REG-BH Macro Limited: Annual Report and Audited Financial Statements 2019
25/03/2020 09:35
BH Macro Limited
Annual Report and Audited Financial Statements 2019
LEI: 549300ZOFF0Z2CM87C29
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
The Company has today, in accordance with DTR 6.3.5, released its Annual
Report and Audited financial statements for the year ended 31 December 2019.
The Report will shortly be available from the Company’s website:
www.bhmacro.com.
In light of the unprecedented practical challenges for some companies and the
audit profession arising from the COVID-19 pandemic, on 21 March 2020, the
Financial Conduct Authority ('FCA') requested that all listed companies who
publish their preliminary results around this time, observe a moratorium on
the publication of preliminary financial statements for at least two weeks.
Although the Company does not release preliminary results, the Board takes
very seriously the request of the FCA and has considered this in relation to
the release of the Company's Audited Annual Report & Financial Statements for
its year ended 31 December 2019. The Company is in a position where it has
completed all of its reporting processes and the Board has therefore
determined to continue today with the publication of the Company's Audited
Annual Report & Financial Statements in compliance with its timetable for US
regulatory filings.
Chairman’s Statement
I am delighted to present this annual report to you for the first time as
Chairman of BH Macro Limited (the “Company”). The Company has seen another
year of creditable performance in increasingly turbulent times.
In the year to 31 December 2019, the Net Asset Value (“NAV”) per Sterling
share in the Company increased by 7.98% and the NAV per US Dollar share
increased by 9.38%. The price of a Sterling share increased by 10.00% over the
year and a US Dollar share by 11.38%.
The Company’s NAV 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. Following a very strong
performance in 2018, the Master Fund again performed creditably in 2019.
As detailed within the Tender Offer which completed in May 2017, the Company
and the Manager made the following changes to the Management Agreement and the
terms of the Company’s investment in the Master Fund from 1 April 2019:
• The notice period for termination of the
Management Agreement without cause by either the Company or the Manager has
been reduced from 24 months to three months.
• The Company is again permitted to redeem its
investment in the Master Fund to finance share buy-backs.
In addition, the Company’s previous class closure and annual partial capital
return provisions have been reinstated and are applicable in respect of twelve
month periods ending on 31 December 2019 and thereafter except that the
relevant trigger for the class closure provisions is now an eight per cent
average discount to the net asset value of the relevant class of shares over
the relevant period, instead of the previous ten per cent threshold. During
2019 the average premium at which the Company’s shares traded in relation to
monthly NAV was 1.15% for the US Dollar share class and 0.44% for the Sterling
share class. Consequently, the class closure provisions have not been
triggered in respect of 2019.
Prior to the Tender Offer, the Company used share buy-backs as one mechanism
to reduce the discount at which the shares traded to NAV. If the Company’s
shares were again to trade at wide discounts to NAV in the future, it would be
the Board’s intention to consider resuming this process.
The Manager’s Report provides commentary on the performance of the Master
Fund in 2019 and the Manager’s view of the economic outlook. Against this
background, the Board has continued its regular dialogue with the Manager,
reviewing the Master Fund’s trading strategies and risk exposures and
satisfying itself that the Manager’s analytical, trading and risk management
capabilities continue to be maintained at a high standard.
The Company and its Manager have an active programme for public communication
and investor relations. There was particular interest from the press following
the Company’s strong performance in 2018, and your Board, the Manager and
the Company’s other advisers actively engaged with existing and potential
shareholders during the year. 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
focused on safeguarding the interests of Shareholders and believe that the
Company observes high standards of corporate governance. In 2018 the Board
commissioned an external evaluation of its performance which confirmed that
the Board works in a collegiate, harmonious and effective manner. Further to
its recommendations, and in anticipation of the retirement of Huw Evans after
nine years’ service on the Board, we instigated in early 2019 a process of
recruitment and renewal, with the assistance of Cornforth Consulting Limited,
following which we were delighted to appoint Richard Horlick and Bronwyn
Curtis to join the Board respectively in May 2019 and January 2020. I would
like to take this further opportunity to thank Huw for his years of
conscientious service and wise counsel as a Director and latterly as Chairman
of your Company.
It remains the case, as the Board recognises, that the performance of the
Master Fund will be important in justifying the future of the Company. There
are now clear signs that investors are focusing closely on the global
political and economic uncertainties lying ahead; the alarming trajectory of
the COVID-19 pandemic has exacerbated these further. The benign investment
environment which has prevailed for a number of years appears, finally, to
have come to an end and the increased volatility arising from this should
present further opportunities for the Master Fund’s macro-trading
strategies.
The events of the past year support the hypothesis that the Company’s
investment in the Master Fund provides a listed vehicle whose performance is
uncorrelated with other asset classes. Through the narrowing of the discount
in 2018 and the emergence of a premium in 2019, shareholders have demonstrated
that they find the shares in the Company a valuable tool for portfolio
diversification and I would like to take this opportunity to thank them for
this continuing support.
Colin Maltby
Chairman
24 March 2020
Board Members
The Directors of the Company, all of whom are non-executive, are listed below:
Colin Maltby, age 69, (appointed Chairman on 20 June 2019)
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.
Bronwyn Curtis, age 71 (appointed 1 January 2020)
Bronwyn Curtis is a UK resident and Senior Executive with 30 years leadership
across banking, media, commodities and consulting, with global or European
wide responsibilities for 20 years, including at HSBC Bank Plc, Bloomberg LP,
Nomura International and Deutsche Bank Group. She is presently a non-executive
Director at the UK Office of Budget Responsibility and at Pershing Square
Holdings, The Scottish American Investment Company Plc and JPMorgan Asia
Growth and Income Plc, and is a regular commentator in the media on markets
and economics. Ms Curtis is a UK resident.
Richard Horlick, age 61 (appointed 1 May 2019)
Richard Horlick is UK resident. He is currently the non-executive chairman of
CCLA Investment Management which manages £10bn of assets for over 38,000
charities and church and local authority funds. He has served on a number of
closed end fund boards most recently Pacific Assets Trusts Plc from December
2005 until June 2014 and Tau Capital Plc from May 2007 to January 2014. He was
a partner and non-executive chairman of Pensato Capital LLP until its
successful sale to RWC Partners in 2017. He has had a long and distinguished
career in investment management graduating from Cambridge University in 1980
with an MA in Modern History. After 3 years in the corporate finance
department of Samuel Montagu he joined Newton Investment Management in January
1984, where he became a Director and portfolio manager. In 1994, he joined
Fidelity International as President of their institutional business outside
the US and in 2001 became President and CEO of Fidelity Management Trust
Company in Boston which was the Trust Bank for the US Fidelity Mutual fund
range and responsible for their defined benefit pension business. In 2003, he
joined Schroders Plc as a main board director and head of investment
worldwide. In January 2006, he established Spencer House Capital Management
with Lord Jacob Rothschild. In addition, he has been a business angel
investing in a wide range of private companies. He became a limited partner in
CBE Capital Limited, a property development group.
