BH Macro Limited
Interim Report and Unaudited Financial Statements 2017
LEI 549300ZOFF0Z2CM87C29
INTERIM REPORT AND UNAUDITED FINANCIAL STATEMENTS
30 June 2017
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
The Company has today, in accordance with DTR 6.3.5, released
its Interim Financial Report for the six months ended 30 June
2017. The Report will shortly be available from the Company's
website www.bhmacro.com.
Chairman’s Statement
This is my first statement as Chairman of BH Macro Limited (the
“Company”) following Ian Plenderleith’s retirement at the Annual
General Meeting in June.
Ian had been Chairman of the Company since it was formed in 2007
and presided over the Company as it grew significantly in the early
years. As the investment market then became more challenging for
the Company, he provided strong leadership and wise counsel to the
Board as the Company adapted to the changed environment. I would
like to thank Ian for his service to the Company and to wish him
well in his retirement.
In February and March 2017,
Shareholders approved proposals put forward by the Board, in the
form of a tender offer and associated structural changes, that set
a firm foundation for the future of the Company. In the tender,
Shareholders holding 52% of the Company’s shares by value chose to
remain invested in the Company, with the remaining 48% of shares by
value taking up the offer in the tender to sell their shares at 96%
of NAV. This leaves the Company a smaller, but still substantial
fund, with a total net asset value of $452
million as at 30 June 2017. As
a result of the tender, the size of the Euro class of the Company’s
shares fell below $25 million and the
remaining Euro shares were converted into Sterling shares in June and the Euro class was
cancelled.
The structural changes have delivered a reduction in management
fee from 2% to 0.5% per annum (with the operational services fee
payable at the level of the Company’s investment in Brevan Howard
Master Fund Limited (the “Master Fund”) remaining at 0.5% per
annum) and in due course a shortening of the notice period for
termination of the Company’s management agreement with its manager,
Brevan Howard Capital Management LP (the “Manager”), from two years
to three months. These are material improvements for
Shareholders.
The Board proposed these changes as a response to the flatter
performance of the Company’s net asset value (“NAV”) in recent
years, following markedly superior performance in earlier years. In
the first five years (to 2011) following the Company’s launch in
2007 the Company’s NAV (on its sterling shares) achieved an
annualised rate of return of over 15%, which delivered almost a
doubling in NAV per share. In the following five years (2012-2016)
the annualised rate of return was 2.4% and the gain in NAV per
share, while still positive, was much more moderate.
In the first half of 2017, the US Dollar shares posted a modest
decline in NAV per share of 0.69% (including a 4.46% enhancement
following the tender offer) and the Sterling shares recorded a decline in NAV per share
of 4.19% (as the positive effect of the tender offer was lower at
1.20%).
The Company’s performance is directly related to the performance
of the Master Fund into which the Company invests substantially all
of its assets. The relatively disappointing performance in the past
few years has been the result of market conditions that have
offered few opportunities for the Master Fund’s macro-directional
trading focus: major economies are experiencing synchronised slower
growth; extreme easing in monetary policy has produced low interest
rates and flat yield curves; and there has been limited trend
movement in exchange rates. The Master Fund has been alert to the
importance of preserving investors’ capital, which it has generally
achieved, but opportunities for trading gains have been sparse.
The environment has begun to change in the past year: the major
economies have begun to display divergent growth performance; there
have been similar divergences in monetary policy, with the US
raising interest rates while further easing was implemented
elsewhere; exchange rates have responded with strong directional
movements. However, following the very strong performance of the
Master Fund at the time of the US Presidential Election in
November 2016, market conditions have
again become more stable and, so far, the Master Fund has found it
difficult to build on this performance in 2017.
Financial markets still face many uncertainties and, although
volatility is currently at historic low levels, when this changes
an investment in the Company offers Shareholders the opportunity to
benefit from the Master Fund’s track record of preserving capital
and achieving positive returns, uncorrelated with other
markets.
Following the completion of the tender offer and the consequent
reduction in its size, the Company left the FTSE 250 group of
companies in June and, consequently, there was some selling of the
Company’s shares by index-tracking investors and the discounts to
NAV at which the shares traded widened. Subsequently the discounts
have narrowed but the Sterling shares
are still trading at a discount of approximately 8% to NAV and the
US Dollar shares are trading at a 9% discount. As a condition of
the tender offer, the Company may not engage in market purchases of
its own shares for the next two years but has committed to hold a
discontinuation vote for a class of the Company’s shares if the
discount averages 8% or more in 2018 (or any subsequent calendar
year).
As the Company has reduced in size, the Board has been
particularly aware of the need to reduce the Company’s costs. As
part of a review, the Board has concluded that the benefits of
listing the Company’s shares on the Stock Exchanges in Bermuda and Dubai no longer justifies their expense.
Accordingly, the Bermuda listing
will be cancelled with effect from 30
September 2017 and the Dubai listing with effect from 31 December 2017. The Company’s London listings will be unaffected.
The Board has maintained a regular dialogue with the Manager to
review the Master Fund’s trading strategies and risk exposures and
to satisfy itself that the Manager’s analytical, trading and risk
management capabilities are being maintained to a high standard.
The Board holds extended discussions with the Manager at each of
its quarterly Board meetings and this dialogue has been intensified
in the context of the changes implemented over the past year.
One Board meeting a year is held in
Brevan Howard’s head office in Jersey in order to maintain
first-hand contact with the Manager’s team there; Directors also
hold periodic briefing meetings with Brevan Howard’s trading teams
in London, Geneva and New
York. From all these contacts, the Board continues to
believe that the management of the Master Fund remains of a very
high standard.
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 risk reports and shareholder
reports. All these reports and further information about the
Company are available on its website (www.bhmacro.com).
The Directors are very closely focused on safeguarding the
interests of Shareholders and believe that the Company observes
high standards of corporate governance. The Board, which is
independent of the Brevan Howard group, holds quarterly scheduled
meetings and meets ad hoc on other occasions as necessary. The work
of the Board is assisted by the Audit Committee and the Management
Engagement Committee. The Board continues to meet all of the
provisions of the Association of Investment Companies’ Code of
Corporate Governance that are relevant to a company that has no
executive management; the details are described below in the
Directors’ Report. The Board complies with best corporate
governance standards in ensuring that its composition provides
independence, diversity (including gender diversity, with one of
the four Directors being a woman) and necessary skills and
experience; the Board intends to work towards the target of 33% for
women’s representation on the Board by 2020 set in the Davies and
Hampton-Alexander Review Reports. The Board has adopted, and
implements, policies and procedures to ensure appropriate
nominations to the Board and its Committees and succession planning
for orderly rotation of Directors. The Board and its Committees
undertake an evaluation of their own performance every year; every
third year the Board has commissioned an external evaluation of its
performance.
Given the reduced size of the Company and mindful of costs, the
Board has concluded that the needs of the Company are well served
by the four Directors remaining after the retirement of
Ian Plenderleith. Following my
appointment as Chairman, John Le
Poidevin has succeeded me as Chair of the Audit Committee,
Colin Maltby has become Senior
Independent Director and Claire
Whittet will continue as Chair of the Management Engagement
Committee.
The structural changes the Company has implemented over the past
year put it on a strong foundation for the future. However, the
Board recognises that improved NAV performance from the Master Fund
will be important to secure the future of the Company. Evident
political and economic uncertainties lying ahead suggest that more
fruitful opportunities will present themselves for the Master
Fund’s macro-trading strategies and the Board believes that in
these conditions shares in the Company will continue to provide a
valuable listed avenue for portfolio diversification that is
uncorrelated with other asset classes.
Huw Evans
Chairman
21 August 2017
Board Members
The Directors of the Company, all of whom are non-executive, are
listed below:
Huw Evans, (appointed Chairman
on 23 June 2017), age 59
Huw Evans is Guernsey resident and qualified as a Chartered
Accountant with KPMG (then Peat Marwick Mitchell) in 1983. He
subsequently worked for three years in the Corporate Finance
department of Schroders before joining Phoenix Securities Limited
in 1986. Over the next twelve years he advised a wide range of
companies in financial services and other sectors on mergers and
acquisitions and more general corporate strategy. Since moving to
Guernsey in 2005, he has acted as
a professional non-executive Director of a number of Guernsey-based companies and funds. He holds
an MA in Biochemistry from Cambridge
University. Mr Evans was appointed to the Board in 2010 and
was appointed Chairman on 23 June
2017.
Ian Plenderleith, (former
Chairman), age 73 (retired 23 June
2017)
Ian Plenderleith retired at the end
of 2005 after a three-year term as Deputy Governor of the South
African Reserve Bank. He served on the Bank’s Monetary Policy
Committee and was responsible for money, capital and foreign
exchange market operations and for international banking
relationships. He previously worked for over 36 years at the Bank
of England in London, where he was most recently Executive
Director responsible for the Bank’s financial market operations and
a member of the Bank’s Monetary Policy Committee. He has also
worked at the International Monetary Fund in Washington DC and served on the Board of the
European Investment Bank and on various international committees at
the Bank for International Settlements. Mr Plenderleith holds an MA
from Christ Church, Oxford University,
and an MBA from Columbia Business
School, New York. Mr
Plenderleith is non-executive Chairman of Morgan Stanley
International and of the UK subsidiaries of Sanlam, the South
African financial services group. Mr Plenderleith held the role of
Chairman of the Board from 2007 until his retirement in
2017.
John Le Poidevin, age
47
John Le Poidevin is Guernsey resident and has over 25 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.
Colin Maltby, (Senior
Independent Director), age 66
Colin Maltby is a resident of
Switzerland. His career in
investment management began in 1975 with NM Rothschild & Sons
and included 15 years with the Kleinwort Benson Group, of which he
was a Group Chief Executive at the time of its acquisition by
Dresdner Bank AG in 1995. Mr Maltby was Chief Executive of
Kleinwort Benson Investment Management from 1988 to 1995, Chief
Investment Officer of Equitas Limited from its formation in 1996,
and Head of Investments at BP from August
2000 to June 2007. He has
served as a non-executive Director of various public companies and
agencies and as an adviser to numerous institutional investors,
including pension funds and insurance companies, and to private
equity and venture capital funds in both Europe and the
United States. He holds a Double First Class Honours degree
in Physics from the University of
Oxford and also studied at the Stanford
University Graduate School of Business. He is a Fellow of
Wolfson College, Oxford and of the Royal Society of Arts and a
member of the Institut National Genevois. Mr Maltby was appointed
to the Board in June 2015.
