TIDMHTCF
RNS Number : 2158W
Highbridge Tactical Credit Fund Ltd
22 April 2021
22 April 2021
Highbridge Tactical Credit Fund Limited
(the "Company")
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company is pleased to announce the release of its annual
report and financial statements for the year ended 31 December 2020
(the "Annual Report").
In accordance with DTR 6.3.5(1) please see below the full text
of the Annual Report.
A copy of the Annual Report will be submitted to the National
Storage Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM The Annual Report will also be posted
to shareholders and will be
available to view on the Company's website at: https://www.highbridgemsfltd.co.uk
For further information please contact:
Praxis Fund Services Limited
Company Secretary
Tel: +44 (0) 1481 737 600
LEI: 213800397SYHLYFH5961
J.P. Morgan Asset Management (UK), Investor Relations
Tel: 0207 742 3408
Key Figures(1)
31 December 31 December
2020 2019
Sterling Ordinary Share price
increase/(decrease) 27.72% (10.79%)
NAV per Ordinary Share increase/(decrease) 17.78% (1.32%)
Annualised Sterling NAV return
(since inception(2) ) 6.98% 6.17%
Underlying Fund Key Figures(3)
Sharpe Ratio 1.53 1.44
Beta to FTSE 100(4) 0.13 0.09
of the volatility of the FTSE
100(4) 1/3 1/3
Beta to Barclays Aggregate(5) 0.03 (0.26)
Beta to S&P 500(5) 0.15 0.09
Highbridge Tactical Credit Master Fund, L.P. (formerly: 1992
Tactical Credit Master Fund, L.P.) (the "Underlying Fund") was
launched in November 2013. Underlying Fund returns are net of 2%
management fee, 20% incentive compensation, and actual fund
expenses. Inception to date performance statistics for the
Underlying Fund are: 71.48% cumulative net return, 7.82% annualised
net return, 5.32% annualised volatility, (9.44%) maximum drawdown
and 1.26 Sharpe Ratio.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RETURNS. Subsequent factors, including but not limited to, changes
in market conditions, interest rates and other economic, political
or financial developments, including those related to COVID-19,
will impact future performance, possibly significantly. There can
be no assurance that the Underlying Fund's objectives will be
realised or that the Underlying Fund will not experience
losses.
A glossary which explains the calculation of these statistics is
provided at the end of this report.
1. Information is for Highbridge Tactical Credit Fund Limited
(the "Company") as at 31 December 2020.
2. This alternative performance measure ("APM") is provided for
shareholders information in addition to the Financial Statements.
Shareholders should base their assessment of the financial
performance of the Company on the information contained in the
Financial Statements. Data used (NAV at inception GBP1.00. Periods
since inception 14.6 years).
3. Information is for Highbridge Tactical Credit Master Fund,
L.P. (formerly: 1992 Tactical Credit Master Fund, L.P.) (the
"Underlying Fund") managed by Highbridge Capital Management, LLC
("Highbridge" or the "Investment Manager") for the period between 1
March 2016 and 31 December 2020. The performance depicted is not
solely the performance of a standalone Highbridge Fund. The
performance incorporates numbers based on the trading P&L of
the Convertible Credit & Capital Structure Arbitrage Allocation
within the Highbridge Multi-Strategy Fund (the "Highbridge
Multi-Strategy Fund Allocation") from 1 January 2012 to 31 October
2013. To generate the estimated returns, the Investment Manager has
made assumptions on the amount of capital that would be required to
support the strategy in a single strategy fund based on its view of
the strategy's risk profile. Pro forma returns are shown net of a
2% management and 20% incentive compensation and 0.4% of estimated
expenses. The Underlying Fund is managed by the same team of
professionals that managed the Highbridge Multi-Strategy Fund
Allocation, which followed a substantially similar investment
strategy. The Underlying Fund was launched in November 2013. Actual
Underlying Fund returns are shown beginning on 1 November 2013.
Underlying Fund returns are presented net of a pro forma 2%
management fee, 20% incentive compensation and 0.4% of fund
expenses. Certain recent performance estimated and unaudited. Note:
The Underlying Fund was launched in November 2013. Underlying Fund
returns are net of 2% management fee, 20% incentive compensation,
and actual fund expenses.
4. Index Source: FTSE International Limited ("FTSE") (c) FTSE
2017. "FTSE (R)" is a trademark of the London Stock Exchange Group
companies and is used by FTSE International Limited under license.
All rights in the FTSE indices vest in FTSE and/or its licensors.
Neither FTSE nor its licensors accept any liability for any errors
or omissions in the FTSE indices or underlying data. No further
distribution of FTSE data is permitted without FTSE's express
written consent.
5. Index Source: Bloomberg
Note: All index performance information has been obtained from
third parties and should not be relied upon as being complete or
accurate. Indices are shown for comparison purpose only. While an
investor may invest in vehicles designed to track certain indices,
an investor cannot invest directly in an index. Indices are
unmanaged, do not charge fees or expenses, and do not employ
special investment techniques such as leverage or short
selling.
Chairman's Statement
As you are aware at an Extraordinary General Meeting ("EGM") of
the Company held on 18 December 2020, shareholders voted to
discontinue the Company in its current form. The wind down process
has started.
Wind Down Process
The redemption proceeds from Highbridge Tactical Credit Fund,
Ltd. ("TCF Feeder") are expected to be received quarterly with the
first of the four redemption amounts having been received in
mid-February 2021 (as a result of a redemption order placed in
October 2020), with the final payment due in mid-November 2021. At
the time of this report there remains uncertainty on the timings of
the receipt of the final amounts due from MSF Corp and the AllBlue
Funds. It should be noted that any future distributions from
Highbridge Multi-Strategy Master Fund, L.P will be by way of a
transfer to TCF Feeder which means that future redemption proceeds
from this source will also be received quarterly by the Company
over a one year period, with the first redemption amount falling
due approximately 45 days from the dealing day after the relevant
redemption order has been accepted by the TCF Feeder. In other
words, it is highly likely that there will still be amounts due to
investors post November 2021, when it is expected that the Company
will hold its AGM.
Highbridge Multi-Strategy Master Fund, L.P ("HMS Master Fund
")
In 2019 HMS Master Fund began being managed towards liquidation.
The Investment Manager has made meaningful progress managing down
exposure in the HMS Master Fund.
During January 2021, the Company received a further distribution
from MSF Corp, bringing total distributions received since the
beginning of MSF Corp's liquidation process in mid-June 2019, to
slightly over 94%.
AllBlue
The Board received an updated Liquidators' report for AllBlue
and AllBlue Leveraged dated 9 October 2020. The report cites that
there are no distributions planned for the foreseeable future.
Future distributions are dependent upon the successful realisation
of the remaining assets held by AllBlue and AllBlue Leveraged.
In a press release on 8 December 2020, the U.S. Securities and
Exchange Commission ( the "SEC") announced that BlueCrest Capital
Management Limited had agreed to pay US$170 million to settle
charges arising from inadequate disclosures, material misstatements
and misleading omissions concerning the transfer of top traders
from its flagship client fund, and replacement of those traders
with an underperforming algorithm. It is the intention that the SEC
will distribute the US$170 million to affected investors. In that
regard, the SEC recently announced that the Enforcement Division
had been granted until 31 August 2021 to agree the distribution
plan with the appointed administrator.
Your Board has been in contact with the joint Liquidators of the
AllBlue funds to ensure that they were aware of the press release
and they responded by advising that they would revert when they had
more information. We will share any updates by way of announcements
as and when they are received.
Performance
The Company delivered an impressive uplift in NAV per share
during the 12 months to 31 December 2020, with the NAV per share
increasing to GBP2.5009 from GBP2.1233 at the beginning of the
year, a 17.78% increase and it has continued to perform well so far
during 2021.
Going forward
Your Board has decided to retain the Company's listing on the
London Stock Exchange for the foreseeable future primarily to
facilitate future distributions. Retention of the listing avoids
the need for Praxis Fund Services Limited (the "Administrator", the
"Secretary" or "PraxisIFM") to assume responsibility for anti-money
laundering, which would necessitate gathering all necessary
supporting documentation from investors before making future
distributions.
Furthermore, we decided to discontinue with the production of
weekly estimated NAVs in the interests of keeping ongoing costs to
a minimum.
Summary
Your Board is committed to returning all monies to investors and
creditors as soon as practicable. We will provide updates from time
to time on the progress made during 2021.
Whilst your Board firmly believes that the investment
opportunity offered by the Company merits a place in the portfolios
of investors, based on its performance alone, the impact of
COVID-19 curtailed our ability to market the Company when it most
needed to be marketed.
Finally, I would like to thank everyone who has worked hard to
provide every opportunity for the Company to survive. Special
mention should be made to the Investment Manager and finnCap (the
"Corporate Brokers") for their efforts and of course to my fellow
directors who always do their best to serve the interests of
shareholders.
Vic Holmes
20 April 202 1
Investment Manager's Report
This commentary is not intended to constitute, and should not be
construed as, investment advice. Potential investors in the Company
should seek their own independent financial advice and may not rely
on this communication in evaluating the merits of investing in the
Company. The commentary is provided as a source of information for
shareholders of the Company but is not attributable to the
Company.
MSF Corp
In early January 2021, the MSF Corp returned approximately 10%
of investors' remaining capital by way of cash proceeds or
transfers into TCF Feeder. Since we began the MSF Corp's
liquidation process in mid-June 2019, we have been able to return
slightly over 94% of investors' 30 September 2019 capital
balance.
Distributable proceeds were a result of realisations achieved
during Q4 2020 as we continue to work to unwind the last remaining
holdings within HMS Master Fund. The remaining positions in the
portfolio consist primarily of a few less liquid credit exposures
which are actively managed by our ongoing credit team. We are very
actively focused on sourcing liquidity for the remainder of the
portfolio and believe there are some potential near-term liquidity
events on the horizon. However, due to the nature of these
investments, it is difficult to give an exact estimate of the
timing and size of subsequent distributions, but we are working
hard to get the balance of the capital back to investors in an
orderly fashion. Further, we remain cognizant of the continued
uncertainty presented by COVID-19 and its potential impact on
markets.
Underlying Fund
For the fourth quarter and full year, the Underlying Fund
generated strong absolute and risk-adjusted returns.
Today, the Underlying Fund sits at a nexus of capital market
activity, in our view, driven by a convertible debt market
renaissance, a hyperbolic growth trajectory for the special purpose
acquisition company (SPAC) market, and unprecedented capital needs
among public middle market companies. In addition, in our opinion,
corporate action activity and under-the-radar distressed events are
plentiful. This convergence of credit and volatility investment
opportunities has occurred simultaneously with a reduction in
hedged credit investor competition. For these reasons, and
notwithstanding 2020's NAV appreciation, we maintain conviction in
the Underlying Fund's risk-reward profile, while acknowledging that
economic uncertainty persists due to the ongoing pandemic.
We have often characterised the Underlying Fund's return stream
as episodic and alpha-centric. The Underlying Fund's historic value
creation capability can be seen when: 1) other market participants
largely ignored the intrinsic value that we and our investment team
identified; and 2) key events unfolded as anticipated and for which
the Underlying Fund was properly positioned.
We want to emphasise that while we grew the Underlying Fund's
balance sheet in March and April, we have subsequently taken steps
to constrain market-sensitive risk, especially in the third and
fourth quarters of 2020. This decision reflects our view that many
investors are complacent and may be mispricing certain risks.
As we consider the Underlying Fund's opportunity set, we find it
helpful to review broad portfolio characteristics, such as the
Underlying Fund's implied credit spread ("ICS"), as well as less
quantifiable metrics like corporate action opportunity or demand
for the Underlying Fund's statement of financial position.
-- As of year-end, the Underlying Fund's unlevered ICS is L+730,
which we view as attractive on both an absolute basis and relative
to the current market opportunity. Undeniably, the Underlying
Fund's ICS has compressed versus its widest point earlier in the
year. We want to underscore, however, that we believe that the
historically wide ICS we saw in the spring and early summer is not
necessary to achieve our investment goals. Additionally, the
Underlying Fund's sub-strategy mix will impact its aggregate ICS,
as investments in our Volatility Strategies sub-strategy tend to
have tighter credit spreads (but provide for long volatility
characteristics). In turn, quantified at the sub-strategy level,
the Underlying Fund's U.S. & European Mid-Cap Convertible
Credit, Event Credit and Income-Oriented sleeves have a year-end
ICS (in the former two cases) and yield-to-maturity (in the latter
case) of L+762, L+1,014, and 11.83%, respectively. The Underlying
Fund's Volatility Strategies sub-strategy's year-end ICS is L+425,
which widened from L+382 at November month-end.
-- The Underlying Fund's portfolio remains corporate action
rich. These events include our execution of privately negotiated
debt-for-equity and debt-for-debt exchanges as well as the
occurrence of asset sales, M&A financings, and other
idiosyncratic developments among the Underlying Fund's holdings and
for which the Underlying Fund was positioned to profit. This
outcome is consistent with what we discussed in our previous
reports. We intend to aggressively pursue such opportunities.
-- We see high demand for the Underlying Fund's balance sheet
across a range of capital solutions. First, COVID-19-related
disruptions and the potential associated revenue shortfalls are
likely to drive primary convertible debt issuance volumes. Second,
the unprecedented growth in the SPAC market and the capital needed
to finance business combinations, which we distinguish from SPAC
IPOs, presents the Underlying Fund with a new universe of
investment opportunities. Within the Underlying Fund we intend to
introduce asymmetric acquisition financing solutions such as
convertible notes. Third, today, speaking with management teams, we
see many borrowers that are now more comfortable operating in the
current pandemic environment and predicting their businesses' cash
flows. In turn, we see more opportunities to help companies to
structure senior secured, high coupon, covenant-containing debt for
us to invest in than we did six months ago. This capital is sought
for liability management exercises, growth capex purposes, or
M&A (i.e., none are distressed capital needs). The diverse
demand for the Underlying Fund's balance sheet comes at a time when
many of our peers have closed or retrenched. Moreover, given our
public middle market focus, we have not seen direct lenders that
"service" private equity provide competing solutions. In sum, we
view this supply-demand balance to be favourable for our
negotiating position.
Generally speaking, we believe that current market conditions
are favourable for hedge funds. Trading volumes and volatility
remain elevated, providing ample trading opportunities. We believe
that our relative value investment approach is well-designed for
these current market conditions. Specifically for the Underlying
Fund, the buoyancy and growth of the convertible debt and SPAC
markets provide the Underlying Fund a far wider investment
landscape than it had historically. As a result, we believe that
the Underlying Fund now has more investment levers than ever
before. Most evident, strong convertible debt primary issuance
volume is a source for new ideas, a driver of trading
opportunities, and a constraint on secondary market security
"richening" In fact, the convertible debt market's relative
attractiveness versus U.S. high yield credit corroborates this last
phenomenon, in our opinion.
It is with very mixed emotions that we write this report. On the
one hand, we are proud to report strong 2020 and long-term returns,
as well as the existence of a portfolio that we believe has both
substantial embedded value and a compelling go-forward opportunity
set. On the other hand, many of the Underlying Fund's investment
opportunities, whether driven by a borrower's capital need or
security price volatility, are the direct result of the COVID-19
pandemic, which has caused so much pain for so many people. We
remain very cognizant of this fact. Notwithstanding the cause of
the Underlying Fund's investment opportunities, we recognize the
importance of preserving and growing capital in a period of
tremendous uncertainty and we, and our team, remain resolved to
work tirelessly on investors' behalves, seeking to effectuate these
goals.
Highbridge Capital Management, LLC
April 2021
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS. There can be no assurance that the Underlying Fund's
objectives will be realized or that the Underlying Fund will not
experience losses. Subsequent factors, including but not limited
to, changes in market conditions, interest rates and other
economic, political or financial developments, including those
related to COVID-19, will impact future performance, possibly
significantly. The Underlying Fund is an actively managed
portfolio; holdings, sector weightings, allocations and leverage
are subject to change. This material is provided for illustrative
purposes only and represents subjective opinions and views as of
the date hereof subject to change depending on market environment.
Certain of the information provided has been based on or derived
from information provided by independent third party sources. These
sources are considered reliable; however, the Underlying Fund
cannot guarantee the accuracy of and has not independently verified
such information. The information is not intended to provide and
should not be relied on for legal, accounting or tax advice.
Company and Investment Overview
The Company is a Guernsey domiciled closed-ended investment
company listed on the Premium Segment of the Official List of the
Financial Conduct Authority and traded on the Main Market of the
London Stock Exchange with net assets of approximately GBP57.8
million [1] .
