REG-BH Macro Limited: Annual Report & Audited Financial Statements 2021
31/03/2022 07:15
BH Macro Limited
Annual Report and Audited Financial Statements 2021
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 2021.
The Report will shortly be available from the Company’s website:
www.bhmacro.com.
Chair’s Statement
To say that last year was an eventful year for BH Macro Limited (the
“Company”) would be an understatement, both for long-term Shareholders in
BH Macro Limited and for shareholders in the former BH Global Limited (in
Voluntary Winding Up) (“BH Global”).
You will all be aware of the combination of the two companies to create a much
larger entity with hopefully greater liquidity. This was the primary rationale
for the combination.
Indeed from my first meetings with investors as a director, accompanying the
then chairman Colin Maltby, the question of liquidity in the shares was raised
consistently, often in conjunction with a suggestion that liquidity could be
improved by a combination of the two companies.
Shareholders will also be aware of the proposed changes to the Management
Agreement made in a letter from the Company’s manager, Brevan Howard Capital
Management LP (the “Manager”) in January 2021 including inter alia the
reversal of much of the fee concessions granted at the time of the previous
tender offer.
Following Colin Maltby‘s retirement on 15 February 2021, I became chairman
of your Company, and working closely with our Board and advisors, your Company
put the proposed amendments to a vote where 82.5% of voting share rights voted
in favour.
After lengthy discussions with the board of BH Global, ably led by Sir Michael
Bunbury, the proposed scheme of reconstruction for BH Global was put to a vote
which was passed by 100% of votes cast by BH Global’s Shareholders. In the
event, 85.64% of BH Global’s Sterling shares and 54.52% of BH Global’s
Dollar shares were exchanged for shares in BH Macro Limited leading to an
increase of assets by $497.9 million. I would like to thank all those involved
in this combination, on both sides, paying particular regards to your broker,
JP Morgan Cazenove led by William Simmonds, and your legal advisor, Hogan
Lovells, led by Jonathan Baird.
In addition I would also pay tribute to Sir Michael Bunbury of BH Global for
his cooperation during this process, and I am delighted that Julia Chapman,
who brings a wealth of experience and complementary skills, was able to join
your Board on 1 October 2021. A significant contribution was also made by the
Manager to underwrite the expenses of the combination, without which your
Board would not have been able to recommend the proposals to Shareholders.
Full details of the combination are set out in the Directors’ Report.
Given that the Board had secured the ability to apply proceeds from the
issuance of new stock for investment in Brevan Howard Master Fund Limited (the
“Master Fund”) from the Manager, a further 1,887,370 Sterling shares have
been issued, following the combination’s conclusion and up to the end of
2021, at premiums of between 3.44% to 9.06%, raising an additional £67.3
million in a manner which has been accretive to Shareholders.
Whilst the above summarises the structural changes to your Company, what of
the performance? It is here that there was a great divergence between the
share price performance and the NAV performance.
NAV performance was modest but consistent for 2021 with a total return of
2.76% per share for the Sterling shares, fluctuating on a monthly basis
between a maximum gain of +1.2% and a drawdown of -1.50%. The Dollar shares
rose by 2.67% per share within a similarly narrow monthly band of +1.21% to
-1.47%.
The share price fluctuated more widely, during the year, trading between 3240
pence and 3920 pence for the Sterling share class and 3370 cents to 4210 cents
for the Dollar share class. This was largely due to sentiment changing from a
negative view during the discussion period with the Manager and BH Global
(resulting in a maximum discount to NAV of 1.25% for the Sterling class and
0.46% for the Dollar class), to a positive view post combination (resulting in
a year end premium to NAV of 9.04% for the Sterling class and 12.29% for the
Dollar class).
I am pleased to say that at the time of writing the share price has remained
stable since the year end.
In the past, the Company used share buybacks as one mechanism to reduce the
discounts at which the shares traded to NAV. Since the combination, the
Company’s shares have traded at a premium to NAV. However, if the company
shares were to again trade at wide or volatile discounts to NAV in the future,
it would be the Board’s intention to consider resuming this process.
The challenge for your Company’s Manager, is to continue to deliver the
returns that you expect at the NAV level. The Manager has experienced
significant growth in assets under management but also in the personnel
responsible for the management of those assets. The Board monitors carefully
these developments, particularly in new strategies and new funds which may be
invested in by the Master Fund.
Against this background, the Board has continued its regular dialogue with the
Manager, reviewing the Master Fund’s trading strategies and risk exposure
and satisfying itself that the Manager’s analytical trading and risk
management capabilities continue to be maintained at a high standard.
We remain reassured that these continuing developments in the Manager’s
operations have no negative implications for the Manager’s core activities
nor for the services which the Manager provides to your Company.
The Company and its Manager have continued to pursue an active programme of
public communication and investor relations. Up-to-date performance
information is provided through NAV data published monthly on a definitive
basis and weekly on an estimated basis, as well as through monthly reports and
Shareholder reports. All these reports and further information about the
Company are available on its website (www.bhmacro.com).
The Board is wholly independent of the Brevan Howard group. The directors are
very closely focused on safeguarding the interests of Shareholders and believe
that the Company observes high standards of corporate governance. In 2018, the
Board commissioned an external evaluation of its performance which confirmed
that the Board works in a collegiate, harmonious and effective manner.
In last year’s statement, I wrote that we expected to commission a further
review during 2021 and I’m pleased to say that the Board has commissioned
Lintstock to carry out that review which is currently in progress. The Board
will maintain its periodic review of the ongoing balance and composition of
the Board as a whole to ensure that it continues to meet the needs of the
Company and its Shareholders.
2022 holds out the prospect to be an extremely volatile year both at the
geopolitical level and at the economic level. It is possible that conditions
will be remarkably different from those that we have experienced for the last
40 years. I refer particularly to the implications of resurgent inflation
which despite previous statements from government agencies and central banks
that it was transitory now appears to be embedded worldwide. This is an
enormous seachange in the background for financial markets. I hope that it
will create the conditions in which your Manager will flourish but we remain
confident that the nature of the convexity of the trades that they put on, and
their acute attention to risk, will ensure that if their trades are
unsuccessful in this volatile environment there will be limited downside for
your investments.
As I write this statement, very significant tensions exist between Russia and
the West and I will not speculate as to the outcome. After the build-up of
military forces in both Russia and Belarus, President Putin ordered the
‘special military operation’ otherwise seen as a full scale invasion of
Ukraine seeking regime change and going far beyond any expectations in most
government circles of a dispute over the two border territories of Donetsk and
Luhansk. The unexpectedly strong resistance of Ukraine, at the time of
writing, and the widespread condemnation of this action has led to severe
sanctions being issued against Russia, Belarus and a number of prominent
individuals. By the time this report is published we will further know how
this tragedy has unfolded but the risks are enormous. Both your Board and the
Manager will continue to monitor the situation closely. It also appears that
tensions globally are greater than they have been for a very considerable
period of time and that these are likely to persist not just on the European
borders with Russia but also with China in the far east.
At the same time it would appear that the COVID-19 pandemic is receding to an
endemic infection which is mildly inconvenient for most although still
potentially fatal for some including the most vulnerable. It will however be a
considerable period of time before life returns to normal.
I would like to conclude by welcoming aboard all our new Shareholders both
from the combination with BH Global and those who have participated in the new
issuance during the last year.
Richard Horlick
Chair
30 March 2022
Board Members
The Directors of the Company, as at the date of signing, all of whom are
non-executive, are listed below:
Richard Horlick (appointed Chair on 15 February 2021), age 63
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 end fund
boards most recently VH Global Sustainable Energy Opportunities plc since
January 2021. He was a partner and non-executive chairman of Pensato Capital
LLP until its successful sale to RWC Partners in 2017. He has had a long and
distinguished career in investment management graduating from Cambridge
University in 1980 with an MA in Modern History. After 3 years in the
corporate finance department of Samuel Montagu he joined Newton Investment
Management in January 1984, where he became a Director and portfolio manager.
In 1994, he joined Fidelity International as President of their institutional
business outside the US and in 2001 became President and CEO of Fidelity
Management Trust Company in Boston which was the Trust Bank for the US
Fidelity Mutual fund range and responsible for their defined benefit pension
business. In 2003, he joined Schroders Plc as a main board Director and head
of investment worldwide. In January 2006, he established Spencer House Capital
Management with Lord Jacob Rothschild. In addition, he has been a business
angel investing in a wide range of private companies. He became a limited
partner in CBE Capital Limited, a property development group.
Julia Chapman (appointed 1 October 2021), age 56
Julia Chapman is 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 (including Sanne Group
plc, GCP Infrastructure Investments Limited and Henderson Far East Income
Limited).
Bronwyn Curtis, age 73
Bronwyn Curtis is a UK resident and Senior Executive with 30 years leadership
in finance, commodities, consulting and the media. She is currently chair of
JPMorgan Asia Growth and Income Plc and a non-executive Director of Pershing
Square Holdings Ltd, the Scottish American Investment Company Plc and the UK
Office of Budget Responsibility. 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 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.
John Le Poidevin, age 51
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.
Claire Whittet, age 66
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. 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 one of which she chairs and a number of
which she is Senior Independent Director. Mrs Whittet was appointed to the
Board in June 2014.
Disclosure of Directorships in Public Companies Listed on Recognised Stock
Exchanges
The following summarises the Directors’ directorships in other public
companies:
Exchange
Richard Horlick
VH Global Sustainable Energy Opportunities Plc London
Julia Chapman
GCP Infrastructure Investments Limited London
Henderson Far East Income Limited London
Sanne Group Plc London
Bronwyn Curtis
JPMorgan Asia Growth and Income Plc London
Pershing Square Holdings Ltd London and Euronext Amsterdam
Scottish American Investment Company Plc London
John Le Poidevin
International Public Partnerships Limited London
Super Group (SGHC) Limited New York
TwentyFour Income Fund Limited London
Claire Whittet
Eurocastle Investment Limited Euronext Amsterdam
International Public Partnerships Limited London
Riverstone Energy Limited London
Third Point Investors Limited London
TwentyFour Select Monthly Income Fund Limited London
Strategic Report
For the year ended 31 December 2021
The Directors submit to the Shareholders their Strategic Report of the Company
for the year ended 31 December 2021.
The Strategic Report provides a review of the business for the financial year
and describes how risks are managed. In addition, the report outlines key
developments and financial performance of the Company during the financial
year and the position at the end of the year, and discusses the main factors
that could affect the future performance and financial position of the
Company.
BUSINESS MODEL AND STRATEGY
Investment Objective and Company Structure
The Company is organised as a feeder fund that invests solely in the ordinary
Sterling and US Dollar denominated B shares issued by Brevan Howard Master
Fund Limited (the “Master Fund”) – a Cayman Islands open-ended
investment company, which has as its investment objective, the generation of
consistent long-term appreciation through active leveraged trading and
investment on a global basis. Further details on the Investment Objective and
Policy can be found in the Directors’ Report.
Sources of Cash and Liquidity Requirements
As the Master Fund is not expected to pay dividends, the Company expects that
the primary source of its future liquidity will depend on the periodic
redemption of shares from the Master Fund and borrowings in accordance with
its leverage policies.
