Formation Capital was organized in 1999 in the State of Pennsylvania as a limited liability company and
was re-domesticated in 2007 in the state of Georgia. Formation Capital is 43% owned by HCCF
Management Group, Inc. and 57% owned by Trident Formation Holdings, LP. HCCF Management
Group, Inc. is 100% owned by Arnold Whitman, and ZAC Management Group, Inc. is 80% owned by
Steven Fishman and 20% owned by Allan Morrison.
Our Services
Formation Capital, through various entities owned by, controlled by, or under common control with
Formation Capital (each an “Affiliate”), provides investment advisory and asset management services to
pooled investment vehicles (the “Funds”). Formation Capital predominately focuses on seniors housing
and care, post-acute and health care real estate, private equity and debt investments.
Portfolio oversight and asset management services are tailored to each individual Fund. Primary asset
management functions generally include, but are not limited to, financial reporting, loan compliance,
capital expenditure management, site inspection, operator meetings, legislative review and investment
reporting. Any restrictions on a Fund’s investments are set forth in its governing documents.
Formation Capital, whether directly or through an Affiliate, is authorized to implement each Fund’s
investment objectives and strategies in accordance with the terms of its governing documents, subscription
agreement, investor memorandum and/or other offering documents (the “Offering Documents”), as may
be amended from time to time. Certain Funds are co-advised by Safanad Inc., a SEC-registered investment
adviser. In addition, each Fund is generally structured such that the asset manager, general partner or
managing member, as applicable, cannot effectuate major decisions without obtaining written consent
from a majority of the limited partners or members (or the Board of Managers or Investment Committee
of the Fund, as applicable).
There are potential and actual internal conflicts of interest concerning Formation-sponsored Funds.
Specifically, certain Formation-sponsored Funds currently lease real estate to a portfolio company owned
by another Formation-sponsored Fund. In addition, certain portfolio companies owned directly or
indirectly by Formation-sponsored Funds have also entered into service or management agreements with
one another, or otherwise have a business relationship with one another. Formation manages these
conflicts by providing written disclosure to all members and the relevant Fund boards of the material
conflicts of interest concerning (i) any overlap in the governance structure of the relevant Funds, and
(ii) any overlap in the investor group in both Funds, including any investments by Formation Capital
employees.
Regulatory Assets Under Management
As of December 31, 2018, Formation Capital manages total Fund assets of approximately $5,460,735,000
all of which are managed on a discretionary basis. The calculation of regulatory assets under management
is based on total invested capital, including leverage.
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Management Fees and Fee Billing
Formation Capital, through its Affiliates, is generally compensated for services in one of three ways: (i) a
percentage of invested capital, (ii) by number of real estate assets under management or (iii) a fixed annual
fee. The fees to be paid by each Fund are negotiated and agreed to by the Fund’s investors and set forth
in the Fund’s Offering Documents. Fees are typically paid on a monthly basis.
In addition to the management fees, the Funds generally pay certain carried interest distributions, as
described in Item 6 below and in each Fund’s Offering Documents.
Additional Fees
The fees payable above are exclusive of, and are in addition to, certain third-party fees, including, but not
limited to, transaction fees, audit fees, legal fees, exit fees and other related costs and expenses that may
be incurred by the Funds, as more fully described in the relevant Fund’s Offering Documents.
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Formation Capital, through its Affiliates, receives performance-based fees in the form of carried interest
distributions. The carried interest to be paid by each Fund is negotiated and agreed to by the Fund’s
investors and set forth in the Fund’s Offering Documents.
Formation Capital does not engage in side-by-side management.
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Formation Capital’s current clients are limited to the Funds, each of which is a private investment vehicle.
The Funds generally do not impose a minimum investment commitment. Due to the private nature of the
Funds, however, there are minimum investor criteria, which are fully described in each Fund’s Offering
Documents.
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The following is a brief summary only of Formation Capital’s general investment strategy and the general
material risks associated with one or more Funds. An investment in a Fund involves a significant amount
of risk and is suitable only for sophisticated investors of substantial means who have no immediate need
for liquidity in the amount invested, and who understand and can afford a risk of loss of a substantial
portion or all the investment. There can be no assurance that any returns will be realized, or that any
investor in a Fund will receive a return of its capital. The relevant Fund’s Offering Documents contain a
more detailed description of the Fund’s investment objectives and the risks associated with an investment
in the Fund.
Method of Analysis and Investment Strategy
Formation Capital targets high quality healthcare operating companies in the seniors housing and care and
post-acute sectors. Companies in these sectors are typically real estate based, with services provided in
or to a healthcare facility. Our approach to transaction structuring separates the real estate from the
operating company, maintaining the relationship through a triple-net lease, structured to align interests
and capture future value enhancement. This approach is designed to identify risk arbitrage in an
investment structure and to allocate our capital quickly to capitalize on temporary market inefficiencies.