Company wind-down
Following the compulsory redemption of a number of the Company's
former Shareholders pursuant to the cash exit offers that were
carried out in August 2019 and September 2019, the Net Asset Value
of the Company decreased from GBP228.5 million as at 30 June 2019
to GBP57.8 million as at 31 December 2020. The Net Asset Value as
at 26 February 2021 (the most recent practicable date) was GBP48.03
million (the decrease in Net Asset Value is due to the return of
capital to shareholders on 25 February 2021 of GBP13.63m by way of
a compulsory partial redemption of Ordinary Shares ) .
At the end of 2019 the Board implemented an aggressive cost
reduction programme to mitigate the impact of the reduced asset
base on the Company's total expense ratio. The Board also set a
target to rebuild the Company's Net Asset Value to GBP80 million
before the end of 2020 and to achieve that target the Board needed
to eliminate the share price discount to NAV.
Unfortunately, the Board were not able to eliminate the share
price discount as required in order to rebuild the Company's Net
Asset Value to GBP80 million despite delivering double digit
performance in 2020, a challenging year for equity markets.
The Company's Articles required the Board to propose a
discontinuation resolution in the event that the Company's Net
Asset Value was less than GBP80 million as at 31 December 2020. In
light of the fact that the Company's NAV was considerably below
this figure, and that further fundraising was not possible, the
Board decided to hold an EGM to consider the discontinuation
resolution during December 2020.
At the Extraordinary General Meeting ("EGM") held on 18 December
2020, the Board received Shareholder approval for the Company to
cease to continue in its current form and enter a managed wind-down
in accordance with the procedure set out in article 138 of the
Articles.
Investment Objective and Policy
Prior to the EGM held on 17 September 2019 the Company's
investment policy reflected its investment in Highbridge
Multi-Strategy Fund Corporation ("MSF Corp"). Consequently, on the
17 September 2019, the Board received Shareholder approval for the
new investment policy (the "Investment Policy") set out below.
The Company's investment objective is to seek to provide
positive returns with low volatility through an investment policy
of investing predominantly in the Underlying Fund through the TCF
Feeder or any successor vehicle of TCF Feeder. Accordingly, the
Company's published investment policy is consistent with that of
the Underlying Fund. In accordance with the winding up process
described in the December 2020 EGM Circular, the Company has given
notice to redeem the second of the four quarterly redemption
requests required to redeem the entire holding in TCF Feeder (and
thereby the Underlying Fund). However, the Company remains exposed
to the performance of the Underlying Fund as the terms of its
investment into TCF Feeder restrict redemption to 25% of the
holding each quarter.
About the Underlying Fund
The Underlying Fund is a private, multi-strategy credit
investment fund managed by the Investment Manager. The principal
investment objective of the Underlying Fund is to achieve a
positive return on capital. The investment team seeks to achieve
this objective by applying fundamental credit research combined
with intra-capital structure hedging strategies to select
credit-sensitive investment opportunities. The Underlying Fund
invests in convertible securities, non-convertible bonds and loans,
preferred and common equity securities, and warrants, options, and
other derivatives as well as other instruments. The Underlying Fund
invests in global markets with a focus on North America and Europe.
Typically, the Underlying Fund purchases convertible bonds,
non-convertible bonds or loans, or other securities along with one
or more other instruments, including any of the following, as a
hedge: stocks, options, bonds, credit derivatives, interest rate
swaps, treasuries and interest rate futures.
It currently invests across six sub-strategies including: (i)
Volatility strategies; (ii) US & European Mid-Cap convertible
credit; (iii) capital structure arbitrage; (iv) event credit; (v)
income investments and (vi) distressed credit and reorganised
equities. The Underlying Fund will invest in at least three
sub-strategies at any given time. In January 2021, the Underlying
Fund started classifying SPAC Investments as a separate
sub-strategy. Previously, SPAC exposures had been included in the
Volatility Strategies sub-strategy.
In particular, the Underlying Fund seeks to generate positive
absolute returns from idiosyncratic, company-specific opportunities
while systematically hedging interest rate exposure, with a target
duration of zero, and limiting the impact of broad, directional
moves in credit and equity markets and aiming to maintain low
volatility.
Key Features of the Underlying Fund
Strong Track Record
* Strong absolute returns with low volatility and low
beta to broad markets
* Demonstrated ability to preserve capital
Multi-Strategy Approach
- Dynamically Invest * Allocate across six distinct sub-strategies,
Across Multiple Opportunity including relative value, income, distressed, and
Sets event investments
* Combine relative value investing with an appreciation
for fundamental credit underwriting and transaction
and process experience
* Relative value investments are frequently hedged
intra-capital structure, driven by the investment
team's fundamental view
* Positioned to navigate a company's life-cycle and
market cycles
* Diversified industry sectors, investing primarily,
across North America and Europe.
Focus On Underserved
& Inefficient Public * Target a less competitive investment universe,
Company Credit Markets leveraging nimble size
* Differentiated healthcare exposure, focused on credit
underwriting and not 'science risk'
Corporate Actions Focus
* Target securities that are, in Highbridge's view,
ripe for corporate actions, with the goal of driving
alpha
* Examples include: debt buy-backs, exchanges, rights
offerings, mergers and acquisitions, restructurings,
etc
* Corporate actions are a key driver of returns
historically
Disciplined Risk Management
* Seeks to hedge unwanted credit, equity, rates and
commodity exposures
* Dedicated analytical support
About Highbridge
Highbridge was founded in 1992 as one of the industry's first
multi-strategy hedge fund managers. Highbridge has approximately
US$2.7 billion in assets under management and staff of over 40
employees, including approximately 12 investment professionals,
with an office in New York and a research presence in London.
Highbridge established a strategic partnership with J.P. Morgan
Asset Management Limited ("JPMAM") in 2004. Highbridge is a
subsidiary of JPMAM, which is itself a subsidiary of JPMorgan Chase
& Co. (together with its affiliates, "JPM"). JPMAM is a leading
investment and wealth management firm, operating across the
Americas, EMEA (Europe, Middle East and Africa), and Asia in more
than 30 countries, with assets under management of US$2.7
trillion.
Highbridge is solely responsible for all investment, capital
allocation and risk management decisions for the Underlying Fund
which are independent of JPMAM. Highbridge is registered as an
investment adviser under the U.S. Investment Advisers Act of 1940,
as amended.
In addition to managing the Underlying Fund, Highbridge has also
been appointed as the investment manager of the Company. As part of
these investment management arrangements, JPMAM provides certain
support services to the Company as a delegate of Highbridge,
including the provision of shareholder relations, public relations
and Board support. Neither Highbridge nor JPMAM receives a fee
directly from the Company in relation to these services.
MSF Corp
In June 2019, Highbridge announced its decision to refocus its
business around its credit strategies, including the Underlying
Fund and certain other credit-focused funds. As part of this
refocus, Highbridge commenced winding down certain of its funds,
including MSF Corp in which the Company was invested. Investors in
MSF Corp were given the option to either transfer their investment,
in whole or in part, in MSF Corp to TCF Feeder or receive a return
of capital, over time. The Company, at the election of its
Shareholders, chose to transfer a portion of its investment in MSF
Corp to TCF Feeder over time. The Company will have an investment
in MSF Corp unless it has been fully liquidated. Redemption
proceeds from MSF Corp will continue to convert into holdings of
TCF Feeder until the Investment Manager decides to waive this
requirement for all former MSF Corp shareholders who made
conversion elections. These TCF Feeder holdings will in turn need
to be redeemed in four quarterly installments over a one year
period.
In connection with the restructuring of Highbridge discussed
above, HMS Master Fund is being managed towards liquidation.
Highbridge have made meaningful progress managing down exposure in
the HMS Master Fund and returning investor capital. The vast
majority of HMS Master Fund's exposure across its global equity
oriented books was unwound very early in this process resulting in
nominal performance attribution from those strategies.
AllBlue
The Company was informed on 1 December 2015 that, effective 4
January 2016, AllBlue and AllBlue Leveraged were being redeemed
from their seven underlying funds and were compulsorily redeeming
the holdings of all investors, including the Company. The Company
retains a creditor interest equivalent to the value of its
outstanding holding in AllBlue and AllBlue Leveraged. This is
measured by reference to the valuation statements received from the
Liquidators of AllBlue and AllBlue Leveraged, although it should be
noted that the latest financial figures available are the audited
financial statements as at 31 July 2018. The Board received an
updated Liquidators' report for AllBlue and AllBlue Leveraged dated
9 October 2020. The report cites that there are no distributions
planned for the foreseeable future. Future distributions are
dependent upon the successful realisation of the remaining assets
held by AllBlue and AllBlue Leveraged. Whilst progress has been
made to enable the sale of one of the largest illiquid assets in
the AllBlue funds the Directors are not aware of the timescale for
the sale at this point. Due to the uncertainties surrounding the
assets, there is no estimate of the timing or amount of potential
future distributions, or the expected timing of the conclusion of
the liquidations. Further information about the proceeds returned
to the Company is available in Note 8 to the Financial
Statements.
In a press release on 8 December 2020, the SEC announced that
BlueCrest Capital Management Limited agreed to pay US$170 million
to settle charges arising from inadequate disclosures, material
misstatements and misleading omissions concerning the transfer of
top traders from its flagship client fund, and replacement of those
traders with an underperforming algorithm. It is the intention that
the SEC will distribute the US$170 million to affected investors
and a plan of distribution is scheduled to be published by 31
August 2021.
Your Board has been in contact with the joint Liquidators of the
AllBlue funds to ensure that they were aware of the press release
and they responded by advising that they would revert when they had
more information. We will share any updates by way of announcements
as and when they are received.
Board of Directors
At 31 December 2020 the Company had three directors (the
"Directors"), all of whom were non-executive. All directors held
office throughout the reporting year and held office at the date of
this report except as indicated. All directors were members of the
Audit Committee.
Vic Holmes, Chairman of the Board and the former Chairman of the
Nomination Committee, is an independent director of a diverse range
of companies involved in various aspects of the Finance Sector. He
was chief executive of Northern Trust's Channel Islands businesses
until he retired from full time employment in November 2011. He
held chief executive and chairman roles for a period of 21 years,
initially for a Baring Asset Management subsidiary in Ireland from
1990 to 2003, followed by a 2 year stint as chairman of all Baring
Asset Management fund administration companies in 5 jurisdictions.
He then worked as country head for Northern Trust in Ireland from
2005 to 2007 and then moved back to Guernsey in 2008 with Northern
Trust. He has extensive Board room experience which has been gained
first hand as a director of multiple finance-related companies over
a 30 year period. He is a fellow of the Association of Chartered
Certified Accountants. He is resident in Guernsey.
Steve Le Page , Chairman of Audit Committee, retired from
partnership with PwC in the Channel Islands in September 2013 and
joined the Board in June 2014. His career at PwC spanned 33 years,
during which time he was partner in charge of their Assurance and
Advisory businesses for ten years and Senior Partner for five
years. In these executive positions he led considerable change and
growth in that firm and also helped fund Boards deal with
regulatory and reporting issues. His experience spans initial
listings, ongoing governance and reporting, continuation and going
concern and winding up of listed and unlisted entities. He is a
Chartered Accountant and a Chartered Tax Advisor and he has a
number of non-executive roles. He is resident in Guernsey.
Paul Le Page , Senior Independent Director and former Chairman
of the Risk Committee. He was formerly employed as an executive
director of Man Group PLC's Guernsey Investment and Fund Management
subsidiaries where he was responsible for oversight of the Guernsey
Licensed Investment Management businesses and the management of
hedge fund portfolios which spanned the full universe of
alternative investment strategies. He was also a director of a
large number of group fund structures. This enables him to review
and assess the performance and risk of the Company in an
independent objective manner. He has spent the last 17 years acting
as an independent non-executive director of a variety of LSE listed
investment companies operating in the alternative investment sector
and has experience in multiple board roles covering investment,
risk and financial reporting oversight. He originally trained and
qualified as an engineer and led the design development and
manufacture of robotic immunoassay diagnostic equipment and
software before switching into finance when he completed his MBA in
1999. He is resident in Guernsey.
Directors' Report
The Directors present their Annual Report and Audited Financial
Statements for the year ended 31 December 2020 (the "Financial
Year").
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 this Report, the Chairman's Statement and the notes to
the Financial Statements and are incorporated here by
reference.
Company wind-down
Following the compulsory redemption of a number of the Company's
former Shareholders pursuant to the cash exit offers that were
carried out in August 2019 and September 2019, the Net Asset Value
of the Company decreased from GBP228.5 million as at 30 June 2019
to GBP57.76 million as at 31 December 2020. The Net Asset Value as
at 26 February 2021 (the most recent practicable date) was GBP48.03
million (the decrease in Net Asset Value is due to the return of
capital to shareholders on 25 February 2021 of GBP13.63m by way of
a compulsory partial redemption of Ordinary Shares ) .
At the end of 2019 the Board embarked on an aggressive cost
reduction programme to mitigate the impact of the reduced asset
base on the Company's total expense ratio. The Board also set a
target to rebuild the Company's Net Asset Value to GBP80 million
before the end of 2020 and to achieve that target the Board needed
to eliminate the share price discount to NAV. Unfortunately, the
Board were not able to eliminate the share price discount as
required in order to rebuild the Company's Net Asset Value to GBP80
million despite delivering double digit performance in 2020, a
challenging year for equity markets.
The Company's Articles required the Board to propose a
discontinuation resolution in the event that the Company's Net
Asset Value was less than GBP80 million as at 31 December 2020. In
light of the fact that the Company's NAV was considerably below
this figure, and that further fundraising was not possible, the
Board decided to hold an EGM to consider the discontinuation
resolution during December 2020.
At the EGM held on 18 December 2020, the Board received
Shareholder approval for the Company to cease to continue in its
current form and enter a managed wind-down in accordance with the
procedure set out in article 138 of the Articles.
Management of the Company
Investment Manager
On 29 February 2016, Highbridge was appointed as Investment
Manager to the Company. The principal responsibilities of the
Investment Manager under the Investment Management Agreement
are:
-- to provide portfolio and risk management services in respect
of the investments of the Company within the parameters of the
Company's investment policy; and
-- to effect or arrange and provide advice to the Company in relation to investments.
There is no compensation payable on termination of the
Investment Management Agreement, which is terminable on six months'
notice by either the Company or by the Investment Manager.
Pursuant to Listing Rule 15.6.2 (2), the Board of the Company
has concluded that the continuing appointment of the Investment
Manager on the terms agreed is in the best interest of the
Company's shareholders. The Board considers that the Investment
Manager has extensive investment management resources and wide
experience in managing investments.
Highbridge does not receive any direct management or performance
fees at the Company level for its appointment as investment manager
to the Company. Instead, Highbridge receives management fees of
1.375% and incentive fees of 20% of portfolio performance above a
high water mark for its role as investment manager of the
Underlying Fund.
The Board has agreed matters under which the Investment Manager
has discretion, and these are evidenced in the Investment
Management Agreement and a schedule of matters reserved by the
Board and delegated to service providers and committees. There are
no soft commissions paid and there is no requirement for voting
guidance due to the structure of the Company.
Secretary and Administrator
Praxis Fund Services Limited (the "Administrator", the
"Secretary" or "PraxisIFM") was appointed as administrator on 3
June 2019. The Administrator is a Guernsey incorporated company and
provides administration and secretarial services to the Company
pursuant to an Administration and Secretarial Agreement. In such
capacity, the Administrator is responsible for the general
secretarial functions required by the Law and provides advice and
support to the Board to assist the Company with compliance with its
continuing obligations as well as advising on the corporate
governance requirements and recommendations applicable to a company
listed on the premium segment of the Official List and admitted to
trading on the Main Market of the London Stock Exchange.
The Administrator is also responsible for the Company's general
administrative functions such as the calculation of the NAV of
Shares and the maintenance of accounting and statutory records.
The Company
Information on the Company including its Investment Objective
and Policies can be found within the Company and Investment
Overview section.
The Alternative Investment Fund Managers Directive ("AIFMD")
Highbridge is the Company's alternative investment fund manager
("AIFM"). For the purposes of AIFMD the Company is an alternative
investment fund ("AIF").
Directors
The Directors, all of whom are non-executive. No Director has a
contract of service with the Company, nor are any such contracts
proposed.
The following table details the interests of the Directors in
the Shares of the Company, both as at 31 December 2020 and as at 31
March 2021.
Director Number of Shares (31 March Number of Shares (31 December
2021) 2020)
Vic Holmes 60,514 Sterling Shares 79,000 Sterling Shares
--------------------------- ------------------------------
Steve Le 12,256 Sterling Shares 16,000 Sterling Shares
Page
--------------------------- ------------------------------
Paul Le Page 45,960 Sterling Shares 60,000 Sterling Shares
--------------------------- ------------------------------
Director Indemnification and Insurance
An insurance policy is maintained by the Company which
indemnifies the Directors of the Company against certain
liabilities arising in the conduct of their duties. There is no
cover against fraudulent or dishonest actions.
