BH Global Limited
Annual Report and Audited Financial
Statements 2020
LEI: 549300BIIO4DTKEMXV14
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
31 December
2020
The Company has today, in accordance with DTR 6.3.5, released
its Annual Report and Audited Financial Statements for the year
ended 31 December 2020. The Report
will shortly be available from the Company’s website:
www.bhglobal.com.
CHAIRMAN’S STATEMENT
Dear Shareholder,
Within living memory, 2020 was an unprecedented year for the
world with the COVID-19 pandemic sweeping through many countries
taking a horrendous death toll as well as disrupting societies and
economies in unprecedented ways. The world has a long way to
go yet to see normal life restored. The same applies to the
outlook for economies and financial markets.
2020 was also an exceptional year for BH Global Limited (the
“Company” or “BH Global”). Exceptional both in terms of substantial
positive growth in the Company’s Net Asset Value (“NAV”) and in the
fact that it was achieved in such a year of turmoil in traditional
equity markets. Such performance is of great credit to Brevan
Howard Capital Management LP’s (the “Manager”), disciplined and
focussed approach. In addition to the NAV, the further narrowing of
the discount to NAV per share at which the shares traded, delivered
a very satisfactory return for shareholders and also delivered on
the Company’s aim of being a safe haven in times of stress in
equity markets.
The US Dollar is the Company’s functional currency and the NAV
per share of the US Dollar class grew by 22.45%. The NAV per share
of the much larger Sterling class appreciated by 21.76%. The share
price of the US Dollar class rose by 27.9% and that of the Sterling
class by 26.9%.
The Manager’s Report follows this Statement and sets out in
detail the performance of the Company for the year.
ASSETS
BH Global invests all of its assets, save for working cash
balances, in Brevan Howard Multi-Strategy Master Fund Ltd (“BHMS”).
BHMS in turn invests its capital in a number of funds and trading
books managed by the Manager’s affiliated entities. At 31 December 2020 the Company’s net assets were
$593.0 million and it owns 82.6% of
the total capital of BHMS, effectively unchanged from the
percentage owned at 31 December 2019.
The Board has received regular assurances from the Manager that the
liquidity profile of the assets held by BHMS is consistent with the
redemption notice periods granted to BH Global and that, as far as
liquidity is concerned, BH Global’s holding of approximately 83% of
BHMS is not a cause for concern.
As opportunities presented themselves during the year in
individual funds and trading books, BHMS significantly increased
the capital committed through the Single Manager Portfolio (“SMP”).
At the year-end, the proportion of capital committed through the
SMP of 64.7%, spread across 9 trading books or funds managed by an
individual portfolio manager, was a material increase from the
40.0% a year earlier. That, together with an increase in capital
committed to the Brevan Howard Alpha Strategies Master Fund
(“BHALMF”) were the main determinants of a significant reduction
from 43.5% at 31 December 2019 in the
capital committed to the Brevan Howard Master Fund (“BHMF”) to
15.6% at 31 December 2020. Both
BHALMF and the SMP added very positively to NAV growth in 2020,
appreciating by 20.4% and 27.6% respectively gross of fees.
DISCOUNT, SHARE ISSUANCE AND SIZE OF
COMPANY
At 31 December 2020 the discount
to NAV at which the Company’s shares have traded for long periods
in the middle of the last decade had effectively disappeared. The
price of the Sterling Shares at the year-end was £19.25, being a
discount to NAV of 1.85%. For the US Dollar class the figures were
$20.15 and 0.16%. Indeed, during 2020
there were periods where the Company’s shares traded at a premium
and advantage was taken of the opportunity to reverse, in a small
way, the shrinkage in the size of the Company which had occurred
through multi-year buy backs, the last of which was undertaken in
June 2018. At a minimum premium of 2%
over the estimated NAV per share, in December 2020 the Company sold 240,000 GBP shares from Treasury raising £4.7
million. Sales continued in January
2021 with the sale of a further 301,070 GBP shares and 35,000 USD shares raising £6.0 million and
$0.7 million, respectively.
The average discount at which the two classes traded during 2020
was 3.69% (GBP class) and 1.73% (USD class), comfortably lower than
the 10% trigger at which the Board would be required to bring
forward Class Closure votes. Equally, with year-end net assets of
$593 million the size of the Company
was nearly double the $300 million
floor, as had been agreed with the Manager in 2017, at which the
Board would be required to bring forward a vote on a liquidation
resolution.
In early January 2021 the
Company’s shares were still trading either side of NAV, but more
generally at a premium, and thus afforded shareholders who might
wish to raise cash the opportunity to sell shares in the market.
Accordingly, in order that tax paying shareholders would have
maximum notice to order their affairs in good time, on 11 January
the Company announced that it did not intend to return by way of
Capital Redemption any part of the NAV per share appreciation
generated in 2020.
FEE FREE BUY BACK ALLOWANCE
In 2017 the Board agreed with the Manager that, as part of the
package of measures whereby the Management Fee would be reduced to
1%, the Company would be permitted to buy back up to 5% of the
shares of each class in any one year, free of the 2% fee payable to
the Manager in respect of a reduction of net asset value of a share
class by reason of a share buyback (the “Buy Back Allowance”).
No buy backs were undertaken in 2020 and the “clock” is now
reset at 1 January 2021. For 2021 the
fee free buy back allowance is 1,007,121
GBP shares and 131,210 USD
shares.
MANAGEMENT AGREEMENT AND INCREASED
FEES PAYABLE TO THE MANAGER
On 22 January 2021 the Manager
wrote to the Board (the “Letter”) accelerating the discussions
which were already in train and proposing an increase in the
Management Fee. If that increase was not agreed by the Company, the
Manager advised that it intended to serve notice terminating the
Management Agreement. The fee increase proposed was from a 1.00%
Management Fee to 2.00% to apply across all of the Company’s
assets. The 20% Performance Fee would remain unchanged. In
practice, on account of the cap in the quantum of assets subject to
the Management Fee that had been agreed in October 2016, the actual Management Fee paid in
2020 was 0.88% for the GBP class and 0.82% for the USD class. Thus
the Manager was requesting an increase in the Management Fee of
approximately two and a half times the rate that had pertained in
2020.
As the Board has explained in a release to the Stock Exchange
dated 16 February, both the 2016 cap on applicable quantum and the
1.00% headline Management Fee agreed in April 2017 were proposals that the Manager itself
originally put forward. When the new fee basis was agreed in
April 2017 the Board agreed to the
introduction of the Buy Back Allowance as described above. The
Board considered that the proposal to return the Management Fee to
the 2.00% which had applied prior to April
2017 without the concomitant restoration of the position
that applied to buy backs was not even handed. Nevertheless, the
Board recognised the contractual position under the Management
Agreement.
Ever since discussions had commenced in 2020 about a possible
increase in the Management Fee, and irrespective of any regulatory
requirements, the Board had resolved that any fee increase should
be a matter for shareholders to decide on. Following receipt of the
Letter and in conjunction with the Company’s corporate adviser,
Investec Bank Ltd., I held numerous conversations with shareholders
to hear their views. Then, after extensive discussions with the
Manager over several weeks including putting forward alternative
proposals, the Board brought the matter to the EGM for a
shareholder vote on the Manager’s proposals as put forward in the
Letter of 22 January. On 25 March shareholders voted by a majority
of 65.56% in favour to 33.87% against, with 0.57% voting to
abstain, on a turnout of approximately 55% to accept the increase
in the Manager’s Fees. That increase will take effect from
1 July 2021. The Board is grateful to
so many shareholders for expressing their views and notes the
significant, albeit minority, vote against the Proposal. The
Board will shortly seek to engage further with principal
shareholders and discuss the consequences of the vote with
them.
As set out in the Circular that preceded the EGM, the Board has
agreed with the Manager that shareholders, however they voted at
the EGM, who no longer wished to remain invested in the Company
will have the right to tender their shares at a price of not less
than 98% of the NAV per share, less the associated costs of the
tender (the “Tender Offer”). The Manager has agreed not to levy the
2% fee payable to the Manager in respect of a reduction of net
asset value by reason of the Tender Offer. Together with the
proposed tender price, this will have the effect of enhancing the
NAV per share for shareholders that do not tender their shares in
the Tender Offer. The Tender Offer will be capped at 40% of the
issued share capital of each share class, excluding those shares
held in Treasury. Further details of the Tender Offer will be set
out in a circular to shareholders to be posted during April. The
timetable for receipt of the tender proceeds will be set out in the
Tender Offer circular. Tendering shareholders will not bear
the increased management fee that will apply from 1 July 2021.
Since receipt of the Letter the Board has relied heavily on the
advice given by Investec Bank Ltd. In addition, the Company’s
solicitors, Stephenson Harwood have been in regular dialogue with
the Manager to agree the content of the Circular and the proposed
amendments to the Management Agreement. I would like to thank the
Company’s advisers for the support and advice that they have given
thus far and will continue to give in respect of the Tender
Offer.
THE BOARD AND GOVERNANCE
During 2020 the Board underwent an external appraisal conducted
by BoardAlpha Ltd. Such an external appraisal is not a requirement
of a company such as BH Global as the Company is not within the
FTSE 350 Index. However, the Board are of the view that an
external, independent person’s scrutiny of the Board at work,
together with feedback from shareholders, the Manager and others
with whom the Board deals, is valuable in helping to ensure that
the Board is directing the affairs of the Company effectively.
BoardAlpha reported in November and the Board considered the
report at the December Board meeting. The report was positive in
its message that the Board clearly understands its responsibilities
as the steward of the shareholders’ interests. The Board accepted
almost all the points and recommendations made.
The Company reports against the AIC Code of Corporate
Governance. This is tailored for Investment Companies and differs
in some respects from the FRC Code that most operating companies
report under. As with that code, companies are expected to “comply
or explain”. The Company is not at present fully compliant with two
provisions of the AIC Code. The first of those is the provision
that there should be plans in place for an orderly succession to
the Board. The second is that there should be a disclosed policy on
the tenure of the Chair.
In earlier Chairman’s Statements I have referred to uncertainty
as to the future for the Company and that uncertainty has slowed
down Board changes. However, since the outlook improved in early
2017 we have seen three retirements and three new appointments to a
Board that totals five persons. Those appointments have been made
with the aim of ensuring that the Board is made up of directors who
fully understand their duty to be independent guardians of the
shareholders’ interests. In recent weeks all my fellow directors
have amply demonstrated their independence and on behalf of
shareholders I thank them for their robustness. In respect of
diversity the Company now has two female directors. I realise that
gender alone is not complete diversity. But the Board consists of
only five persons which may limit further scope at present.
In normal circumstances the Board would be actively addressing
plans for future changes and indeed plans were in train for the
Company to put in front of shareholders through this Annual Report.
However, events over recent weeks all have caused the Board
temporarily to put on hold any changes of directors, be they future
retirements or appointments, until the outcome of the EGM and
subsequent tender offer was known, and those shareholders tendering
shares have received the monetary proceeds. The directors hold the
view that stability of the Board is critical at this time and we
trust that shareholders will agree with us. I hope to be able to
outline the Board’s future plans in the Chairman’s Statement that
will accompany the Company’s 6-month report to 30 June which is
normally released in August.
In addition it should be noted that COVID-19 has seriously
curtailed physical Board meetings – the Board has not met in person
since December 2019, with all
subsequent meetings having been held virtually. Thus any process
for approaching and then interviewing prospective new directors
when the current directors live in three separate locked down
islands would be difficult. Hopefully later in 2021 a reasonable
degree of normality will have returned and matters relating to
Board succession can move forward.
On a positive note, the Board is working with the GTA University
Centre in Guernsey with the intention of appointing a Board
apprentice as part of that person’s development programme. The
GTA’s programme supports individuals who normally would not be able
to find Board appointments as part of their existing role but who
have the potential and desire to find such appointments in the
future. The successful candidate will be appointed for twelve
months and will be invited to attend future Board and committee
meetings as an unpaid observer to help them understand the workings
of a listed company’s Board.
All that I write is dependent on the Company remaining in a
stable state with shareholders who wish to see it managed by Brevan
Howard as a viable stand-alone entity and with Brevan Howard
wanting both to continue to be the Manager and also wanting to see
the Company grow in size from the position in which it will find
itself once the Tender Offer has been undertaken. In addition, it
will be important to restore a professional working relationship
between the Manager and individual directors, and the Board as a
whole, after some difficult recent weeks. Should those conditions
precedent not be achieved that may throw a different perspective on
the pace of future Board changes.
RELATIONSHIP WITH THE MANAGER
Successful investment companies need to have a strong
professional relationship between Board and Manager. Although
the Board did not welcome the Manager’s proposal to increase the
Management Fee, and indeed sought vigorously to modify it, now that
Shareholders have voted by a majority to accept the increased fee
both Board and Manager are committed to working together to further
the success of the Company in the interests of shareholders.
THE FUTURE OF THE COMPANY AND
CONCLUSION
The Manager has confirmed that it is committed to supporting the
success of the Company, subject to that continuing to be the desire
of the shareholders and the Company being of an economic size. In
2017 the Board agreed that, should the net assets of the Company
fall below $300 million, it would
bring forward to an EGM a resolution that the Company should be
liquidated. As at 31 December
2020 the Company had net assets of $593 million and has grown further since then.
Dependent on the outcome of the proposed tender referred to above
and any further changes, as long as the net assets remain above
$300 million, the Board anticipates
that the Company will continue in its present guise and be managed
by Brevan Howard. However, that depends upon shareholders
remaining supportive of the present investment policy whereby the
Company is a feeder into the Brevan Howard Multi-Strategy Master
Fund.
I end by thanking shareholders for their support and hope that
2021 will prove both successful for the Company and, by the end of
the year, more settled for the world.
As always, I would be happy for any shareholder to contact me
through the Company’s Administrator, Northern Trust, at
BHGChairman@ntrs.com.
Sir Michael
Bunbury
Chairman
29 March 2021
STRATEGIC REPORT
The Directors have pleasure submitting to the shareholders their
Strategic Report of the Company for the year ended 31 December 2020.
This Report provides a review of the business of the Company for
the financial year, provides an insight into the Company’s business
model and its main objectives, describes principal and emerging
risks the Company faces and how they might affect future prospects
of the Company. In addition, the report outlines key developments
and financial performance of the Company during the financial year
and the position at the end of the year, and discusses the main
factors that could affect the future performance, and financial
position of the Company.
The purpose of this strategic report is to inform members of the
Company and help them assess how the Directors have performed their
duty to promote the success of the Company.
BUSINESS MODEL AND STRATEGY
Company Structure
The Company is organised as a feeder fund and invests
substantially all of its investable assets in the ordinary US
Dollar and Sterling denominated Class G shares issued by Brevan
Howard Multi-Strategy Master Fund Limited (“BHMS” or the “Master
Fund”), and, as such, the Company is directly and materially
affected by the performance and actions of BHMS.
Investment Objective
The Company’s investment objective is to seek to generate
consistent long-term capital appreciation through an investment
policy of investing all of its assets (net of funds required for
its short-term working capital requirements) in the Master
Fund.
BHMS’s investment strategy is managed by Brevan Howard Capital
Management LP (“BHCM”) as (the “Manager”).
BHMS spreads investment risk by providing exposure to a range of
strategies, asset classes and geographies.
BHMS has flexibility to invest in a wide range of instruments
including, but not limited to, debt securities and obligations
(which may be below investment grade), bank loans, listed and
unlisted equities, other collective investment schemes or vehicles
(which may be open-ended or closed-ended, listed or unlisted,
regulated or unregulated and may employ leverage (each an
“Investment Fund”)), currencies, commodities, futures, options,
warrants, swaps and other derivative instruments. Derivative
instruments may be exchange-traded or OTC.
BHMS may engage in short sales. BHMS may retain amounts in cash
or cash equivalents (including money market funds) pending
reinvestment, for use as collateral or if this is considered
appropriate to the investment objective.
Subject to the investment restrictions and investment approach
disclosed in any prospectus for BHMS that may be published from
time to time and subsequent BHMS Directors’ resolutions, BHMS
employs an investment process which empowers the Manager to
allocate assets both to Investment Funds and directly to the
investment managers of BHMS from time to time on an opportunistic
basis.
Sources of cash and liquidity
requirements
As the Master Fund is not expected to pay dividends, the Company
expects that the primary source of its future liquidity will depend
on the periodic redemption of shares from the Master Fund and
borrowings in accordance with its leverage policies as disclosed in
the Note Purchase Agreement note 9 to the Financial Statements.
BUSINESS ENVIRONMENT
The Board is responsible for the Company’s system of internal
controls and for reviewing its effectiveness. The Board is
satisfied, by using the risk management procedures and internal
controls set out in the Company's risk matrix and by monitoring the
Company's investment objective and policy that it has carried out a
robust assessment of the principal and emerging risks and
uncertainties facing the Company.
The principal and emerging risks and uncertainties which have
been identified and the steps which are taken by the Board to
mitigate them are as follows:
· Investment Risks: The Company is
exposed to the risk that its portfolio fails to perform in line
with the Company’s objectives if it is inappropriately invested or
markets move adversely. The Board reviews reports from the Manager,
which has discretion over portfolio allocation, at each quarterly
Board meeting, paying particular attention to this allocation and
to the performance and volatility of underlying investments;
· Financial Market Risks: The financial
risks faced by the Company, include market, and credit risk. These
risks and the controls in place to mitigate them are reviewed at
each quarterly Board meeting;
· Liquidity Risks: While the Company
retains sufficient working capital to ensure that it can meet its
normal running costs, this is a relatively modest amount. It is
therefore dependent on its continued access to funding from third
parties and the timely receipt of the proceeds from redemption
requests made to BHMS for all other purposes. The Board, in
conjunction with the Manager and the Administrator, monitors the
liquidity needs of the Company and takes such action as is
appropriate;
· Operational Risks: The Company is
exposed to the risks arising from any failure of systems and
controls in the operations of the Manager or the Administrator. The
Board receives reports annually from the Manager and Administrator
on their internal controls;
· Accounting, Legal and Regulatory
Risks: The Company is exposed to risk if it fails to comply with
the regulations of the UK Listing Authority, Guernsey Financial
Services Commission, or if it fails to maintain accurate accounting
records. The accounting records prepared by the Administrator are
reviewed by the Manager. The Administrator provides the Board with
regular reports on changes in regulations and accounting
requirements;
· Manager Continuity: The Company is
exposed to the risk that the Manager will no longer have an
appetite to run a multi-strategy mandate for the Company. Steps to
mitigate that risk include regular dialogue with the Manager,
regular review of the economic arrangements and contractual
protections. In addition, the recent shareholder vote on the
proposed amendments to the management agreement and the planned
tender offer has resulted in the Manager confirming its
continuation;
· Emerging risks: In order to recognise
any new risks that may impact the Company and to ensure that
appropriate controls are in place to manage those risks, the Audit
and Risk Committee undertakes regular reviews of the Company’s Risk
Matrix. This review took place on four occasions during the year
during Audit and Risk Committee Meetings;
· Brexit Risk: The UK left the EU on
31 January 2020 and entered into a
transition period ending on 31 December
2020. During this period the UK’s arrangements with the EU
remained unchanged. The Board and the Manager still expect an
ongoing period of market uncertainty as the implications are
processed; and
· COVID-19 Risk: The Board has been
monitoring the development of the COVID-19 outbreak and has
considered the impact it has had to date on the Company, and will
continue to have on the future of the Company. There remains
continued uncertainty about the development and scale of the
COVID-19 outbreak, however the Board does not consider COVID-19 to
have an impact on going concern. Consideration of going concern is
unlike many companies as performance and net asset value has
increased during the COVID-19 pandemic. From an operational
perspective, the Company uses a number of service providers. These
providers have established, documented and regularly tested
Business Resiliency Policies in place, to cover various possible
scenarios whereby staff cannot attend work at the designated office
and conduct business as usual. Since the COVID-19 pandemic
outbreak, service providers have deployed these alternative working
policies to ensure continued business service and the Company has
not encountered any problems.
