October 13, 2022
Via Email
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
320 S Canal St Suite 3300
Chicago, IL 60606
Nomura Alternative Income Fund
Initial Registration Statement on Form N-2
File Nos. 333-267402 and 811-23826
Dear Ms. Jain,
On September 13, 2022, Nomura Alternative Income Fund (the Fund )
filed a
Registration Statement on Form N-2 (the Registration Statement ) under the
Securities Act of
1933, as amended (the 1933 Act ) and the Investment Company Act of 1940,
as amended (the
1940 Act ). We have reviewed the filing and have the following comments.
All capitalized
terms not otherwise defined herein have the meaning given to them in the
Registration
Statement. References to item and instruction numbers in this letter, unless
otherwise specified,
are to items and instructions in Form N-2.
GENERAL
1. We note that the Registration Statement is missing information and
exhibits and contains
numerous sections that indicate that they will be added, completed or
updated by
amendment. Please expect comments on such portions when you add,
complete or
update them in any pre-effective amendment, on disclosures made in
response to this
letter, on information supplied supplementally, or on exhibits filed in
any pre-effective
amendment. Please plan accordingly.
2. Where a comment is made with regard to disclosure in one location, it is
applicable to all
similar disclosure appearing elsewhere in the Registration Statement.
Please make all
conforming changes.
3. We note that the Registration Statement discloses a number of requests
for exemptive
relief (e.g., multi-class and co-investment relief). Please advise us as
to the status of each
of the applications disclosed in the Registration Statement and whether
you have
submitted or expect to submit any other exemptive applications or
no-action requests in
connection with the Registration Statement.
4. Please tell us if you have presented or will present any test the
waters materials to
potential investors in connection with this offering. If so, please
provide us with copies of
such materials.
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 2 of 12
PROSPECTUS
Cover page
5. Please disclose that the Fund may invest in below investment grade debt
securities
(commonly referred to as high yield securities or junk bonds
), including securities of
stressed and distressed issuers.
6. The Prospectus indicates that the Fund will use leverage. Please note
this on the cover
and identify the form(s) the leverage is expected to take (e.g., credit
facilities, reverse
repurchase agreements etc ). Please add a cross reference to the
Prospectus disclosure
regarding the risks associated with a leveraged capital structure. [Item
1.1.j and
Guidelines to Form N-2, Guide 6.] In the Fund Summary, please add a brief
discussion
regarding use of leverage, the form(s) the leverage is expected to take,
the risks related to
the Fund s use of leverage, and a cross reference(s) to the more
fulsome discussion of
leverage in the Prospectus.
7. In the paragraph that begins [t]his Prospectus concisely provides
information that you
should know . . . please provide the information required by the
fourth and fifth
sentences of Item 1.1.d.
8. Please revise the discussion relating to repurchase offers to address the
following
comments:
a. that the repurchase offers will be made subject to certain
conditions;
b. the intervals between deadlines for repurchase requests, pricing
and repayment;
and
c. when the Fund expects to make its initial repurchase offer.
Please also consider disclosing the current expected percentage of shares
to be
repurchased.
9. The last bullet point states [a]ll or a portion of an annual
distribution may consist solely
of a return of capital Please supplementally explain why an annual
distribution would
consist solely of a return of capital or revise disclosure.
Fund Summary
The Fund and the Shares
10. The disclosure states that [t]he Fund has applied for and expects to
receive an exemptive
order from the SEC with respect to the Fund s multi-class structure.
Please revise the
Registration Statement here and elsewhere to remove language regarding
the Fund s
expectations with respect to the SEC s issuance of exemptive relief or
assumptions that
exemptive relief will be granted (e.g., see Note 4 to the Fund Fees and
Expenses table).
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 3 of 12
In each instance, please ensure that the disclosure includes the
statement that there is no
assurance that the Fund will be granted the exemptive order.
Investment Objectives and Strategies
11. The disclosure states that the Fund may invest through investment
vehicles
( Underlying Funds). Underlying Funds are defined in Risk
Factors as mutual funds
(including money market funds), BDCs, closed-end funds, ETFs and other
registered and
private investment companies. Please disclose the types of investment
vehicles that
constitute the defined term Underlying Funds the first time the
term is used, and use the
defined term consistently throughout the Registration Statement.
12. The Fund may invest in convertible securities ( CoCos ) as part of
its principal
investment strategy. Please supplementally inform us of the amount the
Fund currently
intends to invest in CoCos. If CoCos will be a principal type of
investment, please
provide a description of CoCos and appropriate risk disclosure in the
Prospectus.