Claire Whittet, age 62
Claire Whittet is Guernsey resident and has 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 Bank
International Limited in 2003, initially as Director of Lending and
latterly a 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 member of
the Chartered Insurance Institute and holds an IoD Director’s
Diploma in Company Direction. She is a Non-Executive Director of
five other listed investment funds. Mrs Whittet was appointed to
the Board in June 2014.
Disclosure of Directorships in Public
Companies Listed on Recognised Stock Exchanges
The following summarises the Directors’ directorships in other
public companies:
|
Exchange |
Ian Plenderleith (retired 23
June 2017) |
|
None |
|
|
|
Huw Evans |
|
Standard Life Investments Property
Income Trust Limited |
London |
VinaCapital Vietnam Opportunity Fund
Limited |
London |
Colin Maltby |
|
BBGI SICAV SA |
London |
Ocean Wilsons Holdings Limited |
London and Bermuda |
|
|
John Le Poidevin |
|
International Public
Partnerships Limited
Safecharge International Group Limited |
London
London (AIM) |
Specialist Investment Properties
Plc |
London (AIM) |
Stride Gaming Plc |
London (AIM) |
Claire Whittet |
|
Eurocastle Investment Limited |
Euronext |
International Public Partnerships
Limited |
London |
Riverstone Energy
Limited
Third Point Offshore Investors Limited |
London
London |
TwentyFour Select Monthly Income
Fund Limited |
London |
Directors’ Report
30 June 2017
The Directors submit their Interim Report together with the
Company’s Interim Unaudited Statement of Assets and Liabilities,
Interim Unaudited Statement of Operations, Interim Unaudited
Statement of Changes in Net Assets, Interim Unaudited Statement of
Cash Flows and the related notes for the period ended 30 June 2017. The Directors’ Report together with
the Interim Unaudited Financial Statements and their related notes
(the “Financial Statements”) give a true and fair view of the
financial position of the Company. They have been prepared
properly, in conformity with United States Generally Accepted
Accounting Principles (“US GAAP”) and are in agreement with the
accounting records.
The Company
The Company is a limited liability closed-ended investment company
incorporated in Guernsey on
17 January 2007.
The Company was admitted to the Official List of the London
Stock Exchange (“LSE”) in 2007 and in addition to its UK Premium
Listing it has maintained Secondary listings on NASDAQ Dubai and
the Bermuda Stock Exchange since 2008.
On 29 November 2016, the Company
announced a Tender Offer (the “Tender Offer”) to acquire up to 100%
of each class of the Company’s issued shares at a price equivalent
to 96% of NAV for the relevant class. The Tender Offer was approved
by Shareholders at meetings in February and March 2017 and Shareholders holding 52% of the
Company’s shares by prevailing NAV chose to remain invested in the
Company, with the remaining 48% of shares by value being tendered
for purchase at 96% of NAV for the relevant class. The acquisition
of shares pursuant to the Tender Offer was completed on
25 April 2017. Shares purchased in
the Tender Offer were cancelled.
On 3 May 2017, the Company
announced that, following the completion of the Tender Offer, the
NAV of the Euro share class would likely fall to below the
equivalent of US$25 million on the
next net asset value calculation date on 31
May 2017 and, as stated in the shareholder circular for the
Tender Offer, the Company therefore intended to convert the
remaining Euro shares into shares of the Company’s largest share
class following the Tender Offer, being Sterling shares. Accordingly, the Company
determined that all remaining shares in the Euro class would be
converted into Sterling shares with
effect 29 June 2017 and all the Euro
shares held by the Company in Treasury were cancelled on that date.
The Euro share class then closed and its listing was cancelled.
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
Brevan Howard Master Fund Limited (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, 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 net
asset value, 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 period are set out in the Unaudited Statement
of Operations. The Directors do not recommend the payment of a
dividend.
The figures stated in note 9 of the Notes to the Interim
Unaudited Financial Statements for Net Investment Losses are, in
the Directors’ opinion and in accordance with the Company’s
investment objectives, not the most appropriate reflection of the
Company’s overall performance. Considering the investment
objectives of the Company, the Directors consider that the figures
disclosed in note 9 for Total Returns are a more appropriate
reflection of the Company’s overall performance during the
period.
Share capital
The number of shares in issue at the period end is disclosed in
note 5 of the Notes to the Financial tatements.
On 5 April 2016, the Company
announced a tender offer to acquire up to 25% of the Company’s
issued shares at discounts ranging from 4% to 8% to the NAV as at
31 May 2016.
The tender, which was completed in late June 2016, was oversubscribed: tenders of
Sterling and Euro shares at discounts
of 8%, 7% and 6% were accepted in full, and at 5% in part; tenders
of US Dollar shares at discounts of 8% and 7% were accepted in
full, and at 6% in part. Shares purchased in the tender were
cancelled.
As detailed above, there was a further tender offer announced on
29 November 2016.
Going concern
The Directors, having considered the principal risks to which the
Company is exposed which are listed in the Directors’ 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
Interim Unaudited Financial Statements.
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 and
in the Company Information.
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
period, 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,
Audit Committee and Management Engagement Committee meetings they
were entitled to attend during the period ended 30 June 2017 and the number of such meetings
attended by each Director.
Scheduled Board Meetings |
Held |
Attended |
Huw Evans |
2 |
2 |
Ian Plenderleith |
*2 |
2 |
John Le Poidevin |
2 |
2 |
Colin Maltby |
2 |
2 |
Claire Whittet |
2 |
2 |
|
|
|
Audit Committee Meetings |
Held |
Attended |
Huw Evans |
*2 |
2 |
John Le Poidevin |
2 |
2 |
Colin Maltby |
*1 |
1 |
Claire Whittet |
2 |
2 |
* Indicates the meetings held
during their membership of the relevant Board or Committee during
the period ended 30 June 2017.
In addition to these scheduled meetings, eight ad hoc meetings
and one Extraordinary General Meeting were held during the period
ended 30 June 2017, which were
attended by those Directors available at the time.
Directors’ independence
In January 2016, the then Chairman,
Ian Plenderleith, had served on the
Board for over nine years and under the AIC Code of Corporate
Governance (“AIC Code”) may not have been considered to be
independent. The Board however, took the view that independence is
not necessarily compromised by the length of tenure on the Board
and experience can significantly add to the Board’s strength. It
was therefore determined that in performing his role as the
Chairman (until his retirement on 23 June
2017), Ian Plenderleith
remained wholly independent and all the current Directors are
considered to be independent.
Directors’ interests
The Directors had the following interests in the Company, held
either directly or beneficially:
|
|
|
|
US Dollar
Shares |
|
|
30.06.17 |
31.12.16 |
30.06.16 |
Huw Evans |
|
Nil |
Nil |
Nil |
Ian Plenderleith |
|
N/A |
Nil |
Nil |
John Le Poidevin |
|
Nil |
Nil |
Nil |
Colin Maltby |
|
Nil |
Nil |
Nil |
Claire Whittet |
|
Nil |
Nil |
Nil |
|
|
|
|
|
|
|
|
|
Euro
Shares |
|
|
30.06.17 |
31.12.16 |
30.06.16 |
Huw Evans |
|
N/A |
Nil |
Nil |
Ian Plenderleith |
|
N/A |
Nil |
Nil |
John Le Poidevin |
|
N/A |
Nil |
Nil |
Colin Maltby |
|
N/A |
Nil |
Nil |
Claire Whittet |
|
N/A |
Nil |
Nil |
|
|
|
|
|
|
|
|
|
Sterling
Shares |
|
|
30.06.17 |
31.12.16 |
30.06.16 |
Huw Evans |
|
3,337 |
710 |
710 |
Ian Plenderleith |
|
N/A |
Nil |
Nil |
John Le Poidevin |
|
Nil |
Nil |
Nil |
Colin Maltby |
|
Nil |
Nil |
Nil |
Claire Whittet |
|
Nil |
Nil |
Nil |
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 for, subject to the provisions of the Companies
(Guernsey) Law, 2008, 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, 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 Association of Investment
Companies (the “AIC”) and by complying with the AIC Code is deemed
to comply with both the UK Corporate Governance Code and the
Guernsey Code of Corporate Governance. The AIC also publishes a
Corporate Governance Guide for Investment Companies (“AIC
Guide”).
To ensure ongoing compliance with the principles and the
recommendations of the AIC Code, the Board receives and reviews a
report from the 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 recommendations 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
·
whistle-blowing policy
For the reasons set out in the AIC Guide, and as 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
Chairman 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 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
considers that it is not necessary for there to be a Nomination
Committee or a Remuneration Committee as anticipated by the AIC
Code. The Board as a whole fulfils the functions of the Nomination
and Remuneration Committees, although the Board has included a
separate Remuneration Report in these Interim Unaudited Financial
Statements. The Board has adopted a Nomination Policy covering
procedures for nominations to the Board and to Board
committees.
For new appointments to the Board, nominations are sought from
the Directors and from other relevant parties and candidates are
then interviewed by an ad hoc committee of independent Directors.
The 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, Section 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
23 June 2017, Shareholders re-elected all the Directors of the
Company, with the exception of Ian
Plenderleith who did not put himself forward for
re-election.
The Board regularly reviews its composition and believes that
the current appointments provide an appropriate range of skill,
experience and diversity.
The Board, Audit Committee and Management Engagement Committee
undertake 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 Committees consider how they
function as a whole and also review the individual performance of
their members. This process is conducted by the respective Chairman
reviewing the Directors’ performance, contribution and commitment
to the Company.
Until his appointment as Chairman on 23
June 2017, Huw Evans, as
Senior Independent Director, took the lead in reviewing the
performance of the previous Chairman. Effective from 23 June 2017, Colin
Maltby, as Senior Independent Director, has taken the lead
in reviewing the performance of the Chairman. The Chairman also has
responsibility for assessing the individual Board members’ training
requirements.
The Board commissions an external evaluation of its performance.
The last evaluation took place in 2014, with the next evaluation
scheduled for 2018.
The Board needs to ensure that the 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 set appropriate
risk controls. Furthermore, throughout the Interim 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. Further, the policy is shared with each of the Company’s
service providers.
Ongoing Charges
Ongoing charges for the six month period ended 30 June 2017, year ended 31 December 2016 and six month period ended
30 June 2016 have been prepared in
accordance with the AIC’s recommended methodology.
The following table presents the Ongoing Charges for each share
class.
