BH Macro Limited
Annual Report and Audited Financial Statements 2016
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
31 December 2016
Chairman’s Statement
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 will
set a firm foundation for the future development of BH Macro
Limited (the “Company”). The changes, described further below,
deliver improved terms for the Company to continue to serve as a
listed avenue for investment in Brevan Howard Master Fund Limited
(the “Master Fund”).
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 15.32%, which delivered almost a
doubling in NAV per share. In the following four years (2012-2015),
the annualised rate of return was 1.59% and the gain in NAV per
share, while still positive, was much more moderate. This
flattening in performance was the result of market conditions in
the latter period that offered few opportunities for the Master
Fund’s macro-directional trading focus: major economies were
experiencing synchronised slower growth; extreme easing in monetary
policy produced low interest rates and flat yield curves; and there
was limited trend movement in exchange rates. The Master Fund was
alert to the importance of preserving investors’ capital, which it
achieved, but opportunities for trading gains were sparse.
This environment has changed strikingly in the past year: the
major economies began to display divergent growth performance;
there were similar divergences in monetary policy, with the US
raising rates, while further easing was implemented elsewhere; and
exchange rates responded with stronger directional movements.
The Company’s NAV per share (on its sterling shares) gained
5.79% over the year, the best annual performance since 2011.
Notwithstanding this material improvement in performance in 2016,
the more subdued NAV performance in earlier years inevitably
generated some widening in the discount to NAV in the Company’s
shares. In response, the Board took a series of measures to try to
contain the discount. In 2012 and 2013, it offered Shareholders a
partial return of capital of some or all of the amount of the
previous year’s gain in NAV. In 2014, as the discount began to
approach 5%, the Board initiated market purchases of the Company’s
shares. These buy-backs, which amounted to the equivalent of over
$731 million in 2014-2016, equal to
around 33% of the Company’s total NAV, undoubtedly served to
moderate the discount and were significantly NAV-accretive for
remaining shareholders. But with the scale of buy-backs increasing,
in April 2016 the Board initiated a
tender offer for up to 25% of the Company’s shares in issue. This
tender was fully subscribed, but was not sufficient to remove the
discount. Accordingly, the Board announced a further tender offer
for 100% of the Company’s issued shares and associated structural
changes in November 2016 which was
approved by Shareholders at meetings in February and March 2017.
In that tender, 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 continuing Shareholders, the structural changes
deliver 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 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.
Other changes will prevent the Company from engaging in market
purchases for the next two years, but with a commitment to holding
a class discontinuation vote if the discount averages 8% or more in
2018.
These changes leave the Company a smaller, but still
substantial, fund, with a total NAV at end-February 2017 (after applying the result of
the tender) of the equivalent of $460
million. It will have a constituency of Shareholders who
have chosen to remain invested; and it will face the future with
the Master Fund demonstrating in its recent performance its ability
to capitalise on the better opportunities markets now present for
its trading strategies. On this basis, the Board believes that the
Company offers Shareholders a valuable opportunity to continue to
benefit from the Master Fund’s established track record of
preserving capital and achieving positive returns, uncorrelated
with other markets and with low volatility.
In exercising its responsibilities to safeguard Shareholders’
interests, the Board has maintained regular dialogue with the
Company’s 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; and Directors hold periodic briefing meetings
with Brevan Howard’s trading teams in 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. Regular
communication is maintained with Shareholders and presentations are
made to keep analysts, financial journalists and the wider
investment community informed of the Company’s progress. To
supplement this programme, an extended presentation for
professional investors was held in London on 7 April
2016. 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 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 five 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 recent 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.
In line with the Board’s rotation policy, Christopher Legge retired from the Board at the
Company’s AGM on 24 June 2016 after
nine years’ distinguished service as a Director and as Chair of the
Audit Committee. The Board has benefited immensely from the wisdom
and insights he brought to its work and has greatly valued his
significant contribution to the success of the Company from its
inception. In his place, the Directors were delighted to appoint
John Le Poidevin, who brings to the
Board extensive financial experience as a professional accountant.
Huw Evans has succeeded Christopher Legge as Chair of the Audit
Committee and Claire Whittet has
succeeded Huw Evans as Chair of the
Management Engagement Committee.
David Barton retired from the
Board on 29 February 2016 on taking
up a new career appointment. The Board has greatly appreciated the
significant role he played in establishing the Company and the
expertise and support he has contributed to its subsequent
development.
The structural changes the Company has implemented over the past
year put it on a strong path to provide positive returns for
Shareholders. Recent developments in the global economy have
provided more fruitful opportunities for the Master Fund's
macro-trading strategies; and evident political and economic
uncertainties lying ahead suggest that these opportunities will
persist. The Board believes that in these conditions the Company’s
investment in the Master Fund should continue to provide a valuable
listed avenue for portfolio diversification that is uncorrelated
with other asset classes.
Ian Plenderleith
Chairman
23 March 2017
Board Members
The Directors of the Company, all of whom are non-executive, are
listed below:
Ian
Plenderleith (Chairman), age 73
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 has held the role
of Chairman of the Board since 2007.
Christopher
Legge, (former Senior Independent Director), age 61
(resigned 24 June 2016)
Christopher Legge is Guernsey resident and has over 25 years
experience in the financial services industry. He qualified in
London in 1980 with Pannell Kerr Forster and subsequently moved to
Guernsey in 1983 to work for Ernst
& Young, progressing from audit manager to Managing Partner in
the Channel Islands. He retired
from Ernst & Young in 2003 and currently holds a number of
directorships in the financial sector. He is an FCA and holds a BA
(Hons) in Economics from the University of Manchester. Mr Legge was appointed to the
Board in 2007 and resigned on 24 June
2016.
Huw
Evans, (Senior Independent Director), age 58
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.
David
Barton, age 37 (resigned 29
February 2016)
Whilst a director of the Company, David
Barton was Jersey resident and joined Brevan Howard in
July 2007. He was the Head of Legal
at Brevan Howard Capital Management LP, the Company’s manager, and
a director of a number of the group’s global entities. Prior to
joining Brevan Howard, Mr Barton worked as a transactional lawyer
in the Corporate group of Freshfields Bruckhaus Deringer in
London (2005-2007), advising on
the structuring and launch of listed and unlisted hedge, private
equity and other investment funds. Prior to Freshfields, he worked
as a solicitor in the Corporate and Finance groups of Freehills in
Sydney (2002-2005) advising on a
wide range of M&A, ECM / DCM and investment fund transactions.
He holds a Bachelor of Commerce (Economics and Finance) and
Bachelor of Laws (Hons) from Macquarie University in Sydney and is admitted to practice as a
solicitor in England and
Wales and a solicitor and
barrister in New South Wales,
Australia. He is Series 3 (Commodities and Futures)
qualified with the United States,
National Association of Securities Dealers (NASD). Mr Barton was
appointed to the Board in April 2014
and resigned on 29 February 2016.
Claire
Whittet, age 61
Claire Whittet is Guernsey resident and has nearly 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
four other listed investment funds and holds various directorships
in addition to these. Mrs Whittet was appointed to the Board in
June 2014.
Colin
Maltby, 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.
John Le
Poidevin, age 46 (appointed 24
June 2016)
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.
