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 811-22792
Blackstone Alternative Alpha Fund II
(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, 2015
Date of reporting period: September 30, 2014
Item 1. | Reports to Stockholders. |
The Report to Shareholders is attached hereto.
Blackstone
Blackstone Alternative Asset Management L.P.
SEMI-ANNUAL REPORT (Unaudited)
For the Period Ended September 30, 2014
Blackstone Alternative Alpha Fund II
TABLE OF CONTENTS
Blackstone Alternative Alpha Fund II |
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1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
8 | ||||
14 | ||||
Blackstone Alternative Alpha Master Fund and Subsidiary |
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16 | ||||
17 | ||||
19 | ||||
20 | ||||
21 | ||||
22 | ||||
23 | ||||
31 |
Blackstone Alternative Alpha Fund II
Statement of Assets and Liabilities (Unaudited)
As of September 30, 2014
Assets: |
||||
Investment in Blackstone Alternative Alpha Master Fund (Master Fund), at fair value (Cost $21,909,219) |
$ | 22,649,354 | ||
Cash |
168,030 | |||
Investment subscription paid in advance to Master Fund |
730,000 | |||
Receivable from Investment Manager |
73,467 | |||
Other assets |
787 | |||
|
|
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Total assets |
23,621,638 | |||
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|
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Liabilities: |
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Shareholder subscriptions received in advance |
898,000 | |||
Shareholder redemptions payable |
110,970 | |||
Accrued expenses and other liabilities |
87,662 | |||
|
|
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Total liabilities |
1,096,632 | |||
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|
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Net assets |
$ | 22,525,006 | ||
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|
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Components of Net Assets: |
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Paid-in capital |
$ | 21,786,579 | ||
Accumulated net investment loss |
(15,322 | ) | ||
Accumulated net realized gain |
13,614 | |||
Net unrealized appreciation on investments |
740,135 | |||
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|
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Net assets |
$ | 22,525,006 | ||
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|
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Net Asset Value: |
||||
Net assets, Advisor Class II |
$ | 289,263 | ||
Shares of beneficial interests outstanding, Advisor Class II |
290 | |||
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|
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Net asset value per share, Advisor Class II |
$ | 997.46 | ||
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|
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Net assets, Advisor Class III |
$ | 22,235,743 | ||
Shares of beneficial interests outstanding, Advisor Class III |
20,110 | |||
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|
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Net asset value per share, Advisor Class III |
$ | 1,105.71 | ||
|
|
See accompanying Notes to Financial Statements.
1
Blackstone Alternative Alpha Fund II
Schedule of Investment (Unaudited)
September 30, 2014
Shares | Cost | Fair Value | Percentage of Total Net Assets |
|||||||||||||
Blackstone Alternative Alpha Master Fund (Master Fund) |
18,910 | 21,909,219 | 22,649,354 | 100.55 | % | |||||||||||
Other assets, less liabilities |
(124,348 | ) | (0.55 | )% | ||||||||||||
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|
|
|
|||||||||||||
Total Net Assets |
$ | 22,525,006 | 100.00 | % | ||||||||||||
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|
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See accompanying Notes to Financial Statements.
2
Blackstone Alternative Alpha Fund II
Statement of Operations (Unaudited)
For the Six Months Ended September 30, 2014
Fund Income: |
||||
Interest |
$ | 247 | ||
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|
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Fund Expenses: |
||||
Offering |
144,844 | |||
Legal |
102,750 | |||
Printing |
52,250 | |||
Professional |
26,400 | |||
Administration |
13,498 | |||
Transfer agent fees |
3,622 | |||
Custody |
1,789 | |||
Trustees |
959 | |||
Shareholder service |
60 | |||
Other |
29,519 | |||
|
|
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Total Fund expenses |
375,691 | |||
|
|
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Less expenses reimbursed by Investment Manager* |
(366,376 | ) | ||
|
|
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Net Fund expenses |
9,315 | |||
|
|
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Net Investment Loss |
(9,068 | ) | ||
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|
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Net Increase in Net Assets from Investments: |
||||
Net change in unrealized appreciation from investment in Master Fund |
660,464 | |||
|
|
|||
Net Increase in Net Assets from Investments |
660,464 | |||
|
|
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Net Increase in Net Assets from Operations |
$ | 651,396 | ||
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|
* | The reimbursement includes expenses incurred by the Fund and Master Fund. See Note 6. |
See accompanying Notes to Financial Statements.
3
Blackstone Alternative Alpha Fund II
Statements of Changes in Net Assets (Unaudited)
For the Six Months Ended September 30, 2014 |
For the Period Ended March 31, 2014 |
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Increase (Decrease) in Net Assets: |
||||||||
Operations: |
||||||||
Net investment loss |
$ | (9,068 | ) | $ | (2,109 | ) | ||
Realized gain distribution from Master Fund |
| 13,614 | ||||||
Net change in unrealized appreciation from investment in Master Fund |
660,464 | 79,671 | ||||||
|
|
|
|
|||||
Net increase in net assets from operations |
651,396 | 91,176 | ||||||
|
|
|
|
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Distributions of net investment income to shareholders |
| (4,163 | ) | |||||
|
|
|
|
|||||
Capital Transactions: |
||||||||
Advisor Class II: |
||||||||
Shareholder subscriptions |
290,000 | | ||||||
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|
|
|
|||||
Total Advisor Class II |
290,000 | | ||||||
|
|
|
|
|||||
Advisor Class III: |
||||||||
Shareholder subscriptions |
13,012,593 | 8,491,000 | ||||||
Reinvestment of dividends |
| 3,974 | ||||||
Shareholder redemptions |
(110,970 | ) | | |||||
|
|
|
|
|||||
Total Advisor Class III |
12,901,623 | 8,494,974 | ||||||
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|
|
|
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Increase in net assets from capital transactions |
13,191,623 | 8,494,974 | ||||||
|
|
|
|
|||||
Net Assets: |
||||||||
Total increase in net assets |
13,843,019 | 8,581,987 | ||||||
Beginning of period |
8,681,987 | 100,000 | ||||||
|
|
|
|
|||||
End of period |
$ | 22,525,006 | $ | 8,681,987 | ||||
|
|
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|
|||||
Accumulated net investment loss |
$ | (15,322 | ) | $ | (6,254 | ) | ||
|
|
|
|
|||||
Share Transactions: |
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Advisor Class II: |
||||||||
Beginning of period |
| | ||||||
Shares issued |
290 | | ||||||
|
|
|
|
|||||
End of period |
290 | | ||||||
|
|
|
|
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Advisor Class III: |
||||||||
Beginning of period |
8,098 | 100 | ||||||
Shares issued |
12,112 | 7,995 | ||||||
Shares reinvested |
| 3 | ||||||
Shares redeemed |
(100 | ) | | |||||
|
|
|
|
|||||
End of period |
20,110 | 8,098 | ||||||
|
|
|
|
See accompanying Notes to Financial Statements.
