Financial Express (Holdings) Limited (“we”, “our”, “us” and derivatives) are committed to protecting and respecting your privacy. This Privacy Policy, together with our Terms of Use, sets out the basis on which any personal data that we collect from you, or that you provide to us, will be processed by us relating to your use of any of the below websites (“sites”).

  • FEAnalytics.com
  • FEInvest.net
  • FETransmission.com
  • Investegate.co.uk
  • Trustnet.hk
  • Trustnetoffshore.com
  • Trustnetmiddleeast.com

For the purposes of the Data Protection Act 1998, the data controller is Trustnet Limited of 2nd Floor, Golden House, 30 Great Pulteney Street, London, W1F 9NN. Our nominated representative for the purpose of this Act is Kirsty Witter.

WHAT INFORMATION DO WE COLLECT ABOUT YOU?

We collect information about you when you register with us or use any of our websites / services. Part of the registration process may include entering personal details & details of your investments.

We may collect information about your computer, including where available your operating system, browser version, domain name and IP address and details of the website that you came from, in order to improve this site.

You confirm that all information you supply is accurate.

COOKIES

In order to provide personalised services to and analyse site traffic, we may use a cookie file which is stored on your browser or the hard drive of your computer. Some of the cookies we use are essential for the sites to operate and may be used to deliver you different content, depending on the type of investor you are.

You can block cookies by activating the setting on your browser which allows you to refuse the setting of all or some cookies. However, if you use your browser settings to block all cookies (including essential cookies) you may not be able to access all or part of our sites. Unless you have adjusted your browser setting so that it will refuse cookies, our system will issue cookies as soon as you visit our sites.

HOW WE USE INFORMATION

We store and use information you provide as follows:

  • to present content effectively;
  • to provide you with information, products or services that you request from us or which may interest you, tailored to your specific interests, where you have consented to be contacted for such purposes;
  • to carry out our obligations arising from any contracts between you and us;
  • to enable you to participate in interactive features of our service, when you choose to do so;
  • to notify you about changes to our service;
  • to improve our content by tracking group information that describes the habits, usage, patterns and demographics of our customers.

We may also send you emails to provide information and keep you up to date with developments on our sites. It is our policy to have instructions on how to unsubscribe so that you will not receive any future e-mails. You can change your e-mail address at any time.

In order to provide support on the usage of our tools, our support team need access to all information provided in relation to the tool.

We will not disclose your name, email address or postal address or any data that could identify you to any third party without first receiving your permission.

However, you agree that we may disclose to any regulatory authority to which we are subject and to any investment exchange on which we may deal or to its related clearing house (or to investigators, inspectors or agents appointed by them), or to any person empowered to require such information by or under any legal enactment, any information they may request or require relating to you, or if relevant, any of your clients.

You agree that we may pass on information obtained under Money Laundering legislation as we consider necessary to comply with reporting requirements under such legislation.

ACCESS TO YOUR INFORMATION AND CORRECTION

We want to ensure that the personal information we hold about you is accurate and up to date. You may ask us to correct or remove information that is inaccurate.

You have the right under data protection legislation to access information held about you. If you wish to receive a copy of any personal information we hold, please write to us at 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Any access request may be subject to a fee of £10 to meet our costs in providing you with details of the information we hold about you.

WHERE WE STORE YOUR PERSONAL DATA

The data that we collect from you may be transferred to, and stored at, a destination outside the European Economic Area (“EEA”). It may be processed by staff operating outside the EEA who work for us or for one of our suppliers. Such staff may be engaged in, amongst other things, the provision of support services. By submitting your personal data, you agree to this transfer, storing and processing. We will take all steps reasonably necessary, including the use of encryption, to ensure that your data is treated securely and in accordance with this privacy policy.

Unfortunately, the transmission of information via the internet is not completely secure. Although we will do our best to protect your personal data, we cannot guarantee the security of your data transmitted to our sites; any transmission is at your own risk. You will not hold us responsible for any breach of security unless we have been negligent or in wilful default.

CHANGES TO OUR PRIVACY POLICY

Any changes we make to our privacy policy in the future will be posted on this page and, where appropriate, notified to you by e-mail.

OTHER WEBSITES

Our sites contain links to other websites. If you follow a link to any of these websites, please note that these websites have their own privacy policies and that we do not accept any responsibility or liability for these policies. Please check these policies before you submit any personal data to these websites.

CONTACT

If you want more information or have any questions or comments relating to our privacy policy please email publishing@financialexpress.net in the first instance.

 Information  X 
Enter a valid email address

BlueBay Asset Man (BBAY)

  Print      Mail a friend

Thursday 16 September, 2010

BlueBay Asset Man

Final Results

RNS Number : 7829S
BlueBay Asset Management PLC
16 September 2010
 



16 September 2010

 

BLUEBAY ASSET MANAGEMENT PLC

 

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2010

 

 

BlueBay Asset Management plc ("BlueBay" or "the Group") today announces preliminary results for the year ended 30 June 2010.

 

Highlights

 

·      Assets under management up 41.2% to $34.3bn (2009: $24.3bn)

·      Record net inflows of $10.2bn

·      Net management fee income up 32.3% to £109.0m (2009: £82.4m)

·      Profit before tax up 183.1% to £49.7m (2009: £17.5m)

·      Diluted earnings per share up 193.4% to 17.9p (2009: 6.1p)

·      Dividend per share up 130.8% to 15.0p (2009: 6.5p) 

·      Successful launch of five long-only and alternative funds

·      Current performance remains strong

 

Hugh Willis, Chief Executive, commented:

 

"I am delighted to report a very successful year for BlueBay, marked by robust asset growth and a significant improvement in both operating margins and profitability. We feel confident about the Group's prospects and look forward to working towards achieving another positive year for our fund investors and shareholders alike. The current year has started well; with good flows and investment returns giving an approximate August month end AuM of $37.4 billion."

 

Hans-Jörg Rudloff, Non-Executive Chairman, commented:

 

"BlueBay has had another strong year, attracting record inflows and reinforcing its position as one of Europe's leading fixed income and alternative investment managers. The Board has recommended a final dividend for the year of 7.5p per share, making a total distribution for 2010 of 15.0p, an increase of over 130% on 2009." 

Financial highlights

 

 

Year ended

 

Year ended

 

Growth

 

30 June

 

30 June

 

 

 

2010

 

2009

 

 

 

 

 

 

 

 

Assets under management1

$34.3bn

 

$24.3bn

 

+41.2%

Net management fee income2

£109.0m

 

£82.4m

 

+32.3%

Performance fee income

£28.4m

 

£18.5m

 

+53.5%

Profit before tax3

£49.7m

 

£17.5m

 

+183.1%

Profit after tax

£35.6m

 

£12.0m

 

+196.7%

Operating margin4

36.0%

 

20.8%

 

+15.2%

Diluted earnings per share

17.9p

 

6.1p

 

+193.4%

Dividend per share5

15.0p

 

6.5p

 

+130.8%

 

 

1 Assets under management stated in United States Dollars ($) throughout.

2 Stated net of rebates, trail commissions and expense cap reimbursements.

3 Stated after exceptional items.

4 Stated before exceptional items.

5 Includes proposed dividend per share of 7.5 pence which is subject to shareholder approval.

 

 

 

 

 

 

For further information please contact:

 

BlueBay Asset Management plc                     020 7389 3700

Hugh Willis, CEO

Nick Williams, CFO

Alex Khein, COO

 

Financial Dynamics                                          020 7269 7200 / 7114

Rob Bailhache / Nick Henderson

 

 

Notes to Editors:

 

Information on BlueBay

 

Founded in 2001, BlueBay Asset Management plc provides investment

management services primarily to institutions  and manages a combination of long-only and alternative products across  the sub-asset classes of investment grade corporate debt, high yield  corporate debt, emerging market debt, convertible bonds, distressed  debt and multi-strategy debt products.

BlueBay also manages a number of segregated mandates on behalf of large institutional clients globally.

 

Based in London with offices in the USA and Japan, BlueBay Asset Management plc is one of the largest independent managers of fixed income debt funds and products in Europe with approximately US$34.3 billion of assets under management (as at 30 June 2010).

 

BlueBay's overall aim is to provide a broad range of credit products to institutional investors which offer attractive risk-adjusted returns. Listed on the London Stock Exchange in November 2006, BlueBay is a constituent of the FTSE 250.

 

Registered number: 03262598

 

 

Chairman's Statement

 

BlueBay Asset Management plc has had another successful year. During the course of this year, BlueBay attracted record net subscriptions of $10.2 billion to reach total Assets under Management ("AuM") of $34.3 billion at the end of the financial year. As in the previous financial year, investment grade strategies continued to account for the majority of the inflows with $8.6 billion recorded for the year. However, as the year progressed and the new credit cycle became more firmly established, it was encouraging to note the increasing strength of inflows into other strategies with higher risk-return profiles, most notably emerging market debt where net inflows were approximately $1.9 billion for the year (of which $1.7 billion were into the long-only funds). At the end of the year, BlueBay's AuM in alternative products amounted to $2.7 billion, a reduction of 11% from the previous year. This reduction masks the strong investment performance achieved by the BlueBay Multi-Strategy Fund and a number of steps taken recently to revitalise BlueBay's alternatives business, which have included the launch of several new alternative funds and the creation of a specialist sales team.

