BH Global Limited
Interim Report and Unaudited Financial Statements 2018
LEI: 549300BIIO4DTKEMXV14
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
30 June
2018
The Company has today, in accordance with DTR 6.3.5, released
its Interim Report and Unaudited Financial Statements for the
period ended 30 June 2018. The Report
will shortly be available from the Company’s website:
www.bhglobal.com.
CHAIRMAN’S STATEMENT
Dear Shareholder,
I am pleased to report that the six months to 30 June 2018 delivered strong overall performance
for BH Global Limited (the “Company” or “BH Global”). Good progress
was made on two of the fronts that have been under scrutiny in
recent years, namely Net Asset Value (“NAV”) per share and the
discount at which the shares trade.
For the six months the NAV per share of the smaller US Dollar
class appreciated by 5.85% and the larger Sterling class by 5.53%.
In both cases these were the strongest half-year figures since
2009. These results are not only satisfactory in their own right at
a time of persistent very low interest rates in Sterling and the
Euro; but they also rank well against the performance of other
macro orientated hedge funds. The Manager’s Report follows this
Statement and sets out the detail of the performance of the various
trading allocations.
Save for working cash balances, all of the Company’s assets are
invested in Brevan Howard Multi-Strategy Master Fund Limited
(“BHMS”) and, indirectly through that fund, the percentage of the
Company’s assets allocated to the Direct Investment Portfolio
(“DIP”) has grown from under 20% four years ago to around 60%. That
allocation has served BH Global well in recent years with capital
being allocated by the Manager to individual trading books and
funds managed by a sole portfolio manager. As a percentage of
assets at 30 June 2018, 58.6% was
allocated to the DIP and was made up of seven individual
allocations. The majority of the balance of assets was allocated to
the core Brevan Howard Master Fund (“BHMF”) and the allocation at
the period end was 29.4%.
The DIP had a further excellent result for the six months,
appreciating by approximately 5.85% net of fees. However, on this
occasion, it was outshone by the sparkling performance of BHMF
which appreciated by 8.48% net of fees. Overall, for a
company which is intended to deliver minimally correlated, low
volatility returns and which serves principally as a portfolio
diversifier, I consider the half-year NAV per share performance to
be satisfactory. I hope that the macro trading environment, which
the Manager has long expected to improve and has finally done so,
will continue to present attractive opportunities for further
progress for the balance of the Company’s year to 31 December 2018.
Of course, it is the share price that is of most importance to
shareholders. In the half-year to 30 June
2018 the Sterling share price appreciated by 6.67% driven by
a combination of NAV performance and a narrowing of the discount to
NAV at which the shares were trading.
Discount
In earlier Statements I have written regularly about the Board’s
frustration with the level of the discount to NAV at which the
shares traded. At 30 June 2017 the
discount on the Sterling shares was over 11%. I reported that the
Board was looking for a substantial and sustained reduction in that
discount to justify the Company’s ongoing form. In my Statement
written in March in relation to the full year of 2017 I reported
that a significant reduction in the discount had occurred and at
31 December 2017 it stood at 6.44%. I
am pleased to report that by 30 June
2018 there had been a modest further reduction to 5.43%. As
at 22 August 2018, the discount on
the Sterling shares stood at 4.83%.
Shareholders will be aware that discounts are influenced by a
multitude of factors and that some volatility in discounts is to be
expected in many closed-ended investment companies. The Board
appreciates that such volatility is unattractive to most
shareholders and will continue to strive to minimise it.
Satisfactory NAV per share performance will be the principal key to
success.
Discount Management
As one aspect of reducing the volatility of the discount, during
the half-year the Board continued to authorise share buy-backs. No
shares were bought back in the US Dollar class. In the Sterling
class 735,475 shares were bought back at an average discount of
6.54% and a cost of £10.158 million. Buy-backs enhanced the NAV per
share return for the Sterling shares by 0.23%.
For the whole of 2017 more than 3 million shares of both classes
in aggregate had been bought back. However, as the six-month period
to 30 June 2018 progressed, the
number of shares bought back on a weekly basis declined
substantially and there have been no buy-backs at all since early
June. Whilst that is very pleasing, no-one should expect that
volatility of the discount will not return. If it does so then the
Board remains ready to buy-back shares opportunistically to seek to
reduce that volatility.
Board
In March I reported that John
Hallam, a founding director of the Company in 2008, intended
to retire as a director on 30 September
2018. I once again pay tribute to John’s outstanding
contribution to the affairs of the Company through some testing
times. I also reported that the Company had been fortunate to
recruit Susie Farnon to succeed John
as Chair of the Audit Committee and such succession duly took place
on 1 July.
Nick Moss has also been a
director since inception in 2008. Nick plans to retire from the
Board within the next twelve months and later this year the Board
will commence a search for a further Board member. Many companies
are struggling to balance the pressure for increased gender
diversity on Boards with the over-riding requirement that any
director needs to be suitably qualified to direct effectively the
affairs of that company. It is very pleasing that two such highly
qualified persons, Julia Chapman and
Susie Farnon, agreed to join the
Board in the last two years and, once John
Hallam has retired on 30 September, the Board will comprise
two female directors out of five.
Relationship with the Manager
The Board continues to have quarterly meetings with the Manager
and contact is maintained in between meetings by regular telephone
updates. In addition, I talk to or correspond with representatives
of the Manager regularly on operational and strategic matters. It
is public knowledge that the Manager’s overall funds under
management have declined significantly as a result of investor
redemptions. Inevitably that has resulted in some changes in the
Manager’s business. However, I can report that BH Global has seen
no change in the very high quality risk controls and administration
which the Manager undertakes on behalf of the Company. The Manager
has confirmed that it remains committed to managing the Company,
and providing top quality services to it, subject, as I have
reported in earlier Statements, to any shareholder vote being
passed to liquidate the Company, triggered by the net asset value
of the Company being below $300
million at the end of any calendar quarter. As at today’s
date the net assets of the Company are approximately $432 million.
The Board looks forward to continuing constructive dialogue with
the Manager to further the interests of all parties and
particularly of the shareholders.
Annual General Meeting
The Board and Manager are grateful to shareholders for the
support they have showed through the voting on the resolutions that
were in front of the AGM on 22 June. Nine of the thirteen
resolutions were passed unanimously with 100% votes in favour. Of
the four that attracted contrary votes, the maximum percentage
voted against a resolution was less than 6% and that being against
the re-appointment of a long serving director who will be retiring.
I am confident that most of votes cast against John Hallam’s
re-appointment would have been on account of his long service which
partly arose when new appointments to the Board were deliberately
deferred in 2015 pending a review of the Company’s future.
