BH Macro Limited
Interim Report and Unaudited Financial Statements 2019
LEI: 549300ZOFF0Z2CM87C29
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
The Company has today, in accordance with DTR 6.3.5, released
its Interim Report and Unaudited financial statements for the
period ended 30 June 2019. The Report
will shortly be available from the Company’s website:
www.bhmacro.com.
Chairman’s Statement
I am delighted to present to Shareholders my first report as the
new Chairman of your Company, my predecessor Huw Evans having retired from the Board in
June 2019 after serving nine years as
an independent Director.
Over the first half of 2019, the Net Asset Value (“NAV”) per
Sterling share in the Company increased
by 9.04% and the NAV per US dollar share increased by 9.72%. The
share price total return on a Sterling
share was 16.70% over the period and on a US dollar share was
13.82%.
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 the
first six months of 2019 the Master Fund has maintained the strong
performance seen in 2018, against a background in which market
conditions have offered favourable opportunities for its macro
rates trading focus.
The past performance of the Master Fund and the Company has
shown 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. After several years of calm and therefore
relatively unfruitful conditions, a change of market regime was
signalled first in November 2016,
following the unexpected result of the US Presidential Election,
and has developed further during 2018 and the first half of 2019.
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 Eurozone and in several important emerging
economies have all contributed to an environment of greater
opportunity for the Master Fund and the Company. As the market
environment changes, the Company offers 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. In the event, the average monthly discount at
which the Company’s shares traded in relation to monthly NAV during
2018 was 7.22% for the US Dollar class and 7.42% for the
Sterling class and, consequently, no
discontinuation votes were to be held in 2019.
As described at the time of the Tender Offer, the following
changes to the Management Agreement and the terms of the Company’s
investment in the Master Fund became effective from 1 April 2019:
•
The notice period for termination of the Management Agreement
without cause by either the Company or the Manager has been reduced
from 24 months to three months.
•
The Company is once again permitted to redeem its investment in the
Master Fund to finance any future share buy-backs.
In addition, the Company’s class closure provisions and annual
partial capital return have been reinstated and are applicable in
respect of the twelve month periods ending on 31 December 2019 and thereafter, except that the
relevant trigger for the class closure provisions will be an 8%
discount to the net asset value of the relevant class of shares
over the relevant period, instead of the previous 10% threshold.
The average discount at which the Company’s shares traded in
relation to monthly NAV during the first six months of 2019 was
2.92% for the US Dollar class and 2.47% for the Sterling class.
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 2019 to 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 this process.
During 2018, the Manager implemented several significant changes
to its internal structure. On the trading side, the Manager
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 increases 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 remain 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 for public communication and investor relations.
There has been particular interest from the press following the
Company’s strong performance in 2018. 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 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.
In anticipation of Huw Evans’ decision not to seek re-election
to the Board this year, the Board instigated a recruitment process
in early 2019, to identify a new Director, with the professional
assistance of Cornforth Consulting Limited. I am delighted that
Richard Horlick was able to join us
in May and was re-elected as a non-executive Director at the recent
AGM. Richard brings exceptional experience of and insights into
global investment markets and the investment management industry.
Huw Evans brought to the Board
wisdom, sound judgment and, latterly as Chairman, clear leadership
and guidance through times of change. It gives me pleasure to thank
him for his contributions to his colleagues and to
Shareholders.
The Board recognises that the performance of the Master Fund
will continue to be important in justifying the future of the
Company. There are now clear signs that investors are
focusing closely on the global political and economic uncertainties
lying ahead. The benign investment environment which has
prevailed for several years appears, finally, to have come to an
end and the increased volatility arising from this should present
further opportunities for the Master Fund’s macro-trading
strategies.
Shareholders will be aware that the United Kingdom is scheduled to leave the
European Union on 31 October and that as matters currently stand
there is no agreement governing the withdrawal or the future
relationship between the UK and the EU. Such is the uncertainty
still surrounding the outcome that the consequent risks and
potential opportunities for the Company are extremely difficult to
assess. Since the 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.
The events of the past year support the hypothesis that the
Company’s investment in the Master Fund provides a listed vehicle
whose performance has low correlation with other asset classes.
Through the narrowing of the discount in the second half of 2018
and the subsequent emergence of a premium valuation, Shareholders
have demonstrated that they find the shares in the Company a
valuable tool for portfolio diversification and I would like to
take this opportunity to thank them for this continuing
support.
Colin Maltby
Chairman
22 August 2019
Board Members
The Directors of the Company, all of whom are non-executive, are
listed below:
Colin Maltby, (appointed
Chairman on 20 June 2019), age
68
Colin Maltby is a resident of
Switzerland. His career in
investment management began in 1975 with NM Rothschild & Sons
and included 15 years with the Kleinwort Benson Group, of which he
was a Group Chief Executive at the time of its acquisition by
Dresdner Bank AG in 1995. Mr Maltby was Chief Executive of
Kleinwort Benson Investment Management from 1988 to 1995, Chief
Investment Officer of Equitas Limited from its formation in 1996,
and Head of Investments at BP from August
2000 to June 2007. He has
served as a non-executive Director of various public companies and
agencies and as an adviser to numerous institutional investors,
including pension funds and insurance companies, and to private
equity and venture capital funds in both Europe and the
United States. He holds a Double First Class Honours degree
in Physics from the University of
Oxford and also studied at the Stanford
University Graduate School of Business. He is a Fellow of
Wolfson College, Oxford and of the Royal Society of Arts and a
member of the Institut National Genevois. Mr Maltby was appointed
to the Board in June 2015.
Richard Horlick, age 60
(appointed 1 May 2019)
Richard Horlick is UK resident. He
is currently the non-executive chairman of CCLA Investment
Management which manages £8bn 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.
John Le Poidevin, age
49
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 64
Claire Whittet is Guernsey resident and has 40 years’ experience
in the financial services industry. After obtaining a MA (Hons) in
Geography from the University of
Edinburgh, Mrs Whittet joined the Bank of Scotland for 19 years and undertook a wide
variety of roles. She moved to Guernsey in 1996 and was Global Head of
Private Client Credit for Bank of Bermuda before joining Rothschild & 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 a
non-executive Director of a number of investment funds. Mrs Whittet
was appointed to the Board in June
2014.
Disclosure of Directorships in Public
Companies Listed on Recognised Stock Exchanges
The following summarises the Directors’ directorships in other
public companies:
|
Exchange |
John Le
Poidevin |
International Public Partnerships Limited
Episode Inc.
Stride Gaming Plc |
London
Euronext Dublin
London (AIM) |
Colin
Maltby |
BBGI SICAV SA |
London |
Ocean Wilsons Holdings
Limited |
London and
Bermuda |
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 |
Directors’ Report
30 June 2019
The Directors submit their Interim Report together with the BH
Macro Limited (the “Company”) Interim Unaudited Statement of Assets
and Liabilities, Interim Unaudited Statement of Operations, Interim
Unaudited Statement of Changes in Net Assets, Interim Unaudited
Statement of Cash Flows and the related notes for the period ended
30 June 2019. The Directors’ Report
together with the Interim Unaudited Financial Statements and their
related notes (the “Financial Statements”) give a true and fair
view of the financial position of the Company. They have been
prepared properly, in conformity with United States Generally
Accepted Accounting Principles (“US GAAP”) and are in agreement
with the accounting records.
The Company
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 US Dollars and
Sterling.
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 Unaudited 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 Interim Unaudited Financial
Statements.
