To Investors and Prospective Investors
Gallatin Capital LLC (“We” or the “Company”) is a broker-dealer registered with the Securities and Exchange Commission and is a member organization in good standing with FINRA. We are serving as a private placement agent on behalf of certain domestic and offshore investment partnerships and other investment vehicles (whether in the form of limited liability companies, limited duration companies, corporations or otherwise), primarily those that make alternative investments (collectively, “Private Funds”). In addition, we may also serve as a private placement agent on behalf of corporate issuers of equity securities and debt instruments (hereinafter collectively referred to as the “Issuers,” and individually as an “Issuer”).
As a placement agent, we identify qualified prospective investors and introduce them to one or more Private Funds, or their respective investment managers on behalf of such Private Funds, or in the case of corporate equities and debt instruments, the corporate issuers thereof (individually, an “Issuer,” and collectively, the “Issuers”). We provide information to investors about the Issuers and otherwise serve as a liaison between the investors that we have introduced and the specific Issuer.
As a member organization of FINRA, we are required to inform potential investors whom we introduce to Issuers about certain relevant information concerning a prospective investment in a Private Fund or a privately placed debtor equity security of an Issuer.. The following information is provided to assist you in evaluating an investment in one or more of the Issuers that we may introduce to you, including, without limitation, one or more Private Funds or corporate issuers.
Definition of Hedge Fund
The term “hedge fund” although commonly used, has no precise legal or universally accepted definition. The term identifies an entity that holds a pool of securities and perhaps other assets, including futures, whose securities offerings are not registered under the Securities Act of 1933, as amended (the “1933 Act”). Many of the Private Funds we may introduce to you falls within this general definition of a “hedge fund.”
Risk Factors and Conflicts
The identification of attractive investment opportunities is difficult and involves a significant degree of uncertainty. An investment in a Private Fund or an equity security or debt instrument issued by a corporate issuer involves substantial risk and there is no guarantee against loss. There can be no assurance that any security will achieve its investment objectives. There exists a possibility that an investor could suffer a substantial or total loss as a result of an investment in a privately placed security. Prospective investors should be aware of the substantial risks of investing in any privately placed security, including investments in a hedge fund or private equity fund. Any person considering an investment in a privately placed security, must, either individually or together with his advisors, have the financial sophistication and expertise to evaluate the merits and risks of investing in such security. The risks and conflicts associated with an investment in any privately placed security should be carefully considered before determining whether to invest. Among the more significant risks and conflicts that are present in an investment in privately placed securities are the following, but are not all inclusive:
Lack of Protection under the Securities Laws. Privately placed securities have not been registered under the 1933 Act. Private Funds are generally not registered as “investment companies” under the Investment Company Act of 1940, as amended. The general partners and/or trading managers of such Private Funds may not be registered as investment advisers under the Investment Advisers Act of 1940, as amended, or under applicable state securities laws.. Likewise, the Issuers of the corporate equity securities and debt instruments for which we may serve as the private placement agent, may not have registered their securities under the Securities Act of 1933, as amended, or under applicable state securities laws, and/or become public reporting companies under the Securities Exchange Act of 1934, as amended. By definition, the subject equity securities and debt instruments that may be offered to you may not be publicly traded. As a result, investors in such Private Funds, or purchasers of such corporate equities and debt instruments, may not be accorded the protective measures provided by such legislation.
Principal Contracts. Certain Private Funds may be authorized to trade in principal contracts, including swaps and other derivative instruments that may not be regulated. Therefore, no protections are afforded under the applicable commodities laws.
Risk of Particular Investments. The general partners and/or trading managers of Private Funds, on behalf of such funds, may, unless otherwise specified in its offering memorandum, purchase low rated or unrated debt securities, foreign securities, or invest in privately offered or restricted securities. Such investments may involve greater volatility and more risk of principal and income; result in higher costs; be illiquid; and not be subject to exchange rules.
Use of Leverage. If applicable to any fund represented by the Company, the use of margin in Private Fund investment activities can exacerbate losses.
Short Sales. The general partners and/or trading managers of Private Funds may engage in short sales in which there is no limit to the amount of potential loss.
Futures. The general partners and/or trading managers of certain authorized Private Funds may employ futures as part of their investments for their funds. Futures markets are highly volatile and relatively small price movements may result in substantial losses.
