TIDMPAX
RNS Number : 2890K
Pacific Alliance Asia Opp Fd Ld
15 April 2015
15 April 2015
Pacific Alliance Asia Opportunity Fund Limited
Full year results for the year ended 31 December 2014
Pacific Alliance Asia Opportunity Fund Limited ("PAX" or the
"Company") (AIM: PAX), an AIM traded feeder fund for Pacific
Alliance Asia Opportunity Fund L.P. (the "Master Fund"), today
announces its full year financial results ended 31 December
2014.
Financial Highlights
-- Net asset value as at 31 December 2014 was US$163.3 million,
representing US$1.729 per share, a 9.04% increase from 31 December
2013 (US$159.3 million, representing US$1.586 per share). Share
price closed on 31 December 2014 at US$1.59, a 21.84% increase from
31 December 2013.
-- The Master Fund generated a net return of 9.52% for 2014.
Company Developments
-- The Company distributed 6% in 2014 by way of a tender offer
announced 31 July 2014 and announced a second 6% distribution
relating to 2014 on 6 March 2015.
-- The Master Fund commenced a program to purchase Company
shares over the period from October 2014 to January 2015 to assist
in closing the discount between the market price and NAV per share
as well as provide exit opportunities for selling shareholders and
thereby help rebalance supply and demand at closer to NAV per
share.
Master Fund Portfolio Developments
-- The Distressed/Secondary strategy continued to perform well
throughout 2014 generating approximately 19% returns on capital
allocated, and the Investment Manager expects to maintain an
allocation of around 15%. European Banks selling assets in Japan
and Australia/New Zealand remain the key target, however the
Investment Manager also sees opportunities emerging in regional
sellers, including local banks and corporates in South Korea and
Japan.
-- Convertible Bond ("CB") Financing was a key focus for the
Master Fund over 2014 returning approximately 16% on capital
allocated. The current portfolio is generating a solid yield of 8%
and has significant upside optionality and looks set to contribute
strongly to the portfolio in 2015.
-- The Bridge Financing strategy has been an important part of
the portfolio since 2005, however slowing credit growth, weaker
credit demand and a flight to quality among all types of lenders
have substantially shrunk this opportunity set in China. While the
Investment Manager continues to see solid opportunities in
Australia and emerging opportunities in South Korea, it expects to
reduce bridge financing from 27% to 15% of the portfolio in
2015.
-- The Event Driven/Arbitrage strategy performed well in 2014,
returning approximately 19%, and 8% in the year to date. The
Investment Manager sees China arbitrage as an attractive and
scalable opportunity largely driven by developments and reforms in
the Chinese A-share market are and its allocation in the portfolio
is expected to be doubled from 15% to 30%.
-- The Investment Manager restructured its Equity Long/Short
trading team and reduced the portfolio allocation following the
disappointing performance of the strategy in 2014. Under the new
structure, the team has made a solid start to 2015 year to date
with returns of approximately 15% on capital allocated, and the
reduced current allocation of 2.5% is expected to increase to
10-12% by year end.
Overall, the Master Fund's performance was sound with
satisfactory net returns. This was largely the result of a
continuing focus on portfolio allocation and reconstruction that
ensured the Master Fund materially reduced cash drag and increased
gross exposure, while at the same time increasing exposure to
higher returning strategies and decreasing exposure to lower
returning ones and increasing overall portfolio liquidity.
The Master Fund's investor base remains strong and as the Master
Fund's opportunities continue to grow, the Investment Manager will
look to increase capacity to US$2.5 billion over the course of
2015.
As a result, the Master Fund remains optimistic that it is well
positioned to take advantage of new opportunities and deliver a
strong risk adjusted return in the year ahead.
A full copy of the Annual Report will be distributed to all
registered shareholders and will be available on the Company's
website: www.pax-fund.com. Copies of the Master Fund's Annual
Report will be available upon request.
For further information please contact:
INVESTMENT MANAGER: NOMINATED ADVISER:
Pacific Alliance Investment Philip Secrett
Management Limited Grant Thornton UK LLP
T: (852) 2918 0088 T: (44) 20 7383 5100
pax@pagasia.com Philip.J.Secrett@uk.gt.com
--------------------------------- ----------------------------
BROKER: MEDIA RELATIONS:
Hiroshi Funaki Faye Yuen
Edmond de Rothschild Securities PAG
T: (44) 20 7845 5960 T: (852) 3719 3342
funds@lcfr.co.uk fyuen@pagasia.com
--------------------------------- ----------------------------
About Pacific Alliance Asia Opportunity Fund Limited
Pacific Alliance Asia Opportunity Fund Limited (AIM: PAX) serves
as a feeder fund for Pacific Alliance Asia Opportunity Fund L.P.
(the "Master Fund"), a Cayman Islands exempted limited partnership.
PAX was admitted to trading on the AIM Market of the London Stock
Exchange in September 2006.
The principal investment objective of both PAX and the Master
Fund is to provide their respective investors with capital
appreciation through value, arbitrage and special situations
investments in Asian markets. Target investments include distressed
credit, private equity secondaries, activist investments and other
opportunities offering the possibility of unlocking the underlying
value of a company or asset.
For more information about PAX, please visit:
www.pax-fund.com
Pacific Alliance Asia Opportunity Fund Limited is managed by PAG
(formerly known as Pacific
Alliance Group), which is one of the region's largest
Asia-focussed alternative investment managers, with funds under
management across Private Equity, Real Estate and Absolute
Return strategies. Founded in 2002, PAG now has a presence
across Asia with 330 staff working in the region.
For more information about PAG, please visit:
www.pagasia.com
Chairman's Statement
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
generated an audited net return of 9.04% for the twelve months
ended 31 December 2014 with the NAV per share at US$1.729.