4
Blackstone Alternative Alpha Fund II
Statement of Cash Flows (Unaudited)
For the Six Months Ended September 30, 2014
Cash Flows from Operating Activities: |
||||
Net increase in net assets resulting from operations |
$ | 651,396 | ||
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |
||||
Net change in unrealized appreciation from investment in Master Fund |
(660,464 | ) | ||
Purchase of investment in Master Fund and subscriptions paid in advance to Master Fund |
(11,698,055 | ) | ||
Increase in receivable from Investment Manager |
(73,467 | ) | ||
Decrease in deferred offering costs |
144,844 | |||
Decrease in prepaid expenses |
14,587 | |||
Increase in other assets |
(787 | ) | ||
Decrease in payable to Investment Manager |
(52,166 | ) | ||
Decrease in accrued expenses and other liabilities |
(23,844 | ) | ||
|
|
|||
Net cash used in operating activities |
(11,697,956 | ) | ||
|
|
|||
Cash Flows from Financing Activities: |
||||
Proceeds from shareholder subscriptions and subscriptions received in advance |
11,864,000 | |||
|
|
|||
Net cash provided by financing activities |
11,864,000 | |||
|
|
|||
Net change in cash |
166,044 | |||
Cash, beginning of period |
1,986 | |||
|
|
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Cash, end of period |
$ | 168,030 | ||
|
|
See accompanying Notes to Financial Statements.
5
Blackstone Alternative Alpha Fund II
Financial Highlights (Unaudited)
Advisor Class II |
For the One Month Ended September 30, 2014* |
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Per Share Operating Performance: |
||||
Net Asset Value, September 1, 2014 |
$ | 1,000.00 | ||
Income from Investment Operations: |
||||
Net investment loss1 |
(0.19 | ) | ||
Net unrealized loss from investments |
(2.35 | ) | ||
|
|
|||
Net loss from investment operations |
(2.54 | ) | ||
|
|
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Distribution of net investment income to shareholders |
| |||
|
|
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Net Asset Value, end of period |
$ | 997.46 | ||
|
|
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Financial Ratios:2 |
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Service fees |
0.25 | % | ||
Other expenses to average net assets for the class before reimbursement from Investment Manager |
2.00 | % | ||
Reimbursement from Investment Manager3 |
(2.00 | )% | ||
|
|
|||
Total expenses to average net assets for the class after reimbursement from Investment Manager4 |
0.25 | % | ||
|
|
|||
Net investment loss to average net assets for the class |
(0.24 | )% | ||
|
|
|||
Portfolio turnover5 |
6.00 | % | ||
|
|
|||
Total return6 |
(0.25 | )% | ||
|
|
|||
Net assets, September 30, 2014 (000s) |
$ | 289 | ||
|
|
1 | Calculated using average shares outstanding during the period. |
2 | Financial ratios have been annualized. |
3 | The reimbursement includes expenses incurred by the class and the Master Fund. See Note 6. |
4 | 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 6. The expenses of the Master Fund represent 1.66%, on an annualized basis, of average net assets for the class for the period ended September 30, 2014. The net expense ratio for the class, including the applicable Master Fund expenses, is 1.91% on an annualized basis, for the period ended September 30, 2014. |
5 | The Fund is invested solely in the Master Fund, therefore this ratio reflects the portfolio turnover of the Master Fund. |
6 | Total return has not been annualized. |
* | Advisor Class II commenced on September 1, 2014. |
The financial ratios represent the expenses and net investment loss to average monthly net assets for the period. The computation of such ratios does not reflect the classs 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.
6
Blackstone Alternative Alpha Fund II
Financial Highlights (Unaudited)
Advisor Class III |
For the Six Months Ended September 30, 2014 |
For the Period Ended March 31, 2014 |
||||||
Per Share Operating Performance: |
||||||||
Net Asset Value, beginning of period |
$ | 1,072.05 | $ | 1,000.00 | ||||
Income from Investment Operations: |
||||||||
Net investment loss1 |
(0.53 | ) | (0.66 | ) | ||||
Net change in unrealized gain from investments |
34.19 | 76.54 | ||||||
|
|
|
|
|||||
Net income from investment operations |
33.66 | 75.88 | ||||||
|
|
|
|
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Distribution of net investment income to shareholders |
| (3.83 | ) | |||||
|
|
|
|
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Net Asset Value, end of period |
$ | 1,105.71 | $ | 1,072.05 | ||||
|
|
|
|
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Financial Ratios:2 |
||||||||
Expenses to average net assets for the class before reimbursement from Investment Manager |
4.00 | % | 29.42 | % | ||||
Reimbursement from Investment Manager3 |
(3.90 | )% | (29.32 | )% | ||||
|
|
|
|
|||||
Total expenses to average net assets for the class after reimbursement from Investment Manager4 |
0.10 | % | 0.10 | % | ||||
|
|
|
|
|||||
Net investment loss to average net assets for the class |
(0.10 | )% | (0.09 | )% | ||||
|
|
|
|
|||||
Portfolio turnover5 |
6.00 | % | 10.30 | % | ||||
|
|
|
|
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Total return6 |
3.14 | % | 7.59 | % | ||||
|
|
|
|
|||||
Net assets, September 30, 2014 (000s) |
$ | 22,236 | $ | 8,682 | ||||
|
|
|
|
1 | Calculated using average shares outstanding during the period. |
2 | Financial ratios have been annualized. |
3 | The reimbursement includes expenses incurred by the class and the Master Fund. See Note 6. |
4 | 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 6. The expenses of the Master Fund represent 1.52% and 1.48%, on an annualized basis, of average net assets for the class for the periods ended September 30, 2014 and March 31, 2014, respectively. The net expense ratio for the class, including the applicable Master Fund expenses, is 1.62% and 1.58% on an annualized basis, for the periods ended September 30, 2014 and March 31, 2014, respectively. |
5 | The Fund is invested solely in the Master Fund, therefore this ratio reflects the portfolio turnover of the Master Fund. |
6 | Total return has not been annualized. |
The financial ratios represent the expenses and net investment loss to average monthly net assets for the period. The computation of such ratios does not reflect the classs 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 II
Notes to Financial Statements (Unaudited)
September 30, 2014
1. Organization
Blackstone Alternative Alpha Fund II (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 September 1, 2013. 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 Fund offers three classes of shares of beneficial interest (Shares): Advisor Class I Shares, Advisor Class II Shares, and Advisor Class III Shares. As of September 30, 2014, Advisor Class II Shares and Advisor Class III Shares were outstanding.
