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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bh Macro Limited | LSE:BHMG | London | Ordinary Share | GG00BQBFY362 | ORD NPV (GBP) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.00 | 0.26% | 385.00 | 382.50 | 385.00 | 387.00 | 383.00 | 385.00 | 1,248,401 | 16:35:05 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 189.62M | 66.49M | 0.1702 | 22.56 | 1.5B |
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TIDMBHMG TIDMBHMU
BH Macro Limited
Interim Report and Unaudited Financial Statements 2018
LEI: 549300ZOFF0Z2CM87C29
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
The Company has today, in accordance with DTR 6.3.5, released its Interim
Report and Unaudited financial statements for the period ended 30 June 2018.
The Report will shortly be available from the Company's website:
www.bhmacro.com.
Chairman's Statement
Over the first half of 2018, the Net Asset Value ("NAV") per US dollar share in
the Company increased by 9.58% and the NAV per Sterling share increased by
8.70%.
The Company's performance is directly related to the performance of Brevan
Howard Master Fund Limited (the "Master Fund") into which the Company invests
substantially all of its assets. For quite some time the Master Fund's
performance was constrained by market conditions that offered few opportunities
for its macro-directional trading focus. However, in 2018 that has finally
begun to change.
The past performance of the Master Fund and the Company has shown correlation
with market volatility. This was notably demonstrated by the over 5% increase
in NAV following the unexpected result of the US Presidential Election in
November 2016. In 2017, however, market volatility returned to its
historically low levels and the implementation of President Trump's tax
policies in the current year has stimulated US equity markets to reach new
highs. However, a brief correction in early 2018 showed what the Master Fund
can do when volatility returns and the Company posted a 2.54% increase in NAV
(US Dollar shares) and 2.36% (Sterling shares) in January 2018.
There are significant and increasing local and international political risks
despite the continuing strength in the equity markets. This was most recently
brought to the fore following the Italian elections where the formation of a
coalition government caused significant turbulence in the foreign exchange and
fixed interest markets. In this period the Master Fund produced its largest
monthly return in several years and the Company's NAV increased in May by 8.41%
(US Dollar shares) and 8.19% (Sterling shares).
These unpredictable events have given a warning of what the rest of the year
may hold. The local market upset following the political developments in Italy
has shown that, when volatility returns, the Company offers Shareholders the
opportunity to benefit from the Master Fund's long-term track record of
preserving capital and achieving positive returns.
As part of the tender offer which completed in April 2017, the Board agreed
that the Company would not engage in market purchases of its own shares before
1 April 2019, but committed to hold a discontinuation vote for either class of
share if that class trades at an average discount of 8% or more to the monthly
NAV per share over the whole of 2018. The average discount at which each of
the Company's Sterling and US Dollar shares have traded in relation to monthly
NAV per share so far this year has been approximately 9.5%. If a
discontinuation vote is triggered for either or both class of share, it will be
held in early 2019.
Over the past six months, the Board has continued its regular dialogue with the
Manager, reviewing the Master Fund's trading strategies and risk exposures and
satisfying itself that the Manager's analytical, trading and risk management
capabilities are being maintained to a high standard.
The Company and its Manager have continued to pursue an active programme for
public communication and investor relations. There was particular interest
from the press following the Company's performance in May. Up-to-date
performance information is provided through NAV data published monthly on a
definitive basis and weekly on an estimated basis, as well as through monthly
risk reports and shareholder reports. All these reports and further
information about the Company are available on its website (www.bhmacro.com).
The Board is independent of the Brevan Howard group. The Directors are very
closely focused on safeguarding the interests of Shareholders and believe that
the Company observes high standards of corporate governance. In early 2018 the
Board commissioned an external evaluation of its performance which confirmed
that the Board works in a collegiate, harmonious and effective manner.
I have commented before that the Board recognises that improved performance
from the Master Fund will be important in securing the future of the Company.
The evidence in the first half of 2018 is that the Company's investment in the
Master Fund provides a valuable listed avenue for portfolio diversification
that is uncorrelated with other asset classes. There are now clear signs that
investors are beginning to focus more closely on the political and economic
uncertainties lying ahead and any increased volatility arising from this will
present further opportunities for the Master Fund's macro-trading strategies.
Huw Evans
Chairman
20 August 2018
Board Members
The Directors of the Company, all of whom are non-executive, are listed below:
Huw Evans, (Chairman), age 60
Huw Evans is Guernsey resident and qualified as a Chartered Accountant with
KPMG (then Peat Marwick Mitchell) in 1983. He subsequently worked for three
years in the Corporate Finance department of Schroders before joining Phoenix
Securities Limited in 1986. Over the next twelve years he advised a wide range
of companies in financial services and other sectors on mergers and
acquisitions and more general corporate strategy. Since moving to Guernsey in
2005, he has acted as a professional non-executive Director of a number of
Guernsey-based companies and funds. He holds an MA in Biochemistry from
Cambridge University. Mr Evans was appointed to the Board in 2010 and was
appointed Chairman on 23 June 2017.
John Le Poidevin, age 48
John Le Poidevin is Guernsey resident and has over 25 years' business
experience. Mr Le Poidevin is a graduate of Exeter University and Harvard
Business School, a Fellow of the Institute of Chartered Accountants in England
and Wales and a former partner of BDO LLP in London where, as Head of Consumer
Markets, he developed an extensive breadth of experience and knowledge of
listed businesses in the UK and overseas. He is an experienced non-executive
who sits on several plc boards and chairs a number of Audit Committees. He
therefore brings a wealth of relevant experience in terms of corporate
governance, audit, risk management and financial reporting. Mr Le Poidevin was
appointed to the Board in June 2016.
Colin Maltby, (Senior Independent Director), age 67
Colin Maltby is a resident of Switzerland. His career in investment management
began in 1975 with NM Rothschild & Sons and included 15 years with the
Kleinwort Benson Group, of which he was a Group Chief Executive at the time of
its acquisition by Dresdner Bank AG in 1995. Mr Maltby was Chief Executive of
Kleinwort Benson Investment Management from 1988 to 1995, Chief Investment
Officer of Equitas Limited from its formation in 1996, and Head of Investments
at BP from August 2000 to June 2007. He has served as a non-executive Director
of various public companies and agencies and as an adviser to numerous
institutional investors, including pension funds and insurance companies, and
to private equity and venture capital funds in both Europe and the United
States. He holds a Double First Class Honours degree in Physics from the
University of Oxford and also studied at the Stanford University Graduate
School of Business. He is a Fellow of Wolfson College, Oxford and of the Royal
Society of Arts and a member of the Institut National Genevois. Mr Maltby was
appointed to the Board in June 2015.
Claire Whittet, age 63
Claire Whittet is Guernsey resident and has 40 years' experience in the
financial services industry. After obtaining a MA (Hons) in Geography from the
University of Edinburgh, Mrs Whittet joined the Bank of Scotland for 19 years
and undertook a wide variety of roles. She moved to Guernsey in 1996 and was
Global Head of Private Client Credit for Bank of Bermuda before joining
Rothschild Bank International Limited in 2003, initially as Director of Lending
and latterly as Managing Director and Co-Head until May 2016 when she became a
Non-Executive Director. She is an ACIB member of the Chartered Institute of
Bankers in Scotland, a member of the Chartered Insurance Institute and holds an
IoD Director's Diploma in Company Direction. She is a Non-Executive Director of
five other listed investment funds. Mrs Whittet was appointed to the Board in
June 2014.
Disclosure of Directorships in Public Companies Listed on Recognised Stock
Exchanges
The following summarises the Directors' directorships in other public
companies:
Exchange
Huw Evans
Standard Life Investments Property Income Trust London
Limited
VinaCapital Vietnam Opportunity Fund Limited London
Colin Maltby
BBGI SICAV SA London
Ocean Wilsons Holdings Limited London and Bermuda
John Le Poidevin
International Public Partnerships Limited London
Safecharge International Group Limited London (AIM)
Stride Gaming Plc London (AIM)
Claire Whittet
Eurocastle Investment Limited Euronext
International Public Partnerships Limited London
Riverstone Energy Limited London London
Third Point Offshore Investors Limited
TwentyFour Select Monthly Income Fund Limited London
Directors' Report
30 June 2018
The Directors submit their Interim Report together with the Company's Interim
Unaudited Statement of Assets and Liabilities, Interim Unaudited Statement of
Operations, Interim Unaudited Statement of Changes in Net Assets, Interim
Unaudited Statement of Cash Flows and the related notes for the period ended 30
June 2018. The Directors' Report together with the Interim Unaudited Financial
Statements and their related notes (the "Financial Statements") give a true and
fair view of the financial position of the Company. They have been prepared
properly, in conformity with United States Generally Accepted Accounting
Principles ("US GAAP") and are in agreement with the accounting records.
The Company
BH Macro Limited is a limited liability closed-ended investment company
incorporated in Guernsey on 17 January 2007.
The Company was admitted to the Official List of the London Stock Exchange
("LSE") in 2007. It had maintained Secondary listings on the Bermuda Stock
Exchange and NASDAQ Dubai since 2008, but it de-listed from these two stock
exchanges on 30 September 2017 and 31 December 2017, respectively.