Formation Capital’s investment strategy balances the needs of capital and operations, and structures
investments to meet standards of high quality care. Our deep ties with industry leaders allow us to partner
with leading operators, and we believe our long-standing commitment to seniors housing and post-acute
care gives us an advantage underwriting (pre-acquisition) and managing (post-closing) healthcare
investment risks.
Prior to an exit event, Formation Capital tailors a value-add business plan for each investment, which may
include investing in capital expenditures and facility modernization, building a platform through add-on
acquisitions, implementing best practices from our portfolio companies and funding growth capital to
drive organic and external growth.
Material Risks
Listed below is a summary of some of the material risks involved in connection with our methods of
analysis and investment strategies. The discussion of material risks provided below is not meant to be a
complete description of risks that may be applicable to Formation Capital or to an investment in any
particular Fund. The information contained herein is a summary only and is qualified in its entirety by
the relevant Fund’s Offering Documents.
General Investment Risks. Market movements are difficult to predict and are influenced by, among other
matters, government trade, fiscal, monetary and exchange rate and control programs and policies,
changing supply and demand relationships, national and international political and economic events,
changes in interest rates, and the inherent volatility of the marketplace. A Fund’s success is also
dependent, in part, on Formation Capital’s ability to implement the Fund’s investment strategy.
Investments in Companies with Smaller Capitalizations or Limited Coverage. A Fund may invest in the
securities of companies with smaller capitalizations or that are the subject of little or no publicly-available
analysis or research coverage. Investments in such companies may involve greater risk, in that they often
have limited markets and/or financial resources, may be dependent for management on one or a few key
persons, may lack substantial capital reserves, may not have established performance records and/or may
be more susceptible to losses.
Debt and Other Income Securities. Certain Funds invest in senior loans and/or mezzanine loans. Senior
loans are generally secured by assets and often by additional guarantees. However, like other corporate
debt obligations, senior loans are subject to the risk of non-payment of scheduled interest and/or
principal. Mezzanine loans are generally unsecured and junior to other indebtedness of the issuer. As a
holder of a mezzanine loan, a Fund may lack adequate protection in the event the issuer becomes insolvent,
and the Fund will likely experience a lower recovery than more senior debt-holders in the event the issuer
defaults on its indebtedness. In addition, mezzanine loans are often highly illiquid and, in adverse market
conditions, may experience steep declines in valuation even if they are fully performing.
Real Estate Ownership. A Fund’s investments will be subject to the risks generally incident to the
ownership of real estate and facilities, including uncertainty of cash flow to meet fixed and other
obligations, adverse changes in local market conditions, interest rates, and real estate tax rates, changes in
applicable laws and regulations (including tax laws), uninsured losses, bankruptcy (or other financial
challenges) of a real estate operator, and other risks that are beyond the control of Formation Capital. Real
estate investments are relatively illiquid and, therefore, tend to limit the ability of a Fund to vary its
portfolio promptly in response to changes in economic or other conditions.
Investments in Development and Construction of Projects. Certain Funds may invest in development and
construction projects, whose associated risks may include (i) abandonment of development opportunities;
(ii) construction costs of a property exceeding original estimates; (iii) occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable; (iv) financing may not be
available on favorable terms for development of a property; (v) construction and lease-up may not be
completed on schedule; and (vi) inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
Investments in Senior Housing and Healthcare Companies and Facilities. Certain Funds may invest in
entities whose primary business is to acquire, own, operate, sell, finance, or otherwise deal with skilled
nursing and/or assisted living facilities. Senior housing and healthcare companies and facilities are
vulnerable to changes in applicable law, and the risks that the population levels, economic conditions or
employment conditions may decline in the surrounding geographic area. Any of these developments
likely would have an adverse impact on the size or affluence of the tenant population in the area and a
negative impact on the occupancy rates, rent levels and property values.
Environmental Matters. Under various foreign, federal, state and local environmental laws and
regulations, a current or previous owner or operator of real estate may be required to investigate and clean
up hazardous or toxic substances or wastes, petroleum products or other pollutants or regulated materials,
or threatened releases of such materials, at such property, and may be held liable to a government entity
or to third parties for property damage and personal injury, and for investigation, cleanup and monitoring
costs incurred by such parties in connection with the contamination.
