TIDMAIS
RNS Number : 8496V
Alternative Invest. Strategies Ld
18 December 2013
ALTERNATIVE INVESTMENT STRATEGIES LIMITED
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 OCTOBER 2013
The Directors announce the Annual Financial Report for the year
ended 31 October 2013.
The Company has today, in accordance with DTR 6.3.5, submitted
its annual financial report for the year ended 31 October 2013 to
the National Storage Mechanism and it will shortly be available for
inspection at www.Hemscott.com/nsm.do. The Annual Financial Report
is also available from the Company's website www.aisinvest.com.
CHAIRMAN'S STATEMENT
I present shareholders with the seventeenth and final Annual
Report of Alternative Investment Strategies Limited for the year to
31 October 2013.
Throughout the period, the Board continued to pursue policies to
enhance value and to encourage the discount of the share price to
Net Asset Value (NAV) to narrow, which included making a redemption
facility available to shareholders. To this end, the Company
redeemed 12,395,068 shares (representing 10% of the shares in
issue, the maximum available under the redemption facility) at the
redemption price of 137.75p in May (based on the NAV as at 31
March, less a pro rata proportion of the costs and expenses
associated with the redemption facility that equaled 0.02p per
share).
In addition to making the redemption facility available to
shareholders, the Company continued with the share buyback
programme. During the period, 5,085,000 shares were bought back.
The Board believes that a combination of the buyback programme, the
redemption facility and improved NAV returns contributed to a
narrowing of the discount in the early part of the period. When, at
the Annual General Meeting of the Company held on 28 February 2013,
the continuation resolution was narrowly defeated, the discount
narrowed further. Over the full period, the discount narrowed from
13.8% to 3.4% and this was reflected in a rise of 20.40% in the
share price from 112.75p to 135.05p.
Following the defeat of the continuation resolution, your Board
through its broker, Canaccord Genuity Limited, and the Investment
Manager, International Asset Management Limited, consulted with the
Company's shareholders as to the most appropriate course of action
for the Company. In light of the feedback received, the Board put
forward proposals for the approval of shareholders which have led
to the Company's assets being realised in an orderly manner through
a managed wind-down, with cash proceeds returned to shareholders
through a series of compulsory partial redemptions of shares.
The first such compulsory partial redemption (for 65 per cent.
of the Company's then issued share capital) of GBP97,795,826.00
(equivalent to 90.4085p per share) was returned to shareholders as
at 13 August, at a redemption price of 139.09p. Since the period
end, the Company returned a further GBP17,260,286.18 (equivalent to
46.0152p per Share) to shareholders as at 13 November 2013 by way
of a second compulsory partial redemption of shares (for 33 per
cent. of the Company's then issued share capital), at a redemption
price of 139.44p. The amount returned in the latter compulsory
redemption payment was ahead of the projection detailed in the
circular to shareholders dated 15 May 2013.
As at 31 October 2013, the Company had 37,509,966 shares in
issue with a market capitalisation of approximately GBP50.66m. As a
result of the payments from the second compulsory redemption
facility being paid out after the period end to shareholders in
November, 12,378,158 shares were cancelled shortly after the period
end, resulting in there then being 25,131,808 shares in issue.
The Company's total expense ratio at an annualised figure of
1.37% was slightly higher than the comparative period last year and
reflects the reduction in the level of share capital as the Board
has maintained a focus on the control of costs.
During the period, the Company made use of an overdraft facility
provided by the Royal Bank of Canada of the lessor of $25m or 10
per cent. of the gross asset value of the Company for short term
working capital purposes. It is not anticipated that the Company
will use the loan facility to any material extent (other than for
currency hedging purposes) going forward, given that the Company is
in managed wind-down. The Board expects to remove the currency
hedge in February 2014 at around the time of the next compulsory
partial redemption of shares.
The Board remains committed to realising the remaining value
from the Company's assets. In this regard, the Board confirmed in
the half yearly report that the Investment Manager had served
redemption notices on all assets at the earliest opportunity but so
as not to incur early redemption penalties. The remaining assets of
the Company are expected to be substantially realised by mid May
2014, per the timetable set out in the circular to shareholders
dated 15 May 2013. The Board anticipates that the Company will then
be put into liquidation in May 2014, having substantially realised
the investments by then with the potential inclusion of all the
illiquid holdings that do not have standard redemption terms.
During the year, the Company's Net Asset Value per share (NAV)
rose by 6.89% to 139.79p while the share price rose by 21.02% to
135.75p. However, the majority of the return produced over this
period occurred from 31 October 2012 to 30 June 2013 when the
portfolio of hedge funds included all of the high conviction
holdings. The increase in the NAV brings the total NAV return since
inception to 173.65% equivalent to an annualised return of 6.13%.
The MSCI World GBP Hedged Index has risen by 120.34% over the same
period, equating to an annualised return of 4.78%. The NAV
annualised volatility of 2.87% at the year end compares well with
an annualised figure of 8.44% for the MSCI World GBP Hedged
Index.
Finally, I would like to take the opportunity in this
seventeenth and final Annual Report of the Company to thank the
other members of the Board, the Investment Manager and other
service providers for their endeavours on behalf of the Company.
The Company produced superior risk-adjusted returns over most of
its existence and indeed was benefitting this year from the
improved opportunity set for hedge funds identified by the
Investment Manager at the end of last year. In particular, I would
like to thank Sean Molony at International Asset Management who has
worked exceptionally hard on behalf of this Company and its
shareholders.
N Wilson Chairman
17 December 2013
INVESTMENT MANAGER'S REPORT
The objective of the Company was to invest in a diversified
portfolio of hedge funds on a worldwide basis with the aim of
achieving superior absolute returns with low volatility. On the 12
June 2013, the Company's shareholders approved the managed
wind-down of the Company and since this date, the revised
investment objective and policy of the Company has been to seek to
realise all existing assets in the portfolio with a view to
maximising the return of invested capital to shareholders in an
orderly manner.
Redemption notices were served on all assets of the Company at
the earliest opportunity but so as not to incur early redemption
penalties. In this regard, a large number of positions were
redeemed from the portfolio at the end of June 2013 in line with
the revised objective of the Company and subsequently followed by a
number of further redemptions which were completed in the months
thereafter. As at 31 October 2013, six core holdings remained in
the portfolio. These six holdings are spread across three
strategies such that one is a Fixed Income Relative Value fund,
three are Event Driven funds and two are Long/Short Equity funds.
The other remaining holdings are largely the illiquids without
standard redemption frequencies. Payments received from these
illiquid holdings over the reporting period have continued to
reduce the size of the holdings in this area such that the
weighting in the portfolio at the year end now stands at 3.65% of
the Company's net assets. This figure is around half the amount
forecast in the circular to shareholders concerning the managed
wind-down dated 15 May 2013, taking into account the completed
compulsory redemption of shares at the period end. Indeed, further
payments are expected to be received from these holdings over the
remaining months of the wind-down period.
The NAV per share gained 0.51% in the last four months of the
reporting period following the June redemptions. Inevitably, as the
Company's portfolio has been redeemed, the remaining holdings have
become concentrated. In these latter four months, the portfolio
became more reliant on fixed income and credit-related managers who
wrestled with the market conditions caused by the volatility
surrounding the concerns over the timing of Fed tapering. There was
also a cash drag over this period as cash was accumulated prior to
the redemption payments.
The majority of the gain in the NAV was therefore achieved in
the first eight months of the reporting period when the portfolio
was diversified but had a significant focus on our favoured themes
in the Long/Short Equity and Event Driven strategies together with
the large allocations made to our high conviction managers. The
market environment was much more constructive for hedge fund
managers over this period as correlations between different asset
class movements reduced and fundamental security selection was once
again more consistently rewarded after the period of challenging
"risk on"/"risk off" market conditions that prevailed in the most
recent preceding years. Substantially reduced systemic risks has
meant that hedge fund managers have given up less of their return
in protection and allowed greater focus on the capture of returns.