Going Concern
The Directors, having considered the Principal Risks and
Uncertainties to which the Company is exposed which are listed
below and on the assumption that these are managed or mitigated as
noted, are not aware of any material uncertainties which may cast
significant doubt upon the Company’s ability to continue as a going
concern and, accordingly, consider that it is appropriate that the
Company continues to adopt the going concern basis of accounting
for these Interim Unaudited Financial Statements.
The Board
The Board of Directors has overall responsibility for safeguarding
the Company’s assets, for the determination of the investment
policy of the Company, for reviewing the performance of the service
providers and for the Company’s activities. The Directors, all of
whom are non-executive, are listed in the ‘Board Members’ section
of this Report.
The Articles provide that, unless otherwise determined by
ordinary resolution, the number of Directors shall not be less than
two. The Company’s policy on Directors’ Remuneration, together with
details of the remuneration of each Director who served during the
period, is detailed in the Directors’ Remuneration Report.
The Board meets at least four times a year and between these
formal meetings there is regular contact with the Manager and the
Administrator. The Directors are kept fully informed of investment
and financial controls, and other matters that are relevant to the
business of the Company are brought to the attention of the
Directors. The Directors also have access to the Administrator and,
where necessary in the furtherance of their duties, to independent
professional advice at the expense of the Company.
For each Director, the tables below set out the number of Board
and Audit Committee meetings they were entitled to attend during
the period ended 30 June 2019 and the
number of such meetings attended by each Director.
Scheduled Board
Meetings |
Held |
Attended |
Colin
Maltby |
2 |
2 |
Huw Evans |
*2 |
2 |
Richard Horlick |
*1 |
1 |
John Le Poidevin |
2 |
2 |
Claire
Whittet |
2 |
2 |
Audit Committee Meetings |
Held |
Attended d |
John Le Poidevin |
2 |
2 |
Richard Horlick |
*1 |
1 |
Colin Maltby |
*2 |
2 |
Claire Whittet |
2 |
2 |
* Indicates the meetings held during their membership of the
relevant Board or Committee during the period ended 30 June 2019.
In addition to these scheduled meetings, seven ad hoc committee
meetings were held during the period ended 30 June 2019, 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.
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 period 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:
|
US
Dollar Shares |
|
30.06.19 |
31.12.18 |
30.06.18 |
Colin
Maltby |
500 |
Nil |
Nil |
Huw
Evans |
N/A |
Nil |
Nil |
Richard
Horlick |
Nil |
N/A |
N/A |
John Le
Poidevin |
Nil |
Nil |
Nil |
Claire
Whittet |
Nil |
Nil |
Nil |
|
Sterling Shares |
|
30.06.19 |
31.12.18 |
30.06.18 |
Colin
Maltby |
3,000 |
Nil |
Nil |
Huw
Evans |
N/A |
5,270 |
5,270 |
Richard
Horlick |
Nil |
N/A |
N/A |
John Le
Poidevin |
3,222 |
Nil |
Nil |
Claire
Whittet |
Nil |
Nil |
Nil |
|
|
|
|
|
Directors’ Indemnity
Directors’ and Officers’ liability insurance cover is in place in
respect of the Directors.
The Directors entered into indemnity agreements with the Company
which provide for, subject to the provisions of the Companies
(Guernsey) Law, 2008, an indemnity
for Directors in respect of costs which they may incur relating to
the defence of proceedings brought against them arising out of
their positions as Directors, in which they are acquitted or
judgement is given in their favour by the Court. The agreement does
not provide for any indemnification for liability which attaches to
the Directors in connection with any negligence, unfavourable
judgements 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. The AIC also published a
Corporate Governance Guide for Investment Companies (“AIC Guide”),
which was in effect during the period.
The AIC updated its Code on 5 February
2019 to reflect revised Principles and Provisions included
in the UK Corporate Governance Code which was revised in
2018. These changes apply to financial years beginning
on or after 1 January 2019 and the
Directors intend to report on the Company’s compliance with the
changes in the Annual Report for the year ending 31 December 2019.
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 set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company as it is
an externally managed investment company with a Board formed
exclusively of non-executive Directors. The Company has, therefore,
not reported further in respect of these provisions. The Company
does not have employees, hence, no whistle- blowing policy is
necessary. However, the Directors have satisfied themselves that
the Company’s service providers have appropriate whistle-blowing
policies and procedures and seek regular confirmation from the
service providers that nothing has arisen under those policies and
procedures which should be brought to the attention of the
Board.
The Company has adopted a policy that the composition of the
Board of Directors is at all times such that (i) a majority of the
Directors are independent of the Manager and any company in the
same group as the Manager (the “Manager’s Group”); (ii) the
Chairman of the Board of Directors is free from any conflicts of
interest and is independent of the Manager’s Group; and (iii) no
more than one director, partner, employee or professional adviser
to the Manager’s Group may be a Director of the Company at any one
time.
The Company has adopted a Code of Directors’ dealings in
securities.
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee and by the Board at their meetings. The Board believes
that the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
In view of its non-executive and independent nature, the Board
considers that it is not necessary for there to be a Nomination
Committee or a Remuneration Committee as anticipated by the AIC
Code. The Board as a whole fulfils the functions of the Nomination
and Remuneration Committees, although the Board has included a
separate Remuneration Report of these Interim Unaudited Financial
Statements. The Board has adopted a Nomination Policy covering
procedures for nominations to the Board and to Board
committees.
For new appointments to the Board, nominations are sought from
the Directors and from other relevant parties and candidates are
then interviewed by the Directors. The Board utilised the services
of an independent, specialist company, Cornforth Consulting Ltd
prior to appointing Richard Horlick.
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
20 June 2019, Shareholders re-elected
all the Directors of the Company, with the exception of
Huw Evans, who did not put himself
forward for re-election.
The Board regularly reviews its composition and believes that
the current appointments provide an appropriate range of skill,
experience and diversity.
The Board, Audit Committee and Management Engagement Committee
undertake an evaluation of their own performance and that of
individual Directors on an annual basis. In order to review their
effectiveness, the Board and its Committees carry out a process of
formal self-appraisal. The Board and Committees consider how they
function as a whole and also review the individual performance of
their members. This process is conducted by the respective Chairman
reviewing the Directors’ performance, contribution and commitment
to the Company.
Following the retirement of Huw
Evans and the appointment of Colin
Maltby as Chairman, Claire
Whittet has replaced Colin
Maltby as Senior Independent Director and will take the lead
in evaluating the performance of the new Chairman.
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 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 needs to ensure that the Financial Statements, taken
as a whole, are fair, balanced and understandable and provide the
information necessary for Shareholders to assess the Company’s
performance, business model and strategy. In seeking to achieve
this, the Directors have set out the Company’s investment objective
and policy and have explained how the Board and its delegated
Committees operate and how the Directors review the risk
environment within which the Company operates and set appropriate
risk controls. Furthermore, throughout the Interim Report, the
Board has sought to provide further information to enable
Shareholders to better understand the Company’s business and
financial performance.
Policy to Combat Fraud, Bribery and Corruption
The Board has adopted a formal policy to combat fraud, bribery and
corruption. The policy applies to the Company and to each of its
Directors. Further, the policy is shared with each of the Company’s
service providers.
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.
Ongoing Charges
Ongoing charges for the six month period ended 30 June 2019, year ended 31 December 2018 and six month period ended
30 June 2018 have been prepared in
accordance with the AIC’s recommended methodology.