Options. The general partners and/or trading managers of certain authorized Private Funds may engage in the trading of options. Options are speculative and, often, are highly leveraged.
Derivatives. The general partners and/or trading managers of certain authorized Private Funds may cause their funds to invest in derivative financial instruments that are subject to a variety of risks including counter-party, basis, interest-rate, settlement, legal and operational risks.
Substantial Fees and Expenses. Investors in Private Funds are frequently subject to substantial expenses. In addition, investors may be subject to a profit share allocation with respect to unrealized gains that may never be realized. Prospective investors should read the applicable Private Fund’s confidential Private Placement Memorandum for specific information about the amount of such expenses and profit share allocation before making an investment.
Activities of Affiliates. The general partners and/or trading managers of Private Funds, and affiliates of Issuers of privately placed securities, may have arrangements with affiliates thereof that could pose conflicts of interests. These conflicts may include, without limitation, an allocation of the same securities, options, derivative instruments, futures, etc. by certain general partners and/or trading managers of Private Funds of portions of their Private Funds to affiliates to purchase or sell the same investments and/or to execute orders on behalf of the subject Private Fund and other accounts that it or another affiliate may manage. Investors should always carefully review the “conflicts of interest” section in the confidential Private Placement Memorandum of the Private Fund or the Issuer of the privately placed investment in which they are considering an investment.
Other Advisors. Certain general partners and/or trading managers may allocate a portion or all of the assets of their Private Fund to independent advisors who have total investment discretion over those assets.
Speculative Position Limits. Limits established by the general partners and/or trading managers of certain Private Funds on maximum net long or net short positions may affect the positions held by such Private Fund in order to avoid exceeding those limits.
Illiquidity. Interests in privately placed securities, including an investment in a Private Fund, may be acquired for investment purposes only and are subject to transferability and resale restrictions.
Non-U.S. Trading. If applicable to any Private Fund represented by the Company, securities traded outside the U.S. involve a variety of risks that may include fluctuations in the exchange rate, currency risk, illiquidity, potentially higher costs, lack of investor protection and disclosure.
The foregoing does not purport to be a complete explanation of all the risks and conflicts associated with an investment in privately placed securities. Prospective investors should read all of the information set forth in the relevant confidential private offering memorandum and particularly the sections entitled “Conflicts of Interest” and “Risk Factors.” Investors in Private Funds should also review those sections dealing with such funds’ trading operations, charges and fees, transaction costs, and use of soft dollars.
Brokerage Commissions and Use of Soft Dollar Credits (Private Fund investment opportunities only).
The general partner and/or trading manager of certain Private Funds represented by the Company may direct certain broker-dealers and futures commission merchants (“FCMs”) through which the fund executes transactions on behalf of such funds, to pay all or a portion of the soft dollar commissions or credits generated by the fund’s transactions to persons or entities who provide research or who solicit investors on behalf of such fund (“Agents”), including the Company. As a result of these arrangements, a fund may pay higher commission rates to broker-dealers and FCMs that effect transactions for the fund than it would if the arrangements were not in place. In addition, the general partner and/or trading manager may have a conflict of interest in selecting broker-dealers and FCMs to execute fund transactions because it may prefer to execute transactions through broker-dealers and FCMs that pay Agents with soft dollar commissions or credits generated from portfolio transactions effected on behalf of the fund.
It could be that the brokerage allocation practices and policies of the general partner and/or the trading manager (including, arrangements whereby brokers provide research and brokerage services to the general partner, the trading manager and/or their affiliates for soft dollars) are not designed or expected to, and in many cases will not, satisfy the conditions and requirements necessary to fall within the safe harbor created by Section 28(e) of the Securities Exchange Act of 1934 which confers certain protection on money managers who use portfolio commissions from their customer’s accounts to obtain research and brokerage services. The safe harbor provides that certain conduct is not deemed a violation of law or a breach of fiduciary duty, for example, and relieves a money manager from the obligation of justifying commission payments for research and brokerage services on an account-by-account basis. Each investor, by his signature on a Private Fund’s subscription agreement, may be acknowledging and agreeing to the use of soft dollar commissions generated from such fund’s portfolio transactions to pay the Agents, possibly including the Company, for their selling efforts and related investor relation services.
