BH Global Limited
Annual Report and Audited Financial Statements 2017
LEI: 549300BIIO4DTKEMXV14
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
31 December 2017
CHAIRMAN’S STATEMENT
Dear Shareholder,
Albeit at a more modest pace than had been experienced a year
earlier, 2017 was a further year of growth in the Net Asset Value
(“NAV”) per share for BH Global Limited’s (the “Company” or “BH
Global”) two share classes. The US Dollar is the Company’s
functional currency and the NAV per share of the US Dollar class
appreciated by 2.59% and that of the much larger Sterling class by
1.75%.
Once again many equity markets enjoyed significant appreciation
taking, in many cases, valuations to new heights. However, as I
have written in previous Statements, the Company is intended to
have low correlation to bond and equity markets with limited
downside risk and thus act as a diversifier in the construction of
portfolios. In terms of volatility and correlation it has once
again performed just such a function with further, albeit modest,
positive annual NAV per share growth as has been achieved in eight
out of the nine calendar years since its first full year in 2009
together with low volatility of 3.7%.
Since 1 September 2014 the Company
has invested all of its assets, save for working cash balances, in
Brevan Howard Multi-Strategy Master Fund Limited (“BHMS”). At
31 December 2017 BHMS had net assets
of US$843 million and BH Global’s
investment of US$431 million
represented approximately 51.1% of BHMS. In recent years the
Company’s holding in BHMS has grown significantly as a percentage
of that fund’s assets. Nevertheless, both Manager and Board
consider that the liquidity profile of the assets held by BHMS is
consistent with the redemption notice periods granted to BH Global
and therefore the present position, whereby BH Global holds
approximately 50% of BHMS, is not a cause for concern.
As a percentage of assets, the allocation to the Direct
Investment Portfolio (“DIP”) grew to 63.0% at 31 December 2017 and comprised nine separate
allocations. For the year the DIP appreciated by 3.86% (adjusted
for fees). All but one of the traders within the DIP also
have an allocation in Brevan Howard’s core fund, the Brevan Howard
Master Fund, in which BH Global retains a significant holding
through BHMS amounting to 21.3% of the Company’s assets.
NAV enhancement and share buy
backs
Regular buy backs continued throughout the year in order to seek
to moderate the discount to NAV at which the shares traded, whilst
enhancing NAV per share. During the year 2,771,968 Sterling class
shares were bought back at a weighted average discount of 10.41%
and a cost of £36.467 million together with 350,991 US Dollar class shares at a weighted
average discount of 9.59% and a cost of $4.493 million. These buy-backs added
18 pence (1.22%) and 15 cents (1.02%) respectively to NAV per
share.
When authorising buy backs, and subsequent to the changes made
to the Company’s management agreement with effect from 1 April 2017, the directors were always mindful
that any reduction in the number of shares in either class beyond
the Annual Buy Back Allowance for 2017 (as announced on
12 April 2017) would trigger the
requirement to pay the Manager a fee of 2% of the repurchase price
of the shares bought back. During 2017 12.34% of the Sterling
shares and 8.38% of the US Dollar shares outstanding at the 2016
year end were bought back triggering payments to the Manager
totalling £433,742 and $42,524. In
every case buy backs were always enhancing to NAV per share.
On 1 January 2018 the “clock was
reset” and the Company became entitled to buy back up to an
aggregate number equal to 5% of the shares of each class in issue
as at 31 December 2017 being
150,222 US Dollar shares and
1,017,344 Sterling shares before the 2% additional fee is
triggered. As at the date of this Statement, during 2018 the
Company had bought back no US Dollar shares and 472,389 Sterling
shares.
Discount Management
Both in my Statement last year, and again in the interim report
for the six months to 30 June 2017, I
referred to the Board’s considerable frustration with the discount
to NAV at which the Company’s shares were then trading. At
31 December 2016 the discount on the
Sterling shares had been 8.92% which had widened at 30 June 2017 to 11.06%. During the second half of
the year the discount narrowed significantly and at the Company’s
year-end on 31 December stood at 6.44%. Since the year-end the
average daily discount has been around 7% and is currently at
around the 6% level.
In recent Statements I have indicated that if there were not a
substantial reduction in the discount by the end of 2017 then the
Board would consider further options to enhance shareholder value.
At the time that I signed off my Statement for the year to
31 December 2016 at the end of
March 2017 the Sterling discount was
close to 9%. At 30 June 2017 it
was over 11% and I consider the reduction to 6.44% at 31 December 2017 to be a significantly material
move in the right direction.
Discontinuation Threshold and Capital
Redemption
As already announced on 18 January
2018, the average discount at which shares traded over the
year was less than the 10% discount threshold, at or above which a
class closure vote in either class of share would have been
triggered.
The Board has considered whether it would be appropriate to
offer a partial return of capital of all or part of the 2017 NAV
per share growth. It has concluded that the quantum would not be
material enough to justify such a redemption offer.
The Future for the Company
Toward the end of 2017 the Board asked the Company’s brokers,
JPMorgan Cazenove and Canaccord Genuity, to contact major
shareholders and canvas their views. The majority of the views as
reported to the Board was that shareholders wished the Company to
continue in its present form so as to provide a low risk, minimally
correlated, diversifier when constructing portfolios in the face of
elevated valuations of many equity markets. Nevertheless, those
views are predicated on acceptable and regular NAV per share growth
and continuing downward pressure on the overall costs of managing
the assets. Shareholders will recall that the reduction in the core
management fee from 2% to 1% which took effect on 1 April 2017 has bought about an annual saving of
approximately $4.5 million based on
the current size of the Company.
As I have written before, the key to success for the Company as
a listed entity will be NAV per share performance. It is very much
to be hoped that the trading environment for the Manager will
enable the delivery of robust growth in 2018. The Board will
continuously monitor performance, discounts and feed-back from
shareholders. On the basis of the current position, absent a change
of view of major shareholders, the Board expects the Company to
continue in its present form.
The Board
John Hallam and Nick Moss have served as directors of the
Company since its IPO in May 2008
with John serving as chair of the Audit Committee. Although both
remain robustly independent the Board acknowledges the need to
refresh the membership at the appropriate juncture once directors
have served more than nine years.
John has indicated that he is content to stand down as a
director on 30 September 2018 as a
part of this refreshment process and the Board respects his
decision. I would like to record his outstanding contribution both
as a director and as chair of the Audit Committee. The Company has
been fortunate to recruit Sally-Ann (Susie)
Farnon to join the Board as prospective chair of the Audit
Committee. Susie was formerly head of KPMG’s Channel Island audit
practice and served for nine years as a Commissioner on the
Guernsey Financial Services Commission. She is an extremely
experienced director of listed alternative asset companies and is a
director of a further five listed public companies. I have
discussed with Susie her time availability and capacity to focus on
the affairs of BH Global. Other than her family interests, Susie
has no business responsibilities beyond her non-executive
directorships and she is not the chair of any of the boards on
which she serves. I am fully satisfied that she has the time and
capacity to serve as a director of BH Global and am very pleased
that she has agreed to join the Board. Susie was appointed a
director on 13 March 2018.
.
Relationship with the Manager
The directors continue to pursue active dialogue with the
Manager both at quarterly Board meetings and also in between those
formal meetings. The portfolio manager of BHMS, Magnus Olsson, reports at each Board meeting. I
and other directors have regular contact with a number of people at
the Manager who support the administration and promotion of the
Company.
The relationship with the Manager is robust and, despite the
reduction in the net assets of the Company, the Manager has assured
the Board that the continuing management of the Company’s assets,
and its London Main Market listing, are both of key importance.
Shareholders will recall that as part of the changes to the
Management Agreement announced in April
2017, the Board agreed that, in the event of the NAV of the
Company falling below $300 million at
the end of any calendar quarter, the Board would bring forward a
special resolution proposing the liquidation of the Company. As at
the date of this Statement the NAV of the Company is approximately
$453 million.
Conclusion
The future of the Company will be determined by its performance
and the views of its shareholders. With the discount to NAV now
closer to 5% than the nearly 10% of a year ago (and indeed in
excess of 10% for periods in 2017) the Board considers that
sufficient progress in respect of reduction in the discount has
been made to justify continuing support for the Company. However,
continued growth of NAV per share, preferably at greater pace than
2017, and a modest discount are prerequisites for stability. Should
either falter then the Board will, as previously indicated,
consider options in the best interests of shareholders.
Yours sincerely,
Sir Michael
Bunbury
Chairman
22 March 2018
GLOSSARY OF ACRONYMS
Detailed below are the underlying funds and their acronyms used
within this report:
BHAMF |
Brevan Howard Asia
Master Fund Limited |
BHDGST |
BH-DG Systematic
Trading Master Fund Limited |
BHMF |
Brevan Howard Master
Fund Limited |
BHMS or the Fund |
Brevan Howard
Multi-Strategy Master Fund Limited |
DIP |
Direct Investment
Portfolio |
UNAUDITED SUPPLEMENTAL FINANCIAL STATEMENTS
In order to provide shareholders with further information
regarding the net asset value of each class of shares, coupled with
greater transparency as to the income, gains and expenses incurred
and the changes in net assets of the two classes, the results have
been presented in the tables. These tables show the allocation of
all transactions in the currency of the respective share class.
It should be noted that these tables have not been subject to
audit by KPMG Channel Islands Limited.
UNAUDITED SUPPLEMENTAL STATEMENT OF
ASSETS AND LIABILITIES
As at 31 December 2017
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company Total |
|
|
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
|
|
|
Investment in
BHMS |
|
|
|
|
|
|
42,670 |
|
288,757 |
|
430,643 |
Other
debtors |
|
|
|
|
|
3 |
|
18 |
|
29 |
Cash and
bank balances denominated in US Dollars |
|
1,334 |
|
- |
|
1,334 |
Cash and
bank balances denominated in Sterling |
|
|
- |
|
8,709 |
|
11,701 |
Total
assets |
|
|
|
|
|
44,007 |
|
297,484 |
|
443,707 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Management
fees payable |
|
|
|
|
|
37 |
|
253 |
|
377 |
Performance fees payable |
|
|
|
|
|
200 |
|
469 |
|
831 |
Accrued
expenses and other liabilities |
|
|
|
22 |
|
109 |
|
167 |
Administration fees payable |
|
|
|
|
|
4 |
|
27 |
|
41 |
Total
liabilities |
|
|
|
|
|
263 |
|
858 |
|
1,416 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
|
|
|
43,744 |
|
296,626 |
|
442,291 |
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
3,004,442 |
|
20,346,871 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
US$14.56 |
|
£14.58 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED SUPPLEMENTAL STATEMENT OF OPERATIONS
For the year ended 31 December
2017
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company Total |
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Net
investment gain allocated from BHMS |
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
2,484 |
|
15,344 |
|
22,333 |
Expenses |
|
|
|
|
(582) |
|
(3,617) |
|
(5,260) |
Net
investment gain allocated from BHMS |
|
|
|
1,902 |
|
11,727 |
|
17,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
2 |
|
- |
|
2 |
Foreign
exchange (losses)/gains * |
|
|
|
(20) |
|
43 |
|
38,012 |
Total Company
income |
|
|
|
|
(18) |
|
43 |
|
38,014 |
|
|
|
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
|
|
|
Management fees |
|
|
|
|
681 |
|
4,264 |
|
6,197 |
Performance fees |
|
|
|
|
200 |
|
469 |
|
807 |
Other expenses |
|
|
|
|
140 |
|
628 |
|
951 |
Directors' fees and
expenses |
|
|
|
|
48 |
|
286 |
|
417 |
Administration
fees |
|
|
|
|
20 |
|
122 |
|
178 |
Total Company
expenses |
|
|
|
|
1,089 |
|
5,769 |
|
8,550 |
|
|
|
|
|
|
|
|
|
|
Net investment
gain |
|
|
|
|
795 |
|
6,001 |
|
46,537 |
|
|
|
|
|
|
|
|
|
|
Net
realised and unrealised gains/(losses) on investments allocated
from BHMS |
|
|
|
Net realised gain on
investments |
|
|
|
|
2,541 |
|
14,407 |
|
21,178 |
Net unrealised loss on
investments |
|
|
|
|
(2,547) |
|
(15,076) |
|
(22,051) |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
|
-
on hedging |
|
|
|
|
- |
|
(3,581) |
|
(4,632) |
Net realised and
unrealised losses on investments allocated from BHMS |
|
|
|
|
(6) |
|
(4,250) |
|
(5,505) |
|
|
|
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations |
|
789 |
|
1,751 |
|
41,032 |
|
|
|
|
|
|
|
|
|
|
|
*The Company total for foreign exchange (losses)/gains contains
the results of translating the Sterling class into US Dollars.
The trades carried out in the various underlying portfolios have
structures of varying complexity and inherent leverage. This can
result in situations where, at an individual trade level, interest
income or expense is offset by losses or gains on other investments
to achieve a net return. However accounting conventions require
that all these elements are disclosed gross which can result in
separate reporting of what would otherwise be off-setting interest
income and expenses, realised gains and losses or unrealised gains
and losses.
UNAUDITED SUPPLEMENTAL STATEMENT OF
CHANGES IN NET ASSETS
For the year ended 31 December
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company Total |
|
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Net increase in net
assets resulting from operations |
|
|
|
|
|
|
|
|
|
|
Net investment
gain |
|
|
|
|
|
795 |
|
6,001 |
|
46,537 |
Net realised gain on
investments allocated from BHMS |
|
|
|
|
|
2,541 |
|
14,407 |
|
21,178 |
Net unrealised loss on
investments allocated from BHMS |
|
|
|
|
|
(2,547) |
|
(15,076) |
|
(22,051) |
Net realised and
unrealised foreign exchange loss allocated from BHMS |
|
|
|
|
|
- |
|
(3,581) |
|
(4,632) |
|
|
|
|
|
|
789 |
|
1,751 |
|
41,032 |
|
|
|
|
|
|
|
|
|
|
|
Share capital
transactions |
|
|
|
|
|
|
|
|
|
|
Net share
conversions |
|
|
|
|
|
(11,968) |
|
9,375 |
|
- |
Purchase of own
shares |
|
|
|
|
|
(4,493) |
|
(36,466) |
|
(51,792) |
|
|
|
|
|
|
(16,461) |
|
(27,091) |
|
(51,792) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net
assets |
|
|
|
|
|
(15,672) |
|
(25,340) |
|
(10,760) |
Net assets at the
beginning of the year |
|
|
|
|
|
59,416 |
|
321,966 |
|
453,051 |
Net assets at the
end of the year |
|
|
|
|
|
43,744 |
|
296,626 |
|
442,291 |
MANAGER’S REPORT
Brevan Howard Capital Management LP (“BHCM”) is the Manager of
BH Global Limited (“BHG” or the “Company”). BHG invests all its
assets (net of short-term working capital) in Brevan Howard
Multi-Strategy Master Fund Limited (“BHMS” or the “Fund”) a company
also managed by BHCM.
Performance Summary
The NAV per share of the USD shares appreciated by 2.59% in
2017, while the NAV per share of the GBP shares appreciated by
1.75% in 2017.
