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, 2017
Date of reporting period: September 30, 2016
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, 2016
Blackstone Alternative Alpha Fund II
Blackstone Alternative Alpha Fund II |
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30 |
Blackstone Alternative Alpha Fund II
Statement of Assets and Liabilities
As of September 30, 2016 (Unaudited)
Assets: |
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Investment in Blackstone Alternative Alpha Master Fund (Master Fund), at fair value (Cost $84,674,920) |
$ | 83,543,413 | ||
Cash |
642,865 | |||
Receivable for redemption from Master Fund |
4,527,523 | |||
Prepaid expenses |
56,388 | |||
Receivable from Investment Manager |
53,740 | |||
Interest receivable |
66 | |||
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Total assets |
88,823,995 | |||
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Liabilities: |
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Shareholder redemptions payable |
3,803,279 | |||
Shareholder subscriptions received in advance |
422,000 | |||
Shareholder service fees payable |
1,045 | |||
Accrued expenses and other liabilities |
98,672 | |||
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Total liabilities |
4,324,996 | |||
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Net assets |
$ | 84,498,999 | ||
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Components of Net Assets: |
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Paid-in capital |
$ | 84,739,765 | ||
Accumulated net investment loss |
(147,660 | ) | ||
Accumulated net realized gain |
1,038,401 | |||
Net unrealized depreciation on investments |
(1,131,507 | ) | ||
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Net assets |
$ | 84,498,999 | ||
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Net Asset Value: |
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Net assets, Advisor Class II |
$ | 4,898,217 | ||
Shares of beneficial interests outstanding, Advisor Class II |
5,066.17 | |||
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Net asset value per share, Advisor Class II |
$ | 966.85 | ||
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Net assets, Advisor Class III |
$ | 79,600,782 | ||
Shares of beneficial interests outstanding, Advisor Class III |
73,681.34 | |||
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Net asset value per share, Advisor Class III |
$ | 1,080.34 | ||
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See accompanying Notes to Financial Statements.
1
Blackstone Alternative Alpha Fund II
September 30, 2016 (Unaudited)
Shares | Cost | Fair Value | Percentage of Total Net Assets | |||||||||||||||||
Blackstone Alternative Alpha Master Fund |
73,809 | $ | 84,674,920 | $ | 83,543,413 | 98.87 | % | |||||||||||||
Other assets, less liabilities |
955,586 | 1.13 | % | |||||||||||||||||
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Total Net Assets |
$ | 84,498,999 | 100.00 | % | ||||||||||||||||
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See accompanying Notes to Financial Statements.
2
Blackstone Alternative Alpha Fund II
For the Six Months Ended September 30, 2016 (Unaudited)
Net Investment Loss: |
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Fund Income: |
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Interest |
$ | 362 | ||
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Fund Expenses: |
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Legal |
111,600 | |||
Printing |
28,191 | |||
Blue sky fees |
27,023 | |||
Registration Fees |
25,783 | |||
Professional |
25,200 | |||
Transfer agent fees |
22,994 | |||
Shareholder service fees |
6,153 | |||
Custody |
3,846 | |||
Trustees |
230 | |||
Other |
499 | |||
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Total Fund expenses |
251,519 | |||
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Less expenses reimbursed by Investment Manager* |
(178,235 | ) | ||
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Fund expenses |
73,284 | |||
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Net Investment Loss |
(72,922 | ) | ||
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Net Increase in Net Assets from Investments: |
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Realized loss from investment in Master Fund |
(161,224 | ) | ||
Net change in unrealized appreciation from investment in Master Fund |
4,505,632 | |||
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Net Increase in Net Assets from Investments |
4,344,408 | |||
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Net Increase in Net Assets from Operations |
$ | 4,271,486 | ||
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* | The reimbursement includes expenses incurred by the Fund and the Master Fund (as defined herein). See Note 5. |
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, 2016 |
For the Year Ended March 31, 2016 |
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Increase (Decrease) in Net Assets: |
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Operations: |
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Net investment loss |
$ | (72,922 | ) | $ | (101,799 | ) | ||
Realized gain distribution from Master Fund |
| 1,278,221 | ||||||
Realized (loss) gain from investment in Master Fund |
(161,224 | ) | 10,536 | |||||
Net change in unrealized appreciation (depreciation) from investment in Master Fund |
4,505,632 | (7,280,088 | ) | |||||
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Net increase (decrease) in net assets from operations |
4,271,486 | (6,093,130 | ) | |||||
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Distributions to shareholders |
| (673,858 | ) | |||||
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Capital Transactions: |
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Advisor Class II: |
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Shareholder subscriptions |
| 3,781,300 | ||||||
Shareholder redemptions |
(118,779 | ) | | |||||
Reinvestment of distributions |
| 72,485 | ||||||
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Total Advisor Class II |
(118,779 | ) | 3,853,785 | |||||
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Advisor Class III: |
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Shareholder subscriptions |
9,484,000 | 48,109,800 | ||||||
Shareholder redemptions |
(4,213,120 | ) | (1,418,869 | ) | ||||
Reinvestment of distributions |
| 594,369 | ||||||
Early withdrawal fee |
| 3,729 | ||||||
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Total Advisor Class III |
5,270,880 | 47,289,029 | ||||||
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Net increase in net assets from capital transactions |
5,152,101 | 51,142,814 | ||||||
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Net Assets: |
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Total increase in net assets |
9,423,587 | 44,375,826 | ||||||
Beginning of period |
75,075,412 | 30,699,586 | ||||||
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End of period |
$ | 84,498,999 | $ | 75,075,412 | ||||
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Accumulated net investment loss |
$ | (147,660 | ) | $ | (74,738 | ) | ||
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Share Transactions: |
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Advisor Class II: |
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Beginning of period |
5,189 | 1,438 | ||||||
Shares issued |
| 3,677 | ||||||
Shares redeemed |
(123 | ) | | |||||
Shares reinvested |
| 74 | ||||||
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End of period |
5,066 | 5,189 | ||||||
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Advisor Class III: |
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Beginning of period |
68,536 | 25,013 | ||||||
Shares issued |
9,061 | 44,294 | ||||||
Shares redeemed |
(3,916 | ) | (1,317 | ) | ||||
Shares reinvested |
| 546 | ||||||
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End of period |
73,681 | 68,536 | ||||||
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See accompanying Notes to Financial Statements.
4
Blackstone Alternative Alpha Fund II
For the Six Months Ended September 30, 2016 (Unaudited)
Cash Flows from Operating Activities: |
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Net increase in net assets from operations |
$ | 4,271,486 | |||
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: |
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Realized loss from investment in Master Fund |
161,224 | ||||
Net change in unrealized appreciation from investment in Master Fund |
(4,505,632 | ) | |||
Purchase of investment in Master Fund and subscriptions paid in advance to Master Fund |
(9,988,747 | ) | |||
Proceeds from redemption of Investment in Master Fund and Receivable for redemption from the Master Fund |
1,689,380 | ||||
Increase in prepaid expenses |
(42,804 | ) | |||
Increase in receivable from Investment Manager |
(53,740 | ) | |||
Decrease in interest receivable |
94 | ||||
Decrease in payable to Investment Manager |
(26,060 | ) | |||
Decrease in shareholder service fees payable |
(927 | ) | |||
Increase in accrued expenses and other liabilities |
9,229 | ||||
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Net cash used in operating activities |
(8,486,497 | ) | |||
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Cash Flows from Financing Activities: |
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Proceeds from shareholder subscriptions and subscriptions received in advance |
6,875,000 | ||||
Payment for shareholder redemptions and redemptions payable |
(1,030,714 | ) | |||
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Net cash provided by financing activities |
5,844,286 | ||||
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Net change in cash |
(2,642,211 | ) | |||
Cash, beginning of period |
3,285,076 | ||||
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Cash, end of period |
$ | 642,865 | |||
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See accompanying Notes to Financial Statements.
