REG-BH Macro Limited: Annual Report and Audited Financial Statements 2017
23/03/2018 07:05
BH Macro Limited
Annual Report and Audited Financial Statements 2017
LEI: 549300ZOFF0Z2CM87C29
(Classified Regulated Information, under DTR 6 Annex 1 section 2.5)
Chairman’s Statement
In February and March 2017, Shareholders approved proposals put forward by the
Board, in the form of a tender offer and associated structural changes. In the
tender, Shareholders holding 52% of the Company’s shares by value chose to
remain invested in the Company with the remaining 48% taking up the offer in
the tender to sell their shares at 96% of Net Asset Value (“NAV”). This
has left the Company a smaller, but still substantial, fund with a total NAV
at 28 February 2018 of the equivalent of $485 million. As a result of the
tender, the size of the Euro class of the Company’s shares fell below
$25million and, under the terms of the tender, the Euro shares were converted
into Sterling shares in June and the Euro class was cancelled.
The structural changes delivered a reduction in management and operational
services fees from 2.5% to 1% and in due course a shortening of the notice
period for termination of the Company’s management agreement with its
manager, Brevan Howard Capital Management LP (the “Manager”) from two
years to three months. These were material improvements for Shareholders.
Following this restructuring, Ian Plenderleith retired from the Board, having
served as Chairman since the Company was formed in 2007. He presided over the
Company as it grew significantly in the early years and provided strong
leadership and wise counsel to the Board as the Company adapted to a more
challenging investment environment. I would like to thank Ian again for his
service to the Company and to wish him well in his retirement.
Over 2017, the Net Asset Value per Sterling share in the Company declined by
4.35% and that per US dollar share declined by 0.30%, despite benefitting from
uplifts as a result of the tender offer, amounting to 1.20% for the Sterling
shares and 4.46% for the US dollar shares.
The Company’s performance is directly related to the performance of Brevan
Howard Master Fund Limited (the “Master Fund”) into which the Company
invests substantially all of its assets. In recent years, the Master Fund’s
performance has been constrained by market conditions that have offered few
opportunities for its macro-directional trading focus: major economies
experienced synchronised slow growth; extreme easing in monetary policy
resulted in low interest rates and flat yield curves; and there was limited
trend movement in exchange rates.
During 2016, as recorded in Ian Plenderleith’s Chairman’s Statement in the
Company’s previous Annual Report, the global economic environment began to
change. The major economies began to display divergent growth performance;
there were similar divergences in monetary policy, with the US finally raising
rates, while further easing was being implemented elsewhere; and exchange
rates responded accordingly.
These developments in the real economy continued throughout 2017, with the US
raising rates three times and the UK finally following suit in November.
Despite this, equity markets continued to rise and volatility fell to historic
low levels across many financial markets. As a result, opportunities for the
Master Fund to achieve trading gains through its strategies continued to be
sparse and its performance was disappointing.
The Master Fund has been alert to the importance of seeking to preserve
investors’ capital. The past performance of the Master Fund and the Company
demonstrates low levels of correlation with equity markets, but more
significant correlation with market volatility. This was demonstrated by the
over 5% increase in NAV following the unexpected result of the US Presidential
Election in November 2016 and again by the 2.5% increase in NAV (US Dollar
share class) in January 2018.
Many observers believe that the strength in equity markets cannot continue
indefinitely. There are significant local and international political risks
and the increased volatility seen in late January 2018 has given a warning of
what the current year may hold. As and when the market environment changes,
the Company offers Shareholders the opportunity to benefit from the Master
Fund’s long-term track record of preserving capital and achieving positive
returns, uncorrelated with equities and other markets.
Following the completion of the tender offer and the consequent reduction in
its size, the Company left the FTSE250 group of companies listed on the London
Stock Exchange in June 2017. Subsequently, the Board concluded that the
benefits of maintaining the listings of the Company’s shares on the Stock
Exchanges in Bermuda and Dubai did not justify the expense and, consequently,
the listing in Bermuda was terminated in September and the listing in Dubai in
December.
The discount at which the Company’s shares trade in relation to net asset
value has stabilised since the tender offer. The monthly average discount of
the Sterling shares so far this year has been 6.90% and of the US Dollar
shares 6.68%. As part of the tender offer, the Board agreed that the Company
would not engage in market purchases of its own shares before 1 April 2019,
but has committed to hold a discontinuation vote for either class of share if
that class trades at an average discount of 8% or more to the monthly NAV over
the whole of 2018.
The Board has maintained regular dialogue with the Manager, to review the
Master Fund’s trading strategies and risk exposures and to satisfy itself
that the Manager’s analytical, trading and risk management capabilities are
being maintained to a high standard. The Board holds extended discussions with
the Manager at each of its quarterly Board meetings and this dialogue has been
intensified in the context of the changes implemented over the past year. One
Board meeting a year is held in Brevan Howard’s head office in Jersey in
order to maintain first-hand contact with the Manager’s team there; and
Directors hold periodic briefing meetings with Brevan Howard’s trading teams
in London, New York and Geneva. From these contacts, the Board continues to
believe that the management of the Master Fund remains of a very high
standard.
The Company and its Manager have continued to pursue an active programme for
public communication and investor relations. Up-to-date performance
information is provided through NAV data published monthly on a definitive
basis and weekly on an estimated basis, as well as through monthly risk
reports and shareholder reports. All these reports and further information
about the Company are available on its website (www.bhmacro.com).
The Board is independent of the Brevan Howard group. The Directors are very
closely focused on safeguarding the interests of Shareholders and believe that
the Company observes high standards of corporate governance. In addition to
its quarterly scheduled meetings, the Board meets ad hoc on other occasions as
necessary. The work of the Board is assisted by the Audit Committee and the
Management Engagement Committee. The Board continues to meet all of the
provisions of the Association of Investment Companies’ Code of Corporate
Governance that are relevant to a company that has no executive management;
the details are described below in the Directors’ Report. The Board complies
with best corporate governance standards in ensuring that its composition
provides independence, diversity (including gender diversity, with one of the
four Directors being a woman) and necessary skills and experience. The Board
has adopted, and implements, policies and procedures to ensure appropriate
nominations to the Board and its Committees and succession planning for
orderly rotation of Directors. The Board and its Committees undertake an
evaluation of their own performance every year; in early 2018 the Board
commissioned an external evaluation, which confirmed that the Board works in a
collegiate, harmonious and effective manner. The evaluation made a number of
recommendations for the medium term structure of the Board which will be
adopted if the Company continues beyond any discontinuation vote in early
2019.
The structural changes the Company has implemented over the past year have put
it on a strong foundation for the future. However, the Board recognises that
improved performance from the Master Fund will be important in securing the
future of the Company. Evident political and economic uncertainties lying
ahead suggest that more fruitful opportunities will present themselves for the
Master Fund’s
macro-trading strategies. The Board believes that in these conditions the
Company’s investment in the Master Fund will provide a valuable listed
avenue for portfolio diversification that is uncorrelated with other asset
classes.
Huw Evans
Chairman
22 March 2018
Board Members
The Directors of the Company, all of whom are non-executive, are listed below:
Huw Evans, (appointed Chairman on 23 June 2017), age 59
Huw Evans is Guernsey resident and qualified as a Chartered Accountant with
KPMG (then Peat Marwick Mitchell) in 1983. He subsequently worked for three
years in the Corporate Finance department of Schroders before joining Phoenix
Securities Limited in 1986. Over the next twelve years he advised a wide range
of companies in financial services and other sectors on mergers and
acquisitions and more general corporate strategy. Since moving to Guernsey in
2005, he has acted as a professional
non-executive Director of a number of Guernsey-based companies and funds. He
holds an MA in Biochemistry from Cambridge University. Mr Evans was appointed
to the Board in 2010 and was appointed Chairman on 23 June 2017.
Ian Plenderleith, (former Chairman), age 74 (retired 23 June 2017)
Ian Plenderleith retired at the end of 2005 after a three-year term as Deputy
Governor of the South African Reserve Bank. He served on the Bank’s Monetary
Policy Committee and was responsible for money, capital and foreign exchange
market operations and for international banking relationships. He previously
worked for over 36 years at the Bank of England in London, where he was most
recently Executive Director responsible for the Bank’s financial market
operations and a member of the Bank’s Monetary Policy Committee. He has also
worked at the International Monetary Fund in Washington DC and served on the
Board of the European Investment Bank and on various international committees
at the Bank for International Settlements. Mr Plenderleith holds an MA from
Christ Church, Oxford University, and an MBA from Columbia Business School,
New York. Mr Plenderleith is non-executive Chairman of Morgan Stanley
International and of the UK subsidiaries of Sanlam, the South African
financial services group. Mr Plenderleith held the role of Chairman of the
Board from 2007 until his retirement in 2017.
John Le Poidevin, age 47
John Le Poidevin is Guernsey resident and has over 25 years’ business
experience. Mr Le Poidevin is a graduate of Exeter University and Harvard
Business School, a Fellow of the Institute of Chartered Accountants in England
and Wales and a former partner of BDO LLP in London where, as Head of Consumer
Markets, he developed an extensive breadth of experience and knowledge of
listed businesses in the UK and overseas. He is an experienced non-executive
who sits on several plc boards and chairs a number of Audit Committees. He
therefore brings a wealth of relevant experience in terms of corporate
governance, audit, risk management and financial reporting. Mr Le Poidevin was
appointed to the Board in June 2016.
Colin Maltby, (Senior Independent Director), age 67
Colin Maltby is a resident of Switzerland. His career in investment management
began in 1975 with NM Rothschild & Sons and included 15 years with the
Kleinwort Benson Group, of which he was a Group Chief Executive at the time of
its acquisition by Dresdner Bank AG in 1995. Mr Maltby was Chief Executive of
Kleinwort Benson Investment Management from 1988 to 1995, Chief Investment
Officer of Equitas Limited from its formation in 1996, and Head of Investments
at BP from August 2000 to June 2007. He has served as a non-executive Director
of various public companies and agencies and as an adviser to numerous
institutional investors, including pension funds and insurance companies, and
to private equity and venture capital funds in both Europe and the United
States. He holds a Double First Class Honours degree in Physics from the
University of Oxford and also studied at the Stanford University Graduate
School of Business. He is a Fellow of Wolfson College, Oxford and of the Royal
Society of Arts and a member of the Institut National Genevois. Mr Maltby was
appointed to the Board in June 2015.
Claire Whittet, age 62
Claire Whittet is Guernsey resident and has 40 years’ experience in the
financial services industry. After obtaining a MA (Hons) in Geography from the
University of Edinburgh, Mrs Whittet joined the Bank of Scotland for 19 years
and undertook a wide variety of roles. She moved to Guernsey in 1996 and was
Global Head of Private Client Credit for Bank of Bermuda before joining
Rothschild Bank International Limited in 2003, initially as Director of
Lending and latterly as Managing Director and Co-Head until May 2016 when she
became a Non-Executive Director. She is an ACIB member of the Chartered
Institute of Bankers in Scotland, a member of the Chartered Insurance
Institute and holds an IoD Director’s Diploma in Company Direction. She is a
Non-Executive Director of five other listed investment funds. Mrs Whittet was
appointed to the Board in June 2014.
Disclosure of Directorships in Public Companies Listed on Recognised Stock
Exchanges
The following summarises the Directors’ directorships in other public
companies:
Exchange
Huw Evans
Standard Life Investments Property Income Trust Limited London
VinaCapital Vietnam Opportunity Fund Limited London
Ian Plenderleith (retired 23 June 2017)
None
Colin Maltby
BBGI SICAV SA London
Ocean Wilsons Holdings Limited London and Bermuda
John Le Poidevin
International Public Partnerships Limited London
Safecharge International Group Limited London (AIM)
Stride Gaming Plc London (AIM)
Claire Whittet
Eurocastle Investment Limited Euronext
International Public Partnerships Limited London
Riverstone Energy Limited London
Third Point Offshore Investors Limited London
TwentyFour Select Monthly Income Fund Limited London
Directors’ Report
31 December 2017
The Directors submit their Report together with the Company’s Audited
Statement of Assets and Liabilities, Audited Statement of Operations, Audited
Statement of Changes in Net Assets, Audited Statement of Cash Flows and the
related notes for the year ended 31 December 2017. The Directors’ Report
together with the Audited Financial Statements and their related notes (the
“Financial Statements”) give a true and fair view of the financial
position of the Company. They have been prepared properly, in conformity with
United States Generally Accepted Accounting Principles (“US GAAP”) and are
in agreement with the accounting records.
