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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Pacific Allian. | LSE:PAX | London | Ordinary Share | KYG6846J1067 | ORD USD0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.775 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMPAX
RNS Number : 6169D
Pacific Alliance Asia Opp Fd Ld
30 April 2013
30 April 2013
Pacific Alliance Asia Opportunity Fund Limited
Full year results for the year ended 31 December 2012
Pacific Alliance Asia Opportunity Fund Limited ("PAX" or the "Company") (AIM: PAX), an AIM traded feeder fund for the Pacific Alliance Asia Opportunity Fund L.P. (the "Master Fund"), today announces its audited full year financial results to 31 December 2012.
Financial Highlights
-- Net asset value as at 31 December 2012 was US$168.8 million, representing US$1.485 per share, a 9.18% increase from 31 December 2011 (US$175.0 million, representing US$1.360 per share). Retained earnings as at 31 December 2012 were US$70.9 million (US$55.6 million as at 31 December 2011).
-- The Master Fund generated a net return of 9.52% for 2012 (2011: -0.92%). During the same period, the Shanghai Composite Index gained 3.17%, the Eureka Hedge Asian Hedge Fund Index added 11.85% and the MSCI AC Far East Ex-Japan was up 19.00%.
Portfolio and Company Developments
-- A significant portfolio shift to the credit strategies at the end of 2011 provided the Master Fund with a steady income-driven return in 2012, generating attractive risk adjusted returns derived from continued banking dislocation in the region. As global markets show early signs of recovery, the Master Fund will look to slightly reduce its target allocation to credit strategies, from over 70-80% allocated to Bridge Financing and Distressed/Secondary investments to around 60-70% to allow for greater optionality in the portfolio.
-- The Distressed/Secondary strategy performed well in 2012, and the Investment Manager intends to keep a full allocation of around 20-30% of the portfolio as opportunities continue to arise from banks, financial institutions and hedge funds reducing exposure and selling off non-core Asian assets at significant discounts.
-- The Public/Event Driven Arbitrage strategies performed in line with expectations during the year, generating gains while holding a market neutral stance in response to 2012 market volatility.
-- PAX distributed a total of 12% of NAV via two 6% distributions during 2012 by way of tender offers, as announced on 8 June and 15 October 2012. The Company plans to announce a further 6% distribution by way of a tender offer in June 2013.
Chris Gradel, PAG Managing Partner, Absolute Returns, said that while there were positive signs of recovery in global markets towards the end of 2012, the uncertainty and volatility that persisted through much of the year continued to create opportunities for consistent income and attractive gains in credit strategies.
"We entered 2012 with a portfolio heavily weighted towards credit strategies which continued to benefit from dramatic market inefficiencies and dislocations. As global markets show signs of greater stability and early recovery, we expect to reduce this exposure slightly in 2013 to capitalize on emerging opportunities in other areas including primary financing and, potentially, public equity strategies. We have ample cash to invest and are well placed to continue to evolve the portfolio to generate attractive yields in the year ahead."
A full copy of the Annual Report will be distributed to all registered shareholders and will be available on the Company's website: www.pax-fund.com. Copies of the Master Fund's Audit Report will be available upon request.
For further information please contact:
MANAGER: LEGAL COUNSEL: Chris Gradel, Managing Jon Lewis, General Partner Counsel PAG PAG T: (852) 2918 0088 T: (852) 2918 0088 cgradel@pagasia.com jlewis@pagasia.com -------------------------- ---------------------------- BROKER: NOMINATED ADVISER: Hiroshi Funaki Philip Secrett LCF Edmond de Rothschild Grant Thornton Corporate Securities Finance T: (44) 20 7845 5960 T: (44) 20 7383 5100 funds@lcfr.co.uk Philip.J.Secrett@uk.gt.com -------------------------- ---------------------------- MEDIA RELATIONS: Stephanie Barry PAG T: (852) 3719 3375 sbarry@pagasia.com/ -------------------------- ----------------------------
About Pacific Alliance Asia Opportunity Fund Limited
Pacific Alliance Asia Opportunity Fund Limited (AIM: PAX) serves as a feeder fund for Pacific Alliance Asia Opportunity Fund L.P. (the "Master Fund"), a Cayman Islands exempted limited partnership. PAX was admitted to trading on the AIM Market of the London Stock Exchange in September 2006.
The principal investment objective of both PAX and the Master Fund is to provide their respective investors with capital appreciation through value, arbitrage and special situations investments in Asian markets. Target investments include distressed credit, private equity secondaries, activist investments and other opportunities offering the possibility of unlocking the underlying value of a company or asset.
