TIDMCQS TIDMCQSU
RNS Number : 3927H
CQS Diversified Fund Limited
26 May 2011
CQS Diversified Fund Limited
Interim Report and Unaudited Financial Statements
For the period from 27 October 2010 (date of incorporation) to
31 March 2011
Financial Highlights
Substantially all net cash raised from the IPO on 15 December
2010 was invested on 4 January 2011.
Net Asset Value per share rose from GBP0.9898 to GBP1.0146 and
from $0.9898 to EUR1.0141 for the GBP and USD Shares
respectively.
Share premium to Net Asset Value at 31 March 2011 was 3.00% and
1.70% for the Pound Sterling and US Dollar Shares respectively.
Earnings per share for the period was 2.46% and 2.41% for the
Pound Sterling and US Dollar Share classes respectively.
Net Asset Value at 31 March 2011 was GBP75.3m.
Investing Policy
For the period from 27 October 2010 (date of incorporation) to
31 March 2011
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 ("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
will participate indirectly in the investment portfolio of DVA.
DVA is currently invested in CQS Convertible and Quantitative
Strategies Feeder Fund Limited, CQS ABS Feeder Fund Limited, CQS
Directional Opportunities Feeder Fund Limited, CQS Asia Feeder Fund
Limited and CQS Credit Long Short Feeder Fund Limited (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;
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.
Chairman's Statement
For the period from 27 October 2010 (date of incorporation) to
31 March 2011
I am pleased to present the first interim report of CQS
Diversified Fund Limited ("CQS Diversified" or the "Company"). This
is my first formal communication with shareholders since the
Company's share placing and subsequent admission and commencement
of dealings on the London Stock Exchange on 15 December 2010. I
would like to express the Board's thanks to all shareholders as
well as RBS Hoare Govett Limited for their support in the
successful launch of the Company.
Raising an aggregate of GBP74.4 million via the placing, the
Board was very pleased with the level of interest shown in the
Company. The results of the Issue provide the Company with an
exciting entry point into the listed hedge fund sector and a
platform from which to grow.
In line with the Company's objective to achieve attractive
risk-adjusted returns over the medium to long term the Board
announced on 4 January 2011 that substantially all of the net
proceeds of its placing and offer for subscription had been
invested into CQS Diversified Fund (SPC) Limited, Segregated
Portfolio Alpha ("DVA"). 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. As a result, shareholders gain access to a portfolio of
Underlying Funds which currently comprise CQS ABS Fund, CQS Asia
Fund, CQS Credit Long Short Fund, CQS Convertible and Quantitative
Strategies Fund, and CQS Directional Opportunities Fund.
CQS Diversified allows shareholders access to the investment
management skills of CQS without the need of a high minimum
monetary investment, as would be required by a direct investment in
DVA, coupled with the ability to trade shares daily on the London
Stock Exchange. The Board hopes these features will make the
Company's shares an attractive and rewarding investment for
shareholders over the years to come.
Investment Performance
In the period since commencement of dealings on 15 December 2010
to 31 March 2011, the published Sterling Share NAV (calculated in
accordance with the Company's Articles of Incorporation) rose from
GBP0.9898 to GBP1.0146, a return of 2.50% for the period. Over the
same period the US Dollar Share NAV rose from USD0.9898 to
USD1.0141, a return of 2.46% for the period.
The price of a Sterling Share increased from GBP1.0000 to
GBP1.0450 during the period, an appreciation of 4.5%. The price of
a US Dollar Share increased from USD1.0000 to USD1.0313 during the
period, an appreciation of 3.13%. The Company has traded well
relative to its listed Hedge Fund peer group, many of which trade
at a discount to NAV. The average premiums over the period for each
of the Sterling and US Dollar Shares were 1.76% and 1.52%
respectively.
