TIDMABR
RNS Number : 3318S
Absolute Return Trust Limited
17 November 2011
HALF YEARLY REPORT
The Company has today, in accordance with DTR 6.3.5, released
its Financial Report for the six months ended 30th September 2011.
The Report will be available from the Company's website
www.absolute-funds.com and will shortly be available for inspection
online at www.hemscott.com/nsm.do website.
SUMMARY INFORMATION
Structure
Absolute Return Trust Limited (the "Company") was incorporated
in Guernsey on 21st January 2005 as a closed-ended investment
company. The Company's Redeemable Participating Preference Shares
were listed on the London Stock Exchange on 23rd February 2005 when
it commenced business.
Since incorporation up to 30th September 2011 the Company has
raised the following capital:
Sterling Euro
Shares Shares
GBP EUR
Capital raised at launch
of the Company 66,000,000 -
Capital raised since launch of the Company
to 30th September 2011 198,511,731 20,912,654
Total capital raised by the Company to 30th
September 2011 264,511,731 20,912,654
Shares in issue as at 30th September
2011
Number of
Shares
- Sterling Redeemable Participating
Preference Shares 169,727,429
- Euro Redeemable Participating
Preference Shares 9,597,097
Investment Objective and Policy
The Company's investment objective is to achieve a target return
of three month Sterling LIBOR plus five per cent. over a rolling
five year period, coupled with low volatility. Capital preservation
is a priority. The Company's investment policy is to invest in a
diversified portfolio of hedge funds.
Manager and Investment Advisor
The Manager of the Company is Fauchier Partners Management
Limited (the "Manager") and the Investment Advisor is Fauchier
Partners LLP (the "Investment Advisor").
Financial Highlights
30.9.2011 30.9.2011 31.3.2011 31.3.2011
Sterling Euro Sterling Euro
Shares Shares Shares Shares
Total Net Assets GBP220,881,071 EUR9,171,609 GBP284,911,285 EUR12,476,411
Net Asset Value per Share 130.1p 95.6c 137.1p 100.7c
(Decrease)/increase in
Net Asset Value (5.1%) (5.1%) 1.8% 0.9%
for the period/year per
share
Mid-Market Share Price 109.5p 85.5c 114.3p 85.5c
Discount to Net Asset
Value (15.8%) (10.6%) (16.6%) (15.1%)
The total expense ratio of the Company for the period ended 30th
September 2011 was 1.21 per cent. There was no performance fee
payable to the Manager in respect of that period (31st March 2011:
1.48 per cent including the performance fee payable to the Manager
and 1.29 per cent. excluding such performance fee).
CHAIRMAN'S STATEMENT
Introduction
Over the six months from 1st April 2011 to 30th September 2011,
financial markets were buffeted by powerful political and economic
forces, including the aftermath of the Japanese earthquake at the
start of the period, continuing turbulence across the Middle East
and North Africa, political gridlock in the USA over the debt
ceiling and the federal budget, and the developing Eurozone debt
crisis which came to a head in the late summer and early
Autumn.
Over these six months, equity markets declined steeply, with
falls ranging from 13.5% for the UK FTSE All Share Index to 25% for
a number of European and Asian markets. High yield bond markets
also fell sharply, but the prospect of a long period of low
interest rates and sluggish or negative economic growth led to
falling government bond yields in those countries perceived as safe
havens.
The near panic surrounding the Eurozone led to a resurgence of
fears about the health of the European banking system, with many
commentators starting to draw parallels with the financial crisis
of 2008/9 which followed the insolvency of Lehman Brothers.
Against this background, the fall in value of the Company's
portfolio was relatively modest, although it is always
disappointing to report a loss in absolute terms. The Company's
share price fell by slightly less than the fall in the underlying
portfolio, with a small reduction in its discount to net asset
value.
During the period, the Board announced substantial share
redemption and numerous share buybacks, which are described in more
detail below.
At the Company's Annual General Meeting on 27th September 2011,
shareholders were invited to vote on a resolution for the
Continuation of the Company. Shareholders voted in favour of the
resolution, with 90% voting in favour of Continuation, and the
Board is grateful to them for their continued support and interest
in the Company.
Results
Over the six months to 30th September 2011 the Net Asset Value
of the Company's Sterling Shares has fallen from 137.13p per Share
on 31st March 2011 to 130.14p per Share on 30th September 2011,
representing a decline of 5.1%. Over the same period the Net Asset
Value of the Company's Euro Shares has fallen from EUR1.0073 per
Share to 95.57c per Share (a decline of 5.1%.)
The growth in the Company's Net Asset Value per Share since its
inception in March 2005 has been 4.3% per annum, equivalent to
LIBOR plus 1.6% per annum, compared with our objective of LIBOR
plus 5.0% per annum over rolling five year periods.
The volatility of the Company's Net Asset Value has been 5.6%
per annum over the same period, which is in line with the Company's
objectives.
Discount Management
On 28th April 2011, the Board announced an offer to redeem up to
15% of the Shares in issue. Having received requests in respect of
53% of the Sterling Shares in issue and 25% of the Euro Shares in
issue, the Company redeemed 30,431,930 Sterling Shares and
1,760,972 Euro Shares and proceeds were paid to shareholders on
16th November 2011.
Over the period from 1st April 2011 up to today, the Company has
regularly repurchased Shares in the market, with total purchases
over this period aggregating 9,551,501 Shares.
Notwithstanding these efforts to control the discount, at the
date of this Statement the Company's Sterling shares stand at a
discount to net asset value of 18.7%. The Board monitors this
discount closely, and will continue to use the tools at its
disposal to seek to narrow the discount. It does so in close
consultation with the Manager, in order to ensure that discount
management does not conflict with the most important objective of
delivering positive returns for shareholders without excessive
volatility.
The Company has the authority to offer a redemption facility to
shareholders half-yearly (at end-March and end-September) on an
ongoing basis. Whilst recognising that implementation or otherwise
of this facility will always be at the Board's exclusive discretion
and that Shareholders should have no expectation that the Directors
will under any circumstances operate this facility, it is the
Board's current intention (subject to market conditions,
shareholder sentiment and any legal or tax considerations) to offer
the redemption facility for up to 6% of the issued Share capital of
the Company per annum (calculated on a per Share class basis),
commencing in 2012.
Currency hedging and Liquidity
It remains the Company's policy to hedge its currency exposures
and the Board is satisfied that the foreign exchange and borrowing
facility remains sufficient to manage the cash flows arising from
this activity. The Board and the Manager continue to monitor this
area closely, and the Company's liquid resources are managed whilst
taking account of potential cash outflows from exchange rate
fluctuations.
Board
The Company has recently announced that Graham Harrison will
join the Board of the Company with effect from 1st January
2012.
Graham Harrison is a founding member and Group Managing Director
of Asset Risk Consultants, and a Director of BH Global Limited,
ISIS Property Trust Limited, Real Estate Credit Investments Limited
and Close Enhanced Commodities Fund II Limited.
The Directors are very pleased to have attracted Graham to the
Board and are confident that the Company will benefit from his
extensive investment experience.
Outlook
Financial markets have recovered from their nadir, but material
economic risks remain in the Eurozone and elsewhere, which are
likely to cause further bouts of instability over the coming
months.
The performance of the Company's portfolio has been slightly
disappointing in absolute terms over the first six months of our
financial year. However, its decline in value has been modest in
the context of the general market background, and our share price
has also been relatively stable in this turbulent period. The Board
looks forward to the underlying funds selected by our Manager
delivering positive returns once markets enter a more benign
phase.
Andrew Sykes
Chairman
16th November 2011
INVESTMENT ADVISOR'S REPORT
Performance
For the six months to 30th September 2011 the Company produced a
return in Sterling of -5.1% net of fees (-5.1% in Euro). Since the
Company first invested in a portfolio of hedge funds on 1st March
2005, it has achieved an average annual compound Sterling return of
4.3% for its Sterling Share Class. Over the same period the
Company's Sterling Share Class annualised volatility has been some
5.6% and its "beta", namely the extent to which its returns are
driven by a particular market or index, to the FTSE All Share Index
has been approximately 0.24 and to the Citigroup UK Gilt Index,
-0.19, both of which are low.
The table below gives details of the Company's Sterling Share
Class monthly Net Asset Value performance since 1st March 2005 (the
launch date):
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2011 0.02% 0.61% (0.11%) 0.33% (0.58%) (0.80%) (0.49%) (1.98%) (1.67%) (4.60%)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
2010 (0.14%) 0.36% 1.56% 0.71% (2.34%) (1.65%) 0.55% (0.11%) 1.21% 1.09% 0.43% 1.40% 3.05%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
2009 1.71% (0.83%) 0.67% 1.85% 3.73% 0.01% 2.30% 1.57% 1.79% 0.37% 0.61% 0.04% 14.63%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
2008 (0.77%) 1.83% (2.38%) 1.20% 2.13% 1.53% (1.67%) (1.01%) (5.50%) (6.37%) (0.80%) (1.68%) (13.04%)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
2007 1.11% 1.98% 0.83% 1.32% 1.86% 1.06% 2.28% (0.27%) 1.54% 3.46% 0.52% 1.15% 18.14%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
2006 2.08% (0.10%) 1.34% 1.53% (0.87%) (0.54%) 0.26% 0.27% 0.00% 1.09% 1.39% 0.82% 7.46%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
2005 - - (0.04%) (1.25%) 0.32% 1.62% 1.65% 0.97% 1.96% (1.31%) 1.11% 1.21% 6.34%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
The Portfolio
It is the Company's policy to invest in a diversified portfolio
of hedge funds. As at 30th September 2011 the Company had holdings
in 34(1) Hedge Funds across 11 different strategies, two more funds
than at the start of the period. Five funds were added and three
removed.
Over the period, the proportion of Absolute Value funds included
in the Company's portfolio has increased by approximately 3% to
approximately 68% as at 30th September 2011.
[1] Refers to holdings greater than 10 basis points of Assets
under Management.
Market Review
Markets were again dominated by overarching macro-economic and
political concerns. The predicament of the Eurozone went from bad
to worse, with politicians seemingly reluctant to take sufficient
steps to reassure the markets. Economic data was universally poor,
especially in the United States where the labour market softened,
consumer confidence stalled, and manufacturing activity slowed.
