TIDMBHCU
RNS Number : 6410V
BH Credit Catalysts Limited $
29 October 2014
BH CREDIT CATALYSTS LIMITED
MONTHLY SHAREHOLDER REPORT:
SEPTEMBER 2014
YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT
BH Credit Overview
Catalysts BH Credit Catalysts Limited ("BHCC") is a closed-ended investment
Limited company, registered and incorporated in Guernsey on 19 October
Manager: 2010 (Registration Number: 52520).
Brevan Howard BHCC invests all of its assets (net of short-term working
Capital capital) in the ordinary shares of Brevan Howard Credit
Management Catalysts Master Fund Limited (the "Fund"). The investment
LP ("BHCM") manager of the Fund is DW Investment Management, LP ("DWIM").
Administrator: BHCC was admitted to the Official List of the UK Listing
Northern Authority and to trading on the Main Market of the London
Trust Stock Exchange on 14 December 2010.
International Total Assets
Fund $228 mm(1)
Administration 1. As at 30 September 2014 by BHCC's administrator, Northern
Services Trust.
(Guernsey)
Limited
("Northern
Trust")
Corporate
Brokers:
J.P. Morgan
Cazenove
Dexion Capital
Plc
Listing:
London Stock
Exchange
(Premium
Listing)
Summary BH Credit Catalysts Limited NAV per Share (as at 30 September
Information 2014) Share NAV (USD NAV per
Class mm) Share
------------ --------- ---------
USD Shares 51.8 $13.75
------------ --------- ---------
GBP Shares 176.4 GBP13.81
------------ --------- ---------
BH Credit Catalysts Limited NAV per Share % Monthly Change USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
------ ----- ----- ----- ----- ------ ------ ----- ------ ------ ------ ------ ------ ------
2011 1.78 1.55 0.91 2.14 -0.03 -2.16 0.50 -0.37 -0.96 -0.50 -1.49 -0.50 0.81
------ ----- ----- ----- ----- ------ ------ ----- ------ ------ ------ ------ ------ ------
2012 0.64 1.15 2.36 1.51 1.17 -0.10 1.38 1.39 1.65 0.80 0.73 1.26 14.83
------ ----- ----- ----- ----- ------ ------ ----- ------ ------ ------ ------ ------ ------
2013 1.73 0.24 1.19 1.07 1.74 -0.52 0.16 1.07 1.18 1.68 1.70 1.52 13.50
------ ----- ----- ----- ----- ------ ------ ----- ------ ------ ------ ------ ------ ------
2014 1.07 1.43 0.49 1.51 0.85 1.47 0.58 -1.00 -0.76 5.74
------ ----- ----- ----- ----- ------ ------ ----- ------ ------ ------ ------ ------ ------
GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
------ ----- ----- ----- ----- ----- ------ ----- ------ ------ ------ ------ ------ ------
2011 1.74 1.54 0.95 2.08 0.05 -2.16 0.51 -0.33 -0.93 -0.50 -1.49 -0.47 0.89
------ ----- ----- ----- ----- ----- ------ ----- ------ ------ ------ ------ ------ ------
2012 0.64 1.15 2.40 1.50 1.22 -0.06 1.40 1.36 1.62 0.81 0.75 1.26 14.95
------ ----- ----- ----- ----- ----- ------ ----- ------ ------ ------ ------ ------ ------
2013 1.76 0.27 1.20 1.05 1.81 -0.52 0.18 1.06 1.13 1.71 1.68 1.54 13.62
------ ----- ----- ----- ----- ----- ------ ----- ------ ------ ------ ------ ------ ------
2014 1.08 1.43 0.53 1.51 0.88 1.48 0.63 -1.01 -0.77 5.87
------ ----- ----- ----- ----- ----- ------ ----- ------ ------ ------ ------ ------ ------
Source: Fund data is provided by the administrator of the
Fund, International Fund Services (Ireland) Limited. BHCC
NAV and NAV per Share data is provided by BHCC's administrator,
Northern Trust. BHCC NAV per Share % Monthly Change is calculated
by BHCM. BHCC NAV data is unaudited and net of all investment
management fees (2% annual management fee and 20% performance
fee) and all other fees and expenses payable by BHCC.
NAV performance is provided for information purposes only.
Shares in BHCC do not necessarily trade at a price equal
to the prevailing NAV per Share.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Brevan Howard Credit Catalysts Master Fund Limited
Valuation Unaudited Estimates as at 30 September 2014 % of Gross
Categorisation* Market Value*
------- ---------------
Level
1 50
------- ---------------
Level
2 46
------- ---------------
Level
3 4
------- ---------------
Source: BHCM
* These estimates are unaudited and have been calculated
by BHCM using the same methodology as that used in the most
recent audited financial statements of the Fund. These estimates
are subject to change.
