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 811-23336
Variant Alternative Income Fund
(Exact name of registrant as specified in charter)
c/o UMB Fund Services, Inc.
235 West Galena Street
Milwaukee, WI 53212
(Address of principal executive offices) (Zip code)
Terrance P. Gallagher
235 West Galena Street
Milwaukee, WI 53212
(Name and address of agent for service)
registrant's telephone number, including area code: (414) 299-2270
Date of fiscal year end: April 30
Date of reporting period: April 30, 2022
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
(a) The Report to Shareholders is attached herewith.
VARIANT ALTERNATIVE INCOME FUND
Annual Report
For the Year Ended April 30, 2022
Variant Alternative Income Fund
Table of Contents
For the Year Ended April 30, 2022
Management Discussion of Fund Performance (Unaudited) | 2-3 |
Fund Performance (Unaudited) | 4 |
Report of Independent Registered Public Accounting Firm | 5 |
Schedule of Investments | 6-10 |
Portfolio Allocation (Unaudited) | 11 |
Statement of Assets and Liabilities | 12 |
Statement of Operations | 13 |
Statements of Changes in Shareholders’ Equity | 14-15 |
Statement of Cash Flows | 16 |
Financial Highlights | 17 |
Notes to Financial Statements | 18-34 |
Supplemental Information (Unaudited) | 35 |
Fund Management (Unaudited) | 36-38 |
Other Information (Unaudited) | 39-41 |
This report and the financial statements contained herein are provided for the general information of the shareholders of the Variant Alternative Income Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus.
1
Variant Alternative Income Fund
Management Discussion of Fund Performance (Unaudited)
Dear Shareholder,
Variant Investments, LLC (“Variant”) is pleased to provide the audited annual financial statements for the Variant Alternative Income Fund1 (the “Fund”) for the fiscal year that ended April 30, 2022.
This fiscal year included a period of heightened public market volatility generated by macroeconomic uncertainty and geopolitical tensions. We are pleased with the performance of the Fund during this challenging time.
Over the fiscal year, the institutional share class for the Fund (NICHX) delivered a net total return2 of +11.19%. The Fund’s performance benefited from broad diversification across varied underlying exposures. Investments in specialty finance, litigation finance and real estate equity had the greatest contribution to return over the fiscal year. There were some modest detractors to performance in individual months within trade finance and secondaries. We believe the performance compares favorably to many income-oriented risk assets over the same period. The Fund’s focus on private market niches with less economic sensitivity, as well as deal structures, which we believe have strong downside mitigation, supported investment results. We are also pleased with the Fund’s since inception track record3 which includes strong absolute returns, relatively low volatility and limited correlation4 or beta5 to public market indices.
During the fiscal year, the investor share class (UNIQX) was closed and shareholders were converted to the institutional share class on September 17, 2021.
Over the fiscal year, the Fund experienced strong growth in assets under management (“AUM”), increasing by $997 million to end the fiscal year at $1.844 billion. Also, the Fund was able to satisfy all quarterly redemption requests throughout the fiscal year without any proration. With both new and existing clients allocating to the Fund, the Fund’s investor base was further diversified.
New capital continued to be deployed into a wide variety of niche investment opportunities, further diversifying the Fund’s exposures. A complete listing of the Fund’s investments can be found in the Schedule of Investments.
On behalf of the entire Variant team, we thank you for your investment in the Fund. We are honored to be trusted stewards of your capital. We are excited about the year ahead and look forward to working with each of you.
Sincerely,
JB Hayes, Principal | Curt Fintel, Principal | Bob Elsasser, Principal |
1 | The Variant Alternative Income Fund (the “Fund”) is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as a non-diversified, closed-end management investment company. The Fund operates as an interval fund. The Fund operates under an Agreement and Declaration of Trust (“Declaration of Trust”) dated April 4, 2018 (the “Declaration of Trust”). Variant Investments, LLC serves as the investment adviser (the “Investment Manager”) of the Fund. The Investment Manager is an investment adviser registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. The Fund has elected to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”). |
2 | The net total return uses geometric returns and reflects the reinvestment of earnings. |
3 | Inception date is October 2, 2017. Between October 2017 and September 2018, the track record includes that of the Variant Alternative Income Fund LP, the predecessor private fund (the “Predecessor Fund”) that converted into the Fund. The Predecessor Fund was, in all material respects, equivalent to the interval fund. For purposes of performance reporting, the Predecessor Fund track record was adjusted to reflect the Fund’s estimated expenses and expense limitations. Specifically, it reflects a management fee of 0.95% and fund expenses capped at 0.50%. |
4 | “Correlation” is the performance relationship between the Fund and the reference indices on a monthly basis over the period. |
5 | “Beta” measures the volatility of the Fund relative to the reference indices over the period. |
2
Variant Alternative Income Fund
Management Discussion of Fund Performance (Unaudited)
(continued)
The Variant Alternative Income Fund is a continuously-offered, non-diversified, registered closed-end fund with limited liquidity. There is no guarantee the Fund will achieve its objective. An investment in the Fund should only be made by investors who understand the risks involved, who are able to withstand the loss of the entire amount invested and who can bear the risks associated with the limited liquidity of Shares. A prospective investor must meet the definition of “accredited investor” under Regulation D under the Securities Act of 1933.
Important Risks: Shares are an illiquid investment. You should generally not expect to be able to sell your Shares (other than through the repurchase process), regardless of how the Fund performs. Although the Fund is required to implement a Share repurchase program only a limited number of Shares will be eligible for repurchase by the Fund.
An investment in the Fund is speculative, involves substantial risks, including the risk that the entire amount invested may be lost, and should not constitute a complete investment program. The Fund may leverage its investments by borrowing, use of swap agreements, options or other derivative instruments. The Fund is a non-diversified management investment company, meaning it may be more susceptible to any single economic or regulatory occurrence than a diversified investment company. In addition, the fund is subject to investment related risks of the underlying funds in which it invests, and general economic and market condition risk.
Alternative investments provide limited liquidity and include, among other things, the risks inherent in investing in securities, futures, commodities and derivatives, using leverage and engaging in short sales. The Fund’s investment performance depends, at least in part, on how its assets are allocated and reallocated among asset classes and strategies. Such allocation could result in the Fund holding asset classes or investments that perform poorly or underperform. Investments and investment transactions are subject to various counterparty risks. The counterparties to transactions in over the-counter or “inter-dealer” markets are typically subject to lesser credit evaluation and regulatory oversight compared to members of “exchange-based” markets. This may increase the risk that a counterparty will not settle a transaction because of a credit or liquidity problem, thus causing the Fund to suffer losses. The Fund and its service providers may be prone to operational and information security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information, suffer data corruption, or lose operational capacity.
PANDEMIC RISK. The continuing spread of an infectious respiratory illness caused by a novel strain of coronavirus (known as COVID-19) has caused volatility, severe market dislocations and liquidity constraints in many markets, including securities the Fund holds, and may adversely affect the Fund’s investments and operations.
BEFORE INVESTING YOU SHOULD CAREFULLY CONSIDER THE FUND’S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. THIS AND OTHER INFORMATION IS IN THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED FROM (877) 770-7717 OR WWW.VARIANTINVESTMENTS.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
Foreside Fund Services, LLC, distributor.
3
Variant Alternative Income Fund
Fund Performance
April 30, 2022 (Unaudited)
Performance of a $1,000,000 Investment
This graph compares a hypothetical $1,000,000 investment in the Fund’s Institutional Class Shares with a similar investment in the Bloomberg U.S. Aggregate Bond Index. Results include the reinvestment of all dividends and capital gains. The index does not reflect expenses, fees, or sales charges, which would lower performance.
The Bloomberg U.S. Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment grade, taxable, fixed income securities in the United States - including government, corporate and international dollar denominated bonds as well as mortgage-backed and asset-backed securities, all with maturities of less than one year. The index is unmanaged and it is not available for investment.
Average Annual Total Returns as of April 30, 2022 | 1 Year | Since Inception | ||||||
Variant Alternative Income Fund (Inception Date October 1, 2018) | 11.19 | % | 9.92 | % | ||||
Bloomberg U.S. Aggregate Bond Index | -8.51 | % | 1.60 | % | ||||
The performance data quoted here represents past performance and past performance is not a guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information quoted. The most recent quarter end performance may be obtained by calling 1 (877) 770-7717.
The Expense Limitation and Reimbursement Agreement is in effect until October 31, 2022 and will automatically renew for consecutive one-year terms thereafter. This Agreement, however, may be terminated at any time by the Fund’s Board of Trustees.
Fund performance is shown net of fees. For the Fund’s current expense ratios, please refer to the Financial Highlights Section of this report.
Performance results include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
Returns reflect the reinvestment of distributions made by the Fund, if any. The graph and the performance table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
4
Variant Alternative Income Fund
Report of Independent Registered Public Accounting Firm
For the Year Ended April 30, 2022
To the Shareholders and Board of Trustees of
Variant Alternative Income Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Variant Alternative Income Fund (the “Fund”) as of April 30, 2022, the related statements of operations and cash flows for the year then ended, the statements of changes in shareholders’ equity for each of the two years in the period then ended, the related notes, and the financial highlights for each of the four periods in the period then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of April 30, 2022, the results of its operations and its cash flows for the year then ended, the changes in shareholders’ equity for each of the two years in the period then ended, and the financial highlights for each of the four periods in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of April 30, 2022, by correspondence with the custodian, brokers, participating lenders, and underlying fund administrators or managers; when replies were not received, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more investment companies advised by Variant Investments, LLC since 2018.
COHEN & COMPANY, LTD.
Chicago, Illinois
July 7, 2022
5
Variant Alternative Income Fund
Schedule of Investments
April 30, 2022
Investments in private investment companies — 27.0% | Shares/ | First | Cost | Fair Value | Percent of | |||||||||||||||
Litigation Finance | ||||||||||||||||||||
Equal Access Justice Fund LP (a)(f)(g) | — | 3/30/2021 | $ | 34,000,000 | $ | 35,255,854 | 1.9 | % | ||||||||||||
Series 4 - Virage Capital Partners LP (a)(f)(g) | — | 9/1/2018 | 1,119,449 | 1,707,838 | 0.1 | |||||||||||||||
Series 6 - Virage Capital Partners LP (a)(f)(g) | — | 10/31/2019 | 16,000,000 | 19,986,191 | 1.1 | |||||||||||||||
Virage Recovery Fund (Cayman) LP (a)(b)(i) | 3,828,921 | 8/6/2019 | 15,313,446 | 35,587,842 | 1.9 | |||||||||||||||
| 66,432,895 | 92,537,725 | 5.0 | ||||||||||||||||||
Portfolio Finance | ||||||||||||||||||||
Crestline Portfolio Financing Fund Offshore B, L.P. and Subsidiary (a)(f)(g) | — | 4/25/2018 | 662,077 | 871,211 | 0.0 | |||||||||||||||
Crestline Portfolio Financing Fund II (US), L.P. (a)(f)(g) | — | 8/26/2021 | 1,602,860 | 1,689,782 | 0.1 | |||||||||||||||
Crestline Praeter, L.P. - Zoom (a)(f)(g) | — | 12/26/2019 | 2,593,168 | 3,036,552 | 0.2 | |||||||||||||||
| 4,858,105 | 5,597,545 | 0.3 | ||||||||||||||||||
Real Estate Debt | ||||||||||||||||||||
Oak Harbor Capital NPL VII, LLC (a)(f)(g) | — | 3/1/2019 | 9,295,296 | 11,878,590 | 0.6 | |||||||||||||||
Quiet Credit I LLC (a)(f)(g) | — | 7/15/2021 | 6,250,000 | 6,250,000 | 0.3 | |||||||||||||||
Setpoint Residential Fintech Fund LP (a)(f)(g) | — | 2/4/2022 | 12,677,105 | 12,777,365 | 0.7 | |||||||||||||||
| 28,222,401 | 30,905,955 | 1.6 | ||||||||||||||||||
Real Estate Equity | ||||||||||||||||||||
ArrowMark Commercial Real Estate Partners, LLC (a)(f)(g) | — | 12/20/2021 | 10,000,000 | 10,601,233 | 0.6 | |||||||||||||||
Montreux Healthcare Fund PLC (a)(g) | 48,220 | 2/1/2018 | 66,291,144 | 75,203,111 | 4.1 | |||||||||||||||
Prime Storage Fund II (Cayman), LP (a)(f)(g) | — | 11/20/2017 | 996,147 | 1,324,824 | 0.1 | |||||||||||||||
| 77,287,291 | 87,129,168 | 4.8 | ||||||||||||||||||
Royalties | ||||||||||||||||||||
MEP Capital II LP (a)(f)(g) | — | 11/27/2020 | 8,499,826 | 9,087,597 | 0.5 | |||||||||||||||
MEP Capital II LP - Co-investment Sound Royalties (a)(f)(g) | — | 8/3/2021 | 2,000,000 | 2,183,355 | 0.1 | |||||||||||||||
MEP Capital III LP (a)(f)(g) | — | 11/1/2021 | 9,222,103 | 9,451,388 | 0.5 | |||||||||||||||
MEP Capital III LP - Co-investment Culture Works (a)(f)(g) | — | 11/3/2021 | 2,000,000 | 2,183,355 | 0.1 | |||||||||||||||
| 21,721,929 | 22,905,695 | 1.2 | ||||||||||||||||||
Secondaries | ||||||||||||||||||||
Armadillo Financial Fund LP (a)(f)(g) | — | 12/28/2018 | 55,955 | 8,424 | 0.0 | |||||||||||||||
CAMPBELL OPPORTUNITY TIMBER FUND-A, L.P. (a)(f)(g) | — | 11/1/2021 | 135,476 | 1,206,836 | 0.1 | |||||||||||||||
North Haven Offshore Infrastructure Partners A L.P. (a)(f)(g) | — | 7/18/2019 | 1,566,729 | 1,450,381 | 0.1 | |||||||||||||||
PWP Asset Based Income ASP Fund (a)(f)(g) | — | 3/29/2019 | 916,560 | 1,098,230 | 0.1 | |||||||||||||||
Taiga Special Opportunities LP (a)(f)(g) | 26,646,784 | 4/22/2022 | 20,700,548 | 26,170,929 | 1.4 | |||||||||||||||
Thor Urban Property Fund II Liquidating Trust (a)(g) | 35,695 | 12/30/2019 | 4,161,214 | 315,514 | 0.0 | |||||||||||||||
| 27,536,482 | 29,698,342 | 1.7 | ||||||||||||||||||
Specialty Finance | ||||||||||||||||||||
Blue Elephant Financing Fund I, L.P. (a)(f)(g) | — | 3/29/2019 | 926,461 | 372,378 | 0.0 | |||||||||||||||
CoVenture - Amzn Credit Opportunities Fund LP (a)(f)(g) | — | 3/11/2021 | 30,573,720 | 31,982,063 | 1.7 | |||||||||||||||
CoVenture Credit Opportunities Partners Fund LP (a)(f)(g) | — | 2/28/2020 | 20,000,000 | 20,825,159 | 1.1 | |||||||||||||||
CoVenture - No1 Credit Opportunities Fund LLC (A-2 Series) (a)(f)(g) | — | 2/5/2021 | 3,000,000 | 3,032,912 | 0.2 | |||||||||||||||
CoVenture - No1 Credit Opportunities Fund LLC (A-3 Series) (a)(f)(g) | — | 7/12/2021 | 7,500,000 | 7,572,257 | 0.4 | |||||||||||||||
CoVenture - No1 Credit Opportunities Fund LLC (a)(f)(g) | — | 12/12/2019 | 1,000,000 | 1,011,962 | 0.1 | |||||||||||||||
DelGatto Diamond Fund QP, LP (a)(f)(g) | — | 10/3/2019 | 18,750,000 | 22,495,098 | 1.2 | |||||||||||||||
OHPC LP Founders Class Interest 1.25% (a)(f)(g) | — | 5/27/2021 | 8,170,203 | 8,263,021 | 0.4 | |||||||||||||||
OHP II LP (a)(f)(g) | — | 3/7/2019 | 4,239,951 | 4,284,609 | 0.2 | |||||||||||||||
Silverpeak Special Situations Lending Onshore Fund LP (a)(f)(g) | — | 10/19/2021 | 3,830,240 | 4,202,065 | 0.2 | |||||||||||||||
Sound Point Discovery Fund LLC(a)(f)(g) | — | 3/31/2022 | 10,000,000 | 10,105,233 | 0.5 | |||||||||||||||
Turning Rock Fund I LP (a)(f)(g) | — | 11/29/2019 | 6,764,750 | 7,463,952 | 0.4 | |||||||||||||||
Turning Rock Fund II LP (a)(f)(g) | — | 12/29/2021 | 2,164,932 | 2,182,597 | 0.1 | |||||||||||||||
| 116,920,257 | 123,793,306 | 6.5 | ||||||||||||||||||
The accompanying notes are an integral part of these Financial Statements.