13. The disclosure states that the Fund normally will have a short to
intermediate average
portfolio duration . Please specify how average portfolio duration
is measured (e.g.,
market weighted average duration). In an appropriate location later in
the Prospectus,
please explain the term and provide an example.
Fees and Expenses
14. The disclosure states that the Investment Management Fee is an annual
rate of [ ]%
based upon the Fund s average daily net assets. Please reconcile
with the statement
under Conflicts of Interest that the Investment Management Fee is
based on the value of
the Fund s assets. Will the Investment Management Fee be paid on
net assets rather than
managed assets?
The Offering
15. The disclosure states that the Fund, in its sole discretion, may
accept investments below
these [investment] minimums. Please include a cross reference to the
disclosure in the
Prospectus relating to waivers of investment minimums available to
certain groups of
investors.
16. The disclosure states that Shares will generally be offered for
purchase on any day the
New York Stock Exchange ( NYSE ) is open for business (each, a
Business Day ),
except that Shares may be offered more or less frequently as determined
by the Fund in
its sole discretion. Please explain in an appropriate location in the
Prospectus what the
Fund means by more frequently in the statement.
Distribution Policy
17. Please briefly describe the consequences of making distributions from
offering proceeds
or borrowings.
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 4 of 12
18. The last sentence includes cross references to sections titled
Distributions and
Dividend Reinvestment Plan. We note that these sections to not
appear in the
Prospectus.
Repurchase Offers
19. Please revise the discussion to summarize the key features of the Fund
s repurchase
offers as outlined under Tender Offers/Offers to Repurchase and
Tender/Repurchase
Procedures.
Risk Factors
20. Please briefly summarize the principal risks of an investment in the
Fund. [Instruction to
Item 3.2.]
Fund Fees and Expenses
21. Note 1 to the table states that [t]he Fund may impose repurchase fees
of up to 2.00% on
shares accepted for repurchase that have been held for less than one
year. Likewise,
Note 2 states that [u]nless eligible for a waiver, purchases of $[ ]
or more of Class [ ]
Shares will be subject to an early withdrawal charge of 1.00% if the
shares are
repurchased during the first 12 months after their purchase. Please
clarify in the
disclosure that the Fund will not impose both the repurchase fee
referenced in Note 1 and
the early withdrawal charge referenced in Note 2 on the same Shares or
explain the basis
for charging both. Please also revise these statements to clarify that
these fees will not be
charged until the Fund has received an exemptive order permitting the
Fund to charge
such fees.
22. Please delete the last two sentences of Note 3. This disclosure is not
necessary in the
notes to the fee table and is otherwise already disclosed in the
Prospectus.
23. Please add a note to the Fees and Interest Payments on Borrowed Funds
line item
disclosing the expected form(s) of leverage, and the estimated amount (as
a percentage of
Fund assets) and cost of leverage.
24. Note 6 states that the Fund will bear its pro rata share of the expenses
of Private Funds.
Elsewhere the Fund states that it will invest in Underlying Funds, which
are defined in
Risk Factors as mutual funds (including money market funds), BDCs,
closed-end funds,
ETFs and other registered and private investment companies. Fees and
expenses of all
underlying investment companies should be reflected in Acquired Fund Fees
and
Expenses. Please supplementally inform us why the Fund singles out
Private Funds in
this note.
25. Please supplementally confirm that all expenses associated with the
identification,
selection, monitoring and servicing of portfolio investments, to the
extent borne by the
Fund, are reflected under Other Expenses.
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 5 of 12
26. The expense example assumes that the Expense Limitation and Reimbursement
Agreement will remain in effect for two years. The exact term of the
agreement is not yet
disclosed. Please supplementally confirm that the initial term of the
Expense Limitation
and Reimbursement Agreement will remain in effect for at least two years
from the
effective date of the Registration Statement.
Investment Objectives and Strategies
27. The Fund may invest in public equity and equity co-investments.
Please clarify in
the disclosure what is meant by these terms.
28. The investment strategy discussion lists various instruments in which the
Fund may
invest; however, only direct loans are discussed in any detail in the
section. If the Fund
will focus primarily on direct loans, please revise the strategy
discussion throughout to
make this intention clear. Otherwise, please disclose the key
characteristics of the Fund s
principal investments or revise the section to provide a balanced
discussion of all of the
Fund s principal investments.