BUSINESS ENVIRONMENT
The Board is responsible for the Company’s system of internal controls and
for reviewing its effectiveness. The Board is satisfied that by using the
Company’s risk matrix in establishing the Company’s system of internal
controls, while monitoring the Company’s investment objective and policy,
the Board has carried out a robust assessment of the principal 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 its portfolio
fails to perform in line with the Company’s objectives if it is
inappropriately invested or markets move adversely. The Board reviews reports
from the Manager, which has total discretion over portfolio allocation, at
each quarterly Board meeting, paying particular attention to this allocation
and to the performance and volatility of underlying investments;
* Operational Risks: The Company is exposed to the risks arising from any
failure of systems and controls in the operations of the Manager or the
Administrator, or from the unavailability of either the Administrator or
Manager for whatever reason. The Board receives reports annually from the
Manager and Administrator on their internal controls;
* Accounting, Legal and Regulatory Risks: The Company is exposed to risk if it
fails to comply with the regulations of the UK Listing Authority or if it
fails to maintain accurate accounting records. The Administrator provides the
Board with regular reports on changes in regulations and accounting
requirements;
* Financial Risks: The financial risks faced by the Company include market,
credit and liquidity risk. These risks and the controls in place to mitigate
them are reviewed at each quarterly Board meeting;
* Geopolitical Risk: The war in Ukraine and subsequent ratcheting up of
tensions between Russia and the West has led to widespread sanctions against
Russia and great uncertainty as to how events will unfold and the consequences
of those events and the risks associated with them. Whilst the Master Fund
does not have a material direct exposure to the region, the Board and the
Manager are monitoring events closely in order to mitigate any collateral
impact on the Company and its performance;
* Brexit Risk: Whilst noting that the Company is based in Guernsey and that it
invests substantially all of its assets into a Cayman master fund, the Company
may nevertheless be exposed to risks arising from the UK’s departure from
the European Union and subsequent agreement reached between the UK and the
European Union at the end of the Brexit transition period, which did not cover
financial services. In conjunction with the Manager, the Board will monitor
the potential impact on the Company and on the Company’s performance; and
* Coronavirus Risk: Despite the reported increased impact of Coronavirus
(COVID-19) on businesses, the Board continues to believe that this is not a
major business risk for the Company. The Company uses a number of service
providers for its day to day operations. These providers have established and
regularly tested Business Resiliency Policies in place, to cover various
possible scenarios whereby staff cannot turn up for work at the designated
office and conduct business as usual (such as work from home facilities and/or
different regions covering work for other regions).
Future Prospects
The Board’s main focus is the achievement of long-term appreciation. The
future of the Company is dependent upon the success on the investment strategy
of the Master Fund. The investment outlook and future developments are
discussed in both the Chair’s Statement and the Manager’s Report.
Board Diversity
When appointing new directors and reviewing the board composition, the Board
considers, amongst other factors, diversity, balance of skills, knowledge,
gender and experience.
The Board does not consider it appropriate to establish targets or quotas in
this regard. As at the date of this report, the Board comprised three female
and two male non-executive Directors. The Company has no employees.
Environmental, Social and Governance Factors
The Company does not have employees, it does not own physical assets and its
Board is formed exclusively of non-executive Directors. As such, the Company
does not undertake any activity which would directly affect the environment.
On a regular basis, the Manager assesses the trading activity of the
investment funds it manages, including the Master Fund, to ascertain whether
environmental, social and governance (“ESG”) factors are appropriate or
applicable to such funds. Most ESG principles have been envisaged in the
context of equity or corporate fixed income investment and therefore are not
readily applicable to most types of instruments traded by the majority of
funds managed by the Manager.
The Manager 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 will apply the principles
where appropriate 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 (EU Exit) Regulations 2019, (the “UK
PRIIPs Laws”), which superseded the EU regulation that previously applied to
the Company. In accordance with the requirements of the UK PRIIPs Laws, the
Manager published the latest standardised three-page Key Information Document
(“KID”) on the Company on 29 April 2021. The KID is available on the
Company’s website www.bhmacro.com/regulatory-disclosures/ and will be
updated at least every 12 months.
The Company is not responsible for the information contained in the KID. The
process for calculating the risks, cost and potential returns are prescribed
by regulation. The figures in the KID may not reflect the expected returns for
the Company and anticipated returns cannot be guaranteed.
Performance
Key Performance Indicators (“KPIs”)
At each Board meeting, the Directors consider a number of performance measures
to assess the Company’s success in achieving its objectives. Below are the
main KPIs which have been identified by the Board for determining the progress
of the Company:
1. Net Asset Value
The Company’s net asset value (“NAV”) has appreciated from £10.00 and
US$10.00 per share at launch to £34.30 and US$35.71 at the year end. This
increase in NAV is largely attributable to the long term growth strategy and
returns. The Directors and Manager are confident that the current strategy
will continue to return positive levels of growth in future.
2. Share Prices, Discount/Premium
The Company has traded at an average premium of 2.27% and 2.46% to NAV for its
Sterling Class and US Dollar Class shares respectively for the year ended 31
December 2021.
3. Ongoing Charges
The Company’s ongoing charges ratio has decreased from 6.81% to 2.43% on the
Sterling class and decreased from 7.13% to 2.25% on the USD class, primarily
due to changes in the level of performance fee as a result of relative
performance.
The Company reports an aggregated view of the charges for both the Sterling
and US Dollar share classes. Further details are in the Directors’ Report.
Return per Share
Total return per share is based on the net total gain on ordinary activities
after tax of £16,571,134 for the Sterling Class and a net gain of
US$2,281,013 for the US Dollar Class (2020: gain of £105,767,059 and gain of
US$18,804,559 respectively).
These calculations are based on the weighted average number of shares in issue
for the year ended 31 December 2021. Sterling shares: 18,461,608 and US Dollar
shares: 2,316,734 (2020: Sterling shares: 14,702,553 and US Dollar shares:
2,397,572).
Year ended Year ended
31.12.21 31.12.20
Per share '000 Per share '000
Net total gain for Sterling Shares 89.76p 16,571 719.38p 105,767
Net total gain for US Dollar Shares 98.46c 2,281 784.32c 18,805
Net Asset Value
The net asset value per Sterling share, as at 31 December 2021 was £34.30
based on net assets of £887,142,911, divided by number of Sterling shares in
issue of 25,864,663 (2020: £33.38).
The net asset value per US Dollar share, as at 31 December 2021 was US$35.71
based on net assets of US$96,050,212 divided by number of US Dollar shares in
issue of 2,689,547 (2020: US$34.78).
Dividends
No dividends were paid during the year (2020: US$Nil).
Viability Statement
The investment objective of the Company is to seek to generate consistent
long-term capital appreciation through an investment policy of investing all
of its assets (net of funds required for its short-term working capital) in
the Master Fund.
The Directors have assessed the viability of the Company over the period to 31
December 2024. 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 remaining in place. The Management Agreement is
currently terminable on twelve months’ notice by either party. To ensure
that the Company maintains a constructive and informed relationship with the
Manager, the Directors meet regularly with the Manager to review the Master
Fund’s performance, and through the Management Engagement Committee, they
review the Company’s relationship with the Manager and the Manager’s
performance and effectiveness. The Directors currently know of no reason why
either the Company or the Manager might serve notice of termination of the
Management Agreement over the period of this viability statement.
The Company’s assets exceed its liabilities by a considerable margin.
Further, the majority of the Company’s most significant expenses, being the
fees owing to the Manager and to the Company’s administrator, fluctuate by
reference to the Company’s investment performance and NAV. The Company is
able to meet its expenses by redeeming shares in the Master Fund as necessary.
The Company’s investment performance depends upon the performance of the
Master Fund and the Manager as manager of the Master Fund. The Directors, in
assessing the viability of the Company, pay particular attention to the risks
facing the Master Fund. The Manager operates a risk management framework,
which is intended to identify, measure, monitor, report and where appropriate,
mitigate key risks identified by it or its affiliates in respect of the Master
Fund.
Since 1 April 2019, in the event that there is downward pressure on the
Company’s share prices, the Company has been able to consider resuming
active discount management actions, including share buybacks, so that as far
as possible the share prices would more closely reflect the Company’s
underlying performance; such actions should help to mitigate the risk of class
closure resolutions being triggered after that date. Refer to note 8 for
details of the Company’s discount management programme.
The Directors have carried out a robust assessment of the risks and, on the
assumption that the risks are managed or mitigated in the ways noted above,
the Directors have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the three
year period of their assessment.
Although the Company is domiciled in Guernsey, the Board has considered the
guidance set out in the AIC Code in relation to Section 172 of the Companies
Act 2006 in the UK. Section 172 of the Companies Act requires that the
Directors of the Company act in the way they consider, in good faith, is most
likely to promote the success of the Company for the benefit of all
stakeholders, including suppliers, customers and shareholders.
Key Service Providers
The Company does not have any employees and as such, the Board delegates
responsibility for its day to day operations to a number of key service
providers. The activities of each service provider are closely monitored by
the Board and they are required to report to the Board at set intervals.
In addition, a formal review of the performance of each service provider is
carried out once a year by the Management Engagement Committee.
The Manager
The Manager is a leading and well established hedge fund manager. In exchange
for its services, a fee is payable as detailed in note 4 to the financial
statements.
The Board considers that, 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 Corporate Secretary. Further details on fee structure
are included in note 4 to the financial statements.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
30 March 2022
Directors’ Report
31 December 2021
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 2021. The Directors’ Report
together with the Audited Financial Statements and their related notes (the
“Financial Statements”) give a true and fair view of the financial
position of the Company. They have been prepared properly, in conformity with
United States Generally Accepted Accounting Principles (“US GAAP”) and are
in agreement with the accounting records.
The Company
BH Macro Limited is a limited liability closed-ended investment company which
was incorporated in Guernsey on 17 January 2007 and then admitted to the
Official List of the London Stock Exchange ("LSE") later that year.
Currently, ordinary shares are issued in Sterling and US Dollars.
On 28 May 2021, the Company announced that it had agreed heads of terms with
the Board of BH Global and Brevan Howard Capital Management LP to combine BH
Global and the Company (the “Scheme” and the “Combination”). Under the
Scheme, BH Global’s Shareholders were offered the option of exchanging their
shares for shares of the same currency class of BH Macro Limited with the same
value on the basis of the relative NAVs per share of the relevant class of
each company on 31 July 2021 and/or to receive a cash payment equal to 97.8%
of the NAV (in addition to an amount per share to offset the impact of the
increase of the BH Global management fee effective from 1 July 2021).
At an Extraordinary General Meeting ("EGM") and class meetings on 19 July
2021, BH Global’s Shareholders approved resolutions to enable the
Combination to proceed.
With effect from 1 August 2021, BH Global, acting by Ernst & Young LLP (the
“Liquidators”), in accordance with the Scheme, transferred to the Company
a pool of assets (being shares in Brevan Howard Multi-Strategy Master Fund
Limited and cash) attributable to the BH Global shares to be exchanged for
shares in the Company, to be applied by the Company for reinvestment in the
Master Fund and towards the costs of the Combination. On 31 August 2021, the
Company issued or sold from treasury a total of 10,148,066 Sterling shares and
825,362 US Dollar shares in consideration of the transfer of the pool of
assets from BH Global.
On 2 June 2021, the Company published a circular in respect of a tender offer
for up to 40% of each class of its issued share capital at a price equivalent
to 97.8% of the net asset value for the relevant class as at 30 June 2021.
The Tender Offer was funded by the redemption of such portion of the
Company’s investment in Brevan Howard Master Fund Limited (the “Master
Fund”) as was required to pay for the shares validly tendered in the Tender
Offer. Shares validly tendered in the Tender Offer were not subject to the
increase in the Company’s management fee and the Master Fund’s operational
services fee approved by Shareholders on 29 March 2021, which were effective
from 1 July 2021.
At an EGM held on 23 June 2021, Shareholders approved the proposed Tender
Offer, allowing for a maximum amount of 6,033,030 Sterling shares and 838,411
US Dollar shares to be repurchased by the Company. On 23 June 2021, the
Company announced that 1,334,099 Sterling shares and 125,163 US Dollar shares
had been validly tendered and were to be repurchased at a price of 97.8% of
the NAV per share as at 30 June 2021. On 30 July 2021, the final Tender Offer
price was confirmed as being £33.0389 per Sterling share and $34.4646 per US
Dollar share. The Tender Offer was completed on 6 August 2021.
In light of the Tender Offer and the Company’s Combination with BH Global,
the Company suspended the ability for Shareholders to convert shares from one
class to another in respect of the May, June and July 2021 share conversion
dates.
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 period are set out in the Audited Statement of Operations.
The Directors do not recommend the payment of a dividend.
Share Capital
The number of shares in issue at year end is disclosed in note 5 to the
Audited Financial Statements.
