UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811 - 22463
Ironwood Institutional Multi-Strategy Fund LLC
(Exact name of registrant as specified in charter)
One Market Plaza, Steuart Tower, Suite 2500
San Francisco, CA 94105
(Address of principal executive offices)(Zip code)
_________________________________________
Jonathan Gans
Chief Executive Officer and President
c/o Ironwood Capital Management Corporation
One Market Plaza, Steuart Tower, Suite 2500
San Francisco, CA 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (415) 777-2400
Date of fiscal year end: April 30
Date of reporting period: October 31, 2014
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
Semi-Annual Report
October 31, 2014
(Unaudited)
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Financial Statements
October 31, 2014
(Unaudited)
Contents
| Consolidated Statement of Assets and Liabilities | 1 |
| Consolidated Statement of Operations | 2 |
| Consolidated Statements of Changes in Net Assets | 3 |
| Consolidated Statement of Cash Flows | 4 |
| Consolidated Financial Highlights | 5 |
| Consolidated Schedule of Investments | 6 |
| Notes to Consolidated Financial Statements | 9 |
| | |
| Supplemental Information | |
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statement of Assets and Liabilities
October 31, 2014
(Unaudited)
| Assets | | | |
| Investments in investment funds, at fair value (cost $1,214,700,126) | | $ | 1,324,163,842 | |
| Cash | | | 69,443,962 | |
| Advance subscriptions to investment funds | | | 21,500,000 | |
| Redemptions receivable from investment funds | | | 25,838 | |
| Other assets | | | 193,932 | |
| Total assets | | | 1,415,327,574 | |
| | | | | |
| Liabilities | | | | |
| Payable on credit facility | | | 45,148,739 | |
| Advance subscriptions from Ironwood Multi-Strategy Fund LLC | | | 13,568,592 | |
| Advance subscriptions | | | 5,184,400 | |
| Payable to Adviser | | | 4,143,461 | |
| Redemptions payable to Ironwood Multi-Strategy Fund LLC | | | 275,881 | |
| Redemptions payable | | | 199,215 | |
| Accrued expenses | | | 170,964 | |
| Total liabilities | | | 68,691,252 | |
| | | | | |
| Net assets | | $ | 1,346,636,322 | |
| | | | | |
| Net assets consist of: | | | | |
| Paid-in capital | | $ | 1,297,997,918 | |
| Accumulated net investment loss | | | (69,380,036 | ) |
| Accumulated undistributed net realized gain (loss) from investments | | | 8,554,724 | |
| Net unrealized gain (loss) on investments | | | 109,463,716 | |
| Net assets | | $ | 1,346,636,322 | |
| | | | | |
Net asset value per Unit: 1,187,522.81 Units issued and outstanding,
no par value | | $ | 1,133.99 | |
The accompanying notes are an integral part of these consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statement of Operations
For the Six Months Ended October 31, 2014
(Unaudited)
Investment income, other | | $ | 2,802 | |
| | | | | |
| Expenses | | | | |
| Advisory fees | | | 7,383,035 | |
| Interest expense | | | 585,556 | |
| Filing fees | | | 499,032 | |
| Administration fees | | | 455,084 | |
| Professional fees | | | 260,814 | |
| Expense limitation recapture | | | 200,146 | |
| Custody fees | | | 123,998 | |
| Directors’ fees | | | 25,000 | |
| Other | | | 99,206 | |
| Total expenses | | | 9,631,871 | |
| | | | | |
| Net investment loss | | | (9,629,069 | ) |
| | | | | |
| Realized and unrealized gain from investments | | | | |
| Net realized gain (loss) from investments in investment funds | | | 2,423,794 | |
| Net change in unrealized gain (loss) on investments in investment funds | | | 25,709,904 | |
| Net realized and unrealized gain (loss) from investments | | | 28,133,698 | |
| Net increase in net assets resulting from operations | | $ | 18,504,629 | |
The accompanying notes are an integral part of these consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statements of Changes in Net Assets
| | | Six Months | | | | |
| | | Ended | | | Year | |
| | | October 31, 2014 | | | Ended | |
| | | (Unaudited) | | | April 30, 2014 | |
| | | | | | | |
| Net increase in net assets resulting from operations | | | | | | |
| Net investment (loss) | | $ | (9,629,069 | ) | | $ | (10,451,948 | ) |
Net realized gain (loss) from investments in
investment funds | | | 2,423,794 | | | | 10,468,270 | |