The Board seeks to mitigate and manage these risks through
continual review, policy-setting and enforcement of contractual
obligations and will update the risk assessment matrix to reflect
any changes to the control environment.
Future Prospects
The Board’s main focus is the achievement of long-term
appreciation. The future of the Company is dependent upon the
success on the investment strategy of BHMS. The investment outlook
and future developments are discussed in both the Chairman’s
Statement and the Manager’s report.
Board Diversity
When appointing new Directors and reviewing the board
composition, the Board considers, amongst other factors, diversity,
balance of skills, knowledge, gender, ethnicity and experience. The
Board however does not consider it appropriate to establish targets
or quotas in this regard. As at 31 December
2020, the Board has a 40% representation of females which is
within The Hampton Alexander Recommendations. The Company has no
employees.
Environmental, Social and Governance
Factors
On a regular basis, the Manager assesses the trading activity of
the investment funds it manages, including BHMS, to ascertain
whether environmental, social and governance (“ESG”) factors are
appropriate or applicable to such funds. Most ESG principles have
been envisaged in the context of equity or corporate fixed income
investment and therefore are not readily applicable to most types
of instruments traded by the majority of funds managed by the
Manager.
The Manager continues to monitor developments in this area and
will seek to implement industry best practice where applicable. The
Manager is a signatory to the UN Principles for Responsible
Investment and will apply the principles where appropriate
considering the structure of relevant Brevan Howard managed funds
and the applicable trading universe.
Whilst it has no employees or premises, the Company acknowledges
its ESG responsibilities to its investors, its suppliers and its
regulators. The Board prides itself on its independence and its
robust approach to corporate governance. It has introduced a number
of environmental initiatives that include minimising the printing
and mailing of board papers by using an online portal. Shareholders
receive electronic copies of documents and communications where
possible. In addition, the Board have agreed to purchase Carbon
Credits to offset any air travel that the Board undertakes in
relation to the Company once travel restrictions caused by the
COVID-19 pandemic are relaxed.
The Administrator is a wholly owned indirect subsidiary of
Northern Trust Corporation, which has adopted the UN Global Compact
principles, specifically: implementing a precautionary approach to
addressing environmental issues through effective programs,
undertaking initiatives that demonstrate the acknowledgement of
environmental responsibility, promoting and using environmentally
sustainable technologies, and UN Sustainable Development Goals,
specifically: using only energy efficient appliances and light
bulbs, avoiding unnecessary use and waste of water, implementing
responsible consumption and production, and taking action to reduce
climate change.
POSITION AND PERFORMANCE
Packaged Retail and Insurance Based
Investment Products (“PRIIPs”)
The Company is subject to European Union Regulation (2017/653)
(the “Regulation”) which deems it to be a PRIIP. In accordance with
the requirements of the Regulation, the Manager published the
latest standardised three-page Key Information Document (“KID”) on
the Company on 30 April 2020 (data as
at 31 December 2019). The KID is
available on the Company’s website
https://www.bhglobal.com/reporting/regulatory-disclosures/ and will
be updated at least every 12 months.
BHCM is the manufacturer of the PRIIP document and are
responsible for the content therein. The process for calculating
the risks, cost and potential returns are prescribed by regulation.
The figures in the KID may not reflect the expected returns for the
Company and anticipated returns cannot be guaranteed.
Performance
Key Performance Indicators
(“KPIs”)
At each Board meeting, the Directors consider a number of key
performance measures to assess the Company’s success in achieving
its objectives. The main KPIs which have been identified by the
Board for determining the progress of the Company are as
follows:
1. Net
Asset Value (“NAV”)
The Company’s net asset value has appreciated from £10.00 and
US$10.00 per share at launch to
£19.61 and US$20.18 at the year end,
for the Sterling share class and US Dollar share class
respectively. This increase in NAV is largely attributable to the
long term growth strategy and returns. The Directors and the
Manager expect that the current strategy will continue to return
positive levels of growth in future.
The net asset value per Sterling share, as at 31 December 2020 was £19.61 based on net assets
of £395,034,397 divided by number of Sterling shares in issue of
20,142,421 (2019: £16.11 based on net assets of £320,013,395
divided by number of Sterling shares in issue of 19,868,275).
The net asset value per US Dollar share, as at 31 December 2020 was US$20.18 based on net assets of US$52,964,066 divided by number of US Dollar
shares in issue of 2,624,216 (2019: US$16.48 based on net assets of US$43,922,947 divided by number of US Dollar
shares in issue of 2,664,844).
2.
Share Prices, Discount/Premium
The Company has traded at an average discount of 3.69% and 1.73%
(2019: 3.74% and 2.82%) to NAV for its Sterling shares and US
Dollar shares respectively for year ending 31 December 2020.
3.
Ongoing Charges
The Company's ongoing charges ratio has increased from 2.80% to
6.09% on the US Dollar share class and from 2.50% to 5.94% on the
Sterling share class (including performance fees), due to increase
in the NAV of the Company which generated a 20% performance fee
charge against the variable element of the ongoing charges.
The Company reports a consolidated view of the ongoing charges
for both the US Dollar and Sterling share classes. Further details
are in the Corporate Governance Statement of the Directors’ Report
to the Financial Statements.
4. Total Return After
Performance Fees
Total return per share is based on the net investment gain per
US Dollar share class and Sterling share class of US$9,807,904 and £69,692,306 (2019: US$2,600,958 and £14,598,440) respectively after
adjusting for capital (costs) proceeds of (USD$97,139) and £913,094 (2019: (US$18,159) and £15,124) divided by the weighted
average monthly shares in issue for the year of 2,610,512 US Dollar shares and 19,933,622
Sterling shares (2019: 2,679,642 US$
shares and 19,856,142 Sterling shares).
The return per share for the year ended 31 December 2020, was US$3.70 per US Dollar share and £3.50 per
Sterling share (2019: US$0.97 per US
Dollar share and £0.74 per Sterling share) translating to 22.45%
and 21.76% (2019: 6.25% and 4.79%) return for US Dollar share and
Sterling share respectively.
Dividends
No dividends were paid during the year (31 December 2019: Nil).
Viability Statement
The investment objective of the Company, as outlined earlier, is
currently implemented through a policy of investing all of its
assets (net of monies required for its short-term working capital
requirements) in the ordinary US Dollar and Sterling denominated
Class G shares issued by BHMS.
The Company’s investment performance depends upon the
performance of BHMS and the Manager as manager of BHMS. The
Directors, in assessing the viability of the Company, pay
particular attention to the risks facing BHMS. The Manager operates
a risk management framework which is intended to identify, measure,
monitor, report and where appropriate, mitigate key risks
identified by it or its affiliates in respect of BHMS.
The Company’s assets exceed its liabilities by a considerable
margin. Further, the majority of the Company’s most significant
liabilities, being the fees owing to the Manager and to the
Company’s administrator, fluctuate by reference to the Company’s
investment performance and net asset value.
The Directors confirm that their assessment of the principal and
emerging risks facing the Company was robust and that they have
assessed the viability of the Company over the period to
31 December 2023. The viability
statement covers a period of three years, which the Directors
consider appropriate given the inherent uncertainty of the
investment world and the strategy period. In selecting this period,
the Directors considered the environment within which the Company
operates, its liabilities, the performance of the Master Fund and
the risks associated with the Company.
The continuation of the Company in its present form is, inter
alia, dependent on the Management Agreement with the Manager
remaining in place. As referred to in the Chairman’s Statement, at
the recent EGM the shareholders voted in favour of the increased
management fee along with a potential tender offer up to a maximum
of 40% of the net asset value of the Company. The vote in favour
has resulted in the continuation of the Manager’s appointment. The
Directors note that the Management Agreement with the Manager is
terminable on one year’s notice by either party, however, the
Directors know of no other current reason why either the Company or
the Manager might serve notice of termination of the Management
Agreement during the three year period covered by this viability
statement, it being noted that, even if the tender offer was to be
taken up in its entirety, this would not trigger the automatic
termination which is set at a NAV of US$300
million.
To ensure that the Company maintains a constructive and informed
relationship with the Manager, the Directors meet regularly with
the Manager to review BHMS's performance, and through the
Management Engagement Committee, they review the nature of the
Company’s relationship with the Manager.
Besides the possible termination of the Management Agreement, at
the Company level, the main risks to the Company’s continuation
would be:
a) the Company’s shares trading at a significant and/or
persistent discount to NAV, or
b) the Company’s NAV falling below US$300
million.
The Company’s Discount Management Programme is described within
note 8 including details as to when class closure resolutions would
have to be put to shareholders. The Company considers discount
management actions, including share buybacks when appropriate, so
that as far as possible the share prices properly reflect the
Company’s underlying performance.
As a part of the agreement to reduce the management fee in 2017,
it was agreed that should the Company’s NAV fall below US$300 million at the end of any calendar
quarter, the Board will convene a general meeting at which a
special resolution proposing the liquidation of the Company would
be put forward. Further details are provided in note 4. In
addition, as referred to above, the recent EGM and the shareholder
vote that agreed to the increase in management fees and a resulting
tender offer up to a maximum of 40% of the number of shares in each
class of the Company (excluding any held in treasury). Therefore,
as a result of the EGM and the Company’s discount management
programme, the Directors do not currently anticipate that the
Company’s NAV will fall below US$300
million.
After having considered the above risks based on the assumption
that they are managed or mitigated in the ways noted above, and
having reviewed the budgeted ongoing expenses, the Directors have a
reasonable expectation that the Company would be able to continue
in operation and meet its liabilities as they fall due over the
three year period of their assessment.
Key Service Providers and Stakeholder
interests
The Company does not have any employees and as such the Board
delegates responsibility for its day to day operations to a number
of key service providers. The activities of each service provider
are closely monitored by the Board and they are required to report
to the Board at set intervals. In addition, a formal review of the
performance of each service provider is carried out once a year by
the Management Engagement Committee.
The Company’s key stakeholders are shareholders and service
providers. The Board welcomes shareholders’ views and places great
importance on communication with its shareholders. The Chairman has
conducted and continues to conduct meetings with a number of major
shareholders in order to receive their view on the Company,
especially prior to the circular regarding the management fees
being published on 12 March 2021. The
Board also receives regular reports on the views of its
shareholders from its brokers, JPMorgan Cazenove and Investec Bank
plc, marketing consultants, Kepler Partners LLP and from the
Manager. In addition, the Chairman and other Directors are
available to shareholders if requested and the Annual General
Meeting of the Company provides a forum for shareholders to meet
and discuss issues with the Directors of the Company when COVID-19
restrictions do not apply. In respect of the 2020 and 2021 Annual
General Meetings, COVID-19 has meant that shareholders are unable
to attend. However, the Board welcomes questions from its
shareholders in advance on the Annual General Meeting.
Although the Company is domiciled in Guernsey, the Board has
considered the guidance set out in the AIC Code in relation to
Section 172 of the Companies Act 2006 in the UK. Section 172 of the
Companies Act requires that the Directors of the Company act in the
way they consider, in good faith, is most likely to promote the
success of the Company for the benefit of all stakeholders,
including suppliers, customers and shareholders. In doing so,
consideration has been given to factors such as the likely
consequences of any decision in the long term, the need to foster
the Company's business relationships with suppliers, customers and
others, the impact of the Company's operations on the community and
the environment, the desirability of the Company maintaining a
reputation for high standards of business conduct, and the need to
act fairly between members of the Company.
The Manager
The Manager is a leading and well established hedge fund
manager. In exchange for its services a fee is payable as detailed
in note 4 to the Financial Statements.
The Board considers that the interests of Shareholders, as a
whole, are best served by the ongoing appointment of the Manager to
achieve the Company’s investment objective.
Administrator and Corporate
Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited is the Administrator and Corporate Secretary.
Further details on fee structure are included in note 4 to the
Financial Statements.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
Sally-Ann
Farnon
Director
29 March 2021
GLOSSARY OF ACRONYMS
| BHAHMF |
Brevan Howard AH Master Fund
Limited |
| BHALMF |
Brevan Howard Alpha Strategies
Master Fund Limited |
| BHCM or the Manager |
Brevan Howard Capital Management
LP |
| BHDGST |
BH-DG Systematic Trading Master Fund
Limited |
| BHG,BH Global or the Company |
BH Global Limited |
| BHGVMF |
Brevan Howard Global Volatility
Master Fund Limited |
| BHMF |
Brevan Howard Master Fund
Limited |
| BHMS or the Master Fund |
Brevan Howard Multi-Strategy Master
Fund Limited |
| SMP* |
Single Manager Portfolio |
* Prior to 1 January 2019, the
Single Manager Portfolio ("SMP") was described as the Direct
Investment Portfolio ("DIP").
UNAUDITED SUPPLEMENTAL FINANCIAL STATEMENTS
In order to provide shareholders with further information
regarding the net asset value of each class of shares, coupled with
greater transparency as to the income, gains and expenses incurred
and the changes in net assets of the two classes, the results have
been presented in the tables. These tables show the allocation of
all transactions in the currency of the respective share class.
It should be noted that these tables have not been subject to
audit by KPMG Channel Islands Limited.
UNAUDITED SUPPLEMENTAL STATEMENT OF ASSETS AND
LIABILITIES
As at 31 December 2020
|
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company total |
|
|
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| Investment
in BHMS |
|
|
|
|
|
52,706 |
|
392,236 |
|
588,952 |
| Amount due
from BHMS |
|
|
|
|
|
2,600 |
|
15,000 |
|
23,107 |
| Sale of
own shares receivable |
|
|
|
|
- |
|
391 |
|
535 |
| Other
debtors |
|
|
|
|
|
3 |
|
21 |
|
32 |
| Cash and
bank balances denominated in US Dollars |
172 |
|
- |
|
172 |
| Cash and
bank balances denominated in Sterling |
|
- |
|
5,357 |
|
7,323 |
| Total
assets |
|
|
|
|
|
55,481 |
|
413,005 |
|
620,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| Management
fees payable |
|
|
|
|
|
67 |
|
537 |
|
801 |
|
Performance fees payable |
|
|
|
|
|
2,428 |
|
17,356 |
|
26,156 |
| Accrued
expenses and other liabilities |
|
|
|
19 |
|
57 |
|
98 |
|
Administration fees payable |
|
|
|
|
|
3 |
|
21 |
|
32 |
| Total
liabilities |
|
|
|
|
|
2,517 |
|
17,971 |
|
27,087 |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
assets |
|
|
|
|
|
52,964 |
|
395,034 |
|
593,034 |
|
|
|
|
|
|
|
|
|
|
|
|
| Number
of shares in issue |
|
|
|
|
|
2,624,216 |
|
20,142,421 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
asset value per share |
|
|
|
|
|
US$20.18 |
|
£19.61 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED SUPPLEMENTAL STATEMENT OF OPERATIONS
For the year ended 31 December
2020
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company total |
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
| Interest income |
|
|
|
|
79 |
|
586 |
|
837 |
| Expenses |
|
|
|
|
(209) |
|
(1,555) |
|
(2,221) |
| Total
net investment loss allocated from BHMS |
|
|
|
(130) |
|
(969) |
|
(1,384) |
|
|
|
|
|
|
|
|
|
|
| Company
income |
|
|
|
|
|
|
|
|
|
| Foreign
exchange (losses)/gains* |
|
|
|
(65) |
|
49 |
|
18,928 |
| Total Company
income |
|
|
|
|
(65) |
|
49 |
|
18,928 |
|
|
|
|
|
|
|
|
|
|
| Company
expenses |
|
|
|
|
|
|
|
|
|
| Management fees |
|
|
|
|
399 |
|
3,202 |
|
4,539 |
| Performance fees |
|
|
|
|
2,428 |
|
17,356 |
|
24,873 |
| Other expenses |
|
|
|
|
55 |
|
400 |
|
572 |
| Directors' fees and
expenses |
|
|
|
|
41 |
|
302 |
|
432 |
| Administration
fees |
|
|
|
|
16 |
|
120 |
|
171 |
| Total Company
expenses |
|
|
|
|
2,939 |
|
21,380 |
|
30,587 |
|
|
|
|
|
|
|
|
|
|
| Net investment
loss |
|
|
|
|
(3,134) |
|
(22,300) |
|
(13,043) |
|
|
|
|
|
|
|
|
|
|
| Net
realised and unrealised gains/(losses) on investments allocated
from BHMS |
|
|
|
|
|
|
| Net realised gain on
investments |
|
|
|
|
5,398 |
|
40,641 |
|
57,956 |
| Net unrealised gain on
investments |
|
|
|
|
7,545 |
|
54,136 |
|
77,555 |
| Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
|
|
|
| -
on hedging |
|
|
|
|
- |
|
(2,785) |
|
(3,603) |
| Net
realised and unrealised gains on investments allocated from
BHMS |
|
12,943 |
|
91,992 |
|
131,908 |
|
|
|
|
|
|
|
|
|
|
| Net
increase in net assets resulting from operations |
|
9,809 |
|
69,692 |
|
118,865 |
*The Company total for foreign exchange (losses)/gains also
contains the results of translating the Sterling class into US
Dollars, which was US$18,930,237 for
the year ended 31 December 2020.
The trades carried out in the various underlying portfolios have
structures of varying complexity and inherent leverage. This can
result in situations where, at an individual trade level, interest
income or expense is offset by losses or gains on other investments
to achieve a net return. However, accounting conventions require
that all these elements are disclosed gross which can result in
separate reporting of what would otherwise be off-setting interest
income and expenses, realised gains and losses or unrealised gains
and losses.
UNAUDITED SUPPLEMENTAL STATEMENT OF CHANGES IN NET
ASSETS
For the year ended 31 December
2020
|
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
Company total |
|
|
|
|
|
|
US$'000 |
|
£'000 |
|
US$'000 |
| Net increase in net
assets resulting from operations |
|
|
|
|
|
|
|
|
|
|
| Net investment
loss |
|
|
|
|
|
(3,134) |
|
(22,300) |
|
(13,043) |
| Net realised gain on
investments allocated from BHMS |
|
|
|
|
|
5,398 |
|
40,641 |
|
57,956 |
| Net unrealised gain on
investments allocated from BHMS |
|
|
|
|
|
7,545 |
|
54,136 |
|
77,555 |
| Net realised and
unrealised foreign exchange loss allocated from BHMS |
|
|
|
|
|
- |
|
(2,785) |
|
(3,603) |
|
|
|
|
|
|
9,809 |
|
69,692 |
|
118,865 |
|
|
|
|
|
|
|
|
|
|
|
| Share capital
transactions |
|
|
|
|
|
|
|
|
|
|
| Net share
conversions |
|
|
|
|
|
(768) |
|
632 |
|
- |
| Sale of own
shares |
|
|
|
|
|
- |
|
4,697 |
|
6,419 |
|
|
|
|
|
|
(768) |
|
5,329 |
|
6,419 |
|
|
|
|
|
|
|
|
|
|
|
| Net increase in net
assets |
|
|
|
|
|
9,041 |
|
75,021 |
|
125,284 |
| Net assets at the
beginning of the year |
|
|
|
|
|
43,923 |
|
320,013 |
|
467,750 |
| Net assets at the
end of the year |
|
|
|
|
|
52,964 |
|
395,034 |
|
593,034 |
MANAGER’S REPORT
Brevan Howard Capital Management LP (“BHCM” or the “Manager”) is
the Manager of BH Global Limited (“BHG” or the “Company”). BHG
invests all its assets (net of short-term working capital) in
Brevan Howard Multi-Strategy Master Fund Limited (“BHMS”) a company
also managed by BHCM.