John Le Poidevin, age 49
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.
Claire Whittet, age 64
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 & Co 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 Chartered Banker, a member of the
Chartered Insurance Institute and holds an IoD Director’s Diploma in Company
Direction. She is a non-executive Director of a number of 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
Colin Maltby
BBGI SICAV SA Ocean Wilsons Holdings Limited London London and Bermuda
Bronwyn Curtis
JPMorgan Asia Growth and Income Plc Pershing Square Holdings Limited Scottish American Investment Company Plc London London and Euronext Amsterdam London
John Le Poidevin
Episode Inc. International Public Partnerships Limited Euronext Dublin London
Claire Whittet
Eurocastle Investment Limited Euronext Amsterdam
International Public Partnerships Limited London
Riverstone Energy Limited Third Point Offshore Investors Limited London London
TwentyFour Select Monthly Income Fund Limited London
Richard Horlick does not hold any directorships in other public companies.
Strategic Report
For the year ended 31 December 2019
The Directors submit to the shareholders their Strategic Report of the Company
for the year ended 31 December 2019.
The Strategic Report provides a review of the business for the financial year
and describes how risks are managed. In addition, the report outlines key
developments and financial performance of the Company during the financial
year and the position at the end of the year, and discusses the main factors
that could affect the future performance, and financial position of the
Company.
BUSINESS MODEL AND STRATEGY
Investment Objective and Company Structure
The Company is organised as a feeder fund that invests solely in the ordinary
US Dollar and Sterling denominated B shares issued by Brevan Howard Master
Fund Limited (the “Master Fund”) – 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. Further details on the Investment Objective and
Policy can be found in the Directors’ Report.
Sources of Cash and Liquidity Requirements
As the Master Fund is not expected to pay dividends, the Company expects that
the primary source of its future liquidity will depend on borrowings in
accordance with its leverage policies and the periodic redemption of shares
from the Master Fund.
BUSINESS ENVIRONMENT
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;
* 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;
* Brexit Risk: Whilst noting that the Company is based in Guernsey and that it
invests substantially all of its assets into a Caymanian master fund, the
Company may nevertheless be exposed to risks arising from the UK’s departure
from the European Union. In conjunction with the Manager, the Board will
monitor the potential impact on the Company and on the Company’s
performance. In the event of a “No Deal Brexit” at the end of the
transition period on 31 December 2020, the Board will seek to ensure that all
agreements remain compliant; and
* Coronavirus Risk: Despite the reported increased impact of coronavirus
(COVID-19) on businesses, the Board believes that this is not a major business
risk for the Company. The Company uses a number of service providers for its
day to day operations. These providers have established and regularly tested
Business Resiliency Policies in place, to cover various possible scenarios
whereby staff cannot turn up for work at the designated office and conduct
business as usual (such as work from home facilities and/or different regions
covering work for other regions).
Future Prospects
The Board’s main focus is the achievement of long-term appreciation. The
future of the Company is dependent upon the success on the investment strategy
of the Master Fund. The investment outlook and future developments are
discussed in both the Chairman’s Statement and the Manager’s Report
Board Diversity
When appointing new directors and reviewing the board composition, the Board
considers, amongst other factors, diversity, balance of skills, knowledge,
gender and experience. The Board however does not consider it appropriate to
establish targets or quotas in this regard. As at the date of this report, the
Board comprised two female and three male non-executive directors.
Environmental, Social and Governance Factors
The Company does not have employees, it does not own physical assets and its
Board is formed exclusively of non-executive Directors. As such, the Company
does not undertake activity which would directly affect the environment.
On a regular basis, the Manager assesses the trading activity of the
investment funds it manages, including the Master Fund, to ascertain whether
environmental, social and governance (“ESG”) factors are appropriate or
applicable to such funds. Most ESG principles have been envisaged in the
context of equity or corporate fixed income investment and therefore are not
readily applicable to most types of instruments traded by the majority of
funds managed by the Manager.
The Manager applies ESG Principles to its activity where appropriate,
considering the structure of relevant Brevan Howard managed funds and the
applicable trading universe. The Manager continues to monitor developments in
this area and will seek to implement industry best practice where applicable.
POSITION AND PERFORMANCE
Packaged Retail and Insurance Based Investment Products (“PRIIPs”)
The Company is subject to European Union Regulation (2017/653) (“the
Regulation”) which deems it to be a PRIIP. In accordance with the
requirements of the Regulation, the Manager published the latest standardised
three-page Key Information Document (“KID”) on the Company on 4 June 2019.
The KID is available on the Company’s website
https://www.bhmacro.com/regulatory-disclosures/ and will be updated at least
every 12 months.
The Company is not responsible for the information contained in the KID. The
process for calculating the risks, cost and potential returns are prescribed
by regulation. The figures in the KID may not reflect the expected returns for
the Company and anticipated returns cannot be guaranteed.
Performance
Key Performance Indicators (“KPIs”)
At each Board meeting, the Directors consider a number of performance measures
to assess the Company’s success in achieving its objectives. Below are the
main KPIs which have been identified by the Board for determining the progress
of the Company:
1. Net Asset Value
The Company’s net asset value has appreciated from £10.00 and US$10.00 per
share at launch to £26.06 and US$26.99 at the year end. This increase in NAV
is largely attributable to the long term growth strategy and returns. The
Directors and Manager are confident that the current strategy will continue to
return positive levels of growth in future.
2. Share Prices, Discount/Premium
The Company has traded at an average premium of 1.15% and 0.44% to NAV for its
USD and GBP shares respectively for the year ended 31 December 2019.
3. Ongoing Charges
The Company's ongoing charges ratio has increased from 2.32% to 3.40% on the
USD class and increased from 2.49% to 3.13% on the GBP class, primarily due to
an increase in the performance fee.
The Company reports an aggregated view of the charges for both the US$ and £
share classes. Further details are in the Directors’ Report.
Return per Share
Total return per share is based on the net total gain on ordinary activities
after tax of US$5,791,771 for the US Dollar Class and £27,463,793 for the
Sterling Class (2018: US$8,353,157 and £37,510,794).
These calculations are based on the weighted average number of shares in issue
for the year ended 31 December 2019. US Dollar shares: 2,539,270 and Sterling
shares: 14,234,399 (2018: US Dollar shares: 2,725,296 and Sterling shares:
14,089,406).
Year ended Year ended
31.12.19 31.12.18
Per share '000 Per share '000
Net total gain for US Dollar Shares 228.10c 5,792 306.50c 8,353
Net total gain for Sterling Shares 192.94p 27,464 266.24p 37,511
Net Asset Value
The net asset value per US Dollar share, as at 31 December 2019 was US$26.99
based on net assets of US$65,906,917 divided by number of US$ shares in issue
of 2,442,057 (2018: US$24.67).
