TIDMCAI
RNS Number : 4082B
Castle Alternative Invest AG
02 April 2013
Annual Report
Castle Alternative Invest AG
2012
Publication date
This report was released for publication on 2 April 2013.
The subsequent event note in the financial statements has been
updated to 2 April 2013.
Amounts in the report are stated in USD thousands (TUSD) unless
otherwise stated.
This document is for information only and is not an offer to
sell or an invitation to invest. In particular, it does not
constitute an offer or solicitation in any jurisdiction where it is
unlawful or where the person making the offer or solicitation is
not qualified to do so or the recipient may not lawfully receive
any such offer or solicitation. It is the responsibility of any
person in possession of this document to inform themselves of, and
to observe, all applicable laws and regulations of relevant
jurisdictions. All statements contained herein that are not
historical facts including, but not limited to, statements
regarding anticipated activity are forward looking in nature and
involve a number of risks and uncertainties. Actual results may
differ materially. Readers are cautioned, not to place undue
reliance on any such forward-looking statements, which statements,
as such, speak only as of the date made. The complete disclaimer
can be obtained from www.castleai.com.
Castle Alternative Invest AG in 2012
December December
2012 2011
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Net asset Castle Alternative Invest USD 16.83 USD 15.60
value up 7.9 AG's ("Castle AI", "Castle", per shareTUSD per share
per cent "CAI" or the "Company") net 235,266 TUSD 250,452
asset value increased by 7.9
per cent (USD +1.23 per share)
in 2012. The annualised NAV
return in Dollars since inception
is +6.2 per cent.
Cancellation The Annual General Meeting 16,352,817 17,481,596
of shares of the Company, on 15 May shares in shares in
and capital 2012, approved a share capital issue issue
reduction reduction by way of cancellation
of 1,128,779 shares being
the majority of the shares
purchased in last year's second
line buyback programme. The
cancellation process had been
completed by 24 August 2012
and the shares duly cancelled.
Accordingly, the share capital
of Castle AI has been reduced
from CHF 87,407,980 to CHF
81,764,085 or 16,352,817 shares.
As at 31 December 2012, the
Company held 1,303,487 shares
in treasury. Of those treasury
shares, Swiss Life is the
beneficial owner of 430,406
shares; however the whole
of 1,303,487 shares have been
treated as treasury shares
for accounting and reporting
Treasury shares purposes. 1,303,487 1,735,487
Second line On 22 June 2012, the Company
buy back for announced the opening of a
cancellation new, second line buy back
programme which was approved
at the 2012 AGM. Accordingly
a second trading line denominated
in CHF was opened on the SIX
Swiss Exchange on 28 June
2012, and will remain open
until 5 June 2013 at the latest.
The Company is the exclusive
buyer on the second line and
repurchases shares for the
purpose of subsequently reducing
its share capital.It is intended
that a resolution be proposed
to the 2013 AGM to reduce
the capital of the Company
by the full amount of shares
acquired in second line trading.
Share price The US Dollar share price USD 12.70 USD 11.65
increased increased 9.0 per cent on per share per share
by 9.0 per the SIX-Swiss Exchange during
cent the year. The Swiss Franc
price increased by 0.9 per
cent from CHF 11.50 per share
to CHF 11.60 per share partly
due to the strengthening of
the Swiss Franc versus the
US Dollar.The discount to
the NAV of the US Dollar shares
narrowed to 24.5 per cent
compared to 25.3 per cent
in December 2011.
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Chairman's Statement
Dear shareholders,
2012 was another challenging year for investors, although it
ended on a strong note. Castle Alternative Invest AG managed to
make steady progress despite the volatility in the middle of the
year. The Euro-pean crisis continued to undermine sentiment in the
first half of the year until the intervention of Mario Draghi in
July finally managed to draw a line in the sand for investors
fearing a break up of the Euro. Political uncertainty in the US and
China also sapped investor confidence at times and managers in some
cases again found it hard to stay ahead of the rapid swings in
sentiment that resulted. How-ever, the overall results of the funds
which we held were broadly satisfactory in 2012 with all four major
fund styles contributing positively to returns for the year.
The Company's NAV rose by 7.9 per cent over the year, putting us
towards the upper end of returns for funds of hedge funds
generally. The Company now possesses a sixteen year track record of
stable capital appreciation, relatively uncorrelated to equity and
bond market returns and with low volatility. Since inception, the
Company's NAV has increased by 6.2 per cent per annum, exceeding
both equity and bond returns over that sixteen year period. All the
main fund styles delivered positive returns, with event driven
managers doing particularly well. That Group as a whole was up 18.2
per cent, with Third Point Ultra, a US based event driven manager,
producing the best returns of all. Other notable contribu-tions
came from Discovery Global Opportunity Fund (Global macro focused
on emerging markets) and Oceanwood Global Opportunities Fund (event
driven).
During 2012 the balance of supply and demand for the Company's
shares was unfavourably affected by the need of a number of
significant institutional shareholders to reduce or eliminate their
holdings for regulatory and other reasons. This institutional share
"overhang" now seems to have been largely eliminated, which should
lead to a smaller absolute discount and reduced discount volatility
in the coming year.
On 22 June 2012, the Company instituted this year's second line
buyback programme. Over the course of 2012, the share price in US
Dollars was up 9.0 per cent. By 1 March 2013, the Company had
purchased 1,149,956 shares through second line trading, which
successfully moved the share price back above CHF 12.50 and reduced
the discount below 20 per cent from almost 30 per cent a month
earlier. A further 1,303,487 shares were held in treasury. A
resolution will be proposed at the 2013 Annual General Meeting to
reduce the capital of the Company by the amount of shares acquired
in the current second line trading, together with the 573,170
shares that remain uncancelled from last year's buyback programme.
At the forthcoming AGM, it will be proposed that a new second line
buyback programme be instituted as soon as possible.
In recognition of the long-term track record of the portfolio
and the quality of the service it continues to receive, the board
believes that the continued appointment of the manager on the terms
agreed is in the interests of shareholders as a whole. Furthermore,
as a result of the control and review processes in place, the
directors are of the view that the Company has adequate resources
to continue to operate within its stated objectives for the
foreseeable future. Accordingly the accounts are drawn up on the
basis that the Company is a going concern.
The board remains convinced that a well diversified portfolio of
hedge funds can deliver attractive, risk- adjusted returns but this
must be associated with only a modest degree of discount volatility
and stronger share price performance. We will continue our efforts
to achieve this in the coming year, not only through share buybacks
(as we have done in the past) but also using such other techniques
as may be permitted within existing regulations and which are tax
efficient to investors.
Finally, as your chairman, I would like to thank you for your
continuing support for the Company as it enters its seventeenth
year.
Yours sincerely,
Tim Steel
Chairman of the board of directors
Investment manager's Report
Financial market backdrop
Most asset classes moved higher in 2012 given the accommodative
macro backdrop engineered by the central banks. The first and
second quarters alternated between euphoria and disenchantment, and
markets rallied in the third quarter after the "Draghi put"
heralded a "risk-on" environment. The final quarter saw
stabilisation on the back of several important political events in
the US, China and Japan.
Macro - Central bankers around the globe committed to multiple
stimulus packages in order to jump-start the economy. In the US,
the Federal Reserve announced that it would purchase USD 40 billion
of mortgage-backed securities and USD 45 billion of Treasuries on a
monthly basis. Unlike earlier programmes, these initiatives are
open-ended and will be continued as long as the unemployment rate
is above 6.5 per cent. The "fiscal cliff" was another major concern
and it was resolved only shortly before year-end.
In Europe, the announcement of the LTRO (Long-Term Refinancing
Operation) by the ECB in the first quarter reduced the risk of a
systematic breakdown in Europe. However, concerns over a Euro
breakup led to heightened market volatility in the second quarter,
which reversed in July after Mario Draghi pledged that the ECB
would do "whatever it takes" to support the Euro and the Eurozone
economy.
In China, signs emerged in the latter part of the year which
suggested that an end to the slowdown may be imminent. Over in
Japan, the victory of the Liberal Democrats and a stimulus package
announced in the fourth quarter led to a sharp decline in the Yen
and breathed new life into Japanese equities.
Equities - The markets remained macro driven as in the previous
year until August when the ECB pledged unconditional support for
the Eurozone economy, which removed the tail risk in the equity
markets. In the US, the S&P 500 advanced 13 per cent whereas in
Europe, while the benchmark STOXX 600 rallied 14 per cent, returns
were varied across the region with markets such as Germany up as
much as 29 per cent. Both geographies ended the year close to or at
their year highs led by financials and other cyclicals. The
Asia-Pacific region gained 14 per cent and in Japan, the Nikkei was
up 17 per cent in the fourth quarter alone and returned 23 per cent
for the year. The emerging markets ended the year 15 per cent
higher.
Fixed income - Risk assets outperformed the safe havens as low
interest rates maintained by the global central banks led to a hunt
for yield. Among the sovereigns, the PIGS countries were strong
performers, notably Greece whose yield declined to 12 per cent at
year-end from 35 per cent a year ago. Yields on emerging market
debt touched all-time lows. High-yield debt delivered strong
returns (with the lowest-rated issues generating the highest
returns) as spreads narrowed to 5.5 per cent at year-end from 7.3
per cent at the beginning of 2012. For Treasuries, as the front end
was anchored by the Federal Reserve's commitment to maintain
short-term rates at close to zero, the action was at the long end
of the yield curve. 10-year Treasuries traded in a wide range even
though at year-end, the yield of 1.78 per cent was hardly changed
from the 1.89 per cent the previous year.
Commodities - The DJ-UBS Commodities Index lost 1.1 per cent in
2012. Precious metals was the top-performing sector, up 6 per cent,
while energy was the worst, down 9 per cent. Soybeans delivered the
highest returns, up 16 per cent, while the worst performing
commodity was coffee, down 36 per cent.
Currencies - The most notable FX move in 2012 was the
depreciation of the Japanese Yen in the fourth quarter, in the
magnitude of 11 per cent against the Dollar and 14 per cent against
the Euro. Aside from the Yen move, the Euro lost 5 per cent against
the Dollar in the second quarter when the fear of a Euro breakup
dominated the headlines.
Castle Alternative Invest AG
Performance
In 2012, Castle advanced by 7.9 per cent after all fees based on
the US Dollar NAV, compared with a 13.1 per cent return for the
MSCI World Index. In Swiss Francs, the NAV increased by 5.1 per
cent. Since the Company's inception, the NAV in US Dollars has
risen 161.3 per cent, which corresponds to an annualised net return
of 6.2 per cent. The high water mark was reached in April 2011.
The standard deviation and downside deviation in 2012 were 3.8
per cent and 2.0 per cent annualised respectively based on the
development of the NAV in US Dollars. Since inception, the standard
deviation was 5.5 per cent annualised and the downside deviation
was 3.7 per cent annualised. The Sharpe and Sortino ratios in 2012
(assuming a risk free rate of 1.0 per cent per annum) were 1.8 and
3.4 respectively, and since inception, 1.0 and 1.4 respectively.
The correlation of Castle to the MSCI World Index since inception
was 0.5, while the correlation to the JPM Global Government Bond
Index was negative at -0.1, reinforcing Castle's long term
credentials as a lowly correlated investment strategy.
At the end of the year, the share price of Castle was CHF 11.60,
which represented a discount of 24.6 per cent to the Company's NAV
of CHF 15.39. The discount in US Dollar during the year ranged from
17.9 per cent to 27.4 per cent.
Performance attribution
All four main styles generated profits in 2012. The best
performing style was event driven which advanced 18.2 per cent,
followed by relative value, up 8.3 per cent and long/short equity,
up 3.6 per cent. CTA/macro gained 2.7 per cent.
When accounting for the four style classes' portfolio weights,
their respective gross contributions to performance were as
follows: event driven 3.6 per cent, relative value 1.3 per cent,
long/short equity 1.0 per cent and CTA/macro 0.7 per cent.
Event driven managers were able to capture the large opportunity
set that resulted from the high demand for refinancings,
restructurings, acquisitions and spinoffs. Renewed activity in the
restructuring of European bank balance sheets led to a gradual
appreciation of bank hybrid positions. Distressed debt also
performed well, as discounts narrowed as the economy came out of
recession. In structured credit, holdings in non-agency RMBS were
particularly profitable. During the pullback in the second quarter,
managers opportunistically added to sold-off names, refocused on
catalyst-driven holdings and repositioned their hedges to reduce
basis risk. These measures enabled them to capture the market
upturn during the second half of the year.
All the relative value managers were in positive territory in
2012, with stable and attractive risk- adjusted returns generated
across a broad array of sub-strategies. Managers generally
maintained a defensive, market-neutral stance which enabled them to
limit their correlation to the broader markets. Profits were
derived in structured credit in the US, with performance driven by
CLO equity, RMBS and synthetic CDO trading. Further gains came from
equity relative value, directional credit and corporate credit.
After a challenging 2011, the long/short equity managers entered
the year with a defensive stance and as a result were only able to
capture a small part of the tailwind in the equities markets during
the first quarter. However, this moderately bearish stance enabled
them to preserve some capital during the second quarter, especially
in May when the markets lost 7 per cent in one month on the back of
fears of a Euro breakup. Some managers traded around their core
positions opportunistically during whip-sawing markets, which not
only dampened volatility but added to the bottom line as well. As
the year progressed, gross and net exposures were raised - some to
multi-month highs - and the managers were well equipped to perform
as the markets continued to advance. Share prices traded more in
line with corporate results after the summer, which along with a
decline in correlations, yielded a fertile backdrop for
stockpickers. This positive environment in which active management
is being rewarded has continued into 2013.
Within global macro, gains were made in the US on the back of
accurate predictions regarding GDP growth and optimal positioning
going into the resolution of the "fiscal cliff". Profits were
generated in interest rates in Europe and the emerging markets,
while toward year end, shorts in the Japanese Yen against longs in
Japanese equities added to returns. The allocation to commodities
detracted from returns and its overall exposure and directionality
were reduced over the course of the year.
Within CTAs, managers had to contend with a challenging year but
nevertheless performed very well during equity market stress
periods, especially in May. Trend-following managers had particular
difficulty as most markets exhibited low and declining volatility
and became highly correlated during frequent market reversals
driven by headline events. Meanwhile, short-term managers,
fundamental strategies and CTA multi-strategy approaches
contributed positively. In terms of sector performance, equities
and fixed income markets were positive contributors during the year
while commodity and currency markets were particularly challenging.
The most profitable contracts included Euro Bunds, S&P, DAX and
soybeans. The largest detractors were corn and sugar.
The largest contributor to performance was Third Point Ultra, a
US-based event driven manager that reaped large profits from
contrarian positions in equities and credit as well as long
positions in Greek sovereign debt, the latter of which were entered
into at the bottom of the downturn. The second largest contributor
was the Discovery Global Opportunity Fund, a global macro manager
that primarily invests in the emerging economies across all asset
classes. This is followed by another event driven manager,
Oceanwood Global Opportunities, which was able to capitalise on the
myriad of opportunities that arose as European banks were mandated
to alter their capital structures in order to satisfy new
regulations.
On the negative side, the largest loss was incurred by the Amiya
Global Emerging Opportunities Fund, a long/short equity manager
that held a net short stance throughout most of the year. The
second largest detractor was Crown Managed Futures, which is a
diversified programme of managed accounts with systematic CTAs and
global macro traders. This is followed by the Clive Fund, a global
macro manager focused on commodities.
Portfolio composition
Throughout the year, the portfolio had an overweight to
CTA/macro managers due to the flexibility and liquidity of the
style class and also to gain exposure to certain themes. This came
at the expense of the allocations to long/short equity and relative
value, both of which were underweight throughout the year. The
allocation to event driven was largely in line with the strategic
allocation.
As of December 2012, the portfolio allocations were 28 per cent
CTA/macro, 22 per cent event driven, 32 per cent per cent
long/short equity and 18 per cent per cent relative value.
The two largest positions in the portfolio were the same as in
year-end 2011. The largest was Crown Managed Futures, which is a
diversified programme of managed accounts with systematic CTAs and
global macro traders. The second largest was the Discovery Global
Opportunity Fund, a global macro manager focused on the emerging
markets.
Compared with a year ago, the portfolio became more
concentrated. Five managers were fully redeemed during the year and
five more as of year-end, while four new managers were added to the
portfolio, one in global macro, two in long/short equity and one in
event driven. An investment in a long/short equity manager was
transferred from a fund format to a managed account. The investment
degree of the portfolio fluctuated between 95 per cent and 99 per
cent. No balance sheet leverage was employed at any time during
2012.
Hedge fund industry and outlook
The HFRI Fund Weighted Composite Index delivered a 6.4 per cent
return in 2012 with broad-based gains across most strategies with
the notable exception of equity hedge-short bias. The strategy that
generated the highest returns was relative value, up 10.6 per
cent.
Investors continued to allocate to hedge funds in 2012 and
industry assets grew by 12 per cent to an all-time high of USD 2.2
trillion. Net asset inflow was USD 34 billion compared with USD 70
billion in 2011. CTA/macro and relative value strategies received
net inflows while long/short equity and event driven strategies
suffered from net outflows. New launches exceeded liquidations and
the total number of hedge funds and fund of funds surpassed 9,800 -
the second highest figure after the peak in 2007.
The returns in 2012 confirm that Castle Alternative Invest's
approach of combining rigorous manager selection, prudent risk
management and a dynamic allocation to those strategies with the
most favourable expected risk/rewards continues to deliver stable,
non-correlated returns with low volatility, as it has done for the
past 16 years. We believe that this approach will continue to
deliver superior absolute performance and are confident that in the
not too distant future, we will surpass our high water mark reached
in April 2011.
LGT Swiss Life Non Traditional Advisers AG
Investment Policy
Investment objective
The Company's investment objective is to provide Shareholders
with long term capital growth through investment in a well
diversified and actively managed portfolio of hedge funds, managed
accounts and other investment vehicles.
Investment policy
The Company invests through the Cayman Subsidiary (which is
wholly owned by the Company) into Castle Alternative Invest
(International) Plc ("CAI Ireland"). Accordingly, the investment
policy of the Company is consistent with CAI Ireland. Any change to
the investment objective or any material change to the investment
policies of CAI Ireland requires approval of its shareholders by
ordinary resolution or unanimous consent. In the event that a
change to the investment policy is approved by an ordinary
resolution, a reasonable notification period will be given to
investors in CAI Ireland to allow them to redeem their shares prior
to the implementation of such a change. In the event that CAI
Ireland changes its investment policy the Company will take such
action to ensure that the Company is not in breach of any
applicable regulation.
CAI Ireland invests in a diversified global portfolio of hedge
funds, managed accounts and other investment vehicles that employ
various non-traditional investment strategies that usually belong
to the following broadly defined main strategy classes:
Long/short equity
Long/short equity strategies represent the classic hedge fund
investment style, taking both long and short positions in equity
securities and derivatives thereof with various levels of gross and
net exposure. The strategies mainly depend on stock picking,
trading skills and portfolio risk management. The strategies may
rely on fundamental, macro and sector analysis along with both
bottom-up and top-down research.
Event driven
Event driven strategies are designed to benefit from the
consummation (or non-consummation) of various corporate events such
as re-organisations, mergers or acquisitions, bankruptcies or
various other situations. The strategies may be executed using a
wide range of instruments, including common stock and debt
instruments as well as various derivative instruments, with various
levels of leverage.
Relative value
Relative value strategies are designed to exploit observed
differentials across related market prices. Managers execute
individual trades - at times through sophisticated structures -
based on expectations that such differentials will probably narrow
(or widen) and/or embedded options, futures etc. may be re-priced.
The strategies may be applied across various instruments, including
derivatives and over-the-counter instruments, with various levels
of leverage.
CTA/macro
CTA/macro strategies mostly attempt opportunistically or
systematically to exploit pricing trends in global markets,
including interest rates, equities, currencies and commodities. The
strategies rely on macro-economic assessment or systematic trading
models that may apply various methodologies. The strategies are
primarily executed through listed financial and commodity futures,
options or swaps as well as currency instruments with various
levels of leverage.
Asset allocation
Whilst the Company aims to invest into the four main strategy
classes in a balanced proportion over the long term, the assets
invested in any particular strategy class (determined on a
look-through basis to the investment at fund level) may vary from
time to time but will not in any event exceed 50 per cent of the
value of its assets at the time the investment is made without
prior shareholder approval.
The Company will invest and manage its assets in a way which is
consistent with its objective of spreading investment risk.
The Company may invest through investment entities managed or
advised by the investment manager (or any of its affiliates) to
optimise its access to and/or returns from certain investment
strategies as long as the investment manager (or any of its
affiliates) waives, or compensates the Company for, any additional
management and/or performance fees on the management of such
vehicles.