30.06.17 |
|
|
|
|
|
|
|
|
US
Dollar |
*Euro |
Sterling |
|
Shares |
Shares |
Shares |
Company – Ongoing
Charges |
1.76% |
1.76% |
1.55% |
Master Fund – Ongoing
Charges |
0.66% |
0.66% |
0.65% |
Performance fee |
0.00% |
0.00% |
0.00% |
Ongoing Charges plus
performance fee |
2.42% |
2.42% |
2.20% |
|
|
|
|
*The Euro share class
closed on 29 June 2017 |
|
|
|
|
|
|
|
31.12.16 |
|
|
|
|
|
|
|
|
US
Dollar |
Euro |
Sterling |
|
Shares |
Shares |
Shares |
Company – Ongoing
Charges |
2.14% |
2.18% |
2.15% |
Master Fund – Ongoing
Charges |
0.63% |
0.63% |
0.63% |
Performance fee |
0.00% |
0.00% |
0.05% |
Ongoing Charges plus
performance fee |
2.77% |
2.81% |
2.83% |
|
|
|
|
30.06.16 |
|
|
|
|
|
|
|
|
US
Dollar |
Euro |
Sterling |
|
Shares |
Shares |
Shares |
Company – Ongoing
Charges |
2.19% |
2.20% |
2.18% |
Master Fund – Ongoing
Charges |
0.64% |
0.63% |
0.64% |
Performance fee |
0.00% |
0.00% |
0.00% |
Ongoing Charges plus
performance fee |
2.83% |
2.83% |
2.82% |
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 US Dollar and Sterling 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 NAV. Refer to Note 4
which explains changes to the calculation methodology during the
prior year.
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, 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.
Full details of its function and activities are set out in the
Report of the Audit Committee.
The Audit Committee consists of John Le
Poidevin, Colin Maltby and
Claire Whittet. Colin Maltby was appointed Audit Committee
member on 23 June 2017. Huw Evans was also a member of the Audit
Committee and served as the Chairman until 23 June 2017. On that date, John Le Poidevin was appointed Audit Committee
Chairman.
The table on the previous section sets out the number of Audit
Committee meetings held during the six month period ended
30 June 2017 and the number of such
meetings attended by each committee member.
The Audit Committee reviews and recommends to the Board the
Financial Statements of the Company and is the forum through which
the Independent Auditor reports to the Board of Directors. The
objectivity of the Independent Auditor is reviewed by the Audit
Committee which also reviews the terms under which the Independent
Auditor is appointed to perform non-audit services. The Committee
reviews the scope and results of the audit, its cost effectiveness
and the independence and objectivity of the Independent Auditor.
The Audit Committee considers KPMG Channel Islands Limited (“KPMG
CI”) to be independent of the Company. The Terms of Reference of
the Audit Committee are available from the Administrator.
The Audit Committee examined externally prepared assessments of
the control environment in place at the Manager and the
Administrator, with each providing a Service Organisation Control
(“SOC 1”) report.
The Audit Committee has reviewed the need for an internal audit
function. The Audit Committee considers the systems and procedures
employed by the Manager and the Administrator, including their
internal audit functions, 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.
Appointment to the Audit Committee is for a period up to three
years which may be extended for two further three year periods
provided that the majority of the Audit Committee remain
independent of the Manager. Huw
Evans was serving his third term, until his resignation from
the committee on 23 June 2017.
Claire Whittet is serving her second
term and Colin Maltby and
John Le Poidevin are serving their
first term.
A member of the Audit Committee is available to attend each
Annual General Meeting to respond to any shareholder questions on
the activities of the Audit Committee.
Auditor’s Remuneration
The table below summarises the remuneration payable by the Company
to KPMG CI for audit and non-audit services during the six month
period ended 30 June 2017, the year
ended 31 December 2016 and the six
month period ended 30 June 2016.
|
Period
ended |
Year
ended |
Period
ended |
|
30.06.17 |
31.12.16 |
30.06.16 |
|
£ |
£ |
£ |
Annual audit |
– |
28,000 |
– |
Interim review |
8,800 |
8,800 |
8,800 |
Specified procedures
relating to the 31 March 2017 Tender offer |
10,000 |
– |
– |
Specified procedures
relating to the 31 May 2016 Tender offer |
– |
15,000 |
15,000 |
The Committee considers KPMG CI 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.
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
Huw Evans, Colin Maltby Claire Whittet and John Le Poidevin. Ian
Plenderleith was also on the Committee until his retirement
on 23 June 2017. Claire Whittet is the Chair of the Management
Engagement Committee.
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
the Independent Auditors). The Terms of Reference of the Management
Engagement Committee are available from the Administrator.
The principal contents of the Manager’s contract and notice
period are contained in note 4 to the 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 12 September
2016, the Management Engagement Committee concluded that the
continued appointment of the Manager 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.
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
·
Ensure no override of controls by its service providers, the
Manager and Administrator
A report is tabled and discussed at each Audit Committee
meeting, and reviewed once a year by the Board, setting out the
risks identified, their potential impact, the controls in place to
mitigate them, the residual risk assessment and any exceptions
identified during the period under review.
The Board has delegated the management of the Company, the
administration, corporate secretarial and registrar functions
including the independent calculation of the Company’s NAV and the
production of the Annual Report and Financial Statements. 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 from the
Manager, Administrator and Company Secretary and 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, Administrator and Company
Secretary and Registrar which have their own internal audit and
risk assessment functions.
A report is tabled and discussed at each Audit Committee
meeting, and reviewed 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.
Further reports are received from the Administrator in respect
of compliance, London Stock Exchange continuing obligations and
other matters. The reports were reviewed by the Board. No material
adverse findings were identified in these reports.
Principal Risks and Uncertainties
The Board uses the Company’s risk matrix in establishing the
Company’s system of internal controls and monitors the Company’s
investment objective and policy.
The principal 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 Risks: The
Company is exposed to the risks arising from any failure of systems
and controls in the operations of the Manager or the Administrator.
The Board receives reports annually from the Manager and
Administrator on their 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 if it
fails to maintain accurate accounting records. The Administrator
provides the Board with regular reports on changes in regulations
and accounting requirements; and
· 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.
The Board reviews and updates the risk matrix to reflect any
changes in the control environment.
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 has been adopted by Guernsey and which 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 first report for CRS to the Director of Income
Tax on 22 June 2017.
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
Chairman and other Directors are available to meet Shareholders if
required. The Annual General Meeting of the Company provides a
forum for Shareholders to meet and discuss issues with the
Directors of the Company. 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.
Significant Shareholders
As at 30 June 2017, the following
Shareholders had significant shareholdings in the Company:
|
|
|
%
holding |
|
Total Shares Held |
in
class |
Significant
Shareholders |
|
|
US Dollar
Shares |
|
|
Vidacos Nominees
Limited |
850,527 |
29.85% |
Hero Nominees
Limited |
384,977 |
13.51% |
The Bank of New York
(Nominees) Limited |
257,143 |
9.02% |
HSBC Global Custody
Nominee (UK) Limited |
238,808 |
8.38% |
Pershing Nominees
Limited |
158,188 |
5.55% |
Luna Nominees
Limited |
143,167 |
5.02% |
Lynchwood Nominees
Limited |
142,499 |
5.00% |
Euroclear Nominees
Limited |
105,547 |
3.70% |
|
|
|
|
|
|
|
%
holding |
|
Total Shares Held |
in
class |
Significant
Shareholders |
|
|
Sterling
shares |
|
|
|
Ferlim Nominees
Limited |
2,061,383 |
14.73% |
The Bank of New York
(Nominees) Limited |
1,082,920 |
7.74% |
Rathbone Nominees
Limited |
1,063,489 |
7.60% |
Pershing Nominees
Limited |
928,798 |
6.64% |
HSBC Global Custody
Nominee (UK) Limited |
841,647 |
6.01% |
Vidacos Nominees
Limited |
727,443 |
5.20% |
Harewood Nominees
Limited |
691,720 |
4.94% |
Smith & Williamson
Nominees Limited |
687,126 |
4.91% |
Brooks Macdonald
Nominees Limited |
681,243 |
4.87% |
BNY (OCS) Nominees
Limited |
659,170 |
4.71% |
State Street Nominees
Limited |
517,378 |
3.70% |
Nortrust Nominees
Limited |
472,129 |
3.37% |
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
21 August 2017
Statement of Directors’ Responsibility
in Respect of the Interim Report and Unaudited Financial
Statements
We confirm to the best of our knowledge that:
• these Interim Unaudited
Financial Statements have been prepared in conformity with United
States Generally Accepted Accounting Principles and give a true and
fair view of the assets, liabilities, financial position and profit
or loss;
• these Interim Unaudited
Financial Statements include information detailed in the Chairman’s
Statement, the Directors’ Report, the Manager’s Report and the
notes to the Interim Unaudited Financial Statements, which provides
a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on these Interim Unaudited Financial Statements and a description
of the principal risks and uncertainties for the remaining six
months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
Company during that period and any changes in the related party
transactions described in the last Annual Audited Financial
Statements that could materially affect the financial position or
performance of the Company.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
21 August 2017
Directors’ Remuneration Report
30 June 2017
Introduction
An ordinary resolution for the approval of the Directors’
Remuneration Report for 2016 was passed by the Shareholders at the
Annual General Meeting held in June
2017.
Remuneration policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers 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 Chairman of the Board
is paid a higher fee in recognition of his additional
responsibilities, as are the Chairs of the Audit Committee, the
Management Engagement Committee 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. All Directors holding
office as at 5 December 2013 were
given a new letter of appointment as at that date and Claire Whittet, Colin
Maltby and John Le Poidevin
received their letters of appointment on joining the Board on
16 June 2014, 26 June 2015 and 24 June
2016 respectively. Directors hold office until they retire
or cease to be a director in accordance with the Articles of
Incorporation, by operation of law or until they resign. In line
with the AIC Code, Section 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 23
June 2017, Shareholders re-elected all the Directors except
Ian Plenderleith who did not put
himself forward for re-election. 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
The Company’s Articles limit the fees payable to Directors in
aggregate to £400,000 per annum. Until 30
June 2017, the annual fees were £167,000 for the Chairman,
£37,500 for Chairs of both the Audit Committee and the Management
Engagement Committee and £34,000 for all other Directors.
Changes to the annual fees were made at the Board meeting held
on 23 June 2017. Effective from
1 July 2017, the annual fees will be
£65,000 for the Chairman, £47,500 for Chair of the Audit Committee
and £45,000 for both the Chair of the Management Engagement
Committee and the Senior Independent Director.
