BH MACRO LIMITED
(the “Company”)
(a closed-ended investment company
incorporated in Guernsey with registration number 46235)
LEI: 549300ZOFF0Z2CM87C29
12 March 2021
Proposed Changes
to the Management Agreement
Following its announcements on 22 January
2021 and 16 February 2021, the
Company has today published a Circular seeking Shareholder approval
to amend the management agreement between the Company and Brevan
Howard Capital Management LP (the “Manager”) (the “Management
Agreement”) to reflect the changes requested by the Manager, as set
out in the letter received by the Company dated 21 January 2021 (the “Manager Letter”) (the
“Proposed Changes”). The Circular includes a
recommendation by the Company’s board of directors to vote in
favour of the Proposed Changes.
Capitalised terms used in this announcement and not otherwise
defined shall have the meanings given to them in the Circular.
The purpose of the Circular and the accompanying notice is to
convene an extraordinary general meeting (the “Meeting”) of the
Company to be held at the offices of Northern Trust International
Fund Administration Services (Guernsey) Limited, Trafalgar Court,
Les Banques, St Peter Port, Guernsey at 9.30
a.m. on 29 March 2021 to
consider, and if considered appropriate, approve the Proposed
Changes, which are described in more detail below and in the
Circular.
Background
The Manager Letter stated that the Manager would serve notice of
termination of the Management Agreement and the Company’s
investment in Brevan Howard Master Fund Limited (the “Master Fund”)
would be redeemed unless the Company sought the approval of
Shareholders to the Proposed Changes.
Since receiving the Manager’s Letter, the Company has been in
dialogue with the Manager and with numerous Shareholders about the
Proposed Changes and the future of the Company. As a result
of these discussions, the Company believes that the Proposed
Changes represent the most favourable basis on which the Manager is
prepared to continue as manager of the Company and consequently the
best terms on which the Company can remain invested in the Master
Fund.
As a feeder fund into the Master Fund, the Company is required
by its investment policy to invest substantially all of its assets
(net of short-term working capital) in the Master Fund. The
Company’s investment in the Master Fund is dependent on the
continuation of the Management Agreement with the
Manager.
Until changes were made starting in October 2016, the Company paid the Manager a
management fee equal to 2% per annum of its prevailing NAV and an
operational services fee at the level of its investment in the
Master Fund equal to 0.5% per annum of its prevailing NAV. Further,
until April 2019, the notice period
for both the Company and the Manager under the Management Agreement
was 24 months. The Proposed Changes seek, in large part, to
amend the Management Agreement so that it is closer to its original
terms, albeit that the combined management fee and operational
services fee would, at a combined 2% per annum, be 0.5% lower than
from February 2008 to October 2016, when it was a combined 2.5% per
annum.
Further, the Company and the Manager have agreed that if the
Proposed Changes are approved by Shareholders, the Company will
undertake a tender offer on terms described in more detail below
and in the Circular.
Assuming the Proposed Changes are implemented, the Company and
the Manager have agreed to promote the growth of the Company
through the issue of new Shares or the sale of Shares from treasury
if they are trading above NAV with the proceeds being used to
increase the Company’s investment in the Master Fund. While
the capacity of the Master Fund to accept new investment may vary
from time to time, the Manager has agreed to procure that the
Master Fund will accept new investment by the Company in an amount
equal to the proceeds of new issues or sales of shares from
treasury in an aggregate number of shares equal to 10% of the
Company’s shares in issue at the date of this announcement and the
Manager shall use its reasonable endeavours to procure capacity for
any investment by the Company in the Master Fund in excess of that
amount, subject to any limitations on Master Fund capacity as may
be generally applied from time to time.
If Shareholders approve the resolution to be proposed at the
Meeting (the “Resolution”), the Management Agreement will be
amended and restated to include the Proposed Changes (including the
increase in the Management Fee) with effect from 1 July 2021 and the Company will remain invested
in the Master Fund.