The net asset value per Sterling share, as at 31 December 2019 was £26.06
based on net assets of £372,893,237, divided by number of Sterling shares in
issue of 14,310,040 (2018: £24.13).
Dividends
No dividends were paid in the year (2018: US$Nil).
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 2022. 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 three months’ notice by either party. 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 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.
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.
Since 1 April 2019, in the event that there is downward pressure on the
Company’s share prices, the Company has been 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 help to mitigate the risk of class
closure resolutions being triggered after that date. Refer to note 8 for
details of the Company's discount management programme.
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.
Although the Company is domiciled in Guernsey, the Board has considered the
guidance set out in the AIC Code in relation to Section 172 of the Companies
Act 2006 in the UK. Section 172 of the Companies Act requires that the
Directors of the Company act in the way they consider, in good faith, is most
likely to promote the success of the Company for the benefit of all
stakeholders, including suppliers, customers and shareholders.
Key Service Providers
The Company does not have any employees and as such the Board delegates
responsibility for its day to day operations to a number of key service
providers. The activities of each service provider are closely monitored by
the Board and they are required to report to the Board at set intervals.
In addition, a formal review of the performance of each service provider is
carried out once a year by the Management Engagement Committee.
The Manager
The Manager is a leading and well established hedge fund manager. In exchange
for its services a fee is payable as detailed in note 4 to the financial
statements.
The Board considers that the interests of Shareholders, as a whole, are best
served by the ongoing appointment of the Manager to achieve the Company’s
investment objective.
Administrator and Corporate Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
is the Administrator and Corporate Secretary. Further details on fee structure
are included in note 4 to the financial statements.
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
24 March 2020
Directors’ Report
31 December 2019
The Directors submit their Report together with the BH Macro Limited (the
“Company”) 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 2019. 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 which
was incorporated in Guernsey on 17 January 2007 and then admitted to the
Official List of the London Stock Exchange ("LSE") later that year.
Currently, ordinary shares are issued in US Dollars and Sterling.
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 period end is disclosed in note 5 of the
Notes to the Audited Financial Statements.
Going Concern
The Directors, having considered the Principal Risks and Uncertainties to
which the Company is exposed which are listed in the Strategic 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 on the Board Members section of this report.
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 and Audit
Committee meetings they were entitled to attend during the year ended 31
December 2019 and the number of such meetings attended by each Director.
Scheduled Board Meetings Held Attended
Colin Maltby 4 4
Huw Evans *2 2
Richard Horlick *3 3
John Le Poidevin 4 4
Claire Whittet 4 4
Audit Committee Meetings Held Attended
John Le Poidevin 4 4
Richard Horlick *3 2
Colin Maltby *2 2
Claire Whittet 4 3
Management Engagement Committee Meetings Held Attended
John Le Poidevin 1 1
Richard Horlick 1 1
Colin Maltby 1 1
Claire Whittet 1 1
* Indicates the meetings held during their membership of the relevant
Board or Committee during the year ended 31 December 2019.
In addition to these scheduled meetings, thirteen ad hoc committee meetings
were held during the year ended 31 December 2019, which were attended by
those Directors available at the time.
The Board has reviewed the composition, structure and diversity of the Board,
succession planning, the independence of the Directors and whether each of the
Directors has sufficient time available to discharge their duties effectively.
The Board confirms that it believes that it has an appropriate mix of skills
and backgrounds, that all of the Directors are considered to be independent in
accordance with the provisions of the AIC Code and that all Directors have the
time available to discharge their duties effectively.
On 5 December 2019, the board resolved to set a policy, limiting the tenure of
the Chairman to nine years, which is consistent with the principles listed in
the UK Corporate Governance Code.
Notwithstanding that some of the Directors sit on the boards of a number of
other listed investment companies, the Board notes that each appointment is
non-executive and that listed investment companies generally have a lower
level of complexity and time commitment than trading companies. Furthermore,
the Board notes that attendance of all Board and Committee meetings during the
period is high and that each Director has always shown the time commitment
necessary to discharge fully and effectively their duties as a Director.
Directors’ Interests
The Directors had the following interests in the Company, held either directly
or beneficially:
US Dollar Shares
31.12.19 31.12.18
Colin Maltby 500 Nil
Huw Evans N/A Nil
Richard Horlick Nil N/A
John Le Poidevin Nil Nil
Claire Whittet Nil Nil
Sterling Shares
31.12.19 31.12.18
Colin Maltby 3,000 Nil
Huw Evans N/A 5,270
Richard Horlick Nil N/A
John Le Poidevin 3,222 Nil
Claire Whittet Nil Nil
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 and 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 updated its Code in February 2019 to reflect revised Principles and
Provisions included in the UK Corporate Governance Code which was revised in
2018. These changes apply to financial years beginning on or after 1 January
2019.
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 requirements 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; and
* whistle-blowing policy.
For the reasons 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 of these Audited Financial
Statements. 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 the
Directors. The Board utilised the services of an independent, specialist
company, Cornforth Consulting Ltd prior to appointing Richard Horlick and
Bronwyn Curtis. The current 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 20 June 2019, Shareholders re-elected all the
Directors of the Company, with the exception of Huw Evans, 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.
Following the retirement of Huw Evans and the appointment of Colin Maltby as
Chairman, Claire Whittet has replaced Colin Maltby as Senior Independent
Director and will take the lead in evaluating the performance of the new
Chairman.
The most recent external evaluation of the Board’s performance was completed
in February 2018 and is scheduled to take place every three years. 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 have been adopted.
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 introduced a new
Corporate Criminal Offence of ‘failing to take reasonable steps to prevent
the facilitation of tax evasion’, the Board confirms that it is committed to
preventing the facilitation of tax evasion and takes all reasonable steps to
do so.
Ongoing Charges
Ongoing charges for the years ended 31 December 2019 and 31 December 2018 have
been prepared in accordance with the AIC’s recommended methodology.
The following table presents the Ongoing Charges for each share class:
31.12.19
US Dollar Sterling
Shares Shares
Company – Ongoing Charges 0.61% 0.59%
Master Fund – Ongoing Charges 0.61% 0.65%
Performance fees 2.18% 1.89%
Ongoing Charges plus performance fees 3.40% 3.13%
31.12.18
US Dollar Sterling
Shares Shares
Company – Ongoing Charges 0.62% 0.64%
Master Fund – Ongoing Charges 0.64% 0.64%
Performance fees 1.06% 1.21%
Ongoing Charges plus performance fees 2.32% 2.49%
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.
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.
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. It is chaired by John Le Poidevin and comprises
Richard Horlick, who was appointed on 1 May 2019, Bronwyn Curtis, who was
appointed on 1 January 2020 and Claire Whittet. Colin Maltby was a member of
the Audit Committee until 20 June 2019. The Terms of Reference of the Audit
Committee are available from the Administrator.
