Third Point
Offshore Investors Limited (the "Company")
(a closed-ended investment company
incorporated with limited liability under the laws of Guernsey with
registered number 47161)
28 April 2020
FULL YEAR RESULTS
FOR THE TWELVE MONTHS ENDED 31 DECEMBER
2019
Third Point Offshore Investors Limited (“TPOIL” or the
“Company”), the closed-end, London
listed event-driven, value-oriented hedge fund managed by Daniel S.
Loeb’s Third Point LLC (the “Investment Manager”) announces its
full year results for the twelve months ended 31 December 2019.
Financial Highlights (as at 31
December 2019 unless otherwise stated)
- Returns for USD class of 22.7%
Ticker |
Tranche |
NAV
FY19 |
NAV
FY18 |
Return |
TPOU |
USD
Class $ |
$21.15 |
$17.24 |
22.7% |
- The Company’s Net Asset Value (“NAV”) increased 2.57% to
$834.5 million[1] (FY18: $813.6 million)
Portfolio Performance of the Master
Fund
· The Investment Manager acknowledges
that the recent impact of the COVID-19 pandemic risks rendering any
discussion of 2019 performance redundant and will address the
current environment in the “Outlook” section below.
· Risk-adjusted returns for the year
were strong and were achieved with low market exposure following
the Investment Manager’s enhanced focus on portfolio construction
during the period.
· The Investment Manager focused on its
core strength of activism during the period, allocating increased
internal resources to sourcing and implementing activist and
constructivist ideas and increasing the strategy’s exposure to the
highest level in Third Point’s history.[2]
· The Investment Manager generated
higher-quality returns from activism by combining a strong risk
management framework with its robust portfolio analytics efforts,
hedging out certain systematic risks on core activist
positions.
· Performance for the year was primarily
attributable to long equity activist positions. In credit, an
oversized position in Argentine government debt more than offset
gains in our structured credit book and detracted from overall Fund
performance. Shorting was also challenging in 2019 given the sharp
rotation away from momentum into value-oriented names in late
2019.
Outlook
· The current COVID-19 situation
presents a significant supply and demand shock for the global
economy. Despite the Central Banks efforts to mitigate a severe
economic downturn, volatility persists across markets, sectors and
industries. The Investment Manager expects the unpredictable nature
of the markets to continue until data indicates that the virus is
under control.
· With chances of recession almost 100%,
the Investment Manager has taken the following steps given current
drawdowns and volatility: reducing exposures and looking for
opportunities in credit, while remaining opportunistic when
particularly high-quality companies appear to be “on sale”.
· Third Point started as a
distressed-debt fund and the Investment Manager counts its ability
to invest throughout a company’s capital structure as a core
strength.
· While the current investment market is
unprecedented, the Investment Manager believes its strength in
structured credit, distressed corporate credit, and special
situations will inure to the benefit of the Company and its
shareholders.
· The Investment Manager remains focused
on bottom-up, fundamental investing and will continue to monitor
global market dynamics including political events and shifts in
economic policy, data, and forecasts.
Steve Bates, Chairman of Third
Point Offshore Investors Limited, commented: “While the
COVID-19 pandemic has created an unprecedented landscape for global
markets, the Board is confident that the Investment Manager’s
defensive positioning and credit investing experience will enable
it to responsibly navigate the Company through this uncertain
economic environment.
“I am pleased with the progress being made to demonstrate the
Investment Manager’s commitment to reducing the Company’s
persistent discount to NAV, namely buying back up to $200 million worth of stock. The Board is hopeful
that the long-term nature of the buyback programme, to take place
over a three-year period, as well as the Investment Manager’s
future performance, will enable shareholders to weather the current
macro challenges.”
Enquiries:
Third Point Investor Relations
|
+1 212 715 6707
ir@thirdpoint.com |
Greenbrook
James Madsen, Daniel Oliver |
TPOI@greenbrookpr.com |
|
|
Chairman’s Statement
Dear Shareholder,
Any review of 2019 has been superseded by the eruption of the
COVID pandemic. This report does indeed cover the last fiscal year,
but I wanted to begin with some introductory comments on COVID. It
is clear that the impact of the containment measures deployed
around the world will have a profoundly depressing effect on global
economic output. Many pundits ponder the scale of the decline and
look for historical comparisons. Coming up with accurate forecasts
is an impossible task, of course, as nobody knows how long the
current measures will need to be in place to control the spread of
infection, and the duration of this period will be the primary
determinant of the economic impact. The abrupt cessation of
activity across many sectors has been mitigated by unprecedented
fiscal and monetary stimulus in most countries around the world.
These are intended to give consumers and businesses confidence that
policymakers will ‘do what it takes’ to avoid the wholesale
destruction of the economy. At the time of writing, the effect of
restrictions to bear down on the spread of the virus seem to be
having an impact. That, combined with loose policy settings around
the world, have been enough to trigger a rally in markets, but
volatility is likely to lurk in the background until the path out
of lockdown becomes clearer.
Turning to 2019, which feels like a different era, markets had
been very buoyant, but it is worth recalling the gloom which
prevailed at the start of the year. At that point, interest rates
were on an upward trajectory and markets were unsettled by the
prospect of several further rises in rates. Instead, reacting to
weaker than expected economic data, Central Banks engaged in a
round of coordinated easing which had been very supportive of risky
assets like equities.
For Third Point Offshore Investors Limited (the “Company”), the
fourth quarter of 2018 was chastening, and the Master Fund in which
the Company invests substantially all of its assets, under
Daniel Loeb, entered the year with
net equity exposure somewhat below 50%1. This number has
fluctuated somewhat since such time, but it is important to note
that the ensuing returns to NAV in 2019 were achieved with
relatively low exposure to equity markets. The return was +17.1%
compared with a rise of just over 28% for the MSCI World Index.
This combination of return based on low market exposures means that
risk adjusted returns were strong. The Board believes, and we hope
shareholders agree, that these risk- adjusted returns are
indicative of a thoughtful and insightful investment process.
During the year, the largest contributors to returns were from
activist positions held in the underlying Master Fund. These now
indirectly represent more than 50% of the Company’s net exposure
and have been a major source of return throughout the life of the
strategy. Three new activist positions were added during the year:
EssilorLuxottica SA, the French-Italian eyewear business; Sony, the
warhorse of Japanese innovation; and Prudential plc, a
multinational life insurance and financial services company. A lot
of energy is invested in uncovering new activist opportunities, but
some legacy positions also did very well in 2019. Campbell Soup,
Nestle´, Baxter, and United Technologies were all strong
contributors to profits.
On the other side of the ledger, a position in sovereign
Argentinian bonds, historically a significant contributor to
Company profits, did not work well as local politics intervened. A
couple of individual longs also hurt (Chemours and Uber), and it is
perhaps not surprising that the short positions also mostly lost
money. As you will recall, the Investment Manager does not as a
practice disclose the identity of its short holdings as it prefers
to allow the fundamentals of these holdings to mature in their own
time, rather than seeking to influence other investors by shouting
from the rooftops.
As you will know, the Company’s shares have been trading for
several years at a large discount to Net Asset Value (“NAV”). Over
time, the Board has introduced a series of measures to try and
improve matters. These have included listing the Company’s shares
on the Premium Section of the London Stock Exchange, operating a
buyback programme, reducing fees, and so on. Although significant,
these have not had the effect on closing the discount which the
Board desires.
For this reason, we announced at the end of September that over
the next three years, the Company would be buying back up to
$200 million worth of its stock. The
scale of the buyback is an attempt to demonstrate to our
shareholders and the market that we are serious about reducing the
discount and that they can expect to see the Company’s returns
bolstered by the accretion to NAV from buybacks. In the past year,
for example, buybacks added 45 cents
to returns. We also hope that returns from the investment strategy
itself will be enhanced by the erosion of that discount. Of course,
the impact of the COVID pandemic has introduced unwelcome
volatility into the picture, and the market turmoil which has
followed has led to a confusing picture. Nevertheless, the Company
remains committed to its buyback agenda and is still active in the
market. I would remind shareholders that this is a three-year
programme, but that does not mean that we are committed to buying
an equal amount every month. We must instead be prudent in the
exercise of the policy in the light of market conditions. As our
programme is to take place over a three-year period, we need to
look through the current problems in the expectation that some
normality will eventually prevail.
A buyback on its own is not a universal panacea. Discounts exist
for all sorts of reasons, and we have concluded that we need to
disseminate the Third Point story to a wider audience. This
involves both better communications and better materials. Over the
past few months we have made progress on both these fronts, but
there are further improvements to come. I would add that the level
of disclosure in the portfolio may look light compared to a
conventional investment trust, but a number of the key activist
positions are commercially sensitive, in particular when they are
being built, and the Manager exercises the due caution needed to
ensure that positions are fully ‘sized’ before being made public.
In any event, both the Board and the Manager agree that more
communication with the shareholders is key to improving the rating
of the Company’s shares, and we are committed to making this a
reality. With this in mind, the Manager recently began releasing
weekly returns estimates in an effort to improve transparency with
investors. We have asked our shareholders to be patient with us and
to let the cumulative effect of the buyback and the increased
communication have their desired effect. We will be putting forward
a motion to the Annual General Meeting (“AGM”) that the name of the
Company be changed to ‘Third Point Investors Limited’, so dropping
the Offshore qualifier. It is felt that the adjective ‘Offshore’
connotes an entity less respectable than the reality of your
Company. We hope its removal will add at the margin to its appeal
to a broader shareholder group.
There has also been some confusion about the percentage of our
assets which can be held in other closed- ended vehicles. The
Company invests substantially all its assets into the Master Fund.
The Company does not invest in closed-ended investment funds which
are listed on the official list of the Stock Exchange. The
Company’s Investment Policy will be clarified accordingly at the
next Annual General Meeting (“AGM”).
Notice of the AGM will be sent out to investors in due course
including arrangements in light of the COVID-19 crisis.
Beyond the question of governance, the Board believes that Third
Point is a unique investment vehicle and that there are no
comparable closed-ended structures available to investors in the
London market. The Manager has a
strong long-term track record and a sterling reputation.
In August, Huw Evans joined the
Board. He is a Chartered Accountant with a background in corporate
finance and is based in Guernsey. Chris
Legge has indicated that he will retire at the AGM on
1 July 2020 and Huw will then replace
him as Chair of the Audit Committee. I would like to thank Chris
for his long service to the Company and for the bonhomie which he
brings to proceedings while keeping an eagle eye on the accounts.
Huw will be standing for election at the AGM and I urge you to
support him.
Third Point has reacted to current market conditions by
positioning itself more defensively by reducing exposures, among
other things, and continues to monitor a very fluid situation in an
effort to invest responsibly in an extremely uncertain economic
backdrop. There is no historical precedent for markets navigating
their way through a crisis like this, but it seems clear that the
global economy will come back from its current slump, even if that
takes a considerable time. As events unfold, Dan Loeb and his team feel that the underlying
quality of many of the companies held in the portfolio will offer
attractive returns and that the need to restructure to unlock value
will be more relevant than ever. Inevitably, the volatility and
disruption we see will provide other opportunities for a
well-resourced and nimble manager like Third Point.
My fellow Directors and I are honoured to serve our
shareholders.
Steve
Bates
28 April 2020
Strategic Report
The Directors submit their Strategic Report and Directors’
Report, together with the Company’s Statements of Assets and
Liabilities, Statements of Operations, Statements of Changes in Net
Assets, Statements of Cash Flows and the related notes for the year
ended 31 December 2019, together the
“Audited Financial Statements”. These Audited Financial Statements
have been properly prepared, in accordance with accounting
principles generally accepted in the
United States of America, any relevant enactment for the
time being in force, and are in agreement with the accounting
records.
The Company
The Company was incorporated in Guernsey on 19 June 2007 as an authorised closed-ended
investment scheme and was admitted to a secondary listing (Chapter
14) on the Official List of the London Stock Exchange (“LSE”) on
23 July 2007. The proceeds from the
initial issue of shares on listing amounted to approximately
US$523 million. Following changes to
the Listing Rules on 6 April 2010,
the secondary listing became a standard listing. The Company was
admitted to the Premium Official List Segment (“Premium Listing”)
of the LSE on 10 September 2018.
The shares of the Company are quoted on the LSE in two
currencies. On 28 March 2019, FTSE
published an update to the UK Index Series Guide to Calculation
Method for the Median Liquidity Test which stated that: “Where a
security has a market quote in multiple currencies, only volume
data from the eligible Sterling quote will be used in the liquidity
test.” Based on this revised calculation method the Shares have
been removed from the UK Index Series.
The Company is a member of the Association of Investment
Companies (“AIC”).
Investment Objective and Policy
The Company’s investment objective is to provide its
Shareholders with consistent long term capital appreciation
utilising the investment skills of Third Point LLC (the “Investment
Manager”, “Manager”, or “Firm”) through investment of all of its
capital (net of short term working capital requirements) in Class E
and N Shares of Third Point Offshore Fund, Ltd (the “Master Fund”),
an exempted company formed under the laws of the Cayman Islands on 21
October 1996.
The Master Fund is a limited partner of Third Point Offshore
Master Fund L.P. (the “Master Partnership”), an exempted limited
partnership under the laws of the Cayman
Islands, of which Third Point Advisors II L.L.C., an
affiliate of the Investment Manager, is the general partner. Third
Point LLC is the Investment Manager to the Company, the Master Fund
and the Master Partnership. The Master Fund and the Master
Partnership have the same investment objectives, investment
strategies and investment restrictions.
The Master Fund and Master Partnership’s investment objective is
to seek to generate consistent long-term capital appreciation, by
investing capital in securities and other instruments in select
asset classes, sectors, and geographies, by taking long and short
positions. The Investment Manager’s implementation of the Master
Fund and Master Partnership’s investment policies is the main
driver of the Company’s performance.
The Investment Manager identifies opportunities by combining a
fundamental approach to single security analysis with a reasoned
view on global, political and economic events that shapes portfolio
construction and drives risk management.
The Investment Manager seeks to take advantage of market and
economic dislocations and supplements its analysis with
considerations of managing overall exposures across specific asset
classes, sectors, and geographies by evaluating sizing,
concentration, factor risk, and beta, among other considerations.
