TIDMABR
RNS Number : 6706H
Absolute Return Trust Limited
16 July 2012
YEARLY REPORT
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the year ended 31st March 2012. The
Report will shortly be available from the Company's website
www.absolute-funds.com.
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 (the "LSE") on 23rd
February 2005, when it commenced business.
Since incorporation up to 31st March 2012 the Company has raised
the following capital:
Sterling Euro
Shares Shares
GBP EUR
Capital raised at launch of the 66,000,000 -
Company
Capital raised since launch of the Company
to 31st March 2012 198,511,731 20,912,654
Total capital raised by the Company to
31st March 2012 264,511,731 20,912,654
Shares in issue as at 31st March
2012
Number of
Shares
- Sterling Redeemable Participating Preference
Shares 154,549,902
- Euro Redeemable Participating Preference
Shares 9,372,854
Investment Objective and Policy
The Company's investment objective is to achieve a target return
of three month Sterling LIBOR plus five per cent. per annum 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.
Notwithstanding an annualised compound increase in the Net Asset
Value ("NAV") of 4.3 per cent. since inception, the discount of the
Company's share price has steadily widened over recent years. This
has occurred despite persistent share buybacks and capital returns
at NAV via the operation of the redemption facility. In discussions
with shareholders the persistence of the discount was identified as
a key investor concern. The Board has explored a variety of ways to
address the discount for the benefit of all shareholders and has
concluded that in current market conditions there is insufficient
demand to warrant continuation.
Proposals will be put to shareholders for putting the Company
into an orderly wind-down. These proposals constitute a material
change to the Company's investment policy and will require
shareholder approval before they can be implemented. The Company is
currently taking legal and financial advice regarding the wind-down
process.
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
31.3.2012 31.3.2012 31.3.2011 31.3.2011
Sterling Euro Sterling Euro
Shares Shares Shares Shares
Total Net Assets GBP204,581,863 EUR9,038,283 GBP284,911,285 EUR12,476,411
Net Asset Value per Share 132.4p 96.4c 137.1p 100.7c
(Decrease)/Increase in
Net Asset Value (3.4%) (4.3%) 1.8% 0.9%
Mid-Market Share Price 109.0p 83.0c 114.3p 85.5c
Discount to Net Asset
Value (17.6%) (13.9%) (16.6%) (15.1%)
Ongoing Charges
On May 2012, the Association of Investment Companies ("AIC")
issued a publication in relation to the methodology of calculating
expense ratios to create an industry standard approach and promote
consistency and comparability. The key element of the recommended
methodology is the replacement of the term Total Expense Ratio with
Ongoing Charges. The AIC have established Ongoing Charges as those
costs that an investment company would have to pay in the absence
of any purchases or sales of investments and if markets remain
constant throughout the period. This method differs from the
previous Total Expense factor used in computing the ratio in that
only expenses considered to be operational and recurring are
included in the calculation.
In accordance with the recommended methodology set out by the
AIC above, the Ongoing Charges ratio of the Company for the year
ended 31st March 2012 was 1.34 per cent. including the performance
fee payable to the Manager and 1.34 per cent. excluding this
performance fee (31st March 2011: 1.48 per cent. including the
performance fee payable to the Manager and 1.29 per cent. excluding
this performance fee).
CHAIRMAN'S STATEMENT
Introduction
The year to 31st March 2012 has seen political and economic
events taking their toll on financial markets, with the effects of
the Eurozone debt crisis, turbulence in the Middle East and
political gridlock in the USA being the most notable factors.
Between April and September 2011, all financial markets were
extremely volatile, with political events dominating sentiment and
equity markets falling heavily. The value of the Company's
portfolio fell during this period, but performance in the second
half has been more positive, particularly in the first quarter of
2012, which saw solid results. For the year as a whole, however,
the portfolio has nonetheless registered modest NAV losses.
During the year, the Manager has made a number of adjustments to
the portfolio, and these are described in more detail in the
Investment Advisor's Report.
Results
Over the twelve months to 31st March 2012, the NAV of the
Company's Sterling shares fell from 137.1p per Share at 31st March
2011 to 132.4p per Share at 31st March 2012, representing a decline
of 3.4 per cent. The NAV of the Company's Euro Shares fell from
EUR1.01 per Share to EUR0.96 per Share, representing a decline of
4.3 per cent.
Since its inception in March 2005, the annualised compound
growth rate in the NAV of the Company's Sterling Share Class has
been 4.3 per cent., equivalent to LIBOR plus 1 per cent. per annum,
compared with our objective of LIBOR plus 5 per cent. per annum
over rolling five year periods.
The volatility of the Company's NAV has been some 5.5 per cent.
per annum over the same period, which remains in line with our
objectives.
Share Price relative to NAV and Continuation Vote
The Company's Share price is currently trading at a discount of
9.3 per cent. to NAV, and stood at a discount of more than 5 per
cent. at each month end during the year to 31st March. The Company
has continued to carry out secondary market purchases of its own
shares. Over the course of the year to 31st March 2012 the Company
has bought back 14,702,500 Sterling shares and 180,000 Euro Shares
at an average discount of 16.17 per cent. which amounts to 7.91 per
cent. of the Sterling class of shares and 1.56 per cent. of the
Euro class of shares in issue as at the date of the authority being
granted. Since 31st March 2012, the Company has bought back a
further 1,306,000 Sterling shares at an average discount of 18.61
per cent.
The discount control provisions established when the Company was
launched, require a continuation vote to be proposed to
shareholders at the Company's Annual General Meeting when the
Company's discount has exceeded 5.0 per cent. at each month end
during the year to 31st March, and such vote requires not less than
50 per cent. of the total voting rights cast on the resolution to
be in favour in order for the Company to continue in its current
format. If the resolution is not passed, the Directors are required
to formulate proposals to be put to shareholders within six months
of such resolution being defeated for the winding up or other
reorganisation or reconstruction of the Company.
After extensive shareholder consultation, the Board has resolved
not to seek continuation of the Company.
Notwithstanding an annualised compound increase in the NAV of
4.3 per cent. since inception, the discount of the Company's share
price has steadily widened over recent years. This has occurred
despite persistent share buybacks and capital returns at NAV via
the operation of the redemption facility. In discussions with
shareholders the persistence of the discount was identified as a
key investor concern. The Board has explored a variety of ways to
address the discount for the benefit of all shareholders and has
concluded that in current market conditions there is insufficient
demand to warrant continuation.
Proposals will shortly be put to shareholders for putting the
Company into an orderly wind-down. These proposals constitute a
material change to the Company's investment policy and will require
shareholder approval before they can be implemented. The Company is
currently taking legal and financial advice and a circular
convening an Extraordinary General Meeting ("EGM") to seek such
approval and containing further details of the managed wind-down
process will be circulated to shareholders as soon as
practicable.
Currency hedging
Since its inception, the Company has hedged its currency
exposure against the US Dollar for both the Sterling and Euro share
classes, and it continues to do so. The Company has a borrowing
facility from Northern Trust (Guernsey) Limited ("NT(G)L") to
assist it in managing the short term cash flows arising from this
hedging programme. In the course of the year, the Board renewed
this facility for a further 12 months until January 2013, and the
facility stands at the lower of 20 per cent. of NAV, or GBP50
million. The Board is discussing this facility with NT(G)L in the
light of the proposal to put the Company into an orderly wind-down,
and will make appropriate market announcements in the event that
the currency hedging programme has to be terminated in the course
of the winding down process.
Liquidity
The Board has continued to work closely with the Manager to
monitor and manage the Company's liquidity position, and the
Investment Advisor's Report describes the current position. In
managing the Company's liquidity position, the Board and the
Manager have sought to strike an appropriate balance between the
returns available from less liquid strategies and the need to
maintain flexibility, so as to be able to respond to cash outflows
arising from the currency hedging programme, and to repurchase
shares when it is appropriate to do so. In anticipation of the
forthcoming winding up process, the Manager, with the Board's
approval, has served redemption notices at the end of June on those
funds in the Company's portfolio which have notice periods of 90
days or more in order to facilitate the return of cash to
shareholders in a timely fashion, in the event that the winding up
proposal is approved in the EGM. The forthcoming EGM circular will
include an updated analysis of the expected timing of cash receipts
from redemptions of the Company's hedge fund investments.
Board and Manager Review
Each year the Board conducts an appraisal of its own performance
and that of the Manager. The Board visited the premises of the
Advisor in February 2012, in order to conduct a formal review of
their capabilities and controls, in addition to the regular
quarterly reviews of investment performance. On the basis of this
review, and notwithstanding the decision to wind-down the Company,
the Board believes that the continued appointment of the Investment
Manager and Advisor remains in the interests of shareholders.
The Board also conducted a review of its own performance. This
review concluded that the Board is operating effectively, and that
its members have an appropriate range of skills and experience.
Board Composition
In the course of the year Graham Harrison joined the Board of
the Company. Graham Harrison is a founding member and Group
Managing Director of Asset Risk Consultants Limited, and serves as
a non-executive director of several listed investment companies.
The Directors are very pleased to have attracted Graham to the
Board.
Robin Rumboll will retire from the Board at the AGM this year.
Robin has been a Director of the Company since its launch, and the
Board has benefitted from his extensive experience and wise counsel
over the last seven years. I would like to take this opportunity to
express our warmest thanks for his contribution.
Andrew Sykes
Chairman
12th July 2012
INVESTMENT ADVISOR'S REPORT
Performance
For the year to 31st March 2012 the Company produced a return in
Sterling of -3.4 per cent. net of fees (-4.3 per cent. in Euro).
Since the Company first invested in a portfolio of hedge funds on
1st March 2005, it has achieved an annualised compound Sterling
return of 4.3 per cent. for its Sterling Share Class. Over the same
period the Company's Sterling Share Class annualised volatility has
been some 5.5 per cent. 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 0.23 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 NAV performance since 1st March 2005 (the launch
date):
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2012 1.16% 0.80% 0.36% 2.32%
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
2011 0.02% 0.61% (0.11)% 0.33% -0.58% -0.80% -0.49% -1.98% -1.67% 1.06% -0.71% -0.95% -5.18%
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
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% 14.64%
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
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 31st March 2012 the Company had holdings in
35* Hedge Funds across 9 different strategies. Eight new funds were
purchased and four were redeemed in full.
Over the year, the proportion of Absolute Value funds included
in the Company's portfolio has reduced by approximately 5.6 per
cent. to approximately 59.4 per cent. as at 31st March 2012.
* Refers to holdings greater than 25 basis points of Assets
under Management.
