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Fifth Street Finance Corp. Message Board

  • davemaine davemaine Nov 26, 2013 4:24 PM Flag

    2 amd 20?

    liatened to the conference call and they stated that 10% on equity is what they are shooting for and there are "really sorry" for a large secondary, and they dis not make their targets due to a multitude of factors that they were tasked with last quarter.

    my quastion is for a company targeting 10% on equity where dos the 2-20 management fees kick in?

    jmho but 10% on EQUITY is quite low for a company that has loans in the 11% and they also have leverage?

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    • Management fee is a flat 2% (per year) of our gross assets, including any investments made with borrowings, but excluding any cash and cash equivalents. This is the part that creates a potential conflict of interest between management and shareholders. (Analysts were right for being very critical of FSC for its recent SPO.)

      The incentive fee has two parts:
      1) The "2" is the first part: If they don't earn 2% NII in any given quarter (8% on annual basis), they get nothing. If NII falls between 2% but less than 2.5%, then mgmt gets some incentive fee, and of course they get more yet if they exceed 2.5% in any quarter. Obviously they want to target more then 8% per year.
      2) The "20" is the second part and is related to capital gains -- they get 20% of realized capital gains.

    • Couldn't the company face all kinds of legal problems because of the secondary? I can't believe they told the prospective investors a large dividend cut was about to occur, even though they must have known back then it was going to happen very soon.

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