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 September 30, 2014, the Fund held a 3.21% 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, 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 the investment advisory agreement, 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 Services-Investment Companies (ASC 946), which defines investment companies and prescribes specialized accounting and reporting requirements for investment companies.
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.
8
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued) (Unaudited)
September 30, 2014
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 Expense
Investment transactions are accounted for on a trade date basis. Income and expense, including interest, are recorded on an accrual basis.
Cash
At September 30, 2014, the Fund had $168,030 held at a major U.S. bank.
Contingencies
Under the Funds Agreement and Declaration of Trust (Declaration of Trust), the Funds officers and each Trustee 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. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Income Taxes
The Funds policy is to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code 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 plans to file 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, 2013 and October 31, 2014, and has concluded, as of September 30, 2014, 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.
Offering Costs
Offering costs are amortized over 12 months on a straight-line basis beginning on the date of commencement of operations.
Dividends and Distributions to Shareholders
Dividends from net investment income and distributions of capital gains, if any, are declared and paid annually. Dividends and capital gain distributions paid by the Fund will be reinvested in additional Shares
9
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued) (Unaudited)
September 30, 2014
(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.
4. Fair Value Hierarchy
Current fair value guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Fund may, as a practical expedient, estimate the fair value of the investment in the Master Fund based on the reported net asset value per share or its equivalent if the reported net asset value of the investment in the Master Fund is calculated in a manner consistent with the measurement principles applied to investment companies. The hierarchy established under the fair value guidance gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement or based on liquidity, as indicated by the redemption terms:
Level 1 Quoted prices are available in active markets for identical investments as of the measurement date. The Fund does not adjust the quoted price for these investments.
Level 2 Quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.
The Funds investment in the Master Fund shall be categorized within Level 2 if the Fund has the ability to redeem its investment in the Master Fund at the reported net asset value per share (or its equivalent) at the measurement date or within 90 days thereof, upon no greater than 90 days prior written notice.
Level 3 Pricing inputs are unobservable for the investment and include instances where there is little, if any, market activity for the investment.
The Fund has categorized within Level 3, its investment in the Master Fund that is subject to a minimum holding period or lockup greater than 90 days from the measurement date, are in liquidation, cannot be redeemed within 90 days of the measurement date, are subject to redemption notice periods in excess of 90 days, have limited the individual amount of shareholder redemptions and/or aggregate amount of shareholder redemptions, or have suspended redemptions.
The classification of investment in the Master Fund in the table below is indicative of the Funds classification of its investment in the Master Fund. It is not meant to be indicative of the classification of investments in Investee Funds of the Master Fund within the fair value hierarchy.
The following is a summary categorization, as of September 30, 2014, of the Funds investment based on the level of inputs utilized in determining the value of such investments:
Investments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investment in the Master Fund |
$ | | $ | | $ | 22,649,354 | $ | 22,649,354 | ||||||||
$ | | $ | | $ | 22,649,354 | $ | 22,649,354 |
10
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued) (Unaudited)
September 30, 2014
The changes in investments measured at fair value for which the Fund used Level 3 inputs to determine fair value are as follows:
Investment in Master Fund |
||||
Beginning Balance April 1, 2014 |
$ | 8,365,835 | ||
Transfers into Level 3 |
| |||
Transfers out of Level 3 |
| |||
Net realized gain |
| |||
Net change in unrealized appreciation |
660,464 | |||
Reinvestment of realized gains |
| |||
Purchases |
13,623,055 | |||
Sales |
| |||
|
|
|||
Ending Balance September 30, 2014 |
$ | 22,649,354 | ||
|
|
|||
Change in unrealized appreciation related to investments still held as of September 30, 2014 |
$ | 660,464 | ||
|
|
The Fund recognizes transfers within the fair value hierarchy as of the beginning of the period. There were no transfers between Levels 1, 2, or 3 for the period ended September 30, 2014.
5. 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. 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 would be subject to the Master Funds repurchase policy.
11
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued) (Unaudited)
September 30, 2014
6. Related Party Transactions
Management Fee
The Investment Manager will not charge the Fund an advisory 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. 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 defined below) not to exceed 0.35% per annum of the Funds net assets (the Expense Cap). Specified Expenses includes all expenses of the Fund and the Funds pro-rata share of 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 limited partnerships and investment funds (Investee 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 the Master Fund), (vi) taxes, and (vii) extraordinary expenses (as determined in the sole discretion of BAAM). To the extent that Specified Expenses for the Fund (including the Funds pro rata share of the Master Funds Specified Expenses) for any month exceeds 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 March 31, 2016. 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, to the extent the Specified Expenses of the Fund (including the Funds pro rata share of the Master Funds Specified Expenses) are less than the lower of the Expense Cap and any expense limitation agreement then in effect with respect to the Specified Expenses. The repayment may 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 of repayment to exceed the Expense Cap. As of September 30, 2014, the repayments that potentially may be made by the Fund to the Investment Manager total $974,518. Of this amount, repayments of $608,142 have a maximum expiration date of March 31, 2017 and repayments of $366,376 have a maximum expiration date of March 31, 2018.
Distribution and Servicing Agreement
Blackstone Advisory Partners L.P., an affiliate of the Investment Manager, acts as the distributor of the Fund (the Distributor). The Fund will pay the Distributor a fee (the Distribution and Service Fee) equal to 0.40% (annualized) of the average net assets of the Fund that are attributable to the Advisor Class I Shares and 0.25% (annualized) of the average net assets of the Fund that are attributable to Advisor Class II Shares. There is no Distribution and Service Fee attributable to Advisor Class III Shares.
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 was allocated $366,376 of the repayment amount which reduced the amount payable by the Fund to the Investment Manager for reimbursement of such expenses. As of September 30, 2014, the Fund had a net receivable from the Investment Manager of $73,467 recorded in the Statement of Assets and Liabilities.