Performance Summary
The NAV per share of the USD shares appreciated by 22.45% in
2020, while the NAV per share of the GBP shares appreciated by
21.76% in 2020.
The month-by-month NAV performance of the USD and GBP currency
classes of BHG since it commenced operations in 2008 is set out
below:
| USD |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
| 2008 |
- |
- |
- |
- |
- |
1.16* |
0.10 |
0.05 |
-3.89 |
1.13 |
2.74 |
0.38 |
1.55 |
| 2009 |
3.35 |
1.86 |
1.16 |
1.06 |
2.79 |
-0.21 |
1.07 |
0.27 |
1.49 |
0.54 |
0.11 |
0.04 |
14.31 |
| 2010 |
0.32 |
-0.85 |
-0.35 |
0.53 |
-0.06 |
0.60 |
-0.79 |
0.80 |
1.23 |
0.39 |
-0.21 |
-0.06 |
1.54 |
| 2011 |
0.09 |
0.42 |
0.34 |
1.20 |
0.19 |
-0.56 |
1.61 |
3.51 |
-1.29 |
-0.14 |
0.19 |
-0.88 |
4.69 |
| 2012 |
1.22 |
1.02 |
-0.54 |
-0.10 |
-0.65 |
-1.53 |
1.46 |
0.70 |
1.47 |
-0.72 |
0.81 |
1.26 |
4.44 |
| 2013 |
1.33 |
0.49 |
0.33 |
1.60 |
-0.62 |
-1.95 |
-0.14 |
-0.86 |
0.09 |
-0.13 |
0.95 |
0.75 |
1.79 |
| 2014 |
-0.98 |
-0.04 |
-0.26 |
-0.45 |
0.90 |
0.70 |
0.60 |
0.05 |
1.56 |
-0.75 |
0.71 |
0.44 |
2.49 |
| 2015 |
3.37 |
-0.41 |
0.35 |
-1.28 |
1.03 |
-1.49 |
-0.06 |
-1.56 |
-0.58 |
-0.67 |
3.06 |
-3.31 |
-1.73 |
| 2016 |
0.82 |
1.03 |
-0.83 |
-0.66 |
0.28 |
1.71 |
0.13 |
0.10 |
-0.23 |
0.47 |
3.62 |
0.82 |
7.42 |
| 2017 |
0.22 |
0.92 |
-0.99 |
-0.10 |
0.26 |
0.19 |
3.21 |
0.21 |
-0.44 |
-0.85 |
-0.02 |
0.03 |
2.59 |
| 2018 |
3.08 |
-0.89 |
-1.35 |
0.72 |
5.46 |
-1.12 |
0.30 |
-0.09 |
-0.29 |
0.22 |
-0.01 |
0.52 |
6.55 |
| 2019 |
0.17 |
-0.81 |
1.63 |
-1.15 |
3.79 |
3.06 |
-1.20 |
2.27 |
-2.10 |
0.57 |
-1.24 |
1.28 |
6.25 |
| 2020 |
-1.18 |
4.14 |
12.40 |
0.13 |
-0.66 |
-0.29 |
2.25 |
1.14 |
-2.33 |
-0.14 |
1.78 |
3.97 |
22.45 |
| GBP |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
YTD |
| 2008 |
- |
- |
- |
- |
- |
1.40* |
0.33 |
0.40 |
-4.17 |
1.25 |
3.27 |
0.41 |
2.76 |
| 2009 |
3.52 |
1.94 |
1.03 |
0.68 |
2.85 |
-0.28 |
1.05 |
0.31 |
1.51 |
0.58 |
0.12 |
0.08 |
14.15 |
| 2010 |
0.35 |
-0.93 |
-0.32 |
0.58 |
-0.04 |
0.62 |
-0.81 |
0.84 |
1.17 |
0.37 |
-0.20 |
-0.03 |
1.61 |
| 2011 |
0.10 |
0.41 |
0.38 |
1.13 |
0.04 |
-0.59 |
1.69 |
3.67 |
-1.41 |
-0.15 |
0.21 |
-0.84 |
4.65 |
| 2012 |
1.23 |
1.05 |
-0.51 |
-0.08 |
-0.62 |
-1.51 |
1.50 |
0.70 |
1.44 |
-0.72 |
0.72 |
1.31 |
4.55 |
| 2013 |
1.36 |
0.56 |
0.36 |
1.63 |
-0.48 |
-1.91 |
-0.11 |
-0.84 |
0.14 |
-0.11 |
0.97 |
0.77 |
2.32 |
| 2014 |
-0.97 |
-0.14 |
-0.33 |
-0.30 |
0.56 |
0.48 |
0.42 |
0.03 |
1.85 |
-0.76 |
0.78 |
0.48 |
2.09 |
| 2015 |
3.48 |
-0.34 |
0.33 |
-1.26 |
1.18 |
-1.50 |
-0.03 |
-1.44 |
-0.64 |
-0.79 |
3.02 |
-3.16 |
-1.32 |
| 2016 |
0.91 |
1.08 |
-1.04 |
-0.65 |
0.24 |
1.46 |
0.13 |
-0.14 |
-0.34 |
0.59 |
3.28 |
0.96 |
6.60 |
| 2017 |
0.16 |
0.87 |
-1.15 |
-0.04 |
0.10 |
-0.21 |
3.12 |
0.24 |
-0.43 |
-0.75 |
-0.02 |
-0.11 |
1.75 |
| 2018 |
3.09 |
-0.99 |
-1.42 |
0.71 |
5.43 |
-1.21 |
0.20 |
-0.21 |
-0.38 |
0.06 |
-0.13 |
0.37 |
5.43 |
| 2019 |
0.04 |
-0.99 |
1.59 |
-1.36 |
3.88 |
2.85 |
-1.35 |
2.19 |
-2.16 |
0.38 |
-1.29 |
1.12 |
4.79 |
| 2020 |
-1.32 |
4.19 |
12.36 |
0.04 |
-0.61 |
-0.29 |
2.11 |
2.11 |
-2.41 |
-0.16 |
1.75 |
3.88 |
21.76 |
Source: BHG NAV and NAV per Share data is provided by BHG’s
administrator, Northern Trust International Fund Administration
Services (Guernsey) Limited (“Northern Trust”). BHG NAV per Share %
Monthly Change calculations are made by BHCM.
BHG NAV data is unaudited and net of all investment management
fees and all other fees and expenses payable by BHG. NAV
performance is provided for information purposes only. Shares in
BHG do not necessarily trade at a price equal to the prevailing NAV
per Share.
* Performance is calculated from a base NAV per Share of 10 in
each currency. The opening NAV in May
2008 was 9.9 (after deduction of the IPO costs borne by
BHG). Data as at 31 December 2020.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Underlying Allocation Review
Throughout the year, the Investment Committee’s (“IC”) main
allocation decision was to increase the allocation to the SMP and
to reduce its allocation to Brevan Howard Master Fund Limited
(“BHMF”). This was driven by an improved opportunity set and an
increasing availability of new and existing talent.
In the second half of the year there were several other fund
allocation changes within BHMS as a whole. There was a slight
increase in the exposure to Brevan Howard Alpha Strategies Master
Fund Limited (“BHAL”) and Brevan Howard MB Macro Master Fund
Limited (“BHMB”). The increased exposure to BHAL was driven by the
increasingly diverse underlying traders and strategies within the
fund. The increased exposure to BHMB was due to an underweight
allocation and an improved opportunity set within the fund.
The IC made several changes to books throughout the year within
the SMP. In the first half of the year, the SMP added exposure to a
senior trader focusing on emerging market trading and another
senior trader using a systematic macro strategy. In the second half
of the year, a new senior trader was added, who follows a
discretionary macro strategy with potential exposures in emerging
markets and credit. In addition, due to changing opportunity sets
there were minor adjustments to select trading books within the SMP
during the year.
2020 saw an increase in the number of traders at Brevan Howard.
It is expected that further trader hires will occur in 2021. As
such, the IC increasingly has a broader pool of talent from which
to select from. The SMP is the area of the portfolio whereby the IC
has the ability to allocate directly to trading books and funds
which are managed by an individual portfolio manager. At the end of
2020, the SMP had exposure to nine trading books and funds. The IC
will continue to pursue high risk-adjusted returns whilst keeping a
healthy diversification across strategies, asset classes and
traders.
Performance Review
BH Global’s performance for the year was the largest NAV gain in
the Company’s history, with the NAV per share of the GBP and USD
class gaining 21.76% and 22.45% respectively. This compared
favourably to the HFRI Macro Total Index, which was up 5.47% over
the period.
The year was characterised by significant moves in price and
volatility across most asset classes. All asset classes contributed
positively to returns for the fund for the year. The first quarter
generated the majority of the year’s returns in interest rate
trading across directional, volatility and relative value trading
strategies in a range of different markets. Throughout the
remainder of the year BHMS generated positive returns through
exposure to themes such as short USD vs Asian currencies, tactical
equity trading, long precious metals including gold and silver as
well as related ETFs, and long exposure to select credits in
emerging markets. After the first quarter the majority of the
fund’s returns came from gains in equities, commodities and credit
illustrating the diversification benefits of BHMS.
With regard to the returns of the underlying fund allocations,
all of the underlying funds and the SMP contributed positively to
performance for 2020. BHMF delivered strong gains in Q1 within
interest rates trading, where directional positioning within US
rates was the main driver but also in Q4, where short USD
positioning and long equity indices and thematic baskets of
equities produced strong gains. Brevan Howard FG Macro Master Fund
Limited had a particularly strong year and delivered notable
attribution across all asset classes in a standout year for the
fund.
Attribution Tables
In measuring the attribution of the underlying portfolios, the
Manager employs a number of metrics including the two set out in
the tables below.
All positions, regardless of which trading book holds them, are
allocated to an asset class and the attribution per asset class is
summarised in the first table below. The second table summarises
the attribution, but by reference to the overall strategy
classification of each trading book. It should be noted that, as
the second table indicates, there are some strategy groups which at
31 December 2020 had been allocated
no trading books.
Quarterly and annual contribution (%)
to the performance of BHG USD Shares (net of fees and expenses) by
asset class*
|
Rates |
FX |
Equity |
Commodity |
Credit |
Discount Management |
Total |
| Q1 2020 |
12.56 |
-0.14 |
1.68 |
0.54 |
1.01 |
0.00 |
15.67 |
| Q2 2020 |
-0.34 |
-2.23 |
-0.34 |
0.72 |
1.39 |
0.00 |
-0.82 |
| Q3 2020 |
0.02 |
0.46 |
-
0.22 |
0.80 |
-0.01 |
0.00 |
1.01 |
| Q4 2020 |
0.25 |
4.24 |
1.28 |
0.34 |
-0.45 |
0.00 |
5.67 |
| YTD 2020 |
12.48 |
2.24 |
2.39 |
2.43 |
1.94 |
0.00 |
22.45 |
*Data as at 31 December 2020
Quarterly figures are calculated by BHCM based on performance
data for each period provided by BHG’s administrator, Northern
Trust. Figures rounded to two decimal places.
YTD 2020 totals may not equal the sum of the quarterly returns
due to compounding of returns over the year. Quarterly totals may
not equal the sum of the asset class contributions due to monthly
compounding within each quarter.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Methodology and Definition of
Contribution to Performance:
Attribution by asset class is produced at the instrument level,
with adjustments made based on risk estimates.
The above asset classes are categorised as follows:
“Rates”: interest rates markets
“FX”: FX forwards and options
“Equity”: equity markets including indices and other
derivatives
“Commodity”: commodity futures and options
“Credit”: corporate and asset-backed indices, bonds and
CDS
“Discount Management”: buyback activity for discount
management purposes
Quarterly and annual contribution (%)
to the performance of BHG USD Shares (net of fees and expenses) by
strategy group*
|
Macro |
Systematic |
Rates |
FX |
Equity |
Credit |
EMG |
Commodity |
Discount Management |
TOTAL |
| Q1
2020 |
14.80 |
-0.06 |
2.46 |
0.10 |
0.00 |
0.00 |
-1.49 |
-0.07 |
0.00 |
15.67 |
| Q2
2020 |
-0.23 |
-0.77 |
-0.01 |
-0.03 |
0.00 |
0.00 |
0.23 |
0.00 |
0.00 |
-0.82 |
| Q3
2020 |
0.82 |
0.19 |
0.08 |
0.03 |
0.00 |
0.00 |
-0.11 |
0.00 |
0.00 |
1.01 |
| Q4
2020 |
4.90 |
0.42 |
0.18 |
0.06 |
0.00 |
0.04 |
0.06 |
0.00 |
0.00 |
5.67 |
| YTD
2020 |
21.13 |
-0.22 |
2.72 |
0.15 |
0.00 |
0.04 |
-1.31 |
-0.08 |
0.00 |
22.45 |
*Data as at 31 December 2020
Quarterly figures are calculated by BHCM based on performance
data for each period provided by BHG’s administrator, Northern
Trust. Figures rounded to two decimal places.
YTD 2020 totals may not equal the sum of the quarterly returns
due to compounding of returns over the year. Quarterly totals may
not equal the sum of the strategy group contributions due to
monthly compounding within each quarter.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Methodology and Definition of
Contribution to Performance:
Strategy Group Attribution is approximate and has been derived
by allocating each underlying trader book to a single category. In
cases where a trader book has activity in more than one category,
the most relevant category has been selected.
The above strategies are categorised as follows:
“Macro”: multi-asset global markets, mainly directional
(for BHMS, the majority of risk in this category is in rates)
“Systematic”: rules-based futures trading
“Rates”: developed interest rates markets
“FX”: global FX forwards and options
“Equity”: global equity markets including indices and
other derivatives
“Credit”: corporate and asset-backed indices, bonds and
CDS
“EMG”: global emerging markets
“Commodity”: liquid commodity futures and options
“Discount Management”: buyback activity for discount
management purposes
Outlook
The first half of 2021 should see an uneven recovery as
governments respond to the third wave of COVID-19. In some
countries mass vaccination is proceeding efficiently; in other
countries it has been delayed for a variety of reasons. At the same
time, new more transmissible variants of COVID-19 have strained
public health systems and led to additional restrictions on social
and economic activity. As vaccine distribution and uptake improve,
the expectation is for a brisk rebound of the service sector in the
second half of the year. Highly accommodative monetary policy will
help underpin risk sentiment and fiscal easing will provide
targeted relief. However, the magnitude of the fiscal response
differs across countries, with the US at one extreme rolling out
multiple trillion-dollar programs and China at the other extreme with some
withdrawal of fiscal support. While policymakers are generally
committed to providing a risk-friendly environment, the
heterogeneity in policy responses sets up some interesting
cross-country trading opportunities. In emerging markets, some
countries have been hit especially hard by COVID-19, some less so.
North Asia and Australia & New
Zealand have generally been standouts with successful
public-health responses and gearing to the recovery in global
trade. Some analysts argue that the reopening of the global economy
will generate inflation and others argue that the global economy is
still stuck in secular stagnation. Regardless, the big increase in
oil and industrial commodity prices means that many investors are
looking for a sustained rebound in the commodity complex and
concomitant decline in the US Dollar against emerging market
currencies. In any event, monetary policy is tuned to try and
create inflation in all the major developed market economies,
especially in the US where the Fed promises to overshoot its
traditional 2% target. At a minimum, that commitment points to low
rates for years. If successful, a return of inflation would be a
remarkable macroeconomic development against a backdrop in which
investors have become complacent about inflation. Finally, politics
isn’t going away in 2021. There are a number of loose ends
accompanying Brexit, the Eurozone project is still a
work-in-progress, and geopolitical tensions remain with the
US-China relationship perhaps being the most important hotspot.
Brevan Howard wishes to thank shareholders once again for their
continued support.
Brevan Howard Capital Management,
LP,
acting by its sole general partner,
Brevan Howard Capital Management Limited
29 March 2021
DIRECTORS’ REPORT
The Directors submit their Report together with the Company’s
Audited Statement of Assets and Liabilities, Audited Statement of
Operations, Audited Statement of Changes in Net Assets, Audited
Statement of Cash Flows, and the related notes (together, the
“Financial Statements”) for the year ended 31 December 2020. The Directors’ Report together
with the Audited Financial Statements give a true and fair view of
the financial position of the Company. They have been prepared
properly, in conformity with United States Generally Accepted
Accounting Principles (“US GAAP”) and are in accordance with any
relevant enactment for the time being in force, and are in
agreement with the accounting records.
The Company
The Company is a limited liability closed-ended investment
company which was incorporated in Guernsey on 25 February
2008.
It was admitted to the Official List of the London Stock
Exchange on 29 May 2008 when it
raised approximately US$1 billion and where it currently has a
Premium Listing.
The Company can offer multiple classes of ordinary shares, which
differ in terms of currency of issue with ordinary shares
denominated in US Dollar and Sterling currently being in issue.
Results and Dividends
The results for the year are set out in the Audited Statement of
Operations. The Directors do not recommend the payment of a
dividend.
Share Capital
The number of shares in issue at the year end and the changes
during the year are disclosed in note 5 to the Audited Financial
Statements.
International Tax Reporting
For the purposes of the US Foreign Account Tax Compliance Act,
the Company registered with the US Internal Revenue Services
(“IRS”) as a Guernsey reporting Foreign Financial Institution
(“FFI”), received a Global Intermediary Identification Number
(U2S6ID.99999.SL.831), and can be found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into
effect on 1 January 2016. The Board
has taken the necessary action to ensure that the Company is
compliant with Guernsey regulations and guidance in this
regard.
Discount Management Programme
In consultation with the broker and other advisors, the
Directors review the share price in relation to NAV on a regular
basis and take such action as they consider to be in the best
interests of shareholders. For additional information, refer to
note 8 of the Financial Statements.
Going Concern
After making enquiries and given the nature of the Company and
its investment, the Directors are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing these
Financial Statements and, after due consideration, the Directors
consider that the Company is able to continue for the foreseeable
future and at least twelve months from the date of this report.
In addition, a circular was issued to shareholders on
12 March 2021. The circular had a
proposal to approve an increase in the management fee together with
the opportunity of shareholders to have a return of capital of up
to 40% of the net asset value of the Company. The result of this
resolution was a vote of 65.56% in favour of the proposal.
Therefore there will be a tender offer to shareholders in the near
future. The maximum amount of the tender will be 40% of the number
of shares in each class of the Company (excluding any held in
treasury) and therefore the Company will continue to be managed by
Brevan Howard and as a result will continue to be a going
concern.
In reaching this conclusion the Board is mindful of the nature
and liquidity of the assets that underlie its investment in BHMS,
the terms under which it may redeem its investment in BHMS and
utilise the borrowing facilities available to it and has concluded
that moderate adverse investment performance would not have a
material impact on the Company’s ability to meet its liabilities as
they fall due.
There remains continued uncertainty about the development and
scale of the COVID-19 outbreak, however the Board does not consider
COVID-19 to have an impact on going concern as unlike many
companies performance and net asset value has increased during the
COVID-19 pandemic.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
Sally-Ann
Farnon
Director
29 March 2021
CORPORATE GOVERNANCE STATEMENT
Corporate Governance
To comply with the UK Listing Regime, the Company must comply
with the requirements of the UK Corporate Governance Code (the “UK
Code”). The Company is also required to comply with the Code of
Corporate Governance issued by the Guernsey Financial Services
Commission.
