TIDMPAX
RNS Number : 2027F
Pacific Alliance Asia Opp Fd Ld
22 April 2014
22 April 2014
Pacific Alliance Asia Opportunity Fund Limited
Full year results for the year ended 31 December 2013
Pacific Alliance Asia Opportunity Fund Limited ("PAX" or the
"Company") (AIM: PAX), an AIM traded feeder fund for the Pacific
Alliance Asia Opportunity Fund L.P. (the "Master Fund"), today
announces its full year financial results to 31 December 2013.
Financial Highlights
-- Net asset value as at 31 December 2013 was US$159.3 million,
representing US$1.586 per share, a 6.81% increase from 31 December
2012 (US$168.8 million, representing US$1.485 per share). Share
price closed on 31 December 2013 at US$1.305, a 3.16% increase from
31 December 2012.
-- The Master Fund generated a net return of 7.19% for 2013,
slightly behind target as a result of the strategic repositioning
and reallocation of the portfolio.
Portfolio and Company Developments
-- The Bridge Financing strategy generated a steady stream of
income in 2013. Following slightly looser credit conditions in the
first half of 2013 due to the rapid expansion of wealth management
products, China credit has returned to tightening amid broader
Government policy driven deleveraging of the economy. The Manager
believes this will be a multi-year process and thus expects an
attractive environment for lending for some time to come. Beyond
China, the Manager also continues to find attractive senior secured
and mezzanine loan opportunities in the real estate space in
Australia, where bank oversight and regulation has kept credit
tight.
-- The Distressed/Secondary book is performing in line with
expectations and the Master Fund continues to negotiate deals at
steep discounts to intrinsic value. The main focus remains European
Bank sellers in Japan and Australia, though local bank sellers are
also emerging in Korea and defaults in among China Trust loans are
starting to create opportunities.
-- During the year, the Manager increased the allocation to
public market strategies from 10% to 20%, in particular Japan
equity long-short and Asian Event Driven and Arbitrage, which has
also improved the overall liquidity of the Fund and allowed the
Fund to run at lower cash levels, thus decreasing cash drag.
-- A significant shift of the portfolio was the increase in
allocation to Convertible Bond Financings ("CB's"). The Manager
believes that Chinese equities are relatively cheap, and although a
broader market catalyst may be unlikely given the current poor news
flow from China, stock specific catalysts can be identified and
create opportunities for significant upside from low valuations. By
structuring these investments as CBs, the Fund earns some interest
while waiting for the catalysts to play out. The strategy was the
key driver of performance for the first two months of 2014. The
Manager remains excited about this opportunity set and is working
on several more CB deals.
-- PAX distributed 12% of NAV via two 6% distributions by way of
tender offers, as announced on 10 June and 12 November 2013. The
Company plans to announce the next 6% distribution by way of a
tender offer in June 2014.
The Investment Manager said 2013 saw a transition for the Master
Fund, particularly in the second half of the year as it rebalanced
its portfolio to take advantage of changing market conditions. By
strategically repositioning and reallocating the Master Fund's
portfolio investments, the Manager was able to trade some fixed
return for attractive optionality in 2013. Strong deal flow has
eliminated any excess cash drag and the Master Fund is now more
invested than it has ever been previously. As a result, the Manager
is confident that the fund is poised to take advantage of any
dislocations and inefficiencies in the market while maintaining
solid risk management standards.
A full copy of the Annual Report will be distributed to all
registered shareholders and will be available on the Company's
website: www.pax-fund.com. Copies of the Master Fund's Audit Report
will be available upon request.
For further information please contact:
MANAGER: MEDIA RELATIONS:
Pacific Alliance Investment Stephanie Barry
Management Limited T: (852) 3719 3375
T: (852) 2918 0088 sbarry@pagasia.com
pax@pagasia.com
BROKER: NOMINATED ADVISER:
Hiroshi Funaki Philip Secrett
Edmond de Rothschild Securities Grant Thornton UK LLP
T: (44) 20 7845 5960 T: (44) 20 7383 5100
funds@lcfr.co.uk Philip.J.Secrett@uk.gt.com
----------------------------
About Pacific Alliance Asia Opportunity Fund Limited
Pacific Alliance Asia Opportunity Fund Limited (AIM: PAX) serves
as a feeder fund for Pacific Alliance Asia Opportunity Fund L.P.
(the "Master Fund"), a Cayman Islands exempted limited partnership.
PAX was admitted to trading on the AIM Market of the London Stock
Exchange in September 2006.
The principal investment objective of both PAX and the Master
Fund is to provide their respective investors with capital
appreciation through value, arbitrage and special situations
investments in Asian markets. Target investments include distressed
credit, private equity secondaries, activist investments and other
opportunities offering the possibility of unlocking the underlying
value of a company or asset.
For more information about PAX, please visit:
www.pax-fund.com
Pacific Alliance Asia Opportunity Fund Limited is managed by PAG
(formerly known as Pacific
Alliance Group), which is one of the region's largest
Asia-focussed alternative investment managers, with funds under
management across Private Equity, Real Estate and Absolute
Return strategies. Founded in 2002, PAG now has a presence
across Asia with 330 staff working in the region.
For more information about PAG, please visit:
www.pagasia.com
Chairman's Statement
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
generated an audited net return of 6.81% for the twelve months
ended 31 December 2013 with the NAV per share at US$1.586.