Market Review>
The year was dominated by overarching macroeconomic and
political concerns, manifested in a series of major events that
resulted in huge swings in sentiment as investors struggled to
interpret the implications of the rapidly escalating Eurozone debt
crisis, the prospect of austerity-induced global recession and the
likelihood of a hard landing in China. 2012 began on a more
positive footing as investors were cheered by the prospect of the
Greek debt deal and the Federal Reserve's pledge to leave
short-term interest rates low at least until 2014. In addition
funding pressure on the beleaguered financial system started to
ease in response to the ECB's expanded bank liquidity programme
(LTRO).
>Source: Bloomberg
The MSCI World index rose by 1.3 per cent. during the year, but
this fact obscures the periods of tremendous volatility and
heightened correlation seen in equity markets as investors reacted
to the unfolding political machinations. Indices such as the
S&P 500 were somewhat cushioned by the presence of mega-cap
defensive components like Utilities and Healthcare, but the
Eurostoxx 50 declined 15 per cent. and the MSCI Emerging Markets
index lost around 6.4 per cent.
Treasury yields hit all-time lows during the year, as US
government debt, despite being downgraded, remained investors'
preferred safe haven. By contrast, European sovereign credit
spreads widened over the period as the debt crisis started to
impact the core European nations as well as those on the
periphery.
Commodity markets were highly volatile. Crude oil prices rose
and fell with the macroeconomic sentiment, with Brent prices ending
the period 7 per cent. higher. By contrast Natural Gas prices
declined 49 per cent. The price of gold ended 16.5 per cent.
higher, having risen over 33 per cent. to set a new all time high
as risk aversion peaked in August. Having held up for much of the
period, the Euro eventually lost ground, hitting a 10-year low
against the Japanese Yen and dropping 6 per cent. against the US
dollar.
Hedge Fund Strategies
With the exception of the Equity Long Bias managers, all
strategies struggled to make gains, with Equity Hedged and Event
Driven accounting for the majority of the losses.
The Macro strategy was mixed as managers grappled with markets
increasingly driven by politics rather than economics. The
divergence of Eurozone sovereign credit and the banking sector's
continued stress created opportunities for some managers whose
bearish positions worked well. A fixed income orientated manager
also performed well generating gains primarily from directional
trades in US and European interest rates, as well as from US yield
curve trades. Poor trading of high-yield credit and equity
positions in the first half of the year detracted for one manager,
while the greatest losses resulted from commodity positions,
notably in energy and precious metals.
The Equity Long Bias strategy made money. Despite being exposed
to periods of broad market sell-off, losses in managers' long books
were mitigated to some extent by judicious short positions. Both
managers were well positioned to profit from the rally in equities
in the second half of the financial year which also saw their stock
selection skills once again rewarded as markets displayed signs of
discriminating between stocks based on fundamentals. Notable
winning positions were in Chemicals and Industrials names, as well
as Healthcare.
The Equity Hedged managers saw a wide range of outcomes but lost
money overall. Tactical trading and individual security selection,
rather than net market exposure, differentiated the best and worst
performers, as managers grappled with the extreme levels of
volatility and correlation. Technology and Healthcare positions
worked well for some managers while the biggest detractors were
managers who sustained losses in Financials, Telecoms and Energy
names. Towards the end of the period, the strategy started to
perform well, despite managers maintaining a constrained level of
market exposure, as company specific events resulted in price
outperformance for long and short positions.
As of 1st January 2012 we have removed the distinction between
high and low volatility in the classification of our Equity Hedged
managers. We do not believe the Equity Hedged Low Volatility
strategy is well suited to the current market conditions that we
expect to persist for some time, and as part of the changes made to
the portfolio during the past year, these managers have been
redeemed.
Short Bias managers lost money overall but were able to exploit
the more discriminating markets towards the end of the period and
generate idiosyncratic gains that went someway to offset their net
short positions. In particular, exposure to Chinese names worked
well as did certain US cyclical companies that announced
disappointing quarterly results.
Specialist Credit managers suffered mark to market losses in the
sell-off in credit markets in the first half of the year, and
despite good performance in the final quarter, the strategy
finished the period marginally down. While most managers were
positioned with low net exposure in defensive names and managed to
broadly protect capital, the performance was largely driven by
distressed debt positions, which lost ground in the first half but
started to generate good gains towards year end, notably in
situations connected with litigation and liquidations.
Event Driven managers were down in aggregate over the period,
despite finishing the year strongly. The activist managers
performed well, seeing gains at several of their underlying
invested companies, derived largely from corporate restructurings
brought about by their intervention. The greatest detractor was a
residual holding in a manager whose investment in a wireless
Telecoms business was significantly written down after the company
suffered a significant delay to its ambitious expansion plans.
Multiple Strategy funds were also down overall. Energy-related
commodity positions initially made money that were ultimately
subsumed by losses from long precious metals positions later in the
period. Structured credit positions did well generally but equities
proved more problematic. The strategy started 2012 well with all
managers making broad-based gains.
Portfolio Liquidity
The table below shows the expected liquidity profile of the
portfolio(#) on a cash settled basis.
Expected time to cash flow Proportion Proportion
Within 3 months 13.3%
-----------
3 to 6 months 65.3%
-----------
6 to 12 months 10.9 %
-----------
Greater than 12 months 10.5%
-----------
Total 100.0%
-----------
The table has been created assuming that (i) redemption notice
had been given to all underlying funds as at 31st March 2012; (ii)
a one-month period elapses before settlement of redemption 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 per cent. 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.
We believe that the liquidity profile is 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. In anticipation of the forthcoming
winding up process, the Manager, with the Board's approval, has
served redemption notices at the end of June on those funds in the
Company's portfolio which have notice periods of 90 days or more in
order to facilitate the return of cash to shareholders in a timely
fashion, in the event that the winding up proposal is approved in
the EGM.
Proposal to Discontinue
Since the financial year end, the Board has decided to propose
that the Company does not seek continuation at the AGM in light of
the persistency of the discount of the Company's share price. We
are working with the Board to prepare proposals for an orderly
wind-down of the portfolio. The proposals will be included in a
circular which will be circulated to shareholders as soon as
practicable.
#For the purposes of comparison with other funds which may
prepare their liquidity disclosures on a value-date basis (which
excludes settlement periods) rather than a cash-settled basis as
used above, the relevant percentages for the Company portfolio on a
value-date basis as at 31st March 2012 are: under three months 73
per cent.; between three and twelve months 17 per cent.; greater
than twelve months 10 per cent.
Fauchier Partners LLP
28th June 2012
BOARD MEMBERS
Directors of the Company
The Directors of the Company, all of whom are non-executive, are
listed below.
Andrew Sykes (Chairman), age 54, was a director of Schroders plc
from 1998 to 2004, having joined Schroders in 1978. He was
responsible for Schroders' private banking and alternative
investments businesses, including hedge funds, property, private
equity and structured products. Mr Sykes is Chairman of Schroder
Real Estate Investment Trust Limited (previously Invista Foundation
Property Trust) and a non-executive director of Record plc, Smith
& Williamson Holdings Limited, SVG Capital plc and JPMorgan
Asian Investment Trust plc. Mr Sykes was appointed to the Board on
21st January 2005.
Nicholas Fry, age 65, was a director of S.G. Warburg & Co.
from 1983 to 1995 and of SBC Warburg (now part of UBS AG) from 1995
to 1996, having joined S.G. Warburg & Co. in 1976. Mr Fry was
responsible for a broad range of public takeover, merger and
acquisition, capital markets and general financial advisory work,
mainly for large listed companies in the UK and overseas. He was a
partner of KPMG from 1998 to 2002 and Vice Chairman of KPMG
Corporate Finance until March 2005. He is a non-executive director
of Blackrock Smaller Companies Trust plc and Pochin's PLC. He is a
Chartered Accountant. Mr Fry was appointed to the Board on 21st
January 2005.
Robert King, age 49, is a non-executive director for a variety
of investment funds and companies. He was a director of Cannon
Asset Management Limited and their associated companies, from
October 2007 to February 2011 responsible for company secretarial
and fund services. Prior to this he was a director of Northern
Trust International Fund Administration Services (Guernsey) Limited
(formerly Guernsey International Fund Managers Limited) where he
worked from September 1990 to January 2007. He has been in the
offshore finance industry since 1986 specialising in administration
and structuring of offshore open and closed ended investment funds.
Mr King is a Guernsey resident and was appointed to the Board on
21st January 2005.
Nicholas Moss, age 52, is a founding member of the Virtus Trust
Group, a Guernsey based fiduciary, corporate services and
investment consulting business. Prior to establishing Virtus, Mr
Moss was a managing director within the Rothschild Trust Group in
Guernsey, where he spent 16 years structuring and administering
complex onshore and offshore trusts for corporates and ultra high
net worth families. He has wide experience in the selection of
investment managers for his clients and the subsequent evaluation
and monitoring of these portfolios. He holds several non-executive
Board appointments. Mr Moss is a Chartered Accountant and a
Guernsey resident. Mr Moss was appointed to the Board on 23rd
February 2006.
Robin Rumboll, age 72, was a partner in Coopers & Lybrand in
Jersey from 1965 to 1985 specialising in audit and compliance
functions within the banking and investment management sector. In
addition, he served as the international audit liaison partner and
was responsible for introducing global audit standards. From 1981
to 1996 he was an elected member of the States of Jersey and held
numerous senior positions within the legislature, including the
Presidency of the Education Committee and the President of Jersey
Telecoms. He currently holds a number of non-executive
directorships within the financial services sector. Mr Rumboll was
appointed to the Board on 21st January 2005.
