Class Closure Resolutions and
BH Macro Limited (the "Company")
(an authorised closed-ended collective investment scheme established as a company with limited liability under the laws of Guernsey with registration number 46235)
20 January 2010
Class Closure Resolutions and amendments to the Articles of Incorporation
BH Macro Limited (the "Company") has today released a circular (the "Circular") containing details of the Class Closure Resolutions (as defined below) to be put forward to members of the US Dollar and Euro Share Classes. In addition, the Circular contains details of changes proposed by the Company to the existing discount management arrangements contained in the Company's articles of incorporation ("Articles of Incorporation" or "Articles") which have been put forward to all shareholders.
The Circular includes notices of, and proxy voting forms for, class meetings in respect of each of the Euro, US Dollar and Sterling Share classes of the Company to be held on 19 February 2010 from 11 a.m. at the offices of Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL ("Class Meetings").
In addition, notice of, and proxy voting forms for, the Extraordinary General Meeting to be held following the conclusion or adjournment of the Class Meetings (but no earlier than 11.40 a.m.) on 19 February 2010 at the offices of Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL is also included in the Circular.
Background
At the time of the Company's launch, various discount management provisions (including class closure provisions) were included in the Articles of Incorporation. In particular, the Articles of Incorporation include an obligation that if, in any rolling twelve month period, the average daily closing market price of a class of the Company's shares is ten per cent. or more below the average net asset value ("NAV") per share of that class taken over the twelve month-end NAV Calculation Dates (as defined in the Articles of Incorporation) during that period, the Company is required to convene an extraordinary meeting of the holders of that class of shares (a "Class Closure Meeting").
The Articles of Incorporation require that a special resolution be proposed at the Class Closure Meeting (a "Class Closure Resolution") to approve the terms of a tender offer by the Company to repurchase all the shares of the relevant class. Alternatively, in the event that all classes of shares in issue were to approve a Class Closure Resolution, a resolution would be required to approve the winding up of the Company. However, there is currently no requirement to propose a Class Closure Resolution for the Sterling class and therefore no winding up of the Company is currently proposed or anticipated.
As previously announced, the requirement to hold a Class Closure Meeting and to propose a Class Closure Resolution has now been triggered in respect of the Euro and US Dollar classes of the Company's shares. The Circular includes the notices of the Class Meetings of holders of the Euro Shares and holders of the US Dollar Shares being held for this purpose.
The Board believes that, going forward, amendments should be made to the class closure provisions for operational and practical purposes and to provide shareholders with greater certainty regarding the range of options available to them should a class closure resolution be passed in the future. Accordingly, the Circular also includes notice of the Extraordinary General Meeting proposing amendments to the class closure provisions in the Articles of Incorporation as they apply to all classes of the Company's shares which are designed to provide Shareholders with greater certainty regarding the range of options available to them should a class closure resolution be proposed and passed in the future and to provide the Company with greater operational efficiency in the implementation of the shareholders' wishes. These changes to the Articles will also need to be approved by the members of each class (in so far as the amendments vary the rights of each such class) and notices of Class Meetings of each class of shares are also included in the Circular.
The Board believes that the performance of the Company since its launch in March 2007 has been strong. Unfortunately, the Company's ability to generate consistent long-term capital appreciation does not seem to have been reflected in its share prices which, as the global financial turmoil intensified in September 2008, moved from a premium to a discount in excess of 10% of NAV, largely as a result of what the Board believes to be a general and indiscriminate market sell-down. Nevertheless, thanks to continued strong performance throughout the period of instability and various initiatives taken by the Company's Board, Manager and J.P. Morgan Cazenove in its capacity as the Company's corporate broker, the discount narrowed to a less significant and more stable level and, as at the date of this document, shares in each class of the Company are trading at prices fluctuating between a small premium and a small discount to Net Asset Value. The Board believes that the Company's consistent performance over the nearly three years since its launch demonstrates that the business model of a listed feeder fund investing in a master fund benefiting from high quality fund management remains viable and is one that can continue to seek to generate superior non-correlated returns for shareholders in the years ahead.
Reasons to vote AGAINST the Class Closure Resolutions and FOR the amendments to the Articles
The Board believes that there are a number of benefits for holders of the Euro Shares and US Dollar Shares in voting AGAINST the Class Closure Resolutions and for all Shareholders in voting FOR the amendments to the Articles of Incorporation:
-
Since launch, the Company has achieved its objective of generating consistent long-term capital appreciation.