The following table presents the Ongoing Charges for each share
class:
30.06.19 |
|
|
|
|
US Dollar Shares |
Sterling Shares |
|
Company – Ongoing
Charges |
|
0.59% |
0.60% |
Master Fund – Ongoing
Charges |
|
0.61% |
0.61% |
Performance fees |
|
2.27% |
2.20% |
Ongoing Charges plus
performance fees |
|
3.47% |
3.41% |
31.12.18 |
|
|
|
|
US Dollar Shares |
Sterling Shares |
|
Company – Ongoing
Charges |
|
0.62% |
0.64% |
Master Fund – Ongoing
Charges |
|
0.64% |
0.64% |
Performance fees |
|
1.06% |
1.21% |
Ongoing Charges plus
performance fees |
|
2.32% |
2.49% |
30.06.18 |
|
|
|
|
US Dollar Shares |
Sterling Shares |
|
Company – Ongoing
Charges |
|
0.63% |
0.69% |
Master Fund – Ongoing
Charges |
|
0.65% |
0.65% |
Performance fees |
|
0.02% |
0.35% |
Ongoing Charges plus
performance fees |
|
1.29% |
1.69% |
The Master Fund’s Ongoing Charges represent the portion of the
Master Fund’s operating expenses which have been allocated to the
Company. The Company invests substantially all of its investable
assets in ordinary US Dollar and Sterling denominated Class B shares issued by the
Master Fund. These shares are not subject to management fees and
performance fees within the Master Fund. The Master Fund’s
operating expenses include an operational services fee payable to
the Manager of 1/12 of 0.5% per month of the NAV.
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 Richard Horlick, who was
appointed on 1 May 2019 and
Claire Whittet. Colin Maltby was a member of the Audit Committee
until 20 June 2019.
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 Terms of Reference of the Management
Engagement Committee are available from the Administrator.
The principal contents of the Manager’s contract and notice
period are contained in note 4 to the Interim Unaudited 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 11 September
2018, the Management Engagement Committee concluded that the
continued appointment of the Manager on the terms agreed was in the
interests of the Company’s Shareholders as a whole. At the date of
this report, the Board continues to be of the same opinion.
Internal Controls
Responsibility for the establishment and maintenance of an
appropriate system of internal control rests with the Board and to
achieve this, a process has been established which seeks to:
- Review the risks faced by the Company and the controls in place
to address those risks;
- Identify and report changes in the risk environment;
- Identify and report changes in the operational controls;
- Identify and report on the effectiveness of controls and errors
arising; 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.
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.
Packaged Retail and Insurance Based Investment Products
(“PRIIPs”)
The Company is 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 Documents (“KIDs”)
on the Company on 4 June 2019. The
KIDs are available on the Company’s website www.bhmacro.com and are
updated at least every 12 months.
Principal Risks and Uncertainties
The Board is responsible for the Company’s system of internal
controls and for reviewing its effectiveness. The Board is
satisfied that by using the Company’s risk matrix in establishing
the Company’s system of internal controls, while monitoring the
Company’s investment objective and policy, the Board has carried
out a robust assessment of the principal risks and uncertainties
facing the Company. The principal risks and uncertainties which
have been identified and the steps which are taken by the Board to
mitigate them are as follows:
- Investment Risks: The Company is exposed to the risk that its
portfolio fails to perform in line with the Company’s objectives if
it is inappropriately invested or markets move adversely. The Board
reviews reports from the Manager, which has total discretion over
portfolio allocation, at each quarterly Board meeting, paying
particular attention to this allocation and to the performance and
volatility of underlying investments;
- Operational Risks: The Company is exposed to the risks arising
from any failure of systems and controls in the operations of the
Manager or the Administrator. The Board receives reports annually
from the Manager and Administrator on their internal controls;
- Accounting, Legal and Regulatory Risks: The Company is exposed
to risk if it fails to comply with the regulations of the UK
Listing Authority or if it fails to maintain accurate accounting
records. The Administrator provides the Board with regular reports
on changes in regulations and accounting requirements;
- 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; and
- Brexit Risk: Whilst noting that the Company is based in
Guernsey and that it invests
substantially all of its assets into a Cayman master fund, the
Company may nevertheless be exposed to risks arising from the UK’s
departure from the European Union. The Board will continue, in
conjunction with the Manager and the Administrator, to monitor any
potential impacts on the Company, and will seek to maintain
compliance with all relevant regulatory requirements.
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 28 June 2019.
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. The
Annual General Meeting of the Company provides a forum for
Shareholders to meet and discuss issues with the Directors of the
Company. The Company provides weekly unaudited estimates of NAV,
month end unaudited estimates and unaudited final NAVs. The Company
also provides a monthly newsletter. These are published via RNS and
are also available on the Company’s website. Risk reports of the
Master Fund are also available on the Company’s website.
The Manager maintains regular dialogue with institutional
Shareholders, the feedback from which is reported to the Board.
Shareholders who wish to communicate with the Board should contact
the Administrator in the first instance.
Having reviewed the Financial Conduct Authority’s restrictions
on the retail distribution of non-mainstream pooled investments,
the Company, after taking legal advice, announced on 15 January 2014 that it is outside the scope of
those restrictions, so that its shares can continue to be
recommended by UK authorised persons to ordinary retail
investors.
Significant Shareholders
As at 30 June 2019, the following
Shareholders had significant shareholdings in the Company:
|
|
|
%
holding in class |
|
Total Shares Held |
Significant
Shareholders |
|
|
US Dollar
Shares |
|
|
Vidacos Nominees
Limited |
769,370 |
32.16% |
Hero Nominees
Limited |
458,720 |
19.18% |
The Bank of New York
(Nominees) Limited |
230,868 |
9.65% |
Luna Nominees
Limited |
151,980 |
6.35% |
Pershing Nominees
Limited |
119,354 |
4.99% |
Euroclear Nominees
Limited |
106,812 |
4.47% |
|
|
|
% holding in class |
|
Total Shares Held |
Significant
Shareholders |
|
|
Sterling
Shares |
|
|
|
Ferlim Nominees
Limited |
2,599,261 |
18.11% |
Rathbone Nominees
Limited |
1,349,911 |
9.40% |
HSBC Global Custody
Nominee (UK) Limited |
1,214,000 |
8.46% |
Pershing Nominees
Limited |
1,078,239 |
7.51% |
Harewood Nominees
Limited |
771,301 |
5.37% |
Smith & Williamson
Nominees Limited |
674,781 |
4.70% |
Nortrust Nominees
Limited |
609,759 |
4.25% |
Securities Services
Nominees Limited |
572,626 |
3.99% |
The Bank of New York
(Nominees) Limited |
450,818 |
3.14% |
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
22 August 2019
Statement of Directors’ Responsibility
in Respect of the Interim Report and Unaudited Financial
Statements
We confirm to the best of our knowledge that:
- these Interim Unaudited Financial Statements have been prepared
in conformity with United States Generally Accepted Accounting
Principles and give a true and fair view of the assets,
liabilities, financial position and profit or loss; and
- these Interim Unaudited Financial Statements include
information detailed in the Chairman’s Statement, the Directors’
Report, the Manager’s Report and the Notes to the Interim Unaudited
Financial Statements, which provides a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on these Interim Unaudited Financial Statements and a description
of the principal risks and uncertainties for the remaining six
months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
Company during that period and any changes in the related party
transactions described in the last Annual Audited Financial
Statements that could materially affect the financial position or
performance of the Company.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website and for the preparation and dissemination of
financial statements. Legislation in Guernsey governing the preparation and
dissemination of the financial statements may differ from
legislation in other jurisdictions.
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
22 August 2019
Directors’ Remuneration Report
30 June 2019
Introduction
An ordinary resolution for the approval of the Directors’
Remuneration Report was passed by the Shareholders at the Annual
General Meeting held on 20 June
2019.
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
20 June 2019, Shareholders re-elected all the Directors, with
the exception of Huw Evans, who did
not put himself forward for re-election. Director appointments can
also be terminated in accordance with the Articles. Should
Shareholders vote against a Director standing for re-election, the
Director affected will not be entitled to any compensation. There
are no set notice periods and a Director may resign by notice in
writing to the Board at any time.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally.