For more information about PAX, please visit: www.pax-fund.com
Pacific Alliance Asia Opportunity Fund Limited is managed by PAG (formerly known as Pacific Alliance Group), which is one of the region's largest Asia-focused alternative investment managers, with funds under management across Private Equity, Real Estate and Absolute Return strategies. Founded in 2002, PAG now has a presence across Asia with over 320 staff working in the region.
For more information about PAG, please visit: www.pagasia.com
CHAIRMAN'S STATEMENT
Pacific Alliance Asia Opportunity Fund Limited (the "Company") generated an audited net return of 9.18% for the twelve months ended 31 December 2012 with the NAV per share at US$1.485.
During 2012 the Company distributed 12% of NAV via two 6% distributions by way of tender offers, as announced on 8 June and 15 October 2012. The Company plans to announce the next 6% distribution by way of a tender offer in Q2 2013.
The Pacific Alliance Asia Opportunity Fund L.P. (the "Master Fund") - General Partner's Report
The Master Fund generated a net return of +9.52% for 2012. During the year, the Shanghai Composite Index gained 3.17%, the Eureka Hedge Asian Hedge Fund Index added 11.85% and the MSCI AC Far East Ex-Japan was up 19.00%. The significant portfolio shift to the credit strategies at the end of 2011 provided a steady income driven return for the year. The Investment Manager believes that the Master Fund generated attractive risk adjusted returns during 2012, and is focused on making the business even stronger going forward.
Though the macro environment was filled with uncertainties and volatility at the beginning of 2012, the market stabilized and powered higher in the fourth quarter driven by increased liquidity globally. Market sentiment has improved over the last several months, with some positive signs of recovery in the global market. The US economy and markets have generated impressive gains with continued Federal Reserve driven liquidity and investors' frustrating search for yield. Despite some positive momentum in Europe last year, we expect volatile headlines to create opportunities for the Master Fund in Asia, through continued asset sales from the banks. China economic numbers have been encouraging and the new leadership seems to be making moves that are constructive for the further development of the capital markets. Overall, the markets seem a bit more sanguine as we enter 2013 so despite the Master Fund's conservative stance, the Investment Manager has shifted exposures slightly to create more optionality at the expense of fixed return.
We see this year as an evolution for the Master Fund rather than a revolution in terms of strategy allocation. As indicated above, we expect to slightly reduce the Master Fund's target allocation to credit strategies, from over 70-80% allocated to Bridge Financing and Distressed/Secondary investments to around 60-70% of the portfolio. These strategies have provided attractive risk/rewards in the past years as they benefit from a significant banking dislocation in the region. The Investment Manager continues to see interesting primary financing opportunities in China and Australia, and will therefore maintain a meaningful exposure to the strategy in 2013. As in 2012, this should provide a steady uncorrelated income base for the Master Fund for 2013.
The Distressed/Secondary strategy performed well in 2012 and the Investment Manager intends to keep a full allocation of around 20-30% of the portfolio. The Investment Manager remains excited about the opportunity set as banks, financial institutions and hedge funds continued to reduce exposure and sell off non-core Asian assets at a significant discount. The Investment Manager expects sales activities to persist, with European banks facing stricter capital requirements under the Basel III regulation. The Investment Manager is in a number of exclusive discussions with motivated sellers of Asian credit portfolios, and expects to find several attractive investments in this space over the next year.
The Public/Event Driven Arbitrage strategies also performed in line with expectations during 2012. Due to market volatility, the Master Fund has maintained a market neutral stance for this strategy, but still managed to generate gains. The Investment Manager is hopeful that the Master Fund will be able to benefit from the improved macro environment in the region. This is particularly true with respect to Japan and the Japan equity long short portfolio, which is expected to be increased from 5% allocation at the end of 2012 to approximately 15%. To the extent that we see more opportunities, we may further increase the allocation to public equity strategies.
On the business side, the Investment Manager has no plans for major changes and will as always, look to opportunistically strengthen its team and infrastructure. With the strong pipeline of new deals the team is working on, the Investment Manager is cautiously optimistic for 2013.
Summary
The Board remains confident that the Master Fund portfolio has been well positioned during 2012 to suit the current market environment and to generate attractive yields through 2013 and beyond.
John Alexander
Chairman
INVESTMENT MANAGER'S REPORT
Portfolio Performance
As at 31 December 2012, the Company's audited net asset value per share ("NAV") was US$1.485, a 9.18% increase from the 31 December 2011 audited financial statements. The Company's share price closed on 31 December 2012 at US$1.265, a 10.97% increase from 31 December 2011.
The Company invests substantially all of its assets in Pacific Alliance Asia Opportunity Fund L.P., a Cayman Islands limited partnership (the "Master Fund") via Pacific Alliance Asia Opportunity Feeder Fund III Limited (the "Feeder Fund").
Realized and Unrealized Income
Total income for the period from 1 January 2012 to 31 December 2012 was US$15,995,198.