-
The Board remains confident that the business model of the Company is sound and in the Manager's ability to continue to generate consistent long-term capital appreciation.
-
The Company is the only direct feeder to Brevan Howard Master Fund Limited (the "Master Fund") which invests substantially all of its assets in the Master Fund and is listed and traded on a stock exchange. The minimum required investment in the other direct feeder funds to the Master Fund is US$20 million and such funds are currently only open to investors by appointment.
-
The Tender Prices for the Euro Shares and US Dollar Shares would be less than the NAV of those shares at the time they are repurchased given that certain deductions (as further detailed in the Circular) will be made from such NAV. Certain of these deductions may be considerable, in particular the portion attributable to the relevant class of shares of the total costs and expenses (being an aggregate amount of US$42,220,026) incurred by the Manager in connection with the initial offering of the Company's shares which would be required to be repaid by the Company to the Manager.
-
There is no guarantee that the Tender Prices for the Euro Shares or the US Dollar Shares will be greater than or match the price at which such shares could be sold on the London Stock Exchange.
-
The amendments to the Articles of Incorporation should provide shareholders with greater certainty regarding the range of options available to them if in the future a class closure resolution were passed in respect of a class of shares.
-
The Board believes that steps taken by the Board to effect market purchases and the tender offer conducted in early 2009 have been effective to address the discount during 2009 and the Board remains committed to taking appropriate steps in the future to seek to manage the discount.
The Company's performance and outlook
Since its launch, the Company's investment performance has been consistently strong and all three currency classes of shares have recorded rises in estimated NAV per share of 70.74 per cent. for the US Dollar Share class, 71.20 per cent. for the Euro Share class and 75.44 per cent. for the Sterling Share class over the period from launch, being 14 March 2007 to 31 December 2009. These NAV returns have been generated with an annualised volatility1 of 7.0 per cent. and a Sharpe Ratio2 of 2.63x. These figures are based on estimated, unaudited Net Asset Values as at 31 December 2009. Estimated results, performance or achievements may materially differ from actual results, performance or achievements.
The historical monthly NAV returns of the Company since its launch in March 2007 on a class by class basis are listed in detail as follows:
NAV per share % Monthly Change
|
USD |
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 |
0.33 |
17.99 |
|
EUR |
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 |
0.36 |
18.32 |
|
GBP |
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 |
0.37 |
17.96 |
Source: Company NAV and NAV per share data is provided by the Company's administrator, Northern Trust International Fund Administration Services (Guernsey) Limited. Company NAV per share percentage monthly change calculations are made by Brevan Howard Asset Management LLP ("BHAM").
Performance data in 2007 is calculated from a base of 10 in each currency unit.
The NAV data is unaudited and net of all fees and expenses payable by the Company. NAV performance for December 2009 is estimated as at 31 December 2009. Estimated results, performance or achievements may materially differ from actual results, performance or achievements. NAV performance is provided for information purposes only. Shares in the Company do not necessarily trade at a price equal to the prevailing NAV per share. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
31 December 2009. Source: BHAM
2 Sharpe Ratio is calculated by using annualised excess daily NAV return of BH Macro Limited US Dollar Shares (over US Federal
Funds target rate) divided by the annualised standard deviation of excess returns, since launch to 31 December 2009. Source:
BHAM
Since the launch of the Company the returns of the Master Fund and therefore the performance of the Company, have exhibited low correlation with both the FTSE 250 and the DJ STOXX 600 of approximately 0.3 each3.
Share price and discount management
Despite continued strong underlying growth in the Company's NAV, the Company's share prices have fluctuated in light of challenging market conditions.
From launch in March 2007 to September 2008, the Company's share prices traded at a premium to Net Asset Value. However, following the unprecedented events in world financial markets in the final quarter of 2008, the price of the shares of the Company declined and began to trade at significant discounts to Net Asset Value per share. The sizes of these discounts was further exacerbated by the Company's share prices failing to reflect the Company's NAV growth. Between November 2008 and January 2009, the shares in the Company traded at an average discount to the estimated unaudited Net Asset Value per share of 17.04 per cent. for the US Dollar Shares, 15.94 per cent. for the Euro Shares and 14.25 per cent. for the Sterling Shares.
