BH Macro Limited
Annual Report and Audited Financial
Statements 2020
LEI: 549300ZOFF0Z2CM87C29
(Classified Regulated Information,
under DTR 6 Annex 1 section 1.1)
The Company has today, in accordance
with DTR 6.3.5, released its Annual Report and Audited financial
statements for the year ended 31 December
2020. The Report will shortly be available from the
Company’s website: www.bhmacro.com.
Chairman’s Statement
I am pleased to present to Shareholders this report on another
year of strong performance by BH Macro Limited (the “Company”). As
you will find in greater detail elsewhere in this report, the
operating procedures and contingency plans of the Company and its
key service providers have proved robust in the face of the
challenges arising from the COVID-19 pandemic, whilst the turbulent
conditions of financial markets have again presented opportunities
for Brevan Howard Capital Management LP’s (the “Manager’s”) trading
strategies. As the pandemic unfolded with its dreadful cost in
terms of human misery your Company in common with most financial
companies was largely unaffected from an operational point of view
. Your Company’s Board and its service providers were able to
switch to remote working with no disruption to services and without
any apparent increase in risk to its operations.
I must begin, however, with the concern which the Board and I
share for the well-being of all the Company’s stakeholders in these
disconcerting and unpredictable times. That the environment has
favoured our investment approach does not in any way diminish our
consciousness of the distress which the pandemic has caused to many
millions, including inevitably amongst our shareholders, service
providers and those who work with and for them. We wish you
well.
I would also like to take this opportunity on behalf of the
Board to thank Colin Maltby for his
years of service as both a director and latterly as Chairman. Colin
retired from the Board on 15 February
2021 and was Chairman of the Company for the entirety of the
financial period covered by this Annual Report.
During the year ended 31 December
2020, the Net Asset Value (“NAV”) per Sterling share in the Company increased by 28.09%
and the NAV per US Dollar share increased by 28.86%. The share
price total return on a Sterling share
was 34.87% over the year and on a US Dollar share was 31.39%.
The Company’s performance is directly related to the performance
of Brevan Howard Master Fund Limited (the “Master Fund”) into which
the Company invests substantially all its assets. In 2020, the
Master Fund maintained the strong performance seen since 2018,
against a background in which market conditions have offered
favourable opportunities for its macro-directional trading
focus.
The past performance of the Master Fund and the Company has
shown positive correlation with market volatility. In particular,
volatility or unstable expectations in foreign exchange and
interest rate markets can provide fertile environments for the
Manager’s trading strategies. Such was the case again in 2020.
Evolving perceptions of the pandemic, its economic consequences and
the reactions of the monetary and fiscal authorities, gave unusual
force to market instability. Fluctuating expectations for US Dollar
interest rates, both short and long-term, uncertainty in
Sterling markets over the consequences
of Brexit, political and economic stresses in the United States, the Eurozone and in several
important emerging economies have all contributed to this
environment of greater opportunity for the Master Fund and the
Company. As the market environment has changed, the Company has
offered Shareholders the opportunity to benefit from the Master
Fund’s long-term track record of preserving capital and achieving
positive returns.
As part of the Tender Offer which completed in May 2017, the Board agreed that the Company would
not engage in market purchases of its own shares before
1 April 2019, but committed to hold a
discontinuation vote for either class of share if that class traded
at an average discount of 8% or more to the monthly NAV over the
whole of 2018 or any subsequent calendar year. In the event, the
average monthly premium at which the Company’s shares traded in
relation to monthly NAV during 2019 was 0.44% for the Sterling class and 1.15% for the US Dollar class
and, consequently, no discontinuation votes were to be held in
2020. The average monthly premium at which the Company’s shares
traded in relation to monthly NAV during 2020 was 4.80% for the
Sterling class and 5.21% for the US
Dollar class. Consequently, no discontinuation vote is required to
be held in 2021.
Prior to the Tender Offer, the Company used share buy-backs as
one mechanism to reduce the discount at which the shares traded to
NAV. For much of 2020, the Company’s shares traded at a premium or
minimal discount to NAV. However, if the Company’s shares were
again to trade at wide or volatile discounts to NAV in the future,
it would be the Board’s intention to consider resuming this
process. During the year, the Company re-issued 438,449
Sterling shares and 81,000 US Dollar shares held in Treasury
following previous buy-backs and tender offers.
In recent years, the Manager has implemented several significant
changes to its internal structure. On the trading side, the Manager
has launched a number of separate funds, supporting individual
traders or groups of traders who had been managing money for the
Master Fund. Through its investment into these new funds, the
Master Fund continues to access the expertise of these traders.
This new approach has increased the ability of the Manager to
retain its key traders at a time when the market for such
individuals is very competitive. The Manager also restructured its
middle and back office operations into a separately constituted and
regulated entity which is now offering its services to select third
party clients as well as in respect of the Master Fund and the
other funds managed by the Manager.
Against this background, the Board has continued its regular
dialogue with the Manager, reviewing the Master Fund’s trading
strategies and risk exposures and satisfying itself that the
Manager’s analytical, trading and risk management capabilities
continue to be maintained at a high standard. We have remained
reassured that these continuing developments in the Manager’s
operations have no negative implications for the Manager’s core
activities or the services which the Manager provides to your
Company.
The Company and its Manager have continued to pursue an active
programme of public communication and investor relations.
Up-to-date performance information is provided through NAV data
published monthly on a definitive basis and weekly on an estimated
basis, as well as through monthly risk reports and shareholder
reports. All these reports and further information about the
Company are available on its website (www.bhmacro.com).
The Board is wholly independent of the Brevan Howard group. The
Directors are very closely focused on safeguarding the interests of
Shareholders and believe that the Company observes high standards
of corporate governance. In 2018, the Board commissioned an
external evaluation of its performance which confirmed that the
Board works in a collegiate, harmonious and effective manner. We
expect to commission a further review during 2021. The Board
instigated, in early 2019, a recruitment process to continue its
renewal, engaging a professional consulting firm for assistance. I
am delighted that Bronwyn Curtis was
able to join us in January 2020 and
was elected as a non-executive Director at the 2020 AGM. Following
the retirement of Colin Maltby in
February 2021 and my subsequent
appointment as Chairman, the Board will maintain its periodic
review of the ongoing balance and composition of the Board as a
whole to ensure that it continues to meet the needs of the Company
and its shareholders.
Shareholders will be aware that the United Kingdom left the European Union on
31 January 2020 and that there is no
agreement in place governing the future relationship between the UK
and the EU in financial services. Since your Company does not
operate directly within the EU and invests substantially all of its
assets into a Cayman master fund, it may be that the impact of
Brexit will be felt principally through the consequences for the
London financial markets, in which
the Master Fund is a participant and where the Company’s shares are
traded on the London Stock Exchange.
Subsequent to the year end and following discussions between the
Board, the Manager and the Company's shareholders, a circular
proposing changes to the terms of the Management Agreement was
issued to shareholders on 12 March
2021. Following the EGM that ensued on 29 March 2021, a substantial majority of
shareholders voted in favour of the arrangements proposed in the
Circular, as a result of which the Management Agreement will be
amended and restated with effect from 1 July
2021 to reflect the changes outlined in the circular. A
further circular will be issued to shareholders in due course
containing proposals for a tender offer for up to 40% of the
Company's share capital by share class, which is expected to
complete before 1 July 2021 when the
changes to the Management Agreement would become effective.
I look forward to a year in which we can reasonably hope that
the pandemic recedes and I wish all our shareholders the very best
for 2021.
Richard
Horlick
Chairman
30 March 2021
Board Members
The Directors of the Company, as at the date of signing, all of
whom are non-executive, are listed below:
Richard
Horlick (appointed Chairman on 15
February 2021), age 62
Richard Horlick is UK resident.
He is currently the non-executive chairman of CCLA Investment
Management which manages £11.5bn of assets for over 38,000
charities and church and local authority funds. He has served on a
number of closed end fund boards most recently Pacific Assets
Trusts Plc from December 2005 until
June 2014 and Tau Capital Plc from
May 2007 to January 2014. He was a partner and non-executive
chairman of Pensato Capital LLP until its successful sale to RWC
Partners in 2017. He has had a long and distinguished career in
investment management graduating from Cambridge University in 1980 with an MA in Modern
History. After 3 years in the corporate finance department of
Samuel Montagu he joined Newton
Investment Management in January
1984, where he became a Director and portfolio manager. In
1994, he joined Fidelity International as President of their
institutional business outside the US and in 2001 became President
and CEO of Fidelity Management Trust Company in Boston which was the Trust Bank for the US
Fidelity Mutual fund range and responsible for their defined
benefit pension business. In 2003, he joined Schroders Plc as a
main board Director and head of investment worldwide. In
January 2006, he established Spencer
House Capital Management with Lord Jacob
Rothschild. In addition, he has been a business angel
investing in a wide range of private companies. He became a limited
partner in CBE Capital Limited, a property development group.
Bronwyn
Curtis, age 72 (appointed 1 January
2020)
Bronwyn Curtis is a UK resident
and Senior Executive with 30 years leadership in finance,
commodities, consulting and the media. She is currently chairman of
JPMorgan Asia Growth and Income Plc and a non-executive Director of
Pershing Square Holdings Plc, the Scottish American Investment
Company Plc and the UK Office of Budget Responsibility. Her
executive roles included Head of Global Research at HSBC Plc,
Managing Editor and Head of European Broadcast at Bloomberg LP,
Chief Economist of Nomura International, and Global Head of Foreign
Exchange and Fixed Income Strategy at Deutsche Bank. She has also
worked as a consultant for the World Bank and UNCTAD. Her other
current appointments include the Advisory Board at Imperial College
Business School, trustee of the Centre for Economic and Policy
Research, the Australia-UK Chamber of Commerce and The Times shadow
MPC. She is a graduate of the London School of
Economics and La Trobe University in Australia where she received a Doctor of
Letters in 2017. Bronwyn was awarded an OBE in 2008 for her
services to business economics.
John Le
Poidevin, age 50
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.
Claire
Whittet, age 65
Claire Whittet is Guernsey resident and has over 40 years’
experience in the financial services industry. After obtaining a MA
(Hons) in Geography from the University of
Edinburgh, Mrs Whittet joined the Bank of Scotland for 19 years and undertook a wide
variety of roles. She moved to Guernsey in 1996 and was Global Head of
Private Client Credit for Bank of Bermuda before joining Rothschild & Co
Bank International Limited in 2003, initially as Director of
Lending and latterly as Managing Director and Co-Head until
May 2016 when she became a
non-executive Director. She is an ACIB member of the Chartered
Institute of Bankers in Scotland,
a Chartered Banker, a member of the Chartered Insurance Institute
and holds an IoD Director’s Diploma in Company Direction. She is an
experienced non-executive director of a number of listed investment
and private equity funds one of which she chairs and a number of
which she is Senior Independent Director. Mrs Whittet was appointed
to the Board in June 2014.
Disclosure of Directorships in Public
Companies Listed on Recognised Stock Exchanges
The following summarises the Directors’ directorships in other
public companies:
|
Exchange |
| Richard
Horlick |
| VH Global Sustainable
Energy Opportunities Plc |
London |
| Bronwyn
Curtis |
|
JPMorgan
Asia Growth and Income Plc
Pershing Square Holdings Limited
Scottish American Investment Company Plc |
London
London and Euronext Amsterdam
London |
| John Le
Poidevin |
Episode
Inc.
International Public Partnerships Limited |
Euronext
Dublin
London |
| Claire
Whittet |
|
| Eurocastle Investment
Limited |
Euronext
Amsterdam |
| International Public
Partnerships Limited |
London |
Riverstone Energy Limited
Third Point Offshore Investors Limited |
London
London |
| TwentyFour Select
Monthly Income Fund Limited |
London |
Strategic Report
For the year ended 31 December
2020
The Directors submit to the shareholders their Strategic Report
of the Company for the year ended 31
December 2020.
The Strategic Report provides a review of the business for the
financial year and describes how risks are managed. In addition,
the report outlines key developments and financial performance of
the Company during the financial year and the position at the end
of the year, and discusses the main factors that could affect the
future performance, and financial position of the Company.
BUSINESS MODEL AND STRATEGY
Investment Objective and Company
Structure
The Company is organised as a feeder fund that invests solely in
the ordinary US Dollar and Sterling
denominated B shares issued by Brevan Howard Master Fund Limited
(the “Master Fund”) – a Cayman
Islands open-ended investment company, which has as its
investment objective, the generation of consistent long-term
appreciation through active leveraged trading and investment on a
global basis. Further details on the Investment Objective and
Policy can be found in the Directors’ Report.
Sources of Cash and Liquidity
Requirements
As the Master Fund is not expected to pay dividends, the Company
expects that the primary source of its future liquidity will depend
on borrowings in accordance with its leverage policies and the
periodic redemption of shares from the Master Fund.
BUSINESS ENVIRONMENT
The Board is responsible for the Company’s system of internal
controls and for reviewing its effectiveness. The Board is
satisfied that by using the Company’s risk matrix in establishing
the Company’s system of internal controls, while monitoring the
Company’s investment objective and policy, the Board has carried
out a robust assessment of the principal and emerging risks and
uncertainties facing the Company. The principal and emerging risks
and uncertainties which have been identified and the steps which
are taken by the Board to mitigate them are as follows:
- Investment Risks: The Company is exposed to the risk that its
portfolio fails to perform in line with the Company’s objectives if
it is inappropriately invested or markets move adversely. The Board
reviews reports from the Manager, which has total discretion over
portfolio allocation, at each quarterly Board meeting, paying
particular attention to this allocation and to the performance and
volatility of underlying investments;
- Operational 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, or from the unavailability of either
the Administrator or Manager for whatever reason. The Board
receives reports annually from the Manager and Administrator on
their internal controls. The risks associated with a termination of
the Management Agreement are outlined in more detail in the
Viability Statement;
- 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;
- 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;
- Brexit Risk: Whilst noting that the Company is based in
Guernsey and that it invests
substantially all of its assets into a Caymanian master fund, the
Company may nevertheless be exposed to risks arising from the UK’s
departure from the European Union and subsequent agreement reached
between the UK and the European Union at the end of the Brexit
transition period, which did not cover financial services. In
conjunction with the Manager, the Board will monitor the potential
impact on the Company and on the Company’s performance; and
- Coronavirus Risk: Despite the reported increased impact of
Coronavirus (COVID-19) on businesses, the Board continues to
believe that this is not a major business risk for the Company. The
Company uses a number of service providers for its day to day
operations. These providers have established and regularly tested
Business Resiliency Policies in place, to cover various possible
scenarios whereby staff cannot turn up for work at the designated
office and conduct business as usual (such as work from home
facilities and/or different regions covering work for other
regions).