During 2013 the Company distributed 12% of NAV via two 6%
distributions by way of tender offers, as announced on 10 June and
12 November 2013. The Company plans to announce the next 6%
distribution by way of a tender offer in Q2 2014.
The Pacific Alliance Asia Opportunity Fund L.P. (the "Master
Fund") - General Partner's Report
The Master Fund achieved a net return of +7.19% for 2013. The
Investment Manager acknowledges that the return for this year was
slightly behind target as a result of the strategic repositioning
and reallocation of the portfolio. The Master Fund has undergone a
transitional phase (particularly in the second half of the year) by
trading off some fixed return for attractive optionality. With this
portfolio rotation, the Investment Manager has also eliminated the
excess cash and the resulting drag. The Master Fund is more
invested currently than it has been in previous years. The
Investment Manager is pleased with the Master Fund's current
positioning and is optimistic that it is on track to deliver a
strong risk-adjusted return for 2014.
A significant shift of the portfolio is the increase in
allocation to Convertible Bond Financings ("CB"). These are loans
we made to major listed companies (primarily in Hong Kong),
structured in the form of a bond with a stable fixed return
component and attractive equity upside. At the end of the year, the
Master Fund had a total of seven positions with approximately 20%
exposure to this strategy, amounting to over US$400m of equity
optionality. This repositioning paid off well in the first month of
2014 as two positions, Project Superstar and Project Sonic, were
the key contributors towards over 380 basis points of net return.
The Investment Manager remains excited about this opportunity set
and is working on several more CB deals.
Under the new government regime in China, the Investment Manager
is seeing a wave of privatization and state-owned enterprise
reform. This structural change has brought a unique opportunity for
the Master Fund to provide primary financing to state-owned
companies and their subsidiaries for their business development.
Project Phoenix is an example of such an investment, in which the
Master Fund provided a CB to a Hong Kong listed company (controlled
by a city government in China) to assist with its asset injection
schedule. The CB is structured with a reasonable fixed yield with
significant upside and is backed by strong government credit. The
Investment Manager closed another similar investment early this
year and will continue to explore these types of financing going
forward.
The Bridge Financing strategy remains a key component of the
Master Fund, generating a steady stream of income. The Investment
Manager expects the exposure to maintain at its current level as
demand for loans in China and Australia remains high. China, in
particular, has drawn some headline news in the past several months
as the government continues to rebalance credit by controlling
liquidity in the market. As a result of this tightened credit, the
Master Fund is seeing a pick up in opportunities in its lending
strategy. Competition has been decreasing, providing the Master
Fund with the ability to charge higher rates for its loans. The
Investment Manager expects to see an extended period of tightening
and remains confident that the Master Fund will benefit from this
dislocation.
The Distressed/Secondary book is performing in line with
expectations and the Investment Manager intends to maintain the
exposure at approximately 20%. The Investment Manager continues to
source attractive secondary credit opportunities from commercial
banks, proprietary trading desks, and other financial institutions
as they continue to rationalize their balance sheets and sell down
the non-core assets. Though the sale activity can be unpredictable,
the Investment Manager maintains a steady dialogue with many
sellers and has been able to negotiate deals (as opposed to
auction) at steep discounts to intrinsic value. Other than
Australia/New Zealand and Japan, the Investment Manager is also
seeing attractive opportunities in Korea. Project Fiore, a
distressed non-performing loan portfolio the Master Fund purchased
from a distressed seller in Korea in early 2013, was one of the top
contributors for the year as the Investment Manager was able to
negotiate the portfolio at discount and sell the underlying assets
at significantly higher levels than underwriting. Another major
position in this strategy, Project Wine, continued to experience
pressure in the second half of the year. The Distillers &
Vintners sector in China has been weak and volatile as the
government clamped down on lavish official entertainment under the
new regime. As previously mentioned, Project Wine is structured
with downside protection and a minimum guaranteed of 15% IRR. The
lock up will expire in April 2015 and the Investment Manager
remains hopeful that there will be upside from current levels.
The Equity Long/Short and Event Driven/Arbitrage combined
represent approximately 20% of the Master Fund. During the year,
the Investment Manager slowly increased the allocation to the
public book from 10% to 20%. As a result of a larger exposure to
the public book, the Investment Manager has also improved the
liquidity of the Master Fund. With the addition of a new senior
member in the public trading team, the Investment Manager expects
to slowly increase the exposure to the Event Driven/Arbitrage
strategy with a focus on merger, restructuring, capital structure
related events within Pan-Asia. The Equity Long/Short strategy
continued to perform well and will remain market neutral with a
primary focus on Japanese and large cap investments.
The Pre-IPO strategy makes up the rest of the exposure with
several positions left in the Master Fund. This strategy was a
slight detractor during the year but the Investment Manager remains
hopeful that the Chinese IPO market will re-open in 2014, creating
an upside catalyst for the portfolio. The Investment Manager does
not expect to add any Pre-IPO positions going forward.
Last but not the least, the Investment Manager has eliminated
the excess cash drag as a result of the strong deal flow and the
increased exposure in the public book. The cash level of the Master
Fund is at its lowest level and the Investment Manager will
continue to run the Master Fund efficiently while keeping leverage
to a minimum.
With the Master Fund's strategic repositioning this year, the
Investment Manager remains optimistic that the Master Fund is well
poised to take advantage of any dislocations and inefficiencies in
the market. The Master Fund now has a solid credit component with
the addition of significant equity optionality for the years ahead.
