BH Global
Limited
Interim Report and
Unaudited Financial Statements 2020
LEI: 549300BIIO4DTKEMXV14
(Classified Regulated Information,
under DTR 6 Annex 1 section 1.2)
30 June
2020
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 2020. The Report
will shortly be available from the Company’s website:
www.bhglobal.com.
CHAIRMAN’S STATEMENT
Dear Shareholder,
The half year to 30 June 2020 was
a period of exceptional absolute and relative performance for BH
Global Limited (the “Company” or “BH Global”). Indeed, this
six-month period delivered the strongest performance since the
Company was launched in 2008. In the period the Net Asset Value
(“NAV”) per share of the smaller US Dollar class appreciated by
14.72% and that of the much larger Sterling class by 14.54%.
Driven by this strong NAV performance and a narrowing of the
discount, the share prices of the two classes appreciated by 19.7%
(USD) and 21.6% (GBP). It was altogether a highly satisfactory
period for BH Global shareholders at a time when there was huge
volatility in world equity markets.
An altogether exceptional half year for NAV performance during a
period of financial market turbulence and one that demonstrates
that, whilst BH Global is a low volatility, structurally
uncorrelated vehicle with assets spread over multiple trading
strategies, it can also deliver substantial performance with tight
risk controls in favourable conditions. Great credit must be given
to the Manager, Brevan Howard and the Manager’s Report, which
follows this Statement, sets out the performance in more
detail.
ASSETS
The Company continues to invest all of its assets, save for
working cash balances, in Brevan Howard Multi-Strategy Master Fund
Limited (“BHMS”). BH Global continues to be by far the largest
investor in BHMS owning 81.9% of the total capital of that fund. As
at 30 June 2020 the Company’s net
assets were $503 million and were
significantly in excess of the $300
million threshold that would trigger a wind-up resolution to
be put to shareholders.
During the half year the Manager made some significant changes
in the allocation of the underlying funds. The percentage of BHMS
invested in the Brevan Howard Master Fund (“BHMF”) was reduced from
43.5% to 25.4% and the capital redeployed as is set out in the
Manager’s Report. The most significant change was to increase the
percentage allocated to the Single Manager Portfolio where the
allocation rose from 40.0% to 58.1% taking it back towards its
previous peak of over 60% in 2018. That allocation is spread across
nine different trading books or funds and returned 17.24% (gross of
fees) for the period.
DISCOUNT, SHARE BUY BACKS, POSSIBLE
ISSUANCE OF SHARES FROM TREASURY
As at 30 June 2020 the Sterling
class of shares traded at exactly their NAV per share – with no
discount nor premium and thus the discount of 5.78% as at
31 December 2019 had been eliminated
through investors’ purchases in the market. No shares were bought
back and indeed the last share buy backs undertaken were in
June 2018. However, during the worst
of the equity market turmoil in March, when investors were selling
assets indiscriminately, the discount went through a period of
considerable volatility reaching a level in excess of 15% for a
short period. The Board considered carefully, and took advice from
the Company’s brokers, as to whether the resumption of buy backs
would be in the best interests of shareholders but concluded that
the developing NAV performance would eventually be recognised by
the market and the discount would close of its own accord. That is
indeed what occurred and a few weeks later the shares traded at a
modest premium for a period.
The Company holds 1.9 million shares in Treasury in aggregate
across the Sterling and US Dollar classes. As a premium began to
develop, the Company, with the assistance of the Manager who
covered an important regulatory requirement, put in place the
systems that would permit shares to be issued from Treasury. No
such shares have yet been issued; but in the event that the
Company’s shares trade again at a sustained material premium, the
Board is prepared to issue modest numbers of shares which will be
NAV accretive to existing shareholders and will assist liquidity.
Should the potential for such issuance materialise the Company will
make an RNS announcement to the market.
ANNUAL GENERAL MEETING AND
SHAREHOLDERS
Owing to travel restrictions resulting from the COVID-19
pandemic it would have been almost impossible for any shareholder
to attend the AGM in person. However, I am pleased to report that
over 60% of eligible votes were cast by proxy and that eight out of
the twelve resolutions were passed with a 100% majority in favour.
The resolution with the most votes against was still passed with a
majority of 96.5%. The Board and the Manager are very appreciative
of such a strong show of support from shareholders.
Both the Manager and I have regular contact with the Company’s
major shareholders. In addition, J P Morgan Cazenove hosted a
webinar jointly for BH Global and BH Macro in May which was
attended by over 100 shareholders and interested parties. In that
webinar the Manager reviewed performance and discussed the outlook
for trading.
MANAGER
Brevan Howard Capital Management LP continues as Manager of the
Company although a personnel change has recently taken place. After
12 years of service at Brevan Howard, Magnus Olsson has decided on a personal career
change and has left Brevan Howard to pursue his own path. Magnus
was Chair of the Manager’s Investment Committee (the “IC”) which is
responsible for asset allocation of BHMS and thus, indirectly, of
the Company’s assets.
Magnus has regularly attended quarterly Board meetings and other
meetings with directors and with shareholders and has been
responsible for the flow of information to the Board and to
shareholders.
Since I was appointed your Chairman in 2013 I have seen
first-hand Magnus’ thoughtful professional skills and on behalf of
the Board and shareholders I wish to thank him for his constant
diligent attention to BH Global’s business and to wish him very
well in his future career.
Ryan Kennelly, who previously
worked with Magnus and attended BH Global Board meetings some time
ago, has rejoined Brevan Howard and is stepping into Magnus’ role.
The Board looks forward to working with Ryan and to continuing the
constructive and professional relationship in the same vein as that
experienced with Magnus.
THE BOARD AND GOVERNANCE
There have been no changes of directors since Andreas Tautscher joined the Board in
May 2019. The Board is compact. Its
focus is on good stewardship of the Company on behalf of the
shareholders. As I announced in March, the Board has appointed
BoardAlpha to conduct an external appraisal of the operation of the
Board and its effectiveness. COVID-19 is making this task more
difficult and as matters are at the moment all Board and other
meetings are being held remotely. Such remote working looks as
though it may continue for many months yet and BoardAlpha will have
to undertake their research, and develop their report in less than
ideal circumstances. Remotely attended Board meetings can undertake
the business of the Company satisfactorily. However, there is no
substitute for occasional physical meetings round a table where
personal interaction can flow more easily.
In recent months the Board has held an additional number of
informal remote meetings both to monitor developments in markets
and also to have confirmation from the Manager of the proper
functioning of both the Manager’s business and also those key
elements of the Company’s business that are delegated to the
Manager. At all times the Board has felt reassured that the
Company’s business was under fully effective control.
