk of loss in an amount greater than the initial investment, and such losses can increase rapidly
and without limit. There is also the risk that the securities borrowed by clients would need to be returned to
the lender on short notice. Such a request could require clients to purchase the securities in the open market
at prices that are significantly higher than the proceeds from the initial sale of the securities.
Counterparty Risk
Key Group may engage in transactions in securities and financial instruments that involve counterparties.
Under certain conditions, clients could suffer losses if a counterparty to a transaction were to default or if the
market for certain securities and/or financial instruments were to become illiquid. In addition, clients could
suffer losses if there were a default or bankruptcy by certain other third parties, including brokerage firms and
banks with which clients do business, or to which securities have been entrusted for custodial purposes.
Dependence on Key Personnel
Key Group will have discretionary or non-discretionary sub-advisory responsibility for the investment
management of client accounts and may have day-to-day responsibility for certain investment decisions. Key
Group is dependent on the strategy and management expertise of Sunil Jagwani and if Key Group were to lose
his services, clients could be adversely affected.
Trade Execution Risk
Many of the investment techniques used by Key Group require the rapid and efficient execution of
transactions, or the ability to accumulate or liquidate large positions. Inefficient execution can impair
realization of the market opportunities sought with such techniques.
Small to Medium Capitalization Companies
Key Group may invest client accounts in the stocks of companies with small to medium-sized market
capitalizations. While Key Group believes these stocks may provide significant potential for appreciation, such
stocks, particularly smaller-capitalization stocks, involve higher risks in some respects than do investments in
stocks of larger companies. For example, prices of such stocks are often more volatile than prices of large-
capitalization stocks. In addition, due to thin trading in some such stocks, an investment in these stocks may
be less liquid than that of larger capitalization stocks.
Portfolio Turnover
Part of Key Group’s investment strategy may involve the taking of frequent trading positions and, as a result,
turnover and brokerage commission expenses may exceed those of other investment entities of comparable
size. The frequent turnover of the portfolio may also lead to inefficient tax consequences for clients.
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Key Group USA is a wholly-owned subsidiary of KGHL Research (UK) Limited, a UK-based private limited
company which is itself a wholly-owned subsidiary of Key Group Cayman, a corporation organized under the
laws of the Cayman Islands. Key Group USA will provide discretionary and non-discretionary advisory services
to Key Group Cayman and its clients, and also provides research and trading services exclusively to Key Group
Cayman.
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Pursuant to Rule 204A-1 of the Advisers Act, Key Group has adopted a Code of Ethics and a Personal Trading
Policy that establishes various procedures with respect to investment transactions in accounts in which Key
Group (a term that encompasses all Key Group USA) employees or related persons have a beneficial interest
or accounts over which an employee has investment discretion. Key Group and/or its officers or employees are
generally not permitted to trade in the same securities that may be purchased or sold for clients. Sales of
existing positions may be permitted as long as the employee has received prior approval from the Firm’s Chief
Compliance Officer (the “CCO”).
Employees (and members of their immediate households) are permitted to invest in equities, debt, options or
futures only after obtaining pre-approval from the CCO. The spirit of the Code of Ethics and the Personal Trading
Policy (the “Code”) is to prohibit personal trading that violates the law, interferes with employees’ duties, or
otherwise violates the Code and, generally, to discourage frequent trading in employee personal accounts. In
addition, employees may not acquire securities for their own account in an initial public offering, and must
obtain pre-approval from the CCO before participating in any private placements.
All of Key Group’s employees must direct their brokers to send duplicate brokerage statements to the CCO, or
make similar alternative arrangements. These records are used to monitor compliance with the foregoing
policies.
The Code applies to any personal transactions in any financial instrument. Certain financial instruments, such
as equity, debt, options, or futures contracts, require pre-approval from the CCO prior to effecting any
transaction. Certain transactions involving government securities, open-end mutual funds, broad based
exchange traded funds (ETFs) or other instruments, while not requiring pre-approval, are covered by the Firm’s
holdings disclosure requirements under the Code.
Key Group absolutely prohibits the misuse or inappropriate communication of inside information in connection
with our securities transactions. Key Group, as well as federal and state securities laws, also prohibits the
practice of market manipulation, which comprises conduct intended to deceive or defraud investors by
controlling or artificially affecting the price of securities.
Key Group has also adopted communications guidelines designed to assist personnel in understanding their
duties and responsibilities regarding the receipt and the communication of financial and other sensitive
information.
Any outside business activities employees wish to engage in must be disclosed to, and approved by the CCO.
Key Group has adopted a policy regarding the giving and receiving of business gifts and entertainment.
Key Group has also adopted a policy governing political contributions, the holding of public office and
impermissible payments. This policy is designed, among other things, to address the requirements of Rule
206(4)-5 under the Advisers Act.
Key Group’s Code of Ethics and Personal Trading Policy are available upon request.