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, is chaired by Claire Whittet and comprises all members of
the Board.
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 details of the Manager’s fees and notice period are set out in note 4 to
the Audited 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 5 September 2019, the Management Engagement Committee
concluded that the continued appointment of the Manager, Administrator, UK and
Guernsey Legal Advisers, Registrar and Corporate Broker 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.
In order to recognise any new risks that could impact the Company and ensure
that appropriate controls are in place to manage those risks, the Audit
Committee undertakes a regular review of the Company’s Risk Matrix. This
review took place on three occasions during the year.
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.
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 was
adopted by Guernsey and 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 latest report for CRS to the Director of Income
Tax on 28 June 2019.
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, with a number of such meetings taking place
during the year. 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.
Following the publication of the updated AIC Code in February 2019, when 20
per-cent or more of Shareholder votes have been cast against a board
recommendation for a resolution, the Company should explain, when announcing
voting results, what actions it intend to take to consult Shareholders in
order to understand the reasons behind the result. An update on the views
received from shareholders and actions taken should be published no later than
six months after the shareholder meeting. The board should then provide a
final summary in the annual report and, if applicable, in the explanatory
notes to resolutions at the next shareholder meeting, on what impact the
feedback has had on the decisions the board has taken and any actions or
resolutions now proposed. During the year, no resolution recommended by the
Board received more than 20% of votes against it.
Significant Shareholders
As at 31 December 2019, the following Shareholders had significant
shareholdings in the Company:
% holding
Total Shares Held in class
Significant Shareholders
US Dollar Shares
Vidacos Nominees Limited 871,736 35.70%
Hero Nominees Limited 456,287 18.68%
The Bank of New York (Nominees) Limited 234,430 9.60%
Luna Nominees Limited 143,960 5.90%
Pershing Nominees Limited 111,837 4.58%
Euroclear Nominees Limited 75,610 3.10%
% holding
Total Shares Held in class
Significant Shareholders
Sterling Shares
Ferlim Nominees Limited 2,841,378 19.86%
Rathbone Nominees Limited 1,351,150 9.44%
HSBC Global Custody Nominee (UK) Limited 1,191,229 8.32%
Pershing Nominees Limited 969,707 6.78%
Smith & Williamson Nominees Limited 692,900 4.84%
Harewood Nominees Limited 600,559 4.20%
Securities Services Nominees Limited 577,524 4.04%
Nortrust Nominees Limited 548,518 3.83%
Roy Nominees Limited 543,040 3.79%
Lion Nominees Limited 528,216 3.69%
The Bank of New York (Nominees) Limited 454,924 3.18%
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
24 March 2020
Statement of Directors’ Responsibility in Respect of the Annual Report and
Audited Financial Statements
The Directors are responsible for preparing the Annual Report and Audited
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 liquidation is imminent.
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, Strategic Report, 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:
Colin Maltby
Chairman
John Le Poidevin
Director
24 March 2020
Directors’ Remuneration Report
31 December 2019
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 June 2020.
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 20 June 2019, Shareholders
re-elected all the Directors, with the exception of Huw Evans, 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 19 June 2019, the annual fees were £65,000 for Huw
Evans, the Chairman, £47,500 for John Le Poidevin, the Chair of the Audit
Committee, £45,000 for Claire Whittet, the Chair of the Management Engagement
Committee, £45,000 for Colin Maltby as Senior Independent Director and
£40,000 for all other Directors.
Between 20 June 2019 and 30 September 2019, annual fee levels remained the
same as above, except for Colin Maltby, who was paid at the rate of £65,000
per annum after succeeding Huw Evans as Chairman and £47,500 per annum for
Claire Whittet, who was appointed Senior Independent Director.
On 5 September 2019, the Board agreed to changes to the annual Director’s
fees, effective from 1 October 2019 onward. They were changed to £70,000 for
Colin Maltby, the Chairman, £55,000 for John Le Poidevin, the Chair of the
Audit Committee, £50,000 for Claire Whittet, as Chair of the Management
Engagement Committee and the Senior Independent Director and £45,000 for all
other Directors.
The fees payable by the Company in respect of each of the Directors who served
during the year ended 31 December 2019 and the year ended 31 December 2018,
were as follows:
Year Year
ended ended
31.12.19 31.12.18
£ £
Colin Maltby 56,854 45,000
Huw Evans* *30,714 65,000
Richard Horlick** **27,953 N/A
John Le Poidevin 49,375 47,500
Claire Whittet 46,950 45,000
Total 211,846 202,500
* Huw Evans served as Chairman at a fee of £65,000
pa until his retirement from the Board on 20 June 2019.
** Richard Horlick was appointed on 1 May 2019 at a fee of
£40,000 pa until 30 September 2019 and £45,000 from 1 October 2019.
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
24 March 2020
Report of the Audit Committee
31 December 2019
We present the Audit Committee’s (the “Committee”) Report for 2019,
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 is chaired by John Le Poidevin and its other members are Claire
Whittet, Richard Horlick and Bronwyn Curtis.
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. John Le Poidevin and Claire
Whittet are currently serving their second terms and Richard Horlick and
Bronwyn Curtis 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 2019 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 year 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 2019
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$558.6
million as at 31 December 2019 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 2019 were audited by KPMG Cayman who issued an unqualified audit
opinion dated 18 March 2020. 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 2019 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 2019 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 2019 and 31
December 2018.
Year Year
ended ended
31.12.19 31.12.18
£ £
Annual audit 31,000 30,000
Interim review 15,350 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 the Manager
providing an International Standard on Assurance Engagements (“ISAE 3402”)
report and the Administrator 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 2019 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
24 March 2020
Manager’s Report
Brevan Howard Capital Management LP (“BHCM” or the “Manager”) is the
Manager of BH Macro Limited (“BHM” or 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 NAV per share of the USD shares of the Company appreciated by 9.38% in
2019, while the NAV per share of the GBP shares appreciated by 7.98%.
The month-by-month NAV performance of each currency class of the Company since
it commenced operations in 2007 is set out below.
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)
2018 2.54 (0.38) (1.54) 1.07 8.41 (0.57) 0.91 0.90 0.14 1.32 0.38 0.47 14.16
2019 0.67 (0.70) 2.45 (0.49) 3.55 3.97 (0.66) 1.12 (1.89) 0.65 (1.17) 1.68 9.38
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)
2018 2.36 (0.51) (1.68) 1.01 8.19 (0.66) 0.82 0.79 0.04 1.17 0.26 0.31 12.43
2019 0.52 (0.88) 2.43 (0.60) 3.53 3.82 (0.78) 1.00 (1.94) 0.47 (1.22) 1.52 7.98
Source: Master Fund NAV data is provided by the administrator of the Master
Fund, International Fund Services (Ireland) Limited (“IFS”). The
Company’s NAV and NAV per Share data is provided by the Company’s
administrator, Northern Trust International Fund Administration Services
(Guernsey) Limited. Company NAV per Share % Monthly Change is calculated by
the Manager. Company NAV data is unaudited and net of all investment
management and all other fees and expenses payable by the Company. In
addition, the Master Fund is subject to an operational services
fee.