Going Concern
The Directors, having considered the Principal and Emerging Risks and
Uncertainties to which the Company is exposed which are listed in the
Strategic Report and on the assumption that these are managed or mitigated as
noted, are not aware of any material uncertainties which may cast significant
doubt upon the Company’s ability to continue as a going concern and,
accordingly, consider that it is appropriate that the Company continues to
adopt the going concern basis of accounting for these Audited Financial
Statements.
The Board continues to monitor the ongoing impacts of the COVID-19 pandemic
and has concluded that the biggest threat to the Company with regards to this
pandemic is the failure for a key service provider to maintain business
continuity and resiliency while maintaining work from home and social
distancing practices. The Board has assessed the measures in place by key
service providers to produce 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 the pandemic either. For these
reasons, the Board is confident that the outbreak of COVID-19 has 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 Company’s policy on
Directors’ Remuneration, together with details of the remuneration of each
Director who served during the period, is detailed in the Directors’
Remuneration Report.
The Board meets at least four times a year and between these formal meetings,
there is regular contact with the Manager and the Administrator. The Directors
are kept fully informed of investment and financial controls, and other
matters that are relevant to the business of the Company are brought to the
attention of the Directors. The Directors also have access to the
Administrator and, where necessary in the furtherance of their duties, to
independent professional advice at the expense of the Company.
For each Director, the tables below set out the number of Board and Audit
Committee meetings they were entitled to attend during the period ended 31
December 2021 and the number of such meetings attended by each Director.
Scheduled Board Meetings Held Attended
Richard Horlick 4 4
Colin Maltby* N/A N/A
Julia Chapman** 1 1
Bronwyn Curtis 4 4
John Le Poidevin 4 4
Claire Whittet 4 4
Audit Committee Meetings Held Attended
John Le Poidevin 3 3
Julia Chapman** 1 1
Bronwyn Curtis 3 3
Claire Whittet 3 3
Management Engagement Committee Meetings
Richard Horlick 1 1
Colin Maltby* N/A N/A
Julia Chapman** N/A N/A
Bronwyn Curtis 1 1
John Le Poidevin 1 1
Claire Whittet 1 1
* Colin Maltby retired prior to any of the scheduled board
meetings being held.
** Julia Chapman was appointed to the Board and the Audit
Committee on 1 October 2021.
In addition to these scheduled meetings, nineteen ad-hoc committee meetings
were held during the year ended 31 December 2021, 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 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
period is high and that each Director has always shown the time commitment
necessary to discharge fully and effectively their duties as a Director.
Directors’ Interests
The Directors had the following interests in the Company, held either directly
or beneficially:
Sterling Shares
31.12.21 31.12.20
Richard Horlick 20,000 Nil
Colin Maltby* N/A 3,500
Julia Chapman** 626 N/A
Bronwyn Curtis 1,000 Nil
John Le Poidevin 5,482 3,222
Claire Whittet*** 1,500 Nil
US Dollar Shares
31.12.21 31.12.20
Richard Horlick Nil Nil
Colin Maltby* N/A 1,000
Julia Chapman** Nil N/A
Bronwyn Curtis Nil Nil
John Le Poidevin Nil Nil
Claire Whittet Nil Nil
* Colin Maltby retired from the Board on 15 February 2021
** Julia Chapman was appointed to the Board on 1 October 2021.
She had previously held shares in BH Global, and acquired 626 Sterling Class
shares as a result of the Company’s combination with BH Global on 31 August
2021
*** All units are held through a Retirement Annuity Trust Scheme,
jointly owned by Mrs Whittet and her husband.
On 3 September 2021, John Le Poidevin purchased 2,260 Sterling Class shares at
a price of £35.40 per share.
On 6 September 2021, Richard Horlick purchased 20,000 Sterling Class shares at
a price of £35.60 per share.
On 29 September 2021, Claire Whittet purchased 1,500 units of Sterling Class
shares at a price of £35.21 per share, held through a Retirement Annuity
Trust Scheme, jointly owned with her husband, Mr Martin Whittet.
On 26 October 2021, Bronwyn Curtis purchased 1,000 units of Sterling Class
shares at a price of £35.67 per share.
Directors’ Indemnity
Directors’ and Officers’ liability insurance cover is in place in respect
of the Directors.
The Directors entered into indemnity agreements with the Company which provide
for, subject to the provisions of the Companies (Guernsey) Law, 2008, an
indemnity for Directors in respect of costs which they may incur relating to
the defence of proceedings brought against them arising out of their positions
as Directors, in which they are acquitted or judgement is given in their
favour by the Court. The agreement does not provide for any indemnification
for liability which attaches to the Directors in connection with any
negligence, unfavourable judgements and breach of duty or trust in relation to
the Company.
Corporate Governance
To comply with the UK Listing Regime, the Company must comply with the
requirements of the UK Corporate Governance Code. The Company is also required
to comply with the Code of Corporate Governance issued by the Guernsey
Financial Services Commission.
The Company is a member of the Association of Investment Companies (the
“AIC”) and by complying with the AIC Code is deemed to comply with both
the UK Corporate Governance Code and the Guernsey Code of Corporate
Governance.
To ensure ongoing compliance with the principles and the recommendations of
the AIC Code, the Board receives and reviews a report from the Secretary, at
each quarterly meeting, identifying whether the Company is in compliance and
recommending any changes that are necessary.
The Company has complied with the requirements of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance Code includes provisions relating to:
* the role of the chief executive;
* executive directors’ remuneration;
* the need for an internal audit function; and
* whistle-blowing policy.
For the reasons explained in the UK Corporate Governance Code, the Board
considers these provisions are not relevant to the position of the Company as
it is an externally managed investment company with a Board formed exclusively
of non-executive Directors. The Company has therefore not reported further in
respect of these provisions. The Company does not have employees, hence no
whistle-blowing policy is necessary. However, the Directors have satisfied
themselves that the Company’s service providers have appropriate
whistle-blowing policies and procedures and seek regular confirmation from the
service providers that nothing has arisen under those policies and procedures
which should be brought to the attention of the Board.
The Company has adopted a policy that the composition of the Board of
Directors is at all times such that (i) a majority of the Directors are
independent of the Manager and any company in the same group as the Manager
(the “Manager’s Group”); (ii) the 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.
In view of its non-executive and independent nature, the Board considers that
it is not necessary for there to be a Nomination Committee or a Remuneration
Committee as anticipated by the AIC Code. The Board as a whole fulfils the
functions of the Nomination and Remuneration Committees, although the Board
has included a separate Directors’ Remuneration Report in these Audited
Financial Statements. The Board has adopted a Nomination Policy covering
procedures for nominations to the Board and to Board committees.
For new appointments to the Board, nominations are sought from the Directors
and from other relevant parties and candidates are then interviewed by the
Directors. A specialist independent recruitment firm is engaged as and when
appropriate. The current Board has a breadth of experience relevant to the
Company, and the Directors believe that any changes to the Board’s
composition can be managed without undue disruption. An induction programme is
provided for newly-appointed Directors.
In line with the AIC Code, Section 21.3 of the Company’s Articles requires
all Directors to retire at each Annual General Meeting. At the Annual General
Meeting of the Company on 24 September 2021, Shareholders re-elected all the
then incumbent Directors of the Company.
The Board regularly reviews its composition and believes that the current
appointments provide an appropriate range of skill, experience and diversity.
The Board, Audit Committee and Management Engagement Committee undertake an
evaluation of their own performance and that of individual Directors on an
annual basis. In order to review their effectiveness, the Board and its
Committees carry out a process of formal self-appraisal. The Board and
Committees consider how they function as a whole and also review the
individual performance of their members. This process is conducted by the
respective Chair reviewing the Directors’ performance, contribution and
commitment to the Company.
Claire Whittet has been Senior Independent Director since 20 June 2019 and
takes the lead in evaluating the performance of the Chair.
Board Performance
The performance of the Board and that of each individual Director is scheduled
for external evaluation every three years.
The most recent external evaluation of the Board’s performance was completed
in February 2018 and is scheduled to take place every three years. The last
evaluation confirmed that the Board works in a collegiate, harmonious and
effective manner and made a number of recommendations for the medium-term
structure of the Board which have been adopted. Given the various matters that
required shareholder votes in the first half of 2021, including the changes in
the Management Agreement, and the Combination with BH Global, the Board
determined that it would defer an external evaluation of the Board to a later
date, once shareholder approvals had been secured and any uncertainties as to
the future of the Company had been removed. This external evaluation will now
commence in the first quarter of 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 2020 evaluation. Due to the upcoming external evaluation being
carried out at the start of 2022, no internal evaluation was carried out in
2021.
The Board needs to ensure that the Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
Shareholders to assess the Company’s performance, business model and
strategy. In seeking to achieve this, the Directors have set out the
Company’s investment objective and policy and have explained how the Board
and its delegated Committees operate and how the Directors review the risk
environment within which the Company operates and set appropriate risk
controls. Furthermore, throughout the Annual Report, the Board has sought to
provide further information to enable Shareholders to better understand the
Company’s business and financial performance.
Policy to Combat Fraud, Bribery and Corruption
The Board has adopted a formal policy to combat fraud, bribery and corruption.
The policy applies to the Company and to each of its Directors. Further, the
policy is shared with each of the Company’s service providers.
In respect of the UK Criminal Finances Act 2017 which introduced a new
Corporate Criminal Offence of ‘failing to take reasonable steps to prevent
the facilitation of tax evasion’, the Board confirms that it is committed to
preventing the facilitation of tax evasion and takes all reasonable steps to
do so.
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.
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 2021 and 31 December 2020 have
been prepared in accordance with the AIC’s recommended methodology.
The following table presents the Ongoing Charges for each share class.
31.12.21
Sterling US Dollar
Shares Shares
Company – Ongoing Charges 1.34% 1.11%
Master Fund – Ongoing Charges 0.45% 0.45%
Performance fees 0.64% 0.69%
Ongoing Charges plus performance fees 2.43% 2.25%
31.12.20
Sterling US Dollar
Shares Shares
Company – Ongoing Charges 0.50% 0.49%
Master Fund – Ongoing Charges 0.63% 0.63%
Performance fees 5.68% 6.01%
Ongoing Charges plus performance fees 6.81% 7.13%
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 NAV.
Audit Committee
The Company’s Audit Committee conducts formal meetings at least three times
a year for the purpose, amongst others, of considering the appointment,
independence, effectiveness of the audit and remuneration of the auditors and
to review and recommend the annual statutory accounts and interim report to
the Board of Directors. It is chaired by John Le Poidevin and comprises
Bronwyn Curtis, Claire Whittet and, from 1 October 2021, Julia Chapman.
Richard Horlick was a member of the Audit Committee until his appointment as
Chair on 15 February 2021. The Terms of Reference of the Audit Committee are
available from the Administrator.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee meets formally at
least once a year, is chaired by Claire Whittet and comprises all members of
the Board.
The function of the Management Engagement Committee is to ensure that the
Company’s Management Agreement is competitive and reasonable for the
Shareholders, along with the Company’s agreements with all other third party
service providers (other than the Independent Auditors). The Management
Engagement Committee also monitors the performance of all service providers on
an annual basis and at the onset of COVID-19 and in August 2020 before the
Management Engagement Committee meeting, wrote to each service provider
regarding their Business Continuity Plans and the effect of the pandemic on
their working practices. 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 3 September 2021, the Management Engagement Committee
concluded that the continued appointment of the Manager, Administrator, UK and
Guernsey Legal Advisers, Registrar and Corporate Broker on the terms agreed
was in the interests of the Company’s Shareholders as a whole. At the date
of this report, the Board continues to be of the same opinion.
INTERNAL CONTROLS
Responsibility for the establishment and maintenance of an appropriate system
of internal control rests with the Board and to achieve this, a process has
been established which seeks to:
* Review the risks faced by the Company and the controls in place to address
those risks;
* Identify and report changes in the risk environment;
* Identify and report changes in the operational controls;
* Identify and report on the effectiveness of controls and errors arising; and
* Ensure no override of controls by its service providers, the Manager and
Administrator.
