Washington, D.C. 20549
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Registrant’s annual report transmitted to unit holders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1) is as follows:
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Financial Statements
Year Ended April 30, 2014
Contents
| Report of Independent Registered Public Accounting Firm | 1 |
| | |
| Consolidated Statement of Assets and Liabilities | 2 |
| | |
| Consolidated Statement of Operations | 3 |
| | |
| Consolidated Statements of Changes in Net Assets | 4 |
| | |
| Consolidated Statement of Cash Flows | 5 |
| | |
| Consolidated Financial Highlights | 6 |
| | |
| Consolidated Schedule of Investments | 7 |
| | |
| Notes to Consolidated Financial Statements | 10 |
| Ernst & Young LLP 560 Mission Street Suite 1600 San Francisco, CA 94105 | Tel: +1 415-894-8000 Fax: +1 415-894-9099 www.ey.com |
Report of Independent Registered Public Accounting Firm
To the Members and Board of Directors of
Ironwood Institutional Multi-Strategy Fund LLC
We have audited the accompanying consolidated statement of assets and liabilities of Ironwood Institutional Multi-Strategy Fund LLC (the “Fund”), including the consolidated schedule of investments, as of April 30, 2014, and the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, and the consolidated financial highlights for the periods indicated therein. These consolidated financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of April 30, 2014, by correspondence with the custodian, management of the investment funds, and others. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of Ironwood Institutional Multi-Strategy Fund LLC at April 30, 2014, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
June 24, 2014
A member firm of Ernst & Young Global Limited
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statement of Assets and Liabilities
April 30, 2014
| Assets | | | |
| Investments in investment funds, at fair value (cost $886,481,318) | | $ | 970,235,130 | |
| Cash | | | 121,001,417 | |
| Prepaid investments in investment funds | | | 46,500,000 | |
| Redemption receivable from investment funds | | | 348,912 | |
| Other assets | | | 23,959 | |
| Total assets | | | 1,138,109,418 | |
| | | | | |
| Liabilities | | | | |
| Payable on credit facility | | | 74,949,623 | |
| Subscriptions received in advance | | | 23,451,000 | |
| Subscriptions received in advance from Ironwood Multi-Strategy Fund LLC | | | 39,435,960 | |
| Payable to Adviser | | | 3,141,690 | |
| Accrued expenses | | | 101,099 | |
| Redemptions payable | | | 1,421,602 | |
| Redemptions payable to Ironwood Multi-Strategy Fund LLC | | | 148,764 | |
| Total liabilities | | | 142,649,738 | |
| | | | | |
| Net assets | | $ | 995,459,680 | |
| | | | | |
| Net assets consist of: | | | | |
| Paid-in capital | | | 965,325,905 | |
| Accumulated net investment loss | | | (59,750,967 | ) |
| Accumulated undistributed net realized gain from investments | | | 6,130,930 | |
| Net unrealized appreciation on investments | | | 83,753,812 | |
| Net assets | | $ | 995,459,680 | |
| | | | | |
Net asset value per unit: 893,721.46 units issued and outstanding, no par value | | $ | 1,113.84 | |
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statement of Operations
Year Ended April 30, 2014
| Investment Income | | | |
| Interest | | $ | 384 | |
| | | | | |
| Expenses | | | | |
| Advisory fees | | | 8,111,854 | |
| Interest expense | | | 493,623 | |
| Expense limitation recapture | | | 487,856 | |
| Fund administrative fees | | | 404,237 | |
| Professional fees | | | 417,077 | |
| Filing fees | | | 217,909 | |
| Custody fees | | | 153,734 | |
| Directors’ fees | | | 50,000 | |
| Other | | | 116,042 | |
| Total expenses | | | 10,452,332 | |
| | | | | |
| Net investment loss | | | (10,451,948 | ) |
| | | | | |
| Realized and unrealized gain from investments | | | | |
| Net realized gain from investments in investment funds | | | 10,468,270 | |
| Net change in unrealized appreciation on investments in investment funds | | | 53,697,749 | |
| Net realized and unrealized gain from investments | | | 64,166,019 | |
| Net increase in net assets resulting from operations | | $ | 53,714,071 | |
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statements of Changes in Net Assets
| | | Year | | | Year | |
| | | Ended | | | Ended | |
| | | April 30, 2014 | | | April 30, 2013 | |
| | | | | | | |
| Net increase in net assets resulting from operations | | | | | | |
| Net investment loss | | $ | (10,451,948 | ) | | $ | (3,296,872 | ) |
Net realized gain from investments in investment funds | | | 10,468,270 | | | | 1,101,413 | |
Net change in unrealized appreciation on investments in investment funds | | | 53,697,749 | | | | 24,425,496 | |
| Net increase in net assets resulting from operations | | | 53,714,071 | | | | 22,230,037 | |
| | | | | | | | | |
| Distributions to Members | | | | | | | | |
| Distributions from net investment income | | | (40,351,521 | ) | | | (8,710,932 | ) |
| Decrease in net assets from distributions to Members | | | (40,351,521 | ) | | | (8,710,932 | ) |
| | | | | | | | | |
| Member transactions | | | | | | | | |
Subscriptions (representing 544,865.30 and 235,278.31 units, respectively) | | | 601,980,071 | | | | 248,561,471 | |
Reinvestment of distributions (representing 35,076.52 and 8,264.48 units, respectively) | | | 37,847,915 | | | | 8,466,036 | |
Redemptions (representing 33,508.55 and 1,851.20 units, respectively) | | | (36,674,859 | ) | | | (1,932,319 | ) |
| Net increase in net assets from Member transactions | | | 603,153,127 | | | | 255,095,188 | |
| | | | | | | | | |
| Total increase in net assets | | | 616,515,677 | | | | 268,614,293 | |
| Net assets, beginning of year | | | 378,944,003 | | | | 110,329,710 | |
| Net assets, end of year | | $ | 995,459,680 | | | $ | 378,944,003 | |
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statement of Cash Flows
Year Ended April 30, 2014
| Operating activities | | | |
| Net increase in net assets resulting from operations | | $ | 53,714,071 | |
Adjustments to reconcile net increase in net assets resulting from
operations to net cash used in operating activities: | | | | |
| Net realized gain from investments in investment funds | | | (10,468,270 | ) |
| Net change in unrealized appreciation on investments in investment funds | | | (53,697,749 | ) |
| Purchase of investments in investment funds | | | (658,670,900 | ) |
