1. DUE
DILIGENCE
QUESTIONNAIRE
FOR
THE
LUXE
FUND
RELEASE
SPRING
2014
1
Contact:
The
LUXE
Fund
Tel
+323.229.9508
Tel
+847-‐660-‐9550
luxe@theluxefund.com
www.theluxefund.com
The
LUXE
Fund
–
Detailed
Factsheet
Due
Diligence
for
Hedge
Fund
Managers
2. DISCLAIMER
This
Due
Diligence
Questionnaire
was
prepared
with
the
highest
level
of
accuracy
and
diligence.
However,
The
LUXE
Fund
does
not
assume
any
responsibility
for
the
quality
and
validity
of
the
information
in
this
Due
Diligence
Questionnaire.
The
LUXE
Fund,
its
executive
organs
and
its
employees
will
not
assume
any
guarantee
nor
warranty
and
exclude
any
liability
in
any
form
for
losses
in
connection
with
the
use
of
this
Due
Diligence
Questionnaire.
The
LUXE
Fund
explicitly
points
out
that
this
Due
Diligence
Questionnaire
is
a
detailed
fact
sheet
and
must
always
be
read
together
with
the
updated
and
approved
Offering
Memorandum
of
the
relevant
Fund.
All
information
in
this
Due
Diligence
Questionnaire
is
based
on
the
official
Offering
Memorandum
of
the
Fund.
The
specific
requirements
of
investors
as
well
as
the
specialties
of
certain
Hedge
Funds
and
Hedge
Fund
strategies
might
demand
an
adjustment
and
enlargement
of
the
Questionnaire.
In
this
case
The
LUXE
Fund
advises
a
critical
examination
at
the
beginning
of
the
due
diligence
process.
The
LUXE
Fund
–
Detailed
Factsheet
Due
Diligence
for
Hedge
Fund
Managers
2
3. TOPICS
COVERED
IN
QUESTIONNAIRE
Fund
Description
Investment
Manager
Entities
Organizational
Structure
Legal
Services
&
Legal
Proceedings
Compliance
Systems
&
Regulatory
Authorities
Infrastructure
and
Controls
Business
Continuity
Overview
of
Activities
of
the
Investment
Manager
Conflicts
of
Interest
Fund
Overview
Investment
Approach
Fund
Terms
Risk
Management
Valuation
Fund
Service
Providers
Investor
Communications
The
LUXE
Fund
–
Detailed
Factsheet
Due
Diligence
for
Hedge
Fund
Managers
3
4. The LUXE Fund – Beverly Hills
8200 Wilshire Blvd. Suite 400
Beverly Hills, CA 90021
The LUXE Fund Hong Kong
28 Queens Road Central Tower 20th
Central Hong Kong
Fund Description
The LUXE Fund is an alternative investment fund that specializes in rare and vintage investment
grade Champagnes.
Investment Manager Entities and Organizational Structure
1. Describe the relevant entities of the investment manager or adviser and their ownership
structure. Have there been any material changes to the entities themselves (e.g., additions
or deletions) or to the ownership structure of those entities in the past three years?
Douglas H. Snell – CEO/ Co-Founder (Designated Member)
Jonathan D. Myers – CFO/ Co-Founder (Designated Member)
Jiles Halling – Champagne Advisor (Non-Designated Member)
There have been no material changes to the entities themselves or to the ownership structure.
2. How many employees does the Fund have supporting investment management
businesses in total? How many by function? If the Fund or its affiliates maintain multiple
offices, how are these employees distributed geographically?
There are a total of 7 current employees. These employees are distributed evenly between
Beverly Hills and Hong Kong. Each office being managed separately with the Hong Kong office
managed by Douglas Snell, and the Beverly Hills office managed by Jonathan Myers.
3. Who is the Auditor whom audits the investment vehicles managed by the Fund?
One of the “Big Four” accounting agencies or other respected regional Fund.