The fees payable by the Company in respect of each of the
Directors who served during the period ended 30 June 2017, the year ended 31 December 2016 and the period ended
30 June 2016, were as follows:
|
Period
ended |
Year
ended |
Period
ended |
|
30.06.17 |
31.12.16 |
30.06.16 |
|
£ |
£ |
£ |
Huw Evans |
18,750 |
37,500 |
18,750 |
Ian Plenderleith |
*79,611 |
167,000 |
83,500 |
David Barton**** |
N/A |
Nil |
Nil |
Christopher Legge |
N/A |
**18,750 |
18,132 |
John Le Poidevin |
17,000 |
**17,000 |
***560 |
Colin Maltby |
17,000 |
34,000 |
17,000 |
Claire Whittet |
18,750 |
35,750 |
17,000 |
Total |
151,111 |
310,000 |
154,942 |
*
Fees are pro rata for length of service during the period ended
30 June 2017.
** Fees
are pro rata for length of service during the year ended
31 December 2016.
*** Fees are pro rata
for length of service during the period ended 30 June 2016.
**** Resigned 29 February 2016
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
21 August 2017
Manager’s Report
Brevan Howard Capital Management LP is the Manager of the
Company and of Brevan Howard Master Fund Limited (the “Fund”). The
Company invests all of its assets (net of short-term working
capital) in the ordinary shares of the Fund.
Performance Review
The NAV per share of the USD shares of the Company depreciated by
0.69% in the first half of the year, while the NAV per share of the
Sterling shares depreciated by
4.19%.
The month-by-month NAV performance of each currency class of the
Company since it commenced operations in 2007 is set out below:
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) |
|
|
|
|
|
|
(0.69) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EUR |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
2007 |
- |
- |
0.05 |
0.70 |
0.02 |
2.26 |
2.43 |
3.07 |
5.65 |
(0.08) |
2.85 |
0.69 |
18.95 |
2008 |
9.92 |
6.68 |
(2.62) |
(2.34) |
0.86 |
2.84 |
1.28 |
0.98 |
(3.30) |
2.79 |
3.91 |
(0.45) |
21.65 |
2009 |
5.38 |
2.67 |
1.32 |
0.14 |
3.12 |
(0.82) |
1.33 |
0.71 |
1.48 |
1.05 |
0.35 |
0.40 |
18.36 |
2010 |
(0.30) |
(1.52) |
0.03 |
1.48 |
0.37 |
1.39 |
(1.93) |
1.25 |
1.38 |
(0.35) |
(0.34) |
(0.46) |
0.93 |
2011 |
0.71 |
0.57 |
0.78 |
0.52 |
0.65 |
(0.49) |
2.31 |
6.29 |
0.42 |
(0.69) |
1.80 |
(0.54) |
12.84 |
2012 |
0.91 |
0.25 |
(0.39) |
(0.46) |
(1.89) |
(2.20) |
2.40 |
0.97 |
1.94 |
(0.38) |
0.90 |
1.63 |
3.63 |
2013 |
0.97 |
2.38 |
0.31 |
3.34 |
(0.10) |
(2.98) |
(0.82) |
(1.55) |
0.01 |
(0.53) |
1.34 |
0.37 |
2.62 |
2014 |
(1.40) |
(1.06) |
(0.44) |
(0.75) |
(0.16) |
(0.09) |
0.74 |
0.18 |
3.88 |
(1.80) |
0.94 |
(0.04) |
(0.11) |
2015 |
3.34 |
(0.61) |
0.40 |
(1.25) |
0.94 |
(0.94) |
0.28 |
(0.84) |
(0.67) |
(0.60) |
2.56 |
(3.22) |
(0.77) |
2016 |
0.38 |
0.78 |
(1.56) |
(0.88) |
(0.38) |
3.25 |
(0.77) |
0.16 |
(0.56) |
0.59 |
5.37 |
0.03 |
6.37 |
2017 |
(1.62) |
1.85 |
(3.04) |
0.54 |
(0.76) |
* |
|
|
|
|
|
|
(3.07) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
(4.19) |
* As previously announced by the
Company, the Company determined that all remaining shares in the
Euro share class be converted into Sterling shares effective as of 29 June 2017 and all Euro shares held by the
Company in treasury were cancelled on that date. The Euro share
class has now been closed and its listing has been cancelled.
Source: Fund NAV data is provided by the administrator of the
Fund, International Fund Services (Ireland) Limited (“IFS”). BHM NAV and NAV per
Share data is provided by BHM’s administrator, Northern Trust
International Fund Administration Services (Guernsey) Limited. BHM NAV per Share % Monthly
Change is calculated by BHCM. BHM NAV data is unaudited and net of
all investment management and all other fees and expenses payable
by BHM. In addition, the Fund is subject to an operational services
fee.
With effect from 1 April 2017, the
management fee is 0.5% per annum. The Company’s investment in the
Fund is subject to an operational service fee of 0.5% per
annum.
No management fee or operational services fee is charged in
respect of performance related growth of NAV for each class of
share in excess of its level on 1 April
2017 as if the tender offer commenced by the Company on
27 January 2017 had completed on
1 April 2017.
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 June 2017
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
The Fund’s largest exposures at the start of the year were long
positions in US dollar, primarily against the Euro but also against
a basket of currencies including the Japanese Yen. The Fund also
held short positions in US interest rates, long positions in
interest rate volatility and long positions in US Equities, broadly
representing a continuation of the themes that had played out well
in the fourth quarter of 2016, following the US election. As these
themes reversed in the early part of 2017, losses were incurred
across the portfolio, in particular in FX and US interest rate
trading. Some offsetting gains were generated in directional and
relative value trading of European interest rates and sovereign
bond markets as well as, to a lesser extent, in credit trading and
directional and curve positioning in the GBP interest rate market.
As the first half of 2017 progressed, long volatility strategies
continued to lose money, for example following the benign results
in the Dutch and French elections.
The acquisition by the Company of 9,279,700 Sterling shares, 624,103
Euro shares and 6,932,474 US
Dollar shares pursuant to the tender offer launched by the
Company on 27 January 2017 (the
"Tender Offer") was executed on 25 April
2017. The repurchase of shares under the Tender Offer
resulted in the NAV per share of the remaining USD shares
appreciating by 4.46%, the NAV per share of the remaining
Sterling shares appreciating by 1.20%
and the NAV per share of the remaining Euro shares appreciating by
1.27%.
Commentary and Outlook
Political developments in the US and Europe unfolded at a seemingly breakneck pace
in the first half of 2017. President Trump and the
Republican-controlled Congress pushed forward on an ambitious
legislative agenda of health care and tax reform, the Treasury
proposed a new lighter touch for regulating financial markets, and
a more aggressive trade agenda began to take shape. In Europe, a weakened Prime Minister May began
Brexit negotiations and newly elected President Macron promised
domestic economic reform in France
and greater European cooperation. Looking forward, these leaders
will be observed very closely to see whether they are able to upend
the status quo.
The global economy strengthened further in 2017, paced by a
strong expansion in the Euro area and continued moderate growth in
the US, China, and emerging market
economies. However, inflation remained stubbornly weak. Headline
inflation has been tamed by falling energy prices and core
inflation has moved sideways or decelerated despite the uptake in
global slack. Against this backdrop, central banks began to
gradually move away from the emergency measures that predominated
in the last several years. The ECB removed its easing bias and
tentatively began to talk about tapering its asset purchase program
in 2018. The Fed confidently hiked rates in March and June and
firmed up plans to begin shrinking its balance sheet this year. The
Bank of England’s debate about rate hikes heated up and the Bank of
Canada raised rates for the first
time in seven years. If growth remains solid and inflation picks
up, the trend in removing policy stimulus should continue or pick
up speed.
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.
21 August 2017
Independent Review Report to BH Macro
Limited (the “Company”)
Conclusion
We have been engaged by the Company to review the Interim Unaudited
Financial Statements included in the Interim Report for the six
month period to 30 June 2017 which
comprises the Unaudited Statement of Assets and Liabilities, the
Unaudited Statement of Operations, the Unaudited Statement of
Changes in Net Assets, the Unaudited Statement of Cash Flows and
the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the financial statements for the period
ended 30 June 2017 do not give a true
and fair view of the financial position of the Company as at
30 June 2017 and of its financial
performance and its cash flows for the six month period then ended
in conformity with U.S generally accepted accounting principles and
the Disclosure Guidance and Transparency Rules (“the DTR”) of the
UK’s Financial Conduct Authority (“the UK FCA”).
Scope of review
We conducted our review in accordance with International Standard
on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity
issued by the Auditing Practices Board for use in the UK. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the Interim Report and
consider whether it contains any apparent misstatements or material
inconsistencies with the information in the unaudited interim
financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors’ responsibilities
The Interim Unaudited Financial Statements included in the Interim
Report are the responsibility of, and have been approved by, the
directors. The directors are responsible for preparing the Interim
Unaudited Financial Statements included in the Interim Report in
accordance with the DTR of the UK FCA.
The Interim Unaudited Financial Statements included in this
Interim Report have been prepared in conformity with U.S generally
accepted accounting principles.
Our responsibility
Our responsibility is to express to the Company a conclusion on the
Interim Unaudited Financial Statements included in the Interim
Report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this 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 for our
review work, for this report, or for the conclusions we have
reached.