Future Prospects
The Board’s main focus is the achievement of long-term
appreciation. The future of the Company is dependent upon the
success on the investment strategy of the Master Fund. The
investment outlook and future developments are discussed in both
the Chairman’s Statement and the Manager’s Report.
Board Diversity
When appointing new directors and reviewing the board
composition, the Board considers, amongst other factors, diversity,
balance of skills, knowledge, gender and experience. The Board
however does not consider it appropriate to establish targets or
quotas in this regard. As at the date of this report, the Board
comprised two female and two male non-executive Directors. The
Company has no employees.
Environmental, Social and Governance
Factors
The Company does not have employees, it does not own physical
assets and its Board is formed exclusively of non-executive
Directors. As such, the Company does not undertake activity which
would directly affect the environment.
On a regular basis, the Manager assesses the trading activity of
the investment funds it manages, including the Master Fund, to
ascertain whether environmental, social and governance (“ESG”)
factors are appropriate or applicable to such funds. Most ESG
principles have been envisaged in the context of equity or
corporate fixed income investment and therefore are not readily
applicable to most types of instruments traded by the majority of
funds managed by the Manager.
The Manager continues to monitor developments in this area and
will seek to implement industry best practice where
applicable. The Manager is a signatory to the UN Principles
for Responsible Investment and will apply the principles where
appropriate considering the structure of relevant Brevan Howard
managed funds and the applicable trading universe.
The Administrator is a wholly owned indirect subsidiary of
Northern Trust Corporation, which has adopted the UN Global Compact
principles, specifically: implementing a precautionary approach to
addressing environmental issues through effective programs,
undertaking initiatives that demonstrate the acknowledgement of
environmental responsibility, promoting and using environmentally
sustainable technologies, and UN Sustainable Development Goals,
specifically: using only energy efficient appliances and light
bulbs, avoiding unnecessary use and waste of water, implementing
responsible consumption and production, and taking action to reduce
climate change.
POSITION AND PERFORMANCE
Packaged Retail and Insurance Based
Investment Products (“PRIIPs”)
As at 31 December 2020, the
Company remained subject to European Union Regulation (2017/653)
(the “Regulation”) which deems it to be a PRIIP. In accordance with
the requirements of the Regulation, the Manager published the
latest standardised three-page Key Information Document (“KID”) on
the Company on 30 April 2020. The KID
is available on the Company’s website
https://www.bhmacro.com/regulatory-disclosures/ and will be updated
at least every 12 months. Since the end of the Brexit transition
period, the Regulation has been succeeded by the UK’s own
regulations.
The Company is not responsible for the information contained in
the KID. The process for calculating the risks, cost and potential
returns are prescribed by regulation. The figures in the KID may
not reflect the expected returns for the Company and anticipated
returns cannot be guaranteed.
Performance
Key Performance Indicators
(“KPIs”)
At each Board meeting, the Directors consider a number of
performance measures to assess the Company’s success in achieving
its objectives. Below are the main KPIs which have been identified
by the Board for determining the progress of the Company:
1. Net Asset Value
The Company’s net asset value has appreciated from £10.00 and
US$10.00 per share at launch to
£33.38 and US$34.78 at the year end.
This increase in NAV is largely attributable to the long term
growth strategy and returns. The Directors and Manager are
confident that the current strategy will continue to return
positive levels of growth in future.
2. Share Prices,
Discount/Premium
The Company has traded at an average premium of 4.80% and 5.21%
to NAV for its Sterling Class and US Dollar Class shares
respectively for the year ended 31 December
2020.
3. Ongoing Charges
The Company's ongoing charges ratio has increased from 3.13% to
6.81% on the Sterling class and
increased from 3.40% to 7.13% on the USD class, primarily due to an
increase in the performance fee as a result of improved
performance.
The Company reports an aggregated view of the charges for both
the Sterling and US Dollar share
classes. Further details are in the Directors’ Report.
Return per Share
Total return per share is based on the net total gain on
ordinary activities after tax of £105,767,059 for the Sterling
Class and US$18,804,559 for the US
Dollar Class (2019: £27,463,793 and US$5,791,771 respectively).
These calculations are based on the weighted average number of
shares in issue for the year ended 31
December 2020. Sterling shares:
14,702,553 and US Dollar shares: 2,397,572 (2019: Sterling shares: 14,234,399 and US Dollar shares:
2,539,270).
|
|
|
|
|
Year ended |
Year ended |
|
|
|
|
|
31.12.20 |
31.12.19 |
|
|
|
|
|
Per
share |
'000 |
Per
share |
'000 |
| Net total
gain for Sterling Shares |
|
|
719.37p |
105,767 |
192.94p |
27,464 |
| Net total
gain for US Dollar Shares |
|
|
784.32c |
18,805 |
228.10c |
5,792 |
Net Asset Value
The net asset value per Sterling
share, as at 31 December 2020 was
£33.38 based on net assets of £501,001,573, divided by number of
Sterling shares in issue of 15,009,868
(2019: £26.06).
The net asset value per US Dollar share, as at 31 December 2020 was US$34.78 based on net assets of US$76,225,992 divided by number of US$ shares in
issue of 2,191,379 (2019: US$26.99).
Dividends
No dividends were paid during the year (2019: US$Nil).
Viability Statement
The investment objective of the Company is to seek to generate
consistent long-term capital appreciation through an investment
policy of investing all of its assets (net of funds required for
its short-term working capital) in the Master Fund.
The Directors have assessed the viability of the Company over
the period to 31 December 2023. The
viability statement covers a period of three years, which the
Directors consider sufficient given the inherent uncertainty of the
investment world and the specific risks to which the Company is
exposed.
The continuation of the Company in its present form is dependent
on the Management Agreement remaining in place. Throughout the
period under review, the Company has sought to maintain a
constructive and informed relationship with the Manager, by the
Directors meeting regularly with the Manager to review the Master
Fund’s performance, and through the Management Engagement
Committee, where they review the Company’s relationship with the
Manager and the Manager’s performance and effectiveness. Following
discussions between the Company, the Manager and shareholders,
various changes to the Management Agreement as set out in note 11
to these financial statements were approved by shareholders at an
EGM on 29 March 2021. These changes,
which come into effect from 1 July
2021, include an increase in the notice period for
termination by either party from 3 months to 12 months, were
designed to secure the long term future of the Company on a basis
which was acceptable to both the Manager and to shareholders.
The changes also include a requirement that 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 the Board will propose a vote to
shareholders for the liquidation of the Company. Whilst there would
be no obligation to shareholders to vote in favour of the
liquidation in these circumstances, if the vote were to be passed
by shareholders, the Company would be placed into liquidation, the
Management Agreement would be terminated and certain fees would be
payable to the Manager under the terms of the revised Management
Agreement. These arrangements effectively replicate the existing
position under the Management Agreement prior to 1 July 2021 as if the Management Agreement were
to be terminated without notice having been served as a result of
shareholders voting to wind up the Company.
As a result of the shareholder vote in favour of the changes
proposed at the EGM on 29 March 2021,
the Company will issue a further circular to shareholders in due
course containing proposals for a tender offer in up to 40% of the
Company's share capital by share class, which is expected to
complete before 1 July 2021 when the
changes to the Management Agreement become effective. The Board
does not anticipate this proposed tender offer reducing the
aggregate NAV for all share classes combined to below US$300 million.
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 and a revised Management Agreement is agreed
between the Manager, the Company and its shareholders, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the three-year period of their assessment.
Although the Company is domiciled in Guernsey, the Board has considered the
guidance set out in the AIC Code in relation to Section 172 of the
Companies Act 2006 in the UK. Section 172 of the Companies Act
requires that the Directors of the Company act in the way they
consider, in good faith, is most likely to promote the success of
the Company for the benefit of all stakeholders, including
suppliers, customers and shareholders.
Key Service Providers
The Company does not have any employees and as such the Board
delegates responsibility for its day to day operations to a number
of key service providers. The activities of each service provider
are closely monitored by the Board and they are required to report
to the Board at set intervals.
In addition, a formal review of the performance of each service
provider is carried out once a year by the Management Engagement
Committee.
The Manager
The Manager is a leading and well established hedge fund
manager. In exchange for its services a fee is payable as detailed
in note 4 to the financial statements.
The Board considers that, under the Company’s current investment
objective, the interests of Shareholders, as a whole, are best
served by the ongoing appointment of the Manager.
Administrator and Corporate
Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited is the
Administrator and Corporate Secretary. Further details on fee
structure are included in note 4 to the financial statements.
Signed on behalf of the Board by:
Richard
Horlick
Chairman
John Le
Poidevin
Director
30 March 2021
Directors’ Report
31 December 2020
The Directors submit their Report together with the BH Macro
Limited (the “Company”) 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
2020. 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”)
and are in agreement with the accounting records.
The Company
BH Macro Limited is a limited liability closed-ended investment
company which was incorporated in Guernsey on 17 January
2007 and then admitted to the Official List of the London
Stock Exchange ("LSE") later that year.
Currently, ordinary shares are issued in Sterling and US Dollars.
Investment Objective and Policy
The Company is organised as a feeder fund that invests all of
its assets (net of short-term working capital requirements)
directly in 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
NAV, calculated as at the time of borrowing. Borrowing by the
Company is in addition to leverage at the Master Fund level, which
has no limit on its own leverage.
Results and Dividends
The results for the year are set out in the Audited Statement of
Operations. The Directors do not recommend the payment of a
dividend.
Share Capital
The number of shares in issue at the period end is disclosed in
note 5 of the Notes to the Audited Financial Statements.
Going Concern
The Directors, having considered the Principal and Emerging
Risks and Uncertainties to which the Company is exposed which are
listed in the Strategic Report and on the assumption that these are
managed or mitigated as noted, are not aware of any material
uncertainties which may cast significant doubt upon the Company’s
ability to continue as a going concern and, accordingly, consider
that it is appropriate that the Company continues to adopt the
going concern basis of accounting for these Audited Financial
Statements.
As part of the going concern assessment, the Directors have also
considered the effect on the Company of the proposed tender offer
for up to 40% of each class of the Company's issued Shares at a
price equal to 98% of the prevailing NAV per Share of the
applicable class at the time of the tender offer less an amount per
share in respect of the costs of the offer.
The Board continues to monitor the ongoing impacts of the
COVID-19 pandemic and has concluded that the biggest threat to the
Company with regards to this pandemic is the failure for a key
service provider to maintain business continuity and resiliency
while maintaining work from home and social distancing practices.
The Board has assessed the measures in place by key service
providers to produce business continuity and so far has not
identified any significant issues that affect the Company. The
financial position of the Company has not been negatively impacted
by the pandemic either. For these reasons, the Board is confident
that the outbreak of COVID-19 has not impacted the going concern
assessment of the Company.
The Board
The Board of Directors has overall responsibility for
safeguarding the Company’s assets, for the determination of the
investment policy of the Company, for reviewing the performance of
the service providers and for the Company’s activities. The
Directors, all of whom are non-executive, are listed in Board
Members.
The Articles provide that, unless otherwise determined by
ordinary resolution, the number of Directors shall not be less than
two. The Company’s policy on Directors’ Remuneration, together with
details of the remuneration of each Director who served during the
year, is detailed in the Directors’ Remuneration Report.
The Board meets at least four times a year and between these
formal meetings there is regular contact with the Manager and the
Administrator. The Directors are kept fully informed of investment
and financial controls, and other matters that are relevant to the
business of the Company are brought to the attention of the
Directors. The Directors also have access to the Administrator and,
where necessary in the furtherance of their duties, to independent
professional advice at the expense of the Company.
For each Director, the tables below set out the number of Board
and Audit Committee meetings they were entitled to attend during
the year ended 31 December 2020 and
the number of such meetings attended by each Director.
| Scheduled Board
Meetings |
Held |
Attended |
| Colin
Maltby |
5 |
5 |
| Bronwyn Curtis |
5 |
5 |
| Richard Horlick |
5 |
5 |
| John Le Poidevin |
5 |
5 |
| Claire
Whittet |
5 |
5 |
Audit Committee Meetings |
Held |
Attended |
| John Le Poidevin |
4 |
4 |
| Bronwyn Curtis |
4 |
4 |
| Richard Horlick |
4 |
4 |
| Claire Whittet |
4 |
4 |
Management Engagement Committee Meetings
|
Held |
Attended |
| Claire
Whittet |
1 |
1 |
| Bronwyn Curtis |
1 |
1 |
| Richard Horlick |
1 |
1 |
| John Le Poidevin |
1 |
1 |
| Colin
Maltby |
1 |
1 |
|
|
|
In addition to these scheduled meetings, ten ad hoc committee
meetings were held during the year ended 31 December 2020,
which were attended by those Directors available at the time.
The Board has reviewed the composition, structure and diversity
of the Board, succession planning, the independence of the
Directors and whether each of the Directors has sufficient time
available to discharge their duties effectively. The Board confirms
that it believes that it has an appropriate mix of skills and
backgrounds, that all of the Directors are considered to be
independent in accordance with the provisions of the AIC Code and
that all Directors have the time available to discharge their
duties effectively.