Congress produced a political impasse of its own, wrangling until
the eleventh hour before raising its debt ceiling and averting an
almost inconceivable default. Standard & Poor's downgraded the
United States' credit rating shortly thereafter, which had the
perverse effect of driving capital towards the perceived 'safe
haven' of US Treasuries. The yield on a 10-year US government bond
dropped to approximately 1.7%, its lowest level since the 1940s.
Given that inflation is running around 3.8%, this represents a
negative real return of 2.1%. Similarly, in the UK Gilt yields fell
to their lowest level since 1899 ahead of the Bank of England
announcing a further GBP75 billion of purchases.
Equity markets slumped with the MSCI World Index falling 17.3%.
In Europe, the CAC 40 plunged by over 25% as investors feared for
the stability of some banks which saw their credit ratings
downgraded. In a manner reminiscent of 2008, the cost of protecting
against the possibility of these banks defaulting on their debt
rose sharply, perhaps as a consequence of the re-imposition of a
short-selling ban in some jurisdictions. No major equity market was
spared; the Hang Seng lost a quarter of its value, while Japan was
the best relative performer with a drop of 'only' 11%. As one might
expect, these falls were accompanied by extreme volatility, with
the VIX Index more than doubling from around 18 at the end of March
2011 to finish the period just below 43. Levels of intra-stock
correlation surpassed those of recent crises, reaching an all-time
high of 0.74 for the components of the S&P 500.
In currency markets, the euro fell 5% against US dollars which
has appreciated against every major currency but the Yen, with both
seen as safe harbours in uncertain times. In a surprise move, the
Swiss National Bank announced that it would defend a floor against
the Euro to prevent further appreciation, triggering a single day
decline of 8.7%.
All this precipitated a phenomenal move in precious metals. The
spot price of gold soared by 27.7% between 1st July and 5th
September, only to plummet 14.5% by month end. This de-leveraging
of speculative positions proved un-nerving forgold bulls, as it
coincided with weakness in risk assets and suggested that gold
cannot necessarily be depended upon as an effective hedge.
Hedge Fund Strategies
Contribution by Strategy
Macro managers were down in aggregate. One manager performed
well, as a bearish outlook on Europe combined with long US dollar
and short equity positions to generate good returns. A commodities
manager was flat as gains from positions in base metals and gold
were offset by losses in agricultural goods. The other two Macro
managers were down slightly as poor trading of high-yield credit
and equity positions resulted in losses for one, while equities and
long positions in precious metals detracted for the other. The
Fixed Income strategy performed well. The bulk of the returns came
from directional trades in US and European interest rates, as well
as from yield curve trades in the US. Positions in short-term
European interest rates were particularly successful after the
manager correctly identified that EURIBOR rates were not pricing in
the potential risks to growth in Europe.
Equity Hedged managers struggled against the headwinds of
declining markets and elevated levels of intra-stock correlation
with the result that each of the sub-strategies was down overall.
Managers' returns varied widely depending on their ability to trade
tactically and their stock selection skills. The Equity Long Biased
managers lost money, although hedges helped to limit the downside
despite a higher level of market exposure. For one manager in
particular, gains on its relatively small short book were
sufficiently strong to dampen losses on its much larger long book
which were driven by positions in Technology, Aerospace, and
Chemicals. The Equity Hedged High Volatility managers displayed a
wide degree of dispersion with much of their performance
attributable to sector and stock specific movements. Financials
were particularly problematic for some managers and a dedicated
Financials manager was one of the largest detractors within this
strategy. By contrast, a Technology specialist and a recently added
Utilities-focused manager performed well to end the period up
slightly. Most of the Equity Hedged Low Volatility managers more or
less broke even, although overall the strategy was down largely due
to the performance of one manager whose short positions struggled
to insulate its portfolio from the macro risks, such as commodities
and global GDP growth, that negatively impacted its long book.
Unsurprisingly Short Bias managers had a very successful six
months. Managers benefitted not only from the extent of the market
sell-off but also from their ability to generate excess performance
from particular names and themes. Companies exposed to Chinese
economic slowdown performed particularly well, as did a number of
positions in alternative energy.
The Event Driven strategy lost money, with activist managers
particularly suffering from the sell-off in risk assets. For one
manager a position in a property-related business declined
substantially, while a US financials name underperformed due to a
downgrade in its long-term debt rating. Other managers also
encountered difficulties in the form of idiosyncratic deal risk,
for example, a merger arbitrage fund was hurt by an unsuccessful
management buy-out and a large merger that failed to complete,
although this manager was able to capitalise on the widening of
deal spreads in August.
Credit markets proved difficult to negotiate for the Specialist
Credit managers, resulting in losses for the strategy as a whole
despite several of the well hedged managers broadly protecting on
the downside. The bulk of the loss was attributable to an
event-orientated manager whose special situation positions
detracted, as did certain distressed names which were adversely
impacted by the high-yield sell-off. In the manager's opinion,
their positions remain well collateralized with near-term catalysts
and they are confident of a good eventual recovery.
The allocation to Volatility Trading continues to decline as we
gradually withdraw capital from this area. The turbulent markets in
recent months made for difficult conditions for our remaining
Volatility Trading manager who generated some losses primarily from
less liquid positions that are being worked out.
Multiple Strategy managers had a varied experience and ended
down slightly for the period. An Asia-focussed manager held up well
in the broad market sell-off, buoyed by a healthy contribution from
bridge financing positions. Other managers were down with losses
spread across equity, structured credit and commodity-related
positions.
Portfolio Liquidity(2)
The table below shows the expected liquidity profile of the
portfolio and cash.
Expected time to cash flow Proportion
Within 3 months 23.1%
3 to 6 months 57.8%
6 to 12 months 7.2%
Greater than 12 months 11.9%
-----------
Total 100.0%
===========
(2) The directors of the Company believe that it is more
meaningful to measure the liquidity of the portfolio's underlying
funds on a cash-settled basis rather than a value-date basis. The
table therefore assumes that (i) redemption notice had been given
to all underlying funds as at 30 September 2011; (ii) a one-month
period elapses before settlement of redemption terms is made by the
underlying funds; (iii) any "audit holdbacks" permitted by an
underlying fund's redemption terms are imposed in full; (iv) any
applicable "soft lock-up" fees of 5% or under would be paid by the
Company; (v) where there is currently no firm indication from the
underlying manager on the expected timing of the receipt of
redemption proceeds, the relevant amount is included in the
"greater than 12 months" category. Cash and short-term receivables
are included in the "0-3 months" category.
The directors believe that the table is therefore very
conservative because, in practice, settlement periods tend to be
shorter and audit holdbacks are not always imposed. However, it
should still be emphasised both that the information in the table
is based on estimates and also that it may not be an indication of
the Company portfolio's future liquidity.
Outlook
For much of the past year, we have been concerned that
insufficient opportunities existed for the responsible investor in
hedge funds to make adequate returns. Notwithstanding the
considerable remaining macro uncertainty, major dislocations have
taken place that have moved us closer to the time when our managers
can once again be on the front foot. The outlook for different
regions, sectors and most importantly companies varies enormously,
yet there has never been less differentiation between the prices
and valuations which the market is putting on these future cash
flows. This creates substantial opportunity for the best
fundamental long/short investors over a medium-term time horizon.
Yet time, in the form of capital with a genuinely long duration, is
a luxury afforded to very few. This is why our portfolios are
increasingly focused on process-driven hedge funds of the sort that
create their own catalysts for value creation.
Specialist Credit is an area in which we are very positive.
Thanks to an orderly but pronounced sell-off of the high-yield bond
market, these managers are finding very compelling credit
investments of a nature that was not available a few months ago.
For example, managers are buying the senior-secured debt of
defensive companies with strong cash flows at significant
discounts. Typically these bonds will mature within a couple of
years and so there is a clear catalyst for value realisation. In
spite of attractive situations such as these, we must be mindful
that the headline default rate is low, and is only likely to go up
over the next 18-24 months. So, a hedged approach is essential if
one is to manage short-term volatility and take full advantage of
these opportunities.
We have learned from prior experience that there are no prizes
for being early in the distressed cycle and that usually one has
time to take advantage of other participants' discomfort or
recklessness. However, it is imperative that we have capital to put
to work when the moment arises and so we are making some further
adjustments to the composition of the portfolio with the intention
of adding to this area early in 2012.
Fauchier Partners LLP
16th November 2011
PORTFOLIO STATEMENT (Unaudited)
% Total % Total
No. of of Value of Value
As at 30th September 2011 shares Fair of of
Company Company
held on Value as at as at
Description 30.9.2011 GBP 30.9.2011 31.3.2011
Hedge Funds
Alydar Fund Ltd 124,121.07 10,447,877 4.57
Ascend Partners Fund II,
Ltd 117,400.00 7,001,118 3.06
Bay Resource Partners
Offshore Fund, Ltd 1,945.77 7,869,831 3.44
Brahman Partners Ltd 14,310.00 7,634,235 3.34
Brevan Howard Fund Ltd 66,408.43 12,369,837 5.41
CFIP Overseas Fund Ltd 10,979.66 9,100,824 3.98
Claren Road Credit Fund
Ltd 3.00 1,859,344 0.81
Comac Global Macro Fund
Ltd 124,157.23 10,030,301 4.38
Criterion Capital Partners
Ltd 85,348.99 11,413,178 4.99
Dabroes Offshore Investment
Fund Ltd 14,281.00 8,917,004 3.90
Drawbridge Global Alpha
V Fund Ltd 181.89 227,246 0.10
Drawbridge Global Macro
Fund Ltd 174.51 144,004 0.06
Elm Ridge Value Partners
Offshore Fund, Inc 85,640.77 12,165,887 5.32
Empyrean Capital Partners 19,059.26 11,419,349 4.99
Farallon Capital Management
LLC 2.00 867,905 0.37
Fauchier Partners Counterpoint
Fund Ltd * 20,976.97 11,810,728 5.16
Fauchier Partners Incubator
Fund Ltd * 84,450.99 7,889,970 3.45
Fortress Commodities 8,873.81 5,984,287 2.62
Fortress Macro Offshore
LP 15,239.87 9,677,079 4.23
Harbinger Capital Partners
Offshore Fund I, Ltd 6,496.23 3,516,117 1.54
Highbridge Asia Opportunities
Fund, Ltd 23.71 175,243 0.08
Knighthead Offshore 8,717.35 7,632,607 3.34
Lansdowne Global Financials
Fund Limited 69,851.96 9,968,293 4.36
Lansdowne UK Equity Fund
Limited 50,661.78 11,758,821 5.13
OZ Europe Overseas II
Fund Ltd 13,976.78 9,563,162 4.18
OZ Overseas Fund II, Ltd 1.00 31,898 0.01
Pacific Alliance Asia
Opportunities Fund LP 1.00 7,043,487 3.08
Pershing Square International,
Ltd 6,503.78 7,955,053 3.48
Riva Ridge Offshore Fund
Ltd 14,150.00 9,217,210 4.03
Roundkeep Icho Global
Fund 15,525.90 9,380,073 4.10
SEG Partners Offshore
Fund Ltd 65,717.18 8,898,525 3.88
Shepherd Investments International,
Ltd 3,043.24 2,056,783 0.90
Sunbeam Opportunities
Offshore 10,611.51 9,565,485 4.18
Trian Partners Ltd 11,925.00 7,316,409 3.20
Vicis Capital Fund (International) 14,743.93 2,281,091 1.00
Walker Smith International
Fund, Ltd 564.36 10,927,441 4.78
Wexford Offshore Spectrum
Fund 2,199.67 8,391,045 3.67
ZLP Offshore 116,700.00 7,716,074 3.37
Total investments 280,224,821 122.49 94.38
Other net current (liabilities)/assets (51,444,373) (22.49) 5.62
Total value of Company
(attributable to
Redeemable Participating Preference
Shares) 228,780,448 100.00 100.00
* Fauchier Partners Counterpoint Fund Ltd and Fauchier Partners
Incubator Fund Ltd are classed as related parties as they share the
same Investment Advisor and Manager as the Company.
