Monthly Shareholder Report

RNS Number : 5180O

BH Macro Limited

19 September 2011

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: AUGUST 2011 ADV02887 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document © Brevan Howard Asset Management LLP (2011). All rights reserved
		Important Legal Information and Disclaimer BH Macro Limited ("BHM"), is a feeder fund investing in Brevan Howard Master Fund Limited (the "Fund"). Brevan Howard Asset Management LLP ("BHAM") has supplied the information herein regarding the Fund's performance and outlook. BHAM has used reasonable skill and care in the preparation of this material from sources believed to be reliable but gives no warranties or representations as to the accuracy or completeness of this information. BHAM is authorised and regulated by the Financial Services Authority. This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 (the "Act") and the handbook of rules and guidance issued from time to time by the FSA (the "FSA Rules"). The material relating to the Fund and BHM included in this report has been prepared by BHAM and is provided for information purposes only and does not constitute an invitation or offer to subscribe for or purchase shares in the BHM or the Fund. This material is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material relating to the Fund and BHM have been obtained or derived from sources believed by BHAM to be reliable, but BHAM makes no representation as to their accuracy or completeness. Any estimates may be subject to error and significant fluctuation, especially during periods of high market volatility or disruption. Any estimates should be taken as indicative values only and no reliance should be placed on them. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, BHM and BHAM expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise. All investments are subject to risk. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions. Tax treatment depends on the individual circumstances of each investor in BHM and may be subject to change in future. Returns may increase or decrease as a result of currency fluctuations. You should note that, if you invest in BHM, your capital will be at risk and you may therefore lose some or all of any amount that you choose to invest. This material is not intended to constitute, and should not be construed as, investment advice.  Potential investors in the funds to which this material relates should seek their own independent financial advice.  BHAM neither provides investment advice to, nor receives and transmits orders from, investors in the funds to which this material relates nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FSA Rules. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS

BH Macro Limited Manager: Brevan Howard Capital Management LP ("BHCM") Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust") Corporate Broker: J.P. Morgan Securities Ltd. Listings: London Stock Exchange (Premium Listing) NASDAQ Dubai - USD Class (Secondary listing) Bermuda Stock Exchange (Secondary listing)	Overview: BH Macro Limited ("BHM") is a closed-ended investment company, registered and incorporated in Guernsey on 17 January 2007 (Registration Number: 46235). BHM invests all of its assets (net of short-term working capital) in the ordinary shares of Brevan Howard Master Fund Limited (the "Fund"). BHM was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 March 2007. Total Assets: $2,121mm1 1. Estimated as at 31 August 2011 by BHM's administrator, Northern Trust.
Summary Information	BH Macro Limited NAV per share (estimated as at 31 August 2011) Share Class NAV (USD mm) NAV per Share USD Shares 598.3 $19.15 EUR Shares 342.7 €19.31 GBP Shares 1,179.5 1973p BH Macro Limited NAV per Share % Monthly Change USD Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27 2008 9.89 6.70 -2.79 -2.48 0.77 2.75 1.13 0.75 -3.13 2.76 3.75 -0.68 20.32 2009 5.06 2.78 1.17 0.13 3.14 -0.86 1.36 0.71 1.55 1.07 0.37 0.37 18.04 2010 -0.27 -1.50 0.04 1.45 0.32 1.38 -2.01 1.21 1.50 -0.33 -0.33 -0.49 0.91 2011 0.65 0.53 0.75 0.49 0.55 -0.58 2.19 6.16* 11.10* EUR Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.05 0.70 0.02 2.26 2.43 3.07 5.65 -0.08 2.85 0.69 18.95 2008 9.92 6.68 -2.62 -2.34 0.86 2.84 1.28 0.98 -3.30 2.79 3.91 -0.45 21.65 2009 5.38 2.67 1.32 0.14 3.12 -0.82 1.33 0.71 1.48 1.05 0.35 0.40 18.36 2010 -0.30 -1.52 0.03 1.48 0.37 1.39 -1.93 1.25 1.38 -0.35 -0.34 -0.46 0.93 2011 0.71 0.57 0.78 0.52 0.65 -0.49 2.31 6.27* 11.73* GBP Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67 2008 10.18 6.85 -2.61 -2.33 0.95 2.91 1.33 1.21 -2.99 2.84 4.23 -0.67 23.25 2009 5.19 2.86 1.18 0.05 3.03 -0.90 1.36 0.66 1.55 1.02 0.40 0.40 18.00 2010 -0.23 -1.54 0.06 1.45 0.36 1.39 -1.96 1.23 1.42 -0.35 -0.30* -0.45 1.03 2011 0.66 0.52 0.78 0.51 0.59 -0.56 2.22 6.22* 11.30* Source: Fund NAV data is provided by the administrator of the Fund, International Fund Services (Ireland) Limited. BHM NAV and NAV per Share data is provided by BHM's administrator, Northern Trust. BHM NAV per Share % Monthly Change is calculated by BHAM. BHM NAV data is unaudited and net of all investment management fees (2% annual management fee and 20% performance fee) and all other fees and expenses payable by BHM. In addition, the Fund is subject to an operational services fee of 50bps per annum. NAV performance is provided for information purposes only. Shares in BHM do not necessarily trade at a price equal to the prevailing NAV per Share. * Estimated as at 31 August 2011. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 31 August 2011 % of Gross Market Value Level 1 55 Level 2 45 Level 3 0 Source: BHAM * These estimates are unaudited and have been calculated by BHAM using the same methodology as that used in the most recent audited financial statements of the Fund. These estimates are subject to change. Level 1: This represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: This represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets; Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market.
Performance Review	During the month, the Fund made most of the profits in interest rates trading, mainly being long fixed income markets globally via swaps and options. Gains were also made in commodities and small losses were suffered in credit. Exposure remained modest in FX and very small in equities, with minimal exposure to financial stocks. The Fund continued its approach of not taking short positions in peripheral European debt markets either through government bonds or sovereign CDS, as discussed in the January 2010 Shareholder Report. Indeed, during July some small long exposures in Portuguese, Irish and Greek government bonds were established. Profits in the majority of these positions were subsequently taken, and at August month-end the Fund had negligible exposure to peripheral European debt markets. Monthly, quarterly and annual contribution (%) by the Fund to the performance of BHM USD Shares (net of fees and expenses) by strategy group Total Macro Rates FX EMG Equity Commodity Credit Systematic August 6.16 3.11 2.19 0.19 0.66 0.10 0.09 -0.20 0.02 Q1 1.95 0.91 -0.13 0.06 0.33 -0.05 -0.04 0.88 0.00 Q2 0.45 -1.23 2.10 -0.21 0.15 -0.14 0.02 -0.25 0.01 QTD 8.48 3.97 3.22 0.18 0.84 0.11 0.25 -0.17 0.08 YTD 11.10 3.69 5.33 0.03 1.35 -0.08 0.23 0.48 0.08 Monthly, quarter-to-date and year-to-date figures are estimated by BHAM as at 31 August 2011, based on total performance data for each period provided by BHM's administrator, Northern Trust. Methodology and Definition of Monthly Contribution to Performance: Attribution is approximate and has been derived by allocating each trader book in the Fund to a single category. In cases where a trader book has activity in more than one category, the most relevant category has been selected. The above strategies are categorised as follows: "Macro": multi-asset global markets, mainly directional (for the Fund, the majority of risk in this category is in rates) "Rates": developed interest rates markets "FX": global FX forwards and options "EMG": global emerging markets "Equity": global equity markets including indices and other derivatives "Commodity": liquid commodity futures and options "Credit": corporate and asset-backed indices, bonds and CDS "Systematic": rules-based futures trading
Market Review and Outlook	Market Commentary US In recent months the prospect of the US economy sliding into recession has become increasingly likely. In August, as a response to these fears, markets reacted and caught up with our macro views. The S&P 500 fell by nearly 6% in extremely volatile trading and Treasury yields plunged. The market reaction might have been even worse if not for expectations of policy action to mitigate some of the downside risks to growth. In this regard, at its meeting in August the Federal Open Market Committee ("FOMC") made the commitment to keep rates at near zero for a further two years based on current forecasts. This pledge marks an unprecedented response by the Federal Reserve ("Fed"). Furthermore, the Fed highlighted in its statement and subsequent minutes that it is evaluating further policies to promote growth. At the end of the month, the speech by Chairman Ben Bernanke at the annual Jackson Hole conference appeared sympathetic to further policy accommodation, although he left the specifics to be discussed at the newly expanded two-day FOMC meeting in September. We have identified three key challenges facing the economy. First, household balance sheets have suffered due to falling house prices and equities have given back most of their gains since the trough in 2010. Indeed, $1 trillion was wiped off the US equity market in August alone. Second, the federal budget (as well as many state and local budgets) are on an unsustainable path. Government transfers as a share of personal income remain extremely elevated, a fact that emphasises the dependence of households on the government. Meanwhile, the federal budget deficit is projected to be $1.3 trillion in 