Following a tender offer which completed in April 2017, 48% of shares by value
being tendered at 96% of NAV for the relevant class were cancelled. This, in
turn, led to the Company closing the Euro share class, cancelling its listing
and converting the remaining Euro shares into Sterling class shares on 29 June
2017. Currently, ordinary shares are issued in US Dollars and Sterling.
Investment Objective and Policy
The Company is organised as a feeder fund that invests all of its assets (net
of short-term working capital requirements) directly in Brevan Howard Master
Fund Limited (the "Master Fund"), a hedge fund in the form of a Cayman Islands
open-ended investment company, which has as its investment objective the
generation of consistent long-term appreciation through active leveraged
trading and investment on a global basis. The Master Fund is managed by Brevan
Howard Capital Management LP, the Company's Manager.
The Master Fund has flexibility to invest in a wide range of instruments
including, but not limited to, debt securities and obligations (which may be
below investment grade), bank loans, listed and unlisted equities, other
collective investment schemes, currencies, commodities, futures, options,
warrants, swaps and other derivative instruments. The underlying philosophy is
to construct strategies, often contingent in nature, with superior risk/return
profiles, whose outcome will often be crystallised by an expected event
occurring within a pre- determined period of time.
The Master Fund employs a combination of investment strategies that focus
primarily on economic change and monetary policy and market inefficiencies.
The Company may employ leverage for the purposes of financing share purchases
or buy backs, satisfying working capital requirements or financing further
investment into the Master Fund, subject to an aggregate borrowing limit of 20%
of the Company's NAV, calculated as at the time of borrowing. Borrowing by the
Company is in addition to leverage at the Master Fund level, which has no limit
on its own leverage.
Results and Dividends
The results for the period are set out in the Unaudited Statement of
Operations. The Directors do not recommend the payment of a dividend.
Share Capital
The number of shares in issue at the period end is disclosed in note 5 of the
Notes to the Interim Unaudited Financial Statements.
Going Concern
The Directors, having considered the principal risks to which the Company is
exposed which are listed in the Principal Risks and Uncertainties section below
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 Interim Unaudited Financial Statements.
The Board
The Board of Directors has overall responsibility for safeguarding the
Company's assets, for the determination of the investment policy of the
Company, for reviewing the performance of the service providers and for the
Company's activities. The Directors, all of whom are non-executive, are listed
in the Board Members section and on the inside back cover.
The Articles provide that, unless otherwise determined by ordinary resolution,
the number of Directors shall not be less than two. The Company's policy on
Directors' Remuneration, together with details of the remuneration of each
Director who served during the 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, Audit
Committee meetings they were entitled to attend during the period ended 30 June
2018 and the number of such meetings attended by each Director.
Scheduled Board Meetings Held Attended
Huw Evans 2 2
John Le Poidevin 2 2
Colin Maltby 2 2
Claire Whittet 2 2
Audit Committee Meetings Held Attended
John Le Poidevin 2 2
Colin Maltby 2 2
Claire Whittet 2 2
In addition to these scheduled meetings, five ad hoc committee meetings were
held during the period ended 30 June 2018, which were attended by those
Directors available at the time.
Directors' Independence
Under the AIC Code of Corporate Governance ("AIC Code"), all the current
Directors are considered to be independent.
Directors' Interests
The Directors had the following interests in the Company, held either directly
or beneficially:
US Dollar Shares
30.06.18 31.12.17 30.06.17
Huw Evans Nil Nil Nil
John Le Poidevin Nil Nil Nil
Colin Maltby Nil Nil Nil
Claire Whittet Nil Nil Nil
Sterling Shares
30.06.18 31.12.17 30.06.17
Huw Evans 5,270 3,337 3,337
John Le Poidevin Nil Nil Nil
Colin Maltby Nil Nil Nil
Claire Whittet Nil Nil Nil
Directors' Indemnity
Directors' and officers' liability insurance cover is in place in respect of
the Directors.
The Directors entered into indemnity agreements with the Company which provide
for, subject to the provisions of the Companies (Guernsey) Law, 2008, an
indemnity for Directors in respect of costs which they may incur relating to
the defence of proceedings brought against them arising out of their positions
as Directors, in which they are acquitted or judgement is given in their favour
by the Court. The agreement does not provide for any indemnification for
liability which attaches to the Directors in connection with any negligence,
unfavourable judgements and breach of duty or trust in relation to the Company.
Corporate Governance
To comply with the UK Listing Regime, the Company must comply with the
requirements of the UK Corporate Governance Code. The Company is also required
to comply with the Code of Corporate Governance issued by the Guernsey
Financial Services Commission.
The Company is a member of the Association of Investment Companies (the "AIC")
and by complying with the AIC Code is deemed to comply with both the UK
Corporate Governance Code and the Guernsey Code of Corporate Governance. The
AIC also publishes a Corporate Governance Guide for Investment Companies ("AIC
Guide").
To ensure ongoing compliance with the principles and the recommendations of the
AIC Code, the Board receives and reviews a report from the Secretary, at each
quarterly meeting, identifying whether the Company is in compliance and
recommending any changes that are necessary.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance Code includes provisions relating to:
* the role of the chief executive
* executive directors' remuneration
* the need for an internal audit function
* whistle-blowing policy
For the reasons set out in the AIC Guide, and as explained in the UK Corporate
Governance Code, the Board considers these provisions are not relevant to the
position of the Company as it is an externally managed investment company with
a Board formed exclusively of non-executive Directors. The Company has
therefore not reported further in respect of these provisions. The Company does
not have employees, hence no whistle- blowing policy is necessary. However, the
Directors have satisfied themselves that the Company's service providers have
appropriate whistle-blowing policies and procedures and seek regular
confirmation from the service providers that nothing has arisen under those
policies and procedures which should be brought to the attention of the Board.
The Company has adopted a policy that the composition of the Board of Directors
is at all times such that (i) a majority of the Directors are independent of
the Manager and any company in the same group as the Manager (the "Manager's
Group"); (ii) the Chairman of the Board of Directors is free from any conflicts
of interest and is independent of the Manager's Group; and (iii) no more than
one director, partner, employee or professional adviser to the Manager's Group
may be a Director of the Company at any one time.
The Company has adopted a Code of Directors' dealings in securities.
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee and by the Board
at their meetings. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the risks to which
it is exposed.
In view of its non-executive and independent nature, the Board considers that
it is not necessary for there to be a Nomination Committee or a Remuneration
Committee as anticipated by the AIC Code. The Board as a whole fulfils the
functions of the Nomination and Remuneration Committees, although the Board has
included a separate Remuneration Report in the Directors' Remuneration Report
below. The Board has adopted a Nomination Policy covering procedures for
nominations to the Board and to Board committees.
For new appointments to the Board, nominations are sought from the Directors
and from other relevant parties and candidates are then interviewed by an ad
hoc committee of independent Directors. The Board has a breadth of experience
relevant to the Company, and the Directors believe that any changes to the
Board's composition can be managed without undue disruption. An induction
programme is provided for newly-appointed Directors.
In line with the AIC Code, Section 21.3 of the Company's Articles requires all
Directors to retire at each Annual General Meeting. At the Annual General
Meeting of the Company on 21 June 2018, Shareholders re-elected all the
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
Chairman reviewing the Directors' performance, contribution and commitment to
the Company.
Colin Maltby, as Senior Independent Director, has taken the lead in reviewing
the performance of the Chairman. The Chairman also has responsibility for
assessing the individual Board members' training requirements.
The most recent external evaluation of the Board's performance was completed in
February 2018. The evaluation confirmed that the Board works in a collegiate,
harmonious and effective manner and made a number of recommendations for the
medium term structure of the Board which will be adopted if the Company
continues beyond any discontinuation vote in early 2019.
The Board needs to ensure that the annual 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 Interim Report, the Board has sought to
provide further information to enable Shareholders to better understand the
Company's business and financial performance.
Policy to Combat Fraud, Bribery and Corruption
The Board has adopted a formal policy to combat fraud, bribery and corruption.
The policy applies to the Company and to each of its Directors. Further, the
policy is shared with each of the Company's service providers.
In respect of the UK Criminal Finances Act 2017 which introduced a new
Corporate Criminal Offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that it is committed to
preventing the facilitation of tax evasion and takes all reasonable steps to do
so.
Ongoing Charges
Ongoing charges for the six month period ended 30 June 2018, year ended 31
December 2017 and six month period ended 30 June 2017 have been prepared in
accordance with the AIC's recommended methodology.
The following table presents the Ongoing Charges for each share class:
30.06.18
US Dollar Sterling
Shares Shares
Company - Ongoing Charges 0.63% 0.69%
Master Fund - Ongoing Charges 0.65% 0.65%
Performance fee 0.02% 0.35%
Ongoing Charges plus performance fee 1.29% 1.69%
31.12.17
US Dollar *Euro Sterling
Shares Shares Shares
Company - Ongoing Charges 1.46% 1.76% 1.19%
Master Fund - Ongoing Charges 0.65% 0.66% 0.65%
Performance fee 0.00% 0.00% 0.00%
Ongoing Charges plus performance fee 2.11% 2.42% 1.84%
30.06.17
US Dollar *Euro Sterling
Shares Shares Shares
Company - Ongoing Charges 1.76% 1.76% 1.55%
Master Fund - Ongoing Charges 0.66% 0.66% 0.65%
Performance fee 0.00% 0.00% 0.00%
Ongoing Charges plus performance fee 2.42% 2.42% 2.20%
*The Euro Share class closed on 29 June 2017.