12
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued) (Unaudited)
September 30, 2014
7. Financial Instruments and Off-Balance Sheet Risk
In the normal course of business, the 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 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 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 failed to perform its obligations under contractual terms. See notes to the Consolidated Master Funds financial statements.
8. Subsequent Events
The Fund has evaluated the impact of subsequent events through the date of financial statement issuance.
On September 25, 2014, the Fund commenced an offer to purchase (the Offer) up to 2,895 Shares at a price equal to the Shares net asset value effective as of December 31, 2014. As of October 24, 2014, the expiration date of the Offer, there were no Shares tendered for repurchase.
On October 31, 2014, the Fund announced that it expects to pay a year-end distribution to its shareholders of record on December 31, 2014. The amount of the distribution will be declared on the declaration date.
13
Blackstone Alternative Alpha Fund II
Supplemental Information (Unaudited)
September 30, 2014
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 Declaration of Trust. The Trustees serving on the Board of Trustees were elected by the initial shareholder of the Fund. The Funds Board of Trustees also serves as the board of trustees of the Master Fund and the board of trustees of the Blackstone Alternative Alpha Fund (BAAF), an affiliate of the Fund that also invests substantially all of its assets in the Master Fund. The Fund, Master Fund and BAAF will be referred to together herein as the Master-Feeder Funds.
Compensation for Trustees
The Master-Feeder Funds pay no compensation to any of its officers or to the Trustees who are not Independent Trustees. Each Independent Trustee is paid by the Master-Feeder Funds $30,000 per fiscal year in aggregate for his or her services to the Master-Feeder Funds. The Chairman of the Master-Feeder Funds and the Chair of the Audit Committee each receive an additional $2,000 per fiscal year. The Trustees are reimbursed by the Master-Feeder Funds for their travel expenses related to Board meetings, continuing education and conferences.
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.
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, 2014 is available and information regarding how the Fund voted proxies related to its portfolio securities from its inception through June 30, 2014 will be available, (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 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.
14
Privacy Policy
This privacy policy sets forth BAAMs policies with respect to nonpublic personal information of individual investors, shareholders, prospective investors and former investors of investment funds managed by BAAM. These policies apply to individuals only and are subject to change.
BAAM collects nonpublic personal information about Investors from the information it receives in subscription agreements and information relating to an Investors transactions with BAAM.
BAAM does not disclose any nonpublic personal information about the Investors to anyone other than (i) fund administrators and other service providers as necessary in order to service each BAAM Investors investment with BAAM, (ii) The Blackstone Group L.P. and its affiliates (collectively, TBG) in order to determine the Investors eligibility for services offered by TBG, and (iii) as permitted by law.
By calling 1-855-890-7725, an Investor may limit the extent to which BAAM shares the Investors personal information with TBG in order to determine the Investors eligibility for investment services offered by TBG. However, BAAM still may share such personal information with TBG as necessary to service such Investors investment with BAAM or under other circumstances permitted by law. TBG also may market investment services to Investors where TBG has its own relationship with an Investor. Once an Investor has informed BAAM about his or her privacy preferences, they will remain in effect until the Investor notifies BAAM otherwise.
It also may be necessary under anti-money laundering and similar laws to disclose information about Investors in order to accept subscriptions from them. BAAM also will release information about Investors if compelled to do so by law in connection with any government request or investigation, or if any Investors direct BAAM to do so.
Information Safeguarding Policy
Except as otherwise expressly provided above, BAAM restricts access to nonpublic personal information about Investors to its employees and agents who need to know the information to enable BAAM to service the Investors. BAAM maintains physical, electronic and procedural safeguards to guard each Investors nonpublic information.
15
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Assets and Liabilities (Unaudited)
As of September 30, 2014
Assets: |
||||
Investments in Investee Funds, at fair value (Cost $620,947,383) |
$ | 699,026,937 | ||
Cash |
4,010,387 | |||
Investment subscriptions paid in advance to Investee Funds |
16,300,000 | |||
Receivable from investment sold |
522,178 | |||
Prepaid expenses |
63,508 | |||
Interest receivable |
1,280 | |||
Other assets |
22,590 | |||
|
|
|||
Total assets |
719,946,880 | |||
|
|
|||
Liabilities: |
||||
Shareholder subscriptions received in advance |
10,080,000 | |||
Management fees payable |
2,149,865 | |||
Payable to Investment Manager |
1,287,837 | |||
Accrued expenses and other liabilities |
295,671 | |||
|
|
|||
Total liabilities |
13,813,373 | |||
|
|
|||
Net assets |
$ | 706,133,507 | ||
|
|
|||
Components of Net Assets: |
||||
Paid-in capital |
$ | 644,374,081 | ||
Accumulated net investment loss |
(14,093,880 | ) | ||
Accumulated net realized loss |
(2,226,248 | ) | ||
Net unrealized appreciation on investments |
78,079,554 | |||
|
|
|||
Net assets |
$ | 706,133,507 | ||
|
|
|||
Net Asset Value: |
||||
Net assets |
$ | 706,133,507 | ||
Shares of beneficial interests outstanding, no par value, unlimited shares authorized |
589,545 | |||
|
|
|||
Net asset value per share |
$ | 1,197.76 | ||
|
|
See accompanying Notes to Consolidated Financial Statements.