| Proceeds from sales of investments in investment funds | | | 110,503,661 | |
| Increase in prepaid investments in investment funds | | | (20,450,000 | ) |
| Decrease in redemption receivable from investment funds | | | 293,179 | |
| Increase in other assets | | | (9,756 | ) |
| Increase in payable to Adviser | | | 1,965,800 | |
| Decrease in other liabilities | | | (12,500 | ) |
| Increase in accrued expenses | | | 50,779 | |
| Net cash used in operating activities | | | (576,781,685 | ) |
| | | | | |
| Financing activities | | | | |
| Subscriptions, net of change in subscriptions received in advance | | | 651,371,031 | |
| Redemptions, net of change in redemptions payable | | | (35,164,700 | ) |
| Dividend distribution | | | (2,503,606 | ) |
| Proceeds from credit facility | | | 548,600,000 | |
| Repayments of credit facility | | | (498,634,377 | ) |
| Net cash provided by financing activities | | | 663,668,348 | |
| | | | | |
| Net change in cash | | | 86,886,663 | |
| Cash at beginning of year | | | 34,114,754 | |
| Cash at end of year | | $ | 121,001,417 | |
| | | | | |
| Supplemental disclosure of cash flow information | | | | |
| Interest paid | | $ | 493,623 | |
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Financial Highlights
| | | | | | | | | | | | Period from | |
| | | Year | | | Year | | | Year | | | January 1, | |
| | | Ended | | | Ended | | | Ended | | | 2011* to | |
| | | April 30, 2014 | | | April 30, 2013 | | | April 30, 2012 | | | April 30, 2011 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For a unit outstanding throughout the year: | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 1,091.15 | | | $ | 1,044.82 | | | $ | 1,044.62 | | | $ | 1,000.00 | |
Net investment loss(a) | | | (18.05 | ) | | | (15.42 | ) | | | (21.35 | ) | | | (6.79 | ) |
Net realized gain and change in unrealized appreciation on investments in investment funds | | | 110.84 | | | | 119.42 | | | | 32.25 | | | | 51.41 | |
Net increase in net assets resulting from operations | | | 92.79 | | | | 104.00 | | | | 10.90 | | | | 44.62 | |
| Distributions paid | | | | | | | | | | | | | | | | |
| Net investment income | | | (70.10 | ) | | | (57.67 | ) | | | (10.70 | ) | | | - | |
| Net asset value, end of year | | $ | 1,113.84 | | | $ | 1,091.15 | | | $ | 1,044.82 | | | $ | 1,044.62 | |
| | | | | | | | | | | | | | | | | |
Total return(b) | | | 8.71 | % | | | 10.31 | % | | | 1.09 | % | | | 4.46 | % |
| | | | | | | | | | | | | | | | | |
Ratio of total expenses to average net assets before expense waivers and reimbursements (c) | | | 1.56 | % | | | 1.71 | % | | | 2.85 | % | | | 5.79 | % |
Ratio of total expenses to average net assets after expense waivers and reimbursements (c) | | | 1.56 | % | | | 1.59 | % | | | 2.07 | % | | | 1.98 | % |
Ratio of net investment loss to average net assets(d) | | | (1.56 | %) | | | (1.59 | %) | | | (2.07 | %) | | | (1.98 | %) |
| | | | | | | | | | | | | | | | | |
| Portfolio turnover | | | 17.74 | % | | | 8.67 | % | | | 3.92 | % | | | 0.43 | % |
| | | | | | | | | | | | | | | | | |
Net assets, end of year (in thousands) | | $ | 995,460 | | | $ | 378,944 | | | $ | 110,330 | | | $ | 31,129 | |
(a) Calculated based on the average units outstanding methodology.
(b) Total return assumes a subscription of a unit in the Fund at the beginning of the period and a repurchase of the unit on the last day of the period, and assumes re-investment of all distributions during the period.
(c) Ratios do not reflect the Fund’s proportionate share of the expenses of the investment funds.
(d) Ratios do not reflect the Fund’s proportionate share of the income and expenses of the investment funds.
* Commencement of operations
The above ratios and total return have been calculated for the Members taken as a whole. Ratios for periods less than a year have been annualized. An individual Member’s return and ratios may vary from these returns and ratios due to the timing of unit transactions.
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Schedule of Investments
April 30, 2014
| | | | | | | | | | | | Next | | |
| | | | | | | | | | | | Available | | |
| | | | | | | | | Percent of | | | Redemption | | |
| Description | | Cost | | | Fair Value | | | Net Assets | | | Date (1) | | Liquidity (2) |
| | | | | | | | | | | | | | |
| Investment Funds | | | | | | | | | | | | | |
| Cayman Islands: | | | | | | | | | | | | | |
| Relative Value: | | | | | | | | | | | | | |
| Citadel Kensington Global Strategies Fund Ltd. | | $ | 82,031,146 | | | $ | 93,968,975 | | | | 9.43 | % | | 6/30/2014 | | Quarterly (9) |
| D.E. Shaw Composite International Fund | | | 45,232,762 | | | | 53,115,714 | | | | 5.34 | | | 6/30/2014 | | Quarterly (3) |
| HBK Multi-Strategy Offshore Fund Ltd. | | | 43,834,503 | | | | 44,859,764 | | | | 4.51 | | | 6/30/2014 | | Quarterly (4) |
| Hutchin Hill Capital Offshore Fund, Ltd. | | | 64,593,750 | | | | 71,755,179 | | | | 7.21 | | | 6/30/2014 | | Quarterly (4) |
| KLS Diversified Fund Ltd. | | | 16,800,000 | | | | 17,782,553 | | | | 1.79 | | | 6/30/2014 | | Quarterly |
| OZ Overseas Fund II, Ltd. | | | 400,000 | | | | 488,297 | | | | 0.05 | | | 6/30/2014 | | Annual |
| Total Relative Value | | | 252,892,161 | | | | 281,970,482 | | | | 28.33 | | | | | |
| | | | | | | | | | | | | | | | | |
| Market Neutral and Hedged Equity: | | | | | | | | | | | | | | | | |
| Citadel Global Equities Fund Ltd. | | | 23,136,933 | | | | 25,906,273 | | | | 2.60 | | | 5/31/2014 | | Monthly (5) |
| Millennium International, Ltd. | | | 79,822,870 | | | | 84,498,649 | | | | 8.49 | | | 6/30/2014 | | Quarterly (4) |
| Rosemont Offshore Fund, Ltd. | | | 8,839,391 | | | | 8,699,559 | | | | 0.87 | | | 6/30/2014 | | Quarterly |
| Visium Global Offshore Fund, Ltd. | | | 25,000,000 | | | | 24,074,833 | | | | 2.42 | | | 5/31/2014 | | Monthly |
| Total Equity Market Neutral and Hedged Equity | | | 136,799,194 | | | | 143,179,314 | | | | 14.38 | | | | | |
| | | | | | | | | | | | | | | | | |
| Event-Driven: | | | | | | | | | | | | | | | | |
| Elliott International Limited | | | 60,325,000 | | | | 66,764,003 | | | | 6.71 | | | 6/30/2014 | | Semi-Annual (6) |
| Eton Park Overseas Fund, Ltd. | | | 992 | | | | 761 | | | | 0.00 | | | n/a | | Other (7) |
| HG Vora Special Opportunities Fund, Ltd. | | | 42,500,000 | | | | 45,069,677 | | | | 4.53 | | | 6/30/2014 | | Monthly |
| JMB Capital Partners Offshore, Ltd. | | | 31,000,000 | | | | 30,689,878 | | | | 3.08 | | | 3/31/2015 | | Annually |