 

The absolute investment performance was positive in all the long-only funds managed by BlueBay during the year. Relative investment performance was positive for emerging market debt and convertible long-only strategies, negative for the high yield long-only strategy and flat to positive for the investment grade strategy. Total fee revenues were 36% higher at £137.4 million while the increase in costs was only 16% to a total of £88.2 million. For the year ended 30 June 2010, BlueBay increased its pre-tax profits almost threefold to reach £49.7 million (2009: £17.5 million). 

 

The recent financial crisis will continue to have an effect on the financial sector for many years to come. In some ways, things will never be the same again and no bank or financial firm will remain unaffected. In exchange for the massive injections of public monies to stabilise the banking sector and to get the financial markets working again, governments now require greater oversight and control of the financial sector through increased regulation. Much of the regulation is targeted at the banking sector, however, even for non-banking firms such as BlueBay the challenges and constraints imposed by new regulations are likely to be significant. But change also presents opportunities. The rapid deterioration in the public finances of many developed countries, of which Greece is a recent prime example, has redefined the approach to trading their sovereign debt. Good credit risk management skills are becoming an increasingly important complement to good interest rate risk management skills. This creates a significant opportunity for a credit specialist such as BlueBay and the Board is enthusiastic about our recently announced plans to launch two new rates funds in the near future. We believe that the increasing oversight and regulation of the banking sector will lead to an acceleration of its disintermediation. Credit markets will have an increasing role to play in providing funds to corporate and sovereign borrowers around the world, which further reinforces the structural opportunities available to BlueBay.

 

The Board is optimistic about BlueBay's prospects for the years to come. Given the Group's solid cash position and its comfortable cushion of capital and reserves, we will be proposing an increase in the final dividend to 7.5 pence (2009: 4.8 pence) per share payable to all shareholders on the register at 5 November 2010. Following the interim dividend of 7.5 pence per share, this will bring the total dividend for the year to 15.0 pence per share (2009: 6.5 pence).

 

There were no changes to the members of the Board or the Company Secretary during the course of the year. I am pleased to note that the Board continued to provide BlueBay with constructive support, challenge and advice. Areas that were of particular focus for the Board and its committees during the year were the risk governance framework, the remuneration strategy, overall corporate strategy and succession planning. The reviews of the various committees contained later in this report provide an overview of the various matters they have considered during the year.

 

All asset managers are essentially people businesses. Over the years, BlueBay has managed to assemble an exceptionally talented group of professionals in the investment management, sales and marketing and infrastructure teams. I would like to thank them once again for their creativity, enthusiasm and commitment. Finally, I would like to extend my thanks to our shareholders, both those who have been with us throughout the year as well as those more recent investors in the Group, for their ongoing confidence in us.

 

 

Chief Executive's Review

 

2010 - A Year of Strong Recovery

 

The 2010 financial year was a very successful one for our company. The recovery in credit markets that began in the second half of the previous financial year - following the global financial crisis of 2008 - accelerated as the new financial year began in July 2009. This resulted in a further year of strong asset growth and a robust rebound in both operating margins and profitability at BlueBay. The record inflows experienced during the year - at $10.2 billion these represented 42% of assets under management at the beginning of the period - reflect the growing strength of the firm's specialist fixed income franchise and the calibre of its people.

 

Group Strategy

 

The Group's strategy continues to be to position itself as a leading, specialist manager of European corporate and global emerging market debt funds and products. This reflects our belief in the structural growth prospects that exist for European corporate debt - a major new global asset class; and emerging market debt - increasingly a mainstream asset class for institutional investors worldwide.

 

Alongside our product focus, we continue to invest heavily in our infrastructure; believing that institutional investors will increasingly require from asset managers state-of-the-art technology, process, compliance and risk management - as a necessary corollary to strong investment performance. It remains our mission statement to combine the infrastructure of a world-class asset manager with the investment mind-set of a boutique.

 

The structural drivers behind our corporate strategy remain firmly in place some nine years after the Group's formation; and continue to be bolstered by the growing preference amongst liability-driven investors - as a function of both demographics and the relative actuarial certainty of returns - for fixed income rather than equity investments. This asset allocation driver looks likely over the next few years, moreover, to be complemented by a macro environment (low rates, low growth and a global hunt for income) that should play well to the strengths of fixed income credit as an asset class. The Group's strategy, accordingly, remains unchanged.

 

2010 Results

 

2010 was a strong year for BlueBay on all financial metrics. At the heart of our success was $10.2 billion of net inflows from our predominantly institutional and third party distributor investor base; reflecting its continuing confidence in BlueBay and appetite for its specialist fixed income product offerings. The resulting revenue lift, coupled with the benefits of cost controls imposed in late calendar year 2008 and early 2009, drove a recovery in both operating margins and profitability to within a whisker of pre-crisis highs. A significant reduction in performance fee dependency and an associated improvement in quality of income in comparison with prior periods underscored the robust health of the company's finances at year-end.

 

In terms of asset growth over the year, the stand out performer was the firm's investment grade strategy; where an outstanding long-term track record met strong early credit cycle demand to drive net inflows of $8.6 billion. Indeed the BlueBay Investment Grade Bond Fund was ranked one of the most successful mutual funds in Europe as measured by annual inflows over the period; a tribute both to the quality of the product and the strength of the firm's institutional and third party distribution platforms alike. In a robust period for long-only fund growth at BlueBay, our suite of emerging market products also attracted meaningful investor demand; with net inflows of $1.7 billion. With pleasing growth also in a number of the firm's early stage long-only funds - including convertible bonds, where our new fund reached nearly $0.4 billion by year-end - 2010 continued the sequence of strong annual growth seen by BlueBay in this segment of its business since inception. The firm's alternative products were less successful in attracting fresh investment; with assets under management in this product segment falling slightly over the year; as investors returning to credit markets demonstrated a preference for traditional over alternative fund products.

 

Investment performance over the year was generally good. Absolute returns were very strong across our long-only fund platform; with flagship funds returning between five and 27 per cent over the period. Outstanding relative returns were also delivered in long-only convertible and emerging market bonds - with the four flagship funds in the latter category outperforming their indices by between four and eight percentage points over the period. Returns from BlueBay's alternative funds rebounded strongly from a previous down year; with high yield, emerging market and multi-strategy alternative funds all delivering net returns for the year of between 16 and 36 per cent. Positive returns were also recorded for the firm's new alternative fund launches; led by the BlueBay Macro Fund, which produced a net return of 16% over its first eight months of trading.

 

As previously noted, group profitability returned very close to pre crisis highs in 2010; with total fee income up 36% on the previous year at £137.4 million, operating margins almost doubling to 36% and pre tax profits nearly tripling to £49.7 million. While operating margins and profitability in 2010 remained slightly below the highs recorded in 2007 and 2008, the strong growth of the firm's long-only business in the intervening period has resulted in reduced performance fee dependency and an improvement in the quality of income. BlueBay's already strong, unleveraged balance sheet was bolstered further over the year, despite a major increase in the dividends paid; with £90.1 million of free cash on the balance sheet by year-end.

 

New Products

 

2010 saw a number of new product launches in both the long-only and alternatives spaces. In long-only, these included a new European high yield fund - the BlueBay High Yield Corporate Bond Fund and BlueBay's first long-only asset allocation product - the BlueBay Global Diversified Corporate Bond Fund. In alternatives, the new BlueBay Macro Fund already referred to was joined by the firm's second distressed debt offering - the BlueBay European Distressed Opportunities Fund. All have made successful starts, in terms of both investment performance and investor demand, and reflect our determination to build out our fund platform wherever we feel institutional investor demand and BlueBay's abilities and resources might combine to produce relevant and profitable new offerings

 

Looking forward, the first six months of 2011 will see a significant acceleration of new fund launches. In May 2010, the firm announced that it had hired an experienced portfolio management team to lead the development of a European government bond business to complement our successful investment grade corporate bond offering; with the first product launches in this new business area for the firm expected to occur by December. A significant build out of the firm's high yield business is also underway; with the firm's first global high yield fund also slated for a late 2010 launch and analysts being hired in and relocated to our US office to staff this initiative. Further new launches are also planned in the alternatives space; with the firm's first UCITS alternatives fund (the BlueBay Emerging Markets Absolute Return Fund) launched in July and a closed end emerging markets special situations fund slated for later in the year.

 

Outlook

 

2010 was a classic early credit cycle year; with investors returning to credit markets in strength, but making the bulk of their allocations to the higher quality end of the market. For BlueBay, this meant significant growth in its investment grade corporate bond business; with assets in this division almost doubling over the financial year. The last few months of the year began, however, to produce evidence that the new credit cycle was moving into its second phase: one in which investors begin to move out along the risk curve and supplement their investment grade credit holdings with smaller allocations to higher beta sectors of the asset class - high yield bonds, distressed debt, convertibles and emerging markets. It seems likely that this trend will continue into, and dominate, the new financial year; with flows into emerging market debt likely to be dominant as investors react to the converging credit profiles of developed and developing market debt engendered by the sovereign debt crises of 2010.