During 2014 the Company distributed 6% by way of a tender offer
as announced on 31 July 2014 and the second 6% distribution
relating to 2014 was announced on 6 March 2015. In addition the
Company announced a discount initiatives program on 22 September
2014, as summarised below and the full announcement details can be
found on the Company website under 2014 Shareholder Communications
or via this link.
Summary of Master Fund Share Purchase Program
The Master Fund commenced a program to purchase Company shares
over the period October 2014 to January 2015 to assist in closing
the discount between the market price and NAV per share as well as
provide exit opportunities for selling shareholders and thereby
help rebalance supply and demand at closer to NAV per share. USD15m
was available to purchase shares at an 8% discount to the 30
September 2014 unaudited NAV per share and USD15m available to
purchase shares at a 5% discount to the 31 December 2014 unaudited
NAV per share. The initial purchase resulted in USD14.5m being
rolled forward to the second purchase making a total of USD29.5m
available for the second purchase, which was fully utilized.
The Master Fund's percentage shareholding in the Company
increased as a result of these share purchases. However, this is a
temporary situation as the Master Fund intends to convert its
entire shareholding in the Company's shares pursuant to the share
exchange with Feeder III as described below.
Share Exchange with Feeder III
All investors that satisfy regulatory requirements will be
allowed to exchange all or part of their quoted ordinary shares in
the Company for unquoted shares of Pacific Alliance Asia
Opportunity Fund III Limited ("Feeder III"). Feeder III is a
private feeder fund that invests in the Master Fund. Feeder III
shareholders can redeem Feeder III shares at NAV after a six month
notice period. Feeder III shareholders also can value their
investment at NAV to the extent allowed by their individual
valuation and accounting policies. This exchange (the "Share
Exchange") will take place in Q2 2015 based on the 31 March 2015
unaudited NAV of Feeder III. A circular describing the specific
details of the Share Exchange and participation will be distributed
to shareholders in Q2 2015.
The Pacific Alliance Asia Opportunity Fund L.P. (the "Master
Fund") - General Partner's Report
The Master Fund achieved a net return of +9.52% for the year
2014. During 2014 the Investment Manager adjusted the portfolio
composition and in the process reduced the cash drag and increased
gross exposure. Furthermore, higher returning strategies have been
increasing and lower returning strategies decreasing, while overall
portfolio liquidity has increased and will continue to increase
over the coming year. As such the Investment Manager believes the
Master Fund is well positioned to take advantage of new
opportunities, and remains optimistic that the Master Fund will
deliver a strong risk adjusted return for 2015.
- Main Strategies
Bridge financing has been an important part of the portfolio
since 2005 and the opportunity has been largely driven by both
cyclical factors and the actions of regulators and governments. In
China, credit growth is slowing across the board as the Chinese
Government attempts to slowly deleverage the economy. However, weak
GDP growth has also reduced demand for credit and as a result
lending rates have not increased as much as during previous credit
tightening cycles. There has also been a flight to quality among
all types of lenders and whilst high quality borrowers can still
borrow at 12-15% from non-bank lenders, which is below our target
hurdle rate given taxes and fees, weaker borrowers are facing
greater challenges and significantly higher lending rates. But
given weak growth and a soft property market default rates have
increased significantly for these weaker borrowers, hence the
Investment Manager feel the risks are currently too high to lend to
smaller counterparties. Due to the aforementioned as China loans
roll off during 2015, the Investment Manager does not expect to
replace them unless non-bank lending rates start increasing
significantly (note, the Investment Manager expects interest rates
to reduce further in China this year, but official interest rates
and non-bank lending rates tend not to correlate very closely). In
Australia the bridge financing opportunity remains strong and the
Investment Manager is also seeing an emerging opportunity in South
Korea. However, overall, should China remain as it is, the
Investment Manager expects bridge financing to reduce from
approximately 27% to 15% of the portfolio in 2015.
The Distressed/Secondary strategy continued to perform well
throughout 2014 returning approximately 19% on capital allocated.
The Investment Manager expects to maintain a full allocation of
approximately 15% as a greater allocation is limited by liquidity
considerations as this is the most illiquid strategy in the Master
Fund. As a result of tighter regulations, de-risking and a shift in
business focus The Investment Manager expects to see further asset
sales from banks with European banks remaining the main target as
they continue selling assets in Japan and Australia/New Zealand.
The Investment Manager is also seeing regional sellers such as
local banks and corporates emerging in South Korea and Japan. The
Investment Manager stays in close contact with various sellers to
source and negotiate deals at steep discounts to intrinsic
value.
Convertible Bond ("CB") Financing has been a key focus for the
Master Fund over the past year returning approximately 16% on
capital allocated. The current portfolio of 11 CBs is generating a
solid yield of 8% and has significant upside optionality, and is
expected to be a good overall contributor in 2015. This is despite
an early set back from the price drop of the investment Project
Superstar in January and February 2015. The exposure to Project
Superstar was reduced in 2014, but the remaining position was held
too long leaving too much exposure. In future the Investment
Manager intends to avoid too much unprotected long exposure by
exiting the CB's upon conversion. Although recent market gains have
made it slightly more challenging to find the value we are seeking
the team is looking at several new opportunities. It is envisioned
that the CB strategy will remain at 25-30% of the portfolio in
2015.
The Event Driven/Arbitrage strategy has performed well over the
past several months returning approximately 19% in 2014 and 8% year
to date in 2015. Within the Event and arbitrage space, China A
share arbitrage strategies and relative value opportunities are the
most interesting, with greater volatility leading to wider spreads.