The Master Fund's Ongoing Charges represent the portion of the Master Fund's
operating expenses which have been allocated to the Company. The Company
invests substantially all of its investable assets in ordinary US Dollar and
Sterling denominated Class B shares issued by the Master Fund. It also invested
in Euro shares issued by the Master Fund until the closure of the Company's
Euro share class in June 2017. These shares are not subject to management fees
and performance fees within the Master Fund. The Master Fund's operating
expenses include an operational services fee payable to the Manager of 1/12 of
0.5% per month of the NAV. Please refer to note 4, which explains changes to
the calculation methodology during the prior year.
Audit Committee
The Company's Audit Committee conducts formal meetings at least three times a
year for the purpose, amongst others, of considering the appointment,
independence, effectiveness of the audit and remuneration of the auditors and
to review and recommend the annual statutory accounts and interim report to the
Board of Directors. Full details of its function and activities are set out in
the Report of the Audit Committee.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee meets formally at
least once a year and comprises Huw Evans, Colin Maltby, Claire Whittet and
John Le Poidevin. Claire Whittet is the Chair of the Management Engagement
Committee.
The function of the Management Engagement Committee is to ensure that the
Company's Management Agreement is competitive and reasonable for the
Shareholders, along with the Company's agreements with all other third party
service providers (other than the Independent Auditors). The Terms of Reference
of the Management Engagement Committee are available from the Administrator.
The principal contents of the Manager's contract and notice period are
contained in note 4 to the Financial Statements.
The Board continuously monitors the performance of the Manager and a review of
the Manager is conducted by the Management Engagement Committee annually.
The Manager has wide experience in managing and administering investment
companies and has access to extensive investment management resources.
At its meeting on 15 September 2017, the Management Engagement Committee
concluded that the continued appointment of the Manager on the terms agreed was
in the interests of the Company's Shareholders as a whole. At the date of this
report, the Board continues to be of the same opinion.
Internal Controls
Responsibility for the establishment and maintenance of an appropriate system
of internal control rests with the Board and to achieve this, a process has
been established which seeks to:
* Review the risks faced by the Company and the controls in place to address
those risks;
* Identify and report changes in the risk environment;
* Identify and report changes in the operational controls;
* Identify and report on the effectiveness of controls and errors arising;
and
* Ensure no override of controls by its service providers, the Manager and
Administrator.
A report is tabled and discussed at each Audit Committee meeting, and reviewed
once a year by the Board, setting out the Company's risk exposure and the
effectiveness of its risk management and internal control systems. The Board
believes that the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
The Board has delegated the management of the Company, the administration,
corporate secretarial and registrar functions including the independent
calculation of the Company's NAV and the production of the Annual Report and
Financial Statements, which are independently audited. Whilst the Board
delegates these functions, it remains responsible for the functions it
delegates and for the systems of internal control. Formal contractual
agreements have been put in place between the Company and the providers of
these services. On an ongoing basis, Board reports are provided at each
quarterly Board meeting from the Manager, Administrator and Company Secretary
and Registrar. A representative from the Manager is asked to attend these
meetings.
In common with most investment companies, the Company does not have an internal
audit function. All of the Company's management functions are delegated to the
Manager, Administrator and Company Secretary and Registrar which have their own
internal audit and risk assessment functions.
Further reports are received from the Administrator in respect of compliance,
London Stock Exchange continuing obligations and other matters. The reports
were reviewed by the Board. No material adverse findings were identified in
these reports.
Packaged Retail and Insurance Based Investment Products ("PRIIPs")
The Company is subject to European Union Regulation (2017/653) ("the
Regulation") which deems it to be a PRIIP. In accordance with the requirements
of the Regulation, the Manager published the first standardised three-page Key
Information Document ("KID") on the Company on 21 December 2017. The KID is
available on the Company's website www.bhmacro.com and will be updated at least
every 12 months.
Principal Risks and Uncertainties
The Board is responsible for the Company's system of internal controls and for
reviewing its effectiveness. The Board is satisfied that by using the Company's
risk matrix in establishing the Company's system of internal controls, while
monitoring the Company's investment objective and policy, the Board has carried
out a robust assessment of the principal risks and uncertainties facing the
Company. The principal risks and uncertainties which have been identified and
the steps which are taken by the Board to mitigate them are as follows:
* Investment Risks: The Company is exposed to the risk that its portfolio
fails to perform in line with the Company's objectives if it is
inappropriately invested or markets move adversely. The Board reviews
reports from the Manager, which has total discretion over portfolio
allocation, at each quarterly Board meeting, paying particular attention to
this allocation and to the performance and volatility of underlying
investments;
* Operational Risks: The Company is exposed to the risks arising from any
failure of systems and controls in the operations of the Manager or the
Administrator. The Board receives reports annually from the Manager and
Administrator on their internal controls;
* Accounting, Legal and Regulatory Risks: The Company is exposed to risk if
it fails to comply with the regulations of the UK Listing Authority or if
it fails to maintain accurate accounting records. The Administrator
provides the Board with regular reports on changes in regulations and
accounting requirements; and
* Financial Risks: The financial risks faced by the Company include market,
credit and liquidity risk. These risks and the controls in place to
mitigate them are reviewed at each quarterly Board meeting. One specific
aspect of market risk is that of discontinuation. As part of the tender
offer which completed in April 2017, the Board committed to hold a
discontinuation vote for either class of share if that class trades at an
average discount of 8% or more to the monthly NAV per share over the whole
of 2018. The average discount at which each of the Company's Sterling and
US Dollar shares have traded in relation to monthly NAV per share so far
this year has been approximately 9.5%. Consequently, there is a risk that
discontinuation votes will be held in early 2019 at which Shareholders may
vote to liquidate one or both classes of shares.
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 29 June 2018.
Relations with Shareholders
The Board welcomes Shareholders' views and places great importance on
communication with the Company's Shareholders. The Board receives regular
reports on the views of Shareholders and the Chairman and other Directors are
available to meet Shareholders if required. The Annual General Meeting of the
Company provides a forum for Shareholders to meet and discuss issues with the
Directors of the Company. The Company provides weekly unaudited estimates of
NAV, month end unaudited estimates and unaudited final NAVs. The Company also
provides a monthly newsletter. These are published via RNS and are also
available on the Company's website. Risk reports of the Master Fund are also
available on the Company's website.
The Manager maintains regular dialogue with institutional Shareholders, the
feedback from which is reported to the Board. Shareholders who wish to
communicate with the Board should contact the Administrator in the first
instance.
Having reviewed the Financial Conduct Authority's restrictions on the retail
distribution of non-mainstream pooled investments, the Company, after taking
legal advice, announced on 15 January 2014 that it is outside the scope of
those restrictions, so that its shares can continue to be recommended by UK
authorised persons to ordinary retail investors.
Significant Shareholders
As at 30 June 2018, the following Shareholders had significant shareholdings in
the Company:
% holding
Total Shares Held in class
Significant Shareholders
US Dollar Shares
Vidacos Nominees Limited 898,508 32.80%
Hero Nominees Limited 428,143 15.63%
The Bank of New York (Nominees) Limited 251,654 9.19%
HSBC Global Custody Nominee (UK) Limited 226,811 8.28%
Luna Nominees Limited 140,647 5.13%
Pershing Nominees Limited 115,168 4.20%
Euroclear Nominees Limited 104,312 3.81%
Lynchwood Nominees Limited 95,141 3.47%
% holding
Total Shares Held in class
Significant Shareholders
Sterling Shares
Ferlim Nominees Limited 2,619,697 18.61%
Rathbone Nominees Limited 1,148,628 8.16%
Harewood Nominees Limited 993,793 7.06%
The Bank of New York (Nominees) Limited 917,685 6.52%
HSBC Global Custody Nominee (UK) Limited 860,536 6.11%
Pershing Nominees Limited 848,578 6.03%
Nortrust Nominees Limited 615,315 4.37%
State Street Nominees Limited 587,683 4.17%
BNY (OCS) Nominees Limited 549,493 3.90%
Smith & Williamson Nominees Limited 528,732 3.76%
Brooks Macdonald Nominees Limited 473,669 3.36%
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
20 August 2018
Statement of Directors' Responsibility in Respect of the Interim Report and
Unaudited Financial Statements
We confirm to the best of our knowledge that:
* these Interim Unaudited Financial Statements have been prepared in
conformity with United States Generally Accepted Accounting Principles and
give a true and fair view of the assets, liabilities, financial position
and profit or loss; and
* these Interim Unaudited Financial Statements include information detailed
in the Chairman's Statement, the Directors' Report, the Manager's Report
and the notes to the Interim Unaudited Financial Statements, which provides
a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on these Interim Unaudited Financial Statements
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the Company during that period and any changes in the related
party transactions described in the last Annual Audited Financial Statements
that could materially affect the financial position or performance of the
Company.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website and for
the preparation and dissemination of financial statements. Legislation in
Guernsey governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
20 August 2018
Directors' Remuneration Report
30 June 2018
Introduction
An ordinary resolution for the approval of the Directors' Remuneration Report
was passed by the Shareholders at the Annual General Meeting held on 21 June
2018.