16
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Schedule of Investments (Unaudited)
September 30, 2014
Shares |
Cost |
Fair Value |
Percentage |
Redemptions |
Redemption | |||||||||||||
Investments in Investee Funds: |
|
|||||||||||||||||
Equity(a) |
||||||||||||||||||
JANA Nirvana Fund, L.P. |
$ | 50,000,000 | $52,178,932 | 7.39% | Quarterly | 60 Days | ||||||||||||
Bay Pond Partners, L.P.(2) |
44,700,000 | 49,110,134 | 6.95% | Semi-annually | 45 Days | |||||||||||||
Coatue Qualified Partners, L.P. |
46,300,000 | 45,493,283 | 6.44% | Quarterly | 45 Days | |||||||||||||
Samlyn Offshore, Ltd.(3) |
36,483 | 37,000,000 | 40,793,443 | 5.78% | Semi-annually | 45 Days | ||||||||||||
Southpoint Qualified Fund LP |
35,300,000 | 40,185,905 | 5.69% | Quarterly | 60 Days | |||||||||||||
Glenview Institutional Partners, L.P. |
24,400,000 | 36,986,040 | 5.24% | Quarterly | 45 Days | |||||||||||||
Pershing Square, L.P. |
26,100,000 | 35,816,114 | 5.07% | Quarterly | 65 Days | |||||||||||||
Turiya Fund LP |
24,080,000 | 35,449,143 | 5.02% | Quarterly | 45 Days | |||||||||||||
Hoplite Partners, L.P. |
34,600,000 | 35,431,436 | 5.02% | Quarterly | 45 Days | |||||||||||||
AKO Partners L.P.(3) |
30,996,864 | 32,394,116 | 4.59% | Quarterly | 90 Days | |||||||||||||
Shearwater Offshore, Ltd.(3) |
250,000 | 25,000,000 | 25,946,600 | 3.67% | Annually | 60 Days | ||||||||||||
Viking Global Equities III Ltd.(3) |
6,279 | 12,400,000 | 17,991,909 | 2.55% | Annually | 45 Days | ||||||||||||
Visium Balanced Offshore Fund, Ltd.(3) |
4,683 | 9,230,000 | 12,193,966 | 1.73% | Quarterly | 60 Days | ||||||||||||
Soroban Opportunities Cayman Fund Ltd(3) |
10,000 | 10,000,000 | 9,576,054 | 1.36% | Quarterly | 60 Days | ||||||||||||
Soroban Cayman Fund Ltd(3) |
1,308 | 1,738,000 | 2,835,555 | 0.40% | Quarterly | 60 Days | ||||||||||||
|
|
|
|
|
||||||||||||||
Total |
411,844,864 | 472,382,630 |
66.90% | |||||||||||||||
|
|
|
|
|
||||||||||||||
Event-Driven(b) |
||||||||||||||||||
Corvex Partners LP |
60,530,000 | 70,481,828 | 9.98% | Quarterly | 60 Days | |||||||||||||
|
|
|
|
|
||||||||||||||
Credit-Driven(c) |
||||||||||||||||||
Magnetar Constellation Fund, Ltd(3) |
47,800 | 47,800,000 | 52,360,710 | 7.41% | Quarterly | 90 Days | ||||||||||||
|
|
|
|
|
||||||||||||||
Multi-Category(d) |
||||||||||||||||||
Elliott International Limited(3) |
23,640 | 24,465,918 | 25,135,611 | 3.56% | Quarterly Semi-annually |
60 Days | ||||||||||||
HBK Multi-Strategy Offshore Fund Ltd.(3) |
18,977 | 18,976,601 | 19,772,505 | 2.80% | Quarterly | 90 Days | ||||||||||||
|
|
|
|
|
||||||||||||||
Total |
43,442,519 | 44,908,116 | 6.36% | |||||||||||||||
|
|
|
|
|
||||||||||||||
Relative Value(e) |
||||||||||||||||||
Renaissance Institutional Diversified Alpha Fund International L.P.(3) |
27,000,000 | 27,337,711 | 3.87% | Monthly | 45 Days | |||||||||||||
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
17
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Schedule of Investments (Continued) (Unaudited)
September 30, 2014
Shares |
Cost |
Fair Value |
Percentage |
Redemptions |
Redemption | |||||||||||||
Global Macro(f) |
||||||||||||||||||
Tudor BVI Global Fund Ltd.(3) |
161 | $ | 19,080,000 | $20,826,755 | 2.95% | Quarterly | 60 Days | |||||||||||
|
|
|
|
|
||||||||||||||
Managed Futures(g) |
||||||||||||||||||
BlueTrend Fund Limited(3) |
39,351 | 11,250,000 | 10,729,187 | 1.52% | Monthly | 30 Days | ||||||||||||
|
|
|
|
|
||||||||||||||
Total Investments in Investee Funds(4)(5) |
$ | 620,947,383 | $699,026,937 | 98.99% | ||||||||||||||
|
|
|
|
|
||||||||||||||
Other assets, less liabilities |
7,106,570 | 1.01% | ||||||||||||||||
|
|
|
||||||||||||||||
Total Net Assets |
$706,133,507 | 100.00% | ||||||||||||||||
|
|
|
Percentage represents each respective investment in Investee Fund at fair value as compared to total net assets.
The Consolidated Master Fund 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.
(1) | Reflects general redemption terms for each Investee Fund. See Note 4 for Fair Value Hierarchy 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 $346,010,000, with a fair value of $401,132,815. |
(5) | The total cost of Investee Funds organized in non-U.S. offshore jurisdictions is $274,937,383, with a fair value of $297,894,122. |
(a) | The Equity strategy generally includes equity-focused Investee Funds with a bottom-up analysis that do not actively trade exposures, with trading strategies focusing on shorter-term dynamics and appreciation for market technicals, top-down thematic/macro views, and technically driven statistical arbitrage with fundamental quantitative long/short strategies. |
(b) | The Event-Driven strategy generally includes Investee Funds that are generally event-driven-focused and seek returns by investing in strategies including catalyst events, share class arbitrage, share buybacks, post re-organization equity, recapitalizations, spin-offs and stub trades. |
(c) | The Credit-Driven strategy generally includes credit-driven focused Investee Funds with a focus on fundamental hedged products or otherwise low net exposure, positional concentration and opportunistic directional exposures, mortgages, and non-mortgage asset-backed securities. |
(d) | The Multi-Category strategy generally includes Investee Funds that invest across multiple strategies. |
(e) | 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. |
(f) | The Global Macro strategy generally includes global macro-focused Investee Funds with discretionary, directional, and inter-country exposure to commodities, equity, interest rates and currencies. |
(g) | The Managed Futures strategy generally includes managed futures-focused Investee Funds that invest in systematic futures and foreign exchange forward trading strategies. |
See accompanying Notes to Consolidated Financial Statements.
18
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Operations (Unaudited)
For the Six Months Ended September 30, 2014
Net Investment Loss: |
||||
Income: |
||||
Interest |
$ | 8,554 | ||
|
|
|||
8,554 | ||||
|
|
|||
Expenses: |
||||
Management fees |
4,064,452 | |||
Administration |
285,693 | |||
Legal |
145,250 | |||
Risk monitoring |
116,797 | |||
Professional |
108,156 | |||
Commitment fees |
74,317 | |||
Insurance |
63,508 | |||
Trustee |
37,770 | |||
Custody |
26,126 | |||
Interest |
15,719 | |||
Transfer agent fees |
12,510 | |||
Other |
13,296 | |||
|
|
|||
Total expenses |
4,963,594 | |||
|
|
|||
Net Investment Loss |
(4,955,040 | ) | ||
|
|
|||
Net Increase in Net Assets from Investments: |
||||
Net realized gain from investments in Investee Funds |
1,175,145 | |||
Net change in unrealized appreciation from investments in Investee Funds |
24,474,687 | |||
|
|
|||
Net Increase in Net Assets from Investments |
25,649,832 | |||
|
|
|||
Net Increase in Net Assets from Operations |
$ | 20,694,792 | ||
|
|
See accompanying Notes to Consolidated Financial Statements.