The month-by-month NAV performance of the USD and GBP currency
classes of BHG since it commenced operations in 2008 is set out
below:
USD |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
2008 |
- |
- |
- |
- |
- |
1.16* |
0.10 |
0.05 |
(3.89) |
1.13 |
2.74 |
0.38 |
1.55 |
2009 |
3.35 |
1.86 |
1.16 |
1.06 |
2.79 |
(0.21) |
1.07 |
0.27 |
1.49 |
0.54 |
0.11 |
0.04 |
14.31 |
2010 |
0.32 |
(0.85) |
(0.35) |
0.53 |
(0.06) |
0.60 |
(0.79) |
0.80 |
1.23 |
0.39 |
(0.21) |
(0.06) |
1.54 |
2011 |
0.09 |
0.42 |
0.34 |
1.20 |
0.19 |
(0.56) |
1.61 |
3.51 |
(1.29) |
(0.14) |
0.19 |
(0.88) |
4.69 |
2012 |
1.22 |
1.02 |
(0.54) |
(0.10) |
(0.65) |
(1.53) |
1.46 |
0.70 |
1.47 |
(0.72) |
0.81 |
1.26 |
4.44 |
2013 |
1.33 |
0.49 |
0.33 |
1.60 |
(0.62) |
(1.95) |
(0.14) |
(0.86) |
0.09 |
(0.13) |
0.95 |
0.75 |
1.79 |
2014 |
(0.98) |
(0.04) |
(0.26) |
(0.45) |
0.90 |
0.70 |
0.60 |
0.05 |
1.56 |
(0.75) |
0.71 |
0.44 |
2.49 |
2015 |
3.37 |
(0.41) |
0.35 |
(1.28) |
1.03 |
(1.49) |
(0.06) |
(1.56) |
(0.58) |
(0.67) |
3.06 |
(3.31) |
(1.73) |
2016 |
0.82 |
1.03 |
(0.83) |
(0.66) |
0.28 |
1.71 |
0.13 |
0.10 |
(0.23) |
0.47 |
3.62 |
0.82 |
7.42 |
2017 |
0.22 |
0.92 |
(0.99) |
(0.10) |
0.26 |
0.19 |
3.21 |
0.21 |
(0.44) |
(0.85) |
(0.02) |
0.03 |
2.59 |
GBP |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
2008 |
- |
- |
- |
- |
- |
1.40* |
0.33 |
0.40 |
(4.17) |
1.25 |
3.27 |
0.41 |
2.76 |
2009 |
3.52 |
1.94 |
1.03 |
0.68 |
2.85 |
(0.28) |
1.05 |
0.31 |
1.51 |
0.58 |
0.12 |
0.08 |
14.15 |
2010 |
0.35 |
(0.93) |
(0.32) |
0.58 |
(0.04) |
0.62 |
(0.81) |
0.84 |
1.17 |
0.37 |
(0.20) |
(0.03) |
1.61 |
2011 |
0.10 |
0.41 |
0.38 |
1.13 |
0.04 |
(0.59) |
1.69 |
3.67 |
(1.41) |
(0.15) |
0.21 |
(0.84) |
4.65 |
2012 |
1.23 |
1.05 |
(0.51) |
(0.08) |
(0.62) |
(1.51) |
1.50 |
0.70 |
1.44 |
(0.72) |
0.72 |
1.31 |
4.55 |
2013 |
1.36 |
0.56 |
0.36 |
1.63 |
(0.48) |
(1.91) |
(0.11) |
(0.84) |
0.14 |
(0.11) |
0.97 |
0.77 |
2.32 |
2014 |
(0.97) |
(0.14) |
(0.33) |
(0.30) |
0.56 |
0.48 |
0.42 |
0.03 |
1.85 |
(0.76) |
0.78 |
0.48 |
2.09 |
2015 |
3.48 |
(0.34) |
0.33 |
(1.26) |
1.18 |
(1.50) |
(0.03) |
(1.44) |
(0.64) |
(0.79) |
3.02 |
(3.16) |
(1.32) |
2016 |
0.91 |
1.08 |
(1.04) |
(0.65) |
0.24 |
1.46 |
0.13 |
(0.14) |
(0.34) |
0.59 |
3.28 |
0.96 |
6.60 |
2017 |
0.16 |
0.87 |
(1.15) |
(0.04) |
0.10 |
(0.21) |
3.12 |
0.24 |
(0.43) |
(0.75) |
(0.02) |
(0.11) |
1.75 |
Source: BHG NAV and NAV per Share data is provided by BHG’s
administrator, Northern Trust International Fund Administration
Services (Guernsey) Limited (“Northern Trust”). BHG NAV per Share %
Monthly Change calculations are made by BHCM.
BHG NAV data is unaudited and net of all investment management
fees and all other fees and expenses payable by BHG. NAV
performance is provided for information purposes only. Shares in
BHG do not necessarily trade at a price equal to the prevailing NAV
per Share.
* Performance is calculated from a base NAV per Share of 10 in
each currency. The opening NAV in May
2008 was 9.9 (after deduction of the IPO costs borne by
BHG).
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Underlying allocation review
The Investment Committee (“IC”) made the decision to keep the
Fund’s allocation to the DIP and the underlying funds relatively
stable over the period. The allocations to the DIP and BHDGST were
marginally increased whereas the allocations to BHAMF and BHMF were
reduced accordingly. At the end of December
2017, the allocation to the DIP stood at approximately 63%.
The Fund’s performance has benefitted significantly from the
increased allocation to the DIP since early 2016. The DIP, which
included macro, credit and emerging market trading, has been the
key positive driver to the Fund’s returns.
The IC will continue to take advantage of the flexibility within
the Fund’s mandate in order to seek high risk adjusted returns and
keep a healthy diversification across strategies, asset classes and
traders.
Performance Review
During 2017, the NAV per share of the USD and GBP shares
appreciated by 2.59% and 1.75% respectively. The returns were
accompanied by a low volatility of 3.7%. 2017 proved to be a
relatively lacklustre year for many macro managers, with declining
volatility across most asset classes. The NAV performance of BHG
was in line with the US Dollar HFRI Macro Total Index which
returned 2.21% over the period.
The DIP was the main positive contributor to the Fund’s
performance. The DIP is the area of the portfolio which allows the
IC of the Manager to allocate directly to trading books and funds
which are managed by an individual portfolio manager. For the
period the DIP was up 5.1% (on a gross performance basis). The bulk
of the profits arose in credit trading and in interest rate
trading. Some of the gains were offset by losses in FX and to a
small extent in equity indices. In credit, long exposure to
mortgage backed securities (“MBS”) generated gains on the back of a
relatively strong US housing market. The Fund’s non-agency
residential mortgage-backed security (“RMBS”) and legacy commercial
mortgage-backed security (“CMBS”) positions continued to perform
well; the former were increasingly in demand from outright long
money managers as “safe yield” assets, while underlying loan
performance and refinancing activity in the latter beat market
expectations. Additional gains arose in agency trading, selected
asset backed securities (“ABS”) and in emerging market credit.
In ABS, most of the gains were generated from long exposures to
securities structured around student loans and originated pre the
financial crisis. The Fund had acquired these bonds at very low
prices but with meaningful optionality. Most of the Fund’s position
was sold at attractive levels during the summer.
The DIP’s interest rate gains arose predominately from relative
value trading within European sovereign bond markets during the
first quarter. Trading in some of the smaller markets including
South Africa, Czech Republic and Turkey generated additional small gains. A
part of the gains was offset by losses in USD rates from keeping a
bias towards higher USD rates during the first half of the
year.
In FX the losses in the DIP arose mainly from entering the year
with a long USD exposure against a basket of currencies including
the EUR, which strengthened. FX positioning changed over the year
and the earlier losses were significantly reduced from reversing
the long USD exposure to an overall short exposure during most of
the remainder of the year.
A long exposure to the S&P Equity Index at the start of the
year generated losses. Losses were reduced from tactical trading
with a long bias throughout the rest of the year.
The returns of the underlying fund allocations were mixed. BHAMF
and BHDGST contributed positively whereas BHMF was a detractor.
With regard to the performance attribution when looking through
all the Fund’s allocations, equity indices and credit trading
generated gains, FX trading generated losses and trading within
interest rates was overall flat. Commodity trading was a small part
of the Fund during the year. It was a modest detractor with most of
the losses coming from long exposure to oil during the first half
of the year.
Systematic trading had a positive year. The bulk of the gains
arose from a long exposure to equity indices. A part of the gains
were offset by losses in other asset classes where trend reversals
or range bound markets created a challenging environment. BHDGST
(Class Z USD shares) appreciated by 7.92% in 2017. This compares
favourably to the SG Trend Index (+2.20%).
In measuring the attribution of the underlying portfolios, the
Manager employs a number of metrics including the two set out in
the below tables. All positions, regardless of which trading book
holds them, are allocated to an asset class and the attribution per
asset class is summarised in the first table below. The second
table summarises the attribution, but by reference to the overall
strategy classification of each trading book. It should be
noted that, as the second table indicates, there are some strategy
groups which at 31 December 2017 had
been allocated no trading books.
Quarterly and annual contribution (%)
to the performance of BHG USD Shares (net of fees and expenses) by
asset class*
|
Rates |
FX |
Commodity |
Credit |
Equity |
Discount Management |
TOTAL |
Q1
2017 |
0.88 |
(2.22) |
(0.16) |
1.31 |
0.26 |
0.08 |
0.14 |
Q2
2017 |
(1.21) |
(0.31) |
(0.15) |
1.27 |
0.07 |
0.69 |
0.34 |
Q3
2017 |
(0.61) |
2.23 |
(0.02) |
1.21 |
(0.10) |
0.26 |
2.96 |
Q4
2017 |
0.07 |
(1.11) |
0.25 |
(0.94) |
0.89 |
0.00 |
(0.85) |
YTD
2017 |
(0.89) |
(1.46) |
(0.08) |
2.85 |
1.13 |
1.03 |
2.59 |
*Data as at 29 December 2017
Quarterly figures are calculated by BHCM based on performance
data for each period provided by BHG’s administrator, Northern
Trust. Figures rounded to two decimal places.
PAST PERFORMANCE IS NOT INDICATIVE OF
FUTURE RESULTS
Methodology and Definition of Contribution to
Performance:
Attribution by asset class is produced at the instrument level,
with adjustments made based on risk estimates.
The above asset classes are categorised as follows:
“Rates”: interest rates markets
“FX”: FX forwards and options
“Commodity”: commodity futures and options
“Credit”: corporate and asset-backed indices, bonds and
CDS
“Equity”: equity markets including indices and other
derivatives
“Discount Management”: buyback activity for discount
management purposes
Quarterly and annual contribution (%)
to the performance of BHG USD Shares (net of fees and expenses) by
strategy group*
|
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Discount Management |
TOTAL |
Q1
2017 |
(0.92) |
(0.13) |
(0.06) |
(0.12) |
(0.00) |
1.04 |
0.26 |
(0.00) |
0.08 |
0.14 |
Q2
2017 |
(1.63) |
(0.15) |
0.07 |
0.00 |
(0.00) |
1.26 |
0.12 |
(0.00) |
0.69 |
0.34 |
Q3
2017 |
1.33 |
0.30 |
(0.04) |
0.01 |
(0.00) |
0.98 |
0.13 |
(0.00) |
0.26 |
2.96 |
Q4
2017 |
(0.40) |
0.51 |
0.15 |
(0.00) |
(0.00) |
(0.87) |
(0.24) |
(0.00) |
0.00 |
(0.85) |
YTD
2017 |
(1.64) |
0.53 |
0.12 |
(0.12) |
(0.00) |
2.42 |
0.27 |
(0.00) |
1.03 |
2.59 |
*Data as at 29 December 2017
Quarterly figures are calculated by
BHCM based on performance data for each period provided by BHG’s
administrator, Northern Trust. Figures rounded to two decimal
places.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Methodology and Definition of Contribution to
Performance:
Strategy Group Attribution is approximate and has been derived by
allocating each underlying trader book to a single category. In
cases where a trader book has activity in more than one category,
the most relevant category has been selected.
The above strategies are categorised as follows:
“Macro”: multi-asset global markets, mainly directional (for
BHG, the majority of risk in this category is in rates)
“Systematic”: rules-based futures trading
“Rates”: developed interest rates markets
“FX”: global FX forwards and options
“Equity”: global equity markets including indices and other
derivatives
“Credit”: corporate and asset-backed indices, bonds and
CDS
“EMG”: global emerging markets
“Commodity”: liquid commodity futures and options
“Discount Management”: buyback activity for discount
management purposes
Commentary and
Outlook
The global expansion accelerated and broadened in 2017, leaving
behind lingering worries about downside risks. At the same time,
inflation remained calm in most major economies, except the UK
which experienced a sharp increase on the heels of the
Brexit-related fall in Sterling. The combination of strong growth
and generally modest inflation led to a continuation of monetary
policy trends, with the US and Canada gradually removing policy
accommodation, the Euro area tapering asset purchases, and
Japan maintaining a high level of
accommodation. Political risks that loomed large at the start of
2017, such as the upcoming elections in France, Germany, Netherlands and possibly Italy, were favourably resolved with little
disruption. This favourable backdrop buoyed financial markets,
leading to record highs in many global equity markets, relatively
low interest rates, and tight credit spreads.
As we enter the ninth year of the expansion in 2018, the ageing
business cycle would typically be displaying late-cycle dynamics of
slower growth and rising inflation. However, this cycle is defying
that pattern. Economic activity appears to be accelerating further
above trend in most economies and inflation pressures are only
beginning to emerge. Despite the age of the business cycle, the
data suggest that this cycle is behaving more mid-cycle or even
early-cycle in certain sectors like manufacturing. Underpinning
this dynamic are the early signs that business investment and
productivity are picking up from the doldrums. If those trends
continue, they could have far reaching consequences, including
continued support for risk assets, higher equilibrium interest
rates, and an end to secular stagnation. Tax reform in the US is a
further tailwind promoting growth and investment in an economy that
is already operating above its potential. If these favourable
trends persist, there will be pressure on central banks to provide
less accommodation going forward. Policy makers will face a tricky
balancing act between strong growth and easy financial conditions,
on the one hand, and inflation that generally remains below target,
on the other hand.
We look forward to exploiting any opportunities that these
factors may create.
Brevan Howard wishes to thank shareholders once again for their
continued support.
Brevan Howard Capital Management,
LP,
acting by its sole general partner,
Brevan Howard Capital Management Limited
22 March 2018
DIRECTORS’ REPORT
The Directors submit their Report together with the Company’s
Audited Statement of Assets and Liabilities, Audited Statement of
Operations, Audited Statement of Changes in Net Assets, Audited
Statement of Cash Flows, and the related notes (together, the
“Financial Statements”) for the year ended 31 December 2017. The Directors’ Report together
with the Audited Financial Statements give a true and fair view of
the financial position of the Company. They have been prepared
properly, in conformity with United States Generally Accepted
Accounting Principles (“US GAAP”) and are in accordance with any
relevant enactment for the time being in force, and are in
agreement with the accounting records.
The Company
The Company is a limited liability closed-ended investment
company which was incorporated in Guernsey on 25 February
2008.
It was admitted to the Official List of the London Stock
Exchange on 29 May 2008 when it
raised approximately US$1 billion and where it currently has a
Premium Listing.
The Company’s US Dollar Share Class had Secondary Listings on
the Bermuda Stock Exchange and on NASDAQ Dubai until 30 September 2017 and 31
December 2017 respectively.
The Company can offer multiple classes of ordinary shares, which
differ in terms of currency of issue with ordinary shares
denominated in US Dollar and Sterling currently being in issue.
Investment Policy
The Company’s investment objective is to seek to generate
consistent long-term capital appreciation through an investment
policy of investing all of its assets (net of funds required for
its short-term working capital requirements) in Brevan Howard
Multi-Strategy Master Fund Limited (“BHMS” or the “Master
Fund”).
The Company is organised as a feeder fund and invests
substantially all of its investable assets in the ordinary US
Dollar and Sterling denominated Class G shares issued by BHMS, and,
as such, the Company is directly and materially affected by the
performance and actions of BHMS.
BHMS spreads investment risk by providing exposure to a range of
strategies, asset classes and geographies.