Hot Features
Premium
Realized Income/ (Loss) US$
Investment in Master Fund 4,851,746
Deposit Interest 399
Foreign Exchange (377)
------------------
Total 4,851,768
Unrealized Appreciation US$
Investment in Master Fund 11,143,430
------------------
Total 11,143,430
Master Fund Portfolio and Performance as at 31 December 2012
As at 31 December 2012, the Master Fund's net asset value ("NAV") was US$1.623 per US$1.00 capital contributed, a 9.52% increase from the 31 December 2011 audited financial statements.
Realized and Unrealized Income for the Master Fund
Total income for the period from 1 January 2012 to 31 December 2012 was US$279,531,013.
Realized Income/(Losses) US$
Bridge Financing Income 57,626,013
Distressed 20,160,785
Closed-end Funds 6,405,579
Foreign Exchange 5,927,077
Deposit Interest 2,213,967
Dividend Income 2,126,716
Pre-IPO Investments (246,086)
Forward Contracts (818,558)
Listed Portfolio (2,130,210)
Total 91,265,283
==========
Unrealized Appreciation/(Depreciation) US$
Distressed 102,690,578
Bridge Financing Income 97,103,402
Listed Portfolio 1,642,745
Pre-IPO Investments 720,407
Closed-end Funds 318,128
Foreign Exchange (14,209,530)
Total 188,265,730
===========
Master Fund Portfolio Summary
As at 31 December 2012, the Master Fund held investments and cash with a carrying value of US$1,990 million. The Master Fund portfolio is diversified across several strategies including Bridge Financing, Distressed/Secondary, Pre-IPO Investment, Event Driven, Relative Value/Arbitrage and Cash.
Fair Value
of Investment
Type of Investment (US$) % of Total
Bridge Financing(1) 1,020,236,136 51.26%
Distressed/ Secondary 560,464,598 28.17%
Pre-IPO Investment 86,966,046 4.37%
Event Driven, Relative Value/
Arbitrage 67,409,955 3.39%
Cash 254,848,571 12.81%
Total 1,989,925,306 100.00%
(1) The allocation by strategy as per the GP's report differs from the Master Fund's Auditor report investment schedule. The cost of the loans receivable disclosed in the Audit report investment schedule represents the cost of investments for accounting purposes, which are higher than the respective cost of the loans according to the terms under the loan agreements. Collection/Repayment of loans receivable is calculated based upon the effective interest method in the Audit report investment schedule, whereas in the GP's report and newsletter, the cost is reduced prior to a reduction of interest in accordance with the definitive agreements.
Breakdown of Investment Breakdown of Investment
Holdings by Cash and Holdings by Cash and
Industry Geography
------------------------------------- --------------------------------
Cash and Industry % of Total Cash and Geography % of Total
------------------------ ----------- ------------------- -----------
Property - Commercial 39.91% Greater China 72.81%
------------------------ ----------- ------------------- -----------
Property - Residential 16.04% Cash 12.81%
------------------------ ----------- ------------------- -----------
Cash 12.81% Australia 5.74%
------------------------ ----------- ------------------- -----------
Food 9.47% Japan 5.58%
------------------------ ----------- ------------------- -----------
Manufacturing 6.45% India 1.12%
------------------------ ----------- ------------------- -----------
Event Driven,
Relative value/
Arbitrage 3.13% Korea 1.10%
------------------------ ----------- ------------------- -----------
Transportation 2.81% New Zealand 0.39%
------------------------ ----------- ------------------- -----------
Agriculture 2.24% Vietnam 0.34%
------------------------ ----------- ------------------- -----------
Financial Services 1.95% Indonesia 0.05%
------------------------ ----------- ------------------- -----------
Materials 1.33% Taiwan 0.03%
------------------------ ----------- ------------------- -----------
Health Care 1.32% Singapore 0.02%
------------------------ ----------- ------------------- -----------
Energy 0.76% Thailand 0.01%
------------------------ ----------- ------------------- -----------
Industrials 0.69% 100.00%
------------------------ ----------- ------------------- -----------
Utilities 0.66%
------------------------ -----------
Mining 0.32%
------------------------ -----------
Information Technology 0.04%
------------------------ -----------
Travel Services 0.03%
------------------------ -----------
Aviation 0.02%
------------------------ -----------
Publishing 0.01%
------------------------ -----------
Advisory 0.01%
------------------------ -----------
100.00%
------------------------ -----------
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 31 DECEMBER 2012
Note 2012 2011
US$ US$
Assets
Investments in Pacific Alliance
Asia Opportunity Fund L.P.