| Magnetar Capital Fund II Ltd | | | 53,389,858 | | | | 57,601,257 | | | | 5.79 | | | 6/30/2014 | | Quarterly (3) |
| Magnetar Equity Opportunities Fund Ltd. | | | 177,625 | | | | 295,747 | | | | 0.03 | | | 5/31/2014 | | Monthly |
| Magnetar Global Event Driven Fund Ltd. | | | 35,200,000 | | | | 37,315,128 | | | | 3.75 | | | 6/30/2014 | | Quarterly (4) |
| Panning Overseas Fund, Ltd. | | | 36,150,000 | | | | 38,098,081 | | | | 3.83 | | | 6/30/2014 | | Quarterly (4) |
| Roystone Capital Offshore Fund Ltd. | | | 39,000,000 | | | | 41,303,839 | | | | 4.15 | | | 6/30/2014 | | Quarterly (4) |
| Suvretta Offshore Fund, Ltd | | | 40,100,000 | | | | 43,902,987 | | | | 4.41 | | | 6/30/2014 | | Quarterly |
| XPI Holding I Ltd | | | 61,288 | | | | 74,256 | | | | 0.01 | | | n/a | | Other (7) |
| Total Event-Driven | | | 337,904,763 | | | | 361,115,614 | | | | 36.29 | | | | | |
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Schedule of Investments (continued)
April 30, 2014
| | | | | | | | | | | | Next | | |
| | | | | | | | | | | | Available | | |
| | | | | | | | | Percent of | | | Redemption | | |
| Description | | Cost | | | Fair Value | | | Net Assets | | | Date (1) | | Liquidity (2) |
| | | | | | | | | | | | | | |
| Investment Funds (continued) | | | | | | | | | | | | | |
| Cayman Islands (continued): | | | | | | | | | | | | | |
| Distressed and Credit Securities: | | | | | | | | | | | | | |
| Cerberus International SPV, Ltd | | $ | 2,568,014 | | | $ | 4,028,859 | | | | 0.40 | % | | n/a | | Other (7) |
| MidOcean Credit Opportunity Offshore Fund, Ltd | | | 4,450,000 | | | | 5,123,692 | | | | 0.51 | | | 6/30/2014 | | Quarterly |
| Monarch Debt Recovery Fund Ltd | | | 44,532,500 | | | | 50,445,016 | | | | 5.07 | | | 6/30/2014 | | Annually |
| Monarch Structured Credit Fund Ltd | | | 2,368,005 | | | | 2,816,296 | | | | 0.28 | | | n/a | | Other (8) |
| Monarch Structured Credit Fund Ltd Series II | | | 745,018 | | | | 1,096,376 | | | | 0.11 | | | n/a | | Other (8) |
| Monarch Structured Credit Fund Ltd Series IV | | | 8,712,588 | | | | 9,638,599 | | | | 0.97 | | | n/a | | Other (8) |
| Silver Point Capital Offshore Fund, Ltd. | | | 45,519,291 | | | | 53,795,316 | | | | 5.40 | | | 6/30/2014 | | Annually |
| Total Distressed and Credit Securities: | | | 108,895,416 | | | | 126,944,154 | | | | 12.74 | | | | | |
| | | | | | | | | | | | | | | | | |
| Total Cayman Islands | | | 836,491,534 | | | | 913,209,564 | | | | 91.74 | | | | | |
| | | | | | | | | | | | | | | | | |
| British Virgin Islands: | | | | | | | | | | | | | | | | |
| Event-Driven: | | | | | | | | | | | | | | | | |
| Perry Partners International, Inc. | | | 49,306,812 | | | | 56,004,058 | | | | 5.63 | | | 6/30/2014 | | Quarterly (4) |
| Distressed and Credit Securities: | | | | | | | | | | | | | | | | |
| King Street Capital, Ltd. | | | 10,477 | | | | 11,146 | | | | 0.00 | | | n/a | | Other (7) |
| | | | | | | | | | | | | | | | | |
| Total British Virgin Islands | | | 49,317,289 | | | | 56,015,204 | | | | 5.63 | | | | | |
| | | | | | | | | | | | | | | | | |
| Bahamas: | | | | | | | | | | | | | | | | |
| Distressed and Credit Securities: | | | | | | | | | | | | | | | | |
| Cerberus International, Ltd. | | | 672,495 | | | | 1,010,362 | | | | 0.10 | | | n/a | | Other (7) |
| | | | | | | | | | | | | | | | | |
| Total Bahamas | | | 672,495 | | | | 1,010,362 | | | | 0.10 | | | | | |
| | | | | | | | | | | | | | | | | |
| Total investments in investment funds | | $ | 886,481,318 | | | $ | 970,235,130 | | | $ | 97.47 | % | | | | |
| | | | | | | | | | | | | | | | | |
| Other assets, less liabilities | | | | | | | 25,224,550 | | | | 2.53 | | | | | |
| | | | | | | | | | | | | | | | | |
| Net assets | | | | | | $ | 995,459,680 | | | | 100.00 | % | | | | |
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Schedule of Investments (continued)
April 30, 2014
(1) Investments in investment funds may be composed of multiple tranches. The Next Available Redemption Date relates to the earliest date after April 30, 2014 that a redemption from a tranche is available without a redemption fee.
(2) Available frequency of redemptions after initial lock-up period, if any. Different tranches may have different liquidity terms. Redemption notice periods range from thirty to ninety days. Lock up periods range from twelve to thirty months. The Adviser cannot estimate when restrictions will lapse for any fund level gates, suspensions or side pockets.
(3) Subject to a 12.5% quarterly investor level gate.
(4) Subject to a 25% quarterly investor level gate.
(5) Subject to a 16.67% monthly investor level gate.
(6) Approximately 13% of this investment is subject to a 25% semi-annual investor level gate.
(7) The investment funds do not have set redemption timeframes but are liquidating investments and making distributions as underlying investments are sold.
(8) The investment fund will attempt to liquidate all of its assets and distribute proceeds during the 12 month period following the end of the investment period.
(9) Approximately 78% of this investment is available for redemption quarterly subject to a 10% investor level gate. If fund level redemptions are less than 5%, then the 10% investor level gate does not apply. The remaining 22% of this investment is available every 18 months.
The accompanying notes are an integral part of these financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
1. Organization
Ironwood Institutional Multi-Strategy Fund LLC (the “Fund”) was organized under the laws of the state of Delaware as a limited liability company on August 25, 2010. The Fund commenced operations on January 1, 2011, and operates pursuant to the terms and conditions of the amended and restated limited liability company agreement (“the LLC Agreement”). While non-diversified for the Investment Company Act of 1940 (“the 1940 Act”) purposes, the Fund intends to comply with the diversification requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (“the Code”), as such requirements are described in more detail below.
The Fund’s investment objective is capital appreciation with limited variability of returns. The Fund attempts to achieve this objective by generally allocating capital among a number of pooled entities that are organized in non-U.S. jurisdictions and classified as corporations for U.S. federal income tax purposes. Each is managed by an independent investment adviser pursuant to relative value investment strategies or other techniques, and subject to various risks.
