TIDMCQS TIDMCQSU
RNS Number : 3921H
CQS Diversified Fund Limited
16 May 2014
CQS Diversified Fund Limited
Interim Report and Unaudited Condensed Interim Financial
Statements
For the period from 1 October 2013 to 31 March 2014
Financial Highlights
-- Net Asset Value at 31 March 2014 was GBP93.3m, an increase
from GBP90.6m at 30 September 2013.
-- Net Asset Value per share rose during the period from
GBP1.1114 to GBP1.1478 and from USD1.1063 to USD1.1406 for the
Pound Sterling and US Dollar Shares respectively.
-- Net Asset Value growth per share was 3.27% for the Pound
Sterling Shares and 3.10% for the US Dollar Shares for the
period.
-- Share price discount to Net Asset Value at 31 March 2014 was
4.77% and 3.96% for the Pound Sterling and US Dollar Shares
respectively (30 September 2013: 9.35% and 7.80% respectively).
-- Earnings per share for the period was GBP0.0351 and USD0.0095
for the Pound Sterling and US Dollar Shares respectively, which
compares to GBP0.0479 and USD0.1021 for the prior period to 31
March 2013.
-- A continuation vote, for both share classes, was held on 4
March 2014. The Sterling class Shareholders voted in favour of the
continuation resolution while the US Dollar Shareholders voted
against the continuation resolution. On 15 April 2014 the Directors
put forward proposals to enable the Qualifying US Dollar
Shareholders (Qualifying Shareholders being those who were on the
Register as at 5.00 p.m on 4 March 2014) to redeem their US Dollar
Shareholdings (the "Redemption Offer"). 98.1% of Qualifying
Shareholders elected to take up the redemption offer and will
redeem on 1 September 2014 with a valuation determined by the Net
Asset Value on 29 August 2014. Given that more than 75% of the US
Dollar Shareholders elected to redeem, the class closure conditions
have been met and the US Dollar class will be closed.
-- In accordance with the Company's dividend policy as announced
in the Shareholders Circular dated 12 February 2014, the Directors
will target paying a quarterly dividend of one pence per Sterling
Ordinary share. The first such dividend of one pence per share was
approved on 16 May 2014 and is payable on 30 July 2014.
-- The Company's advisers are currently exploring opportunities
to grow the Company through new share issuance with the objective
of attaining net assets of at least GBP100 million by 31 January
2015.
Chairman's Statement
For the period from 1 October 2013 to 31 March 2014
Since my last communication in February 2014, I am pleased to
report that the Company has continued to make progress during the
interim period ending 31 March 2014.
During the period, the Company continued to hold substantially
all its assets in CQS Diversified Fund (SPC) Limited, Segregated
Portfolio Alpha ("DVA"), providing shareholders with exposure to
convertibles and credit focused hedge fund strategies managed by
CQS. The Underlying Funds are unchanged, comprising of CQS ABS
Fund, CQS Asia Fund, CQS Credit Long Short Fund, CQS Convertible
and Quantitative Strategies Fund, CQS Directional Opportunities
Fund and CQS European Equity Long Short Fund. There have been some
material changes to the allocation of investment to the Underlying
Funds. Refer to page 7 for an allocation comparison.
At the Company's Class Meetings for the Shares held on 4 March
2014, the Continuation Resolution put to the Shareholders by the
Board for the Sterling class was approved but the US Dollar Share
class resolution was not passed. As a consequence, the Company
published proposals on 15 April 2014 to give US Dollar Shareholders
an opportunity to elect to redeem all or part of their Shareholding
or, alternatively, to remain invested. 98.1% of the US Dollar
Shareholders elected to take up the Redemption Offer and will
redeem on 1 September 2014 with a valuation determined by the Net
Asset Value on 29 August 2014. Given that more than 75% of the US
Dollar Shareholders elected to redeem, the class closure conditions
have been met and the US Dollar class will be closed. Upon the
conclusion to the Conditional Class Closure Conversion Offer due on
21 May 2014 the remaining US Dollar Shareholders will either
convert to the Pound Sterling Share Class or will redeem their
holdings on 1 September 2014.
Investment Performance
During the interim period from October 1, 2013 to March 31,
2014, the published Sterling Share NAV (calculated in accordance
with the Company's Articles of Association) rose from GBP1.1114 to
GBP1.1478, a return of 3.27% for the period. Over the same period,
the US Dollar Share NAV rose from USD1.1063 to USD1.1406, a return
of 3.10% for the period.
The price of a Pound Sterling Share increased from GBP1.0075 to
GBP1.0950 during the period, an appreciation of 8.68%. The price of
a US Dollar Share increased from USD1.02 to USD1.10 during the
period, an appreciation of 7.60%.
The Pound Sterling and US Dollar Shares ended the period at a
discount of 4.77% and 3.96% respectively (30 September 2013: 9.35%
and 7.80% respectively). To the extent that the discount level on
the Company's Shares continues to narrow, and NAV performance
continues to be favourable, the Board and CQS intend to grow the
Company through new share issuance at the earliest opportunity.
Further details in relation to the performance of DVA and the
Underlying Funds are set out in the report by the Investment
Adviser of DVA.
Dividend
In accordance with the Company's dividend policy as announced in
the Shareholders Circular dated 12 February 2014, the Directors
will target paying a quarterly dividend of one pence per Sterling
Ordinary share. The first such dividend of one pence per share was
approved on 16 May 2014 and is payable on 30 July 2014.
Outlook
The Investment Adviser has informed the Board that it believes
the strategies utilised leave the Company well positioned to
benefit from potential market volatility and dispersion while at
the same time providing dispersion of correlation. The key
portfolio themes; capturing positive carry with low duration;
exploiting credit and equity market volatility and dispersion: and
taking advantage of idiosyncratic opportunities should continue to
deliver positive returns to Shareholders.
The Company has announced its first dividend to Shareholders and
I believe that a quarterly dividend payment should increase the
Company's marketability. The Company's advisers are currently
exploring opportunities to grow the Company through new share
issuance with the objective of attaining net assets of at least
GBP100 million by 31 January 2015.
I look forward to reporting to you again in the annual report
and accounts for the year ended 30 September 2014 and would like to
express the Board's thanks to all shareholders for their continued
support.
Rupert Dorey
All data in this statement is sourced from CQS and
Bloomberg.
Investment Policy
For the period from 1 October 2013 to 31 March 2014
The investment objective of CQS Diversified Fund Limited (the
"Company") is to achieve attractive risk-adjusted returns over the
medium to long term by primarily investing in convertible and
credit-related strategies. The Company will seek to achieve its
investment objective by investing substantially all of its assets
in CQS Diversified Fund (SPC) Limited - Segregated Portfolio Alpha
("DVA").
DVA is a fund incorporated in the Cayman Islands with an
investment objective to generate attractive risk adjusted returns
over the medium to long term. DVA seeks to mitigate the risks and
volatility associated with investing in individual strategies by
constructing a portfolio of underlying funds across a range of
strategies (the "DVA Investment Policy"). Investors in the Company
participate indirectly in the investment portfolio of DVA.
DVA is currently invested in CQS Convertible and Quantitative
Strategies Feeder Fund Limited ("CQS Convertible and Quantitative
Strategies Fund"), CQS ABS Feeder Fund Limited ("CQS ABS Fund"),
CQS Directional Opportunities Feeder Fund Limited ("CQS Directional
Opportunities Fund"), CQS Asia Feeder Fund Limited ("CQS Asia
Fund"), CQS Credit Long Short Feeder Fund Limited ("CQS Credit Long
Short Fund") and CQS European Equity Long Short Feeder Fund Limited
("CQS European Long Short Fund") (the "Underlying Funds"), all of
which are managed by CQS Cayman Limited Partnership and primarily
invest in convertible and credit related strategies. The portfolio
of Underlying Funds may in the future exclude any or all of the
above funds and/or include any other investment fund in which DVA
may invest from time to time, whether or not managed by the CQS
group.
The Underlying Funds may employ a variety of investment
strategies and methodologies including, but not limited to:
convertible strategies; fixed income and relative value arbitrage;
credit strategies; specialist credit strategies including asset
backed securities, structured credit and distressed; long/short,
market neutral and quantitative equity strategies; event driven
strategies; risk arbitrage; emerging markets; market neutral;
multi-strategy; macro; and managed futures. Such strategies may be
implemented across local, regional and/or global markets. DVA may
invest in newly or recently launched Underlying Funds as an early
investor.
DVA's investments may be in regulated and unregulated investment
companies, open-ended or closed ended funds, investment trusts and
limited partnerships, which may be domiciled in any country. The
Underlying Funds and the securities in which they invest may be
listed or unlisted, leveraged or unleveraged, rated or unrated and
denominated in any currency. CQS (UK) LLP, the Investment Adviser
to DVA, currently intends to limit DVA's maximum exposure to any
Underlying Fund, at the time of investment, to 40 per cent of DVA's
Net Asset Value.
It is intended by CQS (UK) LLP that cash and cash equivalents
held by DVA for the purpose of payment of the fees and expenses of
DVA and/or for the purpose of facilitating any rebalancing of
investments in the Underlying Funds will equal no more than ten per
cent of DVA's total assets. DVA may, from time to time, hold
additional cash and cash equivalents where DVA considers this
appropriate to manage its liquidity.