The resulting portfolio expresses the Investment Manager’s best
ideas for generating alpha and its tolerance for risk given global
market conditions. The Investment Manager is opportunistic and
often seeks a catalyst that will unlock value or alter the lens
through which the broad market values a particular investment. The
Investment Manager applies aspects of this framework to its
decision-making process, and this approach informs the timing of
each investment and its associated risk.
As of 1 January 2019, the Company
transferred substantially all of its holding into a newly-created
share class of the Master Fund (Class N). The new share class
attracts a lower management fee and the Company now also qualifies
for an additional reduction in the management fee applicable to it
based on its size and longevity as an investor in the Master Fund.
As a result, the Company’s management fee in the newly created
share class has been reduced from 2.0% to 1.25% per annum since
1 January 2019.
The new share class is subject to a 25% quarterly redemption
gate.
Any Ordinary Shares bought for the Company’s account (e.g. as
part of the buyback programme) traded mid-month will be purchased
and held by the Master Partnership until the Company is able to
cancel the shares following each month-end. Shares cannot be
cancelled intra-month because of legal and logistical factors. The
Company and the Master Partnership do not intend to hold any shares
longer than the minimum required to comply with these factors,
expected to be no more than one month.
Results and Dividends
The results for the year are set out in the Statements of
Operations. As announced on 1 March
2018, the Board, after consultation with major Shareholders,
resolved that the Company would stop paying dividends.
As an alternative means of capital return, on 5 December 2018, the Board announced the
implementation of a share buyback programme, with share purchases
being made through the market at prices below the prevailing NAV
per share.
Key performance indicators
(“KPI’s”)
At each Board meeting, the Board considers a number of
performance measures to assess the Company’s success in achieving
its objectives. Below are the main KPI’s which have been identified
by the Board for determining the progress of the Company:
•
Change in Net Asset Value (NAV);
•
Discount to the NAV;
•
Share price; and
•
Ongoing charges.
Viability Statement
In accordance with principle 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council in July 2018 (“The Code”), the Directors have
assessed the prospects of the Company over the three year period to
31 December 2022. The Directors
consider that three years is an appropriate period based on a
review of the Company’s investment horizon, anticipated cash flows,
management arrangements as well as the liquidity of the Company’s
investment in the Master Fund.
The Company’s investment objective is to provide its
Shareholders with consistent long term capital appreciation,
utilising the investment skills of the Investment Manager, through
investment of all of its capital (net of short-term working capital
requirements) in Class E and N shares of Third Point Offshore Fund,
Ltd. (the “Master Fund”), an exempted company formed under the laws
of the Cayman Islands on
21 October 1996.
As of 1 January 2019, the Company
transferred substantially all of its holding into a newly-created
share class of the Master Fund. The new share class is subject to a
25% quarterly redemption gate.
The Company is able to redeem an appropriate amount each quarter
to account for Company fees and expenses. The Company’s performance
and operations therefore depend upon the performance of the Master
Fund and the Directors in assessing the viability of the Company
pay particular attention to the risks facing the Master Fund. The
Investment Manager’s Review sets out details of the Company’s
financial performance, and outlook.
In its assessment of the viability of the Company, the Directors
have considered each of the Company’s principal risks and
uncertainties as well as the internal control and financial
reporting processes detailed above and in particular the underlying
investment performance of the Master Fund, share price discount to
the NAV and the impact of Covid-19.
The Directors acknowledge the two year notice period of the
Investment Manager serving notice under the Management Agreement.
To mitigate against this risk, the Directors meet regularly with
the Investment Manager to review the Company’s performance, and
closely monitor the relationship with the Investment Manager.
The Directors have carried out a robust assessment of the
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. This includes the Directors assessment of the impact of
Covid-19 on the Company. The Directors believe that the Company is
well placed to manage its business risks successfully, having taken
into account the current economic outlook.
The Directors, having considered the above risks and reviewed
ongoing budgeted expenses, have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due. The Directors confirm their belief
that the Company will remain viable for the period to 31 December 2022.
Third Point Environmental, Social and
Governance (“ESG”) Policies
The Company is adopting the ESG policies of the Investment
Manager. They are consistent with its thoughts about the community
– inside and outside Third Point – its business, and its
investments. The Manager’s policies mark the beginning of an
ongoing commitment to leading the hedge fund industry in developing
standards for environmental, social, and governance practices.
Below are some of the highlights of the ESG activities and
initiatives that have been undertaken by the Investment
Manager;
Environmental initiatives
LEED-Gold Facilities: Third Point’s offices are located at 55
Hudson Yards, which is part of the first neighbourhood in
Manhattan to receive the LEED-Gold
certification, awarded by the United States Green Building Council
for its green infrastructure, public transportation linkages, and
pedestrian-friendly community design. The neighbourhood operates on
a first-of-its-kind microgrid with two cogeneration plants that
saves 25,000 MT of CO2e greenhouse
gases (equal to the annual emissions of 5,100 cars) from being
emitted annually.
Third Point’s reuse and recycling practices focus on recycling
plastics and paper; reducing container waste; and promoting food
sustainability.
Social Initiatives
The Board and the Manager believe engaged human capital
management is essential for an asset manager, as trained employees
increasingly drive value in the data-driven economy. Third Point is
an Equal Opportunity Employer and has adopted fair chance hiring
practices. They are committed to the benefits of a diverse
workforce in perspective and background. Third Point believes in
life-long learning and encourages workforce development. Third
Point believes that employees should build sustainable financial
futures through their employment at the firm.
Through the “Third Point Gives” program, the Manager offers its
employees multiple opportunities to come together for service
learning and contribute financially to the community.
Governance Initiatives
The Manager strongly encourages good governance practice at all
its investee businesses. Furthermore, the Board of the Company
comprises 6 members of which 5 are independent of the Manager.
Going Concern
After making enquiries and given the nature of the Company and
its investment, and having carried out an assessment of the impact
of Covid-19 on the Company, the Directors are satisfied that it is
appropriate to continue to adopt the going concern basis in
preparing these Audited Financial Statements. The Master Fund
Shares are liquid and can be converted to cash to meet liabilities
as they fall due. These shares are subject to a 25% quarterly
redemption gate. The Board considers this to be sufficient for
normal requirements. After due consideration, the Directors
consider that the Company is able to continue for the foreseeable
future.
Signed on behalf of the Board by:
Steve Bates
Chairman
Christopher Legge
Director
28 April 2020
Directors’ Report
Directors
The Directors of the Company during the year and to the date of
this report are as listed on these Audited Financial
Statements.
Directors’ Interests
Mr. Targoff holds the position of Chief Operating Officer,
Partner and General Counsel of Third Point LLC.
Pursuant to an instrument of indemnity entered into between the
Company and each Director, the Company has undertaken, subject to
certain limitations, to indemnify each Director out of the assets
and profits of the Company against all costs, charges, losses,
damages, expenses and liabilities arising out of any claims made
against them in connection with the performance of their duties as
a Director of the Company.
Steve & Sarah Bates held
6,122 shares as at 31 December 2019.
Christopher Legge held 6,500 shares
as at 31 December 2019.
Rupert & Rosemary Dorey held
25,000 shares between them as at 31 December
2019.
Claire Whittet and her husband
Martin Whittet, held 2,500 shares as
at 31 December 2019 through their
joint Retirement Annuity Trust Scheme (RATS).
Huw Evans held 5,000 shares as at
31 December 2019.
Corporate Governance Policy
The Board has considered the principles and recommendations of
the Association of Investment Companies Code of Corporate
Governance (“AIC Code”). The AIC Code addresses all the principles
set out in the UK Corporate Governance Code (the “UK Code”), as
well as setting out additional principles and recommendations on
issues that are of specific relevance.
The Board has determined that reporting against the principles
and recommendations of the AIC Code will provide appropriate
information to Shareholders. The Company has complied with all the
recommendations of the AIC Code and the relevant provisions of the
UK Code, except as set out below.
The UK Code includes provisions relating to:
•
the role of the chief executive;
•
executive Directors’ remuneration; and
•
the need for an internal audit function.
The Board considers these provisions are not relevant to the
position of the Company, being an externally advised investment
company with no executive directors or employees. The Company has
therefore not reported further in respect of these provisions.
The AIC Code provides a “comply or explain” code of corporate
governance designed especially for the needs of investment
companies. The AIC published the code of corporate governance and
the Company has reviewed its compliance with these standards. The
UK Financial Reporting Council (“FRC”) has confirmed that so far as
investment companies are concerned it considers that companies
which comply with the AIC Code will be treated as meeting their
obligations under the UK Code and Section 9.8.10R(2) of the Listing
Rules. In July 2018, the FRC released
a revised Corporate Governance Code which became effective for
accounting periods beginning on or after 1
January 2019. The AIC also updated its Code on 5 February 2019, to reflect the revised principle
and provisions in the 2018 UK Corporate Governance Code. The 2019
AIC Code also came into effect for accounting periods beginning on
or after 1 January 2019. The Board is
reporting under the 2019 AIC Code for the current year.
The AIC Code requires the Company to appoint Nomination,
Remuneration and Management Engagement Committees. The independent
directors of the Board will act as these committees and the first
meetings were held in August 2019.
The Nomination and Remuneration Committee considers the composition
of and recruitment to the Board, and will consider market practice,
peer group statistics and the requirements of the role when
determining remuneration levels of the Directors. The Management
Engagement Committee will review the performance of the Company’s
service providers.
The Company does not have employees, hence no whistle-blowing
policy is necessary. However, the Directors, as part of the duties
of the Management Engagement Committee (“MEC”), have satisfied
themselves that the Company’s service providers have appropriate
whistleblowing policies and procedures and confirmation has been
sought from the service providers that nothing has arisen under
those policies and procedures which should be brought to the
attention of the Board. Furthermore, the MEC, on an annual basis,
ensures that service providers have appropriate anti money
laundering, disaster recovery and risk monitoring policies in
place.
The Code of Corporate Governance (the “Guernsey Code”) provides
a framework that applies to all entities licensed by the Guernsey
Financial Services Commission (“GFSC”) or which are registered or
authorised as a collective investment scheme. Companies reporting
against the UK Code or the AIC Code are deemed to comply with the
Guernsey Code. It is the Company’s policy to comply with the AIC
Code.
The Board confirms that, throughout the year covered in the
Audited Financial Statements, the Company complied with the
Guernsey Code issued by the GFSC, to the extent it was applicable
based upon its legal and operating structure and its nature, scale
and complexity.
Board Structure
The Board currently consists of six non-executive Directors. As
the Chairman of the Board is an independent non-executive, the
Board considers it unnecessary to appoint a senior independent
Director.
Name |
Position |
Independent |
Date
Appointed |
Steve Bates1 |
Non-Executive Chairman |
Yes |
5 February 2019 |
Rupert Dorey |
Non-Executive Director |
Yes |
5 February 2019 |
Keith Dorrian (retired 3 July
2019) |
Non-Executive Director |
Yes |
19 June 2007 |
Huw Evans |
Non-Executive Director |
Yes |
21 August 2019 |
Christopher Legge |
Non-Executive Director |
Yes |
19 June 2007 |
Joshua L Targoff |
Non-Executive Director |
No |
29 May 2009 |
Claire Whittet |
Non-Executive Director |
Yes |
27 April 2017 |
1Mr. Bates was appointed as Chairman on
5 February 2019, Mrs Whittet had
previously been in the role of Interim Chair.
Mr. J Targoff, the Chief Operating Officer, General Counsel and
Partner of the Investment Manager, is not considered independent.
All other Directors are considered by the Board to be independent
of the Company’s Investment Manager.
As required by the AIC Code, every Director is subject to annual
re-election by the Shareholders. Any Directors appointed to the
Board since the previous AGM also retire and stand for election.
The Independent Directors take the lead in any discussions relating
to the appointment or re-appointment of directors, initially
through the Nomination and Remuneration Committee and, when
recruiting new directors, may use an independent recruitment firm,
as in the past.
New Directors receive an induction from the Investment Manager
on joining the Board, and all Directors undertake relevant training
as necessary.
The Board meets at least four times a year and in addition there
is regular contact between the Board, the Investment Manager and
Northern Trust International Fund Administration Services
(Guernsey) Limited (the “Administrator” and “Corporate Secretary”).
The Board requires to be supplied in a timely manner with
information by the Investment Manager, the Administrator, and the
Corporate Secretary and other advisors in a form and of a quality
appropriate to enable it to discharge its duties. The Board,
excluding Mr. Targoff, regularly reviews the performance of the
Investment Manager and the Master Fund to ensure that performance
is satisfactory and in accordance with the terms and conditions of
the relative appointments and Prospectus. It carries this review
out through consideration of a number of objective and subjective
criteria and through a review of the terms and conditions of the
advisors’ appointment with the aim of evaluating performance,
identifying any weaknesses and ensuring value for money for the
Company’s Shareholders.
The Company has no executive Directors or employees. All
matters, including strategy, investment and dividend policies,
gearing and corporate governance procedures are reserved for
approval by the Board of Directors. The Board receives full
information on the Company’s investment performance, assets,
liabilities and other relevant information in advance of Board
meetings.
Board Tenure and Succession
Planning
The Board notes the AIC Code and UK Code requirement for all
Directors to be subject to annual re-election. In accordance with
the Company’s articles of incorporation, the Independent Directors
and Mr. Targoff (treated for the purposes of the AIC Code as a
Non-Independent Director) retire and offer themselves for
re-election at each AGM.
The Directors undertake an annual evaluation of the Board’s
performance and continuing independence and during this evaluation
(which includes a review of the diversity of experience within the
Board to ensure that it remains appropriate) all Directors are
asked to confirm their future intentions. The Board has robust
procedures for the identification of prospective Non-Executive
Director candidates, and as part of the selection process, due
regard is paid to the recommendations for board diversity. However,
ability and experience will be the prime considerations.
Steve Bates was appointed
Chairman of the Board on 5 February
2019 following an extensive interview process conducted by
the Independent Directors with the assistance of an independent
recruitment firm. In addition, in view of Keith Dorrian’s decision
not to stand for re-election at the 2019 AGM, the Board interviewed
a number of candidates which culminated in Rupert Dorey joining the Board on 5 February 2019. He was subsequently appointed
Chair of the Nomination and Remuneration Committee.