The Chairman’s and Directors’ tenures are limited to nine years,
which is consistent with the principles listed in the UK Corporate
Governance Code.
Notwithstanding that some of the Directors sit on the boards of
a number of other listed investment companies, the Board notes that
each appointment is non-executive and that listed investment
companies generally have a lower level of complexity and time
commitment than trading companies. Furthermore, the Board notes
that attendance of all Board and Committee meetings during the year
is high and that each Director has always shown the time commitment
necessary to discharge fully and effectively their duties as a
Director.
Directors’ Interests
The Directors had the following interests in the Company, held
either directly or beneficially:
|
Sterling Shares |
|
|
31.12.20 |
31.12.19 |
| Colin
Maltby |
|
3,500 |
3,000 |
| Bronwyn
Curtis |
|
Nil |
N/A |
| Richard
Horlick |
|
Nil |
Nil |
| John Le
Poidevin |
|
3,222 |
3,222 |
| Claire
Whittet |
|
Nil |
Nil |
|
US Dollar Shares |
|
|
31.12.20 |
31.12.19 |
| Colin
Maltby |
|
1,000 |
500 |
| Bronwyn
Curtis |
|
Nil |
N/A |
| Richard
Horlick |
|
Nil |
Nil |
| John Le
Poidevin |
|
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 and breach of duty or trust in relation to the
Company.
Corporate Governance
To comply with the UK Listing Regime, the Company must comply
with the requirements of the UK Corporate Governance Code. The
Company is also required to comply with the Code of Corporate
Governance issued by the Guernsey Financial Services
Commission.
The Company is a member of the 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.
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 requirements of the AIC Code
and the relevant provisions of the UK Corporate Governance Code,
except as set out below.
The UK Corporate Governance Code includes provisions relating
to:
- the role of the chief executive;
- executive directors’ remuneration;
- the need for an internal audit function; and
- whistle-blowing policy.
For the reasons explained in the UK Corporate Governance Code,
the Board considers these provisions are not relevant to the
position of the Company as it is an externally managed investment
company with a Board formed exclusively of non-executive Directors.
The Company has therefore not reported further in respect of these
provisions. The Company does not have employees, hence no whistle-
blowing policy is necessary. However, the Directors have satisfied
themselves that the Company’s service providers have appropriate
whistle-blowing policies and procedures and seek regular
confirmation from the service providers that nothing has arisen
under those policies and procedures which should be brought to the
attention of the Board.
The Company has adopted a policy that the composition of the
Board of Directors is at all times such that (i) a majority of the
Directors are independent of the Manager and any company in the
same group as the Manager (the “Manager’s Group”); (ii) the
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 Directors’ 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 the Directors. The Board utilised the services
of an independent, specialist company, Cornforth Consulting Ltd
prior to appointing Bronwyn Curtis.
The current Board has a breadth of experience relevant to the
Company, and the Directors believe that any changes to the Board’s
composition can be managed without undue disruption. An induction
programme is provided for newly-appointed Directors.
In line with the AIC Code, 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
25 June 2020, Shareholders re-elected
all the Directors of the Company.
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.
Claire Whittet has been Senior
Independent Director since 20 June
2019 and takes the lead in evaluating the performance of the
Chairman.
Board Performance
The performance of the Board and that of each individual
Director is externally evaluated every three years.
The most recent external evaluation of the Board’s performance
was completed in February 2018 and is
scheduled to take place every three years. The last evaluation
confirmed that the Board works in a collegiate, harmonious and
effective manner and made a number of recommendations for the
medium term structure of the Board which have been adopted.
The Board carries out an annual internal evaluation of its
performance in years when an external evaluation is not taking
place. There were no matters of note in the 2020 evaluation.
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.
In respect of the UK Criminal Finances Act 2017 which introduced
a new Corporate Criminal Offence of ‘failing to take reasonable
steps to prevent the facilitation of tax evasion’, the Board
confirms that it is committed to preventing the facilitation of tax
evasion and takes all reasonable steps to do so.
Social and Environmental Issues
The Board also keeps under review developments involving other
social and environmental issues, such as Modern Slavery, and will
report on those to the extent they are considered relevant to the
Company’s operations.
Ongoing Charges
The ongoing charges represent the Company’s management fee and
all other operating expenses, excluding finance costs, performance
fees, share issue or buyback costs and non-recurring legal and
professional fees, expressed as a percentage of the average of the
daily net assets during the year.
Ongoing charges for years ended 31
December 2020 and 31 December
2019 have been prepared in accordance with the AIC’s
recommended methodology.
The following table presents the Ongoing Charges for each share
class:
| 31.12.20 |
|
|
|
|
|
|
|
|
|
Sterling |
US
Dollar |
|
|
Shares |
Shares |
| Company – Ongoing
Charges |
|
0.50% |
0.49% |
| Master Fund – Ongoing
Charges |
|
0.63% |
0.63% |
| Performance fees |
|
5.68% |
6.01% |
| Ongoing Charges plus
performance fees |
|
6.81% |
7.13% |
| 31.12.19 |
|
|
|
|
|
|
|
|
|
Sterling |
US
Dollar |
|
|
Shares |
Shares |
| Company – Ongoing
Charges |
|
0.59% |
0.61% |
| Master Fund – Ongoing
Charges |
|
0.65% |
0.61% |
| Performance fees |
|
1.89% |
2.18% |
| Ongoing Charges plus
performance fees |
|
3.13% |
3.40% |
The Master Fund’s Ongoing Charges represent the portion of the
Master Fund’s operating expenses which have been allocated to the
Company. The Company invests substantially all of its investable
assets in ordinary Sterling and US
Dollar denominated Class B shares issued by the Master Fund. These
shares are not subject to management fees and performance fees
within the Master Fund. The Master Fund’s operating expenses
include an operational services fee payable to the Manager of 1/12
of 0.5% per month of the NAV.
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. It
is chaired by John Le Poidevin and
comprises Bronwyn Curtis, who was
appointed on 1 January 2020 and
Claire Whittet. Richard Horlick was a member of the Audit
Committee until his appointment as Chairman on 15 February 2021. The Terms of Reference of the
Audit Committee are available from the Administrator.
Management Engagement Committee
The Board has established a Management Engagement Committee with
formal duties and responsibilities. The Management Engagement
Committee meets formally at least once a year, is chaired by
Claire Whittet and comprises all
members of the Board.
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 Management Engagement Committee also
monitors the performance of all service providers on an annual
basis and at the onset of COVID-19 and August 2020 before the Management Engagement
Committee meeting, wrote to each service provider regarding their
Business Continuity Plans and the effect of the pandemic on their
working practices. To date, all services have proved to be robust
and there has been no disruption to the Company. The Terms of
Reference of the Management Engagement Committee are available from
the Administrator.
The details of the Manager’s fees and notice period are set out
in note 4 to the Audited Financial Statements.
The Board continuously monitors the performance of the Manager
and a review of the Manager is conducted by the Management
Engagement Committee annually.
The Manager has wide experience in managing and administering
investment companies and has access to extensive investment
management resources.
At its meeting on 3 September
2020, the Management Engagement Committee concluded that the
continued appointment of the Manager, Administrator, UK and
Guernsey Legal Advisers, Registrar and Corporate Broker on the
terms agreed was in the interests of the Company’s Shareholders as
a whole. At the date of this report, the Board continues to be of
the same opinion.
Internal Controls
Responsibility for the establishment and maintenance of an
appropriate system of internal control rests with the Board and to
achieve this, a process has been established which seeks to:
- Review the risks faced by the Company and the controls in place
to address those risks;
- Identify and report changes in the risk environment;
- Identify and report changes in the operational controls;
- Identify and report on the effectiveness of controls and errors
arising; and
- Ensure no override of controls by 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
Company’s risk exposure and the effectiveness of its risk
management and internal control systems. The Board believes that
the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
In order to recognise any new risks that could impact the
Company and ensure that appropriate controls are in place to manage
those risks, the Audit Committee undertakes a regular review of the
Company’s Risk Matrix. This review took place on two occasions
during the year.
The Board has delegated the management of the Company, the
administration, corporate secretarial and registrar functions
including the independent calculation of the Company’s NAV and the
production of the Annual Report and Financial Statements, 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.
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.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act, the
Company registered with the US Internal Revenue Services (“IRS”) as
a Guernsey reporting Foreign
Financial Institution (“FFI”), received a Global Intermediary
Identification Number (5QHZVI.99999.SL.831), and can be found on
the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which was adopted by Guernsey and came into effect on 1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve international tax
compliance that had previously applied in respect of 2014 and 2015.
The Company made its latest report for CRS to the Director of
Income Tax on 25 June 2020.
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,
with a number of such meetings taking place during the year. Due to
travel restrictions as a result of COVID-19, Shareholders were not
able to attend the Annual General Meeting in 2020. The Company
provides weekly unaudited estimates of NAV, month end unaudited
estimates and unaudited final NAVs. The Company also provides a
monthly newsletter. These are published via RNS and are also
available on the Company’s website. Risk reports of the Master Fund
are also available on the Company’s website.
The Manager maintains regular dialogue with institutional
Shareholders, the feedback from which is reported to the Board.
Shareholders who wish to communicate with the Board should contact
the Administrator in the first instance.
Having reviewed the Financial Conduct Authority’s restrictions
on the retail distribution of non-mainstream pooled investments,
the Company, after taking legal advice, announced on 15 January 2014 that it is outside the scope of
those restrictions, so that its shares can continue to be
recommended by UK authorised persons to ordinary retail
investors.
Following the publication of the updated AIC Code in
February 2019, when 20 per-cent or
more of Shareholder votes have been cast against a Board
recommendation for a resolution, the Company should explain, when
announcing voting results, what actions it intends to take to
consult Shareholders in order to understand the reasons behind the
result. An update on the views received from shareholders and
actions taken should be published no later than six months after
the shareholder meeting. The Board should then provide a final
summary in the Annual Report and, if applicable, in the explanatory
notes to resolutions at the next shareholder meeting, on what
impact the feedback has had on the decisions the Board has taken
and any actions or resolutions now proposed. During the year, no
resolution recommended by the Board received more than 20% of votes
against it.
Significant Shareholders
As at 31 December 2020, the
following Shareholders had significant shareholdings in the
Company:
|
|
|
%
holding |
|
Total Shares Held |
in
class |
| Significant
Shareholders |
|
|
| Sterling
Shares |
|
|
|
| Ferlim Nominees
Limited |
2,884,047 |
19.21% |
| Rathbone Nominees
Limited |
1,800,817 |
12.00% |
| HSBC Global Custody
Nominee (UK) Limited |
1,151,725 |
7.67% |
| Pershing Nominees
Limited |
896,772 |
5.97% |
| Lion Nominees
Limited |
759,887 |
5.06% |
| Smith & Williamson
Nominees Limited |
686,437 |
4.57% |
| Vidacos Nominees
Limited |
633,998 |
4.22% |
| Roy Nominees
Limited |
520,868 |
3.47% |
| Nortrust Nominees
Limited |
510,483 |
3.40% |
| Harewood Nominees
Limited |
471,992 |
3.14% |
|
|
|
%
holding |
|
Total Shares Held |
in
class |
| Significant
Shareholders |
|
|
| US Dollar
Shares |
|
|
| Vidacos Nominees
Limited |
660,368 |
30.13% |
| Hero Nominees
Limited |
482,150 |
22.00% |
| Luna Nominees
Limited |
143,660 |
6.56% |
| Computershare Investor
Services plc |
97,996 |
4.47% |
| Seurities Services
Nominees |
91,762 |
4.19% |
| Vestra Nominees
Limited |
91,536 |
4.18% |
Signed on behalf of the Board by:
Richard
Horlick
Chairman
John Le
Poidevin
Director
30 March 2021
Statement of Directors’ Responsibility
in Respect of the Annual Report and Audited Financial
Statements
The Directors are responsible for
preparing the Annual Report and Audited Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to
prepare financial statements for each financial year. Under that
law, they elected to prepare the financial statements in accordance
with accounting principles generally accepted in the United States of America and applicable
law.
Under Company law, the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of its profit or loss for that year. In preparing these
financial statements, the Directors are required to:
• select suitable accounting policies
and then apply them consistently;
• make judgements and estimates that
are reasonable, relevant and reliable;
• state whether applicable accounting
standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
• assess the Company’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of
accounting unless liquidation is imminent.
The Directors are responsible for
keeping proper accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the
Companies (Guernsey) Law, 2008.
They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in
Guernsey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the
Directors in respect of the annual financial report
We confirm that to the best of our
knowledge:
• so far as each of the Directors is
aware, there is no relevant audit information of which the
Company’s Independent Auditor is unaware, and each has taken all
the steps they ought to have taken as a Director to make themselves
aware of any relevant information and to establish that the
Company’s Independent Auditor is aware of that information;
• the financial statements, prepared
in accordance with the applicable set of accounting standards, give
a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company; and
• the Chairman’s Statement, Strategic
Report, Directors’ Report and Manager’s Report includes a fair
review of the development and performance of the business and the
position of the Company, together with a description of the
principal risks and uncertainties that it faces.
We consider the Annual Report and
Audited Financial Statements, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s position and performance,
business model and strategy.
Signed on behalf of the Board by:
Richard
Horlick
Chairman
John Le
Poidevin
Director
30 March 2021
Directors’ Remuneration Report
31 December 2020
Introduction
An ordinary resolution for the approval of the Directors’
Remuneration Report was passed by the Shareholders at the Annual
General Meeting held on 25 June
2020.
Remuneration policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors’ remuneration. No advice or services were
provided by any external person in respect of its consideration of
the Directors’ remuneration.