As at 31 March 2011, each of the Shares of the Pound Sterling
and US Dollar share classes were trading at premiums of 3.00% and
1.70% respectively. As at 13 May 2011, the estimated Pound Sterling
Shares NAV was GBP1.0203, the estimated US Dollar NAV was
USD1.0199, the price of a Sterling Share was GBP1.0475 and the
price of a US Dollar Share was USD1.0438.
The composition of DVA in the Underlying Funds is tabled on page
7.
Outlook
A number of important economic and geopolitical themes persist
that are generating uncertainty in global markets. The Federal
Reserve's latest quantitative easing program (QE2) is scheduled to
come to an end at the beginning of the summer, while the European
sovereign debt crisis is becoming increasingly problematic for
euro-area nations. The recent Portuguese bail-out by the EU and IMF
has done little to address contagion fears and it is growing
increasingly likely that a similar rescue of Greece, made over a
year ago, will need to be enlarged or revised. Meanwhile, economic
growth in the US, Japan and Europe remains slow while higher
commodity prices are driving inflationary concerns. The Investment
Adviser of DVA has informed the Board that it believes the
uncertainty that prevails in the current market environment
provides an attractive opportunity set upon which the Company may
grow going forward.
I look forward to reporting to you again in the annual report
and accounts for the year ended 30 September 2011 and thank you for
your continued support.
Rupert Dorey
25 May 2011
All data in this statement is sourced from Bloomberg.
Report by the Investment Adviser of CQS Diversified Fund (SPC)
Limited ("DVA")
For the period from 27 October 2010 (date of incorporation) to
31 March 2011
On 4 January 2011 CQS Diversified Fund Limited ("CQS
Diversified" or the "Company") invested substantially all of the
net proceeds of its December 2010 placing and offer for
subscription into CQS Diversified Fund (SPC) Limited, Segregated
Portfolio Alpha ("DVA"). The following Report of the Investment
Adviser to DVA covers the period from 4 January 2011 to 31 March
2011 and has been provided by the Investment Adviser of DVA 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.
DVA returned 2.46% to the Class B US Dollar Shares, net to
investors, for the three month period from 4 January 2011 to 31
March 2011.
DVA is a portfolio of CQS-managed funds (the "Underlying 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 the portfolio
construction process based on both qualitative and quantitative
techniques. DVA benefits from CQS' risk management and operational
infrastructure platforms.
Over the three months to 31 March 2011, DVA continued to seek to
balance risk against reward through the management of allocations
to the Underlying Funds in order to achieve its investment
objective. Allocations to Underlying Funds were as follows:
Jan 4, 2011 Mar 31, 2011
Fund (%) (%)
CQS ABS Fund 22.0 22.1
CQS Asia Fund 16.3 15.9
CQS Convertible and Quantitative Strategies
Fund 24.2 24.5
CQS Credit Long Short Fund 13.0 12.9
CQS Directional Opportunities Fund 24.4 24.5
All Underlying Funds contributed positively to DVA Fund
performance during the period under review. The Directional
Opportunities Fund contributed the highest returns with the
Convertible and Quantitative Strategies Fund and ABS Fund also
contributing strongly. The Credit Long Short Fund and Asia Fund
contributed modestly to returns.
CQS ABS Fund
The ABS Fund started 2011 on a robust footing with positive
performance in US ABS as all sectors of non-agency RMBS enjoyed
strong performance. The ABS Fund benefited from its significant
allocation to the Pay Option ARM sector in January, however, some
gains in the sector were retraced in February. European ABS also
generated profits as investors returned from the holiday season.
The ABS Fund made modest gains in February as profits from strong
performance of US ABS were partially offset by performance of short
positions in monoline insurers. The ABS Fund ended the period under
review positively, generating strong performance in March from
AMBAC wrapped ABS, European RMBS and Student Loans ABS.
Additionally, the widening in MBIA spreads was positive for the ABS
Fund's short positions in monoline insurers. Profits were tempered
by wider spreads in non-wrapped US RMBS which detracted from
performance.
The ABS Fund team remains constructive on the ABS Fund's long
ABS positions while short positions in financials reflect its
caution on US housing.