Chris Legge has indicated that he
does not intend to stand for re-election at the AGM in 2020 and the
Board identified Huw Evans as a
suitable replacement. Mr. Evans was appointed as a Director on
21 August 2019 and will be appointed
Chair of the Audit Committee following Mr. Legge’s retirement.
Directors’ Biographies
Steve
Bates
Mr. Bates has over 39 years’ experience in the investment
industry. He began his career in 1980 with James Capel & Co. as an analyst covering US
markets. From 1984 to 2003, he worked for JP Morgan and its
predecessor Flemings where he was responsible for establishing and
managing a range of Emerging Markets businesses and investment
activities across regions. Since then, Mr. Bates has been Chief
Investment Officer for GuardCap Asset Management Limited and its
predecessor company. He is currently Chairman of both VinaCapital
Vietnam Opportunities Fund and is a Non- Executive Director of
Biotech Growth Trust, both of which are listed on the London Stock
Exchange. Mr. Bates holds a law degree from Cambridge University and is a CFA
charterholder.
Rupert
Dorey
Mr. Dorey has 35 years of experience in financial markets. Mr.
Dorey was at CSFB for 17 years from 1988 to 2005 where he
specialised in credit related products, including derivative
instruments where his expertise was principally in the areas of
debt distribution, origination and trading, covering all types of
debt from investment grade to high yield and distressed debt. He
held a number of positions at CSFB, including establishing CSFB’s
high yield debt distribution business in Europe, fixed income credit product
coordinator for European offices and head of UK Credit and Rates
Sales. Since 2005 he has been acting in a Non-Executive
Directorship capacity for a number of Hedge Funds, Private Equity
& Infrastructure Funds, for both listed and unlisted vehicles.
He is former President of the Guernsey Chamber of Commerce and is a
member of the Institute of Directors. Rupert has extensive
experience as both Director and Chairman of exchange listed and
unlisted funds, chairing nine of the funds, seven of which have
been listed and 2 of which are FTSE 250 companies. He has served on
boards with 18 different managers, including Apollo, Aviva,
M&G, Partners Group, Cinven, Neuberger Berman and
Harbourvest.
Huw
Evans
Huw Evans is Guernsey resident
and qualified as a Chartered Accountant with KPMG (then Peat
Marwick Mitchell) in 1983. He subsequently worked for three years
in the Corporate Finance department of Schroders before joining
Phoenix Securities Limited in 1986. Over the next twelve years he
advised a wide range of companies in financial services and other
sectors on mergers and acquisitions and more general corporate
strategy. Since moving to Guernsey in 2005, he has acted as a
professional non-executive Director of a number of Guernsey-based
companies and funds. He holds an MA in Biochemistry from
Cambridge University.
Christopher
Legge
Christopher Legge, is a Guernsey
resident and worked for Ernst & Young in Guernsey from 1983 to
2003. Having joined the firm as an audit manager in 1983, he was
appointed a partner in 1986 and managing partner in 1998. From 1990
to 1998, he was head of Audit and Accountancy and was responsible
for the audits of a number of insurance, banking, investment fund
and financial services clients. He also had responsibility for the
firm’s training, quality control and compliance functions. He was
appointed managing partner of Ernst & Young for the
Channel Islands region in 2000.
Since his retirement from Ernst & Young in 2003, Mr. Legge has
held a number of non-executive directorships in the financial
sector. He is an FCA and holds a BA (Hons) in Economics from the
University of Manchester.
Joshua L.
Targoff
Joshua L. Targoff has been the
Chief Operating Officer of the Investment Manager since
May 2009. He joined as General
Counsel in May 2008. Previously, Mr.
Targoff was the General Counsel of the Investment Banking Division
of Jefferies & Co. Mr. Targoff spent seven years doing M &
A transactional work at Debevoise & Plimpton LLP. Mr. Targoff
graduated with a J.D. from Yale Law School, and holds a B.A. from
Brown University. In 2012, Mr. Targoff
was made a Partner of the Investment Manager.
Claire
Whittet
Claire Whittet is a Guernsey
resident and has 40 years’ experience in the banking industry.
After gaining an MA in Geography from Edinburgh University, she joined the Bank of
Scotland where she remained until
moving to Guernsey in 1996. In the intervening period she was
involved in a wide variety of credit transactions including
commercial and corporate finance. She joined Bank of Bermuda in Guernsey becoming Global Head of
Private Client Credit and moved to Rothschild & Co Bank
International Ltd as Director of Lending in 2003. She was latterly
Co-Head and Managing Director and since May
2016 has been a Non-Executive Director of the bank. She is a
Non-Executive Director of a number of listed and unlisted funds, is
a Chartered Banker and a Member of the Chartered Institute of
Bankers in Scotland, the Insurance
Institute and holds the Institute of Directors Diploma in Company
Direction.
Cross Directorships
Mr. Legge and Mrs. Whittet are also both Directors of another
listed Fund (TwentyFour Select Monthly Income Fund Limited). Mr.
Bates and Mr. Evans are also both Directors of another listed Fund
(VinaCapital Vietnam Opportunity Fund Limited). The Board does not
believe that these cross directorships create any conflict or
affect the independence of the respective Directors.
A number of the directors are Non-Executive Directors of other
listed funds. The Board notes that none of these funds are trading
companies and confirms that all Non-Executive Directors of the
Company have sufficient time and commitment (as evidenced by their
attendance and participation at meetings) to devote to this
Company.
Meeting Attendance Records
The table below lists Directors’ attendance at meetings during
the year.
Name |
Scheduled Board
Meetings Attended (max 4) |
Audit Committee
Meetings Attended (max 3) |
Steve Bates1 |
4 of 4 |
N/A |
Rupert Dorey1 |
4 of 4 |
3 of 3 |
Keith Dorrian2 |
2 of 2 |
N/A |
Huw Evans3 |
2 of 2 |
1 of 1 |
Christopher Legge |
4 of 4 |
3 of 3 |
Joshua L Targoff4,5 |
4 of 4 |
N/A |
Claire Whittet |
4 of 4 |
3 of 3 |
1 Mr. Bates and Mr. Dorey were appointed
5 February 2019.
2 Mr. Dorrian did not stand for re-election
at AGM on 3 July 2019.
3 Mr. Evans was appointed as a Director on
21 August 2019.
4 Mr. Targoff is not a member of the Audit
Committee.
5 Mr. Targoff does not attend Meetings as a
Director where recommendations from the Investment Manager are
under consideration.
Following the “Women on Boards” review conducted by Lord Davies
of Abersoch in February 2011, the
Board has examined Lord Davies recommendations and noted that it is
consistently reviewing its policy, and future appointments to the
Board will continue to be based on the individual’s skills and
experience regardless of gender.
Committees of the Board
The AIC Code requires the Company to appoint Nomination and
Remuneration and Management Engagement Committees. The independent
directors of the Board act as these committees and the first
meetings were held in August 2019.
The Nomination and Remuneration Committee considers the composition
of and recruitment to the Board, and will consider market practice,
peer group statistics and the requirements of the role when
determining remuneration levels of the Directors. 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 external
auditors).
The Committee also reviews annually the performance of the
Investment Manager with a view to determining whether to recommend
to the Board that the Investment Manager’s mandate be renewed,
subject to the specific notice period requirement of the agreement.
The other third party service providers are also reviewed on an
annual basis.
The Investment Manager has wide experience in managing and
administering fund vehicles and has access to extensive investment
management resources. The Board considers that the continued
appointment of the Investment Manager on the terms agreed would be
in the interests of the Company’s Shareholders as a whole.
Audit Committee
The Company’s Audit Committee conducts formal meetings at least
three times a year for the purpose, amongst others, of considering
the appointment, independence, effectiveness of the audit and
remuneration of the auditors and to review and recommend the annual
statutory accounts and interim report to the Board of Directors.
Full details of its functions and activities are set out in the
Report of the Audit Committee of this Annual Report.
Directors’ Duties and
Responsibilities
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.
These duties cover the following areas of responsibility:
•
Statutory obligations and public disclosure;
•
Strategic matters and financial reporting;
•
Board composition and accountability to Shareholders;
•
Risk assessment and management, including reporting, compliance,
monitoring, governance and control; and
•
Other matters having material effects on the Company.
These Reserved Powers of the Board allow the Directors to
discharge their fiduciary responsibilities and provide a set of
parameters for measuring and monitoring the effectiveness of their
actions.
The Directors are responsible for the overall management and
direction of the affairs of the Company. The Company has no
Executive Directors or employees. The Company invests all of its
assets in shares of the Master Fund and Third Point LLC acts as
Investment Manager to the Master Fund and is responsible for the
discretionary investment management of the Master Fund’s investment
portfolio under the terms of the Master Fund Prospectus.
Northern Trust International Fund Administration Services
(Guernsey) Limited (“NT”) acts as Administrator and Company
Secretary and is responsible to the Board under the terms of the
Administration Agreement. The Administrator is also responsible to
the Board for ensuring compliance with the Rules and Regulations of
The Companies (Guernsey) Law, London Stock Exchange listing
requirements and observation of the Reserved Powers of the Board
and in this respect the Board receives detailed quarterly
reports.
The Directors have access to the advice and services of the
Company Secretary who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with applicable
rules and regulations of The Companies (Guernsey) Law, the GFSC and
the London Stock Exchange. Individual Directors may, at the expense
of the Company, seek independent professional advice on any matter
that concerns them in the furtherance of their duties. The Company
maintains appropriate Directors’ and Officers’ liability insurance
in respect of legal action against its Directors on an ongoing
basis and the Company has maintained appropriate Directors’
Liability Insurance cover throughout the year.
The Board is also responsible for safeguarding the assets of the
Company and for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Internal Control and Financial
Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company’s system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss.
The Directors review all controls including operations,
compliance and risk management. The key procedures which have been
established to provide internal control are:
•
Investment advisory services are provided by the Investment
Manager. The Board is responsible for setting the overall
investment policy, ensuring compliance with the Company’s
Investment Strategy and monitoring the action of the Investment
Manager and Master Fund at regular Board meetings. The Board has
also delegated administration and company secretarial services to
NT; however, it retains accountability for all functions it has
delegated.
•
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an on-going
basis. It ensures that effective controls are in place to mitigate
these risks and that a satisfactory compliance regime exists to
ensure all local and international laws and regulations are upheld.
Particular attention has been given to the effectiveness of
controls to monitor liquidity risk, asset values, counterparty
exposure and credit availability.
•
The Board clearly defines the duties and responsibilities of its
agents and advisors and appointments are made by the Board after
due and careful consideration. The Board monitors the ongoing
performance of such agents and advisors.
•
The Investment Manager and NT maintain their own systems of
internal control, on which they report to the Board. The Company,
in common with other investment companies, does not have an
internal audit function. The Audit Committee has considered the
need for an internal audit function, but because of the internal
control systems in place at the Investment Manager and NT, has
decided it appropriate to place reliance on their systems and
internal control procedures. Please refer where reference is made
to the internal audit functions at the Investment Manager and
NT.
•
The systems are designed to ensure effectiveness and efficient
operation, internal control and compliance with laws and
regulations. In establishing the systems of internal control,
regard is paid to the materiality of relevant risks, the likelihood
of costs being incurred and costs of control. It follows therefore
that the systems of internal control can only provide reasonable
but not absolute assurance against the risk of material
misstatement or loss.
Board Performance
The Board and Audit Committee undertake a formal annual
evaluation of their own performance and that of their committees
and individual Directors. In order to review their effectiveness,
the Board and Audit Committee carry out a process of formal
self-appraisal. The Directors and Committee consider how the Board
and Audit Committee function as a whole and also review the
individual performance of their members. This process is conducted
by the respective Chairman reviewing individually with each of the
Directors and members of the Committee their performance,
contribution and commitment to the Company. The performance of the
Chairman is evaluated by the other independent Directors. The
performance of the Management Engagement Committee and the
Nomination and Remuneration Committee will also be evaluated
annually going forward. It is intended that an external review of
the Board will be carried out in 2020.
Management of Principal Risks and
Uncertainties
As noted in the Statement of Directors’ Responsibilities in
respect of the Audited Financial Statements, the Directors are
required to provide a description of the emerging and principal
risks and uncertainties facing the Company. The Directors have
considered the risks and uncertainties facing the Company and have
prepared and review regularly a risk matrix which documents the
significant risks.
The Directors have also considered the continually emerging
impact of Covid-19 on the Company.
This process has been in place for the year under review and up
to the date of approval of the Audited Financial Statements and is
reviewed by the Board and is in accordance with the Guidance on
Risk Management, Internal Control and Related Financial and
Business Reporting, published by the FRC.
The risk matrix document considers the following
information:
•
Identifying and reporting changes in the risk environment;
•
Identifying and reporting changes in the operational controls;
•
Identifying and reporting on the effectiveness of controls and
remediation of errors arising; and
•
Reviewing the risks faced by the Company and the controls in place
to address those risks.
The Directors have acknowledged they are responsible for
establishing and maintaining the Company’s system of internal
control and reviewing its effectiveness by focusing on four key
areas:
•
Consideration of the investment advisory services provided by the
Investment Manager;
•
Consideration of the process for identifying, evaluating and
managing any significant risks faced by the Company on an ongoing
basis;
•
Clarity around the duties and responsibilities of the agents and
advisors engaged by the Directors; and
•
Reliance on the Investment Manager and Administrator maintaining
their own systems of internal controls.
Further discussion on Internal Control is documented in the
Directors’ Report under “Internal Control and Financial
Reporting”.
The main risks and uncertainties that the Directors consider to
apply to the Company are as follows:
•
Underlying investment performance of the Master Fund. To mitigate
this risk the Directors receive regular updates from the Investment
Manager on the performance of the Master Fund. The Board reviews
quarterly performance updates on the Master Fund and has access to
the Investment Manager on any potential question raised;
•
Concentration and Character of the Investor Base. The Directors
receive quarterly investor reports from Numis Securities Limited
(“the Corporate Broker”) and there is regular communication between
the Directors and Corporate Broker to identify potential
significant changes in the Shareholder base;
•
Discount to the NAV. The Board monitors the discount to the NAV on
a regular basis and maintains regular contact with the Investment
Manager. In addition, the Investment Manager, Corporate Broker and,
when considered necessary, the Board of Directors, maintain regular
contact with the significant Shareholders in the Company. The Board
made updates in September 2019 to the
Company’s share repurchase programme.