Independent Auditor
PricewaterhouseCoopers CI LLP has indicated its willingness to
continue in office as auditor and a resolution proposing its
reappointment, and to authorise the Directors to determine its
remuneration for the ensuing year, will be put to shareholders at
the Annual General Meeting ("AGM").
Net Asset Value ("NAV")
The NAV per Sterling Share for accounting purposes, including
all distributable reserves, as at 31 December 2020 was GBP2.5009
(31 December 2019: GBP2.1233).
Results and Dividends
The results for the year are set out in the Statement of
Comprehensive Income. In accordance with the Investment Objective
the Directors did not declare any dividends during the year under
review and the Directors do not recommend the payment of a dividend
as at the date of this report.
Related Party Transactions
Other than the above-mentioned interests, none of the Directors,
nor any persons connected with them, had a material interest in any
of the Company's transactions.
There were no material related party transactions which took
place in the Financial Year, other than those disclosed in the
Directors' Report and at Note 7 to the Financial Statements.
Notifiable Interests in the Company's Voting Rights
At the year-end, the following had declared a notifiable
interest in the Company's voting rights:
Name Number of Voting Rights % of Voting Rights (as at 31 December 2020)
----------------------------- ----------------------- -------------------------------------------
Premier Miton Investors 4,920,469 21.41%
Mirabella Financial Services 2,353,094 10.19%
Tilney Group 2,308,601 10.00%
JPMorgan Asset Management 2,107,172 9.12%
Almitas Capital LLC 1,158,070 5.01%
At 31 March 2021, being the latest practicable date prior to
publication, the following had declared a notifiable interest in
the Company's voting rights:
Name Number of Voting Rights % of Voting Rights (as at 31 March 2021)
----------------------------- ----------------------- ----------------------------------------
Premier Miton Investors 3,787,367 21.41%
Mirabella Financial Services 2,655,905 15.01%
Tilney Group 1,768,395 10.00%
JPMorgan Asset Management 1,614,099 9.12%
Almitas Capital LLC 887,085 5.01%
No further changes to these holdings had been notified as at the
date of this report.
The tables above disclose the notifiable interests the Company
has received via TR-1 notifications.
Listing Rule 9.8.4 R
Listing Rule 9.8.4 R requires that the Company include certain
information in a single identifiable section of the Annual Report
or a cross reference table indicating where the information is set
out. The Directors confirm that there are no disclosures to be made
in this regard.
By order of the Board
Vic Holmes
Chairman
20 April 2021
Corporate Governance Statement
Statement of Compliance with the AIC Code of Corporate
Governance
In accordance with Listing Rule 9.8.7 the Company is required to
comply with the requirements of the UK Corporate Governance Code. A
copy of the UK Corporate Governance Code, 2018 is available for
download from the Financial Reporting Council's website (
www.frc.org.uk ).
The Board of the Company has considered the principles and
recommendations of the AIC Code of Corporate Governance, setting
out additional principles and recommendations on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code will provide better information to
shareholders.
The Company is also required to comply with the GFSC Code. As
the Company reports under the AIC Code it is deemed to meet the
requirements of the GFSC Code. The Board has undertaken to evaluate
its corporate governance compliance on an on-going basis.
The UK Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive;
-- executive directors' remuneration;
-- the need for an internal audit function.
For the reasons set out in the AIC Code, and as explained in the
UK Corporate Governance Code, the Board considers that these
provisions are not relevant to the position of the Company. The
Company has therefore not reported further in respect of these
provisions. The Company has complied with all principles of the AIC
Code and conforms with all detailed recommendations subject to the
following explanations. Please refer the viability statement for
further details.
Board Composition
The Board comprises three non-executive Directors, all of whom
are considered to be independent (with the Chairman being
independent on appointment) for the purposes of the AIC Code and
Listing Rule 15.2.12A. As part of their examination of the
independence of the Board, the Board have concluded that Steve Le
Page, Vic Holmes and Paul Le Page remain independent under the
principles of the AIC Code.
Biographies of the Directors appear on under the Board of
Directors section, demonstrating the wide range of skills and
experience they bring to the Board and highlighting of their
specific key skills and experience. In accordance with the AIC
Code, below is a list of all other public company directorships and
employments held by each Director. There are no shared
directorships held by two or more Directors at the date of this
report.
Vic Holmes
Next Energy Solar Fund Limited
Steve Le Page
Volta Finance Limited
Princess Private Equity Holding Limited
Channel Islands Property Fund Limited
Tufton Oceanic Assets Limited
Paul Le Page
Bluefield Solar Income Fund Limited
UK Mortgages Limited
RTW Venture Fund Limited
Board Meetings
The Board meets at least four times a year to consider the
business and affairs of the Company. Between these meetings the
Board keeps in contact by email and telephone as well as meeting to
consider specific matters of a transactional nature. Directors have
direct access to the Secretary and the Secretary is responsible for
ensuring that Board procedures are followed and that there are good
information flows both within the Board and between Committees and
the Board. The Directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company and should be brought to the attention of
the Directors. The Directors also have access, where necessary in
the furtherance of their duties, to professional advice at the
expense of the Company.
In light of the restrictions imposed on travel, meetings and
workplaces by governments in response to the COVID-19 pandemic, the
Board and its advisors have made full use of videoconferencing
facilities to ensure that the business of the Company was
progressed seamlessly.
During the year under review fifteen Board meetings took place.
Of those meetings, four were quarterly Board meetings and the
remainder were ad hoc meetings held at short notice to deal with
specific matters including the continuation of the Company,
Company's buy-back programme, potential distributions to Cash Exit
and Tender Creditors, and developments relating to the underlying
investments. At quarterly Board meetings there is a focus on the
investment performance of the Company. Strategy and the Company's
investment objective are considered on a regular basis. Director
attendance is summarised below:-
Director Quarterly Board Meetings Ad-Hoc Board Meetings Audit Committee Meetings
------------- ------------------------ --------------------- ------------------------
Vic Holmes 4 of 4 7 of 9 2 of 2
Steve Le Page 4 of 4 9 of 9 2 of 2
Paul Le Page 4 of 4 9 of 9 2 of 2
Letters of appointment for non-executive Directors do not set
out a fixed time commitment for Board duties as the Board considers
that the time required by Directors may fluctuate depending on the
demands of the Company and other events. Therefore, it is required
that each Director will allocate sufficient time to the Company to
perform their duties effectively and it is also expected that each
Director will attend all quarterly Board meetings and meetings of
Committees of which they are a member. The Chairman has confirmed
that he considers the performance of each director to be
satisfactory and that each director demonstrates continued
commitment to their role. The other Directors have made similar
confirmations concerning the performance and commitment of the
Chairman.
Key Skills and Experience
A review of the skills and experience of the Board members, is
outlined below:
Director Key Skills and Experience
Vic Holmes (appointed to Board Wide knowledge of investment
3 June 2016) management as well as broad
experience of non-executive
Chairman directorships, chairmanships
and executive directorship in
quoted and unquoted companies.
----------------------------------------
Steve Le Page (appointed to Board Wide-ranging knowledge of audit,
3 June 2014) financial reporting, corporate
governance and internal controls
Chairman of the Audit Committee in the context of listed investment
companies. Significant financial
services, regulatory and non-executive
director experience.
----------------------------------------
Paul Le Page (appointed to Board Experienced hedge fund portfolio
1 May 2018) manager with detailed knowledge
of asset allocation, fund selection
and financial risk management.
Significant financial services,
governance and investment company
sector experience.
----------------------------------------
Board Committees
Due to the Company reducing in size during 2019, the Board has
assumed the responsibilities previously delegated to the Management
and Remuneration Committee, Risk Committee and Nomination
Committee, and these Committees were disbanded with effect from 4
November 2019. All matters will still be considered and discussed
but this will take place at Board level. The remaining Committee is
the Audit Committee which will continue to be chaired by Steve Le
Page.
Audit Committee
In accordance with the AIC Code, an Audit Committee has been
established and its terms of reference are available on the
Company's website . All Board members are members of the Audit
Committee. In the opinion of the Board, the constitution, terms of
reference and activities of the Audit Committee fulfil all the
relevant requirements of the AIC Code. The Company does not
maintain an internal audit function, and, given that there are only
three Directors, the Chair of the Board is a member of the
Committee.
The Board has sought to ensure that all areas of risk and
control are addressed. The Audit Committee is responsible for
monitoring the effectiveness of the controls and systems in place
to address, inter alia, the risks of loss or misappropriation of
assets, misstatement of liabilities or failure of financial
reporting systems or processes, including valuation reporting and
processes. All other risks and controls are monitored directly by
the Board.
The Audit Committee monitors the performance of the auditor, and
also examines the remuneration and engagement of the auditor, as
well as its independence and any non-audit services provided by it.
The current auditor was appointed after a tender process in 2016
and so their tenure is not currently an area of consideration for
the Audit Committee. As a result, the Company does not intend to
tender the audit service in the near future. The Audit Committee
will continue to monitor the performance of the auditor with the
aim of ensuring a high quality and effective audit.
Each year the Board examines the Audit Committee's performance
and effectiveness, and ensures that its tasks and processes remain
appropriate. The chairmanship of the Audit Committee is reviewed by
the Chairman on an annual basis. Key areas covered include the
clarity of the Audit Committee's role and responsibilities, the
balance of skills among its members and the effectiveness of
reporting of its work to the Board. The Board is satisfied that all
members of the Audit Committee have relevant financial experience
and knowledge and ensure that such knowledge remains up to date.
Overall the Board considered the Audit Committee had the right
composition in terms of expertise and has effectively undertaken
its activities and reported them to the Board during the year.
Remuneration Committee
In view of its non-executive nature, the Board considers that it
is not appropriate for there to be a separate Remuneration
Committee, as anticipated by the AIC Code, because this function is
carried out as part of the regular Board business.
Remuneration Policy
Considering the reduced size of the Company, the Board has taken
measures to reduce the ongoing costs of running the Company and has
reduced both the size of the Board and the directors' fees
accordingly. The Board is responsible for agreeing a framework for
Director remuneration and reviewing the effectiveness of the
remuneration policy on an on-going basis. No Director is involved
in determining his own remuneration.
The Board performs the below functions in relation to the
Remuneration Policy:
-- to ensure that the Company's contracts of engagement with the
Administrator, the Investment Manager and other service providers
are operating satisfactorily so as to ensure the safe and accurate
management and administration of the Company's affairs and
business, and are competitive and reasonable for the
shareholders;
-- to monitor and assess the appropriate levels of remuneration for all Directors; and
-- to ensure that the Company complies to the best of its
ability with applicable laws and regulations relating to engagement
with service providers and director remuneration and adheres to the
tenet of generally accepted codes of conduct.
The remuneration of the Directors is reviewed on an annual basis
and compared with the level of remuneration for directorships of
other similar investment companies. All Directors receive an annual
fee and there are no share options or other performance related
benefits available to them.
The Board is committed to an evaluation of its performance being
carried out every year. In accordance with the AIC Code the Board
has carried out a rigorous review of its own effectiveness during
April 2021, in light of the decision to wind up the Company, and
has concluded that it maintains a good balance of skills,
experience, independence, diversity and knowledge of the Company
and therefore remains effective.
The Directors' fees are disclosed below.
Amount per annum Amount per annum
With effect from prior to 1 October
1 October 2019 2019
---------------------------- ------------------ --------------------
Vic Holmes GBP50,000 GBP60,000
Steve Le Page GBP42,000 GBP50,000
Paul Le Page GBP40,000 GBP48,000
Sarita Keen, resigned on 31
October 2019 - GBP42,000
------------------ --------------------
Total GBP132,000 GBP200,000
Nomination Committee
The Board does not have a separate Nomination Committee. The
Board as a whole fulfils the function of a Nomination Committee.
Any proposal for a new Director will be discussed and approved by
the Board, giving full consideration to succession planning and the
leadership needs of the Company.
Nomination Policy
In light of the decision to wind up the Company, the Board went
through a formal process of reviewing the balance, independence and
effectiveness of the Board, identifying the experience and skills
which may have been needed and those individuals who might have
been best to provide them and to ensure that each individual had
sufficient available time to undertake the tasks required. When
considering the composition of the Board, Directors will be mindful
of diversity, inclusiveness and meritocracy. The outside
directorships and broader commitments of Directors were also
monitored by the Board.
In April 2021, the Board undertook the aforementioned formal
review of the balance, independence and effectiveness of the Board
and concluded it did not have any objection to the current
commitments of its members and that no changes to the composition
of the Board were required.
Diversity
The Board has also given careful consideration to the
recommendation of the Davies Report and notes the recommendations
of the Parker review into ethnic diversity and the
Hampton-Alexander review on gender balance in FTSE leadership. As
recommended in the Davies Report, the Board has reviewed its
composition. However, it believes that in the light of the decision
to wind up the Company the current appointments provide an
appropriate range of skills and experience and are in the interests
of shareholders.
The Company supports the AIC Code provision that Boards should
consider the benefits of diversity, including gender, when making
appointments and is committed to ensuring it receives information
from the widest range of perspectives and backgrounds. The
Company's aim as regards the composition of the Board is that it
should have a balance of experience, skills, and knowledge to
enable each Director and the Board as a whole to discharge their
duties effectively. Whilst the Board of the Company agrees that it
is entirely appropriate that it should seek diversity, it does not
consider that this can be best achieved by establishing specific
quotas and targets and appointments will continue to be made based
wholly on merit. Accordingly, when changes to the Board are
required, the Board has regard to the Board's diversity policy and
to a comparative analysis of candidates' qualifications and
experience. A pre-established, clear, neutrally formulated, and
unambiguous set of criteria are utilised to determine the most
suitable candidate for the specific position sought. Once
appointed, the successful candidate receives a formal and tailored
induction.
Risk Committee
With effect from 4 November 2019 the Board does not have a
separate Risk Committee. The Board as a whole fulfils the function
of a Risk Committee.
Terms of Reference
The Terms of Reference for the Audit Committee is available for
inspection on request at the Company's registered office and are
also available on the Company's website.
Going Concern
At the EGM held on 18 December 2020, the Board received
Shareholder approval for the Company to cease to continue in its
current form and enter a managed wind-down in accordance with the
procedure set out in article 138 of the Articles. As a result, the
Directors believe the going concern basis inappropriate.
The redemption of the Company's main investment will be governed
by the terms of the Underlying Fund, in that the redemption
proceeds will be distributed in four quarterly instalments and
shareholders therefore will continue to be exposed to the
performance of the Company until the final quarterly redemption
occurs. The final quarterly redemption will occur at the end of
September 2021 with distribution expected to occur in mid-November
2021.
The Company still maintains holdings in MSF Corp and AllBlue.
The Investment Manager of MSF Corp is seeking to balance the pace
of capital return with value maximization. The Company has
approximately 4.29% of its NAV remaining in MSF Corp. The Board has
no further information at this time. The Company has a creditor
interest in the liquidating AllBlue entities amounting to
approximately 0.38% of NAV with no known time scale for the
settlement of this interest.
Accordingly, the Board has adopted a basis other than that of
going concern in the preparation of this annual financial report.
The Directors estimate that the wind-down costs will be
approximately GBP475,000. The Board believes that the Company has
sufficient funds available to meet its wind-down costs and
day-to-day running costs. The Directors consider that the carrying
amount of other assets and liabilities approximate to their fair
value and no adjustment is required to their carrying value under
the non-going concern basis of accounting.
Shareholder Communication
All holders of Shares in the Company have the right to receive
notice of, and attend, all general meetings of the Company, during
which the Directors are available to discuss issues affecting the
Company, and the Directors also meet periodically with major
shareholders. The Directors are always available to enter into
dialogue with shareholders and make themselves available for such
purpose whenever required. The Chairman and the Senior Independent
Director can also be contacted by shareholders via the Secretary if
they have any concerns.
The Board regularly reviewed the Company's share register at its
formal meetings to monitor the shareholder profile and the Board
has implemented measures to ensure that information is presented to
its shareholders in a fair, balanced and understandable manner. The
Company announces the confirmed NAV of its shares on a monthly
basis. During the year under review a commentary on the investment
performance of the Company's investments in the Underlying Fund was
provided in the Company's monthly factsheet. The daily market
closing prices of Shares are available on Reuters and
Bloomberg.
All Shares may be dealt in directly through a stockbroker or
professional adviser acting on shareholder's behalf. The buying and
selling of Shares may be settled through CREST.
The Company's register of shareholders is maintained by JTC
Registrars Limited in Guernsey and they can be contacted on +44
(0)1481 702400.
Stakeholders and Section 172
Whilst directly applicable to U.K. incorporated companies, the
intention of the AIC Code is that the matters set out in section
172 of the Companies Act, 2006 are reported on. The Board considers
the view of the Company's key stakeholders as part of its
discussions and decision making process. As an investment company
the Company does not have any employees and conducts its core
activities through third-party service providers. Each provider has
an established track record and, through regulatory oversight and
control, are required to have in place suitable policies to ensure
they maintain high standards of business conduct, treat customers
fairly, and employ corporate governance best practice.