5
Blackstone Alternative Alpha Fund II
Financial Highlights (Unaudited)
Advisor Class II |
For the Six Months Ended September 30, 2016 |
For the Year Ended March 31, 2016 |
For the Period Ended March 31, 2015* |
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Per Share Operating Performance: |
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Net Asset Value, Beginning of period |
$ | 919.20 | $ | 1,049.91 | $ | 1,000.00 | ||||||
Income/(loss) from Investment Operations: |
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Net investment loss1 |
(1.94 | ) | (4.33 | ) | (1.37 | ) | ||||||
Net unrealized gain/(loss) from investments |
49.59 | (111.51 | ) | 65.81 | ||||||||
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Net income/(loss) from investment operations |
47.65 | (115.84 | ) | 64.44 | ||||||||
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Distribution to shareholders |
| (14.87 | ) | (14.53 | ) | |||||||
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Net Asset Value, end of period |
$ | 966.85 | $ | 919.20 | $ | 1,049.91 | ||||||
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Financial Ratios:2 |
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Service fees |
0.25 | % | 0.25 | % | 0.25 | % | ||||||
Other expenses to average net assets for the class before reimbursement from Investment Manager |
0.58 | % | 0.75 | % | 0.35 | % | ||||||
Reimbursement from Investment Manager3 |
(0.42 | )% | (0.56 | )% | (0.18 | )% | ||||||
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Total expenses to average net assets for the class after reimbursement from Investment Manager4 |
0.41 | % | 0.44 | % | 0.42 | % | ||||||
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Net investment loss to average net assets for the class |
(0.41 | )% | (0.44 | )% | (0.42 | )% | ||||||
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Portfolio turnover5 |
8.56 | % | 8.97 | % | 8.68 | % | ||||||
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Total return |
5.18 | %6 | (11.12 | )% | 6.50 | %6 | ||||||
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Net assets, end of period (000s) |
$ | 4,898 | $ | 4,770 | $ | 1,510 | ||||||
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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 5. |
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 5. The expenses of the Master Fund represent 1.47%, 1.45% and 1.47% on an annualized basis, of average net assets for the class for the period ended September 30, 2016, year ended March 31, 2016 and period ended March 31, 2015, respectively. The net expense ratio for the class, including the applicable Master Fund expenses, is 1.88%, 1.89% and 1.89% on an annualized basis, for the period ended September 30, 2016, year ended March 31, 2016 and period ended March 31, 2015, 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. |
* | 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, 2016 |
For the Year Ended March 31, 2016 |
For the Year Ended March 31, 2015 |
For the Period Ended March 31, 2014* |
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Per Share Operating Performance: |
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Net Asset Value, Beginning of period |
$ | 1,025.82 | $ | 1,166.96 | $ | 1,072.05 | $ | 1,000.00 | ||||||||
Income/(loss) from Investment Operations: |
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Net investment loss1 |
(0.84 | ) | (2.12 | ) | (1.19 | ) | (0.66 | ) | ||||||||
Net unrealized gain/(loss) from investments |
55.36 | (124.24 | ) | 110.63 | 76.54 | |||||||||||
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Net income/(loss) from investment operations |
54.52 | (126.36 | ) | 109.44 | 75.88 | |||||||||||
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Distribution to shareholders |
| (14.87 | ) | (14.53 | ) | (3.83 | ) | |||||||||
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Early withdrawal fee |
| 0.09 | | | ||||||||||||
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Net Asset Value, end of period |
$ | 1,080.34 | $ | 1,025.82 | $ | 1,166.96 | $ | 1,072.05 | ||||||||
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Financial Ratios:2 |
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Expenses to average net assets for the class before reimbursement from Investment Manager |
0.58 | % | 0.74 | % | 2.21 | % | 29.42 | % | ||||||||
Reimbursement from Investment Manager3 |
(0.42 | )% | (0.55 | )% | (2.10 | )% | (29.32 | )% | ||||||||
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Total expenses to average net assets for the class after reimbursement from Investment Manager4 |
0.16 | % | 0.19 | % | 0.11 | % | 0.10 | % | ||||||||
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Net investment loss to average net assets for the class |
(0.16 | )% | (0.19 | )% | (0.11 | )% | (0.09 | )% | ||||||||
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Portfolio turnover5 |
8.56 | % | 8.97 | % | 8.68 | % | 10.30 | % | ||||||||
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Total return |
5.31 | %6 | (10.89 | )% | 10.26 | % | 7.59 | %6 | ||||||||
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Net assets, end of period (000s) |
$ | 79,601 | $ | 70,306 | $ | 29,189 | $ | 8,682 | ||||||||
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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 5. |
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 5. The expenses of the Master Fund represent 1.47%, 1.45%, 1.53% and 1.48%, on an annualized basis, of average net assets for the class for the period ended September 30, 2016, years ended March 31, 2016, March 31, 2015 and period ended March 31, 2014, respectively. The net expense ratio for the class, including the applicable Master Fund expenses, is 1.63%, 1.64%, 1.64% and 1.58% on an annualized basis, for the period ended September 30, 2016, and years ended March 31, 2016, March 31, 2015 and period ended 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. |
* | Advisor Class III commenced on September 1, 2013. |
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
September 30, 2016 (Unaudited)
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, 2016, 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, 2016, the Fund held a 8.65% ownership interest in the Master Fund.
The investment manager of the Fund and the Master Fund is Blackstone Alternative Asset Management L.P. (BAAM or the Investment Manager), a registered investment adviser under the Investment Advisers Act of 1940, as amended. Each of the Fund and the Master Fund is a commodity pool subject to regulation by the Commodity Futures Trading Commission (CFTC). BAAM, which serves as the commodity pool operator of the Fund and the Master Fund, is registered as such with the CFTC, but has claimed relief under Rule 4.12(c)(3) of the Commodity Exchange Act from certain disclosure, reporting and recordkeeping requirements otherwise applicable to commodity pools. The Board of Trustees (the Board and each member a Trustee) of the Fund and the Master Fund supervises the conduct of the Funds and the Master Funds affairs and pursuant to their respective investment management agreements, has engaged BAAM to manage the Funds and the Master Funds day-to-day investment activities.
Capitalized terms used, but not defined herein, shall have the meaning assigned to them in the Prospectus of the Fund.
2. Basis of Presentation
The Funds financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and are stated in U.S. dollars.