Since then, the Company has continued to perform strongly, made market purchases of its shares, conducted a tender offer and, as at the close of business on 19 January 2010 (being the latest practicable date prior to the publication of the Circular), the closing share price was US$17.13 for the US Dollar Shares, €17.21 for the Euro Shares and £18.19 for the Sterling Shares, each price representing either a small premium or small discount to the estimated unaudited Net Asset Values per share of such share classes4.
The average discount to NAV at which the Sterling Shares trade has now narrowed sufficiently so that a Class Closure Resolution is not currently required to be proposed in respect of the Sterling Shares.
The Board and the Manager have taken the discounts very seriously and have made significant efforts to seek to manage those discounts. To that end and to enhance the Company's appeal to existing and potential investors, the Company has introduced monthly currency class conversions and a discretionary annual partial capital return scheme. To the extent that the Company has had positive NAV growth in the preceding calendar year, this permits the Board to offer (in their sole discretion), once a year, Shareholders an opportunity to elect to offer some of their shares for redemption at a price determined by reference to the prevailing Net Asset Value while at the same time not disadvantaging Shareholders who do not want to redeem any shares.
The introduction of the annual partial capital return is in addition to the Company's existing market purchase authority which, subject to shareholder approval, allows it to purchase up to 14.99 per cent. of each class of the Company's shares on an annual basis to address any imbalance between the supply and demand of shares.
FTSE 250 is a capitalisation-weighted index of 250 UK companies on the London Stock Exchange. DJ STOXX 600 is the
Dow Jones STOXX 600 Index being an index representing large, mid and small capitalisation companies across 18 countries
of the European region. Source: Manager.
performance or achievements may materially differ from actual performance or achievements.
The Board remains committed to the principle of discount control and taking appropriate steps based on market conditions at the time to manage the discount and potentially enhance the Company's NAV whilst continuing to preserve flexibility.
Outlook
The Board believes that the Company's consistent performance over the nearly three years since its launch demonstrates that the business model of a listed feeder fund investing in a master fund benefiting from high quality fund management remains viable and is one that can continue to seek to generate superior non-correlated returns for shareholders in the years ahead.
The Class Closure Resolutions and Tender Offer to be considered by the holders of the Euro and US Dollar share classes only
The Class Closure Resolutions contain an approval of the terms of a Tender Offer by the Company. The terms of the Tender Offer are described further in Part II of the Circular.
A Class Closure Resolution is not being proposed in respect of the Sterling class and therefore no winding up of the Company is currently proposed or anticipated. However, in the event that all classes of shares in issue were to consider and approve a Class Closure Resolution, a resolution would be required to approve the winding up of the Company.
Compulsory repurchase of shares
In the event that a Tender Offer is made and a holder of the relevant class of shares does not (or is unable to) tender its shares for repurchase by the Company within the Tender Period, the Company may repurchase the outstanding shares of the relevant class and, should it decide to do so, it shall give notice (a "Compulsory Purchase Notice") to such holders that it shall acquire those shares. Upon issue of the Compulsory Purchase Notice, the Company shall be entitled and bound to acquire the shares referred to in the Compulsory Purchase Notice on the terms of the Tender Offer. Following service of the Compulsory Purchase Notice, such shares will not be capable of being transferred or converted into another share class pursuant to the Company's class conversion facility.
In the event that the Tender Offer is made in respect of a particular class of shares and not all shares of that class are tendered, whether the Directors determine that the Company should serve a Compulsory Purchase Notice in respect of the outstanding shares of that class may depend on a number of factors, including the number of shares of that class still outstanding and whether continuation of the relevant share class is viable. If the Company serves a Compulsory Purchase Notice in respect of all outstanding shares of a particular class, or if the Tender Offer is accepted by all eligible shareholders of a particular class, then that class of shares would be cancelled in its entirety and its listing on both the London Stock Exchange and the Bermuda Stock Exchange (and, in the case of the US Dollar Shares, its listing on NASDAQ Dubai) would be cancelled.
