UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22634
Blackstone Alternative Alpha Fund
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, 28th Floor
New York, NY 10154
(Address of Principal Executive Offices)
Peter Koffler, Esq.
c/o Blackstone Alternative Asset Management L.P.
345 Park Avenue
28th Floor
New York, NY 10154
(Name and Address of Agent for Service)
With a copy to:
James E. Thomas, Esq.
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199-3600
Registrants telephone number, including area code: (212) 583-5000
Date of fiscal year end: March 31
Date of reporting period: March 31, 2018
Item 1. | Reports to Stockholders. |
The Report to Shareholders is attached hereto.
Blackstone
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Blackstone Alternative Asset Management L.P.
ANNUAL REPORT
For the Year Ended March 31, 2018
Blackstone Alternative Alpha Fund
Blackstone Alternative Alpha Fund |
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Blackstone Alternative Alpha Master Fund and Subsidiary |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Blackstone Alternative Alpha Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of Blackstone Alternative Alpha Fund (the Fund) including the schedule of investment, as of March 31, 2018, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund of March 31, 2018, and the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then end, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
New York, New York
May 23, 2018
We have served as the auditors of one or more investment companies within the group of investment companies since 2010.
1
Blackstone Alternative Alpha Fund
Statement of Assets and Liabilities
As of March 31, 2018
Assets: |
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Investment in Blackstone Alternative Alpha Master Fund (Master Fund), at fair
value |
$ | 702,442,079 | ||
Cash |
4,062,459 | |||
Receivable for shares repurchased from Master Fund |
34,226,246 | |||
Prepaid expenses |
16,242 | |||
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Total assets |
740,747,026 | |||
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Liabilities: |
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Payable for shares repurchased |
32,840,342 | |||
Shareholder subscriptions received in advance |
1,282,500 | |||
Payable to Investment Manager |
1,112,580 | |||
Shareholder service and distribution fees payable |
516,232 | |||
Accrued expenses and other liabilities |
193,731 | |||
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Total liabilities |
35,945,385 | |||
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Net assets |
$ | 704,801,641 | ||
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Components of Net Assets: |
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Paid-in capital |
$ | 667,825,659 | ||
Accumulated net investment loss |
(12,985,564 | ) | ||
Accumulated net realized gain |
35,802,262 | |||
Net unrealized appreciation on investments |
14,159,284 | |||
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Net assets |
$ | 704,801,641 | ||
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Net Asset Value: |
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Net assets |
$ | 704,801,641 | ||
Shares of beneficial interests outstanding, no par value, unlimited shares authorized |
612,141 | |||
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Net asset value per share |
$ | 1,151.37 | ||
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See accompanying Notes to Financial Statements.
2
Blackstone Alternative Alpha Fund
March 31, 2018
Shares | Cost | Fair Value | Percentage of Total Net Assets | |||||||||||||||||
Blackstone Alternative Alpha Master Fund |
584,919 | $ | 688,282,795 | $ | 702,442,079 | 99.67 | % | |||||||||||||
Other assets, less liabilities |
2,359,562 | 0.33 | % | |||||||||||||||||
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Total Net Assets |
$ | 704,801,641 | 100.00 | % | ||||||||||||||||
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See accompanying Notes to Financial Statements.
3
Blackstone Alternative Alpha Fund
For the Year Ended March 31, 2018
Fund Expenses: |
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Distribution |
$ | 4,548,609 | ||
Shareholder service |
1,895,254 | |||
Printing |
278,511 | |||
Transfer agent fees |
246,441 | |||
Legal |
176,634 | |||
Professional |
53,855 | |||
Blue sky fees |
43,434 | |||
Custody |
10,981 | |||
Other |
74,491 | |||
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Total Fund expenses |
7,328,210 | |||
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Expenses repaid to Investment Manager* |
223,133 | |||
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Fund expenses |
7,551,343 | |||
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Net Investment Loss |
(7,551,343 | ) | ||
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Realized and Unrealized Gain from Investments: |
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Realized gain distribution from Master Fund |
29,044,178 | |||
Realized gain from investment in Master Fund |
11,086,195 | |||
Net change in unrealized depreciation from investment in Master Fund |
(3,716,558 | ) | ||
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Net Realized and Unrealized Gain from Investments |
36,413,815 | |||
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Net Increase in Net Assets resulting from Operations |
$ | 28,862,472 | ||
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* | The repayment includes expenses incurred by the Fund and the Master Fund (as defined herein). See Note 5. |
See accompanying Notes to Financial Statements.
4
Blackstone Alternative Alpha Fund
Statements of Changes in Net Assets
For the Year Ended March 31, 2018 |
For the Year Ended March 31, 2017 |
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Increase (Decrease) in Net Assets: |
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Operations: |
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Net investment loss |
$ | (7,551,343 | ) | $ | (9,007,632 | ) | ||
Realized gain distribution from Master Fund |
29,044,178 | 1,792,233 | ||||||
Realized gain from investment in Master Fund |
11,086,195 | 23,125,108 | ||||||
Net change in unrealized (depreciation) appreciation from investment in Master Fund |
(3,716,558 | ) | 67,248,224 | |||||
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Net increase in net assets resulting from operations |
28,862,472 | 83,157,933 | ||||||
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Distributions to shareholders from ordinary income |
(5,907,256 | ) | | |||||
Distributions to shareholders from net realized capital gains |
(20,138,140 | ) | (34,595,660 | ) | ||||
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Distributions to shareholders |
(26,045,396 | ) | (34,595,660 | ) | ||||
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Capital Transactions: |
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Shareholder subscriptions |
20,676,760 | 53,995,239 | ||||||
Reinvestment of distributions |
23,568,259 | 29,893,018 | ||||||
Shareholder redemptions |
(125,067,090 | ) | (216,556,883 | ) | ||||
Early withdrawal fee |
3,535 | 36,800 | ||||||
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Net decrease in net assets from capital transactions |
(80,818,536 | ) | (132,631,826 | ) | ||||
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Net Assets: |
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Total decrease in net assets |
(78,001,460 | ) | (84,069,553 | ) | ||||
Beginning of year |
782,803,101 | 866,872,654 | ||||||
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End of year |
$ | 704,801,641 | $ | 782,803,101 | ||||
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Accumulated net investment loss |
$ | (12,985,564 | ) | $ | (11,764,689 | ) | ||
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Share Transactions: |
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Beginning of year |
681,754 | 798,738 | ||||||
Shares issued |
17,685 | 48,333 | ||||||
Shares reinvested |
20,624 | 27,088 | ||||||
Shares redeemed |
(107,922 | ) | (192,405 | ) | ||||
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End of year |
612,141 | 681,754 | ||||||
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See accompanying Notes to Financial Statements.
5
Blackstone Alternative Alpha Fund
For the Year Ended March 31, 2018
Cash Flows from Operating Activities: |
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Net increase in net assets resulting from operations |
$ | 28,862,472 | ||
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: |
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Realized gain distribution from Master Fund |
(29,044,178 | ) | ||
Realized gain from investment in Master Fund |
(11,086,195 | ) | ||
Net change in unrealized depreciation from investment in Master Fund |
3,716,558 | |||
Purchase of investment in Master Fund and subscription paid in advance to Master Fund |
(29,845,645 | ) | ||
Proceeds from redemption of investment in Master Fund and Receivable for redemption from Master Fund |
191,235,185 | |||
Decrease in prepaid expenses |
4,586 | |||
Decrease in shareholder service and distribution fees payable |
(85,608 | ) | ||
Increase in payable to Investment Manager |
533,429 | |||
Increase in accrued expenses and other liabilities |
18,480 | |||
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Net cash provided by operating activities |
154,309,084 | |||
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Cash Flows from Financing Activities: |
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Proceeds from shareholder subscriptions and subscriptions received in advance |
20,956,260 | |||
Payments for shareholder distributions |
(2,477,137 | ) | ||
Payments for shareholder redemptions of shares |
(171,705,888 | ) | ||
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Net cash used in financing activities |
(153,226,765 | ) | ||
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Net change in cash |
1,082,319 | |||
Cash, beginning of year |
2,980,140 | |||
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Cash, end of year |
$ | 4,062,459 | ||
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Supplemental Disclosure of Non-cash Operating Activities: |
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Reinvestment of distribution from Master Fund |
$ | 29,044,178 | ||
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Supplemental Disclosure of Non-cash Financing Activities: |
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Reinvestment of distributions |
$ | 23,568,259 | ||
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See accompanying Notes to Financial Statements.
6
Blackstone Alternative Alpha Fund
For the Year Ended March 31, 2018 |
For the Year Ended March 31, 2017 |
For the Year Ended March 31, 2016 |
For the Year Ended March 31, 2015 |
For the Year Ended March 31, 2014 |
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Per Share Operating Performance: |
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Net Asset Value, Beginning of Year |
$ | 1,148.21 | $ | 1,085.30 | $ | 1,260.80 | $ | 1,164.11 | $ | 1,077.70 | ||||||||||
Income/(loss) from Investment Operations: |
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Net investment loss1 |
(11.61 | ) | (11.50 | ) | (12.22 | ) | (11.52 | ) | (10.12 | ) | ||||||||||
Net realized and unrealized gain/(loss) from investments |
55.97 | 118.90 | (132.60 | ) | 119.39 | 96.47 | ||||||||||||||
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Net income/(loss) from investment operations |
44.36 | 107.40 | (144.82 | ) | 107.87 | 86.35 | ||||||||||||||
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Distributions to shareholders from ordinary income |
(9.35 | ) | | | | | ||||||||||||||
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Distributions to shareholders from net realized capital gains |
(31.86 | ) | (44.54 | ) | (30.71 | ) | (11.29 | ) | | |||||||||||
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Early withdrawal fee |
0.01 | 0.05 | 0.03 | 0.11 | 0.06 | |||||||||||||||
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Net Asset Value, end of year |
$ | 1,151.37 | $ | 1,148.21 | $ | 1,085.30 | $ | 1,260.80 | $ | 1,164.11 | ||||||||||
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Financial Ratios: |
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Distribution and service fees |
0.85 | % | 0.85 | % | 0.85 | % | 0.85 | % | 0.85 | % | ||||||||||
Other expenses to average net assets for the Fund before repayment/(reimbursement) to/from Investment Manager |
0.12 | % | 0.11 | % | 0.09 | % | 0.10 | % | 0.38 | % | ||||||||||
Repayment/(Reimbursement) to/ from Investment Manager2 |
0.03 | % | 0.06 | % | 0.09 | % | 0.00 | % | (0.33 | )% | ||||||||||
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Total expenses to average net assets for the Fund after repayment/(reimbursement) to/from Investment Manager3 |
1.00 | % | 1.02 | % | 1.03 | % | 0.95 | % | 0.90 | % | ||||||||||
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Net investment loss to average net assets for the Fund |
(1.00 | )% | (1.02 | )% | (1.03 | )% | (0.95 | )% | (0.90 | )% | ||||||||||
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Portfolio turnover4 |
2.47 | % | 13.15 | % | 8.97 | % | 8.68 | % | 10.30 | % | ||||||||||
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Total return |
3.89 | % | 10.07 | % | (11.63 | )% | 9.31 | % | 8.02 | % | ||||||||||
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Net assets, end of year (000s) |
$ | 704,802 | $ | 782,803 | $ | 866,873 | $ | 781,691 | $ | 520,851 | ||||||||||
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1 | Calculated using average shares outstanding during the year. |
2 | The repayment/reimbursement includes expenses incurred by the Fund and the Master Fund. See Note 5. |
3 | In accordance with the Expense Limitation and Reimbursement Agreement, Specified Expenses of the Master Fund are included in the limitation of the Expense Cap. See Note 5. The expenses of the Master Fund represent 1.50%, 1.48%, 1.45%, 1.53% and 1.56% on an annualized basis, of average net assets for the Fund for the years ended March 31, 2018, March 31, 2017, March 31, 2016, March 31, 2015 and March 31, 2014, respectively. The net expense ratio for the Fund, including the applicable Master Fund expenses, is 2.50%, 2.50%, 2.48%, 2.48% and 2.46% on an annualized basis, for the years ended March 31, 2018, March 31, 2017, March 31, 2016, March 31, 2015 and March 31, 2014 respectively. |
4 | The Fund is invested solely in the Master Fund; therefore, this ratio reflects the portfolio turnover of the Master Fund. |
The financial ratios represent the expenses and net investment loss to average monthly net assets for the year. The computation of such ratios does not reflect the Funds share of the income and expenses of the underlying Investee Funds held by the Master Fund. The individual shareholders total return may vary from this total return based on the timing of capital transactions.
See accompanying Notes to Financial Statements.
7
Blackstone Alternative Alpha Fund
March 31, 2018
1. Organization
Blackstone Alternative Alpha Fund (the Fund), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a continuously offered, non-diversified, closed-end management investment company, commenced operations on April 1, 2012. The Funds investment objective is to seek to earn long-term risk-adjusted returns that are attractive as compared to those of traditional public equity and fixed income markets. The Fund pursues its objective by investing substantially all of its assets in Blackstone Alternative Alpha Master Fund (the Master Fund), a Massachusetts business trust registered under the 1940 Act as a continuously offered, closed-end management investment company with the same investment objective and substantially the same investment policies as the Fund.
The Master Funds consolidated financial statements and notes to consolidated financial statements, included elsewhere within this report, are an integral part of the Funds financial statements and should be read in conjunction with these financial statements. As of March 31, 2018, the Fund held a 91.34% ownership interest in the Master Fund.
The investment manager of the Fund and the Master Fund is Blackstone Alternative Asset Management L.P. (BAAM or the Investment Manager), a registered investment adviser under the Investment Advisers Act of 1940, as amended. Each of the Fund and the Master Fund is a commodity pool subject to regulation by the Commodity Futures Trading Commission (CFTC). BAAM, which serves as the commodity pool operator of the Fund and the Master Fund, is registered as such with the CFTC, but has claimed relief under Rule 4.12(c)(3) of the Commodity Exchange Act from certain disclosure, reporting and recordkeeping requirements otherwise applicable to commodity pools. The Board of Trustees (the Board and each member a Trustee) of the Fund and the Master Fund supervises the conduct of the Funds and the Master Funds affairs and, pursuant to their respective investment management agreements, has engaged BAAM to manage the Funds and the Master Funds day-to-day investment activities.
Capitalized terms used, but not defined herein, shall have the meaning assigned to them in the Prospectus of the Fund.
2. Basis of Presentation
The Funds financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and are stated in U.S. dollars.
The Fund is an investment company in accordance with Accounting Standards Codification 946, Financial ServicesInvestment 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 Topic 946, as described in FASB Accounting Standards Update No. 2013-08.
The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses during the reporting year. Actual results could differ from these estimates and these differences could be material.
8
Blackstone Alternative Alpha Fund
Notes to Financial Statements (Continued)
March 31, 2018
3. Significant Accounting Policies
Fair Value Measurements
Investment in the Master Fund
The Funds investment in the Master Fund is recorded at fair value and is based upon the Funds percentage ownership of the net assets of the Master Fund. The performance of the Fund is directly affected by the performance of the Master Fund.
See Note 3 to the Master Funds consolidated financial statements for the determination of fair value of the Master Funds investments.
Investment Transactions and Related Investment Income and Expenses
Investment transactions are accounted for on a trade date basis. Income and expenses, including interest, are recorded on an accrual basis.
The net realized gains or losses from investment in the Master Fund are recorded when the Fund redeems or partially redeems its interest in the Master Fund or receives distributions in excess of return of capital. Realized gains and losses from redemptions of investments are calculated using the first-in, first-out cost basis methodology.
Cash
At March 31, 2018, the Fund had $4,062,459 of cash held at a major U.S. bank.
Contingencies
Under the Funds Amended and Restated Agreement and Declaration of Trust (Declaration of Trust), the Funds officers and Trustees are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and indemnifications. The Funds maximum exposure under these arrangements is unknown. To date, the Fund has not had claims or losses pursuant to these contracts, although there is no assurance that it will not incur losses in connection with these indemnifications in the future.
Income Taxes
The Funds policy is to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986 and to distribute substantially all of its investment company taxable income and net long-term capital gains to its shareholders. Therefore, no federal income tax provision is expected to be required. The Fund files U.S. federal and various state and local tax returns.
Management of the Fund has evaluated the tax positions taken or expected to be taken in the course of preparing the Funds tax returns for the current open tax years ending October 31, 2014, October 31, 2015, October 31, 2016 and October 31, 2017 and has concluded, as of March 31, 2018, that no provision for income tax would be required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for the current open tax years are subject to examination by the Internal Revenue Service and state taxing authorities.
