Monthly Shareholder Report

RNS Number : 9243C

BH Macro Limited

22 April 2013

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: MARCH 2013 ADV04273 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document © Brevan Howard (2013). 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") and Brevan Howard Capital Management LP (together with BHAM, "Brevan Howard") have supplied the information herein regarding BHM's and the Fund's performance and outlook. BHAM is authorised and regulated by the Financial Conduct Authority (the "FCA") in the United Kingdom. This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 and the handbook of rules and guidance issued from time to time by the FCA (the "FCA Rules"). The material relating to BHM and the Fund included in this report has been prepared by Brevan Howard 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 BHM and the Fund have been obtained or derived from sources believed by Brevan Howard to be reliable, but Brevan Howard 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, the Fund and Brevan Howard 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 the 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 BHM 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 FCA 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: $2,126 mm1,2 1.   Estimated as at 28 March 2013 by BHM's administrator, Northern Trust. 2.   This figure is net of the 2013 capital return.
Summary Information	BH Macro Limited NAV per share (estimated as at 28 March 2013) Share Class NAV (USD mm) NAV per Share USD Shares 597.7 $20.78 EUR Shares 197.3 €20.94 GBP Shares 1,331.2 £21.49   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 6.18 0.40 -0.76 1.68 -0.47 12.04 2012 0.90 0.25 -0.40 -0.43 -1.77 -2.23 2.36 1.02 1.99 -0.36 0.92 1.66 3.86 2013 1.01 2.32 0.26* 3.62* 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 6.29 0.42 -0.69 1.80 -0.54 12.84 2012 0.91 0.25 -0.39 -0.46 -1.89 -2.20 2.40 0.97 1.94 -0.38 0.90 1.63 3.63 2013 0.97 2.38 0.23* 3.61* 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 6.24 0.39 -0.73 1.71 -0.46 12.34 2012 0.90 0.27 -0.37 -0.41 -1.80 -2.19 2.38 1.01 1.95 -0.35 0.94 1.66 3.94 2013 1.03 2.43 0.31* 3.80* 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 Brevan Howard. 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 28 March 2013. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 28 March 2013 % of Gross Market Value Level 1 60 Level 2 40 Level 3 0 Source: Brevan Howard * These estimates are unaudited and have been calculated by Brevan Howard 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.
Fund Performance Review	During the month, the Fund generated gains mainly in macro equity trading and, to a lesser extent, in tactical asset swap trading. These gains were partially offset by small losses in European directional rates trading and in interest rates volatility trading. Monthly and annual contribution (%) to the performance of BHM USD Shares (net of fees and expenses) by strategy group Macro Rates FX EMG Equity Commodity Credit Systematic TOTAL March   0.29 0.06 -0.08 -0.07 -0.01 0.04 -0.00 0.01 0.26 QTD 2.89 0.22 0.05 0.10 0.07 0.07 0.20 0.02 3.62 2013 YTD 2.89 0.22 0.05 0.10 0.07 0.07 0.20 0.02 3.62 Monthly and annual figures are calculated by Brevan Howard as at 28 March 2013, based on performance data for each period provided by the Fund's administrator, International Fund Services (Ireland) Limited. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS Methodology and Definition of Monthly and Annual 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 The battle over the federal budget dominated the headlines in the US in March.  In the absence of a budget deal between the White House and the House Republican leadership, the so-called sequester automatically imposed spending cuts of $85 billion for the remainder of fiscal year 2013.  According to estimates by the Congressional Budget Office, the spending cuts (evenly split between defence and non-defence discretionary categories) will reduce real GDP growth by 0.6 percentage points during calendar year 2013.  Due to the sequester and prior tax increases at the start of the year, the economy's expansion is expected to be vulnerable to fiscal austerity in the short-term.  Most analysts are predicting that growth will be around trend this year as the underlying dynamism in the private sector is approximately offset by the fiscal drag.  However, looking farther ahead, we anticipate that the fiscal drag will diminish in 2014 as the economy adjusts to higher tax rates and the lower level of federal outlays.  As long as the private sector maintains its momentum, growth should accelerate towards 3% for the first time during the expansion. After an impressive string of gains in employment over the last six months, the March jobs report was a disappointment.  Job creation slowed noticeably and the supply side of the labour market worsened as the unemployment rate declined as many discouraged job seekers exited the labour force.  Monthly changes in the data are volatile and subject to significant revision so we should not overemphasize the signal in any one release.  Nevertheless, steady job creation over the next few months will be crucial to avoid a repeat of the mid-year slowdowns that have hampered the recovery in the last three years. Monetary policy has played an outsized role in supporting growth and keeping inflation stable.  