Q3 2019 Commentary

Q3 2019 Commentary

Q319 Commentary

The Fund (NICHX) returned +2.97% in the third quarter of 2019, outperforming investment grade bonds, high yield corporate debt and hedge fund indices.  Over the trailing year ending September 30, the Fund was up +11.77%, outperforming these same indices over that period.

The Fund’s positive performance in Q3 was largely unrelated to the movements in interest rates, credit markets and other risk assets, but rather driven by events in individual portfolio exposures.  Over the quarter and since inception, the Fund has displayed limited correlation or beta to public market indices in fixed income and equity markets.

In terms of performance attribution, most positions performed at or near expectations with no single position accounting for more than 15% of the quarterly return.   A few of the largest positive drivers of performance included the closing of a new secondary acquisition of an LP interest, specialized care in the UK, medical insurance recoveries, law firm lending and reperforming residential mortgages. The primary detractor from performance was a further write-down on a senior credit facility related to small business receivables financing.

New exposures to the portfolio include a litigation finance strategy involving the recovery of medical insurance claims, a re-up into fund 2 of an aircraft leasing fund, two new art finance transactions and a co-investment opportunity with a current specialty finance partner.  In addition, the Fund originated two new senior credit facilities during the quarter, one providing short-term financing options to landholders of oil and gas royalties and the other a diversified lender in the specialty finance arena.  A variety of existing investment relationships were upsized over the quarter, particularly credit facilities backed by law firm lending, a strategy focused on reperforming residential mortgages, a hard money lender targeting first lien real estate and business loans and CLO warehousing.  The addition of the new investments served to further diversify the portfolio, which now holds 60 different positions across ten asset classes.

For current performance and holdings, please click here.

Inception date is October 2, 2017.  Returns are net total returns.  Between October 2017 and September 2018, performance is quoted for the Variant Alternative Income Fund LP, the predecessor private fund that converted into the interval fund.  The predecessor fund was, in all material respects, equivalent to the interval fund.  The private fund track record was adjusted to reflect the interval fund’s estimated expenses and expense limitations.  Specifically, it reflects a management fee of 0.95% and fund expenses capped at 0.50%.  The track record uses geometric returns and reflects the reinvestment of earnings.  Results are unaudited.

Correlation is the performance relationship between the Fund and the reference indices on a monthly basis over the period. Beta measures the volatility of the Fund relative to the reference indices over the period.

“IG bonds” & “BBG Agg ” refer to the Bloomberg Barclays U.S. Aggregate Index, which is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. “High yield” & “BBG HY” refer to the Bloomberg Barclays U.S. High Yield Index, which measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. “Hedge funds” & “HFRXGL” refer to the HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe.  Please note:  The referenced indices are shown for general market comparisons.  Investors cannot directly invest in an index and unmanaged index returns do not reflect any fees, expenses or transaction costs.  Reference indices are provided for illustrative purposes only.  There are no known published benchmarks or indices comparable to the investment strategies of the Fund.

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 newly-organized closed-end management investment company that has limited operating history and no public trading of its shares. 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, 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.

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.  PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.

Foreside Fund Services, LLC, distributor.

Variant Investments
Curt@VariantInvestments.com