Furthermore, the Company particularly benefitted from the focus
placed by the Investment Manager on the favoured strategic themes
in the Long/Short Equity and Event Driven strategies as they were
the two best performing strategies during this period. These
returns were also
achieved while maintaining low annualised volatility which stood
at 2.58% at the end of June and had only risen to 2.87% at the end
of the period despite the more concentrated portfolio.
The Investment Manager also remained mindful of a Board focus on
narrowing the level of discount to NAV at which the shares traded
and was supportive of the Board's measures in this respect. A
combination of share buybacks, a redemption facility, improved NAV
returns and the anticipation of cash proceeds being returned to
shareholders following the narrow defeat of the continuation
resolution at the Company's AGM led to the discount narrowing and
the share price rising by 21.02% to 135.75p during the reporting
period. Shareholder returns were further enhanced by redemption
values at higher NAVs than the prevailing share price. During this
period, the Company's Net Asset Value (NAV) per share increased by
6.89% to 139.79p for the year to 31 October 2013 and the net assets
of the Company were GBP35.18m at the year end.
The Investment Manager believes that the outlook is likely to
continue to be constructive for select hedge fund managers and
therefore that further gains will be produced from the remaining
assets during the wind-down. The third and fourth compulsory
redemptions of shares (anticipated for February and May 2014) are
expected to be in line or exceed the projections set out in the
circular to shareholders dated 15 May 2013. The currency hedge will
be removed at the time of the third compulsory redemption for both
liquidity reasons and as the risks of currency fluctuation during
the wind-down period will then have been substantially reduced. The
wind-down of the portfolio is thus expected to have been completed
in the orderly manner intended prior to the liquidation of the
Company. It is therefore with some sadness that I conclude my last
Investment Manager's report for this Company as the outlook for
risk-adjusted returns provided by the hedge funds formerly held in
this portfolio look increasingly attractive compared with other
asset classes traditionally sought after by risk aware
investors.
Sean Molony
International Asset Management Limited
17 December 2013
MANAGEMENT REPORT
A description of important events which have occurred during the
financial year, their impact on the performance of the Company as
shown in the financial statements and a description of the
principal risks and uncertainties facing the Company, together with
an indication of important events that have occurred since the end
of the financial year and the Company's likely future development
is given in the Chairman's Statement on page 2, the Report of the
Directors on pages 11 to 19 and the notes to the financial
statements on pages 32 to 50 and is incorporated here by
reference.
There were no material related party transactions which took
place in the financial year, other than those disclosed in the
report of the directors and at note 17 to the financial
statements.
Principal Risks and Uncertainties
The Board reviews risks each quarter and monitors the existing
risk control activity designed to mitigate these risks.
The principal risks associated with the Company are:
-- Operational risk. The Board is ultimately responsible for all
operational facets of performance including cash management, asset
management, regulatory and listing obligations. The Company has no
employees and so enters into a series of contracts/legal agreements
with a series of service providers to ensure both operational
performance and the regulatory obligations are met. The Board
considers the performance of each service provider in conjunction
with the Management Engagement Committee. The Company uses well
established, reputable and experienced service providers and their
continued appointment is assessed at least annually.
-- Investment risk. Although the Board is ultimately responsible
for the investing policy, the day-to-day investment strategy is
delegated to the Investment Manager. The success of the Company
depends on the diligence and skill of the Investment Manager. There
is a risk that any underperformance of funds which the Company's
capital is invested in would lead to a reduction of the Net Asset
Value or of the share price rating. The Board formally monitors the
investment performance each quarter and periodically visits the
Investment Manager to further supplement their knowledge of the
investment process and strategy. The investment portfolio is
diversified and the Investment Manager carries out extensive due
diligence on the underlying invested funds and monitors performance
regularly. The investment guidelines drawn up by the Investment
Manager to ensure adequate diversification are regularly monitored
by the Compliance Officer of the Investment Manager and investment
restrictions which result from the investment trust status of the
Company are additionally monitored by the Board. The investment
risk is currently evolving as the assets of the Company are being
redeemed.
-- Share price discount risk. The Company has a discount control
mechanism provision which was designed to mitigate this risk. As
the twelve month average discount exceeded five per cent during the
Company's last financial year, an ordinary resolution was proposed
as to whether the Company should continue as an investment company
at the Annual General Meeting of the Company held on 28 February
2013. As the continuation resolution was narrowly defeated, the
share price discount narrowed. The share price is continually
monitored and, if appropriate, the Company buy back facility is
utilised to help control share price discount levels. Furthermore,
the Board also considers whether any additional control measures
need to be taken.
-- Regulatory risk. The Company is required to comply with the
UKLA and CISX listing rules and the FSA's disclosure and
transparency rules. Any failure to comply could lead to criminal or
civil proceedings. The Manager and Corporate Broker monitor
compliance with regulatory requirements and the Manager's
Compliance Officer reports at quarterly Board meetings.
Going Concern
The performance of the investments held by the Company over the
reporting year are described in the Statement of Comprehensive
Income and in note 8 to the financial statements and the outlook
for the future is described in the Chairman's Statement. The
Company's financial position, its cash flows and liquidity position
are set out in the financial statements and the Company's financial
risk management objectives and policies, details of its financial
instruments and its exposures to market price risk, credit risk,
liquidity risk, interest rate risk and the risk of leverage by
underlying funds are set out at note 19 to the financial
statements.
In accordance with Article 150 of the Company's Articles of
Incorporation, a continuation vote was put to the Shareholders at
the Annual General meeting on 28 February 2013 (the "AGM"), as the
average discount of the share price to Net Asset Value had exceeded
5% for the year ended 31 October 2012. At the AGM, the continuation
vote was narrowly defeated by 49.25% of votes cast to 50.75%. As a
result, the Board put forward recommended proposals to shareholders
at an Extraordinary General Meeting (the "EGM") held on 12 June
2013 for a managed wind-down of the Company, amendment of the
Company's investment objective and policy and amendment of the
Company's articles for incorporation. At the EGM the proposals were
approved by shareholders, so that the Company is now in the process
of realising its investment portfolio, which will result in
shareholders realising their investment in the Company in an
orderly manner via compulsory redemptions of their shares on a
pro-rata basis in accordance with the amended articles of
incorporation.
Accordingly, the financial statements have been prepared on a
basis other than that of a going concern which includes, where
appropriate, writing down the Company's assets to net realisable
value. Provision is also made for any contractual commitments that
have become onerous at the end of the reporting period. The
financial statements do not include any provision for the future
costs of terminating the business of the entity except to the
extent that such costs were committed at the end of the reporting
period. No material adjustments arose as a result of ceasing to
apply the going concern basis except for the reclassification of
investments from non-current assets to current assets as described
in Note 2(d).
The Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence until the
liquidation of the Company.
Responsibility Statement
The Board of directors jointly and severally confirm that, to
the best of their knowledge:
(a) the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
(b) this Management Report includes or incorporates by reference
a fair review of the development and performance of the business
and the position of the Company, together with a description of the
principal risks and uncertainties that it faces.