Proposed amendments to the Articles of Incorporation to be considered by the holders of shares of all classes
A special resolution is to be proposed at each Class Meeting to approve the amendments to the class closure provisions of the Articles of Incorporation and the addition of certain other provisions so far as they apply to each such class. As these are amendments to the Articles of Incorporation, the amendments will also need to be approved by special resolution by the Shareholders at the Extraordinary General Meeting in order for the amendments to be effective for any class.
The proposed amendments to the Articles of Incorporation are set out in full in Part IV of the Circular.
The trigger for the convening of a class meeting to consider a class closure resolution will remain the same, namely where, over a twelve month period, the average daily closing market price of a class of the Company's shares for each London Stock Exchange trading day during a discount management period is ten per cent. or more below the average NAV per share of that class taken over the twelve month-end NAV Calculation Dates during that period. However, the Articles of Incorporation will be amended to clarify that the average daily closing market price for the relevant class of shares for the relevant period will be calculated by dividing the sum of the closing market prices per share at each London Stock Exchange trading day during a discount management period by the number of trading days in such period.
In addition, instead of using a rolling twelve month period, the calculation of the average share price and average NAV will be calculated over a fixed discount management period from 1 January to 31 December each year, with the first such twelve month period beginning on 1 January 2010 and ending on 31 December 2010. This will avoid uncertainty under the current Articles of Incorporation as to when the rolling twelve month period would recommence following rejection of a class closure vote, and therefore the concern that it could be triggered again in the following month and thereafter.
Under the proposed amendments to the Articles, if a Class Closure Resolution were to be passed, instead of requiring a Tender Offer to be made, the Company would be able to offer the following options to holders of the relevant class:
(a) to redeem all or some of their shares of the relevant class at a price equal to the NAV per share of the relevant class of shares calculated at a date chosen by the Directors but prior to the date of redemption less (to the extent that it is not already reflected in such NAV): (a) the costs and expenses incurred by the Company in relation to or arising from convening the class closure meeting for the relevant class of shares or associated with any alternative class closure arrangements and other outstanding costs and expenses of the Company attributable to the relevant class (including any redemption fees that may be imposed at that time by any underlying investments); and (b) in the case of a Class Closure Resolution passed prior to 14 March 2014, an amount equal to the proportion of the total costs and expenses incurred by the Manager in connection with the initial offering of the Company's shares which is attributable to the relevant class, calculated on a pro rata basis across all classes of shares in the Company then in issue;
(b) subject to certain limitations, to convert all or some of their shares into shares of another class, assuming that other class does not also pass a Class Closure Resolution, in accordance with the class conversion provisions set out in the Articles of Incorporation; or
(c) subject to the class continuing, to remain in the class.
If a Class Closure Resolution were to be passed by the holders of shares of a particular class, in the absence of notification to the Company, members of the relevant class would be deemed to elect the option described in paragraph (c). In the event, however, that the remaining number of shares of the relevant class was insufficiently large or widely enough held to justify its continuation, the Company may convert those shares into shares of another class in accordance with the Articles of Incorporation. In addition, the Company would have the option to redeem any remaining shares of the relevant class.
Technical amendments have also been made to Article 44 of the Articles dealing with annual redemption offers so as to consolidate the operational aspects of the redemptions of shares under a Class Closure Resolution with the operational aspects of redemptions under the partial annual capital return. These changes, however, do not affect the substance of the provisions related to the partial annual capital return approved at the annual general meeting of the Company held in June 2009.
These amendments to the Articles should provide the Company with greater flexibility to offer holders of a particular class of shares a range of options in the event that a class passes a Class Closure Resolution, while at the same time preserving the ability for Shareholders to liquidate their holdings. The amendments should also provide Shareholders with greater certainty regarding the range of options available to them in the event that a class closure resolution were passed in respect of the relevant class of shares.
In addition, in order to permit the Company better to manage its share classes when necessary or appropriate, including to deal with regulatory requirements and not necessarily in the context of a Class Closure Resolution, additional articles are proposed to be added to the Articles of Incorporation to permit the Directors to convert shares of a particular class into shares of another class in the event that: (a) the NAV of the first class falls below $25 million or its equivalent in another currency; or (b) the number of shares of the first class that are in public hands (as such term is defined in the Listing Rules of the UK Listing Authority) falls below 25 per cent. Any such conversion at the instigation of the Company would take place in accordance with the formula already contained in the Articles of Incorporation that is applied when a shareholder requests that its shares are converted from one class into another.