4. Does the auditor have an affiliation or any business relationship with the Fund or any of
its affiliates outside of the audit relationship itself? Has the Fund or any of its affiliates
retained the auditor or any of its affiliates for other engagements, such as consulting
services, financial statement preparation, or tax services?
No, there are no affiliations, business relationships or other engagements with the auditor.
5. Has the current auditor audited the Fund’s investment vehicles in each of the last three
years? If not, please describe the circumstances of any audit engagement changes made.
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5. Yes.
6. Has any investment vehicle managed by the Fund ever received a qualified audit
opinion? If so, please describe.
No.
7. Has an auditor ever requested a material restatement of financial statements or
performance results of any investment vehicle managed by the Fund? If so, please
describe.
No.
8. Has the Fund engaged any third-party marketing agent? If so, please describe the terms
of this engagement.
No.
9. Does the Fund outsource any accounting or operational functions to third parties? If
so, please describe. Does the Fund periodically review the performance of any such
service providers? How is this review conducted?
No. All accounting and operational functions are done in-house.
Legal Services & Legal Proceedings
1. Who serves as legal counsel for the Fund?
Attorney; Raj Tanden Buchalter & Nemer Law Corporation 1000 Wilshire Boulevard Suite
1500 Los Angeles, California 90017
2. In the past five years: (a) have there been any criminal or administrative proceedings or
investigations against the Fund, a principal or key employee of the Fund, or any affiliate of
the Fund; or (b) have there been any civil proceedings against the Fund, a principal or key
employee of the Fund, or any affiliate of the Fund in each case that resulted in an adverse
disposition? If so, please describe.
None.
3. Is the Fund currently aware of any pending criminal or administrative proceedings
against the Fund, a principal or key employee of the Fund, or any affiliate of the Fund?
None.
4. Have any adverse dispositions materially impacted any of the funds or accounts
managed by the Fund?
None.
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6. Compliance System and Registrations with Regulatory Authorities
1. Please describe the Fund’s compliance regime. Does the Fund have a designated Chief
Compliance Officer (“CCO”)? If so, please briefly describe the background of the CCO,
and explain whether the CCO has any responsibilities other than those relating to
compliance matters.
The Fund has appointed a full time Chief Compliance Officer for our Hong Kong office, coving
issues on the Securities and Futures Commission (SFC) an independent statutory body set up to
regulate the securities and futures markets in Hong Kong. His key responsibilities will only be
related to compliance matters of the Fund. Any legal and compliance issues governing the
United States are being advised by Buchhalter & Nemer.
2. Is the Fund or any of its affiliates registered with any regulatory authorities? If so,
please describe. If the Fund has not registered with the U.S. Securities and Exchange
Commission as an investment adviser, please explain the exemption upon which the Fund
currently relies and if it intends to register in the next 12 months.
The Participating Shares have not been approved or disapproved by the SEC, any state
securities commission in the United States or any other United States or other regulatory
authority, including the Hong Kong Securities and Futures Commission (the “SFC”) nor have any
of the foregoing authorities passed upon or endorsed the merits of the offering of the Participating
Shares or the accuracy or adequacy of the Offering Memorandum. Any representation to the
contrary is a criminal offense in the United States and other jurisdictions.
The Participating Shares are being offered only outside the United States in offshore transactions
in compliance with Regulation S under the Securities Act and inside the United States to persons
who are (a) “qualified purchasers” and (b) “accredited investors”.
3. Does the Fund maintain and periodically review written compliance policies and
procedures, including a code of ethics? If not, please explain.
Yes. The Fund has a Fund and basic overview concerning compliance laws in all territories that it
conducts business in. The Fund is also in the process of appointing a Chief Compliance Office in
the USA as well as in Hong Kong to oversee all local, state and federal compliance policies and
procedures.
4. Does the Fund have a written policy on the handling and safe-guarding of any material,
non-public information in its possession, including a process to educate employees? If
not, how is material, non-public information protected, and how are these processes
communicated to employees?