The Company’s policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company’s
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate Directors of a quality
required to run the Company successfully. The Chairman of the Board
is paid a higher fee in recognition of his additional
responsibilities, as are the Chairs of the Audit Committee, the
Management Engagement Committee and the Senior Independent
Director. The policy is to review fee rates periodically, although
such a review will not necessarily result in any changes to the
rates, and account is taken of fees paid to Directors of comparable
companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. The Directors were
appointed to the Board for an initial term of three years and
Section 21.3 of the Company’s Articles requires, as does the AIC
Code, that all of the Directors retire at each Annual General
Meeting. At the Annual General Meeting of the Company on
25 June 2020, Shareholders re-elected all the Directors.
Director appointments can also be terminated in accordance with the
Articles. Should Shareholders vote against a Director standing for
re-election, the Director affected will not be entitled to any
compensation. There are no set notice periods and a Director may
resign by notice in writing to the Board at any time.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally.
No other remuneration or compensation was paid or payable by the
Company during the year to any of the Directors apart from the
reimbursement of allowable expenses.
Directors’ fees
The Company’s Articles limit the fees payable to Directors in
aggregate to £400,000 per annum. Until 19
June 2019, the annual fees were £65,000 for Huw Evans, the Chairman, £47,500 for
John Le Poidevin, the Chair of the
Audit Committee, £45,000 for Claire
Whittet, the Chair of the Management Engagement Committee,
£45,000 for Colin Maltby as Senior
Independent Director and £40,000 for all other Directors.
Between 20 June 2019 and
30 September 2019, annual fee levels
remained the same as above, except for Colin Maltby, who was paid at the rate of
£65,000 per annum after succeeding Huw
Evans as Chairman and £47,500 per annum for Claire Whittet, who was appointed Senior
Independent Director.
On 5 September 2019, the Board
agreed to changes to the annual Directors’ fees, effective from
1 October 2019 onward. They were
changed to £70,000 for Colin Maltby,
the Chairman, £55,000 for John Le
Poidevin, the Chair of the Audit Committee, £50,000 for
Claire Whittet, as Chair of the
Management Engagement Committee and the Senior Independent Director
and £45,000 for all other Directors.
On 15 February 2021, Colin Maltby retired as Chairman of the Board.
Richard Horlick was appointed
Chairman with an annual fee of £70,000.
The fees payable by the Company in respect of each of the
Directors who served during the years ended 31 December 2020 and 31
December 2019, were as follows:
|
|
Year
ended |
Year
ended |
|
|
31.12.20 |
31.12.19 |
|
|
£ |
£ |
| Colin Maltby |
|
70,000 |
56,854 |
| Huw Evans* |
|
N/A |
*30,714 |
| Bronwyn Curtis** |
|
**45,000 |
N/A |
| Richard
Horlick*** |
|
45,000 |
***27,953 |
| John Le Poidevin |
|
55,000 |
49,375 |
| Claire Whittet |
|
50,000 |
46,950 |
| Total |
|
265,000 |
211,846 |
*
Huw Evans served as Chairman at a
fee of £65,000 pa until his retirement from the Board on
20 June 2019.
**
Bronwyn Curtis was appointed on
1 January 2020 at a fee of £45,000
p.a.
*** Richard Horlick was appointed on 1 May 2019 at a fee of £40,000 p.a. until
30 September 2019 and £45,000 from
1 October 2019.
Signed on behalf of the Board by:
Richard
Horlick
Chairman
John Le
Poidevin
Director
30 March 2021
Report of the Audit Committee
31 December 2020
We present the Audit Committee’s (the “Committee”) Report for
2020, setting out the Committee’s structure and composition,
principal duties and key activities during the year. As in previous
years, the Committee has reviewed the Company’s financial
reporting, the independence and effectiveness of the Independent
Auditor and the internal control and risk management systems of the
service providers.
Structure and Composition
The Committee is chaired by John Le
Poidevin and its other members are Claire Whittet and Bronwyn Curtis. Richard
Horlick was a member of the Committee, until his appointment
as Chairman of the Board on 15 February
2021.
Appointment to the 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 Committee remains independent of the
Manager. Claire Whittet is currently
serving her third term. John Le
Poidevin is currently serving his second term and
Bronwyn Curtis is serving her first
term. Prior to standing down from the Committee on 15 February 2021, Richard
Horlick was serving his 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 2020 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.
The independence and objectivity of the Independent Auditor is
reviewed by the Committee, which also reviews the terms under which
the Independent Auditor is appointed to perform non-audit services,
which includes consideration of the Financial Reporting Council
Ethical Standard. The Committee has also established policies and
procedures for the engagement of the auditor to provide audit,
assurance and other services. The services which the Independent
Auditor may not provide are any which:
- places them in a position to audit their own work;
- creates a mutuality of interest;
- results in the Independent Auditor functioning as a manager or
employee of the Company; or
- puts the Independent Auditor in the role of advocate of the
Company.
Independent Auditor
The audit and any non-audit fees proposed by the Independent
Auditor each year are reviewed by the Committee taking into account
the Company’s structure, operations and other requirements during
the year and the Committee makes recommendations to the Board.
KPMG Channel Islands Limited (“KPMG CI”) has been the Company’s
Independent Auditor from the date of the initial listing on the
London Stock Exchange. The external audit was most recently
tendered for the year ended 31 December
2016, where KPMG CI was re-appointed as auditor following
the completion of the tender process.
Key Activities in 2020
The following sections discuss the assessment made by the
Committee during the year:
Significant Financial Statement
Issues
The Committee’s review of the annual Financial Statements
focused on the following area:
The Company’s investment in the Master Fund had a fair value of
US$758.6 million as at 31 December 2020 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 2020 were audited by KPMG Cayman who
issued an unqualified audit opinion dated 26
March 2021. 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 2020 is reasonable.
This matter was discussed during the planning and final stage of
the audit and there was no significant divergence of views between
the Committee and the Independent Auditor.
The Committee has carried out a robust assessment of the risks
to the Company in the context of making the viability statement in
these Financial Statements. Furthermore, the Committee has
concluded it appropriate to continue to prepare the Financial
Statements on the going concern basis of accounting.
Effectiveness of the Audit
The Committee held formal meetings with KPMG CI during the
course of the year: 1) before the start of the audit to discuss
formal planning, 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 2020 evaluation.
Audit Fees and Safeguards on
Non-Audit Services
The table below summarises the remuneration paid by the Company
to KPMG CI for audit and non-audit services during the years ended
31 December 2020 and 31 December 2019.
|
|
Year
ended |
Year
ended |
|
|
31.12.20 |
31.12.19 |
|
|
£ |
£ |
| Annual audit |
|
33,250 |
31,000 |
| Interim review |
|
15,750 |
15,350 |
The Audit Committee has examined the scope and results of the
external audit, its cost effectiveness and the independence and
objectivity of the Independent Auditor, with particular regard to
non-audit fees, and considers KPMG CI, as Independent Auditor, to
be independent of the Company. Further, the Committee has obtained
KPMG CI’s confirmation that the services provided by other KPMG
member firms to the wider Brevan Howard organisation do not
prejudice its independence.
Internal Control
The Audit Committee has also reviewed the need for an internal
audit function. The Committee has concluded that the systems and
procedures employed by the Manager and the Administrator, including
their own internal audit functions, currently provide sufficient
assurance that a sound system of internal control, which safeguards
the Company’s assets, is maintained. An internal audit function
specific to the Company is therefore considered unnecessary.
The Committee examined externally prepared assessments of the
control environment in place at the Manager and the Administrator,
with the Manager providing an International Standard on Assurance
Engagements (“ISAE 3402”) report and the Administrator providing a
Service Organisation Control (“SOC1”) report. No significant
findings have been noted during the year.
Conclusion and Recommendation
After reviewing various reports such as the operational and risk
management framework and performance reports from the Manager and
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 2020 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.
John Le
Poidevin
Audit Committee Chairman
30 March 2021
Manager’s Report
Brevan Howard Capital Management LP (“BHCM” or the “Manager”) is
the manager of BH Macro Limited (the “Company”) and of Brevan
Howard Master Fund Limited (the “Master Fund”). The Company invests
all of its assets (net of short-term working capital) in the
ordinary shares of the Master Fund.
Performance Review
The NAV per share of the GBP shares of the Company appreciated
by 28.09% in 2020, while the NAV per share of the USD shares
appreciated by 28.89%.
The month-by-month NAV performance of each currency class of the
Company since it commenced operations in 2007 is set out below.
| GBP |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
| 2007 |
- |
- |
0.11 |
0.83 |
0.17 |
2.28 |
2.55 |
3.26 |
5.92 |
0.04 |
3.08 |
0.89 |
20.67 |
| 2008 |
10.18 |
6.85 |
(2.61) |
(2.33) |
0.95 |
2.91 |
1.33 |
1.21 |
(2.99) |
2.84 |
4.23 |
(0.67) |
23.25 |
| 2009 |
5.19 |
2.86 |
1.18 |
0.05 |
3.03 |
(0.90) |
1.36 |
0.66 |
1.55 |
1.02 |
0.40 |
0.40 |
18.00 |
| 2010 |
(0.23) |
(1.54) |
0.06 |
1.45 |
0.36 |
1.39 |
(1.96) |
1.23 |
1.42 |
(0.35) |
(0.30) |
(0.45) |
1.03 |
| 2011 |
0.66 |
0.52 |
0.78 |
0.51 |
0.59 |
(0.56) |
2.22 |
6.24 |
0.39 |
(0.73) |
1.71 |
(0.46) |
12.34 |
| 2012 |
0.90 |
0.27 |
(0.37) |
(0.41) |
(1.80) |
(2.19) |
2.38 |
1.01 |
1.95 |
(0.35) |
0.94 |
1.66 |
3.94 |
| 2013 |
1.03 |
2.43 |
0.40 |
3.42 |
(0.08) |
(2.95) |
(0.80) |
(1.51) |
0.06 |
(0.55) |
1.36 |
0.41 |
3.09 |
| 2014 |
(1.35) |
(1.10) |
(0.34) |
(0.91) |
(0.18) |
(0.09) |
0.82 |
0.04 |
4.29 |
(1.70) |
0.96 |
(0.04) |
0.26 |
| 2015 |
3.26 |
(0.58) |
0.38 |
(1.20) |
0.97 |
(0.93) |
0.37 |
(0.74) |
(0.63) |
(0.49) |
2.27 |
(3.39) |
(0.86) |
| 2016 |
0.60 |
0.70 |
(1.78) |
(0.82) |
(0.30) |
3.31 |
(0.99) |
(0.10) |
(0.68) |
0.80 |
5.05 |
0.05 |
5.79 |
| 2017 |
(1.54) |
1.86 |
(2.95) |
0.59 |
(0.68) |
(1.48) |
1.47 |
0.09 |
(0.79) |
(0.96) |
0.09 |
(0.06) |
(4.35) |
| 2018 |
2.36 |
(0.51) |
(1.68) |
1.01 |
8.19 |
(0.66) |
0.82 |
0.79 |
0.04 |
1.17 |
0.26 |
0.31 |
12.43 |
| 2019 |
0.52 |
(0.88) |
2.43 |
(0.60) |
3.53 |
3.82 |
(0.78) |
1.00 |
(1.94) |
0.47 |
(1.22) |
1.52 |
7.98 |
| 2020 |
(1.42) |
5.49 |
18.31 |
0.19 |
(0.85) |
(0.53) |
1.74 |
0.94 |
(1.16) |
(0.02) |
0.75 |
3.04 |
28.09 |
| USD |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
| 2007 |
- |
- |
0.10 |
0.90 |
0.15 |
2.29 |
2.56 |
3.11 |
5.92 |
0.03 |
2.96 |
0.75 |
20.27 |
| 2008 |
9.89 |
6.70 |
(2.79) |
(2.48) |
0.77 |
2.75 |
1.13 |
0.75 |
(3.13) |
2.76 |
3.75 |
(0.68) |
20.32 |
| 2009 |
5.06 |
2.78 |
1.17 |
0.13 |
3.14 |
(0.86) |
1.36 |
0.71 |
1.55 |
1.07 |
0.37 |
0.37 |
18.04 |
| 2010 |
(0.27) |
(1.50) |
0.04 |
1.45 |
0.32 |
1.38 |
(2.01) |
1.21 |
1.50 |
(0.33) |
(0.33) |
(0.49) |
0.91 |
| 2011 |
0.65 |
0.53 |
0.75 |
0.49 |
0.55 |
(0.58) |
2.19 |
6.18 |
0.40 |
(0.76) |
1.68 |
(0.47) |
12.04 |
| 2012 |
0.90 |
0.25 |
(0.40) |
(0.43) |
(1.77) |
(2.23) |
2.36 |
1.02 |
1.99 |
(0.36) |
0.92 |
1.66 |
3.86 |
| 2013 |
1.01 |
2.32 |
0.34 |
3.45 |
(0.10) |
(3.05) |
(0.83) |
(1.55) |
0.03 |
(0.55) |
1.35 |
0.40 |
2.70 |
| 2014 |
(1.36) |
(1.10) |
(0.40) |
(0.81) |
(0.08) |
(0.06) |
0.85 |
0.01 |
3.96 |
(1.73) |
1.00 |
(0.05) |
0.11 |
| 2015 |
3.14 |
(0.60) |
0.36 |
(1.28) |
0.93 |
(1.01) |
0.32 |
(0.78) |
(0.64) |
(0.59) |
2.36 |
(3.48) |
(1.42) |
| 2016 |
0.71 |
0.73 |
(1.77) |
(0.82) |
(0.28) |
3.61 |
(0.99) |
(0.17) |
(0.37) |
0.77 |
5.02 |
0.19 |
6.63 |
| 2017 |
(1.47) |
1.91 |
(2.84) |
3.84 |
(0.60) |
(1.39) |
1.54 |
0.19 |
(0.78) |
(0.84) |
0.20 |
0.11 |
(0.30) |
| 2018 |
2.54 |
(0.38) |
(1.54) |
1.07 |
8.41 |
(0.57) |
0.91 |
0.90 |
0.14 |
1.32 |
0.38 |
0.47 |
14.16 |
| 2019 |
0.67 |
(0.70) |
2.45 |
(0.49) |
3.55 |
3.97 |
(0.66) |
1.12 |
(1.89) |
0.65 |
(1.17) |
1.68 |
9.38 |
| 2020 |
(1.25) |
5.39 |
18.40 |
0.34 |
(0.82) |
(0.54) |
1.84 |
0.97 |
(1.11) |
(0.01) |
0.76 |
3.15 |
28.89 |
Source: Master Fund NAV data is provided by the administrator of
the Master Fund, International Fund Services (Ireland) Limited (“IFS”). The Company’s NAV
and NAV per Share data is provided by the Company’s administrator,
Northern Trust International Fund Administration Services
(Guernsey) Limited. Company NAV
per Share % monthly change is calculated by the Manager. Company
NAV data is unaudited and net of all investment management and all
other fees and expenses payable by the Company. In addition, the
Master Fund is subject to an operational services fee.
