SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

Blackstone Alternative Investment Funds – ‘N-CSR’ for 3/31/17

On:  Thursday, 6/1/17, at 12:11pm ET   ·   Effective:  6/1/17   ·   For:  3/31/17   ·   Accession #:  1193125-17-190707   ·   File #:  811-22743

Previous ‘N-CSR’:  ‘N-CSR’ on 6/2/16 for 3/31/16   ·   Next:  ‘N-CSR’ on 5/25/18 for 3/31/18   ·   Latest:  ‘N-CSR’ on 5/31/23 for 3/31/23

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/01/17  Blackstone Alternative Inv Funds  N-CSR       3/31/17    4:5.3M                                   Donnelley … Solutions/FA
          → Blackstone Alternative Multi-Strategy Fund ⇒ Class D Shares — Class I — Class R Shares — Class Y Shares

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Blackstone Alternative Multi-Strategy Fund          HTML   3.28M 
 4: EX-99.906CT  Certifications 906                                 HTML      8K 
 3: EX-99.CERT  Certifications 302                                  HTML     16K 
 2: EX-99.CODE  Code                                                HTML     21K 

Table of Contents

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 811-22743

Blackstone Alternative Investment Funds

(Exact Name of Registrant as Specified in Charter)

345 Park Avenue

28^th Floor

New York, NY 10154

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (212) 583-5000

Peter Koffler, Esq.

c/o Blackstone Alternative Investment Advisors LLC

345 Park Avenue

28^th 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

Date of fiscal year end: March 31

Date of reporting period: March 31, 2017

Table of Contents

The Report to Shareholders is attached hereto.

Table of Contents

Blackstone Alternative Multi-Strategy Fund

a series of Blackstone Alternative Investment Funds

Table of Contents

TABLE OF CONTENTS

All investors should consider the investment objectives, risks, charges and expenses of the Blackstone Alternative Multi-Strategy Fund (the “Fund”) carefully before investing. The prospectus and, if available, the summary prospectus contain this and other information about the Fund. You can obtain a prospectus and, if available, a summary prospectus, from the Fund’s website (www.blackstone.com/bamsf). All investors are urged to carefully read the prospectus and, if available, the summary prospectus, in its entirety before investing. Interests in the Fund are offered through Blackstone Advisory Partners L.P., a member of FINRA and an affiliate of Blackstone Alternative Asset Management L.P.

Important Risks: An investment in the Fund should be considered a speculative investment that entails substantial risks; you may lose part or all of your investment or your investment may not perform as well as other investments. The Fund’s investments involve special risks including, but not limited to, loss of all or a significant portion of the investment due to leveraging, short-selling, or other speculative practices, lack of liquidity and volatility of returns. The following is a summary description of certain additional principal risks of investing in the Fund:

Allocation Risk - Blackstone’s judgment about the attractiveness, value or market trends affecting a particular asset class, investment style, sub-adviser or security may be incorrect and this may have a negative impact upon performance. Debt Securities Risk - investments in debt securities, such as bonds and certain asset-backed securities involve certain risks which may cause the securities to lose value, including credit risk, extension risk, interest rate risk, prepayment risk, and variable and floating rate instrument risk. Derivatives Risk - the use of derivatives involves the risk that their value may not move as expected relative to the value of the relevant underlying assets, rates, or indices. Derivatives can be volatile and illiquid, can be subject to counterparty credit risk, and may entail investment exposure greater than their notional amount. Distressed Securities Risk - investments in securities of business enterprises involved in workouts, liquidations, reorganizations, bankruptcies and similar situations involve a high degree of risk of loss since there is typically substantial uncertainty concerning the outcome of such situations. Equity Securities Risk - there is a risk of loss associated with price fluctuations of equity and preferred securities which change based on a company’s financial condition and overall market and economic environment. Event-Driven Trading Risk - involves the risk that the specific event identified may not occur as anticipated and that this may have a negative impact upon the market price of the securities involved. Foreign Investments/Emerging Markets Risk - involves special risks caused by foreign political, social and economic factors, including exposure to currency fluctuations, less liquidity, less developed and less efficient trading markets, political instability and less developed legal and auditing standards. High Portfolio Turnover Risk - active trading of securities can increase transaction costs (thus lowering performance) and taxable distributions. Model and Technology Risk - involves the risk that model-based strategies, data gathering systems, order execution and trade allocation systems and risk management systems may not be successful on an ongoing basis or could contains errors, omissions, imperfections or malfunctions. Multi-Manager Risk - managers may make investment decisions which conflict with each other and as a result, the Fund could incur transaction costs without accomplishing any net investment result.