Barry T. Ryan
for and on behalf of KPMG CHANNEL
ISLANDS LIMITED
Chartered Accountants, Guernsey
21 August 2017
Unaudited Statement of Assets and Liabilities
As at 30 June 2017
|
|
|
|
30.06.17 |
|
31.12.16 |
|
30.06.16 |
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
Investment
in the Master Fund |
|
451,222 |
|
847,761 |
|
900,071 |
Investment
sales receivable |
|
|
- |
|
- |
|
7,057 |
Prepaid
expenses |
|
|
181 |
|
76 |
|
114 |
Cash and
bank balances denominated in US Dollars |
219 |
|
5,564 |
|
15,461 |
Cash and
bank balances denominated in Euro |
73 |
|
1,087 |
|
2,825 |
Cash and
bank balances denominated in Sterling |
1,065 |
|
12,252 |
|
40,053 |
Total
assets |
|
|
452,760 |
|
866,740 |
|
965,581 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Performance fees payable (note 4) |
|
|
- |
|
318 |
|
- |
Management
fees payable (note 4) |
186 |
|
1,386 |
|
1,677 |
Redemptions in respect of buybacks payable |
- |
|
- |
|
5,428 |
Accrued
expenses and other liabilities |
171 |
|
56 |
|
1,170 |
Directors'
fees payable |
|
|
99 |
|
95 |
|
107 |
Administration fees payable (note 4) |
74 |
|
42 |
|
56 |
Total
liabilities |
|
|
530 |
|
1,897 |
|
8,438 |
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
452,230 |
|
864,843 |
|
957,143 |
|
|
|
|
|
|
|
|
|
Number
of shares in issue (note 5) |
|
|
|
|
|
US Dollar
shares |
|
|
2,849,663 |
|
9,975,524 |
|
11,132,737 |
Euro
shares |
|
|
- |
|
1,514,872 |
|
2,468,822 |
Sterling
shares |
|
|
13,995,456 |
|
22,371,669 |
|
23,102,176 |
|
|
|
|
|
|
|
|
|
Net
asset value per share (notes 7 and 9) |
|
|
|
|
|
US Dollar
shares |
|
|
US$21.53 |
|
US$21.68 |
|
US$20.76 |
Euro
shares |
|
|
- |
|
€21.87 |
|
€20.87 |
Sterling shares |
|
|
|
£21.50 |
|
£22.44 |
|
£21.56 |
See accompanying notes to the Interim
Unaudited Financial Statements.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
21 August 2017
Unaudited Statement of Operations
For the period from 1 January 2017 to
30 June 2017
|
|
01.01.17 |
|
01.01.16 |
|
01.01.16 |
|
|
to
30.06.17 |
|
to
31.12.16 |
|
to
30.06.16 |
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net investment
(loss)/income allocated from the Master Fund |
|
|
|
|
|
|
Interest income |
|
55 |
|
18,854 |
|
15,037 |
Dividend income (net
of withholding tax: |
|
|
|
|
|
|
30 June 2017:
US$5,680; 31 December 2016: US$26,177; 30 June 2016: US$2,794) |
|
26 |
|
73 |
|
43 |
Expenses |
|
(12,809) |
|
(20,785) |
|
(11,307) |
|
|
|
|
|
|
|
Net investment
(loss)/income allocated from the Master Fund |
|
(12,728) |
|
(1,858) |
|
3,773 |
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
Fixed deposit
income |
|
2 |
|
- |
|
- |
Foreign exchange gains
(note 3) |
|
36,482 |
|
- |
|
- |
Total Company
income |
|
36,484 |
|
- |
|
- |
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
Performance fees (note
4) |
|
- |
|
351 |
|
- |
Management fees (note
4) |
|
13,036 |
|
20,871 |
|
12,311 |
Other expenses |
|
1,223 |
|
1,766 |
|
1,458 |
Directors' fees |
|
195 |
|
427 |
|
229 |
Administration fees
(note 4) |
|
72 |
|
208 |
|
122 |
Foreign exchange
losses (note 3) |
|
- |
|
159,828 |
|
97,126 |
Total Company
expenses |
|
14,526 |
|
183,451 |
|
111,246 |
|
|
|
|
|
|
|
Net investment
gain/(loss) |
|
9,230 |
|
(185,309) |
|
(107,473) |
|
|
|
|
|
|
|
Net realised and
unrealised gain/(loss) on investments allocated from the Master
Fund |
|
|
|
|
|
|
Net realised
gain/(loss) on investments |
|
2,995 |
|
43,035 |
|
(41,507) |
Net unrealised
(loss)/gain on investments |
|
(20,588) |
|
(7,971) |
|
30,810 |
Net realised and
unrealised (loss)/gain on investments allocated from the Master
Fund |
|
(17,593) |
|
35,064 |
|
(10,697) |
|
|
|
|
|
|
|
Net decrease in net
assets resulting from operations |
|
(8,363) |
|
(150,245) |
|
(118,170) |
See accompanying notes to the Interim
Unaudited Financial Statements.
Unaudited Statement of Changes in Net Assets
For the period from 1 January 2017 to
30 June 2017
|
|
|
|
|
|
01.01.17 |
|
01.01.16 |
|
01.01.16 |
|
|
|
|
|
|
to
30.06.17 |
|
to
31.12.16 |
|
to
30.06.16 |
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
decrease in net assets resulting from operations |
|
|
|
|
|
Net
investment gain/(loss) |
|
|
|
|
9,230 |
|
(185,309) |
|
(107,473) |
Net
realised gain/(loss) on investments allocated from the Master
Fund |
2,995 |
|
43,035 |
|
(41,507) |
Net
unrealised (loss)/gain on investments allocated from the Master
Fund |
(20,588) |
|
(7,971) |
|
30,810 |
|
|
|
|
|
|
(8,363) |
|
(150,245) |
|
(118,170) |
|
|
|
|
|
|
|
|
|
|
|
Share
capital transactions |
|
|
|
|
|
|
|
|
|
Purchase of own shares |
|
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
- |
|
(50,853) |
|
(35,456) |
Euro
shares |
|
|
|
|
- |
|
(17,894) |
|
(12,039) |
Sterling
shares |
|
|
|
|
- |
|
(124,878) |
|
(85,905) |
|
|
|
|
|
|
|
|
|
|
|
Tender
offer |
|
|
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
(140,757) |
|
(70,174) |
|
(70,174) |
Euro
shares |
|
|
|
|
(13,908) |
|
(17,827) |
|
(17,827) |
Sterling
shares |
|
|
|
|
(249,585) |
|
(198,179) |
|
(198,179) |
Total
share capital transactions |
|
|
|
(404,250) |
|
(479,805) |
|
(419,580) |
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in net assets |
|
|
|
|
(412,613) |
|
(630,050) |
|
(537,750) |
Net
assets at the beginning of the period/year |
|
|
864,843 |
|
1,494,893 |
|
1,494,893 |
Net
assets at the end of the period/year |
|
|
452,230 |
|
864,843 |
|
957,143 |
See accompanying notes to the Interim
Unaudited Financial Statements.
Unaudited Statement of Cash Flows
For the period from 1 January 2017 to
30 June 2017
|
|
|
|
01.01.17 |
|
01.01.16 |
|
01.01.16 |
|
|
|
|
to
30.06.17 |
|
to
31.12.16 |
|
to
30.06.16 |
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
Net
decrease in net assets resulting from operations |
|
|
(8,363) |
|
(150,245) |
|
(118,170) |
Adjustments to reconcile net decrease in net assets resulting
from |
|
|
|
|
|
|
operations to net cash provided by operating
activities: |
|
|
|
|
|
|
|
Net
investment loss/(income) allocated from the Master Fund |
|
12,728 |
|
1,858 |
|
(3,773) |
Net
realised (gain)/loss on investments allocated from the Master
Fund |
(2,995) |
|
(43,035) |
|
41,507 |
Net
unrealised loss/(gain) on investments allocated from the Master
Fund |
20,588 |
|
7,971 |
|
(30,810) |
Purchase of investment
in the Master Fund |
|
|
|
(17,341) |
|
(32,746) |
|
- |
Proceeds
from sale of investment in the Master Fund |
|
|
412,988 |
|
549,978 |
|
452,799 |
Foreign exchange
(gains)/losses |
|
|
|
(36,482) |
|
159,828 |
|
97,126 |
(Increase)/decrease in
prepaid expenses |
|
|
|
(105) |
|
15 |
|
(23) |
(Decrease)/increase in performance fees payable |
|
|
(318) |
|
45 |
|
(273) |
Decrease in management
fees payable |
|
|
|
(1,200) |
|
(1,027) |
|
(736) |
Increase/(decrease) in accrued expenses and other liabilities |
|
115 |
|
(128) |
|
986 |
Increase/(decrease)
directors' fees payable |
|
|
|
4 |
|
(19) |
|
(7) |
Increase/(decrease) in administration fees payable |
|
|
32 |
|
(31) |
|
(17) |
Net cash provided
by operating activities |
|
|
|
379,651 |
|
492,464 |
|
438,609 |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
|
|
|
Purchase of own
shares |
|
|
|
- |
|
(195,323) |
|
(129,670) |
Tender offer |
|
|
|
(404,250) |
|
(286,180) |
|
(286,180) |
Net cash used in
financing activities |
|
|
|
(404,250) |
|
(481,503) |
|
(415,850) |
|
|
|
|
|
|
|
|
|
Change in
cash |
|
|
|
(24,599) |
|
10,961 |
|
22,759 |
Cash, beginning of
the year |
|
|
|
18,903 |
|
35,587 |
|
35,587 |
Effect of exchange
rate fluctuations |
|
|
|
7,053 |
|
(27,645) |
|
(7) |
Cash, end of the
year |
|
|
|
1,357 |
|
18,903 |
|
58,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the
year |
|
|
|
|
|
|
|
|
Cash and
bank balances denominated in US Dollars |
|
|
219 |
|
5,564 |
|
15,461 |
Cash and
bank balances denominated in Euro1 |
|
|
73 |
|
1,087 |
|
2,825 |
Cash and
bank balances denominated in Sterling2 |
|
|
1,065 |
|
12,252 |
|
40,053 |
|
|
|
|
1,357 |
|
18,903 |
|
58,339 |
|
|
|
|
|
|
|
|
|
1. Cash and bank
balances in Euro (EUR'000) |
|
|
|
64 |
|
1,036 |
|
2,541 |
2. Cash
and bank balances in Sterling (GBP'000) |
|
|
820 |
|
10,022 |
|
29,834 |
See accompanying notes to the Interim
Unaudited Financial Statements.
Notes to the Interim Unaudited Financial Statements
For the period from 1 January 2017 to
30 June 2017
1. The Company
The Company is a limited liability closed-ended investment
company incorporated in Guernsey
on 17 January 2007.
The Company was admitted to the Official List of the London
Stock Exchange (“LSE”) in 2007 and in addition to its UK Premium
Listing it has maintained Secondary listings on NASDAQ Dubai and
the Bermuda Stock Exchange since 2008.
The Company offers multiple classes of ordinary shares, which
differ in terms of currency of issue. Currently, ordinary shares
are issued in US Dollar and Sterling. A
Euro share class was in issue until its closure on 29 June 2017.
On 29 November 2016, the Company
announced a Tender Offer (the “Tender Offer”) to acquire up to 100%
of each class of the Company’s issued shares at a price equivalent
to 96% of NAV for the relevant class. The Tender Offer was approved
by Shareholders at meetings in February and March 2017 and Shareholders holding 52% of the
Company’s shares by prevailing NAV chose to remain invested in the
Company, with the remaining 48% of shares by value being tendered
for purchase at 96% of NAV for the relevant class. The acquisition
of shares pursuant to the Tender Offer was completed on
25 April 2017. Shares purchased in
the Tender Offer were cancelled.