Net change in unrealized gain (loss) on investments in
investment funds | | | 25,709,904 | | | | 53,697,749 | |
| Net increase in net assets resulting from operations | | | 18,504,629 | | | | 53,714,071 | |
| | | | | | | | | |
| Distributions to Members | | | | | | | | |
| Distributions from net investment income | | | - | | | | (40,351,521 | ) |
| Decrease in net assets from distributions to Members | | | - | | | | (40,351,521 | ) |
| | | | | | | | | |
| Member transactions | | | | | | | | |
Subscriptions (representing 303,489.16 and
544,865.30 Units, respectively) | | | 343,701,172 | | | | 601,980,071 | |
Reinvestment of distributions (representing 0.00 and
35,076.52 Units, respectively) | | | - | | | | 37,847,915 | |
Redemptions (representing 9,687.81 and
33,508.55 Units, respectively) | | | (11,029,159 | ) | | | (36,674,859 | ) |
| Net increase in net assets from Member transactions | | | 332,672,013 | | | | 603,153,127 | |
| | | | | | | | | |
| Total increase in net assets | | | 351,176,642 | | | | 616,515,677 | |
| Net assets, beginning of period | | | 995,459,680 | | | | 378,944,003 | |
| Net assets, end of period | | $ | 1,346,636,322 | | | $ | 995,459,680 | |
The accompanying notes are an integral part of these consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Statement of Cash Flows
For the Six Months Ended October 31, 2014
(Unaudited)
| Operating activities | | | |
| Net increase in net assets resulting from operations | | $ | 18,504,629 | |
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 | | | (2,423,794 | ) |
| Net change in unrealized gain on investments in investment funds | | | (25,709,904 | ) |
| Purchase of investments in investment funds | | | (337,940,000 | ) |
| Proceeds from sales of investments in investment funds | | | 12,144,986 | |
| Decrease in advance subscriptions to investment funds | | | 25,000,000 | |
| Decrease in redemptions receivable from investment funds | | | 323,074 | |
| Increase in other assets | | | (169,973 | ) |
| Increase in payable to Adviser | | | 1,001,771 | |
| Increase in accrued expenses | | | 69,865 | |
| Net cash used in operating activities | | | (309,199,346 | ) |
| | | | | |
| Financing activities | | | | |
| Subscriptions, net of change in advance subscriptions | | | 299,567,204 | |
| Redemptions, net of change in redemptions payable | | | (12,124,429 | ) |
| Proceeds from credit facility | | | 619,200,000 | |
| Repayments of credit facility | | | (649,000,884 | ) |
| Net cash provided by financing activities | | | 257,641,891 | |
| | | | | |
| Net change in cash | | | (51,557,455 | ) |
| Cash at beginning of period | | | 121,001,417 | |
| Cash at end of period | | $ | 69,443,962 | |
| | | | | |
| Supplemental disclosure of cash flow information | | | | |
| Interest paid | | $ | 585,556 | |
The accompanying notes are an integral part of these consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Financial Highlights
| | | Six Months | | | | | | | | | | | | Period from | |
| | | Ended | | | Year | | | Year | | | Year | | | January 1, | |
| | | October 31, 2014 | | | Ended | | | Ended | | | Ended | | | 2011* to | |
| | | (Unaudited) | | | April 30, 2014 | | | April 30, 2013 | | | April 30, 2012 | | | April 30, 2011 | |
| | | | | | | | | | | | | | | | |
For a Unit outstanding
throughout the period: | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | $ | 1,113.84 | | | $ | 1,091.15 | | | $ | 1,044.82 | | | $ | 1,044.62 | | | $ | 1,000.00 | |
Net investment loss(a) | | | (10.49 | ) | | | (18.05 | ) | | | (15.42 | ) | | | (21.35 | ) | | | (6.79 | ) |
Net realized and unrealized
gain (loss) from investments | | | 30.64 | | | | 110.84 | | | | 119.42 | | | | 32.25 | | | | 51.41 | |
Net increase in net assets
resulting from operations | | | 20.15 | | | | 92.79 | | | | 104.00 | | | | 10.90 | | | | 44.62 | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | - | | | | (70.10 | ) | | | (57.67 | ) | | | (10.70 | ) | | | - | |
| Net asset value, end of period | | $ | 1,133.99 | | | $ | 1,113.84 | | | $ | 1,091.15 | | | $ | 1,044.82 | | | $ | 1,044.62 | |
Total return(b) | | | 1.81 | % | | | 8.71 | % | | | 10.31 | % | | | 1.09 | % | | | 4.46 | % |
Ratio of total expenses to average