No other remuneration or compensation was paid or payable by the
Company during the year to any of the Directors apart from the
reimbursement of allowable expenses.
Directors’ fees
The Company’s Articles limit the fees payable to Directors in
aggregate to £400,000 per annum. The annual fees are £65,000 for
Colin Maltby, the Chairman, £47,500
for John Le Poidevin, the Chair of
the Audit Committee, £47,500 for Claire
Whittet, as Chair of the Management Engagement Committee and
the Senior Independent Director and £40,000 for all other
Directors.
The fees payable by the Company in respect of each of the
Directors who served during the period ended 30 June 2019, the year ended 31 December 2018 and the period ended
30 June 2018, were as follows:
|
Period ended |
Year
ended |
Period ended |
|
30.06.19 |
31.12.18 |
30.06.18 |
|
£ |
£ |
£ |
Colin Maltby |
23,104 |
45,000 |
22,500 |
Huw Evans* |
*30,714 |
65,000 |
32,500 |
Richard Horlick** |
**6,703 |
N/A |
N/A |
John Le Poidevin |
23,750 |
47,500 |
23,750 |
Claire Whittet |
22,575 |
45,000 |
22,500 |
Total |
106,846 |
202,500 |
101,250 |
*
Huw Evans served as Chairman at a
fee of £65,000 pa until his retirement from the Board on
20 June 2019.
**
Richard Horlick was appointed on
1 May 2019 at a fee of £40,000
pa.
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
22 August 2019
Manager’s Report
Brevan Howard Capital Management LP (“BHCM” or the “Manager”) is
the Manager of BH Macro Limited (“BHM” or the “Company”) and of
Brevan Howard Master Fund Limited (the “Master Fund”). The Company
invests all of its assets (net of short-term working capital) in
the ordinary shares of the Master Fund.
Performance Review
The NAV per share of the USD shares of the Company appreciated by
9.72% in the first half of the year, while the NAV per share of the
GBP shares appreciated by 9.04%.
The month-by-month NAV performance of the USD and GBP currency
classes of the Company since it commenced operations in 2007 is set
out below:
USD |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
2007 |
- |
- |
0.10 |
0.90 |
0.15 |
2.29 |
2.56 |
3.11 |
5.92 |
0.03 |
2.96 |
0.75 |
20.27 |
2008 |
9.89 |
6.70 |
(2.79) |
(2.48) |
0.77 |
2.75 |
1.13 |
0.75 |
(3.13) |
2.76 |
3.75 |
(0.68) |
20.32 |
2009 |
5.06 |
2.78 |
1.17 |
0.13 |
3.14 |
(0.86) |
1.36 |
0.71 |
1.55 |
1.07 |
0.37 |
0.37 |
18.04 |
2010 |
(0.27) |
(1.50) |
0.04 |
1.45 |
0.32 |
1.38 |
(2.01) |
1.21 |
1.50 |
(0.33) |
(0.33) |
(0.49) |
0.91 |
2011 |
0.65 |
0.53 |
0.75 |
0.49 |
0.55 |
(0.58) |
2.19 |
6.18 |
0.40 |
(0.76) |
1.68 |
(0.47) |
12.04 |
2012 |
0.90 |
0.25 |
(0.40) |
(0.43) |
(1.77) |
(2.23) |
2.36 |
1.02 |
1.99 |
(0.36) |
0.92 |
1.66 |
3.86 |
2013 |
1.01 |
2.32 |
0.34 |
3.45 |
(0.10) |
(3.05) |
(0.83) |
(1.55) |
0.03 |
(0.55) |
1.35 |
0.40 |
2.70 |
2014 |
(1.36) |
(1.10) |
(0.40) |
(0.81) |
(0.08) |
(0.06) |
0.85 |
0.01 |
3.96 |
(1.73) |
1.00 |
(0.05) |
0.11 |
2015 |
3.14 |
(0.60) |
0.36 |
(1.28) |
0.93 |
(1.01) |
0.32 |
(0.78) |
(0.64) |
(0.59) |
2.36 |
(3.48) |
(1.42) |
2016 |
0.71 |
0.73 |
(1.77) |
(0.82) |
(0.28) |
3.61 |
(0.99) |
(0.17) |
(0.37) |
0.77 |
5.02 |
0.19 |
6.63 |
2017 |
(1.47) |
1.91 |
(2.84) |
3.84 |
(0.60) |
(1.39) |
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 |
|
|
|
|
|
|
9.72 |
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 |
|
|
|
|
|
|
9.04 |
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
Master 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 30 June 2019.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
The Master Fund’s main exposures at the start of 2019 consisted
of yield curve and long directional positions, combined with long
volatility in US and European interest rate markets. The Master
Fund had further, smaller interest rate exposures across a wide
range of markets. In FX, the Master Fund started the year short the
US Dollar and the Euro vs a basket of currencies. Interest rate
trading drove returns over the first half of the year, particularly
as the opportunity set in US rates continued to develop with
uncertainty around the future path of Federal Reserve Board policy.
Directional and yield curve trading strategies in European, UK as
well as across a wide range of emerging market interest rates also
contributed to returns. FX trading detracted somewhat due to
Euro related trading strategies.
Quarterly and semi-annual contribution
(%) to the performance of BHM USD Shares (net of fees and expenses)
by asset class*
|
Rates |
FX |
Commodity |
Credit |
Equity |
Discount Management |
TOTAL |
Q1 2019 |
3.16 |
-0.68 |
0.05 |
-0.03 |
-0.09 |
0.00 |
2.41 |
Q2 2019 |
9.14 |
-1.79 |
0.25 |
-0.04 |
-0.29 |
0.00 |
7.14 |
YTD 2019 |
12.59 |
-2.46 |
0.30 |
-0.07 |
-0.38 |
0.00 |
9.72 |
*Data as at 30 June 2019
Quarterly and semi-annual figures are calculated by BHCM as at
30 June 2019, based on performance
data for each period provided by BHM’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 for discount
management purposes
Commentary and Outlook
At the beginning of 2019, investors were struggling to digest a
slowdown in the global economy, renewed trade tensions, and tighter
monetary policy in the US. Over the course of the first half of the
year, the global economy showed little improvement and trade
tensions intensified. Partly as a result, the Federal Reserve Board
pointed to the desirability of easier monetary policy in order to
address the increased downside risks.
Risk assets generally rallied on the promise of lower interest
rates, offering the prospect that the slowdown may be temporary.
Nevertheless, there are considerable challenges going forward.
Trade wars between the US and China do not appear like they will be resolved
anytime soon. Although the direct impact of the resulting tariffs
should be manageable, business sentiment, especially in
manufacturing, has suffered with uncertain prospects for
recovery.
Growth in the developed world was uneven with Germany and Italy recording declines in real GDP and
China slowing notably. The US
stood out in terms of headline real GDP growth, but that masked
declines in business fixed investment. Meanwhile inflation has been
weak almost everywhere. In the eleventh year of the expansion,
major economies like the US and Euro area have consistently failed
to achieve their inflation targets. Policy makers at the Federal
Reserve Board and the European Central Bank appear more committed
to easing in order to extend the expansion and achieve their
inflation mandates. Investors are looking for rate cuts in the US
and Euro area in the second half of the year, and have already seen
cuts in various open economies like Australia, New
Zealand, and South
Korea.
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.