Ironwood Capital Management Corporation serves as the Fund’s investment adviser (“the Adviser”) and is responsible for providing day-to-day investment management services to the Fund, subject to the supervision of the Fund’s Board of Directors (“the Board”). The Adviser is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 (“the Advisers Act”). The Fund has no fixed termination date and will continue unless the Fund is otherwise terminated under the terms of the LLC Agreement or unless, and until, required by law. The Board has overall responsibility for monitoring and overseeing the Fund’s investment program and its management and operations. A majority of the members of the Board are not “interested persons” (as defined by the 1940 Act) of the Fund or the Adviser.
The Fund is a “Master fund” in a “Master-Feeder” structure whereby a feeder fund invests substantially all of its assets in the Fund. At April 30, 2014, Ironwood Multi-Strategy Fund LLC, a feeder fund to the Fund, represented 61.30% of the Fund’s net assets.
Foreside Fund Services, LLC acts as the distributor (“the Distributor”) of the Units on a best-efforts basis, subject to various conditions. Units were offered at a price equal to $1,000 per Unit on the initial date on which Units were sold and, thereafter, at the current net asset value per Unit on the first business day of each month, plus any applicable sales charge. The Distributor has entered into, and may continue to enter into, selected dealer agreements with various brokers and dealers (“Selling Agents”) that agreed to participate in the distribution of the Fund’s Units.
Each prospective investor (and Members who subscribe for additional Units) is required to certify that the Units purchased are being acquired directly or indirectly for the account of either a natural person who is an “accredited investor”, as defined in Rule 501 of the Securities and
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
1. Organization (continued)
Exchange Commission Regulation D, or a non-natural person that is a “qualified client”, as defined in Rule 205-3 of the Advisers Act, as amended. The Fund and/or the Selling Agent may impose additional eligibility requirements for Members who purchase Units. The minimum initial investment is $250,000, subject to waiver by the Adviser to an amount not less than $25,000. The minimum subsequent investment is $50,000, subject to waiver by the Adviser. Members may purchase their Units only through a Selling Agent or directly from the Fund.
Investments may be subject to a sales charge (a “Sales Charge”) of up to 2.00%, subject to waiver or adjustment (i) for investment in Units by affiliates of the Adviser; (ii) for certain institutional investors who have previously invested in private investment vehicles managed by the Adviser; (iii) where a prospective Member is purchasing Units through a broker-dealer participating in the offering that has agreed to waive all or a portion of such Sales Charge for all investors purchasing Units through such broker-dealer; or (iv) where a broker-dealer has agreed to waive all or a portion of such Sales Charge for particular sub-sets of investors purchasing Units through such broker-dealer (i.e. where a particular broker-dealer has certain established “breakpoints” for investors making an investment above a certain threshold). The Sales Charge is in addition to the subscription price for Units and does not form a part of an investor’s investment in the Fund. All or a portion of the Sales Charge relating to Units is paid directly to the Selling Agent that assisted in the placement of such Units.
The Board, in its sole and absolute discretion, may determine to cause the Fund to make a tender offer to repurchase Members’ Units (each, an “Offer”) at net asset value per Unit on a repurchase date. In determining whether the Fund should make an Offer to repurchase Units from Members in response to repurchase requests, the Board will consider, among other things, the recommendation of the Adviser. Each such repurchase offer will generally apply to up to 10% of the net assets of the Fund. In an Offer, the Board may determine to cause the Fund to repurchase less than the full amount of Units that Members requested to be repurchased. The Adviser expects that it will recommend to the Board that the Fund make an Offer to repurchase Units from Members semi-annually on each June 30 and December 31 (a “Repurchase Date”) (or if such date is not a business day, on the immediately preceding business day). A Member who tenders for repurchase such Member’s Units during the first year following such Member’s initial or any subsequent capital contribution will be subject to a fee of 5% of the value of the Units repurchased by the Fund, payable to the Fund. If a Member makes an additional subscription, a separate lock-up period also shall be deemed to run from the date of such subscription for additional Units, but that separate lock-up period shall apply only to those additional Units. The Board may, in certain limited instances where the Board has determined that the remaining Members will not be materially and adversely affected or prejudiced, waive the imposition of the early repurchase fee. Any such waiver does not imply that the early repurchase fee will be waived at any time in the future. Members who tender a portion of their Units, up to 95% of such Member’s Units (defined as a specific
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
1. Organization (continued)
dollar value in their Offer Acceptances (“Offer Acceptances”)), and which portion is repurchased by the Fund, will receive the specified dollar amount equal to the net asset value of such Units repurchased by the Fund. Promptly after the Repurchase Date, each Member whose Units or portion thereof have been repurchased will be given a non-interest bearing, non-transferable promissory note issued by the Fund entitling such Member to be paid an amount equal to 100% of the unaudited net asset value of such Member’s repurchased Units, determined as of the Repurchase Date (after giving effect to all allocations to be made as of that date to such Member, including any Advisory Fee allocable to such Units). The note will entitle the Member to be paid within 90 calendar days after the Repurchase Date (a “Payment Date”).
If a Member has tendered for repurchase 95% or more of the Units held by such Member in an Offer Acceptance and 95% or more of such Member’s Units are repurchased by the Fund, such Member shall receive cash or a non-interest bearing, non-transferable promissory note issued by the Fund in an amount equal to 95% of the estimated unaudited net asset value of such Member’s Units being repurchased, determined as of the Repurchase Date (after giving effect to all allocations to be made as of that date to such Member’s Units, including any Advisory Fee allocable to such Units), which will be paid on or prior to the Payment Date (an “Initial Payment”); and a non-interest bearing, non-transferable promissory note issued by the Fund entitling such Member to up to the remaining 5% of the estimated unaudited net asset value of such Member’s Units being repurchased, determined as of the Repurchase Date (“the Subsequent Payment”). Following the later of the completion of the Fund’s annual audit, or such longer period as the Board in its discretion deems necessary to protect the interests of the remaining Members, the amount of the Subsequent Payment will be adjusted so that the sum of the Initial Payment and the Subsequent Payment is equal to 100% of the final audited net asset value of such Member’s Units being repurchased, determined as of the Repurchase Date and the as-adjusted Subsequent Payment will be paid to such Member.
2. Significant Accounting Policies
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Such policies are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements, including the estimated fair value of investments. Actual results could differ from those estimates.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
2. Significant Accounting Policies (continued)
The Fund invests approximately 0.05% of its assets in Ironwood Multi-Strategy Fund Ltd., (the “CFC”) a Cayman Islands controlled foreign corporation which is wholly owned by the Fund. The CFC is used to invest in investment funds which do not allow United States entities to invest directly. The consolidated financial statements include the results of the Fund and CFC, after the elimination of all material intercompany balances and transactions.
Net Asset Value Determination
The net asset value of the Fund is determined as of the close of business at the end of any fiscal period, generally monthly, in accordance with the valuation principles set forth below or as determined pursuant to policies established by the Board.
The Board has approved procedures pursuant to which the Fund values its investments in investment funds at fair value. See Note 4 for more information.
In the normal course of business, the Fund maintains its cash balances in financial institutions, which at times may exceed federally insurable limits. The Fund is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf. The Adviser monitors the financial condition of such financial institutions and does not anticipate any losses from these counterparties. As of April 30, 2014, the Fund holds cash accounts with entities that are affiliated with the Fund’s custodian and the Fund’s administrator.