 

At the same time, we expect returns from credit markets, which significantly outpaced those from equity markets over the first six months of calendar 2010, to continue to be competitive. We anticipate, from a macro perspective, an extended period of low global growth ahead and believe that well-selected coupons will represent a superior source of risk adjusted returns in such an environment. Our prognoses for both flows and investment returns have been borne out by results from the first two months of the new financial year; with $850 million of net inflows across a range of funds (approximately two thirds investment grade and one third emerging markets) and strong total returns from the asset class ($2.2 billion of net investment return and foreign exchange differences) giving an approximate August month end AuM of $37.4 billion.  A continuation of these trends will bode well for BlueBay; with its strong fixed income fund platform and credit capabilities.

 

In summary, we feel confident of the firm's prospects for the coming year. We believe that we are well placed to deliver further progress on AuM (with net inflows for the full financial year estimated at $5 to $8 billion, likely skewed to the second half of the year), revenues, profitability and returns to shareholders as we further develop our business. Progress will occasionally be punctuated by challenges, as the global equity sell-off of May 2010 reminded us, but we believe the key ingredients of our future success - structural asset class growth, good investment performance, a loyal investor base and a good name - remain very much in place. We look forward to working towards another year of strong returns for our fund investors and shareholders alike.

 

A Thank You

 

Finally, I should like to put on record my thanks to all of BlueBay's employees for the application and professionalism they have shown during 2010. Our business is dependent upon our people and the success we have had is a reflection of their quality and determination. We are indeed fortunate to enjoy the loyalty and dedication of such an outstanding group of professionals.

 

Hugh Willis

Chief Executive

 

Business Review (extract)

 

Strategic objective 

 

Our strategic objective remains to be a leading provider of debt asset management products. We believe it is difficult to excel in a wide range of disparate investment disciplines and that focus on a narrower range of asset classes is more likely to produce superior returns. We therefore provide clients with products within the asset class of fixed income with a range of different risk-return profiles from absolute return alternative funds to relative return long-only funds and segregated accounts.

 

Our business strategy focuses on four core elements:

 

A)   Effective diversified distribution

è Focus primarily on institutional clients

è Creation of strong relationships with investment consultants

è Development of different geographical areas

è Dedicated ongoing client relationship management

 

B)   Strong risk-adjusted investment performance over the credit cycle 

è Focus on investment returns across all product types

è Emphasis on capital preservation and rigorous strategy capacity management

è Full exploitation of available investment tools and techniques to generate excess returns in long-only funds as well as alternative funds

 

C)   Effective management of business risk

è Rigorous management of investment risk

è Continual review and improvement of operational and business risk management

è Implementation of a robust infrastructure that supports the ongoing growth of the business

 

D)   Recruitment, motivation and retention of highly talented people 

è Recruitment of highly talented portfolio managers, sales and infrastructure professionals

è Compensation structures designed to ensure employees have a broad alignment of interests with fund investors and shareholders

è Creation of a collegiate, team-oriented working environment

 

 

The execution of our strategy 

 

A.  Diversified distribution 

 

During the course of the financial year, total AuM increased by $10.0 billion to reach $34.3 billion at 30 June 2010. Net subscriptions contributed $10.2 billion to the increase in AuM with net investment return adding a further $3.8 billion. Foreign exchange differences on translation reduced AuM by $4.0 billion. These differences were particularly pronounced during the last quarter of the financial year following the sharp depreciation of the Euro against the US Dollar. BlueBay's European corporate debt AuM is denominated in Euros so the effect of translating it into US Dollars at declining Euro exchange rates is to reduce headline AuM reported in US Dollars.

 

At 30 June 2010, approximately 73% of BlueBay's AuM was denominated in Euros with the balance denominated primarily in US Dollars. A one cent move in the Euro/US Dollar exchange rate would increase or decrease BlueBay's 30 June 2010 AuM by approximately $205 million.

 

The table below provides the breakdown of net subscriptions into gross subscriptions and gross redemptions. Subscriptions and redemptions record the gross movements into and out of the funds managed by BlueBay as recorded by the transfer agents or custodians. No adjustments have been made to reflect switches of investments either between funds or between share classes of the same fund managed by BlueBay.

 

We estimate that approximately 19% of the gross redemptions represent switches from one BlueBay product or share class into another. After adjusting for these switches, the annual redemption rate expressed as a percentage of monthly average AuM decreased to 29% for the year ended 30 June 2010 from the 35% we reported for the year ended 30 June 2009.

 

AuM growth in BlueBay funds for the years ended 30 June as indicated:

 


2010 $m

2009 $m

Beginning of period AuM

24,298

20,967




Subscriptions

21,745

15,201

Redemptions

(11,565)

(9,421)

Net Subscriptions

10,180

5,780

Net Investment Return

3,835

(1,504)

FX on Conversion

(3,992)

(945)




End of period AuM

34,321

24,298

 

We believe that our clients' interests are best served if our portfolio management teams can concentrate on stock selection and portfolio construction for a relatively small number of portfolios rather than juggling the often conflicting demands of a large number of portfolios. Wherever possible, our preference is therefore to offer our clients a wide range of co-mingled fund solutions rather than customised segregated mandates. During the course of the financial year, we launched five new funds as described in more detail below while the total number of segregated mandates increased by four to bring the total to 27.

 

Starting with the publication of our annual results for the year ended 30 June 2009, we have presented a breakdown of our AuM by strategy. When we published our interim results for the 6 months ended 31 December 2009, we introduced a new strategy, investment grade constrained. In April 2010, the high yield and distressed debt portfolio management groups were merged, mainly because of the considerable synergies we believed we could create by doing so. As a result, the two strategies are shown on a combined basis as "high yield and distressed debt".

 

Investment Grade 

 

The AuM in the investment grade strategy increased by 54% during the course of the financial year, to reach $18.3 billion at 30 June 2010. The increase was split between net subscriptions of $7.3 billion, positive investment return of $2.0 billion and adverse foreign exchange differences on translation of $2.9 billion. The majority of the net subscriptions into this product ($6.7 billion) were recorded during the seven months ended 31 January 2010. As we highlighted at the time of the publication of our interim results, given the size of this strategy relative to the size of its potential market, we believed that there was limited additional capacity available to it. We believe that in the long-term, our fund and equity investors' interests are best served if we ensure that each of the strategies remains of a size where the portfolio management team is still able to generate meaningful alpha in that strategy. This is a dynamic analysis which evolves with the size and structure of the market. At the present time, we intend to reserve most of the remaining available capacity in investment grade for committed segregated mandates that have yet to fund, the long-only fund of funds product (the BlueBay Global Diversified Corporate Bond Fund) and the aggregate (combined rates and investment grade credit) product that we expect to launch before the end of December 2010.

 

AuM Growth in investment grade funds for the years ended 30 June as indicated:

 


2010 $m

2009 $m

Beginning of period AuM

11,887

4,371




Subscriptions

13,895

8,986

Redemptions

(6,573)

(2,033)

Net Subscriptions

7,322

6,953

Net Investment Return

1,957

853

FX on Conversion

(2,858)

(290)




End of period AuM

18,308

11,887

 

Investment Grade Constrained 

 

The investment grade constrained strategy was launched during the financial year to certain investors who prefer to have their portfolios managed to a lower target alpha but with more restrictive investment constraints. Its AuM stood at $1.1 billion at 30 June 2010. Net subscriptions of $1.2 billion were made in the form of segregated mandates during the first half of the financial year. Net market appreciation added $0.1 billion and adverse foreign exchange differences on translation were $0.2 billion. This strategy is not currently offered in fund format so any subscriptions are more likely to be lumpy in nature since they would come in the form of new segregated mandates; no new segregated mandates were funded for this strategy during the second half of the financial year. We currently estimate that this strategy has additional capacity of $7 billion.

 

AuM Growth in investment grade constrained funds for the years ended 30 June as indicated:

 


2010 $m

2009 $m

Beginning of period AuM

-

-




Subscriptions

1,252

-

Redemptions

(16)

-

Net Subscriptions

1,236

-

Net Investment Return

109

-

FX on Conversion

(219)

-




End of period AuM

1,126

-

 

High Yield and Distressed Debt 

 

The AuM in the high yield and distressed debt strategy stood at $6.9 billion at 30 June 2010, which was unchanged from the level recorded a year earlier. Net redemptions of $0.4 billion were offset by positive fund appreciation of $1.3 billion and adverse foreign exchange differences on translation of $0.9 billion. Of the net redemptions, just under $0.3 billion represents cash returned to the investors in the BlueBay Value Recovery Fund under the terms of its restructuring agreed in June 2009. At 30 June 2010 the AuM of this fund stood at $1.4 billion and attracts a management fee of 50 bps from 1 July 2010 (which will reduce to 25 bps from 1 April 2011 and then to 0 bps on 1 January 2012). In December 2009, a new long-only high yield fund was launched, the BlueBay High Yield Corporate Bond Fund. The fund is managed against a new benchmark which excludes subordinated financial issuers and therefore, in our view, provides a more accurate reflection of the investable market in European high yield debt instruments. Another new fund, the BlueBay European Distressed Opportunities Fund was also launched in December 2009. This is an alternative investment fund which invests in the tradable spectrum of the distressed debt universe. We expect to launch a new global high yield bond fund before the end of December 2010. With the addition of this new product, we currently estimate that this strategy has the ability to double to $14 billion before it would reach any capacity constraints.