•
Performance of the Investment Manager. Through the Management
Engagement Committee, the Directors review the performance of the
Investment Manager on an annual basis and Board representatives
conduct annual visits to the Investment Manager;
•
Failure of appointed service providers to the Company. Through the
Management Engagement Committee, the Directors conduct a formal
review of each service provider annually in addition to receiving
regular updates from each service provider and ensuring that there
is ongoing communication between the Board and the various service
providers to the Company;
•
Financial Risk. The Board employs independent administrators to
prepare the Financial Statements of the Company and meets with the
independent auditors at least twice a year to discuss all financial
matters including the appropriateness of the accounting
policies;
•
Liquidity Risk. Shares of the Master Fund may be redeemed quarterly
on 60 days’ prior written notice or at other times with the consent
of the Master Fund’s Board of Directors in order to pay Company
expenses. The majority of the investments held by the Master Fund
are held in cash and securities with quoted prices available in
active markets/exchanges; and
•
Cyber Security Risk. The Company is exposed to risk arising from
any cyber-attack on its service providers. The Company requests
confirmation from its service providers that they have appropriate
safeguards in place to mitigate the risk of cyber-attacks
(including minimising the adverse consequences arising from any
such attack), that they provide regular updates to the Board on
cyber security, and conduct ongoing monitoring of industry
developments in this area.
Significant Events During The Year
The FRC and AIC have revised their corporate governance codes,
which became effective 1 January
2019. The Company is reporting under these revised
codes.
As of 1 January 2019, the Company
transferred substantially all of its holding into a newly-created
share class of the Master Fund. The new share class is subject to a
25% quarterly redemption gate. The Company is able to redeem an
appropriate amount each quarter to account for Company fees and
expenses. The new share class attracts a lower management fee and
the Company also qualifies for an additional reduction in
management fee applicable to it based on its size and longevity as
an investor in the Master Fund. As a result, the Company’s
management fee has been reduced from 2.0% to 1.25% per annum
commencing on 1 January 2019.
For the period 1 January 2019 to
31 December 2019, 4,338,078 shares
have been repurchased by the Master Fund and cancelled at an
average cost per share of $14.72.
Steve Bates was appointed as
Chairman on 5 February 2019.
Rupert Dorey was appointed as a
Director on 5 February 2019.
On 30 April 2019, the Board
announced the appointment of Numis Securities Limited as a
replacement for Jefferies International Limited as Corporate Broker
to the Company.
On 3 July 2019, the Board of
Directors announced the cancellation of all remaining 3,379,753
Shares then held by the Master Fund for the benefit of the Company.
The cancellation is in accordance with the Repurchase Policy
announced on 2 May 2018.
Huw Evans was appointed as a
Director on 21 August 2019.
On 30 September 2019, Sarah Bates (spouse of Steve Bates, non-executive chairman of the
Company) purchased 3,200 shares in Third Point Offshore Investors
Limited taking their combined total holding to 6,122 shares.
On 30 September 2019, Huw Evans purchased 5,000 shares in Third Point
Offshore Investors Limited taking his total holding to 5,000
shares.
On 5 December Rosemary Dorey, spouse of Rupert Dorey bought 13,000 shares in Third Point
Offshore Investors Limited, taking their combined holding to 25,000
shares.
There were no other events during the year which, in the opinion
of the Directors, may have an impact on the Audited Annual
Financial Statements for the year ended 31
December 2019.
Significant Events After Year End
On 8 January 2020, the Master
Partnership’ holding of 225,000 shares in the Company was
cancelled.
For the period 1 January 2020 to
27 April 2020, 871,231 shares have
been repurchased (of which 705,000 have been cancelled) at an
average cost per share of $15.83.
The COVID pandemic has had a very significant negative effect on
capital markets and the underlying volatility has risen sharply.
While the majority of the Company’s assets remain highly liquid,
market disruptions of the type engendered by the current crisis
have the potential to affect market liquidity. The majority of the
employees of all the Company’s service providers are currently
working remotely. Although business continuity has been assured
hitherto, there is a risk of potential disruption from this
source.
Relations with Shareholders
The Board welcomes Shareholders’ views and places great
importance on communication with its Shareholders. The Board
receives regular reports on the views of Shareholders and the
Chairman and other Directors are available to meet Shareholders.
Shareholders who wish to communicate with the Board should, in the
first instance contact the Administrator, whose contact details can
be found on the Company’s website. The Annual General Meeting of
the Company provides a forum for Shareholders to meet and discuss
issues with the Directors of the Company. The twelfth Annual
General Meeting was held on 3 July
2019 with all proposed resolutions being passed by the
Shareholders. The thirteenth Annual General Meeting will be held on
1 July 2020.
International Tax Reporting
For the purposes of the US Foreign Account Tax Compliance Act,
the Company is registered with the US Internal Revenue Services
(“IRS”) as a Guernsey reporting Foreign Financial Institution
(“FFI”), received a Global Intermediary Identification Number and
can be found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into
effect on 1 January 2016.
The Board has taken the necessary action to ensure that the
Company is compliant with Guernsey regulations and guidance in this
regard.
Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has
introduced a new corporate criminal offence (“CCO”) of ‘failing to
take reasonable steps to prevent the facilitation of tax evasion’,
the Board confirms that it is committed to zero tolerance towards
the criminal facilitation of tax evasion.
The Board also keeps under review developments involving other
social, environmental and regulatory matters, such as Modern
Slavery and the General Data Protection Regulation (“GDPR”), and
will report on those to the extent they are considered relevant to
the Company’s operations.
COVID-19 assessment
As a result of the COVID-19 impact on businesses, the Board
believes it is a significant risk to the Company mitigated by the
following points:
•
Business Operations — The Board has established business continuity
plans and has inquired and is satisfied that service providers have
a process in place to continue to provide required service to the
company and maintain compliance with laws and regulations in the
face of the challenges faced as a result of COVID-19.
•
Liquidity Risk — the Company’s main source of cash is via
redemptions from the Master Fund. As of December 31, 2019, over 70% of the Master Fund’s
assets were invested in liquid securities (defined as Level 1
positions) and cash and so it is well positioned to pay redemptions
as needed. The governing documents of the Master Fund allow for a
gate to permit only 20% of the Master Fund’s Net Asset Value to be
redeemed at each quarterly redemption date on a pro rata basis. To
date, the Master Fund is yet to see any significant redemptions
which would cause the Directors concern regarding gating.
•
Performance — Gains from early 2020 have been reversed during the
virus outbreak but the Board has positioned itself more defensively
by reducing exposures, among other things. As of April 22, 2020, the Master Fund net return is
-13% for the year, as compared to the S&P return of -13%. It is
difficult to assess or quantify the future impact of COVID-19 but
the Company will continue to actively monitor its exposure as the
situation develops.
Significant Shareholdings
As at 20 April 2020, the Company
had been notified that the following had significant shareholdings
in excess of 5% in the Company:
|
Total Shares
Held |
% Holdings in
Class |
Significant Shareholders |
|
|
Goldman Sachs Securities (Nominees)
Limited |
5,295,095 |
13.74% |
Chase Nominees Limited |
4,528,397 |
11.75% |
Vidacos Nominees Limited |
3,512,976 |
9.12% |
Nortrust Nominees Limited |
2,462,659 |
6.39% |
Morgan Stanley & Co.
Incorporated |
2,410,503 |
6.25% |
Smith & Williamson Nominees
Limited |
2,122,055 |
5.51% |
The Directors confirm to the best of their knowledge:-
•
there is no relevant audit information of which the Company’s
Auditor is unaware of, and each Director has taken steps he/she
ought to have taken as a Director to make himself/herself aware of
any relevant information and to establish that the Company’s
Auditor is aware of that Information;
•
these Annual Report and Audited Financial Statements have been
prepared in accordance with accounting principles generally
accepted in the United States of
America and give a true and fair view of the financial
position of the Company;
•
these Annual Report and Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the
information necessary for the Shareholders to assess the Company’s
performance, business model and strategy; and
•
these Annual Report and Audited Financial Statements include
information detailed in the Directors’ Report, the Investment
Manager’s Review and Notes to the Audited Financial Statements,
which provide a fair review of the information required by:-
a)
DTR 4.1.8 of the Disclosure and Transparency Rules (“DTR”), being a
fair review of the Company business and a description of the
principal risks and uncertainties facing the Company; and
b)
DTR 4.1.11 of the DTR, being an
indication of important events that have occurred since the ending
of the financial year and the likely future development of the
Company.
Signed on behalf of the Board by:
Steve
Bates
Chairman
Christopher
Legge
Director
28 April 2020
Disclosure of Directorships in Public
Listed Companies
The following summarises the Directors’ directorships in public
companies:
Company Name
Exchange
Steve Bates
VinaCapital Vietnam Opportunity Fund Limited
London
Biotech Growth Trust plc
London
Rupert Dorey
NB Global Floating Rate Income Fund Limited
London
AP Alternative Assets, L.P.
Euronext
Episode LP
Ireland
Huw Evans
Standard Life Investments Property Income Trust Limited
London
VinaCapital Vietnam Opportunity Fund Limited
London
Christopher Legge
Ashmore Global Opportunities Limited
London
NB Distressed Debt Investment Fund Limited
London
Sherborne Investors (Guernsey) B Limited
London
Sherborne Investors (Guernsey) C Limited
London
TwentyFour Select Monthly Income Fund Limited
London
Claire Whittet
BH Macro Limited
London
Eurocastle Investment Limited
Euronext
International Public Partners Limited
London
Riverstone Energy Limited
London
TwentyFour Select Monthly Income Fund Limited
London
Statement of Directors’
Responsibilities in Respect of the Audited Financial Statements
The Directors are responsible for preparing the Audited
Financial Statements in accordance with applicable Guernsey Law and
accounting principles generally accepted in the United States of America. Guernsey Company
Law requires the Directors to prepare Financial Statements for each
financial period which give a true and fair view of the state of
affairs of the Company and of the net income or expense of the
Company for that year.
In preparing these Audited Financial Statements the Directors
should:
•
select suitable accounting policies and then apply them
consistently;
•
make judgements and estimates that are reasonable and prudent;
•
state whether the applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the Audited Financial Statements; and
•
prepare the Audited Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Audited Financial Statements comply with The Companies
(Guernsey) Law, 2008. They are also responsible for the system of
internal controls, safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors have responsibility to confirm that:
•
there is no relevant audit information of which the Company’s
Auditor is unaware and each Director has taken all the steps he/she
ought to have taken as a Director to make himself aware of any
relevant information and to establish that the Company’s Auditor is
aware of that information;
•
these Annual Report and Audited Financial Statements have been
prepared in accordance with accounting principles generally
accepted in the United States of
America and give a true and fair view of the financial
position of the Company;
•
these Annual Report and Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide
information necessary for the Shareholders to assess the Company’s
performance, business model and strategy; and
•
these Annual Report and Audited Financial Statements include
information detailed in the Directors’ Report, the Investment
Manager’s Review and Notes to the Audited Financial Statements,
which provide a fair review of the information required by:
a)
DTR 4.1.8 of the Disclosure and Transparency Rules (“DTR”), being a
fair review of the Company business and a description of the
principal risks and uncertainties facing the Company; and
b)
DTR 4.1.11 of the DTR, being an
indication of important events that have occurred since the ending
of the financial year and the likely future development of the
Company.
Steve Bates
Chairman
Christopher Legge
Director
28 April 2020
Directors’ Remuneration Report
Introduction
The Board has prepared this report as part of its framework for
corporate governance which, as described in the Directors’ Report,
enables the Company to comply with the main requirements of the UK
Corporate Governance Code published by the Financial Reporting
Council.
An ordinary resolution for the approval of this report will be
put to the Shareholders at the forthcoming AGM.
Remuneration Policy
The AIC Code requires the Company to appoint a Nomination and
Remuneration Committee. The independent directors of the Board will
act as this committee and the first meeting was held in
August 2019. The Committee considers
the composition of and recruitment to the Board, and will consider
market practice, peer group statistics and the requirements of the
role when determining remuneration levels of the Directors.
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 is the Chairman of the Audit Committee. The
policy is to review fee rates periodically, although such a review
will not necessarily result in any changes to the rates, and
account is taken of fees paid to Directors of comparable
companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. 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.
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.
Director fee levels are capped at an individual level as set out
in the Company’s Articles of Association. The current fee caps
within the Articles are as follows; Board Chairman - £70,000 per
annum, Audit Chairman - £50,000 per annum and Director - £40,000
per annum. These caps have not changed since the formation of the
Company, and in some cases constrain the ability of the Committee
to set fees at prevailing competitive market rates. For this
reason, a resolution will be put to the AGM to seek approval for an
overall fee cap of £500,000 for the directors as a whole. This
brings the remuneration policy of the Company into line with market
practice and affords greater flexibility in setting fee levels for
individual directors.
The current fees are as follows; Board Chairman - £68,000 per
annum, Audit Chairman - £50,000 per annum and Director - £40,000
per annum. Josh Targoff has waived
his fees. The Nomination and Remuneration and Management Engagement
Committee Chairs will receive an additional £3,000 per annum
following the anticipated shareholder approval at the AGM on
1 July 2020.
Directors’ fees
The fees payable by the Company in respect of each of the
Directors who served during 2019 and 2018, were as follows:
|
2019
£ |
2018
£ |
Marc Antoine Autheman1
(Chairman) |
– |
44,272 |
Steve Bates2
(Chairman) |
56,875 |
– |
Rupert Dorey2 |
34,306 |
– |
Keith Dorrian3 |
19,156 |
38,000 |
Huw Evans4 |
13,630 |
– |
Christopher F L Legge (Audit
Committee Chairman) |
46,000 |
46,000 |
Joshua L Targoff5 |
– |
– |
Claire Whittet6 |
40,431 |
45,551 |
Total |
210,398 |
173,823 |
|
|
|
USD equivalent |
US$270,396 |
US$241,529 |
1 Mr. Autheman resigned from the Board of
Directors on 12 September
2018.
