TIDMBHMG TIDMBHMU
BH Macro Limited
Annual Report and Audited Financial Statements 2022
LEI: 549300ZOFF0Z2CM87C29
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
The Company has today, in accordance with DTR 6.3.5, released its Annual Report
and Audited financial statements for the year ended 31 December 2022. The
Report will shortly be available from the Company's website: www.bhmacro.com.
Chair's Statement
I am delighted to report that Brevan Howard Capital Management LP (the
"Manager") achieved excellent returns in 2022 during a turbulent period in
markets, the global economy and geopolitics. The price of the Sterling Class
shares rose by 20.05% and the US Dollar Class shares by 12.72%, whilst the NAV
per share rose by 21.91% for the Sterling Class shares and 21.17% for the US
Dollar Class shares. In addition to these solid absolute returns, we also
posted impressive relative returns compared with other asset classes. This
absolute and relative performance makes BH Macro Limited a cornerstone in our
investors' portfolios.
We anticipated that it was going to be a challenging investing environment in
last year's report. In the event, we weren't surprised by the volatility. Some
of the worst of our expectations came to pass: the invasion of Ukraine, soaring
energy costs, the highest inflation for 40 years, and repeated interest rates
rises globally. The UK exacerbated this background with a revolving door at 10
Downing Street and lurches in policy which de-stabilised markets. Coming into
2023, stock markets enjoyed one of their best starts to a calendar year and
appeared to be embracing an expectation that despite the negative backdrop and
continued inflation, that a soft landing would be achieved. That hope hit the
skids in March when the Fed and the ECB turned more hawkish on inflation and
unleashed a cascade of bank failures and retrenchments. The optimistic scenario
of a soft landing appears to be very much under review. Having said that, your
Board remains confident that your Company's Manager is very well placed to
weather these choppy waters and, given BH Macro's longstanding track record of
performing in such uncertain environments, the case for holding the Company in
an investment portfolio remains as strong as ever.
The Board is wholly independent of the Brevan Howard group and is very closely
focussed on safeguarding the interests of shareholders. To that end, the Board
maintains a regular dialogue with the Manager in order to assure itself of the
quality of the investment team and supporting systems, operations and
infrastructure across the organisation. The Manager has continued an intense
focus on developing the quality and depth of the trading team, including
expanding capabilities into new, related areas, designed to add complementary
performance and diversified return streams for the benefit of the Company,
while allowing the Manager to manage a greater pool of assets. I believe that
the trading team today is the strongest it has ever been.
During 2022 the Board was strengthened by the appointment of Caroline Chan, a
highly experienced Guernsey and international corporate lawyer. Caroline is a
tremendous addition and I, together with the rest of the Board greatly look
forward to working closely with her. We also conducted the periodic external
evaluation of the Board's effectiveness which reconfirmed our high standards of
corporate governance.
The strength of your Company has been reflected in the significant demand for
its shares which traded at a premium through 2022. As a result significant tap
issuances were effected during the year raising a further £175m ($218m) in the
Sterling Class and $13m for the US Dollar Class. Despite this, demand for the
shares remained strong and your Board was able to negotiate a significant
capacity agreement with the Company's Manager. Subsequently, an offer for sale
by way of subscription was made to satisfy this demand coupled with a 10:1
share split to improve the liquidity of the shares, in particular, for smaller
investors. This resulted in a very strongly subscribed initial offer that
raised £312.3m and US$3.3m in each respective share class, with the option for
a further offer to be made within the subsequent 12-month period.
The Company and its Manager have continued to pursue an active programme for
public communication and investor relations. Up-to-date performance information
is provided through NAV data published monthly on a definitive basis and weekly
on an estimated basis, as well as through monthly reports and shareholder
reports. All these reports and further information about the Company are
available on its website (www.bhmacro.com).
In conclusion, the global macro-economic backdrop remains highly complex and
uncertain. We anticipate that markets are likely to remain challenging for
investors to navigate for the foreseeable future. Your Board is very confident
in the Manager and believes it is very well placed to profit from these
challenges. In that context, we believe the company has an important and
valuable role to play in investors' portfolios. Together, we will continue to
work hard on your behalf to deliver the long term diversifying returns that set
BH Macro Limited apart from most other investments.
I would like to take this opportunity to thank you all for your continuing
support.
Richard Horlick
Chair
28 March 2023
Board Members
The Directors of the Company for the year and as at the date of signing, all of
whom are non-executive, are listed below:
Richard Horlick (Chair)
Richard Horlick is UK resident. He is currently the non-executive chairman of
CCLA Investment Management which manages assets for over 38,000 charities and
church and local authority funds. He has served on a number of closed end fund
boards. He was a partner and non-executive chairman of Pensato Capital LLP
until its successful sale to RWC Partners in 2017. He has had a long and
distinguished career in investment management graduating from Cambridge
University in 1980 with an MA in Modern History. After 3 years in the corporate
finance department of Samuel Montagu he joined Newton Investment Management in
January 1984, where he became a Director and portfolio manager. In 1994, he
joined Fidelity International as President of their institutional business
outside the US and in 2001 became President and CEO of Fidelity Management
Trust Company in Boston which was the Trust Bank for the US Fidelity Mutual
fund range and responsible for their defined benefit pension business. In 2003,
he joined Schroders Plc as a main board Director and head of investment
worldwide. Mr. Horlick was appointed to the Board in May 2019 and was appointed
Chair in February 2021.
Caroline Chan
Caroline has over 30 years' experience as a corporate lawyer, having retired
from private practice in 2020. After studying law at Oxford University,
Caroline qualified as an English solicitor with Allen & Overy, working in their
corporate teams in London and Hong Kong. On returning to Guernsey in 1998,
Caroline qualified as a Guernsey advocate and practised locally, including as a
partner with law firms Ogier and Mourant Ozannes. Since retiring from private
practice, Caroline has taken on non-executive directorship roles and is Chair
of the Board of Governors of The Ladies' College, Guernsey. She has recently
retired as a member of the Guernsey Competition and Regulatory Authority. Ms.
Chan is a Guernsey resident and was appointed to the Board in December 2022.
Julia Chapman
Julia Chapman is a Jersey resident and a solicitor qualified in England & Wales
and in Jersey with over 30 years' experience in the investment fund and capital
markets sector. After working at Simmons & Simmons in London, she moved to
Jersey and became a partner of Mourant du Feu & Jeune (now Mourant) in 1999.
She was then appointed general counsel to Mourant International Finance
Administration (the firm's fund administration division). Following its
acquisition by State Street in April 2010, Julia was appointed European Senior
Counsel for State Street's alternative investment business. In July 2012,
Julia left State Street to focus on the independent provision of directorship
and governance services to a small number of investment fund vehicles. Mrs.
Chapman was appointed to the Board in October 2021.
Bronwyn Curtis
Bronwyn Curtis is a UK resident and Senior Executive with 30 years leadership
in finance, commodities, consulting and the media. Her executive roles included
Head of Global Research at HSBC Plc, Managing Editor and Head of European
Broadcast at Bloomberg LP, Chief Economist of Nomura International, and Global
Head of Foreign Exchange and Fixed Income Strategy at Deutsche Bank. She has
also worked as a consultant for the World Bank and UNCTAD. Her other current
appointments include non-executive member of the Oversight Board of the UK
Office for Budget Responsibility, trustee of the Centre for Economic and Policy
Research, the Australia-UK Chamber of Commerce and The Times shadow MPC. She is
a graduate of the London School of Economics and La Trobe University in
Australia where she received a Doctor of Letters in 2017. Bronwyn was awarded
an OBE in 2008 for her services to business economics. Mrs. Curtis was
appointed to the Board in January 2020.
John Le Poidevin
John Le Poidevin is Guernsey resident and has over 30 years' business
experience. Mr. Le Poidevin is a graduate of Exeter University and Harvard
Business School, a Fellow of the Institute of Chartered Accountants in England
and Wales and a former partner of BDO LLP in London where, as Head of Consumer
Markets, he developed an extensive breadth of experience and knowledge of
listed businesses in the UK and overseas. He is an experienced non-executive
who sits on several Plc boards and chairs a number of Audit Committees. He
therefore brings a wealth of relevant experience in terms of corporate
governance, audit, risk management and financial reporting. Mr. Le Poidevin was
appointed to the Board in June 2016.
Claire Whittet
Claire Whittet is Guernsey resident and has over 40 years' experience in the
financial services industry. After obtaining a MA (Hons) in Geography from the
University of Edinburgh, Mrs. Whittet joined the Bank of Scotland for 19 years
and undertook a wide variety of roles. She moved to Guernsey in 1996 and was
Global Head of Private Client Credit for Bank of Bermuda before joining
Rothschild & Co Bank International Limited in 2003, initially as Director of
Lending and latterly as Managing Director and Co-Head until May 2016 when she
became a non-executive Director. She is an ACIB member of the Chartered
Institute of Bankers in Scotland, a Chartered Banker, a member of the Chartered
Insurance Institute and holds an IoD Director's Diploma in Company Direction.
She is an experienced non-executive director of a number of listed investment
and private equity funds one of which she chairs and a number of which she is
Senior Independent Director. Mrs. Whittet was appointed to the Board in June
2014. Since 20 June 2019 Claire Whittet has been Senior Independent Director.
Disclosure of Directorships in Public Companies Listed on Recognised Stock
Exchanges
The following summarises the Directors' directorships in other public
companies:
Exchange
Richard Horlick
Riverstone Energy Limited London
VH Global Sustainable Energy Opportunities Plc London
Caroline Chan
Round Hill Music Royalty Fund Limited London
Julia Chapman
GCP Infrastructure Investments Limited London
Henderson Far East Income Limited London
Bronwyn Curtis
JPMorgan Asia Growth and Income Plc London
Pershing Square Holdings Ltd London and Euronext Amsterdam
Scottish American Investment Company Plc London
TwentyFour Income Fund Limited London
John Le Poidevin
International Public Partnerships Limited London
Super Group (SGHC) Limited New York
TwentyFour Income Fund Limited London
Claire Whittet
Eurocastle Investment Limited Euronext Amsterdam
Riverstone Energy Limited London
Third Point Investors Limited London
TwentyFour Select Monthly Income Fund Limited London
Strategic Report
For the year ended 31 December 2022
The Directors submit to the Shareholders their Strategic Report of the Company
for the year ended 31 December 2022.
The Strategic Report provides a review of the business for the financial year
and describes how risks are managed. In addition, the report outlines key
developments and the financial performance of the Company during the financial
year and the position at the end of the year, and discusses the main factors
that could affect the future performance and financial position of the Company.
BUSINESS MODEL AND STRATEGY
Investment Objective and Company Structure
The Company is organised as a feeder fund that invests solely in the ordinary
Sterling and US Dollar-denominated class B shares issued by the Master Fund - a
Cayman Islands open-ended investment company, which has as its investment
objective, the generation of consistent long-term appreciation through active
leveraged trading and investment on a global basis. Further details on the
Company's investment objective and policy can be found in the Directors'
Report.
Sources of Cash and Liquidity Requirements
As the Master Fund is not expected to pay dividends, the Company expects that
the primary source of its future liquidity will depend on the periodic
redemption of shares from the Master Fund and borrowings in accordance with its
leverage policies.
BUSINESS ENVIRONMENT
Principal Risks and Uncertainties
The Board is responsible for the Company's system of internal controls and for
reviewing its effectiveness. The Board is satisfied that by using the Company's
risk matrix in establishing the Company's system of internal controls, while
monitoring the Company's investment objective and policy, the Board has carried
out a robust assessment of the principal and emerging risks and uncertainties
facing the Company. The principal and emerging risks and uncertainties which
have been identified and the steps which are taken by the Board to mitigate
them are as follows:
· Investment Risks: The Company is exposed to the risk that its portfolio
fails to perform in line with the Company's objectives if it is inappropriately
invested or markets move adversely. The Board reviews reports from the Manager,
which has total discretion over portfolio allocation, at each quarterly Board
meeting, paying particular attention to this allocation and to the performance
and volatility of underlying investments;
· Operational and Cyber Security Risks: The Company is exposed to the
risks arising from any failure of systems and controls in the operations of the
Manager, Northern Trust International Fund Administration Services (Guernsey)
Limited (the "Administrator") or Computershare Investor Services (Guernsey)
Limited (the "Registrar"), or from the unavailability of any of the Manager,
the Administrator or the Registrar for whatever reason, including those arising
from cyber security issues. The Board receives regular reports from each of
those parties on cyber security and annual independent third-party reporting on
their respective internal controls;
· Accounting, Legal and Regulatory Risks: The Company is exposed to risk
if it fails to comply with the regulations of the UK Listing Authority or the
Guernsey Financial Services Commission and/or any other applicable regulatory
and legislative matters, or if it fails to maintain accurate or timely
accounting records and published financial information. The Administrator
provides the Board with regular internal control and compliance reports and
reports on changes in regulations and accounting requirements;
· Financial Risks: The financial risks faced by the Company include
market, credit and liquidity risk. These risks and the controls in place to
mitigate them are reviewed at each quarterly Board meeting;
· Geopolitical Risk: Disruption arising from the aftermath of the
COVID-19 pandemic, elevated levels of global inflation, recessionary risks and
the current war in Ukraine has led to greater economic uncertainty, variability
and volatility. Whilst the Master Fund has no material direct exposure to
Russia, Ukraine or Belarus, the Board has also made enquiries of key service
providers in respect of any impact from Russia's invasion of Ukraine and the
related instability in world markets and has been assured that none of the
service providers have operations in the region or are in any way impacted in
terms of their ability to continue to supply their services to the Company; and
· Climate Change and ESG Risks: The Company has no employees and does not
own any physical assets and is therefore not directly exposed to climate change
risk. The Manager monitors developments in this area and industry best
practice on behalf of the Board, where appropriate, and also regularly assesses
the trading activity of the underlying Master Fund and sub-funds to ascertain
whether environmental, social and governance ("ESG") factors are appropriate or
applicable to such funds. The Board has also made enquiries of key service
providers in respect of their assessment of how climate change and ESG risk
impacts their own operations and has been assured that this has no impact on
their ability to continue to supply their services to the Company.
Board Diversity
When appointing new directors and reviewing the Board composition, the Board
considers, amongst other factors, diversity, balance of skills, knowledge,
gender and experience. At 31 December 2022, the Board believes it would be
fully compliant with Listing Rules LR 9.8.6R(9) and LR 14.3.33R(1) in relation
to board diversity, which will be applicable to the Company for the year ending
31 December 2023. There have been no changes to board composition since that
date. We have set out additional detail in the table below:
Name Gender Identity Ethnicity
Richard Horlick Male White British
Caroline Chan Female Mixed Asian
British
Julia Chapman Female White British
Bronwyn Curtis Female White European
John Le Poidevin Male White British
Claire Whittet Female White British
Environmental, Social and Governance (ESG) Factors
The Company does not have employees, it does not own physical assets and its
Board is formed exclusively of non-executive Directors. As such, the Company
does not undertake any material activity which would directly affect the
environment.
On a regular basis, the Manager assesses the trading activity of the investment
funds it manages, including the Master Fund, to ascertain whether ESG factors
are appropriate or applicable to such funds. Most ESG principles have been
envisaged in the context of equity or corporate fixed income investment and
therefore are not readily applicable to most types of instruments traded by the
Master Fund.