With effect from 1 April 2017, the management fee is 0.5% per annum. The
Company’s investment in the Master Fund is subject to an operational
services fee of 0.5% per annum.
No management fee or operational services fee is charged in respect of
performance related growth of NAV for each class of share in excess of its
level on 1 April 2017 as if the tender offer commenced by the Company on 27
January 2017 had completed on 1 April 2017.
NAV performance is provided for information purposes only. Shares in the
Company do not necessarily trade at a price equal to the prevailing NAV per
Share.
Data as at 31 December 2019.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Quarterly and annual contribution (%) to the performance of the Company’s
USD Shares (net of fees and expenses) by asset class*
Rates FX Commodity Credit Equity Discount Management TOTAL
Q1 2019 3.16 -0.68 0.05 -0.03 -0.09 0.00 2.41
Q2 2019 9.14 -1.79 0.25 -0.04 -0.29 0.00 7.14
Q3 2019 -1.61 0.35 0.23 -0.10 -0.30 0.00 -1.45
Q4 2019 0.53 0.74 -0.40 0.15 0.15 0.00 1.15
2019 11.35 -1.39 0.12 -0.02 -0.53 0.00 9.38
*Data as at 31 December 2019
Please note that quarterly and annual returns shown in this table are
compounded
Quarterly and annual figures are calculated by BHCM as at 31 December 2019,
based on performance data for each period provided by the Company’s
administrator, Northern Trust. Figures rounded to two decimal places.
Quarterly and annual returns shown in this table are compounded and the
calculation methodology is in line with that published in the monthly
shareholder reports which are available on the Company’s website.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Methodology and Definition of Contribution to Performance:
Attribution by asset class is produced at the instrument level, with
adjustments made based on risk estimates.
The above asset classes are categorised as follows:
“Rates”: interest rates markets
“FX”: FX forwards and options
“Commodity”: commodity futures and options
“Credit”: corporate and asset-backed indices, bonds and CDS
“Equity”: equity markets including indices and other derivatives
“Discount Management”: buyback activity for discount management purposes
Performance and Economic Outlook Commentary
The Master Fund generated positive returns throughout the year, driven in
particular by interest rate trading in the US, Europe and emerging markets. At
the beginning of 2019, the Master Fund was positioned in anticipation of
monetary policy easing by the Federal Reserve, the ECB and the Bank of
England. These views were expressed through a combination of directional,
yield curve and volatility positions. In the event, global growth slowed as
the year unfolded, led by notable weakness in the manufacturing sector, and
punctuated by an intensification in trade tensions between the US and China.
As markets started to anticipate the potential for rate cuts and, in the case
of Europe, further quantitative easing, these positions profited, in
particular during the second quarter of the year. Markets became more choppy
after the summer. Investors were caught off guard by President Trump’s
demand that US companies move out of China, the designation of China as a
currency manipulator, and the announcement of new tariffs covering all of US
trade with China. The consequences of this escalation were immediately felt in
markets and were reflected in a further deterioration in business sentiment.
Fears of an uncontrolled trade war and cliff-edge Brexit increased the odds of
global recession. However, risk assets recovered on plans for a phase one
trade deal between the US and China, the prospects for a resolution to Brexit
following the UK election, and hopes that fiscal and monetary policy easing
would buoy growth. Growth in China and Europe stabilised and fears of
recession in the US waned. In this environment, some of the gains from US
interest rate positioning were given back in the third quarter and position
taking became more tactical into the end of the year. In a number of emerging
markets, political and social unrest weighed heavily on economic activity,
enabling the Master Fund to profit in every quarter from a wide range of
idiosyncratic interest rate trading strategies.
Going into 2020, global growth remained soft, inflation was low, and
geopolitics remained volatile. The outbreak and rapid spread of coronavirus
(COVID-19) has severely impacted global commercial activities. There have been
sharp falls in risk assets and commodity prices, with policymakers taking
substantial steps to respond. The evolving situation presents a number of
challenges to global economic activity in 2020.
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.
24 March 2020
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 2019, 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 2019, and of the Company’s financial performance and cash
flows for the year then ended;
* are prepared in conformity with U.S. 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 2018):
The risk Our response
Valuation of Investment in Brevan Howard Master Fund Limited (the “Master Fund”) $558,606,000; (2018: $500,567,000 ); Refer to the Audit Committee Report and note 3 accounting policy Basis: The Company, which is a multi-class feeder fund, had invested 99.79% (2018: 100.05%) of its net assets at 31 December 2019 into the ordinary US Dollar and Sterling denominated Class B Shares issued by the Master Fund, which is an open ended investment company The Company’s investment holdings in the Master Fund are valued using the respective net asset value per share class as provided by the Master Fund’s administrator Risk: The valuation of the Company’s Investment in the Master Fund, given that it represents the majority of the net assets of the Company, is a significant area of our audit Our audit procedures included, but were not limited to: Obtained an independent confirmation from the administrator of the Master Fund of the net asset value per share
for both the US Dollar and Sterling Class B shares and reconciled these to the net asset values used in the valuation of the Investment in the Master Fund Reviewed the
audit work performed by the auditor of the Master Fund to gain insight over the work performed on the significant elements of the Master Fund’s net asset value; and held
discussions on key audit findings with the auditor of the Master Fund Examined the Master Fund’s coterminous audited financial statements to corroborate the net asset
value per share of both the US Dollar and Sterling Class B shares We also considered the Company’s investment valuation policies as disclosed in note 3 to the financial
statements for conformity with U.S. generally accepted accounting principles
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at $8,182,000,
determined with reference to a benchmark of Net Assets of $559,765,000, of
which it represents approximately 1.5%.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding $409,000, 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.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the Annual Report but does
not include the financial statements and our auditor's report thereon. 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.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
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 in the
Strategic Report that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity;
* the Principal Risks disclosures describing these risks and explaining how
they are being managed or mitigated;
* the Directors’ explanation in the Viability Statement in the Strategic
Report 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 provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
* the Company has not kept proper accounting records; or
* the financial statements are not in agreement with the accounting records;
or
* we have not received all the information and explanations, which to the best
of our knowledge and belief are necessary for the purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out in the Statement of
Directors’ Responsibility in Respect of the Annual Report and Audited
Financial Statements, 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 liquidation is
imminent.
