Dexion Absolute Limited (the
“Company”)
August Final Net Asset Values
Ordinary Shares
The final net asset values of the Company’s Ordinary Shares as
of 28 August 2015 are as
follows:-
Share Class |
NAV |
MTD
Performance |
YTD
Performance |
GBP Shares |
194.13p |
-1.49% |
+5.57% |
EUR Shares |
€2.6800 |
-1.50% |
+1.04% |
USD Shares |
$4.1080 |
-1.49% |
+4.81% |
2011 Redeemed Shares
The net asset value of the Company’s 2011 Redemption Portfolio
was $1.45 million as of 28 August 2015. This was attributed to the
Redeemed Share class as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
$0.0260 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
2012 Redeemed Shares
The net asset value of the Company’s 2012 Redemption Portfolio
was $3.29 million as of 28 August 2015. Shares redeemed pursuant to the
2012 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
$0.0252 |
USD Shares |
$0.0278 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
2013 Redeemed Shares
The net asset value of the Company’s 2013 Redemption Portfolio
was $3.91 million as of 28 August 2015. Shares redeemed pursuant to the
2013 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
GBP Shares |
$0.0295 |
EUR Shares |
$0.0362 |
USD Shares |
$0.0416 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
These valuations, which have been prepared in good faith by the
Company's administrator, are for information purposes only and are
based on the unaudited estimated valuations supplied to the
Company's investment adviser, Aurora Investment Management L.L.C.
(“Aurora”), by the administrators or managers of the Company's
underlying investments and such valuations may not be considered
independent or may be subject to potential conflicts of interest.
Both weekly manager estimates and monthly valuations may be
produced as at valuation dates which do not co-incide with
valuation dates for the Company, may be based on valuations
provided as of a significantly earlier date, may differ materially
from the actual value of the Company's portfolio and are unaudited
or may be subject to little verification or other due diligence and
may not comply with generally accepted accounting practices or
other generally accepted valuation principles. The Company's
investment adviser, investment manager and administrator may not
have sufficient information to confirm or review the completeness
or accuracy of information provided by those managers or
administrators of the Company's investments. In addition, those
entities may not provide estimates of the value of the underlying
funds in which the Company invests on a regular or timely basis or
at all with the result that the values of such investments may be
estimated by the Aurora. Since 1 April
2013 the Company has been transitioning to becoming a feeder
fund of Aurora Offshore Fund Ltd II ("AOFL II"). AOFL II's
investment manager is also the investment adviser to the Company
and so valuations of the Company's investment in AOFL II may be
subject to potential conflicts of interest. As at 1 September 2015 approximately 94.43% of the
Continuing Portfolio (by NAV) was invested in AOFL II. The value of
designated investments as at 1 September
2015 equates to approximately 1.59% of the Continuing
Portfolio NAV. Certain other risk factors which may be relevant to
these valuations are set out in the Company's prospectus dated
17 October 2007 and the Company's
circulars dated 15 April 2011,
5 April 2012 and 22 February 2013.
Net asset values for Redeemed Shares include only those costs
and expenses attributable to Redeemed Shares which have been
accrued as at the relevant NAV date.
Monthly Portfolio Review
Investment adviser portfolio
outlook
In taking a step back to survey the broader economic ecosystem,
it is our belief that US growth will not be materially impacted, at
least in the short to medium term, by the ongoing economic events
in China and remain confident that
the broader global financial system is well insulated from
China to limit the probability of
wide scale contagion. However, we are also cognisant that risk
assets, including corporate equity and credit instruments, remain
priced optimistically following a five-plus year bull run.
Global investors applying a more discerning eye to the price
paid for risk assets is ultimately a healthy change as well as the
potential opportunities that arise out of increased volatility
across financial markets. We anticipate that both factors should
serve the underlying hedge fund managers well. In the meantime, we
remain in ongoing dialogue with our managers and are actively
looking for long and short opportunities that may present
themselves in the face of the market’s recent turmoil.