The Company is a member of the Association of Investment
Companies (the “AIC”) and by complying with the 2019 AIC Code of
Corporate Governance for the year (“AIC Code”) is deemed to comply
with both the UK and Guernsey Codes of Corporate Governance.
The Board has considered the principles and recommendations of
the AIC Code and consider that reporting against these will provide
appropriate information to shareholders. The AIC Code includes
provisions relating to:
· the establishment of an audit
committee;
· the main roles and responsibilities of
the audit committee;
· the responsibilities of the audit
committee;
· the Directors’ responsibility for
preparing the annual report and accounts;
· the robust assessment of the Company’s
emerging and principal risks;
· the monitoring of the company’s risk
management and internal control systems;
· the appropriateness of the going
concern basis; and
· longer-term viability of the
Company.
To ensure ongoing compliance with these principles the Board
reviews a report from the Corporate Secretary, at each quarterly
meeting, identifying how the Company is in compliance and
identifying any changes that might be necessary.
For the reasons set out in the AIC Code the Board considers
certain provisions of the UK Code are not relevant to the position
of the Company as it is an externally managed investment company.
The Directors are all non-executive and the Company does not have
employees, hence no whistle blowing policy is required. The key
service providers all have whistle blowing policies in place. The
Board as a whole fulfils the function of a Remuneration Committee.
Details of compliance are noted below.
The Company has adopted a policy that the composition of the
Board of Directors, which is required by the Company’s Articles to
comprise of at least two persons, is at all times such that a
majority of the Directors are independent of the Manager and any
company in the same group as the Manager; the Chairman of the Board
of Directors is free from any conflicts of interest and is
independent of the Manager and of any company in the same group as
the Manager; and that no more than one director, partner, employee
or professional adviser to the Manager or any company in the same
group as the Manager may be a Director of the Company at any one
time.
Under Provision 10 of the AIC Code, having considered the
directorship of Julia Chapman in DG
Macro Fund Limited (formerly London Select Fund Limited), whose
Alternative Investment Fund Manager is one in which Brevan Howard
has an economic interest, the Board has determined that she remains
independent.
Risk Management
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
and Risk Committee at its quarterly meetings and annually by the
Board. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the
risks to which it is exposed.
The Board
The Board, which currently consists solely of independent
non-executive Directors, meets at least four times a year and
between these formal meetings there is regular contact with both
the Manager and the Administrator. There is a schedule of matters
that are reserved for decision by the Board and clear terms of
reference governing the roles and responsibilities of its
committees. The Directors are kept fully informed of investment and
financial controls, and other matters that are relevant to the
business of the Company and which should be brought to the
attention of the Directors. The Directors also have access to the
Administrator, and where necessary, in the furtherance of their
duties, to independent professional advice at the expense of the
Company. In addition to these scheduled meetings, 19 ad-hoc
meetings were held in 2020, to deal with matters that were of a
fundamentally administrative nature, the majority being to deal
with conversions between share classes. These meetings were
attended by those Directors available at the time.
On 26 June 2020, at the Annual
General Meeting of the Company, shareholders re-elected all
Directors of the Company. Section 21.3 of the Company’s Articles
requires all Directors at the date of the notice convening the
annual general meeting, shall retire from office and may offer
themselves for re-election.
The Board of Directors has overall responsibility for
safeguarding the Company’s assets, for the determination of the
investment policy of the Company, for reviewing the performance of
the Manager and the other service providers and for the Company’s
activities. The Directors are listed in the Board Members and
Management and Administration sections.
The Board needs to ensure that information presented is fair,
balanced and understandable, and provides information necessary for
the shareholders to assess the Company’s performance, business
model and strategy. In achieving this, the Directors have explained
the Company’s investment objective and policy, how the Board
operates through its structure of reserved powers of the Board, its
delegated Committees and how the Directors consider and explain the
risk environment within which the Company operates. Further,
through the Annual Report and ancillary documents the Board has
sought to provide information to enable shareholders to have a
fair, balanced and understandable view.
Board Evaluation and Succession
Planning
There is a formal and rigorous process for the annual evaluation
of the Board, its committees, the Chairman and individual Directors
including a periodic externally facilitated board evaluation.
During 2020, the Board commissioned an external evaluation of its
performance by BoardAlpha. The report of the evaluation confirmed
that the Company applies a high standard of corporate governance.
The report indicated that there were no significant issues to
raise; some helpful recommendations were offered which the Board
will consider and implement going forward.
The Board has chosen not to adopt a definitive policy with
quantitative targets for board diversity. However, gender
diversity, knowledge, skills, experience, residency and governance
credentials are all considered by the Nominations Committee when
recommending appointments to the Board and in formulating
succession plans. With 40% female Directors, the Board exceeds
diversity targets recommended by the Hampton Alexander Review.
The Board, Audit and Risk Committee, Management Engagement
Committee and Nominations Committee undertake an evaluation of
their own performance and that of individual Directors on an annual
basis. In order to review their effectiveness, the Board and its
Committees carry out a process of formal self-appraisal. The Board
and Committees consider how they function as a whole and also
review the individual performance of its members.
This process is conducted by the respective Chairman reviewing
each member’s performance, contribution and commitment to the
Company. Julia Chapman, as Senior
Independent Director (appointed 1 January
2021, previously Graham
Harrison), takes the lead in reviewing the performance of
the Chairman. Each Board member undertakes ongoing training and
maintenance of continuing professional development
requirements.
The Board considers it has a breadth of experience relevant to
the Company, and the Directors believe that any changes to the
Board’s composition can be managed without undue disruption. An
induction programme has been put in place for all Director
appointments.
The Board considers independence including consideration of
tenure in line with the AIC Code. Succession plans are regularly
reviewed to ensure that board membership continues to be refreshed
at suitable intervals whilst maintaining the necessary balance
between fresh insight and experience.
Board and Committee Meetings
The table below sets out the number of Board, Audit, Management
Engagement and Nominations Committee scheduled meetings held during
the year ended 31 December 2020 and,
where appropriate, the number of such meetings attended by each
Director.
Attendance at scheduled Board and Committee meetings are
detailed below, in addition the Directors attended many adhoc board
meetings during the year.
|
|
|
Management |
|
|
Board |
Audit
and Risk |
Engagement |
Nominations |
| No of
meetings |
4 |
4 |
1 |
1 |
| Attendance |
|
|
|
|
| Sir Michael
Bunbury1 |
4 |
4 |
1 |
1 |
| Julia Chapman |
4 |
4 |
1 |
1 |
| Sally-Ann Farnon |
4 |
4 |
1 |
1 |
| Graham
Harrison2 |
4 |
4 |
1 |
1 |
| Andreas Tautscher |
4 |
4 |
1 |
1 |
1 Sir Michael Bunbury
is not a member of the Audit and Risk Committee and attends by
invitation.
2 Graham Harrison
resigned from the Audit and Risk Committee on 12 March 2020 and attended all subsequent Audit
and Risk Committee meetings by invitation.
Directors’ Independence
The Company has five non-executive Directors, all of whom are
independent of the Manager.
Under the AIC Code, the Board must consider whether directors
continue to be independent of the Company if they have served for
over nine years.
Graham Harrison was appointed to
the Board in March 2010 and has
served for more than nine years. The Board considers that
he remains independent and that his continuing service and his
expertise is in the best interests of shareholders.
At a Board meeting held on 1 May
2019, Andreas Tautscher was
appointed to the Board. Andreas
Tautscher and Julia Chapman
are both employed by the Altair Group which is a regulated provider
of Director Services in the Channel
Islands.
Directors’ Interests
The current Directors had the following interests in the
Company, held either directly or beneficially:
|
31.12.2020 |
31.12.2019 |
|
US
Dollar |
Sterling |
US
Dollar |
Sterling |
|
Shares |
Shares |
Shares |
Shares |
| Sir Michael
Bunbury1 |
– |
14,200 |
– |
11,000 |
| Julia Chapman |
– |
1,081 |
– |
1,081 |
| Sally-Ann Farnon |
– |
1,700 |
– |
1,700 |
| Graham Harrison |
– |
1,500 |
– |
1,500 |
| Andreas
Tautscher2 |
– |
600 |
– |
– |
1 Sir Michael Bunbury
acquired an additional 3,200 shares on 26
March 2020.
2 Andreas Tautscher
acquired 600 shares on 31 March
2020.
The Company has adopted a Code of Directors’ dealings in
securities.
Directorships in other public companies are disclosed in the
Board Members section.
Directors’ Indemnity
Directors’ and officers’ liability insurance cover is in place
in respect of the Directors. The Directors entered into indemnity
agreements with the Company which provide for, subject to the
provisions of the Companies (Guernsey) Law, 2008, an indemnity for
Directors in respect of costs which they may incur relating to the
defence of proceedings brought against them arising out of their
positions as Directors, in which they are acquitted or judgement is
given in their favour by the Court. The agreement does not provide
for any indemnification for liability which attaches to the
Directors in connection with any negligence, unfavourable
judgements, breach of duty or trust in relation to the Company.
Committees of the Board
The Board has established Audit, Management Engagement and
Nominations Committees and approved their terms of reference,
copies of which can be obtained from the Administrator.
Audit and Risk Committee
At the date of this statement, the Audit and Risk Committee is
chaired by Sally-Ann Farnon, and its
other members are Julia Chapman and
Andreas Tautscher. The Committee
meets formally at least three times a year.
Appointment to the Audit and Risk Committee is for a period up
to three years which may be extended for two further three year
periods provided that the majority of the Audit and Risk Committee
remain independent of the Manager.
The table in the Corporate Governance Statement sets out the
number of Audit and Risk Committee Meetings held during the year
ended 31 December 2020 and the number
of such meetings attended by each Committee member.
A report of the Audit and Risk Committee detailing its
responsibilities and its key activities is presented in the Audit
and Risk Committee Report.
Management Engagement Committee
The Board has established a Management Engagement Committee with
formal duties and responsibilities. The function of the Management
Engagement Committee is to ensure that the Company’s Management
Agreement is competitive and reasonable for the Shareholders, along
with the Company’s agreements with all other third party service
providers (other than the external auditors).
The Management Engagement Committee meets formally at least once
a year and comprises all Directors of the Board, with Julia Chapman as Chairman.
The Committee also reviews annually the performance of the
Manager with a view to determining whether to recommend to the
Board that the Manager’s mandate be renewed, subject to the
specific notice period requirement of the agreement. The other
third party service providers are also reviewed on an annual
basis.
Details about the management fees charged by the Manager and its
notice period are contained in note 4 to the Financial
Statements.
The Manager has wide experience in managing and administering
investment companies and has access to extensive investment
management resources. At its meeting of 1
December 2020, the Management Engagement Committee concluded
that the continued appointment of the Manager on the terms agreed
would be in the best interests of the Company’s shareholders as a
whole. At the date of this report the result of the EGM referred to
in the Chairman’s Statement regarding the management fees will
result with effect from 1 July 2021
in increased management fees. The Board continues to be of the
opinion that this is in the best interests of the Company’s
shareholders.
Nominations Committee
The Nominations Committee comprises all Directors of the Board,
with the Chairman being appointed as Chairman of the Nominations
Committee. For new appointments to the Board, nominations are
sought from the Directors and from other relevant parties and
candidates are then interviewed by the Nominations Committee. In
the event that a replacement for the Chairman is being sought it
would normally be expected that the Senior Independent Director
would chair the Committee.
The other duties of the Committee include:
1. To review the
structure, size and composition (including the skills, knowledge,
experience and diversity) of the Board;
2. To consider
succession planning;
3. To consider
the performance of individual Directors and determine whether to
recommend to the Board that they be put forward for re-election;
and
4. To consider
the ongoing terms of appointment of each Director.
At its meeting of 1 December 2020
the Nominations Committee concluded that the continued appointment
of the Board would be in the best interests of the Company’s
shareholders as a whole. At the date of this report the Board
continues to be of the same opinion.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a separate
Remuneration Committee as anticipated by the AIC Code. The Board as
a whole fulfils the functions of the Remuneration Committee,
although the Board has included a separate Remuneration Report in
these Financial Statements. The consideration of the Chairman’s
remuneration is led by the Senior Independent Director without the
Chairman being present.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal control and for
maintaining and reviewing its effectiveness. To achieve this, a
process has been established which seeks to:
·
Review the risks faced by the Company and the controls in place to
address those risks;
·
Identify and report changes in the risk environment;
·
Identify and report changes in the operational controls;
·
Identify and report on the effectiveness of controls and errors
arising; and
·
Ensure no override of controls by its service providers, the
Manager and the Administrator.
The Company’s risk matrix continues to be used as the basis for
analysing the Company’s system of internal control. The risk matrix
is prepared and maintained by the Audit and Risk Committee which
initially identifies the risks facing the Company and then
collectively assesses the likelihood of each risk, the impact of
those risks and the strength of the controls operating over each
risk. The Company’s system of internal control is designed to
manage rather than to 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.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the
Company.
The AIC Code requires the Board 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 evaluated the systems of internal
controls of the Company. In particular, it has prepared a process
for identifying and evaluating the significant risks affecting the
Company and the policies by which these risks are managed.
The Board has delegated the investment management of the
Company, the administration, corporate secretarial and registrar
functions including the independent calculation of the Company’s
NAV and the production of the Annual Report and Financial
Statements, which are independently audited. Whilst the Board
delegates these functions, it remains responsible for the functions
it delegates and for the systems of internal control. Formal
contractual agreements have been put in place between the Company
and providers of these services. On an ongoing basis, Board reports
are provided at each quarterly Board meeting from the Manager,
Administrator and Company Secretary and Registrar. A representative
from the Manager is asked to attend these meetings. The Board
reviews the Manager’s and Administrator’s annual service
organisation control (“SOC”) ISAE 3402 reports and during the year,
there were no significant observations or recommendations
noted.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Manager, Administrator and the Company Secretary and Registrar,
including their own internal review processes, and the work carried
out by the Company’s external auditors, provide sufficient
assurance that a sound system of internal control, which safeguards
the Company’s assets, is maintained. An internal audit function
specific to the Company is therefore considered unnecessary.
A report is tabled and discussed at each Audit and Risk
Committee meeting, and reviewed once a year by the Board, setting
out the Company’s risk exposure and the effectiveness of its risk
management and internal control systems. The Board believes that
the Company has adequate and effective systems in place to
identify, mitigate and manage the risks to which it is exposed.
Further reports are received from the Administrator in respect
of compliance, London Stock Exchange continuing obligations and
other matters. These reports were reviewed by the Board. No
material adverse findings were identified in these reports.
CORPORATE SOCIAL RESPONSIBILITY
Anti-Bribery and Corruption Policy
The Board has adopted a formal Anti-bribery and Corruption
Policy. The policy applies to the Company and to each of its
Directors. Furthermore, the policy is shared with each of the
Company’s main service providers.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has
introduced a new Corporate Criminal Offence of ‘failing to take
reasonable steps to prevent the facilitation of tax evasion’, the
Board confirms that it is committed to zero tolerance towards the
criminal facilitation of tax evasion.
General Data Protection Regulation
(“GDPR”)
The Board has received assurance from its service providers that
they are compliant with the General Data Protection Regulation
(“GDPR”).
Environmental and Social Issues
As part of the Board’s social engagement the Board is currently
working with the GTA University Centre to appoint a Board
apprentice as part of their development programme. This programme
supports individuals who normally would not be able to find Board
appointments as part of their existing role but who have the
potential and desire to find appointments in the future. The
successful candidate will attend future Board meetings as an
observer which will allow them to gain experience and
confidence.
The Board also keeps under review developments involving other
social and environmental issues, such as Modern Slavery, and will
report on those to the extent they are considered relevant to the
Company’s operations.
Other environmental and social issues are referred to in the
Strategic Report.
Relations with Shareholders
In line with the AIC Code, the Board also consult with
shareholders where 20% or more of the votes cast go against a
resolution and an update is published within six months and a
summary of each qualifying vote will be presented in the Annual
Report. At the Annual General Meeting held on 26 June 2020, there was no motion that received
20% or more votes against a resolution. On 12 March 2021 a circular was issued regarding
increased management fees and a tender offer up to a maximum of 40%
of the Company’s net asset value. On 25
March 2021 shareholders voted by a majority of 65.56% in
favour to 33.87% against with 0.57% voting to abstain on a turnout
of approximately 55% to accept the increase in Manager’s fees. The
Board notes the significant, albeit minority, vote against the
Proposal. The Board will shortly seek to engage further with
principal shareholders and discuss the consequences of the vote
with them. As set out in the circular there will be a Tender
Offer that will be capped at 40% of the issued share capital of
each share class excluding those shares held in Treasury. Further
details of the Tender Offer will be set out in a circular to
shareholders to be posted during April.
The Company provides weekly unaudited estimates of the NAVs,
month-end unaudited NAVs and a monthly newsletter. These are
published via RNS and are also available on the Company’s website,
www.bhglobal.com. Risk reports are also available on the Company’s
website.
In addition to the Company’s brokers, the Manager maintains
regular dialogue with institutional shareholders, the feedback from
whom is reported to the Board.
Significant Shareholders
As at 31 December 2020, the
following registered shareholders had significant shareholdings in
the Company:
|
|
%
holdings |
| Significant
shareholders |
Total shares held |
in
class |
| Sterling
shares |
|
|
| Cheviot Capital
(Nominees) Ltd |
2,686,588 |
13.35% |
| Rathbone Nominees
Limited |
2,279,588 |
11.33% |
| Smith & Williamson
Nominees Limited |
2,048,926 |
10.18% |
| Ferlim Nominees
Limited |
1,361,941 |
6.77% |
| Pershing Nominees
Limited |
1,330,140 |
6.61% |
| Roy Nominees
Limited |
1,287,982 |
6.40% |
| Wealth Nominees
Limited |
969,078 |
4.82% |
| Nortrust Nominees
Limited |
940,070 |
4.67% |
| Vidacos Nominees
Limited |
926,378 |
4.60% |
| The Bank Of New York
(Nominees) Limited |
691,341 |
3.44% |
| Platform Securities
Nominees Limited |
608,506 |
3.02% |
|
|
|
|
|
%
holdings |
| Significant
shareholders |
Total
shares held |
in
class |
| US Dollar
shares |
|
|
| Wealth Nominees
Limited |
1,155,609 |
44.04% |
| Euroclear Nominees
Limited |
623,420 |
23.76% |
| Ferlim Nominees
Limited |
114,096 |
4.35% |
| Rathbone Nominees
Limited |
111,267 |
4.24% |
| Pershing Nominees
Limited |
87,152 |
3.32% |
Ongoing charges
Ongoing charges for the year ended 31
December 2020 and 31 December
2019 have been prepared in accordance with the AIC’s
recommended methodology. Note this was not the methodology used
when producing the Key Information Document (“KID”).
The Ongoing Charges figures include the ongoing charges of
BHMS.
The Company’s investments in BHMS are not subject to management
fees, operational services fees or performance fees but do bear
normal administrative expenses.