On 3 May 2017, the Company
announced that, following the completion of the Tender Offer, the
NAV of the Euro share class would likely fall to below the
equivalent of US$25 million on the
next net asset value calculation date on 31
May 2017 and, as stated in the shareholder circular for the
Tender Offer, the Company therefore intended to convert the
remaining Euro shares into shares of the Company’s largest share
class following the Tender Offer, being Sterling shares. Accordingly, the Company
determined that all remaining shares in the Euro class would be
converted into Sterling shares with
effect 29 June 2017 and all the Euro
shares held by the Company in Treasury were cancelled on that date.
The Euro share class then closed and its listing was cancelled.
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 US
Dollar, Euro (up to the point of closure) and Sterling 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 Interim Unaudited Financial Statements,
there were two 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, Brevan Howard Multi-Strategy Master
Fund Limited, another fund managed by the Manager, invests some of
its assets in the Master Fund as at the date of these Financial
Statements.
As such the Interim Unaudited Financial Statements of the
Company should be read in conjunction with the Interim Unaudited
Financial Statements of the Master Fund which can be found on the
Company’s website, www.bhmacro.com.
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 Interim Unaudited Financial Statements. 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 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
(Israel) Limited, Brevan Howard
Investment Products Limited, Brevan Howard US Investment Management
LP, Brevan Howard Private Limited, DW Partners, LP and BH-DG
Systematic Trading LLP.
3. Significant accounting policies
The most recent Annual Audited Financial Statements, which give
a true and fair view, are prepared in conformity with United States
Generally Accepted Accounting Principles and comply with the
Companies (Guernsey) Law, 2008.
These Interim Unaudited Financial Statements have been prepared
following the same accounting policies and methods of computation
as the most recent Annual Audited Financial Statements. The
functional and reporting currency of the Company is US Dollars.
The Company is an Investment Entity 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. At 30
June 2017, the Company is the sole investor in the Master
Fund’s ordinary US Dollar and Sterling Class B shares as disclosed
below. Within the table below, the investment in each share class
in the Master Fund is included, with the overall total investment
shown in the Interim Unaudited Statement of Assets and
Liabilities.
|
Percentage of Master |
NAV per Share |
Shares held in the Master Fund |
Investment in Master Fund |
Investment in Master Fund |
|
Fund's capital |
(Class B) |
|
(Class B) |
CCY '000 |
US$'000 |
30 June
2017 |
|
|
|
|
|
|
|
|
|
US
Dollar |
0.81% |
$2,763.85 |
22,133 |
$61,174 |
61,174 |
Sterling |
5.11% |
£2,895.64 |
103,705 |
£300,291 |
390,048 |
|
|
|
|
|
|
|
|
|
451,222 |
|
|
|
|
|
|
|
|
|
|
|
31
December 2016 |
|
|
|
|
|
|
|
|
|
US Dollar |
1.76% |
$2,887.21 |
73,103 |
$211,064 |
211,064 |
Euro |
0.29% |
€2,892.07 |
11,118 |
€32,152 |
33,722 |
Sterling |
5.16% |
£3,038.32 |
162,324 |
£493,191 |
602,975 |
|
|
|
|
|
|
|
|
|
847,761 |
|
|
|
|
|
|
|
|
|
|
|
30 June
2016 |
|
|
|
|
|
|
|
|
|
US Dollar |
1.45% |
$2,743.57 |
78,081 |
$214,221 |
214,221 |
Euro |
0.35% |
€2,763.89 |
17,045 |
€47,111 |
52,376 |
Sterling |
4.27% |
£2,900.02 |
162,710 |
£471,862 |
633,474 |
|
|
|
|
|
|
|
|
900,071 |
Fair value measurement
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.
ASC 820 establishes a three-level hierarchy to maximise the use
of observable market data and minimise the use of unobservable
inputs and to establish classification of fair value measurements
for disclosure purposes. Inputs refer broadly to the assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk, for example, the risk
inherent in a particular valuation technique used to measure fair
value. Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market
participants would use in pricing the asset or liability based on
market data obtained from sources independent of the reporting
entity.
Unobservable inputs are inputs that reflect the reporting
entity’s own assumptions about the assumptions market participants
would use in pricing the asset or liability based on the best
information available in the circumstances.
Level 1 – Valuations based on unadjusted quoted prices in active
markets for identical assets or liabilities that the Company has
the ability to access. Valuation adjustments and block discounts
are not applied to Level 1 securities. Since valuations are based
on quoted prices that are readily and regularly available in an
active market, valuation of these securities does not entail a
significant degree of judgement.
Level 2 – Valuations based on quoted prices in markets that are
not active or for which all significant inputs are observable,
either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
Inputs are used in applying the various valuation techniques and
broadly refer to the assumptions that market participants use to
make valuation decisions, including assumptions about risk.
Inputs may include price information, volatility statistics,
specific and broad credit data, liquidity statistics, and other
factors. A financial instrument’s level within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. However, the
determination of what constitutes “observable” requires significant
judgement by the Company’s Directors.
The Directors consider observable data to be that market data
which is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by
independent sources that are actively involved in the relevant
market.
The categorisation of a financial instrument within the
hierarchy is based upon the pricing transparency of the instrument
and does not necessarily correspond to the Directors’ perceived
risk of that instrument.
Fair value is a market-based measure considered from the
perspective of a market participant rather than an entity-specific
measure. Therefore, even when market assumptions are not readily
available, the Directors’ own assumptions are set to reflect those
that market participants would use in pricing the asset or
liability at the measurement date.
The Directors use prices and inputs that are current as of the
measurement date, including periods of market dislocation. In
periods of market dislocation, the observability of prices and
inputs may be reduced for many securities. This condition could
cause a security to be reclassified to a lower level within the
fair value hierarchy.
The valuation and classification of securities held by the
Master Fund is discussed in the notes to the Master Fund’s Interim
Unaudited Financial Statements which are available on the Company’s
website, www.bhmacro.com. The Company’s investment in the Master
Fund is classified as a Level 2 investment.
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 conformity 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 those 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
Investment securities and other assets and liabilities of the
Sterling share class and, up until its
closure, the Euro share class are, or were, translated into US
Dollars, the Company’s reporting currency, using exchange rates at
the reporting date. Transactions reported in the Unaudited
Statement of Operations are translated into US Dollar amounts at
the date of such transactions. The share capital and other capital
reserve accounts are translated at the historic rate ruling at the
date of the transaction. Exchange differences arising on
translation are included in the Unaudited Statement of Operations.
This 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 cash on hand and 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 purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from equity Shareholders’ funds
through the Company’s reserves.
When such shares are 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.
4. Management, performance and
administration agreements
Management and performance fee
The Company has entered into a management agreement with the
Manager to manage the Company’s investment portfolio. Until
2 October 2016, the Manager received
a management fee of 1/12 of 2% (or a pro rata proportion thereof)
per month of the Net Asset Value (the “NAV”) of each class of
shares (before deduction of that month’s management fee and before
making any deduction for any accrued performance fee) as at the
last business day in each month, payable monthly in arrears. The
management fee charged by 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. The investment in the Class B shares of the
Master Fund is not subject to management fees, but is subject to an
operational service fee payable to the Manager of 1/12 of 0.5% per
month of the NAV.
From 3 October 2016, the Manager
will not charge the Company a management fee in respect of any
increase in the NAV of each class of shares above the relevant NAV
at that date resulting from performance or any own share purchases
or redemptions. The Company’s investment in the Master Fund also
will not bear an operational services fee in respect of performance
related growth in its investment in the Master Fund from that
date.
The following changes were made to the Company’s structure and
Management Agreement with effect from 1
April 2017:
- the management fee was reduced to 1/12 of 0.5% per month of the
NAV;
- the investment in the Class B shares of the Master Fund remains
subject to an operational service fee of 1/12 of 0.5% per month of
the NAV; and
- the management fee and operational services fee concession
described above will continue to apply in respect of performance
related growth in the Company’s Net Asset Value for each class of
share in excess of its level on 1 April
2017 as if the Tender Offer had completed on that date.
During the period ended 30 June 2017, US$13,036,669 (31 December
2016: US$20,870,959 and
30 June 2016: US$12,310,756) was earned by the Manager as net
management fees. At 30 June 2017,
US$185,603 (31
December 2016: US$1,385,840
and 30 June 2016: $1,676,905) of the fee remained outstanding.
The Management fee charge included a balance of $8,350,050 (31 December
2016: US$Nil and 30 June 2016:
$Nil), which was incurred in accordance with the terms of the
Tender Offer that concluded on 25 April
2017. Under the terms of the Tender Offer, the Manager was
entitled to a fee of 2% of the NAV of the shares tendered, instead
of 4%, that would have been payable if the Company served notice of
termination of the management agreement between the Company and the
Manager on less than 24 months’ notice.
The Manager is also entitled to an annual performance fee for
each share class. 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 investment in the
Class B shares of the Master Fund is not subject to performance
fees.
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 on-going
basis and is reflected in the Company’s published NAV. During the
period ended 30 June 2017 $Nil
(31 December 2016: US$350,887 and 30 June
2016: $Nil) was earned by the Manager as performance fees.
At 30 June 2017, $Nil (31 December 2016: US$317,812 and 30 June
2016: US$Nil) 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.
The Management Agreement may be terminated by either party
giving the other party not less than 24 months’ written notice. In
certain circumstances the Company will be obliged to pay
compensation to the Manager of the aggregate management fees which
would otherwise have been payable during the 24 months following
the date of such notice and the aggregate of any accrued
performance fee in respect of the current Calculation Period.
Compensation is not payable if more than 24 months’ notice of
termination is given.
Under the terms of the Tender Offer, from 1 April 2019, the notice period for termination
of the Management Agreement without cause by both the Company and
the Manager will be reduced from 24 months to three months.
Administration fee
The Company has appointed Northern Trust International Fund
Administration Services (Guernsey)
Limited as Administrator and Corporate Secretary. 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 £36,000 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 period ended
30 June 2017, US$72,210 (31 December 2016: US$208,383 and 30 June
2016: US$121,901) was earned
by the Administrator as administration fees. The amounts
outstanding are disclosed on the Unaudited 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 US Dollars and Sterling,
following the Euro share class closure. Further issue of shares may
be made in accordance with the Articles. Shares may be issued in
differing currency classes of ordinary redeemable shares including
C shares. The treasury shares have arisen as a result of the
discount management programme as described in note 8. The tables
below show the movement in ordinary and treasury shares.