The Manager continues to monitor developments in this area and seeks to
implement industry best practice where applicable. The Manager is a signatory
to the UN Principles for Responsible Investment and on a regular basis,
assesses the trading activities of the Master Fund as to whether ESG, the UN
principles and sustainability risks under the EU Sustainable Finance Disclosure
Regulations, are appropriate, relevant, or applicable to the Master Fund,
considering the structure of relevant Brevan Howard managed funds and the
applicable trading universe.
The Administrator is a wholly-owned indirect subsidiary of Northern Trust
Corporation, which has adopted the UN Global Compact principles, specifically:
implementing a precautionary approach to addressing environmental issues
through effective programmes, undertaking initiatives that demonstrate the
acknowledgement of environmental responsibility, promoting and using
environmentally sustainable technologies, and UN Sustainable Development Goals,
specifically: using only energy efficient appliances and light bulbs, avoiding
unnecessary use and waste of water, implementing responsible consumption and
production, and taking action to reduce climate change.
POSITION AND PERFORMANCE
Packaged Retail and Insurance Based Investment Products ("PRIIPs")
From 1 January 2021, the Company became subject to the UK version of Regulation
(EU) No 1286/2014 on key information documents for PRIIPs, which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018, as amended and
supplemented from time to time, including by the Packaged Retail and
Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019 (the
"UK PRIIPs Laws"), which superseded the EU regulation that previously applied
to the Company. In accordance with the requirements of the UK PRIIPs Laws, the
Manager published the latest standardised three-page Key Information Document
(a "KID") for the Company's Sterling shares and another for its US Dollar
shares on 23 February 2023 (based on data as at 31 December 2021). Each KID is
available on the Company's website https://www.bhmacro.com/
regulatory-disclosures/ and will be updated at least every 12 months.
The Manager is the PRIIPs manufacturer for each KID and the Company is not
responsible for the information contained in each KID. The process for
calculating the risks, cost and potential returns is prescribed by regulation.
The figures in the KID, relating to the relevant share class, may not reflect
the expected returns for that share class of the Company and anticipated
returns cannot be guaranteed.
Performance
Key Performance Indicators ("KPIs")
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. Below are the main
KPIs which have been identified by the Board for determining the progress of
the Company:
1. NAV
The Company's NAV has appreciated from £10.00 per Sterling share and US$10.00
per US Dollar share at launch to £41.81 per Sterling share and US$43.28 per US
Dollar share at the 2022 financial year end. This increase in NAV is largely
attributable to the Company's long-term growth strategy and returns. The
Directors and the Manager are confident that the current strategy will continue
to return positive levels of growth over the long-term.
2. Share Prices, Discount/Premium
The Company' shares traded at an average premium of 10.61% and 11.08% to NAV
for its Sterling shares and US Dollar shares respectively for the year ended 31
December 2022.
3. Ongoing Charges
The Company's ongoing charges ratio has increased from 2.43% to 6.11% on the
Sterling shares and increased from 2.25% to 6.16% on the US Dollar shares,
primarily due to changes in the level of the Manager's performance fee as a
result of relative performance.
The Company reports an aggregated view of the charges for both the Sterling
shares and US Dollar shares. Further details are in the Directors' Report.
Return per Share
Total return per share is based on the net total gain on ordinary activities
after tax of £195,693,403 for the Sterling share class and a net gain of
US$19,301,255 for the US Dollar share class (2021: gains of £16,571,134 and
US$2,281,013 respectively).
These calculations are based on the weighted average number of shares in issue
for the year ended 31 December 2022, resulting in: 28,620,989 Sterling shares
and 2,722,649 US Dollar shares (2021: Sterling shares: 18,461,608 and US Dollar
shares: 2,316,734).
Year ended Year ended
31.12.22 31.12.21
Per share '000 Per share '000
Net total gain for Sterling 683.74p £195,693 89.76p £16,571
Shares
Net total gain for US Dollar 708.91c US$19,301 98.46c US$2,281
Shares
NAV
The NAV per Sterling share, as at 31 December 2022 was £41.81 based on net
assets of £1,260,922,944, divided by number of Sterling shares in issue of
30,156,454 (2021: £34.30).
The NAV per US Dollar share, as at 31 December 2022 was US$43.28 based on net
assets of US$123,685,664 divided by number of US Dollar shares in issue of
2,858,135 (2021: US$35.71).
Dividends
No dividends were paid during the year (2021: US$Nil).
Viability Statement
The investment objective of the Company is to seek to generate consistent
long-term capital appreciation through an investment policy of investing all of
its assets (net of funds required for its short-term working capital) in the
Master Fund.
The Directors have assessed the viability of the Company over the period to 31
December 2025. The Viability Statement covers a period of three years, which
the Directors consider sufficient given the inherent uncertainty of the
investment world and the specific risks to which the Company is exposed.
The continuation of the Company in its present form is largely dependent on the
management agreement between the Company and the Manager (the "Management
Agreement") remaining in place. The Management Agreement was, as at the 2022
financial year end, generally terminable on three months' notice by either
party save for certain exceptions. This was changed in January 2023 to a
twelve month notice period save for certain exceptions. To ensure that the
Company maintains a constructive and informed relationship with the Manager,
the Directors meet regularly with the Manager to review the Master Fund's
performance, and through the Management Engagement Committee, they review the
Company's relationship with the Manager and the Manager's performance and
effectiveness. The Directors currently know of no reason why either the Company
or the Manager might serve notice of termination of the Management Agreement
over the period of this Viability Statement.
The Company's assets exceed its liabilities by a considerable margin.
Furthermore, the majority of the Company's most significant expenses, being the
fees owing to the Manager and to the Administrator, fluctuate by reference to
the Company's investment performance and NAV. The Company is able to meet its
expenses by redeeming shares in the Master Fund as necessary, as and when
required to enable the Company to meet its ordinary course operating expenses.
The Company's investment performance depends upon the performance of the Master
Fund and the Manager as manager of the Master Fund. The Directors, in assessing
the viability of the Company, pay particular attention to the risks facing the
Master Fund. The Manager operates a risk management framework, which is
intended to identify, measure, monitor, report and, where appropriate, mitigate
key risks identified by it or its affiliates in respect of the Master Fund.
Although the Company's shares have largely traded at a premium for some time,
in the event that there is downward pressure on the Company's share prices, the
Company is able to consider resuming active discount management actions,
including share buybacks, so that as far as possible the share prices would
more closely reflect the Company's underlying performance; such actions should
help to mitigate the risk of class closure resolutions being triggered after
that date. The Company is able to meet the costs of share buybacks by redeeming
shares in the Master Fund as necessary, on three months' notice to the extent
required to enable the Company to make an annual redemption offer (as defined
in the Articles). Refer to note 8 in the Audited Financial Statements for
details of the Company's discount management programme.
The Directors have carried out a robust assessment of the risks and, on the
assumption that the risks are managed or mitigated in the ways noted above, the
Directors have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
three-year period of their assessment.
Although the Company is domiciled in Guernsey, the Board has considered the
guidance set out in the Association of Investment Companies (the "AIC") Code in
relation to Section 172 of the Companies Act 2006 in the UK. Section 172 of the
Companies Act requires that the Directors of the Company act in the way they
consider, in good faith, is most likely to promote the success of the Company
for the benefit of all stakeholders, including suppliers, customers and
Shareholders.
Key Service Providers
The Company does not have any employees and, as such, the Board delegates
responsibility for its day-to-day operations to a number of key service
providers. The activities of each service provider are closely monitored by the
Board and they are required to report to the Board at set intervals.
In addition, a formal review of the performance of each service provider is
carried out once a year by the Management Engagement Committee.
The Manager
The Manager is a leading and well-established hedge fund manager. In exchange
for its services, a fee is payable as detailed in note 4 to the Audited
Financial Statements.
The Board considers that, under the Company's current investment objective, the
interests of Shareholders, as a whole, are best served by the ongoing
appointment of the Manager.
Administrator and Corporate Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited is
the Administrator and its corporate secretary (the "Corporate Secretary").
Further details on fee structure are included in note 4 to the Audited
Financial Statements.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
28 March 2023
Directors' Report
31 December 2022
The Directors submit their Report together with the Company's Audited Statement
of Assets and Liabilities, Audited Statement of Operations, Audited Statement
of Changes in Net Assets, Audited Statement of Cash Flows and the related notes
for the year ended 31 December 2022. The Directors' Report together with the
Audited Financial Statements and their related notes (the "Audited Financial
Statements") give a true and fair view of the financial position of the
Company. They have been prepared in accordance with United States Generally
Accepted Accounting Principles ("US GAAP") and are in agreement with the
accounting records.
The Company
BH Macro Limited is a limited liability closed-ended investment company which
was incorporated in Guernsey on 17 January 2007 and then admitted to the
Official List of the London Stock Exchange ("LSE") later that year.
Currently, ordinary shares are issued in Sterling and US Dollars.
Investment Objective and Policy
The Company is organised as a feeder fund that invests all of its assets (net
of short-term working capital requirements) directly in the Master Fund, a
hedge fund in the form of a Cayman Islands open-ended investment company, which
has as its investment objective the generation of consistent long-term
appreciation through active leveraged trading and investment on a global basis.
The Master Fund is managed by Brevan Howard Capital Management LP, the
Company's Manager.
The Master Fund has flexibility to invest in a wide range of instruments
including, but not limited to, debt securities and obligations (which may be
below investment grade), bank loans, listed and unlisted equities, other
collective investment schemes, currencies, commodities, digital assets,
futures, options, warrants, swaps and other derivative instruments. The
underlying philosophy is to construct strategies, often contingent in nature,
with superior risk/return profiles, whose outcome will often be crystallised by
an expected event occurring within a pre-determined period of time.
The Master Fund employs a combination of investment strategies that focus
primarily on economic change and monetary policy and market inefficiencies.
The Company may employ leverage for the purposes of financing share purchases
or buy backs, satisfying working capital requirements or financing further
investment into the Master Fund, subject to an aggregate borrowing limit of 20%
of the Company's NAV, calculated as at the time of borrowing. Borrowing by the
Company is in addition to leverage at the Master Fund level, which has no limit
on its own leverage.
Results and Dividends
The results for the year are set out in the Audited Statement of Operations.
The Directors do not recommend the payment of a dividend.
Share Capital
As approved by the Shareholders at the Annual General Meeting held on 24
September 2021, the Directors had the power to issue further shares for cash
totalling 7,965,377 Sterling shares and 931,107 US Dollar shares, respectively;
with authority to dis-apply pre-emption rights in respect of 279,360 shares
designated as US Dollar shares and 2,389,852 shares designated as Sterling
share. These authorities expired at the conclusion of the 9 September 2022
Annual General Meeting. An additional authority to dis-apply pre-emption rights
in respect of Sterling shares only was adopted at the 5 May 2022 Extraordinary
General Meeting ("EGM"), as noted below.
As approved by the Shareholders at an EGM held on 5 May 2022, the Directors had
the power to issue further shares for cash on a non-pre-emptive basis totalling
2,707,396 Sterling shares. This power expired on the conclusion of the 9
September 2022 Annual General Meeting of the Company.
As approved by the Shareholders at the Annual General Meeting held on 9
September 2022, the Directors had the power to issue further shares for cash on
a non-pre-emptive basis totalling 9,818,410 Sterling shares and 873,549 US
Dollar shares, respectively. This power was due to expire fifteen months after
the passing of the resolution or on the conclusion of the next Annual General
Meeting of the Company, whichever was earlier, unless such power was varied,
revoked or renewed prior to that Meeting by a resolution of the Company in
general meeting.
As noted below, subsequent to the year end, this authority was superseded by a
shareholder resolution adopted on 6 February 2023.
During the year ended 31 December 2022, the following share issues were made:
On 14 January 2022, the Company issued 921,862 Sterling shares at a price of
3,670 pence per share.
On 16 March 2022, the Company issued 268,379 Sterling shares at a price of
3,770 pence per share.
On 19 May 2022, the Company issued 1,521,441 Sterling shares at a price of
4,270 pence per share.
On 26 May 2022, the Company issued 59,631 Sterling shares at a price of 4,300
pence per share.
On 16 June 2022, the Company issued 582,182 Sterling shares at a price of 4,455
pence per share.
On 7 July 2022, the Company issued 187,684 Sterling shares at a price of 4,300
pence per share.
On 11 August 2022, the Company issued 356,458 Sterling shares and 185,000 US
Dollar shares at a price of 4,375 pence per share and US$44.20 per share,
respectively.
On 2 September 2022, the Company issued 94,360 US Dollar shares at a price of
US$47.30 per share.
On 13 October 2022, the Company issued 303,513 Sterling shares at a price of
4,600 pence per share.
The number of shares in issue at year end is disclosed in note 5 of the Audited
Financial Statements.
Subsequent to the year end:
(a) on 23 January 2023, the Board announced the commencement of its initial
issue (the "Initial Issue"), comprising of the initial placing (the "Placing"),
intermediaries offer (the "Intermediaries Offer") and offer for subscription
(the "Offer for Subscription"), together with an issuance programme for
subsequent issues, which remains open until 23 January 2024 (the "Issuance
Programme"), in respect of the issue of up to an aggregate of 220 million
shares (based on a 10:1 share split); the issue of circular for an EGM, which
was held on 6 February 2023, in relation to the Initial Issue, Issuance
Programme and share sub-division; and details of amendments to the Management
Agreement, including terms of the Company's investment in the Master Fund, in
order to reflect the increased investment of the Company in the Master Fund as
a result of the Initial Issue and the Issuance Programme. Further details are
disclosed in note 11 to the Audited Financial Statements;
(b) on 6 February 2023, following the EGM, the Company announced that (i) the
Board was empowered to allot and issue, in aggregate, up to 220 million new
shares of no par value in the Company designated as Sterling shares or US
Dollar shares, as if the pre-emption provisions of the Company's articles of
incorporation ("Articles") did not apply; and (ii) each existing share would be
sub-divided into 10 shares of the same currency class and with the same rights
and subject to the same restrictions as the then existing shares of the same
currency class, in the capital of the Company, with the sub-divided shares to
be admitted to listing the following day. These resolutions superseded the
relevant resolutions adopted at the 2022 Annual General Meeting. Further
details are disclosed in note 11 to the Audited Financial Statements; and
(c) on 13 February 2023, the completion of the Initial Issue was announced. A
total of 72,378,000 Sterling shares and 746,400 US Dollar shares were issued in
the Initial Issue at a price per share equal, respectively, to 431.5 pence per
Sterling share and US$4.47 per US Dollar share, raising gross proceeds of
approximately £312.3m for the Sterling share class and US$3.3m for the US
Dollar share class.
Going Concern
The Directors, having considered the Principal and Emerging Risks and
Uncertainties to which the Company is exposed, which are listed in the
Strategic Report and on the assumption that these are managed or mitigated as
noted, are not aware of any material uncertainties which may cast significant
doubt upon the Company's ability to continue as a going concern and,
accordingly, consider that it is appropriate that the Company continues to
adopt the going concern basis of accounting for these Audited Financial
Statements.
The Board continues to monitor the ongoing impact of various geopolitical
events, including the disruption arising from the aftermath of the COVID-19
pandemic, elevated levels of global inflation, recessionary risks and the
ongoing war in Ukraine. The Board has concluded that the biggest threat to the
Company in relation to these geopolitical concerns remains the failure of a key
service provider to maintain business continuity and resiliency. The Board has
assessed the measures in place by key service providers to maintain business
continuity and, so far, has not identified any significant issues that affect
the Company. The financial position of the Company has not been negatively
impacted by these geopolitical events either. For these reasons, the Board is
confident that these events have not impacted the going concern assessment of
the Company.
