[Federal Register Volume 85, Number 16 (Friday, January 24, 2020)]
[Notices]
[Pages 4344-4346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01191]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33748; 812-15007]
Blackstone Alternative Investment Funds and Blackstone
Alternative Investment Advisors LLC; Notice of Application
January 21, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under Section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from Section 15(c) of
the Act.
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Applicants: Blackstone Alternative Investment Funds (``Trust''), a
Massachusetts business trust registered under the Act as an open-end
management investment company with multiple series and Blackstone
Alternative Investment Advisors LLC (``Adviser''), a Delaware limited
liability company registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act'') that serves an
investment adviser to such series (collectively the ``Applicants'').
Summary of Application: The requested exemption would permit the
Trust's board of trustees (the ``Board'') to approve new sub-advisory
agreements and material amendments to existing sub-advisory agreements
for the Subadvised Series (as defined below), without complying with
the in-person meeting requirement of Section 15(c) of the Act.
Filing Dates: The application was filed on March 4, 2019, and amended
on March 29, 2019, June 24, 2019, September 25, 2019, and January 10,
2020.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving Applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on February 18, 2020, and should be accompanied by proof of
service on the Applicants, in the form of an affidavit or, for lawyers,
a certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549-1090. Applicants: James Hannigan, Esq.,
Blackstone Alternative Investment Advisors LLC, 345 Park Avenue, 29th
Floor, New York, NY 10154.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 551-6811, or Kaitlin C. Bottock, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number or an Applicant
using the ``Company'' name box, at http://www.sec.gov/search/search.htm
or by calling (202) 551-8090.
I. Requested Exemptive Relief
1. Applicants request an exemption from Section 15(c) of the Act to
permit
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the Board,\1\ including the Independent Trustees,\2\ to approve an
agreement (each a ``Sub-Advisory Agreement'') pursuant to which a sub-
adviser manages all or a portion of the assets of one or more of the
series, or a material amendment thereof (a ``Sub-Adviser Change''),
without complying with the in-person meeting requirement of Section
15(c).\3\ Under the requested relief, the Independent Trustees could
instead approve a Sub-Adviser Change at a meeting at which members of
the Board participate by any means of communication that allows them to
hear each other simultaneously during the meeting.
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\1\ The term ``Board'' also includes the board of trustees or
directors of a future Subadvised Series (as defined below).
\2\ The term ``Independent Trustees'' means the members of the
Board who are not parties to the Sub-Advisory Agreement (as defined
below), or ``interested persons'', as defined in Section 2(a)(19) of
the Act, of any such party.
\3\ Applicants do not request relief that would permit the Board
and the Independent Trustees to approve renewals of Sub-Advisory
Agreements at non-in-person meetings.
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2. Applicants request that the relief apply to Applicants, as well
as to any future series of the Trust and any other existing or future
registered open-end management investment company or series thereof
that intends to rely on the requested order in the future and that: (i)
Is advised by the Adviser; \4\ (ii) uses the multi-manager structure
described in the application; and (iii) complies with the terms and
conditions of the application (each, a ``Subadvised Series'').\5\
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\4\ The term ``Adviser'' includes (i) the Adviser or its
successors, and (ii) any entity controlling, controlled by or under
common control with, the Adviser or its successors. For the purposes
of the requested order, ``successor'' is limited to an entity or
entities that result from a reorganization into another jurisdiction
or a change in the type of business organization.
\5\ The term ``Subadvised Series'' also includes a wholly-owned
subsidiary, as defined in the Act, of a Subadvised Series (each a
``Subsidiary'') and the term ``Sub-Adviser'' includes any Sub-
Adviser to a Subsidiary. All registered open-end investment
companies that currently intend to rely on the requested order are
named as applicants. Any entity that relies on the requested order
will do so only in accordance with the terms and conditions
contained in the application.
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II. Management of the Subadvised Series
3. The Adviser will serve as the investment adviser to each
Subadvised Series pursuant to an investment advisory agreement with the
Trust (each an ``Investment Management Agreement''). The Adviser,
subject to the oversight of the Board, will provide continuous
investment management services to each Subadvised Series. Applicants
are not seeking an exemption from the Act with respect to the
Investment Management Agreements.
4. Applicants state that the Subadvised Series may seek to provide
exposure to multiple strategies across various asset classes, thus
allowing investors to more easily access such strategies without the
additional transaction costs and administrative burdens of investing in
multiple funds to seek to achieve comparable exposures.
5. To that end, the Adviser may achieve its desired exposures to
specific strategies by allocating discrete portions of the Subadvised
Series' assets to various sub-advisers. Consistent with the terms of
each Investment Management Agreement and subject to the Board's
approval,\6\ the Adviser would delegate management of all or a portion
of the assets of a Subadvised Series to a sub-adviser.\7\ Each sub-
adviser would be an ``investment adviser'' to the Subadvised Series
within the meaning of Section 2(a)(20) of the Act.\8\ The Adviser would
retain overall responsibility for the management and investment of the
assets of each Subadvised Series.