With the uncertainty about the impact of fiscal austerity as well as the potential for external shocks from Europe, it is likely that the Fed is going to continue to actively support easy financial conditions.  We expect asset purchases to last through at least this year at a pace that is data dependent.  In particular, the Fed would be expected to reduce the pace of asset purchases in the face of an improvement in the outlook for both the labour market and growth.  If the contour of growth gradually improves, then asset purchases could even be finished by the end of the year.  At the same time, the Fed wants to ensure that an end of asset purchases does not pull forward the market's expectations about rate hikes.  Policymakers will try to minimise any misperceptions that might lead to unwanted asset-market volatility with transparent communications about the likely path of policy.  In addition, the Fed appears increasingly willing to use its balance sheet tools-including the timing and pace of asset sales-to ensure the stability of long-term interest rates.  EMU The EMU economy is experiencing a renewed slowdown into a deeper recession. The EMU Composite PMI fell in March for the second consecutive month, from 47.9 to 46.5, more than 2 points below the January peak. At a country level the Composite PMI fell everywhere with the exception of Italy. In particular, the Composite PMI fell steeply in Germany, from 53.3 to 50.6, while in France it continued its precipitous fall, from 43.1 to 41.9. These readings were a blow to the ECB, whose latest macroeconomic projections - released only a month ago - look, once again, seriously off-track. Unsurprisingly, in this environment, the unemployment rate in the euro area hit a record high of 12.0% in February. Finally, HICP inflation ticked down to 1.7% y/y, maintaining its downward trend, while both money and credit dynamics remain weak. In its April policy meeting, the ECB decided to leave the main refinancing rate unchanged at 0.75%. However, the introductory statement at the press conference was more dovish than in March, as the recovery scenario envisaged by the ECB is now seen subject to downside risks. The forward guidance, introduced by President Draghi in March, was repeated by stating that the monetary policy stance will remain accommodative for as long as needed. This was clarified to mean that the full allotment policy will remain in place as long as necessary. However, Draghi clarified that this does not involve any explicit commitment in terms of possible rate cuts. After a week of political brinkmanship, the Eurogroup and the Cypriot government reached an agreement on the restructuring of the island's largest banks. The deal avoided a haircut on insured small depositors, but assigned a high levy on the large depositors in the two largest domestic institutions, Laiki Bank and Bank of Cyprus. After having been shut for several days mid-month, banks in Cyprus finally opened amid strict capital controls. After the details of the deal started crystallising, it became clear that the downsizing of the financial sector will have a significant additional negative impact on the Cypriot economy for years to come. UK Recent data releases have been mixed, with manufacturing and construction weakening while retail and services have held up better. Underlying growth seems to be slightly positive, but first quarter growth is likely to be dragged down by a very poor start to industrial production and construction. The three key headwinds in 2013 will remain the same as those that prevailed in 2012: real wage growth remains negative, fiscal austerity continues, and the desired export-led recovery continues to be undermined by weakness in the eurozone, itself undermined by the eurozone's own fiscal austerity and political uncertainties. We believe that the UK's growth performance will therefore remain somewhere between the US (growth around trend) and the eurozone (recession). There is no basis yet for expecting a substantial improvement in the UK's growth performance. On the inflation front, the medium-term outlook remains benign while core CPI remains resilient above 2%, despite the weakness of the economy. However, the downward pressure from spare capacity on prices is abundantly clear in the labour market, where already subdued wage inflation has actually fallen further, now to below 1.5%. The Funding for Lending Scheme ("FLS"), launched in July 2012, has had a beneficial effect on bank funding costs which is now being transmitted to lower rates for borrowers. However, the impact on lending volumes remains patchy. New mortgage lending and corporate lending remains close to zero. Only household unsecured credit has shown some signs of improvement. The failure of the economic data to improve convincingly, the uncertainty about the effectiveness of the FLS, and the resilience of core and headline inflation has resulted in a split among the Bank of England ("BoE") MPC members on whether further stimulus is appropriate. A slim majority has resisted further quantitative easing at the February, March and April meetings. In part, resistance to further QE has been motivated by concerns that the sharp fall in sterling since the start of the year is not only reflecting the UK's need to rebalance towards exports - which we believe to be justified - but also a perception by investors that the BoE's commitment to price stability is being watered down - which