The Board
The Board of Directors has overall responsibility for safeguarding the
Company's assets, for the determination of the investment policy of the
Company, for reviewing the performance of the service providers and for the
Company's activities. The Directors, all of whom are non-executive, are listed
in the Board Members section.
The Articles provide that, unless otherwise determined by ordinary resolution,
the number of Directors shall not be less than two. The Company's policy on
Directors' Remuneration, together with details of the remuneration of each
Director who served during the year, is detailed in the Directors' Remuneration
Report.
The Board meets at least four times a year and between these formal meetings,
there is regular contact with the Manager and the Administrator. The Directors
are kept fully informed of investment and financial controls, and other matters
that are relevant to the business of the Company are brought to the attention
of the Directors. The Directors also have access to the Administrator and,
where necessary in the furtherance of their duties, to independent professional
advice at the expense of the Company.
For each Director, the tables below set out the number of Board and Audit
Committee meetings they were entitled to attend during the year ended 31
December 2022 and the number of such meetings attended by each Director.
Scheduled Board Meetings Held Attended
Richard Horlick 4 4
Caroline Chan* 1 1
Julia Chapman 4 4
Bronwyn Curtis 4 4
John Le Poidevin 4 4
Claire Whittet 4 4
Attended
Audit Committee Meetings Held
John Le Poidevin 4 4
Caroline Chan* 1 1
Julia Chapman 4 3
Bronwyn Curtis 4 4
Claire Whittet 4 4
Remuneration and Nomination Committee Meetings Held Attended
Richard Horlick 1 1
Caroline Chan* N/A N/A
Julia Chapman 1 1
Bronwyn Curtis 1 1
John Le Poidevin 1 1
Claire Whittet 1 1
Management Engagement Committee Meetings Held Attended
Richard Horlick 1 1
Caroline Chan* N/A N/A
Julia Chapman 1 1
Bronwyn Curtis 1 1
John Le Poidevin 1 1
Claire Whittet 1 1
* Caroline Chan was appointed to each of the Board, the Audit Committee, the
Remuneration and Nomination Committee and the Management Engagement Committee
on 6 December 2022.
In addition to these scheduled meetings, 14 ad-hoc committee meetings were held
during the year ended 31 December 2022, which were attended by those Directors
available at the time.
The Board has reviewed the composition, structure and diversity of the Board,
succession planning, the independence of the Directors and whether each of the
Directors has sufficient time available to discharge their duties effectively.
The Board confirms that it believes that it has an appropriate mix of skills
and backgrounds, that all of the Directors are considered to be independent in
accordance with the provisions of the AIC Code and that all Directors have the
time available to discharge their duties effectively.
The Chair and the Directors' tenures are limited to nine years, which is
consistent with the principles listed in the UK Corporate Governance Code.
Notwithstanding that some of the Directors sit on the boards of a number of
other listed investment companies, the Board notes that each appointment is
non-executive and that listed investment companies generally have a lower level
of complexity and time commitment than trading companies. Furthermore, the
Board notes that attendance of all Board and Committee meetings during the year
is high and that each Director has always shown the time commitment necessary
to discharge fully and effectively their duties as a Director.
Directors' Interests
The Directors had the following interests in the Company, held either directly
or beneficially:
Sterling Shares
31.12.22 31.12.21
Richard Horlick 20,000 20,000
Caroline Chan1 Nil N/A
Julia Chapman 626 626
Bronwyn Curtis 1,000 1,000
John Le Poidevin 5,482 5,482
Claire Whittet2 1,500 1,500
US Dollar Shares
31.12.22 31.12.21
Richard Horlick Nil Nil
Caroline Chan1 Nil N/A
Julia Chapman Nil Nil
Bronwyn Curtis Nil Nil
John Le Poidevin Nil Nil
Claire Whittet Nil Nil
1 Caroline Chan was appointed to the Board on 6 December 2022.
2 All units are held through a Retirement Annuity Trust Scheme,
jointly owned by Mrs Whittet and her husband.
On 23 January 2023, the Board announced the commencement of its Initial Issue,
comprising of the Placing, Intermediaries Offer and Offer for Subscription of
new ordinary shares of no par value in the capital of the Company, together
with an issuance programme for subsequent issues, which remains open until 23
January 2024.
On 13 February 2023, the Board participated in the Initial Issue for the
following amounts:
Richard Horlick, US$89,400 of US Dollar shares;
Caroline Chan, £50,000 of Sterling shares;
Bronwyn Curtis, £100,000 of Sterling shares;
John Le Poidevin, £90,000 of Sterling shares; and
Claire Whittet, £35,000 Sterling shares.
Directors' Indemnity
Directors' and Officers' liability insurance cover is in place in respect of
the Directors.
The Directors entered into indemnity agreements with the Company which provide,
subject to the provisions of the Companies (Guernsey) Law, 2008, for an
indemnity for Directors in respect of costs which they may incur relating to
the defence of proceedings brought against them arising out of their positions
as Directors, in which they are acquitted, or judgement is given in their
favour by the Court. The agreement does not provide for any indemnification for
liability which attaches to the Directors in connection with any negligence,
unfavourable judgements and breach of duty or trust in relation to the Company.
Corporate Governance
To comply with the UK Listing Regime, the Company must comply with the
requirements of the UK Corporate Governance Code. The Company is also required
to comply with the Code of Corporate Governance issued by the Guernsey
Financial Services Commission.
The Company is a member of the AIC and by complying with the AIC Code it is
deemed to comply with both the UK Corporate Governance Code and the Guernsey
Code of Corporate Governance.
To ensure ongoing compliance with the principles and the recommendations of the
AIC Code, the Board receives and reviews a report from the Corporate Secretary,
at each quarterly meeting, identifying whether the Company is in compliance and
recommending any changes that are necessary.
The Company has complied with the requirements of the AIC Code and the relevant
provisions of the UK Corporate Governance Code, except as set out below.
The UK Corporate Governance Code includes provisions relating to:
· the role of the chief executive;
· executive directors' remuneration;
· the need for an internal audit function; and
· a whistle-blowing policy.
For the reasons explained in the UK Corporate Governance Code, the Board
considers these provisions are not relevant to the position of the Company as
it is an externally managed investment company with a Board formed exclusively
of non-executive Directors. The Company has therefore not reported further in
respect of these provisions. The Company does not have employees, hence no
whistle-blowing policy is necessary. However, the Directors have satisfied
themselves that the Company's service providers have appropriate
whistle-blowing policies and procedures and seek regular confirmation from the
service providers that nothing has arisen under those policies and procedures
which should be brought to the attention of the Board.
The Company has adopted a policy that the composition of the Board of Directors
is at all times such that (i) a majority of the Directors are independent of
the Manager and any company in the same group as the Manager (the "Manager's
Group"); (ii) the Chair of the Board of Directors is free from any conflicts of
interest and is independent of the Manager's Group; and (iii) no more than one
director, partner, employee or professional adviser to the Manager's Group may
be a Director of the Company at any one time.
The Company has adopted a Code of Directors' dealings in securities.
The Company's risk appetite and risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit Committee and
by the Board at their meetings. The Board believes that the Company has
adequate and effective systems in place to identify, mitigate and manage the
risks to which it is exposed.
In view of its non-executive and independent nature, the Board had previously
considered that it was not necessary for there to be a Nomination Committee, or
a Remuneration Committee as anticipated by the AIC Code. A Remuneration and
Nomination Committee was established on 17 June 2022. The Board has included a
separate Directors' Remuneration Report in this Annual Report.
For new appointments to the Board, a specialist independent recruitment firm is
engaged as and when appropriate, nominations are sought from the Directors and
from other relevant parties and candidates are then interviewed by the
Directors. The current Board has a breadth of experience relevant to the
Company, and the Directors believe that any changes to the Board's composition
can be managed without undue disruption. An induction programme is provided for
newly-appointed Directors.
In line with the AIC Code, Article 21.3 of the Company's Articles requires all
Directors to retire at each Annual General Meeting. At the Annual General
Meeting of the Company on 9 September 2022, Shareholders re-elected all the
then incumbent Directors of the Company, except for Caroline Chan, who was
appointed on 6 December 2022.
The Board, through the Remuneration and Nomination Committee, regularly
reviews its composition and believes that the current appointments provide an
appropriate range of skill, experience and diversity. Having served nine years
as a Board member, Claire Whittet will not seek re-election at the forthcoming
Annual General Meeting of the Company.
Each of the Board, the Audit Committee, the Management Engagement Committee and
the Remuneration and Nomination Committee undertakes an evaluation of their own
performance and that of individual Directors on an annual basis. In order to
review their effectiveness, the Board and its Committees carry out a process of
formal self-appraisal. The Board and the Committees consider how they function
as a whole and also review the individual performance of their members. This
process is conducted by the Chair of each Committee reviewing the relevant
Directors' performance, contribution and commitment to the Company.
Claire Whittet has been Senior Independent Director since 20 June 2019 and
takes the lead in evaluating the performance of the Chair.
Board Performance
The performance of the Board and that of each individual Director is scheduled
for external evaluation every three years.
The most recent external evaluation of the Board's performance was completed in
March 2022 and it confirmed that the Board works in a collegiate, harmonious
and effective manner. The evaluation made a number of recommendations for the
medium-term structure of the Board, including in relation to future succession
planning, and the adoption by the Board of those recommendations has commenced.
The Board carries out an annual internal evaluation of its performance in years
when an external evaluation is not taking place. There were no matters of note
in the last annual internal evaluation.
The Board needs to ensure that the Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's performance, business model
and strategy. In seeking to achieve this, the Directors have set out the
Company's investment objective and policy and have explained how the Board and
its delegated Committees operate and how the Directors review the risk
environment within which the Company operates and sets appropriate risk
controls. Furthermore, throughout the Annual Report, the Board has sought to
provide further information to enable shareholders to better understand the
Company's business and financial performance.
Policy to Combat Fraud, Bribery and Corruption
The Board has adopted a formal policy to combat fraud, bribery and corruption.
The policy applies to the Company and to each of its Directors. Furthermore,
the policy is shared with each of the Company's service providers.
In respect of the UK Criminal Finances Act 2017, which introduced a new
corporate criminal offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that it is committed to
preventing the facilitation of tax evasion and takes all reasonable steps to do
so.
Social and Environmental Issues
The Board also keeps under review developments involving other social and
environmental issues, such as modern slavery, and will report on those to the
extent they are considered relevant to the Company's operations. Further
explanation of these issues is detailed under 'Climate Change and ESG Risks'.
Ongoing Charges
The ongoing charges (the "Ongoing Charges") represent the Company's management
fee and all other operating expenses, excluding finance costs, performance
fees, share issue or buyback costs and non-recurring legal and professional
fees, expressed as a percentage of the average of the daily net assets during
the year.
Ongoing Charges for the years ended 31 December 2022 and 31 December 2021 have
been prepared in accordance with the AIC's recommended methodology.
The following table presents the Ongoing Charges for each share class of the
Company for the years ended 31 December 2022 and 31 December 2021.
31.12.22
Sterling US Dollar
Shares Shares
Company - Ongoing Charges 1.68% 1.74%
Master Fund - Ongoing Charges 0.20% 0.22%
Performance fees 4.23% 4.20%
Ongoing Charges plus performance fees 6.11% 6.16%
31.12.21
Sterling US Dollar
Shares Shares
Company - Ongoing Charges 1.34% 1.11%
Master Fund - Ongoing Charges 0.45% 0.45%
Performance fees 0.64% 0.69%
Ongoing Charges plus performance fees 2.43% 2.25%
The Master Fund's ongoing charges represent the portion of the Master Fund's
operating expenses which have been allocated to the Company. The Company
invests substantially all of its investable assets in ordinary Sterling and US
Dollar-denominated Class B shares issued by the Master Fund. These shares are
not subject to management fees and performance fees within the Master Fund. The
Master Fund's operating expenses include an operational services fee payable to
the Manager of 1/12 of 0.5% per month of the prevailing Master Fund NAV
attributable to the Company's investment in the Master Fund.
Audit Committee
The Company's Audit Committee conducts formal meetings at least three times a
year for the purpose, amongst others, of considering the appointment,
independence and effectiveness of the audit and remuneration of the auditors,
and to review and recommend the annual statutory accounts and interim report to
the Board of Directors. It is chaired by John Le Poidevin and comprises Bronwyn
Curtis, Claire Whittet, Julia Chapman and Caroline Chan. The Terms of Reference
of the Audit Committee are available from the Administrator.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee meets formally at
least once a year and comprises all members of the Board.
It was chaired by Claire Whittet until 17 June 2022, when Julia Chapman was
appointed Chair.
The function of the Management Engagement Committee is to ensure that the
Company's Management Agreement is competitive and reasonable for the
Shareholders, along with the Company's agreements with all other third-party
service providers (other than KPMG Channel Islands Limited (the "Independent
Auditor")). The Management Engagement Committee also monitors the performance
of all service providers on an annual basis and writes to each service provider
regarding their Business Continuity Plans. To date, all services have proved to
be robust and there has been no disruption to the Company. The Terms of
Reference of the Management Engagement Committee are available from the
Administrator.
The details of the Manager's fees and notice period are set out in note 4 to
the Audited Financial Statements.
The Board continuously monitors the performance of the Manager and a review of
the Manager is conducted by the Management Engagement Committee annually.
The Manager has wide experience in managing and administering investment
companies and has access to extensive investment management resources.
At its meeting on 9 September 2022, the Management Engagement Committee
concluded that the continued appointment of each of the Manager, the
Administrator, the Company's UK and Guernsey legal advisers, the Registrar and
corporate broker on the terms agreed was in the interests of the Company's
Shareholders as a whole. At the date of this report, the Board continues to be
of the same opinion.
Remuneration and Nomination Committee
The Board established a Remuneration and Nomination Committee on 17 June 2022
with formal duties and responsibilities. The Remuneration and Nomination
Committee meets formally at least once a year, is chaired by Bronwyn Curtis and
comprises all members of the Board.
The function of the Remuneration and Nomination Committee is to:
· regularly review the structure, size and composition of the Board and
make recommendations to the Board with regard to any changes that are deemed
necessary;
· identify, from a variety of sources, candidates to fill Board vacancies
as and when they arise with a continued focus on Board diversity;
· assess and articulate the time needed to fulfil the role of the Chair
and of a non-executive director, and undertake an annual performance evaluation
to ensure that all the members of the Board have devoted sufficient time to
their duties, and also to review their contribution to the work of the Board
and the breadth of experience of the Board as a whole; and
· annually review the levels of remuneration of the Chair of the Board,
the Chair of the Audit Committee and the Chair of each other Board committee
and other non-executive directors having regard to the maximum aggregate
remuneration that may be paid under the Company's Articles.
Internal Controls
Responsibility for the establishment and maintenance of an appropriate system
of internal control rests with the Board and to achieve this, a process has
been established which seeks to:
· review the risks faced by the Company and the controls in place to
address those risks;
· identify and report changes in the risk environment;
· identify and report changes in the operational controls;
· identify and report on the effectiveness of controls and errors arising;
and
· ensure no override of controls by the Manager, the Administrator and its
other service providers.