net assets before expense
waivers and reimbursements (c) | | | 1.57 | % | | | 1.56 | % | | | 1.71 | % | | | 2.85 | % | | | 5.79 | % |
Ratio of total expenses to average
net assets after expense
waivers and reimbursements (c) | | | 1.57 | % | | | 1.56 | % | | | 1.59 | % | | | 2.07 | % | | | 1.98 | % |
Ratio of net investment loss to
average net assets(d) | | | (1.57 | %) | | | (1.56 | %) | | | (1.59 | %) | | | (2.07 | %) | | | (1.98 | %) |
| | | | | | | | | | | | | | | | | | | | | |
| Portfolio turnover | | | 1.03 | % | | | 17.74 | % | | | 8.67 | % | | | 3.92 | % | | | 0.43 | % |
Net assets, end of period
(in thousands) | | $ | 1,346,636 | | | $ | 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 consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Schedule of Investments
October 31, 2014
(Unaudited)
| | | | | | | | | | | | Next | | |
| | | | | | | | | | | | Available | | |
| | | | | | | | | Percent of | | | Redemption | | |
| Description | | Cost | | | Fair Value | | | Net Assets | | | Date (1) | | Liquidity (2) |
| | | | | | | | | | | | | | |
| Investment Funds | | | | | | | | | | | | | |
| Relative Value: | | | | | | | | | | | | | |
| Citadel Kensington Global Strategies Fund Ltd. | | $ | 111,531,145 | | | $ | 135,218,352 | | | | 10.05 | % | | 12/31/2014 | | Quarterly (3) |
| D.E. Shaw Composite International Fund | | | 64,172,762 | | | | 74,642,745 | | | | 5.54 | | | 12/31/2014 | | Quarterly (4) |
| HBK Multi-Strategy Offshore Fund Ltd. | | | 61,834,503 | | | | 62,941,324 | | | | 4.67 | | | 12/31/2014 | | Quarterly (5) |
| Hutchin Hill Capital Offshore Fund, Ltd. | | | 96,593,750 | | | | 105,802,295 | | | | 7.86 | | | 12/31/2014 | | Quarterly (5) |
| KLS Diversified Fund Ltd. | | | 39,300,000 | | | | 41,254,605 | | | | 3.06 | | | 12/31/2014 | | Quarterly |
| Total Relative Value | | | 373,432,160 | | | | 419,859,321 | | | | 31.18 | | | | | |
| | | | | | | | | | | | | | | | | |
| Market Neutral and Low Net Equity: | | | | | | | | | | | | | | | | |
| Citadel Global Equities Fund Ltd. | | | 23,136,933 | | | | 28,935,606 | | | | 2.14 | | | 11/30/2014 | | Monthly (6) |
| Darsana Fund LP | | | 26,000,000 | | | | 26,865,746 | | | | 2.00 | | | 12/31/2014 | | Quarterly (7) |
| Millennium International, Ltd. | | | 81,822,870 | | | | 91,035,668 | | | | 6.76 | | | 12/31/2014 | | Quarterly (5) |
| Rosemont Offshore Fund, Ltd. | | | 8,839,391 | | | | 8,583,557 | | | | 0.64 | | | 12/31/2014 | | Quarterly |
| Suvretta Offshore Fund, Ltd | | | 57,600,000 | | | | 65,668,711 | | | | 4.87 | | | 12/31/2014 | | Quarterly |
| Visium Global Offshore Fund, Ltd. | | | 31,000,000 | | | | 30,130,546 | | | | 2.24 | | | 11/30/2014 | | Monthly |
| Total Market Neutral and Low Net Equity | | | 228,399,194 | | | | 251,219,834 | | | | 18.65 | | | | | |
| | | | | | | | | | | | | | | | | |
| Event-Driven: | | | | | | | | | | | | | | | | |
| Elliott International Limited | | | 78,325,000 | | | | 87,331,929 | | | | 6.48 | | | 12/31/2014 | | Quarterly (8) |
| Eton Park Overseas Fund, Ltd. | | | 36 | | | | 26 | | | | 0.00 | | | n/a | | Other (9) |
| HG Vora Special Opportunities Fund, Ltd. | | | 87,000,000 | | | | 87,079,555 | | | | 6.47 | | | 11/30/2014 | | Monthly |
| JMB Capital Partners Offshore, Ltd. | | | 31,000,000 | | | | 31,286,708 | | | | 2.32 | | | 3/31/2015 | | Annually |
| Magnetar Capital Fund II Ltd | | | 67,889,858 | | | | 71,698,510 | | | | 5.32 | | | 3/31/2015 | | Quarterly (5) |
| Magnetar Equity Opportunities Fund Ltd. | | | 177,625 | | | | 387,709 | | | | 0.03 | | | 11/30/2014 | | Monthly |
| Magnetar Global Event Driven Fund Ltd. | | | 41,200,000 | | | | 42,405,080 | | | | 3.15 | | | 12/31/2014 | | Quarterly (5) |
| Perry Partners International, Inc. | | | 68,806,812 | | | | 72,390,671 | | | | 5.38 | | | 12/31/2014 | | Quarterly (5) |
| Roystone Capital Offshore Fund Ltd. | | | 55,000,000 | | | | 58,081,531 | | | | 4.31 | | | 12/31/2014 | | Quarterly (5) |
| XPI Holding I Ltd | | | 59,532 | | | | 77,762 | | | | 0.01 | | | n/a | | Other (9) |
| Total Event-Driven | | | 429,458,864 | | | | 450,739,482 | | | | 33.47 | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Schedule of Investments (continued)
October 31, 2014
(Unaudited)
| | | | | | | | | | | | Next | | |
| | | | | | | | | | | | Available | | |
