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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 |
TIDMPAX
RNS Number : 2890K
Pacific Alliance Asia Opp Fd Ld
15 April 2015
15 April 2015
Pacific Alliance Asia Opportunity Fund Limited
Full year results for the year ended 31 December 2014
Pacific Alliance Asia Opportunity Fund Limited ("PAX" or the "Company") (AIM: PAX), an AIM traded feeder fund for Pacific Alliance Asia Opportunity Fund L.P. (the "Master Fund"), today announces its full year financial results ended 31 December 2014.
Financial Highlights
-- Net asset value as at 31 December 2014 was US$163.3 million, representing US$1.729 per share, a 9.04% increase from 31 December 2013 (US$159.3 million, representing US$1.586 per share). Share price closed on 31 December 2014 at US$1.59, a 21.84% increase from 31 December 2013.
-- The Master Fund generated a net return of 9.52% for 2014.
Company Developments
-- The Company distributed 6% in 2014 by way of a tender offer announced 31 July 2014 and announced a second 6% distribution relating to 2014 on 6 March 2015.
-- The Master Fund commenced a program to purchase Company shares over the period from October 2014 to January 2015 to assist in closing the discount between the market price and NAV per share as well as provide exit opportunities for selling shareholders and thereby help rebalance supply and demand at closer to NAV per share.
Master Fund Portfolio Developments
-- The Distressed/Secondary strategy continued to perform well throughout 2014 generating approximately 19% returns on capital allocated, and the Investment Manager expects to maintain an allocation of around 15%. European Banks selling assets in Japan and Australia/New Zealand remain the key target, however the Investment Manager also sees opportunities emerging in regional sellers, including local banks and corporates in South Korea and Japan.
-- Convertible Bond ("CB") Financing was a key focus for the Master Fund over 2014 returning approximately 16% on capital allocated. The current portfolio is generating a solid yield of 8% and has significant upside optionality and looks set to contribute strongly to the portfolio in 2015.
-- The Bridge Financing strategy has been an important part of the portfolio since 2005, however slowing credit growth, weaker credit demand and a flight to quality among all types of lenders have substantially shrunk this opportunity set in China. While the Investment Manager continues to see solid opportunities in Australia and emerging opportunities in South Korea, it expects to reduce bridge financing from 27% to 15% of the portfolio in 2015.
-- The Event Driven/Arbitrage strategy performed well in 2014, returning approximately 19%, and 8% in the year to date. The Investment Manager sees China arbitrage as an attractive and scalable opportunity largely driven by developments and reforms in the Chinese A-share market are and its allocation in the portfolio is expected to be doubled from 15% to 30%.
-- The Investment Manager restructured its Equity Long/Short trading team and reduced the portfolio allocation following the disappointing performance of the strategy in 2014. Under the new structure, the team has made a solid start to 2015 year to date with returns of approximately 15% on capital allocated, and the reduced current allocation of 2.5% is expected to increase to 10-12% by year end.
Overall, the Master Fund's performance was sound with satisfactory net returns. This was largely the result of a continuing focus on portfolio allocation and reconstruction that ensured the Master Fund materially reduced cash drag and increased gross exposure, while at the same time increasing exposure to higher returning strategies and decreasing exposure to lower returning ones and increasing overall portfolio liquidity.
The Master Fund's investor base remains strong and as the Master Fund's opportunities continue to grow, the Investment Manager will look to increase capacity to US$2.5 billion over the course of 2015.
As a result, the Master Fund remains optimistic that it is well positioned to take advantage of new opportunities and deliver a strong risk adjusted return 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 Annual Report will be available upon request.
For further information please contact:
INVESTMENT MANAGER: NOMINATED ADVISER: Pacific Alliance Investment Philip Secrett Management Limited Grant Thornton UK LLP T: (852) 2918 0088 T: (44) 20 7383 5100 pax@pagasia.com Philip.J.Secrett@uk.gt.com --------------------------------- ---------------------------- BROKER: MEDIA RELATIONS: Hiroshi Funaki Faye Yuen Edmond de Rothschild Securities PAG T: (44) 20 7845 5960 T: (852) 3719 3342 funds@lcfr.co.uk fyuen@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-focussed 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 330 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 9.04% for the twelve months ended 31 December 2014 with the NAV per share at US$1.729.