A report is tabled and discussed at each Audit Committee meeting, and reviewed
at least once a year by the Board, setting out the Company's risk exposure and
the effectiveness of its risk management and internal control systems. The
Board believes that the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
In order to recognise any new risks that could impact the Company and ensure
that appropriate controls are in place to manage those risks, the Audit
Committee undertakes a regular review of the Company's risk matrix. This review
took place on three occasions during the year.
The Board has delegated the management of the Company and the administration,
corporate secretarial and registrar functions, including the independent
calculation of the Company's NAV and the production of the Annual Report and
Audited Financial Statements, which are independently audited. Whilst the Board
delegates these functions, it remains responsible for the functions it
delegates and for the systems of internal control. Formal contractual
agreements have been put in place between the Company and the providers of
these services. On an ongoing basis, Board reports are provided at each
quarterly Board meeting by the Manager, the Administrator and Corporate
Secretary and the Registrar. A representative from the Manager is asked to
attend these meetings.
In common with most investment companies, the Company does not have an internal
audit function. All of the Company's management functions are delegated to the
Manager, the Administrator and Corporate Secretary and the Registrar which have
their own internal audit and risk assessment functions.
Further reports are received from the Administrator in respect of compliance,
LSE continuing obligations and other matters. The reports were reviewed by the
Board. No material adverse findings were identified in these reports.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Services ("IRS") as a Guernsey
reporting Foreign Financial Institution ("FFI"), received a Global Intermediary
Identification Number (5QHZVI.99999.SL.831), and can be found on the IRS FFI
list.
The Common Reporting Standard ("CRS") is a global standard for the automatic
exchange of financial account information developed by the Organisation for
Economic Co-operation and Development ("OECD"), which was adopted by Guernsey
and came into effect on 1 January 2016. The CRS replaced the intergovernmental
agreement between the UK and Guernsey to improve international tax compliance
that had previously applied in respect of 2014 and 2015. The Company made its
latest report for CRS to the Director of Income Tax on 27 June 2022.
Relations with Shareholders
The Board welcomes Shareholders' views and places great importance on
communication with the Company's Shareholders. The Board receives regular
reports on the views of Shareholders and the Chair and other Directors are
available to meet Shareholders, with a number of such meetings taking place
during the period. The Company provides weekly unaudited estimates of NAV,
month end unaudited estimates and unaudited final NAVs. The Company also
provides a monthly newsletter. These are published via RNS and are also
available on the Company's website. Risk reports of the Master Fund are also
available on the Company's website.
The Manager maintains regular dialogue with institutional Shareholders, the
feedback from which is reported to the Board. Shareholders who wish to
communicate with the Board should contact the Administrator in the first
instance.
Having reviewed the Financial Conduct Authority's restrictions on the retail
distribution of non-mainstream pooled investments, the Company, after taking
legal advice, announced on 15 January 2014 that it is outside the scope of
those restrictions, so that its shares can continue to be recommended by UK
authorised persons to ordinary retail investors.
Following the publication of the updated AIC Code in February 2019, when 20 per
cent or more of Shareholder votes have been cast against a Board recommendation
for a resolution, the Company should explain, when announcing voting results,
what actions it intends to take to consult Shareholders in order to understand
the reasons behind the result. An update on the views received from
Shareholders and actions taken should be published no later than six months
after the Shareholder meeting. The Board should then provide a final summary in
the Annual Report and, if applicable, in the explanatory notes to resolutions
at the next Shareholder meeting, on what impact the feedback has had on the
decisions the Board has taken and any actions or resolutions now proposed.
During the period, no resolution recommended by the Board received 20 per cent
or more votes against it.
As at 24 March 2023, the following Shareholders had significant shareholdings
in the Company:
% holding
in class
Significant Shareholders
Sterling Shares
Ferlim Nominees Limited 20.5%
Rathbone Nominees Limited 10.3%
Cheviot Capital (Nominees) Limited 6.6%
Smith & Williamson Nominees Limited 6.6%
Vestra Nominees Limited 4.4%
Pershing Nominees Limited 4.3%
Lion Nominees Limited 4.1%
Vidacos Nominees Limited 3.2%
Brewin Nominees Limited 3.1%
HSBC Global Custody Nominee (UK) Limited 3.1%
% holding
in class
Significant Shareholders
US Dollar Shares
Hero Nominees Limited 17.2%
Vidacos Nominees Limited 16.3%
Euroclear Nominees 13.1%
Luna Nominees Limited 5.9%
CGWL Nominees Limited 4.3%
Rathbone Nominees Limited 3.4%
Ferlim Nominees Limited 3.2%
Vestra Nominees Limited 3.1%
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
28 March 2023
Statement of Directors' Responsibility in respect of the Annual Report and
Audited Financial Statements
The Directors are responsible for preparing the Annual Report and Audited
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, they are required to prepare the financial
statements in accordance with accounting principles generally accepted in the
United States of America and applicable law.
Under Company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that year. In preparing
these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable, relevant and
reliable;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
· assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to the going concern basis; and
· use the going concern basis of accounting unless liquidation is
imminent.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL
REPORT
We confirm that to the best of our knowledge:
· so far as each of the Directors is aware, there is no relevant audit
information of which the Company's Independent Auditor is unaware, and each has
taken all the steps they ought to have taken as a Director to make themselves
aware of any relevant information and to establish that the Company's
Independent Auditor is aware of that information;
· the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· each of the Chair's Statement, the Strategic Report, the Directors'
Report and the Manager's Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
We consider the Annual Report and Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's position and performance,
business model and strategy.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
28 March 2023
Directors' Remuneration Report
31 December 2022
Introduction
An ordinary resolution for the approval of the Directors' Remuneration Report
was passed by the Shareholders at the Annual General Meeting held on 9
September 2022.
Remuneration policy
A Remuneration and Nomination Committee was established on 17 June 2022. Prior
to this, the Board as a whole considered matters relating to the Directors'
remuneration. No advice or services were provided by any external person in
respect of its consideration of the Directors' remuneration.
The Company's policy is that the fees payable to the Directors should reflect
the time spent by the Directors on the Company's affairs and the
responsibilities borne by the Directors and be sufficient to attract, retain
and motivate Directors of a quality required to run the Company successfully.
The Chair of the Board is paid a higher fee in recognition of his additional
responsibilities, as are the Chairs of the various Board committees and the
Senior Independent Director. The policy is to review fee rates periodically,
although such a review will not necessarily result in any changes to the rates,
and account is taken of fees paid to Directors of comparable companies.
There are no long-term incentive schemes provided by the Company and no
performance fees are paid to Directors.
No Director has a service contract with the Company but each of the Directors
is appointed by a letter of appointment which sets out the main terms of their
appointment. The Directors were appointed to the Board for an initial term of
three years and Article 21.3 of the Company's Articles requires, as does the
AIC Code, that all of the Directors retire at each Annual General Meeting. At
the Annual General Meeting of the Company on 9 September 2022, Shareholders
re-elected all the Directors, except for Caroline Chan, who was appointed as a
Director on 6 December 2022. Director appointments can also be terminated in
accordance with the Articles. Should Shareholders vote against a Director
standing for re-election, the Director affected will not be entitled to any
compensation. There are no set notice periods and a Director may resign by
notice in writing to the Board at any time.
Directors are remunerated in the form of fees, payable quarterly in arrears, to
the Director personally.
No other remuneration or compensation was paid or payable by the Company during
the year to any of the Directors apart from the reimbursement of allowable
expenses.
Directors' fees
Until 30 June 2022, the Company's Articles limited the fees payable to
Directors in aggregate to £400,000 per annum. The annual Directors' fees were:
£70,000 for Richard Horlick, the Chair; £55,000 for John Le Poidevin, the Chair
of the Audit Committee; £50,000 for Claire Whittet, as Chair of the Management
Engagement Committee and the Senior Independent Director and £45,000 for all
other Directors.
The annual Directors' fees from 1 July 2022 have been:
Fee per annum
Role £
Board Chair 90,000
Audit Committee Chair 65,000
Management Engagement Committee Chair 55,000
Remuneration and Nomination Committee Chair 55,000
Senior Independent Auditor 55,000
All other Directors 50,000
At the Annual General Meeting, held on 9 September 2022, Shareholders approved
an increase in the annual aggregate limit of fees payable to Directors from £
400,000 per annum to £800,000 per annum.
The fees payable by the Company in respect of each of the Directors who served
during the year ended 31 December 2022 and the year ended 31 December 2021 were
as follows:
Year Year
ended ended
31.12.22 31.12.21
£ £
Richard Horlick* 80,000 66,678
Colin Maltby** N/A 8,822
Caroline Chan*** 3,562 N/A
Julia Chapman**** 50,000 11,250
Bronwyn Curtis 50,000 45,000
John Le Poidevin 60,000 55,000
Claire Whittet 52,500 50,000
Total 296,062 236,750
* On 15 February 2021, Richard Horlick was appointed Chair at a fee
of £70,000 p.a. Prior to that date, he served as a Director at a fee of £45,000
p.a. From 1 July 2022, his fee was £90,000 p.a.
** Colin Maltby retired as Chair and Director on 15 February 2021 and
was paid a fee of £70,000 p.a. until that date.
*** Caroline Chan was appointed to the Board on 6 December 2022 at a fee
of £50,000 p.a.
**** Julia Chapman was appointed to the Board on 1 October 2021 at a fee of
£45,000 p.a. From 1 July 2022, she was paid £55,000 per annum as Chair of the
Management Engagement Committee.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
28 March 2023
Report of the Audit Committee
31 December 2022
We present the Audit Committee's (the "Committee") Report for 2022, setting out
the Committee's structure and composition, principal duties and key activities
during the year. As in previous years, the Committee has reviewed the Company's
financial reporting, the independence and effectiveness of the Independent
Auditor and the internal control and risk management systems of the service
providers.
Structure and Composition
The Committee is chaired by John Le Poidevin and its other members are Claire
Whittet, Bronwyn Curtis and Julia Chapman. Caroline Chan was appointed to the
Audit Committee on 6 December 2022.
Appointment to the Committee is for a period of up to three years which may be
extended for two further three-year periods, provided that the majority of the
Committee remains independent of the Manager. Claire Whittet is currently
serving her third term. John Le Poidevin is currently serving his third term,
Bronwyn Curtis is serving her second term and Julia Chapman and Caroline Chan
are serving their first terms.
The Committee conducts formal meetings at least three times a year. The table
in the Directors' Report sets out the number of Committee meetings held during
the year ended 31 December 2022 and the number of such meetings attended by
each committee member. The Independent Auditor is invited to attend those
meetings at which the annual and interim reports are considered. The
Independent Auditor and the Committee will meet together without
representatives of either the Administrator or the Manager being present if the
Committee considers this to be necessary.
Principal Duties
The role of the Committee includes:
· monitoring the integrity of the published Financial Statements of the
Company;
· reviewing and reporting to the Board on the significant issues and
judgements made in the preparation of the Company's published Financial
Statements (having regard to matters communicated by the Independent Auditor),
significant financial returns to regulators and other financial information;
· monitoring and reviewing the quality and effectiveness of the
Independent Auditor and their independence;
· considering and making recommendations to the Board on the appointment,
reappointment, replacement and remuneration to the Company's Independent
Auditor; and
· monitoring and reviewing the internal control and risk management
systems of the service providers.
The complete details of the Committee's formal duties and responsibilities are
set out in the Committee's Terms of Reference, which can be obtained from the
Company's Administrator.
The independence and objectivity of the Independent Auditor is reviewed by the
Committee, which also reviews the terms under which the Independent Auditor is
appointed to perform non-audit services, which includes consideration of the
Financial Reporting Council Revised Ethical Standard 2019. The Committee has
also established policies and procedures for the engagement of the Company's
auditor to provide audit, assurance and other services. The services which the
Independent Auditor may not provide are any which:
· places them in a position to audit their own work;
· creates a mutuality of interest;
· results in the Independent Auditor functioning as a manager or
employee of the Company; or
· puts the Independent Auditor in the role of advocate of the Company.
Independent Auditor
The audit and any non-audit fees proposed by the Independent Auditor each year
are reviewed by the Committee taking into account the Company's structure,
operations and other requirements during the year and the Committee makes
recommendations to the Board.
KPMG Channel Islands Limited ("KPMG CI") has been the Company's Independent
Auditor from the date of the initial listing on the London Stock Exchange. The
external audit was most recently tendered for the year ended 31 December 2016,
where KPMG CI was re-appointed as auditor following the completion of the
tender process.
Key Activities in 2022
The following sections discuss the assessment made by the Committee during the
year:
Significant Financial Statement Issues
The Committee's review of the annual Audited Financial Statements focused on
the following area:
The Company's investment in the Master Fund had a fair value of US$1,628.8
million as at 31 December 2022 and represents substantially all the net assets
of the Company. The valuation of the investment is determined in accordance
with the Accounting Policies set out in note 3 to the Audited Financial
Statements. The Financial Statements of the Master Fund for the year ended 31
December 2022 were audited by KPMG Cayman who issued an unqualified audit
opinion dated 24 March 2023. The Audit Committee has reviewed the Financial
Statements of the Master Fund and the accounting policies and determined the
fair value of the investment as at 31 December 2022 is reasonable.
This matter was discussed during the planning and final stage of the audit and
there was no significant divergence of views between the Committee and the
Independent Auditor.
The Committee has carried out a robust assessment of the risks to the Company
in the context of making the Viability Statement in these Audited Financial
Statements. Furthermore, the Committee has concluded it appropriate to continue
to prepare the Audited Financial Statements on the going concern basis of
accounting.
Effectiveness of the Audit
The Committee held formal meetings with KPMG CI during the course of the year:
1) before the start of the audit to discuss formal planning and to discuss any
potential issues and to agree the scope that would be covered; and 2) after the
audit work was concluded, to discuss the significant issues including those
stated above.
The Committee considered the effectiveness and independence of KPMG CI by using
a number of measures, including but not limited to:
- reviewing the audit plan presented to them before the start of the
audit;
- reviewing and challenging the audit findings report including
variations from the original plan;
- reviewing any changes in audit personnel; and
- requesting feedback from both the Manager and the Administrator.
Further to the above, during the year ended 31 December 2021, the Committee
performed a specific evaluation of the performance of the Independent Auditor.
This was supported by the results of questionnaires completed by the Committee
covering areas such as the quality of the audit team, business understanding,
audit approach and management. There were no significant adverse findings from
the 2021 evaluation.
Audit Fees and Safeguards on Non-Audit Services
The table below summarises the remuneration paid by the Company to KPMG CI for
audit and non-audit services during the years ended 31 December 2022 and 31
December 2021.
Year Year
ended ended
31.12.22 31.12.21
£ £
Annual audit 65,000 55,000
Interim review 33,000 16,000
Specified procedures relating to 30 June 2021 Tender - 11,000
offer
Specified procedures relating to 31 July 2021 NAV Review - 11,000
Reporting accountant services - Combination with BH - 80,000
Global
The Audit Committee has examined the scope and results of the external audit,
its cost effectiveness and the independence and objectivity of the Independent
Auditor, with particular regard to non-audit fees, and considers KPMG CI, as
Independent Auditor, to be independent of the Company. Further, the Committee
has obtained KPMG CI's confirmation that the services provided by other KPMG
member firms to the wider Brevan Howard organisation do not prejudice its
independence.
Internal Control
The Audit Committee has also reviewed the need for an internal audit function.