| | | | | | | | | Percent of | | | Redemption | | |
| Description | | Cost | | | Fair Value | | | Net Assets | | | Date (1) | | Liquidity (2) |
| | | | | | | | | | | | | | |
| Investment Funds (continued) | | | | | | | | | | | | | |
| Distressed and Credit Securities: | | | | | | | | | | | | | |
| Cerberus International, Ltd. | | $ | 563,430 | | | $ | 913,134 | | | | 0.07 | % | | n/a | | Other (9) |
| Cerberus International SPV, Ltd | | | 2,187,127 | | | | 3,756,939 | | | | 0.28 | | | n/a | | Other (9) |
| King Street Capital, Ltd. | | | 10,023 | | | | 10,222 | | | | 0.00 | | | n/a | | Other (9) |
| MidOcean Credit Opportunity Offshore Fund, Ltd | | | 4,450,000 | | | | 5,116,599 | | | | 0.38 | | | 12/31/2014 | | Quarterly |
| Monarch Debt Recovery Fund Ltd | | | 67,032,500 | | | | 73,061,106 | | | | 5.42 | | | 12/31/2014 | | Annually |
| Monarch Structured Credit Fund Ltd | | | 790,691 | | | | 1,021,441 | | | | 0.08 | | | n/a | | Other (10) |
| Monarch Structured Credit Fund Ltd Series II | | | 201,845 | | | | 312,052 | | | | 0.02 | | | n/a | | Other (10) |
| Monarch Structured Credit Fund Ltd Series IV | | | 2,005,001 | | | | 2,415,517 | | | | 0.18 | | | n/a | | Other (10) |
| Panning Overseas Fund, Ltd. | | | 60,650,000 | | | | 61,796,627 | | | | 4.59 | | | 12/31/2014 | | Quarterly (5) |
| Silver Point Capital Offshore Fund, Ltd. | | | 45,519,291 | | | | 53,941,568 | | | | 4.01 | | | 12/31/2014 | | Annually |
| Total Distressed and Credit Securities: | | | 183,409,908 | | | | 202,345,205 | | | | 15.03 | | | | | |
| | | | | | | | | | | | | | | | | |
| Total investments in investment funds | | $ | 1,214,700,126 | | | $ | 1,324,163,842 | | | | 98.33 | % | | | | |
| | | | | | | | | | | | | | | | | |
| Other assets, less liabilities | | | | | | | 22,472,480 | | | | 1.67 | | | | | |
| | | | | | | | | | | | | | | | | |
| Net assets | | | | | | $ | 1,346,636,322 | | | | 100.00 | % | | | | |
The accompanying notes are an integral part of these consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Consolidated Schedule of Investments (continued)
October 31, 2014
(Unaudited)
(1) Investments in investment funds may be composed of multiple tranches. The Next Available Redemption Date relates to the earliest date after October 31, 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 twenty four months. The Adviser cannot estimate when restrictions will lapse for any fund level gates, suspensions, or side pockets.
(3) Approximately 80% 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 20% of this investment is available for redemption every 18 months.
(4) Subject to a 12.5% quarterly investor level gate.
(5) Subject to a 25% quarterly investor level gate.
(6) Subject to a 16.67% monthly investor level gate.
(7) Subject to a 20% annual investor level gate.
(8) Approximately 88% of this investment is available for redemption quarterly. The remaining 12% is available for redemption semi-annually, subject to a 25% investor level gate.
(9) The investment funds do not have set redemption timeframes but are liquidating investments and making distributions as underlying investments are sold.
(10) 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.
The accompanying notes are an integral part of these consolidated financial statements and should be read in conjunction therewith.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
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 and commenced operations on January 1, 2011. The Fund is registered under the Investment Company Act of 1940 (the “1940 Act”) as a closed-end, non-diversified management investment company. The Fund is also registered under the Securities Act of 1933, as amended (the “1933 Act”). The Fund currently complies, and intends to continue 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 allocating capital among a number of pooled investment vehicles that are generally organized in non-U.S. jurisdictions and classified as corporations for U.S. federal income tax purposes. Each is managed by an independent investment manager pursuant to various alternative investment strategies, including relative value; market neutral and low net equity; event-driven; and distressed and credit securities.