Companies are the property of their shareholders and the Board
and Manager report to those shareholders and serve at their
pleasure. On behalf of the Board and Manager I wish to thank
shareholders for their very visible support through their votes at
the AGM.
Conclusion
Every investor knows that the affairs of companies ebb and
flow. BH Global has enjoyed a successful half-year to
30 June 2018. It would be very good
should that progress continue for the full year. July has seen a
modest increase in NAV per share.
As always I would be happy for any shareholder to contact me
through the Company’s administrator, Northern Trust, at
ts236@ntrs.com.
Yours sincerely,
Sir Michael
Bunbury
Chairman
23 August 2018
GLOSSARY OF ACRONYMS
BHAHMF |
Brevan Howard AH Master Fund
Limited |
BHAMF |
Brevan Howard Asia Master Fund
Limited |
BHCM |
Brevan Howard Capital Management
LP |
BHDGST |
BH-DG Systematic Trading Master Fund
Limited |
BHG or the Company |
BH Global 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 below. 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
review by KPMG Channel Islands Limited.
UNAUDITED SUPPLEMENTAL STATEMENT OF ASSETS AND
LIABILITIES
As at 30 June 2018
|
|
|
|
|
|
|
US Dollar shares |
Sterling shares |
Company total |
|
|
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
|
|
Investment
in BHMS |
|
|
|
|
|
44,075 |
|
302,724 |
|
443,747 |
Other
debtors |
|
|
|
|
|
5 |
|
10 |
|
18 |
Cash and
bank balances denominated in US Dollars |
|
240 |
|
- |
|
240 |
Cash and
bank balances denominated in Sterling |
|
- |
|
5,169 |
|
6,825 |
Total
assets |
|
|
|
|
|
44,320 |
|
307,903 |
|
450,830 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Management
fees payable |
|
|
|
35 |
|
253 |
|
369 |
Performance fees payable |
|
|
|
|
617 |
|
3,826 |
|
5,668 |
Accrued
expenses and other liabilities |
|
|
|
35 |
|
126 |
|
202 |
Administration fees payable |
|
|
|
|
3 |
|
18 |
|
27 |
Total
liabilities |
|
|
|
|
|
690 |
|
4,223 |
|
6,266 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
|
|
|
43,630 |
|
303,680 |
|
444,564 |
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
2,830,902 |
|
19,737,930 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
US$15.41 |
|
£15.39 |
|
- |
UNAUDITED SUPPLEMENTAL STATEMENT OF
OPERATIONS
For the period from 1 January 2018 to
30 June 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar shares |
Sterling shares |
Company total |
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Net
investment gain allocated from BHMS |
|
|
|
|
|
|
Interest income |
|
|
|
|
1,073 |
|
7,328 |
|
11,090 |
Expenses |
|
|
|
|
(327) |
|
(2,234) |
|
(3,379) |
Net
investment gain allocated from BHMS |
|
746 |
|
5,094 |
|
7,711 |
|
|
|
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
|
|
|
Management fees |
|
|
|
|
216 |
|
1,495 |
|
2,260 |
Performance fees |
|
|
|
|
616 |
|
3,826 |
|
5,846 |
Other expenses |
|
|
|
|
50 |
|
300 |
|
459 |
Directors'
fees and expenses |
|
|
|
23 |
|
158 |
|
239 |
Administration
fees |
|
|
|
|
8 |
|
52 |
|
79 |
Foreign
exchange (gains)/losses* |
|
|
|
(6) |
|
3 |
|
7,017 |
Total
Company expenses |
|
|
|
907 |
|
5,834 |
|
15,900 |
|
|
|
|
|
|
|
|
|
|
Net investment
loss |
|
|
|
|
(161) |
|
(740) |
|
(8,189) |
|
|
|
|
|
|
|
|
|
|
Net
realised and unrealised (losses)/gains on investments allocated
from BHMS |
Net
realised loss on investments |
|
|
|
(531) |
|
(3,570) |
|
(5,412) |
Net
unrealised gain on investments |
|
|
|
3,160 |
|
21,635 |
|
32,736 |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
-
on hedging |
|
|
|
|
- |
|
(1,997) |
|
(2,730) |
Net
realised and unrealised gains on investments allocated from
BHMS |
2,629 |
|
16,068 |
|
24,594 |
|
|
|
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations |
2,468 |
|
15,328 |
|
16,405 |
*The Company total for foreign exchange (gains)/losses contains
the results of translating the Sterling share 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 period from 1 January 2018 to
30 June 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company total |
|
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Net increase in net
assets resulting from operations |
|
|
|
|
|
|
|
|
|
|
Net investment
loss |
|
|
|
|
|
(161) |
|
(740) |
|
(8,189) |
Net realised loss on
investments allocated from BHMS |
|
|
|
|
|
(531) |
|
(3,570) |
|
(5,412) |
Net unrealised gain on
investments allocated from BHMS |
|
|
|
|
|
3,160 |
|
21,635 |
|
32,736 |
Net realised and
unrealised foreign exchange loss allocated from BHMS |
|
|
|
|
|
- |
|
(1,997) |
|
(2,730) |
|
|
|
|
|
|
2,468 |
|
15,328 |
|
16,405 |
|
|
|
|
|
|
|
|
|
|
|
Share capital
transactions |
|
|
|
|
|
|
|
|
|
|
Net share
conversions |
|
|
|
|
|
(2,582) |
|
1,884 |
|
- |
Purchase of own
shares |
|
|
|
|
|
- |
|
(10,158) |
|
(14,132) |
|
|
|
|
|
|
(2,582) |
|
(8,274) |
|
(14,132) |
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in net assets |
|
|
|
|
|
(114) |
|
7,054 |
|
2,273 |
Net assets at the
beginning of the period |
|
|
|
|
|
43,744 |
|
296,626 |
|
442,291 |
Net assets at the
end of the period |
|
|
|
|
|
43,630 |
|
303,680 |
|
444,564 |
MANAGER’S REPORT
BHCM is the Manager of BHG. BHG invests all its assets (net of
short-term working capital) in BHMS, a company also managed by
BHCM.
Performance Summary
The NAV per share of the USD shares appreciated by 5.85% during the
first half of 2018, while the NAV per share of the GBP shares
appreciated by 5.53% in the same period of 2018.
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 |
2018 |
3.08 |
(0.89) |
(1.35) |
0.72 |
5.46 |
(1.12) |
|
|
|
|
|
|
5.85 |
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 |
2018 |
3.09 |
(0.99) |
(1.42) |
0.71 |
5.43 |
(1.21) |
|
|
|
|
|
|
5.53 |
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.