 

AuM Growth in high yield and distressed debt funds for the years ended 30 June as indicated:

 


2010 $m

2009 $m

Beginning of period AuM

6,874

6,740




Subscriptions

2,551

4,545

Redemptions

(2,973)

(3,540)

Net Subscriptions

(422)

1,005

Net Investment Return

1,270

(281)

FX on Conversion

(849)

(590)




End of period AuM

6,873

6,874

 

Emerging Markets 

 

The AuM in the emerging markets strategy increased by approximately 50% during the financial year to reach $6.6 billion at 30 June 2010. Net subscriptions of $1.9 billion were complemented by positive market appreciation of $0.4 billion and negligible foreign exchange differences on translation. The strong net subscriptions number recorded for this strategy provides support to our view that as the credit cycle matured, investor appetite would migrate along the risk curve to higher risk/return products, such as emerging market debt funds, from lower risk/return products, which tend to appeal to investors at the start of the cycle. In November 2009, a new alternatives fund was launched, the BlueBay Macro Fund, which invests primarily in interest rates and currency strategies, predominantly in emerging markets. We do not currently estimate that there are any meaningful capacity constraints for this strategy as a whole.

 

AuM Growth in emerging markets funds for the years ended 30 June as indicated:

 


2010 $m

2009 $m

Beginning of period AuM

4,433

8,108




Subscriptions

3,408

1,332

Redemptions

(1,558)

(3,054)

Net Subscriptions

1,850

(1,722)

Net Investment Return

362

(1,888)

FX on Conversion

(41)

(65)




End of period AuM

6,604

4,433

 

Convertibles 

 

The AuM in the convertibles strategy more than trebled during the financial year to reach $384 million at 30 June 2010. Net subscriptions of $268 million were slightly offset by adverse investment return of $9 million and negligible foreign exchange differences on translation. In June 2010, a new alternatives fund was launched, the BlueBay Convertible Plus Fund. We do not estimate that at present there are any meaningful capacity constraints for this strategy as a whole.

 

 

AuM Growth in convertible bond funds for the years ended 30 June as indicated:

 


2010 $m

2009 $m

Beginning of period AuM

125

-




Subscriptions

347

108

Redemptions

(79)

-

Net Subscriptions

268

108

Net Investment Return *

(9)

17

FX on Conversion

-

-




End of period AuM

384

125

 

* The fund performance (on a per share basis) for the BlueBay Convertible Bond Fund presented on page 25 is +14.5% for the 2010 financial year. However the net investment return for the convertibles strategy presented above is marginally negative for the same period. This apparent discrepancy is due to the timing of the fund performance and of the net subscriptions.

 

 

Multi-Strategy 

 

Multi-strategy AuM increased by just under 5% during the financial year to reach $1.0 billion at 30 June 2010. Net redemptions of $74 million were offset by positive investment return of $146 million and adverse foreign exchange differences on translation of $25 million. In December 2009, a new long-only fund, the BlueBay Global Diversified Corporate Bond Fund was launched. This is a fund of funds which invests in BlueBay's suite of UCITS long-only funds. Since this strategy invests in other strategies managed by BlueBay, it does not face any capacity constraints of its own.

 

AuM Growth in multi-strategy funds for the years ended 30 June as indicated:

 


2010 $m

2009 $m

Beginning of period AuM

979

1,748




Subscriptions

292

230

Redemptions

(366)

(794)

Net Subscriptions

(74)

(564)

Net Investment Return

146

(205)

FX on Conversion

(25)

-




End of period AuM

1,026

979

 

Client base 

 

BlueBay's fund investors are primarily institutional clients making up 62% of BlueBay's AuM as at 30 June 2010. This is a slight decline from the 64% recorded at 30 June 2009. The proportion of fund of funds clients has continued to decline and now represents just 8% of the total AuM (down from 10% at 30 June 2009). However the proportion of third party distributors (including what we used to classify as private clients accessed through private bank distributors) has continued to grow and represented 30% of the AuM at 30 June 2010 (up from 26% at 30 June 2009).

 

By geographical region, the proportion of European clients remained unchanged at 88% of BlueBay's AuM as at 30 June 2010. This high proportion reflects the continuing success of our European-based sales force in their marketing efforts across the region. The proportion of Asian and Australian based clients increased from 7% to 9%. This predominately reflects success in marketing the investment grade constrained strategy. Clients from the Americas continued to decline and represented just 2% of BlueBay's AuM as at 30 June 2010 (down from 4%). It remains a strategic priority for BlueBay to find an effective distribution solution for its products in the US markets.

 

Investment strategy and product breakdown 

 

By way of summary, the following table provides a breakdown of BlueBay's AuM by strategy, showing the main funds that are managed in each one.

 

BlueBay's AuM by strategy for the periods indicated:

 


AuM

30 June 2010

$m

% of total AuM

AuM

30 June 2009

$m

% of total AuM


 

BlueBay Investment Grade Bond Fund

 

13,858

 

40.3

 

9,958

 

41.0


BlueBay Investment Grade Libor Fund

1,657

4.8

127

0.5


Other (Including Investment Grade Constrained)

3,919

11.4

1,802

7.4


Total Investment Grade

19,434

56.5

11,887

48.9








BlueBay High Yield Bond Fund

3,104

9.0

2,475

10.2


BlueBay High Yield Enhanced Fund

325

0.9

256

1.1


BlueBay High Income Loan Fund

366

1.1

355

1.5


BlueBay High Yield Corporate Bond Fund

58

0.2

-

-


BlueBay Credit Opportunity Fund

165

0.5

187

0.8


BlueBay Value Recovery Fund

1,374

4.0

1,799

7.4


BlueBay European Distressed Opportunities Fund

87

0.3

-

-


Other

1,394

4.1

1,802

7.4


Total High Yield and Distressed Debt

6,873

20.1

6,874

28.4








BlueBay Emerging Market Bond Fund

573

1.7

643

2.6


BlueBay Emerging Market Local Currency Bond Fund

1,433

4.2

780

3.2


SIM BlueBay Emerging Market Local Currency Bond Fund

955

2.8

1,046

4.3


BlueBay Emerging Market Select Bond Fund

674

2.0

372

1.5


BlueBay Emerging Market Corporate Bond Fund

555

1.6

45

0.2


BlueBay Emerging Market Opportunity Fund

153

0.4

53

0.2


BlueBay Macro Fund

69

0.2

-

-


Other

2,192

6.4

1,494

6.2


Total Emerging Markets

6,604

19.3

4,433

18.2








BlueBay Global Convertible Bond Fund

384

1.1

125

0.5


Total Convertibles

384

1.1

125

0.5


 

BlueBay Global Diversified Corporate Bond Fund

 

195

 

0.6

 

-

 

-


BlueBay Multi-Strategy Fund

831

2.4

979

4.0


Total Multi-Strategy

1,026

3.0

979

4.0








Total AuM

34,321

100

24,298

100


 

B.  Investment performance 

 

Investment Grade 

 

The BlueBay Investment Grade Bond Fund gained 11.9% during the year to 30 June 2010, matching the return of the benchmark. Overweight positions in telecommunications, media and personal and household goods contributed positively to returns. The investment team took advantage of the strong rally in senior financial debt in the first half of the financial year to book profits and then moved to an underweight position. It increased the Fund's holdings in media and retail credits and halved its exposure to utilities over the year. Fund returns were adversely impacted by holdings in high-beta sectors that included bank subordinated debt and crossover credit, particularly during the spring of 2010.

 

A similar strategy was pursued in the BlueBay Investment Grade Libor Fund on a shorter duration basis, enabling it to generate a positive absolute return of 5.3% and to outperform its benchmark by 4.5%.

 

The investment grade constrained strategy, pursuing a more restrictive investment strategy, also posted positive returns for the period.

 

High Yield and Distressed Debt 

 

The BlueBay High Yield Bond Fund rose 26.1% during the year to 30 June 2010, underperforming the index by 11.6%. Underperformance was largely attributable to the underweight position in financials, which continue to be a broadly un-investable sector of the market. Since its inception in December 2009, the BlueBay High Yield Corporate Bond Fund rose 7.7%, outperforming the index by 51bps. For both funds, overweight positions in media, telecommunications and consumer cyclicals proved beneficial for relative returns whereas underweight positions in financial services and overweight positions in basic industries were detractors.