A report is tabled and discussed at each Audit Committee meeting, and reviewed
once a year by the Board, setting out the Company’s risk exposure and the
effectiveness of its risk management and internal control systems. The Board
believes that the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
In order to recognise any new risks that could impact the Company and ensure
that appropriate controls are in place to manage those risks, the Audit
Committee undertakes a regular review of the Company’s Risk Matrix. This
review took place on three occasions during the year.
The Board has delegated the management of the Company, the administration,
corporate secretarial and registrar functions including the independent
calculation of the Company’s NAV and the production of the Annual Report and
Financial Statements, which are independently audited. Whilst the Board
delegates these functions, it remains responsible for the functions it
delegates and for the systems of internal control. Formal contractual
agreements have been put in place between the Company and the providers of
these services. On an ongoing basis, Board reports are provided at each
quarterly Board meeting from the Manager, Administrator and Company Secretary
and Registrar. A representative from the Manager is asked to attend these
meetings.
In common with most investment companies, the Company does not have an
internal audit function. All of the Company’s management functions are
delegated to the Manager, Administrator and Company Secretary and Registrar
which have their own internal audit and risk assessment functions.
Further reports are received from the Administrator in respect of compliance,
London Stock Exchange continuing obligations and other matters. The reports
were reviewed by the Board. No material adverse findings were identified in
these reports.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Services (“IRS”) as a Guernsey
reporting Foreign Financial Institution (“FFI”), received a Global
Intermediary Identification Number (5QHZVI.99999.SL.831), and can be found on
the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for the
automatic exchange of financial account information developed by the
Organisation for Economic Co-operation and Development (“OECD”), which was
adopted by Guernsey and came into effect on 1 January 2016. The CRS replaced
the intergovernmental agreement between the UK and Guernsey to improve
international tax compliance that had previously applied in respect of 2014
and 2015. The Company made its latest report for CRS to the Director of Income
Tax on 28 June 2021.
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 period. Due to ongoing restrictions as a result of COVID-19, it
remained difficult for Shareholders to attend the Annual General Meeting in
2021. The Company provides weekly unaudited estimates of NAV, month end
unaudited estimates and unaudited final NAVs. The Company also provides a
monthly newsletter. These are published via RNS and are also available on the
Company’s website. Risk reports of the Master Fund are also available on the
Company’s website.
The Manager maintains regular dialogue with institutional Shareholders, the
feedback from which is reported to the Board. Shareholders who wish to
communicate with the Board should contact the Administrator in the first
instance.
Having reviewed the Financial Conduct Authority’s restrictions on the retail
distribution of non-mainstream pooled investments, the Company, after taking
legal advice, announced on 15 January 2014 that it is outside the scope of
those restrictions, so that its shares can continue to be recommended by UK
authorised persons to ordinary retail investors.
Following the publication of the updated AIC Code in February 2019, when 20
per-cent or more of Shareholder votes have been cast against a Board
recommendation for a resolution, the Company should explain, when announcing
voting results, what actions it 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 shareholder meeting, on what impact the
feedback has had on the decisions the Board has taken and any actions or
resolutions now proposed. During the period, no resolution recommended by the
Board received more than 20% of votes against it.
Significant Shareholders
As at 31 December 2021, the following Shareholders had significant
shareholdings in the Company:
% holding
Total Shares Held in class
Significant Shareholders
Sterling Shares
Ferlim Nominees Limited 4,545,020 17.57%
Rathbone Nominees Limited 2,808,370 10.86%
Pershing Nominees Limited 1,877,931 7.26%
Cheviot Capital (Nominees) Limited 1,871,075 7.23%
Smith & Williamson Nominees Limited 1,726,000 6.67%
Lion Nominees Limited 1,147,698 4.44%
HSBC Global Custody Nominee (UK) Limited 963,033 3.72%
% holding
Total Shares Held in class
Significant Shareholders
US Dollar Shares
Vidacos Nominees Limited 572,169 21.27%
Hero Nominees Limited 499,473 18.57%
Euroclear Nominees 394,058 14.65%
Luna Nominees Limited 169,039 6.29%
Ferlim Nominees Limited 100,501 3.74%
Securities Services Nominees Limited 98,607 3.67%
Vestra Nominees Limited 86,927 3.23%
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
30 March 2022
Statement of Directors’ Responsibility in Respect of the Annual Report and
Audited Financial Statements
The Directors are responsible for preparing the Annual Report and Audited
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, they elected to prepare the financial
statements in accordance with accounting principles generally accepted in the
United States of America and applicable law.
Under Company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that 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 going concern; and
·use the going concern basis of accounting unless liquidation is imminent.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL
REPORT
We confirm that to the best of our knowledge:
·so far as each of the Directors is aware, there is no relevant audit
information of which the Company’s Independent Auditor is unaware, and each
has taken all the steps they ought to have taken as a Director to make
themselves aware of any relevant information and to establish that the
Company’s Independent Auditor is aware of that information;
·the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
·the Chair’s Statement, Strategic Report, Directors’ Report and
Manager’s Report includes a fair review of the development and performance
of the business and the position of the Company, together with a description
of the principal risks and uncertainties that it faces.
We consider the Annual Report and Audited Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and performance,
business model and strategy.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
30 March 2022
Directors’ Remuneration Report
31 December 2021
Introduction
An ordinary resolution for the approval of the Directors’ Remuneration
Report was passed by the Shareholders at the Annual General Meeting held on 24
September 2021.
Remuneration policy
All Directors are non-executive and a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the
Directors’ remuneration. No advice or services were provided by any external
person in respect of its consideration of the Directors’ remuneration.
The Company’s policy is that the fees payable to the Directors should
reflect the time spent by the Directors on the Company’s affairs and the
responsibilities borne by the Directors and be sufficient to attract, retain
and motivate Directors of a quality required to run the Company successfully.
The Chair of the Board is paid a higher fee in recognition of his additional
responsibilities, as are the Chairs of the Audit Committee, the Management
Engagement Committee and the Senior Independent Director. The policy is to
review fee rates periodically, although such a review will not necessarily
result in any changes to the rates, and account is taken of fees paid to
Directors of comparable companies.
There are no long-term incentive schemes provided by the Company and no
performance fees are paid to Directors.
No Director has a service contract with the Company but each of the Directors
is appointed by a letter of appointment which sets out the main terms of their
appointment. The Directors were appointed to the Board for an initial term of
three years and Section 21.3 of the Company’s Articles requires, as does the
AIC Code, that all of the Directors retire at each Annual General Meeting. At
the Annual General Meeting of the Company on 24 September 2021, Shareholders
re-elected all the Directors. 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 period to any of the Directors apart from the reimbursement of
allowable expenses.
Directors’ fees
The Company’s Articles limit the fees payable to Directors in aggregate to
£400,000 per annum. The annual Directors’ fees are: £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.
Prior to his retirement from the Board on 15 February 2021, Colin Maltby
served as Chair with an annual fee of £70,000. Richard Horlick’s annual
fee, prior to him becoming Chair, was £45,000.
The fees payable by the Company in respect of each of the Directors who served
during the years ended 31 December 2021 and 31 December 2020 were as follows:
Year Year
ended ended
31.12.21 31.12.20
£ £
Richard Horlick* *66,678 45,000
Colin Maltby** **8,822 70,000
Julia Chapman*** ***11,250 N/A
Bronwyn Curtis 45,000 45,000
John Le Poidevin 55,000 55,000
Claire Whittet 50,000 50,000
Total 236,750 265,000
* On 15 February 2021, Richard Horlick was appointed Chair
at a fee of £70,000 p.a. Prior to that date, he served as a Director at a fee
of £45,000 p.a.
** Colin Maltby retired as Chair and Director on 15 February
2021 and was paid a fee of £70,000 p.a. until that date.
*** Julia Chapman was appointed to the Board on 1 October 2021 at
a fee of £45,000 p.a.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
30 March 2022
Report of the Audit Committee
31 December 2021
Below, we present the Audit Committee’s (the “Committee”) Report for
2021, setting out the Committee’s structure and composition, principal
duties and key activities during the year. As in previous years, the Committee
has reviewed the Company’s financial reporting, the independence and
effectiveness of the Independent Auditor and the internal control and risk
management systems of the service providers.
Structure and Composition
The Committee is chaired by John Le Poidevin and its other members are Claire
Whittet and Bronwyn Curtis. Julia Chapman was appointed to the Audit Committee
on 1 October 2021. Richard Horlick was a member of the Committee, until his
appointment as Chair of the Board on 15 February 2021.
Appointment to the Committee is for a period up to three years which may be
extended for two further three year periods provided that the majority of the
Committee remains independent of the Manager. Claire Whittet is currently
serving her third term. John Le Poidevin is currently serving his second term
and Bronwyn Curtis and Julia Chapman are serving their first terms. Prior to
standing down from the Committee on 15 February 2021, Richard Horlick was
serving his first term.
The Committee conducts formal meetings at least three times a year. The table
in the Directors’ Report sets out the number of Committee meetings held
during the year ended 31 December 2021 and the number of such meetings
attended by each committee member. The Independent Auditor is invited to
attend those meetings at which the annual and interim reports are considered.
The Independent Auditor and the Committee will meet together without
representatives of either the Administrator or Manager being present if the
Committee considers this to be necessary.
Principal Duties
The role of the Committee includes:
* monitoring the integrity of the published Financial Statements of the
Company;
* reviewing and reporting to the Board on the significant issues and
judgements made in the preparation of the Company’s published Financial
Statements, (having regard to matters communicated by the Independent
Auditor), significant financial returns to regulators and other financial
information;
* monitoring and reviewing the quality and effectiveness of the Independent
Auditor and their independence;
* considering and making recommendations to the Board on the appointment,
reappointment, replacement and remuneration to the Company’s Independent
Auditor; and
* monitoring and reviewing the internal control and risk management systems of
the service providers.
The complete details of the Committee’s formal duties and responsibilities
are set out in the Committee’s Terms of Reference, which can be obtained
from the Company’s Administrator.
The independence and objectivity of the Independent Auditor is reviewed by the
Committee, which also reviews the terms under which the Independent Auditor is
appointed to perform non-audit services, which includes consideration of the
Financial Reporting Council Ethical Standard. The Committee has also
established policies and procedures for the engagement of the auditor to
provide audit, assurance and other services. The services which the
Independent Auditor may not provide are any which:
* places them in a position to audit their own work;
* creates a mutuality of interest;
* results in the Independent Auditor functioning as a manager or employee of
the Company; or
* puts the Independent Auditor in the role of advocate of the Company.
Independent Auditor
The audit and any non-audit fees proposed by the Independent Auditor each year
are reviewed by the Committee taking into account the Company’s structure,
operations and other requirements during the year and the Committee makes
recommendations to the Board.
KPMG Channel Islands Limited (“KPMG CI”) has been the Company’s
Independent Auditor from the date of the initial listing on the London Stock
Exchange. The external audit was most recently tendered for the year ended 31
December 2016, where KPMG CI was re-appointed as auditor following the
completion of the tender process.
Key Activities in 2021
The following sections discuss the assessment made by the Committee during the
year:
Significant Financial Statement Issues
The Committee’s review of the annual Financial Statements focused on the
following area:
The Company’s investment in the Master Fund had a fair value of US$1,288.4
million as at 31 December 2021 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 2021 were audited by KPMG Cayman who issued an unqualified audit
opinion dated 29 March 2022. 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 2021 is reasonable.
This matter was discussed during the planning and final stage of the audit and
there was no significant divergence of views between the Committee and the
Independent Auditor.
The Committee has carried out a robust assessment of the risks to the Company
in the context of making the viability statement in these Financial
Statements. Furthermore, the Committee has concluded it appropriate to
continue to prepare the Financial Statements on the going concern basis of
accounting.
Effectiveness of the Audit
The Committee held formal meetings with KPMG CI during the course of the year:
1) before the start of the audit to discuss formal planning, to discuss any
potential issues and to agree the scope that would be covered; and 2) after
the audit work was concluded to discuss the significant issues including those
stated above.
