Exhibit (g)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
This INVESTMENT SUB-ADVISORY AGREEMENT is dated and effective
as of this 1st day of February, 2002 (this "Agreement"), between Ferro Capital
LLC, a Delaware limited liability company (the "Subadviser") and Xxxxxxxxxx
Asset Management, LLC, a Delaware limited liability company (the "Adviser").
WHEREAS, the Adviser serves as the investment adviser to
Xxxxxxxxxx Partners Absolute Return Fund LLC, a Delaware limited liability
company (the "Company"), a closed-end, non-diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), pursuant to an investment advisory agreement between
the Adviser and the Company (the "Investment Advisory Agreement");
WHEREAS, the Adviser desires to retain the Subadviser to
furnish investment advisory services to the Company in connection with the
Adviser's investment management activities on behalf of the Company and is
authorized to do so pursuant to the terms of the Investment Advisory Agreement,
and the Subadviser is willing to furnish such services to the Adviser and the
Company;
NOW THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed between the Subadviser and the Adviser
as follows:
1 Appointment. The Adviser hereby appoints the Subadviser to
provide sub-investment advisory services to the Adviser with respect to the
assets of the Company for the periods and on the terms set forth in this
Agreement. The Subadviser accepts such appointment and agrees to furnish the
services set forth herein, for the compensation provided herein.
2 Subadviser Duties. Subject to the supervision of the
Adviser, the Subadviser shall have full discretionary authority as agent and
attorney-in-fact with respect to the assets of the Company, including authority
to: (a) determine from time to time what investments, securities or instruments
of any kind (including but not limited to interests in private investment
partnerships) will be purchased, retained or sold, what contracts will be
entered into by the Company and what portion of the assets will be invested or
held uninvested as cash; (b) exercise all rights privileges and other incidents
of ownership or possession with respect to the interest of the Company in
securities and other property and funds held or owned by the Company, including
without limitation the right to exercise voting rights of securities, and
possess, lend, and transfer the property of the Company; and (c) place orders
for the execution of such securities transactions with or through such brokers,
dealers, or issuers as the Subadviser may select. The Subadviser shall provide
the services under this Agreement in accordance with the
Company's registration statement filed with the Securities and Exchange
Commission ("SEC"), as that registration statement is amended from time to time.
The Adviser shall provide the Subadviser with a copy of each registration
statement promptly after it has been filed with the SEC. Investments by the
Subadviser shall conform with the provisions of Appendix B attached hereto, as
such may be revised from time to time by mutual consent of the the Adviser and
Subadviser. Subject to the foregoing, the Subadviser shall vote proxies with
respect to the securities and investments purchased with the assets of the
Company managed by the Subadviser. The Subadviser further agrees that it
shall:
a. conform with all applicable rules and regulations of the
SEC.
b. select brokers and dealers to execute portfolio
transactions for the Company and select the markets on or in which the
transaction shall be executed. In providing the Company with investment advisory
services, it is recognized that the Subadviser shall give primary consideration
to securing the most favorable price and efficient execution considering all
circumstances. Within the framework of this policy, the Subadviser may consider
the financial responsibility, research and investment information and other
research services and products provided by brokers or dealers who may effect or
be a party to any such transaction or other transactions to which the
Subadviser's other clients may be a party. It is understood that it is
desirable for the Company that the Subadviser have access to brokerage and
research services and products and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher cost to the Company
than broker-dealers that do not provide such brokerage and research services.
Therefore, in compliance with Section 28(e) of the Securities Exchange Act of
1934, as amended, the Subadviser is authorized to place orders for the purchase
and sale of securities for the Company with such brokers, that provide brokerage
and research products and/or services that charge an amount of commission for
effecting securities transactions in excess of the amount of commission another
broker would have charged for effecting that transaction, provided the
Subadviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research products
and/or services provided by such broker viewed in terms of either that
particular transaction or the overall responsibilities of the Subadviser for
this or other advisory accounts, subject to review by the Adviser and/or the
Company from time to time with respect to the extent and continuation of this
practice. It is understood that the information, services and products provided
by such brokers may be useful to the Subadviser in connection with the
Subadviser's services to other clients. On occasions when the Subadviser deems
the purchase or sale of a security to be in the best interest of the Company as
well as other clients of the Subadviser, the Subadviser, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price of lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, shall be made by
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the Subadviser in the manner the Subadviser considers to be the most equitable
and consistent with its fiduciary obligations to the Company and to such other
clients.