The Committee has concluded that the systems and procedures employed by the
Manager and the Administrator, including their own internal audit functions,
currently provide sufficient assurance that a sound system of internal control,
which safeguards the Company's assets, is maintained. An internal audit
function specific to the Company is therefore considered unnecessary.
The Committee examined externally prepared assessments of the control
environment in place at the Manager and the Administrator, with the Manager
providing an International Standard on Assurance Engagements ("ISAE 3402")
report and the Administrator providing a Service Organisation Control ("SOC1")
report. No significant findings have been noted during the year.
Conclusion and Recommendation
After reviewing various reports such as the operational and risk management
framework and performance reports from the Manager and the Administrator,
consulting where necessary with KPMG CI, and assessing the significant Audited
Financial Statements' issues noted in the Report of the Audit Committee, the
Committee is satisfied that the Audited Financial Statements appropriately
address the critical judgements and key estimates (both in respect of the
amounts reported and the disclosures). The Committee is also satisfied that the
significant assumptions used for determining the value of assets and
liabilities have been appropriately scrutinised and challenged and are
sufficiently robust. At the request of the Board, the Audit Committee
considered and was satisfied that the 2022 Annual Report and Audited Financial
Statements are fair, balanced and understandable and provide the necessary
information for Shareholders to assess the Company's performance, business
model and strategy.
The Independent Auditor reported to the Committee that no unadjusted material
misstatements were found in the course of its work. Furthermore, both the
Manager and the Administrator confirmed to the Committee that they were not
aware of any unadjusted material misstatements including matters relating to
the presentation of the Audited Financial Statements. The Committee confirms
that it is satisfied that the Independent Auditor has fulfilled its
responsibilities with diligence and professional scepticism.
Consequent to the review process on the effectiveness of the independent audit
and the review of audit and non-audit services, the Committee has recommended
that KPMG CI be reappointed for the coming financial year.
For any questions on the activities of the Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend each
Annual General Meeting to respond to such questions.
John Le Poidevin
Audit Committee Chair
28 March 2023
Manager's Report
Brevan Howard Capital Management LP ("BHCM" or the "Manager") is the manager of
BH Macro Limited (the "Company") and of Brevan Howard Master Fund Limited (the
"Master Fund"). The Company invests all of its assets (net of short-term
working capital) in the ordinary shares of the Master Fund.
Performance Review
The NAV per share of the GBP shares of the Company appreciated by 21.91% during
2022, while the NAV per share of the USD shares appreciated by 21.17%.
The month-by-month NAV performance of each currency class of the Company since
it commenced operations in 2007 is set out below.
GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 - - 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67
2008 10.18 6.85 (2.61) (2.33) 0.95 2.91 1.33 1.21 (2.99) 2.84 4.23 (0.67) 23.25
2009 5.19 2.86 1.18 0.05 3.03 (0.90) 1.36 0.66 1.55 1.02 0.40 0.40 18.00
2010 (0.23) (1.54) 0.06 1.45 0.36 1.39 (1.96) 1.23 1.42 (0.35) (0.30) (0.45) 1.03
2011 0.66 0.52 0.78 0.51 0.59 (0.56) 2.22 6.24 0.39 (0.73) 1.71 (0.46) 12.34
2012 0.90 0.27 (0.37) (0.41) (1.80) (2.19) 2.38 1.01 1.95 (0.35) 0.94 1.66 3.94
2013 1.03 2.43 0.40 3.42 (0.08) (2.95) (0.80) (1.51) 0.06 (0.55) 1.36 0.41 3.09
2014 (1.35) (1.10) (0.34) (0.91) (0.18) (0.09) 0.82 0.04 4.29 (1.70) 0.96 (0.04) 0.26
2015 3.26 (0.58) 0.38 (1.20) 0.97 (0.93) 0.37 (0.74) (0.63) (0.49) 2.27 (3.39) (0.86)
2016 0.60 0.70 (1.78) (0.82) (0.30) 3.31 (0.99) (0.10) (0.68) 0.80 5.05 0.05 5.79
2017 (1.54) 1.86 (2.95) 0.59 (0.68) (1.48) 1.47 0.09 (0.79) (0.96) 0.09 (0.06) (4.35)
2018 2.36 (0.51) (1.68) 1.01 8.19 (0.66) 0.82 0.79 0.04 1.17 0.26 0.31 12.43
2019 0.52 (0.88) 2.43 (0.60) 3.53 3.82 (0.78) 1.00 (1.94) 0.47 (1.22) 1.52 7.98
2020 (1.42) 5.49 18.31 0.19 (0.85) (0.53) 1.74 0.94 (1.16) (0.02) 0.75 3.04 28.09
2021 1.20 0.32 0.81 0.15 0.25 (1.50) (0.49) 0.87 0.40 0.27 0.00 0.47 2.76
2022 0.94 1.79 5.39 3.86 1.66 1.05 0.15 2.84 2.12 (0.40) (1.15) 1.88 21.91
USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 - - 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27
2008 9.89 6.70 (2.79) (2.48) 0.77 2.75 1.13 0.75 (3.13) 2.76 3.75 (0.68) 20.32
2009 5.06 2.78 1.17 0.13 3.14 (0.86) 1.36 0.71 1.55 1.07 0.37 0.37 18.04
2010 (0.27) (1.50) 0.04 1.45 0.32 1.38 (2.01) 1.21 1.50 (0.33) (0.33) (0.49) 0.91
2011 0.65 0.53 0.75 0.49 0.55 (0.58) 2.19 6.18 0.40 (0.76) 1.68 (0.47) 12.04
2012 0.90 0.25 (0.40) (0.43) (1.77) (2.23) 2.36 1.02 1.99 (0.36) 0.92 1.66 3.86
2013 1.01 2.32 0.34 3.45 (0.10) (3.05) (0.83) (1.55) 0.03 (0.55) 1.35 0.40 2.70
2014 (1.36) (1.10) (0.40) (0.81) (0.08) (0.06) 0.85 0.01 3.96 (1.73) 1.00 (0.05) 0.11
2015 3.14 (0.60) 0.36 (1.28) 0.93 (1.01) 0.32 (0.78) (0.64) (0.59) 2.36 (3.48) (1.42)
2016 0.71 0.73 (1.77) (0.82) (0.28) 3.61 (0.99) (0.17) (0.37) 0.77 5.02 0.19 6.63
2017 (1.47) 1.91 (2.84) 3.84 (0.60) (1.39) 1.54 0.19 (0.78) (0.84) 0.20 0.11 (0.30)
2018 2.54 (0.38) (1.54) 1.07 8.41 (0.57) 0.91 0.90 0.14 1.32 0.38 0.47 14.16
2019 0.67 (0.70) 2.45 (0.49) 3.55 3.97 (0.66) 1.12 (1.89) 0.65 (1.17) 1.68 9.38
2020 (1.25) 5.39 18.40 0.34 (0.82) (0.54) 1.84 0.97 (1.11) (0.01) 0.76 3.15 28.89
2021 1.21 0.31 0.85 0.16 0.26 (1.47) (0.47) 0.86 0.31 0.14 (0.09) 0.59 2.67
2022 0.74 1.77 5.27 3.80 1.09 0.76 0.12 3.11 2.46 (0.50) (1.09) 2.01 21.17
Source: Master Fund NAV data is provided by the administrator of the Master
Fund, State Street Fund Services (Ireland) Limited. The Company's NAV and NAV
per Share data is provided by the Company's administrator, Northern Trust
International Fund Administration Services (Guernsey) Limited.
The Company's NAV per Share % Monthly Change is calculated by BHCM.
The Company's NAV data is unaudited and net of all investment management and
performance fees and all other fees and expenses payable by the Company. In
addition, the Company's investment in the Master Fund is subject to an
operational services fee.
NAV performance is provided for information purposes only. Shares in the
Company do not necessarily trade at a price equal to the prevailing NAV per
Share.
Data as at 30 December 2022.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Quarterly and Annual contribution (%) to the performance of the Company's USD
Shares (net of fees and expenses) by asset class*
The information ( below) is given in US$ only, consistent with monthly
shareholder reporting for the underlying US$ denominated Master Fund.
Rates FX Commodities Credit Equity Digital Discount TOTAL
Assets Management
Q1 2022 7.28 1.30 0.72 0.09 -1.05 -0.39 0.00 7.93
Q2 2022 6.91 -0.37 -0.22 -0.43 0.41 -0.51 0.00 5.72
Q3 2022 1.90 3.57 -0.02 -0.58 -0.17 0.03 0.99 5.77
Q4 2022 3.64 -1.76 -0.60 0.45 -1.02 -0.27 0.00 0.39
YTD 21.13 2.69 -0.12 -0.47 -1.83 -1.14 0.99 21.17
2022
Data as at 30 December 2022.
Quarterly and YTD figures are calculated by BHCM as at 30 December 2022, based
on performance data for each period provided by the Company's administrator,
Northern Trust. Figures rounded to two decimal places.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Methodology and Definition of Contribution to Performance:
Attribution by asset class is produced at the instrument level, with
adjustments made based on risk estimates.
*The above asset classes are categorised as follows:
"Rates": interest rates markets
"FX": FX forwards and options
"Commodities": commodity futures and options
"Credit": corporate and asset-backed indices, bonds and CDS
"Equity": equity markets including indices and other derivatives
"Digital Assets": crypto-currencies
"Discount Management": buyback activity or sales of shares
Performance and Economic Outlook Commentary
The economic environment last year proved favourable for our core macro
strategies. Surging inflation, combined with central banks reversing years of
monetary stimulus, triggered high levels of volatility across a range of
markets, creating a rich opportunity set. Our core theme of higher US rates
played out during the first three quarters of the year. When sentiment shifted
in the fourth quarter toward the possibility of an end to the rate-hiking cycle
in the US and concerns about recession in Europe, the Master Fund was able to
generate additional gains by positioning for lower rates. European interest
rate trading was much more tactical throughout the year, also contributing to
gains. Not only did the traditional macro directional strategies perform well,
but so too did a range of other strategies including FX, relative value,
inflation, and emerging markets. Looking to the future, it is worth considering
the recent past. The decade following the Great Financial Crisis saw the
longest economic recovery on record, fuelled by unprecedented monetary and
fiscal stimulus. Macroeconomic and market volatility was suppressed as
policymakers used an ever-growing set of policy tools designed to curtail
potential bad outcomes. Harvesting risk premium in this quiescent environment
was relatively straightforward for investors. Eventually, though, the
consequence of such hyper-easy monetary and fiscal policy was a surge in
inflation exacerbated by pandemic-related disruptions to the supply side of the
global economy. Against this backdrop, inflation broke out of 40-year ranges in
many developed market (DM) and emerging market (EM) economies. Huge
uncertainties remain as to whether global central banks will succeed in
containing inflation without triggering severe recessions. Something always
breaks during a rate-hiking cycle and there's no such thing as a pain-free
recession. At the beginning of this year, it looked like investors were willing
to believe in a soft landing. However, by the end of the first quarter, bank
failures in the US and a near-miss in Europe reminded markets that
interest-rate sensitive sectors of the economy are in for a rough time. The
near-term prospect of a credit crunch which slows economic activity has to be
evaluated against continued unwelcome inflationary pressures. Policymakers are
experienced, coordinated and determined. But, it's unclear whether they have
the macro prudential tools to reassure financial markets while simultaneously
using monetary policy tools to tame inflation. Soft landing may turn into
turbulence or worse. This task is made harder as economies adapt to new
geopolitical realities by accelerating re-shoring and supply chain
independence, while political classes remain incentivised to push in the
opposite direction by keeping the fiscal reins loose. Global imbalances, both
within individual economies as well as between them, in part due to economic
desynchronisation, are at generational extremes. As a consequence, the macro
landscape looks set to remain extremely interesting.
Brevan Howard wishes to thank shareholders once again for their continued
support.
Brevan Howard Capital Management LP,
acting by its sole general partner,
Brevan Howard Capital Management Limited.
28 March 2023
Independent Auditor's Report to the Members of BH Macro Limited
Our opinion is unmodified
We have audited the financial statements of BH Macro Limited (the "Company"),
which comprise the Audited Statement of Assets and Liabilities as at 31
December 2022, the Audited Statements of Operations, Changes in Net Assets and
Cash Flows for the year then ended, and notes, comprising significant
accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
· give a true and fair view of the financial position of the Company as at
31 December 2022, and of the Company's financial performance and cash flows for
the year then ended;
· are prepared in accordance with U.S. generally accepted accounting
principles; and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as required by the Crown Dependencies' Audit
Rules and Guidance. We believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of
most significance in the audit of the financial statements and include the most
significant assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. In
arriving at our audit opinion above, the key audit matter was as follows (2021:
Valuation of Investment in Brevan Howard Master Fund Limited and Combination
with BH Global Limited):
The risk Our response
Valuation of Investment Basis: Our audit procedures included,
in Brevan Howard Master The Company, which is a but were not limited to:
Fund Limited (the "Master multi-class feeder fund,
Fund") had invested 99.29% (2021: i) Obtained an independent
$1,628,766,000; (2021: 99.28%) of its net assets confirmation from the
$1,288,417,000) at 31 December 2022 into administrator of the Master Fund
Refer to the Report of the ordinary US Dollar and detailing the net asset value per
the Audit Committee and Sterling denominated Class share for both the US Dollar and
note 3 accounting policy. B Shares issued by the Sterling Class B shares and
Master Fund, which is an reconciled these to the net asset
open-ended investment values used in the valuation of
company. the investment in the Master
Fund;
The Company's investment
holdings in the Master Fund ii) Reviewed the audit work
are valued using the performed by the auditor of the
respective net asset value Master Fund to gain insight over
per share class as provided the work performed on the
by the Master Fund's significant elements of the
independent administrator. Master Fund's net asset value and
held discussions on key audit
Risk: findings with the auditor of the
The valuation of the Master Fund; and
Company's investment in the
Master Fund, given that it iii) Examined the Master Fund's
represents the majority of coterminous audited financial
the net assets of the statements to corroborate the net
Company, is a significant asset value per share of both the
area of our audit. US Dollar and Sterling Class B
shares.
We also considered the Company's
investment valuation policies as
disclosed in note 3 to the
financial statements for
conformity with U.S. generally
accepted accounting principles.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £24,600,000,
determined with reference to a benchmark of net assets of $1,640,448,000, of
which it represents approximately 1.5% (2021: 1.5%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2021: 75%) of materiality for the financial
statements as a whole, which equates to $18,450,000. We applied this percentage
in our determination of performance materiality because we did not identify any
factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding $1,230,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The directors have prepared the financial statements on the going concern basis
as they do not intend to liquidate the Company or to cease its operations, and
as they have concluded that the Company's financial position means that this is
realistic. They have also concluded that there are no material uncertainties
that could have cast significant doubt over its ability to continue as a going
concern for at least a year from the date of approval of the financial
statements (the "going concern period").
In our evaluation of the directors' conclusions, we considered the inherent
risks to the Company's business model and analysed how those risks might affect
the Company's financial resources or ability to continue operations over the
going concern period. The risks that we considered most likely to affect the
Company's financial resources or ability to continue operations over this
period were:
· Availability of capital to meet operating costs and other financial
commitments;
· The likelihood of a share class closure or liquidation resolution votes
being triggered.
We considered whether these risks could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios that
could arise from these risks individually and collectively against the level of
available financial resources indicated by the Company's financial forecasts.
We considered whether the going concern disclosure in note 3 to the financial
statements gives a full and accurate description of the directors' assessment
of going concern.
