REG-BH Macro Limited: Annual Report and Audited Financial Statements 2023
28/03/2024 07:15
BH Macro Limited
Annual Report and Audited Financial Statements 2023
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 2023.
The Report will shortly be available from the Company’s website:
www.bhmacro.com.
Chair’s Statement
In the interim report, I stated that 2023 had been a rollercoaster year to
date for BH Macro Limited (the “Company”) after the successful equity
raising at the beginning of the year. During the first six months of the year,
we experienced the greatest reversal in interest rate expectations for 40
years, which had a detrimental impact on the NAV per share performance for
Brevan Howard Master Fund Limited (the “Master Fund”). The period also saw
the announcement of the merger of two of our largest shareholders, namely,
Investec and Rathbones creating a combined entity which held voting rights of
26.08% of the Sterling Class shares and 0.92% of the US Dollar Class shares,
as at 14 February 2024. The fear of a significant overhang of stock as a
result of the merger contributed to the price of the Company’s shares moving
to a significant discount during the year, having started the year at a large
premium.
The second half of the year saw a significant reversal in the first half
year’s disappointing NAV per share performance, which at June had fallen by
slightly more than 6%. Notwithstanding the positive second half of the year in
NAV per share performance, the discount on the Company’s shares persisted
throughout the remainder of the financial year. No doubt some of this resulted
from fears by some investors of selling, resulting from the merger referred to
above, but it is worth remembering the words of President Roosevelt that we
‘have nothing to fear, but fear itself’. As your Board, we retain absolute
confidence in Brevan Howard Capital Management LP (the “Manager”) as the
Company’s manager, and we have the expectation that it will continue to
deliver the good returns it demonstrated for more than 20 years. In these
circumstances and given the clearance that the Takeover Panel has given that
the combined Investec and Rathbones entity is not under any obligation to make
sales of the stock, the Company is anticipating it will be able to stand or
fall on its NAV per share performance and the relative attractiveness of other
investments. The increase in interest rates and the competing attractiveness
not just of cash, but other investment vehicles means that it is a challenging
environment for macro funds. However, this difficult and volatile environment
is one in which historically the Master Fund has flourished.
Whilst the overall return for the NAV per share during the financial year was
slightly negative, being -1.81% for the Sterling Class shares and -1.33% for
the US Dollar Class shares, the share price return for the financial year was
significantly different, being -18.26% for the Sterling Class shares and
-16.59% for the US Dollar Class shares. This share price performance is
obviously disappointing. Your Board consequently initiated a share buyback
programme during December 2023 and the discount narrowed from 13.12% (as at 30
November 2023) to 10.71% (as at 31 December 2023) for the Sterling Class
shares, and similarly from 11.90% (as at 30 November 2023) to 11.71% (as at 31
December 2023) for the US Dollar Class shares. Your Board has continued to
implement buybacks subsequent to the year end and has the ability to buyback,
on an annual basis, 5% of the Company’s shares in issue (disregarding shares
held in treasury) as at 31 December in the immediately preceding year without
paying any additional fees. The Company is far from being alone in standing at
a significant discount. Other closed-ended investment companies saw their
discount widen during the course of the year, and for the reasons set out
above the Company was no exception.
Against this background, your Board has continued its regular dialogue with
the Manager in order to assure itself of the quality of the investment team
and supporting systems, operations and infrastructure across the organisation.
During the course of 2023, the Manager’s business continued to flourish with
assets under management growing from approximately US$30.0 billion to
approximately US$36.6 billion and the team being strengthened both at the
portfolio manager level and in terms of support staff.
Your Board has remained reassured that these continuing developments in the
Manager’s operations are supportive of the Manager’s core activities and
are positive for the services which the Manager provides to the Company.
The Company and its Manager have continued to pursue an active program of
public communication and investor relations. Up-to-date performance
information is provided through NAV per share data published monthly on a
definitive basis and weekly on an estimated basis, as well as through monthly
reports and shareholder reports. All these reports and further information
about the Company are available on the Company's website (www.bhmacro.com).
Your Board is wholly independent of the Brevan Howard group of companies. The
Directors are very closely focused on safeguarding the interests of
shareholders and believe that the Company observes high standards of corporate
governance. During the course of the year, Claire Whittet retired from the
Board and as Senior Independent Director on 13 September 2023, after
completing 9 years of service and, on your behalf, we thank her for her wise
counsel, dedicated contribution and effective engagement with her fellow Board
members. The Board continues to operate well with a high level of engagement
and a close working relationship between the diverse members of the Board. We
are pleased to say that we are in compliance with all current regulations and
recommendations relating to Board composition.
The geopolitical and economic environment remains highly uncertain. The
conflict in Ukraine continues unabated, and it is unlikely that any solution
will be seen in the near term. In the Middle East, the horrific attack by
Hamas on Israel and the Israeli response has created even more uncertainty and
risk. This has been exacerbated by the Houthi attacks on shipping in the Gulf.
For the first time in history a naval blockade can be enforced using
relatively easily available drone technology rather than sophisticated and
highly expensive naval or air force equipment. It remains unknown what the
impact longer term might be on shipping costs and trading routes. At the same
time, we are seeing civil disobedience in Europe in relation to the reduction
in farm subsidies, particularly in the form of diesel fuel to farmers in
Germany and France. The shift of return from capital to labour looks set to
continue, increasing costs for companies and potentially putting upward
pressure on inflation.
On the political front, Donald Trump appears to be the leader for the
Republican nomination for US President and therefore what seemed to be the
highly unlikely event of a rerun of a Biden-Trump election campaign now
appears to be a near certainty for the US. This has also increased the
uncertainty for the global economy and political stability worldwide.
Meanwhile, closer to home in Europe both the economic and political outlook
are cause for concern. In the UK, the governing Conservative party remains
deeply divided and embroiled in internal conflicts despite the forthcoming
General Election.
In these circumstances, your Board believes that the Company represents an
attractive diversifying investment uncorrelated to both bond and equity
markets.
Your Board will continue to work hard in conjunction with the Manager to
deliver the best outcome for all shareholders.
Richard Horlick
Chair
27 March 2024
The Directors of the Company during the year and as at the date of signing,
all of whom are non-executive, are listed below:
Richard Horlick (Chair)
Richard Horlick is UK resident. He is currently the non-executive chairman of
CCLA Investment Management which manages assets for over 38,000 charities and
church and local authority funds. He has served on a number of closed- ended
fund boards. 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. Mr. Horlick was appointed to
the Board in May 2019 and was appointed Chair in February 2021.
Caroline Chan
Caroline Chan is a Guernsey resident and has over 30 years’ experience as a
corporate lawyer, having retired from private practice in 2020. After studying
law at Oxford University, Caroline qualified as an English solicitor with
Allen & Overy, working in their corporate teams in London and Hong Kong. On
returning to Guernsey in 1998, Caroline qualified as a Guernsey advocate and
practised locally, including as a partner with law firms Ogier and Mourant
Ozannes. Since retiring from private practice, Caroline has taken on
non-executive directorship roles and is Chair of the Board of Governors of The
Ladies’ College, Guernsey. She was a member of the Guernsey Competition and
Regulatory Authority until March 2023. Ms. Chan was appointed to the Board in
December 2022.
Julia Chapman
Julia Chapman is a Jersey resident and a solicitor qualified in England &
Wales and in Jersey with over 30 years’ experience in the investment fund
and capital markets sector. After working at Simmons & Simmons in London, she
moved to Jersey and became a partner of Mourant du Feu & Jeune (now Mourant)
in 1999. She was then appointed general counsel to Mourant International
Finance Administration (the firm’s fund administration division). Following
its acquisition by State Street in April 2010, Julia was appointed European
Senior Counsel for State Street’s alternative investment business. In July
2012, Julia left State Street to focus on the independent provision of
directorship and governance services to a small number of investment fund
vehicles. Mrs. Chapman was appointed to the Board in October 2021.
Bronwyn Curtis
Bronwyn Curtis is a UK resident and Senior Executive with 30 years leadership
in finance, commodities, consulting and the media. Her executive roles
included Head of Global Research at HSBC Plc, Managing Editor and Head of
European Broadcast at Bloomberg LP, Chief Economist of Nomura International,
and Global Head of Foreign Exchange and Fixed Income Strategy at Deutsche
Bank. She has also worked as a consultant for the World Bank and UNCTAD. Her
other current appointments include non-executive member of the Oversight Board
of the UK Office for Budget Responsibility, trustee of the Centre for Economic
and Policy Research, the Australia-UK Chamber of Commerce and The Times shadow
MPC. She is a graduate of the London School of Economics and La Trobe
University in Australia where she received a Doctor of Letters in 2017.
Bronwyn was awarded an OBE in 2008 for her services to business economics.
Mrs. Curtis was appointed to the Board in January 2020 and was appointed
Senior Independent Director on 13 September 2023.
John Le Poidevin
John Le Poidevin is Guernsey resident and has over 30 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.
Director who retired from the Board during the year
Claire Whittet
Claire Whittet is Guernsey resident and has over 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, until retiring in July 2023. 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 an experienced non-executive director of
a number of listed investment and private equity funds. Until her recent
retirement, and after serving for 9 years, she chaired a listed fund and is
Senior Independent Director on others. Mrs. Whittet was appointed to the Board
in June 2014 and retired from the Board on 13 September 2023.
Disclosure of Directorships in Public Companies Listed on Recognised Stock
Exchanges
The following summarises the Directors’ current directorships in other
public companies:
Exchange
Richard Horlick
Riverstone Energy Limited London
VH Global Sustainable Energy Opportunities Plc London
Caroline Chan
NextEnergy Solar Fund Limited* London
Julia Chapman
GCP Infrastructure Investments Limited London
Henderson Far East Income Limited London
The International Stock Exchange Group Limited The International Stock Exchange
Bronwyn Curtis
Pershing Square Holdings Limited London and Euronext Amsterdam
Scottish American Investment Company Plc London
TwentyFour Income Fund Limited London
John Le Poidevin
International Public Partnerships Limited London
Super Group (SGHC) Limited New York
TwentyFour Income Fund Limited London
* Effective from 1 April 2024
Strategic Report
For the year ended 31 December 2023
The Directors submit to the Shareholders their Strategic Report of the Company
for the year ended 31 December 2023.
