[Federal Register Volume 78, Number 49 (Wednesday, March 13, 2013)]
[Notices]
[Pages 15978-15982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-05759]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30416; File No. 812-14076]


Blackstone Alternative Investment Funds, et al.; Notice of 
Application

March 7, 2013.
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(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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    Summary of Application: Applicants request an order that would 
permit them to enter into and materially amend subadvisory agreements 
with Wholly-Owned Sub-Advisors (as defined below) and non-affiliated 
sub-advisors without shareholder approval and would grant relief from 
certain disclosure requirements.
    Applicants: Blackstone Alternative Investment Funds (the ``Trust'') 
and Blackstone Alternative Asset Management L.P. (``BAAM'').

[[Page 15979]]

    Filing Dates: The application was filed on September 12, 2012, and 
amended on January 17, 2013.
    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 April 1, 2013, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, 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: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants, 
345 Park Avenue, 28th Floor, New York, NY 10154.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 551-6876, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site 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.

Applicants' Representations

    1. The Trust is organized as a Massachusetts business trust and is 
registered under the Act as an open-end management investment company. 
The Trust may offer one or more series of shares (each, a ``Series'') 
with its own distinct investment objectives, policies and 
restrictions.\1\ Each Series has, or will have, as its investment 
adviser, BAAM, or another investment adviser controlling, controlled by 
or under common control with BAAM or its successors (each, an 
``Advisor'').\2\ BAAM, a Delaware limited partnership, is an indirect, 
wholly-owned subsidiary of The Blackstone Group L.P. (``Blackstone''). 
Blackstone is an alternative asset management and financial services 
company that specializes in private equity, real estate and credit and 
marketable alternative investment strategies, as well as financial 
advisory services, such as mergers and acquisitions, restructurings and 
reorganizations, and private placements.\3\
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    \1\ The Trust currently consists of a single Series, the 
Blackstone Alternative Multi-Manager Fund.
    \2\ Each Advisor is, or will be, registered as an investment 
adviser under the Investment Advisers Act of 1940 (``Advisers 
Act''). For purposes of the requested order, ``successor'' is 
limited to an entity that results from a reorganization into another 
jurisdiction or a change in the type of business organization.
    \3\ Applicants request that the relief apply to applicants, as 
well as to any future Series and any other existing or future 
registered open-end management investment company or series thereof 
that is advised by an Advisor, uses the multi-manager structure 
described in the application, and complies with the terms and 
conditions of the application (``Subadvised Series''). 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. If the name of 
any Subadvised Series contains the name of a Sub-Advisor (as defined 
below), the name of the Advisor that serves as the primary adviser 
to the Subadvised Series, or a trademark or trade name that is owned 
by or publicly used to identify that Advisor, will precede the name 
of the Sub-Advisor.
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    2. An Advisor will serve as the investment adviser to each Series 
pursuant to an investment advisory agreement with the Trust 
(``Investment Management Agreement''). The Investment Management 
Agreement will be approved by the board of trustees of the Trust 
(``Board''),\4\ including a majority of the members of the Board who 
are not ``interested persons,'' as defined in section 2(a)(19) of the 
Act, of the Series or the Advisor (``Independent Board Members'') and 
by the shareholders of the relevant Series as required by sections 
15(a) and 15(c) of the Act and rule 18f-2 thereunder. The terms of 
these Investment Management Agreements will comply with section 15(a) 
of the Act.
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    \4\ The term ``Board'' also includes the board of trustees or 
directors of a future Subadvised Series.
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    3. Under the terms of each Investment Management Agreement, the 
Advisor, subject to the supervision of the Board, will provide 
continuous investment management of the assets of each Series. The 
Advisor will periodically review a Series' investment policies and 
strategies, and based on the need of a particular Series may recommend 
changes to the investment policies and strategies of the Series for 
consideration by the Board. For its services to each Series under the 
applicable Investment Management Agreement, the Advisor will receive an 
investment management fee from that Series based on either the average 
net assets of that Series or that Series' investment performance over a 
particular period compared to a benchmark. Each Investment Management 
Agreement will provide that the Advisor may, subject to the approval of 
the Board, including a majority of the Independent Board Members, and 
the shareholders of the applicable Subadvised Series (if required), 
delegate portfolio management responsibilities of all or a portion of 
the assets of a Subadvised Series to one or more Sub-Advisors.\5\
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    \5\ A ``Sub-Advisor'' is (a) an indirect or direct ``wholly-
owned subsidiary'' (as such term is defined in the Act) of the 
Advisor for that Series; (b) a sister company of the Advisor for 
that Series that is an indirect or direct ``wholly-owned 
subsidiary'' (as such term is defined in the Act) of the same 
company that, indirectly or directly, wholly owns the Advisor (each 
of (a) and (b), a ``Wholly-Owned Sub-Advisor'' and collectively, the 
``Wholly-Owned Sub-Advisors''), or (c) an investment sub-advisor for 
that Series that is not an ``affiliated person'' (as such term is 
defined in section 2(a)(3) of the Act) of the Series or the Advisor, 
except to the extent that an affiliation arises solely because the 
sub-advisor serves as a sub-advisor to a Series (each, a ``Non-
Affiliated Sub-Advisor'').
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    4. Applicants request an order to permit the Advisor, subject to 
the approval of the Board, including a majority of the Independent 
Board Members, to, without obtaining shareholder approval: (i) Select 
Sub-Advisors to manage all or a portion of the assets of a Series and 
enter into Sub-Advisory Agreements (as defined below) with the Sub-
Advisors, and (ii) materially amend Sub-Advisory Agreements with the 
Sub-Advisors.\6\ The requested relief will not extend to any sub-
advisor, other than a Wholly-Owned Sub-Advisor, who is an affiliated 
person, as defined in section 2(a)(3) of the Act, of the Subadvised 
Series or of the Advisor, other than by reason of serving as a sub-
advisor to one or more of the Subadvised Series (``Affiliated Sub-
Advisor'').
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    \6\ Shareholder approval will continue to be required for any 
other sub-advisor change (not otherwise permitted by rule or other 
action of the Commission or staff) and material amendments to an 
existing Sub-Advisory Agreement with any sub-advisor other than a 
Non-Affiliated Sub-Advisor or a Wholly-Owned Sub-Advisor (all such 
changes referred to as ``Ineligible Sub-Advisor Changes'').
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    5. Pursuant to each Investment Management Agreement, the Advisor 
will have overall responsibility for the management and investment of 
the assets of each Subadvised Series. These responsibilities will 
include recommending the removal or replacement of Sub-Advisors, 
determining the portion of that Subadvised Series' assets to be managed 
by any given Sub-Advisor and reallocating those assets as necessary 
from time to time.
    6. The Advisor may enter into sub-advisory agreements with various 
Sub-Advisors (``Sub-Advisory Agreements'')