If Shareholders do not approve the Resolution, the Manager has
confirmed to the Company that it will serve notice of termination
of the Management Agreement so that the Management Agreement will
terminate on 1 July 2021 and the
Company’s investment in the Master Fund will be redeemed in full by
31 July 2021.
If this were the case, the Company is aware that, while some
Shareholders will want to liquidate their investment, other
Shareholders may want to stay invested, albeit on the basis of a
new investment policy. Accordingly, the Company would consider
potential new investment managers for its assets.
Any change in the Company’s investment policy and appointment of
a new manager would be subject to Shareholder approval. Further,
any Shareholders wishing instead to liquidate their investment
would be provided the opportunity to exit at or around the
prevailing NAV per Share of the relevant class less an amount to
cover the Company’s then outstanding costs and expenses.
In the event that a suitable new manager were not identified, or
the appointment of a new manager were not approved by Shareholders,
the Company anticipates that, subject to Shareholder approval to be
sought at the time, it would return the vast majority of the
proceeds of redemption of its investment in the Master Fund (less
an amount equal to the Company’s actual and estimated outstanding
costs and expenses, including the costs of liquidation) by tender
offer, following which the Board would propose placing the Company
in liquidation.
Although it is not possible to be exact regarding the amount
that would be returned to Shareholders in these circumstances, nor
the precise timing of any payments, the Board estimates that
Shareholders would receive a total amount per Share of the relevant
class based on the prevailing NAV per Share of that class on the
date of termination of the Management Agreement less an amount to
cover the Company’s costs and expenses, including the costs of
liquidation.
Description of the Proposed
Changes
The Proposed Changes are as follows:
1. Increase
in Management Fee
The monthly management fee (the “Management Fee”) payable by the
Company (excluding the operational services fee payable at the
level of the Master Fund) will be increased to an amount equal to
one-twelfth of one and a half (1.5)% of the prevailing NAV of each
class of Shares.
The monthly Management Fee is currently equal to one-twelfth of
one-half (0.5)% of the lower of (a) the prevailing NAV of each
class of Shares and (b) the NAV of that class of Shares as at
1 April 2017, on the basis that all
Shares redeemed pursuant to the Company’s 2017 own share tender
offer had been redeemed on that date (subject to certain other
adjustments, including to take account of conversions between Share
classes).
This change would reverse, in part, the reduction in the
Management Fee from one-twelfth of two (2)% per month of the NAV of
each class of Shares effective from 1 April
2017 and would reverse in full the agreement by the Manager
not to charge the Management Fee on performance-related growth of
the Company which first applied from October 2016.
In addition, the waiver since October
2016 of operational services fees in respect of
performance-related growth of the Company will be discontinued so
that those fees revert to being charged on the entire amount of the
Company’s investment in the Master Fund.
2. Extension
of notice period
The notice period for termination of the Management Agreement
without cause by the Company or the Manager will be increased to 12
months from three months (which is the notice period that has been
effective from 1 April 2019 when it
was reduced from 24 months).
3.
Introduction of fee relating to certain share redemptions and
repurchases
If, in any calendar year, the Company makes repurchases or
redemptions of any class of its Shares above a number equal to 5%
of the shares in issue of the relevant class as at 31 December in
the prior year (the “Annual Buy Back Allowance”), the Company would
be required to pay the Manager a fee equal to 2% of the price paid
by the Company to repurchase or redeem those additional
Shares. The purpose of this fee is to compensate the Manager
in respect of the Management Fee that would otherwise have been
payable by the Company in respect of the relevant Shares had they
not been repurchased or redeemed. The fee would be payable in
respect of all Shares which are repurchased or redeemed by the
Company in excess of the Annual Buy Back Allowance in any year,
including by way of market purchases, tender offer, annual partial
capital return or the class closure provisions included in the
Company’s articles of incorporation.
4.
Introduction of liquidation vote trigger
In the event that the Company’s aggregate NAV at the end of any
calendar quarter for all share classes combined is lower than
US$300 million (on the basis of the
then prevailing exchange rate), the Board would be required to
propose a vote to Shareholders for the liquidation of the Company.