The Investment Manager sees China arbitrage as an attractive and
scalable opportunity largely driven by developments and reforms in
the Chinese A-share market. In 2015, the Investment Manager plans
to double the event and arbitrage portfolio from 15% to 30%.
The Equity Long/Short allocation was 9.7% at year end 2014.
Performance was disappointing at -0.8% in 2014 and led to a
restructuring of the team and subsequent reduction in portfolio
allocation in early 2015. Focused purely on Japan and South Korea,
the portfolio remains conservatively positioned and market neutral
with the adjusted team having made a solid start to 2015 with
returns of approximately 15% year to date on capital allocated. It
is expected that from a reduced allocation of 2.5% of the
portfolio, it will increase to 10-12% during 2015.
- Summary
The Investment Manager invested further in its infrastructure,
in particular adding Alain Bordoni from Goldman Sachs as head of
public market risk. Given the increase in public equity
opportunities, we felt it important to further strengthen this area
before significantly increasing allocations to our public equity
strategies.
The Master Fund's investor base remains strong and as the Master
Fund opportunities continue to grow the Investment Manager is
looking to increase capacity to US$ 2.5 billion over the course of
2015. Thank you for your support and we look forward to updating
you at the mid-year.
John Alexander
Chairman
Investment Manager's Report
Portfolio Performance
As at 31 December 2014, the Company's audited net asset value
per share ("NAV") was US$1.729, a 9.04% increase from the 31
December 2013 audited financial statements. The Company's share
price closed on 31 December 2014 at US$1.59, a 21.84% increase from
31 December 2013.
The Company invests substantially all of its assets in Pacific
Alliance Asia Opportunity Fund L.P., a Cayman Islands exempted
limited partnership via Pacific Alliance Asia Opportunity Feeder
Fund III Limited (the "Feeder Fund").
Realized and Unrealized Income
Total income for the year from 1 January 2014 to 31 December
2014 was US$14,736,996.
Realized Income US$
Deposit Interest 1
Foreign Exchange 8,172
------------------
Total 8,173
Unrealized Appreciation US$
Investment in Master
Fund 14,728,823
------------------
Total 14,728,823
Master Fund Portfolio and Performance as at 31 December 2014
As at 31 December 2014, the Master Fund's audited net asset
value ("NAV") was US$1.905 per US$1.00 capital contributed, a 9.52%
increase from the 31 December 2013 audited financial
statements.
Realized and Unrealized Income for the Master Fund
Total income for the year from 1 January 2014 to 31 December
2014 was US$298,843,736.
Realized Income/(Losses) US$
CB Financing 89,786,959
Bridge Financing 79,437,985
Distressed/Secondary 40,470,332
Event Driven, Relative Value/Arbitrage 27,938,812
Deposit Interest 12,285,656
Closed-end Funds 7,516,744
Pre-IPO Investments 3,385,384
Equity Long/Short (7,922,622)
------------------
Total 252,899,250
Unrealized Appreciation/(Depreciation) US$
Distressed/Secondary 33,822,545
CB Financing 29,047,872
Event Driven, Relative Value/Arbitrage 8,322,468
Equity Long/Short 4,993,309
Bridge Financing 4,387,327
Closed-end Funds (7,305,353)
Pre-IPO Investments (11,910,359)
Foreign Exchange (15,413,323)
------------------
Total 45,944,486
Master Fund Portfolio Summary
As at 31 December 2014, the Master Fund held investments and
cash with a carrying value of US$2,547 million. The Master Fund
portfolio is diversified across several strategies including Bridge
Financing, CB Financing, Distressed/Secondary, Event Driven,
Relative Value/Arbitrage, Equity Long/Short, Pre-IPO Investment,
and Cash.
Type of Investment Fair Value of Investment % of Total
(US$)
Bridge Financing(1) 776,270,333 30.47%
CB Financing(1) 733,124,664 28.78%
Distressed/ Secondary 506,136,445 19.87%
Event Driven, Relative
Value/ Arbitrage 397,156,586 15.59%
Equity Long/Short 46,637,292 1.83%
Pre-IPO Investment 38,879,687 1.53%
Cash(2) 49,078,681 1.93%
Total 2,547,283,688 100.00%
(1) The allocation by strategy as per the General Partner's
Report differs from the schedule of investments of the Master
Fund's audited financial statements. The cost of the loans
receivable disclosed in the schedule of investments represents the
cost of investments for accounting purposes, which are higher than
the respective cost of the loans according to the terms under the
loan agreements. Collection/Repayment of loans receivable is
calculated based upon the effective interest method in the schedule
of investments, whereas in the General Partner's Report and
newsletter, the cost is reduced prior to a reduction of interest in
accordance with the definitive agreements.
(2) Cash represents unencumbered cash of the Master Fund.