Cybersecurity. Recent events have illustrated the ongoing cybersecurity risks to which Formation Capital
and its portfolio companies may be subject. To the extent that a portfolio company is subject to cyber-
attack or other unauthorized access is gained to a portfolio company’s systems, such portfolio company
may be subject to substantial losses in the form of stolen, lost or corrupted (i) customer data or payment
information; (ii) customer or portfolio company financial information; (iii) portfolio company software,
contact lists or other databases; (iv) portfolio company proprietary information or trade secrets; or (v)
other items. In certain events, a portfolio company’s failure or deemed failure to address and mitigate
cybersecurity risks may be the subject of civil litigation or regulatory or other action. Any of such
circumstances could subject a portfolio company or the relevant Fund to substantial losses. In addition,
in the event that such a cyber-attack or other unauthorized access is directed at Formation Capital or one
of its service providers holding its financial or investor data, Formation Capital, its affiliates or the Funds
may also be at risk of loss, despite efforts to prevent and mitigate such risks under Formation Capital’s
information technology policies and infrastructure.
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There are certain actual or potential conflicts of interest that may exist or arise from the activities and
affiliations of Formation Capital and its supervised persons. This Brochure, and specifically this Item,
provides an overview of some of these activities and material conflicts of interest, as well as some of the
policies and procedures in place that are reasonably designed to mitigate these conflicts and to help ensure
that Formation Capital always acts in the best interests of the Funds.
While Formation Capital expects its policies and procedures to mitigate conflicts of interest, it cannot
eliminate all conflicts of interest. Please refer to the materials you have received with respect to a particular
Fund for additional information regarding the conflicts of interest that may be applicable to your
investment in that Fund. Please also refer to discussion of Formation Capital’s Code of Ethics in Item 11.
As of December 31, 2018, the following Formation Capital Affiliates act as a general partner or managing
member of a Fund or receive the carried interest distributions discussed in Item 6 above:
a. Formation Capital Asset Management, LLC, which provides asset management services and is the
manager of FC Highlands Investors, LLC;
b. Formation Capital Asset Management III, LLC, which provides asset management services and is
the manager of FC Investors XXI LLC;
c. Formation Capital Profit Sharing LLC, which receives profit sharing opportunities;
d. Formation Capital Profit Sharing II LLC, which receives profit sharing opportunities;
e. Formation Capital Profit Sharing III LLC, which receives profit sharing opportunities;
f. Safanad Senior Care II CC GP, LLC, the general partner of Safanad Senior Care Investment
Partnership II CC, LP;
g. Safanad Senior Care V GP, LLC, the general partner of Safanad Senior Care Investment
Partnership V, LP;
h. FC Eclipse Investment, LLC, the managing member of Eclipse Investment, LLC;
i. FC Skyfall GP Limited, the general partner of FC Skyfall, LP;
j. FC Domino General Partner, LLC, the general partner of Safanad Senior Care Investment
Partnership VI, LP;
k. FC Midlands General Partner, LLC, the general partner of Safanad Senior Care Investment
Partnership VIII, LP;
l. FC-RHA General Partner LLC, the general partner of Safanad Senior Care Investment Partnership
VII, LP;
m. FC Trident Manager, LLC, the managing member of FC Trident, LLC;
n.
o. FC Lending Fund Manager, LLC, the manager of FCA Finance, LLC, FCA Finance II, LLC, FCA
Finance III, LLC;
p. FC Encore GP, LLC the general partner of FC Encore, LP
Furthermore, Formation Capital personnel engage in outside business activities and have personal
investments that may create potential conflicts of interest. For example, certain principals of Formation
Capital are shareholders of Genesis HealthCare, Inc. (NYSE:GEN) and Mr. Whitman is on the Board of
Directors. Genesis HealthCare, Inc. is one of the leading post-acute providers in the U.S. and operates
skilled nursing facilities and assisted living facilities, as well as provides rehabilitation and respiratory
therapy services to an operating company owned by a Formation-sponsored Fund and various third-party
operators. Similarly, certain principals of Formation Capital are partial owners of and serve on the
management committee of Formation Development Group, LLC, which is an entity that provides building
project management services for new construction of senior housing facilities, including those that may
be acquired by portfolio companies of a Fund or may be invested in directly by the Funds.
Formation Capital personnel owe a fiduciary duty to the Funds managed by Formation Capital and its
affiliates and, if an employee sits on a Fund board or Investment Committee, the employee also owes a
fiduciary duty to the specific Fund. Formation Capital and its personnel must fulfill their fiduciary duties
without regard to their outside business activities and personal investments. Formation Capital requires
all of its employees to periodically report and update as necessary their outside business activities and
personal investments, and requires prior approval of certain outside business activities and personal
investments that may create a potential or actual conflict of interest with respect to Formation Capital, a
Fund or a portfolio companies. Certain Fund documents contain provisions that, among other things, may
impose additional voting restrictions or requirements that apply to matters where a board or investment
committee member may have an actual or potential conflict of interest. Under certain circumstances,
Formation Capital may have its employees who are conflicted voluntarily recuse themselves with respect
to a particular transaction or decision for a Fund.