N WilsonDirector
R HotchkisDirector
Date: 17 December 2013
Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 2HT
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 October 2013
Notes Revenue Capital Total Revenue Capital Total
2013 2013 2013 2012 2012 2012
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ------ ----------- --------- --------- ----------- --------- ---------
Other operating income 3 84 - 84 41 - 41
----------- --------- --------- ----------- --------- ---------
Total income 84 - 84 41 - 41
----------- --------- --------- ----------- --------- ---------
Gains and losses on
investments
Gains on fair value
through profit or
loss investments 8 - 18,292 18,292 - 5,657 5,657
Losses on foreign
exchange derivatives - (7,277) (7,277) - (1,758) (1,758)
Other foreign exchange
gains - 300 300 - 12 12
84 11,315 11,399 41 3,911 3,952
----------- --------- --------- ----------- --------- ---------
Expenses
Management fees (including
Investment Management
fee) (1,322) - (1,322) (1,935) - (1,935)
Other expenses 4 (528) - (528) (509) - (509)
Finance costs 6 (27) - (27) (30) - (30)
----------- --------- --------- ----------- --------- ---------
(Loss)/profit for
the year (1,793) 11,315 9,522 (2,433) 3,911 1,478
----------- --------- --------- ----------- --------- ---------
(Loss)/earnings per
Ordinary Sterling
Hedged share 7 GBP(0.018) GBP0.115 GBP0.097 GBP(0.016) GBP0.026 GBP0.010
----------- --------- --------- ----------- --------- ---------
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with IFRS
as adopted by the European Union. The supplementary revenue return
and capital return columns are both prepared under guidance
published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from
continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of this
statement.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 October 2013
Share Treasury Other
Notes Capital shares reserves Total
GBP 000 GBP 000 GBP 000 GBP 000
--------------------------------- ------ -------- --------- ---------- ----------
Balance at 1 November 2011 - (20,591) 241,628 221,037
-------- --------- ---------- ----------
Changes in equity for the
year ended 31 October 2012
Profit for the year - - 1,478 1,478
Repurchase of shares 13 - - (58,643) (58,643)
Cancellation of Treasury Shares 13 - 20,591 (20,591) -
Balance at 31 October 2012
carried forward - - 163,872 163,872
-------- --------- ---------- ----------
Balance at 1 November 2012 - - 163,872 163,872
-------- --------- ---------- ----------
Changes in equity for the
year ended 31 October 2013
Profit for the year - - 9,522 9,522
Repurchase of shares 13 - - (6,087) (6,087)
Redemption facility 13,14 - - (17,074) (17,074)
Compulsory redemption of shares 13,14 - - (115,056) (115,056)
Balance at 31 October 2013
carried forward - - 35,177 35,177
-------- --------- ---------- ----------
The accompanying notes are an integral part of this
statement.
STATEMENT OF FINANCIAL POSITION
As at 31 October 2013
2013 2012
Notes GBP 000 GBP 000
----------------------------------------------- ------ --------- --------
Non-current assets
Fair value through profit or loss investments 8 - 153,059
--------- --------
Current assets
Fair value through profit or loss investments 8 26,410 -
Forward foreign currency contracts 9 - 636
Other receivables 10 4,613 4,923
Cash and cash equivalents 11 21,882 9,150
--------- --------
52,905 14,709
--------- --------
Total assets 52,905 167,768
Current liabilities
Forward foreign currency contracts 9 (237) (11)
Other payables 12 (17,491) (755)
Overdraft 11 - (3,130)
---------
(17,728) (3,896)
--------- --------
Net assets 35,177 163,872
--------- --------
Equity attributable to equity shareholders
Called up Ordinary Sterling Hedged Share
Capital 13 - -
Other reserves 14 35,177 163,872
Treasury shares 13 - -
Total Equity 35,177 163,872
--------- --------
Net asset value per Ordinary Sterling
Hedged Share 15 139.97p 130.78p
The financial statements on pages 28 to 50 were approved by the
Board of Directors on 17 December 2013 and were signed on its
behalf by
N WilsonDirector
R HotchkisDirector
The accompanying notes are an integral part of this
statement.
STATEMENT OF CASH FLOWS
For the year ended 31 October 2013
2013 2012
Notes GBP 000 GBP 000
Cash flows used in operating activities:
Profit for the year 9522 1,478
Adjusted for:
Gains on investments 8 (18,292) (5,657)
Interest income (84) (41)
Interest paid on loans 27 30
Foreign exchange losses 6,977 1,746
---------- ---------
(11,372) (2,837)
---------- ---------
Operating cash flows before movements
in working capital (1,850) (2,444)
---------- ---------
Decrease in receivables 41 198
Decrease in payables (524) 90
---------- ---------
(483) 288
---------- ---------
Net cash used in operating activities (2,333) (2,156)
---------- ---------
Cash flows from investing activities:
Purchase of securities (84,040) (34,075)
Sales on securities 229,250 101,532
Net payment (to)/from forward foreign
currency contracts (6,415) 4,924
Interest income 84 41
---------- ---------
Net cash received from investing activities 138,879 72,422
Cash flows used in financing activities:
Repurchase of shares (6,087) (58,643)
Redemption of shares (17,074) -
Compulsory redemption of shares (97,796) -
Interest paid on overdrafts (27) (30)
---------- ---------
Net cash used in financing activities (120,984) (58,673)
Net increase in cash and cash equivalents 15,562 11,593
Cash and cash equivalents at the beginning
of the year 6,020 (5,585)
Effect of foreign exchange rate changes 300 12
Cash and cash equivalents at the end
of the year 11 21,882 6,020
---------- ---------
The accompanying notes are an integral part of this
statement.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 October 2013
1 The Company
Alternative Investment Strategies Limited ("the Company") is a
closed-ended investment company and is registered under the
provisions of The Companies (Guernsey) Law, 2008. The Company
commenced business on 6 December 1996, when the ordinary shares of
the Company were admitted to the Official List of the UK Listing
Authority and to trading on the London Stock Exchange. The shares
have also been admitted to the Official List of the Channel Islands
Stock Exchange and permission to trade has been granted.
2 Significant Accounting Policies
The principal accounting policies used in the preparation of the
Company's financial statements have all been applied consistently
through the year and prior years. These are set out below:
a) Basis of Accounting
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards
("IFRS"), which comprise standards and interpretations approved by
the International Accounting Standards Board ("IASB"), and
International Accounting Standards and Standing Interpretations
Committee interpretations approved by the International Accounting
Standards Committee ("IASC") that remain in effect, and to the
extent that they have been adopted by the European Union.
The financial statements have been prepared under the historical
cost basis, except for the revaluation of fair value through profit
or loss investments in d) below and forward foreign exchange
contracts in k) below, and in accordance with IFRS, The Companies
(Guernsey) Law, 2008, the Listing Rules and Disclosure and
Transparency Rules of the Financial Services Authority and the
rules of the Channel Islands Stock Exchange. The statement of
comprehensive income is presented in accordance with the Statement
of Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' issued in January 2009 by the
Association of Investment Companies, to the extent that it does not
conflict with IFRS.
b) Going Concern
In accordance with Article 150 of the Company's Articles of
Incorporation, a continuation vote was put to the Shareholders at
the Annual General meeting on 28 February 2013 (the "AGM"), as the
average discount of the share price to Net Asset Value had exceeded
5% for the year ended 31 October 2013. At the AGM, the continuation
vote was narrowly defeated by 49.25% of votes cast to 50.75%. As a
result, the Board put forward recommended proposals to shareholders
at an Extraordinary General Meeting (the "EGM") held on 12 June
2013 for a managed wind-down of the Company, amendment of the
Company's investment objective and policy and amendment of the
Company's articles for incorporation. At the EGM the proposals were
approved by shareholders, so that the Company is now in the process
of realising its investment portfolio, which is resulting in
shareholders realising their investment in the Company in an
orderly manner via compulsory redemptions of their shares on a
pro--rata basis in accordance with the amended articles of
incorporation.
Accordingly, the financial statements have been prepared on a
basis other than that of a going concern which includes, where
appropriate, writing down the Company's assets to net realisable
value. Provision is also made for any contractual commitments that
have become onerous at the end of the reporting year. The financial
statements do not include any provision for the future costs of
terminating the business of the entity except to the extent that
such costs were committed at the end of the reporting year. No
material adjustments arose as a result of ceasing to apply the
going concern basis except for the reclassification of investments
from non-current assets to current assets as described in Note
2(d).
c) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the income statement
between items of a revenue and capital nature has been presented
alongside the statement of comprehensive income.
d) Investments
Investments have been designated as fair value through profit or
loss in accordance with IAS 39 (Revised) "Financial Instruments:
Recognition and Measurement", as these are investments which are
managed and where performance is evaluated on a fair value basis in
accordance with a documented investment strategy. As at 31 October
2013, the investments were generally expected to be held for the
long-term and as such were classified as non-current assets. The
Company has now entered a managed wind--down process and the
investments will be realised at the earliest possible opportunity,
without incurring additional redemption penalties. As such they
have been reclassified as current assets.