The Company
BH Macro Limited is a limited liability closed-ended investment company
incorporated in Guernsey on
17 January 2007.
The Company was admitted to the Official List of the London Stock Exchange
(“LSE”) in 2007. It had maintained Secondary listings on the Bermuda Stock
Exchange and NASDAQ Dubai since 2008, but it de-listed from these two stock
exchanges on 30 September 2017 and 31 December 2017, respectively.
The Company offers multiple classes of ordinary shares, which differ in terms
of currency of issue. Currently, ordinary shares are issued in US Dollars and
Sterling.
On 29 November 2016, the Company announced a Tender Offer (the “Tender
Offer”) to acquire up to 100% of each class of the Company’s issued shares
at a price equivalent to 96% of NAV for the relevant class. The Tender Offer
was approved by Shareholders at meetings in February and March 2017 and
Shareholders holding 52% of the Company’s shares by prevailing NAV chose to
remain invested in the Company, with the remaining 48% of shares by value
being tendered for purchase at 96% of NAV for the relevant class. The
acquisition of shares pursuant to the Tender Offer was completed on 25 April
2017. Shares purchased in the Tender Offer were cancelled.
On 3 May 2017, the Company announced that, following the completion of the
Tender Offer, the NAV of the Euro share class would likely fall to below the
equivalent of US$25 million on the next net asset value calculation date on 31
May 2017 and, as stated in the shareholder circular for the Tender Offer, the
Company therefore intended to convert the remaining Euro shares into shares of
the Company’s largest share class following the Tender Offer, being Sterling
shares. Accordingly, the Company converted all remaining shares in the Euro
class into Sterling shares effective 29 June 2017 and all the Euro shares held
by the Company in Treasury were cancelled on that date. The Euro share class
then closed and its listing was cancelled.
Investment Objective and Policy
The Company is organised as a feeder fund that invests all of its assets (net
of short-term working capital requirements) directly in Brevan Howard Master
Fund Limited (the “Master Fund”), a hedge fund in the form of a Cayman
Islands open-ended investment company, which has as its investment objective
the generation of consistent long-term appreciation through active leveraged
trading and investment on a global basis. The Master Fund is managed by Brevan
Howard Capital Management LP, the Company’s Manager.
The Master Fund 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, currencies, commodities, futures, options,
warrants, swaps and other derivative instruments. The underlying philosophy is
to construct strategies, often contingent in nature, with superior risk/return
profiles, whose outcome will often be crystallised by an expected event
occurring within a pre-determined period of time.
The Master Fund employs a combination of investment strategies that focus
primarily on economic change and monetary policy and market inefficiencies.
The Company may employ leverage for the purposes of financing share purchases
or buy backs, satisfying working capital requirements or financing further
investment into the Master Fund, subject to an aggregate borrowing limit of
20% of the Company’s NAV, calculated as at the time of borrowing. Borrowing
by the Company is in addition to leverage at the Master Fund level, which has
no limit on its own leverage.
Results and dividends
The results for the year are set out in the Audited Statement of Operations.
The Directors do not recommend the payment of a dividend.
Share Capital
The number of shares in issue at the year end is disclosed in note 5 of the
Notes to the Audited Financial Statements.
On 5 April 2016, the Company announced a tender offer to acquire up to 25% of
the Company’s issued shares at discounts ranging from 4% to 8% to the NAV as
at 31 May 2016.
The tender, which was completed in late June 2016, was oversubscribed: tenders
of Sterling and Euro shares at discounts of 8%, 7% and 6% were accepted in
full, and at 5% in part; tenders of US Dollar shares at discounts of 8% and 7%
were accepted in full and at 6% in part. Shares purchased in the tender were
cancelled.
As detailed in the Directors’ Report, there was a further tender offer
announced on 29 November 2016, which was completed on 25 April 2017.
Viability Statement
The investment objective of the Company 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) in
the Master Fund.
The Directors have assessed the viability of the Company over the period to 31
December 2020. The viability statement covers a period of three years, which
the Directors consider sufficient given the inherent uncertainty of the
investment world and the specific risks to which the Company is exposed.
The continuation of the Company in its present form is dependent on the
Management Agreement remaining in place. The Management Agreement is currently
terminable on two years’ notice by either party. Following the
implementation of the Tender Offer and associated structural changes, the
notice period of the Management Agreement shall reduce to three months with
effect from 1 April 2019. To ensure that the Company maintains a constructive
and informed relationship with the Manager, the Directors meet regularly with
the Manager to review the Master Fund’s performance, and through the
Management Engagement Committee, they review the Company’s relationship with
the Manager and the Manager’s performance and effectiveness. The Board had
very constructive discussions with the Manager surrounding the Tender Offer
and the structural changes and the Manager was supportive of the changes. The
Directors currently know of no reason why either the Company or the Manager
might serve notice of termination of the Management Agreement over the period
of this viability statement.
Besides the possible termination of the Management Agreement, at the Company
level, the main risk to the Company’s continuation would be adverse
investment performance by the Master Fund precipitating extended downwards
pressure on the Company’s share prices from shareholders seeking to
liquidate their investment in the Company by selling their shares; the
Company’s shares could consequently trade at a significant and persistent
discount to NAV. At the EGM and Class Meetings approving the Tender Offer, one
of the structural changes approved by shareholders was the modification of the
Class Discontinuation vote arrangements to have a Class Discontinuation vote
in the event that, during the period 1 January to 31 December 2018, shares
trade at an average discount in excess of 8% of the monthly NAV.
Whilst the Directors cannot predict the premium or discount to NAV at which
the Company’s shares will trade in the future, they note that, following
implementation of the Tender Offer, the Company had a constituency of
Shareholders who had chosen to remain invested with advantageous structural
changes including a reduction in the management fee from 2% to 0.5% per annum.
The Directors monitor the average discount of NAV and between 1 January 2018
and 28 February 2018, the average discount to NAV of the US Dollar share class
was 6.68% and was 6.90% for the Sterling share class.
The Company’s assets exceed its liabilities by a considerable margin.
Further, the majority of the Company’s most significant expenses, being the
fees owing to the Manager and to the Company’s administrator, fluctuate by
reference to the Company’s investment performance and NAV. The Company is
able to meet its expenses by redeeming shares in the Master Fund as necessary.
The Company’s investment performance depends upon the performance of the
Master Fund and the Manager as manager of the Master Fund. The Directors, in
assessing the viability of the Company, pay particular attention to the risks
facing the Master Fund. The Manager operates a risk management framework,
which is intended to identify, measure, monitor, report and where appropriate,
mitigate key risks identified by it or its affiliates in respect of the Master
Fund.
After 1 April 2019, in the event that there is downward pressure on the
Company’s share prices, the Company would be able to consider resuming
active discount management actions, including share buybacks, so that as far
as possible the share prices would more closely reflect the Company’s
underlying performance; such actions should mitigate the risk of class closure
resolutions being triggered after that date.
The Directors have carried out a robust assessment of the risks and, on the
assumption that the risks are managed or mitigated in the ways noted above,
the Directors have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
three-year period of their assessment.
Going concern
The Directors, having considered the principal risks to which the Company is
exposed which are listed in the Directors’ Report and on the assumption that
these are managed or mitigated as noted, are not aware of any material
uncertainties which may cast significant doubt upon the Company’s ability to
continue as a going concern and, accordingly, consider that it is appropriate
that the Company continues to adopt the going concern basis of accounting for
these Audited Financial Statements.
The Board
The Board of Directors has overall responsibility for safeguarding the
Company’s assets, for the determination of the investment policy of the
Company, for reviewing the performance of the service providers and for the
Company’s activities. The Directors, all of whom are non-executive, are
listed in the Board Members section and on the inside back cover.
The Articles provide that, unless otherwise determined by ordinary resolution,
the number of Directors shall not be less than two. The Company’s policy on
Directors’ Remuneration, together with details of the remuneration of each
Director who served during the year, is detailed in the Directors’
Remuneration Report.
The Board meets at least four times a year and between these formal meetings
there is regular contact with the Manager and the Administrator. The Directors
are kept fully informed of investment and financial controls, and other
matters that are relevant to the business of the Company are brought to the
attention of the Directors. The Directors also have access to the
Administrator and, where necessary in the furtherance of their duties, to
independent professional advice at the expense of the Company.
For each Director, the tables below set out the number of Board, Audit
Committee and Management Engagement Committee meetings they were entitled to
attend during the year ended 31 December 2017 and the number of such meetings
attended by each Director.
Scheduled Board Meetings Held Attended
Huw Evans 4 4
Ian Plenderleith *2 2
John Le Poidevin 4 4
Colin Maltby 4 4
Claire Whittet 4 4
Audit Committee Meetings Held Attended
Huw Evans *2 2
John Le Poidevin 4 4
Colin Maltby *3 3
Claire Whittet 4 4
Management Engagement Committee Meetings Held Attended
Claire Whittet 1 1
Huw Evans 1 1
John Le Poidevin 1 1
Colin Maltby 1 1
* Indicates the meetings held during their membership of the
relevant Board or Committee during the year ended 31 December 2017.
In addition to these scheduled meetings, fourteen ad hoc meetings and one
Extraordinary General Meeting were held during the year ended 31 December
2017, which were attended by those Directors available at the time.
Directors’ Independence
In January 2016, the then Chairman, Ian Plenderleith, had served on the Board
for over nine years and under the AIC Code of Corporate Governance (“AIC
Code”) may not have been considered to be independent. The Board however,
took the view that independence is not necessarily compromised by the length
of tenure on the Board and experience can significantly add to the Board’s
strength. It was therefore determined that in performing his role as the
Chairman (until his retirement on 23 June 2017), Ian Plenderleith remained
wholly independent and all the current Directors are considered to be
independent.
Directors’ interests
The Directors had the following interests in the Company, held either directly
or beneficially:
US Dollar Shares
31.12.17 31.12.16
Huw Evans Nil Nil
Ian Plenderleith* *N/A Nil
John Le Poidevin Nil Nil
Colin Maltby Nil Nil
Claire Whittet Nil Nil
**Euro Shares
31.12.17 31.12.16
Huw Evans N/A Nil
Ian Plenderleith* *N/A Nil
John Le Poidevin N/A Nil
Colin Maltby N/A Nil
Claire Whittet N/A Nil
Sterling Shares
31.12.17 31.12.16
Huw Evans 3,337 710
Ian Plenderleith* *N/A Nil
John Le Poidevin Nil Nil
Colin Maltby Nil Nil
Claire Whittet Nil Nil
* Ian Plenderleith retired from the Board on 23 June 2017.
** The Euro share class closed on 29 June 2017.
Directors’ Indemnity
Directors’ and officers’ liability insurance cover is in place in respect
of the Directors.
The Directors entered into indemnity agreements with the Company which provide
for, subject to the provisions of the Companies (Guernsey) Law, 2008, an
indemnity for Directors in respect of costs which they may incur relating to
the defence of proceedings brought against them arising out of their positions
as Directors, in which they are acquitted or judgement is given in their
favour by the Court. The agreement does not provide for any indemnification
for liability which attaches to the Directors in connection with any
negligence, unfavourable judgements, breach of duty or trust in relation to
the Company.
Corporate Governance
To comply with the UK Listing Regime, the Company must comply with the
requirements of the UK Corporate Governance Code. The Company is also required
to comply with the Code of Corporate Governance issued by the Guernsey
Financial Services Commission.
The Company is a member of the Association of Investment Companies (the
“AIC”) and by complying with the AIC Code is deemed to comply with both
the UK Corporate Governance Code and the Guernsey Code of Corporate
Governance. The AIC also publishes a Corporate Governance Guide for Investment
Companies (“AIC Guide”).