With effect from 1 April 2017, the
management fee is 0.5% per annum. The Company’s investment in the
Fund is subject to an operational services fee of 0.5% per annum.
No management fee or operational services fee is charged in respect
of performance related growth of NAV for each class of share in
excess of its level on 1 April 2017
as if the tender offer commenced by the Company on 27 January 2017 had completed on 1 April 2017.
NAV performance is provided for information purposes only.
Shares in the Company do not necessarily trade at a price equal to
the prevailing NAV per Share.
Data as at 31 December 2020.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Quarterly and annual contribution (%)
to the performance of the Company’s USD Shares (net of fees and
expenses) by asset class
|
Rates |
FX |
Commodity |
Credit |
Equity |
Discount Management |
TOTAL |
| Q1
2020 |
19.04 |
0.12 |
0.26 |
1.62 |
2.11 |
- |
23.22 |
| Q2
2020 |
-0.27 |
-2.18 |
0.70 |
0.82 |
-0.16 |
0.10 |
-1.01 |
| Q3
2020 |
0.24 |
0.63 |
0.80 |
0.07 |
-0.06 |
- |
1.68 |
| Q4
2020 |
0.58 |
2.83 |
-0.18 |
-0.29 |
0.98 |
- |
3.92 |
| YTD
2020 |
19.69 |
1.35 |
1.58 |
2.24 |
2.88 |
0.10 |
28.89 |
Data as at 31 December 2020.
Quarterly and annual figures are calculated by BHCM as at
31 December 2020, based on
performance data for each period provided by the Company’s
administrator, Northern Trust. Figures rounded to two decimal
places.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Methodology and Definition of
Contribution to Performance:
Attribution by asset class is produced at the instrument level,
with adjustments made based on risk estimates.
The above asset classes are categorised as follows:
“Rates”: interest rates markets
“FX”: FX forwards and options
“Commodity”: commodity futures and options
“Credit”: corporate and asset-backed indices, bonds and
CDS
“Equity”: equity markets including indices and other
derivatives
“Discount Management”: buyback activity or sales of
shares from treasury
Performance and Economic Outlook
Commentary
Coming into the year, the Master Fund had been positioned in
anticipation of monetary policy easing by the Federal Reserve
(“Fed”) in response to a slowdown in economic activity combined
with the view that this slowdown was being significantly
underappreciated by the market. As the COVID-19 crisis began to
unfold in February, it became apparent that transmission was global
and had the potential to cause unprecedented economic damage which
would be met with equally unprecedented fiscal and monetary policy
responses. In the event, the global economy is estimated to have
contracted by as much as in the first year of the Great Depression
and by more than in the Great Financial Crisis. In response, most
countries delivered sizable fiscal relief while many central banks
cut rates to nearly zero, restarted quantitative easing, and rolled
out a wide variety of ambitious lending programs — measures that
provided a safety net for risk assets. During this year, the Master
Fund added to directional and relative value strategies across a
range of global interest rate markets. In March, the Fed was forced
into making two emergency cuts totalling 150bps and risk markets
fell sharply. Gains over this year came from a range of strategies
including directional trading of US and global interest rates,
macro-RV trading in European government bonds, LIBOR-basis and
option volatility positioning as well as from directional and
option strategies in equity, credit, oil and precious metals.
Moving into the second quarter, gains were crystallised, risk
levels reduced, and the Master Fund adopted a less directional and
more tactical approach. During the balance of the year, the fund
profited from recovery trades in credit and equity markets as well
as from tactical short and curve steepening positioning in the US
interest rate market. The fund also positioned in currency markets
to benefit from the relative economic outperformance in much of
Asia versus the US resulting from
tighter control and mitigation of the coronavirus pandemic as well
as from the likely impact of the US elections in terms of
additional fiscal support.
Looking forward, the first half of 2021 should see an uneven
recovery as governments respond to the third wave of COVID-19. In
some countries mass vaccination is proceeding efficiently; in other
countries it has been delayed for a variety of reasons. At the same
time, new more transmissible variants of COVID-19 have strained
public health systems and led to additional restrictions on social
and economic activity. As vaccine distribution and uptake improve,
the expectation is for a brisk rebound of the service sector in the
second half of the year. Highly accommodative monetary policy will
help underpin risk sentiment and fiscal easing will provide
targeted relief. However, the magnitude of the fiscal response
differs across countries, with the US at one extreme rolling out
multiple trillion-dollar programs and China at the other extreme with some
withdrawal of fiscal support. While policymakers are generally
committed to providing a risk-friendly environment, the
heterogeneity in policy responses sets up some interesting
cross-country trading opportunities. In emerging markets, some
countries have been hit especially hard by COVID-19, others less
so. North Asia and Australia & New
Zealand have generally been standouts with successful
public-health responses and gearing to the recovery in global
trade. In terms of themes, reflation and inflation will be a strong
focus. Some analysts argue that the reopening of the global economy
will generate inflation and others argue that the global economy is
still stuck in secular stagnation. Regardless, the big increase in
oil and industrial commodity prices means that many investors are
looking for a sustained rebound in the commodity complex and
concomitant decline in the US Dollar against emerging market
currencies. In any event, monetary policy is tuned to try and
create inflation in all the major developed market economies,
especially in the US where the Fed promises to overshoot its
traditional 2% target. At a minimum, that commitment points to low
rates for years. If successful, a return of inflation would be a
remarkable macroeconomic development against a backdrop in which
investors have become complacent about inflation. Finally, politics
is not going away in 2021. There are a number of loose ends
accompanying Brexit, the Eurozone project is still a
work-in-progress, and geopolitical tensions remain with the
US-China relationship perhaps being the most important hotspot.
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.
30 March 2021
Independent Auditor's Report to the
Members of BH Macro Limited
Our opinion is unmodified
We have audited the financial statements of BH Macro
Limited (the “Company”), which comprise the Audited Statement
of Assets and Liabilities as at 31 December
2020, the Audited Statements of Operations, Changes in Net
Assets and Cash Flows for the year then ended, and notes,
comprising significant accounting policies and other explanatory
information.
In our opinion,
the accompanying financial statements:
- give a true and fair view of the financial position of the
Company as at 31 December 2020, and
of the Company’s financial performance and cash
flows for the year then ended;
- are prepared in conformity with U.S. generally accepted
accounting principles; and
- comply with the Companies (Guernsey) Law, 2008.
Basis for
opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards, as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key audit matters: our assessment of
the risks of material misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of
the financial statements and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the key
audit matter was as follows (unchanged from 2019):
|
The risk |
Our response |
Valuation of Investment
in Brevan Howard Master Fund Limited (the “Master Fund”)
$758,630,000;
(2019: $558,606,000)
Refer to the 'Key Activities in 2020 - Significant Financial
Statement Issues' section of the Report of the Audit Committee and
note 3 accounting policy |
Basis:
The Company, which is a multi-class feeder fund, had invested
99.67% (2019: 99.79%) of its net assets at 31 December 2020 into
the ordinary US Dollar and Sterling denominated Class B Shares
issued by 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.
Risk:
The valuation of the Company’s investment in the Master Fund, given
that it represents the majority of the net assets of the Company,
is a significant area of our audit. |
Our audit procedures
included, but were not limited to:
Obtained an independent confirmation from the administrator of the
Master Fund of the net asset value per share for both the US Dollar
and Sterling Class B shares and reconciled these to the net asset
values used in the valuation of the Investment in the Master
Fund
Reviewed the audit work performed by the auditor of the Master Fund
to gain insight over the work performed on the significant elements
of the Master Fund’s net asset value; and held discussions on key
audit findings with the auditor of the Master Fund
Examined the Master Fund’s coterminous audited financial statements
to corroborate the net asset value per share of both the US Dollar
and Sterling Class B shares
We also considered the Company’s investment valuation policies as
disclosed in note 3 to the financial statements for conformity with
U.S. generally accepted accounting principles |
Our application of materiality and an
overview of the scope of our audit
Materiality for the financial statements as a whole was set
at $11,417,000, determined with
reference to a benchmark of net assets of $761,169,000, of which it represents
approximately 1.5% (2019: 1.5%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance
materiality for the Company was set at 75% (2019: 75%) of
materiality for the financial statements as a whole, which equates
to $8,562,000. We applied this
percentage in our determination of performance materiality because
we did not identify any factors indicating an elevated level of
risk.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding $570,000, in addition to other identified
misstatements that warranted reporting on qualitative
grounds.
Our audit of the Company was undertaken to the materiality
level specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease its operations, and as they have concluded that the
Company's financial position means that this is realistic. They
have also concluded that there are no material uncertainties that
could have cast significant doubt over its ability to continue as a
going concern for at least a year from the date of approval of the
financial statements (the “going concern period").
In our evaluation of the directors' conclusions, we considered
the inherent risks to the Company's business model and analysed how
those risks might affect the Company's financial resources or
ability to continue operations over the going concern
period. The risks that we considered most likely to affect the
Company's financial resources or ability to continue operations
over this period were:
- Availability of capital to meet operating costs and other
financial commitments; and
- The likelihood of share class closure or liquidation resolution
votes being triggered
We considered whether these risks could plausibly affect the
liquidity or ability of the Company to continue to operate in the
going concern period by comparing severe, but plausible downside
scenarios that could arise from these risks individually and
collectively against the level of available financial resources
indicated by the Company’s financial forecasts.
We considered whether the going concern disclosure in note 3 to
the financial statements gives a full and accurate description of
the directors' assessment of going concern.
Our conclusions based on this work:
- we consider that the directors' use of the going concern basis
of accounting in the preparation of the financial statements is
appropriate;
- we have not identified, and concur with the directors'
assessment that there is not, a material uncertainty related to
events or conditions that, individually or collectively, may cast
significant doubt on the Company's ability to continue as a going
concern for the going concern period; and
- we have nothing material to add or draw attention to in
relation to the directors' statement in the notes to the financial
statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the
Company's use of that basis for the going concern period, and that
statement is materially consistent with the financial statements
and our audit knowledge.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the above conclusions are not a guarantee that the
Company will continue in operation.
Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks of
material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud
risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to
commit fraud. Our risk assessment procedures included:
- enquiring of management as to the Company’s policies and
procedures to prevent and detect fraud as well as enquiring whether
management have knowledge of any actual, suspected or alleged
fraud;
- reading minutes of meetings of those charged with governance;
and
- using analytical procedures to identify any unusual or
unexpected relationships.
As required by auditing standards, we perform procedures to
address the risk of management override of controls, in particular
the risk that management may be in a position to make inappropriate
accounting entries. On this audit we do not believe there is a
fraud risk related to revenue recognition because the Company’s
revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources
or agreements with little or no requirement for estimation from
management. We did not identify any additional fraud risks.
We performed procedures including
- Identifying journal entries and other adjustments to test based
on risk criteria and comparing any identified entries to supporting
documentation; and
- incorporating an element of unpredictability in our audit
procedures.
Identifying and responding to risks of
material misstatement due to non-compliance with laws and
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our general commercial and sector experience and
through discussion with management (as required by auditing
standards), and from inspection of the Company’s regulatory and
legal correspondence, and discussed with management the policies
and procedures regarding compliance with laws and regulations. As
the Company is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
The Company is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation and taxation legislation and we assessed the extent of
compliance with these laws and regulations as part of our
procedures on the related financial statement items.
The Company is subject to other laws and regulations where the
consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance
through the imposition of fines or litigation or impacts on the
Company’s ability to operate. We identified financial services
regulation as being the area most likely to have such an effect,
recognising the regulated nature of the Company’s activities and
its legal form. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of management and inspection of regulatory
and legal correspondence, if any. Therefore if a breach of
operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to
detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remains a higher risk of
non-detection of fraud, as this may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information.
The other information comprises the information included in the
Annual Report but does not include the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and we do
not express an audit opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Disclosures of emerging and principal
risks and longer term viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability
statement, and the financial statements and our audit
knowledge. we have nothing material to add or draw attention to in
relation to:
- the directors’ confirmation within the Viability Statement that
they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity;
- the emerging and principal disclosures describing these risks
and explaining how they are being managed or mitigated;
- the directors’ explanation in the Viability Statement as
to how they have assessed the prospects of the Company, over what
period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the Viability Statement under the
Listing Rules. Based on the above procedures, we have
concluded that the above disclosures are materially consistent with
the financial statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
- the directors’ statement that they consider that the Annual
Report and financial statements taken as a whole is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company’s position and performance,
business model and strategy;
- the section of the Annual Report describing the work of the
Audit Committee, including the significant issues that the audit
committee considered in relation to the financial statements, and
how these issues were addressed; and
- the section of the Annual Report that describes the review of
the effectiveness of the Company’s risk management and internal
control systems.
We are required to review the part of Corporate Governance
Statement relating to the Company’s compliance with the
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review. We have nothing to report in this
respect.