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 the 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
Sterling and US Dollar-denominated Class B shares issued by 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 Company’s 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 the periodic
redemption of shares from the Master Fund and borrowings in accordance with
its leverage policies.
BUSINESS ENVIRONMENT
Principal Risks and Uncertainties
The Board is responsible for the Company’s system of internal controls and
for reviewing its effectiveness. The Board is satisfied that by using the
Company’s risk matrix in establishing the Company’s system of internal
controls, while monitoring the Company’s investment objective and policy,
the Board has carried out a robust assessment of the principal and emerging
risks and uncertainties facing the Company. The principal and emerging 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 the Master
Fund’s 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 and Cyber Security Risks: The Company is exposed to the risks
arising from any failure of systems and controls in the operations of the
Manager, Northern Trust International Fund Administration Services (Guernsey)
Limited (the “Administrator”) and Computershare Investor Services
(Guernsey) Limited (the “Registrar”), or from the unavailability of any of
the Manager, the Administrator or the Registrar for whatever reason, including
those arising from cyber security issues. The Board receives regular reports
from each of those parties on cyber security and annual independent
third-party reporting on their respective internal controls;
* Accounting, Legal and Regulatory Risks: The Company is exposed to risk if it
fails to comply with the regulations of the UK Listing Authority or the
Guernsey Financial Services Commission and/or any other applicable regulatory
and legislative matters, or if it fails to maintain accurate or timely
accounting records and published financial information. The Administrator
provides the Board with regular internal control and compliance reports and
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;
* Geopolitical Risks: Elevated levels of global inflation, recessionary risks
and the current conflicts in Ukraine and the Middle East have led to greater
economic uncertainty, variability and volatility. Whilst the Master Fund has
no material direct exposure to Russia, Ukraine or Belarus, the Board has also
made enquiries of key service providers in respect of any impact from
Russia’s invasion of Ukraine and the related instability in world markets
and has been assured that none of the service providers have operations in the
region or are in any way impacted in terms of their ability to continue to
supply their services to the Company; and
* Climate Change and ESG Risks: The Company has no employees and does not own
any physical assets and is therefore not directly exposed to climate change
risk. The Manager monitors developments in this area and industry best
practice on behalf of the Board, where appropriate, and regularly assesses the
trading activity of the underlying Master Fund and sub-funds to ascertain
whether environmental, social and governance (“ESG”) factors are
appropriate or applicable to such funds. The Board has also made enquiries of
key service providers in respect of their assessment of how climate change and
ESG risk impacts their own operations and has been assured that this has no
impact on their ability to continue to supply their services to the Company.
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. At 31 December 2023, the Board believes that it was
fully compliant in terms of Listing Rules LR 9.8.6R(9) and LR 14.3.33R(1) in
relation to board diversity. There have been no changes to board composition
since that date. We have set out additional details in the table below:
Name Gender Identity Ethnicity
Richard Horlick Male White British
Caroline Chan Female White Asian British
Julia Chapman Female White British
Bronwyn Curtis Female White European
John Le Poidevin Male White British
Environmental, Social and Governance (ESG) 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 any material 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
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 Master Fund.
The Manager continues to monitor developments in this area and seeks to
implement industry best practice where applicable. The Manager is a signatory
to the UN Principles for Responsible Investment and on a regular basis,
assesses the trading activities of the Master Fund as to whether ESG, the UN
principles and sustainability risks under the EU Sustainable Finance
Disclosure Regulations are appropriate, relevant, or applicable to the Master
Fund, considering the structure of relevant Brevan Howard managed funds and
the applicable trading universe.
The Administrator is a wholly-owned indirect subsidiary of Northern Trust
Corporation, which has adopted the UN Global Compact principles, specifically:
implementing a precautionary approach to addressing environmental issues
through effective programmes, undertaking initiatives that demonstrate the
acknowledgement of environmental responsibility, promoting and using
environmentally sustainable technologies, and UN Sustainable Development
Goals, specifically: using only energy efficient appliances and light bulbs,
avoiding unnecessary use and waste of water, implementing responsible
consumption and production, and taking action to reduce climate change.
POSITION AND PERFORMANCE
Packaged Retail and Insurance Based Investment Products (“PRIIPs”)
From 1 January 2021, the Company became subject to the UK version of
Regulation (EU) No 1286/2014 on key information documents for PRIIPs, which is
part of UK law by virtue of the European Union (Withdrawal) Act 2018, as
amended and supplemented from time to time, including by the Packaged Retail
and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019
(the “UK PRIIPs Laws”). In accordance with the requirements of the UK
PRIIPs Laws, the Manager published the latest standardised three-page Key
Information Document (a “KID”) for the Company’s Sterling shares and
another for its US Dollar shares on 27 April 2023 (based on data as at 31
December 2022). Each KID is available on the Company’s website
https://www.bhmacro.com/regulatory-disclosures/
(http://www.bhmacro.com/regulatory-disclosures/) and will be updated at least
every 12 months.
The Manager is the PRIIPs manufacturer for each KID and the Company is not
responsible for the information contained in each KID. The process for
calculating the risks, cost and potential returns is prescribed by regulation.
The figures in the KID, relating to the relevant share class, may not reflect
the expected returns for that share class of the Company and anticipated
returns cannot be guaranteed.
Performance
Key Performance Indicators (“KPIs”)
At each quarterly 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. NAV
The Company’s NAV per share has appreciated from £1.00* per Sterling share
and US$1.00* per US Dollar share at launch to £4.11 per Sterling share and
US$4.27 per US Dollar share at the 2023 financial year end. This increase in
NAV per share is largely attributable to the Company’s long-term growth
strategy and returns. The Directors and the Manager are confident that the
current strategy will continue to return positive levels of growth over the
long-term.
* The launch price is adjusted by a factor of 10 to reflect the 10 for 1 share
sub-division, which occurred on 7 February 2023.
1. Share Prices, Discount/Premium
The Company’s shares traded at an average discount of 3.27% and 2.46% to NAV
for its Sterling shares and US Dollar shares respectively for the year ended
31 December 2023.
1. Ongoing Charges
The Company’s ongoing charges ratio for the financial year ended 2023 as
compared to the ongoing charges ratio for the financial year ended 2022 has
decreased from 6.11% to 2.16% on the Sterling shares and decreased from 6.16%
to 2.14% on the US Dollar shares, primarily due to changes in the level of the
Manager’s performance fee as a result of relative performance.
The Company reports an aggregated view of the charges for both the Sterling
shares and US Dollar shares. Further details are in the Directors’ Report.
(Loss)/Gain per Share
Total (loss)/gain per share is based on the net total loss on ordinary
activities after tax of £32,535,028 for the Sterling share class and a net
loss of US$1,540,012 for the US Dollar share class (2022: gains of
£195,693,403 and US$ 19,301,255 respectively).
These calculations are based on the weighted average number of shares in issue
for the year ended 31 December 2023, resulting in 353,094,861 Sterling shares
and 28,097,148 US Dollar shares (2022: Sterling shares: 28,620,989 and US
Dollar shares: 2,722,649). The 10 for 1 share sub-division approved at the EGM
held on 6 February 2023 has been applied throughout the year for the 2023
weighted average share figures, but not for the 2022 weighted average share
figures.
Year ended 31.12.23 Per share '000 Year ended 31.12.22 Per share '000
Net total (loss)/gain for Sterling Shares (9.21p) (£32,535) 683.74p £195,693
Net total (loss)/gain for US Dollar Shares (5.48c) (US$1,540) 708.91c US$19,301
NAV
The NAV per Sterling share, as at 31 December 2023 was £4.11 based on net
assets of £1,527,458,326, divided by the number of Sterling shares in issue
of 372,024,149 (2022: £41.81*).
The NAV per US Dollar share, as at 31 December 2023 was US$4.27 based on net
assets of US$127,481,611 divided by the number of US Dollar shares in issue of
29,856,472 (2022: US$43.28*).
* The NAV per share as of 31 December 2022 is not adjusted by a factor of 10
to reflect the 10 for 1 share sub- division, which occurred on 7 February
2023.
Dividends
No dividends were paid during the year (2022: US$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 three-year
period to 31 December 2026. 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 largely dependent on
the management agreement between the Company and the Manager (the
“Management Agreement”) remaining in place. The Management Agreement was,
as at the 2022 financial year end, generally terminable on three months’
notice by either party save for certain exceptions. This was changed in
January 2023 to a twelve month notice period save for certain exceptions. 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,
the Directors 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.
Furthermore, the majority of the Company’s most significant expenses, being
the fees owing to the Manager and to the 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, as and when
required to enable the Company to meet its ordinary course operating expenses.
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.
The Company’s shares largely traded at a premium up until the middle of
2023, since when, in common with the broader investment trust sector, the
shares have traded at a discount. In the event of any downward pressure on the
Company’s share prices, the Company is 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. Share buybacks commenced
during December 2023 and have continued through into 2024. The Company is able
to meet the costs of share buybacks by redeeming shares in the Master Fund.
Pursuant to the Management Agreement, there are restrictions on the amount of
Master Fund shares which the Company may redeem in a given period; and the
Company may incur fees to the Manager in certain circumstances. The Company is
also subject to the Shareholders’ authority for Share purchases in the
market approved at the AGM held in September 2023. The Company may redeem up
to five per cent of the Company’s holding of Master Fund shares on a monthly
basis to fund its on-market share buybacks; and it may, no more than once a
year, on three months’ notice, redeem part of its interest in the Master
Fund representing up to 10 per cent of each class of the Company’s shares
held in the Master Fund, to the extent required to enable the Company to make
an annual redemption offer (as defined in the Articles). Refer to notes 2 and
8 in the Audited Financial Statements for details of the Company’s discount
management mechanisms.
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.
Section 172, Companies Act 2006
Although the Company is domiciled and resident in Guernsey, the Board has
considered the guidance set out in the Association of Investment Companies
(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 Audited
Financial Statements.
The Board considers that, under the Company’s current investment objective,
the interests of Shareholders, as a whole, are best served by the ongoing
appointment of the Manager.
Administrator and Corporate Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
is the Administrator and the Company’s corporate secretary (the “Corporate
Secretary”). Further details on fee structure are included in note 4 to the
Audited Financial Statements.