As always, preservation of capital is the priority and the
Investment Manager continues to strengthen its infrastructure and
place a strong emphasis on risk management. The Investment Manager
has built a strong and established franchise over the years and
will continue to remain focused on delivering strong risk adjusted
returns to its investors.
Summary
The Board remains confident that the Master Fund portfolio has
been well positioned during 2013 to suit the current market
environment and to generate attractive returns through 2014 and
beyond.
John Alexander
Chairman
Investment Manager's Report
Portfolio Performance
As at 31 December 2013, the Company's audited net asset value
per share ("NAV") was US$1.586, a 6.81% increase from the 31
December 2012 audited financial statements. The Company's share
price closed on 31 December 2013 at US$1.305, a 3.16% increase from
31 December 2012.
The Company invests substantially all of its assets in Pacific
Alliance Asia Opportunity Fund L.P., a Cayman Islands exempted
limited partnership via Pacific Alliance Asia Opportunity Feeder
Fund III Limited (the "Feeder Fund").
Realized and Unrealized Income
Total income for the period from 1 January 2013 to 31 December
2013 was US$11,659,159.
Realized Income/ (Loss) US$
Investment in Master Fund 5,742,367
Deposit Interest 120
Foreign Exchange (52)
------------------
Total 5,742,435
Unrealized Appreciation US$
Investment in Master Fund 5,916,724
------------------
Total 5,916,724
Master Fund Portfolio and Performance as at 31 December 2013
As at 31 December 2013, the Master Fund's audited net asset
value ("NAV") was US$1.740 per US$1.00 capital contributed, a 7.19%
increase from the 31 December 2012 audited financial
statements.
Realized and Unrealized Income for the Master Fund
Total income for the period from 1 January 2013 to 31 December
2013 was US$242,195,144.
Realized Income/(Losses) US$
Bridge Financing 98,488,334
Distressed/Secondary 90,763,876
Equity Long/Short 8,459,240
Deposit Interest 5,999,958
Closed-end Funds 3,377,130
CB Financing 2,703,525
Pre-IPO Investments (828,989)
Event Driven, Relative Value/Arbitrage (1,423,253)
Foreign Exchange (13,889,938)
Total 193,649,883
=========
Unrealized Appreciation/(Depreciation) US$
CB Financing 53,762,198
Foreign Exchange 17,720,607
Event Driven, Relative Value/Arbitrage 9,761,422
Bridge Financing 9,240,579
Closed-end Funds 5,203,031
Equity Long/Short 159,487
Pre-IPO Investments (11,234,932)
Distressed/Secondary (36,067,131)
Total 48,545,261
=========
Master Fund Portfolio Summary
As at 31 December 2013, the Master Fund held investments and
cash with a carrying value of US$2,228 million. The Master Fund
portfolio is diversified across several strategies including Bridge
Financing, CB Financing, Distressed/Secondary, Event Driven,
Relative Value/Arbitrage, Pre-IPO Investment, Equity Long/Short,
and Cash.
Fair Value
of Investment
Type of Investment (US$) % of Total
Bridge Financing(1) 983,439,938 44.13%
CB Financing(1) 476,556,654 21.38%
Distressed/ Secondary 441,951,446 19.83%
Event Driven, Relative Value/ Arbitrage 209,447,226 9.40%
Pre-IPO Investment 72,367,783 3.25%
Equity Long/Short 44,714,819 2.01%
Cash(2)
Total 2,228,477,866 100.00%
(1) The allocation by strategy as per the General Partner's
report differs from the schedule of investments of the Master
Fund's audited financial statements. The cost of the loans
receivable disclosed in the schedule of investments represents the
cost of investments for accounting purposes, which are higher than
the respective cost of the loans according to the terms under the
loan agreements. Collection/Repayment of loans receivable is
calculated based upon the effective interest method in the schedule
of investments, whereas in the General Partner's report and
newsletter, the cost is reduced prior to a reduction of interest in
accordance with the definitive agreements.
(2) Cash represents unencumbered cash of the Partnership.