19
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statements of Changes in Net Assets (Unaudited)
For the Six Months Ended September 30, 2014 |
For the Year Ended March 31, 2014 |
|||||||
Increase (Decrease) in Net Assets: |
||||||||
Operations: |
||||||||
Net investment loss |
$ | (4,955,040 | ) | $ | (5,832,515 | ) | ||
Net realized gain from investments in Investee Funds |
1,175,145 | 830,538 | ||||||
Net change in unrealized appreciation from investments in Investee Funds |
24,474,687 | 36,925,194 | ||||||
|
|
|
|
|||||
Net increase in net assets from operations |
20,694,792 | 31,923,217 | ||||||
|
|
|
|
|||||
Distributions of realized gains to shareholders |
| (5,017,393 | ) | |||||
|
|
|
|
|||||
Capital Transactions: |
||||||||
Shareholder subscriptions |
152,129,888 | 305,037,234 | ||||||
Reinvestment of dividends |
| 5,017,393 | ||||||
|
|
|
|
|||||
Increase in net assets from capital transactions |
152,129,888 | 310,054,627 | ||||||
|
|
|
|
|||||
Net Assets: |
||||||||
Total increase in net assets |
172,824,680 | 336,960,451 | ||||||
Beginning of period |
533,308,827 | 196,348,376 | ||||||
|
|
|
|
|||||
End of period |
$ | 706,133,507 | $ | 533,308,827 | ||||
|
|
|
|
|||||
Accumulated net investment loss |
$ | (14,093,880 | ) | $ | (9,138,840 | ) | ||
|
|
|
|
|||||
Share Transactions: |
||||||||
Beginning of period |
459,457 | 182,177 | ||||||
Shares issued |
130,088 | 272,912 | ||||||
Shares reinvested |
| 4,368 | ||||||
|
|
|
|
|||||
End of period |
589,545 | 459,457 | ||||||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
20
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended September 30, 2014
Cash Flows from Operating Activities: |
||||
Net increase in net assets resulting from operations |
$ | 20,694,792 | ||
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |
||||
Net realized gain from investments in Investee Funds |
(1,175,145 | ) | ||
Net change in unrealized appreciation from investments in Investee Funds |
(24,474,687 | ) | ||
Purchase of investments in Investee Funds and subscriptions paid in advance to Investee Funds |
(160,610,000 | ) | ||
Proceeds from redemptions of investments in Investee Funds |
37,940,400 | |||
Increase in prepaid expenses |
(63,508 | ) | ||
Increase in interest receivable |
(103 | ) | ||
Increase in other assets |
(22,590 | ) | ||
Increase in management fees payable |
578,097 | |||
Increase in payable to Investment Manager |
918,508 | |||
Decrease in accrued expenses and other liabilities |
(113,692 | ) | ||
|
|
|||
Net cash used in operating activities |
(126,327,928 | ) | ||
|
|
|||
Cash Flows from Financing Activities: |
||||
Proceeds from shareholder subscriptions and subscriptions received in advance |
124,970,401 | |||
Proceeds from borrowings under credit facility |
20,750,000 | |||
Repayment of borrowings under credit facility |
(20,750,000 | ) | ||
|
|
|||
Net cash provided by financing activities |
124,970,401 | |||
|
|
|||
Net change in cash |
(1,357,527 | ) | ||
Cash, beginning of period |
5,367,914 | |||
|
|
|||
Cash, end of period |
$ | 4,010,387 | ||
|
|
|||
Supplemental Disclosure of Cash Flow Information: |
||||
Cash paid during the period for interest |
$ | 15,719 | ||
|
|
See accompanying Notes to Consolidated Financial Statements.
21
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Financial Highlights (Unaudited)
For the Six Months Ended September 30, 2014 |
For the Year Ended March 31, 2014 |
For the Year Ended March 31, 2013 |
||||||||||
Per Share Opening Performance: |
||||||||||||
Net Asset Value, Beginning of Period |
$ | 1,160.74 | $ | 1,077.79 | $ | 1,000.00 | ||||||
Income from Investment Operations: |
||||||||||||
Net investment loss 1 |
(9.03 | ) | (17.68 | ) | (23.23 | ) | ||||||
Net realized and unrealized gain from investments |
46.05 | 114.37 | 102.99 | |||||||||
|
|
|
|
|
|
|||||||
Net income from investment operations |
37.02 | 96.69 | 79.76 | |||||||||
|
|
|
|
|
|
|||||||
Distributions of realized gains to shareholders |
| (13.74 | ) | (1.97 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Asset Value, End of Period |
$ | 1,197.76 | $ | 1,160.74 | $ | 1,077.79 | ||||||
|
|
|
|
|
|
|||||||
Financial Ratios: 2 |
||||||||||||
Expenses to average net assets |
1.52 | % | 1.57 | % | 2.28 | % | ||||||
|
|
|
|
|
|
|||||||
Net investment loss to average net assets |
(1.52 | )% | (1.56 | )% | (2.27 | )% | ||||||
|
|
|
|
|
|
|||||||
Portfolio turnover |
6.00 | % | 10.30 | % | 9.01 | % | ||||||
|
|
|
|
|
|
|||||||
Total return 3 |
3.19 | % | 8.98 | % | 7.99 | % | ||||||
|
|
|
|
|
|
|||||||
Net assets, end of period (000s) |
$ | 706,134 | $ | 533,309 | $ | 196,348 | ||||||
|
|
|
|
|
|
1 | Calculated using average shares outstanding during the period. |
2 | Financial ratios have been annualized. |
3 | Total return has not been annualized. |
The financial ratios represent the expenses and net investment loss to average monthly net assets for the period. 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.
22
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2014
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) 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 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 Prospectus 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. All intercompany accounts and transactions have been eliminated in consolidation.
The Master Fund and the Intermediate Fund are investment companies in accordance with Accounting Standards Codification 946, Financial Services-Investment Companies (ASC 946), which defines investment companies and prescribes specialized accounting and reporting requirements for investment companies.
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.