Disclosure of Directorships in Public
Companies Listed on Recognised Stock Exchanges
The following summarises the Directors’ directorships in other
public companies:
|
Exchange |
Ian Plenderleith |
|
None |
|
|
|
Christopher Legge (resigned 24
June 2016) |
|
Ashmore Global Opportunities
Limited |
London |
John Laing Environmental Assets
Group Limited |
London |
Sherborne Investors (Guernsey) B
Limited |
London |
Third Point Offshore Investors
Limited |
London |
TwentyFour Select Monthly Income
Fund Limited |
London |
|
|
Huw Evans |
|
Standard Life Investments Property
Income Trust Limited |
London |
VinaCapital Vietnam Opportunity Fund
Limited |
London |
|
|
David Barton (resigned 29
February 2016) |
|
None |
|
|
|
Claire Whittet |
|
Eurocastle Investment Limited |
Euronext |
International Public Partnerships
Limited |
London |
Riverstone Energy Limited |
London |
TwentyFour Select Monthly Income
Fund Limited |
London |
|
|
Colin Maltby |
|
BBGI SICAV SA |
London |
Ocean Wilsons Holdings Limited |
London and Bermuda |
|
|
John Le Poidevin (appointed 24
June 2016) |
|
International Public Partnerships
Limited |
London |
Market Tech Holdings Limited |
London |
Safecharge International Group
Limited |
London (AIM) |
Specialist Investment Properties
Plc |
London (AIM) |
Stride Gaming Plc |
London (AIM) |
Directors’ Report
31 December 2016
The Directors submit their Report together with the Company’s
Audited Statement of Assets and Liabilities, Audited Statement of
Operations, Audited Statement of Changes in Net Assets, Audited
Statement of Cash Flows and the related notes for the year ended
31 December 2016. The Directors’
Report together with the Audited 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”), comply with the
Companies (Guernsey) Law, 2008 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 a Secondary Listing (Chapter 14) on
the Official List of the London Stock Exchange (“LSE”) on
14 March 2007. On 11 March 2008, the Company migrated from the
Secondary Listing to a Primary Listing pursuant to Chapter 15 of
the Listing Rules of the UK Listing Authority. As a result of
changes to the UK Listing Regime, the Company’s Primary Listing
became a Premium Listing with effect from 6
April 2010.
As of 20 October 2008, the Company
obtained a Secondary Listing on the Bermuda Stock Exchange and with
effect from 11 November 2008, the US
Dollar Shares of the Company were admitted to a Secondary Listing
on NASDAQ Dubai.
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 year are set out in the Audited Statement of
Operations. The Directors do not recommend the payment of a
dividend.
The figures stated in note 9 of the Notes to the Audited
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 year.
Share capital
The number of shares in issue at the year end is disclosed in
note 5 to the Notes to the Financial Statements.
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 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 (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 results of the Tender Offer were announced on 24 February 2017 where 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 Tender Offer is expected
to complete in May 2017.
Viability statement
The investment objective of the Company is to seek to generate
consistent long-term capital appreciation through an investment
policy of investing all of its assets (net of funds required for
its short-term working capital) in the Master Fund.
The Directors have assessed the viability of the Company over
the period to 31 December 2019. The
viability statement covers a period of three years, which the
Directors consider sufficient given the inherent uncertainty of the
investment world and the specific risks to which the Company is
exposed. In particular, the Directors considered the effects on the
Company of the implementation of the Tender Offer and associated
structural changes which were approved by shareholders at meetings
in February and March 2017.
The continuation of the Company in its present form is dependent
on the Management Agreement remaining in place. The Management
Agreement is currently terminable on two years’ notice by either
party. Following the implementation of the Tender Offer and
associated structural changes, the notice period of the Management
Agreement will reduce to three months with effect from 1 April 2019. To ensure that the Company
maintains a constructive and informed relationship with the
Manager, the Directors meet regularly with the Manager to review
the Master Fund’s performance, and through the Management
Engagement Committee, they review the Company’s relationship with
the Manager and the Manager’s performance and effectiveness. The
Board had very constructive discussions with the Manager
surrounding the Tender Offer and the structural changes and the
Manager was supportive of the changes. The Directors currently know
of no reason why either the Company or the Manager might serve
notice of termination of the Management Agreement over the period
of this viability statement.
The Company’s assets exceed its liabilities by a considerable
margin. Further, the majority of the Company’s most significant
expenses, being the fees owing to the Manager and to the Company’s
administrator, fluctuate by reference to the Company’s investment
performance and net asset value. The Company is able to meet its
expenses by redeeming shares in the Master Fund as necessary.
The Company’s investment performance depends upon the
performance of the Master Fund and the Manager as manager of the
Master Fund. The Directors, in assessing the viability of the
Company, pay particular attention to the risks facing the Master
Fund. The Manager operates a risk management framework, which is
intended to identify, measure, monitor, report and where
appropriate, mitigate key risks identified by it or its affiliates
in respect of the Master Fund.
Besides the possible termination of the Management Agreement, at
the Company level, the main risk to the Company’s continuation
would be adverse investment performance by the Master Fund
precipitating extended downwards pressure on the Company’s share
prices from shareholders seeking to liquidate their investment in
the Company by selling their shares; the Company’s shares could
consequently trade at a significant and persistent discount to NAV.
At the EGM and Class Meetings approving the Tender Offer, one of
the structural changes approved by shareholders was the
modification of Class Discontinuation votes applying in the period
1 January to 31 December 2018 in the
event that shares trade at an average discount in excess of 8% of
the monthly net asset value over this period.
Whilst the Directors cannot predict the premium or discount to
NAV at which the Company’s shares will trade, they have determined
that there is no reason to believe that the shares would trade at a
discount in excess of 8%. In making this determination, the
Directors considered the fact that, following implementation of the
Tender Offer, the Company will have a constituency of Shareholders
who have chosen to remain invested with advantageous structural
changes including a reduction in the management fee from 2% to 0.5%
per annum.
After 1 April 2019, in the event
that there was downward pressure on the Company’s share prices, the
Company would be able to consider resuming active discount
management actions, including share buybacks, so that as far as
possible the share prices would properly reflect the Company’s
underlying performance; such actions would mitigate the risk of
class closure resolutions being triggered in the final year of the
viability period.
The Directors have carried out a robust assessment of the risks
and, on the assumption that the risks are managed or mitigated in
the ways noted above, the Directors have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their
assessment.
Going concern
The Directors, having considered the principal risks to which
the Company is exposed which are listed on 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 Audited 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 on the Board
Members section and on the inside back cover.
The Articles provide that, unless otherwise determined by
ordinary resolution, the number of Directors shall not be less than
two. The Company’s policy on Directors’ Remuneration, together with
details of the remuneration of each Director who served during the
year, is detailed in the Directors’ Remuneration Report.
The Board meets at least four times a year and between these
formal meetings there is regular contact with the Manager and the
Administrator. The Directors are kept fully informed of investment
and financial controls, and other matters that are relevant to the
business of the Company are brought to the attention of the
Directors. The Directors also have access to the Administrator and,
where necessary in the furtherance of their duties, to independent
professional advice at the expense of the Company.
For each Director, the tables below set out the number of Board,
Audit Committee and Management Engagement Committee meetings they
were entitled to attend during the year ended 31 December 2016 and the number of such meetings
attended by each Director.
Scheduled Board Meetings |
Held |
Attended |
Ian Plenderleith |
4 |
4 |
David Barton |
*0 |
0 |
Huw Evans |
4 |
4 |
Colin Maltby |
4 |
4 |
Christopher Legge |
*2 |
2 |
Claire Whittet |
4 |
4 |
John Le Poidevin |
*3 |
2 |
|
|
|
Audit Committee Meetings |
Held |
Attended |
Huw Evans |
4 |
4 |
Claire Whittet |
4 |
4 |
John Le Poidevin |
*3 |
2 |
Christopher Legge |
*2 |
2 |
Management Engagement Committee
Meetings |
Held |
Attended |
Claire Whittet |
1 |
1 |
Huw Evans |
1 |
1 |
Ian Plenderleith |
1 |
1 |
Colin Maltby |
1 |
1 |
* Indicates the meetings held during their
membership of the relevant Board or Committee during the year ended
31 December 2016.
In addition to these scheduled meetings, sixteen ad hoc meetings
and two Extraordinary General Meetings were held during the year
ended 31 December 2016, which were
attended by those Directors available at the time.
Directors’ independence
In January 2016, the Chairman and
Christopher Legge both 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, takes 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
has therefore been determined that in performing their role as
Directors, the Chairman and Christopher
Legge (until his resignation from the board on 24 June 2016) remained wholly independent and all
the current Directors are considered to be independent.
David Barton, who served as a
Director until his resignation on 29
February 2016, was an employee of the Manager and therefore
deemed not to be independent of the Manager for the purposes of
LR15.2.12-A.