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
· we have not identified, and concur with the directors' assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Company's
ability to continue as a going concern for the going concern period; and
· we have nothing material to add or draw attention to in relation to the
directors' statement in the notes to the financial statements on the use of the
going concern basis of accounting with no material uncertainties that may cast
significant doubt over the Company's use of that basis for the going concern
period, and that statement is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the above conclusions are not a
guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
· enquiring of management as to the Company's policies and procedures to
prevent and detect fraud as well as enquiring whether management have knowledge
of any actual, suspected or alleged fraud;
· reading minutes of meetings of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, we perform procedures to address the risk of
management override of controls, in particular the risk that management may be
in a position to make inappropriate accounting entries. On this audit we do not
believe there is a fraud risk related to revenue recognition because the
Company's revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or agreements
with little or no requirement for estimation from management. We did not
identify any additional fraud risks.
We performed procedures including
· Identifying journal entries and other adjustments to test based on risk
criteria and comparing any identified entries to supporting documentation; and
· incorporating an element of unpredictability in our audit procedures.
Identifying and responding to risks of material misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company's regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company's ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company's activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of
fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report but does not
include the financial statements and our auditor's report thereon. Our opinion
on the financial statements does not cover the other information and we do not
express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that
fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements
and our audit knowledge. we have nothing material to add or draw attention to
in relation to:
· the directors' confirmation within the Viability Statement that they
have carried out a robust assessment of the emerging and principal risks facing
the Company, including those that would threaten its business model, future
performance, solvency or liquidity;
· the emerging and principal risks disclosures describing these risks and
explaining how they are being managed or mitigated;
· the directors' explanation in the Viability Statement as to how they
have assessed the prospects of the Company, over what period they have done so
and why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to review the Viability Statement, under the Listing
Rules. Based on the above procedures, we have concluded that the above
disclosures are materially consistent with the financial statements and our
audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
· the directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the Company's
position and performance, business model and strategy;
· the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee considered
in relation to the financial statements, and how these issues were addressed;
and
· the section of the annual report that describes the review of the
effectiveness of the Company's risk management and internal control systems.
We are required to review the part of Corporate Governance Statement relating
to the Company's compliance with the provisions of the UK Corporate Governance
Code specified by the Listing Rules for our review. We have nothing to report
in this respect.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:
· the Company has not kept proper accounting records; or
· the financial statements are not in agreement with the accounting
records; or
· we have not received all the information and explanations, which to the
best of our knowledge and belief are necessary for the purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement, the directors are responsible for:
the preparation of the financial statements including being satisfied that they
give a true and fair view; such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Company's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern; and using the going concern basis of accounting unless
liquidation is imminent.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue our opinion in an auditor's report. Reasonable assurance
is a high level of assurance, but does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material
if, individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than
the Company's members as a body
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members, as a
body, for our audit work, for this report, or for the opinions we have formed.
Simon Guilbert
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
28 March 2023
Audited Statement of Assets and Liabilities
As at 31 December 2022
31.12.22 31.12.21
US$'000 US$'000
Assets
Investment in the Master Fund (note 3) 1,628,766 1,288,417
Master Fund redemption proceeds receivable 70,411 600
Prepaid expenses 43 294
Cash and bank balances denominated in Sterling 7,271 15,884
Cash and bank balances denominated in US Dollars 639 546
Combination costs receivable - 1,749
Total assets 1,707,130 1,307,490
Liabilities
Performance fees payable 62,261 6,205
(note 4)
Management fees payable (note 4) 4,224 3,252
Accrued expenses and other liabilities 117 254
Directors' fees payable 14 -
Administration fees payable (note 4) 66 51
Total liabilities 66,682 9,762
Net assets 1,640,448 1,297,728
Number of shares in issue (note 5)
Sterling shares 30,156,454 25,864,663
US Dollar shares 2,858,135 2,689,547
Net asset value per share (notes 7 and 9)
Sterling shares £41.81 £34.30
US Dollar shares US$43.28 US$35.71
See accompanying Notes to the Audited Financial Statements.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
28 March 2023
Audited Statement of Operations
For the year ended 31 December 2022
01.01.22 01.01.21
31.12.22 31.12.21
US$'000 US$'000
Net investment loss allocated from the Master Fund
Interest income 14,309 4,830
Dividend and other income (net of withholding tax: 31 December 6,166 443
2022: $127,840; 31 December 2021: US$41,739)
Expenses (24,561) (9,738)
Net investment loss allocated from the Master Fund (4,086) (4,465)
Company income
Bank interest income 32 -
Total Company income 32 -
Company expenses
Performance fees (note 4) 63,844 6,286
Management fees (note 4) 23,776 10,921
Other expenses 1,063 1,465
Directors' fees 366 326
Administration fees (note 4) 241 156
Foreign exchange losses (note 3) 149,089 13,044
Total Company expenses 238,379 32,198
Net investment loss (242,433) (36,663)
Net realised and unrealised gain on investments allocated from the
Master Fund
Net realised gain on investments 118,371 46,982
Net unrealised gain on investments 236,140 1,691
Net realised and unrealised gain on investments 354,511 48,673
allocated from the Master Fund
Net increase in net assets resulting from operations 112,078 12,010
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Changes in Net Assets
For the year ended 31 December 2022
01.01.22 01.01.21
31.12.22 31.12.21
US$'000 US$'000
Net increase in net assets resulting from operations
Net investment loss (242,433) (36,663)
Net realised gain on investments allocated from the Master 118,731 46,982
Fund
Net unrealised gain on investments allocated from the Master 236,140 1,691
Fund
112,078 12,010
Share capital transactions
Proceeds on issue of shares from treasury
(note 5)
Sterling shares - 129,006
US Dollar shares - 3,216
Issue of new shares from the Combination with
BH Global Limited (in Voluntary Winding Up)
Sterling shares - 339,914
US Dollar shares - 25,733
Issue of new shares
Sterling shares 218,027 91,896
US Dollar shares 12,615 -
Tender offer
Sterling shares - (60,902)
US Dollar shares - (4,314)
Total share capital transactions 230,462 524,549
Net increase in net assets 342,720 536,559
Net assets at the beginning of the year 1,297,728 761,169
Net assets at the end of the year 1,640,448 1,297,728
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Cash Flows
For the year ended 31 December 2022
01.01.22 01.01.21
31.12.22 31.12.21
US$'000 US$'000
Cash flows from operating activities
Net increase in net assets resulting from operations 112,078 12,010
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Net investment loss allocated from the Master Fund 4,086 4,465
Net realised gain on investments allocated from the Master Fund (118,731) (46,982)
Net unrealised gain on investments allocated from the Master Fund (236,140) (1,691)
Purchase of investment in the Master Fund1 (221,798) (145,200)
Proceeds from sale of investment in the Master Fund 11,008 113,482
Foreign exchange losses 149,089 13,044
Decrease/(increase) in prepaid expenses 251 (258)
Increase)/(decrease) in performance fees payable 56,056 (34,263)
Increase in management fees payable 972 2,830
(Decrease)/increase in accrued expenses and other liabilities (137) 152
Increase in Directors' fees payable 14 -
Decrease/(increase) in combination fees receivable 1,749 (1,749)
Increase/(decrease) in administration fees payable 15 (12)
Net cash used in operating activities (241,128) (84,172)
Cash flows from financing activities
Purchase of own shares into treasury - (65,216)
Proceeds from share issue1,2 230,462 160,179
Net cash generated from financing activities 230,462 94,963
Change in cash (10,486) 10,791
Cash, beginning of the year 16,430 961
Effect of exchange rate fluctuations 1,966 4,678
Cash, end of the year 7,910 16,430
Cash, end of the year
Cash and bank balances denominated in Sterling1 7,271 15,884
Cash and bank balances denominated in US Dollars 639 546
7,910 16,430
Supplemental disclosure of non-cash financing activities
1. Supplemental disclosure of non-cash financing activities:
In the year ended
31 December 2021, non-cash amounts of US$429.6 million in
relation to the
Combination with BH Global Limited (in Voluntary Winding Up)
have been
excluded from the Audited Statement of Cash Flows.
2. The balance for the year ended 31 December 2021 contains
proceeds from
both the Combination with BH Global Limited (in Voluntary
Winding Up)
and subsequent block listings.
3 Cash and bank balances in Sterling (GBP'000) 6,045 11,726
See accompanying Notes to the Audited Financial Statements.
Notes to the Audited Financial Statements
For the year ended 31 December 2022
1. The Company
BH Macro Limited (the "Company") is a limited liability closed-ended investment
company which was incorporated in Guernsey on 17 January 2007 and then admitted
to the Official List of the London Stock Exchange ("LSE") later that year.
Currently, ordinary shares are issued in Sterling and US Dollars.
2. Organisation
The Company is organised as a feeder fund and seeks to achieve its investment
objective by investing all of its investable assets, net of short-term working
capital requirements, in the ordinary Sterling and US Dollar-denominated class
B shares issued by Brevan Howard Master Fund Limited (the "Master Fund") and,
as such, the Company is directly and materially affected by the performance and
actions of the Master Fund.
The Master Fund is an open-ended investment company with limited liability
formed under the laws of the Cayman Islands on 22 January 2003. The investment
objective of the Master Fund is to generate consistent long-term appreciation
through active leveraged trading and investment on a global basis. The Master
Fund employs a combination of investment strategies that focus primarily on
economic change and monetary policy and market inefficiencies. The underlying
philosophy is to construct strategies, often contingent in nature with superior
risk/return profiles, whose outcome will often be crystallised by an expected
event occurring within a pre-determined period of time. New trading strategies
will be added as investment opportunities present themselves.
At the date of these Audited Financial Statements, there were four other feeder
funds in operation in addition to the Company that invest all of their assets
(net of working capital) in the Master Fund. Furthermore, other funds managed
by the Manager invest some of their assets in the Master Fund as at the date of
these Audited Financial Statements.
Off-Balance Sheet, market and credit risks of the Master Fund's investments and
activities are discussed in the notes to the Master Fund's Audited Financial
Statements for the year ended 31 December 2022. The Company's investment in the
Master Fund exposes it to various types of risk, which are associated with the
financial instruments and markets in which the Brevan Howard underlying funds
invest.
Market risk represents the potential loss in value of financial instruments
caused by movements in market factors including, but not limited to, market
liquidity, investor sentiment and foreign exchange rates.
The Manager
Brevan Howard Capital Management LP (the "Manager") is the manager of the
Company. The Manager is a Jersey limited partnership, the general partner of
which is Brevan Howard Capital Management Limited, a Jersey limited company
(the "General Partner"). The General Partner is regulated in the conduct of
fund services business by the Jersey Financial Services Commission pursuant to
the Financial Services (Jersey) Law, 1998 and the Orders made thereunder.
The Manager also manages the Master Fund and in that capacity, as at the date
of these Audited Financial Statements, has delegated the function of investment
management of the Master Fund to Brevan Howard Asset Management LLP, Brevan
Howard (Hong Kong) Limited, Brevan Howard Investment Products Limited, Brevan
Howard US Investment Management LP, Brevan Howard Private Limited, Brevan
Howard (Tel Aviv) Limited and BH-DG Systematic Trading LLP.
On 23 January 2023 the Management Agreement between the Company and the Manager
was amended. See note 11 for further details.
3. Significant accounting policies
These Audited Financial Statements, which give a true and fair view, are
prepared in accordance with United States Generally Accepted Accounting
Principles and comply with the Companies (Guernsey) Law, 2008. The functional
and reporting currency of the Company is US Dollars.
As further described in the Directors' Report, these Audited Financial
Statements have been prepared using the going concern basis of accounting.
The Board continues to monitor the ongoing impact of various geopolitical
events, including the disruption arising from the aftermath of the COVID-19
pandemic, elevated levels of global inflation, recessionary risks and the
ongoing war in Ukraine. The Board has concluded that the biggest threat to the
Company in relation to these geopolitical concerns remains the failure of a key
service provider to maintain business continuity and resiliency. The Board has
assessed the measures in place by key service providers to maintain business
continuity and, so far, has not identified any significant issues that affect
the Company. The financial position of the Company has not been negatively
impacted by these geopolitical events either. For these reasons, the Board is
confident that these events have not impacted the going concern assessment of
the Company.
The Company is an investment company which has applied the provisions of
Accounting Standards Codification ("ASC") 946.
The following are the significant accounting policies adopted by the Company:
Valuation of investments
The Company records its investment in the Master Fund at fair value. Fair value
is determined as the Company's proportionate share of the Master Fund's
capital, which approximates fair value. At 31 December 2022, the Company was
the sole investor in the Master Fund's ordinary Sterling and US Dollar class B
shares as disclosed in the table below. Within the table below, the Company's
investment in each share class in the Master Fund is included, with the overall
total investment shown in the Audited Statement of Assets and Liabilities.
Percentage of NAV per Share Shares held in Investment in Investment in
the Master Fund Master Fund Master Fund
Master Fund's capital (class B) (class B) CCY '000 US$'000
31 December 2022
Sterling 15.03% £6,634.79 188,704 £1,252,014 1,506,049
US Dollar 1.22% US$6,606.92 18,573 US$122,717 122,717
1,628,766
31 December 2021
Sterling 14.73% £5,196.52 169,474 £880,666 1,192,908
US Dollar 1.18% US$5,179.12 18,439 US$95,511 95,509
1,288,417
ASC Topic 820 defines fair value as the price that the Company would receive
upon selling a security in an orderly transaction to an independent buyer in
the principal or most advantageous market of the security.
The valuation and classification of securities held by the Master Fund is
discussed in the notes to the Master Fund's Audited Financial Statements which
are available on the Company's website, www.bhmacro.com.
Income and expenses
The Company records monthly its proportionate share of the Master Fund's
income, expenses and realised and unrealised gains and losses. In addition, the
Company accrues its own income and expenses.
Use of estimates
The preparation of Financial Statements in accordance with United States
Generally Accepted Accounting Principles 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 these Audited
Financial Statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could differ
from those estimates.
Leverage
The Manager has discretion, subject to the prior approval of a majority of the
independent Directors, to employ leverage for and on behalf of the Company by
way of borrowings to effect share purchases or share buy-backs, to satisfy
working capital requirements and to finance further investments in the Master
Fund.
The Company may borrow up to 20% of its NAV, calculated as at the time of
borrowing. Additional borrowing over 20% of NAV may only occur if approved by
an ordinary resolution of the Shareholders.
Foreign exchange
Transactions reported in the Audited Statement of Operations are translated
into US Dollar amounts at the date of such transactions. Assets and liabilities
denominated in foreign currencies are translated into US Dollars at the
exchange rate at the reporting date. The share capital and other capital
reserves are translated at the historic ruling at the date of the transaction.
Investment securities and other assets and liabilities of the Sterling share
class are translated into US Dollars, the Company's reporting currency, using
exchange rates at the reporting date. The Audited Statement of Operations'
items of the Sterling share class are converted into US Dollars using the
average exchange rate. Exchange differences arising on translation are included
in foreign exchange losses in the Audited Statement of Operations. This foreign
exchange adjustment has no effect on the value of net assets allocated to the
individual share classes.
Cash and bank balances
Cash and bank balances comprise demand deposits.
Allocation of results of the Master Fund
Net realised and unrealised gains/losses of the Master Fund are allocated to
the Company's share classes based upon the percentage ownership of the
equivalent Master Fund class.