Investments are recognised and derecognised on a dealing date
based upon receipt of a trade note from the Investment Manager. All
investments are initially measured at fair value, including
transaction costs and are subsequently measured at fair value. All
purchases and sales of financial assets are recognised on the
"trade date" i.e. the date that the Company commits to the
purchase/sale of the financial asset.
Quoted prices of investments are based on published net asset
values from underlying Managers. Shares in open-ended investment
companies are valued at the net asset value supplied by the
relevant fund manager or administrator as at the balance sheet date
(or the last preceding day for which such a price was supplied).
The valuation date of such funds may not always be coterminous with
the valuation date of the Company and in such cases the valuation
as at the last valuation date is used. The net asset value reported
by the fund manager or administrator may be unaudited and in some
cases, the notified net asset values are based on estimates.
Further, some of the underlying funds have been gated, suspended or
are in liquidation. In certain cases the directors have had to
adjust values to their best estimate where reliable information has
not been forthcoming. Whilst the directors have no reason to
suppose that any such valuations are unreasonable, the amounts
realised from the redemption of these funds may differ from these
values.
Changes in fair value of investments are recorded in the
statement of comprehensive income.
e) Income
Interest is recognised using the effective interest method.
Performance/management fee rebates are accounted for when they
become receivable.
Dividends received are accounted for when they become
receivable.
f) Expenses
All expenses are accounted for on an accruals basis. Expenses
are charged through the revenue account except for the performance
fee element of the Management fee which is charged to the realised
capital reserve.
g) Foreign Currencies
The functional and reporting currency of the Company is Pounds
Sterling as this is the currency in which the Company's shares are
traded and key performance measures established.
Transactions denominated in foreign currencies are recorded in
the functional currency at the actual exchange rates as at the date
of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the year end are reported at the rates of
exchange prevailing at the year end. Any gain or loss arising from
a change in exchange rates subsequent to the date of the
transaction is included as an exchange gain or loss in the capital
reserve or in the revenue account depending on whether the gain or
loss is of a capital or revenue nature respectively.
h) Reserves
Following the introduction of The Companies (Guernsey) Law, 2008
and a move to a solvency based rather than capital adequacy
distribution test, all of the Company's reserves are shown as a
single reserve in the statement of financial position.
i) Treasury Shares
When the Company purchases its own equity instruments (Treasury
shares), they are deducted from equity. During the year, no
Treasury shares were purchased but ordinary shares were bought back
for immediate cancellation. No gain or loss is recognised in the
statement of comprehensive income on the purchase, sale, issue or
cancellation of the Company's own equity instruments.
j) Cash and Cash Equivalents
Cash comprises cash in hand and demand deposits and bank
overdrafts. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to insignificant changes in value. Bank
overdrafts are recorded as the proceeds received net of direct
issue costs. Finance charges are accounted for on the accrual basis
in profit or loss using the effective interest method.
k) Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to
hedge against exposures to foreign currency fluctuations. The
forward contracts are initially recognised in the statement of
financial position at fair value on the date on which the contract
is entered into. Fair value at year end is calculated by reference
to current forward exchange rates for contracts with similar
maturity profiles, and changes in fair value are taken to the
statement of comprehensive income. Hedge accounting is not
used.
l) Impact of Changes to International Financial Reporting
Standards Adopted by the European Union
The following amendment, which is in issue and effective, has
been applied in the preparation of these financial statements:
IAS 24: Related Party Transactions (Revised) for accounting
periods commencing on or after 1 January 2011. The definition of
related party has been clarified to simplify the identification of
related party relationships, particularly in relation to
significant influence and joint control. However, the standard is
not expected to have a significant impact on the financial
statements. This standard has been adopted retrospectively for the
first time for the year ending 31 October 2012. This amendment did
not have a material impact on the financial statements of the
Company.
At the date of approval of these financial statements, the
following new standards and amendments, which have not been
applied, were in issue but not yet effective:
New Standards:
IFRS 9: Financial Instruments for accounting periods commencing
on or after 1 January 2015. IFRS 9 deals with classification and
measurement of financial assets and its requirements represent a
significant change from the existing requirements in IAS 39 in
respect of financial assets: amortised cost and fair value.
Financial assets are measured at amortised cost when the business
model is to hold assets in order to collect contractual cash flows.
All other financial assets are measured at fair value with changes
recognised in profit or loss. For an investment in an equity
instrument that is not held for trading, an entity may on initial
recognition elect to present all fair value changes from the
investment in other comprehensive income.
IFRS 13: Fair Value Measurement for annual accounting periods
beginning on or after 1 January 2013. IFRS 13 explains how to
measure fair value and aims to enhance fair value disclosures. The
guidance includes enhanced disclosure requirements that could
result in significantly more work for reporting entities. These
requirements are similar to those in IFRS 7, 'Financial
instruments: Disclosures', but apply to all assets and liabilities
measured at fair value, not just financial ones.
m) Critical accounting estimates and judgements
Estimates and judgements used in preparing the financial
statements are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting accounting
estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant
effect on the carrying amounts of assets relate to the valuation of
investments using the net asset value supplied by the relevant fund
manager or administrator as at balance sheet date.
n) Taxation
The Company has obtained exempt company status in Guernsey under
the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance
1989, so that the Company is exempt from taxation on income arising
outside Guernsey and on bank interest receivable in Guernsey. The
Company is therefore only liable to a fixed fee of GBP600 per
annum.
3 Income
An analysis of income is as follows:
2013 2012
GBP000 GBP000
-------------------------------------- ------- -------
Other operating income
Other income 84 41
84 41
------- -------
4 Other Expenses
2013 2012
GBP000 GBP000
------------------------------------------- ------- -------
Administration fee 50 50
Auditor's remuneration for audit services 32 32
Broker fees 128 49
Custodian fees 53 77
Directors' emoluments (note 5) 108 108
Directors' insurance 7 11
Fees relating to listing 65 53
General expenses 85 129
-------
528 509
------- -------
5 Directors' Emoluments
2013 2012
GBP000 GBP000
--------------------------------------------- ------- -------
N Wilson, Chairman and Independent Director 35 35
D Baxter, Senior Independent Director 25 25
A Djanogly* - -
J Walley, Independent Director 25 25
R Hotchkis, Independent Director 23 23
-------
108 108
------- -------
* Mr Alan Djanogly does not receive any directors fees because
of his association with the Investment Manager.
6 Finance Costs
Revenue Capital Total Revenue Capital Total
2013 2013 2013 2012 2012 2012
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- -------- -------- ------- -------- -------- -------
Bank overdraft interest
payable 27 - 27 30 - 30
-------- -------- ------- -------- -------- -------
7 (Loss)/earnings per Sterling Hedged Ordinary Redeemable
Share
Revenue Capital Total Revenue Capital Total
2013 2013 2013 2012 2012 2012
GBP GBP GBP GBP GBP GBP
----------------------------- ------------ --------- --------- ------------ --------- ---------
(Loss)/earnings per Sterling
Hedged Ordinary Redeemable
Share GBP(0.018) GBP0.115 GBP0.097 GBP(0.016) GBP0.026 GBP0.010
------------ --------- --------- ------------ --------- ---------
Revenue deficit on Sterling Hedged Ordinary Redeemable Shares is
based on GBP1,793,491 net revenue deficit (2012: GBP2,433,136) on
ordinary activities and on a weighted average of 98,514,971 shares
in issue (2012: 152,413,771). The capital return per Sterling
Hedged Ordinary Redeemable Share is based on net capital gains for
the financial year of GBP11,314,732 (2012: net capital losses of
3,911,660) and on a weighted average of 98,514,971 shares in issue
(2012: 152,413,771).