Directors’ interests
The Directors had the following interests in the Company, held
either directly or beneficially:
|
|
|
US Dollar
Shares |
|
|
31.12.16 |
31.12.15 |
Ian Plenderleith |
|
Nil |
Nil |
David Barton |
|
N/A |
Nil |
Huw Evans |
|
Nil |
Nil |
Christopher Legge |
|
N/A |
Nil |
John Le Poidevin |
|
Nil |
N/A |
Colin Maltby |
|
Nil |
Nil |
Claire Whittet |
|
Nil |
Nil |
|
|
|
|
|
|
|
Euro
Shares |
|
|
31.12.16 |
31.12.15 |
Ian Plenderleith |
|
Nil |
Nil |
David Barton |
|
N/A |
Nil |
Huw Evans |
|
Nil |
Nil |
Christopher Legge |
|
N/A |
Nil |
John Le Poidevin |
|
Nil |
N/A |
Colin Maltby |
|
Nil |
Nil |
Claire Whittet |
|
Nil |
Nil |
|
|
|
|
|
|
|
Sterling
Shares |
|
|
31.12.16 |
31.12.15 |
Ian Plenderleith |
|
Nil |
Nil |
David Barton |
|
N/A |
Nil |
Huw Evans |
|
710 |
710 |
Christopher Legge |
|
N/A |
Nil |
John Le Poidevin |
|
Nil |
N/A |
Colin Maltby |
|
Nil |
Nil |
Claire Whittet |
|
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 of these Audited 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, as the Company is currently a FTSE
250 listed company, 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 24 June 2016,
Shareholders re-elected all the Directors of the Company, with the
exception of Christopher Legge 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 resignation on 24 June
2016, Christopher Legge, as
Senior Independent Director, took the lead in reviewing the
performance of the Chairman. Effective from 24 June 2016, Huw
Evans, as Senior Independent Director, will take the lead in
reviewing the performance of the Chairman. The Chairman also has
responsibility for assessing the individual Board members’ training
requirements.
In accordance with the AIC Code, the Board has commissioned an
external evaluation of its performance every three years; the last
such external evaluation took place in 2014.
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 Annual Report the Board
has sought to provide further information to enable Shareholders to
better understand the Company’s business and financial
performance.
Policy to combat fraud, bribery and
corruption
The Board has adopted a formal policy to combat fraud, bribery
and corruption. The policy applies to the Company and to each of
its Directors. Further, the policy is shared with each of the
Company’s service providers.
Ongoing Charges
Ongoing charges for the year ended 31
December 2016 and 31 December
2015 have been prepared in accordance with the AIC’s
recommended methodology.
The following table presents the Ongoing Charges for each share
class.
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% |
|
|
|
|
31.12.15 |
|
|
|
|
|
|
|
|
US
Dollar |
Euro |
Sterling |
|
Shares |
Shares |
Shares |
Company – Ongoing
Charges |
1.98% |
1.99% |
1.96% |
Master Fund – Ongoing
Charges |
0.62% |
0.60% |
0.62% |
Performance fee |
0.01% |
0.03% |
0.02% |
Ongoing Charges plus
performance fee |
2.61% |
2.62% |
2.60% |
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, Euro 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 service 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
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.
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
Claire Whittet, Huw Evans, Colin
Maltby and Ian Plenderleith.
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 continued 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 register functions
including the independent calculation of the Company’s NAV and the
production of the Annual Report and Financial Statements, which are
independently audited. Whilst the Board delegates these functions,
it remains responsible for the functions it delegates and for the
systems of internal control. Formal contractual agreements have
been put in place between the Company and the providers of these
services. On an ongoing basis, Board reports are provided at each
quarterly Board meeting 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 first report for CRS will be made to the Director of Income Tax
by 30 June 2017.
The Board takes the necessary actions to ensure that the Company
is compliant with Guernsey
regulations and guidance in this regard.
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.
During the year, an extended presentation for professional
investors was also held. In addition, Board members are available
to respond to Shareholders’ questions at Annual General Meetings.
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 31 December 2016, the following
Shareholders had significant shareholdings in the Company:
|
|
|
%
holding |
|
Total Shares Held |
in
class |
Significant
Shareholders |
|
|
US Dollar
Shares |
|
|
Chase Nominees
Limited |
2,743,806 |
28% |
Vidacos Nominees
Limited |
1,262,190 |
13% |
Morstan Nominees
Limited |
1,059,975 |
11% |
J P Morgan Securities
LLC |
914,256 |
9% |
Luna Nominees
Limited |
742,747 |
7% |
The Bank Of New York
(Nominees) Limited |
457,072 |
5% |
Hero Nominees
Limited |
410,917 |
4% |
Lynchwood Nominees
Limited |
371,220 |
4% |
HBSC Global Custody
Nominee (UK) Limited |
315,400 |
3% |
|
|
|
|
|
|
|
%
holding |
|
Total Shares Held |
in
class |
Significant
Shareholders |
|
|
Euro
shares |
|
|
Vidacos Nominees
Limited |
197,707 |
13% |
Lynchwood Nominees
Limited |
161,307 |
11% |
Smith & Williamson
Nominees Limited |
131,610 |
9% |
State Street Nominees
Limited |
128,862 |
9% |
The Bank of New York
(Nominees) Limited |
106,676 |
7% |
Luna Nominees
Limited |
94,773 |
6% |
HSBC Global Custody
Nominee (UK) Limited |
80,667 |
5% |
Securities Services
Nominees Limited |
75,158 |
5% |
Roy Nominees
Limited |
55,462 |
4% |
Aurora Nominees
Limited |
48,050 |
3% |
|
|
|
|
|
|
|
%
holding |
|
Total Shares Held |
in
class |
Significant
Shareholders |
|
|
Sterling
shares |
|
|
|
Luna Nominees
Limited |
4,711,454 |
21% |
Ferlim Nominees
Limited |
2,100,817 |
9% |
The Bank of New York
(Nominees) Limited |
1,407,579 |
6% |
HSBC Global Custody
Nominee (UK) Limited |
1,299,696 |
6% |
Pershing Nominees
Limited |
962,047 |
4% |
State Street Nominees
Limited |
943,939 |
4% |
Rathbone Nominees
Limited |
929,014 |
4% |
Chase Nominees
Limited |
780,568 |
3% |
Nutraco Nominees
Limited |
707,210 |
3% |
Harewood Nominees
Limited |
706,948 |
3% |
Signed on behalf of the Board by:
Ian Plenderleith
Chairman
Huw Evans
Director
23 March 2017
Statement of Directors’ Responsibility
in Respect of the Annual Report and Audited Financial
Statements
The Directors are responsible for preparing the Directors’
Report and the Financial Statements in accordance with applicable
laws and regulations.
Guernsey company law requires
the Directors to prepare Financial Statements for each financial
year. Under that law they have elected to prepare the Financial
Statements in conformity with accounting principles generally
accepted in the United States of
America.
The Financial Statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing these Financial Statements the Directors are
required to:
• select suitable
accounting policies and then apply them consistently;
• make judgements and
estimates that are reasonable and prudent;
• state whether
applicable accounting standards have been followed, subject to any
material departures disclosed and explained in the Financial
Statements; and
• prepare the
Financial Statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements comply with the Companies (Guernsey) Law, 2008. They have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The maintenance and integrity of the BH Macro Limited website is
the responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements or audit report
since they were initially presented on the website.
Legislation in Guernsey
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
We confirm to the best of our knowledge that:
• so far as each of
the Directors is aware, there is no relevant audit information of
which the Company’s Independent Auditor is unaware, and each has
taken all the steps they ought to have taken as a Director to make
themselves aware of any relevant information and to establish that
the Company’s Independent Auditor is aware of that information;
• these Financial
Statements have been prepared in conformity with accounting
principles generally accepted in the
United States of America and give a true and fair view of
the assets, liabilities, financial position and profit or loss of
the Company;
• these 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; and
• these Financial
Statements include information detailed in the Chairman’s
Statement, the Directors’ Report and the Manager’s Report, which
provides a fair view of the information required by:
(a) DTR 4.1.8 of the
Disclosure and Transparency Rules, being a fair review of the
Company’s business and a description of the principal risks and
uncertainties facing the Company; and
(b) DTR 4.1.12 of the Disclosure and Transparency Rules,
being that the Financial Statements are prepared in accordance with
the applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and that the Annual Report includes a fair
review of the development and performance of the business and
position of the Company together with a description of the
principal risks and uncertainties that it faces.