Performance Review
During the first half of 2018, the NAV per share of the USD shares
appreciated by 5.85% and the NAV per share of the GBP shares
appreciated by 5.53%. The first half of 2018 proved to be
relatively eventful for the Fund’s macro positioning. The Fund
benefitted from a number of larger moves in both volatility and
price levels. The performance in January and May were particularly
strong with May producing the highest monthly return since the
Fund’s inception. The Fund’s performance compared very well to the
HFRI Macro Total Index, which was down -1.8% over the period.
The DIP was the main positive contributor to the Fund’s year to
date performance. For the period the DIP was up 7.05% (gross). The
bulk of the profits arose in interest rate trading where
directional curve positions across EUR, USD and GBP as well as
relative value trading in the EUR bond markets generated solid
gains. Additional gains arose from tactical trading in equity
indices where a long exposure to S&P in January was the main
positive contributor. In credit both directional index exposures
and agency trading were positive contributors. Some of the gains
were offset by losses in FX where relatively small gains and losses
across a number of currencies led to an overall modest loss.
With regard to the returns of the underlying fund allocations,
both BHMF and BHAMF generated solid gains whereas BHDGST was down
marginally. Similar to the DIP, BHMF and BHAMF generated the bulk
of the gains in directional and relative value trading in interest
rates.
Looking across all underlying allocations, interest rates
trading was the predominant positive driver with additional gains
in credit and equity. FX trading was a small detractor.
Systematic trading generated modest negative returns over the
period with no dominant single driver. Gains in interest rates and
commodities were more than offset by losses in FX and equity.
Equity was the main detractor where losses arose mainly from an
overall long exposure to equity indices when markets sold off quite
rapidly during February.
In measuring the attribution of the underlying portfolios, the
Manager employs a number of metrics including the two set out in
the tables below. 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 30 June 2018 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
2018 |
0.97 |
-0.00 |
-0.08 |
-0.32 |
0.24 |
0.00 |
0.79 |
Q2
2018 |
4.63 |
-0.31 |
0.10 |
0.48 |
0.15 |
0.00 |
5.02 |
YTD
2018 |
5.65 |
-0.31 |
0.02 |
0.16 |
0.40 |
0.00 |
5.85 |
*Data as at 30 June 2018
Quarterly and semi-annual figures are calculated by BHCM as at
30 June 2018, based on performance
data for each period provided by 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
|
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Discount Management |
TOTAL |
Q1
2018 |
1.01 |
0.06 |
-0.00 |
-0.03 |
-0.00 |
-0.26 |
0.03 |
-0.00 |
0.00 |
0.79 |
Q2
2018 |
3.72 |
-0.11 |
0.67 |
0.09 |
-0.00 |
0.24 |
0.39 |
-0.00 |
0.00 |
5.02 |
YTD
2018 |
4.77 |
-0.05 |
0.67 |
0.06 |
-0.00 |
-0.03 |
0.41 |
-0.00 |
0.00 |
5.85 |
*Data as at 30 June 2018
Quarterly and semi-annual figures are calculated by BHCM as at
30 June 2018, based on performance
data for each period provided by 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
Allocation Review
The Investment Committee (“IC”) of the Manager made the decision to
slightly increase the allocation to BHMF over the period and reduce
the allocations to BHAMF, BHDGST and the DIP accordingly. The move
to increase the allocation to BHMF was partly driven by the closure
of a couple of trading books in the DIP at the beginning of the
period which allowed for cash to be re-invested in BHMF until new
allocations within the DIP had been decided.
At the end of June, the allocation to the DIP was still by far
the largest allocation and stood at approximately 58.6%.
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.
Commentary and Outlook
In the first half of 2018, the global economy continued to advance
at an above-trend pace. However, there has been considerably more
dispersion compared with last year among both advanced and emerging
market economies. In addition, investors are grappling with a range
of new risks to the outlook. Tighter monetary policy from the
Federal Reserve and the associated appreciation in the US dollar is
putting pressure on vulnerable emerging market economies. Trade
tensions are escalating with little visibility on the ultimate
economic and financial market effects. Finally, populist political
trends are stretching the status quo, especially in Britain and Italy.
The IMF forecasts global growth rates of nearly 4% for both this
year and next, but the rising risks point to some downside skew in
that projection. Growth is healthy in the advanced economies, but
has slowed from last year’s breakneck pace in the Euro area,
Japan and Britain. The US has been the standout,
clocking up real GDP growth that looks to be better than 3% at an
annual rate in the first half of 2018. Notably, the unemployment
rate in the US plumbed lows last seen in the 1960s and core
inflation rose 2% in the last year.
In emerging economies, China
continues to grow at a solid rate and monetary authorities are
ready to ease further still in order to maintain the momentum. In
response to the differential monetary policies between the US and
China, the renminbi slid
significantly in the last few months. If the trend continues,
investors may fear disorderly capital flight following similar
moves in 2015. Other emerging market central banks are under
similar pressure to respond to a stronger US dollar by defending
their currencies with rate rises. The most vulnerable economies
like Argentina and Turkey already demonstrated acute strain with
sharp depreciations in their currencies, capital outflows, and
declines in equity prices. Going forward, it’s an open question how
other emerging market economies will cope with higher interest
rates and an appreciation in the US dollar that makes it harder for
domestic borrowers to pay back more expensive dollar-denominated
debt. Although interest rates are relatively low, Fed tightening
has been the root cause of many international financial crises in
the past. The other major factor among emerging economies has been
higher oil prices, which have dented prospects for importers while
flattering exporters.
No issue has attracted more attention this year than trade
tensions. Higher tariffs are a negative supply shock that slows
growth and raises inflation. In a worst-case scenario with adverse
effects on confidence, asset prices and investment, an all-out
trade war could cause a global recession. At this point, it is
anyone’s guess how this will play out. The Trump administration
clearly has China in its sights
and tariffs could eventually extend to almost all Chinese imports
into the US. Germany and
especially its motor vehicles may become a focus of targeted trade
action. Finally, the negotiations among the NAFTA countries may or
may not be constructive.
Lastly, political developments are going to shape markets in
unpredictable ways going forward. The road ahead for Brexit is
foggy. Italian politics threatens the European consensus on
immigration, fiscal spending, and monetary policy. It seems like a
safe bet to assume that populist politics will continue to throw
curveballs to the market going forward.
