[Federal Register Volume 72, Number 195 (Wednesday, October 10, 2007)]
[Notices]
[Pages 57613-57615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-19913]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-2667; 803-186]


IronBridge Capital Management LP; The Hirtle Callaghan Trust; 
Notice of Application

October 3, 2007.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for Exemption under the Investment 
Advisers Act of 1940 (``Advisers Act'').

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Applicants:  IronBridge Capital Management LP (``IronBridge''); The 
Hirtle Callaghan Trust (``Trust''); together (``Applicants'').

Relevant Advisers Act Sections:  Exemption requested under section 206A 
of the Advisers Act from section 205 of the Advisers Act and Advisers 
Act rule 205-1.

Summary of Application:  Applicants request an order permitting 
IronBridge to charge a performance fee based on the performance of that 
portion of a Trust portfolio managed by IronBridge (``IronBridge 
Account''). Applicants further request that the order permit them to 
compute the performance-related portion of the fee using changes in the 
IronBridge Account's gross asset value rather than net asset value.

Filing Dates:  The application was filed on July 7, 2005, and amended 
and restated on August 3, 2006 and October 1, 2007.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with copies of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 29, 2007, and should be accompanied by proof of service 
on Applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, IronBridge Capital 
Management LP, c/o Samuel T. Eddins, One Parkview Plaza, Suite 600, 
Oakbrook Terrace, Illinois 60181; The Hirtle Callaghan Trust, c/o 
Rhonda Fell, Five Tower Bridge, 300 Barr Harbor Drive, Suite 500, West 
Conshohocken, PA 19428.

FOR FURTHER INFORMATION CONTACT: David W. Blass, Assistant Director, or 
Vivien Liu, Senior Counsel, at (202) 551-6787 (Office of Investment 
Adviser Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicant's Representations

    1. IronBridge is an investment adviser registered under the 
Advisers Act. The Trust is an open-end management investment company 
registered under the Investment Company Act of 1940. The Trust was 
organized in 1994 by Hirtle, Callaghan & Co. (``Hirtle Callaghan''), an 
investment adviser registered under the Advisers Act. The Trust is a 
series company that currently consists of several separate investment 
portfolios. Shares of the Trust are available only to clients of Hirtle 
Callaghan or clients of financial intermediaries, such as investment 
advisers that are acting in a fiduciary capacity with investment 
discretion and that have established relationships with Hirtle 
Callaghan.
    2. Hirtle Callaghan serves as a ``manager of managers'' for the 
Trust. Hirtle Callaghan is responsible for monitoring the overall 
investment performance of the Trust's portfolios and the performance of 
the portfolio managers that manage the Trust's portfolios. Hirtle 
Callaghan may also from time to time recommend that the Trust's Board 
of Trustees (the ``Board'') retain additional portfolio managers or 
terminate existing portfolio managers. Authority to select new 
portfolio managers and reallocate assets among the portfolio managers, 
however, resides with the Trust's Board.
    3. IronBridge is one of five investment advisers that provide 
portfolio management services to the Small Capitalization Equity 
Portfolio (``Portfolio'') of the Trust. Each of these advisers is 
responsible for the management of a discrete portion of the Portfolio's 
assets on a day-to-day basis. In doing so each acts as though it were 
advising a separate investment company. Percentage limitations on 
investments are applied to each portion of the Portfolio without regard 
to the investments in the other advisers' portions of the Portfolio. 
When each adviser receives information about portfolio positions from 
the Trust or its custodian, the adviser generally receives only 
information about the portion of the Portfolio assigned to it, and not 
information about the positions held by the Portfolio as a whole. Each 
adviser generally is responsible for preparing reports to the Trust and 
the Board only with respect to its discrete portion of the Portfolio.
    4. IronBridge is not affiliated with Hirtle Callaghan, the Trust or 
any other investment advisory organization that provides portfolio 
management and services to the Trust.\1\ Services provided to the Trust 
by IronBridge are limited to investment selection for the IronBridge 
Account, placement of transactions for

[[Page 57614]]