c. make available to the Adviser and the Company's Board of
Directors (the "Directors" and any of them, a "Director") promptly upon their
request all its investment records and ledgers relating to the Company to assist
the Adviser and the Company in their compliance with respect to the Company's
securities transactions as required by the Investment Company Act and the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), as well as
other applicable laws. The Subadviser shall furnish the Adviser and the
Company's Board of Directors such periodic and special reports with respect to
the Company as the Adviser and the Directors may reasonably request in writing.
d. maintain detailed records of the assets managed by the
Subadviser as well as all investments, receipts, disbursements and other
transactions made with such assets. Such records shall be open to inspection and
audit during Subadviser's normal business hours upon reasonable notice by any
agent or employee of the Adviser or the Company. The Subadviser shall provide
to the Adviser: i. monthly statements of the activities with regard to the
assets for the month and of the assets showing each asset at its cost and, for
each security listed on any national securities exchange, its value at the last
quoted sale price reported on the composite tape on the valuation date or, in
the cases of securities not so reported, by the principal exchange on which the
security traded or, if no trade was made on the valuation date or if such
security is not listed on any exchange, its value as determined under pricing
procedures adopted by the Company and provided to the Subadviser, and for any
other security or asset in a manner determined in good faith by the Subadviser
to reflect its then fair market value; ii. statements evidencing any purchases
and sales as soon as practicable after such transaction has taken place, and
iii. a quarterly review of the assets under management.
e. shall use its best judgment and efforts in rendering the
advice and services to the Adviser as contemplated by this Agreement.
3 Independent Contractor. The Subadviser shall, for all
purposes herein, be deemed to be an independent contractor, and shall, unless
otherwise expressly provided and authorized to do so, have no authority to act
for or represent the Company or the Adviser in any way, or in any way be deemed
an agent for the Adviser or the Company.
4 Expenses. During the term of this Agreement, the Subadviser
shall bear the cost of rendering the services to be performed by it under this
Agreement, including the costs relating to maintaining such staff and employing
or retaining such personnel and consulting with such other persons (including
its affiliates) as may be necessary to render the services to be provided
hereunder. The Subadviser shall not be responsible for any expenses of the
Adviser or the Company (as set forth in the
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Investment Advisory Agreement), except as provided in Section 7 below, and shall
be reimbursed by the Adviser to the extent that it incurs such expenses and is
not otherwise reimbursed by the Company.
5 Compensation. For the services provided to the Adviser, the
Adviser shall pay the Subadviser the fees as set forth in Appendix A hereto at
the times set forth in Appendix A hereto.
6 Books and Records; Custody. In compliance with the
requirements of Rule 31a-3 under the Investment Company Act, the Subadviser
hereby agrees that all records which it maintains on behalf of the Company
pursuant to Rule31a-1 and Rule 31a-2 under the Investment Company Act (if any)
are the property of the Company and further agrees to surrender promptly to the
Company or the Adviser any of such records upon the request of the Company or
the Adviser. The Subadviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the Investment Company Act the records maintained
by it on behalf of the Company pursuant to Rule 31a-1 under the Investment
Company Act (if any) and to preserve the records required by Rule 204-2 under
the Advisers Act for the period specified in such Rule.
Title to all investments shall be made in the name of the
Company, provided that for convenience in buying, selling, and exchanging
securities (stocks, bonds, commercial paper, etc.), title to such securities may
be held in the name of the Company's custodian bank, or its nominee. The Company
shall advise the Subadviser of the identity of its custodian bank and shall
give the Subadviser fifteen (15) days' written notice of any changes in such
custody arrangements.
Neither the Subadviser, nor any parent, subsidiary or related
firm, shall take possession of or handle any cash, securities, mortgages or
deeds of trust, or other indicia of ownership of the Company's investments, or
otherwise act as custodian of such investments. All cash and the indicia of
ownership of all other investments shall be held by the Company's custodian
bank.
The Company shall instruct its custodian bank to (a) carry out
all investment instructions as may be directed by the Subadviser with respect
thereto (which may be orally given if confirmed in writing); and (b) provide the
Subadviser with all operational information necessary for the Subadviser to
trade on behalf of the Company.