6
Variant Alternative Income Fund
Schedule of Investments
April 30, 2022 (continued)
Investments in private investment companies — 27.0% | Shares/ | First | Cost | Fair Value | Percent of | |||||||||||||||
Transportation Finance | ||||||||||||||||||||
Aero Capital Solutions Fund, LP (a)(f)(g) | — | 1/17/2019 | $ | 1,876,350 | $ | 1,966,050 | 0.1 | % | ||||||||||||
Aero Capital Solutions Fund II, LP (a)(f)(g) | — | 9/16/2019 | 40,196,149 | 48,778,500 | 2.6 | |||||||||||||||
Aero Capital Solutions Feeder Fund III, LP (a)(f)(g) | — | 9/13/2021 | 29,559,738 | 31,306,790 | 1.7 | |||||||||||||||
American Rivers Fund, LLC (a)(f)(g) | — | 5/2/2019 | 22,972,826 | 26,381,797 | 1.4 | |||||||||||||||
Hudson Transport Real Asset Fund LP (a)(f)(g) | — | 8/31/2018 | 1,294,390 | 1,593,284 | 0.1 | |||||||||||||||
| 95,899,453 | 110,026,421 | 5.9 | ||||||||||||||||||
Total investments in private investment companies | 438,878,813 | 503,146,129 | 27.0 | |||||||||||||||||
Investments in credit facilities — 51.2% | Principal | |||||||||||||||
Litigation Finance | ||||||||||||||||
C CUBED CAPITAL PARTNERS LLC, 14.0%, due 4/30/2025 (a)(b) | 4/18/2022 | 7,000,000 | 7,000,000 | 0.4 | ||||||||||||
Experity Ventures, LLC, 13.0%, due 11/4/2026 (a)(b) | 11/10/2021 | 12,071,002 | 12,071,002 | 0.7 | ||||||||||||
Kerberos Capital Management and SPV I, 17.0%, due 8/16/2024 (a)(b) | 12/29/2018 | 55,659,999 | 55,659,999 | 3.0 | ||||||||||||
Kerberos Capital Management and SPV - (Luckett), 19.0%, due 8/16/2024 (a)(b) | 1/29/2020 | 8,282,200 | 8,282,200 | 0.5 | ||||||||||||
Kerberos Capital Management SPV I LLC (Pulvers), 20.0%, due 8/16/2024 (a)(b) | 11/19/2020 | 10,729,963 | 10,729,963 | 0.6 | ||||||||||||
Legal Capital Products, LLC, 13.0%, due 10/7/2026 (a)(b) | 10/7/2021 | 10,568,608 | 10,568,608 | 0.6 | ||||||||||||
| 104,311,772 | 104,311,772 | 5.8 | ||||||||||||||
Portfolio Finance | ||||||||||||||||
BA Tech Master, LP, 19.5%, due 10/3/2023 (a)(b) | 10/2/2018 | 4,915,670 | 4,915,670 | 0.3 | ||||||||||||
Cirrix Finance, LLC, 15.0%, due 11/4/2022 (a)(b) | 11/4/2021 | 20,000,000 | 20,000,000 | 1.1 | ||||||||||||
Delgatto Diamond Finance Fund, L.P., 8.0%, due 5/26/2022 (a)(b) | 5/28/2021 | 55,500,000 | 55,500,000 | 3.0 | ||||||||||||
Fairway America Fund (VII and VIIQP) LP, 7.0%, due 7/1/2023 (a)(b) | 11/29/2019 | 7,500,000 | 7,500,000 | 0.4 | ||||||||||||
Stage Point Capital, LLC, 7.0%, due 5/1/2023 (a)(b) | 5/21/2019 | 13,000,000 | 13,000,000 | 0.7 | ||||||||||||
Viscogliosi Brothers, LLC, 15.0%, due 10/31/2023 (a)(b) | 10/27/2021 | 5,304,530 | 5,304,530 | 0.3 | ||||||||||||
| 106,220,200 | 106,220,200 | 5.8 | ||||||||||||||
Real Estate Debt | ||||||||||||||||
Arctic Fox Joint Stock Company, 12.81% due 11/24/2023 (a)(b) | 11/24/2021 | 720,000 | 720,000 | 0.0 | ||||||||||||
Drummond Ross Limited, 10.0%, due 8/10/2022 (a)(b) | 1/7/2022 | 4,071,203 | 3,800,186 | 0.2 | ||||||||||||
Pier Asset Management (Series 5), 15.0%, due 7/14/2023 (a)(b) | 4/27/2021 | 11,231,100 | 11,231,100 | 0.6 | ||||||||||||
TAILOR RIDGE CAPITAL MANAGEMENT, LLC, 9.0%, due 7/31/2023 (a)(b)(c) | 8/18/2021 | 1,725,000 | 1,725,000 | 0.1 | ||||||||||||
| 17,747,303 | 17,476,286 | 0.9 | ||||||||||||||
Royalties | ||||||||||||||||
ARC LPW I, LLC, 13.0%, due 11/30/2025 (a)(b) | 9/26/2019 | 84,707,496 | 84,707,496 | 4.6 | ||||||||||||
Specialty Finance | ||||||||||||||||
5 Core Capital LLC, 13.0%, due 9/30/2022 (a)(b) | 10/28/2020 | 6,232,150 | 6,232,150 | 0.3 | ||||||||||||
ACMV Factor Finance SPV LLC, 12.0%, due 11/8/2023 (a)(b) | 11/24/2021 | 8,485,000 | 8,485,000 | 0.5 | ||||||||||||
Advantech Servicios Financieros, 14.0%, due 8/13/2026 (a)(b) | 11/5/2020 | 11,515,000 | 11,515,000 | 0.6 | ||||||||||||
Aion Acquisition, LLC, 0.0%, due 6/30/2022 (a)(b) | 3/31/2021 | 1,283,622 | 309,109 | 0.0 | ||||||||||||
Aion Acquisition, LLC, 0.0%, due 3/31/2023 (a)(b) | 3/31/2021 | 538,513 | 359,863 | 0.0 | ||||||||||||
Art Lending, Inc. (Dart Milano S.R.L), 9.5%, due 7/14/2022 (a)(b) | 4/14/2021 | 12,154,496 | 12,154,496 | 0.7 | ||||||||||||
Art Lending, Inc. (Dart Milano S.R.L 2), 8.68%, due 12/20/2022 (a)(b) | 12/17/2021 | 13,957,126 | 13,957,126 | 0.8 | ||||||||||||
Art Lending, Inc. (Procacini S.L. - 1), 10.0%, due 8/31/2022 (a)(b) | 8/26/2020 | 2,430,956 | 2,430,956 | 0.1 | ||||||||||||
Art Lending, Inc. (Procacini S.L. - 2), 9.5%, due 7/14/2022 (a)(b) | 4/14/2021 | 4,047,827 | 4,047,827 | 0.2 | ||||||||||||
Art Money International, Co., 8.0%, due 12/9/2023 (a)(b) | 12/9/2019 | 435,000 | 435,000 | 0.0 | ||||||||||||
Art Money U.S., Inc., 12.0%, due 7/1/2023 (a)(b) | 6/12/2018 | 3,500,000 | 3,500,000 | 0.2 | ||||||||||||
AVISTA COLOMBIA S.A.S, 12.59%, due 3/29/2023 (a)(b) | 3/29/2021 | 5,600,000 | 5,600,000 | 0.3 | ||||||||||||
Bandon VAIF, LLC, 12.0%, due 1/31/2023 (a)(b) | 2/10/2020 | 6,050,384 | 3,647,939 | 0.2 | ||||||||||||
Bandon VAIF, LLC, 15.0%, due 1/24/2024 (a)(b) | 2/15/2022 | 52,000 | 52,000 | 0.0 | ||||||||||||
Bastion Funding IV LLC (Community Finance), 12.0%, due 12/31/2024 (a)(b) | 1/19/2022 | 5,064,292 | 5,064,292 | 0.3 | ||||||||||||
The accompanying notes are an integral part of these Financial Statements.
7
Variant Alternative Income Fund
Schedule of Investments
April 30, 2022 (continued)
Investments in credit facilities — 50.0% | First | Principal | Fair Value | Percent of | ||||||||||||
Specialty Finance (Continued) | ||||||||||||||||
Bastion Funding IV LLC (Expansion Capital Group), 11.00%, due 8/31/2024 (a)(b) | 1/19/2022 | $ | 9,400,000 | $ | 9,400,000 | 0.5 | % | |||||||||
Bastion Funding IV LLC (Kornerstone), 13.50%, due 7/15/2024 (a)(b) | 1/19/2022 | 6,146,000 | 6,146,000 | 0.3 | ||||||||||||
BPIIHR HOLDCO, LLC, 16.0%, due 10/28/2026 (a)(b) | 11/1/2021 | 2,020,000 | 2,020,000 | 0.1 | ||||||||||||
Byzfunder Funding, LLC, 13.50%, due 9/5/2023 (a)(b) | 10/22/2021 | 4,915,605 | 4,915,605 | 0.3 | ||||||||||||
Coromandel Credit Facility, 9.0%, due 7/1/2023 (a)(b) | 1/13/2020 | 44,846,000 | 44,846,000 | 2.4 | ||||||||||||
EDU Growth Capital Management PTE, Ltd., 12.5%, due 11/19/2023 (a)(b) | 4/27/2021 | 2,527,660 | 2,527,660 | 0.1 | ||||||||||||
Equity Link, S.A.P.I. De C.V., 10.0%, due 4/12/2024 (a)(b) | 4/29/2021 | 4,830,000 | 4,830,000 | 0.3 | ||||||||||||
First Class Securities Pty Ltd as trustee for the Oceana Australian Fixed Income Trust - 10.25%, due 4/15/2023 (a)(b) | 4/14/2021 | 7,652,000 | 7,205,010 | 0.4 | ||||||||||||
First Class Securities Pty Ltd as trustee for the Oceana Australian Fixed Income Trust - 11.25%, due 1/19/2023 (a)(b) | 1/20/2021 | 10,000,000 | 9,337,293 | 0.5 | ||||||||||||
First Class Securities Pty Ltd as trustee for the Oceana Australian Fixed Income Trust - 13.0%, due 11/9/2022 (a)(b) | 11/6/2020 | 30,000,000 | 29,828,094 | 1.6 | ||||||||||||
First Class Securities Pty Ltd as trustee for the Oceana Australian Fixed Income Trust - 12.5%, due 9/6/22 (a)(b) | 9/7/2021 | 10,000,000 | 9,463,755 | 0.5 | ||||||||||||
First Class Securities Pty Ltd as trustee for the Oceana Australian Fixed Income Trust - 12.0%, due 3/22/2024 (a)(b) | 3/21/2022 | 5,000,000 | 4,761,855 | 0.3 | ||||||||||||
Grupo Olinx, S.A.P.I. de C.V., SOFOM, E.N.R., 12.11%, due 2/22/2025 (a)(b) | 8/12/2021 | 9,500,000 | 9,500,000 | 0.5 | ||||||||||||
Hash Maps Labs, Inc., 12.0%, due 3/31/2024 (a)(b) | 3/23/2021 | 2,474,447 | 2,474,447 | 0.1 | ||||||||||||
KY LAN ASSET FINANCE 1, 9.5%, due 1/26/2024 (a)(b) | 1/26/2022 | 8,175,727 | 8,175,727 | 0.4 | ||||||||||||
Lambda School II SPV LLC, 12.0%, due 10/25/2025 (a)(b) | 10/19/2020 | 457,473 | 457,473 | 0.0 | ||||||||||||
Lambda School III SPV LLC, 12.0%, due 5/17/2024 (a)(b) | 6/18/2021 | 2,289,833 | 2,289,833 | 0.1 | ||||||||||||
LCA Crackpital, S.A.P.I. de C.V. SOFOM, E.N.R., 15.25%, due 4/21/2023 (a)(b) | 4/21/2021 | 3,500,086 | 3,500,086 | 0.2 | ||||||||||||
Lendable Asset Management LLC (Payjoy), 14.5%, due 11/25/2024 (a)(b) | 1/13/2021 | 5,000,000 | 5,000,000 | 0.3 | ||||||||||||
Lendable Asset Management LLC (Terrapay), 10.75%, due 12/26/2024 (a)(b) | 1/10/2022 | 5,000,000 | 5,000,000 | 0.3 | ||||||||||||
MARINE STREET, L.P., 9.0%, due 1/31/2026 (a)(b) | 3/22/2022 | 17,780,916 | 17,780,916 | 1.0 | ||||||||||||
Pier Asset Management LLC, (Series 6), 14.5%, due 2/17/2024 (a)(b) | 2/9/2022 | 18,013,052 | 18,013,052 | 1.0 | ||||||||||||
PT Awan Tunai Indonesia, 11.93%, due 5/19/2023 (a)(b) | 9/9/2020 | 11,500,200 | 11,500,200 | 0.6 | ||||||||||||
PT SOLUSI DIGITAL INTERASIA, 9.3%, due 10/23/2022 (a)(b) | 11/11/2020 | 3,800,000 | 3,800,000 | 0.2 | ||||||||||||
RAINFOREST LIFE PTE. LTD., 14.0%, due 8/20/2024 (a)(b) | 8/20/2021 | 12,337,793 | 12,337,793 | 0.7 | ||||||||||||
RIVONIA ROAD FUND LP, 11.0% + LIBOR (3% Floor), due 10/28/2023 (a)(b)(c) | 11/12/2021 | 1,922,851 | 1,922,851 | 0.1 | ||||||||||||
RKB Bridge Solutions Credit Facility, SOFR + 6.75%, due 12/10/2022 (a)(b)(c) | 12/13/2019 | 22,235,000 | 22,235,000 | 1.2 | ||||||||||||
RKB Bridge Solutions Credit Facility, 7.75%, due 3/31/2025 (a)(b) | 4/21/2022 | 1,170,000 | 1,170,000 | 0.1 | ||||||||||||
Salaryo Credit Facility, 11.0%, due 4/15/2023 (a)(b) | 1/30/2020 | 5,000,000 | 5,000,000 | 0.3 | ||||||||||||
Star Strong Capital, 9.0%, due 1/24/2025 (a)(b) | 8/9/2019 | 73,996,207 | 73,996,207 | 4.0 | ||||||||||||
Star Strong Funding LLC, 8.0%, due 12/31/2023 (a)(b) | 2/4/2022 | 697,418 | 697,418 | 0.0 | ||||||||||||
STAT CAPITAL SPV LLC, 10.75%, due 4/28/2026 (a)(b) | 4/29/2022 | 2,000,000 | 2,000,000 | 0.1 | ||||||||||||
TCM Produce LLC, 16.0%, due 10/15/2022 (a)(b) | 5/19/2021 | 10,295,000 | 10,295,000 | 0.6 | ||||||||||||
Vantage Borrower SPV I LLC, 12.0%, due 4/30/2024 (a)(b) | 9/11/2020 | 3,000,000 | 3,000,000 | 0.2 | ||||||||||||
Wall St. Funding, 13.0%, due 8/18/2022 (a)(b) | 5/7/2021 | 8,095,084 | 8,095,084 | 0.4 | ||||||||||||
Watu Holdings Ltd, 13.0%, due 5/7/2024 (a)(b) | 4/11/2022 | 10,000,000 | 10,000,000 | 0.5 | ||||||||||||
| 456,924,718 | 451,313,117 | 24.4 | ||||||||||||||
Trade Finance | ||||||||||||||||
Drip Trade Finance Series 2020-L, 7.0%, due 6/30/2022 (a)(b) | 7/30/2020 | 1,000,000 | 1,000,000 | 0.1 | ||||||||||||
Drip Trade Finance Series 2020-P, 7.0%, due 8/28/2022 (a)(b) | 8/28/2020 | 2,000,000 | 2,000,000 | 0.1 | ||||||||||||
Drip Trade Finance Series 2020-W, 7.0%, due 11/1/2022 (a)(b) | 10/30/2020 | 1,000,000 | 1,000,000 | 0.1 | ||||||||||||
Drip Trade Finance Series 2022-D, 7.0%, due 8/15/2022 (a)(b) | 2/14/2022 | 5,000,000 | 5,000,000 | 0.3 | ||||||||||||
MEDTRADE CAPITAL, LLC, 0.0%, due 7/31/2025(a)(b) | 4/30/2022 | 93,172,534 | 93,172,534 | 5.0 | ||||||||||||
Octagon Asset Management, LLC - (Deal: Tru Grit 7), 24.0%, due 9/30/2022 (a)(b) | 3/9/2021 | 20,714,501 | 20,714,501 | 1.1 | ||||||||||||
| 122,887,035 | 122,887,035 | 6.7 | ||||||||||||||
The accompanying notes are an integral part of these Financial Statements.