[[Page 15980]]

to provide investment management services to the Subadvised Series. The 
terms of each Sub-Advisory Agreement will comply fully with the 
requirements of section 15(a) of the Act and will be approved by the 
Board, including a majority of the Independent Board Members and the 
shareholders of the Subadvised Series, in accordance with sections 
15(a) and 15(c) of the Act and rule 18f-2 thereunder. The Sub-Advisors, 
subject to the supervision of the Advisor and oversight of the Board, 
will determine the securities and other investments to be purchased or 
sold by a Subadvised Series and place orders with brokers or dealers 
that they select. The Advisor will compensate each Sub-Advisor out of 
the fee paid to the Advisor under the relevant Investment Management 
Agreement.
    7. Subadvised Series will inform shareholders of the hiring of a 
new Sub-Advisor pursuant to the following procedures (``Modified Notice 
and Access Procedures''): (a) Within 90 days after a new Sub-Advisor is 
hired for any Subadvised Series, that Subadvised Series will send its 
shareholders either a Multi-manager Notice or a Multi-manager Notice 
and Multi-manager Information Statement;) \7\ and (b) the Subadvised 
Series will make the Multi-manager Information Statement available on 
the website identified in the Multi-manager Notice no later than when 
the Multi-manager Notice (or Multi-manager Notice and Multi-manager 
Information Statement) is first sent to shareholders, and will maintain 
it on that website for at least 90 days. In the circumstances described 
in the application, a proxy solicitation to approve the appointment of 
new Sub-Advisors provides no more meaningful information to 
shareholders than the proposed Multi-manager Information Statement. 
Applicants state that each Board would comply with the requirements of 
sections 15(a) and 15(c) of the Act before entering into or amending 
Sub-Advisory Agreements.
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    \7\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) Summarize the relevant information regarding 
the new Sub-Advisor (except as modified to permit Aggregate Fee 
Disclosure (as defined below); (b) inform shareholders that the 
Multi-manager Information Statement is available on a website; (c) 
provide the website address; (d) state the time period during which 
the Multi-manager Information Statement will remain available on 
that website; (e) provide instructions for accessing and printing 
the Multi-manager Information Statement; and (f) instruct the 
shareholder that a paper or email copy of the Multi-manager 
Information Statement may be obtained, without charge, by contacting 
the Subadvised Series.
    A ``Multi-manager Information Statement'' will meet the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Exchange Act for an information statement, except as 
modified by the order to permit Aggregate Fee Disclosure. Multi-
manager Information Statements will be filed with the Commission via 
the EDGAR system.
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    8. Applicants also request an order exempting the Subadvised Series 
from certain disclosure obligations that may require each Subadvised 
Series to disclose fees paid by the Advisor to each Sub-Advisor. 
Applicants seek relief to permit each Subadvised Series to disclose (as 
a dollar amount and a percentage of the Subadvised Series' net assets): 
(a) The aggregate fees paid to the Advisor and any Wholly-Owned Sub-
Advisors; (b) the aggregate fees paid to Non-Affiliated Sub-Advisors; 
and (c) the fee paid to each Affiliated Sub-Advisor (collectively, the 
``Aggregate Fee Disclosure'').