8 Fair Value Through Profit or Loss Investments
Year ended Year ended
31 October 31 October
2013 2012
GBP000 GBP000
-------------------------------------------------- ------------ -----------
Unlisted investments 26,410 153,059
------------ -----------
Opening fair value at 1 November 153,059 219,059
Purchases at cost 86,700 30,849
Sales - proceeds (232,541) (102,506)
Sales - realised gains / (losses) on sales 25,253 (5,780)
(Decrease) / increase in unrealised appreciation (6,961) 11,437
Closing fair value at 31 October 26,410 153,059
------------ -----------
Closing book cost at 31 October 24,451 144,139
Closing unrealised appreciation at 31 October 1,959 8,920
26,410 153,059
------------ -----------
Realised gains / (losses) on sales 25,253 (5,780)
(Decrease) / increase in unrealised appreciation (6,961) 11,437
Gains on investments in the year 18,292 5,657
------------ -----------
9 Forward Foreign Exchange Contracts
At 31 October 2013, the Company held outstanding forward foreign
currency contracts as set out below:
Purchase Contractual Sale Contractual Maturity Unrealised
gain/(loss)
Currency Amount currency amount date GBP
---------- ------------ --------- ------------- ----------- ------------
GBP 31,646,606 USD (50,836,811) 22/11/2013 (236,776)
USD 299,153 GBP (480,557) 22/11/2013 (35)
Unrealised
gain -
------------
Unrealised
loss (236,811)
------------
At 31 October 2012, the Company held outstanding forward foreign
currency contracts as set out below:
Purchase Contractual Sale Contractual Maturity Unrealised
gain/(loss)
Currency Amount currency amount date GBP
---------- ------------ --------- -------------- ----------- ------------
GBP 166,737,789 USD (267,580,804) 22/11/2012 635,846
GBP 3,227,508 USD (5,200,000) 23/11/2012 (425)
USD 4,770,887 GBP (2,972,515) 23/11/2012 (10,957)
Unrealised
gain 635,846
------------
Unrealised
loss (11,382)
------------
10 Other Receivables
31 October 31 October
2013 2012
GBP000 GBP000
------------------------------------------------------- ------------ ------------
Amounts paid in advance of purchase of securities - 3,228
Amounts receivable in respect of sales of investments
awaiting settlement 4,599 1,640
Equalisation receivables - 30
Other receivables 14 25
4,613 4,923
------------ ------------
The Directors consider that the carrying amount of other
receivables approximates their fair value.
11 Cash and Cash Equivalents
31 October 31 October
2013 2012
GBP000 GBP000
----------------- ----------- ------------
Cash at bank 21,882 9,150
Bank overdrafts - (3,130)
-----------
21,882 6,020
----------- ------------
All cash balances and bank overdrafts are at variable rates.
Each drawing under the overdraft facility must be repaid within 3
calendar months. Refer to note 16 for further details of the
overdraft facility.
12 Other Payables
31 October 31 October
2013 2012
GBP000 GBP000
---------------------------------------- ----------- ------------
Redemptions payable (refer to note 13) 17,260 -
Management fee 133 415
Other payables 98 340
17,491 755
----------- ------------
The Directors consider that the carrying amount of trade
payables approximates their fair value in accordance with IFRS
7.
13 Share Capital
31 October 31 October
2013 2012
GBP000 GBP000
--------------------------------------------------- ------------- -------------
Authorised
Unlimited Sterling Hedged Ordinary Redeemable
Shares of no par value - -
-------------
Allotted, issued and fully paid
37,509,966 (2012: 125,301,120)
Sterling Hedged Ordinary Redeemable Shares of
no par value - -
------------- -------------
31 October 31 October
2013 2012
Shares Shares
--------------------------------------------------- ------------- -------------
Allotted, issued and fully paid Ordinary Shares
of no par value 37,509,966 125,301,120
Number of ordinary shares at year end with voting
rights 37,509,966 125,301,120
------------- -------------
2013 2012
Shares Shares
--------------------------------------------------- ------------- -------------
Ordinary Shares with Voting Rights
Opening balance 125,301,120 175,703,509
Shares repurchased and cancelled immediately (5,085,000) (31,597,000)
Redemption of shares under redemption facility (12,395,068) (18,805,389)
Compulsory redemption of shares (70,311,086) -
------------- -------------
Closing balance 37,509,966 125,301,120
------------- -------------
2013 2012
Treasury Shares Shares GBP000 Shares GBP000
--------------------------- -------- -------- ------------- ---------
Opening balance - - 18,708,178 20,591
Shares repurchased in the
year and - - - -
reclassified as Treasury
Shares
Shares cancelled - - (18,708,178) (20,591)
--------
Closing balance - - - -
-------- -------- ------------- ---------
During the year under review 5,085,000 (2012: 31,597,000)
ordinary shares at a cost of GBP6,086,873 (2012: GBP34,694,513)
were repurchased and cancelled immediately. The Shareholders
renewed the authority of the Company to purchase up to an aggregate
of 14.99% of the Company's Sterling Hedged Ordinary Redeemable
Share Capital at the Annual General Meeting held on 28 February
2013, at a price (exclusive of expenses) which is:
a) not less than GBP0.01 per share; and
b) not more than the higher of (1) not more than 5% above the
average of the middle-market quotations (as derived from the Daily
Official List of the London Stock Exchange) for five business days
immediately preceding such purchase; and (2) the higher of the
price of the last independent trade and highest current independent
bid on the relevant market when the purchase is carried out,
provided that the Company shall not be authorised to acquire shares
at a price above the estimated prevailing net asset value per share
on the date of purchase.
The authority expires on the earlier of 30 June 2014 or the date
of the next AGM of the Company (except in relation to the purchase
of shares concluded before such date and which would be executed
wholly or partly after such date).
The Board has continued to monitor the discount at which the
Company's shares trade and has taken a number of initiatives,
including extensive share buybacks and making a redemption facility
available to shareholders, in order to encourage the narrowing of
the discount. The Company arranged for 12,395,068 shares to be
redeemed by means of this redemption facility in May 2013 at a
price of 137.75 pence per share. Following approval of proposals
for the managed wind-down of the Company, the first compulsory
redemption was paid out to Shareholders in mid August. The Company
had 37,509,966 shares in issue at the year end. The payments from
the second compulsory payment were paid out to shareholders in mid
November, with the result that 12,378,158 shares were cancelled
shortly after the period end resulting in there then being
25,131,808 shares. The cost of this redemption has been recognised
as a liability at the period end and in a compulsory redemption
reserve as it was a contracted commitment of the Company. Since the
period end and up to the date of approval of these financial
statements, no other shares have been bought back and
cancelled.
In January, the Company also announced that, subject to
shareholders passing the continuation resolution at the AGM, it
would implement one further redemption facility. As the
continuation resolution was not passed, the Company announced that
it would not implement this facility but instigate the wind-down
process.