29. With respect to direct loans, if accurate, please make clear that the
Fund will originate
loans. Please disclose, if accurate, that the Fund will be responsible
for all expenses
associated with originating (including research, due diligence, use of
experts, structuring
and negotiations) and servicing such loans (to the extent not borne by
the borrowers).
Please also disclose the following:
a. any limits on loan origination by the Fund, including a
description of any limits
imposed by the Fund s fundamental investment restrictions (e.g.,
concentration
limits);
b. the loan selection process, including any limits or targets on
maturity and duration
of individual loans, borrower and loan types and geographic
location of the
borrower;
c. the underwriting standards for the loans;
d. whether and to what extent the Fund expects to originate subprime
loans;
e. whether the Fund will be involved in servicing the loans and, if
so, a description
of its servicing obligations; and
f. whether the Fund will set up its own online lending platform to
originate these
loans.
We may have further comments or questions after reviewing your responses.
30. Please supplementally disclose the extent of the Fund s expected
investments in PIK
instruments and OID securities. We may have further comments based on
your response.
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 6 of 12
31. We note that the Principal Risk Factors discuss the risks of investments
and strategies
that are not disclosed in the investment strategy discussion, including:
(a) borrowing/use
of leverage; (b) interest rate management; (c) covenant-lite loans; (d)
preferred securities;
(e) the types of Underlying Funds in which the Fund expects to invest;
(f) derivatives,
including options, swaps, futures contracts, forward agreements and
reverse repurchase
agreements; (g) hedging of currency risk; (h) warehouses; and (i)
co-investments with
affiliates. Please revise the investment strategy discussion to ensure
that all investments
and strategies that are discussed under Principal Risk Factors that are
principal
investments or strategies of the Fund are discussed in the principal
strategies discussion.
If any of the instruments or strategies discussed under Principal Risk
Factors are not
principal investments or strategies, please so indicate and move such
disclosure to a
separate section of the prospectus. [Item 8.4.]
Principal Risk Factors
32. The Principal Risk Factors section is almost 28 pages, divided into
three subsections, and
comprises more than 40% of the length of the Prospectus.
a. Please consider revising the risk factors to consolidate
overlapping or similarly
themed risks. Please group any risks that are not material risks
to the Fund in a
separately headed subsection or move such risks to the SAI.
b. Please reorder the risks to prioritize the risks that are most
likely to adversely
affect the Fund s net asset value, yield and total return. [See
ADI 2019-08 -
Improving Principal Risks Disclosure.]
We may have further comments after reviewing the revised disclosure.
33. Please delete the last sentence under Legal, Tax and Regulatory risk.
The disclosure
should not suggest that the Fund returns could be higher if it did not
have to comply with
applicable laws.
General Investment-Related Risks
34. Please update Pandemic Risk to reflect recent Federal Reserve actions on
interest rates.
Investment Strategy-Specific Investment-Related Risks
35. Please revise the introductory sentence to this section to remove the
reference to the SAI
and replace some of the specific risks with the specific
material risks .
36. The Fund discusses follow-on investments under Need For Follow-On
Investments.
Please supplementally confirm that follow-up funding does not refer to a
contractual
obligation to make further investment in a company, whether such
commitment is
unconditional or subject to specified conditions. Also, if the Fund may
be prevented
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 7 of 12
from making certain follow-on investments because it has not received a
co-investment
exemptive order, please address this in the risk factor.
37. Under Repurchase Offers; Limited Liquidity, Please provide a more fulsome
disclosure of
the risks of the Fund s share repurchase program including, to the
extent applicable, the
following risks:
a. to the extent the Fund sells portfolio holdings in order to fund
repurchase
requests, the repurchase of Shares may be a taxable event for
shareholders;
b. repurchase offers may force the Fund to maintain a higher
percentage of its assets
in liquid investments, which may harm the Fund s investment
performance;
c. if the Fund uses leverage, repurchases of Shares may compound the
adverse
effects of leverage in a declining market;
d. if the Fund borrows money to finance repurchases, interest on that
borrowing will
negatively affect shareholders who do not tender their Shares by
increasing Fund
expenses and reducing any net investment income;
e. use of offering proceeds to fund Share repurchases may constitute
a return of
capital and will lower a shareholder s tax basis in his or her
shares, and that any
capital returned to shareholders through repurchases will be
distributed after
payment of Fund fees and expenses; and
f. the Fund may involuntarily repurchase Shares under certain
circumstances.