The Committee considered the effectiveness and independence of KPMG CI by
using a number of measures, including but not limited to:
- Reviewing the audit plan presented to them before the start of
the audit;
- Reviewing and challenging the audit findings report
including variations from the original plan;
- Reviewing any changes in audit personnel; and
- Requesting feedback from both the Manager and the
Administrator.
Further to the above, during the year, the Committee performed a specific
evaluation of the performance of the Independent Auditor. This was supported
by the results of questionnaires completed by the Committee covering areas
such as the quality of the audit team, business understanding, audit approach
and management. This questionnaire was part of the process by which the
Committee assessed the effectiveness of the audit. There were no significant
adverse findings from the 2021 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 2021 and 31
December 2020.
Year Year
ended ended
31.12.21 31.12.20
£ £
Annual audit 55,000 33,250
Interim review 16,000 15,750
Specified procedures relating to 30 June 2021 Tender offer 11,000 –
Specified procedures relating to 31 July 2021 NAV Review 11,000 –
Reporting accountant services - Combination with BH Global 80,000 –
The Audit Committee has examined the scope and results of the external audit,
its cost effectiveness and the independence and objectivity of the Independent
Auditor, with particular regard to non-audit fees, and considers KPMG CI, as
Independent Auditor, to be independent of the Company. Further, the Committee
has obtained KPMG CI’s confirmation that the services provided by other KPMG
member firms to the wider Brevan Howard organisation do not prejudice its
independence.
Internal Control
The Audit Committee has also reviewed the need for an internal audit function.
The Committee has concluded that the systems and procedures employed by the
Manager and the Administrator, including their own internal audit functions,
currently provide sufficient assurance that a sound system of internal
control, which safeguards the Company’s assets, is maintained. An internal
audit function specific to the Company is therefore considered unnecessary.
The Committee examined externally prepared assessments of the control
environment in place at the Manager and the Administrator, with the Manager
providing an International Standard on Assurance Engagements (“ISAE 3402”)
report and the Administrator providing a Service Organisation Control
(“SOC1”) report. No significant findings have been noted during the year.
Conclusion and Recommendation
After reviewing various reports such as the operational and risk management
framework and performance reports from the Manager and Administrator,
consulting where necessary with KPMG CI, and assessing the significant
Financial Statement issues noted in the Report of the Audit Committee, the
Committee is satisfied that the Financial Statements appropriately address the
critical judgements and key estimates (both in respect to the amounts reported
and the disclosures). The Committee is also satisfied that the significant
assumptions used for determining the value of assets and liabilities have been
appropriately scrutinised and challenged and are sufficiently robust. At the
request of the Board, the Audit Committee considered and was satisfied that
the 2021 Annual Report and Audited Financial Statements are fair, balanced and
understandable and provide the necessary information for Shareholders to
assess the Company’s performance, business model and strategy.
The Independent Auditor reported to the Committee that no unadjusted material
misstatements were found in the course of its work. Furthermore, both the
Manager and the Administrator confirmed to the Committee that they were not
aware of any unadjusted material misstatements including matters relating to
the presentation of the Financial Statements. The Committee confirms that it
is satisfied that the Independent Auditor has fulfilled its responsibilities
with diligence and professional scepticism.
Consequent to the review process on the effectiveness of the independent audit
and the review of audit and non-audit services, the Committee has recommended
that KPMG CI be reappointed for the coming financial year.
For any questions on the activities of the Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend each
Annual General Meeting to respond to such questions.
John Le Poidevin
Audit Committee Chair
30 March 2022
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 GBP shares of the Company appreciated 2.76% during
2021, while the NAV per share of the USD shares appreciated by 2.67%.
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
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
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 31 December 2021.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Quarterly and Annual contribution (%) to the performance of the Company’s
USD Shares (net of fees and expenses) by asset class
Rates FX Commodities Credit Equity Digital Assets TOTAL
Q1 2021 1.93 0.35 -0.29 0.02 0.37 0.00 2.39
Q2 2021 -0.45 -1.09 0.53 0.18 0.13 -0.35 -1.05
Q3 2021 0.66 -0.97 0.02 0.13 0.15 0.70 0.70
Q4 2021 0.33 0.57 -0.07 -0.02 -0.41 0.24 0.64
YTD 2021 2.48 -1.15 0.19 0.31 0.24 0.59 2.67
Data as at 31 December 2021.
Quarterly and YTD figures are calculated by BHCM as at 31 December 2021, 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
Performance and Economic Outlook Commentary
Over the course of 2021 our core theme of persistent and rising inflation did
play out and deliver returns, but other, usually correlated themes such as
rising long-end rates and steepening yield curves did not. It was a year when
success often required precisely targeted expression in addition to having the
right view. At times, markets that are in our main area of focus suffered
sharp reversals and liquidity disruption due to large position unwinding,
further complicating macro trading. We avoided the larger pitfalls thanks to
our structural capital diversification as well as rapid and skilled action by
the trading and risk teams.
Overall, relative value strategies and trading in inflation, volatility and
some minor markets performed well as did the capital deployed early in the
year to digital assets, however given that the overall environment was more
difficult for traditional macro trading, it was a year of mixed results. The
Master Fund ended 2021 with modest gains.
The macro landscape in 2022 appears as complicated as at any time during the
post-war period. Across most developed economies, inflation is posting
multi-decade highs and shows no sign of slowing. At the same time, growth
around the world is bouncing back at variable rates from the coronavirus
pandemic. Labour markets are generally very tight. This combination of
high inflation, tight labour markets, and uncertain inflation expectations
introduces the prospect of a 1970’s style wage-price spiral which proved
very costly to reverse during the Volcker Era.
A war in Europe was almost unimaginable at the start of the year. War is
inflationary and will disrupt growth. While aggressive sanctions appear to
be the appropriate response to Russia’s unconscionable invasion of Ukraine*,
the fact remains that this is a stagflationary shock. Although not a
seamless comparison, there are similarities to the OPEC oil embargo in 1973
and the second oil shock following the Iranian revolution in 1979. Fiscal
authorities are looking to smooth the impact of the energy price shock on
households and businesses.
Meanwhile, the major central banks face a difficult balancing act. The Fed
appears to be significantly behind the curve; the stagflationary shock is
relatively mild for a country that is energy and food independent to a first
approximation and standard monetary policy rules would call for the policy
rate to be anywhere from 4% to 6% right now. The ECB also has an inflation
problem but will likely suffer more because of the Euro area’s proximity to
and dependence on the Russian economy. Other central banks like the BoE are
somewhere in the middle. Policymakers have unwelcome trade-offs to balance
in response to negative supply shocks. In such an environment both risk
assets and fixed income tend to underperform.
*At the time of writing, the Master Fund has no material exposure to Russia,
Ukraine or Belarus. The Manager continues to monitor the events closely.
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.
30 March 2022
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 2021, 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 2021, and of the Company’s financial performance and cash
flows for the year then ended;
* are prepared in conformity with U.S. generally accepted accounting
principles; and
* comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including 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 matters were
as follows (2020: Valuation of Investment in Brevan Howard Master Fund
Limited):
The risk Our response
Valuation of Investment in Brevan Howard Master Fund Limited (the “Master Fund”) $1,288,417,000; (2020: $758,630,000) 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 99.28% (2020: 99.67%) of its net assets at 31 December 2021 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 ·
Reviewed the audit work performed by the auditor of the Master Fund to gain insight over the work performed on the significant elements of the Master Fund’s net asset
value and held discussions on key audit findings with the auditor of the Master Fund · Examined the Master Fund’s coterminous audited financial statements to corroborate
the net asset value per share of both the US Dollar and Sterling Class B shares · · We also considered the Company’s investment valuation policies as disclosed in note 3
to the financial statements for conformity with U.S. generally accepted accounting principles
Combination with BH Global Limited (in Voluntary Winding Up) (“BHGG”) Refer to the Directors’ Report on note 1 to the financial statements Basis: Following approval of the combination by BHGG’s shareholders, the Company issued or sold from treasury a total of 10,148,066 Sterling shares and 825,362 US Dollar shares in consideration of the transfer of the pool of assets from BHGG. Risk: Given the increase in the size of the Company and the significance of this event to the users of the financial statements, it is a significant area of our audit. · Examined the audited financial statements of BHGG for the period from 1 January 2021 to 31 July 2021 and reconciled the number of shares and value of assets transferred
to the Company, and corroborated disclosures reflected in the Company’s financial statements · Obtained independent confirmation of the number of shares issued to BHGG
shareholders from the Company’s registrar and agreed the assets transferred to the Company in consideration thereof to the BHGG audited financial statements for the
period from 1 January 2021 to 31 July 2021 and supporting documentation · Reviewed the audit work performed by the auditor of the Master Fund to gain insight over the
work performed on the assets contributed to the Master Fund as a result of the combination · We also considered the Company’s disclosure in note 1 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 $19,465,000,
determined with reference to a benchmark of net assets of $1,297,728,000, of
which it represents approximately 1.5% (2020: 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% (2020: 75%) of materiality for the financial
statements as a whole, which equates to $14,598,000. 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 $973,000, 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 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, set out on 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.
Simon Guilbert
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
30 March 2022
Audited Statement of Assets and Liabilities
As at 31 December 2021
31.12.21 31.12.20
US$'000 US$'000
Assets
Investment in the Master Fund 1,288,417 758,630
Master Fund redemption proceeds receivable 600 42,597
Prepaid expenses 294 36
Cash and bank balances denominated in Sterling 15,884 832
Cash and bank balances denominated in US Dollars 546 129
Combination costs receivable 1,749 -
Total assets 1,307,490 802,224
Liabilities
Performance fees payable (note 4) 6,205 40,468
Management fees payable (note 4) 3,252 422
Accrued expenses and other liabilities 254 102
Administration fees payable (note 4) 51 63
Total liabilities 9,762 41,055
Net assets 1,297,728 761,169
Number of shares in issue (note 5)
Sterling shares 25,864,663 15,009,868
US Dollar shares 2,689,547 2,191,379
Net asset value per share (notes 7 and 9)
Sterling shares £34.30 £33.38
US Dollar shares US$35.71 US$34.78
See accompanying Notes to the Audited Financial Statements.
Signed on behalf of the Board by:
Richard Horlick
Chair
John Le Poidevin
Director
30 March 2022
Audited Statement of Operations
For the year ended 31 December 2021
01.01.21 01.01.20
to 31.12.21 to 31.12.20
US$'000 US$'000
Net investment loss allocated from the Master Fund
Interest income 4,830 1,987
Dividend and other income (net of withholding tax: 31 December 2021: $41,739; 31 December 2020: US$120,426) 443 42
Expenses (9,738) (6,869)
Net investment loss allocated from the Master Fund (4,465) (4,840)
Company income
Foreign exchange gains (note 3) - 25,960
Total Company income - 25,960
Company expenses
Performance fees (note 4) 6,286 38,531
Management fees (note 4) 10,921 2,381
Other expenses 1,465 521
Directors' fees 326 343
Administration fees (note 4) 156 114
Foreign exchange losses (note 3) 13,044 -
Total Company expenses 32,198 41,890
Net investment loss (36,663) (20,770)
Net realised and unrealised gain on investments allocated from the Master Fund
Net realised gain on investments 46,982 91,072
Net unrealised gain on investments 1,691 111,231
Net realised and unrealised gain on investments allocated from the Master Fund 48,673 202,303
Net increase in net assets resulting from operations 12,010 181,533
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Changes in Net Assets
For the year ended 31 December 2021
01.01.21 01.01.20
to 31.12.21 to 31.12.20
US$'000 US$'000
Net increase in net assets resulting from operations
Net investment loss (36,663) (20,770)
Net realised gain on investments allocated from the Master Fund 46,982 91,072
Net unrealised gain on investments allocated from the Master Fund 1,691 111,231
12,010 181,533
Share capital transactions
Proceeds on issue of shares from treasury (note 5)
Sterling shares 129,006 17,098
US Dollar shares 3,216 2,773
Issue of new shares from the Combination with BH Global Limited (in Voluntary Winding Up)
Sterling shares 339,914 -
US Dollar shares 25,733 -
Issue of new shares
Sterling shares 91,896 -
US Dollar shares - -
Tender offer
Sterling shares (60,902) -
US Dollar shares (4,314) -
Total share capital transactions 524,549 19,871
Net increase in net assets 536,559 201,404
Net assets at the beginning of the year 761,169 559,765
Net assets at the end of the year 1,297,728 761,169
See accompanying Notes to the Audited Financial Statements.