Graham Harrison, age 47, is a founder member and managing
director of Asset Risk Consultants Limited, a Channel Island based
investment consulting services company set up in 1995. Prior to
returning to Guernsey, he worked in London for HSBC in their
corporate finance division between 1987 to 1993, where he
specialised in corporate finance and financial engineering. He is a
non-executive director of a number of listed and unlisted
investment vehicles including the London listed BH Global Limited,
Close Enhanced Commodities Fund II Limited, ISIS Property Trust
Limited and Real Estate Credit Investments Limited. He is Chartered
Fellow of the Chartered Institute for Securities and Investment and
a resident of Guernsey. Mr. Harrison was appointed to the Board on
1st January 2012.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON
RECOGNISED STOCK EXCHANGES
The following summarises the Directors' directorships in other
public companies:
Directorships
Company Name Stock Exchange
Andrew Sykes
JP Morgan Asian Investment
Trust plc London
Record plc London
Schroder Real Estate Investment
Trust Limited London and Channel Islands
SVG Capital plc London
Nicholas Fry
Blackrock Smaller Companies
Trust Plc London
Pochin's PLC London
Robert King
Clarion 1 IC Limited Ireland
Clarion 2 IC Limited Ireland
Clarion 3 IC Limited Ireland
Clarion 4 IC Limited Ireland
Golden Prospect Precious
Metals Limited London
Jubilee Absolute Return Fund
PCC Limited Ireland
Jubilee Absolute Return Master
Fund Limited Ireland
Praetorian Resources
Limited London
Renaissance Russia Infrastructure
Equities Ltd London
Sienna Investment Company
2 Limited Channel Islands
Sienna Investment Company
3 Limited Channel Islands
Sienna Investment Company
4 Limited Channel Islands
Sienna Investment Company
Limited Channel Islands
Thames River Alternative
Strategies Limited Channel Islands
Thames River Africa Focus
Fund Limited Channel Islands
Thames River Warrior Fund
Limited Channel Islands
Thames River Warrior II Fund
Limited Channel Islands
Thames River Property Growth &
Income Fund Limited Channel Islands
Thames River Isis Fund Limited Ireland
Thames River Longstone Fund
Limited Ireland
Nicholas Moss
BH Global Limited London, Bermuda and Dubai
Carador Income Fund
Plc London
Robin Rumboll
None
Graham Harrison
BH Global Limited London, Bermuda and Dubai
ISIS Property Trust
Limited London and Channel Islands
Real Estate Credit Investments
Limited London
Close Enhanced Commodities
Fund II Limited London
DIRECTORS' REPORT
The Directors present their Annual Report and Audited Financial
Statements for the year ended 31st March 2012 which have been
properly prepared in accordance with The Companies (Guernsey) Law,
2008.
Business Review
Principal activity
Absolute Return Trust Limited (the "Company") is a Guernsey
authorised closed-ended investment company with a premium listing
on the London Stock Exchange (the "LSE"). Trading in the Company's
Redeemable Participating Preference Shares commenced on 23rd
February 2005.
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.
The table below shows the shares converted at the request of
existing Shareholders during the year, the Net Asset Value per
share date used for the conversion and the date the shares were
listed on the LSE.
Number of Number of Date
Sterling Euro listed
NAV per share
Date Shares Shares date on LSE
1st April
2011 400,372 (615,666) 31st March 2011 6th May 2011
1st July 9th August
2011 153,657 (231,755) 30th June 2011 2011
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 LSE's market for listed
securities.
During the year to 31st March 2012, the Company repurchased
14,702,500 million Sterling shares and 180,000 Euro shares under
the Share Buyback Programme representing 7.91 per cent. and 1.56
per cent., respectively, of the issued Share Capital.
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, while keeping annualised volatility below 6.0 per
cent. Capital preservation is a priority. The Company's investment
policy is to invest in a diversified portfolio of hedge funds
whilst hedging all foreign currency assets back into Sterling. A
foreign exchange and borrowing facility is available to the Company
as described in Note 11.
Following the recent recommendation of the Board not to seek
continuation of the Company, proposals will shortly be put to
shareholders for putting the Company into an orderly wind-down.
These proposals constitute a material change to the Company's
investment policy and will require shareholder approval before they
can be implemented. The Company is currently taking legal and
financial advice regarding the wind-down process.
Key Performance Indicators ('KPIs')
The Board uses two main financial KPIs to monitor and assess the
performance of the Company. These KPIs are:
-- Performance compared to LIBOR
This is the most important KPI for the measurement of investment
returns.
-- Annualised volatility
This is the most important KPI for measuring the amount of risk
being taken by the Manager.
Since its inception in March 2005, the annualised compound
growth rate in the NAV of the Company's Sterling Share Class has
been 4.3 per cent., equivalent to LIBOR plus 1 per cent. per annum,
compared with our objective of LIBOR plus 5.0 per cent. per annum
over rolling five year periods. Volatility over this period has
been some 5.5 per cent. per annum for the Sterling Share Class,
which is in line with the Company's guideline ceiling of 6.0 per
cent. per annum. The Board also monitors the performance of the
Company against its peers.
Discount/Premium to Net Asset Value
The Board monitors the level of the share price discount/premium
to NAV. The Board has a number of discount control mechanisms at
its disposal which are set out in Note 15.
Shareholder Information
The Company announces its unaudited Net Asset Value on a monthly
basis and estimated Net Asset Values are also provided by the
Manager weekly. A monthly report on investment performance is
published on the Company's website www.absolute-funds.com.
Principal Risks and Uncertainties
With the assistance of the Administrator and the Manager the
Board has drawn up a risk matrix, which identifies the key risks to
the Company. These fall into the following broad categories:
-- Investment Risks: The Company is exposed to the risk that its
portfolio fails to perform in line with the Company's objectives if
it is inappropriately invested. The Board reviews reports from the
Manager at each quarterly Board meeting, paying particular
attention to the diversification of the portfolio and to the
performance and volatility of underlying investments. The Board
also reviews reports provided by the Manager at each quarterly
Board meeting on the sources of return and the correlations between
individual investments.
-- Operational Risks: The Company is exposed to the risks
arising from any failure of systems and controls in the operations
of the Manager or the Administrator. The Board receives reports
annually from the Manager and Administrator on their internal
controls and reviews pricing reports covering the valuations of
underlying investments at each quarterly Board meeting.
-- Accounting, Legal and Regulatory Risks: The Company is
exposed to risk if it fails to comply with the regulations of the
UK Listing Authority or if it fails to maintain accurate accounting
records. The Administrator provides the Board with regular reports
on changes in regulations and accounting requirements.
-- Financial Risks: The financial risks, including market,
credit and liquidity risk faced by the Company are set out in Note
22. These risks and the controls in place to mitigate them are
reviewed at each quarterly Board meeting.
Going Concern
The Directors have examined significant areas of possible
financial risk including cash requirements arising from foreign
exchange hedging activities and share redemptions or share
repurchases. As at 31st March 2012 the Company's Share price was
trading at a discount of 9.3 per cent. to Net Asset Value for the
Sterling Share Class and 13.9 per cent. to Net Asset Value for the
Euro Share Class, and stood at a discount of more than 5.0 per
cent. at each month end during the year to 31st March 2012. The
discount control provisions established when the Company was
launched require a continuation vote to be proposed to shareholders
at the Company's Annual General Meeting when the Company's discount
has exceeded 5.0 per cent. at each month end during the year to
31st March, and such vote requires not less than 50 per cent. of
the total voting rights cast on the resolution to be in favour in
order for the company to continue in its current format. If the
resolution is not passed, the Directors are required to formulate
proposals to be put to shareholders within six months of such
resolution being defeated for the winding up or other
reorganisation or reconstruction of the Company. After extensive
shareholder consultation, the Board has resolved not to seek
continuation of the Company.
The winding up proposal will remove all existing obligations to
propose continuation votes and will be replaced with the objective
of making distributions to shareholders following which the Company
will be placed into members' voluntary liquidation.
The Financial Statements have been prepared on a non going
concern basis reflecting the proposal to shareholders to wind-down
the Company. Accordingly, the going concern basis of accounting is
no longer considered appropriate. All assets and liabilities are
carried at the expected net realisable values. The investments are
expected to be realised in an orderly manner at fair value without
significant liquidity discounts. A provision for winding up costs
has not been included in these Financial Statements as the estimate
of these costs is still currently being determined. However, these
are not expected to be material.
Results
The results for the year are set out in the Statement of
Comprehensive Income. The Directors do not propose an income
distribution for the year (31st March 2011: nil).
Manager and Investment Advisor
The Manager is entitled to a management fee of 1.0 per cent. per
annum calculated monthly on the gross assets of the Company. In
addition, the Manager will also be entitled to a performance fee if
the Net Asset Value per Share for each Share Class at the end of a
performance period (31st March each year) exceeds certain
conditions as set out in Note 7.
Directors
The Directors of the Company during the year and at the date of
this Report are set out in the Management and Administration
Summary.
Directors' and Other Interests
As at 31st March 2012, Directors of the Company held the
following numbers of Redeemable Participating Preference Shares
beneficially:
Directors Shares Shares
31.3.2012 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
Graham Harrison 10,000 Nil
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
Report and the Financial Statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law they have
elected to prepare the Financial Statements in accordance with
International Financial Reporting Standards ("IFRS") and applicable
law.
The Financial Statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing these Financial Statements, the Directors are
required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements have been properly prepared in accordance
with The Companies (Guernsey) Law, 2008. They have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
Directors' Responsibility Statement
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements and that to the
best of their knowledge and belief:
(a) The Financial Statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company; and
(b) The Management Report (comprising the Chairman's Statement,
Investment Advisor's and Directors' Reports) include a fair review
of the development and performance of the business and the position
of the Company together with a description of the principal risks
and uncertainties that the Company faces.
The Directors recognise their responsibilities stated above.
Disclosure of Information to Auditors
The Directors who held office at the date of approval of these
Financial Statements confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware; and each Director has taken all the steps that
he ought to have taken as a Director to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Corporate Governance
The Company is a member of The Association of Investment
Companies ("AIC") and reports against the Principles and
recommendations set out in the AIC Code of Corporate Governance
("AIC Code").
Currently, the UK Listing Authority requires all overseas
companies with a "Premium listing" (which includes the Company) to
"comply or explain" against the UK Corporate Governance Code.
The Board of the Company has considered the principles and
recommendations of the AIC by reference to the AIC Corporate
Governance Guide for Investment Companies ("AIC Guide"). The AIC
Code, as explained by the AIC Guide, addresses all the principles
set out in the UK Corporate Governance Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Corporate Governance Code), will provide
better information to Shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Corporate Governance
Code, except for the following:
The UK Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive
-- executive directors' remuneration
-- the need for an internal audit function
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company, being
an externally managed investment company. The Company has therefore
not reported further in respect of these provisions.
Details of compliance are noted below. There have been no
instances of non-compliance, other than those noted above.
On 30th September 2011 the Guernsey Financial Services
Commission ("GFSC") issued a new Code of Corporate Governance (the
"GFSC Code") which came into effect on 1st January 2012. The GFSC
Code replaces the existing GFSC Guidance on Corporate Governance in
the Finance Sector ("GFSC Guide"). The GFSC Code provides a
framework that applies to all entities licensed by the GFSC or
which are registered or authorised as a collective investment
scheme. Companies reporting against the UK Corporate Governance
Code or the AIC Code are deemed to comply with the GFSC Code.
Composition and Independence of the Board
The Board currently consists of six non-executive Directors, all
of whom are independent of the Manager with the exception of Robert
King and Robin Rumboll. Under the AIC Code, Robert King and Robin
Rumboll are not considered to be independent by reason of their
appointment as Directors of other companies with the same Manager
however the Board takes the view that they are independent in
judgement and character. The Chairman of the Board is Andrew Sykes.
In considering the independence of the Chairman, the Board has
taken note of the provisions of the AIC Code relating to
independence and has determined that Mr Sykes is an Independent
Director. The Board has designated Nicholas Fry as the Senior
Independent Director.