Remuneration policy
All Directors are non-executive and a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the Directors'
remuneration. No advice or services were provided by any external person in
respect of its consideration of the Directors' remuneration.
The Company's policy is that the fees payable to the Directors should reflect
the time spent by the Directors on the Company's affairs and the
responsibilities borne by the Directors and be sufficient to attract, retain
and motivate Directors of a quality required to run the Company successfully.
The Chairman of the Board is paid a higher fee in recognition of his additional
responsibilities, as are the Chairs of the Audit Committee, the Management
Engagement Committee and the Senior Independent Director. The policy is to
review fee rates periodically, although such a review will not necessarily
result in any changes to the rates, and account is taken of fees paid to
Directors of comparable companies.
There are no long term incentive schemes provided by the Company and no
performance fees are paid to Directors.
No Director has a service contract with the Company but each of the Directors
is appointed by a letter of appointment which sets out the main terms of their
appointment. The Directors were appointed to the Board for an initial term of
three years and Section 21.3 of the Company's Articles requires, as does the
AIC Code, that all of the Directors retire at each Annual General Meeting. At
the Annual General Meeting of the Company on 21 June 2018, 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 year to any of the Directors apart from the reimbursement of allowable
expenses.
Directors' fees
The Company's Articles limit the fees payable to Directors in aggregate to GBP
400,000 per annum. Changes to the annual fees were made at the Board meeting
held on 23 June 2017. Effective from 1 July 2017, the annual fees are GBP65,000
for the Chairman, GBP47,500 for Chair of the Audit Committee, GBP45,000 for each of
the Chair of the Management Engagement Committee and the Senior Independent
Director.
The fees payable by the Company in respect of each of the Directors who served
during the period ended 30 June 2018, the year ended 31 December 2017 and the
period ended 30 June 2017, were as follows:
Period Year Period
ended ended ended
30.06.18 31.12.17 30.06.17
GBP GBP GBP
Huw Evans 18,750
32,500 51,250
Ian Plenderleith* N/A *79,611 *79,611
John Le Poidevin
23,750 40,750 17,000
Colin Maltby
22,500 39,500 17,000
Claire Whittet 18,750
22,500 41,250
Total 252,361 151,111
101,250
* Ian Plenderleith served as Chairman at a fee of GBP167,000 pa until
his retirement from the Board on 23 June 2017.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
20 August 2018
Manager's Report
Brevan Howard Capital Management LP is the Manager of the Company and of Brevan
Howard Master Fund Limited (the "Fund"). The Company invests all of its assets
(net of short-term working capital) in the ordinary shares of the Master Fund.
Performance Review
The NAV per share of the USD shares of the Company appreciated by 9.58% in the
first half of the year, while the NAV per share of the GBP shares appreciated
by 8.70%.
The month-by-month NAV performance of the USD and GBP currency classes of the
Company since it commenced operations in 2007 is set out below:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
USD
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) 9.58
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
GBP
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) 8.70
Source: Fund NAV data is provided by the administrator of the Fund,
International Fund Services (Ireland) Limited ("IFS"). BH Macro Limited ("BHM")
NAV and NAV per Share data is provided by BHM's administrator, Northern Trust
International Fund Administration Services (Guernsey) Limited. BHM NAV per
Share % Monthly Change is calculated by the Manager ("BHCM"). BHM NAV data is
unaudited and net of all investment management and all other fees and expenses
payable by BHM. In addition, the Fund is subject to an operational services
fee.
With effect from 1 April 2017, the management fee is 0.5% per annum. The
Company's investment in the Fund is subject to an operational services fee of
0.5% per annum.
No management fee or operational services fee is charged in respect of
performance related growth of NAV for each class of share in excess of its
level on 1 April 2017 as if the tender offer commenced by the Company on 27
January 2017 had completed on 1 April 2017.
NAV performance is provided for information purposes only. Shares in the
Company do not necessarily trade at a price equal to the prevailing NAV per
Share.
Data as at 30 June 2018
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
The Fund's main exposures at the start of 2018 were short directional, combined
with long volatility, positions in US interest rates as well as long positions
in US equity indices. The Fund was also short the US dollar versus a basket of
currencies. These themes played out well in the early part of the year; in
particular the opportunity set for US interest rate trading appeared to improve
with the Fed continuing in its attempt to normalise its policy stance. Further
gains were generated from directional trading of UK interest rates as the Bank
of England responded to weaker data by temporarily softening its own stance on
policy normalisation. As market stresses increased towards the latter part of
the period under review, the Fund made additional gains from a variety of
trades across multiple asset classes.
Commentary and Outlook
In the first half of 2018, the global economy continued to advance at an
above-trend pace. However, there has been considerably more dispersion compared
with last year among both advanced and emerging market economies. In addition,
investors are grappling with a range of new risks to the outlook. Tighter
monetary policy from the Federal Reserve and the associated appreciation in the
US dollar is putting pressure on vulnerable emerging market economies. Trade
tensions are escalating with little visibility on the ultimate economic and
financial market effects. Finally, populist political trends are stretching the
status quo, especially in Britain and Italy.
The IMF forecasts global growth rates of nearly 4% for both this year and next,
but the rising risks point to some downside skew in that projection. Growth is
healthy in the advanced economies, but has slowed from last year's breakneck
pace in the Euro area, Japan and Britain. The US has been the standout,
clocking up real GDP growth that looks to be better than 3% at an annual rate
in the first half of 2018. Notably, the unemployment rate in the US plumbed
lows last seen in the 1960s and core inflation rose 2% in the last year.
In emerging economies, China continues to grow at a solid rate and monetary
authorities are ready to ease further still in order to maintain the momentum.
In response to the differential monetary policies between the US and China, the
renminbi slid significantly in the last few months. If the trend continues,
investors may fear disorderly capital flight following similar moves in 2015.
Other emerging market central banks are under similar pressure to respond to a
stronger US dollar by defending their currencies with rate rises. The most
vulnerable economies like Argentina and Turkey have already demonstrated acute
strain with sharp depreciations in their currencies, capital outflows, and
declines in equity prices. Going forward, it is an open question how other EM
economies will cope with higher interest rates and an appreciation in the US
dollar that makes it harder for domestic borrowers to pay back more expensive
dollar-denominated debt. Although interest rates are relative low, Fed
tightening has been the root cause of many international financial crises in
the past. The other major factor among emerging economies has been higher oil
prices, which have dented prospects for importers while flattering exporters.
No issue has attracted more attention this year than trade tensions. Higher
tariffs are a negative supply shock that slows growth and raises inflation. In
a worst-case scenario with adverse effects on confidence, asset prices and
investment, an all-out trade war could cause a global recession. At this point,
it is anyone's guess how this will play out. The Trump administration clearly
has China in its sights and tariffs could eventually extend to almost all
Chinese imports into the US. Germany and especially motor vehicles may become a
focus of targeted trade action. Finally, the negotiations among the NAFTA
countries may or may not be constructive.
Lastly, political developments are going to shape markets in unpredictable ways
going forward. The road ahead for Brexit is foggy. Italian politics threatens
the European consensus on immigration, fiscal spending, and monetary policy. It
seems like a safe bet to assume that populist politics will continue to throw
curveballs to the market going forward.
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.
20 August 2018
Independent Review Report to BH Macro Limited
Conclusion
We have been engaged by BH Macro Limited (the "Company") to review the Interim
Unaudited Financial Statements included in the Interim Report for the six
months ended 30 June 2018 of the Company which comprises the Unaudited
Statement of Assets and Liabilities, the Unaudited Statement of Operations, the
Unaudited Statement of Changes in Net Assets, the Unaudited Statement of Cash
Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the financial statements for the period ended 30 June 2018 do not
give a true and fair view of the financial position of the Company as at 30
June 2018 and of its financial performance and its cash flows for the six month
period then ended in conformity with U.S generally accepted accounting
principles and the Disclosure Guidance and Transparency Rules ("the DTR") of
the UK's Financial Conduct Authority ("the UK FCA").
Emphasis of matter
We draw attention to Note 8 of the Interim Unaudited Financial Statements,
which sets out the requirements outlined in the Company's Articles of
Incorporation that if, in the period from 1 January 2018 to 31 December 2018,
any class of shares trades at an average discount at or in excess of 8% of the
monthly NAV, the Company will hold a vote of the relevant class to discontinue
that class. Any such class discontinuation vote will take place on or prior to
28 February 2019. The average discount to monthly NAV per share for the seven
month period ended 31 July 2018 was approximately 9.5% for both the Sterling
share class and the US Dollar share class. Our conclusion is not modified in
respect of this matter.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. We
read the other information contained in the Interim Report and consider whether
it contains any apparent misstatements or material inconsistencies with the
information in the unaudited interim financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The Interim Report and Unaudited Financial Statements are the responsibility
of, and have been approved by, the directors. The directors are responsible for
preparing the Interim Report and Unaudited Financial Statements in accordance
with the DTR of the UK FCA.
The Interim Unaudited Financial Statements included in this Interim Report have
been prepared in conformity with U.S generally accepted accounting principles.
Our responsibility
Our responsibility is to express to the Company a conclusion on the Interim
Unaudited Financial Statements included in this Interim Report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement letter to assist the Company in meeting the requirements of the DTR
of the UK FCA. Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this 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 for our review work, for
this report, or for the conclusions we have reached.