Audited Statement of Cash Flows
For the year ended 31 December 2021
01.01.21 01.01.20
to 31.12.21 to 31.12.20
US$'000 US$'000
Cash flows from operating activities
Net increase in net assets resulting from operations 12,010 181,533
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Net investment loss allocated from the Master Fund 4,465 4,840
Net realised gain on investments allocated from the Master Fund (46,982) (91,072)
Net unrealised gain on investments allocated from the Master Fund (1,691) (111,231)
Purchase of investment in the Master Fund (1) (145,200) (18,477)
Proceeds from sale of investment in the Master Fund 113,482 12,349
Foreign exchange losses/(gains) 13,044 (25,960)
(Increase)/decrease in prepaid expenses (258) 10
(Decrease)/increase in performance fees payable (34,263) 29,963
Increase in management fees payable 2,830 28
Increase in accrued expenses and other liabilities 152 11
Increase in combination fees receivable (1,749) -
(Decrease)/increase in administration fees payable (12) 39
Net cash used in operating activities (84,172) (17,967)
Cash flows from financing activities
Purchase of own shares into treasury (65,216) -
Proceeds from share issue (1,2) 160,179 19,871
Net cash generated from financing activities 94,963 19,871
Change in cash 10,791 1,904
Cash, beginning of the year 961 694
Effect of exchange rate fluctuations 4,678 (1,637)
Cash, end of the year 16,430 961
Cash, end of the year
Cash and bank balances denominated in Sterling (3) 15,884 832
Cash and bank balances denominated in US Dollars 546 129
16,430 961
(1.)Supplemental disclosure of non-cash financing activities: Non-cash amounts of US$429.6 million in relation to the Combination with BH Global Limited (in Voluntary Winding Up) have been excluded from the Statement of Cash Flows.
(2.)Contains proceeds from both the Combination with BH Global Limited (in Voluntary Winding Up) and subsequent block listings.
(3.)Cash and bank balances in Sterling (GBP'000) 11,726 608
See accompanying Notes to the Audited Financial Statements.
Notes to the Audited Financial Statements
For the year ended 31 December 2021
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
then admitted to the Official List of the London Stock Exchange ("LSE") later
that year.
Currently, ordinary shares are issued in Sterling and US Dollars.
On 28 May 2021, the Company announced that it had agreed heads of terms with
the Board of BH Global Limited (in Voluntary Winding Up) (“BH Global”) and
Brevan Howard Capital Management LP to combine BH Global and the Company (the
“Scheme” and the “Combination”). Under the Scheme, BH Global’s
Shareholders were offered the option of exchanging their shares for shares of
the same currency class of BH Macro Limited with the same value on the basis
of the relative NAVs per share of the relevant class of each company on 31
July 2021 and/or to receive a cash payment equal to 97.8% of the NAV, in
addition to an amount per share to offset the impact of the increase of the BH
Global management fee effective from 1 July 2021.
At an Extraordinary General Meeting (“EGM”) on 19 July 2021, BH Global’s
Shareholders approved resolutions to enable the Combination to proceed.
With effect on 1 August 2021, BH Global, acting by Ernst & Young LLP (the
“Liquidators”), in accordance with the Scheme, transferred to the Company
a pool of assets (being shares in Brevan Howard Multi-Strategy Master Fund
Limited and cash) attributable to the BH Global shares to be exchanged for
shares in the Company, to be applied by the Company for reinvestment in the
Master Fund and towards the costs of the Combination. On 31 August 2021, the
Company issued or sold from treasury a total of 10,148,066 Sterling shares and
825,362 US Dollar shares in consideration of the transfer of the pool of
assets from BH Global.
On 2 June 2021, the Company published a circular in respect of a tender offer
for up to 40% of each class of its issued share capital at a price equivalent
to 97.8% of the net asset value for the relevant class as at 30 June 2021.
The Tender Offer was funded by the redemption of such portion of the
Company’s investment in Brevan Howard Master Fund Limited (the “Master
Fund”) as was required to pay for the shares validly tendered in the Tender
Offer. Shares validly tendered in the Tender Offer were not subject to the
increase in the Company’s management fee and the Master Fund’s operational
services fee approved by Shareholders on 29 March 2021, which were effective
from 1 July 2021.
At an EGM held on 23 June 2021, Shareholders approved the proposed Tender
Offer, allowing for a maximum amount of 6,033,030 Sterling shares and 838,411
US Dollar shares to be repurchased by the Company. On 23 June 2021, the
Company announced that 1,334,099 Sterling shares and 125,163 US Dollar shares
had been validly tendered and were to be repurchased at a price of 97.8% of
the NAV per share as at 30 June 2021. On 30 July 2021, the final Tender Offer
price was confirmed as being £33.0389 per Sterling share and $34.4646 per US
Dollar share. The Tender Offer was completed on 6 August 2021.
In light of the Tender Offer and the Company’s Combination with BH Global,
the Company suspended the ability for Shareholders to convert shares from one
class to another in respect of the May, June and July 2021 share conversion
dates.
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 the Master Fund and, as such, the Company is directly and
materially affected by the performance and actions of the Master Fund.
The Master Fund is an open-ended investment company with limited liability
formed under the laws of the Cayman Islands on 22 January 2003. The investment
objective of the Master Fund is to generate consistent long-term appreciation
through active leveraged trading and investment on a global basis. The Master
Fund employs a combination of investment strategies that focus primarily on
economic change and monetary policy and market inefficiencies. The underlying
philosophy is to construct strategies, often contingent in nature with
superior risk/return profiles, whose outcome will often be crystallised by an
expected event occurring within a pre-determined period of time. New trading
strategies will be added as investment opportunities present themselves.
As such, the Audited Financial Statements of the Company should be read in
conjunction with the Audited Financial Statements of the Master Fund which can
be found on the Company’s website, www.bhmacro.com.
At the date of these Audited Financial Statements, there were two other feeder
funds in operation in addition to the Company that invest all of their assets
(net of working capital) in the Master Fund. Furthermore, other funds managed
by the Manager invest some of their assets in the Master Fund as at the date
of these Financial Statements.
Off-Balance Sheet, market and credit risks of the Master Fund’s investments
and activities are discussed in the notes to the Master Fund’s Audited
Financial Statements. The Company’s investment in the Master Fund exposes it
to various types of risk, which are associated with the financial instruments
and markets in which the Brevan Howard underlying funds invest.
Market risk represents the potential loss in value of financial instruments
caused by movements in market factors including, but not limited to, market
liquidity, investor sentiment and foreign exchange rates.
The Manager
Brevan Howard Capital Management LP (the “Manager”) is the Manager of the
Company. The Manager is a Jersey Limited Partnership, the general partner of
which is Brevan Howard Capital Management Limited, a Jersey Limited Company
(the “General Partner”). The General Partner is regulated in the conduct
of fund services business by the Jersey Financial Services Commission pursuant
to the Financial Services (Jersey) Law, 1998 and the Orders made thereunder.
The Manager also manages the Master Fund and in that capacity, as at the date
of these Financial Statements, has delegated the function of investment
management of the Master Fund to Brevan Howard Asset Management LLP, Brevan
Howard (Hong Kong) Limited, Brevan Howard Investment Products Limited, Brevan
Howard US Investment Management LP, Brevan Howard Private Limited and BH-DG
Systematic Trading LLP.
On 22 January 2021, the Company announced that it had received a letter from
the Manager proposing a number of material changes to the Management Agreement
which they believed represented the minimum level for them to continue to
manage the Company and not seek to terminate the Management Agreement.
Following discussions between the Company, the Manager and the Company’s
Shareholders, a circular proposing certain changes to the terms of the
Management Agreement was issued to Shareholders on 12 March 2021 and these
changes were approved at the subsequent EGM on 29 March 2021. As a result of
the Shareholder vote, the Management Agreement was amended and restated with
effect from 1 July 2021 to reflect the following changes:
i)Increase in Management Fee
The monthly management fee (the “Management Fee”) payable by the Company
(excluding the operational services fee payable at the level of the Master
Fund) was increased to an amount equal to one-twelfth of one and a half (1.5)%
of the prevailing NAV of each class of Shares.
The monthly Management Fee was previously equal to one-twelfth of one-half
(0.5)% of the lower of (a) the prevailing NAV of each class of Shares and (b)
the NAV of that class of Shares as at 1 April 2017, on the basis that all
Shares redeemed pursuant to the Company’s 2017 own share tender offer had
been redeemed on that date (subject to certain other adjustments, including to
take account of conversions between Share classes).
This change reverses, in part, the reduction in the Management Fee from
one-twelfth of two (2)% per month of the NAV of each class of Shares effective
from 1 April 2017 and reverses in full the agreement by the Manager not to
charge the Management Fee on performance-related growth of the Company which
first applied from October 2016.
In addition, the waiver since October 2016 of the operational services fees in
respect of performance-related growth of the Company has been discontinued so
that those fees revert to being charged on the entire amount of the
Company’s investment in the Master Fund.
ii)Extension of notice period
The notice period for termination of the Management Agreement without cause by
the Company or the Manager was increased to 12 months from three months (which
is the notice period that has been effective from 1 April 2019 when it was
reduced from 24 months).
iii) Introduction of fee relating to certain share redemptions and repurchases
If, in any calendar year, the Company makes repurchases or redemptions of any
class of its Shares above a number equal to 5% of the shares in issue of the
relevant class as at 31 December in the prior year (the “Annual Buy Back
Allowance”), the Company will be required to pay the Manager a fee equal to
2% of the price paid by the Company to repurchase or redeem those additional
Shares. The purpose of this fee is to compensate the Manager in respect of the
Management Fee that would otherwise have been payable by the Company in
respect of the relevant Shares had they not been repurchased or redeemed. The
fee will be payable in respect of all Shares which are repurchased or redeemed
by the Company in excess of the Annual Buy Back Allowance in any year,
including by way of market purchases, tender offer, annual partial capital
return or the class closure provisions included in the Company’s Articles of
Incorporation.
iv) Introduction of liquidation vote trigger
In the event that the Company’s aggregate NAV at the end of any calendar
quarter for all share classes combined is lower than US$300 million (on the
basis of the then prevailing exchange rate), the Board will be required to
propose a vote to Shareholders for the liquidation of the Company. If the vote
were to be passed by Shareholders and the Company placed into liquidation, the
Management Agreement would be terminated and the Company would be required to
pay the Manager a payment equal to 2% of the Company’s NAV (net of any
Annual Buy Back Allowance for the relevant calendar year that remains unused),
in lieu of the Management Fee that would otherwise have been payable if the
Management Agreement had been terminated on 12 months’ notice, in addition
to any other fees owing to the Manager at the time of termination of the
Management Agreement. These arrangements effectively replicate the previous
position under the Management Agreement if the Management Agreement were to
have been terminated without notice having been served as a result of
Shareholders voting to wind up the Company. Further, there would be no
obligation on Shareholders to vote in favour of the liquidation in these
circumstances.
There is no change to the annual performance fee payable by the Company to the
Manager, which remains at 20% of the appreciation in the NAV per Share of each
class of the Shares during the relevant period above any prior high water
mark. The other terms of the Management Agreement also remain unchanged.
3.Significant accounting policies
The Audited Financial Statements, which give a true and fair view, are
prepared in conformity with United States Generally Accepted Accounting
Principles and comply with the Companies (Guernsey) Law, 2008. The functional
and reporting currency of the Company is US Dollars.
As further described in the Directors’ Report, these Audited Financial
Statements have been prepared using the going concern basis of accounting.