Breakdown of Investment Holdings Breakdown of Investment Holdings
by Cash and Industry by Cash and Geography
Cash and Industry % of Total Cash and Geography % of Total
----------- --------------------- ------------
Property - Commercial 54.83% Greater China 81.32%
----------- --------------------- ------------
Energy 10.37% Australia 10.07%
----------- --------------------- ------------
Food 7.88% Japan 4.90%
----------- --------------------- ------------
ETF 5.03% Korea 1.59%
----------- --------------------- ------------
Manufacturing 4.94% India 0.73%
----------- --------------------- ------------
Property - Residential 4.13% Vietnam 0.55%
----------- --------------------- ------------
Financial Services 3.05% New Zealand 0.29%
----------- --------------------- ------------
Materials 1.91% Taiwan 0.23%
----------- --------------------- ------------
Agriculture 1.90% Malaysia 0.15%
----------- --------------------- ------------
Industrials 1.52% Singapore 0.13%
----------- --------------------- ------------
Consumer Discretionary 1.44% Indonesia 0.06%
----------- --------------------- ------------
Health Care 1.29% Thailand 0.01%
----------- --------------------- ------------
Index Hedges 0.62% United States* -0.03%
----------- --------------------- ------------
Utilities 0.59% 100.00%
----------- --------------------- ------------
Consumer Staples 0.40%
----------- --------------------- ------------
Mining 0.24%
----------- --------------------- ------------
Shipbuilding 0.24%
----------- --------------------- ------------
Telecommunication Services 0.17%
----------- --------------------- ------------
Aviation 0.08%
----------- --------------------- ------------
Travel Services 0.02%
----------- --------------------- ------------
Advisory 0.01%
----------- --------------------- ------------
Others* -0.17%
----------- --------------------- ------------
Information Technology* -0.49%
----------- --------------------- ------------
100.00%
----------- --------------------- ------------
*represents listed securities sold short
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 31 DECEMBER 2013
Note 2013 2012
US$ US$
Assets
Investment in Pacific Alliance Asia
Opportunity Fund L.P. through Pacific
Alliance Asia Opportunity Feeder
Fund III Limited, at fair value (Cost:
US$111,680,015; 2012: US$127,037,648) 4 159,330,906 168,771,815
Cash and cash equivalents 132,902 323,005
Other receivables 55,175 55,175
-------------------- --------------------
Total assets 159,518,983 169,149,995
------------------- -------------------
Liabilities
Directors' fee payable 8(e) 126,000 252,000
Accrued expenses and other payables 68,057 77,087
-------------------- --------------------
Total liabilities 194,057 329,087
------------------- -------------------
Net assets 159,324,926 168,820,908
Analysis of net assets
Share capital 6 1,617,398 1,617,398
Share premium 6 160,614,136 160,614,136
Tendered shares 6 (84,852,736) (64,349,046)
Retained earnings 81,946,128 70,938,420
-------------------- --------------------
Net assets (equivalent to US$1.586
per share based on 100,456,123 outstanding
shares) (2012: US$1.485 per share
based on 113,689,591 outstanding
shares) 159,324,926 168,820,908
Approved by the Board of Directors
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2013
Note 2013 2012
US$ US$
Income
Bank interest income 120 399
------------------- -------------------
Expenses
Directors' fees 8(e) 252,000 252,000
Other expenses 399,451 428,063
-------------------- --------------------
Total expenses from fund specific
activities 651,451 680,063
------------------- -------------------
Income and expenses allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited
Income allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited 4 2,467,225 1,920,690
Expenses allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited 4 (8,068,201) (11,963,648)
-------------------- --------------------
Net investment loss allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited (5,600,976) (10,042,958)
------------------- -------------------
Net investment loss (6,252,307) (10,722,622)
------------------- -------------------
Realized and unrealized gains/(losses)
from investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited and foreign currencies
Net realized gains from investments
allocated from Pacific Alliance Asia
Opportunity Feeder Fund III Limited 4 15,786,964 10,337,984
Net change in unrealized gains on
investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited 4 4,387,523 19,310,885
Net foreign exchange losses (52) (377)
-------------------- --------------------
Net realized and unrealized gains
from investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited and foreign currencies 20,174,435 29,648,492
------------------- -------------------
Net increase in net assets from operations
(before allocation of performance
fee to the General Partner of Pacific
Alliance Asia Opportunity Fund L.P.) 13,922,128 18,925,870
Allocation of performance fee to
the General Partner of Pacific Alliance
Asia Opportunity Fund L.P. (2,914,420) (3,610,735)
-------------------- --------------------
Net increase in net assets from operations 11,007,708 15,315,135
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED 31 DECEMBER 2013
Share
capital
and share Retained
Note premium Earnings Tendered shares Total
US$ US$ US$ US$
At 1 January 2012 162,231,534 55,623,285 (42,864,339) 174,990,480
Repurchase of shares 6 - - (21,484,707) (21,484,707)
Net increase in net assets
from operations - 15,315,135 - 15,315,135
------------------ ---------------- ------------------ ------------------
At 31 December 2012 and 1
January 2013 162,231,534 70,938,420 (64,349,046) 168,820,908
Repurchase of shares 6 - - (20,503,690) (20,503,690)
Net increase in net assets
from operations - 11,007,708 - 11,007,708
------------------ ---------------- ------------------ ------------------
At 31 December 2013 162,231,534 81,946,128 (84,852,736) 159,324,926
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2013
2013 2012
US$ US$
Net increase in net assets from operations 11,007,708 15,315,135
Adjustments to reconcile net increase in
net assets from operations to net cash generated
from operating activities
Redemptions of investment in Pacific Alliance
Asia Opportunity Feeder Fund III Limited 21,100,000 21,530,000
Income allocated from Pacific Alliance Asia
Opportunity Feeder Fund III Limited (2,467,225) (1,920,690)
Expenses allocated from Pacific Alliance
Asia Opportunity Feeder Fund III Limited 8,068,201 11,963,648
Net realized gains from investments allocated
from Pacific Alliance Asia Opportunity Feeder
Fund III Limited (15,786,964) (10,337,984)
Net unrealized gains from investments allocated
from Pacific Alliance Asia Opportunity Feeder
Fund III Limited (4,387,523) (19,310,885)
Allocation of performance fee to General
Partner of Pacific Alliance Asia Opportunity
Fund LP 2,914,420 3,610,735
Decrease in other receivables - 26
Decrease in accrued expenses and other payables (135,030) (49,956)
-------------------- --------------------
Net cash generated from operating activities 20,313,587 20,800,029
------------------- -------------------
Cash flows from financing activities
Repurchase of shares (20,503,690) (21,484,707)
-------------------- --------------------
Net cash used in financing activities (20,503,690) (21,484,707)
------------------- -------------------
Net decrease in cash and cash equivalents (190,103) (684,678)
Beginning balance 323,005 1,007,683
-------------------- --------------------
Ending balance, representing cash and bank
balances 132,902 323,005
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
1 Organization
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
was incorporated on 4 May 2006 in the Cayman Islands as a
closed-end Cayman Islands registered exempted company. The
Company's ordinary shares are traded on the AIM market of the
London Stock Exchange. The Company can raise additional capital up
to the authorized share capital as disclosed in Note 6. The
Company's registered office is PO Box 472, 2nd Floor, Harbour
Place, Grand Cayman, Cayman Islands.