The Board's commitment to maintaining the high-standards of
corporate governance recommended in the AIC Code, combined with the
Directors' duties enshrined in Company Law, the constitutional
documents, the Disclosure and Transparency Rules and the Market
Abuse Regulation, ensures that shareholders are provided with
frequent and comprehensive information concerning the Company and
its activities. Whilst the primary duty of the Directors is owed to
the Company as a whole, the Board considers as part of its decision
making process the interests of all stakeholders. Particular
consideration being given to the continued alignment between the
activities of the Company and those that contribute to delivering
the Board's strategy, which include the Investment Manager and the
Administrator. The Board respects and welcomes the views of all
stakeholders. Any queries or areas of concern regarding the
Company's operations can be raised with the Board via the
Secretary.
The Board does not believe that the Company has any material
stakeholders other than those set out in the following table.
Stakeholder
Investors Service providers Community and environment
------------- -----------------------
Issues that Performance Reputation of the Compliance with Law
matter to of the shares Company and Regulation
them
Managed wind-down Compliance with Impact of the Company
of the Company Law and Regulation and its activities
on third parties
Liquidity of Remuneration
the shares
----------------------- ----------------------------- -------------------------------
Engagement Annual General The main two service The Company itself
process Meeting providers - Highbridge has only a very small
and Praxis IFM - footprint in the
Frequent meetings engage with the local community and
with investors Board in face to only a very small
by brokers and face meetings quarterly, impact on the environment.
the Investment giving them direct
Manager and input to Board discussions. However, the Board
subsequent reports acknowledges that
to the Board All service providers it is imperative
are asked to complete that everyone contributes
Monthly factsheets a questionnaire to local and global
annually which includes sustainability.
feedback on their
interaction with
the Company. The
Board has this year
been unable to undertake
its usual annual
visit to Highbridge
either in London
or New York because
of pandemic restrictions.
----------------------- ----------------------------- -------------------------------
Rationale Clearly investors The Company relies The nature of the
and example are the most on service providers Company's investment
outcomes important stakeholder entirely as it has is such that it does
for the Company. no systems or employees not provide a direct
Most of our of its own. route to influence
engagement with investees in ESG
investors is The decision to matters in many areas,
about "business discontinue the but the Board and
as usual" matters, Company was driven the Investment Manager
but has also by shareholders, work together to
included discussions but prior to the ensure that such
about the managed shareholder vote factors are carefully
wind-down of the Board consulted considered and reflected
the Company. extensively with in investment decisions,
The major decision all its service as outlined elsewhere
arising from providers who were in the Annual Report.
this has been all in favour of
for the Board the proposal. Board members have
to place a redemption not travelled on
request for The Board always Company business
the Company's seeks to act fairly during the year due
entire holding and transparently to the pandemic restrictions,
in the TCF Feeder. with all service however the Board
providers, and this has made full use
includes such aspects of video conference
as prompt payment facilities to remain
of invoices. in contact and informed.
----------------------- ----------------------------- -------------------------------
Engagement processes are kept under regular review. Shareholders
and other interested parties are encouraged to contact the Company
via +44 (0)1481 727600 on these or any other matters.
Anti-Bribery
The Directors have undertaken to operate the business of the
Company in an honest and ethical manner and accordingly take a
zero-tolerance approach to bribery and corruption. The key
components of this approach are implemented as follows:
-- The Board is committed to acting professionally, fairly and
with integrity in all its business dealings and relationships;
-- The Company will implement and enforce effective procedures to counter bribery; and
-- The Company requires all its service providers and advisors
to adopt equivalent or similar principles.
UK Criminal Finance Act 2017
Following the entry into force of the UK Criminal Finance Act
2017, the Board has reaffirmed its zero tolerance policy towards
the facilitation of corporate tax evasion.
Data Protection
The Company has implemented measures designed to ensure its
compliance with the EU General Data Protection Regulation (EU)
2016/679 and associated legislation in Guernsey and in other
jurisdictions. The Company has also issued a privacy notice which
sets out how personal data is collected, processed and disclosed.
This notice is available for review and download at the Company's
website.
Risk Management and Internal Control
The Board is responsible for the Company's system of internal
control and for reviewing its effectiveness. The Board confirms
that there is an on-going process for identifying, evaluating and
monitoring the significant risks faced by the Company.
The Audit Committee, on behalf of the Board, carries out an
annual review of the internal financial controls of the Company. In
addition, ISAE 3402 (or equivalent) reports have been obtained from
the relevant service providers where available to verify these
reviews. The Board also conducted regular reviews of the Company's
service providers, and is in particular pleased to note that they
have continued to meet the Boards' service level expectations
throughout the period of the pandemic to date. The internal
controls are designed to meet the Company's particular needs and
the foreseeable risks to which it is exposed. Accordingly, the
internal control systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and by
their nature can only provide reasonable and not absolute assurance
against misstatement and loss.
The Company has put in place arrangements with Highbridge for
the Company to receive monthly NAVs in relation to MSF Corp and TCF
Feeder and estimated weekly NAVs in relation to TCF Feeder
electronically as soon as they are released, together with certain
factsheets produced on each fund and other administrative
information and reports. The purpose of these arrangements is to
ensure that the Directors have sufficient information to enable
them to monitor the Company's investments. The liquidators of
AllBlue and AllBlue Leveraged have been unable to supply any
monthly NAV information since that provided as at 31 July 2018, but
given that these holdings represent approximately 0.38% of the
Company's NAV the Directors are content that this does not
constitute a serious failure of process. The Board received an
updated Liquidators' report for AllBlue and AllBlue Leveraged dated
9 October 2020. The report cites that there are no distributions
planned for the foreseeable future. Future distributions are
dependent upon the successful realisation of the remaining assets
held by AllBlue and AllBlue Leveraged. Due to the uncertainties
surrounding those assets, there is no estimate of the timing or
amount of potential future distributions, or the expected timing of
the conclusion of the liquidations. More details are provided in
Note 2.
The Board has assumed the responsibilities of the Risk Committee
and meets to review risk reporting information and consider the
Company's investment risk management systems, including
consideration of a risk matrix which covers various areas of risk
including corporate strategy, accuracy of published information,
compliance with laws and regulations, relationships with service
providers and investment and business activities.
The Board considers that the Company has adequate and effective
systems in place to identify, mitigate and manage the primary risks
to which the Company is exposed. Highbridge is the investment
manager of TCF Feeder and MSF Corp and acts as investment manager
of the Company. Liquidators have been appointed on AllBlue and
AllBlue Leveraged. Administration and Secretarial duties for the
Company are performed by Praxis Fund Services Limited. The Board
considers that the systems and procedures employed by the
Administrator and other service providers provide sufficient
assurance that a sound system of internal controls is in place.
The Directors of the Company clearly define the duties and
responsibilities of their agents and advisors. The appointment of
agents and advisors is conducted by the Board after consideration
of the quality of the parties involved and the Board monitors their
on-going performance and contractual arrangements. The Board has
also specified which matters are reserved for a decision by the
Board and which matters may be delegated to its agents and
advisers.
Specific matters reserved exclusively for the decision of the
Board include the approval and variation of terms on which any
overdraft or credit facility is used to finance operating costs and
the invocation of any premium or discount control mechanisms.
Principal Risks and Uncertainties
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 legal agreements with a series of
service providers to ensure both operational performance and
regulatory obligations are met. The Company uses well established,
reputable and experienced service providers and their continued
appointment is assessed at least annually. The Board is also
mindful of the need to manage the redemption process for the
Underlying Fund and has instigated additional controls to manage
this process.
Investment risk. The Board is responsible for the investment
policy but, given that the investment objective of the Company is
to invest substantially all of its assets in TCF Feeder, the Board
has little discretion in such management. The success of the
Company depends on the diligence and skill of the Investment
Manager of the Company's primary investment, the Underlying Fund.
There is a risk that any underperformance of funds in which the
Company's capital is invested 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 meets with
the Investment Manager on a regular basis.
Concentration risk: The Company's principal exposure is to the
Underlying Fund, with additional exposure to HMS Master Fund,
AllBlue and AllBlue Leveraged through its creditor interests in
these funds and, therefore, the Company is exposed to concentration
risk. The Board considers that the Company is effectively highly
diversified in its exposures, given the range of individual
positions and exposures of the Underlying Fund. The Board believes
that this mitigates the concentration risk. As the wind-down of the
Company proceeds and capital is distributed from redemptions of
Underlying Fund the concentrations of the HMS Master Fund
investment and the AllBlue creditor interests are likely to
increase.
Regulatory risk: The Company is required to comply with the
Listing Rules and the Disclosure Guidance and Transparency Rules of
the UK Listing Authority and the requirements imposed by the
Guernsey Financial Services Commission. Any failure to comply could
lead to criminal or civil proceedings. Although responsibility
ultimately lies with the Board, the Secretary and the Corporate
Brokers also monitor compliance with regulatory requirements.
COVID-19 Pandemic: The Board has reviewed the positioning of the
Company's portfolio and the Investment Manager's business
continuity arrangements which include the ability for all key
employees to work from home and a comprehensive review of their own
underlying service providers' business continuity arrangements.
Shareholders' attention is also drawn to the Company's risk
disclosure document (which can be found on the Company's website)
which sets out information on certain risks and other aspects of
the Company's investment in the Underlying Fund.
Emerging Risks
The Board monitor emerging risk areas relevant to the
performance of the Company including those that would threaten its
business model, future performance, solvency or liquidity on an
ongoing basis.
Liquidity Risk: As capital is returned to shareholders in the
wind down process the Company will shrink in size and trading
liquidity in the Company's shares is likely to reduce. The
concentrations of the HMS Master Fund investment and the AllBlue
creditor interests will increase as redemption proceeds are paid to
investors. As these entities contain less liquid investments they
could be subject to infrequent and potentially significant price
movements as assets are sold and legal claims are settled.
The Board has also discussed the potential impact of the
pandemic and their response to it with its other service
providers.
As a result, the Board has concluded that there should be little
impact upon day-to-day operations and valuation processes of both
the Company and the Underlying Fund.
Political Risk: Changes in the US administration following the
recent election will result in the Democratic party exerting a
greater degree of political control which will increase public
spending and may have adverse impacts on US fixed income markets
due to a repetition of the taper tantrum as fiscal stimulus
replaces monetary stimulus.
The Underlying Fund runs negligible interest rate exposure and
the Board monitors this exposure on a quarterly basis.
Viability Statement
The shareholders of the Company voted by a large majority to
wind the Company up at an EGM held on 18 December 2020. As a
result, the Directors have begun the process of an orderly winding
up as described in article 138 of the Company's Articles of
Association. The Directors currently expect that the Company will
be placed into a formal liquidation process within twelve months of
the publication of this report and have accordingly prepared this
report on a non-going concern basis. They therefore consider that
it is unnecessary to prepare a Viability Statement.
By order of the Board
Vic Holmes , Chairman
20 April 2021
Audit Committee Report
In accordance with the AIC Code, an Audit Committee has been
established and its membership and terms of reference are available
on the Company's website. In the opinion of the Board, the
constitution, terms of reference and activities of the Audit
Committee meet all the requirements of the AIC Code, save that the
Company does not maintain an internal audit function, and that the
Chairman of the Company was a member of the Committee as the Board
considers that he was independent on appointment and remains so. He
is a qualified accountant, has considerable experience of financial
reporting and control for investment funds, gained in other roles,
and is consequently a valuable member of the Committee.
The Audit Committee is responsible for monitoring the
effectiveness of the controls and systems in place to address,
inter alia, the risks of loss or misappropriation of assets,
misstatement of liabilities or failure of financial reporting
systems or processes, including valuation reporting and processes.
Risks not monitored by the Audit Committee are monitored directly
by the Board.
The Audit Committee also examines the remuneration and
engagement of the auditor, PricewaterhouseCoopers CI LLP ("PwC"),
as well as assessing their independence and any non-audit services
provided by them. The external audit contract was last tendered in
2016 (being ten years from the initial appointment of the previous
auditor), at which time PwC were first appointed. As a result, the
Company does not intend to tender the audit service in the near
future. The Audit Committee will continue to monitor the
performance of the auditor with the aim of ensuring a high quality
and effective audit.
Each year the Board examines the Audit Committee's performance
and effectiveness, and also ensures that its tasks and processes
remain appropriate. Key areas covered include the clarity of the
Audit Committee's role and responsibilities, the balance of skills
among its members and the effectiveness of the reporting of its
work to the Board. The Board is satisfied that all members of the
Audit Committee have relevant financial experience and knowledge
and that such knowledge remains up to date. Overall the Board
considered the Audit Committee had the right composition in terms
of expertise and has effectively undertaken its activities and
reported them to the Board during the year.
Membership
The current Chairman of the Audit Committee is Steve Le Page,
who became Chairman on his appointment to the Board on 3 June 2014.
As a result of the 2018 FRC code of Corporate Governance, Vic
Holmes resigned from the Audit Committee during 2018, but re-joined
it when the AIC persuaded the FRC that chairs of investment
companies could continue to be members of Audit Committees. The
Committee remains of the view that its membership is adequate in
both number and skills to fulfil its responsibilities.
Key Activities of the Audit Committee
In the period since the last Audit Committee report, the key
activities of the Committee have been -
-- Monitoring and assessing the financial systems and controls
operated by the Company's key service providers;
-- Overseeing the preparation and publication of, and giving
appropriate advice to the Board in respect of, the interim report
for the six months ended 30 June 2020 and the current annual report
for the year ended 31 December 2020;
-- Determining the adjustments to be made to the annual report,
including the amount of any adjustments to the carrying value of
assets or liabilities, arising from the need to prepare this report
on a non-going concern basis; and
-- Monitoring and assessing the external auditor.
Each of these key activities is covered in more detail in the
following sections.
Financial Systems and Controls Operated by Service Providers
In common with most investment funds, the Company is reliant on
the systems, processes and controls operated by its service
providers. Throughout the year, the Committee is alert to any
indication that service providers may not be performing as
expected, such as inaccurate or delayed information, shareholder
feedback and the level and standard of interaction between service
providers. In so doing the Committee uses its collective knowledge
of how other entities are serviced as well as their own experience
from previous roles and with other service providers.
In addition, the Committee has reviewed the third party controls
reports (ISAE 3402 or equivalent) provided by the Administrator of
the Company and the administrator of HMS Master Fund and the
Underlying Fund.
The ongoing restrictions due to the global pandemic have
prevented the Board from visiting Highbridge during the year,
although close contact has been maintained with both their New York
and London offices by means of videoconferences. It should be noted
that in December 2019, the Board visited Highbridge in London, to
discuss, inter alia, their investment processes and activities and
their possible impact on the Company, as well as the processes and
controls around the Underlying Fund and the winding up of HMS
Master Fund. The Chief Operating Officer of Highbridge was in
London from New York at the time. Of particular relevance to the
activities of this Committee were the discussions concerning the
monitoring, by the boards of HMS Master Fund and the Underlying
Fund, of the performance and effectiveness of their auditor and of
the valuation systems operated by their administrator.
On the basis of the ongoing monitoring of the Company's service
providers described above, the Committee is satisfied that the
Company's reliance on service providers during 2020 was not
misplaced and that the systems of internal control operated on the
Company's behalf, both during the calendar year 2020 and currently,
should reasonably prevent material error or misstatement of
financial information.
Preparation of Interim and Annual Reports
Prior to each reporting period end, the Committee met with the
Secretary and Administrator, and also with the auditor prior to the
annual reporting date. As Chairman, I also met with each of these
parties separately. The primary purpose of all of these meetings
was to consider the timetable for production of the reports, to
review the proposed scope of the external audit of the annual
report, and the arrangements for cooperation between the Company's
service providers. The Company's key risks, principal accounting
policies and significant areas of judgment or estimation (all as
disclosed elsewhere in this annual report) were also considered for
appropriateness and completeness. As a result of these meetings the
Committee was able to conclude that the annual report production
process had been properly prepared for and planned.
The Committee reviewed the draft interim and annual reports, in
detail, for compliance with International Financial Reporting
Standards (as adopted by the European Union) and applicable laws,
regulations, and corporate governance requirements, and also
reconsidered the key risks, principal accounting policies and
significant areas of judgment or estimation to ensure the
disclosure of these items and their application in the reports
remained appropriate. This review and reconsideration included
further meetings with the auditor and the Secretary and
Administrator. It also included certain activities connected with
the review of service providers, as detailed above.
The significant issues which the Committee considered in
relation to these Financial Statements, in addition to those set
out elsewhere in this report, were the existence and valuation of
the Company's investment holdings. Existence was verified by
obtaining direct confirmation of the holdings. The price at which
each investment is valued was also confirmed directly in this way.