through Pacific Alliance
Asia Opportunity Feeder Fund
III Limited, at fair value
(Cost: US$127,037,648; 2011:
US$143,715,903) 4 168,771,815 174,306,639
Cash and cash equivalents 323,005 1,007,683
Other receivables 55,175 55,201
-------------------- --------------------
Total assets 169,149,995 175,369,523
------------------- -------------------
Liabilities
Directors' fee payable 8(e) 252,000 322,000
Accrued expenses and other
payables 77,087 57,043
-------------------- --------------------
Total liabilities 329,087 379,043
------------------- -------------------
Net assets 168,820,908 174,990,480
Analysis of net assets
Share capital 6 1,617,398 1,617,398
Share premium 6 160,614,136 160,614,136
Tendered shares 6 (64,349,046) (42,864,339)
Retained earnings 70,938,420 55,623,285
-------------------- --------------------
Net assets (equivalent to
US$1.485 per share based
on 113,689,591 outstanding
shares) (2011: US$1.360 per
share based on 128,666,354
outstanding shares) 168,820,908 174,990,480
Approved by the Board of Directors
The accompanying notes on are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2012
Note 2012 2011
US$ US$
Income
Bank interest income 399 56
------------------ ------------------
Expenses
Directors' fees 8(e) 252,000 359,431
Other expenses 428,063 296,814
-------------------- --------------------
Total expenses from fund specific
activities 680,063 656,245
------------------ ------------------
Income and expenses allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited
Income allocated from Pacific
Alliance Asia Opportunity
Feeder Fund III Limited 4 1,920,690 3,661,210
Expenses allocated from Pacific
Alliance Asia Opportunity
Feeder Fund III Limited (including
performance fee allocation
of US$3,610,735; 2011: (US$120,356)) 4 (15,574,383) (13,088,689)
-------------------- --------------------
Net investment loss allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited (13,653,693) (9,427,479)
------------------ -----------------
Net investment loss (14,333,357) (10,083,688)
------------------ -----------------
Realized and unrealized gains/(losses)
from investments allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited and foreign currencies
Net realized gains from investments
allocated from Pacific Alliance
Asia Opportunity Feeder Fund
III Limited 4 10,337,984 22,580,571
Net change in unrealized gains/(losses)
on investments allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited 4 19,310,885 (14,798,385)
Net foreign exchange (losses)/gains (377) 1,027
-------------------- --------------------
Net realized and unrealized
gains from investments allocated
from Pacific Alliance Asia
Opportunity Feeder Fund III
Limited and foreign currencies 29,648,492 7,783,213
------------------ -----------------
Net increase/(decrease) in
net assets from operations 15,315,135 (2,300,455)
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED 31 DECEMBER 2012
Share
capital
and share Retained
Note premium earnings Tendered shares Total
US$ US$ US$ US$
At 1 January 2011 162,231,534 57,923,740 (24,764,549) 195,390,725
Repurchase of shares 6 - - (18,099,790) (18,099,790)
Net decrease in net
assets from
operations - (2,300,455) - (2,300,455)
-------------------- ------------------ ------------------ --------------------
At 31 December 2011
and 1 January 2012 162,231,534 55,623,285 (42,864,339) 174,990,480
Repurchase of shares 6 - - (21,484,707) (21,484,707)
Net increase in net
assets from
operations - 15,315,135 - 15,315,135
-------------------- ------------------ ------------------ --------------------
At 31 December 2012 162,231,534 70,938,420 (64,349,046) 168,820,908
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011
US$ US$
Net increase/(decrease) in net
assets from operations 15,315,135 (2,300,455)
Adjustments
Redemptions of investment in Pacific
Alliance Asia Opportunity Feeder
Fund III Limited 21,530,000 19,650,000
Income allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited (1,920,690) (3,661,210)
Expenses allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited 15,574,383 13,088,689
Net realized gains from investments
allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited (10,337,984) (22,580,575)
Net unrealized gains from investments
allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited (19,310,885) 14,798,390
Other receivables 26 (55,201)
Increase/(decrease) in operating
liabilities
Due from related parties - (500)
Accrued expenses and other payables (49,956) 148,671
------------------ ------------------
Net cash generated from operating
activities 20,800,029 19,087,809
----------------- -----------------
Cash flows from financing activities
Repurchase of shares (21,484,707) (18,099,790)
------------------ ------------------
Net cash used in financing activities (21,484,707) (18,099,790)
----------------- -----------------
Net (decrease)/increase in cash
and cash equivalents (684,678) 988,019
Beginning balance 1,007,683 19,664
------------------ ------------------
Ending balance, representing cash
and bank balances 323,005 1,007,683
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2012
1 Organization
Pacific Alliance Asia Opportunity Fund Limited (the "Company") was incorporated on 4 May 2006 in the Cayman Islands as a closed-end Cayman Islands registered exempted company. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange Plc. The Company can raise additional capital up to the authorized share capital as disclosed in Note 6. The Company's registered office is PO Box 472, 2nd Floor, Harbour Place, Grand Cayman, Cayman Islands.