CONCLUSION
I signed out my Chairman’s Statement for the Annual Report on 20
March which, as it turned out, was close to the pinnacle of the
turmoil thus far in listed markets and the atmosphere had a
distinct air of panic about it. In fact, March proved to be a
spectacular month for BH Global’s NAV performance, resulting in
appreciation of the NAV per share of the GBP class of 12.36% as
Brevan Howard’s traders read the future for market moves so very
accurately. Since March markets have developed a much more settled
tone on the back of unprecedented support from Governments and
central banks. Meanwhile economies across the world have reeled
from the direct and indirect effects of the COVID-19 crisis with
quarterly declines in GDP that many, myself included, would have
thought to be impossible. Central banks in the developed world have
reacted by cutting interest rates towards zero and in some cases
into negative territory. However, the world looks as though it will
have to live with COVID-19 for a very long time to come and its
effect on employment and on many millions of individual lives is
profound with massive impact on health and on social and economic
activity.
The Manager’s Report reminds us that financial assets are
expensive by many standard metrics. Nevertheless, it is to be hoped
that trading opportunities will occur and that growth in NAV per
share will continue over time. Meanwhile risk control in these very
uncertain times remains critical and the Manager has consistently
demonstrated tight risk control in historic periods of market
turmoil and I have every confidence will do so in the future. Thus,
the aim of both Manager and Board will be for BH Global to continue
to deliver as a portfolio diversifier in a highly uncertain world
for risk assets. However, as a closed-end fund, some volatility of
the discount to or premium over NAV at which the Company’s shares
trade should be expected. Indeed, as I sign out this Statement, a
modest discount has once again developed. The Board will continue
to monitor the position and be ready to take appropriate action
should it consider that to be in the long-term interests of
shareholders.
Yours sincerely,
Sir Michael Bunbury
Chairman
19 August 2020
GLOSSARY OF ACRONYMS
BHAHMF |
Brevan Howard AH
Master Fund Limited |
BHALMF |
Brevan Howard Alpha
Strategies Master Fund Limited |
BHASMF |
Brevan Howard AS Macro
Master Fund Limited |
BHCM or the
Manager |
Brevan Howard Capital
Management LP |
BHDGST |
BH-DG Systematic
Trading Master Fund Limited |
BHFGMF |
Brevan Howard FG Macro
Master Fund Limited |
BHG,BH Global or the
Company |
BH Global Limited |
BHGVMF |
Brevan Howard Global
Volatility Master Fund Limited |
BHMBMF |
Brevan Howard MB Macro
Master Fund Limited |
BHMF |
Brevan Howard Master
Fund Limited |
BHMS or the Master
Fund |
Brevan Howard
Multi-Strategy Master Fund Limited |
SMP* |
Single Manager
Portfolio |
* Prior to 1 January 2019, the
Single Manager Portfolio ("SMP") was described as the Direct
Investment Portfolio ("DIP").
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 whose report can be found
below in the Independent Review Report to BH Global.
UNAUDITED SUPPLEMENTAL STATEMENT OF ASSETS AND
LIABILITIES
As at 30 June 2020
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company total |
|
|
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
|
|
|
Investment in
BHMS |
|
|
|
|
|
49,615 |
|
379,543 |
|
518,598 |
Other
debtors |
|
|
|
|
|
32 |
|
33 |
|
73 |
Cash and
bank balances denominated in US Dollars |
|
96 |
|
- |
|
96 |
Cash and
bank balances denominated in Sterling |
|
- |
|
832 |
|
1,028 |
Total
assets |
|
|
|
|
|
49,743 |
|
380,408 |
|
519,795 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Management
fees payable |
|
|
|
|
|
32 |
|
263 |
|
357 |
Performance fees payable |
|
|
|
|
|
1,614 |
|
11,618 |
|
15,971 |
Accrued
expenses and other liabilities |
|
|
|
25 |
|
119 |
|
172 |
Administration fees payable |
|
|
|
|
|
3 |
|
20 |
|
27 |
Total
liabilities |
|
|
|
|
|
1,674 |
|
12,020 |
|
16,527 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
|
|
|
48,069 |
|
368,388 |
|
503,268 |
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
2,542,136 |
|
19,967,808 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
US$18.91 |
|
£18.45 |
|
- |
UNAUDITED SUPPLEMENTAL STATEMENT OF OPERATIONS
For the period from 1 January 2020 to
30 June 2020
|
|
US
Dollar shares |
|
Sterling shares |
|
Company total |
|
|
US$'000 |
|
£'000 |
|
US$'000 |
|
|
|
|
|
|
|
Interest income |
|
65 |
|
485 |
|
681 |
Expenses |
|
(130) |
|
(974) |
|
(1,367) |
Total
net investment loss allocated from BHMS |
(65) |
|
(489) |
|
(686) |
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
Interest income |
|
- |
|
- |
|
- |
Total Company
income |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
Management fees |
|
200 |
|
1,587 |
|
2,215 |
Performance fees |
|
1,614 |
|
11,621 |
|
16,367 |
Other expenses |
|
28 |
|
199 |
|
281 |
Directors' fees and
expenses |
|
21 |
|
149 |
|
210 |
Administration
fees |
|
8 |
|
58 |
|
82 |
Foreign
exchange (gains)/losses* |
58 |
|
(43) |
|
30,041 |
Total Company
expenses |
|
1,929 |
|
13,571 |
|
49,196 |
|
|
|
|
|
|
|
Net investment
loss |
|
(1,994) |
|
(14,060) |
|
(49,882) |
|
|
|
|
|
|
|
Net realised and
unrealised gains/(losses) on investments allocated from
BHMS |
|
|
|
|
|
|
Net realised gain on
investments |
|
2,482 |
|
18,813 |
|
26,368 |
Net unrealised gain on
investments |
|
5,991 |
|
44,568 |
|
62,577 |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
-
on hedging |
|
- |
|
(2,791) |
|
(3,545) |
Net realised and
unrealised gains on investments allocated from BHMS |
|
8,473 |
|
60,590 |
|
85,400 |
|
|
|
|
|
|
|
Net increase in net
assets resulting from operations |
|
6,479 |
|
46,530 |
|
35,518 |
*The Company total for foreign exchange (gains)/losses also
contains the results of translating the Sterling class into US
Dollars, which was US$30,037,178 for
the period ended 30 June 2020. The
Unaudited Statement of Financial Position was translated at the
30 June 2020 rate of 1.2356. The
Unaudited Statement of Operations was translated at the average
rate of 1.2697.
The trades carried out in the various underlying portfolios have
structures of varying complexity and inherent leverage. This can
result in situations where, at an individual trade level, interest
income or expense is offset by losses or gains on other investments
to achieve a net return. However, accounting conventions require
that all these elements are disclosed gross which can result in
separate reporting of what would otherwise be off-setting interest
income and expenses, realised gains and losses or unrealised gains
and losses.