As explained elsewhere (see Note 2), at the time of approving the
Financial Statements the most recently available NAV for AllBlue
and AllBlue Leveraged was as at 31 July 2018. In the absence of any
other information, the Directors have chosen to use the 31 July
2018 NAV less any distributions received as their best estimate of
the fair value of those interests (refer to Note 8 for further
information on distributions). The Board received since then an
updated Liquidators' report for AllBlue and AllBlue Leveraged dated
9 October 2020. The report cites that there are no distributions
planned for the foreseeable future. Future distributions are
dependent upon the successful realisation of the remaining assets
held by AllBlue and AllBlue Leveraged . Due to the uncertainties
surrounding the assets, there is no estimate of the timing or
amount of potential future distributions, or the expected timing of
the conclusion of the liquidations.
In addition, the Committee considered the results of the service
provider monitoring referred to above and also reviewed the cash
and valuation movements post year end. In the case of the
investment into TCF Feeder and MSF Corp, this includes coterminous
audited financial statements. The Committee concluded that the
investments existed and were properly valued in accordance with the
accounting policy of the Company.
Having carried out the activities set out above the Committee
concluded that the Financial Statements were fairly stated. The
Committee then read the entire annual report for consistency both
internally and with their detailed knowledge of the Company
throughout the year, and also considered whether it was as clear
and as concise as possible. We then considered the information
needs of the likely users of the annual report and whether they
were met. Our conclusion was that, taken as a whole, the annual
report is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
Non-going concern basis of preparation
At the EGM held on 18 December 2020, the Board received
Shareholder approval for the Company to cease to continue in its
current form and enter a managed wind-down in accordance with the
procedure set out in article 138 of the Articles. As a result the
Directors believe the going concern basis inappropriate.
The Directors have placed a redemption request in the Underlying
Fund, but the redemption process will be governed by the terms of
the Underlying Fund, in that the redemption proceeds will be
distributed in four quarterly instalments and shareholders
therefore will continue to be exposed to the performance of the
Underlying Fund until the final quarterly redemption occurs. The
final quarterly redemption will occur at the end of September 2021
with distribution expected to occur in mid-November 2021.
The Company still maintains holdings in MSF Corp, AllBlue and
AllBlue Leveraged. In respect of MSF Corp, the Investment Manager
is seeking to balance the pace of capital return with value
maximization. The Company has approximately 4.29% of its NAV
remaining in MSF Corp. The Board has no further information at this
time. The Company has a creditor interest in the liquidating
AllBlue entities amounting to approximately 0.38% of NAV with no
known time scale for the settlement of this interest.
Accordingly, the Board adopt a basis other than that of going
concern in the preparation of this annual financial report. The
Directors estimate that the wind-down costs will be approximately
GBP475,000. The Board believes that the Company has sufficient
funds available to meet its wind-down costs and day-to-day running
costs.
External Auditor
As noted above members of the Committee have met with the
auditor on several occasions and this has given us the opportunity
to assess the quality of the people involved in our audit and of
the content and relevance of their presentations. During our
meetings with them we considered their risk assessment, planned
responses and general approach as well as their actual delivery
against plan, and we separately discussed with our Administrator
the degree of challenge they experienced from the auditor. The
Committee notes that the majority of the Company's investments are
also audited by a separate PwC network firm and in the Committee's
opinion this enhances the effectiveness of the audit. We concluded
that the external audit process was appropriate to the Company's
circumstances and likely to prove effective.
The auditor does not provide any regular non-audit services to
the Company, and it is the Committee's expectation that this
situation will continue. The Committee has a formal policy
concerning non-audit services, detailed on the Company's website,
should the need arise.
The Committee has also considered all the other aspects of
auditor independence set out in the AIC Code and in the Ethical
Standards applicable to our auditor, at both the planning and final
delivery stages of the audit. We note that PwC is also the auditor
to TCF Feeder and MSF Corp and to certain other structures managed
or advised by Highbridge and/or JPMAM. We have carefully considered
whether these other audit relationships might impinge upon the
independence of our auditor and have concluded that any perceived
risk in this respect is adequately safeguarded against.
The Committee having concluded that the external audit is
effective and that the auditor is independent and competent has
recommended to the Board that a resolution be put to the next AGM
to reappoint PricewaterhouseCoopers CI LLP.
Steve Le Page
Chairman of the Audit Committee
20 April 2021
Statement of Directors' Responsibilities
The Directors are required to prepare Financial Statements for
each Financial Year which give a true and fair view of the state of
affairs of the Company as at the end of the Financial Year and of
the profit or loss for that year. In preparing those Financial
Statements, the Directors are required to:
-- Ensure that the Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for a shareholder to assess the Company's performance,
business model and strategy;
-- Select suitable accounting policies and apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable accounting standards have been
followed subject to any material departures discussed and explained
in the Annual Report and Audited Financial Statements; and
-- Prepare the Financial Statements on a basis other than that
of going concern unless it is inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements have been properly prepared in accordance
with the Guernsey Company Law, 2008. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for ensuring that the Annual
Report and Audited Financial Statements include the information
required by the Listing Rules and the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority (together
"the Rules"). They are also responsible for ensuring that the
Company complies with the provisions of the Rules which, with
regard to corporate governance, require the Company to disclose how
it has applied the principles, and complied with the provisions, of
the corporate governance code applicable to the Company.
Disclosure of Information to Auditor
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware; and each Director has taken all the steps that
he ought to have taken as a Director to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Responsibility Statement
The Board of Directors, jointly and severally confirm that, to
the best of their knowledge:
-- This report includes 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 the Company faces;
-- The Financial Statements, prepared in accordance with
International Financial Reporting Standards as issued by
International Accounting Standard Board, give a true and fair view
of the financial position and results of the Company;
-- The Annual Report and Audited Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy; and
-- The Annual Report and Audited Financial Statements include
the information required by the UK Listing Authority for ensuring
that the Company complies with the provisions of the Listing Rules
and the Disclosure Guidance and Transparency Rules of the UK
Listing Authority, with regard to corporate governance, require the
Company to disclose how it has applied the principles, and complied
with the provisions, of the corporate governance code applicable to
the Company.
By order of the Board
Vic Holmes
Chairman
20 April 2021
Independent Auditor's Report to the Members of Highbridge
Tactical Credit Fund Limited
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair
view of the financial position of Highbridge Tactical Credit Fund
Limited (the "Company") as at 31 December 2020, and of its
financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of
The Companies (Guernsey) Law, 2008.
What we have audited
The Company's financial statements comprise:
-- the Statement of Financial Position as at 31 December 2020;
-- the Statement of Comprehensive Income for the year then ended;
-- the Statement of Changes in Shareholders' Equity for the year then ended;
-- the Statement of Cash Flows for the year then ended; and
-- the notes to the financial statements, which include
significant accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our
report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements of the Company, as required by the Crown Dependencies'
Audit Rules and Guidance, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We are also
independent in accordance with SEC Independence Rules.
Emphasis of matter - financial statements prepared on a basis
other than going concern
In forming our opinion on the financial statements, which is not
modified, we draw attention to note 1(b) of the financial
statements, the going concern section of the Corporate Governance
Statement and to the viability statement which describe the
Directors' reasons why the financial statements have been prepared
on a basis other than going concern.
Our audit approach
Overview
Audit scope
* The Company is a standalone investment fund based in
Guernsey which engages Highbridge Capital Management
LLC (the "Investment Manager") to manage its assets.
* We conducted our audit of the financial statements
from information provided by Praxis Fund Services
Limited (the "Administrator") to whom the Board of
Directors has delegated the provision of certain
administrative functions.
* We conducted our audit work in Guernsey.
-----------------------------------------------------------------
Key audit matters
* Valuation of investments
-----------------------------------------------------------------
Materiality
* Overall materiality: GBP0.6 million (31 December
2019: GBP0.5 million) based on 1% of net assets.
* Performance materiality: GBP0.4 million (31 December
2019: GBP0.4 million).
-----------------------------------------------------------------
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the Directors made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period. These matters, and any comments
we make on the results of our procedures thereon, were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks identified by our
audit.
Key audit matter How our audit addressed the Key
audit matter
----------------------------------------- ------------------------------------------
Valuation of investments
The investment portfolio at the -- The internal control environment
year end was valued at GBP55.5 at the Administrator over the
million (2019: GBP65.3 million) valuation of the investment portfolio
and principally comprised the and the production of the net
investments in Highbridge Tactical asset value for the Company was
Credit Fund, Ltd. of GBP40.5 understood and evaluated through
million (2019: GBP35.6 million) the examination of a controls
and the remaining investment report opined upon by an independent
in Highbridge Multi-Strategy audit firm.
Fund Corporation of GBP11.6 million -- We assessed the accounting
(2019: GBP26.3 million) together policy for investment valuation,
with the legacy investment in performed testing to check that
the AllBlue Funds of GBP3.4 million the investment valuation had
(2019: GBP3.4 million). Please been accounted for in accordance
see Note 8 to the financial statements. with the stated accounting policy
We focussed on the valuation and determined that the accounting
of the investment portfolio because policy complied with International
investments represent the principal Financial Reporting Standards
element of the net asset value and had been consistently applied.
as disclosed on the statement -- We obtained and reperformed
of financial position. management's reconciliation of
The AllBlue Funds are categorised the Company's valuation of the
as level 3 investments under investment in Highbridge Tactical
the IFRS 13 fair value hierarchy Credit Fund, Ltd. to the audited
and as such we identified an financial statements of Highbridge
increased level of inherent uncertainty Tactical Credit Fund, Ltd. as
associated with their valuation. at 31 December 2020.
As disclosed in the Audit Committee -- We obtained and reperformed
Report and in Notes 2 and 8 to management's reconciliation of
the financial statements, coterminous the Company's valuation of the
capital statement information investment in Highbridge Multi-Strategy
has not been made available by Fund Corporation to the audited
the liquidators, pertaining to financial statements of Highbridge
the Company's investment in the Multi-Strategy Fund Corporation
AllBlue Funds as at 31 December as at 31 December 2020.
2020. The Directors have therefore -- No coterminous financial information
elected to present the year end was available as at 31 December
valuation of the AllBlue Funds 2020 for the positions held in
on the basis of an internally the AllBlue Funds, therefore
generated Directors' valuation, our audit work focused on the
utilising the latest reported judgements exercised by the Directors
audited financial statement information to fair value these positions
for the AllBlue Funds as at 31 as at the year end. We considered
July 2018 suitably updated for the GBP0.2 million net exposure
known events since that date of the Company to the AllBlue
which principally consist of Funds in the context of our overall
a deduction for the sale proceeds materiality of GBP0.6 million
received since that date. and examined the most recently
available information in respect
of the AllBlue Funds issued on
9 October 2020 for the period
from 11 July 2019 to 10 July
2020 which we independently received
from the liquidators.
No misstatements were identified
which required reporting to those
charged with governance.
----------------------------------------- ------------------------------------------
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which the Company operates.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall materiality GBP0.6 million (31 December 2019: GBP0.5
million).
How we determined 1% of net assets.
it
---------------------------------------------------
Rationale for benchmark We believe that net assets is the most appropriate
applied benchmark because this is the key metric
of interest to investors. It is also a generally
accepted measure used for companies in this
industry.
---------------------------------------------------
We use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% of overall
materiality, amounting to GBP0.4 million for the Company's
financial statements.
In determining the performance materiality, we considered a
number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and
concluded that an amount at the upper end of our normal range was
appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP28,000 (31
December 2019: GBP24,500) as well as misstatements below that
amount that, in our view, warranted reporting for qualitative
reasons.
Reporting on other information
The Directors are responsible for the other information. The
other information comprises all the information included in the
Annual Report and Financial Statements (the "Annual Report") but
does not include the financial statements and our auditor's report
thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report based on these
responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial
statements
As explained more fully in the Statement of Directors'
Responsibilities, the Directors are responsible for the preparation
of the financial statements that give a true and fair view in
accordance with International Financial Reporting Standards, the
requirements of Guernsey law and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other
cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Directors.
-- Conclude on the appropriateness of the Directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern over a period of at least
twelve months from the date of approval of the financial
statements. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor's report to the
related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our
auditor's report.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and
only for the members as a body in accordance with Section 262 of
The Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
R eport on other legal and regulatory requirements
Company Law exception reporting
Under The Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit;
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this
responsibility.
Corporate governance statement
The Listing Rules require us to review the directors' statements
in relation to going concern, longer-term viability and that part
of the corporate governance statement relating to the Company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other information
are described in the Reporting on other information section of this
report.
The Company has reported compliance against the 2019 AIC Code of
Corporate Governance (the "Code") which has been endorsed by the UK
Financial Reporting Council as being consistent with the UK
Corporate Governance Code for the purposes of meeting the Company's
obligations, as an investment company, under the Listing Rules of
the FCA.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit, and, other
than the matter referred to in the Emphasis of matter paragraph
above which impacts on the Directors' statements about going
concern and their assessment of the Company's prospects, we have
nothing material to add or draw attention to in relation to:
-- The Directors' confirmation that they have carried out a
robust assessment of the emerging and principal risks;
-- The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or
mitigated;
-- The Directors' statement in the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of
any material uncertainties to the Company's ability to continue to
do so over a period of at least twelve months from the date of
approval of the financial statements;
-- The Directors' explanation as to their assessment of the
Company's prospects, the period this assessment covers and why the
period is appropriate; and
-- The Directors' statement as to whether they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the
audit:
-- The Directors' statement that they consider the Annual
Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the
Company's position, performance, business model and strategy;
-- The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems;
and
-- The section describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to
report when the Directors' statement relating to the Company's
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
John Roche
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
21 April 2021
a. The maintenance and integrity of the Highbridge Tactical Credit Fund Limited's website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
b. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Statement of Comprehensive Income
FOR THE YEARED 31 DECEMBER 2020
31 December 2020 31 December 2019
Notes GBP GBP
---------------- ----------------
Net gains/(losses) on non-current financial assets at fair value through
profit or loss 8 150,626 (150,626)
Net gains/(losses) on current financial assets at fair value through
profit or loss 8 8,872,815 (1,806,608)
Net gains on current financial liabilities at fair value through profit
or loss 9 653,166 3,085,373
Interest income received 456 6,782
Losses on foreign exchange (610) (92,374)
Operating expenses 4 (480,696) (595,326)
Provision for wind-down costs 2 (475,000) -
---------------- ----------------
Profit and total comprehensive income for the year 8,720,757 447,221
---------------- ----------------
Pence (GBP) Pence (GBP)
Earnings per share - basic and diluted 6 37.76 0.59
In arriving at the results for the Financial Year, all amounts
above relate to discontinuing operations.
There is no other comprehensive income for the year other than
as disclosed above.
The notes form an integral part of these Financial
Statements.
Statement of Financial Position
31 December 31 December
AS AT 31 DECEMBER 2020 2020 2019
Non-current assets Notes GBP GBP
---------------- ----------------
Unquoted financial assets designated
as at fair value through profit
or loss 8 - 35,581,874
Current assets
Unquoted financial assets designated
as at fair value through profit
or loss 8 55,490,372 29,758,245
Investment distribution receivable 10 14,722,424 26,354,386
Cash and cash equivalents 2,116,674 2,425,359
Prepayments and receivables 15,609 240,037
---------------- ----------------
72,345,079 58,778,027
Current liabilities
Unquoted financial liabilities
designated as at fair value through
profit or loss 9 13,219,682 44,431,149
Due to redeemed shareholders 802,745 803,781
Provision for wind-down costs 2 475,000 -
Sundry accruals and payables 92,458 90,534
---------------- ----------------
14,589,885 45,325,464
Net assets 57,755,194 49,034,437
---------------- ----------------
Equity
Share Capital 11 - -
Reserves 57,755,194 49,034,437
---------------- ----------------
Shareholders' equity 57,755,194 49,034,437
---------------- ----------------
Shares in issue 11 23,093,530 23,093,530
NAV per share 13 GBP2.5009 GBP2.1233
The Financial Statements and accompanying notes were approved
and authorised for issue by the Board of Directors on 20 April 2021
and are signed on its behalf by:
Vic Holmes Steve Le Page
Chairman Chairman of the Audit Committee
The notes form an integral part of these Financial
Statements.