Since the reconstruction approved by an extraordinary general meeting held on 7 May 2009 (the "Reconstruction") (See Note 4 below), the Company invests substantially all its assets in Pacific Alliance Asia Opportunity Fund L.P. (the "Master Fund"), a Cayman Islands limited partnership, through a 13.81% (2011: 20.13%) interest in Pacific Alliance Asia Opportunity Feeder Fund III Limited (the "Feeder Fund"). As at 31 December 2012, the Company indirectly held approximately a 8.23% (2011: 9.81%) interest in the Master Fund.
The Company's investment activities are managed by Pacific Alliance Investment Management Limited (the "Investment Manager"). The Company has appointed Butterfield Trust (Bermuda) Limited to act as custodian of certain assets of the Company and Butterfield Fulcrum Group (Ireland) Limited to act as the Company's administrator pursuant to the custodian agreement and administration services agreement respectively.
The consolidated financial statements were approved by the Board of Directors on 29 April 2013.
2. Summary of significant accounting policies
The following significant accounting policies are in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). The Company applies the provisions of Financial Accounting Standards Board ("FASB") ASC 946-10, Financial Services - Investment Companies (the "Guide"). Such policies are consistently followed by the Company in the preparation of its consolidated financial statements.
(a) Principles of consolidation
These consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively the "Fund"). Subsidiaries are fully consolidated from the date on which control is transferred to the Fund and deconsolidated from the date that control ceases. Inter-company transactions between group companies are eliminated upon consolidation.
The Fund uses wholly and partially owned special purpose vehicles ("SPV") to hold and transact in certain investments and lending. The Fund's policy is to consolidate, as appropriate, those SPVs in which the Fund has control over significant operating, financial or investing decisions of the entity.
Except when an operating company provides services to the Fund, investment in an operating company is carried at fair value (refer to Note 2(c) for fair value measurement).
(b) Use of estimates
The preparation of financial statements in conformity with US GAAP requires the Fund's management to make estimates and assumptions that affect the reported value of assets and liabilities and disclosures of contingent assets and liabilities as at 31 December 2012 and the reported amounts of income and expenses for the year then ended. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 2(h).
(c) Investments
(i) Recognition and derecognition
Regular purchase and sale of investments are accounted for on the trade date, the date the trade is executed. Costs used in determining realized gains and losses on the disposal of investments are based on the specific identification method.
Transfer of investments is accounted for as a sale when the Fund has relinquished control over the transferred assets. Any realized gains and losses from investments are recognized in the statement of operations.
(ii) Fair value measurement
The Fund is an investment company under the Guide. As a result, the Fund records and re-measures its investment in the Feeder Fund on the consolidated statement of assets and liabilities at fair value. The fair value of the Fund's investment in the Feeder Fund is based on the net asset value ("NAV") of the Feeder Fund as determined by its administrator and investment manager. The Feeder Fund is open to subscription on a monthly basis and redemption on a quarterly basis, based on the NAV calculated by its administrator and the Investment Manager considers that it is an appropriate basis for the fair value of the Fund's investment in the Feeder Fund.
The Fund records its proportionate interest in the net assets of the Feeder Fund. The Fund records and reflects its proportionate share of the Feeder Fund's income, expenses, and realized and unrealized gains and losses from investments in the consolidated statement of operations. As a result, no realized and unrealized gains or losses from investment in the Feeder Fund are recognized. In addition, the Fund accrues its own income and expenses. The performance of the Fund is directly affected by the performance of the Master Fund. Attached are the audited consolidated financial statements of the Feeder Fund and the Master Fund, including the consolidated schedule of investments, valuation policy and year-end investment valuation, which should be read in conjunction with these consolidated financial statements.
(d) Cash and cash equivalents
Cash represents cash at banks and does not include restricted cash such as fixed deposits pledged as security for the bank loans. Cash equivalents are defined as short term and highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less.
(e) Foreign currency translation
The books and records of the Fund are maintained in United States Dollars ("US$"), which is also the functional currency. Assets and liabilities, both monetary and non-monetary, denominated in foreign currencies are translated into US$ by using prevailing exchange rate as at financial reporting date, while income and expenses are translated at the exchange rates in effect during the year.
Gains and losses attributed to changes in the value of foreign currencies for investments, cash balances and other assets and liabilities are reported as foreign exchange gain and loss in the consolidated statement of operations.