The Company has no employees and therefore there is no
requirement for a chief executive.
The Board is responsible for the appointment and monitoring of
all service providers to the Company. Between formal meetings there
is regular contact with the Manager and the Investment Advisor.
The Directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company and should be brought to the attention of
the Directors. The Directors also have access to the Secretary and,
where necessary in the furtherance of their duties, to independent
professional advice at the expense of the Company.
The Board holds quarterly Board meetings and the Audit Committee
meets at least twice a year. In addition, there were a number of ad
hoc meetings of the Board to review specific items between the
regular scheduled quarterly meetings.
Attendance at the Board and Audit Committee meetings during the
year was as follows:
Number
of Meetings Andrew Nicholas Robert Nicholas Robin Graham
held Sykes Fry King Moss Rumboll Harrison*
Board
Meetings 5 4 4 4 5 5 1
Audit
Committee
Meetings 3 3 3 3 3 3 1
*Appointed 1st January 2012
At the Board meetings the Directors review the management of the
Company's assets and all other significant matters so as to ensure
that the Directors maintain overall control and supervision of the
Company's affairs. During the year there were also three Audit
Committee meetings held.
The Board has a breadth of experience relevant to the Company
and the Directors believe that any changes to the Board's
composition can be managed without undue disruption. With any new
director appointment to the Board consideration will be given as to
whether an induction process is appropriate.
Board Performance
The Company conducted a review of the effectiveness of the Board
during the year using an independent advisor. The review concluded
that the members of the Board complemented each other and
functioned effectively as a Board.
Retirement by Rotation
In accordance with Article 75 of the Company's Articles of
Association, at each Annual General Meeting one-third of the
Directors shall retire from office via rotation and it is also the
Board's policy that directors offer themselves for re-election
after no more than three years in office. Those Directors who are
deemed not be independent under the terms of the AIC Code offer
themselves for re-election on an annual basis. Accordingly on 27th
September 2011 at the 6th Annual General Meeting of the Company,
each of Nicholas Fry, Robert King and Robin Rumboll retired as a
Director of the Company and being eligible had offered themselves
for re-election and each was re-elected as a Director of the
Company by the Shareholders.
The Board believes that long serving Directors should not be
prevented from forming part of an independent majority of the Board
and propose that upon reaching nine years service the Board will
document continuing independence discussions in relation to such
Directors as part of the annual Board self evaluation and will
disclose its conclusions in future Directors' Reports. Robin
Rumboll is intending to stand down at the AGM to be held in 2012
and the Board has appointed Graham Harrison effective 1st January
2012.
Management Committee
The Board has not deemed it necessary to appoint a management
committee as a result of being comprised wholly of non-executive
Directors. The Board is responsible for the review of the terms of
the Investment Management Agreement between the Company and the
Manager, and to ensure that the terms are competitive, fair and
reasonable for the Shareholders. This includes the review of
performance of the Investment Manager relative to the agreed
benchmark, performance of key service providers, the level of
effectiveness of any marketing support provided and any other
topics referred to it by the Board.
The Board has reviewed the performance and capabilities of the
Manager and is satisfied that the continued appointment of Fauchier
Partners Management Limited and Fauchier Partners LLP as Manager
and Investment Advisor respectively, is in the interest of
shareholders.
Audit Committee
An audit committee has been established consisting of all
Directors with Nicholas Fry appointed as Chairman. The terms of
reference of the audit committee provide that the committee shall
be responsible, amongst other things, for reviewing the Interim and
Annual Financial Statements, considering the appointment and
independence of external auditors, discussing with the external
auditors the scope of the audit and reviewing the Company's
compliance with the AIC Code. The Board is satisfied that the audit
committee contains members with sufficient recent and relevant
financial reporting experience. Other expenses disclosed in the
Statement of Comprehensive Income includes fees for annual audit
related services amounting to GBP25,270 and interim review fees
amounting to GBP10,868. There were no non-audit fees incurred
during the year.
Nomination Committee
The Board has not deemed it necessary to appoint a nomination
committee as a result of being comprised wholly of non-executive
Directors. The Board as a whole fulfils the function of a
nomination committee. Any proposal for a new Director will be
discussed and approved by the Board.
Remuneration Committee
As all the Directors are non-executive, the Board has resolved
that it is not appropriate to form a remuneration committee and
remuneration is reviewed and discussed by the Board as a whole with
independent advice. Directors' remuneration is considered on an
annual basis.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Internal Controls
The Board is ultimately responsible for the Company's system of
internal control and for reviewing its effectiveness. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the Company.
This process has been in place for the period under review and up
to the date of approval of this Annual Report and Audited Financial
Statements and is reviewed by the Board and accords with The AIC
Code. The AIC Code requires Directors to conduct at least annually
a review of the Company's system of internal control, covering all
controls, including financial, operational, compliance and risk
management.
The Board has reviewed the effectiveness of the systems of
internal control. In particular, it has reviewed and updated the
process for identifying and evaluating the significant risks
affecting the Company and the policies by which these risks are
managed. The Board also considers whether the appointment of an
internal auditor is required and has determined that there is no
requirement for a direct internal audit function. The internal
control systems are designed to meet the Company's particular needs
and the risks to which it is exposed. Accordingly, the internal
control systems are designed to manage rather than eliminate the
risk of failure to achieve business objectives and by their nature
can only provide reasonable and not absolute assurance against
misstatement and loss.
Significant Shareholdings
Shareholders with holdings of more than 3.0 per cent. of the
Sterling and Euro Redeemable Participating Preference Shares of the
Company at 28th June 2012 were as follows:
Percentage
Number
of of Issued
Sterling Sterling
Shares Share Capital
Quilter Nominees
Limited 16,797,504 10.96
Chase Nominees Limited -
CAZCAP 14,335,629 9.36
Lynchwood Nominees Limited -
a/c# 2006420 9,187,354 6.00
Quilter Nominees Limited
- GRS 8,607,145 5.62
Rathbone Nominees Limited 8,137,031 5.31
JP Morgan Securities Limited
- JPCREPON 7,276,106 4.75
Harewood Nominees Limited - a/c
# 4547000 6,980,530 4.56
Chase Nominees
Limited 5,869,282 3.83
Percentage
Number
of of Issued
Euro Euro
Shares Share Capital
Securities Services Nominees Limited
- a/c # 2060000 7,796,500 82.84
Securities Services Nominees Limited
- a/c # 2300000 546,580 5.81
The Bank of New York (Nominees) Limited
- BIL 359,956 3.82
The Bank of New York (Nominees) Limited
- a/c# 055404 326,145 3.47
Those invested directly or indirectly in 3.0 per cent. or more
of the issued share capital of the Company will not have different
voting rights from other holders of Shares.
Relations with Shareholders
The Investment Advisor maintains a regular dialogue with
institutional shareholders, the feedback from which is reported to
the Board and the Chairman has also met with a number of major
shareholders in the course of the year. In addition, Board members
will be available to respond to shareholders' questions at the
Annual General Meeting.
Andrew Sykes Nicholas Fry
12th July 2012 12th July 2012
DIRECTORS' REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the annual
remuneration report will be put to the Shareholders at the
annual general meeting to be held in 2012.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors' remuneration with independent
advice.
The Articles of Association provide that unless otherwise
determined by ordinary resolution, the number of the Directors
shall not be less than two and the aggregate remuneration of all
Directors in any twelve month period, or pro rata for any lesser
period shall not exceed GBP150,000 or such higher amount as may be
approved by ordinary resolution. Subject to this overall limit, it
is the Board's policy to determine the level of Directors' fees
having regard to the fees payable to non-executive directors in the
industry generally, the role that individual Directors fulfil in
respect of Board and Committee responsibilities and time committed
to the Company's affairs.
The Directors shall also be entitled to be repaid all reasonable
out of pocket expenses properly incurred by them in or with a view
to the performance of their duties or in attending meetings of the
Board or of committees or general meetings.
The Board shall have the power at any time to appoint any person
to be a Director, either to fill a casual vacancy or as an addition
to the existing Directors, but so that the total number of
Directors may not at any time exceed the number fixed pursuant to
the Articles of Association. Any Director so appointed shall hold
office only until the next following annual general meeting and
shall then be eligible for re-election.
Remuneration
Up until 30th September 2011, each Director was paid a fee of
GBP22,000 (31st March 2011: GBP22,000) per annum, except for the
Chairman who was paid GBP32,000 (31st March 2011: GBP32,000) and
the Audit Committee Chairman who was paid GBP27,000 (31st March
2011: GBP27,000). Effective 1st October 2011, fees were increased
to GBP24,250 for each Director, GBP35,000 for the Chairman and
GBP29,500 for the Audit Committee Chairman.
For the years ended 31st March 2012 and 31st March 2011, the
Directors' fees were as follows:
2012 2011
GBP GBP
Andrew Sykes (Chairman) 33,500 32,000
Nicholas Fry (Audit Committee
Chairman) 28,250 27,000
Nicholas Moss 23,125 22,000
Robert King 23,125 22,000
Robin Rumboll 23,125 22,000
Graham Harrison 6,063 Nil
Signed on behalf of the Board by:
Andrew Sykes
Nicholas Fry
12th July 2012
INVESTMENT POLICY
As at 31st March 2012
The Company's investment policy is to invest in a diversified
portfolio of hedge funds. There are no limits to the size of the
hedge funds in which the Company may invest and these funds may be
closed or open ended.
Diversification
The Manager seeks to obtain diversification by investing in a
number of different hedge funds across various strategies and
styles. Although the exact number of funds used may vary over time,
the Directors intend that the Company's portfolio will comprise no
less than 20 different hedge funds representing a variety of
different strategies. In practice, it is expected that the
portfolio will include some 30 different funds based in North
America, Europe and in Asia. The Company may, from time to time,
hold cash or cash equivalents at the Manager's discretion.
Asset Allocation
The Manager, upon the advice of the Investment Advisor, invests
the Company's assets in the following principal hedge fund strategy
groups:
-- Absolute Value Strategies, which include funds investing in a
combination of long and short positions. This group includes (but
is not limited to): Macro funds; Equity Long Bias funds; Equity
Hedged Volatility funds; Short Bias funds; and Specialist Credit
funds;
-- Relative Value Strategies, which seek to exploit anomalies in
the pricing of two or more related securities. This group includes
(but is not limited to): Event Driven funds; Volatility Trading and
Fixed Income funds; and
-- Multiple Strategy funds, which invest in situations combining
elements of both Absolute Value and Relative Value approaches.
The Manager, upon the advice of the Investment Advisor, does not
adopt a prescriptive approach to strategy allocation and, while the
Directors would normally expect the Company's portfolio to be
diversified across some 10 strategies, there are no formal target
weightings to strategies, although no single strategy would
represent more than 50.0 per cent. of the Company's gross assets.