UNAUDITED SUPPLEMENTAL STATEMENT OF CHANGES IN NET
ASSETS
For the period from 1 January 2020 to
30 June 2020
|
US
Dollar shares |
|
Sterling shares |
|
Company total |
|
US$'000 |
|
£'000 |
|
US$'000 |
Net increase in net
assets resulting from operations |
|
|
|
|
|
Net investment
loss |
(1,994) |
|
(14,060) |
|
(49,882) |
Net realised gain on
investments allocated from BHMS |
2,482 |
|
18,813 |
|
26,368 |
Net unrealised gain on
investments allocated from BHMS |
5,991 |
|
44,568 |
|
62,577 |
Net realised and
unrealised foreign exchange loss allocated from BHMS |
- |
|
(2,791) |
|
(3,545) |
|
6,479 |
|
46,530 |
|
35,518 |
|
|
|
|
|
|
Share capital
transactions |
|
|
|
|
|
Net share
conversions |
(2,333) |
|
1,845 |
|
- |
|
(2,333) |
|
1,845 |
|
- |
|
|
|
|
|
|
Net increase in net
assets |
4,146 |
|
48,375 |
|
35,518 |
Net assets at the
beginning of the period |
43,923 |
|
320,013 |
|
467,750 |
Net assets at the
end of the period |
48,069 |
|
368,388 |
|
503,268 |
MANAGER’S REPORT
Brevan Howard Capital Management LP (“BHCM” or the “Manager”) 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”) a company
also managed by BHCM.
Performance Summary
The NAV per share of the USD shares appreciated by 14.72% during
the first half of 2020, while the NAV per share of the GBP shares
appreciated by 14.54%.
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 |
0.30 |
-0.09 |
-0.29 |
0.22 |
-0.01 |
0.52 |
6.55 |
2019 |
0.17 |
-0.81 |
1.63 |
-1.15 |
3.79 |
3.06 |
-1.20 |
2.27 |
-2.10 |
0.57 |
-1.24 |
1.28 |
6.25 |
2020 |
-1.18 |
4.14 |
12.40 |
0.13 |
-0.66 |
-0.29 |
|
|
|
|
|
|
14.72 |
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 |
0.20 |
-0.21 |
-0.38 |
0.06 |
-0.13 |
0.37 |
5.43 |
2019 |
0.04 |
-0.99 |
1.59 |
-1.36 |
3.88 |
2.85 |
-1.35 |
2.19 |
-2.16 |
0.38 |
-1.29 |
1.12 |
4.79 |
2020 |
-1.32 |
4.19 |
12.36 |
0.04 |
-0.61 |
-0.29 |
|
|
|
|
|
|
14.54 |
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).
Data as at 30 June 2020.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Underlying Allocation Review
The Investment Committee (“IC”) of the Manager made the decision
to increase its allocation to the SMP and reduce its allocation to
BHMF. The SMP added exposure to a senior trader focusing on
emerging market trading and a systematic macro strategy. The IC was
of the view that these return sources improved the diversification
of the portfolio as a whole.
The allocations to BHDGST, BHASMF and BHMBMF remained relatively
stable. The allocations to BHFGMF and BHGVMF increased due to their
relative outperformance.
The IC continues to take advantage of the flexibility within
BHMS’s mandate in order to seek high risk-adjusted returns and keep
a healthy diversification across strategies, asset classes and
traders.
Performance Review
During the first half of 2020, the NAV per share of BH Global’s
USD and GBP classes appreciated by 14.72% and 14.54%
respectively.
BH Global’s performance in the first quarter and the first half
of the year represent the largest quarterly and half yearly NAV
gains in the Company’s history, with the NAV per share of the USD
class gaining 15.67% and 14.72% respectively. This compared
favourably to the HFRI Macro Total Index, which was down -1.62% and
-0.59% over the respective periods. The period was characterised by
significant moves in price and volatility across most asset
classes. In the first quarter BHMS generated the majority of its
returns in interest rate trading across directional, volatility and
relative value trading strategies in a range of different markets.
Towards the end of the first quarter and during the second quarter
BHMS made money predominantly from credit markets but also,
equities and commodities. BHMS also saw a modest loss in the second
quarter as a result of the performance of rates and difficult FX
markets.
With regard to the returns of the underlying fund allocations,
all of the underlying funds and the SMP contributed positively to
performance over the first half of 2020. BHMF was the main positive
contributor on the back of solid gains within interest rates
trading. The SMP and BHGV also contributed notable gains to the
overall performance.
Looking across the trading areas, the majority of gains arose in
interest rate trading where directional trading of US interest
rates was the main driver. Specifically, from long positions in US
rates particularly during the first quarter. Additional modest
gains came from EUR, GBP, and JPY and other interest rate
markets.
Trading in commodities generated additional gains mainly through
energy markets where tactical positioning long and short generated
gains. Long exposure in precious metals also produced returns.
FX trading was a detractor over the first half of 2020. A number
of reversals across markets produced a difficult trading
environment throughout the first half of the year. Gains were made
in CAD and other select currencies but these were outweighed by
losses in EUR, GBP and Latin American currencies.
In credit, long exposure to selected credits across both
emerging and developed markets generated gains.
Trading in equities generated gains through tactical positioning
long and short. US markets produced the largest contribution.
The SMP was a positive contributor to BHMS’s performance and is
the area of the portfolio whereby the Manager’s IC has the ability
to allocate directly to trading books and funds which are managed
by an individual portfolio manager. At the end of the first half of
2020, the SMP had exposure to nine trading books and funds. The
profits were broadly generated in the same trading areas as
described for BHMS overall. However, the SMP contributed nearly all
of the gains in credit and the majority of the gains in
commodities, illustrating the diversification benefits it brings to
BHMS.
Attribution Tables
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 2020 had been allocated no
trading books.
Quarterly and semi-annual contribution (%) to the performance
of BHG USD Shares (net of fees and expenses) by asset
class*
|
Rates |
FX |
Equity |
Commodity |
Credit |
Discount Management |
Total |
Q1
2020 |
12.56 |
-0.14 |
1.68 |
0.54 |
1.01 |
0.00 |
15.67 |
Q2
2020 |
-0.34 |
-2.23 |
-0.34 |
0.72 |
1.39 |
0.00 |
-0.82 |
YTD
2020 |
12.18 |
-2.36 |
1.33 |
1.27 |
2.41 |
0.00 |
14.72 |
*Data as at 30 June 2020
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
“Equity”: equity markets including indices and other
derivatives
“Commodity”: commodity futures and options
“Credit”: corporate and asset-backed indices, bonds and
CDS
“Discount Management”: buyback activity for discount
management purposes
Quarterly and semi-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
2020 |
14.8 |
-0.06 |
2.46 |
0.10 |
0.00 |
0.00 |
-1.49 |
-0.07 |
0.00 |
15.67 |
Q2
2020 |
-0.23 |
-0.77 |
-0.01 |
-0.03 |
0.00 |
0.00 |
0.23 |
0.00 |
0.00 |
-0.82 |
YTD
2020 |
14.53 |
-0.83 |
2.45 |
0.06 |
0.00 |
0.00 |
-1.27 |
-0.08 |
0.00 |
14.72 |
*Data as at 30 June 2020
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 BHMS, 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 Coronavirus (COVID-19) pandemic has caused unprecedented
economic devastation and equally unprecedented fiscal and monetary
policy responses. The key question for investors is whether the
policy responses are enough to mitigate the economic damage.