(f) Taxation
The Fund may be subject to taxes imposed in jurisdictions in which it invests and operates. Such taxes are generally based on income and/or gains earned. Taxes are accrued and applied to net investment income, net realized gains and net unrealized gains, as applicable, when the income and/or gains are earned. The Fund accrues for liabilities relating to uncertain tax positions only when such liabilities are probable and can be reasonably estimated in accordance with the authoritative guidance contained in FASB ASC 740 described in Note 5.
The Fund uses the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that the Fund expects to be in effect when the underlying items of income and expense are realized.
(g) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the effective interest method.
Expenses are recorded on an accrual basis.
The Fund also records its proportionate share of the Feeder Fund's income and expenses. Please refer to note 2(c)(ii) for details.
(h) Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
(i) Fair value of investment in the Feeder Fund
As discussed in note 2(c)(ii), the fair value of the Fund's investment in the Feeder Fund is based on the NAV of the Feeder Fund as determined by its administrator and Investment Manager. The Feeder Fund invests substantially all its assets in the Master Fund. The fair value of unlisted or unquoted securities in the Master Fund is determined by using valuation techniques. The valuation committee of the Master Fund ("Valuation Committee"), with assistance from independent valuers, uses their judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.
Although the Valuation Committee uses their best judgment in estimating fair value, there are inherent limitations in any valuation technique. Estimated fair value may differ significantly from the value that would have been used had a readily available market for such investments existed and these differences could be material to the Fund's consolidated financial statements. Additional information about the level of market observability associated with investments carried at fair value is disclosed in Note 4 below.
(ii) Taxation
The Fund may be subject to income taxes in jurisdictions in which it invests and operates. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Fund recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
3. Concentration of risks
(a) "Master-feeder" structure
Since the Reconstruction, the Fund operates a "master-feeder" structure and invests solely in the Master Fund through the Feeder Fund. The "master-feeder" structure presents certain risks to the Fund. The Feeder Fund will incur expenses and liabilities that will be paid prior to making distributions to the Fund. The Fund may be materially affected by the actions of other investors in the Master Fund and the Feeder Fund. Consequently, if other investors redeem from the Master Fund and the Feeder Fund, the Fund may experience higher pro-rata operating expenses. The financial risks of the Fund are associated with those of the Master Fund and the Feeder Fund which are discussed in Note 3 of the Master Fund's and the Feeder Fund's consolidated financial statements.
(b) Market risk
Market risk represents the potential loss in value of financial instruments caused by movements in market variables, such as equity prices.
The market risk that the Fund is exposed to is from the investments in the Master Fund, of which the investments are typically made with a focus onGreater China. Political or economic conditions and the possible imposition of adverse laws or currency exchange restrictions in that region could cause the Master Fund's investments and the respective markets to become less liquid and also the prices to become more volatile.
(c) Interest rate risk
Interest rate risk arises from the fluctuations in the prevailing levels of market interest rates which affect the fair value of financial assets and liabilities and future cash flows. The Fund has bank deposits and the Master Fund's investments that expose the Fund to interest rate risk.
(d) Currency risk
Foreign currency risk arises as the value of future transactions, recognised monetary assets and monetary liabilities denominated in other currencies, fluctuates due to changes in foreign exchange rates.
As at 31 December 2012 and 2011, the majority of the Fund's assets and liabilities are denominated in US$, the functional currency. As such, the Fund is not subject to material currency risk.
(e) Credit risk
The main credit risk to which the Fund is exposed arises from the Fund's indirect investment in the Master Fund which is closely monitored by the Investment Manager.
(f) Liquidity risk
As the Company is closed-ended, it is not exposed to redemptions of shares by its shareholders.
The Fund is exposed to liquidity risk as the Fund's investments in the Feeder Fund are largely illiquid. Redemptions of interest in the Feeder Fund are subject to a 12 months lock up in the first year of investment and an additional notice period of 180 days.
The Fund has the ability to borrow in the short term but subject to certain limitations, including the total amount of all borrowings outstanding at any time shall not exceed 50% of the Fund's total assets at such time.
4. Investments in Pacific Alliance Asia Opportunity Fund L.P.
As at 31 December 2012, the Feeder Fund was 13.81% (2011: 20.13%) held by the Fund and 86.19% (2011: 79.87%) held by unrelated investors. As at 31 December 2012, the Feeder Fund held 59.55% in the Master Fund (2011: 48.75%).
In accordance with the FASB ASC 820-10, Fair Value Measurement and Disclosures, the Fund categorizes the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). FASB ASC 820-10-35-39 to 55 provides three levels of the fair value hierarchy as follows:
Level 1
Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date;
Level 2
Inputs to measure fair values are quoted prices in markets that are not active, quoted prices for similar assets in active markets or prices or valuations for which all significant inputs are observable, either directly or indirectly. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
Level 3
Inputs that are unobservable and significant to the overall fair value measurement.