DVA is able to reallocate between the Underlying Funds on a
periodic basis which enables CQS (UK) LLP to manage the risk of DVA
itself and exploit investment opportunities. In determining the
desired portfolio of investments from time to time, CQS (UK) LLP
considers factors in relation to each Underlying Fund including,
but not limited to: historic and expected returns, risk-adjusted
returns and return volatilities; expected alpha; liquidity terms;
correlations between strategies and returns for comparative
strategies. Potential risks and returns are qualitative inputs from
the senior investment officer, chief investment officers and senior
portfolio managers of each of the Underlying Funds captured through
a monthly Investment Advisory Committee. Probability adjusted
returns of the Underlying Funds are analysed to estimate and assess
prospective total return. CQS (UK) LLP uses the above inputs
combined with portfolio risk management models and its judgement,
to manage the portfolio allocation decisions for DVA towards
achieving its investment objectives.
Save for the maximum exposures set out above, the investment
policy of DVA does not contain any other constraints on its
exposures to the Underlying Funds.
Strategic Report by the Investment Adviser of CQS Diversified
Fund (SPC) Limited - Segregated Portfolio Alpha
For the period from 1 October 2013 to 31 March 2014
CQS Diversified Fund Limited (the "Company") has invested
substantially all of its assets into CQS Diversified Fund (SPC)
Limited, Segregated Portfolio Alpha (the "DVA Fund"). The following
Investment Adviser's Report covers the period since 1 October 2013
to 31 March 2014 and has been provided by the Investment Adviser at
the invitation of the Directors of the Company. The report is
provided as a source of information for shareholders of the
Company, and is not attributable to the Company.
Report on the DVA Fund by the Investment Adviser
DVA returned 3.14% to the Class B US Dollar Shares, net to
investors, for the six months from 1 October 2013 to 31 March
2014.
DVA is a portfolio of CQS-managed funds and seeks to generate
long-term capital gains while managing the volatility of its
returns through diversified investments. It implements a rigorous
asset allocation process through a dynamically-managed portfolio of
funds with a portfolio construction process based on both
qualitative and quantitative techniques. The DVA Fund benefits from
CQS' risk management and operational infrastructure platforms.
Over the six months to 31 March 2014, DVA continued to seek to
balance risk against reward through the management of allocations
to CQS-managed hedge funds in order to achieve its investment
objective. Allocations to the Underlying Funds on a look through
basis were as follows:
31 March 2014 30 Sept 2013
Fund (%) (%)
-------------------------------- ----------------------------------------- -----------------------------------------
CQS ABS Fund 24.8 22.1
-------------------------------- ----------------------------------------- -----------------------------------------
CQS Asia Fund 6.3 8.2
-------------------------------- ----------------------------------------- -----------------------------------------
CQS Convertible and
Quantitative
Strategies Fund 25.1 25.3
-------------------------------- ----------------------------------------- -----------------------------------------
CQS Credit Long Short Fund 9.9 17.0
-------------------------------- ----------------------------------------- -----------------------------------------
CQS Directional Opportunities
Fund 28.2 25.1
-------------------------------- ----------------------------------------- -----------------------------------------
CQS European Distressed Fund 0.0 0.4
-------------------------------- ----------------------------------------- -----------------------------------------
CQS European Equity Long Short
Fund 5.6 1.8
-------------------------------- ----------------------------------------- -----------------------------------------
Other non financial assets 0.1 0.1
-------------------------------- ----------------------------------------- -----------------------------------------
The benefits of DVA's portfolio diversification and
multi-strategy approach continued to be demonstrated in the six
months ended 31 March 2014. DVA generated returns in line with its
longer-term performance target along with contained volatility and
low correlation to risk assets. There were gains recorded during
the period as five of the Underlying Funds, the CQS ABS Fund, the
CQS Asia Fund, the CQS Convertible and Quantitative Strategies
Fund, the CQS Directional Opportunities Fund, and the CQS European
Equity Long Short Fund advanced. These profits more than offset the
modest losses that were incurred by the CQS Credit Long Short Fund.
The CQS European Distressed Fund closed all of its positions over
the course of August 2013 and a full redemption paid out to DVA in
October 2013.
Across the DVA Fund, the Structured Credit strategy from the CQS
Directional Opportunities Fund (excluding any ABS strategies)
posted the largest contribution to gains on an absolute basis,
benefiting from tightening in credit markets, roll-down and
decreasing correlation. Some losses were incurred on initial
bid/offer spreads arising out of new trades that made were over the
period under review.
The CQS ABS Bond strategies also contributed positively to DVA
returns over the period, with the majority of gains generated in US
residential mortgage backed securities ("RMBS") strategies. In US
ABS markets, the ABX 2006-2 AAA Index (an index of 20 2006 vintage
senior subprime tranches) rose from 72.3 at the start of the period
under review, to close at 78.5. The US RMBS portfolio's returns
included profits from Wrapped, Pay Option ARMs, Subprime, Alt-A,
Second Liens and Agency Credit strategies. Student Loans strategies
also advanced, while gains were only partially offset by modest
losses in hedged financial and monoline credit ex-financial
positions. There were also smaller positive returns from European
RMBS and commercial mortgage backed securities ("CMBS").
Despite enduring periods of volatility in high yield, emerging
markets, currencies and equities, the ABS market performed well
over the period under review and appears to be robust from a
technical perspective. During the period under review, the National
Association of Insurance Commissioners ("NAIC"), the entity which
rates bonds for insurance companies, updated its model, a move
which saw insurance companies continuing to deploy further capital.
Progress has also been made in respect of FGIC and Ambac's monoline
situations, which could prove beneficial in the forthcoming months.
In addition, comfort levels in European investment continued to
increase, particularly in commercial property, both in equity and
debt. At the end of the period, the European Commission ("EC")
released a paper on the Long-Term Financing of the European
Economy. Encouragingly, the EC commented that they will work on the
differentiation of high-quality securitisations, and explore
preferential regulatory treatment.
The ABS market shrank over the period and new investors
continued to be attracted to the asset class, providing further
technical support.
The Fund's exposure to Convertible strategies provided a
positive contribution to performance during the period under
review. In the CQS Convertible and Quantitative Strategies Fund,
gains were led by European convertibles, with similar profits
posted in the North American portfolio. Japanese convertibles
advanced modestly, but the broader Asia portfolio posted losses as
Asia ex-Japan convertibles fell. In the CQS Convertible and
Quantitative Strategies Fund's European portfolio, Nokia was the
stand-out performer, benefiting from the sale of its handset
business to Microsoft prior to the opening of the period under
review. Nokia posted the largest individual contribution to the
Underlying Funds' returns over the period. In addition, February's
new issue of small-cap industrial Maire Tecnimont 5.75% 2019 posted
notable gains. The Convertible team believes the company has an
improving credit profile and no meaningful debt repayments over the
next 14 months. Gains were mitigated by losses in exploration and
development miner Northland Resources.
CQS Convertible and Quantitative Strategies Fund's North
American convertibles posted gains over the period. The issue of
Trulia generated the most significant gains over the period under
review. At the time of its issue in December 2013, the Convertible
team believed it was one of the most attractively priced issues it
had seen in a considerable time. The position subsequently richened
and additionally benefited from a successful investor day which saw
upgraded price targets from several analysts. Profits were
partially offset by losses on index hedges.
Asian convertibles in the CQS Convertible and Quantitative
Strategies Fund fell over the period under review. While the
Japanese sub-portfolio advanced, buoyed by profits from game
developer Square Enix, the broader Asia portfolio struggled against
a backdrop of regional weakness and a dearth of quality new
issuance. Gains in the Japanese portfolio were more than offset by
losses across the region.
Similarly, after relatively robust performance at the start of
the period under review, Convertible strategies in the CQS Asia
Fund also struggled over its remainder given the ongoing issues in
the region. Positive contributions to Fund performance from the CQS
Directional Opportunities Fund's exposure to convertibles were not
significant.
Equity strategies generated gains for DVA over the period, with
the CQS Directional Opportunities Fund's equity sub-strategies
contributing the most. This followed robust performance in the
first half of the period under review from the CQS Directional
Opportunities Fund's long positions in UK mobile telephone
operators and insurers. The exposure to the European
high-conviction equity long/short positions also contributed to
overall positive Fund performance. Performance in February was
strong, boosted by the long book and the Equity Long Short
strategy's selective exposure to countries on the periphery.
However, having posted gains for five consecutive months during the
period under review, profits generated by the Equity Long Short
strategy were moderated by losses in what was a challenging month
of March for equity strategies in general. Equity exposure in the
CQS Asia Fund made modest contributions to DVA in absolute terms,
also posting gains in all but the final month of the period under
review.
Distressed strategies recorded smaller profits, with
contributions to the Fund over the period under review attributable
to CQS Directional Opportunities Fund's distressed portfolio. The
majority of gains were generated in the first half of the period,
most notably from the CQS Directional Opportunities Fund's long
positions in a US-based energy company. Gains were also generated
later in the period by a specialty chemicals company, although
performance in the distressed portfolio was more muted in 2014.