9
Blackstone Alternative Alpha Fund
Notes to Financial Statements (Continued)
March 31, 2018
Dividends and Distributions to Shareholders
Dividends from net investment income and distributions of capital gains, if any, are declared and paid at least annually. Dividends and capital gain distributions paid by the Fund will be reinvested in additional Shares (defined below) of the Fund unless a shareholder elects not to reinvest in Shares or is otherwise ineligible. Shares purchased by reinvestment will be issued at their net asset value on the ex-dividend date.
Recent Accounting Pronouncements and Regulatory Updates
In November 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)Restricted Cash. The new guidance is intended to change the presentation of restricted cash on the statement of cash flows. The new standard affects all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. Management is currently evaluating the new guidance. The adoption of ASU No. 2016-18 is not expected to have a material impact on the financial statements.
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures, particularly relating to derivatives, in investment company financial statements. In addition, the rule introduces two new regulatory reporting forms for investment companies, which will be used after June 1, 2018: Form N-PORT and Form N-CEN. Compliance with the amendments to Regulation S-X became effective for financial statements filed with the SEC on or after August 1, 2017. The Fund is still evaluating the potential impacts of adopting Form N-PORT and Form N-CEN.
4. Fund Terms
Issuance of Shares
The Fund will issue shares of beneficial interest (Shares) to eligible investors as of the first business day of the month or at such other times as determined by the Board upon receipt of an initial or additional application for Shares.
The Fund reserves the right to reject, in whole or in part, any applications for subscriptions of Shares. The Shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Funds Declaration of Trust.
Repurchase of Shares
The Fund from time to time may offer to repurchase a portion of its outstanding Shares pursuant to written tenders by shareholders. Repurchases will be made only at such times and on such terms as may be determined by the Board, in its complete and exclusive discretion. Shareholders who tender Shares in a repurchase offer that has a Tender Valuation Date within the 12 month period following the original issue date of such Shares will be subject to an early withdrawal fee of 2% of the aggregate net asset value of the Shares repurchased by the Fund.
In determining whether the Fund should repurchase Shares from shareholders pursuant to written tenders, the Funds Board will consider the Investment Managers recommendations, among other factors. The Investment Manager expects to recommend quarterly repurchases. Since the Funds assets consist primarily of its investment in the Master Fund, the ability of the Fund to have its Shares in the Master Fund be repurchased is subject to the Master Funds repurchase policy.
10
Blackstone Alternative Alpha Fund
Notes to Financial Statements (Continued)
March 31, 2018
5. Related Party Transactions
Blackstone Holdings Finance Co. L.L.C. (FINCO), an affiliate of the Fund, pays expenses on behalf of the Fund. The Fund reimburses FINCO for such expenses paid on behalf of the Fund. FINCO does not charge any fees for providing such administrative services. At year-end March 31, 2018, the amount outstanding is $530,913.
Management Fee
The Investment Manager will not charge the Fund a management fee as long as substantially all of the assets of the Fund are invested in the Master Fund. The Master Fund pays the Investment Manager a management fee (the Management Fee) quarterly in arrears (accrued on a monthly basis), equal to 1.25% (annualized) of the Master Funds net asset value at the end of such month before giving effect to the payment of the management fee or any purchases or repurchases of Master Fund shares or any distributions by the Master Fund. The Management Fee for any period less than a full quarter is prorated.
Expense Limitation and Reimbursement
The Investment Manager has entered into an Expense Limitation and Reimbursement Agreement (the Agreement) with the Fund to limit the amount of the Funds Specified Expenses (as described below and including the Funds pro rata share of the Master Funds Specified Expenses) to an amount not to exceed 0.35% per annum of the Funds net assets (the Expense Cap) (computed and applied on a monthly basis). Specified Expenses is defined to include all expenses incurred by the Fund and the Funds pro rata share of all expenses incurred by the Master Fund with the exception of: (i) the Management Fee, (ii) the Distribution and Service Fee (as defined below), (iii) fees and expenses of the Investment Funds in which the Master Fund invests, (iv) brokerage costs, (v) interest payments (including any interest expenses, commitment fees, or other expenses related to any line of credit of the Fund or Master Fund), (vi) taxes, and (vii) extraordinary expenses (in each case, as determined in the sole discretion of the Investment Manager). To the extent that Specified Expenses for the Fund (including the Funds pro rata share of the Master Funds Specified Expenses) for any month exceed the Expense Cap, the Investment Manager will waive its fees and/or reimburse the Fund for expenses to the extent necessary to eliminate such excess. The Investment Manager may discontinue its obligations under the Agreement at any time in its sole discretion after August 31, 2020 upon written notice to the Fund. This arrangement cannot be terminated prior to August 31, 2020 without the Boards consent. The Fund has agreed to repay the amounts borne by the Investment Manager under the Agreement within the three year period after the Investment Manager bears the expense, when and if requested by the Investment Manager, but only if and to the extent that the estimated annualized Specified Expenses of the Fund (including the Funds pro rata share of the Master Funds Specified Expenses) for a given month are less than the lower of the Expense Cap and any expense limitation agreement then in effect with respect to the Specified Expenses. The Investment Manager is permitted to receive such repayment from the Fund provided that the reimbursement amount does not raise the level of Specified Expenses of the Fund (including the Funds pro rata share of the Master Funds Specified Expenses) in the month the repayment is being made to a level that exceeds the Expense Cap or any other expense limitation agreement then in effect with respect to the Specified Expenses.
As of March 31, 2018, the repayments that may be made by the Fund to the Investment Manager total $332,238. Of this amount, repayments of $107,698 have a maximum expiration date of March 31, 2019, repayments of $74,930 have a maximum expiration date of March 31, 2020 and repayments of $149,610 have a maximum expiration date of March 31, 2021.
11
Blackstone Alternative Alpha Fund
Notes to Financial Statements (Continued)
March 31, 2018
Distribution and Servicing Agreement
Blackstone Advisory Partners L.P., an affiliate of the Investment Manager, serves as the distributor of the Shares of the Fund (the Distributor). The Fund pays the Distributor a fee (the Distribution and Service Fee) equal to 0.85% (annualized) of the average net assets of the Fund. The Distribution and Service Fee consists of compensation at a rate of 0.60% for the sale and marketing of the Shares and 0.25% for services provided to Investors. The Distributor may pay all or a portion of the Distribution and Service Fee to the selling agents that sell Shares and/or provide sales support services and to other financial intermediaries that provide personal services and/or the maintenance of shareholder accounts.
Expense Payments
The Investment Manager pays expenses on behalf of the Fund and is subsequently reimbursed for such payments. Subject to the Expense Limitation and Reimbursement Agreement, the Fund repaid $223,133 of the reimbursement amount, which increased the amount payable by the Fund to the Investment Manager for repayment of such expenses. As of March 31, 2018, the Fund had a net payable to the Investment Manager of $1,112,580 recorded in the Statement of Assets and Liabilities.
6. Financial Instruments and Off-Balance Sheet Risk
In the normal course of business, the investment partnerships, managed funds and other investment funds (Investee Funds) held by the Master Fund may enter into certain financial instrument transactions which may result in off-balance sheet market risk and credit risk. The Funds market risk is also impacted by an Investee Funds exposure to interest rate risk, foreign exchange risk, and industry or geographic concentration risk. The Investee Funds held by the Master Fund invest in these instruments for trading and hedging purposes. The Fund is indirectly subject to certain risks arising from investments made by the Investee Funds held by the Master Fund.
Market Risk
The Fund, through its investments in investment partnerships, managed funds and other investment funds (Investee Funds) held by the Master Fund, has exposure to financial instrument transactions which may have off-balance sheet market risk. Off-balance sheet market risk is the risk of potential adverse changes to the value of financial instruments and derivatives because of changes in market conditions such as interest and currency rate movements. See notes to the Consolidated Master Funds financial statements.
Credit Risk
The Fund is subject to certain inherent credit risks arising from transactions involving derivative financial instruments by exposure through the Master Funds investments. Credit risk is the amount of accounting loss that the Fund would incur if a counterparty fails to perform its obligations under contractual terms. See notes to the Consolidated Master Funds financial statements.
7. Income Taxes
The tax character of dividends paid to shareholders during the year January 1, 2017 to December 31, 2017 was as follows:
Ordinary |
Net Long Term |
Total
Taxable |
Tax Return |
Total | ||||
$5,907,256 | $20,138,140 | $26,045,396 | $ | $26,045,396 |
12
Blackstone Alternative Alpha Fund
Notes to Financial Statements (Continued)
March 31, 2018
The tax character of dividends paid to shareholders during the year January 1, 2016 to December 31, 2016 was as follows:
Ordinary |
Net Long Term |
Total Taxable |
Tax Return of |
Total | ||||
$ | $34,595,660 | $34,595,660 | $ | $34,595,660 |
As of the tax year ended October 31, 2017, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed |
Undistributed |
Accumulated Capital |
Unrealized |
Total Accumulated | ||||
$ | $20,138,140 | $ | $34,399,308 | $54,537,448 |
The amounts of net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of dividends and distributions made during the fiscal year from net investment income or net realized gains may differ from the ultimate characterization for federal income tax purposes. The timing of dividends from net investment income and distributions from net realized gains distributed during the fiscal year may also differ from the year that the income or realized gain was recorded by the Fund. To the extent these differences are permanent, adjustments are made to the appropriate equity accounts in the period the differences arise.
Accordingly, the following permanent differences, primarily due to certain shareholder redemption activity treated as distributions for tax, consent dividends, and net operating losses, have been reclassified to increase (decrease) such accounts during the tax year ended October 31, 2017:
Accumulated Net
Investment |
Accumulated Net
Realized |
Paid-in Capital | ||
$6,330,468 | $(1,045,127) | $(5,285,341) |
8. Subsequent Events
The Investment Manager has evaluated the impact of subsequent events through the date of financial statement issuance, and determined there were no subsequent events outside the normal course of business requiring adjustment to or disclosure in the financial statements.
13
Blackstone Alternative Alpha Fund
March 31, 2018 (Unaudited)
Management of the Fund
The Funds operations are managed by the Investment Manager under the direction and oversight of the Board of Trustees. A majority of the Trustees are not interested persons (as defined in the 1940 Act) of the Fund (the Independent Trustees). The Funds Trustees and officers are subject to removal or replacement in accordance with Massachusetts law and the Funds Amended and Restated Declaration of Trust (Declaration of Trust). The Funds Board of Trustees also serves as the board of trustees of the Master Fund and the board of trustees of Blackstone Alternative Alpha Fund II (BAAF II together with the Fund, the Feeder Funds), an affiliate of the Fund that also invests substantially all of its assets in the Master Fund.
Compensation for Trustees
Each of the Independent Trustees is paid by the Fund Complex (as defined below) $110,000 per fiscal year in the aggregate for their services to the Fund Complex (including the Subsidiaries). Mr. Coates (a Trustee being treated as an interested person (as defined in the 1940 Act) of the Fund due to his employment by Envestnet, Inc., which conducts business with certain Investee Funds and may conduct business with the Investment Adviser and its affiliates in the future) is paid by the Fund Complex $95,000 per fiscal year in the aggregate for his services to the Fund Complex (excluding the Subsidiaries). The Chairpersons of the Board of Trustees and the Audit Committee are paid by the Fund Complex an additional $25,000 and $15,000, respectively, per fiscal year. These payments are allocated to the Fund and the other funds in the Fund Complex on the basis of assets under management. The Fund Complex also pays for the Trustees travel expenses related to Board of Trustees meetings. The Trustees do not receive any pension or retirement benefits from the Fund Complex. The following table sets forth information covering the total compensation payable by the Feeder-Funds during its fiscal year ended March 31, 2018 to the persons who serve, and who are expected to continue serving, as Trustees of the Fund during such period:
Independent Trustees: | ||||||||||
Name of Independent Trustee |
Aggregate Compensation From the BAAF Funds1 |
Total Compensation From the Fund Complex1 | ||||||||
John M. Brown |
$ | 33,696 | $ | 120,000 | ||||||
Peter M. Gilbert |
$ | 31,426 | $ | 110,000 | ||||||
Paul J. Lawler |
$ | 31,426 | $ | 110,000 | ||||||
Kristen M. Leopold |
$ | 33,388 | $ | 117,500 | ||||||
Interested Trustees: | ||||||||||
Name of Interested Trustee |
Aggregate Compensation From the BAAF Funds1 |
Total Compensation From BAMSF and Fund Complex1 | ||||||||
Frank J. Coates |
$ | 31,426 | $ | 96,250 | ||||||
Peter Koffler |
None | None |
1 | These amounts represent aggregate compensation for the services of each Trustee to each fund in the Fund Complex, for which each Trustee serves as trustee. The Fund Complex consists of the Feeder Funds, the Master Fund, and Blackstone Alternative Multi-Strategy Fund, a series of Blackstone Alternative Investment Funds and its Subsidiary Funds (the Subsidiaries). |
14
Blackstone Alternative Alpha Fund
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
INDEPENDENT TRUSTEES: | ||||||||||
Name and Year of Birth of Independent Trustees1 |
Position(s) Held with each of the Feeder Funds and the Master Fund |
Term of Office2 and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex3 Overseen by Trustee |
Other Trusteeships Held by Trustee During the Past 5 Years | |||||
John M. Brown (1959) |
Trustee | January 2012 to Present |
Retired (2004 Present) |
4 | None | |||||
Peter M. Gilbert (1947) |
Trustee | February 2016 to Present |
Retired (2015 Present); CIO, Lehigh University Endowment Fund (2007 2015) |
4 | None | |||||
Paul J. Lawler (1948) |
Trustee | January 2012 to Present |
Retired (2011 Present) | 4 | Trustee, First Eagle Funds (8 portfolios) | |||||
Kristen Leopold (1967) |
Trustee | January 2012 to Present |
CFO, WFL Real Estate Services, LLC (2006 Present); CFO, KL Associates LLC (Hedge Fund Consulting) (2007 2014) |
4 | Trustee, CPG Carlyle Commitments Fund, LLC; Trustee, CPG Carlyle Commitments Master Fund, LLC; Trustee, CPG Vintage Access Fund, LLC |
15
Blackstone Alternative Alpha Fund
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
INTERESTED TRUSTEES | ||||||||||
Name and Year of Birth of Interested Trustees1 |
Position(s) Held with each of the Feeder Funds and the Master Fund |
Term of Office2 and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex3 Overseen by Trustee |
Other Trusteeships Held by Trustee During the Past 5 Years | |||||
Frank J. Coates4 (1964) |
Trustee | January 2012 to Present |
Executive Managing Director6, Envestnet, Inc. (Wealth Management Solutions) (2016 Present); CEO, Wheelhouse Analytics, LLC (Technology Solutions) (2010 2016) |
4 | None | |||||
Peter Koffler5 (1956) |
Trustee | December 2012 to |
Senior Managing Director6, The Blackstone Group L.P. (Blackstone) (2012 Present); General Counsel, BAAM (2010 Present) and Blackstone Alternative Investment Advisors LLC (BAIA) (2012 Present); Chief Compliance Officer, BAAM (2008 2012, 2018 Present) and BAIA (2018 Present); Chief Compliance Officer, Blackstone (2013 2016) |
4 | None |
16
Blackstone Alternative Alpha Fund
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
OFFICERS | ||||||
Name and Year of Birth of Officers1 |
Position(s) Held with each of the Feeder Funds and the Master Fund |
Term of Office7 and Length of Time Served |
Principal Occupation(s) During Past 5 Years | |||
Natasha Kulkarni (1985) | Secretary | May 2018 to Present |
Vice President, Blackstone (2016 Present); Associate, Blackstone (2013 2015) | |||
Brian F. Gavin (1969) | President (Principal Executive Officer) |
November 2011 to Present | Chief Operating Officer & Senior Managing Director6, Blackstone (2007 Present) | |||
James Hannigan (1983) | Chief Compliance Officer, Anti-Money Laundering Officer, and Chief Legal Officer | Chief Compliance Officer and Anti-Money Laundering Officer (August 2016 to Present); Chief Legal Officer (March 2015 to Present) |
Managing Director6, Blackstone (2018 Present); Vice President, Blackstone (2017 Present); Associate, Blackstone (2012 2013); | |||
Arthur Liao (1972) |
Treasurer (Principal Financial and Accounting Officer) | November 2011 to Present |
Senior Managing Director6, Blackstone (2016 Present); Chief Financial Officer, BAAM (2007 Present) and BAIA (2012 Present); Managing Director6, Blackstone (2007 2015) |
1 | Unless otherwise noted, the business address of each officer and Trustee is c/o Blackstone Alternative Asset Management L.P., 345 Park Avenue, 28th Floor, New York, New York 10154. |
2 | Term of office of each Trustee is indefinite, until his or her resignation, removal, replacement, or death. Any Trustee of each of the Feeder Funds or the Master Fund may be removed from office in accordance with the provisions of each of the Feeder Funds and the Master Funds Amended and Restated Agreement and Declaration of Trust and Bylaws. |
3 | The Fund Complex consists of the Feeder Funds, the Master Fund, and Blackstone Alternative Multi-Strategy Fund, a series of Blackstone Alternative Investment Funds and its Subsidiary Funds (the Subsidiaries). |
4 | Mr. Coates is being treated as an interested person of the Fund and the Master Fund, as defined in the 1940 Act, due to his employment by Envestnet, Inc., which conducts business with certain Investment Funds and may conduct business with BAAM and/or its affiliates in the future. |
5 | Mr. Koffler is an interested person of the Feeder Funds and the Master Fund, as defined in the 1940 Act, due to his position with BAAM and its affiliates. |
6 | Executive title, not a board directorship. |
7 | Term of office of each Officer is indefinite, until his or her death, resignation, removal or disqualification. |
17
Blackstone Alternative Alpha Fund
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
Allocation of Investments
The Fund invests substantially all of its assets in the Master Fund. See the Consolidated Master Funds supplemental information for the allocation of investments among asset classes.
