TIDMDTL
RNS Number : 6251B
Dexion Trading Limited
18 April 2012
Dexion Trading Limited (the "Company")
ANNUAL FINANCIAL REPORT
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the year ended 31 December 2011.
The Report is available via www.dexiontrading.com and will shortly
be submitted to the National Storage Mechanism and will also
shortly be available for inspection at www.hemscott.com/nsm.do
The report gives notice to its Shareholders of this year's
Annual General Meeting, which will be held on 12 June 2012.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Annual Report and
Accounts of Dexion Trading Limited for the year ended 31 December
2011.
The year under review has proved to be an extremely challenging
environment characterised by unpredictable market behaviour, which
resulted in discretionary investment managers having difficulty
implementing some fundamental trades. This contributed to a
negative return for the Company for the year. More widely,
sovereign debt concerns in the euro zone remain largely unresolved,
which has provided a backdrop to investor uncertainty, while social
and political unrest in the Middle East have added to market
volatility. Austerity measures introduced to deal with excess
government borrowing in many developed economies have further
dampened global growth. The Company's Shares have continued to
trade at a discount to net asset value ('NAV'), and in early 2012,
the ongoing discount triggered a further continuation vote, and a
Circular convening a meeting to consider the relevant resolution
was posted to Shareholders on 24 February 2012.
On 21 March 2012 the Board announced that the resolution had
been passed with 58.60 per cent. of the issued share capital being
voted of which 72.11 per cent. of the votes were cast in
favour.
As previously reported in the Report and Accounts for 2010, the
Board's corporate activities started in February 2011 when the
Company's rolling 12 month discount floor provision was triggered
requiring, in accordance with the Company's Articles of
Association, a continuation vote to be proposed by way of ordinary
class resolution. A meeting of Shareholders for the purpose of
considering a continuation vote was held on 24 March 2011, at which
the 2011 Continuation Resolution was passed with 64.62 per cent. of
the issued share capital being voted of which 85.14 per cent. of
the votes cast were cast in favour.
During the year to 31 December 2011, the NAV of the Company's
Shares fell by 3.12 per cent.. The annualised return on Shares from
inception to 31 December 2011 has been 4.46 per cent. with
annualised volatility of 5.48 per cent.
The Board continued to help reduce the discount through the
Company's programme of Share repurchases, with GBP4,653,646 worth
of Shares being repurchased in 2011. Whilst the discount narrowed
slightly during the year, moving from -13.9 per cent. at 31
December 2010 to -11.0 per cent. at 31 December 2011, the market
price of the Company's Shares only rose by 0.1 per cent. over 2011.
The Board intends to continue to actively use the Company's Share
repurchase authority during 2012 in attempting to manage the Share
price discount utilising its credit facility or other suitable cash
resources (which may be restricted by Settlement Obstructions).
As in previous years, the Board has maintained its commitment to
act in the best interests of the investors, continuing to provide
information and transparency on the Company's reporting. On the 19
May and 15 September, investor audio web conference calls took
place followed by live question and answer sessions to provide all
investors with the chance to ask questions of the Investment
Adviser.
The Company's Investment Adviser believes that the Company is
well positioned to benefit from the 2012 macro environment which
offers a number of profitable trading opportunities for the
Company's managers.
Finally, I would like to take this opportunity to thank my
fellow directors for their time and endeavours over the last
year.
I look forward to welcoming Investors to the Annual General
Meeting of the Company at 2 p.m. on 12 June 2012, which will be
held at the Company's registered office at 1 Le Truchot, St Peter
Port, Guernsey.
Christopher Spencer
Chairman
18 April 2012
MANAGER'S REPORT
We report that the NAV of the Company's Shares (in GBP terms)
decreased by 3.12 per cent., net of fees and expenses, over 2011,
compared to a decrease of 4.88 per cent. (in US dollar terms) for
the HFRX Macro Index.
The following provides the Investment Adviser's overview of the
performance (in US dollar terms) of the Portfolio by hedge fund
sub-strategy, over the period under review. Performance is shown
net of the underlying managers' fees and expenses only. References
to the Portfolio are, where the context requires, to the portfolio
of Permal Macro Holdings Ltd. ('Permal Macro' or the 'Fund'), of
which the Company is a feeder fund.
General
2011 was a challenging year for markets, where the main focus
centred on unsustainable levels of government debt in the eurozone.