The Company investments may include limited partnership
interests, shares, warrants, certificates, bonds, subordinated
loans and various derivative instruments.
The Company may invest unused cash in short-term (less than 12
months to maturity) and medium-term (not greater than five years to
maturity) debt instruments or hold cash with reputable banks. Where
it considers appropriate, the Company may enter into various
derivative transactions, for example in seeking to manage its
exposure to interest rate and currency fluctuations through the use
of interest rate and currency hedging arrangements, or when
implementing systematic or discretionary overlay strategies for the
purposes of efficient portfolio management.
Borrowings
There are no borrowing limits in the Articles but the directors
have determined that borrowings shall not exceed 30 per cent of the
value of the Company's assets at the time any borrowings are made.
The Company will also be geared indirectly to the extent that the
funds or other entities or investments in which the Company invests
are themselves geared. Borrowings may be used at any time for
short-term or temporary purposes, to facilitate share repurchases
(where applicable) or to meet ongoing expenses. The Company may
also borrow for investment purposes if doing so is deemed to be in
the best interests of the Company. Such borrowings will be made on
a short to medium term time horizon and the Company does not intend
to leverage its investments on a longer term basis.
CAI Ireland is permitted to borrow up to 30 per cent of CAI
Ireland's net asset value on a temporary basis including for
settlement facilities or in order to meet temporary shortages of
liquidity.
Investment restrictions
The Company may not invest more than 15 per cent of its net
assets in any single manager and no more than 10 per cent of the
Company's net assets in any single investment, at the time the
investment is made. A single investment shall be determined on a
look-through basis to the investment at fund level or as otherwise
determined by the investment manager in good faith to be a single
investment.
CAI Ireland shall not take or seek to take legal or management
control of any underlying security in which it invests.
CAI Ireland may enter into OTC derivative transactions and other
arrangements with counterparties and where assets are transferred
to a counterparty the following restrictions apply:
(i) Where CAI Ireland enters into transactions with any single
counterparty which may give rise to counterparty risk exposure in
excess of 40 per cent of its net asset value, such transactions
must be made in accordance with the conditions applicable to the
appointment of prime brokers as set out in Section 2 of the draft
Guidance Note/04 of the Central bank of Ireland. The total exposure
will be calculated to include outstanding indebtedness from the
counterparty to CAI Ireland, any securities issued by the
counterparty held by CAI Ireland, any deposits CAI Ireland has made
with the counterparty, any collateral passed by CAI Ireland to the
counterparty and any other form of expo-sure to the
counterparty;
(ii) Counterparty must have a minimum credit rating of at least
A2/P2 by Standard & Poor's and Moody's Investors Service or an
equivalent rating from a recognised rating agency; and
(iii) The percentage limitations set forth above are measured on
a running net asset value. Action will be taken as soon as
reasonably practical in the event that any of the foregoing
restrictions are breached, except where the breach is due to
appreciation or depreciation of CAI Ireland's assets, changes in
exchange rates, or by reason of the receipt of rights, bonuses,
benefits in the nature of capital or by reason of any other action
affecting every holder of that investment in which case the
position will be corrected with due regard to the best interests of
its shareholders.
If and for so long as is required by the UK Listing Rules in
relation to investment entities , the Company has adopted the
following investment restrictions:
- Any material change in the Company's published investment
policy will only be made with the prior approval of Shareholders by
ordinary resolution.
- Not more than 10 per cent of the value of the Company's assets
will be invested in other closed-ended investment funds listed on
the Official List of the UK Listing Authority ("the Official List")
except for those which themselves have published investment
policies to invest not more than 15 per cent of their total assets
in other closed-ended investment funds listed on the Official
List.
PricewaterhouseCoopers Ltd
Birchstrasse 160
8050 Zürich
Switzerland
Phone +41 58 792 44 00
Fax +41 58 792 44 10
Report of the statutory auditor on the consolidated financial
statements
To the general meeting of
Castle Alternative AG
Pfäffikon
As statutory auditor, we have audited the financial statements
of Castle Alternative Invest AG, which comprise the balance sheet,
statement of income and notes (pages 18 to 62) for the year ended
31 December 2012.
Board of directors' responsibility
The board of directors is responsible for the preparation of the
financial statements in accordance with the requirements of Swiss
law and the company's articles of incorporation. This
responsibility includes designing, implementing and maintaining an
internal control system relevant to the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error. The board of directors is further responsible for
selecting and applying appropriate accounting policies and making
accounting esti-mates that are reasonable in the circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with Swiss law and Swiss Auditing Standards. Those standards
require that we plan and perform the audit to obtain reasonable
as-surance whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgement, including
the assessment of the risks of material misstatement of the
finan-cial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers the internal control
system relevant to the entity's preparation and fair presentation
of the financial statements in order to design audit procedures
that are ap-propriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's
internal control system. An audit also includes evaluating the
appropriateness of the accounting policies used and the
reasonableness of accounting estimates made, as well as evaluating
the overall presentation of the financial statements. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements for the
year ended 31 December 2012 give a true and fair view of the
financial position, the results of operations and the cash flows in
accordance with the International Financial Reporting Standards
(IFRS) and comply with the Article 14 of the Directive on Financial
Reporting (DFR) of the SIX Swiss Exchange as well as Swiss law.
PricewaterhouseCoopers Ltd
Emphasis of matter
In accordance with Article 16 of the Directive on Financial
Reporting (DFR) of the SIX Swiss Exchange we draw attention to
notes 3, 13, and 21e) of the consolidated financial statements. As
indicated in note 13, the financial statements include unquoted
investments stated at their fair value of USD 323 million. Because
of the inherent uncertainty associated with the valuation of such
investments and the absence of a liquid market, these fair values
may differ from their realisable values, and the difference could
be material. The determination of the fair values of these
investments is the responsibility of the board of directors. The
valuation procedures used are disclosed in note 3, 13 and 21e) of
the consolidated financial statements. We have reviewed the
procedures applied by the board of directors in valuing such
investments and have viewed the underlying documentation. While in
the circumstances the procedures appear to be reasonable and the
documentation appropriate, the determination of fair values
involves subjective judgment which cannot be independently
verified. Our opinion is not qualified in respect of this
matter.
Report on other legal requirements
We confirm that we meet the legal requirements on licensing
according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no
circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss
Auditing Standard 890, we confirm that an internal control system
exists which has been designed for the preparation of financial
statements according to the instructions of the board of
directors.
We further confirm that the proposed appropriation of available
earnings complies with Swiss law and the Company's articles of
in-corporation. We recommend that the financial statements
submitted to you be approved.
PricewaterhouseCoopers Ltd.
Guido Andermatt Rebecca Berlinger
Audit expert Audit expert
Auditor in charge
Zürich, 2 April 2013
Audited consolidated statement of comprehensive
income
for the year ended 31 December 2012 (All amounts in USD thousands
unless otherwise stated)
Note 2012 2011
Income
Net gain/(loss) on investments designated
at fair value through profit or loss 5 26,299 (19,642)
-------------------------------------------------- ------ ----------- -----------
Income from current assets:
-------------------------------------------------- ------ ----------- -----------
Loss on foreign exchange, net (7) (14)
-------------------------------------------------- ------ ----------- -----------
Interest income 6 9 16
-------------------------------------------------- ------ ----------- -----------
Other income 32 250
-------------------------------------------------- ------ ----------- -----------
Total income from current assets 34 252
-------------------------------------------------- ------ ----------- -----------
Total income/(loss) 26,333 (19,390)
-------------------------------------------------- ------ ----------- -----------
Expenses
-------------------------------------------------- ------ ----------- -----------
Management and performance fees 7 (6,293) (7,372)
-------------------------------------------------- ------ ----------- -----------
Other operating expenses 8 (1,531) (1,727)
-------------------------------------------------- ------ ----------- -----------
Total operating expenses (7,824) (9,099)
-------------------------------------------------- ------ ----------- -----------
Operating profit/(loss) 18,509 (28,489)
-------------------------------------------------- ------ ----------- -----------
Finance costs 9 (13) (35)
-------------------------------------------------- ------ ----------- -----------
Profit/(loss) for the year 18,496 (28,524)
-------------------------------------------------- ------ ----------- -----------
Total comprehensive income/(loss) for the
year 18,496 (28,524)
-------------------------------------------------- ------ ----------- -----------
Profit/(loss) attributable to:
-------------------------------------------------- ------ ----------- -----------
Shareholders 10,122 (19,165)
-------------------------------------------------- ------ ----------- -----------
Non-controlling interest 2 (f) 8,374 (9,359)
-------------------------------------------------- ------ ----------- -----------
18,496 (28,524)
-------------------------------------------------- ------ ----------- -----------
Total comprehensive income/(loss) attributable
to:
-------------------------------------------------- ------ ----------- -----------
Shareholders 10,122 (19,165)
-------------------------------------------------- ------ ----------- -----------
Non-controlling interest 2 (f) 8,374 (9,359)
-------------------------------------------------- ------ ----------- -----------
18,496 (28,524)
-------------------------------------------------- ------ ----------- -----------
Earnings per share (in USD) attributable
to equity holders
-------------------------------------------------- ------ ----------- -----------
Weighted average number of shares outstanding
during the year 2 (o) 14,258,135 15,608,324
-------------------------------------------------- ------ ----------- -----------
Basic profit/(loss) per share USD 0.71 USD (1.23)
-------------------------------------------------- ------ ----------- -----------
Diluted profit/(loss) per share USD 0.71 USD (1.23)
-------------------------------------------------- ------ ----------- -----------
The accompanying notes on pages 24 to 62 form an integral part
of these consolidated financial statements.
Audited consolidated balance sheet
as of 31 December 2012 (All amounts in USD
thousands unless otherwise stated)
Note 2012 2011
Assets
-------------------------------------------------------- ----- ------------ ------------
Current assets:
-------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents 11 27,758 8,517
-------------------------------------------------------- ----- ------------ ------------
Other current assets 12 56,814 547
-------------------------------------------------------- ----- ------------ ------------
Total current assets 84,572 9,064
-------------------------------------------------------- ----- ------------ ------------
Non-current assets:
-------------------------------------------------------- ----- ------------ ------------
Investments designated at fair value through
profit or loss 13 322,579 394,552
-------------------------------------------------------- ----- ------------ ------------
Total assets 407,151 403,616
-------------------------------------------------------- ----- ------------ ------------
Liabilities
-------------------------------------------------------- ----- ------------ ------------
Current liabilities:
-------------------------------------------------------- ----- ------------ ------------
Due to banks: overdraft 14 - 789
-------------------------------------------------------- ----- ------------ ------------
Accounts payable and accrued liabilities 15 152,632 1,379
-------------------------------------------------------- ----- ------------ ------------
Total current liabilities 152,632 2,168
-------------------------------------------------------- ----- ------------ ------------
Equity
-------------------------------------------------------- ----- ------------ ------------
Shareholders' equity:
-------------------------------------------------------- ----- ------------ ------------
Share capital 16 56,182 62,394
-------------------------------------------------------- ----- ------------ ------------
Additional paid-in capital 63,137 63,137
-------------------------------------------------------- ----- ------------ ------------
Less treasury shares at cost 16 (14,867) (19,794)
-------------------------------------------------------- ----- ------------ ------------
Less treasury shares 2nd line at cost (bought
for cancellation) 16 (19,045) (6,582)
-------------------------------------------------------- ----- ------------ ------------
Retained earnings 144,393 141,250
-------------------------------------------------------- ----- ------------ ------------
Total shareholders' equity 229,800 240,405
-------------------------------------------------------- ----- ------------ ------------
16,
2
Non-controlling interest (f) 24,719 161,043
-------------------------------------------------------- ----- ------------ ------------
Total equity 254,519 401,448
-------------------------------------------------------- ----- ------------ ------------
Total liabilities and equity 407,151 403,616
-------------------------------------------------------- ----- ------------ ------------
2
Net asset value per share (in USD) (o)
-------------------------------------------------------- ----- ------------ ------------
Number of shares issued as at the year end 16,352,817 17,481,596
-------------------------------------------------------- ----- ------------ ------------
Number of treasury shares as at the year
end (1,303,487) (1,735,487)
-------------------------------------------------------- ----- ------------ ------------
Number of treasury shares 2nd line (bought
for cancellation) as at the year end (1,496,670) (555,580)
-------------------------------------------------------- ----- ------------ ------------
Number of shares outstanding net of treasury
shares as at the year end 13,552,660 15,190,529
-------------------------------------------------------- ----- ------------ ------------
Net asset value per share 16.96 15.83
-------------------------------------------------------- ----- ------------ ------------
Adjustment from allocating treasury shares 2
proportionately to non-controlling interest (f)
-------------------------------------------------------- ----- ------------ ------------
Total shareholders' equity before adjustment 229,800 240,405
--------------------------------------------------------
Adjustment to shareholders' equity 5,466 10,047
-------------------------------------------------------- ------------
Total shareholders' equity after adjustment 235,266 250,452
--------------------------------------------------------
Number of treasury shares allocated to non-controlling
interest 430,406 862,406
-------------------------------------------------------- ----- ------------ ------------
Number of shares outstanding after adjustment 13,983,066 16,052,935
--------------------------------------------------------
Net asset value per share (in USD) after
allocating treasury shares proportionately
to non-controlling interest 16.83 15.60
-------------------------------------------------------- ----- ------------ ------------
The accompanying notes on pages 24 to 62 form an
integral part of these consolidated financial statements.
Audited consolidated statement of cash flows
for the year ended 31 December 2012 (All amounts
in USD thousands unless otherwise stated)
2012 2011
Note
---------------------------------------------------- ----- --------- ----------
Cash flows from/(used in) operating activities:
---------------------------------------------------- ----- --------- ----------
Purchase of investments (56,329) (92,893)
---------------------------------------------------- ----- --------- ----------
Proceeds from sales of investments 117,616 257,778
---------------------------------------------------- ----- --------- ----------
Interest received 6 9 16
---------------------------------------------------- ----- --------- ----------
Operating expenses paid 8 (9,129) (8,679)
---------------------------------------------------- ----- --------- ----------
Net cash from operating activities 52,167 156,222
---------------------------------------------------- ----- --------- ----------
Cash flows from/(used in) financing activities:
---------------------------------------------------- ----- --------- ----------
Interest paid 9 (13) (34)
---------------------------------------------------- ----- --------- ----------
Non-controlling interest capital transactions,
gross 16 (5,970) (137,815)
---------------------------------------------------- ----- --------- ----------
Purchase of treasury shares 2nd line (bought
for cancellation) 16 (26,154) (6,582)
----------
Net cash used in financing activities (32,137) (144,431)
---------------------------------------------------- ----- --------- ----------
Net increase in cash and cash equivalents 20,030 11,791
---------------------------------------------------- ----- --------- ----------
Cash and cash equivalents, beginning of the
year 7,728 (4,063)
---------------------------------------------------- ----- --------- ----------
Cash and cash equivalents, end of the year 27,758 7,728
---------------------------------------------------- ----- --------- ----------
Cash and cash equivalents consist of the following
as at 31 December:
---------------------------------------------------- ----- --------- ----------
Cash at banks 11 22,108 8,517
---------------------------------------------------- ----- --------- ----------
Time deposits < 90 days 11 5,650 -
---------------------------------------------------- ----- --------- ----------
Overdraft - (789)
Total 27,758 7,728
---------------------------------------------------- ----- --------- ----------
Non-cash transactions:
---------------------------------------------------- ----- --------- ----------
Switching of share classes:
---------------------------------------------------- ----- --------- ----------
Purchase of investments (1) (12,529) (2,441)
---------------------------------------------------- ----- --------- ----------
Proceeds from sales of investments (1) 12,529 2,441
---------------------------------------------------- ----- --------- ----------
Capital transaction in-kind:
Redemption in-kind (2) 5,427 (1,040)
Treasury shares used for redemption in-kind
(2) (5,427) 1,040
Total - -
---------------------------------------------------- ----- --------- ----------
The accompanying notes on pages 24 to 62 form
an integral part of these consolidated financial
statements.
(1) These two lines show the non-cash movements that occur when
the Group switches from one share class of an investment fund into
another share class of the same fund.
(2) These two lines show the non-cash movements that occurred in
2011 and 2012 when Swiss Life AG switched their holding in the
Company to a direct holding in the Ireland Subsidiary and the
redemption in-kind using treasury shares which took place in 2011
and 2012. See also notes 1 and 16.
Audited consolidated statement of changes in equity
for the year ended 31 December 2012 (All amounts
in USD thousands unless otherwise stated)
Additional Less Non-
Share paid-in treasury Retained controlling Total
capital capital shares earnings interest equity
---------------------------- --------- ----------- --------- --------- ------------ ----------
1 January 2011 73,072 63,137 (51,323) 180,226 309,130 574,242
---------------------------- --------- ----------- --------- --------- ------------ ----------
Total comprehensive loss
for the period - - - (19,165) (9,359) (28,524)
---------------------------- --------- ----------- --------- --------- ------------ ----------
Cancellation of treasury
shares 2nd line (10,678) - 30,617 (19,939) - -
---------------------------- --------- ----------- --------- --------- ------------ ----------
Purchase of treasury
shares 2nd line (bought
for cancellation) - - (6,582) - - (6,582)
---------------------------- --------- ----------- --------- --------- ------------ ----------
Non-controlling interest
transactions:
---------------------------- --------- ----------- --------- --------- ------------ ----------
Treasury shares used
for redemption in-kind - - 912 128 (1,040) -
---------------------------- --------- ----------- --------- --------- ------------ ----------
Capital transactions - - - - (137,688) (137,688)
---------------------------- --------- ------------ ----------
31 December 2011 62,394 63,137 (26,376) 141,250 161,043 401,448
---------------------------- --------- ----------- --------- --------- ------------ ----------
1 January 2012 62,394 63,137 (26,376) 141,250 161,043 401,448
---------------------------- --------- ----------- --------- --------- ------------ ----------
Total comprehensive income
for the period - - - 10,122 8,374 18,496
---------------------------- --------- ----------- --------- --------- ------------ ----------
Cancellation of treasury
shares 2nd line (6,212) - 13,691 (7,479) - -
---------------------------- --------- ----------- --------- --------- ------------ ----------
Purchase of treasury
shares 2nd line (bought
for cancellation) - - (26,154) - - (26,154)
---------------------------- --------- ----------- --------- --------- ------------ ----------
Non-controlling interest
transactions:
---------------------------- --------- ----------- --------- --------- ------------ ----------
Treasury shares used
for redemption in-kind - - 4,927 500 (5,427) -
---------------------------- --------- ----------- --------- --------- ------------ ----------
Capital transactions - - - - (139,271) (139,271)
---------------------------- --------- ------------ ----------
31 December 2012 56,182 63,137 (33,912) 144,393 24,719 254,519
---------------------------- --------- ----------- --------- --------- ------------ ----------
The accompanying notes on pages 24 to 62 form
an integral part of these consolidated financial
statements.
Notes to the consolidated financial statements
For the year ended 31 December 2012
(All amounts in USD thousand unless otherwise stated)
1. Organisation and business activity
Castle Alternative Invest AG, Pfäffikon ("the Company"), is a
joint stock corporation established for an indefinite period in the
Canton of Schwyz, Switzerland, by deed dated 24 July 1996. The
Company was registered in the Commercial Register of the Canton of
Schwyz on 30 July 1996. The Company's business is principally
conducted through two subsidiaries; Castle Alternative Invest
(Overseas) Ltd., Grand Cayman ("the Cayman Subsidiary") and Castle
Alternative Invest (International) plc, Dublin ("the Ire-land
Subsidiary"). Since 10 April 1997, the shares of the Company have
been listed in Swiss Francs on the SIX Swiss Exchange and on 21
January 2002, a listing in US Dollar on the SIX Swiss Exchange
followed. As of 5 June 2009 the Company is also listed in US Dollar
on the London Stock Exchange.
The Castle Alternative Invest Group ("the Group") currently
consists of the Company, the Cayman Subsidiary and the Ireland
Subsidiary.
On 16 September 2010 the Company announced that it had entered
into an agreement with Swiss Life AG, its largest shareholder,
pursuant to which it intended to effect a reduction of the
Company's share capital from TCHF 192,505 to TCHF 98,535 through
the cancellation of 18,793,940 shares held by Swiss Life AG. The
proposal was approved at the extraordinary general meeting held on
12 October 2010 and the restructuring was completed on 20 December
2010. In return Swiss Life AG received a substantially equivalent
proportion of shares in the Ireland Subsidiary, the entity through
which the majority of the Company's portfolio of investments is
held. During the period from 21 June 2010 to 31 December 2012 the
Company purchased treasury shares on its second trading line.
According to the programme periods the second line treasury shares
were cancelled in August 2011 and in August 2012. As of 31 December
2012 the Company's share capital amounts to TCHF 81,764 or
16,352,817 shares (2011: TCHF 87,408 or 17,481,596 shares).