During 2014 the Company distributed 6% by way of a tender offer as announced on 31 July 2014 and the second 6% distribution relating to 2014 was announced on 6 March 2015. In addition the Company announced a discount initiatives program on 22 September 2014, as summarised below and the full announcement details can be found on the Company website under 2014 Shareholder Communications or via this link.
Summary of Master Fund Share Purchase Program
The Master Fund commenced a program to purchase Company shares over the period October 2014 to January 2015 to assist in closing the discount between the market price and NAV per share as well as provide exit opportunities for selling shareholders and thereby help rebalance supply and demand at closer to NAV per share. USD15m was available to purchase shares at an 8% discount to the 30 September 2014 unaudited NAV per share and USD15m available to purchase shares at a 5% discount to the 31 December 2014 unaudited NAV per share. The initial purchase resulted in USD14.5m being rolled forward to the second purchase making a total of USD29.5m available for the second purchase, which was fully utilized.
The Master Fund's percentage shareholding in the Company increased as a result of these share purchases. However, this is a temporary situation as the Master Fund intends to convert its entire shareholding in the Company's shares pursuant to the share exchange with Feeder III as described below.
Share Exchange with Feeder III
All investors that satisfy regulatory requirements will be allowed to exchange all or part of their quoted ordinary shares in the Company for unquoted shares of Pacific Alliance Asia Opportunity Fund III Limited ("Feeder III"). Feeder III is a private feeder fund that invests in the Master Fund. Feeder III shareholders can redeem Feeder III shares at NAV after a six month notice period. Feeder III shareholders also can value their investment at NAV to the extent allowed by their individual valuation and accounting policies. This exchange (the "Share Exchange") will take place in Q2 2015 based on the 31 March 2015 unaudited NAV of Feeder III. A circular describing the specific details of the Share Exchange and participation will be distributed to shareholders in Q2 2015.
The Pacific Alliance Asia Opportunity Fund L.P. (the "Master Fund") - General Partner's Report
The Master Fund achieved a net return of +9.52% for the year 2014. During 2014 the Investment Manager adjusted the portfolio composition and in the process reduced the cash drag and increased gross exposure. Furthermore, higher returning strategies have been increasing and lower returning strategies decreasing, while overall portfolio liquidity has increased and will continue to increase over the coming year. As such the Investment Manager believes the Master Fund is well positioned to take advantage of new opportunities, and remains optimistic that the Master Fund will deliver a strong risk adjusted return for 2015.
- Main Strategies
Bridge financing has been an important part of the portfolio since 2005 and the opportunity has been largely driven by both cyclical factors and the actions of regulators and governments. In China, credit growth is slowing across the board as the Chinese Government attempts to slowly deleverage the economy. However, weak GDP growth has also reduced demand for credit and as a result lending rates have not increased as much as during previous credit tightening cycles. There has also been a flight to quality among all types of lenders and whilst high quality borrowers can still borrow at 12-15% from non-bank lenders, which is below our target hurdle rate given taxes and fees, weaker borrowers are facing greater challenges and significantly higher lending rates. But given weak growth and a soft property market default rates have increased significantly for these weaker borrowers, hence the Investment Manager feel the risks are currently too high to lend to smaller counterparties. Due to the aforementioned as China loans roll off during 2015, the Investment Manager does not expect to replace them unless non-bank lending rates start increasing significantly (note, the Investment Manager expects interest rates to reduce further in China this year, but official interest rates and non-bank lending rates tend not to correlate very closely). In Australia the bridge financing opportunity remains strong and the Investment Manager is also seeing an emerging opportunity in South Korea. However, overall, should China remain as it is, the Investment Manager expects bridge financing to reduce from approximately 27% to 15% of the portfolio in 2015.