Since the recession started in February, the US economy is
estimated to have contracted by as much as in the first year of the
Great Depression and by more than in the Great Financial Crisis. In
response, Congress quickly delivered over $2tr of economic relief,
while the Federal Reserve cut rates to nearly zero, restarted
quantitative easing, and rolled out a wide variety of ambitious
lending programs; measures that provided a safety net for stocks
and credit. Other developed market economies suffered similar
downturns and deployed a broadly similar policy toolkit. The
standout exception is China, which
has been more conservative in deploying its fiscal and monetary
ammunition.
Looking forward, these efforts may prove insufficient to get the
global economy back to normal any time soon. COVID-19 continues to
spread widely and is causing renewed economic dislocations. Many
businesses face solvency risks that are not addressed by borrowing;
a debt overhang cannot be cured by more borrowing no matter how
cheap it may be. Improved financial conditions are narrowly focused
on a handful of large companies and benefiting stakeholders who
need relatively little economic assistance.
The result is that financial assets are expensive by many
standard metrics. So long as a V-shaped recovery in risky assets
fails to create a V-shaped recovery in economic activity, this
tension is a recipe for increased volatility. In the past, a gap
like this between ebullient market pricing and sobering
fundamentals has sometimes presaged abrupt non-linear adjustments.
However, since interest rates are constrained by the zero lower
bound and credit spreads have been explicitly underwritten by major
central banks, volatility will have to show up in other asset
classes.
The US Dollar may become the ultimate barometer of success or
failure. The November presidential election is a potential
catalyst. Joe Biden recently
declared that “it’s way past time to put an end to the era of
shareholder capitalism.” If the Democrats sweep the White House and
Congress, the outlook for US Dollar assets will come under
increased scrutiny.
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
19 August 2020
STATEMENT OF PRINCIPAL AND EMERGING 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 risk management procedures and internal
controls set out in the Company's risk matrix and by monitoring the
Company's investment objective and policy that it has carried out a
robust assessment of the risks and uncertainties facing the
Company.
Emerging risks
In order to recognise any new risks that may impact the Company
and to ensure that appropriate controls are in place to manage
those risks, the Audit Committee undertakes regular reviews of the
Company’s Risk Matrix.
· COVID-19: Since the start of
January 2020, the outbreak of
COVID-19, which is a rapidly evolving situation, has adversely
impacted global commercial activities. The rapid development and
fluidity of this situation precludes any prediction as its ultimate
impact, which may have a continued adverse impact on economic and
market conditions and trigger a period of global economic slowdown.
The Directors do not believe there is any financial impact to the
Financial Statements as at 30 June
2020. The Manager is monitoring developments relating to
COVID-19 and is coordinating its operational response based on
existing business continuity plans and on guidance from global
health organisations, relevant governments, and general pandemic
response best practices. From an operational perspective, the
Company uses a number of service providers. These providers have
established, documented and regularly tested Business Resiliency
Policies in place, to cover various possible scenarios whereby
staff cannot be present at the designated office and conduct
business as usual. Since the COVID-19 pandemic outbreak, service
providers have successfully deployed these alternative working
policies to ensure continued business service.
· Brexit Risk: The UK left the EU on
31 January 2020 and entered into a
transition period ending on
31 December 2020. During this period
the UK’s arrangements with the EU remain unchanged. However, in
view of the short time frame to negotiate the future relationship
with the EU there remains a risk of a “cliff-edge Brexit”.
Principal risks
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;
· 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;
· 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, in
conjunction with the Manager and the Administrator, monitors the
liquidity needs of the Company and takes such action as is
appropriate;
· 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 each of the Manager and
Administrator on their respective 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; and
· Manager Continuity: The Company is
exposed to the risk that the Manager will no longer have an
appetite to run a multi-strategy mandate for the Company. Steps to
mitigate that risk include regular dialogue with the Manager,
regular review of the economic arrangements and contractual
protections. The Manager is monitoring developments relating to
COVID-19 and is coordinating its operational response based on
existing business continuity plans and on guidance from global
health organisations, relevant governments, and general pandemic
response best practices.
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.
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
19 August 2020
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 in the
half-yearly financial report for the six months ended 30 June 2020 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 2020 do not give a true
and fair view of the financial position of the Company as at
30 June 2020 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 half-yearly financial
report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the unaudited
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 half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The Financial Statements included in this half-yearly financial
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
half-yearly financial 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
19 August 2020
UNAUDITED STATEMENT OF ASSETS AND LIABILITIES
As at 30 June 2020
|
|
|
|
|
|
30.06.2020 |
|
31.12.2019 |
|
30.06.19 |
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Assets |
|
|
|
|
|
|
|
|
|
|
Investment in
BHMS |
|
|
|
|
|
518,598 |
|
464,269 |
|
460,068 |
Amount due
from BHMS |
|
|
|
|
- |
|
8,746 |
|
- |
Other
debtors |
|
|
|
|
73 |
|
16 |
|
20 |
Cash and
bank balances denominated in US Dollars |
96 |
|
167 |
|
190 |
Cash and
bank balances denominated in Sterling |
|
1,028 |
|
1,004 |
|
3,243 |
Total
assets |
|
|
|
|
519,795 |
|
474,202 |
|
463,521 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Management
fees payable (note 4) |
|
|
357 |
|
775 |
|
368 |
Performance fees payable (note 4) |
|
|
15,971 |
|
5,478 |
|
6,571 |
Accrued
expenses and other liabilities |
|
|
172 |
|
119 |
|
126 |
Directors'
fees and expenses payable |
|
|
- |
|
- |
|
99 |
Administration fees payable (note 4) |
|
|
27 |
|
80 |
|
52 |
Total
liabilities |
|
|
|
|
16,527 |
|
6,452 |
|
7,216 |
|
|
|
|
|
|
|
|
|
|
|
Net
assets |
|
|
|
|
503,268 |
|
467,750 |
|
456,305 |
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue (note 6) |
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
2,542,136 |
|
2,664,844 |
|
2,641,472 |
Sterling
shares |
|
|
|
|
19,967,808 |
|
19,868,275 |
|
19,886,259 |
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share (notes 8 and 11) |
|
|
|
|
|
|
|
US Dollar
shares |
|
|
|
|
US$18.91 |
|
US$16.48 |
|
US$16.56 |
Sterling shares |
|
|
|
|
|
£18.45 |
|
£16.11 |
|
£16.30 |
See accompanying notes to the Interim Unaudited Financial
Statements.