Signed on behalf of the Board by:
Richard Horlick Chair
John Le Poidevin Director
27 March 2024
Directors’ Report
31 December 2023
The Directors submit their Report together with the Company’s Audited
Statement of Assets and Liabilities, Audited Statement of Operations, Audited
Statement of Changes in Net Assets, Audited Statement of Cash Flows and the
related notes for the year ended 31 December 2023. 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 in accordance 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.
The Company’s ordinary shares are issued in Sterling and US Dollars.
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 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, digital assets,
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
On 23 January 2023, the Board announced the commencement of its initial issue
(the “Initial Issue”), comprising of the initial placing (the
“Placing”), intermediaries offer (the “Intermediaries Offer”) and
offer for subscription (the “Offer for Subscription”), together with an
issuance programme for subsequent issues, which remained open until 23 January
2024 (the “Issuance Programme”), in respect of the issue of up to an
aggregate of 220 million shares (based on a 10:1 share sub-division); the
issue of circular for an EGM, which was held on 6 February 2023, in relation
to the Initial Issue, Issuance Programme and share sub-division; and details
of amendments to the Management Agreement, including terms of the Company's
investment in the Master Fund, in order to reflect the increased investment of
the Company in the Master Fund as a result of the Initial Issue and the
Issuance Programme. Further details are disclosed in notes 2 and 5 to the
Audited Financial Statements.
On 6 February 2023, following the EGM, the Company announced that (i) the
Board was empowered to allot and issue, in aggregate, up to 220 million new
shares of no par value in the Company designated as Sterling shares or US
Dollar shares, as if the pre-emption provisions of the Company’s articles of
incorporation (“Articles”) did not apply; and (ii) each existing share
would be sub-divided into 10 shares of the same currency class and with the
same rights and subject to the same restrictions as the then existing shares
of the same currency class, in the capital of the Company, with the
sub-divided shares to be admitted to listing the following day. These
resolutions superseded the relevant resolutions adopted at the 2022 Annual
General Meeting.
On 13 February 2023, the completion of the Initial Issue was announced. A
total of 72,378,000 Sterling shares and 746,400 US Dollar shares were issued
in the Initial Issue at a price per share equal, respectively, to 431.5 pence
per Sterling share and US$4.47 per US Dollar share, raising gross proceeds of
approximately £312.3m for the Sterling share class and US$3.3m for the US
Dollar share class.
At the Annual General Meeting held on 13 September 2023, Shareholders approved
an Ordinary Resolution to allow the Directors to have the power to issue
further shares totalling 124,568,816 Sterling shares and 9,862,449 US Dollar
shares, respectively. Shareholders at the Annual General Meeting also approved
a Special Resolution that authorised the maximum number of shares that may be
purchased on-market by the Company until the next Annual General Meeting,
being 56,024,199 Sterling shares and 4,435,587 US Dollar shares.
In December 2023, the Company bought back 1,504,277 Sterling shares on the
London Stock Exchange with prices ranging from £3.48 to £3.67 per share. The
Company did not buy-back any US Dollar class shares. The purchased shares were
then held in Treasury.
The number of shares in issue at the year end is disclosed in note 5 of the
Audited Financial Statements.
Going Concern
The Directors, having considered the Principal and Emerging Risks and
Uncertainties to which the Company is exposed 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 continues to monitor the ongoing impact of various geopolitical
events, including elevated levels of global inflation, recessionary risks and
the ongoing conflicts in Ukraine and the Middle East. The Board has concluded
that the biggest threat to the Company remains the failure of a key service
provider to maintain business continuity and resiliency. The Board has
assessed the measures in place by key service providers to maintain business
continuity and, so far, has not identified any significant issues that affect
the Company. The financial position of the Company has not been negatively
impacted by these geopolitical events either. For these reasons, the Board is
confident that these events have not impacted the going concern assessment of
the Company.
The Board
The Board of Directors has overall responsibility for safeguarding the
Company’s assets, for the determination of the investment policy of the
Company, for reviewing the performance of the service providers and for the
Company’s activities. The Directors, all of whom are non-executive, are
listed in the Board Members section.
The Articles provide that, unless otherwise determined by ordinary resolution,
the number of Directors shall not be less than two.
The Board meets at least four times a year and between these formal meetings,
there is regular contact with the Manager, the Corporate Broker 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 meetings and
Audit Committee meetings they were entitled to attend during the year ended 31
December 2023 and the number of such meetings attended by each Director.
Scheduled Board Meetings Held Attended
Richard Horlick 4 4
Caroline Chan 4 4
Julia Chapman 4 4
Bronwyn Curtis 4 4
John Le Poidevin 4 4
Claire Whittet* 3 3
Audit Committee Meetings Held Attended
John Le Poidevin 4 4
Caroline Chan 4 4
Julia Chapman 4 4
Bronwyn Curtis 4 4
Claire Whittet* 3 3
Remuneration and Nomination Committee Meetings Held Attended
Caroline Chan 1 1
Julia Chapman 1 1
Bronwyn Curtis 1 1
Richard Horlick 1 1
John Le Poidevin 1 1
Claire Whittet* N/A N/A
Management Engagement Committee Meetings Held Attended
Julia Chapman 1 1
Caroline Chan 1 1
Bronwyn Curtis 1 1
Richard Horlick 1 1
John Le Poidevin 1 1
Claire Whittet* N/A N/A
*Claire Whittet retired from the Board on 13 September 2023.
In addition to these scheduled meetings, 16 ad-hoc committee meetings were
held during the year ended 31 December 2023, 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.
The Chair’s and the Directors’ tenures are limited 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
year 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:
Sterling Shares
31.12.23 31.12.22
Richard Horlick 200,000 20,000
Caroline Chan 11,587 Nil
Julia Chapman 6,260 626
Bronwyn Curtis 33,174 1,000
John Le Poidevin 75,620 5,482
Claire Whittet 1 N/A 1,500
US Dollar Shares
31.12.23 31.12.22
Richard Horlick 20,000 Nil
Caroline Chan Nil Nil
Julia Chapman Nil Nil
Bronwyn Curtis Nil Nil
John Le Poidevin Nil Nil
Claire Whittet 1 N/A Nil
1 All units are held through a Retirement Annuity Trust Scheme, jointly owned
by Mrs Whittet and her husband. Mrs Whittet retired from the Board on 13
September 2023.
Due to the 10:1 share sub-division, which was approved at the EGM held on 6
February 2023 (as mentioned in the Directors’ Report), the following changes
were made to the Directors’ shareholdings in the Company:
Richard Horlick, 20,000 Sterling shares cancelled, 200,000 Sterling shares
issued;
Julia Chapman, 626 Sterling shares cancelled, 6,260 Sterling shares issued;
Bronwyn Curtis, 1,000 Sterling shares cancelled, 10,000 Sterling shares
issued;
John Le Poidevin, 5,482 Sterling shares cancelled, 54,820 Sterling shares
issued; and
Claire Whittet, 1,500 Sterling shares cancelled, 15,000 Sterling shares
issued.
On 13 February 2023, the Board participated in the Initial Issue for the
following amounts:
Richard Horlick, US$89,400 of US Dollar shares (20,000 shares);
Caroline Chan, £50,000 of Sterling shares (11,587 shares); Bronwyn
Curtis, £100,000 of Sterling shares (23,174 shares);
John Le Poidevin, £90,000 of Sterling shares (20,800 shares); and
Claire Whittet, £35,000 of Sterling shares (8,111 shares).
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, subject to the provisions of the Companies (Guernsey) Law, 2008, for
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 AIC and by complying with the AIC Code it is
deemed to comply with both the UK Corporate Governance Code and the Guernsey
Code of Corporate Governance.
To ensure ongoing compliance with the principles and the recommendations of
the AIC Code, the Board receives and reviews a report from the Corporate
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
* a 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 Chair 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 appetite and 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.
For new appointments to the Board, a specialist independent recruitment firm
is engaged as and when appropriate, nominations are sought from the Directors
and from other relevant parties and candidates are then interviewed by the
Directors. 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, Article 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 13 September 2023, Shareholders re-elected all the
then incumbent Directors of the Company, except for Claire Whittet, who
retired from the Board and did not seek re-election on the same date.
The Board, through the Remuneration and Nomination Committee, regularly
reviews its composition and believes that the current appointments provide an
appropriate range of skill, experience and diversity.
Each of the Board, the Audit Committee, the Management Engagement Committee
and the Remuneration and Nomination Committee undertakes 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 the Committees consider how
they function as a whole and review the individual performance of their
members. This process is conducted by the Chair of each Committee reviewing
the relevant Directors’ performance, contribution and commitment to the
Company.
The Senior Independent Director takes the lead in evaluating the performance
of the Chair. Prior to her retirement from the Board on 13 September 2023,
Claire Whittet served as Senior Independent Director. Bronwyn Curtis was
appointed Senior Independent Director on the same date.
Board Performance
The performance of the Board and that of each individual Director is scheduled
for external evaluation every three years, the most recent of which was
completed in 2022.
The Board carries out an annual internal evaluation of its performance in
years when an external evaluation is not taking place. There were no matters
of note in the last annual internal evaluation.
The Board needs to ensure that the Audited 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 sets 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. Furthermore,
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.
Social and Environmental Issues
The Board also keeps under review developments involving other social and
environmental issues, such as modern slavery, and will report on those to the
extent they are considered relevant to the Company’s operations. Further
explanation of these issues is detailed in the Strategic Report under 'Climate
Change and ESG Risks'.
Ongoing Charges
The 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.
Ongoing Charges for the years ended 31 December 2023 and 31 December 2022 have
been prepared in accordance with the AIC’s recommended methodology.
The following table presents the Ongoing Charges for each share class of the
Company for the years ended 31 December 2023 and 31 December 2022.
31.12.23
Sterling US Dollar
Shares Shares
Company – Ongoing Charges 1.59% 1.56%
Master Fund – Ongoing Charges 0.57% 0.58%
Performance fees - -
Ongoing Charges plus performance fees 2.16% 2.14%
31.12.22
Sterling US Dollar
Shares Shares
Company – Ongoing Charges 1.68% 1.74%
Master Fund – Ongoing Charges 0.20% 0.22%
Performance fees 4.23% 4.20%
Ongoing Charges plus performance fees 6.11% 6.16%
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
Sterling and US Dollar-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
prevailing Master Fund NAV attributable to the Company’s investment in the
Master Fund.
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 and 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
Bronwyn Curtis, Julia Chapman and Caroline Chan. Claire Whittet also served on
the Audit Committee until her retirement from the Board on 13 September 2023.