The 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)
September 30, 2016 (Unaudited)
3. Significant Accounting Policies
Fair Value Measurements
Investment in the Master Fund
The Funds investment in the Master Fund is recorded at fair value and is based upon the Funds percentage ownership of the net assets of the Master Fund. The performance of the Fund is directly affected by the performance of the Master Fund.
See Note 3 to the Master Funds consolidated financial statements for the determination of fair value of the Master Funds investments.
Investment Transactions and Related Investment Income and Expenses
Investment transactions are accounted for on a trade date basis. Income and expenses, including interest, are recorded on an accrual basis.
The net realized gains or losses from investment in the Master Fund are recorded when the Fund redeems or partially redeems its interest in the Master Fund or receives distributions in excess of return of capital. Realized gains and losses from redemptions of investments are calculated using the first-in, first-out cost basis methodology.
Allocation of Income and Expenses
Net increase or decrease in net assets from operations is generally allocated on a pro-rata basis to shareholders in accordance with the provisions set forth in the Prospectus. Class-specific income and expenses are allocated directly to the applicable class.
Cash
At September 30, 2016, the Fund had $642,865 of cash held at a major U.S. bank.
Contingencies
Under the Funds Amended and Restated Agreement and Declaration of Trust (Declaration of Trust), the Funds officers and Trustees are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and indemnifications. The Funds maximum exposure under these arrangements is unknown. 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 of 1986 and to distribute substantially all of its investment company taxable income and net long-term capital gains to its shareholders. Therefore, no federal income tax provision is expected to be required. The Fund files U.S. federal and various state and local tax returns.
Management of the Fund has evaluated the tax positions taken or expected to be taken in the course of preparing the Funds tax returns for the current open tax years ended October 31, 2013, October 31, 2014 and October 31, 2015 and has concluded, as of September 30, 2016, that no provision for income tax would be
9
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued)
September 30, 2016 (Unaudited)
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.
Dividends and Distributions to Shareholders
Dividends from net investment income and distributions of capital gains, if any, are declared and paid at least annually. Dividends and capital gain distributions paid by the Fund will be reinvested in additional Shares of the Fund unless a shareholder elects not to reinvest in Shares or is otherwise ineligible. Shares purchased by reinvestment will be issued at their net asset value on the ex-dividend date.
Recent Accounting Pronouncements
In January 2016, the Financial Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. The amendment provides guidance on managements responsibility in evaluating whether there is substantial doubt about the Funds ability to continue as a going concern and related footnote disclosures. For each reporting period, management is required to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the Funds ability to continue as a going concern within one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that managements plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. The guidance is effective for annual periods ending after December 15, 2016 and interim periods and annual periods thereafter. Early adoption is permitted. The adoption of this guidance did not have a material impact on the financial statements.
4. Fund Terms
Issuance of Shares
The Fund will issue 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
10
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued)
September 30, 2016 (Unaudited)
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 is subject to the Master Funds repurchase policy.
5. Related Party Transactions
Management Fee
The Investment Manager will not charge the Fund a management fee as long as substantially all of the assets of the Fund are invested in the Master Fund. The Master Fund pays the Investment Manager a management fee (the Management Fee) quarterly in arrears (accrued on a monthly basis), equal to 1.25% (annualized) of the Master Funds net asset value. 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 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 exceed the Expense Cap, the Investment Manager will waive its fees and/or reimburse the Fund for expenses to the extent necessary to eliminate such excess. The Investment Manager may discontinue its obligations under the Agreement at any time in its sole discretion after August 31, 2018 upon written notice to the Fund. This arrangement cannot be terminated prior to August 31, 2018 without the Boards consent. The Fund has agreed to repay the amounts borne by the Investment Manager under the Agreement within the three year period after the Investment Manager bears the expense, when and if requested by the Investment Manager, to the extent the estimated annualized Specified Expenses of the Fund (including the Funds pro rata share of the Master Funds Specified Expenses) for a given month are less than the lower of the Expense Cap and any expense limitation agreement then in effect with respect to the Specified Expenses. The 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 or any other expense limitation agreement then in effect with respect to the Specified Expenses.
As of September 30, 2016, the repayments that may be made by the Fund to the Investment Manager total $1,519,183. Of this amount, repayments of $608,142 have a maximum expiration date of March 31, 2017, repayments of $472,148 have a maximum expiration date of March 31, 2018, repayments of $260,658 have a maximum expiration date of March 31, 2019 and repayments of $178,235 have a maximum expiration date of March 31, 2020.
11
Blackstone Alternative Alpha Fund II
Notes to Financial Statements (Continued)
September 30, 2016 (Unaudited)
Distribution and Servicing Agreement
Blackstone Advisory Partners L.P., an affiliate of the Investment Manager, acts as the distributor of the Shares of the fund (the Distributor). The Fund pays the Distributor a fee (the Distribution and Service Fee) equal to 0.40% (annualized) of the average net assets of the Fund that are attributable to the Advisor Class I Shares and a service fee (the Service Fee) equal to 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. The Distributor may pay all or a portion of the Distribution and Service Fee to the selling agents that sell Shares and/or provide sales support services and to other financial intermediaries that provide personal services and/or the maintenance of shareholder accounts.
Expense Payments
The Investment Manager pays expenses on behalf of the Fund and is subsequently reimbursed for such payments. Subject to the Expense Limitation and Reimbursement Agreement, the Fund was allocated $178,235 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, 2016, the Fund had a net receivable to the Investment Manager of $53,740 recorded in the Statement of Assets and Liabilities.
6. 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 Funds market risk is also impacted by an Investee Funds exposure to interest rate risk, foreign exchange risk, and industry or geographic concentration risk. The Investee Funds held by the Master Fund invest in these instruments for trading and hedging purposes. The Fund is indirectly subject to certain risks arising from investments made by the Investee Funds held by the Master Fund.
Market Risk
The Fund, through its investments in Investee Funds held by the Master Fund, has exposure to financial instrument transactions which may have off-balance sheet market risk. Off-balance sheet market risk is the risk of potential adverse changes to the value of financial instruments and derivatives because of changes in market conditions such as interest and currency rate movements. See notes to the Consolidated Master Funds financial statements.
Credit Risk
The Fund is subject to certain inherent credit risks arising from transactions involving derivative financial instruments by exposure through the Master Funds investments. Credit risk is the amount of accounting loss that the Fund would incur if a counterparty fails to perform its obligations under contractual terms. See notes to the Consolidated Master Funds financial statements.
7. Subsequent Events
The Fund has evaluated the impact of subsequent events through the date of financial statement issuance.
On September 20, 2016, the Fund commenced an offer to purchase (Offer) up to 12,211 Shares at a price equal to the Shares net asset value effective as of December 31, 2016. As of October 20, 2016, the expiration date of the Offer, there were 9,297 Shares tendered for repurchase and such tendered Shares have been accepted for repurchase by the Fund.
On October 28, 2016, the Fund announced that it expects to pay a year-end distribution to its shareholders of record on December 29, 2016. The amount of the distribution will be declared on the declaration date.