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 Ryan
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
24 March 2020
Audited Statement of Assets and Liabilities
As at 31 December 2019
31.12.19 31.12.18
US$'000 US$'000
Assets
Investment in the Master Fund 558,606 500,567
Master Fund redemption proceeds receivable 11,433 -
Prepaid expenses 46 64
Cash and bank balances denominated in US Dollars 172 750
Cash and bank balances denominated in Sterling 522 4,926
Total assets 570,779 506,307
Liabilities
Performance fees payable (note 4) 10,505 5,684
Management fees payable (note 4) 394 203
Accrued expenses and other liabilities 91 93
Administration fees payable (note 4) 24 24
Total liabilities 11,014 6,004
Net assets 559,765 500,303
Number of shares in issue (note 5)
US Dollar shares 2,442,057 2,664,541
Sterling shares 14,310,040 14,136,242
Net asset value per share (notes 7 and 9)
US Dollar shares US$26.99 US$24.67
Sterling shares £26.06 £24.13
See accompanying Notes to the Audited Financial Statements.
Signed on behalf of the Board by:
Colin Maltby
Chairman
John Le Poidevin
Director
24 March 2020
Audited Statement of Operations
For the year ended 31 December 2019
01.01.19 01.01.18
31.12.19 31.12.18
US$'000 US$'000
Net investment loss allocated from the Master Fund
Interest income 22,303 7,298
Dividend and other income (net of withholding tax:
31 December 2019: US$34,677; 31 December 2018: US$25,955) 88 1,621
Expenses (27,628) (13,809)
Net investment loss allocated from the Master Fund (5,237) (4,890)
Company income
Fixed deposit income 1 -
Foreign exchange gains (note 3) 18,544 -
Total Company income 18,545 -
Company expenses
Performance fees (note 4) 10,196 5,904
Management fees (note 4) 2,281 2,355
Other expenses 469 476
Directors' fees 271 269
Administration fees (note 4) 94 94
Foreign exchange losses (note 3) - 23,246
Total Company expenses 13,311 32,344
Net investment loss (3) (37,234)
Net realised and unrealised gain on investments allocated from the Master Fund
Net realised gain on investments 8,371 72,315
Net unrealised gain/(loss) on investments 51,094 (96)
Net realised and unrealised gain on investments allocated from the Master Fund 59,465 72,219
Net increase in net assets resulting from operations 59,462 34,985
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Changes in Net Assets
For the year ended 31 December 2019
01.01.19 01.01.18
31.12.19 31.12.18
US$'000 US$'000
Net increase in net assets resulting from operations
Net investment loss (3) (37,234)
Net realised gain on investments allocated from the Master Fund 8,371 72,315
Net unrealised gain/(loss) on investments allocated from the Master Fund 51,094 (96)
59,462 34,985
Net increase in net assets 59,462 34,985
Net assets at the beginning of the year 500,303 465,318
Net assets at the end of the year 559,765 500,303
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Cash Flows
For the year ended to 31 December 2019
01.01.19 01.01.18
31.12.19 31.12.18
US$'000 US$'000
Cash flows from operating activities
Net increase in net assets resulting from operations 59,462 34,985
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Net investment loss allocated from the Master Fund 5,237 4,890
Net realised gain on investments allocated from the Master Fund (8,371) (72,315)
Net unrealised (gain)/loss on investments allocated from the Master Fund (51,094) 96
Increase in Master Fund redemption proceeds receivable (11,433) -
Proceeds from sale of investment in the Master Fund 15,055 7,982
Foreign exchange (gains)/losses (18,544) 23,246
Decrease/(increase) in prepaid expenses 18 (20)
Increase in performance fees payable 4,821 5,684
Increase in management fees payable 191 6
Decrease in accrued expenses and other liabilities (2) (76)
Decrease in Directors' fees payable - (70)
Decrease in administration fees payable - (9)
Net cash (used in)/provided by operating activities (4,660) 4,399
Change in cash (4,660) 4,399
Cash, beginning of the year 5,676 1,080
Effect of exchange rate fluctuations (322) 197
Cash, end of the year 694 5,676
Cash, end of the year
Cash and bank balances denominated in US Dollars 172 750
Cash and bank balances denominated in Sterling (1) 522 4,926
694 5,676
1. Cash and bank balances in Sterling (GBP'000) 394 3,868
See accompanying Notes to the Audited Financial Statements.
Notes to the Audited Financial Statements
For the year ended 31 December 2019
1. The Company
BH Macro Limited is a limited liability closed-ended investment company which
was incorporated in Guernsey on 17 January 2007 and then admitted to the
Official List of the London Stock Exchange ("LSE") later that year.
Currently, ordinary shares are issued in US Dollars and Sterling.
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 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 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 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 2019, 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 NAV per Share Shares held in the Master Fund Investment in Master Fund Investment in Master Fund
Master Fund's capital (Class B) (Class B) CCY '000 US$'000
31 December 2019
US Dollar 2.17% $3,635.03 18,082 $65,734 65,734
Sterling 16.27% £3,674.06 101,291 £372,147 492,872
558,606
31 December 2018
US Dollar 2.69% $3,234.22 20,315 $65,704 65,704
Sterling 17.81% £3,321.41 102,785 £341,390 434,863
500,567
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 are translated into US Dollars, the Company’s reporting currency,
using exchange rates at the reporting date. Transactions reported in the
Audited Statement of Operations are translated into US Dollar amounts at the
date of such transactions. The share capital and other capital reserve
accounts are translated at the historic rate ruling at the date of the
transaction. Exchange differences arising on translation are included in the
Audited Statement of Operations. This 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 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 has purchased its own share capital, the consideration paid,
which includes any directly attributable costs, has been recognised as a
deduction from equity Shareholders’ funds through the Company’s reserves.
If such shares were to be subsequently sold or reissued to the market, any
consideration received, net of any directly attributable incremental
transaction costs, would be 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 the purchases by the Company of its share
capital.
New Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurements
(Topic 820): Changes to the Disclosure Requirements for Fair Value
Measurements. ASU 2018-13 eliminates the requirement to disclose (i) transfers
between level 1 and level 2 of the fair value hierarchy, (ii) the policy for
timing of transfers between levels, (iii) valuation processes and (iv) for non
public entities, changes in unrealised gains/losses for the year included in
earnings for recurring Level 3 fair value measurements. The ASU also modifies
existing disclosure requirements for the roll forward of Level 3 fair value
measurements as well as disclosures of the timing of liquidating distributions
from portfolio investments. The amendments are effective for annual periods
beginning after 15 December 2019 and early adoption is permitted. The Master
Fund has not early adopted ASU 2018-13 for the Audited Financial Statements as
of 31 December 2019. The Company anticipates that the adoption of ASU 2018-13
for the year ended 31 December 2020 will not have a material impact on the
financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic
230) – Restricted Cash, which requires the Statement of Cash Flows to
explain the change during the year in the total of cash, cash equivalents and
amounts generally described as restricted cash or restricted cash equivalents.
Therefore amounts generally described as restricted cash or restricted cash
equivalents should be included with cash and cash equivalents when reconciling
the beginning of the year and end of the year total amounts shown in the
Audited Statement of Cash Flows. The Company adopted ASU 2016-18 on a
retrospective basis as of 1 January 2019, but the pronouncement has not
materially affected the financial statements, due to the Company holding no
restricted cash.