14 Other Reserves
Other reserves is comprised of the following:
Share Capital Capital Accumulated Compulsory Capital Total
Premium reserve reserve revenue redemption redemption
realised unrealised deficit reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- --------- --------- ----------- ------------ ----------- ----------- ----------
Balance at 1 November
2011 216,296 44,558 4,847 (24,229) - 156 241,628
Profit / loss
for the year - (811) 4,722 (2,433) - - 1,478
Cancellation of
treasury shares (20,591) - - - - - (20,591)
Cancellation of
ordinary shares (58,643) - - - - - (58,643)
Balance at 31
October 2012 carried
forward 137,062 43,747 9,569 (26,662) - 156 163,872
--------- --------- ----------- ------------ ----------- ----------- ----------
Balance at 1 November
2012 137,062 43,747 9,569 (26,662) - 156 163,872
Profit / loss
for the year - 19,156 (7,841) (1,793) - - 9,522
Cancellation of
treasury shares - - - - - - -
Cancellation of
ordinary shares (6,087) - - - - - (6,087)
Redemption facility (17,074) - - - - - (17,074)
Compulsory redemption
of shares (97,796) - - - (17,260) - (115,056)
--------- --------- ----------- ------------ ----------- ----------- ----------
Balance at 31
October 2013 carried
forward 16,105 62,903 1,728 (28,445) (17,260) 156 35,177
--------- --------- ----------- ------------ ----------- ----------- ----------
15 Net Asset Value per Sterling Hedged Ordinary Share
31 October 31 October
2013 2012
Net asset value per Sterling Hedged Ordinary Share 139.97p 130.78p
----------- -----------
The net asset value ("NAV") per Sterling Hedged Ordinary
Redeemable is based on the net assets attributable to equity
shareholders of GBP35,176,467 (2012: GBP163,872,416) and on shares
in issue at the year end with voting rights of 37,509,966 (2012:
125,301,120), adjusted for the post period end compulsory
redemption of 12,378,158 shares, the cost of which has been
recognised as a liability at year end (31 October 2012. Shares in
issue with voting rights 125,301,120).
The NAV per share as calculated above is based on shares in
issue subsequent to the compulsory redemption of shares on 14
November 2013 for which a liability has been raised. This differs
from the NAV per share as stated in the Chairman's Statement and
Investment Manager's Report which was based on the shares in issue
on 31 October 2013 and the liability not having been
recognised.
16 Loan Facility
An overdraft facility of up to US$25,000,000 (or if lower, 10%
of the gross asset value of the Company), was agreed with Royal
Bank of Canada (Channel Islands) Limited on 5 November 2008 and
amended on 18 October 2009, 31 December 2010 and 1 March 2013. The
loan was secured on the Company's cash and investments of
GBP48,291,500 (2012: GBP162,208,729). The Company is charged
interest at US$ 1 week LIBOR plus 0.75% per annum and each drawing
under the Facility must be repaid within three calendar months.
This agreement renewed the facility until further notice, and
unless otherwise extended the facility may be reduced, cancelled or
withdrawn at any time by the bank.
At the year end the balance on the overdraft facility was GBPNil
(2012: GBP3,129,940).
17 Related Parties
The Manager of the Company is Kleinwort Benson (Channel Islands)
Fund Services Limited. The Manager receives a periodic fee of 1%
per annum in aggregate of the gross asset value of the Company, out
of which it pays the Investment Manager. In addition, the Manager
receives a fee of GBP50,000 (2012: GBP50,000) per year in respect
of administration, secretarial, registrar and other services to the
Company. The Investment Manager receives a performance fee equal to
10% of the excess of growth (if any) in the NAV at the end of the
financial year of the Company over the performance hurdle, which is
the 1-month sterling LIBOR diversified over the relevant quarterly
accounting period, plus the accumulated change in NAV resulting
from the issue or repurchase of shares in the Company during the
relevant quarterly accounting period. The payment of the
performance fee is subject to a high watermark which is currently
at a NAV of 156.92p (2012: 156.20p). Furthermore, the Manager is
entitled to retain out of the periodic fee on a quarterly basis, an
amount equivalent to 0.0125% of the Company's net assets per annum
subject to the overriding provision that the fee retained by the
Manager in any one year shall not exceed GBP180,000. The Investment
Manager is entitled to receive 100% of the performance fee and 90%
of the periodic fee. The balance of the periodic fee remaining
after the payment of expenses attributable to any lawful marketing,
promotion, investor relations, and other expenses that the Board
shall from time to time determine, subject to a limit of 0.05%,
will be paid to the Investment Manager.
The interests of the Directors and their families who held
office during the year, as at 31 October 2013, are set out
below.
Ordinary Sterling
Hedged
Shares of no par
value
31 October 31 October
2013 2012
----------------------------------- ----------- -----------
Nicholas Wilson 1,750 5,000
Duncan Baxter 8,859 25,310
Alan Djanogly 4,256 12,159
John Walley 10,920 31,200
Richard Hotchkis 7,000 20,000
Sean Molony (Alternate Director) 5,725 16,355
----------------------------------- ----------- -----------
No Director is under contract of service with the Company nor
are any such agreements proposed.
18 Capital management
The primary objective of the Company's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios in order to support and maximise shareholder value.
The Company manages its capital structure and makes adjustments
to it, in light of changes in economic conditions. To maintain or
adjust the capital structure, the Company may return capital to
shareholders or issue new shares. There are no regulatory
requirements to return capital to shareholders. The Company also
enters into forward foreign exchange contracts to secure its
capital value in sterling.
During the year, 5,085,000 ordinary shares were purchased
through buy backs at a cost of GBP6,086,873 and cancelled. The
Company arranged for 12,395,068 shares to be redeemed by means of a
redemption facility at a cost of GBP17,094,206 and cancelled. The
Company also arranged for two compulsory redemption of shares. The
first compulsory redemption of shares amounted to 70,311,086 shares
at a cost of GBP97,795,826 which was cancelled. The second
compulsory redemption of shares amounted to 12,378,158 and were
cancelled shortly after year end at a cost of GBP17,260,286.
As set out above, the continuation resolution was not passed at
the AGM held on 28 February 2013 and the proposals for a managed
wind-down of the company were approved at the EGM held on 12 June
2013. Accordingly, no further shares will be issued and shares will
be periodically redeemed on a pro rata basis as the Company's
portfolio is realised.
The Company monitors capital using a gearing ratio, which is net
debt divided by total capital plus net debt.
2013 2012
GBP000 GBP000
------------------------------------ -------- --------
Forward foreign currency contracts 237 11
Other payables 17,491 755
Overdraft - 3,130
Net debt 17,728 3,896
-------- --------
Other reserves 35,177 163,872
Total capital 35,177 163,872
-------- --------
Capital and net debt 52,905 167,768
-------- --------
Gearing ratio 33.51% 2.32%
The articles of the Company allow the Board of the Company to
borrow up to 50% of the Net Asset Value of the Company. While there
was no Company borrowings as at 31 October 2013, there was a
gearing ratio of 33.51% at the period end because the Company had
committed to pay out the proceeds of the October 2013 redemption
facility to shareholders in early November 2013. Cash was held on
the statement of financial position as at 31 October 2013 in order
to pay these proceeds.
19 Financial Instruments and Risk Profile
The original investment objective of the Company was to achieve
superior absolute returns with low volatility. Consistent with that
objective, the Company's investments comprise a diversified
portfolio of hedge funds. In addition the Company holds cash and
liquid resources and debtors and creditors that arise directly from
its operations.
The Directors review and agree policies with the Investment
Manager for managing its risk exposure.
Currency Risk
The Company invests in US Dollar funds whilst the Company's net
asset value and quoted price is in Sterling. Contracts are taken
out on a monthly basis to hedge fully the Company's exposure to US
Dollars. To mitigate the Company's exposure to US Dollars, it
enters into forward foreign currency transactions, which are based
on the Company's foreign exposure.
Currency Risk Table:
The Company's foreign currency exposure after the hedging
position at the reporting date is as follows:
Net Exposure
2013 2012
GBP000 GBP000
----------- ---------------- -----------
US Dollar 145 749
---------------- -----------
Foreign Currency Sensitivity:
The following table details the Company's sensitivity to a 10%
strengthening of the US Dollar against Sterling. 10% is the
sensitivity rate used when reporting foreign currency risk
internally to management and represents management's assessment of
the possible change in foreign exchange rates. This analysis
assumes that all variables, in particular interest rates and market
prices of the Company's Investment Portfolio remain constant. A
positive number indicates an increase in the net assets and equity
for the year where the reporting currency strengthens against the
relevant foreign currency. The analysis is performed on the same
basis for the prior year.