Castle Alternative Invest (Overseas) Ltd., Grand Cayman, was
incorporated on 31 July 1996 as an exempted company under the laws
of the Cayman Islands. The authorised share capital is USD 31,100,
composed entirely of voting participating redeemable ordinary
shares, which are held entirely by the Company. The Group
consolidates the Cayman Subsidiary in compliance with IFRS 10.
Castle Alternative Invest (International) plc, Dublin, was
established as an open-ended investment company with variable
capital and limited liability under the laws of Ireland on 19
February 2001. At 31 December 2012, its capital amounts to TUSD
266,778 (2011: TUSD 422,011) and it is a subsidiary of the Cayman
Subsidiary. The Ireland Subsidiary became active on 19 December
2001 after receiving authorisation from the Central Bank of
Ireland. The share capital is divided into management shares and
participating shares. The management shares are held by LGT Group
Foundation, LGT Bank (Ireland) Limited and LGT Fund Managers
(Ireland) Limited. With effect from 16 December 2010 the Ireland
Subsidiary was restructured into an open-ended investment company
with limited liquidity, variable capital and limited liability. At
the same time the participating shares were split into two classes
of shares; Class O and Class I. Class O is held by the Cayman
Subsidiary and Class I is held by Swiss Life AG.
On 1 April 2011 Swiss Life AG partially redeemed its holding in
Class I of the Ireland Subsidiary. The redemption was paid out in
cash with the remaining amount being placed in a newly opened side
pocket share class for illiquid assets (Class RI). At the same time
a sidepocket share class for the Cayman Subsidiary's portion of the
illiquid assets was also created (Class RO). The sidepocket share
classes have paid out proceeds as their assets were realised. On 31
December 2012 Swiss Life fully redeemed its holding in the Class I
shares. As per 31 December 2012 Swiss Life AG's holding in the
remaining Class RI shares comprised 9.27 per cent (2011: Class I
and Class RI: 38.16 per cent) of the net asset value of the Ireland
Subsidiary. The Cayman Subsidiary's holding in Class O and Class RO
comprised 90.73 per cent of the net asset value of the Ireland
Subsidiary (2011: 61.84 per cent). The Company controls the Ireland
Subsidiary and consolidates it in compliance with IFRS 10. Swiss
Life AG's holding in the Ireland Sub-sidiary is shown as a
non-controlling interest in the Group's consolidated financial
statements.
The Group regards shareholders' equity as the capital it
manages. The Group's investment objective is to maximise the
long-term returns to shareholders by investing, through its
Subsidiaries or through such other subsidiaries as the Company may
establish from time to time, in a diversified portfolio of
non-traditional investments. Non-traditional investments mean and
include investment funds and other investment structures (together
the "Investment Vehicles") which aim for absolute returns and use a
broad range of investment strategies including short sales and
leverage. The Group offers the essential benefits of hedge fund
investing in a well-diversified and actively managed global
portfolio of high-quality hedge funds: absolute performance, low
volatility, and low correlation to traditional assets.
The Group targets to generate absolute returns net to investors
independently of major market cycles. In order to reach its
investment objectives, the Group features an optimally balanced
portfolio across all major hedge fund strategies: long/short,
relative value, event driven and macro/CTA. The Group's investment
manager provides active portfolio management, thorough due
diligence and risk management. The strategy relies on the
investment manager's experience and access to excellent hedge fund
managers worldwide. No assurance can be given that the Group's
investment objective will be achieved and investment results may
vary substantially over time.
The consolidated financial statements are presented in US Dollar
which is the Group's entities' functional currency and the Group's
presentation currency.
As of 31 December 2012 and 2011 the Group did not employ any
employees.
2. Summary of accounting policies for the consolidated financial
statements
Basis of preparation
The accompanying consolidated financial statements of the Group
for the year ended 31 Decem-ber 2012 have been prepared in
accordance with International Financial Reporting Standards (IFRS)
formulated by the International Accounting Standards Board (IASB)
and comply with Swiss Law and the accounting guidelines laid down
in the Directive on Financial Reporting (DFR) of the SIX Swiss
Exchange as well as the guidelines set out by the United Kingdom
Listing Authority.
The consolidated financial statements of the Group have been
prepared under the historical cost convention as modified by the
revaluation of financial assets and financial liabilities held at
fair value through profit or loss.
The board considers the annual report and accounts, taken as a
whole, is fair, balanced and un-derstandable and provides the
information necessary for the shareholders to assess the com-pany's
performance, business model and strategy.
a) Standards and amendments to published standards that are
mandatory for the finan cial year beginning on or after 1 January
2012
There are no IFRSs or IFRIC interpretations that are effective
for the first time for the financial year beginning on or after 1
January 2012 that would be expected to have a material impact on
the Group.
b) b) Standards and amendments to published standards effective
after 1 January 2012 that have been early adopted
-- IFRS 10, "Consolidated Financial Statements", (effective 1
January 2013). The new standard establishes principles for the
presentation and preparation of consolidated financial state-ments
when an entity controls one or more other entities. It supersedes
IAS 27 "Consolidated and Separate Financial Statements" and SIC-12
"Consolidation - Special Purpose Entities" and is effective for
annual periods beginning on or after 1 January 2013. The Group
decided for early adoption in 2011;
-- IFRS 12, "Disclosure of Interests in Other Entities",
(effective 1 January 2013) applies to enti-ties that have an
interest in a subsidiary, a joint arrangement, an associate or an
unconsoli-dated structured entity. The Group decided for early
adoption in 2011.
c) Standards and amendments to published standards effective
after 1 January 2012 that have not been early adopted
-- Amendment to IAS 1, "Financial statement presentation"
regarding other comprehensive in-come (effective 1 July 2012). The
main change resulting from these amendments is a re-quirement for
entities to group items presented in Other Comprehensive Income
(OCI) on the basis of whether they are potentially recycled to
profit or loss (reclassification adjustments). The amendments do
not address which items are presented in OCI. This new standard
will not have any effect on the Group's financial statements;
and
-- IFRS 13, "Fair value measurement", (effective 1 January
2013). This standard aims to im-prove consistency and reduce
complexity by providing a precise definition of fair value and a
single source of fair value measurement and disclosure requirements
for use across IFRSs. The requirements, which are largely aligned
between IFRSs and US GAAP, do not extend the use of fair value
accounting but provide guidance on how it should be applied where
its use is already required or permitted by other standards within
IFRSs or US GAAP. This new stan-dard is not expected to have a
material impact on the Group's financial statements; and
-- IFRS 9, "Financial instruments", (effective 1 January 2015).
This is the first part of a new standard on classification and
measurement of financial assets and financial liabilities that will
replace IAS 39, 'Financial instruments: Recognition and
measurement'. IFRS 9 has two measurement categories: amortised cost
and fair value. All equity instruments are measured at fair value.
A debt instrument is measured at amortised cost only if the entity
is holding it to collect contractual cash flows and the cash flows
represent principal and interest. For liabili-ties, the standard
retains most of the IAS 39 requirements. These include
amortised-cost ac-counting for most financial liabilities, with
bifurcation of embedded derivatives. The main change is that, in
cases where the fair value option is taken for financial
liabilities, the part of a fair value change due to an entity's own
credit risk is recorded in other comprehensive income rather than
the income statement, unless this creates an accounting mismatch.
The Group has yet to assess the full impact of this standard and
has not yet decided when to adopt it.
There are no other IFRSs or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
the Group.
d) Use of estimates
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. The estimates and associated assumptions are
based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of
which form the basis of making the judgments about carry-ing values
of assets and liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates. See also
note 2 i), (iii).
e) Basis of consolidation
The consolidated financial statements are based on the financial
statements of the individual Group companies prepared using uniform
accounting principles and drawn up in accordance with the
regulations governing the rendering of accounts in terms of the
Listing Regulations of the SIX Swiss Exchange, of the guidelines
set out by the United Kingdom Listing Authority and with the IFRS
issued by the IASB.
The consolidated financial statements include all assets and
liabilities of the Company and its di-rect and indirect
subsidiaries:
-- Castle Alternative Invest (Overseas) Ltd., Grand Cayman
-- Castle Alternative Invest (International) plc, Dublin
In May 2011 the IASB issued IFRS 10, "Consolidated financial
statements", which replaces all of the guidance on control and
consolidation in IAS 27, "Consolidated and separate financial
state-ments", and SIC-12, "Consolidation - special purpose
entities". As mentioned in note 2 b) the Group, in 2011, chose to
early adopt IFRS 10. The revised definition of control focuses on
the need to have both power and variable returns before control is
present. Power is the current ability to direct the activities that
significantly influence returns. Returns must vary and can be
positive, negative or both. In light of the new definition of
control, the Group reassessed its ability to direct the activities
that significantly influence returns for each of the Subsidiaries
and came to the con-clusion that the adoption of IFRS 10 had no
impact for the Group and the Ireland and Cayman Subsidiaries
continued to be consolidated as they fulfil the new
prerequisites.
Subsidiaries are consolidated from the date on which effective
control is transferred to the Group and are no longer consolidated
from the date that control ceases.
Intercompany transactions, balances, unrealised gains and losses
on transactions between Group companies are eliminated. Accounting
policies of subsidiaries have been changed where neces-sary to
ensure consistency with the policies adopted by the Group.
f) Non-controlling interest
Non-controlling interests in the consolidated financial
statements are presented as a component of equity. The profit or
loss for the period and the total comprehensive income are
allocated in the statement of comprehensive income to the amounts
attributable to non-controlling interests and to the
shareholders.
Under the accounting provisions of IFRS, treasury shares held by
Group entities must be deducted from equity and eliminated from the
Group's number of outstanding shares. For the Group this also
includes the treasury shares held for and on behalf of the
non-controlling interest. In order to arrive at the true economic
value of the Group, the non-controlling interest's portion of the
treasury shares has been adjusted for. On the consolidated balance
sheet the cost value (2012: TUSD 5,466, 2011: TUSD 10,047) for
these shares has been added back to shareholders'equity and the
number of shares (2012: 430,406, 2011: 862,406) has also been added
back to the number of outstanding shares. These adjustments result
in an economic net asset value per share of USD 16.83 (2011: USD
15.60).
g) Foreign currency
The functional currency of the Group is US Dollar. The use of US
Dollar as the functional currency stems from the fact that the
Group is investing in assets whose base currency is predominately
in US Dollar. The Group has also used the US Dollar as its
presentation currency.
Transactions in foreign currencies are recorded at the exchange
rate prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are revalued into US
Dollar at the exchange rates prevailing at the balance sheet date.
Unrealised exchange gains and losses resulting from the revaluation
of investments at fair value through profit or loss and denominated
in foreign currency are recognised in the consolidated statement of
comprehensive income. Other exchange gains and losses are also
included in the consolidated statement of comprehensive income.
h) Cash and cash equivalents
Cash and cash equivalents comprise demand, call and term
deposits with a maturity of three months or less. For the purpose
of the consolidated cash flow statement, cash and cash equivalents
comprise all cash, short-term deposits and other money market
instruments with an original maturity of three months or less, net
of bank overdrafts on demand. Cash and cash equivalents are
recorded at nominal value.
i) Financial instruments
Under IAS 39, the Group has designated all its investments and
securities into the financial assets at fair value through profit
or loss category. This category was chosen as it reflects the
business of an investment fund: the assets are managed and their
performance evaluated on a fair value basis and management
decisions are therefore reflected in the consolidated statement of
comprehensive income. The Group's policy is for the investment
manager and the board of directors to evaluate the information
about these financial assets on a fair value basis together with
other related finan-cial information. The category of financial
assets and liabilities at fair value through profit or loss
comprises:
-- Financial instruments designated at fair value through profit
or loss upon initial recognition. These include financial assets
that are not held for trading purposes but which may be sold.
-- Financial assets other than those at fair value through
profit or loss, are classified as loans and receivables and are
carried at amortised cost, less impairment losses, if any.
-- Financial liabilities that are not designated at fair value
through profit or loss include payables under repurchase agreements
and accounts payable.
i. (i) Recognition
The Group recognises financial assets and financial liabilities
on the date it becomes a party to the contractual provisions of the
instrument.
Regular way purchases and sales of financial assets are
recognised on a trade date basis. From this date any gains and
losses arising from changes in fair value of the financial assets
or financial liabilities are recorded. Financial liabilities are
not recognised until the entity becomes party to the contractual
provisions of the instrument. Financial instruments are
derecognised when the rights to receive cash flows from the
financial assets have expired or where the Group has transferred
sub-stantially all risks and rewards.
ii. (ii) Measurement
Financial instruments are measured initially at fair value
(transaction price). Transaction costs on financial assets and
financial liabilities at fair value through profit or loss are
expensed immedi-ately. Subsequent to initial recognition, all
instruments classified at fair value through profit or loss are
measured at fair value with changes in their fair value recognised
in the consolidated statement of comprehensive income. Financial
assets classified as loans and receivables are carried at amortised
cost, less impairment losses, if any. Transaction costs on
financial assets classified as loans and receivables are
capitalised at initial recognition. Financial liabilities, other
than those at fair value through profit or loss, are measured at
amortised cost.
iii. (iii) Fair value measurement principles and estimation
Fund investments for which market quotations are not readily
available are valued at their fair val-ues as described in the
process below. The fund investments are normally valued at the
underlying net asset value as advised by the
managers/administrators of these funds, unless the directors are
aware of good reason why such a valuation would not be the most
appropriate indicator of fair value. Such valuations are
necessarily dependent upon the reasonableness of the valuations
pro-vided by the underlying managers/administrators of such funds
and whether the valuation bases used are IFRS and fair value
compliant. The responsibility for determining the fair value lies
exclu-sively with the board of directors. The board of directors,
under advice from the investment man-ager, may perform additional
procedures on fund investments, including but not limited to
underly-ing manager/administrator due diligence and other
analytical procedures. The board of directors together with the
investment manager also reviews management information provided by
fund investments on a regular basis. If the directors are aware of
a good reason why a particular fund valuation would not be the most
appropriate indicator of fair value the directors will work with
the underlying manager of that investment in an attempt to obtain
more meaningful fair value informa-tion.
The board of directors, together with the investment manager,
will determine, in good faith, fair value by considering all
appropriate and applicable factors relevant to the valuation of
fund invest-ments including, but not limited to, the following:
-- Reference to fund investment reporting information;
-- Reference to appropriate investment monitoring tools used by
the investment manager; and
-- Reference to ongoing investment and business due diligence.
Notwithstanding the above, the variety of valuation bases that
may be adopted, the quality of man-agement information provided by
fund investments and the lack of liquid markets for such fund
investments means that there are inherent difficulties in
determining the fair values of these in-vestments that cannot be
fully eliminated. Therefore, the amounts realised on the sale or
redemp-tion of fund investments may differ from the fair values
reflected in these financial statements and the differences may be
significant.
Because fund investments are typically not publicly traded,
redemptions can only be made by the Subsidiaries on the redemption
dates and subject to the required notice periods specified in the
offering documents of each fund investment. The rights of the
Subsidiaries to request redemption from fund investments may vary
in frequency from monthly to annual redemptions. As a result, the
carrying values of such fund investments may not be indicative of
the values ultimately realised on redemption. In addition, the
Subsidiaries' ability to redeem its investments may ultimately be
mate-rially affected by the actions of other investors who have
also invested in these fund investments.
iv. (iv) Realised gains
Realised gains on investments and securities are shown on a net
basis in the consolidated state-ment of comprehensive income.
Realised gains are recognised as being the difference between the
cost value of an investment and the proceeds received upon the sale
of the investment in the year that the investment was sold.
v. (v) Dividends
Dividends are recognised in the consolidated statement of
comprehensive income within realised gains at the time upon the
declaration of such dividends.
vi. (vi) Interest income and finance costs
vii. Interest income and finance costs as well as other income
and expenses are recognised in the consolidated statement of
comprehensive income on an accruals basis based on the effective
interest method.
j) Other current assets
Other current assets are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
k) Due to banks
Amounts due to banks are recognised initially at fair value, net
of transaction costs incurred. Due to banks are subsequently stated
at amortised cost; any differences between the proceeds (net of
transaction costs) and the redemption value is recognised in the
consolidated statement of comprehensive income over the period of
the borrowings using the effective interest method.
l) Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are recognised
initially at fair value and subsequently stated at amortised cost
using the effective interest method.
m) Treasury shares
The Company can buy and sell treasury shares in accordance with
the Company's articles of as-association, Swiss company law and in
compliance with the listing rules of the SIX Swiss Exchange and the
United Kingdom Listing Authority. Treasury shares are treated as a
deduction from share-holders' equity. The gains and losses on sales
of treasury shares are credited or charged to the retained earnings
account.
n) Share capital
The Company's share capital is divided into 16,352,817 (2011:
17,481,596) registered shares with a par value of CHF 5 per share.
The shares are fully paid in.
o) Net asset value per share and earnings per share
The net asset value per share is calculated by dividing the net
assets included in the consolidated balance sheet (excluding
non-controlling interest) by the number of participating shares
out-standing less treasury shares at the year end.
Basic profit per share is calculated by dividing the net profit
attributable to the shareholders by the weighted average number of
shares outstanding during the period. Diluted profit per share is
calculated by adjusting the weighted average number of shares
outstanding to assume conversion of all dilutive potential
shares.
p) Taxes
General: Taxes are provided based on reported income. Capital
taxes paid are recorded in other expenses, whereas non-accrued
refunds are recognised in other income.
Castle Alternative Invest AG, Pfäffikon
Taxes are provided based on reported income. Capital taxes paid
are recorded in other expenses, whereas non-accrued refunds are
recognised in other income.
For Schwyz cantonal and communal tax purposes, the Company is
taxed as a holding company and is as such only liable for capital
taxes. All relevant income of the Company, including the dividend
income and capital gains from its investments, is exempt from
taxation at the cantonal and communal level.
For Swiss federal tax purposes, an income tax is levied.
However, there is a participation exemption on dividend income and
capital gains on qualifying participations. The result of the
participation exemption relief is that dividend income and capital
gains are almost fully excluded from taxation.
Castle Alternative Invest (Overseas) Ltd., Grand Cayman
The activity of the Cayman Subsidiary is not subject to any
income, withholding or capital taxes in the Cayman Islands. However
it does invest in securities and subsidiaries whose dividends may
be subject to non-refundable foreign withholding taxes.
Castle Alternative Invest (International) plc., Dublin
The activity of the Ireland Subsidiary is not subject to any
income, withholding or capital taxes in Ireland. However, it does
invest in securities and subsidiaries whose dividends may be
subject to non-refundable foreign withholding taxes.
q) Segment reporting
IFRS 8 requires entities to define operating segments and
segment performance in the financial statements based on
information used by the chief operating decision-maker. The
investment manager is considered to be the chief operating
decision-maker. An operating segment is a group of assets and
operations engaged in providing products or services that are
subject to risks and returns that are different from those of other
operating segments.
The sole operating segment of the Group is investing in hedge
funds. The investment manager works as a team for the entire
portfolio, asset allocation is based on a single, integrated
investment strategy and the Group's performance is evaluated on an
overall basis. Thus the results published in this report correspond
to the sole operating segment of investing in hedge funds.
r) Related parties
Related parties are individuals and companies where the
individual or company has the ability, directly or indirectly, to
control the other party or to exercise significant influence over
the other party in making financial and operating decisions.
3. Critical accounting estimates
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets within the next financial year are
the fair value of non-quoted investments. The fair value of
financial instruments that are not traded in an active market is
determined by reference to the published net asset values of such
underlying funds, as adjusted where relevant by the board of
directors as described in the accounting policies. In the case of
such an adjustment, changes in assumptions could affect the
reported fair value of these investments. The variety of valuation
bases that may be adopted, the quality of management information
provided by fund investments and the lack of liquid markets for
such fund investments means that there are inherent difficulties in
determining the fair values of these investments that cannot be
fully eliminated. Therefore, the amounts realised on the sale or
redemption of fund investments may differ from the fair values
reflected in these financial statements and the differences may be
material.