BHMS has flexibility to invest in a wide range of instruments
including, but not limited to, debt securities and obligations
(which may be below investment grade), bank loans, listed and
unlisted equities, other collective investment schemes or vehicles
(which may be open-ended or closed-ended, listed or unlisted,
regulated or unregulated and may employ leverage (each an
“Investment Fund”)), currencies, commodities, futures, options,
warrants, swaps and other derivative instruments. Derivative
instruments may be exchange-traded or OTC.
BHMS may engage in short sales. BHMS may retain amounts in cash
or cash equivalents (including money market funds) pending
reinvestment, for use as collateral or if this is considered
appropriate to the investment objective.
Subject to the investment restrictions and investment approach
disclosed in any prospectus for BHMS that may be published from
time to time and subsequent BHMS Directors’ resolutions, BHMS
employs an investment process which empowers the Manager to
allocate assets both to Investment Funds and directly to the
investment managers of BHMS from time to time on an opportunistic
basis.
Contractual relationship with the
Manager
The Company’s relationship with its Manager is defined in the
Management Agreement. Further revisions were made during the course
of 2017 affecting fee levels and buy backs and these are set out in
detail in note 4.
Results and Dividends
The results for the year are set out in the Audited Statement of
Operations. The Directors do not recommend the payment of a
dividend.
Share Capital
The number of shares in issue at the year end and the changes
during the year are disclosed in the note 5 to the Audited
Financial Statements.
International Tax Reporting
For the purposes of the US Foreign Account Tax Compliance Act,
the Company registered with the US Internal Revenue Services
(“IRS”) as a Guernsey reporting Foreign Financial Institution
(“FFI”), received a Global Intermediary Identification Number
(U2S6ID.99999.SL.831), and can be found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into
effect on 1 January 2016. The Board
has taken the necessary action to ensure that the Company is
compliant with Guernsey regulations and guidance in this
regard.
Discount Management Programme
In consultation with the broker and other advisors, the
Directors review the share price in relation to NAV on a regular
basis and take such action as they consider to be in the best
interests of shareholders. For additional information refer to note
8 of the Financial Statements. Shareholders with any queries in
relation to the above should contact the Administrator in the first
instance, whose contact details can be found on the Company’s
website, www.bhglobal.com/contacts.
Viability Statement
The investment objective of the Company, as outlined earlier, is
currently implemented through a policy of investing all of its
assets (net of funds required for its short-term working capital
requirements) in the ordinary US Dollar and Sterling denominated
Class G shares issued by BHMS.
The Company’s investment performance depends upon the
performance of BHMS and the Manager as manager of BHMS. The
Directors, in assessing the viability of the Company, pay
particular attention to the risks facing BHMS. The Manager operates
a risk management framework which is intended to identify, measure,
monitor, report and where appropriate, mitigate key risks
identified by it or its affiliates in respect of BHMS.
The Company’s assets exceed its liabilities by a considerable
margin. Further, the majority of the Company’s most significant
liabilities, being the fees owing to the Manager and to the
Company’s administrator, fluctuate by reference to the Company’s
investment performance and net asset value.
The Directors confirm that their assessment of the principal
risks facing the Company was robust and that they have assessed the
viability of the Company over the period to 31 December 2020. The viability statement covers
a period of three years, which the Directors consider sufficient
given the inherent uncertainty of the investment world and the
strategy period. In selecting this period, the Directors considered
the environment within which the Company operates, its liabilities,
the performance of the Master Fund and the risks associated with
the Company.
The continuation of the Company in its present form is, inter
alia, dependent on the Management Agreement with the Manager
remaining in place. The Directors note that the Management
Agreement with the Manager is terminable on one year’s notice by
either party. The Directors know of no current reason why either
the Company or the Manager might serve notice of termination of the
Management Agreement during the three year period covered by this
viability statement. To ensure that the Company maintains a
constructive and informed relationship with the Manager, the
Directors meet regularly with the Manager to review BHMS's
performance, and through the Management Engagement Committee, they
review the nature of the Company’s relationship with the
Manager.
Besides the possible termination of the Management Agreement, at
the Company level, the main risks to the Company’s continuation
would be a) the Company’s shares trading at a significant and/or
persistent discount to NAV, or b) the Company’s NAV falling below
US$300 million.
The Company’s discount management programme is described within
note 8 including details as to when class closure resolutions would
have to be put to shareholders. The Company actively undertakes
discount management actions, including share buybacks, so that as
far as possible the share prices properly reflect the Company’s
underlying performance; such actions seek to mitigate the risk of a
class closure resolution being triggered.
As a part of the agreement to reduce the management fee, it was
agreed that should the Company’s NAV fall below US$300 million on certain dates, the Board will
convene a general meeting at which a special resolution proposing
the liquidation of the Company would be put forward. Further
details are provided in note 4. It is the Board’s current view that
it is unlikely that such a scenario will arise as a consequence
solely of its discount management programme.
After having considered the above risks based on the assumption
that they are managed or mitigated in the ways noted above, and
having reviewed the budgeted ongoing expenses, the Directors have a
reasonable expectation that the Company would be able to continue
in operation and meet its liabilities as they fall due over the
three year period of their assessment.
Going Concern
After making enquiries and given the nature of the Company and
its investment, the Directors are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing these
Financial Statements and, after due consideration, the Directors
consider that the Company is able to continue for the foreseeable
future and at least twelve months from the date of this report. In
reaching this conclusion the Board is mindful of the nature and
liquidity of the assets that underlie its investment in BHMS, the
terms under which it may redeem its investment in BHMS and utilise
the borrowing facilities available to it and has concluded that
moderate adverse investment performance would not have a material
impact on the Company’s ability to meet its liabilities as they
fall due.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
John
Hallam
Director
22 March 2018
CORPORATE GOVERNANCE STATEMENT
Corporate Governance
To comply with the UK Listing Regime, the Company must comply
with the requirements of the UK Corporate Governance Code. The
Company is also required to comply with the Code of Corporate
Governance issued by the Guernsey Financial Services
Commission.
The Company is a member of the Association of Investment
Companies (the “AIC”) and by complying with the AIC Code of
Corporate Governance (“AIC Code”) is deemed to comply with both the
UK and Guernsey Codes of Corporate Governance.
The Board has considered the principles and recommendations of
the AIC Code, by reference to the guidance notes provided by the
AIC Guide, and considers that reporting against these will provide
appropriate information to shareholders. To ensure ongoing
compliance with these principles the Board reviews a report from
the Corporate Secretary, at each quarterly meeting, identifying how
the Company is in compliance and identifying any changes that might
be necessary.
The Company has complied with the recommendations of the AIC
Code throughout the accounting period and thus the relevant
provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance Code includes provisions relating
to:
- the role of the chief
executive;
- the executive Directors’
remuneration;
- the annual assessment of
the need for an internal audit function;
- the remuneration
committee;
- the whistle blowing policy;
and
- the Directors’
independence.
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company as it is
an externally managed investment company. The Company has therefore
not reported further in respect of these provisions. The Directors
are all non-executive and the Company does not have employees,
hence no whistle blowing policy is required. The key service
providers all have whistle blowing policies in place. The Board as
a whole fulfils the function of a Remuneration Committee. Details
of compliance are noted below. There have been no instances of
non-compliance, other than those noted above.
The Company has adopted a policy that the composition of the
Board of Directors, which is required by the Company’s Articles to
comprise of at least two persons, is at all times such that a
majority of the Directors are independent of the Manager and any
company in the same group as the Manager; the Chairman of the Board
of Directors is free from any conflicts of interest and is
independent of the Manager and of any company in the same group as
the Manager; and that no more than one director, partner, employee
or professional adviser to the Manager or any company in the same
group as the Manager may be a Director of the Company at any one
time.
Under provision B.1.1. of the UK Corporate Governance Code,
having considered the directorship of Julia
Chapman in DG Macro Fund Limited (formerly London Select
Fund Limited), whose Alternative Investment Fund Manager is one in
which Brevan Howard has an economic interest, the Board has
determined that she remains independent.
As noted below, Messrs Moss and Hallam have served on the Board
since the Company was formed in 2008 but, for the reasons noted it
is considered that they remain independent and that their continued
service is in the best interests of shareholders.
Risk Management
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee at its quarterly meetings and annually by the Board. The
Board believes that the Company has adequate and effective systems
in place to identify, mitigate and manage the risks to which it is
exposed.
The Board
The Board, which currently consists solely of independent
non-executive Directors, meets at least four times a year and
between these formal meetings there is regular contact with both
the Manager and the Administrator. Clear terms of reference outline
the full schedule of matters reserved for the Board’s decision and
that of its committees. The Directors are kept fully informed of
investment and financial controls, and other matters that are
relevant to the business of the Company and which should be brought
to the attention of the Directors. The Directors also have access
to the Administrator, and where necessary, in the furtherance of
their duties, to independent professional advice at the expense of
the Company. In addition to these scheduled meetings, 15 ad-hoc
meetings were held in 2017, to deal with matters that were of a
fundamentally administrative nature, the majority being to deal
with conversions between share classes. These meetings were
attended by those Directors available at the time.
On 26 June 2017, at the Annual
General Meeting of the Company, shareholders re-elected all
Directors of the Company. Section 21.3 of the Company’s Articles
requires all Directors at the date of the notice convening the
annual general meeting, shall retire from office and may offer
themselves for re-election. Mr Morgan did not offer himself for
re-election at the 2017 Annual General Meeting.
The Board of Directors has overall responsibility for
safeguarding the Company’s assets, for the determination of the
investment policy of the Company, for reviewing the performance of
the Manager and the other service providers and for the Company’s
activities. The Directors are listed on the Board Members section
below.
The Board needs to ensure that information presented is fair,
balanced and understandable, and provide information necessary for
the shareholders to assess the Company’s performance, business
model and strategy. In achieving this, the Directors have explained
the Company’s investment objective and policy, how the Board
operates through its structure of reserved powers of the Board, its
delegated Committees and how the Directors consider and explain the
risk environment within which the Company operates. Further,
through the Annual Report and ancillary documents the Board has
sought to provide information to enable shareholders to have a
fair, balanced and understandable view.
Board Evaluation and Succession
Planning
The AIC Code requires external evaluation of Board performance
every three years. During 2016, the Board commissioned an external
evaluation of its performance by Board Alpha. The report of the
evaluation confirmed that the Company applies a high standard of
corporate governance. The report indicated that there were no
significant issues to raise; some helpful procedural suggestions
were offered which the Board has implemented. The Board conducted
self-appraisal during 2017.
The Board has chosen not to adopt a definitive policy with
quantitative targets for board diversity. However, gender,
knowledge, skills, experience, residency and governance credentials
are all considered by the Nominations Committee when recommending
appointments to the Board and in formulating succession plans.
The Board, Audit Committee, Management Engagement Committee and
Nominations Committee undertake an evaluation of their own
performance and that of individual Directors on an annual basis. In
order to review their effectiveness, the Board and its Committees
carry out a process of formal self-appraisal. The Board and
Committees consider how they function as a whole and also review
the individual performance of its members.
This process is conducted by the respective Chairman reviewing
each members’ performance, contribution and commitment to the
Company. John Hallam, as Senior
Independent Director, takes the lead in reviewing the performance
of the Chairman. Each Board member undertakes ongoing training and
maintenance of continuing professional development
requirements.
The Board considers it has a breadth of experience relevant to
the Company, and the Directors believe that any changes to the
Board’s composition can be managed without undue disruption. An
induction programme has been put in place for all Director
appointments.
Board and Committee Meetings
The table below sets out the number of Board, Audit, Management
Engagement and Nominations Committee scheduled meetings held during
the year ended 31 December 2017 and,
where appropriate, the number of such meetings attended by each
Director.
Attendance at scheduled Board and Committee meetings:
|
|
|
|
|
Management |
|
|
|
Board |
|
Audit |
|
Engagement |
|
Nominations |
No of
meetings |
4 |
|
4 |
|
1 |
|
1 |
Attendance |
|
|
|
|
|
|
|
Sir Michael
Bunbury |
4 |
|
2 |
* |
1 |
|
1 |
John Hallam |
4 |
|
4 |
|
1 |
|
1 |
Graham Harrison |
4 |
|
4 |
|
1 |
|
1 |
Talmai
Morgan1 |
2 |
|
2 |
* |
- |
|
- |
Nicholas Moss |
4 |
|
3 |
|
1 |
|
1 |
Julia Chapman |
4 |
|
4 |
|
1 |
|
1 |
* in attendance
1 Talmai Morgan
retired from the board on 26 June
2017.
Directors’ Independence
The Company has five non-executive Directors, all of whom are
independent of the Manager.
Under the AIC Code the board must consider whether directors
continue to be independent of the Company if they have served for
over nine years. Mr Hallam and Mr Moss were appointed to the Board
in February 2008. The Board takes the
view that their independence is not compromised by the length of
tenure on the Board and considers their experience to significantly
add to the Board’s strength
At a Board meeting held on 13 March
2018, and as a part of the ongoing process of board
refreshment, Sally-Ann Farnon was
appointed to the board. In due course she will assume the
chairmanship of the Audit Committee and John Hallam will resign from the Board.
Directors’ Interests
The current Directors had the following interests in the
Company, held either directly or beneficially:
|
31.12.2017 |
31.12.2016 |
|
US
Dollar |
Sterling |
US
Dollar |
Sterling |
|
Shares |
Shares |
Shares |
Shares |
Sir Michael
Bunbury |
– |
7,000 |
– |
4,000 |
John Hallam |
5,000 |
– |
5,000 |
– |
Graham Harrison |
– |
1,500 |
– |
1,500 |
Nicholas Moss |
– |
839 |
– |
839 |
Julia
Chapman1 |
– |
– |
– |
– |
Sally-Ann
Farnon2 |
– |
– |
– |
– |
1 Julia Chapman was
appointed to the board on 16 January
2017.
2 Sally-Ann Farnon was
appointed to the board on 13 March
2018.
The Company has adopted a Code of Directors’ dealings in
securities.
Further Directors’ interests in other public companies are
disclosed in the Board Members’ report.
Directors’ Indemnity
Directors’ and officers’ liability insurance cover is in place
in respect of the Directors. The Directors entered into indemnity
agreements with the Company which provide for, subject to the
provisions of the Companies (Guernsey) Law, 2008, an indemnity for
Directors in respect of costs which they may incur relating to the
defence of proceedings brought against them arising out of their
positions as Directors, in which they are acquitted or judgement is
given in their favour by the Court. The agreement does not provide
for any indemnification for liability which attaches to the
Directors in connection with any negligence, unfavourable
judgements, breach of duty or trust in relation to the Company.
Committees of the Board
The Board has established Audit, Management Engagement and
Nominations Committees and approved their terms of reference,
copies of which can be obtained from the Administrator.
Audit Committee
The Audit Committee is chaired by John
Hallam, and its other members are Graham Harrison, Nicholas Moss and Julia
Chapman. The Committee meets formally at least twice a year
and each meeting is attended by the external auditor and
Administrator.
Appointment to the Audit Committee is for a period up to three
years which may be extended for two further three year periods
provided that the majority of the Audit Committee remain
independent of the Manager. John
Hallam and Nicholas Moss have
served 10 years on the Audit Committee and have had their tenure
extended for a further year whilst suitable replacements are
appointed. At the date of this report, Graham Harrison will be in the second year of
his third term of three years.
The table above, sets out the number of Audit Committee Meetings
held during the year ended 31 December
2017 and the number of such meetings attended by each
Committee member.
A report of the Audit Committee detailing its responsibilities
and its key activities is presented in the Audit Committee
Report.