The Terms of Reference of the Audit Committee are available on the Company’s
website (www.bhmacro.com) or 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 Julia Chapman 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 KPMG Channel Islands Limited (the “Independent
Auditor”)). The Management Engagement Committee also monitors the
performance of all service providers on an annual basis and writes to each
service provider regarding their Business Continuity Plans. To date, all
services have proved to be robust and there has been no disruption to the
Company. 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 13 September 2023, the Management Engagement Committee
concluded that the continued appointment of each of the Manager, the
Administrator, the Company’s UK and Guernsey legal advisers, the Registrar
and the 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.
Remuneration and Nomination Committee
The Board established a Remuneration and Nomination Committee on 17 June 2022
with formal duties and responsibilities. The Remuneration and Nomination
Committee meets formally at least once a year. It was chaired by Bronwyn
Curtis until 13 September 2023, after which, Caroline Chan became Chair, and
the Committee comprises all members of the Board.
The function of the Remuneration and Nomination Committee is to:
* regularly review the structure, size and composition of the Board and make
recommendations to the Board with regard to any changes that are deemed
necessary;
* identify, from a variety of sources, candidates to fill Board vacancies as
and when they arise with a continued focus on Board diversity;
* assess and articulate the time needed to fulfil the role of the Chair and of
a non-executive director, and undertake an annual performance evaluation to
ensure that all the members of the Board have devoted sufficient time to their
duties, and also to review their contribution to the work of the Board and the
breadth of experience of the Board as a whole; and
* annually review the levels of remuneration of each of the Chair of the
Board, the Chair of the Audit Committee, the Chair of each other Board
committee and other non-executive directors having regard to the maximum
aggregate remuneration that may be paid under the Company’s Articles.
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 the Manager, the Administrator and the
Company’s other service providers.
A report is tabled and discussed at each Audit Committee meeting, and reviewed
at least 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 two occasions during the year.
The Board has delegated the management of the Company and the administration,
corporate secretarial and registrar functions, including the independent
calculation of the Company’s NAV and the production of the Annual Report and
Audited 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 by the Manager, the Corporate Broker, the
Administrator and Corporate Secretary and the 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, the Administrator and Corporate Secretary and the
Registrar which have their own internal audit and risk assessment functions.
Further reports are received from the Administrator in respect of compliance,
LSE 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”). The
Company made its latest report for CRS to the Director of Income Tax on 30
June 2023.
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 Chair and other Directors are
available to meet Shareholders, with a number of such meetings taking place
during the year. 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.
In accordance with the AIC Code, 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 intends 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
Shareholders’ 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 20 per cent or more
votes against it.
Significant Shareholders
As at 21 March 2024, the following Shareholders had significant shareholdings
in the Company:
% holding
in class
Significant Shareholders
Sterling Shares
Ferlim Nominees Limited 15.7%
Rathbone Nominees Limited 8.9%
Smith & Williamson Nominees Limited 8.0%
Cheviot Capital (Nominees) Limited 6.1%
Lion Nominees Limited 4.8%
Vidacos Nominees Limited 4.5%
Pershing Nominees Limited 4.3%
Vestra Nominees Limited 3.7%
Nortrust Nominees Limited 3.4%
Brewin Nominees Limited 3.2%
HSBC Global Custody Nominee (UK) Limited 3.2%
% holding
in class
Significant Shareholders
US Dollar Shares
Hero Nominees Limited 14.5%
Euroclear Nominees 12.8%
Vidacos Nominees 11.8%
Luna Nominees Limited 4.6%
CGWL Nominees Limited 3.8%
Aurora Nominees Limited 3.4%
Lynchwood Nominees Limited 3.0%
Rathbone Nominees Limited 3.0%
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
27 March 2024
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.
The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial
statements for each financial year. They have resolved to prepare the
financial statements in accordance with accounting principles generally
accepted in the United States of America.
The Directors, by law, 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 year. 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 the going concern basis; 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
* each of the Chair’s Statement, the Strategic Report, the Directors’
Report and the 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, are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company’s position and performance,
business model and strategy.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
27 March 2024
Directors’ Remuneration Report
31 December 2023
Introduction
An ordinary resolution for the approval of the Directors’ Remuneration
Report in the Company’s annual audited financial statements for the year
ended 31 December 2022, was passed by the Shareholders at the Annual General
Meeting held on 13 September 2023.
Remuneration policy
A Remuneration and Nomination Committee was established on 17 June 2022. Prior
to this, the Board as a whole considered 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 Chair of the Board is paid a higher fee in recognition of his additional
responsibilities, as are the Chairs of the various Board committees 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 Article 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 13 September 2023, Shareholders
re-elected all the Directors, except for Claire Whittet, who retired from the
Board and did not seek 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
Until 30 June 2022, the Company’s Articles limited the fees payable to
Directors in aggregate to £400,000 per annum. The annual Directors’ fees
were: £70,000 for Richard Horlick, the Chair; £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 annual Directors’ fees from 1 July 2022 have been:
Role Fee per annum £
Board Chair 90,000
Audit Committee Chair 65,000
Management Engagement Committee Chair 55,000
Remuneration and Nomination Committee Chair 55,000
Senior Independent Director 55,000
All other Directors 50,000
The annual aggregate limit of fees payable to Directors is £800,000 per
annum. The Remuneration and Nomination Committee carried out a review of the
fees at the most recent meeting, held on 7 December 2023, where it was
concluded that no changes should be made.
The fees payable by the Company in respect of each of the Directors who served
during the year ended 31 December 2023 and the year ended 31 December 2022
were as follows:
Year ended Year ended
31.12.23 £ 31.12.22 £
Richard Horlick 90,000 80,000
Caroline Chan* 51,586 3,562
Julia Chapman 55,000 50,000
Bronwyn Curtis 55,000 50,000
John Le Poidevin 65,000 60,000
Claire Whittet** 38,801 52,500
Total 355,387 296,062
* Caroline Chan was appointed to the Board on 6 December 2022 at a fee of
£50,000 p.a. Following her appointment as Chair of the Remuneration and
Nomination Committee, her fee was increased to £55,000 p.a.
** Claire Whittet retired from the Board on 13 September 2023.
Caroline Chan
Remuneration and Nomination Committee Chair
27 March 2024
Report of the Audit Committee
31 December 2023
We present the Audit Committee’s (the “Committee”) Report for 2023,
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 Bronwyn
Curtis, Julia Chapman and Caroline Chan. Claire Whittet served on the Audit
Committee until her retirement from the Board on 13 September 2023.
Appointment to the Committee is for a period of 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 is currently
serving his third term, Bronwyn Curtis is serving her second term and Julia
Chapman and Caroline Chan are serving their first terms.
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 2023 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 the 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
Financial Reporting Council (“FRC”) Revised Ethical Standard 2019. The
Committee has also established policies and procedures for the engagement of
the Company’s 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 2023
The following sections discuss the assessment made by the Committee during the
year:
Significant Financial Statement Issues
The Committee’s review of the annual Audited Financial Statements focused on
the following area:
The Company’s investment in the Master Fund had a fair value of US$2,038.6
million as at 31 December 2023 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 2023 were audited by KPMG Cayman who issued an unqualified audit
opinion dated 26 March 2024. 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 2023 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 Audited Financial
Statements. Furthermore, the Committee has concluded it appropriate to
continue to prepare the Audited 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 and 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 ended 31 December 2023, 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. There were no significant adverse findings from
the 2023 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 2023 and 31
December 2022.
Year ended Year ended
31.12.23 £ 31.12.22 £
Annual audit 70,200 65,000
Interim review 35,500 33,000
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.
FRC Audit Committees and External Audit Minimum Standard
During the year the Audit Committee conducted an assessment of compliance with
the FRC Audit Committees and External Audit Minimum Standard, published in May
2023. The Audit Committee was satisfied that its current processes achieved a
high level of adherence and where relevant these standards have been
incorporated into its Terms of Reference.
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 the Administrator,
consulting where necessary with KPMG CI, and assessing the significant Audited
Financial Statements’ issues noted in the Report of the Audit Committee, the
Committee is satisfied that the Audited Financial Statements appropriately
address the critical judgements and key estimates (both in respect of 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 2023 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 Audited 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 Chair
27 March 2024
Manager’s Report
Brevan Howard Capital Management LP (“BHCM” or the “Manager”) is the
manager of BH Macro Limited (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 depreciated by -1.33%
during 2023 and the NAV per share of the GBP shares depreciated by -1.81%.
The month-by-month NAV performance of each currency class of the Company since
it commenced operations in 2007 is set out below.
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
2020 (1.42) 5.49 18.31 0.19 (0.85) (0.53) 1.74 0.94 (1.16) (0.02) 0.75 3.04 28.09
2021 1.20 0.32 0.81 0.15 0.25 (1.50) (0.49) 0.87 0.40 0.27 0.00 0.47 2.76
2022 0.94 1.79 5.39 3.86 1.66 1.05 0.15 2.84 2.12 (0.40) (1.15) 1.88 21.91
2023 1.20 (0.28) (4.29) (0.93) (1.61) (0.25) 0.90 0.34 1.12 0.86 (0.42) 1.69 (1.81)
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
2020 (1.25) 5.39 18.40 0.34 (0.82) (0.54) 1.84 0.97 (1.11) (0.01) 0.76 3.15 28.89
2021 1.21 0.31 0.85 0.16 0.26 (1.47) (0.47) 0.86 0.31 0.14 (0.09) 0.59 2.67
2022 0.74 1.77 5.27 3.80 1.09 0.76 0.12 3.11 2.46 (0.50) (1.09) 2.01 21.17
2023 1.26 (0.30) (4.11) (0.88) (1.54) (0.15) 0.92 0.34 1.08 0.88 (0.40) 1.69 (1.33)
Source: Master Fund NAV data is provided by the administrator of the Master
Fund, State Street Fund Services (Ireland) Limited. The Company’s NAV and
NAV per Share data is provided by the Company’s administrator, Northern
Trust International Fund Administration Services (Guernsey) Limited.
The Company’s NAV per Share % Monthly Change is calculated by BHCM.
The Company’s NAV data is unaudited and net of all investment management and
performance fees and all other fees and expenses payable by the Company. In
addition, the Company’s investment in the Master Fund is subject to an
operational services fee.
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 29 December 2023.