Another area in which conflicts of interest may arise is with respect to transactions involving a Fund, or
an entity in which the Fund has an interest, and an affiliate of Formation Capital or its personnel. For
example, Formation Lending Group, LLC is a subsidiary of Formation Capital, and provides financing
and loan origination services to third parties, including a third-party that may be buying assets from a
Fund. Formation Healthcare Group, LLC provides clinical consulting services to portfolio companies of
the Funds and third parties. Formation Capital has policies and procedures in place with respect to
affiliated transactions that are intended to mitigate this potential conflict of interest. These policies and
procedures, among other things, require that all transactions between affiliated entities be conducted on
terms that are consistent with market terms, and that all affiliations and related material conflicts of interest
be disclosed to the board or other entity that evaluates transactions on behalf of a Fund. Furthermore, a
Fund’s governing documents will often contain special procedures that must be followed in order for a
Fund to enter an agreement with an entity that has an affiliation with Formation Capital or the Fund.
Formation Capital has a Conflicts Committee, which assists Formation Capital in its efforts to help ensure
that appropriate disclosure regarding potential or actual conflicts of interest is made to the Funds and their
boards, investment committees or other decision-making bodies, as applicable, to help them make
informed decisions. The Conflicts Committee may also review reports identifying potential or actual
conflicts of interest in connection with employees’ outside business activities, receipt of gifts and
entertainment and personal securities investments.
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Code of Ethics Formation Capital has adopted a Code of Ethics (the “Code”) that is incorporated into our compliance
policies and procedures and sets forth the basic policies of ethical conduct for all employees of Formation
Capital and their fiduciary duty to the Funds. Formation Capital’s employees are required to adhere to the
highest standards with respect to any potential conflicts of interest with the Funds and must always act in
each Fund’s best interests. We have established policies relating to, among other things, the confidentiality
of investor and Fund information, a prohibition on insider trading and conflicts of interest.
Additionally, we have established policies that require pre-approval of certain personal securities
transactions, prohibit investment in certain instruments and require quarterly and annual reporting of
personal securities transactions. Employees are also required to make quarterly and annual reports
regarding their receipt of gifts and entertainment, outside business activities and political contributions.
Employees must receive prior approval from the CCO prior to engaging in any outside business activity
that implicates a potential conflict of interest.
Certain knowledgeable employees may also invest in the Funds. As discussed above, certain employees
may also have a financial interest in or relationship with entities in which a Fund may invest or with which
a Fund may have a relationship. Please refer to Item 10 for a description of conflicts of interest that arise
in connection with employees’ investments and outside business activities, and the policies and procedures
in place that are reasonably designed to mitigate such conflicts of interest.
Fund investors may request a copy of the Code of Ethics by contacting the firm at (770) 754-9660.
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The Funds do not invest in marketable securities. If the need for a broker-dealer arises in the future,
Formation Capital will adopt a methodology reasonably designed to achieve best execution for the
transaction. Best execution generally means the broker-dealer’s ability to obtain best qualitative and
quantitative execution reasonably available under the circumstances.
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Formation Capital continuously monitors the investments of each Fund, and investors generally receive,
at a minimum, written quarterly reports on the Funds’ performance and/or financial information
concerning the Fund’s assets.
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As Formation Capital’s only clients are the Funds, we do not compensate any person for client referrals.
Formation Capital also does not engage solicitors, placement agents or other persons to refer potential
investors to the Funds.
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Formation Capital is deemed to have custody of the Funds’ assets as a result of an Affiliate acting as a
general partner or managing member of the Funds. As a result, Formation Capital maintains any
marketable securities, cash or cash equivalents at a qualified custodian. If a Fund is subject to an annual
financial audit by an independent accounting firm registered with, and subject to inspection by, the Public
Company Accounting Oversight Board, the audited financial statements are prepared in accordance with
US Generally Accepted Accounting Principles and are distributed to investors. If a Fund is subject to an
annual surprise audit by an independent accounting firm, investors will receive, at a minimum, quarterly
account statements from the Fund’s qualified custodian. Fund investors should carefully review those
statements for any errors or discrepancies and compare them against any reports received from Formation
Capital.
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Formation Capital manages Fund assets on a fully discretionary basis, subject to the terms and conditions
of each Fund’s Offering Documents. Generally, material decisions affecting a Fund require majority or
unanimous consent, as applicable, of the Fund’s members/limited partners, the Board of Managers or
Investment Committee, as set forth in each Fund’s governing documents.
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The Funds’ assets do not involve companies that issue proxies. Voting rights concerning material matters
that call for a vote or the consent of the limited partners or members (or Board of Mangers or Investment
Committee, as applicable) are set forth in each Fund’s governing documents.
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Formation Capital has no financial condition that is reasonably likely to impair its ability to meet
contractual commitments to the Funds and has not been the subject of a bankruptcy petition.
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Open Brochure from SEC website