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 U.S. Investment Company Act of 1940, as amended (the “1940 Act”) as a closed-end, non-diversified management investment company. The Fund is also registered under the U.S. Securities Act of 1933, as amended (the “1933 Act”). The Fund currently complies, and intends to continue to comply with the requirements of Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), as such requirements are described in Note 2.
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. 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.
The Fund is a master fund in a master-feeder structure whereby Ironwood Multi-Strategy Fund LLC (the “Feeder Fund”) invests substantially all of its assets in the Fund. As of October 31, 2020, the Feeder Fund owned 52.40% of the Fund’s net assets. Other eligible investors (together with the Feeder Fund, “Members”) in the Fund include high net worth individuals, foundations, pensions, and other institutions.
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 oversight of the Fund’s Board of Directors (the “Board”). The Adviser is registered as an investment adviser with the U.S. Securities and Exchange Commission under the U.S. Investment Advisers Act of 1940, as amended. The Adviser is also registered as a Commodity Pool Operator with the U.S. Commodity Futures Trading Commission and is a member of the National Futures Association. The Board has overall responsibility for monitoring and overseeing the Fund’s investment program and its management and operations. The 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 utilizes the Bank of New York Mellon (the “Administrator” and “Custodian”) as its independent administrator and custodian.
2. Significant Accounting Policies
Basis of Presentation
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 consolidated financial statements are expressed in U.S. dollars.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The Fund is an investment company as described in Accounting Standards Codification (“ASC”) Topic 946, Financial Services-Investment Companies (“ASC 946”), which defines investment companies and prescribes specialized accounting and reporting requirements for investment companies. The Fund follows the accounting and reporting guidance in ASC 946.
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires the Adviser 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.
Basis of Consolidation
The consolidated financial statements include the financial position and the results of operations of the Fund and its wholly owned subsidiary, Ironwood Multi-Strategy Fund Ltd. (“CFC”), a Cayman Islands controlled foreign corporation. CFC has the same investment objective as the Fund and is primarily used to invest in investment funds which do not allow U.S. entities to invest directly. As of October 31, 2020 and for the six months then ended, no investment funds were held by the wholly owned subsidiary.
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.
Portfolio Valuation
The Fund values its investments in investment funds at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). See Note 4 for more information.
Cash
The Fund places its cash in accounts with entities that are affiliated with the Custodian and the Administrator and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Adviser monitors the financial condition of such entities and does not anticipate any losses from these counterparties.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Income and Expense Recognition
The Fund records investment transactions on a trade date basis and recognizes income and expenses on an accrual basis. Income, expenses, and realized and unrealized gains and losses are recorded monthly. Changes in the investment funds’ fair values are included in net change in unrealized appreciation/depreciation on investments on the consolidated statement of operations. Realized gain (loss) from investments in investment funds is calculated using the specific identification methodology.
Income Taxes
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 distributes 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 state(s) as applicable. The Fund has concluded there are no significant uncertain tax positions that would require recognition in the consolidated financial statements as of October 31, 2020. If applicable, the Fund recognizes interest accrued related to liabilities for unrecognized tax in interest expense and penalties in other expenses on the consolidated statement of operations. The open tax years under potential examination vary by jurisdiction, but in general tax authorities can examine all tax returns filed for the last three tax years.
The Fund has a tax year that ends on April 30.
Dividend Reinvestment Plan
Each Member will have all income distributions and capital gains distributions automatically reinvested in additional units unless such Member specifically elects to receive all income distributions and capital gains 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
ASC 820 provides for the use of net asset value (or its equivalent) as a practical expedient to estimate fair value of investments in investment funds, provided certain criteria are met. Accordingly, the Fund values its investments in investment funds at fair value, which is an amount equal to the sum of the Fund’s proportionate interests in the investment funds, as determined from financial information provided by the respective administrators or investment managers of the investment funds. These fair values represent the amounts the Fund would receive if it were able to liquidate its investments in the investment funds as of the measurement date, prior to any early withdrawal charges, if applicable. Some values received are estimates, subject to subsequent revision by the respective administrators or investment managers. Values received are generally net of management fees and incentive fees or allocations payable to the investment funds’ investment managers 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.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The investment funds 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. The Fund’s investments in investment funds are subject to the terms and conditions of the respective operating agreements and offering memoranda.