Statement of Changes in Shareholders' Equity
FOR THE YEARED 31 DECEMBER 2020
Share Capital Reserves Total
Note GBP GBP GBP
--------------- ----------- -----------
Opening balance at 1 January
2020 - 49,034,437 49,034,437
Profit and total comprehensive
income for the year - 8,720,757 8,720,757
-------------- ----------- -----------
Closing balance at 31 December
2020 - 57,755,194 57,755,194
-------------- ----------- -----------
FOR THE YEARED 31 DECEMBER 2019
Share Capital Reserves Total
Note GBP GBP GBP
--------------- -------------- --------------
Opening balance at 1 January
2019 - 226,780,928 226,780,928
Sales of Shares from Treasury - 3,250,000 3,250,000
On-market purchase of ordinary
shares - (3,060,668) (3,060,668)
Share redemptions - (178,383,044) (178,383,044)
Profit and total comprehensive
income for the year - 447,221 447,221
-------------- -------------- --------------
Closing balance at 31 December
2019 - 49,034,437 49,034,437
-------------- -------------- --------------
The notes on form an integral part of these Financial
Statements.
Statement of Cash flows
FOR THE YEARED 31 DECEMBER 2020 31 December 31 December
2020 2019
Note GBP GBP
------------------------------------------ ---- ------------ -------------
Cash flows from operating activities
Profit and total comprehensive income
for the year 8,720,757 447,221
Unrealised (gains)/losses on financial
assets at fair value through profit
or loss 8 (6,612,776) 2,915,738
Unrealised gains on financial liabilities
at fair value through profit or
loss 9 (653,166) (3,085,373)
Realised gains on sales of financial
assets at fair value through profit
or loss 8 (2,410,665) (958,504)
Proceeds from sale of financial
assets 30,505,149 138,186,326
Interest income (456) (6,782)
Increase/(decrease) in sundry accruals
and payables 888 (124,008)
Increase in wind-down provision 2 475,000 -
Decrease/(increase) in prepayments
and receivables 224,428 (210,235)
AllBlue cost reallocation - (33,198)
Net cash flow generated from operating
activities 30,249,159 137,131,185
------------ -------------
Cash flows from investing activities
Interest received 457 6,782
------------ -------------
Net cash flows generated from investing
activities 457 6,782
------------ -------------
Cash flows used in financing activities
On-market purchase of shares - (3,060,668)
Payments to redeemed shareholders (30,558,301) (133,435,164)
------------ -------------
Net cash flows used in financing
activities (30,558,301) (136,495,832)
------------ -------------
Cash and cash equivalents at beginning
of year 2,425,359 1,783,224
(Decrease)/increase in cash and
cash equivalents (308,685) 642,135
------------ -------------
Cash and cash equivalents at end
of year 2,116,674 2,425,359
The notes form an integral part of these Financial
Statements.
Notes to the Financial Statements
1. Accounting policies
(a) Basis of preparation
The Financial Statements have been prepared in conformity with
International Financial Reporting Standards as issued by
International Accounting Standard Board ("IFRS") and applicable
Guernsey law. The Financial Statements have been prepared on
historical cost basis except for the measurement at fair value of
financial assets and financial liabilities designated at fair value
through profit or loss.
For a detailed discussion about the Company's performance and
financial position please refer to the Chairman's Report and
Investment Manager's Report.
Items included in the Financial Statements are measured using
the currency of the primary economic environment in which the
Company operates (the "Functional Currency"). The functional
currency is Sterling, the Company has also adopted Sterling as its
presentation currency.
The principal accounting policies applied in the preparation of
these Financial Statements are set out below. These policies have
been consistently applied to all years presented, unless otherwise
stated.
Assets and liabilities are classified as current if they are
expected to be realised within 12 months of the Statement of
Financial Position date. Those not expected to be realised within
12 months of the Statement of Financial Position date will be
classified as non-current. Given the wind down of the Company as
further detailed in note (b) all assets and liabilities are
considered current.
(b) Going concern
At the EGM held on 18 December 2020, the Board received
Shareholder approval for the Company to cease to continue in its
current form and enter a managed wind-down in accordance with the
procedure set out in article 138 of the Articles. As a result the
Directors believe the going concern basis inappropriate. The
Directors have placed a redemption request in the Underlying Fund,
but the redemption process will be governed by the terms of the
Underlying Fund, in that the redemption proceeds will be
distributed in four quarterly instalments and shareholders
therefore will continue to be exposed to the performance of the
Underlying Fund until the final quarterly redemption occurs. The
final quarterly redemption will occur at the end of September 2021
with distribution expected to occur in mid-November 2021.The
Company still maintains holdings in MSF Corp, AllBlue and AllBlue
Leveraged. In respect of HMS Master Fund, the Investment Manager is
seeking to balance the pace of capital return with value
maximization. The Company has approximately 4.29% of its NAV
remaining in MSF Corp. The Board has no further information at this
time. The Company has a creditor interest in the liquidating
AllBlue entities amounting to approximately 0.38% of NAV with no
known time scale for the settlement of this interest.
Accordingly, the Board adopt a basis other than that of going
concern in the preparation of this annual financial report. The
Directors estimate that the wind-down costs will be approximately
GBP475,000, these costs have been provided for as at 31 December
2020. The Board believes that the Company has sufficient funds
available to meet its wind-down costs and day-to-day running costs.
The Directors consider that the carrying amount of other assets and
liabilities approximate to their fair value and no adjustment is
required to their carrying value under the non-going concern basis
of accounting.
(c) Taxation
The Company has been granted exemption under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income
Tax, and is charged an annual fee of GBP1,200.
(d) Expenses
All expenses are accounted for on an accruals basis.
(e) Interest income
Interest income is accounted for on an accruals basis.
(f) Cash and cash equivalents
Cash and cash equivalents are defined as call deposits, money
market funds, short dated bonds, short term deposits and
investments that have a maximum three month maturity period and
subject to insignificant risk of changes in value, together with
bank overdrafts. For the purposes of the Statement of Cash Flows,
cash and cash equivalents consists of cash, deposits and
investments held in JPMorgan Liquidity funds.
(g) Foreign currency translation
The Financial Statements are presented in Sterling, which is the
Company's functional and presentation currency. Operating expenses
in foreign currencies are initially recorded at the functional
currency rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
translated at the functional currency rate of exchange ruling at
the reporting date. All differences on these foreign currency
translations are taken to the Statement of Comprehensive
Income.
(h) Segment information
For management purposes, the Company is organised into one
business unit, and hence no separate segment information has been
presented.
(i) Shares
The Shares are initially recognised on the date of issue at the
net of issue proceeds and share issue costs. The Shares are
classified and accounted for as equity, with all payments for share
buybacks, or receipts from share issues, being taken to
Reserves.
(j) Financial Assets
The classification depends on the purpose for which the
investments were acquired. The Company's financial assets consist
of unquoted financial assets held at fair value through profit or
loss and receivables. Unquoted financial assets include the
investments from which the Company is in the process of redeeming.
Please refer to Note 1 (k) for further details.
Classification of financial assets
The Company classified financial assets into the following
categories.
Financial assets at amortised cost:
Cash and cash equivalents
Prepayments and receivables
Investment distributions receivable
Financial assets at fair value through profit or loss:
Unquoted financial assets.
IFRS 9 Financial Instruments requires the Company to measure and
recognise impairment on financial assets at amortised cost based on
Expected Credit Losses ("ECL").
The ECL impairment model requires the Company to account for
expected credit losses at initial recognition and changes to
expected credit losses at each reporting date to reflect changes in
credit risk since initial recognition.
At 31 December 2020, the Company had recognised no expected
credit impairment provisions (31 December 2019: none).
The investment distribution receivable on the Statement of
Financial Position as at 31 December 2020 was held at the initial
transaction price. The investment distribution receivable was
received in full in January 2021.
Purchases and sales of financial assets are recognised on the
trade-date, the date on which the Company commits to purchase or
sell the asset. Financial assets are derecognised when the rights
to receive cash flows from the financial assets have expired or
have been transferred and the Company has transferred substantially
all the risks and rewards of ownership. Financial assets (quoted
and unquoted) at fair value through profit or loss are initially
recognised at fair value. Subsequent to initial recognition,
financial assets at fair value through profit or loss are measured
at fair value. Gains and losses arising from changes in the fair
value of the 'financial assets at fair value through profit or
loss' category are presented in the Statement of Comprehensive
Income within net changes in fair value of financial assets at fair
value through profit or loss in the period in which they arise.
(k) Financial Liabilities (Redemption Liability)
Classification - The classification of financial liabilities at
initial recognition depends on the purpose for which the financial
liability was issued and its characteristics. The Company's
financial liabilities consist of either financial liabilities
measured at amortised cost (trade payables and other short-term
monetary liabilities) or financial liabilities measured at fair
value through profit or loss (the liabilities payable to previous
shareholders who have elected to exit the Company ("Redemption
Liability")). These latter liabilities are due to:
- Shareholders who elected to exit from the Company at the
original cash exit opportunity offered when Highbridge were
appointed Investment Manager in 2016;
- Persons who tendered their shares back to the Company at the
time of the Tender offer in October 2016;
- Persons who elected to exit from the Company at the First EGM on 16 August 2019;
- Persons who elected to exit from the Company at the Second EGM on 17 September 2019.
Please refer to Note 9 for further information. These
liabilities meet the following classification criteria of IFRS 9
for Fair Value Through Profit or Loss (FVTPL):
- Where designation as at FVTPL eliminates or significantly
reduces a measurement or recognition inconsistency ("accounting
mismatch") that would otherwise arise from measuring assets or
liabilities or recognising the gains and losses on them on
different bases.
These liabilities are not a static amount, but change as the
fair value (NAV) of the creditor interests in MSF Corp, AllBlue
Limited and AllBlue Leveraged funds change. Thus there would be a
mismatch if the liability is recorded at amortised cost whilst the
"matching" investment is at fair value.
Recognition and measurement - financial liabilities at fair
value through profit or loss are initially recognised at fair
value. Subsequent to initial recognition, financial liabilities at
fair value through profit or loss are measured at fair value. Gains
and losses arising from changes in the fair value of the 'financial
liabilities at fair value through profit or loss' category are
presented in the Statement of Comprehensive Income within net
changes in fair value of financial liabilities at fair value
through profit or loss in the period in which they arise.
2. Critical Accounting Judgements and Key Sources of Estimation
Uncertainty
In the application of the Company's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future periods.
The following are the critical judgements that the Directors have
made in the process of applying the Company's accounting policies
and that have the most significant effect on the amounts recognised
in the Financial Statements.
Fair value hierarchy classification
In determining the level within the fair value of financial
assets and financial liabilities hierarchy, set out in IFRS 13, the
Directors consider whether inputs to a fair value measurement are
observable, and significant to its measurement. This requires
judgement based on the facts and circumstances around the published
NAV of the underlying funds. The Directors consider the
availability of the NAV, at the reporting date, and whether
holdings would be redeemable at such a NAV with evidence of
redemptions at reporting date. They also consider whether
unobservable adjustments, such as liquidity discounts, have been
made by the Company. In the event there is any change in the above
factors, a transfer between fair value hierarchy levels will be
deemed to have occurred at the end of the period and would be
disclosed in Note 8.
The following are the critical estimates that the Directors have
made in the process of applying the Company's accounting policies
and that have the most significant effect on the amounts recognised
in the Financial Statements.
Valuation of investments
In order to assess the fair value of the unquoted investments,
the NAV of the underlying investments in TCF Feeder, MSF Corp,
AllBlue and AllBlue Leveraged is taken into consideration. The
Directors have considered the circumstances surrounding the
compulsory redemption of the Company's investments in MSF Corp,
AllBlue and AllBlue Leveraged.
The administrator of MSF Corp provides monthly NAV updates. The
Directors have discussed the progress of the realisation of HMS
Master Fund's assets with Highbridge regularly and are satisfied
that the NAV update for 31 December 2020 is a suitable estimate of
the fair value of the Company's residual exposure to that
entity.
As explained elsewhere (see Note 8), as at the time of
preparation of these Financial Statements the most recently
available NAV for AllBlue and AllBlue Leveraged was as at 31 July
2018. The Directors have chosen to use the 31 July 2018 NAV less
any distributions received as their best estimate of the fair value
of those interests. The AllBlue and AllBlue Leveraged interests
attributable to the shareholders of the Company comprise a net
exposure of 0.38% of the Company's NAV, and the Company has
received back 99.55% of the published net asset value of its
holding in AllBlue and AllBlue Leveraged as at the 31 July
2018.
The Company's holdings in TCF Feeder, for which redemption
requests have been submitted, are realisable at their NAV on
quarterly dealing days. The Company has some practical experience
of realising such holdings, and the Directors have carefully
considered the circumstances of the Underlying Fund and its history
of meeting requests for realisations from other investors and have
judged that the NAV provided by the independent administrator of
the Underlying Fund is a suitable estimation of the fair value of
the Company's holdings.
The Company's NAV is based on valuations of unquoted
investments. As described above, in calculating the NAV and the NAV
per Share of the Company, the Administrator relies on the NAVs
supplied by the administrators of TCF Feeder and MSF Corp. Those
NAVs are themselves based on the NAV of the various investments
held by the Underlying Fund and HMS Master Fund.
Impairment of financial assets
IFRS 9 Financial Instruments requires the Company to measure and
recognise impairment on financial assets at amortised cost based on
Expected Credit Losses, replacing IAS 39's incurred loss model. See
Note 12 on the assessment of impairment of financial assets.
Provisions
In determining the provision for wind-down costs, estimates of
costs have been obtained from the Investment Manager, Administrator
and other parties involved in the managed wind-down of the Company.
The carrying amount of the provision as at 31 December 2020 was
GBP475,000.
3. Segmental Reporting
The Board has considered the requirements of IFRS 8 - "Operating
Segments". The Company has entered into an Investment Management
Agreement with the Investment Manager under which the Investment
Manager is responsible for the management of the Company's
investment portfolio, subject to the overall supervision of the
Board of Directors. The Board retains full responsibility to ensure
that the Investment Manager adheres to its mandate. Moreover, the
Board is fully responsible for the appointment and/or removal of
the Investment Manager. Accordingly, the Board is deemed to be the
"Chief Operating Decision Maker" of the Company. In the Board of
Directors' opinion, the Company is engaged in a single segment of
business, being investment in a portfolio of funds, funds of funds
and other similar assets.Segment information is measured on the
same basis as that used in the preparation of the Company's
Financial Statements.
The Company receives no revenues from external customers, nor
holds any non-current assets, in any geographical area other than
Guernsey or Cayman Islands.
4. Operating Expenses
31 December 31 December
2020 2019
GBP GBP
------------ ------------
Administration fees 92,795 130,942
Directors' remuneration (Note
5) 132,000 186,881
Directors insurance 13,400 27,271
Registration fees 23,855 28,804
Audit fees 56,000 50,196
Legal and Professional fees 20,169 17,608
Other operating expenses 142,477 153,624
Total expenses for the year 480,696 595,326
5. Directors' Remuneration
31 December 31 December
2020 2019
GBP GBP
------------ ------------
Vic Holmes, Chairman 50,000 57,500
Steve Le Page 42,000 48,000
Paul Le Page 40,000 46,000
Sarita Keen (resigned 31 October
2019) - 35,381
132,000 186,881
The agreed annual directors fees are shown within the Corporate
Governance Statement, where applicable pro rata fees have been
paid.
6. Earnings per Share
31 December 31 December
2020 2019
Profit and total comprehensive
income for the year 8,720,757 447,221
The weighted average number of
shares in issue during the year 23,093,530 75,572,708
Pence (GBP) Pence (GBP)
------------------------ ------------------------
Earnings per share 37.76 0.59
7. Related Party Transactions
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
Transactions with related parties are made on terms equivalent
to those that prevail in an arm's length transaction.
Directors' remuneration is disclosed in Note 5.
8. Investments Designated at Fair Value through Profit or
Loss
31 December 31 December
2020 2019
GBP GBP
------------ ------------
Unquoted Financial Assets
Portfolio cost carried forward 36,188,155 52,650,677
Unrealised gains on financial
assets at fair value through
profit or loss 19,302,217 12,689,442
------------ ------------
Valuation carried forward 55,490,372 65,340,119
Realised gains on sales and
conversions on current assets 2,410,665 958,504
Unrealised gains/(losses) on
non-current assets 150,626 (150,626)
Unrealised gains/(losses) on
current assets 6,462,150 (2,765,112)
Net gains/(losses) on financial
assets at fair value through
profit or loss 9,023,441 (1,957,234)
------------ ------------
31 December 31 December
2020 2019
GBP GBP
------------ ------------
Highbridge Tactical Credit Fund,
Ltd 40,533,602 35,581,874
Highbridge Multi-Strategy Fund
Corporation 11,552,585 26,349,614
AllBlue and AllBlue Leveraged 3,404,185 3,408,631
55,490,372 65,340,119
------------ ------------
IFRS 13 requires fair value to be disclosed by the source of
inputs, using a three-level hierarchy:
- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
- Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices) (Level 2); and
- Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
The fair values of the unquoted investments held by the Company
are based on the published NAV of the TCF Feeder, and the most
recently available NAV of MSF Corp, AllBlue and AllBlue Leveraged.