 

The BlueBay High Income Loan Fund and the BlueBay Credit Opportunity Fund are designed to generate positive absolute returns. The former generated a positive absolute investment return of 21.3% during the year to 30 June 2010 while the latter generated a positive return of 35.6% over the same period.

 

The BlueBay Value Recovery Fund continued to execute its mandate of returning cash to investors in accordance with the terms of its restructuring in June 2009. $260 million was returned to investors over the year. At the same time, the absolute investment return was -8.6%. The more recently launched BlueBay European Distressed Opportunities Fund generated a positive investment return of 3.1% during the seven months from its inception in December 2009 to 30 June 2010.

 

Emerging Market Debt 

 

All of BlueBay's emerging market debt funds had strong performance years both in absolute and relative terms. The four long-only funds had positive absolute returns ranging from 20.9% for the BlueBay Emerging Market Local Currency Bond Fund to 26.8% for the BlueBay Emerging Market Corporate Bond Fund for the year ended 30 June 2010 with relative benchmark outperformance ranging from 399 bps for the BlueBay Emerging Market Bond Fund to 804 bps for the BlueBay Emerging Market Local Currency Bond Fund.

 

The BlueBay Emerging Market Opportunity Fund had another strong year generating absolute returns of 21.5%. This fund has continued to generate interest from potential investors although its current structure as a Luxembourg Specialised Investment Fund (SIF) prevents many of them from investing in it because it is not a regulated UCITS fund structure. BlueBay set up a close relative to this fund in July 2010, the BlueBay Emerging Market Absolute Return Fund, as a new sub-fund on the BlueBay Funds UCITS platform in Luxembourg which will make it available to a wider potential investor base.

 

The BlueBay Macro Fund was launched in November 2009 and has generated strong positive absolute returns of 16% in the 8 months to 30 June 2010.

 

 

Convertibles 

 

The BlueBay Global Convertible Bond Fund rose 14.5% in absolute terms during the year to 30 June 2010, outperforming the index by 330bps. An underweight position in telecoms and media and an overweight position in property proved positive for returns as did an underweight position in oil and gas. As a result of the uncertainty leading up to the European sovereign debt crisis, the fund established a policy early in 2010 of eliminating exposure to issuers from Portugal, Ireland, Greece and Spain which clearly benefited performance.

 

Multi-Strategy 

 

The BlueBay Multi-Strategy Fund had a particularly strong first half of the year and generated absolute returns of 16.8%. It regained its previous high water mark early in that period which enabled it to crystallise £15 million of performance fees on 31 December 2009. The second half of the year was more challenging and in the market turbulence in May 2010, most of the positive performance fees that had been accrued in the fund in the third quarter of the financial year were lost. The fund did not succeed in reaching its December 2009 high water mark and recorded negative absolute performance of 0.4% for the six months to 30 June 2010. The Fund's performance recovered in July 2010 and it regained its December 2009 high water mark in that month.

 

The long-only fund of funds product that was launched in December 2009, the BlueBay Global Diversified Corporate Bond Fund, generated positive absolute returns of 4.9% in the period from inception to 30 June 2010 and outperformed its benchmark by 147 bps during that period.

 

Fund performance for periods indicated:

 

Strategy (1)

Fund

 



Return
year ended 30 June 2010

Annualised return since inception (2)

 

Investment Grade

BlueBay Investment Grade Bond Fund

11.9

7.0

Index: iBoxx Euro Corporates 

11.9

4.3

Alpha

0.0

2.7

BlueBay Investment Grade Libor Fund

5.3

7.7

Index: Merrill Lynch 3-month Libor Constant Maturity

0.8

2.7

Alpha

4.5

5.0

High Yield and Distressed Debt

BlueBay High Yield Bond Fund

26.1

13.6

Index: Merrill Lynch European Currency High Yield Constrained Hedged in Euro (3)

37.7

10.9

Alpha

(11.6)

2.7

BlueBay High Yield Enhanced Fund

30.5

11.1

Index: Merrill Lynch European Currency High Yield Constrained Hedged in Euro

37.7

9.3

Alpha

(7.2)

1.8

BlueBay High Yield Corporate Bond Fund(1)(4)

n/a

7.7

Index: Merrill Lynch European High Yield Constrained Ex Sub-Financials Hedged in Euro

n/a

7.2

Alpha

n/a

0.5

BlueBay High Income Loan Fund

21.3

29.0

BlueBay Credit Opportunity Fund

35.6

2.1

BlueBay European Distressed Opportunities Fund (4)

n/a

3.1

BlueBay Value Recovery Fund (EUR)

(8.6)

1.2

Emerging Markets

BlueBay Emerging Market Bond Fund

22.4

12.4

Index: JP Morgan EMBI Global Diversified

18.4

11.2

Alpha

4.0

1.2

BlueBay Emerging Market Corporate Bond Fund

26.8

18.1

Index: JP Morgan CEMBI Diversified

20.9

9.9

Alpha

5.9

8.2

BlueBay Emerging Market Local Currency Bond Fund

20.9

11.0

Index: JP Morgan GBI-EM Broad Diversified USD Unhedged

12.9

9.8

Alpha

8.0

1.2

BlueBay Emerging Market Select Bond Fund

22.0

10.3

Index: 50% JPM EMBI Global Diversified and 50% JPM GBI-EM Broad Diversified USD Unhedged

15.7

8.5

Alpha

6.3

1.8

BlueBay Emerging Market Opportunity Fund

21.5

15.2

BlueBay Macro Fund (5)

n/a

16.0

Convertibles

BlueBay Global Convertible Bond Fund

14.5

23.4

Index: UBS Global Convertible Focus Index USD

11.2

16.1

Alpha

3.3

7.3

Multi-Strategy

BlueBay Global Diversified Corporate Bond Fund (4)

n/a

4.9

Index: iBoxx Euro Corporates 

n/a

3.4

Alpha

n/a

1.5

BlueBay Multi-Strategy Fund

16.4

5.2

BlueBay Multi-Strategy PLUS Fund

23.5

5.3

(1)        Long-only performance data shown on a 'gross of fees' basis. Alpha is the fund return versus the return on the benchmark index. Alternative funds shown on a 'net of fees' basis.

(2)        Annualised return for funds launched pre 1 July 2009; Cumulative return since inception for funds launched during the financial year.

(3)        Index prior to July 2004 was GS European HY index.

(4)        Fund launched December 2009.

(5)        Fund launched November 2009.

 

 

 

C.  Business risk management 

 

The purpose of risk management at BlueBay is to identify and quantify risks faced by the firm, mitigate and manage such risks within the context of the firm's overall risk appetite, and to provide ongoing monitoring of such risks for escalation as needed throughout the year.

 

We seek to achieve this through a strong risk governance framework, independent reporting, and robust systems and controls, which are regularly reviewed by employees responsible for risk monitoring and external reviews by independent third parties.

 

These are discussed more fully in the business risk review section in the 2010 Annual Report.

 

D.  Employees 

 

In common with most other asset management businesses, BlueBay's principal cost driver is compensation of permanent employees and contractors. Despite the significant improvement in the business environment in which BlueBay operates during the financial year, we were keen to maintain control of the growth in the number of employees and contractors engaged by the Group. As a result the number of permanent employees and contractors grew by 5% from 217 at 30 June 2009 to 228 at 30 June 2010.

 

We are dependent for our success on our ability to attract, retain and motivate the highest quality industry professionals. We believe that the three following ingredients are crucial in this regard:

 

>  Competitive compensation structures. For the compensation year which ended on 31 December 2009, we applied a revised methodology to the calculation of bonus pools for each of the investment teams. This is described in more detail in the Remuneration Report in the 2010 Annual Report. Although the computation of each bonus pool is formulaic (subject to annual reviews), the allocation of each bonus pool amongst its participants is determined on a discretionary basis, which is overseen by the Remuneration Committee. As a result of influence from regulators and tax authorities around the globe, there has been a noticeable shift in the mix of compensation arrangements for professionals working in financial services firms from large variable bonuses combined with relatively smaller salaries to lower variable bonuses with higher salaries. BlueBay has responded by lifting its salary cap from £100,000 per annum to £150,000 from 1 January 2010. All of BlueBay's compensation arrangements will be reviewed following the revision to the Remuneration Code to be announced by the FSA in order to take account of the amended Capital Requirements Directive (CRD3).

 

>  Widespread employee share ownership. As at 30 June 2010, employees and Directors of BlueBay had an interest in approximately 44% of its shares. Although this percentage is likely to decline over time, we remain committed to ensuring that employees retain a meaningful interest in BlueBay's issued share capital. Our primary Employee Benefit Trust ("EBT") is permitted to purchase shares from the market in order to make future equity awards.

 

>  A collegiate working environment. BlueBay has established a distinctive, friendly working environment based around a small, centralised management team and an equity-driven incentive culture, such that given our size and specialisation we believe BlueBay has become a blue chip employer of choice for ambitious professionals.

 

 

Summary of results 

 

During the year, total fee revenues (net of trail commissions) increased by 36% to £137.4 million. Total administrative expenses increased by 16% to £88.2 million leading to an increase in profit before tax of 183% to £49.7 million.