The Adviser has designed ongoing due diligence processes with respect to investment funds, their administrators, and their investment managers. The Adviser assesses the quality of information provided and determines whether such information continues to be reliable or whether further investigation is necessary. Such investigation, as applicable, may require the Adviser to forego its normal reliance on the value provided and to independently determine the fair value of the Fund’s interest in the investment fund.
The Adviser has designated a committee to oversee the valuation of the Fund’s investments (the “Valuation Committee”). The Valuation Committee is comprised of senior personnel, the majority of whom are separate from the Fund’s portfolio management team, and is responsible for developing written valuation policies and procedures, conducting periodic reviews of those policies and procedures, and evaluating the overall fairness and consistent application of the valuation policies and procedures. The Valuation Committee meets on a quarterly basis or more frequently as needed.
If no value is readily available from an investment fund or if a value supplied by an investment fund is deemed by the Valuation Committee not to be indicative of its fair value, the Valuation Committee would determine, in good faith, the fair value of the investment fund under procedures adopted by the Board and subject to Board oversight. 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 and for the six months ended October 31, 2020, all investments in investment funds were valued using the values provided by the investment funds or their administrators.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Short-term investments consist of investments in money market funds. These investments are valued at their respective net asset value per share and are categorized as Level 1 in the fair value hierarchy, as defined in ASC 820.
In accordance with U.S. GAAP, investments in investment funds that are valued at net asset value as a practical expedient are not required to be included in the fair value hierarchy. All investments in investment funds were valued at their respective net asset value as of October 31, 2020, and are excluded from the fair value hierarchy.
As of October 31, 2020, less than 0.01% of the Fund’s net assets were invested in investment funds that do not have set redemption timeframes but are liquidating investments and making distributions as underlying investments are sold. Additionally, approximately 3.66% of the Fund's net assets were invested in designated private investments maintained by the investment funds or in term vehicles, which do not have set redemption timeframes. The timing of when these investments will be liquidated is unknown.
The following is a summary of the investment strategies of the investment funds held by the Fund as of October 31, 2020.
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. Generally, investment funds within this strategy require a 30 to 90 day notice period to redeem at the next available redemption date.
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 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. Generally, investment funds within this strategy require a 45 to 90 day notice period to redeem at the next available redemption date.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
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. Generally, investment funds within this strategy require a 60 to 90 day notice period to redeem at the next available redemption date.
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. Credit strategies involve a variety of strategies intended to exploit inefficiencies in the high-yield and related credit markets. Generally, investment funds within these strategies require a 90 to 120 day notice period to redeem at the next available redemption date.
5. Investment Transactions
Total purchases of investment funds for the six months ended October 31, 2020 were $59,637,404. Total redemptions from investment funds for the six months ended October 31, 2020 were $214,632,011.
6. Subscriptions and Redemptions
The minimum initial investment by Members is $50,000 and the minimum subsequent investment is $10,000, both subject to waiver by the Adviser. Members may purchase units as of the first business day of the month.
Subscriptions received in advance and subscriptions received in advance from Ironwood Multi-Strategy Fund LLC represent the amounts received on or prior to October 31, 2020 for subscriptions with an effective date of November 1, 2020.
Foreside Fund Services, LLC acts as the distributor (the “Distributor”) of the Fund’s 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 in the Fund’s units 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 a Member’s investment in the Fund. Generally, the Sales Charge relating to units is paid directly to the Selling Agent that assisted in the placement of such units.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
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. 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. While there can be no guarantee that it will continue this practice, to date, the Fund has offered to repurchase 10 – 20% of its units at each of its June 30 and December 31 Offers.