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. 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 management fee charged is 1/12 of 0.5%
per month of the NAV. 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.
The Manager does not charge the Company a management fee in respect of any
increase in the NAV of each class of shares in excess of its level on 1 April
2017, as if the Company’s 2017 tender offer had completed on that date,
resulting from performance or any own share purchases or redemptions. The
Company’s investment in the Master Fund also does not bear an operational
services fee in respect of performance related growth in its investment in the
Master Fund.
During the year ended 31 December 2019, US$2,281,263 (31 December 2018:
US$2,354,588) was earned by the Manager as net management fees. At 31 December
2019, US$394,432 (31 December 2018: US$203,414) of the fee remained
outstanding.
The Manager is also entitled to an annual performance fee for both share
classes. 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 ongoing basis and is reflected in the Company’s
published NAV. During the year ended 31 December 2019, US$10,196,480 (31
December 2018: US$5,903,616) was earned by the Manager as performance fees. At
31 December 2019, US$10,504,617 (31 December 2018: US$5,683,990) 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 3 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 3 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 3 months’ notice of termination is given.
The notice period for termination of the Management Agreement without cause by
both the Company and the Manager was reduced from 24 months to 3 months, with
effect from 1 April 2019.
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 £6,000
(31 December 2018: £6,000) 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 2019, US$94,049 (31 December 2018: US$94,382) 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.
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.
For the year ended 31 December 2019
US Dollar shares Sterling shares
Number of ordinary shares
In issue at 1 January 2019 2,664,541 14,136,242
Share conversions (222,484) 173,798
In issue at 31 December 2019 2,442,057 14,310,040
Number of treasury shares
In issue at 1 January 2019 and 31 December 2019 331,228 1,450,652
Percentage of class 11.94% 9.20%
For the year ended to 31 December 2018
US Dollar shares Sterling shares
Number of ordinary shares
In issue at 1 January 2018 2,782,034 14,046,048
Share conversions (117,493) 90,194
In issue at 31 December 2018 2,664,541 14,136,242
Number of treasury shares
In issue at 1 January 2018 and 31 December 2018 331,228 1,450,652
Percentage of class 11.06% 9.31%
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, prepaid expenses, losses, dividends, profits, gains and
income which the Directors determine in their sole discretion relate to a
particular class.
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 20 June
2019, the Directors have the power to issue further shares totalling 867,004
US Dollar shares and 5,068,228 Sterling shares, respectively and, as described
in the Company’s announcement on 4 June 2019, shall limit the use of
authority in respect of the Sterling shares to 4,727,417 Sterling shares. 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: Guernsey; 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
2019 is disclosed in note 5.
However, following the completion of the Tender Offer in April 2017, the
Company was not permitted to redeem its investment in the Master Fund to
finance own-share purchases before 1 April 2019. For much of the period since
that date, the Company’s shares have traded at a premium or minimal discount
to NAV. However, if the Company’s shares were again to trade at wide or
volatile discounts to NAV in the future, it would be the Board’s intention
to consider resuming market purchases of shares.
Annual offer of partial return of capital
Under the Company’s Articles of Incorporation, once in every calendar year
the Directors have 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 have 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 completed in April 2017 the annual partial
capital return provisions were disapplied but have now been reinstated for the
year ended 31 December 2019.
Class closure resolutions
If in the year from 1 January 2019 to 31 December 2019, any class of shares
had traded at an average discount at or in excess of 8% of the monthly NAV
(prior to 1 January 2018, a threshold of 10% applied in respect of the
Company’s class closure provisions), the Company would have held a class
closure vote of the relevant class. The average premiums to NAV for the
Sterling and US Dollar shares for the year were 0.44% and 1.15% respectively
and consequently no closure vote will be held in 2020.
The Company’s class closure provisions set out in the Articles of
Incorporation have now been reinstated in respect of the twelve month period
ended on 31 December 2019 and thereafter.
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 2019 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.
31.12.19 31.12.19
US Dollar shares Sterling shares
US$ £
Per share operating performance
Net asset value at beginning of the year 24.67 24.13
Income from investment operations
Net investment loss* (0.94) (0.89)
Net realised and unrealised gain on investment 3.32 2.81
Other capital items** (0.06) 0.01
Total gain 2.32 1.93
Net asset value, end of the year 26.99 26.06
Total gain before performance fees 11.69% 9.97%
Performance fees (2.31%) (1.99%)
Total gain after performance fees 9.38% 7.98%
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 2019 to 31 December 2019. An individual
Shareholder’s return may vary from these returns based on the timing of
their purchase or sale of shares.
31.12.19 31.12.19
US Dollar shares Sterling shares
US$'000 £'000
Supplemental data
Net asset value, end of the year 65,907 372,893
Average net asset value for the year 66,034 362,275
31.12.19 31.12.19
US Dollar shares Sterling shares
Ratio to average net assets
Operating expenses
Company expenses*** 0.61% 0.59%
Master Fund expenses**** 1.71% 1.73%
Master Fund interest expenses***** 3.43% 3.49%
Performance fees 2.18% 1.89%
7.93% 7.70%
Net investment loss before performance fees* (1.43%) (1.59%)
Net investment loss after performance fees* (3.61%) (3.48%)
31.12.18 31.12.18
US Dollar shares Sterling shares
US$ £
Per share operating performance
Net asset value at beginning of the year 21.62 21.47
Income from investment operations
Net investment loss* (0.63) (0.66)
Net realised and unrealised gain on investment 3.75 3.31
Other capital items** (0.07) 0.01
Total gain 3.05 2.66
Net asset value, end of the year 24.67 24.13
Total gain before performance fees 15.32% 13.73%
Performance fees (1.16%) (1.30%)
Total gain after performance fees 14.16% 12.43%
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 2018 to 31 December 2018. An individual
Shareholder’s return may vary from these returns based on the timing of
their purchase or sale of shares.
31.12.18 31.12.18
US Dollar shares Sterling shares
US$'000 £'000
Supplemental data
Net asset value, end of the year 65,745 341,151
Average net asset value for the year 63,940 325,195
31.12.18 31.12.18
US Dollar shares Sterling shares
Ratio to average net assets
Operating expenses
Company expenses*** 0.62% 0.65%
Master Fund expenses**** 1.62% 1.64%
Master Fund interest expenses***** 1.15% 1.14%
Performance fees 1.06% 1.21%
4.45% 4.64%
Net investment loss before performance fees* (1.62%) (1.63%)
Net investment loss after performance fees* (2.68%) (2.84%)
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 year 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 gains/losses.
**** Master Fund expenses are the operating expenses of the Master
Fund excluding the interest and dividend expenses of the Master Fund.