The Distressed/Secondary strategy continued to perform well throughout 2014 returning approximately 19% on capital allocated. The Investment Manager expects to maintain a full allocation of approximately 15% as a greater allocation is limited by liquidity considerations as this is the most illiquid strategy in the Master Fund. As a result of tighter regulations, de-risking and a shift in business focus The Investment Manager expects to see further asset sales from banks with European banks remaining the main target as they continue selling assets in Japan and Australia/New Zealand. The Investment Manager is also seeing regional sellers such as local banks and corporates emerging in South Korea and Japan. The Investment Manager stays in close contact with various sellers to source and negotiate deals at steep discounts to intrinsic value.
Convertible Bond ("CB") Financing has been a key focus for the Master Fund over the past year returning approximately 16% on capital allocated. The current portfolio of 11 CBs is generating a solid yield of 8% and has significant upside optionality, and is expected to be a good overall contributor in 2015. This is despite an early set back from the price drop of the investment Project Superstar in January and February 2015. The exposure to Project Superstar was reduced in 2014, but the remaining position was held too long leaving too much exposure. In future the Investment Manager intends to avoid too much unprotected long exposure by exiting the CB's upon conversion. Although recent market gains have made it slightly more challenging to find the value we are seeking the team is looking at several new opportunities. It is envisioned that the CB strategy will remain at 25-30% of the portfolio in 2015.
The Event Driven/Arbitrage strategy has performed well over the past several months returning approximately 19% in 2014 and 8% year to date in 2015. Within the Event and arbitrage space, China A share arbitrage strategies and relative value opportunities are the most interesting, with greater volatility leading to wider spreads. The Investment Manager sees China arbitrage as an attractive and scalable opportunity largely driven by developments and reforms in the Chinese A-share market. In 2015, the Investment Manager plans to double the event and arbitrage portfolio from 15% to 30%.
The Equity Long/Short allocation was 9.7% at year end 2014. Performance was disappointing at -0.8% in 2014 and led to a restructuring of the team and subsequent reduction in portfolio allocation in early 2015. Focused purely on Japan and South Korea, the portfolio remains conservatively positioned and market neutral with the adjusted team having made a solid start to 2015 with returns of approximately 15% year to date on capital allocated. It is expected that from a reduced allocation of 2.5% of the portfolio, it will increase to 10-12% during 2015.
- Summary
The Investment Manager invested further in its infrastructure, in particular adding Alain Bordoni from Goldman Sachs as head of public market risk. Given the increase in public equity opportunities, we felt it important to further strengthen this area before significantly increasing allocations to our public equity strategies.
The Master Fund's investor base remains strong and as the Master Fund opportunities continue to grow the Investment Manager is looking to increase capacity to US$ 2.5 billion over the course of 2015. Thank you for your support and we look forward to updating you at the mid-year.
John Alexander
Chairman
Investment Manager's Report
Portfolio Performance
As at 31 December 2014, the Company's audited net asset value per share ("NAV") was US$1.729, a 9.04% increase from the 31 December 2013 audited financial statements. The Company's share price closed on 31 December 2014 at US$1.59, a 21.84% increase from 31 December 2013.
The Company invests substantially all of its assets in Pacific Alliance Asia Opportunity Fund L.P., a Cayman Islands exempted limited partnership via Pacific Alliance Asia Opportunity Feeder Fund III Limited (the "Feeder Fund").
Realized and Unrealized Income
Total income for the year from 1 January 2014 to 31 December 2014 was US$14,736,996.
Realized Income US$ Deposit Interest 1 Foreign Exchange 8,172 ------------------ Total 8,173 Unrealized Appreciation US$ Investment in Master Fund 14,728,823 ------------------ Total 14,728,823
Master Fund Portfolio and Performance as at 31 December 2014
As at 31 December 2014, the Master Fund's audited net asset value ("NAV") was US$1.905 per US$1.00 capital contributed, a 9.52% increase from the 31 December 2013 audited financial statements.