Treasury shares
Where the Company has purchased its own share capital, the consideration paid,
which includes any directly attributable costs, has been recognised as a
deduction from equity Shareholders' funds through the Company's reserves.
Where such shares have been subsequently sold or reissued to the market, any
consideration received, net of any directly attributable incremental
transaction costs, is recognised as an increase in equity Shareholders' funds
through the share capital account. Where the Company cancels treasury shares,
no further adjustment is required to the share capital account of the Company
at the time of cancellation. Shares held in treasury are excluded from
calculations when determining NAV per share as detailed in note 7 and in the
'Financial highlights' in note 9.
Refer to note 8 for details of sales of shares from treasury or purchases by
the Company of its share capital.
4. Management Agreement and administration agreement
Management fee and performance fee
The Company has entered into the Management Agreement with the Manager to
manage the Company's investment portfolio. The Management Fee charged to the
Company is reduced by the Company's share of management fees incurred by the
Master Fund through any underlying investments of the Master Fund that share
the same manager as the Company. Effective from 1 July 2021, the Management Fee
charged was changed to 1/12 of 1.5% per month of the NAV. On 23 January 2023
the Management Agreement between the Company and the Manager was amended. See
note 11 for further details.
Until 30 June 2021, the Management Fee charged was the lower of (a) 0.5% the
prevailing NAV of each class of shares and (b) 0.5% the NAV of that class of
shares as at 1 April 20171. The investment in the class B shares of the Master
Fund was not subject to management fees, but was subject to an operational
services fee payable to the Manager of 1/12 of 0.5% per month of the NAV.
During the year ended 31 December 2022, US$23,776,341 (31 December 2021:
US$10,921,176) was earned by the Manager as net Management Fees. At 31 December
2022, US$4,224,444 (31 December 2021: US$3,251,592) of the Management Fee
remained outstanding.
The Manager is also entitled to an annual performance fee for both share
classes. The performance fee is equal to 20% of the appreciation in the NAV per
share of that class during that calculation period which is above the base NAV
per Share of that class, other than that arising to the remaining shares of the
relevant class from any repurchase, redemption or cancellation of any share in
the calculation period. The base NAV per share is the greater of the NAV per
Share of the relevant class at the time of issue of such share and the highest
NAV per share achieved as at the end of any previous calculation period.
The Manager will be paid an estimated performance fee on the business day
preceding the last business day of each calculation period. Within 5 business
days of the publication of the final NAV of each class of shares as at the end
of the calculation period, any difference between the actual performance fee
and the estimated amount will be paid to or refunded by the Manager, as
appropriate. Any accrued performance fee in respect of shares which are
converted into another share class prior to the date on which the performance
fee would otherwise have become payable in respect of those shares will
crystallise and become payable on the date of such conversion. The performance
fee is accrued on an ongoing basis and is reflected in the Company's published
NAV. During the year ended 31 December 2022, US$63,843,904 (31 December 2021:
US$6,285,545) was earned by the Manager as performance fees. At 31 December
2022, US$62,261,207 (31 December 2021: US$6,205,245) of the fee remained
outstanding.
The Master Fund may hold investments in other funds managed by the Manager. To
ensure that Shareholders of the Company are not subject to two tiers of fees,
the fees paid to the Manager as outlined above are reduced by the Company's
share of any fees paid to the Manager by the underlying Master Fund
investments, managed by the Manager.
Until 30 June 2021, the Management Agreement could have been terminated by
either party giving the other party not less than 3 months' written notice. In
certain circumstances, the Company would have been obliged to pay compensation
to the Manager of the aggregate Management Fees which would otherwise have been
payable during the 3 months following the date of such notice and the aggregate
of any accrued performance fee in respect of the current calculation period.
Compensation would not have been payable if more than 3 months' notice of
termination is given.
The notice period for termination of the Management Agreement without cause by
both the Company and the Manager was increased from 3 months to 12 months, with
effect from 1 July 2021. On 23 January 2023 the Management Agreement between
the Company and the Manager was amended. See note 11 for further details.
[1] On the basis that all shares redeemed pursuant to the Company's 2017 own
share tender offer had been redeemed on that date (subject to certain other
adjustments, including to take account of conversions between share classes).
Administration fee
The Company has appointed Northern Trust International Fund Administration
Services (Guernsey) Limited as its administrator and corporate secretary (the
"Administrator" and "Corporate Secretary") pursuant to an administration
agreement. The Administrator is paid fees based on the NAV of the Company,
payable quarterly in arrears. The fee is at a rate of 0.015% of the average
month-end NAV of the Company, subject to a minimum fee of £67,500 per annum. In
addition to the NAV-based fee, the Administrator is also entitled to an annual
fee of £6,000 (31 December 2021: £6,000) for certain additional administration
services. The Administrator is entitled to be reimbursed for out-of-pocket
expenses incurred in the course of carrying out its duties as Administrator.
During the year ended 31 December 2022, US$240,727 (year ended 31 December
2021: US$155,973) was earned by the Administrator as administration fees. The
amounts outstanding are disclosed on the Audited Statement of Assets and
Liabilities.
5. Share capital
Issued and authorised share capital
The Company has the power to issue an unlimited number of ordinary shares with
no-par value and an unlimited number of shares with a par value. Shares may be
divided into at least two classes denominated in Sterling and US Dollars.
Further issues of shares may be made in accordance with the Articles of
Incorporation (the "Articles"). Shares may be issued in differing currency
classes of ordinary redeemable shares including C shares. The treasury shares
arose as a result of the discount management programme as described in note 8.
The tables below show the movement in ordinary and treasury shares.
On 14 January 2022, the Company issued 921,862 Sterling shares at a price of
3,670 pence per share.
On 16 March 2022, the Company issued 268,379 Sterling shares at a price of
3,770 pence per share.
At an Extraordinary General Meeting ("EGM") held on 5 May 2022, Shareholders
approved a resolution allowing the Directors to issue up to 2,707,396 Sterling
shares, being 10% of the Sterling shares in issue as at the date of the EGM.
On 19 May 2022, the Company issued 1,521,441 Sterling shares at a price of
4,270 pence per share.
On 26 May 2022, the Company issued 59,631 Sterling shares at a price of 4,300
pence per share.
On 16 June 2022, the Company issued 582,182 Sterling shares at a price of 4,455
pence per share.
On 7 July 2022, the Company issued 187,684 Sterling shares at a price of 4,300
pence per share.
On 11 August 2022, the Company issued 356,458 Sterling shares and 185,000 US
Dollar Shares at a price of 4,375 pence per share and US$44.20 per share
respectively.
On 2 September 2022, the Company issued 94,360 US Dollar shares at a price of
US$47.30 per share.
At an AGM held on 9 September 2022, Shareholders approved a Resolution allowing
the Directors to issue up to 9,818,410 Sterling shares and 873,549 US Dollar
shares.
On 13 October 2022, the Company issued 303,513 Sterling shares at a price of
4,600 pence per share.
For the year ended 31 December 2022
Sterling US Dollar
shares shares
Number of ordinary shares
In issue at 1 January 25,864,663 2,689,547
2022
Share conversions 90,641 (110,772)
Issue of new shares 4,201,150 279,360
In issue at 31 December 30,156,454 2,858,135
2022
Number of treasury shares
In issue at 1 January 2022 and at 31 - -
December 2022
For the year ended 31 December 2021
Sterling US Dollar
shares shares
Number of ordinary shares
In issue at 1 January 2021 15,009,868 2,191,379
Share conversions 153,458 (202,031)
Issue of new shares 9,689,134 449,971
Sale of shares from 2,346,302 375,391
treasury
Tender offer shares transferred (1,334,099) (125,163)
to treasury
In issue at 31 December 25,864,663 2,689,547
2021
Number of treasury
shares
In issue at 1 January 2021 1,012,203 250,228
Tender offer shares transferred 1,334,099 125,163
to treasury
Sale of shares from (2,346,302) (375,391)
treasury
In issue at 31 December - -
2021
Share classes
In respect of each class of shares, a separate class account has been
established in the books of the Company. An amount equal to the aggregate
proceeds of issue of each share class has been credited to the relevant class
account. Any increase or decrease in the NAV of the Master Fund US Dollar
shares and Master Fund Sterling shares as calculated by the Master Fund is
allocated to the relevant class account in the Company. Each class account is
allocated those costs, prepaid expenses, losses, dividends, profits, gains and
income which the Directors determine in their sole discretion relate to a
particular class.
Voting rights of shares
Ordinary shares carry the right to vote at general meetings of the Company and
to receive any dividends attributable to the ordinary shares as a class
declared by the Company and, in a winding-up will be entitled to receive, by
way of capital, any surplus assets of the Company attributable to the ordinary
shares as a class in proportion to their holdings remaining after settlement of
any outstanding liabilities of the Company.
As prescribed in the Company's Articles, the different classes of ordinary
shares have different values attributable to their votes. The attributed values
have been calculated on the basis of the Weighted Voting Calculation (as
described in the Articles) which takes into account the prevailing exchange
rates on the date of initial issue of ordinary shares. On a vote, a single US
Dollar ordinary share has 0.7606 votes and a single Sterling ordinary share has
1.4710 votes.
Repurchase of ordinary shares
Under the Company's Articles, Shareholders of a class of shares have the
ability to call for repurchase of that class of shares in certain
circumstances. See note 8 for further details.
Further issue of shares
As approved by the Shareholders at the Annual General Meeting held on 24
September 2021, the Directors had the power to issue further shares for cash
totalling 7,965,377 Sterling shares and 931,107 US Dollar shares, respectively;
with authority to dis-apply pre-emption rights in respect of 279,360 shares
designated as US Dollar shares and 2,389,852 shares designated as Sterling
share. These authorities expired at the conclusion of the 9 September 2022
Annual General Meeting. An additional authority to dis-apply pre-emption rights
in respect of Sterling shares only was adopted at the 5 May 2022 Extraordinary
General Meeting ("EGM"), as noted below.
As approved by the Shareholders at an EGM held on 5 May 2022, the Directors had
the power to issue further shares for cash on a non-pre-emptive basis totalling
2,707,396 Sterling shares. This power expired on the conclusion of the 9
September 2022 Annual General Meeting of the Company.
As approved by the Shareholders at the Annual General Meeting held on 9
September 2022, the Directors have the power to issue further shares for cash
on a non-pre-emptive basis totalling 9,818,410 Sterling shares and 873,549 US
Dollar shares, respectively. This power was due to expire fifteen months after
the passing of the resolution or on the conclusion of the next Annual General
Meeting of the Company, whichever was earlier, unless such power was varied,
revoked or renewed prior to that Meeting by a resolution of the Company in
general meeting.
On 23 January 2023, the Board announced the commencement of its Initial Issue,
comprising of the Placing, Intermediaries Offer and Offer for Subscription of
new ordinary shares of no par value in the capital of the Company, together
with an issuance programme for subsequent issues, which remains open until 23
January 2024. See note 11 for further details.
Distributions
The Master Fund has not previously paid dividends to its investors. This does
not prevent the Directors of the Company from declaring a dividend at any time
in the future if the Directors consider payment of a dividend to be appropriate
in the circumstances. If the Directors declare a dividend, such dividend will
be paid on a per class basis.
As announced on 15 January 2014, the Company intends to be operated in such a
manner to ensure that its shares are not categorised as non-mainstream pooled
investments. This may mean that the Company may pay dividends in respect of any
income that it receives or is deemed to receive for UK tax purposes so that it
would qualify as an investment trust if it were UK tax-resident.
Further, the Company will first apply any such income in payment of its
Management Fee and performance fees.
Treasury shares are not entitled to distributions.
Share conversion scheme
The Company has implemented a share conversion scheme. The scheme provides
Shareholders with the ability to convert some or all of their ordinary shares
in the Company of one class into ordinary shares of the other class.
Shareholders are able to convert ordinary shares on the last business day of
every month. Each conversion will be based on the NAV (note 7) of the shares of
the class to be converted.
6. Taxation
Overview
The Company is exempt from taxation in Guernsey under the provisions of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989.
Uncertain tax positions
The Company recognises the tax benefits of uncertain tax positions only where
the position is more-likely-than- not (i.e. greater than 50%), to be sustained
assuming examination by a tax authority based on the technical merits of the
position. In evaluating whether a tax position has met the recognition
threshold, the Company must presume that the position will be examined by the
appropriate taxing authority that has full knowledge of all relevant
information. A tax position that meets the more-likely-than-not recognition
threshold is measured to determine the amount of benefit to recognise in the
Company's Audited Financial Statements. Income tax and related interest and
penalties would be recognised by the Company as tax expenses in the Audited
Statement of Operations if the tax positions were deemed not to meet the
more-likely-than-not threshold.
The Company analyses all open tax years for all major taxing jurisdictions.
Open tax years are those that are open for examination by taxing authorities,
as defined by the statute of limitations in each jurisdiction. The Company
identifies its major tax jurisdictions as: Guernsey; the Cayman Islands; and
foreign jurisdictions where the Company makes significant investments. The
Company has no examinations by tax authorities in progress.
The Directors have analysed the Company's tax positions and have concluded that
no liability for unrecognised tax benefits should be recorded related to
uncertain tax positions. Further, the Directors are not aware of any tax
positions for which it is reasonably possible that the total amounts of
unrecognised tax benefits will significantly change in the remainder of the
year.
7. Publication and calculation of the Company's Net Asset Value ("NAV")
The NAV of the Company is equal to the value of its total assets less its total
liabilities. The NAV per share of each class will be calculated by dividing the
NAV of the relevant class account by the number of shares of the relevant class
in issue on that day.
The Company publishes the NAV per share for each class of shares as calculated
by the Administrator based in part on information provided by the Master Fund,
monthly in arrears, as at each month-end.
The Company also publishes an estimate of the NAV per share for each class of
shares as calculated by the Administrator based in part on information provided
by the Master Fund, weekly in arrears.
8. Discount management programme
The Company has previously implemented a number of methods in order to seek to
manage any discount to NAV at which the Company's shares trade.
Market purchases
Until October 2016, the Company regularly utilised its ability to make market
purchases of its shares as part of the discount management programme, funded by
the Company redeeming underlying shares in the Master Fund. As a condition of
the April 2017 Tender Offer, this was suspended until 1 April 2017 and for much
of the period since that date, the Company's shares have traded at a premium or
minimal discount to NAV. However, if the Company's shares were again to trade
at wide or volatile discounts to NAV in the future, it is the Board's intention
to keep any resumption of market purchases of shares under review.
On 23 January 2023, the Board announced the commencement of its Initial Issue,
comprising of the Placing, Intermediaries Offer and Offer for Subscription of
new ordinary shares of no par value in the capital of the Company, together
with an issuance programme for subsequent issues, which remains open until 23
January 2024. See note 11 for further details.
Annual offer of partial return of capital
Under the Company's Articles, once in every calendar year, the Directors have
discretion to determine that the Company make an offer of a partial return of
capital in respect of such number of shares of the Company in issue as they
determine, provided that the maximum amount distributed does not exceed 100% of
the increase in NAV of the Company in the prior calendar year.
The Directors have discretion to determine the particular class or classes of
shares in respect of which a partial return of capital would be made, the
timetable for that partial return of capital and the price at which the shares
of each relevant class are to be returned.
The Company is entitled to redeem upon three months' notice, no more than once
per year, a portion of its interest in the Master Fund representing up to 10
per cent of each class of the Company's holding of Master Fund shares as at the
date of the relevant redemption request in connection with any such offer of a
partial capital return of capital which is approved by the Directors.
