BlackRock has launched a new unlisted closed end fund. The BlackRock Hedge Fund Guided Portfolio Solution filed an initial registration statement on December 29, 2020, and followed up with an amended version on March 18, 2021. The SEC declared the fund effective on March 22. Let’s take at the new fund’s strategy and structure.
BlackRock Hedge Fund Guided Portfolio Solutions Investment Strategy
The objective of BlackRock Hedge Fund Guided Portfolio Solutions is to seek absolute and risk adjusted returns with low volatility, and low to moderate correlation to global markets, while preserving capital. The fund will invest in hedge funds managed by third party managers. It will invest across four main hedge fund strategies :Equity Hedge, Event Driven, Relative Value and Macro. BlackRock will vary allocations to these different strategies depending on market conditions and opportunities available. The underlying funds will typically have lockup periods, sometimes greater than one year. As a tender offer fund, BlackRock Guided Hedge Fund Portfolio Solutions plans to provide quarterly liquidity, although the board has discretion to change or suspend the repurchases. BlackRock Alternative Advisors will operate the investment committee that oversees manager research and makes investment decisions for the fund.
Funds of Hedge Funds strategies are one of the most popular subcategories in the unlisted closed end funds sector. There are currently over 30 active tender offer funds that invest in hedge funds.
BlackRock Hedge Fund Guided Portfolio Solutions has two share classes: Class A and Class I. Neither share class has any sales load. Class A Shares have a distribution and servicing fee of 0.75%. Class I shares do not have any distribution or servicing fees. Both share classes are subject to management fees of 0.55%, based on the fund’s net asset value. Since the fund invests in a portfolio of hedge funds, acquired fund fees will be a major component of overall costs borne by investors. The underlying hedge funds will have base management fees of 1%-3% of NAV per year, in addition to incentive fees of 10%-30% of fund profits. The prospectus estimates that acquired fund fees will be 5.14% per year in total.
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With more than $8 trillion in AUM, BlackRock is one of the largest asset managers in the world. It is a leader in the ETF business, but has recently been making aggressively expanding into alternative investments, including both private equity and hedge fund strategies.
BlackRock already has a track record of success in the unlisted closed end fund space. It has two other tender offer funds : BlackRock Multi-Sector Opportunities Trust, and the BlackRock Multi Sector Opportunities Trust Series I, with $142 million and $360 million in net assets, respectively. BlackRock also has two interval funds : the BlackRock Credit Strategies Fund, which has $175 million in net assets, and the BlackRock Enhanced Government Fund, which has $56 million.