Management Engagement Committee
The Board has established a Management Engagement Committee with
formal duties and responsibilities. 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 Management Engagement Committee meets formally at least once
a year and comprises all Directors of the Board, with Nicholas Moss being appointed as chairman.
The Committee also reviews annually the performance of the
Manager with a view to determining whether to recommend to the
Board that the 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 principal contents of the Manager’s contract and notice
period are contained in note 4 to the Financial Statements.
The Manager has wide experience in managing and administering
investment companies and has access to extensive investment
management resources. At its meeting of 5
December 2017, the Management Engagement Committee concluded
that the continued appointment of the Manager on the terms agreed
would be in the best interests of the Company’s shareholders as a
whole. At the date of this report the Board continues to be of the
same opinion.
Nominations Committee
The Nominations Committee comprises all Directors of the Board,
with the Chairman being appointed as Chairman of the Nominations
Committee. For new appointments to the Board, nominations are
sought from the Directors and from other relevant parties and
candidates are then interviewed by the Nominations Committee. In
the event that a replacement for the Chairman is being sought it
would normally be expected that the Senior Independent Director
would chair the Committee.
The other duties of the Committee include:
1. To review the
structure, size and composition (including the skills, knowledge,
experience and diversity) of the Board;
2. To consider
succession planning;
3. To consider
the performance of individual Directors and determine whether to
recommend to the Board that they be put forward for re-election;
and
4. To consider
the ongoing terms of appointment of each Director.
At its meeting of 19 September
2017, the Nominations Committee concluded that the continued
appointment of the Board would be in the best interests of the
Company’s shareholders as a whole. At the date of this report the
Board continues to be of the same opinion.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a separate
Remuneration Committee as anticipated by the AIC Code. The Board as
a whole fulfils the functions of the Remuneration Committee,
although the Board has included a separate Remuneration Report of
these Financial Statements. The consideration of the Chairman’s
remuneration is led by the Senior Independent Director without the
Chairman being present.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal control and for
maintaining and reviewing its effectiveness. To achieve this a
process has been established which seeks to:
- Review the risks faced by
the Company and the controls in place to address those risks;
- Identify and report changes
in the risk environment;
- Identify and report changes
in the operational controls;
- Identify and report on the
effectiveness of controls and errors arising; and
- Ensure no override of
controls by its service providers, the Manager and the
Administrator.
The Company’s risk matrix continues to be used as the basis for
analysing the Company’s system of internal control. The risk matrix
is prepared and maintained by the Audit Committee which initially
identifies the risks facing the Company and then collectively
assesses the likelihood of each risk, the impact of those risks and
the strength of the controls operating over each risk. The
Company’s system of internal control is designed to manage rather
than to eliminate the risk of failure to achieve business
objectives and by their nature can only provide reasonable and not
absolute assurance against misstatement and loss.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the
Company.
The AIC Code requires the Board to conduct, at least annually, a
review of the Company’s system of internal control, covering all
controls, including financial, operational, compliance and risk
management. The Board has evaluated the systems of internal
controls of the Company. In particular, it has prepared a process
for identifying and evaluating the significant risks affecting the
Company and the policies by which these risks are managed.
The Board has delegated the investment management of the
Company, the administration, corporate secretarial and registrar
functions including the independent calculation of the Company’s
NAV and the production of the Annual Report and Financial
Statements, which are independently audited. Whilst the Board
delegates these functions, it remains responsible for the functions
it delegates and for the systems of internal control. Formal
contractual agreements have been put in place between the Company
and providers of these services. On an ongoing basis, Board reports
are provided at each quarterly Board meeting from the Manager,
Administrator and Company Secretary and Registrar. A representative
from the Manager is asked to attend these meetings.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Manager, Administrator and the Company Secretary and Registrar,
including their own internal review processes, and the work carried
out by the Company’s external auditors, provide sufficient
assurance that a sound system of internal control, which safeguards
the Company’s assets, is maintained. An internal audit function
specific to the Company is therefore considered unnecessary.
A report is tabled and discussed at each quarterly Audit
Committee meeting, and reviewed once a year by the Board, setting
out the Company’s risk exposure and the effectiveness of its risk
management and internal control systems. The Board believes that
the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
Further reports are received from the Administrator in respect
of compliance, London Stock Exchange continuing obligations and
other matters. These reports were reviewed by the Board. No
material adverse findings were identified in these reports.
Corporate Social Responsibility
Anti-Bribery and Corruption Policy
The Board has adopted a formal Anti-bribery and Corruption
Policy. The policy applies to the Company and to each of its
Directors. Furthermore, the policy is shared with each of the
Company’s main service providers.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has
introduced a new Corporate Criminal Offence of ‘failing to take
reasonable steps to prevent the facilitation of tax evasion’, the
Board confirms that it is committed to zero tolerance towards the
criminal facilitation of tax evasion.
The Board also keeps under review developments involving other
social and environmental issues, such as Modern Slavery and General
Data Protection Regulation (“GDPR”), and will report on those to
the extent they are considered relevant to the Company’s
operations.
Principal Risks and Uncertainties
The Board is responsible for the Company’s system of internal
controls and for reviewing its effectiveness. The Board is
satisfied, by using the Company’s risk matrix in establishing the
Company’s system of internal controls, while monitoring the
Company’s investment objective and policy, that the Board has
carried out a robust assessment of the principal risks and
uncertainties facing the Company. The principal risks and
uncertainties which have been identified and the steps which are
taken by the Board to mitigate them are as follows:
- Investment Risks: The
Company is exposed to the risk that its portfolio fails to perform
in line with the Company’s objectives if it is inappropriately
invested or markets move adversely. The Board reviews reports from
the Manager, which has discretion over portfolio allocation, at
each quarterly Board meeting, paying particular attention to this
allocation and to the performance and volatility of underlying
investments;
- Operational Risks: The
Company is exposed to the risks arising from any failure of systems
and controls in the operations of the Manager or the Administrator.
The Board receives reports annually from the Manager and
Administrator on their internal controls;
- Accounting, Legal and
Regulatory Risks: The Company is exposed to risk if it fails to
comply with the regulations of the UK Listing Authority, Guernsey
Financial Services Commission, or if it fails to maintain accurate
accounting records. The accounting records prepared by the
Administrator are reviewed by the Manager. The Administrator
provides the Board with regular reports on changes in regulations
and accounting requirements;
- Financial Market Risks: The
financial risks faced by the Company, include market, and credit
risk. These risks and the controls in place to mitigate them are
reviewed at each quarterly Board meeting; and
- Liquidity Risks: While the
Company retains sufficient working capital to ensure that it can
meet its normal running costs, this is a relatively modest amount.
It is therefore dependent on its continued access to funding from
third parties and the timely receipt of the proceeds from
redemption requests made to BHMS for all other purposes. The Board
monitors the liquidity needs of the Company and takes such action
as is appropriate.
The Board seeks to mitigate and manage these risks through
continual review, policy-setting and enforcement of contractual
obligations and will update the risk assessment matrix to reflect
any changes to the control environment.
Relations with Shareholders
The Board welcomes shareholders’ views and places great
importance on communication with its shareholders. The Chairman has
conducted and continues to conduct meetings with a number of major
shareholders in order to receive their view on the Company. The
Board also receives regular reports on the views of its
shareholders from its brokers, JP Morgan Cazenove and Canaccord
Genuity, marketing consultants, Kepler Partners LLP and from the
Manager. In addition, the Chairman and other Directors are
available to shareholders if requested and the Annual General
Meeting of the Company provides a forum for shareholders to meet
and discuss issues with the Directors of the Company.
The Company provides weekly unaudited estimates of the NAVs,
month-end unaudited NAVs and a monthly newsletter. These are
published via RNS and are also available on the Company’s website,
www.bhglobal.com. Risk reports are also available on the Company’s
website.
In addition to the Company’s brokers, the Manager maintains
regular dialogue with institutional shareholders, the feedback from
whom is reported to the Board.
Significant Shareholders
As at 31 December 2017, the following
registered shareholders had significant shareholdings in the
Company:
|
|
% holdings |
Significant shareholders |
Total shares held |
in class |
Sterling shares |
|
|
Cheviot Capital (Nominees)
Limited |
4,361,731 |
21.44 |
Rathbone Nominees Limited |
2,752,056 |
13.53 |
Nortrust Nominees Limited |
1,564,807 |
7.69 |
Smith & Williamson Nominees
Limited |
1,074,249 |
5.28 |
The Bank Of New York (Nominees)
Limited |
990,049 |
4.87 |
Wealth Nominees Limited |
964,124 |
4.74 |
Brooks MacDonald Nominees
Limited |
802,771 |
3.95 |
Roy Nominees Limited |
748,913 |
3.68 |
Pershing Nominees Limited |
690,421 |
3.39 |
HSBC Global Custody Nominee (UK)
Limited |
638,189 |
3.14 |
|
|
%
holdings |
Significant
shareholders |
Total shares
held |
in
class |
US Dollar
shares |
|
|
Wealth Nominees
Limited |
1,160,437 |
38.62 |
Euroclear Nominees
Limited |
624,889 |
20.80 |
Pershing Nominees
Limited |
162,265 |
5.40 |
Rathbone Nominees
Limited |
126,267 |
4.20 |
Vidacos Nominees
Limited |
124,861 |
4.16 |
Lynchwood Nominees
Limited |
94,185 |
3.13 |
Ongoing charges
Ongoing charges for the year ended 31
December 2017 and 31 December
2016 have been prepared in accordance with the AIC’s
recommended methodology. Note this was not the methodology used
when producing the Key Information Document (“KID”).
The Ongoing Charges figures include the ongoing charges of
BHMS.
BHMS investments are not subject to management fees, operational
services fees or performance fees but do bear normal administrative
expenses.
The following table presents the Ongoing Charges and the
Company’s performance fees for each share class:
31.12.17
|
US Dollar |
Sterling |
|
Shares |
Shares |
Company – Ongoing Charges |
1.71% |
1.68% |
BHMS – Ongoing Charges |
0.13% |
0.13% |
Performance fee |
0.40% |
0.15% |
Total Ongoing Charges plus
performance fees |
2.24% |
1.96% |
Ongoing
charges
31.12.16 |
|
|
|
|
US Dollar |
Sterling |
|
|
Shares |
Shares |
|
Company – Ongoing Charges |
2.38% |
2.31% |
|
BHMS – Ongoing Charges |
0.09% |
0.09% |
|
Performance fee |
0.73% |
0.81% |
|
Total Ongoing Charges plus
performance fees |
3.20% |
3.21% |
|
Further information regarding expenses is provided in the KID
for each share class which is available on the Company’s
website.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
John
Hallam
Director
22 March
2018
AUDIT COMMITTEE REPORT
Dear Shareholder,
We present the Audit Committee’s Report for 2017, setting out
the responsibilities of the Audit Committee and its key activities
in 2017. As in previous years, the Audit Committee has reviewed the
Company’s financial reporting, the independence and effectiveness
of the Independent Auditor and the internal control and risk
management systems of the Company’s service providers. In order to
assist the Audit Committee in discharging these responsibilities,
regular reports are received and reviewed from the Manager,
Administrator and Independent Auditor. Following the review of the
independence, objectivity and effectiveness of the Company’s
Independent Auditor, the Audit Committee has recommended to the
Board that KPMG Channel Islands Limited be reappointed as
Independent Auditor, which the Board will submit to the Company’s
Members for approval.
As noted earlier Sally-Ann Farnon
has now joined the Board and will take over from me as Chairman of
the Audit Committee in due course.
A member of the Audit Committee will be available at each Annual
General Meeting to respond to any shareholder questions on the
activities of the Audit Committee.
John
Hallam
Chairman, Audit Committee
Responsibilities
The Audit Committee reviews and recommends to the Board, the
Financial Statements of the Company and is the forum through which
the Independent Auditor reports to the Board of Directors. The
Independent Auditor and the Audit Committee are able to meet
together, without representatives of either the Administrator or
Manager being present, if either consider this to be necessary.
The role of the Audit Committee includes:
- monitoring the integrity of
the published financial statements of the Company;
- reviewing and reporting to
the Board on the significant issues and judgements made in the
preparation of the Company’s published financial statements,
(having regard to matters communicated by the Independent Auditor)
and other financial information;
- monitoring and reviewing
the quality and effectiveness of the Independent Auditor and their
independence;
- considering and making
recommendations to the Board on the appointment, reappointment,
replacement and remuneration to the Company’s Independent
Auditor;
- reviewing the Company’s
procedures for prevention, detection and reporting of fraud,
bribery and corruption; and
- monitoring and reviewing
the internal control and risk management systems of the service
providers.
The Audit Committee’s full terms of reference can be obtained by
contacting the Administrator.
Key activities of the Audit
Committee:
The following sections discuss the activities of the Audit
Committee during the year:
Financial Reporting:
The Audit Committee’s review of the annual financial statements
focused on what it believes to be the only significant issue:
The Company’s investment in BHMS had a fair value of
US$430,643,187 as at 31 December 2017 and represents the majority of
the net assets of the Company and as such is the biggest factor in
relation to the accuracy of the Financial Statements. The valuation
of the investment is determined in accordance with the accounting
policy in note 3 to the Financial Statements. The Financial
Statements of BHMS for the year ended 31
December 2017 were audited by KPMG Cayman Islands who issued
an unqualified audit opinion dated 21 March
2018. The Audit Committee considered the Financial
Statements of BHMS and its accounting policies in determining that
the fair value of the investment in BHMS at 31 December 2017
is reasonable.
The Independent Auditor reported to the Committee that no
material misstatements were found in the course of their work.
Furthermore, the Manager and Administrator confirmed to the
Committee that they were not aware of any material misstatements
including matters relating to financial statement presentation. The
Audit Committee confirms that it is satisfied that the Independent
Auditor has fulfilled its responsibilities with diligence and
professional scepticism. At the request of the Board, the Audit
Committee considered whether the 2017 Annual Report and Audited
Financial Statements, taken as a whole, are fair, balanced and
understandable and whether they provided the necessary information
for shareholders to assess the Company’s performance, business
model and strategy. The Audit Committee are satisfied that the
Annual Report and Audited Financial Statements, taken as a whole,
are fair, balanced and understandable, and provide the necessary
information for the shareholders to assess the Company’s
performance.
Following a review of the presentations and reports from the
Administrator and consulting where necessary with the Independent
Auditor, the Audit Committee is satisfied that the financial
statements appropriately address any critical judgements and key
estimates (both in respect to the amounts reported and the
disclosures). The Audit 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.
Risk Management:
The Audit Committee continued to consider the process for
managing the risk faced by the Company and its service providers.
Risk management procedures for the Company, as detailed in the
Company’s risk assessment matrix, were reviewed and approved by the
Audit Committee.
Corporate Social Responsibility
The Audit Committee, in conjunction with the Management
Engagement Committee, continued to monitor and review the
procedures of the Company to combat fraud, bribery and corruption.
Confirmation is received from all major service providers that they
are not aware of any instances of fraud, bribery or corruption.
The Independent Auditor:
Independence, objectivity and fees:
The independence and objectivity of the Independent Auditor is
regularly reviewed by the Audit Committee which also reviews the
terms under which the Independent Auditor is appointed to perform
non-audit services. The Audit Committee has established
pre-approval policies and procedures for the engagement of the
Independent Auditor to provide audit, assurance and tax
services.
These are that the Independent Auditor may not provide a service
which:
- places them in a position
to audit their own work;
- creates a mutuality of
interest;
- results in the Independent
Auditor developing close relationships with service providers of
the Company;
- results in the Independent
Auditor functioning as a manager or employee of the Company; or
- puts the Independent
Auditor in the role of advocate of the Company.