Form N-Q Filings
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Funds Form N-Q is available on the SECs website at http://www.sec.gov within 60 days after the Funds first and third fiscal quarters. The Funds Form N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, DC and information regarding operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Holdings and allocations shown on any Form N-Q are as of the date indicated in the filing and may not be representative of future investments. Holdings and allocations should not be considered research or investment advice and should not be relied upon in making investment decisions.
Proxy Voting Policies
The Fund and the Master Fund have delegated proxy voting responsibilities to the Investment Manager, subject to the Boards general oversight. A description of the policies and procedures used to vote proxies related to the Funds and the Master Funds portfolio securities, and information regarding how the Fund and the Master Fund voted proxies relating to their portfolio securities during the most recent 12-month period ended June 30 will be available by August 31 of that year (1) without charge, upon request, by calling toll free, 1-855-890-7725 and (2) on the SECs website at http://www.sec.gov.
Additional Information
The Funds prospectus and statement of additional information include additional information about the Trustees of the Fund. The prospectus and statement of additional information are available, without charge, upon request by calling 1-855-890-7725.
18
Privacy Policy
FACTS |
WHAT DO BLACKSTONE REGISTERED FUNDS DO WITH YOUR PERSONAL INFORMATION? |
Why? |
Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? |
The types of personal information we collect and share depend on the product or service you have with us. This information can include: ∎ Social Security number and income ∎ Assets and investment experience ∎ Risk tolerance and transaction history |
How? |
All financial companies need to share customers personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers personal information; the reasons Blackstone Registered Funds (as defined below) choose to share; and whether you can limit this sharing. |
Reasons we can share your
personal information |
Do Blackstone Registered Funds share? |
Can you limit this sharing? | ||
For our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
Yes | No | ||
For our marketing purposes to offer our products and services to you |
Yes | No | ||
For joint marketing with other financial companies | No | We dont share | ||
For our affiliates everyday business purposes information about your transactions and experiences |
No | We dont share | ||
For our affiliates everyday business purposes information about your creditworthiness |
No | We dont share | ||
For our affiliates to market to you | No | We dont share | ||
For nonaffiliates to market to you | No | We dont share |
Questions? | Email us at GLB.privacy@blackstone.com |
19
Privacy Policy (continued)
Who we are | ||
Who is providing this notice? | Blackstone Registered Funds include Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II, Blackstone Real Estate Income Fund, Blackstone Real Estate Income Fund II, Blackstone Alternative Investment Funds, on behalf of its series Blackstone Alternative Multi-Strategy Fund, Blackstone Diversified Multi-Strategy Fund, a sub-fund of Blackstone Alternative Investment Funds plc, and the GSO Funds, consisting of Blackstone / GSO Senior Floating Rate Term Fund, Blackstone / GSO Long-Short Credit Income Fund and Blackstone / GSO Strategic Income Fund | |
What we do | ||
How do Blackstone Registered Funds protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | |
How do Blackstone Registered Funds collect my personal information? | We collect your personal information, for example, when you: ∎ open an account or give us your income information ∎ provide employment information or give us your contact information ∎ tell us about your investment or retirement portfolio We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | |
Why cant I limit all sharing? | Federal law gives you the right to limit only: ∎ sharing for affiliates everyday business purposesinformation about your creditworthiness ∎ affiliates from using your information to market to you ∎ sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. See below for more on your rights under state law. | |
What happens when I limit sharing for an account I hold jointly with someone else? | Your choices will apply to everyone on your accountunless you tell us otherwise. | |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. ∎ Our affiliates include companies with a Blackstone name and financial companies such as GSO Capital Partners LP and Strategic Partners Fund Solutions. | |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. ∎ Blackstone Registered Funds do not share with nonaffiliates so they can market to you. | |
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. ∎ Our joint marketing partners include financial services companies. | |
Other important information | ||
California ResidentsIn accordance with California law, we will not share information we collect about California residents with nonaffiliates except as permitted by law, such as with the consent of the customer or to service the customers accounts. We will also limit the sharing of information about you with our affiliates to the extent required by applicable California law. Vermont ResidentsIn accordance with Vermont law, we will not share information we collect about Vermont residents with nonaffiliates except as permitted by law, such as with the consent of the customer or to service the customers accounts. We will not share creditworthiness information about Vermont residents among Blackstone Registered Funds affiliates except with the authorization or consent of the Vermont resident. |
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Blackstone Alternative Alpha Master Fund and Subsidiary:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying consolidated statement of assets and liabilities of Blackstone Alternative Alpha Master Fund and Subsidiary (the Master Fund), including the consolidated schedule of investments, as of March 31, 2018, the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, the consolidated financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the consolidated financial statements and consolidated financial highlights present fairly, in all material respects, the financial position of the Master Fund as of March 31, 2018, and the consolidated results of its operations and its cash flows for the year then ended, the consolidated changes in its net assets for each of the two years in the period then ended, and the consolidated financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Master Funds management. Our responsibility is to express an opinion on the Master Funds financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Master Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Master Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Master Funds internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of investments in investee funds owned as of March 31, 2018, by correspondence with the investment managers or their administrators; when replies were not received from the investment managers or their administrators, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
New York, New York
May 23, 2018
We have served as the auditors of one or more investment companies within the group of investment companies since 2010.
21
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Assets and Liabilities
As of March 31, 2018
Assets: |
||||
Investments in Investee Funds, at fair value (Cost $576,463,779) |
$ | 708,925,236 | ||
Cash |
13,470,030 | |||
Receivable from investments sold |
83,044,257 | |||
Receivable for shares issued to feeder funds |
1,341,614 | |||
Interest receivable |
217,498 | |||
Prepaid expenses |
68,868 | |||
|
|
|||
Total assets |
807,067,503 | |||
|
|
|||
Liabilities: |
||||
Payable for shares repurchased |
34,922,780 | |||
Management fees payable |
2,528,327 | |||
Payable to Investment Manager |
241,379 | |||
Commitment fees payable |
71,429 | |||
Accrued expenses and other liabilities |
291,570 | |||
|
|
|||
Total liabilities |
38,055,485 | |||
|
|
|||
Net assets |
769,012,018 | |||
|
|
|||
Components of Net Assets: |
||||
Paid-in capital |
691,452,000 | |||
Accumulated net investment loss |
(27,066,512 | ) | ||
Accumulated net realized loss |
(27,834,926 | ) | ||
Net unrealized appreciation on investments |
132,461,456 | |||
|
|
|||
Net assets |
769,012,018 | |||
|
|
|||
Net Asset Value: |
||||
Net assets |
769,012,018 | |||
Shares of beneficial interests outstanding, no par value, unlimited shares authorized |
640,352 | |||
|
|
|||
Net asset value per share |
$ | 1,200.92 | ||
|
|
See accompanying Notes to Consolidated Financial Statements.
22
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Schedule of Investments
March 31, 2018
Shares/ Par |
Cost | Fair Value |
Percentage of Total Net Assets |
First Acquisition Date |
Redemptions Permitted(1) |
Redemption Notification Period(1) |
||||||||||||||||||||
Investments in Investee Funds: |
|
|||||||||||||||||||||||||
Equity(a) |
||||||||||||||||||||||||||
Shearwater Offshore, Ltd.(3) |
581,915 | $ | 57,778,592 | $ 68,407,681 | 8.90% | 8/1/2014 | Annually | 60 Days | ||||||||||||||||||
Glenview Institutional Partners, L.P. |
56,356,040 | 67,292,868 | 8.75% | 4/1/2012 | Quarterly | 45 Days | ||||||||||||||||||||
Southpoint Qualified Fund LP |
46,653,397 | 58,028,626 | 7.55% | 6/1/2012 | Quarterly | 60 Days | ||||||||||||||||||||
Corvex Partners LP |
46,147,902 | 50,318,580 | 6.54% | 3/1/2013 | Quarterly | 60 Days | ||||||||||||||||||||
Coatue Qualified Partners, L.P. |
24,942,270 | 36,559,120 | 4.76% | 12/1/2013 | Quarterly | 45 Days | ||||||||||||||||||||
Samlyn Offshore, Ltd.(3) |
21,675 | 23,197,788 | 28,900,581 | 3.76% | 6/1/2013 | |
Semi- annually |
45 Days | ||||||||||||||||||
Viking Global Equities III Ltd.(3) |
6,279 | 12,400,000 | 21,433,269 | 2.79% | 4/1/2012 | Annually | 45 Days | |||||||||||||||||||
Soroban Opportunities Cayman Fund Ltd(3) |
14,047 | 15,317,631 | 20,991,084 | 2.73% | 9/1/2014 | Quarterly | 60 Days | |||||||||||||||||||
Turiya Fund LP |
9,569,653 | 14,493,138 | 1.88% | 4/1/2012 | Quarterly | 45 Days | ||||||||||||||||||||
MTP Energy Fund Corp |
||||||||||||||||||||||||||
Corp Promissory Note, 11.00%-13.00%, 10/1/2025 to 7/1/2026(6) |
5,065,787 | 5,065,787 | 5,065,787 | 0.66% | 9/1/2015 | N/A | N/A | |||||||||||||||||||
Corp Series C Equity Shares |
6,787 | 3,852,682 | 3,042,126 | 0.40% | 9/1/2015 | Quarterly | 60 Days | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Total MTP Energy Fund Corp |
8,918,469 | 8,107,913 | ||||||||||||||||||||||||
MTP Energy Fund I Ltd.(3) |
7,959 | 7,959,300 | 7,803,373 | 1.01% | 9/1/2015 | Quarterly | 60 Days |
See accompanying Notes to Consolidated Financial Statements.
23
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Schedule of Investments (Continued)
March 31, 2018
Shares/ Par |
Cost | Fair Value |
Percentage of Total Net Assets |
First Acquisition Date |
Redemptions Permitted(1) |
Redemption Notification Period(1) |
||||||||||||||||||||
Pershing Square, L.P. |
$ | 6,219,689 | $ 5,233,532 | 0.68% | 4/1/2012 | Quarterly | 65 Days | |||||||||||||||||||
Visium Balanced Offshore Fund, Ltd.(3) |
133 | 261,222 | 310,241 | 0.04% | 4/1/2012 | |
Non- Redeemable |
|
|
Non- Redeemable |
| |||||||||||||||
Bay Pond Partners, L.P.(2) |
1,557,921 | | | 4/1/2012 | |
Non- Redeemable |
|
|
Non- Redeemable |
| ||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Total |
317,279,874 | 387,880,006 | 50.45% | |||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Multi-Category(b) |
||||||||||||||||||||||||||
Magnetar Constellation Fund, Ltd(3) |
47,213 | 54,800,000 | 70,900,642 | 9.21% | 4/1/2012 | Quarterly | 90 Days | |||||||||||||||||||
HBK Multi-Strategy Offshore Fund Ltd.(3) |
44,594 | 46,476,601 | 51,530,178 | 6.70% | 1/1/2014 | Quarterly | 90 Days | |||||||||||||||||||
Elliott International Limited(3) |
35,878 | 38,075,920 | 47,908,107 | 6.23% | 7/1/2012 | |
Quarterly Semi- annually |
|
60 Days | |||||||||||||||||
Third Point Ultra, Ltd.(3) |
31,565 | 29,271,072 | 33,424,637 | 4.35% | 4/1/2017 | Quarterly | 60 Days | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Total |
168,623,593 | 203,763,564 | 26.49% | |||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Global Macro(c) |
||||||||||||||||||||||||||
Autonomy Global Macro Fund Limited(3) |
439,314 | 44,931,907 | 61,822,769 | 8.04% | 7/1/2015 | Monthly | 60 Days | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Relative Value(d) |
||||||||||||||||||||||||||
Renaissance Institutional Diversified Alpha Fund International L.P.(3) |
33,878,405 | 41,848,202 | 5.44% | 5/1/2014 | Monthly | 45 Days | ||||||||||||||||||||
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
24
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Schedule of Investments (Continued)
March 31, 2018
Shares/ Par |
Cost | Fair Value |
Percentage of Total Net Assets |
First Acquisition Date |
Redemptions Permitted(1) |
Redemption Notification Period(1) |
||||||||||||||||||||
Interest Rate-Driven(e) |
||||||||||||||||||||||||||
Element Capital Feeder Fund Limited(3) |
8,485 | $ | 11,750,000 | $ 13,610,695 | 1.77% | 3/1/2017 | Quarterly | 90 Days | ||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Total Investments in Investee Funds(4)(5) |
$ | 576,463,779 | $708,925,236 | 92.19% | ||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
Other assets, less liabilities |
60,086,782 | 7.81% | ||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||
Total Net Assets |
$769,012,018 | 100.00% | ||||||||||||||||||||||||
|
|
|
Percentage of total net assets represents each respective investment in Investee Fund at fair value as compared to total net assets.
The Consolidated Master Fund (as defined herein) is not able to obtain information about certain specific investments held by the Investee Funds due to lack of available data.
Investee Funds are organized in the United States, unless otherwise noted.
Investee Funds are non-income producing securities.
Investee Funds are restricted securities per Rule §210.12-12.8 of Regulation S-X.
(1) | Reflects general redemption terms for each Investee Fund. See Note 4 in the Notes to the Consolidated Financial Statements for Major Investment Strategies disclosure. |
(2) | Investee Fund is held by Blackstone Alternative Alpha Sub Fund I Ltd., which is wholly-owned by the Master Fund. |
(3) | Investee Fund is organized in a non-U.S. offshore jurisdiction. |
(4) | The total cost of Investee Funds organized in the United States is $200,365,341 with a fair value of $240,033,777. |
(5) | The total cost of Investee Funds organized in non-U.S. offshore jurisdictions is $376,098,438 with a fair value of $468,891,459. |
(6) | Investment is valued using significant unobservable inputs. |
(a) | The Equity strategy generally includes equity-focused Investee Funds with strategies using a bottom-up analysis that do not actively trade exposures, strategies focusing on shorter-term dynamics and appreciation for market technicals, strategies based on top-down thematic/macro views and strategies using technically driven statistical arbitrage with fundamental quantitative long/short strategies. |
(b) | The Multi-Category strategy generally includes Investee Funds that invest across multiple strategies. |
(c) | The Global Macro strategy generally includes global macro-focused Investee Funds with discretionary, directional and inter-country exposure to commodities, equities, interest rates and currencies. |
(d) | The Relative Value strategy generally includes relative value-focused Investee Funds with a focus on long/short managers with fundamentally hedged products or otherwise low net exposure. |
(e) | The Interest Rate-Driven strategy generally includes Investee Funds with relative value trades across global fixed income markets, intra-country trades, yield curve trades, basis trades, on the run vs. off the run trades, cash vs. derivative trades and volatility arbitrage in fixed income. |
See accompanying Notes to Consolidated Financial Statements.
25
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Operations
For the Year Ended March 31, 2018
Net Investment Loss: |
||||
Income: |
||||
Interest |
$ | 1,300,113 | ||
|
|
|||
Expenses: |
||||
Management fees |
10,435,560 | |||
Administration |
408,458 | |||
Commitment fees |
283,382 | |||
Risk monitoring |
272,619 | |||
Insurance |
198,988 | |||
Legal |
190,558 | |||
Professional |
181,423 | |||
Trustee |
181,214 | |||
Custody |
115,957 | |||
Transfer agent fees |
85,766 | |||
Interest |
8,504 | |||
Other |
55,331 | |||
|
|
|||
Total expenses |
12,417,760 | |||
|
|
|||
Net Investment Loss |
(11,117,647 | ) | ||
|
|
|||
Realized and Unrealized Gain from Investments: |
||||
Net realized gain from investments in Investee Funds |
26,907,890 | |||
Net change in unrealized appreciation from investments in Investee Funds |
23,832,804 | |||
|
|
|||
Realized and Unrealized Gain from Investments |
50,740,694 | |||
|
|
|||
Net Increase in Net Assets resulting from Operations |
$ | 39,623,047 | ||
|
|
See accompanying Notes to Consolidated Financial Statements.