Income Recognition and Expenses
The Fund recognizes income and records expenses on an accrual basis. Income, expenses and realized and unrealized gains and losses are recorded monthly. The changes in investment funds’ net asset values are included in net change in unrealized appreciation/depreciation on investments in investment funds in the consolidated statement of operations. Realized gain (loss) from investments in investment funds is calculated using the specific identification methodology.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
2. Significant Accounting Policies (continued)
The Fund currently complies, and intends to continue to comply, with the requirements of Subchapter M of the Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its Members. Therefore, no provision for federal income taxes is required. The Fund files tax returns with the U.S. Internal Revenue Service and various states. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. The Fund has concluded there are no significant uncertain tax positions that would require recognition in the financial statements as of April 30, 2014. If applicable, the Fund recognizes interest accrued related to liabilities for unrecognized tax benefits in interest expense and penalties in other expenses in the consolidated statement of operations. Generally, tax authorities can examine all tax returns filed for the last three tax years.
The Fund has a tax year that ends on December 31.
The Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) modernizes several tax provisions related to Regulated Investment Companies (“RICs”) and their shareholders. One key change made by the Modernization Act is that capital losses will generally retain their character as short-term or long-term and may be carried forward indefinitely to offset future gains. These losses are utilized before other capital loss carry forwards that expire.
At December 31, 2013, the Fund had available for federal income tax purposes unused short-term capital losses that will not expire of $1,602,377 and long-term capital losses that will not expire of $414,632.
As of April 30, 2014, the aggregate cost and related gross unrealized appreciation and depreciation for tax purposes were as follows:
| Cost of investments for tax purposes | | $ | 959,092,042 | |
| | | | | |
| Gross tax unrealized appreciation | | | 13,901,190 | |
| Gross tax unrealized depreciation | | | (2,758,102 | ) |
| Net tax unrealized appreciation/depreciation on investments | | $ | 11,143,088 | |
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
2. Significant Accounting Policies (continued)
Permanent differences, primarily due to the sale of marked-to-market passive foreign investment companies (“PFICs”) resulted in the following reclassifications among the Fund’s components of net assets at December 31, 2013:
| Accumulated net investment loss | | $ | 4,954,098 | |
| Accumulated net realized loss from investments | | $ | (4,954,908 | ) |
Distribution of Income and Gains
The Fund declares and pays dividends annually from net investment income. Net realized gains, if any, are distributed at least annually. Distributions from net realized gains for book purposes may include short-term capital gains, which are included as ordinary income for tax purposes.
In order to satisfy the diversification requirements under Subchapter M of the Code, the Fund generally invests its assets in investment funds organized outside the United States that are treated as corporations for U.S. tax purposes and are expected to be classified as PFICs. As such, the Fund expects that distributions generally will be taxable as ordinary income to the Members.
The tax character of distributions paid during the tax year ended December 31, 2013, was as follows:
| Ordinary income | | $ | 40,351,521 | |
| Long-term capital gain | | $ | - | |
As of December 31, 2013, the components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary income | | $ | 17,522,390 | |
| Accumulated capital losses | | $ | (2,017,009 | ) |
| Unrealized appreciation (depreciation) | | $ | (140,559 | ) |
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
2. Significant Accounting Policies (continued)
Dividend Reinvestment Plan
Each Member whose Units are registered in its own name will have all income dividends and capital gains distributions automatically reinvested in additional Units unless such Member specifically elects to receive all income dividends and capital gain distributions in cash.
New Accounting Pronouncement
In June 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-08 (“ASU 2013-08”), Financial Services — Investment Companies (Topic 946), Amendments to the Scope, Measurement, and Disclosure Requirements. ASU 2013-08 clarifies the characteristics of an investment company, provides comprehensive guidance for assessing whether an entity is an investment company and requires an investment company to measure noncontrolling ownership interests in other investment companies at fair value. In addition, ASU 2013-08 requires additional disclosures that the entity is an investment company, information about changes in an entity’s status an investment company, and information about financial support provided to an investee. The guidance is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. The adoption of ASU 2013-08 is not expected to have a material impact on the Fund’s financial statements.
3. Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the investment funds in which the Fund invests trade various financial instruments and enter into various investment activities with off-balance sheet risk. These include, but are not limited to, short selling activities, written option contracts, and swaps. The Fund’s risk of loss in these investment funds is limited to the value of the Fund’s interest in these investment funds as reported by the Fund.
4. Fair Value of Financial Instruments
The fair value of the Fund’s assets and liabilities that qualify as financial instruments approximates the carrying amounts presented in the consolidated statement of assets and liabilities. Fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. For its investments in investment funds, the Fund ordinarily considers fair value to be an amount equal to the Fund’s pro rata interest in the net assets of each investment fund, as such value is supplied by, or on behalf of, the investment fund’s investment manager, generally on a monthly basis. Some values received from, or on behalf of, the investment funds’
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
4. Fair Value of Financial Instruments (continued)
respective investment managers are typically estimates only, subject to subsequent revision by such investment managers. Such values are generally net of management fees and performance incentive fees or allocations payable to the investment funds’ managers or general partners pursuant to the investment funds’ operating agreements. The investment funds value their underlying investments in accordance with policies established by each investment fund, as described in each of their financial statements or offering memoranda. The Fund’s investments in investment funds are subject to the terms and conditions of the respective operating agreements and offering memoranda, as appropriate.
The Adviser values the Fund’s investments in investment funds based on such reasonably available relevant information as it considers material. The Adviser has designed ongoing due diligence processes with respect to investment funds and their investment managers, which assist the Adviser in assessing the quality of information provided by, or on behalf of, each investment fund and in determining whether such information continues to be reliable or whether further investigation is necessary. Such investigation, as applicable, may or may not require the Adviser to forego its normal reliance on the value supplied by, or on behalf of, such investment fund and to independently determine the fair value of the Fund’s interest in such investment fund, consistent with the Fund’s fair valuation procedures.
If no value is readily available from an investment fund or if a value supplied by an investment fund were to be deemed by the Adviser not to be indicative of its fair value, the Adviser would determine, in good faith, the fair value of the investment fund under procedures adopted by the Board and subject to Board supervision.
Because of the inherent uncertainty of valuation, the fair values of the investment funds held by the Fund may differ significantly from the values that would have been used had a ready market for the investment funds been available. As of April 30, 2014, no investments were exclusively valued by the Adviser.
At April 30, 2014, approximately 0.01% of the Fund’s net assets were invested in side pockets maintained by the investment funds. Side pockets are sub-funds within the investment funds that have restricted liquidity, potentially extending over a much longer period than the typical liquidity an investment in the investment funds may provide. Management cannot estimate the timing of when side pockets will be liquidated.
The following paragraphs summarize the investment strategies of the investment funds held by the Fund as of April 30, 2014.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
4. Fair Value of Financial Instruments (continued)
Relative value strategies attempt to capture pricing anomalies between assets that for all economic purposes are identical. Relative value strategies capture these inefficiencies by utilizing a combination of assets including bonds, stocks, swaps, options, exchange traded funds, currencies, futures, etc. One such strategy is capital structure arbitrage which involves the purchase and short sale of different classes of securities of the same issuer where there is a relative mispricing between two classes of securities. An example of this strategy is the purchase of undervalued senior secured debt and the short sale of overvalued subordinated unsecured debt or common equity. Other examples of relative value strategies include fixed income arbitrage, relative value interest rates, convertible bond arbitrage, relative value energy, and quantitative strategies.