38. The Fund includes Focused Investment Risk. If the Fund intends to focus
investment in
any particular industry or sector, please identify with specificity and
add applicable risk
disclosure.
39. Underlying Fund Risk discusses the risk that shares of ETFs and
closed-end funds may
trade at premiums or discounts to their NAVs. Please add that the bid-ask
spread on ETF
and closed-end fund shares may widen under the same circumstances. Please
also briefly
explain in the disclosure the terms premium or discount to NAV and
bid-ask spread.
40. Under Derivative Instruments the disclosure states that the Fund may
use options,
swaps, futures contracts, forward agreements, reverse repurchase
agreements and other
similar transactions. If the other similar transactions are
principal investments, please
specify what these are. If not, please remove the catch-all from the
sentence.
41. Please update Derivative Instruments and Segregation and Coverage Risk in
this section
and Fundamental Policies in the SAI in light of the compliance date for
Rule 18f-4 under
the 1940 Act and the elimination of SEC guidance on asset segregation to
cover
derivatives positions.
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 8 of 12
42. Under Foreign Investments, the disclosure states that the Fund may
invest in emerging
markets. If the Fund will invest significantly in China, please add
China-specific risk
disclosure.
43. Under RIC-Related Risks of Generating Non-Cash Taxable Income, please
add disclosure
to address the following comments:
a. make clear that PIKs are OID securities;
b. annual distribution requirements may be paid from offering
proceeds; and
c. the required recognition of OID interest for U.S. federal income
tax purposes may
have a negative impact on liquidity (because it represents a
non-cash component
of the Fund s taxable income that must, nevertheless, be
distributed in cash to
avoid the Fund being subject to corporate level taxation).
Management of the Fund
44. The disclosure states that the Investment Manager is responsible
for determining and
implementing the Fund s overall investment strategy. Please
provide a more detailed
description of the Investment Manager s duties in this regard.
Investment Management Fees
45. Please add the statement required by Item 9.1(b)(4).
Administration
46. Please add Transfer Agency to this heading as Ultimus Fund
Solutions, LLC will also
serve as the Fund s transfer agent.
Fund Expenses
47. The Fund will bear the fees and expenses in connection with its
organization. Please
disclose how the expenses will be amortized and the period over which
the amortization
will occur. [Item 9.1(f).]
Voting
48. If fractional Shares have fractional voting rights, please so state.
Conflicts of Interest
49. The disclosure identifies the use of leverage as creating a conflict
of interest for the
Investment Manager. We note that the Investment Management Fee is
calculated based
on the Fund s average daily net assets and does not include
assets attributable to
leverage. Please revise to explain how leverage creates a conflict of
interest for the
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 9 of 12
Investment Manager when assets attributable to leverage are not included
for purposes of
calculating the Investment Management Fee.
Tender Offers/Offers to Repurchase and Tender/Repurchase Procedures
50. There is no discussion of the Fund conducting tender offers pursuant to
rule 13e-4 of the
Securities Exchange Act of 1934, as amended. To avoid investor confusion,
please
remove the reference to tender offers from both headings and elsewhere in
the
Prospectus.
51. The two sections contain duplicative and sometime conflicting disclosure.
To aid in
investor understanding of the repurchase offer mechanics, please consider
streamlining
the disclosure by consolidating the sections and eliminating duplicative
and inconsistent
disclosure.
52. Please add the following information to the discussion:
a. how and until when shareholders may withdraw or modify their
tenders;
b. how shareholders may ascertain the NAV per share during the period
that the
repurchase offer is open;
c. that if the exemptive order is granted, the Fund will/may impose
an early
repurchase fee of up to 2.00% on Shares accepted for repurchase
that have been
held for less than one year. That the early repurchase fee will
only be imposed if
the Fund receives an exemptive order from the SEC permitting
imposition of the
fee and that there is no assurance that the SEC will grant such
relief;
d. if a repurchase offer is suspended or postponed, the Fund will
provide notice to
shareholders of such suspension or postponement. If the Fund
renews the
repurchase offer, it will send a new notice to shareholders; and
e. a cross reference to the discussion of the federal tax
consequences to shareholders
of the repurchase of Shares.
53. Please consider disclosing the current expected percentage of share to be
repurchased and
in which months quarterly repurchase offers are expected to occur.
54. The Fund states that it may enter into one or more credit agreements or
other similar
agreements to, among other things, satisfy repurchase requests from
shareholders. If the
Fund intends to incur debt to finance Share repurchases, please disclose
the maximum
amount of debt that may be incurred for this purpose and the restrictions
on leverage
imposed by Rule 23c-3.