Macro strategies made small positive contributions to DVA with
modest profits from the CQS Directional Opportunities Fund, which
benefited from the long US Dollar positions against the Australian
dollar and Japanese yen towards the end of 2013. Gains from the CQS
Asia Fund's Macro strategies and losses from those of the CQS
Convertible and Quantitative Strategies Fund were marginal.
DVA's volatility strategies posted marginal losses which were
attributable to the CQS Asia Fund.
Vanilla Credit strategies detracted from overall DVA gains in
the period under review, as credit spreads continued to tighten
over the period. The Vanilla Credit sub-portfolio within the CQS
Directional Opportunities Fund, which is positioned as a
short-credit portfolio of liquid CDS and index positions, was the
primary driver of short-credit losses. Negative returns were
broadly attributable to performance in the first half of the
period, with positions in Europe suffering in particular. A brief
period of respite early in 2014 partially reversed some of these
losses, but spreads resumed their tightening into the period end
and short Vanilla Credit strategies continued to suffer. The
pattern was reflected within DVA's exposure to the CQS Credit Long
Short Fund, with January providing the only pause in a series of
monthly losses.
The CQS Credit Long Short Fund's North American High Yield
sub-portfolio posted profits over the period, the bulk of which
came at a time when speculation over the Fed's plans for asset
purchase tapering was gathering momentum. These gains were more
than offset by Investment Grade and High Yield sub-portfolios in
Europe, as well as Investment Grade strategies in the US. As
investor appetite for risk increased over the period, peripheral
and emerging market short positions in the European High Yield
portfolio were particularly detrimental to DVA returns in the first
half of the period under review. The CQS Credit Long Short Fund's
European High Yield portfolio posted the largest losses on an
absolute basis.
Adjustments were made to Fund allocations during the period
under review. In particular, the Fund's allocation to the CQS ABS
Fund, CQS Directional Opportunities Fund and CQS European Equity
Long Short Fund increased, while allocations to the CQS Asia Fund,
the CQS Convertible and Quantitative Strategies Fund and the CQS
Credit Long Short Fund decreased. Overall, the balanced positioning
of the Fund has been maintained.
The Fund's balanced positioning was maintained over the period
under review, with a focus on our key portfolio themes: capturing
positive carry with low duration; exploiting credit and equity
market volatility and dispersion; and taking advantage of
idiosyncratic opportunities, especially as political and regulatory
intervention adds to the opportunity set. The weighting of the
equity long short strategy, which was added to the Fund in July
2013, has been materially added to from 1 January 2014. The
strategy has delivered positive, uncorrelated returns and we
believe that Europe remains a region rich in dispersion and
mispriced assets. We anticipate increased levels of corporate
activity, with a pick-up in both recapitalisations and capital
returns. DVA's exposure to ABS was also increased, driven partly by
the opportunities that the ABS team saw in European CMBS, but also
the apparent strong fundamentals in the market. The CQS Credit Long
Short Fund weighting was reduced to reflect the current moderated
directionality of the CQS Directional Opportunities Fund as we
believe there is less of a need for an anti-correlating strategy.
The CQS Convertible and Quantitative Strategies Fund weighting was
also reduced modestly. We therefore remain confident in the DVA
Fund's ability to deliver positive returns in the coming
months.
All market data sourced from Bloomberg
Report of the Directors
For the period from 1 October 2013 to 31 March 2014
The Directors present their interim report and unaudited
condensed interim financial statements of CQS Diversified Fund
Limited (the "Company") for the period from 1 October 2013 to 31
March 2014.
The Company
The Company is a closed-ended company incorporated in Guernsey
on 27 October 2010. The Company's shares were admitted to the
Official List of the UK Listing Authority with a premium listing on
15 December 2010. On the same day, trading of the Pound Sterling
and US Dollar Ordinary Shares commenced on the London Stock
Exchange.
Principal Activities
The principal activity of the Company is to achieve attractive
risk-adjusted returns over the medium to long term by primarily
investing in convertible and credit related strategies. The Company
seeks to achieve its investment objective by investing
substantially all of its assets in DVA. The investment strategy is
provided in the Strategic Report by the Investment Adviser of CQS
Diversified Fund (SPC) Limited - Segregated Portfolio Alpha.
Results and Dividends
No dividends were paid during the period, however in accordance
with the Company's dividend policy as announced in the Shareholders
Circular dated 12 February 2014, the Directors will target paying a
quarterly dividend of one pence per Sterling Ordinary share. The
first such dividend of one pence per share was approved on 16 May
2014 and is payable on 30 July 2014.
Share Capital
At various dates from 1 October 2013 to 31 March 2014
shareholders owning 9,383,613 Pound Sterling Ordinary Shares
converted them into 15,501,068 US Dollar Ordinary Shares.
A continuation vote, for both share classes, was held on 4 March
2014. The Sterling class Shareholders voted in favour of the
continuation resolution while the US Dollar Shareholders voted
against the continuation resolution. On 15 April 2014 the Directors
put forward proposals to enable the US Dollar Shareholders redeem
their US Dollar Shareholdings (the "Redemption Offer"). 98.1% of US
Dollar Shareholders elected to take up the Redemption Offer and
will redeem on 1 September 2014 with a valuation determined by the
Net Asset Value on 29 August 2014. Given that more than 75% of the
Shareholders elected to redeem, the class closure conditions have
been met and the US Dollar class will be closed. Upon the
conclusion to the Conditional Class Closure Conversion Offer due on
21 May 2014 the remaining US Dollar Shareholders will either
convert to the Pound Sterling Share Class or will redeem their
holdings on 1 September 2014.
Going Concern
On 12 February 2014 the Company issued a circular to investors
stating that in the event that the Company is unable to grow its
Net Asset Value to GBP100m by 31 January 2015 (the "Minimum AUM"),
the Directors intend to put forward proposals to enable the
Shareholders to realise their holdings at, or close to, Net Asset
Value by means of a reconstruction or winding-up of the
Company.
On 16 May 2014, 98.1% of the US Dollar Shareholders have elected
to take up the Redemption Offer proposed by the Directors and will
redeem their shares on 1 September 2014 at a valuation determined
by the Net Asset Value on 29 August 2014. As the assets will be
realised in an orderly manner to meet the Redemption Offer, no
adjustments have been made to their carrying value at the reporting
date.
The Directors have assessed the information currently available
to them regarding the factors which may affect the Company growing
to the Minimum AUM and in summary:
-- the current Net Asset Value of the Company is GBP93.3m and
will reduce to an estimated GBP80.6m following the Redemption Offer
(This is an estimated Net Asset Value based upon valuation of the
US Dollar Class at 31 March 2014. The redemptions will be based
upon the Net Asset Value on 29 August 2014),
-- The Directors are actively reviewing the options available to
the Company to raise additional capital in the second half of 2014,
and
-- the discount on the Pound Sterling Shares has narrowed over
the last 6 months from 6.56% at 30 September 2013 to 4.77% at 31
March 2014 and as at the most recent calculation point of the
discount management provision (6 May 2014) is 4.86% (the US Dollar
Share discount has narrowed from 7.80% at 30 September 2013 to
3.96% at 31 March 2014 and as at the 6 May 2014 is 3.24%).
Notwithstanding the material uncertainty mentioned above the
Directors consider that the Company has adequate financial
resources and believe that the Company is well placed to manage its
business risks successfully and to continue in operational
existence for the foreseeable future.
The Directors are therefore satisfied that it is appropriate to
prepare the unaudited condensed interim financial statements on the
going concern basis.
Directors
All the Directors were appointed initially on 27 October 2010
and act in an independent non-executive capacity. They are listed
on page 3 and their details are provided on page 13. As at 31 March
2014 and the date of the report, the Directors, their close
relatives and related trusts, held the following beneficial
interests in the Company:
31 March 2014 30 September 2013
------------- -------------- -----------------
Rupert Dorey 300,000 shares 300,000 shares
------------- -------------- -----------------
Stephen East 50,000 shares 50,000 shares
------------- -------------- -----------------
Sarah Evans 25,000 shares 25,000 shares
------------- -------------- -----------------
John de Garis 10,000 shares 10,000 shares
------------- -------------- -----------------
Substantial Shareholdings
The Directors have been notified of the following substantial
interests in the Company:
31 March 2014 16 May 2014
------------------------------- ------------------------------------------ -----------------------------------------
Number Number
of Percentage of Percentage
------------------------------- ------------------ ---------------------- ------------------ ---------------------
Shareholder Shares Held Shares Held
------------------------------- ------------------ ---------------------- ------------------ ---------------------
Royal Bank of Canada 23,099,050 25.58 % 23,099,050 25.58 %
------------------------------- ------------------ ---------------------- ------------------ ---------------------
Schroders plc/Cazenove Capital
Management Limited 20,996,610 23.25 % 17,374,392 19.24 %
------------------------------- ------------------ ---------------------- ------------------ ---------------------
BNP Paribas Arbitrage SNC 8,037,938 8.90 % 10,155,759 11.25 %
------------------------------- ------------------ ---------------------- ------------------ ---------------------
Weiss Asset Management LP 4,963,981 5.50 % 9,071,090 10.04 %
------------------------------- ------------------ ---------------------- ------------------ ---------------------
It is the responsibility of shareholders to notify the Company
of any changes to their shareholding when it reaches 5% of shares
in issue and any other notifiable changes thereafter.