Signed on behalf of the Board by:
Sir Michael Bunbury
Chairman
Sally-Ann Farnon
Director
19 August 2020
UNAUDITED STATEMENT OF OPERATIONS
For the period from 1 January 2020 to
30 June 2020
|
|
01.01.20 |
|
01.01.19 |
|
01.01.19 |
|
|
to
30.06.20 |
|
to
31.12.19 |
|
to
30.06.19 |
|
|
(Unaudited) |
|
(Audited) |
|
(Unaudited) |
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
investment losses allocated from BHMS |
|
|
|
|
|
Interest income |
|
681 |
|
1,187 |
|
658 |
Expenses |
|
(1,367) |
|
(1,998) |
|
(1,016) |
Net
investment losses allocated from BHMS |
(686) |
|
(811) |
|
(358) |
|
|
|
|
|
|
|
Company
income |
|
|
|
|
|
|
Interest income |
|
- |
|
1 |
|
1 |
Foreign exchange
gains |
|
- |
|
16,125 |
|
- |
Total Company
income |
|
- |
|
16,126 |
|
1 |
|
|
|
|
|
|
|
Company
expenses |
|
|
|
|
|
|
Management fees (note
4) |
|
2,215 |
|
4,431 |
|
2,188 |
Performance fees (note
4) |
|
16,367 |
|
5,313 |
|
6,667 |
Other expenses |
|
281 |
|
555 |
|
291 |
Directors' fees and
expenses |
|
210 |
|
424 |
|
218 |
Administration fees
(note 4) |
|
82 |
|
155 |
|
78 |
Foreign exchange
losses |
|
30,041 |
|
- |
|
710 |
Total Company
expenses |
|
49,196 |
|
10,878 |
|
10,152 |
|
|
|
|
|
|
|
Net investment
(losses)/gains |
|
(49,882) |
|
4,437 |
|
(10,509) |
|
|
|
|
|
|
|
Net
realised and unrealised gains on investments allocated from
BHMS |
|
|
|
|
|
Net realised gain on
investments |
|
26,368 |
|
26,927 |
|
4,441 |
Net unrealised gain on
investments |
|
62,577 |
|
12,768 |
|
35,656 |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
-
on hedging |
|
(3,545) |
|
(6,729) |
|
(3,630) |
Net
realised and unrealised gains on investments allocated from
BHMS |
85,400 |
|
32,966 |
|
36,467 |
Net
increase in net assets resulting from operations |
35,518 |
|
37,403 |
|
25,958 |
See accompanying notes to the Interim Unaudited Financial
Statements.
UNAUDITED STATEMENT OF CHANGES IN NET ASSETS
For the period from 1 January 2020 to
30 June 2020
|
01.01.20 |
01.01.19 |
01.01.19 |
|
to
30.06.20 |
to
31.12.19 |
to
30.06.19 |
|
(Unaudited) |
(Audited) |
(Unaudited) |
|
US$'000 |
US$'000 |
US$'000 |
Net increase in net
assets resulting from operations |
|
|
|
Net investment
(loss)/gain |
(49,882) |
4,437 |
(10,509) |
Net realised gain on
investments allocated from BHMS |
26,368 |
26,927 |
4,441 |
Net unrealised gain on
investments allocated from BHMS |
62,577 |
12,768 |
35,656 |
Net realised and
unrealised foreign exchange loss allocated from BHMS |
(3,545) |
(6,729) |
(3,630) |
|
35,518 |
37,403 |
25,958 |
|
|
|
|
Share capital
transactions |
|
|
|
Purchase of own
shares (note 6) |
|
|
|
US Dollar shares |
- |
- |
- |
Sterling shares |
- |
- |
- |
|
- |
- |
- |
|
|
|
|
Net increase in net
assets |
35,518 |
37,403 |
25,958 |
Net assets at the
beginning of the period/year |
467,750 |
430,347 |
430,347 |
Net assets at the
end of the period/year |
503,268 |
467,750 |
456,305 |
See accompanying notes to the Interim Unaudited Financial
Statements.
UNAUDITED STATEMENT OF CASH FLOWS
For the period from 1 January 2020 to
30 June 2020
|
|
|
|
01.01.20 |
01.01.19 |
01.01.19 |
|
|
|
|
to
30.06.20 |
to
31.12.19 |
to
30.06.19 |
|
|
|
|
(Unaudited) |
(Audited) |
(Unaudited) |
|
|
|
|
US$'000 |
US$'000 |
US$'000 |
Cash flows from
operating activities |
|
|
|
|
|
|
Net
increase in net assets resulting from operations |
|
|
35,518 |
37,403 |
25,958 |
Adjustments to reconcile net increase in net assets |
|
|
|
|
|
resulting from operations to net cash provided by
operating activities: |
|
|
|
Net investment loss
allocated from BHMS |
|
|
|
686 |
811 |
358 |
Net
realised gain on investments allocated from BHMS |
|
|
(26,368) |
(26,927) |
(4,441) |
|
|
|
|
|
|
|
Net
unrealised gain on investments allocated from BHMS |
|
(62,577) |
(12,768) |
(35,656) |
Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
allocated
from BHMS |
|
|
|
3,545 |
6,729 |
3,630 |
Proceeds
from sale of investment in BHMS |
|
|
8,846 |
2,976 |
2,776 |
Foreign exchange
loss/(gain) |
|
|
|
30,041 |
(16,125) |
710 |
(Increase)/decrease in
other debtors |
|
|
|
(58) |
34 |
30 |
(Decrease)/increase in management fees payable |
|
|
(418) |
388 |
(19) |
Increase in
performance fees payable |
|
|
|
10,493 |
12 |
1,105 |
Increase in accrued
expenses and other liabilities |
|
|
|
53 |
23 |
30 |
Increase in Directors'
fees payable |
|
|
|
- |
- |
99 |
(Decrease)/increase in administration fees payable |
|
|
(53) |
42 |
13 |
Net cash used in
operating activities |
|
|
|
(292) |
(7,402) |
(5,407) |
|
|
|
|
|
|
|
Change in
cash |
|
|
|
(292) |
(7,402) |
(5,407) |
Cash, beginning of
the period/year |
|
|
|
1,171 |
8,738 |
8,738 |
Effect of exchange
rate fluctuations |
|
|
|
245 |
(165) |
102 |
Cash, end of the
period/year |
|
|
|
1,124 |
1,171 |
3,433 |
|
|
|
|
|
|
|
Cash, end of the
period/year |
|
|
|
|
|
|
Cash and
bank balances denominated in US Dollars |
|
|
96 |
167 |
190 |
Cash and
bank balances denominated in Sterling1 |
|
|
1,028 |
1,004 |
3,243 |
|
|
|
|
1,124 |
1,171 |
3,433 |
|
|
|
|
|
|
|
1 Cash and bank balances in Sterling (GBP'000) |
|
|
832 |
758 |
2,548 |
See accompanying notes to the Interim Unaudited Financial
Statements.
NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS
For the period from 1 January 2020 to
30 June 2020
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.
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 2020 and the percentage that BHMS’s
investment represented of the underlying fund’s Net Asset Value
(“NAV”) are as follows:
Brevan Howard FG Macro
Master Fund Limited |
|
7.81% |
Brevan Howard Master
Fund Limited |
|
4.15% |
Brevan Howard AH
Master Fund Limited |
|
1.77% |
Brevan Howard AS Macro
Master Fund Limited |
|
5.12% |
Brevan Howard MB Macro
Master Fund Limited |
|
3.58% |
Brevan Howard Global
Volatility Master Fund Limited |
|
8.67% |
Brevan Howard Alpha
Strategies Master Fund Limited |
|
1.93% |
BH-DG Systematic
Trading Master Fund Limited |
|
5.48% |
These percentages are the direct investments excluding any
indirect investments as a result of BHMS investing in BHMF, which
has investments in other Brevan Howard funds. 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 Board is responsible for the Company’s system of internal
controls and for reviewing its effectiveness. The Board is
satisfied, by using the risk management procedures and internal
controls set out in the Company's risk matrix and by monitoring the
Company's investment objective and policy that it has carried out a
robust assessment of the risks and uncertainties facing the
Company.
Since the start of January 2020,
the outbreak of COVID-19, which is a rapidly evolving situation,
has adversely impacted global commercial activities. The rapid
development and fluidity of this situation precludes any prediction
as its ultimate impact, which may have a continued adverse impact
on economic and market conditions and trigger a period of global
economic slowdown. The Directors do not believe there is any
financial impact to the Financial Statements as at 30 June 2020. The Manager is monitoring
developments relating to COVID-19 and is coordinating its
operational response based on existing business continuity plans
and on guidance from global health organisations, relevant
governments, and general pandemic response best practices. From an
operational perspective, the Company uses a number of service
providers. These providers have established, documented and
regularly tested Business Resiliency Policies in place, to cover
various possible scenarios whereby staff cannot be present at the
designated office and conduct business as usual. Since the COVID-19
pandemic outbreak, service providers have deployed these
alternative working policies to ensure continued business
service.
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
2020, the Company’s US Dollar and Sterling capital account
represents 7.83% and 74.03% (31 December
2019: 7.78% and 74.91%; 30 June
2019: 7.22% and 67.73%) 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.
Assets and liabilities denominated in foreign currencies are
translated into US Dollars at the exchange rate at reporting date.
The share capital and other capital 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 performance related 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 2017
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$300 million (on the basis of the prevailing US
Dollar/Sterling exchange rate), the Board would convene a general
meeting of the Company’s shareholders at which a special resolution
proposing the liquidation of the Company would be put forward. Were
the resolution to be passed, the Company would be liquidated and an
amount equal to 2% of the Company’s net asset value (subject to a
deduction in respect of any amount of the Annual Buy Back Allowance
for the relevant calendar year that remains unused) would be paid
to the Manager in addition to any other fees due to the Manager up
to the date of termination of the management agreement.
In respect of 2020, the Annual Buy Back Allowance for the
Company’s Sterling share class was 993,413 Sterling shares (2019:
990,378 Sterling shares) and for the US Dollar share class was
133,242 US Dollar shares (2019:
137,035 US Dollar shares). In
addition, the Manager agreed that 40% of the Company's unused 2019
Annual Buyback Allowance being 396,151 Sterling shares and
54,814 US Dollar shares could be
rolled forward for use in 2020, such that the Company can
repurchase 1,389,564 Sterling shares and 188,056 US Dollar shares and without payment to
the Manager in 2020.
Between 1 January 2020 and
30 June 2020, the Company did not
repurchase any Sterling or US Dollar shares (between 1 January 2019 and 31
December 2019: nil Sterling shares and: nil US Dollar
shares, between 1 January 2019 and
30 June 2019: nil Sterling shares
and: nil US Dollar shares).
During the period ended 30 June
2020 and throughout 2019, US$ nil was charged by the Manager
due to the Annual Buy Back Allowance being exceeded.
There are no fees charged by the Manager at the level of BHMS on
the G Class into which the Company is invested. There are also no
fees charged by the Manager in relation to BHMS’s investment into
underlying funds managed by the Manager.
In respect of the period ended 30 June
2020, the Manager charged the Company a total of
US$2,215,479 (31 December 2019:
US$4,430,767, 30 June 2019: US$2,187,474) under the terms of the management
agreement. At 30 June 2020,
US$356,860 (31
December 2019: US$774,931,
30 June 2019: US$367,556) 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 increase or decrease 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
2020, US$16,366,579
(31 December 2019: US$5,313,517, 30 June
2019: US$6,667,446) was
charged as performance fees of which, US$15,971,194 (31 December
2019: US$5,477,699,
30 June 2019: US$6,571,200)
remained accrued 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
£16.11 (Sterling shares) and US$16.48
(US Dollar shares)).
Of the total crystallised performance fee charged for the
period, US$130,314 (31 December 2019: US$32,174, 30 June 2019: US$9,482) related to share conversions and US$nil
(31 December 2019: US$nil,
30 June 2019: US$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 £6,000 (2019: £6,000) 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
2020, US$81,565 (31 December 2019: US$154,816, 30 June
2019: US$77,639) was earned by
the Administrator as administration fees. At 30 June 2020, US$27,327 (31 December
2019: US$80,429, 30 June
2019: US$51,521) of the fee remained
outstanding.
5. Directors' fees
The Company’s Articles limit the fees payable to Directors in
aggregate to £500,000 per annum.
During the Board meeting of the 31 March
2020 and after careful consideration, all fees payable to
the Directors, other than the Chairman, were increased by 6% to the
nearest £100, effective 1 April
2020.
During the period the Chairman was entitled to a fee of £150,000
per annum. Sally-Ann Farnon, as
Chairman of the Audit Committee, and Graham
Harrison as Senior Independent Director were entitled to
fees of £53,000 (increased by £3,000) and £45,600 (increased by
£2,600) per annum respectively. Julia
Chapman as Chairman of the Management Engagement Committee
was entitled to a fee of £45,600 (increased by £2,600) per annum.
Andreas Tautscher was entitled to a
fee of £42,400 (increased by £2,400) per annum.