In focus³
In August, uncertainty crept back as global equity markets
experienced the most precipitous one-month decline in over three
years, with volatility rising across asset classes. Given
this backdrop, the Company’s investment adviser offers a few
observations regarding today’s market ecosystem, specifically on
the topics of market liquidity and technical selling.
Many have commented in recent weeks about the impact of
volatility-induced systematic selling. Some observers have
pointed to risk-parity strategies as a culprit and others have
suggested that VaR (value at risk)-based risk mitigation
methodologies may be another. Risk-parity programs generally employ
high-leverage trading strategies that rely on algorithms to adjust
portfolio exposures systematically based on target volatility.
VaR-based risk parameters, on the other hand, are part of a
risk-mitigation technique used by many investment managers
globally. It seems that some part of the volatility experienced in
August may have been driven by these factors, as rising volatility
levels within portfolios gave way to the desire to rapidly reduce
risk in order to comply with VaR limits.
One by-product of quantitative easing – artificially low
volatility – has driven the popularity of such strategies in recent
years. In other words, after a prolonged period of low
financial market volatility, investment strategies relying on these
approaches have become much more appealing to investors. But
because these approaches are designed to cut risk in times of
stress with little regard for qualitative assessment, they have the
ability to become self-fulfilling (forced selling leads to higher
volatility, which leads to more forced selling).
The problem was compounded in August when the technical selling
was met with unusually low liquidity across both equity and credit
markets – partially attributable to the time of year (August is
historically a lower volume month) and to structural reasons (for
example, low dealer inventories for credit securities).
In this environment, a skilled hedge fund manager may be
positioned to profit by providing liquidity to other market
participants who are forced to sell securities. At the same time,
however, the investment adviser feels that market conditions like
those they have seen in recent years increase the probability of
volatile market periods like the one experienced in August. For
these reasons, they are particularly enthusiastic about allocations
to the Macro and Tail-Risk Opportunities strategies, both of which
can profit from increased market volatility across asset classes.
Furthermore, they believe that markets in which indiscriminate
selling creates significant price dislocations provide interesting
opportunities to managers across all of their strategies who employ
a value-based investment approach.
Market
overview
- Global financial markets faced one of the greatest upsurges in
market turmoil seen in recent memory, with both US and non-US
equities generally experiencing their worst monthly decline in over
three years, while the CBOE Volatility Index (the so-called "fear
index") posted its highest monthly change in its history
(surpassing the record previously set in October 2008).
- Concerns over China's future
growth prospects provided the initial market shock and raised
broader questions about the health of the overall global economy.
This uncertainty, combined with the market's optimistic corporate
valuations and the absence of liquidity across various financial
exchanges, resulted in dramatic market moves and big
headlines.
- Credit markets also felt the effects of these concerns,
particularly in riskier credit assets such as US high-yield bonds,
which underperformed versus the credit markets in August.
- Foreign exchange markets were the epicentre for much of the
action during the month, spurred by China's surprise devaluation of the Yuan,
which in turn sparked broader declines across emerging market
currencies. At the same time, the US dollar weakened against both
the euro and the Japanese yen.
- While the month-over-month move in 10-year US treasuries
appears rather muted, it does not accurately reflect the
intra-month swing experienced as investors sought refuge from a
sell-off in risk assets early in August. However, when asset prices
reversed course towards month end, US treasury yields retraced
their gains and finished the month marginally higher than where
they started. Both the UK gilts and the German bunds experienced a
similar trading pattern during the month.
- Finally, broader commodity benchmarks finished the month
slightly higher, but like fixed-income markets, commodities
experienced a big intra-month swing. At one point, certain
commodity benchmarks hit a 16-year low on the back of concerns that
a slowdown in Chinese demand would exacerbate certain supply
gluts.
Long/short credit¹: -1.59%
- The strategy endured a challenging environment as global growth
concerns led to a broad-based sell-off in credit markets.
Losses emanated predominantly from domestic credit exposure as well
as global equity exposure.
- More specifically, credit exposure to a Texas-based oil E&P company resulted in
notable losses for one manager.