As this sovereign debt saga escalated, emergency summits were held
to address these issues, with markets typically welcoming such
initiatives, before being tempered by implementation difficulties
and disagreements. This pattern repeated throughout the year,
creating periodic waves of volatility and sharp reversals in the
markets. The turbulent environment was also characterised by
short-selling bans, the collapse of governments, natural disasters
- most notably in Japan - unrest in the Middle East, and the debt
ceiling debate in the US.
Equity Markets
Early in the year, equity markets rallied buoyed by encouraging
economic data. However, concerns about the European sovereign debt
crisis and slow global growth weighed on equities worldwide for
much of the remainder of the year, with selling pressures
intensifying amid concerns that the eurozone was slipping back into
a recession. As the year drew to a close, equity prices reversed
and posted a strong rally on the back of Europe's Long Term
Refinancing Operation measures and increasingly positive economic
reports from the US. The S&P 500 ultimately ended the year
flat, although this masked considerable volatility through the
year, as well as sharp sell-offs, including a 7 per cent. one day
drop in August. Global equity fared far worse with many,
particularly in the emerging markets, ending in deep negative
territory for the year.
Fixed Income
After generally declining in the early part of the year,
government bonds in the US, UK and Germany experienced a strong
upward trend for the remainder of the year, with only small
periodic reversals during intermittent bouts of market optimism.
This rally was supported by several factors, notably global growth
concerns, deadlocked political negotiation in the US and
unrelenting fears over the deteriorating situation in Europe. The
Fed's announcement of Operation Twist and its commitment to keep
rates extraordinarily low for the next two years lent further
support to US Treasuries.
The spread of peripheral eurozone bond yields over Germany
widened dramatically during the period with many reaching record
highs. This was driven by the increased possibility of a Greek
default and resulting contagion, as well as multiple downgrades of
peripheral debt.
Foreign Exchange
Currencies proved volatile during 2011. In the first half of the
year, the US dollar was lower against most major counterparts,
weighed down by a combination of large US budget deficits, rising
government indebtedness and an unclear path of how to address such
issues. Despite intensifying problems within the eurozone, the euro
appreciated against the dollar in the first half. During that
period, the expansion of the European Financial Stability Facility
served to lift the currency, as did hawkish rhetoric from the
European Central Bank ('ECB') in the face of rising headline
inflation, yet the intensifying sovereign debt concerns ultimately
weighed on the euro, which finished the year lower versus the US
dollar.
After being mostly range bound against the US dollar in the
first half of the year the yen, fuelled by safe haven flows,
strengthened during the later part of 2011, despite multiple
interventions by the Bank of Japan.
Emerging market and commodity currencies generally strengthened
against the US dollar during the first half of the year, benefiting
from higher inflation, as well as oil prices which rose on the back
of turmoil in the Middle East. However, in the second half they
declined as investors became risk averse as commodity prices fell.
Apart from some notable exceptions, such as the Australian dollar,
these currencies ended 2011 lower against the US dollar.
Commodities
The natural resources sector experienced considerable volatility
through the year. While commodities and related equities generally
posted gains in the first quarter, driven by political turmoil in
the Middle East, commodity prices later came under pressure as
macroeconomic headwinds stalled risk appetites. Prices rose again
amid supply/demand worries, but ultimately the commodities sector,
with the exception of oil, gold and certain agricultural goods,
ended the year in negative territory.
Performance Attribution
Systematic and Relative Value Arbitrage were positive performers
for the year while Discretionary and Natural Resources detracted
from the Fund's performance.
Discretionary
Discretionary managers (a 51 per cent. allocation at 31 December
2011) returned -2.0 per cent. for the year against 1.4 per cent.
for the HFRX Discretionary Thematic Index. It was a difficult year
for many global macro managers with markets often failing to trade
on the fundamental data, instead being driven by European headline
news, resulting in a 'risk-on' 'risk-off' mentality. Managers that
performed particularly poorly were those with short exposure to the
euro early in 2011, who were arguably too early on the trade. In
addition, shorting fixed income around the second quarter of the
year, particularly US Treasuries, based on inflation fears and
unsustainable debt levels in the US, proved detrimental. Lastly,
certain managers believed emerging market currencies would continue
to appreciate strongly despite global growth concerns and systemic
risks emanating from Europe, and as such held long exposures to
this asset class for too long. These losses more than offset gains
made from managers who were long fixed income positions in various
markets (for example, the US, Mexico and Norway) as well as those
who were long volatility in the interest rate markets. They also
detracted from gains made by managers with credit protection on
European financial institutions.