8
Variant Alternative Income Fund
Schedule of Investments
April 30, 2022 (continued)
Investments in credit facilities — 51.2% | First | Principal | Fair Value | Percent of | ||||||||||||
Warehouse Facilities | ||||||||||||||||
Edly WH Investors 2019-1, LLC, 12.0%, due 12/4/2023 (a)(b)(d) | 10/9/2019 | $ | 2,454,423 | $ | 2,454,423 | 0.1 | % | |||||||||
Homelight Homes Real Estate, LLC, 12.0%, due 2/28/2023 (a)(b) | 10/8/2020 | 37,801,382 | 37,801,382 | 2.0 | ||||||||||||
Rivonia Road Accept, LLC, 8.0%, due 11/12/2022 (a)(b) | 2/5/2021 | 6,172,202 | 6,172,202 | 0.3 | ||||||||||||
| 46,428,007 | 46,428,007 | 2.4 | ||||||||||||||
Total investments in credit facilities | 939,226,532 | 933,343,913 | 51.2 | |||||||||||||
Investments in special purpose vehicles — 12.3% | Shares/ | Cost | ||||||||||||||||||
Litigation Finance | ||||||||||||||||||||
YS CF LawFF VII LLC (a)(b) | — | 4/5/2018 | 500,000 | 500,000 | 0.0 | |||||||||||||||
Real Estate Debt | ||||||||||||||||||||
Monticello Funding, LLC Series BTH-3 (a)(f)(g) | — | 6/29/2018 | 619,612 | 619,612 | 0.0 | |||||||||||||||
Monticello Funding, LLC Series BTH-31 (a)(f)(g) | — | 5/29/2019 | 664,422 | 664,422 | 0.0 | |||||||||||||||
Monticello Funding, LLC Series BTH-47 (a)(f)(g) | — | 12/22/2020 | 3,000,000 | 3,000,000 | 0.2 | |||||||||||||||
Monticello Funding, LLC Series BTH-48 (a)(f)(g) | — | 7/23/2021 | 2,250,000 | 2,250,000 | 0.1 | |||||||||||||||
Monticello Funding, LLC Series BTH-49 (a)(f)(g) | — | 8/16/2021 | 592,105 | 592,105 | 0.0 | |||||||||||||||
Monticello Funding, LLC Series BTH-54 (a)(f)(g) | — | 12/17/2021 | 1,990,161 | 1,990,161 | 0.1 | |||||||||||||||
Monticello Funding, LLC Series BTH-55 (a)(f)(g) | — | 12/17/2021 | 2,500,000 | 2,500,000 | 0.1 | |||||||||||||||
Monticello Funding, LLC Series BTH-56 (a)(f)(g) | — | 12/17/2021 | 7,333,857 | 7,333,857 | 0.4 | |||||||||||||||
Monticello Structured Products, LLC Series MSP-17 (a)(f)(g) | — | 12/13/2021 | 2,000,000 | 2,000,000 | 0.1 | |||||||||||||||
Monticello Structured Products, LLC Series SH-52 (a)(f)(g) | — | 3/30/2022 | 1,500,000 | 1,498,864 | 0.1 | |||||||||||||||
| 22,450,157 | 22,449,021 | 1.1 | ||||||||||||||||||
Real Estate Equity | ||||||||||||||||||||
CDMX DEBT FUND, LLC (a)(f)(g) | — | 4/25/2022 | 28,540,178 | 28,406,286 | 1.5 | |||||||||||||||
CMF II Portfolio East Bridge, LLC (a)(f) | — | 2/15/2022 | 20,000,000 | 20,893,151 | 1.1 | |||||||||||||||
CMF III Gates Portfolio, LLC (a)(f) | — | 2/25/2022 | 12,388,000 | 12,527,299 | 0.7 | |||||||||||||||
CX Alexandria Depositor, LLC (a)(f) | — | 10/22/2021 | 125,250 | 127,913 | 0.0 | |||||||||||||||
CX Cypress McKinney Falls Depositor, LLC (a)(f) | — | 11/24/2021 | 8,850,000 | 9,480,896 | 0.5 | |||||||||||||||
CX Foundry Yards Depositor, LLC (a)(f) | — | 2/11/2022 | 4,413,500 | 4,474,634 | 0.2 | |||||||||||||||
CX Heritage Depositor, LLC (a)(f) | — | 9/15/2021 | 225,000 | 228,506 | 0.0 | |||||||||||||||
CX Ravella at Town Center Depositor, LLC (a)(f) | — | 2/25/2022 | 5,307,500 | 5,358,546 | 0.3 | |||||||||||||||
CX Riverstone Depositor, LLC (a)(f) | — | 9/15/2021 | 260,000 | 267,384 | 0.0 | |||||||||||||||
CX Station at Clift Farm Depositor, LLC (a)(f) | — | 12/27/2021 | 11,800,000 | 12,520,931 | 0.7 | |||||||||||||||
| 91,909,428 | 94,285,546 | 5.0 | ||||||||||||||||||
Royalties | ||||||||||||||||||||
Round Hill Music Carlin Coinvest, LP (e)(f)(g) | — | 10/1/2017 | 929,104 | 1,113,152 | 0.1 | |||||||||||||||
Specialty Finance | ||||||||||||||||||||
Cirrix Investments, LLC (a)(f)(g) | — | 1/27/2022 | 5,000,000 | 5,237,265 | 0.3 | |||||||||||||||
CoVenture - Clearbanc Special Assets Fund LP (a)(f)(g) | — | 3/12/2019 | 1,500,000 | 1,512,929 | 0.1 | |||||||||||||||
PSC US BADGER LLC (a)(f)(g) | — | 10/20/2021 | 14,241,078 | 14,320,219 | 0.8 | |||||||||||||||
Segregated Investment Vehicle I, SP (a segregated portfolio of Lendable SPC), 12.18% (a)(f)(g) | — | 7/31/2020 | 90,286,853 | 91,241,360 | 4.9 | |||||||||||||||
| 111,027,931 | 112,311,773 | 6.1 | ||||||||||||||||||
Transportation Finance | ||||||||||||||||||||
YS Vessel Deconstruction I (a)(b) | — | 8/26/2018 | 500,000 | 200,000 | 0.0 | |||||||||||||||
Total investments in special purpose vehicles | 227,316,621 | 230,859,492 | 12.3 | |||||||||||||||||
The accompanying notes are an integral part of these Financial Statements.
9
Variant Alternative Income Fund
Schedule of Investments
April 30, 2022 (continued)
Investments in direct equities — 0.2% | Shares/ | First | Cost | Fair Value | Percent of | ||||||||||||||
Royalties | |||||||||||||||||||
ARC LPW I, LLC Warrants, due 3/31/2024 (a)(b) | 3,063 | 10/3/2019 | $ | 0 | $ | 22,358 | 0.0 | % | |||||||||||
Specialty Finance | |||||||||||||||||||
Aion Financial - Equity (a)(b) | 219,220 | 3/31/2021 | 22 | 349,125 | 0.0 | ||||||||||||||
Art Lending, Inc. (Dart Milano Profit Share), due 12/20/2022 (a)(b) | — | 6/2/2021 | 0 | 25,413 | 0.0 | ||||||||||||||
Art Lending, Inc. (Dart Milano 2 Profit Share), due 4/7/2023 (a)(b) | — | 12/17/2021 | 0 | 124,618 | 0.0 | ||||||||||||||
Art Lending, Inc. (Procacini S.L. - 1 Profit Share), due 8/31/2022 (a)(b) | — | 8/26/2020 | 0 | 227,848 | 0.0 | ||||||||||||||
Art Lending, Inc. (Procacini S.L. - 2 Profit Share), due 4/7/2023 (a)(b) | — | 4/14/2021 | 0 | 373,097 | 0.0 | ||||||||||||||
Art Money International, Co. - Convertible Shares, due 12/9/2023 (a)(b) | — | 11/5/2021 | 0 | 59,661 | 0.0 | ||||||||||||||
Coromandel SPV LLC - Warrants, due 7/30/2022 (a)(b) | — | 9/8/2021 | 0 | 107,553 | 0.0 | ||||||||||||||
INTERNEX CAPITAL LLC (a)(b) | 359,701 | 4/1/2022 | 1,250,000 | 1,250,000 | 0.1 | ||||||||||||||
RAINFOREST LIFE PTE. LTD. - Warrants (a)(b) | 61,370 | 8/20/2021 | 0 | 106,200 | 0.0 | ||||||||||||||
STAR STRONG FUNDING LLC (a)(b) | — | 4/27/2022 | 348,000 | 348,000 | 0.0 | ||||||||||||||
Vantage Borrower SPV I LLC Warrants, due 4/30/2024 (a)(b) | 29,207 | 1/27/2021 | 0 | 1,391,903 | 0.1 | ||||||||||||||
| 1,598,022 | 4,363,418 | 0.2 | |||||||||||||||||
Trade Finance | |||||||||||||||||||
Octagon Asset Management, LLC - (Deal: Tru Grit 7) - Warrants, due 4/30/2022 (a)(b) | — | 5/18/2021 | 0 | 292,500 | 0.0 | ||||||||||||||
Total investments in direct equities | 1,598,022 | 4,678,276 | 0.2 | ||||||||||||||||
Investments in money market instruments — 6.9% | |||||||||||||||||||
GS Financial Square Government Fund, Institutional Shares, 0.29% (a)(h) | 128,750,098 | 128,750,098 | 128,750,098 | 6.9 | |||||||||||||||
Total investments in money market instruments | 128,750,098 | 128,750,098 | 6.9 | ||||||||||||||||
Total Investments (cost $1,735,770,085) | 1,800,777,908 | 97.6 | |||||||||||||||||
Other assets less liabilities | 56,488,288 | 2.4 | |||||||||||||||||
Net Assets | $1,857,266,196 | 100.0 | |||||||||||||||||
(a) | Security serves as collateral for the Fund’s revolving credit facility, when in use during the year. See Note 11. |
(b) | Value was determined using significant unobservable inputs. |
(c) | Variable rate security. |
(d) | Variable maturity dates maturing through 9/30/2023. |
(e) | 100% of this special purpose vehicle is invested in one music catalog. |
(f) | Private investment company or special purpose vehicle does not issue shares or units. |
(g) | Investment valued using net asset value per share (or its equivalent) as a practical expedient. See Note 13 for respective investment categories and redemptive restrictions. |
(h) | Rate listed is the 7-day effective yield at 4/30/2022. |
(i) | Private investment company is part of the MSPR SPAC. The Fund’s valuation is made up of its share of the SPAC plus a preferred return. |
FUTURES CONTRACTS | Expiration | Number of | Notional | Value at | Unrealized | |||||||||||||||
Foreign Exchange Futures | ||||||||||||||||||||
CME Australian Dollar | June 2022 | (883) | $ | (65,032,932 | ) | $ | (62,578,210 | ) | $ | 2,454,722 | ||||||||||
CME Euro Dollar | June 2022 | (30) | (4,140,869 | ) | (3,970,875 | ) | 169,994 | |||||||||||||
CME Mexican Peso | June 2022 | (1,178) | (28,856,935 | ) | (28,707,860 | ) | 149,075 | |||||||||||||
TOTAL FUTURES CONTRACTS | $ | (98,030,736 | ) | $ | (95,256,945 | ) | $ | 2,773,791 | ||||||||||||
The accompanying notes are an integral part of these Financial Statements.
10
Variant Alternative Income Fund
Portfolio Allocation (Unaudited)
April 30, 2022
Investment Type as a Percentage of Total Net Assets As Follows:
Security Type/Sector | Percent of | |||
Credit Facilities | 51.2 | % | ||
Private Investment Companies | 27.0 | % | ||
Special Purpose Vehicles | 12.3 | % | ||
Direct Equities | 0.2 | % | ||
Short-Term Investments | 6.9 | % | ||
Total Investments | 97.6 | % | ||
Other assets less liabilities | 2.4 | % | ||
Total Net Assets | 100.0 | % | ||
The accompanying notes are an integral part of these Financial Statements.