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
23 August 2018
STATEMENT OF DIRECTORS’ RESPONSIBILITY
IN RESPECT OF THE INTERIM UNAUDITED FINANCIAL STATEMENTS
We confirm to the best of our knowledge that:
- these Interim Unaudited Financial Statements have been
prepared in conformity with United States Generally Accepted
Accounting Principles and give a true and fair view of the assets,
liabilities, financial position and profit or loss; and
- these Interim Unaudited Financial Statements include
information detailed in the Chairman's Statement, the Manager's
Report and the notes to the Interim Unaudited Financial Statements,
which provides a fair view of the information required by:-
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on these
Interim Unaudited Financial Statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions described in the last Annual Audited Financial
Statements that could materially affect the financial position or
performance of the Company.
The directors are responsible for the maintenance and integrity
of the corporate and financial information include on the Company's
website, and for the preparation and dissemination of financial
statements. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Signed on behalf of the Board by:
Sir Michael Bunbury
Chairman
Sally-Ann Farnon
Director
23 August 2018
INDEPENDENT REVIEW REPORT TO BH GLOBAL
LIMITED
Conclusion
We have been engaged by BH Global Limited (the “Company”) to review
the Interim Unaudited Financial Statements included in the Interim
Report for the six months ended 30 June
2018 of the Company which comprises the Unaudited Statement
of Assets and Liabilities, the Unaudited Statement of Operations,
the Unaudited Statement of Changes in Net Assets, the Unaudited
Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the financial statements for the period
ended 30 June 2018 do not give a true
and fair view of the financial position of the Company as at
30 June 2018 and of its financial
performance and its cash flows for the six month period then ended
in conformity with U.S generally accepted accounting principles and
the Disclosure Guidance and Transparency Rules (the “DTR”) of the
UK’s Financial Conduct Authority (the “UK FCA”).
Scope of review
We conducted our review in accordance with International Standard
on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity
issued by the Auditing Practices Board for use in the UK. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the Interim Report and
consider whether it contains any apparent misstatements or material
inconsistencies with the information in the unaudited interim
financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit
opinion.
Directors’ responsibilities
The Interim Report and Unaudited Financial Statements are the
responsibility of, and have been approved by, the directors. The
directors are responsible for preparing the Interim Report and
Unaudited Financial Statements in accordance with the DTR of the UK
FCA.
The Interim Unaudited Financial Statements included in this
Interim Report have been prepared in conformity with U.S generally
accepted accounting principles.
Our responsibility
Our responsibility is to express to the Company a conclusion on the
Interim Unaudited Financial Statements included in the Interim
Report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement letter to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Barry Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants, Guernsey
23 August 2018
UNAUDITED STATEMENT OF ASSETS AND LIABILITIES
As at 30 June 2018
|
|
|
|
|
|
|
30.06.18 |
|
31.12.17 |
|
30.06.17 |
|
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
|
|
Investment
in BHMS |
|
|
|
|
|
443,747 |
|
430,643 |
|
448,559 |
Amount due
from BHMS |
|
|
|
|
|
- |
|
- |
|
6,595 |
Other
debtors |
|
|
|
|
|
18 |
|
29 |
|
98 |
Cash and
bank balances denominated in US Dollars |
|
240 |
|
1,334 |
|
394 |
Cash and
bank balances denominated in Sterling |
|
6,825 |
|
11,701 |
|
7,125 |
Total
assets |
|
|
|
|
|
450,830 |
|
443,707 |
|
462,771 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Loan notes
payable (notes 3 and 10) |
|
|
|
- |
|
- |
|
7,345 |
Redemptions in respect of buybacks payable |
|
- |
|
- |
|
558 |
Management
fees payable (note 4) |
|
|
|
369 |
|
377 |
|
394 |
Performance fees payable (note 4) |
|
|
|
5,668 |
|
831 |
|
11 |
Accrued
expenses and other liabilities |
|
|
|
202 |
|
167 |
|
167 |
Administration fees payable (note 4) |
|
|
|
27 |
|
41 |
|
15 |
Total
liabilities |
|
|
|
|
|
6,266 |
|
1,416 |
|
8,490 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
|
|
|
444,564 |
|
442,291 |
|
454,281 |
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue (note 6) |
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
2,830,902 |
|
3,004,442 |
|
3,426,785 |
Sterling
shares |
|
|
|
|
|
19,737,930 |
|
20,346,871 |
|
21,841,823 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share (notes 8 and 11) |
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
US$15.41 |
|
US$14.56 |
|
US$14.26 |
Sterling
shares |
|
|
|
|
|
£15.39 |
|
£14.58 |
|
£14.29 |
See accompanying notes to the Interim Unaudited Financial
Statements.
Signed on behalf of the Board by:
Sir Michael Bunbury
Chairman
Sally-Ann Farnon
Director
23 August 2018
UNAUDITED STATEMENT OF OPERATIONS
For the period from 1 January 2018 to
30 June 2018
|
|
|
|
|
01.01.18 |
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
30.06.18 |
|
to
31.12.17 |
|
to
30.06.17 |
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
investment gain allocated from BHMS |
|
|
|
|
|
|
Interest income |
|
|
|
|
11,090 |
|
22,333 |
|
10,666 |
Expenses |
|
|
|
|
(3,379) |
|
(5,260) |
|
(1,920) |
Net
investment gain allocated from BHMS |
|
7,711 |
|
17,073 |
|
8,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
- |
|
2 |
|
1 |
Foreign
exchange gains (note 3) |
|
|
|
- |
|
38,012 |
|
24,398 |
Total
Company income |
|
|
|
- |
|
38,014 |
|
24,399 |
|
|
|
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
|
|
|
Management
fees (note 4) |
|
|
|
2,260 |
|
6,197 |
|
3,324 |
Performance fees (note 4) |
|
|
|
5,846 |
|
807 |
|
11 |
Other expenses |
|
|
|
|
459 |
|
951 |
|
397 |
Directors'
fees and expenses (note 5) |
|
|
|
239 |
|
417 |
|
180 |
Administration fees (note 4) |
|
|
|
79 |
|
178 |
|
91 |
Foreign
exchange losses (note 3) |
|
|
|
7,017 |
|
- |
|
- |
Total
Company expenses |
|
|
|
15,900 |
|
8,550 |
|
4,003 |
|
|
|
|
|
|
|
|
|
|
Net
investment (loss)/gain |
|
|
|
(8,189) |
|
46,537 |
|
29,142 |
|
|
|
|
|
|
|
|
|
|
Net
realised and unrealised (losses)/gains on investments allocated
from BHMS |
|
|
|
Net
realised (loss)/gain on investments |
|
(5,412) |
|
21,178 |
|
6,782 |
Net
unrealised gain/(loss) on investments |
|
32,736 |
|
(22,051) |
|
(12,310) |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
-
on hedging |
|
|
|
|
(2,730) |
|
(4,632) |
|
(2,196) |
Net
realised and unrealised gains/(losses) on investments allocated
from BHMS |
24,594 |
|
(5,505) |
|
(7,724) |
Net
increase in net assets resulting from operations |
16,405 |
|
41,032 |
|
21,418 |
See accompanying notes to the Interim Unaudited Financial
Statements.