Ironwood Capital Management 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 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. As of October 31, 2014, Ironwood Multi-Strategy Fund LLC, a feeder fund to the Fund, represented 61.95% of the Fund’s net assets. Other investors in the Fund include high net worth individuals, foundations, pensions, and other institutions. Units of the Fund are issued to eligible investors (referred to as “Members”). 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, generally as of the first business day of the month.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
1. Organization (continued)
The Board, in its sole and absolute discretion, may authorize the Fund to make a tender offer to repurchase Members’ Units (an “Offer”). In determining whether the Fund should make an Offer to repurchase Units from Members, the Board will consider, among other things, the recommendation of the Adviser. Each Offer will generally apply to up to 10% of the net assets of the Fund. The Adviser expects that it will recommend to the Board that the Fund make an Offer to repurchase Units from Members semi-annually on June 30 and December 31. A 5% early repurchase fee is charged on repurchased Units that have been held less than one year, payable to the Fund. The Board, in its sole discretion, may waive the imposition of the early repurchase fee.
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 consolidated financial statements. The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements, including the estimated fair value of investments. Actual results could differ from those estimates.
The consolidated financial statements include the results of the Fund and Ironwood Multi-Strategy Fund Ltd. (the “CFC”), a Cayman Islands controlled foreign corporation which is wholly owned by the Fund. The CFC is primarily used to invest in investment funds which do not allow United States entities to invest directly. As of October 31, 2014, no investment funds were held by the CFC.
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.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
2. Significant Accounting Policies (continued)
Cash
In the normal course of business, the Fund maintains its cash balances in financial institutions, which at times may exceed federally insurable limits. The Adviser monitors the financial condition of such financial institutions and does not anticipate any losses from these counterparties. As of October 31, 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 gain (loss) 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.
The Fund currently complies, and intends to continue to comply with the requirements of Subchapter M of the Code applicable to Regulated Investment Companies (“RICs”) 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 has concluded there are no significant uncertain tax positions that would require recognition in the consolidated financial statements as of October 31, 2014. If applicable, the Fund recognizes interest accrued related to liabilities for unrecognized tax 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 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.
As of 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 $324,502.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
2. Significant Accounting Policies (continued)
As of October 31, 2014, the aggregate cost and related gross unrealized gain (loss) for tax purposes were as follows:
| Cost of investments for tax purposes | | $ | 1,281,735,076 | |
| | | | | |
| Gross tax unrealized gain | | $ | 48,740,955 | |
| Gross tax unrealized loss | | | (6,312,189 | ) |
| Net tax unrealized gain (loss) on investments | | $ | 42,428,766 | |
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 passive foreign investment companies (“PFICs”). Certain PFICs for which the Fund has elected to be treated as Qualified Electing Funds (“QEFs”) provide information as to the amounts of taxable income and gain to be recorded by the Fund. For other PFICs, the Fund has made a mark-to-market election which characterizes all income as ordinary.
As of December 31, 2013, the components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary income | | $ | 11,856,486 | |
| Accumulated capital losses | | $ | (1,926,879 | ) |
| Unrealized gain (loss) | | $ | 5,435,215 | |
There were no distributions paid during the six months ended October 31, 2014.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
2. Significant Accounting Policies (continued)
Dividend Reinvestment Plan
Each Member 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.
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 asset 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 asset 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’ respective investment managers are typically estimates only, subject to subsequent revision by such investment managers. Such values are generally net of management fees and 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
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
4. Fair Value of Financial Instruments (continued)
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 October 31, 2014, no investments were fair valued by the Adviser.
As of October 31, 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 October 31, 2014.
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 low net 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 investment 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). The Adviser 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.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
4. Fair Value of Financial Instruments (continued)
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 investment 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. Investment 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. 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 measurement date 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
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
4. Fair Value of Financial Instruments (continued)
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 nonmarketable 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 value in the near term, the investment is generally included in Level 2 of the fair value hierarchy. If the Fund does 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 investment funds. 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.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
4. Fair Value of Financial Instruments (continued)
The following is a summary of the fair value hierarchy of the investment funds, by strategy, as of October 31, 2014 (amounts in thousands):
| Investment Funds | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Relative Value | | | - | | | $ | 200,997 | | | $ | 218,862 | | | $ | 419,859 | |
| Market Neutral and Low Net Equity | | | - | | | | 108,772 | | | | 142,448 | | | | 251,220 | |
| Event-Driven | | | - | | | | 90,980 | | | | 359,760 | | | | 450,740 | |
| Distressed and Credit Securities | | | - | | | | 12,325 | | | | 190,020 | | | | 202,345 | |
| | | | - | | | $ | 413,074 | | | $ | 911,090 | | | $ | 1,324,164 | |
The following is a reconciliation of investment funds by investment strategy, classified in Level 3 of the fair value hierarchy (amounts in thousands):
| | | Relative Value | | | Market Neutral and Low Net Equity | | | Event Driven | | | Distressed and Credit Securities | | | Total | |
| Beginning Balance as of April 30, 2014 | | $ | 155,001 | | | $ | 85,627 | | | $ | 338,483 | | | $ | 122,842 | | | $ | 701,953 | |
| Reclassifications | | | - | | | | 26,625 | | | | (60,722 | ) | | | 34,097 | | | | - | |
| Purchases | | | 58,073 | | | | 40,300 | | | | 107,125 | | | | 47,000 | | | | 252,498 | |
| Sales | | | (503 | ) | | | - | | | | (3 | ) | | | (11,639 | ) | | | (12,145 | ) |
| Net realized gain (loss) | | | 103 | | | | - | | | | - | | | | 2,320 | | | | 2,423 | |
| Net change in unrealized gain (loss) | | | 6,188 | | | | 7,583 | | | | (2,010 | ) | | | (1,299 | ) | | | 10,462 | |
| Transfers to Level 2 | | | - | | | | (17,687 | ) | | | (31,511 | ) | | | (3,301 | ) | | | (52,499 | ) |
| Transfers from Level 2 | | | - | | | | - | | | | 8,398 | | | | - | | | | 8,398 | |
| Ending Balance as of October 31, 2014 | | $ | 218,862 | | | $ | 142,448 | | | $ | 359,760 | | | $ | 190,020 | | | $ | 911,090 | |
The Fund recognizes transfers into and out of the levels indicated above at the end of the reporting period. The transfers to or from Level 2 in the above reconciliation table are primarily due to the changes in investment funds’ lock-up periods. There were no transfers between Level 1 and Level 2 for the six months ended October 31, 2014.