Systematic
Systematic managers (a 30 per cent. allocation) were up 2.1 per
cent. for the year versus a 1.8 per cent. fall for the HFRX
Systematic Diversified Index. Fixed income proved to be the most
lucrative sector for both trend-followers and non-trend followers.
Particularly profitable trades on the non-trend following side
included long government bond exposure in the US and Germany.
Managers with longs in the Japanese yen and Australian dollar also
performed well. The decision at the start of the year to increase
the Fund's allocation to systematic managers, particularly
non-trend followers, proved beneficial, with systematic being the
year's best performing strategy and non-trend followers the best
performing sub-strategy in this allocation.
Natural Resources
Natural Resources (a 9 per cent. allocation) was down 9.4 per
cent. for the year, while the HFRX Commodity Index was down 9.8 per
cent.. These managers generally failed to capitalise on the trends
in a sector characterised by an upward move in the first half of
the year, and a downward move in the second half. Some were
particularly hard hit by the sell-off in gold that took place in
December.
Relative Value Arbitrage
Relative Value Arbitrage (a 5 per cent. allocation) was up 1.1
per cent. for the year against a 2.9 per cent. fall for the HFRX
Equity Market Neutral Index. The strong outperformance of the
managers in this strategy compared to the benchmark is testament to
the continued focus on equity market neutral managers who
capitalised successfully on global market moves and also captured
the liquidity premium in certain stocks.
Investment Outlook
While 2011 was often characterised by unchartered territory in
which managers had difficulty expressing some fundamental,
well-thought out trades, we believe that the 2012 macro environment
offers a number of profitable trading opportunities which our
managers should be able to capture successfully. In that regard,
there have been a series of encouraging trends of late. First,
market action in many sectors has been increasingly aligned to the
managers' views. Second, there has been a decrease in correlation
amongst various asset classes. And finally, some of the issues that
had caused so much volatility in 2011, in particular policymakers'
intervention in the markets, seem to be receding, leaving room for
more traditional players (for example, the ECB) to take a more
prominent role. This in turn has decreased systemic risks and
should allow markets to trade on fundamentals, which is a more
favourable environment for global macro strategies.
Market Outlook
While many managers in the Portfolio maintain a cautious view of
the global economy, they have become more constructive on their
economic outlook, especially in the short-term, in light of recent
positive events.
First, economic data in the US has been surprisingly positive
and managers believe that this positive momentum could prove
self-sustaining, in particular if the employment situation
continues to improve and consumer spending keeps rising. Second,
and even more fundamentally important for some managers, the Long
Term Refinancing Operation measures taken by the ECB in December
have improved the liquidity situation in the European banking
system and considerably reduced systemic risks by precluding a
short-term funding crisis.
They believe, therefore, that there is reason for cautious
optimism, particularly in the first quarter of 2012. Over the long
term, however, they believe that the US still faces headwinds,
notably a still high, albeit declining, unemployment rate, as well
as political gridlock over key issues such as the extension of the
payroll tax break and unemployment benefits.
In Europe, while the Long Term Refinancing Operation measures
provide a temporary reprieve for the system to convalesce, the
long-term problems have yet to be resolved. One of the dominant
concerns is that a recession is unfolding in the region and slowing
growth will be aggravated by austerity measures. Some managers note
that negative developments in Europe could more than neutralise
good news from the US.
The outlook for the UK also remains poor with the economy
weighed down by sluggish wage growth and fiscal austerity.
In the emerging markets, the concern revolves around European
bank exposure to emerging markets, which is substantial and likely
to contract as the banks de-lever. Managers believe that emerging
market central banks will cast aside inflationary concerns, which
are already diminishing, and focus instead on stimulating growth by
cutting interest rates.
Positioning:
Managers have generally positioned their portfolios to reflect
their cautious optimism, especially when it comes to taking
advantage of relative US outperformance.
In macro terms:
Fixed Income
-- The managers' bias in global government bonds is to be long
of these assets. Managers, especially those with a more pessimistic
view on Europe, hold long positions along the euro curve,
especially at the frontend. Some managers also hold long positions
in UK government bonds where growth is slowing, while others
continue to express the 'lower for longer theme' through long
positions in US Treasuries, as well as Mexican government
bonds.