Signed on behalf of the Board by:
Ian Plenderleith
Chairman
Huw Evans
Director
23 March 2017
Directors’ Remuneration Report
31 December 2016
Introduction
An ordinary resolution for the approval of the Directors’
Remuneration Report will be put to the Shareholders at the Annual
General Meeting to be held in 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 and the
Management Engagement Committee. 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 David Barton, Claire
Whittet, Colin Maltby and
John Le Poidevin received their
letters of appointment on joining the Board on 17 April 2014, 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, as the Company is
currently a FTSE 250 listed company, 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
24 June 2016, Shareholders re-elected
all the Directors except Christopher
Legge 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, with the exception of David
Barton who resigned on 29 February
2016, 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. The annual fees are £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, excluding David Barton
who was not paid a fee.
The fees payable by the Company in respect of each of the
Directors who served during the year ended 31 December 2016 and the year ended 31 December 2015, were as follows:
|
|
Year
ended |
Year
ended |
|
|
31.12.16 |
31.12.15 |
|
|
£ |
£ |
Ian Plenderleith |
|
167,000 |
167,000 |
David Barton |
|
Nil |
Nil |
Huw Evans |
|
37,500 |
37,500 |
Christopher Legge |
|
*18,750 |
37,500 |
Colin Maltby |
|
34,000 |
**17,469 |
Talmai Morgan |
|
Nil |
**16,530 |
Claire Whittet |
|
35,750 |
34,000 |
John Le Poidevin |
|
*17,000 |
N/A |
Total |
|
310,000 |
309,999 |
*
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 year ended
31 December 2015.
Signed on behalf of the Board by:
Ian Plenderleith
Chairman
Huw Evans
Director
23 March 2017
Report of the Audit Committee
31 December 2016
We present the Audit Committee’s (the “Committee”) Report for
2016, setting out the Committee’s structure and composition,
principal duties and key activities during the year. As in previous
years, the Committee has reviewed the Company’s financial
reporting, the independence and effectiveness of the Independent
Auditor and the internal control and risk management systems of the
service providers.
Structure and Composition
Huw Evans became Chairman on
24 June 2016 following the retirement
of Christopher Legge. The
Committee’s other members are Claire
Whittet and John Le
Poidevin.
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 is currently serving his third term and Claire Whittet and John
Le Poidevin are each serving their first term.
The Committee conducts formal meetings at least three times a
year. The table in the Directors’ Report sets out the number of
Committee meetings held during the year ended 31 December 2016 and the number of such meetings
attended by each committee member. The Independent Auditor is
invited to attend those meetings at which the annual and interim
reports are considered. The Independent Auditor and the Committee
will meet together without representatives of either the
Administrator or Manager being present if the Committee considers
this to be necessary.
Principal duties
The role of the Committee includes:
•
monitoring the integrity of the published Financial Statements of
the Company;
• reviewing and
reporting to the Board on the significant issues and judgements
made in the preparation of the Company’s published Financial
Statements, (having regard to matters communicated by the
Independent Auditor), significant financial returns to regulators
and other financial information;
• monitoring and
reviewing the quality and effectiveness of the Independent Auditor
and their independence;
• considering and
making recommendations to the Board on the appointment,
reappointment, replacement and remuneration to the Company’s
Independent Auditor; and
• monitoring and
reviewing the internal control and risk management systems of the
service providers.
The complete details of the Committee’s formal duties and
responsibilities are set out in the Committee’s Terms of Reference,
which can be obtained from the Company’s Administrator.
Independent Auditor
KPMG Channel Islands Limited (“KPMG CI”) has been the
Independent Auditor from the date of the initial listing on the
London Stock Exchange. In accordance with normal audit rotation
requirements Barry Ryan succeeded
Lee Clark as audit engagement
partner and opinion signatory following the conclusion of the 2015
audit.
The independence and objectivity of the Independent Auditor is
reviewed by the Committee, which also reviews the terms under which
the Independent Auditor is appointed to perform non-audit services.
The Committee has also established policies and procedures for the
engagement of the auditor to provide audit, assurance and tax
services. The services which the Independent Auditor may not
provide are any which:
•
places them in a position to audit their own work
•
creates a mutuality of interest
•
results in the Independent Auditor functioning as a manager or
employee of the Company
•
puts the Independent Auditor in the role of advocate of the
Company
The audit and any non-audit fees proposed by the Independent
Auditor each year are reviewed by the Committee taking into account
the Company’s structure, operations and other requirements during
the period and the Committee makes recommendations to the
Board.
During 2015, the Audit Committee arranged a competitive audit
tender process and on completion recommended to the Board that KPMG
CI continues as the Company’s Independent Auditor.
Key Activities in 2016
The following sections discuss the assessment made by the
Committee during the year:
Significant Financial Statement
Issues
The Committee’s review of the interim and annual Financial
Statements focused on the following area:
The Company’s investment in the Master Fund had a fair value of
US$0.85 billion as at 31 December 2016 and represents substantially all
the net assets of the Company. The Valuation of the investment is
determined in accordance with the Accounting Policies set out in
note 3 to the Audited Financial Statements. The Financial
Statements of the Master Fund for the year ended 31 December 2016 were audited by KPMG Cayman who
issued an unqualified audit opinion dated 20
March 2017. The Audit Committee has reviewed the Financial
Statements of the Master Fund and the Accounting Policies and
determined the fair value of the investment as at 31 December 2016 is reasonable.
This matter was discussed during the planning and final stage of
the audit and there was no significant divergence of views between
the Committee and the Independent Auditor.
Following the announcement of the results of the Tender Offer on
24 February 2017, the Committee
carried out a robust assessment of the risks to the Company in the
context of making the viability statement in these Financial
Statements. Furthermore, the Committee concluded it
appropriate to continue to prepare the Financial Statement on the
going concern basis of accounting.
Effectiveness of the Audit
The Committee held formal meetings with KPMG CI during the
course of the year: 1) before the start of the audit to discuss
formal planning, to discuss any potential issues and to agree the
scope that would be covered and 2) after the audit work was
concluded to discuss the significant issues including those stated
above.
The Committee considered the effectiveness and independence of
KPMG CI by using a number of measures, including but not limited
to:
•
Reviewing the audit plan presented to them before the start of the
audit;
•
Reviewing and challenging the audit findings report including
variations from the original plan;
•
Reviewing any changes in audit personnel; and
•
Requesting feedback from both the Manager and the
Administrator.
Further to the above, during the year, the Committee performed a
specific evaluation of the performance of the Independent Auditor.
This was supported by the results of questionnaires completed by
the Committee covering areas such as the quality of the audit team,
business understanding, audit approach and management. This
questionnaire was part of the process by which the Committee
assessed the effectiveness of the audit.
There were no significant adverse findings from the 2016
evaluation.
Audit fees and Safeguards on
Non-Audit Services
The tables below summarises the remuneration paid by the Company
to KPMG CI for audit and non-audit services during the years ended
31 December 2016 and 31 December 2015.
|
Year
ended |
Year
ended |
|
31.12.16 |
31.12.15 |
|
£ |
£ |
Annual audit |
28,000 |
27,500 |
Interim review |
8,800 |
8,750 |
Specified procedures
relating to 31 May 2016 Tender offer |
15,000 |
– |
Specified procedures
relating to 31 March 2017 Tender offer (proposed) |
10,000 |
– |
The Audit Committee has examined the scope and results of the
external audit, its cost effectiveness and the independence and
objectivity of the Independent Auditor, with particular regard to
non-audit fees, and considers KPMG CI, as Independent Auditor, to
be independent of the Company. Further, the Committee has obtained
KPMG CI’s confirmation that the services provided by other KPMG
member firms to the wider Brevan Howard organisation do not
prejudice its independence.
Internal Control
The Audit Committee has also reviewed the need for an internal
audit function. The Committee has concluded that the systems and
procedures employed by the Manager and the Administrator, including
their own internal audit functions, currently provide sufficient
assurance that a sound system of internal control, which safeguards
the Company’s assets, is maintained. An internal audit function
specific to the Company is therefore considered unnecessary.
The Committee examined externally prepared assessments of the
control environment in place at the Manager and the Administrator,
with each providing a Service Organisation Control (“SOC1”) report.
No significant findings have been noted during the year.
Conclusion and Recommendation
After reviewing various reports such as the operational and risk
management framework and performance reports from the Manager and
Administrator, consulting where necessary with KPMG CI, and
assessing the significant Financial Statement issues noted in the
Report of the Audit Committee, the Committee is satisfied that the
Financial Statements appropriately address the critical judgements
and key estimates (both in respect to the amounts reported and the
disclosures). The Committee is also satisfied that the significant
assumptions used for determining the value of assets and
liabilities have been appropriately scrutinised and challenged and
are sufficiently robust. At the request of the Board, the Audit
Committee considered and was satisfied that the 2016 Annual Report
and Audited Financial Statements are fair, balanced and
understandable and provide the necessary information for
Shareholders to assess the Company’s performance, business model
and strategy.