26
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statements of Changes in Net Assets
For the Year Ended March 31, 2018 |
For the Year Ended March 31, 2017 |
|||||||
Increase (Decrease) in Net Assets: |
||||||||
Operations: |
||||||||
Net investment loss |
$ | (11,117,647 | ) | $ | (12,154,283 | ) | ||
Net realized gain from investments in Investee Funds |
26,907,890 | 26,900,145 | ||||||
Net change in unrealized appreciation from investments in Investee Funds |
23,832,804 | 86,006,355 | ||||||
|
|
|
|
|||||
Net increase in net assets resulting from operations |
39,623,047 | 100,752,217 | ||||||
|
|
|
|
|||||
Distributions to shareholders from ordinary income |
(12,641,629 | ) | (1,964,468 | ) | ||||
Distributions to shareholders from net realized capital gains |
(18,852,407 | ) | | |||||
|
|
|
|
|||||
Distributions to shareholders |
(31,494,036 | ) | (1,964,468 | ) | ||||
|
|
|
|
|||||
Capital Transactions: |
||||||||
Shareholder subscriptions |
40,464,720 | 89,442,060 | ||||||
Shareholder redemptions |
(174,737,872) | (270,933,775 | ) | |||||
Reinvestment of distributions |
31,494,036 | 1,964,468 | ||||||
|
|
|
|
|||||
Net decrease in net assets from capital transactions |
(102,779,116 | ) | (179,527,247 | ) | ||||
|
|
|
|
|||||
Net Assets: |
||||||||
Total decrease in net assets |
(94,650,105 | ) | (80,739,498 | ) | ||||
Beginning of year |
863,662,123 | 944,401,621 | ||||||
|
|
|
|
|||||
End of year |
$ | 769,012,018 | $ | 863,662,123 | ||||
|
|
|
|
|||||
Accumulated net investment loss |
$ | (27,066,512 | ) | $ | (21,536,011 | ) | ||
|
|
|
|
|||||
Share Transactions: |
||||||||
Beginning of year |
725,329 | 879,520 | ||||||
Shares issued |
33,365 | 80,089 | ||||||
Shares redeemed |
(144,830 | ) | (236,000 | ) | ||||
Shares reinvested |
26,488 | 1,720 | ||||||
|
|
|
|
|||||
End of year |
640,352 | 725,329 | ||||||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
27
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Cash Flows
For the Year Ended March 31, 2018
Cash Flows from Operating Activities: |
||||
Net increase in net assets resulting from operations |
$ | 39,623,047 | ||
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: |
||||
Net realized gain from investments in Investee Funds |
(26,907,890 | ) | ||
Net change in unrealized appreciation from investments in Investee Funds |
(23,832,804 | ) | ||
Purchase of investments in Investee Funds |
(19,930,000 | ) | ||
Proceeds from redemptions of investments in Investee Funds |
201,597,192 | |||
Increase in prepaid expenses |
(68,868 | ) | ||
Increase in due from feeder funds |
(1,341,614 | ) | ||
Decrease in other assets |
114 | |||
Decrease in interest receivable |
175,325 | |||
Decrease in management fees payable |
(383,139 | ) | ||
Decrease in payable to Investment Manager |
(33,794 | ) | ||
Increase in commitment fees payable |
778 | |||
Increase in accrued expenses and other liabilities |
86,395 | |||
|
|
|||
Net cash provided by operating activities |
168,984,742 | |||
|
|
|||
Cash Flows from Financing Activities: |
||||
Proceeds from shareholder subscriptions |
40,464,720 | |||
Payments for shareholder redemptions of shares |
(218,402,450 | ) | ||
Proceeds from borrowings under credit facility |
5,000,000 | |||
Repayment of borrowings under credit facility |
(5,000,000 | ) | ||
|
|
|||
Net cash used in financing activities |
(177,937,730 | ) | ||
|
|
|||
Net change in cash |
(8,952,988 | ) | ||
Cash, beginning of year |
22,423,018 | |||
|
|
|||
Cash, end of year |
$ | 13,470,030 | ||
|
|
|||
Supplemental Disclosure of Cash Flow Information: |
||||
Cash paid during the year for interest |
$ | 8,504 | ||
|
|
|||
Supplemental Disclosure of Non-cash Financing Activities: |
||||
Reinvestment of distributions |
$ | 31,494,036 | ||
|
|
See accompanying Notes to Consolidated Financial Statements.
28
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Financial Highlights
For the Year Ended March 31, 2018 |
For the Year Ended March 31, 2017 |
For the Year Ended March 31, 2016 |
For the Year Ended March 31, 2015 |
For the Year Ended March 31, 2014 |
||||||||||||||||
Per Share Opening Performance: |
||||||||||||||||||||
Net Asset Value, Beginning of Year |
$ | 1,190.72 | $ | 1,073.77 | $ | 1,234.31 | $ | 1,160.74 | $ | 1,077.79 | ||||||||||
Income/(loss) from Investment Operations: |
||||||||||||||||||||
Net investment loss1 |
(16.20 | ) | (14.16 | ) | (15.48 | ) | (18.30 | ) | (17.68 | ) | ||||||||||
Net realized and unrealized gain/(loss) from investments |
74.00 | 133.39 | (114.95 | ) | 136.51 | 114.37 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income/(loss) from investment operations |
57.80 | 119.23 | (130.43 | ) | 118.21 | 96.69 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Distributions to shareholders from ordinary income |
(19.10 | ) | (2.28 | ) | | | | |||||||||||||
Distributions to shareholders from net realized capital gains |
(28.50 | ) | | (30.11 | ) | (44.64 | ) | (13.74 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Asset Value, end of year |
$ | 1,200.92 | $ | 1,190.72 | $ | 1,073.77 | $ | 1,234.31 | $ | 1,160.74 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financial Ratios: |
||||||||||||||||||||
Expenses to average net assets |
1.48 | % | 1.46 | % | 1.45 | % | 1.53 | % | 1.57 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net investment loss to average net assets |
(1.33 | )% | (1.25 | )% | (1.33 | )% | (1.53 | )% | (1.56 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Portfolio turnover |
2.47 | % | 13.15 | % | 8.97 | % | 8.68 | % | 10.30 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total return |
4.90 | % | 11.11 | % | (10.70 | )% | 10.33 | % | 8.98 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net assets, end of year (000s) |
$ | 769,012 | $ | 863,662 | $ | 944,402 | $ | 815,598 | $ | 533,309 | ||||||||||
|
|
|
|
|
|
|
|
|
|
1 | Calculated using average shares outstanding during the year. |
The financial ratios represent the expenses and net investment loss to average monthly net assets for the year. The ratios do not reflect the Consolidated Master Funds share of the income and expenses of the underlying Investee Funds.
See accompanying Notes to Consolidated Financial Statements.
29
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2018
1. Organization
Blackstone Alternative Alpha Master Fund (the Master Fund), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a continuously offered, non-diversified, closed-end management investment company, commenced operations on April 1, 2012. Blackstone Alternative Alpha Fund and Blackstone Alternative Alpha Fund II (the Feeder Funds,) and together with the Master Fund, the BAAF Funds invest substantially all of their assets in the Master Fund. The Master Funds investment objective is to seek to earn long-term risk-adjusted returns that are attractive as compared to those of traditional public equity and fixed income markets.
The Master Fund owns 100% of the shareholder interest of Blackstone Alternative Alpha Sub Fund I Ltd. (the Intermediate Fund), an exempted company incorporated under the laws of the Cayman Islands on March 14, 2012 for the purpose of facilitating the implementation of the Master Funds investment objectives. The Consolidated Financial Statements include the financial statements of the Master Fund and the Intermediate Fund (collectively, the Consolidated Master Fund).
The investment manager of the Consolidated Master Fund and the Feeder Funds is Blackstone Alternative Asset Management L.P. (BAAM or the Investment Manager), a registered investment adviser under the Investment Advisers Act of 1940, as amended. Each of the Master Fund, the Feeder Funds and the Intermediate Fund is a commodity pool subject to regulation by the Commodity Futures Trading Commission (CFTC). BAAM, the commodity pool operator of the Master Fund, the Feeder Funds and the Intermediate Fund, is registered with the CFTC, but has claimed relief under Rule 4.12(c)(3) of the Commodity Exchange Act, with respect to the Master Fund and the Feeder Funds, and Rule 4.7, with respect to the Intermediate Fund, from certain disclosure, reporting and recordkeeping requirements otherwise applicable to commodity pools. The Board of Trustees (the Board and each member a Trustee) of the Master Fund supervises the conduct of the Consolidated Master Funds and the Feeder Funds affairs and, pursuant to their respective investment management agreements, has engaged BAAM to manage the Consolidated Master Funds and Feeder Funds day-to-day investment activities.
Capitalized terms used, but not defined herein, shall have the meaning assigned to them in the registration statement of the Master Fund.
2. Basis of Presentation
The Consolidated Master Funds financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and are stated in U.S. dollars.
The Master Fund is an investment company in accordance with Accounting Standards Codification 946, Financial ServicesInvestment Companies (ASC 946), which defines investment companies and prescribes specialized accounting and reporting requirements for investment companies. The Master Fund follows the accounting and reporting guidance in Topic 946, as described in FASB Accounting Standards Update No. 2013-08.
The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses during the reporting period. Actual results could differ from these estimates and these differences could be material.
Consolidation
The Fund consolidates its investment in the Intermediate Fund. Accordingly, the consolidated financial statements include the assets and liabilities and the results of operations of the Intermediate Fund. All material intercompany balances and transactions have been eliminated.
30
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
March 31, 2018
3. Significant Accounting Policies
Fair Value Measurements
Valuation Process
The valuation of the Consolidated Master Funds investments is reviewed monthly by the valuation committee (Valuation Committee). The Valuation Committee is delegated by the Board with the administration and oversight of the Consolidated Master Funds valuation policies and procedures. The Valuation Committee determines the fair value of investments in accordance with the current fair value guidance and as described below. In the event the Valuation Committee determines, in its discretion and based on its own due diligence and investment monitoring procedures, that the valuation of any investment determined, as set forth below, does not represent fair value, the Valuation Committee will value such investments at fair value in accordance with procedures adopted in good faith and approved by the Board, as may be amended from time to time.
Investments in Investee Funds
The fair value of investments in investment partnerships, managed funds, and other investment funds (Investee Fund(s)) is generally determined using the reported net asset value per share of the Investee Fund, or its equivalent (NAV), as a practical expedient for fair value if the reported NAV of the Investee Fund is calculated in a manner consistent with the measurement principles applied to investment companies, in accordance with Accounting Standards Codification 946, Financial Services-Investment Companies (ASC 946). In order to use the practical expedient, the Investment Manager has internal processes to independently evaluate the fair value measurement process utilized by the underlying Investee Fund to calculate the Investee Funds NAV in accordance with ASC 946. Such internal processes include the evaluation of the Investee Funds process and related internal controls in place to estimate the fair value of its underlying investments that are included in the NAV calculation, performing ongoing operational due diligence, review of the Investee Funds audited financial statements, and ongoing monitoring of other relevant qualitative and quantitative factors.
Additionally, the Consolidated Master Fund may invest in promissory notes issued by an Investee Fund. Such promissory notes are secured by a lien upon assets of the Investee Fund and are classified as investments in Investee Funds. The fair value of Investee Fund promissory notes is based on the residual value of the notes after subtracting the fair value of the Investee Funds shares from the Investee Funds enterprise value. The enterprise value of the Investee Fund is based upon the reported NAV of the Investee Fund gross of the par value of promissory note liabilities. Such investment in promissory notes are classified as Level 3 of the fair value hierarchy and the most significant unobservable input in determining fair value is the reported NAV of the Investee Fund. As of year-end the fair value of such notes amounted to $5,065,787 and related sales were $7,072,003, during the year.
The fair value of investments in Investee Funds is reported net of management fees and incentive allocations/fees. The Investee Funds management fees and incentive allocations/fees are reflected in realized and unrealized gain from investments in the Consolidated Statement of Operations.
Due to the inherent uncertainty of these estimates, these values may differ from the values that would have been used had a ready market for these investments existed and the differences could be material.
The investments in Investee Funds may involve varying degrees of interest rate risk, credit risk, foreign exchange risk, and market, industry or geographic concentration risk. While the Investment Manager monitors and attempts to manage these risks, the varying degrees of transparency into and potential illiquidity
31
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
March 31, 2018
of, the financial instruments held by the Investee Funds may hinder the Investment Managers ability to effectively manage and mitigate these risks.
Fair Value of Financial Instruments
The fair value of the Consolidated Master Funds assets and liabilities which qualify as Financial Instruments under the existing accounting guidance for Financial Instruments, approximates the carrying amounts presented in the Consolidated Statement of Assets and Liabilities due to their short term nature.
Investment Transactions and Related Investment Income and Expenses
Investment transactions are accounted for on a trade date basis. Income and expenses, including interest, are recorded on an accrual basis.
The net realized gains or losses from investments in Investee Funds are recorded when the Consolidated Master Fund redeems or partially redeems its interest in the Investee Funds or receives distributions in excess of return of capital. Realized gains and losses from redemptions of investments are calculated using the first-in, first-out cost basis methodology.
Cash
At March 31, 2018, the Consolidated Master Fund had $13,470,030 of cash held at a major U.S. bank.
Contingencies
Under the Master Funds Amended and Restated Declaration of Trust (Declaration of Trust), the Master Funds officers and Trustees are indemnified against certain liabilities that may arise out of the performance of their duties to the Master Fund. Additionally, in the normal course of business, the Consolidated Master Fund enters into contracts that contain a variety of representations and indemnifications. The Consolidated Master Funds maximum exposure under these arrangements is unknown. To date, the Consolidated Master Fund has not had claims or losses pursuant to these contracts, although there is no assurance that it will not incur losses in connection with these indemnifications in the future.
Income Taxes
The Master Funds policy is to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986 applicable to regulated investment companies and to distribute substantially all of its investment company taxable income and net long-term capital gains to its shareholders. Therefore, no federal income tax provision is expected to be required. The Master Fund files U.S. federal and various state and local tax returns.
Management of the Master Fund has evaluated the tax positions taken or expected to be taken in the course of preparing the Master Funds tax returns for the current open tax years ending October 31, 2014, October 31, 2015, October 31, 2016 and October 31, 2017 and has concluded, as of March 31, 2018, that no provision for income tax would be required in the Master Funds financial statements. The Master Funds federal and state income and federal excise tax returns for the current open tax years are subject to examination by the Internal Revenue Service and state taxing authorities.
The Intermediate Fund is a controlled foreign corporation (CFC) for U.S. income tax purposes. As a wholly-owned CFC, the Intermediate Funds net income and capital gains, to the extent of its earnings and profits, are included in the Master Funds investment company taxable income.
32
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
March 31, 2018
For the current open tax years and for all major jurisdictions, management of the Intermediate Fund has concluded that there are no significant uncertain tax positions that would require recognition in the Master Funds financial statements. Management is also not aware of any tax positions for which it is reasonably possible that the total amounts of uncertain unrecognized tax benefits will significantly change in the next twelve months. As a result, no income tax liability or expense, including interest and penalties, has been recorded within these consolidated financial statements.
Dividends and Distributions to Shareholders
Dividends from net investment income and distributions of capital gains, if any, are declared and paid at least annually. Dividends and capital gain distributions paid by the Master Fund will be reinvested in additional Shares (defined below) of the Master Fund unless a shareholder elects not to reinvest in Shares or is otherwise ineligible. Shares purchased by reinvestment will be issued at their net asset value on the ex-dividend date.
Borrowings Under Credit Facility
The Master Fund has a secured revolving borrowing facility (the Facility) with borrowing capacity of $43,000,000 (the Maximum Principal Amount). Borrowings under the Facility are used primarily for bridge financing purposes and are secured by the assets of the Master Fund. Under the terms of the agreement, the Maximum Principal Amount may be increased or decreased upon mutual written consent of the Master Fund and the lender. Outstanding borrowings bear interest at a rate equal to 3-month LIBOR plus 1.00% per annum (3.31% at March 29, 2018). A commitment fee is charged in the amount of 0.65% per annum on the total commitment amount of the Facility. Outstanding borrowings and accrued interest are due no later than December 31, 2018, the expiration date of the Facility, at which time the Master Fund and the lender can agree to extend the existing agreement. At March 31, 2018, the Master Fund had no outstanding borrowings under the Facility.