To ensure ongoing compliance with the principles and the recommendations of
the AIC Code, the Board receives and reviews a report from the Secretary, at
each quarterly meeting, identifying whether the Company is in compliance and
recommending any changes that are necessary.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance Code includes provisions relating to:
· the role of the chief executive
· executive directors’ remuneration
· the need for an internal audit function
· whistle-blowing policy
For the reasons set out in the AIC Guide, and as explained in the UK Corporate
Governance Code, the Board considers these provisions are not relevant to the
position of the Company as it is an externally managed investment company with
a Board formed exclusively of non-executive Directors. The Company has
therefore not reported further in respect of these provisions. The Company
does not have employees, hence no whistle-blowing policy is necessary.
However, the Directors have satisfied themselves that the Company’s service
providers have appropriate whistle-blowing policies and procedures and seek
regular confirmation from the service providers that nothing has arisen under
those policies and procedures which should be brought to the attention of the
Board.
The Company has adopted a policy that the composition of the Board of
Directors is at all times such that (i) a majority of the Directors are
independent of the Manager and any company in the same group as the Manager
(the “Manager’s Group”); (ii) the Chairman of the Board of Directors is
free from any conflicts of interest and is independent of the Manager’s
Group; and (iii) no more than one director, partner, employee or professional
adviser to the Manager’s Group may be a Director of the Company at any one
time.
The Company has adopted a Code of Directors’ dealings in securities.
The Company’s risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee and by the Board
at their meetings. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the risks to which
it is exposed.
In view of its non-executive and independent nature, the Board considers that
it is not necessary for there to be a Nomination Committee or a Remuneration
Committee as anticipated by the AIC Code. The Board as a whole fulfils the
functions of the Nomination and Remuneration Committees, although the Board
has included a separate Remuneration Report. The Board has adopted a
Nomination Policy covering procedures for nominations to the Board and to
Board committees.
For new appointments to the Board, nominations are sought from the Directors
and from other relevant parties and candidates are then interviewed by an ad
hoc committee of independent Directors. The Board has a breadth of experience
relevant to the Company, and the Directors believe that any changes to the
Board’s composition can be managed without undue disruption. An induction
programme is provided for newly-appointed Directors.
In line with the AIC Code, Section 21.3 of the Company’s Articles requires
all Directors to retire at each Annual General Meeting. At the Annual General
Meeting of the Company on 23 June 2017, Shareholders re-elected all the
Directors of the Company, with the exception of Ian Plenderleith who did not
put himself forward for re-election.
The Board regularly reviews its composition and believes that the current
appointments provide an appropriate range of skill, experience and diversity.
The Board, Audit Committee and Management Engagement Committee undertake an
evaluation of their own performance and that of individual Directors on an
annual basis. In order to review their effectiveness, the Board and its
Committees carry out a process of formal self-appraisal. The Board and
Committees consider how they function as a whole and also review the
individual performance of their members. This process is conducted by the
respective Chairman reviewing the Directors’ performance, contribution and
commitment to the Company.
Until his appointment as Chairman on 23 June 2017, Huw Evans, as Senior
Independent Director, took the lead in reviewing the performance of the
previous Chairman. Effective from 23 June 2017, Colin Maltby, as Senior
Independent Director, has taken the lead in reviewing the performance of the
Chairman. The Chairman also has responsibility for assessing the individual
Board members’ training requirements.
The most recent external evaluation of the Board’s performance was completed
in February 2018. The evaluation confirmed that the Board works in a
collegiate, harmonious and effective manner and made a number of
recommendations for the medium term structure of the Board which will be
adopted if the Company continues beyond any discontinuation vote in early
2019.
The Board needs to ensure that the Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
Shareholders to assess the Company’s performance, business model and
strategy. In seeking to achieve this, the Directors have set out the
Company’s investment objective and policy and have explained how the Board
and its delegated Committees operate and how the Directors review the risk
environment within which the Company operates and set appropriate risk
controls. Furthermore, throughout the Annual Report the Board has sought to
provide further information to enable Shareholders to better understand the
Company’s business and financial performance.
Policy to Combat Fraud, Bribery and Corruption
The Board has adopted a formal policy to combat fraud, bribery and corruption.
The policy applies to the Company and to each of its Directors. Further, the
policy is shared with each of the Company’s service providers.
In respect of the UK Criminal Finances Act 2017 which has introduced a new
Corporate Criminal Offence of ‘failing to take reasonable steps to prevent
the facilitation of tax evasion’, the Board confirm that it is committed to
preventing the facilitation of tax evasion and takes all reasonable steps to
do so.
Ongoing Charges
Ongoing charges for the year ended 31 December 2017 and 31 December 2016 have
been prepared in accordance with the AIC’s recommended methodology.
The following table presents the Ongoing Charges for each share class.
31.12.17
US Dollar *Euro Sterling
Shares Shares Shares
Company – Ongoing Charges 1.46% 1.76% 1.19%
Master Fund – Ongoing Charges 0.65% 0.66% 0.65%
Performance fee 0.00% 0.00% 0.00%
Ongoing Charges plus performance fee 2.11% 2.42% 1.84%
* The Euro share class closed on 29 June 2017.
31.12.16
US Dollar Euro Sterling
Shares Shares Shares
Company – Ongoing Charges 2.14% 2.18% 2.15%
Master Fund – Ongoing Charges 0.63% 0.63% 0.63%
Performance fee 0.00% 0.00% 0.05%
Ongoing Charges plus performance fee 2.77% 2.81% 2.83%
The Master Fund’s Ongoing Charges represent the portion of the Master
Fund’s operating expenses which have been allocated to the Company. The
Company invests substantially all of its investable assets in ordinary US
Dollar and Sterling denominated Class B shares issued by the Master Fund. It
also invested in Euro shares issued by the Master Fund until the closure of
the Company’s Euro share class in June 2017. These shares are not subject to
management fees and performance fees within the Master Fund. The Master
Fund’s operating expenses include an operational services fee payable to the
Manager of 1/12 of 0.5% per month of the NAV. Please refer to Note 4, which
explains changes to the calculation methodology during the prior year.
Audit Committee
The Company’s Audit Committee conducts formal meetings at least three times
a year for the purpose, amongst others, of considering the appointment,
independence, effectiveness of the audit and remuneration of the auditors and
to review and recommend the annual statutory accounts and interim report to
the Board of Directors. Full details of its function and activities are set
out in the Report of the Audit Committee.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee meets formally at
least once a year and comprises Huw Evans, Colin Maltby Claire Whittet and
John Le Poidevin. Ian Plenderleith was also on the Committee until his
retirement on 23 June 2017. Claire Whittet is the Chair of the Management
Engagement Committee.
The function of the Management Engagement Committee is to ensure that the
Company’s Management Agreement is competitive and reasonable for the
Shareholders, along with the Company’s agreements with all other third party
service providers (other than the Independent Auditors). The Terms of
Reference of the Management Engagement Committee are available from the
Administrator.
The principal contents of the Manager’s contract and notice period are
contained in note 4 to the Financial Statements.
The Board continuously monitors the performance of the Manager and a review of
the Manager is conducted by the Management Engagement Committee annually.
The Manager has wide experience in managing and administering investment
companies and has access to extensive investment management resources.
At its meeting on 15 September 2017, the Management Engagement Committee
concluded that the continued appointment of the Manager on the terms agreed
was in the interests of the Company’s Shareholders as a whole. At the date
of this report, the Board continues to be of the same opinion.
Internal Controls
Responsibility for the establishment and maintenance of an appropriate system
of internal control rests with the Board and to achieve this, a process has
been established which seeks to:
· Review the risks faced by the Company and the controls
in place to address those risks;
· Identify and report changes in the risk environment;
· Identify and report changes in the operational
controls;
· Identify and report on the effectiveness of controls
and errors arising; and
· Ensure no override of controls by its service
providers, the Manager and Administrator.
A report is tabled and discussed at each Audit Committee meeting, and reviewed
once a year by the Board, setting out the Company’s risk exposure and the
effectiveness of its risk management and internal control systems. The Board
believes that the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
The Board has delegated the management of the Company, the administration,
corporate secretarial and registrar functions including the independent
calculation of the Company’s NAV and the production of the Annual Report and
Financial Statements, which are independently audited. Whilst the Board
delegates these functions, it remains responsible for the functions it
delegates and for the systems of internal control. Formal contractual
agreements have been put in place between the Company and the providers of
these services. On an ongoing basis, Board reports are provided at each
quarterly Board meeting from the Manager, Administrator and Company Secretary
and Registrar. A representative from the Manager is asked to attend these
meetings.
In common with most investment companies, the Company does not have an
internal audit function. All of the Company’s management functions are
delegated to the Manager, Administrator and Company Secretary and Registrar
which have their own internal audit and risk assessment functions.
Further reports are received from the Administrator in respect of compliance,
London Stock Exchange continuing obligations and other matters. The reports
were reviewed by the Board. No material adverse findings were identified in
these reports.
Packaged Retail and Insurance Based Investment Products (“PRIIPs”)
The Company is subject to a new European Union Regulation (2017/653) (‘the
Regulation’) which deems it to be a PRIIP. In accordance with the
requirements of the Regulation, the Company published its first standardised
three-page Key Information Document (‘KID’) on 21 December 2017. The KID
is available on the Company’s website www.bhmacro.com and will be updated at
least every 12 months.
Principal Risks and Uncertainties
The Board is responsible for the Company’s system of internal controls and
for reviewing its effectiveness. The Board is satisfied that by using the
Company’s risk matrix in establishing the Company’s system of internal
controls, while monitoring the Company’s investment objective and policy,
the Board has carried out a robust assessment of the principal risks and
uncertainties facing the Company. The principal risks and uncertainties which
have been identified and the steps which are taken by the Board to mitigate
them are as follows:
· Investment Risks: The Company is exposed to the risk that its
portfolio fails to perform in line with the Company’s objectives if it is
inappropriately invested or markets move adversely. The Board reviews reports
from the Manager, which has total discretion over portfolio allocation, at
each quarterly Board meeting, paying particular attention to this allocation
and to the performance and volatility of underlying investments;
· Operational Risks: The Company is exposed to the risks arising
from any failure of systems and controls in the operations of the Manager or
the Administrator. The Board receives reports annually from the Manager and
Administrator on their internal controls;
· Accounting, Legal and Regulatory Risks: The Company is exposed
to risk if it fails to comply with the regulations of the UK Listing Authority
or if it fails to maintain accurate accounting records. The Administrator
provides the Board with regular reports on changes in regulations and
accounting requirements; and
· Financial Risks: The financial risks faced by the Company
include market, credit and liquidity risk. These risks and the controls in
place to mitigate them are reviewed at each quarterly Board meeting.
The Board reviews and updates the risk matrix to reflect any changes in the
control environment.
International Tax Reporting
For 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 (5QHZVI.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 CRS
replaced the intergovernmental agreement between the UK and Guernsey to
improve international tax compliance that had previously applied in respect of
2014 and 2015. The Company made its first report for CRS to the Director of
Income Tax on 22 June 2017.
Relations with Shareholders
The Board welcomes Shareholders’ views and places great importance on
communication with the Company’s Shareholders. The Board receives regular
reports on the views of Shareholders and the Chairman and other Directors are
available to meet Shareholders if required. The Annual General Meeting of the
Company provides a forum for Shareholders to meet and discuss issues with the
Directors of the Company. The Company provides weekly unaudited estimates of
NAV, month end unaudited estimates and unaudited final NAVs. The Company also
provides a monthly newsletter. These are published via RNS and are also
available on the Company’s website. Risk reports of the Master Fund are also
available on the Company’s website.
The Manager maintains regular dialogue with institutional Shareholders, the
feedback from which is reported to the Board. Shareholders who wish to
communicate with the Board should contact the Administrator in the first
instance.
Having reviewed the Financial Conduct Authority’s restrictions on the retail
distribution of non-mainstream pooled investments, the Company, after taking
legal advice, announced on 15 January 2014 that it is outside the scope of
those restrictions, so that its shares can continue to be recommended by UK
authorised persons to ordinary retail investors.
