Interim Results - Correction
28 9월 2006 - 11:03PM
UK Regulatory
Originally released at 12:58 this afternoon, the following is being re-released
to facilitate third-party vendors.
No amendments have been made to the original text.
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KGR ABSOLUTE RETURN PCC LIMITED
PRELIMINARY PROFITS ANNOUNCEMENT
For the period from incorporation, 13 October 2005, to 30 June 2006
CHAIRMAN'S STATEMENT
I am delighted to be able to introduce the inaugural interim report for your
company. This report covers more than the usual six month period, including as
it does the period from the company's inception on 13th October 2005, through
the initial public offering in November 2005, and then some seven months of
investment activity. The promising initial performance of the portfolio led to
additional demand for the company's shares which enabled the board to issue new
shares in both January and February of this year. These issues amounted to
9.99% of the issued share capital, the maximum permitted without recourse to
shareholders. In May, we announced that we were considering the possibility of
a `C' share issue to meet the continuing demand from the secondary market.
However, conditions then become more difficult and we decided to postpone
consideration of whether to proceed with the issue until the outlook for Asian
markets and Asian hedge funds became clearer. It has been gratifying to see
that secondary market interest in the company's shares has held up well through
a difficult summer, sustaining the share price at an approximate premium of
between 2% and 6% to net asset value throughout.
During the period, we entered into a repurchase agreement with Dresdner
Kleinwort, enabling the company to borrow up to almost �8m ($15 million). It is
not the board's intention that this facility be used to introduce net gearing
into the company's capital structure. Its sole purpose is to facilitate the
efficient management of the portfolio by covering short term funding
requirements, either due to foreign exchange hedging or for purchasing new
funds while awaiting fund redemption proceeds or additional cash commitments
from shareholders.
PERFORMANCE
The strong performance produced by the company's initial investments has been
followed by a period of unprecedented difficulty for many Asian hedge funds,
particularly those employing equity strategies in Japan. In some cases, the
investment advisers have taken the view that this is a temporary setback and
retained our investment positions but in a number of other cases positions have
been reduced or eliminated. The emphasis remains on maintaining a well
diversified portfolio of funds whose returns are consistent with the objectives
of the company and neither too correlated with each other nor with the
underlying asset classes in which they invest. The net asset value per share
(NAV) at the end of the period was 98.99p, 0.75% higher than the initial NAV
after launch expenses of 98.25p.
OUTLOOK
The company remains unique in offering investors the opportunity to invest
through a daily traded vehicle in the rapidly expanding markets of Asia while
maintaining a lower risk exposure than would generally be associated with this
type of investment. The annualised volatility of the net asset value to date
has been approximately 8.5% v 16.7 % for the MSCI Asia index over the same
period. The investment adviser's report gives grounds for believing that the
performance of our portfolio of Asian hedge funds will resume its earlier
positive track in the second half of the year.
Rupert Dorey
Chairman
27 September 2006
INVESTMENT MANAGER'S REVIEW
The first half of 2006 saw an extreme contraction in risk appetite across asset
classes, in particular emerging market equities, as the euphoria of the second
half of 2005 dissipated rapidly. The Japanese equity market had a particularly
sharp and sustained sell-off over much of this period as foreign flows
reversed, triggered initially by the news of arrests of the high profile CEO of
Livedoor (Takefumi Horie) and subsequently of Yoshiaki Murakami, who ran a
large event driven fund. Smaller stocks were particularly badly affected by
these developments as retail investors had built large margin positions in
stocks associated with these investors and became sellers into the weakness to
meet rising margin requirements. Asia ex-Japan markets on the other hand fared
better, with particularly strong performances from China, Indian large caps and
Hong Kong. Performance, however, diverged widely across the region, with the
smaller caps selling off more sharply and lagging the larger caps in recovery.
More recently, over May-June, the correction has become widespread across both
Japanese and Asia ex-Japan equity, credit and convertible bond markets.
After a very positive start, the disappointing performance of the portfolio in
the latter part of the period can largely be attributed to the performance of
the holdings in Japan only equity long-short and event driven funds. All other
strategies contributed positively to performance, although the higher
allocations by pan-Asia managers to Japan dampened their positive contribution.