Barry Ryan
for and on behalf of KPMG CHANNEL ISLANDS LIMITED
Chartered Accountants, Guernsey
20 August 2018
Unaudited Statement of Assets and Liabilities
As at 30 June 2018
30.06.18 31.12.17 30.06.17
(Unaudited) (Audited) (Unaudited)
US$'000 US$'000 US$'000
Assets
Investment in the Master Fund 499,195 464,663 451,222
Master Fund redemption proceeds 100 - -
receivable
Prepaid expenses 95 44 181
Cash and bank balances denominated in 94 189 219
US Dollars
Cash and bank balances denominated in - - 73
Euro
Cash and bank balances denominated in 949 891 1,065
Sterling
Total assets 500,433 465,787 452,760
Liabilities
Performance fees payable (note 4) 1,481 - -
Management fees payable (note 193 197 186
4)
Accrued expenses and other liabilities 151 169 171
Directors' fees payable - 70 99
Administration fees payable (note 4) 24 33 74
Total liabilities 1,849 469 530
Net assets 498,584 465,318 452,230
Number of shares in issue
(note 5)
US Dollar shares 2,739,468 2,782,034 2,849,663
Sterling shares 14,077,945 14,046,048 13,995,456
Net asset value per share (notes 7 and
9)
US Dollar shares US$23.68 US$21.62 US$21.53
Sterling shares GBP23.33 GBP21.47 GBP21.50
See accompanying Notes to the Interim Unaudited Financial Statements.
Signed on behalf of the Board by:
Huw Evans
Chairman
John Le Poidevin
Director
20 August 2018
Unaudited Statement of Operations
For the period from 1 January 2018 to 30 June 2018
01.01.18 01.01.17 01.01.17
to 30.06.18 to to 30.06.17
31.12.17
(Unaudited) (Audited) (Unaudited)
US$'000 US$'000 US$'000
Net investment loss allocated from the Master
Fund
Interest income 2,007 1,190 55
Dividend income (net of withholding
tax:
30 June 2018: 17,643; US$ 31 December 2017: 3 62 26
US$19,017;
30 June 2017: US$5,680)
Expenses (8,946) (12,274) (12,809)
Net investment loss allocated from the (6,936) (11,022) (12,728)
Master Fund
Company income
Fixed deposit income - 2 2
Foreign exchange - 50,659 36,482
gains (note 3)
Total Company income - 50,661 36,484
Company expenses
Performance fees 1,531 - -
(note 4)
Management fees (note 1,190 14,369 13,036
4)
Other expenses 268 1,575 1,223
Directors' fees 135 326 195
Administration fees 46 141 72
(note 4)
Foreign exchange losses 8,249 - -
(note 3)
Total Company 11,419 16,411 14,526
expenses
Net investment (loss) (18,355) 23,228 9,230
/gain
Net realised and unrealised gain/(loss) on investments
allocated from the Master Fund
Net realised gain on 6,681 11,279 2,995
investments
Net unrealised gain/(loss) on 44,940 (29,782) (20,588)
investments
Net realised and unrealised gain/(loss) on 51,621 (18,503) (17,593)
investments
allocated from the Master Fund
Net increase/(decrease) in net assets resulting
from operations 33,266 4,725 (8,363)
See accompanying Notes to the Interim Unaudited Financial Statements.
Unaudited Statement of Changes in Net Assets
For the period from 1 January 2018 to 30 June 2018
01.01.18 01.01.17 01.01.17
to 30.06.18 to to 30.06.17
31.12.17
(Unaudited) (Audited) (Unaudited)
US$'000 US$'000 US$'000
Net increase/(decrease) in net assets resulting
from operations
Net investment (loss)/ (18,355) 23,228 9,230
gain
Net realised gain on investments allocated from the 6,681 11,279 2,995
Master Fund
Net unrealised gain/(loss) on investments allocated from 44,940 (29,782) (20,588)
the Master Fund
33,266 4,725 (8,363)
Tender offer
US Dollar shares - (140,757) (140,757)
Euro shares - (13,908) (13,908)
Sterling shares - (249,585) (249,585)
Total share capital - (404,250) (404,250)
transactions
Net increase/(decrease) in net assets 33,266 (399,525) (412,613)
Net assets at the beginning of the period/year 465,318 864,843 864,843
Net assets at the end of the period/year 498,584 465,318 452,230
See accompanying Notes to the Interim Unaudited Financial Statements.
Unaudited Statement of Cash Flows
For the period from 1 January 2018 to 30 June 2018
01.01.18 01.01.17 01.01.17
to 30.06.18 to to 30.06.17
31.12.17
(Unaudited) (Audited) (Unaudited)
US$'000 US$'000 US$'000
Cash flows from operating activities
Net increase/(decrease) in net assets 33,266 4,725 (8,363)
resulting from operations
Adjustments to reconcile net increase/(decrease) in net
assets resulting from
operations to net cash provided by operating
activities:
Net investment loss allocated from the Master 6,936 11,022 12,728
Fund
Net realised gain on investments allocated from the (6,681) (11,279) (2,995)
Master Fund
Net unrealised (gain)/loss on investments allocated from (44,940) 29,782 20,588
the Master Fund
Increase in Master Fund redemption proceeds (100) - -
receivable
Purchase of investment in the Master Fund - (17,341) (17,341)
Proceeds from sale of investment in the Master 1,739 414,331 412,988
Fund
Foreign exchange losses/(gains) 8,249 (50,659) (36,482)
(Increase)/decrease in prepaid expenses (51) 32 (105)
Increase/(decrease) in performance fees payable 1,481 (318) (318)
Decrease in management fees payable (4) (1,189) (1,200)
(Decrease)/increase in accrued expenses and other (18) 114 115
liabilities
(Decrease)/increase in Directors' fees payable (70) (25) 4
(Decrease)/increase in administration fees (9) (9) 32
payable
Net cash (used in)/provided by operating (202) 379,186 379,651
activities
Cash flows from financing activities
Tender offer - (404,250) (404,250)
Net cash used in financing activities - (404,250) (404,250)
Change in cash (202) (25,064) (24,599)
Cash, beginning of the period/year 1,080 18,903 18,903
Effect of exchange rate fluctuations 165 7,241 7,053
Cash, end of the period/year 1,043 1,080 1,357
Cash, end of the period/year
Cash and bank balances denominated in US Dollars 94 189 219
Cash and bank balances denominated in Euro1 - - 73
Cash and bank balances denominated in Sterling2 949 891 1,065
1,043 1,080 1,357
1. Cash and bank balances in Euro - - 64
(EUR'000)
2. Cash and bank balances in Sterling (GBP'000) 719 664 820
See accompanying Notes to the Interim Unaudited Financial Statements.
Notes to the Interim Unaudited Financial Statements
For the period from 1 January 2018 to 30 June 2018
1. The Company
BH Macro Limited (the "Company") is a limited liability closed-ended investment
company incorporated in Guernsey on 17 January 2007.
The Company was admitted to the Official List of the London Stock Exchange
("LSE") in 2007. It had maintained Secondary listings on the Bermuda Stock
Exchange and NASDAQ Dubai since 2008, but it de-listed from these two stock
exchanges on 30 September 2017 and 31 December 2017, respectively.
Following a tender offer which completed in April 2017, 48% of shares by value
being tendered at 96% of NAV for the relevant class were cancelled. This, in
turn, led to the Company closing the Euro share class, cancelling its listing
and converting the remaining Euro shares into Sterling class shares on 29 June
2017. Currently, ordinary shares are issued in US Dollars and Sterling.
2. Organisation
The Company is organised as a feeder fund and seeks to achieve its investment
objective by investing all of its investable assets, net of short-term working
capital requirements, in the ordinary US Dollar, Euro (up to the point of
closure) and Sterling denominated Class B shares issued by Brevan Howard Master
Fund Limited (the "Master Fund") and, as such, the Company is directly and
materially affected by the performance and actions of the Master Fund.
The Master Fund is an open-ended investment company with limited liability
formed under the laws of the Cayman Islands on 22 January 2003. The investment
objective of the Master Fund is to generate consistent long-term appreciation
through active leveraged trading and investment on a global basis. The Master
Fund employs a combination of investment strategies that focus primarily on
economic change and monetary policy and market inefficiencies. The underlying
philosophy is to construct strategies, often contingent in nature with superior
risk/return profiles, whose outcome will often be crystallised by an expected
event occurring within a pre-determined period of time. New trading strategies
will be added as investment opportunities present themselves.
As such the Interim Unaudited Financial Statements of the Company should be
read in conjunction with the Interim Unaudited Financial Statements of the
Master Fund which can be found on the Company's website, www.bhmacro.com.
At the date of these Interim Unaudited Financial Statements, there were two
other feeder funds in operation in addition to the Company that invest all of
their assets (net of working capital) in the Master Fund. Furthermore, Brevan
Howard Multi-Strategy Master Fund Limited, another fund managed by the Manager,
invests some of its assets in the Master Fund as at the date of these Financial
Statements.
Off-Balance Sheet, market and credit risks of the Master Fund's investments and
activities are discussed in the notes to the Master Fund's Interim Unaudited
Financial Statements. The Company's investment in the Master Fund exposes it to
various types of risk, which are associated with the financial instruments and
markets in which the Brevan Howard underlying funds invest.