6. Share Capital
Issued and authorised share
capital
The Company's Articles permit the issuance of an unlimited
number of ordinary shares with no par value which may be divided
into at least two classes denominated in US Dollars and Sterling.
The treasury shares have arisen as a result of the discount
management programme as described in note 9.
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
Number
of ordinary shares |
|
|
|
|
|
|
In
issue at 1 January 2020 |
|
2,664,844 |
|
19,868,275 |
|
|
Share conversions |
|
|
(122,708) |
|
99,533 |
|
|
Purchase
of own shares into Treasury |
- |
|
- |
|
|
In
issue at 30 June 2020 |
|
2,542,136 |
|
19,967,808 |
|
|
Number of treasury
shares |
|
|
|
|
|
|
In issue at 1
January 2020 |
|
267,443 |
|
1,667,180 |
|
|
In issue at 30 June
2020 |
|
267,443 |
|
1,667,180 |
|
|
Total shares in
issue |
|
2,809,579 |
|
21,634,988 |
|
|
Percentage of class held as Treasury Shares |
9.52% |
|
7.71% |
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1 January
2020 |
|
|
- |
|
165,544 |
|
374,988 |
Share conversions |
|
|
(2,333) |
|
1,845 |
|
- |
Transfer
from realised investment reserve |
2,333 |
|
- |
|
2,333 |
At 30 June
2020 |
|
|
- |
|
167,389 |
|
377,321 |
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
Number
of ordinary shares |
|
|
|
|
|
|
In
issue at 1 January 2019 |
|
2,740,700 |
|
19,807,562 |
|
|
Share conversions |
|
|
(75,856) |
|
60,713 |
|
|
In
issue at 31 December 2019 |
|
2,664,844 |
|
19,868,275 |
|
|
Number of treasury
shares |
|
|
|
|
|
|
In issue at 1
January 2019 |
|
267,443 |
|
1,667,180 |
|
|
In issue at 31
December 2019 |
|
267,443 |
|
1,667,180 |
|
|
Total shares in
issue |
|
2,932,287 |
|
21,535,455 |
|
|
Percentage of class held as Treasury Shares |
9.12% |
|
7.74% |
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1 January
2019 |
|
|
- |
|
164,596 |
|
373,793 |
Share conversions |
|
|
(1,195) |
|
948 |
|
- |
Transfer from realised
investment reserve |
|
|
1,195 |
|
- |
|
1,195 |
At 31
December 2019 |
|
- |
|
165,544 |
|
374,988 |
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
Number
of Ordinary Shares |
|
|
|
|
|
|
In
issue at 1 January 2019 |
|
2,740,700 |
|
19,807,562 |
|
|
Share conversions |
|
|
(99,228) |
|
78,697 |
|
|
In
issue at 30 June 2019 |
|
2,641,472 |
|
19,886,259 |
|
|
Number of Treasury
Shares |
|
|
|
|
|
|
In issue at 1
January 2019 |
|
267,443 |
|
1,667,180 |
|
|
In issue at 30 June
2019 |
|
267,443 |
|
1,667,180 |
|
|
Total shares in
issue |
|
2,908,915 |
|
21,553,439 |
|
|
Percentage of class held as Treasury Shares |
9.19% |
|
7.74% |
|
|
|
|
|
|
|
|
|
Company Total |
Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
At 1 January
2019 |
|
|
- |
|
164,596 |
|
373,793 |
Share conversions |
|
|
(1,577) |
|
1,233 |
|
- |
Transfer from realised
investment reserve |
|
|
1,577 |
|
- |
|
1,577 |
At 30 June
2019 |
|
|
- |
|
165,829 |
|
375,370 |
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 401,205 US Dollar
shares, and 2,976,784 Sterling shares respectively and they intend
to seek annual renewal of this authority from shareholders which
was last granted at the 2020 Annual General Meeting (“AGM”) on
26 June 2020. 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.
Further issue of shares
As approved by the shareholders at the AGM held on 26 June 2020, the Directors have the power to
issue further shares on a non-pre-emptive basis for cash in respect
of 267,648 US Dollar shares, and
1,985,847 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
Unaudited 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 Guernsey,
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 2020,
the Company recorded an average discount to NAV of 3.45% and 5.87%
for US Dollar shares and Sterling shares respectively (year to
31 December 2019: 2.82% and 3.74% for
US Dollar shares, and Sterling shares respectively and period to
30 June 2019: 4.71% and 4.14% 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, of
up to US$2 million (31 December 2019: US$2
million, 30 June 2019:
US$2 million) and £15 million
(31 December 2019: £15 million,
30 June 2019: £15 million), if
required, to finance (inter alia) share buybacks pending receipt of
the proceeds of redemption from its underlying investments. As at
30 June 2020,
31 December 2019, and 30 June 2019 there were no amounts outstanding
under the Note Purchase Agreement, neither was any interest
payable.
11. Financial Highlights
The following tables include selected data for a single ordinary
share of each of the ordinary share classes in issue at the period
end and other performance information derived from the Financial
Statements.
The per share amounts and ratios which are shown reflect the
income and expenses of the Company for each class of ordinary
share.
|
|
|
|
|
01.01.20 |
|
01.01.20 |
|
|
|
|
|
to
30.06.20 |
|
to
30.06.20 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the period |
|
|
16.48 |
|
16.11 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net investment loss1 (excluding net realised and
unrealised gains and losses on investments allocated from
BHMS) |
|
|
|
|
|
(0.79) |
|
(0.70) |
Net
realised and unrealised gain on investment |
|
|
3.34 |
|
3.03 |
Other
capital items2 |
|
|
|
(0.12) |
|
0.01 |
Total
return |
|
|
|
|
2.43 |
|
2.34 |
Net
asset value, end of the period |
|
|
18.91 |
|
18.45 |
|
|
|
|
|
|
|
|
Total
return before performance fees |
|
|
18.46% |
|
18.16% |
Performance fees |
|
|
|
|
(3.74%) |
|
(3.62%) |
Total
return after performance fees |
|
|
14.72% |
|
14.54% |
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 2020 to 30 June
2020. An individual shareholder’s return may vary from these
returns based on their timing of purchases and sales of Shares.
