Dexion Absolute Limited (the
“Company”)
January Final Net Asset Values
Ordinary Shares
The final net asset value of the Company’s Ordinary Shares as of
29 January 2016 is as follows:-
Share Class |
NAV |
MTD
Performance |
YTD
Performance |
GBP Shares |
185.46p |
-2.10% |
-2.10% |
2011 Redeemed Shares
The net asset value of the Company’s 2011 Redemption Portfolio
was $0.47 million as of 29 January 2016. This was attributed to the
Redeemed Share class as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
US$ 0.0083 |
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 $1.60 million as of 29 January 2016. Shares redeemed pursuant to the
2012 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
US$ 0.0123 |
USD Shares |
US$ 0.0135 |
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 $1.98 million as of 29 January 2016. Shares redeemed pursuant to the
2013 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
GBP Shares |
US$ 0.0150 |
EUR Shares |
US$ 0.0183 |
USD Shares |
US$ 0.0211 |
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.
2015 Redeemed Shares
The net asset value of the Company’s 2015 Redemption Portfolio
was $54.88 million as of 29 January 2016. Shares redeemed pursuant to the
2015 Redemption Offer have a single USD net asset value based upon
exchange rates at the relevant date. This was attributed between
Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
GBP Shares |
US$ 2.8717 |
EUR Shares |
US$ 2.9367 |
USD Shares |
US$ 4.0109 |
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 February 2016 approximately 103.40% of the
Continuing Portfolio (by NAV) was invested in AOFL II. The value of
designated investments as at 1 February
2016 equates to approximately 1.06% 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, 22 February 2013, 27 May
2013 and 26 August 2015.
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
Financial markets were hit with a broad range of news items
throughout the first month of 2016, leading to heightened
volatility across a variety of asset classes. Early in the month,
facing the prospect of further depleting its capital reserves,
China allowed for a depreciation
of the renminbi, adding volatility to markets. Simultaneously, the
prospect for a boost in the oil supply from Iran weighed on oil prices, which in turn hurt
equities due to their increased correlation to oil. Subsequent to
that, due in part to dovish comments from the US Federal Reserve
and European Central Bank, as well as an easing announcement from
the Bank of Japan, US equity
markets rallied into month end.
In speaking with our managers and tracking intra-month hedge
fund exposure data, it is clear that the recent market slide is
reflective of deteriorating sentiment across a broad array of
market participants, not solely hedge fund managers. In fact, our
underlying managers generally maintained relatively stable exposure
levels throughout the month – they were neither cutting risk
aggressively, nor were they active buyers. We found it reaffirming
that our managers were able to hold their ground into the small
rally at month end.
Looking forward, in a period of heightened volatility, we
continue to emphasise managers employing approaches with low net
exposure, as well as investments in strategies that can benefit
from heightened volatility. We believe that January’s market
volatility may be present throughout 2016 due to a variety of
factors, including lower market liquidity and increased macro
uncertainty. We believe that our current mix of hedge fund
strategies and manager investments is well suited to navigate more
turbulent markets, with their hedged approach intended to shield
their portfolios from broad market moves, while simultaneously
seeking to take advantage of indiscriminate selling to purchase
assets at a discount.
In focus³
Given the tumult within financial markets in January, Aurora has
been particularly active in reaching out to our hedge fund managers
for meetings and calls to get a better sense of what the managers
are seeing, hearing and doing amid the volatility. This month, we
share with you some of the more salient observations from these
manager discussions. We also provide an update on Aurora’s
current outlook from a positioning and portfolio management
standpoint.
Coming out of last year’s Blank Sheet Review, Aurora made a
conscious decision generally to reduce our portfolios’ exposure to
hedge fund strategies having a greater reliance on equity market
beta, and instead emphasise strategies that can generate more
uncorrelated and idiosyncratic returns. This decision has already
proven beneficial thus far in 2016. The portfolio changes resulting
from that decision, in conjunction with the active management by
our underlying managers, meant that between the start and end of Q4
2015 our flagship fund – Aurora Limited Partnership – saw net
exposure in its fundamental strategies (excluding Macro and
Portfolio Hedge) fall from 39% to less than 34% and gross exposure
rise from 144% to 150%. Notably, through our January intra-month
correspondence with each of our managers, it was interesting to see
that there was very little additional risk reduction in January.