Market neutral and hedged equity strategies involve the purchase of a stock or basket of stocks that is relatively underpriced as well as selling short a stock or basket of stocks that is relatively overpriced. Depending on the manager’s investment strategy, the determination of whether a stock is overpriced or underpriced can be made through fundamental analysis (a fundamental strategy) or by complex statistical models that examine numerous factors that affect the price of a stock (a quantitative strategy). Ironwood will utilize equity managers that target well-hedged and low net exposures and/or use a balanced approach to investing, i.e., they are short approximately the same dollar value of stocks they are long.
Event-driven strategies involve the assessment of how, when, and if specific transactions will be completed and the effect on corporations and financial assets. A common event-driven strategy is merger arbitrage (also called risk arbitrage). This involves the purchase of the stock of a target company involved in a potential merger and, in the case of a stock-for-stock offer, the short sale of the stock of the acquiring company. The target company’s stock would typically trade at a discount to the offer price due to the uncertainty of the completion of the transaction. The positions may be reversed if the manager feels the acquisition may not close. This strategy aims to capture the spread between the value of the security at the close of the transaction and its discounted value at the time of purchase. Other examples of event-driven strategies and opportunities include corporate restructurings, spin-offs, operational turnarounds, activism, asset sales, and liquidations.
Distressed strategies involve the purchase or short sale of debt or equity securities of issuers experiencing financial distress. These securities may be attractive because of the market’s inaccurate assessment of the issuer’s future potential or the values and timing of recoveries. Managers may obtain voting rights or control blocks and actively participate in the bankruptcy or reorganization process while other investors may remain passive investors. Examples of distressed securities trades include bankruptcies, liquidations, post-restructured equities, structured credit, and balance sheet restructurings.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
4. Fair Value of Financial Instruments (continued)
Credit strategies involve a variety of strategies intended to exploit inefficiencies in the high-yield and related credit markets.
The Fund uses a three-tier hierarchy to distinguish between (a) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the fair value of the Fund’s investments. The inputs are summarized in the three broad levels listed below:
Level 1 – unadjusted quoted prices in active markets for identical investments that the Fund has the ability to access.
Level 2 – other significant observable inputs (including observable net asset values where the investment is not traded in an active market and is subject to transfer restrictions and fair value of investments where the Fund has the ability to redeem tranches at net asset value as of the measurement date or within one quarter of the date of measurement without paying an early redemption fee (the “near term”)).
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments, and fair value of investments where the Fund does not have the ability to redeem tranches at net asset value as of the measurement date or within the near term as defined above).
Investments in investment funds are included in Level 2 or 3 of the fair value hierarchy. In determining the level, the Fund considers the length of time until the investment is redeemable, including notice and lock-up periods or any other restriction on the disposition of the investment. The Fund also considers the nature of the portfolios of the underlying investment funds and their ability to liquidate their underlying investments. The investment funds generally hold positions in readily marketable investments and derivatives that are valued at quoted market values and/or less liquid non-marketable investments and derivatives that are valued at estimated fair value. The mix and concentration of more readily marketable investments and less liquid non-marketable investments varies across the investment funds based on various factors, including the nature of their investment strategy, as described in each of their financial statements or offering memoranda.
If the Fund has the ability to redeem its investment at the reported net asset valuation in the near term, the investment is generally included in Level 2 of the fair value hierarchy. If the Fund does
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
4. Fair Value of Financial Instruments (continued)
not know precisely when it will have the ability to redeem the investment or it does not have the ability to redeem its investment in the near term, the investment is included in Level 3 of the fair value hierarchy. The methodology used for determining the classification level for U.S. GAAP reporting is not an indication of the risks associated with investing in those investments. The Fund believes that when evaluating the Fund's liquidity, the match between the liquidity of investments and the timing of the Fund's June 30 and December 31 tender periods is a more meaningful measure.
The units of account that are valued by the Fund are its interests in the investment funds and not the underlying holdings of such investment funds. Thus, the inputs used by the Fund to value its investments in each of the investment funds may differ from the inputs used to value the underlying holdings of such investment funds. The table presented below is not intended to be indicative of the fair value hierarchy classification of investments in the underlying portfolios of the investment funds.
The following is a summary of the fair value inputs used, by investment strategies of the investment funds, as of April 30, 2014 (amounts in thousands):
| Investment funds | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | | |
| Relative Value | | $ | - | | | $ | 126,970 | | | $ | 155,001 | | | $ | 281,971 | |
| Market Neutral and Hedged Equity | | | - | | | | 57,552 | | | | 85,627 | | | | 143,179 | |
| Event-Driven | | | - | | | | 78,636 | | | | 338,483 | | | | 417,119 | |
| Distressed and Credit Securities | | | - | | | | 5,124 | | | | 122,842 | | | | 127,966 | |
| Total | | $ | - | | | $ | 268,282 | | | $ | 701,953 | | | $ | 970,235 | |
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
4. Fair Value of Financial Instruments (continued)
The following is a reconciliation of investment funds by investment strategies for which significant unobservable inputs (Level 3) were used in determining value (amounts in thousands):
| | | Investments in investment funds | |
| | | Relative Value | | | Market Neutral and Hedged Equity | | | Event-Driven | | | Distressed and Credit Securities | | | Total | |
| Balance as of May 1, 2014 | | $ | 72,922 | | | $ | 29,852 | | | $ | 73,211 | | | $ | 83,011 | | | $ | 258,996 | |
| Purchases | | | 102,770 | | | | 70,964 | | | | 282,397 | | | | 53,450 | | | | 509,581 | |
| Sales | | | (34,715 | ) | | | - | | | | (522 | ) | | | (18,013 | ) | | | (53,250 | ) |
| Net realized gain | | | 3,329 | | | | - | | | | 85 | | | | 2,727 | | | | 6,141 | |
| Net change in unrealized appreciation | | | 10,695 | | | | 3,982 | | | | 17,090 | | | | 8,569 | | | | 40,336 | |
| Transfers to Level 2 | | | - | | | | (19,171 | ) | | | (33,778 | ) | | | (6,902 | ) | | | (59,851 | ) |
| Balance as of April 30, 2014 | | $ | 155,001 | | | $ | 85,627 | | | $ | 338,483 | | | $ | 122,842 | | | $ | 701,953 | |
The Fund recognizes transfers into and out of the levels indicated above at the end of the reporting period. The transfers out of Level 3 in the above reconciliation table are primarily due to the expiration of investment funds’ lock-up periods. There were no transfers between Level 1 and Level 2 for the year ended April 30, 2014.
Net change in unrealized appreciation/ (depreciation) on Level 3 assets still held as of April 30, 2014 was $42,182,175.
Net unrealized gains/ (losses) in the table above are reflected in the accompanying Statement of Operations.