22 August 2019
Independent Review Report to BH Macro
Limited
Conclusion
We have been engaged by BH Macro Limited (the “Company”) to review
the Interim Unaudited Financial Statements in the Interim Report
for the six months ended 30 June 2019
of the Company which comprises the Unaudited Statement of Assets
and Liabilities, the Unaudited Statement of Operations, the
Unaudited Statement of Changes in Net Assets, the Unaudited
Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the financial statements for the period
ended 30 June 2019 do not give a true
and fair view of the financial position of the Company as at
30 June 2019 and of its financial
performance and its cash flows for the six month period then ended
in conformity with U.S generally accepted accounting principles and
the Disclosure Guidance and Transparency Rules (the “DTR”) of the
UK’s Financial Conduct Authority (the “UK FCA”).
Scope of review
We conducted our review in accordance with International Standard
on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity
issued by the Auditing Practices Board for use in the UK. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the Interim Report and
consider whether it contains any apparent misstatements or material
inconsistencies with the information in the unaudited interim
financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors’ responsibilities
The Interim Report and Unaudited Financial Statements are the
responsibility of, and have been approved by, the directors. The
directors are responsible for preparing the Interim Report and
Unaudited Financial Statements in accordance with the DTR of the UK
FCA.
The Interim Unaudited Financial Statements included in this
Interim Report have been prepared in conformity with U.S generally
accepted accounting principles.
Our responsibility
Our responsibility is to express to the Company a conclusion on the
Interim Unaudited Financial Statements included in this Interim
Report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement letter to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Barry Ryan
for and on behalf of KPMG CHANNEL
ISLANDS LIMITED
Chartered Accountants, Guernsey
22 August 2019
Unaudited Statement of Assets and Liabilities
As at 30 June 2019
|
|
|
|
30.06.19 |
|
31.12.18 |
|
30.06.18 |
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
Investment
in the Master Fund |
|
|
556,516 |
|
500,567 |
|
499,195 |
Master
Fund redemption proceeds receivable |
- |
|
- |
|
100 |
Prepaid
expenses |
|
|
87 |
|
64 |
|
95 |
Cash and
bank balances denominated in US Dollars |
140 |
|
750 |
|
94 |
Cash and
bank balances denominated in Sterling |
511 |
|
4,926 |
|
949 |
Total
assets |
|
|
557,254 |
|
506,307 |
|
500,433 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Performance fees payable (note 4) |
|
11,389 |
|
5,684 |
|
1,481 |
Management
fees payable (note 4) |
|
|
187 |
|
203 |
|
193 |
Accrued
expenses and other liabilities |
|
119 |
|
93 |
|
151 |
Directors'
fees payable |
|
|
29 |
|
- |
|
- |
Administration fees payable (note 4) |
|
23 |
|
24 |
|
24 |
Total
liabilities |
|
|
11,747 |
|
6,004 |
|
1,849 |
|
|
|
|
|
|
|
|
|
Net assets |
|
|
|
545,507 |
|
500,303 |
|
498,584 |
|
|
|
|
|
|
|
|
|
Number
of shares in issue (note 5) |
|
|
|
|
|
US Dollar
shares |
|
|
2,391,955 |
|
2,664,541 |
|
2,739,468 |
Sterling
shares |
|
|
14,353,937 |
|
14,136,242 |
|
14,077,945 |
|
|
|
|
|
|
|
|
|
Net
asset value per share (notes 7 and 9) |
|
|
|
|
|
|
US Dollar
shares |
|
|
US$27.07 |
|
US$24.67 |
|
US$23.68 |
Sterling
shares |
|
|
£26.32 |
|
£24.13 |
|
£23.33 |
See accompanying Notes to the Interim
Unaudited Financial Statements.
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
22 August 2019
Unaudited Statement of Operations
For the period from 1 January 2019 to
30 June 2019
|
|
|
|
|
|
01.01.19 |
|
01.01.18 |
|
01.01.18 |
|
|
|
|
|
|
30.06.19 |
|
31.12.18 |
|
30.06.18 |
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
investment loss allocated from the Master Fund |
|
|
|
|
|
Interest income |
|
|
|
|
|
11,740 |
|
7,298 |
|
2,007 |
Dividend
and other income (net of withholding tax: |
|
|
|
|
|
|
|
30 June
2019: US$11,223; 31 December 2018: US$25,955; 30 June 2018:
US$17,643) |
1,972 |
|
1,621 |
|
3 |
Expenses |
|
|
|
|
|
(15,603) |
|
(13,809) |
|
(8,946) |
Net
investment loss allocated from the Master Fund |
(1,891) |
|
(4,890) |
|
(6,936) |
|
|
|
|
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
|
|
|
|
Fixed deposit
income |
|
|
|
|
|
1 |
|
- |
|
- |
Total Company
income |
|
|
|
|
|
1 |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
|
|
|
|
Performance fees (note
4) |
|
|
|
|
|
11,551 |
|
5,904 |
|
1,531 |
Management fees (note
4) |
|
|
|
|
|
1,142 |
|
2,355 |
|
1,190 |
Other expenses |
|
|
|
|
|
231 |
|
476 |
|
268 |
Directors' fees |
|
|
|
|
|
138 |
|
269 |
|
135 |
Administration fees
(note 4) |
|
|
|
|
|
47 |
|
94 |
|
46 |
Foreign exchange
losses (note 3) |
|
|
|
|
|
1,074 |
|
23,246 |
|
8,249 |
Total Company
expenses |
|
|
|
|
|
14,183 |
|
32,344 |
|
11,419 |
|
|
|
|
|
|
|
|
|
|
|
Net investment
loss |
|
|
|
|
|
(16,073) |
|
(37,234) |
|
(18,355) |
|
|
|
|
|
|
|
|
|
|
|
Net realised and unrealised gain on investments
allocated from the Master Fund |
|
|
|
Net
realised gain on investments |
|
|
|
54 |
|
72,315 |
|
6,681 |
Net
unrealised gain/(loss) on investments |
|
|
61,223 |
|
(96) |
|
44,940 |
Net realised and unrealised gain on investments
allocated from the Master Fund |
61,277 |
|
72,219 |
|
51,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations |
45,204 |
|
34,985 |
|
33,266 |
See accompanying Notes to the Interim
Unaudited Financial Statements.
Unaudited Statement of Changes in Net Assets
For the period from 1 January 2019 to
30 June 2019
|
|
|
|
|
|
|
01.01.19 |
|
01.01.18 |
|
01.01.18 |
|
|
|
|
|
|
|
30.06.19 |
|
31.12.18 |
|
30.06.18 |
|
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
increase in net assets resulting from operations |
|
|
|
|
Net
investment loss |
|
|
|
|
|
(16,073) |
|
(37,234) |
|
(18,355) |
Net
realised gain on investments allocated from the Master Fund |
54 |
|
72,315 |
|
6,681 |
Net
unrealised gain/(loss) on investments allocated from the Master
Fund |
61,223 |
|
(96) |
|
44,940 |
|
|
|
|
|
|
|
45,204 |
|
34,985 |
|
33,266 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in net assets |
|
|
|
|
|
45,204 |
|
34,985 |
|
33,266 |
Net
assets at the beginning of the period/year |
|
500,303 |
|
465,318 |
|
465,318 |
Net
assets at the end of the period/year |
|
|
|
545,507 |
|
500,303 |
|
498,584 |
See accompanying Notes to the Interim
Unaudited Financial Statements.