Realized and Unrealized Income for the Master Fund
Total income for the year from 1 January 2014 to 31 December 2014 was US$298,843,736.
Realized Income/(Losses) US$ CB Financing 89,786,959 Bridge Financing 79,437,985 Distressed/Secondary 40,470,332 Event Driven, Relative Value/Arbitrage 27,938,812 Deposit Interest 12,285,656 Closed-end Funds 7,516,744 Pre-IPO Investments 3,385,384 Equity Long/Short (7,922,622) ------------------ Total 252,899,250 Unrealized Appreciation/(Depreciation) US$ Distressed/Secondary 33,822,545 CB Financing 29,047,872 Event Driven, Relative Value/Arbitrage 8,322,468 Equity Long/Short 4,993,309 Bridge Financing 4,387,327 Closed-end Funds (7,305,353) Pre-IPO Investments (11,910,359) Foreign Exchange (15,413,323) ------------------ Total 45,944,486
Master Fund Portfolio Summary
As at 31 December 2014, the Master Fund held investments and cash with a carrying value of US$2,547 million. The Master Fund portfolio is diversified across several strategies including Bridge Financing, CB Financing, Distressed/Secondary, Event Driven, Relative Value/Arbitrage, Equity Long/Short, Pre-IPO Investment, and Cash.
Type of Investment Fair Value of Investment % of Total (US$) Bridge Financing(1) 776,270,333 30.47% CB Financing(1) 733,124,664 28.78% Distressed/ Secondary 506,136,445 19.87% Event Driven, Relative Value/ Arbitrage 397,156,586 15.59% Equity Long/Short 46,637,292 1.83% Pre-IPO Investment 38,879,687 1.53% Cash(2) 49,078,681 1.93% Total 2,547,283,688 100.00%
(1) The allocation by strategy as per the General Partner's Report differs from the schedule of investments of the Master Fund's audited financial statements. The cost of the loans receivable disclosed in the schedule of investments 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 schedule of investments, whereas in the General Partner's Report and newsletter, the cost is reduced prior to a reduction of interest in accordance with the definitive agreements.
(2) Cash represents unencumbered cash of the Master Fund.
Breakdown of Investment Holdings Breakdown of Investment by Cash and Industry Holdings by Cash and Geography ------------------------------------------ ------------------------------------ Cash and Industry % of Total Cash and Geography % of Total ---------------------------- ------------ ----------------------- ----------- Property - Commercial 48.14% Greater China 79.59% ---------------------------- ------------ ----------------------- ----------- Energy 9.47% Australia 9.39% ---------------------------- ------------ ----------------------- ----------- Food 8.53% Japan 4.24% ---------------------------- ------------ ----------------------- ----------- Financial Services 7.20% Korea 2.05% ---------------------------- ------------ ----------------------- ----------- ETF 4.10% Malaysia 1.22% ---------------------------- ------------ ----------------------- ----------- Index Hedges 3.89% India 0.52% ---------------------------- ------------ ----------------------- ----------- Information Technology 3.25% Singapore 0.61% ---------------------------- ------------ ----------------------- ----------- Consumer Staples 2.99% Thailand 0.52% ---------------------------- ------------ ----------------------- ----------- Property - Residential 2.68% Taiwan 0.17% ---------------------------- ------------ ----------------------- ----------- Industrials 1.82% Europe 0.14% ---------------------------- ------------ ----------------------- ----------- Manufacturing 1.57% Indonesia 0.05% ---------------------------- ------------ ----------------------- ----------- Materials 1.35% New Zealand 0.01% ---------------------------- ------------ ----------------------- ----------- Agriculture 1.08% United States* -0.44% ---------------------------- ------------ ----------------------- ----------- Consumer Discretionary 0.74% Cash 1.93% ---------------------------- ------------ ----------------------- ----------- Health Care 0.49% 100.00% ---------------------------- ------------ ----------------------- ----------- Utilities 0.45% ---------------------------- ------------ Transportation 0.20% ---------------------------- ------------ Mining 0.18% ---------------------------- ------------ Advisory 0.01% ---------------------------- ------------ Travel Services 0.01% ---------------------------- ------------ Telecommunication Services 0.01% ---------------------------- ------------ Cash 1.93% ---------------------------- ------------ Others* -0.09% ---------------------------- ------------ 100.00% ---------------------------- ------------
*represents listed securities sold short
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 31 DECEMBER 2014