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*
This information is given in US$ only, consistent with monthly shareholder
reporting for the underlying US$ denominated Master Fund.
Rates FX Commodities Credit Equity Digital Assets Discount Management TOTAL
Q1 2023 ( 1.37) ( 0.71) ( 0.22) 0.14 ( 1.25) 0.19 0.04 (3.19)
Q2 2023 ( 1.37) ( 0.54) (0.34) ( 0.07) ( 0.11) ( 0.14) 0.00 (2.55)
Q3 2023 2.25 0.03 0.07 ( 0.07) 0.20 ( 0.14) 0.00 2.36
Q4 2023 2.30 ( 0.47) ( 0.03) 0.23 ( 0.52) 0.69 0.00 2.18
2023 1.75 ( 1.68) ( 0.52) 0.23 ( 1.67) 0.60 0.04 (1.33)
Data as at 29 December 2023.
Quarterly and YTD figures are calculated by BHCM as at 29 December 2023, based
on performance data for each period provided by the Company’s administrator,
Northern Trust. Figures rounded to two decimal places.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Methodology and Definition of Contribution to Performance:
Attribution by asset class is produced at the instrument level, with
adjustments made based on risk estimates.
*The above asset classes are categorised as follows: “Rates”: interest
rates markets
“FX”: FX forwards and options
“Commodities”: commodity futures and options
“Credit”: corporate and asset-backed indices, bonds and CDS “Equity”:
equity markets including indices and other derivatives “Digital Assets”:
crypto-currencies including derivatives
“Discount Management”: buyback activity or shares from treasury
Performance and Economic Outlook Commentary
The environment for macro trading in the past year was very different to 2022,
which was, in terms of performance, one of the best years in our more than
20-year history with the NAV per share of the GBP shares of the Company
increasing by 21.91%. This year saw significant challenges and there was a
decline in the NAV per share of the GBP shares of the Company of -1.81%.
Macro trading in the first quarter was influenced by the surprising strength
of the US economy against a background of widespread recession fears. This
caused the Fed to pivot hawkishly and hint at further hikes. Notably, Chair
Powell in his March testimony to Congress suggested that interest rates needed
to be increased at a faster pace, suggesting a return to 50-basis-point rate
increases.
Our macro portfolio managers leaned into this view with a range of positions
to benefit from an acceleration of further tightening. In the event, the shock
triggered two of the largest bank failures in history. Silicon Valley Bank
failed almost immediately and Credit Suisse was resolved just a week later.
The dramatic reversal — especially in short-term interest rates, which
staged some of their biggest one-day rallies in history — caused these
positions to incur losses. Our well-established risk discipline ensured that
the positions most affected were cut immediately. The Master Fund was placed
in a strong position given the increased uncertainty about the strength of
banks more generally and the possibility of a knock-on effect on financial
markets.
Over the subsequent quarter, it was unclear whether the US and Euro areas
would continue to power ahead or suffer a credit crunch. The interplay between
strong economic data with the potential for an ongoing wave of bank failures
made for choppy, trendless markets during which our risk levels remained
muted. Market liquidity was weak and this, combined with concerns about the
financial sector, made us particularly sensitive to tail risks especially
those relating to leverage across the wider market. This risk discipline had a
material dampening impact on our macro directional risk-taking through to the
fourth quarter of the year.
In parallel with this, we conducted a review to seek to ensure that the Master
Fund remains optimally positioned to execute on its key objective: that of
continuing the exceptional long-term track record produced for investors. As
part of this process, we assembled a dedicated team to carry out a
comprehensive, critical assessment of the capital allocations within the fund.
The team examined a broad range of factors that drives performance, including
the unique return and downside characteristics of the underlying trading
strategies, and how they interact together. They also scrutinized individual
portfolio managers’ performance profiles, their ability to structure
convexity and the extent to which they contribute to diversification. This
work led to a series of improvements to capital allocations across strategies
and portfolio managers, improvements to several trading mandates and the
closure of underperforming trading books.
At a high level, the aim of these adjustments is to seek to enhance the Master
Fund’s ability to generate highly convex and uncorrelated returns through an
improved focus on monetising macro opportunities while protecting the unique
return characteristics that distinguish the Fund.
Looking forward, the opportunity set for macro trading looks set to be
extremely interesting and macro considerations are likely to matter more than
ever to every investor. While it is hard to identify paradigm shifts in real
time, the secular stagnation era may have ended. There are three factors that
may drive the shift towards structurally higher interest rates and more
economic volatility than occurred in the post-Global Financial Crisis period.
First, fiscal and monetary policy are no longer a “free lunch”. Public
debt soared in the wake of the pandemic, limiting fiscal space going forward.
Central banks suffered reputational damage from missing their inflation
mandates, which is likely to make them reluctant to embrace unconventional
monetary policy in response to financial market volatility.
Second, China plans to emphasize state-led growth, common prosperity, and
national security — a sharp departure from the last 40 years when their
free-wheeling economic growth powered the global economy. China’s
contribution to reducing global inflation through unfettered trade in recent
decades is also likely to diminish, and structurally slower growth in China
should result in fewer of its financial reserves being recycled into
international markets.
Finally, there are ongoing wars with the prospect looming for further great
power conflict. A new landscape of greater geopolitical tension and
competition will mean bigger budget deficits, higher inflation, and greater
uncertainty. In this kind of future, investors will have to operate in a more
volatile economic environment without the comfort of a fiscal or monetary
safety net.
For all of these reasons, a focus on macro factors within portfolios will be
essential and the opportunity set for macro trading is likely to be very rich.
Brevan Howard is well-positioned to navigate this environment in service to
our clients. 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.
27 March 2024
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 2023, 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 2023, and of the Company’s financial performance and cash
flows for the year then ended;
* are prepared in accordance 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 the FRC Ethical Standard as required by the Crown Dependencies’
Audit Rules and Guidance. 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 2022):
The risk Our response
Valuation of Investment in Brevan Howard Master Fund Limited (the “Master Fund”) $2,038,614,000 (2022: $1,628,766,000) Refer to the Report of the Audit Committee and note 3 accounting policy Basis: The Company, which is a multi-class feeder fund, had invested 98.27% (2022: 99.29%) of its net assets at 31 December 2023 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 independent 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 detailing 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;
Assessed the audit work performed by the auditor of the Master Fund by gaining insight over the work performed on the significant elements of the Master Fund’s net asset
value and by holding discussions on key audit findings with the auditor of the Master Fund; and 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 £29,700,000,
determined with reference to a benchmark of net assets of $2,074,531,000, of
which it represents approximately 1.5% (2022: 1.5%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2022: 75%) of materiality for the financial
statements as a whole, which equates to $22,200,000. We applied this
percentage in our determination of performance materiality because we did not
identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding $1,485,000, 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.
Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company’s financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements (the “going concern period”).
In our evaluation of the directors’ conclusions, we considered the inherent
risks to the Company’s business model and analysed how those risks might
affect the Company’s financial resources or ability to continue operations
over the going concern period. The risks that we considered most likely to
affect the Company’s financial resources or ability to continue operations
over this period were:
* Availability of capital to meet operating costs and other financial
commitments; and
* The likelihood of a share class closure or liquidation resolution votes
being triggered.
We considered whether these risks could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios
that could arise from these risks individually and collectively against the
level of available financial resources indicated by the Company’s financial
forecasts.
We considered whether the going concern disclosure in note 3 to the financial
statements gives a full and accurate description of the directors' assessment
of going concern.
Our conclusions based on this work:
* we consider that the directors' use of the going concern basis of accounting
in the preparation of the financial statements is appropriate;
* we have not identified, and concur with the directors' assessment that there
is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Company's
ability to continue as a going concern for the going concern period; and
* we have nothing material to add or draw attention to in relation to the
directors' statement in the notes 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 the going
concern period, and that statement is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
* enquiring of management as to the Company’s policies and procedures to
prevent and detect fraud as well as enquiring whether management have
knowledge of any actual, suspected or alleged fraud;
* reading minutes of meetings of those charged with governance; and
* using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, we perform procedures to address the risk
of management override of controls, in particular the risk that management may
be in a position to make inappropriate accounting entries. On this audit we do
not believe there is a fraud risk related to revenue recognition because the
Company’s revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including
* Identifying journal entries and other adjustments to test based on risk
criteria and comparing any identified entries to supporting documentation; and
* incorporating an element of unpredictability in our audit procedures.
Identifying and responding to risks of material misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company’s regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity’s procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company’s ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company’s activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
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 emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors’ disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements
and our audit knowledge. we have nothing material to add or draw attention to
in relation to:
* the directors’ confirmation within the Viability Statement that they have
carried out a robust assessment of the emerging and principal risks facing the
Company, including those that would threaten its business model, future
performance, solvency or liquidity;
* the emerging and principal risks disclosures describing these risks and
explaining how they are being managed or mitigated;
* the directors’ explanation in the Viability Statement as to how they have
assessed the prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the Viability Statement, under the Listing
Rules. Based on the above procedures, we have concluded that the above
disclosures are materially consistent with the financial statements and our
audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors’ corporate governance disclosures and
the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
* 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;
* the section of the annual report describing the work of the Audit Committee,
including the significant issues that the audit committee considered in
relation to the financial statements, and how these issues were addressed; and
* the section of the annual report that describes the review of the
effectiveness of the Company’s risk management and internal control systems.
We are required to review the part of Corporate Governance Statement
relating to the Company’s compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review. We have nothing
to report in this respect.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
* the Company has not kept proper accounting records; or
* the financial statements are not in agreement with the accounting records;
or
* we have not received all the information and explanations, which to the best
of our knowledge and belief are necessary for the purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement, the directors are responsible
for: the preparation of the financial statements including being satisfied
that they give a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error; assessing the
Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going concern basis of
accounting unless 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.