The significant unobservable input used in the fair value measurement for Level 3 investments was the net asset value provided by the investment funds.
5. Investment Transactions
Total purchases of investment funds for the year ended April 30, 2014 were $658,670,900. Total proceeds from redemptions of investment funds for the year ended April 30, 2014 were $110,503,661. As of April 30, 2014, gross unrealized appreciation on investment funds was $86,511,913 and gross unrealized depreciation was $2,758,101.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
6. Prepaid Investments
Prepaid investments in investment funds represent amounts transferred prior to month-end to investment funds to be made effective May 1, 2014, pursuant to each investment fund’s operating agreements.
7. Advisory Fee, Related Party Transactions and Other
In consideration of the advisory and other services provided by the Adviser to the Fund, the Fund pays the Adviser a monthly advisory fee of 0.10% (1.20% on an annualized basis) of the Fund’s month end net asset value. The advisory fee is an expense paid out of the Fund’s assets and is computed based on the value of the net assets of the Fund as of the close of business on the last business day of each month, before adjustments for any repurchases effective on that day. The advisory fee is in addition to the asset-based management fees and incentive fees or allocations charged by the underlying investment funds and indirectly borne by Members in the Fund. For the year ended April 30, 2014, the Fund incurred advisory fees of $8,111,854, of which $2,791,314 was payable to the Adviser at April 30, 2014.
State Street Bank and Trust Company (“State Street”) provides accounting and administrative services to the Fund. Under an administrative services agreement, State Street is paid an administrative fee, computed and payable monthly.
The Bank of New York Mellon (the “Custodian”) serves as the custodian of the Fund. The Fund compensates the Custodian for providing custody services to the Fund.
The Fund pays all investment expenses, including, but not limited to, brokerage commissions and all other costs of executing transactions, interest expense, insurance expense, custodial expense, its share of expenses of the investment funds, including management fees to the investment advisers of the investment funds (generally ranging from 0.00% to 3.00% of assets under management) and performance fees or allocations to such investment advisers (generally ranging from 15% to 25% of net profits) and all ongoing ordinary administrative and operational costs of the Fund, including (but not limited to) legal costs, accounting costs, taxes and any fees paid to the fund administrator or the regulatory and compliance administrator. The Fund will also directly pay any extraordinary operating expenses. The Adviser will bear all ongoing ordinary administrative and operational costs of the Adviser, including employees’ salaries, office rent, travel costs, quote machine rent, computer and equipment costs, telephone bills, office supplies, research and data costs, legal costs, accounting costs, filing costs and communication expenses.
The Adviser has entered into an agreement with the Fund (the “Expense Limitation Agreement”) whereby it has contractually agreed to waive its fees and/or reimburse the Fund’s expenses to the extent necessary to ensure that the monthly expenses of the Fund (excluding taxes, brokerage
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
7. Advisory Fee, Related Party Transactions and Other (continued)
commissions, interest expenses incurred in connection with any credit facility, other transaction related expenses, custody fees, any extraordinary expenses of the Fund, any acquired fund fees and expenses, and the Advisory Fee) will not exceed 0.020833% (0.25% per annum) of the Fund’s net assets as of each month end during the term of the Expense Limitation Agreement (the “Expense Limitation”). The Fund will carry forward, for a period not to exceed 3 years from the date on which a waiver or reimbursement is made by the Adviser, any expenses in excess of the Expense Limitation and repay the Adviser such amounts; provided that the Fund is able to effect such reimbursement and remain in compliance with the Expense Limitation disclosed in the Prospectus that was in effect at the time of the original waiver. As of April 30, 2014, the carry forward amount subject to potential future reimbursement to the Adviser was $626,576.
For the year ended April 30, 2014, the Adviser recaptured $487,856 of previously waived expenses under the Expense Limitation Agreement. Such amount is included on the Consolidated Statement of Operations as an increase to current year expenses.
As of April 30, 2014, $350,376 of this amount was payable to the Adviser. Such amount is included in Payable to Investment Adviser on the Consolidated Statement of Assets and Liabilities.
Compensation to the Directors of the Fund during the year ended April 30, 2014 was $50,000.
As of April 30, 2014, the Directors, Officers, and the Adviser and employees, directly or indirectly held Units in the Fund as follows:
| | | Units | | | % of Net Assets | |
| | | | | | | |
| Directors | | | 903.54 | | | | 0.10 | % |
| Officers | | | 125.70 | | | | 0.01 | |
| The Adviser and employees | | | 2,916.63 | | | | 0.33 | |
| Total | | | 3,945.87 | | | | 0.44 | % |
8. Credit Facility
The Fund maintains a secured credit agreement with Credit Suisse International for a revolving line of credit (the “Credit Facility”). Effective December 16, 2013, the maximum availability under the Credit Facility was increased from $25,000,000 to $75,000,000 subject to specific asset-based covenants. Borrowings are collateralized in full by certain assets of the Fund and bear interest at an annual rate of LIBOR plus 1.85% (the “spread”). Prior to December 16, 2013, the spread was 1.90%. Interest is accrued daily on any outstanding balance and, if not repaid on
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
April 30, 2014
8. Credit Facility (continued)
the interest accrual date, is automatically added to the principal amount of the loan. The Fund also pays a commitment fee of 0.85% based on the amount by which the maximum availability exceeds the outstanding loan balance. Prior to December 16, 2013 the commitment fee was 1.00%. The contractual maturity of the Credit Facility is April 30, 2015. As of April 30, 2014, the interest rate in effect was approximately 2.07%. For the year ended April 30, 2014, the average borrowings and average interest rate were approximately $7,888,641 and 2.12%, respectively.
9. Subsequent Events
For the period May 1, 2014 to June 24, 2014, the Fund received subscriptions of approximately $138,447,000 and tenders of approximately $9,093,000.
Effective June 24, 2014, the maximum availability under the Credit Facility was increased from $75,000,000 to $125,000,000.
The Fund’s officers are appointed by the Directors and oversee the management of the day-to-day operations of the Fund under the supervision of the Board of Directors. One of the Directors and all of the officers of the Fund are officers or employees of Ironwood Capital Management (the “Adviser” or “Ironwood”). The other Directors are not affiliated with the Adviser and are not “interested persons” as defined under Section 2(a)(19) of the 1940 Act (the “Independent Directors”). A list of the Directors and officers of the Fund and a brief statement of their present positions and principal occupations during the past five years are set out below.
* Mr. Gans is deemed to be an “interested person,” as defined in the 1940 Act, of the Fund (“Interested Director”) because of the affiliation with the Fund and Ironwood.
Set forth below is the name, age, position with the Fund, length of term of office, and the principal occupation for the last five years, as of April 30, 2014. The business address of each officer is care of Ironwood Capital Management, One Market Plaza, Steuart Tower, Suite 2500, San Francisco, California 94105.
Ironwood collects personal information about investors from the following sources:
Ironwood does not disclose any personal information it collects, as described above, about its customers or former customers to anyone other than in connection with the administration, processing and servicing of customer accounts or to its accountants, attorneys and auditors, or otherwise as permitted by law.