Market risk represents the potential loss in value of financial instruments
caused by movements in market factors including, but not limited to, market
liquidity, investor sentiment and foreign exchange rates.
The Manager
Brevan Howard Capital Management LP (the "Manager") is the manager of the
Company. The Manager is a Jersey Limited Partnership, the general partner of
which is Brevan Howard Capital Management Limited, a Jersey Limited Company
(the "General Partner"). The General Partner is regulated in the conduct of
fund services business by the Jersey Financial Services Commission pursuant to
the Financial Services (Jersey) Law 1998 and the Orders made thereunder.
The Manager also manages the Master Fund and in that capacity, as at the date
of these Financial Statements, has delegated the function of investment
management of the Master Fund to Brevan Howard Asset Management LLP, Brevan
Howard (Hong Kong) Limited, Brevan Howard (Israel) Limited, Brevan Howard
Investment Products Limited, Brevan Howard US Investment Management LP, Brevan
Howard Private Limited, DW Partners, LP and BH-DG Systematic Trading LLP.
3. Significant accounting policies
The most recent Annual Audited Financial Statements, which give a true and fair
view, are prepared in conformity with United States Generally Accepted
Accounting Principles and comply with the Companies (Guernsey) Law, 2008. These
Interim Unaudited Financial Statements have been prepared following the same
accounting policies and methods of computation as the most recent Annual
Audited Financial Statements. The functional and reporting currency of the
Company is US Dollars. As further described in the Directors' Report, these
Interim Unaudited Financial Statements have been prepared using the going
concern basis of accounting.
The Company is an Investment Entity which has applied the provisions of
Accounting Standards Codification ("ASC") 946.
The following are the significant accounting policies adopted by the Company:
Valuation of investments
The Company records its investment in the Master Fund at fair value. Fair value
is determined as the Company's proportionate share of the Master Fund's
capital, which approximates fair value. At 30 June 2018, the Company is the
sole investor in the Master Fund's ordinary US Dollar and Sterling Class B
shares as disclosed below. Within the table below, the investment in each share
class in the Master Fund is included, with the overall total investment shown
in the Interim Unaudited Statement of Assets and Liabilities.
Percentage of NAV per Share Shares held in Investment in Investment in
Master Fund's the Master Fund Master Fund Master Fund
capital
(Class B) (Class B) CCY '000 US$'000
30 June 2018
US Dollar 1.95% $3,063.81 21,129 $64,734 64,734
Sterling 13.06% GBP3,175.61 103,626 GBP329,075 434,461
499,195
31 December 2017
US Dollar 1.25% $2,786.39 21,536 $60,007 60,007
Sterling 8.40% GBP2,901.80 103,788 GBP301,173 404,656
464,663
30 June 2017
US Dollar 0.81% $2,763.85 22,133 $61,174 61,174
Sterling 5.11% GBP2,895.64 103,705 GBP300,291 390,048
451,222
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 Interim Unaudited Financial
Statements which are available on the Company's website, www.bhmacro.com.
Income and expenses
The Company records monthly its proportionate share of the Master Fund's
income, expenses and realised and unrealised gains and losses. In addition, the
Company accrues its own income and expenses.
Use of estimates
The preparation of Financial Statements in conformity with United States
Generally Accepted Accounting Principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of those Financial
Statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Leverage
The Manager has discretion, subject to the prior approval of a majority of the
independent Directors, to employ leverage for and on behalf of the Company by
way of borrowings to effect share purchases or share buy-backs, to satisfy
working capital requirements and to finance further investments in the Master
Fund.
The Company may borrow up to 20% of its NAV, calculated as at the time of
borrowing. Additional borrowing over 20% of NAV may only occur if approved by
an ordinary resolution of the Shareholders.
Foreign exchange
Investment securities and other assets and liabilities of the Sterling share
class and, up until its closure, the Euro share class, are, or were, translated
into US Dollars, the Company's reporting currency, using exchange rates at the
reporting date. Transactions reported in the Unaudited Statement of Operations
are translated into US Dollar amounts at the date of such transactions. The
share capital and other capital reserve accounts are translated at the historic
rate ruling at the date of the transaction. Exchange differences arising on
translation are included in the Unaudited Statement of Operations. This
adjustment has no effect on the value of net assets allocated to the individual
share classes.
Cash and bank balances
Cash and bank balances comprise demand deposits.
Allocation of results of the Master Fund
Net realised and unrealised gains/losses of the Master Fund are allocated to
the Company's share classes based upon the percentage ownership of the
equivalent Master Fund class.
Treasury shares
Where the Company has purchased its own share capital, the consideration paid,
which includes any directly attributable costs, has been recognised as a
deduction from equity Shareholders' funds through the Company's reserves.
If such shares were to be subsequently sold or reissued to the market, any
consideration received, net of any directly attributable incremental
transaction costs, would be recognised as an increase in equity Shareholders'
funds through the share capital account. Where the Company cancels treasury
shares, no further adjustment is required to the share capital account of the
Company at the time of cancellation. Shares held in treasury are excluded from
calculations when determining NAV per share as detailed in note 7 and in the
Financial Highlights in note 9.
Refer to note 8 for details of changes to the purchases by the Company of its
share capital.
4. Management, performance and administration agreements
Management and performance fee
The Company has entered into a management agreement with the Manager to manage
the Company's investment portfolio. The management fee charged by the Company
is reduced by the Company's share of management fees incurred by the Master
Fund through any underlying investments of the Master Fund that share the same
Manager as the Company. The investment in the Class B shares of the Master Fund
is not subject to management fees, but is subject to an operational services
fee payable to the Manager of 1/12 of 0.5% per month of the NAV.
The Manager does not charge the Company a management fee in respect of any
increase in the NAV of each class of shares above the NAV at 3 October 2016
resulting from performance or any own share purchases or redemptions. The
Company's investment in the Master Fund also will not bear an operational
services fee in respect of performance related growth in its investment in the
Master Fund from 3 October 2016.
The following changes were made to the Company's structure and Management
Agreement with effect from 1 April 2017:
* the management fee was reduced to 1/12 of 0.5% per month of the NAV
(previously 1/12 of 2%);
* the investment in the Class B shares of the Master Fund remains subject to
an operational services fee of 1/12 of 0.5% per month of the NAV; and
* the management fee and operational services fee concession described above
will continue to apply in respect of performance related growth in the
Company's NAV for each class of share in excess of its level on 1 April
2017 as if the Tender Offer had completed on that date.
During the period ended 30 June 2018, US$1,190,736 (31 December 2017:
US$14,368,940 and 30 June 2017: US$13,036,669) was earned by the Manager as net
management fees. At 30 June 2018, US$193,118 (31 December 2017: US$197,034 and
30 June 2017: US$185,603) of the fee remained outstanding.
In the prior year, the Management fee charge included a balance of US$8,350,050
which was incurred in accordance with the terms of the Tender Offer that
concluded on 25 April 2017. There was no additional charge in the current
period. Under the terms of the Tender Offer, the Manager was entitled to a fee
of 2% of the NAV of the shares tendered, instead of 4% that would have been
payable had the Company served notice of termination of the management
agreement between the Company and the Manager on less than 24 months' notice.
The Manager is also entitled to an annual performance fee for 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 period ended 30 June 2018, US$1,530,947 (31 December 2017:
US$Nil and 30 June 2017: US$Nil) was earned by the Manager as performance fees.
At 30 June 2018, US$1,480,830 (31 December 2017: US$Nil and 30 June 2017:
US$Nil) of the fee remained outstanding.
The Master Fund may hold investments in other funds managed by the Manager. To
ensure that Shareholders of the Company are not subject to two tiers of fees,
the fees paid to the Manager as outlined above are reduced by the Company's
share of any fees paid to the Manager by the underlying Master Fund
investments, managed by the Manager.
The Management Agreement may be terminated by either party giving the other
party not less than 24 months' written notice. In certain circumstances the
Company will be obliged to pay compensation to the Manager of the aggregate
management fees which would otherwise have been payable during the 24 months
following the date of such notice and the aggregate of any accrued performance
fee in respect of the current Calculation Period. Compensation is not payable
if more than 24 months' notice of termination is given.
Under the terms of the Tender Offer, the notice period for termination of the
Management Agreement without cause by both the Company and the Manager will be
reduced from 24 months to three months, with effect from 1 April 2019.
Administration fee
The Company has appointed Northern Trust International Fund Administration
Services (Guernsey) Limited as Administrator and Corporate Secretary. The
Administrator is paid fees based on the NAV of the Company, payable quarterly
in arrears. The fee is at a rate of 0.015% of the average month end NAV of the
Company, subject to a minimum fee of GBP67,500 per annum. In addition to the NAV
based fee, the Administrator is also entitled to an annual fee of GBP6,000 (31
December 2017 and 30 June 2017: GBP36,000) 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 period ended 30 June 2018, US$46,444 (31 December 2017: US$140,721
and 30 June 2017: US$72,210) was earned by the Administrator as administration
fees. The amounts outstanding are disclosed on the Unaudited Statement of
Assets and Liabilities.