For the
period from 1 January 2017 to 30 June 2017 |
|
|
|
|
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
|
In issue at 1
January 2017 |
|
|
|
9,975,524 |
|
1,514,872 |
|
22,371,669 |
Share
conversions |
|
|
(193,387) |
|
(890,769) |
|
903,487 |
Tender
offer shares transferred to treasury (note 8) |
(6,932,474) |
|
(624,103) |
|
(9,279,700) |
In
issue at 30 June 2017 |
|
|
2,849,663 |
|
- |
|
13,995,456 |
|
|
|
|
|
|
|
|
|
Number of treasury
shares |
|
|
|
|
|
|
|
|
In
issue at 1 January 2017 |
|
|
1,406,228 |
|
271,854 |
|
2,650,652 |
Tender offer shares
transferred to treasury (note 8) |
|
|
|
6,932,474 |
|
624,103 |
|
9,279,700 |
Shares
cancelled |
|
|
(1,075,000) |
|
(271,854) |
|
(1,200,000) |
Tender
offer shares cancelled (note 8) |
|
|
(6,932,474) |
|
(624,103) |
|
(9,279,700) |
In issue at 30 June
2017 |
|
|
|
331,228 |
|
- |
|
1,450,652 |
Percentage of class |
|
|
10.41% |
|
- |
|
9.39% |
There were no on market purchases in the period ended
30 June 2017.
For the
year ended to 31 December 2016 |
|
|
|
|
|
|
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
|
|
In
issue at 1 January 2016 |
|
|
|
17,202,974 |
|
4,163,208 |
|
33,427,871 |
Share
conversions |
|
|
|
(737,163) |
|
(939,574) |
|
1,318,504 |
Purchase
of shares into Treasury |
|
|
|
(2,685,193) |
|
(847,431) |
|
(4,562,483) |
Tender
offer shares transferred to treasury (note 8) |
|
(3,805,094) |
|
(861,331) |
|
(7,812,223) |
In
issue at 31 December 2016 |
|
|
|
9,975,524 |
|
1,514,872 |
|
22,371,669 |
|
|
|
|
|
|
|
|
|
|
Number of treasury
shares |
|
|
|
|
|
|
|
|
|
In
issue at 1 January 2016 |
|
|
|
1,537,035 |
|
362,723 |
|
2,943,169 |
On market
purchases* |
|
|
|
2,685,193 |
|
847,431 |
|
4,562,483 |
Tender
offer shares transferred to treasury (note 8) |
|
3,805,094 |
|
861,331 |
|
7,812,223 |
Shares
cancelled |
|
|
|
(2,816,000) |
|
(938,300) |
|
(4,855,000) |
Tender
offer shares cancelled (note 8) |
|
|
|
(3,805,094) |
|
(861,331) |
|
(7,812,223) |
In
issue at 31 December 2016 |
|
|
|
1,406,228 |
|
271,854 |
|
2,650,652 |
Percentage of class |
|
|
|
12.36% |
|
15.22% |
|
10.59% |
|
|
|
|
|
|
|
|
|
|
*On market
purchases in the year ended 31 December 2016 |
|
|
|
|
|
|
|
|
|
Number of shares purchased |
|
|
|
Cost (in currency) |
Treasury shares |
|
|
Cost
(US$) |
|
US Dollar
shares |
|
|
2,685,193 |
|
50,853,441 |
|
$50,853,441 |
Euro
shares |
|
|
847,431 |
|
17,893,603 |
|
€16,080,450 |
Sterling
shares |
|
|
4,562,483 |
|
124,878,082 |
|
£90,182,054 |
For the
period from 1 January 2016 to 30 June 2016 |
|
|
|
|
|
|
|
|
|
|
US Dollar shares |
Euro shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
|
In
issue at 1 January 2016 |
|
|
17,202,974 |
|
4,163,208 |
|
33,427,871 |
Share
conversions |
|
|
(412,978) |
|
(268,287) |
|
483,429 |
Purchase
of shares into Treasury |
|
(1,852,165) |
|
(564,768) |
|
(2,996,901) |
Tender
offer shares transferred to treasury (note 8) |
|
(3,805,094) |
|
(861,331) |
|
(7,812,223) |
In
issue at 30 June 2016 |
|
|
11,132,737 |
|
2,468,822 |
|
23,102,176 |
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
|
|
In
issue at 1 January 2016 |
|
|
1,537,035 |
|
362,723 |
|
2,943,169 |
Shares
purchased and held in Treasury during the period: |
|
|
|
|
|
|
* On
market purchases |
|
|
1,852,165 |
|
564,768 |
|
2,996,901 |
Tender
offer shares transferred to treasury (note 8) |
|
3,805,094 |
|
861,331 |
|
7,812,223 |
Shares
cancelled |
|
|
(2,261,000) |
|
(704,000) |
|
(3,695,000) |
Tender
offer shares cancelled (note 8) |
|
(3,805,094) |
|
(861,331) |
|
(7,812,223) |
In
issue at 30 June 2016 |
|
|
1,128,200 |
|
223,491 |
|
2,245,070 |
Percentage of class |
|
|
9.20% |
|
8.30% |
|
8.86% |
|
|
|
|
|
|
|
|
|
*On market
purchases in the period ended 30 June 2016 |
|
|
|
|
|
|
|
|
|
|
Number of shares purchased |
|
|
|
Cost (in currency) |
|
Treasury shares |
|
|
|
Cost (US$) |
|
|
US Dollar
shares |
|
|
1,852,165 |
|
35,456,225 |
|
$35,456,225 |
|
Euro
shares |
|
|
564,768 |
|
12,039,238 |
|
€10,836,477 |
|
Sterling
shares |
|
|
2,996,901 |
|
85,904,738 |
|
£60,168,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, pre-paid expenses, losses, dividends,
profits, gains and income which the Directors determine in their
sole discretion relate to a particular class.
On 3 May 2017, the Company
announced that, following the completion of the Tender Offer, the
NAV of the Euro share class would likely fall to below the
equivalent of US$25 million on the
next net asset value calculation date on 31
May 2017 and as stated in the shareholder circular for the
Tender Offer, the Company therefore intended to convert the
remaining Euro shares into shares of the Company’s largest share
class following the Tender Offer, being Sterling shares.
Accordingly, the Company determined that all remaining shares in
the Euro class would be converted into Sterling shares with effect 29 June 2017 and all the Euro shares held by the
Company in Treasury were cancelled on that date. The Euro share
class then closed and its listing was cancelled.
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.
Treasury shares do not have any voting rights.
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 23 June 2017, the Directors have
the power to issue further shares totaling 990,034 US Dollar shares and 4,395,593
Sterling shares respectively. This
power expires fifteen months after the passing of the resolution or
on the conclusion of the next Annual General Meeting of the
Company, whichever is earlier, unless such power is varied, revoked
or renewed prior to that Meeting by a resolution of the Company in
general meeting.
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 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 another 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 Interim Unaudited Financial
Statements. Income tax and related interest and penalties would be
recognised by the Company as tax expense in the Interim Unaudited
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 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 next twelve months.
7. Publication and calculation of net
asset value
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. The purchase
of these shares was funded by the Company redeeming underlying
shares in the Master Fund. The number of shares held in treasury as
at
30 June 2017 are disclosed in note
5.
However, following the announcement of the results of the Tender
Offer on 24 February 2017, the
Company is no longer permitted to redeem its investment in the
Master Fund to finance own-share purchases until 1 April 2019. The Company, therefore, does not
intend to make any own-share purchases in that period. The Company
would be required to pay a redemption fee to the Master Fund of 10%
on any other redemptions from the Master Fund (except for any
redemptions required by the Company for working capital purposes,
in which case no fee will apply).
Tender offers
On 5 April 2016, the Company
announced a tender offer to acquire up to 25% of the Company’s
shares at discounts ranging from 4% to 8%. The purpose of the
tender was to permit those Shareholders who wished to realise some
(or possibly all) of their investment in the Company to do so,
subject to the terms of the tender offer, while also offering
potential enhancements to the Company’s NAV for Shareholders who
remained invested in the Company. The discounts were set by taking
account of both the approximate discounts to NAV at which the
Company’s shares had traded in the past 12 months and the Company’s
probable liquidation value.
This tender, which was completed in late June 2016, was oversubscribed: tenders of
Sterling and Euro shares at discounts
of 8%, 7% and 6% were accepted in full, and at 5% in part; tenders
of Dollar shares at discounts of 8% and 7% were accepted in full,
and at 6% in part. Shares purchased in the tender were
cancelled.
On 29 November 2016, the Company
announced a further tender offer to acquire up to 100% of each
class of the Company’s issued shares at a price equivalent to 96%
of NAV for the relevant class.
This Tender Offer was approved by Shareholders at meetings in
February and March 2017 and
Shareholders holding 52% of the Company’s shares by prevailing NAV
chose to remain invested in the Company, with the remaining 48% of
shares by value being tendered for purchase at 96% of NAV. The
acquisition of shares pursuant to the Tender Offer was completed on
25 April 2017. Shares purchased in
the tender were cancelled.
Annual offer of partial return of capital
Under the Company’s Articles of Incorporation, once in every
calendar year the Directors had 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 determined,
provided that the maximum amount distributed did not exceed 100% of
the increase in NAV of the Company in the prior calendar year.
The Directors had 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
were returned.
The decision to make a partial return of capital in any
particular year and the amount of the return depended, 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.
As part of the Tender Offer that was completed on 25 April 2017 and changes to the Company’s
structure, the annual partial capital return provisions have been
disapplied for the years ending 31 December
2016, 2017 and 2018.
Class closure resolutions
Also under the Articles of Incorporation, the Company had an
obligation to propose class closure resolutions if, in any fixed
discount management period (1 January to 31 December each
year), the average daily closing market price of the relevant class
of shares during such period was 10% or more below the average NAV
per share of the relevant class taken over the 12 monthly NAV
Determination Dates in that fixed discount management period.
As part of the Tender Offer that was completed on 25 April 2017 and changes to the Company’s
structure, these class closure provisions have also been disapplied
for the years ending 31 December
2016, 2017 and 2018.
However if, in the period from 1 January
2018 to 31 December 2018, any
class of shares trades at an average discount at or in excess of 8%
of the monthly NAV, the Company will propose a vote of the relevant
class to discontinue that class. Any such class discontinuation
vote will take place on or prior to 28
February 2019.