Related Party Transactions
Transactions entered into by the Company with related parties
are disclosed in note 5.
Principal Risks and Uncertainties
-- The principal market risk arises from uncertainty about the
future progress of the Company's investments. This is discussed in
note 13.
-- The Board is responsible for the Company's system of internal
controls and for reviewing its effectiveness. The Board also
monitors the investment limits and restrictions as set out in the
Company's Investment Policy.
-- There is the possibility of the Company not achieving the
Minimum AUM by 31 January 2015 which represents a material
uncertainty which casts a significant doubt as to the likelihood of
the Company continuing as a going concern.
Corporate Governance
On 30 September 2011 the Guernsey Financial Services Commission
("GFSC") issued a new Code of Corporate Governance ("GFSC Code")
which came into effect on 1 January 2012. The GFSC Code replaces
the previous GFSC document entitled "Guidance on Corporate
Governance in the Finance Sector". The GFSC Code provides a
framework which applies to all companies which hold a licence from
the GFSC under the regulatory laws or which are registered or
authorised as collective investment schemes. Companies reporting
against the UK Corporate Governance Code 2012 (the "Code") or the
AIC Companies Code of Corporate Governance ("AIC code") are deemed
to comply with the GFSC Code.
The Board has agreed to comply with the AIC code, the Financial
Reporting Council has confirmed compliance with the AIC code is
equivalent to compliance with the Code The AIC Code, as explained
by the AIC Guide, addresses all the principles set out in the Code,
as well as setting out additional principles and recommendations on
issues that are of specific relevance to the Company and will
provide better information to shareholders. The Board recognises
the value of the AIC Code and has taken appropriate measures to
ensure that the Company complies with the AIC Code so far as is
possible, given the Company's size and nature of business.
The Company is required to comply with the UK Financial Conduct
Authority's ("FCA") Listing Rule 9.8.7 which includes a requirement
that the Company "comply or explain" against the Code. The Company
has complied with the AIC Code and therefore the Code throughout
the period under review with the exception of the following areas
of non-compliance:
-- there is no chief executive position; and
-- there is no internal audit function.
As a self-managed investment company with a non-executive board,
the Company has no employees and therefore no requirement for a
chief executive. The Company considers that there is no need to
have an internal audit function as all the Directors are
non-executive and the Company's administration functions have been
delegated to independent third parties. The Audit Committee
evaluates the need for an internal audit function on an annual
basis.
The Directors have determined that the Company will be a self
managed Alternative Investment Manager under the Alternative
Investment Managers Directive ("AIFMD"). Registration is to follow
in due course.
Signed on behalf of the Board of Directors by:
Rupert Dorey Sarah Evans
Chairman Director
Date: 16 May 2014
Board Members
Rupert Dorey* (Chairman) (aged Sarah Evans* (aged 58) is a Chartered
54) has over 30 years of experience Accountant and is a director
in financial markets, specialising of several other listed investment
in credit related products, funds, as well as the Guernsey
including derivative instruments. subsidiary of a global bank and
Mr Dorey's expertise is principally an unlisted fund of hedge funds.
in the areas of debt distribution, Mrs Evans spent over six years
origination and trading, covering with the Barclays Bank plc group
all types of debt from investment from 1994 to 2001. During that
grade to high yield and distressed time she was a treasury director
debt. He was at Credit Suisse and from 1996 to 1998 she was
First Boston ("CSFB") for 17 Finance Director of Barclays
years from 1988 until May 2005. Mercantile, where she was responsible
He held a number of positions for all aspects of financial
at CSFB, including establishing control and operational risk
CSFB's high yield debt distribution management. Prior to joining
business in Europe, fixed income Barclays Mrs Evans ran her own
credit product co-ordinator consultancy business advising
for European offices and head financial institutions on all
of UK Credit and Rates Sales. aspects of securitisation. From
For the past nine years, Mr 1982 to 1988 Mrs Evans was with
Dorey has been acting as a non-executive Kleinwort Benson, latterly as
director to a number of hedge Head of Group Finance. She is
funds, infrastructure funds a member of the Institute of
and private equity funds. Mr Directors and is resident in
Dorey is a member of the Institute Guernsey.
of Directors and is a resident
of Guernsey. He is President
of the Guernsey Chamber of Commerce.
------------------------------------------ ----------------------------------------
Stephen East (aged 56) was formerly John de Garis (aged 48) joined
Finance Director of Woolworths Edmond de Rothschild in September
Group plc from 2005 to 2008, 2008 as Chief Investment Officer,
prior to which he was Finance based in Guernsey. This appointment
Director of MEPC plc. He has followed a tenure at Credit Suisse
also held non-executive directorships Asset Management in London, where
at Star Energy Group plc and since 2001 he was Head of European
Regus Group plc. Earlier in and Sterling Fixed Income, since
his career, he worked at Redland 2004, as a Managing Director.
plc where he held a variety Mr de Garis completed a Higher
of positions including Group Diploma in Business and Finance
Treasurer, having joined the at Richmond College before starting
business from Binder Hamlyn his City career at Provident
where he qualified as a Chartered Mutual in 1987. He later joined
Accountant. Mr East is currently MAP Fund Managers where he gained
the senior independent director experience managing passive equity
of Local Shopping REIT plc and funds, MAP was subsequently bought
a non-executive director of by Credit Suisse. Mr de Garis
Marwyn Management Partners plc is a Director of Edmond de Rothschild
Genesis Housing Association Asset Management (CI) Limited,
Limited and Snoozebox Holdings a member of the Chartered Institute
plc. He is also a member and for Securities and Investment
former President of the Association and is resident in Guernsey.
of Corporate Treasurers. Mr
East is the senior independent
director of the Company and
is resident in the UK.
------------------------------------------ ----------------------------------------
All four Directors have served as directors of the Company since
its launch on 15 December 2010.
*Rupert Dorey and Sarah Evans share common board directorships
on HarbourVest Senior Loans Europe Ltd and Celadon Fund PCC
Ltd.
The Company's website contains a list of other listed companies
of which the Directors are board members.
Statement of Directors' Responsibilities
For the period from 1 October 2013 to 31 March 2014
The Directors confirm that to the best of their knowledge:
-- these unaudited condensed interim financial statements have
been prepared in accordance with International Accounting Standards
(IAS) 34 Interim Financial Reporting and give a true and fair view
of the assets, liabilities, financial position and profit; and
-- the Chairman's Statement, the Strategic Report by the
Investment Adviser of CQS Diversified Fund (SPC) Limited -
Segregated Portfolio Alpha and the Report of the Directors provide
a fair review of the information required by:
(a) DTR 4.2.7 of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
part of the current financial year and their impact on these
unaudited condensed interim financial statements; and a description
of the principal risks and uncertainties for the remaining six
months of the year; and
(b) DTR 4.2.8 of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first part
of the current financial year and that have materially affected the
financial position or performance of the Company during that
period.
Signed on behalf of the Board of Directors by:
Rupert Dorey Sarah Evans
Chairman Director
Date: 16 May 2014
Unaudited Interim Statement of Financial Position
as at 31 March 2014
(expressed in Pound Sterling)
31 March 2014 closing USD exchange
rate used: 1.66635 (30 September
2013: 1.61880) 31 March 2014 30 September 2013 (audited)
------------------------------------- ---------------------------------------------------------------------------- --------------------------------------------------------------------
Note GBP USD GBP USD
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Class Class Total Class Class Total
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Assets
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Current assets
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Cash and cash equivalents 110,541 75,081 185,622 24,561 51,473 76,034
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Other assets and prepaid
expenses 7,229 1,423 8,652 31,346 1,722 33,068
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Non-current assets
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Financial assets at fair value
through profit or loss 3 77,874,878 15,271,967 93,146,845 85,870,556 4,667,872 90,538,428
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Total Assets 77,992,648 15,348,471 93,341,119 85,926,463 4,721,067 90,647,530
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Current Liabilities
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Payables and accrued expenses 8 (55,186) (10,860) (66,046) (31,198) (1,714) (32,912)
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Total Liabilities (55,186) (10,860) (66,046) (31,198) (1,714) (32,912)
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Total Net Assets 77,937,462 15,337,611 93,275,073 85,895,265 4,719,353 90,614,618
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Equity
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Other reserves 12 66,199,071 14,973,385 81,172,456 76,745,598 4,426,858 81,172,456
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Retained earnings 11,738,391 364,226 12,102,617 9,149,667 292,495 9,442,162
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Total Shareholders' funds 77,937,462 15,337,611 93,275,073 85,895,265 4,719,353 90,614,618
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Ordinary Shares in issue 11 67,902,492 22,406,466 - 77,286,105 6,905,398
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
Net Asset Value per Ordinary
Share GBP1.1478 USD1.1406 GBP1.1114 USD1.1063
------------------------------- ---- --------------------- --------------------- ------ ---------------------- --------------------- --------------------- ----------------------
These unaudited condensed interim financial statements were
approved by the Board of Directors on 16 May 2014.