Inputs to measure fair values broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics and other factors. An asset or a liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes "observable" requires significant judgment. The Investment Manager considers observable data to be such market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by multiple, independent sources that are actively involved in the relevant market.
The categorization of an asset or a liability within the hierarchy is based upon the pricing transparency of the asset or liability and does not necessarily correspond to the Investment Manager's perceived risk of that asset or liability.
In determining an instrument's placement within the hierarchy, the Investment Manager follows the following guidance for investments held by the Fund:
Level 1
Investments in listed stocks, bonds and derivatives are valued using quoted prices in active markets and are therefore classified within Level 1 of the fair value hierarchy.
As at 31 December 2012 and 2011, the Fund did not have any investments that were categorized as Level 1 within the fair value hierarchy.
Level 2
It may be possible that the NAV of unlisted investment funds represents their fair value based on observable inputs such as ongoing subscription and/or redemption activities. In these cases, the NAV is considered as a Level 2 input.
The NAV of the Feeder Fund is used to value the Fund's investment in the Feeder Fund as the Investment Manager believes it represents the fair value based on observable data such as ongoing redemption and/or subscription activities. As at 31 December 2012 and 2011, the Fund's investment in the Feeder Fund is included in Level 2.
Level 3
Assets are classified within Level 3 of the fair value hierarchy if they are traded infrequently and therefore have little or no price transparency. As at 31 December 2012 and 2011, the Fund had no investments that were categorized as Level 3 within the fair value hierarchy. The investments within the Master Fund range from Level 1 to Level 3.
The Fund accounts for and reflects in the consolidated financial statements the proportionate share of the investment in the Feeder Fund. The table below summarizes the investment income allocated from the Master Fund through the Feeder Fund during the year ended 31 December 2012 and 2011:
2012 2011
US$ US$
Loan origination income 27,532 53,958
Interest income 1,264,839 1,565,096
Bank interest income 199,178 321,448
Dividend income 369,649 1,687,928
Other income 59,492 32,780
---------------- ----------------
Income allocated from the
Master Fund through the
Feeder Fund 1,920,690 3,661,210
5. Taxation
The Fund adopted the authoritative guidance contained in FASB ASC 740 on accounting for and disclosure of uncertainty in tax positions, which requires the Investment Manager to determine whether a tax position of the Fund is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Investment Manager has analyzed the tax positions and tax years in the jurisdictions that the Fund may be subject to. For tax positions meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant taxing authority.
The Investment Manager have reviewed the operation and investment structure of the Fund and considered there is no material uncertain tax position as at 31 December 2012.
Under current Cayman Islands legislation applicable to an exempted company, the Fund is not subject to income tax, capital gains or withholding tax, estate duty, or inheritance tax.
6. Share capital, share premium and tendered shares
Share Share Tendered
Number of capital premium Shares Total
shares US$ US$ US$ US$
At 1
January
2011 141,926,662 1,617,398 160,614,136 (24,764,549) 137,466,985
Repurchase
of shares (13,260,308) - - (18,099,790) (18,099,790)
-------------------- -------------------- -------------------- -------------------- --------------------
At 31
December
2011 and 1
January
2012 128,666,354 1,617,398 160,614,136 (42,864,339) 119,367,195
Repurchase
of shares (14,976,763) - - (21,484,707) (21,484,707)
-------------------- -------------------- -------------------- -------------------- --------------------
At 31
December
2012 113,689,591 1,617,398 160,614,136 (64,349,046) 97,882,488
As at 31 December 2012, the total authorised number of ordinary shares was 5,000,000,000 (2011: 5,000,000,000) shares with a par value of US$0.01 (2011: US$0.01) per share.
Movement of tendered shares are as follows:
Number
of shares Repurchase
repurchased price Total
US$ US$
As at 1 January 2011 19,813,165 24,764,549
Repurchased in July 2011 6,683,244 1.36 9,089,212
Repurchased in December 2011 6,577,064 1.37 9,010,578
------------------ ------------------
As at 31 December 2011 and 1 January
2012 33,073,473 42,864,339
Repurchased in July 2012 7,719,981 1.42 10,962,373
Repurchased in December 2012 7,256,782 1.45 10,522,334
------------------ ------------------
As at 31 December 2012 48,050,236 64,349,046
As at 31 December 2012, the Company had 161,739,827 (2011: 161,739,827) ordinary shares in issue, of which 48,050,236 (2011: 33,073,473) were held as tendered shares.
7. Dividends
The directors do not recommend the payment of a dividend for the years ended 31 December 2012 and 2011.
8. Related-party transactions
The Fund had the following significant related-party transactions.
(a) Investment in Pacific Alliance Asia Opportunity Fund L.P.