 

The following table is based on the Group Income Statement contained in the Financial Accounts section of the 2010 Annual Report. The table below is presented in the (non IFRS) format used internally for assessing the financial performance of the Group.

 

Summary Group Income Statement

For the year ended 30 June

 

2010

2009

 

£m

£m

 

 

 

Net management fees (1)

109.0

82.4

Performance fees

28.4

18.5

Total fee income

137.4

100.9

 

 

 

Other net income/(expense)

0.2

(3.8)

 

 

 

Total operating income

137.6

97.1

 

 

 

Salaries

(19.3)

(19.6)

Current calendar year bonus accruals

(12.1)

 

(7.6)

Prior calendar year cash bonus

(14.1)

 

(9.5)

Fixed compensation charges from prior calendar year awards(2)

(21.0)

 

(16.6)

Total compensation expenses

(66.5)

 

(53.3)

Total non-compensation related expenses

(21.7)

 

(22.8)

Total administration expenses

(88.2)

 

(76.1)

 

 

 

Operating profit before exceptional items

49.4

 

21.0

 

 

 

Net financing income

0.3

 

1.3

 

 

 

Profit before tax and exceptional items

49.7

 

22.3

 

 

 

Exceptional items

-

(4.8)

 

 

 

Profit on ordinary activities before taxation

49.7

 

17.5

 

 

 

Taxation

(14.1)

 

(5.5)

 

 

 

Profit for the year attributable to ordinary equity shareholders

35.6

 

12.0

 

 

(1)      Net management fees shown net of rebates, trail commissions and expense cap reimbursements.

(2)      Fixed charges in relation to equity awards and fund awards up to and including calendar year 2009.

 

 

Net management fees 

 

Net management fees (net of rebates, trail commissions and expense cap reimbursements) increased by 32% during 2010 to £109.0 million (2009: £82.4 million). They represented 79.3% of total fee income, which is broadly similar to the 81.7% recorded for 2009.

 

The change in the breakdown of net management fees by strategy from 2009 to 2010 broadly reflected the change in AuM for each strategy. For investment grade, net management fees more than trebled to reach £41.1 million for the year. Investment grade constrained was set up as a separate strategy during the year and generated net management fees of £1.7 million.

 

Net management fees generated for high yield and distressed debt increased by 11% to reach £33.1 million for the year (2009: £29.8 million).

 

Net management fees generated by the emerging markets strategy declined by 13% to reach £20.0 million for 2010 (2009: £23.0 million). However, there is an increasing monthly trend in emerging market net management fees throughout the financial year which reflects the continuing net inflows into the asset class and its strong absolute performance. The comparative number for 2009 includes management fees attributable to the BlueBay Emerging Market Total Return Fund, an alternative fund, with relatively high management fees, that was wound down during the course of the 2009 financial year. 

 

Net management fees generated by the convertibles strategy increased to £1.3 million for the financial year 2010 from the £0.1 million management fee income generated during its launch phase in 2009.

 

Net management fees in multi-strategy declined by 26% to reach £11.9 million for the financial year 2010 (2009: £16.1 million). Although the assets and resulting management fees generated by the BlueBay Multi-Strategy Fund were broadly stable during the financial year 2010, the drop in AuM recorded during the course of the financial year 2009 (from $1.7 billion at 30 June 2008 to $1 billion at 30 June 2009) led to a lower average AuM in 2010 than in 2009.

 

Management fees are reported net of rebate payments (which are contractually-agreed fee discounts for large fund investments), expense cap reimbursements (which is where BlueBay reimburses a fund for the excess of its administrative expenses over a pre-determined maximum level) and trail commissions (where BlueBay pays a third party distributor a commission based on the management fees earned on the product). Trail commissions are disclosed as cost of sales on the Group Income Statement.

 

We calculate management fee yields on management fees net of rebates, expense cap reimbursements and trail commission payments. The table below gives the run-rate management fee yields for June 2010, adjusted for any significant anomalies recognised in that month. Long-only products are offered either in a format which has management fees only or in one that has a lower management fee plus a performance fee generally based on benchmark outperformance, at the choice of the investor. The table below distinguishes between the management fee yield on management fee only products and the lower management fee yield on those products offered with a performance fee. It also gives the percentage of the AuM in each strategy which carried a performance fee as at 30 June 2010. Management fee yields across all strategies are stable to improving (taking into account the impact of the long-only fund of funds on the multi-strategy yield).

 

Strategy

For the year ended 30 June

 

2010

% *

2009

% *

 

£m

 

£m

 

Investment Grade

41.1

37.7

13.4

16.3

Investment Grade Constrained

1.7

1.5

n/a

n/a

High Yield and Distressed Debt

33.1

30.4

29.8

36.2

Emerging Market

19.9

18.3

23.0

27.9

Convertibles

1.3

 1.2

0.1

0.1

Multi-Strategy

11.9

 10.9

16.1

19.5

Total net management fees

109.0

100.0

82.4

100.0

* Percentage of total net management fee

 

Management fee yields by strategy for June 2010 are as follows:

 

Strategy

Management fee yield on management fee classes only

bps

Management fee yield on performance based classes

bps

Aggregate net management fee yield

bps

 

% of AuM with performance fee classes

June 2009

Aggregate net management fee yield

bps

 

Investment Grade

40

20

37

15

 

 

36

 

Investment Grade Constrained

27

n/a

27

n/a

 

 

n/a

High Yield and Distressed Debt

84

48

67

47

 

 

69

Emerging Market

87

36

57

59

 

56

Convertibles

90

18

67

32

 

56

Multi-Strategy

60

193

170

83

 

200

 

Performance fees

 

Performance fee revenues increased by 53% to £28.4 million in the year to 30 June 2010. The BlueBay Multi-Strategy Fund contributed over half of the total reflecting the strong performance it generated during the first half of the financial year. The fund did not regain the high water mark set at 31 December 2009 before the next crystallisation date of 30 June 2010 so no further period end performance fees were earned on the second half of the financial year.

 

Performance fees generated by the investment grade and high yield strategies were significantly lower in the financial year 2010 than they had been in the financial year 2009 when both strategies had significantly outperformed their benchmarks.

 

Performance fees generated by the emerging market strategy, at £7.7 million, were more than five times higher than they had been in the previous financial year. These reflected the strong benchmark outperformance on all long-only funds as discussed in the Investment Performance section above.

 

Performance fees by strategy are analysed as indicated:

Strategy

For the year ended 30 June

 

2010

2009

 

£m

£m

Investment Grade

3.1

6.6

Investment Grade Constrained

-

-

High Yield and Distressed Debt

2.0

10.0

Emerging Market

7.7

1.4

Convertibles

0.3

0.5

Multi-Strategy

15.3

-

Total performance fees

28.4

18.5

 

The ratio of performance fees to total fees has dropped from the 45 to 60% range of the early years down to around 20% over the last three financial years.

 

Other income and expense 

 

For the year ended 30 June 2010, Other Income and Expense includes an exchange rate loss arising on translation of £1.0 million and mark-to-market gains on forward foreign exchange contracts of £1.1 million.

 

Expense management 

 

Administration expenses 

 

During the financial year 2010, BlueBay's Administrative Expenses (before exceptional items) increased by £12.1 million or 15.9%, with total compensation costs increasing by £13.2 million or 24.7% and non-compensation costs decreasing by £1.1 million or 4.7%.

 

a) Compensation expenses 

 

By far the largest component of our cost base is compensation expense. In common with most other companies operating in the financial services industry, our compensation cycle operates on a calendar year basis. The results of each financial year therefore contain charges which relate to two different calendar years. The compensation charges for the financial year ended 30 June 2010 contain charges for the second half of calendar year 2009 as well as accruals for the first half of calendar year 2010.

 

As we did for the previous financial year, we have broken down the following components of the compensation expense:

 

·          salaries charged to the income statement during the financial year (including National  Insurance);

·         the current calendar year cash bonus and deferral charge accruals (i.e. the total      bonuses accrued for the period from 1 January to 30 June each year);

·          the actual cash bonus charge for the prior calendar year that was charged to the    current financial year (i.e. the total bonuses charged to the Income Statement for the period from 30 June to 31 December); and

·         fixed compensation charges resulting from deferred equity and fund unit awards made in prior calendar years.

 

As is set out in the Remuneration Report in the 2010 Annual Report, our target is to maintain total cash equivalent compensation in any given calendar year in a range of between 40% and 50% of Total Fee Income. Since the restrictions on the last 25% of equity awarded to employees at the time of the Listing expire on 22 November 2010, we anticipate that the actual ratio for calendar year 2010 is again likely to be towards the upper end of this range, so that the Group can ensure that adequate incentives remain in place for all of its key employees.

 

The Summary Group Income Statement, above, provides the breakdown of the compensation charge for the financial year ended 30 June 2010.