More qualitatively, in conversations with many of our managers, the
views expressed generally matched our data – managers for the most
part were not cutting risk aggressively, nor were they active
buyers.
In these discussions with our managers, we were struck by a
handful of recurring observations. Many of the managers we spoke
with expect January’s market volatility to be the new norm in 2016
as liquidity exits the system as a result of both the US Federal
Reserve’s tightening and sovereign wealth funds’ selling. Credit
markets remain dysfunctional and several managers cited the lack of
liquidity as being the worst they have ever seen, including 2008.
From a macro perspective, many managers across a variety of
strategies noted that they expect the Chinese renminbi to
depreciate materially in 2016 and have positioned their funds for
such an event. Some Macro managers expect more hawkish policy from
the US Federal Reserve (two or more hikes) than the market is
currently pricing in.
Altogether, we found these conversations to be reassuring and
without any sense of panic. Furthermore, we found it reaffirming
that our managers were able to hold their ground leading into the
small rally at month end. However, we find it notable also that
Morgan Stanley is reporting that the first days of February
represented the largest three-day reduction of long exposure in the
last six years, likely indicating that risk reduction has resumed
after January’s small rally into month end. Understanding that the
situation is fluid, we will closely monitor notable shifts in
positioning as we continue to experience volatility in financial
markets.
Market
overview
- Markets got off to a difficult start to the year with
substantial volatility amid news around the Chinese economy, oil
price swings and central banking policy.
- Developed and emerging market equities largely fell in tandem
in January, while small-capitalisation US equities were among the
hardest hit. From a sector perspective, the healthcare sector
experienced one of its largest one-month sell-offs in over a
decade, led by the biotechnology industry. Similarly, banking
stocks faced stiff headwinds, while utility and telecommunications
equities were rare bright spots.
- Not surprisingly, given the flight towards safety in January,
US treasuries rallied, with yields moving from 2.27% to 1.92%,
while Federal Funds Futures dramatically re-priced the odds of
another interest rate hike by the US Federal Reserve in March from
51% to 14%.
- Within corporate credit markets, high yield credit continued to
experience spread-widening as the decline in oil prices increased
the probability of energy company defaults. Conversely, investment
grade credit benchmarks finished the month modestly higher.
- The US dollar index continued its trend from 2015, finishing
approximately 1% stronger relative to a broad basket of currencies
in January. The New Zealand
dollar, Chinese renminbi, Japanese yen, and euro all finished
weaker relative to the US dollar.
- Finally, commodities markets - energy commodities specifically
- were down in January, with Brent crude and natural gas
meaningfully weaker month over month. Conversely, precious metals
such as gold and silver bucked the trend and appreciated in
January.
Special opportunities¹: -9.96%
- Our Special Opportunities investments had a difficult month
with positions in the energy, industrials, technology and media
sectors among the worst performers. These positions generally
traded down due to negative industry and broad market sentiment,
rather than company-specific news.
Long/short credit¹: -2.31%
- Losses emanated predominantly from holdings in a Greek bank and
Greek sovereign bonds, as well as long equity index
exposure.
- Offsetting a portion of losses were holdings in a defunct
investment bank, Argentina GDP warrants, credit default swaps in a
natural resources company, and put options on the Saudi riyal.
Long/short equities¹: -2.53%
- The Long/Short Equities strategy posted a negative result for
the month as losses from our managers’ long books outweighed gains
from their short positions.
- For our Generalists, long exposures to technology, media, and
telecommunications, consumer discretionary (particularly
automotive-related companies) and financials were large sources of
losses.
- Conversely, short holdings within those sectors helped recoup
some losses, most notably short positions in healthcare related
companies.
- The sell-off in technology and healthcare equities was
particularly negative for our Sector Specialists, as our healthcare
specialists were down for the month. Long exposure to biotechnology
and healthcare services companies were the primary source of
losses.
- Conversely, our energy-focused managers offset a portion of the
losses, with short positions driving positive performance.
Opportunistic¹: -2.19%
- Losses emanated predominantly from long exposure to single-name
equities, many of which declined despite the absence of
company-specific developments.
- Holdings in a New York-based
biopharmaceutical company detracted as the biotechnology industry
sold off materially. Additional losses stemmed from holdings
in an enterprise software company.
- Long exposure to a Texas-based
retailer proved costly due to the market’s perception of a
weakening customer base, and holdings in a London-based telecommunications company added
to losses.
- Conversely, one manager’s tactical trading in equity futures
and currencies yielded profits.
Macro¹: -0.20%
- The strategy finished the month modestly negative as gains
emanating from exposure to commodities and currencies were offset
by losses stemming from exposure to equities and US
rates.
- A flattening of the oil futures curve, short exposure to
European energy commodities, and short exposure to a variety of
Asian currencies relative to the US dollar – including the Chinese
renminbi and Japanese yen – yielded profits.
- Conversely, US interest rates positions, long exposure to
Japanese equities, and long exposure to European and Indian
financial companies proved costly.
Portfolio hedge¹: +5.58%
- The Portfolio Hedge strategy delivered a positive return during
January.
- Our Short Sellers experienced particular success, benefiting
from the negative performance of equity markets in addition to
generating alpha relative to the equity benchmarks.
- Short positions in the healthcare, technology and consumer
discretionary sectors accounted for the bulk of the gains.
- Our Tail-Risk Opportunities Investments also produced positive
results, as long currency volatility positions – specifically in
the Chinese renminbi – and a position designed to appreciate from a
widening of investment grade credit spreads were large
contributors.
- Conversely, long positions in interest rate volatility and
equity volatility offset a small portion of the gains.
Event driven¹: -3.35%
- The Event Driven strategy experienced losses in January, with
each of our Event Driven managers finishing down for the
month.
- Long credit and equity exposure to energy and financials
companies, along with long equity investments in consumer
companies, were particularly costly to the portfolio.
- Additional losses stemmed from long exposures to the healthcare
sector.
- Conversely, select long positions in the technology, media, and
telecommunications and utilities sectors, along with short
positions in US automotive companies, helped offset some
losses.
Strategy |
Allocation
as of 1 February²
(%) |
Number
of hedge funds as of
1 February² |
Performance by
strategy¹ (%) |
|
|
|
January |
YTD |
Long/short credit |
10 |
2 |
-2.31 |
-2.31 |
Event driven |
14 |
4 |
-3.35 |
-3.35 |
Long/short
equities |
31 |
11 |
-2.53 |
-2.53 |
Opportunistic |
16 |
4 |
-2.19 |
-2.19 |
Macro |
15 |
5 |
-0.20 |
-0.20 |
Portfolio hedge |
8 |
2 |
+5.58 |
+5.58 |
Special opportunities
investments |
6 |
n/a |
-9.96 |
-9.96 |
Total |
100 |
28 |
|
|
¹Effective 31 May 2011,
31 May 2012, 28 February 2013 and 30
September 2015, DAL created separate redemption portfolios
for redeeming shareholders from the EUR (for 2011, 2012, 2013 and
2015), USD (for 2012, 2013 and 2015) and GBP (for 2013 and 2015)
share classes. All information presented herein is for the
Continuing Portfolio only. Strategy returns are presented for AOFL
II, are calculated in USD, are net only of the fees and expenses of
the underlying managers and are gross of the fees of DAL’s
investment manager and investment adviser and the operating
expenses of DAL and AOFL II. The investment adviser implements the
‘Modified Dietz’ methodology for calculating the DAL 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 DAL Portfolio hedge strategy.
²Allocations are presented for the Continuing Portfolio and
reflect the allocations of AOFL II, which are based on 29 January 2016 results and 1 February 2016 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. Prior to
1 January 2016, the Special
opportunities investments strategy was included as part of the
Event driven strategy. Effective 1
January 2016, the Special opportunities investments
allocation became a stand-alone strategy and is no longer a
sub-strategy of the Event driven strategy. Accordingly, total Event
driven performance includes Special opportunities investments
performance for the periods prior to 1
January 2016. These changes do not reflect any changes in
our underlying investment philosophy or manager selection process.
Numbers may not sum to 100% due to rounding.
Manager count reflects the managers in AOFL II. 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. Exposure information is
as of the specific dates. Please see the important information
included in the General Disclaimers and Endnotes section of AOFL
II’s exposure report, which can be found on Aurora’s secure website
at www.aurorallc.com.
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-2902161610-988C_DAL_MPR_2016_January_CC.pdf