Whilst some of the underlying funds may be susceptible to price
movements arising from changes in foreign exchange rates, the
Company does not believe it is possible to reliably correlate any
such movement and accordingly does not consider any sensitivity
analysis of investment price to foreign exchange rate movement to
be appropriate.
Increase in net assets/equity and on the profit and loss for the
year:
2013 2012
GBP000 GBP000
----------- ------- -------
US Dollar 15 75
------- -------
A 10% weakening of the US Dollar against the Sterling at the
year end would have had the equal but opposite effect, on the basis
that all other variables remain the same.
Market Price Risk
The Company's exposure to market price risk comprises mainly
movements in the value of the Company's investments. Many of the
funds in which the Company invests are not regulated by the rules
of any stock exchange, investment exchange or other regulatory
body. The Company relies on administrator's estimates,
administrator's final net asset values, manager's estimates and
audited final net asset values at fund's year-ends. The Directors
have no reason to suppose that any such valuations are
unreasonable.
A breakdown of the market price risk by strategic and
geographical segments is provided in note 20 to the financial
statements.
The Investment Manager made its investment decisions, including
manager selections, based on a thorough understanding of the risk
and performance characteristics of funds gained through detailed
investigation and critical analysis. The Investment Manager
selected managers with robust risk controls and the monitoring
process is continuous.
The Investment Manager only invests in managers that are
independently administered and independently priced.
While the Company holds a diversified portfolio of underlying
funds, there are certain general market conditions in which any
investment strategy is unlikely to be profitable. Neither the
underlying managers of the underlying funds nor the Investment
Manager have complete ability to control or predict such market
conditions. Although, with respect to market risk, the Company's
investment approach is designed to achieve broad diversification on
a global basis, from time to time, multiple markets could move
together against the Company's underlying investments and the
Company could suffer losses. As part of its ongoing risk
management, the Investment Manager constantly monitors both the
volatility of individual funds and the degree of correlation
between them and seeks to avoid holdings in two or more funds with
any marked correlation between them in either return or
volatility.
Pricing Risk Table:
All security investments present a risk of the loss of capital,
the maximum risk resulting from instruments is determined by the
fair value of the financial instrument. The following represents
the Company's market pricing exposure at the year end:
2013 2012
Fair Value % of Net Fair Value % of Net
GBP GBP000 Assets GBP GBP000 Assets
------------------------------- ----------- --------- ----------- ---------
Assets at fair value through
profit or loss
Unlisted Investments 26,410 50.37% 153,059 93.40%
Derivative assets
Forward Exchange Contracts - - 636 0.39%
Derivative liabilities
Forward Exchange Contracts (237) (0.45%) (11) 0.01%
Price Sensitivity:
The following table details the sensitivity of the Company's net
assets and equity to a 10% increase in the market prices while all
other variables are held constant. 10% is the sensitivity rate used
when reporting price risk internally to management and represents
management's assessment of the possible change in market prices.
The analysis is performed on the same basis for the prior year.
Increase/(decrease) in net assets/equity and on the profit and
loss for the year:
2013 2012
GBP GBP
GBP000 GBP000
------------------------------------------------------------ ------- -------
Securities held for trading 2,641 15,306
Derivative assets held for trading - Forward Exchange
Contracts* - 64
Derivative liabilities held for trading - Forward Exchange
Contracts* (24) (1)
------- -------
2,617 15,369
------- -------
A 10% decrease in the market prices at the year-end would have
had an equal but opposite effect, on the basis that all other
variables remain the same.
*The price sensitivity of the forward exchange contracts are
also affected by movement in exchange rates. The Company's foreign
currency exposure after hedging is reflected on page 44.
Valuation of financials instruments
The Company adopted the amendment to IFRS 7, effective 1 January
2009, requiring the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within level
1 that are observable for the asset or liability, either directly
or indirectly.
Level 3 - Inputs for the asset or liability that are not based
on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table analyses within the fair value hierarchy the
Company's financial assets and liabilities (by class) measured at
fair value at 31 October 2013:
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
--------------------------------- --------- -------- -------- -------
Investments at fair value
through profit or loss - 24,498 1,912 26,410
Derivative assets held for
trading:
Open forward exchange contracts - - - -
--------- -------- -------- -------
Total assets - 24,498 1,912 26,410
--------- -------- -------- -------
Liabilities
Derivative liabilities held
for trading:
Open forward exchange contracts - (237) - (237)
--------- -------- -------- -------
Total liabilities - (237) - (237)
--------- -------- -------- -------
The following table analyses within the fair value hierarchy the
Company's financial assets and liabilities (by class) measured at
fair value at 31 October 2012:
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
--------------------------------- --------- -------- -------- --------
Investments at fair value
through profit or loss - 148,771 4,280 153,059
Derivative assets held for
trading:
Open forward exchange contracts - 636 - 636
--------- -------- -------- --------
Total assets - 149,415 4,280 153,695
--------- -------- -------- --------
Liabilities
Derivative liabilities held
for trading:
Open forward exchange contracts - (11) - (11)
--------- -------- -------- --------
Total liabilities - (11) - (11)
--------- -------- -------- --------
Investments in assets at fair value through profit or loss whose
values are based on quoted market prices in active markets are
classified within level 1. The investments that the company is able
to redeem at net asset value as at the measurement date have been
classified as level 2 investments. The directors consider
investments in managed investment funds classified within level 3
to include funds with net asset values which may not be readily
realisable in the near term due to lock-up periods, extended
withdrawal (not in the normal course of business of the underlying
managed investment fund) or periods in which redemptions and/or net
asset values of the underlying managed investment fund are
suspended due to adverse market conditions. Forward exchange
contracts are classified as level 2, as they are not traded in
active markets but are priced based on observable forward foreign
exchange rates at the year end.
The following table presents the movement in level 3 instruments
for assets at fair value through profit or loss.
31 October 31 October
2013 2012
GBP000 GBP000
----------------------------------------------- ----------- -----------
Opening balance 4,280 8,474
Purchases * - -
Transfers into level 3 79 859
Disposals (2,629) (4,922)
Gains and losses recognised in profit or loss 182 (131)
----------- -----------
Total 1,912 4,280
----------- -----------
* The purchases have arisen from arrangement schemes during the
redemption process of certain investments.
Liquidity Risk
The investments made by the Company are subject to redemptions
at specific times and dates. The Investment Manager closely
monitors the redemption frequencies of the underlying investments
to ensure that the majority of the managers have monthly or
quarterly liquidity which enables the active investment management
of the portfolio and minimises liquidity risk. The Company has an
overdraft facility of up to the lesser of US$25 million and 10% of
the gross asset value, which is primarily available to facilitate
the funding of transactions and any forward foreign exchange
hedging losses. Each drawdown under this facility must be repaid
within three calendar months. The Company also has an uncommitted
forward foreign exchange facility with the Royal Bank of Canada in
respect of which the aggregate foreign exchange risk shall not
exceed the lesser of US$35m or 15% of the NAV. This facility is
reviewed by the Investment Manager and the Board to ensure that it
is appropriate in relation to the size of the fund.
The Investment Manager ensures that funds are available for
transactions entered into, while the settlementof all transactions
is the responsibility of the custodian, Royal Bank of Canada
(Channel Islands) Limited.
Contractual Maturity Analysis
The following table details the Company's liquidity analysis for
its financial assets and liabilities.