The Fund invests in the Master Fund via the Feeder Fund, which are also managed by the Investment Manager. Please refer to Note 4 for details.
(b) Company's shares held by the Investment Manager and its subsidiary
During the year ended 31 December 2012, the Investment Manager and its subsidiary entered into the following transactions in the Company's shares:
-- tendered 954,267 shares of the Company at US$1.420 for repurchase by the Company in July 2012;
-- tendered 911,073 shares of the Company at US$1.450 for repurchase by the Company in November 2012;
-- purchased 47,104, 1,146,700 and 1,052,682 shares of the Company at US$1.140, US$1.173 and US$1.250 respectively from the market; and
-- transferred 2,093,241 shares of the Company to directors or management of the Investment Manager and its subsidiaries.
During the year ended 2011, the Investment Manager and its subsidiary entered into the following transactions in the Company's shares:
-- tendered 731,441 shares of the Company at US$1.370 for repurchase by the Company in December 2011;
-- purchased 6,470,505, 113,401, and 773,022 shares of the Company at US$1.200, US$1.090, and US$ 1.133, respectively from the market; and
-- transferred 2,470,806 shares of the Company to directors or management of the Investment Manager and its subsidiaries.
As at 31 December 2012, the Investment Manager and its subsidiary held 7,470,164 (2011: 9,182,259) shares of the Company, representing 6.6% (2011: 7.1%) of the Company's total issued shares.
(c) Company's shares held by the Master Fund
During the year ended 31 December 2012, the Master Fund purchased 7,641,910 shares of the Company on open market at US$8,630,905 in June, US$2,295,000 in August, and US$780,148 in November. As at 31 December 2012, the Master Fund held 7,641,910 (2011: Nil) shares of the Company, representing 6.7% (2011: Nil) of the Company's total issued shares.
(d) Management fees and performance allocations to the Investment Manager
Before the Reconstruction, the Fund paid management fees and performance allocations directly to the Investment Manager. The Investment Manager is no longer entitled to receive management fees or performance allocations from the Fund.
(e) Directors' fees and expenses
The Company pays each of its directors an annual fee of US$70,000 (2011: US$70,000) plus out-of-pocket expenses and each of its valuation committee and audit committee members an annual fee of US$14,000 (2011: US$14,000). During the year ended 31 December 2012, two directors of the Company, including Christopher Marcus Gradel and Anthony Murray Miller, agreed to waive their annual fees.
9. Financial highlights
NAV per share at the end of the year is as follows:
2012 2011
US$ US$
Per share data
(for a share outstanding throughout
the year):
NAV at beginning of year 1.360 1.377
Net investment loss (0.136) (0.077)
Net realized and unrealized
gains from investments 0.261 0.06
------------ ------------
NAV at end of year 1.485 1.360
The following represents the ratios to average net assets and other supplemental information:
2012 2011
Total return (1) 9.18% (1.21%)
Ratios to average net assets
(2)
Total expenses (9.24%) (7.31%)
Net investment loss (8.15%) (5.37%)
(1) Total return represents the change in NAV, adjusted for cash flows in relation to capital transactions for the year.
(2) Average NAV is derived from the beginning and ending monthly NAV, adjusted for cash flows related to capital transactions for the year ended 31 December 2012. For the year ended 31 December 2012, the average NAV amounted to US$175,927,967 (2011: US$187,936,669).
10. Commitment and contingency
In the normal course of business, the Fund, the Master Fund and the Feeder Fund may enter into arrangements that contain a variety of representations and warranties that provide general indemnification under certain circumstances. The Fund, the Master Fund and the Feeder Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund, the Master Fund and the Feeder Fund that have not yet occurred. However, based on experience, the Investment Manager expects the risk of loss to be remote and, therefore, no provision has been recorded.
11. Subsequent events
The Investment Manager has performed a subsequent events review from 1 January 2013 through 29 April 2013, being the date that the consolidated financial statements were authorized for issuance.
Management concluded there is no material subsequent event that required additional disclosure in these consolidated financial statements.
12. Recent accounting pronouncements
In December 2011, the FASB issued an update to requirements related to providing enhanced disclosures about financial instruments and derivative instruments that are either presented on a net basis in the statement of net assets or subject to an enforceable master netting arrangement or similar agreement including a description of the rights of off-set associated with relevant agreements and (ii) both net and gross information, including amounts of financial collateral, for relevant assets and liabilities. The purpose of the update is to enhance comparability between those entities that prepare their financial statements on the basis of US GAAP and those that prepare their financial statements in accordance with International Financial Reporting Standards and enables users of the financial statements to understand the effect or potential effect of the offsetting arrangements on the balance sheet. The update is effective for fiscal years beginning on or after 1 January 2013. The Fund does not believe the adoption of this update will have a material impact on the Fund's consolidated financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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