(See the Investment Advisor's report for the current strategy
allocation.)
The Manager does not attempt to time or predict the direction of
markets. Its objective is to allocate to strategies according to
its perception of the potential which exists to generate returns in
any particular strategy over a given period of time. For example,
if there is little merger and acquisition activity, it will be very
difficult for hedge fund managers active in this area to generate
returns and the emphasis of the portfolio would be altered
accordingly.
As an alternative to direct investment in hedge funds, or where
hedge funds are closed to new investment, the Manager, on the
advice of the Investment Advisor, may invest indirectly through
"managed accounts" established with portfolio managers with
individual investment discretion. Such investments are made in the
shares of separately established special purpose companies with
limited liability. As the managed accounts are structured as
separate limited liability companies, the liability of the Company
is, in each case, limited to the value of its shareholding in that
special purpose company. Not more than 10.0 per cent. of the
Company's gross assets may, in aggregate, be invested in any single
managed account or accounts or with any single portfolio manager or
fund.
Gearing
The Company has the ability to borrow up to 20.0 per cent. of
its adjusted total of capital and reserves 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 foreign
exchange and borrowing 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.
General
In accordance with the requirements of the UK Listing Authority,
any material change in the investment policy of the Company may
only be made with the approval of shareholders.
Following the recent recommendation of the Board not to seek
continuation of the Company, proposals will shortly be put to
shareholders for putting the Company into an orderly wind-down.
These proposals constitute a material change to the Company's
investment policy and will require shareholder approval before they
can be implemented. The Company is currently taking legal and
financial advice and a circular convening an Extraordinary General
Meeting ("EGM") to seek such approval is being prepared.
TOP TEN HOLDINGS
As at 31st March 2012
Hedge Funds
No. of Proportion
shares % of of fund
held on Fair Value Total owned
Currency 31.3.2012 GBP Net Assets %
Pershing Square International,
Ltd USD 6,503.78 9,864,577 4.65 0.26
Roundkeep Global Fund
LP USD 15,525.90 9,642,344 4.55 1.63
SEG Partners Offshore
Ltd USD 65,716.95 9,479,989 4.47 1.50
Knighthead Offshore Fund
Ltd USD 10,437.35 9,264,935 4.37 0.92
Criterion Capital Partners
Ltd USD 79,548.99 9,092,918 4.29 2.28
Brevan Howard Fund Ltd USD 48,590.24 8,937,838 4.21 0.07
OZ Europe Overseas II
Fund, Ltd USD 12,395.96 8,850,441 4.17 1.08
Dabroes Offshore Investment
Fund Ltd USD 14,281.00 8,848,267 4.17 1.92
Brahman Partner II Offshore,
Ltd USD 14,310.00 8,758,409 4.13 2.30
Empyrean Capital Partners
LP USD 14,294.44 8,539,469 4.03 1.03
PORTFOLIO STATEMENT
As at 31st March 2012
% of
Total % of Total
Value Value
of of
No. of
shares Company Company
Description held on Fair Value as at as at
31.3.2012 GBP 31.3.2012 31.3.2011
Hedge Funds
Bay Resource Partners Offshore
Fund, Ltd 1,580.77 7,650,321 3.60
Brahman Partner II Offshore,
Ltd 14,310.00 8,758,409 4.13
Brevan Howard Fund Ltd 48,590.24 8,937,838 4.21
CFIP Overseas Fund, Ltd 2,526.09 2,044,775 0.96
Claren Road Credit Fund Ltd 3.00 1,853,719 0.87
Comac Global Macro Fund Ltd 85,738.27 8,505,547 4.01
Criterion Capital Partners
Ltd 79,548.99 9,092,918 4.29
Dabroes Offshore Investment
Fund Ltd 14,281.00 8,848,267 4.17
Drawbridge Global Alpha V
Fund Ltd 125.49 159,953 0.08
Drawbridge Global Macro Fund
Ltd 226.65 128,688 0.06
Dymon Asia Macro Fund 9,980.00 6,111,489 2.88
Elm Ridge Value Partners
Offshore Fund, Inc 57,271.79 7,869,297 3.71
Empyrean Capital Partners
LP 14,294.44 8,539,469 4.03
Farallon Capital Management
LLC 1.00 807,385 0.38
Fauchier Partners Counterpoint
Fund Ltd * 14,976.97 6,838,196 3.22
Fauchier Partners Incubator
Fund Ltd * 59,750.99 5,759,879 2.72
Fortress Commodities Fund 8,873.81 4,856,057 2.29
Fortress Macro Offshore LP 10,582.60 6,799,299 3.21
Harbinger Capital Partners
Offshore Fund I, Ltd 6,496.21 1,310,978 0.62
Highbridge Asia Opportunities
Fund, Ltd 22.12 159,917 0.08
Knighthead Offshore Fund
Ltd 10,437.35 9,264,935 4.37
Lansdowne Global Fund Limited 33,224.27 5,022,591 2.37
Lansdowne UK Equity Fund
Limited 35,621.78 8,371,685 3.95
Myriad Opprtunities Offshore
Fund Ltd 5,200.00 3,283,687 1.55
OZ Europe Overseas II Fund,
Ltd 12,395.96 8,850,441 4.17
OZ Overseas Fund II, Ltd 1.00 29,062 0.01
Pacific Alliance Asia Opportunities
Fund LP 1.00 6,934,783 3.27
Pershing Square International,
Ltd 6,503.78 9,864,577 4.65
Riva Ridge Offshore Fund,
Ltd 10,635.00 6,802,672 3.21
Roundkeep Global Fund LP 15,525.90 9,642,344 4.55
SEG Partners Offshore Ltd 65,716.95 9,479,989 4.47
Shepherd Investments International,
Ltd 2,693.82 1,733,129 0.82
Silver Point Capital Offshore
Fund Ltd 520.00 3,419,907 1.61
Sunbeam Opportunities Offshore 7,411.51 6,232,166 2.94
Trian Partners Ltd 11,925.00 7,786,203 3.67
Vicis Capital Fund (International) 14,743.93 1,837,141 0.87
Walker Smith International
Fund, Ltd 142.69 2,795,087 1.31
Wexford Offshore Spectrum
Fund 1,619.67 6,476,892 3.05
ZLP Offshore 139,200.00 8,197,829 3.86
Total investments carried
forward 221,057,521 104.22 94.38
Total investments brought
forward 221,057,521 104.22 94.38
Other net current (liabilities)/assets (8,942,391) (4.22) 5.62
Total value of Company (attributable
to
Redeemable Participating
Preference Shares) 212,115,130 100.00 100.00
* 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.
INDEPENDENT AUDITOR'S REPORT
To the Members of Absolute Return Trust Limited
We have audited the Financial Statements of Absolute Return
Trust Limited (the "Company") for the year ended 31st March 2012
which comprise the Statement of Comprehensive Income, Statement of
Changes in Equity, Statement of Financial Position, Statement of
Cash Flows and the related notes. As described in Note 1, the
Financial Statements have been prepared on a non going concern
basis. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards as adopted by the European Union.
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out in the Directors' Report, the directors
are responsible for the preparation of the Financial Statements and
for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the Financial
Statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board's (APB's) Ethical
Standards for Auditors.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give
reasonable assurance that the Financial Statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Board of Directors;
and the overall presentation of the Financial Statements. In
addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with the
audited Financial Statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Opinion on Financial Statements
In our opinion the Financial Statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 March 2012 and of its loss for the year then
ended;
-- are in accordance with International Financial Reporting
Standards as adopted by the European Union; and
-- comply with the Companies (Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the Financial Statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the UK Corporate Governance
Code specified for our review. We have nothing to report with
respect to our review.
Steve Stormonth
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
12th July 2012
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st March 2012
1.4.2011 1.4.2010
to to
31.3.2012 31.3.2011
Notes Revenue Capital Total Total
GBP GBP GBP GBP
Investment Income
Bank interest income 16 - 16 115
Other income 11,042 - 11,042 59,463
Total investment income 11,058 - 11,058 59,578
Net losses on financial
assets at fair value
1,
through profit or loss 4 - (8,804,486) (8,804,486) (8,603,003)
(Losses)/gains on foreign 1,
exchange 5 - (2,131,969) (2,131,969) 15,205,453
Total (loss)/income 11,058 (10,936,455) (10,925,397) 6,662,028
Expenses
Management fee 6 (2,562,376) - (2,562,376) (2,987,646)
Performance fee 7 (8,777) - (8,777) (552,250)
Interest expense (31,801) - (31,801) (1,023)
Other expenses 10 (1,174,270) - (1,174,270) (943,861)
Total expenses (3,777,224) - (3,777,224) (4,484,780)
(Loss)/profit for the
year(#) (3,766,166) (10,936,455) (14,702,621) 2,177,248
(Loss)/profit for the year
attributable to:
Sterling Share Class GBP(3,499,676) GBP(10,046,750) GBP(13,546,426) GBP2,126,953
Euro Share Class EUR(149,173) EUR(640,999) EUR(790,172) EUR75,770
Earnings per Participating
Redeemable
Preference Share - basic
and diluted*;
Sterling Share Class (1.89p) (5.41p) (7.30p) 1.00p
Euro Share Class (1.44c) (6.17c) (7.61c) 0.51c
* Earnings per Participating Redeemable Preference Share are
based on the weighted average number of Redeemable Participating
Preference Shares. The weighted average number of Redeemable
Participating Preference Shares for the year for the Sterling Share
Class and the Euro Share Class respectively were 185,628,547 and
10,390,317 (31st March 2011: 211,917,366 and 14,761,405).
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)/profit for the year" and therefore the profit for the year
is also the Company's total comprehensive income for the year, as
defined by IAS 1 (revised).