- Within equities, long exposure to European and Japanese index
futures detracted, as did single-name holdings in a Detroit-based auto manufacturer and a Spanish
industrial company.
- Additional losses stemmed from oil and gas-related equity
investments, as the slowdown in China created enormous volatility in energy
commodity markets.
- Helping to negate a portion of losses were holdings in Greek
and Argentine government bonds as well as short exposure to the
Chinese yuan.
Long/short equities¹: -1.75%
- Losses primarily stemmed from the geographic specialists and
generalists while the sector specialists helped offset a portion of
the losses.
- Geographic specialists saw the biggest decline, as long
holdings in consumer goods, industrials and financials were the
largest detractors. Notable individual losers included
positions in a global agricultural chemicals business, a global
information services company and an Indian mortgage bank.
- Among generalists, losses were derived from long positions in
the energy, technology, media and consumer-related sectors.
- Conversely, the bulk of the strategy’s profits emanated from
sector specialists.
- Notably, long positions in the energy sector, along with short
positions in the industrials and basic materials sectors, were the
most additive.
Opportunistic¹: -4.57%
- August presented a difficult month for the strategy as concerns
regarding global growth resulted in a broad-based sell-off of risk
assets.
- Long credit exposure was the primary source of losses,
including exposure to a financial services company that yielded a
loss after the company reported disappointing second quarter
results plus a number of material strategic initiatives.
- One manager’s holdings in a biopharmaceutical company detracted
as earnings missed estimates and the stock was downgraded by a
large, reputable sell-side firm.
- Furthermore, short positions in the Japanese yen detracted as
volatility emanating from China
created a flight to quality, whereby global investors used the yen
as a safe-haven asset.
- Equity market hedges helped negate a portion of losses.
Macro¹: -1.00%
- Gains emanating primarily from short currency exposure were not
enough to offset losses stemming largely from long equity holdings,
interest rate exposure, and oil-related positioning.
- More specifically, long equity exposure to China, India,
Japan, and the US detracted, as
did long exposure to Brazilian rates and short exposure to US
rates.
- Oil-related positioning, namely, short orientation towards time
spreads in both crude and distillates, added to losses.
- Helping to negate a portion of losses was short exposure to
several currencies including the Indonesian rupiah, the Taiwanese
dollar, the New Zealand dollar,
the South African rand, the Turkish lira, the Singapore Dollar, and
the Korean won.
Portfolio hedge¹: +4.91%
- The Portfolio Hedge strategy experienced a particularly strong
month, as both tail-risk opportunities and short sellers produced
strong results.
- Strong performance from tail-risk opportunities was led by a
straddle trade involving the Chinese renminbi designed to benefit
from increased volatility in the currency as well as a move higher
or lower against the US dollar.
- Additional profits stemmed from options on the Brazilian real
and long volatility positions in the S&P 500 and
EuroStoxx.
- For the two short-sellers, exposure to the healthcare,
technology and consumer sectors contributed to the positive
returns.
Event driven¹: -3.39%
- The Event-Driven strategy also experienced losses, as both
Event-Driven managers and special opportunities investments were
negatively impacted by the market volatility and broad
declines.
- Our Event-Driven managers were most negatively impacted by
holdings in healthcare and media companies.
- Among our special opportunities investments, holdings in a
renewable energy Yieldco with emerging market ties, a chemical
manufacturing company, and an energy infrastructure and natural gas
company were the largest detractors.
- Conversely, special opportunities investments in two banks, one
based in the US and the other in Europe, helped to offset losses.