The decision to make a partial return of capital in any particular year and the
amount of the return depend, among other things, on prevailing market
conditions, the ability of the Company to liquidate its investments to fund the
capital return, the success of prior capital returns and applicable legal,
regulatory and tax considerations.
Class closure resolutions
If any class of shares trades at an average discount at or in excess of 8% of
the monthly NAV in any year from 1 January to 31 December, the Company will
hold a class closure vote of the relevant class.
The average premiums to NAV for the Sterling shares and US Dollar Shares for
the year ended 31 December 2022 were 10.61% and 11.08% respectively and
consequently, no closure vote will be held in 2023.
The arrangements are described more fully in the Company's principal documents
which were approved at the EGM on 24 February 2017.
9. Financial highlights
The following tables include selected data for a single ordinary share of each
of the ordinary share classes in issue at 31 December 2022 and other
performance information derived from the Audited Financial Statements.
The per share amounts and ratios which are shown reflect the income and
expenses of the Company for each class of ordinary share.
31.12.22 31.12.22
Sterling US Dollar
shares shares
£ US$
Per share operating performance
Net asset value at beginning of 34.30 35.71
the year
Income from investment operations
Net investment loss* (2.44) (2.50)
Net realised and unrealised gain on investment 8.87 9.22
Other capital items** 1.08 0.85
Total gain 7.51 7.57
Net asset value, end of the year 41.81 43.28
Total gain before performance 26.78% 25.93%
fees
Performance fees (4.87%) (4.76%)
Total gain after performance fees 21.91% 21.17%
Total gain reflects the net return for an investment made at the beginning of
the year and is calculated as the change in the NAV per ordinary share during
the year from 1 January 2022 to 31 December 2022. An individual Shareholder's
return may vary from these returns based on the timing of their purchase or
sale of shares.
31.12.22 31.12.22
Sterling US Dollar
shares shares
£'000 US$'000
Supplemental data
Net asset value, end of the year 1,260,923 123,686
Average net asset value for the 1,132,773 110,421
year
31.12.22 31.12.22
Sterling US Dollar
shares shares
Ratio to average net assets
Operating expenses
Company expenses*** 1.68% 1.74%
Master Fund expenses**** 0.41% 0.41%
Master Fund interest expenses***** 1.22% 1.18%
Performance fees 4.23% 4.20%
7.54% 7.53%
Net investment loss before performance fees* (1.95%) (1.98%)
Net investment loss after performance fees* (6.18%) (6.18%)
31.12.21 31.12.21
Sterling US Dollar
shares shares
£ US$
Per share operating performance
Net asset value at beginning of 33.38 34.78
the year
Income from investment operations
Net investment loss* (0.86) (0.82)
Net realised and unrealised gain on investment 1.40 1.66
Other capital items** 0.38 0.09
Total gain 0.92 0.93
Net asset value, end of the year 34.30 35.71
Total gain before performance fees 3.45% 3.39%
Performance fees (0.69%) (0.72%)
Total gain after performance fees 2.76% 2.67%
Total gain reflects the net return for an investment made at the beginning of
the year and is calculated as the change in the NAV per ordinary share during
the year from 1 January 2021 to 31 December 2021. An individual Shareholder's
return may vary from these returns based on the timing of their purchase or
sale of shares.
31.12.21 31.12.21
Sterling US Dollar
shares shares
£'000 US$'000
Supplemental data
Net asset value, end of the year 887,143 96,050
Average net asset value for the 651,999 83,120
year
31.12.21 31.12.21
Sterling US Dollar
shares shares
Ratio to average net assets
Operating expenses
Company expenses*** 1.33% 1.12%
Master Fund expenses**** 0.68% 0.68%
Master Fund interest expenses***** 0.32% 0.33%
Performance fees 0.64% 0.70%
2.97% 2.83%
Net investment loss before performance fees* (1.79%) (1.58%)
Net investment loss after performance fees* (2.43%) (2.28%)
Notes
* The net investment loss figures disclosed above, does not include
net realised and unrealised gains/losses on investments allocated from the
Master Fund.
** Included in other capital items are the discounts and premiums on
conversions between share classes and on the sale of treasury shares as well as
any partial capital return effected in the relevant year as compared to the NAV
per share at the beginning of the year.
*** Company expenses are as disclosed in the Audited Statement of
Operations excluding the performance fee and foreign exchange losses/gains.
**** Master Fund expenses are the operating expenses of the Master Fund
excluding the interest and dividend expenses of the Master Fund.
***** Master Fund interest expenses include interest and dividend expenses on
investments sold short.
10. Related-party transactions
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the party in making
financial or operational decisions.
The Management Fees, performance fees and administration fees are disclosed in
note 4.
Until 30 June 2022, The Company's Articles limited the fees payable to
Directors in aggregate to £400,000 per annum. The annual Directors' fees were:
£70,000 for Richard Horlick, the Chair; £55,000 for John Le Poidevin, the Chair
of the Audit Committee; £50,000 for Claire Whittet, as Chair of the Management
Engagement Committee and the Senior Independent Director and £45,000 for all
other Directors.
A Remuneration and Nomination Committee was established on 17 June 2022, with
Bronwyn Curtis appointed as Chair of that committee. Julia Chapman became
Chair of the Management Engagement Committee on 1 July 2022.
The annual Directors' fees from 1 July 2022 have been:
Fee per annum
Role £
Board Chair 90,000
Audit Committee Chair 65,000
Management Engagement Committee Chair 55,000
Remuneration and Nomination Committee Chair 55,000
Senior Independent Auditor 55,000
All other Directors 50,000
At the Annual General Meeting, held on 9 September 2022, Shareholders approved
an increase in the annual aggregate limit of fees payable to Directors from £
400,000 per annum to £800,000 per annum.
11. Subsequent events
On 23 January 2023, the Board announced the commencement of its Initial Issue,
comprising of the Placing, Intermediaries Offer and Offer for Subscription of
new ordinary shares of no par value in the capital of the Company, together
with an issuance programme for subsequent issues, which remains open until 23
January 2024, which could be denominated as Sterling shares or US Dollar
shares, at a price per share of the relevant class equal to the latest
estimated net asset value per share of the relevant class as at the closing
date of the Initial Issue, of the latest estimated NAV per share, plus a
premium of two per cent.
The Company also announced the issue of a new prospectus and a circular to
Shareholders (the "Circular"), in connection with the Issuance Programme.
In order to reflect the increased investment of the Company in the Master Fund,
the Company and the Manager agreed to a number of amendments to the Management
Agreement and the terms on which the Company's investment in the Master Fund
could be redeemed in order to provide the Manager with more operational
certainty regarding the Company's investment in the Master Fund. These changes,
which did not require Shareholder approval, were as follows:
· The Company will ordinarily be required to provide 12 months' notice of
the redemption of all or some of its investment in the Master Fund, except as
may be required to fund the Company's specific working capital requirements
and, up to a maximum amount equal to five per cent. of each class of the
Company's holding of Master Fund shares every month, to finance on-market share
buy backs. Any redemption of all or part of the Company's investment in the
Master Fund on a winding up of the Company or to finance a tender offer or a
class closure resolution will be required to be on 12 months' notice. In those
cases, the Company would only receive the proceeds of redemption from the
Master Fund (and, therefore, Shareholders would only receive payment from the
Company) after the redemption date at the end of the 12 month notice period and
the Company (and, therefore, Shareholders) would remain exposed to the
investment performance of the Master Fund in the intervening period to that
redemption date.
· The circumstances in which the Company can terminate the Management
Agreement and redeem its investment in the Master Fund on less than 12 months'
notice will be limited to certain "cause" events affecting the Manager, in
which case the Company would be entitled to terminate the Management Agreement
and redeem its investment in the Master Fund on three months' notice.
· In addition, the annual buy back allowance arrangements introduced in 2021
will continue to apply in respect of repurchases and redemptions of shares of
each class in excess of five per cent. of the relevant class in any calendar
year, as described further in the Circular.
The Directors believe that these changes are in the interests in the Company,
given that they will help facilitate the Initial Issue and the Issuance
Programme, and that the Initial Issue and the Issuance Programme should benefit
the Company through a significant increase in its market capitalisation and
potential increase in the liquidity of the Shares.
At an EGM held on 6 February 2023, resolutions were passed to approve the grant
of authority to issue new shares and dis-apply pre-emption rights in respect of
shares issued pursuant to the Initial Issue and the Issuance Programme and to
sub-divide the Company's shares, so that each existing share would be replaced
by ten shares of the same currency class, in order to assist in liquidity of
the shares (the "Share Sub-Division"), together with the terms of the Company's
investment in the Master Fund, in order to reflect the increased investment of
the Company in the Master Fund, as a result of the Initial Issue and the
Issuance Programme. This superseded the September 2022 AGM authorities to issue
shares and dis-apply pre-emption rights in respect of the shares issued.
On 7 February 2023, dealings commenced in the shares arising from the Share
Sub-Division. The price per share for the Initial Issue was announced, being
431.5 pence for the Sterling class shares and US$4.47 for US Dollar class
shares.
On 13 February 2023, the completion of the Initial Issue was announced. A total
of 72,378,000 Sterling shares and 746,400 US Dollar shares were issued in the
Initial Issue at a price per share equal, respectively, to 431.5 pence per
Sterling share and US$4.47 per US Dollar share, raising gross proceeds of
approximately £315m (based on a US Dollar/Sterling FX spot rate of 1.2113 being
the prevailing rate as at 3.00 p.m. on 10 February 2023).
The Directors have evaluated subsequent events up to 28 March 2023, which is
the date that the Audited Financial Statements were approved and available to
be issued and have concluded there are no further items that require disclosure
or adjustment to the Audited Financial Statements.
Historic Performance Summary
As at 31 December 2022
31.12.22 31.12.21 31.12.20 31.12.19 31.12.18
US$'000 US$'000 US$'000 US$'000 US$'000
Net increase in net
assets
resulting from operations 112,078 12,010 181,533 59,462 34,985
Total assets 1,707,130 1,307,490 802,224 570,779 506,307
Total liabilities (66,682) (9,762) (41,055) (11,014) (6,004)
Net assets 1,640,448 1,297,728 761,169 559,765 500,303
Number of shares in issue
Sterling 30,156,454 25,864,663 15,009,868 14,310,040 14,136,242
shares
US Dollar shares 2,858,135 2,689,547 2,191,379 2,442,057 2,664,541
Net asset value per share
Sterling £41.81 £34.30 £33.38 £26.06 £24.13
shares
US Dollar shares US$43.28 US$35.71 US$34.78 US$26.99 US$24.67
Affirmation of the Commodity Pool Operator
As at 31 December 2022
To the best of my knowledge and belief, the information detailed in this Annual
Report and these Audited Financial Statements is accurate and complete.
Name: Jonathan Hughes
Title: Chief Financial Officer and Authorised Signatory
Brevan Howard Capital Management Limited as general partner of Brevan Howard
Capital Management LP, the manager and commodity pool operator of BH Macro
Limited
28 March 2023
Glossary of Terms and Alternative Performance Measures
Alternative Performance Measures ("APMS")
We assess our performance using a variety of measures that are not specifically
defined under US GAAP and therefore termed APMs. The APMs that we use may not
be directly comparable with those used by other companies.
Average Premium to NAV
The average premium to NAV of the whole year is calculated for each share class
by using the following formula:
(A-B)
B
Where:
· 'A' is the average closing market price of a share of the relevant share
class as derived from the trading price on the London Stock Exchange,
calculated as the sum of all the closing market prices per share of that class
as at each London Stock Exchange trading day during a calendar year, divided by
the number of such trading days in such period; and
· 'B' is the average NAV per share of the shares of the relevant share
class taken over the 12 month-end NAV Calculation Dates in the year ended 31
December 2022 calculated as the sum of the final NAV of the share class as at
each month-end NAV Calculation Date during the period ended 31 December 2022,
divided by 12.
Premium
If the share price of an investment is lower than the NAV per share, the shares
are said to be trading at a discount. The size of the discount is calculated by
subtracting the share price from the NAV per share of the relevant share class
and is usually expressed as a percentage of the NAV per share. If the share
price is higher than the NAV per share, the shares are said to be trading at a
premium. The Board monitors the level of discount or premium and consideration
is given to ways in which share price performance may be enhanced, including
the effectiveness of marketing and share buy-backs, where appropriate. The
premium is shown below.
Sterling Shares US Dollar Shares
31.12.22 31.12.21 31.12.22 31.12.21
Share Price at Year End (A) £44.90 £37.40 $45.20 $40.10
NAV per Share (B) £41.81 £34.30 $43.28 $35.71
Premium to NAV (A-B)/B 7.39% 9.04% 4.44% 12.29%
Ongoing Charges
The Ongoing Charges are calculated using the AIC Ongoing Charges methodology,
which was last updated in April 2022 and is available on the AIC website
(theaic.co.uk). The Ongoing Charges represent the Company's Management Fee and
all other operating expenses, excluding finance costs, performance fees, share
issue or buyback costs and non-recurring legal and professional fees and are
expressed as a percentage of the average of the daily net assets during the
year. The Board continues to be conscious of expenses and works hard to
maintain a sensible balance between good quality service and cost. The Ongoing
Charges calculation is shown below:
Sterling Shares US Dollar Shares
Year ended Year ended Year ended Year ended
31.12.22 31.12.21 31.12.22 31.12.21
Average NAV for the year (A) £ £ US$110,421,043 US$83,119,938
1,132,773,154 651,999,493
Investment management fee £17,787,437 £7,337,629 US$1,792,074 US$840,210
Other Company expenses £1,248,572 £1,353,514 US$127,701 US$86,917
Total Company Expenses £19,036,009 £8,691,143 US$1,919,775 US$927,127
Expenses allocated from the Master £2,325,281 £2,938,057 US$238,666 US$374,525
Fund
Performance Fee £47,900,303 £4,155,847 US$4,691,933 US$575,942
Total Expenses (B) £69,261,593 £15,785,047 US$6,800,374 US$1,877,594
Ongoing Charges (B/A) 6.11% 2.43% 6.16% 2.25%
The NAV
The NAV is the net assets of the Company attributable to Shareholders, that is,
total assets less total liabilities, expressed as an amount per individual
share of the relevant class of shares.
Return per Share
Return per share is calculated using the net return on ordinary activities
after finance costs and taxation (a gain of £195,693,403 and a gain of
US$19,301,255) divided by the weighted average number of shares in issue for
the year ended 31 December 2022 (28,620,989 Sterling shares and 2,722,649 US
Dollar shares). The Directors also regard returns per share to be a key
indicator of performance. The return per share is shown in the Strategic
Report.
Company Information
Directors
Richard Horlick (Chair)
Caroline Chan (appointed 6 December 2022)
Julia Chapman
Bronwyn Curtis
John Le Poidevin
Claire Whittet
(All Directors are non-executive and independent for the purpose of Listing
Rule 15.2.12-A)
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier
Jersey
Channel Islands JE2 3QA
Administrator and Corporate Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 1WR
Registrar and CREST Service Provider
Computershare Investor Services (Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
Legal Advisor (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 4BZ
Legal Advisor (UK Law)
Hogan Lovells
International LLP
Atlantic House
Holborn Viaduct
London EC1A 2FG
Corporate Broker
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Tax Adviser
Deloitte LLP
PO Box 137
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 3HW
For the latest information
www.bhmacro.com
END
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