12
Blackstone Alternative Alpha Fund II
September 30, 2016 (Unaudited)
Management of the Fund
The Funds operations are managed by the Investment Manager under the direction and oversight of the Board of Trustees. A majority of the Trustees are not interested persons (as defined in the 1940 Act) of the Fund (the Independent Trustees). The Funds Trustees and officers are subject to removal or replacement in accordance with Massachusetts law and the Funds Declaration of Trust. The Funds Board of Trustees also serves as the board of trustees of the Master Fund and the board of trustees of Blackstone Alternative Alpha Fund (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 $38,000 per fiscal year in aggregate for his or her services to the Master-Feeder Funds. The Chairman of the Board of Trustees of the Master-Feeder Funds and the Chair of the Audit Committee each receive an additional $2,000 per fiscal year. The Master-Feeder Funds also pay for the Trustees 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. Holdings and allocations shown on any Form N-Q are as of the date indicated in the filing and may not be representative of future investments. Holdings and allocations should not be considered research or investment advice and should not be relied upon in making investment decisions.
Proxy Voting Policies
The Fund and the Master Fund have delegated proxy voting responsibilities to the Investment Manager, subject to the Boards general oversight. A description of the policies and procedures used to vote proxies related to the Funds and the Master Funds portfolio securities, and information regarding how the Fund and the Master Fund voted proxies relating to their portfolio securities during the most recent 12-month period ended June 30, 2016 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 Funds registration statement and statement of additional information includes additional information about the Trustees of the Fund. The registration statement and statement of additional information is available, without charge, upon request by calling 1-855-890-7725.
13
Privacy Policy
FACTS |
WHAT DO BLACKSTONE REGISTERED FUNDS DO WITH YOUR PERSONAL INFORMATION? |
Why? |
Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? |
The types of personal information we collect and share depend on the product or service you have with us. This information can include: n Social Security number and income n Assets and investment experience n Risk tolerance and transaction history |
How? |
All financial companies need to share customers personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers personal information; the reasons Blackstone Registered Funds (as defined below) choose to share; and whether you can limit this sharing. |
Reasons we can share your
personal information |
Do Blackstone Registered Funds share? |
Can you limit this sharing? | ||
For our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
Yes | No | ||
For our marketing purposes to offer our products and services to you |
Yes | No | ||
For joint marketing with other financial companies | No | We dont share | ||
For our affiliates everyday business purposes information about your transactions and experiences |
No | We dont share | ||
For our affiliates everyday business purposes information about your creditworthiness |
No | We dont share | ||
For our affiliates to market to you | No | We dont share | ||
For nonaffiliates to market to you | No | We dont share |
Questions? | Email us at GLB.privacy@blackstone.com |
14
Privacy Policy (continued)
Who we are | ||
Who is providing this notice? | Blackstone Registered Funds include Blackstone Alternative Alpha Fund, Blackstone Alternative Alpha Fund II, Blackstone Real Estate Income Fund, Blackstone Real Estate Income Fund II, Blackstone Alternative Investment Funds, on behalf of its series Blackstone Alternative Multi-Strategy Fund, Blackstone Diversified Multi- Strategy Fund, a sub-fund of Blackstone Alternative Investment Funds plc, and the GSO Funds, consisting of Blackstone / GSO Senior Floating Rate Term Fund, Blackstone / GSO Long-Short Credit Income Fund and Blackstone / GSO Strategic Income Fund | |
What we do | ||
How do Blackstone Registered Funds protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | |
How do Blackstone Registered Funds collect my personal information? | We collect your personal information, for example, when you: n open an account or give us your income information n provide employment information or give us your contact information n tell us about your investment or retirement portfolio We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | |
Why cant I limit all sharing? | Federal law gives you the right to limit only: n sharing for affiliates everyday business purposesinformation about your creditworthiness n affiliates from using your information to market to you n sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. See below for more on your rights under state law. | |
What happens when I limit sharing for an account I hold jointly with someone else? | Your choices will apply to everyone on your accountunless you tell us otherwise. | |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. n Our affiliates include companies with a Blackstone name and financial companies such as GSO Capital Partners LP and Strategic Partners Fund Solutions. | |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. n Blackstone Registered Funds do not share with nonaffiliates so they can market to you. | |
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. n Our joint marketing partners include financial services companies. | |
Other important information |
California ResidentsIn accordance with California law, we will not share information we collect about California residents with nonaffiliates except as permitted by law, such as with the consent of the customer or to service the customers accounts. We will also limit the sharing of information about you with our affiliates to the extent required by applicable California law.
Vermont ResidentsIn accordance with Vermont law, we will not share information we collect about Vermont residents with nonaffiliates except as permitted by law, such as with the consent of the customer or to service the customers accounts. We will not share creditworthiness information about Vermont residents among Blackstone Registered Funds affiliates except with the authorization or consent of the Vermont resident.
15
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Assets and Liabilities
As of September 30, 2016 (Unaudited)
Assets: |
||||
Investments in Investee Funds, at fair value (Cost $873,693,919) |
$ | 946,998,462 | ||
Cash |
26,177,731 | |||
Investment subscriptions paid in advance to Investee Funds |
15,370,000 | |||
Receivable from investments sold |
36,849,154 | |||
Prepaid expenses |
79,778 | |||
Interest receivable |
506,831 | |||
|
|
|||
Total assets |
1,025,981,956 | |||
|
|
|||
Liabilities: |
||||
Shareholder redemptions payable |
56,594,035 | |||
Management fees payable |
3,135,338 | |||
Payable to Investment Manager |
315,685 | |||
Accrued expenses and other liabilities |
358,742 | |||
|
|
|||
Total liabilities |
60,403,800 | |||
|
|
|||
Net assets |
$ | 965,578,156 | ||
|
|
|||
Components of Net Assets: |
||||
Paid-in capital |
$ | 957,943,670 | ||
Accumulated net investment loss |
(19,277,806 | ) | ||
Accumulated net realized loss |
(46,392,249 | ) | ||
Net unrealized appreciation on investments |
73,304,541 | |||
|
|
|||
Net assets |
$ | 965,578,156 | ||
|
|
|||
Net Asset Value: |
||||
Net assets |
$ | 965,578,156 | ||
Shares of beneficial interests outstanding, no par value, unlimited shares authorized |
853,074 | |||
|
|
|||
Net asset value per share |
$ | 1,131.88 | ||
|
|
See accompanying Notes to Consolidated Financial Statements.