|
|
|
|
|
01.01.20 |
|
01.01.20 |
|
|
|
|
|
to
30.06.20 |
|
to
30.06.20 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental
data |
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
48,069 |
|
368,388 |
Average
net asset value for the period |
|
|
47,761 |
|
353,694 |
|
|
|
|
|
01.01.20 |
|
01.01.20 |
|
|
|
|
|
to
30.06.20 |
|
to
30.06.20 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
Operating
expense |
|
|
|
|
|
|
|
Company
expenses3 |
|
|
|
0.54% |
|
0.56% |
Master
Fund expenses4 |
|
|
|
0.27% |
|
0.28% |
Performance
fees |
|
|
|
|
3.38% |
|
3.28% |
Total
operating expense |
|
|
|
4.19% |
|
4.12% |
|
|
|
|
|
|
|
|
Net
investment loss1 |
|
|
|
(4.17%) |
|
(3.98%) |
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
31.12.19 |
|
to
31.12.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the year |
|
|
15.51 |
|
15.37 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net investment loss1 (excluding net realised and
unrealised gains and losses on investments allocated from
BHMS) |
|
|
|
|
|
(0.45) |
|
(0.41) |
Net
realised and unrealised gain on investment |
|
|
1.43 |
|
1.15 |
Other capital
items2 |
|
|
|
|
(0.01) |
|
- |
Total
return |
|
|
|
|
0.97 |
|
0.74 |
Net
asset value, end of the year |
|
|
|
16.48 |
|
16.11 |
|
|
|
|
|
|
|
|
Total
return before performance fees |
|
|
7.81% |
|
5.99% |
Performance fees |
|
|
|
|
(1.56%) |
|
(1.20%) |
Total
return after performance fees |
|
|
6.25% |
|
4.79% |
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 2019. An individual shareholder’s
return may vary from these returns based on the timing of their
purchases and sales of Shares.
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
31.12.19 |
|
to
31.12.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental
data |
|
|
|
|
|
|
|
Net
asset value, end of the year |
|
|
|
43,923 |
|
320,013 |
Average
net asset value for the year |
|
|
43,014 |
|
314,928 |
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
31.12.19 |
|
to
31.12.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
Operating
expense |
|
|
|
|
|
|
|
Company
expenses3 |
|
|
|
1.21% |
|
1.25% |
Master
Fund expenses4 |
|
|
|
0.45% |
|
0.45% |
Performance fees |
|
|
|
|
1.50% |
|
1.16% |
|
|
|
|
|
3.16% |
|
2.86% |
|
|
|
|
|
|
|
|
Net
investment loss1 |
|
|
|
(2.84%) |
|
(2.60%) |
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
30.06.19 |
|
to
30.06.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
Per
share operating performance |
|
|
|
|
|
Net
asset value at beginning of the period |
|
|
15.51 |
|
15.37 |
|
|
|
|
|
|
|
|
Income
from investment operations |
|
|
|
|
|
Net investment gain1 (excluding net realised and
unrealised gains and losses on investments allocated from
BHMS) |
|
|
|
|
|
(0.36) |
|
(0.34) |
Net
realised and unrealised gain on investment |
|
|
1.42 |
|
1.27 |
Other capital
items2 |
|
|
|
|
(0.01) |
|
- |
Total
return |
|
|
|
|
1.05 |
|
0.93 |
|
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
16.56 |
|
16.30 |
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
30.06.19 |
|
to
30.06.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
|
|
|
Total
return before performance fees |
|
|
8.45% |
|
7.55% |
Performance fees |
|
|
|
|
(1.68%) |
|
(1.51%) |
Total
return after performance fees |
|
|
6.77% |
|
6.04% |
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 2019 to 30 June
2019. An individual shareholder’s return may vary from these
returns based on their timing of purchases and sales of Shares.
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
30.06.19 |
|
to
30.06.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
Supplemental
data |
|
|
|
|
|
|
|
Net
asset value, end of the period |
|
|
43,754 |
|
324,142 |
Average
net asset value for the period |
|
|
42,880 |
|
308,904 |
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
30.06.19 |
|
to
30.06.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
Ratio
to average net assets |
|
|
|
|
|
|
Operating
expense |
|
|
|
|
|
|
|
Company
expenses3 |
|
|
|
0.61% |
|
0.63% |
Master
Fund expenses4 |
|
|
|
0.23% |
|
0.23% |
Performance fees |
|
|
|
|
1.64% |
|
1.49% |
|
|
|
|
|
2.48% |
|
2.35% |
|
|
|
|
|
|
|
|
Net
investment loss1 |
|
|
|
(2.27%) |
|
(2.21%) |
1
The net investment loss 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
As at 30 June 2020, the Company
had five 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
2020:
|
US
Dollar Shares |
Sterling Shares |
Sir Michael
Bunbury |
- |
14,200 |
Graham Harrison |
- |
1,500 |
Sally-Ann Farnon |
- |
1,700 |
Julia Chapman |
- |
1,081 |
Andreas Tautscher |
- |
600 |
13. Foreign Exchange
The following foreign exchange rates were used to translate the
Sterling share class into US Dollars, being the Company’s reporting
currency.
|
|
|
01.01.20 |
|
01.01.19 |
|
01.01.19 |
|
|
|
to
30.06.20 |
|
to
31.12.19 |
|
to
30.06.19 |
Period/year end
rate |
|
|
1.2356 |
|
1.3244 |
|
1.2728 |
Average
rate for the period/year |
|
1.2697 |
|
1.2794 |
|
1.2936 |
14. Subsequent Events
Management has evaluated subsequent events up to 19 August 2020, which is the date that the
Financial Statements were available to be issued.
No subsequent events have occurred.
HISTORICAL PERFORMANCE SUMMARY
As at 30 June 2020
|
|
|
|
30.06.2020* |
|
31.12.19 |
|
31.12.18 |
|
31.12.17 |
|
|
|
|
(Unaudited) |
|
(Audited) |
|
(Audited) |
|
(Audited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
Net
increase/(decrease) in net assets |
|
|
|
|
|
|
|
|
resulting from operations |
|
35,518 |
|
37,403 |
|
2,187 |
|
41,032 |
Total
assets |
|
|
519,795 |
|
474,202 |
|
436,335 |
|
443,707 |
Total
liabilities |
|
|
(16,527) |
|
(6,452) |
|
(5,988) |
|
(1,416) |
Net
assets |
|
|
503,268 |
|
467,750 |
|
430,347 |
|
442,291 |
|
|
|
|
|
|
|
|
|
|
|
Number
of shares in issue |
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
2,542,136 |
|
2,664,844 |
|
2,740,700 |
|
3,004,442 |
Sterling
shares |
|
|
19,967,808 |
|
19,868,275 |
|
19,807,562 |
|
20,346,871 |
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per share |
|
|
|
|
|
|
|
|
US Dollar
shares |
|
|
US$18.91 |
|
US$16.48 |
|
US$15.51 |
|
US$14.56 |
Sterling shares |
|
|
|
£18.45 |
|
£16.11 |
|
£15.37 |
|
£14.58 |
* Covers the period from 1 January
2020 to 30 June 2020.
MANAGEMENT AND ADMINISTRATION
Directors
Sir Michael Bunbury (Chairman)
Julia Chapman
Sally-Ann (“Susie”) Farnon
Graham Harrison (Senior Independent
Director)
Andreas Tautscher
(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
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
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
Investec Bank Plc
30 Gresham Street
London
EC2V 7QP
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