As part of each Offer, Members of the Fund may request to tender units and immediately subscribe the resulting proceeds to the Feeder Fund. As part of the Feeder Fund’s tender offers, Members of the Feeder Fund may request to tender units and immediately subscribe the resulting proceeds to the Fund. In these circumstances, the Fund and the Feeder Fund process the transactions without requiring the payment or receipt of cash. For the six months ended October 31, 2020, the total amount of non-cash subscription was $276,705.
A 5% early repurchase fee is charged on repurchased units that have been held less than one year, payable to the Fund. The Board or the Adviser may waive the imposition of the early repurchase fee.
7. Advisory Fee, Related Party Transactions, and Other Expenses
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% per annum) 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 investment funds and indirectly borne by Members in the Fund. For the six months ended October 31, 2020, the Fund incurred advisory fees of $15,838,808, of which $8,011,170 was payable to the Adviser as of October 31, 2020.
The Fund pays all investment expenses, including, but not limited to, brokerage commissions and all other costs of executing transactions, interest expense, commitment fees, custody fees, its share of expenses of the investment funds, including management fees to the investment managers of the investment funds (ranging from 0.00% to 3.50% of net asset value) and incentive fees or allocations to such investment managers (ranging from 0% to 35% of net profits). The Fund also pays all ongoing ordinary administrative and operational costs of the Fund, including (but not limited to) legal costs, audit and tax preparation fees, fees paid to the Administrator, fees paid to the regulatory and compliance administrator, risk monitoring fees, filing fees, insurance expense, bank charges, and taxes. The Fund will also pay any extraordinary operating expenses. Among the Fund’s operating expenses are certain costs that may be associated in part with the Feeder Fund that are not clearly allocable on a separate basis, such as joint vendor contracts. The Feeder Fund is the largest member of the Fund and as such bears a significant pro rata share of all expenses of the Fund.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The Adviser will bear all ongoing ordinary administrative and operational costs of the Adviser, including employees’ salaries, office rent, travel costs, 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 and commitment fees incurred in connection with any credit facility, other transaction related expenses, custody fees, bank charges, 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.
Eligible expenses were below the Expense Limitation and no eligible expenses were recaptured under the Expense Limitation Agreement during the six months ended October 31, 2020. There are no amounts subject to potential future reimbursement.
Compensation to the independent directors for the six months ended October 31, 2020 was $60,000.
As of October 31, 2020, directors, officers, and the Adviser and its employees held units in the Fund as follows:
| | | Units | | | Percent of Net Assets | |
Directors | | | 1,078.76 | | | | 0.05 | % |
Officers | | | 117.89 | | | | 0.01 | % |
Adviser and its employees | | | 3,325.33 | | | | 0.14 | % |
Total | | | 4,521.98 | | | | 0.20 | % |
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
8. Credit Facility
The Fund maintains a secured credit agreement with an unaffiliated bank for a line of credit (the “Credit Facility”). The maximum availability under the Credit Facility is $250,000,000, 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 London Interbank Offered Rate plus 1.45% (the “Spread”). Prior to July 14, 2020, the maximum availability was $200,000,000 and the Spread was 1.35%. The Fund also pays an annual commitment fee of 0.40% on the amount by which the maximum availability exceeds the outstanding loan balance. Interest and commitment fees are accrued daily and, if not repaid by month end, are automatically added to the principal amount of the loan balance. The contractual maturity of the Credit Facility is April 15, 2021.
Commitment fees incurred for the six months ended October 31, 2020 are included on the consolidated statement of operations. During the six months ended October 31, 2020, the Fund did not have an outstanding balance. If the Fund had an outstanding balance as of October 31, 2020, the interest rate in effect would have been 1.59%.
9. Income Taxes
The Fund generally invests 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 provide information regarding the amount of U.S. taxable income and gain. For such PFICs, the Fund has made Qualified Electing Fund (“QEF”) elections for tax purposes.