During the year ended March 31, 2018, the Master Funds maximum outstanding borrowing was $5,000,000. The weighted average principal outstanding during the period was approximately $315,068 at a weighted average interest rate of 2.66% per annum.
Restricted Securities
The Master Fund may purchase securities which are considered restricted. Restricted securities are securities that cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended, or are subject to contractual restrictions on public sales. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. The Master Fund will not incur any registration costs upon such resales. The Master Fund cannot demand registration of restricted securities. The Master Funds restricted securities, like other securities, are priced in accordance with the Valuation Procedures. Restricted securities are identified in the Consolidated Schedule of Investments.
Recent Accounting Pronouncements and Regulatory Updates
In November 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)Restricted Cash. The new guidance is intended to change the presentation of restricted cash on the statement of cash flows. The new standard affects all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. Management is currently evaluating the new guidance. The adoption of ASU No. 2016-18 is not expected to have a material impact on the consolidated financial statements.
33
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
March 31, 2018
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures, particularly relating to derivatives, in investment company financial statements. In addition, the rule introduces two new regulatory reporting forms for investment companies, which will be used after June 1, 2018: Form N-PORT and Form N-CEN. Compliance with the amendments to Regulation S-X became effective for financial statements filed with the SEC on or after August 1, 2017. The Fund is still evaluating the potential impacts of adopting Form N-PORT and Form N-CEN.
4. Investments
Major Investment Strategies
Investments in Investee Funds that are non-redeemable or subject to other restrictions such as a lockup at the measurement date or have the ability to limit the individual amount of investor redemptions shall be classified as having a redemption restriction.
The following table summarizes investments in Investee Funds, by investment strategy, the unfunded commitment of each strategy (if applicable), and the amount of the investment in Investee Fund that cannot currently be redeemed because of redemption restrictions put in place by the Investee Fund.
Investments in Investee Funds by Strategy |
Unfunded Commitment $ |
Non-Redeemable Investments (A) |
Other Restricted Investments (B) |
Investments Subject to No Restrictions |
Total $ | |||||||||
Amount $ |
Redemption Restriction Commencement Date |
Amount $ |
Redemption Restriction Term |
Amount $ |
||||||||||
Equity | | 310,241 | November 2014 |
201,535,366 | 9 months- 48 months |
186,034,399 | 387,880,006 | |||||||
Multi-Category | | | | 137,131,897 | 12 months- 24 months |
66,631,667 | 203,763,564 | |||||||
Global Macro | | | | 61,822,769 | 10 months | | 61,822,769 | |||||||
Relative Value | | | | | | 41,848,202 | 41,848,202 | |||||||
Interest Rate-Driven | | | | 13,610,695 | 12 months | | 13,610,695 | |||||||
Total | | 310,241 | | 414,100,727 | | 294,514,268 | 708,925,236 |
(A) Investments in Investee Funds cannot currently be redeemed and the remaining redemption restriction period is not known. The date the redemption restriction commenced is disclosed.
(B) Investments subject to other restrictions include investments in Investee Funds that are subject to a lockup at the measurement date and/or have the ability to limit the individual amount of investor redemptions. The redemption restriction term is based on the restriction period (or range of restriction periods) for Investee Funds as defined in each respective Investee Funds governing legal agreement, without
34
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
March 31, 2018
consideration of the length of time elapsed from the date of the investments in the Investee Funds. The Consolidated Master Funds investment in a particular Investee Fund classified within the strategies above may be comprised of investments with differing liquidity terms or investments which were made at differing points in time.
Purchases and sales of investments (inclusive of non-cash activity) for the year ended March 31, 2018 were $62,908,283 and $258,482,686 respectively.
5. Fund Terms
Issuance of Shares
The Master Fund is authorized to issue an unlimited number of shares of beneficial interest (Shares). The Master Fund will issue Shares as of the first business day of the month or at such other times as determined by the Board upon receipt of an initial or additional application for Shares. The Fund reserves the right to reject, in whole or in part, any applications for subscriptions of Shares. The Shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Master Funds Declaration of Trust.
Repurchase of Shares
The Master Fund from time to time may offer to repurchase a portion of its outstanding Shares pursuant to written tenders by shareholders. Repurchases will be made only at such times and on such terms as may be determined by the Board, in its complete and exclusive discretion. In determining whether the Master Fund should repurchase Shares from shareholders pursuant to written tenders, the Master Funds Board will consider the Investment Managers recommendations, among other factors. The Investment Manager expects to recommend quarterly repurchases.
6. Related Party Transactions
Blackstone Holdings Finance Co. L.L.C. (FINCO), an affiliate of the Fund, pays expenses on behalf of the Fund. The Fund reimburses FINCO for such expenses paid on behalf of the Fund. FINCO does not charge any fees for providing such administrative services. At year-end March 31, 2018, the amount outstanding is $241,379.
Management Fee
The Master Fund pays the Investment Manager a management fee (the Management Fee) quarterly in arrears (accrued on a monthly basis), equal to 1.25% (annualized) of the Master Funds net asset value at the end of such month before giving effect to the payment of the management fee or any purchases or repurchases of Master Fund shares or any distributions by the Master Fund. The Management Fee for any period less than a full quarter is pro-rated.
Expense Payments
The Investment Manager pays expenses on behalf of the Consolidated Master Fund and is subsequently reimbursed for such payments. As of March 31, 2018, the Consolidated Master Fund had $241,379 payable to the Investment Manager recorded in the Consolidated Statement of Assets and Liabilities.
7. Financial Instruments and Off-Balance Sheet Risk
In the normal course of business, the Investee Funds may enter into certain financial instrument transactions which may result in off-balance sheet market risk and credit risk. The Consolidated Master Funds market
35
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
March 31, 2018
risk is also impacted by an Investee Funds exposure to interest rate risk, foreign exchange risk, and industry or geographic concentration risk. The Investee Funds invest in these instruments for trading and hedging purposes. The Consolidated Master Fund is indirectly subject to certain risks arising from investments made by the Investee Funds.
Market Risk
Market risk is the risk of potential adverse changes to the value of financial instruments because of changes in market conditions such as interest and currency rate movements. The Consolidated Master Fund is exposed to market risk indirectly as a result of the types of investments entered into by the Investee Funds. The Consolidated Master Fund actively monitors its exposure to market risk.
Investee Funds may invest in entities that trade or may invest directly in interest rate swaps, credit default swaps, exchange-traded and over-the-counter options, futures transactions, forward transactions, and securities sold, not yet purchased.
Credit Risk
Credit risk arises from the potential inability of counterparties to perform their obligations under the terms of a contract. The Consolidated Master Fund is indirectly exposed to credit risk related to the amount of accounting loss that the Investee Funds would incur if a counterparty fails to perform its obligations under contractual terms and if the Investee Funds fail to perform under their respective agreements.
8. Income Taxes
The primary difference between book and tax appreciation/depreciation of Investee Funds is attributable to adjustments to the tax basis of Investee Funds based on allocation of income and distributions from Investee Funds and the realization for tax purposes of financial statement unrealized gain/loss. In addition, the cost of Investee Funds for federal income tax purposes is adjusted for items of taxable income allocated to the Master Fund from the Investee Funds. As of March 31, 2018, the aggregate cost of Investee Funds and the composition of unrealized appreciation and depreciation on Investee Funds for federal income tax purposes are noted below.
Federal tax cost of investments in Investee Funds |
$ | 612,993,584 | |||
|
|
||||
Gross unrealized appreciation |
99,442,213 | ||||
Gross unrealized depreciation |
(3,510,561 | ) | |||
|
|
||||
Net unrealized appreciation |
$ | 95,931,652 | |||
|
|
The tax character of dividends paid to shareholders during the year January 1, 2017 to December 31, 2017 was as follows:
Ordinary Income |
Net Long Term Capital Gains |
Total Taxable Distributions |
Tax Return of Capital |
Total Distributions | ||||
$12,641,629 | $18,852,407 | $31,494,036 | $ | $31,494,036 |
The tax character of dividends paid to shareholders during the period January 1, 2016 to December 31, 2016 was as follows:
Ordinary Income |
Net Long Term Capital Gains |
Total Taxable Distributions |
Tax Return of Capital |
Total Distributions | ||||
$1,964,468 | $ | $1,964,468 | $ | $1,964,468 |
36
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
March 31, 2018
As of the tax year ended October 31, 2017, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income |
Undistributed Long-Term Capital Gains |
Accumulated Capital and Other Losses |
Unrealized Appreciation (Depreciation) |
Total Accumulated Earnings (Deficit) | ||||
$ | $561,373 | $(1,395,440) | $91,810,017 | $90,975,950 |
The amounts of net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of dividends and distributions made during the fiscal year from net investment income or net realized gains may differ from the ultimate characterization for federal income tax purposes. The timing of dividends from net investment income and distributions from net realized gains distributed during the fiscal year may also differ from the year that the income or realized gain was recorded by the Fund. To the extent these differences are permanent, adjustments are made to the appropriate equity accounts in the period the differences arise.
Accordingly, the following permanent differences, primarily due to distribution redesignation, passive foreign investment companies and partnership basis adjustments, have been reclassified to increase (decrease) such accounts during the tax year ended October 31, 2017:
Accumulated Net Investment Income (Loss) |
Accumulated Net Realized Gain (Loss) |
Paid-in Capital | ||
$5,587,145 | $(1,060,758) | $(4,526,387) |
9. Subsequent Events
The Investment Manager has evaluated the impact of subsequent events through the date of financial statement issuance, and determined there were no subsequent events outside the normal course of business requiring adjustment to or disclosure in the financial statements.
37
Blackstone Alternative Alpha Master Fund and Subsidiary
March 31, 2018 (Unaudited)
Management of the Fund
The Consolidated Master Funds operations are managed by the Investment Manager under the direction and oversight of the Board of Trustees. A majority of the Trustees are not interested persons (as defined in the 1940 Act) of the Consolidated Master Fund (the Independent Trustees). The Consolidated Master Funds Trustees and officers are subject to removal or replacement in accordance with Massachusetts law and the Master Funds Amended and Restated Declaration of Trust (Declaration of Trust). The Consolidated Master Funds Board of Trustees also serves as the board of trustees of the Feeder Funds.
Compensation for Trustees
Each of the Independent Trustees is paid by the Fund Complex (as defined below) $110,000 per fiscal year in the aggregate for their services to the Fund Complex. Mr. Coates (a Trustee being treated as an interested person (as defined in the 1940 Act) of the Fund due to his employment by Envestnet, Inc., which conducts business with certain Investee Funds and may conduct business with the Investment Adviser and its affiliates in the future) is paid by the Fund Complex $95,000 per fiscal year in the aggregate for his services to the Fund Complex (excluding the BAMSF Subsidiaries). The Chairpersons of the Board of Trustees and the Audit Committee are paid by the Fund Complex an additional $25,000 and $15,000, respectively, per fiscal year. These payments are allocated to the Feeder-Funds and the other funds in the Fund Complex on the basis of assets under management. The Fund Complex also pays for the Trustees travel expenses related to Board of Trustees meetings. The Trustees do not receive any pension or retirement benefits from the Fund Complex. The following table sets forth information covering the total compensation payable by the Feeder-Funds during its fiscal year ended March 31, 2018 to the persons who serve, and who are expected to continue serving, as Trustees of the Fund during such period:
Independent Trustees: |
||||||||||
Name of Independent Trustee |
Aggregate Compensation From the BAAF Funds1 |
Total Compensation From the Fund Complex1 | ||||||||
John M. Brown |
$ | 33,696 | $ | 120,000 | ||||||
Peter M. Gilbert |
$ | 31,426 | $ | 110,000 | ||||||
Paul J. Lawler |
$ | 31,426 | $ | 110,000 | ||||||
Kristen M. Leopold |
$ | 33,388 | $ | 117,500 | ||||||
Interested Trustees: |
||||||||||
Name of Interested Trustee |
Aggregate Compensation From the BAAF Funds1 |
Total Compensation From BAMSF and Fund Complex1 | ||||||||
Frank J. Coates |
$ | 31,426 | $ | 96,250 | ||||||
Peter Koffler |
None | None |
1 | These amounts represent aggregate compensation for the services of each Trustee to each fund in the Fund Complex, for which each Trustee serves as trustee. The Fund Complex consists of the Feeder Funds, the Master Fund, and Blackstone Alternative Multi-Strategy Fund, a series of Blackstone Alternative Investment Funds. |
38
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
INDEPENDENT TRUSTEES | ||||||||||
Name and Year of Birth of Independent Trustees1 |
Position(s) Held with each of the Feeder Funds and the Master Fund |
Term of Office2 and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex3 Overseen by Trustee |
Other Trusteeships Held by Trustee During the Past 5 Years | |||||
John M. Brown (1959) |
Trustee | January 2012 to Present |
Retired (2004 Present) |
4 | None | |||||
Peter M. Gilbert (1947) |
Trustee | February 2016 to Present |
Retired (2015 Present); CIO, Lehigh University Endowment Fund (2007 2015) |
4 | None | |||||
Paul J. Lawler (1948) |
Trustee | January 2012 to Present |
Retired (2011 Present) |
4 | Trustee, First Eagle Funds (8 portfolios) | |||||
Kristen Leopold (1967) |
Trustee | January 2012 to Present |
CFO, WFL Real Estate Services, LLC (2006 Present); CFO, KL Associates LLC (Hedge Fund Consulting) (2007 2014) |
4 | Trustee, CPG Carlyle Commitments Fund, LLC; Trustee, CPG Carlyle Commitments Master Fund, LLC; Trustee, CPG Vintage Access Fund, LLC |
39
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
INTERESTED TRUSTEES | ||||||||||
Name and Year of Birth of Interested Trustees1 |
Position(s) Held with each of the Feeder Funds and the Master Fund |
Term of Office2 and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex3 Overseen by Trustee |
Other Trusteeships Held by Trustee During the Past 5 Years | |||||
Frank J. Coates4 (1964) | Trustee | January 2012 to Present |
Executive Managing Director6, Envestnet, Inc. (Wealth Management Solutions) (2016 Present); CEO, Wheelhouse Analytics, LLC (Technology Solutions) (2010 2016) |
4 | None | |||||
Peter Koffler5 (1956) |
Trustee | December 2012 to Present |
Senior Managing Director6, The Blackstone Group L.P. (Blackstone) (2012 Present); General Counsel, BAAM (2010 Present) and Blackstone Alternative Investment Advisors LLC (BAIA) (2012 Present); Chief Compliance Officer, BAAM (2008 2012, 2018 Present) and BAIA (2018 Present); Chief Compliance Officer, Blackstone (2013 2016) |
4 | None |
40
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
OFFICERS | ||||||
Name and Year of Birth of Officers1 |
Position(s) Held with each of the Feeder Funds and the Master Fund |
Term of Office7 and Length of Time Served |
Principal Occupation(s) During Past 5 Years | |||
Natasha Kulkarni (1985) |
Secretary | May 2018 to Present | Vice President, Blackstone (2016 Present); | |||
Brian F. Gavin (1969) | President (Principal Executive Officer) | November 2011 to Present | Chief Operating Officer & Senior Managing Director6, Blackstone (2007 Present) | |||
James Hannigan (1983) | Chief Compliance Officer, Anti-Money Laundering Officer, and Chief Legal Officer | Chief Compliance Officer and Anti-Money Laundering Officer (August 2016 to Present); Chief Legal Officer (March 2015 to Present) |
Managing Director6, Blackstone (2018 Present); Vice President, Blackstone (2017 Present); Associate, Blackstone (2012 2013); | |||
Arthur Liao (1972) |
Treasurer (Principal Financial and Accounting Officer) |
November 2011 to Present |
Senior Managing Director6, Blackstone (2016 Present); Chief Financial Officer, BAAM (2007 Present) and BAIA (2012 Present) Managing Director6, Blackstone (2007 2015) |
1 | Unless otherwise noted, the business address of each officer and Trustee is c/o Blackstone Alternative Investment Advisors LLC, 345 Park Avenue, 28th Floor, New York, New York 10154. |
2 | Term of office of each Trustee is indefinite, until his or her resignation, removal, or death. Any Trustee of each of the Feeder Funds or the Master Fund may be removed from office in accordance with the provisions of each of the Feeder Funds and the Master Funds Amended and Restated Agreement and Declaration of Trust and Bylaws. |
3 | The Fund Complex consists of the Feeder Funds, the Master Fund, and Blackstone Alternative Multi-Strategy Fund (BAMSF), a series of Blackstone Alternative Investment Funds and the BAMSF Subsidiary Funds (BAMSF Subsidiaries). |
4 | Mr. Coates is being treated as an interested person of the Fund and the Master Fund, as defined in the 1940 Act, due to his employment by Envestnet, Inc., which conducts business with certain Investment Funds and may conduct business with BAAM and/or its affiliates in the future. |
5 | Mr. Koffler is an interested person of the Feeder Funds and the Master Fund, as defined in the 1940 Act, due to his position with BAAM and its affiliates. |
6 | Executive title, not a board directorship. |
7 | Term of office of each Officer is indefinite, until his or her death, resignation, removal or disqualification. |
41
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
Allocation of Investments
The following chart indicates the allocation of investments among the asset classes in the Consolidated Master Fund as of March 31, 2018.