All items in the above statement derive from continuing
operations.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st March 2012
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 for the
year - 16,526,953 (27,463,408) (3,766,166) - (14,702,621)
Transactions with
Shareholders;
Cancellation of Shares (9,496,583) - - - (7,232,338) (16,728,921)
Redemption of Shares (26,314,391) - - - (26,095,637) (52,410,028)
Net effect of
Shares
conversion 757,528 - - - (757,528) -
Balance carried forward
at
at 31st March 2012 - 22,246,886 24,688,955 (20,549,729) 185,729,018 212,115,130
Net Assets attributable to holders of Redeemable Participating
Preference Shares at the end of the year. 212,115,130
For the year ended 31st March 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 2010 43,286,771 (8,793,833) 60,063,679 (12,358,361) 225,178,321 307,376,577
Total
comprehensive
Income for the
year - 14,513,766 (7,911,316) (4,425,202) - 2,177,248
Transactions with
Shareholders;
Cancellation of Shares (13,597,125) - - - - (13,597,125)
Net effect of Shares
conversion 5,363,800 - - - (5,363,800) -
Balance carried
forward at
at 31st March 2011 35,053,446 5,719,933 52,152,363 (16,783,563) 219,814,521 295,956,700
================= ================ ================ ================= ============== ===============
Net Assets attributable to holders of Redeemable Participating
Preference Shares at the end of the year 295,956,700
===============
STATEMENT OF FINANCIAL POSITION
As at 31st March 2012
31.3.2012 31.3.2011
Notes GBP GBP
ASSETS
Non-current assets
Financial assets at fair value
through profit or loss 1, 12 221,057,521 279,331,825
Current assets
Cash and cash equivalents 11 830,359 11,243
Unrealised gains on open forward
foreign
currency contracts 22 4,038,132 1,936,645
Other receivables 13 7,990,425 35,701,373
Total assets 233,916,437 316,981,086
============ ============
EQUITY AND LIABILITIES
CURRENT LIABILITIES
Bank overdraft 11 9,717,869 14,372,941
Redemptions payable 15 11,578,463 -
Other payables 14 462,026 6,645,046
Unrealised losses on open forward
foreign
currency contracts 22 42,949 6,399
Total liabilities 21,801,307 21,024,386
------------ ------------
EQUITY
Share Capital Account 15 - 35,053,446
Other Distributable Reserve 16 185,729,018 219,814,521
Retained Earnings 26,386,112 41,088,733
Total equity 212,115,130 295,956,700
Total equity and liabilities 233,916,437 316,981,086
Number of Sterling Redeemable Participating
Preference
Shares in issue 17 154,549,902 207,761,831
Number of Euro Redeemable Participating
Preference
Shares in issue 17 9,372,854 12,385,490
Net assets attributable to holders of Sterling
Redeemable
Participating Preference Shares
(per share) 17 132.4p 137.1p
============ ============
Net assets attributable to holders of Euro
Redeemable
Participating Preference Shares
(per share) 17 96.4c 100.7c
============ ============
The audited Financial Statements were approved on 12th July 2012
and signed on behalf of the Board of Directors by:
Andrew Sykes Nicholas Fry
STATEMENT OF CASH FLOWS
For the year ended 31st March 2012
1.4.2011 1.4.2010
to to
Note 31.3.2012 31.3.2011
GBP GBP
Cash flows from operating activities
(Loss)/profit for the year (14,702,621) 2,177,248
Adjusted for:
Losses on financial assets at fair value
through profit or loss 8,804,486 8,603,003
Realised and unrealised gains on
forward foreign
currency contracts (4,362,914) (21,117,896)
Exchange losses on foreign currency
revaluation 6,523,724 5,906,608
Exchange (gains)/losses on translation
reserve (28,841) 5,835
Operating cash flows before movements
in working capital (3,766,166) (4,425,202)
Decrease/(increase) in other receivables 20,637 (26,739)
Decrease in other payables (566,422) (392,793)
Net cash used in operating activities (4,311,951) (4,844,734)
Cash flows from investing activities
Purchase of financial assets at fair value
through profit or loss (55,425,171) (108,408,943)
Movement in receivables from broker (1,360,185) 5,205,633
Sale of investments received in
advance (5,777,251) 5,777,251
Sale of financial assets at fair
value through profit or loss 133,945,485 96,221,414
Net receipts/(payments) on forward
currency contracts 2,326,818 (1,218,659)
Net cash generated from/(used in)
investing activities 73,709,696 (2,423,304)
Cash flows from financing activities
Buyback of Redeemable Participating
Preference Shares (16,568,268) (13,597,125)
Redemption of shares (40,831,565) -
Net cash used in financing activities (57,399,833) (13,597,125)
Net increase/(decrease) in cash
and cash equivalents 11,997,912 (20,865,163)
Cash and cash equivalents at beginning
of year (14,361,698) 12,410,073
Effects of exchange rate changes (6,523,724) (5,906,608)
Cash and cash equivalents at end
of year 11 (8,887,510) (14,361,698)
Supplementary cash flow information
Cash flows from operating activities
include:
1.4.2011 1.4.2010
to to
31.3.2012 31.3.2011
GBP GBP
Interest received 16 115
Interest paid (31,801) (1,023)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2012
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 Financial Statements:
Basis of accounting
The Financial Statements give a true and fair view, are prepared
in accordance with International Financial Reporting Standards
("IFRS") adopted for use in the European Union, which comprise
standards and interpretations approved by the International
Accounting Standards Board (IASB) and are in compliance with The
Companies (Guernsey) Law, 2008. The Financial Statements have been
prepared on the break up basis, and the accounting policies,
presentation and methods of computation are consistent with this
basis, as disclosed in the going concern paragraph below.
Going concern
As at 31st March 2012 the Company's Share price was trading at a
discount of 9.3 per cent. to Net Asset Value for the Sterling Share
Class and 13.9 per cent to Net Asset Value for the Euro Share
Class, and stood at a discount of more than 5.0 per cent. at each
month end during the year to 31st March 2012. The discount control
provisions established when the Company was launched requires a
continuation vote to be proposed to shareholders at the Company's
Annual General Meeting when the Company's discount has exceeded 5.0
per cent. at each month end during the year to 31st March, and such
vote requires not less than 50 per cent. of the total voting rights
cast on the resolution to be in favour in order for the company to
continue in its current format. If the resolution is not passed,
the Directors are required to formulate proposals to be put to
shareholders within six months of such resolution being defeated
for the winding up or other reorganisation or reconstruction of the
Company. After extensive shareholder consultation, the Board
resolved not to seek continuation of the Company.
The Financial Statements have been prepared on a non going
concern basis reflecting the proposal to shareholders to wind-down
the Company. Accordingly, the going concern basis of accounting is
no longer considered appropriate. All assets and liabilities are
carried at the expected net realisable values. The investments are
expected to be realised in an orderly manner at fair value without
significant liquidity discounts. A provision for winding up costs
has not been included in these Financial Statements as the estimate
of these costs is still currently being determined. However, these
are not expected to be material.
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 2015)
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)
IAS 32 - Financial Instruments: Presentation (effective date -
1st January 2014)
The Board anticipates that the adoption of these standards in a
future period will not have a material impact on the financial
statements of the Company. 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 2015 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 June
2011 and contain minor amendments to standards for periods
beginning on or after 1st January 2013. 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 have been written down to net realisable
values.
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 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.
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.
Other Financial Instruments
For other financial instruments, including other receivables and
other payables the carrying amounts as shown in the Statement of
Financial Position approximate to fair values due to the short term
nature of these financial instruments.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the 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 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 financial asset have expired, (b) the
Company retains the right to receive cash flows from the financial
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 financial asset, or has neither transferred nor
retained substantially all the risks and rewards of the financial
asset, but has transferred control of the financial asset.
A financial liability is derecognised when the contractual
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 Statement of Comprehensive Income. Interest
income is recognised on a time-proportionate basis 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 Statement of Comprehensive Income
in capital. All other expenses are charged to the Statement of
Comprehensive Income in revenue.
Share issue expenses
Share issue expenses are fully written off against the Share
Capital Account or Other Distributable Reserve 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 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 these currencies is hedged by forward
foreign currency contracts. Accordingly the Directors regard
Sterling as the functional currency. The Company has also adopted
Sterling as its presentation 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 the 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
Statement of Comprehensive Income under capital.
2. TAXATION
During the year, the Company was exempt from taxation in
Guernsey under the provisions of The Income Tax (Exempt Bodies)
(Guernsey) Ordinance 1989 and has paid an annual exemption fee of
GBP600 (31st March 2011: 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 period if the Net Asset Value
has risen at least 5.0 per cent. over that period. On 1st April
2012, no shares were redeemed under this facility relating to the
previous year (1st April 2011: Nil shares).
4. NET LOSSES ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
1.4.2011 1.4.2010
to to
31.3.2012 31.3.2011
GBP GBP
Net losses on financial assets at fair
value through profit or loss
during the year
comprise:
Gains realised on investments sold
during the year 20,771,290 20,921,709
Movement in unrealised losses
arising from
changes in fair value during
the year (29,575,776) (29,524,712)
Net losses on financial
assets at
fair value through profit
or loss (8,804,486) (8,603,003)
5. (LOSSES)/GAINS ON FOREIGN EXCHANGE
1.4.2011 1.4.2010
to to
31.3.2012 31.3.2011
GBP GBP
Realised gains/(losses) on forward foreign
currency contracts 2,297,977 (1,212,824)
Unrealised gains on forward foreign
currency contracts 2,064,937 22,330,720
Exchange losses on foreign
currency revaluation (6,523,724) (5,906,608)
Exchange gains/(losses) on
translation reserve 28,841 (5,835)
(2,131,969) 15,205,453
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
year ended 31st March 2012 management fees of GBP2,562,376 were
charged to the Company (31st March 2011: GBP2,987,646) and
GBP189,677 was payable at the year 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 year ended 31st March 2012 performance fees of
GBP8,777 were charged to the Company (31st March 2011: GBP552,250)
and GBP802 was payable at the year 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 year ended 31st March 2012 administration fees of GBP234,300
(31st March 2011: GBP267,764) were charged to the Company and
GBP34,444 was payable at the year 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
year ended 31st March 2012 custodian fees of GBP192,179 (31st March
2011: GBP224,074) were charged to the Company and GBP27,662 was
payable as at the year end (31st March 2011: GBP18,907).
10. OTHER EXPENSES
1.4.2011 1.4.2010
to to
31.3.2012 31.3.2011
GBP GBP
Administration
fee (Note 8) 234,300 267,764
Custodian fee (Note
9) 192,179 224,074
General expenses 585,333 305,023
Directors' fees
(Note 19) 137,188 125,000
Audit fee 25,270 22,000
1,174,270 943,861
Following the proposal to wind-down the Company potential
liquidation costs will include legal and liquidator fees, the
estimate of which is still currently being determined and are not
expected to be material. Hence, a provision for winding up costs
has not been included in the Financial Statements.
11. CASH AND CASH EQUIVALENTS
31.3.2012 31.3.2011
GBP GBP
Current deposits
with banks 830,359 11,243
Bank overdraft (9,717,869) (14,372,941)
(8,887,510) (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 year. As at 31st March 2012 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 GBP50.0 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 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 5th January 2012. 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
31.3.2012 31.3.2011
GBP GBP
Cost of investments at
end of year 203,717,512 232,415,655
Cumulative net unrealised
gain 17,340,009 46,916,170
Fair value at end
of the year 221,057,521 279,331,825
13. OTHER RECEIVABLES
31.3.2012 31.3.2011
GBP GBP
Sale of investments awaiting
settlement 2,166,767 806,582
Payment in advance for purchase
of investments 5,817,556 34,868,052
Other receivables 6,102 26,739
7,990,425 35,701,373
The Directors consider that the carrying amount of the other
receivables approximates their fair value.