2013 Less than 1-3 months 3 months No Stated
1 month to 1 year maturity
GBP GBP GBP GBP
GBP000 GBP000 GBP000 GBP000
------------------------------------ ---------- ----------- ----------- ----------
Fair value through profit or
loss investments* - 24,498 - 1,912
Forward foreign currency contracts (237) - - -
Other receivables 4,613 - - -
Cash and cash equivalents 21,882 - - -
Other payables (17,491) - - -
Bank overdraft - - - -
---------- ----------- ----------- ----------
8,767 24,498 - 1,912
---------- ----------- ----------- ----------
2012 Less than 1-3 months 3 months No Stated
1 month to 1 year maturity
GBP GBP GBP GBP
GBP000 GBP000 GBP000 GBP000
------------------------------------ ---------- ----------- ----------- ----------
Fair value through profit or
loss investments* - 137,903 10,876 4,280
Forward foreign currency contracts 625 - - -
Other receivables 1,695 3,228 - -
Cash and cash equivalents 9,150 - - -
Other payables (755) - - -
Bank overdraft - (3,130) - -
---------- ----------- ----------- ----------
10,715 138,001 10,876 4,280
---------- ----------- ----------- ----------
* The liquidity is determined based on the redemption period of
the investments.
Interest Rate Risk
Interest rate risk is the risk that fair value or future cash
flows of a financial instrument will fluctuate due to changes in
interest rates. The majority of the Company's financial assets and
liabilities are non-interest bearing, as a result the Company is
not subject to significant amounts of risk due to fluctuations in
the prevailing levels of market interest rates. The Company has a
bank overdraft which had a balance owing of GBPNil (2012:
GBP3,129,940) and is charged interest at US$ 1 week LIBOR plus
0.75% per annum. Each drawing under the facility must be repaid
within three calendar months.
Whilst some of the underlying funds may be susceptible to price
movements arising from changes in interest rates, the Company does
not believe it is possible to reliably correlate any such movement
and accordingly does not consider any sensitivity analysis of
investment price to interest rate movement to be appropriate.
Credit Risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company and arises from cash and cash equivalents,
deposits with banks, derivative financial instruments and sales of
investments awaiting settlement. It is the Company's policy to only
enter into financial instruments with reputable counterparties. The
Company considers that the Royal Bank of Canada (Channel Islands)
Limited is not only reputable, but also has sufficient experience
in this investment area and is considered to be a well capitalised
bank. The risk of default on sales of investments awaiting
settlement is partially mitigated since the delivery of securities
sold is made only once the Custodian has received payment of the
majority of the consideration. On redemptions, certain funds are
entitled to temporarily hold back an element of the proceeds giving
rise to amounts receivable on sales of securities as stated in Note
10. The investment manager monitors recovery of these hold-back
amounts and none are past due or deemed to be impaired as at the
year end. Therefore the Company does not expect to incur material
credit losses on its financial instruments. The Company's maximum
exposure to credit risk in relation to each class of recognised
financial asset is the carrying amount of those assets as indicated
on the face of the statement of financial position.
The Company has a concentration risk by holding all cash and
cash equivalents of GBP21,881,666 (2012: GBP9,149,969) and forward
exchange contracts with a value of GBP236,811 (2012: GBP624,464)
with The Royal Bank of Canada (Channel Islands) Limited.
20 Operating Segments
The Investment Manager of the Company decides on the resource
allocation of the Company. The operating segments of the Company
are the business activities that earn revenue or incur expenses,
whose results are regularly reviewed by the Investment Manager, and
for which discrete financial information is available. The
Investment Manager considers the Company to be made up of 7
segments, which are the strategies as defined on page 8 of these
financial statements. The Company invested in 7 of these segments
during the year.
The Company derives its income from its investments by way of
movements in the value of the investments. The information
presented to the Investment Manager in terms of revenue is as
follows:
Year ended Equity Long / Credit Macro Trend Followers Multi-Strategy Event Fixed Total
31 October 2013 Market Short / CTAs Driven Income
Neutral Equity Relative
Value
Profit/(loss) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- --------- ------- ------- ------- ---------------- --------------- ------- --------- --------
Investment income
Dividends - - - - - - - - -
Other operating income
Performance/management
fee rebates - - - - - - - - -
Gains and losses on
investments
Gains on fair value
through
profit or loss
investments - 8,360 2,751 1,608 283 129 4,705 456 18,292
Segment revenue - 8,360 2,751 1,608 283 129 4,705 456 18,292
--------- ------- ------- ------- ---------------- --------------- ------- --------- --------
Management fees
(including
Investment Management
fee) - (505) (1) (6) - (80) (636) (94) (1,322)
Net segment profit
for the year - 7,855 2,750 1,602 283 49 4,069 362 16,970
--------- ------- ------- ------- ---------------- --------------- ------- --------- --------
Year ended Equity Long / Credit Macro Trend Followers Multi-Strategy Event Fixed Total
31 October 2012 Market Short / CTAs Driven Income
Neutral Equity Relative
Value
Profit/(loss) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- -------- ------- ------- ------- ---------------- --------------- ------- --------- --------
Investment income
Dividends - - - - - - - - -
Other operating
income
Performance/management
fee rebates - - - - - - - - -
Gains and losses
on investments
Gains/(losses)
on fair
value through profit
or
loss investments 326 3,283 558 (473) (507) (701) 2,720 451 5,657
Segment revenue 326 3,283 558 (473) (507) (701) 2,720 451 5,657
-------- ------- ------- ------- ---------------- --------------- ------- --------- --------
Management fees
(including Investment
Management fee) - (735) (362) (298) (47) (44) (349) (100) (1,935)
Net segment
profit/(loss)
for the year 326 2,548 196 (771) (554) (745) 2,371 351 3,722
-------- ------- ------- ------- ---------------- --------------- ------- --------- --------
Reportable segments' profits are reconciled to Company profit as
follows:
2013 2012
GBP000 GBP000
--------------------------------- -------- --------
Net segment profit for the year 16,970 3,722
Deposit interest 84 41
Foreign exchange losses (8,132) (1,746)
Other expenses (528) (509)
Finance costs (27) (30)
--------
Profit for the year 8,367 1,478
-------- --------
The Company's assets by segments are presented as follows:
Year ended Equity Long / Credit Macro Trend Multi-Strategy Event Fixed Total
31 October Market Short Followers Driven Income
2013 Neutral Equity / CTAs Relative
Value
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ---------- -------- ------- ------- ------------ --------------- -------- ------------ --------
Fair value
through
profit or
loss
investments - 10,088 16 125 - 1,590 12,704 1,887 26,410
Other
receivables - 1,572 1,515 1,055 - - 457 - 4,599
---------- -------- ------- ------- ------------ --------------- -------- ------------ --------
Segment
assets - 11,660 1,531 1,180 - 1,590 13,161 1,887 31,009
---------- -------- ------- ------- ------------ --------------- -------- ------------ --------
As at
31 October
2012
Fair value
through
profit or
loss
investments - 58,168 28,637 23,563 3,724 3,493 27,551 7,923 153,059
Other
receivables - 1,269 311 60 - - 1,644 1,614 4,898
---------- -------- ------- ------- ------------ --------------- -------- ------------ --------
Segment
assets - 59,437 28,948 23,623 3,724 3,493 29,195 9,537 157,957
---------- -------- ------- ------- ------------ --------------- -------- ------------ --------
The amounts provided to the Investment Manager with respect to
total assets are measured in a manner consistent with IFRS. The
Company's other assets and all of its other payables (as per table
below) are not considered to be segment assets and are managed by
the administration function.
Reportable segments' assets are reconciled to net assets as
follows:
2013 2012
GBP'000 GBP'000
---------------------------------------- --------- --------
Segment assets for reportable segments 31,009 157,957
Forward foreign currency contracts (237) 625
Other receivables 14 25
Cash and cash equivalents 21,882 6,020
Other payables (17,491) (755)
--------- --------
Net assets 35,177 163,872
--------- --------
21 Subsequent Events
There were no events subsequent to year end that the Directors
believe require disclosure in or adjustment to the financial
statements.
Enquiries:
Sean Molony Tel: +44 (0)20 7734 8488
International Asset Management Limited
Matt Tostevin Tel: + 44 (0) 1481 704752
Kleinwort Benson (Channel Islands) Fund Services Limited
This information is provided by RNS
The company news service from the London Stock Exchange
END
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