2 Mr. Bates and Mr. Dorey were appointed as
Directors on 5 February 2019.
3 Mr. Dorrian retired at the AGM on
3 July 2019.
4 Mr. Evans was appointed as a Director on
21 August 2019.
5 As a non-independent Director and as a
Partner of the Investment Manager Joshua L Targoff waived his
Directors’ fee.
6 Mrs Whittet was appointed Interim Chair
following Mr. Autheman’s resignation until Mr. Bates’
appointment.
Performance table
The table details the share price returns over the year.
Signed on behalf of the Board by:
Steve Bates
Chairman
Christopher Legge
Director
28 April 2020
Report of the Audit Committee
We present the Audit Committee (the “Committee”) Report for the
year ended 31 December 2019, setting
out the Committee’s structure and composition, principal duties and
key activities during the year. As in previous years, the Committee
has reviewed the Company’s financial reporting, the independence
and effectiveness of the independent auditor and the internal
control and risk management systems of service providers.
The Board is satisfied that for the year under review and
thereafter the committee has recent and relevant commercial and
financial knowledge.
Structure and Composition
The Committee is chaired by Christopher
Legge and its other members are Claire Whittet, Rupert
Dorey who was appointed on 5 February
2019 and Huw Evans who was
appointed on 21 August 2019.
Keith Dorrian was a member until he
retired at the 2019 AGM. The Committee operates within clearly
defined terms of reference.
The Committee Terms of Reference indicates that appointments to
the Committee shall be for a period of up to three years, which may
be extended for two further three year periods, and thereafter
annually, provided that the Director whose appointment is being
considered remains an Independent Director for the period of
extension.
Name of Audit Committee
Member |
Date of Appointment to Audit
Committee |
Next Date for Review |
Rupert Dorey2 |
February 5, 2019 |
April 2022 |
Huw Evans3 |
August 28, 2019 |
August 2022 |
Chris Legge4 |
June 19, 2007 |
17 April
20131
18 April 2016
N/A |
Claire Whittet |
April 27, 2017 |
April 2023 |
1 Date specific tenure introduced on
17 April 2013.
2 Mr. Dorey was appointed
5 February 2019.
3 Mr. Evans was appointed
28 August 2019.
4 Mr. Legge is not going to stand for
re-election at the next AGM on 1 July
2020.
The Committee conducts formal meetings at least three times a
year. The table sets out the number of Committee meetings held
during the year ended 31 December
2019 and the number of such meetings attended by each
committee member. The independent auditor is invited to attend
those meetings at which the annual and interim reports are
considered. The independent auditor and the Committee will meet
together without representatives of either the Administrator or
Investment Manager being present if either considers this to be
necessary.
Principal Duties
The role of the Committee includes:
•
monitoring the integrity of the published financial statements of
the Company;
•
keeping under review the consistency and appropriateness of
accounting policies on a year to year basis. Satisfying itself that
the annual accounts, the interim statement of financial results and
any other major financial statements issued by the Company follow
generally accepted accounting principles in the United States of America and give a true
and fair view of the Company and any associated undertakings’
affairs; matters raised by the external auditors about any aspect
of the accounts or, of the Company’s control and audit procedures,
are appropriately considered and, if necessary, brought to the
attention of the Board, for resolution;
•
monitoring and reviewing the quality and effectiveness of the
independent auditors and their independence;
•
considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Company’s independent auditor;
•
monitoring and reviewing the internal control and risk management
systems of the service providers; and
•
considering at least once a year whether there is a need for an
internal audit function.
The complete details of the Committee’s formal duties and
responsibilities are set out in the Committee’s terms of reference,
which can be obtained from the Company’s website.
Independent Auditor
The Committee is also the forum through which the independent
auditor (the “auditor”) reports to the Board of Directors. The
objectivity of the auditor is reviewed by the Committee which also
reviews the terms under which the auditor is appointed to perform
non-audit services. The Committee reviews the scope and results of
the audit, its cost effectiveness and the independence and
objectivity of the auditor, with particular regard to non-audit
fees. The Committee has established pre-approval policies and
procedures for the engagement of Ernst & Young LLP to provide
non-audit services.
Ernst & Young LLP has been the independent auditor from the
date of the initial listing on the London Stock Exchange.
The audit fees proposed by the auditors each year are reviewed
by the Committee taking into account the Company’s structure,
operations and other requirements during the year and the Committee
makes recommendations to the Board.
Non-audit fees were paid to Ernst and Young LLP during the year
in respect of the interim review of the Company’s condensed
accounts to 30 June 2019. The
Committee considers Ernst & Young LLP to be independent of the
Company. The Committee also met with the external auditors without
the Investment Manager or Administrator being present so as to
provide a forum to raise any matters of concern in confidence.
Evaluations or Assessments Made During
the Year
The following sections discuss the assessments made by the
Committee during the year:
Significant Areas of Focus for the
Financial Statements
The Committee’s review of the interim and annual financial
statements focused on the following area:
The Company’s investment in the Master Fund represents
substantially all the net assets of the Company and as such is the
biggest factor in relation to the accuracy of the Financial
Statements. The holding in the Master Fund has been confirmed with
the Company’s Administrator and the Master Fund. This investment
has been valued in accordance with the Accounting Policies set out
in Note 3 to the Audited Financial Statements. The Audit Committee
has reviewed the Financial Statements of the Master Fund and their
Accounting Policies and determined the fair value of the investment
as at 31 December 2019 is reasonable.
The Financial Statements of the Master Fund for the year ended
31 December 2019 were audited by
Ernst & Young LLP in the US who issued an unmodified audit
opinion dated 18 March 2020.
Effectiveness of the Audit
The Committee had formal meetings with Ernst & Young LLP
during the course of the year: 1) before the start of the audit to
discuss formal planning, discuss any potential issues and agree the
scope that will be covered and 2) after the audit work was
concluded to discuss any significant matters such as those
stated.
The Board considered the effectiveness and independence of Ernst
& Young LLP by using a number of measures, including but not
limited to:
•
the audit plan presented to them before the start of the audit;
•
the audit results report including where appropriate, explanation
for any variations from the original plan;
•
changes to audit personnel;
•
the auditor’s own internal procedures to identify threats to
independence;
•
feedback from both the Investment Manager and the Administrator;
and
•
confirmation from Ernst & Young LLP on their independence as
additional comfort for the Committee.
Further to the above, at the point of substantial conclusion of
the 2019 audit, the Committee performed a specific evaluation of
the performance of the independent auditor. This is supported by
the results of questionnaires completed by the Committee covering
areas such as quality of audit team, business understanding, audit
approach and management. This questionnaire was part of the process
by which the Committee assessed the effectiveness of the audit.
There were no adverse findings from this evaluation.
Currently, the outsourcing of any non-audit services such as
interim review, tax compliance, tax structuring, private letter
rulings, accounting advice, quarterly reviews and disclosure are
normally permitted but should be preapproved by the Committee, or
two non-executive Directors. Under the newly released Crown
Dependency rules, it is envisaged that the new Ethical Standards
will apply and so the Board will need to reconsider these non-audit
services. Whilst the rules are not mandatory for periods beginning
before
15 March 2020, these rules will be
adopted for the next annual report and permitted services will
change.
The annual budget for both the audit and non-audit related
services was presented to the Committee for pre-approval.
Audit fees and Safeguards on
Non-Audit Services
The tables below summarises the remuneration payable by the
Company to Ernst & Young LLP during the years ended
31 December 2019 and 31 December 2018.
|
2019
£ |
2018
£ |
|
Total |
Total |
Audit Services |
50,355 |
40,000 |
Interim review |
32,100 |
41,160 |
Reporting Accountant |
– |
82,500 |
Non-audit Services |
32,100 |
123,660 |
Internal Control
The Committee has examined the need for an internal audit
function. The Committee considered that the systems and procedures
employed by the Investment Manager and the Administrator, including
their internal audit functions, provided sufficient assurance that
a sound system of internal control, which safeguards the Company’s
assets, has been maintained. An internal audit function specific to
the Company is therefore considered unnecessary.
The Committee has requested and received SOC1 or equivalent
reports such as service provider assessment reports from the
Company’s Administrator and Master Fund’s Administrators to enable
it to fulfil its duties under its terms of reference.
Representatives of the auditors, Investment Manager and the
Administrator attend the meetings as a matter of practice and
presentations are made by those attendees as and when required.
Conclusion and Recommendation
After reviewing various reports such as the operational and risk
management framework and performance reports from management,
liaising where necessary with Ernst & Young LLP, and assessing
the significant areas of focus for financial statement issues, the
Committee is satisfied that the financial statements appropriately
address the critical judgements and key estimates (both in respect
to the amounts reported and the disclosures).
The Committee is also satisfied that the significant assumptions
used for determining the value of assets and liabilities have been
appropriately scrutinised, challenged and are sufficiently
robust.
The Independent Auditor reported to the Committee that no
material misstatements were found in the course of its work.
Furthermore, both the Investment Manager and the Administrator
confirmed to the Committee that they were not aware of any material
misstatements including matters relating to presentation. The
Committee confirms that it is satisfied that the Independent
Auditor has fulfilled its responsibilities with diligence and
professional scepticism.
Consequent to the review process on the effectiveness of the
independent audit and the review of audit services, the Committee
has recommended that Ernst & Young LLP be reappointed for the
coming financial year.
For any questions on the activities of the Committee not
addressed in the foregoing, a member of the Committee will attend
each Annual General Meeting to respond to such questions.
The Company is not required to apply the UK statutory provisions
on the rotation of auditors as it is not an EU Public Interest
Entity (“PIE”) being incorporated in Guernsey. However, the Audit
Committee intends to review audit tenure following the release of
the Crown Dependencies’ Audit Rules and Guidance which became
effective on 15 March 2020.
Christopher Legge
Audit Committee Chairman
28 April 2020
Investment Manager’s Review
Performance
Summary1 |
|
|
|
USD Class |
31 December
2019 |
31 December
2018 |
% Return |
Share Price |
16.30 |
14.00 |
16.4% |
Net asset value per share |
21.15 |
17.24 |
22.7% |
Premium/(discount) |
(22.9%) |
(18.8%) |
|
1 For the period 1
January 2019 to 31 December
2019.
Strategy Performance
Recent events and market turmoil risk renders any discussion of
2019 performance meaningless. However, it is our duty to report on
the annual activity of the Fund. Therefore, we shall do so here,
and have added a more robust “Risk Outlook” section below to
address the current environment.
For the twelve months ended 31 December
2019, the Third Point Offshore Investors Limited net asset
value (“NAV”) per share increased by +22.7%, significantly more
than the appreciation in the corresponding share price. In addition
to the Fund’s strong performance, NAV appreciation was bolstered by
a comprehensive and targeted share repurchase program instituted by
the Board in September 2019.
Third Point LLC (the “Investment Manager”, “Manager”, or “Firm”)
is celebrating its 25th anniversary in June
2020 and Third Point Offshore Investors Limited has been an
integral part of the Firm’s strategy and asset base for more than
half of the Firm’s existence. Throughout the Firm’s history, the
Investment Manager has opportunistically shifted its investment
focus across sectors, asset classes, geographies, and strategies
according to the most compelling opportunity set given market
dynamics, risk reward, and the Investment Manager’s core
competencies.
In 2019, Third Point reoriented its investment portfolio with an
enhanced focus on portfolio construction. The Investment Manager
reduced net and increased gross equity exposure through thoughtful
trade construction in activist positions and by increasing both
individual shorts and portfolio hedges to dampen volatility and
amplify idiosyncratic returns. These changes enabled Third Point to
generate higher-quality returns. In 2019, the Sharpe ratio was
above 2.0; the Sortino ratio was 2x its historical average, and
average volatility was slightly above 7. Efforts to optimise
portfolio management led to more alpha generation, differentiated
returns, and less market exposure.
The Manager also focused on its core strengths including
activist investing and acquiring stakes in high- quality companies
during significant market selloffs. Activism, which is now over 50%
of equity exposure, has been a source of outsized returns for Third
Point since 2011 and has become a more valuable strategy in a
changing market environment. The Manager has allocated additional
internal resources to sourcing and implementing activist and
constructivist ideas and increased exposure to the highest level in
the Firm’s history2. The Fund initiated three new activist
investments in 2019, specifically Sony Corp., EssilorLuxottica SA,
and Prudential plc. The focus on activism produced outsized results
as activism accounted for over half, or 18.4%, of the Fund’s total
long equity returns of 30.7% for the year. In addition, Third Point
combined a strong risk management framework with its robust
portfolio analytics efforts to better isolate idiosyncratic returns
from unwanted systematic risks on a position level basis. For
example, the Investment Manager chose to hedge out certain
systematic risks – including market, sector, or geography – in core
activist names such as Sony Corp. and Campbell Soup Co.
Within equities, strength on the long side was partially offset
by losses in the short portfolio. Shorting was challenging in 2019
given the market’s sharp rise. Factor moves in the fall evaporated
alpha generated earlier in the year. Losses in shorting were
roughly as expected considering market performance, but the effort
succeeded in reducing overall volatility, beta, and correlation.
Going forward, the Investment Manager will look for opportunities
to integrate market and factor observations into its fundamental
lens.
Credit investing has been an essential part of Third Point’s
investment strategy since inception. During periods of significant
dislocation in credit markets or sub-markets, the Investment
Manager will swiftly reallocate the portfolio to act as a provider
of liquidity in such dislocations. Periods of opportunity in credit
have produced outsized returns and there have been instances in
which credit has accounted for more than half of the total
portfolio’s exposure.