Breakdown of Investment Holdings Breakdown of Investment
by Cash and Industry Holdings by Cash and Geography
------------------------------------------ ------------------------------------
Cash and Industry % of Total Cash and Geography % of Total
---------------------------- ------------ ----------------------- -----------
Property - Commercial 48.14% Greater China 79.59%
---------------------------- ------------ ----------------------- -----------
Energy 9.47% Australia 9.39%
---------------------------- ------------ ----------------------- -----------
Food 8.53% Japan 4.24%
---------------------------- ------------ ----------------------- -----------
Financial Services 7.20% Korea 2.05%
---------------------------- ------------ ----------------------- -----------
ETF 4.10% Malaysia 1.22%
---------------------------- ------------ ----------------------- -----------
Index Hedges 3.89% India 0.52%
---------------------------- ------------ ----------------------- -----------
Information Technology 3.25% Singapore 0.61%
---------------------------- ------------ ----------------------- -----------
Consumer Staples 2.99% Thailand 0.52%
---------------------------- ------------ ----------------------- -----------
Property - Residential 2.68% Taiwan 0.17%
---------------------------- ------------ ----------------------- -----------
Industrials 1.82% Europe 0.14%
---------------------------- ------------ ----------------------- -----------
Manufacturing 1.57% Indonesia 0.05%
---------------------------- ------------ ----------------------- -----------
Materials 1.35% New Zealand 0.01%
---------------------------- ------------ ----------------------- -----------
Agriculture 1.08% United States* -0.44%
---------------------------- ------------ ----------------------- -----------
Consumer Discretionary 0.74% Cash 1.93%
---------------------------- ------------ ----------------------- -----------
Health Care 0.49% 100.00%
---------------------------- ------------ ----------------------- -----------
Utilities 0.45%
---------------------------- ------------
Transportation 0.20%
---------------------------- ------------
Mining 0.18%
---------------------------- ------------
Advisory 0.01%
---------------------------- ------------
Travel Services 0.01%
---------------------------- ------------
Telecommunication Services 0.01%
---------------------------- ------------
Cash 1.93%
---------------------------- ------------
Others* -0.09%
---------------------------- ------------
100.00%
---------------------------- ------------
*represents listed securities sold short
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
AS AT 31 DECEMBER 2014
Note 2014 2013
US$ US$
Assets
Investment in Pacific Alliance Asia
Opportunity Fund L.P. through Pacific
Alliance Asia Opportunity Feeder
Fund III Limited, at fair value (Cost:
US$104,945,466; 2013: US$111,680,015) 4 163,959,729 159,330,906
Cash and cash equivalents 102,758 132,902
Other receivables - 55,175
-------------------- --------------------
Total assets 164,062,487 159,518,983
------------------- -------------------
Liabilities
Directors' fee payable 8(e) 252,000 126,000
Amount due to Master Fund 8(f) 410,550 -
Accrued expenses and other payables 90,112 68,057
-------------------- --------------------
Total liabilities 752,662 194,057
------------------- -------------------
Net assets 163,309,825 159,324,926
Analysis of net assets
Share capital 6 1,617,398 1,617,398
Share premium 6 160,614,136 160,614,136
Tendered shares 6 (94,858,165) (84,852,736)
Retained earnings 95,936,456 81,946,128
-------------------- --------------------
Net assets (equivalent to US$1.729
per share based on 94,428,756 outstanding
shares) (2013: US$1.586 per share
based on 100,456,123 outstanding
shares) 163,309,825 159,324,926
Approved by the Board of Directors
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2014
Note 2014 2013
US$ US$
Income
Bank interest income 1 120
------------------- -------------------
Expenses
Directors' fees 8(e) 252,000 252,000
Other expenses 494,668 399,451
--------------------- ---------------------
Total expenses from fund specific
activities 746,668 651,451
------------------- -------------------
Income and expenses allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited
Income allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited 4 4,639,958 2,467,225
Expenses allocated from Pacific Alliance
Asia Opportunity Feeder Fund III
Limited 4 (9,939,986) (8,068,201)
-------------------- --------------------
Net investment loss allocated from
Pacific Alliance Asia Opportunity
Feeder Fund III Limited (5,300,028) (5,600,976)
------------------- -------------------
Net investment loss (6,046,695) (6,252,307)
------------------- -------------------
Realized and unrealized gains from
investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited and foreign currencies
Net realized gains from investments
allocated from Pacific Alliance Asia
Opportunity Feeder Fund III Limited 4 21,144,752 15,786,964
Net change in unrealized gains on
investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited 4 2,572,736 4,387,523
Net foreign exchange gains/(losses) 8,172 (52)
--------------------- ---------------------
Net realized and unrealized gains
from investments allocated from Pacific
Alliance Asia Opportunity Feeder
Fund III Limited and foreign currencies 23,725,660 20,174,435
------------------- -------------------
Net increase in net assets from operations
(before performance allocation to
the General Partner of Pacific Alliance
Asia Opportunity Fund L.P.) 17,678,965 13,922,128
Performance allocation to the General
Partner of Pacific Alliance Asia
Opportunity Fund L.P. (3,688,637) (2,914,420)
-------------------- --------------------
Net increase in net assets from operations 13,990,328 11,007,708
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED 31 DECEMBER 2014
Share
capital
and share Retained
Note premium Earnings Tendered shares Total
US$ US$ US$ US$
At 1 January 2013 162,231,534 70,938,420 (64,349,046) 168,820,908
Repurchase of shares 6 - - (20,503,690) (20,503,690)
Net increase in net assets
from operations - 11,007,708 - 11,007,708
------------------ ------------------ ------------------ ------------------
At 31 December 2013 and
1 January 2014 162,231,534 81,946,128 (84,852,736) 159,324,926
Repurchase of shares 6 - - (10,005,429) (10,005,429)
Net increase in net assets
from operations - 13,990,328 - 13,990,328
------------------ ------------------ ------------------ ------------------
At 31 December 2014 162,231,534 95,936,456 (94,858,165) 163,309,825
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
US$ US$
Net increase in net assets from operations 13,990,328 11,007,708
Adjustments to reconcile net increase in
net assets from operations to net cash generated
from operating activities
Redemptions of investment in Pacific Alliance
Asia Opportunity Feeder Fund III Limited 10,100,000 21,100,000
Income allocated from Pacific Alliance Asia
Opportunity Feeder Fund III Limited (4,639,958) (2,467,225)
Expenses allocated from Pacific Alliance
Asia Opportunity Feeder Fund III Limited 9,939,986 8,068,201
Net realized gains from investments allocated
from Pacific Alliance Asia Opportunity Feeder
Fund III Limited (21,144,752) (15,786,964)
Net unrealized gains from investments allocated
from Pacific Alliance Asia Opportunity Feeder
Fund III Limited (2,572,736) (4,387,523)
Allocation of performance fee to General
Partner of Pacific Alliance Asia Opportunity
Fund LP 3,688,637 2,914,420
Decrease in other receivables 55,175 -
Increase in amounts due to related parties 410,550 -
Increase/(decrease) in accrued expenses
and other payables 148,055 (135,030)
-------------------- --------------------
Net cash generated from operating activities 9,975,285 20,313,587
------------------- -------------------
Cash flows from financing activities
Repurchase of shares (10,005,429) (20,503,690)
-------------------- --------------------
Net cash used in financing activities (10,005,429) (20,503,690)
------------------- -------------------
Net decrease in cash and cash equivalents (30,144) (190,103)
Beginning balance 132,902 323,005
-------------------- --------------------
Ending balance, representing cash and bank
balances 102,758 132,902
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
1. Organization
Pacific Alliance Asia Opportunity Fund Limited (the "Company")
was incorporated on 4 May 2006 in the Cayman Islands as a
closed-end Cayman Islands registered exempted company. The
Company's ordinary shares are traded on the AIM market of the
London Stock Exchange. The Company can raise additional capital up
to the authorized share capital as disclosed in Note 6. The
Company's registered office is PO Box 472, 2nd Floor, Harbour
Place, Grand Cayman, Cayman Islands.