obviously worries policymakers. As we head towards the May BoE forecast, these uncertainties are not expected to be resolved in one direction or another, and the policy decision is anticipated to come down to a finely balanced judgment on how disappointing growth outturns have been, and how to respond to resilient consumer price inflation with unusually weak wage inflation. The March budget confirmed the government's commitment to fiscal austerity despite the continued growth disappointments. Weak growth has meant that the deficit is no longer shrinking, and it is no longer expected to shrink over the coming year either. The peak in government debt therefore continues to be revised upwards, and the point at which the deficit is expected to close keeps getting revised further into the future. The government sees no alternative. Talk of a more aggressive remit for the BoE did not lead to any significant action: the government reconfirmed the existing remit, only asking for more explicit communication from the MPC on the growth-inflation trade-off, and asking the MPC to consider whether future guidance on policy based on thresholds (similar to the Fed) could improve policy communication. When Governor Carney arrives in July, he will have to balance his desire for monetary activism and new policy tools with the restrictions of the current remit as well as with other MPC members' interpretation of that remit. Japan The move to a new Bank of Japan ("BOJ") regime progressed smoothly in March.  Abe's choices for the BOJ governors, Kuroda, Iwata and Nakaso were approved by the Diet on promises of bolder monetary easing.  Markets responded positively to the appointments:  the yen declined further against the USD to 94.22 at the end of March versus 92.56 at the end of February.  Domestic equities continued to fly, with the Nikkei 225 rising 7% m-o-m.  These trends will likely endure as the BOJ have adopted an extremely aggressive monetary easing program during its 3-4 April meeting - the first under the new leadership. Structural reforms are also progressing.  Most notably, Japan formally announced to join Trans-Pacific Partnership negotiations on 15 March. This received broad public support - with the exception of protected sectors such as agriculture - as it shows the government's seriousness in improving the structure of Japan's economy. Politically, the Abe cabinet continues to enjoy high approval ratings, holding up at around 70% according to various surveys.  Abe has showed strong determination to win the upper house election in July, which will keep his focus on producing an economic recovery. Economic indicators are showing more signs of recovery. The Markit manufacturing PMI continued to rise to 50.4 in March from 48.5 in February, and sequential improvement of industrial production is at 2.5% m-o-m, which was stronger than market expectations for February. The trade deficit also narrowed to ¥677bn in February versus ¥1480bn a month earlier. However February CPI yoy% was still negative at -0.7% versus market consensus -0.3%. China The Chinese economy is moderating again. Looking at the whole first quarter, growth slowed meaningfully in sequential terms from above 9% in the last quarter of last year, to below 7% in the first quarter of 2013, as the moderation in domestic demand overwhelmed the robustness of exports. While the property sector is still firm, as indicated by decent sales and property-related construction, other production sectors show signs of softness. The softness of domestic demand is reflected in diminishing inflationary pressures, which are subsiding outside the property sector. Indeed, the People's Bank of China ("PBOC") survey showed some easing of inflation expectations in the first quarter, the first time in a year. Moreover, the price indices of both the manufacturing and the non-manufacturing PMI fell sharply in March, while CPI inflation eased in March from 3.2% to 2.2% and the PPI remains in deflationary territory. Property prices buck the trend and continue to increase at an accelerating pace. The PBOC Governor has continued to advocate neutral monetary policy this year. The PBOC is using large sterilisations of liquidity through Open Market Operations ("OMO"), as well as gradual appreciation of the renminbi to fight renewed capital inflows. The PBOC has withdrawn a total of Rmb1.09tr through OMO since mid-February, while the renminbi appreciated by 2.6% in the first quarter. Given the ongoing rise in property prices but ongoing mild CPI inflation, the PBOC Governor stated monetary policy will focus mainly on the CPI while differential credit policies will be adopted to deal with property prices. About 35 cities have released a detailed property price control target, and most local governments are aiming at property price increases no larger than nominal GDP growth in 2013.
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 in BHM 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 may invest in illiquid securities.

• Past results of the Fund's investment managers are 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 managers have total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment managers.

• 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 managers' 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 shares in BHM 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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