Deborah SmithFor and on behalf of KPMG Channel Islands LimitedChartered
Accountants and Recognised AuditorsGuernsey
27 March 2024
Audited Statement of Assets and Liabilities
As at 31 December 2023
31.12.23 US$'000 31.12.22 US$'000
Assets
Investment in the Master Fund (note 3) 2,038,614 1,628,766
Master Fund redemption proceeds receivable 20,697 70,411
Prepaid expenses 47 43
Cash and bank balances denominated in Sterling 18,367 7,271
Cash and bank balances denominated in US Dollars 1,284 639
Total assets 2,079,009 1,707,130
Liabilities
Performance fees payable (note 4) 2 62,261
Management fees payable (note 4) 2,771 4,224
Purchase of shares into treasury payable 1,477 -
Accrued expenses and other liabilities 148 117
Directors' fees payable - 14
Administration fees payable (note 4) 80 66
Total liabilities 4,478 66,682
Net assets 2,074,531 1,640,448
Number of shares in issue (note 5)
Sterling shares 372,024,149 30,156,454*
US Dollar shares 29,856,472 2,858,135*
Net asset value per share (notes 7 and 9)
Sterling shares £4.11 £41.81*
US Dollar shares US$4.27 US$43.28*
See accompanying Notes to the Audited Financial Statements.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
27 March 2024
* The Number of Shares In Issue and Net Asset Value Per Share as of 31
December 2022 are not adjusted by a factor of 10 to reflect the 10 for 1 share
sub-division approved at the EGM held on 6 February 2023.
Audited Statement of Operations
For the year ended 31 December 2023
01.01.23 to 31.12.23 US$'000 01.01.22 to 31.12.22 US$'000
Net investment gain/(loss) allocated from the Master Fund
Interest income 99,983 14,309
Dividend and other income (net of withholding tax:
31 December 2023: US$94,653; 31 December 2022: US$127,840) 5,176 6,166
Expenses (91,827) (24,561)
Net investment gain/(loss) allocated from the Master Fund 13,332 (4,086)
Company income
Bank interest income 792 32
Foreign exchange gains (note 3) 108,508 -
Total Company income 109,300 32
Company expenses
Performance fees (note 4) 2 63,844
Management fees (note 4) 29,579 23,776
Other expenses 969 1,063
Directors' fees 442 366
Administration fees (note 4) 303 241
Foreign exchange losses (note 3) - 149,089
Total Company expenses 31,295 238,379
Net investment gain/(loss) 91,337 (242,433)
Net realised and unrealised (loss)/gain on investments allocated from the Master Fund
Net realised gain on investments 188,681 118,371
Net unrealised (loss)/gain on investments (213,524) 236,140
Net realised and unrealised (loss)/gain on investments allocated from the Master Fund (24,843) 354,511
Net increase in net assets resulting from operations 66,494 112,078
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Changes in Net Assets
For the year ended 31 December 2023
01.01.23 to 31.12.23 US$'000 01.01.22 to 31.12.22 US$'000
Net increase in net assets resulting from operations
Net investment gain/(loss) 91,337 (242,433)
Net realised gain on investments allocated from the Master Fund 188,681 118,371
Net unrealised (loss)/gain on investments allocated from the Master Fund (213,524) 236,140
66,494 112,078
Issue of new shares
Sterling shares 379,021 218,027
US Dollar shares 3,336 12,615
Share issue costs
Sterling shares (7,761) -
US Dollar shares (67) -
Purchase of shares into treasury
Sterling shares (6,940) -
US Dollar shares - -
Total share capital transactions 367,589 230,642
Net increase in net assets 434,083 342,720
Net assets at the beginning of the year 1,640,448 1,297,728
Net assets at the end of the year 2,074,531 1,640,448
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Cash Flows
For the year ended 31 December 2023
01.01.23 to 31.12.23 US$'000 01.01.22 to 31.12.22 US$'000
Cash flows from operating activities
Net increase in net assets resulting from operations 66,494 112,078
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Net investment (gain)/loss allocated from the Master Fund (13,332) 4,086
Net realised gain on investments allocated from the Master Fund (188,681) (118,371)
Net unrealised loss/(gain) on investments allocated from the Master Fund 213,524 (236,140)
Purchase of investment in the Master Fund (365,214) (221,798)
Proceeds from sale of investment in the Master Fund 101,862 11,008
Foreign exchange (gains)/losses (108,508) 149,089
(Increase)/decrease in prepaid expenses (4) 251
(Decrease)/increase in performance fees payable (62,259) 56,056
(Decrease)/increase in management fees payable (1,453) 972
Decrease in accrued expenses and other liabilities (68) (137)
(Decrease)/increase in Directors' fees payable (14) 14
Decrease in combination fees receivable - 1,749
Increase in administration fees payable 14 15
Net cash used in operating activities (357,639) (241,128)
Cash flows from financing activities
Purchase of own shares into treasury (5,463) -
Proceeds from share issue 382,357 230,642
Share issue costs (7,828) -
Net cash generated from financing activities 369,066 230,642
Change in cash 11,427 (10,486)
Cash, beginning of the year 7,910 16,430
Effect of exchange rate fluctuations 314 1,966
Cash, end of the year 19,651 7,910
Cash, end of the year
Cash and bank balances denominated in Sterling 1 18,367 7,271
Cash and bank balances denominated in US Dollars 1,284 639
19,651 7,910
Supplemental disclosure of non-cash financing activities
1. Cash and bank balances in Sterling (GBP'000) 14,408 6,045
See accompanying Notes to the Audited Financial Statements.
Notes to the Audited Financial Statements
For the year ended 31 December 2023
1. The Company
BH Macro Limited (the “Company”) is a limited liability closed-ended
investment company which was incorporated in Guernsey on 17 January 2007 and
admitted to the Official List of the London Stock Exchange (“LSE”) later
that year.
The Company’s ordinary shares are issued in Sterling and US Dollars.
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 Sterling and US Dollar-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 four 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, other funds
managed by the Manager invest some of their assets in the Master Fund as at
the date of these Audited 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 Audited 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, Brevan Howard (Tel Aviv) Limited and BH-DG Systematic Trading LLP.
On 23 January 2023, the Company announced the commencement of an offer of new
ordinary shares (the “Initial Issue”), comprising a placing, an
intermediaries offer and an offer for subscription, together with an issuance
programme for subsequent issues, which remained open until 23 January 2024
(the “Issuance Programme”). The Company also announced the issue of a new
prospectus and a circular to Shareholders (the “Circular”), in connection
with the Issuance Programme.
In order to reflect the increased investment of the Company in the Master
Fund, the Company and the Manager agreed to a number of amendments to the
Management Agreement, including the terms on which the Company's investment in
the Master Fund could be redeemed in order to provide the Manager with more
operational certainty regarding the Company's investment in the Master Fund.
Certain of these changes, which did not require Shareholder approval, were as
follows:
The Company will ordinarily be required to provide 12 months' notice of the
redemption of all or some of its investment in the Master Fund, except as may
be required to fund the Company's specific working capital requirements and,
up to a maximum amount equal to five per cent of each class of the Company's
holding of Master Fund shares every month, to finance on-market share
buy-backs. As such, any redemption of all or part of the Company's investment
in the Master Fund on a winding up of the Company or to finance a tender offer
or a class closure resolution will be required to be on 12 months' notice. In
those cases, the Company would only receive the proceeds of redemption from
the Master Fund (and, therefore, Shareholders would only receive payment from
the Company) after the redemption date at the end of the 12 month notice
period and the Company (and, therefore, Shareholders) would remain exposed to
the investment performance of the Master Fund in the intervening period to
that redemption date.
In other changes to the Management Agreement, the circumstances in which the
Company can terminate the Management Agreement and redeem its investment in
the Master Fund on less than 12 months' notice includes certain "cause" events
affecting the Manager, in which case the Company would be entitled to
terminate the Management Agreement on 90 days' notice and redeem its
investment in the Master Fund on three months' notice.
The annual buy-back allowance fee arrangements introduced in 2021 will
continue to apply in respect of repurchases and redemptions by the Company of
its shares of each class in excess of a number equal to five per cent of
shares in issue of the relevant class at the end of the prior calendar year.
See also note 8 for further details relating to redemptions from the Master
Fund for discount management mechanisms.
3. Significant accounting policies
These Audited Financial Statements, which give a true and fair view, are
prepared in accordance 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 Board continues to monitor the ongoing impact of various geopolitical
events, including elevated levels of global inflation, recessionary risks and
the ongoing conflicts in Ukraine and the Middle East. The Board has concluded
that the biggest threat to the Company remains the failure of a key service
provider to maintain business continuity and resiliency. The Board has
assessed the measures in place by key service providers to maintain business
continuity and, so far, has not identified any significant issues that affect
the Company. The financial position of the Company has not been negatively
impacted by these geopolitical events. For these reasons, the Board is
confident that these events have not impacted the going concern assessment of
the Company.
The Company is an investment company 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 2023, the
Company was the sole investor in the Master Fund’s ordinary Sterling and US
Dollar Class B shares as disclosed in the table below. Within the table below,
the Company’s 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 2023
Sterling 15.58% £6,614.07 226,847 £1,500,386 1,912,542
US Dollar 1.03% US$6,620.65 19,041 US$126,072 126,072
2,038,614
31 December 2022
Sterling 15.03% £6,634.79 188,704 £1,252,014 1,506,049
US Dollar 1.22% US$6,606.92 18,573 US$122,717 122,717
1,628,766
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 the Audited Financial Statements in accordance 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
these Audited 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
Transactions reported in the Audited Statement of Operations are translated
into US Dollar amounts at the date of such transactions. Assets and
liabilities denominated in foreign currencies are translated into US Dollars
at the exchange rate at the reporting date. The share capital and other
capital reserves are translated at the historic rate ruling at the date of the
transaction.
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. The Audited Statement of Operations’
items of the Sterling share class are converted into US Dollars using the
average exchange rate. Exchange differences arising on translation are
included in foreign exchange gains/losses in the Audited Statement of
Operations. This foreign exchange adjustment has no effect on the value of net
assets allocated to the individual share classes.
Cash and bank balances
Cash and bank balances comprise demand deposits.
Allocation of results of the Master FundNet 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.
Where such shares have been subsequently sold or reissued to the market, any
consideration received, net of any directly attributable incremental
transaction costs, is recognised as an increase in equity Shareholders’
funds through the share capital account. Where the Company cancels treasury
shares, no further adjustment is required to the share capital account of the
Company at the time of cancellation. Shares held in treasury are excluded from
calculations when determining NAV per share as detailed in note 7 and in the
‘Financial highlights’ in note 9.
Refer to note 8 for details of sales of shares from treasury or purchases by
the Company of its share capital.