Currencies
-- Managers generally hold long US dollar positions versus the
euro and certain emerging market currencies. The US dollar is
expected to benefit from its safe haven status amid a global
economic slowdown. The narrowing of the interest rate differential
between Europe and the US will weigh heavily on the euro and for
this reason managers are shorting the currency. In emerging
markets, they note that not all currencies are created equal and
tend to short those currencies where emerging market central banks
are likely to cut rates in response to global growth concerns. On
the long side they favour currencies with a strong positive carry,
such as the Brazilian real.
Equities
-- Exposure to the equity sector remains tactical. In the US,
managers are expressing the country's relative outperformance
through opportunistic longs in the S&P, while the emerging
markets focused managers have longs in equities of those markets
with strong fundamentals, such as Korea, which they believe sold
off indiscriminately and too sharply in late 2011.
Commodities
-- The sector may remain volatile in the near-term and as a
result managers are trading tactically. They generally hold long
exposure to gold, which stands to benefit from monetary easing as
well as lack of market conviction in policy makers. Managers also
have longs in oil in light of the rising geopolitical tensions.
Analysis of significant investments
The ten largest holdings of the Company as at 31 December 2011
are set out below. These investments were held via Permal
Macro.
% of
Market % of issued
value Company's share
Name of Investment Strategy (GBP) net assets capital(1)
------------------------------------------ -------------- ---------- ------------ --------------
Caxton Global Investments Limited Discretionary 10,577,631 8.15 0.16
Moore Global Investments Limited Discretionary 10,408,376 8.02 0.19
JNV Overseas Fund Limited Discretionary 6,237,647 4.80 0.17
Graham Prop Matrix Systematic 4,817,604 3.71 0.80
Tudor BVI Global Fund Limited Discretionary 4,537,360 3.49 0.09
Permal Systematic Macro Limited Systematic 3,926,773 3.02 2.64
Permal WCM Limited Systematic 3,911,633 3.01 0.02
Permal Fixed Income Special Opportunities
Limited Discretionary 3,150,996 2.43 0.45
Permal ETS Yield Enhancement Limited Systematic 3,087,216 2.38 0.53
Permal AlphaSimplex Limited Systematic 2,913,624 2.24 0.71
------------------------------------------ -------------- ---------- ------------ --------------
53,568,860 41.25
--------------------------------------------------------- ---------- ------------ --------------
Source: Dexion Capital plc calculation based on Permal
(data)
(1) Percentages of issued share capital are based on estimates
of fund capital provided by underlying manager as of 31 December
2011.
(2) The total of the top 10 largest investments in 2010 was
40.97% of the Company's net assets and no holding was larger than
8.01%.
Whilst it is generally considered best practice to disclose the
full portfolio of an investment company, the composition of the
Permal Macro's investment portfolio is the subject of
confidentiality provisions with Permal Macro.
Dexion Capital (Guernsey) Limited
18 April 2012
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRS) and applicable
law.
The financial statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing these financial statements, the Directors are
required to:
- select suitable accounting policies and apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable laws and regulations the Directors are also
responsible for preparing this Directors' report and Corporate
Governance Statement that comply with Company law and
regulations.
Directors' Responsibility Statement
The Directors confirm that they have complied with the above
requirements in preparing the financial statements and that to the
best of our knowledge and belief:
(a) This management report (comprising the Chairman's Statement,
Manager's Report and Directors' Report) includes a fair review of
the development and performance of the business and the position of
the Company together with a description of the principal risks and
uncertainties that the Company faces; and
(b) The financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company.