On the basis that the significant inputs to the fair value of the
TCF Feeder and MSF Corp are observable and no significant
unobservable adjustments are made to the valuations, the Company
categorises the TCF Feeder and MSF Corp as Level 2. As the fair
value determination for AllBlue and AllBlue Leveraged as at 31
December 2020 is unobservable, these have been categorised as Level
3.
Details of the value of the classifications are listed in the
table below. Values are based on the fair value of the investments
as at the reporting date:
31 December 31 December
2020 2019
GBP GBP
------------ ------------
Financial assets at fair value
through profit or loss
Level 1 - -
Level 2 52,086,187 61,931,489
Level 3 3,404,185 3,408,630
------------ ------------
55,490,372 65,340,119
------------ ------------
31 December 31 December
2020 2019
GBP GBP
------------- -------------
Financial liabilities at fair
value through profit or loss
Level 1 - -
Level 2 (10,035,938) (41,243,224)
Level 3 (3,183,744) (3,187,925)
------------- -------------
(13,219,682) (44,431,149)
------------- -------------
Movements in the Company's Level 3 financial instruments during
the year were as follows:
Financial Assets Level 3 reconciliation 31 December
31 December 2020 2019
GBP GBP
----------------- ------------
Balance at beginning of the
year 3,408,630 4,510,312
Disposals - (1,096,761)
Movement in unrealised losses
on valuation (4,445) (4,921)
Balance at end of year 3,404,185 3,408,630
----------------- ------------
Financial Liabilities Level 31 December
3 reconciliation 31 December 2020 2019
GBP GBP
----------------- ------------
Balance at beginning of the
year (3,187,925) (3,315,422)
Repayments - 134,394
Movement in unrealised gains/(losses)
on valuation 4,181 (6,897)
Balance at end of year (3,183,744) (3,187,925)
----------------- ------------
Redemption from TCF Feeder
As at 31 December 2020, redemption proceeds from TCF Feeder of
GBP13,486,134 were due to the Company (31 December 2019: nil).
During January 2021, the Company received GBP13,486,134 in cash
from TCF Feeder. The Company also received GBP271,322 of shares in
TCF Feeder from the MSF Corp distribution.
Return of Capital from MSF Corp
During 2019, Highbridge Capital Management LLC, the Investment
Manager to the HMS Master Fund announced that the HMS Master Fund
would be wound down.
From the start of the program to 31 December 2020, the Company
has received redemption proceeds from MSF Corp totalling
GBP157,594,712 (31 December 2019: GBP137,089,564). During January
2021, the Company received GBP964,968 of cash and GBP271,322 of
shares in TCF Feeder from the MSF Corp distribution.
Return of Capital from AllBlue and AllBlue Leveraged
On 1 December 2015, BlueCrest, the Investment Manager to the
BlueCrest suite of funds, and the Board of Directors of each of the
relevant BlueCrest funds (or General Partner, where appropriate)
announced that the BlueCrest funds would embark upon a programme to
return the capital managed in these funds to investors.
From the start of the program, the Company has received
redemption proceeds from the AllBlue funds totalling GBP712,213,318
from the Sterling Share Class and US$42,684,695 from the US Dollar
Share Class. No distributions from the AllBlue funds were received
during the year (31 December 2019: GBP1,096,760 of redemption
proceeds were received (GBP1,049,234 from the Sterling Share Class
and US$47,526 from the US Dollar Share Class)).
The Company was notified in August 2018 that the BlueCrest funds
had appointed liquidators on 11 July 2018. The appointment of
BlueCrest as investment manager to the BlueCrest Funds terminated
on 11 July 2018, although BlueCrest will continue to assist the
liquidators during the liquidation process as required. The
liquidators advised that the completion of the liquidation and
future distributions to investors would be dependent upon the
successful realisation of the assets held by the BlueCrest funds.
No further distributions are planned at this time, and the
possibility of interim distributions resulting from the future sale
of the investments held by the BlueCrest funds will be considered
by the liquidators as investments are realised by the BlueCrest
funds.
9. Financial Liabilities Designated at Fair Value Through Profit
or Loss
31 December 31 December
2020 2019
GBP GBP
------------- --------------
Designated at fair value through
profit or loss at inception:
Balance at beginning of the
year (44,431,149) (3,315,422)
Repayments 30,558,301 134,181,944
MSF Corp cash exit - (178,383,044)
Change in unrealised gains 653,166 3,085,373
------------- --------------
(13,219,682) (44,431,149)
Other net changes in fair value
on financial liabilities at
fair value through profit or
loss:
Change in unrealised gains 653,166 3,085,373
------------- --------------
Total gains 653,166 3,085,373
------------- --------------
These liabilities represent the Redemption Liability, as defined
in Note 1 (k), and are designated as at fair value through profit
or loss for the reason explained in that note.
Please refer to Note 8 for the IFRS 13 Level 3
reconciliation.
10. Investment Distribution Receivable
As at 31 December 2020, redemption proceeds from TCF Feeder of
GBP13,486,134 and MSF Corp of GBP1,236,290 were due to the Company
(31 December 2019: MSF Corp GBP26,354,386).
During January 2021, the Company received GBP13,486,134 in cash
from TCF Feeder. The Company also received GBP964,968 of cash and
GBP271,322 of shares in TCF Feeder from the MSF Corp
distribution.
11. Share Capital
Authorised Share Capital
An unlimited number of Ordinary shares of no par value each.
Issued Total Number
-------------
Number of shares in issue (excluding Treasury Shares)
at 1 January 2019 105,391,869
Purchase of own shares (1,431,000)
Sales of Shares from Treasury 1,500,046
Share redemptions (82,367,385)
Number of shares in issue (excluding Treasury Shares)
at 31 December 2019 23,093,530
Number of shares in issue (excluding Treasury Shares)
at 1 January 2020 23,093,530
Number of shares in issue (excluding Treasury Shares)
at 31 December 2020 23,093,530
Pursuant to Section 276 of the Law, a Share in the Company
confers on the shareholder the right to vote on resolutions of the
Company, the right to an equal share in dividends authorised by the
Board of Directors, and the right to an equal share in the
distribution of the surplus assets of the Company.
The total number of Shares in issue, as at 31 December 2020 was
49,260,348 (31 December 2019: 49,260,348), of which 26,166,818
(2019: 26,166,818) Shares were held in treasury, and the total
number of shares in issue excluding treasury shares was 23,093,530
(31 December 2019: 23,093,530). All treasury shares were cancelled
by the Board at its meeting on 19 February 2021.
12. Financial Risk Management Objectives and Policies
The main risks arising from the Company's financial instruments
concern its holding in TCF Feeder as well as the investments in MSF
Corp, AllBlue and AllBlue Leveraged. The main risks attaching to
those investments are market risk, credit risk and liquidity
risk.
So far as the Company is concerned, the only risk over which the
Board can exert direct control is liquidity risk through its
ability to exercise redemption rights in TCF Feeder for the purpose
of funding the ongoing expenses of the Company. In accordance with
the winding up process described in the EGM Circular, the Company
has now given notice to redeem the second of the four quarterly
redemption requests required to redeem the entire holding in TCF
Feeder (and thereby the Underlying Fund). However, the Company
remains exposed to the performance of the Underlying Fund until 30
September 2021 as the terms of its investment into TCF Feeder
restrict redemption to 25% of the holding each quarter.
Redemptions are restricted to 25% of the Company's holding in
TCF Feeder on any quarterly redemption date and there are various
circumstances under which TCF Feeder can further restrict
redemptions. Accordingly, since the change of investment policy and
the appointment of Highbridge as Investment Manager, the Company
has held a modest cash reserve to cover its running costs.
Additionally, proceeds available from its money market investments,
MSF Corp as well as the redeeming from TCF Feeder enable the
Company to meet its liabilities as they fall due. Thereafter the
Board recognises that the Company has, via its holding of shares in
TCF Feeder an indirect exposure to the risks summarised below.
It must also be noted that there is little or nothing which the
Board can do to manage each of the following risks within TCF
Feeder or the investments in which the Underlying Fund invests
under the current investment objective of the Company. With regard
to the recoverability of the investment in respect of MSF Corp the
Company will remain a shareholder until all of the assets of HMS
Master Fund have been liquidated. In respect of AllBlue and AllBlue
Leveraged funds, the Company is now reliant on the liquidators of
the BlueCrest funds to return the remaining capital to
investors.
Details of the Company's investment objective and policy are
given in Note 12 to the Financial Statements.
Market Risk
Price Risk
The success of the Company's activities will be affected by
general economic and market conditions, such as interest rates,
availability of credit, inflation rates, economic uncertainty,
changes in laws, trade barriers, currency exchange controls and
national and international political circumstances. These factors
may affect the level and volatility of securities' prices and the
liquidity of the TCF Feeder's investments. Volatility or
illiquidity could impair the TCF Feeder's profitability or result
in losses.
The Company invests substantially all its assets in TCF Feeder
and does not undertake any structural borrowing or hedging activity
at the Company level. Its performance, therefore, is principally
directly linked to the NAV of TCF Feeder, which invests solely in
the Underlying Fund.
Price sensitivity
The Company also has a residual exposure of approximately
GBP2.5m to MSF Corp (31 December 2019: GBP6.0m) which is in the
process of winding up and a de-minimus exposure of approximately
GBP0.2m to AllBlue entities (31 December 2019: GBP0.2m).
At 31 December 2020, if the NAV of the underlying investments
had been 10% higher/lower with all the other variables held
constant, the shareholders' equity as at 31 December 2020 would
have increased/decreased by GBP4.3m (31 December 2019:
increase/decrease of GBP4.1m) This change arises due to the net
increase/decrease in the fair value of financial assets and
financial liabilities at fair value through profit or loss.
Currency Risk
The Company is not exposed directly to material foreign exchange
risk as the Company has a sterling functional currency and is
directly invested in sterling shares of TCF Feeder. The Company's
investment in MSF Corp continues to be actively hedged by the
Investment Manager but the Company's currency exposure within the
AllBlue entities is not actively hedged by the liquidator.
Interest Rate Risk
The prices of securities tend to be sensitive to interest rate
fluctuations. Unexpected fluctuations in interest rates could cause
the corresponding prices of long positions and short positions
adopted to move in directions which were not originally
anticipated. Generally, an increase in interest rates will increase
the carrying values of investments. However, the Company's
investments and liabilities designated as at fair value through
profit or loss are non interest bearing, and therefore are not
directly exposed to interest rate risk.
The Company's own cash balances are not materially exposed to
interest rate risk as cash and cash equivalents are held on
floating interest rate terms and the Company does not rely on
income from bank interest to meet day to day expenses.
Credit Risk
Credit risk is the risk that financial losses arise from the
failure of a customer or counterparty to meet its obligations under
a contract. Direct credit risk arises from cash and cash
equivalents which consists of cash held at banks and money market
accounts, money market funds, securities sold receivables (where
applicable) and other receivables. The Company only deposits money
with appropriately rated counterparties.
The nature of commercial arrangements made in the normal course
of business between many prime brokers and custodians means that in
the case of any one prime broker or custodian defaulting on its
obligations to the Underlying Fund, the effects of such a default
may have negative effects on other prime brokers with whom the
Underlying Fund deals. TCF Feeder and the Company may, therefore,
be exposed to systemic risk when the Underlying Fund deals with
prime brokers and custodians whose creditworthiness may be
interlinked.
The assets of the Underlying Fund may be pledged as margin with
prime brokers or other counterparties or held with prime brokers or
banks. In the event of the default of any of these prime brokers,
banks or counterparties, the Underlying Fund may not receive back
all or any of the assets pledged or held with the defaulting
party.
The Company measures credit risk and expected credit losses
using probability of default, exposure at default and loss given
default. The Board consider both historical analysis and forward
looking information in determining any expected credit loss. At 31
December 2020 and 31 December 2019, all other receivables
(excluding HMS Master Fund, AllBlue and AllBlue Leveraged), amounts
due from brokers, cash and short-term deposits are held with
counterparties with a credit rating of AA/Aa or higher and are due
to be settled within 1 week.
The Board consider the probability of default to be close to
zero as the counterparties have a strong capacity to meet their
contractual obligations in the near term. As a result, no loss
allowance has been recognised based on 12-month expected credit
losses as any such impairment would be wholly insignificant to the
Company.
The maximum exposure to credit risk, excluding any credit
exposures in the MSF Corp, AllBlue and AllBlue Leveraged before any
credit enhancements at 31 December 2020 is the carrying amount of
the financial assets as set out below:
31 December 2020 31 December 2019
GBP GBP
----------------- -----------------
Cash at bank 1,999,937 2,309,078
Cash held in money market
fund 116,737 116,281
Investment distribution receivable 14,722,424 26,354,386
16,839,098 28,779,745
----------------- -----------------
Liquidity Risk
In order to realise its investment in TCF Feeder, the Company
generally may, as of any calendar quarter-end, upon at least 65
days' prior written notice to the administrator of TCF Feeder,
redeem up to, but not exceeding, 25% of the number of TCF Feeder
shares issued to the Company upon each subscription. Redemption
proceeds may be paid in cash or, at the discretion of TCF Feeder,
in kind.
There can be no assurance that the liquidity of the Underlying
Fund's investments will always be sufficient to meet redemption
requests as, and when, made. Any such lack of liquidity may affect
the ability of the Company to realise its shares in its investments
and the value of Shares in the Company. Redemption requests may be
deferred in exceptional circumstances including if a lack of
liquidity may result in difficulties in determining the Underlying
Fund's NAV or NAV per share. This in turn would limit the ability
of the Directors to realise the Company's investments should they
consider it appropriate to do so and may result in difficulties in
determining the NAV of a Share in the Company. The market prices,
if any, for such illiquid investments tend to be volatile and may
not be readily ascertainable and the Underlying Fund may not be
able to sell them when it desires to do so or to realise what it
perceives to be their fair value in the event of a sale. The size
of the Underlying Fund's positions may magnify the effect of a
decrease in market liquidity for such instruments. Changes in
overall market leverage, deleveraging as a consequence of a
decision by the counterparties with which the Underlying Fund
enters into repurchase/reverse repurchase agreements or derivative
transactions, to reduce the level of leveraging, or the liquidation
by other market participants of the same or similar positions, may
also adversely affect the Underlying Fund's portfolio.
In some circumstances, investments held by the Underlying Fund
may be relatively illiquid making it difficult to acquire or
dispose of them at the prices quoted for them on the various
exchanges. Accordingly, the ability of the manager of the
Underlying Fund to respond to market movements may be impaired and,
consequently, they may experience adverse price movements upon
liquidation of their investments which may in turn affect the value
of the Company's investment. Settlement of transactions may be
subject to delay and administrative formalities.
The sale of restricted and illiquid securities often requires
more time and results in higher brokerage charges or dealer
discounts and other selling expenses than does the sale of
securities eligible for trading on national securities exchanges or
in the over-the-counter markets.
The Underlying Fund may not be able to readily dispose of such
illiquid investments and, in some cases, may be contractually
prohibited from disposing of such investments for a specified
period of time. Restricted securities may sell at a price lower
than similar securities that are not subject to restrictions on
resale.
The Company will continue to be a shareholder of MSF Corp until
all of the assets of the HMS Master Fund have been liquidated. The
Company has received approximately 94% of its holding in MSF Corp
to date.
The residual investments in AllBlue and AllBlue Leveraged funds
are known to be mostly concentrated in a single illiquid
securitisation position which a liquidator appointed by BlueCrest
was attempting to sell. In 2020, the securitisation position
remained unsold but progress was made in resolving a creditor
dispute which had prevented the sale. The AllBlue and AllBlue
Leveraged funds are also party to a number of legal claims and an
outstanding SEC settlement which could have a significant valuation
impact. Valuations of the AllBlue and AllBlue Leveraged funds are
provided at the discretion of the liquidator. The valuation
movements may be substantial but the impact on the NAV of the
Company's shares will be mitigated by the fact that the Company has
only 0.38% of its net asset value as at 31 December 2020 exposed to
the AllBlue and AllBlue Leveraged funds. The valuation and
liquidity impact of movements in the AllBlue and AllBlue Leveraged
funds valuations are expected to become a more significant part of
the Company's assets as the Company winds down, as there is
considerable uncertainty in the timing and size of future
cash-flows these investments and the associated creditor
liabilities are reported as being due in more than one year.
The investment in TCF Feeder is treated as realisable within 12
months as the Company is expecting to receive the sale proceeds
within the next 12 months. The MSF Corp investment is expected to
convert into shares in TCF Feeder within the next 12 months. As the
redemption of the shares that are due to be received by the Company
will be governed by the quarterly redemption gate it is anticipated
that a full realisation of the residual MSF Corp holding will take
more than one year. In respect to AllBlue and AllBlue Leveraged
funds, the Company is now reliant on the liquidators of the
BlueCrest funds to return the remaining capital to investors.