As a general rule, the Audit Committee does not utilise the
Independent Auditor for internal audit purposes, secondment or
valuation advice. Services such as tax compliance, tax
restructuring, quarterly reviews and disclosure advice are normally
permitted but must be pre-approved by the Audit Committee where
fees are likely to be in excess of £25,000.
The Audit Committee considered reports from the Independent
Auditor on their procedures to identify and mitigate any threats to
independence and concluded that the procedures were sufficient to
identify any threats to independence. The Audit Committee together
with the Chairman and the Administrator completed a questionnaire
covering areas such as quality of audit team, business
understanding, audit approach and management. The results of the
questionnaire indicated that the Independent Auditor performed
effectively during the period.
The following table summarises the remuneration paid to KPMG
Channel Islands Limited for audit and non-audit services provided
to the Company during the years ended 31
December 2017 and 31 December
2016:
|
01.01.17 |
01.01.16 |
|
to 31.12.17 |
to 31.12.16 |
KPMG Channel Islands
Limited |
|
|
– Annual audit |
£28,000 |
£28,000 |
– Auditor’s interim
review |
£8,800 |
£8,800 |
|
|
|
In line with the policies and procedures above, the Audit
Committee does not consider that the provision of
these non-audit services, which comprised the
Auditor’s interim review, to be a threat to the objectivity and
independence of the Independent Auditor. The Audit Committee has
also considered the overall level of services provided by KPMG
member firms to the wider Brevan Howard organisation and does not
consider these to pose a threat to the Independent Auditor’s
independence.
KPMG Channel Islands Limited has been the Company’s Independent
Auditor from the date of the initial listing on the London Stock
Exchange. The external audit was most recently tendered for the
years commencing after 31 December
2015. As reported in the Annual Report for the year ended
31 December 2015, KPMG Channel
Islands Limited was re-appointed as auditor following the
completion of the tender process and currently it is anticipated
that the audit will be tendered within the next eight years.
The Audit Committee has examined the scope and results of the
external audit, its cost effectiveness and the independence and
objectivity of the Independent Auditor, with particular regard to
non-audit fees, and considers KPMG Channel Islands Limited, as
Independent Auditor, to be independent of the Company.
Performance and Effectiveness:
During the year, when considering the effectiveness of the
Independent Auditor, the Audit Committee has taken into account the
following factors:-
- The audit plan presented to
them;
- The audit findings report
including variations from the original plan;
- Changes in audit
personnel;
- The Independent Auditor’s
own internal procedures to identify threats to independence;
and
- Feedback from both the
Manager and Administrator.
The Audit Committee reviewed the audit plan and the audit
findings report of the Independent Auditor and concluded that a)
the audit plan sufficiently identified audit risks; b) that the
audit findings report indicated that the audit risks were
sufficiently addressed; and c) there were no significant variations
from the audit plan.
Reappointment:
Consequent to the review discussed above, the Audit Committee
has recommended to the Board that a resolution be put to the 2018
AGM for the reappointment of KPMG Channel Islands Limited as
Independent Auditor. The Board has accepted this
recommendation.
Internal Control and Risk Management
Systems
As the Company’s investment objective is to invest substantially
all of its assets in BHMS, the Audit Committee, after consultation
with the Manager and Independent Auditor, considers the key risk of
material misstatement in its financial statements to be the
valuation of its investment in BHMS, but are also mindful of the
risk of the override of controls by its service providers, the
Manager and Administrator.
The Audit Committee reviews and examines externally prepared
assessments of the control environment in place at the Manager and
the Administrator, with each providing a Service Organisation
Report (“SOC1”) on an ongoing basis. No significant failings or
weaknesses were identified in these reports by the Audit
Committee.
The Audit Committee annually reviews the need for an internal
audit function. The Committee is of the view that the systems,
procedures and internal audit functions in operation at both the
Manager and Administrator provide sufficient assurance that a sound
system of internal control is being maintained. An internal audit
function, specific to the Company, is therefore considered
unnecessary.
The Audit Committee Report was approved by the Board on
22 March 2018 and signed on its
behalf by:
John
Hallam
Chairman, Audit Committee
STATEMENT OF DIRECTORS’ RESPONSIBILITY IN RESPECT OF THE ANNUAL
REPORT AND AUDITED FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
accounting principles generally accepted in the United States of America and applicable
law.
Under Company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting
policies and then apply them consistently;
- make judgements and
estimates that are reasonable, relevant and reliable;
- state whether applicable
accounting standards have been followed, subject to any material
departures disclosed and explained in the Financial Statements;
- assess the Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and
- use the going concern basis
of accounting unless they either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do
so.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies (Guernsey) Law,
2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company’s website. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement of the
Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
- so far as each of the
Directors is aware, there is no relevant audit information of which
the Company’s Independent Auditor is unaware, and each has taken
all the steps they ought to have taken as a Director to make
themselves aware of any relevant information and to establish that
the Company’s Independent Auditor is aware of that information;
- the Financial Statements,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
- the Chairman’s Statement,
Director’s report and Manager’s report includes a fair review of
the development and performance of the business and the position of
the issuer, together with a description of the principal risks and
uncertainties that they face.
We consider the annual report and audited financial statements,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
John
Hallam
Director
22 March 2018
DIRECTORS’ REMUNERATION REPORT
As at 31 December 2017
Introduction
An ordinary resolution for the approval of this Directors’
Remuneration Report will be put to the shareholders at the
forthcoming Annual General Meeting to be held in 2018.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors’ remuneration. An external assessment of
Directors’ remuneration has not been undertaken.
The Company’s policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company’s
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate Directors of a quality
required to run the Company successfully. The Chairman of the Board
is paid a higher fee in recognition of his additional
responsibilities, as are the Chairmen of the Audit Committee and
Management Engagement Committee. The policy is to review fee rates
periodically, although such a review will not necessarily result in
any changes to the rates, and account is taken of fees paid to
Directors of comparable companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. The Directors were
appointed to the Board for an initial term of three years and
Section 21.3 of the Company’s Articles requires, as does the AIC
Code, that all of the Directors to retire at each Annual General
Meeting. At the Annual General Meeting of the Company, on
26 June 2017, Mr Morgan did not offer
himself for re-election and shareholders re-elected all other
Directors of the Company. Director appointments can also be
terminated in accordance with the Articles. Should shareholders
vote against a Director standing for re-election, the Director
affected will not be entitled to any compensation. There are no set
notice periods and a Director may resign by notice in writing to
the Board at any time.
Directors are remunerated in the form of fees, payable quarterly
in arrears.
Directors’ Fees
The Company’s Articles limit the fees payable to Directors in
aggregate to £500,000 per annum.
With effect from 1 July 2017,
director’s fees paid to each Director increased to £40,000, with
additional fees of £3,000 payable to both the Senior Independent
Director, and the Chairman of the Management Engagement Committee
and an additional £10,000 payable to the Chairman of the Audit
Committee.
The fees payable by the Company in respect of each of the
Directors who served during the year, and during 2016, were as
follows:
|
01.01.17
to 31.12.17
£ |
01.01.16
to 31.12.16
£ |
Sir Michael
Bunbury |
150,000 |
150,000 |
John Hallam |
44,500 |
36,000 |
Graham Harrison |
36,500 |
33,000 |
Talmai
Morgan1 |
16,500 |
33,000 |
Nicholas Moss |
39,500 |
36,000 |
Julia
Chapman2 |
35,031 |
– |
Sally-Ann
Farnon3 |
– |
– |
Total |
322,031 |
288,000 |
1 Talmai Morgan retired
from the board on 26 June 2017.
2 Julia Chapman was
appointed to the board on 16 January
2017.
3 Sally-Ann Farnon was
appointed to the board on 13 March
2018.
Signed on behalf of the Board by:
Sir Michael Bunbury
Chairman
John
Hallam
Director
22 March 2018
BOARD MEMBERS
The Directors of the Company, all of whom are non-executive, are
listed below:
Sir Michael Bunbury
(Chairman), age 71
Sir Michael Bunbury is Chairman
and non-executive Director of the Company. He is an experienced
Director of listed and private investment, property and financial
services companies. He is currently the Chairman of HarbourVest
Global Private Equity Limited, a Director of Invesco Perpetual
Select Trust plc, former chairman of JP Morgan Claverhouse
Investment Trust plc, and a former Director of Foreign &
Colonial Investment Trust plc. Sir Michael began his career in 1968
at Buckmaster & Moore, before joining Smith & Williamson,
Investment Managers and Chartered Accountants, in 1974 as a
Partner. He later served as Director and chairman and retired as a
consultant to the firm in 2017. Sir Michael was appointed to the
Board in 2013.
John
Hallam, (Senior Independent Director), age 68
John Hallam is resident in
Guernsey, is a Fellow of the Institute of Chartered Accountants in
England and Wales and qualified as an accountant in 1971.
He is a former partner of PricewaterhouseCoopers having retired in
1999 after 27 years with the firm both in Guernsey and in other
countries. He is Chairman of NB Distressed Debt Investment Fund
Limited as well as being a Director of a number of financial
services companies, some of which are listed on the London Stock
Exchange. He served for many years as a member of the Guernsey
Financial Services Commission (Guernsey’s financial regulatory
agency) from which he retired in 2006 having been its Chairman for
the previous three years. Mr Hallam was appointed to the Board in
2008.
Julia
Chapman, age 52
Julia Chapman is a solicitor
qualified in England &
Wales and in Jersey with over 25
years’ experience in the investment fund and capital markets
sector. After working at Simmons & Simmons in
London, she moved to Jersey and
became a partner of Mourant du Feu & Jeune (now Mourant
Ozannes) in 1999. She was then appointed general counsel to Mourant
International Finance Administration (the firm’s fund
administration division). Following its acquisition by State
Street in April 2010, Mrs Chapman was
appointed European Senior Counsel for State Street’s alternative
investment business. In July 2012,
Mrs Chapman left State Street to focus on the independent provision
of directorship and governance services to a small number of
investment fund vehicles (including GCP Infrastructure Investments
Limited and Henderson Far East Income Limited). Mrs Chapman was
appointed to the Board on 16 January
2017.
Graham
Harrison, age 52
Graham Harrison is a Guernsey
resident and a Chartered Fellow of the Chartered Institute for
Securities and Investment. Mr Harrison is co-founder and Group
Managing Director of Asset Risk Consultants (“ARC”). After
obtaining a post graduate degree from the London School of Economics, Mr Harrison worked for
HSBC in its corporate finance division where he specialised in
financial engineering. Following a secondment with the Caribbean
Development Bank he moved to Guernsey to work for the Bachmann
Group with a brief to develop asset management and investment
consultancy services. In 2002 he led the management buy-out of ARC,
taking the company independent. Mr Harrison is a Director of a
number of investment vehicles two of which are listed. Mr Harrison
was appointed to the Board in 2010.
Nicholas
Moss, age 58
Nicholas Moss is a Guernsey
resident and a Fellow of the Institute of Chartered Accountants in
England & Wales. After leaving N M Rothschild in 2005
where he was a managing director in their international private
wealth division he co- founded the Virtus Trust Group, an
international fiduciary and investment services business
headquartered in Guernsey with operations in several countries
including the US, UK, New Zealand
and the Cayman Islands. In 2017 he
led the sale of Virtus to Equiom group, a well-established,
international professional services provider offering a range of
innovative and effective business solutions. Mr Moss is a highly
experienced ?duciary and investment practitioner, advising family
of?ces and private clients in many jurisdictions. He regularly
assists clients in the establishment and ongoing monitoring of
complex multi-manager client investment portfolios as well as
advising on other assets such as real estate, art collections and
other collectables. He holds a number of non-executive Board
appointments including the London
premium segment listed Carador Income Fund PLC as well as FTSE 250
listed Syncona Limited and several real estate, specialist asset
and investment funds. Mr Moss was appointed to the Board in
2008.
Sally-Ann
Farnon, age 57
Sally-Ann (“Susie”) Farnon is a Guernsey resident and is a
fellow of the Institute of Chartered Accountants in England and Wales, having qualified as an accountant in
1983. Mrs Farnon is a non-executive Director of a number of
property and investment companies. Mrs Farnon was a Banking and
Finance Partner with KPMG Channel Islands from 1990 until 2001 and
head of Audit KPMG Channel Islands from 1999. She has served as
President of the Guernsey Society of Chartered and Certified
Accountants and as a member of The States of Guernsey Audit
Commission and Vice-Chairman of the GFSC. Mrs Farnon was appointed
to the Board in 2018.
The following summarises the Directors’ directorships in other
public companies:
Company Name |
Exchange |
|
|
Sir Michael Bunbury |
|
HarbourVest Global Private Equity
Limited |
London |
Invesco Perpetual Select Trust
plc |
London |
|
|
John Hallam |
|
NB Distressed Debt Investment Fund
Limited |
SFS |
Real Estate Credit Investments
Limited |
London |
|
|
Julia Chapman |
|
GCP Infrastructure Investments
Limited |
London |
Henderson Far East Income
Limited |
London and New Zealand |
|
|
Graham Harrison |
|
Real Estate Credit Investments
Limited |
London |
Volta Finance Limited |
London & Amsterdam |
|
|
Nicholas Moss |
|
Syncona Limited |
London |
Carador Income Fund PLC |
London |
Sally-Ann
Farnon |
Apax Global Alpha
Limited |
London |
Breedon Aggregates
Limited |
AIM |
HICL Infrastructure
Company Limited |
London |
Real Estate Credit
Investments Limited |
London |
Standard Life
Investments Property Income Trust Limited |
London |
Certain Directors hold additional directorships in companies
that are listed on various exchanges but are not actively traded.
Details of these may be obtained from the Company Secretary.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BH GLOBAL
LIMITED
Our opinion is unmodified
We have audited the financial statements of BH Global Limited
(the “Company”), which comprise the Audited Statement of Assets and
Liabilities as at 31 December 2017,
the Audited Statements of Operations, Changes in Net Assets and
Cash Flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory
information.
In our opinion, the accompanying financial statements:
-
give a true and fair view of the financial position of the Company
as at 31 December 2017, and of the
Company’s
financial performance and the Company’s cash flows for the year
then ended;
-
are prepared in conformity with United States Generally Accepted
Accounting Principles; and
-
comply with the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key Audit Matters: our assessment of
the risks of material misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In arriving at
our audit opinion above, the key audit matter was as follows
(unchanged from 2016):
|
The risk |
Our response |
Valuation of Investment in Brevan Howard Multi-Strategy Master
Fund Limited (the “Master Fund”)
$430,643,187;
(2016 $438,851,412)
Refer to the report of the Audit Committee and note 3 accounting
policy |
Basis:
The Company, which is a multi-class feeder fund, had invested 97%
of its net assets at 31 December 2017 into the ordinary US Dollar
and Sterling denominated Class G Shares issued by the Master Fund,
which is an open ended investment company.
The Company’s investment holdings in the Master Fund are valued
using the respective net asset value per share class as provided by
the Master Fund’s administrator.
Risk:
The valuation of the Company’s Investment in the Master Fund, given
it represents the majority of the net assets of the Company, is a
significant area of our audit. |
Our audit procedures included, but were not limited
to:
—Confirmed the net asset value per share and holdings per share for
each respective share class directly with the administrator of the
Master Fund
—Reviewing the audit work performed by the auditor of the Master
Fund in respect of their audit, to gain insight over the audit work
performed on the significant elements of the Master Fund’s NAV; and
holding discussions on key audit findings with the auditor of the
Master Fund
—Examination of the Master Fund’s coterminous audited financial
statements to corroborate the net asset value per share
—We also considered the Company’s investment valuation policies as
disclosed in note 3 to the financial statements for conformity with
United States Generally Accepted Accounting Principles |
Our application of materiality and an
overview of the scope of our audit
Materiality for the financial statements as a whole was set at
$13,268,000, determined with
reference to a benchmark of Net Assets of $442,291,000, of which it represents
approximately 3% (2016: 3%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding $663,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
We have nothing to report on going
concern
We are required to report to you if we have anything material to
add or draw attention to in relation to the directors’ statement in
note 3 to the financial statements on the use of the going concern
basis of accounting with no material uncertainties that may cast
significant doubt over the Company’s use of that basis for a period
of at least twelve months from the date of approval of the
financial statements. We have nothing to report in this
respect.