4. Foreign exchange rates
The following exchange rates have been applied to translate the
foreign currencies of significance for the Group:
Foreign exchange rates Unit 2012 2011
USD USD
------------------------ ------ ------- -------
Year-end rates
------------------------ ------ ------- -------
1
Swiss Francs CHF 1.0934 1.0653
------------------------ ------ ------- -------
1
British Pounds GBP 1.6242 1.5509
------------------------ ------ ------- -------
Foreign exchange rates Unit 2012 2011
USD USD
------------------------ ------ ------- -------
Average annual rates
------------------------ ------ ------- -------
1
Swiss Francs CHF 1.0716 1.1357
------------------------ ------ ------- -------
1
British Pounds GBP 1.5925 1.6104
------------------------ ------ ------- -------
5. Net gain/(loss) from investments designated at fair value through profit or loss
The net gain/(loss) on investments designated at fair value
through profit or loss was earned on:
2012 2011
TUSD TUSD
------------------------------------ -------- ---------
Realised gains/(losses), net
on investments:
------------------------------------ -------- ---------
CTA - 6,588
------------------------------------ -------- ---------
Macro 8,855 17,401
------------------------------------ -------- ---------
Event Driven 2,331 (987)
------------------------------------ -------- ---------
Long/Short 619 1,272
------------------------------------ -------- ---------
Relative Value 7,385 11,239
------------------------------------ -------- ---------
Total realised gain on investments
(1) 19,190 35,513
------------------------------------ -------- ---------
Unrealised gains/(losses),
net on investments:
------------------------------------ -------- ---------
CTA (919) (10,464)
------------------------------------ -------- ---------
Macro (5,449) (22,047)
------------------------------------ -------- ---------
Event Driven 12,890 (6,022)
------------------------------------ -------- ---------
Long/Short 2,867 (7,436)
------------------------------------ -------- ---------
Relative Value (2,280) (9,186)
------------------------------------ -------- ---------
Total unrealised gain/(loss)
on investments (2) 7,109 (55,155)
------------------------------------ -------- ---------
Net gain/(loss) on investments
designated at fair value through
profit or loss 26,299 (19,642)
------------------------------------ -------- ---------
1) In the above table the realised gains are shown as being the
difference between the cost value of an investment and the proceeds
received upon the sale of the investment in the year that the
investment was sold.
2) In the above table the unrealised gains are net of gains
realized during the year, which were previously recognised as
unrealised.
The net gain/(loss) on investments designated at fair value
through profit or loss was geographically allocated as follows:
2012 2011
TUSD TUSD
------------------------------------ -------- ---------
Realised gains/(losses), net
on investments:
------------------------------------ -------- ---------
America 1,097 7,919
------------------------------------ -------- ---------
Asia 36 (6,128)
------------------------------------ -------- ---------
Europe 545 383
------------------------------------ -------- ---------
Global 17,512 30,543
------------------------------------ -------- ---------
Other - 2,796
------------------------------------ -------- ---------
Total realised gain on investments
(1) 19,190 35,513
------------------------------------ -------- ---------
Unrealised gains/(losses), net
on investments:
------------------------------------ -------- ---------
America 4,165 (10,616)
------------------------------------ -------- ---------
Asia 1,344 2,234
------------------------------------ -------- ---------
Europe 4,414 (1,582)
------------------------------------ -------- ---------
Global (2,814) (42,425)
------------------------------------ -------- ---------
Other - (2,766)
------------------------------------ -------- ---------
Total unrealised gain/(loss)
on investments (2) 7,109 (55,155)
------------------------------------ -------- ---------
Net gain/(loss) on investments
designated at fair value through
profit or loss 26,299 (19,642)
------------------------------------ -------- ---------
1) In the above table the realised gains are shown as being the
difference between the cost value of an investment and the proceeds
received upon the sale of the investment in the year that the
investment was sold.
2) In the above table the unrealised gains are net of gains
realized during the year, which were previously recognised as
unrealised.
6. Interest income
Interest income for the year was earned on:
Interest income 2012 2011
TUSD TUSD
---------------------------- ----- -----
Cash and cash equivalents:
---------------------------- ----- -----
Third party 9 16
---------------------------- ----- -----
Total 9 16
---------------------------- ----- -----
7. Management and performance fees
Management and performance fees are composed as follows:
Management and performance
fees 2012 2011
TUSD TUSD
---------------------------- ------ ------
Management fees - related
party 6,209 7,280
---------------------------- ------ ------
Performance fees - related
party 84 92
---------------------------- ------ ------
Total 6,293 7,372
---------------------------- ------ ------
8. Other operating expenses
Other operating expenses are composed as follows:
Other operating expenses 2012 2011
TUSD TUSD
------------------------------ ------ ------
Related party fees:
------------------------------ ------ ------
Credit facility standby
fees 48 56
------------------------------ ------ ------
Administrative fees 28 37
------------------------------ ------ ------
Directors' fees 241 242
------------------------------ ------ ------
Domicile fees 10 10
------------------------------ ------ ------
Third party fees:
------------------------------ ------ ------
Administrative fees 222 255
------------------------------ ------ ------
Reporting and publications 91 182
------------------------------ ------ ------
Audit fees 173 160
------------------------------ ------ ------
Custody fees 85 97
------------------------------ ------ ------
Capital taxes (Switzerland) 11 8
------------------------------ ------ ------
Insurance 15 43
------------------------------ ------ ------
Legal fees 101 135
------------------------------ ------ ------
Broker fees and expenses 75 131
------------------------------ ------ ------
Project expenses (share
buy back/capital reduction) 110 109
------------------------------ ------ ------
Stock exchange listing
expenses 42 42
------------------------------ ------ ------
Tax advisory fees 18 10
------------------------------ ------ ------
Other expenses 261 210
------------------------------ ------ ------
Total 1,531 1,727
------------------------------ ------ ------
9. Finance costs
Interest expense for the year was paid on:
Finance costs 2012 2011
TUSD TUSD
------------------------ ----- -----
Due to banks - related
party 2 33
------------------------ ----- -----
Due to banks - third
party 11 2
------------------------ ----- -----
Total 13 35
------------------------ ----- -----
10. Income taxes
Reconciliation of income tax calculated with the applicable tax
rate:
Tax expense
2012 2011
TUSD TUSD
------------------------- -------- ---------
Profit/(loss) for the
year before income tax 18,496 (28,524)
------------------------- -------- ---------
Applicable tax rate 7.8% 7.8%
------------------------- -------- ---------
Income tax 1,443 -
------------------------- -------- ---------
Effect from non-taxable
income (1,443) -
------------------------- -------- ---------
Total - -
------------------------- -------- ---------
The applicable tax rate is the same as the effective tax
rate.
Refer to note 2 p) for more information on taxes.
11. Cash and cash equivalents
Cash and cash equivalents consist of:
Cash and cash equivalents 2012 2011
TUSD TUSD
--------------------------- ------- ------
Cash at banks:
--------------------------- ------- ------
Related party 148 74
--------------------------- ------- ------
Third party 21,960 8,443
--------------------------- ------- ------
Time deposits:
--------------------------- ------- ------
Third party 5,650 -
Total 27,758 8,517
--------------------------- ------- ------
The Company has no cash holdings which are not at its disposal.
The carrying amounts of the cash and cash equivalents approximate
fair value.
12. Other current assets
Other current assets 2012 2011
TUSD TUSD
---------------------------- ------- -----
Receivable for investments
sold 47,521 502
---------------------------- ------- -----
Subscriptions paid in
advance 3,800 -
---------------------------- ------- -----
Other receivables 5,493 45
---------------------------- ------- -----
Total 56,814 547
---------------------------- ------- -----
13. Investments designated at fair value through profit or loss
The investments are allocated according to style as follows:
Investments designated
at fair value through
profit or loss 2012 2011
------------------------
TUSD TUSD
------------------------ -------- ----- -------- -----
CTA 45,890 14% 46,809 12%
------------------------ -------- ----- -------- -----
Macro 44,614 14% 79,065 20%
------------------------ -------- ----- -------- -----
Event Driven 69,301 22% 101,934 26%
------------------------ -------- ----- -------- -----
Long/Short 103,243 32% 99,210 25%
------------------------ -------- ----- -------- -----
Relative Value 59,531 18% 67,534 17%
------------------------ -------- ----- -------- -----
Total 322,579 100% 394,552 100%
------------------------ -------- ----- -------- -----
As at the balance sheet date of 31 December 2012, the Ireland
Subsidiary had redeemed the following investments:
Fund investment Value Type of
TUSD redemption
--------------------------- ------ -------------------
Third Point Ultra Limited 5,996 Partial redemption
--------------------------- ------ -------------------
Total 5,996
--------------------------- ------ -------------------
These investments are included in the schedule of investments as
the transfer of all substantial risks and rewards, in the ordinary
course of business, does not occur until a number of days after the
relevant valuation date for the redemptions.
These redemptions resulted in the redemption proceeds being
received subsequent to the balance sheet date, either in full or in
part (with either creation of sidepocket share classes or hold
backs that will be paid at a later date). As of the date of
authorisation of these consolidated financial statements TUSD 5,250
had been received. These redemptions had no impact on the net asset
value of the Group as at the balance sheet date.
14. Due to banks
As of 31 December 2012, the Subsidiaries have a credit line of
TUSD 15,000 (December 2011: TUSD 15,000). Since 1 April 2011, the
Subsidiaries have a further credit line of TUSD 4,000 (31 December
2011: TUSD 4,000) in order to service potential capital calls
within the share class RO of the Ireland Subsidiary. The credit
lines are granted by LGT Bank (Ireland) Limited, Dublin and are
secured by the participating shares of the Ireland Subsidiary as
well as the voting participating redeemable ordinary shares of the
Cayman Subsidiary. The pledged assets are deposited with LGT Bank
Ltd., Vaduz and pledged in favour of the lender.
Since 1 April 2011, the Ireland Subsidiary also has a further
credit line of TUSD 4,000 (31 December 2011: TUSD 4,000) in order
to service potential capital calls within the share class RI of the
Ireland Subsidiary. The credit line is granted by Swiss Life AG,
Zurich.As of 31 December 2012, the credit lines were not used (31
December 2011: not used).
As of 31 December 2011, the Company had an overdraft of TUSD 789
with Zuercher Kantonalbank.
15. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of:
Accounts payable and accrued
liabilities 2012 2011
TUSD TUSD
-------------------------------- -------- ------
Accrued management fee payable
- related party 517 541
-------------------------------- -------- ------
Accrued performance fee
payable - related party 84 -
-------------------------------- -------- ------
Accrued credit facility
standby fees - related party 3 12
-------------------------------- -------- ------
Accrued administrative fee
payable - related party 1 2
-------------------------------- -------- ------
Accrued administrative fee
payable - third party 18 19
-------------------------------- -------- ------
Accrued custody fee payable
- third party 6 6
-------------------------------- -------- ------
Other accrued liabilities 152,003 799
-------------------------------- -------- ------
Total 152,632 1,379
-------------------------------- -------- ------
16. Shareholders' equity
Shareholders' equity
As of 31 December 2012 the authorised, issued and fully paid up
share capital of the Company amounts to TCHF 81,764 (TUSD 56,182)
and as of 31 December 2011 to 87,408 (TUSD 62,394) consisting of
16,352,817 (2011: 17,481,596) registered shares with a par value of
CHF 5. The translation into US Dollar has been done at the
corresponding historical foreign exchange rate. Each share entitles
the holder to participate in any distribution of income and
capital. The Group regards shareholders' equity as the capital that
it manages. Shareholders' equity, including non-controlling
interests, amounts to TUSD 254,519 as of 31 December 2012 (2011:
TUSD 401,448).
On 16 September 2010 the Company announced that it had entered
into an agreement with Swiss Life AG, its largest shareholder,
pursuant to which it intended to effect a reduction of the
Company's share capital from TCHF 192,505 to TCHF 98,535 through
the cancellation of 18,793,940 shares held by Swiss Life AG. The
proposal was approved at the extraordinary general meeting held on
12 October 2010 and the restructuring was completed on 20 December
2010. In return Swiss Life AG received a substantially equivalent
proportion of shares in the Ireland Subsidiary, the entity through
which the majority of the Company's portfolio of investments is
held. During the period from 21 June 2010 to 31 December 2012 the
Company purchased treasury shares on its second trading line.
According to the programme periods the second line treasury shares
were cancelled in August 2011 and in August 2012. As of 31 December
2012 the Company's share capital amounts to TCHF 81,764 or
16,352,817 shares (2011: TCHF 87,408 or 17,481,596 shares).
Non-controlling interest
On 1 April 2011 Swiss Life AG partially redeemed its holding in
Class I of the Ireland Subsidiary. The redemption was paid out in
cash with the remaining amount being placed in a newly opened side-
pocket share class for illiquid assets (Class RI). At the same time
a sidepocket share class for the Cayman Subsidiary's portion of the
illiquid assets was also created (Class RO). The side pocket share
classes have paid out proceeds as their assets were realised. On 31
December 2012 Swiss Life fully redeemed its hold-ing in the Class I
shares. As per 31 December 2012 Swiss Life AG's holding in the
remaining Class RI shares comprised 9.27 per cent (2011: Class I
and Class RI: 38.16 per cent) of the net asset value of the Ireland
Subsidiary. The Cayman Subsidiary's holding in Class O and Class RO
comprised 90.73 per cent of the net asset value of the Ireland
Subsidiary (2011: 61.84 per cent). The Company controls the Ireland
Subsidiary and consolidates it in compliance with IFRS 10. Swiss
Life AG's holding in the Ireland Sub-sidiary is shown as a
non-controlling interest in the Group's consolidated financial
statements.
Treasury shares
During the period from 1 January to 31 December 2012 the Ireland
Subsidiary used 432,000 treasury shares of the Company to the value
of TCHF 5,220 (TUSD 5,427) for the redemption in-kind of the
Ire-land Subsidiary. During the period from 1 January to 31
December 2011 the Ireland Subsidiary used 80,000 treasury shares of
the Company to the value of TCHF 967 (TUSD 1,040) for the
redemption in-kind of the Ireland Subsidiary which took place in
August 2011. As at 31 December 2012 the Ireland Subsidiary held in
total 1,303,487 (31.12.2011: 1,735,487) treasury shares of the
Company. A reserve out of share capital premium has been created
for these treasury shares using cost values of TCHF 15,751 (TUSD
14,867) (31.12.2011: TCHF 20,971 (TUSD 19,794)).
Share buyback second line (bought for cancellation)
On 15 June 2010, the Company announced the opening of a second
trading line for the Company's shares on the SIX Swiss Exchange
starting from 21 June 2010. The Company was the exclusive buyer on
this trading line and repurchased shares for the purpose of
subsequently reducing its share capital. During the period from 21
June to 15 October 2010 the Company purchased 2,225,464 treasury
shares on its second trading line to the amount of TUSD 30,617.
These second line treasury shares were cancelled in August
2011.
On 17 May 2011 the Company decided to open a new second line
share buyback programme, which was then initiated on 19 July 2011.
During the period from 19 July to 31 December 2011 the Company
purchased 555,580 treasury shares on its second trading line to the
amount of TCHF 5,901 (TUSD 6,582) as of 31 December 2011. These
treasury shares are treated as a deduction from shareholders'
equity using cost values of TCHF 5,901 (TUSD 6,582). During the
period from 1 January to 5 June 2012 the Company purchased
1,146,369 treasury shares on its second trading line (programme 17
May 2011) to the amount of TCHF 13,627 (TUSD 14,622). Altogether,
in this programme 1,701,949 treasury shares were bought and
1,128,779 of these were cancelled in August 2012. The remaining
573,170 treasury shares are treated as a deduction from
shareholders' equity using cost values of TCHF 7,081 (TUSD 7,513)
as of 31 December 2012.
Movement of treasury shares held by Subsidiaries
Average Total Market
Number price cost value
in USD in TUSD in TUSD
------------------- ---------- -------- -------- --------
Shares held as of
1 January 2011 1,815,487 11.41 20,706 22,401
------------------- ---------- -------- -------- --------
Additions 2011 (80,000) 11.41 (912) (1,040)
------------------- ---------- -------- -------- --------
Shares held as of
31 December 2011 1,735,487 11.41 19,794 20,218
------------------- ---------- -------- -------- --------
Redemption 2012 (432,000) 11.41 (4,927) (5,427)
------------------- ---------- -------- -------- --------
Shares held as of
31 December 2012 1,303,487 11.41 14,867 16,554
------------------- ---------- -------- -------- --------
Movement of treasury shares 2nd line (bought for cancellation)
held by the Company
Shares held as of 1
January 2011 2,225,464 13.76 30,617 27,373
------------------------- ------------ ------ --------- -------
Cancellation 2011 (2,225,464) 13.76 (30,617) -
------------------------- ------------ ------ --------- -------
Addition 2011 555,580 11.85 6,582 6,473
------------------------- ------------ ------ --------- -------
Shares held as of 31
December 2011 555,580 11.85 6,582 6,473
------------------------- ------------ ------ --------- -------
Cancellation 2012 (1,128,779) 12.13 (13,691) -
------------------------- ------------ ------ --------- -------
Addition 2012 (till
17 April 2012) 573,199 12.40 7,109 -
------------------------- ------------ ------ --------- -------
Addition 2012 (18 April
to closing on 5 June
2012) 573,170 13.11 7,513 7,279
------------------------- ------------ ------ --------- -------
Addition 2012 (opened
28 June 2012) 923,500 12.49 11,532 11,728
------------------------- ------------ ------ --------- -------
Shares held as of 31
December 2012 1,496,670 12.72 19,045 19,008
------------------------- ------------ ------ --------- -------
Summary of treasury shares held as of 31 December 2011 and
2010
Total of treasury
shares held as of
31 December 2011
----------------------------- ---------- ------ ------- -------
Shares held by Subsidiaries 1,735,487 11.41 19,794 20,218
----------------------------- ---------- ------ ------- -------
Shares 2nd line
held by the Company
(bought for calcellation) 555,580 11.85 6,582 6,473
----------------------------- ---------- ------ ------- -------
Total of treasury
shares 2,291,067 11.51 26,376 26,691
----------------------------- ---------- ------ ------- -------
Total of treasury
shares held as of
31 December 2012
----------------------------- ---------- ------ ------- -------
Shares held by Subsidiaries 1,303,487 11.41 14,867 16,554
----------------------------- ---------- ------ ------- -------
Shares 2nd line
held by the Company
(bought for calcellation) 1,496,670 12.72 19,045 19,008
----------------------------- ---------- ------ ------- -------
Total of treasury
shares 2,800,157 12.11 33,912 35,562
----------------------------- ---------- ------ ------- -------
On 15 May 2012 the Company decided to open a further second line
share buyback programme, which was then initiated on 28 June 2012.
During the period from 28 June to 31 December 2012 the Company
purchased 923,500 treasury shares on its second trading line to the
amount of TCHF 10,872 (TUSD 11,532) as of 31 December 2012. These
treasury shares are treated as a deduction from shareholders'
equity using cost values.
As of 31 December 2012 the Company holds 573,170 treasury shares
of the share buyback program initiated on 19 July 2011 and 923,500
treasury shares of the share buyback program initiated on 28 June
2012, with a total of 1,496,670 treasury shares with a cost value
of TCHF 17,953 (TUSD 19,045) as of 31 December 2012.
Altogether the Group holds 2,800,157 treasury shares as at 31
December 2012 (31.12.2011: 2,291,067).
17. Major shareholders
As of 31 December the following major shareholders were known by
the Company:
Major shareholders 31 December 2012 31 December 2011
------------------- ------------------------- -------------------------------
More than 33 1/3% - -
------------------- ------------------------- -------------------------------
Between 10% and
20% LGT Group, Liechtenstein -
LGT Capital Management,
Switzerland, on
behalf of pension
funds
------------------- -------------------------------
Co-operative Asset
Between 3% and Management, United
10% Kingdom LGT Group, Liechtenstein
Fürstentum Co-operative Asset
Liechtenstein II Management, United
Stiftung Kingdom
-------------------------
LGT Capital Management,
Switzerland, on
behalf of pension
funds
------------------------- -------------------------------
Pensionskasse/Vorsorgestiftung
of Schweiz. Nationalbank,
Switzerland
------------------------- -------------------------------
Fürstentum
Liechtenstein II
Stiftung
------------------- ------------------------- -------------------------------
18. Significant fee agreements
In relation to its investment and administration activity the
Company and/or its Subsidiaries entered into the following
agreements:
a) LGT Swiss Life Non Traditional Advisers Aktiengesellschaft,
Vaduz, acts as the investment manager and receives a management fee
of total 1.5 per cent (before deduction of the performance fee) per
annum of the total net assets of the Subsidiaries in US Dollar as
at the close of business on the final business day of each calendar
month. The management fee is due monthly in arrears of 0.125 per
cent after the net asset value calculation. The investment manager
also receives a performance fee of 10 per cent of the net new
trading gains of the Subsidiaries since the previous payment of
such performance fee. This performance fee will be paid annually
and any previous losses shall be recouped before payment of such
performance fee ("high water mark"). Performance fees are payable
in arrears. Performance fees of shares redeemed during a
performance period shall be paid out within 30 days after the date
of redemption. The calculated net asset value is net of all accrued
fees. The investment manager will also be reimbursed for all
reasonable out-of-pocket expenses, incurred for the benefit of the
Company. As a result of the restructuring described in note 1 the
nvestment management agreement was replaced on 16 December 2010.