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\6\ A Sub-Advisory Agreement may also be subject to approval by
a Subadvised Series' shareholders. Applicants currently rely on a
multi-manager exemptive order to enter into and materially amend
Sub-Advisory Agreements without obtaining shareholder approval. See
Blackstone Alternative Investment Funds, et al., Investment Company
Act Release Nos. 32481 (Feb. 16, 2017) (notice) and 32530 (Mar. 13,
2017) (order).
\7\ A sub-adviser may manage the assets of a Subadvised Series
directly or provide the Adviser with model portfolio or investment
recommendation(s) that would be utilized in connection with the
management of a Subadvised Series.
\8\ Each sub-adviser would be registered with the Commission as
an investment adviser under the Advisers Act or not subject to such
registration.
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III. Applicable Law
6. Section 15(c) of the Act prohibits a registered investment
company having a board from entering into, renewing or performing any
contract or agreement whereby a person undertakes regularly to act as
an investment adviser (including a sub-adviser) to the investment
company, unless the terms of such contract or agreement and any renewal
thereof have been approved by the vote of a majority of the investment
company's board members who are not parties to such contract or
agreement, or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
7. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or any class or classes of
persons, securities, or transactions from any provisions of the Act, or
any rule thereunder, if such exemption is necessary or appropriate in
the public interest and consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the Act.
Applicants state that the requested relief meets this standard for the
reasons discussed below.
IV. Arguments in Support of the Requested Relief
8. Applicants assert that boards of registered investment
companies, including the Board, typically hold in-person meetings on a
quarterly basis. Applicants state that during the three to four month
period between board meeting dates, market conditions may change or
investment opportunities may arise such that the Adviser may wish to
make a Sub-Adviser Change. Applicants also state that at these moments
it may be impractical and costly to hold an additional in-person Board
meeting, especially given the geographic diversity of Board members and
the additional cost of holding in-person meetings.
9. As a result, Applicants believe that the requested relief would
allow the Subadvised Series to operate more efficiently. In particular,
Applicants assert that without the delay inherent in holding in-person
Board meetings (and the attendant difficulty of obtaining the necessary
quorum for, and the additional costs of, an unscheduled in-person Board
meeting), the Subadvised Series would be able to act quicker and with
less expense to add or replace sub-advisers when the Board and the
Adviser believe that a Sub-Adviser Change would benefit the Subadvised
Series.
10. Applicants also note that the in-person meeting requirement in
Section 15(c) of the Act was designed to prohibit absentee approval of
advisory agreements. Applicants state that condition 1 to the requested
relief is designed to avoid such absentee approval by requiring that
the Board approve a Sub-adviser Change at a meeting where all
participating Board members can hear each other and be heard by each
other during the meeting.\9\
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\9\ Applicants state that technology that includes visual
capabilities will be used unless unanticipated circumstances arise.
Applicants also state that the Board could not rely upon the relief
to approve a Sub-Advisory Agreement by written consent or another
form of absentee approval by the Board.
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11. Applicants, moreover, represent that the Board would conduct
any such non-in-person consideration of a Sub-
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Advisory Agreement in accordance with its typical process for approving
Sub-Advisory Agreements. Consistent with Section 15(c) of the Act, the
Board would request and evaluate such information as may reasonably be
necessary to evaluate the terms of any Sub-Advisory Agreement, and the
Adviser and sub-adviser would provide such information.
12. Finally, Applicants note that that if one or more Board members
request that a Sub-Adviser Change be considered in-person, then the
Board would not be able to rely on the relief and would have to
consider the Sub-Adviser Change at an in-person meeting.
13. The Commission continues to believe that a board's decision-
making process may benefit from the directors' having the opportunity
to interact in person, as a group and individually. We recognize,
however, that under the circumstances described by Applicants, the need
to act promptly for the benefit of the Fund may justify the Board's
meeting on a non-in-person basis, and that technological advances
enable directors to hold such meetings in a manner where the directors
can be personally present and able to assure themselves that they are
informed as to the matter that requires action by the Board.
Accordingly, the requested relief would meet the applicable standard
for relief under the Act.
V. Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Independent Trustees will approve a Sub-Adviser Change at a
non-in-person meeting in which Board members may participate by any
means of communication that allows those Board members participating to
hear each other simultaneously during the meeting.
2. Management will represent that the materials provided to the
Board for the non-in-person meeting include the same information the
Board would have received if a Sub-Adviser Change were sought at an in-
person Board meeting.
3. The notice of the non-in-person meeting will explain the need
for considering the Sub-Adviser Change at a non-in-person meeting. Once
notice of the non-in-person meeting to consider a Sub-Adviser Change is
sent, Board members will be given the opportunity to object to
considering the Sub-Adviser Change at a non-in-person Board meeting. If
a Board member requests that the Sub-Adviser Change be considered in-
person, the Board will consider the Sub-Adviser Change at an in-person
meeting, unless such request is rescinded.
4. A Subadvised Series' ability to rely on the requested relief
will be disclosed in the Subadvised Series' registration statement.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01191 Filed 1-23-20; 8:45 am]
BILLING CODE 8011-01-P