We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and we do not express an audit opinion or any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of principal risks and
longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
•
the directors’ confirmation within the Viability Statement that
they have carried out a robust assessment of the principal risks
facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity;
•
the Principal Risks disclosures describing these risks and
explaining how they are being managed or mitigated;
•
the directors’ explanation in the Viability Statement as to how
they have assessed the prospects of the Company, over what period
they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions;
Corporate governance disclosures
We are required to report to you if:
• we
have identified material inconsistencies between the knowledge we
acquired during our financial statements audit and the directors’
statement that they consider that the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company’s position and performance, business model and
strategy; or
•
the section of the annual report describing the work of the Audit
Committee does not appropriately address matters communicated by us
to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the 2016 UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to report on other
matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
•
the Company has not kept proper accounting records; or
•
the financial statements are not in agreement with the accounting
records; or
• we
have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose
of our audit.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on the
Statement of Directors’ Responsibility, the Directors are
responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the
Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a
high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and
restrictions on its use by persons other than the Company’s members
as a body
This report is made solely to the
Company’s members, as a body, in accordance with section 262 of the
Companies (Guernsey) Law, 2008. Our audit work has been undertaken
so that we might state to the Company’s members those matters we
are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company
and the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Barry T. Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
22 March 2018
AUDITED STATEMENT OF ASSETS AND LIABILITIES
As at 31 December 2017
|
|
|
|
|
|
|
31.12.17 |
|
31.12.16 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
|
Investment
in BHMS |
|
|
|
|
|
430,643 |
|
438,851 |
Amount due
from BHMS |
|
|
|
|
|
- |
|
300 |
Other
debtors |
|
|
|
|
|
29 |
|
106 |
Cash and
bank balances denominated in US Dollars |
|
1,334 |
|
2,110 |
Cash and
bank balances denominated in Sterling |
|
|
11,701 |
|
16,280 |
Total
assets |
|
|
|
|
|
443,707 |
|
457,647 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Management
fees payable |
|
|
|
377 |
|
734 |
Performance fees payable |
|
|
|
831 |
|
3,608 |
Accrued
expenses and other liabilities |
|
|
|
167 |
|
136 |
Directors'
fees and expenses payable |
|
|
|
- |
|
88 |
Administration fees payable |
|
|
|
41 |
|
30 |
Total
liabilities |
|
|
|
|
|
1,416 |
|
4,596 |
|
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
|
|
|
442,291 |
|
453,051 |
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
3,004,442 |
|
4,186,219 |
Sterling
shares |
|
|
|
|
|
20,346,871 |
|
22,471,006 |
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
US$14.56 |
|
US$14.19 |
Sterling shares |
|
|
|
|
|
|
£14.58 |
|
£14.33 |
See accompanying notes to the Financial Statements.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
John
Hallam
Director
22 March 2018
AUDITED STATEMENT OF OPERATIONS
For the year ended 31 December
2017
|
|
|
|
|
01.01.17 |
|
01.01.16 |
|
|
|
|
|
to
31.12.17 |
|
to
31.12.16 |
|
|
|
|
|
US$'000 |
|
US$'000 |
Net
investment gain allocated from BHMS |
|
|
|
|
|
|
Interest income |
|
|
|
|
22,333 |
|
19,933 |
Expenses |
|
|
|
|
(5,260) |
|
(1,650) |
Net
investment gain allocated from BHMS |
|
|
|
17,073 |
|
18,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
|
Interest income |
|
|
|
|
2 |
|
- |
Foreign exchange
gains |
|
|
|
|
38,012 |
|
- |
Total Company
income |
|
|
|
|
38,014 |
|
- |
|
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
|
Management fees |
|
|
|
|
6,197 |
|
9,747 |
Performance fees |
|
|
|
|
807 |
|
3,938 |
Other expenses |
|
|
|
|
951 |
|
1,232 |
Directors' fees and
expenses |
|
|
|
|
417 |
|
389 |
Administration
fees |
|
|
|
|
178 |
|
196 |
Foreign
exchange losses |
|
|
|
- |
|
84,593 |
Total Company
expenses |
|
|
|
|
8,550 |
|
100,095 |
|
|
|
|
|
|
|
|
Net investment
gain/(loss) |
|
|
|
|
46,537 |
|
(81,812) |
|
|
|
|
|
|
|
|
Net
realised and unrealised gains/(losses) on investments allocated
from BHMS |
|
|
|
Net realised gain on
investments |
|
|
|
|
21,178 |
|
60,944 |
Net unrealised loss on
investments |
|
|
|
|
(22,051) |
|
(33,816) |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
|
-
on hedging |
|
|
|
|
(4,632) |
|
(2,703) |
Net realised and
unrealised (losses)/gains on investments allocated from
BHMS |
|
|
|
|
(5,505) |
|
24,425 |
Net
increase/(decrease) in net assets resulting from
operations |
41,032 |
|
(57,387) |
See accompanying notes to the Financial Statements.
AUDITED STATEMENT OF CHANGES IN NET ASSETS
For the year ended 31 December
2017
|
|
|
|
|
|
|
01.01.17 |
|
01.01.16 |
|
|
|
|
|
|
|
to
31.12.17 |
|
to
31.12.16 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
Net
increase/(decrease) in net assets resulting from
operations |
|
|
|
Net
investment gain/(loss) |
|
|
|
|
46,537 |
|
(81,812) |
Net
realised gain on investments allocated from BHMS |
|
|
|
21,178 |
|
60,944 |
Net unrealised loss on
investments allocated from BHMS |
|
|
|
|
|
|
(22,051) |
|
(33,816) |
Net realised and
unrealised foreign exchange loss allocated from BHMS |
|
|
|
|
|
|
(4,632) |
|
(2,703) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,032 |
|
(57,387) |
|
|
|
|
|
|
|
|
|
|
Share
capital transactions |
|
|
|
|
|
|
Purchase of own shares |
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
(4,493) |
|
(9,142) |
Sterling
shares |
|
|
|
|
|
(47,299) |
|
(46,077) |
|
|
|
|
|
|
|
(51,792) |
|
(55,219) |
|
|
|
|
|
|
|
|
|
|
Net
decrease in net assets |
|
|
|
(10,760) |
|
(112,606) |
Net
assets at the beginning of the year |
|
|
|
453,051 |
|
565,657 |
Net
assets at the end of the year |
|
|
|
442,291 |
|
453,051 |
See accompanying notes to the Financial Statements.
AUDITED STATEMENT OF CASH FLOWS
For the year ended 31 December
2017
|
|
|
|
01.01.17 |
|
01.01.16 |
|
|
|
|
to
31.12.17 |
|
to
31.12.16 |
|
|
|
|
US$'000 |
|
US$'000 |
|
Cash
flows from operating activities |
|
|
|
|
|
|
Net
increase/(decrease) in net assets resulting from operations |
41,032 |
|
(57,387) |
|
Adjustments to reconcile net increase/(decrease) in net assets |
|
|
|
|
resulting from operations to net cash provided by
operating activities: |
|
|
|
Net
investment gain allocated from BHMS |
|
|
(17,073) |
|
(18,283) |
|
Net
realised gain on investments allocated from BHMS |
|
(21,178) |
|
(60,944) |
|
Net
unrealised loss on investments allocated from BHMS |
|
22,051 |
|
33,816 |
|
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
allocated
from BHMS |
|
|
|
4,632 |
|
2,703 |
|
Purchase of investment
in BHMS |
|
|
|
- |
|
(2,000) |
|
Proceeds
from sale of investment in BHMS |
|
|
57,521 |
|
106,181 |
|
Interest
expense on short term loan |
|
|
53 |
|
207 |
|
Foreign exchange
(gains)/losses |
|
|
|
(38,012) |
|
84,593 |
|
Decrease/(increase) in other debtors |
|
|
77 |
|
(38) |
|
Decrease
in management fees payable |
|
|
(357) |
|
(229) |
|
(Decrease)/increase in
performance fees payable |
|
|
|
(2,777) |
|
3,333 |
|
Increase/(decrease) in
accrued expenses and other liabilities |
|
|
|
31 |
|
(26) |
|
Decrease
in Directors' fees payable |
|
|
(88) |
|
(19) |
|
Increase/(decrease) in administration fees payable |
|
11 |
|
(8) |
|
Net
cash provided by operating activities |
|
|
45,923 |
|
91,899 |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
Purchase of own
shares |
|
|
|
(51,792) |
|
(56,162) |
|
Proceeds
of borrowings from short term loan |
|
|
14,024 |
|
3,415 |
|
Repayment
of borrowings from short term loan |
|
|
(14,222) |
|
(28,239) |
|
Interest paid on short
term loan |
|
|
|
(53) |
|
(704) |
|
Net
cash used in financing activities |
|
|
(52,043) |
|
(81,690) |
|
|
|
|
|
|
|
|
|
Change in
cash |
|
|
|
(6,120) |
|
10,209 |
|
Cash, beginning of
the year |
|
|
|
18,390 |
|
11,978 |
|
Effect of
exchange rate fluctuations |
|
|
765 |
|
(3,797) |
|
Cash, end of the
year |
|
|
|
13,035 |
|
18,390 |
|
|
|
|
|
|
|
|
|
Cash, end of the
year |
|
|
|
|
|
|
|
Cash and
bank balances denominated in US Dollars |
|
1,334 |
|
2,110 |
|
Cash and
bank balances denominated in Sterling1 |
|
11,701 |
|
16,280 |
|
|
|
|
|
13,035 |
|
18,390 |
|
|
|
|
|
|
|
|
|
1 Cash and bank balances in Sterling (GBP'000) |
|
8,709 |
|
13,316 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the Financial Statements.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
For the year ended 31 December
2017
1. The Company
BH Global Limited (the “Company”) is a limited liability
closed-ended investment company incorporated in Guernsey on
25 February 2008 for an unlimited
period, with registration number 48555.
The Company has a Premium Listing on the London Stock Exchange
and until 30 September 2017 and
31 December 2017, had Secondary Listings on the Bermuda
Stock Exchange and on NASDAQ Dubai respectively.
The Company can offer multiple classes of ordinary shares, which
differ in terms of currency of issue with ordinary shares
denominated in US Dollar and Sterling currently being in issue.
2. Organisation
The Company’s investment objective is to seek to generate
consistent long-term capital appreciation through an investment
policy of investing all of its assets (net of funds required for
its short-term working capital requirements) in Brevan Howard
Multi-Strategy Master Fund Limited (“BHMS” or the “Master
Fund”).
The Company is organised as a feeder fund and invests
substantially all of its investable assets in the ordinary US
Dollar and Sterling denominated Class G shares issued by BHMS, and,
as such, the Company is directly and materially affected by the
performance and actions of BHMS.
As such the Financial Statements of the Company should be read
in conjunction with the Annual Audited Financial Statements of
BHMS, which can be found on the Company’s website,
www.bhglobal.com.
BHMS is an open-ended investment company incorporated with
limited liability in the Cayman
Islands on 21 January 2008.
BHMS’s underlying investments in funds at 31 December 2017 and the percentage that BHMS’s
investment represented of the underlying fund’s Net Asset Value
(“NAV”) are as follows:
Brevan Howard AH Master
Fund Limited* |
|
2.95% |
Brevan Howard AS Macro
Master Fund Limited* |
|
10.81% |
Brevan Howard Master
Fund Limited |
|
3.69% |
Brevan Howard Asia
Master Fund Limited |
|
3.22% |
BH-DG Systematic
Trading Master Fund Limited |
|
21.84% |
|
|
|
*Investment is made through the DIP.
BHMS has flexibility to invest in a wide range of instruments
including, but not limited to, debt securities and obligations
(which may be below investment grade), bank loans, listed and
unlisted equities, other collective investment schemes or vehicles
(which may be open-ended or closed-ended, listed or unlisted,
regulated or unregulated and may employ leverage (each an
“Investment Fund”)), currencies, commodities, futures, options,
warrants, swaps and other derivative instruments. Derivative
instruments may be exchange traded or OTC. BHMS may engage in short
sales. BHMS may retain amounts in cash or cash equivalents
(including money market funds) pending reinvestment, for use as
collateral or if this is considered appropriate to the investment
objective.
Subject to the investment restrictions and investment approach
disclosed in any prospectus for BHMS that may be published from
time to time and subsequent BHMS Directors’ resolutions, BHMS
employs an investment process which empowers the Manager to
allocate assets to both Investment Funds and directly to the
investment managers of BHMS from time to time on an opportunistic
basis.
At the date of these Financial Statements, there were two other
feeder funds in operation in addition to the Company that invest
all of their assets (net of working capital) in BHMS.
Off-balance sheet, market and credit risks of BHMS’s investments
and activities are discussed in the notes to the Annual Audited
Financial Statements of BHMS. The Company’s investment in BHMS
exposes it to various types of risk, which are associated with the
financial instruments and markets in which the Brevan Howard funds
invest. Market risk represents the potential loss in value of
financial instruments caused by movements in market factors
including, but not limited to, market liquidity, investor sentiment
and foreign exchange rates.
The Manager
Brevan Howard Capital Management LP (the “Manager”) is the
manager of the Company. The Manager is a Jersey limited
partnership, the sole general partner of which is Brevan Howard
Capital Management Limited, a Jersey limited company (the “General
Partner”). The General Partner is regulated in the conduct of fund
services business by the Jersey Financial Services Commission
pursuant to the Financial Services (Jersey) Law, 1998 and the
Orders made thereunder and is the Alternative Investment Fund
Manager (“AIFM”) of the Company for the purposes of the European
Union Alternative Investment Fund Manager Directive (“AIFMD”).
The Manager also manages BHMS.
3. Significant Accounting Policies
The Annual Audited Financial Statements, which give a true and
fair view, are prepared in conformity with United States Generally
Accepted Accounting Principles and comply with the Companies
(Guernsey) Law, 2008. The functional and reporting currency of the
Company is US Dollars.
The Company is an Investment Entity which has applied the
provisions of Accounting Standards Codification (“ASC”) 946.
Going concern
After making enquiries and given the nature of the Company and
its investment, the Directors are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing these
Financial Statements and, after due consideration, the Directors
consider that the Company is able to continue for the foreseeable
future and at least twelve months from the date of this report. In
reaching this conclusion the Board is mindful of the nature of the
assets that underlie its investment in BHMS, including BHMS’s
liquidity and has concluded that moderate adverse investment
performance will not have a material impact on the Company’s
ability to meet its liabilities as they fall due.
The following are significant accounting policies adopted by the
Company:
Valuation of investments
The Company records its investment in the Class G shares of BHMS
as the Company’s proportionate share of BHMS’s net assets which
approximates fair value. At 31 December
2017, the Company’s US Dollar and Sterling capital account
represents 5.06% and 46.05% respectively of BHMS’s capital. The net
asset value of BHMS is used as a measure of fair value as this is
the price at which the Company may redeem its investment.
Fair value measurement
ASC Topic 820 defines fair value as the price that the Company
would receive upon selling a security in an orderly transaction to
an independent buyer in the principal or most advantageous market
of the security.