Other discount management provisions
In addition to the proposed amendments to the Articles of Incorporation, the Company will continue with its other discount management provisions. These include the ability to make market purchases of shares by the Company in accordance with the relevant Shareholder authorities. In addition, provided that the Company has had positive NAV growth in the preceding calendar year, the Directors have the ability in each calendar year, starting in 2010, to make a partial annual capital return in an amount equal to up to the preceding calendar year's NAV growth by means of redemption of a portion of the Company's shares pursuant to the changes to the Articles of Incorporation approved at the annual general meeting of the Company in June 2009.
Purchases by the Company of its own shares may continue during the period prior to, and after, the Euro and US Dollar Class Meeting to consider the Class Closure Resolutions and during the duration of any Tender Offer, if made.
Class conversion facility
In view of the Class Closure Resolution process, as announced on 16 December 2009, the Board has determined that the class conversion facility will not be offered for the conversion date in January 2010. The Board expects that the class conversion facility will next be offered to Shareholders at the next available conversion date following the Class Meetings to be held in February 2010. However, if the holders of a particular class of shares were to pass a Class Closure Resolution, holders of shares of other classes would not be permitted to convert shares of those other classes into that class.
Overseas Shareholders
Any Tender Offer will not be made available to certain overseas shareholders, as described further in the Circular.
Expected Timetable
|
Latest time and date for receipt of Forms of Proxy for the Euro Class Meeting |
11 a.m. on 17 February 2010 |
|
Latest time and date for receipt of Forms of Proxy for the US Dollar Class Meeting |
11.15 a.m. on 17 February 2010 |
|
Latest time and date for receipt of Forms of Proxy for the Sterling Class Meeting |
11.30 a.m. on 17 February 2010 |
|
Latest time and date for receipt of Forms of Proxy for the Extraordinary General Meeting |
11.40 a.m. on 17 February 2010 |
|
Euro Class Meeting |
11 a.m. on 19 February 2010 |
|
US Dollar Class Meeting |
11.15 a.m. on 19 February 2010 |
|
Sterling Class Meeting |
11.30 a.m. on 19 February 2010 |
|
Extraordinary General Meeting |
11.40 a.m. on 19 February 2010 |
All references are to Guernsey time.
A copy of the Circular will shortly be available for public inspection at the Document Viewing Facility, the Financial Services Authority, 25 North Colonnade, Canary Wharf, London E14 5HS.
Enquiries:
Brevan Howard:
Dan Riggs - Tel. 020 7022 6236
J.P. Morgan Cazenove:
William Simmonds / Jack Heathcoat-Amory - Tel. 020 7588 2828
Important notices
J.P. Morgan Cazenove Limited, which is regulated by the Financial Services Authority, is acting for the Company and no-one else in connection with the matters described in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of J.P. Morgan Cazenove Limited or for providing advice in relation to the matters described in this announcement.
This announcement does not constitute an offer or solicitation to acquire or sell any securities in the Company. Any acceptance or other response to the Proposals should be made on the basis of the information contained in the Circular.
This announcement is not for distribution in or into the United States, Canada, Australia or Japan or any other jurisdiction in which its distribution may be unlawful. This announcement is not an offer of securities for sale in the United States or elsewhere. The securities of the Company have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States unless registered under the Securities Act or pursuant to an exemption from such registration. The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended, and investors are not entitled to the benefits of that Act. There has not been and there will be no public offering of the Company's securities in the United States.
Certain of the NAV figures contained in this announcement are estimates, and are based on unaudited estimated valuations. The final month-end NAV may be materially different from these estimated weekly values, and should only be taken as indicative values which have been provided for information only and no reliance should be placed on them. Estimated results, performance or achievements may differ materially from any actual results, performance or achievements. Except as required by applicable law, the Company expressly disclaims any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise.
This announcement includes statements that are, or may be deemed to be, ''forward-looking statements''. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'', ''may'', ''will'' or ''should'' or, in each case their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the Company. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The investment performance, financial condition and prospects of the Company may change. Except as required by law or applicable regulation, the Company does not undertake any obligation to update any forward-looking statements, even though the situation of the Company may change in the future. All of the information presented in this announcement, and particularly the forward-looking statements, is qualified by these cautionary statements.
END
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