The Independent Auditor reported to the Committee that no
unadjusted material misstatements were found in the course of its
work. Furthermore, both the Manager and the Administrator confirmed
to the Committee that they were not aware of any unadjusted
material misstatements including matters relating to the
presentation of the Financial Statements. The Committee confirms
that it is satisfied that the Independent Auditor has fulfilled its
responsibilities with diligence and professional scepticism.
Consequent to the review process on the effectiveness of the
independent audit and the review of audit and non-audit services,
the Committee has recommended that KPMG CI be reappointed for the
coming financial year.
For any questions on the activities of the Committee not
addressed in the foregoing, a member of the Audit Committee remains
available to attend each Annual General Meeting to respond to such
questions.
Huw Evans
Audit Committee Chairman
23 March 2017
Manager’s Report
Brevan Howard Capital Management LP (the “Manager”) is the
Manager of the Company and of Brevan Howard Master Fund Limited
(the “Master Fund”). The Company invests all of its assets (net of
short-term working capital) in the ordinary shares of the Master
Fund.
Performance Review
The NAV per share of the USD shares of the Company appreciated
by 6.63% in 2016, while the NAV per share of the Euro shares
appreciated by 6.37% and the NAV per share of the Sterling shares appreciated by 5.79%.
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
Source: Fund NAV data is provided by the administrator of the
Fund, International Fund Services (Ireland) Limited. BH Macro Limited (“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 Manager (“BHCM”). BHM NAV data is unaudited
and net of all investment management fees (2% annual management fee
and 20% performance fee) and all other fees and expenses payable by
BHM. In addition, the Fund is subject to an operational services
fee of 50bps per annum.
BHCM shall waive its entitlement to a management fee in respect
of any performance-related growth of BHM from 3 October 2016 onwards. In addition BHM’s
investment in the Fund will not bear an operational services fee in
respect of any performance-related growth from 3 October 2016 onwards.
Shares in the Company do not necessarily trade at a price equal
to the prevailing NAV per Share.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
The NAV per share of the USD shares of the Company appreciated
by 6.63% in 2016. The Fund’s largest exposures at the start of the
year were long positions in European interest rates and short
positions in the Euro currency, held in anticipation of further
easing by the ECB. While these positions initially generated gains,
they reversed following the ECB’s meeting in March as market
participants focused on President Draghi’s comments downplaying the
prospects for further easing. Small gains across a wide range of
strategies including credit index, relative value, volatility and
emerging market interest rates trading were offset by losses from
short positions in US interest rates and equity trading, leaving
the Master Fund with a small loss by the end of the first half of
the year.
During the second half of the year, in what were largely
trendless markets, the Master Fund’s performance slipped until
November when, following the US election results, market volatility
increased sharply. The Master Fund profited as US and European
interest rates rose, as did the US dollar and the level of implied
volatility across a range of different asset classes. November’s
gain of 5.02% for the USD shares was the Company’s sixth best-ever
monthly return and followed a period of relatively low Value at
Risk (“VAR”) usage, highlighting not only the rapid adjustment in
risk levels but also the limits of the usefulness of VAR as a
predictor of upside potential.
The acquisition by the Company of 7,812,223 Sterling shares, 861,331
Euro shares and 3,805,094 US
Dollar shares pursuant to the tender offer launched by the
Company on 27 April 2016 (the "Tender
Offer") was executed on 27 June 2016.
The repurchase of shares under the Tender Offer resulted in the NAV
per share of the remaining USD shares appreciating by 2.52%, the
NAV per share of the remaining Sterling
shares appreciating by 2.38% and the NAV per share of the remaining
Euro shares appreciating by 2.14%.
Commentary and Outlook
2016 was a year of significant political developments. In the
UK, the Brexit vote was a shock to many and, in the US,
Donald Trump won the presidential
election against expectations. Although it is possibly an
oversimplification, voters seem eager to repudiate the status quo.
This is important because the institutions and policies that have
shaped market outcomes since the Great Recession may, as a result,
face additional challenges going forward.
The good news is that while the world faces significant
uncertainties in 2017, the global economy looks to be on a
reasonably sound footing with the prospect of additional fiscal
spending combined with accommodative monetary policy. The ECB and
Bank of Japan are continuing their
unconventional monetary policy of quantitative easing combined with
negative rates (and, in the case of Japan, explicit yield caps), while the Federal
Reserve is removing accommodation at a measured and gradual pace.
These policies were part of the landscape last year and will
continue to be important in 2017. In summary, investors can expect
some of the trends from 2016 to continue in 2017, with some new
initiatives to emerge and potentially plenty of surprises.
We look forward to exploiting any opportunities that these
factors may create.
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.
23 March 2017
Independent Auditor’s Report to the
Members of BH Macro Limited
Opinions and conclusions arising from
our audit
Opinion on the
financial statements
We have audited the financial statements of BH Macro Limited
(the “Company”) for the year ended
31 December 2016 which comprise the
Audited Statement of Assets and Liabilities, the Audited Statement
of Operations, the Audited Statement of Changes in Net Assets, the
Audited Statement of Cash Flows and the related notes. The
financial reporting framework that has been applied in their
preparation is applicable law and accounting principles generally
accepted in the United States of
America.
In our opinion, the financial statements:
• give a true and fair view of the state
of the Company’s affairs as at 31 December
2016 and of its net decrease in net assets resulting from
operations for the year then ended;
• are in conformity with accounting
principles generally accepted in the
United States of America; and
• comply with the Companies
(Guernsey) Law, 2008.
Our assessment of
risks of material misstatement
The risks of material misstatement detailed in this section of
this report are those risks that we have deemed, in our
professional judgement, to have had the greatest effect on: the
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team. Our audit
procedures relating to these risks were designed in the context of
our audit of the financial statements as a whole. Our opinion on
the financial statements is not modified with respect to any of
these risks, and we do not express an opinion on these individual
risks.
In arriving at our audit opinion above on the financial
statements, the risk of material misstatement that had the greatest
effect on our audit was as follows:
Valuation of Investment in Brevan
Howard Master Fund Limited (US$847,760,882)
Refer to the Report of the Audit Committee and note 3
‘Significant Accounting Policies’.
The risk – The Company, which is a multi-class feeder
fund, invested 98.0% of its net assets at 31
December 2016 into the ordinary US Dollar, Euro and
Sterling denominated Class B Shares
issued by Brevan Howard Master Fund Limited (the “Master Fund”),
which is an open ended investment company. The Company’s investment
holdings in the Master Fund are valued using the respective net
asset value per share class as provided by the Master Fund’s
administrator. The valuation of the Company’s investment in the
Master Fund, given it represents the majority of the net assets of
the Company, is a significant area of our audit.
Our response – Our audit procedures with respect to the
Company’s investment in the Master Fund included, but were not
limited to, obtaining the net asset value per share and holdings
per share confirmations for each respective share class directly
from the administrator of the Master Fund, reviewing the audit work
performed by the auditor of the Master Fund and holding discussions
on key audit findings with the auditor of the Master Fund and the
examination of the Master Fund’s coterminous audited financial
statements. We also considered the Company’s investment valuation
policies as disclosed in note 3 to the financial statements for
compliance with accounting principles generally accepted in
the United States of America.
Our application of
materiality and an overview of the scope of our audit
Materiality is a term used to describe the acceptable level of
precision in the financial statements. Auditing standards describe
a misstatement or an omission as “material” if it could reasonably
be expected to influence the economic decisions of users taken on
the basis of the financial statements. The auditor has to apply
judgement in identifying whether a misstatement or omission is
material and to do so the auditor identifies a monetary amount as
“materiality for the financial statements as a whole”.
The materiality for the financial statements as a whole was set
at $25,900,000. This has been
calculated using a benchmark of the Company’s net asset value (of
which it represents approximately 3%) which we believe is the most
appropriate benchmark as net asset value is considered to be one of
the principal considerations for members of the Company in
assessing the financial performance of the Company.