No. Employees will never handle personal information of clients. All personal information will be
sent directly to one of the partners where it will be stored locally on a computer along with a
hardcopy in the company’s safe.
5. Does the Fund have written policies regarding personal account trading by employees?
If so, please describe. If not, is personal account trading monitored, and how are
standards of conduct communicated to employees?
No. Employees are allowed to purchase Funds of the share if they wish, as long as they meet all
investment requirements. Because all investors own the same class of stock, there is no risk that
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7. comes with employees investing in the Fund.
6. Does the Fund maintain written procedures on the provision and receipt of gifts and
entertainment? If not, how is such activity monitored, and how are standards of conduct
communicated to employees?
Yes. No partners or employees are allowed to accept any gifts over the value of $50.
7. Does the Fund maintain written Anti-Money Laundering (“AML”) procedures? Is there a
designated AML compliance officer? If not, how are AML checks conducted?
The Fund has designated an Anti-Money Laundering Officer who is responsible for implementing
and monitoring the operations and internal controls of the AML compliance program. The Fund
compliance programs include oversight over the compliance efforts of service providers through
which the Fund conducts its business as well as implementing ongoing AML training for all the
Fund’s personnel. The Fund’s policies, procedures, and internal controls have been designed to
prevent the Fund from being used for money laundering or the financing of terrorist activities and
to achieve compliance with all AML rules and regulations as set for by the “Investment Company
Act of 1940”.
8. Describe any material soft dollar arrangements the Fund currently maintains.
None.
9. Describe any material directed brokerage arrangements the Fund maintains.
None.
Infrastructure and Controls
1. Please describe the Fund’s portfolio management, and post-trade reconciliation and
accounting infrastructure, identifying any significant deployments of third-party software.
The Fund’s Champagne portfolio has a real-time detailed record of every bottle, along with
custom-generated barcodes, and a complete history of every Champagne bottle and then stored
in close proximity to the Hong Kong Office in a bonded, temperature and security controlled
storage facility. The portfolio is printed every month and personally cross- checked by a LUXE
Fund Officer at the storage facility. Printed databases are stored ensuring that bottles cannot be
deleted and taken, unless associated with a sale.
2. Please describe how trades are generally executed. What types of controls are typically
used to help prevent unwanted executions from occurring?
All trades are controlled and done by a sole representative of the Fund whose sole job
responsibility is to make purchases and trades and then re-confirmed by the CEO & CFO. Before
any purchase is executed any necessary provenance checks will be carried out by the Fund.
4. Please describe how cash or other asset transfers can be authorized.
Cash and asset transfers must be authorized by both majority holders of The LUXE Fund. All
accounts that The LUXE Fund controls are in both majority holders names, and may have any
withdrawals or transfers without the authorization of both names on the account.
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8. 6. Does the Fund or its affiliates retain errors and omissions insurance?
No.
Business Continuity
1. Does the Fund maintain a written business continuity and disaster recovery (BC/DR)
plan? If not, how does the Fund plan to maximize its ability to recover from business
interruptions?
The Fund has a practical construct for BC/DR plan to work effectively under adverse conditions.
The plan is constructed to follow the below listed four core ideas.
• Integrated - Addresses the operations, front office, finance, and IT functions within an
organization.
• Comprehensive and consistent in design and level of detail for each functional area.
• Risk-based—Knowledge of the Fund’s strengths and weaknesses enabling the plan to focus on
the Fund’s key risk exposures.
• Sustainable—Focused on how the Fund will perform, recover, and resume normal operating
procedures during and after a crisis.
Overview of Activities of the Investment Manager
Vehicles Managed
1. Please provide a description of the major investment vehicles managed by the
investment manager.
The fund and the investment manager only invest in vintage investment grade champagnes that
show and have a track record for an investment return of 15% or higher per year.