Since the reconstruction approved by an extraordinary general
meeting held on 7 May 2009 (the "Reconstruction"), the Company
invests substantially all its assets in Pacific Alliance Asia
Opportunity Fund L.P. (the "Master Fund"), a Cayman Islands
exempted limited partnership, through a 10.86% (2012: 13.81%)
interest in Pacific Alliance Asia Opportunity Feeder Fund III
Limited (the "Feeder Fund"). As at 31 December 2013, the Company
indirectly held approximately a 7.34% (2012: 8.23%) interest in the
Master Fund.
The Company's investment activities are managed by Pacific
Alliance Investment Management Limited (the "Investment Manager").
The Company has appointed Butterfield Trust (Bermuda) Limited to
act as custodian of certain assets of the Company and MUFG Fund
Services (Ireland) Limited (formerly known as Butterfield Fulcrum
Group (Ireland) Limited) to act as the Company's administrator
pursuant to the custodian agreement and administration services
agreement, respectively.
The consolidated financial statements were approved by the Board
of Directors on 16 April 2014.
2 Summary of significant accounting policies
The following significant accounting policies are in conformity
with accounting principles generally accepted in the United States
of America ("US GAAP"). The Company applies the provisions of
Financial Accounting Standards Board ("FASB") ASC 946-10, Financial
Services - Investment Companies (the "Guide"). Such policies are
consistently followed by the Company in the preparation of its
consolidated financial statements.
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of the Company and its subsidiaries (collectively the
"Fund"). Subsidiaries are fully consolidated from the date on which
control is transferred to the Fund and deconsolidated from the date
that control ceases. Inter-company transactions between group
companies are eliminated upon consolidation.
The Fund uses wholly and partially owned special purpose
vehicles ("SPV") to hold and transact in certain investments and
lending. The Fund's policy is to consolidate, as appropriate, those
SPVs in which the Fund has control over significant operating,
financial or investing decisions of the entity.
Except when an operating company provides services to the Fund,
investment in an operating company is carried at fair value (refer
to Note 2(c)(ii) for fair value measurement).
(b) Use of estimates
The preparation of financial statements in conformity with US
GAAP requires the Fund's management to make estimates and
assumptions that affect the reported value of assets and
liabilities and disclosures of contingent assets and liabilities as
at 31 December 2013 and the reported amounts of income and expenses
for the year then ended. The areas involving a higher degree of
judgment or complexity, or areas where assumptions and estimates
are significant to the consolidated financial statements are
disclosed in Note 2(h).
(c) Investments
(i) Recognition and derecognition
Regular purchase and sale of investments are accounted for on
the trade date, the date the trade is executed. Costs used in
determining realized gains and losses on the disposal of
investments are based on the specific identification method.
Transfer of investments is accounted for as a sale when the Fund
has relinquished control over the transferred assets. Any realized
gains and losses from investments are recognized in the statement
of operations.
(ii) Fair value measurement
The Fund is an investment company under the Guide. As a result,
the Fund records and re-measures its investment in the Feeder Fund
on the consolidated statement of assets and liabilities at fair
value. The fair value of the Fund's investment in the Feeder Fund
is based on the net asset value ("NAV") of the Feeder Fund as
determined by its administrator and Investment Manager. The Feeder
Fund is open to subscription on a monthly basis and redemption on a
quarterly basis, based on the NAV calculated by its administrator
and the Investment Manager considers that it is an appropriate
basis for the fair value of the Fund's investment in the Feeder
Fund.
The Fund records its proportionate interest in the net assets of
the Feeder Fund. The Fund records and reflects its proportionate
share of the Feeder Fund's income, expenses, and realized and
unrealized gains and losses from investments in the consolidated
statement of operations. As a result, no realized and unrealized
gains or losses from investment in the Feeder Fund are recognized.
In addition, the Fund accrues its own income and expenses. The
performance of the Fund is directly affected by the performance of
the Master Fund. Attached are the audited consolidated financial
statements of the Feeder Fund and the Master Fund, including the
consolidated schedule of investments, valuation policy and year-end
investment valuation, which should be read in conjunction with
these consolidated financial statements.
(d) Cash and cash equivalents
Cash represents cash at banks and does not include restricted
cash such as fixed deposits pledged as security for bank loans.
Cash equivalents are defined as short term and highly liquid
investments that are readily convertible to known amounts of cash
and have original maturities of three months or less.
(e) Foreign currency translation
The books and records of the Fund are maintained in United
States Dollars ("US$"), which is also the functional currency.