Table of Contents

BLACKSTONE ALTERNATIVE INVESTMENT FUNDS

Dear Blackstone Investor,

We are pleased to present this annual shareholder report for Blackstone Alternative Investment Funds (“BAIF”) and its series, the Blackstone Alternative Multi-Strategy Fund (the “Fund”). This report includes portfolio commentary, a listing of the Fund’s investments and the Fund’s audited financial statements. Audited financial statements for the Fund cover the period from April 1, 2016 to March 31, 2017 (the “Reporting Period”).

The Fund’s investment objective is to seek capital appreciation. The Fund seeks this objective by allocating its assets among a variety of nontraditional, or “alternative,” investment strategies. Blackstone Alternative Investment Advisors LLC (the “Investment Adviser” or “BAIA”) determines the allocations of the Fund’s assets and allocates a majority of the Fund’s assets among investment sub-advisers with experience managing alternative investment strategies and among investment funds. Each discretionary sub-adviser is responsible for the day-to-day management of the Fund’s assets that the Investment Adviser allocates to it. Subject to oversight by the Board of Trustees, the Investment Adviser is responsible for making recommendations with respect to hiring, terminating and/or replacing the Fund’s investment sub-advisers, and it may also manage a portion of the Fund’s assets directly. In pursuing the Fund’s investment objective, the Fund seeks to maintain an investment portfolio with, on average, lower volatility relative to the broader equity markets, as measured by the S&P 500 Index.

Fund Performance¹

The Fund’s hedge fund strategies had a strong showing over the Reporting Period, with the Fund outperforming the broader hedge fund universe² by nearly 2%. As a result of our top-down asset allocation views, we reduced directional equity exposures and captured attractive opportunities in credit over the course of a turbulent 2016 and early 2017. Going into the rest of 2017 and 2018, we intend to continue to leverage our due diligence, risk management, and investment expertise from our 27 years’ experience in hedge fund investing to identify alternative investment strategies and investment sub-advisers that we believe may help the Fund achieve its objective.

During the Reporting Period, the Fund generated a cumulative return, net of fees and expenses, of 8.03%³ and realized an annualized volatility of 2.40%⁴ with a Sharpe ratio⁵ of 3.22. Over the same period, the HFRX Global Hedge Fund Index, a measure of hedge fund performance, returned 6.19%; the MSCI World Total Return Index, a measure of global equity market performance, returned 15.43%; the S&P 500 Index, a measure of U.S. equity market performance, returned 17.17%; and the Barclays Global Aggregate Bond Index, a measure of U.S. investment grade bond performance, returned -1.90%.

1

Table of Contents

Portfolio Managers

In keeping with its historical approach to team-based portfolio management, the Investment Adviser has designated each of the members of the BAIA Investment Committee as a portfolio manager of the Fund. Effective April 15, 2016⁶, the list of portfolio managers is as follows:

Portfolio Commentary

The fiscal year ended March 31, 2017 witnessed extraordinary political vicissitudes, both domestically and abroad, which roiled markets in the face of the unexpected. In June, Britons’ surprise ‘Brexit’ vote to leave the European Union shocked markets and sent the pound sterling tumbling to thirty-year lows. Just a few months later, after a gloves-off primary fight, Donald Trump upset Hillary Clinton in November’s U.S. Presidential election, which equity markets greeted with a strong rally well into the New Year as investors flocked to equities on high hopes of pro-growth policy coming out of the newly Republican Congress and White House. More recently, congressional Republicans bungled an attempt to scrap Barack Obama’s signature healthcare law, a sign that other growth-oriented policy initiatives—notably, tax reform—could prove considerably more challenging than initially expected. Meanwhile, back across the pond, Euro-skeptic rhetoric in the Dutch and French elections had investors on alert, as Brexit remains fresh in mind with Britain formally initiating divorce proceedings from the E.U. in March.