In 2019, losses from an oversized position in Argentine
government debt more than offset gains in Pacific Gas &
Electric corporate debt and detracted from overall fund profits for
the year. These losses put a dent in a string of successes
investing in sovereign debt since 2011, in Greece and previously in Argentina. The Investment Manager acknowledges
that it underestimated both the political risk and the reflexive
reaction of the dollar-denominated debt to the collapse of the
local currency. In structured credit, the Manager had a good year
in RMBS securities but gave some profits back in marketplace
lending. Structured credit offers an important source of
diversification and continues to generate strong returns per unit
of risk. Third Point is looking currently to expand its credit
efforts broadly in capital, resources, and talent as it prepares
for the next credit cycle.
As of 31 December 2019, the top
five single-issuer positions in the portfolio were Baxter
International Inc., Sony Corp., Prudential plc, Nestle´ SA, and
United Technologies Corp.
Risk Outlook
The current Coronavirus situation presents a significant supply
and demand shock for global economies. While central banks
throughout the world have taken steps in an attempt to mitigate a
complete economic meltdown, brutal volatility persists globally
across markets, sectors, and industries. Until data indicates that
the virus is under control, the Investment Manager expects the
unpredictable nature of the markets to continue.
Third Point’s portfolio has not been immune to the recent
volatility in the market due to a number of factors, namely
approximately 65% net equity exposure going into the crisis. With
chances of recession almost 100%, the Investment Manager has taken
the following steps given current drawdowns and volatility:
reducing exposures and looking for opportunities in credit, while
remaining opportunistic when particularly high-quality companies
appear to be “on sale”.
Third Point started as a distressed-debt fund and it is the
Investment Manager’s ability to invest throughout a company’s
capital structure that it counts as its core strength. While
today’s environment represents an unprecedented investing market,
Third Point’s ability to invest in structured credit, distressed
corporate credit, and special situations will inure to the benefit
of the Fund and its shareholders.
In the meantime, the Investment Manager remains focused on
bottom-up, fundamental investing and will continue to monitor
global market dynamics including political events and shifts in
economic policy, data, and forecasts.
In November, Third Point introduced a more robust reporting
program to better inform investors of portfolio composition and
performance. All investors are encouraged to visit
www.thirdpointoffshore.com for additional information.
|
|
Exposure |
|
Portfolio Detail as at 31
December 20191 |
Long |
Short |
Net |
Equity |
|
|
|
Activism |
54.5% |
(12.0%) |
42.5% |
Fundamental & Event |
55.3% |
(23.9%) |
31.4% |
Portfolio Hedges2 |
0.0% |
(8.5%) |
(8.5%) |
Total Equity |
109.8% |
(44.4%) |
65.4% |
Credit |
|
|
|
Corporate & Sovereign |
8.4% |
(0.2%) |
8.2% |
Structured |
16.2% |
(0.1%) |
16.1% |
Total Credit |
24.6% |
(0.3%) |
24.3% |
Privates |
10.1% |
0.0% |
10.1% |
Other3 |
0.0% |
(2.0%) |
(2.0%) |
Total Portfolio |
144.5% |
(46.7%) |
97.8% |
|
|
Exposure |
|
Equity Portfolio Detail as at 31
December 2019 |
Long |
Short |
Net |
Equity Sectors |
|
|
|
Consumer Discretionary |
13.8% |
(5.4%) |
8.4% |
Consumer Staples |
11.9% |
(2.5%) |
9.4% |
Energy |
2.7% |
(0.4%) |
2.3% |
Financials |
20.4% |
(5.5%) |
14.9% |
Healthcare |
25.7% |
(6.1%) |
19.6% |
Industrials & Materials |
15.5% |
(8.2%) |
7.3% |
Enterprise Technology |
5.2% |
(6.1%) |
(0.9%) |
Media & Internet |
14.6% |
(1.7%) |
12.9% |
Portfolio Hedges2 |
0.0% |
(8.5%) |
(8.5%) |
Total |
109.8% |
(44.4%) |
65.4% |
1 Unless otherwise stated,
information relates to the Third Point Offshore Master Fund L.P.
Exposures are categorised in a manner consistent with the
Investment Manager’s classifications for portfolio and risk
management purposes.
2 Primarily broad-based market and
equity-based hedges.
3 Primarily currency hedges.
Speculative rates and macro FX excluded from the exposure figures.
Corresponding net exposure is 0.16% for rates and (7.74%) for FX.
MTD and YTD P&L of Other includes attribution of speculative
macro investments as well as residual gains and losses attributable
to unhedged currency movements relative to USD.
Net equity exposure is defined as the long exposure minus the
short exposure of all equity positions (including long/short,
arbitrage, and other strategies), and can serve as a rough measure
of the exposure to fluctuations in overall market levels. The
Investment Manager continues to closely monitor the liquidity of
the portfolio and is comfortable that the current composition is
aligned with the redemption terms of the fund.
Independent Auditor’s Report
to the members of Third Point Offshore Investors Limited
Opinion
We have audited the financial statements of Third Point Offshore
Investors Limited (the “Company”) for the year ended 31 December 2019, which comprise the Statements
of Assets and Liabilities, the Statements of Operations, the
Statements of Changes in Net Assets, the Statements of Cash Flows
and the related notes 1 to 13, including a summary of significant
accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and accounting
principles generally accepted in the
United States of America.
In our opinion, the financial
statements:
•
give a true and fair view of sthtaete of the Company’s affairs as
at 31 December 2019 and of its
results for the year then ended;
•
have been properly prepared in accordance with accounting
principles generally accepted in the
United States of America; and
•
have been properly prepared in accordance with the requirements of
the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under those standards are further described in the
“Auditor’s responsibilities for the audit of the financial
statements” section of our report below. We are independent of the
Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements, including the UK
FRC’s Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal
risks, going concern and viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs
(UK) require us to report to you whether we have anything material
to add or draw attention to:
•
the disclosures in the annual report that describe the principal
risks and explain how they are being managed or mitigated;
•
the directors’ confirmation in the annual report that they have
carried out a robust assessment of the principal risks facing the
entity, including those that would threaten its business model,
future performance, solvency or liquidity;
•
the directors’ statement in the annual report about whether they
considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any
material uncertainties to the entity’s ability to continue to do so
over a period of at least twelve months from the date of approval
of the financial statements;
•
whether the directors’ statement in relation to going concern
required under the Listing Rules is materially inconsistent with
our knowledge obtained in the audit; or
•
the directors’ explanation in the annual report as to how they have
assessed the prospects of the entity, over what period they have
done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation
that the entity will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Overview of our audit approach
Key audit matters |
· Investment
Valuation
· Investment
Existence and Ownership |
Audit scope |
· We
performed an audit of the complete financial information of the
Company for the year ended 31 December 2019.
· Procedures
were performed on the audit team’s behalf by EY New York, under our
instruction and supervision, in respect of the Company’s share of
the Master Fund’s income and expenses as reported in the Statement
of Operations. |
Materiality |
· Overall
materiality of US$16.7 million which represents 2% of net
assets. |
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk |
Our response to
the risk |
Key observations
communicated to the Audit Committee |
Valuation of
investments (US$831m, PY comparative US$803m)
Refer to the Report of the Audit
Committee; Accounting policies
The investments held are measured at fair value through profit or
loss, and their fair value is determined by reference to the
published NAV per share of the investee fund, as calculated by its
independent Administrator. The valuation risk considers the risk of
an error in the application of the published NAV per share,
obtained from the independent Administrator of the investee fund,
when calculating the fair value of the Company’s investments, as
well as the effect on valuation of any gating/ suspension of
redemptions by the investee fund. |
Our response comprised
of substantive audit testing of investment valuation,
including:
· Agreeing the valuation per share of the
Company’s investments in the investee fund to the NAV per share of
the investee fund published by its independent Administrator;
· Agreeing the valuation per share of the
Company’s investments in the investee fund to the NAV per share of
the investee fund per its audited financial statements for the year
ended 31 December 2019, which were approved on 18 March 2020;
and
· Reviewing the subscriptions and
redemptions schedule of the investee fund around the yearend date
to assess the liquidity of the Company’s investments in the
investee fund. |
We confirmed there were no matters
identified during our audit work on the valuation of investments
that we wanted to bring to the attention of the Audit
Committee. |
Investment existence
and ownership
(US$831m, PY comparative US$803m)
Refer to the Report of the Audit Committee; Accounting policies
Risk that the investments presented in the financial statements do
not exist or the Company does not have the rights to cash flows
derived from them. Failure to obtain good title exposes the Company
to significant risk of loss. |
Our response comprised
the performance of substantive audit testing of investment
existence and ownership including:
· Obtaining a confirmation, as at 31
December 2019, of the Company’s holdings in the investee fund into
which the Company invests, from the independent Administrator of
the investee fund, and agreeing it to the accounting records of the
Company; and
· Agreeing supporting documentation for all
additions and disposals of holdings in the investee fund that took
place during the year ended 31 December 2019, and agreeing the
details to the accounting records of the Company. |
We confirmed there were no matters
identified during our audit work on existence and ownership of
investments that we wanted to bring to the attention of the Audit
Committee. |
Emphasis of matter – Effects of
COVID-19
We draw attention to Notes 3 and 13 of the financial statements,
which describe the economic consequences the Company is facing as a
result of COVID-19 which is impacting financial markets. Our
opinion is not modified in respect of this matter.
An overview of the scope of our
audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope. Taken together, this enables us to form an opinion on the
financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
“Materiality” is the magnitude of omissions or misstatements
that, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of the
financial statements. Materiality provides a basis for determining
the nature and extent of our audit procedures.
We determined materiality for the Company to be US$16.7 million (2018: US$16.3 million), which is approximately 2%
(2018: 2%) of net assets. We believe that net assets provides us
with an appropriate basis for audit materiality as it is a key
published performance measure and is a key metric used by
management in assessing and reporting on overall performance.
During the course of our audit, we reassessed initial
materiality and noted no matters leading us to amend the basis of
materiality (2% of net assets).
Performance materiality
“Performance materiality” is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control environment, our
judgement was that performance materiality was 75% (2018: 75%) of
our planning materiality, namely US$12.5
million (2018: US$12.2
million). We have set performance materiality at this
percentage because we have considered the likelihood of
misstatements to be low. We have considered both quantitative and
qualitative factors when determining the expected level of detected
misstatements and setting the performance materiality at this
level.
Reporting threshold
The reporting threshold is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of US$0.8 million (2018: US$0.8 million), which is set at 5% (2018: 5%) of
planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the
other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
•
Fair, balanced and understandable – the statement given by
the directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy, is
materially inconsistent with our knowledge obtained in the audit;
or
•
Audit committee reporting – the section describing the work
of the audit committee does not appropriately address matters
communicated by us to the audit committee is materially
inconsistent with our knowledge obtained in the audit; or
•
Directors’ statement of compliance with the UK Corporate
Governance Code – the parts of the directors’ statement
relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Matters on which we are required to
report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
•
proper accounting records have not been kept by the Company; or
•
the financial statements are not in agreement with the Company’s
accounting records and returns; or
•
we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the ‘Statement of Directors’
responsibilities’, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of report
This report is made solely to the Company’s members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for the
opinions we have formed.
David Robert John Moore, ACA
for and on behalf of Ernst & Young LLP Guernsey, Channel Islands
28 April 2020
Notes:
1.
The maintenance and integrity of Third Point Offshore Investors
Limited’s web site is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the web site.
2.
Legislation in the Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Statements of Assets and
Liabilities
(Stated in United States
Dollars) |
As at
31 December 2019
US$ |
As at
31 December 2018
US$ |
Assets |
|
|
Investment in Third
Point Offshore Fund Ltd at fair value
(Cost: US$357,577,552; 31 December 2018: US$398,942,647) |
830,922,171 |
803,148,852 |
Cash |
110,693 |
117,979 |
Due from broker |
11,729 |
520,662 |
Redemption receivable |
3,827,500 |
10,130,000 |
Other assets |
10,744 |
18,933 |
Total assets |
834,882,837 |
813,936,426 |
Liabilities |
|
|
Accrued expenses and other
liabilities |
274,817 |
258,425 |
Administration fee payable (Note
4) |
43,215 |
41,974 |
Total liabilities |
318,032 |
300,399 |
Net assets |
834,564,805 |
813,636,027 |
Number of Ordinary Shares in
issue (Note 6) |
|
|
US Dollar Shares |
39,468,299 |
47,186,130 |
Net asset value per Ordinary
Share (Notes 8 and 11) |
|
|
US Dollar Shares |
$21.15 |
$17.24 |
Number of Ordinary B Shares in
issue (Note 6) |
|
|
US Dollar Shares |
26,312,199 |
31,457,421 |
The financial statements were approved by the Board of Directors
on 28 April 2020 and signed on its
behalf by:
Steve Bates
Chairman
Christopher Legge
Director
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Statements of Operations
(Stated in United States
Dollars) |
For the year
ended
31 December 2019
US$ |
For the year
ended
31 December 2018
US$ |
Realised and unrealised
gain/(loss) from investment transactions allocated from Master
Fund |
|
|
Net realised gain from
securities, derivative contracts and foreign
currency translations |
25,673,428 |
36,297,228 |
Net change in
unrealised gain/(loss) on securities, derivative
contracts and foreign currency translations |
123,526,644 |
(146,195,764) |
Net (loss)/gain from currencies
allocated from Master Fund |
(416,065) |
724,671 |
Total net realised
and unrealised gain/(loss) from investment
transactions allocated from Master Fund |
148,784,007 |
(109,173,865) |
Net investment loss allocated
from Master Fund |
|
|
Interest income |
16,489,506 |
14,743,524 |
Dividends, net of
withholding taxes of US$2,553,961;
(31 December 2018: US$2,157,699) |
5,472,534 |
7,792,842 |
Other income |
5,084,038 |
2,058,865 |
Incentive allocation (Note 2) |
(15,376,422) |
(430,284) |
Stock borrow fees |
(253,883) |
(131,767) |
Investment Management fee |
(10,515,302) |
(19,188,088) |
Dividends on securities sold, not
yet purchased |
(4,406,067) |
(2,904,501) |
Interest expense |
(3,102,730) |
(2,433,936) |
Other expenses |
(3,790,010) |
(4,053,795) |
Total net investment loss
allocated from Master Fund |
(10,398,336) |
(4,547,140) |
Company expenses |
|
|
Administration fee (Note 4) |
(161,297) |
(166,306) |
Directors’ fees (Note 5) |
(270,396) |
(241,529) |
Other fees |
(867,973) |
(1,948,125) |
Expenses paid on behalf of Third
Point Offshore Independent Voting Company Limited1 (Note 4) |
(85,371) |
(96,687) |
Total Company expenses |
(1,385,037) |
(2,452,647) |
Net loss |
(11,783,373) |
(6,999,787) |
Net increase/(decrease) in net
assets resulting from operations |
137,000,634 |
(116,173,652) |
1 Third Point Offshore Independent Voting
Company Limited consists of Director Fees, Audit Fee and General
Expenses.