2011, the largest on record in nominal terms and one of the largest as a share of GDP since World War II. Putting government finances back on a sustainable trajectory without jeopardising growth is a formidable challenge. Finally, the stress emanating from the EMU debt crisis and the fact that banks have not completely recovered from the recession is a further reminder of the perilous road to recovery. The most recent indicators are beginning to reflect these concerns. Manufacturing, having been one of the strongest sectors of the economy, stagnated in August, according to the widely followed ISM survey. The labour market has been giving mixed signals and consumer confidence has dropped to levels last seen in the wake of the Lehman bankruptcy in 2008 and in the spring of 1980 when the US fell into recession. If consumers and businesses are becoming increasingly pessimistic, it is only a matter of time before job gains disappear. Nevertheless, retail sales rose steadily in July, orders for core capital goods outpaced shipments and auto production is still in line to add appreciably to growth in the third quarter. Overall, we expect modest growth in the third quarter, though it remains to be seen just how big the loss of momentum will be going into the fourth quarter. EMU The EMU business cycle continues to slow rapidly. This is highlighted by the disappointing second quarter GDP release and by, as in the US, the ongoing steep deterioration of both business and consumer confidence. In turn, faltering growth is increasing the effort required by EMU governments to achieve the fiscal adjustments outlined in their stabilisation programmes. In particular, after a strong 0.8% quarter-on-quarter expansion in the first quarter, EMU GDP grew by only 0.2% quarter-on-quarter in the second quarter. Both business and consumer confidence surveys not only signal that the peripheral countries are slipping back into contraction territory, but also that the core countries are slowing down significantly. Indeed, growth in the second quarter slowed from 1.3% to 0.1% quarter-on-quarter in Germany and from 0.9% quarter-on-quarter to a standstill in France. Moreover, both national surveys of business confidence, such as the German IFO and the National Bank of Belgium indicators, and the PMI of core countries are falling steeply. Meanwhile, HICP inflation peaked at 2.8% year-on-year in April and has gradually decreased since, to 2.5% year-on-year in August. The sell-off in commodity prices and the downgrade in the growth outlook for the euro area are likely to have eased inflationary pressures in the medium-term. Both survey-based and market-based measures of inflation expectations have declined significantly in recent months. At its meeting in August the European Central Bank launched a six month long-term refinancing operation of banks and, later in the month, started buying both Italian and Spanish government bonds in an attempt to alleviate tensions in the secondary markets. UK The outlook for the UK, already one of below-trend growth, has deteriorated further over the last two months. The manufacturing sector has been slowing sharply and is now in contraction territory. Until recently, the services sector had shown low but stable growth, but the last few observations of business surveys suggest that it is now stagnating. The labour market, which had shown some strong employment growth earlier in the year, has retreated to barely positive employment growth and slowly rising unemployment. The household sector continues to be the most vulnerable part of the economy: fiscal austerity, negative real income growth, stagnating house prices and high unemployment are all generating fierce headwinds. The recent additional weakness has come from the slowdown in the global manufacturing cycle, as well as the drop in consumer and business confidence due to further escalation of the EMU debt crisis. Inflation is likely to rise further in the next few months, as the long-anticipated utility price hikes take effect. However, various measures of underlying inflationary pressure have either fallen further or have remained low, and therefore, despite the high headline inflation, there is no sign of medium-term inflationary pressure. As a result, the Bank of England's Monetary Policy Committee ("MPC") is no longer split on whether the economy needs further policy easing or some tightening. The two most hawkish members of the MPC changed their vote from a hike to no change in August, and there was plenty of discussion in the minutes about the possibility of further easing should the data deteriorate further. Japan The recovery of the Japanese economy from the disastrous effects of the natural disasters in March continues, but its pace is not as ebullient as expected by the most optimistic analysts. Indeed, industrial production expanded in July, but only by a mere 0.4% month-on-month, well below the indications provided by the firms surveyed by the Ministry of International Trade and Industry in June. Moreover, retail sales contracted, albeit only slightly, after the strong rebound recorded in June. Indications provided by business surveys in August have been fairly subdued. In particular, the Composite PMI has fallen back by a full point, to 48.0, thus remaining below the 50 threshold. The slowdown in the pace of the recovery of Japan is stemming predominately from the domestic side of the economy, as the Services PMI fell by more than the Manufacturing PMI, to a level of 44.3, which suggests contraction. The combination of slower global demand and a stronger yen, still considered as a safe haven at times of rising uncertainty, prevents the external sector of the economy from providing the necessary boost for the healing of the Japanese economy. This substantial spare capacity continues to exert deflationary pressures on consumer prices. China The soft landing of the Chinese economy continues, as indicated by the August HSBC Composite PMI, which dropped from 51.7 to 50.1, the lowest level since 2009. In August, the moderation was more significant in services than in manufacturing, where the key New Orders component continued to decline. CPI inflation is likely to have peaked in July at 6.5% and is expected to ease gradually until the end of the year. In August, the year-on-year growth rate of consumer prices fell to 6.2%. In August, the People's Bank of China ("PBOC") broadened the base for the Reserve Requirement Ratio ("RRR") in order to include margin deposits over the next six months. We estimate the incremental reserve requirement to be paid in the September 2011 - February 2012 period at approximately RMB 80-220bn each month for a total amount of RMB 900bn. The PBOC has been injecting liquidity through open market operations for the last six weeks with the intention to at least partially offset the tightening effect of the RRR base broadening. Premier Wen published an article explaining that the ongoing economic slowdown is as intended, the direction of economic policy should not change and price stability remains the top priority, although he reiterated that policy must be forward-looking and pay attention to lags in the transmission process.
Enquiries	Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard [phone]