RESPONSIBILITY STATEMENT
Responsibility Statement of the Directors in respect of the
Interim Condensed Financial Statements
We confirm that to the best of our knowledge:
-- the condensed set of Financial Statements has been prepared
in accordance with International Accounting Standard 34, "Interim
Financial Reporting", and
-- the Chairman's Statement and Investment Advisor's Report meet
the requirements of an interim management report, and include a
fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Andrew Sykes Nicholas Fry
16th November 2011 16th November 2011
INDEPENDENT REVIEW REPORT
To the Company
Introduction
We have been engaged by Absolute Return Trust Limited(the
"Company") to review the condensed set of Financial Statements in
the half-yearly financial report for the six months ended 30th
September 2011 which comprises the Condensed Unaudited Statement of
Comprehensive Income, the Condensed Unaudited Statement of Changes
in Equity, the Condensed Unaudited Statement of Financial Position,
the Condensed Unaudited Statement of Cash Flows and the related
explanatory notes. We have read the other information contained in
the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the condensed set of Financial Statements.
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTRs")
of the UK's Financial Services Authority ("the UK FSA"). Our review
has been undertaken so that we might state to the Company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company
for our review work, for this report, or for the conclusions we
have reached.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTRs of the UK FSA.
As disclosed in Note 1, the Annual Financial Statements of the
Company are prepared in accordance with International Financial
Reporting Standards. The condensed set of Financial Statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting".
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of Financial Statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of Financial Statements
in the half-yearly financial report for the six months ended 30th
September 2011 is not prepared, in all material respects, in
accordance with IAS 34 and the DTRs of the UK FSA.
Mark R Thompson
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
16th November 2011
Note
a) The maintenance and integrity of the Absolute Return Trust
Limited website is the responsibility of the Investment Advisor;
the work carried out by the auditors does not involve consideration
of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the
Financial Statements or Independent Review Report since they were
initially presented on the website.
b) Legislation in Guernsey governing the preparation and
dissemination of Financial Statements may differ from legislation
in other jurisdictions.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
For the period from 1st April 2011 to 30th September 2011
1.4.2011 1.4.2010
to to
30.9.2011 30.9.2010
Notes Revenue Capital Total Total
GBP GBP GBP GBP
Investment income
Other income 2,073 - 2,073 59,463
Total investment income 2,073 - 2,073 59,463
Net losses on financial
assets at
fair value through profit
or loss 1, 4 - (7,060,619) (7,060,619) (14,022,900)
Net (losses)/gains on
foreign exchange 1, 5 - (7,405,150) (7,405,150) 9,492,998
Total expense 2,073 (14,465,769) (14,463,696) (4,470,439)
Expenses
Management fee 6 (1,428,673) - (1,428,673) (1,500,619)
Performance fee 7 (8,778) - (8,778) -
Interest expense (11,359) - (11,359) -
Other expenses 10 (579,915) - (579,915) (417,918)
Total expenses (2,028,725) - (2,028,725) (1,918,537)
Loss for the period
(#) (2,026,652) (14,465,769) (16,492,421) (6,388,976)
Loss for the period
Sterling Share Class GBP(1,942,556) GBP(14,045,773) GBP(15,988,329) GBP(6,023,677)
Loss for the period
Euro Share Class EUR(80,252) EUR(508,727) EUR(588,979) EUR(455,691)
Exchange gains/(losses) on
translation reserve - GBP8,468 GBP8,468 GBP(19,902)
Earnings per Participating
Redeemable
Preference Share - basic and
diluted*;
Sterling Share Class (0.95p) (6.87p) (7.82p) (2.79p)
Euro Share Class (0.69c) (4.37c) (5.06c) (2.63c)
* Earnings per Participating Redeemable Preference Share is
based on the weighted average number of Redeemable Participating
Preference Shares. The weighted average number of Redeemable
Participating Preference Shares for the period for the Sterling
Share Class and the Euro Share Class respectively were 204,509,989
and 11,631,900 (30th September 2010: 215,751,374 and
16,945,020).
The 'Total' column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
IFRS. The supplementary 'Revenue' and 'Capital' columns are both
prepared under guidance published by the Association of Investment
Companies.
(#) All of the Company's income and expenses are included in the
"loss for the period" and therefore the loss for the period is also
the Company's total comprehensive income for the period, as defined
by IAS 1 (revised).
All items in the above statement derive from continuing
operations.
CONDENSED STATEMENT OF CHANGES IN EQUITY (Unaudited)
For the period from 1st April 2011 to 30th September 2011
Share Realised Unrealised Other
Capital Capital Capital Revenue Distributable
Account Reserve Reserve Reserve Reserve Total
GBP GBP GBP GBP GBP GBP
Balance brought forward at
31st March 2011 35,053,446 5,719,933 52,152,363 (16,783,563) 219,814,521 295,956,700
Total comprehensive
income/(expense)
for the period - 25,401,120 (39,866,889) (2,026,652) - (16,492,421)
Transactions
with Shareholders;
Redemption of
Shares (26,314,391) (14,739,177) (41,053,568)
Cancellation
of Shares (9,496,583) - - - (133,680) (9,630,263)
Net effect of
Shares
conversion 757,528 - - - (757,528) -
Balance carried
forward at
at 30th September
2011 - 31,121,053 12,285,474 (18,810,215) 204,184,136 228,780,448
Net Assets attributable to holders of Redeemable Participating
Preference Shares at the end of the period. 228,780,448
For the period from 1st April 2010 to 30th September 2010
Share Realised Unrealised Other
Capital Capital Capital Revenue Distributable
Account Reserve Reserve Reserve Reserve Total
GBP GBP GBP GBP GBP GBP
Balance brought forward at
31st March 2010 43,286,771 (8,793,833) 60,063,679 (12,358,361) 225,178,321 307,376,577
Total comprehensive
income/(expense)
for the period - 2,874,381 (7,404,283) (1,859,074) - (6,388,976)
Transactions
with Shareholders;
Cancellation of
Shares (3,397,540) - - - - (3,397,540)
Net effect of Shares
conversion 2,957,073 - - - (2,957,073) -
Balance carried
forward at
at 30th September
2010 42,846,304 (5,919,452) 52,659,396 (14,217,435) 222,221,248 297,590,061
Net Assets attributable to holders of Redeemable Participating
Preference Shares at the end of the period. 297,590,061
CONDENSED STATEMENT OF FINANCIAL POSITION (Unaudited)
As at 30th September 2011
(Unaudited) (Audited)
30.9.2011 31.3.2011
Notes GBP GBP
ASSETS
Non-current assets
Financial assets at fair value
through profit or loss 1, 12 280,224,821 279,331,825
Current assets
Cash and cash equivalents 11 6,325,431 11,243
Unrealised gains on open forward
foreign
currency contracts 21 503,261 1,936,645
Other receivables 13 1,889,024 35,701,373
Total assets 288,942,537 316,981,086
============ ============
EQUITY AND LIABILITIES
CURRENT LIABILITIES
Redemptions payable 15 40,822,706 -
Other payables 14 3,749,678 6,645,046
Unrealised losses on open
forward foreign
currency contracts 21 15,589,705 6,399
Bank overdraft 11 - 14,372,941
Total liabilities 60,162,089 21,024,386
------------ ------------
EQUITY
Share Capital Account 15 - 35,053,446
Other Distributable Reserve 16 204,184,136 219,814,521
Retained Earnings 16 24,596,312 41,088,733
Total equity 228,780,448 295,956,700
Total equity and liabilities 288,942,537 316,981,086
Number of Sterling Redeemable Participating
Preference
Shares in issue 17 169,727,429 207,761,831
Number of Euro Redeemable Participating
Preference
Shares in issue 17 9,597,097 12,385,490
Net assets attributable to holders of
Sterling Redeemable
Participating Preference Shares
(per share) 17 130.1p 137.1p
============ ============
Net assets attributable to holders of
Euro Redeemable
Participating Preference Shares
(per share) 17 95.6c 100.7c
============ ============
The condensed Interim Financial Statements were approved on 16th
November 2011 and signed on behalf of the Board of Directors
by:
Andrew Sykes Nicholas Fry
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
For the period from 1st April 2011 to 30th September 2011
1.4.2011 1.4.2010
to to
Note 30.9.2011 30.9.2010
GBP GBP
Cash flows from operating activities
Total loss for the period (16,492,421) (6,388,976)
Adjusted for:
Losses on financial assets at fair value
through profit or loss 7,060,619 14,022,900
Realised and unrealised losses/(gains)
on forward foreign
currency contracts 5,299,511 (11,943,578)
Exchange losses on cash and cash
equivalents 2,114,107 2,430,678
Exchange (gains)/losses on translation
reserve (8,468) 19,902
Operating cash flows before movements
in working capital (2,026,652) (1,859,074)
Increase in other receivables 26,739 -
Decrease in other payables (592,745) (928,797)
Net cash used in operating activities (2,592,658) (2,787,871)
Cash flows from investing activities
Purchase of financial assets at fair
value through profit or loss (32,797,920) (46,824,341)
Sale of financial assets at fair
value through profit or loss 55,953,190 65,181,313
Net receipts/(payments) on forward
currency contracts 11,725,647 (12,209,989)
Net cash generated from investing
activities 34,880,917 6,146,983
Cash flows from financing activities
Cancellation of Redeemable Participating
Preference Shares (9,487,023) (3,397,540)
Net cash used in financing activities (9,487,023) (3,397,540)
Net increase in cash and cash
equivalents 22,801,236 (38,428)
Cash and cash equivalents at beginning
of period (14,361,698) 12,410,073
Exchange losses on cash and cash
equivalents (2,114,107) (2,430,678)
Cash and cash equivalents at end
of period 11 6,325,431 9,940,967
Supplementary cash flow information
Cash flows from operating activities
include:
1.4.2011 1.4.2010
to to
30.9.2011 30.9.2010
GBP GBP
Interest received - -
Interest paid (11,359) -
NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL
STATEMENTS
For the period from 1st April 2011 to 30th September 2011
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently
in dealing with items which are considered to be material in
relation to the Company's Interim Condensed Financial
Statements:
Basis of accounting
The Interim Condensed Financial Statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting" and the
Disclosures and Transparency Rules ("DTRs") of the UK's Financial
Services Authority.