The investment manager's role is governed through the investment
management agreements with the Subsidiaries. These ar-rangements
are for an initial fixed term ending in 2014 and can be terminated
thereafter by either party with six months' prior written
notice.
b) LGT Fund Managers (Ireland) Limited is appointed as Manager
of the Ireland Subsidiary and therefore entitled to TEUR 5 for
company secretarial services and to TEUR 1.5 for the preparation of
the financial statements.
c) LGT Bank Limited, Vaduz, provides administrative services for
the Company and since 2005 receives a flat fee of TUSD 20, payable
quarterly in arrears. Any disbursements incurred will be charged
separately. Also, effective 1 January 2009, LGT Bank Limited, Vaduz
took over the administration of the Cayman Subsidiary from LGT Fund
Managers (Ireland) Limited, Dublin.
d) Credit Suisse Administration Services (Ireland) acts as the
administrator of the Ireland Subsidiary and receives an annual fee
equal to 0.06 per cent per annum of the net asset value at the end
of each quarter. Any disbursement incurred will be charged
separately.
e) Credit Suisse International, Dublin Branch acts as custodian
of the Ireland Subsidiary and receives a trustee fee equal to a
maximum of 0.02 per cent per annum of the net asset value of the
Ireland Subsidiary. It is also entitled to custody fees equal to
0.02 per cent of the net asset value, subject to a maximum annual
fee of TUSD 70.
f) Citco Bank Nederland N.V., Amsterdam, and Citco Global
Custody N.V., Amsterdam, provide custodial services to the Cayman
Subsidiary and receive a fee equivalent to 0.035 per cent annually
of the average holdings over the preceding three months, plus
actual sub-custodian charges (if applicable) and out-of-pocket
expenses. Citco Bank will charge a transaction fee of 0.25 per
cent, with a minimum of USD 100 and a maximum of USD 800 for each
transaction.
19. Significant transactions with related parties
Parties are considered to be related if one party has the
ability to control the other party or exercise considerable
influence over the other party in making financial or operating
decisions. In the opinion of the Board of Directors, the parties
referred to in the schedule accompanying this note are related
parties under IAS 24 "Related Party Disclosures". All related party
transactions have been carried out within the normal course of
business and on an at arm's length basis.
Related
party transactions
--------------------- --------------------------- ----------------- --------------------- ----------- -----------
Entity Related party Terms Transaction type 31.12.2012 31.12.2011
Relationship/Agreement(s) and conditions TUSD TUSD
Direct/indirect
--------------------- --------------------------- ----------------- --------------------- ----------- -----------
LGT Bank
Castle Alternative Limited/Administrative note Administration
Invest AG Services Agreement/direct 8 fee 21 22
----------------- -----------
note
11 Cash at banks 104 65
----------------- ----------------------------------------------------------------------- ----------- -----------
LGT Capital Partners
Limited/Domicile note
Agreement/direct 8 Domicile fee 10 10
--------------------------- ----------------- ------------------------------------------- ----------- -----------
note
Directors/direct 8/19 Directors' fee 231 237
----------------- ------------------------------------------- ----------- -----------
Castle Alternative Investment
Invest (Overseas) note management
Limited 7 fee 10 11
----------- -----------
LGT Swiss Life
Non Traditional
Advisers AG/Investment
Management note Investment management
Agreement/direct 15 fee payable 2 2
--------------------------- ----------------- ------------------------------------------- ----------- -----------
LGT Bank
Limited/Administrative
Services Agreement note Administration
and Loan Agreement/direct 8 fee 7 15
----------------- ------------------------------------------- ----------- -----------
note Administration
15 fee payable 1 2
----------------- ----------------------------------------------------------------------- ----------- -----------
note
11 Cash at banks 44 9
----------- -----------
LGT Bank (Ireland)
Limited/Loan note
Agreement/direct 9 Interest expense - 1
--------------------------- ----------------- -------------------------------------------
note
Directors/indirect 8/19 Directors' fee 10 5
--------------------------- ----------------- ------------------------------------------- ----------- -----------
LGT Swiss Life
Castle Alternative Non Traditional
Invest Advisers AG/Investment Investment
(International) Management note management
plc Agreement/direct 7 fee 6,199 7,269
--------------------------- ----------------- --------------------- ----------- -----------
note Investment management
15 fee payable 515 539
----------- -----------
note
7 Performance fee 84 92
----------------- ----------------------------------------------------------------------- ----------- -----------
note Performance fee
15 payable 84 -
--------------------------- ----------------- --------------------- ----------- -----------
LGT Bank (Ireland) Credit facility
Limited/Loan Agreement/direct standby fee 48 56
---------------------------------------------- ------------------------------------------ ----------- -----------
note Credit facility
15 standby fees payable 3 12
----------------- ----------------------------------------------------------------------- ----------- -----------
note
9 Interest expense 2 32
----------------- ----------------------------------------------------------------------- ----------- -----------
LGT Bank
Limited/Administrative note
Services Agreement/direct 11 Cash at banks - -
--------------------------- ----------------- ------------------------------------------- ----------- -----------
LGT Capital Partners
Limited/Advisory No direct Advisory fee (no
Agreeement/indirect fees direct fees) - -
--------------------------- ----------------- ------------------------------------------- ----------- -----------
LGT Capital Partners
(Ireland)
Limited/Advisory No direct Advisory fee (no
Agreeement/indirect fees direct fees) - -
--------------------------- ----------------- ------------------------------------------- ----------- -----------
LGT Fund Managers
(Ireland)
Limited/Investment Investment management
Management No direct fee (no direct
Agreeement/indirect fees fees) - -
--------------------------- ----------------- ------------------------------------------- ----------- -----------
LGT Group Foundation, Vaduz, is the controlling shareholder of
the investment manager, LGT Swiss Life Non Traditional Advisers AG,
Vaduz. The investment manager is entitled to a management fee from
the Subsidiaries (1.5 per cent of net assets in USD before
deduction of the accrual of the performance fee) and a performance
fee.
LGT Bank Limited, Vaduz acts as custodian for the Company. Cash
was deposited with LGT Bank Limited, Vaduz at market conditions. In
2012 and 2011 no time deposit was held.
The Ireland Subsidiary is invested in the Crown Managed Futures
Master Segregated Portfolio, Crown Distressed Credit Opportunities
plc, Crown KC Segregated Portfolio, Crown Linden Segregated
Portfolio, Crown Amazon Segregated Portfolio, Crown Koppenberg
Segregated Portfolio, Crown Sandler Segregated Portfolio, Crown GLG
Segregated Portfolio, Crown Capeview Segregated Portfolio and Crown
Marshall Wace Segregated Portfolio, which are all advised by LGT
Capital Partners AG, an affiliate of Castle's investment
manager.
The table below shows the remuneration for the members of the
board of directors in the year 2012 and 2011. In addition, the
Company paid a directors and officers liability insurance fee of
TUSD 15 (2011: TUSD 43). Travel expenses amounted to TUSD 33 (2011:
TUSD 32).
Base
compensation
As of 31 December 2012 TUSD
-------------------------- -------------
Chairman 63
-------------------------- -------------
Deputy chairman 51
-------------------------- -------------
Committee chairman 47
-------------------------- -------------
Members 47
-------------------------- -------------
Total board of directors 208
-------------------------- -------------
As of 31 December 2011 TUSD
-------------------------- -------------
Chairman 65
-------------------------- -------------
Deputy chairman 54
-------------------------- -------------
Committee chairman 49
-------------------------- -------------
Members 42
-------------------------- -------------
Total board of directors 210
-------------------------- -------------
20. Segment reporting
The sole operating segment of the Group reflects the internal
management structure and is evaluated on an overall basis. Revenue
is derived by investing in a portfolio of hedge funds investments
with a view to achieving significant value growth and to help
shareholders maximise long-term returns. The following results
correspond to the sole operating segment of investing in hedge
funds. Items which can not be directly contributed to the operating
segment are listed as "other".
2012 2011
TUSD TUSD
----------------------------------- -------- ---------
Income
----------------------------------- -------- ---------
Net gain/(loss) on investments
designated at fair value through
profit or loss 26,299 (19,642)
----------------------------------- -------- ---------
Other income 34 252
----------------------------------- -------- ---------
Total income/(loss) 26,333 (19,390)
----------------------------------- -------- ---------
Expenses
----------------------------------- -------- ---------
Other expenses (7,824) (9,099)
----------------------------------- -------- ---------
Total operating expenses (7,824) (9,099)
----------------------------------- -------- ---------
Operating profit/(loss) 18,509 (28,489)
----------------------------------- -------- ---------
2012 2011
TUSD TUSD
----------------------------------- -------- ---------
Assets
----------------------------------- -------- ---------
Investments designated at fair
value through profit or loss 322,579 394,552
----------------------------------- -------- ---------
Other assets 84,572 9,064
----------------------------------- -------- ---------
Total assets 407,151 403,616
----------------------------------- -------- ---------
Liabilities
----------------------------------- -------- ---------
Other liabilities 152,632 2,168
----------------------------------- -------- ---------
Total liabilities 152,632 2,168
----------------------------------- -------- ---------
The income/(loss) is geographically allocated as follows:
As of 31 December America Asia Europe Global Other Total
2012
TUSD TUSD TUSD TUSD TUSD TUSD
------------------------- -------- -------- -------- --------- ------ ---------
Income
------------------------- -------- -------- -------- --------- ------ ---------
Net gain on investments
designated at
fair value through
profit or loss 5,262 1,380 4,959 14,698 - 26,299
------------------------- -------- -------- -------- --------- ------ ---------
Other income - - 2 32 - 34
------------------------- -------- -------- -------- --------- ------ ---------
Total income 5,262 1,380 4,961 14,730 - 26,333
------------------------- -------- -------- -------- --------- ------ ---------
As of 31 December
2011
------------------------- -------- -------- -------- --------- ------ ---------
Income
------------------------- -------- -------- -------- --------- ------ ---------
Net (loss)/gain
on investments
designated at
fair value through
profit or loss (2,697) (3,756) (1,199) (12,020) 30 (19,642)
------------------------- -------- -------- -------- --------- ------ ---------
Other income - - 2 250 - 252
------------------------- -------- -------- -------- --------- ------ ---------
Total (loss)/income (2,697) (3,756) (1,197) (11,770) 30 (19,390)
------------------------- -------- -------- -------- --------- ------ ---------
The assets are geographically allocated as follows:
31.12.2012 31.12.2011
TUSD in % TUSD in %
-------------- ----------- ----- ----------- -----
Assets
-------------- ----------- ----- ----------- -----
America 57,477 14% 56,671 14%
-------------- ----------- ----- ----------- -----
Asia 27,924 7% 27,163 7%
-------------- ----------- ----- ----------- -----
Europe 105,524 26% 59,869 15%
-------------- ----------- ----- ----------- -----
Global 216,226 53% 259,913 64%
-------------- ----------- ----- ----------- -----
Total assets 407,151 100% 403,616 100%
-------------- ----------- ----- ----------- -----
The Group has a diversified shareholder population. For more
information on the largest share-holders see note 17.
21. Financial instruments and associated risks
The Group is exposed to a variety of financial risks including:
market risk, credit risk and liquidity risk. The investment manager
attributes great importance to professional risk management,
beginning with careful diversifications, the sourcing of access to
premier hedge fund investment opportunities, proper understanding
and negotiation of appropriate terms and conditions, and active
monitoring including ongoing interviews with managers, thorough
analysis of reports and financial statements and performance
reviews. The Group has investment guidelines that set out its
overall business strategies, its investment policy, general
investment and risk guidelines, and has established processes for
the monitoring of these guidelines. The Group's investment manager
provides the Group with investment opportunities that are
consistent with the Group's objectives. The board of directors
reviews and agrees policies for managing each of these risks which
are summarised below.
a) Market risks
(i) Price risk - The investments held in the portfolio may be
realised only after several years and their fair values may change
significantly. The investment manager, LGT Swiss Life Non
Traditional Advisers AG provides the Group with investment
opportunities that are consistent with the Group's objectives. The
investment portfolio is regularly reviewed by the board of
directors.
The rights of the Group to request redemption from fund
investments may vary in frequency from monthly to annual
redemptions. The nature of the Group's fund investments, all being
unquoted, means the Group relies on underlying administrator
estimates and final net asset values, underlying manager estimates
and audited final net asset values at year-ends for determining the
fair value of fund investments, adjusted where relevant by the
board of directors as described in the accounting policies.
The board of directors reviews and agrees policies with the
investment manager for managing its risk exposure. The investment
manager provides the Group with investment recommendations that are
consistent with the Group's objectives.
The investment manager makes its recommendations, including
manager selections, based on a thorough understanding of the risk
and performance characteristics of fund investments gained through
detailed investigation and critical analysis. The investment
manager selects underlying managers which it considers have robust
risk controls and mechanisms. The monitoring of such fund
investments is a continuous process. The investment portfolio is
regularly reviewed by the board of directors.
While the Group holds a diversified portfolio of underlying fund
investments, there are certain general market conditions under
which any investment strategy is unlikely to be profitable. Neither
the underlying managers of the fund investments nor the investment
manager have any ability to control or predict such market
conditions. Although, with respect to market risk, the Group's
investment approach is designed to achieve broad diversification on
a global basis, from time to time, multiple market events could
move together against the Group's under-lying investments and the
Group could suffer losses.
Underlying managers of fund investments may transfer a portion
of the Group's investment in that fund into share classes where
liquidity terms are directed by the underlying manager in
accordance with the respective fund investment's offering
memorandum, commonly referred to as sidepocket share classes. These
sidepocket share classes may have restricted liquidity and prohibit
the Group from fully liquidating its investments without delay. The
Group's investment manager attempts to determine the fund
investment's strategy on sidepockets prior to making an allocation
to such in-vestment through its due diligence process. However, no
assurance can be given on whether or not the fund investments will
implement sidepockets during the investment period. Fund
investments may also, at their discretion, suspend redemptions or
implement other restrictions on liquidity which could impact the
Group. As at 31 December 2012, TUSD 15,576 or 6.1 per cent of net
assets were considered illiquid by the Group due to restrictions
implemented by certain fund investments (2011: TUSD 25,489 or 6.3
per cent).
The investment remit is to have an optimally allocated portfolio
over (i) the various investment styles (e.g. CTA/macro, event
driven, long/short equity, relative value, etc.) and (ii)
geographical regions (e.g. Asia, Emerging Markets, Europe, USA
etc.). The investment vehicles and their respective fund managers
are selected on quantitative and qualitative research criteria
including (i) risk return prospects of different non-traditional
investment strategies, (ii) business structure and team
organisation of the fund manager, (iii) risk management procedure
and liquidity aspects of the investment vehicles, (iv) amount under
management and commitment of the principals of the fund manager,
(v) cost structure, (vi) correlation to other fund managers and the
entire portfolio and (vii) historical performance in relation to
investment style, expected returns, benchmarks and degree of risk.
The Group allocates the majority of its assets at cost to funds
with a proven performance record of several years. The objective is
to invest into top quality fund managers across the respective
investment sectors. A minority part of the assets are invested with
new and emerging fund managers. The Group does not allocate more
than 15 per cent of the net asset value at cost to one single fund
manager or 10 per cent to any one investment vehicle. Under normal
circumstances, no allocation to a fund manager will be made prior
to a visit by the investment manager to the fund manager's business
location. It includes a proper evaluation concerning the fund
manager's business structure, its key employees, its track record,
its relation with third parties and other relevant aspects. The
investment manager carries out a monitoring procedure in order to
implement the following risk control parameters:(i) changes in a
fund manager's structure and organisation, (ii) major deviations
from historical returns, (iii) changes in the correlation of the
portfolio, (iv) changes in investment styles, and (v) comparisons
of fund manager's performance versus that of their underlying
investments.
As of 31 December 2012 and 2011, the Group's market risk was
affected mainly by changes in actual market prices.
Value at Risk
The Group applies value at risk methodology (VaR) to its
portfolio as well as to the individual investments in order to
estimate the risk of positions held at certain times. The risk
analysis refers to a specified time horizon and to a given level of
confidence and in this respect derives the potential losses that
could occur on these positions as a result of market movements
affecting the exposures held by hedge funds and based upon a number
of assumptions for hedge fund behaviour and market behaviour. VaR
is a statistically based estimate of the potential loss on the
program (referring to portfolio composition at a particular point
of time) from adverse market movements. It expresses the maximum
amount the program might lose, but only to a certain level of
confidence (99 per cent). There is therefore a specified
statistical probability (1 per cent) that actual losses could be
greater than the VaR estimate.
Methods and Assumptions
The risk analysis shows risk with respect to actual year-end
allocations in the portfolio. For this analysis the VaR is
calculated by deriving the 99th worst percentile of constructed
weekly portfolio returns using the last 170 weeks and based on
"treated" historical series of hedge funds. The "treatment" is
applied because of the different and possible irregular
frequencies. The time series is interpolated to produce weekly
returns across the portfolio.
Actual outcomes are monitored regularly to test the validity of
this VaR calculation. The employment of different methodologies,
also with greater forward looking characteristics, generates
information about the robustness of the risk figures.
Limitations to this Value at Risk Model
The weaknesses of this approach are reliance on historical
observations and the different data availability across funds. Most
of the funds provide weekly returns but the data frequencies can
differ considerably between styles. Nevertheless, the figures
presented should pro-vide an adequate view of histories and reflect
turbulent times well.
The methodology employed for this risk illustration is only one
type of risk information considered and the complexity of risks
analysis for fund of fund portfolios requires the use of various
different methodologies.
Value at Risk Summary
Value at Risk Summary 2012 2011
As of 31 December 0.99% 1.26%
----------------------- ------ ------
The performance of the investments and the compilation of the
investment portfolio held by the Group is monitored by the
investment manager on a monthly basis and reviewed regularly by the
board of directors.
(ii) Currency risk - The majority of the Group's assets are
denominated in the US Dollar, the functional currency. As a result,
the Group is not exposed to a significant amount of currency risk.
The Group's policy is not to enter into any currency hedging
transactions. The schedule below summarises the Group exposure to
currency risks.
In accordance with the Group's policy, the investment manager
monitors the Group's currency position on a monthly basis and the
board of directors reviews it on a regular basis.
Currency risk
In 2012 and in 2011
As of 31 December 2012 USD CHF Total
Assets TUSD TUSD TUSD
--------------------------- -------- ----- --------
Cash and cash equivalents 27,398 360 27,758
--------------------------- -------- ----- --------
Investments designated
at fair value through
profit or loss 322,579 - 322,579
--------------------------- -------- ----- --------
Other assets (1) 56,814 - 56,814
--------------------------- -------- ----- --------
Total assets 406,791 360 407,151
--------------------------- -------- ----- --------
Liabilities
--------------------------- -------- ----- --------
Accounts payable and
accrued liabilities (1) 152,137 495 152,632
--------------------------- -------- ----- --------
Total liabilities 152,137 495 152,632
--------------------------- -------- ----- --------
Total equity 254,519 - 254,519
--------------------------- -------- ----- --------
Total liabilities and
equity 406,656 495 407,151
--------------------------- -------- ----- --------
As of 31 December 2011 USD CHF Total
Assets TUSD TUSD TUSD
--------------------------- -------- ----- --------
Cash and cash equivalents 8,516 1 8,517
--------------------------- -------- ----- --------
Investments designated
at fair value through
profit or loss 394,552 - 394,552
--------------------------- -------- ----- --------
Other assets 1) 547 - 547
--------------------------- -------- ----- --------
Total assets 403,615 1 403,616
--------------------------- -------- ----- --------
Liabilities
--------------------------- -------- ----- --------
Due to banks 789 - 789
--------------------------- -------- ----- --------
Accounts payable and
accrued liabilities 1) 678 701 1,379
--------------------------- -------- ----- --------
Total liabilities 1,467 701 2,168
--------------------------- -------- ----- --------
Total equity 401,448 - 401,448
--------------------------- -------- ----- --------
Total liabilities and
equity 402,915 701 403,616
--------------------------- -------- ----- --------
(iii) Interest rate risk - The majority of the Group's financial
assets and liabilities are non-interest bearing. As a result, the
Group is not subject to significant amounts of risk due to
fluctuations in the prevailing levels of market interest rates. Any
excess cash and cash equivalents are invested at short-term market
interest rates.
The schedule below summarises the Group's exposure to interest
rate risks. It includes the Group's assets and liabilities at fair
values, categorized by the earlier of contractual repricing or
maturity dates.
In accordance with the Group's policy, the investment manager
monitors the Group's overall interest sensitivity on a monthly
basis, and the board of directors reviews it on a regular
basis.
