486BPOS: Alternative Credit Income Fund Files Post-Effective Amendment, Outlines Investment Strategy and Risks

Alternative Credit Income Fund updates its registration statement, detailing its investment objectives, policies, risk factors, and management structure.

Summary

• Alternative Credit Income Fund, a continuously offered, diversified, closed-end management investment company, filed a post-effective amendment to its registration statement.
• The fund's investment objectives are to generate current income and preserve capital with moderate volatility and low to moderate correlation to broader equity markets.
• The fund invests at least 80% of its assets in fixed-income and fixed-income related securities.
• The fund may employ leverage up to 33% of its assets and invest in public and private investment funds that may also use leverage.
• The fund offers quarterly repurchase offers for at least 5% of its outstanding shares at NAV.
• Key risks include illiquidity of shares, market risks, interest rate risks, credit risks, and risks associated with investments in public and private investment funds.
• Sierra Crest Investment Management LLC serves as the investment adviser and is entitled to a base management fee of 1.85% and an incentive fee based on the fund's performance.
• The Adviser has agreed to waive its management fees and to pay or absorb the ordinary operating expenses of the Fund to the extent that its management fees plus the Funds ordinary annual operating expenses exceed 2.59% per annum of the Funds average daily net assets attributable to Class A shares, 3.34% per annum of the Funds average daily net assets attributable to Class C shares, 2.59% per annum of the Funds average daily net assets attributable to Class W shares, 2.34% per annum of the Funds average daily net assets attributable to Class I shares and 2.84% per annum of the Funds average daily net assets attributable to Class L shares.
• The fund offers Class A, Class C, Class I, Class L and Class W shares with varying fees and expenses.
• The fund's distribution policy targets a quarterly distribution equivalent to an annual rate of greater than 7.00% of the fund's current NAV per share class.

Sentiment

Score: 6

Explanation: The document is neutral in tone, providing factual information about the fund's operations, investment strategy, and risks. While it highlights potential benefits, it also emphasizes the risks involved, resulting in a balanced assessment.

Positives

• The fund aims to provide both current income and capital preservation.
• The fund targets moderate volatility and low correlation to broader equity markets, potentially appealing to investors seeking diversification.
• The Adviser has agreed to waive its management fees and to pay or absorb the ordinary operating expenses of the Fund to the extent that its management fees plus the Funds ordinary annual operating expenses exceed 2.59% per annum of the Funds average daily net assets attributable to Class A shares, 3.34% per annum of the Funds average daily net assets attributable to Class C shares, 2.59% per annum of the Funds average daily net assets attributable to Class W shares, 2.34% per annum of the Funds average daily net assets attributable to Class I shares and 2.84% per annum of the Funds average daily net assets attributable to Class L shares.
• The fund offers quarterly repurchase offers for at least 5% of outstanding shares at NAV, providing some liquidity to investors.

Negatives

• Shares are illiquid as they are not listed on any securities exchange and there is no secondary market.
• The fund may use leverage, which can magnify losses.
• The fund is subject to market risks, including interest rate risks and credit risks.
• The fund may invest in public and private investment funds, resulting in two layers of fees and expenses.
• The fund may invest in illiquid and restricted securities.
• The fund's distribution policy may result in a return of capital, reducing invested assets and increasing the expense ratio.

Risks

• Shares are not listed on any securities exchange, making them illiquid.
• There is no secondary market for the fund's shares.
• The fund may use leverage, which can magnify losses.
• The fund is subject to market risks, including interest rate risks and credit risks.
• The fund may invest in public and private investment funds, resulting in two layers of fees and expenses.
• The fund may invest in BDCs and Non-Traded BDCs, which are not redeemable at the option of the shareholder and they may trade in the market at a discount to their NAV.
• The fund may invest in ETFs, which are subject to all of the risks of a direct investment in the underlying securities that the ETF holds.
• The fund may invest in CDOs and other structured products, consisting of CBOs, CLOs and credit-linked notes.
• Below investment grade instruments may be particularly susceptible to economic downturns, which could cause losses.
• The Funds NAV may be more volatile because it invests in mediumand small-capitalization companies, which have fewer capital resources and shorter operating histories relative to larger companies.
• The Fund may be required to pay the Adviser incentive compensation for a quarter even if there is a decline in the value of the Funds portfolio or if the Fund incurs a net loss for that quarter because the Adviser is entitled to receive incentive compensation on income regardless of any capital losses.
• The incentive fee payable by the Fund to the Adviser may create an incentive for the Adviser to make investments on the Funds behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement and may encourage the Adviser to use leverage to increase the return on the Funds investments.
• The Funds distribution policy may, under certain circumstances, have certain adverse consequences to the Fund and its shareholders because it may result in a return of capital resulting in less of a shareholders assets being invested in the Fund and, over time, increase the Funds expense ratio.

Future Outlook

The Adviser believes that global economic trends increasingly favor alternative asset class investment strategies and that it can capitalize on these trends to provide superior risk-adjusted income and returns relative to other credit investments while adhering to the liquidity needs of the Fund.

Industry Context

The announcement reflects a trend among investment funds to offer alternative credit strategies in a closed-end format, providing investors with access to less liquid asset classes while managing liquidity through periodic repurchase offers. This structure aims to balance the benefits of investing in alternative assets with the need for investor liquidity.

Comparison to Industry Standards

• The fund's investment strategy of focusing on fixed-income and fixed-income related securities, including senior and subordinated debt, CLOs, and other structured products, is comparable to other credit-focused closed-end funds such as those managed by Ares Capital Corporation (ARCC) and Blackstone (BXSL).
• The fund's expense ratio, after fee waivers, is in line with other actively managed closed-end funds with similar investment strategies.
• The fund's use of leverage, up to 33% of assets, is a common practice among closed-end funds seeking to enhance returns, but it also increases risk.

Stakeholder Impact

• Shareholders are provided with information to make informed investment decisions.
• The fund's investment activities may impact the companies and entities in which it invests.
• The fund's distribution policy may affect shareholders' tax liabilities.

Next Steps

• The fund will continue to offer shares on a continuous basis.
• The fund will make quarterly repurchase offers for its shares.
• The Adviser will continue to manage the fund's investments in accordance with its investment objectives and policies.

Key Dates

Keywords

Alternative Credit Income Fund, closed-end fund, interval fund, fixed-income, investment strategy, risk factors, management fees, repurchase offers, leverage, distributions