ASC 820 establishes a three-level hierarchy to maximise the use
of observable market data and minimise the use of unobservable
inputs and to establish classification of fair value measurements
for disclosure purposes. Inputs refer broadly to the assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk, for example, the risk
inherent in a particular valuation technique used to measure fair
value including such a pricing model and/or the risk inherent in
the inputs to the valuation technique. Inputs may be observable or
unobservable.
Observable inputs are inputs that reflect the assumptions market
participants would use in pricing the asset or liability based on
market data obtained from sources independent of the reporting
entity.
Unobservable inputs are inputs that reflect the reporting
entity’s own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the
best information available in the circumstances.
Level 1 – Valuations based on unadjusted quoted prices in active
markets for identical assets or liabilities that the Company has
the ability to access. Valuation adjustments and block discounts
are not applied to Level 1 securities. Since valuations are based
on quoted prices that are readily and regularly available in an
active market, valuation of these securities does not entail a
significant degree of judgement.
Level 2 – Valuations based on quoted prices in markets that are
not active and for which all significant inputs are observable,
either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
Inputs are used in applying the various valuation techniques and
broadly refer to the assumptions that market participants use to
make valuation decisions, including assumptions about risk. Inputs
may include price information, volatility statistics, specific and
broad credit data, liquidity statistics, and other factors.
A financial instrument’s level within the fair value hierarchy
is based on the lowest level of any input that is significant to
the fair value measurement. However, the determination of what
constitutes “observable” requires significant judgement by the
Company’s Directors (the “Board”). After consultation with the
Administrator and Manager, the Board considers observable data to
be that market data which is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in
the relevant market.
The categorisation of a financial instrument within the
hierarchy is based upon the pricing transparency of the instrument
and does not necessarily correspond to the Board’s perceived risk
of that instrument.
Fair value is a market-based measure considered from the
perspective of a market participant rather than an entity-specific
measure. Therefore, even when market assumptions are not readily
available, the Board’s own assumptions are set to reflect those
that market participants would use in pricing the asset or
liability at the measurement date.
The Board uses prices and inputs that are current as of the
measurement date, including periods of market dislocation. In
periods of market dislocation, the observability of prices and
inputs may be reduced for many securities. This condition could
cause a security to be reclassified to a lower level within the
fair value hierarchy.
The valuation and classification of securities held by BHMS is
discussed in the notes to its Financial Statements which are
available on the Company’s website, www.bhglobal.com. The Company’s
investment in BHMS is classified as a Level 2 investment.
Income and expenses
The Company records monthly its proportionate share of BHMS’s
income, expenses and realised and unrealised gains and losses. In
addition, the Company accrues its own income and expenses.
Use of estimates
The preparation of Financial Statements in conformity with
United States Generally Accepted Accounting Principles requires the
Board to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of those Financial Statements
and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could
differ from those estimates.
Foreign exchange
Investment securities and other assets and liabilities of the
Sterling share class are translated into US Dollars, the Company’s
reporting currency, using exchange rates at the reporting date.
Transactions reported in the Audited Statement of Operations are
translated into US Dollar amounts at the date of such transactions.
The share capital and other capital reserve accounts are translated
at the historic rate ruling at the date of the transaction.
Exchange differences arising on translation are included in the
Audited Statement of Operations. This foreign exchange adjustment
has no effect on the value of net assets allocated to the
individual share classes.
Cash and bank balances
Cash and bank balances comprise cash on hand and demand
deposits.
Treasury shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from equity Shareholders’ funds
through the Share capital account. When such shares are
subsequently sold or reissued to the market, any consideration
received, net of any directly attributable incremental transaction
costs, is recognised as an increase in equity Shareholders’ funds
through the Share capital account. Where the Company cancels
treasury shares, no further adjustment is required to the share
capital account of the Company at the time of cancellation. Shares
held in Treasury are excluded from calculations when determining
NAV per share as detailed in note 7 and in the Financial Highlights
in note 10.
Allocation of results of BHMS
Net realised and unrealised gains/losses of BHMS are allocated
to the Company’s share classes based upon the percentage ownership
of the equivalent BHMS class.
Loan notes payable
Loans are classified in the Audited Statement of Assets and
Liabilities as Loan notes payable and are accounted for at
amortised cost using the effective interest method.
Under a Note Purchase Agreement (note 9), the Company is obliged
to pay back the total outstanding amount and any relevant fees and
expenses, reimbursements and indemnities by the stated maturity
date, unless the Note is previously terminated. Interest shall
accrue daily on each Note at the applicable rate. The Company’s
obligations under the Agreement are secured by charges over a
portion of its shares in BHMS. The purpose of the Note Purchase
Agreement is to permit the Company to draw funds to finance the
acquisition of the Company’s own shares and for other working
capital purposes.
4. Management, Performance, and
Administration Agreements
Management fee
The Company has entered into a management agreement with the
Manager to manage the Company’s investment portfolio.
In the period from 1 January 2016
to 2 October 2016, in line with the
management agreement, the Manager received a management fee of 1/12
of 2% (or a pro rata proportion thereof) per month of the NAV of
each share class (before deduction of that month’s management fee
and before making any deduction for any accrued performance fee)
calculated as at the last business day in each month and payable
monthly in arrears.
With effect from 3 October 2016,
the Manager does not charge the Company a management fee in respect
of any increase in the NAV of each class of shares of the Company.
The Management Fee is calculated on the basis of the lower of the
NAV of the relevant share class and the Base NAV, as defined in the
Amended and Restated Management Agreement dated 4 July 2017, of that share class (adjusted for
certain changes in shares in issue).
With effect from 1 April 2017 the
management fee was reduced from 2% to 1% per annum.
The Company may repurchase or redeem shares of either class in
each calendar year, including pursuant to the class closure and
annual partial capital return provisions contained in the Company’s
articles of incorporation (the “Articles”), in respect of the 2018
calendar year and all subsequent years, up to an aggregate number
equal to 5% of the shares of that class in issue as at 31 December
in the prior calendar year (the “Annual Buy Back Allowance”)
without making any payment to the Manager.
In the event that, in any calendar year, the aggregate number of
shares repurchased or redeemed by the Company exceeds the Annual
Buy Back Allowance for that class, the Company will be required to
pay the Manager an amount equal to 2% of the repurchase price of
any share that is repurchased or redeemed by the Company in excess
of the Annual Buy Back Allowance, including pursuant to the class
closure and annual partial capital return provisions contained in
the Articles.
The Board has agreed with the Manager that if, on the last
business day in March, June, September or December of any year, the
net asset value of the Company were to be below US$300 million (on the basis of the prevailing US
Dollar/Sterling exchange rate), the Board would convene a general
meeting of the Company’s shareholders at which a special resolution
proposing the liquidation of the Company would be put forward. Were
the resolution to be passed, the Company would be liquidated and an
amount equal to 2% of the Company’s net asset value (subject to a
deduction in respect of any amount of the Annual Buy Back Allowance
for the relevant calendar year that remains unused) would be paid
to the Manager in addition to any other fees due to the Manager up
to the date of termination of the management agreement.
In respect of the period from 1 April
2017 to 31 December 2017,
(having taken into account shares that had been repurchased by the
Company between 1 January 2017 and
31 March 2017), the Annual Buy Back
Allowance for the Company’s Sterling share class was 806,164
Sterling shares and for the US Dollar share class was 152,630 US Dollar shares.
Between 1 April 2017 and
31 December 2017, the Company
repurchased 2,435,052 Sterling shares and 318,988 US Dollar shares, thereby exceeding both
the Sterling and US Dollar Annual Buy Back Allowance.
During the year ended 31 December
2017, US$603,629 was charged
by the Manager due to the Annual Buy Back Allowance being exceeded,
of which US$nil remained payable at year end. The expense has been
included in Management fees in the Audited Statement of
Operations.
There are no fees charged by the Manager at the level of BHMS or
any of its underlying funds.
In respect of the year ended 31 December
2017, the Manager charged the Company a total of
US$6,196,942 (31 December 2016:
US$9,746,589) under the terms of the
management agreement. At 31 December 2017, US$376,556 (31 December
2016: US$733,634) of the fee
remained outstanding.
Performance fee
The Manager is entitled to an annual performance fee for each
share class accrued monthly in arrears. The performance fee is
equal to 20% of the appreciation in the NAV per share (adjusted for
any increases or decreases in NAV arising from issues (including
the sale or re-issue of Shares held in treasury), repurchases or
redemptions of Shares and calculated before deduction of the
performance fee in respect of the relevant period) which is above
the performance fee Base NAV per share of that class multiplied by
the number of shares of such class at the end of the relevant
period.
The performance fee Base NAV per share is the greater of (a) the
NAV per share of the relevant class as at 31 December 2016 and
(b) the highest NAV per share of the relevant class of shares
achieved as at the final BHMS NAV calculation date as at the end of
any calculation period after the calculation period ending on
31 December 2016.
The Manager is not entitled to any performance fee in respect of
any increase in NAV (whether in respect of a class of shares as a
whole or on a per share basis) arising to the remaining shares of
the relevant class from any repurchase, redemption or cancellation
of any share, provided that any performance fee due to the Manager
shall not be reduced below zero.
Any accrued performance fee in respect of shares which are
converted into another share class prior to the date on which the
performance fee would otherwise have become payable in respect of
those Shares will crystallise and become payable on the date of
such conversion. The performance fee is accrued on an on-going
basis and is reflected in the Company’s published NAV.
On the business day preceding the last business day of each
period in respect of which a performance fee is payable, the
Company shall pay an estimated performance fee to the Manager in
respect of that period. The estimated fee shall be the performance
fee payable to the Manager in respect of that period as estimated
by the Company’s administrator on the basis of the estimated NAV of
each class of Shares as at the close of business on the second
Friday of December in each year. The difference between the
estimated fee paid in respect of any period and the actual
performance fee payable in respect of that period shall be paid to
the Manager within 5 business days of the publication of the final
NAV of each class of Shares as at the end of the period, provided
that if the difference is a negative amount then it shall be repaid
by the Manager to the Company at such time.
During the year ended 31 December
2017, US$807,374 (31 December 2016: US$3,937,849) was charged as performance fees of
which, US$830,823 (31 December 2016: US$3,607,909) remained payable at year end. The
total performance fee charged during the year includes fees
crystallised upon conversion and upon buyback of shares at points
when the NAV per share of the shares exceeded their performance fee
Base NAV per share (being £14.33 (Sterling shares) and US$14.19 (US dollar shares)).
Of the total crystallised performance fee charged for the year,
US$30,550 (31
December 2016: US$1,440)
related to share conversions and US$134,584 (31 December
2016: US$nil) related to the buyback of shares.
In establishing the parameters for the execution of buybacks,
account is taken of the impact of any performance fees that would
become payable so as to ensure that such buy backs are still
accretive to net asset value.
The Management Agreement can be terminated by either the Company
or the Manager on the giving of 12 months’ written notice to the
other party, or alternatively the Company may terminate the
Management Agreement on 90 days’ notice by payment to the Manager
of an amount equal to the aggregate of the Management Fee during
such twelve month period. The Company may terminate the management
agreement forthwith by notice in the event of specified acts of
default by the Manager without payment of compensation.
Were the Management Agreement to be terminated by the Company,
the management fee would revert to 2% of the prevailing net asset
value in respect of the notice period, or in respect of any payment
in lieu of notice.
Administration fee
The Company has appointed Northern Trust International Fund
Administration Services (Guernsey) Limited as Administrator and
Corporate Secretary. The Administrator is paid fees based on the
NAV of the Company, payable monthly in arrears. The fee is at a
rate of 0.03% of the first US$1
billion of net assets of the Company and then 0.01% per
annum thereafter, subject to a minimum fee of £115,000 per annum.
In addition to the NAV based fee the Administrator is also entitled
to an annual fee of £21,000 (2016: £36,000) for certain additional
administration services. The Administrator is entitled to be
reimbursed out-of-pocket expenses incurred in the course of
carrying out its duties as Administrator.
During the year ended 31 December
2017, US$178,329 (31 December 2016: US$196,286) was earned by the Administrator as
administration fees. At 31 December
2017, US$40,784 (31 December 2016: US$30,165) of the fee remained outstanding.
5. Share Capital
Issued and authorised share
capital
The Company's Articles permit the issuance of an unlimited
number of ordinary shares with no par value which may be divided
into at least two classes denominated in US Dollars and Sterling.
The treasury shares have arisen as a result of the discount
management programme as described in note 8.
|
|
|
US
Dollar shares |
|
Sterling shares |
Number
of ordinary shares |
|
|
|
|
In
issue at 1 January 2017 |
|
4,186,219 |
|
22,471,006 |
Share conversions |
|
|
(830,786) |
|
647,833 |
Purchase
of own shares into Treasury |
(350,991) |
|
(2,771,968) |
In
issue at 31 December 2017 |
|
3,004,442 |
|
20,346,871 |
Number
of treasury shares |
|
|
|
|
In
issue at 1 January 2017 |
|
456,452 |
|
2,024,737 |
Shares
purchased and held in Treasury during the year: |
|
|
-
On market purchases |
|
350,991 |
|
2,771,968 |
Shares cancelled |
|
|
(540,000) |
|
(2,875,000) |
In
issue at 31 December 2017 |
|
267,443 |
|
1,921,705 |
Total
shares in issue |
|
3,271,885 |
|
22,268,576 |
Percentage of class held as Treasury Shares |
8.17% |
|
8.63% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1 January
2017 |
|
|
- |
|
198,891 |
|
419,281 |
Share conversions |
|
|
(11,968) |
|
9,375 |
|
- |
Purchase of own shares
into Treasury |
|
|
(4,493) |
|
(36,466) |
|
(51,792) |
Transfer
from realised investment reserve |
16,461 |
|
- |
|
16,461 |
At 31
December 2017 |
|
- |
|
171,800 |
|
383,950 |
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
Number
of ordinary shares |
|
|
|
|
|
|
In
issue at 1 January 2016 |
|
4,850,613 |
|
25,161,387 |
|
|
Share conversions |
|
|
72,534 |
|
(45,049) |
|
|
Purchase
of own shares into Treasury |
(736,928) |
|
(2,645,332) |
|
|
In
issue at 31 December 2016 |
|
4,186,219 |
|
22,471,006 |
|
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
|
In
issue at 1 January 2016 |
|
537,524 |
|
2,249,405 |
|
|
Shares
purchased and held in treasury during the year: |
|
|
|
|
-
On market purchases |
|
736,928 |
|
2,645,332 |
|
|
Shares cancelled |
|
|
(818,000) |
|
(2,870,000) |
|
|
In
issue at 31 December 2016 |
|
456,452 |
|
2,024,737 |
|
|
Total
Shares in issue |
|
4,642,671 |
|
24,495,743 |
|
|
Percentage of class held as Treasury Shares |
9.83% |
|
8.27% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1 January
2016 |
|
|
- |
|
232,649 |
|
466,289 |
Share conversions |
|
|
931 |
|
(585) |
|
- |
Purchase of own shares
into Treasury |
|
|
(9,142) |
|
(33,173) |
|
(55,219) |
Transfer from realised
investment reserve |
|
|
8,211 |
|
- |
|
8,211 |
At 31
December 2016 |
|
- |
|
198,891 |
|
419,281 |
In respect of each class of shares a separate class account has
been established in the books of the Company. An amount equal to
the aggregate proceeds of issue of each share class has been
credited to the relevant class account. Any increase or decrease in
the NAVs of each of the share classes in the Master Fund as
calculated by BHMS are allocated to the relevant class account in
the Company. Each class account is allocated those costs, pre-paid
expenses, losses, dividends, profits, gains and income which the
Directors determine in their sole discretion relate to a particular
class.