If the vote were to be passed by Shareholders and the Company
placed into liquidation, the Management Agreement would be
terminated and the Company would be required to pay the Manager a
payment equal to 2% of the Company’s NAV (net of any Annual Buy
Back Allowance for the relevant calendar year that remains unused),
in lieu of the Management Fee that would otherwise have been
payable if the Management Agreement had been terminated on 12
months’ notice, in addition to any other fees owing to the Manager
at the time of termination of the Management Agreement. These
arrangements effectively replicate the existing position under the
Management Agreement if the Management Agreement were to be
terminated without notice having been served as a result of
Shareholders voting to wind up the Company. Further, there
would be no obligation on Shareholders to vote in favour of the
liquidation in these circumstances.
No changes are proposed to the annual performance fee payable by
the Company to the Manager, which will remain at 20% of the
appreciation in the NAV per Share of each class of the Shares
during the relevant year above any prior high water mark. The
other terms of the Management Agreement will also remain
unchanged.
Tender Offer
If Shareholders approve the Resolution, the Company has agreed
with the Manager that the Company will make a tender offer (the
“Tender Offer”) for up to 40% of each class of its issued Shares at
a price equal to 98% of the prevailing NAV per Share of the
applicable class at the time of completion of the Tender Offer less
an amount per share in respect of the costs of the Tender
Offer. The difference between the tender price and the
prevailing NAV per Share will be retained by the Company for the
benefit of remaining Shareholders. The Tender Offer will be
funded by the redemption of such portion of the Company’s
investment in the Master Fund as required to pay for the Shares
validly tendered in the Tender Offer.
All Shareholders (other than Shareholders located in certain
non-UK jurisdictions) will be permitted to tender all, part or none
of their respective shareholdings in the Tender Offer. All
valid tenders in respect of up 40% of each Shareholder’s
shareholding will be accepted in full. Tenders in excess of
40% of a Shareholder’s shareholding will be accepted to the extent
that other Shareholders tender less than 40% of their respective
shareholdings, with such excess tenders being satisfied pro rata in
proportion to the amount tendered by each relevant Shareholder in
excess of 40% of its shareholding.
Completion of the Tender Offer will be subject to Shareholder
approval at an extraordinary general meeting to held after the
Tender Offer has been made.
The Tender Offer would complete, and the relevant portion of the
Company’s investment in the Master Fund would be redeemed, before
1 July 2021, when the Proposed
Changes to the Management Agreement would become effective,
although the proceeds of the Tender Offer may be paid to
Shareholders after that date.
Further details of the Tender Offer, including the specific
timetable, will be announced, and a circular sent to Shareholders,
following the Meeting if the Resolution is approved.
Extraordinary General Meeting
The States of Guernsey has reimposed lockdown measures in
Guernsey to reduce the transmission of COVID-19. Border
restrictions have been put in place and all arrivals from outside
Guernsey are required to observe an extended quarantine
period. If restrictions to address the COVID-19 pandemic
remain in place at the relevant time, physical attendance at the
Meeting may not be possible or feasible.
The Company therefore urges Shareholders to vote by proxy and to
appoint the chairman of the meeting as their proxy. If a
Shareholder appoints someone else as their proxy, that proxy may
not be able to attend the Meeting in person nor cast the
Shareholder’s vote. All votes on the resolutions contained in the
notice of the Meeting will be held by poll, so that all proxy votes
are counted.
The situation regarding COVID-19 continues to change and the
States of Guernsey may relax current restrictions or implement
further measures relating to the holding of general meetings during
the affected period. Any changes to the arrangements for the
Meeting (including any change to the location of the Meeting) which
the Board considers appropriate will be communicated to
Shareholders before the meeting through the Company’s website at
https://www.bhmacro.com and, where appropriate, by regulatory
information service announcement.
Posting of Circular
The Circular is being posted to Shareholders. A copy of the
Circular will shortly be available to view on the Company's website
at www.bhmacro.com
Enquiries
Richard Horlick
Chairman
William Simmonds
J.P. Morgan Cazenove
020 7742 4000
Edward Berry / Tom Blackwell
FTI Consulting
07703 330 199 / 07747 113 919