4. Management Agreement and administration agreement Management fee and
performance fee
The Company has entered into the Management Agreement with the Manager to
manage the Company’s investment
portfolio. The Management Fee charged to 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. Effective from 1 July 2021, the Management Fee charged has been 1/12
of 1.5% 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. On 23 January 2023, the Management Agreement between the Company and
the Manager was amended. Please see note 2 for further information.
During the year ended 31 December 2023, US$29,579,495 (year ended 31 December
2022: US$23,776,341) was earned by the Manager as net Management Fees. At 31
December 2023, US$2,770,618 (31 December 2022: US$4,224,444) of the Management
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 2023, US$2,326 (year ended 31
December 2022: US$63,843,904) was earned by the Manager as performance fees.
At 31 December 2023, US$2,340 (31 December 2022: US$62,261,207) 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 notice period for termination of the Management Agreement without cause by
either the Company or the Manager is 12 months. The Management Agreement was
amended on 23 January 2023. See note 2 for further details.
Administration fee
The Company has appointed Northern Trust International Fund Administration
Services (Guernsey) Limited as its administrator and corporate secretary (the
“Administrator” and “Corporate Secretary”) pursuant to an
administration agreement. 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 2022: £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 2023,
US$303,372 (year ended 31 December 2022: US$240,727) was earned by the
Administrator as administration fees. The amounts outstanding are disclosed on
the Audited Statement of Assets and Liabilities.
5. Share capital
Issued and authorised share capital
The Company has the power to issue an unlimited number of ordinary shares with
no-par value and an unlimited number of shares with a par value. Shares may be
divided into at least two classes denominated in Sterling and US Dollars.
Further issues of shares may be made in accordance with the Articles of
Incorporation (the “Articles”). Shares may be issued in differing currency
classes of ordinary redeemable shares including C shares. The following tables
show the movement in ordinary shares.
For the year ended 31 December 2023
Sterling shares US Dollar shares
Number of ordinary shares
In issue at 1 January 2023 30,156,454 2,858,135
Share conversions (717,994) 884,077
Net issue of new shares from Share Sub- Division 271,711,966 25,367,860
Issue of new shares 72,378,000 746,400
Purchase of shares into Treasury (1,504,277) -
In issue at 31 December 2023 372,024,149 29,856,472
Number of treasury shares
In issue at 1 January 2023 - -
On market purchases* 1,504,277 -
In issue at 31 December 2023 1,504,277 -
Percentage of class 0.40% -
*On market purchases for the year ended 31 December 2023
Number of shares Cost Cost
Treasury shares purchased (US$) (in currency)
US Dollar shares - - -
Sterling shares 1,504,277 6,939,943 £5,457,432
For the year ended 31 December 2022
Sterling shares US Dollar shares
Number of ordinary shares
In issue at 1 January 2022 25,864,663 2,689,547
Share conversions 90,641 (110,772)
Issue of new shares 4,201,150 279,360
In issue at 31 December 2022 30,156,454 2,858,135
Number of treasury shares
In issue at 1 January 2022 and at 31 December 2022 - -
Percentage of class - -
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.
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. At the Annual General Meeting held on 13 September 2023,
Shareholders approved a Special Resolution that authorised the maximum number
of shares that may be purchased on-market by the Company until the next Annual
General Meeting, being 56,024,199 Sterling shares and 4,435,587 US Dollar
shares. See note 8 for further details.
Further issue of shares
On 23 January 2023, the Board announced the commencement of its Initial Issue,
comprising a placing, an intermediaries offer and an offer for subscription of
new ordinary shares of no par value in the capital of the Company, together
with the Issuance Programme for subsequent issues, which remained open until
23 January 2024, which could be denominated as Sterling shares or US Dollar
shares, at a price per share of the relevant class equal to the latest
estimated net asset value per share of the relevant class as at the closing
date of the Initial Issue, of the latest estimated NAV per share, plus a
premium of two per cent.
At an EGM held on 6 February 2023, resolutions were passed to approve the
grant of authority to issue new shares and dis-apply pre-emption rights in
respect of shares issued pursuant to the Initial Issue and the Issuance
Programme and to sub-divide the Company’s shares, so that each existing
share was replaced by ten shares of the same currency class, in order to
assist in liquidity of the shares (the “Share Sub-Division”), together
with the terms of the Company's investment in the Master Fund, in order to
reflect the increased investment of the Company in the Master Fund, as a
result of the Initial Issue and the Issuance Programme. These resolutions
superseded the September 2022 AGM authorities to issue shares and dis-apply
pre-emption rights in respect of the shares issued.
On 7 February 2023, dealings commenced in the shares arising from the Share
Sub-Division. The price per share for the Initial Issue was announced, being
431.5 pence for the Sterling class shares and US$4.47 for US Dollar class
shares.
On 13 February 2023, the completion of the Initial Issue was announced. A
total of 72,378,000 Sterling shares and 746,400 US Dollar shares were issued
in the Initial Issue at a price per share equal, respectively, to 431.5 pence
per Sterling share and US$4.47 per US Dollar share, raising gross proceeds
of approximately £315 million (based on a US Dollar/Sterling FX spot rate of
1.2113 being the prevailing rate as at 3.00 p.m. on 10 February 2023). Costs
attributed to the Initial Issue and Share Sub-Division were US$7,773,233.
As approved by the Shareholders at the Annual General Meeting held on 13
September 2023, the Directors have the power to issue further shares totalling
124,568,816 Sterling shares and 9,862,449 US Dollar shares, respectively. This
power is due to expire 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 was 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 Fee and performance fees.
Treasury shares are not entitled to distributions. During the year ended 31
December 2023, the Company purchased 1,504,277 Sterling Class shares to be
held in Treasury. No shares were held in Treasury throughout the year ended 31
December 2022.
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 expenses 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 remainder of the
year.
7. Publication and calculation of the Company’s 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, funded
by the Company redeeming underlying shares in the Master Fund. As a condition
of the April 2017 Tender Offer, this was suspended until 1 April 2019 and for
much of the period since that date, the Company’s shares have traded at a
premium or minimal discount to NAV. Subject to the authority granted by
Shareholders at the 2023 AGM (see note 5), from December 2023, market
purchases by the Company of the Sterling Class shares resumed, due to the
class trading at a discount.
Under the terms of the Management Agreement, the Company may, on one month’s
notice, redeem up to 5 per cent of its shares of each class in the Master
Fund, in order to fund buybacks.
Please see note 5 for details of shares purchased and held in Treasury.
On 23 January 2023, the Board announced the commencement of its Initial Issue
of new ordinary shares of no par value in the capital of the Company, together
with the Issuance Programme for subsequent issues, which remained open until
23 January 2024. See note 5 for further details.
Annual offer of partial return of capital
Under the Company’s Articles, 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 determine, provided that the maximum amount distributed does 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 are to be returned.
The Company is entitled to redeem upon three months’ notice, no more than
once per year, a portion of its interest in the Master Fund representing up to
10 per cent of each class of the Company’s holding of Master Fund shares as
at the date of the relevant redemption request in connection with any such
offer of a partial capital return of capital which is approved by the
Directors.
The decision to make a partial return of capital in any particular year and
the amount of the return depend, among other things, on prevailing market
conditions, the ability of the Company to liquidate its investments to fund
the capital return, the success of prior capital returns and applicable legal,
regulatory and tax considerations.
Class closure resolutions
If any class of shares trades at an average discount at or in excess of 8% of
the monthly NAV in any year from 1 January to 31 December, the Company will
hold a class closure vote of the relevant class.
The average discounts to NAV for the Sterling shares and US Dollar Shares for
the year ended 31 December 2023 were 3.27% and 2.46% respectively and
consequently, no closure vote will be held in 2024.
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 2023 and other
performance information derived from the Audited 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.
31.12.23 Sterling shares £ 31.12.23 US Dollar shares US$
Per share operating performance
Net asset value at beginning of the year 1 4.18 4.33
Income from investment operations
Net investment loss 2 (0.04) (0.01)
Net realised and unrealised (loss)/gain on investment (0.08) 0.01
Other capital items 3 0.05 (0.06)
Total loss (0.07) (0.06)
Net asset value, end of the year 4.11 4.27
Total loss before performance fees (1.81%) (1.33%)
Performance fees - -
Total loss after performance fees (1.81% ) (1.33% )
Total loss reflects the net loss 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 2023 to 31 December 2023. An individual
Shareholder’s loss may vary from these losses based on the timing of their
purchase or sale of shares.
31.12.23 Sterling shares £'000 31.12.23 US Dollar shares US$'000
Supplemental data
Net asset value, end of the year 1,527,458 127,482
Average net asset value for the year 1,485,598 122,970
31.12.23 Sterling shares 31.12.23 US Dollar shares
Ratio to average net assets
Operating expenses
Company expenses 4 1.59% 1.57%
Master Fund expenses 5 1.41% 0.83%
Master Fund interest expenses 6 3.28% 3.32%
Performance fees - -
6.28% 5.73%
Net investment loss before performance fees 2 (0.91% ) (0.22% )
Net investment loss after performance fees 2 (0.91% ) (0.22% )
31.12.22 Sterling shares £ 31.12.22 US Dollar shares US$
Per share operating performance
Net asset value at beginning of the year 1 34.30 35.71
Income from investment operations
Net investment loss 2 (2.44) (2.50)
Net realised and unrealised gain on investment 8.87 9.22
Other capital items 3 1.08 0.85
Total gain 7.51 7.57
Net asset value, end of the year 1 41.81 43.28
Total gain before performance fees 26.78% 25.93%
Performance fees (4.87%) (4.76%)
Total gain after performance fees 21.91% 21.17%
Total gain 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 2022 to 31 December 2022. An individual
Shareholder’s return may vary from these returns based on the timing of
their purchase or sale of shares.
31.12.22 Sterling shares £'000 31.12.22 US Dollar shares US$'000
Supplemental data
Net asset value, end of the year 1,260,923 123,686
Average net asset value for the year 1,132,773 110,421
31.12.22 Sterling shares 31.12.22 US Dollar shares
Ratio to average net assets
Operating expenses
Company expenses 4 1.68% 1.74%
Master Fund expenses 5 0.41% 0.41%
Master Fund interest expenses 6 1.22% 1.18%
Performance fees 4.23% 4.20%
7.54% 7.53%
Net investment loss before performance fees 2 (1.95% ) (1.98% )
Net investment loss after performance fees 2 (6.18% ) (6.18% )
Notes
1 For illustrative purposes, the Net Asset Value at the beginning of 2023 is
adjusted by a factor of 10 to reflect the 10 for
1 share sub-division, which was approved at the EGM held on 6 February 2023,
with dealings commencing on 7 February 2023. The rest of Net Asset Values for
2022 are not adjusted by a factor of 10 reflect in order to reflect the
factual numbers audited in previous financial statements.