We have nothing to report on other
matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey)
Law, 2008 requires us to report to you if, in our opinion:
- the Company has not kept proper accounting records; or
- the financial statements are not in agreement with the
accounting records; or
- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on 17,
the directors are responsible for: the preparation of
the financial statements including being satisfied that they
give a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or
error; assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless
liquidation is imminent.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and
restrictions on its use by persons other than the Company's members
as a body
This report is made solely to the Company’s members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Barry Ryan
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
30 March 2021
Audited Statement of Assets and
Liabilities
As at 31 December 2020
|
|
|
|
|
|
|
|
|
31.12.20 |
|
31.12.19 |
|
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| Investment
in the Master Fund |
|
|
|
|
|
|
758,630 |
|
558,606 |
| Master
Fund redemption proceeds receivable |
|
|
|
|
|
42,597 |
|
11,433 |
| Prepaid
expenses |
|
|
|
|
|
|
|
36 |
|
46 |
| Cash and
bank balances denominated in Sterling |
|
|
|
|
|
832 |
|
522 |
| Cash and
bank balances denominated in US Dollars |
|
|
|
|
|
129 |
|
172 |
| Total
assets |
|
|
|
|
|
|
|
802,224 |
|
570,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| Performance fees
payable (note 4) |
|
|
|
|
|
|
|
|
40,468 |
|
10,505 |
| Management
fees payable (note 4) |
|
|
|
|
|
422 |
|
394 |
| Accrued
expenses and other liabilities |
|
|
|
|
|
102 |
|
91 |
|
Administration fees payable (note 4) |
|
|
|
|
|
63 |
|
24 |
| Total
liabilities |
|
|
|
|
|
|
|
41,055 |
|
11,014 |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
assets |
|
|
|
|
|
|
|
761,169 |
|
559,765 |
|
|
|
|
|
|
|
|
|
|
|
|
| Number
of shares in issue (note 5) |
|
|
|
|
|
|
|
|
| Sterling
shares |
|
|
|
|
|
|
|
15,009,868 |
|
14,310,040 |
| US Dollar
shares |
|
|
|
|
|
|
|
2,191,379 |
|
2,442,057 |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
asset value per share (notes 7 and 9) |
|
|
|
|
|
|
|
|
| Sterling shares |
|
|
|
|
|
|
|
|
£33.38 |
|
£26.06 |
| US Dollar
shares |
|
|
|
|
|
|
|
US$34.78 |
|
US$26.99 |
See accompanying Notes to the Audited
Financial Statements.
Signed on behalf of the Board by:
Richard
Horlick
Chairman
John Le
Poidevin
Director
30 March 2021
Audited Statement of Operations
For the year ended 31 December
2020
|
|
|
01.01.20 |
|
01.01.19 |
|
|
|
31.12.20 |
|
31.12.19 |
|
|
|
US$'000 |
|
US$'000 |
| Net
investment loss allocated from the Master Fund |
|
|
|
|
| Interest income |
|
|
1,987 |
|
22,303 |
| Dividend
and other income (net of withholding tax: |
|
|
|
|
| 31 December 2020
US$120,426; 31 December 2019: US$34,677) |
|
|
42 |
|
88 |
| Expenses |
|
|
(6,869) |
|
(27,628) |
| Net
investment loss allocated from the Master Fund |
|
(4,840) |
|
(5,237) |
|
|
|
|
|
|
| Company
income |
|
|
|
|
|
| Fixed deposit
income |
|
|
- |
|
1 |
| Foreign exchange gains
(note 3) |
|
|
25,960 |
|
18,544 |
| Total Company
income |
|
|
25,960 |
|
18,545 |
|
|
|
|
|
|
| Company
expenses |
|
|
|
|
|
| Performance fees (note
4) |
|
|
38,531 |
|
10,196 |
| Management fees (note
4) |
|
|
2,381 |
|
2,281 |
| Other expenses |
|
|
521 |
|
469 |
| Directors' fees |
|
|
343 |
|
271 |
| Administration fees
(note 4) |
|
|
114 |
|
94 |
| Total Company
expenses |
|
|
41,890 |
|
13,311 |
|
|
|
|
|
|
| Net investment
loss |
|
|
(20,770) |
|
(3) |
|
|
|
|
|
|
| Net realised and
unrealised gain on investments allocated from the Master
Fund |
|
|
|
|
|
| Net realised gain on
investments |
|
|
91,072 |
|
8,371 |
| Net unrealised gain on
investments |
|
|
111,231 |
|
51,094 |
| Net realised and
unrealised gain on investments allocated from the Master
Fund |
|
|
202,303 |
|
59,465 |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
increase in net assets resulting from operations |
181,533 |
|
59,462 |
See accompanying Notes to the Audited
Financial Statements.
Audited Statement of Changes in Net
Assets
For the year ended 31 December
2020
|
|
|
|
|
|
|
|
|
01.01.20 |
|
01.01.19 |
|
|
|
|
|
|
|
|
|
31.12.20 |
|
31.12.19 |
|
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
| Net
increase in net assets resulting from operations |
|
|
|
|
|
|
| Net
investment loss |
|
|
|
|
|
|
|
(20,770) |
|
(3) |
| Net
realised gain on investments allocated from the Master Fund |
|
|
|
91,072 |
|
8,371 |
| Net
unrealised gain on investments allocated from the Master Fund |
|
|
111,231 |
|
51,094 |
|
|
|
|
|
|
|
|
|
181,533 |
|
59,462 |
|
|
|
|
|
|
|
|
|
|
|
|
| Share
capital transactions |
|
|
|
|
|
|
|
|
|
|
| Proceeds on issue
of shares from treasury (note 5) |
|
|
|
|
|
|
|
|
|
|
|
| Sterling shares |
|
|
|
|
|
|
|
|
17,098 |
|
- |
| US Dollar shares |
|
|
|
|
|
|
|
|
2,773 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
| Total
share capital transactions |
|
|
|
|
|
|
19,871 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
increase in net assets |
|
|
|
|
|
|
|
201,404 |
|
59,462 |
| Net
assets at the beginning of the year |
|
|
|
|
|
559,765 |
|
500,303 |
| Net
assets at the end of the year |
|
|
|
|
|
|
761,169 |
|
559,765 |
See accompanying Notes to the Audited
Financial Statements.
Audited Statement of Cash Flows
For the year ended to 31 December
2020
|
|
|
|
|
|
01.01.20 |
|
01.01.19 |
|
|
|
|
|
|
31.12.20 |
|
31.12.19 |
|
|
|
|
|
|
US$'000 |
|
US$'000 |
| Cash flows from
operating activities |
|
|
|
|
|
|
|
|
| Net increase in net
assets resulting from operations |
|
|
|
|
|
181,533 |
|
59,462 |
|
Adjustments to reconcile net increase in net assets resulting
from |
|
|
|
|
|
|
|
operations to net cash provided by operating
activities: |
|
|
|
|
|
|
|
| Net
investment loss allocated from the Master Fund |
|
|
|
|
4,840 |
|
5,237 |
| Net
realised gain on investments allocated from the Master Fund |
|
|
|
(91,072) |
|
(8,371) |
| Net
unrealised gain on investments allocated from the Master Fund |
|
|
|
(111,231) |
|
(51,094) |
| Purchase of investment
in the Master Fund |
|
|
|
|
|
(18,477) |
|
- |
| Proceeds
from sale of investment in the Master Fund |
|
|
|
|
12,349 |
|
3,622 |
| Foreign exchange
gains |
|
|
|
|
|
(25,960) |
|
(18,544) |
| Decrease in prepaid
expenses |
|
|
|
|
|
10 |
|
18 |
| Increase in
performance fees payable |
|
|
|
|
|
29,963 |
|
4,821 |
| Increase in management
fees payable |
|
|
|
|
|
28 |
|
191 |
|
Increase/(decrease) in accrued expenses and other liabilities |
|
|
|
11 |
|
(2) |
| Increase in
administration fees payable |
|
|
|
|
|
39 |
|
- |
| Net cash used in
operating activities |
|
|
|
|
|
(17,967) |
|
(4,660) |
|
|
|
|
|
|
|
|
|
| Cash flows from
financing activities |
|
|
|
|
|
|
|
|
| Proceeds from share
issue |
|
|
|
|
|
19,871 |
|
- |
| Net cash generated
from financing activities |
|
|
|
|
|
19,871 |
|
- |
|
|
|
|
|
|
|
|
|
| Change in
cash |
|
|
|
|
|
1,904 |
|
(4,660) |
| Cash, beginning of
the year |
|
|
|
|
|
694 |
|
5,676 |
| Effect of exchange
rate fluctuations |
|
|
|
|
|
(1,637) |
|
(322) |
| Cash, end of the
year |
|
|
|
|
|
961 |
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash, end of the
year |
|
|
|
|
|
|
|
|
| Cash and
bank balances denominated in Sterling1 |
|
|
|
|
832 |
|
522 |
| Cash and
bank balances denominated in US Dollars |
|
|
|
|
129 |
|
172 |
|
|
|
|
|
|
961 |
|
694 |
|
|
|
|
|
|
|
|
|
|
1 Cash and bank balances in Sterling (GBP'000) |
|
|
|
|
608 |
|
394 |
See accompanying Notes to the Audited
Financial Statements.
Notes to the Audited Financial
Statements
For the year ended 31 December
2020
1.The Company
BH Macro Limited is a limited liability closed-ended investment
company which was incorporated in Guernsey on 17 January
2007 and then admitted to the Official List of the London
Stock Exchange ("LSE") later that year.
Currently, ordinary shares are issued in Sterling and US Dollars.
2.Organisation
The Company is organised as a feeder fund and seeks to achieve
its investment objective by investing all of its investable assets,
net of short-term working capital requirements, in the ordinary
Sterling and US Dollar denominated
Class B shares issued by Brevan Howard Master Fund Limited (the
“Master Fund”) and, as such, the Company is directly and materially
affected by the performance and actions of the Master Fund.
The Master Fund is an open-ended investment company with limited
liability formed under the laws of the Cayman Islands on 22
January 2003. The investment objective of the Master Fund is
to generate consistent long-term appreciation through active
leveraged trading and investment on a global basis. The Master Fund
employs a combination of investment strategies that focus primarily
on economic change and monetary policy and market inefficiencies.
The underlying philosophy is to construct strategies, often
contingent in nature with superior risk/return profiles, whose
outcome will often be crystallised by an expected event occurring
within a pre-determined period of time. New trading strategies will
be added as investment opportunities present themselves.
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.
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.
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 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 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.
As part of the going concern assessment, the Board have
considered the effect on the Company of the proposed tender offer
for up to 40% of each class of the Company's issued Shares at a
price equal to 98% of the prevailing NAV per Share of the
applicable class at the time of the tender offer less an amount per
share in respect of the costs of the offer.
The Board continues to monitor the ongoing impacts of the
COVID-19 pandemic and has concluded that the biggest threat to the
Company with regards to this pandemic is the failure for a key
service provider to maintain business continuity and resiliency
while maintaining work from home and social distancing practices.
The Board has assessed the measures in place by key service
providers to produce business continuity and so far has not
identified any significant issues that affect the Company. The
financial position of the Company has not been negatively impacted
by the pandemic either. For these reasons, the Board is confident
that the outbreak of COVID-19 has not impacted the going concern
assessment of the Company.
The Company is an Investment Company which has applied the
provisions of Accounting Standards Codification (“ASC”) 946.
The following are the significant accounting policies adopted by
the Company:
Valuation of investments
The Company records its investment in the Master Fund at fair
value. Fair value is determined as the Company’s proportionate
share of the Master Fund’s capital, which approximates fair value.
At 31 December 2020, the Company is
the sole investor in the Master Fund’s ordinary Sterling and US Dollar 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 |
NAV per Share |
Shares held in the Master Fund |
Investment in Master Fund |
Investment in Master Fund |
|
|
Master Fund's capital |
(Class B) |
|
(Class
B) |
CCY '000 |
US$'000 |
| 31
December 2020 |
|
|
|
|
|
|
|
|
|
| Sterling |
14.46% |
£4,991.01 |
100,072 |
£499,457 |
682,833 |
| US Dollar |
1.61% |
$4,963.82 |
15,268 |
$75,798 |
75,797 |
|
|
|
|
|
|
|
|
|
758,630 |
|
|
|
|
|
|
|
|
|
|
|
| 31
December 2019 |
|
|
|
|
|
|
|
|
|
| Sterling |
16.27% |
£3,674.06 |
101,291 |
£372,147 |
492,872 |
| US Dollar |
2.17% |
$3,635.03 |
18,082 |
$65,734 |
65,734 |
|
|
|
|
|
|
|
|
|
558,606 |
ASC Topic 820 defines fair value as the price that the Company
would receive upon selling a security in an orderly transaction to
an independent buyer in the principal or most advantageous market
of the security.
The valuation and classification of securities held by the
Master Fund is discussed in the notes to the Master Fund’s Audited
Financial Statements which are available on the Company’s website,
www.bhmacro.com.
Income and expenses
The Company records monthly its proportionate share of the
Master Fund’s income, expenses and realised and unrealised gains
and losses. In addition, the Company accrues its own income and
expenses.
Use of estimates
The preparation of Financial Statements in 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
Transactions reported in the Audited Statement of Operations are
translated into US Dollar amounts at the date of such transactions.
Assets and liabilities denominated in foreign currencies are
translated into US Dollars at the exchange rate at reporting date.
The share capital and other capital reserves are translated at the
historic ruling at the date of the transaction.
Investment securities and other assets and liabilities of the
Sterling share class are translated
into US Dollars, the Company's reporting currency, using exchange
rates at the reporting date. The Statement of Operations items of
the sterling share class are converted into US Dollar using the
average exchange rate. Exchange differences arising on translation
are included in Foreign exchange gains in the Audited Statement of
Operations. This foreign exchange adjustment has no effect on the
value of net assets allocated to the individual share classes.
Cash and bank balances
Cash and bank balances comprise demand deposits.