The following table presents the Ongoing Charges and the
Company’s performance fees for each share class:
31.12.20
|
|
|
|
|
US
Dollar Shares |
|
Sterling Shares |
| Company -
Ongoing Charges |
|
|
|
1.03% |
|
1.10% |
| BHMS -
Ongoing Charges |
|
|
|
0.11% |
|
0.11% |
| Performance fee |
|
|
|
|
4.95% |
|
4.73% |
| Total
Ongoing Charges plus performance fees |
|
|
6.09% |
|
5.94% |
31.12.19
|
|
|
|
|
US
Dollar Shares |
|
Sterling Shares |
| Company -
Ongoing Charges |
|
|
|
1.21% |
|
1.25% |
| BHMS -
Ongoing Charges |
|
|
|
0.09% |
|
0.09% |
| Performance fee |
|
|
|
|
1.50% |
|
1.16% |
| Total
Ongoing Charges plus performance fees |
|
|
2.80% |
|
2.50% |
Further information regarding expenses is provided in the KID
for each share class which is available on the Company’s
website.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
Sally-Ann
Farnon
Director
29 March 2021
AUDIT AND RISK COMMITTEE REPORT
Dear Shareholder,
We present the Audit and Risk Committee’s Report for 2020,
setting out the responsibilities of the Audit and Risk Committee
and its key activities in 2020. As in previous years, the Audit and
Risk Committee has reviewed the Company’s financial reporting, the
independence and effectiveness of the Independent Auditor and the
internal control and risk management systems of the Company’s
service providers. In order to assist the Audit and Risk Committee
in discharging these responsibilities, regular reports are received
and reviewed from the Manager, Administrator and Independent
Auditor. Following the review of the independence, objectivity and
effectiveness of the Company’s Independent Auditor, the Audit and
Risk Committee has recommended to the Board that KPMG Channel
Islands Limited be reappointed as Independent Auditor, which the
Board will submit to the Company’s Members for approval.
A member of the Audit and Risk Committee will be available at
each Annual General Meeting to respond to any shareholder questions
on the activities of the Audit and Risk Committee.
Sally-Ann
Farnon
Chairman, Audit and Risk Committee
Responsibilities
The Audit and Risk Committee reviews and recommends to the
Board, the Financial Statements of the Company and is the forum
through which the Independent Auditor reports to the Board of
Directors. The Independent Auditor and the Audit and Risk Committee
are able to meet together, without representatives of either the
Administrator or Manager being present, if either consider this to
be necessary.
The role of the Audit and Risk Committee includes:
·
monitoring the integrity of the published Financial Statements of
the Company and any formal announcements relating to the Company’s
financial performance;
·
reviewing and reporting to the Board on the significant issues and
judgements made in the preparation of the Company’s published
Financial Statements, (having regard to matters communicated by the
Independent Auditor) and other financial information;
·
monitoring and reviewing the quality and effectiveness of the
Independent Auditor and their independence;
·
considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration to the
Company’s Independent Auditor;
·
reviewing the Company’s procedures for prevention, detection and
reporting of fraud, bribery and corruption; and
·
monitoring and reviewing the internal control and risk management
systems of the service providers.
The Audit and Risk Committee’s full terms of reference can be
obtained by contacting the Administrator.
Key activities of the Audit and Risk
Committee:
The following sections discuss the activities of the Audit and
Risk Committee during the year:
Financial Reporting:
The Audit and Risk Committee’s review of the Annual Financial
Statements focused on what it believes to be the only significant
issue:
The Company’s investment in BHMS had a fair value of
US$588,952,375 as at 31 December 2020 and represents the majority of
the net assets of the Company and as such is the biggest factor in
relation to the accuracy of the Financial Statements. The valuation
of the investment is determined in accordance with the accounting
policy in note 3 to the Financial Statements. The Financial
Statements of BHMS for the year ended 31
December 2020 were audited by KPMG Cayman Islands who issued
an unqualified audit opinion dated 26 March
2021. The Audit and Risk Committee considered the Financial
Statements of BHMS and its accounting policies in determining that
the fair value of the investment in BHMS at 31 December 2020
is reasonable.
The Independent Auditor reported to the Committee that no
material misstatements were found in the course of their work.
Furthermore, the Manager and Administrator confirmed to the
Committee that they were not aware of any material misstatements
including matters relating to financial statement presentation. The
Audit and Risk Committee confirms that it is satisfied that the
Independent Auditor has fulfilled its responsibilities with
diligence and professional scepticism. At the request of the Board,
the Audit and Risk Committee considered whether the 2020 Annual
Report and Audited Financial Statements, taken as a whole, are
fair, balanced and understandable and whether they provided the
necessary information for shareholders to assess the Company’s
performance, business model and strategy. The Audit and Risk
Committee are satisfied that the Annual Report and Audited
Financial Statements, taken as a whole, are fair, balanced and
understandable, and provide the necessary information for the
shareholders to assess the Company’s performance.
Following a review of the presentations and reports from the
Administrator and consulting where necessary with the Independent
Auditor, the Audit and Risk Committee is satisfied that the
financial statements appropriately address any critical judgements
and key estimates (both in respect to the amounts reported and the
disclosures). The Audit and Risk Committee is also satisfied that
the significant assumptions used for determining the value of
assets and liabilities have been appropriately scrutinised,
challenged and are sufficiently robust.
Risk Management:
The Audit and Risk Committee continued to consider the process
for managing the risks faced by the Company and its service
providers. Risk management procedures for the Company, as detailed
in the Company’s risk assessment matrix, were reviewed and approved
by the Audit and Risk Committee. The process of risk management
includes procedures to identify, manage and mitigate financial
risks, operational risks and emerging risks faced by the
Company.
Corporate Social Responsibility
The Audit and Risk Committee, in conjunction with the Management
Engagement Committee, continued to monitor and review the
procedures of the Company to combat fraud, bribery and corruption.
Confirmation is received from all major service providers that they
are not aware of any instances of fraud, bribery or corruption.
The Independent Auditor:
Independence, objectivity and fees:
The independence and objectivity of the Independent Auditor is
regularly reviewed by the Audit and Risk Committee which also
reviews the terms under which the Independent Auditor is appointed
to perform non-audit services. The Audit and Risk Committee has
established pre-approval policies and procedures for the engagement
of the Independent Auditor to provide audit, assurance and tax
services to the Company.
The services which the Independent Auditor may not provide are
any which:
·
places them in a position to audit their own work;
·
creates a mutuality of interest;
·
results in the Independent Auditor developing close relationships
with service providers of the Company;
·
results in the Independent Auditor functioning as a manager or
employee of the Company; or
·
puts the Independent Auditor in the role of advocate of the
Company.
As a general rule, the Audit and Risk Committee does not utilise
the Independent Auditor for internal audit purposes, secondment or
valuation advice. Services limited to quarterly reviews are
normally permitted but must be pre-approved by the Audit and Risk
Committee where fees are likely to be in excess of £25,000.
The Audit and Risk Committee considered reports from the
Independent Auditor on their procedures to identify and mitigate
any threats to independence and concluded that the procedures were
sufficient to identify any threats to independence. The Audit and
Risk Committee together with the Chairman and the Administrator
completed a questionnaire covering areas such as quality of audit
team, business understanding, audit approach and management. The
results of the questionnaire indicated that the Independent Auditor
performed effectively during the period.
The following table summarises the remuneration paid to KPMG
Channel Islands Limited for audit and non-audit services provided
to the Company during the years ended 31
December 2020 and 31 December
2019:
|
01.01.20 |
01.01.19 |
|
to 31.12.20 |
to 31.12.19 |
| KPMG Channel Islands
Limited |
|
|
| – Annual audit |
£33,250 |
£31,000 |
| – Auditor’s interim
review |
£15,750 |
£15,350 |
|
|
|
In line with the policies and procedures above, the Audit and
Risk Committee does not consider that the provision of the
non-audit services, which comprised the Auditor’s interim review,
to be a threat to the objectivity and independence of the
Independent Auditor. The Audit and Risk Committee has also
considered the overall level of services provided by KPMG member
firms to the wider Brevan Howard organisation and does not consider
these to pose a threat to the Independent Auditor’s
independence.
KPMG Channel Islands Limited has been the Company’s Independent
Auditor from the date of the initial listing on the London Stock
Exchange. The external audit was most recently tendered for the
years commencing after 31 December 2015. As reported in
the Annual Report for the year ended 31
December 2015, KPMG Channel Islands Limited was re-appointed
as auditor following the completion of the tender process and
currently it is anticipated that the audit will be tendered within
the next five years.
The Audit and Risk Committee has examined the scope and results
of the external audit, its cost effectiveness and the independence
and objectivity of the Independent Auditor, with particular regard
to non-audit fees, and considers KPMG Channel Islands Limited, as
Independent Auditor, to be independent of the Company.
Performance and Effectiveness:
During the year, when considering the effectiveness of the
Independent Auditor, the Audit and Risk Committee has taken into
account the following factors -
·
The audit plan presented to them;
·
The audit findings report including variations from the original
plan;
·
Changes in audit personnel;
·
The Independent Auditor’s own internal procedures to identify
threats to independence; and
·
Feedback from both the Manager and Administrator.
The Audit and Risk Committee reviewed the audit plan and the
audit findings report of the Independent Auditor and concluded that
a) the audit plan sufficiently identified audit risks; b) that the
audit findings report indicated that the audit risks were
sufficiently addressed; and c) there were no significant variations
from the audit plan.
Reappointment:
Consequent to the review discussed above, the Audit and Risk
Committee has recommended to the Board that a resolution be put to
the 2021 AGM for the reappointment of KPMG Channel Islands Limited
as Independent Auditor. The Board has accepted this
recommendation.
Internal Control and Risk Management
Systems:
As the Company’s investment objective is to invest substantially
all of its assets in BHMS, the Audit and Risk Committee, after
consultation with the Manager and Independent Auditor, considers
the key risk of material misstatement in its financial statements
to be the valuation of its investment in BHMS, but are also mindful
of the risk of the override of controls by its service providers,
the Manager and Administrator.
The Audit and Risk Committee reviews and examines externally
prepared assessments of the control environment in place at the
Manager and the Administrator, with each providing these
assessments on an ongoing basis. No significant failings or
weaknesses were identified in these reports by the Audit and Risk
Committee.
The Audit and Risk Committee annually reviews the need for an
internal audit function. The Committee is of the view that the
systems, procedures and internal audit functions in operation at
both the Manager and Administrator provide sufficient assurance
that a sound system of internal control is being maintained. An
internal audit function, specific to the Company, is therefore
considered unnecessary.
The Audit and Risk Committee Report was approved by the Board on
29 March 2021 and signed on its
behalf by:
Sally-Ann
Farnon
Chairman, Audit and Risk Committee
STATEMENT OF DIRECTORS’ RESPONSIBILITY
IN RESPECT OF THE ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report
and Audited 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
accounting principles generally accepted in the United States of America and applicable
law.
Under Company law, the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss 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, relevant and
reliable;
·
state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
Financial Statements;
·
assess the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
·
use the going concern basis of accounting unless liquidation is
imminent.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its Financial Statements comply with the Companies (Guernsey) Law,
2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and 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.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement of the
Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
· so
far as each of the Directors is aware, there is no relevant audit
information of which the Company’s Independent Auditor is unaware,
and each has taken all the steps they ought to have taken as a
Director to make themselves aware of any relevant information and
to establish that the Company’s Independent Auditor is aware of
that information;
·
the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
·
the Chairman’s Statement, Strategic Report, Directors’ Report and
Manager’s Report include a fair review of the development and
performance of the business and the position of the issuer,
together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and Audited Financial Statements,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
Sally-Ann
Farnon
Director
29 March 2021
DIRECTORS’ REMUNERATION REPORT
As at 31 December 2020
Introduction
An ordinary resolution for the approval of this Directors’
Remuneration Report will be put to the shareholders at the
forthcoming Annual General Meeting to be held in 2021.
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.
The Company’s policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company’s
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate Directors of a quality
required to run the Company successfully. The Chairman of the Board
is paid a higher fee in recognition of his additional
responsibilities, as are the Chairman of the Audit and Risk
Committee and Management Engagement Committee. The policy is to
review fee rates periodically, although such a review will not
necessarily result in any changes to the rates, and account is
taken of fees paid to Directors of comparable companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. Section 21.3 of the
Company’s Articles requires, as does the AIC Code, that all of the
Directors to retire at each Annual General Meeting. At the Annual
General Meeting of the Company, on 26 June
2020, shareholders re-elected all Directors of the Company.
Director appointments can also be terminated in accordance with the
Articles. Should shareholders vote against a Director standing for
re-election, the Director affected will not be entitled to any
compensation. There are no set notice periods and a Director may
resign by notice in writing to the Board at any time.
Directors are remunerated in the form of fees, payable quarterly
in arrears.
Directors’ Fees
The Company’s Articles limit the fees payable to Directors in
aggregate to £500,000 per annum.
With effect from 1 January 2021,
Senior Independent Director has rotated from Graham Harrison to Julia
Chapman. Graham Harrison's
fee was reduced to £42,600 and Julia
Chapman's fee was increased to £48,600.
The fees payable by the Company in respect of each of the
Directors who served during the year, and during 2019, were as
follows:
|
01.01.20
to 31.12.20
£ |
01.01.19
to 31.12.19
£ |
| Sir Michael
Bunbury |
150,000 |
150,000 |
| Julia Chapman |
45,600 |
41,574 |
| Sally-Ann Farnon |
53,000 |
50,000 |
| Graham Harrison |
45,600 |
43,000 |
| Nicholas
Moss1 |
- |
20,292 |
| Andreas
Tautscher2 |
42,400 |
26,666 |
| Total |
336,600 |
331,532 |
1 Nicholas Moss
retired from the Board on 21 June
2019.
2 Andreas Tautscher
was appointed to the Board on 1 May
2019.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
Sally-Ann
Farnon
Director
29 March 2021
BOARD MEMBERS
The Directors of the Company, all of whom are non-executive, are
listed below:
Sir Michael Bunbury
(Chairman)
Sir Michael Bunbury is Chairman
and Non-Executive Director of the Company. He is an experienced
Director of listed and private investment, property and financial
services companies. He is former Chairman of HarbourVest Global
Private Equity Limited, former Chairman of JP Morgan Claverhouse
Investment Trust plc and a former Director of Invesco Perpetual
Select Trust plc and of Foreign & Colonial Investment Trust
plc. Sir Michael began his career in 1968 at Buckmaster &
Moore, before joining Smith & Williamson, Investment Managers
and Chartered Accountants, in 1974 as a Partner. He later served as
Director and Chairman and retired as a consultant to the firm in
2017. Sir Michael was appointed to the Board in 2013.
Julia
Chapman (Senior Independent Director, from 1 January 2021)
Julia Chapman is a solicitor
qualified in England &
Wales and in Jersey with over 25
years’ experience in the investment fund and capital markets
sector. After working at Simmons & Simmons in London, she moved to Jersey and became a
partner of Mourant du Feu & Jeune (now Mourant Ozannes) in
1999. She was then appointed general counsel to Mourant
International Finance Administration (the firm’s fund
administration division). Following its acquisition by State Street
in April 2010, Mrs Chapman was
appointed European Senior Counsel for State Street’s alternative
investment business. In July 2012,
Mrs Chapman left State Street to focus on the independent provision
of directorship and governance services to a small number of
investment fund vehicles (including GCP Infrastructure Investments
Limited and Henderson Far East Income Limited). Mrs Chapman was
appointed to the Board on 16 January
2017.
Graham
Harrison, (Senior Independent Director, until 31 December 2020)
Graham Harrison is a Guernsey
resident and a Chartered Fellow of the Chartered Institute for
Securities and Investment. Mr Harrison is co-founder of Asset Risk
Consultants (“ARC”) and Group Managing Director of ARC Group
Limited. After obtaining a post graduate degree from the
London School of Economics, Mr Harrison
worked for HSBC in its corporate finance division where he
specialised in financial engineering. Following a secondment with
the Caribbean Development Bank, he moved to Guernsey to work for
the Bachmann Group with a brief to develop asset management and
investment consultancy services. In 2002, he led the management
buy-out of ARC, taking the Company independent. Mr Harrison is a
Director of a number of investment vehicles including Real Estate
Credit Investment Limited and Volta Finance Limited. Mr Harrison
was appointed to the Board in 2010.
Sally-Ann
Farnon
Sally-Ann (“Susie”) Farnon is a Guernsey resident and is a
fellow of the Institute of Chartered Accountants in England and Wales, having qualified as an accountant in
1983. Mrs Farnon is a Non-Executive Director of a number of
property and investment companies and also serves on the Board of
the Association of Investment Companies. Mrs Farnon was a Banking
and Finance Partner with KPMG Channel Islands from 1990 until 2001
and head of Audit KPMG Channel Islands from 1999 until 2001. She
has served as President of the Guernsey Society of Chartered and
Certified Accountants and as a member of The States of Guernsey
Audit Commission and Vice-Chairman of the Guernsey Financial
Services Commission. Mrs Farnon was appointed to the Board in
2018.
Andreas
Tautscher
Andreas Tautscher is a Guernsey
based independent Director with over 30 years’ financial services
experience. From 1994 until 2018, Andreas was a senior executive at
Deutsche Bank and was most recently CEO Channel Islands and Head of
Financial Intermediaries for EMEA and LATAM. He has experience
across the full spectrum of funds, trust and banking services in
most of the major financial centers. He sat on the UK Regional
Governance Board of Deutsche Bank and the EMEA Wealth Management
Exco. Andreas has also served on Local Government advisory
committees and was for 6 years a Non-Executive Director on the
Virgin Group Board. He is a member of the Board of Directors of
Elizabeth College, a Guernsey based
public school. Andreas started his career with
PricewaterhouseCoopers and qualified as a Chartered Accountant in
1994. Andreas Tautscher was
appointed to the Board in 2019.
The following summarises the Directors’ directorships in other
public companies:
| Company Name |
Exchange |
|
|
| Sir Michael Bunbury |
|
| None |
|
|
|
| Julia Chapman |
|
| GCP Infrastructure Investments
Limited |
London |
| Henderson Far East Income
Limited |
London and New Zealand |
| Sanne Group PLC |
London |
|
|
| Graham Harrison |
|
| Real Estate Credit Investments
Limited |
London |
| Volta Finance Limited |
London and Amsterdam |
|
|
| Sally-Ann Farnon |
|
| Apax Global Alpha Limited |
London |
| Bailiwick Investments Ltd |
TISE |
| HICL Infrastructure Company
Limited |
London |
| Real Estate Credit Investments
Limited |
London |
|
|
| Andreas Tautscher |
|
Doric Nimrod Air One
Limited
Doric Nimrod Air Two Limited
Doric Nimrod Air Three Limited |
London
London
London |
| MJ Hudson PLC |
AIM |
Certain Directors hold additional directorships in companies
that are listed on various exchanges but are not actively traded.
Details of these may be obtained from the Company Secretary.
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF BH GLOBAL LIMITED
Our opinion is unmodified
We have audited the financial statements of BH Global Limited
(the “Company”), which comprise the Audited Statement of Assets and
Liabilities as at 31 December 2020,
the Audited Statements of Operations, Changes in Net Assets and
Cash Flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory
information.
In our opinion, the accompanying
financial statements:
· give a true and fair view of the financial
position of the Company as at 31 December
2020, and of the Company’s financial performance and cash
flows for the year then ended;
· are prepared in conformity with U.S.
generally accepted accounting principles; and
· comply with the Companies (Guernsey) Law,
2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards, as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key audit matters: our assessment of
the risks of material misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at
our audit opinion above, the key audit matter was as follows
(unchanged from 2019):
|
The risk |
Our response |
|
|
|
Valuation of
Investment in Brevan Howard Multi-Strategy Master Fund Limited (the
“Master Fund”)
$588,952,000;
(2019: $464,269,000)
Refer to Audit and Risk Committee Report and note 3 accounting
policy
|
Basis:
The Company, which is a multi-class feeder fund, had invested
99.31% (2019: 99.26%) of its net assets at 31 December 2020 into
the ordinary US Dollar and Sterling denominated Class G Shares
issued by the Master Fund, which is an open ended investment
company.