Ironwood restricts access to personal information it collects about investors to its personnel who need to know that information in order to provide products or services to investors. Ironwood maintains physical, electronic and procedural controls in keeping with U.S. federal standards to safeguard investors’ nonpublic personal information.
Ironwood reserves the right to change this privacy notice, and to apply changes to information previously collected, as permitted by law. Ironwood will inform investors of any changes as required by law.
Investors with questions on this policy may contact Ironwood at (415) 777-2400.
Item 2. Code of Ethics.
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the Fund’s Board of Directors has determined that M. Kelley Price is qualified to serve as an audit committee financial expert serving on its Audit Committee and that he is “independent” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
The following services are considered pre-approved by the Audit Committee for the period ending April 30, 2014: audits of the Fund required by regulatory or statutory bodies; audits of management assertions related to the effectiveness of internal controls over financial reporting as required under the Sarbanes-Oxley Act; services associated with SEC registration statements, periodic reports and other documents filed with the SEC; consultation on accounting or disclosure treatment of transactions or events; assistance in dealing with and responding to the SEC or any other regulatory agency on financial matter; tax compliance, including the preparation of federal, state, local and international tax returns; tax planning and advice.
The Audit Committee must specifically approve audit engagement and estimated tax return preparation fees.
(e)(2) The percentage of services described in each of paragraphs (b) through (d) of this item that were approved by the Audit Committee pursuant to paragraph (c) (7) (i)(C) of Rule 2-01 of Regulation S-X are as follows:
Item 5. Audit Committee of Listed Registrants.
Item 6. Investments.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Proxy Voting Policies and Procedures of the Fund and its investment adviser are as follows:
The Fund invests in other private investment funds (the “Underlying Funds”). As such, it is expected that proxies and consent requests received by Ironwood will deal with matters related to the operative terms and business details of such Underlying Funds. Ironwood is not responsible for, and these procedures are not applicable to, proxies received by Underlying Advisers (related to issuers invested in by the related Underlying Fund).
The Policies provide the following general guidelines for determining the best interests of the Fund:
(i) Ironwood will generally vote in favor of normal corporate housekeeping proposals including, but not limited to, the following:
(A) election of directors (where there are no related corporate governance issues);
(C) increasing or reclassification of common stock.
(A) make it more difficult to replace members of the issuer’s board of directors or board of managers; and
(B) introduce unequal voting rights (although there may be regulatory reasons that would make such a proposal favorable to certain clients of Ironwood).
For proxies or consent requests addressing any other issues (which may include proposals related to fees paid to investment managers of underlying investment funds, redemption rights provided by underlying investment funds, investment objective modifications, etc.), Ironwood shall determine (which may be based upon the advice of external lawyers or accountants) whether a proposal is in the best interest of the Fund. In doing so, Ironwood will evaluate a number of factors which may include (but are not limited to): (i) the performance of the Underlying Fund in question; and (ii) a comparison of the proposed changes in terms to customary terms in the industry.
The Fund files Form N-PX, with its complete proxy voting record for the twelve months ended June 30, no later than August 31 of each year. Once filed, the Fund’s Form N-PX are available: (i) without charge, upon request, by calling the Fund at (415)-777-2400; or (ii) by visiting the SEC’s website (http://www.sec.gov).
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) Identification of Portfolio Manager and Description of Role of Portfolio Manager(s)
The following information is as of April 30, 2014.
The portfolio managers of Ironwood primarily responsible for the investment management of the Fund include Jonathan Gans, Frederick Gans and Benjamin Zack (the “Portfolio Managers”). The Portfolio Managers each serve on the Fund’s Investment & Risk Committee, which has ultimate authority for determining whether the Fund will invest in (or withdraw from) any particular investment. A unanimous vote of the Investment & Risk Committee is required for the Fund to take action with respect to any particular investment. Below are the names and biographical information of the Portfolio Managers.
Jonathan Gans is the Chief Executive Officer and President of Ironwood. He is a member of the firm’s Investment & Risk Committee, Management Committee and Valuation Committee. Mr. Gans joined Ironwood in 1996. Mr. Gans is responsible for all aspects of Ironwood’s operations in its role as general partner and investment adviser of the Ironwood investment funds. Prior to joining Ironwood, Mr. Gans was employed at St. Claire Capital Management, where he served as General Counsel and COO. His prior professional experience also includes positions at the SEC Division of Enforcement and Glenwood Financial Group. Mr. Gans is a member of the California State Bar, the California Bar’s Business Law Section and the American Bar Association. He earned a B.A. degree, cum laude, from Williams College, and a J.D. from the University of California at Los Angeles School of Law.
Frederick Gans is the Founder of Ironwood. He is a member of the firm’s Investment & Risk Committee and Management Committee. In addition to founding Ironwood, in 1992 Fred also co-founded the predecessor fund to Ironwood’s investment funds. Mr. Gans was previously employed by Bear, Stearns & Co., Inc. in San Francisco as a limited partner, Associate Director, and then Managing Director. Mr. Gans was also employed as Vice President of Smith Barney and Co. where he serviced institutional and high-net worth individual accounts. Mr. Gans earned a B.A. degree in Mathematics from Case Western Reserve University, Cleveland, Ohio. He also received an M.S. degree in Statistics from Columbia University’s Graduate School of Business.
Benjamin Zack, FRM, joined Ironwood in 2004 and is a Managing Director and a member of the firm’s Investment & Risk Committee. Prior to joining Ironwood, Mr. Zack worked in the Health Care Investment Banking Group of Deutsche Banc Alex. Brown where he helped advise life sciences and medical technology clients on a wide variety of strategic and financial alternatives, including mergers and acquisitions, equity and debt issuances and restructurings. Mr. Zack earned a B.B.A. in Finance from the University of Texas at Austin and a M.B.A. in Finance from the Wharton School at the University of Pennsylvania. Mr. Zack has earned the designation of Financial Risk Manager – Certified by the Global Association of Risk Professionals.
(a)(2)(i-iii) Other SEC-Registered Investment Companies Managed as of April 30, 2014
The following actual and potential conflicts of interest may arise in connection with the Portfolio Managers’ management of the Fund’s investments:
The following information is as of April 30, 2014.
Jonathan Gans and Frederick Gans are employees and majority owners of Ironwood. They receive fixed compensation from Ironwood and, as majority owners of Ironwood, receive quarterly shareholder distributions. They do not receive any additional compensation from the Fund for serving as portfolio managers of the Fund. Benjamin Zack is a minority owner of Ironwood and receives quarterly shareholder distributions. Additionally, Ironwood pays a combination of base compensation and discretionary compensation. The discretionary compensation is based on a variety of factors, including the overall annual performance of the “Ironwood Composite,” which includes results of all private investment vehicles managed by Ironwood, execution of managerial responsibilities, and other qualitative factors. Mr. Zack may elect to defer a portion of the discretionary year-end compensation and notionally invest the deferred amount in the Ironwood Composite. Mr. Zack does not receive any additional compensation from the Fund.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the Fund’s board of directors, where those changes were implemented after the Fund last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)) , or this Item.
Item 11. Controls and Procedures.
(a) The Fund’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Fund’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the Fund’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the Fund’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics that is the subject of disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) are attached hereto.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) are attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