Since the reconstruction approved by an extraordinary general
meeting held on 7 May 2009 (the "Reconstruction"), the Company
invests substantially all its assets in Pacific Alliance Asia
Opportunity Fund L.P. (the "Master Fund"), a Cayman Islands
exempted limited partnership, through a 9.63% (2013: 10.86%)
interest in Pacific Alliance Asia Opportunity Feeder Fund III
Limited (the "Feeder Fund"). As at 31 December 2014, the Company
indirectly held approximately a 7.77% (2013: 7.34%) interest in the
Master Fund.
The Company's investment activities are managed by Pacific
Alliance Investment Management Limited (the "Investment Manager").
The Company has appointed Butterfield Trust (Bermuda) Limited to
act as custodian of certain assets of the Company and MUFG Fund
Services (Ireland) Limited to act as the Company's administrator
pursuant to the custodian agreement and administration services
agreement, respectively.
The consolidated financial statements were approved by the Board
of Directors on 15 April 2015.
2. Summary of significant accounting policies
The following significant accounting policies are in conformity
with accounting principles generally accepted in the United States
of America ("US GAAP"). The Company applies the provisions of
Financial Accounting Standards Board ("FASB") ASC 946-10, Financial
Services - Investment Companies (the "Guide"). Such policies are
consistently followed by the Company in the preparation of its
consolidated financial statements. The Master Fund is an investment
company under the Guide.
(a) Principles of consolidation
These consolidated financial statements include the financial
statements of the Company and its subsidiaries (collectively the
"Fund"). Subsidiaries are fully consolidated from the date on which
control is transferred to the Fund and deconsolidated from the date
that control ceases. Inter-company transactions between group
companies are eliminated upon consolidation.
The Fund uses wholly and partially owned special purpose
vehicles ("SPV") to hold and transact in certain investments and
lending. The Fund's policy is to consolidate, as appropriate, those
SPVs in which the Fund has control over significant operating,
financial or investing decisions of the entity.
Except when an operating company provides services to the Fund,
investment in an operating company is carried at fair value (refer
to Note 2(c)(ii) for fair value measurement).
(b) Use of estimates
The preparation of financial statements in conformity with US
GAAP requires the Fund's management to make estimates and
assumptions that affect the reported value of assets and
liabilities and disclosures of contingent assets and liabilities as
at 31 December 2014 and the reported amounts of income and expenses
for the year then ended. The areas involving a higher degree of
judgment or complexity, or areas where assumptions and estimates
are significant to the consolidated financial statements are
disclosed in Note 2(h).
(c) Investments
(i) Recognition and derecognition
Regular purchase and sale of investments are accounted for on
the trade date, the date the trade is executed. Costs used in
determining realized gains and losses on the disposal of
investments are based on the specific identification method.
Transfer of investments is accounted for as a sale when the Fund
has relinquished control over the transferred assets. Any realized
gains and losses from investments are recognized in the statement
of operations.
(ii) Fair value measurement
The Fund is an investment company under the Guide. As a result,
the Fund records and re-measures its investment in the Feeder Fund
on the consolidated statement of assets and liabilities at fair
value. The fair value of the Fund's investment in the Feeder Fund
is based on the net asset value ("NAV") of the Feeder Fund as
determined by its administrator and Investment Manager. The Feeder
Fund is open to subscription on a monthly basis and redemption on a
quarterly basis, based on the NAV calculated by its administrator
and the Investment Manager considers that it is an appropriate
basis for the fair value of the Fund's investment in the Feeder
Fund.
The Fund records its proportionate interest in the net assets of
the Feeder Fund. The Fund records and reflects its proportionate
share of the Feeder Fund's income, expenses, and realized and
unrealized gains and losses from investments in the consolidated
statement of operations. As a result, no realized and unrealized
gains or losses from investment in the Feeder Fund are recognized.
In addition, the Fund accrues its own income and expenses. The
performance of the Fund is directly affected by the performance of
the Master Fund. Attached are the audited financial statements of
the Feeder Fund and the audited financial statements of the Master
Fund, including the consolidated schedule of investments, valuation
policy and year-end investment valuation, which should be read in
conjunction with these consolidated financial statements.
(d) Cash and cash equivalents
Cash represents cash at banks and does not include restricted
cash. Cash equivalents are defined as short-term and highly liquid
investments which mature within 3 months of the date of
purchase.