The Company’s investment holdings in the Master Fund are valued
using the respective net asset value per share class as provided by
the Master Fund’s administrator.
Risk:
The valuation of the Company’s investment in the Master Fund, given
that it represents the majority of the net assets of the Company,
is a significant area of our audit.
|
Our audit procedures
included, but were not limited to:
Obtained an independent confirmation from the administrator of the
Master Fund of the net asset value per share for both the US Dollar
and Sterling Class G shares and reconciled these to the net asset
values used in the valuation of the Investment in the Master
Fund
Reviewed the audit work performed by the auditor of the Master Fund
to gain insight over the work performed on the significant elements
of the Master Fund’s net asset value; and held discussions on key
audit findings with the auditor of the Master Fund
Examined the Master Fund’s coterminous audited financial statements
to corroborate the net asset value per share of both the US Dollar
and Sterling Class G shares
We also considered the Company’s investment valuation policies as
disclosed in note 3 to the financial statements for conformity with
U.S. generally accepted accounting principles |
Our application of materiality and an
overview of the scope of our audit
Materiality for the financial statements as a whole was set at
$8,895,000, determined with reference
to a benchmark of net assets of $593,034,000, of which it represents
approximately 1.5% (2019: 1.5%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance
materiality for the Company was set at 75% (2019: 75%) of
materiality for the financial statements as a whole, which equates
to $6,671,000. We applied this
percentage in our determination of performance materiality because
we did not identify any factors indicating an elevated level of
risk.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding $444,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease its operations, and as they have concluded that the
Company's financial position means that this is realistic. They
have also concluded that there are no material uncertainties that
could have cast significant doubt over its ability to continue as a
going concern for at least a year from the date of approval of the
financial statements (the “going concern period").
In our evaluation of the directors' conclusions, we considered
the inherent risks to the Company's business model and analysed how
those risks might affect the Company's financial resources or
ability to continue operations over the going concern period. The
risks that we considered most likely to affect the Company's
financial resources or ability to continue operations over this
period were:
· Availability of capital to meet
operating costs and other financial commitments; and
· The likelihood of share class
closure or liquidation resolution votes being triggered
We considered whether these risks could plausibly affect the
liquidity or ability of the Company to continue to operate in the
going concern period by comparing severe, but plausible downside
scenarios that could arise from these risks individually and
collectively against the level of available financial resources
indicated by the Company’s financial forecasts.
We considered whether the going concern disclosure in note 3 to
the financial statements gives a full and accurate description of
the directors' assessment of going concern.
Our conclusions based on this work:
· we consider that the directors'
use of the going concern basis of accounting in the preparation of
the financial statements is appropriate;
· we have not identified, and
concur with the directors' assessment that there is not, a material
uncertainty related to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability
to continue as a going concern for the going concern period;
and
· we have nothing material to add
or draw attention to in relation to the directors' statement in the
notes to the financial statements on the use of the going concern
basis of accounting with no material uncertainties that may cast
significant doubt over the Company's use of that basis for the
going concern period, and that statement is materially consistent
with the financial statements and our audit knowledge.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the above conclusions are not a guarantee that the
Company will continue in operation.
Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks
of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud
risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to
commit fraud. Our risk assessment procedures included:
· enquiring of management as to
the Company’s policies and procedures to prevent and detect fraud
as well as enquiring whether management have knowledge of any
actual, suspected or alleged fraud;
· reading minutes of meetings of
those charged with governance; and
· using analytical procedures to
identify any unusual or unexpected relationships.
As required by auditing standards, we perform procedures to
address the risk of management override of controls, in particular
the risk that management may be in a position to make inappropriate
accounting entries. On this audit we do not believe there is a
fraud risk related to revenue recognition because the Company’s
revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources
or agreements with little or no requirement for estimation from
management. We did not identify any additional fraud risks.
We performed procedures including
· Identifying journal entries and
other adjustments to test based on risk criteria and comparing any
identified entries to supporting documentation; and
· incorporating an element of
unpredictability in our audit procedures.
Identifying and responding to risks
of material misstatement due to non-compliance with laws and
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our general commercial and sector experience and
through discussion with management (as required by auditing
standards), and from inspection of the Company’s regulatory and
legal correspondence, and discussed with management the policies
and procedures regarding compliance with laws and regulations. As
the Company is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
The Company is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation and taxation legislation and we assessed the extent of
compliance with these laws and regulations as part of our
procedures on the related financial statement items.
The Company is subject to other laws and regulations where the
consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance
through the imposition of fines or litigation or impacts on the
Company’s ability to operate. We identified financial services
regulation as being the area most likely to have such an effect,
recognising the regulated nature of the Company’s activities and
its legal form. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of management and inspection of regulatory
and legal correspondence, if any. Therefore if a breach of
operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit
to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remains a higher risk of
non-detection of fraud, as this may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the Annual
Report but does not include the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal
risks and longer term viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability
statement, and the financial statements and our audit knowledge. we
have nothing material to add or draw attention to in relation
to:
· the directors’ confirmation within the
Viability Statement that they have carried out a robust assessment
of the emerging and principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity;
· the emerging and principal disclosures
describing these risks and explaining how they are being managed or
mitigated;
· the directors’ explanation in the Viability
Statement as to how they have assessed the prospects of the
Company, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
We are also required to review the Viability Statement, under
the Listing Rules. Based on the above procedures, we have concluded
that the above disclosures are materially consistent with the
financial statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
· the directors’ statement that they consider
that the Annual Report and financial statements taken as a whole is
fair, balanced and understandable, and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy;
· the section of the Annual Report describing
the work of the Audit Committee, including the significant issues
that the audit committee considered in relation to the financial
statements, and how these issues were addressed; and
· the section of the Annual Report that
describes the review of the effectiveness of the Company’s risk
management and internal control systems.
We are required to review the part of Corporate Governance
Statement relating to the Company’s compliance with the
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review. We have nothing to report in this
respect.
We have nothing to report on other
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.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement, the directors are
responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the
Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless liquidation is imminent.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and
restrictions on its use by persons other than the Company's members
as a body
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.
Barry
Ryan
for and on behalf of KPMG Channel
Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
29 March 2021
AUDITED STATEMENT OF ASSETS AND
LIABILITIES
As at 31 December 2020
|
|
|
|
|
|
|
31.12.2020 |
|
31.12.2019 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
| Assets |
|
|
|
|
|
|
|
|
|
| Investment in
BHMS |
|
|
|
|
|
|
588,952 |
|
464,269 |
| Amount due
from BHMS |
|
|
|
|
|
23,107 |
|
8,746 |
| Sale of
own shares receivable |
|
|
|
|
535 |
|
- |
| Other
debtors |
|
|
|
|
|
32 |
|
16 |
| Cash and
bank balances denominated in US Dollars |
|
172 |
|
167 |
| Cash and
bank balances denominated in Sterling* |
|
|
7,323 |
|
1,004 |
| Total
assets |
|
|
|
|
|
620,121 |
|
474,202 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
| Management
fees payable (note 4) |
|
|
|
801 |
|
775 |
|
Performance fees payable (note 4) |
|
|
|
26,156 |
|
5,478 |
| Accrued
expenses and other liabilities |
|
|
|
98 |
|
119 |
|
Administration fees payable (note 4) |
|
|
|
32 |
|
80 |
| Total
liabilities |
|
|
|
|
|
27,087 |
|
6,452 |
|
|
|
|
|
|
|
|
|
|
| Net
assets |
|
|
|
|
|
593,034 |
|
467,750 |
|
|
|
|
|
|
|
|
|
|
| Number
of shares in issue (note 5) |
|
|
|
|
|
|
| US Dollar
shares |
|
|
|
|
|
2,624,216 |
|
2,664,844 |
| Sterling
shares |
|
|
|
|
|
20,142,421 |
|
19,868,275 |
|
|
|
|
|
|
|
|
|
|
| Net
asset value per share (notes 7 and 10) |
|
|
|
|
|
|
| US Dollar
shares |
|
|
|
|
|
US$20.18 |
|
US$16.48 |
| Sterling shares |
|
|
|
|
|
|
£19.61 |
|
£16.11 |
* As at 31 December 2020 the cash
and bank balances denominated in Sterling was £5,356,546
(31 December 2019: £757,905).
See accompanying notes to the Financial Statements.
Signed on behalf of the Board by:
Sir Michael
Bunbury
Chairman
Sally-Ann
Farnon
Director
29 March 2021
AUDITED STATEMENT OF OPERATIONS
For the year ended 31 December
2020
|
|
|
|
|
01.01.20 |
|
01.01.19 |
|
|
|
|
|
to
31.12.20 |
|
to
31.12.19 |
|
|
|
|
|
US$'000 |
|
US$'000 |
| Net
investment losses allocated from BHMS |
|
|
|
|
|
|
| Interest income |
|
|
|
|
837 |
|
1,187 |
| Expenses |
|
|
|
|
(2,221) |
|
(1,998) |
| Net
investment losses allocated from BHMS |
|
|
|
(1,384) |
|
(811) |
|
|
|
|
|
|
|
|
| Company
income |
|
|
|
|
|
|
|
| Interest income |
|
|
|
|
- |
|
1 |
| Foreign exchange
gains |
|
|
|
|
18,928 |
|
16,125 |
| Total Company
income |
|
|
|
|
18,928 |
|
16,126 |
|
|
|
|
|
|
|
|
| Company
expenses |
|
|
|
|
|
|
|
| Management fees (note
4) |
|
|
|
|
4,539 |
|
4,431 |
| Performance fees (note
4) |
|
|
|
|
24,873 |
|
5,313 |
| Other expenses |
|
|
|
|
572 |
|
555 |
| Directors' fees and
expenses |
|
|
|
|
432 |
|
424 |
| Administration fees
(note 4) |
|
|
|
|
171 |
|
155 |
| Total Company
expenses |
|
|
|
|
30,587 |
|
10,878 |
|
|
|
|
|
|
|
|
| Net investment
(losses)/gains |
|
|
|
|
(13,043) |
|
4,437 |
|
|
|
|
|
|
|
|
| Net
realised and unrealised gains on investments allocated from
BHMS |
|
|
|
| Net realised gain on
investments |
|
|
|
|
57,956 |
|
26,927 |
| Net unrealised gain on
investments |
|
|
|
|
77,555 |
|
12,768 |
| Net realised and
unrealised foreign exchange loss - on hedging |
|
|
|
|
(3,603) |
|
(6,729) |
| Net realised and
unrealised gains on investments allocated from BHMS |
|
|
|
|
131,908 |
|
32,966 |
| Net
increase in net assets resulting from operations |
|
118,865 |
|
37,403 |
See accompanying notes to the Financial Statements.
AUDITED STATEMENT OF CHANGES IN NET
ASSETS
For the year ended 31 December
2020
|
|
|
|
|
|
|
01.01.20 |
|
01.01.19 |
|
|
|
|
|
|
|
to
31.12.20 |
|
to
31.12.19 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
| Net
increase in net assets resulting from operations |
|
|
|
|
| Net
investment (loss)/gain |
|
|
|
|
(13,043) |
|
4,437 |
| Net realised gain on
investments allocated from BHMS |
|
|
|
|
|
|
57,956 |
|
26,927 |
| Net unrealised gain on
investments allocated from BHMS |
|
|
|
|
|
|
77,555 |
|
12,768 |
| Net
realised and unrealised foreign exchange loss allocated from
BHMS |
|
(3,603) |
|
(6,729) |
|
|
|
|
|
|
|
118,865 |
|
37,403 |
|
|
|
|
|
|
|
|
|
|
| Share
capital transactions |
|
|
|
|
|
|
| Sale of own shares
from Treasury (note 5) |
|
|
|
|
|
|
|
|
|
| Sterling
shares |
|
|
|
|
|
6,419 |
|
- |
|
|
|
|
|
|
|
6,419 |
|
- |
|
|
|
|
|
|
|
|
|
|
| Net
increase in net assets |
|
|
|
|
125,284 |
|
37,403 |
| Net
assets at the beginning of the year |
|
|
|
467,750 |
|
430,347 |
| Net
assets at the end of the year |
|
|
|
593,034 |
|
467,750 |
See accompanying notes to the Financial Statements.
AUDITED STATEMENT OF CASH FLOWS
For the year ended 31 December
2020
|
|
|
|
|
|
01.01.20 |
|
01.01.19 |
|
|
|
|
|
|
to
31.12.20 |
|
to
31.12.19 |
|
|
|
|
|
|
US$'000 |
|
US$'000 |
| Cash flows from
operating activities |
|
|
|
|
|
|
|
|
| Net
increase in net assets resulting from operations |
|
|
|
|
118,865 |
|
37,403 |
|
Adjustments to reconcile net increase in net assets |
|
|
|
|
|
|
|
|
resulting from operations to net cash provided by
operating activities: |
|
|
|
|
|
| Net investment loss
allocated from BHMS |
|
|
|
|
|
1,384 |
|
811 |
| Net
realised gain on investments allocated from BHMS |
|
|
|
|
(57,956) |
|
(26,927) |
|
|
|
|
|
|
|
|
|
| Net
unrealised gain on investments allocated from BHMS |
|
|
|
(77,555) |
|
(12,768) |
| Net
realised and unrealised foreign exchange loss |
|
|
|
|
|
|
|
| allocated
from BHMS |
|
|
|
|
|
3,603 |
|
6,729 |
| Proceeds
from sale of investment in BHMS |
|
|
|
|
11,772 |
|
2,976 |
| Foreign exchange
gain |
|
|
|
|
|
(18,928) |
|
(16,125) |
| (Increase)/decrease in
other debtors |
|
|
|
|
|
(16) |
|
34 |
| Increase in management
fees payable |
|
|
|
|
|
26 |
|
388 |
| Increase in
performance fees payable |
|
|
|
|
|
20,678 |
|
12 |
| (Decrease)/increase in
accrued expenses and other liabilities |
|
|
|
|
|
(22) |
|
23 |
|
(Decrease)/increase in administration fees payable |
|
|
|
|
(48) |
|
42 |
|
|
|
|
|
|
|
|
|
| Net
cash generated from/(used in) operating activities |
|
|
|
1,803 |
|
(7,402) |
|
|
|
|
|
|
|
|
|
| Cash flows from
financing activities |
|
|
|
|
|
|
|
|
| Sales of own
shares |
|
|
|
|
|
5,886 |
|
- |
| Net
cash generated from financing activities |
|
|
|
|
5,886 |
|
- |
|
|
|
|
|
|
|
|
|
| Change in
cash |
|
|
|
|
|
7,689 |
|
(7,402) |
| Cash, beginning of
the year |
|
|
|
|
|
1,171 |
|
8,738 |
| Effect of exchange
rate fluctuations |
|
|
|
|
|
(1,365) |
|
(165) |
| Cash, end of the
year |
|
|
|
|
|
7,495 |
|
1,171 |
|
|
|
|
|
|
|
|
|
| Cash, end of the
year |
|
|
|
|
|
|
|
|
| Cash and
bank balances denominated in US Dollars |
|
|
|
|
172 |
|
167 |
| Cash and
bank balances denominated in Sterling1 |
|
|
|
|
7,323 |
|
1,004 |
|
|
|
|
|
|
7,495 |
|
1,171 |
|
|
|
|
|
|
|
|
|
|
1 Cash and bank balances in Sterling (GBP'000) |
|
|
|
|
5,357 |
|
758 |
See accompanying notes to the Financial Statements.
NOTES TO THE AUDITED FINANCIAL
STATEMENTS
For the year ended 31 December
2020
1. The Company
BH Global Limited (the “Company”) is a limited liability
closed-ended investment company incorporated in Guernsey on
25 February 2008 for an unlimited
period, with registration number 48555.
The Company has a Premium Listing on the London Stock
Exchange.
The Company can offer multiple classes of ordinary shares, which
differ in terms of currency of issue with ordinary shares
denominated in US Dollar and Sterling currently being in issue.
2. Organisation
The Company’s investment objective is to seek to generate
consistent long-term capital appreciation through an investment
policy of investing all of its assets (net of funds required for
its short-term working capital requirements) in Brevan Howard
Multi-Strategy Master Fund Limited (“BHMS” or the “Master
Fund”).
The Company is organised as a feeder fund and invests
substantially all of its investable assets in the ordinary US
Dollar and Sterling denominated Class G shares issued by BHMS, and,
as such, the Company is directly and materially affected by the
performance and actions of BHMS.
As such, the Financial Statements of the Company should be read
in conjunction with the Annual Audited Financial Statements of
BHMS, which can be found on the Company’s website,
www.bhglobal.com.
At 31 December 2020, the Company’s
US Dollar and Sterling capital account represents 7.39% and 75.17%
(2019: 7.78% and 74.91%) respectively of BHMS’s capital.
BHMS is an open-ended investment company incorporated with
limited liability in the Cayman
Islands on 21 January 2008.
BHMS’s underlying investments in funds at 31 December 2020 and the percentage that BHMS’s
investment represented of the underlying fund’s Net Asset Value
(“NAV”) are as follows:
| Brevan Howard AH Master Fund
Limited* |
|
2.17% |
| Brevan Howard Alpha Strategies
Master Fund Limited |
|
2.02% |
| Brevan Howard AS Macro Master Fund
Limited* |
|
4.40% |
| Brevan Howard FG Macro Master Fund
Limited* |
|
6.84% |
| Brevan Howard Global Volatility
Master Fund Ltd |
|
7.43% |
| Brevan Howard Master Fund
Limited |
|
1.94% |
| Brevan Howard MB Macro Master Fund
Limited* |
|
3.31% |
| BH-DG Systematic Trading Master Fund
Limited |
|
5.11% |
*Investment is made through the Single Manager Portfolio
(“SMP”).
BHMS has flexibility to invest in a wide range of instruments
including, but not limited to, debt securities and obligations
(which may be below investment grade), bank loans, listed and
unlisted equities, other collective investment schemes or vehicles
(which may be open-ended or closed-ended, listed or unlisted,
regulated or unregulated and may employ leverage (each an
“Investment Fund”)), currencies, commodities, futures, options,
warrants, swaps and other derivative instruments. Derivative
instruments may be exchange traded or OTC. BHMS may engage in short
sales. BHMS may retain amounts in cash or cash equivalents
(including money market funds) pending reinvestment, for use as
collateral or if this is considered appropriate to the investment
objective.
Subject to the investment restrictions and investment approach
disclosed in any prospectus for BHMS that may be published from
time to time and subsequent BHMS Directors’ resolutions, BHMS
employs an investment process which empowers the Manager to
allocate assets to both Investment Funds and directly to the
investment managers of BHMS from time to time on an opportunistic
basis.
At the date of these Financial Statements, there were two other
feeder funds in operation in addition to the Company that invest
all of their assets (net of working capital) in BHMS.
Off-balance sheet, market and credit risks of BHMS’s investments
and activities are discussed in the notes to the Annual Audited
Financial Statements of BHMS. The Company’s investment in BHMS
exposes it to various types of risk, which are associated with the
financial instruments and markets in which the Brevan Howard funds
invest. Market risk represents the potential loss in value of
financial instruments caused by movements in market factors
including, but not limited to, market liquidity, investor sentiment
and foreign exchange rates.