7 Subadviser's Liabilities. In the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
obligations or duties hereunder on the part of the Subadviser, the Subadviser
and any member, shareholder, director, officer or employee of the Subadviser,
or any of their affiliates, executors, heirs, assigns, successors or other legal
representative, shall not be subject to liability to the Adviser, any member of
the Adviser, or any of its affiliates, executors, heirs, assigns, successors or
other legal representative, the Company, and/or any member of the
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Company, for entering into this Agreement, and/or any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
The Adviser agrees to indemnify and hold harmless the
Subadviser, and the members, shareholders, directors, officers and employees of
each of them (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith) arising
out of the Indemnified Party's performance or non-performance of any duties
under, or the execution of, this Agreement; provided, however, that nothing
herein shall be deemed to protect any Indemnified Party against any liability to
which such Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties under
this Agreement.
8 Other Investment Activities of Subadviser. The Adviser
acknowledges that the Subadviser may have investment responsibilities or render
investment advice to, or perform other investment advisory services for, other
individuals or entities ("Affiliated Accounts"). Subject to the provisions of
Section 2 hereof, the Adviser agrees that the Subadviser may give advice or
exercise investment responsibility and take other action with respect to other
Affiliated Accounts which may differ from advice given or the timing or nature
of action taken with respect to the Company; provided, however, that the
Subadviser acts in good faith, and provided, further that it is the
Subadviser's policy to allocate, within its reasonable discretion, investment
opportunities to the Company's portfolio managed by the Subadviser over a
period of time on a fair and equitable basis relative to the Affiliated
Accounts, taking into account the investment objectives and policies of the
Company and any specific investment restrictions applicable thereto. The Adviser
acknowledges that one or more of the Affiliated Accounts may at any time hold,
acquire, increase, decrease, dispose of or otherwise deal with positions in
investments in which the Company may or may not have an interest from time to
time, whether in transactions which may involve the Company or otherwise. The
Subadviser shall have no obligation to acquire for the Company a position in
any investment which any Affiliated Account may acquire, and the Company shall
have no first refusal, co-investment or other rights in respect of any such
investment either for the Company or otherwise.
9 (a) Term. This Agreement shall become effective on the date
hereof. Unless terminated as herein provided, this Agreement shall remain in
full force and effective for a period of two (2) years from the date of this
Agreement, and shall continue in full force and effect for periods of one year
thereafter so long as such continuance is approved at least annually (i) by
either the Board of Directors of the Company or by a vote of a majority (as
defined in the Investment Company Act) of the outstanding voting securities of
the Company, and (ii) by the Adviser, and (iii) by the
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vote of a majority of the Board of Directors of the Company who are not parties
to this Agreement or "interested persons" (as defined in the Investment Company
Act) of any such party, cast in person at a meeting called for the purpose of
voting on such approval.
(b) Termination. This Agreement may be terminated at any time,
without payment of any penalty, by the Board of Directors of the Company or by
the vote of a majority (as defined in the Investment Company Act) of the
outstanding voting securities of the Company, or by the Adviser, on sixty (60)
days' written notice to the Subadviser, or by the Subadviser on like notice to
the Company and to the Adviser. Payment of fees earned through the date of
termination shall not be construed as a penalty.
(c) Termination by Assignment. This Agreement shall
automatically and immediately terminate in the event of any transfer or
assignment thereof, unless the assignment would not constitute an assignment
under Rule 2a-6 under the Investment Company Act.
10 Amendments. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought and no amendment of this Agreement shall be effective
until approved by a vote of a majority of the outstanding voting securities of
the Company, if such approval is required by applicable law.
11 Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute or rule, or shall be otherwise
rendered invalid, the remainder of this Agreement shall not be affected thereby.
12 Definitions. The terms "majority of the outstanding voting
securities" and "interested persons" shall have the meanings as set forth in the
Investment Company Act.
13 Notice of Limited Liability Company Agreement. The
Subadviser agrees that the Company's obligations under this Agreement shall be
limited to the Company and to its assets, and that the Subadviser shall not
seek satisfaction of any such obligation from the members of the Company nor
from any Director, officer, employee or agent of the Company.
14 Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
15 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without giving
effect to the conflict of laws principles thereof; provided that nothing herein
shall be construed to
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preempt, or to be inconsistent with, any federal law, regulation or rule,
including the Investment Company Act and the Advisers Act and any rules and
regulations promulgated thereunder.