Note 2014 2013 US$ US$ Assets Investment in Pacific Alliance Asia Opportunity Fund L.P. through Pacific Alliance Asia Opportunity Feeder Fund III Limited, at fair value (Cost: US$104,945,466; 2013: US$111,680,015) 4 163,959,729 159,330,906 Cash and cash equivalents 102,758 132,902 Other receivables - 55,175 -------------------- -------------------- Total assets 164,062,487 159,518,983 ------------------- ------------------- Liabilities Directors' fee payable 8(e) 252,000 126,000 Amount due to Master Fund 8(f) 410,550 - Accrued expenses and other payables 90,112 68,057 -------------------- -------------------- Total liabilities 752,662 194,057 ------------------- ------------------- Net assets 163,309,825 159,324,926 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 (94,858,165) (84,852,736) Retained earnings 95,936,456 81,946,128 -------------------- -------------------- Net assets (equivalent to US$1.729 per share based on 94,428,756 outstanding shares) (2013: US$1.586 per share based on 100,456,123 outstanding shares) 163,309,825 159,324,926
Approved by the Board of Directors
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2014
Note 2014 2013 US$ US$ Income Bank interest income 1 120 ------------------- ------------------- Expenses Directors' fees 8(e) 252,000 252,000 Other expenses 494,668 399,451 --------------------- --------------------- Total expenses from fund specific activities 746,668 651,451 ------------------- ------------------- 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 4,639,958 2,467,225 Expenses allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited 4 (9,939,986) (8,068,201) -------------------- -------------------- Net investment loss allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited (5,300,028) (5,600,976) ------------------- ------------------- Net investment loss (6,046,695) (6,252,307) ------------------- ------------------- Realized and unrealized gains 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 21,144,752 15,786,964 Net change in unrealized gains on investments allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited 4 2,572,736 4,387,523 Net foreign exchange gains/(losses) 8,172 (52) --------------------- --------------------- Net realized and unrealized gains from investments allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited and foreign currencies 23,725,660 20,174,435 ------------------- ------------------- Net increase in net assets from operations (before performance allocation to the General Partner of Pacific Alliance Asia Opportunity Fund L.P.) 17,678,965 13,922,128 Performance allocation to the General Partner of Pacific Alliance Asia Opportunity Fund L.P. (3,688,637) (2,914,420) -------------------- -------------------- Net increase in net assets from operations 13,990,328 11,007,708
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 2014
Share capital and share Retained Note premium Earnings Tendered shares Total US$ US$ US$ US$ At 1 January 2013 162,231,534 70,938,420 (64,349,046) 168,820,908 Repurchase of shares 6 - - (20,503,690) (20,503,690) Net increase in net assets from operations - 11,007,708 - 11,007,708 ------------------ ------------------ ------------------ ------------------ At 31 December 2013 and 1 January 2014 162,231,534 81,946,128 (84,852,736) 159,324,926 Repurchase of shares 6 - - (10,005,429) (10,005,429) Net increase in net assets from operations - 13,990,328 - 13,990,328 ------------------ ------------------ ------------------ ------------------ At 31 December 2014 162,231,534 95,936,456 (94,858,165) 163,309,825
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013 US$ US$ Net increase in net assets from operations 13,990,328 11,007,708 Adjustments to reconcile net increase in net assets from operations to net cash generated from operating activities Redemptions of investment in Pacific Alliance Asia Opportunity Feeder Fund III Limited 10,100,000 21,100,000 Income allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited (4,639,958) (2,467,225) Expenses allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited 9,939,986 8,068,201 Net realized gains from investments allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited (21,144,752) (15,786,964) Net unrealized gains from investments allocated from Pacific Alliance Asia Opportunity Feeder Fund III Limited (2,572,736) (4,387,523) Allocation of performance fee to General Partner of Pacific Alliance Asia Opportunity Fund LP 3,688,637 2,914,420 Decrease in other receivables 55,175 - Increase in amounts due to related parties 410,550 - Increase/(decrease) in accrued expenses and other payables 148,055 (135,030) -------------------- -------------------- Net cash generated from operating activities 9,975,285 20,313,587 ------------------- ------------------- Cash flows from financing activities Repurchase of shares (10,005,429) (20,503,690) -------------------- -------------------- Net cash used in financing activities (10,005,429) (20,503,690) ------------------- ------------------- Net decrease in cash and cash equivalents (30,144) (190,103) Beginning balance 132,902 323,005 -------------------- -------------------- Ending balance, representing cash and bank balances 102,758 132,902