We agreed with the Audit Committee to report to it all corrected
and uncorrected misstatements we identified through our audit with
a value in excess of $1,290,000, in
addition to other audit misstatements below that threshold that we
believe warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas detailed above. The audit was
performed at the offices of the Company’s administrator.
Whilst the audit process is designed to provide reasonable
assurance of identifying material misstatements or omissions it is
not guaranteed to do so. Rather we plan the audit to determine the
extent of testing needed to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements does not exceed materiality for the financial
statements as a whole. This testing requires us to conduct
significant depth of work on a broad range of assets, liabilities,
income and expense as well as devoting significant time of the most
experienced members of the audit team, in particular the
Responsible Individual, to subjective areas of the accounting and
reporting process.
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Board of Directors;
and the overall presentation of the financial statements. In
addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with the
audited financial statements and to identify any information that
is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Disclosures of principal risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
• the viability statement on the
Directors’ Report, concerning the principal risks, their management
and, based on that, the directors' assessment and expectations of
the Company's continuing operation over the three years to
31 December 2019; or
• the disclosures in note 3 of the
financial statements concerning the use of the going concern basis
of accounting.
Matters on which we are required to report by
exception
Under International Standards on Auditing (UK and Ireland) we are required to report to you if,
based on the knowledge we acquired during our audit, we have
identified other information in the Annual Report that contains a
material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise
misleading.
In particular, we are required to report to you if:
• we have identified material
inconsistencies between the knowledge we acquired during our audit
and the Directors’ statement that they consider that the Annual
Report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
members to assess the Company’s performance, business model and
strategy; or
• the Report of the Audit Committee does
not appropriately address matters communicated by us to the Audit
Committee.
Under the Companies (Guernsey)
Law, 2008, we are required to report to you if, in our opinion:
• the Company has not kept proper
accounting records; or
• the financial statements are not in
agreement with the accounting records; or
• we have not received all the
information and explanations, which to the best of our knowledge
and belief are necessary for the purpose of our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement on the Directors’ Report
relating to the Company’s compliance with the eleven provisions of
the UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above
responsibilities.
Scope of report and
responsibilities
The purpose of this report and
restrictions on its use by persons other than the Company’s members
as a body
This report is made solely to the Company’s members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law, 2008 and, in respect of any
further matters on which we have agreed to report, on terms we have
agreed with the Company. Our audit work has been undertaken so that
we might state to the Company’s members those matters we are
required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of
directors and auditor
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit, and express
an opinion on, the financial statements in accordance with
applicable law and International Standards on Auditing (UK and
Ireland). Those standards require
us to comply with the UK Ethical Standards for Auditors.
Barry T. Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
23 March 2017
Audited Statement of Assets and Liabilities
As at 31 December 2016
|
|
|
|
31.12.16 |
|
31.12.15 |
|
|
|
|
US$'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
Investment
in the Master Fund |
|
847,761 |
|
1,424,795 |
Investment
sales receivable |
|
|
- |
|
39,175 |
Prepaid
expenses |
|
|
76 |
|
91 |
Cash and
bank balances denominated in US Dollars |
5,564 |
|
17,224 |
Cash and
bank balances denominated in Euro |
1,087 |
|
2,216 |
Cash and
bank balances denominated in Sterling |
12,252 |
|
16,147 |
Total
assets |
|
|
866,740 |
|
1,499,648 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Performance fees payable (note 4) |
|
|
318 |
|
273 |
Management
fees payable (note 4) |
1,386 |
|
2,413 |
Redemptions in respect of buybacks payable |
- |
|
1,698 |
Accrued
expenses and other liabilities |
56 |
|
184 |
Directors'
fees payable |
|
|
95 |
|
114 |
Administration fees payable (note 4) |
42 |
|
73 |
Total
liabilities |
|
|
1,897 |
|
4,755 |
|
|
|
|
|
|
|
Net
assets |
|
|
864,843 |
|
1,494,893 |
|
|
|
|
|
|
|
Number
of shares in issue (note 5) |
|
|
|
US Dollar
shares |
|
|
9,975,524 |
|
17,202,974 |
Euro
shares |
|
|
1,514,872 |
|
4,163,208 |
Sterling
shares |
|
|
22,371,669 |
|
33,427,871 |
|
|
|
|
|
|
|
Net
asset value per share (notes 7 and 9) |
|
|
|
US Dollar
shares |
|
|
US$21.68 |
|
US$20.33 |
Euro
shares |
|
|
€21.87 |
|
€20.56 |
Sterling shares |
|
|
|
£22.44 |
|
£21.21 |
See accompanying notes to the
Financial Statements.
Signed on behalf of the Board by:
Ian Plenderleith
Chairman
Huw Evans
Director
23 March 2017
Audited Statement of Operations
For the year ended 31 December
2016
|
|
|
|
01.01.16 |
|
01.01.15 |
|
|
|
|
to
31.12.16 |
|
to
31.12.15 |
|
|
|
|
US$'000 |
|
US$'000 |
Net
investment (loss)/income allocated from the Master Fund |
|
|
|
|
Interest income |
|
|
|
18,854 |
|
34,955 |
Dividend income (net
of withholding tax: |
|
|
|
|
|
|
31
December 2016: US$26,177; 31 December 2015: US$23,737) |
73 |
|
127 |
Expenses |
|
|
|
(20,785) |
|
(32,710) |
Net
investment (loss)/income allocated from the Master Fund |
|
(1,858) |
|
2,372 |
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
Performance fees (note
4) |
|
|
|
351 |
|
280 |
Management fees (note
4) |
|
|
|
20,871 |
|
31,610 |
Other expenses |
|
|
|
1,766 |
|
877 |
Directors' fees |
|
|
|
427 |
|
468 |
Administration fees
(note 4) |
|
|
|
208 |
|
309 |
Foreign exchange
losses (note 3) |
|
|
|
159,828 |
|
67,384 |
Total Company
expenses |
|
|
|
183,451 |
|
100,928 |
Net investment
loss |
|
|
|
(185,309) |
|
(98,556) |
|
|
|
|
|
|
|
Net
realised and unrealised gain/(loss) on investments allocated from
the Master Fund |
|
|
|
|
Net realised gain on
investments |
|
|
|
43,035 |
|
64,311 |
Net unrealised loss on
investments |
|
|
|
(7,971) |
|
(56,975) |
Net
realised and unrealised gain on investments allocated from the
Master Fund |
|
35,064 |
|
7,336 |
Net
decrease in net assets resulting from operations |
|
(150,245) |
|
(91,220) |
See accompanying notes to the Audited
Financial Statements.
Audited Statement of Changes in Net Assets
For the year ended 31 December
2016
|
|
|
|
|
|
|
01.01.16 |
|
01.01.15 |
|
|
|
|
|
|
|
to
31.12.16 |
|
to
31.12.15 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
Net
decrease in net assets resulting from operations |
|
|
|
|
Net
investment loss |
|
|
|
|
|
(185,309) |
|
(98,556) |
Net
realised gain on investments allocated from the Master Fund |
|
43,035 |
|
64,311 |
Net
unrealised loss on investments allocated from the Master Fund |
(7,971) |
|
(56,975) |
|
|
|
|
|
|
|
(150,245) |
|
(91,220) |
|
|
|
|
|
|
|
|
|
|
Share
capital transactions |
|
|
|
|
|
|
|
|
Purchase of own shares |
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
(50,853) |
|
(37,111) |
Euro
shares |
|
|
|
|
|
(17,894) |
|
(17,434) |
Sterling
shares |
|
|
|
|
|
(124,878) |
|
(122,160) |
|
|
|
|
|
|
|
|
|
|
Tender
offer |
|
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
(70,174) |
|
- |
Euro
shares |
|
|
|
|
|
(17,827) |
|
- |
Sterling
shares |
|
|
|
|
|
(198,179) |
|
- |
Total
share capital transactions |
|
|
|
|
(479,805) |
|
(176,705) |
|
|
|
|
|
|
|
|
|
|
Net
decrease in net assets |
|
|
|
|
|
(630,050) |
|
(267,925) |
Net
assets at the beginning of the year |
|
|
|
1,494,893 |
|
1,762,818 |
Net
assets at the end of the year |
|
|
|
|
864,843 |
|
1,494,893 |
See accompanying notes to the
Financial Statements.