55. The disclosure states that if a repurchase offer is oversubscribed,
the Fund may offer to
repurchase additional Shares in an amount determined by the Board that
are tendered by
an estate (an Estate Offer ) and [i]f a Shareholder tenders a
portion of his Shares and
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 10 of 12
the repurchase of that portion would cause the Shareholder s account
balance to fall
below this required minimum of $[ ], the Fund reserves the right to
repurchase all of such
Shareholder s outstanding Shares. We note that these adjustment
violate the all holders
rule. Please remove the disclosure or explain your legal basis for
these adjustments.
Transfer of Shares
56. Please confirm that the transfer restrictions disclosed in this section
are applicable and if
not, revise as necessary.
Credit Facility
57. Please consolidate the discussion under Credit Facility in a new
section discussing the
Fund s use of leverage generally. Consider moving the new leverage
discussion to
follow Investment Objectives and Strategies. Please ensure that the
discussion covers the
form(s) of leverage the Fund expects to use, Fund and regulatory limits
on the use of
leverage, that shareholders will bear all costs and expenses associated
with any leverage
incurred by the Fund, and a discussion of, or cross-reference to, the
risks associated with
the use of leverage.
58. Please disclose the material restrictions that the Fund would expect in
entering into a
credit facility. Please supplementally disclose if the terms of any
credit facility are
expected to be finalized before the requested date of acceleration. If
so, please update this
section in a pre-effective amendment to address the actual portfolio
limits and other
material terms of the credit facility. Please also file the executed
credit facility (which
may be redacted in accordance with Form N-2) as an exhibit to the
Registration
Statement.
59. Please supplementally disclose whether the Fund intends to issue senior
securities within
twelve (12) months of the effective date of this Registration
Statement. We may have
further comments depending on your response.
Taxes
60. Please consider adding a discussion of the federal tax treatment of the
Fund s investments
in Underlying Funds.
Sales, Exchanges and Redemptions
61. Please revise this section to reflect that the Shares may only be
redeemed through the
Fund s share repurchase program.
Description of Shares
62. The disclosure states that the Board may vary the characteristics of
Class [ ], Class [ ]
and Class [ ] Shares and lists examples of the variations that may
be effected by Board
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 11 of 12
action. Please supplementally explain how the Board may vary the
characteristics of
existing classes with respect to the variations described in (1), (2),
and (5).
Purchasing Shares
63. Please revise the discussion under Purchase Terms to reflect the Fund
s operation as a
continuously offered fund.
STATEMENT OF ADDITIONAL INFORMATION
Fundamental Policies
64. The staff believes that the Fund s statement in the last sentence of
the first paragraph
conflicts with Section 8(b)(1) of the 1940 Act. Please remove the
sentence.
65. With respect to the fifth fundamental policy, please disclose that the
Fund intends to look
through a private activity municipal bond whose principal and interest
payments are
principally derived from the assets and revenues of a non-governmental
entity in order to
determine the industry to which the investment should be allocated when
applying the
Fund s concentration policy.
66. Please revise the explanatory note on senior securities in light of the
treatment of reverse
repurchase agreements, short sales and unfunded commitment agreements
under Rule
18f-4.
PART C
Item 30. Indemnification
67. Please include the statement required by Rule 484(b)(3) under the 1933
Act.
Signatures
68. We note that the Registration Statement is signed by a single trustee of
the Fund. Please
ensure that any subsequent amendment satisfies the signature
requirements of Section
6(a) of the 1933 Act.
* * * *
We remind you that the Fund and its management are responsible for the
accuracy and
adequacy of their disclosures, notwithstanding any review, comments, action, or
absence of
action by the staff.
Response to this letter should be in the form of a pre-effective
amendment filed pursuant
to Rule 472 under the 1933 Act. Where no change will be made in the filing in
response to a
comment, please indicate this fact in your response letter and briefly state
the basis for your
Veena K. Jain
Faegre Drinker Biddle & Reath LLP
October 13, 2022
Page 12 of 12
position. Should you have any questions regarding this letter prior to filing
the pre-effective
amendment, please contact me at (202) 551-6907 or chooy@sec.gov.
Sincerely,
/s/ Yoon Choo
Senior Counsel
cc: Andrea Ottomanelli Magovern, Assistant Director
Sally Samuel, Branch Chief