The net change in unrealized gain (loss) on Level 3 assets still held as of October 31, 2014 was $9,162,188.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
4. Fair Value of Financial Instruments (continued)
The net realized and unrealized gains (losses) in the table above are reflected in the accompanying consolidated statement of operations.
5. Investment Transactions
Total purchases of investment funds for the six months ended October 31, 2014 were $337,940,000. Total proceeds from redemptions of investment funds for the six months ended October 31, 2014 were $12,144,986. As of October 31, 2014, gross unrealized gain on investment funds was $115,775,905 and gross unrealized loss was $6,312,189.
6. Advance Subscriptions to Investment Funds
Advance subscriptions to investment funds represent amounts transferred prior to month-end to investment funds to be made effective November 1, 2014, pursuant to each investment fund’s operating agreement.
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 calendar day of each month, before adjustments for any repurchases effective on that day. The advisory fee is payable in arrears as of the last calendar day of the applicable quarter and 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 six months ended October 31, 2014, the Fund incurred advisory fees of $7,383,035, of which $3,943,315 was payable to the Adviser as of October 31, 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 administration fee, computed and payable monthly.
The Bank of New York Mellon (the “Custodian”) serves as the custodian for the Fund. The Fund compensates the Custodian for providing custody services to the Fund.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
7. Advisory Fee, Related Party Transactions, and Other (continued)
Foreside Fund Services, LLC acts as the distributor (the “Distributor”) of the Units. The Distributor has entered into, and may continue to enter into, selected dealer agreements with various brokers and dealers (“Selling Agents”) that agree to participate in the distribution of the Fund’s Units. Investments may be subject to a sales charge (a “Sales Charge”) of up to 2.00%. 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 Fund pays all investment expenses, including, but not limited to, brokerage commissions and all other costs of executing transactions, interest expense, custody fees, its share of expenses of the investment funds, including management fees to the investment managers of the investment funds (generally ranging from 0.00% to 3.00% of assets under management) and incentive fees or allocations to such investment managers (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, fees paid to the administrator, fees paid to the regulatory and compliance administrator, filing fees, insurance expense, and taxes. 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 commissions, interest expense 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 October 31, 2014, the carry forward amount subject to potential future reimbursement to the Adviser is $426,430. Of this amount, reimbursements of $147,000 are subject to expiration in the year ended April 30, 2017 and reimbursements of $279,430 are subject to expiration in the year ended April 30, 2018. All expenses subject to expiration in the years ended April 30, 2015 and April 30, 2016 have been repaid.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
7. Advisory Fee, Related Party Transactions and Other (continued)
For the six months ended October 31, 2014, the Adviser recaptured $200,146 of previously waived expenses under the Expense Limitation. Such amount is included in the consolidated statement of operations as an increase to current year expenses. As of October 31, 2014, the entire amount recaptured was payable to the Adviser. Such amount is included in Payable to Investment Adviser in the consolidated statement of assets and liabilities.
Compensation to the Board for the six months ended October 31, 2014 was $25,000.
As of October 31, 2014, the Directors, Officers, and the Adviser and its employees, directly or indirectly, held Units in the Fund as follows:
| | | Units | | | % of Net Assets | |
| | | | | | | |
| Directors | | | 903.54 | | | | 0.08 | % |
| Officers | | | 125.70 | | | | 0.01 | |
| Adviser and its employees | | | 2,872.71 | | | | 0.24 | |
| Total | | | 3,901.95 | | | | 0.33 | % |
8. Credit Facility
The Fund maintains a secured credit agreement with an unaffiliated bank for a revolving line of credit (the “Credit Facility”). Effective June 24, 2014, the maximum availability under the Credit Facility was increased from $75,000,000 to $125,000,000, 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”). Interest is accrued daily on any outstanding balance and, if not repaid on 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. The contractual maturity of the Credit Facility is April 30, 2015. As of October 31, 2014, the interest rate in effect was approximately 2.08%. For the six months ended October 31, 2014, the average borrowings and average interest rate were approximately $15,553,707 and 2.08%, respectively.