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As an adviser and a fiduciary to client accounts, Key Group USA requires that clients’ interests must always be
placed first and foremost, and our trading practices and procedures prohibit unfair trading practices. Key Group
seeks to disclose and avoid any actual or potential conflicts of interests or resolve such conflicts in our clients’
favor. Key Group has adopted the following policies and practices to meet the Firm’s fiduciary responsibilities
and to ensure our trading practices are fair.
Aggregation
When appropriate, we may, but are not required to, aggregate client orders to achieve more efficient execution
or to provide for equitable treatment among accounts. Client accounts participating in aggregated trades will
be allocated securities based on the average price achieved for such trades.
Allocation
Our policy prohibits any allocation of trades in a manner that would cause any client account, including
accounts where the Firm’s directors and/or employees are beneficial owners of more than a 25% interest in
the account, to receive more favorable treatment than other client accounts.
We generally allocate trades for client accounts on a
pari passu basis based on the gross market value of the
participating accounts subject however to the differing capital size, leverage, cash availability, risk parameters
and other such factors affecting such accounts and/or arrangements. The intention of this allocation policy is
that unlevered performance of each relevant account be substantially similar to that of other accounts and/or
arrangements managed by Key Group in a similar strategy.
Key Group does not intend to execute principal trades or cross trades.
Best Execution
Key Group’s goal of achieving best execution in our securities transactions, taking all relevant factors into
consideration, is integral to our business. Traders are authorized to make investment decisions on behalf of
client accounts (subject to applicable trading guidelines), and in doing so are responsible to meet “best
execution” standards, that is, to ensure that transactions are executed in such a manner that the Firm’s total
trading-related costs (including costs of relevant research relating to trading) are minimized while trade prices
are optimal. Brokerage allocations are to be made in consideration of such factors as price; transaction costs;
speed and size of execution; a broker’s ability to effect the transactions; its facilities, reliability and financial
responsibility; its commitment of capital in appropriate circumstances; as well as other factors that are deemed
appropriate to consider under the circumstances.
Principal Trading
Key Group’s policy and practice is to not engage in any principal transactions.
Soft Dollars
Key Group may use soft dollars generated by client accounts to pay for certain research and/or related
services provided by brokers described above. The term “soft dollars” refers to the receipt by an investment
manager of products and services (including research) provided by brokers without any cash payment by the
investment manager, based on the volume of revenues generated from brokerage commissions for
transactions executed for clients of the investment manager. The products and services available from
brokers include both internally generated items (such as research reports prepared by employees of the
broker) as well as items acquired by the broker from third parties (such as quotation equipment). Using soft
dollars to obtain investment research and/or related services creates a conflict of interest between us and
our clients. Soft dollars may be used to acquire products and services that are not exclusively for the benefit
of clients which paid the commissions and that may primarily or exclusively benefit us. If we are able to
acquire these products and services without expending our own resources (including management fees paid
by clients), our use of soft dollars would tend to increase our profitability. Furthermore, we may have an
incentive to select or recommend brokers based on our interest in receiving research or other products or
services, rather than on our clients’ interest in receiving most favorable execution. We may cause clients to
pay commissions (or mark-ups or markdowns) higher than those charged by other brokers in return for soft
dollar benefits.
Section 28(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provides a safe
harbor to advisers who use soft dollars generated by client accounts to obtain investment research and
brokerage services that provide lawful and appropriate assistance to us in the performance of investment
decision-making responsibilities. We intend that any soft dollars that we receive in connection with client-
related matters would be within the limitations set forth in Section 28(e) of the Exchange Act.
Key Group Cayman has a formal soft dollar arrangement in which certain client accounts may participate. In
addition, during the last fiscal year, Key Group Cayman obtained investment research from its broker-dealers.
No soft dollars were received that were outside of Section 28(e).
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Review of Accounts
The discretionary accounts managed by Key Group USA, if any, are reviewed on a daily basis from an
operational standpoint for proper positions and correct accounting of profit and loss and balances.
Reporting
Clients’ assets are held at a third-party qualified custodian. Client access to portfolio data and analytics,
including real-time position level data, is determined on a client-by-client basis, based on the needs of the
client. Key Group USA does not have custody of client accounts.
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Key Group USA does not currently employ any third-party marketers or solicitors for client referrals.
Key Group USA does not currently provide advice to parties other than Key Group Cayman, though it may do
so in the future. Key Group USA also does not provide other advisory services to the investors in any account
advised by Key Group Cayman.
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Key Group USA may possess discretionary portfolio management authority over all or a portion of the
investments of certain client of Key Group Cayman with respect to asset allocations and direct investments as
a per the Agreement.
Key Group USA may have the authority to determine (i) the securities to be purchased and sold for client
accounts (subject to restrictions on its activities set forth in the applicable investment management agreement
and any written investment guidelines) and (ii) the amount of securities to be purchased or sold for client
accounts.
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Key Group USA does not vote proxies. All voting of proxies is the responsibility of Key Group Cayman. Upon
request, Key Group USA will provide a copy of the Key Group proxy voting policies and procedures and/or a
record of all proxy votes cast.
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