Unaudited Statement of Cash Flows
For the period from 1 January 2019 to
30 June 2019
|
|
|
|
|
|
01.01.19 |
|
01.01.18 |
|
01.01.18 |
|
|
|
|
|
|
30.06.19 |
|
31.12.18 |
|
30.06.18 |
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations |
|
45,204 |
|
34,985 |
|
33,266 |
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 |
|
1,891 |
|
4,890 |
|
6,936 |
Net
realised gain on investments allocated from the Master Fund |
(54) |
|
(72,315) |
|
(6,681) |
Net
unrealised (gain)/loss on investments allocated from the Master
Fund |
(61,223) |
|
96 |
|
(44,940) |
Increase
in Master Fund redemption proceeds receivable |
- |
|
- |
|
(100) |
Proceeds
from sale of investment in the Master Fund |
|
2,237 |
|
7,982 |
|
1,739 |
Foreign exchange
losses |
|
|
|
|
|
1,074 |
|
23,246 |
|
8,249 |
Increase in prepaid
expenses |
|
|
|
|
|
(23) |
|
(20) |
|
(51) |
Increase in
performance fees payable |
|
|
|
|
|
5,705 |
|
5,684 |
|
1,481 |
(Decrease)/increase in management fees payable |
|
(16) |
|
6 |
|
(4) |
Increase/(decrease) in accrued expenses and other liabilities |
26 |
|
(76) |
|
(18) |
Increase/(decrease) in Directors' fees payable |
|
|
29 |
|
(70) |
|
(70) |
Decrease
in administration fees payable |
|
|
|
|
(1) |
|
(9) |
|
(9) |
Net
cash (used in)/provided by operating activities |
(5,151) |
|
4,399 |
|
(202) |
|
|
|
|
|
|
|
|
|
|
|
Change in
cash |
|
|
|
|
|
(5,151) |
|
4,399 |
|
(202) |
Cash, beginning of
the period/year |
|
|
|
|
|
5,676 |
|
1,080 |
|
1,080 |
Effect of exchange
rate fluctuations |
|
|
|
|
|
126 |
|
197 |
|
165 |
Cash, end of the
period/year |
|
|
|
|
|
651 |
|
5,676 |
|
1,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the
period/year |
|
|
|
|
|
|
|
|
|
|
Cash and
bank balances denominated in US Dollars |
140 |
|
750 |
|
94 |
Cash and
bank balances denominated in Sterling1 |
|
511 |
|
4,926 |
|
949 |
|
|
|
|
|
|
651 |
|
5,676 |
|
1,043 |
|
|
|
|
|
|
|
|
|
|
|
1. Cash
and bank balances in Sterling (GBP'000) |
|
403 |
|
3,868 |
|
719 |
See accompanying Notes to the Interim
Unaudited Financial Statements.
Notes to the Interim Unaudited Financial Statements
For the period from 1 January 2019 to
30 June 2019
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 US Dollars and
Sterling.
2. Organisation
The Company is organised as a feeder fund and seeks to achieve its
investment objective by investing all of its investable assets, net
of short-term working capital requirements, in the ordinary US
Dollar and Sterling denominated Class B
shares issued by Brevan Howard Master Fund Limited (the “Master
Fund”) and, as such, the Company is directly and materially
affected by the performance and actions of the Master Fund.
The Master Fund is an open-ended investment company with limited
liability formed under the laws of the Cayman Islands on 22
January 2003. The investment objective of the Master Fund is
to generate consistent long-term appreciation through active
leveraged trading and investment on a global basis. The Master Fund
employs a combination of investment strategies that focus primarily
on economic change and monetary policy and market inefficiencies.
The underlying philosophy is to construct strategies, often
contingent in nature with superior risk/return profiles, whose
outcome will often be crystallised by an expected event occurring
within a pre-determined period of time. New trading strategies will
be added as investment opportunities present themselves.
As such, the Interim Unaudited Financial Statements of the
Company should be read in conjunction with the Interim Unaudited
Financial Statements of the Master Fund which can be found on the
Company’s website, www.bhmacro.com.
At the date of these Interim Unaudited Financial Statements,
there were two other feeder funds in operation in addition to the
Company that invest all of their assets (net of working capital) in
the Master Fund. Furthermore, Brevan Howard Multi-Strategy Master
Fund Limited, another fund managed by the Manager, invests some of
its assets in the Master Fund as at the date of these Financial
Statements.
Off-Balance Sheet, market and credit risks of the Master Fund’s
investments and activities are discussed in the notes to the Master
Fund’s Interim Unaudited Financial Statements. The Company’s
investment in the Master Fund exposes it to various types of risk,
which are associated with the financial instruments and markets in
which the Brevan Howard underlying funds invest.
Market risk represents the potential loss in value of financial
instruments caused by movements in market factors including, but
not limited to, market liquidity, investor sentiment and foreign
exchange rates.
The Manager
Brevan Howard Capital Management LP (the “Manager”) is the Manager
of the Company. The Manager is a Jersey Limited Partnership, the
general partner of which is Brevan Howard Capital Management
Limited, a Jersey Limited Company (the “General Partner”). The
General Partner is regulated in the conduct of fund services
business by the Jersey Financial Services Commission pursuant to
the Financial Services (Jersey) Law 1998 and the Orders made
thereunder.
The Manager also manages the Master Fund and in that capacity,
as at the date of these Financial Statements, has delegated the
function of investment management of the Master Fund to Brevan
Howard Asset Management LLP, Brevan Howard (Hong Kong) Limited, Brevan Howard Investment
Products Limited, Brevan Howard US Investment Management LP, Brevan
Howard Private Limited, DW Partners, LP and BH-DG Systematic
Trading LLP.
3. Significant accounting policies
The most recent Annual Audited Financial Statements, which give a
true and fair view, are prepared in conformity with United States
Generally Accepted Accounting Principles and comply with the
Companies (Guernsey) Law, 2008.
These Interim Unaudited Financial Statements have been prepared
following the same accounting policies and methods of computation
as the most recent Annual Audited Financial Statements. The
functional and reporting currency of the Company is US Dollars.
As further described in the Directors’ Report, these Interim
Unaudited Financial Statements have been prepared using the going
concern basis of accounting.
The Company is an Investment Entity which has applied the
provisions of Accounting Standards Codification (“ASC”) 946.
The following are the significant accounting policies adopted by
the Company:
Valuation of investments
The Company records its investment in the Master Fund at fair
value. Fair value is determined as the Company’s proportionate
share of the Master Fund’s capital, which approximates fair value.
At 30 June 2019, the Company is the
sole investor in the Master Fund’s ordinary US Dollar and Sterling
Class B shares as disclosed below. Within the table below, the
investment in each share class in the Master Fund is included, with
the overall total investment shown in the Interim Unaudited
Statement of Assets and Liabilities.
|
Percentage of
Master Fund's capital |
NAV per Share
(Class B) |
Shares held in the Master Fund |
Investment in Master Fund |
Investment in Master Fund |
|
|
|
(Class B) |
CCY '000 |
US$'000 |
30 June
2019 |
|
|
|
|
|
|
|
|
|
US Dollar |
2.59% |
$3,638.71 |
18,179 |
$66,148 |
66,148 |
Sterling |
19.21% |
£3,708.11 |
103,903 |
£385,282 |
490,368 |
|
|
|
|
|
|
|
|
|
556,516 |
|
|
|
|
|
|
|
|
|
|
|
31
December 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar |
2.69% |
$3,234.22 |
20,315 |
$65,704 |
65,704 |
Sterling |
17.81% |
£3,321.41 |
102,785 |
£341,390 |
434,863 |
|
|
|
|
|
|
|
|
|
500,567 |
|
|
|
|
|
|
|
|
|
|
|
30 June
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar |
1.95% |
$3,063.81 |
21,129 |
$64,734 |
64,734 |
Sterling |
13.06% |
£3,175.61 |
103,626 |
£329,075 |
434,461 |
|
|
|
|
|
|
|
|
499,195 |
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 Interim
Unaudited Financial Statements which are available on the Company’s
website, www.bhmacro.com. The Board has noted that the changes in
trading structure of the Master Fund which took place during 2018
and are referred to in the Chairman’s Statement has resulted in a
significant increase in the figure for Investment in Affiliated
Funds disclosed in the Master Fund’s accounts.