The Board continues to monitor the ongoing impacts of the COVID-19 pandemic
and has concluded that the biggest threat to the Company with regards to this
pandemic is the failure for a key service provider to maintain business
continuity and resiliency while maintaining work from home and social
distancing practices. The Board has assessed the measures in place by key
service providers to produce 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 the pandemic either. For these
reasons, the Board is confident that the outbreak of COVID-19 has 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 2021, the
Company is the sole investor in the Master Fund’s ordinary Sterling and US
Dollar Class B shares as disclosed below. Within the table below, the
investment in each share class in the Master Fund is included, with the
overall total investment shown in the Audited Statement of Assets and
Liabilities.
Percentage of NAV per Share Shares held in the Master Fund Investment in Master Fund Investment in Master Fund
Master Fund's capital (Class B) (Class B) CCY '000 US$'000
31 December 2021
Sterling 14.73% £5,196.52 169,474 £880,666 1,192,908
US Dollar 1.18% $5,179.12 18,439 $95,511 95,509
1,288,417
31 December 2020
Sterling 14.46% £4,991.01 100,072 £499,457 682,833
US Dollar 1.61% $4,963.82 15,268 $75,798 75,797
758,630
ASC Topic 820 defines fair value as the price that the Company would receive
upon selling a security in an orderly transaction to an independent buyer in
the principal or most advantageous market of the security.
The valuation and classification of securities held by the Master Fund is
discussed in the notes to the Master Fund’s Audited Financial Statements
which are available on the Company’s website, www.bhmacro.com.
Income and expenses
The Company records monthly its proportionate share of the Master Fund’s
income, expenses and realised and unrealised gains and losses. In addition,
the Company accrues its own income and expenses.
Use of estimates
The preparation of Financial Statements in conformity with United States
Generally Accepted Accounting Principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of those Financial
Statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Leverage
The Manager has discretion, subject to the prior approval of a majority of the
independent Directors, to employ leverage for and on behalf of the Company by
way of borrowings to effect share purchases or share buy-backs, to satisfy
working capital requirements and to finance further investments in the Master
Fund.
The Company may borrow up to 20% of its NAV, calculated as at the time of
borrowing. Additional borrowing over 20% of NAV may only occur if approved by
an ordinary resolution of the Shareholders.
Foreign exchange
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 reporting date. The share capital and other capital
reserves are translated at the historic 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 Dollar using the
average exchange rate. Exchange differences arising on translation are
included in Foreign exchange gains 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 Fund
Net realised and unrealised gains/losses of the Master Fund are allocated to
the Company’s share classes based upon the percentage ownership of the
equivalent Master Fund class.
Treasury shares
Where the Company has purchased its own share capital, the consideration paid,
which includes any directly attributable costs, has been recognised as a
deduction from equity Shareholders’ funds through the Company’s reserves.
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.
New accounting pronouncements
There were no new accounting pronouncements affecting the Company in the
current year.
4.Management agreement and administration agreement
Management and performance fee
The Company has entered into a Management Agreement with the Manager to manage
the Company’s investment portfolio. The management fee charged 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 was changed to 1/12 of 1.5% per month of the NAV, as described in
note 2.
Until 30 June 2021, the management fee charged was 1/12 of 0.5% per month of
the NAV. The investment in the Class B shares of the Master Fund is not
subject to management fees, but was subject to an operational services fee
payable to the Manager of 1/12 of 0.5% per month of the NAV.
During the year ended 31 December 2021, US$10,921,176 (31 December 2020:
US$2,381,353) was earned by the Manager as net management fees. At 31 December
2021, US$3,251,592 (31 December 2020: US$422,036) of the fee remained
outstanding.
The Manager is also entitled to an annual performance fee for both share
classes. The performance fee is equal to 20% of the appreciation in the NAV
per share of that class during that calculation period which is above the base
NAV per share of that class, other than that arising to the remaining shares
of the relevant class from any repurchase, redemption or cancellation of any
share in the calculation period. The base NAV per share is the greater of the
NAV per share of the relevant class at the time of issue of such share and the
highest NAV per share achieved as at the end of any previous calculation
period.
The Manager will be paid an estimated performance fee on the business day
preceding the last business day of each calculation period. Within 5 business
days of the publication of the final NAV of each class of shares as at the end
of the calculation period, any difference between the actual performance fee
and the estimated amount will be paid to or refunded by the Manager, as
appropriate. Any accrued performance fee in respect of shares which are
converted into another share class prior to the date on which the performance
fee would otherwise have become payable in respect of those shares will
crystallise and become payable on the date of such conversion. The performance
fee is accrued on an ongoing basis and is reflected in the Company’s
published NAV. During the year ended 31 December 2021, US$6,285,545 (year
ended 31 December 2020: US$38,530,665) was earned by the Manager as
performance fees. At 31 December 2021, US$6,205,245 (31 December 2020:
US$40,468,455) 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.
Until 30 June 2021, the Management Agreement could have been terminated by
either party giving the other party not less than 3 months’ written notice.
In certain circumstances, the Company would have been obliged to pay
compensation to the Manager of the aggregate management fees which would
otherwise have been payable during the 3 months following the date of such
notice and the aggregate of any accrued performance fee in respect of the
current calculation period. Compensation would not have been payable if more
than 3 months’ notice of termination is given.
The notice period for termination of the Management Agreement without cause by
both the Company and the Manager was increased from 3 months to 12 months,
with effect from 1 July 2021.
Administration fee
The Company has appointed Northern Trust International Fund Administration
Services (Guernsey) Limited as Administrator and Corporate Secretary. The
Administrator is paid fees based on the NAV of the Company, payable quarterly
in arrears. The fee is at a rate of 0.015% of the average month-end NAV of the
Company, subject to a minimum fee of £67,500 per annum. In addition to the
NAV based fee, the Administrator is also entitled to an annual fee of £6,000
(31 December 2020: £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 2021, US$155,973 (year ended 31 December 2020:
US$113,942) 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 Dollar.
Further issue of shares may be made in accordance with the Articles. Shares
may be issued in differing currency classes of ordinary redeemable shares
including C shares. The treasury shares have arisen as a result of the
discount management programme as described in note 8. The tables below show
the movement in ordinary and treasury shares.
For the year ended 31 December 2021
Sterling shares US Dollar shares
Number of ordinary shares
In issue at 1 January 2021 15,009,868 2,191,379
Share conversions 153,458 (202,031)
Issue of new shares 9,689,134 449,971
Sale of shares from treasury 2,346,302 375,391
Tender offer shares transferred to treasury (note 8) (1,334,099) (125,163)
In issue at 31 December 2021 25,864,663 2,689,547
Number of treasury shares
In issue at 1 January 2021 1,012,203 250,228
Tender offer shares transferred to treasury (note 8) 1,334,099 125,163
Sale of shares from treasury (2,346,302) (375,391)
In issue at 31 December 2021 - -
Percentage of class 0.00% 0.00%
For the year ended 31 December 2020
Sterling shares US Dollar shares
Number of ordinary shares
In issue at 1 January 2020 14,310,040 2,442,057
Share conversions 261,379 (331,678)
Sale of shares from treasury 438,449 81,000
In issue at 31 December 2020 15,009,868 2,191,379
Number of treasury shares
In issue at 1 January 2020 1,450,652 331,228
Sale of shares from treasury (438,449) (81,000)
In issue at 31 December 2020 1,012,203 250,228
Percentage of class 6.32% 10.24%
Share classes
In respect of each class of shares, a separate class account has been
established in the books of the Company. An amount equal to the aggregate
proceeds of issue of each share class has been credited to the relevant class
account. Any increase or decrease in the NAV of the Master Fund US Dollar
shares and Master Fund Sterling shares as calculated by the Master Fund is
allocated to the relevant class account in the Company. Each class account is
allocated those costs, prepaid expenses, losses, dividends, profits, gains and
income which the Directors determine in their sole discretion relate to a
particular class.
Voting rights of shares
Ordinary shares carry the right to vote at general meetings of the Company and
to receive any dividends attributable to the ordinary shares as a class
declared by the Company and, in a winding-up will be entitled to receive, by
way of capital, any surplus assets of the Company attributable to the ordinary
shares as a class in proportion to their holdings remaining after settlement
of any outstanding liabilities of the Company.
As prescribed in the Company’s Articles, the different classes of ordinary
shares have different values attributable to their votes. The attributed
values have been calculated on the basis of the Weighted Voting Calculation
(as described in the Articles) which takes into account the prevailing
exchange rates on the date of initial issue of ordinary shares. On a vote, a
single US Dollar ordinary share has 0.7606 votes and a single Sterling
ordinary share has 1.4710 votes.
Treasury shares do not have any voting rights.
Repurchase of ordinary shares
Under the Company’s Articles, Shareholders of a class of shares have the
ability to call for repurchase of that class of shares in certain
circumstances. See note 8 for further details.
Further issue of shares
As approved by the Shareholders at the Annual General Meeting held on 24
September 2021, the Directors have the power to issue further shares for cash
on a non-pre-emptive basis totalling 7,965,377 Sterling shares and 931,107 US
Dollar shares, respectively. This power expires fifteen months after the
passing of the resolution or on the conclusion of the next Annual General
Meeting of the Company, whichever is earlier, unless such power is varied,
revoked or renewed prior to that Meeting by a resolution of the Company in
general meeting.
Distributions
The Master Fund has not previously paid dividends to its investors. This does
not prevent the Directors of the Company from declaring a dividend at any time
in the future if the Directors consider payment of a dividend to be
appropriate in the circumstances. If the Directors declare a dividend, such
dividend will be paid on a per class basis.
As announced on 15 January 2014, the Company intends to be operated in such a
manner to ensure that its shares are not categorised as non-mainstream pooled
investments. This may mean that the Company may pay dividends in respect of
any income that it receives or is deemed to receive for UK tax purposes so
that it would qualify as an investment trust if it were UK tax-resident.
Further, the Company will first apply any such income in payment of its
management and performance fees.
Treasury shares are not entitled to distributions.
Share conversion scheme
The Company has implemented a share conversion scheme. The scheme provides
Shareholders with the ability to convert some or all of their ordinary shares
in the Company of one class into ordinary shares of the other class.
Shareholders are able to convert ordinary shares on the last business day of
every month. Each conversion will be based on the NAV (note 7) of the shares
of the class to be converted.
Share conversions were suspended in respect of the May, June and July 2021
share conversion dates, due to the tender offer and Combination with BH
Global, as mentioned in note 1.
6.Taxation
Overview
The Company is exempt from taxation in Guernsey under the provisions of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989.
Uncertain tax positions
The Company recognises the tax benefits of uncertain tax positions only where
the position is more-likely-than- not (i.e. greater than 50%), to be sustained
assuming examination by a tax authority based on the technical merits of the
position. In evaluating whether a tax position has met the recognition
threshold, the Company must presume that the position will be examined by the
appropriate taxing authority that has full knowledge of all relevant
information. A tax position that meets the more-likely-than-not recognition
threshold is measured to determine the amount of benefit to recognise in the
Company’s Audited Financial Statements. Income tax and related interest and
penalties would be recognised by the Company as tax expense in the Audited
Statement of Operations if the tax positions were deemed not to meet the
more-likely-than-not threshold.
The Company analyses all open tax years for all major taxing jurisdictions.
Open tax years are those that are open for examination by taxing authorities,
as defined by the Statute of Limitations in each jurisdiction. The Company
identifies its major tax jurisdictions as: Guernsey; the Cayman Islands; and
foreign jurisdictions where the Company makes significant investments. The
Company has no examinations by tax authorities in progress.
The Directors have analysed the Company’s tax positions, and have concluded
that no liability for unrecognised tax benefits should be recorded related to
uncertain tax positions. Further, the Directors are not aware of any tax
positions for which it is reasonably possible that the total amounts of
unrecognised tax benefits will significantly change in the next twelve months.
7.Publication and calculation of Net Asset Value (“NAV”)
The NAV of the Company is equal to the value of its total assets less its
total liabilities. The NAV per share of each class will be calculated by
dividing the NAV of the relevant class account by the number of shares of the
relevant class in issue on that day.
The Company publishes the NAV per share for each class of shares as calculated
by the Administrator based in part on information provided by the Master Fund,
monthly in arrears, as at each month-end.