The main components of the year on year difference are an increase of £4.5 million in current calendar year bonus accruals, an increase of £4.6 million in the prior calendar year cash bonus and an increase of £4.4 million in the fixed compensation charge under IFRS2 from calendar year awards up to and including 2009.

 

b) Fixed compensation resulting from prior calendar year awards 

 

i) Awards of fund units 

Awards made under the deferred compensation scheme which vest over a three year period are required to be charged to the Group Income Statement over the vesting period under International Financial Reporting Standards ("IFRS"). Consequently each year the Group Income Statement contains a broadly fixed pre-determined charge as a result of deferred bonus awards made in prior years.

 

ii) Awards of plc shares (equity awards) 

As part of our ongoing programme of ensuring widespread share ownership amongst the employees of the Group, a number of equity awards were made to employees during previous calendar years up to and including 2009. Under IFRS, the cost of these awards is spread over their vesting period. Consequently each year the Group Income Statement contains a broadly fixed pre-determined charge as a result of equity awards made in prior years.

 

The fixed elements to be charged to the Group Income Statement in future years relating to prior year deferred bonus awards (excluding National Insurance Contributions) and prior year equity awards (excluding National Insurance Contributions) are as follows:

 

Estimated future deferral charges for the period ended 30 June as indicated:                                                                               

 

2011

2012

2013

2014

 

£m

£m

£m

£m

Estimated fund award deferrals to be charged in future periods

5.1

4.0

2.6

0.4

Estimated equity award deferrals to be charged in future periods

9.3

6.5

2.9

0.3

 

c) Non-compensation expenses

 

During the financial year, non-compensation expenses decreased by 4.7% to £21.7 million. Occupancy costs and depreciation were £1.1 million lower, mainly as a result of lower costs in the US. Expenditure on contractors was £1.0 million lower. These reductions were partially offset by an increase of nearly £0.7 million in irrecoverable VAT.

 

d) Operating margin 

 

The Group's operating margin increased to 36.0% (2009: 20.8% on a pre-exceptional items basis). Our goal is to return to an operating margin in excess of 40% in the 2011 financial year.

 

e) Taxation 

 

The effective tax rate has decreased to 28.4% for the year ended 30 June 2010 (from 31.4% for the year ended 30 June 2009). Most of this decrease is attributable to a reduction in the mismatch between the disallowable IFRS2 charge on equity awards (which is based on the share price at the grant date) and the deferred tax asset on those equity awards (which is recognised at a share price of 288.5 pence prevailing at 30 June 2010).

 

As we have indicated in the past, the effective tax rate is impacted by a number of factors including the share price used for year-end accounting purposes. Future changes in the share price are therefore likely to have a significant impact on the future effective tax rate.

 

Capital and capital management 

 

Capital management policy 

 

BlueBay uses its capital to support the growth of the business, to provide it with a cushion to shield it from adverse market conditions and to ensure that it is at all times able to meet its regulatory capital requirements. In accordance with the requirements of the Internal Capital Adequacy Assessment Process ("ICAAP"), the potential adverse effects of specific individual and combinations of operational risks have been assessed. In addition, using multi-year financial models, a number of adverse scenarios have been analysed in order to determine their effect on the Group's capital.

 

The Group has been in compliance with and maintained a comfortable excess over the minimum regulatory capital requirements at all times. During the financial year, the Board resolved to maintain minimum excess regulatory capital of £10 million.

 

Once these requirements have been met, available capital may be used to pay dividends to shareholders, to provide funding for the Group's equity incentive programme, to provide funding for new business initiatives and to provide seed capital for new funds.

 

During the course of the financial year, as the business remained cash generative and there were limited foreseeable incremental capital needs, the Directors decided to modify the Company's dividend policy in order to allow it to distribute between 50% and 100% of the profits for the period attributable to its ordinary equity shareholders.

 

 

Groups regulatory capital position:

 

2010

2009

 

 

£m

£m

 

 

 

 

Core Tier 1 Capital

 

       148.7

            118.9

 

 

 

 

Deductions from Tier 1 Capital

 

       (46.5)

            (40.3)

 

 

 

 

Available Tier 1 Group Capital

 

       102.2

              78.6

 

 

 

 

Other deductions

 

       (26.0)

            (18.7)

 

 

 

 

Group Financial Resources

 

        76.2

              59.9

 

 

 

 

Less Financial Resources Requirement

 

       (13.8)

            (12.3)

 

 

 

 

Net excess of Group Capital

 

        62.4

              47.6

 

 

 

Movements in shareholders' equity 

 

During the financial year, shareholders' equity increased by 26.3% to £104.8 million at 30 June 2010 (see the Group Statement of Changes in Shareholders' Equity in the Financial Statements). Comprehensive income recognised during the year was £39.6 million (2009: £12.4 million). The Group's primary EBT purchased shares at a cost of £6.6 million (2009: £6.0 million). Details of the awards made during the year and the balance of shares that were still to be awarded at 30 June 2010 are disclosed in notes 20 and 22 of the Financial Statements contained in the 2010 Annual Report.

 

The Group's Unapproved Option Award Scheme established prior to Listing reached its final vesting date on 30 January 2010. Almost all outstanding options were exercised prior to 31 March 2010 resulting in an increase in the share premium account of £1.2 million.

 

Total dividends of £23.9 million were paid to shareholders during the financial year (2009: £12.2 million).

 

Cash flow 

 

Our business continues to be cash generative. The cash position at 30 June 2010 was £90.1 million, an increase of 45% from the previous year end. As the Group Cash Flow Statement shows, cash generated from operations increased by 66.6% during the year to £59.4 million after the payment of £9.8 million in Corporation Tax.

 

Cash outflows from financing activities were used for the purchase of own shares by the Group's primary EBT for £6.6 million and the payment of dividends of £23.9 million.

 

Returns to shareholders 

 

Total shareholder return is measured as the change in value of a share plus the value of the dividends paid, assuming that the dividends are reinvested in the Company's shares on the dividend ex date. For the financial year to 30 June 2010, this represented a return of +40.8%. This compares to a return on the FTSE 250 Total Return Index of +29.9% for the same period. For the period from the date of admission of BlueBay to the Official List of the UK Listing Authority to 30 June 2010, BlueBay shares generated a total shareholder return of 6.4% which compares to a return on the FTSE 250 Total Return Index of -4.1% for the same period.

 

Dividends 

 

It is the intention of the Directors to recommend at the Annual General Meeting, the payment of a final dividend of 7.5 pence per share to all shareholders on the register as at 5 November 2010. This will bring the total dividend per share for the financial year to 15.0 pence per share and represent dividend payments of approximately £29.4 million or approximately 82.7% of the Group profit after tax for the year.

 

Subject to shareholder approval, the dividend will be paid on 3 December 2010.

 

Financial Statements (extract)

 

Group Income Statement

For the year ended 30 June

 


Note


2010

£000's

 

2009

£000's

 






Revenue



153,762

107,430

Cost of sales - commissions



(16,383)

(6,536)

Gross profit



137,379

100,894






Other income



1,283

345

Other expenses



(1,049)

(4,140)

Administrative expenses

2


(88,209)

(80,885)






Operating profit



49,404

16,214






Operating profit before exceptional items



49,404

21,006

Exceptional items



-

(4,792)

Operating profit



49,404

16,214






Finance income



266

1,331






Profit on ordinary activities before taxation



49,670

17,545






Taxation

3


(14,113)

(5,503)






Profit for the year attributable to ordinary equity shareholders



35,557

12,042






Earnings per share





Basic



23.4p

8.7p

Diluted



17.9p

6.1p






Memo





Dividends

4


23,873

12,195











 

 

All Group operations during the financial year were continuing operations.

 

 

 

Group Statement of Comprehensive Income

For the year ended 30 June



2010

2009



£000's

£000's













 Profit for the year


35,557

12,042

 



 

 Other comprehensive income:



 

Foreign currency translation adjustments


140

 

43

 Total comprehensive income for the year, net of tax, attributable to owners of the parent


35,697

 

 

12,085





Group Balance Sheet

 

As at 30 June


Note


2010

£000's

 

2009

£000's

 

Assets





Non-current assets





Property, plant and equipment



3,237

4,551

Intangible assets



694

1,100

Deferred tax asset



9,332

7,672

Trade and other receivables



6,113

2,616

Total non-current assets



19,376

15,939

 





Current assets





Trade and other receivables



38,256

33,650

Current tax asset



38

26

Derivative financial instruments



1,439

303

Financial assets



2,053

122

Cash and cash equivalents



90,050

62,270

Total current assets



131,836

96,371

 




Total assets



151,212

112,310






Liabilities





Non-current liabilities





Trade and other payables



1,363

1,252

Deferred tax liability



385

228

Provisions for other liabilities and charges



1,739

1,890

Total non-current liabilities



3,487

3,370

 





Current liabilities





Trade and other payables



38,736

23,554

Dividends declared and unpaid

4


456

456

Current tax liabilities



3,389

1,565

Provisions for other liabilities and charges



342

387

Total current liabilities



42,923

25,962

 