2 The net investment loss figures disclosed above do not include net realised
and unrealised gains/losses on investments allocated from the Master Fund.
3 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.
4 Company expenses are as disclosed in the Audited Statement of Operations
excluding the performance fee and foreign exchange gains/losses.
5 Master Fund expenses are the operating expenses of the Master Fund excluding
the interest and dividend expenses of the Master Fund.
6 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.
The management fees, performance fees and administration fees are disclosed in
note 4. Details of the amended Management Agreement can be found in note 2.
The annual Directors’ fees from 1 July 2022 have been:
Role Fee per annum £
Board Chair 90,000
Audit Committee Chair 65,000
Management Engagement Committee Chair 55,000
Remuneration and Nomination Committee Chair 55,000
Senior Independent Director 55,000
All other Directors 50,000
The annual aggregate limit of fees payable to Directors is £800,000 per annum.
During the 10:1 share sub-division, which was approved at the EGM held on 6
February 2023, with dealings commencing on 7 February 2023 (as mentioned in
notes 2 and 5), the following changes were made to the Directors’
shareholdings in the Company:
Richard Horlick, 20,000 Sterling shares cancelled, 200,000 Sterling shares
issued;
Julia Chapman, 626 Sterling shares cancelled, 6,260 Sterling shares issued;
Bronwyn Curtis, 1,000 Sterling shares cancelled, 10,000 Sterling shares
issued;
John Le Poidevin, 5,482 Sterling shares cancelled, 54,820 Sterling shares
issued; and
Claire Whittet, 1,500 Sterling shares cancelled, 15,000 Sterling shares
issued.
On 13 February 2023, the Board participated in the Initial Issue for the
following amounts: Richard Horlick, US$89,400 of US Dollar shares (20,000
shares);
Caroline Chan, £50,000 of Sterling shares (11,587 shares);
Bronwyn Curtis, £100,000 of Sterling shares (23,174 shares);
John Le Poidevin, £90,000 of Sterling shares (20,800 shares); and
Claire Whittet, £35,000 of Sterling shares (8,111 shares).
At year end 31 December 2023 the Directors had the following interests in the
Company, held either directly or beneficially:
Sterling Shares
31.12.23 31.12.22
Richard Horlick 200,000 20,000
Caroline Chan 11,587 Nil
Julia Chapman 6,260 626
Bronwyn Curtis 33,174 1,000
John Le Poidevin 75,620 5,482
Claire Whittet 1 N/A 1,500
US Dollar Shares
31.12.23 31.12.22
Richard Horlick 20,000 Nil
Caroline Chan Nil Nil
Julia Chapman Nil Nil
Bronwyn Curtis Nil Nil
John Le Poidevin Nil Nil
Claire Whittet 1 N/A Nil
11. Subsequent events
On 3 January 2024, the Company completed the share conversion for the 30
November 2023 share conversion date, issuing 1,481 Sterling shares and
cancelling 1,800 US Dollar shares.
On 8 January 2024 John Le Poidevin purchased 41,230 Sterling shares at a price
of £3.63 per ordinary share.
On 1 February 2024, the Company completed the share conversion for the 31
December 2023 share conversion date, issuing 74,953 Sterling shares and
cancelling 91,760 US Dollar shares.
On 4 March 2024, the Company completed the share conversion for the 31 January
2024 share conversion date, issuing 2,679 Sterling shares and cancelling 3,274
US Dollar shares.
The Company made the following purchases of ordinary shares to be held in
Treasury:
Sterling Class shares
Month Number of Highest Price point Lowest Price point
shares bought
£ £
January 2024 4,322,827 3.68 3.54
February 2024 3,390,937 3.64 3.48
March 2024* 2,143,363 3.50 3.30
Total 9,857,127
*Until 21 March 2024.
There were no purchases of US Dollar Class ordinary shares after year end.
The Directors have evaluated subsequent events up to 27 March 2024, which is
the date that the Audited Financial Statements were approved and available to
be issued and have concluded there are no further items that require
disclosure or adjustment to the Audited Financial Statements.
Historic Performance Summary
As at 31 December 2023
31.12.23 US$'000 31.12.22 US$'000 31.12.21 US$'000 31.12.20 US$'000 31.12.19 US$'000
Net increase in net assets resulting from operations 66,494 112,078 12,010 181,533 59,462
Total assets 2,079,009 1,707,130 1,307,490 802,224 570,779
Total liabilities (4,478) (66,682) (9,762) (41,055) (11,014)
Net assets 2,074,531 1,640,448 1,297,728 761,169 559,765
Number of shares in issue
Sterling shares 372,024,149 30,156,454* 25,864,663* 15,009,868* 14,310,040*
US Dollar shares 29,856,472 2,858,135* 2,689,547* 2,191,379* 2,442,057*
Net asset value per share
Sterling shares £4.11 £41.81* £34.30* £33.38* £26.06*
US Dollar shares US$4.27 US$43.28* US$35.71* US$34.78* US$26.99*
* The Number of Shares In Issue and Net Asset Value Per Share prior to 31
December 2023 are not adjusted by a factor of 10 to reflect the 10 for 1 share
sub-division approved at the EGM held on 6 February 2023.
Affirmation of the Commodity Pool Operator
As at 31 December 2023
To the best of my knowledge and belief, the information detailed in this
Annual Report and these Audited Financial Statements is accurate and complete.
Name: Jonathan Hughes
Title: Director 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
27 March 2024
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 Discount to NAV
The average 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 relevant 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 NAV per share of the shares of the relevant share
class taken over the 12 month-end NAV Calculation Dates in the year ended 31
December 2023 calculated as the sum of the final NAV of the share class as at
each month-end NAV Calculation Date during the year ended 31 December 2023,
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 of the
relevant share class 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 (discount)/premium is shown below.
Sterling Shares US Dollar Shares
31.12.23 31.12.22 31.12.23 31.12.22
Share Price at Year End (A) £3.67 £44.90* US$3.77 US$45.20*
NAV per Share (B) £4.11 £41.81* US$4.27 US$43.28*
(Discount)/Premium to NAV (A- B)/B (10.71%) 7.39% (11.71%) 4.44%
* Share prices and NAV per share as of 31 December 2022 are not adjusted by a
factor of 10 to reflect the 10 for 1 share sub-division approved at the EGM
held on 6 February 2023.
(Loss)/Gain Per Share
(Loss)/gain per share is calculated using the net loss/gain on ordinary
activities after tax, divided by the weighted average number of shares in
issue (year ended 31 December 2023: 353,094,861 Sterling shares and 28,097,148
US Dollar shares, year ended 31 December 2022: 28,620,989 Sterling shares and
2,722,649 US Dollar shares). The 10 for 1 share sub-division approved at the
EGM held on 6 February 2023 has been applied throughout the year for the 2023
weighted average share figures, but not for the 2022 weighted average share
figures.
The Directors also regard (loss)/gain per share to be a key indicator of
performance. The (loss)/gain per share is shown in the Strategic Report.
Year ended 31.12.23 Per share '000 Year ended 31.12.22 Per share '000
Net total (loss)/gain for Sterling Shares (9.21p) (£32,535) 683.74p £195,693
Net total (loss)/gain for US Dollar Shares (5.48c) (US$1,540) 708.91c US$19,301
Ongoing Charges
The Ongoing Charges are calculated using the AIC Ongoing Charges methodology,
which was last updated in April 2022 and is available on the AIC website
(theaic.co.uk). 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
and are 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:
Sterling Shares US Dollar Shares
Year ended Year ended Year ended Year ended
31.12.23 31.12.22 31.12.23 31.12.22
Average NAV for the year (A) £1,485,598,348 £1,132,773,154 US$122,970,362 US$110,421,043
Management Fee £22,297,675 £17,787,437 US$1,846,781 US$1,792,074
Other Company expenses £1,309,986 £1,248,572 US$84,979 US$127,701
Total Company Expenses £23,607,661 £19,036,009 US$1,931,760 US$1,919,775
Expenses allocated from the Master Fund £8,445,240 £2,325,281 US$703,225 US$238,666
Performance Fee £471 £47,900,303 US$1,740 US$4,641,933
Total Expenses (B) £32,053,372 £69,261,593 US$2,636,725 US$6,800,374
Ongoing Charges (B/A) 2.16% 6.11% 2.14% 6.16%
The NAV
The NAV is the net assets of the Company attributable to Shareholders, that
is, total assets less total liabilities, expressed as an amount per individual
share of the relevant class of shares.
(Loss)/gain per share
(Loss)/gain per share is calculated using the net loss/gain on ordinary
activities after finance costs and taxation (year ended 31 December 2023: a
loss of £32,535,028 and a loss of US$1,540,012; year ended 31 December 2022:
a gain of £195,693,403 and a gain of US$19,301,255), divided by the weighted
average number of shares in issue (year ended 31 December 2023: 353,094,861
Sterling shares and 28,097,148 US Dollar shares; year ended 31 December 2022:
28,620,989 Sterling shares and 2,722,649 US Dollar shares). The Directors also
regard (loss)/gain per share to be a key indicator of performance. The
(loss)/gain per share is shown in the Strategic Report.
The 10 for 1 share sub-division approved at the EGM held on 6 February 2023
has been applied throughout the year for the 2023 weighted average share
figures, but not for the 2022 weighted average share figures.
Company Information
Directors
Richard Horlick (Chair)
Caroline Chan
Julia Chapman
Bronwyn Curtis
John Le Poidevin
Claire Whittet (retired from the Board on 13 September 2023)
(All Directors are non-executive and independent for the purpose of Listing
Rule 15.2.12-A)
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier
Jersey
Channel Islands JE2 3QA
Administrator and Corporate Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port Guernsey
Channel Islands GY1 3QL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 1WR
Registrar and CREST Service Provider
Computershare Investor Services (Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
Legal Advisor (Guernsey Law)
Carey Olsen Carey House
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 4BZ
Legal Advisor (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
For the latest information
www.bhmacro.com
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