For the period November 1, 2014 to December 22, 2014, the Fund received subscriptions of approximately $97,833,000 and tenders of approximately $19,144,000.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements
For the Six Months Ended October 31, 2014
(Unaudited)
9. Subsequent Events (continued)
Under the current terms of the existing Prospectus and Limited Liability Company Agreement (the “LLC Agreement”), a Member who tenders for repurchase such Member’s Units, is entitled an initial payment of 95% within 90 days of the repurchase date and a subsequent payment of 5% after the completion of the Fund’s annual audit or later if the Board deems necessary. At its December 2014 meeting, the Board approved an amendment to the terms of the existing Prospectus and LLC Agreement stating that the initial payment will be made within 30 days or, if the Fund has requested withdrawals of capital from any underlying investment fund in order to fund the repurchase, within 10 business days after it has received at least 90% of the aggregate amount withdrawn from such underlying investment funds. In addition, the Board approved an amendment stating that the subsequent payment will be made within 120 days or such later time as the Board in its discretion deems necessary to protect the interests of the remaining Members. It is anticipated these changes will affect repurchase dates on or after December 31, 2015 and that the changes will be described in the Fund’s Prospectus when it is next filed with the Securities and Exchange Commission. For any repurchases in the interim, the pre-amendment terms continue to apply.
Fund Management
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.
Directors
| Name and Age | Position(s)
Held with
Fund | Term of Office
and Length of
Time Served | Principal
Occupation(s)
During the
Past 5 Years | Number of
Portfolios in
Fund Complex
Overseen by
Director | Other Public
Company
Directorships |
| |
| Independent Directors |
Richard W. Meadows Age: 64 | Independent Director | Term – indefinite Length – Since inception | Executive Vice President of mutual fund administration firm | 2 | 0 |
M. Kelley Price Age: 64 | Independent Director | Term – indefinite Length – Since inception | Executive Vice President of mutual fund administration firm | 2 | 0 |
Interested Directors* |
Jonathan Gans Age: 43 | President, Director, Chairman of the Board | Term – indefinite Length – Since inception | Chief Executive Officer and President of Ironwood | 2 | 0 |
* 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.
Officers
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 October 31, 2014. The business address of each officer is care of Ironwood Capital Management, One Market Plaza, Steuart Tower, Suite 2500, San Francisco, California 94105.
| Name, Address, and Age | Position(s) Held with Fund | Term of Office and Length of Time Served | Principal Occupation(s) During the Past 5 Years |
Jonathan Gans Age: 43 | Chief Executive Officer, President | Term –indefinite Length – Since inception | Chief Executive Officer and President of Ironwood Capital Management |
Alison Sanger Age: 43 | Chief Compliance Officer | Term –indefinite Length –Since inception | Chief Operating Officer/ Chief Compliance Officer of Ironwood Capital Management |
Laurie Chatoff Age: 47 | Secretary | Term –indefinite Length – since 3/15/2013 | Director of Finance of Ironwood Capital Management as of 10/3/2011 Previous: Consultant to Alternative Investment Clients |
Martha Boero Age: 31 | Treasurer | Term –indefinite Length – since 3/15/2013 | Controller of Ironwood Capital Management |
Investment Advisory Agreement
The Investment Advisory Agreement (the “Agreement”) provides that the Adviser is responsible, subject to the supervision of the Board of Directors (the “Board”), for providing investment supervisory services to Ironwood Institutional Multi-Strategy Fund LLC (the “Master Fund”) and Ironwood Multi-Strategy Fund LLC (the “Feeder Fund”), collectively, the “Funds.” Such investment supervisory services include ongoing investment guidance, policy direction, and monitoring. The Adviser makes the Funds’ investment decisions in accordance with the Funds’ stated investment objectives, policies and restrictions.
The Adviser is also responsible for providing and/or overseeing operational services to the Funds, including administration services, fund accounting, marketing services, assistance with meeting legal and regulatory requirements, compliance services, and any other services necessary for the operation of the Funds.
The Agreement was approved for an initial two-year term on December 23, 2010. Thereafter, the Agreement continues in effect from year to year subject to the annual approval by the Board (including a majority of the Independent Directors), or by the vote of a majority vote of the Members of the Funds. The Agreement may be terminated at any time by the Board, by a majority vote of the Members or by the Adviser.
At an in-person Board meeting on September 22, 2014, the Board approved the Agreement for an additional one-year term. The Independent Directors met telephonically with independent counsel in advance of the meeting to discuss relevant factors in evaluating whether to approve the Agreement. In approving the Agreement, the Board considered the materials that were provided to the Board in advance of the meeting, the terms of the Agreement, the operations of the Funds, and other relevant factors.