Significant Shareholders
As at 31 December 2017, the following Shareholders had significant
shareholdings in the Company:
% holding
Total Shares Held in class
Significant Shareholders
US Dollar Shares
Vidacos Nominees Limited 916,047 32.93%
Hero Nominees Limited 397,307 14.28%
The Bank of New York (Nominees) Limited 261,086 9.38%
HSBC Global Custody Nominee (UK) Limited 227,610 8.18%
Pershing Nominees Limited 156,543 5.63%
Luna Nominees Limited 145,017 5.21%
Lynchwood Nominees Limited 118,691 4.27%
Euroclear Nominees Limited 105,547 3.79%
% holding
Total Shares Held in class
Significant Shareholders
Sterling Shares
Ferlim Nominees Limited 2,299,861 16.37%
Rathbone Nominees Limited 1,169,840 8.33%
The Bank of New York (Nominees) Limited 1,093,471 7.78%
Harewood Nominees Limited 918,489 6.54%
Pershing Nominees Limited 844,857 6.01%
HSBC Global Custody Nominee (UK) Limited 778,704 5.54%
Vidacos Nominees Limited 726,121 5.17%
BNY (OCS) Nominees Limited 651,641 4.64%
Brooks Macdonald Nominees Limited 606,458 4.32%
Smith & Williamson Nominees Limited 578,868 4.12%
State Street Nominees Limited 563,388 4.01%
Nortrust Nominees Limited 488,762 3.48%
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
22 March 2018
Statement of Directors’ Responsibility in Respect of the Annual Report and
Audited Financial Statements
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they elected to prepare the financial
statements in accordance with accounting principles generally accepted in the
United States of America and applicable law.
Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period. In preparing
these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable, relevant and reliable;
* state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
* assess the Company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
* use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial
report
We confirm that to the best of our knowledge:
* so far as each of the Directors is aware, there is no relevant audit
information of which the Company’s Independent Auditor is unaware, and each
has taken all the steps they ought to have taken as a Director to make
themselves aware of any relevant information and to establish that the
Company’s Independent Auditor is aware of that information;
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
* the Chairman’s Statement, Directors’ Report and Manager’s Report
includes a fair review of the development and performance of the business and
the position of the Company, together with a description of the principal
risks and uncertainties that it faces.
We consider the annual report and audited financial statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and performance,
business model and strategy.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
22 March 2018
Directors’ Remuneration Report
31 December 2017
Introduction
An ordinary resolution for the approval of the Directors’ Remuneration
Report will be put to the Shareholders at the Annual General Meeting to be
held in 2018.
Remuneration policy
All Directors are non-executive and a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the
Directors’ remuneration. No advice or services were provided by any external
person in respect of its consideration of the Directors’ remuneration.
The Company’s policy is that the fees payable to the Directors should
reflect the time spent by the Directors on the Company’s affairs and the
responsibilities borne by the Directors and be sufficient to attract, retain
and motivate Directors of a quality required to run the Company successfully.
The Chairman of the Board is paid a higher fee in recognition of his
additional responsibilities, as are the Chairs of the Audit Committee, the
Management Engagement Committee and the Senior Independent Director. The
policy is to review fee rates periodically, although such a review will not
necessarily result in any changes to the rates, and account is taken of fees
paid to Directors of comparable companies.
There are no long term incentive schemes provided by the Company and no
performance fees are paid to Directors.
No Director has a service contract with the Company but each of the Directors
is appointed by a letter of appointment which sets out the main terms of their
appointment. The Directors were appointed to the Board for an initial term of
three years and Section 21.3 of the Company’s Articles requires, as does the
AIC Code, that all of the Directors retire at each Annual General Meeting. At
the Annual General Meeting of the Company on 23 June 2017, Shareholders
re-elected all the Directors except Ian Plenderleith who did not put himself
forward for re-election. Director appointments can also be terminated in
accordance with the Articles. Should Shareholders vote against a Director
standing for re-election, the Director affected will not be entitled to any
compensation. There are no set notice periods and a Director may resign by
notice in writing to the Board at any time.
Directors are remunerated in the form of fees, payable quarterly in arrears,
to the Director personally.
No other remuneration or compensation was paid or payable by the Company
during the year to any of the Directors apart from the reimbursement of
allowable expenses.
Directors’ fees
The Company’s Articles limit the fees payable to Directors in aggregate to
£400,000 per annum. Until
30 June 2017, the annual fees were £167,000 for the Chairman, £37,500 for
Chairs of both the Audit Committee and the Management Engagement Committee and
£34,000 for all other Directors.
Changes to the annual fees were made at the Board meeting held on 23 June
2017. Effective from
1 July 2017, the annual fees are £65,000 for the Chairman, £47,500 for Chair
of the Audit Committee, £45,000 for each of the Chair of the Management
Engagement Committee and the Senior Independent Director.
The fees payable by the Company in respect of each of the Directors who served
during the years ended 31 December 2017 and 31 December 2016, were as follows:
Year Year
ended ended
31.12.17 31.12.16
£ £
Huw Evans 51,250 37,500
Ian Plenderleith*** *79,611 167,000
David Barton N/A Nil
Christopher Legge N/A **18,750
John Le Poidevin 40,750 **17,000
Colin Maltby 39,500 34,000
Claire Whittet 41,250 35,750
Total 252,361 310,000
* Fees are pro rata for length of service during the year
ended 31 December 2017.
** Fees are pro rata for length of service during the year
ended 31 December 2016.
*** Ian Plenderleith retired from the Board on 23 June 2017.
**** David Barton resigned from and Christopher Legge retired from the
board on 29 February 2016 and 24 June 2016 respectively.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
22 March 2018
Report of the Audit Committee
31 December 2017
We present the Audit Committee’s (the “Committee”) Report for 2017,
setting out the Committee’s structure and composition, principal duties and
key activities during the year. As in previous years, the Committee has
reviewed the Company’s financial reporting, the independence and
effectiveness of the Independent Auditor and the internal control and risk
management systems of the service providers.
Structure and Composition
The Committee consists of John Le Poidevin, Colin Maltby and Claire Whittet.
Colin Maltby was appointed Audit Committee member on 23 June 2017. Huw Evans
was also a member of the Committee and served as the Chairman until 23 June
2017. On that date, John Le Poidevin was appointed Committee Chairman.
Appointment to the Committee is for a period up to three years which may be
extended for two further three year periods provided that the majority of the
Committee remains independent of the Manager. Prior to 23 June 2017, Huw Evans
was serving his third term. Claire Whittet is currently serving her second
term and John Le Poidevin and Colin Maltby are each serving their first term.
The Committee conducts formal meetings at least three times a year. The table
in the Directors’ Report sets out the number of Committee meetings held
during the year ended 31 December 2017 and the number of such meetings
attended by each committee member. The Independent Auditor is invited to
attend those meetings at which the annual and interim reports are considered.
The Independent Auditor and the Committee will meet together without
representatives of either the Administrator or Manager being present if the
Committee considers this to be necessary.
Principal duties
The role of the Committee includes:
* monitoring the integrity of the published Financial Statements of the
Company;
* reviewing and reporting to the Board on the significant issues and
judgements made in the preparation of the Company’s published Financial
Statements, (having regard to matters communicated by the Independent
Auditor), significant financial returns to regulators and other financial
information;
* monitoring and reviewing the quality and effectiveness of the Independent
Auditor and their independence;
* considering and making recommendations to the Board on the appointment,
reappointment, replacement and remuneration to the Company’s Independent
Auditor; and
* monitoring and reviewing the internal control and risk management systems of
the service providers.
The complete details of the Committee’s formal duties and responsibilities
are set out in the Committee’s Terms of Reference, which can be obtained
from the Company’s Administrator.
The independence and objectivity of the Independent Auditor is reviewed by the
Committee, which also reviews the terms under which the Independent Auditor is
appointed to perform non-audit services, which includes consideration of the
2016 Financial Reporting Council Ethical Standard. The Committee has also
established policies and procedures for the engagement of the auditor to
provide audit, assurance and other services. The services which the
Independent Auditor may not provide are any which:
* places them in a position to audit their own work;
* creates a mutuality of interest;
* results in the Independent Auditor functioning as a manager or employee of
the Company; or
* puts the Independent Auditor in the role of advocate of the Company.
Independent Auditor
The audit and any non-audit fees proposed by the Independent Auditor each year
are reviewed by the Committee taking into account the Company’s structure,
operations and other requirements during the period and the Committee makes
recommendations to the Board.
KPMG Channel Islands Limited (“KPMG CI”) has been the Company’s
Independent Auditor from the date of the initial listing on the London Stock
Exchange. The external audit was most recently tendered for the year ended 31
December 2016, where KPMG CI was re-appointed as auditor following the
completion of the tender process.
Key Activities in 2017
The following sections discuss the assessment made by the Committee during the
year:
Significant Financial Statement Issues
The Committee’s review of the interim and annual Financial Statements
focused on the following area:
The Company’s investment in the Master Fund had a fair value of US$464.7
million as at
31 December 2017 and represents substantially all the net assets of the
Company. The valuation of the investment is determined in accordance with the
Accounting Policies set out in note 3 to the Audited Financial Statements. The
Financial Statements of the Master Fund for the year ended 31 December 2017
were audited by KPMG Cayman who issued an unqualified audit opinion dated 21
March 2018. The Audit Committee has reviewed the Financial Statements of the
Master Fund and the Accounting Policies and determined the fair value of the
investment as at 31 December 2017 is reasonable.
This matter was discussed during the planning and final stage of the audit and
there was no significant divergence of views between the Committee and the
Independent Auditor.
The Committee has carried out a robust assessment of the risks to the Company
in the context of making the viability statement in these Financial
Statements. Furthermore, the Committee has concluded it appropriate to
continue to prepare the Financial Statements on the going concern basis of
accounting.
Effectiveness of the Audit
The Committee held formal meetings with KPMG CI during the course of the year:
1) before the start of the audit to discuss formal planning, to discuss any
potential issues and to agree the scope that would be covered; and 2) after
the audit work was concluded to discuss the significant issues including those
stated above.
The Committee considered the effectiveness and independence of KPMG CI by
using a number of measures, including but not limited to:
* Reviewing the audit plan presented to them before the start of the audit;
* Reviewing and challenging the audit findings report including variations
from the original plan;
* Reviewing any changes in audit personnel; and
* Requesting feedback from both the Manager and the Administrator.
Further to the above, during the year, the Committee performed a specific
evaluation of the performance of the Independent Auditor. This was supported
by the results of questionnaires completed by the Committee covering areas
such as the quality of the audit team, business understanding, audit approach
and management. This questionnaire was part of the process by which the
Committee assessed the effectiveness of the audit. There were no significant
adverse findings from the 2017 evaluation.
Audit fees and Safeguards on Non-Audit Services
The table below summarises the remuneration paid by the Company to KPMG CI for
audit and non-audit services during the years ended 31 December 2017 and 31
December 2016.
Year Year
ended Ended
31.12.17 31.12.16
£ £
Annual audit 28,000 28,000
Interim review 8,800 8,800
Specified procedures relating to the 31 March 2017 Tender offer 10,000 –
Specified procedures relating to the 31 May 2016 Tender offer – 15,000
The Audit Committee has examined the scope and results of the external audit,
its cost effectiveness and the independence and objectivity of the Independent
Auditor, with particular regard to non-audit fees, and considers KPMG CI, as
Independent Auditor, to be independent of the Company. Further, the Committee
has obtained KPMG CI’s confirmation that the services provided by other KPMG
member firms to the wider Brevan Howard organisation do not prejudice its
independence.
Internal Control
The Audit Committee has also reviewed the need for an internal audit function.
The Committee has concluded that the systems and procedures employed by the
Manager and the Administrator, including their own internal audit functions,
currently provide sufficient assurance that a sound system of internal
control, which safeguards the Company’s assets, is maintained. An internal
audit function specific to the Company is therefore considered unnecessary.
The Committee examined externally prepared assessments of the control
environment in place at the Manager and the Administrator, with each providing
a Service Organisation Control (“SOC1”) report. No significant findings
have been noted during the year.