Interest rate risk
In 2012 and in 2011
Less than Non-interest Total
1 month bearing
As of 31 December 2011 TUSD TUSD TUSD
--------------------------- ---------- ------------- --------
Assets
--------------------------- ---------- ------------- --------
Cash and cash equivalents 27,758 - 27,758
--------------------------- ---------- ------------- --------
Other current assets
(1) - 56,814 56,814
--------------------------- ---------- ------------- --------
Investments designated
at fair value through
profit or loss - 322,579 322,579
--------------------------- ---------- ------------- --------
Total assets 27,758 379,393 407,151
--------------------------- ---------- ------------- --------
Liabilities
--------------------------- ---------- ------------- --------
Accounts payable and
accrued liabilities (1) - 152,632 152,632
--------------------------- ---------- ------------- --------
Total current liabilities - 152,632 152,632
--------------------------- ---------- ------------- --------
Less than Non-interest Total
1 month bearing
As of 31 December 2011 TUSD TUSD TUSD
--------------------------- ---------- ------------- --------
Assets
Cash and cash equivalents 8,517 - 8,517
--------------------------- ---------- ------------- --------
Other current assets
1) - 547 547
--------------------------- ---------- ------------- --------
Investments designated
at fair value through
profit or loss - 394,552 394,552
--------------------------- ---------- ------------- --------
Total assets 8,517 395,099 403,616
--------------------------- ---------- ------------- --------
Liabilities
--------------------------- ---------- ------------- --------
Due to banks 789 - 789
--------------------------- ---------- ------------- --------
Accounts payable and
accrued liabilities 1) - 1,379 1,379
--------------------------- ---------- ------------- --------
Total current liabilities 789 1,379 2,168
--------------------------- ---------- ------------- --------
b) Credit risk
The Group takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
Impairment provisions are provided for losses that have been
incurred by the balance sheet date, if any.
The Group's main credit risk concentration is from redemptions
to be received from the hedge funds investments in which the Group
is invested. The Group seeks to mitigate its exposure to credit
risk by conducting its contractual transactions and placing its
short-term funds only with institutions which are reputable and
well established.
The schedule below summarises the Group's exposure to credit
risks.
In accordance with the Group's policy, the investment manager
monitors the Group's credit position on a monthly basis and the
board of directors reviews it on a regular basis.
Credit risk
In 2012 and in 2011
S &
As of 31 December 2012 Fully Total P
performing Rating
Assets TUSD TUSD
--------------------------------------- ----------- ------- -------
Cash at LGT Bank Limited,
Vaduz 148 148 A+
--------------------------------------- ----------- ------- -------
Cash at Credit Suisse (International)
Dublin Branch 25,775 25,775 n/a
--------------------------------------- ----------- ------- -------
Cash at Citco Fund Services
(Europe) B.V., Amsterdam 76 76 n/a
--------------------------------------- ----------- ------- -------
Cash at Zuercher Kantonalbank,
Zurich 1,759 1,759 AAA
--------------------------------------- ----------- ------- -------
Other current assets 56,814 56,814 n/a
--------------------------------------- ----------- ------- -------
Total exposure to credit
risk 84,572 84,572
--------------------------------------- ----------- ------- -------
S &
As of 31 December 2011 Fully Total P
performing Rating
Assets TUSD TUSD
--------------------------------------- ----------- ------- -------
Cash at LGT Bank Limited,
Vaduz 74 74 A+
--------------------------------------- ----------- ------- -------
Cash at Credit Suisse (International)
Dublin Branch 7,912 7,912 n/a
--------------------------------------- ----------- ------- -------
Cash at Citco Fund Services
(Europe) B.V., Amsterdam 39 39 n/a
--------------------------------------- ----------- ------- -------
Cash at Zuercher Kantonalbank,
Zurich 492 492 AAA
--------------------------------------- ----------- ------- -------
Other current assets 547 547 n/a
--------------------------------------- ----------- ------- -------
Total exposure to credit
risk 9,064 9,064
--------------------------------------- ----------- ------- -------
c) Liquidity risk
The schedule below analyses the Group's financial liabilities
based on the remaining period at the balance sheet date to the
contractual maturity date. The amounts in the schedule are the
contractual undiscounted cash flows. Balances due within 12 months
equal their carrying balances, as the impact of discounting is not
significant.
The investment manager carries out a detailed liquidity plan in
which all subscriptions and redemptions in the underlying hedge
fund investments are taken into account. The goal is to keep a
liquidity reserve in cash and cash equivalents to take advantage of
investment opportunities which may arise and to cover any future
fee payments.
As mentioned in note 14 the Subsidiaries have a credit line of
total TUSD 19,000 (2011: TUSD 19,000) granted by LGT Bank (Ireland)
Limited, Dublin, which may be used for bridge financing purposes
and helps to mitigate liquidity risk. The Ireland Subsidiary has a
further credit line of TUSD 4,000 granted by Swiss Life AG.
Liquidity risk
In 2012 and in 2011
Less 1 - 3
than months No stated
1 month maturity Total
As of 31 December 2012 TUSD TUSD TUSD TUSD
Liabilities
------------------------------ -------- -------- ---------- --------
Due to banks - - - -
------------------------------ -------- -------- ---------- --------
Accounts payable and
accrued liabilities 655 151,977 - 152,632
------------------------------ -------- -------- ---------- --------
Total current liabilities 655 151,977 - 152,632
------------------------------ -------- -------- ---------- --------
Total outstanding commitment
amount 8,200 - - 8,200
------------------------------ -------- -------- ---------- --------
Less 1 - 3
than months No stated
1 month maturity Total
As of 31 December 2011 TUSD TUSD TUSD TUSD
Liabilities
------------------------------ -------- -------- ---------- --------
Due to banks 789 - - 789
------------------------------ -------- -------- ---------- --------
Accounts payable and
accrued liabilities 598 781 - 1,379
------------------------------ -------- -------- ---------- --------
Total current liabilities 1,387 781 - 2,168
------------------------------ -------- -------- ---------- --------
Total outstanding commitment
amount 8,687 - - 8,687
------------------------------ -------- -------- ---------- --------
Most of the investments which the Group makes are also subject
to specific restrictions on transferability and disposal.
Consequently, risks exist that the Group might not be able to
readily dispose of its holdings in such markets or investments when
it chooses and also that the price attained on a disposal is below
the amount at which such investments are included in the Group's
consolidated balance sheet. To help mitigate this risk the Group
seeks to in-vest in investments with redemption periods of no
longer than three months. The table below analyses the redemption
periods for the investments.
Liquidity risk - redemption periods
In 2012 and
in 2011
Less 1 - 3 - More
than 3 6 than Unde-
1 month months months 6 months termined Total
As of 31 December
2012 TUSD TUSD TUSD TUSD TUSD TUSD
------------------- -------- -------- ------- --------- --------- --------
Redemptions
periods 45,890 227,824 - 33,289 15,576 322,579
------------------- -------- -------- ------- --------- --------- --------
Total 45,890 227,824 - 33,289 15,576 322,579
------------------- -------- -------- ------- --------- --------- --------
Less 1 - 3 - More
than 3 6 than Unde-
1 month months months 6 months termined Total
As of 31 December
2011 TUSD TUSD TUSD TUSD TUSD TUSD
------------------- -------- -------- ------- --------- --------- --------
Redemptions
periods 46,809 270,187 - 52,067 25,489 394,552
------------------- -------- -------- ------- --------- --------- --------
Total 46,809 270,187 - 52,067 25,489 394,552
------------------- -------- -------- ------- --------- --------- --------
The following investments are not readily realisable due to the
terms of the individual investments, various events and/or the
illiquid nature of the underlying assets
In 2012 and in 2011
Fair value
As of 31 December 2012 TUSD
Fund investment Event
-------------------------------------- ------------- -----------
Bennelong Asia Pacific Multi
Strategy Equity Fund Ltd. Sidepocket 892
-------------------------------------- ------------- -----------
Caxton Global Investments Ltd.
Class SI Sidepocket 1,403
-------------------------------------- ------------- -----------
Cerberus Asia Partners L.P. Sidepocket 877
-------------------------------------- ------------- -----------
D.E. Shaw Composite International
Ltd. (side pocket series) Sidepocket 2,478
-------------------------------------- ------------- -----------
Drake Absolute Return Fund
Ltd. Liquidation 841
-------------------------------------- ------------- -----------
Galleon Technology Offshore
Ltd. Liquidation 831
-------------------------------------- ------------- -----------
Greywolf Capital Overseas Fund Sidepocket 191
-------------------------------------- ------------- -----------
GS Special Opportunities (Asia)
Offshore Fund Ltd. Suspended 33
-------------------------------------- ------------- -----------
Headstart Fund Ltd. Liquidation 256
-------------------------------------- ------------- -----------
Highland Crusader Fund II Ltd. Liquidation 4,407
-------------------------------------- ------------- -----------
OZ Asia Overseas Fund Ltd. Sidepocket 891
-------------------------------------- ------------- -----------
OZ Overseas Fund Ltd. Tranche
C shares Sidepocket 487
-------------------------------------- ------------- -----------
Plainfield Special Situations
Offshore Feeder Fund Ltd. Liquidation 259
-------------------------------------- ------------- -----------
Raptor Private Holdings Ltd. Liquidation 652
-------------------------------------- ------------- -----------
The Rohatyn Group Global Opportunity
Fund Ltd. Sidepocket 654
-------------------------------------- ------------- -----------
Tudor BVI Global Fund Ltd.
(legacy class) Sidepocket 424
-------------------------------------- ------------- -----------
Total 15,576
----------------------------------------------------- -----------
Fair value
As of 31 December 2011 TUSD
Fund investment Event
-------------------------------------- ------------- -----------
Bennelong Asia Pacific Multi
Strategy Equity Fund Ltd. Sidepocket 1,426
-------------------------------------- ------------- -----------
Caxton Global Investments Ltd.
Class SI Sidepocket 1,319
-------------------------------------- ------------- -----------
Cerberus Asia Partners L.P. Sidepocket 923
-------------------------------------- ------------- -----------
D.E. Shaw Composite International
Ltd. (side pocket series) Sidepocket 2,974
-------------------------------------- ------------- -----------
Drake Absolute Return Fund
Ltd. Liquidation 1,206
-------------------------------------- ------------- -----------
Galleon Technology Offshore
Ltd. Liquidation 1,104
-------------------------------------- ------------- -----------
Greywolf Capital Overseas Fund Sidepocket 505
-------------------------------------- ------------- -----------
GS Special Opportunities (Asia)
Offshore Fund Ltd. Suspended 35
-------------------------------------- ------------- -----------
Headstart Fund Ltd. Liquidation 256
-------------------------------------- ------------- -----------
Highland Crusader Fund II Ltd. Suspended 8,704
-------------------------------------- ------------- -----------
OZ Asia Overseas Fund Ltd. Sidepocket 965
-------------------------------------- ------------- -----------
OZ Overseas Fund Ltd. Tranche
C shares Sidepocket 692
-------------------------------------- ------------- -----------
Plainfield Special Situations
Offshore Feeder Fund Ltd. Liquidation 2,836
-------------------------------------- ------------- -----------
Raptor Private Holdings Ltd. Liquidation 1,251
-------------------------------------- ------------- -----------
The Rohatyn Group Global Opportunity
Fund Ltd. Sidepocket 687
-------------------------------------- ------------- -----------
Tudor BVI Global Fund Ltd.
(legacy class) Sidepocket 606
-------------------------------------- ------------- -----------
Total 25,489
----------------------------------------------------- -----------
As discussed in note 1 side pocket share classes were created
for illiquid assets. In addition to the evented funds, the
following investments are considered illiquid due to their nature
or as set out in their issuing. Crown Distressed Credit
Opportunities plc will expire on 1 July 2013 with up to three
one-year extensions and has a fair value of TUSD 7,522 (2011: TUSD
11,068). SerVertis Fund I Ltd. is redeemable on a semi-annual basis
with 180 days notice and has a fair value of TUSD 9,433 (2011: TUSD
9,031).
In accordance with the Group's policy, the investment manager
monitors the Group's liquidity position on a monthly basis and the
board of directors reviews it on a regular basis
d) Capital risk management
Discount control - The directors recognise the importance to
shareholders of the Company's share price performance in the
secondary market. Accordingly, the directors may take steps from
time to time with a view to seeking to limit the prevailing
discount to net asset value at which the shares trade. In
particular, the directors may authorise repurchases of shares for
cancellation and the utilisation of the Company's powers to buy
back shares to be held in treasury for re-sale from time to
time.
(i) Repurchase of shares for cancellation - The directors may
implement share repurchases for cancellation of up to 10 per cent.
of the Company's issued share capital if shares have traded on the
London Stock Exchange at an average discount of more than 15 per
cent to net asset value per share over any rolling 52 week period
commencing from 5 June 2009. The directors currently anticipate
that any such repurchases will be made at a price of up to 95 per
cent. of the prevailing net asset value per share, although the
repurchase price and the aver-age discount threshold will remain
subject to ongoing review by the directors in the light of future
share trading conditions and the current Listing Rules as well as
the pertinent regulations of the SIX Swiss Exchange and the Swiss
Takeover Board. The Company will arrange to re-purchase shares for
cancellation in accordance with Swiss regulations. It is currently
anticipated that the Company would use one of the following methods
to repurchase the shares: a fixed-price repurchase offer, the
issuance of put options or the establishment on the SIX Swiss
Exchange of a second line of trading to repurchase the shares at
market price. The actual method used by the Company to repurchase
shares for cancellation will depend on the market and regulatory
situation at the time of implementation, full details of which
would be provided to shareholders when seeking approval for the
share repurchase.
(ii) Repurchase of shares to be held in treasury - The directors
may consider repurchasing shares in the market for treasury if they
believe it to be in shareholders' interests and as a means of
correcting any imbalance between supply and demand for the shares.
Pursuant to the Swiss Code of Obligations, the Company is not
required to obtain a general authority from shareholders to effect
the repurchase of shares to be held in treasury. Any purchase of
shares by the Company for treasury will only be made through the
market at prices (after al-lowing for costs) below the prevailing
net asset value per share and will otherwise be in accordance with
the Listing Rules in force at the time and with guidelines
established from time to time by the board. Swiss law limits the
right of a company to purchase and hold its own shares.
e) Fair value estimation
Fund investments for which market quotations are not readily
available are valued at their fair values as described below. Fund
investments are normally valued at their net asset value as advised
by the underlying managers/administrators of such funds. Such
valuations are necessarily dependent upon the reasonableness of the
valuations provided by the underlying managers/administrators of
such funds and whether the valuation bases used are IFRS and fair
value compliant. The responsibility for determining the fair value
lies exclusively with the board of directors. The board of
directors under advice from the investment manager may perform
additional procedures on fund investments, including but not
limited to underlying manager/administrator due diligence and other
analytical procedures. If the directors are aware of a good reason
why a particular fund valuation would not be the most appropriate
indicator of fair value the directors will work with the underlying
manager of that investment in an attempt to obtain more meaningful
fair value information. See note 2i) (iii) for further valuation
information.
IFRS 7 requires the Group to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the fair value measurements. The hierarchy
has the following levels:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included with Level
1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
-- Level 3 - inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Group. The Group considers observable
data to be that market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in
the relevant market.
The following table presents the transfers between levels for
the year ended 31 December 2011. There were no transfers in
2012.
Level Level Level
At 31 December 2011 1 2 3 Total
TUSD TUSD TUSD TUSD
------------------------ ------- --------- ------- ------
Transfers between
levels:
---------
Investments designated
at fair value through
profit or loss: - (31,013) 31,013 -
------------------------ ------- --------- ------- ------
As at 31 December 2012, the Group had an investment in Highland
Crusader Fund II Limited
("Highland") for which the valuation is complex as the fund
holds a large number of illiquid invest-ments. The Group redeemed
its entire position as of 30 June 2008, however, due to the
illiquidity of the portfolio and increasing redemption requests,
the investment manager of Highland decided to suspend redemption
payments. After further losses, the investment manager proposed
that the fund be wound up in its entirety making the value of all
outstanding balances including prior redemption requests dependent
on the realised value of assets as the fund is liquidated.
Investors accepted this distribution scheme in the summer of 2011
and the investment was therefore classi-fied as a level 3
investment in the 2011 annual report. Since the acceptance of the
distribution plan, up to 25 March 2013, the Group had received
redemption proceeds amounting to TUSD 8,797.
In the case of D.E. Shaw Composite International Ltd. and Caxton
Global Investments Ltd., redemptions from these funds during 2011
resulted in a proportion of the redemption proceeds being
distributed in the form of sidepockets which are illiquid. These
sidepocket positions were classified as level 3 in the annual
report of 2011.
The Group's investments in Crown Distressed Credit Opportunities
plc and SerVertis Fund I Ltd. were reclassified from level 2 to
level 3 in the 2011 annual report. Though these investments are of
very good quality, their liquidity terms imply that they can only
be liquidated over a prolonged timeframe due to their private
equity like nature. These investments were made at a time when all
the assets of the Group belonged to the close ended listed Company
and thus such liquidity terms were deemed compatible with the
Group's liquidity requirements.
The following table presents a reconciliation disclosing the
changes during the year for financial assets and liabilities
classified as being level 3.
In 2012 and 2011
As of 31 December 2012 Investments
designated
at fair value
through profit
or loss
TUSD
--------------------------------------------- ----------------
Assets
--------------------------------------------- ----------------
At 1 January 45,588
--------------------------------------------- ----------------
Total gains or losses 5,574
--------------------------------------------- ----------------
Sales (18,631)
Transfers in/out -
At 31 December 32,531
--------------------------------------------- ----------------
Total unrealised loss for the year
included in the statement of comprehensive
income for investments held at the
end of the year (4,581)
--------------------------------------------- ----------------
As of 31 December 2011 Investments
designated
at fair value
through profit
or loss
TUSD
--------------------------------------------- ----------------
Assets
--------------------------------------------- ----------------
At 1 January 25,392
--------------------------------------------- ----------------
Total gains or losses (2,999)
--------------------------------------------- ----------------
Purchases (transfer from other current
assets) 5,588
--------------------------------------------- ----------------
Sales (13,406)
Transfers in/out 31,013
At 31 December 45,588
--------------------------------------------- ----------------
Total unrealised loss for the year
included in the statement of comprehensive
income for investments held at the
end of the year (1,782)
--------------------------------------------- ----------------
22. Commitments, contingencies and other off-balance-sheet transactions
The Group has made the following commitments to investment funds
as of 31 December:
Commitment
As of 31 December 2012 in Open commitment
amount in
TUSD TUSD
-------------------------- ----------- ----------------
Cerberus Asia Partners
L.P. 5,000 -
-------------------------- ----------- ----------------
Crown Distressed Credit
Opportunities plc 16,500 4,100
-------------------------- ----------- ----------------
GS Special Opportunities
(Asia) Offshore Fund
Ltd. 3,500 -
-------------------------- ----------- ----------------
SerVertis Fund I Ltd. 16,500 4,100
-------------------------- ----------- ----------------
Zais Matrix VI-F Ltd. 16,500 -
-------------------------- ----------- ----------------
Total 58,000 8,200
-------------------------- ----------- ----------------
Commitment
As of 31 December 2011 in Open commitment
amount in
TUSD TUSD
-------------------------- ----------- ----------------
Cerberus Asia Partners
L.P. 5,000 -
-------------------------- ----------- ----------------
Crown Distressed Credit
Opportunities plc 16,500 4,587
-------------------------- ----------- ----------------
GS Special Opportunities
(Asia) Offshore Fund
Ltd. 3,500 -
-------------------------- ----------- ----------------
SerVertis Fund I Ltd. 16,500 4,100
-------------------------- ----------- ----------------
Zais Matrix VI-F Ltd. 16,500 -
-------------------------- ----------- ----------------
Total 58,000 8,687
-------------------------- ----------- ----------------
The nature of these commitments is that they can be called at
the investment managers' discretion. The management confirms that
there are no other commitments, contingencies or other transactions
that could have a material effect upon the financial situation of
the Group as of 31 December 2012.
23. Subsequent events
The consolidated financial statements are authorised for issue
on 2 April 2013 by the board of directors. The annual general
meeting called for 14 May 2013 will vote on the final acceptance of
the consolidated financial statements.
Since the balance sheet date of 31 December 2012 Castle
Alternative Invest AG purchased 306,456 treasury shares on its
second trading line to the amount of TUSD 4,048. As at 31 March
2013 the Company held in total 1,803,126 treasury shares on its
second trading line.
Since the balance sheet date of 31 December 2012, there have
been no material events that could impair the integrity of the
information presented in the financial statements.