23
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued) (Unaudited)
September 30, 2014
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 limited partnerships and investment funds (Investee Fund(s)) is generally determined using the reported net asset value per share of the Investee Fund, or its equivalent, as a practical expedient for fair value.
The Consolidated Master Fund may, as a practical expedient, estimate the fair value of an Investee Fund based on the reported net asset value per share or its equivalent (NAV) 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 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.
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 the net increase in net assets 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 of, the financial instruments held by the Investee Funds may hinder the Investment Managers ability to effectively manage and mitigate these risks.
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.
24
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued) (Unaudited)
September 30, 2014
Investment Transactions and Related Investment Income and Expense
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 September 30, 2014, the Consolidated Master Fund had $4,010,387 of cash held at a major U.S. bank.
Contingencies
Under the Master Funds Declaration of Trust, the Master Funds officers and each Trustee 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. However, the Consolidated Master Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Income Taxes
The Consolidated Master Funds policy is to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code 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 Consolidated 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, 2012, October 31, 2013 and October 31, 2014, and has concluded, as of September 30, 2014, no provision for income tax would be required in the Consolidated 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, and is therefore not subject to U.S. income tax. However, as a wholly-owned CFC, the Intermediate Funds net income and capital gains, to the extent of its earnings and profits, are consolidated into the Master Funds investment company taxable income.
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 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.
25
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued) (Unaudited)
September 30, 2014
Dividends and Distributions to Shareholders
Dividends from net investment income and distributions of capital gains, if any, are declared and paid 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) for $21,000,000 (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 Fund and the lender. Outstanding borrowings bear interest at a rate equal to LIBOR plus 1.00% per annum (1.23% at September 30, 2014). A commitment fee is charged in the amount of 0.70% per annum on the total commitment amount of the Facility. Outstanding borrowings and accrued interest are due no later than December 31, 2014, the expiration date of the Facility, at which time the Master Fund and the lender can agree to extend the existing agreement. At September 30, 2014, the Master Fund had no outstanding borrowings under the Facility.
4. Fair Value Hierarchy
Current fair value guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Consolidated Master Fund may, as a practical expedient, estimate the fair value of an Investee Fund based on the reported net asset value per share or its equivalent if the reported net asset value of the Investee Fund is calculated in a manner consistent with the measurement principles applied to investment companies. The hierarchy established under the fair value guidance gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement or based on liquidity, as indicated by the redemption terms:
Level 1 Quoted prices are available in active markets for identical investments as of the measurement date. The Consolidated Master Fund does not adjust the quoted price for these investments.
Level 2 Quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.
The Consolidated Master Funds investment in an Investee Fund shall be categorized within Level 2 if the Consolidated Master Fund has the ability to redeem its investment in the Investee Fund at the reported net asset value per share (or its equivalent) at the measurement date or within 90 days thereof, upon no greater than 90 days prior written notice.
Level 3 Pricing inputs are unobservable for the investment and include instances where there is little, if any, market activity for the investment.
The Consolidated Master Fund has categorized within Level 3, investments in Investee Funds that are subject to a minimum holding period or lockup greater than 90 days from the measurement date, are in liquidation, cannot be redeemed within 90 days of the measurement date, are subject to redemption notice periods in
26
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued) (Unaudited)
September 30, 2014
excess of 90 days, have limited the individual amount of shareholder redemptions and/or aggregate amount of shareholder redemptions, or have suspended redemptions.
Investee Funds, as set forth in their governing legal agreements, may offer various liquidity terms for differing classes of investors. The Consolidated Master Funds investment in a particular Investee Fund may be comprised of investments with differing liquidity terms or investments that were made at different points in time that result in differences in the effective minimum holding period or lockup or participation in side pocket investments. As such, the classification of investments in Investee Funds may not be indicative of the actual liquidity available to the Consolidated Master Fund associated with each investment at September 30, 2014.
The classification of investments in Investee Funds included in the table below is meant to be indicative of the Consolidated Master Funds classification of its investments in Investee Funds. It is not meant to be indicative of the classification of investments in the underlying portfolios of the Investee Funds within the fair value hierarchy.
The following is a summary categorization, as of September 30, 2014, of the Consolidated Master Funds investments based on the level of inputs utilized in determining the value of such investments:
Investments in Investee Funds by Strategy | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity |
$ | | $ | 225,603,016 | $ | 246,779,614 | $ | 472,382,630 | ||||||||
Event-Driven |
| | 70,481,828 | 70,481,828 | ||||||||||||
Credit-Driven |
| | 52,360,710 | 52,360,710 | ||||||||||||
Multi-Category |
| 356,397 | 44,551,719 | 44,908,116 | ||||||||||||
Relative Value |
| 27,337,711 | | 27,337,711 | ||||||||||||
Global Macro |
| 20,826,755 | | 20,826,755 | ||||||||||||
Managed Futures |
| 10,729,187 | | 10,729,187 | ||||||||||||
$ | | $ | 284,853,066 | $ | 414,173,871 | $ | 699,026,937 |
The changes in investments measured at fair value for which the Consolidated Master Fund used Level 3 inputs to determine fair value are as follows:
Investments in Investee Funds by Strategy | ||||||||||||||||||||
Equity | Event- Driven |
Credit- Driven |
Multi- Category |
Total | ||||||||||||||||
Beginning Balance April 1, 2014 |
$ | 201,927,277 | $ | 46,838,598 | $ | 40,580,236 | $ | 19,855,853 | $ | 309,201,964 | ||||||||||
Transfers into Level 3 |
| | | | | |||||||||||||||
Transfers out of Level 3 |
(42,593,597 | ) | | | (341,879 | ) | (42,935,476 | ) | ||||||||||||
Net realized gain (loss) |
| | | | | |||||||||||||||
Net change in unrealized appreciation |
13,855,934 | 4,353,230 | 1,780,474 | 1,017,745 | 21,007,383 | |||||||||||||||
Purchases |
73,590,000 | 19,290,000 | 10,000,000 | 24,020,000 | 126,900,000 | |||||||||||||||
Sales |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending Balance September 30, 2014 |
$ | 246,779,614 | $ | 70,481,828 | $ | 52,360,710 | $ | 44,551,719 | $ | 414,173,871 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Change in unrealized appreciation related to investments still held as of September 30, 2014 |
$ | 13,855,934 | $ | 4,353,230 | $ | 1,780,474 | $ | 1,017,745 | $ | 21,007,383 | ||||||||||
|
|
|
|
|
|
|
|
|
|
27
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued) (Unaudited)
September 30, 2014
The Consolidated Master Fund recognizes transfers within the fair value hierarchy as of the beginning of the period. Transfers into and out of Level 3 are primarily due to updated liquidity terms, transfers between different strategies, or upon expiration of liquidity restrictions.