Conclusion and Recommendation
After reviewing various reports such as the operational and risk management
framework and performance reports from the Manager and Administrator,
consulting where necessary with KPMG CI, and assessing the significant
Financial Statement issues noted in the Report of the Audit Committee, the
Committee is satisfied that the Financial Statements appropriately address the
critical judgements and key estimates (both in respect to the amounts reported
and the disclosures). The Committee is also satisfied that the significant
assumptions used for determining the value of assets and liabilities have been
appropriately scrutinised and challenged and are sufficiently robust. At the
request of the Board, the Audit Committee considered and was satisfied that
the 2017 Annual Report and Audited Financial Statements are fair, balanced and
understandable and provide the necessary information for Shareholders to
assess the Company’s performance, business model and strategy.
The Independent Auditor reported to the Committee that no unadjusted material
misstatements were found in the course of its work. Furthermore, both the
Manager and the Administrator confirmed to the Committee that they were not
aware of any unadjusted material misstatements including matters relating to
the presentation of the Financial Statements. The Committee confirms that it
is satisfied that the Independent Auditor has fulfilled its responsibilities
with diligence and professional scepticism.
Consequent to the review process on the effectiveness of the independent audit
and the review of audit and non-audit services, the Committee has recommended
that KPMG CI be reappointed for the coming financial year.
For any questions on the activities of the Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend each
Annual General Meeting to respond to such questions.
John Le Poidevin
Audit Committee Chairman
22 March 2018
Manager’s Report
Brevan Howard Capital Management LP is the Manager of the Company and of
Brevan Howard Master Fund Limited (the “Master Fund”). The Company invests
all of its assets (net of short-term working capital) in the ordinary shares
of the Master Fund.
Performance Review
The month-by-month NAV performance of each currency class of the Company since
it commenced operations in 2007 is set out below. The Euro share class closed
in June 2017.
USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 - - 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27
2008 9.89 6.70 (2.79) (2.48) 0.77 2.75 1.13 0.75 (3.13) 2.76 3.75 (0.68) 20.32
2009 5.06 2.78 1.17 0.13 3.14 (0.86) 1.36 0.71 1.55 1.07 0.37 0.37 18.04
2010 (0.27) (1.50) 0.04 1.45 0.32 1.38 (2.01) 1.21 1.50 (0.33) (0.33) (0.49) 0.91
2011 0.65 0.53 0.75 0.49 0.55 (0.58) 2.19 6.18 0.40 (0.76) 1.68 (0.47) 12.04
2012 0.90 0.25 (0.40) (0.43) (1.77) (2.23) 2.36 1.02 1.99 (0.36) 0.92 1.66 3.86
2013 1.01 2.32 0.34 3.45 (0.10) (3.05) (0.83) (1.55) 0.03 (0.55) 1.35 0.40 2.70
2014 (1.36) (1.10) (0.40) (0.81) (0.08) (0.06) 0.85 0.01 3.96 (1.73) 1.00 (0.05) 0.11
2015 3.14 (0.60) 0.36 (1.28) 0.93 (1.01) 0.32 (0.78) (0.64) (0.59) 2.36 (3.48) (1.42)
2016 0.71 0.73 (1.77) (0.82) (0.28) 3.61 (0.99) (0.17) (0.37) 0.77 5.02 0.19 6.63
2017 (1.47) 1.91 (2.84) 3.84 (0.60) (1.39) 1.54 0.19 (0.78) (0.84) 0.20 0.11 (0.30)
EUR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 - - 0.05 0.70 0.02 2.26 2.43 3.07 5.65 (0.08) 2.85 0.69 18.95
2008 9.92 6.68 (2.62) (2.34) 0.86 2.84 1.28 0.98 (3.30) 2.79 3.91 (0.45) 21.65
2009 5.38 2.67 1.32 0.14 3.12 (0.82) 1.33 0.71 1.48 1.05 0.35 0.40 18.36
2010 (0.30) (1.52) 0.03 1.48 0.37 1.39 (1.93) 1.25 1.38 (0.35) (0.34) (0.46) 0.93
2011 0.71 0.57 0.78 0.52 0.65 (0.49) 2.31 6.29 0.42 (0.69) 1.80 (0.54) 12.84
2012 0.91 0.25 (0.39) (0.46) (1.89) (2.20) 2.40 0.97 1.94 (0.38) 0.90 1.63 3.63
2013 0.97 2.38 0.31 3.34 (0.10) (2.98) (0.82) (1.55) 0.01 (0.53) 1.34 0.37 2.62
2014 (1.40) (1.06) (0.44) (0.75) (0.16) (0.09) 0.74 0.18 3.88 (1.80) 0.94 (0.04) (0.11)
2015 3.34 (0.61) 0.40 (1.25) 0.94 (0.94) 0.28 (0.84) (0.67) (0.60) 2.56 (3.22) (0.77)
2016 0.38 0.78 (1.56) (0.88) (0.38) 3.25 (0.77) 0.16 (0.56) 0.59 5.37 0.03 6.37
2017 (1.62) 1.85 (3.04) 0.54 (0.76) * (3.07)
*As previously announced by the Company, the Company determined that all
remaining shares in the Euro share class be converted into Sterling shares
effective as of 29 June 2017 and all Euro shares held by the Company in
treasury were cancelled on that date. The Euro share class has been closed and
its listing has been cancelled.
GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 - - 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67
2008 10.18 6.85 (2.61) (2.33) 0.95 2.91 1.33 1.21 (2.99) 2.84 4.23 (0.67) 23.25
2009 5.19 2.86 1.18 0.05 3.03 (0.90) 1.36 0.66 1.55 1.02 0.40 0.40 18.00
2010 (0.23) (1.54) 0.06 1.45 0.36 1.39 (1.96) 1.23 1.42 (0.35) (0.30) (0.45) 1.03
2011 0.66 0.52 0.78 0.51 0.59 (0.56) 2.22 6.24 0.39 (0.73) 1.71 (0.46) 12.34
2012 0.90 0.27 (0.37) (0.41) (1.80) (2.19) 2.38 1.01 1.95 (0.35) 0.94 1.66 3.94
2013 1.03 2.43 0.40 3.42 (0.08) (2.95) (0.80) (1.51) 0.06 (0.55) 1.36 0.41 3.09
2014 (1.35) (1.10) (0.34) (0.91) (0.18) (0.09) 0.82 0.04 4.29 (1.70) 0.96 (0.04) 0.26
2015 3.26 (0.58) 0.38 (1.20) 0.97 (0.93) 0.37 (0.74) (0.63) (0.49) 2.27 (3.39) (0.86)
2016 0.60 0.70 (1.78) (0.82) (0.30) 3.31 (0.99) (0.10) (0.68) 0.80 5.05 0.05 5.79
2017 (1.54) 1.86 (2.95) 0.59 (0.68) (1.48) 1.47 0.09 (0.79) (0.96) 0.09 (0.06) (4.35)
Source: Fund NAV data is provided by the administrator of the Fund,
International Fund Services (Ireland) Limited. BH Macro Limited (“BHM”)
NAV and NAV per Share data is provided by BHM’s administrator, Northern
Trust International Fund Administration Services (Guernsey) Limited. BHM NAV
per Share % Monthly Change is calculated by the Manager (“BHCM”). BHM NAV
data is unaudited and net of all investment management fees and all other fees
and expenses payable by BHM. In addition, the Fund is subject to an
operational services fee of 50bps per annum.
BHCM shall waive its entitlement to a management fee in respect of any
performance-related growth of BHM from 3 October 2016 onwards. In addition
BHM’s investment in the Fund will not bear an operational services fee in
respect of any performance-related growth from 3 October 2016 onwards.
Shares in the Company do not necessarily trade at a price equal to the
prevailing NAV per Share.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
The NAV per share of the USD share class of the Company depreciated by 0.30%
in 2017, and the NAV per share of the Sterling shares depreciated by 4.35% in
2017. At the start of the year, the Master Fund was positioned for a
continuation of the “Trump Trade” that had been in-play since the election
victory of President Trump in November 2016. The largest exposures were long
positions in the US dollar, US equities and interest rate volatility combined
with short positions in US, Japanese and UK interest rate markets.
Furthermore, given the upcoming elections in France, Germany, Netherlands and
possibly Italy, the Master Fund was also positioned for an increase in
volatility within European markets. This view was expressed via swap spread
and government bond relative value positions together with option and
volatility positions in rates and the euro currency.
The reversal, early on in the year, in the direction of the US dollar and
euro, together with the lack of directional follow-through in US interest
rates led to losses, which were partially offset by gains from the European
trades.
Losses in Q2 stemmed partially from the very benign outcome in the first round
of the French election. Positions designed to benefit from an increase in
volatility during the election, without taking a view on the eventual outcome,
suffered as a result. These losses were further compounded as the likelihood
of snap elections in Italy receded.
During the second half of the year, in what were largely trendless markets,
the Master Fund’s performance was approximately flat. Positioning in the
euro currency was reversed with long euro positions generating profits early
in Q3. European swap spread and relative-value bond trading detracted slightly
as did volatility positioning across several markets.
The Master Fund’s value at risk (“VaR”) fell during the second half of
the year to levels in line with recent historic norms, although we would
caution that during extended periods of low volatility VaR can be a poor
measure of P&L potential, particularly for a portfolio that contains option
strategies with asymmetric pay-offs.
Commentary and Outlook
The global expansion accelerated and broadened in 2017, leaving behind
lingering worries about downside risks. At the same time, inflation remained
calm in most major economies, except the UK which experienced a sharp increase
on the heels of the Brexit-related fall in Sterling. The combination of strong
growth and generally modest inflation led to a continuation of monetary policy
trends, with the US and Canada gradually removing policy accommodation, the
Euro area tapering asset purchases, and Japan maintaining a high level of
accommodation. Political risks that loomed large at the start of 2017, such as
the upcoming elections in France, Germany, Netherlands and possibly Italy,
were favourably resolved with little disruption. This favourable backdrop
buoyed financial markets, leading to record highs in many global equity
markets, relatively low interest rates, and tight credit spreads.
As we enter the ninth year of the expansion in 2018, the ageing business cycle
would typically be displaying late-cycle dynamics of slower growth and rising
inflation. However, this cycle is defying that pattern. Economic activity
appears to be accelerating further above trend in most economies and inflation
pressures are only beginning to emerge. Despite the age of the business cycle,
the data suggest that this cycle is behaving more mid-cycle or even
early-cycle in certain sectors like manufacturing. Underpinning this dynamic
are the early signs that business investment and productivity are picking up
from the doldrums. If those trends continue, they could have far reaching
consequences, including continued support for risk assets, higher equilibrium
interest rates, and an end to secular stagnation. Tax reform in the US is a
further tailwind promoting growth and investment in an economy that’s
already operating above its potential. If these favorable trends persist,
there will be pressure on central banks to provide less accommodation going
forward. Policy makers will face a tricky balancing act between strong growth
and easy financial conditions, on the one hand, and inflation that generally
remains below target, on the other hand.
We look forward to exploiting any opportunities that these factors may create.
Brevan Howard wishes to thank shareholders once again for their continued
support.
Brevan Howard Capital Management LP,
acting by its sole general partner,
Brevan Howard Capital Management Limited.
22 March 2018
Independent Auditor’s Report to the Members of BH Macro Limited
Our opinion is unmodified
We have audited the financial statements of BH Macro Limited (the
“Company”), which comprise the Audited Statement of Assets and Liabilities
as at 31 December 2017, the Audited Statements of Operations, Changes in Net
Assets and Cash Flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
* give a true and fair view of the financial position of the Company as at 31
December 2017, and of the Company’s financial performance and the
Company’s cash flows for the year then ended;
* are prepared in conformity with United States Generally Accepted Accounting
Principles; and
* comply with the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities are described below.
We have fulfilled our ethical responsibilities under, and are independent of
the Company in accordance with, UK ethical requirements including FRC Ethical
Standards as applied to listed entities. We believe that the audit evidence we
have obtained is a sufficient and appropriate basis for our opinion.