Allocation of results of the Master
Fund
Net realised and unrealised gains/losses of the Master Fund are
allocated to the Company’s share classes based upon the percentage
ownership of the equivalent Master Fund class.
Treasury shares
Where the Company has purchased its own share capital, the
consideration paid, which includes any directly attributable costs,
has been recognised as a deduction from equity Shareholders’ funds
through the Company’s reserves.
If such shares were to be subsequently sold or reissued to the
market, any consideration received, net of any directly
attributable incremental transaction costs, would be 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 the purchases by the Company of
its share capital.
New Accounting Pronouncements
In August 2018, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) No. 2018-13, Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurements, which modifies
the disclosure requirements for fair value measurements. The
Company adopted ASU 2018-13 on a retrospective basis as of
1 January 2020.
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. 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 management fee charged is 1/12 of 0.5%
per month of the NAV. The investment in the Class B shares of the
Master Fund is not subject to management fees, but is subject to an
operational services fee payable to the Manager of 1/12 of 0.5% per
month of the NAV.
The Manager does not charge the Company a management fee in
respect of any increase in the NAV of each class of shares in
excess of its level on 1 April 2017,
as if the Company’s 2017 tender offer had completed on 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.
During the year ended 31 December
2020, US$2,381,353
(31 December 2019: US$2,281,263) was earned by the Manager as net
management fees. At 31 December 2020,
US$422,036 (31 December 2019:
US$394,432) of the fee remained
outstanding.
The Manager is also entitled to an annual performance fee for
both share classes. The performance fee is equal to 20% of the
appreciation in the NAV per share of that class during that
calculation period which is above the base NAV per share of that
class, other than that arising to the remaining shares of the
relevant class from any repurchase, redemption or cancellation of
any share in the calculation period. The base NAV per share is the
greater of the NAV per share of the relevant class at the time of
issue of such share and the highest NAV per share achieved as at
the end of any previous calculation period.
The Manager will be paid an estimated performance fee on the
business day preceding the last business day of each calculation
period. Within 5 business days of the publication of the final NAV
of each class of shares as at the end of the calculation period,
any difference between the actual performance fee and the estimated
amount will be paid to or refunded by the Manager, as appropriate.
Any accrued performance fee in respect of shares which are
converted into another share class prior to the date on which the
performance fee would otherwise have become payable in respect of
those shares will crystallise and become payable on the date of
such conversion. The performance fee is accrued on an ongoing basis
and is reflected in the Company’s published NAV. During the year
ended 31 December 2020, US$38,530,665 (31 December
2019: US$10,196,480) was
earned by the Manager as performance fees. At 31 December 2020, US$40,468,455 (31 December
2019: US$10,504,617) 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 3 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 3 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 3 months’ notice of termination is
given.
The notice period for termination of the Management Agreement
without cause by both the Company and the Manager was reduced from
24 months to 3 months, with effect from 1
April 2019.
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 £6,000 (31
December 2019: £6,000) for certain additional administration
services. The Administrator is entitled to be reimbursed for
out-of-pocket expenses incurred in the course of carrying out its
duties as Administrator. During the year ended 31 December 2020, US$113,942 (31 December
2019: US$94,049) was earned by
the Administrator as administration fees. The amounts outstanding
are disclosed on the Audited Statement of Assets and
Liabilities.
5.Share capital
Issued and authorised share
capital
The Company has the power to issue an unlimited number of
ordinary shares with no par value and an unlimited number of shares
with a par value. Shares may be divided into at least two classes
denominated in Sterling and US Dollar.
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 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
| Number
of ordinary shares |
|
|
|
|
|
|
|
|
| In issue at 1
January 2020 |
|
|
|
|
|
|
14,310,040 |
|
2,442,057 |
| Share
conversions |
|
|
|
|
|
261,379 |
|
(331,678) |
| Sale of
shares from Treasury |
|
|
|
|
|
438,449 |
|
81,000 |
| In
issue at 31 December 2020 |
|
|
|
|
|
15,009,868 |
|
2,191,379 |
|
|
|
|
|
|
|
|
|
|
| Number
of treasury shares |
|
|
|
|
|
|
|
|
| In
issue at 1 January 2020 |
|
|
|
|
|
1,450,652 |
|
331,228 |
| Sale of
shares from Treasury |
|
|
|
|
|
(438,449) |
|
(81,000) |
| In issue at 31
December 2020 |
|
|
|
|
|
|
1,012,203 |
|
250,228 |
|
Percentage of class |
|
|
|
|
|
6.32% |
|
10.25% |
| For the
year ended to 31 December 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
| Number
of ordinary shares |
|
|
|
|
|
|
|
|
| In
issue at 1 January 2019 |
|
|
|
|
|
14,136,242 |
|
2,664,541 |
| Share
conversions |
|
|
|
|
|
173,798 |
|
(222,484) |
| In
issue at 31 December 2019 |
|
|
|
|
|
14,310,040 |
|
2,442,057 |
|
|
|
|
|
|
|
|
|
|
| Number of treasury
shares |
|
|
|
|
|
|
|
|
|
| In
issue at 1 January 2019 and 31 December 2019 |
|
|
|
1,450,652 |
|
331,228 |
|
Percentage of class |
|
|
|
|
|
9.20% |
|
11.94% |
The following table shows the total number of shares sold from
treasury during the year.
|
|
Sterling shares |
Sterling shares |
|
US
Dollar shares |
US
Dollar shares |
| Date |
|
Number of shares sold |
Price
per share |
|
Number of shares sold |
Price
per share |
|
|
|
£ |
|
|
US$ |
| 20
February 2020 |
25,000 |
26.21 |
|
- |
- |
| 12 March
2020 |
125,000 |
29.43 |
|
- |
- |
| 22 April
2020 |
44,235 |
33.02 |
|
81,000 |
34.30 |
| 23 April
2020 |
24,884 |
33.02 |
|
- |
- |
| 27 April
2020 |
12,330 |
33.02 |
|
- |
- |
| 4 May 2020 |
|
50,000 |
33.24 |
|
- |
- |
| 6 May 2020 |
|
50,000 |
32.77 |
|
- |
- |
| 7 May 2020 |
|
80,000 |
32.77 |
|
- |
- |
| 13 May 2020 |
|
27,000 |
33.08 |
|
- |
- |
| Total |
|
438,449 |
|
|
81,000 |
|
Share classes
In respect of each class of shares, a separate class account has
been established in the books of the Company. An amount equal to
the aggregate proceeds of issue of each share class has been
credited to the relevant class account. Any increase or decrease in
the NAV of the Master Fund US Dollar shares and Master Fund
Sterling shares as calculated by the Master Fund is allocated to
the relevant class account in the Company. Each class account is
allocated those costs, prepaid expenses, losses, dividends,
profits, gains and income which the Directors determine in their
sole discretion relate to a particular class.
Voting rights of shares
Ordinary shares carry the right to vote at general meetings of
the Company and to receive any dividends attributable to the
ordinary shares as a class declared by the Company and, in a
winding-up will be entitled to receive, by way of capital, any
surplus assets of the Company attributable to the ordinary shares
as a class in proportion to their holdings remaining after
settlement of any outstanding liabilities of the Company.
As prescribed in the Company’s Articles, the different classes
of ordinary shares have different values attributable to their
votes. The attributed values have been calculated on the basis of
the Weighted Voting Calculation (as described in the Articles)
which takes into account the prevailing exchange rates on the date
of initial issue of ordinary shares. On a vote, a single US Dollar
ordinary share has 0.7606 votes and a single Sterling ordinary share has 1.4710 votes.
Treasury shares do not have any voting rights.
Repurchase of ordinary shares
Under the Company’s Articles, Shareholders of a class of shares
have the ability to call for repurchase of that class of shares in
certain circumstances. See note 8 for further details.
Further issue of shares
As approved by the Shareholders at the Annual General Meeting
held on 25 June 2020, the Directors
have the power to issue further shares totalling and 1,476,952
Sterling shares and 249,841 US Dollar 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 the other class. Shareholders are able to
convert ordinary shares on the last business day of every month.
Each conversion will be based on the NAV (note 7) of the shares of
the class to be converted.
6.Taxation
Overview
The Company is exempt from taxation in Guernsey under the provisions of the Income
Tax (Exempt Bodies) (Guernsey)
Ordinance 1989.
Uncertain tax positions
The Company recognises the tax benefits of uncertain tax
positions only where the position is more-likely-than- not (i.e.
greater than 50%), to be sustained assuming examination by a tax
authority based on the technical merits of the position. In
evaluating whether a tax position has met the recognition
threshold, the Company must presume that the position will be
examined by the appropriate taxing authority that has full
knowledge of all relevant information. A tax position that meets
the more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognise in the Company’s
Audited Financial Statements. Income tax and related interest and
penalties would be recognised by the Company as tax 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: Guernsey;
the Cayman Islands; and foreign
jurisdictions where the Company makes significant investments. The
Company has no examinations by tax authorities in progress.
The Directors have analysed the Company’s tax positions, and
have concluded that no liability for unrecognised tax benefits
should be recorded related to uncertain tax positions. Further, the
Directors are not aware of any tax positions for which it is
reasonably possible that the total amounts of unrecognised tax
benefits will significantly change in the next twelve months.
7.Publication and calculation of Net
Asset Value (“NAV”)
The NAV of the Company is equal to the value of its total assets
less its total liabilities. The NAV per share of each class will be
calculated by dividing the NAV of the relevant class account by the
number of shares of the relevant class in issue on that day.
The Company publishes the NAV per share for each class of shares
as calculated by the Administrator based in part on information
provided by the Master Fund, monthly in arrears, as at each
month-end.
The Company also publishes an estimate of the NAV per share for
each class of shares as calculated by the Administrator based in
part on information provided by the Master Fund, weekly in
arrears.
8.Discount management programme
The Company has previously implemented a number of methods in
order to seek to manage any discount to NAV at which the Company’s
shares trade.
Market purchases
Until October 2016, the Company
regularly utilised its ability to make market purchases of its
shares as part of the discount management programme. The purchase
of these shares was funded by the Company redeeming underlying
shares in the Master Fund. The number of shares held in treasury as
at 31 December 2020 is disclosed in
note 5.
However, following the completion of the Tender Offer in
April 2017, the Company was not
permitted to redeem its investment in the Master Fund to finance
own-share purchases before 1 April
2019. For much of the period since that date, the Company’s
shares have traded at a premium or minimal discount to NAV.
However, if the Company’s shares were again to trade at wide or
volatile discounts to NAV in the future, it would be the Board’s
intention to consider resuming market purchases of shares.
Annual offer of partial return of
capital
Under the Company’s Articles of Incorporation, once in every
calendar year, the Directors have discretion to determine that the
Company make an offer of a partial return of capital in respect of
such number of shares of the Company in issue as they 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 have discretion to determine the particular class
or classes of shares in respect of which a partial return of
capital would be made, the timetable for that partial return of
capital and the price at which the shares of each relevant class
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.
Class closure resolutions
If any class of shares trades at an average discount at or in
excess of 8% of the monthly NAV in any year from 1 January to 31
December, the Company will hold a class closure vote of the
relevant class.
The average premiums to NAV for the Sterling and US Dollar shares for the year ended
31 December 2020 were 4.80% and 5.21%
respectively and consequently no closure vote will be held in
2021.
The arrangements are described more fully in the Company’s
principal documents which were approved at the EGM on 24 February 2017.
9.Financial highlights
The following tables include selected data for a single ordinary
share of each of the ordinary share classes in issue at
31 December 2020 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.
|
|
|
|
|
|
|
31.12.20 |
|
31.12.20 |
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
|
|
|
|
|
|
|
£ |
|
US$ |
| Per
share operating performance |
|
|
|
|
|
|
|
|
| Net
asset value at beginning of the year |
|
|
|
|
|
26.06 |
|
26.99 |
|
|
|
|
|
|
|
|
|
|
| Income
from investment operations |
|
|
|
|
|
|
|
|
| Net
investment loss* |
|
|
|
|
|
(2.16) |
|
(2.31) |
| Net
realised and unrealised gain on investment |
|
|
|
9.20 |
|
10.82 |
| Other
capital items** |
|
|
|
|
|
0.28 |
|
(0.72) |
| Total
gain |
|
|
|
|
|
7.32 |
|
7.79 |
|
|
|
|
|
|
|
|
|
|
| Net
asset value, end of the year |
|
|
|
|
|
33.38 |
|
34.78 |
|
|
|
|
|
|
|
|
|
|
| Total gain
before performance fees |
|
|
|
|
|
34.92% |
|
36.04% |
|
Performance fees |
|
|
|
|
|
(6.83%) |
|
(7.15%) |
| Total
gain after performance fees |
|
|
|
|
|
28.09% |
|
28.89% |
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 2020 to 31
December 2020. An individual Shareholder’s return may vary
from these returns based on the timing of their purchase or sale of
shares.