14. OTHER PAYABLES
31.3.2012 31.3.2011
GBP GBP
Performance fee
payable 802 552,250
Management fee
payable 189,677 252,077
Share buybacks
payable 160,653 -
Proceeds from sale of investments
received in advance - 5,777,251
Other creditors 110,894 63,468
462,026 6,645,046
The Directors consider that the carrying amount of the other
payables approximates their fair value.
15. SHARE CAPITAL ACCOUNT
31.3.2012 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 for a
termination of the Company ("continuation vote"). As at 31st March
2012 the Company's Share price was trading at a discount of 17.6
per cent. to Net Asset Value for the Sterling Share Class and 13.9
per cent. to Net Asset Value for the Euro Share Class, and stood at
a discount of more than 5.0 per cent. at each month end during the
year to 31st March 2012. The Board has explored a variety of ways
to address the discount for the benefit of all shareholders and has
concluded that in current market conditions there is insufficient
demand for a closed ended company that invests in a multi-manager
portfolio of hedge funds to warrant continuation. After extensive
shareholder consulation, the Board has resolved not to seek
continuation of the Company.
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
31.3.2012 31.3.2011
Company Company
Total Total
Sterling Euro Number Sterling Euro Number
Issued Share
Capital Shares Shares of shares Shares Shares of shares
Equity Shares
Balance at start
of the
year 207,761,831 12,385,490 220,147,321 215,778,934 18,662,505 234,441,439
Redemption of
shares
during the
year (39,063,458) (1,985,215) (41,048,673) - - -
Net effect of
conversion
during the
year 554,029 (847,421) (293,392) 3,894,285 (6,277,015) (2,382,730)
Bought back and
cancelled
during the
year (14,702,500) (180,000) (14,882,500) (11,911,388) - (11,911,388)
Balance at end
of the
year 154,549,902 9,372,854 163,922,756 207,761,831 12,385,490 220,147,321
1.4.2011 1.4.2010
to to
31.3.2012 31.3.2011
Total Total
Sterling Euro Share Sterling Euro Share
Shares Shares Capital Shares Shares Capital
Issued Share
Capital GBP EUR GBP GBP EUR GBP
Equity Shares
Redeemable Participating Preference Shares
at no par value
Balance at
start
of the
year 35,053,446 - 35,053,446 43,525,240 55,756 43,286,771
Redemption of
shares
during the
year (26,314,391) - (26,314,391) - - -
Net effect of
conversion
during the
year
* 757,528 - * 757,528 5,125,331 (55,756) 5,363,800
Bought back
and
cancelled
during the
year (9,496,583) - (9,496,583) (13,597,125) - (13,597,125)
Balance at
end
of the year - - - 35,053,446 - 35,053,446
*During the year, the Share Capital Account for the Sterling
Share Class was reduced to nil and any further cancellation of
Sterling Shares was 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 year 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 Shares that
were converted to Euro Redeemable Participating Preference Shares
during the year.
During the year under the Share Buyback Programme, the Company
purchased and cancelled the following of its own shares:
Percentage
Number Average of Issued
of Price Share
Shares Per Share Capital
Sterling Shares 14,702,500 1.11 7.91%
Euro Shares 180,000 0.85 1.56%
Redemption Facility
During the year, the Board offered a redemption facility for up
to 15 per cent. of the Shares in issue. The table below shows the
redemptions made in respect of this facility during the year:
NAV per share Number
date of Shares Amount*
GBP
Sterling Share
Class
30th September
2011 30,431,930 39,381,959
31st March 2012 8,631,528 11,398,795
39,063,458 50,780,754
=========== ===========
Euro Share Class
30th September
2011 1,760,972 1,449,454
31st March 2012 224,243 179,820
1,985,215 1,629,274
=========== ===========
*Total redemption facility fees in respect of the redemptions
during the year amounted to GBP258,031.
As at 31st March 2012, total accruals made in relation to the
redemptions amounted to GBP11,578,463, net of redemption facility
fees of GBP27,169.
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
31.3.2012
Sterling Euro Company
Shares Shares Total
GBP EUR GBP
Total assets less liabilities 204,581,863 9,038,283 212,115,130
Amount attributable
to Redeemable
Participating Preference
Shares 204,581,863 9,038,283 212,115,130
Number of shares outstanding 154,549,902 9,372,854
Net Assets attributable to holders
of Redeemable
Participating Preference Shares
(per Share) 132.4p 96.4c
31.3.2011
Sterling Euro Company
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 six non-executive directors.
Up until 30th September 2011, each Director was paid a fee of
GBP22,000 (31st March 2011: GBP22,000) per annum, except for the
Chairman who was paid GBP32,000 (31st March 2011: GBP32,000) and
the Audit Committee Chairman who was paid GBP27,000 (31st March
2011: GBP27,000). Effective 1st October 2011, fees were increased
to GBP24,250 for each Director, GBP35,000 for the Chairman and
GBP29,500 for the Audit Committee Chairman.
Total Directors' fees for the year, including outstanding
Directors' fees at the end of the year, are set out below.
31.3.2012 31.3.2011
GBP GBP
Directors' fees
for the year 137,188 125,000
Payable at end
of year - -
As at 31st March 2012 the Company held investments in Fauchier
Partners Counterpoint Fund Ltd and Fauchier Partners Incubator Fund
Ltd valued at a total of GBP12,598,075 (31st March 2011:
GBP18,398,144).
As at 31st March 2012 and 31st March 2011, Directors of the
Company held the following numbers of shares beneficially:
Directors Shares Shares
31.3.2012 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
Graham Harrison 10,000 Nil
20. OPERATING SEGMENTS
Information on realised gains and losses derived from sales of
investments are disclosed in Note 4.
The Board has considered the requirements of IFRS 8 'Operating
Segments', and is of the view that the Company's activities form a
single segment under the standard, being investments in a
diversified portfolio of Hedge Funds. From a geographical
perspective, the Company's investments are managed on a global
basis. The Board, as a whole, has been determined as constituting
the chief operating decision maker of the Company. The key measure
of performance used by the Board to assess the Company's
performance and to allocate resources is the total return based on
the NAV per share, as calculated under IFRS. Therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in the Annual Audited
Financial Statements.
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 Company has a highly diversified portfolio of investments
and as at 31st March 2012 no single investment accounts for more
than 4.65 per cent. of the Company's Net Assets.
Geographical segments based on country of domicile
Cayman
Bermuda BVI Islands Guernsey Ireland Total
GBP GBP GBP GBP GBP GBP
31st March 2012
Financial assets
at fair value
through profit
or loss 12,598,075 1,589,298 206,870,148 - - 221,057,521
Unrealised gains
on open
forward foreign
currency
contracts - - - 4,038,132 - 4,038,132
Unrealised losses
on open
forward foreign
currency
contracts - - - (42,949) - (42,949)
Total income/(expense) (120,291) 20,757 (8,693,894) (2,131,969) - (10,925,397)
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
The Company also has a diversified shareholder population.
However, as at 31st March 2012, there was one Sterling and one Euro
shareholder who held more than 10 per cent. of their respective
Share Classes. Their holdings were 12.32 per cent. and 81.24 per
cent. respectively. As at 31st March 2011, there were two Sterling
and one Euro shareholders who held more than 10 per cent. of their
respective Share Classes. Their holdings were 12.65 per cent.,
11.16 per cent. and 73.48 per cent. respectively.
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 contracts; and
-- borrowings used to finance investment activity up to a
maximum of GBP50.0 million as at 31st March 2012.
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.
31.3.2012 31.3.2011
Fair Value Fair Value
GBP GBP
Financial assets designated at fair value
through profit or loss
Listed Investments 8,371,685 12,662,010
Unlisted Investments 212,685,836 266,669,815
Unrealised gains on open forward foreign currency
contracts 4,038,132 1,936,645
Total financial assets designated at fair
value
through profit
or loss 225,095,653 281,268,470
Other financial
assets 8,820,784 35,712,616
Other financial assets include cash and cash
equivalents and other receivables.
31.3.2012 31.3.2011
Fair Value Fair Value
GBP GBP
Financial liabilities designated at fair
value through profit or loss
Unrealised losses on open
forward currency contracts (42,949) (6,399)
(42,949) (6,399)
Other financial liabilites
Redemptions payable (11,578,463) -
Bank overdraft (9,717,869) (14,372,941)
Other payables (462,026) (6,645,046)
(21,758,358) (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 year and the Manager's policies for managing
them are summarised below.
Market risk
Market risk is the risk that the fair value 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
31st March 2012 is shown in the Statement of Financial
Position.
The Investment Manager believes that analysis of value-at-risk
(VaR) to be an inappropriate measure of market risk in a fund of
hedge funds. Instead, the Investment Manager monitors market risk
of the Company's investments via traditional statistical measures,
such as correlation and beta. This is done on a monthly basis.
Beta is an estimate of the Company's response to swings in the
market.
The Company's beta to the FTSE All Share Index and Citigroup UK
Gilt Index as at 31st March 2012 and 31st March 2011 was as
follows:
Beta to FTSE All Share Index
31.3.2012 31.3.2011
Absolute Return Trust Limited 0.23 0.23
---------- ----------
If the FTSE All Share Index as at 31st March 2012 had increased
by 10 per cent. (31st March 2011: 10 per cent.) with all other
variables held constant, the estimated increase in Net Assets
attributable to holders of Redeemable Participating Preference
Shares would have been US$7,794,854 (31st March 2011:
US$10,911,219).
Conversely, if the FTSE All Share Index as at 31st March 2012
had decreased by 10 per cent. (31st March 2011: 10 per cent.) with
all other variables held constant, the estimated decrease in Net
Assets attributable to holders of Redeemable Participating
Preference Shares would have been US$7,794,854 (31st March 2011:
US$10,911,219).
Actual trading results may differ from the above sensitivity
analysis and these differences could be material.
The FTSE All-Share is used as a proxy for equity market
performance from the perspective of a Sterling-based investor. It
is a market-capitalisation weighted index representing the
performance of all eligible companies listed on the London Stock
Exchange's main market, which pass screening for size and
liquidity. As at 31st March 2012 the FTSE All-Share Index covered
621 constituents with a combined value of nearly GBP1.8 trillion -
approximately 98 per cent. of the UK's market capitalisation.
source: FTSE group
Beta to Citigroup UK Gilt Index
Fund 31.3.2012 31.3.2011
Absolute Return Trust Limited -0.19 -0.17
---------- ----------
If the Citigroup UK Gilt Index at 31st March 2012 had increased
by 10 per cent. (31st March 2011: 10 per cent.) with all other
variables held constant, the estimated decrease in Net Assets
attributable to holders of Redeemable Participating Shares would
have been US$6,439,227 (31st March 2011: US$8,064,814).