Income and expenses
The Company records monthly its proportionate share of the Master
Fund’s income, expenses and realised and unrealised gains and
losses. In addition, the Company accrues its own income and
expenses.
Use of estimates
The preparation of Financial Statements in conformity with United
States Generally Accepted Accounting Principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of those Financial Statements and the
reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ
from those estimates.
Leverage
The Manager has discretion, subject to the prior approval of a
majority of the independent Directors, to employ leverage for and
on behalf of the Company by way of borrowings to effect share
purchases or share buy-backs, to satisfy working capital
requirements and to finance further investments in the Master
Fund.
The Company may borrow up to 20% of its NAV, calculated as at
the time of borrowing. Additional borrowing over 20% of NAV may
only occur if approved by an ordinary resolution of the
Shareholders.
Foreign exchange
Investment securities and other assets and liabilities of the
Sterling share class are translated
into US Dollars, the Company’s reporting currency, using exchange
rates at the reporting date. Transactions reported in the Unaudited
Statement of Operations are translated into US Dollar amounts at
the date of such transactions. The share capital and other capital
reserve accounts are translated at the historic rate ruling at the
date of the transaction. Exchange differences arising on
translation are included in the Unaudited Statement of Operations.
This adjustment has no effect on the value of net assets allocated
to the individual share classes.
Cash and bank balances
Cash and bank balances comprise 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.
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 period ended 30 June
2019, US$1,142,073
(31 December 2018: US$2,354,588 and 30 June
2018: US$1,190,736) was earned
by the Manager as net management fees. At 30
June 2019, US$186,656
(31 December 2018: US$203,414
and 30 June 2018: US$193,118) 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 period
ended 30 June 2019, US$11,551,492 (31 December
2018: US$5,903,616 and
30 June 2018: US$1,530,947) was earned by the Manager as
performance fees. At 30 June 2019,
US$11,389,377 (31 December 2018: US$5,683,990 and 30 June
2018: US$1,480,830) 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 three 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 2018 and 30 June
2018: £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 period ended 30 June 2019, US$47,171 (31 December
2018: US$94,382 and
30 June 2018: US$46,444) was earned by the Administrator as
administration fees. The amounts outstanding are disclosed on the
Unaudited Statement of Assets and Liabilities.
5.
Share capital
Issued and authorised share capital
The Company has the power to issue an unlimited number of ordinary
shares with no par value and an unlimited number of shares with a
par value. Shares may be divided into at least two classes
denominated in US Dollar and Sterling.
Further issue of shares may be made in accordance with the
Articles. Shares may be issued in differing currency classes of
ordinary redeemable shares including C shares. The treasury shares
have arisen as a result of the discount management programme as
described in note 8. The tables below show the movement in ordinary
and treasury shares.
For the
period from 1 January 2019 to 30 June 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
|
|
In issue at 1
January 2019 |
|
|
|
|
|
|
2,664,541 |
|
14,136,242 |
Share
conversions |
|
|
|
|
|
(272,586) |
|
217,695 |
In
issue at 30 June 2019 |
|
|
|
|
|
2,391,955 |
|
14,353,937 |
|
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
|
|
|
In
issue at 1 January 2019 and 30 June 2019 |
|
|
|
|
|
331,228 |
|
1,450,652 |
Percentage of class |
|
|
|
|
|
12.16% |
|
9.18% |
For the
year ended to 31 December 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
|
|
In
issue at 1 January 2018 |
|
|
|
|
|
2,782,034 |
|
14,046,048 |
Share
conversions |
|
|
|
|
|
(117,493) |
|
90,194 |
In
issue at 31 December 2018 |
|
|
|
|
|
2,664,541 |
|
14,136,242 |
|
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
|
|
|
In
issue at 1 January 2018 and 31 December 2018 |
|
|
|
331,228 |
|
1,450,652 |
Percentage of class |
|
|
|
|
|
11.06% |
|
9.31% |
|
|
|
|
|
|
|
|
|
|
|
For the
period from 1 January 2018 to 30 June 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
|
|
|
|
In
issue at 1 January 2018 |
|
|
|
|
|
2,782,034 |
|
14,046,048 |
Share
conversions |
|
|
|
|
|
(42,566) |
|
31,897 |
In
issue at 30 June 2018 |
|
|
|
|
|
2,739,468 |
|
14,077,945 |
|
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
|
|
|
In
issue at 1 January 2018 and 30 June 2018 |
|
|
|
|
331,228 |
|
1,450,652 |
Percentage of class |
|
|
|
|
|
10.79% |
|
9.34% |
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 20 June 2019, the Directors have
the power to issue further shares totalling 867,004 US Dollar shares and 5,068,228
Sterling shares, respectively and, as
described in the Company’s announcement on 4
June 2019, shall limit the use of authority in respect of
the Sterling shares to 4,727,417
Sterling shares. 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 Interim Unaudited Financial
Statements. Income tax and related interest and penalties would be
recognised by the Company as tax expense in the Unaudited Statement
of Operations if the tax positions were deemed not to meet the
more-likely-than-not threshold.
The Company analyses all open tax years for all major taxing
jurisdictions. Open tax years are those that are open for
examination by taxing authorities, as defined by the Statute of
Limitations in each jurisdiction. The Company identifies its major
tax jurisdictions as: 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 30 June 2019 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.
Annual offer of partial return of capital
The decision to make a partial return of capital in any particular
year and the amount of the return depended, among other things, on
prevailing market conditions, the ability of the Company to
liquidate its investments to fund the capital return, the success
of prior capital returns and applicable legal, regulatory and tax
considerations.
As part of the Tender Offer that completed in April 2017 the annual partial capital return
provisions were disapplied but have now been reinstated for the
year ending 31 December 2019.
Class closure resolutions
If in the year from 1 January 2018 to
31 December 2018, any class of shares
had traded at an average discount at or in excess of 8% of the
monthly NAV (prior to 1 January 2018,
a threshold of 10% applied in respect of the Company’s class
closure provisions), the Company would have held a vote of the
relevant class to discontinue that class. The average discounts to
NAV for the Sterling and US Dollar
shares for that year were 7.42% and 7.22% respectively and
consequently no discontinuation vote will be held in 2019.
The Company’s class closure provisions set out in the Articles
of Incorporation have now been reinstated in respect of the twelve
month period ending on 31 December
2019 and thereafter.
The arrangements are described more fully in the Company’s
principal documents which were approved at the EGM on 24 February 2017.
9. Financial highlights
The following tables include selected data for a single ordinary
share of each of the ordinary share classes in issue at
30 June 2019 and other performance
information derived from the Financial Statements.