UNAUDITED STATEMENT OF CHANGES IN NET ASSETS
For the period from 1 January 2018 to
30 June 2018
|
|
|
|
|
|
|
01.01.18 |
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
|
|
to
30.06.18 |
|
to
31.12.17 |
|
to
30.06.17 |
|
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
increase in net assets resulting from operations |
|
|
|
|
|
|
Net
investment (loss)/gain |
|
|
|
|
(8,189) |
|
46,537 |
|
29,142 |
Net
realised (loss)/gain on investments allocated from
BHMS |
(5,412) |
|
21,178 |
|
6,782 |
Net
unrealised gain/(loss) on investments allocated from
BHMS |
32,736 |
|
(22,051) |
|
(12,310) |
Net realised and
unrealised foreign exchange loss allocated from BHMS |
|
|
|
|
|
|
(2,730) |
|
(4,632) |
|
(2,196) |
|
|
|
|
|
|
|
16,405 |
|
41,032 |
|
21,418 |
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital transactions |
|
|
|
|
|
|
|
|
Purchase of own shares (note 6) |
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
|
- |
|
(4,493) |
|
(3,394) |
Sterling
shares |
|
|
|
|
|
(14,132) |
|
(47,299) |
|
(16,794) |
|
|
|
|
|
|
|
(14,132) |
|
(51,792) |
|
(20,188) |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in net assets |
|
|
|
2,273 |
|
(10,760) |
|
1,230 |
Net
assets at the beginning of the period/year |
|
|
442,291 |
|
453,051 |
|
453,051 |
Net
assets at the end of the period/year |
|
|
|
444,564 |
|
442,291 |
|
454,281 |
See accompanying notes to the Interim Unaudited Financial
Statements.
UNAUDITED STATEMENT OF CASH FLOWS
For the period from 1 January 2018 to
30 June 2018
|
|
|
|
01.01.18 |
|
01.01.17 |
|
01.01.17 |
|
|
|
|
to
30.06.18 |
|
to 31.12.17 |
to
30.06.17 |
|
|
|
|
(Unaudited) |
(Audited) |
|
(Unaudited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Cash
flows from operating activities |
|
|
|
|
|
|
|
Net
increase in net assets resulting from operations |
16,405 |
|
41,032 |
|
21,418 |
Adjustments to reconcile net increase in net assets |
|
|
|
|
|
resulting from operations to net cash provided by
operating activities: |
|
|
|
Net
investment gain allocated from BHMS |
|
(7,711) |
|
(17,073) |
|
(8,746) |
Net
realised loss/(gain) on investments allocated from BHMS |
5,412 |
|
(21,178) |
|
(6,782) |
Net
unrealised (gain)/loss on investments allocated from BHMS |
(32,736) |
|
22,051 |
|
12,310 |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
allocated
from BHMS |
|
|
|
2,730 |
|
4,632 |
|
2,196 |
Purchase
of investment in BHMS |
|
|
(5,874) |
|
- |
|
- |
Proceeds
from sale of investment in BHMS |
|
18,131 |
|
57,521 |
|
8,986 |
Interest
expense on short term loan |
|
|
7 |
|
53 |
|
16 |
Foreign
exchange losses/(gains) |
|
|
7,017 |
|
(38,012) |
|
(24,398) |
Decrease in other
debtors |
|
|
|
11 |
|
77 |
|
8 |
Decrease
in management fees payable |
|
|
(8) |
|
(357) |
|
(340) |
Increase/(decrease) in performance fees payable |
4,837 |
|
(2,777) |
|
(3,597) |
Increase
in accrued expenses and other liabilities |
35 |
|
31 |
|
15 |
Decrease
in Directors' fees payable |
|
|
- |
|
(88) |
|
(88) |
(Decrease)/increase in administration fees payable |
(14) |
|
11 |
|
(15) |
Net
cash provided by operating activities |
|
8,242 |
|
45,923 |
|
983 |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
Purchase of own
shares |
|
|
|
(14,132) |
|
(51,792) |
|
(19,630) |
Proceeds
of borrowings from short term loan |
|
4,219 |
|
14,024 |
|
7,308 |
Repayment
of borrowings from short term loan |
|
(4,134) |
|
(14,222) |
|
- |
Interest
paid on short term loan |
|
|
(7) |
|
(53) |
|
- |
Net
cash used in financing activities |
|
|
(14,054) |
|
(52,043) |
|
(12,322) |
|
|
|
|
|
|
|
|
|
Change in
cash |
|
|
|
(5,812) |
|
(6,120) |
|
(11,339) |
Cash,
beginning of the period/year |
|
|
13,035 |
|
18,390 |
|
18,390 |
Effect of
exchange rate fluctuations |
|
|
(158) |
|
765 |
|
468 |
Cash, end of the
period/year |
|
|
|
7,065 |
|
13,035 |
|
7,519 |
|
|
|
|
|
|
|
|
|
Cash, end of the
period/year |
|
|
|
|
|
|
|
|
Cash and
bank balances denominated in US Dollars |
240 |
|
1,334 |
|
394 |
Cash and
bank balances denominated in Sterling1 |
6,825 |
|
11,701 |
|
7,125 |
|
|
|
|
7,065 |
|
13,035 |
|
7,519 |
|
|
|
|
|
|
|
|
|
1 Cash and bank balances in Sterling (GBP'000) |
5,169 |
|
8,709 |
|
5,485 |
See accompanying notes to the Interim Unaudited Financial
Statements.
NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS
For the period from 1 January 2018 to
30 June 2018
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 until
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 Interim Unaudited Financial Statements of the
Company should be read in conjunction with the Interim Unaudited
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 30 June 2018 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* |
|
3.12% |
Brevan Howard AS Macro Master Fund
Limited* |
|
7.21% |
Brevan Howard Asia Master Fund
Limited |
|
2.65% |
Brevan Howard Master Fund
Limited |
|
5.63% |
Brevan Howard MB Macro Master Fund
Limited* |
|
4.75% |
BH-DG Systematic Trading Master Fund
Limited |
|
15.93% |
*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 Interim Unaudited Financial Statements,
there were two other feeder funds in operation in addition to the
Company that invest all of their assets (net of working capital) in
BHMS.