Signed on behalf of the Board of Directors by:
Rupert Dorey Sarah Evans
Chairman Director
Date: 16 May 2014
Unaudited Interim Statement of Comprehensive Income
For the period from 1 October 2013 to 31 March 2014
(expressed in Pound Sterling)
31 March 2014 average USD exchange
rate used: 1.63703 (31 March 2013: From 1 October 2013 to 31 March From 1 October 2012 to 31 March
1.58007) 2014 2013
------------------------------------ -------------------------------------------------------------------- --- --------------------------------------------------------------------
Note GBP USD GBP USD
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Class Class Total Class Class Total
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Income
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Net gain on financial assets at
fair value through profit or
loss 3 2,788,825 97,239 2,886,064 3,907,341 524,594 4,431,935
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Net foreign exchange
(loss)/gain
on other assets and
liabilities (7,653) (1,227) (8,880) (2,324) 1,912 (412)
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Interest income 22 3 25 50 2 52
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Total Income 2,781,194 96,015 2,877,209 3,905,067 526,508 4,431,575
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Expenses
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Directors' fees 5 59,874 7,626 67,500 63,960 3,540 67,500
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Administration fees 7 31,933 4,067 36,000 34,113 1,887 36,000
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Audit and assurance fees 12,714 1,619 14,333 11,692 642 12,334
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Professional fees 9 65,752 8,123 73,875 93,363 5,206 98,569
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Other expenses 22,197 2,849 25,046 24,335 1,354 25,689
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Total Expenses 192,470 24,284 216,754 227,463 12,629 240,092
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Net income for the period 2,588,724 71,731 2,660,455 3,677,604 513,879 4,191,483
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Total comprehensive income for
the period 2,588,724 71,731 2,660,455 3,677,604 513,879 4,191,483
------------------------------- ---- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Earnings per share for the period
-------------------------------------- ------------------------- ----------------- ------------------------- -----------------
Basic and diluted In Pound Sterling 10 GBP0.0351 GBP0.0057 GBP0.0479 GBP0.0672
-------------------------------------- ------------------------- ----------------- ------------------------- -----------------
In US
Dollars 10 - USD0.0095 - USD0.1021
-------------------------------------- ------------------------- ----------------- ------------------------- -----------------
All items in the above statement are derived from continuing
operations.
Unaudited Interim Statement of Changes in Shareholders'
Equity
For the period from 1 October 2013 to 31 March 2014
(expressed in Pound Sterling)
31 March 2014 closing USD exchange
rate used: 1.66635 (31 March 2013:
1.51895)
--------------------------------------- --------------------- --------------------- ----------------------
From 1 October 2013 to 31 March 2014 GBP USD
--------------------------------------- --------------------- --------------------- ----------------------
Class Class Total
--------------------------------------- --------------------- --------------------- ----------------------
Total Shareholders' funds at beginning
of period 85,895,265 4,719,353 90,614,618
--------------------------------------- --------------------- --------------------- ----------------------
Conversion of shares (10,546,527) 10,546,527 -
--------------------------------------- --------------------- --------------------- ----------------------
Net comprehensive income for the
period 2,588,724 71,731 2,660,455
--------------------------------------- --------------------- --------------------- ----------------------
Total Shareholders' funds at end
of period 77,937,462 15,337,611 93,275,073
--------------------------------------- --------------------- --------------------- ----------------------
From 1 October 2012 to 31 March 2013 GBP USD
--------------------------------------- --------------------- --------------------- ----------------------
Class Class Total
--------------------------------------- --------------------- --------------------- ----------------------
Total Shareholders' funds at beginning
of period 77,322,496 7,575,595 84,898,091
--------------------------------------- --------------------- --------------------- ----------------------
Conversion of shares 3,264,853 (3,264,853) -
--------------------------------------- --------------------- --------------------- ----------------------
Net comprehensive income for the
period 3,677,604 513,879 4,191,483
--------------------------------------- --------------------- --------------------- ----------------------
Total Shareholders' funds at end
of period 84,264,953 4,824,621 89,089,574
--------------------------------------- --------------------- --------------------- ----------------------
Unaudited Interim Statement of Cash Flows
For the period from 1 October 2013 to 31 March 2014
(expressed in Pound Sterling)
USD exchange rates used are
relative
to the date of the respective From 1 October 2013 to 31 March From 1 October 2012 to 31 March
cashflow 2014 2013
------------------------------- --------------------------------------------------------------------- --- ----------------------------------------------------------------------
GBP USD GBP USD
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Class Class Total Class Class Total
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Cash flows from operating
activities
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Total comprehensive income for
the period 2,588,724 71,731 2,660,455 3,677,604 513,879 4,191,483
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Adjustment to reconcile total
comprehensive income for the
period
to net cash provided by
operating
activities:
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Movement in financial
assets
at fair value through
profit or
loss (2,550,849) (57,568) (2,608,417) (3,661,690) (466,742) (4,128,432)
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Movement in other assets
and
prepaid expenses 24,117 299 24,416 26,515 3,186 29,701
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Movement in other payables
and
accrued expenses 23,988 9,146 33,134 (15,874) (2,696) (18,570)
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Net cash provided by operating
activities 85,980 23,608 109,588 26,555 47,627 74,182
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Net increase in cash and cash
equivalents 85,980 23,608 109,588 26,555 47,627 74,182
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Cash and cash equivalents at
start
of period 24,561 51,473 76,034 20,240 8,497 28,737
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Cash and cash equivalents at end
of period 110,541 75,081 185,622 46,795 56,124 102,919
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Supplemental disclosure of cash
flow information
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Cash flows from operating
activities
include:
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Interest received during the
period 22 3 25 50 2 52
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Supplemental disclosure of non
cash flow information
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Non cash exchange of financial
assets at fair value through
profit
and loss 10,546,527 (10,546,527) - (3,264,853) 3,264,853 -
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Non cash exchange of US Dollar
Shares for Pound Sterling
Shares - - - 4,055,247 (4,055,247) -
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Non cash exchange of Pound
Sterling
Shares for US Dollar Shares (10,546,527) 10,546,527 - (790,394) 790,394 -
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
- - - - - -
-------------------------------- --------------------- --------------------- ---------------------- --- --------------------- --------------------- ----------------------
Notes to the Unaudited Condensed Interim Financial
Statements
For the period from 1 October 2013 to 31 March 2014
1. General information
CQS Diversified Fund Limited (the "Company"), is a self-managed
closed-ended investment company incorporated and domiciled in
Guernsey with an unlimited life under registered number 52551. The
Company was incorporated on 27 October 2010 and is a registered
closed-ended investment scheme pursuant to the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended, and The
Registered Collective Investment Scheme Rules 2008 issued by the
Guernsey Financial Services Commission.
The investment objective of the Company is to achieve attractive
risk-adjusted returns over the medium to long term by primarily
investing in convertible and credit-related strategies. The Company
seeks to achieve its investment objective by investing
substantially all of its assets in CQS Diversified Fund (SPC)
Limited - Segregated Portfolio Alpha ("DVA").
DVA is a segregated portfolio company incorporated in the Cayman
Islands with an investment objective to generate attractive risk
adjusted returns over the medium to long term. DVA seeks to
mitigate the risks and volatility associated with investing in
individual strategies by constructing a portfolio of Underlying
Funds across a range of strategies (the "DVA Investment Policy").
Investors in the Company participate indirectly in the investment
portfolio of DVA.
The Pound Sterling Shares and US Dollar Shares are listed on the
official list of the UK Listing Authority and traded on the Main
Market of the London Stock Exchange.
The Company has no employees and is administrated by Citco Fund
Services (Guernsey) Limited.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these unaudited condensed interim financial statements (the
"financial statements") are set out below. These policies have been
consistently applied unless otherwise stated.
(a) Basis of preparation
These financial statements for the six months ended 31 March
2014 have been prepared in accordance with IAS 34, "Interim
Financial Reporting". These financial statements do not include all
the information and disclosure required in the annual financial
statements and should be read in conjunction with the audited
financial statements of the Company for the year ended 30 September
2013, which have been prepared in accordance with International
Financial Reporting Standards ("IFRS").
The audited financial statements of the Company for the year
ended 30 September 2013 are available upon request from the
Company's registered office at 3rd Floor, NatWest House, LeTruchot,
St Peter Port, Guernsey GY1 1WD and are also available from the
Company's website.
The comparative information is for the six months to 31 March
2013.
The financial statements have been prepared on a historic cost
basis except for financial assets, which are designated at fair
value through profit or loss.
New standards, interpretations and amendments adopted by the
Company
-- IFRS 13 Fair Value Measurement
IFRS 13 established a single source of guidance under IFRS for
all fair value measurements. IFRS 13 does not change when an entity
is required to use fair value, but rather provides guidance on how
to measure fair value under IFRS when fair value is required or
permitted. The application of IFRS 13 has not materially impacted
the fair value measurements carried out by the Company.
The following standards, interpretations and amendments are
effective for the period from 1 October 2013 with no impact on the
Company's financial statements.
-- IFRS 10 Consolidated financial statements
-- IFRS 12 Disclosures of interest in other entities
-- IAS 27 Separate Financial Statements (as revised in 2011)
-- IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)
(b) Going concern
On 12 February 2014 the Company issued a circular to investors
that in the event that the Company is unable to grow its Net Asset
Value to GBP100m by 31 January 2015 (the "Minimum AUM"), the
Directors intend to put forward proposals to enable the
Shareholders to realise their holdings at, or close to, Net Asset
Value by means of a reconstruction or winding-up of the
Company.