The Interim Condensed Financial Statements do not include all
the information and disclosures required in the Annual Financial
Statements and should be read in conjunction with the Company's
Annual Report and Audited Financial Statements for the year ended
31st March 2011. The Audit Report on those accounts was not
qualified.
Going concern
As described in the Note 15, there is a provision included in
the Company's Articles of Association for a continuation vote to be
put to the members of the Company if the Shares trade at a discount
of more than 5.0 per cent at each monthly Net Asset Value
calculation date over the course of a full financial year. So far
this period, the Company's Shares have traded at a discount in
excess of such level. However, the Company continues to perform
satisfactorily and monitors and manages its liquidity as described
in Note 22. After making enquiries and given the nature of the
Company and its investments, the Directors are satisfied that it is
appropriate to continue to adopt the going concern basis in
preparing the Interim Condensed Financial Statements and, after due
consideration, consider that the Company is able to continue in the
foreseeable future. In addition, at the Company's Annual General
Meeting on 27th September 2011, shareholders voted in favour of the
Continuation of the Company.
Presentation of information
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for Investment Trust Companies issued
by the Association of Investments ("AIC") in January 2009 is
consistent with the requirements of IFRS, the Directors have sought
to prepare the Financial Statements on a basis compliant with the
SORP. Supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented within the Statement of Comprehensive
Income.
Standards, amendments and interpretations not yet effective
At the date of approval of these Financial Statements, the
following standards and interpretations, which have not applied in
these Financial Statements, were in issue but not yet
effective:
-- IFRS 9 - Financial instruments: Classification and
measurement (effective date - 1st January 2013)
-- IFRS 10 - Consolidated Financial Statements (effective date - 1st January 2013)
-- IFRS 11 - Joint arrangements (effective date - 1st January 2013)
-- IFRS 12 - Disclosure of interest in other entities (effective date - 1st January 2013)
-- IFRS 13 - Fair value measurement (effective date - 1st January 2013)
IFRS 9, 'Financial Instruments was issued in December 2009 and
addresses the classification and measurement of financial assets
and is likely to affect the Company's accounting for financial
assets. The standard is not applicable until 1 January 2013 but it
is available for early adoption. The Company is currently in the
process of evaluating the potential effect of this standard. The
standard is not expected to have a significant impact on the
financial statements since the majority of the Company's financial
assets are designated at fair value through profit or loss.
Annual improvements to IFRS's were issued by the IASB on 6th May
2010 and contain minor amendments to standards for periods
beginning on or after 1st January 2011. No material changes to
accounting policies are expected as a result of these changes.
Financial instruments
Financial assets and financial liabilities are recognised on the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument.
Financial assets and liabilities, other than those shown at fair
value through profit or loss, are measured at amortised cost using
the effective interest rate method.
Financial assets at fair value through profit or loss
("investments")
Purchases and sales of investments are recognised on the trade
date (the date on which the Company commits to purchase or sell the
investment). Investments purchased are initially recorded at fair
value, being the consideration given and excluding transaction or
other dealing costs associated with the investment. Gains and
losses on investments sold are shown in Note 4 and recognised in
capital in the Condensed Statement of Comprehensive Income in the
period in which they arise. The investments are managed and their
performance is evaluated on a fair value basis which is consistent
with the Company's documented investment strategies. The
information regarding the Company's portfolio is also provided on
that basis to the Board.
Other financial instruments
For other financial instruments, including other receivables,
other payables and unrealised gains or losses on open forward
foreign currency contracts, the carrying amounts as shown in the
Condensed Statement of Financial Position approximate to fair
values due to the short term nature of these financial
instruments.
Forward foreign currency contracts
Forward foreign currency contracts are derivative contracts and
as such are recognised at fair value on the date on which they are
entered into and subsequently remeasured at their fair value. Fair
value is determined by rates in active currency markets. All
derivatives are carried as assets when fair value is positive and
as liabilities when fair value is negative.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the Condensed Statement of Financial
Position, if and only if, there is a currently enforceable legal
right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise assets and settle the
liabilities simultaneously.
Fair value
Investments of the Company consist of shares or units in hedge
funds and these are valued at the latest estimate of net asset
value from the administrator of the respective hedge fund i.e. most
recent price is the best estimate of the amount for which holdings
could have been disposed of at the statement of financial position
date. These values may be unaudited or may themselves be estimates.
In addition, these entities or their administrators may not provide
values at all or in a timely manner and to the extent that values
are not available, those investments will be valued by the Board
using valuation techniques appropriate for those investments. In
determining fair value, the Board takes into consideration, where
applicable, the impact of suspensions, of redemptions, liquidation
proceedings, investments in side pockets and other significant
factors. Actual results may differ from these estimates.
Gains and losses arising from changes in the fair value of
financial assets are shown as net gains or losses on financial
assets through profit or loss in Note 4 and recognised in capital
in the Condensed Statement of Comprehensive Income in the period in
which they arise.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to
receive cash flows from the asset have expired, (b) the Company
retains the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to
a third party under a "pass through arrangement"; or (c) the
Company has transferred substantially all the risks and rewards of
the asset, or has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expired.
Significant accounting judgements, estimates and assumptions
The preparation of the Company's Financial Statements requires
the Directors to make judgements, estimates and assumptions that
affect the reported amounts of income, expenses, assets and
liabilities at the reporting date. However, uncertainties about
these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of the assets
or liabilities affected in future periods. Although some of the
Company's underlying investments have imposed restrictions on
redemptions the Directors believe it remains appropriate to
estimate their fair values based on net asset values as reported by
the Administrators of the relevant investments. The Directors
believe that such net asset values represent fair value because
subscriptions and redemptions in the underlying investments occur
at these prices at the Statement of Financial Position date.
Income
All income is accounted for on an accruals basis and is
recognised in the Condensed Statement of Comprehensive Income.
Interest income for all debt instruments is recognised using the
effective interest rate method.
Expenses
Expenses are accounted for on an accruals basis. Expenses
incurred on the acquisition of investments at fair value through
profit or loss are charged to the Condensed Statement of
Comprehensive Income in capital. All other expenses are charged to
the Condensed Statement of Comprehensive Income in revenue.
Share issue expenses
Share issue expenses are fully written off against the Share
Capital Account in the period of the share issue.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and demand
deposits. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to insignificant changes in value.
Capital reserves
Gains and losses recorded on the realisation of investments and
realised exchange differences of a capital nature are transferred
to the realised capital reserve. Unrealised gains and losses
recorded on the revaluation of investments held at a period end and
unrealised exchange differences of a capital nature are transferred
to the unrealised capital reserve.
Translation of foreign currency
Items included in the Company's Financial Statements are
measured using the currency of the primary economic environment in
which it operates (the "functional currency"). The majority of the
Company's Shares are denominated in Sterling (a small number are
denominated in Euros) and its operating expenses are incurred in
Sterling. While the Company's investments are denominated in US
Dollars all exposure to this currency is hedged by forward foreign
currency. Accordingly the Directors regard Sterling as the
functional currency. The Company has also adopted Sterling as its
presentational currency.
The assets and liabilities of the Company that are denominated
in a currency other than the functional currency are translated
using the exchange rate as at the statement of financial position
date. The Statement of Changes in Equity is translated into
Sterling for aggregation purposes using an average rate of exchange
for the period, with the exception of Share Capital Account which
is translated at the rate ruling at the date of the transaction and
the unrealised gains on investments which are translated at the
rates ruling as at the statement of financial position date.
Exchange differences arising on aggregation are taken to equity and
subsequently transferred to net assets attributable to Redeemable
Participating Preference Shares.
Translation differences on financial assets held at fair value
through profit or loss are reported as part of net gains on
financial assets at fair value through profit or loss in the
Condensed Statement of Comprehensive Income under capital.
2. TAXATION
The Company has been exempted from taxation in Guernsey under
the provisions of The Income Tax (Exempt Bodies) (Guernsey)
Ordinance 1989. Its liability is an annual exemption fee of
GBP600.
3. DISTRIBUTION TO SHAREHOLDERS
The Directors do not expect income (net of expenses) to be
significant for the foreseeable future and do not currently expect
to declare any dividends. In the event that the net income is
significant, the Directors may consider the distribution of net
income in the form of dividends. To the extent that any cash
dividends are paid, they will be paid in accordance with applicable
Guernsey laws and the regulations of the UK Listing Authority.