Off-balance sheet, market and credit risks of BHMS’s investments
and activities are discussed in the notes to the Interim Unaudited
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 Interim Unaudited Financial Statements
have been prepared following the same accounting policies and
methods of computation as the most recent Annual Audited Financial
Statements. The functional and reporting currency of the Company is
US Dollars.
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
Interim Unaudited 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 30 June
2018, the Company’s US Dollar and Sterling capital account
represents 6.38% and 57.82% 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.
The valuation and classification of securities held by BHMS is
discussed in the notes to its Interim Unaudited Financial
Statements which are available on the Company’s website,
www.bhglobal.com.
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 Unaudited Statement of Operations are
translated into US Dollar amounts at the date of such transactions.
The share capital and other capital reserve accounts are translated
at the historic rate ruling at the date of the transaction.
Exchange differences arising on translation are included in the
Unaudited Statement of Operations. This 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 8 and in the Financial Highlights
in note 11.
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 Interim Unaudited 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 10), 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.
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$300 million (on the basis of the prevailing US
Dollar/Sterling exchange rate), the Board would convene a general
meeting of the Company’s shareholders at which a special resolution
proposing the liquidation of the Company would be put forward. Were
the resolution to be passed, the Company would be liquidated and an
amount equal to 2% of the Company’s net asset value (subject to a
deduction in respect of any amount of the Annual Buy Back Allowance
for the relevant calendar year that remains unused) would be paid
to the Manager in addition to any other fees due to the Manager up
to the date of termination of the management agreement.
In respect of 2018, the Annual Buy Back Allowance for the
Company’s Sterling share class was 1,017,344 Sterling shares and
for the US Dollar share class was 150,222 US
Dollar shares. In respect of the period from 1 April 2017 to 31
December 2017, (having taken into account shares that had
been repurchased by the Company between 1
January 2017 and 31 March
2017), the Annual Buy Back Allowance for the Company’s
Sterling share class was 806,164 Sterling shares and for the US
Dollar share class was 152,630 US
Dollar shares.
Between 1 January 2018 and
30 June 2018, the Company repurchased
735,475 Sterling shares (between 1 April
2017 and 31 December 2017:
2,435,052 Sterling shares, between 1 April
2017 and 30 June 2017: 682,852
Sterling shares) but no US Dollar shares (between 1 April 2017 and 31
December 2017: 318,988 US
Dollar shares, between 1 April
2017 and 30 June 2017:
233,862 US Dollar shares).
During the period ended 30 June
2018, US$nil (between 1 April
2017 and 31 December 2017:
US$603,629, between 1 April 2017 and 30 June
2017: US$20,551) was charged
by the Manager due to the Annual Buy Back Allowance being exceeded,
none of which (31 December 2017:
US$nil, 30 June 2017: US$20,551) remained payable at period end. The
expense has been included in Management fees in the Unaudited
Statement of Operations. As at 30 June
2018, the Company had 281,869 Sterling shares and
150,222 US Dollar shares remaining
from the 2018 Annual Buy Back Allowance (31
December 2017: nil Sterling shares and nil US Dollar shares,
30 June 2017: 123,312 Sterling shares
and nil US Dollar shares).
There are no fees charged by the Manager at the level of BHMS or
any of its underlying funds.
In respect of the period ended 30 June
2018, the Manager charged the Company a total of
US$2,260,001 (31 December 2017:
US$6,196,942, 30 June 2017: US$3,323,650) under the terms of the management
agreement. At 30 June 2018, US$369,303 (31 December
2017: US$376,556, 30 June 2017: US$394,157) 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 period ended 30 June
2018, US$5,846,295
(31 December 2017: US$807,374, 30 June
2017: US$10,513) was charged
as performance fees of which, US$5,667,723 (31 December
2017: US$830,823, 30 June 2017: US$10,753) remained payable at period end. The
total performance fee charged during the period 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 £14.58 (Sterling shares) and US$14.56 (US dollar shares)).
Of the total crystallised performance fee charged for the
period, US$13,828 (31 December 2017: US$30,550, 30 June 2017: US$527) related to share conversions and
US$41,870 (31
December 2017: US$134,584,
30 June 2017: US$9,986) 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 £6,000 (2017: £21,000) 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 period ended 30 June
2018, US$78,661 (31 December 2017: US$178,329, 30 June
2017: US$90,842) was earned by
the Administrator as administration fees. At 30 June 2018, US$26,709 (31 December
2017: US$40,784,
30 June 2017: US$15,055) of the fee remained outstanding.
5. Directors' fees
During the period the Chairman was entitled to a fee of £150,000
per annum. John Hallam, as Chairman
of the Audit Committee and Senior Independent Director, and
Nicholas Moss, as Chairman of the
Management Engagement Committee, were entitled to fees of £53,000
per annum and £43,000 respectively. All other Directors received
£40,000 per annum. The Directors are also entitled to be reimbursed
for expenses properly incurred in the performance of their duties
as Directors.
As disclosed in note 13, with effect from 1 July 2018, John
Hallam stood down from his positions as Chairman of the
Audit Committee and Senior Independent Director, as such his
director fee reduced to £40,000 per annum. Sally-Ann Farnon was appointed to the position
of Chair of the Audit Committee and Graham
Harrison as Senior Independent Director, increasing their
respective fees to £50,000 and £43,000 per annum.
6. 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 9.