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Statements of Changes in Net
Assets
(Stated in United States
Dollars) |
For the year
ended
31 December 2019
US$ |
For the year
ended
31 December 2018
US$ |
Increase/(decrease)
in net assets resulting from operations |
|
|
Net realised gain from securities,
commodities, derivative contracts and foreign currency translations
allocated from Master Fund |
25,673,428 |
36,297,228 |
Net change in unrealised gain/(loss)
on securities, derivative contracts and foreign currency
translations allocated from Master Fund |
123,526,644 |
(146,195,764) |
Net (loss)/gain from currencies
allocated from Master Fund |
(416,065) |
724,671 |
Total net investment loss allocated
from Master Fund |
(10,398,336) |
(4,547,140) |
Total Company expenses |
(1,385,037) |
(2,452,647) |
Net increase/(decrease) in net
assets resulting from operations |
137,000,634 |
(116,173,652) |
Decrease in net assets resulting
from capital share transactions |
|
|
Dividend distribution |
– |
(40,603,431) |
Share buybacks |
(45,692,005) |
(4,479,491) |
Share redemptions |
(70,379,851) |
(39,500,000) |
Net assets at the beginning of
the year |
813,636,027 |
1,014,392,601 |
Net assets at the end of the
year |
834,564,805 |
813,636,027 |
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Statements of Cash Flows
(Stated in United States
Dollars) |
For the year
ended
31 December 2019
US$ |
For the year
ended
31 December 2018
US$ |
Cash flows from operating
activities |
|
|
Operating expenses |
(843,392) |
(1,857,084) |
Directors’ fees |
(270,396) |
(241,529) |
Administration fee |
(160,056) |
(174,593) |
Third Point Offshore Independent
Voting Company Limited1 |
(85,371) |
(96,687) |
Redemption from Master Fund |
47,043,934 |
47,553,978 |
Cash inflow from operating
activities |
45,684,719 |
45,184,085 |
Cash flows from financing
activities |
|
|
Dividend distribution |
– |
(40,603,431) |
Share buybacks |
(45,692,005) |
(4,479,491) |
Net (decrease)/increase in
cash |
(7,286) |
101,163 |
Cash at the beginning of the
year |
117,979 |
16,816 |
Cash at the end of the
year |
110,693 |
117,979 |
1 Third Point Offshore Independent Voting
Company Limited consists of Director Fees, Audit Fee and General
Expenses.
(Stated in United States
Dollars) |
For the year
ended
31 December 2019
US$ |
For the year
ended
31 December 2018
US$ |
Supplemental disclosure of
non-cash transactions from: |
|
|
Operating activities |
|
|
Redemption of Company Shares from
Master Fund |
70,379,851 |
39,500,000 |
|
|
|
Financing activities |
|
|
Share redemptions |
(70,379,851) |
(39,500,000) |
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Notes to the Audited Financial
Statements
For the year ended 31 December
2019
1. The Company
Third Point Offshore Investors Limited (the “Company”) is an
Authorised closed-ended investment company incorporated in Guernsey
on 19 June 2007 for an unlimited
period, with registration number 47161.
2. Organisation
Investment Objective and Policy
The Company’s investment objective is to provide its
Shareholders with consistent long term capital appreciation,
utilising the investment skills of the Investment Manager, through
investment of all of its capital (net of short-term working capital
requirements) through a master-feeder structure in Class N, Series
9 and Class E, Series 55 shares of Third Point Offshore Fund, Ltd.
(the “Master Fund”), an exempted company formed under the laws of
the Cayman Islands on 21 October 1996.
The Master Fund’s investment objective is to seek to generate
consistent long-term capital appreciation, by investing capital in
securities and other instruments in select asset classes, sectors
and geographies, by taking long and short positions. The Master
Fund is managed by the Investment Manager and the Investment
Manager’s implementation of the Master Fund’s investment policy is
the main driver of the Company’s performance. The Master Fund
invests all of its investable capital in Third Point Offshore
Master Fund L.P. (the “Master Partnership”) a corresponding
open-ended investment partnership having the same investment
objective as the Master Fund.
The Master Fund is a limited partner of the Master Partnership,
an exempted limited partnership organised under the laws of the
Cayman Islands, of which Third
Point Advisors II L.L.C., an affiliate of the Investment Manager,
is the general partner. Third Point LLC is the Investment Manager
to the Company, the Master Fund and the Master Partnership. The
Master Fund and the Master Partnership share the same investment
objective, strategies and restrictions as described above.
The Audited Financial Statements of the Master Fund and the
Audited Financial Statements of the Master Partnership, should be
read alongside the Company’s Audited Annual Report and Audited
Financial Statements.
Investment Manager
The Investment Manager is a limited liability company formed on
28 October 1996 under the laws of the
State of Delaware. The Investment
Manager was appointed on 29 June 2007
and is responsible for the management and investment of the
Company’s assets on a discretionary basis in pursuit of the
Company’s investment objective, subject to the control of the
Company’s Board and certain borrowing and leveraging
restrictions.
The Company’s annual management fee was reduced to 1.25 per cent
(from 2 per cent) effective 1 January
2019 following a transfer of substantially all of its
holdings into a new share class in the Master Fund and to reflect
the Company’s size and longevity as an investor in the Master Fund.
In the year ended 31 December 2019,
the Company paid to the Investment Manager at the level of the
Master Partnership a fixed management fee of 1.25 percent per annum
and a general partner incentive allocation of 20 percent of the
Master Fund’s NAV growth (“Full Incentive Fee”) invested in the
Master Partnership, subject to certain conditions and related
adjustments, by the Master Fund. If a particular series invested in
the Master Fund depreciates during any fiscal year and during
subsequent years there is a profit attributable to such series, the
series must recover an amount equal to 2.5 times the amount of
depreciation in the prior years before the Investment Manager is
entitled to the Full Incentive Fee. Until this occurs, the series
will be subject to a reduced incentive fee of 10%. The Company was
allocated US$15,376,422 (31 December 2018: US$430,284) of incentive fees for the year ended
31 December 2019.
3. Significant
Accounting Policies
Basis of Presentation
These Audited Financial Statements have been prepared in
accordance with relevant accounting principles generally accepted
in the United States of America
(“US GAAP”). The functional and presentation currency of the
Company is United States Dollars.
The Directors have determined that the Company is an investment
company in conformity with US GAAP. Therefore the Company follows
the accounting and reporting guidance for investment companies in
the Financial Accounting Standards Board (‘‘FASB’’) Accounting
Standards Codification (‘‘ASC’’) 946, Financial Services –
Investment Companies (‘‘ASC 946’’).
The following are the significant accounting policies adopted by
the Company:
Cash
Cash in the Statements of Assets and Liabilities and for the
Statement of Cash Flows comprises cash at bank and on hand.
Due from broker
Due from broker includes cash balances held at the Company’s
clearing broker as of 31 December
2019. The Company clears all of its securities transactions
through a major international securities firm, UBS, pursuant to
agreements between the Company and prime broker.
Redemptions Receivable
Redemptions receivable are capital withdrawals from the Master
Fund which have been requested but not yet settled as at
31 December 2019.
Valuation of Investments
The Company records its investment in the Master Fund at fair
value. Fair values are generally determined utilising the net asset
value (“NAV”) provided by, or on behalf of, the underlying
Investment Managers of each investment fund. In accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 820 “Fair Value Measurement”, fair value
is defined as the price the Company would receive upon selling a
security in a timely transaction to an independent buyer in the
principal or most advantageous market of the security. For further
information refer to the Master Partnership’s Audited Financial
Statements.
The valuation of securities held by the Master Partnership,
which the Master Fund directly invests in, is discussed in the
notes to the Master Partnership’s Audited Financial Statements. The
net asset value of the Company’s investment in the Master Fund
reflects its fair value. At 31 December
2019, the Company’s US Dollar shares represented 13.56%
(31 December 2018: 13.30%) of the
Master Fund’s NAV.
The Company has adopted ASU 2015-07, Disclosures for Investments
in Certain Entities that calculate Net Asset Value per Share (or
its equivalent) (“ASU 201-07”) , in which certain investments
measured at fair value using the net asset value per share method
(or its equivalent) as a practical expedient are not required to be
categorised in the fair value hierarchy. Accordingly the Company
has not levelled applicable positions.
Uncertainty in Income Tax
ASC Topic 740 “Income Taxes” requires the evaluation of tax
positions taken or expected to be taken in the course of preparing
the Company’s tax returns to determine whether the tax positions
are “more- likely-than-not” of being sustained by the applicable
tax authority based on the technical merits of the position. Tax
positions deemed to meet the “more-likely-than-not” threshold would
be recorded as a tax benefit or expense in the year of
determination. Management has evaluated the implications of ASC 740
and has determined that it has not had a material impact on these
Audited Financial Statements.
Income and Expenses
The Company records its proportionate share of the Master Fund’s
income, expenses and realised and unrealised gains and losses on a
monthly basis. In addition, the Company accrues interest income, to
the extent it is expected to be collected, and other expenses.
Use of Estimates
The preparation of audited financial statements in conformity
with US GAAP may require management to make estimates and
assumptions that affect the amounts and disclosures in the
financial statements and accompanying notes. Actual results could
differ from those estimates. Other than what is underlying in the
Master Fund and the Master Partnership, the Company does not use
any material estimates in respect of the Audited Financial
Statements.
After making reasonable inquiries and assessing all data
relating to the Master Partnership’s liquidity, particularly its
holding of significant liquid Level 1 assets, the Board of
Directors believe that the Company has adequate resources to
continue in operational existence for the foreseeable future and do
not consider there to be any threat, from COVID-19 or other issues,
to the going concern status of the Company. For these reasons, they
have adopted the going concern basis in preparing the Financial
Statements.
Foreign Exchange
Investment securities and other assets and liabilities
denominated in foreign currencies are translated into United States
Dollars using exchange rates at the reporting date. Purchases and
sales of investments and income and expense items denominated in
foreign currencies are translated into United States Dollars at the
date of such transaction. All foreign currency transaction gains
and losses are included in the Statement of Operations.
Recent accounting pronouncements
The Company has not early adopted any standards, interpretation
or amendment that has been issued but are not yet effective. The
amendments and interpretations which apply for the first time in
2019 have been assessed and do not have an impact on the audited
financial statements.
4. Material
Agreements
Management and Incentive fees
The Investment Manager was appointed by the Company to invest
its assets in pursuit of the Company’s investment objectives and
policies. As disclosed in Note 2, the Investment Manager is
remunerated by the Master Partnership by way of management fees and
incentive fees.
Administration fees
Under the terms of an Administration Agreement dated
29 June 2007, the Company appointed
Northern Trust International Fund Administration Services
(Guernsey) Limited as Administrator (the “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 2 basis
points of the NAV of the Company for the first £500 million of NAV
and a rate of 1.5 basis points for any NAV above £500 million. This
fee is subject to a minimum of £4,250 per month. The Administrator
is also entitled to an annual corporate governance fee of £30,000
for its company secretarial and compliance activities.
In addition, the Administrator is entitled to be reimbursed
out-of-pocket expenses incurred in the course of carrying out its
duties, and may charge additional fees for certain other
services.
Total Administrator expenses during the year amounted to
US$161,297 (31
December 2018: US$166,306)
with US$43,215 outstanding
(31 December 2018: US$41,974).
Related Party
The Company has entered into a support and custody agreement
with Third Point Offshore Independent Voting Company Limited
(“VoteCo”) whereby, in return for the services provided by VoteCo,
the Company will provide VoteCo with funds from time to time in
order to enable VoteCo to meet its obligations as they fall due.
Under this agreement, the Company has also agreed to pay all the
expenses of VoteCo, including the fees of the directors of VoteCo,
the fees of all advisors engaged by the directors of VoteCo and
premiums for directors and officers insurance. The Company has also
agreed to indemnify the directors of VoteCo in respect of all
liabilities that they may incur in their capacity as directors of
VoteCo. The expense paid by the Company on behalf of VoteCo during
the year is outlined in the Statement of Operations and amounted to
US$85,371 (31
December 2018: US$96,687). As
at 31 December 2019 expenses accrued
by the Company on behalf of VoteCo amounted to US$8,041 (31 December
2018: US$19,855).
5. Directors’
Fees
For the year ended 31 December
2019, the Chairman was entitled to a fee of £63,000 per
annum. All other independent Directors were entitled to receive
£38,000 per annum with the exception of Mr. Legge who received
£46,000 per annum as the audit committee chairman. Mr. Targoff
waived his fees.
With effect from 1 January 2020,
the Directors’ fees have been amended. The Chairman is now entitled
to a fee of £68,000 per annum. All other independent Directors are
entitled to receive £40,000 per annum with the exception of Mr.
Legge who receives £50,000 per annum as the audit committee
chairman.
The Directors are also entitled to be reimbursed for expenses
properly incurred in the performance of their duties as Director.
The Directors’ fees during the year amounted to US$270,396 (31 December
2018: US$241,529) with US$nil
outstanding (31 December 2018:
US$nil).