Assets Class(1) |
Fair Value |
% | ||||||||
Equity |
$ | 387,880,006 | 54.71 | % | ||||||
Multi-Category |
203,763,564 | 28.75 | % | |||||||
Global Macro |
61,822,769 | 8.72 | % | |||||||
Relative Value |
41,848,202 | 5.90 | % | |||||||
Interest Rate-Driven |
13,610,695 | 1.92 | % | |||||||
|
|
|
|
|||||||
Total Investments |
$ | 708,925,236 | 100.00 | % | ||||||
|
|
|
|
(1) | The complete list of investments included in the listed asset class categories is included in the Consolidated Schedule of Investments of the Consolidated Master Funds financial statements. |
Form N-Q Filings
The Consolidated Master Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Consolidated Master Funds Form N-Q is available on the SECs website at http://www.sec.gov within 60 days after the Consolidated Master Funds first and third fiscal quarters. The Consolidated Master Funds Form N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, DC, and information regarding operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Holdings and allocations shown on any Form N-Q are as of the date indicated in the filing and may not be representative of future investments. Holdings and allocations should not be considered research or investment advice and should not be relied upon in making investment decisions.
Proxy Voting Policies
The Master Fund and the Feeder Funds have delegated proxy voting responsibilities to the Investment Manager, subject to the Boards general oversight. A description of the policies and procedures used to vote proxies related to the Master Funds and the Feeder Funds portfolio securities, and information regarding how the Master Fund and Feeder Funds voted proxies relating to their portfolio securities during the most recent 12-month period ended June 30, will be available by August 31 of that year (1) without charge, upon request, by calling toll free, 1-855-890-7725 and (2) on the SECs website at http://www.sec.gov.
Board Approval of the Continuance of the Investment Management Agreement
At a joint meeting of the Boards of the Master Fund, Blackstone Alternative Alpha Fund (BAAF), and Blackstone Alternative Alpha Fund II (BAAF II, and together with the Master Fund and BAAF, the Funds) held in person on February 20-21, 2018, the Board, including all of the Independent Trustees, considered and unanimously approved the Investment Management Agreements (the Investment Management Agreements) between each Fund and BAAM. The Board and Independent Trustees also considered and unanimously approved the Investment Management Agreement between the Intermediate Fund and BAAM. Because the Intermediate Fund is a wholly-owned subsidiary of the Master Fund, the Board and Independent Trustees evaluated its Investment Management Agreement in conjunction with that of the Master Fund, not separately, and references to the Master Funds Agreement should be considered to include reference to the Intermediate Fund Investment Management Agreement.
The Independent Trustees were assisted in their review of the Investment Management Agreements by independent legal counsel. The Board requested and evaluated all the information it deemed reasonably
42
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
necessary under the circumstances in connection with the approval of the Investment Management Agreements. Before the meeting, the Board received, among other things, (1) materials prepared by independent legal counsel regarding the relevant factors to consider in connection with the approval of the continuation of the Investment Management Agreements; (2) materials prepared by BAAM relating to, among other things, BAAMs experience and qualifications to serve as advisor to the Funds; (3) analysis of the fees and expenses of the Funds as compared with a peer group of funds; (4) analysis of BAAMs profitability for providing services to the Funds; (5) information regarding BAAMs Code of Ethics and compliance program; and (6) materials prepared by an outside firm, unaffiliated with the Funds or BAAM, that is in the business of regularly preparing reports for use by fund boards in considering investment advisory agreement approvals (the Service Provider) comparing the management fee rate and total operating expenses of the Funds to those of a peer group of funds determined by the Service Provider.
At the meeting, there was a discussion regarding the materials that had been provided to the Board, the terms of the Investment Management Agreements, the operations of the Funds, the services being provided by BAAM, and other relevant considerations. Following this discussion, the Board, including all of the Independent Trustees, determined to renew each Agreement for a term of one year on the basis of the following considerations,
Nature, Extent, and Quality of the Services
The Board discussed BAAMs personnel, operations, and financial condition and considered: (i) the background and experience of key investment personnel and BAAMs ability to attract and retain talent; (ii) BAAMs focus on analysis of complex asset categories; (iii) BAAMs disciplined investment approach and commitment to investment principles; (iv) BAAMs manager selection and due diligence process; (v) BAAMs significant risk management, compliance, and operational efforts; (vi) BAAM and Blackstone Advisory Partners L.P.s plan for sales of the Funds shares; and (vii) BAAMs oversight of and interaction with service providers. The Board concluded that the nature, extent, and quality of the management services provided were appropriate and thus supported a decision to renew each Investment Management Agreement. The Board also concluded that BAAM likely would be able to provide during the coming year the same quality of investment management and related services as provided in the past and that these services are appropriate in scope and extent in light of the Funds and the Intermediate Funds operations, the competitive landscape, and investor needs.
Investment Performance
The Board received and considered information about (i) the one year, inception-to-date, quarter-to-date, year-to-date, and trailing three months performance information of BAAF and Advisor Class III Shares of BAAF II, each in comparison to the HFRI Equity Hedge Index, HFRI Fund Weighted Composite Index, Russell 2000 Index, S&P 500 Index, MSCI World Index, Barclays Aggregate Bond Index, and a custom benchmark index (the BAAF Comparative Indices); (ii) the historical monthly performance of BAAF and Advisor Class III Shares of BAAF II since inception (net of fees and expenses); (iii) the inception-to-date standard deviation (a measurement of volatility) and Sharpe ratio (a measurement of risk-adjusted return) of each of BAAF and Advisor Class III Shares of BAAF II, each in comparison to those of the BAAF Comparative Indices; and (iv) the annualized inception-to-date, one-year, three-year, and five-year returns of BAAF (net of fees and expenses) as compared to a peer group selected by BAAMs Oversight Committee (the Committee) for which this information was shown (which included three funds in the Service Provider-prepared peer group). In addition, the Board considered information about performance risk measurements of BAAF and the Committee-prepared peer group for which this information was shown, (which included three funds in the Service Provider- prepared peer group), such as annualized return versus annualized volatility and index correlation for the inception-to-date, one-year, three-year, and five-year periods. The Board further considered information about BAAFs upside and downside capture and BAAFs
43
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
one-year, three-year, five-year, and inception-to-date performance, volatility, Sharpe ratio, and beta ratio versus that of several indices.
The Board noted that, as of December 31, 2017 (i) BAAFs inception-to-date, year-to-date, and one-year returns were greater than the Barclays Aggregate Bond Index and the custom benchmark index, while its Sharpe ratios were below or equal to those of the BAAF Comparative Indices and BAAF IIs inception-to-date, year-to-date, and one-year returns were greater than the Barclays Aggregate Bond Index and the custom benchmark index, while its Sharpe ratios were below those of the BAAF Comparative Indices; (ii) BAAFs and BAAF IIs volatility was greater than HFRI Fund Weighted Composite Index, Barclays Aggregate Bond Index, and the custom benchmark index and less than HFRI Equity Hedge Index, Russell 2000 Index, S&P 500 Index and MSCI World Index. The Board noted that BAAFs and BAAF IIs inception-to-date, year-to-date, and one-year performance returns were significantly less than those of the S&P 500 Index, as was expected during periods of strong equity market performance. The Board also noted that, as of December 31, 2017, BAAFs annualized inception-to-date performance return was less than the corresponding returns of three of the four funds in the broader Committee-prepared peer group for which this information was shown. On the basis of the Boards assessment, the Board concluded that the investment performance generated by BAAM was generally satisfactory and that BAAM was capable of generating a level of long term investment performance that is appropriate in light of the Funds investment objectives, policies, and strategies, although recognizing that there can be no assurance of any particular investment outcome.
Fees and Expenses
The Board, including the Independent Trustees, compared the fee and expense ratios of BAAF and BAAF II (before and after any fee waivers and expense reimbursements) for the calendar year ended December 31, 2017 against the fee and expense ratios of the Service Provider-prepared peer group. The Board considered BAAMs views as to the appropriateness of the Service Provider-prepared peer group. The Board considered data based on information provided by the Service Provider indicating that, (i) the contractual (before waivers) management fee rate of BAAF and BAAF II was higher than three of the eight (and the same as one of the eight) other funds in the Service Provider-prepared peer group; (ii) BAAFs total net expenses (management fee and expenses after waiver) were lower than five of the eight funds in the Service Provider-prepared peer group; and (iii) BAAFs total fee was higher than six of the eight funds in the Service Provider-prepared peer group.
The Board also took into consideration the peer group analysis prepared by BAAM, under the guidance of the Committee, which showed fees and expenses of BAAF and a group of seven competitor funds selected by BAAM (including the five of the funds in the Service Provider-prepared peer group). The Board noted that: (i) the contractual (before waivers) management fee rate of BAAF and BAAF II was higher than three of the seven (and the same as one of the seven) funds in the broader Committee-prepared peer group; (ii) BAAFs total net expenses (management fee and expenses after waiver) were lower than five of the seven funds in the broader Committee-prepared peer group and (iii) BAAFs total fee was higher than four of the seven funds in the broader Committee-prepared peer group. The Board considered the fees and expenses in light of the scope and quality of services provided by BAAM and determined that, given the scope and quality of services provided by BAAM, the fees that are higher than those charged by peers were appropriate. On the basis of the factors considered and information presented, the Board determined that the Funds, fee rates were reasonable.
Costs of Services and Profitability
In analyzing the cost of services and profitability of BAAM, the Board considered BAAMs resources devoted to the Funds, as well as the revenues earned and expenses incurred by BAAM. The Board considered
44
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
March 31, 2018 (Unaudited)
profitability data provided by BAAM showing fees, revenues, and overhead expenses of the Funds. The Board took into account the significant investment by, and cost to, BAAM regarding service infrastructure to support the Funds and their investors. On the basis of the Boards review of the fees to be charged by BAAM for investment advisory and related services, the relatively unique, and highly specialized, nature of the Funds investment program, BAAMs financial information, and the estimated overhead costs associated with managing the Funds, the Board concluded that the level of investment management fees is appropriate in light of the services provided and the costs of providing those services, the management fees and overall expense ratios of comparable investment companies, and the cap on expenses established by the expense limitation agreements.
Economies of Scale
While noting that the management fees will not decrease as the level of the Funds assets increase, the Board concluded that the management fees were reasonable in light of the Funds current and anticipated size and reflected the Funds complex operations. The Board noted that it will have the opportunity to periodically re-examine whether any Fund has achieved economies of scale, as well as the appropriateness of management fees payable to BAAM, in the future.
Other Benefits
The Board discussed other potential benefits that BAAM may receive from the Funds. The Board noted that BAAM indicated that it does not expect to receive significant ancillary, soft dollar, or other fall out benefits as a result of its relationship with the Funds. The Board concluded that other benefits derived by BAAM from its respective relationship with the Funds, to the extent such benefits are identifiable or determinable, are reasonable and fair, result from the provision of appropriate services to each of the Funds and its shareholders, and are consistent with industry practice and the best interests of each Fund and its shareholders.
Conclusion
The Board, including all of the Independent Trustees, concluded that the fees payable under each of the Investment Management Agreements were fair and reasonable with respect to the services that BAAM provides to the Funds and in light of the other factors described above that the Board deemed relevant. The Board, including all of the Independent Trustees, determined to approve the continuation of the Investment Management Agreements based on a comprehensive consideration of all information presented to the Board at its meetings throughout the year and not as a result of any single controlling factor. The Board was assisted by the advice of independent legal counsel in this determination.
Additional Information
The Master Funds registration statement includes additional information about the Trustees of the Fund. The registration statement is available, without charge, upon request by calling 1-855-890-7725.
45
Blackstone Alternative Alpha Fund
Blackstone Alternative Alpha Master Fund
This report, including the financial information herein, is transmitted to the shareholders of Blackstone Alternative Alpha Fund for their information. It is not a prospectus or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
You can request a copy of the Funds prospectus and statement of additional information without charge by calling the Funds transfer agent at 1-855-890-7725.
Item 2. | Code of Ethics. |
(a) The registrant, as of the end of the period covered by the report, has adopted a code of ethics that applies to the registrants principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
(b) No disclosures are required by this Item 2(b).
(c) The registrant has not made any amendments to its code of ethics during the reporting period for this Form N-CSR.
(d) There have been no waivers granted by the registrant to individuals covered by the registrants code of ethics during the reporting period for this form N-CSR.
(e) Not applicable.
(f) A copy of the registrants code of ethics is attached as Exhibit 13(a)(1) to this Form N-CSR.
Item 3. | Audit Committee Financial Expert. |
(a)(1) The registrants Board of Trustees has determined that the registrant has at least one audit committee financial expert serving on its Audit Committee (the Committee).
(2) The audit committee financial expert is Kristen M. Leopold, who is independent for purposes of this Item 3 of Form N-CSR.
(3) Not applicable.
Item 4. | Principal Accountant Fees and Services. |
Current Fiscal Year | Previous Fiscal Year | |||||||||||
(a) |
Audit Fees |
$ | 42,500 | $ | 42,500 | |||||||
(b) |
Audit-Related Fees |
$ | 0 | $ | 0 | |||||||
(c) |
Tax Fees(1) |
$ | 10,600 | $ | 10,600 | |||||||
(d) |
All Other Fees |
$ | 0 | $ | 0 |
(1) | The nature of the services includes tax compliance, tax advice and tax planning. |
(e)(1) Disclose the Committees pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The charter for the Committee requires that the Committee pre-approve (i) all audit and non-audit services that the registrants independent auditors provide to the registrant, and (ii) all non-audit services that the registrants independent auditors provide to Blackstone Alternative Asset Management L.P., the investment adviser of the registrant (BAAM), and any entity controlling, controlled by, or under common control with BAAM that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant; provided that the Committee may implement policies and procedures by which such services are approved other than by the full Committee prior to their ratification by the Committee.
(2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this item that were approved by the Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Current Fiscal Year |
Previous Fiscal Year | |
0% | 0% |
(f) Not applicable.
(g) Disclose the aggregate non-audit fees billed by the registrants accountant for services rendered to the registrant, and rendered to the registrants investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant.
Current Fiscal Year |
Previous Fiscal Year | |
$0 | $0 |
(h) Not applicable.
Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
Item 6. | Investments. |
(a) The registrants Schedule of Investments as of the close of the reporting period is included in the Report to Shareholders filed under Item 1 of this form.
(b) Not applicable.
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
These policies are included as Exhibit 13(c).
Item 8. | Portfolio Managers of Closed-End Investment Management Companies. |
(a)(1) Identification of Portfolio Managers and Description of Role of Portfolio Managers as of March 31, 2018.
Each of the registrant and Blackstone Alternative Alpha Fund II (BAAF II) is a feeder fund that invests substantially all of its assets in Blackstone Alternative Alpha Master Fund (the Master Fund and together with the registrant and BAAF II, the BAAF Funds). BAAMs Investment Committee has primary responsibility for the day-to-day management of the portfolio of such funds. Information regarding the portfolio managers is set forth below.
Name |
Portfolio Manager of the Fund Since |
Title and Recent Bibliography | ||
Gideon Berger |
2016 | 2008-Present: Senior Managing Director, The Blackstone Group L.P. (Blackstone) (Hedge Fund Solutions) | ||
Greg Geiling |
2016 | 2012-Present: Senior Managing Director, Blackstone (Hedge Fund Solutions) | ||
Min Htoo |
2017 | 2017-Present: Senior Managing Director, Blackstone (Hedge Fund Solutions); 2014-2016: Founder and Chief Investment Officer, Anandar Capital Management; 2005-2013: Partner, Magnetar Capital LLC | ||
Robert Jordan |
2016 | 2013-Present: Senior Managing Director, Blackstone (Hedge Fund Solutions) | ||
John McCormick |
2016 | 2010-Present: Senior Managing Director, Blackstone (Hedge Fund Solutions) | ||
Ian Morris |
2016 | 2016-Present: Senior Managing Director, Blackstone (Hedge Fund Solutions); 2011-2015: Managing Director, Blackstone (Hedge Fund Solutions) |
Stephen Sullens |
2016 | 2006-Present: Senior Managing Director, Blackstone (Hedge Fund Solutions) | ||
Alberto Santulin |
2012 | 2005-Present: Managing Director, Blackstone (Hedge Fund Solutions) |
* | Mr. Santulin has served as portfolio manager of the Master Fund since 2012. |
(a)(2) Other Accounts Managed by Portfolio Managers
As of December 31, 2017, the table below identifies, for each named portfolio manager of the registrant (a Portfolio Manager), the number of accounts (other than the registrant, the Master Fund or BAAF II) for which the Portfolio Manager has day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment funds and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance are also indicated.