Strategy |
Allocation
as of 1 September²
(%) |
Number of hedge funds as of
1 September² |
Performance by
strategy¹ (%) |
|
|
|
August |
YTD |
Long/short credit |
23 |
5 |
-1.59 |
+2.17 |
Event driven |
19 |
5 |
-3.39 |
+2.69 |
Long/short
equities |
32 |
13 |
-1.75 |
+3.36 |
Opportunistic |
6 |
3 |
-4.57 |
-4.57 |
Macro |
13 |
6 |
-1.00 |
-1.94 |
Portfolio hedge |
7 |
2 |
+4.91 |
+4.95 |
Total |
100 |
34 |
|
|
¹Effective 31 May 2011,
31 May 2012 and 28 February 2013, the Company created separate
redemption portfolios for redeeming shareholders from the EUR (for
2011, 2012 and 2013), USD (for 2012 and 2013) and GBP (for 2013
only) share classes. All information presented herein is for the
Continuing Portfolio only. Strategy returns are in USD, are net
only of the fees and expenses of the underlying managers and gross
of the fees of Company’s investment manager and investment adviser
and the operating expenses of the Company and AOFL II. In addition
to the Company’s direct holdings, strategy returns include the
underlying manager holdings in AOFL II. The investment adviser
implements the ‘Modified Dietz’ methodology for calculating the
Company’s portfolio hedge strategy returns, which takes into
account the amount of time an investment is held. Under unusual
market circumstances, there are certain limitations to the Modified
Dietz methodology and under such circumstances the investment
adviser may modify, adjust or apply a different methodology if it
determines in its reasonable discretion that doing so will more
accurately reflect the rate of return of the Company’s portfolio
hedge strategy.
²Allocations for the Continuing Portfolio are based on
28 August 2015 results and
1 September 2015 capital allocations,
net of cash effect and including, for Portfolio hedge only, the
delta-adjusted exposure derived from option hedges, the notional
value of futures hedges, and dedicated notional gold exposure, if
any. The Company classifies all managers by reference to only one
of the core trading strategies provided in the chart (which include
several strategies whose nature is multi-strategy). In certain
instances, and over time, a manager may utilise multiple trading
strategies. Consequently, it is possible that the Company’s
determination of a manager’s primary trading strategy may change
over time and may differ from how others may classify such
manager’s primary trading strategy. Strategy allocations may vary
over time. Numbers may not sum to 100% due to rounding.
For purposes of determining manager count, the manager treats
investments in different hedge funds managed by the same manager
using the same strategy as a composite and does not include any
“Excluded Managers”. An Excluded Manager is any manager (1) for
which the Company has submitted a full redemption request or (2)
that manages only “Market Opportunities Investments” within the
strategy. Market Opportunities Investments represent an aggregation
of a select set of unique, concentrated, and opportunistic
investments that may be added to the Continuing Portfolio to
benefit from compelling and timely risk seeking and risk limiting
investment opportunities. The Company’s Investment Adviser
classifies all of the Company’s managers by reference to only one
of the core trading strategies provided in the chart (which include
several strategies whose nature is multi-strategy). In certain
instances, and over time, a manager may utilise multiple trading
strategies. Consequently, it is possible that the Company’s
Investment Adviser’s determination of a manager’s primary trading
strategy may change over time and may differ from how others may
classify such manager’s primary trading strategy.
³The In focus section of this report is for information purposes
only. Any opinion expressed in this report, including with respect
to the market events and potential investment opportunities that
may arise, is purely the opinion of the Company’s Investment
Adviser, may be speculative, and is subject to change without
notice. This report should not be considered investment advice or
relied upon as such. This report should be not be considered an
indication of the future investment decisions that the Company’s
Investment Adviser will make for the Company. Statements that are
made in this report that are not based on historical facts are
forward-looking statements. Although such statements are based on
the Investment Adviser’s current estimates and expectations, and
currently available competitive, financial, and economic data,
forward-looking statements are inherently uncertain. There can be
no assurance that the estimates and expectations made in connection
with any forward-looking statement will prove accurate, and actual
results may differ materially. The Investment Adviser makes no
representations or warranties regarding the accuracy or
completeness of the information included in this report and is not
liable in any way as a result of its use.
Supplementary Information
Click on, or paste the following link into your web browser, to
view a full review of the Dexion Absolute Limited portfolio.
http://content.prnewswire.com/documents/PRNUK-2909151320-232F_DAL_MPR_2015_August_CC.pdf