16
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Schedule of Investments
September 30, 2016 (Unaudited)
Shares/ |
Cost |
Fair Value |
Percentage |
Redemptions |
Redemption |
|||||||||||||||||
Investments in Investee Funds: |
|
|||||||||||||||||||||
Equity(a) |
||||||||||||||||||||||
Glenview Institutional Partners, L.P. |
$ | 94,400,000 | $100,066,845 | 10.36% | Quarterly | 45 Days | ||||||||||||||||
Southpoint Qualified Fund LP |
59,300,000 | 71,359,718 | 7.39% | Quarterly | 60 Days | |||||||||||||||||
Corvex Partners LP |
68,030,000 | 71,095,926 | 7.36% | Quarterly | 60 Days | |||||||||||||||||
Shearwater Offshore, Ltd.(3) |
630,181 | 62,500,000 | 68,064,622 | 7.05% | Annually | 60 Days | ||||||||||||||||
Coatue Qualified Partners, L.P. |
51,792,496 | 58,191,805 | 6.03% | Quarterly | 45 Days | |||||||||||||||||
Samlyn Offshore, Ltd.(3) |
40,476 | 42,000,000 | 46,975,971 | 4.87% | Semi-annually | 45 Days | ||||||||||||||||
Hoplite Partners, L.P. |
40,385,261 | 43,456,272 | 4.50% | |
Monthly Quarterly |
|
45 Days | |||||||||||||||
Pershing Square, L.P. |
41,670,620 | 33,645,842 | 3.48% | Quarterly | 65 Days | |||||||||||||||||
MTP Energy Fund Corp |
||||||||||||||||||||||
Corp Promissory Note, 13.00%, 9/1/2025-11/1/2025 |
15,758,400 | 15,758,400 | 15,758,400 | 1.63% | N/A | N/A | ||||||||||||||||
Corp Series C Equity Shares |
22,015 | 15,397,025 | 12,802,786 | 1.33% | Quarterly | 60 Days | ||||||||||||||||
|
|
|
||||||||||||||||||||
Total MTP Energy Fund Corp |
31,155,425 | 28,561,186 | ||||||||||||||||||||
MTP Energy Fund I Ltd.(3) |
25,491 | 25,490,875 | 27,286,002 | 2.82% | Quarterly | 60 Days | ||||||||||||||||
Turiya Fund LP |
20,089,087 | 27,084,989 | 2.81% | Quarterly | 45 Days | |||||||||||||||||
Soroban Opportunities Cayman Fund Ltd(3) |
18,729 | 20,000,000 | 23,961,399 | 2.48% | Quarterly | 60 Days | ||||||||||||||||
Viking Global Equities III Ltd.(3) |
6,279 | 12,400,000 | 19,843,208 | 2.06% | Annually | 45 Days | ||||||||||||||||
Soroban Cayman Fund Ltd(3) |
3,628 | 6,936,000 | 8,328,329 | 0.86% | Quarterly | 60 Days | ||||||||||||||||
Visium Balanced Offshore Fund, Ltd.(3) |
243 | 478,789 | 571,976 | 0.06% | |
Non- Redeemable |
|
|
Non- Redeemable |
| ||||||||||||
Bay Pond Partners, L.P.(2) |
3,098,418 | 108,079 | 0.01% | |
Non- Redeemable |
|
|
Non- Redeemable |
| |||||||||||||
|
|
|
|
|
||||||||||||||||||
Total |
579,726,971 | 628,602,169 | 65.10% | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Multi-Category(b) |
||||||||||||||||||||||
Magnetar Constellation Fund, Ltd(3) |
54,800 | 54,800,000 | 63,099,607 | 6.53% | Quarterly | 90 Days | ||||||||||||||||
Third Point Partners Qualified L.P. |
40,000,000 | 40,769,851 | 4.22% | Quarterly | 60 Days |
See accompanying Notes to Consolidated Financial Statements.
17
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Schedule of Investments (Continued)
September 30, 2016 (Unaudited)
Shares/ |
Cost |
Fair Value |
Percentage |
Redemptions |
Redemption |
|||||||||||||||||
HBK Multi-Strategy Offshore Fund Ltd.(3) |
38,953 | $ | 38,976,601 | $40,486,575 | 4.20% | Quarterly | 90 Days | |||||||||||||||
Elliott International Limited(3) |
30,035 | 31,265,919 | 35,035,209 | 3.63% | |
Quarterly Semi-annually |
|
60 Days | ||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total |
165,042,520 | 179,391,242 | 18.58% | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Global Macro(c) |
||||||||||||||||||||||
Autonomy Global Macro Fund Limited(3) |
260,718 | 51,341,003 | 52,699,406 | 5.46% | Monthly | 60 Days | ||||||||||||||||
Tudor BVI Global Fund Ltd.(3) |
5,316 | 44,110,000 | 45,897,488 | 4.75% | Quarterly | 60 Days | ||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total |
95,451,003 | 98,596,894 | 10.21% | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Relative Value(d) |
||||||||||||||||||||||
Renaissance Institutional Diversified Alpha Fund International L.P.(3) |
33,473,425 | 40,408,157 | 4.19% | Monthly | 45 Days | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total Investments in Investee Funds(4)(5) |
$ | 873,693,919 | $946,998,462 | 98.08% | ||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Other assets, less liabilities |
18,579,694 | 1.92% | ||||||||||||||||||||
|
|
|
||||||||||||||||||||
Total Net Assets |
$965,578,156 | 100.00% | ||||||||||||||||||||
|
|
|
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 in the Notes to Financial Statements for Major Investment Strategies disclosure. |
(2) | Investee Fund is held by Blackstone Alternative Alpha Sub Fund I Ltd., which is wholly-owned by the Master Fund. |
(3) | Investee Fund is organized in a non-U.S. offshore jurisdiction. |
(4) | The total cost of Investee Funds organized in the United States is $449,921,307, with a fair value of $474,340,513. |
(5) | The total cost of Investee Funds organized in non-U.S. offshore jurisdictions is $423,772,612, with a fair value of $472,657,949. |
(a) | The Equity strategy generally includes Investee Funds with strategies using a bottom-up analysis that do not actively trade exposures, trading strategies focusing on shorter-term dynamics and appreciation for market technicals, strategies based on top-down thematic/macro views and technically driven statistical arbitrage with fundamental quantitative long/short strategies. |
(b) | The Multi-Category strategy generally includes Investee Funds that invest across multiple strategies. |
(c) | The Global Macro strategy generally includes Investee Funds with discretionary, directional and inter-country exposure to commodities, equity, interest rates and currencies. |
(d) | The Relative Value strategy generally includes Investee Funds with a focus on long/short managers with fundamentally hedged products or otherwise low net exposure. |
See accompanying Notes to Consolidated Financial Statements.