The following table summarizes investments in Investee Funds, by investment strategy and the amount of the investments in Investee Funds that cannot be redeemed because of redemption restrictions put in place by the Investee Funds. In instances where redemptions were restricted, the maximum remaining redemption restriction period is disclosed. Where the remaining redemption restriction period is not known, the date the redemption restriction commenced is disclosed.
Investments in |
Unfunded $ |
Category (A) | Category (B) | |||||||||
Amount $ |
Maximum Remaining Redemption Restriction Period |
Amount $ |
Redemption Restriction Commencement Date |
Total $ (A) + (B) | ||||||||
Equity | | 246,779,614 | 24 months | | N/A | 246,779,614 | ||||||
Event-Driven | | 70,481,828 | 12 months | | N/A | 70,481,828 | ||||||
Credit-Driven | | 52,360,710 | 24 months | | N/A | 52,360,710 | ||||||
Multi-Category | | 44,551,719 | 24 months | | N/A | 44,551,719 |
Category (A) Investments in Investee Funds cannot be redeemed and the maximum remaining redemption restriction period is disclosed. The maximum remaining redemption restriction period is based on the restriction period for Investee Funds as defined in each respective Investee Funds governing legal agreements without consideration of the length of time elapsed from the date of investments in the Investee Fund. 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.
Category (B) Investments in Investee Funds cannot be redeemed and the remaining redemption restriction period is not known. The date the redemption restriction commenced is disclosed.
Purchases and sales of investments for the period ended September 30, 2014 were $180,900,000 and $36,474,836, 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 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.
28
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued) (Unaudited)
September 30, 2014
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. The Investment Manager expects to recommend quarterly repurchases.
6. Related Party Transactions
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. 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 September 30, 2014, the Consolidated Master Fund had $1,287,837 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 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 that the Investee Funds make. 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 failed to perform its obligations under contractual terms and if the Investee Funds fail to perform under their respective agreements.
29
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued) (Unaudited)
September 30, 2014
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 September 30, 2014, 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 |
$ | 626,388,123 | ||
|
|
|||
Gross unrealized appreciation |
$ | 74,968,890 | ||
Gross unrealized depreciation |
(2,330,076 | ) | ||
|
|
|||
Net unrealized appreciation |
$ | 72,638,814 | ||
|
|
9. Subsequent Events
The Consolidated Master Fund has evaluated the impact of subsequent events through the date of financial statement issuance.
On September 25, 2014, the Master Fund commenced an offer to purchase (the Offer) up to 86,199 Shares at a price equal to the Shares net asset value effective as of December 31, 2014. The Offer expires on December 19, 2014.
30
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Unaudited)
September 30, 2014
Management of the Fund
The Consolidated Master Funds operations are managed 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 Declaration of Trust. The initial Trustees serving on the Board of Trustees have been elected by the initial shareholder of the Master Fund. The Consolidated Master Funds Board of Trustees also serves as the board of trustees of the Feeder Funds. The Master Fund and the Feeder Funds will be referred to together herein as the Master-Feeder Funds.
Compensation for Trustees
The Master-Feeder Funds pay no compensation to any of their officers or to the Trustees who are not Independent Trustees. Each Independent Trustee is paid by the Master-Feeder Funds $30,000 per fiscal year in aggregate for his or her services to the Master-Feeder Funds. The Chairman of the Master-Feeder Funds and the Chair of the Audit Committee each receive an additional $2,000 per fiscal year. The Trustees are reimbursed by the Master-Feeder Funds for their travel expenses related to Board meetings, continuing education and conferences.
Allocation of Investments
The following chart indicates the allocation of investments among the asset classes in the Consolidated Master Fund as of September 30, 2014.
Assets Class(1) |
Fair Value |
% |
||||||
Equity |
$ | 472,382,630 | 67.58 | % | ||||
Event-Driven |
70,481,828 | 10.08 | % | |||||
Credit-Driven |
52,360,710 | 7.49 | % | |||||
Multi-Category |
44,908,116 | 6.42 | % | |||||
Relative Value |
27,337,711 | 3.91 | % | |||||
Global Macro |
20,826,755 | 2.98 | % | |||||
Managed Futures |
10,729,187 | 1.54 | % | |||||
|
|
|
|
|||||
Total Investments |
$ | 699,026,937 | 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 Fund. |
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.
31
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued) (Unaudited)
September 30, 2014
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, 2014, is available (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 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.
32
Blackstone Alternative Alpha Fund II
Blackstone Alternative Alpha Master Fund
This report, including the financial information herein, is transmitted to the shareholders of Blackstone Alternative Alpha Fund II 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. |
Not applicable to this semi-annual report.
Item 3. | Audit Committee Financial Expert. |
Not applicable to this semi-annual report.
Item 4. | Principal Accountant Fees and Services. |
Not applicable to this semi-annual report.
Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
Item 6. | Schedule of 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. |
Not applicable to this semi-annual report.
Item 8. | Portfolio Managers of Closed-End Investment Management Companies. |
(a) | Not applicable to this semi-annual report. |
(b) | As of the date of this filing, there have been no changes in any of the portfolio managers identified in the most recent annual report on Form N-CSR. |
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 second fiscal quarter of 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. | Exhibits. |
(a)(1) | Not applicable to this semi-annual report. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable to this semi-annual report. |
(b) | Certifications pursuant to Rule 30a-2(b) 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 II
By (Signature and Title) | /s/ Brian F. Gavin |
|||
Brian F. Gavin, President (Principal Executive Officer) |
Date December 4, 2014
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 December 4, 2014
By (Signature and Title) | /s/ Arthur Liao |
|||
Arthur Liao, Treasurer (Principal Financial and Accounting Officer) |
Date December 4, 2014
CERTIFICATIONS
I, Brian F. Gavin, certify that:
1. | I have reviewed this report on Form N-CSR of Blackstone Alternative Alpha Fund II (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 registrants most recent fiscal quarter 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. |
December 4, 2014 |
/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 II (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 registrants most recent fiscal quarter 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. |
December 4, 2014 |
/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 September 30, 2014 of Blackstone Alternative Alpha Fund II (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: December 4, 2014 |
/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 September 30, 2014 of Blackstone Alternative Alpha Fund II (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: December 4, 2014 |
/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.