Audited Statement of Cash Flows
For the year ended 31 December
2016
|
|
|
01.01.16 |
|
01.01.15 |
|
|
|
to
31.12.16 |
|
to
31.12.15 |
|
|
|
US$'000 |
|
US$'000 |
Cash flows from
operating activities |
|
|
|
|
|
Net
decrease in net assets resulting from operations |
|
(150,245) |
|
(91,220) |
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 |
1,858 |
|
(2,372) |
Net
realised gain on investments allocated from the Master Fund |
(43,035) |
|
(64,311) |
Net
unrealised loss on investments allocated from the Master Fund |
7,971 |
|
56,975 |
Purchase of investment
in the Master Fund |
|
|
(32,746) |
|
(29,424) |
Proceeds
from sale of investment in the Master Fund |
|
549,978
|
|
228,382 |
Foreign exchange
losses |
|
|
159,828 |
|
67,384 |
Decrease/(Increase) in
prepaid expenses |
|
|
15 |
|
(8) |
Increase in
performance fees payable |
|
|
45 |
|
270 |
Decrease in management
fees payable |
|
|
(1,027) |
|
(372) |
(Decrease)/Increase in accrued expenses and other liabilities |
(128) |
|
48 |
Decrease directors'
fees payable |
|
|
(19) |
|
(6) |
Decrease in
administration fees payable |
|
|
(31) |
|
(9) |
Net
cash provided by operating activities |
|
492,464 |
|
165,337 |
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
Purchase of own
shares |
|
|
(195,323) |
|
(177,399) |
Tender offer |
|
|
(286,180) |
|
- |
Net cash used in
financing activities |
|
|
(481,503) |
|
(177,399) |
|
|
|
|
|
|
Change in
cash |
|
|
10,961 |
|
(12,062) |
Cash, beginning of
the year |
|
|
35,587 |
|
47,638 |
Effect of exchange
rate fluctuations |
|
|
(27,645) |
|
11 |
Cash, end of the
year |
|
|
18,903 |
|
35,587 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the
year |
|
|
|
|
|
Cash and
bank balances denominated in US Dollars |
|
5,564 |
|
17,224 |
Cash and
bank balances denominated in Euro1 |
|
1,087 |
|
2,216 |
Cash and
bank balances denominated in Sterling2 |
|
12,252 |
|
16,147 |
|
|
|
18,903 |
|
35,587 |
|
|
|
|
|
|
1. Cash
and bank balances in Euro (EUR'000) |
|
1,036 |
|
2,030 |
2. Cash
and bank balances in Sterling (GBP'000) |
|
10,022 |
|
10,887 |
See accompanying notes to Financial
Statements.
Notes to the Audited Financial Statements
For the year ended 31 December
2016
1. The Company
BH Macro Limited (the “Company”) is a limited liability
closed-ended investment company incorporated in Guernsey on 17 January 2007 for an
unlimited period, with registration number 46235.
The Company was admitted to a Secondary Listing (Chapter 14) on
the Official List of the London Stock Exchange on 14 March 2007. On 11 March
2008, the Company migrated from the Secondary Listing to a
Primary Listing pursuant to Chapter 15 of the Listing Rules of the
UK Listing Authority. As a result of changes to the UK Listing
Regime, the Company’s Primary Listing became a Premium Listing with
effect from 6 April 2010.
As of 20 October 2008, the Company
obtained a Secondary Listing on the Bermuda Stock Exchange and with
effect from 11 November 2008, the US
Dollar shares of the Company were admitted to a Secondary Listing
on NASDAQ Dubai.
The Company offers multiple classes of ordinary shares, which
differ in terms of currency of issue. To date, ordinary shares have
been issued in US Dollar, Euro and Sterling.
On 24 June 2016, the Shareholders
approved the amendments made to the Company’s Articles of
Incorporation to reflect changes in the Companies (Guernsey) Law, 2008.
On 29 November 2016, the Company
announced a 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. The
Tender Offer is expected to complete in May
2017.
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 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 Audited 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 Audited Financial Statements of the Company should
be read in conjunction with the Audited 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 Audited 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 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. The
functional and reporting currency of the Company is US Dollars.
As further described in the Directors’ Report, these Audited
Financial Statements have been prepared using the going concern
basis of accounting.
The 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 31
December 2016, the Company is the sole investor in the
Master Fund’s ordinary US Dollar, Euro 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 Audited Statement of Assets and
Liabilities.
|
Percentage of Master Fund's capital |
NAV per Share
(Class B) |
Shares held in the Master Fund
(Class B) |
Investment in Master Fund
CCY '000 |
Investment in Master Fund
US$'000 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
31
December 2015 |
|
|
|
|
|
|
|
|
|
US Dollar |
1.79% |
$2,749.69 |
121,238 |
$333,368 |
333,368 |
Euro |
0.46% |
€2,785.92 |
28,364 |
€79,020 |
86,223 |
Sterling |
5.40% |
£2,910.39 |
232,880 |
£677,772 |
1,005,204 |
|
|
|
|
|
|
|
|
|
1,424,795 |
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 Audited
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 and Euro share classes are
translated into US Dollars, the Company’s reporting currency, using
exchange rates at the reporting date. Transactions reported in the
Audited 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 Audited 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.
Refer to note 8 for details of changes to the purchases by the
Company of its share capital.
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.
With effect from 3 October 2016,
the Manager does 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 does not bear an operational services fee in
respect of performance related growth in its investment in the
Master Fund from that date. During the year ended 31 December 2016, US$20,870,959 (31 December
2015: US$31,610,219) was
earned by the Manager as net management fees. At 31 December 2016, US$1,385,840 (31 December
2015: US$2,413,156) of the fee
remained outstanding.
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
last day of the calculation period. Within 15 business days
following 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 year ended 31 December 2016, US$350,887 (31 December
2015: US$279,728) was earned
by the Manager as performance fees. At 31
December 2016, US$317,812
(31 December 2015: US$272,773) 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.
Following the announcement of the results of the Tender Offer on
24 February 2017, the following
changes will be made to the Company’s structure and Management
Agreement with effect from 1 April
2017:
· the management fee will
reduce to 1/12 of 0.5% per month of the NAV;
· the investment in the
Class B shares of the Master Fund will remain 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 with effect
from 3 October 2016 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.
In addition, 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 3 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 year ended 31 December 2016, US$208,383 (31 December 2015: US$309,021) was earned by the Administrator as
administration fees. At
31 December 2016, US$42,017 (31 December
2015: US$72,649) of the fee
remained outstanding.
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 three classes
denominated in US Dollars, Euro and Sterling. 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
year ended 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 for 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 |
|
$50,853,441 |
|
Euro
shares |
|
|
847,431 |
|
17,893,603 |
|
€16,080,450 |
|
Sterling
shares |
|
|
4,562,483 |
|
124,878,082 |
|
£90,182,054 |
|
|
|
|
|
|
|
|
|
|
|
For the
year ended to 31 December 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
Euro shares |
|
Sterling shares |
|
Number
of ordinary shares |
|
|
|
|
|
|
|
|
|
In
issue at 1 January 2015 |
|
|
|
18,332,029 |
|
5,112,916 |
|
37,717,793 |
|
Share
conversions |
|
|
|
760,006 |
|
(147,742) |
|
(373,415) |
|
Purchase
of shares into Treasury |
|
|
|
(1,889,061) |
|
(801,966) |
|
(3,916,507) |
|
In issue at 31
December 2015 |
|
|
|
|
17,202,974 |
|
4,163,208 |
|
33,427,871 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of treasury
shares |
|
|
|
|
|
|
|
|
|
|
In
issue at 1 January 2015 |
|
|
|
1,797,974 |
|
507,757 |
|
3,321,662 |
|
On market
purchases* |
|
|
|
1,889,061 |
|
801,966 |
|
3,916,507 |
|
Shares
cancelled |
|
|
|
(2,150,000) |
|
(947,000) |
|
(4,295,000) |
|
In
issue at 31 December 2015 |
|
|
|
1,537,035 |
|
362,723 |
|
2,943,169 |
|
Percentage of class |
|
|
|
8.20% |
|
8.01% |
|
8.09% |
|
|
|
|
|
|
|
|
|
|
|
|
*On
market purchases for the year ended 31 December 2015 |
|
|
|
|
|
Number of shares purchased |
|
|
|
Cost (in currency) |
|
Treasury shares |
|
|
Cost (US$) |
|
|
US Dollar
shares |
|
|
1,889,061 |
|
37,110,607 |
|
$37,110,607 |
|
Euro
shares |
|
|
801,966 |
|
17,434,000 |
|
€15,830,882 |
|
Sterling
shares |
|
|
3,916,507 |
|
122,159,741 |
|
£79,876,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, Master Fund Euro
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.