By order of the Board
Christopher Spencer Carol Goodwin
Director Director
18 April 2012
STATEMENT OF FINANCIAL POSITION (Audited)
As at As at
31 December 31 December
2011 2010
GBP000 GBP000
---------------------------------------------- ------------ ------------
Assets
Current assets
Financial assets at fair value through profit
or loss 130,527 139,312
Cash and cash equivalents - 21
Other receivables 11 9
Total assets 130,538 139,342
---------------------------------------------- ------------ ------------
Liabilities
Current liabilities
Bank overdraft 629 -
Accounts payable and accrued expenses 53 59
Total liabilities 682 59
---------------------------------------------- ------------ ------------
Net assets 129,856 139,283
---------------------------------------------- ------------ ------------
Represented by:
Shareholders' equity and reserves
Share premium 86,683 86,683
Other reserves 43,173 52,600
---------------------------------------------- ------------ ------------
Total Shareholders' equity 129,856 139,283
---------------------------------------------- ------------ ------------
Net assets per Share 133.87p 138.18p
---------------------------------------------- ------------ ------------
STATEMENT OF COMPREHENSIVE INCOME (Audited)
For the For the
year ended year ended
31 December 31 December
2011 2010
GBP000 GBP000
---------------------------------------------- ------------ ------------
Income
Interest income 1 -
Net changes in fair value on financial assets
at fair value through profit or loss (4,285) 8,096
---------------------------------------------- ------------ ------------
Net (loss)/ income (4,284) 8,096
---------------------------------------------- ------------ ------------
Expenses
Directors' remuneration and expenses (77) (68)
Fund administration fee (40) (40)
Custodian fee (40) (40)
Audit fee (26) (24)
Legal fees (24) (26)
Other professional fees (124) (124)
Other operating expenses (153) (128)
---------------------------------------------- ------------ ------------
Total operating expenses before finance costs (484) (450)
---------------------------------------------- ------------ ------------
Finance costs
Interest expense (6) (2)
---------------------------------------------- ------------ ------------
Total comprehensive income (4,774) 7,644
---------------------------------------------- ------------ ------------
Basic and Diluted (loss)/earnings per Share (4.82)p 7.56p
---------------------------------------------- ------------ ------------
All items derive from continuing activities
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Audited)
FOR THE YEAR ENDED 31 DECEMBER 2011
Share Other
Premium Reserves Total
GBP000 GBP000 GBP000
----------------------------------------- -------- --------- -------
Balance at 1 January 2011 86,683 52,600 139,283
----------------------------------------- -------- --------- -------
Total comprehensive income for the year
Total loss for the year - (4,774) (4,774)
----------------------------------------- -------- --------- -------
Transactions with Shareholders, recorded
directly in equity Purchases of own
Shares for cancellation - (4,653) (4,653)
----------------------------------------- -------- --------- -------
Balance as at 31 December 2011 86,683 43,173 129,856
----------------------------------------- -------- --------- -------
Share Other
FOR THE YEAR ENDED 31 DECEMBER 2010 Premium Reserves Total
GBP000 GBP000 GBP000
----------------------------------------- -------- --------- -------
Balance at 1 January 2010 86,683 45,443 132,126
----------------------------------------- -------- --------- -------
Total comprehensive income for the year
Total return for the year - 7,644 7,644
----------------------------------------- -------- --------- -------
Transactions with Shareholders, recorded
directly in equity Purchases of own
Shares for cancellation - (487) (487)
----------------------------------------- -------- --------- -------
Balance as at 31 December 2010 86,683 52,600 139,283
----------------------------------------- -------- --------- -------
STATEMENT OF CASH FLOWS (Audited)
For the For the
year ended year ended
31 December 31 December
2011 2010
GBP000 GBP000
----------------------------------------------------- ------------ ----------------
Cash flows from operating activities
Total (loss)/return for the year (4,774) 7,644
Adjustments for:
Net losses/(gains) on financial assets held
at fair value through profit or loss 4,285 (8,096)
Increase in debtors (2) (4)
(Decrease)/increase in creditors (6) 12
Net cash flows used in operating activities (497) (444)
----------------------------------------------------- ------------ ----------------
Cash flows from investing activities
Proceeds from sale of investments 4,500 1,750
----------------------------------------------------- ------------ ----------------
Net cash flows from investing activities 4,500 1,750
----------------------------------------------------- ------------ ----------------
Cash flows from financing activities
Purchase of own Shares for cancellation (4,653) (487)
----------------------------------------------------- ------------ ----------------
Net cash flows used in financing activities (4,653) (487)
----------------------------------------------------- ------------ ----------------
Net (decrease)/increase in cash and cash equivalents (650) 819
----------------------------------------------------- ------------ ----------------
Cash and cash equivalents at the beginning of
the year 21 (798)
----------------------------------------------------- ------------ ----------------
Cash and cash equivalents at the end of the
year (629) 21
----------------------------------------------------- ------------ ----------------
Analysis of cash and cash equivalents at the
end of the year
Cash at bank - 21
Bank overdraft (629) -
----------------------------------------------------- ------------ ----------------
(629) 21
----------------------------------------------------- ------------ ----------------
Cash flows from operating activities include:
Interest income on financial assets that are
not at fair value through profit or loss 1 -
Interest expense for financial liabilities that
are not fair value through profit or loss (6) (2)
----------------------------------------------------- ------------ ----------------
Financial Risk Management
The Investment Manager provides services to the Company,
co-ordinates access to domestic and international financial
markets, monitors and manages risks relating to the operations of
the Company through internal risk reports which analyse exposures
by degree and magnitude of risks.