The Company has a feature which, subject to a shareholder making
an election, may allow a shareholder to benefit from an annual
capital distribution dependent on Net Asset Value performance. This
will be achieved by way of a partial redemption of shares. The
feature operates in each financial year if the Net Asset Value has
risen at least 5.0 per cent. over each financial year.
4. NET LOSSES ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
1.4.2011 1.4.2010
to to
30.9.2011 30.9.2010
GBP GBP
Net losses on financial assets at
fair value through profit or loss
during the period
comprise:
Gains realised on investments sold
during the period 15,957,900 16,351,780
Movement in unrealised
losses arising from
changes in fair value during
the period (23,018,519) (30,374,680)
Net losses on financial
assets at
fair value through profit
or loss (7,060,619) (14,022,900)
5. NET (LOSSES)/GAINS ON FOREIGN EXCHANGE
1.4.2011 1.4.2010
to to
30.9.2011 30.9.2010
GBP GBP
Realised gains/(losses) on forward
foreign currency contracts 11,717,178 (12,190,086)
Unrealised (losses)/gains on forward
foreign currency contracts (17,016,689) 24,133,664
Exchange losses on cash and
cash equivalents (2,114,107) (2,430,678)
Exchange gains/(losses) on
translation reserve 8,468 (19,902)
(7,405,150) 9,492,998
The Company's investment portfolio is denominated in US Dollars
and the currency risk has been hedged with forward foreign currency
contracts.
6. MANAGEMENT FEE
The Company's manager is Fauchier Partners Management Limited
(the "Manager"). The Manager is entitled to an annual management
fee, calculated monthly and payable monthly in arrears, at the rate
of 1.0 per cent. of the monthly gross assets of the Company. The
Manager is also entitled to reimbursement of certain expenses
incurred by it in connection with its duties. The Company's
investment advisor is Fauchier Partners LLP (the "Investment
Advisor"). The Manager will be responsible for discharging all fees
of the Investment Advisor out of its management fee. During the
period ended 30th September 2011 management fees of GBP1,428,673
were charged to the Company (30th September 2010: GBP1,500,619) and
GBP221,993 was payable at the period end (31st March 2011:
GBP252,077).
7. PERFORMANCE FEE
The Manager is also entitled to a performance fee if the Net
Asset Value per Share for each class of Share at the end of the
Performance Period (31st March each year and after adjustments for
share issues/redemptions/repurchases);
a) Exceeds the Net Asset Value per Share at the start of the
Performance Period by more than the Performance Hurdle; and
b) Exceeds the highest previously recorded Net Asset Value of
the relevant class of Share as at the end of a Performance Period
in respect of which a performance fee was last paid;
The Performance Hurdle applicable in respect of a Performance
Period is 110.0 per cent. of three month Sterling LIBOR or EURIBOR,
as applicable, compounded quarterly and is pro-rated where the
Performance Period is greater or shorter than one year.
If the Performance Hurdle for a Performance Period is met, then
a performance fee will be calculated and payable to the Manager
equal to 10.0 per cent. of the total increase in the Net Asset
Value per Share on all share classes in issue at the end of the
relevant Performance Period over the Net Asset Value per Share at
the start of the relevant Performance Period multiplied by the
aggregate number of shares in issue for each share class (having
made adjustment for any issue and/or redemption and/or repurchase
of shares of each class or other distributions made in respect
thereof) at the end of the relevant Performance Period.
During the period ended 30th September 2011 performance fees
amounting to GBP8,778 were charged to the Company (30th September
2010: GBPNil) and GBP804 was payable at the period end (31st March
2011: GBP552,250).
8. ADMINISTRATION FEE
The Company's administrator is Northern Trust International Fund
Administration Services (Guernsey) Limited (the "Administrator").
The Administrator is entitled to receive an annual fee, equal to
0.125 per cent. per annum on the first GBP50.0 million, 0.10 per
cent. per annum on the next GBP50.0 million and 0.075 per cent. per
annum thereafter of the Net Asset Value of the Company, calculated
monthly and payable monthly in arrears, subject to a minimum fee of
GBP48,000 per annum. In addition, the Administrator and any of its
delegates will also be entitled to reimbursement of certain
expenses incurred by them in connection with their duties. During
the period ended 30th September 2011 administration fees of
GBP128,481 (30th September 2010: GBP134,845) were charged to the
Company and GBP41,316 was payable at the period end (31st March
2011: GBP22,561).
9. CUSTODIAN FEE
The Company's custodian is Northern Trust (Guernsey) Limited
(the "Custodian"). The Custodian is entitled to receive an annual
fee equal to 0.075 per cent. per annum of the Net Asset Value of
the Company, calculated monthly and payable monthly in arrears,
subject to a minimum fee of GBP24,000 per annum. In addition, the
Custodian will receive GBP100 per transaction executed. During the
period ended 30th September 2011 custodian fees of GBP107,151 (30th
September 2010: GBP112,547) were charged to the Company and
GBP34,258 was payable as at the period end (31st March 2011:
GBP22,561).
10. OTHER EXPENSES
1.4.2011 1.4.2010
to to
30.9.2011 30.9.2010
GBP GBP
Administration
fee (Note 8) 128,481 134,845
Custodian fee (Note
9) 107,151 112,547
General expenses 120,783 97,026
Commitment fee in respect
of credit facility 150,000 -
Directors' fees
(Note 19) 62,500 62,500
Audit fee 11,000 11,000
579,915 417,918
11. CASH AND CASH EQUIVALENTS
30.9.2011 31.3.2011
GBP GBP
Current deposits
with banks 6,325,431 11,243
Bank overdraft - (14,372,941)
6,325,431 (14,361,698)
All cash balances attract interest at variable rates.
A committed credit facility covering borrowings and spot and
forward foreign exchange was made available to the Company by its
bankers during the period. As at 30th September 2011 the aggregate
amount outstanding under this facility should not exceed the lower
of 20.0 per cent. of the Net Asset Value of the Company or GBP60.0
million (or the currency equivalent thereof). The Company is
charged a commitment fee of 0.5 per cent. per annum of the
committed facility and interest of 1 per cent. above the base rate
on any overdrawn balance. The facility is valid for one year with
the option to renew.
The repayment of all monies at any time owing by the Company to
the bank is secured by way of a Security Agreement between the
Company and its bankers dated 6th January 2011. As detailed in the
Security Agreement, the investment portfolio of the Company is
provided as security against the facility.
12. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
30.9.2011 31.3.2011
GBP GBP
Cost of investments at
end of period/year 256,327,555 232,415,655
Cumulative net unrealised
gain 23,897,266 46,916,170
Fair value at end of the
period/year 280,224,821 279,331,825
13. OTHER RECEIVABLES
30.9.2011 31.3.2011
GBP GBP
Payment in advance for purchase
of investments - 34,868,052
Sale of investments awaiting
settlement 1,889,024 806,582
Other receivables - 26,739
1,889,024 35,701,373
The Directors consider that the carrying amount of the other
receivables approximates their fair value.
14. OTHER PAYABLES
30.9.2011 31.3.2011
GBP GBP
Proceeds from sale of investments
received in advance 3,100,526 5,777,251
Management fee
payable 221,993 252,077
Share buybacks
payable 143,240 -
Performance fee
payable 804 552,250
Other payables 283,115 63,468
3,749,678 6,645,046
The Directors consider that the carrying amount of the other
payables approximates their fair value.
15. SHARE CAPITAL ACCOUNT
30.9.2011 31.3.2011
Unclassified Unclassified
Shares Shares
Authorised Share
Capital
Unclassified Shares at no
par value Unlimited Unlimited
The Company is a closed-ended investment company with an
unlimited life. The Redeemable Participating Preference Shares are
not puttable instruments because redemption is conditional upon
certain market conditions and/or Board approval. As such they are
not required to be classified as debt under IAS 32 - Financial
Instruments: Disclosure and Presentation.
As defined in the Articles of Association, redemption of
Redeemable Participating Preference Shares is at the sole
discretion of the Directors, therefore the Redeemable Participating
Preference Shares have been classified as equity.
In the event that the Company's Shares trade at a discount of
more than 5.0 per cent. at each monthly Net Asset Value calculation
date over the course of a full financial year, there is a provision
included in the Company's Articles of Association for a resolution
to be put to the members at the Annual General Meeting ("AGM") for
a termination of the Company ("continuation vote"). In the event
that the discount is greater than 5 per cent. during the year to
31st March 2012, a continuation vote may be proposed at the
following AGM (after 31st March 2012).
The Board also has the discretion to operate the Redemption
Facility, offering shareholders the possibility of redeeming part
of their shareholding at the Net Asset Value, if it appears
appropriate to do so.
The Company operates a Share Buyback Programme whereby it may
purchase, subject to various terms as set out in its Articles and
in accordance with the Companies (Guernsey) Law, 2008, up to 14.99
per cent. of its existing Share Capital following the admission of
the Shares to trading on the London Stock Exchange's market for
listed securities.
1.4.2011 1.4.2010
to to
30.9.2011 31.3.2011
Company Company
Total Total
Sterling Euro Number Sterling Euro Number
Issued Share
Capital Shares Shares of shares Shares Shares of shares
Balance at
start of the
period/year 207,761,831 12,385,490 220,147,321 215,778,934 18,662,505 234,441,439
Redemption
of shares
during the
period/year (30,431,930) (1,760,972) (32,192,902) - - -
Net effect
of conversion
during the
period/year 554,029 (847,421) (293,392) 3,894,285 (6,277,015) (2,382,730)
Bought back and cancelled
during the
period/year (8,156,501) (180,000) (8,336,501) (11,911,388) - (11,911,388)
Balance at
end of the
period/year 169,727,429 9,597,097 179,324,526 207,761,831 12,385,490 220,147,321
1.4.2011 1.4.2010
to to
30.9.2011 31.3.2011
Sterling Euro Company Sterling Company
Shares Shares Total Shares Euro Total
GBP EUR GBP GBP EUR GBP
Share Capital
Account
Balance at start
of the
period/year 35,053,446 - 35,053,446 43,525,240 55,756 43,286,771
Redemption of
shares
during the
period/year (26,314,391) - (26,314,391) - - -
Net effect of
conversion
during the
period/year* 757,528 - 757,528 5,125,331 (55,756) 5,363,800
Bought back and cancelled
during the
period/year (9,496,583) - (9,496,583) (13,597,125) - (13,597,125)
Balance at end
of the
period/year - - - 35,053,446 - 35,053,446
*The Share Capital Account for the Euro Share Class has been
reduced to nil in the prior financial year and therefore, any
further cancellation of the Euro Shares is taken from Other
Distributable Reserves.