Selling Agent Arrangements
The Company has entered into contractual arrangements with several Issuers to introduce prospective investors to such Issuers in consideration of an agreed upon fee. In the context of an investment in a Private Fund, such fees may be paid by the general partner and/or trading manager out of the compensation it receives from the fund, or in some cases indirectly through commission dollars paid by such fund to other broker-dealers and/or FCMs who, in turn, are directed by the general partners and/or trading manager, to pay a portion of the same to the Company. Although amounts payable to the Company varies, standard Agent fees tend to be in the range of 20% of fees received by the manager (for hedge funds, per annum against both management and incentive fees, and for private equity funds, against management fees over the investment period). Although the Company does not believe that its introduction of a specific Issuer, including any specific Private Fund, is influenced by the difference in compensation it may receive from a particular Issuer, prospective investors should be aware that such differences exist. Should a prospective investor be interested in the details of the specific compensation arrangement the Company has with one or more Issuers, or the amount of compensation it will receive from any particular Issuer, please contact the Company directly for a complete description of the compensation arrangements.
Documents Included and Additional Information
The Company or the Issuer has or will provide to you, as a prospective investor in a privately placed security, a copy of the confidential Private Placement Memorandum for that particular security. You should carefully read the memorandum in its entirety before determining whether to make such investment.
Business Continuity Plans
The Company has established a Business Continuity Plan which sets forth steps to be taken in the event of an internal (office fire or other accident) or external (terrorist attack or force majeure event) significant business disruption. As a firm focused primarily on the private placement of securities, our primary mission critical systems are the telephone and email which allows us to communicate with our issuer and investor clients. We have redundant communications capabilities at the home offices of our key personnel which would permit continued business activity under most circumstances. A full copy of our Business Continuity Plan is available to our investors upon request.
Dated: April 2016
THE OFFERING OF INVESTMENT INTERESTS IN A PRIVATELY PLACED SECURITY CAN BE MADE ONLY UPON DELIVERY OF A PRIVATE OFFERING MEMORANDUM. THIS NOTICE IS NOT SUCH A MEMORANDUM NOR IS IT A SUPPLEMENT OR ADDENDUM THERETO. POTENTIAL INVESTORS SHOULD READ AND FULLY UNDERSTAND SUCH MEMORANDUM IN ITS ENTIRETY BEFORE DETERMINING WHETHER TO INVEST. THE COMPANY HAS NOT MADE ANY REPRESENTATIONS OR WARRANTIES CONCERNING AN INVESTMENT IN ANY PRIVATELY PLACED SECURITY ANY INVESTMENT MADE BY ANY PERSON ON THE BASIS OF STATEMENTS OR REPRESENTATIONS NOT CONTAINED IN, OR INCONSISTENT WITH, INFORMATION IN THE ISSUER’S MEMORANDUM SHALL BE SOLELY AT THE RISK OF THE INVESTOR. THE COMPANY DOES NOT PROVIDE LEGAL OR TAX ADVICE. THE INFORMATION CONTAINED HEREIN SHOULD NOT BE CONSTRUED AS LEGAL OR TAX ADVICE. YOU SHOULD THEREFORE CONSULT WITH YOUR LEGAL OR TAX ADVISORS CONCERNING ANY SUCH QUESTIONS THAT YOU MAY HAVE.
THE COMPANY HAS NOT CONDUCTED AN INDEPENDENT REVIEW OF THE SECURITIES OFFERED BY ISSUERS THAT IT MAY REPRESENT AND THOUGH WE BELIEVE THAT THE INFORMATION CONTAINED IN SUCH RESPECTIVE PRIVATE PLACEMENT MEMORANDA IS ACCURATE AND COMPLETE, WE CANNOT ATTEST AS TO SUCH. THIS NOTICE HAS BEEN PREPARED SOLELY FOR THE BENEFIT OF PROPOSED INVESTORS INTRODUCED BY THE COMPANY AND ANY REPRODUCTION OF THIS NOTICE IN WHOLE OR PART, OR THE DIVULGENCE OF ITS CONTENTS, WITHOUT PRIOR WRITTEN CONSENT OF THE COMPANY, IS PROHIBITED.