|
|
|
|
|
|
|
31.12.20 |
|
31.12.20 |
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
|
|
|
|
|
|
|
£'000 |
|
US$'000 |
|
Supplemental data |
|
|
|
|
|
|
|
|
| Net
asset value, end of the year |
|
|
|
|
|
501,002 |
|
76,226 |
| Average
net asset value for the year |
|
|
|
|
|
461,396 |
|
77,181 |
|
|
|
|
|
|
|
31.12.20 |
|
31.12.20 |
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
| Ratio
to average net assets |
|
|
|
|
|
|
|
|
| Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
|
|
0.51% |
|
0.49% |
|
Master Fund
expenses**** |
|
|
|
|
|
0.73% |
|
0.72% |
|
Master
Fund interest expenses***** |
|
|
|
0.29% |
|
0.28% |
| Performance fees |
|
|
|
|
|
|
5.68% |
|
6.01% |
|
|
|
|
|
|
|
7.21% |
|
7.50% |
|
|
|
|
|
|
|
|
|
|
| Net
investment loss before performance fees* |
|
|
|
(1.22%) |
|
(1.17%) |
|
|
|
|
|
|
|
|
|
|
| Net
investment loss after performance fees* |
|
|
|
(6.90%) |
|
(7.18%) |
|
|
|
|
|
|
|
31.12.19 |
|
31.12.19 |
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
|
|
|
|
|
|
|
£ |
|
US$ |
| Per
share operating performance |
|
|
|
|
|
|
|
|
| Net
asset value at beginning of the year |
|
|
|
|
|
24.13 |
|
24.67 |
|
|
|
|
|
|
|
|
|
|
| Income
from investment operations |
|
|
|
|
|
|
|
|
| Net
investment loss* |
|
|
|
|
|
(0.89) |
|
(0.94) |
| Net
realised and unrealised gain on investment |
|
|
|
2.81 |
|
3.32 |
| Other
capital items** |
|
|
|
|
|
0.01 |
|
(0.06) |
| Total
gain |
|
|
|
|
|
1.93 |
|
2.32 |
|
|
|
|
|
|
|
|
|
|
| Net
asset value, end of the year |
|
|
|
|
|
26.06 |
|
26.99 |
|
|
|
|
|
|
|
|
|
|
| Total gain
before performance fees |
|
|
|
|
|
9.97% |
|
11.69% |
|
Performance fees |
|
|
|
|
|
(1.99%) |
|
(2.31%) |
| Total
gain after performance fees |
|
|
|
|
|
7.98% |
|
9.38% |
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 2019 to 31
December 2019. An individual Shareholder’s return may vary
from these returns based on the timing of their purchase or sale of
shares.
|
|
|
|
|
|
|
31.12.19 |
|
31.12.19 |
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
|
|
|
|
|
|
|
£'000 |
|
US$'000 |
|
Supplemental data |
|
|
|
|
|
|
|
|
| Net
asset value, end of the year |
|
|
|
|
|
372,893 |
|
65,907 |
| Average
net asset value for the year |
|
|
|
|
|
362,275 |
|
66,034 |
|
|
|
|
|
|
|
31.12.19 |
|
31.12.19 |
|
|
|
|
|
|
|
Sterling shares |
|
US
Dollar shares |
| Ratio
to average net assets |
|
|
|
|
|
|
|
|
| Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
|
|
0.59% |
|
0.61% |
|
Master Fund
expenses**** |
|
|
|
|
|
1.73% |
|
1.71% |
|
Master
Fund interest expenses***** |
|
|
|
3.49% |
|
3.43% |
|
Performance fees |
|
|
|
|
|
1.89% |
|
2.18% |
|
|
|
|
|
|
|
7.70% |
|
7.93% |
|
|
|
|
|
|
|
|
|
|
| Net
investment loss before performance fees* |
|
|
|
(1.59%) |
|
(1.43%) |
|
|
|
|
|
|
|
|
|
|
| Net
investment loss after performance fees* |
|
|
|
(3.48%) |
|
(3.61%) |
Notes
*
The net investment loss figures disclosed above, does not include
net realised and unrealised gains/losses on investments allocated
from the Master Fund.
**
Included in other capital items are the discounts and premiums on
conversions between share classes and on the sale of treasury
shares as well as any partial capital return effected in the
relevant year as compared to the NAV per share at the beginning of
the year.
*** Company
expenses are as disclosed in the Audited Statement of Operations
excluding the performance fee and foreign exchange
gains/losses.
**** Master Fund expenses are the
operating expenses of the Master Fund excluding the interest and
dividend expenses of the Master Fund.
***** Master Fund interest expenses include
interest and dividend expenses on investments sold short.
10.Related party transactions
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the party in making financial or operational
decisions.
Management and performance fees are disclosed in note 4.
The Company’s Articles limit the fees payable to Directors in
aggregate to £400,000 per annum. Until 19
June 2019, the annual fees were £65,000 for Huw Evans, the Chairman, £47,500 for
John Le Poidevin, the Chair of the
Audit Committee, £45,000 for Claire
Whittet, the Chair of the Management Engagement Committee,
£45,000 for Colin Maltby as Senior
Independent Director and £40,000 for all other Directors.
Between 20 June 2019 and
30 September 2019, annual fees
remained the same as above, except for Colin Maltby, who was paid at a rate of £65,000
per annum after succeeding Huw Evans
as Chairman and £47,500 per annum for Claire Whittet, who was appointed Senior
Independent Director.
From 1 October 2019, the annual
Director’s fees were £70,000 for Colin
Maltby, the Chairman, £55,000 for John Le Poidevin, the Chair of the Audit
Committee, £50,000 for Claire
Whittet, as Chair of the Management Engagement Committee and
the Senior Independent Director and £45,000 for all other
Directors.
On 27 March 2020, Colin Maltby purchased 500 Sterling Class Shares
and 500 US Dollar Class Shares.
On 15 February 2021, Colin Maltby retired as Chairman of the Board.
Richard Horlick was appointed
Chairman with an annual fee of £70,000.
11.Subsequent events
On 15 February 2021, Colin Maltby retired as Chairman and as a
Director.
On 22 January 2021, the Company
announced that it had received a letter from the Manager proposing
a number of material changes to the Management Agreement which they
believed represented the minimum level for them to continue to
manage the Company and not seek to terminate the Management
Agreement. Following discussions between the Company, the Manager
and the Company’s shareholders, a circular proposing certain
changes to the terms of the Management Agreement was issued to
shareholders on 12 March 2021 and
these changes were approved at the subsequent EGM on 29 March 2021. As a result of the shareholder
vote, the Management Agreement will be amended and restated with
effect from 1 July 2021 to reflect
the following changes:
i.
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 will 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 will 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 the 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.
ii.
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).
iii.
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 will
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 will 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.
iv.
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$300 million (on the basis of the
then prevailing exchange rate), the Board will be required to
propose a vote to Shareholders for the liquidation of the Company.
If the vote were to be passed by Shareholders and the Company
placed into liquidation, the Management Agreement would be
terminated and the Company would be required to pay the Manager a
payment equal to 2% of the Company’s NAV (net of any Annual Buy
Back Allowance for the relevant calendar year that remains unused),
in lieu of the Management Fee that would otherwise have been
payable if the Management Agreement had been terminated on 12
months’ notice, in addition to any other fees owing to the Manager
at the time of termination of the Management Agreement. These
arrangements effectively replicate the existing position under the
Management Agreement if the Management Agreement were to be
terminated without notice having been served as a result of
Shareholders voting to wind up the Company. Further, there would be
no obligation on Shareholders to vote in favour of the liquidation
in these circumstances.
There will be no change to the annual performance fee payable by
the Company to the Manager, which will remain at 20% of the
appreciation in the NAV per Share of each class of the Shares
during the relevant year above any prior high water mark. The other
terms of the Management Agreement will also remain unchanged.
The Directors have evaluated subsequent events up to
30 March 2021, which is the date that
the Audited Financial Statements were available to be issued, and
have concluded there are no further items that require disclosure
or adjustment to the Audited Financial Statements.
Historic Performance Summary
As at 31
December 2020
|
|
|
31.12.20 |
31.12.19 |
31.12.18 |
31.12.17 |
31.12.16 |
|
|
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
| Net
increase/(decrease) in net assets |
|
|
|
|
|
|
|
|
resulting from operations |
|
181,533 |
59,462 |
34,985 |
4,725 |
(150,245) |
| Total
assets |
|
802,224 |
570,779 |
506,307 |
465,787 |
866,740 |
| Total
liabilities |
|
(41,055) |
(11,014) |
(6,004) |
(469) |
(1,897) |
| Net assets |
|
|
761,169 |
559,765 |
500,303 |
465,318 |
864,843 |
|
|
|
|
|
|
|
|
| Number
of shares in issue |
|
|
|
|
|
|
| Sterling shares |
|
|
15,009,868 |
14,310,040 |
14,136,242 |
14,046,048 |
22,371,669 |
| US Dollar shares |
|
|
2,191,379 |
2,442,057 |
2,664,541 |
2,782,034 |
9,975,524 |
| Euro
shares |
|
- |
- |
- |
- |
1,514,872 |
|
|
|
|
|
|
|
|
| Net
asset value per share |
|
|
|
|
|
|
| Sterling shares |
|
|
£33.38 |
£26.06 |
£24.13 |
£21.47 |
£22.44 |
| US Dollar shares |
|
|
US$34.78 |
US$26.99 |
US$24.67 |
US$21.62 |
US$21.68 |
| Euro
shares |
|
- |
- |
- |
- |
€21.87 |
Affirmation of the Commodity Pool
Operator
31 December 2020
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 Hughes
Title: Chief Financial Officer and Authorised
Signatory
Brevan Howard Capital Management Limited as general partner of
Brevan Howard Capital Management LP, the manager and commodity pool
operator of BH Macro Limited
30 March 2021
Glossary of Terms and Alternative
Performance Measures
Alternative Performance Measures
(“APMS”)
We assess our performance using a variety of measures that are
not specifically defined under US GAAP and therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies.
Average Premium/Discount to NAV
The average premium/discount to NAV of the whole year is
calculated for each share class by using the following formula:
Where:
- ‘A’ is the average closing market price of a share of the share
class as derived from the trading price on the London Stock
Exchange, calculated as the sum of all the closing market prices
per share of that class as at each London Stock Exchange trading
day during a calendar year, divided by the number of such trading
days in such period; and
- ‘B’ is the average Net Asset Value per share of the shares of
the share class taken over the 12 NAV Calculation Dates in a
calendar year calculated as the sum of the final Net Asset Value of
the share class as at each NAV Calculation Date during a calendar
year, divided by 12.
Discount/Premium
If the share price of an investment is lower than the NAV per
share, the shares are said to be trading at a discount. The size of
the discount is calculated by subtracting the share price from the
NAV per share and is usually expressed as a percentage of the NAV
per share. If the share price is higher than the NAV per share, the
shares are said to be trading at a premium. The Board monitors the
level of discount or premium and consideration is given to ways in
which share price performance may be enhanced, including the
effectiveness of marketing and share buy-backs, where appropriate.
The premium is shown below.
|
|
|
|
|
Sterling Shares |
US Dollar Shares |
|
|
|
|
|
31.12.20 |
31.12.19 |
31.12.20 |
31.12.19 |
| Share
Price at Year End (A) |
|
|
£35.20 |
£26.10 |
$36.00 |
$27.40 |
| NAV per
Share (B) |
|
|
|
£33.38 |
£26.06 |
$34.78 |
$26.99 |
| Premium to
NAV (A-B)/B |
|
|
|
5.45% |
0.15% |
3.51% |
1.52% |
Ongoing Charges
The ongoing charges are calculated using the AIC Ongoing Charges
methodology, which was last updated in October 2015 and is available on the AIC website
(theaic.co.uk). They represent the Company’s management fee and all
other operating expenses, excluding finance costs, performance
fees, share issue or buyback costs and non-recurring legal and
professional fees and are expressed as a percentage of the average
of the daily net assets during the year. The Board continues to be
conscious of expenses and works hard to maintain a sensible balance
between good quality service and cost. The ongoing charges
calculation is shown below:
|
|
|
|
|
Sterling Shares |
US Dollar Shares |
|
|
|
|
|
Year
ended |
Year
ended |
Year
ended |
Year
ended |
|
|
|
|
|
31.12.20 |
31.12.19 |
31.12.20 |
31.12.19 |
| Average
NAV for the year (a) |
|
|
£461,396,154 |
£362,275,318 |
$77,181,295 |
$66,033,640 |
|
|
|
|
|
|
|
|
|
| Investment
management fee |
|
|
£1,636,581 |
£1,566,321 |
$264,904 |
$277,326 |
| Other
Company expenses |
|
|
|
£666,592 |
£552,410 |
$116,102 |
$124,616 |
| Total
Company Expenses |
|
|
|
£2,303,173 |
£2,118,731 |
$381,006 |
$401,942 |
|
|
|
|
|
|
|
|
|
| Expenses
allocated from the Master Fund |
|
£2,923,509 |
£2,356,180 |
$488,674 |
$398,891 |
|
|
|
|
|
|
|
|
|
|
Performance Fee |
|
|
|
£26,208,875 |
£6,846,136 |
$4,636,992 |
$1,437,594 |
|
|
|
|
|
|
|
|
|
| Total
Expenses (b) |
|
|
|
£31,435,557 |
£11,321,047 |
$5,506,672 |
$2,238,427 |
|
|
|
|
|
|
|
|
|
| Ongoing
Charges b/a |
|
|
|
6.81% |
3.13% |
7.13% |
3.40% |
Net Asset Value (“NAV”)
The NAV is the net assets attributable to shareholders that is,
total assets less total liabilities, expressed as an amount per
individual share.
Return per Share
Return per share is calculated using the net return on ordinary
activities after finance costs and taxation (£105,767,059 and
US$18,804,559) divided by the
weighted average number of shares in issue for the year ended
31 December 2020 (14,702,553
Sterling shares and 2,397,572 US Dollar shares). The Directors also
regard returns per share to be a key indicator of performance. The
return per share is shown in the Strategic Report.
Company Information
Directors
Richard Horlick (Chairman, from
15 February 2021)
Colin Maltby (Chairman and
Director, until his retirement on 15
February 2021)
Bronwyn Curtis (appointed
1 January 2020)
John Le Poidevin
Claire Whittet
(All Directors are non-executive and independent for
the purpose of Listing Rule 15.2.12-A)
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier Jersey
Channel Islands JE2 3QA
For the latest information
www.bhmacro.com
Administrator and Corporate
Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 1WR
Registrar and CREST Service
Provider
Computershare Investor Services (Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 4BZ
Legal Advisors (UK Law)
Hogan Lovells International LLP
Atlantic House
Holborn Viaduct
London EC1A 2FG
Corporate Broker
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Tax Adviser
Deloitte LLP
PO Box 137
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 3HW