Key Audit Matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the key audit matter was as
follows (unchanged from 2016):
The risk Our response
Valuation of Investment in Brevan Howard Master Fund Limited (the “Master Fund”) Basis: Our audit procedures included, but were not limited to:
$464,663,000; The Company, which is a multi-class feeder fund, had invested 99.9% of its net assets at 31 December 2017 into the ordinary US Dollar and Sterling denominated Class B Shares issued by the Master Fund, which is an open ended investment company.
(2016: $847,761,000)
The Company’s investment holdings in the Master Fund are valued using the respective net asset value per share class as provided by the Master Fund’s administrator.
Refer to the Report of the Audit Committee and note 3 accounting policy
The valuation of the Company’s Investment in the Master Fund, given it represents the majority of the net assets of the Company, is a significant area of our audit.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at $13,959,000,
determined with reference to a benchmark of Net Assets of $465,318,000 of
which it represents approximately 3% (2016: 3%).
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding $697,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
We have nothing to report on going concern
We are required to report to you if we have anything material to add or draw
attention to in relation to the directors’ statement in note 3 to the
financial statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the Company’s
use of that basis for a period of at least twelve months from the date of
approval of the financial statements. We have nothing to report in this
respect.
We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and we do not
express an audit opinion or any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we
have nothing material to add or draw attention to in relation to:
* the directors’ confirmation within the Viability Statement that they have
carried out a robust assessment of the principal risks facing the Company,
including those that would threaten its business model, future performance,
solvency or liquidity;
* the Principal Risks disclosures describing these risks and explaining how
they are being managed or mitigated; and
* the directors’ explanation in the Viability Statement as to how they have
assessed the prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
* we have identified material inconsistencies between the knowledge we
acquired during our financial statements audit and the directors’ statement
that they consider that the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and performance,
business model and strategy; or
* the section of the annual report describing the work of the Audit Committee
does not appropriately address matters communicated by us to the Audit
Committee.
We are required to report to you if the Corporate Governance Statement does
not properly disclose a departure from the eleven provisions of the 2016 UK
Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
• the Company has not kept proper accounting records; or
• the financial statements are not in agreement with the
accounting records; or
• we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the purpose of
our audit.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement, the Directors are responsible for:
the preparation of the financial statements including being satisfied that
they give a true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than
the Company’s members as a body
This report is made solely to the Company’s members, as a body, in
accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit
work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for the opinions
we have formed.
Barry T. Ryan
for and on behalf of KPMG CHANNEL ISLANDS LIMITED
Chartered Accountants and Recognised Auditors, Guernsey
22 March 2018
Audited Statement of Assets and Liabilities
As at 31 December 2017
31.12.17 31.12.16
US$'000 US$'000
Assets
Investment in the Master Fund 464,663 847,761
Prepaid expenses 44 76
Cash and bank balances denominated in US Dollars 189 5,564
Cash and bank balances denominated in Euro - 1,087
Cash and bank balances denominated in Sterling 891 12,252
Total assets 465,787 866,740
Liabilities
Performance fees payable (note 4) - 318
Management fees payable (note 4) 197 1,386
Accrued expenses and other liabilities 169 56
Directors' fees payable 70 95
Administration fees payable (note 4) 33 42
Total liabilities 469 1,897
Net assets 465,318 864,843
Number of shares in issue (note 5)
US Dollar shares 2,782,034 9,975,524
Euro shares - 1,514,872
Sterling shares 14,046,048 22,371,669
Net asset value per share (notes 7 and 9)
US Dollar shares US$21.62 US$21.68
Euro shares - €21.87
Sterling shares £21.47 £22.44
See accompanying notes to the Audited Financial Statements.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
22 March 2018
Audited Statement of Operations
For the year ended 31 December 2017
01.01.17 01.01.16
to 31.12.17 to 31.12.16
US$'000 US$'000
Net investment loss allocated from the Master Fund
Interest income 1,190 18,854
Dividend income (net of withholding tax:
31 December 2017: US$19,017; 31 December 2016: US$26,177) 62 73
Expenses (12,274) (20,785)
Net investment loss allocated from the Master Fund (11,022) (1,858)
Company income
Fixed deposit income 2 -
Foreign exchange gains (note 3) 50,659 (159,828)
Total Company income 50,661 (159,828)
Company expenses
Performance fees (note 4) - 351
Management fees (note 4) 14,369 20,871
Other expenses 1,575 1,766
Directors' fees 326 427
Administration fees (note 4) 141 208
Total Company expenses 16,411 23,623
Net investment gain/(loss) 23,228 (185,309)
Net realised and unrealised (loss)/gain on investments allocated from the Master Fund
Net realised gain on investments 11,279 43,035
Net unrealised loss on investments (29,782) (7,971)
Net realised and unrealised (loss)/gain on investments allocated from the Master Fund (18,503) 35,064
Net increase/(decrease) in net assets resulting from operations 4,725 (150,245)
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Changes in Net Assets
For the year ended 31 December 2017
01.01.17 01.01.16
to 31.12.17 to 31.12.16
US$'000 US$'000
Net increase/(decrease) in net assets resulting from operations
Net investment gain/(loss) 23,228 (185,309)
Net realised gain on investments allocated from the Master Fund 11,279 43,035
Net unrealised loss on investments allocated from the Master Fund (29,782) (7,971)
4,725 (150,245)
Share capital transactions
Purchase of own shares
US Dollar shares - (50,853)
Euro shares - (17,894)
Sterling shares - (124,878)
Tender offer
US Dollar shares (140,757) (70,174)
Euro shares (13,908) (17,827)
Sterling shares (249,585) (198,179)
Total share capital transactions (404,250) (479,805)
Net decrease in net assets (399,525) (630,050)
Net assets at the beginning of the year 864,843 1,494,893
Net assets at the end of the year 465,318 864,843
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Cash Flows
For the year ended 31 December 2017
01.01.17 01.01.16
to 31.12.17 to 31.12.16
US$'000 US$'000
Cash flows from operating activities
Net increase/(decrease) in net assets resulting from operations 4,725 (150,245)
Adjustments to reconcile net increase/(decrease) in net assets resulting from
operations to net cash provided by operating activities:
Net investment loss allocated from the Master Fund 11,022 1,858
Net realised gain on investments allocated from the Master Fund (11,279) (43,035)
Net unrealised loss on investments allocated from the Master Fund 29,782 7,971
Purchase of investment in the Master Fund (17,341) (32,746)
Proceeds from sale of investment in the Master Fund 414,331 549,978
Foreign exchange (gains)/losses (50,659) 159,828
Decrease in prepaid expenses 32 15
(Decrease)/increase in performance fees payable (318) 45
Decrease in management fees payable (1,189) (1,027)
Increase/(decrease) in accrued expenses and other liabilities 114 (128)
Decrease in directors' fees payable (25) (19)
Decrease in administration fees payable (9) (31)
Net cash provided by operating activities 379,186 492,464
Cash flows from financing activities
Purchase of own shares - (195,323)
Tender offer (404,250) (286,180)
Net cash used in financing activities (404,250) (481,503)
Change in cash (25,064) 10,961
Cash, beginning of the year 18,903 35,587
Effect of exchange rate fluctuations 7,241 (27,645)
Cash, end of the year 1,080 18,903
Cash, end of the year
Cash and bank balances denominated in US Dollars 189 5,564
Cash and bank balances denominated in Euro (1) - 1,087
Cash and bank balances denominated in Sterling (2) 891 12,252
1,080 18,903
1. Cash and bank balances in Euro (EUR'000) - 1,036
2. Cash and bank balances in Sterling (GBP'000) 664 10,022
See accompanying Notes to the Audited Financial Statements.
Notes to the Audited Financial Statements
For the year ended 31 December 2017
1. The Company
BH Macro Limited (the “Company”) is a limited liability closed-ended
investment company incorporated in Guernsey on 17 January 2007.
The Company was admitted to the Official List of the London Stock Exchange
(“LSE”) in 2007. It had maintained Secondary listings on the Bermuda Stock
Exchange and NASDAQ Dubai since 2008, but it de-listed from these two stock
exchanges on 30 September 2017 and 31 December 2017, respectively.
The Company offers multiple classes of ordinary shares, which differ in terms
of currency of issue. Currently, ordinary shares are issued in US Dollars and
Sterling.
On 29 November 2016, the Company announced a Tender Offer (the “Tender
Offer”) to acquire up to 100% of each class of the Company’s issued shares
at a price equivalent to 96% of NAV for the relevant class. The Tender Offer
was approved by Shareholders at meetings in February and March 2017 and
Shareholders holding 52% of the Company’s shares by prevailing NAV chose to
remain invested in the Company, with the remaining 48% of shares by value
being tendered for purchase at 96% of NAV for the relevant class. The
acquisition of shares pursuant to the Tender Offer was completed on 25 April
2017. Shares purchased in the Tender Offer were cancelled.
On 3 May 2017, the Company announced that, following the completion of the
Tender Offer, the NAV of the Euro share class would likely fall to below the
equivalent of US$25 million on the next net asset value calculation date on 31
May 2017 and, as stated in the shareholder circular for the Tender Offer, the
Company therefore intended to convert the remaining Euro shares into shares of
the Company’s largest share class following the Tender Offer, being Sterling
shares. Accordingly, the Company converted all remaining shares in the Euro
class into Sterling shares effective 29 June 2017 and all the Euro shares held
by the Company in Treasury were cancelled on that date. The Euro share class
then closed and its listing was cancelled.
2. Organisation
The Company is organised as a feeder fund and seeks to achieve its investment
objective by investing all of its investable assets, net of short-term working
capital requirements, in the ordinary US Dollar, Euro (up to the point of
closure) and Sterling denominated Class B shares issued by Brevan Howard
Master Fund Limited (the “Master Fund”), and, as such, the Company is
directly and materially affected by the performance and actions of the Master
Fund.
The Master Fund is an open-ended investment company with limited liability
formed under the laws of the Cayman Islands on 22 January 2003. The investment
objective of the Master Fund is to generate consistent long-term appreciation
through active leveraged trading and investment on a global basis. The Master
Fund employs a combination of investment strategies that focus primarily on
economic change and monetary policy and market inefficiencies. The underlying
philosophy is to construct strategies, often contingent in nature with
superior risk/return profiles, whose outcome will often be crystallised by an
expected event occurring within a pre-determined period of time. New trading
strategies will be added as investment opportunities present themselves.
As such the Audited Financial Statements of the Company should be read in
conjunction with the Audited Financial Statements of the Master Fund which can
be found on the Company’s website, www.bhmacro.com.
At the date of these Audited 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 the Master Fund. Furthermore, Brevan Howard
Multi-Strategy Master Fund Limited, another fund managed by the Manager,
invests some of its assets in the Master Fund as at the date of these
Financial Statements.
Off-balance sheet, market and credit risks of the Master Fund’s investments
and activities are discussed in the notes to the Master Fund’s Audited
Financial Statements. The Company’s investment in the Master Fund exposes it
to various types of risk, which are associated with the financial instruments
and markets in which the Brevan Howard underlying 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 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.
The Manager also manages the Master Fund and in that capacity, as at the date
of these Financial Statements, has delegated the function of investment
management of the Master Fund to Brevan Howard Asset Management LLP, Brevan
Howard (Hong Kong) Limited, Brevan Howard (Israel) Limited, Brevan Howard
Investment Products Limited, Brevan Howard US Investment Management LP, Brevan
Howard Private Limited, DW Partners, LP and BH-DG Systematic Trading LLP.
3. Significant accounting policies
The Annual Audited Financial Statements, which give a true and fair view, are
prepared in conformity with United States Generally Accepted Accounting
Principles and comply with the Companies (Guernsey) Law, 2008. The functional
and reporting currency of the Company is US Dollars.
As further described in the Directors’ Report, these Audited Financial
Statements have been prepared using the going concern basis of accounting.
The Company is an Investment Entity which has applied the provisions of
Accounting Standards Codification (“ASC”) 946.
The following are the significant accounting policies adopted by the Company:
Valuation of investments
The Company records its investment in the Master Fund at fair value. Fair
value is determined as the Company’s proportionate share of the Master
Fund’s capital, which approximates fair value. At 31 December 2017, the
Company is the sole investor in the Master Fund’s ordinary US Dollar and
Sterling Class B shares as disclosed below. Within the table below, the
investment in each share class in the Master Fund is included, with the
overall total investment shown in the Audited Statement of Assets and
Liabilities.