The Board discussed the Funds’ existing relationship with the Adviser, as well as the nature and quality of the investment advisory and administrative services provided. The Board acknowledged that the Adviser has demonstrated its commitment to maintaining and expanding operational resources reasonably necessary to manage the Funds in a professional manner. The Board discussed the Adviser’s substantial commitment to the recruitment and retention of highly skilled personnel; the Adviser’s disciplined investment approach; the quality of the Adviser’s investment and operational due diligence process; the Adviser’s significant efforts regarding growth of the Funds; the Adviser’s oversight of outside service providers; and the Adviser’s robust compliance efforts. The Board concluded that the quality of service offered by the Adviser to the Funds was appropriate and that the Adviser’s personnel had sufficient expertise to manage the Funds. The Board also concluded that during the upcoming year, the Adviser likely would be able to provide the same quality of investment management and related services that it has provided in the past.
The Board reviewed a presentation on the Funds’ investment performance to date, along with a comparison to the HFRI Fund of Funds: Conservative Index, the S&P 500, the Barclays Aggregate Bond Index, and a group of seven other registered alternative funds of funds (the “Peer Group”) that have objectives and strategies reasonably similar to those of the Funds. The Board noted that the Funds’ year-to-date returns, one year returns, three year annualized returns,
Investment Advisory Agreement (continued)
and three year volatility statistics have been strong and consistent with the Funds’ stated investment objectives. The Board also acknowledged that the Funds’ year-to-date returns, one year returns, three year annualized returns, and three year volatility statistics compared favorably to the HFRI Fund of Funds: Conservative Index, the Barclays Aggregate Bond Index, and the Peer Group. The Board observed that the Funds’ returns were lower than the S&P 500 returns and that the Funds’ volatility statistics were significantly lower than the volatility of the S&P 500. The Board acknowledged that since the Funds’ investment objectives are to provide risk-adjusted returns that have a low correlation to the broader debt and equity markets, it was reasonable that the Funds’ returns would under-perform the S&P 500 in the existing market environment. The Board recognized that the S&P 500 information was provided for reference rather than benchmarking purposes. Taking into account all of the information provided, the Board concluded that the investment performance generated by the Adviser was satisfactory.
The Board considered the Funds’ advisory and account servicing fee information and the most recent fiscal year expense ratios. The Board compared the Funds’ fees and expense ratios to the fees and expense ratios of the Peer Group. The Board determined that the Adviser’s fee is competitive compared to the fees charged by the Peer Group and also noted that the Feeder Fund’s account servicing fee is comparable to the account servicing fee charged by the Peer Group.
The Board considered the Funds’ expense ratios, both gross and net of the Expense Limitation Agreements, whereby the Adviser agrees to limit certain of the Funds’ annual expenses to 0.25% of the Funds’ net assets. The Board noted that the gross expense ratios have continued to decline as the Funds’ net assets rise. The Board compared the Funds’ expense ratios to those of the Peer Group, observing that the Funds’ expense ratios appear reasonable.
The Board evaluated information regarding the profitability of the Adviser based on the nature, extent and quality of the services provided by the Adviser, the total compensation received by the Adviser from the Funds and the total costs to the Funds of using the Adviser’s services. The Board took into account expenses borne by the Adviser, those that are passed on to the Funds by the Adviser, and the Expense Limitation Agreements. The Board concluded that the Adviser’s profitability appeared reasonable and appropriate, particularly in light of the Adviser’s significant effort to minimize the Fund’s expenses through the Expense Limitation Agreements. In considering the advisory fees, the Board did not believe breakpoints were appropriate at this time.
The Board determined that the fees payable under the Agreement are fair and reasonable in light of the services that the Adviser provides to the Funds and concluded that continuing the Agreement serves the interests of the Funds and the Members.
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable
Item 5. Audit Committee of Listed Registrants.
Not applicable
Item 6. Investments.
| | (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to unit holders filed under Item 1 of this Form. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a) Not applicable.
(b) Not applicable
Item 9. Purchases of equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable
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) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) are attached hereto.
(a)(3) Not applicable
(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.
| (Registrant) | Ironwood Institutional Multi-Strategy Fund LLC |
| By | | |
| | |
| /s/ Jonathan Gans | |
| Jonathan Gans, Chief Executive Officer and President | |
| (principal executive officer) | |
Date: January 9, 2015
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.
| By | | |
| | |
| /s/ Jonathan Gans | |
| Jonathan Gans, Chief Executive Officer and President | |
| (principal executive officer) | |
Date: January 9, 2015
| By | | |
| | |
| /s/ Martha Boero | |
| Martha Boero, Treasurer | |
| (principal financial officer) | |
Date: January 9, 2015