Portfolio Manager |
Type of Account |
Number of Accounts Managed |
Total Assets Managed |
Number of Accounts for which Advisory Fee is Performance Based |
Assets Managed for which Advisory Fee is Performance Based | |||||||||||||||||
Gideon Berger |
||||||||||||||||||||||
Registered Investment Companies |
1 | $ | 5.3 billion | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
284 | $ | 69.2 billion | 93 | $ | 41.3 billion | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Greg Geiling |
||||||||||||||||||||||
Registered Investment Companies |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
235 | $ | 60.8 billion | 85 | $ | 37.6 billion | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Min Htoo |
||||||||||||||||||||||
Registered Investment Companies |
1 | $ | 5.3 billion | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
236 | $ | 62.9 billion | 86 | $ | 39.5 billion | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Robert Jordan |
||||||||||||||||||||||
Registered Investment Companies |
1 | $ | 5.3 billion | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
236 | $ | 62.9 billion | 86 | $ | 39.5 billion | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
John McCormick |
||||||||||||||||||||||
Registered Investment Companies |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
283 | $ | 67.1 billion | 92 | $ | 39.1 billion | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Ian Morris |
||||||||||||||||||||||
Registered Investment Companies |
1 | $ | 5.3 billion | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
236 | $ | 62.9 billion | 86 | $ | 39.5 billion | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Stephen Sullens |
||||||||||||||||||||||
Registered Investment Companies |
1 | $ | 5.3 billion | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
265 | $ | 65.6 billion | 92 | $ | 40.6 billion | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||
Alberto Santulin |
||||||||||||||||||||||
Registered Investment Companies |
1 | $ | 5.3 billion | 0 | $ | 0 | ||||||||||||||||
Other Pooled Investment Vehicles |
1 | $ | 2.2 billion | 1 | $ | 2.2 | ||||||||||||||||
Other Accounts |
0 | $ | 0 | 0 | $ | 0 |
Potential Conflicts of Interest. The Fund and the Master Fund may be subject to a number of actual and potential conflicts of interest.
Allocation of Investment Opportunities
If an investment opportunity is appropriate for the Fund, the Master Fund and one or more BAAM Multi-Manager Funds (as defined below), BAAM affiliates or their clients (collectively, Other BAAM Clients), BAAM intends to allocate such opportunity in accordance with BAAMs written allocation procedures, taking into account various investment criteria, such as the relative amounts of capital available for investments, the relative assets under management of the funds or accounts seeking to participate, relative exposure to market trends, investment objectives, available capacity, liquidity, diversification, contractual restrictions and guidelines and similar factors. BAAM Multi-Manager Funds is defined as multi-manager funds or accounts (i) for which BAAM, or any of its affiliates within Blackstones Hedge Fund Solutions Group, acts as an investment manager, managing member, general partner, or in a similar capacity and (ii) in which underlying investments generally are made with or through third-party portfolio managers (and also, in certain cases, directly).
Capacity
To the extent that BAAM Multi-Manager Funds as well as entities affiliated with BAAM invest in private investment funds and managed accounts through third-party investment managers that limit the amount of assets and the number of accounts that they manage, BAAM may be required to choose among the Fund, the Master Fund, other BAAM Multi-Manager Funds and affiliated entities in allocating assets to such third-party investment managers. Similarly, to the extent that BAAM Multi-Manager Funds and other entities affiliated with BAAM wish to invest in specific opportunities (e.g., co-investments) directly or through third-party managers, where such opportunities also are of interest to the Fund and the Master Fund and are limited in capacity, BAAM may be required to choose among the Fund, the Master Fund, other BAAM Multi-Manager Funds and affiliated entities in allocating assets to such opportunities. In both of these scenarios, BAAM intends to allocate such opportunities in a fair and equitable manner and in accordance with BAAMs written allocation procedures, taking into account various investment criteria, such as the relative amounts of capital available for investments, relative exposure to market trends, investment objectives, liquidity, diversification, contractual restrictions and guidelines and similar factors.
Financial Interests in Underlying Managers
BAAM and its affiliates have financial interests in investment vehicles and asset managers, which interests may give rise to conflicts of interest between the Fund, the Master Fund and other investment vehicles managed by other asset managers. BAAM and its affiliates will endeavor to manage these potential conflicts in a fair and equitable manner, subject to legal, regulatory, contractual or other applicable considerations. These potential conflicts principally relate to the following:
Blackstone-Owned Managers
Affiliates of BAAM currently (or in the future may) hold ownership interests in, or are (or in the future may be) otherwise affiliated with, various investment managers (each fund managed by such an investment manager, a Blackstone Affiliated Fund). These ownership interests range from minority to 100%. Blackstone may receive a substantial portion of the revenues attributable to Blackstone Affiliated Funds. The nature of BAAMs or its affiliates relationship with the Blackstone Affiliated Funds means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund may not be able to invest in the Blackstone Affiliated Funds, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders. If an investment in a Blackstone Affiliated Fund is not prohibited under the 1940 Act, BAAM may have an incentive to allocate the Funds or the Master Funds assets to such Blackstone Affiliated Fund since affiliates of BAAM have a direct or indirect financial interest in the success of such fund.
Blackstone Strategic Alliance Advisors L.L.C.
Blackstone Strategic Alliance Advisors L.L.C. (BSAA), an affiliate of BAAM, manages certain funds (each, a Strategic Alliance Fund) that make seed investments in investment vehicles (Emerging Manager Vehicles) managed by emerging fund managers (Emerging Managers). In connection with these seed investment, the Strategic Alliance Fund generally receives economic participation from the Emerging Manager Vehicles in the form of profit sharing or equity interests, or other contractual means of participating in the business of the Emerging Manager Vehicle. The nature of BAAMs or its affiliates relationship with the Emerging Manager Vehicles means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund typically will not be able to invest in the Emerging Manager Vehicles, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders.
To the extent that an investment by the Fund or the Master Fund in an Emerging Manager Vehicle would not be prohibited under the 1940 Act, the investment generally would benefit the Strategic Alliance Fund and a withdrawal/redemption by the Fund or the Master Fund from such fund generally would be detrimental to the Strategic Alliance Fund. In particular, to the extent that a BAAM Multi-Manager Fund (including the Fund or the Master Fund) invests with an Emerging Manager, the Strategic Alliance Fund will receive a portion of the revenue the Emerging Manager receives in respect of the BAAM Multi-Manager Funds investment. Accordingly, there may be a conflict between BAAMs fiduciary obligation to the Fund and the Master Fund, on the one hand, and BAAMs interest in the success of the Strategic Alliance Funds, on the other hand. In order to mitigate the potential conflict, BSAA and the Strategic Alliance Funds general partner will waive their share of any management or performance-based allocations or fees derived from the BAAM Multi-Manager Funds investment with an Emerging Manager. Those amounts will be passed through or rebated to the investing Fund. This pass through/rebate generally also applies in the case of investments with an Emerging Manager outside of its commingled vehicle. The BAAM Multi-Manager Funds (including the Fund and the Master Fund) will not otherwise participate in any of the economic arrangements related to any Emerging Manager with which they invest.
There is significant overlap between BAAMs and BSAAs investment committees.
Blackstone Strategic Capital Advisors L.L.C.
Blackstone Strategic Capital Advisors L.L.C. (BSCA), an affiliate of BAAM, manages certain funds (the BSCA Funds) that make investments typically in the form of equity interests or revenue shares in established alternative asset managers (the Strategic Capital Managers). The nature of BAAMs relationship BSCA and BSCAs relationship with the Strategic Capital Managers means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund may not be able to invest in funds managed by a Strategic Capital Manager, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders.
To the extent that an investment by the Fund or the Master Fund in a fund managed by a Strategic Capital Manager would not be prohibited under the 1940 Act, it generally would benefit the BSCA Funds and a withdrawal/redemption by the Fund or the Master Fund from such fund generally would be detrimental to the BSCA Funds. Accordingly, there may be a conflict between BAAMs fiduciary obligation to the Fund and the Master Fund, on the one hand, and BAAMs interest in the success of the BSCA Funds, on the other hand.
In particular, to the extent that a BAAM Multi-Manager Fund (including the Fund or the Master Fund) invests with a Strategic Capital Manager, the BSCA Funds will receive a portion of the revenue the Strategic Capital Manager receives in respect of the BAAM Multi-Manager Funds investment. Accordingly, there may be a conflict between BAAMs fiduciary obligation to the Fund and the Master Fund, on the one hand, and BAAMs interest in the success of the BSCA Funds, on the other hand. In order to mitigate the potential conflict, BSCA and the BSCA Funds general partner will waive their share of any management or performance-based allocations or fees derived from the Funds or the Master
Funds investment with a Strategic Capital Manager. Those amounts will be passed through or rebated to the Fund or Master Fund. This pass through/rebate generally also applies in the case of investments with a Strategic Capital Manager outside of its commingled vehicles. The BAAM Multi-Manager Funds (including the Fund and the Master Fund) will not otherwise participate in any of the economic arrangements related to any Strategic Capital Manager with which they invest.
There is significant overlap between BAAMs and BSCAs investment committees.
Blackstone Policies and Procedures
Specified policies and procedures implemented by Blackstone to mitigate potential conflicts of interest and address certain regulatory requirements and contractual restrictions may reduce the synergies across Blackstones various businesses that the Fund and the Master Fund expect to draw on for purposes of pursuing attractive investment opportunities. Because Blackstone has many different asset management businesses, it is subject to a number of actual and potential conflicts of interest, greater regulatory oversight, and more legal and contractual restrictions than that to which it would otherwise be subject if it had just one line of business. In addressing these conflicts and regulatory, legal and contractual requirements across its various businesses, Blackstone has implemented certain policies and procedures (e.g., information walls) that may reduce the positive synergies that the Fund and the Master Fund expect to utilize for purposes of finding attractive investments. For example, the Investment Manager generally will be restricted from investing in (i) Blackstone portfolio companies and (ii) issuers with respect to which any investment advisor in the Blackstone Hedge Fund Solutions Group has received material non-public information (the Restricted Issuers). These restrictions generally will not, however, apply to Portfolio Managers and, other than with respect to the Restricted Issuers, the Investment Manager generally will be permitted to invest in issuers in which funds and accounts managed by affiliates of the Investment Manager have an interest. The Investment Manager could be forced to sell or hold existing investments, or be precluded from making new investments, as a result of a relationship that Blackstone may have or investments Blackstone and its affiliates may make.
Blackstone Proprietary Funds
From time to time, Blackstone may hire or enter into a partnership or other arrangement with one or more investment professionals to form and manage private investment funds or separately managed accounts pursuing alternative investment strategies (Proprietary Funds). Blackstone generally will receive a substantial portion of the revenues attributable to these Proprietary Funds, in some instances greater than the revenues it receives from the Fund or the Master Fund. Blackstone has formed several Proprietary Funds and expects to form additional Proprietary Funds in the future. The nature of BAAMs or its affiliates relationship with the Proprietary Funds means that, due to the prohibitions contained in the 1940 Act on certain transactions between a registered investment company and affiliated persons of it, or affiliated persons of those affiliated persons, the Fund and the Master Fund typically will not be able to invest in the Proprietary Funds, even if the investment would be appropriate for the Fund or the Master Fund. These prohibitions are designed to prevent affiliates and insiders from using a registered investment company (such as the Fund and the Master Fund) to benefit themselves to the detriment of the registered investment company and its shareholders.
Middle- and Back-Office Services
BAAM owns a non-controlling, minority equity interest in Arcesium LLC (Arcesium) and the President of the Fund and the Master Fund, who is also the Chief Operating Officer of BAAM, serves on the board of Arcesium. To the extent permitted by the 1940 Act, Arcesium may provide certain middle- and back-office services and technology to one or more Portfolio Managers and Investment Funds. The services and technology provided to the applicable Investment Funds by Arcesium are expected to support various post-trade activities, including trade capture, cash and position reconciliations, asset servicing, margin and collateral monitoring, pricing-related services, portfolio data warehousing, related recordkeeping, and other services and technology as agreed between the applicable Portfolio Managers and Arcesium. BAAM may recommend Arcesiums services to certain Portfolio Managers, and certain Portfolio Managers from time to time may hire Arcesium. BAAM will not require any Portfolio Managers to hire Arcesium as a condition to investing in the Investment Funds of said Portfolio Managers nor will it favor Portfolio Managers who use Arcesium over Portfolio Managers who use other qualified middle- and back-office services providers when selecting Portfolio Managers for the Funds portfolio.
In return for its services, Arcesium typically receives a one-time upfront implementation fee, an annual software use and service fee (partly based on the relevant funds net asset value), and annual monthly financial operations services fee (also based on the relevant funds net asset value) (such fees in the aggregate, the Arcesium Fees). The Arcesium Fees will be negotiated directly by Arcesium and the Portfolio Managers. Because the Arcesium Fees are based, in part, on the net asset value of a fund, which, in the case of the Fund, is generally determined by the Administrator under the supervision of BAAM, there may be conflicts with respect to calculation of the fees. Additional information regarding the Arcesium Fees is available from BAAM upon request.
In connection with BAAMs minority equity ownership interest in Arcesium, BAAM is expected to receive cash distributions from Arcesium from time to time. In accordance with applicable law, these cash distributions are expected to be used to reimburse BAAM for the operating expenses of Arcesium for which BAAM has previously paid. Following such expected reimbursement, cash received by BAAM from Arcesium will be applied to reimburse funds/accounts that are managed by BAAM or its affiliates for the amount of Arcesium Fees paid by such entities to Arcesium. This means that the Fund may be reimbursed in full for its payment of Arcesium Fees; however, there is no guarantee of reimbursement in any event. In the event that cash distributions received by BAAM from Arcesium with respect to these funds/accounts use of Arcesium exceed the Arcesium Fees paid by the funds/accounts, any excess amounts will be retained by BAAM. In addition, in the event that Arcesium is sold to a third-party, there is no guarantee that BAAM will continue to receive such cash distributions and that the funds/accounts will be reimbursed for any portion of the Arcesium Fees paid by it.
Other Activities of Blackstone, BAAM and its Affiliates
BAAM devotes to the Fund and the Master Fund as much time as is necessary or appropriate, in its judgment, to manage the Funds and the Master Funds activities. Certain inherent conflicts of interest arise from the fact that BAAM, Blackstone and their affiliates act on behalf of the Fund and the Master Fund and may also carry on investment activities for a significant number of other clients (including registered investment companies and other investment funds sponsored by BAAM, Blackstone or their affiliates) in which the Fund or the Master Fund has no interest. In certain instances, the investment strategies and objectives of these other clients are similar to, or overlap with, the investment objective and strategy of the Fund or the Master Fund. These activities could be viewed as creating a conflict of interest in that BAAMs time will not be devoted exclusively to the business of the Fund or the Master Fund but will be allocated among the Fund, the Master Fund and BAAMs other clients.
BAAMs future investment activities, including the establishment of registered investment companies and other investment funds, may give rise to additional conflicts of interest. In addition, the activities in which Blackstone and its affiliates are involved may limit or preclude the flexibility that the Fund or the Master Fund may otherwise have to participate in investments. The Fund or the Master Fund may be forced to waive voting rights or sell or hold existing investments as a result of relationships that Blackstone may have or transactions or investments Blackstone and its affiliates may make or have made. In addition, BAAM may determine not to invest the Funds or the Master Funds assets in an Investment Fund, or may withdraw/redeem all or a portion of an existing Fund or Master Fund investment in an Investment Fund, subject to applicable law, in order to address adverse regulatory implications that would arise under the 1940 Act for the Fund, the Master Fund and BAAMs other clients if that investment was made or maintained. To the extent that the adverse regulatory implications are attributable to the Funds or Master Funds investment, BAAM may cause the Fund or Master Fund to withdraw/redeem prior to other BAAM clients.
BAAMs investment activities, including the establishment of other investment funds and providing advisory services to discretionary or non-discretionary clients (see Non-Discretionary/Advisory Clients below), may give rise to additional conflicts of interest. BAAM has no obligation to purchase or sell, or recommend for purchase or sale for the Fund or the Master Fund, any investment that BAAM or its affiliates may purchase or sell, or recommend for purchase or sale for their own accounts, for the accounts of family members or for the account of any other client or investment fund. Situations may arise in which private investment funds or accounts managed by BAAM or its affiliates have made investments which would have been suitable for investment by the Fund or the Master Fund but, for various reasons, were not pursued by, or available to, the Fund or the Master Fund. BAAM, Blackstone and their affiliates may also engage in business activities unrelated to the Fund and the Master Fund that create conflicts of interest. BAAM, Blackstone, their affiliates and any of their respective officers, directors, partners, members or employees, may invest for their own account in various investment opportunities, including in investment funds, in which the Fund or the Master Fund have no interest. BAAM may determine that an investment opportunity in a particular investment is appropriate for a particular account, or for itself, but not for the Fund or the Master Fund.