Percentage of Master Fund's capital NAV per Share Shares held in the Master Fund Investment in Master Fund Investment in Master Fund
(Class B) (Class B) CCY '000 US$'000
31 December 2017
US Dollar 1.25% $2,786.39 21,536 $60,007 60,007
Sterling 8.40% £2,901.80 103,788 £301,173 404,656
464,663
31 December 2016
US Dollar 1.76% $2,887.21 73,103 $211,064 211,064
Euro 0.29% €2,892.07 11,118 €32,152 33,722
Sterling 5.16% £3,038.32 162,324 £493,191 602,975
847,761
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 the Master Fund is
discussed in the notes to the Master Fund’s Audited Financial Statements
which are available on the Company’s website, www.bhmacro.com.
Income and expenses
The Company records monthly its proportionate share of the Master Fund’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 management 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.
Leverage
The Manager has discretion, subject to the prior approval of a majority of the
independent Directors, to employ leverage for and on behalf of the Company by
way of borrowings to effect share purchases or share buy-backs, to satisfy
working capital requirements and to finance further investments in the Master
Fund.
The Company may borrow up to 20% of its NAV, calculated as at the time of
borrowing. Additional borrowing over 20% of NAV may only occur if approved by
an ordinary resolution of the Shareholders.
Foreign exchange
Investment securities and other assets and liabilities of the Sterling share
class and, up until its closure, the Euro share class are, or were, translated
into US Dollars, the Company’s reporting currency, using exchange rates at
the reporting date. Transactions reported in the Audited Statement of
Operations are translated into US Dollar amounts at the date of such
transactions. The share capital and other capital reserve accounts are
translated at the historic rate ruling at the date of the transaction.
Exchange differences arising on translation are included in the Audited
Statement of Operations. This 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.
Allocation of results of the Master Fund
Net realised and unrealised gains/losses of the Master Fund are allocated to
the Company’s share classes based upon the percentage ownership of the
equivalent Master Fund class.
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 Company’s reserves.
When such shares are subsequently sold or reissued to the market, any
consideration received, net of any directly attributable incremental
transaction costs, is recognised as an increase in equity Shareholders’
funds through the share capital account. Where the Company cancels treasury
shares, no further adjustment is required to the share capital account of the
Company at the time of cancellation. Shares held in treasury are excluded from
calculations when determining NAV per share as detailed in note 7 and in the
Financial Highlights in note 9.
Refer to note 8 for details of changes to the purchases by the Company of its
share capital.
4. Management, performance and administration agreements
Management and performance fee
The Company has entered into a management agreement with the Manager to manage
the Company’s investment portfolio. Until 2 October 2016, the Manager
received a management fee of 1/12 of 2% (or a pro rata proportion thereof) per
month of the Net Asset Value (the “NAV”) of each class of shares (before
deduction of that month’s management fee and before making any deduction for
any accrued performance fee) as at the last business day in each month,
payable monthly in arrears. The management fee charged by the Company is
reduced by the Company’s share of management fees incurred by the Master
Fund through any underlying investments of the Master Fund that share the same
Manager as the Company. The investment in the Class B shares of the Master
Fund is not subject to management fees, but is subject to an operational
services fee payable to the Manager of 1/12 of 0.5% per month of the NAV.
From 3 October 2016, the Manager will not charge the Company a management fee
in respect of any increase in the NAV of each class of shares above the
relevant NAV at that date resulting from performance or any own share
purchases or redemptions. The Company’s investment in the Master Fund also
will not bear an operational services fee in respect of performance related
growth in its investment in the Master Fund from that date.
The following changes were made to the Company’s structure and Management
Agreement with effect from 1 April 2017:
* the management fee was reduced to 1/12 of 0.5% per month of the NAV;
* the investment in the Class B shares of the Master Fund remains subject to
an operational services fee of 1/12 of 0.5% per month of the NAV; and
* the management fee and operational services fee concession described above
will continue to apply in respect of performance related growth in the
Company’s NAV for each class of share in excess of its level on 1 April 2017
as if the Tender Offer had completed on that date.
During the year ended 31 December 2017, US$14,368,940 (31 December 2016:
US$20,870,959) was earned by the Manager as net management fees. At 31
December 2017, US$197,034 (31 December 2016: US$1,385,840) of the fee remained
outstanding.
The Management fee charge included a balance of US$8,350,050 (31 December
2016: US$Nil), which was incurred in accordance with the terms of the Tender
Offer that concluded on 25 April 2017. Under the terms of the Tender Offer,
the Manager was entitled to a fee of 2% of the NAV of the shares tendered,
instead of 4%, that would have been payable if the Company served notice of
termination of the management agreement between the Company and the Manager on
less than 24 months’ notice.
The Manager is also entitled to an annual performance fee for each share
class. The performance fee is equal to 20% of the appreciation in the NAV per
share of that class during that calculation period which is above the base NAV
per share of that class, other than that arising to the remaining shares of
the relevant class from any repurchase, redemption or cancellation of any
share in the calculation period. The base NAV per share is the greater of the
NAV per share of the relevant class at the time of issue of such share and the
highest NAV per share achieved as at the end of any previous calculation
period.
The Manager will be paid an estimated performance fee on the business day
preceding the last business day of each calculation period. Within 5 business
days of the publication of the final NAV of each class of shares as at the end
of the calculation period, any difference between the actual performance fee
and the estimated amount will be paid to or refunded by the Manager, as
appropriate. 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. During the year ended 31 December 2017 US$Nil (31 December
2016: US$350,887) was earned by the Manager as performance fees. At 31
December 2017, US$Nil (31 December 2016: US$317,812) of the fee remained
outstanding.
The Master Fund may hold investments in other funds managed by the Manager. To
ensure that Shareholders of the Company are not subject to two tiers of fees,
the fees paid to the Manager as outlined above are reduced by the Company’s
share of any fees paid to the Manager by the underlying Master Fund
investments, managed by the Manager.
The Management Agreement may be terminated by either party giving the other
party not less than 24 months’ written notice. In certain circumstances the
Company will be obliged to pay compensation to the Manager of the aggregate
management fees which would otherwise have been payable during the 24 months
following the date of such notice and the aggregate of any accrued performance
fee in respect of the current Calculation Period. Compensation is not payable
if more than 24 months’ notice of termination is given.
Under the terms of the Tender Offer, from 1 April 2019, the notice period for
termination of the Management Agreement without cause by both the Company and
the Manager will be reduced from 24 months to three months.
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 quarterly
in arrears. The fee is at a rate of 0.015% of the average month end NAV of the
Company, subject to a minimum fee of £67,500 per annum. In addition to the
NAV based fee, the Administrator is also entitled to an annual fee of £36,000
for certain additional administration services. The Administrator is entitled
to be reimbursed for out-of-pocket expenses incurred in the course of carrying
out its duties as Administrator. During the year ended 31 December 2017,
US$140,721 (31 December 2016: US$208,383) was earned by the Administrator as
administration fees. The amounts outstanding are disclosed on the Audited
Statement of Assets and Liabilities.
5. Share capital
Issued and authorised share capital
The Company has the power to issue an unlimited number of ordinary shares with
no par value and an unlimited number of shares with a par value. Shares may be
divided into at least two classes denominated in US Dollar and Sterling,
following the Euro share class closure. Further issue of shares may be made in
accordance with the Articles. Shares may be issued in differing currency
classes of ordinary redeemable shares including C shares. The treasury shares
have arisen as a result of the discount management programme as described in
note 8. The tables below show the movement in ordinary and treasury shares.
US Dollar shares Euro shares Sterling shares
Number of ordinary shares
In issue at 1 January 2017 9,975,524 1,514,872 22,371,669
Share conversions (261,016) (890,769) 954,079
Tender offer shares transferred to treasury (note 8) (6,932,474) (624,103) (9,279,700)
In issue at 31 December 2017 2,782,034 - 14,046,048
Number of treasury shares
In issue at 1 January 2017 1,406,228 271,854 2,650,652
Tender offer shares transferred to treasury (note 8) 6,932,474 624,103 9,279,700
Shares cancelled (1,075,000) (271,854) (1,200,000)
Tender offer shares cancelled (note 8) (6,932,474) (624,103) (9,279,700)
In issue at 31 December 2017 331,228 - 1,450,652
Percentage of class 10.64% - 9.36%
There were no on market purchases in the year ended 31 December 2017.
US Dollar shares Euro shares Sterling shares
Number of ordinary shares
In issue at 1 January 2016 17,202,974 4,163,208 33,427,871
Share conversions (737,163) (939,574) 1,318,504
Purchase of shares into Treasury (2,685,193) (847,431) (4,562,483)
Tender offer shares transferred to treasury (note 8) (3,805,094) (861,331) (7,812,223)
In issue at 31 December 2016 9,975,524 1,514,872 22,371,669
Number of treasury shares
In issue at 1 January 2016 1,537,035 362,723 2,943,169
On market purchases* 2,685,193 847,431 4,562,483
Tender offer shares transferred to treasury (note 8) 3,805,094 861,331 7,812,223
Shares cancelled (2,816,000) (938,300) (4,855,000)
Tender offer shares cancelled (note 8) (3,805,094) (861,331) (7,812,223)
In issue at 31 December 2016 1,406,228 271,854 2,650,652
Percentage of class 12.36% 15.22% 10.59%
*On market purchases in the year ended 31 December 2016.
Number of shares purchased Cost (in currency)
Treasury shares Cost (US$)
US Dollar shares 2,685,193 50,853,441 $50,853,441
Euro shares 847,431 17,893,603 €16,080,450
Sterling shares 4,562,483 124,878,082 £90,182,054
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 NAV of the Master Fund US Dollar
shares and Master Fund Sterling shares as calculated by the Master Fund is
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.
On 3 May 2017, the Company announced that, following the completion of the
Tender Offer, the NAV of the Euro share class would likely fall to below the
equivalent of US$25 million on the next net asset value calculation date on 31
May 2017 and as stated in the shareholder circular for the Tender Offer, the
Company therefore intended to convert the remaining Euro shares into shares of
the Company’s largest share class following the Tender Offer, being Sterling
shares.
Accordingly, the Company determined that all remaining shares in the Euro
class would be converted into Sterling shares with effect 29 June 2017 and all
the Euro shares held by the Company in Treasury were cancelled on that date.
The Euro share class then closed and its listing was cancelled.
Voting rights of shares
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. On a vote, a
single US Dollar ordinary share has 0.7606 votes and a single Sterling
ordinary share has 1.4710 votes.
Treasury shares do not have any voting rights.
Repurchase of ordinary shares
Under the Company’s Articles, Shareholders of a class of shares have the
ability to call for repurchase of that class of shares in certain
circumstances. See note 8 for further details.
Further issue of shares
As approved by the Shareholders at the Annual General Meeting held on 23 June
2017, the Directors have the power to issue further shares totalling 990,034
US Dollar shares and 4,395,593 Sterling shares respectively. This power
expires fifteen months after the passing of the resolution or on the
conclusion of the next Annual General Meeting of the Company, whichever is
earlier, unless such power is varied, revoked or renewed prior to that Meeting
by a resolution of the Company in general meeting.
Distributions
The Master Fund has not previously paid dividends to its investors. 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.
As announced on 15 January 2014, the Company intends to be operated in such a
manner to ensure that its shares are not categorised as non-mainstream pooled
investments. This may mean that the Company may pay 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.
Further, the Company will first apply any such income in payment of its
management and performance fees.
Treasury shares are not entitled to distributions.
Share conversion scheme
The Company has implemented a Share Conversion Scheme. The scheme 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.
Shareholders are able to convert ordinary shares on the last business day of
every month. Each conversion will be based on the NAV (note 7) of the shares
of the class to be converted.
6. Taxation
Overview
The Company is exempt from taxation in Guernsey under the provisions of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989.
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%), 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 Audited Financial Statements. Income tax and related interest and
penalties would be recognised by the Company as tax expense in the Audited
Statement of Operations if the tax positions were deemed not to meet the
more-likely-than-not threshold.