PricewaterhouseCoopers Ltd
Birchstrasse 160
8050 Zürich
Switzerland
Phone +41 58 792 44 00
Fax +41 58 792 44 10
Report of the statutory auditor
To the general meeting of
Castle Alternative AG
Pfäffikon
Report of the statutory auditor on the financial statements
As statutory auditor, we have audited the financial statements
of Castle Alternative Invest AG, which comprise the balance sheet,
statement of income and notes (pages 66 to 72) for the year ended
31 December 2012.
Board of directors' responsibility
The board of directors is responsible for the preparation of the
financial statements in accordance with the requirements of Swiss
law and the Company's articles of incorporation. This
responsibility includes designing, implementing and maintaining an
internal control system relevant to the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error. The board of directors is further responsible for
selecting and applying appropriate accounting policies and making
accounting estimates that are reasonable in the circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with Swiss law and Swiss Auditing Standards. Those standards
require that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgement, including
the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers the internal control
system relevant to the entity's preparation and fair presentation
of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's
internal control system. An audit also includes evaluating the
appropriateness of the accounting policies used and the
reasonableness of accounting estimates made, as well as evaluating
the overall presentation of the financial statements. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended 31
December 2012 comply with Swiss law and the Company's articles of
incorporation.
PricewaterhouseCoopers Ltd
Report on other legal requirements
We confirm that we meet the legal requirements on licensing
according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no
circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss
Auditing Standard 890, we confirm that an internal control system
exists which has been designed for the preparation of financial
statements according to the instructions of the board of
directors.
We further confirm that the proposed appropriation of available
earnings complies with Swiss law and the Company's articles of
incorporation. We recommend that the financial statements submitted
to you be approved.
PricewaterhouseCoopers Ltd
Guido Andermatt Rebecca Berlinger
Audit expert Audit expert
Auditor in charge
Zürich, 2 April 2013
Balance sheet
as of 31 December 2012 (All amounts in CHF
thousands unless otherwise stated)
------------------------------------------------------------------- --------- --------
2012 2011
Assets
---------------------- ------------------------------------------- --------- --------
Current assets:
---------------------- ------------------------------------------- --------- --------
Cash and cash
equivalents 1,704 523
------------------------------------------------------------------- --------- --------
Other current
assets 14 41
------------------------------------------------------------------- --------- --------
Total current
assets 1,718 564
Non-current
assets:
---------------------- ------------------------------------------- --------- --------
Participations 200,915 200,915
------------------------------------------------------------------- --------- --------
Total non-current
assets 200,915 200,915
------------------------------------------------------------------- --------- --------
Total assets 202,633 201,479
------------------------------------------------------------------- --------- --------
Liabilities
---------------------- ------------------------------------------- --------- --------
Current liabilities:
---------------------- ------------------------------------------- --------- --------
Overdraft - 741
------------------------------------------------------------------- --------- --------
Other accrued
liabilities 453 657
------------------------------------------------------------------- --------- --------
Deferred translation
gain 329 243
------------------------------------------------------------------- --------- --------
Total current
liabilities 782 1,641
------------------------------------------------------------------- --------- --------
Equity
---------------------- ------------------------------------------- --------- --------
Shareholders'
equity:
---------------------- ------------------------------------------- --------- --------
Share capital 81,764 87,408
------------------------------------------------------------------- --------- --------
Share capital
premium - legal reserves from capital contributions 52,777 47,557
---------------------- ------------------------------------------- --------- --------
Share capital legal reserves from capital contributions
premium - - reserve for own shares at cost 15,751 20,971
---------------------- ------------------------------------------- --------- --------
Share capital
premium - general reserve 31,907 31,907
---------------------- ------------------------------------------- --------- --------
Share capital general reserve - reserve for
premium - own shares at cost - -
---------------------- ------------------------------------------- --------- --------
Treasury shares 2nd line at cost (bought for
cancellation) (17,953) (5,901)
------------------------------------------------------------------- --------- --------
Accumulated
surplus 37,605 17,896
------------------------------------------------------------------- --------- --------
Total shareholders'
equity 201,851 199,838
------------------------------------------------------------------- --------- --------
Total liabilities
and equity 202,633 201,479
------------------------------------------------------------------- --------- --------
Statement of income and accumulated surplus/(deficit)
for the year ended 31 December 2012 (All amounts in CHF
thousands unless otherwise stated)
---------------------------------------------------------------- ---------
2012 2011
Income
------------------------------------------------------ -------- ---------
Dividend income from subsidiary 27,328 5,917
------------------------------------------------------ -------- ---------
(Loss)/gain on foreign exchange, net (4) 1
------------------------------------------------------ -------- ---------
Other income 1 12
Total income 27,325 5,930
------------------------------------------------------ -------- ---------
Expenses
------------------------------------------------------ -------- ---------
Other expenses (802) (846)
------------------------------------------------------ -------- ---------
Total expenses (802) (846)
------------------------------------------------------ -------- ---------
Profit before taxes 26,523 5,084
------------------------------------------------------ -------- ---------
Taxes (10) (6)
------------------------------------------------------ -------- ---------
Profit for the year 26,513 5,078
------------------------------------------------------ -------- ---------
Accumulated surplus/(deficit)
------------------------------------------------------ -------- ---------
Accumulated surplus brought forward 17,896 33,652
------------------------------------------------------ -------- ---------
Profit for the year 26,513 5,078
------------------------------------------------------ -------- ---------
Cancellation of treasury shares 2nd line (6,804) (20,834)
------------------------------------------------------ -------- ---------
Accumulated surplus brought forward 37,605 17,896
------------------------------------------------------ -------- ---------
Proposal of the board of directors for appropriation
of accumulated surplus
------------------------------------------------------ -------- ---------
To be carried forward 37,605 17,896
------------------------------------------------------ -------- ---------
Total 37,605 17,896
------------------------------------------------------ -------- ---------
Notes to the company financial statements
For the year ended 31 December 2012
(All amounts in CHF thousands unless otherwise stated)
1. Organisation and business activity
Castle Alternative Invest AG, Pfäffikon ("the Company") was
incorporated on 30 July 1996 as a joint stock corporation under
Swiss laws.
Since 10 April 1997, the shares of the Company have been listed
in Swiss Francs on the SIX Swiss Exchange and on 21 January 2002, a
listing in US Dollar on the SIX Swiss Exchange followed. As of 5
June 2009 the Company is also listed in US Dollar on the London
Stock Exchange.
The main activity of the Company is investing in a diversified
portfolio of non-traditional investments, through its two
Subsidiaries, Castle Alternative Invest (Overseas) Ltd., Grand
Cayman ("the Cayman Subsidiary") and Castle Alternative Invest
(International) plc, Dublin ("the Ireland Subsidiary").
Castle Alternative Invest Group ("the Group") currently consists
of the Company, the Cayman Subsidiary and the Ireland
Subsidiary.
2. Accounting principles
a) Accounting and reporting currency
The books of the Company are kept in US Dollar. Exchange
differences arising from currencies other than US Dollar are
reflected in the statement of income. The US Dollar financial
statements were translated into Swiss Francs as follows:
-- Assets and liabilities by applying the year-end exchange rate
except for the participations in subsidiaries and the shareholders'
equity which were translated at the historical exchange rate.
-- Income and expenses at the average exchange rate for the year.
In accordance with local practice, net translation losses are
charged to the statement of income, whereas net translation gains
are deferred.
b) Participation
Participations in subsidiaries are stated at acquisition cost or
at the lower net realisable value.
3. Participation
The Company's only direct investment is 100 per cent of the
voting participating redeemable ordinary shares of the Cayman
Subsidiary, an investment company under the laws of the Cayman
Islands. The Company holds 1,397,778 voting participating
redeemable ordinary shares at CHF 0.01 each. The Cayman Subsidiary
is invested in the Ireland Subsidiary, an open ended investment
company with variable capital under the laws of Ireland.
On 1 April 2011 Swiss Life AG partially redeemed its holding in
Class I of the Ireland Subsidiary. The redemption was paid out in
cash with the remaining amount being placed in a newly opened
side-pocket share class for illiquid assets (Class RI). At the same
time a sidepocket share class for the Cayman Subsidiary's portion
of the illiquid assets was also created (Class RO). The side pocket
share classes have paid out proceeds as their assets were realised.
On 31 December 2012 Swiss Life fully redeemed its hold-ing in the
Class I shares. As per 31 December 2012 Swiss Life AG's holding in
the remaining Class RI shares comprised 9.27 per cent (2011: Class
I and Class RI: 38.16 per cent) of the net asset value of the
Ireland Subsidiary. The Cayman Subsidiary's holding in Class O and
Class RO comprised 90.73 per cent of the net asset value of the
Ireland Subsidiary (2011: 61.84 per cent). The Company controls the
Ireland Subsidiary and consolidates it in compliance with IFRS 10.
Swiss Life AG's holding in the Ireland Subsidiary is shown as a
non-controlling interest in the Group's consolidated financial
statements.
Where a dividend distribution has been approved by a subsidiary,
the participation income from the subsidiary is recognised based on
an economic standpoint, i.e. at the same time as the corresponding
liability is recorded in the subsidiary.
4. Taxes
The Company is taxed as a holding company and is as such liable
for cantonal/communal capital taxes (reduced rates) and Swiss
federal income taxes and. The actual tax expenses cover all taxes
through 31 December 2012.
5. Pledged assets
As of 31 December 2012, the Subsidiaries have a credit line of
TUSD 19,000 (31 December 2011: TUSD 19,000). The credit line is
granted by LGT Bank (Ireland) Limited, Dublin and is secured by the
participating shares of the Ireland Subsidiary as well as the
voting participating redeemable ordinary shares of the Cayman
Subsidiary, which are directly held by the Company. The pledged
assets are deposited with LGT Bank Limited, Vaduz and pledged in
favour of the lender. As of 31 December 2012 the credit lines are
undrawn (2011: Nil).
6. Shareholders' equity
Shareholders' equity
The share capital of the Company amounts as of 31 December 2012
to TCHF 81,764 (TUSD 56,182) and as of 31 December 2011 to 87,408
(TUSD 62,394) consisting of 16,352,817 (2011: 17,481,596) issued
and fully paid registered shares with a par value of CHF 5. The
reduction is due to the cancellation of second line treasury shares
which took place in August 2012. For more information see the
paragraph "Share buyback second line" below. The translation in US
Dollar has been done at the corresponding historical foreign
exchange rate. Each share entitles the holder to participate in any
distribution of income and capital.
Treasury shares
During the period from 1 January to 31 December 2012 the Ireland
Subsidiary used 432,000 treasury shares to the value of TCHF 5,220
(TUSD 5,427) for the redemption in-kind of the Ireland Subsidiary.
During the period from 1 January to 31 December 2011 the Ireland
Subsidiary used 80,000 treasury shares to the value of TCHF 967
(TUSD 1,040) for the redemption in-kind of the Ireland Subsidiary
which took place in August 2011. As at 31 December 2012 the Ireland
Subsidiary held in total 1,303,487 (31.12.2011: 1,735,487) treasury
shares. A reserve out of share capital premium has been created for
these treasury shares using cost values of TCHF 15,751 (TUSD
14,867) (31.12.2011: TCHF 20,971 (TUSD 19,794).
Share buyback second line
On 15 June 2010, the Company announced the opening of a second
trading line for the Company's shares on the SIX Swiss Exchange
starting from 21 June 2010. The Company was the exclusive buyer on
this trading line and repurchased shares for the purpose of
subsequently reducing its share capital. During the period from 21
June to 15 October 2010 the Company purchased 2,225,464 treasury
shares on its second trading line to the amount of TCHF 31,961
(TUSD 30,617). These second line treasury shares were cancelled in
August 2011.
On 17 May 2011 the Company decided to open a new second line
share buyback program, which was then initiated on 19 July 2011.
During the period from 19 July to 31 December 2011 the Company
purchased 555,580 treasury shares on its second trading line to the
amount of TCHF 5,901 (TUSD 6,582). These treasury shares are
treated as a deduction from shareholders' equity using cost values
of TCHF 5,901 (TUSD 6,582). During the period from 1 January to 5
June 2012 the ompany purchased 1,146,369 treasury shares on its
second trading line (programme 17 May 2011) to the amount of TCHF
13,627 (TUSD 14,622). Altogether, in this programme 1,701,949
treasury shares were bought and 1,128,779 of these were cancelled
in August 2012. The remaining 573,170 treasury shares are treated
as a deduction from shareholders' equity using cost values of TCHF
7,081 (TUSD 7,513) as of 31 December 2012.
On 15 May 2012 the Company decided to open a further second line
share buyback programme, which was then initiated on 28 June 2012.
During the period from 28 June to 31 December 2012 the Company
purchased 923,500 treasury shares on its second trading line to the
amount of TCHF 10,857 (TUSD 11,532) as of 31 December 2012. These
treasury shares are treated as a deduction from shareholders'
equity using cost values.
As of 31 December 2012 the Company holds 573,170 treasury shares
of the share buyback programme initiated on 19 July 2011 and
923,500 treasury shares of the share buyback programme initiated on
28 June 2012 to a total of 1,496,670 treasury shares with a cost
value of TCHF 17,953 (TUSD 19,045) as of 31 December 2012.
Shareholders'
equity
In 2012 (TCHF)
Share Share capital premium Accumulated Total
Legal
reserves
from capital Treasury
contributions shares
Legal - reserve 2nd line
reserves for own at cost
from capital shares General (bought
capital contributions at cost reserve for cancellation) surplus
------------------ -------- --------------- --------------- --------- ------------------ ------------ ---------
31 December
2011 87,408 47,557 20,971 31,907 (5,901) 17,896 199,838
------------------ -------- --------------- --------------- --------- ------------------ ------------ ---------
Cancellation
of treasury
shares 2nd line (5,644) - - - 12,448 (6,804) -
-------- --------------- --------------- --------- ------------------ ---------
Redemption
in-kind - 5,220 (5,220) - - - -
------------------ -------- --------------- --------------- --------- ---------
Purchase of
treasury shares
2nd line (bought
for
cancellation) - - - - (24,500) - (24,500)
------------------ -------- --------------- --------------- --------- ------------------ ---------
Profit for the
year - - - - - 26,513 26,513
------------------ -------- --------------- --------------- --------- ------------------ ------------ ---------
31 December
2012 81,764 52,777 15,751 31,907 (17,953) 37,605 201,851
------------------ -------- --------------- --------------- --------- ------------------ ------------ ---------
Allocation of general reserves
Under Swiss tax law effective 1 January 2011, repayments of
capital contribution reserves established since 1997 are no longer
subject to withholding tax deduction. In order to establish the
amount of capital contribution reserves that the Company may be
able to repay to shareholders without being subject to the
withholding tax deduction that applies to dividends paid out of
retained earnings, the board of direc-tors received shareholder
approval at the 2011 annual general meeting for the allocation of
the general reserves, effective 1 January 2011. The general
reserves to the amount of TCHF 100,435 were divided into legal
reserves from capital contributions of TCHF 68,528 and general
reserves of TCHF 31,907 on 1 January 2011. The amount the Company
allocated to the legal reserves from capital contributions deviates
slightly from the standard practice of the Swiss tax authorities in
that the Company has not deducted the share capital increase
expenses. Following the redemption in-kind using treasury shares in
August 2011 TCHF 15,582 was reallocated by the board of directors
from the general reserves - reserve for own shares at cost to the
general reserves and the same amount was allocated from the legal
reserves from capital contributions to the legal reserves from
capital contributions - reserve for own shares at cost.
7. Major shareholders
As at 31 December the following major shareholders were known by
the Company:
Major shareholders 31 December 2012 31 December 2011
------------------- ------------------------- -------------------------------
More than 33 1/3% - -
------------------- ------------------------- -------------------------------
Between 10% and
20% LGT Group, Liechtenstein -
------------------------- -------------------------------
LGT Capital Management,
Switzerland, on
behalf of pension
funds
------------------- ------------------------- -------------------------------
Co-operative Asset
Between 3% and Management, United
10% Kingdom LGT Group, Liechtenstein
------------------------- -------------------------------
Fürstentum Co-operative Asset
Liechtenstein II Management, United
Stiftung Kingdom
------------------------- -------------------------------
LGT Capital Management,
Switzerland, on
behalf of pension
funds
------------------------- -------------------------------
Pensionskasse/Vorsorgestiftung
of Schweiz. Nationalbank,
Switzerland
------------------------- -------------------------------
Fürstentum
Liechtenstein II
Stiftung
------------------- ------------------------- -------------------------------
8. Compensation and share ownership
The table below shows the remuneration for the members of the
board of directors in the year 2012 and 2011. In addition, the
Company paid a directors and officers liability insurance fee of
TUSD 15 (2011: TUSD 43).
in 2012 (All amounts in CHF thousands unless
otherwise stated)
--------------------------------------------------
Chairman 55
------------------------------------------- -----
Deputy chairman 44
------------------------------------------- -----
Committee chairman 44
------------------------------------------- -----
Member 33
------------------------------------------- -----
Travel and other expenses related to attendance of board
meetings shall be covered by an expense allowance for each meeting
in Switzerland, physically attended, as follows: Switzerland based
CHF 100, Europe based CHF 1,000, and Overseas based CHF 5,000.
No further compensation by the Company or its subsidiaries for
their activities has been due, nor did directors receive shares,
options or loans.
2012 2011
--------------------------- ------- -------
Share ownership
--------------------------- ------- -------
Castle Alternative Invest
AG
--------------------------- ------- -------
Members of the board
of directors
--------------------------- ------- -------
Reto Koller 8,000 4,000
Dr. André Lagger 4,755 4,755
General manager
---------------------------
Mark White 10,000 10,000
Total 22,755 18,755
--------------------------- ------- -------
LGT Swiss Life Non Traditional
Advisers AG
-------------------------------- ------- -------
Members of the board
of directors
-------------------------------- ------- -------
Dr Roberto Paganoni 4,000 4,000
-------------------------------- ------- -------
General manager
-------------------------------- ------- -------
Dr. Thomas Weber 34,150 34,150
-------------------------------- ------- -------
Total 38,150 38,150
-------------------------------- ------- -------
9. Risk Management
The board of directors, together with the investment manager,
assesses the potential impact of the identified risk factors on the
financial performance of the Group and implements risk management
policies accordingly. The Company is fully integrated into the
group-wide risk assessment process. Certain risk factors are dealt
with in the investment guidelines, which provide the general
frame-work under which the Group's operations are carried out. The
internal control system framework on financial reporting defines
further control measures to address financial risks. For further
details on financial risks, refer to Note 21 to the consolidated
financial statements.
The board of directors reviews the potential risk factors,
including those arising from accounting and financial reporting,
and assesses their potential impact on the Group's operations on a
regular basis, but at least annually.
Corporate Governance Compliance Disclosure
1. Company Listings and Applicable Regulations
The Company is committed to high standards of corporate
governance.The Company is subject to the corporate governance
regulations of the SIX Swiss Exchange as well as the London Stock
Exchange, as its shares are listed on both exchanges.
By following the SIX Swiss Exchange Directive on Information
relating to Corporate Governance, dated 29 October 2008, the board
believes that the Company has complied with the corporate
governance regulations of its country of incorporation
(Switzerland) and the following statements detail how these
provisions and obligations have been applied to the affairs to the
Company during the year under review.
Complying with regulations for its London listing, the board
also believes that the principles and recommendations of the
revised AIC Code of Corporate Governance issued in February 2013 by
the Association of Investment Companies, are appropriate to its
circumstances and the following statements detail how these
principles have been applied to the affairs of the Company during
the year under review.
In January 2013, the UK Financial Reporting Council confirmed
that investment companies who report in accordance with the revised
AIC Code are deemed to have met their obligations under the UK
Corporate Governance Code. The principles laid down by the two
Codes are similar but there are some areas where the AIC Code is
more specifically applicable to investment companies.
The board believes that the Company has complied in all
significant ways with the principles and recommendations of the
revised AIC Code during the year under review and thereby the
provisions of the UK Corporate Governance Code that are relevant to
the Company, except as set out below. In addition, the UK Corporate
Governance Code includes provisions relating to:
- the role of the chief executive
- executive directors' remuneration
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the board considers these
provisions are not relevant to the position of the Company, being
an externally managed investment company. In particular, all of the
Company's day-to-day management and administrative functions are
outsourced to third parties. The Company has therefore not reported
further in respect of these provisions.
2. Group Structure and Shareholders
2.1. Group structure
Castle Alternative Invest (<<the Group>>) consists
of Castle Alternative Invest AG and two fully consolidated
subsidiaries as shown below and as listed in note 1 to the
consolidated financial statements. The Company's registered office
is Schuetzenstrasse 6, 8808 Pfäffikon, Switzerland.
2.2 Significant shareholders
The Stock Exchange Act requires shareholders holding 3% or more
(before 2008: 5%) of the Company's voting rights to disclose
certain transactions in the Company's shares. Such shareholders are
disclosed in note 17 to the consolidated financial statements.