The Company also publishes an estimate of the NAV per share for each class of
shares as calculated by the Administrator based in part on information
provided by the Master Fund, weekly in arrears.
8.Discount management programme
The Company has previously implemented a number of methods in order to seek to
manage any discount to NAV at which the Company’s shares trade.
Market purchases
Until October 2016, the Company regularly utilised its ability to make market
purchases of its shares as part of the discount management programme. The
purchase of these shares was funded by the Company redeeming underlying shares
in the Master Fund. There were no shares held in treasury as at 31 December
2021, as disclosed in note 5.
However, following the completion of the Tender Offer in April 2017, the
Company was not permitted to redeem its investment in the Master Fund to
finance own-share purchases before 1 April 2019. For much of the period since
that date, the Company’s shares have traded at a premium or minimal discount
to NAV. However, if the Company’s shares were again to trade at wide or
volatile discounts to NAV in the future, it is the Board’s intention to keep
any resumption of market purchases of shares under review.
Tender offer
On 23 June 2021, Shareholders approved the proposed tender offer which is
described in further detail in note 1.
Annual offer of partial return of capital
Under the Company’s Articles of Incorporation, once in every calendar year,
the Directors have discretion to determine that the Company make an offer of a
partial return of capital in respect of such number of shares of the Company
in issue as they determine, provided that the maximum amount distributed did
not exceed 100% of the increase in NAV of the Company in the prior calendar
year.
The Directors have discretion to determine the particular class or classes of
shares in respect of which a partial return of capital would be made, the
timetable for that partial return of capital and the price at which the shares
of each relevant class were returned.
The decision to make a partial return of capital in any particular year and
the amount of the return depended, among other things, on prevailing market
conditions, the ability of the Company to liquidate its investments to fund
the capital return, the success of prior capital returns and applicable legal,
regulatory and tax considerations.
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 premiums to NAV for the Sterling and US Dollar shares for the year
ended 31 December 2021 were 2.27% and 2.46% respectively and consequently, no
closure vote will be held in 2022.
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 2021 and other
performance information derived from the Financial Statements.
The per share amounts and ratios which are shown reflect the income and
expenses of the Company for each class of ordinary share.
31.12.21 31.12.21
Sterling shares US Dollar shares
£ US$
Per share operating performance
Net asset value at beginning of the year 33.38 34.78
Income from investment operations
Net investment loss* (0.86) (0.82)
Net realised and unrealised gain on investment 1.40 1.66
Other capital items** 0.38 0.09
Total gain 0.92 0.93
Net asset value, end of the year 34.30 35.71
Total gain before performance fees 3.45% 3.39%
Performance fees (0.69%) (0.72%)
Total gain after performance fees 2.76% 2.67%
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 2021 to 31 December 2021. An individual
Shareholder’s return may vary from these returns based on the timing of
their purchase or sale of shares.
31.12.21 31.12.21
Sterling shares US Dollar shares
£'000 US$'000
Supplemental data
Net asset value, end of the year 887,143 96,050
Average net asset value for the year 651,999 83,120
31.12.21 31.12.21
Sterling shares US Dollar shares
Ratio to average net assets
Operating expenses
Company expenses*** 1.33% 1.12%
Master Fund expenses**** 0.68% 0.68%
Master Fund interest expenses***** 0.32% 0.33%
Performance fees 0.64% 0.70%
2.97% 2.83%
Net investment loss before performance fees* (1.79%) (1.58%)
Net investment loss after performance fees* (2.43%) (2.28%)
31.12.20 31.12.20
Sterling shares US Dollar shares
£ US$
Per share operating performance
Net asset value at beginning of the year 26.06 26.99
Income from investment operations
Net investment loss* (2.16) (2.31)
Net realised and unrealised gain on investment 9.20 10.82
Other capital items** 0.28 (0.72)
Total gain 7.32 7.79
Net asset value, end of the year 33.38 34.78
Total gain before performance fees 34.92% 36.04%
Performance fees (6.83%) (7.15%)
Total gain after performance fees 28.09% 28.89%
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 2020 to 31 December 2020. An individual
Shareholder’s return may vary from these returns based on the timing of
their purchase or sale of shares.
31.12.20 31.12.20
Sterling shares US Dollar shares
£'000 US$'000
Supplemental data
Net asset value, end of the year 501,002 76,226
Average net asset value for the year 461,396 77,181
31.12.20 31.12.20
Sterling shares US Dollar shares
Ratio to average net assets
Operating expenses
Company expenses*** 0.51% 0.49%
Master Fund expenses**** 0.73% 0.72%
Master Fund interest expenses***** 0.29% 0.28%
Performance fees 5.68% 6.01%
7.21% 7.50%
Net investment loss before performance fees* (1.22%) (1.17%)
Net investment loss after performance fees* (6.90%) (7.18%)
* The net investment loss figures disclosed above, does
not include net realised and unrealised gains/losses on investments allocated
from the Master Fund.
** Included in other capital items are the discounts and
premiums on conversions between share classes and on the sale of treasury
shares as well as any partial capital return effected in the relevant year as
compared to the NAV per share at the beginning of the year.
*** Company expenses are as disclosed in the Audited Statement of
Operations excluding the performance fee and foreign exchange losses/gains.
**** Master Fund expenses are the operating expenses of the Master
Fund excluding the interest and dividend expenses of the Master Fund.
***** Master Fund interest expenses include interest and dividend expenses
on investments sold short.
10.Related-party transactions
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the party in making
financial or operational decisions.
Management and performance fees are disclosed in note 4.
The Company’s Articles limit the fees payable to Directors in aggregate to
£400,000 per annum. The annual Directors’ fees are: £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.
Prior to his retirement from the Board on 15 February 2021, Colin Maltby
served as Chair with an annual fee of £70,000. Richard Horlick’s annual fee
was £45,000.
On 3 September 2021, John Le Poidevin purchased 2,260 Sterling Class shares at
a price of £35.40 per share.
On 6 September 2021, Richard Horlick purchased 20,000 Sterling Class shares at
a price of £35.60 per share.
On 29 September 2021, Claire Whittet purchased 1,500 units of Sterling Class
shares at a price of £35.21 per share, held through a Retirement Annuity
Trust Scheme, jointly owned with her husband, Mr Martin Whittet.
On 26 October 2021, Bronwyn Curtis purchased 1,000 units of Sterling Class
shares at a price of £35.67 per share.
Julia Chapman was appointed to the Board on 1 October 2021. She had previously
held shares in BH Global, and acquired 626 Sterling Class shares as a result
of the Company’s combination with BH Global on 31 August 2021.
Combination costs receivable are amounts receivable from the Company’s
combination with BH Global. The amounts consist of amounts receivable from the
residual net assets of BH Global and reimbursements receivable from Brevan
Howard Capital Management LP for costs incurred from the combination. As at 31
December 2021, the total amount receivable from the Manager was approximately
US$258,000.
11.Subsequent events
On 14 January 2022, the Company issued 921,862 Sterling shares pursuant to its
block listing facility at a price of 3,670 pence per share.
On 16 March 2022, the Company issued 268,379 Sterling shares pursuant to its
block listing facility at a price of 3,770 pence per share.
The Directors have evaluated subsequent events up to 30 March 2022, which is
the date that the Audited Financial Statements were approved and available to
be issued, and have concluded there are no further items that require
disclosure or adjustment to the Audited Financial Statements.
Historic Performance Summary
As at 31 December 2021
31.12.21 31.12.20 31.12.19 31.12.18 31.12.17
US$'000 US$'000 US$'000 US$'000 US$'000
Net increase in net assets resulting from operations 12,010 181,533 59,462 34,985 4,725
Total assets 1,307,490 802,224 570,779 506,307 465,787
Total liabilities (9,762) (41,055) (11,014) (6,004) (469)
Net assets 1,297,728 761,169 559,765 500,303 465,318
Number of shares in issue
Sterling shares 25,864,663 15,009,868 14,310,040 14,136,242 14,046,048
US Dollar shares 2,689,547 2,191,379 2,442,057 2,664,541 2,782,034
Net asset value per share
Sterling shares £34.30 £33.38 £26.06 £24.13 £21.47
US Dollar shares US$35.71 US$34.78 US$26.99 US$24.67 US$21.62
Affirmation of the Commodity Pool Operator
31 December 2021
To the best of my knowledge and belief, the information detailed in this
Annual Report and these Audited Financial Statements is accurate and complete.
By:
Name: Jonathan Hughes
Title: Chief Financial Officer 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
30 March 2022
Glossary of Terms and Alternative Performance Measures
Alternative Performance Measures (“APMS”)
We assess our performance using a variety of measures that are not
specifically defined under US GAAP and therefore termed APMs. The APMs that we
use may not be directly comparable with those used by other companies.
Average Premium/Discount to NAV
The average premium/discount to NAV of the whole year is calculated for each
share class by using the following formula:
(A-B)
B
Where:
* ‘A’ is the average closing market price of a share of the share class as
derived from the trading price on the London Stock Exchange, calculated as the
sum of all the closing market prices per share of that class as at each London
Stock Exchange trading day during a calendar year, divided by the number of
such trading days in such period; and
* ‘B’ is the average Net Asset Value per share of the shares of the share
class taken over the 12 NAV Calculation Dates in a calendar year calculated as
the sum of the final Net Asset Value of the share class as at each NAV
Calculation Date during a calendar year, divided by 12.
Discount/Premium
If the share price of an investment is lower than the NAV per share, the
shares are said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the share price is
higher than the NAV per share, the shares are said to be trading at a premium.
The Board monitors the level of discount or premium and consideration is given
to ways in which share price performance may be enhanced, including the
effectiveness of marketing and share buy-backs, where appropriate. The premium
is shown below.
Sterling Shares US Dollar Shares
31.12.21 31.12.20 31.12.21 31.12.20
Share Price at Year End (A) £37.40 £35.20 $40.10 $36.00
NAV per Share (B) £34.30 £33.38 $35.71 $34.78
Premium to NAV (A-B)/B 9.04% 5.45% 12.29% 3.51%
Ongoing Charges
The ongoing charges are calculated using the AIC Ongoing Charges methodology,
which was last updated in October 2020 and is available on the AIC website
(theaic.co.uk). They 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
31.12.21 31.12.20 31.12.21 31.12.20
Average NAV for the year (a) £651,999,493 £461,396,154 $83,119,938 $77,181,295
Investment management fee £7,337,629 £1,636,581 $840,210 $264,904
Other Company expenses £1,353,514 £666,592 $86,917 $116,102
Total Company Expenses £8,691,143 £2,303,173 $927,127 $381,006
Expenses allocated from the Master Fund £2,938,057 £2,923,509 $374,525 $488,674
Performance Fee £4,155,847 £26,208,875 $575,942 $4,636,992
Total Expenses (b) £15,785,047 £31,435,557 $1,877,594 $5,506,672
Ongoing Charges b/a 2.43% 6.81% 2.25% 7.13%
Net Asset Value (“NAV”)
The NAV is the net assets attributable to shareholders that is, total assets
less total liabilities, expressed as an amount per individual share.
Return per Share
Return per share is calculated using the net return on ordinary activities
after finance costs and taxation (a gain of £16,571,134 and a gain of
US$2,281,013) divided by the weighted average number of shares in issue for
the year ended 31 December 2021 (18,461,608 Sterling shares and 2,316,734 US
Dollar shares). The Directors also regard returns per share to be a key
indicator of performance. The return per share is shown in the Strategic
Report.
Company Information
Directors
Richard Horlick (Chair, from 15 February 2021)
Colin Maltby (Chair, until his retirement on 15 February 2021)
Julia Chapman (appointed 1 October 2021)
Bronwyn Curtis
John Le Poidevin
Claire Whittet
(All Directors are non-executive and independent for the purpose of Listing
Rule 15.2.12-A)
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier
Jersey
Channel Islands JE2 3QA
For the latest information
www.bhmacro.com
Administrator and Corporate Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 1WR
Registrar and CREST Service Provider
Computershare Investor Services (Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
Legal 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
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