5. Share capital
Issued and authorised share capital
The Company has the power to issue an unlimited number of ordinary shares with
no par value and an unlimited number of shares with a par value. Shares may be
divided into at least two classes denominated in US Dollar and Sterling,
following the Euro share class closure. Further issue of shares may be made in
accordance with the Articles. Shares may be issued in differing currency
classes of ordinary redeemable shares including C shares. The treasury shares
have arisen as a result of the discount management programme as described in
note 8. The tables below show the movement in ordinary and treasury shares.
For the period from 1 January 2018 to 30 June 2018
US Dollar shares Euro shares* Sterling
shares
Number of ordinary shares
In issue at 1 January 2018 2,782,034 - 14,046,048
Share conversions (42,566) - 31,897
In issue at 30 June 2018 2,739,468 - 14,077,945
Number of treasury shares
In issue at 1 January 2018 and 30 331,228 - 1,450,652
June 2018
Percentage of class 10.79% - 9.34%
For the year ended to 31 December 2017
US Dollar shares Euro shares* Sterling
shares
Number of ordinary shares
In issue at 1 January 2017 9,975,524 1,514,872 22,371,669
Share conversions (261,016) (890,769) 954,079
Tender offer shares transferred to (6,932,474) (624,103) (9,279,700)
treasury (note 8)
In issue at 31 December 2017 2,782,034 - 14,046,048
Number of treasury shares
In issue at 1 January 2017 1,406,228 271,854 2,650,652
Tender offer shares transferred to 6,932,474 624,103 9,279,700
treasury (note 8)
Shares cancelled (1,075,000) (271,854) (1,200,000)
Tender offer shares cancelled (6,932,474) (624,103) (9,279,700)
(note 8)
In issue at 31 December 2017 331,228 - 1,450,652
Percentage of class 10.64% - 9.36%
Number of ordinary shares US Dollar shares Euro shares* Sterling
shares
In issue at 1 January 2017 9,975,524 1,514,872 22,371,669
Share conversions (193,387) (890,769) 903,487
Tender offer shares transferred to treasury (6,932,474) (624,103) (9,279,700)
(note 8)
In issue at 30 June 2017 2,849,663 - 13,995,456
Number of treasury shares
In issue at 1 January 2017 1,406,228 271,854 2,650,652
Tender offer shares transferred to treasury 6,932,474 624,103 9,279,700
(note 8)
Shares cancelled (1,075,000) (271,854) (1,200,000)
Tender offer shares cancelled (6,932,474) (624,103) (9,279,700)
(note 8)
In issue at 30 June 2017 331,228 - 1,450,652
Percentage of class 10.41% - 9.39%
*The Euro share class closed on 29 June 2017
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 21 June
2018, the Directors have the power to issue further shares totaling 919,366 US
Dollar shares and 4,687,366 Sterling shares, respectively. This power expires
fifteen months after the passing of the resolution or on the conclusion of the
next Annual General Meeting of the Company, whichever is earlier, unless such
power is varied, revoked or renewed prior to that Meeting by a resolution of
the Company in general meeting.
Distributions
The Master Fund has not previously paid dividends to its investors. This does
not prevent the Directors of the Company from declaring a dividend at any time
in the future if the Directors consider payment of a dividend to be appropriate
in the circumstances. If the Directors declare a dividend, such dividend will
be paid on a per class basis.
As announced on 15 January 2014, the Company intends to be operated in such a
manner to ensure that its shares are not categorised as non-mainstream pooled
investments. This may mean that the Company may pay dividends in respect of any
income that it receives or is deemed to receive for UK tax purposes so that it
would qualify as an investment trust if it were UK tax-resident.
Further, the Company will first apply any such income in payment of its
management and performance fees.
Treasury shares are not entitled to distributions.
Share conversion scheme
The Company has implemented a Share Conversion Scheme. The scheme provides
Shareholders with the ability to convert some or all of their ordinary shares
in the Company of one class into ordinary shares of the other class.
Shareholders are able to convert ordinary shares on the last business day of
every month. Each conversion will be based on the NAV (note 7) of the shares of
the class to be converted.
6. Taxation
Overview
The Company is exempt from taxation in Guernsey under the provisions of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989.
Uncertain tax positions
The Company recognises the tax benefits of uncertain tax positions only where
the position is more-likely-than- not (i.e. greater than 50%), to be sustained
assuming examination by a tax authority based on the technical merits of the
position. In evaluating whether a tax position has met the recognition
threshold, the Company must presume that the position will be examined by the
appropriate taxing authority that has full knowledge of all relevant
information. A tax position that meets the more-likely-than-not recognition
threshold is measured to determine the amount of benefit to recognise in the
Company's Interim Unaudited Financial Statements. Income tax and related
interest and penalties would be recognised by the Company as tax expense in the
Interim Unaudited Statement of Operations if the tax positions were deemed not
to meet the more-likely-than-not threshold.
The Company analyses all open tax years for all major taxing jurisdictions.
Open tax years are those that are open for examination by taxing authorities,
as defined by the Statute of Limitations in each jurisdiction. The Company
identifies its major tax jurisdictions as the Cayman Islands and foreign
jurisdictions where the Company makes significant investments. The Company has
no examinations by tax authorities in progress.
The Directors have analysed the Company's tax positions, and have concluded
that no liability for unrecognised tax benefits should be recorded related to
uncertain tax positions. Further, the Directors are not aware of any tax
positions for which it is reasonably possible that the total amounts of
unrecognised tax benefits will significantly change in the next twelve months.
7. Publication and calculation of Net Asset Value ("NAV")
The NAV of the Company is equal to the value of its total assets less its total
liabilities. The NAV per share of each class will be calculated by dividing the
NAV of the relevant class account by the number of shares of the relevant class
in issue on that day.
The Company publishes the NAV per share for each class of shares as calculated
by the Administrator based in part on information provided by the Master Fund,
monthly in arrears, as at each month-end.
The Company also publishes an estimate of the NAV per share for each class of
shares as calculated by the Administrator based in part on information provided
by the Master Fund, weekly in arrears.
8. Discount management programme
The Company has previously implemented a number of methods in order to seek to
manage any discount to NAV at which the Company's shares trade.
Market purchases
Until October 2016, the Company regularly utilised its ability to make market
purchases of its shares as part of the discount management programme. The
purchase of these shares was funded by the Company redeeming underlying shares
in the Master Fund. The number of shares held in treasury as at 30 June 2018
are disclosed in note 5.
However, following completion of the Tender Offer in April 2017, the Company is
no longer permitted to redeem its investment in the Master Fund to finance
own-share purchases until 1 April 2019. The Company, therefore, does not intend
to make any own-share purchases before that date. The Company would be required
to pay a redemption fee to the Master Fund of 10% on any other redemptions from
the Master Fund (except for any redemptions required by the Company for working
capital purposes, in which case no fee will apply).
Tender offer
On 29 November 2016, the Company announced a tender offer to acquire up to 100%
of each class of the Company's issued shares at a price equivalent to 96% of
NAV for the relevant class.
This Tender Offer was approved by Shareholders at meetings in February and
March 2017 and Shareholders holding 52% of the Company's shares by prevailing
NAV chose to remain invested in the Company, with the remaining 48% of shares
by value being tendered for purchase at 96% of NAV. The acquisition of shares
pursuant to the Tender Offer was completed on 25 April 2017. Shares purchased
in the tender were cancelled.
Annual offer of partial return of capital
Under the Company's Articles of Incorporation, once in every calendar year the
Directors had discretion to determine that the Company make an offer of a
partial return of capital in respect of such number of shares of the Company in
issue as they determined, provided that the maximum amount distributed did not
exceed 100% of the increase in NAV of the Company in the prior calendar year.
The Directors had discretion to determine the particular class or classes of
shares in respect of which a partial return of capital would be made, the
timetable for that partial return of capital and the price at which the shares
of each relevant class were returned.
The decision to make a partial return of capital in any particular year and the
amount of the return depended, among other things, on prevailing market
conditions, the ability of the Company to liquidate its investments to fund the
capital return, the success of prior capital returns and applicable legal,
regulatory and tax considerations.
As part of the Tender Offer that completed in April 2017 and changes to the
Company's structure, the annual partial capital return provisions have been
disapplied for the years ending 31 December 2016, 2017 and 2018.
Class closure resolutions
Also under the Articles of Incorporation, the Company had an obligation to
propose class closure resolutions if, in any fixed discount management period
(1 January to 31 December each year), the average daily closing market price of
the relevant class of shares during such period was 10% or more below the
average NAV per share of the relevant class taken over the 12 monthly NAV
Determination Dates in that fixed discount management period. As part of the
Tender Offer that completed in April 2017 and changes to the Company's
structure, these class closure provisions have also been disapplied for the
years ending 31 December 2016, 2017 and 2018.
However if, in the period from 1 January 2018 to 31 December 2018, any class of
shares trades at an average discount at or in excess of 8% of the monthly NAV,
the Company will hold a vote of the relevant class to discontinue that class.
Any such class discontinuation vote will take place on or prior to 28 February
2019.
In that event and if a Class Discontinuation Vote is passed by three-quarters
of the votes cast on the resolution, holders of shares of the relevant class
will be able to opt to receive:
* 97.5 per cent of the NAV per share of the relevant class as at 31 March
2019 (with the remaining 2.5% of the NAV per share being retained by the
Master Fund); or
* 50 per cent of the NAV per share of the relevant class as at 31 March 2019
and 50% of the NAV per share as at 30 June 2019.