The Manager
Brevan Howard Capital Management LP (the “Manager”) is the
manager of the Company. The Manager is a Jersey limited
partnership, the sole general partner of which is Brevan Howard
Capital Management Limited, a Jersey limited company (the “General
Partner”). The General Partner is regulated in the conduct of fund
services business by the Jersey Financial Services Commission
pursuant to the Financial Services (Jersey) Law, 1998 and the
Orders made thereunder and is the Alternative Investment Fund
Manager (“AIFM”) of the Company for the purposes of the European
Union Alternative Investment Fund Manager Directive (“AIFMD”).
The Manager also manages BHMS.
3. Significant Accounting Policies
The Annual Audited Financial Statements, which give a true and
fair view, are prepared in conformity with United States Generally
Accepted Accounting Principles and comply with the Companies
(Guernsey) Law, 2008. The functional and reporting currency of the
Company is US Dollars.
The Company is an Investment Company which has applied the
provisions of Accounting Standards Codification (“ASC”) 946.
Going concern
After making enquiries and given the nature of the Company and
its investment, the Directors are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing these
Financial Statements and, after due consideration, the Directors
consider that the Company is able to continue for the foreseeable
future and at least twelve months from the date of this report.
In addition, a circular was issued to shareholders on
12 March 2021. The circular had a
proposal to increase the management fee together with the
opportunity of shareholders to have a return of capital of up to
40% of the number of shares in each class (excluding Treasury
shares). The result of this resolution was a vote of 65.56% in
favour of the proposal. Therefore there will be a tender offer to
shareholders in the near future. The maximum amount of the tender
will be 40% and therefore the Company will continue to be a going
concern and is expected to be managed by Brevan Howard.
In reaching this conclusion the Board is mindful of the nature
and liquidity of the assets that underlie its investment in BHMS,
the terms under which it may redeem its investment in BHMS and
utilise the borrowing facilities available to it and has concluded
that moderate adverse investment performance would not have a
material impact on the Company’s ability to meet its liabilities as
they fall due.
There remains continued uncertainty about the development and
scale of the COVID-19 outbreak, however the board does not consider
COVID-19 to have an impact on going concern as unlike many
companies performance and net asset value has increased during the
COVID-19 pandemic.
The following are significant accounting policies adopted by the
Company:
Valuation of investments
The Company records its investment in the Class G shares of BHMS
as the Company’s proportionate share of BHMS’s net assets which
approximates fair value. The net asset value of BHMS is used as a
measure of fair value as this is the price at which the Company may
redeem its investment.
Fair value measurement
ASC Topic 820 defines fair value as the price that the Company
would receive upon selling a security in an orderly transaction to
an independent buyer in the principal or most advantageous market
of the security.
The valuation and classification of securities held by BHMS is
discussed in the notes to its Financial Statements which are
available on the Company’s website, www.bhglobal.com.
Income and expenses
The Company records monthly its proportionate share of BHMS’s
income, expenses and realised and unrealised gains and losses. In
addition, the Company accrues its own income and expenses.
Use of estimates
The preparation of Financial Statements in conformity with
United States Generally Accepted Accounting Principles requires the
Board to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of those Financial Statements
and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could
differ from those estimates.
Foreign exchange
Transactions reported in the Audited Statement of Operations are
translated into US Dollar amounts at the date of such transactions.
Assets and liabilities denominated in foreign currencies are
translated into US Dollars at the exchange rate at reporting date.
The share capital and other capital reserves are translated at the
historic ruling at the date of the transaction.
Investment securities and other assets and liabilities of the
Sterling share class are translated into US Dollars, the Company’s
reporting currency, using exchange rates at the reporting date. The
Statement of Operations items of the sterling share class are
converted into US Dollar using the average exchange rate. Exchange
differences arising on translation are included in the Audited
Statement of Operations. This foreign exchange adjustment has no
effect on the value of net assets allocated to the individual share
classes.
Cash and bank balances
Cash and bank balances comprise cash on hand and demand
deposits.
Treasury shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from equity Shareholders’ funds
through the Share capital account. When such shares are
subsequently sold or reissued to the market, any consideration
received, net of any directly attributable incremental transaction
costs, is recognised as an increase in equity Shareholders’ funds
through the Share capital account. Where the Company cancels
treasury shares, no further adjustment is required to the share
capital account of the Company at the time of cancellation. Shares
held in Treasury (see note 5) are excluded from calculations when
determining NAV per share as detailed in note 7 and in the
Financial Highlights in note 10.
Allocation of results of BHMS
Net realised and unrealised gains/losses of BHMS are allocated
to the Company’s share classes based upon the percentage ownership
of the equivalent BHMS class.
Loan notes payable
Loans are classified in the Audited Statement of Assets and
Liabilities as loan notes payable and are accounted for at
amortised cost using the effective interest method.
Under a Note Purchase Agreement (note 9), the Company is obliged
to pay back the total outstanding amount and any relevant fees and
expenses, reimbursements and indemnities by the stated maturity
date, unless the note is previously terminated. Interest shall
accrue daily on each note at the applicable rate. The Company’s
obligations under the Agreement are secured by charges over a
portion of its shares in BHMS. The purpose of the Note Purchase
Agreement is to permit the Company to draw funds to finance the
acquisition of the Company’s own shares and for other working
capital purposes.
4. Management, Performance, and
Administration Agreements
Management fee
The Company has entered into a Management Agreement with the
Manager to manage the Company’s investment portfolio.
With effect from 3 October 2016,
the Manager does not charge the Company a management fee in respect
of any increase in the NAV of each class of shares of the Company.
The management fee is calculated on the basis of the lower of the
NAV of the relevant share class and the Base NAV, as defined in the
Amended and Restated Management Agreement dated 4 July 2017, of that share class (adjusted for
certain changes in shares in issue).
With effect from 1 April 2017, the
management fee was reduced from 2% to 1% per annum. On 12 March 2021 a circular was issued regarding
increased management fees. On 25 March
2021, the shareholders voted in favour of this increase.
Therefore, from 1 July 2021 the
management fee will increase from 1% to 2% per annum. The increased
rate will be applied to the NAV of the relevant share class,
removing the previous consideration of the Base NAV.
The Company may repurchase or redeem shares of either class in
each calendar year, including pursuant to the class closure and
annual partial capital return provisions contained in the Company’s
articles of incorporation (the “Articles”), in respect of the 2020
calendar year and all subsequent years, up to an aggregate number
equal to 5% of the shares of that class in issue as at 31 December
in the prior calendar year (the “Annual Buy Back Allowance”)
without making any payment to the Manager.
In the event that, in any calendar year, the aggregate number of
shares repurchased or redeemed by the Company exceeds the Annual
Buy Back Allowance for that class, the Company will be required to
pay the Manager an amount equal to 2% of the repurchase price of
any share that is repurchased or redeemed by the Company in excess
of the Annual Buy Back Allowance, including pursuant to the class
closure and annual partial capital return provisions contained in
the Articles.
The Board has agreed with the Manager that if, on the last
business day in March, June, September or December of any year, the
net asset value of the Company were to be below US$300 million (on the basis of the prevailing US
Dollar/Sterling exchange rate), the Board would convene a general
meeting of the Company’s shareholders at which a special resolution
proposing the liquidation of the Company would be put forward. Were
the resolution to be passed, the Company would be liquidated and an
amount equal to 2% of the Company’s net asset value (subject to a
deduction in respect of any amount of the Annual Buy Back Allowance
for the relevant calendar year that remains unused) would be paid
to the Manager in addition to any other fees due to the Manager up
to the date of termination of the Management Agreement.
In respect of 2020, the Annual Buy Back Allowance for the
Company’s Sterling share class was 993,413 Sterling shares (2019:
990,378 Sterling shares) and for the US Dollar share class was
133,242 US Dollar shares (2019:
137,035 US Dollar shares).
During the year ended 31 December
2020, the Company did not repurchase any Sterling shares
(31 December 2019: nil Sterling
shares), or US Dollar shares (31 December 2019: nil US Dollar
shares).
During the year ended 31 December
2020, the Company issued 240,000 Sterling shares from
Treasury (31 December 2019: nil
Sterling shares), and no US Dollar shares were issued during the
year ended 31 December 2020
(31 December 2019: nil US Dollar
shares).
During the year ended 31 December
2020, there was no charge (2019: US$nil) by the Manager due
to the Annual Buy Back Allowance being exceeded. As at
31 December 2020, the Company had 993,413 Sterling shares and
133,242 US Dollar shares remaining
from the 2020 Annual Buy Back Allowance (31
December 2019: 990,378 Sterling shares and 137,035 US Dollar shares).
There are no fees charged by the Manager at the level of BHMS on
the G Class into which the Company is invested. There are also no
fees charged by the Manager in relation to BHMS’s investment into
underlying funds managed by the Manager.
In respect of the year ended 31 December
2020, the Manager charged the Company a total of
US$4,539,417 (31 December 2019: US$4,430,767) as a management fee under the terms
of the Management Agreement. At 31 December
2020, US$801,150 (31 December 2019: US$774,931) of the fee remained outstanding.
Performance fee
The Manager is entitled to an annual performance fee for each
share class accrued monthly in arrears. The performance fee is
equal to 20% of the appreciation in the NAV per share (adjusted for
any increases or decreases in NAV arising from issues (including
the sale or re-issue of Shares held in treasury), repurchases or
redemptions of Shares and calculated before deduction of the
performance fee in respect of the relevant period) which is above
the performance fee Base NAV per share of that class multiplied by
the number of shares of such class at the end of the relevant
period.
The performance fee Base NAV per share is the greater of (a) the
NAV per share of the relevant class as at 31 December 2016 and
(b) the highest NAV per share of the relevant class of shares
achieved as at the final BHMS NAV calculation date as at the end of
any calculation period after the calculation period ending on
31 December 2016.
The Manager is not entitled to any performance fee in respect of
any increase in NAV (whether in respect of a class of shares as a
whole or on a per share basis) arising to the remaining shares of
the relevant class from any repurchase, redemption or cancellation
of any share, provided that any performance fee due to the Manager
shall not be reduced below zero.
Any accrued performance fee in respect of shares which are
converted into another share class prior to the date on which the
performance fee would otherwise have become payable in respect of
those Shares will crystallise and become payable on the date of
such conversion. The performance fee is accrued on an on-going
basis and is reflected in the Company’s published NAV.
On the business day preceding the last business day of each
period in respect of which a performance fee is payable, the
Company shall pay an estimated performance fee to the Manager in
respect of that period. The estimated fee shall be the performance
fee payable to the Manager in respect of that period as estimated
by the Company’s administrator on the basis of the estimated NAV of
each class of Shares as at the close of business on the second
Friday of December in each year. The difference between the
estimated fee paid in respect of any period and the actual
performance fee payable in respect of that period shall be paid to
the Manager within 5 business days of the publication of the final
NAV of each class of Shares as at the end of the period, provided
that if the difference is a negative amount then it shall be repaid
by the Manager to the Company at such time.
During the year ended 31 December
2020, US$24,873,153
(31 December 2019: US$5,313,517) was charged as performance fees and
US$26,156,387 (31 December 2019: US$5,477,699) remained payable at year end. The
total performance fee charged during the year includes fees
crystallised upon conversion of shares at points when the NAV per
share of the shares exceeded their performance fee Base NAV per
share (being £16.11 (Sterling shares) and US$16.48 (US Dollar shares)).
Of the total crystallised performance fee charged for the year,
US$205,032 (31
December 2019: US$32,174)
related to share conversions and US$nil (31
December 2019: US$nil) related to the buyback of shares.
In establishing the parameters for the execution of buybacks,
account is taken of the impact of any performance fees that would
become payable so as to ensure that such buy backs are still
accretive to net asset value.
The Management Agreement can be terminated by either the Company
or the Manager on the giving of 12 months’ written notice to the
other party, or alternatively the Company may terminate the
Management Agreement on 90 days’ notice by payment to the Manager
of an amount equal to the aggregate of the Management Fee during
such twelve month period. The Company may terminate the Management
Agreement forthwith by notice in the event of specified acts of
default by the Manager without payment of compensation.
Were the Management Agreement to be terminated by the Company
before 30 June 2021, the management
fee would revert to 2% of the prevailing net asset value in respect
of the notice period, or in respect of any payment in lieu of
notice.
Administration fee
The Company has appointed Northern Trust International Fund
Administration Services (Guernsey) Limited as Administrator and
Corporate Secretary. The Administrator is paid fees based on the
NAV of the Company, payable monthly in arrears. The fee is at a
rate of 0.03% of the first US$1
billion of net assets of the Company and then 0.01% per
annum thereafter, subject to a minimum fee of £115,000 per annum.
In addition to the NAV based fee the Administrator is also entitled
to an annual fee of £6,000 (2019: £6,000) for certain additional
administration services. The Administrator is entitled to be
reimbursed out-of-pocket expenses incurred in the course of
carrying out its duties as Administrator.
During the year ended 31 December
2020, US$171,423 (31 December 2019: US$154,816) was earned by the Administrator as
administration fees. At 31 December
2020, US$31,587 (31 December 2019: US$80,429) of the fee remained outstanding.
5. Share Capital
Issued and authorised share
capital
The Company's Articles permit the issuance of an unlimited
number of ordinary shares with no par value which may be divided
into at least two classes denominated in US Dollars and Sterling.
The treasury shares have arisen as a result of the discount
management programme as described in note 8.
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
| Number
of ordinary shares |
|
|
|
|
|
|
| In
issue at 1 January 2020 |
|
2,664,844 |
|
19,868,275 |
|
|
| Share conversions |
|
|
(40,628) |
|
34,146 |
|
|
| Sale of
own shares from Treasury |
- |
|
240,000 |
|
|
| In
issue at 31 December 2020 |
|
2,624,216 |
|
20,142,421 |
|
|
| Number
of treasury shares |
|
|
|
|
|
|
| In
issue at 1 January 2020 |
|
267,443 |
|
1,667,180 |
|
|
| Shares
sold and released from Treasury during the year: |
|
|
|
|
|
| - On market
sales |
|
|
- |
|
(240,000) |
|
|
| In
issue at 31 December 2020 |
|
267,443 |
|
1,427,180 |
|
|
| Total
shares in issue |
|
2,891,659 |
|
21,569,601 |
|
|
|
Percentage of class held as Treasury Shares |
9.25% |
|
6.62% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Total |
| Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
| At 1 January
2020 |
|
|
- |
|
165,544 |
|
374,988 |
| Share conversions |
|
|
(768) |
|
632 |
|
- |
| Sale of own shares
from Treasury |
|
|
- |
|
4,697 |
|
6,419 |
| Transfer
from realised investment reserve |
768 |
|
- |
|
768 |
| At 31
December 2020 |
|
- |
|
170,873 |
|
382,175 |
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
| Number
of ordinary shares |
|
|
|
|
|
|
| In
issue at 1 January 2019 |
|
2,740,700 |
|
19,807,562 |
|
|
| Share conversions |
|
|
(75,856) |
|
60,713 |
|
|
| In
issue at 31 December 2019 |
|
2,664,844 |
|
19,868,275 |
|
|
|
|
|
|
|
|
|
|
| Number
of treasury shares |
|
|
|
|
|
|
| In
issue at 1 January 2019 |
|
267,443 |
|
1,667,180 |
|
|
| In
issue at 31 December 2019 |
|
267,443 |
|
1,667,180 |
|
|
| Total
shares in issue |
|
2,932,287 |
|
21,535,455 |
|
|
|
Percentage of class held as Treasury Shares |
9.12% |
|
7.74% |
|
|
|
|
|
|
|
|
Company Total |
| Share
capital account |
|
US$'000 |
|
£'000 |
|
US$'000 |
| At 1 January
2019 |
|
|
- |
|
164,596 |
|
373,793 |
| Share conversions |
|
|
(1,195) |
|
948 |
|
- |
| Transfer from realised
investment reserve |
|
|
1,195 |
|
- |
|
1,195 |
| At 31
December 2019 |
|
- |
|
165,544 |
|
374,988 |
Share classes
In respect of each class of shares a separate class account has
been established in the books of the Company. An amount equal to
the aggregate proceeds of issue of each share class has been
credited to the relevant class account. Any increase or decrease in
the NAVs of each of the share classes in the Master Fund as
calculated by BHMS are allocated to the relevant class account in
the Company. Each class account is allocated those costs, pre-paid
expenses, losses, dividends, profits, gains and income which the
Directors determine in their sole discretion relate to a particular
class.
Voting rights
Ordinary shares carry the right to vote at general meetings of
the Company and to receive any dividends, attributable to the
ordinary shares as a class, declared by the Company and, in a
winding-up will be entitled to receive, by way of capital, any
surplus assets of the Company attributable to the ordinary shares
as a class in proportion to their holdings remaining after
settlement of any outstanding liabilities of the Company.
As prescribed in the Company’s Articles, the different classes
of ordinary shares have different values attributable to their
votes. The attributed values have been calculated on the basis of
the Weighted Voting Calculation (as described in the Articles)
which takes into account the prevailing exchange rates on the date
of initial issue of ordinary shares. Currently, on a vote, a single
US Dollar ordinary share has one vote and a single Sterling
ordinary share has 1.97950 votes.
Treasury shares do not have any voting rights.
Repurchase of ordinary shares
The Directors have been granted authority to purchase in the
market up to 401,205 US Dollar
shares, and 2,976,784 Sterling shares respectively and they intend
to seek annual renewal of this authority from shareholders which
was last granted at the 2020 Annual General Meeting on 26 June 2020. The Directors may, at their
discretion, utilise this share repurchase authority to address any
imbalance between the supply of and demand for shares.
Under the Company’s Articles, the Directors are required to
convene a shareholders’ meeting to consider the redemption of a
class of shares in certain circumstances. See note 8 for further
details.
Further issue of shares
As approved by the shareholders at the Annual General Meeting
held on 26 June 2020 (the “AGM”), the
Directors have the power to issue further shares on a
non-pre-emptive basis for cash in respect of 267,648 US Dollar shares, and 1,985,847 Sterling
shares respectively.
This power expires on the date falling fifteen months after the
date of the AGM or the conclusion of the next Annual General
Meeting of the Company, whichever is the earlier.
Distributions
BHMS has not previously paid dividends to its investors.
Therefore, the Directors of the Company do not expect to declare
any dividends. This does not prevent the Directors of the Company
from declaring a dividend at any time in the future if the
Directors consider payment of a dividend to be appropriate in the
circumstances. If the Directors declare a dividend, such dividend
will be paid on a per class basis.
The Company operates in such a manner that its shares are not
categorised as non-mainstream pooled investments. This may mean
that the Company pays dividends in respect of any income that it
receives or is deemed to receive for UK tax purposes so that it
would qualify as an investment trust if it were UK
tax-resident.
However, the Company will first apply any such income in payment
of its management and performance fees.
Treasury shares are not entitled to distributions.
Annual redemption offer
Each calendar year the Directors may, in their absolute
discretion, determine that the Company should make an offer to
redeem such number of shares of the Company in issue as they may
determine provided that the maximum amount distributed does not
exceed 100% of the increase in the NAV of the Company in the prior
calendar year.
The Directors shall, in their absolute discretion, determine the
particular class or classes of shares in respect of which an Annual
Redemption Offer will be made, the timetable for that Annual
Redemption Offer and the price at which the shares of each relevant
class will be redeemed.
Whether a return of capital is made in any particular year and,
if so, the amount of the return may depend, among other things, on
prevailing market conditions, the ability of the Company to
liquidate its investments to fund the capital return, the success
of prior capital returns and applicable legal, regulatory and tax
considerations.
On 11 January 2021, the Directors
announced that they have determined, in view that the shares were
trading at a premium to NAV, that no such capital return will be
made with respect to the investment returns achieved in 2020.