On 16 May 2014, 98.1% of the US Dollar Shareholders have elected
to take up the Redemption Offer proposed by the Directors and will
redeem their shares on 1 September 2014 at a valuation determined
by the Net Asset Value on 29 August 2014. As the assets will be
realised in an orderly manner to meet the Redemption Offer, no
adjustments have been made to their carrying value at the reporting
date.
The possibility of the Company not achieving the Minimum AUM by
31 January 2015 represents a material uncertainty which may cast a
significant doubt as to the likelihood of the Company continuing as
a going concern. The Directors have assessed the information
currently available to them regarding the factors which may affect
the Company growing to the Minimum AUM and in summary:
1. the current Net Asset Value of the Company is GBP93.3m and
will reduce to an estimated GBP80.6m following the Redemption Offer
(This is an estimated Net Asset Value based upon valuation of the
US Dollar Class at 31 March 2014. The redemptions will be based
upon the Net Asset Value on 29 August 2014),
2. the Directors are actively reviewing the options available to
the Company to raise additional capital in the second half of 2014,
and
3. the discount on the Pound Sterling Shares has narrowed over
the last 6 months from 6.56% at 30 September 2013 to 4.77% at 31
March 2014 and as at the most recent calculation point of the
discount management provision (6 May 2014) is 4.86% (the US Dollar
Share discount has narrowed from 7.80% at 30 September 2013 to
3.96% at 31 March 2014 and as at the 6 May 2014 is 3.26%).
Notwithstanding the material uncertainty mentioned above the
Directors consider that the Company has adequate financial
resources and believe that the Company is well placed to manage its
business risks successfully and to continue in operational
existence for the foreseeable future.
The Directors are therefore satisfied that it is appropriate to
prepare the financial statements on the going concern basis.
(c) Foreign currency translation
(i) Functional and presentation currency
The financial statements are prepared in Pound Sterling ("GBP").
The functional currency of the Company is also considered to be GBP
because that is the primary economic environment in which the
Company has raised the majority of its capital.
The following exchange rates were used:
30 September
31 March 2014 2013 31 March 2013
--------------------- ------------- ------------ -------------
US Dollar versus GBP 1.66635 1.61880 1.51895
--------------------- ------------- ------------ -------------
(d) Operating segments
The Directors are of the opinion that as the Company is solely
engaged in investing in DVA, therefore the Company is reported as
one operating segment.
3. Financial assets at fair value through profit or loss
31 March 2014
(expressed in Pound Sterling)
GBP USD Total
---------------------------------- ------------------------ ------------------------ -------------------------
Financial assets at fair value
through profit or loss Class Class GBP
---------------------------------- ------------------------ ------------------------ -------------------------
Investment in unlisted investment
funds 77,874,878 15,271,967 93,146,845
---------------------------------- ------------------------ ------------------------ -------------------------
Financial assets at fair value
through profit or loss 77,874,878 15,271,967 93,146,845
---------------------------------- ------------------------ ------------------------ -------------------------
30 September 2013
(expressed in Pound Sterling)
GBP USD Total
---------------------------------- ------------------------ ------------------------ -------------------------
Financial assets at fair value
through profit or loss Class Class GBP
---------------------------------- ------------------------ ------------------------ -------------------------
Investment in unlisted investment
funds 85,870,556 4,667,872 90,538,428
---------------------------------- ------------------------ ------------------------ -------------------------
Financial assets at fair value
through profit or loss 85,870,556 4,667,872 90,538,428
---------------------------------- ------------------------ ------------------------ -------------------------
31 March 2014
(expressed in Pound Sterling)
Gain on financial assets at
fair value through GBP USD Total
------------------------------- ------------------------ ------------------------ -------------------------
profit or loss Class Class GBP
------------------------------- ------------------------ ------------------------ -------------------------
Realised gain 1,452,449 94,982 1,547,431
------------------------------- ------------------------ ------------------------ -------------------------
Unrealised gain 1,336,376 2,257 1,338,633
------------------------------- ------------------------ ------------------------ -------------------------
Total gain on financial assets 2,788,825 97,239 2,866,064
------------------------------- ------------------------ ------------------------ -------------------------
31 March 2013
(expressed in Pound Sterling)
Gain on financial assets at
fair value through GBP USD Total
------------------------------- ------------------------ ------------------------ -------------------------
profit or loss Class Class GBP
------------------------------- ------------------------ ------------------------ -------------------------
Realised gain 92,247 165,168 257,415
------------------------------- ------------------------ ------------------------ -------------------------
Unrealised gain 3,815,094 359,426 4,174,520
------------------------------- ------------------------ ------------------------ -------------------------
Total gain on financial assets 3,907,341 524,594 4,431,935
------------------------------- ------------------------ ------------------------ -------------------------
Fair value measurement
The Company is required to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurement) and the
lowest priority to unobservable inputs (Level 3 measurements). The
fair value hierarchy has the following levels:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
-- Level 2 - Valuation techniques (for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable).
-- Level 3 - Valuation techniques (for which the lowest level
input that is significant to the fair value measurement is
unobservable).
The Company generally uses the NAV of each Underlying Fund
reported by the Underlying Fund administrators as the primary
inputs to its valuation; however adjustments to the reported NAV
may be made based on various factors, including, but not limited
to, the attributes of the interest held, including the rights and
obligations, and any restrictions or illiquidity on such interests,
and the fair value of the Underlying Fund's investment portfolio or
other assets and liabilities. As at 31 March 2014 no such
adjustments were made (30 September 2013: none).
The level in the fair value hierarchy within which the fair
value measurement is categorised is based on the lowest level input
that is significant to the fair value measurement. However, the
determination of what constitutes "observable" requires significant
judgement by the Company. The Company considers observable data to
be that market data which is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by multiple, independent sources that are actively
involved in the relevant market.
The categorisation of a fund within the hierarchy is based upon
the pricing transparency of that fund and does not necessarily
correspond to the risks or underlying levels of that fund.
The Company's investments have been classified as Level 2 due to
the pricing transparency and the monthly dealing frequency of DVA.
The Company generally does not hold any investments that could be
classified as Level 1, as quoted prices are typically not
available.
There were no transfers between levels during the period (30
September 2013: none).
4. Fair value
In addition to the financial assets held at fair value (refer to
note 3), the carrying amounts of assets and liabilities are equal
to their fair values.
5. Related parties
A party is considered to be related if that party has the
ability to control the Company or exercise significant influence
over the Company.
The Company considers the Board of Directors of the Company and
the Investment Manager and the Investment Adviser to DVA to be
related parties.
Investment Manager and Investment Adviser to DVA
CQS Cayman Limited Partnership (the "Investment Manager")
receives a management fee from DVA and the Underlying Funds and a
performance fee from the Underlying Funds.
CQS (UK) LLP (the "Investment Adviser") acts as adviser to DVA
and the Underlying Funds. Any fees of the Investment Adviser are
payable by the Investment Manager.
Michael Hintze is chief investment officer of the Investment
Adviser, and is also a partner of the Investment Manager.
Directors
The Company pays each Director fees plus specified expenses for
attending board meetings. The Chairman is entitled to a fee of
GBP40,000 per annum. Sarah Evans, as chairman of the Audit
Committee is entitled to a fee of GBP35,000 per annum. All other
Directors receive GBP30,000 per annum. Directors' fees for the
period amounted to GBP67,500 (31 March 2013: GBP67,500), of which
GBP33,750 was outstanding at the period end (30 September 2013:
none).
Transactions
DVA uses the same Investment Adviser and Investment Manager as
the Underlying Funds. The investment objective of the Underlying
Funds is to achieve attractive risk adjusted returns over the
medium to long term, and they comprise the underlying portfolio
holding of the Company's investment in DVA, as detailed in the
Strategic Report by the Investment Adviser of CQS Diversified Fund
(SPC) Limited - Segregated Portfolio Alpha.
6. Management and performance fees
The Underlying Funds bear management and performance fees at
varying rates, ranging from 1% to 2% per annum and 10% to 20%
respectively. The Company is not charged a management fee or a
performance fee either directly or on its holding in DVA.
7. Fund Administrator
The Company entered into an administrative services agreement
with Citco Fund Services (Guernsey) Limited (the "Administrator")
on 10 November 2010. The Company pays the Administrator an agreed
monthly administration fee subject to the minimum amount. The
Administrator is also reimbursed by the Company for any reasonable
out-of-pocket expenses necessarily incurred in the performance of
its duties. The Administrator's fee is paid monthly in arrears.
During the period the Administrator was paid GBP36,000 (31 March
2013: GBP36,000), of which GBP6,000 (30 September 2013: GBP6,000)
was payable at period end.
The Underlying Funds also pay administration fees to their
respective administrators at varying rates.