The Company analyses all open tax years for all major taxing jurisdictions.
Open tax years are those that are open for examination by taxing authorities,
as defined by the Statute of Limitations in each jurisdiction. The Company
identifies its major tax jurisdictions as the Cayman Islands and foreign
jurisdictions where the Company makes significant investments. The Company has
no examinations by tax authorities in progress.
The Directors have analysed the Company’s tax positions, and have concluded
that no liability for unrecognised tax benefits should be recorded related to
uncertain tax positions. Further, the Directors are not aware of any tax
positions for which it is reasonably possible that the total amounts of
unrecognised tax benefits will significantly change in the next twelve months.
7. Publication and calculation of Net Asset Value (“NAV”)
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 class account 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 the Master Fund,
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 the Master Fund, weekly in arrears.
8. Discount management programme
The Company has previously implemented a number of methods in order to seek to
manage any discount to NAV at which the Company’s shares trade.
Market purchases
Until October 2016, the Company regularly utilised its ability to make market
purchases of its shares as part of the discount management programme. The
purchase of these shares was funded by the Company redeeming underlying shares
in the Master Fund. The number of shares held in treasury as at
31 December 2017 are disclosed in note 5.
However, following the announcement of the results of the Tender Offer on 24
February 2017, the Company is no longer permitted to redeem its investment in
the Master Fund to finance own-share purchases until 1 April 2019. The
Company, therefore, does not intend to make any own-share purchases in that
period. The Company would be required to pay a redemption fee to the Master
Fund of 10% on any other redemptions from the Master Fund (except for any
redemptions required by the Company for working capital purposes, in which
case no fee will apply).
Tender offers
On 5 April 2016, the Company announced a tender offer to acquire up to 25% of
the Company’s shares at discounts ranging from 4% to 8%. The purpose of the
tender was to permit those Shareholders who wished to realise some (or
possibly all) of their investment in the Company to do so, subject to the
terms of the tender offer, while also offering potential enhancements to the
Company’s NAV for Shareholders who remained invested in the Company. The
discounts were set by taking account of both the approximate discounts to NAV
at which the Company’s shares had traded in the past 12 months and the
Company’s probable liquidation value.
This tender, which was completed in late June 2016, was oversubscribed:
tenders of Sterling and Euro shares at discounts of 8%, 7% and 6% were
accepted in full, and at 5% in part; tenders of Dollar shares at discounts of
8% and 7% were accepted in full, and at 6% in part. Shares purchased in the
tender were cancelled.
On 29 November 2016, the Company announced a further tender offer to acquire
up to 100% of each class of the Company’s issued shares at a price
equivalent to 96% of NAV for the relevant class.
This Tender Offer was approved by Shareholders at meetings in February and
March 2017 and Shareholders holding 52% of the Company’s shares by
prevailing NAV chose to remain invested in the Company, with the remaining 48%
of shares by value being tendered for purchase at 96% of NAV. The acquisition
of shares pursuant to the Tender Offer was completed on 25 April 2017. Shares
purchased in the tender were cancelled.
Annual offer of partial return of capital
Under the Company’s Articles of Incorporation, once in every calendar year
the Directors had discretion to determine that the Company make an offer of a
partial return of capital in respect of such number of shares of the Company
in issue as they determined, provided that the maximum amount distributed did
not exceed 100% of the increase in NAV of the Company in the prior calendar
year.
The Directors had discretion to determine the particular class or classes of
shares in respect of which a partial return of capital would be made, the
timetable for that partial return of capital and the price at which the shares
of each relevant class were returned.
The decision to make a partial return of capital in any particular year and
the amount of the return depended, 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.
As part of the Tender Offer that was completed on 25 April 2017 and changes to
the Company’s structure, the annual partial capital return provisions have
been disapplied for the years ending
31 December 2016, 2017 and 2018.
Class closure resolutions
Also under the Articles of Incorporation, the Company had an 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 was 10% or more below the
average NAV per share of the relevant class taken over the 12 monthly NAV
Determination Dates in that fixed discount management period.
As part of the Tender Offer that was completed on 25 April 2017 and changes to
the Company’s structure, these class closure provisions have also been
disapplied for the years ending 31 December 2016, 2017 and 2018.
However if, in the period from 1 January 2018 to 31 December 2018, any class
of shares trades at an average discount at or in excess of 8% of the monthly
NAV, the Company will propose a vote of the relevant class to discontinue that
class. Any such class discontinuation vote will take place on or prior to 28
February 2019.
In that event and if a Class Discontinuation Vote is passed by three-quarters
of the votes cast on the resolution, holders of shares of the relevant class
will be able to opt to receive:
* 97.5 per cent of the NAV per share of the relevant class as at 31 March 2019
(with the remaining 2.5% of the NAV per share being retained by the Master
Fund); or
* 50 per cent of the NAV per share of the relevant class as at 31 March 2019
and 50% of the NAV per share as at 30 June 2019.
From 1 April 2019, the Company’s class closure provisions and annual partial
capital return will be reinstated and applicable in respect of the twelve
month period ending on 31 December 2019 and thereafter, except that the
relevant trigger for the class closure provisions will be 8% discount to the
net asset value of the relevant class of shares over the relevant period,
instead of the previous 10% threshold.
The arrangements are described more fully in the Company’s principal
documents which were approved at the EGM on 24 February 2017.
9. Financial highlights
The following tables include selected data for a single ordinary share of each
of the ordinary share classes in issue at 31 December 2017 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.
31.12.17 31.12.17^ 31.12.17
US Dollar shares Euro shares Sterling shares
US$ € £
Per share operating performance
Net asset value at beginning of the year 21.68 21.87 22.44
Income from investment operations
Net investment loss* (1.80) (1.03) (1.01)
Net realised and unrealised loss on investment (0.71) (0.74) (0.83)
Other capital items** 2.45 1.10 0.87
Total loss (0.06) (0.67) (0.97)
Net asset value, end of the year/period 21.62 21.20 21.47
Total loss before performance fee (0.30%) (3.07%) (4.35%)
Total loss after performance fee^ (0.30%) (3.07%) (4.35%)
^ Net asset value and returns on the Euro share class have been
calculated up to the NAV date preceding the conversion of shares to the
Sterling share class.
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 from 1 January 2017 to 31 December 2017. An individual
shareholder’s return may vary from these returns based on the timing of
their purchase or sale of shares.
31.12.17 31.12.17^^ 31.12.17
US Dollar shares Euro shares Sterling shares
US$'000 €'000 £'000
Supplemental data
Net asset value, end of the year 60,136 - 301,565
Average net asset value for the year 99,784 21,875 348,983
31.12.17 31.12.17 31.12.17
US Dollar shares Euro shares Sterling shares
Ratio to average net assets
Operating expenses
Company expenses*** 4.52% 2.25% 2.52%
Master Fund expenses**** 1.41% 0.53% 1.31%
Master Fund interest expense***** 1.19% 1.48% 0.74%
Performance fee - - -
7.12% 4.26% 4.57%
Net investment loss before performance fee* (6.98%) (4.28%) (4.33%)
Net investment loss after performance fees* (6.98%) (4.28%) (4.33%)
^^ The average Euro share class net asset value for the year is
calculated based on published NAVs from the start of the year up to the Euro
share class closure.
31.12.16 31.12.16 31.12.16
US Dollar shares Euro shares Sterling shares
US$ € £
Per share operating performance
Net asset value at beginning of the year 20.33 20.56 21.21
Income from investment operations
Net investment loss* (0.46) (0.45) (0.50)
Net realised and unrealised gain on investment 1.00 0.81 0.91
Other capital items** 0.81 0.95 0.82
Total return 1.35 1.31 1.23
Net asset value, end of the year 21.68 21.87 22.44
Total return before performance fee 6.63% 6.37% 5.84%
Performance fee - - (0.05%)
Total return after performance fee 6.63% 6.37% 5.79%
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 from 1 January 2016 to 31 December 2016. An individual
shareholder’s return may vary from these returns based on the timing of
their purchase or sale of shares.
31.12.16 31.12.16 31.12.16
US Dollar shares Euro shares Sterling shares
US$'000 €'000 £'000
Supplemental data
Net asset value, end of the year 216,252 33,128 502,083
Average net asset value for the year 261,058 55,907 560,351
31.12.16 31.12.16 31.12.16
US Dollar shares Euro shares Sterling shares
Ratio to average net assets
Operating expenses
Company expenses*** 2.15% 2.21% 2.15%
Master Fund expenses**** 1.02% 1.03% 1.04%
Master Fund interest expense***** 0.86% 0.82% 0.90%
Performance fee 0.00% 0.00% 0.05%
4.03% 4.06% 4.14%
Net investment loss before performance fee* (2.32%) (2.26%) (2.33%)
Net investment loss after performance fees* (2.32%) (2.26%) (2.38%)
Notes
* The net investment loss figures disclosed above, does not
include net realised and unrealised gains/losses on investments allocated from
the Master Fund.
** Included in other capital items are the discounts and premiums on
conversions between share classes and on the sale of treasury shares as well
as any partial capital return effected in the relevant period as compared to
the NAV per share at the beginning of the year.
*** Company expenses are as disclosed in the Audited Statement of
Operations excluding the performance fee and Foreign Exchange.
**** Master Fund expenses are the operating expenses of the Master Fund
excluding the interest and dividend expenses of the Master Fund.
***** Master Fund interest expense includes interest and dividend expenses
on investments sold short.
10. Related party transactions
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the party in making
financial or operational decisions.
Management and performance fees are disclosed in note 4.
Directors’ fees are disclosed in the Directors’ Remuneration Report.
Directors’ interests are disclosed in the Directors’ Report and also the
Board Members section.
11. Subsequent events
The Directors have evaluated subsequent events up to 22 March 2018, which is
the date that the Audited Financial Statements were available to be issued,
and have concluded there are no further items that require disclosure or
adjustment to the Audited Financial Statements.
Historic Performance Summary
As at 31 December 2017
31.12.17 31.12.16 31.12.15 31.12.14 31.12.13
US$'000 US$'000 US$'000 US$'000 US$'000
Net increase/(decrease) in net assets
resulting from operations 4,725 (150,245) (91,220) (122,858) 105,344
Total assets 465,787 866,740 1,499,648 1,768,337 2,255,031
Total liabilities (469) (1,897) (4,755) (5,519) (8,176)
Net assets 465,318 864,843 1,494,893 1,762,818 2,246,855
Number of shares in issue
US Dollar shares 2,782,034 9,975,524 17,202,974 18,332,029 24,967,761
Euro shares - 1,514,872 4,163,208 5,112,916 6,792,641
Sterling shares 14,046,048 22,371,669 33,427,871 37,717,793 43,602,671
Net asset value per share
US Dollar shares US$21.62 US$21.68 US$20.33 US$20.62 US$20.60
Euro shares - €21.87 €20.56 €20.72 €20.74
Sterling shares £21.47 £22.44 £21.21 £21.40 £21.34
Affirmation of the Commodity Pool Operator
31 December 2017
To the best of my knowledge and belief, the information detailed in this
Annual Report and these Audited Financial Statements is accurate and complete.
By:
Name: Jonathan Wrigley
Title: Group Head of Finance and Authorised Signatory
Brevan Howard Capital Management Limited as general partner of Brevan Howard
Capital Management LP, the manager and commodity pool operator of BH Macro
Limited
22 March 2018
Company Information
Directors
Huw Evans (Chairman, from 23 June 2017)
Ian Plenderleith (Chairman, until 23 June 2017)
Claire Whittet
Colin Maltby
John Le Poidevin
(All Directors are non-executive and independent for the purpose of Listing
Rule 15.2.12-A)
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier
Jersey
Channel Islands 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
Channel Islands GY1 3QL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court, Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 1WR
Registrar and CREST Service Provider
Computershare Investor Services (Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 4BZ
Legal Advisors (UK Law)
Hogan Lovells LLP
Atlantic House
Holborn Viaduct
London EC1A 2FG
Corporate Broker
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Tax Adviser
Deloitte LLP
PO Box 137
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 3HW
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