Amidst the political turmoil, the outlook for hedge fund strategies has improved, since geopolitical volatility and potential regulatory shifts may produce an attractive environment for active managers. In addition, 2016’s record passive investment inflows may afford active managers increasing opportunities to capture dislocations between market valuations and company fundamentals. In seeking capital appreciation over the fiscal year, the Fund both protected capital against the equity market’s downward moves and captured an increasing portion of the equity market’s upside: for the Reporting Period, the Fund experienced only 5% of the global equity market’s downside but benefitted from 18% of its upside.⁷ Indeed, for the most recent quarter, upside capture increased to 26% and downside capture dropped into negative territory, meaning that, on average, the Fund was up when stocks were down.

Over the Reporting Period, the Fund’s Equity strategies contributed positively to performance. While Equity Market Neutral sub-strategies faced headwinds in the first half of the fiscal year, the latter half proved considerably better. Sector-wise, short exposures in materials and telecom plus overweight positioning in underperforming financial exposure detracted from performance early in the year, offset to some degree by some positive alpha later from exposure to financials and healthcare. Over the last few months of the year, long technology exposure drove performance after having detracted earlier in the year on both the long and short side of the book. In the lead up to and aftermath of the U.S. presidential election, sector dispersion created opportunities for equity managers, with positive returns coming from materials, information technology, and healthcare sector exposures. Managed care exposures, however, retraced some gains in the

aftermath of the GOP’s failure to repeal and replace the Affordable Care Act. Overall, given the improving

2

Table of Contents

environment for alpha⁸ generation, we are optimistic that our equity managers are potentially well-positioned to capture opportunities as they arise.

Credit strategies contributed the most to the Fund’s positive returns over the Reporting Period, with all sub-strategies contributing positively to performance on the year. Asset-backed strategies experienced strong performance over the Reporting Period as a result of positive carry and higher mark-to-market moves. On the corporate credit side, market weakness early in the year due to excessive issuance, volatility, anticipated interest rate hikes, and slowing global growth caused redemptions and outflows in the market, which led to forced sales of attractive risk across the corporate credit spectrum. As we mentioned in last year’s letter, we were bullish on the opportunity for liquidity providers to capture excess spread, and our thesis paid off: over the first half of 2016, we roughly tripled the Fund’s allocation to corporate credit strategies, which performed quite well over the duration of the year. As the Federal Reserve raised interest rates twice over the second half of the Reporting Period, increased demand for floating rate credit instruments drove appreciation in tranches of collateralized loan obligations (CLOs). In addition, the Fund benefitted from a rally in government-sponsored enterprise credit risk transfer bonds⁹, exposure to which the Fund increased over the Reporting Period.

The Fund’s Multi-Asset strategies serve an important role in the portfolio on account of their historically lower correlations to traditional equity and credit markets and may offer diversification benefits to the overall portfolio. During the Reporting Period, Multi-Asset strategies collectively posted gains, with uncorrelated returns deriving from idiosyncratic exposures in emerging markets and market neutral quantitative exposures. Long sovereign and quasi-sovereign credit exposure to Greece, Venezuela, and Argentina drove gains largely due to positive local political and macroeconomic developments. The Fund also benefitted from the Mexican peso’s 11% rally in 2017, coming back from the lows it hit in the wake of President Trump’s election. Factor-based strategies had mixed performance on the year. A rally in momentum strategies early in the year gave way to weakness at the tail-end of 2016 as long U.S. Treasuries and short U.S. dollar exposures generated losses as the latter strengthened in the wake of the election; at the outset of 2017, however, strength among fixed income and FX value strategies concluded the fiscal year on a positive note. Looking ahead, we anticipate that continued geopolitical volatility may afford attractive opportunities to macro-focused strategies, which we continue to explore as we think about asset allocation over the coming year.