For other PFICs that do not provide information regarding taxable income and gain, the Fund has made mark-to-market (“MTM”) elections which convert any unrealized gain to ordinary taxable income.
The Fund also invests in investment funds organized in the U.S. that are treated as partnerships for U.S. income tax purposes.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Net investment income (loss) and net realized gain (loss) from investments in investment funds may not be treated the same for financial statement and for U.S. tax purposes. Temporary book-tax differences result when the Fund holds an investment in an investment fund, and such temporary book-tax differences generally become permanent upon disposal of the investment fund.
As of October 31, 2020, the aggregate cost and related gross unrealized appreciation and depreciation for tax purposes were as follows:
| Cost of investments for tax purposes | | $ | 2,235,485,727 | |
| Gross tax unrealized appreciation | | $ | 177,488,107 | |
| Gross tax unrealized depreciation | | | (13,329,881 | ) |
| Net tax unrealized appreciation on investments | | $ | 164,158,226 | |
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.
As of April 30, 2020, the Fund’s last fiscal and tax year-end, the components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary income | | $ | 37,058,055 | |
| Net capital gain | | | 5,492,977 | |
| Net unrealized depreciation | | | (22,193,658 | ) |
| Accumulated earnings | | $ | 20,357,374 | |
For the year ended April 30, 2020, the Fund utilized $2,236,990 of prior year capital loss carryforwards. As of April 30, 2020, the Fund did not have any available unused short-term capital losses or unused long-term capital losses for federal income tax purposes.
There were no distributions paid during the six months ended October 31, 2020.
10. Commitments and Contingencies
As of October 31, 2020, the Fund had unfunded capital commitments to investment funds of $140,050,220.
Ironwood Institutional Multi-Strategy Fund LLC
Notes to Consolidated Financial Statements (continued)
(Unaudited)
11. Indemnification
In the normal course of business, the Fund enters into contracts that provide general indemnifications and that contain a variety of representations and warranties. The Fund’s maximum exposure in connection with these contracts is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, no claims have been made under these indemnities in the past, and while there can be no assurances in this regard, the Fund is not aware of any such claims that may be made in the future.
12. Other Matters
Beginning in January 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known as COVID-19. The outbreak of COVID-19 has resulted in, among other things, travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The outbreak of COVID-19 may adversely affect financial markets and the global economy, which may impact the Fund’s performance.
13. Subsequent Events
The Adviser has performed a subsequent events review and determined that there were no subsequent events which would have a significant impact on the Fund’s financial position or results of operations.
Ironwood Institutional Multi-Strategy Fund LLC
Supplemental Information
(Unaudited)
Fund Management
The Fund’s officers are appointed by the Board of Directors and oversee the management of the day-to-day operations of the Fund subject to the oversight 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 (the “Independent Directors”) are not affiliated with the Adviser and are not “interested persons” as defined under Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”). A list of the directors 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(1) 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 |
| Disinterested Directors |
Richard W. Meadows Age: 70 | Independent Director | Term - Indefinite Length - Since inception | Retired since 2010; prior thereto Executive Vice President of mutual fund administration firm | 2 | 0 |
M. Kelley Price Age: 70 | Independent Director | Term - Indefinite Length - Since inception | Retired since 2010; prior thereto Executive Vice President of mutual fund administration firm | 2 | 0 |
David Sung Age: 67 | Independent Director | Term - Indefinite Length - Since October 1, 2015 | Retired since 2014; prior thereto Partner of Ernst & Young LLP | 2 | The Hartford Group of Funds (82 portfolios); also directorships with multiple private wealth and fund management businesses |
Interested Directors(2) |
Jonathan Gans Age: 49 | Director, Chairman of the Board | Term - Indefinite Length - Since inception | Chief Executive Officer and President of Ironwood | 2 | 0 |
(1) Each Director will serve for the duration of the Fund, or until his death, resignation, termination, removal, or retirement.