Assets and liabilities, both monetary and non-monetary, denominated
in foreign currencies are translated into US$ by using prevailing
exchange rate as at financial reporting date, while income and
expenses are translated at the exchange rates in effect during the
year.
Gains and losses attributed to changes in the value of foreign
currencies for investments, cash balances and other assets and
liabilities are reported as foreign exchange gain and loss in the
consolidated statement of operations.
(f) Taxation
The Fund may be subject to taxes imposed in jurisdictions in
which it invests and operates. Such taxes are generally based on
income and/or gains earned. Taxes are accrued and applied to net
investment income, net realized gains and net unrealized gains, as
applicable, when the income and/or gains are earned. The Fund
accrues for liabilities relating to uncertain tax positions only
when such liabilities are probable and can be reasonably estimated
in accordance with the authoritative guidance contained in FASB ASC
740 described in Note 5.
The Fund uses the asset and liability method to provide for
income taxes on all transactions recorded in the consolidated
financial statements. This method requires that income taxes
reflect the expected future tax consequences of temporary
differences between carrying amounts of assets or liabilities for
book and tax purposes. Accordingly, a deferred tax asset or
liability for each temporary difference is determined based on the
tax rates that the Fund expects to be in effect when the underlying
items of income and expense are realized.
(g) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Expenses are recorded on an accrual basis.
The Fund also records its proportionate share of the Feeder
Fund's income and expenses. Please refer to note 2(c)(ii) for
details.
(h) Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are addressed below.
(i) Fair value of investment in the Feeder Fund
As discussed in note 2(c)(ii), the fair value of the Fund's
investment in the Feeder Fund is based on the NAV of the Feeder
Fund as determined by its administrator and Investment Manager. The
Feeder Fund invests substantially all its assets in the Master
Fund. The fair value of unlisted or unquoted securities in the
Master Fund is determined by using valuation techniques. The
valuation committee of the Master Fund ("Valuation Committee"),
with assistance from independent valuers, uses their judgment to
select a variety of methods and make assumptions that are mainly
based on market conditions existing at the end of each reporting
period.
Although the Valuation Committee uses their best judgment in
estimating fair value, there are inherent limitations in any
valuation technique. Estimated fair value may differ significantly
from the value that would have been used had a readily available
market for such investments existed and these differences could be
material to the Fund's consolidated financial statements.
Additional information about the level of market observability
associated with investments carried at fair value is disclosed in
Note 4 below.
(ii) Taxation
The Fund may be subject to income taxes in jurisdictions in
which it invests and operates. Significant judgment is required in
determining the worldwide provision for income taxes. There are
many transactions and calculations for which the ultimate tax
determination is uncertain. The Fund recognizes liabilities for
anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the current and deferred income tax
assets and liabilities in the period in which such determination is
made.
3 Concentration of risks
(a) "Master-feeder" structure
Since the Reconstruction, the Fund operates a "master-feeder"
structure and invests solely in the Master Fund through the Feeder
Fund. The "master-feeder" structure presents certain risks to the
Fund. The Feeder Fund will incur expenses and liabilities that will
be paid prior to making distributions to the Fund. The Fund may be
materially affected by the actions of other investors in the Master
Fund and the Feeder Fund. Consequently, if other investors redeem
from the Master Fund and the Feeder Fund, the Fund may experience
higher pro-rata operating expenses. The financial risks of the Fund
are associated with those of the Master Fund and the Feeder Fund
which are discussed in Note 3 of the Master Fund's and the Feeder
Fund's financial statements.
(b) Market risk
Market risk represents the potential loss in value of financial
instruments caused by movements in market variables, such as equity
prices.
The market risk that the Fund is exposed to is from the
investments held by the Master Fund, of which the investments are
typically made with a focus on Greater China. Political or economic
conditions and the possible imposition of adverse laws or currency
exchange restrictions in that region could cause the Master Fund's
investments and the respective markets to become less liquid and
also the prices to become more volatile.
(c) Interest rate risk
Interest rate risk arises from the fluctuations in the
prevailing levels of market interest rates which affect the fair
value of financial assets and liabilities and future cash flows.
The Fund has bank deposits and the Master Fund has certain
investments that collectively expose the Fund to interest rate
risk.
(d) Currency risk
Foreign currency risk arises as the value of future
transactions, recognised monetary assets and monetary liabilities
denominated in other currencies, fluctuates due to changes in
foreign exchange rates.
As at 31 December 2013 and 2012, the majority of the Fund's
assets and liabilities are denominated in US$, the functional
currency. As such, the Fund is not subject to material currency
risk. However, the Fund is indirectly exposed to currency risks
from the investments held by the Master Fund
(e) Credit risk
The main credit risk to which the Fund is exposed arises from
the Fund's indirect investment in the Master Fund which is closely
monitored by the Investment Manager.
(f) Liquidity risk
As the Company is closed-ended, it is not exposed to redemptions
of shares by its shareholders.
The Fund is exposed to liquidity risk as the Fund's investments
in the Feeder Fund are largely illiquid. Redemptions of interest in
the Feeder Fund are subject to a 12 months lock up in the first
year of investment and an additional notice period of 180 days.
The Fund has the ability to borrow in the short term but subject
to certain limitations, including the total amount of all
borrowings outstanding at any time shall not exceed 50% of the
Fund's total assets at such time.