CQS Asia Fund
The Asia Fund made modest gains during the first quarter of
2011. Global emerging market equity and credit markets began 2011
softer as investor favour shifted from developing to developed
markets. In January, profits generated by the Asia Fund's
convertible strategies were more than offset by losses from fixed
income and equity strategies as inflation fears emerged and short
terms money market rates increased in response. February saw gains
from fixed income strategies offset by losses elsewhere.
Geopolitical events in the Middle East, coupled with the natural
disaster in Japan, made for excessive uncertainty in Asian equity
and credit markets in March. In spite of pressure on regional share
indices, especially Japan, the Asia Fund made modest profits during
March thanks to gains in non-Japanese Asian convertible bonds,
fixed income, credit & macro strategies, and equity long/short
positions.
The Asia Fund team remains mindful of the challenges faced by
the world economy, but continues to believe Asia offers attractive
investment opportunities. Asian assets benefited from strong
investor interest in 2010, and the Asia Fund team believes that
this trend will continue in 2011. Convertible bonds remain an asset
of choice to benefit from that trend and demand remains mainly
driven by outright investors.
CQS Convertible and Quantitative Strategies Fund ("CB Arb
Fund")
The CB Arb Fund was profitable during the first quarter of 2011
as strong investor appetite for risk assets generated positive
momentum across continental Europe and the US. In January the CB
Arb Fund made profits in the US and European regional convertible
arbitrage portfolios due to a general richening in valuation. The
Asian portfolio saw gains in China offset by losses in Japan and
India.
Developed equity markets performed favourably in February
despite investor concerns over geo-political events in North Africa
and the Middle East. The CB Arb Fund's US convertibles were
profitable due to robust performance of new issuance into the
region as investors redeployed capital freed from numerous bonds
which matured or were called in February. The European and Asian
portfolios also made gains in February.
The CB Arb Fund ended the period under review positively,
however, markets remained challenging due to the combined
earthquake and tsunami in Japan and as Spain, Greece and Portugal
were all downgraded by the ratings agencies. All regional
convertible arbitrage portfolios were profitable in March, with the
European book exhibiting the best performance.
The CB Arb Fund team continues to find attractive investment
opportunities across the portfolio, finding value in in-the-money
names in Europe, volatility names in non-Japan Asia and in a more
idiosyncratic mix of names in the US.
CQS Credit Long Short Fund ("CLS Fund")
The CLS Fund began 2011 strongly with the US portfolio
benefiting as the M&A story gained momentum. In January the CLS
Fund suffered losses on its periphery shorts as spreads tightened,
however, these losses were limited by active portfolio trading.
February saw intra-month volatility in credit markets and the CLS
Fund made modest losses overall. In March, European periphery
nations were once again in the news with Spain, Greece and Portugal
all downgraded by the ratings agencies. The CLS Fund was
profitable, with shorts in European corporates the main performance
driver. Shorts in US airlines also contributed due to the
significant rise in oil prices amid unrest in the Middle East.
The CLS Fund team continues to believe that investment grade
credit has very little upside left as companies increasingly favour
equity holders over debt holders. This, in the CLS Fund team's
view, will lead to increasing share buy backs, higher dividend
levels and M&A activity. The CLS Fund therefore continues to
add short positions in the space where it believes more aggressive
corporate activity will take place.
CQS Directional Opportunities Fund ("DO Fund")
The DO Fund was profitable during the period under review.
The DO Fund's structured credit portfolio produced strong gains,
particularly across the long equity and mezzanine bespoke tranches
and FTD's. The distressed book was also additive to returns with
post-restructured equity positions generating strong profits.
Convertible bond strategies also produced gains, generally across
all books, with the European book particularly strong as
intervention and government measures boosted confidence.
