April 26, 2023
VIA E-mail
Ann Maurer
235 West Galena Street
Milwaukee, WI 53212
Re: First Trust Hedged Strategies Fund (the Fund )
File Nos. 811-23857, 333-270842
Dear Ms. Maurer:
We have reviewed the Fund s registration statement on Form N-2 filed
with the
Securities and Exchange Commission on March 24, 2023, with respect to an
offering of common
shares. Our comments are set forth below. Please consider a comment made with
respect to one
section applicable to similar disclosure elsewhere in the registration
statement. All capitalized
terms not otherwise defined herein have the meaning given to them in the
registration statement.
General Comments
1. We note that portions of the registration statement are incomplete. We
may have
additional comments on such portions when you complete them in a
pre-effective
amendment, on disclosures made in response to this letter, on information
supplied
supplementally, or on exhibits added in any amendments.
2. In addition to co-investment exemptive relief from the provisions of
section 17(d) of the
Investment Company Act, please supplementally explain if the Fund has
submitted or
intends to submit any other exemptive applications or a no-action request
in connection
with the registration statement. Please inform us of the anticipated
timing of any
applications or requests for relief.
3. Please confirm that the Fund does not intend to issue debt securities or
preferred shares
within a year from the effective date of the registration statement. If
the Fund plans to
issue preferred shares within a year from the effectiveness of the
registration statement,
please include additional disclosure of risks to shareholders in the
event of a preferred
shares offering.
4. The registration statement appears to contemplate a transaction with the
Predecessor
Fund that will occur after your decision to become registered as an
investment company.
Ann Maurer
First Trust Hedged Strategies Fund
Page 2
Please tell us how this transaction will be structured to comply with
section 17 of the
Investment Company Act, including any no-action relief upon which you
intend to rely.
5. 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.
Prospectus
Cover
6. In the third paragraph on the cover, the disclosure states that
simultaneous with the
commencement of the Fund s operations, the Predecessor Fund will be
reorganized into
the Fund. Please disclose how the private fund holders shares will be
valued for
purposes of the reorganization. Will there be any dilution for other
shareholders who
purchase shares in the initial offering? If so, please provide
appropriate cover page and
prospectus disclosure. Please explain in correspondence what information
investors will
have available to them about the Predecessor Fund and its portfolio prior
to purchasing
Fund shares.
7. In footnote 1 to the table on the cover, the disclosure in the last two
sentences states The
minimum initial investment in Class A Shares by any investor is $[25,000]
and the
minimum initial investment in Class I Shares by any investor is
$[25,000]. However, the
Fund, in its sole discretion, may accept investments below this minimum.
Please
explain to us the circumstances under which the Adviser may reduce the
stated minimum
investment.
8. In Investment Objective and Strategies, please explain in the disclosure
what a hedge
fund is. Please also specify the Fund s principal strategies that are
speculative (e.g., use
of leverage) and include a cross-reference to the disclosure regarding
the risks associated
with these strategies. See Form N-2, Item 1.1.j. and the Guidelines to
Form N-2, Guide
6.
9. In Interval Fund, please specify the intervals between deadlines for
repurchase requests
and pricing and repayment. See Guide 10 to Form N-2.
Fund Summary
Fees and Expenses (pages 3-4)
10. In the last paragraph on page 4, regarding the Waiver, please disclose
that the Adviser s
recoupment may not exceed the net expense ratio in place at the time
amounts were
waived, and may not exceed the Fund s current net expense ratio.
Ann Maurer
First Trust Hedged Strategies Fund
Page 3
Fund Fees and Expenses
11. In the narrative preceding the fee table, please disclose the amount of
Fund leverage
assumed in making the fee calculations.
12. Please revise the fee table footnotes to explain any material
assumptions used in
estimating expenses. To the extent an estimate is materially different
from what the
Predecessor Fund would have disclosed, had it been registered
previously, please explain
the reasons for the variance in correspondence.
Investment Objective and Strategies
Investment Objective
13. In the last line on page 9, the disclosure states the Fund s
investment objective is non-
fundamental and may be changed by the Board without the approval of
shareholders. If
shareholders will be given notice of a change in the Fund s investment
objective, please
disclose so.