4 Investments in Pacific Alliance Asia Opportunity Fund L.P.
As at 31 December 2013, the Feeder Fund was 10.86% (2012:
13.81%) held by the Fund and 89.14% (2012: 86.19%) held by
unrelated investors. As at 31 December 2013, the Feeder Fund held
67.64% in the Master Fund (2012: 59.55%).
In accordance with FASB ASC 820-10, Fair Value Measurement and
Disclosures, the Fund categorizes the fair value of its investments
in a hierarchy that prioritizes the inputs to valuation techniques
used to measure the fair value. The hierarchy gives the highest
priority to valuations based upon unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to valuations based upon
unobservable inputs that are significant to the valuation (Level 3
measurements). FASB ASC 820-10-35-39 to 55 provides three levels of
the fair value hierarchy as follows:
Level 1
Inputs that reflect unadjusted quoted prices in active markets
for identical assets or liabilities that the Fund has the ability
to access at the measurement date;
Level 2
Inputs to measure fair values are quoted prices in markets that
are not active, quoted prices for similar assets in active markets
or prices or valuations for which all significant inputs are
observable, either directly or indirectly. Inputs other than quoted
prices included within Level 1 that are observable for the asset or
liability either directly or indirectly, including quoted prices
for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are
not considered to be active, inputs other than quoted prices that
are observable for the asset or liability, and inputs that are
derived principally from or corroborated by observable market data
by correlation or other means; and
Level 3
Inputs that are unobservable and significant to the overall fair
value measurement.
Inputs to measure fair values broadly refer to the assumptions
that market participants use to make valuation decisions, including
assumptions about risk. Inputs may include price information,
volatility statistics, specific and broad credit data, liquidity
statistics and other factors. An asset or a liability's level
within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. However,
the determination of what constitutes "observable" requires
significant judgment. The Investment Manager considers observable
data to be such 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 categorization of an asset or a liability within the
hierarchy is based upon the pricing transparency of the asset or
liability and does not necessarily correspond to the Investment
Manager's perceived risk of that asset or liability.
In determining an instrument's placement within the hierarchy,
the Investment Manager follows the following guidance for
investments held by the Fund:
Level 1
Investments in listed stocks, bonds and derivatives are valued
using quoted prices in active markets and are therefore generally
classified within Level 1 of the fair value hierarchy.
As at 31 December 2013 and 2012, the Fund did not have any
investments that were categorized as Level 1 within the fair value
hierarchy.
Level 2
It may be possible that the NAV of unlisted investment funds
represents their fair value based on observable inputs such as
ongoing subscription and/or redemption activities. In these cases,
the NAV is considered as a Level 2 input.
The NAV of the Feeder Fund is used to value the Fund's
investment in the Feeder Fund as the Investment Manager believes it
represents the fair value based on observable data such as ongoing
redemption and/or subscription activities. As at 31 December 2013
and 2012, the Fund's investment in the Feeder Fund is included in
Level 2.
Level 3
Assets are classified within Level 3 of the fair value hierarchy
if they are traded infrequently and therefore have little or no
price transparency. As at 31 December 2013 and 2012, the Fund had
no investments that were categorized as Level 3 within the fair
value hierarchy. The investments within the Master Fund range from
Level 1 to Level 3.
The Fund accounts for and reflects in the consolidated financial
statements the proportionate share of the investment in the Feeder
Fund. The table below summarizes the investment income allocated
from the Master Fund through the Feeder Fund during the year ended
31 December 2013 and 2012:
2013 2012
US$ US$
Loan origination income - 27,532
Interest income 614,771 1,264,839
Bank interest income 443,952 199,178
Dividend income 1,240,837 369,649
Other income 167,665 59,492
---------------- ----------------
Income allocated from the Master Fund
through the Feeder Fund 2,467,225 1,920,690
5 Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which requires the Investment Manager to determine
whether a tax position of the Fund is more likely than not to be
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. The Investment Manager has analyzed the tax positions
and tax years in the jurisdictions that the Fund may be subject to.
For tax positions meeting the more likely than not threshold, the
tax amount recognized in the consolidated financial statements is
reduced by the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant taxing authority.
The Investment Manager have reviewed the operation and
investment structure of the Fund and considered there is no
material uncertain tax position at 31 December 2013.
Under current Cayman Islands legislation applicable to an
exempted company, the Fund is not subject to income tax, capital
gains or withholding tax, estate duty, or inheritance tax.
6 Share capital, share premium and tendered shares
Share Share Tendered
Number of capital premium Shares Total
shares US$ US$ US$ US$
At 1
January
2012 128,666,354 1,617,398 160,614,136 (42,864,339) 119,367,195
Repurchase
of shares (14,976,763) - - (21,484,707) (21,484,707)
-------------------- ------------------ ------------------ ------------------ --------------------
At 31
December
2012 and 1
January
2013 113,689,591 1,617,398 160,614,136 (64,349,046) 97,882,488
Repurchase
of shares (13,233,468) - - (20,503,690) (20,503,690)
-------------------- ------------------ ------------------ ------------------ --------------------
At 31
December
2013 100,456,123 1,617,398 160,614,136 (84,852,736) 77,378,798
As at 31 December 2013, the total authorised number of ordinary
shares was 5,000,000,000 (2012: 5,000,000,000) shares with a par
value of US$0.01 (2012: US$0.01) per share. As at 31 December 2013,
the Company had 161,739,827 (2012: 161,739,827) ordinary shares in
issue, of which 61,283,704 (2012: 48,050,236) were held as tendered
shares.