execution, and certain compliance functions directly related to such 
services. IronBridge and its affiliates do not act as a distributor or 
sponsor for the Trust or Portfolio. No member of the Trust's Board is 
affiliated with IronBridge.
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    \1\ IronBridge does not have any affiliates at this time. Future 
affiliates, if any, will comply with the terms of any order issued 
by the Commission in connection with this application.
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    5. IronBridge currently receives a fee at the annual rate of 0.60 
percent of the average daily net assets of the IronBridge Account, 
payable monthly. On August 26, 2004 the Trust's Board approved an 
amendment to the portfolio management agreement between IronBridge and 
the Trust under which the existing fee structure would be replaced with 
a fee structure that includes a performance component (``Proposed 
Amendment''). On October 25, 2004 the shareholders of the Portfolio 
approved the Proposed Amendment. The Proposed Amendment would become 
effective on the first day of the month following receipt of an order 
from the SEC approving the application. IronBridge's fee would be 
adjusted to reflect the performance of the IronBridge Account only 
after the Proposed Amendment has been in effect for 12 months (the 
``Initial Period'').
    6. Under the proposed fee arrangement, at the end of each of the 
first three quarters of the Initial Period, IronBridge would receive a 
base fee at the annual rate of 0.60 percent of the average daily net 
assets of the IronBridge Account (``Base Fee'').\2\ At the end of the 
fourth quarter of the Initial Period, IronBridge would receive the Base 
Fee adjusted by a factor referred to as the performance component. The 
performance component would equal 25 percent of the difference between 
(i) the total return of the IronBridge Account during the preceding 12 
months calculated without regard to the expenses incurred in the 
operation of the IronBridge Account (``Gross Total Return'') and (ii) 
the sum of the total return of the Russell 2000 Index (``Index 
Return'') during the same 12-month period plus a performance hurdle of 
60 basis points (``Performance Component'').
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    \2\ The Base Fee is calculated as follows: {[(.60%)(average 
daily net assets)] /X{time}  x N, where ``X'' = the number of days 
in the preceding 12 month period and ``N'' = the number of days in 
the quarter.
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    7. None of the expenses of the Portfolio, including IronBridge's 
advisory fee, would be deducted from the performance of the IronBridge 
Account for purposes of calculating the Gross Total Return. However, 
the Gross Total Return would reflect the effect (i.e., reducing 
performance) of all applicable brokerage and transaction costs.
    8. Because no performance adjustment will be paid until the end of 
the Initial Period, it is possible that payments of the Base Fee made 
to IronBridge during the first nine months may exceed the appropriate 
performance-adjusted fee if the Performance Component has been 
negative. In the event of such an occurrence, the Proposed Amendment 
provides a ``recoupment feature'' pursuant to which the advisory fees 
payable to IronBridge will be reduced until the difference between the 
aggregate quarterly fees received by IronBridge with respect to the 
Initial Period and the performance adjusted fee is fully recouped by 
the Trust. However, if the portfolio management agreement with 
IronBridge is terminated before any recoupment has been fully accounted 
for, the Trust would not be able to recoup any outstanding excess that 
had been paid in previous quarters.
    9. For each quarter following the fourth quarter of the Initial 
Period, IronBridge would receive the quarterly payments of the Base Fee 
(approximately 15 percent (15 basis points) of the average daily net 
assets of the IronBridge Account), plus or minus 25 percent of the 
Performance Component multiplied by the average daily net assets of the 
IronBridge Account for the immediately preceding 12-month period, on a 
``rolling basis.'' \3\
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    \3\ ``Rolling Basis'' means that, at each quarterly fee 
calculation, the Gross Total Return of the IronBridge Account, the 
Index Return and the average daily net assets of the IronBridge 
Account for the most recent quarter will be substituted for the 
corresponding values of the earliest quarter included in the prior 
fee calculation. Both the Base Fee and the Performance Component are 
calculated based on the same rolling period as described in this 
footnote and the accompanying text.
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    10. The maximum annual fee payable for any 12-month period would 
not exceed 1.20 percent (120 basis points), or 0.30 percent (30 basis 
points) with respect to any quarter. IronBridge is not guaranteed any 
minimum annual fee. Therefore, it is possible that IronBridge's annual 
fee may fall to zero.