The techniques and instruments utilised for the purposes of
efficient portfolio management are those which are reasonably
believed by the Investment Manager to be economically appropriate
to the efficient management of the Company. The Company's financial
instruments include investments designated as fair value through
profit or loss, cash and currency hedging instruments. The main
risks arising from the Company's financial instruments are market
price risk, interest rate risk, currency risk, liquidity risk and
credit risk.
a) Capital risk management
The Company manages its capital to ensure that it is able to
continue as a going concern while maximising the return to equity
holders through the optimisation of equity balance. The capital
structure of the Company consists of Shareholders' equity which
comprises issued share capital, and other reserves. To maintain or
adjust the capital structure, the Company may return capital to
Shareholders or issue new Shares. There are no regulatory
requirements to return capital to Shareholders. During the year,
3,796,453 Shares were repurchased and cancelled so as to maximise
the value of the Company to remaining Shareholders. The Shares had
been trading at a discount to net asset value during the year. The
Company adheres to the Listing Rules of the UK Listing
Authority.
b) Market risk
Market risk embodies the potential for both losses and gains and
includes currency risk, interest rate risk and price risk.
The Company's strategy on the management of investment risk is
driven by the Company's investment objective. The Company's
investment objective is detailed in the Directors' Report (see full
Annual Report & Accounts). The Company's main investment
guidelines and restrictions are:
- The Company invests all or substantially all of its assets in
Class A GBP shares issued by Permal Macro. The investment policy of
Permal Macro is to diversify its investment risk.
- No more than 20% of the value of Permal's gross assets may be
lent to or invested in the securities of any one issuer (including
the issuer's subsidiaries and affiliates) or may be exposed to the
creditworthiness or solvency of any one counterparty (including
that counterparty's subsidiaries or affiliates).
- Gross assets in excess of 20% and up to 40% of the value of
Permal Macro may be invested in any one Underlying Fund or may be
allocated to any one Portfolio Manager to manage on a discretionary
basis, provided that each such Underlying Fund or Portfolio Manager
operates on the principle of risk spreading. Permal Asset
Management will monitor the investment portfolio of the Underlying
Funds and Portfolio Managers with which Permal Macro has invested
more than 20% of the value of its gross assets to ensure that, in
the aggregate, the restrictions quoted above are not breached.
- Permal Macro may not invest in aggregate more than 20% of the
value of its gross assets in other funds whose principal investment
objectives include investing in other funds.
- Permal Macro may not take or seek to take legal or management
control of the issuer of any of its underlying investments.
- Permal Macro may not invest more than 10% in aggregate, of the
value of its gross assets directly in physical commodities.
- Permal Macro has the power to borrow and may do so not only to
meet redemptions (which would otherwise result in Permal Macro
prematurely liquidating investments), but also as part of its
investment philosophy. Such borrowing, in the aggregate, will not
exceed 20% of the net assets of Permal Macro.
i) Market price risk management
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
for both loss and gain that might be suffered through holding
market positions in the face of price movements. The Company's
investment portfolio is exposed to market price fluctuations which
are monitored by the Investment Adviser in pursuance of its
investment objective and policies.
Details of the Company's exposure in underlying investments held
via Permal Macro as at 31 December 2011 are disclosed in summary
form in the Manager's Report (see full Annual Report &
Accounts).
Price sensitivity analysis
The Company's only investment is in Permal Macro. Therefore,
market price risk is managed indirectly through diversification of
the investment portfolio in Permal Macro.
The Investment Adviser provides a Portfolio & Risk analysis
for Permal Macro that is included within the Board report process.
The analysis provides data on a Value at Risk measurement of 99% on
a best fit or 'proxy' data that aligns with the investment strategy
of the portfolio. Performance data is approximated reasonably by
using Extreme Value Theory. The Investment Adviser also analyses
the time-varying market factor sensitivities of Permal Macro.
The following details the Company's sensitivity to a 10%
increase and decrease in the market prices, with 10% being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management assessment of the
possible change in market prices. At 31 December 2011 if the market
prices had been 10% higher with all other variables held constant,
the increase in the net assets attributable to equity Shareholders
for the year would have been GBP13,052,693 (2010: GBP13,931,161);
an equal change in the opposite direction would have decreased the
net assets attributable to equity Shareholders.
Actual trading results may differ from the above sensitivity
analysis and those differences may be material.
ii) Interest rate risk management
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest.