(2) “Interested person,” as defined in the 1940 Act, of the Fund (“Interested Director”) because of the affiliation with the Fund and Ironwood.
Ironwood Institutional Multi-Strategy Fund LLC
Supplemental Information (continued)
(Unaudited)
Officers
Set forth below is the Fund’s officers’ name, age, position with the Fund, length of term of office, and the principal occupation for the last five years, as of October 31, 2020. The business address of each officer is care of Ironwood Capital Management, One Market Plaza, Steuart Tower, Suite 2500, San Francisco, California 94105.
| Name 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: 49 | Chief Executive Officer, President | Term - Indefinite Length - Since inception | Chief Executive Officer and President of Ironwood |
Alison Sanger Age: 49 | Chief Compliance Officer | Term - Indefinite Length - Since inception | Chief Operating Officer and Chief Compliance Officer of Ironwood |
Martha Boero Age: 37 | Treasurer | Term - Indefinite Length - Since March 15, 2013 | Chief Accounting Officer of Ironwood |
Michael Mazur Age: 37 | Secretary | Term - Indefinite Length - Since June 8, 2020 | Vice President, Regulatory & Compliance, of Ironwood since September 2017; prior thereto Senior Compliance Associate of Mesirow Advanced Strategies |
Ironwood Institutional Multi-Strategy Fund LLC
Supplemental Information (continued)
(Unaudited)
Investment Advisory Agreement
The Investment Advisory Agreement between Ironwood Institutional Multi-Strategy Fund LLC (the “Master Fund”) and Ironwood Multi-Strategy Fund LLC (the “Feeder Fund,” and together with the Master Fund, the “Funds”) and the Adviser (the “Agreement”) provides that the Adviser is responsible, subject to the oversight of the Board of Directors (the “Board”), for providing investment supervisory services to 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 also provides and/or oversees operational services to the Funds, including service provider oversight, administration services, fund accounting, investor services, assistance with meeting legal and regulatory requirements, and compliance services.
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 annual approval by the Board (including a majority of the Independent Directors), or by the vote of a majority of the Members of each Fund with respect to that Fund. The Agreement may be terminated with respect to either Fund at any time by the Board, by a vote of a majority of the outstanding voting securities of the relevant Fund or, upon 90 days’ written notice to the relevant Fund, by the Adviser.
The Independent Directors met telephonically in executive session with counsel to the Funds on September 1, 2020; telephonically in executive session with counsel and with representatives of the Adviser on September 9, 2020; and by videoconference on September 14, 2020 to evaluate whether to approve the Agreement for an additional one-year term. At the Joint Board meeting on September 14, 2020, the Board, including all of the Independent Directors, considered and unanimously approved the Agreement for such additional one-year term.
In the course of considering whether to approve the Agreement, the Board considered written materials that were provided by the Adviser and by Fund counsel in advance of its meetings, 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 and that its efforts to organize and maintain the Funds over time represents an entrepreneurial risk taken by the Adviser. The Board discussed the Adviser’s personnel; the fees and expenses of the Funds; the Adviser’s investment services, philosophy and performance; and the Adviser’s significant operational support services (including the Adviser’s close oversight and continued evaluation of service providers). 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.
Ironwood Institutional Multi-Strategy Fund LLC
Supplemental Information (continued)
(Unaudited)
Among other materials, the Board reviewed a presentation on the Funds’ investment performance through July 31, 2020, along with a comparison to the performance of the HFRI Fund of Funds: Conservative Index, the S&P 500, the Barclays Aggregate Bond Index, the other investment funds to which the Adviser serves as investment manager, and a group of five other registered alternative funds of funds (the “Peer Group”) that either have objectives and strategies similar to those of the Funds or are offered among certain of the intermediary platforms on which the Funds are offered.