11
Variant Alternative Income Fund
Statement of Assets and Liabilities
April 30, 2022
Assets | ||||
Investments, at fair value (cost $1,735,770,085) | $ | 1,800,777,908 | ||
Unrealized appreciation on open futures contracts | 2,773,791 | |||
Cash | 1,558,598 | |||
Cash deposited with broker for futures contracts | 6,901,507 | |||
Receivable for Fund shares sold | 8,765,496 | |||
Receivable for investments sold | 6,210,025 | |||
Contributions paid in advance | 14,418,631 | |||
Interest receivable | 18,247,738 | |||
Prepaid expenses | 637,900 | |||
Total Assets | 1,860,291,594 | |||
Liabilities | ||||
Foreign currency due to broker, at value (proceeds $590) | 563 | |||
Due to Investment Manager | 1,393,416 | |||
Audit fees payable | 176,905 | |||
Accounting and administration fees payable | 109,918 | |||
SEC fees payable | 54,471 | |||
Custody fees payable | 12,332 | |||
Interest received not yet earned | 1,251,040 | |||
Other Liabilities | 26,753 | |||
Total Liabilities | 3,025,398 | |||
Net Assets | $ | 1,857,266,196 | ||
Components of Net Assets: | ||||
Paid-in Capital (par value of $0.01 with an unlimited amount of shares authorized) | $ | 1,758,050,843 | ||
Total distributable earnings | 99,215,353 | |||
Net Assets | $ | 1,857,266,196 | ||
Institutional Class Shares: | ||||
Net assets applicable to shares outstanding | $ | 1,857,266,196 | ||
Shares of beneficial interest issued and outstanding | 65,448,093 | |||
Net asset value per share | $ | 28.38 |
The accompanying notes are an integral part of these Financial Statements.
12
Variant Alternative Income Fund
Statement of Operations
For the Year Ended April 30, 2022
Investment Income | ||||
Interest (net of withholding taxes, $123,470) | $ | 79,672,319 | ||
Distributions from private investment funds and special purpose vehicles | 22,040,722 | |||
Total Investment Income | 101,713,041 | |||
Expenses | ||||
Investment management fees | 12,216,978 | |||
Accounting and administration fees | 1,022,283 | |||
Legal fees | 302,829 | |||
Transfer Agent fees | 198,801 | |||
Audit fees | 181,758 | |||
Custody fees | 98,119 | |||
Trustee fees | 63,250 | |||
Blue sky fees | 62,388 | |||
Insurance fees | 40,773 | |||
Chief Compliance Officer fees | 26,210 | |||
12b-1 fees | 3,262 | |||
Other expenses | 292,338 | |||
Total expenses | 14,508,989 | |||
Net Expenses, before revolving credit facility fees | 14,508,989 | |||
Revolving credit facility fees | 267,019 | |||
Net Expenses | 14,776,008 | |||
Net Investment Income | 86,937,033 | |||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments | 522,963 | |||
Futures contracts | 2,887,599 | |||
Foreign currency transactions | (239,690 | ) | ||
Capital gain distributions from private investment companies | 65,348 | |||
Net realized gain | 3,236,220 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 44,523,821 | |||
Foreign currency translations | (118,795 | ) | ||
Futures contracts | 2,578,546 | |||
Net change in unrealized appreciation (depreciation) | 46,983,572 | |||
Net realized and unrealized gain (loss) | 50,219,792 | |||
Net Increase in Net Assets resulting from Operations | $ | 137,156,825 |
The accompanying notes are an integral part of these Financial Statements.
13
Variant Alternative Income Fund
Statements of Changes in Shareholders’ Equity
For the | For the | |||||||
Increase (decrease) in Net Assets from: | ||||||||
Operations: | ||||||||
Net investment income | $ | 86,937,033 | $ | 35,806,727 | ||||
Net realized gain (loss) | 3,236,220 | (2,638,628 | ) | |||||
Net change in unrealized appreciation (depreciation) | 46,983,572 | 17,198,882 | ||||||
Net increase in net assets resulting from operations | 137,156,825 | 50,366,981 | ||||||
Distributions to Shareholders: | ||||||||
Distributions: | ||||||||
Institutional Class | (67,629,289 | ) | (21,822,499 | ) | ||||
Investor Class | (39,311 | ) | (86,089 | ) | ||||
From return of capital: | ||||||||
Institutional Class | (11,493,656 | ) | (13,246,095 | ) | ||||
Investor Class | (6,681 | ) | (59,549 | ) | ||||
Total distributions to shareholders | (79,168,937 | ) | (35,214,232 | ) | ||||
Capital Share Transactions: | ||||||||
Institutional Class Shares | ||||||||
Net proceeds from shares sold: | 1,013,005,180 | 500,962,754 | ||||||
Exchange from Investor Class: | 4,086,999 | — | ||||||
Reinvestment of distributions: | 16,594,573 | 6,201,223 | ||||||
Cost of shares repurchased: | (80,846,791 | ) | (53,720,257 | ) | ||||
Net increase in net assets from Institutional Class Shares capital transactions | 952,839,961 | 453,443,720 | ||||||
Investor Class Shares 1 | ||||||||
Net proceeds from shares sold: | 1,582,939 | 1,023,041 | ||||||
Exchange to Institutional Class | (4,086,999 | ) | — | |||||
Reinvestment of distributions: | 5,367 | 19,289 | ||||||
Cost of shares repurchased: | (291,152 | ) | (892,038 | ) | ||||
Net increase (decrease) in net assets from Investor Class Shares capital transactions | (2,789,845 | ) | 150,292 | |||||
Net increase in net assets resulting from capital transactions | 950,050,116 | 453,594,012 | ||||||
Total increase in net assets | 1,008,038,004 | 468,746,761 | ||||||
Net Assets: | ||||||||
Beginning of period | 849,228,192 | 380,481,431 | ||||||
End of period | $ | 1,857,266,196 | $ | 849,228,192 | ||||
1 | On September 17, 2021, Investor Class Shares were converted into Institutional Class Shares, and Investor Class Shares as a class of Shares of the Fund was terminated. |
The accompanying notes are an integral part of these Financial Statements.
14
Variant Alternative Income Fund
Statements of Changes in Shareholders’ Equity
(Continued)
For the | For the | |||||||
Share Transactions: | ||||||||
Institutional Class Shares | ||||||||
Issued | 36,317,834 | 18,800,786 | ||||||
Exchange from Investor Class | 145,429 | — | ||||||
Reinvested | 596,368 | 234,266 | ||||||
Repurchased | (2,863,603 | ) | (2,002,794 | ) | ||||
Change in Institutional Class Shares | 34,196,028 | 17,032,258 | ||||||
Investor Class Shares 1 | ||||||||
Issued | 57,269 | 38,221 | ||||||
Exchange to Institutional Class | (145,429 | ) | — | |||||
Reinvested | 196 | 731 | ||||||
Repurchased | (155,974 | ) | (33,184 | ) | ||||
Change in Investor Class Shares | (243,938 | ) | 5,768 | |||||
1 | On September 17, 2021, Investor Class Shares were converted into Institutional Class Shares, and Investor Class Shares as a class of Shares of the Fund was terminated. |
The accompanying notes are an integral part of these Financial Statements.
15
Variant Alternative Income Fund
Statement of Cash Flows
For the Year Ended April 30, 2022
Cash flows from operating activities: | ||||
Net Increase in net assets resulting from Operations | $ | 137,156,825 | ||
Adjustments to reconcile Net Increase in net assets resulting from | ||||
Operations to net cash used in operating activities: | ||||
Net realized (gain) loss on: | ||||
Investments | (522,963 | ) | ||
Futures contracts | (2,887,599 | ) | ||
Capital gain distributions from private investment companies | (65,348 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (44,523,821 | ) | ||
Futures contracts | (2,578,546 | ) | ||
Purchases of long-term investments | (1,349,191,516 | ) | ||
Proceeds from long-term investments sold | 466,142,297 | |||
Purchase of short-term investments, net | (56,845,927 | ) | ||
Changes in operating assets and liabilities: | ||||
Interest receivable | (5,979,378 | ) | ||
Investments sold | (3,058,788 | ) | ||
Prepaid expenses | (514,413 | ) | ||
Due to Investment Manager | 753,799 | |||
Audit fees payable | 19,905 | |||
Legal fees payable | (74,138 | ) | ||
Accounting and administration fees payable | 55,012 | |||
SEC fees | 54,471 | |||
Custody fees payable | 3,295 | |||
Chief Compliance Officer fees payable | (83 | ) | ||
Interest received not yet earned | (797,930 | ) | ||
Other liabilities | 8,050 | |||
Net cash used in operating activities | (862,846,796 | ) | ||
Cash flows from financing activities: | ||||
Proceeds from shares sold, net of receivable for fund shares sold | 1,010,655,589 | |||
Payments for shares repurchased | (81,137,943 | ) | ||
Distributions to shareholders, net of reinvestments | (62,568,997 | ) | ||
Net cash provided by financing activities | 866,948,649 | |||
Net Increase in Cash and Restricted Cash | 4,101,853 | |||
Cash and Restricted Cash: | ||||
Beginning of period | 4,358,252 | |||
End of period (a) | $ | 8,460,105 |
(a) | Cash and restricted cash include cash and cash deposited with broker for written options contracts and futures, as outlined further on the Statement of Assets and Liabilities. |
Supplemental disclosure of cash flow information:
Non-cash financing activities not included consist of reinvestment of dividends and distributions of $16,599,940.
The accompanying notes are an integral part of these Financial Statements.
16
Variant Alternative Income Fund
Financial Highlights
Institutional Class
Per share operating performance. For a capital share outstanding throughout each year/period. | ||||||||||||||||
For the | For the | For the | For the | |||||||||||||
Net asset value, beginning of year/period | $ | 26.96 | $ | 26.32 | $ | 25.79 | $ | 25.00 | ||||||||
Income from Investment Operations: | ||||||||||||||||
Net investment income2 | 1.89 | 1.66 | 1.33 | 0.97 | ||||||||||||
Net realized and unrealized gain (loss) | 1.21 | 0.59 | 0.79 | 0.69 | ||||||||||||
Total from investment operations | 3.10 | 2.25 | 2.12 | 1.66 | ||||||||||||
Less Distributions: | ||||||||||||||||
From net investment income | (1.43 | ) | (0.99 | ) | (1.59 | ) | (0.87 | ) | ||||||||
From return of capital | (0.25 | ) | (0.62 | ) | — | — | ||||||||||
From net realized gains | — | — | — | — | ||||||||||||
Total distributions | (1.68 | ) | (1.61 | ) | (1.59 | ) | (0.87 | ) | ||||||||
Net asset value, end of year/period | $ | 28.38 | $ | 26.96 | $ | 26.32 | $ | 25.79 | ||||||||
Total return 3 | 11.79 | % | 8.81 | % | 8.38 | % | 6.29 | %4 | ||||||||
Ratios and Supplemental Data: | ||||||||||||||||
Net assets, end of period (in thousands) | $ | 1,857,266 | $ | 846,571 | $ | 378,040 | $ | 62,603 | ||||||||
Ratio of expenses to average net assets: | ||||||||||||||||
(including interest and revolving credit facility expense) | ||||||||||||||||
Before fees waived/recovered 6 | 1.14 | % | 1.21 | % | 1.53 | % | 3.05 | %5 | ||||||||
After fees waived/recovered 6 | 1.14 | % | 1.28 | % | 1.50 | % | 1.60 | %5 | ||||||||
Ratio of expenses to average net assets: | ||||||||||||||||
(excluding interest and revolving credit facility expense) | ||||||||||||||||
Before fees waived/recovered 6 | 1.12 | % | 1.20 | % | 1.48 | % | 2.90 | %5 | ||||||||
After fees waived/recovered 6 | 1.12 | % | 1.27 | % | 1.45 | % | 1.45 | %5 | ||||||||
Ratio of net investment income to average net assets: | ||||||||||||||||
(including interest and revolving credit facility expense) | ||||||||||||||||
Before fees waived/recovered 6 | 6.75 | % | 6.28 | % | 4.96 | % | 5.13 | %5 | ||||||||
After fees waived/recovered 6 | 6.75 | % | 6.21 | % | 4.99 | % | 6.58 | %5 | ||||||||
Ratio of net investment income to average net assets: | ||||||||||||||||
(excluding interest and revolving credit facility expense) | ||||||||||||||||
Before fees waived/recovered 6 | 6.77 | % | 6.29 | % | 5.01 | % | 5.28 | %5 | ||||||||
After fees waived/recovered 6 | 6.77 | % | 6.22 | % | 5.04 | % | 6.73 | %5 | ||||||||
Portfolio turnover rate | 42 | % | 52 | % | 21 | % | 21 | %4 | ||||||||
Senior Securities | ||||||||||||||||
Total borrowings (000’s omitted) | — | — | — | — | ||||||||||||
Asset coverage per $1,000 unit of senior indebtness 7 | — | — | — | — | ||||||||||||
1 | For the period October 1, 2018 (commencement of operations) to April 30, 2019. See Note 12 “Reorganization Information” in the Notes to the Financial Statements. |
2 | Based on average shares outstanding for the period. |
3 | Total returns would have been lower had expenses not been waived by the Investment Manager. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
4 | Not annualized. |
5 | Annualized. |
6 | The expenses and net investment loss ratios include income or expenses of the private investment companies and special purpose vehicles valued at practical expedient in which the Fund invests. |
7 | Calculated by subtracting the Fund’s total liabilities (not including borrowings) from the Fund’s total assets and dividing this by the total number of senior indebtedness units, where one unit equals $1,000 of senior indebtedness. |
The accompanying notes are an integral part of these Financial Statements.
17
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022
1. Organization
The Variant Alternative Income Fund (the “Fund”) is a closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), and reorganized as a Delaware statutory trust at the close of business on September 28, 2018. Variant Investments, LLC serves as the investment adviser (the “Investment Manager”) of the Fund. The Fund operates as an interval fund pursuant to Rule 23c-3 under the Investment Company Act, and has adopted a fundamental policy to conduct quarterly repurchase offers at net asset value (“NAV”). The Fund commenced operations on October 1, 2018 with Institutional class shares. Investor class shares were offered at a later date and commenced operations on October 31, 2018. The Board of Trustees (“Board”) of the Fund approved the closure of the Fund’s Investor Class Shares to new investors effective August 27, 2021. On September 17, 2021, all Investor Class Shares of the Fund were converted into Institutional Class Shares, and Investor Class Shares as a class of Shares of the Fund was terminated.
The Fund’s investment objective is to seek to provide a high level of current income by investing, directly or indirectly, a majority of its net assets (plus any borrowings for investment purposes) in alternative income generating investments. The Fund may allocate its assets through direct investments, and investments in a wide range of investment vehicles.
2. Accounting Policies
Basis of Preparation and Use of Estimates
The Fund is an investment company and follows the accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from these estimates.
Investment Transactions and Related Investment Income
Investment transactions are accounted for on a trade-date basis. Realized gains and losses on investment transactions are determined using cost calculated on a specific identification basis. Dividends are recorded on the ex-dividend date and interest is recognized on an accrual basis. Distributions from private investments that represent returns of capital in excess of cumulative profits and losses are credited to investment cost rather than investment income.
Distributions to Shareholders
Distributions are paid at least quarterly on the Shares in amounts representing substantially all of the Fund’s net investment income, if any, earned each year. The Fund determines annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses (including capital loss carryover); however, it may distribute any excess annually to its shareholders. Distributions to shareholders are recorded on the ex-dividend date.
The exact amount of distributable income for each fiscal year can only be determined at the end of the Fund’s tax year. Under Section 19 of the Investment Company Act, the Fund is required to indicate the sources of certain distributions to shareholders. The estimated distribution composition may vary from quarter to quarter because it may be materially impacted by future income, expenses and realized gains and losses on securities and fluctuations in the value of the currencies in which Fund assets are denominated.
Valuation of Investments
The Fund calculates its NAV as of the close of business on each business day and at such other times as the Board may determine, including in connection with repurchases of Shares, in accordance with the procedures described below or as may be determined from time to time in accordance with policies established by the Board.