The Company operates a Share Conversion Scheme which allows
Shareholders of any one class of Shares to convert all or part of
their holdings into any other class of Share.
During the period at the request of existing Shareholders, the
Company converted 847,421 Euro Redeemable Participating Preference
Shares to 554,029 Sterling Redeemable Participating Preference
Shares. There were no Sterling Redeemable Participating Preference
Shares that were converted to Euro Redeemable Participating
Preference Shares during the period.
During the period under the Share Buyback Programme, the Company
purchased and cancelled the following of its own shares:
Percentage
Number Average of
Price Issued
of per Share
Shares Share Capital
Sterling Shares 8,156,501 GBP1.16 4.17%
Euro Shares 180,000 EUR0.85 1.56%
Redemption Facility
During the period, the Board offered a redemption facility for
up to 15 per cent. of the Shares in issue. 30,431,930 Sterling
Shares and 1,760,972 Euro Shares were accepted for redemption at
their prevailing NAV on 30th September 2011 after deduction of
expenses associated with the redemption of the Shares. As at 30th
September 2011, the total accruals made in relation to the
redemption facility amounted to GBP40,822,706, net of redemption
facility fees of GBP230,862.
16. REVENUE RESERVES AND OTHER DISTRIBUTABLE RESERVES
Revenue reserves
The revenue reserve is a distributable reserve account and
income and expenses from transactions are transferred to this
account. This account can be used for among other things the
payment of dividends, if any.
Other distributable reserves
Other distributable reserves account includes transfers from the
previous Share Premium Account due to Guernsey legislation. Other
distributable reserves can be used to cancel the nominal shares of
the Company when they are redeemed or for share buy backs.
17. NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE
PARTICIPATING PREFERENCE SHARES
Sterling Euro 30.9.2011
Shares Shares Total
GBP EUR GBP
Total assets less
liabilities 220,881,071 9,171,609 228,780,448
Amount attributable
to Redeemable
Participating Preference
Shares 220,881,071 9,171,609 228,780,448
Number of shares outstanding 169,727,429 9,597,097
Net Assets attributable to
holders of Redeemable
Participating Preference Shares
(per Share) 130.1p 95.6c
Sterling Euro 31.3.2011
Shares Shares Total
GBP EUR GBP
Total assets less
liabilities 284,911,285 12,476,411 295,956,700
Amount attributable
to Redeemable
Participating Preference
Shares 284,911,285 12,476,411 295,956,700
Number of shares outstanding 207,761,831 12,385,490
Net Assets attributable to
holders of Redeemable
Participating Preference Shares
(per Share) 137.1p 100.7c
18. CONTINGENT LIABILITIES
There were no contingent liabilities as at the Statement of
Financial Position date (31st March 2011: Nil).
19. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
The Directors are responsible for the determination of the
investment policy of the Company and have overall responsibility
for the Company's activities. The Company's investment portfolio is
managed by Fauchier Partners Management Limited which is the parent
company of the Fauchier Partners Group.
The Company and the Manager have entered into a Management
Agreement dated 24th January 2005 under which the Manager has been
given responsibility for the day-to-day discretionary management of
the Company's assets (including uninvested cash) in accordance with
the Company's investment objectives and policies, subject to the
overall supervision of the Directors and in accordance with the
investment restrictions in the Management Agreement and the
Articles of Association. The Management Agreement may be terminated
by the Company or the Manager giving to the other not less than 12
month's written notice. Details of the management and performance
fees to which the Manager is entitled are in Notes 6 and 7.
The Company has five non-executive directors, all independent of
the Manager.
Each Director was entitled to a fee of GBP22,000 (31st March
2011: GBP22,000) per annum, except for the Chairman who was
entitled to a fee of GBP32,000 (31st March 2011: GBP32,000) and the
Audit Committee Chairman GBP27,000 (31st March 2011: GBP27,000).
With effect from 1st October 2011, the fees have increased whereby
each Director will be entitled to a fee of GBP24,250 per annum,
except for the Chairman who will be entitled to a fee of GBP35,000
and the Audit Committee Chairman who will be entitled to a fee of
GBP29,500.
Total Directors' fees for the period, including outstanding
Directors' fees at the end of the period, are set out below.
1.4.2011 1.4.2010
to to
30.9.2011 30.09.2010
Directors' fees
for the period 62,500 62,500
Payable at end of
the period - -
As at 30th September 2011 the Company held investments in
related funds valued at GBP19,700,698 (31st March 2011:
GBP18,398,144). Refer to the Portfolio Statement for details.
As at 30th September 2011 and 31st March 2011, Directors of the
Company held the following numbers of shares beneficially:
Directors Shares Shares
30.9.2011 31.3.2011
Andrew Sykes 174,790 174,790
Nicholas Fry 190,000 190,000
Robert King 38,150 38,150
Nicholas Moss Nil Nil
Robin Rumboll 200,000 200,000
20. OPERATING SEGMENTS
Information on realised gains and losses derived from sales of
investments are disclosed in Note 4.
The Company is domiciled in Guernsey. Entity wide disclosures
are necessary as the Company is engaged in a single segment of
business, investing in Hedge Funds. In presenting information on
the basis of geographical segments, segment investments and
derivative financial instruments and the corresponding segment
total income/(expense) income arising thereon are determined based
on the domicile countries of the respective investment entities and
derivative counterparties.
The Board, as a whole, is determined as constituting the chief
operating decision maker of the Company.
The Company has a highly diversified portfolio of investments
and, as disclosed in the Portfolio Statement, as at 30th September
2011 no single investment accounts for more than 5.41% of the total
value of the Company.
Cayman
Bermuda BVI Islands Guernsey Ireland Total
GBP GBP GBP GBP GBP GBP
30th September
2011
Financial assets at fair
value
through profit
or loss 19,700,698 2,056,782 258,467,341 - - 280,224,821
Unrealised gains
on open
forward foreign
currency
contracts - - - 503,261 - 503,261
Unrealised losses on open
forward foreign
currency
contracts - - - (15,589,705) - (15,589,705)
Total income/
(expense) 1,302,421 91,691 (8,452,658) (7,405,150) - (14,463,696)
Cayman
Bermuda BVI Islands Guernsey Ireland Total
GBP GBP GBP GBP GBP GBP
31st March 2011
Financial assets at fair
value
through profit
or loss 29,439,077 2,839,463 247,053,285 - - 279,331,825
Unrealised gains
on open
forward foreign
currency
contracts - - - 1,936,645 - 1,936,645
Unrealised losses on open
forward foreign
currency
contracts - - - (6,399) - (6,399)
Total income/
(expense) (4,249,381) (2,480,173) (1,784,069) 15,206,016 (30,365) 6,662,028
21. FINANCIAL INSTRUMENTS
In accordance with its investment objectives and policies, the
Company holds financial instruments which at any one time may
comprise the following:
-- securities held in accordance with the investment objectives and policies;
-- cash and short-term receivables and payables arising directly from operations;
-- derivative instruments including forward foreign currency and
currency option contracts; and
-- borrowings used to finance investment activity up to a
maximum of the lower of 20.0 per cent. of the Net Asset Value of
the Company or GBP60.0 million.
The financial instruments held by the Company are comprised
principally of hedge fund investments.
Details of the Company's significant accounting policies and
methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are
recognised, in respect of its financial assets and liabilities are
disclosed in Note 1. The following table analyses the carrying
amounts of the financial assets and liabilities by category as
defined in IAS 39 - Financial Instruments: Recognition and
Measurement.
30.9.2011 31.3.2011
Fair Value Fair Value
GBP GBP
Financial assets designated at fair value
through profit or loss
Listed investments 11,758,821 12,662,010
Unlisted investments 268,466,000 266,669,815
Unrealised gains on open forward foreign
currency contracts 503,261 1,936,645
Total financial assets designated at
fair value
through profit
or loss 280,728,082 281,268,470
Other financial
assets 8,214,455 35,712,616
Other financial assets include cash and
cash equivalents and other receivables.
30.9.2011 31.3.2011
Fair Value Fair Value
GBP GBP
Financial liabilities designated at fair
value through profit or loss
Unrealised losses on open forward foreign
currency contracts (15,589,705) (6,399)
(15,589,705) (6,399)
Other financial
liabilites
Redemptions payable (40,822,706) -
Bank overdraft - (14,372,941)
Other payables (3,749,678) (6,645,046)
(44,572,384) (21,017,987)
22. FINANCIAL RISK MANAGEMENT AND ASSOCIATED RISKS
The Company is exposed to a variety of financial risks as a
result of its activities. These risks include market risk
(including price risk, interest rate risk and foreign currency
risk), credit risk and liquidity risk. These risks, which have been
applied throughout the period and the Manager's policies for
managing them are summarised below.
Market risk
Market risk is the risk that the fair value of future cash flows
of a financial instrument will fluctuate because of changes in
market prices. The Company's activities expose it primarily to the
market risks of changes in market prices, interest rates and
foreign currency exchange rates.
Market price risk
Market price risk arises mainly from the uncertainty about
future prices of the financial instruments held by the underlying
Hedge Funds. It represents the potential loss the Company may
suffer through holding market positions in the face of price
movements.
Market risk encompasses the potential for both gains and losses
and is affected by three main components: changes in actual market
prices, interest rate and foreign currency movements. Interest rate
and foreign currency movement risks are covered elsewhere in this
note. The overall market risk management strategy of each of the
holdings of the Company is primarily driven by their respective
investment objectives as previously detailed.
The Manager considers the asset allocation of each underlying
holding of the Company in order to minimize the risk associated
with particular countries or industry sectors while continuing to
follow their respective investment objective. It achieves this
primarily through the diversification of investments across
different hedge fund strategies.
The Investment Manager does not use derivative instruments to
hedge the investment portfolios against market risk, as in their
opinion the cost of such a process would result in an unacceptable
reduction in the potential for capital growth.