Blackstone employees, including employees of BAAM, may invest in hedge funds or other investment entities, including potential competitors of the Fund. Investors will not receive any benefit from any such investments.
Non-Discretionary/Advisory Clients
BAAM provides advisory services, typically on a non-discretionary basis, regarding the hedge fund portfolios of certain clients. BAAM may communicate investment recommendations to such clients prior to the full implementation of such recommendations by BAAM for the Fund, the Master Fund, BAAM Multi-Manager Funds or other discretionary clients. Accordingly, the Fund, the Master Fund, BAAM Multi-Manager Funds and BAAMs other discretionary clients may be seeking to obtain limited capacity from Investment Funds at the same time as such non-discretionary clients. Similarly, to the extent that an Investment Fund imposes redemption limitations, actions taken by non-discretionary clients may be adverse to the Fund, the Master Fund, BAAM Multi-Manager Funds or other discretionary accounts. In addition, through receiving investment recommendations, non-discretionary clients may from time to time effectively have access to or have the right to obtain information about investment decisions made for the Fund, the Master Fund, BAAM Multi-Manager Funds or other discretionary clients. Based on such information, the non-discretionary clients may take actions that are adverse to the Fund, the Master Fund, BAAM Multi-Manager Funds or other discretionary BAAM clients.
Placement Agent Arrangements
The Distributor is an affiliate of BAAM. On October 1, 2015, Blackstone spun off the financial and strategic advisory and restructuring and reorganization advisory divisions of the Distributor, as well as its Park Hill Group fund placement business, and combined these businesses with PJT Partners, an independent financial advisory firm founded by Paul J. Taubman (PJTP). While PJTP operates independently from Blackstone and is not an affiliate thereof, nevertheless because it is expected that there will be substantial overlap between Blackstone and PJTP, conflicts may arise in connection with transactions between or involving the Blackstone-managed funds and portfolio companies on the one hand and PJTP on the other. The Distributor does not receive any compensation relating to such arrangement.
Transactions Between the Fund and Other BAAM Clients
BAAM, to the extent permitted by applicable law, including the 1940 Act, may cause the Fund or the Master Fund to purchase investments from, to sell investments to or to exchange investments with any of its or Blackstones affiliates. Any such purchases, sales or exchanges generally will be effected based upon the net asset value of the investment.
(a)(3) Compensation of Portfolio Managers
The Portfolio Managers compensation is comprised primarily of a fixed salary and a discretionary bonus paid by BAAM or its affiliates and not by the registrant, BAAF II, or the Master Fund. A portion of the discretionary bonus may be paid in shares of stock or stock options of The Blackstone Group L.P., the parent company of BAAM (Blackstone), which stock options may be subject to certain vesting periods. The amount of the Portfolio Managers discretionary bonus, and the portion to be paid in shares or stock options of Blackstone, is determined by senior officers of BAAM and/or Blackstone. In general, the amount of the bonus will be based on a combination of factors, none of which is necessarily weighted more than any other factor. These factors may include: the overall performance of BAAM; the overall performance of Blackstone and its affiliates and subsidiaries; the profitability to BAAM derived from the management of the registrant, BAAF II, the Master Fund and the other accounts managed by BAAM; the absolute performance of the registrant, BAAF II, the Master Fund and such other accounts for the preceding year; contributions by the Portfolio Manager in assisting with managing the assets of BAAM; and execution of managerial responsibilities, client interactions and support of colleagues. The bonus is not based on a precise formula, benchmark or other metric.
(a)(4) Securities Ownership of Portfolio Managers
The table below shows the dollar range of the interests of the registrant and the Master Fund beneficially owned by each Portfolio Manager as of March 31, 2018.
Portfolio Manager |
Registrant | Master Fund | ||
Gideon Berger |
None | None | ||
Greg Geiling |
None | None |
Min Htoo |
None | None | ||
Robert Jordan |
None | None | ||
John McCormick |
None | None | ||
Ian Morris |
None | None | ||
Stephen Sullens |
None | None | ||
Alberto Santulin |
None | None |
(b) Not applicable.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to procedures by which the shareholders may recommend nominees to the registrants Board of Trustees.
Item 11. | Controls and Procedures. |
(a) The registrants principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrants disclosure controls and procedures as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the 1940 Act), are effective as of the date within 90 days of the filing date of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) There were no changes in the registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrants internal control over financial reporting.
Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
(a) | Not applicable. |
(b) | Not applicable. |
Item 13. | Exhibits. |
(a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications pursuant to Rule 30a-2(b) are attached hereto. |
(c) | Proxy voting policies and procedures pursuant to Item 7 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Blackstone Alternative Alpha Fund
By (Signature and Title) | /s/ Brian F. Gavin |
|||
Brian F. Gavin, President (Principal Executive Officer) |
Date May 30, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) | /s/ Brian F. Gavin |
|||
Brian F. Gavin, President (Principal Executive Officer) |
Date May 30, 2018
By (Signature and Title) | /s/ Arthur Liao |
|||
Arthur Liao, Treasurer (Principal Financial and Accounting Officer) |
Date May 30, 2018
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED PURSUANT
TO RULES PROMULGATED UNDER SECTION 406 OF THE SARBANES-OXLEY ACT OF 2002
I. | Covered Officers/Purpose of the Code |
This code of ethics (the Code) of Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II, and Blackstone Alternative Alpha Master Fund (each, the Fund), applies to the Funds principal executive officer and principal financial officer (the Covered Officers) for the purpose of promoting:
| honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| full, fair, accurate, timely and understandable disclosure in reports and documents that each Fund files with, or submits to, the Securities and Exchange Commission (SEC) and in other public communications made by the Fund; |
| compliance with applicable laws and governmental rules and regulations; |
| the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and |
| accountability for adherence to the Code. |
Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
II. | Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest |
Overview. A conflict of interest occurs when a Covered Officers private interest interferes with the interests of, or the Covered Officers service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of the Covered Officers family, receives improper personal benefits as a result of the Covered Officers position with a Fund.
Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the 1940 Act, and the Advisers Act. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Funds because of their status as affiliated persons of the Funds. The Funds and their investment advisers compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may also arise from, or as a result of, the contractual relationship between the Funds and their investment adviser or a third party service provider of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Funds or for the Adviser or a third party service provider, or for one or more of them), be involved in establishing policies and implementing decisions that will have different effects on the Adviser, third party service provider and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and the Adviser or third party service provider and is consistent with the performance by the Covered Officers of their
duties as officers of the Funds. Thus, if performed in conformity with the provisions of the 1940 Act and the Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Board that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes.
Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the 1940 Act and the Advisers Act.
III. | Disclosure and Compliance |
| Each Covered Officer of the Funds should become familiar with the disclosure requirements generally applicable to the Funds; |
| each Covered Officer of the Funds should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including to the Funds Trustees and auditors, and to governmental regulators and self-regulatory organizations; |
| each Covered Officer of the Funds should, to the extent appropriate within the Covered Officers area of responsibility, consult with other officers and employees of the Funds and its investment adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents each Fund files with, or submits to, the SEC and in other public communications made by the Fund; and |
| it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. |
IV. | Reporting and Accountability |
Each Covered Officer of the Funds must:
| upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that the Covered Officer has received, read and understands the Code; |
| annually thereafter affirm to the Board that the Covered Officer has complied with the requirements of the Code; |
| not retaliate against any other Covered Officer or any employee of the Funds or its affiliated persons for reports of potential violations that are made in good faith; and |
| notify the Chief Compliance Officer of the Funds promptly if the Covered Officer knows of any violation of this Code. Failure to do so is itself a violation of this Code. |
The Chief Compliance Officer of the Funds is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. The Chief Compliance Officer of the Funds is authorized to consult, as appropriate, with counsel to the Funds and counsel to the Trustees of the Funds who are not interested persons, as defined by Section 2(a)(19) of the 1940 Act, of the Funds (the Independent Trustees), and is encouraged to do so. However, any approvals or waivers1 will be considered by Independent Trustees.
The Funds will follow these procedures in investigating and enforcing this Code:
| the Chief Compliance Officer will take all appropriate action to investigate any reported potential violations; |
| if, after such investigation, the Chief Compliance Officer believes that no violation has occurred, the Chief Compliance Officer is not required to take any further action; |
| any matter that the Chief Compliance Officer believes is a violation will be reported to the Independent Trustees; |
| if the Independent Trustees concur that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel Adviser or Board; or a recommendation to dismiss the Covered Officer; and |
| any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. |
V. | Other Policies and Procedures |
This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Adviser, principal underwriter (if applicable), or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The codes of ethics under Rule 17j-1 under the 1940 Act of the Funds, the Adviser and principal underwriter are separate requirements applying to the Covered Officers and others, and are not part of this Code.
VI. | Amendments |
Any amendments to this Code must be approved or ratified by a majority vote of the Board, including a majority of the Independent Trustees.
VII. | Confidentiality |
All reports and records relating to the Funds prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Adviser or Board, counsel to the Funds and counsel to the Independent Trustees.
1 | For this purpose, the term waiver includes the approval by the Fund of a material departure from a provision of the Code or the Funds failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to Fund management. |
VIII. | Internal Use |
The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion.
CERTIFICATIONS
I, Brian F. Gavin, certify that:
1. | I have reviewed this report on Form N-CSR of Blackstone Alternative Alpha Fund (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
May 30, 2018 |
/s/ Brian F. Gavin | |||
Date | Brian F. Gavin, President (Principal Executive Officer) |
CERTIFICATIONS
I, Arthur Liao, certify that:
1. | I have reviewed this report on Form N-CSR of Blackstone Alternative Alpha Fund (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
May 30, 2018 | /s/ Arthur Liao | |||||
Date | Arthur Liao, Treasurer (Principal Financial and Accounting Officer) |
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the report on Form N-CSR for the period ended March 31, 2018 of Blackstone Alternative Alpha Fund (the registrant).
I, Brian F. Gavin, the President of the registrant, certify that, to the best of my knowledge:
1 | the Form N-CSR fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and |
2. | the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: May 30, 2018 |
/s/ Brian F. Gavin |
Brian F. Gavin |
President (Principal Executive Officer) |
This certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of Form N-CSR or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the report on Form N-CSR for the period ended March 31, 2018 of Blackstone Alternative Alpha Fund (the registrant).
I, Arthur Liao, the Treasurer of the registrant, certify that, to the best of my knowledge:
1 | the Form N-CSR fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and |
2. | the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: May 30, 2018 |
/s/ Arthur Liao |
Arthur Liao |
Treasurer (Principal Financial and Accounting Officer) |
This certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of Form N-CSR or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Blackstone Alternative Asset Management L.P. (BAAM)
Blackstone Strategic Alliance Advisors L.L.C. (BSAA)
Blackstone Alternative Solutions L.L.C. (BAS)
Blackstone Strategic Capital Advisors L.L.C. (BSCA)*
Blackstone Senfina Advisors L.L.C. (BSA)
Proxy Voting Policies and Procedures
May 2016
This information contained below is NOT intended to provide a summary of the proxy voting policies and procedures for the publicly offered funds managed by Blackstone Alternative Investment Advisors LLC. Please refer to the Compliance Manuals for these funds for a summary of their proxy voting policies and procedures.
Compliance with the following policies and procedures typically will be reviewed at least annually under the supervision of the Advisors General Counsel and Chief Compliance Officers.
I. | Policy |
When BAAM, BSAA, BAS, BSCA, or BSA (each an Advisor) has discretion to vote the proxies of its clients, including, without limitation, the private investment funds managed by the Advisor (the Clients), the Advisor will vote these proxies in the best interest of the Clients and in accordance with these policies and procedures.
These policies and procedures are a supplement to, and form a part of, the Advisors Supplemental Policies and Procedures Manual.
II. | Proxy Voting Procedures |
For the Advisor, proxies typically arise in the context of requests for consent or other votes requested by underlying hedge fund managers and sub advisors. All proxies received by the Advisor will be sent to the Legal and Product Structuring (LaPS) Team, which is responsible for monitoring and documenting the proxy voting process. The LaPS Team will:
(1) Deliver a summary of the proposed changes to the relevant Manager Team members, who will determine the appropriate course of action.
(2) Provide the relevant Manager Team members with a list of Clients that invest in the underlying fund in question and the date by which the Advisor must vote the proxy.
(3) Complete the consent form provided by the underlying manager and prepare it for execution by the appropriate authorized signatory. All proxies will be returned by the LaPS Team either to the custodian, if the Client utilizes a custodian, or directly to the underlying manager.
(4) Update HedgeHog (proprietary software) with the appropriate information.
* | Includes relying adviser BSCA Advisors L.L.C. (BSCAA). |
(5) Maintain records relating to each proxy, including (i) a copy of the proxy; (ii) the voting decision with regard to the proxy; (iii) any documents created by the Advisor, or others, that were material to the voting decision; (iv) a record of each written request from an investor for proxy voting information; and (v) the Advisors written response to any such request (oral or written). Such records shall be maintained by the LaPS Team in its offices for two years and for an additional three years in an easily accessible place.
(6) Maintain a copy of these policies and procedures and all amendments thereto.
Where a Client holds publicly traded securities, the Clients securities may be borrowed, hypothecated, rehypothecated or pledged by the Clients custodian on the record date for determining eligibility to vote a proxy. In such case, the Client typically will not be eligible to vote the securities. The Advisor does not believe it is necessary or practical to insist that the custodians lock up the Clients securities at all times (i.e., not allow the Clients securities to be borrowed, hypothecated, rehypothecated or pledged). However, the Advisor will request that the custodian lock up the Clients securities on a record date if the vote in question is material to the Clients investments.
III. | Voting Guidelines |
In the absence of specific voting guidelines from a Client, the Advisor will vote proxies in the best interests of the Client as determined in the Advisors reasonable discretion. The Advisor may elect not to vote certain routine proxies where the Advisor determines that doing so would be unduly burdensome.
IV. | Conflicts of Interest |
The LaPS Team will identify any conflicts that exist between the interests of the Advisor and its Clients. This examination will include a review of the relationship of the Advisor and its affiliates with the underlying manager or the issuer of the security to determine if the manager or issuer has any relationship with the Advisor or an affiliate of the Advisor. If a material conflict exists, the Advisor will determine the appropriate course of action.
V. | Disclosure |
The Advisor will disclose in each Clients Confidential Offering Memorandum (or other applicable offering document) that investors, by written request, may obtain a copy of these policies and procedures and may review in the Advisors offices information on how the Advisor voted proxies relating to the Clients portfolio. Such information will include, with respect to each voted proxy, (1) the name of the issuer; (2) the proposal voted upon; and (3) how the Advisor voted the proxy. Similar disclosures and practices will be followed for Clients which are not funds.
VI. | Class Actions |
When a recovery is achieved in a class action, investors who owned shares in the company subject to the action have the option to either: (1) opt out of the class action and pursue their own remedy; or (2) participate in the recovery achieved via the class action. If class action documents are received by the Advisor on behalf of a Client, the LaPS Team and relevant Manager Team members together will determine if it is in the best interests of the Client to participate in, or opt out of, the class action. The LaPS Team will maintain appropriate documentation.
2 |
VII. | BSA |
BSA has engaged the services of Institutional Shareholder Services, Inc. (ISS) to make recommendations to BSA on the voting of proxies related to securities held by BSA Clients. The third- party portfolio managers retained by BSA generally also will retain ISS. ISS provides voting recommendations based on established guidelines and practices.
BSA will review ISS recommendations and generally will vote proxies in accordance with such recommendations. However, BSA may decide not vote in accordance with the ISS recommendations if it believes that the specific ISS recommendation is not in the best interests of the BSA Clients. In addition, if a conflict of interest arises between ISS and a company subject to a proxy vote, the Adviser generally will vote the proxy without considering the analyses of ISS and will consider the recommendation of the company and what the Adviser believes to be in the best interests of the Client.
BSA will rely upon ISS to maintain records of the following with respect to each proxy vote:
| The Issuers name; |
| The securitys ticker symbol or CUSIP, as applicable; |
| The shareholder meeting date; |
| The number of shares that XYZ voted; |
| A brief identification of the matter voted on; |
| Whether the matter was proposed by the Issuer or a security-holder; |
| Whether BSA cast a vote; |
| How BSA cast its vote (for the proposal, against the proposal, or abstain); and |
| Whether BSA cast its vote with or against management. |
3 |