Applicants' Legal Analysis

    1. Section 15(a) of the Act states, in part, that it is unlawful 
for any person to act as an investment adviser to a registered 
investment company ``except pursuant to a written contract, which 
contract, whether with such registered company or with an investment 
adviser of such registered company, has been approved by the vote of a 
majority of the outstanding voting securities of such registered 
company.'' Rule 18f-2 under the Act provides that each series or class 
of stock in a series investment company affected by a matter must 
approve that matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires a registered 
investment company to disclose in its statement of additional 
information the method of computing the ``advisory fee payable'' by the 
investment company, including the total dollar amounts that the 
investment company ``paid to the adviser (aggregated with amounts paid 
to affiliated advisers, if any), and any advisers who are not 
affiliated persons of the adviser, under the investment advisory 
contract for the last three fiscal years.''
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to a registered investment company to comply with Schedule 14A under 
the Exchange Act. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 
22(c)(9) of Schedule 14A, taken together, require a proxy statement for 
a shareholder meeting at which the advisory contract will be voted upon 
to include the ``rate of compensation of the investment adviser,'' the 
``aggregate amount of the investment adviser's fee,'' a description of 
the ``terms of the contract to be acted upon,'' and, if a change in the 
advisory fee is proposed, the existing and proposed fees and the 
difference between the two fees.
    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about the investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission by order 
upon application may conditionally or unconditionally exempt any 
person, security, or transaction or any class or classes of persons, 
securities, or transactions from any provisions of the Act, or from 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 their requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Advisor, 
subject to the review and approval of the Board, to select the Sub-
Advisors who are in the best position to achieve the Subadvised Series' 
investment objective. Applicants assert that, from the perspective of 
the shareholder, the role of the Sub-Advisors is substantially 
equivalent to the role of the individual portfolio managers employed by 
an investment adviser to a traditional investment company. Applicants 
believe that permitting the Advisor to perform the duties for which the 
shareholders of the Subadvised Series are paying the Advisor--the 
selection, supervision and evaluation of the Sub-Advisors--without 
incurring unnecessary delays or expenses is appropriate in the interest 
of the Subadvised Series' shareholders and will allow such Subadvised 
Series to operate more efficiently. Applicants state that each 
Investment Management Agreement will continue to be fully subject to 
section 15(a) of the Act and rule 18f-2 under the Act and approved by 
the Board, including a majority of the Independent Board Members, in 
the manner required by sections 15(a) and 15(c) of the Act. Applicants 
are not seeking an exemption with respect to the Investment Management 
Agreements.
    7. Applicants assert that disclosure of the individual fees that 
the Advisor