(e) Foreign currency translation
The books and records of the Fund are maintained in United
States Dollars ("US$"), which is also the functional currency.
Assets and liabilities, both monetary and non-monetary, denominated
in foreign currencies are translated into US$ by using prevailing
exchange rate as at financial reporting date, while income and
expenses are translated at the exchange rates in effect during the
year.
Gains and losses attributed to changes in the value of foreign
currencies for investments, cash balances and other assets and
liabilities are reported as foreign exchange gain and loss in the
consolidated statement of operations.
(f) Taxation
The Fund may be subject to taxes imposed in jurisdictions in
which it invests and operates. Such taxes are generally based on
income and/or gains earned. Taxes are accrued and applied to net
investment income, net realized gains and net unrealized gains, as
applicable, when the income and/or gains are earned. The Fund
accrues for liabilities relating to uncertain tax positions only
when such liabilities are probable and can be reasonably estimated
in accordance with the authoritative guidance contained in FASB ASC
740 described in Note 5.
The Fund uses the asset and liability method to provide for
income taxes on all transactions recorded in the consolidated
financial statements. This method requires that income taxes
reflect the expected future tax consequences of temporary
differences between carrying amounts of assets or liabilities for
book and tax purposes. Accordingly, a deferred tax asset or
liability for each temporary difference is determined based on the
tax rates that the Fund expects to be in effect when the underlying
items of income and expense are realized.
(g) Recognition of income and expenses
Interest income on bank balances is accrued as earned using the
effective interest method.
Expenses are recorded on an accrual basis.
The Fund also records its proportionate share of the Feeder
Fund's income and expenses. Please refer to note 2(c)(ii) for
details.
(h) Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
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 and liabilities within the next
financial year are addressed below.
(i) Fair value of investment in the Feeder Fund
As discussed in note 2(c)(ii), the fair value of the Fund's
investment in the Feeder Fund is based on the NAV of the Feeder
Fund as determined by its administrator and Investment Manager. The
Feeder Fund invests substantially all its assets in the Master
Fund. The fair value of unlisted or unquoted securities in the
Master Fund is determined by using valuation techniques. The
valuation committee of the Master Fund ("Valuation Committee"),
with assistance from independent valuers, uses their judgment to
select a variety of methods and make assumptions that are mainly
based on market conditions existing at the end of each reporting
period.
Although the Valuation Committee uses their best judgment in
estimating fair value, there are inherent limitations in any
valuation technique. Estimated fair value may differ significantly
from the value that would have been used had a readily available
market for such investments existed and these differences could be
material to the Fund's consolidated financial statements.
Additional information about the level of market observability
associated with investments carried at fair value is disclosed in
Note 4 below.
(ii) Taxation
The Fund may be subject to indirect taxes in jurisdictions in
which the Master Fund invests and operates. Significant judgment is
required in determining the worldwide provision for taxes. There
are many transactions and calculations for which the ultimate tax
determination is uncertain. The Fund recognizes liabilities for
anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the current and deferred tax assets
and liabilities in the period in which such determination is
made.
3. Concentration of risks
(a) "Master-feeder" structure
Since the Reconstruction, the Fund operates a "master-feeder"
structure and invests solely in the Master Fund through the Feeder
Fund. The "master-feeder" structure presents certain risks to the
Fund. The Feeder Fund will incur expenses and liabilities that will
be paid prior to making distributions to the Fund. The Fund may be
materially affected by the actions of other investors in the Master
Fund and the Feeder Fund. Consequently, if other investors redeem
from the Master Fund and the Feeder Fund, the Fund may experience
higher pro-rata operating expenses. The financial risks of the Fund
are associated with those of the Master Fund and the Feeder Fund
which are discussed in Note 3 of the Master Fund's and the Feeder
Fund's financial statements.
(b) Market risk
Market risk represents the potential loss in value of financial
instruments caused by movements in market variables, such as equity
prices.
The market risk that the Fund is exposed to is from the
investments held by the Master Fund, of which the investments are
typically made with a focus onGreater China. Political or economic
conditions and the possible imposition of adverse laws or currency
exchange restrictions in that region could cause the Master Fund's
investments and the respective markets to become less liquid and
also the prices to become more volatile.
(c) Interest rate risk
Interest rate risk arises from the fluctuations in the
prevailing levels of market interest rates which affect the fair
value of financial assets and liabilities and future cash flows.
The Fund has bank deposits and the Master Fund has certain
investments that collectively expose the Fund to interest rate
risk.
(d) Currency risk
Foreign currency risk arises as the value of future
transactions, recognised monetary assets and monetary liabilities
denominated in other currencies, fluctuates due to changes in
foreign exchange rates.
As at 31 December 2014 and 2013, the majority of the Fund's
assets and liabilities are denominated in US$, the functional
currency. As such, the Fund is not subject to material currency
risk. However, the Fund is indirectly exposed to currency risks
from the investments held by the Master Fund.
(e) Credit risk
The main credit risk to which the Fund is exposed arises from
the Fund's indirect investment in the Master Fund which is closely
monitored by the Investment Manager.
(f) Liquidity risk
As the Company is closed-ended, it is not exposed to redemptions
of shares by its shareholders.
The Fund is exposed to liquidity risk as the Fund's investments
in the Feeder Fund are largely illiquid. Redemptions of interest in
the Feeder Fund are subject to a 12 months lock up in the first
year of investment and an additional notice period of 180 days.
The Fund has the ability to borrow in the short term but subject
to certain limitations, including the total amount of all
borrowings outstanding at any time shall not exceed 50% of the
Fund's total assets at such time.
4. Investments in Pacific Alliance Asia Opportunity Fund
L.P.