During the Reporting Period, the Investment Adviser terminated three sub-advisers¹⁰ to the Fund: Blackstone Senfina Advisors L.L.C. (Equity Hedge strategy), Rail-Splitter Capital Management, LLC (Equity Hedge strategy), and Wellington Management Company LLP (Equity Hedge strategy). Sub-adviser terminations are normal events in the Investment Adviser’s investment process and result from our dynamic top-down evaluation of the opportunity set for hedge fund strategies as well as the bottom-up evaluation of a manager’s ability to deliver alpha in a given environment. When done well, value may be generated by making the right top-down calls on which asset classes are attractive in a given environment and increasing the Fund’s exposure to those asset classes. For more information on the Fund’s sub-advisers, please refer to their profiles available on the Fund’s website.

Looking forward to the remainder of 2017 and into 2018, as the new Trump administration continues to take the reins in Washington, we expect to see elevated volatility and continued dispersion among stocks, sectors, and geographies. We anticipate that this diminishing correlation may provide active managers ample opportunities to pick winners and losers, thereby increasing the potential to generate alpha. However, as we have noted previously, we remain attuned to the possibility of a recession at some point in the coming year.

3

Table of Contents

The current economic expansion—the third longest since World War II—is approaching eight years, whereas the average period of U.S. economic expansion in the post-War period is five years and the longest expansion in U.S. history was ten years. In addition, over the past few months, there has been a divergence between ‘soft’ data—survey measures of consumer outlook—and ‘hard’ data—more concrete quantitative measures of economic health. While ‘soft data’ measures, such as the University of Michigan’s consumer sentiment metric and the Conference Board’s consumer confidence index, have spiked in recent months, ‘hard’ data metrics like retail consumer spending, home sales, and GDP have remained uninspiring, suggesting some discrepancy between consumer views and reality. Indeed, U.S. equities, which climbed higher since November’s U.S. presidential election, have dislocated from fundamentals as investors piled into the markets. With the S&P 500 trading at over 21x trailing twelve month earnings—almost five times more than the ten-year average of 16x—a market correction may be looming. Therefore, we remain cautious of equity beta¹¹, which we have lowered in the Fund over the fiscal year by reducing allocations to strategies with higher market directionality. As measured by our one-year beta to the MSCI World Total Return Index, we maintain low levels of directional equity risk at 0.13 in pursuit of our objective of capital appreciation.

We retain high conviction in the Fund’s sub-advisers and continue to manage the portfolio dynamically, allocating to strategies that we believe have attractive alpha generation potential in the current environment. In spite of uncertainty as to what the coming year may hold, we remain confident in investment strategies that are both diversified and hedged by nature and that offer alpha generation potential through security selection and strategic asset allocation.

We appreciate your choosing to invest with us, and we look forward to serving you for years to come.

Sincerely,

4

Table of Contents

Performance Summary

Performance quoted represents past performance, which may be higher or lower than current performance. Past performance is not indicative of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect taxes that an investor would pay on fund distributions or on the sale of fund shares. To obtain the most recent month-end performance, visit www.blackstone.com/bamsf.

Value of a $10,000 Investment Since Inception at Net Asset Value*

Cumulative Total Return

5

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Portfolio Information

March 31, 2017

See Notes to Consolidated Financial Statements.

6

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Portfolio Information (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

7

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Portfolio Information (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

8

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Portfolio Information (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

9

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Consolidated Schedule of Investments

March 31, 2017

See Notes to Consolidated Financial Statements.

10

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Consolidated Schedule of Investments (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

11

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Consolidated Schedule of Investments (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

12

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Consolidated Schedule of Investments (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

13

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Consolidated Schedule of Investments (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

14

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Consolidated Schedule of Investments (Continued)

March 31, 2017

See Notes to Consolidated Financial Statements.

15

Table of Contents

Blackstone Alternative Multi-Strategy Fund and Subsidiaries

Consolidated Schedule of Investments (Continued)

March 31, 2017