Applicants' Legal Analysis

    1. Section 205(a)(1) of the Advisers Act generally prohibits an 
investment adviser from entering into any investment advisory agreement 
that provides for compensation to the adviser on the basis of a share 
of capital gains or capital appreciation of a client's account.
    2. Section 205(b) of the Advisers Act provides a limited exception 
to this prohibition, permitting an adviser to charge a registered 
investment company and certain other persons a fee that is based on 
asset value of the company or fund under management averaged over a 
specified period and increases and decreases ``proportionately with the 
investment performance of the company or fund over a specified period 
in relation to the investment record of an appropriate index of 
securities prices or such other measure of investment performance as 
the Commission by rule, regulation or order may specify.''
    3. Rule 205-1 under the Advisers Act requires that the investment 
performance of an investment company be computed based on the change in 
the net (of all expenses and fees) asset value per share of the 
investment company.
    4. Applicants request exemptive relief from section 205 of the 
Advisers Act and rule 205-1 thereunder to permit them to (i) apply the 
proposed fee only to the IronBridge Account and not to the Portfolio as 
a whole, and (ii) compute the Performance Component measured by the 
change in the IronBridge Account's gross asset value, rather than the 
change in its net asset value.
    5. Applicants state that Congress, in adopting and amending section 
205 of the Advisers Act, and the SEC, in adopting rule 205-1, put into 
place safeguards designed to ensure that investment advisers would not 
take advantage of advisory clients.
    6. Applicants assert that the Commission required that performance 
fees be calculated based on the net asset value of the investment 
company's shares to prevent a situation where an adviser could earn a 
performance fee even though investment company shareholders did not 
derive any benefit from the adviser's performance after the deduction 
of fees and expenses.
    7. Applicants state that, unlike traditional performance fee 
arrangements, IronBridge would not receive the Performance Component of 
its fee unless its management of the IronBridge Account has resulted in 
performance in excess of the Index performance plus a ``performance 
hurdle'' equal to the 0.60 percent of the average daily net asset value 
of the IronBridge Account. Applicants assert that increasing the 
performance of the Index by the 0.60 percent hurdle would have an 
effect similar to deducting IronBridge's fees. In the event the Base 
Fee changes, the performance hurdle also would be changed to match the 
Base Fee. Applicants state that since the fee structure contains a 
performance hurdle, the Portfolio's shareholders will have protections 
similar to those contemplated by the net asset value requirement of 
rule 205-1.
    8. Applicants suggest that Congress' concern, in enacting the 
safeguards of section 205, came about because the

[[Page 57615]]

vast majority of investment advisers exercised a high level of control 
over the structuring of the advisory relationship. Applicants state 
that the proposed fee, however, was negotiated actively at arm's length 
between the Trust and IronBridge. Applicants state that IronBridge has 
little, if any, influence over the overall management of the Trust or 
the Portfolio beyond stock selection, and does not control the 
Portfolio or the Trust. Management functions of the Trust and the 
Portfolio reside in the Trust's Board. The Trust is directly and fully 
responsible for supervising the Trust's service providers and 
monitoring expenses of each of the Trust's portfolios. The Trust's 
Board is responsible for allocating the assets of the several 
portfolios among the portfolio managers. Neither IronBridge nor any of 
its affiliates sponsored or organized the Trust, or serves as a 
distributor or principal underwriter of the Trust. IronBridge and its 
affiliates do not own any shares issued by the Trust. No officer, 
director or employee of IronBridge, nor any of its affiliates, serves 
as an executive officer or director of the Trust. Neither IronBridge 
nor any of its affiliates is an affiliated person of Hirtle Callaghan 
or any other person who provides investment advice with respect to the 
Trust's advisory relationships (except to the extent that such 
affiliation may exist by reason of IronBridge or any of its affiliates 
serving as investment adviser to the Trust). No member of the Trust's 
Board is affiliated with IronBridge.
    9. Applicants state that the proposed fee arrangement satisfies the 
purpose of rule 205-1 because it was negotiated at arms-length and the 
Trust, for the reasons stated in the previous paragraphs, does not need 
the protections afforded by calculating a performance fee based on net 
assets. Applicants argue that the proposed fee arrangement is therefore 
consistent with the underlying policies of section 205 and rule 205-1 
under the Advisers Act and that the exemption would be consistent with 
the protection of investors.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. If the Base Fee changes, the performance hurdle will be changed 
to match the Base Fee and to ensure that the investment advisory fee 
continue to have the potential to increase and decrease 
proportionately.
    2. To the extent IronBridge relies on the requested order with 
respect to advisory arrangements with other investment companies that 
it advises, those arrangements will meet the following requirements: 
(i) The investment advisory fee will be negotiated on an arm's-length 
basis between IronBridge and the investment company or its primary 
investment adviser; (ii) the fee structure will contain a performance 
hurdle that is, at all times, no lower than the base fee; and should 
the base fee change, the hurdle also will be changed to match the base 
fee and to ensure that the investment advisory fee continue to have the 
potential to increase and decrease proportionally; (iii) neither 
IronBridge nor any of its affiliates will serve as distributor or 
sponsor of the investment company; (iv) no member of the board of the 
investment company will be affiliated with IronBridge or its 
affiliates; (v) neither IronBridge nor any of its affiliates will 
organize the investment company; (vi) neither IronBridge nor any of its 
affiliates will be an affiliated person of any primary adviser to the 
investment company or of any other person who provides advice with 
respect to the investment company's advisory relationships (except to 
the extent that IronBridge and/or its affiliates may be affiliated with 
another portfolio manager by virtue of the fact that IronBridge or the 
affiliate serves as a portfolio manager to the investment company or to 
another investment company); and (vii) other than described in this 
application, Applicants will comply with section 205 and rules 205-1 
and 205-2 under the Advisers Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E7-19913 Filed 10-9-07; 8:45 am]
BILLING CODE 8011-01-P