Level 1: This represents the level of assets in the portfolio
which are priced using unadjusted quoted prices in active
markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
Level 2: This represents the level of assets in the portfolio
which are priced using either (i) quoted prices that are
identical or similar in markets that are not active or (ii)
model-derived valuations for which all significant inputs
are observable, either directly or indirectly in active
markets.
Level 3: This represents the level of assets in the portfolio
which are priced or valued using inputs that are both significant
to the fair value measurement and are not observable directly
or indirectly in an active market.
Performance The information in this section has been provided to BHCC
Review for by DWIM.
the Fund
The NAV per share of BHCC USD Shares depreciated by 0.76%
(net of fees and expenses) in September, which ended a challenging
third quarter for fundamental markets and for the Fund.
Corporate positions posted losses this month, which were
partially offset by gains from mortgage- and asset-backed
holdings.
The bulk of the Fund's losses came from the performing long/short
portfolio, with the majority of those from single-name equity
positions. Broad equity markets were down in September,
but the Fund's long positions underperformed their hedges,
which were mostly S&P 500 index shorts.
Notably, Hyundai announced it had won a land auction in
Seoul, paying $10bn to develop a new corporate headquarters,
and investors reacted by selling common equity and preferred
shares, with prices falling more than 20%. The Fund had
generated solid gains from Hyundai preferred positions this
year, but those gains were eliminated by this news. Selling
in Hyundai led to similar weakness in Samsung, which also
contributed to Fund losses for the month. In both Hyundai
and Samsung, part of our investment thesis was that the
companies would begin to release their large cash holdings
in shareholder-friendly ways, such as dividend increases
and share buybacks. There are further catalysts in Korea
in the recent change in Korean policy that will tax companies
holding large cash balances. We and the market were disappointed
about Hyundai spending so much cash on land development
rather than in a more shareholder-friendly manner. The Fund
continues to hold preferred shares in each of Samsung and
Hyundai and in each case we believe there is very significant
upside even if we must be a bit more patient for the catalysts
to be realised. There were losses in other equity positions
and the aggregate equity position in the Fund has been reduced.
Elsewhere among long/short positions, changes we had made
in August to the Fund's Caesars trade construction helped
mitigate losses this month, as the market reflected increased
probability of negative outcomes for various Caesars entities.
Across the long/short portfolio, positions structured with
a long credit leg and a short equity leg posted mark-to-market
losses as credit, particularly HY, underperformed equity
markets. On the positive side, several of the interest rate
losses that the Fund experienced in August reversed and
contributed positively for the month. Other long/short winners
for September were in select positions with a single name
short bias.
Distressed positions were mixed in September, although overall
down for the month, with larger capital structures like
TXU declining, while the Fund had gains from OSX and Rural
Metro. Corporate structured holdings also suffered on the
month, with select bespoke positions widening on enhanced
risk premium for lower-rated credits.
ABS trading produced positive returns from both long positions
and hedges. Hedge gains came largely from the HY index underperforming
the broader market. The ABS markets were resilient to the
broader price declines, and we saw continued gains in some
of the Fund's story assets including RMBS put-backs, monoline
recovery, and CMBS. The Fund's EU asset-backed securities
continued to benefit from indirect support from the ECB's
announced QE programme.
Investment The information in this section has been provided to BHCC
Manager's by DWIM.
Market Review
and Outlook September ended with equity and credit markets lower, with
high yield credit showing the largest monthly declines across
the major asset classes. Volatility increased across markets,
with 10 year US interest rates moving from 2.34% yield to
as high as 2.62% and back to 2.49% over the month. The S&P
500 started at 2003, rose to 2011, then fell back to 1972.
High yield credit showed the largest variability, ranging
from L+311bp to L+356bp (as indicated by the CDX High Yield
Index).
Over the course of the third quarter, technical factors
drove high yield market volatility higher, starting with
outflows from high yield mutual funds and ETFs in July,
moving to dovish comments from the US Federal Reserve that
seemed to surprise the market mid-September, and finishing
with the unexpected resignation of Bill Gross from PIMCO
which set the market on "redemption watch" and weighed on
credit sensitive fixed income assets in particular at the
end of the quarter.
Primary markets provided increased corporate supply in September,
while mutual funds and ETFs saw overall net outflows from
both high yield and levered loan funds. While high yield
and levered loans have seen outflows throughout the quarter
(and in the case of levered loans for much of the year),
the new issue calendar picked up meaningfully in September,
impacting supply/demand equilibrium more substantially.
The mortgage- and asset-backed markets shrugged off small
declines in US home sales and housing starts.
Meanwhile, commercial mortgage-backed new issue markets
delivered heavy supply, totaling $9bn of conduit issuance
in September. This was the highest monthly level for 2014,
and pushed YTD issuance to $45bn. Despite market fears,
the supply was well absorbed and new issue spreads actually
tightened modestly over the month. While the Fund is not
invested directly in this segment of the market, the resilience
of new issue CMBS bodes well for the refinancing prospects
of legacy CMBS loans and bond performance.