The Board noted the Funds’ investment performance over different periods within the context of the Funds’ stated objectives. The Board considered the Funds’ strategies and evaluated metrics such as absolute and relative returns (i.e., compared to benchmarks and peers), standard deviations, and Sharpe ratios. It considered differences in performance results between the Funds and other funds managed by the Adviser. The Board also acknowledged the consistency of the Funds’ investment performance and the Funds’ risk-adjusted returns over time as competitive with or outperforming all peers. The Board recognized that the S&P 500 and Barclays Aggregate Bond Index 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 and consistent with the Funds’ stated objectives and strategies.
The Board considered the various fees and expenses of the Funds, with an emphasis on 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 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 with respect to its management of the Funds 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, the Expense Limitation Agreements, and the substantial resources of the Adviser devoted to the management of the Funds. The Board concluded that the Adviser’s profitability appeared reasonable and appropriate.
In considering the advisory fees, the Board determined that not having “breakpoints” (reductions in the fee as assets under management increase) was appropriate at this time. This was in part based on the absence of such arrangements in the Peer Group and in part based on an assessment that future economies of scale are uncertain.
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. As suggested by the discussion above, many matters were considered as potentially relevant to these determinations, and no single factor was found to be determinative.
Ironwood Institutional Multi-Strategy Fund LLC
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Additional Information
Proxy Voting
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available: (i) without charge, upon request, by calling (415) 777-2400; and (ii) on the Securities and Exchange Commission’s (the “SEC”) website at http://www.sec.gov.
The Fund is required to file, on Form N-PX, its complete proxy voting record for the most recent twelve-month period ended June 30, no later than August 31. The Fund’s Form N-PX filings are available: (i) without charge, upon request, by calling (415) 777-2400; and (ii) on the SEC’s website at http://www.sec.gov.
Filing of Quarterly Schedule of Portfolio Holdings (“Form N-PORT”)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Form N-PORT filings are available: (i) without charge, upon request, by calling (415) 777-2400; and (ii) on the SEC’s website at http://www.sec.gov.
Portfolio Managers
The following information is as of October 31, 2020.
The portfolio managers of Ironwood primarily responsible for the investment management of the Fund include Jonathan Gans, Benjamin Zack, and Simon Hong (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 joined the firm in 1996 and is a member of Ironwood’s Investment & Risk Committee, Leadership Committee, Management Committee, and Valuation Committee. He also serves as a Director for Ironwood’s offshore and registered funds. Jon was previously employed at St. Claire Capital Management, where he was General Counsel and Chief Operating Officer. His prior professional experience also includes positions at the Securities and Exchange Commission Division of Enforcement and Glenwood Financial Group. Jon earned a B.A., cum laude, from Williams College, a J.D. from the University of California at Los Angeles School of Law, and is a member of the State Bar of California. Jon is a chapter member of YPO Golden Gate and a Trustee of the San Francisco Museum of Modern Art (SFMOMA), where he has chaired the Investment Committee and served on the Executive Committee.
Ironwood Institutional Multi-Strategy Fund LLC
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Benjamin Zack joined Ironwood in 2004 and is a Partner and Managing Director. Ben is responsible for overseeing Ironwood’s research team and investment process. He is a member of the firm’s Investment & Risk Committee and Leadership Committee. Prior to Ironwood, Ben 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. Ben earned a B.B.A. in Finance from the University of Texas at Austin and an M.B.A. in Finance from the Wharton School at the University of Pennsylvania.
Simon Hong joined Ironwood in 2008 and is a Partner and Director. Simon is responsible for overseeing Ironwood’s research team and investment process. He is a member of the firm’s Investment & Risk Committee. Prior to Ironwood, Simon worked in the Investment Banking Division and Global Capital Markets group at Morgan Stanley where he helped advise clients on a wide variety of strategic and financial alternatives. Simon’s prior experience also includes positions in the Investment Management Division of Morgan Stanley and the Private Client Group of Merrill Lynch. Simon received a B.A. in Business Economics from Brown University. Simon is a CAIA designee and is a member of the Chartered Alternative Investment Analyst Association. Simon is a member of the Investment Committee of the Catholic Diocese of Oakland.