The maximum risk resulting from financial instruments is
determined by their fair value. The overall market exposure as at
30th September 2011 is shown in the Condensed Statement of
Financial Position.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of a
foreign currency. It represents the potential loss the Company may
suffer through holding foreign currency assets in the face of
foreign exchange movements. The Company's treatment of currency
transactions is set out in Note 1 to the Condensed set of Financial
Statements under "Translation of foreign currency" and "Forward
foreign currency contracts".
The Company's Shares are denominated in Sterling (a small number
are denominated in Euros) and its operating expenses are incurred
in Sterling, while the Company's investments are denominated in US
Dollars. The Company's presentation currency is Sterling; hence the
Condensed Statement of Financial Position may be significantly
affected by movements in the exchange rates between the US Dollar,
Euro and Sterling. The Manager manages exposure to currency
movements by using forward foreign exchange contracts to hedge
total exposure.
As at 30th September 2011, the Company had twenty five (31st
March 2011: twenty nine) open forward foreign currency
contracts.
Mark to
Market Net Unrealised
Outstanding Equivalent losses
US$ Contracts 30.9.2011 30.9.2011
Eighteen Sterling forward foreign
currency GBP
contracts totalling: (435,695,831) GBP 265,420,487 GBP 279,761,714 (14,341,227)
Settlement date
31st
October 2011
Seven Euro forward
foreign currency
contracts totalling: (15,893,373) EUR 10,982,890 EUR 11,848,160 (745,217)
Settlement date
31st
October 2011
Total net unrealised losses at
30th September 2011 (15,086,444)
======================
Mark to
Market Net Unrealised
Outstanding Equivalent losses
US$ Contracts 31.3.2011 31.3.2011
Twenty Five Sterling forward foreign
currency GBP
contracts totalling: (455,043,910) GBP 285,521,068 GBP 283,955,571 1,565,497
Settlement date
28th
April 2011
Four Euro forward
foreign
currency
contracts totalling: (17,118,838) EUR 12,480,493 EUR 12,068,474 364,749
Settlement date
28th
April 2011
Total net unrealised losses at
31st March 2011 1,930,246
======================
As at 30th September 2011 and 31st March 2011, the Company's
direct net currency exposure through its investment portfolio was
as follows:
30.9.2011 31.3.2011
GBP GBP
Assets 288,282,206 315,033,198
Liabilities (3,100,526) (20,150,192)
Less: Forward foreign exchange contracts
- Sterling (279,761,718) (283,955,571)
Forward foreign exchange contracts
- Euro (10,204,255) (10,683,847)
Net exposure (4,784,293) 243,588
================ ==============
Amounts in the above table are based on the carrying value of
monetary assets and liabilities and the underlying principal amount
of forward foreign currency contracts.
Interest rate risk
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest. Interest
receivable on bank deposits or payable on bank overdraft will be
affected by fluctuations in interest rates. All cash balances are
at variable rates. Increases in interest rates will also increase
the borrowing costs of the Company should the uncommitted credit
facility be used.
The Company is not exposed to significant interest rate risk as
the majority of the Company's financial assets are investments in
underlying Hedge Funds which are non-interest-bearing. Any excess
cash and cash equivalents of the Company are invested at short-term
market interest rates.
The Company's continuing position in relation to interest rate
risk is monitored on a monthly basis by the Investment Manager as
part of its review of the monthly Net Asset Value calculations
prepared by the Company's Administrator, Northern Trust
International Fund Administration Services (Guernsey) Limited.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. Failure of any relevant counterparty to perform
its obligations in respect of these items may lead to a financial
loss.
The Company is exposed to material credit risk in respect of
cash and cash equivalents and debtors. Credit risk is mitigated by
the Company's policy to transact only with leading commercial and
investment banks. Currently all cash is placed with Northern Trust
(Guernsey) Limited ("NTGL"). NTGL is a wholly owned subsidiary of
The Northern Trust Corporation ("TNTC"). TNTC is publicly traded
and a constituent of the S&P 500. TNTC has a credit rating of
AA from Standard & Poor's and Aa3 from Moody's. The credit risk
associated with debtors is limited to the unrealised gains on open
forward foreign currency contracts, as detailed above and other
receivables. It is the opinion of the Board of Directors that the
carrying amounts of these financial assets represent the maximum
credit risk exposure as at the statement of financial position
date.
Credit risk analysis
The Company's maximum credit exposure is limited to the carrying
amount of financial assets recognised as at the statement of
financial position date, as summarised below:
30.9.2011 31.3.2011
GBP GBP
Cash and cash equivalents 6,325,431 11,243
Net unrealised gains on open forward foreign
currency contracts 503,261 1,936,645
Other receivables 1,889,024 35,701,373
8,717,716 37,649,261
Fair value
IFRS 7 requires the Company to classify fair values that reflect
the significance of the inputs used in making the measurements. It
establishes a fair value hierarchy that prioritises the inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under
IFRS 7 are as follows:
Level 1 Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from prices);
and
Level 3 Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorized in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgment, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgment by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table presents the Company's financial assets and
liabilities by level within the valuation hierarchy.
30.9.2011
Level Level Level
1 2 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair value
through profit or loss:
Investments in Hedge
Funds - 267,875,823 12,348,998 280,224,821
Unrealised gains on open
forward foreign
currency contracts - 503,261 - 503,261
Total assets - 268,379,084 12,348,998 280,728,082
============ ================ =========== ============
Liabilities
Financial assets at fair value
through profit or loss:
Unrealised losses on
open forward foreign
currency contracts - 15,589,705 - 15,589,705
Total liabilities - 15,589,705 - 15,589,705
============ ================ =========== ============
31.3.2011
Level Level Level
1 2 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair
value through profit
or loss:
Investments in Hedge
Funds - 264,816,123 14,515,702 279,331,825
Unrealised gains on open
forward foreign
currency contracts - 1,936,645 - 1,936,645
Total assets - 266,752,768 14,515,702 281,268,470
============ ============ =========== ============
Liabilities
Financial assets at fair value through
profit or loss:
Unrealised losses on
open forward foreign
currency contracts - (6,399) - (6,399)
Total liabilities - (6,399) - (6,399)
============ ============ =========== ============
The Hedge Funds held by the Company are not quoted in active
markets.
Assets classified in Level 2 are Hedge Funds whose fair value is
derived from the month end net asset value of each fund as reported
by each fund's independent administrator.
Assets classified in Level 3 are portions of ten Hedge Funds
(31st March 2011: nine) which are held in side pockets or where
some kind of liquidity restriction is currently in place. The fair
value of these assets is also derived from the month-end net asset
values reported by each fund's independent administrator but is
classified in Level 3 because the assets cannot be redeemed
according to the headline liquidity terms of the Hedge Funds. The
assets classified in Level 3 represent 5.4 per cent. (31st March
2011: 4.9 per cent.) of the Company's Net Asset Value.
30.9.2011 31.3.2011
GBP GBP
Opening balance 14,515,702 22,945,904
Purchases 3,424,577 2,762,465
Sales (10,383,362) (16,257,303)
Gains recognised
in profit and loss 4,792,081 5,064,636
Closing balance 12,348,998 14,515,702
Net unrealised loss for the period/year
included in the Statement of
Comprehensive Income for level 3 Investments
held at period end (1,596,891) (11,197,304)
============= =============
There has been no transfers between levels during the
period.
Liquidity risk
Liquidity risk is the risk that the Company will encounter in
realising assets or otherwise raising funds to meet financial
commitments in a reasonable timeframe or at a reasonable price.
The Company is exposed to the possibility of cash redemptions of
Redeemable Participating Preference Shares, subject to the
discretion of the Directors, as described in Note 23. It invests
the majority of its assets in collective hedge funds with their own
liquidity conditions. The Company's financial instruments include
investments in other open-ended investment funds which are not
traded in an organised public market and which generally may be
illiquid. As a result, the Company may not be able to liquidate its
investments in these instruments at an amount close to its fair
value in order to meet its liquidity requirements, or to respond in
a timely manner to specific events such as a deterioration in the
credit worthiness of any particular issuer. At times of disrupted
markets, this may include the imposition of "side pockets" and/or
"redemption gates", sometimes at short notice.
The liquidity risk of the Company, which mainly consists of a
possible mismatch of liquidity between the conditions offered at
the Company level and those proposed by each collective investment
fund at the underlying fund level, is carefully monitored by the
Investment Manager on a monthly basis, including lock-ups,
redemption penalties and gating provisions. On a quarterly basis
(or more frequently, if deemed appropriate) the Board reviews and
considers the overall liquidity risk of the portfolio.
To minimise liquidity risk the Company has a credit facility in
place from its bankers to manage the mark to market exposures and
short-term cash flows arising from its currency hedging programme
and for other short-term cash flow management purposes. As at 30th
September 2011 the Company could borrow the lower of 20.0 per cent.
of the Net Asset Value of the Company or GBP60.0 million to meet
any liquidity risk that may arise.
The following table details the Company's liquidity analysis for
its financial assets and liabilities. The table has been drawn up
based on the undiscounted net cash flows on the financial assets
and liabilities that settle on a net basis and the undiscounted
gross cash flows on those financial assets and liabilities that
require gross settlement.