Share conversion scheme
The Company has implemented a Share conversion scheme which
provides shareholders with the ability to convert some or all of
their ordinary shares in the Company of one class into ordinary
shares of the other class on the last business day of every month.
Each conversion will be based on the NAV (note 7) of the share
classes to be converted.
6. Taxation
Overview
The Company is exempt from taxation in Guernsey under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance 1989. Accordingly, no
provision for Guernsey income taxes is included in these Financial
Statements.
Uncertain tax positions
The Company recognises the tax benefits of uncertain tax
positions only where the position is more-likely-than-not (i.e.
greater than 50-percent) to be sustained assuming examination by a
tax authority based on the technical merits of the position. In
evaluating whether a tax position has met the recognition
threshold, the Company must presume that the position will be
examined by the appropriate taxing authority that has full
knowledge of all relevant information. A tax position that meets
the more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognise in the Company’s
Financial Statements. Income tax and related interest and penalties
would be recognised by the Company as a tax expense in the Audited
Statement of Operations if the tax positions were deemed to not
meet the more-likely-than-not threshold.
The Company analyses all open tax years for all major tax
jurisdictions. Open tax years are those that are open for
examination by taxing authorities, as defined by the Statute of
Limitations in each jurisdiction.
The Company identifies its major tax jurisdictions as Guernsey,
the Cayman Islands and foreign
jurisdictions where the Company makes significant investments. The
Company has no examinations by tax authorities in progress.
The Board received advice in respect of the Company’s tax
positions, and is advised that no liability for unrecognised tax
benefits should be recorded related to uncertain tax positions.
Further, the Board is not aware of any tax positions for which it
is reasonably possible that the total amounts of unrecognised tax
benefits will significantly change in the next twelve months.
7. Publication and Calculation of Net
Asset Value
The NAV of the Company is equal to the value of its total assets
less its total liabilities. The NAV per share of each class will be
calculated by dividing the NAV of the relevant share class by the
number of shares of the relevant class in issue on that day.
The Company publishes the NAV per share for each class of shares
as calculated by the Administrator based in part on information
provided by BHMS, monthly in arrears, as at each month end.
The Company also publishes an estimate of the NAV per share for
each class of shares as calculated by the Administrator based in
part on information provided by BHMS, weekly in arrears.
8. Discount Management Programme
The Company’s discount management programme includes the ability
to make market purchases of shares and the obligation to propose
class closure resolutions if, in any fixed discount management
period (1 January to 31 December each year), the average daily
closing market price of the relevant class of shares during such
period is 10% or more below the average NAV per share of the
relevant class taken over the 12 monthly NAV Determination Dates
(generally the last business day of each month) in that fixed
discount management period, as described more fully in the
Company’s principal documents, which are available from the
Administrator on request.
In the event a class closure resolution is passed, Shareholders
in a class have the following options available to them:
a) to redeem all or some of their shares at NAV per
share less the costs and expenses of the Class Closure vote and
other outstanding costs and expenses of the Company, attributable
to the relevant class (including any redemption fees);
b) subject to certain limitations, to convert all or
some of their shares into shares of another class; or
c) subject to the class continuing and remaining
viable, to remain in the class.
The Annual Redemption Offer described in note 5 which enables a
partial return of capital is also part of the discount management
programme.
The discount management measures are and will be funded by
partial redemptions of the Company’s investment in BHMS.
During the year to 31 December
2020, the Company recorded an average discount to NAV of
1.73% and 3.69% for US Dollar shares and Sterling shares
respectively (year to 31 December
2019: 2.82% and 3.74% for US Dollar shares, and Sterling
shares respectively).
9. Note Purchase Agreement
The Company is party to a Note Purchase Agreement with JP Morgan
Chase Bank, pursuant to which the Company may obtain financing, of
up to US$2 million (31 December 2019: US$2
million) and £15 million (31 December
2019: £15 million), if required, to finance (inter alia)
share buybacks pending receipt of the proceeds of redemption from
its underlying investments. As at 31
December 2020 and 31 December
2019, there were no amounts outstanding under the Note
Purchase Agreement, neither was any interest payable.
10. Financial Highlights
The following tables include selected data for a single ordinary
share of each of the ordinary share classes in issue at the year
end and other performance information derived from the Financial
Statements.
The per share amounts and ratios which are shown reflect the
income and expenses of the Company for each class of ordinary
share.
|
|
|
|
|
01.01.20 |
|
01.01.20 |
|
|
|
|
|
to
31.12.20 |
|
to
31.12.20 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
| Per
share operating performance |
|
|
|
|
|
| Net
asset value at beginning of the year |
|
|
16.48 |
|
16.11 |
|
|
|
|
|
|
|
|
| Income
from investment operations |
|
|
|
|
|
| Net investment loss1 (excluding net realised and
unrealised gains and losses on investments allocated from
BHMS) |
|
|
|
|
|
(1.22) |
|
(1.13) |
| Net
realised and unrealised gain on investment |
|
|
4.96 |
|
4.59 |
| Other capital
items2 |
|
|
|
|
(0.04) |
|
0.04 |
| Total
return |
|
|
|
|
3.70 |
|
3.50 |
| Net
asset value, end of the year |
|
|
|
20.18 |
|
19.61 |
|
|
|
|
|
|
|
|
| Total
return before performance fees |
|
|
28.09% |
|
27.17% |
| Performance fees |
|
|
|
|
(5.64%) |
|
(5.41%) |
| Total
return after performance fees |
|
|
22.45% |
|
21.76% |
Total return reflects the net return for an investment made at
the beginning of the year and is calculated as the change in the
NAV per ordinary share during the year ended 31 December 2020. An individual shareholder’s
return may vary from these returns based on their timing of
purchases and sales of Shares.
|
|
|
|
|
01.01.20 |
|
01.01.20 |
|
|
|
|
|
to
31.12.20 |
|
to
31.12.20 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
| Supplemental
data |
|
|
|
|
|
|
|
| Net
asset value, end of the year |
|
|
|
52,964 |
|
395,034 |
| Average
net asset value for the year |
|
|
48,957 |
|
365,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01.01.20 |
|
01.01.20 |
|
|
|
|
|
to
31.12.20 |
|
to
31.12.20 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
| Ratio
to average net assets |
|
|
|
|
|
|
| Operating
expense |
|
|
|
|
|
|
|
| Company
expenses3 |
|
|
|
1.05% |
|
1.10% |
| Master
Fund expenses4 |
|
|
|
0.43% |
|
0.43% |
| Performance
fees |
|
|
|
|
4.96% |
|
4.74% |
| Total
operating expense |
|
|
|
6.44% |
|
6.27% |
|
|
|
|
|
|
|
|
| Net
investment loss1 |
|
|
|
(6.40%) |
|
(6.10%) |
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
31.12.19 |
|
to
31.12.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$ |
|
£ |
| Per
share operating performance |
|
|
|
|
|
| Net
asset value at beginning of the year |
|
|
15.51 |
|
15.37 |
|
|
|
|
|
|
|
|
| Income
from investment operations |
|
|
|
|
|
| Net investment loss1 (excluding net realised and
unrealised gains and losses on investments allocated from
BHMS) |
|
|
|
|
|
(0.45) |
|
(0.41) |
| Net
realised and unrealised gain on investment |
|
|
1.43 |
|
1.15 |
| Other capital
items2 |
|
|
|
|
(0.01) |
|
- |
| Total
return |
|
|
|
|
0.97 |
|
0.74 |
| Net
asset value, end of the year |
|
|
|
16.48 |
|
16.11 |
|
|
|
|
|
|
|
|
| Total
return before performance fees |
|
|
7.81% |
|
5.99% |
| Performance fees |
|
|
|
|
(1.56%) |
|
(1.20%) |
| Total
return after performance fees |
|
|
6.25% |
|
4.79% |
Total return reflects the net return for an investment made at
the beginning of the year and is calculated as the change in the
NAV per ordinary share during the year ended 31 December 2019. An individual shareholder’s
return may vary from these returns based on the timing of their
purchases and sales of Shares.
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
31.12.19 |
|
to
31.12.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
|
|
|
|
|
US$'000 |
|
£'000 |
| Supplemental
data |
|
|
|
|
|
|
|
| Net
asset value, end of the year |
|
|
|
43,923 |
|
320,013 |
| Average
net asset value for the year |
|
|
43,014 |
|
314,928 |
|
|
|
|
|
01.01.19 |
|
01.01.19 |
|
|
|
|
|
to
31.12.19 |
|
to
31.12.19 |
|
|
|
|
|
US
Dollar shares |
|
Sterling shares |
| Ratio
to average net assets |
|
|
|
|
|
|
| Operating
expense |
|
|
|
|
|
|
|
| Company
expenses3 |
|
|
|
1.21% |
|
1.25% |
| Master
Fund expenses4 |
|
|
|
0.45% |
|
0.45% |
| Performance fees |
|
|
|
|
1.50% |
|
1.16% |
|
|
|
|
|
3.16% |
|
2.86% |
|
|
|
|
|
|
|
|
| Net
investment loss1 |
|
|
|
(2.84%) |
|
(2.60%) |
1
The net investment loss figure shown above does not include net
realised and unrealised gains and losses on investments allocated
from BHMS.
2
Included in other capital items are the discounts and premiums on
conversions between share classes during the year, share buybacks
and partial capital returns, as compared to the NAV per share at
the beginning of the year.
3
Company expenses are as disclosed in the Audited Statement of
Operations, excluding performance fees and foreign exchange gains
and losses on aggregation.
4
Master Fund expenses are the allocated operating expenses of
BHMS.
11. 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 that party in making financial or operational
decisions.
The payments to and receipts from the Master Fund are disclosed
in the Audited Statement of Cash Flows.
Management and performance fees are disclosed in note 4.
Directors’ Fees
The Company’s Articles limit the fees payable to Directors in
aggregate to £500,000 per annum.
With effect from 1 January 2021,
Senior Independent Director has rotated from Graham Harrison to Julia
Chapman. Graham Harrison's
fee was reduced to £42,600 and Julia
Chapman's fee was increased to £48,600.
The fees payable by the Company in respect of each of the
Directors who served during the year, and during 2019, were as
follows:
|
01.01.20
to 31.12.20
£ |
01.01.19
to 31.12.19
£ |
| Sir Michael
Bunbury |
150,000 |
150,000 |
| Julia Chapman |
45,600 |
41,574 |
| Sally-Ann Farnon |
53,000 |
50,000 |
| Graham Harrison |
45,600 |
43,000 |
| Nicholas
Moss1 |
- |
20,292 |
| Andreas
Tautscher2 |
42,400 |
26,666 |
| Total |
336,600 |
331,532 |
1 Nicholas Moss
retired from the Board on 21 June
2019.
2 Andreas Tautscher
was appointed to the Board on 1 May
2019.
Directors’ Interests
The current Directors had the following interests in the
Company, held either directly or beneficially:
|
31.12.2020 |
31.12.2019 |
|
US
Dollar |
Sterling |
US
Dollar |
Sterling |
|
Shares |
Shares |
Shares |
Shares |
| Sir Michael
Bunbury1 |
– |
14,200 |
– |
11,000 |
| Julia Chapman |
– |
1,081 |
– |
1,081 |
| Sally-Ann Farnon |
– |
1,700 |
– |
1,700 |
| Graham Harrison |
– |
1,500 |
– |
1,500 |
| Andreas
Tautscher2 |
– |
600 |
– |
– |
1 Sir Michael Bunbury
acquired an additional 3,200 shares on 26
March 2020.
2 Andreas Tautscher
acquired 600 shares on 31 March
2020.
12. Foreign Exchange
The following foreign exchange rates were used to translate the
Sterling share class into US Dollars, being the Company’s reporting
currency.
|
2020 |
2019 |
| Year end rate |
1.3672 |
1.3244 |
| Average rate for the
year |
1.2932 |
1.2794 |
13. Significant Events During the
Financial Year
Coronavirus (COVID-19)
The Board has been monitoring the development of the COVID-19
outbreak and has considered the impact it has had to date on the
Company, and will continue to have on the future of the Company.
There remains continued uncertainty about the development and scale
of the COVID-19 outbreak, however the Board does not consider
COVID-19 to have an impact on going concern. Consideration of going
concern is unlike many companies as performance and net asset value
has increased during the COVID-19 pandemic. From an operational
perspective, the Company uses a number of service providers. These
providers have established, documented and regularly tested
Business Resiliency Policies in place, to cover various possible
scenarios whereby staff cannot attend work at the designated office
and conduct business as usual. Since the COVID-19 pandemic
outbreak, service providers have deployed these alternative working
policies to ensure continued business service and the Company has
not encountered any problems.
14. Subsequent Events
On 12 March 2021 a circular was
issued regarding increased management fees and a tender offer up to
a maximum of 40% of the Company’s net asset value. On 25 March 2021 the shareholders voted in favour of
this. From 1 July 2021 the management
fee will increase from 1% to 2% per annum. The increased rate will
be applied to the NAV of the relevant share class, removing the
previous consideration of the Base NAV.
Throughout January 2021,
301,070 GBP shares and 35,000 USD shares were sold from treasury raising
£6.0 million and $0.7 million
respectively.
The Directors have evaluated subsequent events up to
29 March 2021, which is the date that
the Audited Financial Statements were available to be issued, and
have concluded there are no further items that require disclosure
or adjustment to the Audited Financial Statements.
HISTORICAL PERFORMANCE SUMMARY
As at 31 December 2020
|
|
|
|
31.12.2020 |
|
31.12.19 |
|
31.12.18 |
|
31.12.17 |
|
|
|
|
(Audited) |
|
(Audited) |
|
(Audited) |
|
(Audited) |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
| Net
increase in net assets |
|
|
|
|
|
|
|
|
|
resulting from operations |
|
118,865 |
|
37,403 |
|
2,187 |
|
41,032 |
| Total
assets |
|
|
620,121 |
|
474,202 |
|
436,335 |
|
443,707 |
| Total
liabilities |
|
|
(27,087) |
|
(6,452) |
|
(5,988) |
|
(1,416) |
| Net
assets |
|
|
593,034 |
|
467,750 |
|
430,347 |
|
442,291 |
|
|
|
|
|
|
|
|
|
|
|
| Number
of shares in issue |
|
|
|
|
|
|
|
|
| US Dollar
shares |
|
|
2,624,216 |
|
2,664,844 |
|
2,740,700 |
|
3,004,442 |
| Sterling
shares |
|
|
20,142,421 |
|
19,868,275 |
|
19,807,562 |
|
20,346,871 |
|
|
|
|
|
|
|
|
|
|
|
| Net
asset value per share |
|
|
|
|
|
|
|
|
| US Dollar
shares |
|
|
US$20.18 |
|
US$16.48 |
|
US$15.51 |
|
US$14.56 |
| Sterling shares |
|
|
|
£19.61 |
|
£16.11 |
|
£15.37 |
|
£14.58 |
AFFIRMATION OF THE COMMODITY POOL
OPERATOR
31 December 2020
To the best of my knowledge and belief, the information detailed
in this Annual Report and these Audited Financial Statements are
accurate and complete:
Name: Jonathan Hughes
Title: Chief Financial Officer and Authorised Signatory
Brevan Howard Capital Management Limited as general partner of
Brevan Howard Capital Management LP, the manager and commodity pool
operator of BH Global Limited
29 March 2021
GLOSSARY OF TERMS AND ALTERNATIVE
PERFORMANCE MEASURES
ALTERNATIVE PERFORMANCE MEASURES
(“APMs”)
This Annual Report and Audited Financial Statements and other
communications to investors contain certain financial performance
measures, Alternative Performance Measures (“APMs”), which are not
defined by United States Generally Accepted Accounting Principles
(“US GAAP”) and The Companies (Guernsey) Law, 2008, that are used
by the Board and management to assess, evaluate and report on
financial and operational performance of the Company.
These non-US GAAP financial performance measures provide useful
information regarding the Company’s financial and operating
performance and such measures may not be easily comparable to
similar measures presented by other companies.
Discounts to NAV
In the Chairman’s Statement references are made to Discount
range, Discount at year end and average discounts as a measure of
performance under heading “Discount, Share Issuance and Size of the
Company”. These discounts are calculated based on the following
formulas for each:
Discount range
The discount referred to where stating the range of discount to
premium is calculated for each share class for any London Stock
Exchange trading day by using the following formula:
A – B
B
Where:
- A : is the closing market price
of a share of the share class as derived from the trading price on
the London Stock Exchange on such London Stock Exchange trading
day; and
- B : is the most recent
estimated Net Asset Value per share of the share class available on
such London Stock Exchange trading day.
Average Premium/Discount to NAV
The average premium/discount to NAV of the whole year is
calculated for each share class by using the following formula:
A – B
B
Where:
- A : is the average closing
market price of a share of the share class as derived from the
trading price on the London Stock Exchange, calculated as the sum
of all the closing market prices per share of that class as at each
London Stock Exchange trading day during a calendar year, divided
by the number of such trading days in such period; and
- B : is the average Net Asset
Value per share of the shares of the share class taken over the 12
NAV Calculation Dates in a calendar year calculated as the sum of
the final Net Asset Value of the share class as at each NAV
Calculation Date during a calendar year, divided by 12.
Year-end Premium/Discount to NAV
The year-end premium/discount to NAV is calculated for each
share class by using the following formula:
A – B
B
Where:
- A : is the 2020 year end
closing market price of a share of the share class as derived from
the trading price on the London Stock Exchange on 31 December 2020; and
- B : is the final Net Asset
Value per share of the share class as at 31
December 2020.
Ongoing charges
The ongoing charges represent the Company’s management fee and
all other operating expenses, excluding finance costs, performance
fees, share issue or buyback costs and non-recurring legal and
professional fees unless otherwise disclosed, expressed as a
percentage of the average of the daily net assets during the year.
The ongoing charges are disclosed in note 10, Financial Highlights
and are expressed as a percentage of the Monthly NAVs during the
year.
Quarterly and annual contribution (%)
to the performance of BHG USD Shares (net of fees and expenses) by
asset class
Quarterly and
annual contribution by asset class:
Attribution by asset class accumulates the returns in BHMS at an
instrument level into each defined asset class. The discount
management category refers to any returns from share buyback
activity in BHG.
Quarterly and
annual contribution by strategy:
Strategy Group Attribution is approximate and has been derived
by allocating each underlying trader book to a single category. In
cases where a trader book has activity in more than one category,
the most relevant category has been selected.
MANAGEMENT AND ADMINISTRATION
Directors
Sir Michael Bunbury
(Chairman)
Julia Chapman (Senior Independent
Director from 1 January 2021)
Sally-Ann (“Susie”) Farnon
Graham Harrison (Senior
Independent Director until 31 December
2020)
Andreas Tautscher
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Manager
Brevan Howard Capital Management LP
6th Floor
37 Esplanade
St Helier
Jersey
JE2 3QA
Administrator and Corporate
Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
Registrar and CREST Service
Provider
Computershare Investor Services
1st Floor
Tudor House
Le Bordage
Guernsey
GY1 1DB
Legal Advisors (Guernsey Law)
Carey Olsen
Carey House
Les Banques
St. Peter Port
Guernsey
GY1 4BZ
Legal Advisors (UK Law)
Hogan Lovells International LLP
Atlantic House
Holborn Viaduct
London EC1A 2FG
Stephenson Harwood LLP (appointed 26
January 2021)
1 Finsbury Circus
London
EC2M 7SH
Corporate Brokers
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London
E14 5JP
Investec Bank Plc
30 Gresham Street
London
EC2V 7QP
For the latest information
www.bhglobal.com