18
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Operations
For the Six Months Ended September 30, 2016 (Unaudited)
Net Investment Loss: |
||||
Income: |
||||
Interest |
$ | 1,027,404 | ||
|
|
|||
Expenses: |
||||
Management fees |
6,203,414 | |||
Administration |
224,286 | |||
Legal |
144,257 | |||
Commitment fees |
142,079 | |||
Risk monitoring |
138,109 | |||
Professional |
111,641 | |||
Trustee |
108,669 | |||
Insurance |
79,777 | |||
Transfer agent fees |
44,731 | |||
Interest |
32,419 | |||
Custody |
28,110 | |||
Other |
60,755 | |||
|
|
|||
Total expenses |
7,318,247 | |||
|
|
|||
Net Investment Loss |
(6,290,843 | ) | ||
|
|
|||
Net Increase in Net Assets from Investments: |
||||
Net realized gain from investments in Investee Funds |
7,109,528 | |||
Net change in unrealized appreciation from investments in Investee Funds |
50,682,244 | |||
|
|
|||
Net Increase in Net Assets from Investments |
57,791,772 | |||
|
|
|||
Net Increase in Net Assets from Operations |
$ | 51,500,929 | ||
|
|
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, 2016 |
For the Year Ended March 31, 2016 |
|||||||
Increase (Decrease) in Net Assets: |
||||||||
Operations: |
||||||||
Net investment loss |
$ | (6,290,843 | ) | $ | (12,004,029 | ) | ||
Net realized gain from investments in Investee Funds |
7,109,528 | 12,431,755 | ||||||
Net change in unrealized appreciation (depreciation) from investments in Investee Funds |
50,682,244 | (106,441,693 | ) | |||||
|
|
|
|
|||||
Net increase (decrease) in net assets from operations |
51,500,929 | (106,013,967 | ) | |||||
|
|
|
|
|||||
Distributions to shareholders |
| (24,794,105 | ) | |||||
|
|
|
|
|||||
Capital Transactions: |
||||||||
Shareholder subscriptions |
59,233,859 | 285,693,812 | ||||||
Shareholder redemptions |
(89,558,253 | ) | (50,875,966 | ) | ||||
Reinvestment of distributions |
| 24,794,105 | ||||||
|
|
|
|
|||||
Net (decrease) increase in net assets from capital transactions |
(30,324,394 | ) | 259,611,951 | |||||
|
|
|
|
|||||
Net Assets: |
||||||||
Total increase in net assets |
21,176,535 | 128,803,879 | ||||||
Beginning of period |
944,401,621 | 815,597,742 | ||||||
|
|
|
|
|||||
End of period |
$ | 965,578,156 | $ | 944,401,621 | ||||
|
|
|
|
|||||
Accumulated net investment loss |
$ | (19,277,806 | ) | $ | (12,986,963 | ) | ||
|
|
|
|
|||||
Share Transactions: |
||||||||
Beginning of period |
879,520 | 660,774 | ||||||
Shares issued |
53,554 | 241,280 | ||||||
Shares redeemed |
(80,000 | ) | (44,320 | ) | ||||
Shares reinvested |
| 21,786 | ||||||
|
|
|
|
|||||
End of period |
853,074 | 879,520 | ||||||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
20
Blackstone Alternative Alpha Master Fund and Subsidiary
Consolidated Statement of Cash Flows
For the Six Months Ended September 30, 2016 (Unaudited)
Cash Flows from Operating Activities: |
||||
Net increase in net assets from operations |
$ | 51,500,929 | ||
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: |
||||
Net realized gain from investments in Investee Funds |
(7,109,528 | ) | ||
Net change in unrealized appreciation from investments in Investee Funds |
(50,682,244 | ) | ||
Purchases of investments in Investee Funds and subscriptions paid in advance to Investee Funds |
(86,372,801 | ) | ||
Proceeds from redemptions of investments in Investee Funds |
80,166,247 | |||
Increase in prepaid expenses |
(79,778 | ) | ||
Increase in interest receivable |
(473 | ) | ||
Increase in management fees payable |
205,835 | |||
Decrease in payable to Investment Manager |
(94,082 | ) | ||
Increase in accrued expenses and other liabilities |
86,050 | |||
|
|
|||
Net cash used in operating activities |
(12,379,845 | ) | ||
|
|
|||
Cash Flows from Financing Activities: |
||||
Proceeds from shareholder subscriptions and subscriptions received in advance |
59,233,859 | |||
Payments for shareholder redemptions of shares |
(45,688,377 | ) | ||
Proceeds from borrowings under credit facility |
39,750,000 | |||
Repayment of borrowings under credit facility |
(39,750,000 | ) | ||
|
|
|||
Net cash provided by financing activities |
13,545,482 | |||
|
|
|||
Net change in cash |
1,165,637 | |||
Cash, beginning of period |
25,012,094 | |||
|
|
|||
Cash, end of period |
$ | 26,177,731 | ||
|
|
|||
Supplemental Disclosure of Cash Flow Information: |
||||
Cash paid during the period for interest |
$ | 32,419 | ||
|
|
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, 2016 |
For the Year Ended March 31, 2016 |
For the Year Ended March 31, 2015 |
For the Year Ended March 31, 2014 |
For the Year Ended March 31, 2013 |
||||||||||||||||
Per Share Operating Performance: |
||||||||||||||||||||
Net Asset Value, Beginning of Period |
$ | 1,073.77 | $ | 1,234.31 | $ | 1,160.74 | $ | 1,077.79 | $ | 1,000.00 | ||||||||||
Income/(loss) from Investment Operations: |
||||||||||||||||||||
Net investment loss1 |
(7.05 | ) | (15.48 | ) | (18.30 | ) | (17.68 | ) | (23.23 | ) | ||||||||||
Net realized and unrealized gain/(loss) from investments |
65.16 | (114.95 | ) | 136.51 | 114.37 | 102.99 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income/(loss) from investment operations |
58.11 | (130.43 | ) | 118.21 | 96.69 | 79.76 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Distributions to shareholders |
| (30.11 | ) | (44.64 | ) | (13.74 | ) | (1.97 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Asset Value, end of period |
$ | 1,131.88 | $ | 1,073.77 | $ | 1,234.31 | $ | 1,160.74 | $ | 1,077.79 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financial Ratios:2 |
||||||||||||||||||||
Expenses to average net assets |
1.47 | % | 1.45 | % | 1.53 | % | 1.57 | % | 2.28 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net investment loss to average net assets |
(1.27 | )% | (1.33 | )% | (1.53 | )% | (1.56 | )% | (2.27 | )% | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Portfolio turnover |
8.56 | % | 8.97 | % | 8.68 | % | 10.30 | % | 9.01 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total return |
5.41 | %3 | (10.70 | )% | 10.33 | % | 8.98 | % | 7.99 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net assets, end of period (000s) |
$ | 965,578 | $ | 944,402 | $ | 815,598 | $ | 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
September 30, 2016 (Unaudited)
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 (BAAF) and Blackstone Alternative Alpha Fund II (BAAF II, and together with BAAF, the Feeder Funds and the Feeder Funds together with the Master Fund, the 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, which serves as the commodity pool operator of the Master Fund, the Feeder Funds and the Intermediate Fund, is registered with the CFTC, but has claimed relief under Rule 4.12(c)(3) of the Commodity Exchange Act, with respect to the Master Fund and the Feeder Funds, and Rule 4.7, with respect to the Intermediate Fund, from certain disclosure, reporting and recordkeeping requirements otherwise applicable to commodity pools. The Board of Trustees (the Board and each member a Trustee) of the Master Fund supervises the conduct of the Consolidated Master Funds and the Feeder Funds affairs and, pursuant to their respective investment management agreements, has engaged BAAM to manage the Consolidated Master Funds and Feeder Funds day-to-day investment activities.
Capitalized terms used, but not defined herein, shall have the meaning assigned to them in the registration statement of the Master Fund.
2. Basis of Presentation
The Consolidated Master Funds financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and are stated in U.S. dollars. All intercompany accounts and transactions have been eliminated in consolidation.
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.
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
23
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
September 30, 2016 (Unaudited)
administration and oversight of the Consolidated Master Funds valuation policies and procedures. The Valuation Committee determines the fair value of investments in accordance with the current fair value guidance and as described below. In the event the Valuation Committee determines, in its discretion and based on its own due diligence and investment monitoring procedures, that the valuation of any investment determined, as set forth below, does not represent fair value, the Valuation Committee will value such investments at fair value in accordance with procedures adopted in good faith and approved by the Board, as may be amended from time to time.