The redemption process for TCF Feeder will be governed by the
terms of the Underlying Fund, in that the redemption proceeds will
be distributed in four quarterly instalments and shareholders
therefore will continue to be exposed to the performance of the
Underlying Fund until the final quarterly redemption occurs. The
Board made the first distribution of GBP 13,625,182 to shareholders
during February 2021 by way of a compulsory partial redemption of
Ordinary Shares . The final quarterly redemption will occur at the
end of September 2021 with distribution expected to occur in
mid-November 2021.
The table below details the residual maturities of financial
assets and liabilities:
1-3 Months 3-12 Months More than 1 year Total
GBP GBP GBP GBP
As at 31 December 2020
------------------------------------------------------------ ----------- ------------- ---------------- ----------
Assets
Unquoted Financial assets designated at fair value through
profit or loss - 40,533,602 14,956,770 55,490,372
Cash and cash equivalents 2,116,674 - - 2,116,674
Investment distribution receivable 14,722,424 - - 14,722,424
Other receivables (excluding prepayments) 15,609 - - 15,609
1-3 Months 3-12 Months More than 1 year Total
GBP GBP GBP GBP
As at 31 December 2020
-------------------------------------------------------- ------------- ------------ ---------------- -------------
Liabilities
Unquoted Financial liabilities designated at fair value
through profit or loss - - (13,219,682) ( 13,219,682)
Due to redeeming shareholders - (802,745) - (802,745)
Accrued expenses (92,458) - - (92,458)
Provision for wind-down costs - (475,000) - (475,000)
1-3 Months 3-12 Months More than 1 year Total
GBP GBP GBP GBP
As at 31 December 2019
-------------------------------------------------------- ------------- ------------- ---------------- ------------
Assets
Unquoted Financial assets designated at fair value
through profit or loss - 61,931,488 3,408,631 65,340,119
Cash and cash equivalents 2,425,359 - - 2,425,359
Investment distribution receivable 26,354,386 - - 26,354,386
Other receivables (excluding prepayments) 221,470 - - 221,470
Liabilities
Unquoted Financial liabilities designated at fair value
through profit or loss - (41,243,224) (3,187,925) (44,431,149)
Due to redeeming shareholders (803,781) - - (803,781)
Accrued expenses (90,534) - - (90,534)
Leverage by Underlying Fund
The Underlying Fund may also invest with leverage, may borrow
and engage in margin transactions. Such leverage may take a variety
of forms, including margin loans by Underlying Fund's prime brokers
for the purchase or sale of securities, from total return and
credit default swaps and, implicitly, as a result of the low margin
requirements with respect to futures contracts and other derivative
investments.
Assets and Liabilities not carried at fair value but for which
fair value is disclosed
The following table analyses the Company's assets and
liabilities (by class) not measured at fair value at 31 December
2020 and 2019 but for which fair value is disclosed.
31 December 2020 31 December 2019
Assets GBP GBP
----------------- -------------------
Prepayments and receivables 15,609 240,037
Cash and Cash Equivalents 2,116,674 2,425,359
Investment distribution
receivable 14,722,424 26,354,386
----------------- -------------------
16,854,707 29,019,782
Liabilities
Sundry accruals and payables 92,458 90,534
Provision for wind-down -
costs 475,000
Due to redeeming shareholders 802,745 803,781
----------------- -------------------
1,370,203 894,315
The assets and liabilities included in the above table are
carried at amortised cost; their carrying values are a reasonable
approximation of fair value.
Capital Management
As the Company's Ordinary Shares are of no par value,
distributions are not paid and the Law does not require the
maintenance of a Share premium account, the Directors regard the
otherwise distributable reserves of the Company to be its capital
for the purposes of this disclosure. Capital for the reporting year
under review is summarised in Note 11 to these Financial
Statements.
At the AGM held on 2 August 2019 pursuant to section 199 of the
Law, the Directors were granted authority to buy back up to 14.99%
of the Ordinary Shares in issue. The Director's authority to make
purchases of its own issued Ordinary Shares expired at the
conclusion of the AGM held on 5 August 2020 as the Directors did
not sought renewal.
The Company's authorised share capital is such that further
issues of new Ordinary Shares could be made, subject to waiver of
pre-emption rights. Subject to prevailing market conditions, the
Board may decide to make one or more further such issues or
reissues of Ordinary Shares for cash from time to time. Any further
issues of new Ordinary Shares or reissues of Ordinary Shares held
in treasury will rank pari passu with Ordinary Shares in issue.
There are no provisions of the Law which confer rights of
pre-emption in respect of the allotment of Shares but there are
pre-emption rights contained in the Articles. The Directors were
granted the power to issue up to 4.618 million further Shares on a
non-pre-emptive basis for a period concluding on 31 December 2020,
by a special resolution of shareholders passed on 20 February 2020,
however, the right expired with effect from 31 December 2020. There
were no pre-emption rights as at 31 December 2020.
Unless authorised by shareholders, the Company will not issue
further Ordinary Shares or reissue Ordinary Shares out of treasury
for cash at a price below the prevailing NAV per Share unless they
are first offered pro rata to existing shareholders.
13. NAV reconciliation
The following is a reconciliation of the NAV per share
attributable to ordinary shareholders as presented in these
Financial Statements to the unaudited NAV per share reported to the
LSE:
NAV per Ordinary
Share
31 December 2020 GBP
Net Asset Value reported to London Stock Exchange (unaudited) 2.5214
Provision for wind-down costs (0.0205)
Net Assets Attributable to Shareholders per Financial Statements (audited) 2.5009
-------------------------------------------------------------------------------- -----------------
14. Events After the Year End
The first quarterly redemption proceeds from TCF Feeder of
GBP13,486,134 in connection with the Company's managed wind-down
were received in January 2021 and the Board made a return of
capital to shareholders on 25 February 2021 of GBP13,625,182 by way
of a compulsory partial redemption of Ordinary Shares . The second
TCF Feeder quarterly redemption was submitted during January 2021
in time for the 31 March 2021 dealing day and it is anticipated
that proceeds from this second redemption will be distributed in
May 2021.
In January 2021 a further distribution from MSF Corp was
received in the amount of cash GBP964,968 and GBP271,322 of shares
in TCF Feeder. The Board has determined that it is not economically
viable to make a distribution at this time, so will review the
position when the next distribution is received.
All treasury shares were cancelled by the Board on 19 February
2021.
There have been no other significant events since the year end
which would require revision of the figures or disclosures in these
Financial Statements.
Unaudited Schedule of Investments as at 31 December 2020
Valuation Total
Nominal source Valuation net assets
holdings currency GBP %
------------------------------------ ---------- -------------- ------------ ------------
Highbridge Tactical Credit Fund,
Ltd -
Class F -Series N - RF 33,139 GBP40,533,602 40,533,602 70.18%
*Highbridge Multi-Strategy Fund
Corporation - Class F -Series
N - RF/Mar 16 175,346 GBP1,014,586 1,014,586 1.76%
* Highbridge Multi-Strategy Fund
Corporation - Class F - Series
N - RF/Apr 18 12,890 GBP5,276,844 5,276,844 9.14%
* Highbridge Multi-Strategy Fund
Corporation - Class F- Series
N - RF/Jun 18 990 GBP399,740 399,740 0.69%
* Highbridge Multi-Strategy Fund
Corporation - Class F - Series
N - RF/Jul 18 5,370 GBP2,183,041 2,183,041 3.78%
* Highbridge Multi-Strategy Fund
Corporation - Class F -Series
N - RF/Aug 18 2,400 GBP979,399 979,399 1.70%
* Highbridge Multi-Strategy Fund
Corporation - Class F - RF/Dec
18 3,650 GBP1,527,424 1,527,425 2.63%
* Highbridge Multi-Strategy Fund
Corporation - Class F - RF/Sept
19 3,250 GBP171,550 171,550 0.30%
------------ ------------
11,552,585 20.00%
**Financial Liability - Highbridge
Multi-Strategy Fund Corporation (9,070,970) (15.71%)
Net Highbridge Multi-Strategy
Fund Corporation 2,481,615 4.29%
------------ ------------
AllBlue Limited Sterling Share 11,114 GBP2,662,226 2,662,226 4.60%
AllBlue Limited US Dollar Shares 809 US$195,068 142,698 0.25%
AllBlue Leveraged Feeder Limited
Sterling Shares 2,040 GBP599,261 599,261 1.04%
------------ ------------
3,404,185 5.89%
Financial Liability - AllBlue
Limited and Leveraged (3,183,744) (5.51%)
Net AllBlue and Leverage Fund 220,441 0.38%
------------ ------------
43,235,658 74.86%
------------ ------------
*Highbridge decided to aggregate the different investment series
into the main (original) series that was bought into originally
(Highbridge Multi Strategy Fund Class F Series N -RF/Mar 16) on the
1 January 2017. Highbridge Multi-Strategy Fund Corporation
(formerly: 1992 Multi-Strategy Fund Corporation).
**Financial Liability - Highbridge Multi-Strategy Fund
Corporation has been reduced by the cash element of the Investment
Distribution received in January 2021 of GBP964,968.
Glossary
Unless the context suggests otherwise, references within this
report to:
'AIFM' means Alternative Investment Fund Manager.
'AllBlue Leveraged' means AllBlue Leveraged Feeder Limited.
'AllBlue' means AllBlue Limited.
Barclays Aggregate Bond Index ('Barclays Aggregate') represents
securities that are U.S. domestic, taxable and dollar denominated.
The index covers the U.S. investment grade fixed rate bond market,
with index components for government and corporate securities,
mortgage pass-through securities, and asset-backed securities.
These major sectors are subdivided into more specific indices that
are calculated and reported on a regular basis. The index is USD
denominated. The Products are not sponsored, endorsed, sold or
promoted by Barclays Capital, and Barclays Capital makes no
warranty, express or implied, as to the results to be obtained by
any person or entity from the use of any index, any opening,
intra-day or closing value therefor, or any data included therein
or relating thereto, in connection with any Fund or for any other
purpose. Barclays Capital's only relationship to the Licensee with
respect to the Products is the licensing of certain trademarks and
trade names of Barclays Capital and the Barclays Capital indexes
that are determined, composed and calculated by Barclays Capital
without regard to Licensee or the Products.
'Beta' is a measure of how sensitive the price of an investment
is to movements in a reference index. The Underlying Fund's Beta is
determined by calculating the slope of a regression line of a
scatter plot of the fund's return to the FTSE 100 index's return,
based on monthly observations.
'BlueCrest' means BlueCrest Capital Management Limited.
'Board' means the Board of Directors of the Company.
'Company' means Highbridge Tactical Credit Fund Limited.
'Credit Fund' The Tactical Credit Fund is a multi-strategy
credit fund that seeks to generate returns from relative value and
idiosyncratic opportunities. The Tactical Credit Fund, which
launched in November 2013, currently invests in six credit focused
sub-strategies: (i) mid-cap convertible credit; (ii) European
convertible credit; (iii) capital structure arbitrage; (iv) event
credit; (v) income investments and (vi) distressed credit and
reorganised equities.
'FTSE 100' is a capitalisation weighted performance index of the
100 companies listed on the London Stock Exchange with the highest
market capitalisation. Ticker: UKX Index (Currency GBP). The index
is GBP denominated.
'Funds underlying AllBlue' means the seven underlying funds of
AllBlue comprising BlueCrest Capital International Limited,
BlueTrend 2x Leveraged Fund Limited (with effect from 1 July 2015,
BlueTrend Fund Limited prior to 1 July 2015), BlueCrest Multi
Strategy Credit Fund Limited, BlueCrest Emerging Markets Fund
Limited, BlueCrest Mercantile Fund Limited, BlueCrest Equity
Strategies Fund Limited and BlueCrest Quantitative Equity Fund
Limited (together, including the master funds into which such funds
invest).
'GFSC Code' means the Guernsey Financial Services Commission
Financial Sector Code of Corporate Governance.
'Highbridge' means Highbridge Capital Management, LLC (the
"Investment Manager").
'HMS Master Fund' means Highbridge Multi-Strategy Master Fund,
L.P. (formerly: 1992 Multi-Strategy Master Fund, L.P.), the
multi-strategy fund managed by Highbridge into which the Company
holds, via its investment in Class F shares of Highbridge
Multi-Strategy Fund Corporation (formerly: 1992 Multi-Strategy Fund
Corporation).
'MSF Corp' means Highbridge Multi-Strategy Fund Corporation
(formerly: 1992 Multi-Strategy Fund Corporation), an exempted
company incorporated with limited liability in the Cayman
Islands.
'IFRS' means the International Financial Reporting Standards as
adopted by the European Union.
The 'Secretary' or the 'Administrator' means Praxis Fund
Services Limited.
'Law' means the Companies (Guernsey) Law 2008 (as amended).
The S&P 500 Index ('S&P 500') consists of 500 stocks
chosen for market size, liquidity and industry group
representation. It is a market value weighted index (stock price
times number of shares outstanding), with each stock's weight in
the Index proportionate to its market value. Ticker: SPX Index
(Currency USD). The index is USD denominated.
'Shares' means the sterling Shares of the Company in issue.
'SPACs' - ('Special Purpose Acquisition Companies'). These are
stock exchange listed companies that raise capital to acquire
private companies which are not typically identified in advance.
They are more commonly known as shell companies in the UK.
'Sharpe Ratio' means the average return earned in excess of the
risk-free rate per unit of volatility or total risk. The Sharpe
measure was developed by Nobel Laureate William Sharpe. Return (the
numerator) is defined as the incremental average monthly return of
an investment over the risk free rate. Risk (the denominator) is
defined as the standard deviation of the monthly investment returns
less the risk free rate. The values for the risk free rate for the
calculations are those of the 90 Day U.S. Treasury Bill. Values are
presented in annualized terms; annualized Sharpe Ratios are
calculated by multiplying the monthly Sharpe Ratio by the square
root of twelve.
'TCF Feeder' means Highbridge Tactical Credit Fund, Ltd.
(formerly: 1992 Tactical Credit Fund, Ltd), an exempted company
incorporated with limited liability in the Cayman Islands.
'Underlying Fund' means Highbridge Tactical Credit Master Fund,
L.P. (formerly: 1992 Tactical Credit Master Fund, L.P.), the
tactical credit fund managed by Highbridge into which the Company
invests substantially all of its assets, via its investment in
Class F shares of Highbridge Tactical Credit Fund, Ltd (formerly:
1992 Tactical Credit Fund Corporation).
'Annualised Volatility' measures the dispersal or uncertainty in
a random variable. It measures the degree of variation of monthly
net returns around the average monthly net return. For this reason,
volatility is often used as a measure of investment risk. Values
are calculated by applying the traditional sample standard
deviation formula to monthly return data, and then annualised by
multiplying the result by the square root of twelve.
'Website' means the Company's website,
https://www.highbridgemsfltd.co.uk
Directors and Service Providers
Directors Registered Office of the Company
Vic Holmes Sarnia House
Steve Le Page Le Truchot
Paul Le Page St Peter Port
Guernsey GY1 1GR
Administrator and Secretary Registrar, Paying Agent and Transfer
Praxis Fund Services Limited Agent
Sarnia House JTC Registrars Limited
Le Truchot Ground Floor
St Peter Port Dorey Court
Guernsey GY1 1GR St Peter Port
Guernsey GY1 4EU
Auditor UK Transfer Agent
PricewaterhouseCoopers CI LLP Anson Registrars (UK) Limited
Royal Bank Place The Scalpel
1 Glategny Esplanade 18(th) Floor
St Peter Port Lime Street
Guernsey GY1 4ND London
England
EC3M 7AF
Investor and Public Relations Investment Manager and AIFM
J.P. Morgan Asset Management Highbridge Capital Management
60 Victoria Embankment LLC
London 40 West 57th Street - 32nd Floor
England EC4Y 0JP New York
NY10019
Solicitors to the Company as Corporate Brokers
to English Law finnCap Limited
Herbert Smith Freehills LLP 60 New Broad Street
Exchange House London
Primrose Street England EC2M 1JJ
London
England EC2A 2EG
Advocates to the Company as to Advocates to the Company as to
Guernsey Law Guernsey Law
Carey Olsen (Guernsey) LLP Mourant
P.O. Box 98 PO Box 186
Carey House, Les Banques Royal Chambers
St Peter Port St Julian's Avenue
Guernsey GY1 4BZ St Peter Port
Guernsey GY1 4HP
[1] As of 31 December 2020 net of all applicable fees and
expenses. Shareholders should note that past performance is not
necessarily indicative of future results and that there can be no
assurance that the Company's and/or the Underlying Fund's return
objectives will be realised or that the Company and/or the
Underlying Fund will not experience losses.
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END
FR FZGZDKMMGMZM
(END) Dow Jones Newswires
April 22, 2021 02:00 ET (06:00 GMT)
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