Voting rights
Ordinary shares carry the right to vote at general meetings of
the Company and to receive any dividends, attributable to the
ordinary shares as a class, declared by the Company and, in a
winding-up will be entitled to receive, by way of capital, any
surplus assets of the Company attributable to the ordinary shares
as a class in proportion to their holdings remaining after
settlement of any outstanding liabilities of the Company.
As prescribed in the Company’s Articles, the different classes
of ordinary shares have different values attributable to their
votes. The attributed values have been calculated on the basis of
the Weighted Voting Calculation (as described in the Articles)
which takes into account the prevailing exchange rates on the date
of initial issue of ordinary shares. Currently, on a vote, a single
US Dollar ordinary share has one vote and a single Sterling
ordinary share has 1.97950 votes.
Treasury shares do not have any voting rights.
Repurchase of ordinary shares
The Directors have been granted authority to purchase in the
market up to 542,305 US Dollar
shares, and 3,323,063 Sterling shares respectively and they intend
to seek annual renewal of this authority from shareholders which
was last granted on 26 June 2017. The
Directors may, at their discretion, utilise this share repurchase
authority to address any imbalance between the supply of and demand
for shares.
Under the Company’s Articles, the Directors are required to
convene a shareholders’ meeting to consider the redemption of a
class of shares in certain circumstances. See note 8 for further
details.
Further issue of shares
As approved by the shareholders at the Annual General Meeting
held on 26 June 2017 (the “AGM”), the
Directors have the power to issue further shares on a non
pre-emptive basis for cash in respect of 361,778 US Dollar shares, and 2,216,853 Sterling
shares respectively.
This power expires on the date falling fifteen months after the
date of the AGM or the conclusion of the next Annual General
Meeting of the Company, whichever is the earlier.
Distributions
BHMS has not previously paid dividends to its investors.
Therefore, the Directors of the Company do not expect to declare
any dividends. This does not prevent the Directors of the Company
from declaring a dividend at any time in the future if the
Directors consider payment of a dividend to be appropriate in the
circumstances. If the Directors declare a dividend, such dividend
will be paid on a per class basis.
The Company operates in such a manner that its shares are not
categorised as non-mainstream pooled investments. This may mean
that the Company pays dividends in respect of any income that it
receives or is deemed to receive for UK tax purposes so that it
would qualify as an investment trust if it were UK
tax-resident.
However, the Company will first apply any such income in payment
of its management and performance fees.
Treasury shares are not entitled to distributions.
Annual redemption offer
Each calendar year the Directors may, in their absolute
discretion, determine that the Company should make an offer to
redeem such number of shares of the Company in issue as they may
determine provided that the maximum amount distributed does not
exceed 100% of the increase in the NAV of the Company in the prior
calendar year.
The Directors shall, in their absolute discretion, determine the
particular class or classes of shares in respect of which an Annual
Redemption Offer will be made, the timetable for that Annual
Redemption Offer and the price at which the shares of each relevant
class will be redeemed.
Whether a return of capital is made in any particular year and,
if so, the amount of the return, may depend, among other things, on
prevailing market conditions, the ability of the Company to
liquidate its investments to fund the capital return, the success
of prior capital returns and applicable legal, regulatory and tax
considerations.
Share conversion scheme
The Company has implemented a Share Conversion Scheme which
provides shareholders with the ability to convert some or all of
their ordinary shares in the Company of one class into ordinary
shares of the other class on the last business day of every month.
Each conversion will be based on the NAV (note 7) of the share
classes to be converted.
6. Taxation
Overview
The Company is exempt from taxation in Guernsey under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance 1989. Accordingly, no
provision for Guernsey income taxes is included in these Financial
Statements.
Uncertain tax positions
The Company recognises the tax benefits of uncertain tax
positions only where the position is more-likely-than-not (i.e.
greater than 50-percent) to be sustained assuming examination by a
tax authority based on the technical merits of the position. In
evaluating whether a tax position has met the recognition
threshold, the Company must presume that the position will be
examined by the appropriate taxing authority that has full
knowledge of all relevant information. A tax position that meets
the more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognise in the Company’s
Financial Statements. Income tax and related interest and penalties
would be recognised by the Company as a tax expense in the
Statement of Operations if the tax positions were deemed to not
meet the more-likely-than-not threshold.
The Company analyses all open tax years for all major tax
jurisdictions. Open tax years are those that are open for
examination by taxing authorities, as defined by the Statute of
Limitations in each jurisdiction.
The Company identifies its major tax jurisdictions as the
Cayman Islands and foreign
jurisdictions where the Company makes significant investments. The
Company has no examinations by tax authorities in progress.
The Board received advice in respect of the Company’s tax
positions, and is advised that no liability for unrecognised tax
benefits should be recorded related to uncertain tax positions.
Further, the Board is not aware of any tax positions for which it
is reasonably possible that the total amounts of unrecognised tax
benefits will significantly change in the next twelve months.
7. Publication and Calculation of Net
Asset Value
The NAV of the Company is equal to the value of its total assets
less its total liabilities. The NAV per share of each class will be
calculated by dividing the NAV of the relevant share class by the
number of shares of the relevant class in issue on that day.
The Company publishes the NAV per share for each class of shares
as calculated by the Administrator based in part on information
provided by BHMS, monthly in arrears, as at each month end.
The Company also publishes an estimate of the NAV per share for
each class of shares as calculated by the Administrator based in
part on information provided by BHMS, weekly in arrears.
8. Discount Management Programme
The Company’s discount management programme includes the ability
to make market purchases of shares and the obligation to propose
class closure resolutions if, in any fixed discount management
period (1 January to 31 December each year), the average daily
closing market price of the relevant class of shares during such
period is 10% or more below the average NAV per share of the
relevant class taken over the 12 monthly NAV Determination Dates
(generally the last business day of each month) in that fixed
discount management period, as described more fully in the
Company’s principal documents, which are available from the
Administrator on request.
In the event a class closure resolution is passed, Shareholders
in a class have the following options available to them:
a) to redeem all or some of their shares at NAV per
share less the costs and expenses of the Class Closure vote and
other outstanding costs and expenses of the Company, attributable
to the relevant class (including any redemption fees); or
b) subject to certain limitations, to convert all or
some of their shares into shares of another class; or
c) subject to the class continuing and remaining
viable, to remain in the class.
The Annual Redemption Offer described in note 5 which enables a
partial return of capital is also part of the discount management
programme.
The discount management measures are and will be funded by
partial redemptions of the Company’s investment in BHMS.
During the year to 31 December
2017, the Company recorded an average discount to NAV of
9.20% and 9.60% for US Dollar shares and Sterling shares
respectively (year to 31 December
2016: 8.30% and 8.88 % for US Dollar shares, and Sterling
shares respectively).
9. Note Purchase Agreement
The Company is party to a Note Purchase Agreement with JP Morgan
Chase Bank, pursuant to which the Company may obtain financing of
up to US$5 million and £15 million,
if required, to finance (inter alia) share buybacks pending receipt
of the proceeds of redemption from its underlying investments. As
at 31 December 2017 and 2016, there
were no amounts outstanding under the Note Purchase Agreement,
neither was any interest payable. As disclosed in note 12, on
18 February 2018 the sterling
financing available under the Note Purchase Agreement was increased
from £15 million to £30 million.
10. Financial Highlights
The following tables include selected data for a single ordinary
share of each of the ordinary share classes in issue at the year
end and other performance information derived from the Financial
Statements.
The per share amounts and ratios which are shown reflect the
income and expenses of the Company for each class of ordinary
share.
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
31.12.17 |
|
to
31.12.17 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the year |
|
|
14.19 |
|
14.33 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net investment
gain1 |
|
|
|
|
0.23 |
|
0.28 |
Net
realised and unrealised gain/(loss) on investment |
|
|
0.05 |
|
(0.18) |
Other capital
items2 |
|
|
|
|
0.09 |
|
0.15 |
Total
return |
|
|
|
|
0.37 |
|
0.25 |
Net
asset value, end of the year |
|
|
|
14.56 |
|
14.58 |
Total
return before performance fees |
|
|
3.05% |
|
1.91% |
Performance fees |
|
|
|
|
(0.46%) |
|
(0.16%) |
Total
return after performance fees |
|
|
2.59% |
|
1.75% |
|
|
|
|
|
|
|
|
Total return reflects the net return for an investment made at
the beginning of the year and is calculated as the change in the
NAV per ordinary share during the year ended 31 December 2017. An individual shareholder’s
return may vary from these returns based on their timing of
purchases and sales of Shares.
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
31.12.17 |
|
to
31.12.17 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental
data |
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
43,744 |
|
296,626 |
Average
net asset value for the year |
|
|
50,692 |
|
311,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
31.12.17 |
|
to
31.12.17 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
Operating
expense |
|
|
|
|
|
|
|
Company
expenses3 |
|
|
|
1.75% |
|
1.70% |
Master
Fund expenses4 |
|
|
|
1.15% |
|
1.16% |
Performance
fees |
|
|
|
|
0.40% |
|
0.15% |
|
|
|
|
|
3.30% |
|
3.01% |
|
|
|
|
|
|
|
|
Net
investment gain1 |
|
|
|
1.57% |
|
1.92% |
|
|
|
|
|
01.01.16 |
|
01.01.16 |
|
|
|
|
|
to
31.12.16 |
|
to
31.12.16 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the year |
|
|
13.21 |
|
13.44 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net investment
gain1 |
|
|
|
|
0.08 |
|
0.08 |
Net
realised and unrealised gain on investment |
|
|
0.76 |
|
0.70 |
Other capital
items2 |
|
|
|
|
0.14 |
|
0.11 |
Total
return |
|
|
|
|
0.98 |
|
0.89 |
Net
asset value, end of the year |
|
|
|
14.19 |
|
14.33 |
|
|
|
|
|
|
|
|
Total
return before performance fees |
|
|
8.21% |
|
7.46% |
Performance fees |
|
|
|
|
(0.79%) |
|
(0.86%) |
Total
return after performance fees |
|
|
7.42% |
|
6.60% |
Total return reflects the net return for an investment made at
the beginning of the year and is calculated as the change in the
NAV per ordinary share during the year ended 31 December 2016. An individual shareholder’s
return may vary from these returns based on the timing of their
purchases and sales of Shares.
|
|
|
|
|
01.01.16 |
|
01.01.16 |
|
|
|
|
|
to
31.12.16 |
|
to
31.12.16 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental
data |
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
59,416 |
|
321,966 |
Average
net asset value for the year |
|
|
59,733 |
|
318,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01.01.16 |
|
01.01.16 |
|
|
|
|
|
to
31.12.16 |
|
to
31.12.16 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
Operating
expense |
|
|
|
|
|
|
|
Company
expenses3 |
|
|
|
2.44% |
|
2.35% |
Master
Fund expenses4 |
|
|
|
0.33% |
|
0.34% |
Performance fees |
|
|
|
|
0.73% |
|
0.82% |
|
|
|
|
|
3.50% |
|
3.51% |
|
|
|
|
|
|
|
|
Net
investment gain1 |
|
|
|
0.56% |
|
0.57% |
1
The net investment gain figure shown above does not include net
realised and unrealised gains and losses on investments allocated
from BHMS.
2
Included in other capital items are the discounts and premiums on
conversions between share classes during the year, share buybacks
and partial capital returns, as compared to the NAV per share at
the beginning of the year.
3
Company expenses are as disclosed in the Audited Statement of
Operations, excluding performance fees and foreign exchange gains
and losses on aggregation.
4
Master Fund expenses are the allocated operating expenses of
BHMS.
11. Related Party Transactions
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over that party in making financial or operational
decisions.
The payments to and receipts from the Master Fund are disclosed
in the cash flow statement.
Management and performance fees are disclosed in note 4.
Directors’ fees are disclosed in the Directors’ Remuneration
Report.
Directors’ interests are disclosed in the Corporate Governance
Statement.
12. Subsequent Events
Management has evaluated subsequent events up to 22 March 2018, which is the date that the
Financial Statements were available to be issued.
On 18 February 2018 the sterling
financing available under the Note Purchase Agreement with JP
Morgan Chase Bank was increased from £15 million to £30
million.
Subsequent to the year end and up to the date of this report,
the Company purchased the following shares of the Company to be
held as treasury shares:
|
Number of
shares |
Cost |
Cost |
Treasury shares |
purchased |
(US$) |
(in
currency) |
Sterling shares |
472,389 |
9,084,391 |
£6,495,996 |
In addition to the buyback of the above shares, 490,000 Sterling
Treasury shares were also cancelled.
Following the purchase and cancellation of shares, the Company
has 2,957,806 US Dollar, and
19,908,697 Sterling ordinary shares in issue.
On 13 March 2018, Sally-Ann Farnon was appointed as a Director of
the Company subject to completion of all statutory and regulatory
requirements.
No other subsequent events have occurred.
HISTORICAL PERFORMANCE SUMMARY
As at 31 December 2017
|
|
|
|
31.12.17 |
|
31.12.16 |
|
31.12.15 |
|
31.12.14 |
|
|
|
|
(Audited) |
|
(Audited) |
|
(Audited) |
|
(Audited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
increase/(decrease) in net assets |
|
|
|
|
|
|
resulting from operations |
|
41,032 |
|
(57,387) |
|
(36,073) |
|
(42,762) |
Total
assets |
|
|
443,707 |
|
457,647 |
|
593,888 |
|
682,694 |
Total
liabilities |
|
|
(1,416) |
|
(4,596) |
|
(28,231) |
|
(9,787) |
Net
assets |
|
|
442,291 |
|
453,051 |
|
565,657 |
|
672,907 |
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
|
|
US Dollar
shares |
|
|
3,004,442 |
|
4,186,219 |
|
4,850,613 |
|
6,994,093 |
Sterling
shares |
|
|
20,346,871 |
|
22,471,006 |
|
25,161,387 |
|
27,313,033 |
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
US$14.56 |
|
US$14.19 |
|
US$13.21 |
|
US$13.44 |
Sterling shares |
|
|
|
£14.58 |
|
£14.33 |
|
£13.44 |
|
£13.62 |
AFFIRMATION OF THE COMMODITY POOL OPERATOR
31 December 2017
To the best of my knowledge and belief, the information detailed
in this Annual Report and these Audited Financial Statements is
accurate and complete:
Name: Jonathan Wrigley
Title: Group Head of Finance and Authorised Signatory
Brevan Howard Capital Management Limited as general partner of
Brevan Howard Capital Management LP, the manager and commodity pool
operator of BH Global Limited
22 March 2018
MANAGEMENT AND ADMINISTRATION
Directors
Sir Michael Bunbury (Chairman)
(appointed 1 January 2013)
John Hallam (Senior Independent
Director)
(appointed 28 February
2008)
Julia Chapman
(appointed on 16 January
2017)
Graham Harrison
(appointed 17 March 2010)
Talmai Morgan
(retired 26 June 2017)
Nicholas Moss
(appointed 28 February
2008)
Sally-Ann Farnon
(appointed 13 March 2018)
(All Directors are non-executive
and are independent for the purpose of LR15.2.12-A)
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier
Jersey
JE2 3QA
Administrator and Corporate Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
For the latest information
www.bhglobal.com
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1 WR
Registrar and CREST Service Provider
Computershare Investor Services
1st Floor
Tudor House
Le Bordage
Guernsey
GY1 1DB
Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St. Peter Port
Guernsey
GY1 4BZ
Legal Advisors (UK Law)
Hogan Lovells International LLP
Atlantic House
Holborn Viaduct
London EC1A 2FG
Corporate Brokers
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR