TIDMBARS TIDMBARE TIDMBARU
BlackRock Absolute Return Strategies Ltd
Half Yearly Financial Report 30 June 2011
Summary
Structure
BlackRock Absolute Return Strategies Ltd ("BARS", the "Company") was
incorporated in Jersey on 18 March 2008 under the Companies (Jersey) Law 1991
as a limited liability registered closed-ended investment company. The
Company's three classes of shares, US Dollar, Euro and Sterling, were listed on
the London Stock Exchange on 24 April 2008 and commenced unconditional trading
on 29 April 2008.
Investment Objective and Policy (effective from 25 August 2011)
The Company will be managed with the intention of realising all remaining
assets in the Portfolio, in a manner consistent with the principles of prudent
investment management and spread of investment risk, with a view to returning
invested capital to Shareholders in an orderly manner.
Investment Objective and Policy (prior to 25 August 2011)
The Company's investment objective was to generate absolute returns in excess of
the yields on short-term LIBOR securities, while endeavouring to minimise the
corresponding level of volatility. The Company sought to generate these returns
irrespective of the performance of any particular sector of the global capital
markets.
Chairman's Statement
Over the six month period ended 30 June 2011, the net asset value ("NAV") of
the Company's US Dollar Shares, Euro Shares and Sterling Shares increased by
2.8%, 2.9% and 3.0% per share respectively, with the corresponding share prices
rising by 17.5%, 10.7% and 17.2%.
Despite volatility in the broader capital markets, in part caused by
geopolitical turmoil, natural disasters and economic uncertainty, the Company
demonstrated positive NAV performance during the first half of 2011.
Performance was driven by managers across all investment disciplines,
particularly those pursuing relative value and event driven investment
strategies.
Six
months to
30 June
Jan Feb Mar Apr May Jun 2011
% % % % % % %
BARS - GBP (net) 1.66 0.67 0.53 0.40 0.19 -0.50 2.97
BARS - EUR (net) 1.44 0.69 0.52 0.42 0.25 -0.46 2.89
BARS - USD (net) 1.52 0.69 0.53 0.46 0.12 -0.53 2.81
S&P 500 Index (USD)* 2.37 3.43 0.04 2.96 -1.13 -1.67 0.33
FTSE All-Share Index (GBP) -0.53 2.40 -0.81 3.11 -0.72 -0.45 2.96
MSCI World Index (USD)* 2.26 3.50 -0.99 4.25 -2.07 -1.58 5.29
HFRI FOF Conservative Index (USD)* 0.62 0.78 0.31 0.78 -0.51 -1.01 0.33
BofAML GBP 3-Month LIBOR (GBP) 0.06 0.05 0.06 0.07 0.07 0.07 0.38
* Where performance of a USD index is shown with non-USD denominated Fund
classes, a comparison of returns should include consideration of the fact that
the effect of currency exchange rate fluctuations is not included in the
returns for USD indices.
Managed Wind-down of the Company
On 31 May 2011, the Company announced that despite the recent strong net asset
value ("NAV") performance, key investor concerns remained over the wide level
of the share price discount to NAV of each share class. This was due in part to
the relatively small market capitalisation of the Company and the limited
liquidity provided by each share class. For this reason the Board recommended
that the Company should commence a managed wind-down of its portfolio. On 15
July 2011, a shareholder circular was issued setting out the details and giving
notice of the Extraordinary General Meeting and three class meetings at which
approval would be sought from Shareholders for implementation of the proposals
for a managed wind-down of the Company, which comprised:
- amending of the Company's investment objective and policy to commence the
managed wind-down process;
- revising the Company's currency hedging programme to permit the Board to
terminate the programme at its sole discretion; and
- amending the articles of association:
- to permit the compulsory redemption of Shares at the discretion of the Board
until the Company's voluntary liquidation; and
- to permit the Board to suspend the right of conversion between Share classes
at its sole discretion at any time during the course of the managed wind-down
process.
On 25 August 2011 Shareholders approved the proposals, including the amendment
of the investment objective and policy so that the Company is now managed with
the intention of realising all remaining assets in the portfolio, in a manner
consistent with the principles of prudent investment management and spread of
investment risk with a view to returning invested capital to shareholders in an
orderly manner.
Further announcements regarding the progress of the realisation and the
redemption of shares will be made in due course.
Colin Maltby
Chairman
25 August 2011
Interim Management Report and Responsibility Statement
The Chairman's Statement and the Investment Manager's Report give details of
the important events which have occurred during the period to 30 June 2011
and up to the date of this report and their impact on the financial statements.
Principal risks and uncertainties
For the period under review and until 25 August 2011, the date upon which
approval was given to commence a managed wind-down, the principal risks faced
by the Company could be divided into various areas as follows:
- Strategy/performance;
- Regulatory;
- Market;
- Operational;
- Counterparty;
- Manager; and
- Financial.
A detailed explanation of the risks relating to the Company was set out in the
Company's prospectus dated 4 April 2008 and can be found on pages 4 to 30 of
the Securities Note. The Board also reported on the principal risks and
uncertainties faced by the Company on pages 16 and 17 of the annual report and
financial statements for the year ended 31 December 2010. Both documents are
available on the Company's website at www.blackrockinternational.com/bars/
Library/Literature.
In the view of the Board, during the period 1 January 2011 until 25 August 2011
there have not been any changes to the fundamental nature of these risks since
the publication of the prospectus and the latest annual report.
On 15 July 2011 a circular was sent to Shareholders regarding the proposed
managed wind-down of the Company. Set out on page 9 of the circular were the
risks associated with the proposals which were subsequently approved by
Shareholders at the Extraordinary General Meeting and class meetings of the
Euro, Sterling and Dollar shareholders held on 25 August 2011. These included
the managed wind-down of the Company, amendment to the Company's investment
policy and objective, amendment to the Company's currency hedging programme and
amendment to the Company's articles of association. These risks are as follows:
- The value of the Portfolio may fluctuate and Shareholders' investment in the
Company could decline substantially.
- The Company's assets may not be realised at their Net Asset Value, and it is
possible that the Company may not be able to realise some assets at any value.
- In a Managed Wind-down, the value of the Portfolio will be reduced and
concentrated in fewer holdings. In addition, as the Portfolio is concentrated
in fewer holdings, the number of underlying managers in respect of Portfolio
assets may be reduced and the Company's exposure to varying management
strategies may be limited.
- Where the Board determines that the Portfolio no longer retains sufficient
liquidity for the Manager to be able to maintain a full currency hedging programme,
it may be appropriate for the Board to decide to terminate the Company's current
currency hedging arrangements. If terminated, holders of Shares denominated in
currencies other than the US Dollar would be exposed to subsequent fluctuations
in the US Dollar/Sterling/Euro exchange rates.
- The liquidity profile of the Portfolio is such that Shareholders may have to
wait a considerable period of time before receiving all their distributions
pursuant to the Managed Wind-down. During that time the Portfolio may not be
managed in a balanced manner which may adversely affect its performance.
- The details of the Company's anticipated liquidity profile during the Managed
Wind-down as set out in this Circular are indicative only and should not under
any circumstances be considered a prediction, forecast or guarantee of the
Company's actual Portfolio liquidity profile or an indication as to the timing
of distributions to Shareholders pursuant to the proposed Managed Wind-down of
the Portfolio for which the Company is seeking Shareholder approval.
- The maintenance of the Company as an ongoing listed vehicle will entail
administrative, legal and listing costs, which will decrease the amount
ultimately distributed to Shareholders. The listing of the Shares may at some
stage during the Managed Wind-down be suspended and subsequently cancelled, at
which point such Shares will no longer be capable of being traded on the London
Stock Exchange.
- It should also be noted that there may be other matters or factors which
affect the availability, amount or timing of receipt of the proceeds of
realisation of some or all of the Company's investments. In particular, ongoing
redemptions will decrease the size of the Company's assets, thereby increasing
the impact of fixed costs incurred by the Company on the remaining assets. In
determining the size of any distributions, the Directors will take into account
the Company's ongoing running costs, however, should these costs be greater
than expected or should cash receipts for the realisations of investments be
less than expected, this will reduce the amount available for Shareholders in
future distributions.
- Redemptions of Shares will be made at the Directors' sole discretion, as and
when they deem that the Company has sufficient assets available to make a
redemption. Shareholders will therefore have little certainty as to when their
Shares will be redeemed.
Following approval of the special resolution at the Extraordinary General
Meeting and class meetings, the risks and uncertainties detailed above are, in
addition to those risks set out in the prospectus and the 2010 annual report
and financial statements, applicable to the Company for the remainder of the
financial year.
Further information is given in relation to financial instruments with
off-balance sheet risk in note 4 of the notes to the financial statements.
Related party transactions
The Manager and the Investment Manager are regarded as related parties and
details of the investment management and performance fees payable are set out
in note 7. Other related party transactions, including the related party
transactions with the Directors, are set out in note 9.
Directors' responsibility statement
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge and belief that:
- the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with accounting principles
generally accepted in the United States of America; and
- the Interim Management Report together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information required
by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.
The half yearly financial report has not been audited or reviewed by the
Company's Auditors.
The half yearly financial report was approved by the Board on 25 August 2011 and
the above responsibility statement was signed on its behalf by the Chairman.
Colin Maltby
For and on behalf of the Board
25 August 2011
Investment Manager's Report
Investment Review
The period under review was generally positive for absolute return strategies,
despite choppy markets and mixed macroeconomic signals. Global markets
generally benefited from a slow but steady improvement in economic data during
the first quarter, but re-emerging concerns over peripheral Europe and weaker
than expected US economic growth contributed to a sharp downturn in risk assets
as mid-year approached.
The first half of the year contained a menagerie of threatening risks that held
investor confidence largely in check. Early in the year, geopolitical turmoil
erupted throughout the Middle East as popular uprisings upended (or posed
threats to) governments throughout the region, including Tunisia, Egypt, Libya,
and Bahrain, with fears of unknown consequences should disquiet spread
elsewhere in the region. Commodity and energy prices jumped in response,
threatening consumer strength and boosting the cost of producing and shipping
goods. The March earthquake in Japan wrought damage on a massive human and
economic scale, spurring an unprecedented rebuilding effort. In the US, amidst
stubbornly weak housing markets and elevated unemployment, an emphasis on
government budget cuts has emerged with force. In May and June, the market once
again focused its attention on the fiscal problems in Greece, as the European
Central Bank stepped up financial and political efforts to preserve investor
confidence in Greek sovereign debt, and by extension hold back financial
pressures from other heavily indebted countries, such as Portugal, Spain and
Italy, that would be more costly to bail out. While it seems increasingly
likely that some form of debt restructuring is expected for Greece, investors
appear to maintain a gloomy perspective that the turmoil in Greece may only be
a test case for other regions in time. China continues to give mixed signals.
Economic growth continues to be impressive relative to other regions, but
inflationary pressures continue to drive monetary tightening during the quarter
and a deceleration in GDP growth rates seems inevitable at some point, but
there appears to be little agreement as to when and how sharply this will
occur.
Relative Value Review
Convergence strategies offered mixed performance during the period, with early
profits limited by modest losses during the second quarter. Global convertible
bond supply continued its steady decline, with net issuance registering a
US$23.4 billion decline, adding to US$88 billion of accumulated negative net
issuance since 2008, according to Bank of America/Merrill Lynch. Despite
intermittent spikes, the overall level of equity market volatility, as measured
by the VIX index, declined from 17.75 at the beginning of the year to 16.52 as
at 30 June. The environment for arbitrage trading in convertibles was further
impacted by hedged convertible bonds richening versus theoretical value during
the quarter. In the US, bonds were trading 0.27% cheap to theoretical value at
the start of the year and richened to end the quarter at 0.42% rich to theoretical
value. Global convertibles, which were trading 0.06% rich at the start of the quarter,
traded 0.52% rich as of quarter-end. While beneficial for long positions, these
factors also contributed to difficulties on the short side, as certain managers
built short positions in hedged convertibles trading rich relative to
theoretical value, or where events such as acquisitions are anticipated to
potentially weaken in credit quality.
Early on, special situations investments were a notable source of gains for
underlying managers. For example, select German banks tendered for hybrid
securities in January, an undertaking that had previously been prohibited by
regulators due to capital strength considerations. Related securities traded
higher in response. In addition, a new issue from a Swiss bank exhibited robust
performance in secondary market trading, benefiting managers who received
allocations to the strongly subscribed deal. However, late in the period, long
positions came under pressure, with outright (long-only) buyers of convertible
bonds under pressure from widening credit spreads and falling underlying equity
values in some cases. Of note, given strong equity market appreciation in
recent quarters, the delta sensitivity of many convertibles has increased
markedly. Some outright buyers, particularly coming from the fixed income
community, are hesitant to hold names with increasing equity beta, presenting a
source of selling pressure. While this is less of an issue with hedged
convertible positions, it can be more impactful on select special situations
and catalyst driven trades that may exhibit greater net exposures.
Rates based strategies generated relatively steady gains through the period,
benefiting from a number of trading opportunities as yield curves and spreads
oscillated amidst headline driven "risk-on/risk-off" market behaviour. The US
Federal Reserve's purchases of Treasury securities continued to be a source of
opportunity as it contributed to disparities between on-the-run and off-the-run
issues. Managers focused much of their attention on the potential impact of
events such as the end of the current round of quantitative easing in the US
and the events in Japan, which created both opportunities and challenges in the
fixed income space. More recently, US federal budget concerns, weak US job
growth, a negative S&P outlook on US long term debt, growing potential of a
Greek default and the passage of austerity plans, and uncertainty over China's
economic growth, among other factors, were among the issues being weighed by
investors. Resultant investor skittishness, between flights-to-safety or
chasing yield in riskier assets, can lead to opportunities based on shorter
term price aberrations, while these events can also influence longer term
fundamental theses. For example, markets were previously forecasting monetary
tightening (ie, rate increases) in Europe as the European Central Bank pursued
its objective of managing inflation. However, expectations shifted with credit
risks arising across multiple sovereignties, as illustrated by German 5-year
rates declining from 2.67% to 2.28% over the course of the quarter.
While managers have tended to approach these "headline risk" scenarios
cautiously, some have structured trades that may profit under multiple
scenarios, or that may benefit from potential negative developments. For
example, one manager structured basis trades on sovereign bonds in peripheral
Europe, taking advantage of differences in prices between cash bonds and
corresponding credit default swaps. Another manager is balancing a long
position in a long term cash bond against a shorter duration credit protection
(via CDS) on one particularly risky sovereign credit. The cash bonds trade at a
substantial discount to par due to the extreme market pessimism surrounding the
country's economic viability. In the event of a default or restructuring, the
manager believes the current market value is potentially attractive relative to
longer term recovery value. Meanwhile, restructuring could trigger a payout on
the CDS position, resulting in potential gains from both sides of the trade
over time. In the meantime, the cash yield from the bonds helps to mitigate the
carry cost of the CDS protection.
Volatility related strategies generated positive performance for the period
overall, with gains driven largely by early volatility arbitrage trades while
directionally oriented and event driven strategies posted mixed returns.
Implied equity volatility levels, as measured by the VIX Index, began the year
at 17.75% and spiked briefly in late January and late February around turmoil
in the Middle East, before hitting an intra-quarter higher of 29.4% on 16 March
following events in Japan. Implied volatility levels quickly tapered, however,
and ended the half down at 16.52% as at 30 June. Meanwhile, realised volatility
levels rose during the period, with headline developments driving risk-on/
risk-off trading. The 90-day realised volatility level of the S&P 500 Index
increased modestly from 13.50% at the end of the first quarter to 13.73% as at
30 June.
In addition to this ongoing disparity between realised and implied volatility
levels, managers have also targeted the disparity between realised and implied
equity correlation levels. For example, the 6-month realised correlation of
stocks in the S&P 500 Index is 37%, while the implied correlation is 61%.
Managers have targeted this relationship though dispersion related positions
and other trades that expressing a view that implied levels may be too high
relative to realised levels. Elsewhere, managers continue to find opportunities
in the mispricing of individual options. For example, one manager identified an
attractive situation in May; the options of a post-reorganisation packaging
company that was in the midst of being acquired. A buyer of put options was
willing to pay a meaningful premium over the put's theoretical value,
potentially as a hedge against a long equity position, and the manager profited
as the options value normalised relative to associated hedges.
Event Driven Review
Deal activity remained robust for risk arbitrage strategies during the period
with over US$1.2 trillion of global volume. The pace has accelerated relative to
the same period last year; global deal volume is estimated to have surpassed
the US$1 trillion mark in late May, compared to early July in 2010. Amidst this
healthy activity were other signs of optimism for the deal making environment,
including multiple bidding wars over the same target, as well as numerous
situations in which both the potential acquirer and target have traded higher
following a deal announcement. A notable example of the latter phenomenon was
fashion conglomerate V.F. Corporation, whose stock rose roughly 10% when it
announced a US$1.8 billion purchase of shoemaker Timberland Co. in early June.
Similarly, when Energy Transfer Equity, L.P. announced its intention to
purchase pipeline operator Southern Union Co. for over US$4 billion in mid-June,
shares in both companies rallied on the news. Shares of Southern Union
continued to rally into July, as it subsequently received a superior bid from
Williams Companies, Inc., inciting a bidding war between the latter and Energy
Transfer Equity that extended into July.
Energy and power industries were once again a source of notable deals,
including Progress Energy Inc. pursuing Duke Energy Corp. for over US$13.5
billion, Ensco PLC's US$7.2 billion offer for Pride International Inc., and Alpha
Natural Resources Inc.'s US$7.4 billion bid for Massey Energy Co. Elsewhere, the
long running saga in the rental car space involving Dollar Thrifty Automotive Group,
Inc. carried on during the second quarter. Its stock jumped from roughly US$70/
share to over US$80/share in early May on the news that Hertz Global Holdings,
Inc. would offer US$72/share, surpassing the prior bid from Avis Budget Group,
Inc. The market appeared to be anticipating that Avis would counter with a
higher bid, particularly as Dollar Thrifty recommended that shareholders reject
the offer from Hertz. The news in June that Avis would pursue a purchase of
Avis Europe was met with a drop in Dollar Thrifty's share price back to US$72 as
it appeared Avis had shifted its focus.
The largest deals announced during the first six months were predominantly
strategically motivated, carrying on the trend of corporations taking advantage of
healthy cash balances and an improving economic environment to consolidate
market shares and operations heading into the next business cycle. While these
healthy levels of strategic activity proved beneficial to risk arbitrage
strategies, with most managers in the space posting positive year-to-date
performance, gains for the strategy were somewhat limited by low risk spreads.
Across a basket of prominent deals tracked by Barclays Capital in the first
quarter, the average annual spread on 57 outstanding deals was -2.2% as of 1
April 2011, implying that, on the whole, most deals are expected to be
completed, while in some cases investors are expecting sweetened offers. Lower
annualised spreads are a product of perceived low risk of deal breaks,
heightened expectations for multiple bidders, and lengthened average deal
durations resulting in part from the preponderance of strategic deals that can
have greater regulatory complexities.
The themes that have characterised distressed strategies for many months
persisted throughout the period, with performance largely driven by market
conditions and position specific developments related to existing portfolio
holdings, while new default activity remained negligible. During the period, US
high yield bonds and leveraged loans combined for less than US$2.5 billion worth
of defaults in aggregate across 10 issuers. This compares to 22 companies and
US$7.7 billion of defaults for the same period in 2010. According to JP Morgan,
the high yield and leveraged loan default rates finished the second quarter at
0.8% and 1.0%, respectively, both well below their long term averages of 4.3%
and 3.9%. JP Morgan forecasts that with strong market technicals and economic
conditions, default rates may remain below 2% for high yield debt and below 3%
for loans through 2012.
In this environment, gains for distressed strategies were driven by existing
portfolio holdings, notably in the financials space. The Lehman Brothers estate
was a notable winner as it was announced in early June that various creditor
groups representing $100 billion in claims in the Lehman Brothers bankruptcy
have reached a settlement on a payout plan. While recoveries vary across claim
types and Lehman entities, senior bondholders expect to receive 21.1
cents on the dollar, though the plan still faces some dissenters
and would be subject to approval by the US bankruptcy court in an August
hearing. European banks were also a source of gains, including Commerzbank AG
following recapitalisation activity, Bayerische Landesbank and Dexia on
improved capital strength leading to expectations of restarting dividend
payments. Select managers continued to identify off-the-run opportunities
outside of corporate securities, including residential and commercial real
estate paper and other asset backed securities. In another longstanding
liquidation situation, claims on Nortel Networks Inc. benefited from approval
by bankruptcy judges in the US and Canada for the company to sell a portfolio
of 6,000 patents for US$4.5 billion following a quarter end auction. Finally,
though certain more liquid distressed and post reorganisation equity holdings
saw selling pressure in mid-March, events in Japan appeared to have limited
direct impact on distressed strategies, which tended to have little to no
exposure in the region.
Fundamental Long/Short Review
Fundamental long/short equity strategy performance was generally profitable in
the first quarter, and collectively posted modest gains for the second quarter,
despite a market correction in May and June. Early appreciation was helped by a
broader backdrop of equity gains across many major markets. Corporate
fundamentals continued to improve throughout the first quarter, adding to
investor optimism that the economic recovery is gaining traction. However,
later performance cast a gloomier note, characterised by an ongoing battle
between two forces; strong earnings and corporate fundamentals on the one side,
and headline risks and concerns over the future of the economic recovery on the
other. The optimism of the former factor faded as negative headlines began
hitting markets in early May, as mediocre employment reports hamstrung US
markets. From there, a negative outlook for US sovereign creditworthiness and
the emergence of a political battle over the debt ceiling, the re-emergence of
sovereign credit issues in the eurozone, and concern over an economic slowdown
in China all contributed to a prolonged painful period that saw markets broadly
drop through most of June, before closing the quarter with a strong rally.
Nonetheless, corporate activity remained an important source of opportunity for
across many industries. With high corporate cash levels and prominent strategic
activity, managers are seeking those firms that may be well positioned to add
value through catalysts such as new capital investment or acquisitions, or
non-core divestments and restructurings. For example, the motivations behind AT
&T's proposed acquisition of T-Mobile USA from Deutsche Telekom include
potential synergistic cost savings as well as an upgrade of AT&T's
infrastructure to meet increasing data transmission needs arising from the
proliferation of smart phones. Elsewhere, Williams Companies, Inc. has
undertaken a strategic review of options that may unlock value, including a
recent announcement that it would separate its large natural gas exploration
and production portfolio from its pipeline assets. Other sources of opportunity
have been driven by developments in the solar industry, where short positioning
benefited performance as valuations broadly declined in the second quarter. The
nuclear crisis in Japan had boosted momentum for solar companies, but an
expected production glut and deterioration of underlying fundamentals
contributed to the subsequent decline.
Fundamental long/short credit strategies largely reported positive results for
the first half of the year, with gains throughout most of the period followed
by somewhat weaker results in June. The impact of market factors was once again
biased toward long positions. Credit premiums generally followed investor
confidence levels, with strong high yield bond performance generally
decelerating throughout the second quarter on growing evidence of a slowing US
economic recovery, apprehension over the worries about Greece and the broader
European financial system, and concern that the world current (and seemingly
sole) economic engine, China, may have difficulty maintaining their pace of
growth. Nonetheless, appetite for new credit issuance remained largely healthy.
Demand for new bonds was supported by cash flows into credit focused mutual
funds, with positive monthly flows for high yield bond and institutional loan
funds throughout the first six months with the exception of a brief outflows
for high yield funds in mid-March in reaction to the Japan earthquake, and a
much stronger outflow in mid-June.
Amidst this healthy market backdrop, idiosyncratic credit events have been
robust, with high yield credit upgrades outpacing downgrades for the period.
Meanwhile, companies have been aggressively taking advantage of accommodative
market conditions to restructure balance sheets. More than half of all high
yield bonds currently outstanding have been originated in the post-2008 era,
while only 20% were originated during the previous issuance boom years of 2006
and 2007. Targeting such refinancings, or working with companies' management to
effectuate such activity, can be a strong source of opportunity for credit
focused managers on the long side. However, with the strong demand for debt,
and relatively few defaults in recent quarters, some managers are becoming
concerned that markets are once again growing complacent. As high yield bonds
reached all time low yields in May (6.71% vs. 6.74% in November 2004), a number
of traditionally long biased managers have over time executed notable shifts in
their net exposure in an effort to reduce their susceptibility to growing
downside risks in credit and sovereign markets, with a focus on directional
short positions and careful hedging against their long book, including the use
of tail risk hedge exposures. Additionally, within their long books, some
managers are seeking out catalyst driven special situation positions whose
ultimate valuations are less sensitive to external events and more dependent on
more diversifiable issuer specific developments. In part as a result of this
more conservative positioning, managers as a whole performed well relative to
long only portfolios in June, when high yield bonds and loans notched their
worst performance thus far in 2011, and as uncertainty over Greece again
peaked.
Direct Sourcing Review
Direct Sourcing activity generally posted gains during the period, with steady
gains throughout April generally followed by mixed performance in May and June.
In general, mark-to-market performance on a number of existing credit based
holdings fluctuated to a certain degree as credit premiums narrowed and widened
as the broader market participated in a "risk-on/risk-off" environment.
However, performance from more idiosyncratic assets, as well as income
generated from manager portfolios, helped to cushion overall results from the
resulting price swings.
While performance was relatively modest for the period, dislocations driving
many of direct sourcing opportunities continued to be prominent. Bank
divestitures, small and middle market lending, and transportation asset
financing are among segments in which our underlying managers have been
collectively active in identifying attractive, highly idiosyncratic deals.
Commercial real estate asset activity has also been notable, particularly in
relatively smaller deals (ie, US$10-20 million) in off-the-run markets. One
manager was able to close 180,000 square feet of US Midwestern retail property
at a 15-16% cap rate, noting by way of comparison that a larger property sale
in a metropolitan area had recently been executed at a 4% cap rate. The
prospects for further opportunity in this space appear to be favourable, with
one manager estimating a refinancing shortfall of over US$600 billion in US and
European commercial real estate debt through 2013.
In other activity, one manager has been working to originate a third party loan
for purchasing a tanker backed by a four year lease with a prominent shipping
company. The loan features a 3-year maturity, 12% interest rate, and 5% upfront
and exit fees. Another acquired a defaulted mortgage on a suburban office
complex for 35% of its face value, with a projected IRR of over 15% if the
manager can increase occupancy and reposition the property for sale. Yet
another noted an investment in the debt of a casino gaming company at US$0.93/
dollar and a high teens yield-to-maturity. While junior in the capital
structure, the issue is slated to mature in late 2012, ahead of senior debt,
giving it technical seniority. The company recently applied to regulators to
expand its operations and, if approved, earnings are estimated to increase by
roughly one third, in which case the manager anticipates that the junior issue
may be taken out at par. If not approved, the junior debt is anticipated to be
the fulcrum security in a restructuring. In the meantime, the company's debt
coverage remains strong and the debt pays an attractive income yield.
Mark Woolley
BlackRock Alternative Advisors
25 August 2011
Performance and Contribution to Return
Financial Summary 30 June 2011
Share Class
US$ EUR GBP
NAV per Share $10.44 EUR10.16 GBP10.18
Total Net Assets $7,156,971 EUR16,984,992 GBP105,720,960
Mid-Market Share Price $9.45 EUR9.17 GBP9.22
Discount to NAV 9.48% 9.74% 9.43%
Monthly Performance
2011
%
Jan Feb March April May June 6 months
US$ 1.52 0.69 0.53 0.46 0.12 -0.53 2.81
EUR 1.44 0.69 0.52 0.42 0.25 -0.46 2.89
GBP 1.66 0.67 0.53 0.40 0.19 -0.50 2.97
All performance statistics are net of management fees and other expenses.
US Dollar contribution to return by primary discipline - six months to 30 June
2011
Year to date
Relative value 1.47%
Event driven 0.96%
Fundamental long/short 0.28%
Direct sourcing 0.10%
Source: BlackRock.
Sterling contribution to return by primary discipline - six months to 30 June
2011
Year to date
Relative value 1.54%
Event driven 1.00%
Fundamental long/short 0.32%
Direct sourcing 0.10%
Source: BlackRock.
Euro contribution to return by primary discipline - six months to 30 June 2011
Year to date
Relative value 1.50%
Event driven 0.99%
Fundamental long/short 0.30%
Direct sourcing 0.10%
Source: BlackRock.
Asset Allocation
Asset Allocation 30 June 2011
Discipline and Strategy %
Relative Value
Capital Structure 1.6
Convergence 10.5
Rates 7.7
Statistical 3.4
Volatility 3.0
----
26.2
----
Event Driven
Distressed 16.3
Mergers/Acquisitions 5.8
Corporate Actions 5.5
----
27.5
----
Fundamental Long/Short
Equity Selection 17.2
Equity Active Value 0.4
Credit 24.0
----
41.5
----
Direct Sourcing
Lending 1.7
Equity Financing 2.4
Real Estate 0.3
Insurance 0.1
----
4.4
----
Discipline allocations may not sum to 100% due to residual allocations to other
disciplines such as Directional Trading as well as rounding differences.
Geographic
%
North America 57.3
Western Europe 23.8
Developed Asia 9.5
Emerging Markets 9.4
Statistical Summary
Aggregate Leverage of Underlying Managers 1.7x
Gross US Dollar Long Exposure 167%
Gross US Dollar Short Exposure -105%
Number of Investment Programs 41
% by Top 15 Investment Programs 52.0%
Statement of Assets and Liabilities
30 June 2011
30 June 30 June 31 December
2011 2010 2010
US$ US$ US$
Notes (unaudited) (unaudited) (audited)
Assets
Investments in private
investment funds, at fair
value (cost 30.06.11
$169,173,523; 30.06.10:
$175,611,257; 31.12.10:
$165,928,648) 3 188,126,590 179,702,605 180,218,133
Unrealised gain on forward
foreign currency exchange
contracts 813,315 62,868 2,904,682
Receivable on realised
forward foreign currency
exchange contracts 5 - 961,491 -
Cash and cash equivalents 6,134,805 3,211,355 4,696,893
Due from private investment
funds 7,924,304 15,549,096 12,117,057
Investments in private
investment funds made in
advance - - 1,220,000
Other assets 73,549 36,797 79,463
----------- ----------- -----------
203,072,563 199,524,212 201,236,228
----------- ----------- -----------
Liabilities
Unrealised loss on forward
foreign currency exchange
contracts - 1,308,256 -
Payable on realised forward
foreign currency exchange
contracts - 2,592,478 -
Management fees payable 7 735,026 718,075 739,004
Performance fees payable 7 601,241 - 489,961
Accounts payable and
accrued expenses 233,832 203,189 236,140
Other liabilities - 17,027 -
----------- ----------- -----------
1,570,099 4,839,025 1,465,105
----------- ----------- -----------
Net assets 201,502,464 194,685,187 199,771,123
=========== =========== ===========
Statement of Operations
for the six months ended 30 June 2011
30 June 30 June 31 December
2011 2010 2010
US$ US$ US$
Notes (unaudited) (unaudited) (audited)
Income
Interest 977 1,145 1,831
---------- ---------- ----------
Expenses
Management fees 7 1,440,520 1,487,669 2,912,081
Performance fees 7 601,241 - 489,961
Administration and custody
fees 8 50,732 52,331 102,551
Other professional fees 261,724 235,108 545,147
Interest - 1,538 1,538
---------- ---------- ----------
2,354,217 1,776,646 4,051,278
---------- ---------- ----------
Net investment loss (2,353,240) (1,775,501) (4,049,447)
---------- ---------- ----------
Net realised gain (loss) on:
Investments in private
investment funds 1,509,982 516,254 2,157,075
Forward foreign currency
exchange contracts 8,491,656 (14,594,748) (10,047,428)
---------- ---------- ----------
10,001,638 (14,078,494) (7,890,353)
---------- ---------- ----------
Net change in unrealised
gain (loss) on:
Investments in private
investment funds 4,663,582 7,166,277 17,364,414
Forward foreign currency
exchange contracts (2,091,367) (1,526,250) 2,623,820
---------- ---------- ----------
2,572,215 5,640,027 19,988,234
---------- ---------- ----------
Increase (decrease) in net
assets resulting from
operations 10,220,613 (10,213,968) 8,048,434
========== ========== ==========
Statement of Changes in Net Assets
for the six months ended 30 June 2011
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
US$ US$ US$
(unaudited) (unaudited) (audited)
Net assets, beginning of period 199,771,123 204,899,155 204,899,155
----------- ----------- -----------
Increase (decrease) in net
assets:
From operations
Net investment loss (2,353,240) (1,775,501) (4,049,447)
Net realised gain on investments
in private investment funds 1,509,982 516,254 2,157,075
Net realised gain (loss) on
forward foreign currency exchange
contracts 8,491,656 (14,594,748) (10,047,428)
Net change in unrealised gain
(loss) on investments in private
investment funds 4,663,582 7,166,277 17,364,414
Net change in unrealised gain
(loss) on forward foreign
currency exchange contracts (2,091,367) (1,526,250) 2,623,820
----------- ----------- -----------
10,220,613 (10,213,968) 8,048,434
----------- ----------- -----------
From capital transactions
Conversion to 12,155 (30.06.10:
112,416; 31.12.10: 1,906,859) US
Dollar denominated shares 126,876 1,047,608 18,860,618
Conversion to 62,112 (30.06.10:
123,731; 31.12.10: 123,874) Euro
denominated shares 891,305 1,562,650 1,564,534
Conversion to 977,783 (30.06.10:
264,559; 31.12.10: 1,341,712)
Sterling denominated shares 15,927,107 3,774,357 20,014,677
Conversion of 1,549,353
(30.06.10; 235,813 31.12.10:
1,731,923) US Dollar denominated
shares (16,163,703) (2,245,648) (17,097,424)
Conversion of 54,467 (30.06.10:
243,036; 31.12.10: 515,806) Euro
denominated shares (781,585) (3,068,692) (6,436,915)
Conversion of nil (30.06.10:
73,254; 31.12.10: 1,115,340)
Sterling denominated shares - (1,070,275) (16,905,490)
Buyback of 116,976 (30.06.10: nil;
31.12.10: 165,505) US Dollar
denominated shares (1,021,795) - (1,443,763)
Buyback of 87,611 (30.06.10: nil;
31.12.10: 164,178) Euro
denominated shares (1,002,932) - (1,753,868)
Buyback of 495,731 (30.06.10: nil;
31.12.10: 816,045) Sterling
denominated shares (6,464,545) - (9,978,835)
----------- ----------- -----------
(8,489,272) - (13,176,466)
----------- ----------- -----------
Net assets, end of period 201,502,464 194,685,187 199,771,123
=========== =========== ===========
Statement of Cash Flows
for the six months ended 30 June 2011
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2011 2010 2010
US$ US$ US$
(unaudited) (unaudited) (audited)
Cash provided by (used in):
Operating activities
Increase (decrease) in net assets
resulting from operations 10,220,613 (10,213,968) 8,048,434
Adjustments to reconcile increase
(decrease) in net assets
resulting from operations to cash
provided by (used in) operating
activities:
Net realised gain on investments
in private investment funds (1,509,982) (516,254) (2,157,075)
Net realised loss on forward
foreign currency exchange
contracts - 14,594,748 -
Net change in unrealised gain on
investments in private investment
funds (4,663,582) (7,166,277) (17,364,414)
Net change in unrealised (gain)
loss on forward foreign currency
exchange contracts 2,091,367 1,526,250 (2,623,820)
Purchases of investments in
private investment funds (14,982,920) (4,545,595) (18,732,622)
Sales of investments in private
investment funds 18,660,780 16,373,253 44,095,749
Proceeds from forward foreign
currency exchange contracts - 1,061,693 -
Decrease (increase) in receivable
on realised forward foreign
currency exchange contracts - - 1,061,693
Payments on forward foreign
currency exchange contracts - (13,620,791) -
Decrease (increase) in other
assets 5,914 (8,619) (51,285)
(Decrease) increase in payable on
realised forward foreign currency
exchange contracts - - (657,030)
Decrease in management fees
payable (3,978) (28,182) (7,253)
Increase in performance fees
payable 111,280 - 489,961
Decrease in accounts payable and
accrued expenses (2,308) (47,056) (14,105)
Increase in other liabilities - 17,027 -
---------- ---------- ----------
Cash provided by operating
activities 9,927,184 (2,573,771) 12,088,233
---------- ---------- ----------
Financing activities
Payments on redemption of Shares - (1,513,658) (1,513,658)
Payments on buy backs of Shares (8,489,272) - (13,176,466)
---------- ---------- ----------
Cash used in financing activities (8,489,272) (1,513,658) (14,690,124)
---------- ---------- ----------
Increase (decrease) in cash and
cash equivalents 1,437,912 (4,087,429) (2,601,891)
---------- ---------- ----------
Cash and cash equivalents
Beginning of period 4,696,893 7,298,784 7,298,784
---------- ---------- ----------
End of period 6,134,805 3,211,355 4,696,893
---------- ---------- ----------
Supplemental disclosures of cash
flow information
Cash paid during the period for
interest - 2,340 2,340
========== ========== ==========
Non-cash transactions:
Conversion to US Dollar, Euro,
and Sterling denominated shares 16,945,288 6,384,615 40,439,829
Conversion of US Dollar, Euro,
and Sterling denominated shares (16,945,288) (6,384,615) (40,439,829)
---------- ---------- ----------
In-kind purchases of investments 78,502 19,336,152 25,293,275
In-kind sales of investments (78,502) (19,336,152) (25,293,275)
---------- ---------- ----------
Financial Highlights
for the six months ended 30 June 2011
6 months ended 6 months ended Year ended
30 June 2011 30 June 2010 31 December 2010
Share Class Share Class Share Class
(unaudited) (unaudited) (audited)
$ EUR GBP $ EUR GBP $ EUR GBP
Per share
operating
performance:
Net asset
value,
beginning of
period 10.16 9.87 9.89 9.32 9.04 9.04 9.32 9.04 9.04
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from
investment
operations
Net
investment
loss (0.13) (0.11) (0.13) (0.08) (0.09) (0.09) (0.19) (0.20) (0.21)
Net realised
and
unrealised
gain on
investments
and foreign
exchange
contracts 0.41 0.40 0.42 0.35 0.35 0.36 1.03 1.03 1.06
----- ----- ----- ----- ----- ----- ----- ----- -----
Total from
investment
operations 0.28 0.29 0.29 0.27 0.26 0.27 0.84 0.83 0.85
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset
value, end
of period 10.44 10.16 10.18 9.59 9.30 9.31 10.16 9.87 9.89
===== ===== ===== ==== ==== ==== ===== ==== ====
Total return*
Before
management
fees 3.85% 3.87% 4.00% 3.60% 3.69% 3.79% 10.63% 10.91% 11.20%
Management
fees (0.74%) (0.70%) (0.72%) (0.73%) (0.79%) (0.75%) (1.47%) (1.49%) (1.48%)
Performance
fees (0.30%) (0.28%) (0.31%) - - - (0.17%) (0.20%) (0.27%)
----- ----- ----- ----- ----- ----- ----- ----- -----
2.81% 2.89% 2.97% 2.87% 2.90% 3.04% 8.99% 9.22% 9.45%
----- ----- ----- ----- ----- ----- ----- ----- -----
Ratios/
supplemental
data**:
Net assets,
end of
period 7,156,971 16,984,992 105,720,960 21,154,030 20,360,466 99,445,317 23,763,087 17,298,128 97,908,089
--------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of
expenses
to
average
net
assets
Before
management
fees 0.32% 0.32% 0.32% 0.28% 0.28% 0.28% 0.33% 0.33% 0.33%
Management
fees 1.47% 1.39% 1.44% 1.46% 1.58% 1.51% 1.47% 1.50% 1.48%
Performance
fees 0.45% 0.27% 0.29% - - - 0.19% 0.18% 0.27%
----- ----- ----- ----- ----- ----- ----- ----- -----
2.24% 1.98% 2.05% 1.74% 1.86% 1.79% 1.99% 2.01% 2.08%
===== ===== ===== ===== ===== ===== ===== ===== =====
Ratio of net
investment
loss to
average net
assets
Before
management
fees (0.32%) (0.32%) (0.32%) (0.28%) (0.28%) (0.28%) (0.33%) (0.33%) (0.33%)
Management
fees (1.47%) (1.39%) (1.44%) (1.46%) (1.58%) (1.51%) (1.47%) (1.50%) (1.48%)
Performance
fees (0.45%) (0.27%) (0.29%) - - - (0.19%) (0.18%) (0.27%)
----- ----- ----- ----- ----- ----- ----- ----- -----
(2.24%) (1.98%) (2.05%) (1.74%) (1.86%) (1.79%) (1.99%) (2.01%) (2.08%)
===== ===== ===== ===== ===== ===== ===== ===== =====
* Total return is calculated for each class of shares.
An individual shareholder's return may vary from this return due to timing of
investments.
** The ratios have been calculated for each class as a whole. For the purpose
of calculating these ratios, average net assets are calculated before
period-end shareholder redemptions, if any.
Notes to Financial Statements
1. The Company
BlackRock Absolute Return Strategies Ltd (the "Company") is a limited liability
registered closed ended investment company incorporated in Jersey on 18 March
2008. The Company's Shares were listed on the London Stock Exchange on 24 April
2008 and commenced unconditional trading on 29 April 2008. With effect from 1
January 2009, under the new taxation regime that became effective in Jersey,
the Company's tax status changed from that of an exempt company, whereby the
Company's liability to Jersey taxation was generally limited to the exempt
company fee of GBP600 per year to a zero tax rate company. Taxes relating to
local income, profits and capital gains are not levied on the Company.
The Company has been established with an unlimited life and its Board of
Directors is independent of the Investment Manager.
Prior to 25 August 2011 the Company's investment objective was to generate
absolute returns in excess of the yields on short-term LIBOR securities, while
endeavouring to minimise the corresponding level of volatility. The Company
sought to generate these returns irrespective of the performance of any
particular sector of the global capital markets.
In accordance with the Circular to Shareholders dated 15 July 2011 and the
resolution passed at the subsequent Extraordinary General Meeting and class
meetings of the Euro, Sterling and Dollar shareholders held on 25 August 2011,
the Company has commenced a managed wind-down in order to enable Shareholders
to realise in an orderly manner their investment in the Company.
The revised investment objective and policy approved by shareholders at the
meetings held on 25 August 2011 is as follows:
The Company will be managed with the intention of realising all remaining
assets in the Portfolio, in a manner consistent with the principles of prudent
investment management and spread of investment risk, with a view to returning
invested capital to the Shareholders in an orderly manner.
BlackRock Financial Management, Inc. ("BFM"), a Delaware corporation, is the
Company's Investment Manager and BlackRock (Channel Islands) Limited ("BCI") is
the Manager. BCI is responsible for implementing the Company's investment
policies and objectives as set forth by the Board of Directors. BlackRock
Alternative Advisors ("BAA"), a business unit within BFM, is responsible for
the Company's investment management decisions, including identifying,
evaluating, and monitoring independent investment managers, as well as
determining the allocation of the Company's assets among these managers. BFM is
registered as an investment advisor with the United States Securities and
Exchange Commission and as a commodity pool operator with the United States
Commodity Futures Trading Commission. Note 9 gives further details of
transactions with these related parties.
2. Significant accounting policies
The accompanying financial statements have been prepared on a going concern
basis in accordance with accounting principles generally accepted in the United
States of America ("US GAAP"), as discussed in the Statement of Directors'
Responsibilities. On 1 July 2009, the Financial Accounting Standards Board
("FASB") launched the FASB Accounting Codification (the "Codification") as the
single source of authoritative non-governmental US GAAP. All existing
accounting standards are superseded by the single source codification for
interim and annual periods ending after 15 September 2009. The financial
statements reflect the following significant accounting policies:
Cash and cash equivalents
Cash and cash equivalents include investments with an original maturity of
three months or less. Cash and cash equivalents include all cash which is not
under the direction of any independent investment manager. All cash is held
with the Sub-Administrator, (Note 8), as custodian of the Company.
Private investment funds
The Company's investments in private investment funds, valued at US$188,126,590
(30 June 2010: US$179,702,605; 31 December 2010: US$180,218,133) (93.36% (30
June 2010: 92.30%; 31 December 2010: 90.21%) of net assets), are stated at fair
value, which has been estimated by BAA in the absence of readily ascertainable
market values. These fair values are based primarily on the net asset value and
other financial information provided by the management of each underlying
private investment fund and are reflected net of any accrued management and
incentive fees due to underlying managers as required by each private
investment fund's respective operating agreement. Private investment fund net
asset values are generally provided monthly but may also be provided quarterly.
The underlying investments of each private investment fund are accounted for at
fair value as described in the private investment fund's financial statements.
The fair value of certain investments may be estimated by underlying managers
in the absence of observable market data. Due to the inherent uncertainty of
these estimates, these values may differ from the values that would have been
used had a ready market for these investments existed and the differences could
be material. In addition, the calculated fair value of certain investments,
including restricted or illiquid securities, may differ from the values that
would have been used had a ready market existed. Due to the nature of these
instruments, an active resale market may not be readily available and prices
obtained on the date of sale may be materially different than the value
recorded by the private investment funds.
If the reported net asset value of a private investment fund is not available
or BAA determines, based on its own due diligence and investment monitoring
procedures, that the reported net asset value of any private investment fund is
not representative of fair value, and the difference between fair value and the
reported value is material, BAA shall estimate the fair value of the private
investment funds in good faith. For the periods ended 30 June 2011, 30 June
2010 and 31 December 2010, no such fair value adjustments were recorded.
Investment transactions are accounted for on a trade date basis. Realised gains
and losses on investment transactions are determined using average cost. Gains
and losses from investments in private investment funds, which are net of all
fees and allocations to the investment advisors of the funds, are reflected as
a net gain or (loss) on investments in the statement of operations.
Fair value of financial instruments
The fair value of the Company's assets and liabilities which qualify as
financial instruments under Accounting Standards Codification ("ASC") 825
Financial Instruments approximates the carrying amounts presented in the
statement of assets and liabilities.
Forward foreign currency exchange contracts
The Company enters into forward foreign currency exchange contracts for the
purchase or sale of a specific foreign currency at a fixed price on a future
date for hedging purposes. Risks may arise upon entering into these contracts
from the potential inability of the counterparty to meet the terms of the
contracts. The gain or loss arising on the foreign currency exchange contracts
is recorded for financial statement purposes as unrealised until the contract
settlement date. Upon maturity or early settlement of the contracts, any
applicable gain or loss is recorded as realised for financial statement
purposes.
Foreign currency translation
The Company's reporting currency is United States dollars. Assets and
liabilities originating in non-United States dollar denominated currencies are
translated into United States dollars at the appropriate rates of exchange in
effect at the date of the financial statements. Income and expense transactions
originated in non-United States dollar denominated currencies have been
translated into United States dollars at the prevailing exchange rates on the
date of the transaction.
The Company does not isolate that portion of the operating results arising from
changes in foreign currency exchange rates from the results arising from
changes in market prices of investments held. Such fluctuations are included
within the net gains or losses on investments in the statement of operations.
Use of estimates
The preparation of financial statements in accordance with US GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Going concern
The Directors are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
For this reason, they continue to adopt the going concern basis in preparing
the financial statements. The Company is able to meet all of its liabilities
from its assets and the ongoing expenses are approximately 2.2% (2010: 2.0%) of
the net assets.
Following the approval by Shareholders of the managed wind-down of the Company
on 25 August 2011 the Company will be managed with the intention of realising
all remaining assets in the portfolio.
Comparative figures
Certain of the prior year figures have been reclassified to conform with the
current year's presentation.
New accounting pronouncements
On 21 January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No 2010-06 which provides amendments to ASC
Subtopic 820-10, Fair Value Measurements and Disclosures. This guidance
requires new fair value disclosures, and also clarifies existing fair value
disclosures. The new disclosures relate to the transfers in and out of Level 1
and Level 2 investments, and disclosures about purchases, sales, issuances, and
settlements in the rollforward of activity in Level 3 fair value measurements.
The guidance also clarifies existing disclosures regarding the level of
disaggregation, and disclosures about inputs and valuation techniques. The new
disclosures and clarifications of existing disclosures are effective for annual
periods beginning after 15 December 2009, except for the disclosures about
purchases, sales, issuances, and settlements in the rollforward of activity in
Level 3 fair value measurements, which are effective for fiscal years beginning
after 15 December 2010. As the guidance is limited to enhanced disclosures, the
adoption did not have a material impact on the financial statements of the
Company.
Income taxes
The Company determines whether a tax position of the Company is more likely
than not to be sustained upon examination by the applicable taxing authority,
including resolution of any related appeals or litigation processes, based on
the technical merits of the position. The tax impact to be recognised is
measured as the largest amount that is greater than 50% likely of being
realised upon ultimate settlement which could result in the Company recording a
tax liability that would reduce net assets. The Company invested directly and
indirectly in various jurisdictions and is therefore subject to varying
policies and statutory time limitations with respect to examination of tax
positions. The Company has reviewed its tax positions and believes it is more
likely than not that they will be sustained upon examination.
3. Investments
As at 30 June 2011, the Company held investments in private investment funds
with a total fair value of US$188,126,590 (31 December 2010: US$180,218,133),
(93.36% of net assets (31 December 2010: 90.21%)). No investments in private
investment funds held by the Company exceeded 5% of the Company's net assets at
30 June 2011 or 31 December 2010. Summary information reflecting the Company's
investments in private investment funds as at 30 June 2010 is detailed below.
Investments held by the Company which exceed 5% of net assets are individually
identified, while smaller investments in other funds are aggregated. The Company
is not able to obtain complete investment holding details on each of the private
investment funds held within the Company's portfolio in order to determine whether
the Company's proportional share of any investments held by the private investment
fund exceeds 5% of the net assets of the Company at the end of each period.
30 June 2010 % of Primary
Fair Value Company's Primary Geographic Redemptions
Investment US$ Net Assets Disciplines Location* Permitted
North
America,
Western
Citadel Europe,
Kensington Emerging
Global Markets,
Strategies Relative Developed
Fund Ltd** 10,190,017 5.23 Value Asia Quarterly
Other funds 169,512,588 87.07
----------- -----
Total 179,702,605 92.30
=========== =====
* Refers to the primary geographic locations of the investments held by the
private investment fund.
** Investment made through a master fund managed by BlackRock or its affiliates
as discussed in Note 9.
Geographical allocation as a percentage of the Company's net assets at 30 June
2011 comprised 53.5% (30 June 2010: 59.6%; 31 December 2010: 54.2%) allocated
to North America, 22.2% (30 June 2010: 16.4%; 31 December 2010: 18.9%) to
Western Europe, 8.9% (30 June 2010: 7.4%: 31 December 2010: 7.9%) to Developed
Asia, and 8.8% (30 June 2010: 9.0%; 31 December 2010: 9.1%) to Emerging
Markets.
The agreements relating to investments in private investment funds provide for
compensation to the investment managers or general partners in the form of
management fees generally ranging from 0% to 2% per annum of net assets or
partners' capital and incentive fees or allocations generally ranging from 0%
to 20% of net profits earned. The private investment funds' management fees and
incentive fees or allocations are reflected in the increase (decrease) in net
assets resulting from operations in the statement of operations.
ASC 820, Fair Value Measurements and Disclosures ("ASC 820") (formerly SFAS
157), provides a framework for measuring fair value and requires specific
disclosures about financial instruments. ASC 820 permits the Company, as a
practical expedient, to estimate the fair value of a private investment fund
based on the net asset value per share or its' equivalent if the net asset
value of the private investment fund is calculated in a manner consistent with
the measurement principles of ASC Topic 946, Investment Companies - Financial
Services. The Company uses the practical expedient to estimate fair value of
all private investment funds. In addition, ASC 820 includes a hierarchy that
classifies inputs employed to determine fair value. Investments measured and
reported at fair value are classified and disclosed in one of the following
categories:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices in markets that are not considered to be active for
identical assets or liabilities, quoted prices in active markets for similar
assets or liabilities and inputs other than quoted prices that are directly
observable or indirectly through corroboration with observable market data. If
a reporting entity has the ability to redeem its investment with the private
investment fund at the net asset value per share (or its equivalent) at the
measurement date or within the near term and there are no other liquidity
restrictions, the Company's investment in the private investment fund shall be
categorised as a Level 2;
Level 3 - Inputs that are both significant to the fair value measurement and
unobservable, including investment specific inputs that are not derived from
market data and inputs that cannot be corroborated by market data. The
determination of fair value for investments included in the level 3 category
requires considerable subjectivity and estimation. Investments in private
investment funds that are currently subject to liquidity restrictions that will
not be lifted in the near term shall be categorised as a Level 3.
The Company's investments in private investment funds not otherwise traded on a
securities exchange are classified within level 2 or level 3 of the fair value
hierarchy as the value of these interests are primarily based on the respective
net asset value reported by management of each underlying private investment
fund rather than actual market transactions and other observable market data.
The determination of whether such investment will be classified in level 2 or
level 3 is assessed at the partnership or class level and based upon the
ability to redeem such investment within a reasonable period of time (within 90
days of any month-end during the period). If an investment in a private
investment fund may be redeemed within 90 days of any month-end during the
period and the fair value of the investment is based on information provided by
management of the underlying fund it is classified as level 2; in all other
cases it will be classified as level 3. The Company's investments in foreign
currency exchange contracts are classified within level 2 of the fair value
hierarchy, because they are valued using directly observable foreign currency
spot rates and forward foreign currency rates.
The following tables summarise the valuation of the Company's investments under
the SFAS 157 fair value hierarchy as at 30 June 2011, 30 June 2010 and 31
December 2010:
30 June 2011 Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
Assets
Investments in private
investment funds*
Relative Value (a) - 24,325,112 46,601,425 70,926,537
Fundamental Long/Short (b) - 22,831,774 26,179,535 49,011,309
Event Driven (c) - 28,774,118 36,597,262 65,371,380
Direct Sourcing (d) - - 2,817,364 2,817,364
------- ---------- ----------- -----------
Total investments in
private investment
funds - 75,931,004 112,195,586 188,126,590
------- ---------- ----------- -----------
Derivatives
Forward foreign
currency exchange
contracts - 813,315 - 813,315
------- ---------- ----------- -----------
- 76,744,319 112,195,586 188,939,905
======= ========== =========== ===========
30 June 2010 Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
Assets
Investments in private
investment funds*
Relative Value (a) - 23,371,696 52,614,410 75,986,106
Fundamental Long/Short (b) - 28,326,456 20,874,062 49,200,518
Event Driven (c) - 24,205,361 22,693,811 46,899,172
Direct Sourcing (d) - - 7,616,809 7,616,809
------- ---------- ----------- -----------
Total investments in
private investment
funds - 75,903,513 103,799,092 179,702,605
------- ---------- ----------- -----------
Derivatives
Forward foreign
currency exchange
contracts - 62,868 - 62,868
------- ---------- ----------- -----------
- 75,966,381 103,799,092 179,765,473
------- ---------- ----------- -----------
Liabilities
Derivatives
Forward foreign
currency exchange
contracts - (1,308,256) - (1,308,256)
======= ========== =========== ===========
31 December 2010 Level 1 Level 2 Level 3 Total
US$ US$ US$ US$
Assets
Investments in private
investment funds*
Relative Value (a) - 32,534,900 43,108,852 75,643,752
Fundamental Long/Short (b) - 32,944,228 12,796,093 45,740,321
Event Driven (c) - 25,721,822 27,868,742 53,590,564
Direct Sourcing (d) - - 5,243,496 5,243,496
------- ---------- ----------- -----------
Total investments in
private investment
funds - 91,200,950 89,017,183 180,218,133
------- ---------- ----------- -----------
Derivatives
Forward foreign
currency exchange
contracts - 2,904,682 - 2,904,682
------- ---------- ----------- -----------
- 94,105,632 89,017,183 183,122,815
======= ========== =========== ===========
* In determining the classification of investments in private investment funds
included in the tables above, no consideration was given to the classification
of securities held by each underlying private investment fund.
(a), (b), (c) and (d), see footnotes at the end of Note 3.
The changes in investments measured at fair value using level 3 inputs for the
six months ended 30 June 2011 and 30 June 2010 and the year ended 31 December
2010 are reflected below:
30 June 2011 Relative Fundamental Event Direct
Value(a) Long/Short(b) Driven(c) Sourcing(d) Total
US$ US$ US$ US$ US$
Balance, 1 January 2011 43,108,852 12,796,093 27,868,742 5,243,496 89,017,183
Purchases (sales), net 1,259,245 2,990,328 7,872,821 (2,607,360) 9,515,034
Realised and unrealised
gain (loss), net 2,233,328 1,871 855,699 181,228 3,272,126
Transfers in to level 3* - 10,391,243 - - 10,391,243
Transfers out of level 3 - - - - -
---------- ---------- ---------- --------- -----------
Balance, 30 June 2011 46,601,425 26,179,535 36,597,262 2,817,364 112,195,586
---------- ---------- ---------- --------- -----------
Changes in unrealised
gain (loss) related to
the Company's level 3
investments held at
30 June 2011 2,417,908 519,963 809,320 149,677 3,896,868
* Transfers in to level 3 occurred due to additional subscriptions into
existing share classes of currently held private investment funds, subject to
lock up periods of at least 90 days as of 30 June 2011.
30 June 2010 Relative Fundamental Event Direct
Value(a) Long/Short(b) Driven(c) Sourcing(d) Total
US$ US$ US$ US$ US$
Balance, 1 January
2010 56,713,288 41,696,546 30,608,179 8,989,858 138,007,871
Purchases (sales), net (5,711,602) (5,071,400) (9,531,985) (1,697,363) (22,012,350)
Realised and
unrealised gain
(loss), net 1,612,724 2,339,183 1,617,617 324,314 5,893,838
Transfers in to level 3 - - - - -
Transfers out of level 3 - (18,090,267) - - (18,090,267)
---------- ---------- ---------- --------- -----------
Balance, 30 June 2010 52,614,410 20,874,062 22,693,811 7,616,809 103,799,092
---------- ---------- ---------- --------- -----------
Changes in unrealised
gain (loss) related to
the Company's level 3
investments held at
30 June 2010 2,802,213 1,227,785 5,746,541 (575,050) 9,201,489
========== ========== ========== ========= ==========
31 December 2010 Relative Fundamental Event Direct
Value(a) Long/Short(b) Driven(c) Sourcing(d) Total
US$ US$ US$ US$ US$
Balance, 1 January
2010 56,713,288 41,696,546 30,608,179 8,989,858 138,007,871
Purchases (sales), net (14,545,299) (6,574,715) (6,089,385) (4,291,979) (31,501,378)
Realised and
unrealised gain
(loss), net 5,240,599 402,827 3,349,948 545,617 9,538,991
Transfers in to level 3 - - - - -
Transfers out of level 3** (4,299,736) (22,728,565) - - (27,028,301)
---------- ---------- ---------- --------- -----------
Balance, 31 December
2010 43,108,852 12,796,093 27,868,742 5,243,496 89,017,183
---------- ---------- ---------- --------- -----------
Changes in unrealised
gain (loss) related to
the Company's level 3
investments held at
31 December 2010 6,697,117 2,080,420 2,656,984 (238,384) 11,196,137
========== ========== ========== ========= ==========
** Transfers out of level 3 were due to the expiration of fund level gates and
lock up periods during the year ended 31 December 2010.
(a), (b), (c) and (d), see footnotes at the end of Note 3.
The Company recognised transfers in and out of level 3 above at 1 January.
Realised and unrealised gains (losses) recorded for level 3 investments are
reported as net realised gain on investments in private investment funds and
net unrealised gain (loss) on investments in private investment funds,
respectively, in the statement of operations.
ASC 820 requires additional disclosure to assist in understanding the nature
and risk of the investments by major category. The table below summarises the
fair value and other pertinent liquidity information of the underlying
investments by major category as at 30 June 2011, 30 June 2010 and 31 December
2010:
30 June 2011 Illiquid Redemption
Fair Value Investments(1) Gates(2) Lock-ups(3) Redemption Notice
Major Category US$ US$ US$ US$ Frequency(4) Period(4)
Relative Value (a) 70,926,537 6,103,040 36,564,948 4,655,311 Monthly, 30-90 days
Quarterly,
Semi-Annually
Fundamental 49,011,309 4,362,860 3,453,519 6,250,352 Quarterly, 45-90 days
Long/Short(b) Annually
Monthly,
Quarterly,
Annually,
Event Driven (c) 65,371,380 3,896,729 8,584,370 17,190,990 Bi-Annually 30-150 days
Direct Sourcing (d) 2,817,364 2,817,364 - - Annually 90 days
----------- ---------- ---------- ----------
Total 188,126,590 17,179,993 48,602,837 28,096,653
=========== ========== ========== ==========
(1) Represents private investment funds that cannot be voluntarily redeemed by
the Company at any time. This includes (i) private investment funds that are
liquidating and making distribution payments as their underlying assets are
sold, (ii) suspended redemptions/withdrawals, and (iii) side pocket holdings.
These types of investments may be realised within 1 to 3 years from 30 June
2011, depending on the specific investment and market conditions. This does not
include private investment funds with gates and lock-ups, which are noted
above.
(2) Represents investor level and fund level gates. The gates have been in
place for 21 to 24 months at 30 June 2011, and the time at which these
restrictions will be lifted cannot be estimated.
(3) Represents investments that cannot be redeemed without a fee due to a
lock-up provision. The lock-up period for these investments ranged from
6 months to 21 months at 30 June 2011.
(4) Redemption frequency and redemption notice period reflect general
redemption terms, and exclude liquidity restrictions noted above.
Private investment funds that have an investor level gate and are still in the
lock-up period are represented in both (2) and (3) in the table above.
(a), (b), (c) and (d), see footnotes at the end of Note 3.
30 June 2010 Illiquid Redemption
Fair Value Investments(1) Gates(2) Lock-ups(3) Redemption Notice
Major Category US$ US$ US$ US$ Frequency(4) Period(4)
Monthly,
Quarterly,
Semi-Annually,
Relative Value (a) 75,986,106 7,773,945 26,560,643 - Bi-Annually 30-90 days
Fundamental 49,200,518 3,910,752 12,707,396 2,740,155 Monthly, 30-90 days
Long/Short (b) Quarterly,
Annually
Monthly,
Quarterly,
Annually,
Event Driven (c) 46,899,172 4,415,053 6,795,132 7,336,115 Bi-Annually 30-360 days
Direct Sourcing (d) 7,616,809 3,352,799 - - Quarterly, 360 days
Annually
----------- ---------- ---------- ----------
Total 179,702,605 19,452,549 46,063,171 10,076,270
=========== ========== ========== ==========
(1) Represents private investment funds that cannot be voluntarily redeemed by
the Company at any time. This includes (i) private investment funds that are
liquidating and making distribution payments as their underlying assets are
sold, (ii) suspended redemptions/withdrawals, and (iii) side pocket holdings.
These types of investments may be realised within 1 to 3 years from 30 June
2010, depending on the specific investment and market conditions. This does not
include private investment funds with gates and lock-ups, which are noted
above.
(2) Represents investor level and fund level gates. The gates have been in
place for 9 to 12 months at 30 June 2010, and the time at which these
restrictions will be lifted cannot be estimated.
(3) Represents investments that cannot be redeemed without a fee due to a
lock-up provision. The lock-up period for these investments ranged from 18
months to 24 months at 30 June 2010.
(4) Redemption frequency and redemption notice period reflect general
redemption terms, and exclude liquidity restrictions noted above.
Private investment funds that have an investor level gate and are still in the
lock-up period are represented in both (2) and (3) in the table above.
(a), (b), (c) and (d), see footnotes at the end of Note 3.
31 December 2010 Illiquid Redemption
Fair Value Investments(1) Gates(2) Lock-ups(3) Redemption Notice
Major US$ US$ US$ US$ Frequency(4) Period(4)
Category
Relative 75,643,752 7,006,484 34,140,923 - Monthly, 30-90 days
Value (a) Quarterly
Fundamental 45,740,321 3,562,373 4,997,484 3,025,099 Quarterly, 45-90 days
Long/Short(b) Annually
Event Driven (c) 53,590,564 4,004,158 6,155,152 11,835,893 Monthly, 30-150 days
Quarterly,
Annually,
Bi-Annually
Direct
Sourcing (d) 5,243,496 3,963,270 - - Annually 90 days
----------- ---------- ---------- ----------
Total 180,218,133 18,536,285 45,293,559 14,860,992
=========== ========== ========== ==========
(1) Represents private investment funds that cannot be voluntarily redeemed by
the Company at any time. This includes (i) private investment funds that are
liquidating and making distribution payments as their underlying assets are
sold, (ii) suspended redemptions/withdrawals, and (iii) side pocket holdings.
These types of investments may be realised within 1 to 3 years from 31 December
2010 depending on the specific investment and market conditions. This does not
include private investment funds with gates and lock-ups, which are noted
above.
(2) Represents investor level and fund level gates. The gates have been in
place for 15 to 18 months, and the time at which these restrictions will be
lifted cannot be estimated.
(3) Represents investments that cannot be redeemed without a fee due to a
lock-up provision. The lock-up period for these investments ranged from 6 to 24
months at 31 December 2010.
(4) Redemption frequency and redemption notice period reflect general
redemption terms, and exclude liquidity restrictions noted above.
Private investment funds that have an investor level gate and are still in the
lock-up period are represented in both (2) and (3) in the table above.
(a) Investment strategies within this category seek to profit from the
mispricing of related financial instruments. This discipline utilises
quantitative and qualitative analysis to identify securities or spreads between
securities that deviate from their theoretical fair value and/or historical
returns. The fair values of the investments in this category have been
estimated using the net asset values provided by management of the private
investment funds.
(b) Investment strategies within this category involve buying and/or selling a
security or financial instrument believed to be significantly under-or
over-priced by the market in relation to its potential value. The fair values
of the investments in this category have been estimated using the net asset
values provided by management of the private investment funds.
(c) Investment strategies within this category concentrate on companies that
are or may be subject to extraordinary corporate events such as restructurings,
takeovers, mergers, liquidations, bankruptcies or other corporate events. The
fair values of the investments in this category have been estimated using the
net asset values provided by management of the private investment funds.
(d) Investment strategies within this category seek to profit from the
increasing disintermediation of the financial services sector by entering into
direct transactions with corporations, other institutions or individuals. The
fair values of the investments in this category have been estimated using the
net asset values provided by management of the private investment funds.
4. Financial instruments with off-balance sheet risk
The Company's investments in private investment funds involve varying degrees
of interest rate risk, credit and counterparty risk, and market, industry or
geographic concentration risks for the Company. While BAA monitors these risks,
the varying degrees of transparency into and potential liquidity of the
securities in the private investment funds may hinder BAA's ability to manage
and mitigate these risks.
Market risk
The Company holds certain derivative instruments (see Note 5) that involve
varying degrees of off-balance sheet market risk, and changes in the market
values of the financial instruments underlying such derivative instruments
frequently result in changes in the Company's unrealised gains or (losses) on
such derivative instruments as reflected in the statement of operations.
Off-balance sheet market risk exists when the maximum potential loss on a
particular financial instrument is greater than the carrying value of such
financial instrument.
The private investment funds in which the Company is invested utilise a wide
variety of financial instruments in their trading strategies including
over-the-counter ("OTC") options, futures, forward and swap agreements and
securities sold but not yet purchased. Several of these financial instruments
contain varying degrees of off-balance sheet risk where the maximum potential
loss on a particular financial instrument may be in excess of the amounts
recorded on each private investment fund's balance sheet. The private
investment funds are required to account for all investments on a fair value
basis and recognise changes in unrealised gains and losses in their statements
of operations. In determining the fair values for these instruments, the
private investment funds will make estimates about future interest rates,
default probabilities, volatilities and other pricing factors. These estimates
of fair value could differ from actual results. The Company's maximum exposure
to market risks related to the private investment funds is limited to amounts
included in the Company's investments in private investment funds recorded as
assets in the statement of assets and liabilities.
The Company's exposure to market risk is influenced by a number of factors,
including the relationships among the derivative instruments held by the
Company as well as the volatility and liquidity in the markets in which the
derivative instruments are traded.
Credit and counterparty risk
The credit and counterparty risk associated with derivative instruments arises
from possible counterparty non-performance and is limited to the derivative
instruments in a gain position.
The Company is indirectly subject to certain credit risks arising from the
investments made by the private investment funds. Credit risk is the amount of
accounting loss that the private investment funds would incur if a counterparty
failed to perform its obligations under contractual terms. The Company is also
subject to the credit risk that the private investment funds fail to perform
under their respective agreements.
The Company may be directly subject to credit risks arising from OTC derivative
financial instrument transactions. The Company's direct exposure to credit risk
at any point in time is limited to amounts included in the Company's unrealised
gain on derivative financial instruments recorded as assets or liabilities on
the statement of assets and liabilities. The Company enters into OTC derivative
financial instruments transactions only with major commercial and investment
banks in an effort to limit its OTC risk.
Liquidity risk
The private investment funds invest in securities and investments with various
degrees of liquidity and as such the Company is subject to certain redemption/
withdrawal provisions, in accordance with the private investment funds'
offering agreements. These provisions generally range from monthly to annual
redemptions/withdrawals, with 60 to 180 days notice.
Certain of the Company's private investment funds have the ability to suspend
redemptions/withdrawals, and restrict redemptions/withdrawals through the
creation of side pockets. At 30 June 2011, 1.64% (30 June 2010: 2.53%; 31
December 2010: 1.74%) of the Company's net assets were subject to private
investment funds that had suspended redemptions/withdrawals (including those
private investment funds undergoing liquidation); and 6.89% (30 June 2010:
7.22%; 31 December 2010: 7.53%) of the Company's net assets were invested
directly in side pockets maintained by private investment funds. The Company's
ability to liquidate its investment in a private investment fund that has
imposed such provisions may be adversely impacted. In such cases, until the
Company is permitted to liquidate its interest in a private investment fund,
the Company's residual interest remains subject to continued exposure to
changes in valuations.
The Company may also invest in closed-end investments that may not permit
redemptions/withdrawals or in private investment funds that impose an initial
"lock-up" period before a redemption/withdrawal can be made. In addition,
certain of the Company's private investment funds have the ability to impose
redemption gates, and in so doing, may reduce the Company's requested
redemption/withdrawal below the requested amount.
5. Derivative financial instruments
On 1 January 2009, the Company adopted SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities ("SFAS 161"). As of 1 July 2009,
the disclosures required by SFAS 161 have been included within ASC 815
Derivatives and Hedging ("ASC 815").
SFAS 161 amends and expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 161 is
intended to improve financial reporting about derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors to
understand better how those instruments and activities are accounted for, how
and why they are used, and their effects on an entity's financial position,
financial performance, and cash flows.
The Company periodically executes forward foreign currency exchange contracts.
The contracts are designed to hedge against foreign currency exchange rate
risks associated with its share classes denominated in currencies other than
United States dollars. Gains and losses on forward foreign currency exchange
contracts exclusive to share classes denominated in currencies other than
United States dollars are specifically allocated to the respective share class.
The contractual amounts of these instruments represent the exposure the Company
has to the respective currencies associated with these financial instruments.
The measurement of the risks associated with forward foreign currency exchange
contracts is meaningful only when all related and offsetting transactions are
considered.
The following tables summarise the fair value of the Company's derivative
instruments and the location on the statement of assets and liabilities:
30 June 2011 Asset derivatives Liability derivatives
Derivatives Location Fair value Location Fair value
US$ US$
Foreign exchange Unrealised gain 813,315 Unrealised loss -
contracts on foreign on foreign
exchange exchange
contracts contracts
Asset derivatives Liability derivatives
30 June 2010 Location Fair value Location Fair value
Derivatives US$ US$
Foreign exchange Unrealised gain 62,868 Unrealised loss (1,308,256)
contracts on foreign on foreign
exchange exchange
contracts contracts
31 December 2010 Asset derivatives Liability derivatives
Derivatives Location Fair value Location Fair value
US$ US$
Foreign exchange Unrealised gain 2,904,682 Unrealised loss -
contracts on foreign on foreign
exchange exchange
contracts contracts
The following tables present the effect of derivative instruments on the
Company's financial performance and the location on the statement of
operations:
30 June 2011
Derivatives Location Gain (loss) on
derivatives
US$
Foreign exchange Net realised gain on foreign 8,491,656
contracts exchange contracts
Foreign exchange Net change in unrealised gain (loss)
contracts on foreign exchange contracts (2,091,367)
30 June 2010
Derivatives Location Gain (loss) on
derivatives
US$
Foreign exchange Net realised loss on foreign (14,594,748)
contracts exchange contracts
Foreign exchange Net change in unrealised gain
contracts (loss) on foreign exchange contracts (1,526,250)
31 December 2010
Derivatives Location Gain (loss) on
derivatives
US$
Foreign exchange Net realised loss on foreign (10,047,428)
contracts exchange contracts
Foreign exchange Net change in unrealised gain
contracts (loss) on foreign exchange contracts 2,623,820
The obligations under these financial instruments as at 30 June 2011, 30 June
2010 and 31 December 2010 were as follows:
30 June 2011 Contract to Contract to
Currency Settlement date Deliver Receive Fair value
EUR 30 September 2011 $24,423,699 EUR17,050,000 $241,282
GBP 30 September 2011 $169,134,860 GBP105,830,000 $572,032
30 June 2010 Contract to Contract to
Currency Settlement date Deliver Receive Fair value
EUR 30 September 2010 $24,949,627 EUR20,430,000 $62,868
GBP 30 September 2010 $150,269,195 GBP99,680,000 $(1,308,256)
31 December 2010 Contract to Contract to
Currency Settlement date Deliver Receive Fair value
EUR 31 March 2011 $22,389,108 EUR17,120,000 $522,422
GBP 31 March 2011 $149,147,972 GBP97,130,000 $2,382,260
It is the Company's general practice to enter into a forward foreign currency
exchange contract for each foreign currency share class for a duration of
approximately 3 months. In the event of an investor subscription or redemption
in a foreign currency share class, the Company may increase or decrease its
hedge by entering into one or more additional forward foreign currency exchange
contracts with the same settlement date.
The Company's unrealised gain (loss) relating to forward foreign currency
exchange contract obligations at 31 December 2010 was US$2,904,682, resulting
in a net change in unrealised gain (loss) of US$(2,091,367) for the period
ended 30 June 2011. The outstanding financial instruments have certain margin
provisions that call for cash payments to the contract counterparties to the
extent that the unrealised loss is in excess of certain amounts. Amounts owed,
if any, to the counterparty related to these financial instruments are secured
by pledging the assets held by the Company, which are attributable to
shareholders in classes denominated in currencies other than United States
dollars.
At 30 June 2011, 30 June 2010 and 31 December 2010 all open forward foreign
currency exchange contracts are with a single counterparty.
6. Share Capital, Voting Rights and Share Conversion
Authorised:
100 Management Shares
Unlimited Shares of any class
Net asset
Shares in Treasury Shares in Treasury Shares in Treasury value
issue at Shares at issue at Shares at at issue Shares at per share
30 June 30 June 30 June 30 June 31 December 31 December 30 June
2011 2011 2010 2010 2010 2010 2011
Management
Shares 2 - 2 - 2 - -
US Dollar
denominated
Shares 685,386 282,481 2,206,732 - 2,339,560 165,505 $10.44
Euro
denominated
Shares 1,672,269 251,789 2,189,040 - 1,752,235 164,178 EUR10.16
Sterling
denominated
Shares 10,381,673 1,642,526 10,680,599 330,750 9,899,621 1,146,795 GBP10.18
Shareholders have the right to receive notice of and to attend and vote at
general meetings of the Company.
Management Shares carry no right to distribution of profits, or except when
there are no Shares in issue, to receive notice of or vote at general meetings
of the Company.
It is not the intention of the Company to pay dividends, however the Directors
have the option to declare a dividend, if deemed appropriate.
Conversion
In March, June, September and December of each year, shareholders may convert
shares of any class into shares of any other class, by giving not less than 10
business days' notice to the Company in advance of such currency conversion
calculation date.
The following table shows the shares converted and issued during the period:
Currency Date of
Number of Shares converted issue of Number of Shares issued
Conversion Date US$ EUR GBP new shares US$ EUR GBP
31 December 2010 30,964 - - 28 January 2011 - - 20,369
31 March 2011 1,518,389 54,467 - 28 April 2011 12,155 62,112 957,414
No conversion requests were received in respect of the 30 June 2011 currency
conversion calculation date.
US Dollar denominated Shares 2011 2010
Number Number
of shares of shares
In issue on 1 January* 2,339,560 2,330,129
Converted out (1,549,353) (235,813)
Converted in 12,155 112,416
Repurchased and placed in treasury (116,976) -
--------- ---------
In issue on 30 June* 685,386 2,206,732
--------- ---------
* Excluding treasury shares
Euro denominated Shares 2011 2010
Number Number
of shares of shares
In issue on 1 January* 1,752,235 2,308,345
Converted out (54,467) (243,036)
Converted in 62,112 123,731
Repurchased and placed in treasury (87,611) -
--------- ---------
In issue on 30 June* 1,672,269 2,189,040
--------- ---------
* Excluding treasury shares
Sterling denominated Shares 2011 2010
Number Number
of shares of shares
In issue on 1 January* 9,899,621 10,489,294
Converted out - (73,254)
Converted in 977,783 264,559
Repurchased and placed in treasury (495,731) -
---------- ----------
In issue on 30 June* 10,381,673 10,680,599
---------- ----------
* Excluding treasury shares
On 20 July 2011, the 282,481 US Dollar, 251,789 Euro and 1,642,526 Sterling
denominated shares held in treasury were cancelled. There are no shares held in
treasury.
Voting rights
With effect from 1 January 2011, the voting rights of both the Euro and
Sterling denominated Shares were re-calculated in accordance with the
provisions of the Articles of Association of the Company and the voting rights
of the Euro denominated Shares changed to 1.3 votes per share and the voting rights
of the Sterling denominated Shares changed to 1.5 votes per share.
As at 30 June 2011 and 30 June 2010, the issued share capital and share voting
rights were as follows:
2011 2010
Number of
shares
(excluding Votes Votes
treasury per Voting Number of per Voting
shares) share rights shares share rights
Management Shares 2 - - 2 - -
US Dollar
denominated Shares 685,386 1.0 685,386 2,206,732 1.0 2,206,732
Euro denominated
Shares 1,672,269 1.3 2,173,949 2,189,040 1.4 3,064,656
Sterling
denominated Shares 10,381,673 1.5 15,572,509 10,680,599 1.6 17,088,958
---------- ----------
Total voting
rights (excluding
treasury shares) 18,431,844 22,360,346
---------- ----------
7. Management and performance fees
The Company entered into a Management Agreement with BCI to provide certain
investment management services to the Company. Under this agreement, BCI earns
a quarterly investment management fee equal to one quarter of 1.5% of the NAV
and an annual performance fee equal to 10% of the amount, if any, by which the
NAV at the end of a calculation period exceeds the higher of (i) the NAV at the
date of Admission and (ii) the NAV at the end of any previous calculation
period. As provided in the registration document, the amount of fees paid to
BCI is determined based on the net assets and the performance of the Company
for the respective calculation period. Management and performance fees are
calculated prior to any adjustments to the NAV of the relevant share class for
the relevant calculation period related to the profits, losses and expenses of
any currency hedging undertaken by the Company. For the year ended 31 December
2010 and the periods ended 30 June 2010 and 30 June 2011, the management fees
under this agreement were:
Period ended Period ended Year ended
30 June 30 June 31 December
Share class 2011 2010 2010
US$ US$ US$
US Dollar denominated Shares 110,292 159,846 320,609
Euro denominated Shares 168,787 212,301 379,341
Sterling denominated Shares 1,161,441 1,115,522 2,212,131
--------- --------- ---------
1,440,520 1,487,669 2,912,081
========= ========= =========
Following Shareholder approval of the managed wind-down on 25 August 2011, the
Company and the Manager agreed that with effect from that date the Management
Agreement would be amended to reflect that no management fee would be payable
in respect of any cash or distribution received by or on behalf of the Company
as a result of realising any of the Company's assets in connection with the
managed wind-down and held by the Company pending distribution to shareholders.
For the year ended 31 December 2010 and the periods ended 30 June 2010 and
30 June 2011, the performance fees under this agreement were:
Period ended Period ended Year ended
30 June 30 June 31 December
Share class 2011 2010 2010
US$ US$ US$
US Dollar denominated Shares 67,969 - 40,862
Euro denominated Shares 65,573 - 45,475
Sterling denominated Shares 467,699 - 403,624
------- ------- -------
601,241 - 489,961
======= ======= =======
As at 30 June 2011, an amount of US$735,026 (30 June 2010: US$718,075;
31 December 2010: US$739,004) was payable in respect of the management
fee. As at 30 June 2011, an amount of US$601,241 (30 June 2010: nil;
31 December 2010: US$489,961) was payable in respect of the performance
fee.
8. Administration and custody fees
Under the terms of an Administration Agreement, UBS Fund Services (Cayman)
Limited (the "Sub-Administrator") has agreed to perform certain financial,
custodial, accounting, administrative and other services. For the period ended
30 June 2011, US$50,732 (period ended 30 June 2010: US$52,331; year ended
31 December 2010: US$102,551) was incurred for the Sub-Administrator's services
in accordance with the Administration Agreement.
9. Related party transactions
During the periods ended 30 June 2011 and 30 June 2010 and the year ended
31 December 2010, there were investment transactions with other entities managed
by BFM. The consideration paid and received in connection with each of these
transactions was based on the prevailing net asset value of the investment at
the date of the transaction. None of these transactions had a material impact
on the performance of the Company.
The Company may invest in one or more master funds through which the Company
and other funds or accounts managed by BFM or its affiliates may invest for the
primary purpose of consolidating investments by these funds and accounts into a
single investment in one or more private investment funds.
The Directors of the Company consider that all transactions with related
parties have been made at values which approximate the values for which such
transactions would have been made with third parties.
The Board currently consists of five non-executive Directors. With the
exception of Mr Le Feuvre and Mr Ruck Keene, who are BlackRock employees, all
are considered to be independent of the Company's Manager and free from any
business or other relationship which could interfere materially with the
exercise of their independent judgement. Mr Le Feuvre and Mr Ruck Keene, as
employees of BlackRock, are deemed to be interested in the Company's management
agreement. None of the Directors has a service contract with the Company. The
Chairman receives an annual fee of GBP35,000, the Chairman of the Audit and
Management Engagement Committee receives an annual fee of GBP27,000 and the other
Director receives an annual fee of GBP25,000. Mr Le Feuvre and Mr Ruck Keene
have waived the entitlement to their fee.
Two members of the Board hold shares in the Company. Mr Maltby holds 4,366 Euro
Shares and Mr Ruck Keene 5,000 Sterling shares.
The total remuneration payable to Directors was US$87,102 for the period ended
30 June 2011 (period ended 30 June 2010: US$77,803; year ended 31 December 2010:
US$142,952). This amount includes fees for Directors services, reimbursement
for travel and other out-of-pocket expenses relating to attendance at meetings
and other matters, including any such expenses relating to the performance of
due diligence for the benefit of the Company.
Through its investment in a master fund managed by BlackRock or its affiliates,
the Company is invested in R3 Capital Partners (C), Ltd. (the "R3 Fund"), a
fund vehicle previously managed by R3 Capital Partners ("R3"). Effective
30 April 2009, BlackRock assumed responsibilities for the management of the R3
Fund and a number of R3 employees are now employed by BlackRock. In connection
with this arrangement, the Company's investment advisory fee calculation was
modified to exclude the amounts invested in the R3 Fund.
10. Line of credit
The Company has entered into an Uncommitted Facility Agreement (the "Facility
Agreement") and related Security Agreement with the Sub-Administrator. Advances
under the Facility Agreement are secured by all of the Company's investments in
private investment funds. Under the Facility Agreement, the Company is
permitted to borrow at a rate based on the UBS base rate. The Facility Agreement
may be terminated by either party at their discretion at any time. The borrowing
rate on 30 June 2011 was 1.38% (30 June 2010: 1.56%; 31 December 2010: 1.47%).
As at 30 June 2011, 30 June 2010 and 31 December 2010, the Company had no
outstanding balance under the Facility Agreement.
The Company has also entered into a Committed Facility Agreement and related
Security Agreement with the Sub-Administrator. Advances under the Committed
Facility Agreement are secured by all of the Company's investments in private
investment funds. The amount of the Committed Facility is US$10,000,000 and it
is subject to renewal on 1 October 2011. The borrowing rate on the Committed
Facility is based on the UBS base rate and on 30 June 2011 the borrowing rate
was 1.38% (30 June 2010: 1.56%; 31 December 2010: 1.47%). There has been no
borrowing on the Committed Facility.
11. Indemnifications
The Company enters into contracts that contain a variety of indemnifications.
The Company's maximum exposure under these agreements, if any, is unknown.
However, the Company has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
12. Subsequent events
Management has evaluated subsequent events occurring up to 25 August 2011, the
date that these financial statements were available to be issued. All
significant events that have occurred subsequent to the balance sheet date but
prior to 25 August 2011 have been reported in these financial statements.
No significant events other than those reported, occurred subsequent to the
balance sheet date but prior to 25 August 2011, that would have a material
impact on the financial statements.
13. Publication of non statutory accounts
The financial information contained in this half yearly report does not
constitute statutory accounts as defined in the Companies (Jersey) Law 1991.
The financial information for the six months ended 30 June 2011 and 30 June
2010 has not been audited. The information for the year ended 31 December 2010
has been extracted from the latest published audited financial statements,
which have been filed with the Jersey Financial Services Commission. The report
of the Auditor for the year ended 31 December 2010 contains no qualification
and did not contain statements under section 113B(3) or (6) of the Companies
(Jersey) Law 1991 (as amended).
14. Approval of the half yearly financial report
The half yearly financial report was approved by the Directors on 25 August
2011.
Copies of the half yearly financial report will be posted to shareholders as
soon as practicable. Copies will also be available to the public from the
Company's registered office at Forum House, Grenville Street, St Helier, Jersey
JE1 OBR, and on the Company's website at www.blackrockinternational.com/bars.
25 August 2011
Forum House
Grenville Street
St Helier
Jersey
JE1 OBR
For further information please contact:
Ian Webster,
BlackRock (Channel Islands) Limited, Secretary - 015 3460 0802
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Limited
END
Blackrck AB E (LSE:BARE)
Gráfico Histórico do Ativo
De Abr 2024 até Mai 2024
Blackrck AB E (LSE:BARE)
Gráfico Histórico do Ativo
De Mai 2023 até Mai 2024