Investments in Investee Funds
The fair value of investments in investment partnerships, managed funds, and other investment funds (Investee Fund(s)) is generally determined using the reported net asset value per share of the Investee Fund, or its equivalent, as a practical expedient for fair value.
The Consolidated Master Fund may, as a practical expedient, estimate the fair value of an investment in 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 Accounting Standards Codification 946, Financial Services-Investment Companies (ASC 946). In order to use the practical expedient, the Investment Manager has internal processes to independently evaluate the fair value measurement process utilized by the underlying Investee Fund to calculate the Investee Funds NAV in accordance with ASC 946. Such internal processes include the evaluation of the Investee Funds process and related internal controls in place to estimate the fair value of its underlying investments that are included in the NAV calculation, performing ongoing operational due diligence, review of the Investee Funds audited financial statements, and ongoing monitoring of other relevant qualitative and quantitative factors.
Additionally, the Consolidated Master Fund may invest in promissory notes issued by an Investee Fund. Such promissory notes are secured by a lien upon assets of the Investee Fund and are classified as investments in Investee Funds. The fair value of Investee Fund promissory notes is based on the residual value of the notes after subtracting the fair value of the Investee Funds shares from the Investee Funds enterprise value. The enterprise value of the Investee Fund is based upon the reported NAV of the Investee Fund gross of the par value of promissory note liabilities. Such investment in promissory notes are classified as Level 3 of the fair value hierarchy and the most significant unobservable input in determining fair value is the reported NAV of the Investee Fund. As of period-end the fair value of such notes amounted to $15,758,400 and related purchases and sales were $330,900 and $0, respectively during the period.
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.
24
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
September 30, 2016 (Unaudited)
Fair Value of Financial Instruments
The fair value of the Consolidated Master Funds assets and liabilities which qualify as Financial Instruments under the existing accounting guidance for Financial Instruments, approximates the carrying amounts presented in the Consolidated Statement of Assets and Liabilities due to their short term nature.
Investment Transactions and Related Investment Income and Expenses
Investment transactions are accounted for on a trade date basis. Income and expenses, including interest, are recorded on an accrual basis.
The net realized gains or losses from investments in Investee Funds are recorded when the Consolidated Master Fund redeems or partially redeems its interest in the Investee Funds or receives distributions in excess of return of capital. Realized gains and losses from redemptions of investments are calculated using the first-in, first-out cost basis methodology.
Cash
At September 30, 2016, the Consolidated Master Fund had $26,177,731 of cash held at a major U.S. bank.
Contingencies
Under the Master Funds Amended and Restated Declaration of Trust, the Master Funds officers and Trustees are indemnified against certain liabilities that may arise out of the performance of their duties to the Master Fund.
Additionally, in the normal course of business, the Consolidated Master Fund enters into contracts that contain a variety of representations and indemnifications. The Consolidated Master Funds maximum exposure under these arrangements is unknown. 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 Master Funds policy is to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986 applicable to regulated investment companies and to distribute substantially all of its investment company taxable income and net long-term capital gains to its shareholders. Therefore, no federal income tax provision is expected to be required. The Master Fund files U.S. federal and various state and local tax returns.
Management of the Master Fund has evaluated the tax positions taken or expected to be taken in the course of preparing the Master Funds tax returns for the current open tax years ended October 31, 2013, October 31, 2014 and October 31, 2015 and has concluded, as of September 30, 2016, that no provision for income tax would be required in the Master Funds financial statements. The Master Funds federal and state income and federal excise tax returns for the current open tax years are subject to examination by the Internal Revenue Service and state taxing authorities.
The Intermediate Fund is a controlled foreign corporation (CFC) for U.S. income tax purposes. As a wholly-owned CFC, the Intermediate Funds net income and capital gains, to the extent of its earnings and profits, are included in the Master Funds investment company taxable income.
For the current open tax years and for all major jurisdictions, management of the Intermediate Fund has concluded that there are no significant uncertain tax positions that would require recognition in the Master
25
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
September 30, 2016 (Unaudited)
Funds financial statements. Management is also not aware of any tax positions for which it is reasonably possible that the total amounts of uncertain unrecognized tax benefits will significantly change in the next twelve months. As a result, no income tax liability or expense, including interest and penalties, has been recorded within these consolidated financial statements.
Dividends and Distributions to Shareholders
Dividends from net investment income and distributions of capital gains, if any, are declared and paid at least annually. Dividends and capital gain distributions paid by the Master Fund will be reinvested in additional Shares (defined below) of the Master Fund unless a shareholder elects not to reinvest in Shares or is otherwise ineligible. Shares purchased by reinvestment will be issued at their net asset value on the ex-dividend date.
Borrowings Under Credit Facility
The Master Fund has a secured revolving borrowing facility (the Facility) with borrowing capacity of $43,000,000 (the Maximum Principal Amount). Borrowings under the Facility are used primarily for bridge financing purposes and are secured by the assets of the Master Fund. Under the terms of the agreement, the Maximum Principal Amount may be increased or decreased upon mutual written consent of the Master Fund and the lender. Outstanding borrowings bear interest at a rate equal to 3-month LIBOR plus 1.00% per annum (1.85% at September 30, 2016). Effective December 31, 2015, a commitment fee is charged in the amount of 0.65% per annum on the total commitment amount of the Facility. Outstanding borrowings and accrued interest are due no later than December 31, 2016, 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, 2016, the Master Fund had no outstanding borrowings under the Facility.
During the period ended September 30, 2016, the Master Funds maximum outstanding borrowing was $39,750,000. The weighted average principal outstanding during the period was approximately $2,208,333 at a weighted average interest rate of 1.63% per annum.
Recent Accounting Pronouncements
In January 2016, the Financial Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. The amendment provides guidance on managements responsibility in evaluating whether there is substantial doubt about the Consolidated Master Funds ability to continue as a going concern and related footnote disclosures. For each reporting period, management is required to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the Consolidated Master Funds ability to continue as a going concern within one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that managements plans to address the substantial
26
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
September 30, 2016 (Unaudited)
doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. The guidance is effective for annual periods ending after December 15, 2016 and interim periods and annual periods thereafter. Early adoption is permitted. The adoption of this guidance did not have a material impact on the financial statements.
4. Investments
Major Investment Strategies
Investments in Investee Funds that are non-redeemable or subject to other restrictions such as a lockup at the measurement date or have the ability to limit the individual amount of investor redemptions shall be classified as having a redemption restriction.
The following table summarizes investments in Investee Funds, by investment strategy, the unfunded commitment of each strategy (if applicable), and the amount of the investment in Investee Fund that cannot be redeemed because of redemption restrictions put in place by the Investee Fund.
Investments in Investee Funds by Strategy |
Unfunded Commitment $ |
Non-Redeemable Investments (A) |
Other Restricted Investments (B) |
Investments Subject to No Restrictions |
Total $ | |||||||||
Amount $ |
Redemption Restriction Commencement Date |
Amount $ |
Redemption Restriction Term |
Amount $ |
||||||||||
Equity | | 680,055 | November 2014- June 2016 |
451,999,173 | 9 months- 48 months |
175,922,941 | 628,602,169 | |||||||
Multi-Category | | | | 126,999,310 | 12 months- 24 months |
52,391,932 | 179,391,242 | |||||||
Global Macro | | | | 52,674,825 | 10 months- 12 months |
45,922,069 | 98,596,894 | |||||||
Relative Value | | | | | | 40,408,157 | 40,408,157 | |||||||
Total | | 680,055 | | 631,673,308 | | 314,645,099 | 946,998,462 |
(A) Investments in Investee Funds cannot currently be redeemed and the remaining redemption restriction period is not known. The date the redemption restriction commenced is disclosed.