Total liabilities



46,410

29,332






Shareholders' equity





Called up share capital



199

194

Share premium



33,691

32,484

Retained earnings



68,985

47,866

Other reserves



1,927

2,434

Total shareholders' equity



104,802

82,978






Total equity and liabilities



151,212

112,310

 

 

Group Statement of Changes in Shareholders' Equity

 



Called up share capital

Share premium

Retained earnings

Other reserves

Total


Note

£000's

£000's

£000's

£000's

£000's








Balance at 1 July 2009


194

32,484

47,866

2,434

82,978

Profit for the year


-

-

35,557

-

35,557

Other comprehensive income


-

-

140

-

140

Share-based payments


-

-

11,526

-

11,526

Deferred tax on share-based payments


-

-

-

3,911

3,911

Dividends

4

-

-

(23,873)

-

(23,873)

Exercise of share options


5

1,207

-

-

1,212

Purchase of own shares by Employee Benefit Trust


-

-

(6,649)

-

(6,649)

Deferred tax asset utilised against current year profits


-

-

4,418

(4,418)

-








Balance at 30 June 2010


199

33,691

68,985

1,927

104,802

 

 



Called up share capital

Share premium

Retained earnings

Other reserves

Total


Note

£000's

£000's

£000's

£000's

£000's








Balance at 1 July 2008


193

32,279

43,361

2,406

78,239

Profit for the year


-

-

12,042

-

12,042

Other comprehensive income


-

-

43

 

43

Share-based payments


-

-

10,275

-

10,275

Deferred tax on share-based payments


-

-

-

348

348

Dividends

4

-

-

(12,195)

-

(12,195)

Exercise of share options


1

205

-

-

206

Purchase of own shares by Employee Benefit Trust


-

-

(5,969)

-

(5,969)

Purchase of own shares for Share Incentive Plan


-

-

(11)

-

(11)

Deferred tax asset utilised against current year profits


-

-

320

(320)

-








Balance at 30 June 2009


194

32,484

47,866

2,434

82,978

 

In accordance with the Companies Act 2006, own shares are offset against retained earnings.

 

 

Group Cash Flow Statement

 

For the Year Ended 30 June

 


Note


2010

£000's

 

2009

£000's

 






Cash flows from operating activities





Cash generated from operations



69,222

43,828

Corporation tax paid



(9,846)

(8,197)






Net cash generated from operating activities



59,376

35,631






Cash flows from investing activities





Purchase of property, plant and equipment



(437)

(479)

Purchase of intangible assets



(52)

(96)

Purchase of financial assets



(2,468)

-

Sale of financial assets



671

474






Net cash used in investing activities



(2,286)

(101)






Cash flows from financing activities





Proceeds from issue of ordinary shares



1,212

206

Purchase of own shares by Employee Benefit Trust



(6,649)

(5,969)

Purchase of own shares by Share Incentive Plan



-

(11)

Dividends paid

4


(23,873)

(11,739)






Net cash used in financing activities



(29,310)

(17,513)






Net increase in cash and cash equivalents



27,780

18,017






Cash and cash equivalents at beginning of year



62,270

44,253






Cash and cash equivalents at end of the year



90,050

62,270

 

 

 

The Group did not have any overdrafts repayable on demand at the end of each accounting period.

 

 

Notes to the Group Financial Statements (extract)

 

1.  Basis of preparation 

 

The consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs'), which comprise standards and interpretations issued by either the International Accounting Standards Board ('IASB') or the International Financial Reporting Interpretations Committee ('IFRIC') or their predecessors, as adopted by the European Union ('EU') and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. 

 

The above results and the accompanying notes do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. 

 

The audited Consolidated Financial Statements from which these results are extracted have been prepared under the historical cost convention, except for the measurement at fair value of derivative financial instruments and certain financial assets that are held at fair value through profit or loss; and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  

 

The auditors have reported on the Group's statutory accounts for the year 2009/10 under s495 to s497 of the Companies Act 2006, which do not contain statements under s498(2) or s498(3) of the Companies Act 2006 and are unqualified. The statutory accounts for 2008/09 have been delivered to the Registrar of Companies and the statutory accounts for 2009/10 will be filed with the Registrar in due course. 

 

The Group Financial Statements have been drawn up in accordance with the Group accounting policies as detailed in the Annual Report and have been prepared on a going concern basis.

 

 

2.  Administrative expenses

 



2010

£000's

2009

£000's





The following items have been  included in administrative expenses:








 Staff costs


66,538

55,055

 Depreciation


1,768

2,112

 Amortisation


458

465

 Other operating lease rentals payable:




 Property


4,034

4,636

 Computer software


826

582





 

 

Audit and non-audit fees




2010

£000's

2009

£000's





 Fees payable to the Group's auditor for the audit of the parent Company and the Group Financial Statements


186

142





 Fees payable to the Group's auditor for other services:




 The audit of the Company's subsidiaries pursuant to legislation


30

 

14

 Other services pursuant to legislation


74

73

 Taxation services


170

154

 Other services


168

114

Total auditors' remuneration


628

497

 

 

 

3. Taxation

 

Analysis of charge in the year:

 

 

 


2010

£000's

2009

£000's

 





Current tax:




  UK corporation tax on profits for the year


15,962

6,760

  Adjustments to tax charge in respect of previous periods


 

(39)

 

(725)

  Foreign tax


196

320

  Adjustments to foreign tax charge in respect of previous periods


 

(4)

 

15

 




Total current tax


16,115

6,370

 




 




Deferred tax:


 

Origination and reversal of temporary   differences


6

914

  Adjustments in respect of previous periods


(1)

5

  IFRS 2 share-based payments credit


(1,940)

(1,802)

  Foreign tax


(67)

16

  Total deferred tax


(2,002)

(867)

 








Total tax expense


14,113

5,503

 

 

The effective UK tax rate for the Group for the year ended 30 June 2010 is 28% (2009:28%).

 

A number of changes to the UK Corporation tax system were announced in the June 2010 Budget Statement. The Finance (No 2) Act 2010, which was substantively enacted on 20 July 2010, includes legislation to reduce the main rate of corporation tax from 28% to 27% from 1 April 2011. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 24% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements. Please refer to note 19 of the Financial Statements section of the 2010 Annual Report for the impact that such changes would have had on these financial statements had they been enacted at the balance sheet date.

 

The tax on the Group's profit before tax differs from amounts that would arise using the effective UK tax rate applicable to profits of the Group companies, as follows:

 

 

 


2010

£000's

2009

£000's

 





Profit on ordinary activities before tax


49,670

17,545

 




Theoretical tax charge at UK rate of 28% (2009: 28%)


 

13,908

 

4,913

 




Effects of:




 Expenses not deductible for tax purposes


646

71

 Depreciation in excess of capital allowances


208

210

 Capital items in revenue


14

21

 Share-based payments


(426)

1,004

 Research and development tax credits


(65)

(91)

 Adjustment in respect of previous period


(44)

(705)

 Adjustment in respect of foreign tax rates


(18)

166

 Other


(110)

(86)

 




Total tax expense


14,113

5,503

 








4. Dividends

 

 

 

 

2010

£000's

2009

£000's





Equity dividends declared and paid during the year




Interim dividend paid 2010  (2009)


14,593

3,187

Final dividend paid 2009   (2008)

 


9,280

8,552

Total dividends declared and paid


23,873

11,739





Equity dividends declared and unpaid during the year




Final dividend paid 2009 -  (2008)


-

456

Total dividends declared and unpaid


-

456





Total dividends declared during the year


23,873

12,195





Interim dividend paid per share (p)


7.5

1.7

Final dividend paid per share (p)


4.8

4.8

 




 

Of the total dividends declared and paid of £23,873,000, £3,815,000 was paid on shares which are classified as own shares on the date of payment, as described in note 22 of the Financial Statements section of the 2010 Annual Report (2009: £3,504,000).

 

Throughout the current and previous year, the trustees of the Group's Employee Benefit Trusts and Share Incentive Plan ("SIP") waived their rights to receive any dividends on ordinary shares registered in their name at the relevant date for eligibility. The total number of shares held by the Group's Employee Benefit Trusts and SIP at the relevant eligible interim dividend date for the year ended 30 June 2010 was 2,830,918 (2009: 5,797,694). The total number of shares held by the Group's Employee Benefit Trusts and SIP at the relevant eligible final dividend date for the year ended 30 June 2009 was 1,017,076 (year ended 30 June 2008: 5,571,519).

 

Dividends declared and unpaid relate to the dividends due on 9,509,200 shares held at that time by Lehman Brothers International (Europe) in Administration. These dividends will be paid upon the receipt of bank account details from the shareholder's Administrators.

 

The Directors have proposed a final dividend of 7.5 pence in respect of 30 June 2010 (2009: 4.8 pence).

 

 

Other information

 

These Preliminary Results contain certain forward-looking statements with respect of the financial condition, and results of, operations and business of BlueBay. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future.  There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.  Forward-looking statements and forecasts are based on the Directors' current view and information known to them at the date of this document.  The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in these Preliminary Results should be construed as a profit forecast.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR LAMPTMBIBBJM