Whilst we went into 2006 expecting some correction in Japan equities, the
severity of this, and the sudden increase in correlations across hitherto
uncorrelated Japan equity strategies, was unexpected. The decision to have just
over 46% in Japan only strategies at the beginning of the year was based on our
assessment of the numerous opportunities presented by an economy that is only
just emerging from a decade and a half long recession, having made substantial
progress in corporate restructuring and reform. We remain convinced that the
opportunities there are attractive but this strategy call does rely on our
managers being able to manage the month to month volatility successfully.
Unfortunately this has not always proved to be the case with several retaining
their net long positioning into correcting markets which to them appeared out
of step with the economic realities on the ground. This resulted in a number of
unacceptably large monthly drawdowns. We have now taken a number of steps to
rectify this situation.
The allocation to Japan has been reduced by 14.3%. We have repositioned the
portfolio away from managers buying smaller capitalization stocks, towards
uncorrelated strategies that add diversity to the portfolio. We have also
preferred funds with strategies that are liquid both in terms of the underlying
investments and the redemption terms available to investors. Our analysis has
highlighted the importance of using managers that are committed to the proper
control of asset growth. The number of managers in the portfolio has been
increased from 23 to 32, with new managers added across fixed income,
long-short commodities, long-short India, long-short China, macro, and long
volatility/arbitrage strategies.
Looking ahead, we see strong Asian economic growth, robust corporate balance
sheets, and ongoing evolution of Asian capital markets translating into
significant opportunities for the Fund. As a result, the Fund retains a
significant allocation to managers likely to benefit from positive moves in
markets. Over the near term, however, market sentiment will continue to be
tempered by ongoing concerns and uncertainties about interest rates, inflation,
US growth, oil price and geo-political concerns. We will therefore retain our
emphasis on running a well diversified portfolio, and on adding managers and
strategies that are uncorrelated to each other and to equity markets. We remain
confident about the portfolio and the opportunities ahead for Asian hedge
funds.
UNAUDITED INCOME STATEMENT
for the period from 13 October 2005 to 30 June 2006
13.10.05 to
30.06.06
Revenue Capital Total
� � �
Net (losses) on investments - (2,416,786) (2,416,786)
Net foreign exchange gain - 2,816,580 2,816,580
Income 170,750 - 170,750
Management fee (287,507) - (287,507)
Custodian fee (19,822) - (19,822)
Other expenses (120,859) - (120,859)
(Loss)/ return on ordinary
activities for
the financial (257,438) 399,794 142,356
period
Return per redeemable (0.57)p 0.88p 0.31p
participating
preference share
All revenue and capital items in the above statement derive from continuing
operations.
UNAUDITED BALANCE SHEET
At 30 June 2006
30.06.06
�
Assets
Investments 43,659,783
Amount due from broker 746,876
Debtors 46,566
Unrealised gain on forward 849,990
foreign
exchange contracts
Cash at bank 1,675,563
Total assets 46,978,778
Liabilities and capital
Current liabilities
Creditors 153,923
Unrealised loss on forward
foreign
exchange contract 3,873
157,796
Capital and reserves
Management shares 2
Share premium account 46,678,624
Other reserves 142,356
46,820,982
Total liabilities and capital 46,978,778
Net asset value per redeemable participating preference 98.99 p
share
UNAUDITED CASH FLOW STATEMENT
for the period from 13 October 2005 to 30 June 2006
13.10.05 to
30.06.06
�
Reconciliation of operating income to
net cash outflow from operating
activities
Net revenue before finance costs (257,438)
Non-operating income (170,516)
(Increase) in (46,566)
debtors
Increase in 153,923
creditors
Net cash outflow from operating activities (320,597)
Returns on investments and servicing of finance
Investment income received net of available tax credits 46,237
Short term interest net of available tax credits 124,279
Net cash inflow from returns on investments and servicing of 170,516
finance
Investing Activities
Payments to acquire investments (50,179,002)
Proceeds on 3,355,557
disposal
Realised gains on forward foreign currency contracts 1,970,463
Net cash outflow from investing activities (44,852,982)
Financing
Issue of shares 47,431,126
Issue costs paid (752,500)
Net cash inflow from financing 46,678,626
activities
Increase in cash in the 1,675,563
period
This preliminary profits announcement has been neither audited nor reviewed by
the Company's auditors. A copy of the interim report and unaudited condensed
financial statements will be published shortly.
Andre Le Prevost
Kleinwort Benson (Channel Islands) Fund Services Limited
Company Secretary
01481 727111
KGR ABSOLUTE RETURN PCC LIMITED
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END
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