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
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. 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"), the Company invests substantially all its assets in Pacific Alliance Asia Opportunity Fund L.P. (the "Master Fund"), a Cayman Islands exempted limited partnership, through a 9.63% (2013: 10.86%) interest in Pacific Alliance Asia Opportunity Feeder Fund III Limited (the "Feeder Fund"). As at 31 December 2014, the Company indirectly held approximately a 7.77% (2013: 7.34%) 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 MUFG Fund Services (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 15 April 2015.
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. The Master Fund is an investment company under the Guide.
(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)(ii) 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 2014 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 financial statements of the Feeder Fund and the audited financial statements of 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. Cash equivalents are defined as short-term and highly liquid investments which mature within 3 months of the date of purchase.
(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 for 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 indirect taxes in jurisdictions in which the Master Fund invests and operates. Significant judgment is required in determining the worldwide provision for 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 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 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 held by 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 has certain investments that collectively 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 2014 and 2013, 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. However, the Fund is indirectly exposed to currency risks from the investments held by the Master Fund.
(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 2014, the Feeder Fund was 9.63% (2013: 10.86%) held by the Fund and 90.37% (2013: 89.14%) held by unrelated investors. As at 31 December 2014, the Feeder Fund held 80.69% interests in the Master Fund (2013: 67.64%).
In accordance with 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 generally classified within Level 1 of the fair value hierarchy.
As at 31 December 2014 and 2013, 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 2014 and 2013, 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 2014 and 2013, 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 2014 and 2013:
2014 2013 US$ US$ Interest income 1,727,338 614,771 Bank interest income 1,008,904 443,952 Dividend income 1,732,576 1,240,837 Other income 171,140 167,665 ---------------- ---------------- Income allocated from the Master Fund through the Feeder Fund 4,639,958 2,467,225
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 at 31 December 2014.
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 2013 113,689,591 1,617,398 160,614,136 (64,349,046) 97,882,488 Repurchase of shares (13,233,468) - - (20,503,690) (20,503,690) -------------------- -------------------- -------------------- -------------------- -------------------- At 31 December 2013 and 1 January 2014 100,456,123 1,617,398 160,614,136 (84,852,736) 77,378,798 Repurchase of shares (6,027,367) - - (10,005,429) (10,005,429) -------------------- -------------------- -------------------- -------------------- -------------------- At 31 December 2014 94,428,756 1,617,398 160,614,136 (94,858,165) 67,373,369
As at 31 December 2014, the total authorized number of ordinary shares was 5,000,000,000 (2013: 5,000,000,000) shares with a par value of US$0.01 (2013: US$0.01) per share. As at 31 December 2014, the Company had 161,739,827 (2013: 161,739,827) ordinary shares in issue, of which 67,311,071 (2013: 61,283,704) were held as tendered shares.
Movement of tendered shares are as follows:
Number of shares Repurchase repurchased price Total US$ US$ As at 1 January 2013 48,050,236 64,349,046 Repurchased in July 2013 6,821,375 1.53 10,436,704 Repurchased in December 2013 6,412,093 1.57 10,066,986 ------------------ ------------------ As at 31 December 2013 and 1 January 2014 61,283,704 84,852,736 Repurchased in Sept 2014 6,027,367 1.66 10,005,429 ------------------ ------------------ As at 31 December 2014 67,311,071 94,858,165
7. Dividends
The directors do not recommend the payment of a dividend for the year ended 31 December 2014 and 2013.