The per share amounts and ratios which are shown reflect the
income and expenses of the Company for each class of ordinary
share.
|
|
|
|
|
|
|
30.06.19 |
|
30.06.19 |
|
|
|
|
|
|
US Dollar shares |
|
Sterling shares |
|
|
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
|
Net
asset value at beginning of the period |
|
|
|
24.67 |
|
24.13 |
|
|
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
|
Net
investment loss* |
|
|
|
|
|
(0.74) |
|
(0.71) |
Net
realised and unrealised gain on investment |
|
|
|
3.25 |
|
2.89 |
Other
capital items** |
|
|
|
|
|
(0.11) |
|
0.01 |
Total
gain |
|
|
|
|
|
2.40 |
|
2.19 |
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
|
27.07 |
|
26.32 |
|
|
|
|
|
|
|
|
|
|
Total
income before performance fees |
|
|
|
12.03% |
|
11.32% |
Performance fees |
|
|
|
|
|
(2.31%) |
|
(2.28%) |
Total
gain after performance fees |
|
|
|
9.72% |
|
9.04% |
An individual Shareholder’s return may vary from these returns
based on the timing of their purchase or sale of shares. All
figures contained herein in respect of the period ended
30 June 2019 are not annualised.
|
|
|
|
|
30.06.19 |
|
30.06.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental
data |
|
|
|
|
|
|
Net asset value, end
of the period |
|
|
|
64,757 |
|
377,726 |
Average net asset
value for the period |
|
|
|
66,350 |
|
352,439 |
|
|
|
|
|
30.06.19 |
30.06.19 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
0.30% |
|
0.30% |
|
Master
Fund expenses**** |
|
|
1.17% |
|
1.19% |
|
Master
Fund interest expenses***** |
|
1.80% |
|
1.80% |
Performance fees |
|
|
|
2.27% |
|
2.20% |
|
|
|
|
|
5.54% |
|
5.49% |
|
|
|
|
|
|
|
|
Net
investment loss before performance fees* |
|
(0.66%) |
|
(0.66%) |
|
|
|
|
|
|
|
|
Net
investment loss after performance fees* |
|
(2.93%) |
|
(2.86%) |
|
|
|
|
|
31.12.18 |
|
31.12.18 |
|
|
|
|
US Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
Net
asset value at beginning of the year |
|
21.62 |
|
21.47 |
Income from investment operations |
|
|
|
|
|
|
|
|
Net
investment loss* |
|
|
|
(0.63) |
|
(0.66) |
Net
realised and unrealised loss on investment |
|
3.75 |
|
3.31 |
Other
capital items** |
|
|
|
(0.07) |
|
0.01 |
Total
return |
|
|
|
3.05 |
|
2.66 |
|
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
24.67 |
|
24.13 |
|
|
|
|
|
|
|
|
Total loss
before performance fees |
|
|
|
15.32% |
|
13.73% |
Performance fees |
|
|
|
(1.16%) |
|
(1.30%) |
Total
loss after performance fees |
|
14.16% |
|
12.43% |
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 2018 to 31
December 2018. An individual Shareholder’s return may vary
from these returns based on the timing of their purchase or sale of
shares.
|
|
|
|
|
|
|
31.12.18 |
|
31.12.18 |
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental data |
|
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
|
|
65,745 |
|
341,151 |
Average
net asset value for the year |
|
|
|
63,940 |
|
325,195 |
|
|
|
|
|
|
|
31.12.18 |
|
31.12.18 |
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
|
|
0.62% |
|
0.65% |
|
Master
Fund expenses**** |
|
|
|
|
1.62% |
|
1.64% |
|
Master
Fund interest expenses***** |
|
|
|
1.15% |
|
1.14% |
Performance fees |
|
|
|
|
|
1.06% |
|
1.21% |
|
|
|
|
|
|
|
4.45% |
|
4.64% |
|
|
|
|
|
|
|
|
|
|
Net
investment loss before performance fees* |
|
(1.62%) |
|
(1.63%) |
|
|
|
|
|
|
|
|
|
|
Net
investment loss after performance fees* |
|
(2.68%) |
|
(2.84%) |
|
|
|
|
|
|
|
30.06.18 |
|
30.06.18 |
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
|
Net
asset value at beginning of the period |
|
|
|
21.62 |
|
21.47 |
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment loss* |
|
|
|
|
|
(0.39) |
|
(0.47) |
Net
realised and unrealised loss on investment |
|
|
|
2.45 |
|
2.33 |
Other
capital items** |
|
|
|
|
|
- |
|
- |
Total
loss |
|
|
|
2.06 |
|
1.86 |
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
|
23.68 |
|
23.33 |
|
|
|
|
|
|
|
|
|
|
Total loss
before performance fees |
|
|
|
|
|
9.63% |
|
9.07% |
Performance fees |
|
|
|
|
|
(0.05%) |
|
(0.37%) |
Total
loss after performance fees |
|
|
|
9.58% |
|
8.70% |
An individual Shareholder’s return may vary from these returns
based on the timing of their purchase or sale of shares. All
figures contained herein in respect of the period ended
30 June 2018 are not annualised.
|
|
|
|
|
|
|
30.06.18 |
|
30.06.18 |
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental data |
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
|
64,882 |
|
328,499 |
Average
net asset value for the period |
|
|
|
62,728 |
|
313,433 |
|
|
|
|
|
|
|
30.06.18 |
|
30.06.18 |
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
Company
expenses*** |
|
|
|
|
|
0.31% |
|
0.34% |
|
Master
Fund expenses**** |
|
|
|
|
0.96% |
|
0.97% |
|
Master
Fund interest expenses***** |
|
|
|
0.85% |
|
0.86% |
Performance fees |
|
|
|
|
|
0.02% |
|
0.36% |
|
|
|
|
|
|
|
2.14% |
|
2.53% |
|
|
|
|
|
|
|
|
|
|
Net
investment loss before performance fee* |
|
(1.71%) |
|
(1.75%) |
|
|
|
|
|
|
|
|
|
|
Net
investment loss after performance fees* |
|
(1.73%) |
|
(2.11%) |
*
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 Unaudited 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. The annual fees are £65,000 for
Colin Maltby, the Chairman, £47,500
for John Le Poidevin, the Chair of
the Audit Committee, £47,500 for Claire
Whittet, as Chair of the Management Engagement Committee and
the Senior Independent Director and £40,000 for all other
Directors.
11. Subsequent events
The Directors have evaluated subsequent events up to 22 August 2019, which is the date that the
Interim Unaudited Financial Statements were available to be issued,
and have concluded there are no further items that require
disclosure or adjustment to the Interim Unaudited Financial
Statements.
Historic Performance Summary
As at 30 June 2019
|
|
30.06.19 |
|
31.12.18 |
|
31.12.17 |
|
31.12.16 |
|
31.12.15 |
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
increase/(decrease) in net assets |
|
|
|
|
|
|
|
|
resulting from operations |
45,204 |
|
34,985 |
|
4,725 |
|
(150,245) |
|
(91,220) |
Total
assets |
557,254 |
|
506,307 |
|
465,787 |
|
866,740 |
|
1,499,648 |
Total
liabilities |
(11,747) |
|
(6,004) |
|
(469) |
|
(1,897) |
|
(4,755) |
Net assets |
|
545,507 |
|
500,303 |
|
465,318 |
|
864,843 |
|
1,494,893 |
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
2,391,955 |
|
2,664,541 |
|
2,782,034 |
|
9,975,524 |
|
17,202,974 |
Euro
shares |
- |
|
- |
|
- |
|
1,514,872 |
|
4,163,208 |
Sterling shares |
|
14,353,937 |
|
14,136,242 |
|
14,046,048 |
|
22,371,669 |
|
33,427,871 |
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
|
|
|
|
US Dollar shares |
|
US$27.07 |
|
US$24.67 |
|
US$21.62 |
|
US$21.68 |
|
US$20.33 |
Euro
shares |
- |
|
- |
|
- |
|
€21.87 |
|
€20.56 |
Sterling shares |
|
£26.32 |
|
£24.13 |
|
£21.47 |
|
£22.44 |
|
£21.21 |
|
|
|
|
|
|
|
|
|
|
|
|
Company Information
Directors
Colin Maltby (Chairman, from
20 June 2019)
Huw Evans (Chairman and Director,
until his retirement on 20 June
2019)
Richard Horlick (appointed
1 May 2019)
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