6. Management Fee Income and Incentive Income

ZAIS Group earns management fees for funds and accounts, annually, based on the net asset value of these funds and accounts prior to the accrual of incentive fees/allocations. Management fees earned for the CLOs, annually, are generally based on the par value of the collateral and cash held in the CLOs. Management fees earned by ZAIS Group from ZFC REIT, annually, are based on ZFC REIT's stockholders' equity, as defined in the amended and restated investment advisory agreement between ZAIS Group’s consolidated subsidiary ZAIS REIT Management, LLC (“ZAIS REIT Management”) and ZFC REIT. Refer to Note 17 for additional information regarding the investment advisory agreement between ZAIS REIT Management and ZFC REIT. Twenty percent of the management fee income received from ZFC REIT is paid to holders of Class B interests in ZAIS REIT Management. For the three months ended March 31, 2016, the twenty percent is recorded on a gross basis and included in management fee income on the consolidated statements of comprehensive income (loss). This income is allocated to non-controlling interest in ZAIS Group Parent, LLC. However, for the three months ended March 31, 2015, the twenty percent is recorded on a net basis and is not included in management fee income on the consolidated statements of comprehensive income (loss).

In addition to the management fee income mentioned above, subordinated management fees may be earned from CLOs for which ZAIS Group and certain of its wholly owned subsidiaries act as collateral manager. The subordinated management fee is an additional payment for the same collateral management service, but has a lower priority in the CLOs’ cash flows. The subordinated management fee is contingent upon the economic performance of the respective CLO assets. If the CLOs experience a certain level of asset defaults, these fees may not be paid. There is no recovery by the CLOs of previously paid subordinated fees. ZAIS Group recognizes the subordinated management fee income when collection is reasonably assured.

ZAIS Group manages certain funds and accounts from which it may earn incentive income based on hedge fund-style and private equity-style fee arrangements. Funds and accounts with hedge fund-style fee arrangements are those that pay ZAIS Group, on an annual basis, an incentive fee/allocation based on a percentage of net realized and unrealized profits attributable to each investor, subject to a hurdle (if any) set forth in each respective entity’s operative agreement. Additionally, all funds and accounts with hedge fund-style fee arrangements are subject to a perpetual loss carry forward, or perpetual “high-water mark,” meaning that the funds and accounts will not pay incentive fees/allocations with respect to positive investment performance generated for an investor in any year following negative investment performance until that loss is recouped, at which point an investor’s capital balance surpasses the high-water mark. The funds and accounts pay incentive fees/allocations on any net profits in excess of the high-water mark. Funds and accounts with private equity-style fee arrangements are those that pay an incentive fee/allocation based on a priority of payments under which investor capital must be returned and a preferred return, as specified in each fund’s operative agreement, must be paid to the investor prior to any payments of incentive-based income to ZAIS Group. For CLOs, incentive income is earned based on a percentage of cumulative profits, subject to the return of contributed capital (and subordinate management fees, if any), and a preferred inception to date return as specified in the respective CLOs’ collateral management agreements. ZAIS Group does not earn incentive income from ZFC REIT.

The following tables represent the gross amounts of management fee income and incentive income earned prior to eliminations due to consolidation of the Consolidated Funds and the net amount reported in the Company’s consolidated statements of comprehensive income (loss) for the three months ended March 31, 2016 and March 31, 2015. March 31, 2015 amounts have been adjusted to conform to current period presentation:

		Three Months Ended March 31, 2016
		( Dollars in thousands )
		Gross				Net
	Fee Range	Amount		Elimination		Amount
Management Fee Income
Funds and accounts	0.50% - 1.25%	$	2,397	$	—	$	2,397
CLO’s	0.15% - 0.50%		405		—		405
ZFC REIT	1.50%		767		—		767
Total		$	3,569	$	—	$	3,569

Incentive Income ⁽¹⁾
Funds and accounts	10% - 20%	$	152	$	—	$	152
CLO’s	20%		—		—		—
Total		$	152	$	—	$	152

		Three Months Ended March 31, 2015
		( Dollars in thousands )
		Gross				Net
	Fee Range	Amount		Elimination		Amount
Management Fee Income
Funds and accounts	0.50% - 1.25%	$	3,035	$	—	$	3,035
CLO’s	0.15% - 0.50%		144		—		144
ZFC REIT	1.50%		574		—		574
Total		$	3,753	$	—	$	3,753

Incentive Income ⁽¹⁾
Funds and accounts	10% - 20%	$	35	$	—	$	35
CLO’s	10% - 20%		873		—		873
Total		$	908	$	—	$	908

(1)

Incentive income earned for certain of the ZAIS Managed entities is subject to a hurdle rate of return as specified in each respective ZAIS Managed Entities’ operative agreement.

The management fee income amounts above are net of management fee credits of $54,000 and $65,000 for the three months ended March 31, 2016 and March 31, 2015, respectively.

At March 31, 2016, approximately $1,602,000 and $0 were accrued for management fee income and incentive income, respectively but not received, and included in income and fees receivable in the consolidated statements of financial condition. At December 31, 2015, approximately $1,670,000 and $859,000 were accrued for management fee income and incentive income, respectively but not received, and included in income and fees receivable in the consolidated statements of financial condition.