2. What are the aggregate assets under management of the investment manager?
The Fund has no Aggregate Assets under management.
3. Does the Fund manage separate accounts? If so, please describe.
The Fund manages separate accounts with holding a “Fund Managers Purchasing Account”, and
a “Fund Expenses Account” with both accounts not being comingled.
4. Does the investment manager or any of its employees have an interest in any of the
investment vehicles managed by the investment manager? If so, what is the amount of
this interest in the aggregate?
Neither the investment manager nor any of its employees currently have any interest in any of the
investment vehicles. However, the fund allows its employees to invest personal funds into the
fund if they wish.
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9. Other Businesses
1. Does the investment manager engage materially in other businesses apart from asset
management? If so, please describe.
No.
Conflicts of Interest
1. Please describe those conflicts of interest that you consider material to the
management of the investment vehicles. How do you address these conflicts?
There are no conflicts of interest.
2. Does the fund engage in cross-trades or principal cross-trades with or among the
accounts and/or investment vehicles it manages? If so, what controls are generally in
place to protect the participating investment vehicles or accounts?
The Fund does not engage in cross-trades.
3. Does the Fund have any affiliates or subsidiaries that are broker- dealers or execution
agents? If yes, do these broker-dealers or execution agents: (a) execute on behalf of
investment vehicles managed by the Fund; and (b) charge commissions or mark-ups on
these executions or otherwise bill expenses to investment vehicles managed by the Fund
in instances in which the investment vehicle is not the sole owner of the execution agent
or broker-dealer? If so, please describe these arrangements.
The Fund does not have any broker-dealers or agents.
Fund Information Overview and Investment Approach
1. Please describe the Fund's legal structure.
The Fund is incorporated in the Cayman Islands. The Government of the Cayman Islands will not,
under existing legislation, impose any income, corporate, or capital gains tax, estate tax,
inheritance tax, gift tax, or withholding tax upon the Company or the Shareholders. The Cayman
Islands are not party to any double tax treaty with any country that is applicable to any payments
made to or by the Fund.
2. Please provide a brief description of the investment strategies generally deployed by
the Fund.
The Fund has established a comprehensive database of information relating to the fine
Champagne market and has developed a rigorous analytical procedure to identify those that
would be considered suitable and attractive for inclusion in the Fund. The amount of Champagne
houses that are capable of providing high quality coupled with long-term capital value
preservation and enhancement is limited, thus resulting in a rigorous analytical approach to each
champagne that is added to the Fund. The Fund combines capital market discipline with
Champagne expertise.
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10. 3. What types of financial instruments does the Fund generally trade?
The Fund only invests in tangible assets of investable grade vintage Champagnes from proven
Champagne houses.
4. In which geographical markets does the Fund generally trade?
The Fund generally trades in Asia and the United States of America.
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Fund Capital and Investor Base
1. What is the capital base of the fund?
Capital base of the Fund is in U.S. dollars.
Fund Terms
1. Are there multiple classes of interests or multiple “feeder” entities in the fund?
Yes, please review listed below.
2. Please list, for each class of interest or feeder:
A. Investment minimum;
Private Investor Minimum investment of $25,000 usd and $125,000 usd Institutional Investor
Minimum.
B. Management fee;
Private Investor 2.5% fee per annum and Institutional Investor 2% fee per annum.
C. Performance fee, including hurdle rates, high-water marks, and loss carry forwards, if
any;
20% performance fee above high-water mark.
D. Redemption terms, including any fees payable, lock-outs, gating provisions, or other
restrictions.
Redemptions can be made quarterly with 60-Day notice on Last Business Day. Fund has a lock-out
within the first three years with early redemption fees. A redemption fee of up to 10% (as
decided by LUXE Fund) will be chargeable for Members who wish to retire from the Fund within
12 months of their joining, and 5% for those wishing to retire between 12-24 months after their
joining, and 2.5% for those wishing to retire between 24-36 months, and nothing thereafter.