Investment Strategies and Overview of Investment Process
14. On page 10, in Credit, the disclosure states that the Fund may invest in
Investment Funds
using a distressed and high-yield sub-strategy that involves
investing in the securities
of companies having below investment grade credit ratings. Please
disclose that such
securities are commonly referred to as junk and may be considered
speculative.
15. On page 12, in Investment Process, the disclosure in the second sentence
of the first
paragraph refers to the Investment Adviser s operational due
diligence as part of its
multi-step Underlying Manager selection process. Please disclose
in this section how
the Investment Adviser conducts its operational due diligence
(i.e., what does the
Investment Adviser s due diligence entail?).
16. On page 13, in the first paragraph of Investment Policies and
Restrictions, the disclosure
states The Fund will continue to attempt to diversify its holdings in
Investment Funds
and it also expects to continue to diversify its holdings among broad
categories of
investment strategies [emphasis added]. As the Fund is categorized as
non-diversified
under the Investment Company Act, to avoid confusion, please either
delete or replace
the word diversify each time it is used here.
17. On page 13, in the penultimate sentence of No Restrictions on Investment
Policies, the
disclosure states that the Investment Adviser will seek to capitalize
on attractive
opportunities wherever they might be, and in the following sentence,
that the
Investment Adviser may employ other strategies or techniques that it
considers
appropriate and in the best interest of the Fund. The Fund is
conducting a continuous
offering that requires it to consider the accuracy and completeness of
its disclosures
including its strategies and risks disclosures on an on-going basis.
We do not believe
Ann Maurer
First Trust Hedged Strategies Fund
Page 4
simply referencing other strategies or techniques would be
sufficient disclosures if such
strategies constitute principal strategies. Please clarify whether such
other strategies and
techniques are expected to constitute principal strategies and revise
as necessary.
Principal Risk Factors
18. On page 17, in Borrowing, Use of Leverage, the disclosure states the
Fund s portfolio
may be exposed to the risk of highly leveraged investment programs of
certain
Investment Funds. Please also disclose that the Fund may be exposed
to similar risks
through its own use of leverage.
19. On page 28, in Reliance on Quantitative Analysis, the disclosure
discusses the risks
associated with the Investment Funds reliance on quantitative models
and systems.
Please also disclose the risks associated with the Fund s use of
quantitative analysis in its
investment process.
20. On page 32, in Asset-Backed Securities, the disclosure states
Investment Fund
investments may also include private mortgage pass-through securities
that are issued by
originators of, and investors in, mortgage loans, including savings and
loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of
the foregoing. Please update this disclosure as appropriate to
address current risks
associated with investment in banks and other financial institutions, as
well as the risks
associated with investment in mortgage-backed or other securities
connected to the
commercial real estate market.
21. On page 38, Interest Rate Risk, the disclosure states Although
government financial
regulators, such as the U.S. Federal Reserve, have taken steps to
maintain historically low
interest rates, they may raise rates at any time. Please update this
disclosure to reflect
current economic events, including the Federal Reserve s raising of
interest rates and any
resulting risks to the Fund.
22. On page 40, please delete the first sentence of Limits of Risk
Disclosures as it implies the
disclosure in the registration statement is materially incomplete.
Passport Select: Model Class of FT Alternative Platform I LLC Performance
23. To the extent that you present quarterly performance net of fees, please
include 2018 so
that you have five years performance, consistent with your Average
Annual Returns
table.