8. Payables and accrued expenses
Payables and accrued expenses as at 31 March 2014 are as
follows:
GBP USD Total
---------------------------- ------------------------ ------------------------ -------------------------
Class Class GBP
---------------------------- ------------------------ ------------------------ -------------------------
Administration fee 5,013 987 6,000
---------------------------- ------------------------ ------------------------ -------------------------
Audit fee 11,965 2,355 14,320
---------------------------- ------------------------ ------------------------ -------------------------
Directors' fees 28,200 5,550 33,750
---------------------------- ------------------------ ------------------------ -------------------------
Professional and other fees 10,008 1,968 11,976
---------------------------- ------------------------ ------------------------ -------------------------
55,186 10,860 66,046
---------------------------- ------------------------ ------------------------ -------------------------
Payables and accrued expenses as at 30 September 2013 were as
follows:
GBP USD Total
---------------------------- ------------------------ ------------------------ -------------------------
Class Class GBP
---------------------------- ------------------------ ------------------------ -------------------------
Administration fee 5,688 312 6,000
---------------------------- ------------------------ ------------------------ -------------------------
Audit fee 20,842 1,145 21,987
---------------------------- ------------------------ ------------------------ -------------------------
Professional and other fees 4,668 257 4,925
---------------------------- ------------------------ ------------------------ -------------------------
31,198 1,714 32,912
---------------------------- ------------------------ ------------------------ -------------------------
9. Professional fees
Professional fees for the period to 31 March 2014 are as
follows:
GBP USD Total
-------------------------------- ------------------------ ------------------------ -------------------------
Class Class GBP
-------------------------------- ------------------------ ------------------------ -------------------------
Legal fees re continuation vote 2,661 339 3,000
-------------------------------- ------------------------ ------------------------ -------------------------
Broking fees 39,142 4,734 43,876
-------------------------------- ------------------------ ------------------------ -------------------------
Other professional fees 23,949 3,050 26,999
-------------------------------- ------------------------ ------------------------ -------------------------
Total 65,752 8,123 73,875
-------------------------------- ------------------------ ------------------------ -------------------------
Professional fees for the period to 31 March 2013 are as
follows:
GBP USD Total
-------------------------------- ------------------------ ------------------------ -------------------------
Class Class GBP
-------------------------------- ------------------------ ------------------------ -------------------------
Legal fees re continuation vote 23,432 1,357 24,789
-------------------------------- ------------------------ ------------------------ -------------------------
Broking fees 44,955 2,490 47,445
-------------------------------- ------------------------ ------------------------ -------------------------
Other professional fees 24,976 1,359 26,335
-------------------------------- ------------------------ ------------------------ -------------------------
Total 93,363 5,206 98,569
-------------------------------- ------------------------ ------------------------ -------------------------
10. Earnings per share
Basic and diluted earnings per share are calculated by dividing
the income for the period by the weighted average number of
ordinary shares outstanding during the period.
Income per share for the period from 1 October 2013 to 31 March
2014 is as follows:
GBP USD
------------------------------------------- ---------------------------- ------------------------
Class Class
------------------------------------------- ---------------------------- ------------------------
Income for the period GBP2,588,724 USD71,731
------------------------------------------- ---------------------------- ------------------------
Weighted average number of shares in issue 73,805,231 12,632,861
------------------------------------------- ---------------------------- ------------------------
Basic and diluted earnings per share in
Pound Sterling GBP0.0351 GBP0.0057
------------------------------------------- ---------------------------- ------------------------
Basic and diluted earnings per share in
US Dollar - USD0.0095
------------------------------------------- ---------------------------- ------------------------
Income per share for the period from 1 October 2012 to 31 March
2013 is as follows:
GBP USD
------------------------------------------- ---------------------------- ------------------------
Class Class
------------------------------------------- ---------------------------- ------------------------
Net income for the period GBP3,677,604 USD513,879
------------------------------------------- ---------------------------- ------------------------
Weighted average number of shares in issue 76,795,024 7,645,069
------------------------------------------- ---------------------------- ------------------------
Basic and diluted earnings per share in
Pound Sterling GBP0.0479 GBP0.0672
------------------------------------------- ---------------------------- ------------------------
Basic and diluted earnings per share in
US Dollar - USD0.1021
------------------------------------------- ---------------------------- ------------------------
11. Share capital
The authorised share capital of the Company is 1,000,000,000,000
Ordinary Shares and 1,000,000,000,000 C Shares. The Ordinary Shares
are voting shares of no par value. The C Shares are limited voting
convertible shares of no par value. The C Shares do not carry any
right to attend or vote at any general meeting of the Company. The
Company has not issued any C Shares to date.
The rights attaching to the Ordinary Shares are as follows:
(a) the holders of existing Ordinary Shares shall confer the
right to all other dividends in accordance with the Articles of
Association of the Company.
(b) ordinary shareholders present in person or by proxy or
(being a corporation) present by a duly authorised representative
at a general meeting has, on a show of hands, one vote and, on a
poll, one vote for every share held. C shares have no voting rights
other than in very limited circumstances.
(c) the capital and surplus assets of the Company remaining
after payment of all creditors and attributable to ordinary
shareholders shall, on winding-up or on a return (other than by way
of purchase or redemption of own shares) after conversion, be
divided amongst the shareholders on the basis of the capital
attributable to the respective classes of ordinary shares at the
date of winding up or other return of capital, and amongst the
members of a particular class pro rata according to their holdings
of shares of that class.
The Pound Sterling and US Dollar shares rank pari passu in all
respects. The Company operates a share conversion scheme which
allows shareholders of any Share class to convert all or part of
their holding into any other Share class in accordance with the
detailed provisions of the Articles of Incorporation. During the
period shareholders of the Pound class converted 9,383,613 GBP
Pound Sterling Ordinary Shares into 15,501,068 US Dollar Ordinary
Shares. (30 September 2013: 6,977,363 US Dollar Ordinary Shares
into 4,325,664 GBP Pound Sterling Ordinary Shares and 1,295,070
Pound Sterling Ordinary Shares into 2,099,954 US Dollar Ordinary
Shares).
The US Dollar Shareholders voted against the continuation vote
held in March 2014 and as such the Directors put forward proposals
to redeem the US Dollar Shares. 98.1% of the US Dollar Shareholders
elected to take up the Redemption Offer and will redeem on 1
September 2014 with a valuation determined by the Net Asset Value
on 29 August 2014.
Share transactions for the period from 1 October 2013 to 31
March 2014 are as follows:
Shares
outstanding Issued Converted Redeemed Shares
at during during during outstanding
Share beginning the the the at end
class of period period period period of period
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
Ordinary
Shares:
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
Sterling
Shares 77,286,105 - (9,383,613) - 67,902,492
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
US Dollar
Shares 6,905,398 - 15,501,068 - 22,406,466
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
Share transactions for the year ended 30 September 2013 were as
follows:
Shares
outstanding Issued Shares
at during Converted Redeemed outstanding
Share beginning the during during at end
class of year year the year the year of year
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
Ordinary
Shares:
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
Sterling
Shares 74,255,511 - 3,030,594 - 77,286,105
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
US Dollar
Shares 11,782,807 - (4,877,409) - 6,905,398
--------- --------------------------- ----------------------- -------------------- ------------------- ---------------------------
12. Other reserves
Other reserves as at 31 March 2014 are as follows:
GBP USD Total
------------------------------- ------------------------ ------------------------ -------------------------
Share capital account Class Class GBP
------------------------------- ------------------------ ------------------------ -------------------------
Subscriptions
------------------------------- ------------------------ ------------------------ -------------------------
Balance at beginning of period 76,745,598 4,426,858 81,172,456
------------------------------- ------------------------ ------------------------ -------------------------
Conversion of shares (10,546,527) 10,546,527 -
------------------------------- ------------------------ ------------------------ -------------------------
66,199,071 14,973,385 81,172,456
------------------------------- ------------------------ ------------------------ -------------------------
Other reserves as at 30 September 2013 are as follows:
GBP USD Total
----------------------------- ------------------------ ------------------------ -------------------------
Share capital account Class Class GBP
----------------------------- ------------------------ ------------------------ -------------------------
Subscriptions
----------------------------- ------------------------ ------------------------ -------------------------
Balance at beginning of year 73,589,630 7,582,826 81,172,456
----------------------------- ------------------------ ------------------------ -------------------------
Conversion of shares 3,155,968 (3,155,968) -
----------------------------- ------------------------ ------------------------ -------------------------
76,745,598 4,426,858 81,172,456
----------------------------- ------------------------ ------------------------ -------------------------
The Shares of the Company have no par value. As such the
proceeds from the issue of Shares has been classified within Share
capital account as Other reserves and in accordance with the
accounting policies of the Company and as allowed by IFRS, the
costs of the issuance of the Shares would be expensed against the
proceeds of the issue. There were no issuance costs incurred for
the period from 1 October 2013 to 31 March 2014 (30 September 2013:
Nil).
The Companies Law (Guernsey), 2008 (as amended) allows the Other
reserves to be used for all purposes, including the buyback of
shares and the payment of dividends, provided that the Company
would, after any distributions, still meet the statutory Solvency
Test as defined in the Companies Law (Guernsey), 2008 (as
amended).
13. Financial risk management objectives and policies
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities, but it is managed through a process of ongoing
identification, measurement and monitoring, and other controls.
The Company is exposed to the following categories of risk,
directly from the investment it makes in DVA and indirectly from
the investments of DVA and its Underlying Funds:
-- Market risk
- Price risk
- Currency risk
- Interest rate risk
-- Counterparty credit risk
-- Liquidity risk
The Company is also exposed to operational risk arising from
both its investment activities and other activities conducted both
by the Company, the Investment Manager and the Investment Adviser
of DVA and the Underlying Funds and other third party agents in
support of its investments.