11. 3. Can the investment manager suspend redemptions, suspend the payment of
redemption proceeds, pay redemption proceeds in-kind, or otherwise elect to deviate from
the redemption terms described above? If so, please describe.
No. When a Member wishes to bring his participation to an end, either partially or entirely, he may
retire from the Fund in respect of some or all of his Ownership Units and exchange his joint
interest for independent ownership of selected Champagnes following the procedure.
Alternatively, if financial or other circumstances mean that a Member wishes to dispose of some
or all of his Champagnes stocks, he may opt for the cash equivalent value of the relevant
Ownership Units to be paid to him.
4. Does the Fund generally charge additional expenses to the Fund, including operating
expenses, audit fees, administrative fees, Fund organizational expenses, legal fees, sales
fees, salaries, rent, or other charges not detailed in (2) above? If so, please describe. What
was the total amount of these expenses in each of the last three calendar years as a
percentage of total Fund assets under management, if applicable?
No, the management fee is all-inclusive and covers everything. The investor is guaranteed that
he will not face any other fees as well as not face any increase in its management fees for the
lifetime of the investment.
5. What is the Fund’s policy with regard to side letters? Do any investors in the Fund
experience fee or redemption terms that differ materially from those listed above? If so,
please describe.
The Fund may, from time to time, offer side letters that differ from the terms above only on the
digression of a majority of the ownership of the Fund. These may include the increase or
decrease of the subscription fee, annual management fee, and performance fee.
Performance History
1. Please provide a performance history for the Fund.
Each qualified investor will be provided an up-to-date performance history at date of enquiry.
Risk Management
1. Please describe the Funds risk management philosophy and discuss the approach used
by the Fund in the management of the Fund's exposure to: equity, interest-rate, currency,
and credit market risk (as applicable); financing and counterparty risk; and operational
risk.
The vast majority of the Fund will be invested in a number of the top Champagne producers of
France, due to the prestige of the chateaux and the sheer volume of fine Champagne produced
each year. Therefore the Fund will have an inherent exposure to the Champagne region of
France. Exposure to other assets is far less significant in comparison and is intended to be
restricted to 5% of the Net Asset Value of the Fund.
2. Does the fund rely on third parties to perform any portion of its risk management
function?
11
12. No
3. What types of risk measures does the Fund use in its risk management function?
The performance of the Fund is reliant on the Fund successfully identifying good purchasing
opportunities based on analytical procedures and the consequent capital value preservation
parameters, as well as on reliable Champagne market information.
Valuation
1. Please describe the process of valuation of the Fund's positions, including valuation
process for positions that do not have a market price. Please discuss in particular the
frequency of valuation and whether any third-party services are employed in the valuation
process (and, if so, how these third parties are monitored).
The Net Asset Value will be calculated by an independent administrator on the valuation day on a
monthly basis for subscriptions, as well as for the purpose of calculating and accruing the
Management Fee and the Capital Appreciation Fee. For the determination of the Net Asset Value
the Administrator will use the prices provided by Liv-ex Ltd, (London International Vintners
Exchange).
2. Has the Fund had a material restatement of its financial statements or any prior results
since inception? If so, please describe. Was the restatement the result of an audit by an
external auditing Fund?
No
Fund Service Providers
1. If the Fund employs an administrator, please provide its contact information.
Liv-ex Ltd, the London International Vintners Exchange.
2. Please name the main prime brokers used by the Fund.
None
Investor Communications
1. What types of investor communication does the Fund currently provide, and with what
frequency?
All investors receive personalized analysis and recommendations regarding wealth-planning
strategies that can be implemented to enhance the accumulation of wealth, a transition plan
regarding how best to transfer existing investments to their Fund account. Quarterly account
statements and portfolio performance. Informative quarterly reports, which include our current
investment strategy as well as regular meetings with their Portfolio Manager.
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