Substantially all of the Company's assets are non-interest bearing
equity investments and its exposure to interest rate changes is
minimal. Interest receivable on bank deposits and interest payable
on bank overdraft positions will be affected by fluctuations in
interest rates. All cash balances and bank overdrafts are at
variable rates. Increases in interest rates will increase the
borrowing costs of the Company should the overdraft facility be
used. The rate of interest in respect of the overdraft facility is
fixed at Royal Bank of Canada (Channel Islands) Limited base rate
plus 1%. Credit monies are sufficient to provide liquidity for
ongoing expenses of the Company.
The Company's investment in Permal Macro is not directly exposed
to interest rate risk. However, the Company may be indirectly
exposed through the underlying portfolio held by Permal Macro.
As at 31 December 2011, all of the Company's assets and
liabilities were non-interest bearing with the exception of cash
and cash equivalents (see table below).
Non-interest
1 - 3 months bearing
GBP000 GBP000 Total GBP000
============================================ ============= ============ ===================
Assets
Financial assets at fair value through
profit or loss:
Investment in Fund of Hedge Funds - 130,527 130,527
Loans and receivables:
Other receivables - 11 11
============================================ ============= ============ ===================
Total assets - 130,538 130,538
============================================ ============= ============ ===================
Liabilities
Financial liabilities measured at amortised
cost:
Bank overdraft (629) - (629)
Accounts payable and accrued expenses - (53) (53)
============================================ ============= ============ ===================
Total liabilities (629) (53) (682)
============================================ ============= ============ ===================
Total interest sensitivity gap (629) - -
============================================ ============= ============ ===================
As at 31 December 2010, all of the Company's assets and
liabilities were non-interest bearing with the exception of cash
and cash equivalents (see table below).
Non-interest
1 - 3 months bearing
GBP000 GBP000 Total GBP000
============================================ ============= ============ ===================
Assets
Financial assets at fair value through
profit or loss:
Investment in Fund of Hedge Funds - 139,312 139,312
Loans and receivables:
Cash at bank 21 - 21
Other receivables - 9 9
============================================ ============= ============ ===================
Total assets 21 139,321 139,342
============================================ ============= ============ ===================
Liabilities
Financial liabilities measured at amortised
cost:
Accounts payable and accrued expenses - (59) (59)
============================================ ============= ============ ===================
Total liabilities - (59) (59)
============================================ ============= ============ ===================
Total interest sensitivity gap 21 - -
============================================ ============= ============ ===================
Interest rate sensitivity analysis
Cash and cash equivalents will be affected by movements in
interest rates. However there will be no material impact on the
Statement of Comprehensive Income or Statement of Changes in
Shareholder's Equity from movements in interest rates due to the
immateriality of the bank balances at year end. At year end the
Company's cash balance was GBP(629,018) (31 December 2010:
GBP20,847).
iii) Currency risk management
The Company's investment in Permal Macro is predominantly in
pounds sterling; therefore, the effect of currency fluctuation is
minimal. Permal Macro's investments comprises predominantly of US
dollar denominated investments. Whilst Permal Macro will (subject
to the availability of appropriate foreign exchange and credit
lines) engage in currency hedging in an attempt to reduce the
impact on its Class A GBP shares of currency fluctuations,
volatility of returns may result from such currency exposure. Any
uninvested monies such as working capital requirements are
monitored by the Investment Manager.
The Company had no significant exposure to currency risk at 31
December 2011 and 31 December 2010.
c) Liquidity risk management
The ultimate responsibilities for liquidity risk management
rests with the Board of Directors which has appropriately reviewed
the funding requirements for the management of the Company's short,
medium and long-term funding needs. The Company maintains adequate
reserves by continuously monitoring forecast and actual cash flows
and maintains an overdraft facility as described on page 35 of the
Annual Report & Accounts to assist with any unforeseen timing
mismatches.
The Company's financial instrument is an investment in Permal
Macro which generally may be illiquid. The Company is currently
required to give 20 days prior notice of redemption to redeem its
holdings in Permal Macro.
Some of the investments made by Permal Macro may not be readily
realisable and their marketability may be restricted and it may be
difficult for Permal Macro to sell or realise its investments in
whole or in part.