Since 2010, the following relevant disclosures were made to the
Company:
2011
- A shareholder group represented by LGT Capital Management AG
notified the reduction in holding below 5 per cent (January 2011)
and below 3 per cent ( May 2011).
- The Company notified that its own shares crossed 10 per cent
due to the capital reduction (August 2011).
2012
- The Company notified that its own shares crossed 15 per cent
due to purchases in the second line (March 2012).
- Futureal 2 Global Euro Szarmaztatott Befektetesi Alap notified
that it holds 3 per cent of the Company's issued shares (July
2012).
- The Company notified that its own shares fell below 15 per
cent due to the cancellation of the majority of shares purchased in
the second line (August 2012).
- A shareholder group of the pension funds of LGT notified that
its holding rose above 10 per cent as a result of the capital
reduction line (August 2012).
- The Company notified that its own shares crossed 15 per cent
due to purchases in the second line (September 2012).
- Futureal 2 Global Euro Szarmaztatott Befektetesi Alap notified
that it holds less than 3 per cent of the Company's issued shares
(October 2012).
No cross-shareholdings between group companies existed at
year-end 2012.
2.3. Capital structure
2.3.1 Capital
The Company's share capital consists of 16,352,817 registered
shares with a par value of CHF 5 each. The shares are listed in USD
and CHF at the SIX Swiss Exchange in Zurich with ISIN CH0005092751
and valor number 509.275. The Company's shares are also listed in
USD at the London Stock Exchange. Prior to a conversion and 10:1
share split on 16 December 2008, the Company had issued 3,850,100
registered shares of CHF 50 par value each. Following a resolution
approved at the General Meeting on 15 May, 2012 the number of
registered shares was reduced by 1,128,779 shares to 16,352,817
shares.
The Company has not issued any participation certificates,
dividend-rights certificates, convertible bonds, options or profit
sharing certificates. Shares of the subsidiaries are not
listed.
A detailed overview of the capital structure is shown in note 1
to the consolidated financial statements. Changes in capital within
the last two financial years can be seen from the consolidated
statements of changes in shareholders' equity on page 23 of the
2012 annual report.
2.3.2 Voting rights, share registration
Each share confers the right to one vote.
Entry in the share register of registered shares with voting
rights is subject to the approval of the Company. Persons acquiring
registered shares shall on application be entered in the share
register without limitation as shareholders with voting power,
provided they expressly declare themselves to have acquired the
shares in their own name and for their own account and comply with
the disclosure requirement of the Federal Act on Stock Exchanges
and Securities Trading (Stock Exchange Act).
Entry of registered shares with voting rights may be refused
based on the following situations:
Persons not expressly declaring themselves to be holding shares
for their own account (nominees) shall be entered in the share
register with voting rights without further inquiry up to a maximum
of 1.5% of the outstanding share capital available at the time.
Above this limit, registered shares held by nominees shall be
entered in the share register with voting rights only if the
nominee in question makes known the names, addresses and
shareholdings of the persons for whose account he is holding 0.3%
or more of the outstanding share capital at the time and provided
that the disclosure requirement stipulated by the Stock Exchange
Act is complied with. The Board has the right to enter into
agreements with nominees concerning their disclosure
requirements.
Legal entities or partnerships or other associations or joint
ownership arrangements which are linked through capital ownership
or voting rights, through common management or in like manner, as
well as individuals, legal entities or partnerships (especially
syndicates) which act in concert with intent to evade the entry
restriction are considered as one shareholder or nominee.
The Company may in special cases approve exceptions to the above
regulations. After due consultation with the person concerned, the
Company is further authorised to remove the shareholder from the
share register as shareholder with voting rights with retroactive
effect if they were effected on the basis of false information or
if the respective person does not provide the information
required.
No agreements with nominees were entered into, nor were
exceptions to the above regulations granted in 2012.
3. Board of Directors
The Board is the elected body of the Company chosen by its
shareholders to govern the affairs of the Company. It can consist
of three to nine directors, according to Article 13 of the Articles
of Association.
3.1 Directors
Directors of the board are elected at the Company's AGM for a
term of one year. The board in its current composition was elected
or re-elected at the AGM on 15 May 2012 for a period of one year to
end on the date of the next AGM. Accordingly, each director's
appointment is reviewed annually prior to submis-sion for
re-election and there currently exists no other restrictions on the
tenure of directors. The board believes that length of service does
not compromise the independence or contribution of directors of a
closed ended investment company, such as the Company, where
experience and continuity can be a significant strength. The board,
as a whole, proposes new board appointments to the shareholders
meeting. All of the directors are non-executive directors. None of
the directors has any significant business connections with the
Company or its Subsidiaries.
The majority of the directors, including the chairman, are
independent with no relationships with the Company or the
investment manager and exercise independent judgment in
decision-making. At each independent director's re-appointment
his/her continuing independence is reviewed and is one of the
determining factors for re-appointment.
The board believes that as the chairman is independent and
having regard to the size of the Company, there is no necessity to
appoint a senior independent director.
Directors are not supplied with individual letters of
appointment as their duties and responsibilities are clearly
contained within the Company's organisational regulations. The
board is composed of the following directors as detailed in pages
88 and 89 of the 2012 Annual Report.
Board of directors
The board considers that it is well repre-sented with the
balance and blend of skills, experience and expertise of its
directors. To ensure its ongoing effectiveness, the board
undertakes an annual review of its performance. This review
consists of interviews of individual directors with the chairman.
The appraisal of the chairman is carried out by the deputy
chairman. The performance evaluation allows the Company to
con-structively appraise the contributions of its directors with a
view to identifying any training needs and thereby improve the
functioning of the board.
Tim Steel, Chairman
Tim Steel (British Citizen, 1952) was educat-ed at Eton (Oppidan
Scholar) and Trinity College, Cambridge (Philosophy and Law). He
joined Robert Fleming as an analyst and was then a pension fund
manager from 1974 to 1979. He joined Cazenove & Co in 1980 as
an equity salesman and became Partner in 1982. Tim Steel ran the
New York office from 1983 before returning to London in 1989 when
he was made Head of UK Sales. He was appointed as managing
direc-tor of Cazenove Capital Management Lim-ited in 2000 retired
as vice chairman at the end of 2009. Tim Steel was elected at the
general meet-ing held on 29 October 2008 and was re- elected at the
general meeting held in May 2012 for a term ending at the 2013
annual shareholder meeting.
Dr Konrad Bächinger, Deputy Chairman
Dr Konrad Bächinger (Swiss citizen, born 1950) received a Ph.D.
in law from the University of Zurich. He was admitted to the bar in
1977. He acted subsequently as legal counsel for the St. Gallische
Credit-anstalt and as head of legal department of Adolph Saurer AG.
In 1984, he joined LGT Bank in Liechtenstein as general counsel. In
1989 he was appointed managing director and head of legal matters
and project de-partment. In 1990 he became member of the executive
board of the bank, heading commercial banking and legal matters. In
1998 he became chief executive officer of LGT Capital Management.
In April, 2001 Dr Bächinger was appointed to the group executive
committee of Liechtenstein Glob-al Trust, now known as LGT Group
Founda-tion. In 2006, he became a senior advisor of LGT Group
Foundation and in 2010 he retired from LGT. Dr Bächinger is also
depu-ty chairman of the board of directors of Castle Private Equity
AG and of several in-vestment companies managed or advised by
affiliates of LGT Group Foundation. Dr Bächinger was elected to the
board of directors in 1997 and was re-elected at the general
meeting held on May 2012 for a term ending at the 2013 annual
shareholder meeting.
Andre Lager, Director
Dr André Lagger, Swiss citizen, born 1962 re-ceived a Ph.D. in
business administration from the University of Berne and completed
studies at the Swiss Banking School. He began his career at Union
Bank of Switzer-land in Zurich, moving to UBS London in 1994 as
head of corporate development of UBS London. In 1997, he joined LGT
Services in Zurich as head of corporate controlling. Subsequently,
he became, in 1998, member of the executive board and chief
financial officer of LGT Capital Management in Vaduz and, in 2001,
chief executive officer of LGT Financial Services. Since October
2006, he is CEO of the business unit operations & tech-nology
of LGT Group Foundation. André Lagger was elected at the general
meeting held in May 2012 for a term ending at the 2013 annual
shareholder meeting.
Reto Koller, Director and Audit Committee Chairman
Reto Koller (Swiss and US citizen, 1955) received M.Sc. degrees
in business adminis-tration, finance and accounting from the
University of St. Gallen in 1980 and the London School of Economics
in 1981. He joined Winterthur Insurance's strategic planning
division in 1981. He moved to Winterthur Reinsurance Corp. in New
York in 1984, where he was vice president - fixed income
investments and operations man-ager until 1989. In 1990, he took
over as president and chief investment officer, North America for
Winterthur Investment Management Corp. in New York. He re-signed
from Winterthur North America in 2007. Reto Koller was elected at
the general meet-ing held on 29 October 2008 and was re-elected at
the general meeting held in May 2012 for a term ending at the 2013
annual shareholder meeting.
Kevin Mathews, Director
Kevin Mathews (Irish citizen, 1960) received a diploma in
financial services from the Institute of Bankers at University
College Dublin in 1995 and is a Qualified Financial Adviser (QFA).
He joined the Irish Depart-ment of Labour in Dublin prior to
working in key account management for Svenska Handelsbanken in
Luxemburg between 1986 and 1995. He was managing director of LGT
Bank (Ireland) between 1995 and 2006, during which time he also
acted as director of a number of fund-of-hedge funds and private
equity funds. He is cur-rently providing consultancy and advisory
services to banking, investment funds, local government and
charitable organisations.Kevin Mathews was elected at the general
meeting held on 29 October 2008 and was re-elected at the general
meeting held in May 2012 for a term ending at the 2013 annual
shareholder meeting.
3.2 Responsibilities
The principal responsibilities of the Board as defined in the
Swiss Code of Obligations and the Company's Articles of Association
and Organisational Regulations are:
(i) organisation of the Company's main structures, including
planning, management and reporting procedures and its internal risk
control systems;
(ii) determination of the investment policy and supervision of
its implementation;
(iii) preparation of the Company's annual, semi-annual and
quarterly financial statements and reports;
(iv) appointment and supervision of the Company's General
Manager, the Investment Manager and service providers.
All Directors share these responsibilities jointly. No specific
tasks have been allocated to individual directors.
3.3 Organisation
The Board has delegated the operational management of the
Company to Mark White as General Manager (see below), in accordance
with Art. 716b CO and the Articles of Association and
Organisational Regulations of the Company. Mr. White does not
receive any compensation from the Company for acting as its General
Manager as Mr. White is employed by an affiliate of the Company's
Investment Manager (see below).
The Board has delegated the management of the Company's assets
in accordance with the investment policy and guidelines to LGT
Swiss Life Non Traditional Advisers, the Investment Manager (see
below). The Board regularly reviews the performance of the
Investment Manager and considers any amendments to the Investment
Management Agreement. In the opinion of the Board the continuing
appointment of the Investment Manager on the terms of the
Investment Management Agreement continues to be in the best
interest of Shareholders.
The Board resolves by majority vote with the presence of a
majority of Directors. Decisions can be taken by phone conference
or circular resolution unless a board member requests otherwise.
The Board meets as often as business matters require, however at
least four times a year and discusses all matters of importance to
the Company and regularly reviews strategy.
In 2011 and 2012, four board meetings were held respectively
with an average duration of approx. three hours. The Investment
Manager and the General Manager as a rule participate in Board
meetings. The performance of service providers are reviewed by the
Board through regular compliance reports received from the
Company's Subsidiaries and through discussions with the auditor in
the course of the annual audit.
The below tabulation shows the attendance pattern of the
directors at the various board meetings:
Board meetings
Board member attended
Tim Steel (chairman) 4
---------------
Dr Konrad Bächinger (deputy
chairman) 4
---------------
Dr André Lagger 4
---------------
Reto Koller 4
---------------
Kevin Mathews 4
---------------
In addition to Board meetings, individual Directors interacted
frequently with the Investment Manager and the General Manager
during the course of the year under review.
3.4 Information and Control
In order to fulfil its responsibilities towards all stakeholders
of the Company the Board has instituted an internal control and
management information system that enables it to monitor, manage
and control the Company's various risks. As such, apart from
information provided to the Board at its regular meetings, the
Board receives a monthly information package regarding the affairs
of the Company, including the status of the Company portfolio. The
Board also instituted a written control plan that provides the
Board with information and reports with regard to the various
control items. Directors may request additional information or
details through the General Manager.
3.5 Board Committees
An Audit Committee has been established, of which all Directors
are members. The Board believes that given the size and nature of
the Company, all members of the Board, including the independent
Chairman, should be a member of the Audit Committee. This way, all
members of the Board will be fully aware of all issues concerning
the Company. The chairman of the Audit Committee is Reto Koller, an
independent Director.
During 2012, the audit committee met five times and all the
members of the committee attended all meetings.
The Audit Committee's duties include, but are not limited
to:
(i) selecting the auditor (for approval at the AGM), including,
considering its objectivity and independence, as well as
determining and supervising the terms of their engagement;
(ii) monitoring the integrity of the financial statements;
and
(iii) reviewing the effectiveness of the risk management and
internal control systems in place in the Company.
During 2012, the audit committee has reviewed the effectiveness
of the Company's internal control system and it considers it
adequate and effective.
In proposing to the board and the AGM to reappoint
PricewaterhouseCoopers (PWC) as the Company's external auditor, the
committee has not only evaluated the independence of PWC with
regard to the Company's audit work but also took into consideration
PWC's effectiveness of the audit process. The committee considered
it to be in the best interest of the Company to choose the same
external auditor as the Company's investment manager as the
committee believes this to be the most effective solution since the
investment management functions for the Company form an integral
part of the investment manager's overall investment management and
operational functions.
Members of the audit committee have direct access to the Company
auditors, PWC and met with them several times during the course of
the year under review. PWC have confirmed to the audit committee
that they have complied with all relevant independence
standards.
Following a review from the audit committee and given the nature
and size of the Company, the board has concluded that there is
currently no need for the Company to have its own internal audit
function.
Given the size and nature of the Company, it is not currently
deemed necessary to form separate Management Engagement,
Remuneration or Nomination committees. Due to its size, the board
as a whole is capable of dealing with all such matters and all
members of the board are fully aware of all issues concerning the
Company.
3.6 Compensation, shareholdings and loans
The principles and elements of the Board's compensation were
introduced at an Extraordinary General Meeting of shareholders on
29 October 2008 and have remained unchanged since then. The members
of the Board of Directors are entitled to compensation as
follows:
Chairman TCHF 55
Deputy chairman TCHF 44
Committee chairman TCHF 44
Member TCHF 33
Travel and other expenses related to attendance of Board
meetings are covered by an expense allowance for each meeting in
Switzerland, physically attended, as follows: Switzerland based CHF
100, Europe based CHF 1,000, and Overseas based CHF 5,000.
No further compensation, fees, shares, options or loans have
been made by the Company or its Subsidiaries in respect of the
activities of Directors during the course of the year under
review
4. Company Management
4.1 Operational Management
The Board has delegated the operational management of the
Company to Mark White as General Manager.
Mark White
(British citizen, 1955) has 36 years' experience in investment
management, 13 of which were spent in Asia. In March 2005, he
joined KGR Capital (Europe) Ltd., part of an Asian Fund of Hedge
Funds Group, which was acquired by LGT Capital Partners in
September 2008. He was subsequently appointed general manager of
LGT Capital Partners (UK) Ltd. Previously, he was CEO of JPMorgan
Fleming Asset Management (UK) Ltd, responsible for its
international institutional businesses. He is a non-executive
director of Ellis Brady Absolute Return Fund Ltd., F&C Global
Smaller Companies Plc and Impax Asset Management Group Plc.
As stated earlier, the General Manager of the Company does not
receive any compensation for his services to the Company.
4.2 Investment Management
LGT Swiss Life Non Traditional Advisers AG, Vaduz, has been
appointed Investment Manager. The Investment Manager is responsible
for the management of the Company's assets in accordance with the
investment policy and guidelines. The main responsibilities of the
Investment Manager are:
(i) implementation of the investment policy, including
identifying, purchasing and selling investments;
(ii) monitoring of investments; and
(iii) analysis and forecast of cash flows.
The role of the Investment Manager is governed through
investment management agreements with the Company subsidiaries.
These agreements will terminate on 30 April, 2014. However, these
agreements shall remain in force and effect thereafter unless and
until terminated by one of the parties giving not less than 6
months' notice in writing to the other party. The compensation of
the Investment Manager is shown in note 7 of the consolidated
financial statements.
The Board of the Investment Manager is affiliated with LGT Group
Foundation or with Swiss Life AG. LGT Group Foundation owns 56.3%,
Swiss Life AG owns 43.7% of the Investment Manager.
4.3 Investment adviser
For the portfolio management of the Company, LGT Swiss Life Non
Traditional Advisers AG makes use of the hedge fund investment team
of LGT Capital Partners Ltd. The team consists of over 50 hedge
funds professionals combining American, European and Asian
education, investment experience and networks on a global
basis.
5. Voting and representation restrictions
5.1 Voting restrictions
The Articles of Association of the Company do not contain any
statutory voting rights restrictions other than those disclosed in
section 2 above. No exceptions were granted in the year under
review.
The convocation of the Annual General Meeting of shareholders
and the addition of items to its agenda conform with the
regulations of the Swiss Code of Obligations.
5.2 General meeting of shareholders (AGM)
The shareholders' meeting shall be convened by publication in
the Swiss Official Gazette of Commerce at least twenty days prior
to the date of the meeting.
Shareholders registered with voting rights in the shareholders'
register until and including 7 May 2012 shall receive, with their
invitation to the annual general meeting, a registration card to
apply for an admission card and voting documentation. No new share
registrations with voting rights shall be made in the shareholders'
register between 7 May 2012 and the end of the general meeting.
Shareholders representing at least 10% of the share capital may
request that an extraordinary shareholder meeting be convened.
Shareholders representing shares with an aggregate nominal value of
at least CHF 1 million may request that an item be included in the
agenda of the shareholders' meeting.
Such requests must be made in writing at least 35 days before
the date of the meeting, specify the item to be included in the
agenda and contain the proposal on which the shareholder requests a
vote.
5.3 Statutory quorums
The Articles of Association contain the following voting quora
that extend beyond the thresholds of simple and qualified majority
prescribed in the Swiss Code of Obligations:
- the easement or abolition of the restriction of the
transferability of the registered shares;
- the conversion of registered shares into bearer shares and
bearer shares into registered shares;
- the abolition of restrictions in the Articles of Association
concerning the passing of a resolution by the shareholders'
meeting;
The dissolution of the Company by liquidation requires a
resolution of the shareholders' meeting passed by at least 80% of
all share votes.
6. Change of control
The Company has stated in article 6 of its Articles of
Association that a shareholder holding more than a certain
threshold of the voting rights of the Company is not obliged to
make a public offer to acquire all shares of the Company pursuant
to articles 32 and 52 of the Swiss Stock Exchange Act.
The Board, the General Manager and the Investment Manager do not
benefit from contractual clauses on change-of-control
situations.
7. Auditor
PricewaterhouseCoopers Ltd., Zurich, is the statutory auditor of
the Company. They accepted the mandate as statutory auditor in
2001. Guido Andermatt, the auditor in charge, took up office in
2008.
Total audit fees charged by PricewaterhouseCoopers Ltd. for the
2012 audit amounted to TUSD 173 (2011: TUSD 160). There were no
additional fees invoiced by PricewaterhouseCoopers Ltd. in 2012
(2011: Nil).
Supervision of the audit takes place in various meetings and
discussions between the auditors and the audit committee throughout
the year.
8. Information policy and Shareholder Relations
The Company considers regular communication with shareholders to
be very important and welcomes ongoing dialogue with shareholders
to ensure it is aware of any matters of concern. On a regular
basis, the Investment Manager meets with institutional and other
shareholders and reports their views and areas of concern to the
Board. In addition, the Chairman and individual Directors are
available to meet with major shareholders if required.
As previously described, a general meeting of shareholders (AGM)
is held annually and shareholders are encouraged to attend.
The Company publishes an annual report per December year-end and
semi-annual and quarterly reports per March, June, and September.
Furthermore, the Company publishes monthly portfolio updates and
weekly net asset values.
The Company publishes these and other documents on the Company's
website www.castleai.com. Subscribers listed on the company's
distribution list generally receive these documents (or references
to their website location) upon publication by e-mail. Ad-hoc
messages and announcements regarding general meetings etc. are also
distributed by e-mail. Several documents are available in print
form. Please contact the Company through the website or by letter
or phone to be added to the mailing list.
Shareholders wishing to communicate with the Chairman or other
Directors may do so by writing to the Secretary at the Company's
registered address.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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