From 1 April 2019, the Company's class closure provisions and annual partial
capital return will be reinstated and applicable in respect of the twelve month
period ending on 31 December 2019 and thereafter, except that the relevant
trigger for the class closure provisions will be 8% discount to the net asset
value of the relevant class of shares over the relevant period, instead of the
previous 10% threshold.
The arrangements are described more fully in the Company's principal documents
which were approved at the EGM on 24 February 2017. The average discount at
which each of the Company's Sterling and US Dollar shares have traded in
relation to monthly NAV per share so far this year has been approximately 9.5%.
9. Financial highlights
The following tables include selected data for a single ordinary share of each
of the ordinary share classes in issue at 30 June 2018 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.
30.06.18 30.06.18 30.06.18
US Dollar Euro shares^ Sterling
shares shares
US$ EUR GBP
Per share operating
performance
Net asset value at beginning of 21.62 - 21.47
the period
Income from investment
operations
Net investment loss* (0.39) - (0.47)
Net realised and unrealised gain 2.45 - 2.33
on investment
Other capital items** - - -
Total gain 2.06 - 1.86
Net asset value, end of the 23.68 - 23.33
period
Total income before 9.63% - 9.07%
performance fee
Performance fee (0.05%) - (0.37%)
Total gain after performance 9.58% - 8.70%
fee
An individual Shareholder's return may vary from these returns based on the
timing of their purchase or sale of shares. All figures contained herein in
repeat of the period ended 30 June 2018 are not annualised.
30.06.18 30.06.18 30.06.18
US Dollar Euro shares Sterling
shares ^ shares
US$'000 EUR'000 GBP'000
Supplemental data
Net asset value, end of the 64,882 - 328,499
period
Average net asset value for the 62,728 - 313,433
period
30.06.18 30.06.18 30.06.18
US Dollar Euro shares^ Sterling
shares shares
Ratio to average net assets
Operating expenses
Company expenses*** 0.31% - 0.34%
Master Fund expenses 0.96% - 0.97%
****
Master Fund interest 0.85% - 0.86%
expense*****
Performance fee 0.02% - 0.36%
2.14% - 2.53%
Net investment loss before (1.71%) - (1.75%)
performance fee*
Net investment loss after performance (1.73%) - (2.11%)
fees*
31.12.17 31.12.17 31.12.17
US Dollar Euro shares^ Sterling
shares shares
US$ EUR GBP
Per share operating
performance
Net asset value at beginning of the 21.68 21.87 22.44
year/period
Income from investment
operations
Net investment loss* (1.80) (1.03) (1.01)
Net realised and unrealised loss (0.71) (0.74) (0.83)
on investment
Other capital items** 2.45 1.10 0.87
Total return (0.06) (0.67) (0.97)
Net asset value, end of the 21.62 21.20 21.47
year/period
Total loss before (0.30%) (3.07%) (4.35%)
performance fee
Total loss after performance (0.30%) (3.07%) (4.35%)
fee
Total return reflects the net return for an investment made at the beginning of
the year and is calculated as the change in the NAV per ordinary share during
the year from 1 January 2017 to 31 December 2017. An individual shareholder's
return may vary from these returns based on the timing of their purchase or
sale of shares.
31.12.17 31.12.17 31.12.17
US Dollar Euro shares^^ Sterling
shares shares
US$'000 EUR'000 GBP'000
Supplemental data
Net asset value, end of the year/ 60,136 - 301,565
period
Average net asset value for the year/ 99,784 21,875 348,983
period
31.12.17 31.12.17 31.12.17
US Dollar Euro shares Sterling
shares shares
Ratio to average net assets
Operating expenses
Company expenses*** 4.52% 2.25% 2.52%
Master Fund expenses* 1.41% 0.53% 1.31%
***
Master Fund interest 1.19% 1.48% 0.74%
expense*****
7.12% 4.26% 4.57%
Net investment loss before performance (6.98%) (4.28%) (4.33%)
fee*
Net investment loss after performance (6.98%) (4.28%) (4.33%)
fees*
30.06.17 30.06.17 30.06.17
US Dollar Euro shares^ Sterling
shares shares
US$ EUR GBP
Per share operating
performance
Net asset value at beginning of the 21.68 21.87 22.44
period
Income from investment
operations
Net investment loss* (1.44) (1.03) (0.94)
Net realised and unrealised loss on (0.63) (0.74) (0.82)
investment
Other capital items** 1.92 1.10 0.82
Total (0.15) (0.67) (0.94)
loss
Net asset value, end of the 21.53 21.20 21.50
period
Total loss before performance (0.69%) (3.07%) (4.19%)
fee
Total loss after performance (0.69%) (3.07%) (4.19%)
fee^
An individual shareholder's return may vary from these returns based on the
timing of their purchase or sale of shares. All figures contained herein in
repeat of the period ended 30 June 2017 are not annualised.
30.06.17 30.06.17^^ 30.06.17
US Dollar Euro shares^ Sterling
shares shares
US$'000 EUR'000 GBP'000
Supplemental data
Net asset value, end of the 61,347 - 300,934
period
Average net asset value for the 138,239 21,875 394,978
period
30.06.17 30.06.17 30.06.17
US Dollar Euro shares^ Sterling
shares shares
Ratio to average net assets
Operating expenses
Company expenses*** 3.09% 2.25% 1.95%
Master Fund expenses 0.53% 0.53% 0.52%
****
Master Fund interest 1.53% 1.48% 1.38%
expense*****
5.15% 4.26% 3.85%
Net investment loss before (5.17%) (4.28%) (3.82%)
performance fee*
Net investment loss after (5.17%) (4.28%) (3.82%)
performance fees*
Notes
* The net investment loss figures disclosed above, does not include net
realised and unrealised gains/losses on investments allocated from the Master
Fund.
** Included in other capital items are the discounts and premiums on
conversions between share classes and on the sale of treasury shares as well as
any partial capital return effected in the relevant period/year as compared to
the NAV per share at the beginning of the period/year.
*** Company expenses are as disclosed in the Unaudited Statement of
Operations excluding the performance fee and foreign exchange gains/losses.
**** Master Fund expenses are the operating expenses of the Master Fund
excluding the interest and dividend expenses of the Master Fund.
***** Master Fund interest expense includes interest and dividend expenses
on investments sold short.
^ Net asset value and returns on the Euro share class have been
calculated up to 31 May 2017, which was the NAV date preceding the conversion
of shares to the Sterling share class.
^^ The average Euro share class net asset value for the year is
calculated based on published NAVs from the start of the year up to the Euro
share class closure.
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 GBP
400,000 per annum. Changes to the annual fees were made at the Board meeting
held on 23 June 2017. Effective from 1 July 2017, the annual fees are GBP65,000
for the Chairman, GBP47,500 for Chair of the Audit Committee, GBP45,000 for each of
the Chair of the Management Engagement Committee and the Senior Independent
Director.
As at 30 June 2018, Huw Evans held 5,270 shares (31 December 2017: 3,337
shares) in the Sterling share class.
11. Subsequent events
The Directors have evaluated subsequent events up to 20 August 2018, which is
the date that the Interim Unaudited Financial Statements were available to be
issued, and have concluded there are no further items that require disclosure
or adjustment to the Interim Unaudited Financial Statements.
Historic Performance Summary
As at 30 June 2018
30.06.18 31.12.17 31.12.16 31.12.15 31.12.14
US$'000 US$'000 US$'000 US$'000 US$'000
Net increase/(decrease) in net 33,266 4,725 (150,245) (91,220) (122,858)
assets resulting from operations
Total assets 500,433 465,787 866,740 1,499,648 1,768,337
Total liabilities (1,849) (469) (1,897) (4,755) (5,519)
Net assets 498,584 465,318 864,843 1,494,893 1,762,818
Number of shares in
issue
US Dollar shares 2,739,468 2,782,034 9,975,524 17,202,974 18,332,029
Euro shares - - 1,514,872 4,163,208 5,112,916
Sterling shares 14,077,945 14,046,048 22,371,669 33,427,871 37,717,793
Net asset value per
share
US Dollar shares US$23.68 US$21.62 US$21.68 US$20.33 US$20.62
Euro shares - - EUR21.87 EUR20.56 EUR20.72
Sterling shares GBP23.33 GBP21.47 GBP22.44 GBP21.21 GBP21.40
Company Information
Directors
Huw Evans
Claire Whittet
Colin Maltby
John Le Poidevin
(All Directors are non-executive and independent for the purpose of Listing
Rule 15.2.12-A)
Registered Office
PO Box 255
Trafalgar Court Les Banques
St Peter Port Guernsey
Channel Islands GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier Jersey
Channel Islands JE2 3QA
For the latest information
www.bhmacro.com
Administrator and Corporate Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 3QL
Independent Auditor
KPMG Channel Islands Limited Glategny Court,
Glategny Esplanade St Peter Port
Guernsey
Channel Islands GY1 1WR
Registrar and CREST Service Provider
Computershare Investor Services (Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey
Channel Islands GY1 4BZ
Legal Advisors (UK Law)
Hogan Lovells International LLP Atlantic House
Holborn Viaduct
London EC1A 2FG
Corporate Broker
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Tax Adviser
Deloitte LLP
PO Box 137
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
Channel Islands GY1 3HW
END
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August 20, 2018 12:50 ET (16:50 GMT)
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