Residual contractual maturities of financial Less than
liabilities 1 month Total
31 December 2011 GBP000 GBP000
============================================= ================= ======
Accounts payable 38 38
Accrued expenses 15 15
============================================= ================= ======
31 December 2010
Accounts payable 43 43
Accrued expenses 16 16
============================================= ================= ======
d) Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. The carrying amounts of financial assets best represent
the maximum credit risk exposure at the reporting date. Investments
made by Permal Macro may not be regulated by the rules of any stock
exchange or investment exchange or other regulatory body or
authority. The counterparties to such investments may have no
obligation to make markets in such investments and may have the
ability to apply essentially discretionary margin and credit
requirements. As a result, the Company will be subject to the risk
of bankruptcy of, or the inability or refusal to perform with
respect to such investments by the counterparties with which the
Company deals. The diversity of the portfolio assists with the
mitigation of such risk.
The Company's financial assets which were exposed to credit risk
via investment in Permal Macro were concentrated as follows:
As at As at
31 December 31 December
2011 2010
GBP000 GBP000
============================= ============ ============
Banks:
- Cash and cash equivalents - 21
Investment in Permal Macro 130,527 139,312
============================= ============ ============
130,527 139,333
============================= ============ ============
Significant Agreements and Related Parties
a) Directors' Remuneration & Expenses
Up until 30 June 2011, the annual Directors' fees comprised
GBP26,000 paid to Mr Spencer, the Chairman, GBP22,000 to Ms Goodwin
as Chairman of the Audit Committee and GBP20,000 to Mr Niven. From
1 July 2011 the annual Director's fees were each increased to
comprise GBP32,000 paid to Mr Spencer, the Chairman, GBP28,000 to
Ms Goodwin as Chairman of the Audit Committee and GBP26,000 to Mr
Niven. Mr Bowie has waived his right to his fee of GBP26,000.
Directors' fees payable at 31 December 2011 were GBP21,441 (2010:
GBP17,140).
Any additional remuneration where Directors are involved in
duties beyond those normally expected as part of a Director's
appointment will be disclosed in the Directors' Report of the
financial statements in respect of that financial year.
b) Manager
Following the restructuring of the Company from 1 October 2007,
Permal Macro will pay the Investment Adviser an annual fee (payable
monthly in arrears) of 2.0% of the value of the Total Assets
attributable to its Class A shares in Permal Macro held by the
Company (together with certain other operational costs and
expenses). The Investment Adviser has agreed to rebate half of that
amount to the Manager in complete discharge of the Company's
obligation to pay fees to the Manager pursuant to the Investment
Management Agreement out of which 0.5% will be available as a trail
commission to Qualifying Investors.
During the year ended 31 December 2011, Permal Macro paid a
total annual fee amounting to the equivalent of GBP2,698,392 (2010:
GBP2,641,226) to the Investment Adviser and half of this amount
(the equivalent of GBP1,349,196, 2010: GBP1,320,613) was paid by
the Investment Adviser to the Manager.
The Manager is responsible for discharging all the fees of the
Investment Consultant.
The Investment Management Agreement may be terminated by either
party giving to the other not less than 9 months' notice, or
otherwise in circumstances where, amongst other things, one of the
parties has a receiver appointed of its assets or if an order is
made or an effective resolution passed for the winding up of one of
the parties or if, following a continuation vote not being passed
or if a resolution for the winding-up of the Company is passed.
Under the Investment Advisory Agreement, the Company pays a
nominal fee to the Investment Adviser save where the Company's
investment in Permal Macro is redeemed otherwise than on at least
nine months' notice in which case a termination fee equal to the
fee which would otherwise have been payable if due notice had been
given in respect of the Company's investment in Permal Macro which
is then being redeemed (as at the Valuation Date immediately
preceding redemption) is payable by the Company to the Investment
Adviser.
c) Administrator
RBC Offshore Fund Managers Limited (the 'Administrator'),
performs administrative duties for which it was remunerated at a
rate of 0.03% of the Net Asset Value of the Company subject to a
minimum of GBP30,000 per annum.
d) Secretary
Dexion Capital (Guernsey) Limited ('the Secretary') performs
secretarial duties for which it was remunerated at an annual fee of
GBP20,000.
e) Custodian
Royal Bank of Canada (Channel Islands) Limited ('the
Custodian'), is remunerated at an annual rate of 0.03% of the Net
Asset Value of the Company subject to a minimum of GBP10,000 per
annum.
Enquiries:
Carol Kilby:
Dexion Capital (Guernsey) Limited
Tel: +44 (0) 1481 743943
This information is provided by RNS
The company news service from the London Stock Exchange
END
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