|
|
|
US Dollar shares |
Sterling shares |
|
|
Number
of ordinary shares |
|
|
|
|
|
In
issue at 1 January 2018 |
|
3,004,442 |
|
20,346,871 |
|
|
Share
conversions |
|
(173,540) |
|
126,534 |
|
|
Purchase
of own shares into Treasury |
- |
|
(735,475) |
|
|
In
issue at 30 June 2018 |
|
2,830,902 |
|
19,737,930 |
|
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
In
issue at 1 January 2018 |
|
267,443 |
|
1,921,705 |
|
|
Shares
purchased and held in Treasury during the period: |
|
|
|
|
-
On market purchases |
|
- |
|
735,475 |
|
|
Shares
cancelled |
|
- |
|
(990,000) |
|
|
In
issue at 30 June 2018 |
|
267,443 |
|
1,667,180 |
|
|
Total
shares in issue |
|
3,098,345 |
|
21,405,110 |
|
|
Percentage of class held as Treasury Shares |
8.63% |
|
7.79% |
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1
January 2018 |
|
- |
|
171,800 |
|
383,951 |
Share
conversions |
|
(2,582) |
|
1,884 |
|
- |
Purchase
of own shares into Treasury |
- |
|
(10,158) |
|
(14,132) |
Transfer
from realised investment reserve |
2,582 |
|
- |
|
2,582 |
At 30 June
2018 |
|
|
- |
|
163,526 |
|
372,401 |
|
|
|
US Dollar shares |
Sterling shares |
|
|
Number
of ordinary shares |
|
|
|
|
|
In
issue at 1 January 2017 |
4,186,219 |
|
22,471,006 |
|
|
Share
conversions |
|
(830,786) |
|
647,833 |
|
|
Purchase
of own shares into Treasury |
(350,991) |
|
(2,771,968) |
|
|
In
issue at 31 December 2017 |
3,004,442 |
|
20,346,871 |
|
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
In
issue at 1 January 2017 |
456,452 |
|
2,024,737 |
|
|
Shares
purchased and held in treasury during the year: |
|
|
-
On market purchases |
350,991 |
|
2,771,968 |
|
|
Shares
cancelled |
|
(540,000) |
|
(2,875,000) |
|
|
In
issue at 31 December 2017 |
267,443 |
|
1,921,705 |
|
|
Total
shares in issue |
|
3,271,885 |
|
22,268,576 |
|
|
Percentage of class held as Treasury Shares |
8.17% |
|
8.63% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1
January 2017 |
|
- |
|
198,891 |
|
419,281 |
Share
conversions |
|
(11,968) |
|
9,375 |
|
- |
Purchase
of own shares into Treasury |
(4,493) |
|
(36,466) |
|
(51,792) |
Transfer
from realised investment reserve |
16,461 |
|
- |
|
16,461 |
At 31
December 2017 |
|
- |
|
171,800 |
|
383,950 |
|
|
|
US Dollar shares |
Sterling shares |
|
|
Number
of ordinary shares |
|
|
|
|
|
In
issue at 1 January 2017 |
4,186,219 |
|
22,471,006 |
|
|
Share
conversions |
|
(493,569) |
|
390,585 |
|
|
Purchase
of own shares into Treasury |
(265,865) |
|
(1,019,768) |
|
|
In
issue at 30 June 2017 |
|
3,426,785 |
|
21,841,823 |
|
|
|
|
|
|
|
|
|
|
Number
of treasury shares |
|
|
|
|
|
In
issue at 1 January 2017 |
456,452 |
|
2,024,737 |
|
|
Shares
purchased and held in treasury during the period: |
|
|
|
|
-
On market purchases |
|
265,865 |
|
1,019,768 |
|
|
Shares
cancelled |
|
(375,000) |
|
(845,000) |
|
|
In
issue at 30 June 2017 |
|
347,317 |
|
2,199,505 |
|
|
Total
shares in issue |
|
3,774,102 |
|
24,041,328 |
|
|
Percentage of class held as Treasury Shares |
9.20% |
|
9.15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1
January 2017 |
|
- |
|
198,891 |
|
419,281 |
Share
conversions |
|
(7,015) |
|
5,590 |
|
- |
Purchase
of own shares into Treasury |
(3,394) |
|
(13,209) |
|
(20,188) |
Transfer
from realised investment reserve |
10,409 |
|
- |
|
10,409 |
At 30 June
2017 |
|
|
- |
|
191,272 |
|
409,502 |
Share classes
In respect of each class of shares a separate class account has
been established in the books of the Company. An amount equal to
the aggregate proceeds of issue of each share class has been
credited to the relevant class account. Any increase or decrease in
the 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 429,014 US Dollar shares, and
2,968,213 Sterling shares respectively and they intend to seek
annual renewal of this authority from shareholders which was last
granted on 22 June 2018. 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 9 for further details.
Further issue of shares
As approved by the shareholders at the Annual General Meeting held
on 22 June 2018 (the “AGM”), the
Directors have the power to issue further shares on a non
pre-emptive basis for cash in respect of 286,200 US Dollar shares, and 1,980,129 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 8) of the share
classes to be converted.
7. 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.
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.
8. 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.
9. 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 6 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 period to 30 June 2018,
the Company recorded an average discount to NAV of 7.48% and 7.42%
for US Dollar shares and Sterling shares respectively (year to
31 December 2017: 9.20% and 9.60 %
for US Dollar shares, and Sterling shares respectively and period
to 30 June 2017: 9.05% and 9.94 % for
US Dollar shares, and Sterling shares respectively).
10. 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, if
required, to finance (inter alia) share buybacks pending receipt of
the proceeds of redemption from its underlying investments. As at
30 June 2018 and 31 December 2017, there were no amounts
outstanding under the Note Purchase Agreement, neither was any
interest payable. As at 30 June 2017, an amount of
US$7,345,050 was utilised under the
Note Purchase Agreement, with US$16,018 of loan interest payable.
As disclosed in note 13, on 9 August
2018 the financing available under the Note Purchase
Agreement with JP Morgan Chase Bank decreased from US$5 million and £30 million to US$2 million and £15 million respectively at the
request of the Board.
11. Financial Highlights
The following tables include selected data for a single ordinary
share of each of the ordinary share classes in issue at the period
end and other performance information derived from the Financial
Statements.
The per share amounts and ratios which are shown reflect the
income and expenses of the Company for each class of ordinary
share.
|
|
|
|
|
01.01.18 |
|
01.01.18 |
|
|
|
|
|
to
30.06.18 |
|
to
30.06.18 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the period |
|
|
14.56 |
|
14.58 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net
investment loss1 (excluding net realised and unrealised
gains and losses on investments allocated from BHMS) |
|
(0.05) |
|
(0.04) |
Net
realised and unrealised gain on investment |
|
0.92 |
|
0.82 |
Other
capital items2 |
|
|
|
(0.02) |
|
0.03 |
Total
return |
|
|
|
|
0.85 |
|
0.81 |
Net
asset value, end of the period |
|
|
15.41 |
|
15.39 |
|
|
|
|
|
|
|
|
Total
return before performance fees |
|
|
7.35% |
|
6.87% |
Performance fees |
|
|
|
(1.50%) |
|
(1.34%) |
Total
return after performance fees |
|
|
5.85% |
|
5.53% |
Total return reflects the net return for an investment made at
the beginning of the period and is calculated as the change in the
NAV per ordinary share during the period ended 1 January 2018 to 30 June
2018. An individual shareholder’s return may vary from these
returns based on their timing of purchases and sales of Shares.