Risk Factors

Acquiring shares in BHM may expose an investor to a significant risk of losing all of the amount invested. Any person who is in any doubt about investing in BHM (and therefore the Fund) should consult an authorised person specialising in advising on such investments. Any person subscribing for Shares must be able to bear the risks involved. These include, among others detailed in BHM's Prospectus, the following:

• The Fund is speculative and involves substantial risk.

• The Fund will be leveraged and will engage in speculative investment practices that may increase the risk of investment loss. The Fund will invest in illiquid securities.

• Past results of the Fund's investment manager is not necessarily indicative of future performance of the Fund, and the Fund's performance may be volatile.

• An investor could lose all or a substantial amount of his or her investment.

• The investment manager has total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment manager. The use of a single advisor could mean lack of diversification and, consequently, higher risk.

• Investments in the Fund are subject to restrictions on withdrawal or redemption and should be considered illiquid. There is no secondary market for investors' Interests in the Fund and none is expected to develop.

• There are restrictions on transferring Interests in the Fund.

• The Investment Manager's incentive compensation, fees and expenses may offset the Fund's trading and investment profits.

• The Fund is not required to provide periodic pricing or valuation information to investors with respect to individual investments.

• The Fund is not subject to the same regulatory requirements as mutual funds.

• A portion of the trades executed for the Fund may take place on foreign markets.

• The Fund is subject to conflicts of interest.

• The Fund is dependent on the services of certain key personnel, and, were certain or all of them to become unavailable, the Fund may prematurely terminate.

• The Fund's managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would.

• The Fund may make investments in securities of issuers in emerging markets. Investment in emerging markets involve particular risks, such as less strict market regulation, increased likelihood of severe inflation, unstable currencies, war, expropriation of property, limitations on foreign investments, increased market volatility, less favourable or unstable tax provisions, illiquid markets and social and political upheaval.

The above summary risk factors do not purport to be a complete description of the relevant risks of an investment in Interests and therefore reference should be had to BHM's Prospectus and related offering documentation for a complete description of these and other relevant risks. 

 

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