Movement of tendered shares are as follows:
Number of Repurchase
shares repurchased price Total
US$ US$
As at 1 January 2012 33,073,473 42,864,339
Repurchased in July 2012 7,719,981 1.42 10,962,373
Repurchased in December 2012 7,256,782 1.45 10,522,334
------------------ ------------------
As at 31 December 2012 and 1 January
2013 48,050,236 64,349,046
Repurchased in July 2013 6,821,375 1.53 10,436,704
Repurchased in December 2013 6,412,093 1.57 10,066,986
------------------ ------------------
As at 31 December 2013 61,283,704 84,852,736
7 Dividends
The directors do not recommend the payment of a dividend for the
years ended 31 December 2013 and 2012.
8 Related-party transactions
The Fund had the following significant related-party
transactions.
(a) Investment in Pacific Alliance Asia Opportunity Fund
L.P.
The Fund invests in the Master Fund via the Feeder Fund, both of
which are managed by the Investment Manager. Please refer to Note 4
for details.
(b) Company's shares held by the Investment Manager and its
subsidiary
During the year ended 31 December 2013, the Investment Manager
and its subsidiary entered into the following transactions in the
Company's shares:
-- tendered 659,873 shares of the Company at US$1.530 for
repurchase by the Company in July 2013;
-- tendered 560,804 shares of the Company at US$1.570 for
repurchase by the Company in December 2013;
-- transferred 865,425 shares of the Company to directors or
management of the Investment Manager and its subsidiaries.
During the year ended 31 December 2012, the Investment Manager
and its subsidiary entered into the following transactions in the
Company's shares:
-- tendered 954,267 shares of the Company at US$1.420 for
repurchase by the Company in July 2012;
-- tendered 911,073 shares of the Company at US$1.450 for
repurchase by the Company in November 2012;
-- purchased 47,104, 1,146,700 and 1,052,682 shares of the
Company at US$1.140, US$1.173 and US$1.250 respectively from the
market; and
-- transferred 2,093,241 shares of the Company to directors or
management of the Investment Manager and its subsidiaries.
As at 31 December 2013, the Investment Manager and its
subsidiary held 5,384,062 (2012: 7,470,164) shares of the Company,
representing 5.4% (2012: 6.6%) of the Company's total outstanding
shares.
(c) Company's shares held by the Master Fund
During the year ended 31 December 2013, the Master Fund sold
975,092 shares of the Company on the open market (2012: purchased
11,011,535 and sold 3,369,625 shares). As at 31 December 2013, the
Master Fund held 6,666,818 (2012: 7,641,910) shares of the Company,
representing 6.6% (2012: 6.7%) of the Company's total outstanding
shares.
(d) Management fees and performance allocations to the
Investment Manager
Before the Reconstruction, the Fund paid management fees and
performance allocations directly to the Investment Manager. The
Investment Manager is no longer entitled to receive management fees
or performance allocations from the Fund.
(e) Directors' fees and expenses
The Company pays each of its directors an annual fee of
US$70,000 (2012: US$70,000) plus out-of-pocket expenses and each of
its valuation committee and audit committee members an annual fee
of US$14,000 (2012: US$14,000). During the year ended 31 December
2013, two directors of the Fund, Christopher Marcus Gradel and
Anthony Murray Miller, agreed to waive their annual fees.
9 Financial highlights
NAV per share at the end of the year is as follows:
2013 2012
US$ US$
Per share data
(for a share outstanding throughout the
year):
At beginning of the year 1.485 1.360
Net investment loss (0.071) (0.104)
Net realized and unrealized gains from
investments 0.201 0.261
Allocation of performance fee (0.029) (0.032)
------------ ------------
At end of the year 1.586 1.485
The following represents the ratios to average net assets and
other supplemental information:
2013 2012
Total return (1) 6.81% 9.18%
Ratios to average net assets (2)
Total expenses (other than performance
fee) (3) (5.22%) (7.19%)
Net investment loss (3.74%) (6.09%)
(1) Total return represents the change in NAV, adjusted for cash
flows in relation to capital transactions for the year.
(2) Average net assets is derived from the beginning and ending
monthly NAV, adjusted for cash flows related to capital
transactions for the year ended 31 December 2013. For the year
ended 31 December 2013, the average net assets amounted to
US$167,052,284 (2012: US$175,927,967).
(3) The total expenses ratio represents the total expenses of
the Fund including both general and investment level expenses.
10 Commitment and contingency
In the normal course of business, the Fund, the Master Fund and
the Feeder Fund may enter into arrangements that contain a variety
of representations and warranties that provide general
indemnification under certain circumstances. The Fund, the Master
Fund and the Feeder Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that
may be made against the Fund, the Master Fund and the Feeder Fund
that have not yet occurred. However, based on experience, the
Investment Manager expects the risk of loss to be remote and,
therefore, no provision has been recorded.
11 Subsequent events
The Investment Manager has performed a subsequent events review
from 1 January 2014 through to 16 April 2014, being the date that
the consolidated financial statements were authorized for
issuance.
Management concluded there is no material subsequent event that
required additional disclosure in these consolidated financial
statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAXLAAASLEEF
Pacific Allian. (LSE:PAX)
Historical Stock Chart
From Aug 2024 to Sep 2024
Pacific Allian. (LSE:PAX)
Historical Stock Chart
From Sep 2023 to Sep 2024