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, a single Euro ordinary share has
one vote and a single Sterling ordinary
share has 1.4710 votes.
Treasury shares do not have any voting rights.
Repurchase of ordinary shares
The Directors were granted authority on 24 June 2016 to purchase in the market up to
approximately 15% of each class of share in issue following
completion of the Company’s tender offer on 27 June 2016. The Directors may, at their
discretion, utilise this share repurchase authority to address any
imbalance between the supply of and demand for shares.
Under the Company’s Articles, Shareholders of a class of shares
also have the ability to call for repurchase of that class of
shares in certain circumstances. See note 8 for further
details.
Further issue of shares
As approved by the Shareholders at the Annual General Meeting
held on 24 June 2016, the Directors
have the power to issue further shares totalling 3,800,472 US Dollar shares, 857,033 Euro shares and 7,805,333 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
Audited Financial Statements. Income tax and related interest and
penalties would be recognised by the Company as tax expense in the
Audited Statement of Operations if the tax positions were deemed
not to meet the more-likely-than-not threshold.
The Company analyses all open tax years for all major taxing
jurisdictions. Open tax years are those that are open for
examination by taxing authorities, as defined by the Statute of
Limitations in each jurisdiction. The Company identifies its major
tax jurisdictions as 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 adopted a number of methods in order to seek to
manage any discount to NAV at which the Company’s shares trade.
Market purchases
During the year, 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
total number of shares purchased and held in treasury at
31 December 2016 are as disclosed in
note 5.
However, following the announcement of the results of the Tender
Offer on 24 February 2017, the
Company will not be permitted to redeem its investment in the
Master Fund to finance own-share purchases before 1 April 2019 and, therefore, will not make any
own-share purchases in that period.
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
Tender Offer is expected to complete in May
2017.
Annual offer of partial return of
capital
Under the Company’s Articles of Association, 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 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 Association, 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 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 the year
end 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.
|
|
|
|
|
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 |
|
US$
'000 |
|
US$
'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 fees* |
(2.32%) |
|
(2.26%) |
|
(2.33%) |
|
|
|
|
|
|
|
|
|
Net
investment loss after performance fees* |
(2.32%) |
|
(2.26%) |
|
(2.38%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.12.15 |
|
31.12.15 |
|
31.12.15 |
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
US$ |
|
€ |
|
£ |
Per
share operating performance |
|
|
|
|
|
|
Net
asset value at beginning of the year |
20.62 |
|
20.72 |
|
21.40 |
|
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net
investment loss* |
|
|
(0.41) |
|
(0.47) |
|
(0.44) |
Net
realised and unrealised (loss)/gain on investment |
(0.01) |
|
0.13 |
|
0.13 |
Other
capital items** |
|
|
0.13 |
|
0.18 |
|
0.12 |
Total
return |
|
|
(0.29) |
|
(0.16) |
|
(0.19) |
|
|
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
20.33 |
|
20.56 |
|
21.21 |
|
|
|
|
|
|
|
|
|
Total
return before performance fee |
|
(1.41%) |
|
(0.74%) |
|
(0.84%) |
Performance fee |
|
|
(0.01%) |
|
(0.03%) |
|
(0.02%) |
Total
return after performance fee |
|
(1.42%) |
|
(0.77%) |
|
(0.86%) |
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 2015 to 31
December 2015. An individual shareholder’s return may vary
from these returns based on the timing of their purchase or sale of
shares.
|
|
|
|
|
31.12.15 |
|
31.12.15 |
|
31.12.15 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Supplemental data |
|
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
349,737 |
|
85,593 |
|
709,164 |
Average
net asset value for the year |
|
379,774 |
|
100,773 |
|
787,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.12.15 |
|
31.12.15 |
|
31.12.15 |
|
|
|
|
|
US
Dollar shares |
|
Euro
shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
1.97% |
|
1.99% |
|
1.96% |
|
Master
Fund expenses**** |
|
|
0.90% |
|
0.89% |
|
0.90% |
|
Master
Fund interest expense***** |
|
1.03% |
|
1.02% |
|
1.03% |
Performance fee |
|
|
|
0.01% |
|
0.03% |
|
0.02% |
|
|
|
|
|
3.91% |
|
3.93% |
|
3.91% |
|
|
|
|
|
|
|
|
|
|
Net
investment loss before performance fees* |
(1.83%) |
|
(1.86%) |
|
(1.82%) |
|
|
|
|
|
|
|
|
|
|
Net
investment loss after performance fees* |
|
(1.84%) |
|
(1.89%) |
|
(1.84%) |
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 year.
*** Company expenses are as disclosed in
the Audited 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
23 March 2017, which is the date that
the Audited Financial Statements were available to be issued, and
have concluded there are no further items that require disclosure
or adjustment to the Audited Financial Statements other than those
listed below.
On 29 November 2016, the Company
announced a 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. The
Tender Offer is expected to complete in May
2017.
For the continuing Shareholders, the Company proposed changes to
the Company’s discount management arrangements and its management
agreement with the Manager which will come into effect from
1 April 2017. These changes are
described in notes 4 and 8.
Following the redemption of the validly tendered Euro shares
under the Tender Offer, it is probable that the net asset value of
the Euro share class will fall below the equivalent of US$25 million. In that event, as stated in the
Tender Document, the Company will convert the remaining Euro shares
into Sterling shares, most probably in
June 2017 following publication of
the final 31 May 2017 net asset
values, and the listing of the Euro share class will be
cancelled.
Historic Performance Summary
As at 31 December 2016
|
|
31.12.16 |
31.12.15 |
31.12.14 |
31.12.13 |
31.12.12 |
|
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
Net
(decrease)/increase in net assets |
|
|
|
|
|
|
resulting from operations |
(150,245) |
(91,220) |
(122,858) |
105,344 |
147,335 |
Total
assets |
866,740 |
1,499,648 |
1,768,337 |
2,255,031 |
2,194,398 |
Total
liabilities |
(1,897) |
(4,755) |
(5,519) |
(8,176) |
(8,723) |
Net assets |
|
864,843 |
1,494,893 |
1,762,818 |
2,246,855 |
2,185,675 |
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
US Dollar shares |
|
9,975,524 |
17,202,974 |
18,332,029 |
24,967,761 |
29,613,121 |
Euro
shares |
1,514,872 |
4,163,208 |
5,112,916 |
6,792,641 |
7,405,670 |
Sterling shares |
|
22,371,669 |
33,427,871 |
37,717,793 |
43,602,671 |
41,675,441 |
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
US Dollar shares |
|
US$21.68 |
US$20.33 |
US$20.62 |
US$20.60 |
US$20.06 |
Euro
shares |
€21.87 |
€20.56 |
€20.72 |
€20.74 |
€20.21 |
Sterling shares |
|
£22.44 |
£21.21 |
£21.40 |
£21.34 |
£20.70 |
Affirmation of the Commodity Pool Operator
31 December 2016
To the best of my knowledge and belief, the information detailed
in this Annual Report and these Audited Financial Statements is
accurate and complete.
By:
Name: Jonathan Wrigley
Title: Group Head of Finance and Authorised Signatory
Brevan Howard Capital Management Limited as general partner of
Brevan Howard Capital Management LP, the manager and commodity pool
operator of BH Macro Limited
23 March 2017
Company Information
Directors
Ian Plenderleith (Chairman)*
Christopher Legge*
(resigned 24 June 2016)
Huw Evans*
David Barton
(resigned 29 February
2016)
Claire Whittet*
Colin Maltby*
John Le Poidevin*
(appointed 24 June 2016)
(All Directors are non-executive)
*
These Directors are 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
For the latest information
www.bhmacro.com
The Annual Report and Audited Financial Statements of BH Macro
Limited and the Annual Audited Financial Statements of Brevan
Howard Master Fund Limited will shortly be available on BH Macro’s
website www.bhmacro.com.