(B) Investments subject to other restrictions include investments in Investee Funds that are subject to a lockup at the measurement date and/or have the ability to limit the individual amount of investor redemptions. The redemption restriction term is based on the restriction period (or range of restriction periods) for Investee Funds as defined in each respective Investee Funds governing legal agreement, without consideration of the length of time elapsed from the date of the investments in the Investee Funds. The Consolidated Master Funds investment in a particular Investee Fund classified within the strategies above may be comprised of investments with differing liquidity terms or investments which were made at differing points in time.
27
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
September 30, 2016 (Unaudited)
Purchases and sales of investments for the period ended September 30, 2016 were $81,002,801 and $117,015,401, respectively.
5. Fund Terms
Issuance of Shares
The Master Fund is authorized to issue an unlimited number of shares of beneficial interest (Shares). The Master Fund will issue Shares as of the first business day of the month or at such other times as determined by the Board upon receipt of an initial or additional application for Shares. The Fund reserves the right to reject, in whole or in part, any applications for subscriptions of Shares. The Shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Master Funds Declaration of Trust.
Repurchase of Shares
The Master Fund from time to time may offer to repurchase a portion of its outstanding Shares pursuant to written tenders by shareholders. Repurchases will be made only at such times and on such terms as may be determined by the Board, in its complete and exclusive discretion. In determining whether the Master Fund should repurchase Shares from shareholders pursuant to written tenders, the Master Funds Board will consider the Investment Managers recommendations. 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, 2016, the Consolidated Master Fund had $315,685 payable to the Investment Manager recorded in the Consolidated Statement of Assets and Liabilities.
7. Financial Instruments and Off-Balance Sheet Risk
In the normal course of business, the Investee Funds may enter into certain financial instrument transactions which may result in off-balance sheet market risk and credit risk. The Consolidated Master Funds market risk is also impacted by an Investee Funds exposure to interest rate risk, foreign exchange risk, and industry or geographic concentration risk. The Investee Funds invest in these instruments for trading and hedging purposes. The Consolidated Master Fund is indirectly subject to certain risks arising from investments made by the Investee Funds.
Market Risk
Market risk is the risk of potential adverse changes to the value of financial instruments because of changes in market conditions such as interest and currency rate movements. The Consolidated Master Fund is exposed to market risk indirectly as a result of the types of investments entered into by the Investee Funds. The Consolidated Master Fund actively monitors its exposure to market risk.
28
Blackstone Alternative Alpha Master Fund and Subsidiary
Notes to Consolidated Financial Statements (Continued)
September 30, 2016 (Unaudited)
Investee Funds may invest in entities that trade or may invest directly in interest rate swaps, credit default swaps, exchange-traded and over-the-counter options, futures transactions, forward transactions, and securities sold, not yet purchased.
Credit Risk
Credit risk arises from the potential inability of counterparties to perform their obligations under the terms of a contract. The Consolidated Master Fund is indirectly exposed to credit risk related to the amount of accounting loss that the Investee Funds would incur if a counterparty fails to perform its obligations under contractual terms and if the Investee Funds fail to perform under their respective agreements.
8. Income Taxes
The primary difference between book and tax appreciation/depreciation of Investee Funds is attributable to adjustments to the tax basis of Investee Funds based on allocation of income and distributions from Investee Funds and the realization for tax purposes of financial statement unrealized gain/loss. In addition, the cost of Investee Funds for federal income tax purposes is adjusted for items of taxable income allocated to the Master Fund from the Investee Funds. As of September 30, 2016, 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 |
$ | 920,847,935 | |||
|
|
||||
Gross unrealized appreciation |
$ | 37,507,363 | |||
Gross unrealized depreciation |
(10,855,513 | ) | |||
|
|
||||
Net unrealized appreciation |
$ | 26,651,850 | |||
|
|
9. Subsequent Events
The Consolidated Master Fund has evaluated the impact of subsequent events through the date of financial statement issuance.
On November 9, 2016, the Master Fund commenced an offer to purchase (Offer) up to 128,083 Shares at a price equal to the Shares net asset value effective as of December 31, 2016. The Offer expires on December 12, 2016.
29
Blackstone Alternative Alpha Master Fund and Subsidiary
September 30, 2016 (Unaudited)
Management of the Fund
The Consolidated Master Funds operations are managed by the Investment Manager under the direction and oversight of the Board of Trustees. A majority of the Trustees are not interested persons (as defined in the 1940 Act) of the Consolidated Master Fund, (the Independent Trustees). The Consolidated Master Funds Trustees and officers are subject to removal or replacement in accordance with Massachusetts law and the Master Funds Declaration of Trust. The Consolidated Master Funds Board of Trustees also serves as the board of trustees of the Feeder Funds.
Compensation for Trustees
The 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 Funds $38,000 per fiscal year in aggregate for his or her services to the Funds. The Chairman of the Board of Trustees of the Funds and the Chair of the Audit Committee each receive an additional $2,000 per fiscal year. The Funds also pay for the Trustees 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, 2016.
Assets Class(1) |
Fair Value |
% | ||||||||
Equity |
$ | 628,602,169 | 66.38 | % | ||||||
Multi-Category |
179,391,242 | 18.94 | % | |||||||
Global Macro |
98,596,894 | 10.41 | % | |||||||
Relative Value |
40,408,157 | 4.27 | % | |||||||
|
|
|
|
|||||||
Total Investments |
$ | 946,998,462 | 100.00 | % | ||||||
|
|
|
|
(1) | The complete list of investments included in the listed asset class categories is included in the Consolidated Schedule of Investments of the Consolidated Master Funds financial statements. |
Form N-Q Filings
The Consolidated Master Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Consolidated Master Funds Form N-Q is available on the SECs website at http://www.sec.gov within 60 days after the Consolidated Master Funds first and third fiscal quarters. The Consolidated Master Funds Form N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, DC, and information regarding operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Holdings and allocations shown on any Form N-Q are as of the date indicated in the filing and may not be representative of future investments. Holdings and allocations should not be considered research or investment advice and should not be relied upon in making investment decisions.
30
Blackstone Alternative Alpha Master Fund and Subsidiary
Supplemental Information (Continued)
September 30, 2016 (Unaudited)
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, 2016, 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 and statement of additional information includes additional information about the Trustees of the Fund. The registration statement and statement of additional information is available, without charge, upon request by calling 1-855-890-7725.
31
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 | November 28, 2016 |
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 | November 28, 2016 |
By (Signature and Title) | /s/ Arthur Liao | |
Arthur Liao, Treasurer (Principal Financial and Accounting Officer) |
Date | November 28, 2016 |
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. |
November 28, 2016 |
/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. |
November 28, 2016 |
/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, 2016 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: November 28, 2016 |
/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, 2016 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: November 28, 2016 |
/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.