The Board has approved valuation procedures for the Fund (the “Valuation Procedures”). The Valuation Procedures provide that the Fund will value its investments at fair value. The Board has delegated the day to day responsibility for determining these fair values in accordance with the policies it has approved to the Investment Manager. The Investment Manager’s Valuation Committee (the “Valuation Committee”) will oversee the valuation of the Fund’s investments on behalf of the Fund. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly.
18
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
2. Accounting Policies (continued)
Short-term securities, including bonds, notes, debentures and other debt securities, such as certificates of deposit, commercial paper, bankers’ acceptances and obligations of domestic and foreign banks, with maturities of 60 days or less, for which reliable market quotations are readily available shall each be valued at current market quotations as provided by an independent pricing service or principal market maker. Money market funds will be valued at NAV.
For equity, equity related securities, and options that are freely tradable and listed on a securities exchange or over-the- counter market, the Fund fair values those securities at their last sale price on that exchange or over-the-counter market on the valuation date. If the security is listed on more than one exchange, the Fund will use the price from the exchange that it considers to be the principal exchange on which the security is traded. Securities listed on the NASDAQ will be valued at the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. If there has been no sale on such exchange or over-the-counter market on such day, the security will be valued at the mean between the last bid price and last ask price on such day.
Any direct equities held by the Fund in private investment or operating companies are valued using (a) readily available market quotations or (b) market value for securities with similar characteristics or (c) fair value methodologies approved by the Board in a manner that seeks to reflect the market value of the security on the valuation date based on considerations determined by the Valuation Committee.
Fixed income securities (other than the short-term securities as described above) shall be valued by (a) using readily available market quotations based upon the last updated sale price or a market value from an approved pricing service generated by a pricing matrix based upon yield data for securities with similar characteristics or (b) by obtaining a direct written broker- dealer quotation from a dealer who has made a market in the security. If no price is obtained for a security in accordance with the foregoing, because either an external price is not readily available or such external price is believed by the Investment Manager not to reflect the market value, the Valuation Committee will make a determination in good faith of the fair value of the security in accordance with the Valuation Procedures. The credit facilities the Fund invests in generally do not have a readily available external price. Under these circumstances, the Valuation Committee determines in good faith that cost is the best fair value for such securities. In general, fair value represents a good faith approximation of the current value of an asset and will be used when there is no public market or possibly no market at all for the asset. The fair values of one or more assets may not be the prices at which those assets are ultimately sold and the differences may be significant.
Prior to investing in any private investment companies or special purpose vehicles (“Underlying Fund(s)”), the Investment Manager will conduct an initial due diligence review of the valuation methodologies utilized by the Underlying Fund, which generally shall be based upon readily observable market values when available, and otherwise utilize principles of fair value that are reasonably consistent with those used by the Fund for valuing its own investments. Subsequent to investment in an Underlying Fund, the Investment Manager will monitor the valuation methodologies used by each Underlying Fund. The Fund values its interests in Underlying Funds using the NAV provided by the managers of the Underlying Funds and/or their agents. These valuations involve significant judgment by the managers of the Underlying Funds and may differ from their actual realizable value. Under certain circumstances, the Valuation Committee may modify the managers’ valuations based on updated information received since the last valuation date. The Valuation Committee may also modify valuations if the valuations are deemed to not fully reflect the fair value of the investment. Valuations will be provided to the Fund based on interim unaudited financial records of the Underlying Funds, and, therefore, will be estimates and may fluctuate as a result. The Board, the Investment Manager and the Valuation Committee may have limited ability to assess the accuracy of these valuations.
In circumstances in which market quotations are not readily available or are deemed unreliable, or in the case of the valuation of private, direct investments, such investments may be valued as determined in good faith using methodologies approved by the Board. In these circumstances, the Fund determines fair value in a manner that seeks to reflect the market value of the security on the valuation date based on consideration by the Valuation Committee of any information or factors deemed appropriate. The Valuation Committee may engage third party valuation consultants on an as-needed basis to assist in determining fair value.
Fair valuation involves subjective judgments, and there is no single standard for determining the fair value of an investment. The fair value determined for an investment may differ materially from the value that could be realized upon the sale of the investment. Fair values used to determine the Fund’s NAV may differ from quoted or published prices, or from prices that are used by others, for the same investment. Thus, fair valuation may have an unintended dilutive or accretive effect on the value of shareholders’ investments in the Fund. Information that becomes known to the Fund or its agents after the NAV has been calculated on a particular day will not be used to retroactively adjust the price of a security or the NAV determined
19
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
2. Accounting Policies (continued)
earlier. Prospective investors should be aware that situations involving uncertainties as to the value of investments could have an adverse effect on the Fund’s NAV if the judgments of the Board or the Valuation Committee regarding appropriate valuations should prove incorrect.
Written Options
The Fund may write call and put options. Writing put options tends to increase the Fund’s exposure to the underlying instrument. Writing call options tends to decrease the Fund’s exposure to the underlying instrument. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked-to-market to reflect the current value of the option written. These liabilities are reflected as written options outstanding in the Schedule of Investments. Payments received or made, if any, from writing options with premiums to be determined on a future date are reflected as such in the Schedule of Investments. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or closed are added to the proceeds or offset against amounts paid on the underlying future, security or currency transaction to determine the realized gain or loss. The Fund, as a writer of an option, has no control over whether the underlying future, security or currency may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the security underlying the written option. The risk exists that the Fund may not be able to enter into a closing transaction because of an illiquid market.
Futures
The Fund may enter into futures contracts in U.S. domestic markets or on exchanges located outside the United States. Foreign markets may offer advantages such as trading opportunities or arbitrage possibilities not available in the United States. Foreign markets, however, may have greater risk potential than domestic markets. For example, some foreign exchanges are principal markets so that no common clearing facility exists and an investor may look only to the broker for performance of the contract. In addition, any profits that might be realized in trading could be eliminated by adverse changes in the exchange rate, or a loss could be incurred as a result of those changes. Transactions on foreign exchanges may include both commodities which are traded on domestic exchanges and those which are not. Unlike trading on domestic commodity exchanges, trading on foreign commodity exchanges is not regulated by the Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss, which could adversely affect the value of the Fund’s net assets. No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting the Fund to substantial losses.
Federal Income Taxes
The Fund intends to continue to qualify as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund utilizes a tax-year end of October 31 and the Fund’s income and federal excise tax returns and all financial records supporting the 2020 and 2021 returns are subject to examination by the federal and Delaware revenue authorities. If so qualified, the Fund will not be subject to federal income tax to the extent it distributes substantially all of its net investment income and capital gains to shareholders. Therefore, no federal income tax provision is required. Management of the Fund is required to determine whether a tax position taken by the Fund is more likely than not to be sustained upon examination by the applicable taxing authority, based on the technical merits of the position. Based on its analysis, there were no tax positions identified by management of the Fund which did not meet the “more likely than not” standard as of April 30, 2022.
3. Principal Risks
Indemnifications
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund’s maximum exposure under these agreements is dependent on future claims that may be made against the Fund, and therefore cannot be established; however, the risk of loss from such claims is considered remote.
20
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
3. Principal Risks (continued)
Borrowing, Use of Leverage
The Fund may leverage its investments by “borrowing,” use of swap agreements, options or other derivative instruments, use of short sales or issuing preferred stock or preferred debt. The use of leverage increases both risk and profit potential. The Fund expects that under normal business conditions it will utilize a combination of the leverage methods described above. The Fund is subject to the Investment Company Act requirement that an investment company limit its borrowings to no more than 50% of its total assets for preferred stock or preferred debt and 33 1/3% of its total assets for debt securities, including amounts borrowed, measured at the time the investment company incurs the indebtedness. Although leverage may increase profits, it exposes the Fund to credit risk, greater market risks and higher current expenses. The effect of leverage with respect to any investment in a market that moves adversely to such investment could result in a loss to the investment portfolio of the Fund that would be substantially greater than if the investment were not leveraged. Also, access to leverage and financing could be impaired by many factors, including market forces or regulatory changes, and there can be no assurance that the Fund will be able to secure or maintain adequate leverage or financing. The ability of the Fund to transact business with any one or number of counterparties, the lack of any independent evaluation of such counterparties’ financial capabilities and the absence of a regulated market to facilitate settlement may increase the potential for losses by the Fund.
Margin borrowings and transactions involving forwards, swaps, futures, options and other derivative instruments could result in certain additional risks to the Fund. In such transactions, counterparties and lenders will likely require the Fund to post collateral to support its obligations. Should the securities and other assets pledged as collateral decline in value or should brokers increase their maintenance margin requirements (i.e., reduce the percentage of a position that can be financed), the Fund could be subject to a “margin call,” pursuant to which it must either deposit additional funds with the broker or suffer mandatory liquidation of the pledged assets to compensate for the decline in value. In the event of a precipitous drop in the value of pledged securities, the Fund might not be able to liquidate assets quickly enough to pay off the margin debt or provide additional collateral and may suffer mandatory liquidation of positions in a declining market at relatively low prices, thereby incurring substantial losses.
Limited Liquidity
Shares in the Fund provide limited liquidity since Shareholders will not be able to redeem Shares on a daily basis. A Shareholder may not be able to tender its Shares in the Fund promptly after it has made a decision to do so. There is no assurance that you will be able to tender your Shares when or in the amount that you desire. In addition, with very limited exceptions, Shares are not transferable, and liquidity will be provided only through repurchase offers made quarterly by the Fund. Shares in the Fund are therefore suitable only for investors who can bear the risks associated with the limited liquidity of Shares and should be viewed as a long-term investment.
Non-Diversified Status
The Fund is a “non-diversified” management investment company. Thus, there are no percentage limitations imposed by the Investment Company Act on the Fund’s assets that may be invested, directly or indirectly, in the securities of any one issuer. Consequently, if one or more securities are allocated a relatively large percentage of the Fund’s assets, losses suffered by such securities could result in a higher reduction in the Fund’s capital than if such capital had been more proportionately allocated among a larger number of securities. The Fund may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.
Private Markets Risk
The securities in which the Fund, directly or indirectly, may invest include privately issued securities of both public and private companies. Private securities have additional risk considerations than investments in comparable public investments. Whenever the Fund invests in companies that do not publicly report financial and other material information, it assumes a greater degree of investment risk and reliance upon the Investment Manager’s ability to obtain and evaluate applicable information concerning such companies’ creditworthiness and other investment considerations. Certain private securities may be illiquid. Because there is often no readily available trading market for private securities, the Fund may not be able to readily dispose of such investments at prices that approximate those at which the Fund could sell them if they were more widely traded. Private securities that are debt securities generally are of below-investment grade quality, frequently are unrated and present many of the same risks as investing in below-investment grade public debt securities. Investing in private debt instruments is a highly specialized investment practice that depends more heavily on independent credit analysis than investments in other types of obligations.
21
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
3. Principal Risks (continued)
Repurchase Offers
The Fund is a closed-end investment company structured as an “interval fund” and, as such, has adopted a fundamental policy to make quarterly repurchase offers, at per-class NAV, of not less than 5% of the Fund’s outstanding Shares on the repurchase request deadline. The Fund will offer to purchase only a small portion of its Shares each quarter, and there is no guarantee that Shareholders will be able to sell all of the Shares that they desire to sell in any particular repurchase offer. Under current regulations, such offers must be for not less than 5% nor more than 25% of the Fund’s Shares outstanding on the repurchase request deadline. If a repurchase offer is oversubscribed, the Fund may repurchase only a pro rata portion of the Shares tendered by each Shareholder. The potential for proration may cause some investors to tender more Shares for repurchase than they wish to have repurchased.
Coronavirus (COVID-19)
In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. COVID-19 and its variants have caused the closing of international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. Although vaccines for COVID-19 are more widely available, it is unknown how long circumstances related to the pandemic will persist, whether they will reoccur in the future, whether efforts to support the economy and financial markets will be successful, and what additional implications may follow from the pandemic. The impact of these events and other epidemics or pandemics in the future could adversely affect Fund performance.
Russia/Ukraine Risk
In February 2022, Russia commenced a military attack on Ukraine. The outbreak of hostilities between the two countries and the threat of wider-spread hostilities could have a severe adverse effect on the region and global economies, including significant negative impacts on the markets for certain securities and commodities, such as oil and natural gas. In addition, sanctions imposed on Russia by the United States and other countries, and any sanctions imposed in the future, could have a significant adverse impact on the Russian economy and related markets. The price and liquidity of investments may fluctuate widely as a result of the conflict and related events. How long the armed conflict and related events will last cannot be predicted. These tensions and any related events could have a significant impact on Fund performance and the value of Fund investments.
4. Fair Value of Investments
(a) Fair value - Definition
The Fund uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
● | Level 1 – Valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
● | Level 2 – Valuations based on inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly. |
● | Level 3 – Valuations based on inputs that are both significant and unobservable to the overall fair value measurement. |
Investments in private investment companies measured based upon NAV as a practical expedient to determine fair value are not required to be categorized in the fair value hierarchy.
22
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
4. Fair Value of Investments (continued)
The availability of valuation techniques and observable inputs can vary from investment to investment and are affected by a wide variety of factors, including type of investment, whether the investment is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, determining fair value requires more judgment. Because of the inherent uncertainly of valuation, estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Investment Manager in determining fair value is greatest for investments categorized in Level 3.
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
(b) Fair Value – Valuation Techniques and Inputs
When determining fair value, the Fund uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Investments in Private Investment Companies
The Fund values private investment companies using the NAV’s provided by the underlying private investment companies as a practical expedient. The Fund applies the practical expedient to private investment companies on an investment-by-investment basis, and consistently with the Fund’s entire position in a particular investment, unless it is probable that the Fund will sell a portion of an investment at an amount different from the NAV of the investment. Each of these investments has certain restrictions with respect to rights of withdrawal by the Fund as specified in the respective agreements. Generally, the Fund is required to provide notice of its intent to withdraw after the investment has been maintained for a certain period of time. The management agreements of the private investment companies provide for compensation to the managers in the form of fees ranging from 0% to 2% annually of net assets and performance incentive allocations or fees ranging from 0% to 20% on net profits earned.
At April 30, 2022, the Fund had private investment companies of $35,587,842 that did not qualify for the practical expedient because it is probable that the Fund could sell these investments for amounts that differ from the NAV’s provided by the underlying private investment companies. Private investment companies not qualifying for practical expedient were valued by the Fund through application of adjustments to the stated NAV’s reported by the underlying private investment companies. These adjustments are based on other relevant information available that the Fund feels has not been reflected in the most recent fair value. As a result, a premium of 1.93x has been applied to the stated NAV’s. Investments in private investment companies that do not qualify for the practical expedient are categorized in Level 3 of the fair value hierarchy.
Investments in Special Purpose Vehicles
Special purpose vehicles (“SPV”) consist of an investment by the Fund in an entity that invests directly or indirectly in a note secured by expected value of contingency fees received from future case settlements, real estate, specialty finance investments, and royalties. The debt offerings are short-term in nature and carry a fixed interest rate. During year ended April 30, 2022, the Investment Manager determined there were minimal credit impairments. Investments in SPV are generally measured based on NAV as a practical expedient, while others are categorized in Level 3 of the fair value hierarchy.