Equity positions were another positive factor, with long
positions in the US and Europe gaining during the period under
review. Loans posted profits, with gains made across European
mezzanine loan tranches and PIK holdings. Rig bond holdings also
contributed as a result of increases in valuations generally across
the portfolio. Macro strategies were profitable overall, with
foreign exchange positions generating modest gains.
The DO Fund's vanilla credit book was modestly negative, due in
part to losses in January on European and US short credit
positions.
The DO Fund team remains broadly constructive in its view of
markets but is mindful of potential volatility that could arise as
the US Federal Reserve's latest quantitative easing program comes
to an end at the beginning of the summer.
Date: 25 May 2011
All data in this statement is sourced from Bloomberg.
Report of the Directors
For the period from 27 October 2010 (date of incorporation) to
31 March 2011
The Directors present their interim report and unaudited
financial statements of the CQS Diversified Fund Limited (the
"Company") for the period from 27 October 2010 (date of
incorporation) to 31 March 2011.
The Company
The Company is a self-managed 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.
Investing Policy
The investing policy of the Company is as stated on page 4.
Results and Dividends
The results for the period from 27 October 2010 (date of
incorporation) to 31 March 2011 are shown in the Unaudited
Statement of Comprehensive Income on page 18 and the Unaudited
Statement of Financial Position at that date is set out on page 17.
The Directors do not recommend the payment of a dividend.
Share Capital
On 15 December 2010, the Company issued 14,706,175 US Dollar
Ordinary Shares and 65,025,567 Pound Sterling Ordinary Shares in
its initial placing at an offer price of USD1 per share and GBP1
per share respectively.
Going Concern
After making enquiries and given the nature of the Company and
its investments, the Directors are satisfied that it is appropriate
to prepare the interim financial statements on a going concern
basis and that the Company is able to continue for the foreseeable
future.
Directors
All the Directors were appointed on 1 November 2010 and act in
an independent non-executive capacity. They are listed on page 3
and their details are provided on page 11. As at 31 March 2011 the
Directors held the following beneficial interest in the
Company:
Rupert Dorey 270,000 shares
Stephen East 25,000 shares
Sarah Evans 25,000 shares
Substantial Shareholdings
The Directors have been notified of the following substantial
interests in the Company as at the date of the report:
Number of Percentage
Shareholder Shares Held
RBC cees Trustees Limited 15,900,000 19.942 %
Cazenove Capital Management Limited 11,486,500 14.406 %
Schroders plc 9,149,645 11.476 %
CQS Global Services Limited/CQS Management
Limited 5,000,000 6.271 %
The Royal Bank of Scotland N.V. 4,530,183 5.682 %
Related Party Transactions
Transactions entered into by the Company with related parties
are disclosed in note 6.
Auditor
Ernst & Young LLP, having been appointed during the period,
have expressed their willingness to continue in office as
auditors.
On behalf of the Board by:
Director: ______________________
Date: 25 May 2011
Unaudited Statement of Financial Position
As at March 31, 2011
Note GBP USD
Class Class Total
Current assets
Cash and cash equivalents 12 476,111 67,116 543,227
---------- ---------- ----------
Non-current assets
Financial assets at fair value through
profit or loss 4 65,508,821 9,234,439 74,743,260
Total assets 65,984,932 9,301,555 75,286,487
---------- ---------- ----------
Current liabilities
Other payables and accrued expenses 12,744 1,797 14,541
Total liabilities 12,744 1,797 14,541
---------- ---------- ----------
Net assets attributable to Shareholders 65,972,188 9,299,758 75,271,946
========== ========== ==========
Ordinary Shares in issue 10 65,025,567 14,706,175
Net asset value per Ordinary Shares GBP1.0146 USD1.0141
Signed on behalf of the Board by:
Director Director
Date: 25 May 2011
Unaudited Statement of Comprehensive Income