Greater
Within
3 than 30.9.2011
6-12
Months 3-6 months months 12 months Total
GBP GBP GBP GBP GBP
Financial assets
at fair value
through profit or
loss* 59,834,839 165,546,387 20,664,698 34,178,897 280,224,821
Cash and cash
equivalents 6,325,431 - - - 6,325,431
Sale of investments
awaiting
settlement - - 1,889,024 - 1,889,024
Unrealised gains
on forward
foreign exchange
contract 503,261 - - - 503,261
Redemptions
payable (40,822,706) - - - (40,822,706)
Unrealised loss on
forward
foreign exchange
contract (15,589,705) - - - (15,589,705)
Share buybacks
payable (143,240) - - - (143,240)
Management fee payable (221,993) - - - (221,993)
Performance fee
payable (804) - - - (804)
Other payables (3,383,641) - - - (3,383,641)
Total 6,501,442 165,546,387 22,553,722 34,178,897 228,780,448
Greater
Within
3 than 31.3.2011
Months 3-6 months 6-12 months 12 months Total
GBP GBP GBP GBP GBP
Financial assets
at fair value
through profit or
loss* 21,061,692 178,399,812 27,643,296 52,227,025 279,331,825
Cash and cash
equivalents 11,243 - - - 11,243
Unrealised gains
on forward
foreign exchange
contract 1,936,645 - - - 1,936,645
Sale of investments
awaiting
settlement 806,582 - - - 806,582
Payment in advance
for
purchase of
Investments 34,868,052 - - - 34,868,052
Other debtors 26,739 - - - 26,739
Unrealised loss
on forward
foreign exchange
contract (6,399) - - - (6,399)
Bank overdraft (14,372,941) - - - (14,372,941)
Management fee payable (252,077) - - - (252,077)
Performance fee
payable (552,250) - - - (552,250)
Other payables (5,840,719) - - - (5,840,719)
Total 37,686,567 178,399,812 27,643,296 52,227,025 295,956,700
*The table reflects the anticipated cash flow assuming notice
was given to all underlying funds as at 30th September 2011 and
31st March 2011. It includes a provision for "audit hold back"
which most hedge funds apply to full redemptions and any other
known restrictions the managers of the underlying funds may have
placed on redemptions. Where there is currently no firm indication
from the underlying manager on the expected timing of the receipt
of redemption proceeds, the relevant amount is included in the
"greater than 12 months" category. The cash flow projections are
therefore conservative, but remain estimates.
23. CAPITAL RISK MANAGEMENT
The fair value of the Company's financial assets and liabilities
approximates their carrying amounts as at the statement of
financial position date.
The Company's objectives when managing capital are to safeguard
the Company's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. There are no externally-imposed capital
requirements on the Company.
The Company has the ability to borrow the lower of 20.0 per
cent. of its Net Asset Value or GBP60.0 million for short-term or
temporary purposes as is necessary for the settlement of
transactions, to facilitate redemption (where applicable) or to
meet ongoing expenses. The Directors have put in place a credit
facility for this purpose. The Company does not have any structural
gearing. The Company is indirectly exposed to gearing to the extent
that investee funds are themselves geared. Cash (if any) will be
held in G8 currency-denominated accounts. The gearing ratio below
is calculated as total liabilities divided by total equity.
30.9.2011 31.3.2011
GBP GBP
Total assets 288,942,537 316,981,086
Less: Redemptions payable (40,822,706) -
Other payables (3,749,678) (6,645,046)
Unrealised losses on open forward foreign
currency contracts (15,589,705) (6,399)
Bank overdraft - (14,372,941)
Total equity 228,780,448 295,956,700
Gearing ratio 26.30% 7.10%
Gearing ratio (excluding redemptions
payable) 8.45% 7.10%
The Company may purchase its own Shares in any class in issue in
the market with a view to addressing any imbalance between the
market supply of and demand for Shares and to assist in maintaining
a narrow discount to Net Asset Value at which the Shares may be
trading. Any such purchases would only be made at prices which
represent a discount to the prevailing Net Asset Value per Share at
that date so as to enhance the Net Asset Value per Share for the
remaining Shareholders.
The Company may purchase up to a maximum 14.99 per cent. of its
own Shares following the admission of the Shares to trading on the
London Stock Exchange's market for listed securities. Further to
such authority, the minimum price (exclusive of expenses) which may
be paid for a Share is 0.01p and the maximum price (exclusive of
expenses) which may be paid for a Share is an amount equal to 105.0
per cent. of the average of the market values for a Share taken
from the Daily Official List of the London Stock Exchange for the
five business days immediately preceding the day on which the Share
is purchased (or such other amount as may be specified by the UK
Listing Authority from time to time).
Shareholders may liquidate their investments in the Company
half-yearly, on 30th September and/or 31st March of each year (the
"Redemption Day"), subject to certain limitations and the Directors
exercising their discretion to operate the redemption facility.
Shareholders may request the redemption of part of their holdings
of Shares for cash at the prevailing Net Asset Value by giving
notice to the Company not less than 65 days prior to the Redemption
Date.
Redemption on any Redemption Day will be restricted to up to
25.0 per cent. of the Shares in issue (or such lesser amount as the
Directors, in their discretion, may determine), with any excess
redemption requests being scaled back pro rata. Shareholders should
note that the operation of this Redemption Facility is at the sole
discretion of the Directors and they should place no reliance on
the Directors exercising such discretion. Accordingly, Shareholders
should have no expectations that the Directors will exercise their
discretion on these Redemption Days.
24. SUBSEQUENT EVENTS
These Financial Statements were approved for issuance by the
Board on 16th November 2011. Subsequent events have been evaluated
until this date.
The Company has recently announced that Graham Harrison will
join the Board of the Company with effect from 1st January
2012.
Share Buyback
Subsequent to 30th September 2011 to the date of this report,
the Company purchased and cancelled 1,215,000 of its own Sterling
Shares at an average price of GBP1.09 representing 0.60 per cent.
of the issued Share Capital at the financial period end.
MANAGEMENT AND ADMINISTRATION
DIRECTORS REGISTERED OFFICE
Andrew Sykes (Chairman) Trafalgar Court,
Nicholas Fry Les Banques,
Robert King St. Peter Port,
Nicholas Moss Guernsey,
Robin Rumboll GY1 3QL
MANAGER INDEPENDENT AUDITOR
Fauchier Partners Management KPMG Channel Islands Limited
Limited, 20 New Street,
Suite A1, Hirzel Court, St. Peter Port,
Hirzel Street, Guernsey,
St. Peter Port, Channel Islands,
Guernsey, GY1 2NN GY1 4AN
INVESTMENT ADVISOR SPONSOR
Fauchier Partners LLP, JPMorgan Cazenove Limited,
72 Welbeck Street, 20 Moorgate,
London, W1G 0AY London, EC2A 6DA
LEGAL ADVISORS (GUERNSEY) LEGAL ADVISORS (UK)
Mourant Ozannes, Herbert Smith,
1 Le Marchant Street, Exchange House,
St. Peter Port, Primrose Street,
Guernsey, GY1 4HP London, EC2A 2HS
ADMINISTRATOR, SECRETARY AND RECEIVING AGENT AND UK PAYING
REGISTRAR AGENT
Northern Trust International Computershare Investor Services
Fund Administration, PLC,
Services (Guernsey) Limited, PO Box 859,
Trafalgar Court, The Pavilions,
Les Banques, Bridgwater Road,
St. Peter Port, Bristol, BS99 1XZ
Guernsey, GY1 3QL
CUSTODIAN AND BANKERS
Northern Trust (Guernsey)
Limited,
Trafalgar Court,
Les Banques,
St. Peter Port,
Guernsey, GY1 3DA
GLOSSARY OF INVESTMENT STRATEGIES
Macro (M) These funds take directional positions based on their
views of macroeconomic and market trends. They primarily use
futures, forwards and options to implement trades in currency, bond
or equity markets. Macro funds have historically delivered a strong
and un-correlated performance, but with considerable volatility;
they can be very attractive in a portfolio context as they tend to
thrive at times of market stress.
Equity Long Bias (ELB) These managers seek to extract returns
from both long and short positions in individual equities. However,
they will have a structurally higher allocation to long positions
than to shorts and will primarily incorporate short positions as a
means of dampening volatility, rather than as a source of alpha.
The Manager expects Equity Long Bias managers to show an average
beta to the MSCI World Equity Index (USD) in excess of 0.5 over a
market cycle.
Equity Hedged High Volatility These managers seek to extract
returns from both long and short positions
(EHH) in individual equities. The Manager does not expect these
funds to show an average beta to the MSCI World Equity index (USD)
of more than 0.5 over a market cycle and they should deliver the
majority of their returns through stock-specific or sector-level
risk. Over a market cycle, the Manager expects these funds to
exhibit at least two-thirds of the volatility of the MSCI World
Equity Index (USD).
Equity Hedged Low Volatility These managers seek to extract
returns from both long and short positions
(EHL) in individual equities. The Manager does not expect these
funds to show an average beta to the MSCI World Equity Index (USD)
of more than 0.5 over a market cycle and they should deliver the
majority of their returns through stock-specific or sector-level
risk. Over a market cycle, the Manager expects these funds to
exhibit less than two-thirds of the volatility of the MSCI World
Equity Index (USD).
Short Bias (SB) A few managers run hedge funds with a consistent
short bias, primarily in equities but also in corporate bonds. They
vary the degree of gross and net exposure according to their
perception of individual opportunities. Unsurprisingly, these funds
deliver performance which tends to be negatively correlated to
markets, Equity Long Bias funds and to a number of other
fundamentally-driven hedge fund strategies. They often perform well
at times of high equity and bond market volatility and are
attractive in a portfolio context as a form of "value added
insurance".
Specialist Credit (SC) These funds generate their returns
through long and short positions in corporate debt. Hedging
instruments can include credit default swaps, equities and equity
options. Managers often specialise in certain areas of the credit
spectrum, ranging from Distressed and High Yield bonds to
Investment Grade issues.
Event Driven (ED) The event driven strategy takes advantage of
either announced corporate actions or other pre-defined events that
provide an estimated rate of return over a defined time period.
Examples of such events include mergers, spin-offs and index
rebalances. Often there is a "spread" between two or more involved
securities or one security and a specified cash level. The
principal risk is that the event does not come to fruition or that
the timeline is underestimated. Generally, only moderate leverage
is employed in this strategy.
Volatility Trading (VT) Managers in this strategy seek to
generate returns by exploiting inefficiencies in the pricing of
implied and realised volatility in a variety of asset classes.
Managers can be sub-classified into those who capture cheap
optionality embedded within convertible bonds ("Convertible Bond
Arbitrage") and those who take stand-alone and relative positions
in options of both individual securities and in indices ("Options
Arbitrage").
Fixed Income (FI) Funds within this strategy trade interest rate
risk on a relative value and/or directional basis. Typically they
express their views through G10 government bond markets, interest
swaps and other OTC and exchange traded derivative contracts. As
government bonds are low volatility instruments, considerable
nominal leverage is often applied.
Multiple Strategy (MS) This group of hedge funds engages in a
combination of the aforementioned strategies, adding value by
dynamically allocating to in-house specialist teams in the areas
which they think are likely to be most rewarding. These funds have
further attractions in that they only charge a performance fee on
the net returns achieved across the various strategies in
aggregate.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FMMMMNNNGMZM
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