Investments in Credit Facilities
The Fund has invested in credit facilities that are either secured by the borrower’s assets or are unsecured in nature. The credit facilities have been made directly or through participation with private investment or operating companies. The investments in credit facilities will generally be held at cost subject to certain revisions, such as (i) a material change in interest rates for similar notes or (ii) if the Investment Manager becomes aware of a fundamental change that has not been reflected in the cost. The Fund has determined to value its investments in credit facilities generally at cost although some are above or below cost as of April 30, 2022. Investments in credit facilities are categorized in Level 3 of the fair value hierarchy.
23
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
4. Fair Value of Investments (continued)
Investments in Direct Equities
As a part of some of the credit facilities, the Fund receives direct equity in the private investments or operating companies of the borrower via common stock shares, warrants, or profit sharing instruments. The Fund has determined to value its investments in direct equities through a discounted cash flow or market approach method as of April 30, 2022. Investments in direct equities are categorized in Level 3 of the fair value hierarchy.
(c) Fair Value - Hierarchy
The Fund’s assets recorded at fair value have been categorized based on a fair value hierarchy as described in the Fund’s significant accounting policies. The following table presents information about the Fund’s assets and liabilities measured at fair value as of April 30, 2022. Assets valued using NAV as a practical expedient, an indicator of fair value, are listed in a separate column to permit reconciliation to totals in the Statement of Assets and Liabilities:
Assets | Level 1 | Level 2 | Level 3 | Investments | Total | |||||||||||||||
Investments | ||||||||||||||||||||
Private Investment Companies | $ | — | $ | — | $ | 35,587,842 | $ | 467,558,287 | $ | 503,146,129 | ||||||||||
Credit Facilities | — | — | 933,343,913 | — | 933,343,913 | |||||||||||||||
Special Purpose Vehicles | — | — | 66,579,260 | 164,280,232 | �� | 230,859,492 | ||||||||||||||
Direct Equities | — | — | 4,678,276 | — | 4,678,276 | |||||||||||||||
Short-Term Investments | 128,750,098 | — | — | — | 128,750,098 | |||||||||||||||
Total Investments | $ | 128,750,098 | $ | — | $ | 1,040,189,291 | $ | 631,838,519 | $ | 1,800,777,908 | ||||||||||
Other Financial Instruments1 | ||||||||||||||||||||
Futures Contracts | 2,773,791 | — | — | — | 2,773,791 | |||||||||||||||
Total Assets | $ | 131,523,889 | $ | — | $ | 1,040,189,291 | $ | 631,838,519 | $ | 1,803,551,699 | ||||||||||
1 | Other financial instruments are derivative instruments such as futures contracts, forward contracts and swap contracts. Futures contracts, forward contracts and swap contracts are valued at the unrealized appreciation (depreciation) on the instrument. |
(d) Fair Value - Changes in Level 3 Measurements
The following table presents the changes in assets and transfers in and out which are classified in Level 3 of the fair value hierarchy for the year ended April 30, 2022:
| Private | Credit Facilities | Special Purpose | Direct Equities | ||||||||||||
April 30, 2021 | $ | 42,805 | $ | 409,848,148 | $ | 700,000 | $ | 1,485,207 | ||||||||
Realized gains (losses) | — | — | — | (103,914 | ) | |||||||||||
Unrealized gains (losses) | 17,652,216 | (8,435,114 | ) | 2,510,010 | 1,764,330 | |||||||||||
Transfers Into Level 3 | 18,420,073 | — | 63,369,250 | — | ||||||||||||
Transfers Out of Level 3 | (697,669 | ) | (10,000,000 | ) | — | — | ||||||||||
Purchases | 447,243 | 863,512,063 | — | 1,598,020 | ||||||||||||
Sales | (276,826 | ) | (321,581,184 | ) | — | (65,367 | ) | |||||||||
April 30, 2022 | $ | 35,587,842 | $ | 933,343,913 | $ | 66,579,260 | $ | 4,678,276 | ||||||||
24
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
4. Fair Value of Investments (continued)
(e) Fair Value - Significant Unobservable Inputs
The following table summarizes the valuation techniques and significant unobservable inputs used for the Fund’s investments that are categorized in Level 3 of the fair value hierarchy as of April 30, 2022.
| Investment Category | Fair Value | Valuation Technique | Unobservable Inputs | Range of Inputs | Weighted Average (1) | Impact on Valuation from an increase in input | ||||||||||
| Private Investment Companies | $ | 35,587,842 | Market Approach | Ownership % Market Valuation Preferred Return Carried Interest | 3.19% $1,200,000,000 20.00% 35.00% | N/A N/A N/A N/A | Increase Increase Increase Decrease | |||||||||
| Credit Facilities | 933,343,913 | Market Approach Discounted Cash Flow | Recent Transaction Price Interest Rate Discount Rate | N/A
10.25% - 13.00% 8.00% - 10.00% | N/A 12.20% 8.15% | Increase Decrease Decrease | ||||||||||
| Special Purpose Vehicles | 66,579,260 | Market Approach Income Approach | Recent Transaction Price Preferred Return | N/A
12.00% | N/A 12.00% | Increase Increase | ||||||||||
| Direct Equities | 4,678,277 | Discounted Cash Flow Market Approach | Discount Rate
Recent Transaction Price | 15.00% - 30.00%
N/A 0.57% - 7.50% $600,000 - $50,000,000 $3.48 - $47.66 | 25.69% N/A 3.08% $25,606,911 $26.75 | Decrease Increase Increase Increase Increase | ||||||||||
(1) | Unobservable inputs were weighted by the fair value of the instruments as of fiscal year ended 4/30/2022. |
5. Derivative and Hedging Disclosure
U.S. GAAP requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effects on the Fund’s financial position, performance and cash flows. The Fund invested in futures contracts for the year ended April 30, 2022.
25
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
5. Derivative and Hedging Disclosure (continued)
The effects of these derivative instruments on the Fund’s financial position and financial performance as reflected in the Statement of Assets and Liabilities and Statement of Operations are presented in the tables below. The fair values of derivative instruments as of April 30, 2022, by risk category are as follows:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of Assets and Liabilities | Derivatives not | Value | Value | |||||||||
Unrealized appreciation/depreciation on open futures contracts | Equity Contracts | $ | 2,773,791 | $ | — | |||||||
The effects of derivative instruments on the Statement of Operations for the year ended April 30, 2022, are as follows:
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income | ||||||||||||
Derivatives not designated as hedging instruments | Futures Contracts | Purchased | Written | |||||||||
Equity contracts | $ | 2,887,599 | $ | — | $ | — | ||||||
Total | $ | 2,887,599 | $ | — | $ | — | ||||||
Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income | ||||||||||||||||
Derivatives not designated as | Futures | Purchased | Written | Total | ||||||||||||
Equity contracts | $ | 2,578,546 | $ | — | $ | — | $ | 2,578,546 | ||||||||
Total | $ | 2,578,546 | $ | — | $ | — | $ | 2,578,546 | ||||||||
The number of contracts is included on the Schedule of Investments. The quarterly average volumes of derivative instruments as of April 30, 2022, are as follows:
Derivative | Quarterly Average | Amount | ||||||
Futures | Average Notional Value | $ | (65,715,415 | ) | ||||
6. Capital Stock
The Fund is authorized as a Delaware statutory trust to issue an unlimited number of Shares in one or more classes, with a par value of $0.001. The Fund currently offers one class of Shares: Institutional Class Shares. The Fund may offer additional classes of Shares in the future. The minimum initial investment in Institutional Class Shares by any investor is $1 million. However, the Fund, in its sole discretion, may accept investments below this minimum. Shares may be purchased by principals and employees of the Investment Manager or its affiliates and their immediate family members without being subject to the minimum investment requirement.
Institutional Class Shares are not subject to any initial sales charge. Shares will generally be offered for purchase on each business day, except that Shares may be offered more or less frequently as determined by the Board in its sole discretion. The Board may also suspend or terminate offerings of Shares at any time.
A substantial portion of the Fund’s investments are illiquid. For this reason, the Fund is structured as a closed-end interval fund which means that the Shareholders will not have the right to redeem their Shares on a daily basis. In addition, the Fund does not expect any trading market to develop for the Shares. As a result, if investors decide to invest in the Fund, they will have very limited opportunity to sell their Shares. For each repurchase offer the Board will set an amount between 5% and
26
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
6. Capital Stock (continued)
25% of the Fund’s Shares based on relevant factors, including the liquidity of the Fund’s positions and the Shareholders’ desire for liquidity. A Shareholder whose Shares (or a portion thereof) are repurchased by the Fund will not be entitled to a return of any sales charge that was charged in connection with the Shareholder’s purchase of the Shares.
Pursuant to Rule 23c-3 under the Investment Company Act, on a quarterly basis, the Fund offers shareholders the option of redeeming Shares at NAV. The Board determines the quarterly repurchase offer amount (“Repurchase Offer Amount”), which can be no less than 5% and no more than 25% of all Shares of all classes outstanding on the repurchase request deadline. If shareholders tender more than the Repurchase Offer Amount, the Fund may, but is not required to, repurchase an additional amount of Shares not to exceed 2% of all outstanding Shares of the Fund on the repurchase request deadline. If the Fund determines not to repurchase more than the Repurchase Offer Amount, or if shareholders tender Shares in an amount exceeding the Repurchase Offer Amount plus 2% of all outstanding Shares on the repurchase request deadline, the Fund shall repurchase the Shares tendered on a pro rata basis. There is no guarantee that a shareholder will be able to sell all of the Shares tendered in a quarterly repurchase offer. Limited liquidity will be provided to shareholders only through the Fund’s quarterly repurchases.
Repurchase Offer | Repurchase Offer | Repurchase Offer | Repurchase Offer | |||||||||||||
Commencement Date | May 25, 2021 | August 25, 2021 | November 24, 2021 | February 22, 2022 | ||||||||||||
Repurchase Request Deadline | June 15, 2021 | September 15, 2021 | December 15, 2021 | March 15, 2022 | ||||||||||||
Repurchase Pricing Date | June 15, 2021 | September 15, 2021 | December 15, 2021 | March 15, 2022 | ||||||||||||
Net Asset Value as of Repurchase Offer Date | ||||||||||||||||
Institutional Class | $ | 27.63 | $ | 28.08 | $ | 28.26 | $ | 28.39 | ||||||||
Investor Class | $ | 27.62 | $ | 28.08 | — | — | ||||||||||
Amount Repurchased | ||||||||||||||||
Institutional Class | $ | 6,795,102 | $ | 10,063,501 | $ | 32,688,613 | $ | 31,299,575 | ||||||||
Investor Class | $ | 288,821 | $ | 2,331 | — | — | ||||||||||
Percentage of Outstanding Shares Repurchased | ||||||||||||||||
Institutional Class | 0.72 | % | 0.87 | % | 2.35 | % | 1.84 | % | ||||||||
Investor Class | 8.82 | % | 0.06 | % | — | — | ||||||||||
7. Investment Management and Other Agreements
The Fund has entered into an investment management agreement (the “Investment Management Agreement”) with the Investment Manager. Pursuant to the Investment Management Agreement, the Fund pays the Investment Manager a monthly Investment Management Fee equal to 0.95% on an annualized basis, calculated daily and payable monthly in arrears, of the Fund’s “Managed Assets.” “Managed Assets” means the total assets of the Fund (including any assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage and the aggregate liquidation preference of any outstanding preferred shares) as of each month-end, subject to certain adjustments.
The Investment Manager has entered into an expense limitation and reimbursement agreement (the “Expense Limitation and Reimbursement Agreement”) with the Fund, whereby the Investment Manager has agreed to waive fees that it would otherwise have been paid, and/or to assume expenses of the Fund (a “Waiver”), if required to ensure the Total Annual Expenses (excluding any taxes, leverage interest, brokerage commissions, dividend and interest expenses on short sales,
27
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
7. Investment Management and Other Agreements (continued)
acquired fund fees and expenses (as determined in accordance with SEC Form N-2), expenses incurred in connection with any merger or reorganization, and extraordinary expenses, such as litigation expenses) do not exceed 1.45% of the average daily net assets of Institutional Class Shares (the “Expense Limit”).
For a period not to exceed three years from the date on which a Waiver is made, the Investment Manager may recoup amounts waived or assumed, provided it is able to effect such recoupment and remain in compliance with the Expense Limitation. The Expense Limitation and Reimbursement Agreement is in effect until October 31, 2022 and will automatically renew for consecutive one-year terms thereafter. This agreement may be terminated at any time by the Fund’s Board of Trustees upon thirty (30) days’ written notice to the Investment Manager. This agreement may be terminated by the Investment Manager as of the end of its then-current term upon thirty (30) days’ written notice to the Fund. The Fund has recovered all previously available expenses.
Foreside Fund Services, LLC (the “Distributor”) is the distributor (also known as principal underwriter) of the Shares of the Fund and acts as the agent of the Fund in connection with the continuous offering of Shares of the Fund.
The Fund has retained an administrator, UMB Fund Services, Inc. (the “Administrator”) to provide administrative services, and to assist with operational needs. In consideration for these services, the Fund pays the Administrator a minimum monthly administration fee (the “Administration Fee”). The Administration Fee is paid to the Administrator out of the assets of the Fund and therefore decreases the net profits or increases the net losses of the Fund. The Administrator is also reimbursed by the Fund for out-of-pocket expenses relating to services provided to the Fund and receives a fee for transfer agency services. The Administration Fee and the other terms of the Administration Agreement may change from time to time as may be agreed to by the Fund management and the Administrator.
A trustee and an officer of the Fund are employees of the Administrator. The Fund does not compensate the trustee or officer affiliated with the Administrator. For the year ended April 30 2022, the Fund’s allocated fees incurred for trustees and advisory board member are reported on the Statement of Operations.
UMB Bank, n.a. (the “Custodian”), an affiliate of the Administrator, serves as the primary custodian of the assets of the Fund, and may maintain custody of such assets with U.S. and non-U.S. sub custodians (which may be banks and trust companies), securities depositories and clearing agencies in accordance with the requirements of Section 17(f) of the Investment Company Act and the rules thereunder. Assets of the Fund are not held by the Investment Manager or commingled with the assets of other accounts other than to the extent that securities are held in the name of the Custodian or U.S. or non-U.S. sub custodians in a securities depository, clearing agency or omnibus customer account of such custodian. In consideration for these services, the Fund pays the Custodian a minimum monthly custodian fee.
8. Related Party Transactions
At April 30, 2022, the Investment Manager and its affiliates owned $24,558,752 (or 1.33% of net assets) of the Fund.
9. Federal Income Taxes
At April 30, 2022, gross unrealized appreciation and depreciation on investments based on cost for federal income tax purposes were as follows:
Cost of investments | $ | 1,704,733,422 | ||
Gross unrealized appreciation | $ | 102,906,727 | ||
Gross unrealized depreciation | (6,862,241 | ) | ||
Net unrealized appreciation on investments | $ | 96,044,486 |
28
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
9. Federal Income Taxes (continued)
The difference between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and losses in security transactions.
U.S GAAP requires that certain components of net assets be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended October 31, 2021, permanent differences in book and tax accounting have been reclassified to paid-in capital, undistributed net investment income (loss) and accumulated realized gain (loss) as follows:
Increase (Decrease) | |||||||
Paid-In | Total Distributable | ||||||
| $ | — | $ | — | ||||
As of October 31, 2021, the Fund’s most recent tax year end, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | $ | — | ||
Undistributed long-term capital gains | — | |||
Accumulated capital and other losses | (1,186,762 | ) | ||
Unrealized appreciation on investments | 78,094,685 | |||
Total distributable earnings | $ | 76,907,923 |
As October 31, 2021, the Fund had accumulated capital loss carry forwards as follows:
ST | LT | Total | ||||||||||
Not Subject to Expiration | $ | 1,186,762 | — | $ | 1,186,762 | |||||||
To the extent that the Fund may realize future net capital gains, those gains will be offset by any of its unused capital loss carryforward. Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations.