For the period from 27 October 2010 (date of incorporation) to
31 March 2011
Note GBP USD
Class Class Total
Income
Net realised loss on financial assets
at fair value
through profit or loss (1,418) (205) (1,623)
Net foreign exchange gain on other
assets and liabilities 230,668 33,416 264,084
Movement in unrealised gain on financial
assets and
liabilities at fair value through
profit or loss 5 1,473,585 213,474 1,687,059
--------- --------- ---------
Net gain on financial assets and liabilities
at fair value through profit or loss 1,702,835 246,685 1,949,520
--------- --------- ---------
Interest income 2,447 354 2,801
--------- --------- ---------
Total income 1,705,282 247,039 1,952,321
--------- --------- ---------
Expenses
Directors fees 6 49,135 7,118 56,253
Administration fees 8 18,912 2,740 21,652
Audit fees 11,480 1,663 13,143
Professional fees 15,859 2,298 18,157
Other expenses 13,019 1,886 14,905
Total expenses 108,405 15,705 124,110
--------- --------- ---------
Net income for the period 1,596,877 231,334 1,828,211
Other comprehensive income/(loss)
Foreign currency retranslation loss - (301,781) (301,781)
--------- --------- ---------
Total comprehensive income/(loss)
for the period 1,596,877 (70,447) 1,526,430
========= ========= =========
Income per share for the period
Basic and diluted In Pound Sterling GBP0.0246 GBP0.0157
9
In US Dollar - USD0.0241
Unaudited Statement of Changes in Shareholders' Equity
For the period from 27 October 2010 (date of incorporation) to
31 March 2010
GBP USD
Class Class Total
Net assets attributable to shareholders
at beginning
of the period - - -
Subscriptions
Issuance of Sterling Shares 65,025,567 - 65,025,567
Issuance of US Dollar Shares - 9,463,738 9,463,738
Issue costs (650,256) (93,533) (743,789)
---------- --------- ----------
64,375,311 9,370,205 73,745,516
Net investment income retained for
the period 1,596,877 231,334 1,828,211
Other comprehensive income/(loss)
Foreign currency retranslation loss - (301,781) (301,781)
---------- --------- ----------
1,596,877 (70,447) 1,526,430
Net assets attributable to Shareholders
at end of the period 65,972,188 9,299,758 75,271,946
========== ========= ==========
Unaudited Statement of Cash Flows
For the period from 27 October 2010 (date of incorporation) to
31 March 2011
GBP USD
Class Class Total
Cash flows from operating activities
Net investment income 1,596,877 231,334 1,828,211
Adjustment to reconcile
(decrease)/increase in net assets
attributable to shareholders for the
financial period to net cash provided
by operating activities:
Foreign currency retranslation loss - (301,781) (301,781)
Financial assets at fair value
through profit or loss (65,508,821) (9,234,439) (74,743,260)
Other payables and accrued expenses 12,744 1,797 14,541
------------ ----------- ------------
Net cash used by operating activities (63,899,200) (9,303,089) (73,202,289)
------------ ----------- ------------
Cash flows from financing activities
Proceeds on issuance of Sterling
Shares 64,375,311 - 64,375,311
Proceeds on issuance of US Dollar
Shares - 9,370,205 9,370,205
Net cash flow provided by financing
activities 64,375,311 9,370,205 73,745,516
------------ ----------- ------------
Net increase in cash and cash
equivalents 476,111 67,116 543,227
Cash and cash equivalents at start
of period - - -
------------ ----------- ------------
Cash and cash equivalents at end of
period 476,111 67,116 543,227
============ =========== ============
Supplemental disclosure of cash flow
information
Cash flows from operating activities
include:
Cash received during the period for
interest 2,447 354 2,801
The notes form an integral part of these unaudited interim
financial statements and are made available in full on the
Company's website, www.cqsdiversifiedfund.com.
Enquiries
Secretary
Citco Fund Services (Guernsey) Limited
Douglas Mackay
Telephone 01481 706796
Alex Collins
Financial Adviser and Broker
RBS Hoare Govett Limited
Telephone 020 76781703
This information is provided by RNS
The company news service from the London Stock Exchange
END
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