Enquiries Northern Trust International Fund Administration Services
(Guernsey) Limited
Harry Rouillard +44 (0) 1481 74 5315
Important Legal Information and Disclaimer
BH Credit Catalysts Limited ("BHCC") is a feeder fund investing
in Brevan Howard Credit Catalysts Master Fund Limited (the "Fund").
Brevan Howard Capital Management LP ("BHCM") and DW Investment
Management, LP ("DWIM") have supplied certain information herein
regarding BHCC's and the Fund's performance and outlook.
The material relating to BHCC and the Fund included in this
report is provided for information purposes only, does not
constitute an invitation or offer to subscribe for or purchase
shares in BHCC or the Fund and is not intended to constitute
"marketing" of either BHCC or the Fund as such term is understood
for the purposes of the Alternative Investment Fund Managers
Directive as it has been implemented in states of the European
Economic Area. This material is not intended to provide a
sufficient basis on which to make an investment decision.
Information and opinions presented in this material relating to
BHCC and the Fund have been obtained or derived from sources
believed to be reliable, but none of BHCC, the Fund, BHCM or DWIM
make any representation as to their accuracy or completeness. Any
estimates may be subject to error and significant fluctuation,
especially during periods of high market volatility or disruption.
Any estimates should be taken as indicative values only and no
reliance should be placed on them. Estimated results, performance
or achievements may materially differ from any actual results,
performance or achievements. Except as required by applicable law,
BHCC, the Fund, BHCM and DWIM expressly disclaim any obligations to
update or revise such estimates to reflect any change in
expectations, new information, subsequent events or otherwise.
Tax treatment depends on the individual circumstances of each
investor in BHCC and may be subject to change in the future.
Returns may increase or decrease as a result of currency
fluctuations.
You should note that, if you invest in BHCC, your capital will
be at risk and you may therefore lose some or all of any amount
that you choose to invest. This material is not intended to
constitute, and should not be construed as, investment advice. All
investments are subject to risk. You are advised to seek expert
legal, financial, tax and other professional advice before making
any investment decisions.
THE VALUE OF INVESTMENTS CAN GO DOWN AS WELL AS UP. YOU MAY NOT
GET BACK THE AMOUNT ORIGINALLY INVESTED AND YOU MAY LOSE ALL OF
YOUR INVESTMENT. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF
FUTURE RESULTS.
Risk Factors
Acquiring shares in BHCC may expose an investor to a significant
risk of losing all of the amount invested. Any person who is in any
doubt about investing in BHCC (and therefore gaining exposure to
the Fund) should consult an authorised person specialising in
advising on such investments. Any person acquiring shares in BHCC
must be able to bear the risks involved. These include the
following:
-- The Fund is speculative and involves substantial risk.
-- The Fund will be leveraged and will engage in speculative
investment practices that may increase the risk of investment loss.
The Fund may invest in illiquid securities.
-- Past results of the Fund's investment manager are not
necessarily indicative of future performance of the Fund, and the
Fund's performance may be volatile.
-- An investor could lose all or a substantial amount of his or
her investment.
-- The Fund's investment manager has total investment and
trading authority over the Fund, and the Fund is dependent upon the
services of the investment manager. The use of a single advisor
could mean lack of diversification and, consequently, higher
risk.
--Investments in the Fund are subject to restrictions on
withdrawal or redemption and should be considered illiquid. There
is no secondary market for investors' interests in the Fund and
none is expected to develop.
-- The investment manager's incentive compensation, fees and
expenses may offset the Fund's trading and investment profits.
-- The Fund is not required to provide periodic pricing or
valuation information to investors with respect to individual
investments.
-- The Fund is not subject to the same regulatory requirements
as mutual funds.
-- A portion of the trades executed for the Fund may take place
on foreign markets.
-- The Fund and its investment manager are subject to conflicts
of interest.
-- The Fund is dependent on the services of certain key
personnel, and, were certain or all of them to become unavailable,
the Fund may prematurely terminate.
-- The Fund's managers will receive performance-based
compensation. Such compensation may give such managers an incentive
to make riskier investments than they otherwise would.
-- The Fund may make investments in securities of issuers in
emerging markets. Investment in emerging markets involve particular
risks, such as less strict market regulation, increased likelihood
of severe inflation, unstable currencies, war, expropriation of
property, limitations on foreign investments, increased market
volatility, less favourable or unstable tax provisions, illiquid
markets and social and political upheaval.
The above summary risk factors do not purport to be a complete
description of the relevant risks of an investment in shares of
BHCC or the Fund and therefore reference should be made to publicly
available documents and information.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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