The tax character of distributions paid during the tax years ended October 31, 2021 and October 31, 2020 were as follows:
2021 | 2020 | |||||||
Distribution paid from: | ||||||||
Ordinary income | $ | 42,079,988 | $ | 9,409,941 | ||||
Net long-term capital gains | 513,919 | |||||||
Return of capital | 11,500,337 | 13,305,644 | ||||||
Total distributions paid | $ | 53,580,325 | $ | 23,229,504 | ||||
10. Investment Transactions
For the year ended April 30, 2022, purchases and sales of investments, excluding short-term investments, were $1,349,191,516 and $466,142,297, respectively.
11. Credit Facility
The Fund maintains a credit facility with Pacific Western Bank (the “Revolving Credit Facility” or “Facility”) with a maximum borrowing amount of up to $80,000,000. When in use, the Facility is secured by certain underlying investments of the Fund. The Facility bears an initial interest rate of 3.5% plus the then applicable 30-day average Secured Overnight Financing Rate
29
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
11. Credit Facility (continued)
(“SOFR”), which has a floor rate of 0.5%. Interest and fees incurred for the year ended April 30, 2022 are disclosed in the accompanying Statement of Operations. For the year ended April 30, 2022, the Fund did not utilize the Facility. The Facility matures on August 20, 2024. At April 30, 2022, the principal balance outstanding was $0.
12. Reorganization Information
Simultaneous with the commencement of the Fund’s operations (“Commencement of Operations”), the Variant Alternative Income Fund, L.P. (the “Predecessor Fund”), reorganized with and transferred substantially all its portfolio securities into the Fund. The Predecessor Fund maintained an investment objective, strategies and investment policies, guidelines and restrictions that were, in all material respects, equivalent to those of the Fund. The Fund and the Predecessor Fund shared the same investment adviser and portfolio managers. Below is a breakout of assets, liabilities, and total net assets transferred as of the date of reorganization at the end of business September 28, 2018.
Assets: | ||||
Investments at Cost | $ | 21,099,144 | ||
Investments at Value | 21,406,197 | |||
Cash | 3,424,801 | |||
Interest Accrued | 387,807 | |||
Miscellaneous Assets | 11,931 | |||
Total Assets | 25,230,736 | |||
Liabilities: | ||||
Management Fees Payable | 47,756 | |||
Other Payable | 96,516 | |||
Total Liabilities | 144,272 | |||
Net Assets: | $ | 25,086,464 |
1,003,458.564 shares were issued with an initial NAV of $25.00.
13. Commitments
Senior credit facilities may be structured to be fully funded at the time of investment or include unfunded loan commitments, which are contractual obligations for future funding. As of April 30, 2022, the Fund had unfunded loan commitments to senior credit facilities of $327,128,608.
The following table represents investment strategies, unfunded commitments and redemptive restrictions of investments that are measured at NAV per share (or its equivalent) as a practical expedient as of April 30, 2022:
Security Description | Investment | Fair | Unfunded | Redemption | Redemption Notice Period | ||||||||||||
Aero Capital Solutions Feeder Fund III, LP | Private LPs (2) | $ | 31,306,790 | $ | 1,249,514 | None | N/A | ||||||||||
Aero Capital Solutions Fund II, LP | Private LPs (2) | 48,778,500 | — | None | N/A | ||||||||||||
Aero Capital Solutions Fund, LP | Private LPs (2) | 1,966,050 | 656,479 | None | N/A | ||||||||||||
American Rivers Fund, LLC | Private LPs (2) | 26,381,797 | — | Annually (December) | Subject to a 3-year lock up period from initial funding. Redemptions are permitted in December every year paid out 25% per quarter. | ||||||||||||
Armadillo Financial Fund LP | Private LPs (1) | 8,424 | — | None | N/A | ||||||||||||
30
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
13. Commitments (continued)
Security Description | Investment | Fair | Unfunded | Redemption | Redemption Notice Period | ||||||||||||
ArrowMark Commercial Real Estate Partners, LLC |
Private LPs (5) | $ | 10,601,233 |
None |
N/A | ||||||||||||
Blue Elephant Financing Fund I, L.P. | Private LPs (7) | 372,378 | — | Subject to Advisor Approval | N/A | ||||||||||||
CAMPBELL OPPORTUNITY TIMBER FUND-A, L.P. |
Private LPs (1) | 1,206,836 |
None |
N/A | |||||||||||||
CDMX DEBT FUND, LLC | SPVs (4) | 28,406,286 | 2,594,725 | None | N/A | ||||||||||||
Cirrix Investments, LLC | SPVs (7) | 5,237,265 | — | None | N/A | ||||||||||||
CoVenture - Amzn Credit Opportunities Fund LP |
Private LPs (7) | 31,982,063 |
Quarterly |
At least a 90 day written notice to the general partner prior to each calendar quarter-end. | |||||||||||||
CoVenture Credit Opportunities Partners Fund LP |
Private LPs (7) | 20,825,159 |
Quarterly |
Withdrawals are permitted quarterly, subject to a 1-year “soft” lockup period, with capital proceeds returned as and when they are realized. Withdrawal notification is 90 days. | |||||||||||||
CoVenture - Clearbanc Special Assets Fund LP |
SPVs (7) | 1,512,929 |
Quarterly |
Subject to a 12-month lock up with 90 days’ written notice to the general partner. | |||||||||||||
CoVenture - No1 Credit Opportunities Fund LLC |
Private LPs (7) | 1,011,962 |
Quarterly |
After 36 months of funding, or additional funding date, limited partners may withdraw any portion of their capital account with 90 days’ notice as of the end of any calendar quarter. | |||||||||||||
CoVenture - No1 Credit Opportunities Fund LLC (A-2 Series) |
Private LPs (7) | 3,032,912 |
Quarterly |
After 36 months of funding, or additional funding date, limited partners may withdraw any portion of their capital account with 90 days’ notice as of the end of any calendar quarter. | |||||||||||||
CoVenture - No1 Credit Opportunities Fund LLC (A-3 Series) |
Private LPs (7) | 7,572,257 |
Quarterly |
After 36 months of funding, or additional funding date, limited partners may withdraw any portion of their capital account with 90 days’ notice as of the end of any calendar quarter. | |||||||||||||
Crestline Portfolio Financing Fund II (US), L.P. | Private LPs (3) | 1,689,782 | 3,384,251 | None | N/A | ||||||||||||
Crestline Portfolio Financing Fund Offshore B, L.P. and Subsidiary | Private LPs (3) | 871,211 | 657,403 | None | N/A | ||||||||||||
Crestline Praeter, L.P. - Zoom | Private LPs (3) | 3,036,552 | 1,440,594 | None | N/A | ||||||||||||
31
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
13. Commitments (continued)
Security Description | Investment | Fair | Unfunded | Redemption | Redemption Notice Period | ||||||||||||
DelGatto Diamond Fund QP, LP | Private LPs (7) | $ | 22,495,098 | $ | — | Monthly | Upon fully called committed capital, redemptions are permitted at the end of each calendar month with at least a 90 day notice. Any redemption made within 1 year of subscription is subject to a 5% early redemption penalty. | ||||||||||
Equal Access Justice Fund LP | Private LPs (3) | 35,255,854 | 11,000,000 | Quarterly | After 36 months of lock up, each limited partner may provide a written notice 60 days prior to each calendar quarter-end to withdraw any portion of its capital account balance. | ||||||||||||
Hudson Transport Real Asset Fund LP |
Private LPs (2) | 1,593,284 | — |
Quarterly |
Subject to a 2-year lock up period. Subsequently, can submit a withdrawal of interest form effective as of the last day of any calendar quarter upon not less than 90 days’ prior written notice. Request must be greater than $100k. However, the general partner of the fund may designate additional withdrawal dates or reduce notice periods at its sole discretion. | ||||||||||||
MEP Capital II GP, LLC | Private LPs (9) | 9,087,597 | 426,235 | None | N/A | ||||||||||||
MEP Capital III GP, LLC | Private LPs (9) | 9,451,388 | 15,777,897 | None | N/A | ||||||||||||
MEP Capital III GP, LLC - Co-investment Culture Works | Private LPs (9) | 2,183,355 | — | None | N/A | ||||||||||||
MEP Capital II GP, LLC - Co-investment Sound Royalties | Private LPs (9) | 2,183,355 | — | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-3 | SPVs (4) | 619,612 | 213,659 | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-31 | SPVs (4) | 664,422 | 94,815 | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-47 | SPVs (4) | 3,000,000 | — | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-48 | SPVs (4) | 2,250,000 | — | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-49 | SPVs (4) | 592,105 | 355,263 | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-54 | SPVs (4) | 1,990,161 | — | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-55 | SPVs (4) | 2,500,000 | — | None | N/A | ||||||||||||
Monticello Funding, LLC Series BTH-56 | SPVs (4) | 7,333,857 | — | None | N/A | ||||||||||||
Monticello Structured Products, LLC Series MSP-17 | SPVs (4) | 2,000,000 | — | None | N/A | ||||||||||||
32
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
13. Commitments (continued)
Security Description | Investment | Fair | Unfunded | Redemption | Redemption Notice Period | ||||||||||||
Monticello Structured Products, LLC Series SH-52 | SPVs (4) | $ | 1,498,864 | $ | 711,340 | None | N/A | ||||||||||
Montreux Healthcare Fund PLC | Private LPs (5) | 75,203,111 | — | Quarterly | 180 Business Days’ prior written notice is required for a quarterly Valuation Day. | ||||||||||||
North Haven Offshore Infrastructure Partners A LP | Private LPs (1) | 1,450,381 | 544,827 | None | N/A | ||||||||||||
Oak Harbor Capital NPL VII, LLC | Private LPs (4) | 11,878,590 | — | None | N/A | ||||||||||||
OHP II LP Class B | Private LPs (7) | 4,284,609 | — | None | N/A | ||||||||||||
OHPC LP Founders Class Interest 1.25% |
Private LPs (7) | 8,263,021 | — |
Quarterly |
Withdraw all or any portion of its capital account attributable to a particular capital contribution as of the last day of each calendar quarter that is on or after the expiration of the lock-up period. The lock-up-period is the first anniversary of such capital contribution. | ||||||||||||
Prime Storage Fund II (Cayman), LP | Private LPs (5) | 1,324,824 | — | None | N/A | ||||||||||||
PSC US BADGER LLC | SPVs (7) | 14,320,219 | 11,291,400 | None | N/A | ||||||||||||
PWP Asset Based Income ASP Fund | Private LPs (1) | 1,098,230 | — | None | N/A | ||||||||||||
Quiet Credit I LLC | Private LPs (4) | 6,250,000 | — | None | N/A | ||||||||||||
Round Hill Music Carlin Coinvest, LP | SPVs (9) | 1,113,152 | — | None | N/A | ||||||||||||
Segregated Investment Vehicle I, SP (a segregated portfolio of Lendable SPC) | SPVs (7) | 91,241,360 | 12,613,147 | None | N/A | ||||||||||||
Setpoint Residential Fintech Fund LP | Private LPs (4) | 12,777,365 | 4,152,895 | None | N/A | ||||||||||||
Series 4 -Virage Capital Partners LP | Private LPs (3) | 1,707,838 | — | None | N/A | ||||||||||||
Series 6 - Virage Capital Partners LP | Private LPs (3) | 19,986,191 | — | None | N/A | ||||||||||||
Silverpeak Special Situations Lending Onshore Fund LP | Private LPs (7) | 4,202,065 | 5,925,000 | None | N/A | ||||||||||||
Sound Point Discovery Fund | Private LPs (7) | 10,105,233 | — | None | A written notice to the fund administrator at least 60 days prior to the last business day of each calendar quarter. | ||||||||||||
Taiga Special Opportunities LP | Private LPs (1) | 26,170,929 | — | None | N/A | ||||||||||||
Thor Urban Property Fund II, Inc. | Private LPs (1) | 315,514 | 2,228,330 | None | N/A | ||||||||||||
Turning Rock Fund I LP | Private LPs (7) | 7,463,952 | 2,175,909 | None | N/A | ||||||||||||
Turning Rock Fund II LP | Private LPs (7) | 2,182,597 | 7,376,344 | None | N/A | ||||||||||||
Total | $ | 631,838,519 | $ | 84,870,027 | |||||||||||||
1 | Private partnerships that are secondaries positions. These investments are purchased in the secondary market of a limited partner’s interest in a private credit fund from the primary owner. |
33
Variant Alternative Income Fund
Notes to Financial Statements
April 30, 2022 (continued)
13. Commitments (continued)
2 | Private partnerships in transportation finance. These partnerships provide financing of transportation assets (aircraft, ships, railcars, trucking, or shipping containers) through equity and/or debt investments. |
3 | Private partnerships and special purpose vehicles in litigation finance. These strategies consist of loans to law firms backed by the expected value of contingency fees received from future case settlements. |
4 | Real estate debt private partnerships. These are extensions of new debt backed by real estate assets or the purchase of existing loans backed by residential or commercial real estate assets. |
5 | Real estate equity partnerships that consists of equity investments backed by commercial real estate. |
6 | Private partnerships that are in portfolio finance, a special scenario where a loan to the borrower is collateralized by all of the assets in a private investment vehicle. |
7 | Private partnerships or credit facilities that are in specialty finance investments. Such partnerships invest in institutional loans to a non-bank, private lender, which uses the capital to make loans in their particular vehicle. |
8 | A warehouse facility is an institutional loan to a pool of assets where the underlying collateral is expected to only stay in the pool for a short period of time. |
9 | Private partnerships and special purpose vehicles that invest in and/or purchase royalties. These royalties are the financial claim to the revenue generated from an asset such as the usage of copyrighted music, licensing payments on intellectual property, or oil and gas production. |
10 | Private partnership that invests in insurance receivables. The investment is backed by the recovery of conditional payments advanced by Medicare Advantage Organizations. |
14. Subsequent Events
In preparing these financial statements, management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events or transactions that occurred during this period that materially impacted the amounts or disclosures in the Fund’s financial statements except for the following:
The Fund commenced a repurchase offer on May 25, 2022 as follows:
Repurchase Offer | ||||
Commencement Date | May 25, 2022 | |||
Repurchase Request Deadline | June 15, 2022 | |||
Repurchase Pricing Date | June 15, 2022 | |||
Net Asset Value as of Repurchase Offer Date | ||||
Institutional Class | $28.55 | |||
Amount Repurchased | ||||
Institutional Class | $70,128,756 | |||
Percentage of Outstanding Shares Repurchased | ||||
Institutional Class | 3.56% | |||
34
Variant Alternative Income Fund
Supplemental Information
April 30, 2022 (Unaudited)
For the year ended October 31, 2021, 0% of dividends to be paid from net investment income, including short-term capital gains from the Fund (if any), are designated as qualified dividend income.
For the year ended October 31, 2021, 0% of the dividends to be paid from net investment income, including short-term capital gains from the Fund (if any), are designated as dividends received deduction available to corporate shareholders.
For the year ended October 31, 2021, the Fund designates $0 as long-term capital gain distributions.