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, both of which are 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 2014, the Investment Manager and its subsidiary entered into the following transactions in the Company's shares:
- tendered 511,651 shares of the Company at US$1.660 for repurchase by the Company in September 2014;
- transferred 107,527 shares of the Company from directors or management of the Investment Manager and its subsidiaries.
During the year ended 31 December 2013, the Investment Manager and its subsidiary entered into the following transactions in the Company's shares:
- tendered 659,873 shares of the Company at US$1.530 for repurchase by the Company in July 2013;
- tendered 560,804 shares of the Company at US$1.570 for repurchase by the Company in December 2013;
- transferred 865,425 shares of the Company to directors or management of the Investment Manager and its subsidiaries.
As at 31 December 2014, the Investment Manager and its subsidiary held 4,979,938 (2013: 5,384,062) shares of the Company, representing 5.3% (2013: 5.4%) of the Company's total outstanding shares.
(c) Company's shares held by the Master Fund
During the year ended 31 December 2014, the Master Fund bought 21,055,708 shares and sold 1,685,969 shares of the Company on the open market (2013: the Master Fund sold 975,092 shares of the Company on the open market). As at 31 December 2014, the Master Fund held 26,036,556 (2013: 6,666,818) shares of the Company, representing 27.6% (2013: 6.6%) of the Company's total outstanding 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.
The Fund records its proportionate share of the management fee paid by the Master Fund in the allocation of expenses from the Master Fund.
The Master Fund pays management fees in accordance with the following:
Pursuant to the Amended and Restated Investment Management Agreement dated 20 April 2009, the Investment Manager is entitled to receive a management fee for its service calculated at 2% per annum of the quarterly NAV. The management fee is paid quarterly in advance based on the NAV at the first day of each fiscal quarter.
For the year ended 31 December 2014, the total management fees incurred by the Master Fund amounted to US$40,846,369 (2013: US$40,745,951), of which US$3,234,836 (2013:US$3,333,654) is charged to the Fund. Management fee of US$40,611 (2013: US$239,680) remained payable to the Investment Manager by the Master Fund as at 31 December 2014.
(e) Directors' fees and expenses
The Company pays each of its directors an annual fee of US$70,000 (2013: 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 (2013: US$14,000). During the year ended 31 December 2014, two directors of the Fund, Christopher Marcus Gradel and Anthony Murray Miller, agreed to waive their annual fees.
(f) Amount due to Master Fund
The amounts due to Master Fund represent expenses paid by the Master Fund on behalf of the Fund. The amounts are unsecured, non-interest bearing and repayable on demand.
9. Financial highlights
NAV per share at the end of the year is as follows:
2014 2013 US$ US$ Per share data (for a share outstanding throughout the year): At beginning of the year 1.586 1.485 Net investment loss (0.069) (0.071) Net realized and unrealized gains from investments 0.251 0.201 Allocation of performance fee (0.039) (0.029) ------------ ------------ At end of the year 1.729 1.586
The following represents the ratios to average net assets and other supplemental information:
2014 2013 Total return (1) 8.56% 6.81% Ratios to average net assets (2) Total expenses (other than performance fee) (3) (6.54%) (5.22%) Net investment loss (3.70%) (3.74%)
(1) Total return represents the change in NAV, adjusted for cash flows in relation to capital transactions for the year.
(2) Average net assets is derived from the beginning and ending monthly NAV, adjusted for cash flows related to capital transactions for the year ended 31 December 2014. For the year ended 31 December 2014, the average net assets amounted to US$163,478,213 (2013: US$167,052,284).
(3) The total expenses ratio represents the total expenses of the Fund including both general and investment level expenses.
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 2015 through to 15 April 2015, 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFLISIIELIE
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