24. With respect to the Predecessor Fund, supplementally, please:
a. Describe the background of the Predecessor Fund, including
information about
when and why the Predecessor Fund was created. Please also state
the exemption
or exclusion from the definition of investment company upon which
the
Predecessor Fund relied;
Ann Maurer
First Trust Hedged Strategies Fund
Page 5
b. Confirm that the Investment Adviser was the adviser for the
Predecessor Fund for
the entire performance period shown. In addition, please discuss
whether the
Investment Adviser managed any other accounts or private funds
that were
materially equivalent to the Fund. Were these other accounts
converted to
registered investment companies, and if not, why not? Please
explain why the
Predecessor Fund was chosen to be registered and if any other
materially
equivalent account had lower performance as compared with the
Predecessor
Fund;
c. State whether the Predecessor Fund transferred substantially all
of its portfolio
securities or whether the Predecessor Fund transferred only a
portion of its assets
to the Fund and if so, how much was transferred;
d. If the Predecessor Fund engaged in any transactions, or made any
distributions,
not in the ordinary course within the past year, explain the
nature of the event and
why it occurred;
e. State whether the Investment Adviser believes that the
Predecessor Fund could
have complied with Subchapter M of the Internal Revenue Code;
f. Describe whether the Predecessor Fund made any investment
strategy changes
within a one-year period prior to the date the registration
statement was filed and
whether such changes were made in anticipation of the conversion
to a registered
investment company. In addition, please discuss any variation in
the level of
assets (e.g., via redemptions, transfers of assets to another
person or fund, cash
infusions) of the Predecessor Fund within a one year period prior
to the date the
registration statement was filed. If any investors in the
Predecessor Fund
redeemed out of the Predecessor Fund within one year of this
date, please
describe whether such investors were able to invest in an account
or a private fund
with substantially similar investment strategies to those of the
Predecessor Fund;
and
g. Please represent that the Predecessor Fund has the records
necessary to support
the calculation of the performance as required by rule
204-2(a)(16) under the
Advisers Act.
Transfer of Shares
25. The disclosure on page 50 states that transferees by operation of law
are entitled to
distributions, to transfer or tender shares but [are] not entitled to
the other rights of a
Shareholder unless and until the transferee becomes a substituted
Shareholder as
specified in the Declaration of Trust. Please tell us what other
rights are covered by
this statement and the procedures that must be followed to become a
substituted
Shareholder. Please clarify how this provision impacts rights
shareholders may have
under the federal securities laws.
Ann Maurer
First Trust Hedged Strategies Fund
Page 6
Calculation of Net Asset Value
26. On page 51, the disclosure states The Investment Adviser s
Valuation Committee will
oversee the valuation of the Fund s investments on behalf of the Fund.
Please disclose
the conflict this presents as the Management Fee is based on a
percentage of the Fund s
net assets.
Shareholder Taxation
27. On page 55, there is a discussion of the tax implications for Sales,
Exchanges and
Redemption of Fund shares. However the only source of liquidity for
Fund shares is
through quarterly repurchase offers there are no opportunities for
share exchanges or
share redemptions. Please revise this section as appropriate.
28. Please disclose the tax consequences to Shareholders of share
repurchases and related
portfolio security sales.
29. Please also disclose the effect that share repurchases might have on the
ability of the
Fund to qualify as a RIC under federal tax law in the event that share
repurchases have to
be funded with proceeds from the liquidation of portfolio securities.
Statement of Additional Information
30. On page 4, Fundamental Policies, in the Fund s concentration policy
(#7), the disclosure
states The Fund will not invest 25% or more of its assets in an
Investment Fund that it
knows concentrates its assets in a single industry. Please revise the
concentration policy
or otherwise clarify in the section Non-Fundamental Policies that the
Fund will not invest
in Investment Funds that the Fund knows, in the aggregate, have invested
25% or more of
their combined assets in any particular industry.
Exhibits
Agreement and Declaration of Trust
31. Please disclose in an appropriate place within the prospectus the
provisions of Section
2.10 Legal Proceedings requiring that a Shareholder make a pre-suit
written demand
upon the Fund Trustees to bring a derivative action and that the
Trustees must be
afforded a reasonable amount of time to consider the Shareholder s
request. Please also
disclose in the prospectus that the requirements for bringing derivative
actions outlined in
Section 2.10 do not apply to claims brought under the federal securities
laws.
* * * * * * *
Ann Maurer
First Trust Hedged Strategies Fund
Page 7
A response to this letter should be in the form of a pre-effective
amendment filed
pursuant to Rule 472 under the Securities Act. The pre-effective amendment
should be
accompanied by a supplemental letter that includes your responses to each of
these comments.
Where no change will be made in the filing in response to a comment, please
indicate this fact in
your supplemental letter and briefly state the basis for your position.
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.
Should you have any questions regarding this letter, please contact me
at (202) 551-
6779 or Rossottok@sec.gov.
Sincerely,
/s/ Karen Rossotto
Karen Rossotto
Senior Counsel
cc: Veena K. Jain, Esq. and Joshua B. Deringer, Esq., Faegre Drinker Biddle &
Reath LLP
Jay Williamson, Securities and Exchange Commission
David Manion, Securities and Exchange Commission