***** Master Fund interest expenses include 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.
The Company’s Articles limit the fees payable to Directors in aggregate to
£400,000 per annum. Until 19 June 2019, the annual fees were £65,000 for Huw
Evans, the Chairman, £47,500 for John Le Poidevin, the Chair of the Audit
Committee, £45,000 for Claire Whittet, the Chair of the Management Engagement
Committee, £45,000 for Colin Maltby as Senior Independent Director and
£40,000 for all other Directors.
Between 20 June 2019 and 30 September 2019, annual fees remained the same as
above, except for Colin Maltby, who was paid at a rate of £65,000 per annum
after succeeding Huw Evans as Chairman and £47,500 per annum for Claire
Whittet, who was appointed Senior Independent Director.
From 1 October 2019, the annual Director’s fees were £70,000 for Colin
Maltby, the Chairman, £55,000 for John Le Poidevin, the Chair of the Audit
Committee, £50,000 for Claire Whittet, as Chair of the Management Engagement
Committee and the Senior Independent Director and £45,000 for all other
Directors.On 22 January 2019, John Le Poidevin purchased 3,222 Sterling Class
Shares.
On 26 March 2019, Colin Maltby purchased 500 US Dollar Class Shares and 3,000
Sterling Class Shares.
11. Subsequent events
The Directors have evaluated subsequent events up to 24 March 2020, 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, other than those listed below.
Since the start of January 2020, the outbreak of coronavirus, which is a
rapidly evolving situation, has adversely impacted global commercial
activities. The rapid development and fluidity of this situation precludes any
prediction as its ultimate impact, which may have a continued adverse impact
on economic and market conditions and trigger a period of global economic
slowdown. The Directors do not believe there is any financial impact to the
Financial Statements as at 31 December 2019 as a result of this subsequent
event.
The Manager is monitoring developments relating to coronavirus and is
coordinating its operational response based on existing business continuity
plans and on guidance from global health organisations, relevant governments,
and general pandemic response best practices.
On 20 February 2020, 25,000 Sterling Class Shares were sold from Treasury for
2,621.4 pence per share.
On 12 March 2020, 125,000 Sterling Class Shares were sold from Treasury for
2,943.0 pence per share.
Historic Performance Summary
As at 31 December 2019
31.12.19 31.12.18 31.12.17 31.12.16 31.12.15
US$'000 US$'000 US$'000 US$'000 US$'000
Net increase/(decrease) in net assets
resulting from operations 59,462 34,985 4,725 (150,245) (91,220)
Total assets 570,779 506,307 465,787 866,740 1,499,648
Total liabilities (11,014) (6,004) (469) (1,897) (4,755)
Net assets 559,765 500,303 465,318 864,843 1,494,893
Number of shares in issue
US Dollar shares 2,442,057 2,664,541 2,782,034 9,975,524 17,202,974
Euro shares - - - 1,514,872 4,163,208
Sterling shares 14,310,040 14,136,242 14,046,048 22,371,669 33,427,871
Net asset value per share
US Dollar shares US$26.99 US$24.67 US$21.62 US$21.68 US$20.33
Euro shares - - - €21.87 €20.56
Sterling shares £26.06 £24.13 £21.47 £22.44 £21.21
Affirmation of the Commodity Pool Operator
31 December 2019
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: Reamonn O’Sullivan
Title: Head of Compliance 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
24 March 2020
Glossary of Terms and Alternative Performance Measures
Alternative Performance Measures (“APMS”)
We assess our performance using a variety of measures that are not
specifically defined under US GAAP and therefore termed APMs. The APMs that we
use may not be directly comparable with those used by other companies.
Average Premium/Discount to NAV
The average premium/discount to NAV of the whole year is calculated for each
share class by using the following formula:
(A-B)
------------
B
Where:
* ‘A’ is the average closing market price of a share of the share class as
derived from the trading price on the London Stock Exchange, calculated as the
sum of all the closing market prices per share of that class as at each London
Stock Exchange trading day during a calendar year, divided by the number of
such trading days in such period; and
* ‘B’ is the average Net Asset Value per share of the shares of the share
class taken over the 12 NAV Calculation Dates in a calendar year calculated as
the sum of the final Net Asset Value of the share class as at each NAV
Calculation Date during a calendar year, divided by 12.
Discount/Premium
If the share price of an investment is lower than the NAV per share, the
shares are said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the share price is
higher than the NAV per share, the shares are said to be trading at a premium.
The Board monitors the level of discount or premium and consideration is given
to ways in which share price performance may be enhanced, including the
effectiveness of marketing and share buy-backs, where appropriate. The
premium/discount is shown below.
US Dollar Shares Sterling Shares
31.12.19 31.12.18 31.12.19 31.12.18
Share Price at Year End (A) $27.40 $24.60 £26.10 £23.65
NAV per Share (B) $26.99 $24.67 £26.06 £24.13
Premium/(Discount) to NAV (A-B)/B 1.52% -0.28% 0.15% -1.99%
Ongoing Charges
The ongoing charges represent the Company’s management fee and all other
operating expenses, excluding finance costs, performance fees, share issue or
buyback costs and non-recurring legal and professional fees, expressed as a
percentage of the average of the daily net assets during the year. The Board
continues to be conscious of expenses and works hard to maintain a sensible
balance between good quality service and cost. The ongoing charges calculation
is shown below:
US Dollar Shares Sterling Shares
Year ended Year ended
31.12.19 31.12.18 31.12.19 31.12.18
Average NAV for the year (a) $66,033,640 $63,939,510 £362,275,318 £325,195,194
Investment management fee $277,326 $300,188 £1,566,321 £1,545,243
Other Company expenses $124,616 $97,538 £552,410 £556,953
Total Company Expenses $401,942 $397,726 £2,118,731 £2,102,196
Expenses allocated from the Master Fund $398,891 $409,159 £2,356,180 £2,088,573
Performance Fee $1,437,594 $679,789 £6,846,136 £3,928,561
Total Expenses (b) $2,238,427 $1,486,674 £11,321,047 £8,119,330
Ongoing Charges b/a 3.40% 2.32% 3.13% 2.49%
Net Asset Value (“NAV”)
The NAV is the net assets attributable to shareholders that is, total assets
less total liabilities, expressed as an amount per individual share.
Return per Share
Return per share is calculated using the net return on ordinary activities
after finance costs and taxation (US$5,791,771 and £27,463,793) divided by
the weighted average number of shares in issue for the year ended 31 December
2019 (2,442,057 US Dollar shares and 14,310,040 Sterling shares). The
Directors also regard return per share to be a key indicator of performance.
The return per share is shown in the Strategic Report.
Company Information
Directors
Colin Maltby (Chairman, from 20 June 2019)
Huw Evans (Chairman and Director, until his retirement on 20 June 2019)
Bronwyn Curtis (appointed 1 January 2020)
Richard Horlick (appointed 1 May 2019)
John Le Poidevin
Claire Whittet
(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
For the latest information
www.bhmacro.com
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 International 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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