Blackstone Group L.P. (NYSE: BX) has announced that it is launching its first alternative investment-focused mutual fund that offers daily liquidity. In short, this is a mutual fund that is comprised of investing hedge funds. Technically, it may be more like a hedge fund strategy called “fund of funds” that is being rolled out as a mutual fund product.
The Blackstone Alternative Multi-Manager Fund (BXMMX) is a registered open-end mutual fund seeking capital appreciation by allocating assets among a variety of investment subadvisers with experience managing nontraditional or “alternative” investment strategies. Ultimately the goal here is something very common during and after the stock market panic: returns through alternative strategies that are expected to be uncorrelated to traditional asset classes (S&P 500, bond indexes, and the like).
The new launch is under the Blackstone Alternative Asset Management team’s hedge fund solutions business. This arm has about $49 billion in total assets under management. Blackstone claims to have achieved its status as a premier hedge fund solutions provider “by preserving capital in the midst of volatile markets and by developing innovative solutions to meet our investors’ needs.” Blackstone also may manage a portion of this particular fund’s assets directly and may invest in unaffiliated hedge funds.
Blackstone is seeking to provide low beta to equity and fixed-income markets, hence the low correlation. What it does not say that is actually implied is “absolute returns.” Having a multi-manager and multi-strategy structure will utilize some of the top management firms in the country as you can recognize many of the already approved subadvisory firms below:
- Two Sigma Advisers LLC
- Cerberus Sub-Advisory I LLC
- Credit Suisse Hedging-Griffo Serviςos Internacionais S.A.
- HealthCor Management L.P.
- Caspian Capital L.P.
- Boussard and Gavaudan Asset Management L.P.
- Wellington Management Company LLP
- Good Hill Partners L.P.
- BTG Pactual Asset Management US LLC
- Chatham Asset Management LLC
- Nephila Capital Ltd.
Be advised that the world of hedge funds is about to become a lot more public. The SEC recently approved the removal of a marketing ban for hedge funds that has been in place for decades. Hedge funds are supposed to be targeted toward accredited investors and institutional investors. This is not the first such effort to bring hedge fund investing to the public, nor will it be the last.
We looked at the full SEC filing and found that the fee structure is as follows:
Annual fund operating expenses Management fee 1.95%(1) Distribution fees None Other expenses(2) 1.37% Dividend and interest expense on securities sold short(3) 0.77% Remainder of other expenses 0.60% Acquired fund fees and expenses(2) 0.08% Total annual fund operating expenses 3.40% Fees waived and/or expenses reimbursed(4) (0.15)% Total annual fund operating expenses after waiver and/or expense reimbursement 3.25%
1) Includes management fees paid by the Subsidiaries.
2) Based on estimates for the current fiscal year.
3) Dividend expense on securities sold short refers to paying the value of dividends to the securities lenders. This expense will be substantially offset by market value gains after the dividends are announced. Interest expense on securities sold short arises from the use of short sale proceeds to invest more than 100% of the Fund’s net assets in long positions. A portion of this expense may be offset by stock lending rebates from the prime broker, as reflected in the fee table.
4) Through May 31, 2016, the Adviser has agreed to waive its fees and/or reimburse expenses of the Fund so that certain of the Fund’s expenses will not exceed 0.45% (annualized). The Fund has agreed to repay these amounts, when and if requested by the Adviser, but only if and to the extent that these expenses are less than 0.45% (annualized) within the three year period after the Adviser bears the expense. These waiver/reimbursement and recoupment arrangements cannot be terminated before May 31, 2016 without the consent of the Fund’s board of trustees (the “Board of Trustees”). The waiver/reimbursement and recoupment arrangements relate to all expenses incurred in the business of the Fund with the exception of (i) investment management fees, (ii) distribution or servicing fees, (iii) acquired fund fees and expenses, (iv) brokerage and trading costs, (v) interest payments (including any interest expenses, commitment fees, or other expenses related to any line of credit of the Fund), (vi) taxes, (vii) dividends and interest on short positions, and (viii) extraordinary expenses (as determined in the sole discretion of the Adviser) (together, the “Excluded Expenses”). During the term of these waiver/reimbursement arrangements, the total annual operating expenses, excluding the Excluded Expenses, will be limited to 2.40% of the Fund’s average net assets.
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