The following qualitative and quantitative disclosures relate to
the Company's direct exposures in financial assets and financial
liabilities and therefore exclude any indirect exposures in the
Underlying Funds in which the Company has invested.
Market risk
Market risk is the risk that the fair value or future cash flows
of financial instruments will fluctuate due to changes in market
variables such as equity prices, currency rates and interest
rates.
Price risk
Price risk is the risk of unfavourable changes in the fair
values of the Company's investments. The Company invests
substantially all its assets in DVA and does not undertake any
significant borrowing or hedging activity at the Company level.
Therefore the Company's price risk is directly linked to the fair
value of DVA and to the fair value of its Underlying Funds, which
hold investments in securities and derivatives, both listed and
over-the-counter.
At 31 March 2014, should the price of DVA increase/decrease by
10% with all other variables remaining constant, the effect will be
an increase/decrease in the fair value of financial assets through
profit or loss of GBP9,314,685/GBP(9,314,685) (30 September 2013:
GBP9,053,843/GBP(9,053,843)).
Concentration of exposure to price risks
The Company's direct exposure to price risk arises from its
holding in DVA being its holding in the Class B2 Sterling and Class
B2 US Dollar shares of DVA in the amount of GBP93,146,845 (30
September 2013: GBP90,538,428).
The following table shows the diversified allocation to the
Underlying Funds so that notwithstanding concentration of price
risk in the Company's investment in DVA, on a look through basis
the Directors believe the Company does not have true concentration
risk owing to the diversification benefits from owning the
Underlying Funds.
31 March 2014 30 September 2013
-------------------------- -------------------------------------------- --------------------------------------------
% of net % of net
Total assets Total assets
-------------------------- --------------------- --------------------- --------------------- ---------------------
Underlying Funds GBP GBP
-------------------------- --------------------- --------------------- --------------------- ---------------------
CQS ABS Fund 23,091,642 24.8 % 20,028,932 22.1 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
CQS Asia Fund 5,907,046 6.3 % 7,439,041 8.2 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
CQS Convertible and
Quantitative
Strategies Fund 23,415,489 25.1 % 22,919,381 25.3 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
CQS Credit Long Short
Fund 9,227,813 9.9 % 15,362,519 17.0 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
CQS Directional
Opportunities
Fund 26,269,826 28.2 % 22,729,588 25.1 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
CQS European Distressed
Fund - -% 402,597 0.4 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
CQS European Equity Long
Short Fund 5,235,029 5.6 % 1,656,370 1.8 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
93,146,845 99.9 % 90,538,428 99.9 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
Other assets not exposed
to price risk 128,228 0.1 % 76,190 0.1 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
93,275,073 100.0 % 90,614,618 100.0 %
-------------------------- --------------------- --------------------- --------------------- ---------------------
Currency risk
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange rates.
The Company's direct currency exposure to a five percent positive
or negative shift in all exchange rates against GBP as at 31 March
2014 is less than GBP800,000 in absolute terms (30 September 2013:
GBP300,000). Each of the Company's currency share classes are
invested in the corresponding currency class in DVA and as such
shareholders are not directly exposed to material currency risk.
There is indirect currency risk from DVA's investment in its
underlying Funds.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The Company is not exposed to material
interest rate risk as the majority of the Company's financial
assets are its investments in DVA which are non-interest bearing
securities and any excess cash of the Company is invested at short
term market interest rates. The Company has indirect interest rate
risk from DVA's investments in its Underlying Funds, based on the
Underlying Funds holdings, although this is primarily reflected in
the fair value of the financial investments held by the Underlying
Funds.
Other financial risk disclosures
Counterparty credit risk
Counterparty credit risk is the risk that the counterparty to a
financial instrument will cause a financial loss for the Company by
failing to discharge an obligation.
The Company is exposed to the risk of credit-related losses that
can occur as a result of a counterparty or issuer being unable or
unwilling to honour its contractual obligations. These credit
exposures exist within financing relationships and other
transactions.
It is the Company's policy to transact only with reputable
counterparties. The Investment Adviser closely monitors the
creditworthiness of the Company's principal banker by reviewing
their credit ratings, financial statements and press releases on a
regular basis.
The Company's investments in DVA are held in its own name,
however any excess cash is held by its principal banker, The Royal
Bank of Scotland International Limited which is the offshore
banking arm of the Royal Bank of Scotland Group. The Royal Bank of
Scotland Group plc is rated BBB+ (30 September 2013: A -) by
Standard & Poor's.
If The Royal Bank of Scotland International Limited were to
default and achieve no recovery for its creditors then the Company
would lose GBP185,622 as at 31 March 2014. (30 September 2013:
GBP76,034).
The Company also has indirect counterparty credit risk arising
from DVA's investments in its Underlying Funds.
Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty realising assets or otherwise raising funds to
meet financial commitments in a reasonable timeframe or at a
reasonable price.
The Company retains sufficient cash at its principal banker to
manage its day to day expenses. There is however the risk that in
exceptional circumstances, the liquidity of DVA and its Underlying
Funds may not be sufficient to meet all redemption requests made.
This may limit the Company's ability to raise cash, to fund ongoing
expenses.
The table below summarises the maturity profile of the Company's
financial liabilities. The analysis into relevant maturity
groupings is based on the remaining period at the end of the
reporting period to the contractual maturity date.
As at 31 March 2014
< than 6 to
3 3 to 6 12
months months months >1 year Total
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
GBP GBP GBP GBP GBP
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
Payables and
accrued
expenses (66,046) - - - (66,046)
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
Total (66,046) - - - (66,046)
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
As at 30 September 2013
< than 6 to
3 3 to 6 12
months months months >1 year Total
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
GBP GBP GBP GBP GBP
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
Payables and
accrued
expenses (32,912) - - - (32,912)
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
Total (32,912) - - - (32,912)
------------------ ------------------ ------------------- ----------------- ----------------- -------------------
14. Capital management
The Company's capital is represented by Ordinary Shares. The
Company's total capital employed at 31 March 2014 was GBP93,275,073
(30 September 2013: GBP90,614,618) comprising equity share capital
and distributable reserves.
The objective of the Company in managing its capital is to
achieve attractive risk adjusted returns over the medium to long
term by primarily investing in convertible and credit-related
strategies. The Company seeks to achieve its capital management
objective by investing substantially all of its assets in DVA and
to maintain sufficient size to make the operations of the Company
cost efficient. The Company is not subject to any externally
imposed capital requirements.
The Company does not intend to engage in any structural
borrowing. However it does have the ability to borrow up to an
amount equal to 20% (30 September 2013: 20%) of its net assets at
the time of the drawdown for the purposes of managing day to day
cash flows, for meeting expenses of the Company and for funding the
repurchase of up to 14.99% (30 September 2013: 14.99%) of its
shares.
Capital management policies and procedures
The Board monitors and reviews the broad structure of the
Company's capital on an ongoing basis. This review includes:
-- the need to buy back equity shares for cancellation, which
takes account of the difference between the NAV per share and the
share price (i.e. the level of share price discount or premium);
and
-- the extent to which revenue in excess of that which is
required to be distributed should be retained.
Refer to the financial risk management objectives and policies
section (note 13) for additional policies and process applied by
the Company in managing its capital.
15. Taxation
The Company applied for and was granted exempt status for
Guernsey tax purposes. A company that has exempt status for
Guernsey tax purposes is exempt from Guernsey income tax under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989 and is charged an annual exemption fee of GBP600 (2013:
GBP600).
Currently no income, profit, capital transfer or capital gains
taxes are levied in Guernsey and, accordingly, no provision for
such taxes has been recorded by the Company. The Company is subject
however, to certain withholding taxes applicable to income earned
on its investments. Individual shareholders may be taxed on their
proportionate share of the Company's taxable income based upon
their individual circumstances.
16. Significant events
On 12 February 2014 the Company issued a circular which informed
investors that in the event that the Company is unable to reach the
Minimum AUM, the Directors intend to put forward proposals to
enable the Shareholders to realise their holdings at, or close to,
Net Asset Value by means of a reconstruction or winding-up of the
Company shares.
17. Subsequent events
In line with the Company's Registration Document, there remains
an Unamortised Excess on the issued share capital at the interim
period end date. The excess is the amount of initial costs of the
Issue borne by the Investment Manager to DVA, together with the
Investor Rebates, in relation to the Issue. For those shareholders
who elected to redeem their shareholding as a result of the failure
of the continuation vote in March 2014, their redemptions will
include a charge in relation to the remaining Unamortised Excess,
which equates to GBP0.004 per share (USD0.007 per share) and will
be paid to the Investment Manager to DVA.
The US Dollar Shareholders voted against the continuation
resolution on 4 March 2014. As a result, and given the outcome of
the Redemption Offer, the class closure conditions have been met
and the US Dollar class will be closed. Upon the conclusion to the
Conditional Class Closure Conversion Offer due on 21 May 2014 the
remaining US Dollar Shareholders will either convert to the Pound
Sterling Share Class or will redeem their holdings on 1 September
2014.
There have been no other significant events since the period end
that impact the Company and require disclosure in the financial
statements.
As announced on 06 May 2014, the NAV per share at 30 April 2014
was GBP1.147 and USD1.1396 for the Pound Sterling and US Dollar
Shares respectively.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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