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would pay to the Sub-Advisors of Subadvised Series that operate under 
the multi-manager structure described in the application would not 
serve any meaningful purpose. Applicants contend that the primary 
reasons for requiring disclosure of individual fees paid to Sub-
Advisors are to inform shareholders of expenses to be charged by a 
particular Subadvised Series and to enable shareholders to compare the 
fees to those of other comparable investment companies. Applicants 
believe that the requested relief satisfies these objectives because 
the advisory fee paid to the Advisor will be fully disclosed and, 
therefore, shareholders will know what the Subadvised Series' fees and 
expenses are and will be able to compare the advisory fees a Subadvised 
Series is charged to those of other investment companies. Applicants 
assert that the requested disclosure relief would benefit shareholders 
of the Subadvised Series because it would improve the Advisor's ability 
to negotiate the fees paid to Sub-Advisors. Applicants state that the 
Advisor may be able to negotiate rates that are below a Sub-Advisor's 
``posted'' amounts if the Advisor is not required to disclose the Sub-
Advisors' fees to the public. Applicants submit that the relief 
requested to use Aggregate Fee Disclosure will encourage Sub-Advisors 
to negotiate lower subadvisory fees with the Advisor if the lower fees 
are not required to be made public.
    8. For the reasons discussed above, applicants submit that the 
requested relief meets the standards for relief under section 6(c) of 
the Act. Applicants state that the operation of the Subadvised Series 
in the manner described in the application must be approved by 
shareholders of a Subadvised Series before that Subadvised Series may 
rely on the requested relief. In addition, applicants state that the 
proposed conditions to the requested relief are designed to address any 
potential conflicts of interest, including any posed by the use of 
Wholly-owned Sub-Advisors, and provide that shareholders are informed 
when new Sub-Advisors are hired. Applicants assert that conditions 6, 
7, 10 and 11 are designed to provide the Board with sufficient 
independence and the resources and information it needs to monitor and 
address any conflicts of interest with affiliated persons of the 
Advisor, including Wholly-Owned Sub-Advisors. Applicants state that, 
accordingly, they believe the requested relief 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' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Series may rely on the order requested in 
the application, the operation of the Subadvised Series in the manner 
described in the application, including the hiring of Wholly-Owned Sub-
Advisors, will be, or has been, approved by a majority of the 
Subadvised Series' outstanding voting securities as defined in the Act, 
or, in the case of a new Subadvised Series whose public shareholders 
purchase shares on the basis of a prospectus containing the disclosure 
contemplated by condition 2 below, by the sole initial shareholder 
before offering the Subadvised Series' shares to the public.
    2. The prospectus for each Subadvised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Subadvised Series will hold itself out to the public 
as employing the multi-manager structure described in the application. 
Each prospectus will prominently disclose that the Advisor has the 
ultimate responsibility, subject to oversight by the Board, to oversee 
the Sub-Advisors and recommend their hiring, termination and 
replacement.
    3. The Advisor will provide general management services to a 
Subadvised Series, including overall supervisory responsibility for the 
general management and investment of the Subadvised Series' assets. 
Subject to review and approval of the Board, the Advisor will (a) set a 
Subadvised Series' overall investment strategies, (b) evaluate, select, 
and recommend Sub-Advisors to manage all or a portion of a Subadvised 
Series' assets, and (c) implement procedures reasonably designed to 
ensure that Sub-Advisors comply with a Subadvised Series' investment 
objective, policies and restrictions. Subject to review by the Board, 
the Advisor will (a) when appropriate, allocate and reallocate a 
Subadvised Series' assets among multiple Sub-Advisors; and (b) monitor 
and evaluate the performance of Sub-Advisors.
    4. A Subadvised Series will not make any Ineligible Sub-Advisor 
Changes without the approval of the shareholders of the applicable 
Subadvised Series.
    5. Subadvised Series will inform shareholders of the hiring of a 
new Sub-Advisor within 90 days after the hiring of the new Sub-Advisor 
pursuant to the Modified Notice and Access Procedures.
    6. At all times, at least a majority of the Board will be 
Independent Board Members, and the selection and nomination of new or 
additional Independent Board Members will be placed within the 
discretion of the then-existing Independent Board Members.
    7. Independent Legal Counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Board Members. 
The selection of such counsel will be within the discretion of the 
then-existing Independent Board Members.
    8. The Advisor will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Advisor on a 
per Subadvised Series basis. The information will reflect the impact on 
profitability of the hiring or termination of any sub-advisor during 
the applicable quarter.
    9. Whenever a sub-advisor is hired or terminated, the Advisor will 
provide the Board with information showing the expected impact on the 
profitability of the Advisor.
    10. Whenever a sub-advisor change is proposed for a Subadvised 
Series with an Affiliated Sub-Advisor or a Wholly-Owned Sub-Advisor, 
the Board, including a majority of the Independent Board Members, will 
make a separate finding, reflected in the Board minutes, that such 
change is in the best interests of the Subadvised Series and its 
shareholders, and does not involve a conflict of interest from which 
the Advisor or the Affiliated Sub-Advisor or Wholly-Owned Sub-Advisor 
derives an inappropriate advantage.
    11. No Board member or officer of a Subadvised Series, or director, 
manager, or officer of the Advisor, will own directly or indirectly 
(other than through a pooled investment vehicle that is not controlled 
by such person), any interest in a sub-advisor, except for ownership of 
interests in the Advisor or any entity, other than a Wholly-Owned Sub-
Advisor, that controls, is controlled by, or is under common control 
with the Advisor.
    12. Each Subadvised Series will disclose the Aggregate Fee 
Disclosure in its registration statement.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that requested in the 
application, the requested order will expire on the effective date of 
that rule.


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    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05759 Filed 3-12-13; 8:45 am]
BILLING CODE 8011-01-P