Conversely, if the Citigroup UK Gilt Index at 31st March 2012
had decreased by 10 per cent. (31st March 2011: 10 per cent.) with
all other variables held constant, the estimated increase in Net
Assets attributable to holders of Redeemable Participating Shares
would have been US$6,439,227 (31st March 2011: US$8,064,814).
Actual trading results may differ from the above sensitivity
analysis and these differences could be material.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of a
foreign currency. It represents the potential loss the Company may
suffer through holding foreign currency assets in the face of
foreign exchange movements. The Company's treatment of currency
transactions is set out in Note 1 to the Financial Statements under
"Translation of foreign currency" and "Forward foreign currency
contracts".
The Company's Shares are denominated in Sterling (a small number
are denominated in Euros) and its operating expenses are incurred
in Sterling, while the Company's investments are denominated in US
Dollars. The Company's presentation currency is Sterling; hence the
Statement of Financial Position may be significantly affected by
movements in the exchange rates between the US Dollar, Euro and
Sterling. The Manager manages exposure to currency movements by
using forward foreign currency and currency option contracts to
hedge total exposure.
As at 31st March 2012, the Company had thirty eight (31st March
2011: twenty nine) open forward foreign currency contracts.
Mark to
Market Unrealised
Outstanding Equivalent gains
US$ Contracts 31.3.2012 31.3.2012
Thirty two Sterling forward foreign
currency GBP
contracts totalling: (338,116,429) GBP 215,536,546 GBP 211,657,317 3,879,229
Settlement date 30th
April 2012
Six Euro forward foreign
currency
contracts totalling: (12,162,539) EUR 9,271,101 EUR 9,131,981 115,954
Settlement date 30th
April 2012
Total net Unrealised gains at 31st
March 2012 3,995,183
===========
Mark to
Market 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 gains at 31st
March 2011 $ 1,930,246
============
As at 31st March 2012 and 31st March 2011, the Company held the
following assets and liabilities denominated in US Dollars:
31.3.2012 31.3.2011
GBP GBP
Assets 229,047,946 315,033,198
Liabilities (9,717,869) (20,150,192)
Less: Forward foreign exchange contracts
- Sterling (211,657,317) (283,955,571)
Forward foreign exchange contracts
- Euro (9,131,981) (10,683,847)
(1,459,221) 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.
Foreign currency sensitivity analysis
The below details the Company's sensitivity to a 5 per cent.
(31st March 2011: 5 per cent.) change in the Sterling exchange rate
against the US Dollar and Euro currencies. The sensitivity analysis
percentages represent the Manager's assessment, based on the
foreign exchange rate movements over the relevant year and of the
reasonably possible change in foreign exchange rates.
31.3.2012 31.3.2011
GBP GBP
Impact on Statement of Comprehensive Income
in response to a
5% increase (2,648) (8,822)
========== ==========
5% decrease 2,776 13,221
========== ==========
Impact on Equity in response
to a
5% increase (2,648) (8,822)
========== ==========
5% decrease 2,776 13,221
========== ==========
Actual trading results may differ from the above sensitivity
analysis and these differences may be material.
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 committed credit
facility be used. Interest on the committed credit facility is
charged at 1 per cent. above base rate.
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.
Interest rate sensitivity
Cash and cash equivalents will be affected by movements in
interest rates. However, no material impact on the Statement of
Comprehensive Income or Statement of Financial Position is expected
due to the immateriality of interest rate risk at the year end.
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
A+ (31st March 2011: AA) from Standard & Poor's and A1 (31st
March 2011: 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:
31.3.2012 31.3.2011
GBP GBP
Cash and cash equivalents 830,359 11,243
Net unrealised gains on open forward foreign
currency contracts 4,038,132 1,936,645
Other receivables 7,990,425 35,701,373
12,858,916 37,649,261
Fair value
IFRS 7 requires the Company to classify fair value hierarchy
that reflects 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 as of 31st
March 2012.
31.3.2012
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 - 211,834,894 9,222,627 221,057,521
Unrealised gains on open forward
foreign
currency contracts - 4,038,132 - 4,038,132
Total assets - 215,873,026 9,222,627 225,095,653
Liabilities
Financial assets at fair value through profit
or loss:
Unrealised losses on open
forward
foreign
currency contracts - (42,949) - (42,949)
Total liabilities - (42,949) - (42,949)
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 fair-valued using
the official month-end Net Asset Value of each fund as reported by
each fund's independent administrator.
Assets classified in Level 3 are portions of eight Hedge Funds
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 official 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 funds. The assets classified in
Level 3 represent 4.35 per cent. of the Company's Net Asset
Value.
There were no transfers between levels for the year ended 31st
March 2012.
The following table presents the movements in level 3
investments.
` 31.3.2012 31.3.2011
GBP GBP
Opening balance 14,515,702 22,945,904
Purchases 3,459,385 2,762,465
Sales (15,936,732) (16,257,303)
Gains recognised in
profit and loss 7,184,272 5,064,636
Closing balance 9,222,627 14,515,702
Net unrealised loss for the
year included in the Statement
of Comprehensive Income for
level 3 Investments held (1,707,463) (11,197,304)
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.
Following the recommendation of the Board, proposals will be put to
shareholders for the Company's orderly wind-down.
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 31st
March 2012 the Company could borrow the lower of 20.0 per cent. of
the NAV or GBP50.0 million to meet any liquidity risk that may
arise.
The table below 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 6-12 than 12 31.3.
3 Months 3-6 months months months 2012 Total
GBP GBP GBP GBP GBP
Financial assets
at fair value
through profit or
loss* 13,540,029 160,641,716 23,870,460 23,005,316 221,057,521
Cash and cash
equivalents 830,359 - - - 830,359
Unrealised gains
on forward
foreign exchange
contract 4,038,132 - - - 4,038,132
Payment in advance
for
purchase of
investments 5,817,556 - - - 5,817,556
Sale of investments
awaiting
settlement 2,166,767 - - - 2,166,767
Other debtors 6,102 - - - 6,102
Redemptions payable (11,578,463) - - - (11,578,463)
Unrealised loss on
forward
foreign exchange
contract (42,949) - - - (42,949)
Bank overdraft (9,717,869) - - - (9,717,869)
Share buybacks
payable (160,653) - - - (160,653)
Management fee payable (189,677) - - - (189,677)
Performance fee
payable (802) - - - (802)
Other creditors (110,894) - - - (110,894)
Total 4,597,638 160,641,716 23,870,460 23,005,316 212,115,130
Greater
Within than 12 31.2.2011
3 Months 3-6 months 6-12 months 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
Payment in advance
for
purchase of
investments 34,868,052 - - - 34,868,052
Sale of
investments
awaiting
settlement 806,582 - - - 806,582
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 creditors (5,840,719) - - - (5,840,719)
Total 37,686,567 178,399,812 27,643,296 52,227,025 295,956,700
*The table above table reflects the anticipated cash flow
assuming notice was given to all underlying funds as at 31st March
2012 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.
As at 31st March 2012 the Company had the ability to borrow the
lower of 20.0 per cent. of Net Asset Value or GBP50.0 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.
31.3.2012 31.3.2011
GBP GBP
Total assets 233,916,437 316,981,086
Less: Redemptions
payable (11,578,463) -
Other payables (462,026) (6,645,046)
Unrealised losses on open forward foreign
currency contracts (42,949) (6,399)
Bank overdraft (9,717,869) (14,372,941)
Total equity 212,115,130 295,956,700
Gearing ratio 10.28% 7.10%
Gearing ratio (excluding
redemptions payable) 4.82% 7.10%
The Board considers this gearing ratio to be adequate since
total liabilities above refer only to bank overdraft, other
payables and unrealised losses on open forward foreign currency
contracts.
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 31st March and/or 30th September 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. The Directors will meet regularly to consider the operation
of the redemption facility in light of prevailing market
conditions, shareholders sentiments and any legal constraints.
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 12th July 2012. Subsequent events have been evaluated
until this date.
Share Buyback
Subsequent to 31st March 2012 to the date of this report, the
Company purchased and cancelled 1,306,000 of its own Sterling
Shares at an average price of GBP1.07 representing 0.86 per cent.
of the issued Share Capital at the financial year end.
Share Conversion
On 1st April 2012, at the request of the existing shareholders,
the Company converted 23,777 Sterling Redeemable Participating
Shares to 39,159 Euro Redeemable Participating Shares. These Shares
were converted using the 31st March 2012 Euro Shares NAV per Share
and were listed on the London Stock Exchange on 10th May 2012.
Continuation
On 25th June 2012, the Company announced the Board's resolution
not to seek continuation of the Company as the discount of the
Company's share price has steadily widened over recent year despite
persistent share buybacks and capital returns at NAV through the
redemption facility. The Board further concluded that in current
market conditions there is insufficient demand to warrant
continuation.
Proposals will be put to shareholders for putting the Company
into an orderly wind-down. The Company is currently taking legal
and financial advice regarding the wind-down process.
MANAGEMENT AND ADMINISTRATION
DIRECTORS REGISTERED OFFICE
Andrew Sykes (Chairman) Trafalgar Court,
Nicholas Fry Les Banques,
Robert King St. Peter Port,
Nicholas Moss Guernsey, GY1 3QL
Robin Rumboll
Graham Harrison (Appointed
1st January 2012)
MANAGER INDEPENDENT AUDITOR
Fauchier Partners Management KPMG Channel Islands Limited
Limited, 20 New Street,
Suite A1, Hirzel Court, St Peter Port,
Hirzel Street, Guernsey, GY1 4AN
St. Peter Port,
Guernsey, GY1 2NN
INVESTMENT ADVISOR CORPORATE BROKER
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 2H
ADMINISTRATOR AND SECRETARY RECEIVING AGENT AND UK PAYING
AGENT
Northern Trust International
Fund Administration, Computershare Investor Services
Services (Guernsey) Limited, PLC,
Trafalgar Court, PO Box 859,
Les Banques, The Pavilions,
St. Peter Port, Bridgwater Road,
Guernsey, GY1 3QL Bristol, BS99 1XZ
CUSTODIAN
REGISTRAR
Northern Trust (Guernsey)
Limited, Computershare Investor Services
Trafalgar Court, (Guernsey) Limited,
Les Banques, 3rd Floor NatWest House,
St. Peter Port, Le Truchot,
Guernsey, GY1 3DA St. Peter Port,
Guernsey, GY1 4BZ
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
FR BKNDQQBKDCOD
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