16 Notices. Any notice under this Agreement shall be given in
writing and shall be deemed to have been duly given when delivered by hand, on
the date indicated as the date of receipt on a return receipt, or at time of
receipt if sent to the other party at the principal office of such party by
regular mail, commercial courier service, telex or telecopier.
17 Reports of the Company. The Adviser shall, from time to
time, furnish or otherwise make available to the Subadviser such financial
reports, proxy statements, policies and procedures and other information
relating to the business and affairs of the Company as the Subadviser may
reasonably require in order to discharge its duties and obligations hereunder.
18 Miscellaneous Terms.
This Agreement supersedes any prior agreement relating to the
subject matter hereof between the parties.
This Agreement may be executed in counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered, shall be deemed an original and all of which
counterparts shall constitute but one and the same agreement.
19 Use of Name. It is understood that the name of the
Subadviser or the name of any of its affiliates, or any derivative associated
with those names, are the valuable property of the Subadviser and its
affiliates and that the Company and/or the Company's distributor have the right
to use such name(s) or derivative(s) in offering materials and sales literature
of the Company so long as this Agreement is in effect, provided that the
Subadviser shall have the right to prior review of any such use. Upon
termination of this Agreement, the Company shall forthwith cease to use such
name(s) or derivative(s).
20 Receipt of Brochure. The Adviser and the Company have
received from the Subadviser the disclosure statement or "brochure" required to
be delivered pursuant to Rule 204-3 of the Advisers Act, which disclosure
statement or brochure was received by the Adviser and the Company more than 48
hours prior to entering into this Agreement.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed as of the day and year first above written.
Ferro Capital LLC
By: /s/ Xxxxx Xxxxx
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Name: Xxxxx Xxxxx
Title: Chairman & CEO
XXXXXXXXXX ASSET MANAGEMENT, LLC
By: /s/ Xxxx Xxxxxxx
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Name: Xxxx Xxxxxxx
Title: Chief Administrative Officer
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APPENDIX A
TO INVESTMENT SUB-ADVISORY AGREEMENT
Ferro Capital LLC
Subadviser to the Xxxxxxxxxx Partners Absolute Return Fund LLC
SCHEDULE OF FEES
Xxxxxxxxxx Asset Management, LLC will pay (or cause to be paid) to Ferro Capital
LLC the following portion of the 1% per annum Management Fee and 10% Performance
Fee (as defined in the Company's confidential private placement memorandum)
allocated to the Adviser from Xxxxxxxxxx Partners Absolute Return Fund LLC
under the Investment Advisory Agreement dated the date hereof between the
Adviser and the Company, without reference to any other fee splits, rebates or
allocations to which the Adviser may agree or be subject, promptly following
each date upon which such fees are payable to the Adviser:
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Net Unredeemed Portion of the Adviser's
Capital Contributions Fee Paid to
to the Company the Subadviser
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$0 - $100 million 65%
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$101 - $250 million 60%
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$251 - $500 million 55%
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over $500 million 50%
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The percentage allocation specified in the above table applies
to the entire monthly period(s) during which the Company's cumulative net cash
capital contributions reach the specified level. In the event that the
Investment Advisory Agreement is amended to lower either the Management Fee or
the Performance Fee, the compensation payable to the Subadviser shall be
calculated based on a 1% per annum Management Fee and 10% Performance Fee.
APPENDIX B
TO INVESTMENT SUB-ADVISORY AGREEMENT
Ferro Capital LLC
Subadviser to the Xxxxxxxxxx Partners Absolute Return Fund LLC
INVESTMENT OBJECTIVES AND GUIDELINES
Overall Investment Objective:
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The objective of the Xxxxxxxxxx Partners Absolute Return Fund LLC (the
"Company") is to provide investors with exposure to a diversified portfolio of
hedge funds that seeks to deliver returns with relatively low volatility and
relatively low correlation in comparison to major equity and debt markets.
Policy and Guidelines for Subadviser:
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The Subadviser shall adhere to the Overall Investment Objective and to policies
in the Company's confidential private placement memorandum. The Subadviser may
invest in a wide range of securities and other financial instruments and use a
broad array of investment techniques for hedging and non-hedging purposes.
Performance Objective for Subadviser:
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The Adviser shall evaluate the Subadviser with a frequency deemed appropriate
for the Subadviser's investment strategy and market conditions to determine
whether its investment program is consistent with the Company's investment
objective and whether its investment performance and other investment selection
criteria are satisfactory.