|
|
|
|
|
01.01.18 |
|
01.01.18 |
|
|
|
|
|
to
30.06.18 |
|
to
30.06.18 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental data |
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
43,630 |
|
303,680 |
Average
net asset value for the period |
|
|
43,629 |
|
299,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01.01.18 |
|
01.01.18 |
|
|
|
|
|
to
30.06.18 |
|
to
30.06.18 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
Operating expense |
|
|
|
|
|
|
Company
expenses3 |
|
|
|
0.68% |
|
0.67% |
Master
Fund expenses4 |
|
|
|
0.75% |
|
0.75% |
Performance fees |
|
|
|
1.41% |
|
1.28% |
|
|
|
|
|
2.84% |
|
2.70% |
|
|
|
|
|
|
|
|
Net
investment loss1 |
|
|
|
(0.37%) |
|
(0.25%) |
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
31.12.17 |
|
to
31.12.17 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the year |
|
|
14.19 |
|
14.33 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net
investment gain1 (excluding net realised and unrealised
gains and losses on investments allocated from BHMS) |
|
0.23 |
|
0.28 |
Net
realised and unrealised gain/(loss) on investment |
|
0.05 |
|
(0.18) |
Other
capital items2 |
|
|
|
0.09 |
|
0.15 |
Total
return |
|
|
|
|
0.37 |
|
0.25 |
Net
asset value, end of the year |
|
|
14.56 |
|
14.58 |
|
|
|
|
|
|
|
|
Total
return before performance fees |
|
|
3.05% |
|
1.91% |
Performance fees |
|
|
|
(0.46%) |
|
(0.16%) |
Total
return after performance fees |
|
|
2.59% |
|
1.75% |
Total return reflects the net return for an investment made at
the beginning of the year and is calculated as the change in the
NAV per ordinary share during the year ended 31 December 2017. An individual shareholder’s
return may vary from these returns based on the timing of their
purchases and sales of Shares.
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
31.12.17 |
|
to
31.12.17 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
|
|
|
|
|
US$'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% |
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
30.06.17 |
|
to
30.06.17 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the period |
|
|
14.19 |
|
14.33 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net
investment gain1 (excluding net realised and unrealised
gains and losses on investments allocated from BHMS) |
|
0.14 |
|
0.15 |
Net
realised and unrealised loss on investment |
|
(0.17) |
|
(0.25) |
Other
capital items2 |
|
|
|
0.10 |
|
0.06 |
Total
return |
|
|
|
|
0.07 |
|
(0.04) |
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
14.26 |
|
14.29 |
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
30.06.17 |
|
to
30.06.17 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
Total
return before performance fees |
|
|
0.48% |
|
0.26% |
Performance fees |
|
|
|
(0.00%) |
|
(0.01%) |
Total
return after performance fees |
|
|
0.48% |
|
0.27% |
Total return reflects the net return for an investment made at
the beginning of the period and is calculated as the change in the
NAV per ordinary share during the period ended 1 January 2017 to 30 June
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
30.06.17 |
|
to
30.06.17 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental data |
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
48,871 |
|
312,117 |
Average
net asset value for the period |
|
|
55,007 |
|
318,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01.01.17 |
|
01.01.17 |
|
|
|
|
|
to
30.06.17 |
|
to
30.06.17 |
|
|
|
|
|
US Dollar shares |
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
Operating expense |
|
|
|
|
|
|
Company
expenses3 |
|
|
|
0.94% |
|
0.86% |
Master
Fund expenses4 |
|
|
|
0.42% |
|
0.42% |
Performance fees |
|
|
|
0.00% |
|
0.00% |
|
|
|
|
|
1.36% |
|
1.28% |
|
|
|
|
|
|
|
|
Net
investment gain1 |
|
|
|
0.94% |
|
1.06% |
1
The net investment (loss)/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 period/year, share
buybacks and partial capital returns, as compared to the NAV per
share at the beginning of the period/year.
3
Company expenses are as disclosed in the Interim Unaudited
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.
12. Related Party Transactions
The Company has six non-executive Directors, all of whom are
independent of the Manager.
Details of Directors’ fees to which the Directors are entitled
are disclosed in note 5.
The Directors had the following interests in the Company, held
either directly or beneficially at 30 June
2018:
|
US Dollar
Shares |
Sterling
Shares |
Sir Michael Bunbury |
- |
7,000 |
John Hallam |
5,000 |
- |
Graham Harrison |
- |
1,500 |
Sally-Ann Farnon |
- |
1,700 |
Julia Chapman |
- |
1,081 |
Nicholas Moss |
- |
839 |
13. Subsequent Events
Management has evaluated subsequent events up to 23 August 2018, which is the date that the
Financial Statements were available to be issued.
With effect from 1 July 2018,
John Hallam stood down from his
positions as Chairman of the Audit Committee and Senior Independent
Director. Sally-Ann Farnon was
appointed to the position of Chair of the Audit Committee and
Graham Harrison as Senior
Independent Director.
On 9 August 2018, the financing
available under the Note Purchase Agreement with JP Morgan Chase
Bank decreased from US$5 million and
£30 million to US$2 million and £15
million respectively at the request of the Board.
No other subsequent events have occurred.
HISTORICAL PERFORMANCE SUMMARY
As at 30 June 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.06.18* |
|
31.12.17 |
|
31.12.16 |
|
31.12.15 |
|
|
|
|
(Unaudited) |
(Audited) |
|
(Audited) |
|
(Audited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
increase/(decrease) in net assets |
|
|
|
|
|
|
resulting from operations |
16,405 |
|
41,032 |
|
(57,387) |
|
(36,073) |
Total
assets |
|
|
450,830 |
|
443,707 |
|
457,647 |
|
593,888 |
Total
liabilities |
|
|
(6,266) |
|
(1,416) |
|
(4,596) |
|
(28,231) |
Net
assets |
|
|
444,564 |
|
442,291 |
|
453,051 |
|
565,657 |
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
|
|
US Dollar
shares |
|
|
2,830,902 |
|
3,004,442 |
|
4,186,219 |
|
4,850,613 |
Sterling
shares |
|
|
19,737,930 |
|
20,346,871 |
|
22,471,006 |
|
25,161,387 |
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
US$15.41 |
|
US$14.56 |
|
US$14.19 |
|
US$13.21 |
Sterling
shares |
|
|
£15.39 |
|
£14.58 |
|
£14.33 |
|
£13.44 |
* Covers the period from 1 January
2018 to 30 June 2018.
MANAGEMENT AND ADMINISTRATION
Directors
Sir Michael Bunbury (Chairman)
(appointed 1 January 2013)
John Hallam (Senior Independent
Director until 1 July 2018)
(appointed 28 February
2008)
Julia Chapman
(appointed on 16 January
2017)
Graham Harrison
(Senior Independent Director from 1 July
2018)
(appointed 17 March 2010)
Nicholas Moss
(appointed 28 February
2008)
Sally-Ann (“Susie”) 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
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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