35
Variant Alternative Income Fund
Fund Management
April 30, 2022 (Unaudited)
The identity of the members of the Board and the Fund’s officers and brief biographical information as of April 30, 2022 is set forth below. The Fund’s Statement of Additional Information includes additional information about the membership of the Board, and is available without charge, upon request, by calling the Fund at 1-877-770-7717.
INDEPENDENT TRUSTEES AND ADVISORY BOARD MEMBER
NAME, ADDRESS | POSITION(S) | LENGTH OF | PRINCIPAL | NUMBER OF | OTHER |
David G. Lee
c/o UMB Fund Services, Inc. | Chairman and Trustee | Chairman since May 2019; Trustee since Inception | Retired (since 2012); President and Director, Client Opinions, Inc. (2003 - 2012); Chief Operating Officer, Brandywine Global Investment Management (1998-2002). | 14 | None |
Robert Seyferth
c/o UMB Fund Services, Inc. | Trustee | Since Inception | Retired (since 2009); Chief Procurement Officer/Senior Managing Director, Bear Stearns/JP Morgan Chase (1993 -2009). | 14 | None |
Gary E. Shugrue
c/o UMB Fund Services, Inc. | Advisory Board Member | Since December 2018 | Managing Director, Veritable LP (investment advisory firm) (2016-Present); Founder/ President, Ascendant Capital Partners, LP (private equity firm) (2001 – 2015). | 12 | Trustee, Quaker Investment Trust (2 portfolios)(registered investment company). |
36
Variant Alternative Income Fund
Fund Management
April 30, 2022 (Unaudited) (continued)
INTERESTED TRUSTEES AND OFFICERS
NAME, ADDRESS | POSITION(S) | LENGTH OF | PRINCIPAL | NUMBER OF | OTHER |
Terrance P. Gallagher**
c/o UMB Fund Services, Inc. | Trustee | Since June 2020 | Executive Vice President and Director of Fund Accounting, Administration and Tax; UMB Fund Services, Inc. (2007-present). President, Investment Managers Series Trust II (registered investment company) (2013-Present); Treasurer, American Independence Funds Trust (registered investment company) (2016-2018); Treasurer, Commonwealth International Series Trust (registered investment company) (2010-2015). | 14 | Trustee, Investment Managers Series Trust II (19 portfolios) (registered investment company). |
Robert W. Elsasser
c/o UMB Fund Services, Inc. | President | Since Inception | Principal, Variant Investments, LLC (2017-Present); Director of Fixed Income, CTC myCFO (2010-2016). | N/A | N/A |
Curtis Fintel
c/o UMB Fund Services, Inc. | Treasurer | Since Inception | Principal, Variant Investments, LLC (2017-Present); Chief Investment Strategist, CTC myCFO (2006-2016). | N/A | N/A |
37
Variant Alternative Income Fund
Fund Management
April 30, 2022 (Unaudited) (continued)
INTERESTED TRUSTEES AND OFFICERS (continued)
NAME, ADDRESS | POSITION(S) | LENGTH OF | PRINCIPAL | NUMBER OF | OTHER |
Bernadette Murphy | Chief Compliance Officer | Since 2021 | Director, Vigilant Compliance, LLC (investment management solutions firm) (2018-Present); Director of Compliance and operations, B. Riley Capital Management, LLC (investment advisory firm) (2017-2018); Chief Compliance Officer, Dialect Capital Management, LP (investment advisory firm) (2008-2018) | N/A | N/A |
Ann Maurer
c/o UMB Fund Services, Inc. | Secretary | Since September 2018 | Senior Vice President, Client Services (2017 –Present); Vice President, Senior Client Service Manager (2013 – 2017), Assistant Vice President, Client Relations Manager (2002 – 2013); UMB Fund Services, Inc. | N/A | N/A |
* | As of April 30, 2022, the fund complex consists of the Fund, AFA Multi-Manager Credit Fund, Agility Multi-Asset Income Fund, Aspiriant Risk-Managed Capital Appreciation Fund, Aspiriant Risk-Managed Real Asset Fund, Corbin Multi-Asset Strategy Fund, LLC, First Trust Private Assets Fund, First Trust Private Credit Fund, First Trust Real Assets Fund, Infinity Core Alternative Fund, LLC, Keystone Private Income Fund, Optima Dynamic Alternatives Fund, First Trust Alternative Opportunities Fund, and Variant Impact Fund. |
** | Mr. Gallagher is deemed to be an interested person of the Fund because of his affiliation with the Fund’s Administrator. |
38
Variant Alternative Income Fund
Other Information
April 30, 2022 (Unaudited)
Proxy Voting
The Fund is required to file Form N-PX, with its complete proxy voting record for the twelve months ended June 30, no later than August 31. The Fund’s Form N-PX filing and a description of the Fund’s proxy voting policies and procedures are available: (i) without charge, upon request, by calling the Fund at 1-877-770-7717 or (ii) by visiting the SEC’s website at www.sec.gov.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or by calling the Fund at 1-877-770-7717.
39
Variant Alternative Income Fund
Other Information
April 30, 2022 (Unaudited) (continued)
FACTS | WHAT DOES THE FUND DO WITH YOUR PERSONAL INFORMATION? |
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
● Social Security number ● account balances ● account transactions ● transaction history ● wire transfer instructions ● checking account information
Even when you are no longer our customer, we continue to share your information as described in this notice. |
How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons funds choose to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does the Fund share? | Can you limit this sharing? |
For our everyday business purposes – | Yes | No |
For our marketing purposes – | No | We don’t share |
For joint marketing with other financial companies | No | We don’t share |
For our affiliates’ everyday business purposes – | Yes | No |
For our affiliates’ everyday business purposes – | No | We don’t share |
For our affiliates to market to you | No | We don’t share |
For nonaffiliates to market to you | No | We don’t share |
Questions? | Call 1-877-770-7717. |
40
Variant Alternative Income Fund
Other Information
April 30, 2022 (Unaudited) (continued)
What we do | |
How does the Fund protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. |
How does the Fund collect my personal information? | We collect your personal information, for example, when you
■ open an account ■ provide account information ■ give us your contact information ■ make a wire transfer ■ tell us where to send money
We also collect your information from others, such as credit bureaus, affiliates, or other companies. |
Why can’t I limit all sharing? | Federal law gives you the right to limit only
■ sharing for affiliates’ everyday business purposes – information about your creditworthiness ■ sharing for affiliates from using your information to market to you ■ sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. |
Definitions | |
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
■ Our affiliates include companies such as Variant Investments, LLC and UMB Fund Services, Inc. |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
■ The Fund doesn’t share with nonaffiliates so they can market to you. |
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
■ The Fund doesn’t jointly market. |
41
(b) Not applicable.
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(b) Not applicable.
(c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description.
(d) The registrant has not granted any waivers, during the period covered by this report, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of trustees has determined that Mr. David G. Lee and Mr. Robert Seyferth are qualified to serve as the audit committee financial experts serving on its audit committee and that they are "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
(a) The aggregate fees billed for the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements are $145,000 for 2021 and $145,000 for 2022.
Audit-Related Fees
(b) The aggregate fees billed for the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $5,000 for 2021 and $0 for 2022. The fees listed in item 4 (b) are related to out-of-pocket expenses in relation to the annual audit of the registrant.
Tax Fees
(c) The aggregate fees billed for the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $7,000 for 2021 and $7,000 for 2022.
All Other Fees
(d) The aggregate fees billed for the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $4,853 for 2021 and $0 for 2022. The nature of these services were for the review and release of consents for the 2021 N-2 filings.
(e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The Registrant's Audit Committee must pre-approve the audit and non-audit services of the Auditors prior to the Auditor's engagement.
(e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X is as follows:
| (b) | 100% |
| (c) | 100% |
| (d) | 100% |
(f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the fiscal period May 1, 2021 through April 30, 2022 that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the last fiscal year ended April 30, 2022 of the registrant was $0.
(h) The registrant's audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence.
(i) Not applicable.
(j) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 (a) of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Proxy Voting Policies and Procedures
For most fixed income investments, the voting matters generally involve amendments to loan documentation, borrower compliance with financial covenants, registration rights, prepayments, insolvency, and other distressed creditor situations. The Investment Manager does not have specific proxy voting policies or guidelines regarding categories of proxy matters submitted to fixed income security holders. Instead, the Investment Manager votes fixed income proxy matters on a case-by-case basis, taking into account the unique circumstances related to a particular borrower and other relevant factors.
The Investment Manager also votes proxies related to equity securities held in discretionary portfolios. Additionally, the Investment Manager may vote proxies or other matters on the closed end funds, BDCs, private funds and other vehicles, exchange traded notes or exchange traded funds in which it invests.
Routine proxy matters associated with equity securities (including but not limited to electing boards of directors, selecting auditors, shareholder rights, proxy contests, corporate governance matters, and executive and director compensation) typically are voted in accordance with the recommendations of management of the issuer. In the event it is determined to be in the best interests of shareholders to vote against issuer management recommendations, the reasons for such determination will be documented. On non-routine matters, such as amendments to governing instruments, proposals relating to compensation and stock option and equity compensation plans, corporate governance proposals and shareholder proposals, the Investment Manager will vote, or abstain from voting if deemed appropriate, on a case-by-case basis in a manner it believes to be in the best economic interest of the Fund’s shareholders.
The Investment Manager may delegate our responsibilities under the Proxy Policy to a third party proxy voting service, however, no such delegation will relieve the Investment Manager of its responsibilities. The Investment Manager will retain final authority and fiduciary responsibility for such proxy voting.
The Portfolio Managers are responsible for monitoring proxy voting actions and ensuring that (i) proxies are received and forwarded to the appropriate decision makers; and (ii) proxies are voted in a timely manner upon receipt of voting instructions. The Investment Manager is not responsible for voting proxies that are not received but will make reasonable efforts to obtain missing proxies. The Chief Compliance Officer shall identify and monitor potential conflicts of interest that could affect the proxy voting process, including (i) significant client relationships; (ii) other potential material business relationships; and (iii) material personal and family relationships. The Investment Manager may determine not to vote a particular proxy if the costs and burdens exceed the benefits of voting.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members
The following table provides biographical information about the members of Variant Investments LLC (the “Investment Manager”), who are primarily responsible for the day-to-day portfolio management of Variant Alternative Income Fund (the “Fund”) as of April, 30, 2022:
| Name of Portfolio Management Team Member | Title | Length of Time of Service to the Fund | Business Experience During the Past 5 Years | Role of Portfolio Management Team Member |
| Robert W. Elsasser | President | Since Inception | Principal, Variant Investments LLC (2017-Present) | Portfolio Management |
| Curt Fintel | Treasurer | Since Inception | Principal, Variant Investments LLC (2017-Present) | Portfolio Management |
| J.B. Hayes | Principal | Since Inception | Principal, Variant Investments LLC (2017-Present) | Portfolio Management |
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts of Interest
The following table provides information about portfolios and accounts, other than Variant Alternative Income Fund, for which personnel of the Investment Manager are primarily responsible for the day-to-day portfolio management as of April 30, 2022:
| Name of Portfolio Management Team Member | Number of Accounts and Total Value of Assets for Which Advisory Fee is Performance-Based: | Number of Other Accounts Managed and Total Value of Assets by Account Type for Which There is No Performance-Based Fee: | |||||
Name
| Registered investment companies | Other pooled investment vehicles | Other accounts | Registered investment companies | Other pooled investment vehicles | Other accounts | |
| Robert W. Elsasser | $0 | $0 | $0 | 1 account $6.575 Million | $0 | $0 | |
| Curt Fintel | $0 | $0 | $0 | 1 account $6.575 Million | $0 | $0 | |
| J.B. Hayes | $0 | $0 | $0 | 1 account $6.575 Million | $0 | $0 | |
Conflicts of Interest
The Fund may be subject to a number of actual and potential conflicts of interest.
The Investment Manager and its affiliates engage in financial advisory activities that are independent from, and may from time to time conflict with, those of the Fund. In the future, there might arise instances where the interests of such affiliates conflict with the interests of the Fund. The Investment Manager and its affiliates may provide services to, invest in, advise, sponsor and/or act as investment manager to investment vehicles and other persons or entities (including prospective investors in the Fund) which may have structures, investment objectives and/or policies that are similar to (or different than) those of the Fund; which may compete with the Fund for investment opportunities; and which may, subject to applicable law, co-invest with the Fund in certain transactions. In addition, the Investment Manager and its affiliates and respective clients may themselves invest in securities that would be appropriate for the Fund. By acquiring Shares, each Shareholder will be deemed to have acknowledged the existence of any such actual and potential conflicts of interest and to have waived any claim with respect to any liability arising from the existence of any such conflict of interest.
Although the Investment Manager and its affiliates seek to allocate investment opportunities among the Fund and their other clients in a fair and reasonable manner, there can be no assurance that an investment opportunity which comes to the attention of the Investment Manager or its affiliates will be appropriate for the Fund or will be referred to the Fund. The Investment Manager and its affiliates are not obligated to refer any investment opportunity to the Fund.
The directors, partners, trustees, managers, members, officers and employees of the Investment Manager and its affiliates may buy and sell securities or other investments for their own accounts (including through funds managed by the Investment Manager or its affiliates). As a result of differing trading and investment strategies or constraints, investments may be made by directors, partners, trustees, managers, members, officers and employees that are the same, different from or made at different times than investments made for the Fund. To reduce the possibility that the Fund will be materially adversely affected by the personal trading described above, the Fund and the Investment Manager have individually adopted codes of ethics (collectively, the "Codes of Ethics") in compliance with Section 17(j) of the Investment Company Act that restricts securities trading in the personal accounts of investment professionals and others who normally come into possession of information regarding the portfolio transactions of the Fund.
(a)(3) Compensation Structure of Portfolio Manager
As of April 30, 2022, total compensation paid to each Portfolio Manager includes a base salary fixed from year to year and a variable performance bonus consisting of cash incentives. The amounts paid to the Portfolio Managers are based on a percentage of the fees earned by the Investment Manager from managing the Fund and other investment accounts. The performance bonus reflects individual performance and the performance of the Investment Manager's business as a whole. These individuals will also participate in a 401K program and receive medical/dental insurance benefits on the same basis as other officers of the Investment Manager. The compensation structure of key investment professionals is structured to incent long-term client retention and client service.
(a)(4) Disclosure of Securities Ownership
Portfolio Management Team’s Ownership of Shares
| Name of Portfolio Management Team Member: | Dollar Range of Shares Beneficially Owned by Portfolio Management Team Member: |
| Robert W. Elsasser | None |
| Curt Fintel | Over $1,000,000 |
| J.B. Hayes | $100,001 - $500,000 |
(b) Not Applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17CFR 229.407), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 13. EXHIBITS.
(a)(3) Not applicable.
(a)(4) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (registrant) | Variant Alternative Income Fund | |
| By (Signature and Title)* | /s/ Robert W. Elsasser | |
| Robert W. Elsasser, President | ||
| (Principal Executive Officer) |
| Date | July 11, 2022 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | /s/ Robert W. Elsasser | |
| Robert W. Elsasser, President | ||
| (Principal Executive Officer) |
| Date | July 11, 2022 | |
| By (Signature and Title)* | /s/ Curt Fintel | |
| Curt Fintel, Treasurer | ||
| (Principal Financial Officer) |
| Date | July 11, 2022 | |
* Print the name and title of each signing officer under his or her signature.