In that event and if a Class Discontinuation Vote is passed by
three-quarters of the votes cast on the resolution, holders of
shares of the relevant class will be able to opt to receive;
- 97.5 per cent of the NAV per share of the relevant class as at
31 March 2019 (with the remaining
2.5% of the NAV per share being retained by the Master Fund);
or
- 50 per cent of the NAV per share of the relevant class as at
31 March 2019 and 50% of the NAV per
share as at 30 June 2019.
From 1 April 2019, the Company’s
class closure provisions and annual partial capital return will be
reinstated and applicable in respect of the twelve month period
ending on 31 December 2019 and
thereafter, except that the relevant trigger for the class closure
provisions will be 8% discount to the net asset value of the
relevant class of shares over the relevant period, instead of the
existing 10% threshold.
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
30 June 2017 and other performance
information derived from the 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.
|
|
|
|
|
30.06.17 |
|
30.06.17^ |
|
30.06.17 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
€ |
|
£ |
Per
share operating performance |
|
|
|
|
|
|
|
Net
asset value at beginning of the period |
21.68 |
|
21.87 |
|
22.44 |
|
|
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
|
Net
investment loss* |
|
|
|
(1.44) |
|
(1.11) |
|
(0.94) |
Net
realised and unrealised loss on investment |
(0.63) |
|
(0.66) |
|
(0.82) |
Other
capital items** |
|
|
|
1.92 |
|
(20.10) |
|
0.82 |
Total
loss |
|
|
|
(0.15) |
|
(21.87) |
|
(0.94) |
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
21.53 |
|
- |
|
21.50 |
|
|
|
|
|
|
|
|
|
|
Total loss
before performance fee |
|
|
|
(0.69%) |
|
(3.07%) |
|
(4.19%) |
Performance fee |
|
|
|
- |
|
- |
|
- |
Total
loss after performance fee^ |
|
|
(0.69%) |
|
(3.07%) |
|
(4.19%) |
^
Returns on the Euro share class have been calculated up to the date
of conversion.
Total return reflects the net return for an investment made at
the beginning of the period and is calculated as the change in the
NAV per ordinary share are during the period from 1 January 2017 to 30 June
2017. An individual shareholder’s return may vary from these
returns based on the timing of their purchase or sale of shares.
All figures contained herein in repeat of the period ended
30 June 2017 are not annualised.
|
|
|
|
|
30.06.17 |
|
30.06.17^^ |
|
30.06.17 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
€'000 |
|
£'000 |
Supplemental data |
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
61,347 |
|
- |
|
300,934 |
Average
net asset value for the period |
|
138,239 |
|
21,875 |
|
394,978 |
^^ The average Euro share
class net asset value for the period is calculated based on
published NAVs from the start of the period up to its closure.
|
|
|
|
|
30.06.17 |
|
30.06.17 |
|
30.06.17 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
3.09% |
|
2.25% |
|
1.95% |
|
Master
Fund expenses**** |
|
0.53% |
|
0.53% |
|
0.52% |
|
Master
Fund interest expense***** |
1.53% |
|
1.48% |
|
1.38% |
Performance fee |
|
|
|
0.00% |
|
0.00% |
|
0.00% |
|
|
|
|
|
5.15% |
|
4.26% |
|
3.85% |
|
|
|
|
|
|
|
|
|
|
Net
investment loss* |
|
|
|
(5.17%) |
|
(4.28%) |
|
(3.82%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.12.16 |
|
31.12.16 |
|
31.12.16 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
€ |
|
£ |
Per
share operating performance |
|
|
|
|
|
|
|
Net
asset value at beginning of the year |
|
20.33 |
|
20.56 |
|
21.21 |
|
|
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
|
|
Net
investment loss* |
|
|
|
(0.46) |
|
(0.45) |
|
(0.50) |
Net
realised and unrealised gain on investment |
1.00 |
|
0.81 |
|
0.91 |
Other
capital items** |
|
|
|
0.81 |
|
0.95 |
|
0.82 |
Total
return |
|
|
|
1.35 |
|
1.31 |
|
1.23 |
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
21.68 |
|
21.87 |
|
22.44 |
|
|
|
|
|
|
|
|
|
|
Total
return before performance fee |
|
|
6.63% |
|
6.37% |
|
5.84% |
Performance fee |
|
|
|
- |
|
- |
|
(0.05%) |
Total
return after performance fee |
|
|
6.63% |
|
6.37% |
|
5.79% |
Total return 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 2016 to 31
December 2016. An individual shareholder’s return may vary
from these returns based on the timing of their purchase or sale of
shares.
|
|
|
|
|
31.12.16 |
|
31.12.16 |
|
31.12.16 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
€'000 |
|
£'000 |
Supplemental data |
|
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
216,252 |
|
33,128 |
|
502,083 |
Average
net asset value for the year |
|
261,058 |
|
55,907 |
|
560,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.12.16 |
|
31.12.16 |
|
31.12.16 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
2.15% |
|
2.21% |
|
2.15% |
|
Master
Fund expenses**** |
|
|
1.02% |
|
1.03% |
|
1.04% |
|
Master
Fund interest expense***** |
0.86% |
|
0.82% |
|
0.90% |
Performance fee |
|
|
|
0.00% |
|
0.00% |
|
0.05% |
|
|
|
|
|
4.03% |
|
4.06% |
|
4.14% |
|
|
|
|
|
|
|
|
|
|
Net
investment loss before performance fee* |
(2.32%) |
|
(2.26%) |
|
(2.33%) |
|
|
|
|
|
|
|
|
|
|
Net
investment loss after performance fees* |
(2.32%) |
|
(2.26%) |
|
(2.38%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.06.16 |
|
30.06.16 |
|
30.06.16 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
€ |
|
£ |
Per
share operating performance |
|
|
|
|
|
|
|
Net
asset value at beginning of the period |
20.33 |
|
20.56 |
|
21.21 |
|
|
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
|
|
Net
investment loss* |
|
|
|
(0.22) |
|
(0.25) |
|
(0.22) |
Net
realised and unrealised loss on investment |
(0.18) |
|
(0.33) |
|
(0.23) |
Other
capital items** |
|
|
|
0.83 |
|
0.89 |
|
0.80 |
Total
return |
|
|
|
0.43 |
|
0.31 |
|
0.35 |
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
20.76 |
|
20.87 |
|
21.56 |
|
|
|
|
|
|
|
|
|
|
Total
return before performance fee |
|
|
2.12% |
|
1.52% |
|
1.64% |
Total return reflects the net return for an investment made at
the beginning of the period and is calculated as the change in the
NAV per ordinary share during the period from 1 January 2016 to 30 June
2016. An individual shareholder’s return may vary from these
returns based on the timing of their purchase or sale of shares.
All figures contained herein in repeat of the period ended
30 June 2016 are not annualised.
|
|
|
|
|
30.06.16 |
|
30.06.16 |
|
30.06.16 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
€'000 |
|
£'000 |
Supplemental data |
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
231,119 |
|
51,527 |
|
498,130 |
Average
net asset value for the period |
|
302,519 |
|
71,080 |
|
639,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.06.16 |
|
30.06.16 |
|
30.06.16 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
1.09% |
|
1.11% |
|
1.09% |
|
Master
Fund expenses**** |
|
|
0.53% |
|
0.53% |
|
0.54% |
|
Master
Fund interest expense***** |
0.33% |
|
0.33% |
|
0.34% |
Performance fee |
|
|
|
0.00% |
|
0.00% |
|
0.00% |
|
|
|
|
|
1.95% |
|
1.97% |
|
1.97% |
|
|
|
|
|
|
|
|
|
|
Net
investment loss* |
|
|
|
(0.82%) |
|
(0.85%) |
|
(0.79%) |
|
|
|
|
|
|
|
|
|
|
Net
investment loss after performance fees* |
(0.82%) |
|
(0.85%) |
|
(0.79%) |
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 period as compared to the NAV per
share at the beginning of the period/year.
*** Company expenses are as disclosed in
the Interim Unaudited Statement of Operations excluding the
performance fee and Foreign Exchange.
**** Master Fund expenses are the operating
expenses of the Master Fund excluding the interest and dividend
expenses of the Master Fund.
***** Master Fund interest expense includes 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.
Management and performance fees are disclosed in note 4.
Directors’ fees are disclosed in the Directors’ Remuneration
Report.
Directors’ interests are disclosed in the Directors’ Report and
also the Board Members section.
11. Subsequent events
The Directors have evaluated subsequent events up to
21 August 2017, which is the date
that the Interim Unaudited Financial Statements were available to
be issued, and have concluded there are no further items that
require disclosure or adjustment to the Interim Unaudited Financial
Statements.
Historic Performance Summary
As at 30 June 2017
|
|
30.06.17 |
|
31.12.16 |
|
31.12.15 |
|
31.12.14 |
|
31.12.13 |
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
(decrease)/increase in net assets |
|
|
|
|
|
|
|
|
|
|
resulting from operations |
(8,363) |
|
(150,245) |
|
(91,220) |
|
(122,858) |
|
105,344 |
Total
assets |
452,760 |
|
866,740 |
|
1,499,648 |
|
1,768,337 |
|
2,255,031 |
Total
liabilities |
(530) |
|
(1,897) |
|
(4,755) |
|
(5,519) |
|
(8,176) |
Net assets |
|
452,230 |
|
864,843 |
|
1,494,893 |
|
1,762,818 |
|
2,246,855 |
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
2,849,663 |
|
9,975,524 |
|
17,202,974 |
|
18,332,029 |
|
24,967,761 |
Euro
shares |
- |
|
1,514,872 |
|
4,163,208 |
|
5,112,916 |
|
6,792,641 |
Sterling shares |
|
13,995,456 |
|
22,371,669 |
|
33,427,871 |
|
37,717,793 |
|
43,602,671 |
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
US$21.53 |
|
US$21.68 |
|
US$20.33 |
|
US$20.62 |
|
US$20.60 |
Euro
shares |
- |
|
€21.87 |
|
€20.56 |
|
€20.72 |
|
€20.74 |
Sterling shares |
|
£21.50 |
|
£22.44 |
|
£21.21 |
|
£21.40 |
|
£21.34 |
Company Information
Directors
Huw Evans (Chairman, from
23 June 2017)
Ian Plenderleith (Chairman, until
23 June 2017)
Claire Whittet
Colin Maltby
John Le Poidevin
(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
Channel Islands GY1 1DB
Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 4BZ
Legal Advisors (UK Law)
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
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
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