6. Stated
Capital
The Company was incorporated with the authority to issue an
unlimited number of Ordinary Shares (the “Shares”) with no par
value and an unlimited number of Ordinary B Shares (“B Shares”) of
no par value.
|
US Dollar
Shares |
Number of Ordinary
Shares |
|
Shares issued 1 January 2019 |
47,186,130 |
|
|
Shares Cancelled |
|
Total shares cancelled during the
year |
(7,717,831) |
Shares in issue at end of
year |
39,468,299 |
|
US Dollar
Shares
US$ |
Stated Capital Account |
|
Stated capital account at 1 January
2019 |
371,703,326 |
|
|
Shares Cancelled |
|
Total share value cancelled during
the year |
(116,071,856) |
Stated Capital account at end of
year |
255,631,470 |
Retained earnings |
578,933,335 |
|
US Dollar
Shares |
Number of Ordinary B
Shares |
|
Shares in issue as at 1 January
2019 |
31,457,421 |
|
|
Shares Cancelled |
|
Total shares cancelled during the
year |
(5,145,222) |
Shares in issue at end of
year |
26,312,199 |
Voting Rights
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. B Shares
also carry the right to vote at general meetings of the Company but
carry no rights to distribution of profits or in the winding-up of
the Company.
As prescribed in the Company’s Articles, each Shareholder
present at general meetings of the Company shall, upon a show of
hands, have one vote. Upon a poll, each Shareholder shall, in the
case of a separate class meeting, have one vote in respect of each
Share or B Share held and, in the case of a general meeting of all
Shareholders, have one vote in respect of each US Dollar Share or
US Dollar B Share held. Fluctuations in currency rates will not
affect the relative voting rights applicable to the Shares and B
Shares. In addition all of the Company’s Shareholders have the
right to vote on all material changes to the Company’s investment
policy.
Repurchase of Shares and Discount
Control
The Directors of the Company were granted authority to purchase
in the market up to 14.99 percent of the Shares in issue at the
Annual General Meeting on 3 July
2019, and they intend to seek annual renewal of this
authority from Shareholders. The Directors have utilised this share
repurchase authority by introducing a new mechanism that will
hopefully enhance future capital growth. Pursuant to the Director’s
share repurchase authority, the Company, through the Master Fund,
commenced a share repurchase program in 2007. The Shares initially
purchased were held by the Master Partnership. The Master
Partnership’s gains or losses and implied financing costs related
to the shares purchased through the share purchase programme are
entirely allocated to the Company’s investment in the Master
Fund.
As at 31 December 2018, the Master
Partnership held 3,379,753 shares of the Company. On 3 July 2019, the Company announced the
cancellation of these shares, for the benefit of the Company.
On 26 September, 2019, it was
announced that the Company, again through the Master Fund, will
seek to buy back, at the Board’s discretion and subject to the
requirement to buy no more than 14.99% of its outstanding stocks
between general meetings, up to $200
million worth of stock over the subsequent three years. Any
shares traded mid-month will be purchased and held by the Master
Partnership until the Company is able to cancel the shares
following each month-end. As at 31 December
2019, the Master Partnership held 225,000 shares of the
Company – these shares were subsequently cancelled in January 2020.
Further issue of Shares
Under the Articles, the Directors have the power to issue
further shares on a non-pre-emptive basis. If the Directors issue
further Shares, the issue price will not be less than the
then-prevailing estimated weekly NAV per Share of the relevant
class of Shares.
7. Taxation
The Fund is exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance
1989.
8. Calculation of
Net Asset Value
The NAV of the Company is equal to the value of its total assets
less its total liabilities. The NAV per Share is calculated by
dividing the NAV by the number of Ordinary Shares in issue on that
day.
9. Related Party
Transactions
At 31 December 2019 other
investment funds owned by or affiliated with the Investment Manager
owned 5,630,444 (31 December 2018:
5,630,444) US Dollar Shares in the Company. Refer to note 4 and
note 5 for additional Related Party Transaction disclosures.
10. Significant Events
As of January 1, 2019, the Company
transferred substantially all of its holding into a newly-created
share class of the Master Fund. The new share class is subject to a
25% quarterly redemption gate. The Company plans to redeem an
appropriate amount each quarter to account for Company fees and
expenses. The new share class attracts a lower management fee and
the Company also qualifies for an additional reduction of
management fee applicable to it based on its size and longevity as
an investor in the Master Fund. As a result, the Company’s
management fee has been reduced from 2.0% to 1.25% per annum.
For the year 1 January 2019 to
31 December 2019, 4,338,078 shares
have been repurchased and cancelled at an average cost per share of
$14.72.
Steve Bates was appointed as
Chairman on 5 February 2019.
Rupert Dorey was appointed as a
Director on 5 February 2019.
On 30 April 2019, the Board
announced the appointment of Numis Securities Limited as Corporate
Broker to the Company.
On 3 July 2019, the Board of
Directors announced the cancellation of all remaining 3,379,753
Shares currently held by the Master Fund for the benefit of the
Company. The cancellation is in accordance with the Repurchase
Policy announced on 2 May 2018.
Huw Evans was appointed as a
Director on 21 August 2019.
11. Financial Highlights
The following tables include selected data for a single Ordinary
Share in issue at the year-end and other performance information
derived from the Audited Financial Statements.
|
US Dollar
Shares
31 December 2019
US$ |
Per Share Operating
Performance |
|
Net Asset Value beginning of the
year |
17.24 |
|
|
Income from Operations |
|
Net realised and
unrealised gain from investment transactions allocated from
Master
Fund |
3.09 |
Net loss |
(0.03) |
Total Return from
Operations |
3.06 |
Share buyback accretion |
0.30 |
Share redemption accretion |
0.55 |
Net Asset Value, end of the
year |
21.15 |
Total return before incentive fee
allocated from Master Fund |
24.32% |
Incentive allocation from Master
Fund |
(1.64%) |
Total return after incentive fee
allocated from Master Fund |
22.68% |
Total return from operations 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 ended
31 December 2019 and is not
annualised. An individual Shareholder’s return may vary from these
returns based on the timing of their purchases and sales of shares
on the market.
|
US Dollar
Shares
31 December 2018
US$ |
Per Share Operating
Performance |
|
Net Asset Value beginning of the
year |
20.25 |
|
|
Income from Operations |
|
Net realised and
unrealised loss from investment transactions allocated from
Master
Fund |
(2.38) |
Net loss |
(0.05) |
Total Return from
Operations |
(2.43) |
Share redemption accretion |
0.19 |
Share buyback accretion |
0.04 |
Distribution Paid |
(0.81) |
Net Asset Value, end of the
year |
17.24 |
Total return before incentive fee
allocated from Master Fund |
(10.82%) |
Incentive allocation from Master
Fund |
(0.04%) |
Total return after incentive fee
allocated from Master Fund |
(10.86%) |
Total return from operations 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 ended
31 December 2018 and is not
annualised. An individual Shareholder’s return may vary from these
returns based on the timing of their purchases and sales of shares
on the market.
|
US Dollar
Shares
31 December 2019
US$ |
Supplemental data |
|
Net Asset Value, end of the
year |
834,564,805 |
Average Net Asset Value, for the
year1 |
841,992,220 |
|
|
Ratio to average net
assets |
|
Operating expenses2 |
(2.79%) |
Incentive fee allocated from Master
Fund |
(1.83%) |
Total operating expense after
incentive fee allocation2 |
(4.62%) |
Net loss |
(1.40%) |
|
US Dollar
Shares
31 December 2018
US$ |
Supplemental data |
|
Net Asset Value, end of the
year |
813,636,027 |
Average Net Asset Value, for the
year1 |
920,184,764 |
|
|
Ratio to average net
assets |
|
Operating expenses2 |
(3.30%) |
Incentive fee allocated from Master
Fund |
(0.03%) |
Total operating expense after
incentive fee allocation2 |
(3.33%) |
Net loss |
(0.73%) |
1 Average Net Asset Value for the year is
calculated based on published monthly estimates of NAV.
2 Operating expenses are Company expenses
together with operating expenses allocated from the Master
Fund.
12. Ongoing Charge
Calculation
Ongoing charges for the year ended 31
December 2019 and 31 December
2018 have been prepared in accordance with the AIC
recommended methodology. Performance fees were charged to the
Master Fund. In line with AIC guidance, an Ongoing Charge has been
disclosed both including and excluding performance fees. The
Ongoing charges for year ended 31 December
2019 and 31 December 2018
excluding performance fees and including performance fees are based
on Company expenses and allocated Master Fund expenses outlined
below.
(excluding performance
fees) |
30 December
2019 |
31 December
2018 |
US Dollar Shares |
1.87% |
2.82% |
Sterling Shares* |
N/A |
1.86% |
(including performance
fees) |
30 December
2019 |
31 December
2018 |
US Dollar Shares |
3.70% |
2.87% |
Sterling Shares* |
N/A |
2.08% |
* All Sterling shares were
compulsorily converted to the US Dollar class as of 1 July 2018.
13. Subsequent Events
On 8 January 2020, the Master
Partnership’ holding of 225,000 shares of the Company was
cancelled.
For the period 1 January 2020 to
27 April 2020, 871,231 shares have
been repurchased (of which 705,000 have been cancelled) at an
average cost per share of $15.83.
As a result of the COVID-19 impact on businesses, the Board
believes it is a significant risk to the Company mitigated by the
following points:
•
Business Operations — The Board has established business continuity
plans and has inquired and is satisfied that service providers have
a process in place to continue to provide required service to the
company and maintain compliance with laws and regulations in the
face of the challenges faced as a result of COVID-19.
•
Liquidity Risk — the Company’s main source of cash is via
redemptions from the Master Fund. As of December 31, 2019, over 70% of the Master Fund’s
assets were invested in liquid securities (defined as Level 1
positions) and cash and so it is well positioned to pay redemptions
as needed. The governing documents of the Master Fund allow for a
gate to permit only 20% of the Master Fund’s Net Asset Value to be
redeemed at each quarterly redemption date on a pro rata basis. To
date, the Master Fund is yet to see any significant redemptions
which would cause the Directors concern regarding gating.
•
Performance — Gains from early 2020 have been reversed during the
virus outbreak but the Board has positioned itself more defensively
by reducing exposures, among other things. As of April 22, 2020, the Master Fund net return is
-13% for the year, as compared to the S&P return of -13%. It is
difficult to assess or quantify the future impact of COVID-19 but
the Company will continue to actively monitor its exposure as the
situation develops.
The Directors confirm that, up to the date of approval, which is
28 April 2020, through which these
financial statements were available to be issued, there have been
no events subsequent to the balance sheet date that require
inclusion or additional disclosure other than those disclosed
above.
Management and Administration
Directors |
|
Steve Bates
(Chairman)*1 |
Christopher Legge* |
PO Box 255, Trafalgar Court, Les
Banques, |
PO Box 255, Trafalgar Court, Les
Banques, |
St Peter Port, Guernsey, |
St Peter Port, Guernsey, |
Channel Islands, GY1 3QL. |
Channel Islands, GY1 3QL. |
|
|
Rupert
Dorey*1 |
Joshua L Targoff |
PO Box 255, Trafalgar Court, Les
Banques, |
PO Box 255, Trafalgar Court, Les
Banques, |
St Peter Port, Guernsey, |
St Peter Port, Guernsey, |
Channel Islands, GY1 3QL. |
Channel Islands, GY1 3QL. |
|
|
Huw Evans*2 |
Claire Whittet* |
PO Box 255, Trafalgar Court, Les
Banques, |
PO Box 255, Trafalgar Court, Les
Banques, |
St Peter Port, Guernsey, |
St Peter Port, Guernsey, |
Channel Islands, GY1 3QL. |
Channel Islands, GY1 3QL. |
|
|
Investment Manager |
* These Directors are
independent. |
Third Point LLC |
1 Appointed 5
February 2019. |
55 Hudson Yards, |
2 Appointed 21
August 2019. |
New York, NY 10001, |
|
United States of America. |
Administrator and
Secretary |
|
Northern Trust International
Fund |
Auditors |
Administration Services (Guernsey)
Limited, |
Ernst & Young LLP |
PO Box 255, Trafalgar Court, Les
Banques, |
PO Box 9, Royal Chambers |
St Peter Port, Guernsey, |
St Julian’s Avenue, |
Channel Islands, GY1 3QL. |
St Peter Port, Guernsey, |
|
Channel Islands, GY1 4AF. |
Legal Advisors (Guernsey
Law) |
|
Mourant |
Legal Advisors (UK Law) |
Royal Chambers, St Julian’s
Avenue, |
Herbert Smith Freehills LLP |
St Peter Port, Guernsey, |
Exchange House, Primrose
Street, |
Channel Islands, GY1 4HP. |
London, EC2A 2HS, |
|
United Kingdom. |
Receiving Agent |
|
Link Market Services Limited |
Legal Advisors (US Law) |
The Registry, |
Cravath, Swaine & Moore,
LLP |
34 Beckenham Road, |
825 Eighth Avenue, Worldwide
Plaza, |
Beckenham, Kent BR3 4TU, |
New York, NY 10019-7475, |
United Kingdom. |
United States of America. |
|
|
Corporate Broker |
Registrar and CREST Service
Provider |
Numis Securities
Limited3 |
Link Market Services (Guernsey)
Limited |
The London Stock Exchange
Building, |
(formerly Capita Registrars
(Guernsey) Limited) |
10 Paternoster Square, |
Mont Crevelt House, |
London EC4M 7LT, |
Bulwer Avenue, |
United Kingdom. |
St Sampson, |
|
Guernsey GY2 4LH. |
Kepler Partners LLP |
|
9/10 Savile Row, |
Registered Office |
London W1S 3PF, |
PO Box 255, Trafalgar Court, Les
Banques, |
United Kingdom. |
St Peter Port, Guernsey, |
|
Channel Islands, GY1 3QL. |
Jefferies International
Limited4 |
|
Vintners Place, |
|
68 Upper Thames Street, |
|
London EC4V 3BJ, |
|
United Kingdom. |
|
|
|
3 Appointed on
30 April 2019. |
|
4 Engagement
terminated on 26 April 2019. |
|
|
[1] Net of share buyback purchases and cancellations.
[2] Reflects the period January 1,
2009 through December 31,
2019. Prior to 2009, Third Point engaged in activist
investing almost exclusively in small cap equities, which is not a
reflection of the Firm’s post-2009 activist opportunity set.
1 Reflects the net equity exposure of the Third Point Offshore
Master Fund L.P.
2 Reflects the period January 1,
2009 through December 31,
2019. Prior to 2009, Third Point engaged in activist
investing almost exclusively in small cap equities, which is not a
reflection of the Firm’s post-2009 activist opportunity set.