As at 31 December 2014, the Feeder Fund was 9.63% (2013: 10.86%)
held by the Fund and 90.37% (2013: 89.14%) held by unrelated
investors. As at 31 December 2014, the Feeder Fund held 80.69%
interests in the Master Fund (2013: 67.64%).
In accordance with FASB ASC 820-10, Fair Value Measurement and
Disclosures, the Fund categorizes the fair value of its investments
in a hierarchy that prioritizes the inputs to valuation techniques
used to measure the fair value. The hierarchy gives the highest
priority to valuations based upon unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to valuations based upon
unobservable inputs that are significant to the valuation (Level 3
measurements). FASB ASC 820-10-35-39 to 55 provides three levels of
the fair value hierarchy as follows:
Level 1
Inputs that reflect unadjusted quoted prices in active markets
for identical assets or liabilities that the Fund has the ability
to access at the measurement date;
Level 2
Inputs to measure fair values are quoted prices in markets that
are not active, quoted prices for similar assets in active markets
or prices or valuations for which all significant inputs are
observable, either directly or indirectly. Inputs other than quoted
prices included within Level 1 that are observable for the asset or
liability either directly or indirectly, including quoted prices
for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are
not considered to be active, inputs other than quoted prices that
are observable for the asset or liability, and inputs that are
derived principally from or corroborated by observable market data
by correlation or other means; and
Level 3
Inputs that are unobservable and significant to the overall fair
value measurement.
Inputs to measure fair values broadly refer to the assumptions
that market participants use to make valuation decisions, including
assumptions about risk. Inputs may include price information,
volatility statistics, specific and broad credit data, liquidity
statistics and other factors. An asset or a liability's level
within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. However,
the determination of what constitutes "observable" requires
significant judgment. The Investment Manager considers observable
data to be such market data which is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary
and provided by multiple, independent sources that are actively
involved in the relevant market.
The categorization of an asset or a liability within the
hierarchy is based upon the pricing transparency of the asset or
liability and does not necessarily correspond to the Investment
Manager's perceived risk of that asset or liability.
In determining an instrument's placement within the hierarchy,
the Investment Manager follows the following guidance for
investments held by the Fund:
Level 1
Investments in listed stocks, bonds and derivatives are valued
using quoted prices in active markets and are therefore generally
classified within Level 1 of the fair value hierarchy.
As at 31 December 2014 and 2013, the Fund did not have any
investments that were categorized as Level 1 within the fair value
hierarchy.
Level 2
It may be possible that the NAV of unlisted investment funds
represents their fair value based on observable inputs such as
ongoing subscription and/or redemption activities. In these cases,
the NAV is considered as a Level 2 input.
The NAV of the Feeder Fund is used to value the Fund's
investment in the Feeder Fund as the Investment Manager believes it
represents the fair value based on observable data such as ongoing
redemption and/or subscription activities. As at 31 December 2014
and 2013, the Fund's investment in the Feeder Fund is included in
Level 2.
Level 3
Assets are classified within Level 3 of the fair value hierarchy
if they are traded infrequently and therefore have little or no
price transparency. As at 31 December 2014 and 2013, the Fund had
no investments that were categorized as Level 3 within the fair
value hierarchy. The investments within the Master Fund range from
Level 1 to Level 3.
The Fund accounts for and reflects in the consolidated financial
statements the proportionate share of the investment in the Feeder
Fund. The table below summarizes the investment income allocated
from the Master Fund through the Feeder Fund during the year ended
31 December 2014 and 2013:
2014 2013
US$ US$
Interest income 1,727,338 614,771
Bank interest income 1,008,904 443,952
Dividend income 1,732,576 1,240,837
Other income 171,140 167,665
---------------- ----------------
Income allocated from the Master Fund
through the Feeder Fund 4,639,958 2,467,225
5. Taxation
The Fund adopted the authoritative guidance contained in FASB
ASC 740 on accounting for and disclosure of uncertainty in tax
positions, which requires the Investment Manager to determine
whether a tax position of the Fund is more likely than not to be
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. The Investment Manager has analyzed the tax positions
and tax years in the jurisdictions that the Fund may be subject to.
For tax positions meeting the more likely than not threshold, the
tax amount recognized in the consolidated financial statements is
reduced by the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant taxing authority.
The Investment Manager have reviewed the operation and
investment structure of the Fund and considered there is no
material uncertain tax position at 31 December 2014.
Under current Cayman Islands legislation applicable to an
exempted company, the Fund is not subject to income tax, capital
gains or withholding tax, estate duty, or inheritance tax.
6. Share capital, share premium and tendered shares
Share Share Tendered
Number of capital premium Shares Total
shares US$ US$ US$ US$
At 1
January
2013 113,689,591 1,617,398 160,614,136 (64,349,046) 97,882,488
Repurchase
of shares (13,233,468) - - (20,503,690) (20,503,690)
-------------------- -------------------- -------------------- -------------------- --------------------
At 31
December
2013 and 1
January
2014 100,456,123 1,617,398 160,614,136 (84,852,736) 77,378,798
Repurchase
of shares (6,027,367) - - (10,005,429) (10,005,429)
-------------------- -------------------- -------------------- -------------------- --------------------
At 31
December
2014 94,428,756 1,617,398 160,614,136 (94,858,165) 67,373,369
As at 31 December 2014, the total authorized number of ordinary
shares was 5,000,000,000 (2013: 5,000,000,000) shares with a par
value of US$0.01 (2013: US$0.01) per share. As at 31 December 2014,
the Company had 161,739,827 (2013: 161,739,827) ordinary shares in
issue, of which 67,311,071 (2013: 61,283,704) were held as tendered
shares.
Movement of tendered shares are as follows:
Number of shares Repurchase
repurchased price Total
US$ US$
As at 1 January 2013 48,050,236 64,349,046
Repurchased in July 2013 6,821,375 1.53 10,436,704
Repurchased in December 2013 6,412,093 1.57 10,066,986
------------------ ------------------
As at 31 December 2013 and 1
January 2014 61,283,704 84,852,736
Repurchased in Sept 2014 6,027,367 1.66 10,005,429
------------------ ------------------
As at 31 December 2014 67,311,071 94,858,165
7. Dividends
The directors do not recommend the payment of a dividend for the
year ended 31 December 2014 and 2013.
8. Related-party transactions
The Fund had the following significant related-party
transactions.
(a) Investment in Pacific Alliance Asia Opportunity Fund
L.P.
The Fund invests in the Master Fund via the Feeder Fund, both of
which are managed by the Investment Manager. Please refer to Note 4
for details.
(b) Company's shares held by the Investment Manager and its
subsidiary
During the year ended 31 December 2014, the Investment Manager
and its subsidiary entered into the following transactions in the
Company's shares:
- tendered 511,651 shares of the Company at US$1.660 for
repurchase by the Company in September 2014;
- transferred 107,527 shares of the Company from directors or
management of the Investment Manager and its subsidiaries.
During the year ended 31 December 2013, the Investment Manager
and its subsidiary entered into the following transactions in the
Company's shares:
- tendered 659,873 shares of the Company at US$1.530 for
repurchase by the Company in July 2013;
- tendered 560,804 shares of the Company at US$1.570 for
repurchase by the Company in December 2013;
- transferred 865,425 shares of the Company to directors or
management of the Investment Manager and its subsidiaries.
As at 31 December 2014, the Investment Manager and its
subsidiary held 4,979,938 (2013: 5,384,062) shares of the Company,
representing 5.3% (2013: 5.4%) of the Company's total outstanding
shares.
(c) Company's shares held by the Master Fund
During the year ended 31 December 2014, the Master Fund bought
21,055,708 shares and sold 1,685,969 shares of the Company on the
open market (2013: the Master Fund sold 975,092 shares of the
Company on the open market). As at 31 December 2014, the Master
Fund held 26,036,556 (2013: 6,666,818) shares of the Company,
representing 27.6% (2013: 6.6%) of the Company's total outstanding
shares.
(d) Management fees and performance allocations to the
Investment Manager
Before the Reconstruction, the Fund paid management fees and
performance allocations directly to the Investment Manager. The
Investment Manager is no longer entitled to receive management fees
or performance allocations from the Fund.
The Fund records its proportionate share of the management fee
paid by the Master Fund in the allocation of expenses from the
Master Fund.
The Master Fund pays management fees in accordance with the
following:
Pursuant to the Amended and Restated Investment Management
Agreement dated 20 April 2009, the Investment Manager is entitled
to receive a management fee for its service calculated at 2% per
annum of the quarterly NAV. The management fee is paid quarterly in
advance based on the NAV at the first day of each fiscal
quarter.
For the year ended 31 December 2014, the total management fees
incurred by the Master Fund amounted to US$40,846,369 (2013:
US$40,745,951), of which US$3,234,836 (2013:US$3,333,654) is
charged to the Fund. Management fee of US$40,611 (2013: US$239,680)
remained payable to the Investment Manager by the Master Fund as at
31 December 2014.
(e) Directors' fees and expenses
The Company pays each of its directors an annual fee of
US$70,000 (2013: US$70,000) plus out-of-pocket expenses and each of
its valuation committee and audit committee members an annual fee
of US$14,000 (2013: US$14,000). During the year ended 31 December
2014, two directors of the Fund, Christopher Marcus Gradel and
Anthony Murray Miller, agreed to waive their annual fees.
(f) Amount due to Master Fund
The amounts due to Master Fund represent expenses paid by the
Master Fund on behalf of the Fund. The amounts are unsecured,
non-interest bearing and repayable on demand.
9. Financial highlights
NAV per share at the end of the year is as follows:
2014 2013
US$ US$
Per share data
(for a share outstanding throughout the year):
At beginning of the year 1.586 1.485
Net investment loss (0.069) (0.071)
Net realized and unrealized gains from investments 0.251 0.201
Allocation of performance fee (0.039) (0.029)
------------ ------------
At end of the year 1.729 1.586
The following represents the ratios to average net assets and
other supplemental information:
2014 2013
Total return (1) 8.56% 6.81%
Ratios to average net assets (2)
Total expenses (other than performance fee) (3) (6.54%) (5.22%)
Net investment loss (3.70%) (3.74%)
(1) Total return represents the change in NAV, adjusted for cash
flows in relation to capital transactions for the year.
(2) Average net assets is derived from the beginning and ending
monthly NAV, adjusted for cash flows related to capital
transactions for the year ended 31 December 2014. For the year
ended 31 December 2014, the average net assets amounted to
US$163,478,213 (2013: US$167,052,284).
(3) The total expenses ratio represents the total expenses of
the Fund including both general and investment level expenses.
10. Commitment and contingency
In the normal course of business, the Fund, the Master Fund and
the Feeder Fund may enter into arrangements that contain a variety
of representations and warranties that provide general
indemnification under certain circumstances. The Fund, the Master
Fund and the Feeder Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that
may be made against the Fund, the Master Fund and the Feeder Fund
that have not yet occurred. However, based on experience, the
Investment Manager expects the risk of loss to be remote and,
therefore, no provision has been recorded.
11. Subsequent events
The Investment Manager has performed a subsequent events review
from 1 January 2015 through to 15 April 2015, being the date that
the consolidated financial statements were authorized for
issuance.
Management concluded there is no material subsequent event that
required additional disclosure in these consolidated financial
statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFLISIIELIE
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